Stakeholders, Managers, and Ethics PDF

Stakeholders, Managers, and Ethics Prof. Laura Cortellazzo, PhD ©LAURACORTELLAZZO Key topics Who are the organizational stakeholders? Top Managers and Organizational Authority Top Managers and Organizational Ethics Why do organization need ethics? Creating...

Stakeholders, Managers, and Ethics Prof. Laura Cortellazzo, PhD ©LAURACORTELLAZZO Key topics Who are the organizational stakeholders? Top Managers and Organizational Authority Top Managers and Organizational Ethics Why do organization need ethics? Creating an Ethical Organization ©LAURACORTELLAZZO Who are the organizational stakeholders? ©LAURACORTELLAZZO  Internal External People who have an interest, claim, or stake in an organization, in what it does, and in how well it performs. ©LAURACORTELLAZZO Stakeholders - internal Internal Contribution to Inducement to Influence of digitalization organization contribute and AI Shareholders Money and capital Dividends and stock Enlarge the set of potential appreciation shareholders Managers Skills and expertise Salaries, bonuses, Management by algorithm , team building status, and power AI decision-making Workforce Skills and expertise Wages, bonuses, stable Crowdsourcing, gig working employment, and promotion ©LAURACORTELLAZZO ©LAURACORTELLAZZO Gig economy ©LAURACORTELLAZZO Work is being disaggregated from jobs and reorganized into a variety of alternative arrangements (freelance assignments, and contract opportunities). Gallup reports that over 70% of workers aren’t engaged in their jobs. The gig economy offers a much needed alternative model of work that can supplement or substitute for being a full-time employee in a full-time job (Mulcahy, 2016) “Gig economy” describes the economic system in which intermediary platform firms connect requesters (i.e. consumers) with on-demand gig workers (Meijerink & Keegan, 2019). Liberating or exploitative? (O'Connor, Financial times 2016) ▪ The global gig economy generates $204 billion in gross volume ▪ In 2021, 163 million freelancer profiles created around the world ▪ About 700,000 people work in the gig economy in Italy ▪ The value ranges between 0.7 and 1.3% of Italian GDP The term “algorithmic management” was coined by academics at the Carnegie Mellon University Human-Computer Interaction Institute ©LAURACORTELLAZZO  Stakeholders - external External Contribution to organization Inducement to contribute Customers Revenue from purchase of Quality and price of goods and goods and services services Suppliers High-quality inputs Revenue from purchase of inputs Partners Co-produce , inputs Revenue from purchase of inputs, visibility Government Rules governing good business Fair and free competition practice Unions Free and fair collective Equitable share of inducements bargaining Community Social and economic Revenue, taxes, and employment infrastructure General public Customer loyalty and reputation National pride ©LAURACORTELLAZZO Allocating Rewards The allocation of rewards, or inducements, is an important component of organizational effectiveness because the inducements offered to stakeholders now influence their motivation—that is, the form and level of their contributions—in the future. Managers must decide which inducements or rewards each group should receive What are the appropriate rewards for a manager, a middle manager and an employee ? ©LAURACORTELLAZZO  NO CEO SHOULD EARN 1,000 TIMES MORE THAN A REGULAR EMPLOYEE For the first time ever, US corporations have begun reporting pay ratio data. And a movement is building to crack down on companies that don’t share the wealth The CEO of Marathon Petroleum, Gary Heminger, took home an astonishing 935 times more pay than his typical employee in 2017. In other words, one of Marathon’s gas station workers would have to toil more than nine centuries to make as much as Heminger grabbed in just one year. ©LAURACORTELLAZZO  NO CEO SHOULD EARN 1,000 TIMES MORE THAN A REGULAR EMPLOYEE The annual salary of Carlos Tavares is worth the salary of a thousand Mirafiori workers. The Stellantis shareholders' meeting approved with 30% of votes against the salary of the CEO Tavares which is 23.5 million euros (up to 36.5 with bonuses), compared to the 14.9 million euros in 2022, with an increase of more than 55%. ©LAURACORTELLAZZO World Surf League to offer equal prize money to men and women from 2019 ©LAURACORTELLAZZO Top Managers and Organizational Authority ©LAURACORTELLAZZO  Managers Authority - The power to hold people accountable for their actions and to make decisions concerning the use of organizational resources. Hierarchy is a vertical ordering of organizational roles according to their relative authority. Board of directors elected by shareholders to oversee managers’ performance and exercise control Top-management team - A group of managers (Corporate managers) who report to the CEO and COO. Provides direction, planning, strategy, goals, policies for the entire