Integrity in Business and Society

Managing Risks for Ethical Integrity: The Ethical Misconduct Disaster

 

Robert C. Chandler is Professor of Communication and Director of the Nicholson School of Communication at the University of Central Florida (UCF), a leading organization investigating crisis management and the roles of integrity in preventing and communication in dealing with a crisis.

Bob researches organizational integrity, business ethics training and assessment and a wide variety of uses of communication including crisis communication, emergency notification, conflict management and multicultural/intercultural communication. Among his 75 publications are his co-authored 2006 book, Managing the Risks for Corporate Integrity.

In an entertaining presentation featuring some highly graphical slides, Bob illustrated the concept of an Ethical Misconduct Disaster (EMD) and provided a practical approach to recognizing and managing the risks of such disastrous scandals as part of an overall strategy for managing integrity in organisations.

Ethical crises can disrupt business operations just as significantly as natural disasters, data loss, accidents, and deliberate malevolent acts. Such scandals can have enormous costs; impact business operations; damage employee motivation and morale; wound reputation and brand value; anger stakeholders; invite legal and regulatory sanction; and potentially land senior management in prison. No business is immune from these risks.

Bob said such risks are well known and extensive effort has been made to calculate the “costs” for such disasters (including health, safety, and well-being of people, and the costs of mission critical downtime).

Contingency planning for surviving such risks has become common practice for many prudent businesses globally, usually involving elements of  mitigation, resiliency, crisis management and recovery planning.

He described Enron’s superb plans for such crises, but like many other firms noted they had not planned for the effects of an ‘ethical disaster’.

Bob called for a Paradigm Shift in approach as traditional approaches to ethical issues tended to compartmentalize them – classifying them as either compliance or accounting issues.

Alternatively, a lion’s share of attention has been devoted to analysis of morality and philosophical debates that have for the most part not been of relevance to business people on the front lines of sustaining ethical conduct.

Managers and administrators have found it challenging to understand the scope and scale of the problems. The failure to recognize ethics and integrity as strategic mission critical issues has created a systematic neglect which has not adequately mobilized the resolve or resources to ensure integrity continuity.

Bob drew on business continuity – disaster recovery and risk management approaches – to recognize ethical issues for the threat they can present – Ethical Misconduct Disasters. He acknowledged that was no fixed or universally accepted definition of an ethical misconduct disaster, nevertheless there was sufficient and substantial consensus from which to conclude that such scandals can negatively affect an organization, a major business unit, the reputation and image of a brand, and affect all stakeholders of the organization.

An ethical misconduct disaster can also damage, perhaps severely, an organization’s financial performance, impact employees, result in litigation and regulatory responses, and create a media circus that can destroy the public’s basic trust or belief in an organization, its reputation, and its image. These scandals can threaten the continuity and very existence of the corporation itself.

At its most basic, an ethical misconduct disaster is an unexpected organizational crisis that can emerge from a range of individual employee misconduct to allegations of widespread sexual harassment, racial discrimination, bribery, fraud, and deceptive practices, violations of regulatory rules and laws, and outright corrupt policies and practices.

An ethical disaster can disrupt routine operations, paralyse employees, reduce productivity, damage recruitment, retention, motivation and morale, depress valuation, credit worthiness and market value, destroy organizational reputations, erode stakeholder confidence, as well as result in incalculable legal and financial costs including the direct and indirect costs arising from fraud. In addition to brand, reputation and image damage, in some countries there is also the risk of facing criminal charges, fines and imprisonment.

Some companies never recover and cease operations leading to loss of jobs and pensions, as well as damaging others involved in the local economy.

Bob then described a variety of survey evidence confirming what he described as the ‘Crisis of Ethics’:

• 62% of US companies experienced a significant EMD (enough to disrupt routine operations) between 1986-1996
• 76% of MBA graduates anonymously reported they were willing to commit fraud to enhance their profit reports to management, investors, and the public
• 30% of all employees “know or suspect ethical violations such as falsifying records, unfair treatment of employees, and lying to top management.”

He suggested the major categories of EMD included Harassment (Ethnic, Sexual, etc.), Criminal & Illegal Activities, Fraud & Falsifying Records, Discrimination, Customer/Client Deception, Bribery & Improper Influence, Failure to Adhere to Policy/Regulations, Corruption & Unethical Decisions and Undisclosed Conflict of Interest.

Bob followed this up with by suggesting that the major ethical issues facing modern business included Abusive or intimidating behaviour, Lying to employees, customers, vendors or the public, Conflicts of interest, Violations of safety regulations, Misreporting of actual time worked, E-mail and internet abuse, Discrimination (race, color, gender, etc.), Stealing or theft, Sexual harassment, Goods and services that fail to meet specifications, Alteration of documents and Misuse of confidential information

Bob continued by discussing what he said were common Myths concerning Business Ethics including it’s common sense, it’s about employee character, small companies have their founder’s ethics, very few companies are actually engaged in misconduct, following the law is enough, business ethics is too costly to implement in a globally competitive business…others don’t.

