decade of hypocrisy?

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1



Ethics Revisited. The 1990s: an “ethical decade” or a
decade of hypocrisy?


Jane Jones

School of Commerce

The Flinders University of South Australia

GPO Box 2100

Adelaide South Australia 5001


Telephone: +61 8 82012707

Facsimile: +61 8 82012644

Email: Ja
nice.Jones@flinders.edu.au





SCHOOL OF COMMERCE

RESEARCH PAPER SERIES: 00
-
6

ISSN: 1441
-
3906


2

Introduction

The debate over ethics in business is back on the public and corporate agendas thanks [in part]
to several recent, highly publicized scandals includ
ing the
tarnished
International Olympic
Committee member Phil Coles and allegations of improper behaviour, including graft and
corruption, during the 2000 Olympics Games bidding processes (Evans, 1999). Meanwhile in
January earlier this year, Telstra used
footage of a 14 year
-
old girl, (who incidentally drowned
seconds after the film was taken) in San Antonio, Texas in a commercial that was designed to
show a community minded institution throughout the 1997 Katherine floods (Simper, 1999a).
And most recentl
y, the cash for comments affair involving Australia’s highest paid
broadcaster, John Laws and the Australian Bankers’ Association (ABA), is now a mounting
ethical crisis in commercial radio, dragging in Law’s 2UE colleague, Alan Jones and some of
Australia
’s biggest companies including Ansett, Qantas, AMP (Haslem & Elliott, 1999) and
Cable and Wireless Optus (Allard & Davies, 1999).


As corporate Australia once again talks ethics and morality, [see for example, Mr. Frank
Cicutto, managing director of Natio
nal Australia Bank and chairman of Australian Bankers’
Association, the keynote speaker at a recent seminar on “Ethics in Business”, who said of the
banking industry’s role in the John Laws cash
-
for
-
spin affair, that the public had “reason to
again questio
n the morality and accountability of leading representatives of Australia’s
corporate sector” (cited in Davis & Collins, 1999 p. 3)] it becomes increasingly relevant to ask
questions such as:
Why has business ethics entered the press and the agenda of Aust
ralian
boardrooms, large and small? What is the relevance of ethics to business? What constitutes
‘ethical’ business practices? Why do ethical dilemmas arise? How can organisations
encourage ‘ethical’ behaviour?



3

In this paper these questions are addressed
. The paper begins with a brief overview of the
reasons for the increasing attention to business ethics in Australia. The reasons why ethical
dilemmas occur in business are described, followed by a brief discussion of some of the
schools of philosophical n
ormative ethical theory; their relevance to the business context is
also assessed. A review follows of some of the ways of encouraging ethical behaviour in the
corporate environment, including codes of ethics, together with a brief evaluation of their
effi
cacy.
Finally, the question is asked if the new rhetoric coming from boardrooms and
captains of industry is just that
-
rhetoric or reality?


The Increased Focus on Ethics in Business

The increasing interest in business ethics in Australia has resulted from
a number of
developments. The numerous, now notorious scandals of the 1980s
-
itself characterised by a
culture of excesses and labelled the ‘decade of greed’ (Milton
-
Smith, 1997; Simmons, 1996;
Clark, cited in Jenison, 1997)
-
continuing into the 1990s involv
ing some of Australia’s leading
business entrepreneurs, including Alan Bond, (ex
-
Bond Corp.), Christopher Skase, (ex
-
Quintex) and Mr Solomon Lew, former Chairman of Coles Myer, [with its own alleged
culture of corruption involving secret commissions, and k
ickbacks for buyers, maintenance
personnel, and senior management, (Cromie, 1993)]; public officials [including Mr Jeff
Kennett, Victorian Premier and the so
-
called Guandong share transaction (Milton
-
Smith,
1997)]; as well as a number of high
-
profile Coali
tion Government ministers, caught up in the
travel allowances rorts affair, (Seccombe,1998) resulted in ethics and corporate behaviour
becoming the focal point in media reports. And today, as we enter the new millennium, the
ethical values of Australian bu
sinessmen and women continue to be of serious concern.



4

Consider for instance, the results of a recent survey by Roy Morgan Research, which found
that the “ethics and honesty”
rating for bank managers has fallen from 66 per cent to 33 per
cent over the pa
st couple of decades.
In the same survey, respondents were also asked which
industries were doing a poor job for Australia and replied that banks had gone from the
bottom 5

per cent

to the top 44
per cent

in a decade. Thus b
anks and bankers have gone from
being the most trusted and accepted members of society, to being among the least trusted and
most loathed, along with journalists, radio announcers and car salespeople (
Morgan, 1999

cited in Kohler, 1999).


