What Are the Corporations' Ethical Dilemmas - Case Study Example

1. Lockheed Martin (LM) had been focusing on petty issues like how to respond to a chain letter from the supervisor or how to deal with an employee who steals his child’s school supplies from the company (Guenther, 2000). They did not allow whistle-blowing but snitching on employees was encouraged. There were no ethical codes of conduct laid down for health and safety measures, no ethics of working on space weaponry. The training did not include any directives from the Environmental Protection Agency (EPA) or the Federal Aviation Administration. In 1997 McDonnell Douglas hired an engineer away from LM who carried with him all proprietary documents. Later that year McDonnell Douglas merged with Being, rivals to LM and in 2005 LM and Boeing decided to merge their space-rocket business and came into agreement to drop their litigation over the stolen rocket-contract information (Seattle Times, 2006). This was the general trend at LM which demonstrates lack of any ethical values or culture. Due to its inefficient ethical standards, LM came into serious controversies from different organizations and different groups of people. The US Department of Defense (DOD) and its contractors had an inter-agency battle over regulating perchlorate level as it military dumpsites and contaminate the public drinking water (Saas, 2004). The Perchlorate Study Group (PSG) submitted a report to the EPA stating that the perchlorate level was within permissible limits but it was rejected by EPA. The Chairman of PSG is an employee of Aerojet of which LM is a member. In 2002 as EPA recommended a stricter limit, LM issued a notification that they would assist in determining the cleanup obligations of the EPA. While LM was still ramping up its scientific defense, the Cocopah Indian tribe complained to the EPA that the ppb limit in the water was not sufficient to protect the nursing and pregnant mothers and the teenagers who worked in the paddy field. It was later revealed that two panelists of National Academy of Sciences (NAS) had close ties with LM who underplayed the health impact of the perchlorate level in water. Another paid consultant presented his epidemiologic findings without disclosing his financial relationship with LM. All of these scientists presented themselves as independent scientists but were under the watchful eye of their client. This led to pressure from the public. There were two defense scandals and breaches of export laws. They could be barred from defense contracts and denied export licenses for both military and commercial sales. There was public cry against the lobbying firms, law firms and the defense contractors. This is known as the “iron triangle” in Washington. The officials in the DOD have been former employees of the defense contractors. The members of congress are handsomely paid lobbyists all working for defense contractors. The ex-vice president for strategy and planning of LM became responsible for the foreign policy platform which was responsible for the dramatic increase in defense spending. While he was the vice-president at LM, he also served as the president of the US committee to expand NATO, a nongovernmental pressure group. There have been allegation that after Bush came to power, LM’s revenues soared up by 30% and it was awarded $17 billion on contracts from the DOD. Whatever is the rationale for invasion of Iraq, business for LM soared to unprecedented heights as all lobbyists, law firms and consultants shared a common link with LM. LM’s interests were in direct conflict with those of the American citizenry. With so much of exposure and pressure from all fronts, LM decided to initiative ethical practice and developed programs. 2. According to Robinson (2002), ethics is a set of moral principles held by an individual or a group, encompassing individual behavior, environmental policy, staff policy, and corporate social responsibility, which has gained importance recently. Ethics in simplest terms means to be able to discriminate between the right and the wrong and have the courage to stick to the right no matter what temptations may arise. Ethics, responsibility and duty are intertwined although duty is superior to ethics. Ethical dilemmas may haunt a person, especially under stressful conditions, but the true value of human life can be accomplished only when he fulfills his duties as a human being. Demands of the shareholders, stakeholders and investors are forcing industries to maintain a high morality in how companies conduct business. The cost to a company for being unethical stretches beyond the monetary sums and damages many areas. The cost of corruption can be much higher than people can perceive and it takes different forms (Vogl, 2007). The scandals weaken the public confidence in the company. They do not give credence to information released by the executives of the company. As scarce resources are wasted and stolen economic growth of the company suffers a setback. Corruption undermines the efforts to build democratic institutions. Corruption by elites in political office is even worse as it encourages backlash with dire consequences. There is lack of accountability and secrecy as different governments combine to encourage corruption and human rights abuse. New factories do not meet even the basic environmental standards thereby causing environmental degradation. Corruption leads to income gaps between the elites and the average citizens of the country. This causes increases in crimes, social tensions and disrespect for the institutions. The secrecy that accompanies international arms dealings provides opportunities for extraordinary theft. In this area corruption endangers global security. This can lead to money laundering that supports terrorist organizations and arms sales. The initiatives adopted by LM include the top management maintaining and demonstrating ethical practice through their behavior and attitude. They have started special training programs, reporting systems and accountability metrics which ensure