Prudent businesses must consequently plan to manage integrity continuity by assessing their vulnerability to ethical disasters, taking pro-active measures and preparing their organizations to mitigate and survive when such scandals break.

He suggested there were instances where CEOs were part of the problem but stressed the key role of Ethical Leadership required moving beyond hiring moral people and delegating to subordinates. It required significant strategic planning and accepting  key responsibilities at the highest levels, including the board of directors.  One of the key roles of the leaders was to ensure the development of a corporate culture that values ethics & compliance.

Ont the other hand, the courts, laws & society had a responsibility to hold top management responsible for misconduct, but in many countries those who perpetrated non-business crime were far more likely to be held to account than those who engaged in business wrongdoing.

Bob described ethical disasters at Enron and Daewoo and said the lessons to be learned included the critical importance of ethical & involved leadership developing corporate cultures with values & norms that influence risk-taking related to ethics & legal decisions.

The evidence was that individuals make many ethical mistakes which can cost their organization and many colleagues dearly. On a more positive note, he said there was also evidence that organizations with effective ethics & compliance programs generally manage their ethical risks with no reputation damage.

However he said ‘passive’ ethical policies alone were inadequate. Merely having formal codes of conduct and ethics were insufficient if the values were not embedded in the decision making process of the organization.

Bob concluded using his crisis management experience to describe how firms could plan to prevent or mitigate an ethical disaster, how scandals could be survived, notably involving open communication with stakeholders including news and media and ensuring problems were properly fixed. Finally he described how organisations could attempt to recover, restore and repair businesses which had suffered the aftermath of an ethical misconduct disaster including acknowledging the problems, taking responsibility and offering genuine apologies, taking effective corrective action and communicating positively.

Ultimately the organization had to ‘define who you are’ and ensure ethical concerns were regarded at least on a par with other business disruption and resumption concerns. Leaders had to manage the commitment to “integrity” across the entire organization. With strong evidence available of firms failing to survive ethical lapses or disasters, like many other forms of illness, prevention is far better than cure.

The Concept of Integrity

 

Prof Jan Tullberg from the Centre for the Study of Cultural Evolution at Sweden’s Stockholm University opened a session dedicated to a discussion of integrity across society rather than in any specific sector, including business, by observing that integrity is often viewed as a characteristic of individuals showing a high fidelity to generally praised norms.

He suggested that a person’s integrity particularly manifested itself in a ‘correspondence between authentic values, espoused values and behaviour’, notably ‘persisting with these values’ and ‘showing consistency and durability in adverse situations’.

However Jan also suggested a more independent meaning whereby the concept of integrity implies a distance to integration with others who may often have conflicting demands on the individual. The term ‘integrity’ focuses on integration within the individual’s beliefs, statements and action.

Tullberg posed a key question: To what degree can society and companies accommodate a pluralism created by individuals with integrity? The concept then becomes crucial to a number of central issues in business ethics and organisational theory which he said were often focused on introducing new programs, with three examples being CSR Policies, Stakeholder Initiatives and Company Codes. He said the corporation whose perspective gave prominence to integrity would have a corporate code which provided guidance, but not micromanagement.

Tullberg queried whether companies could be more ‘integrity friendly’? He said they faced a challenge dealing with ‘multi-principals’ or multiple stakeholders and had to multi-task satisfying profitability, environmental and social responsibilities. Jan referred to Rousseau and the concept of idealistic universalism – when the general will and the personal will were aligned, a lack of conflict arose.

The autonomy of an employee cannot be upheld without restrictions and a central question under empirical universalism would be to what degree obedience should be enforced. He admitted there is a difficult task of finding the balance with, on one side, too few guidelines and a lack of willingness to accommodate to justified demands from others, and on the other side micromanagement that limits individual learning, responsibility and motivation. An integrity perspective will recommend frequent use of delegation when organizing a company.

He asked whether an employee doing all that has been ordered was really an empowered employee and wondered how many firms genuinely create an opportunity for employee initiative. He noted a shift away from forcing people to act in certain ways to a treatment with incentives, consent and soft paternalism. Such anti-authoritarian shifts in society at large are relevant for companies.

Jan also referred to what he described as the “Janus face of Information Technology” which, whilst facilitating information to employees offering the possibility of decentralisation and delegation, it also facilitates surveillance of the employees supporting command and control. The increased technical possibilities to invade what was previously private information have also stimulated a concern for integrity.

Jan said integrity plays a critical role in modern society. He argued that integrity is a virtue and that a more integrity-friendly environment in society and companies would stimulate individuals to nurture this virtue for the benefit of themselves and of others. He also noted that not all virtues were necessarily good, with harm sometimes arising. The judgment whether there is a lack of integrity (opportunism, conformism, obedience) or an oversupply of it (selfishness, atomism) becomes central.