The “economisation” of society trend
-
the philoso
phy that only what counts economically and
yields profits is relevant
-
has also given prominence to business ethics
(Enderle, 1997)
. In
Australia in response to increased domestic and international competition, deregulation,
rationalisations and mergers and acquisitions, organisations restructured, reengineered and
downsized, cutting costs and improving e
fficiency. Management structures became flatter and
the decision
-
making function decentralised, empowering employees at all levels to make
decisions affecting themselves and their work. But what decisions should be made by top
managers and what should be l
eft for others? In an era of financial globalisation, the activities
of the disgraced currency trader Nick Leeson, who single
-
handedly destroyed Barings Bank, is
an example of just what happens when poor ethics meets the exponential effect of today’s
techn
ology (Lawson, 1997).


With good corporate citizenship now firmly established (Longstaff cited in Johnson, 1999;
Longstaff cited in Macken, 1997; and Marsden cited in Thomas, 1997) and new standards of
public accountability (Clark, 1997 cited in Jemison, 1
997) global telecommunications and
advances in information technology combined with the increased sophistication of pressure

5

groups, ensure ethical reputations can be made or broken by the social impact a company has
on communities (Marsden, 1997 cited in
Thomas, 1997).


The business community has focussed its attention on ethics too. Increasingly popular is the
notion that “good ethics is good for business”
(
Enderle, 1997; Desai
& Rittenburg, 1997;
Abratt,
Nel & Higgs, 1992;

Tsalikis &
Fritzsche,

1989; Solomon & Hanson, 1985)
.

Conversely,
being unethical can also prove costly, as in the case of Exxon and the Valdez
disaster; Union Carbide and the Bhopal catastrophe in India (Shrivastava, 1987); Shell Oil an
d
its alleged environmental infringements in Nigeria (Longstaff cited in Macken, 1997;
McElvoy, 1996); and BHP and its environmental negligence in Ok Tedi (Barker and Oldfield,
1999; Barker, 1995).


The mounting interest in business ethics also reflects
the globalisation of big business, the
formation of regional economic cooperative arrangements and trading blocks, (e.g., the North
American Free Trade agreement; European Community; Asia
-
Pacific Economic Cooperation;
Association of South East Asian Nation
s and Latin American Customs Union), and the
internationalization of the Australian economy (Milton
-
Smith, 1997). As a result, Australian
managers are more likely to be involved in international business in some way, and encounter
ethical dilemmas from the

comparatively small scale decision making experienced daily [e.g.,
divulging confidential information, pilfering organisation’s materials and supplies or not
reporting others’ violations of organisation policies, (Jackson & Calafell Artola, 1997; Izraeli,

1988)] to the more strategic issues including bribery, environmental issues and copyright
piracy (
Jackson & Calafell Artola, 1997)
. Australian managers need to be aware that their own
perception o
f ethical business practices may not match that of people from different cultural
backgrounds
(
Buller, Kohls & Anderson,
1997)
. What one organisation considers ethical in

6

one situation, at one time and in on
e culture, may not necessarily be viewed in the same light
by another organisation, in the same circumstances, at another time or by another culture
(Naor, 1982, Robin & Reidenbach, 1987, Donaldson, 1992, cit
ed in
Desai & Rittenburg,
1997; Rashid, 1990)
.


The task of distinguishing ethical conduct from unethical conduct is further complicated by
the ‘grey areas’ in ethics (Tsalikis & Fritzsche, 1989), where the

difference between an ethical
and unethical action is not clear, creating the problem of choosing between two different but
ethically correct answers. For instance does an employee aware of wrongdoing by his peers,
blow the whistle on his colleagues or ma
intain loyalty to his workmates? The Australian
concern with “mateship”, friendship and and group solidarity is well documented (Feather,
1975). As the NAB’s chief said in his keynote address at the recent Ethics in Business Series:

“You can have volumes o
f books and days of learned discussion on the subject of
ethics and still end up with the question ‘What is the right thing to do?’” (Cicutto,
1999 cited in Bartholomeusz, 1999).


Causes of Ethical Problems In Business

The recent cash
-
for
-
comments scandal,

in which the
Australian Bankers Association
secretly
paid 1.2 million dollars
to radio 2UE’s high profiler presenter
John Laws to endorse banks
and/or refrain from broadcasting criticisms, raised a number of issues relating to ethical
behaviour. First and

foremost, was the failure of some of the pillars of the Australia’s business
community to use ethical standards to guide their behaviour. Second, was the conduct and
subsequent lack of understanding by Laws himself
-
arguably Australia’s most influential
br
oadcaster, with his
morning radio programme syndicated on more than 70 stations

7

(Cameron, Lagan & Davies 1999) and 2 million listeners across Australia (Toohey, 1999)
-
with respect to his conduct (Lyons, 1999).


Law’s situation is further complicated by th
e allegation that he approached the ABA to offer
his services (Allard & Davies, 1999; O’Riordan, 1999; Lyons, 1999), a situation that has seen
him the subject of at least one inquiry by the ABA (Davies, 1999; Allard & Davies, 1999).
The Australian Competit
ion and Consumer Commission (ACCC), which had earlier said it
was interested in determining whether Laws, radio 2UE or the banks had engaged in
misleading or deceptive conduct, has since agreed that the ABA is the appropriate body to
undertake the inquiry.

