Corporate Ethics
Working paper version of "Corporate Ethical Culture: An Exploratory Descriptive Survey of Philippine Companies", a paper to be presented on July 25, 2008 at the 8th International Conference on Philippine Studies (ICOPHIL), Philippine Social Science Center, Quezon City.

ABSTRACT

 

Given the proliferation of corporate debacles in recent years, one is challenged to look for the symptoms and causes of such business disasters.  Recent accountability failures in the U.S. and other countries have led to bankruptcies and managerial misdeeds that have harmed countless shareholders, employees, pensioners, and other stakeholders.  Nowhere has this ‘failure of ethics’ been more acutely felt than in the business community, as these debacles have destroyed some of the world’s largest companies and hundreds of billions of dollars in shareholder value.  Against this backdrop, one understands the sense of urgency that rings in most studies related to organizational ethics. 

Corporate values have been theorized to be highly influential in directing the actions of individuals in society and in organizations.  For organizations, values serve to convey a sense of identity to its members, direct managers’ attention to important issues, and guide subsequent decisions by managers.  In the last few years, there has been a growing interest in developing and implementing Corporate Ethical Policies in order to foster ethical conduct among managers and employees.  A good starting point, however, would be a survey of the general ‘ethical culture’ in an organization.

The Corporate Ethics Scale (CES) of Hunt, Wood and Chonko surveys four broad perceptions: (a) the extent to which employees perceive superiors as acting ethically in their organizations; (b) the extent to which employees perceive that superiors are concerned about ethical issues; (c) the extent to which employees perceive that unethical behavior resulting in personal gain is reprimanded; and (d) the extent to which employees perceive that unethical behavior resulting in corporate gain is reprimanded.  A survey of 136 Philippine managers, utilizing the CES, results in an overall index of corporate ethics of 5.20 for the sample (as compared with 5.3 for 499 marketing managers, 5.08 for 417 marketing researchers, and 5.88 for 330 advertising agency managers in the cohort for the original ethics scale).

Some reasons that can be offered for the relatively lesser ‘ethical sensitivity’ of the local managers are: (1) the differences in national culture as well as ethical culture between the Philippine sample and the original American sample; and (2) the need for further training in ‘ethical sensitivity’ on the part of managers and employees in Philippine institutions.

Implications for practice and research include: the study of the ‘institutionalization’ of ethics in Philippine companies, and the construction of an effective measure of organizational ethical culture for identifying the ethical status of Philippines organizations.  Such a questionnaire will have to be able to identify shared beliefs about an organization’s ethical culture, apart from measuring individual perceptions regarding organizational ethics.

 

Corporate Ethical Culture: An Exploratory Descriptive Survey of Philippine Companies

 

1.  Introduction

The last few years have seen disturbing ethical scandals in virtually every sector of society, particularly in the business community, where some of the world’s largest companies and hundreds of billions of dollars in shareholder value have been destroyed (Copeland, 2005), among other devastating effects.  Everywhere, there was to be heard an expression of outrage at these wrongdoings, but at the same time the lament that law or regulation alone cannot guarantee adherence to sound principles and ethical behavior (Hemphill, 2004).

Each of the debacles explains the public skepticism that has persisted regarding the integrity and responsible use of power by business organizations and those who run them (Epstein, 1987).  While many executives, administrators, educators, and social scientists have sounded the warning bell on such ‘crisis of ethics’, unethical behavior among workers at all levels of the organization has continued to be worrisome.  This crisis has involved businesspeople, government officials, customers, and employees (Sims, 1992).

In the Philippines, corporate and political history has been unfortunately characterized by the end justifies the means maxim.  Practically everyday we read in the newspapers about questionable actuations of people in government and business.  There has come to be a greater demand for corporations to become good citizens; homemakers have become quite vocal about business accountability due to highly visible misdeeds of corporate investors (Agacer, Valcarcel, and Vehmanen, 1993).

In the last few years, there has been a growing interest in developing and implementing corporate ethical policies in order to foster ethical conduct among managers and employees (Melé, Debeljuh, and Arruda, 2006).  This is part of the effort to ‘institutionalize’ ethics, an initiative that includes: making ethical public statements, forming ‘social responsibility’ or ‘public policy’ committees, and implementation of ethics training programs (Sims, 1991).  A good starting point, therefore, would be a survey of the general ‘ethical culture’ in an organization.  This is what this paper sets out to do.

2.   RESEARCH QUESTION

This study seeks to describe and characterize, at an exploratory level, the corporate ethics among managers in Philippine organizations, utilizing the Corporate Ethics Scale (CES) of Hunt, Wood and Chonko (1989).