Jan believed integrity is an alternative to submission – not a more appealing word for it. The enthusiasm for an ‘integrated’ company often fails to address the ‘integrity’ question, but assumes it will disappear due to the similarly sounding term. The attraction to ‘integration’ is supported by the popular idea that morality implies a high degree of subordination to obligations and authority.

Tullberg also contributed to the Laws or Principles debate. He compared the various British Corporate Governance Codes and noted that the original 1992 Cadbury Code contained 19 recommendations, whilst the 1998 Combined Code had 45 recommendations and the subsequent 2003 Higgs Review contained 82 recommendations. Tullberg observed a doubling of the number of recommendations every five years.

An integrity-unfriendly environment is likely to give similar results as self-censorship, as individuals will avoid conflict by asking themselves not about their own best judgment, but what authorities would like to hear. Then only few people would be capable to act with integrity.

Jan noted a paradox of integrity was that the more integrity-friendly the environment is, the less strength of character is demanded from individuals to manifest integrity. The virtue perspective provides a solution to this apparent contradiction. The practice of any virtue improves the capability, and increases the inclination, to behave according to that virtue.

Integrity was generally good for an individual’s responsibility and personal growth whilst individuals of integrity were also generally good for society, especially democratic societies with market economies. Democracy is build on voters and politicians having integrity – not just saying what they been told to say. The market economy is built on consumers, employees and entrepreneurs making independent judgments – and having integrity.

Integrity and its application into organisations

Cristian Palazzi is a professor of Social Philosophy in the TSI-ESADE Faculty of Tourism, secretary executive of the Ethos Chair at Ramon Llull University, Barcelona, Spain, and editorial chief of the journal Diàlegs put out by the INEHCA Foundation and the Ramon Llull Journal of Applied Ethics.

Unlike some of his colleagues who generally suggested he concept of integrity indicates that which is integer, the wholeness, totality and unity of the human person or organisation, Cristian opened by also explaining that the term integrity originates in the Latin word integrare which has its origin in tangere (to touch) and the privative in: (un touched). Integrity means, literally, that which must not be hurt, damaged or altered, but should be respected and protected.

Two further definitions he mentioned were:

• “the quality or state of being complete; unbroken condition; wholeness; entirety”, and
• “the quality or state of being of sound moral principle; uprightness, honesty, and sincerity”.

Cristian suggested both meanings correspond with our common perception and understanding of the term.

Integrity is a complex concept with alliances to conventional standards of morality —especially those of truth telling, honesty, and fairness— as well as to personal ideals that may conflict with such standards.

Cristian outlined seven dimensions of integrity:

1. Integrity as a created and narrated coherence of life, as a wholeness and completeness of a life story, that must not be violated.

2. Integrity as a self-determination

• Moral conscientiousness and discernment
• Moral resolution and public accountability
• Moral commitment and character
• Moral coherence and authenticity   

3    Integrity as a virtue

4    Integrity as a legal notion

5    Personal integrity (psychological & corporeal dimensions)

6. Interpersonal integrity

7. Integrity as a consistency

Cristian posed some serious questions: Which role does the value of integrity play in an organisation? Is a relevant value? Which relationship exists between trust and integrity? Which relationship exists between competition and integrity? How to empower the integrity inside an organisation?

He suggested the seven elements (Seven C’s) of corporate integrity are: Commitment, Conduct, Content, Context, Consistency, Coherence And Continuity.

Integrity requires considering that work relationships are not limited to relationships at work, but also must include the fact that workers are also members of families and members of civil society.

Just as corporations are not isolated entities but are parts of larger systems, so also are workers members of other communities that must be recognized, especially the communities of family and civic life.

Cristian concluded with a brief discussion of Leadership and Integrity where he stressed the role of trust, notably when facing the challenge of uniting organisations across cultures. He suggested there were three levels of integrity in organisations – Individual, Corporate and Stakeholders. Developing and maintaining integrity —both at the personal and organisational level— requires a huge effort on the part of leaders.

Without appreciating the background of individuals, their position in the organisation, ages, gender, educational experiences, leaders cannot appreciate the context from which others make ethical decisions.

Maintaining integrity is difficult and can require considerable effort, while at the same time providing few immediate benefits. Without substantial personal commitment, integrity is difficult to maintain. Creating and maintaining a moral environment for an organisation is a never-ending task.

He believed the imposition of values cannot survive beyond the short term. In the final analysis, integrity cannot be forced on others. Because of this, integrity and leadership are inextricably linked.

Corporate integrity requires secure civic and reciprocal relationships pursing a worthwhile purpose. People who work toward developing such relationships would certainly be leading with integrity.

Integrity contributing to better economic performance

Jacob Dahl Rendtorff, professor of responsibility, ethics and legitimacy of corporations at Roskilde University, Denmark, whose most recent book recent book is entitled “Responsibility, Ethics and Legitimacy of Corporations” posed the question What is the role of integrity in business ethics?