Similarly, the New South Wales Director of Public Prosecutions,
concerned with potential breaches of Section 100A of the Crimes Act (NSW), which makes it
an offence “to make unwarranted demands and to support those demands by agreeing not to
communicate m
aterial about a person”, together with the House of Representatives Standing
Committee on Economics, Finance and Public Administration, which was interested in why
the banks appeared to be purchasing publicity instead of addressing “the real issue of equit
y”,
have both said they will await the outcome of the ABA, before pursuing their own
investigations (Kavanagh, 1999).


And what about the role of the radio 2UE’s management, including its chairman John Conde a
former deputy chair of the not
-
for profit St J
ames Ethics Centre (Guinness, 1999), established
to promote business and professional ethics, now forced to publicize radio 2UE’s policy
concerning the demarcation between advertising and editorial? (Simper, 1999b; O’Riordan,
1999)? Laws has also been quic
k to point out that his employer
-
radio 2UE
-
was party to the
bankers association contract, and furthermore, had benefited more from the arrangement than
himself (Meade, 1999; Meade, Elliott & Boreham, 1999; Lyons, 1999).


8


More broadly, the Law’s case has pr
ovoked a debate on media ethics including the grey area
known as “advertorials”
-
in essence paid advertising masked by the words “special
supplement” or “special event”
-
placed in newspapers by public relations companies, who are
bound by their own code of e
thics and operating on the standard that they do not pay for
coverage (Cameron
et al,

1999). In addition, the role of industry (self
-
) regulation in
maintaining ethical standards has also been the subject of discussion (Opinion, 1999).


Frederick, Davis a
nd Post (1988) identified a number of reasons why ethical problems occur
in business including competitive pressures; individual values in conflict with organisational
goals; managers' values and attitudes; and personal gain.


Competitive pressures in bus
iness

Managers in organizations must balance their economic obligation to the firm, the bottom
-
line, against moral obligations to other stakeholders including employees, customers,
suppliers and local communities (
Frederick
et al,

1988)
. But focusing on the ‘bottom
-
line’
may be at the expense of these other groups
(Vogel, 1991)
, and sometimes lead to unethical
actions that can adversely affect
an organization
(Bommer, Gratto, Gravander and Tuttle,
1987)
.


The
Commonwealth Bank
for instance,
despite having “serious ethical concerns about the
proposal” (Murray cited in
Allard & Davies, 1999, p.1) to pay John Laws 1.2 million dollars
to endorse banks and/or refrain from criticising banks, succumbed to the pressure of the other
members of the banker’s lobby group (Allard & Davies, 1999) fearing it would be thrown out
if it

failed to back the proposal. The Bank’s managing director, David Murray, has now been

9

forced to explain the Bank’s actions amidst unrest from one of its principal stakeholders, its
employees (Allard & Davies, 1999). Furthermore, from the perspective of it
s local
community, yet another key stakeholder, the deal has been a public relations disaster (Kohler,
1999; Toohey, 1999).


This case has also highlighted the difficult conflict commercial radio must manage: balancing
the goals of maximizing returns to i
ts shareholders (which at times will entail not offending
big spending advertisers) and keeping its public informed (Toohey, 1999).


Managerial values and attitudes

Managerial values and attitudes may also encourage unethical conduct (
Frederick
et al,

1988)
.
A number of empirical studies (Baumhart, 1961; Carroll, 1975; Brenner & Molander, 1977;
Posner & Schmidt, 1984)

have consis
tently found that the attitudes and behaviour of one’s
immediate supervisor and peers as influential factors effecting unethical decision
-
making. Top
management emphasize and clarify appropriate ethical behaviour for subordinates, while an
individual’s sup
ervisor has the power to reward and punish acceptable and unacceptable
ethical behaviour. Simply put, these actions set the organisation’s ethical ethos.


The decision by the other members of the ABA
-
the

Commonwealth Bank’s ‘peers’
-
to endorse
the ‘cash for

comment’ proposal may be thought of as setting the standard of what was
(in)appropriate behaviour. Similarly, Law’s archrival but also his colleague, Alan Jones, had
similar deals [including a $2.6 million contract with Cable and Wireless Optus
(Allard &
Davies, 1999; Meade, 1999)

and with Qantas and Ansett] to provide favourable editorial
comments on air (Haslem & Elliott, 1999). Law’s employer
-
management at radio 2UE
-
as a

10

party to the ABA contract with a financial interest in it (Meade, 1999; Meade
et al
,

1999) in
effect, endorsed Law’s actions.


The results of the latest KPMG Australia Fraud survey raise serious questions about the
‘ethical’ culture of Australian organizations. The survey, conducted biennially, attempts to
quantify both the nature and ex
tent of fraud in Australian business. The report found that
management fraud accounted for 21 per cent of overall corporate fraud (including fraud in
expense accounts, conflict of interest, purchase for personal use and misappropriation of
funds), while no
n
-
management employees were responsible for 57 per cent of the fraud (for
example, theft of inventory or plant and misappropriation of funds). Furthermore, the
corporate sector had lost more than $1.3 billion in fraud since the previous 1997 survey. From
a

firm perspective, the average cost of fraud had risen from $450,000 to $1.1 million. The
authors of the study suggest that these figures underestimate the true cost of actual fraud. For
instance, 12 percent of respondents failed to disclose the extent of
losses, possibly because the
figures were so large (Mann cited in Hayes, 1999).


