Professional and Business Ethics
Prof. Peter Hadreas
Spring, 2014
Course Website:
http://www.sjsu.edu/people/peter.hadreas/co
urses/ProfandBusEthics/
1
Ethical Problems of
Organizations
Corresponds to chapter ten
of Nelson and Treviño textbook.
2
Ethical Problems of
Organizations
Conflicts of
Interest
3
Ethical Culture: Multisystem
Framework: Where Conflicts of
Interests Arise
FORMAL SYSTEMS
Executive Leadership
Selection Systems
Policies/Codes
Orientation/Training
Performance Mgmt.
Authority Structure
Decision Processes
INFORMAL SYSTEMS
Role Models/
Heroes
Norms
Ethical and
Rituals
Unethical
Myths/Stories
Behavior
Language
Alignment?
Treviño and Nelson textbook, p. 153.
4
ENRON LOGO
5
“In 2002, Fortune Magazine still ranked Enron as the
fifth-largest company in the United States, although
by the time the magazine was published, Enron had
already filed for Chapter 11 bankruptcy protection . .
. With the help of its investment bankers,
accountants, and others, Enron constructed a series
of off-the-books partnerships that were used to hide
the companies massive debt and inflate its stock
price. These partnerships were managed by Enron
executives – a clear conflict of interest – who stood
to benefit financially from the deals. . . . A
particularly sad aspect of this debacle was how
much Enron employees lost in their 401(k) plans as
the stock price plummeted.
Treviño and Nelson textbook, p. 355
6
Ethical Culture: Multisystem
Framework: Where Conflicts of
Special Features
Interests Arise
of ENRON’s top
FORMAL
SYSTEMS
leadership
Executive Leadership
Selection Systems
Policies/Codes
Orientation/Training
Performance Mgmt.
Authority Structure
Decision Processes
INFORMAL SYSTEMS
Role Models/
Heroes
Norms
Ethical and
Rituals
Unethical
Myths/Stories
Behavior
Language
Alignment?
Treviño and Nelson textbook, p. 153.
7
Problem of Leadership:
Multiple selves
The concept of multiple selves refers
to a psychologically healthy
personality. It should not be confused
with ‘multiple personality disorder,’
which is a sign of pathological
absence of integration.
Treviño and Nelson textbook, Chapter 7, pp. 252-255.
8
Younger and older Kenneth Lay
9
Multiple Ethical Selves:
The Two Sides of ENRON CEO Kenneth Lay
1. Poor preacher’s son who
won Horatio Alger
Award.
2. President of ‘dry’
fraternity.
3. He created ENRON, by
2000 the seventh largest
company in the US.
4. Never flaunted his
wealth; he drove an old
Cadillac.
1. Used Michael Miliken to
create the merger that
made ENRON. Miliken
had done jail time for
financial fraud.
2. He created a corporate
culture that was
‘cuthroat and ‘vicious.’
3. He hired Ivy League ‘hot
shot risk takers’ like Jeff
Skilling and Andrew
Fastow.
4. People who didn’t make
their numbers were
quickly fired.
5. He was described as an
arrogant gambler.
Treviño and Nelson textbook, pp. 253-5.
10
What does it mean then to
say that people have multiple
selves?
Generally it means that we seek to
organize confusing and contradictory
aspects of ourselves and we are only
partially successful in doing so.
11
U.C., San Diego, Anthropologist, John Poole describes
our multiple-selves:
“Perhaps the constitution of the self is best seen as a
process of establishing problematic linkages between
relatively inward-facing, private self-understandings
and outward-facing, public presentation of the self,
and between images of past, present, and future
selves”
Fitz, John Porter Poole “Socialization, Enculturation and Identity,” in Ingold, Tom (ed.) ,
Companion Encyclopedia of Anthropology, (London: Routledge, 1994) p. 843.
12
Another Example of Problem of Multiples
in Business Leadership:
Dennis Levine
managing director at Drexel, Burnham
Lambert.
13
Younger and older Dennis Levine
14
Multiple Ethical Selves:
The Two Sides of Dennis Levine
1. “He described himself as
a good son, husband and
father, and man who had
been encouraged by his
parents to play
straight.’”
2. “His wife, Laurie, had no
idea he’d been secretly
and illegally trading
stocks for years.”
3. “He and his family lived
in a cramped onebedroom apartment for
nearly three years after
their son was born
despite Levine’s huge
insider trading profits.”
1. Through 1980s, Levine
conducted insider
trading through accounts
in assumed names in
Bahamas and
Switzerland.
2. In 1986, he pleaded
leaded guilty to securities
fraud, obscuring justice,
tax evasion and perjury.
