Business Ethics
What is Ethics in Business
• Ethics – study of morality/moral standards
• Ethics as academic discipline – examines moral standards of given group/society & determines whether they are reasonable or not
• Moral standards/norms – what is right and wrong (good and evil)
Business Ethics
• Form of applied Ethics
• How moral standards apply to business and behavior in business organizations?
• Problem: ethical relativism
• Ethical relativism – no ethical standards that are absolutely that are absolutely true and that apply to all (companies in all countries)
Changing paradigm of business activity
• Business and ethics in Ancient history
• Business Ethics in religion: the disgrace of doing business
• New expectations towards business
• Why Ethics matter?
Business and ethics in Ancient history
• Ethical considerations from the very beginning included business activities
• First remarks about business ethics in the Ancient history
• Code of Hammurabi (18 th century B.C.): merchants and traders obliged to follow strict rules, severe punishment otherwise
• For example: construction of houses. If a house collapsed, killing the owner, the builder was to be killed in retaliation.
• Developers in Babylonia were in worse situation than today…
• Ancient Greece – stigmatization of trade
• Hermes – the god of Commerce, but also patron of thieves
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Business Ethics
• Hermes was known for qualities such as ingenuity, deceptiveness, knowledge and creativity – skills valuable in business world, but in crime as well
Business Ethics in religion
• World’s great religions indicate the need for ethics while doing business
• Wealth accumulation without social responsibility leads to eternal damnation
• “Thou shall take no bribe, for a bribe blinds the officials and subverts the cause of those who are in the right” (Book of Exodus, 23: 6-8)
• “Sweet is the sleep of the laborer when he eats little or much; but the overabundance of the rich will not let the rich sleep” (Ecclesiastes, 5:12)
• “Woe to every slanderer, defamer who amasses wealth and considers it a provision against mishap. He thinks that his wealth will make him immortal. Nay, he shall most certainly be hurled into the crushing disaster” (Koran, Surah CIV)
• “Did you conduct your business affairs with honesty and integrity?” (one of questions to be asked by God after death, Talmud) the disgrace of doing business
• “Behind every great fortune… is a crime” (Honoré de Balzac)
• English traditional class system: traders and merchants tolerated as necessary evil
• Little respect for businessmen
• Stereotype of the capitalist: fat, cigar smoking white male with no social responsibility, exploiting its workers to the fullest
• However, there were some advantages
• Little ethical expectations
• Business – only profit-oriented
Panama Affair
• Considered the largest corruption scandal in the 19 th century
• The bankruptcy of Panama Canal Company in 1989 made 800 thousand French small investors lose their savings
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Business Ethics
• In 1892 it become known to the public that members of parliament and ministers were taking bribes in 1888, for permit of special lottery issue and keeping quiet about the company’s financial troubles
• Panama Canal Company, was founded by count Ferdinand de Lesseps in 1881
• De Lesseps funded also Suez Canal Company and coordinated the construction of canal
(1858-1869)
• The construction of Suez Canal was a great economic success: canal was already profitable by
1874
• However, this time Lesseps was overoptimistic about the costs of the construction
• He declared that the canal could be built for 600 million gold Francs within 8 Years
• The expected yearly income was estimated at 90 million gold Francs
• Construction planned to be privately-financed
• First 2 bond issues – sold out (1882, 1883)
• Stock prices reached historic high 292$ per stock certificate
• Lesseps and construction firm Couvreux & Hersent – builders of Suez Canal – guarantee of reliability
• Soon became clear that the costs of construction would be higher: 1.2 billion gold Francs instead of the originally planned 600 million
• Couvrent & Hersent withdrew quietly, but with profit, from the project
• 1885-1886: first signs of financial crisis of Panama Canal Company. After 4 years of work
(50% of originally planned period) only 1/6 of excavation work had been completed
• 1887 – following the difficult financial situation, Lesseps abandons the plans of level canal
• Cooperation with Gustave Eiffel to build sluice canal
• Costs estimated at 1.6 billion gold Francs
• Rising difficulties to raise capital on the stock exchange
• 1888 – idea from government to pass a law allowing the Panama Canal Company to carry out a lottery loan, with guaranteed public funds
• Dramatic financial situation of Panama canal Company: bribes distributed to the press, bank employees and influential politicians – to promote the lottery bonds
• Even though, the lottery bonds failed to bring desired capital
• December 1888 - the Panama bonds could no longer be served
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Business Ethics
• January 1889 - Ferdinand de Lesseps resigned from the management
• 4th February 1889 – bankruptcy of the Panama Canal Company
• 1892 – corruption scandal
• 510 members of parliament (6 ministers) - accused of bribery by the Panama Canal
Company, 104 found guilty of corruption
• Ferdinand and Charles de Lesseps, Gustave Eiffel and senior managers - at first given high jail sentences, then later annulled
• New Panama Canal Company sold to the US for 40 million $ in 1904. Construction had been completed in 1914
• Over 20,000 workers died during the construction of the Canal
New expectations towards business
• 20 th century – business gains acceptance
• Popular slogan in the US: “what is good for General Motors is good for the country”
• However, with the growing acceptance also increased expectations
Ford Pinto Affair
• Cheap, subcompact car (increased competition from Datsun, Volkswagen etc.), sold 1970-
1980
• Goal: car should cost no more than 2,000 $
• Weak point of this model was fuel tank – tendency to explode in a rear-end collision
• “cost-benefit analysis” has been made
• Ford estimated that unsafe fuel tanks might cause 180 burn deaths, additional 180 serious burn injuries and 2,100 burned cars each year
• Costs of compensations – $ 49.5 million
• The estimated cost of repairs that would prevent the accidents - $ 11 per car
• $ 137 million per year
Ford assumed it would be cheaper to pay lawsuit damages than to recall all vehicles to make repairs
• 1972 accident (killed Lilly Gray and severely burned Richard Grimshaw) led to a lawsuit
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Business Ethics
• court case Grimshaw v. Ford Motor Co : compensatory damages of $2.5 million and punitive damages of $3.5 million against Ford
• Court indicated that Ford had been aware of the design defects before production but had decided against changing the design.
• Pinto case was the first of the scandals involving big companies unethical behavior
• It started the discussion on corporate ethics
• It demonstrated that big companies are vunerable to such Public Relations disasters
• Therefore – need to study the behavior of businessmen and establish mechanisms and norms of a proper conduct
• However, before 2000s, Business Ethic was an academic discipline only, with little (or virtually none) impact on private business sector
1980-1990
• “Liberal ethics”: unethical behavior regarded as unpleasant “part of the game”
• Many developed countries allowed companies that were doing businesses in the Third World to write off bribe payments on companies’ income tax
• “A decade ago, not breaking the law may have been enough. Today, however, the global business playing field is changing. The pressure to act ethically, to act as good corporate citizen of the world, is goring in both developed and developing nations” (Mitchell and
Jeffrey, 2003, p. 1)
Why Ethics matter?
• Consumer expectations
• Pressure of society
• Internal management problems
Consumer expectations
• According to 1999 survey, 40% respondents in 23 countries wanted to punish a specific company for not being “socially responsible”
• 20% avoided to buy products of that company
• But: consumers indicated the willingness to reward company that is socially responsible
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Business Ethics
Pressure of society
• Modern societies expect business to meet some basic ethical standards
• NGOs, interest groups, activists – can make serious harm to company’s PR
• People won’t do business with a company that cheats or ruins the environment
Internal management problems
• Company’s involvement in environmental disasters or scandals make the employees feel uncomfortable
• Commitment to company’s identity and aims falls
• People are happier when they work in companies regarded as ethical
Putting it in simple words… Assumption:
…Ethics is good for profits
Virtue and Business
• Costs of unethical behavior
• Company Ethics: advantages
• Cause-related marketing
Costs of unethical behavior
• No direct evidence of positive correlation between ethic activity and larger profits
• Some “good” companies fail, while other “bad” corporations succeed
• While being ethical does not necessarily mean higher profits…
• It helps to avoid catastrophes
Constar Affair
• Constar meat processing plant in Starachowice, subsidiary of Animex Group (Smithfield
Foods)
• 2005: Journalist investigation revealed that leftover/over-dated meat had been “refreshed” and resold to the retailers
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Business Ethics
Sanitary rules broken:
• Employees smoking cigarettes inside the plant
• Disinfection procedures constantly violated
Outcome
• Plant closed for sanitary inspection
• Products removed from the market
• Image of a company ruined
• CEO fired
• Reopening of plant – dramatic sales drop
• Costly advertising campaign
Changes
• better approach towards staff (higher wages, motivation system, long-term contracts)
• Involvement in social responsibility activities (environment protection, help during floods in
2010, Animex Fundation)
• Still a long way to rebuild image of reliable and ethical company
Therefore…
Having no Ethics Policy in a company can be costly!