3.   LITERATURE REVIEW

Ethics

          A plethora of articles and business headlines deploring the devastating effects of corporate and managerial wrongdoing in recent years has filled the literature.  And it seems that there will be no letup in the discussion of issues of corporate morality and business ethics, as these are of concern to all types of organizations —educational, governmental, religious, business, and so on (Sims, 1991; Jansen and von Glinow, 1985).

          Ethics is a philosophical term derived from the Greek word “ethos” meaning character or custom.  Ethics seeks the principles that will tell us the right thing to do, or what things are worth doing.  Ethics refers to a set of standards governing behavior; it refers to broader-based, value-driven rules (Sims, 1992; Jansen and von Glinow, 1985; Kubal, Baker and Coleman, 2006).

          This ethical challenge is particularly difficult because standards for what constitutes ethical behavior lie in a hazy area where clear-cut right-versus-wrong answers may not always exist.  Scholars from a variety of disciplines, though, have contributed significantly to efforts to develop useful conceptual categories for dealing with what has been termed the “management of values” (Sims, 1992; Epstein, 1987).

          Many frameworks have been offered for the study of ethical or unethical behavior of individuals in organizations.  Various approaches have been used: some studies have utilized the normative or prescriptive approaches, others are more analytically oriented descriptive studies.  Among the latter could be found the qualitative case study oriented research, as well as the quantitative measurement-oriented studies.  Scales or constructs have been created for the latter empirical studies.  Often, the Rokeach scale is used as an inventory of personal values.  The Reidenbach-Robin scale and similar constructs try to measure the extent to which a person has an ethical attitude or behavioral intention, and can be used to then further explore the relationship between this ethical attitude and various explanatory variables, such as personal values and demographic characteristics (Roozen, de Pelsmacker, and Bostyn, 2001). 

          Quantitative efforts to develop scales in this general area have tended to center on either broad-based concepts such as organizational culture or issues such as value priorities (Hunt, Wood and Chonko, 1989).  Both the ethical culture instrument of Trevino, Butterfield and McCabe (1995) and the scale by Hunt, Wood and Chonko (1989) measure individual perceptions regarding organizational ethics.  The Hunt, Wood and Chonko scale —which is being used in this study— attempts to capture the broader principles of the degree to which organizations take an interest in ethical issues and act in an ethical manner.

Corporate Ethical Culture   

The impact of organizational culture on the ethical standards and moral practices of organizational members has been increasingly documented.  When ethical behaviors are reinforced by the organizational culture, these behaviors increase; conversely, when unethical behaviors are reinforced by the culture, members tend to exhibit more unethical behavior.  Understandably, ethical principles are formed by long-standing influences on individuals which extend far beyond the organizational realm; however, some organizations purposely shape the ethics exhibited by organizational members.  In these cases, the ethical culture of the organization sends strong signals to employees regarding sanctioned or unsanctioned ways of ethical decision making (Sinclair, 1993; Key, 1999).

Studies have shown that culture may be a determinant of the moral content of organizational behavior.  For instance, an analysis of a bond trading scandal concludes that an unethical organizational culture could develop and thus result in unethical and illegal behavior by organizational members (Sims and Brinkmann, 2002).  The existence and enforcement of the code of ethics in organizations have been shown to influence the ethical decision making processes of marketing and advertising practitioners (Nwachukwu and Vitell, 1997), and corporate ethical values have been shown to be significant and substantive predictors of organizational commitment in marketing (Hunt, Wood and Chonko, 1989).

For ethical researchers and organizational analysts, the challenge has been to develop an inventory or scale that demonstrates that an identifiable ethical culture exists and that it can be measured (Key, 1999).  The objective in this paper is not to assess the efficacy of any of the existing ethical culture instruments but to explore via survey the ethical perceptions of Philippine managers.

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8.   IMPLICATIONS AND DIRECTIONS FOR FUTURE RESEARCH

Mention was made above of the need to come up with measures of organizational ethical culture for identifying the ethical status of organizations.  A foremost implication for research, therefore, would be to develop an ethics inventory suited to the Philippine business environment.  It has also been said that extant scales measure individual perceptions regarding organizational ethics but do not identify shared beliefs about an organization’s ethical culture (Key, 1999).  Efforts can be made, then, to ensure that inventories to be developed incorporate questions that would identify shared beliefs and not just individual perceptions. 

As has been mentioned above, there seems to be a need to continuously debate ethics and values, as these will surely impact the direction that the local business community will take, a community that is ever more vulnerable to mere profit-maximization objectives and increasingly subject to harsh competition here and abroad.  Hence, the suggestion of ethics programs for managers and employees in Philippine institutions.

A framework for a more profound ‘ethical sensitization’ process is suggested in Figure 1 and a brief description of each of the elements follows afterward.

