Ethics, Misconduct and the Financial Services Industry

Towards a Theory of Moral Business

Barbara Fryzel

• Publisher: Routledge
• Year: 2020
• Print ISBN: 9780367618667
• eBook ISBN: 9781000337686
• Edition: 1
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

This book explores how ethics and the moral context of business have evolved

historically in inf luential management theories and concepts. It looks at how

managerial thought accommodates morality, values, and ethics and demonstrates

the emerging patterns of ethical conduct to illustrate how moral aspects

of management and organizational practice can become peripheral.

The author examines a diverse range of data sources such as the most seminal

books in management and academic papers published in the mainstream

academic literature. The readings selected in the process are subject to critical

analysis and are complemented by an exploratory study of the financial services

industry, based on semistructured in-depth interviews. The uniqueness of the

proposed approach comes first from the consolidation of many perspectives

such as management, organization studies, and business anthropology rather

than focusing on one particular subdiscipline; second, from using a mixed

methodology, combining literature reviews with empirical, exploratory research

based on interviews; and third from including a narrative context in the

analysis and proposed future theory framework.

This book will appeal to students, researchers, and scholars who teach ethics

in the fields of economics or business. It is useful for advancing theory and

research on moral management and as a resource for management practitioners

looking to create business practices fostering moral sensitivity. Those interested

in setting future development directions may also find the proposed

consolidation of theoretical and empirical evidence valuable for the design of

future policies.

1 Traps for moral management

1.1 Moral management against commercial ethics

The word moral is defined in The Compact Edition of the Oxford English Dictionary (1979) as “of or pertaining to character or disposition, considered a good or bad, virtuous or vicious” (p. 658), while ethic means relating to morals, “characterized and pertaining to ethos as opposed to pathos” (p. 312), i.e., permanent and ideal as opposed to transient and emotional (p. 554), justifying to an extent a synonimical use of both terms. The origins of the terms and the definitions indicate a state of permanency as a quality inherent to what is being considered ethical and thus relating to morals. The meaning of ethos implies an ideal state to which one can aspire and also depicts a stable reference point when trying to achieve that state.

Moral behaviour is about human interactions and is exemplified across many levels, from individual relations in the process of managing and individual qualities of being a manager, through organizational relations in the process of competition and cooperation, to a macro level in the process of how markets are organized. Specifically, it applies to the transactional aspect of human relations (i.e., quality and justice of exchange in individual relations in the organized environment).

The term organization in itself can have a moral component per se if it is understood as an antonym for chaos (i.e., lack of organization), seen by definition in negative terms as in case of modernist organization theory (Hatch, 2018). Organization, according to The Compact Edition of the Oxford English Dictionary (1979), depicts a condition of being organized as a living being, a union of what was once separated and independent. To organize means to equip with organs. Organization thus acquires organic qualities. Given the above, entities quite rightly could be seen as organisms filled with actions and relations as they are often described in that way metaphorically and subjected to anthropomorfization.¹

To organize something is an inherent part of the management process. To manage means to direct, control and administer, with care and judgement, to submit to one’s rules (pp. 105–106). The scope of those meanings covers all key features inherent to managing organizations such as its technocratic aspects of planning, control, administration, as well as power and instrumentality, but also and implicitly, the moral component, as the process supposedly involves manipulating a behavior of other individuals to achieve the purpose. Classically, management would be seen as a set of processes leading toward achievement of goals through proper use of resources.

Finally, an overarching notion of business, which depicts equally well the qualities of a managing individual as the entity to be managed, is thus understood as a state of being engaged in activity. It means eagerness and anxiety but also diligent labour. Finally, it refers to the object of serious effort, a purpose or aim, but is also understood as a task appointed and a professional duty. Eventually it describes a trade, a transaction, and a commercial enterprise (pp. 1205–1206).

While organization is a nexus of social relations and actions, business remains an overarching term linking organizational thought with managerial practice.

In the years before the 1960s, business was considered largely as amoral (i.e., not expressing any qualities in that sense), neither positive nor negative. Interest in ethical matters started to grow, especially as a result of large corporations gaining more and more significance as not only economical but also political actors and as getting internationalized resulted in attention being paid to cross-cultural issues.

Currently, ethical and moral studies attempting to explain reasons for wrongdoing constitute a substantial research stream, covered by different research traditions. One of them is organization studies, which looks at organizations as enterprises (Clegg, 1990) and as systems of collective action comprising shared meanings and collective experience,² allowing for a broad perspective and focus on a systematically bonded world of organizations (Clegg, 1990, p. 19). Organization studies is seen as “a series of conversations (…) who help to constitute organizations through terms derived from paradigms, methods and assumptions, themselves derived from earlier conversations” (Clegg & Hardy, 1996, p. 3). They are reflexive, constructivist, and postmodern by nature, capturing well uncertainty and thus showing more breadth than areas defined as organization theory or organization science (p. xxiii) (Clegg & Hardy, 1996, p. 31).

Another one is organizational anthropology, which looks a lot at culture and its significance for sensemaking processes³ and where humanism intermingles with relational and constructivist perspectives. With group dynamics being in the centre of interest, anthropology is well suited to look at the relational aspects between individuals and groups, as one of the factors in the analysis of wrongdoing (e.g., how unethical culture emerges or how a coordinated effort could lead to wrongdoing).