Individual values conflict with organisational goals.

Managers may also feel that they sometimes need to compromise their personal principles to
conform to organisational exp
ectations (Frederick
et al,
1988; Lincoln
et al,

1982 cited in
Kohut, 1994; Harris, 1990;
Posner & Schmidt, 1987).
Mr. David Murray,
managing director
of the
Commonwealth Bank,
has repeatedly stated that

he had “serious ethical concerns about
the proposal”
(Murray cited in Allard & Davies, 1999, p.1) and argued strenuously against the
deal, considering it both risky and unethical. Nevertheless, heconceded to the needs of the
lobby group, becoming the single biggest donor (Davies, 1999).



11

The apparent leaking

of the contract between Law’s and the ABA by one of the banks
(Kohler, 1999; Lyons, 1999) suggests that someone blew the whistle on corporate
wrongdoing. Similarly, in the KPMG Australia Fraud survey, whistleblowers among
employees, customers, suppliers,
the police and anonymous letters reported more fraud than
did the (poor) internal controls (KPMG Australia Fraud Survey, 1999 cited in Hayes, 1999).


Personal financial need

Personal financial need and ignorance, incompetence, corruption or greed can also

result in
unethical decisions in business (Frederick
et al
, 1988; Brenner & Molander, 1977; Posner &
Schmidt 1984). While the bankers association wanted to buy favourable editorial comment,
Australia’s highest paid broadcaster (O’Riordan, 1999) and sixth
on the annual BRW list of
Australia’s highest paid entertainers, earning 11 million plus (Shoebridge, 1999) appears to
have wanted cash (Cazalet, 1999).


Normative Philosophical Ethical Theories

Causal models of business ethics (for example, Bommer
et al
,

1987; Trevino, 1986; Hunt &
Vitell, 1986; Ferrell & Gresham 1985) depict ethical and unethical behaviour as a
consequence of a decision process, the individual and the situation in which the individual
makes the decision (Brady & Hatch, 1992). While the
decision making process is seen as the
main determinant, internal (dispositional) factors including personality and locus of control
and external (situational or contextual) factors
such as the work climate, influence
and

actions
of peers
and
supervisors,
probability of detection, and organisational reinforcement
mechanisms
also influence the decision maker (Weber, 1996
; Brady & Wheeler, 1996
;

Randall & Gibson, 1990)
.


12


Normative philosophical ethical theories in turn, have provided a number of alternative
models that can be employed to guide the
decision making process
(McDonald & Kan, 1996)
.
Tsalikis and Fritzsche (1989) distinguish consequential (or teleological) from non
-
consequential (or deontological) ethical theories: the former refers

to the tendency to evaluate
ethical behaviour in terms of its consequences; the latter excludes consideration of the
consequences in decision
-
making. Instead deontological theories emphasize duties and
absolute rules and standards for ethical decision mak
ing (i.e., performing one’s duty,
respecting the rights of others, ensuring a fair and just solution) (Weber, 1996; Brady &
Wheeler, 1996).


Teleological Theories

Ethical Egoism

A teleological framework requires the decision maker to determine if the con
sequences of a
decision are good or bad. If the consequences are good the decision is ethical; if they are bad,
it’s unethical. Furthermore, if the evaluation of the consequences focuses solely on the
individual (or in the case of organizations, corporate
entity’s) long run interest, the ethical
theory is called ethical egoism. Thus if a decision results in a greater ratio of good to bad in
the long run for the individual corporate entity compared with alternatives, the decision is
ethical.



Utilitarianis
m

On the other hand, if the assessment of consequences considers everyone involved, the theory
is called utilitarianism. Utilitarianism requires the decision maker to consider the outcomes of

13

each decision alternative, and assess the impact of these conse
quences on all parties concerned
in order to select the one that
produces the greatest good for the greatest number
. This
approach is also known as the cost
-
benefit analysis (or utility approach) because the costs and
benefits of a decision are compared, i
n order to determine whether the overall result produces
more good (or benefits) than harm (or costs).


Deontological Theories

Cavanagh, Moberg & Velasques
(1981) identified three categories of ethical theories:
utilitarian theories, theories of rights an
d theories of justice. Theories of rights and theories of
justice are deontological
-
based ethics, emphasizing duty, rights, fairness and justice (Weber,
1996).


Theory of Rights

Under a ‘rights’ approach, the decision maker is required to respect the fund
amental rights
shared by all human beings (e.g., the right of free consent; the right to privacy; the right of
freedom of conscience; the right of free speech; and the right of due process (Cavanagh
et al
,
1981). Thus an ethical decision occurs when the ri
ghts of those affected by the decision are
protected or not interfered with. Conversely, denying the rights of others, or failing to protect
their rights is unethical.