the highest standards are upheld. They have set the standard for incorporating and promoting a strong ethical framework across different business operations. Employees are responsible for sending both good and bad messages to their employees and training programs help in maintaining the ethical standards and relating that all employees and managers are equally responsible for completing the same ethics program. It creates a positive and secure work environment and conveys to the employees that they should do the right thing even when nobody is looking. Too much pressure on performance and achieving targets can cause an employee to violate the ethical norms. Ethical standards serve as an important link between the management and employees. There should be a proper grievance redressal system because many times employees resort to unethical practices simply because they did not know where to turn to. Good ethics means good business. Hooker (2003) argues in the long run morality pays. Unethical people do run into trouble even if they have reaped profits for some time. Ethical companies develop a brand image; investors come forward and support it in times of trouble. Above all, it brings financial rewards with it. Business ethics should not be merely a corporate code but should be implemented as a corporate philosophy. Virtue does not guarantee success but it is essential for success otherwise the fate will be short-lived benefits. Tung & Miller (1990) emphasize that in international business relations managers face uncertain situations and tend to fall back on their own values to make decisions (cited by Wong & Chung, 2003). Kim & Olsen emphasize that no industry can exist free of its external environment (Ingram, 1995). According to Immanuel Kant duties cannot be associated with self-interest like rewards and pay-offs (Carrigan, Marinova & Szmigin, 2006). Firms exist for the society and have a moral obligation to satisfy the needs and deliver benefits to the society. Such an approach would result in richer dividends for a firm because consumers will perceive its operations as ethical. Very often companies are not willing to place the interest and welfare of the society before its self-interest. Mascarenhas states that marketers should behave in an ethical manner as because information about a firm’s ethical behaviors influences product sales and the consumers’ image of the company (Carrigan & Attalla, 2001). By linking performance to ethical standards, LM could ensure that employees do not compromise on ethics just to meet the objectives. The performance should be measured not just on how much has been achieved but how it has been achieved. LM too could have benefited in the long run had they relied on ethical practices. Many are even unaware of the ethical dilemmas that the company faces and hence training would instill in them these situations. Uncertainties in international business are inevitable and at such times it is always beneficial to fall back on the core values of the company. Consensus among the top managers also benefits the company because consistency can be maintained. 3. Even in smaller firms the pressure to perform gives the temptation to violate ethical standards. Even in an SME the top management plays a key role on setting the standards. A “no-tolerance” policy should be implements in SMEs. There should be consensus among the top managers and consistency in their dealings. Since the group size of the top managers in SME would be small, the responsibility on them increases so they have to be very cautious of any unethical misconduct. Even in the small group if all managers do not buy-in the same principles, the employees would be left confused. Hence the right leadership is imperative. SMEs cannot have formal communication media as it is cost-prohibitive. As such they need to have excellent interpersonal communication and management demonstration of the ethical behavior and standards. Integrity cannot be taught but it can be learnt if demonstrated by others. SMES can use video, intranet and newsletters to communicate. Training is essential because it gives the employees the company’s formal ethical philosophy. It also communicates the required skills and expectations. Training programs in SMEs may be costly and it may also not feasible for them to have an Ethics department. Under the circumstances these can be outsourced to consultants or experts in this area. Training can be a much cheaper option than maintaining an internal department dedicated to this. Nevertheless, a reporting system should be in place where people can anonymously report misconduct observed by them. This gives them a feeling of security as it has been observed that more than 50% of the employees do not report unethical behavior witnessed by them. Such a system would go a long way in encouraging reporting and thereby promoting ethical practice within SMEs. Linking performance to ethics is essential so that employees do not resort to compromise on ethics for the sake of fulfilling objectives but for SMEs this may be difficult in the absence of a formal ethics program they can instead apply 360 Evaluations which is very useful because they allow different perspectives on the performance of an individual. Chances of breach of conduct or compromise on ethical behavior are more in SMEs and hence each employee has a greater impact on the ethical culture. Employees should be encouraged to share their personal experiences at every stage. An SME may be outsourcing its HR functions and hence it is important that the vendor has similar values and ethical culture. The impact of ethics compliance programs is related to culture and SMEs too can establish code of conduct and ensure management buy-in and promotion. The managers thus become the role model and such model behavior help to provide a healthy foundation for an organizational culture. SMEs have centralized decision-making process and hence empowerment is not possible. On the other hand the employees have increased responsibility which often makes the employees frustrated. Hence SME should encourage participative decision making instead of keeping it centralized. In fact they should empower the employees to act ethically. The smaller international firms are faced with a greater challenge because of the workforce diversity and the cultural diversity at workplace. The foreign units may develop their own ethical standards depending upon the region and these pose a challenge. The pressures may be unique at each location but the core values of the company have to be adhered to. Hence the SMEs should place greater emphasis on consistent delivery and demonstration. Any misconduct becomes very conspicuous in a small organization and hence more cautions has to be exercised. 