Culture is the root cause of many ethical issues, be it at organizational or at a larger societal level. For example, “applied ethics” may describe “a response to society’s need to resolve social control problems posed by cultural crisis,” which is attributed largely to the void between advancement of management science, technology, communication which changed traditional structures guiding behaviour such as religion, etiquette or philosophy resulting in the cracking down of axiological and cultural system (Bainton, 2012, p. 15), where through values, ideas, and habits, ethical judgement of actions takes place.

However, possible interpretation of this cultural deterioration could also include a badly managed pluralism of values, which places equal priorities on divergent value systems. Declaring axiological universalism as potentially inadequate deprives individuals of a stable reference point, rendering moral decision-making very difficult. A resultant axiological plurality underpinned by different ideologies may potentially deteriorate traditional social bonds, which used to be embedded in local cultures and are often constructed from a history of commonalities in understanding of what was right and wrong. This may constitute moral conformity.

Axiological plurality works through institutions.⁴ Bainton (2012) explains that a routinized response to the individual needs of group members becomes a social institution, which operates according to a cultural script, enabling individuals to internalize such response and repeat it later on, while becoming socialized into the group. Issues like cultural diversity or high group turnover test the stability of that cultural script.

Given the above, ethics becomes a fairly technical term,⁵ describing the dynamics of social relations where a fluent and changeable culture without a stable point of reference distinguishes right from wrong depending on what actually fits socially. Such way of looking at ethics may be situated in the tradition of transactional and contractual thinking about the nature of human relations. Managing ethics would thus be conditioned by cultural pluralism, where a less formal approach as opposed to a more formal one may be preferred. Even if there was some consensus on the content of morality, how to achieve those could still be culturally differentiated (Weaver, 2001). Since institutionalization needs to consider cultural diversity, which may be seen as a value in its own right, it becomes a counterforce to universalism.

Moral however is defined through ideal and permanency and whether it applies to organizations largely depends on assumptions whether organizations can be treated as moral agents. When they become institutions organizations also become actors in moral order (Selznick, 1992, as cited in, Scott, 2002), which justifies moral agency (Weaver, 2006), in which case moral management goes beyond standard management and compliance processes (Baron, 2009).

Attributing moral agency to organizations might be partially resolved by equipping them with legal personality, although it still sparks debate. For example, Santora (2008) discusses moral agency and responsibility from the individualist and collectivist perspective. The former allocates moral agency only to biological persons (i.e., responsibility is down on managers or eventually shareholders). The collectivist hypothesis, on the other hand, allocates responsibility to the entity assuming that it has internal structures for decision-making and thus could be held responsible equally to human beings.

While the concept of morality seems well represented in anthropology studies (Zigon, 2007, 2009), business and organization studies seem predominated with poorly defined terms ethic and moral, being used simultaneously (Carroll, 1991, 2000), although sometimes they are interpreted explicitly (e.g., ethics as moral philosophy, corporate governance as a firm’s moral health, and equality as moral justice) (Fleming & McNamee, 2005).

The way the term moral has been applied to businesses can often be confusing. For example, although it is contrasted with notions of corporate social performance (CSP) or corporate social responsibility (CSR), it is still explained on economical grounds (e.g., in the context of externalities). Redistribution of externalities becomes a moral issue. Morally managed firms would incur substantial costs for mitigating the externalities and redistribution, for which it would not be renumerated sufficiently on the market. In such context, mitigating the externalities, as required by moral duty, does not make any business sense.⁶ Social pressures, which are inherent to stakeholder management concept, are something for which a society is willing to pay through funding efficient activists. They can be avoided but only if a morally managed firm has a reputational advantage and if people differentiate between motivations⁷ (i.e., moral management can not be motivated by pressure or self-interest as it then becomes no different from CSP). Given the above, self-interested firms will be motivated to engage in moral management if they can shift social pressures to the others in these ways. Interestingly, Baron (2009) posits that lower quality activists target morally managed firms but with weak reputations as these are the softer targets as opposed to self-interested firms or morally managed but with strong reputations. In effect, moral management carries a certain degree of vulnerability for an organization and is thus costly but can be priced on the market, i.e. a market value of a morally managed business may exceed its’ bottom line results as shareholders satisfy their ethical needs through investing in moral businesses (Baron, 2009).

In summary, ethical business seems to be described largely through solutions, demonstrating a commercial character, focused on stakeholder management, while moral business centres on exceeding compliance and should be costly, meaning that it does more than is required by a letter of law, which can require some compromise on profit maximization, at least in a short-run. Negotiating a conduct with others, on the basis of mapping their needs as a form of compliance, qualifies as commercial ethics, and is not necessarily driven by altruistic motives. Such a standpoint has consequences. Altruistic, not self-interested or pressure-driven motives, by definition rest on stable values, nonnegotiable, depending neither on the context nor on particular needs or situation. This makes axiological plurality a natural obstacle for moral organization, as defined above. Furthermore, even if negotiating conduct would result in certain ethical norms, as a product of compliance, they would be subject to contractual and transactional approach to ethics. Such negotiated ethics becomes a type of exchange and may make altruistic motives questionable.

While ethos calls for permanency and idealism of moral quality defined by dichotomies of good/bad, virtuous/vicious, ethical business is excessively focused on the negotiated character of social norms. This invites norms’ plurality, naming as ethical any activity as long as it includes consensus with stakehol...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Preface
• Introduction
• 1 Traps for moral management
• 2 What makes management moral
• 3 Organized morality
• 4 Dominant narratives – relativizing a moral imperative
• 5 More compliance less moralizing. The case of financial services
• 6 The possibility of a moral theory
• Conclusion
• Bibliography
• Appendix
• Index