BE Ethics Management Institutionalization PDF

member of Business Ethics Developing and implementing an effective Ethics Program Institutionalization of Business Ethics www.fhnw.ch/business  member of...

member of Business Ethics Developing and implementing an effective Ethics Program Institutionalization of Business Ethics www.fhnw.ch/business  member of Learning Objectives: Explain the need and scope for ethics and compliance management programs, define ethics and compliance management List the minimum requirements for an ethics and compliance management program Describe the role of codes of ethics in managing the ethical behaviours within a company Identify factors and common mistakes for an effective ethics program Distinguish between the voluntary, private and mandated boundaries of ethical conduct List and explain consequences of non-compliance Describe the changing roles of governments, business and civil society in the regulatory process D MMMM YYYY Bsc IM / Anja Nicol www.fhnw.ch/business 2  member of – Crane et al., chap. 5, p. 182-195 – Crane et al., chap. 11, p. 478-516 Bsc IM / Anja Nicol www.fhnw.ch/business 3  member of Managing Business Ethics www.fhnw.ch/business 4  member of Ethical culture Key elements of an ethical corporate culture (Schwartz, 2013) Bsc IM / Anja Nicol www.fhnw.ch/business 5  member of The responsibility of the corporation to its stakeholders Increasingly, corporations are viewed as moral agents accountable for their conduct to their stakeholders. Through the law, society holds companies accountable for the conduct and decisions of their employees as well. Implementing a centralized corporate ethics program can provide a cohesive, internally consistent set of statements and policies representing the corporation as a moral agent. Bsc IM / Anja Nicol www.fhnw.ch/business 6  member of More systematic and comprehensive approach to managing business ethics Risen awareness to detect corporate misconduct. Stakeholder interests to social responsibility issues. Various national and cultural dimensions within a company. Difficulties to control ethical behaviour of employees. Laws and regulations discouraging practices that might lead to ethical misconduct. Laws and regulations encouraging the development of programs designed to improve business ethics and social responsibility. Bsc IM / Anja Nicol www.fhnw.ch/business 7  member of Who bears the responsibility? Civil liability according to Swiss Corporate Law: Art. 754 Swiss CO (Code of Obligations) Bsc IM / Anja Nicol www.fhnw.ch/business 8  member of Who bears the responsibility? Criminal Liability of the Company (Swiss Criminal Law, since 2003) Bsc IM / Anja Nicol www.fhnw.ch/business 9  member of Compliance Management - example Alstom, criminal proceedings, 2011 convicted of not having taken all necessary and reasonable organizational precautions to prevent bribery of foreign public officials. the Office of the Attorney General established that the group had “implemented a Compliance policy that was suitable in principle, but that it had not enforced it with the necessary persistence and therefore acts of bribery in Latvia, Tunisia and Malaysia were not prevented.” -> Organizational failure Source: news.admin.ch Bsc IM / Anja Nicol www.fhnw.ch/business 10  member of Organizing an effective Ethics and Compliance Management Program www.fhnw.ch/business 11  member of Compliance – Compliance […] is generally understood as adherence to external requirements (laws, rules of self-regulation, professional standards) as well as internal requirements (internal rules and regulations). – Lengnauer, D., Ruckstuhl, L. (2017), Compliance, Schulthess – The legal responsibility of corporations demands that businesses abide by the law and ‘play by the rules of the game’. – Crane, A., Matten, D. (2010), Business Ethics (4th ed.), Cengage. www.fhnw.ch/business 12  member of Compliance in a nutshell Compliance shall ensure legally and ethically correct behaviour of a company and its employees. Bsc IM / Anja Nicol www.fhnw.ch/business 13  member of Example «Compliance Cars» (CARB, 2012) Source: autoguide.com Bsc IM / Anja Nicol www.fhnw.ch/business 14  member of Example Bsc IM / Anja Nicol www.fhnw.ch/business 15  member of Minimum Requirements of an Ethics Program Example: United States Sentencing Commission, Guidelines Manuel Minimum Requirements Checklist 1. Establish standards and procedures to prevent and detect criminal conduct. 2. Ensure the firm’s board, top management, and high-level personnel exercise reasonable oversight of those standards and procedures. 3. Make reasonable efforts to keep individuals whom organizations knew or should have known to have engaged in illegal activities out of key positions. 4. Communicate standards and procedures by training directors, employees, and appropriate agents. 5. Monitor and audit the program to detect criminal conduct, evaluate the program periodically, and have a system for reporting suspected violations. 6. Promote and consistently enforce the program through appropriate incentives and appropriate discipline. 7. After criminal conduct is detected, take reasonable steps to respond appropriately and prevent further similar criminal conduct, including necessary modifications to the ethics and compliance program. Source: United States Sentencing Commission, Guidelines Manual, §3E1.1 Bsc IM / Anja Nicol www.fhnw.ch/business 16  member of Responsibility of the board of directors 2) (A) The organization’s governing authority shall be knowledgeable about the content and operation of the compliance and ethics program and shall exercise reasonable oversight with respect to the implementation and effectiveness of the compliance and ethics program. Fed. Sent. Guidelines Chapter 8 Bsc IM / Anja Nicol www.fhnw.ch/business 17  member of Organizing an Ethics Program The different approaches are not mutually inconsistent In the U.S., traditionally more compliance oriented, whereas Europe and Asia tend to external and values orientation – Crane et al., 2019, fig.5.6, p. 219 Bsc IM / Anja Nicol www.fhnw.ch/business 18  member of An effective Ethics Program Important deterrent to organizational misconduct Designed as organizational control systems Compliance orientation – A control system focussed on detecting, preventing, sanctioning Values orientation – A control system that strives to define corporate values and to encourage employee commitment (rooted in “personal self-governance”) External orientation – A control system emphasizing the satisfaction of key stakeholders Protection orientation – A control system determined to protect top management from the consequences of non-compliance with legal and ethical rules and regulations Bsc IM / Anja Nicol www.fhnw.ch/business 19  member of Elements of effective Ethics and Compliance Management Mission or value statement Applicable rules and regulations (internal and external), Code of Ethics / Code of Conduct Reporting / advice / monitoring channels Risk analysis and management Organizational measures: Ethics governance processes / Ethics consultants (Ethics and Compliance officers, externals consultants) Education and training Stakeholder dialogue Auditing, accounting and reporting (measuring, evaluating, communicating) Bsc IM / Anja Nicol www.fhnw.ch/business 20  member of Codes of Conduct Codes of conduct – Formal statements that describe what an organization expects of its employees Code of ethics – Consists of general statements, sometimes altruistic or inspirational, that serve as principles and as the basis for rules of conduct Code of Conduct and Ethics of UBS | UBS Global Bsc IM / Anja Nicol www.fhnw.ch/business 21  member of Reasons why Codes of Conduct fail The code is not promoted and employees do not read it. The code is not easily accessible. The code is written too legalistically and therefore is not understandable by average employees. The code is written too vaguely, providing no accurate direction. Top management never refers to the code in body or spirit. Bsc IM / Anja Nicol www.fhnw.ch/business 22  member of Education and Training A major step in developing an effective ethics program is implementing a training program and communication system to educate employees about the company’s ethical standards. – Educate employees about the firm’s policies and expectations, relevant laws and regulations, and general social standards – Make employees aware of resources, support systems, and designated