Whilst Jacob considered integrity as traditionally viewed as a philosophical value of virtue, linked to the ideas of autonomy, dignity and vulnerability and the virtue of an uncorrupted and trustful character, he noted that integrity was now more frequently also viewed as being of key strategic and economic/financial importance.

He observed that an eminent business lawyer and ethicist like Lynn Sharp Paine argued for an “integrity strategy” whereby integrity is considered a critical component of a firm’s strategy.

Rendtorff said integrity is becoming a very popular concept of business strategy because it is indicative of coherence, purity or completeness of a totality and signifies a personal and organisational virtue of commitment and loyalty. Integrity, as viewed through its history, culture, principles and policies. expresses the moral identity of an organisation including its unity and wholeness regarding trust and honesty.

One of the key aims of strategy was now maintaining and developing ethical integrity.

Jacob also noted that business economists like Michael Jensen have recently argued that integrity is the most important concept for dealing with ethics in a ‘paradigm of economic performance and instrumental agency’. Integrity is therefore not just a moral concept but also a ’strategic cost-benefit concept for strategic achievement’.

Economists have now also viewed integrity as a factor of production – a workability concept. Because it signifies being whole, complete, unbroken, unimpaired, sound and in perfect condition, these factors also represent conditions of good performance.

Jacob also noted a close connection between integrity and value maximization. The corollary also applies with Rendtorff observing that iregularities in the financial markets can be explained in terms of lack of integrity. Fraud, lies and manipulations were notable examples of lack of integrity culminating in Jacob’s belief that the financial crisis was a result of many people acting without integrity.

In considering a ’workability concept of integrity’ he believed there were dilemmas and problems associated with integrating integrity, economic performance and strategy. He posed a number of questions including – what comes first – moral or economic integrity? Can we really have economic integrity without moral integrity? What is an authentic integrity strategy? Could an economic integrity strategy be fake?  How do we go beyond the opposition to increasing prominence of integrity?

Jacob further believed that good corporate citizenship also implies organisational integrity as it combines business ethics and economic integrity. Good corporate citizenship helps move morality  to a ’reflected and rational theory of business ethics’ to the degree that there cannot be longer term economic integrity without business ethics.

Corporate Social Responsibility and its stated Values help define an organisation’s integrity, with Corporate Intentionality (CID) forming a basis for institutional responsibility. Integrity and stakeholder dialogue also help define ”good corporate citizenship” particularly as an organisation moves ’from rules to values’.

Furthermore, Jacob said that a reflection on the ’triple bottom line’ helps integrate values in the corporate culture. He believed that organisational integrity can be conceived as the conceptualization of “due diligence” in law and therefore relates to the concept of business excellence.

Jacob alluded though that it remains to be shown how integrity can be important for notions like

and although there appeared to be links

Jacob said remaining challenges included confirming that integrity when viewed as a commitment to justice and fairness could also be seen to be equally important for good economic values, and ensuring managers associated good behaviour with financial performance, with integrity dilemmas viewed as ‘tensions between economic values and moral values’.

Overall though Jacob asserted that the notion of integrity is not only associated with true identity, honesty, respect and trust, but as a basic principle of business ethics is increasingly seen as a key component in building a good strategy. Jacob reiterated the belief that an integrity strategy that ‘integrates performance and strategy with the moral commitment of purity, wholeness, trustworthiness and accountability’ is more likely to be also associated with good financial performance.

A new concept of integrity – extending collective responsibility to ‘community’

 

Johan Wempe, Professor of Governance at the Saxion University, Netherlands, suggested that the way business ethicists examine the integrity of companies ‘does not measure up when analysing the major social issues’. Indeed he suggested that the way business ethics is itself analysed could even be seen as one of the causes of the different crises that the world is facing, from the financial crisis to the climate crisis, the food and resources crisis.

Johan observed that usually only ‘natural persons’ or ‘formal, organised collectives’ qualify for a moral assessment and they are only held accountable in retrospect for behaviour that leads to undesired effects. In addition, behaviour can be properly evaluated only if it is possible to apply universal norms.

Many actions reflect the norms of the organisation, industry, sector or other grouping. Johan believed the major social issues of today in which companies play a role demand a richer concept of integrity, not restricted to individuals and well-structured organisations. It should be possible and indeed useful to hold a comprehensive social system responsible for results that go beyond the intentions and responsibilities of the people within that social system.

Integrity should not only be based on a minimum standard that must be met, but should also be concerned with the question of how to contribute to the success or wholeness of the community. Wempe thus proposed that the concept of integrity becomes defined or re-defined from the perspective of the community. “Here, we leave the idea of the universal applicability of norms behind us. What role does the person or organisation fill within the community?”

Johan used a variety of examples from the Mexico Gulf oil spill, abuse and cover-up within the Catholic Church and the availability of pharmaceuticals to poorer people and developing nations.