4. Becoming a global player has certain responsibilities that have to be fulfilled. Economic opportunities also bring with it social and political considerations, which cannot be ignored. Post (2000) contends that an organization’s global corporate citizenship is shaped by internal and external factors. How a company deals with past public issues, stakeholder issues and community concerns determines the employees’ perception of the importance of citizenship matters. For example, Motorola came to know through a television documentary aired in Britain that it was being criticized for being involved in the land mine business. The company’s logo was used on a land mine used in Pakistan. Semi conductor chips manufactured by Motorola were sold to a European dealer who in turn sold them to a third party assembler of land mine. A soon as Motorola became aware of this, they not only withdrew from that relationship but also instituted new market controls. The consequence of vigilant oversight is a lesson even today for the company. Organizational learning includes how to identify, monitor and engage issues in a timely and effective manner. The way Motorola handled this issue demonstrates that it has developed comprehensive mechanisms for analyzing corporate global responsibility on a worldwide basis. Internal factors are equally important in shaping the corporate citizenship of an organization. At Motorola while the company’s managers and employees understand that core values shape citizenship activities and are linked to organization’s plans and goals, they have created a global ethics centered on these values. According to Collins and Porras (1996) in a paper published in the Harvard Business Review, Motorola is a company that enjoys enduring success because its core values and purpose remain fixed while their business strategies and practices constantly adapt to the changing world. The core ideology should remain unchanged which consists of core values and core purpose. If the core ideology is meaningful to its people, they will easily adopt it. At Motorola, each employee around the world, in their day-to-day business activities, applies the core ideology of the company – respect for the individual and uncompromising integrity (Post). This keeps each employee alert in all their dealings and the company’s image remains undaunted. United Technologies insists in high standards of ethics and business conduct. They maintain this with all stakeholders including the customers, the employees, the shareholders, suppliers, competitors and the community (Stanwick & Stanwick, 2000). To the customers they are committed to providing high quality and value, fair prices and honest transactions. They treat all employees fairly and believe in equal opportunities for all. They respect each other’s privacy and treat each other with dignity and respect irrespective of age, race, color or sex. They provide a safe and healthy working condition and an atmosphere of openness to all. Even with their suppliers they maintain long-lasting relationships and they emphasize fair competition without discrimination. Through the prudent utilization of corporate resources the shareholders’ interests are protected and the value of their investments enhanced. They observe the highest level of ethical and legal conduct in all their business dealings. United Technologies is committed to being a responsible corporate citizen of the worldwide communities wherever they have a presence. The management recognizes that it takes much more effort to build and maintain a good reputation that it does to make a good product. The reputation of companies depends upon the actions and decisions taken every day. Employees develop their behavior by observing the top management hence playing the role model is essential. Coca-Cola has made considerable progress on ethics and compliance. Over 63,000 training sessions on ethics and compliance were completed by associates between January 2006 and July 2007. They have trained associates on Code of Business Conduct, European Union competition law, Latin American competition law, financial integrity, intellectual property and competitive intelligence, drug-free workplace and preventing workplace violence. 5. Orts (2002) contends that in global environment corporations find themselves subject to inconsistent regulations. LM, in its code of ethics and business conduct mentions a corporation will “obey all the laws of the countries in which we do business”. This promise however does not hold good when hard choices have to be made when laws of different countries conflict. Loyalty for a major government contractor like LM would far outweigh the conflicting laws of other nations. This is where ethics and moral judgment is required. It is not merely a question of code of ethics. Secondly, it may not always be possible to comply with all of the regulations all the time. The International Center for Ethics, Justice, and Public Life at Brandeis conducted research on the ethics program of LM. He commented, “A group of decent, well-meaning people at Lockheed Martin has created an ethics program that is ambitious but incomplete” (Ayoub, 2005). Even though incomplete, the program is expansive as it involves training of all employees of all levels each year with new approaches added to it. The problem with the programs is its overly individualistic