Ethical Dilemmas in Management

Christina Garsten, Tor Hernes

• Publisher: Routledge
• Year: 2008
• Print ISBN: 9780415437592
• eBook ISBN: 9781134073320
• Topic: Business
• Subtopic: Business General
• Index: Business

This exciting new text engages with the issue of ethical dilemmas encountered in different organizations. Rather than exploring the definition of ethical conduct, this book focuses on the way in which the process of organization produces dilemmas of ethical behaviour. Using illustrative accounts from corporate settings as a basis, the book explores

1 Introduction

Dilemmas of ethical organizing

Christina Garsten and Tor Hernes

From (ir)responsibility to accountability

Years ago, big businesses would be content simply to earn money and capture large market shares. In fact, the hypothesis advanced by the famous sociologist Max Weber in his classic The Protestant Ethic and the Spirit of Capitalism, first published in 1904–1905, was that the rise of Western capitalism was based on the idea that earning more money was legitimately seen as an end in itself. In other words, there were no moral or ethical considerations that were placed above that of earning money. Thus, until quite recently, it has seldom been asked if the operations of large companies or public institutions were harmful in any way or if they served dubious political agendas. Being big, powerful and appealing to the consumers seemed an end in itself, and company strategies could be formed with the exclusive aim to be more effective, which is why slogans such as ‘What is good for General Motors is good for America, and vice versa’ was seen as a legitimate slogan in the 1950s.¹ The 1970s witnessed a rising concern with civil rights, a growing focus on the environment and an increasing awareness of human rights and equality. The 1970s is perhaps the decade when questions began to be raised about the role of big business in politics. The International Telephone and Telegraph Corporation (ITT), under Harold Geneen, came under sharp criticism when it was allegedly involved in the military coup and overthrow of the democratically elected Chilean president Salvador Allende in 1972. Geneen, famous for his ruthless management style, fell into disrepute perhaps from sticking to his dictum: The only unforgivable sin in business is to run out of cash. In other spheres of society people began to ask if there were not other sins of which businesses might be guilty. The US was no exception. In Europe in the 1970s, for example, banks came under attack for their investments and operations linked to the apartheid regime in South Africa.

A decade later, the responsibility of big business in preserving the environment became a reality, with the Bhopal disaster in India in 1984. Thousands of local inhabitants were killed or mutilated when methyl isocyanate gas leaked out from the Union Carbide plant. With falling profits, the safety measures at the plant had become increasingly lax. The Bhopal disaster served to raise the issue of the accountability of corporate actors in society, and not just their responsibility. Responsibility in the Bhopal case became subject to court rulings. However, legal sanctions could not be enforced, due to failures of the international legal regime to handle issues of accountability in a globalized business corporation such as Union Carbide. The invoking of court jurisdiction was, nevertheless, highly significant, because with accountability comes legal responsibility. Legal responsibility means that a company’s practices, and by association its image, may be deemed harmful to the environment or society through a court ruling.

Court rulings about misconduct are potentially more harmful to a company’s image than any other event, and have decisive negative effects on the company’s economic viability. It is not surprising, therefore, that companies have, during the last decade, increasingly imposed standards of conduct upon themselves by introducing in-house Corporate Social Responsibility (CSR) systems. The costs of not appearing to be a responsible company are just too big in a mediacized, brand-conscious society. It is possible to see a self-reinforcing loop of factors at work here. A heightened awareness in society in the 1970s made it easier for the judicial system to consider legal sanctions against corporate misconduct. The power of legal actions opened up the perception of a need to respond to pressures for accountability among companies, and sometimes also for a feeling of wanting to be accountable. This need to be accountable to society at large has in turn stimulated people inside and outside corporations to search for ways of being socially responsible.

Such developments do not belong to the corporate world alone. Parallel developments have taken place in public institutions, forcing them to become more accountable to their constituents. Accountability applies to politicians, private organizations and public agencies, such as schools and universities, as much as it applies to corporations. It is all part of the trend which is referred to as ‘the audit society’ (Power 1997). An audit society implies a growth of new administrativestyle control systems that play an important public role. As part of this development, organizational performance becomes increasingly formalized and auditable. Today, a huge variety of experiments and research are undertaken with the aim of making companies auditable and thereby accountable to the wider public. The extent to which they produce accountability is, however, open to question.