Theory of Justice

Under the justice approach a decision is considered ethical if it i
s made fairly, equitably and
impartially. The decision maker is required to administer rules ‘fairly’ and ensure there is a

14

‘just’ distribution of the benefits and costs among all those concerned with the decision,
regardless of race, age, sex, religion, e
thnicity and so forth.


The distributive justice principle involves determining the equitable means by which benefits
and costs should be borne by different groups. In other words, individuals who are similar in
relevant aspects should be treated similarly
, and individuals who differ in a relevant aspect
should be treated differently in proportion to the differences between them. The procedural
justice principle is concerned with developing and administering fair rules or procedures, and
ensuring they are c
onsistently and impartially enforced (Cavanagh
et al,

1981).


A number of other deontological rules have also been identified which might be employed by
individuals within organizations when making ethical decisions, including Kant’s ‘Categorical
Imperativ
e’ or ‘universal rule’ (or law). This prominent deontological rule states that

‘I ought never to act except in such a way that I can also will that my maxim should
become universal law’.

The decision
-
maker is concerned with whether he or she would be will
ing to have others act
in the same way. The only ethical courses of action are those where the action taken under the
circumstances could serve as a universal law of behaviour for everyone facing the same
circumstances. Thus a manager is required to search

for the general principle that he or she
could follow in that particular case, and which, moreover, satisfies the test that he or she could
will all other managers to follow the same principle under similar circumstances.


This approach also embraces the
Golden Rule, often cited as acceptable in business:

‘do unto
others as you would have them do unto you’
(Tsalikis &
Fritzsche,
1989)
. In other words, treat
others the way we would want to be treated.


15


An
alternate framework,

seen as the most practical of the ethical frameworks, is the ‘light of
day’ principle, also known as the TV test (McDonald & Pak, 1997). Under this approach, the
most salient factor taken into consideration by the decision
-
making is th
e question, “What if
this information went public?"
-
That is, if the decision was reported on primetime news. The
decision maker is openly mindful of what might be the reaction of family, friends and
associates, if the details relating to their decision wer
e publicity revealed, receiving extensive
TV coverage.


Do managers make ethical judgements using a utilitarian criteria comparing the costs and
benefits of various alternatives, and choosing the option that produces the greatest good for
the greatest numb
er? Or is their foremost concern during the decision making process to
ensure that the decision is made such that it is in the best interests of the individual
corporation? Do managers ignore the consequences of their decision, and simply focus on
whether
they would be willing to have everyone else act in the same way under the same
circumstances
-
a deontological approach? Or do they use some other framework
(s)

or
combination of frameworks during the evaluation of ethical dilemmas? (For a comprehensive
discu
ssion of these frameworks, see
McDonald & Pak, 1997).


Traditionally it has been assumed that most managers in business use a utilitarian framework
when evaluating ethical dilemmas (Fritzsche & Becker, 1984;

Cohen, Pant & Sharp, 1993
;
Clark & Jonson, 1995)
.
McDonald and Pak (1996)

suggest that the strong role economics
plays in man
agerial decision making could explain this utilitarian disposition. Intuitively,
utilitarianism may also appeal to business people because of its reliance on the balancing of
costs and benefits, in order to maximize utility.


16


Cavanagh (1990) states that c
ost
-
benefit analysis is the dominant criteria in 90 per cent of all
business decisions. If we assume that the business of business is to be profitable, and
furthermore, consequences are measured by costs and benefits, it appears logical that the best
ethic
al action is that which maximises profit (Clark & Jonson, 1995, p. 3).


However, other studies have not supported these findings
(Brady & Wheeler, 1996
; Glover,
Bumpus, Logan & Ciesla 1997).
Forrest, Cochran, Ray and Robin (1991)

concluded managers
preferred a deontological approach, while
Murphy and Daley (1990)

foun
d transportation
industry executives did not rely on any one principle (e.g., utilitarianism, justice or rights) as
explanations for their decisions.


Brady and Wheeler (1996)

propose that the utilitarian results may be due in part to biases in
vignettes in these studies. Brady (1985) suggests that the ethical issues themselves may dictate
the form of reasoning. For instance, some ethical
dilemmas may demand a more deontological
approach (for example, equal employment), and others a more utilitarian response, such as
downsizing decisions.


Reidenbach and Robin (1988, 1990) contend that individuals do not use clearly defined
normative conc
epts (i.e. utilitarian, rights or justice) in making ethical decisions, but mix
these philosophies (i.e. use a hybrid of the philosophies) in making an ethical evaluation.

Similarly, McDonald and Pak (1996) also concluded that ethical judgements are made u
sing
multiple criteria.