Company Ethics: advantages
• Why corporations should act in an ethical manner?
 Morality – being ethical is “the right thing to do”. Business has some obligations towards the society where it operates.
 Compliance to public order – being ethical helps avoiding fines and costly regulations.
 Opportunity – it might encourage greater customer loyalty
PR
• “In a global economy, brand image and reputation are among a company’s most valuable assets” (Mitchell and Jeffrey, 2003, p. 35)
• Ethical behavior improves reputation – it helps to build customer loyalty and trust. Loyalty and trust can lead to:
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Business Ethics
 Increased sales – consumers prefer ethical companies
 Smoother crisis management (easier to ask for forgiveness)
Apple CEO Steve Jobs took the stage today at Apple's headquarters to discuss "Antennagate," the iPhone 4 signal issues that have become front page news over the past few weeks.
Jobs basically said that all smartphones have signal problems, and that it's an industry-wide issue, and that Apple's iPhone 4 problems have been blown out of proportion.
While everyone is talking about this supposed issue, only 1.7% of iPhone 4s have been returned, and just 0.55% of buyers have called Apple to complain, Jobs said.
Nonetheless, Jobs apologized and said that Apple would send every iPhone 4 buyer a case who wants one.
That's a good concession -- more than we expected -- and should help Apple's image, which has been beat up a bit this week.
(businessinsider.com, Jul. 16, 2010)
Employees
• Staff motivation: corporate ethics matters!
• Employees are more loyal to the company when they recognize its commitment to ethical goals
• Moreover the employees fate is to some extent bound to the company’s reputation
Enron scandal
• Enron - American energy company, with revenue of $101 billion in 2000
• Bankruptcy on December 2, 2001
• The biggest audit failure in US history: Arthur Andersen company, responsible for auditing
Enron, had not noticed company flawed accounting
• "The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enron’s financial statements, or its obligation to bring to the attention of Enron’s Board (or the Audit and Compliance Committee) concerns about Enron’s internal contracts over the related-party transactions“ (Enron’s
Powers Committee, October 2001)
• The Enron scandal – deadly for the reputation of Arthur Andersen, but also – to some extent
– to all the employees
• Who will hire an accountant that once worked in such corporation?
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Business Ethics
Andersen employees fighting for firm's survival, reputation
CHICAGO (AP) - With their firm's once-sterling reputation now the butt of jokes, Arthur Andersen LLP and its
28,000 U.S. employees are fighting back with protest rallies, lobbying campaigns and newspaper ads.
The feistiness was displayed Wednesday when hundreds of employees clad in black-and-orange T-shirts declaring
"I am Arthur Andersen" boisterously demonstrated outside a Houston courthouse. Inside the building, the firm pleaded innocent to obstruction of justice charges involving its shredding of documents related to its audit of now-bankrupt Enron
Corp. (…)
"There is a general feeling of shock and disbelief among so many of the employees who had nothing to do directly with the Enron audit or destruction of documents (…)Every single person at this firm has a story to tell about how
this has absolutely, if not destroyed their personal circumstances, altered them.“ (The Associated Press, March 21,
2002)
No happy end
• Scandal devastated Arthur Andersen’s reputation
• No company wanted Andersen’s name on audit
• Company still (as of 2010) has not resumed operations
• From 85,000 staff worldwide, only 200 are currently employed, mostly handling lawsuits against the firm…
Costs of unethical behavior
• Corporations perceived as unethical – under constant pressure from NGOs, environmental activists
• Organized boycotts/protests – ruin company’s reputation and lower sales/profits
• Extreme cases: hackers attacks on web services might hit severely company’s activity
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Business Ethics
Environmental Activists Stage BP Boycott
Activists take part in a 20-city protest of BP Oil
A 20-city protest was staged Wednesday to condemn BP Oil and the growing environmental disaster caused by that massive oil spill.
The so-called "Seize BP National Day of Action" was at the "eco-friendly" BP gas station on Olympic Boulevard.in
West Los Angeles.
The demonstrators are calling on the government to seize BP assets to pay for all the damages and losses caused by the spill.
"We're calling for a federal government seizure of BP's assests to pay for all the environmental damge, personal losses and untold consequences of their oil spill," said Ian Thompson, a spokesman for the group Answer Coaliton.
More than 200,000 gallons of oil a day continues to spew into the Gulf of Mexico.
(http://www.nbclosangeles.com, Todd Reed, Thu, May 13, 2010)
• Corporations – required to comply with the laws at local, regional, national and international level
• Illegal activity can be costly – for example, in EU the European Commission has the power to impose fines up to 10% of a company’s worldwide revenues (!)
• Pro-ecological activity – provides not only increase in company’s reputation
• It also helps to lower the costs of production (esp. in EU – strict CO2 emission standards)
• Eg. Joint project of Dow Chemical Co.&National Resources Defense Council (1996-1999) – aimed at reducing pollution in the manufacturing process.
• Dow Chemicals facility in Midland, Michigan
• Investment cost: $ 3.1 million.
• Results: 43% reduction of pollution, company saves $ 5.4 million a year
Cause-related marketing
• How to earn money on Ethics
• Product linked to particular cause
• Expectation that consumers would by the product to support that cause
• “the point is to attract consumers wanting to make a difference in society through their purchasing” (Mitchell and Jeffrey, 2003, p. 37)
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Business Ethics
• Cause-related marketing (CM) is not just philanthropy
• CM is more than that: it’s a partnership between a company and given cause
• Donations are dependent on sales of a product/products
Advantages of CM over traditional philanthropy
• Donations often went unnoticed, even when the cause was “good” one
• Shift from passive donor/sponsor to active partner
• Builds image of socially responsible company
• Motivation to the staff
• Way to differentiate the product on the market, making it unique, special
Cisowianka: “woda dla zdrowia”
• Water Campaign, organized by Polska Akcja Humanitarna (NGO specialized in development assistance)
• Special bottle 0.33 l of mineral water
• 10% sales goes to the construction of the 11 abyssal wells in southern Sudan, Africa
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Business Ethics
Globalization and Business Ethics
• Globalization – new or old phenomenon?
• Globalization: new challenges for Business Ethics
• Multinational corporations and global governance
Globalization – new or old phenomenon?
• Globalization – a process of development, “which increases the internalization of production and manufacturing and financing” (Homann et al., 2007, p. ix)
• Haven’t we heard that before?
• Economists argue, that before 1929 global economy and world markets were integrated closer, than they are today
• The barriers to free trade, financial flow and moreover human mobility were lower than today
What’s new?
• New actors – multinational corporations
• Multinational corporations integrate production, management and financing “under one roof”
• “Products are not manufactured any more in one country and then exported, rather, products are designed and produced in production sites in various locations around the world and financed by global investors and holding companies” (Homann et al., 2007, p. ix)
• Increased competition of countries, who are trying to attract foreign investments
• As production is fragmented, multinational companies can enter and quit low-wage countries more easily than earlier, when everything had been produced in one plant
• National policies – effectiveness greatly diminished, esp. in the field of economic policy
• Nation-states seem to lose power in favor of multinational companies
Globalization: new challenges for Business Ethics
• Business is globalizing faster than the development of a universal code of ethics and conduct
• Development of technology – new ethical problems, that have not been considered before
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Business Ethics
• New problems: genetically modified food/animals, human cloning etc.
