Question

Having conducted the ethics audit, identify the formal and informal systems that are in need of attention. Where is the culture out of alignment (if it is)? Design a change program to address weaknesses and to align formal and informal systems into a strong ethical culture.

Answer 1

• Ethics audit refers to an audit conducted in order to adjudge whether the organization is following the code of conduct goals and values that it has set for itself in the social sphere.
• It measures the culture and behaviour of an organization, and determines the extent to which its values are embedded across its people and processes.
• Common parameters which may be evaluated in an ethics audit include job satisfaction, awareness of the organization’s policy on equality and diversity, contribution towards the society, whether the processes of the organization follow ethical standards set by the society etc.
• Assessing the outcomes and achievements of corporate social responsibility in order to improve future outcomes is an example of ethics audit. Another example is performance related to company’s policies on whistleblowers and grievance redress.

Informal Measures of Business Ethics Implementation Based on the research results discussed previously in the text, the informal measures of business ethics implementation examined in the empirical part of our research are: manager concern/role-modelling, candid ethical communication, ethics as a topic of employee conversation, reward and penalty systems, and the communication of stories. Manager concern / role-modelling The importance of a manager’s clear commitment to ethical values has been subject to much research showing that it is especially important for top management/leaders to demonstrate ethical behaviour. Trevino, Hartman and Brown [43] distinguish two pillars of ethical leadership. The first pillar is a moral person with traits (e.g. integrity), proper behaviour (e.g. does things in the right way) and decision-making (incorporates values). The second pillar is a moral manager with several supportive characteristics, one of which is being a visible and positive role model in the firm. Other established researchers have noted the importance of top management being good role models as well [13, 29]. Managers who engage in immoral behaviour encourage subordinates to do the same. Their words about ethics and morality will therefore not be taken seriously

Candid ethical communication Trevino’s research [43] establishes that another supportive characteristic of a moral manager is the ability to communicate about ethics and values with other members of the enterprise. The author argues that the message that values should guide all decisions must begin at the top. Furthermore, communication of management on all levels is necessary to close the gap between what is said and what is actually done in the firm. Candid communication is the only way to inspire employees and build their trust. Ethics as a topic of employee conversation Informal conversations among employees play an important role in the ethical life of the firm [42]. This role can be viewed as positive, resulting in support for formal ethics activities, or negative, resulting in indifference or active resistance among employees. Reward and penalty systems A reward system is an important tool in rewarding the employees on specific occasions when they positively resolve conflicts or dilemmas by implementing ethical behaviour. Trevino and Nelson [42] argue that this ethics implementation tool should be used to only a limited extent – but is important in influencing the preferred types of behaviour in the future. One such type is exemplary behaviour, a specific individual act that goes beyond management expectations and reflects the core values of the enterprise. On the other hand, such a system must assign punishment for misbehaviour. Sanctions for code violations are necessary and must be enforced to the letter of the code [39]. Managers who avoid disciplinary situations may be sending a powerful signal to their subordinates that misbehaviour is acceptable. Communication of stories about ethical employees Employees who go out of their way to exemplify the core values are heroic figures, worthy of recognition in the enterprise. The mechanism for doing this is telling stories [10]. By transmitting what is proper behaviour throughout the enterprise, they serve as an important resource for ethical purposes. Stories may be told about ethical leaders or by leaders to provide appropriate examples for others to emulate

Formal Institutional Measures of Business Ethics Implementation Based on the research results discussed previously in the text, the formal institutional measures of business ethics implementation examined in the empirical part of our research are: the core value statement, the mission statement, the code of ethics, compliance manuals, and ethics standards and indexes. J. Belak et al. Informal and Formal Institutional Measures of Business Ethics Implementation at Different Stages of Enterprise Life Cycle – 110 – Core value statement Effective enterprises identify and develop a clear, concise and shared meaning of values/beliefs, priorities, and direction so that everyone understands and can contribute. Once defined, values influence every aspect of an enterprise, which must support and nurture this impact or identifying the values will have been a wasted exercise. Mission statement A mission statement is a management tool that usually includes the enterprise’s values and philosophy [4, 14, 29]. According to Dalla Costa [15], this tool is appropriate for enterprises that have a history of integrating values into their decisions, and not suitable for enterprises where such a history does not exist. Wheelen and Hunger [46] argue that an enterprise’s mission statement may also include a business’s philosophy about how it does its business and treats its employees. This puts into words not only what the enterprise is now, but also what it wants to become – management’s strategic vision of the enterprise in the future. In the authors’ opinion [46], a mission statement promotes a sense of shared expectations in employees, and communicates a public image to important stakeholder groups in the enterprise’s task environment. Code of ethics A code of ethics as one business ethics implementation tool has been subject to much research in the past [27, 29, 30, 40]. The research conclusions show that more than 90% of enterprises have a code of ethics or some type of ethics statement [29]. Another important research insight is that the mere presence of an ethics code has a positive impact on enterprise ethics [2]. The code of ethics is an instrument for implementing business ethics within the enterprise, as well as in the enterprise’s environment. According to Thommen [39], the code of ethics is the best-known instrument for improving and achieving the enterprise’s ethical behaviour. It contains ethical principles that should be followed by certain enterprise behaviour. Also in Staffelbach’s [37] opinion, the code of ethics is one of the most important instruments for business ethics implementation. Compliance manuals Researchers in the field of enterprise ethics have realized that many enterprises use compliance manuals to communicate relevant rules, to emphasize important policies, or to make these policies understandable [29, 42]. Some researches show that such manuals are widely distributed in large firms ([45] research on a sample of Fortune 500 Industrial and Service firms). Business ethics standards and indexes Over the past decade, many varied initiatives and standards regarding enterprise ethical behaviour and corporate social responsibility have occurred. It is important to emphasize that shared and internationally accepted standards on enterprise ethics do not yet exist. However, there are several standards and initiatives in this field which should be considered when examining the enterprise’s ethical behaviour. From the notion of corporate social responsibility (CSR), it is possible to derive the complementary concept of accountability, which means that the enterprise is held accountable for its actions. If enterprises want to manage CSR and sustainability issues and obtain the trust of their social stakeholders, they must not only communicate, but also give concrete evidence that they are committed to continual, long-term improvement. It becomes crucial to measure the enterprise’s capacity to meet the stakeholders’ needs, and to create a balance between what the enterprise offers and what it receives from the social system [33]. The many different approaches to CSR and the fact that it is generally a voluntary tool that measures the social impact of enterprises – and thus subject to the influence of specific variables of a cultural, political, and economic nature – have made it impossible for a generally accepted model of social reporting to develop. To measure the performance of enterprises in matters of business ethics, several ethical indexes have been introduced in North America and Europe: the Domini 400 Social Index (DSI), the Citizens Index, the Dow Jones Sustainability World, the Jantzi Social Index (JSI), the Triodos Sustainable Investment Index, the Ethical Index Euro, the Ethibel Sustainability System, ASPI Eurozone, the CSR Rank of Slovenian Enterprises, etc.