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:

SCHOOL OF COMMERCE
RESEARCH PAPER SERIES: 00-6
ISSN: 1441-3906


Introduction

The debate over ethics in business is back on the public and corporate agendas thanks [in part] to several recent, highly publicized scandals including 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 recently, 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 National 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 question 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 Australian 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?

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 normative 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 efficacy. 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 involving 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 kickbacks 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 Coalition 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 businessmen and women continue to be of serious concern.

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 past 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 banks 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 philosophy 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 efficiency. 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 left 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 technology (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, 1997) global telecommunications and advances in information technology combined with the increased sophistication of pressure 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 and 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 Nations 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 of ethical business practices may not match that of people from different cultural backgrounds (Buller, Kohls & Anderson, 1997). What one organisation considers ethical in one situation, at one time and in one 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, cited 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 maintain 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 of 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 broadcaster, with his morning radio programme syndicated on more than 70 stations (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 the 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 Competition 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 material 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 equity”, 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 James 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 quick 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).

More broadly, the Law’s case has provoked 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 ethics 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 and 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 business

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 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 its 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 its 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 consistently 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 supervisor 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 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 extent 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 non-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).