• Globalization – increased contact of multinational companies with different cultures and different business rules - “whose ethics are we talking about?” (Mitchell and Jeffrey, 2003, p.
3) – next lecture (“Are ethics culturally based?)
• Before globalization: catastrophes mainly caused by natural disasters, such as volcanoes, earthquakes, flooding, famines and so on
• Now: technology development makes the catastrophes more likely
• These human-made catastrophes (by-product of unethical behavior) spread easily across international borders (eg. Chernobyl accident)
Bhopal Disaster
• December 3th 1984 – accident in a pesticide plant in Bhopal
• Plant operator Union Carbide India Ltd., subsidiary of US-based Union Carbide Corporation
• Accident: 40 metric tons of methyl isocyanine released into the atmosphere (extremely toxic material)
• 8,000 people died, 100,000 injured (according to Greenpeace – 20,000 dead)
• 50,000 remained partially or totally disabled
• Groundwater polluted, crops and livestock destroyed
• Probably the world's worst industrial catastrophe
What caused the accident?
• Poor maintenance of tanks where methyl isocyanine had been stored
• Tanks were filled beyond the safety level
• Safety systems (including the refrigeration system) switched off to save money
• Summing up: unethical behavior of management (profits>security)
The most important Ethical issues involved in this case:
• Who should be responsible for the accident – the Indian subsidiary, or the US parent company?
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Business Ethics
• Responsibility for which actions? (design, maintenance, crew training, not informing local government and community of hazards associated with the production)
• Would such accident be possible in US? (the Union Carbid plants in US had tighter security measures, and more staff responsible for maintenance of tanks)
• Is it ethical to move hazardous production to developing countries, where safety measures are lower and possible compensation costs also inferior to those in US?
• How could any company operate such plant in the centre of 1.5-million city? (Union Carbide insisted to build plant in downtown to cut costs of the worker’s transportation)
• How could company deny responsibility for accident? (Union carbide offered minor compensation, but insisted that leakage was caused by act of sabotage)
Multinational corporations and global governance
• Lack of legal framework, with clear rules and imposing ethical norms within the global society
• Such “global business ethics framework” is only on the early stage of development (some proposals of UN, WTO, ILO etc.)
• Moreover – even when some regulations exist, there is a problem of worldwide acceptance
(eg. Kyoto Protocol)
• On the other hand: growing competition among actors in the global economy
• Not a good time for ethical behavior
• Some ethical actions (as CO2 reduction in EU countries) harmful for the economic growth in the short and middle run
• Who can develop social order (and global business ethics) in a global society?
• No global government and global power
• Nation states compete against each other, international organizations – too weak, or unable to impose norms (internal struggle and competition among members: nation states)
• Moreover: as stated earlier, nation states’ power gradually decreases, because of the growing interdependence and interaction among the IR actors and as the result of a competition among states
• On the other hand – growing power of multinational corporations
• Some representatives of international community already called for greater involvement of multinational corporations (MC) in the global governance
• Former UN Secretary General Kofi Annan called on the MCs cooperation in human rights protection&promotion, improving working conditions and actions of environment protection
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Business Ethics
• MC could become more involved in the development assistance, taking into the account the limits of ODA spending in developed countries (esp. EU)
• Not surprisingly, MC are reluctant to do so. Why?
Reluctance of MCs to bear responsibility for the social order of a global society is caused by:
• Poor companies’ image – portrayed as the opponents of ecologist activists, exploiters of simple workers
• Called to “make sacrifices” and to tame self-interest – against their nature and norms active in market economy
• Those MCs which are socially responsible – active in specific regions, without coordinating activities with other companies
• BTW: the same with ODA of EU countries (only plans to coordinate development assistance among member states)
• “corporations can bear (…) responsibility for the framework of governance only together.
They seem not to be used to cooperating with other corporations in the area of global politics – in mutual interest – while still remaining rivals in markets” (Homann, 2007, p.5)
• Corporations are not democratic, neither they are transparent. Therefore, their involvement in global politics becomes controversial.
• Why corporations might get interested in global social order?
• When they see the global social order as the prerequisite for further growth
• Then, they may invest in human capital, civic society development etc.
• Now: almost 2/3 of humanity (4 billion of people) outside the global market – they are not global consumers
• These “excluded” – potential assets
• “Managers are not only assigned to make profits on already existing markets, but in particular to open up new markets, to develop them, even to create them” (Homann, 2007, p.7)
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Business Ethics
Business Ethics and Culture
• The illusion (?) of universal values
• Culture and cultural differences
• Cultural influence and business
• Are Ethics culturally based?
• Are there any truly absolute ethical values?
• That means – universally valid principles, respected by everyone, everywhere, anytime?
The illusion (?) of universal values
• Samuel P. Huntington – The Clash of Civilizations
• “The clash of civilizations will dominate global politics” (Huntington, 1993, p. 28)
• “the world will be shaped in large measure by the interactions among seven or eight major civilizations” (Ibidem, p. 30)
• Civilizations – cultural entities
• “civilization is thus the highest cultural grouping of people and the broadest level of cultural identity people have short of that which distinguishes humans from other species”
(Huntington 1993, p. 29)
• Cultural relations of Western civilization with other civilizations
• “the efforts of the West to promote its values of democracy and liberalism as universal
values, to maintain its military predominance and to advance its economic interests engender countering responses from other civilizations” (Huntington, 1993, p. 33)
• Western values – individualism, liberalism, constitutionalism, human rights, equality, liberty, the rule of law, democracy, free markets, the separation of church and state -not universal at all!
• Other civilizations, sometimes older than the West, have other cultural roots and values
• Piotr Kłodkowski (Polish orientalist) – develops Huntington ideas, speaking about the “great illusion”
• “illusion of universal values” – Western elites are not aware that values that they consider universal – are not accepted as such in other civilizations
• If we argue about universalism of even such basic values as individualism, humans rights – what about business?
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Business Ethics
• Business world – highly competitive, different cultural habits, extremely difficult to introduce one universal ethics code!
Culture and cultural differences
Culture: “set of learned core values, beliefs, standards, knowledge, morals, laws and behaviors shared by individuals and societies that determines how an individual or group acts, feels and views itself and others” (Mitchell and Jeffrey, 2003, p. 15)
• These values socialized/inherited and passed to the next generations
• Crucial components of culture, related to business relations and ethics:
 Language
 Religion
 Values and attitudes
Language
• Verbal communication matters, but nonverbal is even more important
• Gestures, facial expressions – matter
• Wrong understanding of non-verbal communication – risk of sending entirely wrong signal to our business partner
Communication is connected with space
• And the understanding of space might vary a lot in different places
Religion
• Religion has a great impact on business ethic, even if the business partner is not devout
Cristian/Muslim/Buddhist /Hinduist etc.