3. Because he cooperated
with gov’t in bringing
other white-collar crimes
to light, he was given
light sentence: two years
in prison and fine of
$362,000.
Treviño and Nelson textbook, p. 255.
15
Practical Advice: Working with Multiple
Selves
1.“Make no assumptions about ethics at work
based on a person’s background, religious
affiliation, family life, or good deeds in the
community.”
2. Focus on understanding a co-worker’s (or
employee’s) ‘work self.’ You can learn a great
deal about the ethical values of a person’s ‘work
self’ by simply asking a person how they’ll
behave when an ethical issue comes up. Most
managers (and co-workers) never bother to ask
such questions. This, unfortunately, contributes to
employees’ belief that managers don’t care about
ethics.
3.(Treviño and Nelson textbook, Chapter 7, p. 255).
16
Ethical Problems of
Organizations
Product Safety
17
Ethical Culture: Multisystem
Framework: Product Safety
Prideful
attitude
FORMAL
SYSTEMS
of Toyota’s top
leadership
Executive
Leadership
INFORMAL SYSTEMS
Role Models/
Selection Systems
Heroes
Policies/Codes
Norms
Refusal to accept
Orientation/Training
Rituals
workmanshipEthical
mightand
be
Performance
Mgmt.
Unethical
unsafe
unless proven
safe Myths/Stories
Authority Structure
Behavior
Language
Decision Processes
Alignment?
Treviño and Nelson textbook, p. 153.
19
When Toyota first entered the U. S. market in
1957, the automotive landscape was dominated by
the Big Three automakers – Chrysler, Ford and
General Motors. In 1961, the Big Three sold 85
percent of the cars purchased in the United
States, and the remaining 15 percent were sold by
a number of smaller (mostly European)
companies, such as Vollswagen, BMW and
Mercedes Benz . . . Then for several years in the
late 1970s to mid 19890s, the Big Three suffered
severe quality losses. . . This shift
revoluationized the nation’s car buying; by 2008,
Toyota had become the largest automaker in the
United States.
textbook, p. 365.
Although the complaints began in 2002, the company
[Toyota] was slow to respond. Toyota was so confident
of its product quality that the firm repeatedly
underestimated the severity of the problem and reacted
either by discounting early problems altogether or
announcing diagnoses and solutions that proved to be
insufficient.
...
The event that truly altered the debate was a crash of a
Toyota Lexus on a California highway in August 2009.
An off-duty California highway patrol officer (who
should know how to stop a speeding car) called 911 in a
total panic. His Lexus was hurtling down the highway
with its accelerator stuck and no brakes. The 911
system recorded the call and the subsequent crash,
which killed the driver and three passengers.”
textbook, p. 365.
In January 2010, Toyota ordered a massive recall of
more than 7.7 million vehicles. The company also
suspended sales of eight of its most popular models
(including the Camry, the best selling passenger car in
the United States for the last 10 out of 11 years.) and
even stopped making those models until the prlblem
was solved. It’s important to note that Toyota halted
production because the NHSTA [National Traffic and
Safety Administration] ordered it to stop.” textbook, p. 365.
“It appears now that the company has not completely
identified the problem or an adequate solution. One
dealer called the current accelerator fix ‘a Rube
Goldberg solution that is hardly representative of the
kind of work usually done by Japanese engineers.’”
textbook, p. 366
Customers
Ethical Culture: Multisystem
presume
Leader’s
willing Productthere
Framework:
Safety
is less
to accept
a
FORMAL
SYSTEMS
INFORMAL
SYSTEMS
quality
partial fix?
control with
Executive Leadership
Role Models/
Toyota
cars
Selection Systems
Heroes
Policies/Codes
Norms
Orientation/Training
Ethical and
Rituals
Performance Mgmt.
Unethical
Myths/Stories
Authority Structure
Behavior
Language
Decision Processes
Cost-cutting
pressures lead Toyota
engineer to accept a
passing solution
Alignment?
Treviño and Nelson textbook, p. 153.
23
Ethical Problems of
Organizations
Employee
Downsizings
24
Scott Paper Company
25
Al Dunlap
26
Scott Paper Company: Consumer Paper Products
Scott Paper Co. in late 1993s was a lackluster company. In
April 1994, the Board of Directors hired Albert J. Dunlap to
boost the company’s performance.
What Albert Dunlap did:
Dunlap sold off $2 billion worth of non-essential businesses.
He soon terminated one-third of Scott’s workforce. Over
11,000 workers jobs were terminated.