He asked who should assume responsibility for these issues. In the case of the oil spill – some employees, the CEO, the BP organisation, the government? In the case of the church – individual priests, bishops, the Pope, the Church, society?

Johan said the current concept of integrity was often negative, assigning responsibility to one person,  assigning responsibility afterwards, with lear organisational borders and a focus on compliance, control and corporate governance. He queried whether this was fair and realistic?

When issues such as pollution, global warming and obesity extend beyond individuals or organisations they are difficult to analyse within the current concept integrity. He said the two problems which arise relate to responsibility: Who or what is the agent (often not the well organised collective)? Is it possible to assign responsibility and guilt?

With regards to what he described as the first problem, Wempe said the concept of ‘collective responsibility’ was not accepted until 1970 and was further debated until 1995 when the debate ‘faded out without a clear winner’.

People within organisations would knowingly and willingly partake in actions which had consequences, no always accepted by the organisation. However Wempe was glad to see the emergence of Corporate Social Responsibility because implicit was acceptance of responsibility of the collective.

The second problem related to the positive meaning of responsibility and integrity! He asked ‘what is reasonable to expect from an employee?’ Too often integrity could be perceived as a negative when employees were expected to act in line with assigned responsibility, minimising the responsibility and opportunity for the employee to behave with personal integrity. The consequences of a compliance and corporate governance culture was that people would simply ‘stick to the rules and your task’ .

Human Resource Management instruments such as Balanced Score Cards could provide a better measure and perspective. Integrity needed to be viewed at more levels, beyond that of the individual, with no strict borders and analysed in a broader manner whereby actions within a specific moral system could be viewed as part of a wider social system.

Wempe used further examples including the coffee industry and recommended the writings of Steve Johnson (‘The Connected Lives of Ants, Brains, Cities and Software’), Peter Senge (‘The Necessary Revolution’) and his co-presenter at the session, Marvin Brown (‘Corporate Integrity’).

Johan concluded saying ‘integrity is basically a positive concept related to wholeness, integration and considering whether all the resources are used to create value.’ He said it would take a considerable ‘system break through’ and a ‘new consciousness’ for a broader view of integrity to evolve which would evaluate whether people were ‘playing their role in the larger system’, with the key question becoming ‘what role does the person or organisation fill within the community?’ This new way of looking at social issues and the broader role of companies would make a new paradigm, a new ethics necessary.

The Contextual Integrity of Business

Dr Marvin Brown, who has been teaching business and organisational ethics for over 30 years at the University of San Francisco and has authored four books in this area – Working Ethics (1990), The Ethical Process (1993), Corporate Integrity (Cambridge University Press, 2005) and Civilizing the Economy (Cambridge University Press, 2010) – also noted that integrity has several meanings, but at its core, it refers to wholeness and the integration of all the parts that comprise any whole.

Marvin said businesses exist in a context and how they fill their rightful role in their context will largely determine their integrity.

His main aim at the conference was to explore the integrity of business in regard to its role in its social and economic context. He suggested the economic integrity of business refers to the appropriate role of business in its economic context. How we see this role will depend on how we understand our economic context. Indeed our economic model will largely determine our understanding of business integrity. We will need to ensure some kind of economic integrity before we can think clearly about business integrity.

Marvin held that there were two views of business – making money or making provision. His viewpoint of an ‘Economics of Property’ sees ownership of property as the foundation of modern society, sees traditional societies as stuck in the past rather than as contemporaries, treats labour as a commodity, is blind to the planet as a living system, views money as a commodity and ignores the moral dimension of human relationships.

Brown also suggested the dominant tradition of Anglo-American economic theory has suffered from a lack of integrity and we still live in the legacy of this “economics of dissociation” that splits off the misery of those who provide us wealth, and those without property, and focuses only on market dynamics, as though the market was not embedded in human relations.

To integrate our economy, we need to switch from its current foundation on property relations and move to a human or civic foundation. This would allow us to re-conceptualize the economy as an inclusive human enterprise that makes provisions for all.

His viewpoint of a Civic Platform is one where all communities must provide, protect and find meaning and purpose, whereby the Civic emerges from strangers trusting each other, and serves as the platform for deliberation about how to live together. Civic norms (notably reciprocity and moral equality) become the foundation for the economy and the Civic foundation is maintained by Civic Conversations.

The Property Based Economy was based on Ownership, resulting in Haves and Have Nots, with property rights forming the basis for civic participation and the purpose of the government being to protect property.

In stark contrast, the Civic Based Economy was based on Membership, whereby all people are global citizens, with Civic membership forming the basis for property rights and the purpose of the government being to protect its citizens.

Marvin’s suggestion was that we can achieve this by thinking in terms of “systems of provision,” such as the food system or the health care system, which include all providers and provided for.

He saw three economic sectors – Primary (related to extraction) including mining, farming, forestryand fishing; Secondary notably manufacturing, construction and production; and Tertiary (related to distribution and use) including financial services, insurance and healthcare.