• Arab world: common expression is Inshallala (if Gods wills). It reflects lack of control over matters on earth (“what will be will be”)
• Brazil Nordeste: “Se Deus quiser”
Values and attitudes
• Example: Western idea of “fair play”
• Portugal-England football match
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Business Ethics
• China-Korea football match
Cultural influence and business
• People from different culture do business differently
• This mean: multiple sets of norms & values, alternative ethical principles
• Action that might bee seen as “right” (or at least tolerable) in our culture would be perceived as “wrong” in another country
• “Understanding the cultural context and ethical mindset of a potential foreign business partner or competitor can help in developing sound strategies for negotiations and the deal making” (Mitchell and Jeffrey, 2003, p. 13)
• Knowing cultural differences – becomes advantage in business
Business Contracts in different cultures
• Altitudes towards a written contract might vary
• Some cultures – strictly follow the letter of a law
• Some others – contract as a statement of intention, not formal obligation; can be renegotiated when conditions change
• Germany: detailed contracts, once signed it is expected from business partner to strictly obey to the written obligations. Breaking the contract is totally unacceptable from the ethical point of view
• Egypt: contract as general guidelines for doing business and a statement of intention to cooperate
• Contract can (and probably will) be renegotiated in response to changing circumstances
• Ignoring provisions of a written contract – seen as normal, not perceived as unethical behavior
• US: as in Germany, detailed contracts, partner is expected to fully realize written obligations
• Renegotiating a written contract – very seldom, treated as “complete ethical and moral bankruptcy” (Mitchell and Jeffrey, 2003, p. 14)
• However, quite often the interpretations of contract may vary – important role of lawyers
• American joke: “signing on the dotted line - first step to a court appearance” – not too far from the truth
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Business Ethics
• Latin America – contract based on personal relations between partners, notion of personal honor
• Personal linkage between partners, not institutional. Therefore: in a situation when our partner changes the job, contract might be renegotiated
• Example: currency exchange in Brazil
• Japan: the importance of saving face in Japanese culture; sometimes a verbal commitment of a Japanese partner means more than a written contract
• To prevent “loss of face” – special clause permitting complete renegotiation of contract if circumstances change
• Such renegotiation – exceptional, violation of contract almost impossible – ethical bankruptcy (ex. Polish debt renegotiation)
Geert Hofstede’s Cultural Dimensions
• Framework for classification of national cultures
• 4 dimensions
 Individualism vs. Collectivism
 Small vs. large power distance
 Weak vs. strong uncertainty avoidance
 Masculinity-feminity
Individualism vs. Collectivism
• Collectivism – conformity appreciated; control of individual behavior (employee) – group pressure, shame. Extreme cases -expulsion from the group
• Individualist-oriented cultures – control in organization based on self-generated sanctions
(guilt)
• Collectivist culture: slow decision-making (need for consensus), but fast implementation
• Individualist culture: rapid decision-making, but slow implementation (each worker can question the new policy/method/regulation and wants to know direct implications of a new policy)
• Individualist cultures: Australia, Canada, South Africa, UK, US
• Collectivist cultures: China, France, Japan, Russia, Saudi Arabia
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Business Ethics
Small vs. large power distance
• How individuals perceive power and their role in decision-making
• Low power-distance – employee plays active role in decision-making; it’s expected that she/he might question decisions/orderds
• High power-distance: “1. The boss is always right. 2. If the boss is wrong, refer to rule 1”
• Boss supposed to give orders, employee expected to fulfill them
• Orders cannot be questioned, employee not active in decision-making
• High power-distance cultures: Egypt, Italy, Japan, Russia
• Low power-distance cultures: Australia, Israel, Sweden, US
Weak vs. strong uncertainty avoidance
• Weak uncertainty avoidance – performance/achievement more important than security
• Less rigid management style, fewer workplace rules
• “No risk – no fun”
• Strong uncertainty avoidance – security is most important
• Strict rules of behavior, discipline, even dress code
• “Ordnung muß sein”
• High uncertainty avoidance cultures: Germany, Japan, Russia, Switzerland
• Low uncertainty avoidance cultures: Mexico, Singapore, South Africa, US
Masculinity-feminity
• Masculine values: competitiveness, assertiveness, ambition, and the accumulation of wealth
• Feminine values: quality of life more important than accumulation of wealth, inter-personal relationships matter
• Masculine culture – closing the deal more important than building a long-term relationship
• Feminine culture – personal relationship is vital; “friends doing business with friends”
• (Mostly) masculine cultures: Australia, Brazil, South Africa, US
• (Mostly) feminine cultures: France, Greece, Japan, Sweden
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Business Ethics
Additional traits: low/high context
• Low context culture: the message is more important than non-verbal communication
• Precise communication: in-depth info, strong need to explain all in great detail
• No need of face-to-face meeting, business might be conducted by phone or e-mail
• US, Britain, Scandinavian countries
• High context culture: imprecise communication
• Person delivering message more important than information itself
• Personal meeting – essential for conducting business
• Body language, voice inflection – matters, need for additional information (as much as possible)
• Latin America, Southern Europe, Central and East Asia, Middle East, Africa
Are Ethics culturally based?
• Of course they are!
• Business ethics in different countries may vary
• National cultures are different, and business ethics are deeply embodied in the culture of home society
Cultural relativism
• “man is the measure of all things” (Protagoras)
• Ethical act - “nothing more than behavior that is socially approved by the majority within a culture” (Mitchell and Jeffrey, 2003, p. 21)
• Behavior acceptable in other country – should not be seen as wrong, but rather “different”
Limits of cultural relativism
• Cultural relativism is an academic idea
• In practice, there are limits of cultural relativism
• Apartheid policy, holocaust – ethically wrong acts, that couldn’t be tolerated
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Business Ethics
Situationalism vs. absolutism
• Situationalism – ethical principles can be flexible, according to the changing circumstances
• Interest of “greater good” – businessman should be ready to compromise ethical principles
• Absolutism – unethical activity is wrong, no matter what happens
• “To situationalist, nothing is always right or always wrong and sometimes it is acceptable, even good, to lie. Have no doubt, the notion of situational ethics thrives in the business
world. It is what keeps managers and employees up at night” (Mitchell and Jeffrey, 2003, p.
23) -> administrative evil
• No single theory of ethic applicable in all cultures
• Of course, there is a number of basic social norms that all cultures respect
• But a successful businessman in a global world must understand and respect cultural differences. This knowledge becomes a crucial competitive advantage…
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Business Ethics
Conceptualizing Administrative Evil
Concepts of Evil in Ethics and Social Sciences
The Impact of Modernity and Rationality on Organizations and Society
What is Administrative Evil?
The Roots of Administrative Evil
Evil in Ethics and Social Sciences
Evil – somehow “old-fashioned” term, absent in recent public and scientific debate, associated with religious phraseology
Modern terminology (social sciences) – better say “dysfunctional behavior”
Evil bears ethical judgment, i.e. is not politically correct
“Philosophers and political theorists are much more comfortable speaking about injustice, the violation of human rights, what is immoral and unethical, than about evil. When theologians and philosophers of religion speak about »the problem of evil« they typically mean something quite specific – the problem of how reconcile the appearance of evil with a belief in God… It is almost as if the language of evil has been dropped from contemporary moral and ethical discourse” (Berstein,
2002, 2)
Still…
The human history is a history of good, but also evil deeds
European history – democracy, human rights, Greek philosophy, Enlightenment, Mozart, Chopin, Da
Vinci, Michelangelo
On the other hand – crusades, inquisition, holocaust, gulag…
Evil – essential concept for understanding the human condition
Definitions
Evil = Antithesis of good
Actions that unjustly or needlessly inflict pain and suffering/death on other human beings
“The essence of evil is the destruction of human beings” (Staub, 1992, 25)
Evil “deprives innocent people of their humanity, from small scale assault on person’s dignity to outright murder” (Katz, 1993, 5)
Continuum of Evil & Wrongdoing
“somewehere along this continuum, wrongdoing turns into evil” (Adams and Balfour, 2004, 12)
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Business Ethics
However
“The road to great evil often begins with seemingly small, first steps of wrongdoing (…) Evil, in many cases is enmeshed in cunning and seductive processes that can lead ordinary people in ordinary times down the proverbial slippery slope” (ibid)
Modernity and Rationality vs. Ethic
Modernity – the final stage of the modernization process
Modernization - process fueled by Enlightenment and Great Industrial Transformation
Enlightenment
Age of Reason – “cogito ergo sum” (Descartes), power of individual reason
Rationalization – shift from traditional, conservative way of thinking, based on emotions, customs and Christian morality towards rational calculation
Until the Modernity - reason as a process that involves both ethical & normative matters as well as instrumental goals
Modernity – instrumental reason
Instrumental reason – using human reason in the service of instrumental aims only, without the ethical concerns
Great Industrial Transformation
Expansion of modern science
Development of technological progress
Rapid industrialization and urbanization
Modern age – characterized by technical rationality
Technical rationality – belief in technological progress
No rationally-thinking individual could oppose technological revolution
Therefore…
Why not apply technical rationality also to the social world – to achieve scientific precision and objectivity?