personnel who can assist them with ethical and legal advice – Empower employees to ask tough questions and make ethical decisions – Make employees aware of ethical issues, A key component is communication of values, culture, and policies. When measuring the effectiveness of an ethics program, it is important to get input from employees. Bsc IM / Anja Nicol www.fhnw.ch/business 23  member of Organizational measures Ethics officers Compliance function High-level personnel for the oversight of compliance Duties often include: 1. Assessing the needs and risks an organization-wide ethics program must address 2. Developing and distributing a code of conduct or ethics 3. Conducting training programs for employees 4. Establishing and maintaining a confidential service to answer employees’ questions about ethical issues 5. Making sure the company is in compliance with government regulation 6. Monitoring and auditing ethical conduct 7. Taking action on possible violations of the company’s code 8. Reviewing and updating the code Bsc IM / Anja Nicol www.fhnw.ch/business 24  member of The Three Lines Model First Line: Operating management – provision of products/services to clients, managing risk Second Line: Risk and compliance functions – expertise, support, monitoring and challenge on risk-related matters Third Line: Internal audit (independent assurance) – objective assurance and advice on all matters related to the achievement of the objectives Source: Institute of Internal Auditors Bsc IM / Anja Nicol www.fhnw.ch/business 25  member of Reporting, Advice, Monitoring See how employees handle ethically charged situations Have reporting systems in place Discuss ethical issues and dilemmas, distribute questionnaires Develop internal systems that allow employees to report misconduct Use tools and software for screening and documenting Keep the compliance program up to date If a company is not making progress toward creating and maintaining an ethical culture, it needs to determine why and take corrective action. Bsc IM / Anja Nicol www.fhnw.ch/business 26  member of Common Mistakes in Developing and Implementing an Ethics Program Recognizing the need of an ethics program, but not taking the time to answer fundamental questions about the goals of such a program Not setting realistic and measurable program objectives Senior management failing to take ownership of the ethics program Not addressing the needs of the average employee (“Legalese”) Transferring a national program to a company’s international operations Designing an ethics program as little more than a series of lectures www.fhnw.ch/business 27  member of Top Three Tone from the Top Update is Key Beware of Paper Tigers («check-the-box» approach) www.fhnw.ch/business 28  member of Mandated, private and voluntary boundaries of Ethical Conduct www.fhnw.ch/business 29  member of Mandatory, private, and voluntary rules and regulations Mandated boundaries (imperative regulation) – Externally imposed boundaries of conduct, such as laws, rules, regulations, and other requirements imposed and enforceable by governmental actors Private practice – Documented best practices and rules issued by industry associations, companies, or civil society groups often encouraged by legal and regulatory forces, self- regulation Voluntary boundaries – management-initiated beliefs, values, and voluntary contractual obligations of a business, including strategic philanthropy Bsc IM / Anja Nicol www.fhnw.ch/business 30  member of Why law is not enough The law has limited power: it is written in generalised terms and cannot cover every aspect of life, thereby leaving space for interpretation and loopholes. The law (typically) operates reactively: it remedies harms that already have taken place. Legislative power is predominantly rooted in national authorities, whereas ethical issues often have an international character. A world that would rely on adherence to the law alone would be ineffective, costly and hostile! November 2024 Business School / Anja Nicol www.fhnw.ch/business 31  member of Example – The rise and fall of Enron – Learning from Enron? Improvement of regulatory agencies, to better detect corporate misconduct Companies and regulatory authorities should pay more attention to whistle-blowing Executives should understand the risks of the (financial) instruments their company uses Source: forbes.com Bsc IM / Anja Nicol www.fhnw.ch/business 32  member of Compliance Management – or The costs of noncompliance Monetary fines Criminal and civil liability risks Eroded consumer trust Loss of employee morale Decrease in competitive advantage Shattered investors’ trust Investigations by foreign authorities www.fhnw.ch/business 33  member of Example – Three separate but related recalls of automobiles by Toyota Motor Corporation occurred at the end of 2009 and start of 2010. The Japanese car manufacturer initiated the recalls, the first two with the assistance of the U.S. National Highway Traffic Safety Administration (NHTSA), after reports that several vehicles experienced unintended acceleration. – In the course of 2010, NHTSA accused Toyota of delaying recalls for some of its automobile models. It was of the opinion that Toyota had informed about the problems not early enough and not to a sufficient extent. After some legal discussions with the NHTSA, Toyota agreed end of 2010 to pay another fine in the amount of USD 32.4 million. Toyota always denied the accusations but agreed on this payment in order to avoid more and lengthy legal discussion. – With this fine, U.S. authorities imposed totally three fines on Toyota, in the total amount of nearly USD 50 million. Bsc IM / Anja Nicol www.fhnw.ch/business 34  member of One example of a legal rule with extraterritorial impact: The Sarbanes-Oxley (SOX) Act In 2002, largely in response to widespread corporate accounting scandals Made fraudulent financial reporting a criminal offense, strengthened penalties for corporate fraud Requires corporations to establish codes of ethics for financial reporting and develop greater transparency in financial reporting to their investors and other stakeholders Public company accounting oversight board (PCAOB) – Monitors accounting firms auditing public corporations and establishes standards and rules for auditors in accounting firms SEC has worked to overhaul PCAOB quality-control rules to improve the board and its inspections. Bsc IM / Anja Nicol www.fhnw.ch/business 35  member of The Sarbanes-Oxley (SOX) Act [cont.] – Auditor and Analyst Independence Section 201 prohibits registered public accounting firms from providing both nonaudit and audit services to a public company. Enables SOX to ensure compliance with the requirement for more detailed financial disclosures representing public companies’ true condition.National securities exchanges and registered securities associations have adopted similar conflict-of- interest rules for security analysts, brokers, and dealers. – Whistle-Blower Protection Employees of public companies and accounting firms are accountable to report unethical behavior. SOX intends to motivate employees through whistle-blower protection. Bsc IM / Anja Nicol www.fhnw.ch/business 36  member of The Sarbanes-Oxley (SOX) Act [cont.] The national cost of compliance can be extensive. – Internal costs – External costs – Auditor fees Studies show although compliance costs were high shortly after SOX was passed, they have declined over the years. Bsc IM / Anja Nicol www.fhnw.ch/business 37  member of Example – Anti-Money Laundering for banks and securities dealers in Switzerland: – Regulatory requirements and self-regulation Https://www.finma.ch/en/documentation/finma-s-legal-basis/ SBA_Agreement_CDB_2020_EN.pdf (swissbanking.ch) Bsc IM / Anja Nicol www.fhnw.ch/business 38  member of The role of government www.fhnw.ch/business 39  member of The role of government – Government as a stakeholder: elected representative of citizens’ interests Interests of its own mutual dependent relationship with society and business – Crane et al., 2019, fig. 11.2 Bsc IM / Anja Nicol www.fhnw.ch/business 40 Chapter 5 Managing Business Ethics Tools and Techniques of Business Ethics Management Andrew Crane, Dirk Matten, Sarah Glozer, Laura Spence Seiten: 181-230 In: Crane, Matten, D., Glozer, S., & Spence, L. J. (2019). Business ethics : managing corporate citizenship and sustainability in the age of globalization (Fifth edition). Oxford University Press. Bemerkung: Der