17

Following an extensive literature review (
Batten, Hettihewa & Mellor
1997; Milton
-
Smith,
1997; Westwood & Posner, 1997;
Armstrong, 1996; Small, 1995;
Soutar, McNeil & Molster

1995; Armstrong & Sweeney, 1994; Armstrong, 1992;
Abratt
, Nel & Higgs 1992;
Small,
1992; Armstrong
et al.,

1990)
, there appears to be a distinct lack of research into how or on
what basis, Australian managers make ethical judgements, with the notable exception of
Jackson
et al
, (1999b). Further research into ho
w managers make ethical judgements (i.e.,
using what criteria) is warranted, as this has implications for areas such as the effectiveness of
codes of conduct, ethics training and promoting ethical behaviour. For example, if the light of
day framework is a
salient criteria used by managers when evaluating an ethical decision,
promotional material designed to encourage ethical behaviour could be designed to
incorporate the theme of extensive public exposure, such as “What if you got caught?”
advertisements.


Interestingly, in their study of managers from Hong Kong, Malaysia, New Zealand and
Canada, McDonald and Pak (1996) noted that the light of day framework was not a significant
framework used by managers in these locations. Instead duty, self
-
interest, util
itarianism,
‘neutralisation’ (rationalisations that deny hurt or damage), justice and categorical imperative
were the more salient cognitive frameworks employed. McDonald and Pak (1996) also
distinguished between what managers “indicate” (i.e., self report

data) are the cognitive
frameworks used (the socially desirable duty and justice responses), and what multiple
regression analysis results suggests are used (self
-
interest and neutralisation). This too has
implications for research relying on self
-
report
data.

In one of the few empirical investigations into the structure of ethical decisions, Jackson et
al(in press) found that American managers used mainly consequential criteria. Given the
absence of the use of deontological criteria in American manageria
l decision
-
making, Jackson

18

et al (in press) suggests that this raises concerns about the efficacy of the widespread use of
codes of conduct by American companies as a mechanism for assuring good business
practices. Australian managers were found to use bot
h consequential and relativistic criteria,
to make ethical judgments.
Relativism reflects an individual’s understanding of what is
acceptable to the people they most admire, their family and their culture, and influences the
individual’s perception of the
ethical content of a situation. Further research into ethical
frameworks used by Australian managers during the decision making process is needed.


Encouraging Ethical Behaviour

A variety of methods have been suggested in order to encourage ethical condu
ct in business,
ranging from ethics training programs, ethics committees, ethics audits,
judiciary boards,
internal ethics ombudsman

(Soutar
et al,

1995), a forum for the discussion of ethics (Batten et
al. 1997) through to an ethics advisor or ethics advo
cate (Singleton, 1999). However, the most
common response is the codes of ethics (Soutar
et al,

1995; Tsalikis & Fritzsche, 1989;
Merchant, 1988 cited in Batten
et al,

1997
). However

Soutar
et al,

(1995) notes it is not
necessarily the most commonly introd
uced mechanism.



Codes of Ethics

Hosmer (1987, p. 153) depicts codes as "statements of the norms and beliefs of an
organization…the way that the senior people in an organisation want others to think".
Fritzsche and Becker (1982) contend that a set of cod
es or rules should be developed that can
be used as a managerial guide to conduct when faced with specific types of ethical problems.
Furthermore, these rules should reflect the general values and expectations of society, and as a
result the ethical behavi
our of organisations should improve. Similarily, Merchant (1988 cited

19

in Batten
et al
, 1997) believes that having a written code of ethics or a corporate code of
conduct to be an important solution in avoiding deceptive practices.


Batten
et al,

(1997) co
nducted an Australian wide survey and found that most firms (71per
cent) did not have a written code of ethics, although 37 per cent had a forum for discussion of
ethics. The authors concluded that larger firms were more likely to have a written code of
co
nduct than were smaller firms. Importantly, Batten et al (1997) contend that because of the
sample size and response rate, these results are indicative of practices of Australian firms in
different industries.


The Australian Institute of Management (1996,

cited in Lawson, 1996) surveyed 222 large
companies consisting of more than 200 employees and found that approximately two thirds
had written codes of conduct. However, only 56 per cent had clear mechanisms for reporting
violations of those codes; and a f
urther 10 per cent were in the process of developing such
mechanisms.


In yet another study, Wood (cited in Simons, 1996) concluded that more than one
-
quarter of
Australia’s largest 500 companies had codes of ethics; furthermore, by 1997, the numbers of
co
mpanies with codes were expected to have increased by half as much again. But while
codes were increasing in number, Wood also found that comparatively few companies had any

internal structures to back up the documents. Similarly, Soutar et al. (1995) exam
ined the
mechanisms companies used to formalize ethics and only a handful of companies had a
feedback mechanism, such as social audits or reports, and still fewer reward or sanctioning
mechanisms for instance audit committees and Ombudsmen.



20

‘Institutional
ising ethics’ is the term used to describe incorporating ethics formally and
explicitly into business, making it a regular, normal part of day
-
to
-
day business. Ethics is
included in company policy
-
making at both the board and senior management levels, and,

through a formal code, integrated into all daily decision
-
making and work practices for all
employees (Tsalikis & Fritzsche, 1989).