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Business Ethics
As a result: development of sociology, but also management as scientific disciplines development of new groups of professionals, i.e. administrators and managers, bureaucratization
Professionalization
Technical rationality - demand for specialized knowledge and expert workers
Professional associations are created
Those professional association gradually shift from traditional ethic towards the reliance on science and increasing specialization
Professional associations – ethic based on “neutral objectivity”
Ethical standards should be rigorously applied – “to have always correct answer for a given situation”
Core principles of professional ethic: respect for authority and basic rues, justice
Result: “technically expert, but morally impoverished professionalism (…) more susceptible to moral inversion and administrative evil”
(Adams and Balfour, 2005, 35)
What is Administrative Evil?
A situation, when ordinary people, while performing common/everyday professional duties end-up involved in evil activities. Moreover: their involvement in evil is unintentional; they do evil things without acknowledging that their actions are wrong
“How can one possibly be held to blame in any sense because, say, the passage of time has shown that Lord Darlington’s efforts were misguided, even foolish? (…) As far as I am concerned, I carried out my duties to the best of my abilities (…) It is hardly my fault if his lordship’s life and work have turned out today to look, at best, a sad waste – and it is quite illogical that I should feel any regret or shame on my own account” [Mr. Stevens, about his service to lord Darlington, Isiguro, 1988, 201]
“I would stress that I am guilty of having been obedient, having subordinated myself to my official duties and the obligations (…) It is said that I could and should have refused to be obedient(…) Under the circumstances then prevailing such an attitude was not possible. (…) In this introspective examination I have to ignore my sense of guiltlessness in the legal sense” (Adolf Eichmann, 11th
December 1961)
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Business Ethics
Administrative Evil is possible in the culture of technical rationality only
Administrative Evil is present in the public and private sector, but it’s appearance is masked
Masks of Administrative Evil vary, but the logic is the same at all times: people engage in acts of evil without the awareness of doing anything wrong
Moreover, very often Administrative Evil is associated with moral inversion
Moral inversion means that the evil has been convincingly portrayed as good
Therefore, ordinary people believe that they are doing good things, while actually taking part in
Administrative Evil
The Roots of Administrative Evil
Administrative Evil is likely to happen in modern, complex organizations
In those organizations individual responsibility is diffused
Moreover, modern organizations (both public and private) are goal-oriented, i.e. there is performance pressure
Other characteristics of modern organizations are:
Compliance to authority
Technical progress more important that human values and dignity
Sense of loyalty of employees towards the organization
Apprehension over potential job’s loss – in the case of whistleblowing
Still, there are some mechanism at work, to make the Administrative Evil to happen
“splitting off” effect – pushing away negative feelings/emotions and project them onto others
“blaming others, scapegoating, diminishes our own responsibility (…) People feel connected as they join to scapegoat others” (Staub, 1992, 17)
Therefore – “splitting off” effect especially strong in group/organization’s behavior
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Business Ethics
Distance effect – both in time and space matters
Time – it’s difficult to identify and name evil at the moment it is taking place
Distance – cultural and geographical proximity matters…
Language – usage of euphemism or technical language helps to provide emotional distance and can mask the Administrative Evil
Example: collateral damage – killing civilians
In extreme cases: language enables moral inversion
Holocaust: “evacuation”, “final solution”
Language might be also associated with dehumanization
Dehumanization – if we start calling a given group as “rats”, “parasites”, “roaches” – they are not human
Doing something cruel to human being is morally disturbing, but to a “roach” – it might be seen as appropriate action
“They are never satisfied, they are heartless. It is obvious that they were created to drink Rwandan blood and to kill. So, there is no use continuing to beg them. (…) we must take our revenge on the
Inyenzi-Inkotanyi and exterminate them” (RTLM Transmission, 20th June 1994)
“taken for granted” effect
Routine activities, performed without even thinking about them
In a modern world such mechanisms are essential for an individual to survive
However, in complex organizations being at work, it means performing routine activities, without having a time to stop and question about the moral implications
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Business Ethics
Compliance and Administrative Evil
The social need for compliance
Social roles at work: Stanford Prison Experiment
Testing compliance limits: Miligram experiments
Why we need compliance?
Compliance – origins in the basic human need for order
Order framework made by laws, norms, customs, culture etc.
When the public order is threatened – panic/fear
Possibility of chaos/anarchy
Therefore - society interested in preservation of the social order
Compliance is socialized, because it’s one of the skills necessary for participating within the society
Therefore – each person inherits inclination to obey authority
Compliance – a prerequisite for the existence and effectiveness of any organization/institution/team
However, the need to preserve social order and obey authority creates a possibility for
Administrative Evil to develop
Compliance and correct individual’s activity (appropriate to the individual’s social role) can result in unethical behavior
Social roles at work: Stanford Prison Experiment
Simulation of a prison environment in the basement of the psychology department at Stanford
University
21 male students selected: screening to avoid inclination for aggressive/passive behavior
No crime records, emotional disability, physical handicap, intellectual/social disadvantage
Main Aim: To verify why the social institution of prison fails
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Business Ethics
Answer #1: people are responsible:
The nature of the prisoners (individuals incapable of functioning in the normal society)
The nature of the guards (sadistic/uneducated and insensitive individuals)
Answer #2: the whole institution and the roles that it creates is wrong
Therefore – students chosen were “normal-average” individuals, not different from the rest of the population
Participants randomly selected to perform a role of a prisoner (10 p.) or a guard (11)
Environment physically constructed to resemble a prison (barred cells, corridor)
3 cells – 3 prisoners/cell, remaining there 24 hours a day, for 2 weeks
3 shifts of 3 guards, each working 8 hours a day. Guards remained in prison only when performing their duties, remaining 16 hours – free activities
Each participant – guarantee of adequate diet, clothing, housing and medical care
Prisoners – expected to be under surveillance (no privacy), some basic rights suspended, physical abuse prohibited
Each participant paid 15$/day
So the participants were just supposed to serve the assigned role of a guard/prisoner
They had no influence on which role they would get. The role should be performed for the duration of the study only; in the case of guards – during daily shifts only.
Guards
Task: “maintain a reasonable degree of order within the prison necessary for its effective functioning
(Haney, Bank and Zimbardo, 2004, 24)
Minimal guidelines, only prohibition agains the use of physical punishment or physical aggression
Identical uniforms (promoting feelings of anonymity)
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Business Ethics
Guard uniform
Plain khaki shirts and trousers
Whistle
Police night stick
Reflecting sunglasses – eye contact impossible
Prisoners
Identical uniforms: loose fitting muslin smock with identification number, sandals and a cap
Light chain and lock around one ankle
Toothbrush, soap, towel
No personal belongings allowed
No other information what to expect from the prison and guards
No precise instructions how they should behave (what behaviour should be „appropriate” for the prisoner role)
Uniforms’ role
Enhanced group identity and reduced individualism
Prisoners’ uniforms – symbol of dependence/submission
Guards’ uniforms – symbol of control and power
Arrest
Cooperation of the Police Department
Prisoners “arrested” at home, handcuffed, fingerprinted and taken to prison
In prison: prisoners stripped, disinfected, put to cell and ordered to remain silent
Guards – „free within certain limits to implement of the procedures of induction into the prison setting and maintenance of custiodial retention of the ‘prisoners’ ” (Haney, Bank and Zimbardo,
2004, 22)
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Business Ethics
Administrative Routine
Prisoners called by they numbers only (depersonalization)
Privileges – 2 hours of reading/writing, movies, visits
Duties – work assignments
3 times a day – counting of prisoners
Soon – privileges abandoned/forgotten by guards, restrictions introduced
Counting of prisoners
Initial ones – lasted ca. 10 minutes
At the end of the experiment – lasted for several hours
Procedure has been prolongated by the guards, without any suggestion from the scientists who coordinated the esperiment
„Despite the fact that guards and prisoners were essentially free to engage in any form of interaction
(positive or negative, supportive or affrontive etc.) the characteristic nature of their encounters tended to be negative, hostile, affrontive and deumanizing” (Haney, Bank and Zimbardo, 2004, 26)
„Prisoners immediately adopted passive response mode while guards assumed a very active initiative role in all interactions”
„In lieu of physical violence, verbal affronts were used as one ot the more frequent forms of interpersonal contact between guards and prisoners” (Ibid)
The experiment had to be stopped after 6 days (it was scheduled for 2 weeks)
5 prisoners had to be released earlier because of the etreme emotional depression
The rest of the prisoners – happy when the experiment was ended
Guards – distressed by the decision to stop the experiment
During the experiment, some guards remained on duty voluntairy even after their shift was over – without additional pay. Become deeply involved in their roles of guards. Reluctant to give them up.