Versand von Kopien und deren Weiternutzung unterliegt den Bestimmungen des schweizerischen Urheberrechts bzw. lizenzvertraglichen Bestimmungen (vgl. Homepage des Anbieters) und ist in der Regel für den persönlichen, schulischen oder betriebsinternen Eigengebrauch der Benutzenden erlaubt. Eine Publikation der Kopie, das Onlinestellen und die kommerzielle Weiterverwendung ist nicht gestattet. Die Einhaltung des Urheberrechts bzw. der vertraglichen Bestimmungen ist Sache der Benutzenden. [email protected] www.fhnw.ch/de/die-fhnw/bibliotheken Managing Business Ethics Tools and Techniques of Business Ethics Management lffiiii·iM,ii.j@@GMJl@MiiM i1 1 ij@j. ___________ Explain the nature, evolution , and scope of business ethics management. Expla in w hy firms manage their social expectations alongside employee ethical behaviour. Critically examine the role of codes of ethics in managing the ethical behaviour of employees. Critically examine current theory and practice regarding the management of stakeholder relation ships. Explai n t he role of social accounting, auditing, and reporting tools in assessing ethical per- forman ce. An alyse the tools throug h which firms develop adequate environmental management sys- tems. Understand different ways of organizing for the management of business ethics. Bu siness ethics management Code of eth ics Stakeholder management Soc ial accounting Environ mental management Environmental management systems Ethical leadership  182 PART A Understanding Business Ethics INTRODUCTION It is increasingly being recognized by managers, policy makers, and researchers that busi- ness ethics in the global economy is simply too important to be left merely to chance. Global corporations such as BP, Siemens, Walmart, Volkswagen, and others have reali zed to their cost the threat that perceived ethical violations can pose to their zealously guarded reputations. Small and medium-sized enterprises (SMEs), and more socially oriented organ - izations, are also not immune to the challenges faced by rising and globalized stakeh older expectations (Jansson et al. 201 7). As we will see in Chapter 6, stricter regulation has had a significant impact in shaping how organizations report on CSR issues. Legislatio n in countries such as Denmark, France, Japan, Malaysia, and the UK has required large fi rms to report on certain social and environmental factors relating to their business, while India has instituted a requirement for all large firms to contribute 20/o of their profits to CSR initiatives. As a result, there have been numerous attempts, both theoretically and practically, to develop a more systematic and comprehensive approach to managing business ethics. Indeed, this has given rise to a multi-million-dollar international business ethics 'industry' of ethics managers, consultants, auditors, and other experts available to advise and implement ethics management policies and programmes in corporations across the globe. In general, over the past two decades we have seen a sharp rise in management positions in 'compliance', 'risk', or more generally 'corporate responsibility' and 'sustainability', which often overlap substantially with busi ness ethics management-a topic we pick up at the end of this chapter when talking about organizing business ethics management. How then can companies actually manage business ethics on a day-to-day basis across the various national and cultural contexts that they may be operating in? Is it possible to con tro l the ethical behaviour of employees so that they make the right ethical decision every time? An d what kinds of social and environmental management programmes are necessary to prod uce the level of information and impacts that various stakeholders demand? These are the kinds of questions that we will deal with in this chapter, reflecting on recent theory and practice that is at the very forefront of current business ethics debates. WHAT IS BUSINESS ETHICS MANAGEMENT? Before we proceed, it is necessary to first establish what exactly we mean by managing busin ess ethics. Obviously, managing any area of business, whether it is production, marketing, accou nt- ing, human resources, or any other function, constitutes a whole range of activities coveri ng formal and informal means of planning, implementation, and control. For our purposes, thou gh, the most relevant aspects of business ethics management are those that are clearly visible and directed at resolving ethical problems and issues. IBusiness ethics management The direct attempt to formally or informally manage ethical issu es or problems through specific policies, practices, and programmes. Business ethics management, as we shall now show, covers a whole range of different ele- ments, each of which may be applied individually, or in combination, to address ethical issues in business.  CHAPTER 5 Managing Business Ethics 183 COM PONENTS OF BUSINESS ETHICS MANAGE M ENT There a re numerous management activities that could be regarded as aspects of business ethics management, such as codes of ethics, social auditing, and CSR reporting. Without intending to be exhaustive, Figure 5.1 sets out the main components currently in place today, at least within la rge multinational corporations. These are all explained briefly below. The most important of these components are described in full when we tackle the setting of ethical standards, looking in depth at managing the ethical behaviour of employees, managing stakeholder relations, and ma naging and assessing ethical performance. Miss ion or values statements These a re general statements of corporate aims, beliefs, and values. Such statements have increasin gly included social, ethical, and environmental goals of one kind or another (King, Case, and Premo 2010). For example, American multinational technology company Google has the mission to 'organize the world's information and make it universally accessible and useful ', while Indian multinational conglomerate Tata states that its mission is 'to be the most reliable global network for customers and suppliers, that delivers value through products and Figure 5.1 Business ethics management 184 PART A Understanding Business Ethics services. To be a responsible value creator for all our stakeholders.' Virtually all large and many small and medium-sized organizations now have a mission statement of some kind, and it is clear they are important in terms of setting out a broad vision for where the company is go ing. However, in terms of business ethics, they often fail to set out a very specific social purpose, are divorced from strategy, and struggle to impact upon employee behaviour (Bart 1997). Moreover, even a well-crafted, appropriate, and inspirational social mission is unlikely to be effect ive unless it is backed up by substantive ethics management throughout the organization. Codes of ethics Sometimes called codes of conduct or simply ethics policies, codes of ethics are voluntary state- ments by organizations or other bodies that set out specific rules or guidelines that the organi- zation or its employees should follow. These provide explicit outlines of what type of conduct is desired and expected of employees from an ethical point of view within a certain organization , profession, or industry. Given that most attention in business ethics theory and practice has focused on codes of ethics, we provide a fuller discussion of these tools below. However, it is first important to outline the four main types of ethical codes. ICode of ethics A voluntary statement that commits an organization. industry, or profession to spe- cific beliefs, values, and actions and/or that sets out appropriate ethical behaviour for employees. Organizational or corporate codes of ethics. These are specific to a single organiza - tion and seek to identify and encourage ethical behaviour at the level of the individu al organization. TWAY' is Swedish furniture group IKEA's code of conduct which places requirements on key stakeholders in relation to working conditions, the prevention of child labour, the environment, and more.' Professional codes of ethics. Professional groups also often have their own guideli nes for appropriate conduct for their members. While most traditional professions such as medicine, law, and accountancy have long-standing codes of conduct, it is now also in- creasingly common for other professions to have their own codes, such as the Americ an Marketing Association 'Statement of Ethics.' 