Six Critical Areas of Ethical, Corporate Decision-Making

Glenn Krahulic and Peter Walters

We recently had the opportunity to discuss corporate ethics with the CEO of a mid-sized, technology company.  He mentioned that they had recently fired an employee who had contravened their Code of Conduct.  While he was unhappy about firing a capable and valuable employee, he was satisfied that his company’s code of conduct document had protected the company from unethical behaviour.  He felt that it had successfully maintained the company’s ethical standards.

Unfortunately for him, the fired employee, and the company, he was wrong.  Firing an employee for breach of the Code of Conduct document is not a success.  It is a direct measure of the failure of an organization to instill ethical behaviour in its employees.

Ethics More Than Code of Conduct
Developing and maintaining an ethical organization is a complex and time-consuming effort.  It requires constant attention to build the proper “DNA” and have it expressed in all day-to-day and strategic operations.  It requires an understanding of what ethics are, and how individuals and organizations make ethical decisions.

Ethical practices are shaped by many factors including a country’s culture and legal framework, corporate culture, practices and policies, and individual integrity, but they are directly driven by the decisions that individuals in an organization make. This means that any discussion of ethics must include the understanding of how individuals and organizations make decisions, both good and bad.  Once this is understood, ethical principles and ethical standards can be applied to achieve the appropriate corporate behaviour.

The starting point is to understand that cognitive biases, group dynamics, corporate culture, training and experience all affect the way people make decisions.  This means that without careful attention to decision-making practices many personal and corporate decisions lack consistency and a rational basis.

Ethical decisions are further impacted by the business environment in which they are made.  While a code of conduct may formalize ethical standards, it has limited capacity to influence ethical behaviour.

Six Critical Areas to Address
To build an ethical foundation an organization must address six critical areas:

  1. The products and services that the organization delivers must be ethical. While it probably goes without saying, it is impossible for an organization to make ethical decisions if the products and services that are being delivered are, by their very nature, unethical;
  2. The corporate culture of the organization must reflect and be aligned with the ethical standards of the organization;
  3. The organization must have a consistent ethical vision. This is often represented by a code of ethics that presents the vision and its rationale;
  4. Ethical behaviour must be demonstrated by governance practices and upper management activities. Management actions and governance practices can support or undermine an organization’s culture, ode of ethics and code of conduct;
  5. Employees must be enabled to make ethical decisions. While at the extreme this may include whistleblower policies, there needs to be a culture that allows questionable ethical decisions to be identified and corrected early.  This is best delivered through a culture that respects input from all individuals and recognizes critical questioning as a valuable part of the decision process; and
  6. Finally, a code of conduct is required to formally identify behaviour that is outside the bounds of the organization’s ethical vision and principles, and to identify specific remedial actions. As mentioned earlier, any action needed because of breaches of the code of conduct should be a flag that there are shortcomings in the other critical areas.

A Caveat on Codes
Creating and maintaining an ethical organization requires that all employees understand ethics and how individuals make ethical or unethical decisions.  In today’s rapid and ever-changing business environment it is impossible to codify all unethical or ethically questionable behaviour.  Companies that operate internationally and deal with diverse cultural definitions of ethical behaviour face an even greater challenge.

Understanding how people make decisions and combining that with the proper cultural and governance support structures will give employees the tools to make the best possible ethical decisions in any business situation.

Glenn Krahulic is a business moderator, trainer, and author. As the president of Tyra Information Strategies Inc., Glenn has spent over 30 years working with medium and large public and private organizations to build and deliver enterprise level IT solutions. As the lead architect of Tyra’s tools and processes, he is focused on integrating the findings of behavioral science into approaches to enable organizations to fine tune their culture, skills and decision making processes.

After nearly 35 years in the BC Public Service, many of them as an Assistant Deputy Minister in the tourism, natural resource and Aboriginal relations ministries, Peter Walters has focused on facilitation, training and writing. In addition to facilitating workshops and producing online content at Tyra Information Strategies, Peter leads seminars on briefing, leadership and governance.

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