Daily escalation of violence, even after the prisoners had stopped resisting to the orders
Agressive behavior continued even „when prisoner deterioration became marked and visible and emotional breakdowns began to occur”
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Business Ethics
„Guard agression was no longer elicided as it was initially in response to perceived threats, but was emitted simply as a ‘natural’ consequence of being in the uniform of a ‘guard’ and asserting power inherent in that role” (Ibid, 28)
„When questioned after the study about their persistent affrontive and harassing behaviour in the face of prisoner emotional trauma, most guards replied that they were ‘just playing the role’ of a tough guard, although none ever doubted the magnitude or validity of the prisoners’ emotional response” (Ibid, 28)
Prisoners – 5 prisoners – ‘parole eligibility’ after 4 days spent in prison
1 condition – they had to give up all the money earned while performing the role of the prisoner
60% agreed and returned quietlu to their cells to await ‘parole decision’
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Administrative Evil Unmasked
Holocaust: basic facts
Historical intrpretations of Holocaust
Business Ethics
German Civil Service in the Third Reich
Legalization of Evil
Implementation of Evil
Banality of (Administrative) Evil
Basic facts about the Holocaust
1939 – ca. 9 million Jews in Europe
1945 – ca. 3 million
1939-1945: ca. 6 million Jews killed
Not casualities of war
Massive, deliberate effort of German government – to eliminate the entire Jewish population in
Europe
Jews died:
Executed by Einsatsgruppen (mobile killing squads) – esp. during the invasion of the Soviet Union –
1,5-2 million
In transit to the camps (miserable conditions)
In concentration camps – from slave (over)work, starvation and disease
In death camps – gas chambers and crematoria (ca. 4 million)
„Mass murder demands organization. Repeated killing is not a deed, but an activity with all the distinguishing features of work: a task done methodically, according to plan, over time, oriented to a goal, marked by bureaucratic efficiency and routine” (Wolfgang Sofsky)
History of Holocaust – well known, but: Little attention paid to the role of the public policy and administration of the Third Reich.
Without the bureaucratic machine – organization and realization of „final solution” might not been possible
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Business Ethics
Historical intrpretations of Holocaust
2 major conceptual frameworks used to explain the Holocaust
Intentional
Functional
Intentional interpretation of the Holocaust
Holocaust enrooted in Nazis’ racist ideology
Hitler from the very beginnign of his political activity (Mein Kampf) – antisemitic
All-powerful dictator obsessed with hate of Jews and other ethinc minorities (i.e. Roma)
Hitler planned to „get rid of” Jews from the early 1920s
„Get rid of” – not necessarily exterminate, forced ressetlement (f.i. to Africa)
War – an opportunity to realize the goal
Therefore – uniquenees of the Holocaust is emphasized
Unprecedented event, that happened once and should not happen again
Evil of the Holocaust – stems from Hitler’s hatred of the Jews
Most of the Third Reich citizens – including civil servants – were just following orders
Functional interpretation of the Holocaust
Downlpays the Hitler’s role and intentions
Final solution – effect of interplay between competing organizational structures of Nazi regime
Nazi state – continuous improvisation at the local/micro level was encouraged
Therefore – Holocaust as a result of the activity of ambitious servants of the Third Reich
They responded to the impulses and hints received from the centres of power
Hitler stated that Germany needs a final solution to the Jewish problem, but did not precisely defined the form of the Holocaust
Holocaust emerged in response to the changing circumstances and after experimenting with a multiple plans to solve the Jewish problem
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Business Ethics
Mass murder as a solution of Jewish problem emerged only when the deportation and resettlement policies failed
The form of mass killing also evolved
First – activity of Einsatzgruppen (mobile killing squads) – proved to be innefective (soldiers’ trauma, costs of bullets, time-consuming, dificulties with body disposal)
Second – „mobile gas chambers” – gas vans
Gas vans – more effective, however problems with the weather and personel
„ even if it has been raining for half an hour, the van cannot be used because it simply skids away. It can only be used in absolutely dry weather”
„ The men complained to me about headaches which appeared after each unloading. Nevertheless they don’t want to change the orders, because they are afraid prisoners called for that work, could use an opportune moment to escape”
[SS Untersturmfuhrer Dr Becker, May 16 1942]
Finally – gas chambers&crematoria as most reliable and efficient „equipment”
Creativity even with the gas used: originally Zyklon-B was an insecticide
Originally Zyklon-B produced with a special component - warning odorant
Manufacturer of Zyklon-B (Dessauer Werke für Zucker and Chemische Werke) – modified product for
SS – without warning odorant, especially for use in the gas chambers
Antisemitism, racist ideology, Nazi dictatorship – necessary but not sufficient conditions for the
Holocaust
„Just as important were latent tendencies toward dehumanization within routine bureaucratic processes, performed by thousands of functionaries in public officies and private enterprises embeded in habit, routine and tradition” (Adams and Balfour, 2004, p. 47)
Bureaucratic procedures – essential to formulation and implementation of „final solution”
No specialized department for extermination of Jews – cooperation of all public administration on national and local level
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Business Ethics
Legalization of Evil
Nazis regime, although autoritarian, was estabilished within the limits of law system
„No siginificant action was ever carried out that had not first been legally sanctioned” (Adams and
Balfour, 2004, p. 48)
Civil servants might have opposed a regime that lacked legal legitimacy, but it was not the Hitler’s case
Spring 1933: „Enabling Act”. Hitler gains direct legislative authority
After 1933 – numerous acts that put the government and the state under the control of National
Socialists
From that moment, civil servants had limited range of choices: 1) resign from the job 2) stay in the ofice and perform duties without moral considerations 3) stay in the ofice, trying to undermine the regime
Options no. 1 and 3 were dangerous and few had the courage to choose them
April 1933 – „Law for the Restoration of the Professional Civil Service”
First step to separate Jews from the rest of the society
Goal: remove Jews from public administration
Result: civil servants become involved in estabilishing who was or not was a Jew (a definition of a Jew was introduced)
Thousands of Jews were dismissed from the civil service positions
Implementation of Evil
The first step to the „final solution” was the complete separation of Jews from the German society
This aim was extremelly difficult, as Jews were strongly integrated (and to some extent assimilated) in Germany: economically, culturally, socially and politically
Therefore, separation of Jews was not possible without the cooperation of civil administration
This was a complex task, involving solving of many legal problems (mixed marriages, definition of a
Jew, definition of a Jewish enterprise)
Soon the German bureaucracy evolved „from legislative discrimination and expropriation to deportation and extermination” (Adams and Balfour, 2004, p. 53)
1941 Reich Citizenship Right
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Jews who move to reside abroad could be deprived of German citizenship, and their property could be confiscated by a state
But the law said nothing about the willingness of Jews to move abroad
Therefore, when Gestapo arested Jews and transported them beyond German border, they automatically were losing their citizenship and became aliens
Aliens – no government interested by their fate; a precondition of physical elimination
„In the final phases, not even orders were needed. Everyone knew what had to be done, and no one was in doubt about directions and goals” [Hilberg, 1989, p. 128]
Administrative Evil at work:
Civil servants from Finance Ministry – confiscations of Jewish property
Civil servants from the Ministry of Defence – organization of forced labor
German corporations – demand for slave labor
Municipal authorities – creation and maintainance of ghettos and death camps
„The destruction of Jews became procedurally indistinguishable from any other modern organizational process” (Adams and Balfour, 2004, p. 53]
Example: how to cover the costs of transport?