2 Industry codes of ethics. As well as specific professions, some industries have their own codes of ethics. In many countries, the financial services industry has a code of conduct for companies and/or employees operating in the industry, such as the UK's Financial Con- duct Authority (FCA) Code of Conduct.3 Similarly, at the international level, the electronics industry has developed the Responsible Business Alliance (RBA) code of conduct, which sets standards on social, environmental, and ethical issues in the industry supply chain.4 Programme or group codes of ethics. Finally, certain programmes, coalitions, or other sub-groupings of organizations also establish codes of ethics for those participating in specific programmes. This may be in the form of, for instance, the CAUX Roundta ble Principles for Business,5 established through a collaboration between global business leaders. Sometimes, conforming to a particular programme code is a prerequisite for u s- ing a particular label or mark of accreditation. Companies wishing to use the Fairtrade Mark must meet the social, economic, and environmental standards set by the intern a- tional certification body, Fairtrade International.  CHAPTER 5 Managing Business Eth ics 185 Reporting/advice channels Gathering information on ethical matters is clearly an important input into effective manage- ment. Providing employees with appropriate channels for reporting or receiving advice regard- ing ethical dilemmas can also be a vital means of identifying potential problems and resolving them before they escalate and/or become public. Many organizations, such as Danish multi- national pharmaceutical company Novo Nordisk, have therefore introduced ethics hotlines, or other forms of reporting channels, specifically for employees to notify management of ethics ab uses or problems and to seek help and guidance on solutions. Recent reports suggest that firms receive an average of 1.4 reports per 100 employees. 6 The trend towards the use of anony- mous hotlines and online alternatives continues to gather pace, particularly in the context of sexual harassment and misconduct reporting. While capturing this information is essential, some question the efficacy of such reporting channels and the motivation for instilling them. Coun tries, such as Germany and France, even prohibit certain features of hotlines due to pri- vacy restrictions. Ri sk analysis and management Ma naging and reducing reputational and fmancial risk has become one of the key components of business ethics management in recent years. Managing business ethics by identifying areas of risk, assessing the likelihood and scale of risks, and putting in place measures to mitigate or prevent such risks from harming the business has led to more sophisticated ways of managing business ethics. As Alejo Jose Sison (2000) suggests, the language of risk assessment has now enabled business ethics to 'show its bite' by spelling out the risks that f1rms run by ignoring ethics, and measuring these risks in monetary terms, such as the fmes, damages, and sanctions that courts can impose. This has been particularly prominent in the US, with the Foreign Cor- ru pt Practices Act and the Sarbanes-Oxley Act providing a legal impetus for greater attention to unethical business practices, such as bribery and accounting malpractice. In Europe and Asia too , such legislation is having a similar effect on the large number of non-US multinationals that are jointly listed in the US or that do business in the country. Consequently, risk management techniques have evolved from a focus on easily identifiable an d quantifiable legal and ethical risks, such as those relating to pollution or product liability, to those that increasingly emerge from organizational 'blind spots.' The world's largest cyberat- tack was reported in 2016, when Yahoo disclosed that nearly I billion consumer accounts had been compromised through a data breach it had not pre-empted. This news not only signifi- ca ntly impacted consumer trust, but also wiped $350 million off the company's valuation. In the fa ce of more complex and intangible risks to business operations, it has been argued that ri sk management is expanding from a focus on protecting the balance sheet to promoting ethi- cal leadership and values-based decision-making. 7 The Equator Principles, launched in 2003, now, for instance, provide a useful risk management framework for fmancial institutions in assessing and managing environmental and social risk in project fmance. Ethics governance processes Ethics governance processes comprise specific managers, officers, and committees. In some organizations, specific individuals or groups are appointed to co-ordinate and/or take respon- sib ility for managing ethics in their organization. Design ated ethics officers (under various titles) are now fairly prevalent, especially in the US, where an Ethics and Compliance Officer 186 PART A Understanding Busine ss Ethics Association (ECOA), set up in 1992, has grown to around 1,300 members, including representa- tives from more than half of the Fortune 100. This growth is at least partly due to the increasin g emphasis on compliance in the US with the tightening of regulations that followed the Sar- banes-Oxley legislation. As one commentator put it (Reeves 2005) : 'The structure of senten cing policy has driven the appointment of ethics officers and fuelled a boom in business ethics train- ing. If an executive ends up in the dock for corporate wrongdoing, he or she will get a sho rter time in the nick if they can demonstrate that they have hired an ethics officer and rolled out courses across the firm: In Europe, Asia, and elsewhere, such positions are less common, but the ECOA now boasts members across five continents and, in countries such as the UK and France, organizations such as the Institute of Business Ethics (IBE) and the Cercle Europeen des Deontologues (European Circle of Ethics Officers) provide membership services to ethics managers. A growing num ber of large corporations also now have an ethics committee, or a CSR committee, which oversees many aspects of the management of business ethics. In India, for example, a board-level CSR committee is a requirement of the 2013 Companies Act for all companies larger than a certai n size. Ethics consultants Business ethics consultants have also become a small but firmly established flXture in the mar- ketplace, and a wide range of companies have used external consultants rather than intern al executives to manage certain areas of business ethics. The initial growth in this sector was driven by environmental consultants, who tended to offer specialist technical advice; but as the social and ethical agenda facing companies has developed, the consultancy market has expand - ed to offer a broader portfolio of services including research, project management, strategic advice, social and environmental auditing and reporting, verification, stakeholder dialogue, etc. While the market continues to be dominated by large professional service firms, such as EY, KPMG, and Deloitte, leading niche specialists, such as Bureau Veritas, DNV-GL, Good Corp ora- tion, and SustainAbility, are growing in scale and influence. Practitioner Spotlight 5 takes a deeper look into the kinds of day-to-day skills needed to work in consultancy and drive ethics management, focusing particularly on the engineering sector. Ethics education and training With greater attention being placed on business ethics, education and training in the subject has also been on the rise. Provision might be offered either in-house or externally through ethics consultants, universities and colleges, or corporate training specialists. Again, formal eth ics training has tended to be more common in the US than elsewhere, with a 2018 survey reveali ng that ethics and compliance training had demonstrable impact on favourable, ethical outcomes for businesses and provided useful guidance and senior leader support. 