The Civic Based Economy would require a ‘New Economics Of Provision’ whereby labour, land and money are treated as providers rather than as commodities, the purpose of the economy is to make provisions for all instead of to make money for some. The economy is consequently structured as a set of systems of provision that provide for all.

These systems would be guided by civic conversations in many locations that would use the strategies of persuasion, incentives and regulation to move them toward justice and sustainability.

The traditional view of Economic Sectors divides the economy into investment opportunities, hides the misery and degradation of providers and separates financial services from  providing goods and services.

In contrast, Marvin’s Systems Of Provision approach divides economy into needed provisions, protects the dignity of providers and integrates financial services with the provision of goods and services. Banks, for example, would belong to these systems of provision instead of to a financial sector that is detached from the business of providing people with what they have reason to value.

Marvin’s ‘Contextual Integrity of Businesses’ thus occurs on a civic rather than a property based platform, limited to the system of provision to which they belong, developed by how they collaborate with other participants in the system and expressed by their role in promoting trends  toward justice and sustainability.

The conclusion of Marvin’s presentation returned to a variant on one of his opening statements. If we can design an integrated economy, the integrity of business will become a possibility, which will be to collaborate with other agencies and organisations in these systems of provision to provide for all.

Integrity and its limits – not the holy grail

In naming the conference Does Integrity Matter? our aim was to challenge the speakers to address ‘integrity’ as well as the more prevalent ‘ethics’ within business and society. Whilst we expected there to be a concensus that integrity did indeed matter, not everyone believed integrity played as pivotal a role as others.

Dr. Stefan Grotefeld, head of the office for ‘Church and Economy’ at the Reformed Church of Zurich, who teaches at the University of Zurich and is a former Scriba of the Societas Ethica, European Society for Research in Ethics, said integrity is not the holy grail of business ethics. Integrity certainly matters, but in a limited way.

His session‚ Integrity and its Limits, opened by observing that integrity has become fashionable in business ethics, noting Lynn Sharp Paine of Harvard’s observation that integrity is seen as an alternative to a compliance approach in organisational ethics.

Stefan also observed that ‘some virtue ethicists like Robert Solomon who think that “integrity is the very essence of ethics and [that] it lies at the very heart of business.” I think that this is wrong. The value of integrity is a more limited and a relative one which depends on the values and principles someone holds’.

Grotefeld referred to Notre Dame colleagues Robert Audi and Patrick Murphy (who spoke in Dublin at a 2003 event Building Integrity in Business) and their observation that integrity is not a sustantive virtue but an ‘adjunctive virtue’ – a necessary complement to the moral principles and commitments someone holds.

Grotefeld noted various understandings of integrity, including integrity as a formal quality, describing how the different aspects of a person are related to each other or how they are related to the core of one’s personality (personal integrity), and integrity as a moral quality (moral integrity).

Stefan observed that Solomon’s account of integrity combines both approaches. Integrity is seen as “the very essence of ethics” and at same time as “the integration of one’s personal and social values, the morality one was raised to follow and the corporate values one was hired to promote”.

He did not deny that such a combination (personal and moral integrity) is possible and that people may indeed possess integrity in both of these senses. But he also said there are also people who possess integrity in the first, but not in the second sense, citing examples of ‘the committed Nazi’ and ‘the reckless business person’. ‘They act immoral while they think they are doing the right thing. Therefore, personal integrity can’t guarantee moral righteousness’.

Nevertheless he believed integrity has some value – personal integrity is indeed important to us because we need some understanding of ourselves as unified beings.

Stefan differentiated two viewpoints:

• The Integrated Self-View: Bringing someone’s desires and volitions into harmony and identifying with them (Harry Frankfurt)
• The Identity View: Remaining true to the projects and commitments that constitute someone’s identity (Bernard Williams)

As an example he quoted from McFall (1987): ‘John was a man of uncommon integrity. He let nothing – not friendship, not justice, not truth – stand in the way of his amassment of wealth’.

McFall’s diagnosis was that John lacked the commitment which ‘a reasonable person might take to be of great importance’. Grotefeld believed the importance-condition was too weak: John’s goal might be important, but was morally suspicious, hence his belief that ther can be no real personal integrity without moral integrity.

Although integrity, by definition, precludes expediency,Stefan believed integrity is not good in itself. Although integrity implies oneness, consistency, coherence and congruence, non-moral qualities can contribute to immoral projects.

A person of moral integrity is someone who lives up to certain moral standards and is incorruptible, but integrity itself is no guarantee for moral goodness because goodness depends on the moral standards to which it is related. Hence it was an ‘adjunctive virtue’ – a necessary complement to the moral principles and commitments someone holds.

Stefan observed the key role that conscience plays as the safe-guard to our integrity. ‘But our conscience may be morally distorted, which means that the value of personal integrity may be a limited one’.

