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The Six Critical Areas of Ethical Corporate Decision Making

Recently, I 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 behavior.  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 behavior in its employees. 

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 is, 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 behavior.

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 behavior.   To build an ethical foundation an organization must address six critical areas.

  • 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.
  • The corporate culture of the organization must reflect and be aligned with the ethical standards of the organization.
  • The organization must have a consistent ethical vision. This is often represented by a code of ethics that presents the vision and its rationale.
  • Ethical behavior must be demonstrated by governance practices and upper management activities. Management actions and governance practices can support or undermine an organization’s culture, code of ethics and code of conduct.
  • 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.
  • Finally, a code of conduct is required to formally identify behavior 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.

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 behavior.  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.

Tyra’s new Ethical Decision-Making workshop provides the background that employees need to understand how ethical and unethical decisions are made.  It puts into focus the way people make decisions in the real world and provides an understanding of how that impacts the ability to make ethical decisions.  It then works with participants to use that knowledge to evaluate strengths and weaknesses in the organization, leading to an action plan for improving the ethical foundations of the organization.