Rail transport – essential element in the plan of „final solution”
Jews from the entire Europe had to be transported to remote death camps in Eastern Europe (far away from major cities)
"There is no such thing as a free lunch." (Milton Friedman) i.e. someone has to pay for it… No governmental agency – even powerfull SS and Gestapo – could use the railways as they wanted to, without paying for the service
The bureaucratic procedure has to be followed. The client of trains, which transported Jews to death camps was Gestapo. Therefore, Gestapo had to pay for the travellers – the Jews and guards
Jews „received” third class, one-way ticket, with discount for children (!). Group rates were applied for the transports exceeding 400 passengers.
The price of a ticket calculated for the number of track kilometers
But for the guards the round-trip fare had to be paid…
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But Gestapo had no funds to pay for rail transport…
Therefore, Gestapo imposed special levies on local authorities or Jewish communities from which
Jews were transported to the death camps
Creative solution to the administrative problem: „the basic framework of routine bureaucratic procedures could be preserved, allowing civil servants to focus on their administrative responsibilities with a minimum of disruption or moral discomfort” (Adams and Balfour, 2004, p. 54)
Banality of Evil
Term coined by Hannah Arendt, during the Eichmann trial in Jerusalem
Adolf Eichmann – high-rank SS officer, responsible for the logistics of mass deportation of Jews to the concentration camps. Captured by Mossad in Argentina, faced trial in Israel on crimes against the humanity.
Arendt, jewish writer and journalist, was a corespondent of The New Yorker during the Eichmann’s trial. Eichmann – to Arendt’s surprise – was not a psychopathical murderer, but an ordinary, even boring bureaucratic servant
Banality of Evil: in Arendt’s view, the great evil (as Holocaust) must not be done by fanatics or monsters. It can be done by anyone: ordinary people, who were engaged in everyday tasks/duties, convinced that their actions were normal.
„He did his duty...; he not only obeyed orders, he also obeyed the law.” (Arendt, 1963, p. 135)
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Administrative Evil Masked (1): the Challenger Disaster
Preeliminary remarks about the administrative evil
Challenger Disaster: basic facts
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The evolution of shuttle program
Masked administrative evil: events that happened before the fatal shuttle launch
(Destructive) organizational dynamics within NASA and Marshall Space Flight Center
Administrative Evil at NASA
• Opposed to the Holocaust – here administrative evil was masked
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• Moreover – the absence of evil intentions in the organization
• However – the destructive organizational dynamics created a fertile ground for administrative evil to develop
NASA – typical „modern organization”:
Diffusion of information
Fragmentation of responsibility
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• Result: few people have complete picture that „something bad is going to happen”
• Lower rank officers/managers – even if they had enough knowledge about the problem – remained passive
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• They assumed that higher management must have the same knowledge about the and choosed to do nothing about it
Common inclination – not to bring negative news to the superiors
„No bad news is good news”
Often: punishing the bearers of the bad news
Ancient Greece: messenger who brought bad news - killed
Safer approach – „strategic ignorance” (caring about this problem is not our business!)
Moreover: this „problem avoidance” management problem is bound to intensify
The longer persists, the more difficult is to aknowledge it and to solve the problem
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„bringing such activity to halt (…) requires extraordinary decisive action. One needs clear and overwhelming evidence to do so, for one can be certain that no thanks will initially be forthcoming, if at all. Allowing normal processes (the status quo) to continue requires no action at all” (Adams and
Balfour, 2004, p. 94)
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Challenger Disaster: basic facts
Shuttle launch – January 28, 1986
Explosion – 1 minute after the launch
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All 7 astronauts killed, and a shuttle of $ 2 billion - lost
Among victims: Christa McAuliffe, first civilian (teacher) in the manned flight program
• „Teacher in Space” program – White House strategy to renew public interest in the space shuttle program
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On the evening of the January 28: President Reagan’s state of the union address scheduled
President was expected to report on his conversation with Ms MCAuliffe in space
The causes of Challenger accident:
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• A failure of an O-ring (a rubber seal) caused the explosion
• During the flight, O-ring had not provided a good seal (oval shape instead of normal, round shape – problem caused by cold temperature)
Hot gases from inside the rocket eroded the primary and the secondary seal
Space shuttle – complex mechanical system, involved with risk, but:
NASA assessed the probability of a shuttle crash at 1:100 000
US Air Force assesed the probability of a shuttle crash at 1:35 in the early 1980s
Result: US Air Force removed their sattelities from shuttle program the probability of a shuttle crash at 1:100 000 valid only, when:
Enegineering done according to the original safety standards/conditions
But this safety standards were time-consuming. Launch schedule impossible to maintain…
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The evolution of shuttle program
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NASA – estabilished in 1958, with one basic goal – landing people on the moon
This extremelly ambitious task was acomplished within 10 years
Earned reputation of highly reliable and efficient organization („can do” attitude)
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But „race to the moon” project – priority for the US government during the Cold War
The NASA budget has reached its peak in 1965 - $ 5 billion, 0,8% of American GNP
Since then – gradual downsizing of NASA budget – 1975 – 0,2% of American GNP
Initial goal of space shuttle: space station serviced by a fleet of space shuttles
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Budget cuts during the Nixon Administration – space station project stopped
Shuttle program – underbudgeted from the very beginning
• Shuttle program had to be „sold” to the Congress as a „space truck” – response to the political climate and budgetary constraints
• This meant: reliability of airline company (60 flights per year projected)
• Early flight estimates vere too optimistic, but due to the political pressure little has been changed
• 1986 – NASA promissed 24 flights in 1988
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Shuttle flight became „operational” in the 1982, after 4 flights only
Never reached that original, nor updated goal (max. 9 flights in 1985)
But space flights include complex problems and are connected with enormous risk/uncertainity – they can never be „operational”, bur rather „experimental”!
Originally: NASA estabilished as experimental R&D space agency
1970s: NASA transformed in quasi-business entity
Efficiency&cost goals, deadlines set
• Budgetary cost constraints: solid rocket booster (SRB) chosen by NASA management due to the „susbstantial cost advantage”
• solid rocket booster (SRB) – used to rocket the shuttle into the space
• However: NASA engineers at Marshall Space Flight Center skeptical on the Morton Tiokol SRB design: unacceptable
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Security concerns over the O-ring design– even before the contract was awarded
O-ring problem turned out even more serious in reality (than in the project)
After several flights, concern mounted
• Initially – Thiokol SRB joints classified in NASA terminology as „criticality 1R”: the failure of the O-ring would be catastrophic, but redundant system worked (second, back-up O-ring)
• But it turned out that during the start, hot gases from inside the rocket eroded the primary and the secondary seal as well
• 1982 - Thiokol SRB joints reclassified to „criticallity 1” (back-up didn’t work – no redundancy!!!)