8 In Asia, organizations such as CSR Asia, profiled in Practitioner Spotlight 2, also provide a wide range of train in g courses to meet growing demand in the region. Many academic writers have stressed the need for more ethics education among business people, not only in terms of providing them with the tools to solve ethical dilemmas, but also to provide them with the ability to recognize and talk about ethical problems more accu- rately and easily (Thorne LeClair and Ferrell 2000). Diane Kirrane (1990) summarizes the go als for ethics training as: (a) identifying situations where ethical decision- making is involved; (b)  CHAPTER 5 Managing Business Ethics 187 understanding the culture and values of the organization; and (cl evaluating the impact of the ethical decision on the organization. Some companies have developed innovative approaches to achieving this (Reuters 2009), an example being Novartis, the Swiss healthcare multinational, where employees learn about the company's code of ethics in 'Novartis Land'; an online train- ing program that enables employees tu interactively explore ethics policies and answer ques- tions in an online dialogue-role-play setting. Universities are also offering more flexible methods for teaching business ethics to practi- tio ners and other interested parties through 'Massive Open Online Courses' (MOOCs). Typically free to participate in and accessible to all with an internet connection, such courses are run by universities all over the world and enable practitioners to build and test valuable knowledge around their busy schedules. Such forays are also increasingly becoming available in more portable formats. Take the Markkula Center for Applied Ethics at Santa Clara University, for example, that has developed a free ethical decision-making application for use on smartphones and laptops, billed as a 'practical tool for thinking through tough choices'. 9 Stakeholder consultation, dialogue, and partnership programmes It is argued that business ethics and communication ethics are inextricably linked (Pearson 20 17). There are various means of engaging an organization's stakeholders in ethics manage- me nt, from surveying them to assess their views on specific issues to including them more fully in corporate decision-making. To make the navigation of diverse stakeholder views more man- ageable, many organizations band together to form industry-level collaborations and partner- ships. For instance, in 2017, the International Petroleum Industry Environmental Conservation Association (IPIECA) developed a partnership with the United Nations Development Programme (UNDP) and the International Finance Corporation (IFC) to develop industry-level guidance on the implications of the SDGs for the oil and gas sector. In the last decade, 'Web 2.0' technological developments have also significantly increased the speed, accessibility, and transparency of communication between organizations and stakehold- ers. The progressively interactive climate afforded by social media sites in particular is changing the face of stakeholder consultation and dialogue. Once premised upon providing information to stakeholders, or responding to their queries, business ethics communication is now evolving to actively involve stakeholders in the consumption and production of information on social, environmental, and ethical issues (Morsing and Schultz 2006). Stakeholder consultation, dia- logue, and partnership are increasingly becoming accepted ways of managing business ethics in today's interconnected online world and this theme will be explained in greater detail below. Auditing, accounting, and reporting Finally, we come to a set of closely related activities that are concerned with measuring, evalu- ating, and communicating the organization 's impacts and performance on a range of social, ethical, and environmental issues of interest to their stakeholders. Unlike most of the previous developments, these aspects of business ethics management have not been pioneered in the US, but rather in Europe, with companies such as BT, the Co-operative Bank, Norsk Hydro, Traidcraft, the Body Shop, and Shell being at the forefront of innovation in this area. However, there is rapid development in this field across the globe, with a 2017 KPMG survey revealing that corporate responsibility reporting is now seen as 'standard practice' for large and medium-sized companies around the world in, being utilized by over 7 50/o of companies globally. 10 According to the survey,  188 PART A Understanding Business Ethics PRACTITIONER SPOTLIGHT 5 Advising and implementing ethics management Many businesses now rely on externa l consultants and auditors to provide advice on how to implement ethics managem ent policies and programmes. To provide a deeper i nsight into the role of sustainabi li- ty consultants, we spoke to Kerry Griffiths, Technical Director Sustainability, at multi - national engineering firm AECOM, based in New Zealand. Can you broadly describe your current job role? I work as a sustainability consulta nt for a large engineering/environmental services firm. Most of my work focuses on working with clients in regard to their susta i nability agenda. My particular area of focus is su stain- ability and infrastructure (mainly civil), w hich means I work a lot with project teams, infrastructure owners, designers, and constructors to help them integrate sustainability into the development and operations of infrastructure. In addition to th is focus, I also work with businesses on their sustainability strategies an d pro- grammes. Sometimes this involves a comprehensive review of their sustainability impacts and focus areas followed by action planning and implementation support. Other times this may focus on a specific area, e.g. climate change impacts and mitigation opportuniti es. Fin al ly, I also have some involvement with AECOM's sustainability programme-in the past I was involved in susta inability reporting and target setting and programme implementation. Th ese days I am more in an advisory/review role. Can you tell us a bit about your career path to date? I became interest ed in the role of business in society and st arte d invest igati ng that area. As a resu lt, I completed an M Sc in Responsible Bus iness at the University of Bath, UK in th e mid-1 990s. Th is was a ground-breaking degree programme at t he time and it set me up well for a career in t he sustainability space. Th e knowledge and network from the Bath degree supported my growth and cred ibility in consultin g wo rk. Indeed, the network of people w ho completed t his degree are st ill connected. At the same t ime as completing the MSc, I worked with a t eam of people in New Zealand w ho set up an organizat ion called Businesses for Socia l Responsibility; this later morp hed into th e Sustainable Busi ness Net work. At this ti me, I was worki ng for myse lf, and th en I joined a small management consultancy w hich had strong values in the ethica l business space. Eventua lly I joined A ECOM (actually URS wh ich was acquired by AECOM) because there was a bigger tea m and te chnica l specia list s who could support the sustain- abi lity agenda. More recently I com pleted a PhD with a focus on sustainabil ity and infrastructure; looking mainly at t he infrastru cture sustain ability rating tools. Thi s work contributes to the work I am doing now. What practical skills do you draw on in your current role? Strategic t hinkin g is very importa nt. It is also essent ia l t o have a good knowledge of the broad sustainability agenda, including the Sustain- able Development Goals (S DGs) and other f rameworks and standards. I ensure t hat I have up-to-date knowledge of developments in th e sustain ability space internationally and loca lly. I also need specific technical skil ls re lated to carbon accou nting and reporting, and sust aina bil ity and infrastructure (in- cludi ng associated rating t ools). Finally, our work w ith organ izations often involves workshops with  CHAPTER 5 Managing Business Ethics 189 various stakeholders and the development of reports or other commun ica tion outputs. Effective facilitation, communication, and writing skills are, therefore, very important. What are some of the key benefits of your role?The key benefit is working with others to advance their sustainability knowledge, strategies, and actions. As a consultant I work across a number of industries and organizations and I very much enjoy this diversity. I can bring my knowledge and expertise to bear on outcomes that truly advance the sustainabi lity agenda. And I get to contribute to an increase in the knowledge and capability of others. If you could change one big world issue, what would it be? Simple. Equa lity for women. SOURC ES https://www.aecom.com https ://www.bsr.org/en https ://susta inable.org. nz Visit the on line reso urces fo r more Pract