Dunlap moved the corporate headquarters from Philadelphia,
where it had been for 116 years to Boca Raton, Florida, where
Dunlap had a home. According to some sources, Dunlap
made the move because he didn’t like the weather in
Philadelphia.
textbook, pp. 377-8
Some Results:
•Scott Paper’s stock price increased 146% in 14 months
•Scott’s profits doubled in one year.
•In mid-1995 Scott paper was sold to Kimberly-Clark
Corporation for $6.8 billion in stock.
•Dunlap himself pocketed $100 million in salary, stock
profits and other perks.
•In 2001, the Securities and Exchange Commission sued
Dunlap, regarding his behavior at Sunbeam, a company he
led after Scott Paper. By the SEC's estimate, at least $60
million of Sunbeam's 1997 earnings were fraudulent. He
agreed to pay $500,000 to settle the SEC's charges.
•In May 2009, Conde Nast Portfolio.com named Dunlap the
6th worst CEO of all time.
Scott Paper--Ethical Culture:
Multisystem
Framework: Employee
Leadership handed
over to Al Dunlap.
SelfDownsizings
described
‘Rambo in
FORMAL
SYSTEMS
pinstripes.’
Executive Leadership
Selection Systems
Policies/Codes
Orientation/Training
Performance Mgmt.
Authority Structure
Decision Processes
INFORMAL SYSTEMS
Role Models/
Heroes
Norms
Ethical and
Rituals
Unethical
Myths/Stories
Behavior
Language
Stakeholders: Stockholders did extremely
well. Stock price increased 146% in 14 mos.;
employees and local community suffered.
Alignment?
29
Ethical Problems of
Organizations
Employee
Downsizings
30
Lincoln Electric
Lincoln Electric is the world’s leading manufacturer
of arc welding products. It is also is one of the
leading producers of electric motors
Lincoln Electric has been on the cutting edge of workerfriendly efforts for a long time.
1923: Among first companies to offer company-paid vacation.
1925: Among first to offer employee stock ownership plans.
1929: First to implement employee suggestion program.
1934 and after: Employees received incentive bonuses.
1934 and after: Guaranteed employment. After three years of
continuous employment, workers’ jobs are guaranteed.
Crisis: In early 1980s because of inflation, higher energy
costs and recession, Lincoln sales plummeted 40 percent.
Company managers didn’t know if they could keep the
promise of guaranteed employment.
textbook, pp. 379-80
Lincoln Electric
How the Company Handled Crisis: Not one Lincoln employee
was laid off for lack of work. The company’s employees
returned loyalty in 1993, when Lincoln urged its employees to
attain higher sales and production. Employees voluntarily
postponed 614 weeks of vacation in order to meet customer
demands.
Results: In 1994, Lincoln added 600 new employees and by
1995 had reached $1 billion in sales. Incentive management is
a cornerstone of Lincoln’s culture. Having developed one of
the first pay-for-performance systems in the country, it is
frequently a subject of research by academics and other
companies.
textbook, pp. 380-1
Lincoln Electric--Ethical Culture:
Multisystem
Framework: Employee
Employee Stock
Ownership Plan
Downsizings
in place
since
FORMAL
SYSTEMS
1925
Executive Leadership
Selection Systems
Policies/Codes
Orientation/Training
Performance Mgmt.
Authority Structure
Decision Processes
INFORMAL SYSTEMS
Role Models/
Heroes
Norms
Ethical and
Rituals
Unethical
Myths/Stories
Behavior
Language
Equity bonus to employees: In 2011 the
total bonus pool distributed to
employees equaled 32% of pre-tax profit.
text.
p. 379
Alignment?
34
Ethical Problems of
Organizations
Product Safety
35
John Mansville
Among worst – if not the worst -- product, employee and
customer safety companies in the twentieth century .
Johns Manville
Fibrous asbestos on muscovite
Johns Manville and asbestos
“According to company document, Johns Manville
became aware of the adverse health effects of asbestos
exposure as early as the mid-1930s . . Warning labels
were not placed on asbestos packaging until 1964. In
addition, company doctors lied to asbestos workers at
Manville facilities and told them they had no health
problems. Johns Manville executives hid scientific data;
lied to the public, the government, and their employees;
and kept quiet about the danger to which tens of
thousands of workers were being exposed.” As of 2007
over 100,000 workers have died from asbestos related
diseases as produced by many companies; Johns
Manville is among two of the largest producers.
textbook, pp. 373-5
REASONS FOR MANVILLE’S KEEPING ASBESTOS
PROBLEMS SECRET
Manville managers at every level were unwilling or unable
to believe in the long-term consequences of these known
hazards.
The denial was fed by the conviction that asbestos was
an essential product and that the world couldn’t get along
without it.