He then discussed integrity in the business context saying what was at stake was a certain part of someone’s behaviour as doctor, as accountant, as financial advisor. He continued to see ‘Professional Integrity’ as an adjunctive virtue quoting from  Bert Musschenga: Someone is said to have integrity in a certain role or practice if he is strongly committed to its constitutive aims and goals, and acts consistently in accordance with the rules, values and standards connected to that role or practice‘.

Stefan argued that professional integrity is a substantial concept of a special kind. When we describe a person of professional integrity as someone who acts in accordance with the ethos of a certain profession, it is not integrity itself which gives a professional’s behaviour moral value, but the professional code or ethos to which it accords.

Among these are moral rules, values and standards and he cited the moral values of accounting including confidentiality, independence, truthfulness as an example.

Professional integrity involves the challenge of being and acting in accordance with the moral standards of one’s profession which Stefan saw as a special kind of compliance:- moral compliance.

A second challlenge was achieving professional excellence by ensuring that ‘Role integrity’ was augmented by moral integrity in order to avoid what he described as role blindness or unquestioning obedience.

Furthermore, to become integrated selves individuals must strive for moral integrity, but this does not mean that moral integrity is a precondition of professional integrity

Therefore, Grotefeld concluded that integrity viewed in isolation from a person’s values and principles cannot be “the very essence of ethics” whether in business or elsewhere.

 

Stakeholder Theory, Action & Virtue Ethics

 

Antonio Argandoña, Professor of Economics and “la Caixa” Chair of Corporate Social Responsibility and Corporate Governance at IESE Business School, Barcelona, discussed the concept of Stakeholder Theory based on the theory of action applied to the firm and extended it to incorporate the virtue ethics approach.

Although Antonio’s initial emphasis was on the economic and psychological results of the human action, his approach then differed from the norm by extending his discussion of stakeholder theory to the moral effects by considering virtue theory applied to the firm. He believed this extension of the theory improved the theory of stakeholder management by converting it to a broad theory of organisational management.

Antonio explained that from the outset when Ed Freeman outlined stakeholder theory in 1984, it was focused on the creation of value which allowed the connection of  stakeholder theory and the economic theories of the firm in their different varieties such as neoclassical and institutionalism.

Even as stakeholder theory developed over time, its core remained the same –  enlarging the goal of the firm from maximization of value for the shareholder to its maximization for all the stakeholders.

This was compatible with traditional economic theories of the firm – according to neoclassical economics, the social optimization of the economic activity was attained when, under a number of assumptions, every agent maximized his or her own utility and every firm maximized its profits (or, in a dynamic random environment, the discounted present value for the owners of the firm).

The focus of stakeholder theory has always been on the creation and distribution of economic value. Rather than just profit maximisation, managers could concentrate their efforts on contractual relationships with stakeholders (and quasi contractual with tax authorities and regulatory agencies). Antonio, however, believed the concentration on contracts was too limiting.

Although the assumptions for ‘social optimization’ were rather restrictive (perfect competition, full information, absence of externalities and of public goods et al), Argandoña’s own work building on that of Pérez López suggested the objective of value maximization could be made compatible with a social optimum: the maximization of social economic value.

Antonio did observe though that we cannot assume that maximization of value for shareholders also implies maximization of social value. Antonio then discussed the consequences of enlarging the concept of value for the stakeholders. He believed the approach should not only concentrate on the creation of value, but also its distribution, which broadens the challenges and discussion from stakeholder management to issues including power, conflict and cooperation.

If stakeholder theory picked up where traditional economic theory finished, a few key questions arose including what if the assumptions or conditions for social maximization were not accomplished?

He also queried what stakeholders actually “value” when they interact with the firm? While the most obvious are the economic results associated with neoclassical economics and the broader results associated with stakeholder theory, Antonio suggested other personal values which play a role including psychological rewards, social relations, operation learning and satisfaction.

Critically, though, Antonio suggested the inclusion of other not easily commensurable values, such as ethical values and the ability to evaluate the effects of decisions on other people. When stakeholder theory, a theory of ‘good’ management because it incorporates consideration of the needs of a broad range of parties, is broadened to include the acquisition of virtues, it becomes connected to a theory of ethics in the firm.

 

Javier Aranzadi, Professor at Universidad Autónoma de Madrid, extended the conference topic of ‘Does Integrity Matter?’ by using Aristotelian thinking to pose and answer two further questions: (1) What is the fundamental and constitutive role of integrity as a social value for personal action? What is the role of integrity at firm’s culture level in this system?  (2) What is the integrating role played by individual integrity in the firm?

Javier said if a person acts in a socio-cultural context, we need to consider the intimate links between person, society and culture. We also need to ask ourselves about the role of integrity within the Aristotelian ethics of norms, virtues and goods as a system for regulating action.

He used one of the most intricate diagrams of the conference to illustrate that, unlike some modern thinking, this view of integrity does not arise as a psychological state, but as a result of an activity and a process.

The diagram represents the dynamic structure of individual action. Key is its dynamism  an isolated act is intelligible only within the process – the activity that generates it.