organization, and manage the relationships with the environment General managers and Middle managers – a group of managers reporting to the top management team – divisional or functional managers responsible for implementation and coordination at the departmental level ©LAURACORTELLAZZO  Managers Line Managers - have direct responsibility for the production of goods and services. STAFF Staff Managers - who are in charge of a specific organizational function – support and service. LINE ©LAURACORTELLAZZO  The CEO The CEO’s role is responsible for setting the organization’s goals and designing its structure selects key executives to occupy the topmost levels of the managerial hierarchy determines top management’s rewards and incentives controls the allocation of scarce resources such as money and decision-making power among the organization’s functional areas or business divisions his/her actions and reputation have a major impact on inside and outside stakeholders’ views of the organization and affect the organization’s ability to attract resources from its environment ©LAURACORTELLAZZO Competing Goals – shareholders vs managers Shareholders - owners of an organization’s accumulated wealth or capital have first claim on the value it creates. Job of managers is to maximize the organization’s return on the resources and capital invested in the business BUT goals of managers and shareholders may be incompatible  Short term approach  Risk adverse ©LAURACORTELLAZZO  Agency An agency relation arises whenever one person (the principal) delegates decision-making authority or control over resources to another (the agent). The agency problem – moral hazard - information asymmetry - shareholders or principals are at an information disadvantage compared with top managers - conflict of interests - the agent has an incentive to pursue goals and objectives that are different from the principal’s Self-dealing - the conduct of corporate managers who take advantage of their position in an organization to act in their own interests ©LAURACORTELLAZZO Solving the agency problem CONFLICT OF INTERESTS MORAL HAZARD INFORMATION ASYMMETRY PRINCIPAL AGENT GOVERNANCE MECHANIMS Monitoring + Code of ethics INCENTIVES stock options promotion tournaments ©LAURACORTELLAZZO Is it only a matter of shareholders? ©LAURACORTELLAZZO Stakeholders not shareholders Global stakeholder society, ‘‘where companies are expected to be accountable not only to shareholders for financial performance, but to stakeholders for their wider economic, environmental and societal impacts’’ (Wade, 2006) From Influencing followers to achieve group/ organizational goals that reflect excellence defined as some kind of higher-level effectiveness To Building and cultivating sustainable and trustful relationships to different stakeholders inside and outside the organization and to co-ordinate their action to achieve common objectives, business sustainability and legitimacy and ultimately to help to realize a good (i.e., ethically sound) and shared business vision. ©LAURACORTELLAZZO Stakeholder theory Edward Freeman ©LAURACORTELLAZZO Top Managers and Organizational Ethics ©LAURACORTELLAZZO  Ethics and the Law Ethics are moral principles that govern individuals’ or groups' behaviours (Oxford Dictionary) Ethical dilemma - Wen people must decide whether or not they should act in a way that benefits someone else, even if it harms others and isn’t in their own interest. How are companies and their managers to decide what is ethical and so act appropriately toward other people and groups? LAW Laws specifies what people and organizations can and cannot do (societally determined legal realm) Neither laws nor ethics are fixed principles , cast in stone, which do not change over time There are other sources : there can be behaviours that are unethical but legal ©LAURACORTELLAZZO Ethics and Organizational Stakeholders Ethics: help people determine moral responses to situations in which the best course of action is unclear. guide managers in their decisions about what to do in various situations. help managers decide how best to respond to the interests of various organizational stakeholders. Managers might be in a difficult situation because they have to balance their interests and the interests of the “organization” against the interests of other stakeholder groups. ©LAURACORTELLAZZO What is the ethical dilemma here? https://www.youtube.com/watch?v=cXkyhE58gcU ©LAURACORTELLAZZO  What determines whether a decision is ethical ? UTILITARIAN MODEL: An ethical decision is the one that produces the greatest good for the greatest number of people How do managers decide on the relative importance of each stakeholder group? MORAL RIGHTS MODEL: An ethical decision is the one that best maintains and protects the fundamental rights and priviledges of the people affected by it. For example, ethical decisions protect people’s rights to freedom, life and safety, privacy, free speech and freedom of conscience How do managers decide on the relative importance these fundamental rights? JUSTICE MODEL: An ethical decision is the one that distributes benefits and harms among stakeholders in a fair, equitable, or impartial way How can managers be impartial and do not discriminate against people’s appearance or behavior? ©LAURACORTELLAZZO A simple approach to ethical dilemma A decision is probably acceptable on ethical grounds if a manager can answer “yes” to each of these questions: 1. Does my decision fall within the accepted values or standards that typically apply in the organizational environment? 