Manville’s air quality standards were higher than the
allowable limit set by the American Conference of
Governmental Industrial Hygienists.
Workers who were smokers were much more likely to get
sick. Managers could blame the tobacco industry and avoid
self-blame.
Managers sent a “don’t tell me what I don’t to hear”
message. Adapted from Bill Sells' article in Harvard Business Review. See textbook, pp. 375-6.
Johns-Manville--Ethical Culture:
Multisystem Framework: Safety
FORMAL SYSTEMS
INFORMAL SYSTEMS
At every Leadership
level, Johns Manville’s
Executive
Role Models/
management was unwilling or unable
Selection
Heroes
to believe Systems
that asbestos was harmful.
Policies/Codes
Norms
Orientation/Training
Ethical and
Rituals
Performance Mgmt.
Unethical
Myths/Stories
1. Lung cancer was
blamed on
smoking not on asbestos.
Authority Structure
Behavior
Language
2. It was assumed asbestos was
Upper management
set a
Decision
Processes
‘don’t tell me I don’t want to
hear’ policy regarding data
about harmfulness of
asbestos
an essential fire prevention
product: world couldn’t get
along without it.
3. Manville’s air quality
standards were in keeping
with government standards.
Alignment?
40
Ethical Problems of
Organizations
Product Safety
41
Note: ACIPCO’s headquarters, like McWane, Inc., is in
Birmingham Alabama. The founder of McWane, J. R.
McWane, originally worked for ACIPCO, but he left it to
found his own company.
42
ACIPCO
American Cast Iron Pipe Company
ACIPCO’s Birmingham headquarters, the largest
individual iron pipe casting plant in the world. Pictured
above is its 2100 acre Birmingham site, with
approximately 60 acres under a roof.
ACIPCO
American Cast Iron Pipe Company
Fortune magazine has recognized ACIPCO as one of
‘The 100 Best Companies to Work For’ the past eight
consecutive years.
ACIPCO is renowned for offering its employees an
‘outstanding’ pension plan, on-site training programs,
tuition reimbursement, and a state-of-the-art wellness
center for employees, their families, and retirees.
Employees collectively own the plant and share in its
profits, even after they retire. Founder John Eagan
believed in running a business based upon the Golden
Rule. Upon his death, Eagan created a trust that made
employees beneficiaries.
adapted from http://www.achievemax.com/blog/2007/07/16/acipco/ See textbook p. 377.
ACIPCO--Ethical Culture: Multisystem
Framework:
Safety
Employees collectively
own the
company.
FORMAL SYSTEMS
Executive Leadership
Selection Systems
Policies/Codes
Orientation/Training
Performance Mgmt.
1. Authority
outstandingStructure
pension plan
2. state-of-art wellness
Decision
center forProcesses
employees,
their families and retirees
INFORMAL SYSTEMS
Role Models/
Heroes
Norms
Ethical and
Rituals
Unethical
Myths/Stories
Behavior
Language
Founder of ACIPCO, John
Eagan, believes in running
a company according to the
‘Golden Rule.’ The practice
matches the principle.
Alignment?
45
QUESTION: McWane, Inc.
is a privately owned
company. What difference
might that make for its
company’s leadership?
textbook, p. 365-6.
Publicly owned companies
Privately owned companies
1. owned, in most cases, by
1. owned, in most cases, by
many shareholders.
2. raises funds and capital
through public sale of its
stock.
3. required to disclose yearly
comprehensive details of
company’s performance to
S. E. C.
4. required to disclose major
and institutional
stockholders to S. E. C.
few shareholders.
2. no publicly traded stock.
3. not required to disclose
details about company’s
performance to S. E. C.
4. no requirement to disclose
major stockholders.
Examples of privately-owned
companies: Koch
Industries, Bechtel,
Chrysler, Ernst & Young,
Hearst Corp.
What sort of ‘selection systems’ did
McWane have prior to 2003?
FORMAL SYSTEMS
INFORMAL SYSTEMS
Executive Leadership
Role Models/Heroes
Selection Systems
Policies/Codes
Orientation/Training
Performance Mgmt.
Authority Structure
Decision Processes
Ethical and
Unethical
Behavior
Norms
Rituals
Myths/Stories
Language
Alignment?
Treviño and Nelson textbook, p. 153.
48
What sort of ‘performance
management’, that is, structure of
rewards and penalties did McWane have
in place before 2003?
FORMAL SYSTEMS
Executive Leadership
INFORMAL SYSTEMS
Role Models/Heroes
Selection Systems
Policies/Codes
Orientation/Training
Ethical and
Performance Mgmt.Unethical
Authority Structure
Decision Processes
Behavior
Alignment?