Some deeper questions

Organizations are powerful actors. To a large extent, transnational corporations, states, international organizations and non-governmental organizations fashion and control the everyday contexts in which we lead our lives. Spar and La Mure (in this book), for example, point out how the agendas of large corporations may influence the policies set by nation states in different parts of the world. Many organizations, though not all, also have missions and rules intended to reduce risks of wrongdoing. However, organizations are not only ‘do-gooders’, but also make decisions and choices that could have harmful effects. Why do some organizations act in ways that harm people in their neighbourhood, their employees or their competitors? Why do organizations sometimes choose not to act responsibly? How is it that people in organizations can become greedy automatons when placed in powerful positions? Perhaps it is not in the nature of organizational leaders to be able to choose ‘right’ from ‘wrong’.

Part of the answer to these questions may be found in social transformations at large. In his work on postmodernity and morality, sociologist Zygmunt Bauman (1995) sketches a world of individuals afloat in society. They have lost their bearings and are no longer investing in other individuals, only in themselves. In Bauman’s view, when the organization of society moves from community logics to market logics, there is a loss of morality and an irretrievable loss of conscience. He also speaks of how formal organizations may simply ‘suspend’ moral responsibility, pretending it is not an issue. In this way, they do what the church did with certain issues in the Middle Ages, declaring them not related to faith, so they could be declared neither sinful nor virtuous (Bauman 1989). The question, however, is whether companies can declare that they go about their business, i.e. earning money, leaving others to decide what is right or wrong.

Although Bauman is critical of the moral standards achieved by modern organizations, he also talks with some optimism about our age as ‘the age of morality’. As organizational boundaries and areas of societal and individual responsibility are being redrawn, when the risks of society take on global proportions and force people to deal with them in new ways, then critical reflection and social responsibility will increase, with chances of moral togetherness, according to Bauman. Conscience will again be reconstructed because people recognize the social, i.e. the interpersonal, as being the very core of our lives. In other words, here lies a challenge to modern business because they are populated by people who care and know that there are other values than bottom line results.

Businesses committing themselves to ethical rules of conduct may be a reality today, but it is not entirely new. Some early founders were more than just corporate owners; they took paternal interest in the welfare of their workers and their families. Although this was the exception rather than the rule, in many societies they were a substitute for a non-existent public welfare system. Another measure of achieving some degree of ethics in business was the formation of various types of cooperative movements in the second half of the nineteenth century. Cooperatives were formed by consumers, farmers, fishermen, workers, etc. to provide some protection from exploitation by industrialists, traders and finance institutions.

Thus the role of corporations in society is a question of long standing, and one that has become ever more pertinent today, with increasing globalization and emerging governance gaps in the system of international jurisdiction. Large corporations, for example, may avoid thorny ethical issues by moving their activities to less visible corners of the world, or they may simply outsource activities to companies that are less concerned with ethical standards. This raises poignant questions such as ‘How do corporate actors respond to pressures of responsibility and accountability?’; ‘What practices and procedures are initiated to negotiate accountability and corporate business priorities?’; and ‘What dilemmas emerge and how are these dealt with?’ These questions deserve critical attention from managers, researchers and students alike. This book does not provide definitive answers, but offers an initial basis for reflection and questioning.