ethos. It describes the ethics of the corporation as the sum total of millions of decisions of individual actors. However, he points out that LM’s ethical policies evade the truth of how individuals behave in groups. Secondly, even though the initiatives were taken in the wake of the scandals, they remain silence on the issue which threatens the integrity and credibility of the program. The fact that LM makes some of the deadliest man-made objects on the face of the earth itself has ethical implications. Nevertheless, even though it has been criticized by such organizations, other bodies like the Society for Human Resource Management (SHRM) has greatly appreciated their initiative in formulating and implementing the code of ethics. SHRM promotes the establishment of professional standards both domestically and globally. SHRM appreciates the efforts 6. According to Hofstede, management and organizing are activities that are culturally dependent. They consist of manipulating symbols that have meaning to people who are to be managed. Every society, nation or environment has its own culture and it is seeped with this culture which is difficult to change. Any organization that opens units in overseas nations has to adapt the local culture and the working conditions in order to succeed. There is difference in mental programming between members of different nations and it is through this mental programming that we perceive any experience. Detachment from culture is difficult and if at all is a very slow process. National cultures have four different dimensions. The wealthy countries are individualistic (ties between individuals are loose) while the poor countries are collectivist. Again the mental programming determines the type of leadership that an organization would have. In the third world countries, people seek to be driven or controlled and there is cohesiveness within the group, which is not found in the US. In the low power distance nations like Denmark or Sweden, anything that the leader does will be challenged. In France and Belgium there is very little participative leadership. This implies that the buy-in from top management would not be practical in other countries or other cultures. While other cultures would like to be driven and may conform to the rules but at the same time, there must be consensus among the leaders. This is not possible in individualistic societies. If all managers do not buy in the same standards of ethics conflicts and confusion would prevail. Delivery of consistent message is through a media and the managers must be able to communicate the ethical standards through their own behavior. Collectivist culture shows larger power distances, which implies that they want to be ruled or have centralized leadership. Religion plays a strong and important role in the culture of any society. Cultures with high power distance would not be able to accept. In the US the individuals have a need to fulfill their obligations towards themselves and this is the highest motivating factor but in a collectivist society the members will try to fulfill their obligations towards the group. This may again work in some cultures but not in all cultures. LM has started a sound reporting system where they also encourage whistle blowing but this would not be accepted in many cultures where this would be treated as disrespect for the management or the leader. People seek security and LM has introduced a secure system where employees feel safe in reporting incidents and asking questions. Even then, in the collectivist culture this would not be easily acceptable. Uncertainty avoidance is a part of the culture and employees prefer to have minimum uncertainty at the work place. Training is an essential feature to foster ethical standards because many employees are unaware of the ethical dilemmas faced in business. Training is acceptable. Training also communicates the required skills and expectations. Linking performance to ethical behavior would also not work in many cultures. In collectivist culture the employees would follow the leader and hence trying to attain the objectives at any cost does not arise. Even if they do this, it would be under the direction of the management or the leadership. Hence trying to link performance to ethics will not be feasible in all cultures because such a society is not aware of the ethical dilemmas and merely follow the word of the management. If they have performed they expect the rewards. Since they do not pursue individual objectives, and they do not perform on their own, the onus for non-compliance with ethical standards does not fall on them. All the management theories were espoused in the US based on its environmental condition but culturally US is just another country. In the US the leaders all pursue self-interest as it is a highly individualistic society. This is amply evident from the scandals that LM was involved in. Organizations are devices to distribute power and they also serve to avoid uncertainty. Foreign management methods are taken to be technology transfer. The US managers and politicians do not realize that their type of capitalism is culturally unsuitable for a more collectivist society. Management theories require more cultural sensitivity. Economic power is related to intellectual influence. It is important to note that culture affects perceptions and consequently the transfer of management principles and theories. Hence it would not be practical to apply the same ethical principles as LM in different cultures across industries or across nations. References: Ayoub, N. C., (2005), Lockheed Martin ethics program is ambitious, but incomplete, 25 Oct 2007 Carrigan, M., & Attalla, A., (2001), The myth of the ethical consumer - do ethics matter in purchase behaviour? Journal of Consumer Marketing, Vol. 18 No. 7 pp. 560-577 Carrigan, M., Marinova, S., & Szmigin, I., (2006), Ethics and international marketing, International Marketing Review Vol. 22 No. 5, 2005 pp. 481-493 Collins, J. C., & Porras, J. 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