Treviño and Nelson textbook, p. 153.
Norms
Rituals
Myths/Stories
Language
49
Characterize the authority structure of
McWane
FORMAL SYSTEMS
Executive Leadership
INFORMAL SYSTEMS
Role Models/Heroes
Selection Systems
Policies/Codes
Orientation/Training
Performance Mgmt.
Ethical and
Unethical
Authority Structure Behavior
Norms
Rituals
Myths/Stories
Language
Decision Processes
Alignment?
Treviño and Nelson textbook, p. 153.
50
Decision Processes can apply to health/safety issues
in that decision may focus on ‘requirements to prove
safe’ or ‘requirements to prove not unsafe.’ Which
applies to McWane prior to 2003?
FORMAL SYSTEMS
INFORMAL SYSTEMS
Executive Leadership
Role Models/Heroes
Selection Systems
Policies/Codes
Orientation/Training
Performance Mgmt.
Authority Structure
Ethical and
Unethical
Behavior
Norms
Rituals
Myths/Stories
Language
Decision Processes
Alignment?
Treviño and Nelson textbook, p. 153.
51
Prior to 2003, what ‘norms’ operated at
McWane that were different from formal
policies or codes?
FORMAL SYSTEMS
Executive Leadership
INFORMAL SYSTEMS
Role Models/Heroes
Selection Systems
Norms
Policies/Codes
Orientation/Training
Performance Mgmt.
Authority Structure
Decision Processes
Ethical and
Unethical
Behavior
Rituals
Myths/Stories
Language
Alignment?
Treviño and Nelson textbook, p. 153.
52
Were there myths or stories at McWane
that influenced the company’s culture?
FORMAL SYSTEMS
Executive Leadership
INFORMAL SYSTEMS
Role Models/Heroes
Selection Systems
Policies/Codes
Orientation/Training
Ethical and
Performance Mgmt.
Authority Structure
Decision Processes
Unethical
Behavior
Norms
Rituals
Myths/Stories
Language
Alignment?
Treviño and Nelson textbook, p. 153.
53
In a 2006 letter to the EPA, The president of the United
Steelworkers, Leo Gerard wrote that MacWane’s:
current management “has shown a dramatic change
in attitude.” He continued “current safety practices at
McWane are as good or better than any of its
competitors.”
In 2009, New Jersey, U.S. District Court Judge Mary
Cooper concluded: "A night and day difference has
been accomplished, not by wishful thinking, but by
determined and sustained effort at all levels. They are
determined to continue to serve in all the ways that
they serve and to do everything they can to prevent
environmental, health, and safety damage to
anyone.”2
1. A Dangerous Business Revisited". PBS Frontline. 5 February 2008. Retrieved 6 March 2011.
2. United States of America v. Atlantic States Cast Iron Pipe Co., et al. (U.S. District Court of
New Jersey 29 April 2009)
54
What parts of formal and informal
systems did McWane change after 2003?
FORMAL SYSTEMS
Executive Leadership1
Selection Systems
Policies/Codes
Orientation/Training2
Performance Mgmt.3
Authority Structure
Decision Processes
INFORMAL SYSTEMS
Role Models/Heroes
Ethical and
Unethical
Behavior
Norms
Rituals
Myths/Stories
Language
Alignment?
.
1. McWane claims to have replaced 90% of senior management.
2. They created a training and educational program for environmental health and safety and
management skills.
3. They established a financial incentive program for managers based upon environmental health
and safety performance and an appropriate range of disciplinary actions for noncompliance.
55
Changing Corporate Cultures
NOTE: It’s easier if its a new
organization.
“Changing organizational culture is more difficult
than developing it. In a new organization, workers
are quite open to to learning and accepting the
culture of their new organization home. However
anthropologists and organizational scientists agree
that changing an existing culture is an extremely
difficult process. . . . The human tendency to want to
conserve the existing culture is referred to as
cultural persistence or inertia.”
Treviño and Nelson textbook, p. 187
Sources for pictures
slide #5, ENRON logo: http://www.google.ca/#q=Enron+Logo
slide # 15, logo of Toyoto: http://www.google.ca/search?q=logo+toyota&biw=1003&bih=711&tbm
slide #30: logo of Scott Paper Company: http://www.google.com/search?q=logo+Scott+Paper+Company&tbm
slide 39: logo of Johns Manville: http://www.google.com/search?q=logo+Johns+Manville&tbm
slide # 37: asbestos fiber on muscovite: http://en.wikipedia.org/wiki/File:Asbestos_with_muscovite.jpg