Faith in formal standards and structure

In the last few decades, one trend has become increasingly dominant in social life, notably what is called the institutionalization of standards (Brunsson and Jacobsson 2000). Standards seem to guide the lives of individuals as well as the lives of companies to an ever greater extent. Standards developed by governments and the EU as well as agencies such as the ILO, WTO, etc., serve to protect rights, to facilitate coordination and to assure fair play among market actors. Standards exist in different forms. As such, standards can be voluntary in nature and may complement systems of binding rules when these rules are not sufficient. Standards for ethical conduct and social responsibility of corporations belong to this category. Over time, standards may become compulsory. Standards on emissions and pollution, for example, are set through international agreements and subsequently through national legislation, which means that they then become compulsory rules. Some standards are produced by national or international organizations, such as the International Organization for Standardization (ISO), and are then offered to, or imposed on, other organizations to follow. They are what we would call exogenous standards; they are imposed by external bodies such as regulatory agencies. Endogenous standards are standards developed in-house by companies that choose to apply them to their own operations. They are self-imposed for a variety of reasons.

One important reason is to promote the image of the company to the public and their customers. In an increasingly globalized marketplace it has been recognized that large corporate actors as well as governments may evade national and regional regulations. At the same time, large brand-based actors, such as Nike, H&M, IKEA and others depend on being perceived by the public as ethically responsible in order to prosper in their respective markets. Hence a number of organizations have enrolled in the Corporate Social Responsibility (CSR) movement, which has created large opportunities for consultants as well as research agendas for academics and teaching curricula in business schools. CSR has been hailed as a major means by which corporate actors develop their internal capacity for auditing their impact on targeted areas (environment, labour relations, human rights). Until the Enron/Andersen scandal erupted, it was thought that there was a correlation between a corporation’s commitment to CSR and its ‘real’ commitment to being ethically responsible.

CSR standards (and other standards) are essentially based on the idea that problems are avoided by imposing rules. An important trend in past years has been to leave it to standards to ensure ethical conduct. Standards may be an effective means of ensuring some degree of ethical conduct, but although enforcement through standards may improve the overall level of ethical conduct, they similarly may allow for more perverse breaches of ethical conduct to emerge. Standards are double-edged swords. One edge is explicit. It sets the minimum lower limits for conduct. Not falling below this level basically means that the company is ‘OK’ and it will normally keep it out of trouble. An advantage of the explicit minimum standard is that people inside the company as well as people from outside are able to assess its performance. It means that the very existence of the standard helps create awareness of the importance of ethical conduct. The other edge of the sword, however, is more problematic. This is about the implicit effects of standards of conduct. It basically implies that as long as the company apparently performs well enough, and attention is focused on those operations where it does well enough, other operations may be performed that are ethically irresponsible. This is not just because actors in the company wilfully perform deceptive operations. It may just be that because organizational operations are very complex, it is difficult to know what is really ethically defensible.

However, let us deal with intentional misconduct first. In the pre-Enron scandal era, for example, CSR was seen by many writers and practitioners as a way to infuse corporations and public organizations with a sense of ethics. Paradoxically (or maybe not so paradoxical after all), Enron scored very high CSR indicators and was seen as an example worth following in terms of exercising their social responsibility. We know the story. The consequences were disastrous for thousands of employees and small investors. Authorities, institutions and individuals were tricked into believing the good intentions of Enron. What was at play behind the sincere facade was a remarkable deftness with which select individuals could lure huge numbers of people around the world. Their CSR was bogus. However, we could also turn the phrase around and say that CSR allowed their practices to be bogus. The example suggests how CSR standards, along with many other standards, may sometimes serve as smokescreens. Enron stuck to the explicit standards which they could—and would—measure. As smokescreens, such standards may deflect attention from practices that are condemnable; but as smokescreens they serve a different function, which is to make people believe that the company operates in an ethically responsible manner (or at least more or less so). However, what is at stake is not so much Enron. It is how they could trick the world with the help of CSR technologies when CSR is intended to prevent exactly this. We would argue that it is the conceptualization of CSR that is problematic, more precisely the foundations from which CSR is developed.

We are not arguing that CSR (or other rule-based approaches) is a mistake. What we are arguing is that CSR has its limits, and it is at its limits that the consequences of mischief are potentially most disastrous. The Enron story shows us that with some deftness and ingenuity, corporations may actually use instruments such as CSR in order to circumvent the responsibilities that CSR is meant to instil. Part of the explanation lies in the functionalist logic of CSR, which demands that corporations put into place a certain number of functions to ensure that codes of ethics are followed. One example is ‘environmental accounting’ which demands that the corporation monitors its effects on the natural environment. Such measures have their obvious strengths. It is not easy for management to ignore data that are produced through institutionalized structures instigated by themselves. There are, in fact, many arguments why such structures are a good idea. They do not just perform regulatory functions internally, but are also educational in the sense that they serve to sensitize organizational members to issues of global concern.