A further aspect is that all individual action has a cultural and social dimension. Social institutions provide the individual with goods via social norms such as integrity as a cultural value. It is the common good that constitutes integrity and leadership as personal activity.

Diagram: The ethical and socio-cultural framework of human action

(sorry didn’t work on the web!)

He said the central point in the diagram is occupied by the axiom of action according to which in order to act, the person departs from a situation of dissatisfaction and the possibility of changing that situation by deliberating and choosing means in order to achieve the goal of the action.

Javier suggested these characteristics of rational action correspond to voluntary action in accordance with Aristotelian virtues: “On the other hand, if the acts that are in accordance with the virtues have themselves a certain character, it does not follow that they are done justly or temperately…

• In the first place he must have knowledge,
• secondly he must choose the acts and choose them for their own sakes, and
• thirdly, his action must proceed from a firm and unchangeable character” (Aristotle EN, II, 1105a27-32).

Voluntary and virtuous action commands the knowledge of the intended goal and the necessary means; its election by themselves – for the sake that they are good by themselves and the decision to accomplish them.

An ethics of personal virtues demands an ethics of institutions –  an ethics which deals with the institutional means of realizing individual ends as personal integrity.

Javier suggested that this approach could be ctiticised and seen as ethereal and lacking realism in the rather materialistic societies in which we live. But humans are social beings. This assertion belongs to the realm of experience, and yet it also has a philosophical significance.

He reiterated the relevance of Aristotle’s assertion that all individuals choose courses of action by deciding what type of life is worth living. According to this view, integrity as virtue (areté) occupies a central position, defining the paradigm that each society with its institutions and norms sets as the model of life to be lived (eudiamonia).

It is in action that all the facets of the dynamic structure of personal reality are manifested.

Each of our actions has two dimensions. A passing, external one of poeisis or facere and an interior one – the strictly ethical one – of praxis or agere.

In the first aspect we focus on the external consequences of our acts. It is our acts that maintain social institutions and culture. But in the second aspect, the interior one, it is our acts, our activities or habits, which progressively delineate our character, our personality and our éthos.

Stakeholder Theory, Action & Virtue Ethics

 

Antonio Argandoña, Professor of Economics and “la Caixa” Chair of Corporate Social Responsibility and Corporate Governance at IESE Business School, Barcelona, discussed the concept of Stakeholder Theory based on the theory of action applied to the firm and extended it to incorporate the virtue ethics approach.

Although Antonio’s initial emphasis was on the economic and psychological results of the human action, his approach then differed from the norm by extending his discussion of stakeholder theory to the moral effects by considering virtue theory applied to the firm. He believed this extension of the theory improved the theory of stakeholder management by converting it to a broad theory of organisational management.

Antonio explained that from the outset when Ed Freeman outlined stakeholder theory in 1984, it was focused on the creation of value which allowed the connection of  stakeholder theory and the economic theories of the firm in their different varieties such as neoclassical and institutionalism.

Even as stakeholder theory developed over time, its core remained the same –  enlarging the goal of the firm from maximization of value for the shareholder to its maximization for all the stakeholders.

This was compatible with traditional economic theories of the firm – according to neoclassical economics, the social optimization of the economic activity was attained when, under a number of assumptions, every agent maximized his or her own utility and every firm maximized its profits (or, in a dynamic random environment, the discounted present value for the owners of the firm).

The focus of stakeholder theory has always been on the creation and distribution of economic value. Rather than just profit maximisation, managers could concentrate their efforts on contractual relationships with stakeholders (and quasi contractual with tax authorities and regulatory agencies). Antonio, however, believed the concentration on contracts was too limiting.

Although the assumptions for ‘social optimization’ were rather restrictive (perfect competition, full information, absence of externalities and of public goods et al), Argandoña’s own work building on that of Pérez López suggested the objective of value maximization could be made compatible with a social optimum: the maximization of social economic value.

Antonio did observe though that we cannot assume that maximization of value for shareholders also implies maximization of social value. Antonio then discussed the consequences of enlarging the concept of value for the stakeholders. He believed the approach should not only concentrate on the creation of value, but also its distribution, which broadens the challenges and discussion from stakeholder management to issues including power, conflict and cooperation.

If stakeholder theory picked up where traditional economic theory finished, a few key questions arose including what if the assumptions or conditions for social maximization were not accomplished?

He also queried what stakeholders actually “value” when they interact with the firm? While the most obvious are the economic results associated with neoclassical economics and the broader results associated with stakeholder theory, Antonio suggested other personal values which play a role including psychological rewards, social relations, operation learning and satisfaction.

Critically, though, Antonio suggested the inclusion of other not easily commensurable values, such as ethical values and the ability to evaluate the effects of decisions on other people. When stakeholder theory, a theory of ‘good’ management because it incorporates consideration of the needs of a broad range of parties, is broadened to include the acquisition of virtues, it becomes connected to a theory of ethics in the firm.