itio ne r Spotlig ht interviews. Latin America is seeing the biggest surge in reporting, while Eastern Europe is lagging, despite a European Directive on Non-Financial Reporting coming into force in 2017 to enhance business tra nsparency on social and environmental matters. The highest level of reporting is seen in sec- to rs with high environmental and social impacts, such as oil and gas, and mining (where 810/o and 800/o of companies, respectively, issue a report), while retail is trailing with just 320/o. This global diffusion is further evident in programmes such as SA 8000, the Sustainability Accounting Stand- ards Board (SASB), Integrated Reporting (IR), and the Global Reporting Initiative (GRI) that-as we shall discuss in more detail later-seek to provide internationally comparative standards for audit- ing, accounting, and reporting. Although these forms of management are still in relatively early periods of experimentation and development, they can play a crucial role in enhancing corporate accountability in the era of corporate citizenship, as we suggested in Chapter 2. It is also important to mention that the increasing prominence of sustainability indices and benchmarking programmes may drive the scope and content for reporting. Organizations such as the Carbon Disclosure Project (CDP), which supports companies to disclose their environ- mental impacts, and the Dow Jones Sustainabi lity Index (DJSI) , which evaluates overall sustain- ability performance, conduct annual surveys to measure the impact of corporate sustainability agendas, ranking the best- and worst-performing businesses. While the impact of such initiatives on the business bottom line is still debated (Hawn, Chatterji, and Mitchell 2018), such metrics are increasingly being utilized by institutional investors. In 2016, DJS! rankings became acces- sibl e to Bloomberg terminal subscribers, suggesting the increased appetite for sustainability accounting among the frnancial community. EV OLUTION OF BUS INESS ETHICS MANAGEMENT Before proceeding to discuss some of the most common components in more detail, we should stress that few, if any, businesses are likely to have all of these tools and techniques in place,  190 PART A Understanding Business Ethics and many may not have any of them. This will particularly be the case with small and medi um- sized companies (SMEs), which tend not to introduce the more formal elements of ethics man - agement and reporting (Spence 1999). However, in general, the take-up of different compo nents does appear to be increasing. Since 2000, there also appears to have been a change in emp hasis from a focus on managing employee behaviour (through codes, etc.), towards developing and implementing tools and techniques to manage broader social responsibilities. This shift has seen business ethics as a management practice evolve from a focus on the internal to the extern al aspects of a business. In the next three sections, we shall take a look at the three main areas where the management of business ethics might be particularly relevant: Setting standards of ethical behaviour. Here we shall mainly examine the role of ethical codes and their implementation. Managing stakeholder relations. Here we shall look at how to assess stakeholders, di f- ferent ways of managing and communicating with them, and the benefits and probl ems of doing so. Assessing ethical performance. Here we shall consider the role of social accounti ng in contributing to the management and assessment of business ethics. SETTING STANDARDS OF ETHICAL BEHAVIOUR: DESIGNING AND IMPLEMENTING CODES OF ETHICS Since the mid- l 980s, many organizations have made efforts to set out specific stan dards of appropriate ethical conduct for their employees to follow. As we shall see later in the chapter, much of this standard-setting might well be done informally or even implicitly, such as through the example set by leaders or embedded organizational culture. Focusin g on the more formal approach of standard-setting, it is acknowledged that there has been a substantial rise in the usage of codes of ethics during the past decades, particularl y in large and medium-sized comp anies. Almost all large US companies have a code, whil e som ethin g like 930/o of FTSE 350 listed companies have a reported ethics programme, of which a code of ethics is the most prominent feature. 11 Evidence of their prevalence among SMEs is fai rly scant, but the general indication is of a much lower figure (Spence and Lozano 2000) , par- ticularly in developing country contexts. In addition to such research, which has exa mi ned the prevalence of codes of ethics, the research to date has primarily focused on three mai n areas that we will now explore in detail: Content of codes of ethics. Effectiveness of codes of ethics. Global codes of ethics. CONTENT OF CODES OF ETHICS In terms of content, codes of ethics vary from long, legalistic documents to short, visually engaging summaries that provide practical scenarios and best practice principles. They typ ically address a variety of issues, many of which appear to reflect industry factors and the preva iling  CHAPTER 5 Ma nag ing Busi ness Ethi cs 191 concerns of the general public, providing important information to external constituents and a reference point for employees. Perhaps unsurprisingly, codes from the apparel industry tend to focus more than others on labour issues, while codes from the extractive industry tend to fea ture environmental issues more than others. There are, however, some common provisions fo und in codes of ethics across sectors. The Ethics and Compliance Initiative (ECI) groups these into the following eight areas : Compliance, Integrity and Anticorruption, e.g. avoiding bribes and political contribu- tions; Conflicts of Interest, e.g. policing gifts and gratuities and disclosure of financial interests; Employee, Client, and Vendor Information, e.g. maintaining records and privacy; Employment Practices, e.g. preventing workplace harassment, equal opportunity, and di- versity; Environmental Issues, e.g. committing to sustainability and employee health and safety; Ethics and Compliance Resources, e.g. providing ethics advice helplines; Internet, social networking, and social media, e.g. blocking prohibited sites; Relationships with third parties, e.g. developing effective procurement and negotiating contracts. As we see from the above, codes are increasingly evolving to encompass online as well as offlin e activity. Data privacy, use of the internet at work, and social media are themes that have been emerging in codes of ethics over recent years, given high-profile incidents of organiza- tio ns being caught out by employee online activity. In 2013, the UK music retailer HMV saw its social media manager 'live' tweeting to the outside world sensitive information about staff redundancies, placing the media spotlight on a troubled organization. In 2015, American hold- ing company IAC (InterActiveCorp) fired its senior director of corporate communications who tweeted, 'Going to Africa. Hope I don 't get AIDS. Just kidding. I'm white! ' Incidents such as these have clear repercussions for organizational reputation and ethical practice more broadly and have given rise to an increasing number of organizational social media poli cies. A 2016 Pew Research Centre study revealed that half of all full-time and part-time work- ers (51 O/o) now say that their workplace has rules about using social media while at work, while 320/o report that their employer has policies about how employees may present themselves on the internet in general. 12 In 2013, United Parcel Service (UPS) issued a social media policy that stated, 'guidelines apply to your personal and professional social media activities, whether during work- ho urs or at home. Regardless of your location, you never stop being a UPS employee.' Such examples, which have been investigated by Banghart, Etter, and Stohl (2018), raise important questions about the boundaries between what constitutes public and private-or busi- ness and leisure-pursuits in a digital age. While codes of conduct that encompass social media poli cies might be a step in the right direction in terms of raising the bar for integrity and dece ncy, such attempts perhaps suggest that corporate control is increasingly seeping into our perso nal lives. It is not hard to see why some are troubled by these developments. In 20 I 8, the Australian Broadcasting Company (ORF) issued a social media policy that advised its journalists to refrain from providing political opinions, even in a private online sphere. This was seen by ma ny to be a dangerous corporate attack on freedom of expression. 