Cohen (1997, cited in Moodie, 1997) concludes that the most effective code is one that is the
product of consultation of

the people working in the business. The code should reflect what
the business is about; and what qualities, virtues and behaviour the employees should both
have and display. Furthermore, once the code is finalised, regular reviews with staff and
ethical a
udits should be conducted to measure the ethical performance of the company, and
ensure that organisational members are meeting the standards set.


McDonald and Zepp (1989) identified a number of advantages and disadvantages of codes of
ethics. They conclu
ded that codes elucidate exactly what constitutes unethical behaviour;
focus employee attention upon ethical issues; define limits of conduct; provide employees
with the opportunity to refuse to comply with unethical behaviour; communicate
management’s phi
losophy; and help in inducting and training new employees. Disadvantages
focused on their generality; the codes themselves are not prioritised, and are not believed by
employees.


Ethical codes are not a panacea. While a comprehensive examination of the di
sadvantages of
ethical codes of conduct is beyond the scope of this paper, as stated above, one criticism
focuses upon
their generality [McDonald and Zepp (1989).

For a detailed discussion of
generalized versus detailed codes of conduct, see Laczniak (1983
), Hoffman (1983) and

21

Johnson (1983)].
Tsalikis and Fritzsche (1989) argue, that in order to be useful, codes,
including codes for professional associations, must be specific. Unfortunately, codes tend to
lack specificity. That is, professional codes of co
nduct, fail to address many important issues.
Kohler (1999) suggests that as a result of the Laws affair, the Australian Broadcasting
Authority will be forced to rewrite if not the broadcasting code, at least the definition of what
a journalist is, and wha
t a journalist does.
John Laws argues that he is not a journalist
responsible for the provision of “news and current affairs”, and as a result not bound by any
code. He describes himself as an “entertainer”.


Andrews (1989) has suggested that corporate eth
ics has three facets: first, the ethics of
individual managers; second, the informal influences in the work environment which impact
upon ethical behaviour; and third, the formal institutionalization of ethics within the
workplace. Thus in order to ensure
an ethical organisation, firms should first ensure their
recruitment and selection policies, procedures and practices are designed such that they
minimize the possibility of people entering the orgnanisation who are inclined to behave in an
unethical manne
r, through for instance, the use of honesty testing, thorough referencing
checking and so forth.


It has been well documented
that the attitudes and behaviour of one’s immediate supervisor
and peers are influential factors effecting (un)ethical decision ma
king (Baumhart, 1961;
Carroll, 1975; Brenner & Molander, 1977;
Posner & Schmidt, 1984)
. Thus ethical
attitudes
and behaviour by top management and one's peers should be managed such that they set
the
ethical mores of the company, which in turn, is supported by formal processes in the
organization, including a code of conduct, provision of ethics training, ethics audit and so
forth ( Soutar et al 1995).


22


Conclusion

The Laws affair, like the events
following the 1980s, has again raised the debate of ethics and
business. As many of the ’80s business leaders [e.g., Brian Yuill (Spedly Securities), Laurie
Connell (ex
-
Rothwells Ltd), Alan Bond (ex
-
Bond Corp) and George Herscu (ex
-
Hooker) and
politicians
alike, (e.g., Brian Burke, former premier of West Australia), went before the
courts, were convicted and jailed, some of Australia’s biggest companies moved to strengthen
corporate governance, in part by employing non
-
executive directors and writing codes
of
conduct (Maiden, 1999). Cable and Wireless Optus, Telstra, Ansett and the big four banks for
instance, all have codes of conduct. Cable and Wireless Optus’ code bans outside business
dealings that create a conflict of interest. Telstra has a code of con
duct and Ansett an ethical
creed, which in one form or another, explicitly prohibit both the payment and receipt of
bribes, pay
-
offs, kickbacks or other illegal payments or transfers in business. The National
Australia Bank’s code includes “ethics in all o
ur actions”, while the ANZ’s stresses staff
conduct such that “honesty is beyond question” (cited in Maiden, 1999 p.13). Interestingly,
Maiden writes that the Commonwealth Bank was unable to proved their code for his recent
article.


But the Laws’s cash f
or comments affair, [indirectly] involving these same companies,
together with a brief review of newspaper headlines involving inquiries conducted by the
National Crime Authority, ACCC, Australian Companies and Securities Commission and
royal commissions t
o name a few, into both prominent individuals and corporations, would
raise serious doubts as to whether corporations and management have shed the morally
bankrupt ethos that dominated the 1980s and evolved stronger ethical cultures.