On the whole, corporations and public agencies have a long history of applying a good dose of ‘discretion’ when it comes to their functions. It might be useful to employ the metaphor of CSR functions as ‘corporate lightning rods’. Lightning rods serve to deflect the lightning from the main building. For example, a strategy that is becoming increasingly common in the globalized economy is to outsource activities that could prove to be harmful to the image of the corporation. Outsourcing, or decoupling effectively moves the responsibility for questionable practices to another corporate actor and hence outside the reach of the corporation’s own monitoring responsibility. A common practice is to move production to companies operating in countries where public disapproval does not engender sanctions. Thus, as long as CSR remains functional in nature, it may be subject to manipulation in the sense that organizational actors may follow rules, but still perform what, under closer scrutiny, would appear as ethically questionable. We will return to the ‘lightning rod’ chapter in our concluding chapter.

The power of dilemmas

So far, we have assumed that misconduct is a result of wilful actions, and that CSR or other types of corporate rules sometimes cannot prevent it. However, invoking rules may sometimes make it worse, because the invoking of rules may activate standards as smokescreens behind which some companies hide operations that might be condemnable. Beyond standards, beyond the mere application of CSR, emerge the complexities of doing right or wrong. The fact is that companies operate in a world of multiple standards of what is right and wrong, and when different, sometimes mutually contradictory standards manifest themselves, behaving ethically soon becomes a dilemma.

Protecting the environment and society through reduction of emissions is a laudable goal. The same goes for ensuring a secure and healthy work environment, and staying loyal to the local community as well as to the workforce. For each one of these issues, deciding what is good or bad may not necessarily be overly problematic. However, organizations have to deal with these issues and many more, and have to reach a compromise between many factors, where what is good for one may be bad for the other. For example, it may be environmentally more ethical to move production to a place with access to cleaner energy, but that might also necessitate laying off the workforce, causing harm to staff and their families. Another example is that agricultural products may be imported from developing countries in order to facilitate their access to foreign exchange. On the other hand, importing produce entails transport over long distances, with increased pollution of the atmosphere, which in turn harms the agricultural production and consequently the livestock of developing countries, which the measure of importation was supposed to help in the first place. Hence, in many different ways, companies are forever facing the challenge of actually distinguishing right from wrong where there are no readily discernible answers.

We believe that, rather than suggesting definite answers or rules of thumb about what is and what is not responsible corporate conduct, an alternative is to study examples in different organizations and management settings. Thus the aim of this book is to explore the ethical issues that confront organizational actors and how the actors deal with them, while, at the same time, trying to understand how ethical dilemmas come about. We explore how actions and structures of organizations may emerge, cause dilemmas and find solutions—or, how they may be ‘organized away’ through formal organizational functions and technologies of responsibility. We aim principally to identify dilemmas and paradoxes and ponder some implications that these may have for organizational management. Thus, rather than provide guidelines of solutions, we provide questions to ponder. The rationale for being open and reflective rather than prescriptive lies in our belief that questions of ethics in organizations are best pursued though reflexivity. Organizations may well have developed structures and functions to take care of CSR questions, but beyond the sphere of influence of such structures and functions, questions of importance can on...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• List of illustrations
• List of contributors
• Foreword
• 1 Introduction: dilemmas of ethical organizing
• 2 Risk, responsibility and conscience
• 3 White as snow or milk?
• 4 Does rule-based moral management work?
• 5 Challenges to leader integrity
• 7 The power of activism
• 8 Thoughts and second thoughts about Enron ethics
• 9 No smoke without fire?
• 10 Overmanagement and the problem of moral consciousness
• 11 Tying some ends together