192 PART A Understanding Business Ethics In order to deal with the broad range of issues that codes of ethics now have to cover, it can be argued that most codes attempt to achieve one or both of the following aims: Definition of principles or standards that the organization, profession, or industry be- lieves in or wants to uphold. These are termed 'aspirational codes'. Setting out of practical guidelines or rules for employee behaviour, either generally or in specific situations (such as accepting gifts, how customers are treated, etc.). These are termed 'rules-based codes'. ili@iihinil'M Think about the distinction between aspirational and rule-based guidelines. Which do you feel to be most helpful in guiding employee practice in an in creasingly digital world? Can you identify further examples of each of these types of code being used to regulate social media practice? Eval uate these in terms of feasibility of implementation, especially across national contexts. Visit the on line resources for a suggested response. Figure 5.2 shows the code of ethics developed by General Electric (GE) entitled 'The Spirit Et The Letter', which sits at the heart of GE's Integrity Et Compliance programme and governs its business operations across the globe. 13 As you can see, this is a very simple code that mai nly focuses on 'aspirational' general principles, e.g. 'Be honest, fair, and trustworthy.' More specific 'rule-based' guidelines are also provided across each of these areas. For instance, the code speci- fies the policy that, 'We must be truthful and accurate when dealing with governments' an d this boils down to the rule that, 'Government business is different-do not pursue government business without first engaging your legal counsel.' Additionally, GE provides three handy ques- tions that employees and representatives should ask when they are unsure about their activity: How would this decision look to others within GE and externally? Am 1 willing to be held accountable for this decision? Is this consistent with GE's Code of Conduct? Figure 5.2 General Electric (GE) code of conduct, The Spirit Et The Letter' 01. Be honest, fair and trustworthy. 02. Obey applicable laws and regulations. 03. Be the voice of Integrity and promptly report any concern you have about compliance with law, GE policy or this code. 04. Simple compliance is more effective compliance. Effective compliance is a competitive advantage. Work to run the company in as competitive a way as possible - with speed , accountability and compliance.  CHAPTER 5 Managing Business Ethics 193 According to Hoffman, Driscoll, and Painter-Morland (2001: 44), to be effective, codes should address both aspirational (general) and rules-based (specific) tasks: 'rules of conduct without a general values statement lack a framework of meaning and purpose; credos without rules of conduct lack specific content'. The question of exactly how codes can actually be crafted to achieve these ends is, however, a crucial one. Cassell, Johnson, and Smith ( 1997), for example, argue that while clarity is obviously important, the desire to provide clear prescriptions for employees in specific situations can clash with needs for flexibility and contextual nuance. As we shall discuss in more detail shortly, this is particularly pertinent in the context of mul- tinationals, where employees are likely to be exposed to new dilemmas and differing cultural ex pectations (Donaldson 1996). Similarly, given that many ethical dilemmas are characterized by a clash of values or by conflicting stakeholder demands, ethical codes might be expected to identify which values or groups should take precedence-yet the need to avoid offending par- ticular stakeholder groups often results in rather generalized statements of obligation (Hosmer 1987). With empirical evidence suggesting that simply having a formal written code is not sufficient to ensure ethical behaviour (Kaptein and Schwartz 2008), it is perhaps unsurprising that many commentators conclude that codes of ethics are rhetorical PR devices used to pacify critics while maintaining business as usual. EFF ECTIVENESS OF CODES OF ETHICS In many respects then, in terms of effectiveness it is perhaps less important what a code says than how it is developed, implemented, and followed up. A cvde imposed on employees, with- out clear communication about what it is trying to achieve and why, might simply cause resent- ment. Similarly, a code that is written, launched, and then promptly forgotten is unlikely to promote enhanced ethical decision-making. Perhaps worst of all, a code that is introduced and then seen to be breached with impunity by senior managers or other members of staff is prob- ably never going to achieve anything apart from causing employee cynicism. So how is it possible to get the implementation right? While there are few, if any, unequivo- ca l answers to this question, a number of suggestions have been presented. Mark Schwartz (2004), for example, interviewed employees, managers, and ethics officers about what they felt determined the effectiveness of codes. His study suggests the following factors as the most important: How the code is written-such as its readability, the use of appropriate examples, the to ne used, and the relevance and realism of the code with respect to the workplace. How the code is supported-such as, does it have top management support, is it backed up with training, is it regularly reinforced? How the code is enforced-for instance, is there an anonymous reporting channel, are violations communicated to employees, and are there incentives and punishments at- tached to compliance and non-compliance? The issue of enforcement is cl early crucial. Another large-scale survey of employees, for ex ample, rev ealed that ' follow-through' (such as detection of violations and follow-up on notification) was much more important in influencing employee beh aviour than sim- ply putting a code into place (Trevino et al. 1999). This can present particular challenges  194 PART A Understanding Business Ethics to companies when senior management is found to have violated the code, as they are the ones supposed to be setting the tone from the top. However, there are a numb er of high-profile examples of companies taking their codes of ethics sufficiently seriou sly to apply them even to their senior executives. The chief executives of Boeing (2005) , Hewl - ett-Packard (2010), Lockheed Martin (2012), and Intel (2018) all were forced to resign because of breaches of the company's code of conduct. All of these cases involved sexual affairs with employees or contractors-a behaviour clearly defmed as inappropriate in the organization's respective codes. Apart from the Hewlett-Packard case, where the affair also included fake expense claims as part of a cover-up, those CEOs' unethical actions 'did not affect the company's operational or fmancial performance', as Lockheed Martin put it in a press release. Follow-through of this nature sends an unambiguous message to employees. But how are organizations to ensure that such follow -through is established throughout its sp an of operations? For this to happen, it is imperative that violations are identified and pro ced ures are put in place to deal with them. Sethi (2002) therefore suggests that codes need to be translated into a standardized and quantified audit instrument that lends itself to cl ear, consistent, and transparent assessment, and that code compliance must be linked to man - agers' performance evaluation. Perhaps such measures may prevent internal ethical dil em- mas from becoming full-blown issues of public interest, as we have seen with a numb er of high-profile Facebook data breaches and subsequent fines in 2018. 14 This is an issue that we will explore in more depth in Ethics in Action 5. 