2. Am I willing to see the decision communicated to all stakeholders affected by it—for example, by having it reported in newspapers or on television? 3. Would the people with whom I have a significant personal relationship, such as family members, friends, or even managers in other organizations, approve the decision? ©LAURACORTELLAZZO Why do organization need ethics? ©LAURACORTELLAZZO Ethics scandal Most Shameful Corporate Scandals, No. 1: Equifax Inc. The Equifax Inc. (NYSE: EFX) scandal was one of the largest data breaches in history. The credit-reporting firm exposed the personal details of up to 143 million U.S. customers – or nearly half of the U.S. population – earlier this year. Sensitive information such as social security numbers, credit cards numbers, birthdays, addresses, and in some instances, driver’s license numbers were all compromised in the hack. Even worse, some of the company’s top executives sold over $1.8 million worth of shares in the company just days after the breach was discovered. The public was not aware of the breach until more than six weeks later. The scandal prompted CEO Richard Smith to abruptly step down, and Equifax’s shares fell more than 30% in seven days. ©LAURACORTELLAZZO The 2013 Savar building collapse or Rana Plaza collapse was a structural failure that occurred on 24 April 2013 in the Savar Upazila of Dhaka District, Bangladesh, where an eight-story commercial building named Rana Plaza collapsed. The search for the dead ended on 13 May 2013 with a death toll of 1,134. Approximately 2,500 injured people were rescued from the building alive. It is considered the deadliest structural failure accident in modern human history, The building contained clothing factories, a bank, apartments, and several shops. The building's owners ignored warnings to avoid using the building after cracks had appeared the day before. Garment workers were ordered to return the following day, and the building collapsed during the morning rush- hour. ©LAURACORTELLAZZO ©LAURACORTELLAZZO Christopher Wylie, a 28-year-old Canadian and former research director at Cambridge Analytica, revealed how the company had exploited Facebook data harvested from millions of people across the world to profile and target them with political messages and misinformation, without their knowledge or consent. In April Facebook admitted it wasn’t 50 million users who had had their profiles mined, as we had reported, it was actually 87 million users. ©LAURACORTELLAZZO Ethics surces Societal ethics are codified in a society’s legal system, in its customs and practices, and in the unwritten norms and values that people use to interact with each other. Professional ethics are the moral rules and values that a group of people uses to control the way they perform a task or use resources Individual ethics are the personal and moral standards used by individuals to structure their interactions with other people ©LAURACORTELLAZZO Why Do Ethical Rules Develop? Tragedy of the commons problem. To minimize transaction costs Reputation effects ©LAURACORTELLAZZO The tragedy of the commons explained ©LAURACORTELLAZZO  Why Does Unethical Behavior Occur? Early reports on experimental results claimed that students Personal ethics quickly embraced their assigned roles (guards and prisoners), with some guards enforcing authoritarian measures and what you identify as right or wrong depends on the context in ultimately subjecting some prisoners to psychological torture, while many prisoners passively accepted psychological abuse which you grow and, by the officers' request, actively harassed other prisoners who tried to stop it Self interest weighing our personal interests against the effects of our actions on others External pressures Increase the likelihood of engaging in unethical behaviors ©LAURACORTELLAZZO Creating an Ethical Organization ©LAURACORTELLAZZO Designing an Ethical Structure and culture Build company goals/mission including ethics Set of standards of conduct Ethics officer and Committees Leaders as role models Design a system of incentives and punishments Make whistle-blowing an acceptable and rewarded activity Training Creation of an ethical corporate culture with the commitment at all levels of an organization. ©LAURACORTELLAZZO Ethics and organizational culture ©LAURACORTELLAZZO