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Ethical Education

Ethical Awareness.  The study of Agacer, Valcarcel, and Vehmanen, (1993) empirically examined whether differences in ethical attitudes exist between the groups of business students from the U.S., Philippines and Finland.  While their results showed that the students from the Philippines expressed the highest degree of ethical awareness for the ethics vignettes shown to the respondents, there were nevertheless a few ethical situations to which these Filipino students expressed indifference.  Given that Philippine history has been constantly dotted with questionable actuations of people in government and business, there seems to be a need to develop corporate cultures that send strong signals to managers and employees regarding sanctioned or unsanctioned ways of ethical decision making.

Socialization.  The discussion in this paper has implications for the process of ‘socialization’ within the organization.  That is, thoroughly communicating ethical rules to new employees is an important first step.  The second step is relentless signaling to maintain faith in the ethical cultural rules of the firm (Camerer and Vepsalainen, 1988).

Ethical Practices.  Ethical awareness does not mean that ethical values are also being practiced.  Awareness is only a first step (Agacer, Valcarcel, and Vehmanen, 1993).  In an increasingly complex organizational environment that requires that both corporate value-maximization objectives and external stakeholder demands be met, it is easy for businesses to succumb to what is termed ‘ethical ambivalence’.  This occurs when the behaviors, attitudes, and norms that are shaped and maintained by the organizational reward system conflict with the behaviors, attitudes, and norms congruent with the ethical values and judgments of organizational stakeholders (Jansen and von Glinow, 1985).  It is, thus, necessary to ensure that organizations and persons employed therein act in congruence with basic ethical principles.

Institutionalization of Ethics

Corporate Codes of Conduct.  Over the last several decades, there has been a growing interest in developing and implementing corporate ethical policies in order to foster ethical conduct among managers and employees.  These policies take on various forms, among them being corporate ethics statements, which define the firms’ philosophy, values and norms of conduct.  Codes of ethics were introduced as early as the 1930s but became popular only in the 1970s when many large firms adopted them as a response to several corporate scandals at that time.  While research has shown that companies appear to have sufficient ethics statements in place, the potential effectiveness of such codes is likely dependent on organizational commitment to them (Melé, Debeljuh, and Arruda, 2006; Murphy, 2005).  It behooves us, therefore, to think whether Philippine organizations possess as much commitment to such ethics codes as do their Western counterparts.

Corporate Social Policy.  Over and above mere formulations of corporate ethical statements or social performance policies, it has been suggested that companies go through the so-called ‘corporate social policy process’, whereby firms and their leaders can be assisted in incorporating value considerations and social performance issues into ongoing organizational and individual policies and practices.  Key to this proposition is the institutionalization of value-based moral reflection and choice concerning individual and organizational behavior, with special attention to issues arising from the specific products (consequences) of corporate actions (Epstein, 1987).

Legislation/Regulation

Corporate Governance.  Corporate governance is an area that has grown rapidly in the last few years.  There has been an explosion of interest in the corporate and investment sectors and more and more universities are offering corporate governance as a module, either on undergraduate or postgraduate degree programs (Mallin, 2004).

 In the Philippines, the legislative, financial reporting, regulatory, and judicial processes exert a huge influence on corporate governance: businesses shall be governed properly only to the extent that problems in these four areas can be resolved and ironed out (Echanis, 2006).  Clear responses to international calls for legislation and evaluation in the area of corporate governance have been chiefly: the Code of Corporate Governance issued in 2002 by the Philippines Securities and Exchange Commission (SEC), and the establishment of the Institute of Corporate Directors (ICD) which has, among others, implemented the “Corporate Governance Scorecard” (CGS) that measures actual improvement in corporate governance practices of the various agencies and institutions in both the public and private sectors.

Corporate Social Responsibility.  (Epstein, 1987).  Corporate social responsibility has gained more prominence in recent years along with an emphasis on the company’s board for its responsibility for relations with its stakeholders.  A good number of well-known corporations have lately begun to adopt environment-friendly policies and to undertake various forms of corporate philanthropy.  These include many, such as ALCOA, Royal Dutch Shell, and Exxon Mobil, which in the past have shown a disdainful disregard for the harm that their operations bring to the environment and to the communities where they operate.  Far from being truly altruistic acts, however, these measures are intended to enhance the firms’ corporate image and ultimately to reduce what are called “influence costs”, those that are incurred in dealing with elements of society that are becoming increasingly critical of the way big businesses tend to be indifferent to the needs and concerns of their publics (Poblador, 2006).  An urgent object of research in this area is, thus, to show whether these social and ethical actions have led to the promotion of shareholder and stakeholder value.