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• events that happened before the fatal shuttle launch
• January 1985 shuttle launch – low temperature (53 degrees)
Cold temperatures flagged as number-one concern on the O-ring erosion
Morton Thiokol engineers agreed, that the launch has to be stopped at low temperatures
• January 27, 1986: record low temperatures expected a night before the Challenger launch
• Teleconference organized: Morton Thiokol engineers recommended against launching at a temperature below 53 degrees
• Morton Thiokol had a responsibility to show whether it was „safe to go”
• However, during the fatal meeting on January 27, NASA managers wanted a contractor to prove it was unsafe to launch
• hear”
Morton Thiokol managers understood the message: „you’re not telling what we would like to
• So they end up telling that launching was ok
• 28 January 1986 (morning) – ice accumulation on the launch pad
• Rockwell International representative (the contractor on the shuttle vehicle) has raised his concerns
• „Rockwell cannot assure it is safe to fly”
• NASA manager in charge of shuttle program: the launch should proceed, since the contractor has not insisted against launching
• Again: NASA required from the contractor to prove that it was unsafe to launch, rather than proving it was safe
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3 reasons to pressure for launch on Jan 28
• Scientific satellite Ulisses had to be launched by January 29 to avoid the 13-month delay
• President Reagan intended to mention about the Challenger mission (Teacher in Space program) during his state of the union address, January 28 at night
• January 12, previous shuttle flight of Columbia – delayed after seven non-starts
(Destructive) organizational dynamics
• Defensive organizational culture at NASA and Marshall Space Flight Center
• Effective during the Cold War and Man on the Moon project
• Destructive – when circumstances changed (poor funding, more emphasis on performance – time pressure)
• Decisions that substantially eskalated risk of an accident – good from the perspective of technical rationality
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National Areonautic Space Administration: reputation of a high-performance organization
But: tendency to cover-up mistakes and deny the existence of persistent problems
• Project management in NASA: how to balance costs and schedule, while mantaining the reliablity?
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Propensity to contain potentially serious problems
Resolve problems internally, do not communicate them forward – to the senior managers
• Problems with the O-rings were very-well known, but not to the senior mangers responsible for shuttle program
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Mid 1985: launch constraints on the SRB joints; subsequently waived for all missions to
• No information about launch constraints and the reasons „why” forwarded to superiors: false sense of security
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Rivalization among Marshall, Johnson and Kennedy Space Flight Centers
Nobody wanted to slow the launch schedule
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• Competition to meet the deadlines, lower costs and mantain security – performance pressure
Rigid management style
Public reprimends for those workers who made mistakes
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Top-executives: lack of respect for the subordinates
Result: fear among employees, tendency to „not to make mistakes”
Of course, mistakes are bound to happen
Therefore, minor mistakes have been camouflaged
„No mistakes, no delays, no problems” – managers were told what they wanted to hear
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Administrative Evil Masked (2): the Abu Ghraib scandal
War on terror
Axes of Evil
Iraq: the US Intervention
Moral Considerations
Abu Ghraib scandal: basic facts
The Role of US Administration
War on terror
September 11, 2001 – most traumatizing event in the US history
Thousands of civilians killed
American security threatened
New security challenge: international terrorism
Threat to the national security
But the Enemy – hard to define
„On September the 11th, enemies of freedom committed an act of war against our country. (…) All of this was brought upon us in a single day — and night fell on a different world, a world where freedom itself is under attack. Our war on terror begins with al Qaeda, but it does not end there. It will not end until every terrorist group of global reach has been found, stopped and defeated”
„An attack on one is an attack on all. The civilized world is rallying to America's side. They understand that if this terror goes unpunished, their own cities, their own citizens may be next. Terror, unanswered, can not only bring down buildings, it can threaten the stability of legitimate governments”
Al-Qaeda
Not a traditional (i.e. nation-state) enemy: with precisely defined institutions, administrative structure and centre of power
Global terrorist organization – multinational network, with local franchises loosely binded with the global council and the commander (i.e. emir – Osama bin Laden)
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Business Ethics
Ideology: radical islam (~ fundamentalism)
Restore traditional islam through creation of islamic states
Implementation of sharia – islamic law
Restoration of the Caliphate ant the unity of Muslim world
Opposition to the Western Civilization
Axes of Evil
Term used by President Bush on Jan 2002
Axes of Evil: Iran, Iraq and North Korea
States that sponsor terrorism (including al Qaeda) and develop weapons of mass destruction
Contrary to the „terror agents” states easy to define:
October 2001 – US and coalition allies invaded the Afghanistan
Goal: to overthrow the Taliban government, accused of supporting al-Qaeda and Osama bin Laden
March 2002 – Talibans expelled from Afghanistan
Iraq: the US Intervention
Saddam Hussein’s regime accused of posessing the weapons of mass destruction
Also accusations of sponsoring and supporting al-Qaeda
March 2003: Operation Iraqi Freedom
Multinational coalition led by US forces invades Iraq
Moral Considerations
War on terror: defending Western ideals&valueas, saving innocent people’s lifes
But: how far we can go – to reach that goal?
No easy „trade-off” between stricter measures (not-democratic) and results (terrorists cauhgt or eliminated)
Abu Musab al-Zarkawi
Militant Islamist and terrorist
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Business Ethics
Head of Al-Qaeda in Iraq
Responsible for numerous terrorist attacts, death of ca. 800 persons in Iraq and Jordan
Personally planned abduction and killed (beheaded) two American civilians
Killed in American Airstrike in Iraq
Bombs dropped on his hiding place – 7 persons killed, including his wife and 2 children
Abu Ghraib scandal
In this case, the line has certainly been crossed
„Protracted warfare has an eroding effect on the moral fabric of any nation, but by any standard, the line between military necessity and cruelty was crossed at Abu Ghraib” (Adams et al., 2006, p. 681)
Abu Ghraib scandal: basic facts
Abu Ghraib prison – during Hussein’s regime place of detention for political prisoners
Prisoners have been tortured and executed (ca. 900 people)
2003-2006 - Abu Ghraib used by the US Army
Prisoners – often suspects of the terrorist attacks
Prisoners have been continuously tortured, humiliated, raped by US Army (military police) and personel of other US Governmental agencies (CIA, but also private contractors)
Some of the prisoners died while being interrogation
Manadel al-Jamadi
Tortured to death during the interrogation
Al-Jamadi allegedly „was involved” a bomb attack at Bagdad Red Cross Facility (12 people killed)
Involvement: accusation of selling explosive materials to the terrorists
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Business Ethics
The Role of US Administration
January 2002: the U.S. Department of Justice argues that alleged al-Qaeda members could be considered “unlawful combatants”
„unlawful combatants” – deprived of rights written in the Geneva Conventions for the prisoners of war
UN Convention against Torture and Other Forms of Cruel, Inhuman or Degrading Treatment or
Punishment
Ratified with reservations by the U.S. Senate in 1994
Reservations: narrowed the definition of torture
Convention: „ any act by which severe pain or suff ering, whether physical or mental, is intentionally inflicted on a person for such purposes as obtaining from him or a third person information or a confession”
US definition: „ for an act to constitute torture, it must inflict pain that is difficult to endure”
„it must result in significant psychological harm of significant duration, e.g., lasting for months or even years”
Abu Ghraib Staff
90 poorly trained military police officers to control 7,000 detainees
Not enough trained interrogators: gathered from various units (different experience and training)
No operational guidelines: how to cooperate with the CIA personnel and civilian contractors
„ lines of authority were not clear enough, and whose rules applied in what situations were also unclear” (Adams et al., 2006, p. 685)
Moreover: Abu Ghraib not a safe haven, but a prison in the centre of war operations (insurgency against US occupation)
No clear rules/laws: “abuse was directed on an individual basis and never officially sanctioned or approved” (Strasser 2004, 109 )
Time pressure for results: provide reliable information to contain insurgent’s actions
Staff: prepared (more or less) to deal with prisoners-of-war, not with the hostile insurgents and ordinary criminals
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Business Ethics
„Rule and procedure ambiguity may provide beneficial space for flexibility and creativity when individuals have a clear sense of professional ethics and a well-grounded moral compass.
Without ethical and moral anchors and lacking clear procedural guidelines or solid supervision, some military police soldiers at Abu Ghraib moved from passive observers and reporters of prisoner conduct to active participants in the process of breaking inmates down for interrogation purposes”
(Ibid, p. 687). dehumanization
Iraqi prisoners “are like dogs and if you allow them to believe at any point that they are more than a dog then you’ve lost control of them.” (Brigadier General Karpinski about what she has heard from
Major General Miller, 2004) military health workers in the Abu Ghraib scandal
No empirical evidence that health workers took part in abuse
However, many health workers observed suspicious injuries or other evidences of abuse but did not report it to authorities
They remained passive, within the limits of professional conduct
Recorded the injuries in medical records, but did not raise an alarm to stop the abuse
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