23

For instance, former

Macquarie Bank executive director Simon Hannes was recently
convicted of insider trading (Lampe, 1999), while a former chairman of the Adelaide Stock
Exchange and board member of the Australian Stock Exchange, Malcom McLachlan was
recently banned by the A
ustralian Securities and Investments Commission following a finding
of failing to fulfill his duties “…honestly, fairly and efficiently” (Reece, 1999). Partners of
Allen, Allen & Hemsley, one of Sydney’s oldest and largest law firms, must now find $23
mill
ion following a court ruling in which it was held responsible for a ‘dishonest and
fraudulent conduct by a former colleague (Walkley & Lampe, 1999). Meanwhile a former
CEO of Switzerland General Insurance’s Australian operations, recently told the NSW
Supr
eme court that entertaining family members at company expense was common practice in
the late 1980s, saying that purely personal (restaurant meal) expenses, were “provided for in
the company standards” (cited in Bica, 1999, p.2). Furthermore, he claims it
continues today.
In yet another recent example, the fast food giant, McDonald’s has been accused of operating
its controversial “Monopoly McMatch and win” game in a misleading and unconscionable
way and is expected to face Federal Court (Howell, 1999). For

a more detailed discussion of
unethical behaviour see Brown (1999).


Indeed Brown (1999, p.7) argues that ‘rorting’
-
‘…incident(s) involving reprehensible or
suspect behaviour by officials or politicians’
-

is an integral part of Australian culture and
hist
ory. In his new book, “
Rorting: The Great Australian Crime
”, he traces its origins,
beginning with the transportation of petty crooks
-
largely thieves and forgers
-
on the First Fleet;
followed by colonial traders who seized upon and exploited opportunities b
y selling goods in
short supply, sometimes at a profit of 4,000 per cent; continuing through the nineteenth
century with corrupt arrangements between colonial police and bushrangers, and allegations of

bribery at both state and local government levels in t
he early 1900s; black
-
marketing in the

24

Second World War; large scale illegal betting in metropolitan Sydney in the 1960s; and
corruption and illegal casinos in NSW in the 1970s. More recently, Brown identifies Federal
politicians who have been found guilty

of rorting their travel expenses allowances.


For instance, former Liberal senator Bob Woods pleaded guilty to false claims for travel and
private vehicle allowances; former National Party MP Michael Cobbs was found guilty of
fraud related to a travel all
owance claim; Noel Crichton
-
Browne also a Liberal senator,
pleaded guilty to two charges of rorting his parliamentary travel allowances; while now
Independent senator Mal Colston, faced charges for alleged travel allowance fraud
(Henderson, 1999). Then the
re were the unprecedented number of scandals about ministerial
propriety, which saw a number of Coalition ministers either, resign voluntarily, or by force,
for breach of the Prime Minister’s code of conduct (Seccombe, 1999).


Of more concern, however, is
the widespread nature of fraud identified in the latest Australian
Institute of Criminology (AIM) Report, also known as the KPMG Fraud Survey (cited in
Hepworth, 1999). In the survey, 57 per cent of responding companies reported being the
victim of at leas
t one incident of fraud, while 69 per cent experienced more than one incident.
Losses resulting from fraudulent activity amounted to 239 million dollars, up from 104
million in 1997. The report’s authors, argue that these figures are only the tip of the ic
eberg.


Dr Russell Smith, one of the authors, found that Australian companies were reluctant to report
fraud, fearing the negative effect the resulting publicity would have on their commercial
reputation, and loss of business. Similarly, while high techno
logy fraud was found to be
increasingly common, he argues that the resulting losses of $16 million were probably
underestimated because companies were ignorant of the extent to which they were being

25

defrauded through computer crime. Furthermore, financial
institutions indicated a serious
concern that publishing security flaws would expose them to similar actions by other
perpetrators.


However, Smith argues that by failing to report fraud, offenders may believe that they are free
to continue to act illegall
y, and that the companies’ lack of action would negate deterrents for
other employees. Moreover, because management is seen to be unwilling to act, a general
decline of ethical standards within the organization may result.


Poor internal controls were foun
d to be the most significant factor enabling frauds to occur
(KPMG Fraud Survey cited in Hayes, 1999). Merchant (1988 cited in Batten
et al,

1997)
argues that efficient, effective comprehensive internal control systems are a complementary
device in assurin
g good business practices. However, a recurring theme in the literature and
applied ethicists alike [e.g.,
Dr Simon Longstaff

and Attracta Lagan, executive director and
director of consulting at St James Ethics Centre, respectively (Vines, 1999;
Guinness,
1999;

Singleton, 1999)
], in promoting ethical business practices is the role of senior management in
clearly stating its values, seen to be practicing and endorsing them, and communicating and
ensuring staff in the organization understand and accept those
values (Batten
et al,

1997;
Milton
-
Smith, 1992; Southee cited in Small, 1992; Merchant, 1988 cited in Batten
et al,

1997). Conversely, the influences of the perceived attitudes (and behaviour) of immediate
supervisors and peers on unethical decision making

is also well documented
(Baumhart, 1961;
Carroll, 1975; Brenner & Molander, 1977;
Posner & Schmidt, 1984)
. Given the recent
findings of Jackson
et al,

(in press), with respect to the relativistic

criteria used by Australian
managers to evaluate decisions with an ethical component, further research into Australian

26

managerial values and their relationship to ethical decision making is warranted, and is that of
their peers and supervisors.














































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