1, where we consider the efficacy of codes of conduct in relation to some of society's biggest challenges in a digital age : cen so rship and surveillance. Although codes are widely regarded among ethics practitioners as an important component of effective business ethics management, there has been a stream of literature more criti cal of such codes (Clegg, Kornberger, and Rhodes 2007; Stansbury and Barry 2007; Painter-Morl and 2010; Mercier and Deslandes 2017). Not only have codes been identified as questionable control mechanisms that potentially seek to exert influence over employee beliefs, values, and behav- iours (Schwartz 2000; Stansbury and Barry 2007), but as we saw in Chapter 3, there is grow- ing interest from postmodemists, feminists, and others in the possibility for codified ethical rules and principles to 'suppress' individual moral instincts, emotions, and empathy in order to ensure bureaucratic conformity and consistency. In Ethical Dilemma 5, you can work through some of these issues in the context of a specific example and consider the benefit of cultivating more ethically self-reflexive behaviours in organizations. GLOBAL CODES OF ETHICS Finally, the issue of global codes of ethics has also received increasing attention from busi- ness, researchers, and others in recent years (Wieland 2014). Given the rise of multinational business, many organizations have found that codes of ethics developed for use in their h ome country may need to be revisited for their international operations. Are guidelines for dom estic employees still relevant and applicable in overseas contexts? Can organizations devise one set of principles for all countries in which they operate? Consider the issue of gift giving in business. This is an issue where cultural context has a distinct bearing on what might be regarded as acceptable ethical behaviour. While many organizations have specific guidelines precluding the offer or acceptance of gifts and hospitality  CHAPTER 5 Managing Business Ethics 195 as part of their business operations, in some countries, such as Japan, not only is the offering of gifts considered to be a perfectly acceptable business activity, but the refusal to accept such offerings can be regarded as offensive. Similarly, questions of equal opportunity are somewhat more equivocal in a multinational context. European or US organizations with codes of practice relati ng to equal opportunities may find that these run counter to cultural norms, and even legal statutes, overseas. For example, in many countries, such as India, there is a cultural expectation that people should show preference for their close friends and family over strangers, even in business contexts such as recruitment. In many Islamic countries, the equal treatment of men and women is viewed very differently from the way it is viewed in the West, with countries such as Saudi Arabia still having major restrictions on women even entering the workforce (Murphy 2007). According to Thomas Donaldson (1996), one of the leading writers on international business ethics, the key question for those working overseas is: when is different just different and when is different wrong? As such, the question of how multinationals should address cultural differ- ences in drafting.their ethical codes returns us to the discussion of relativist versus absolutist positions on ethics, which we introduced in Chapter 3. A relativist would suggest that different codes should be developed for different contexts, while an absolutist would contend that one code can and should fit all. Donaldson's (1996) solution is to propose a middle ground between the two extremes, whereby the organization should be guided by three principles: Respect for core human values, which determine an absolute moral threshold. Respect for local traditions. The belief that context matters when deciding what is right and wrong. What this means is that global codes should defme minimum ethical standards according to core human values shared across countries, religions, and cultures, such as the need to respect human dignity and basic human rights. Beyond this, though, codes should also respect cultural or co ntextual difference in setting out appropriate behaviour in areas such as bribery or gift givi ng. The search for core values or universal ethical principles as a basis for global business codes of ethics has given rise to a number of important initiatives. 15 For instance, in 2000, the United Nations launched the UN Global Compact, a set of ten 'universally accepted' principles concerned with human rights, labour, the environment, and anti-corruption. By 2018, more than 12,000 businesses in 160 countries around the world had signed up to the Co mpact (see Ethics in Action 11.2). It is, however, important to realize that the drive for codes of ethics, whether national or international, industry-wide or company-specific, is never going to 'solve' the management of business ethics. As we saw in Chapter 4, there is a vast array of influences on individual decision-makers within the organization, of which a written code is but one aspect. A code can rarely do more than set out the minimum expectations placed on organizations and their members and cannot be expected to be a substitute for organizational contexts supportive of ethical reflection, debate, and decision-making, or decision-makers with strong personal integrity. Moreover, while the introduction of codes of ethics primarily represents an attempt to manage employee conduct, organizations have increasingly found that the management of business ethics also requires them to manage relationships with a wide range of stakeholders, as we shall now discuss.  196 PART A Und erstanding Bu sin ess Ethi cs · Eth.ics in Action 5.1 Managing ethics in a digital age: where next for the tech industryiJI 'We need a code of ethics for our industry, to guide our use of machine learning, and its acceptable use on human beings... Young people coming into our industry should have a shared culture of what is and is not an acceptable use of computational tools. In particular, they should be taught that power can't be divorced from accountability.' -Pin board creator Maciej Ceglowski, April 2017. This rally cry from the creator of a social bookmarking website captures the essence of much of the public sentiment that is surrounding information and communications technology (ICT) fi rms in today's digital world. The world 's largest social networking site, Facebook, is now valued at around $500 billion. If Facebook were a country, it would be substantially bigger than China, based on monthly active social media usage figures, which now top the 1 billion mark. And it is w idely esti- mated that each of us spend somewhere in the region of 20-40 minutes using Facebook each day. With Facebook now owning the likes of messaging service WhatsApp and photo and video-sharing site lnstagram, this figure looks increasingly conservative. With this power comes responsibility. In 2018 we saw a whole host of Facebook misdemeanours cast into the spotlight, revealing the little-known unethical underbelly of the tech industry. Most vivid of these scandals was the role of Facebook in election meddling and the disclosure that th e data of nearly 87 million users had been compromised when users of an application inadvertently gave consent to their-and their friends'-data to be passed to an undisclosed third party and used t o develop election-shaping micro-targeted advertisements. The Facebook arid Cambridge An alytica scandal heightened public scepticism around the role of tech corporations in society, particularly t he ir power to shape democratic processes. Yet, how can such a situation arise in an organization that has a stringent code of conduct that governs 'Protection of User Data and Personnel Data ' ? Facebook, and CEO Mark Zuckerberg in particular, may have become the poster child of the unethical turn in the tech industry, but Facebook is not alone in its breaches of formal codes of conduct. In 2014, it was revealed that millions of Yahoo users had had images from their webcams intercepted by the UK surveillance agency, GCHO. This provoked a storm of controversy, particularly when Yah oo admitted, 'We were not aware of, nor would we condone, this reported activity.' Then, in 2017, the discovery of the 'Cloudbleed' bug saw passwords, private messages, and other sensitive data from nearly 2 million accounts leaked into the public domain. This major security breach prompted service companies includ- ing Uber, FitBit, and OKCupid, whose users had been impacted, to engage in prompt investigation and issue guidance in an attempt to reassure users that their private data was still private. Yet this incidence of data leakage was just another privacy breach in a catalogue of data leakage incidences in recent years. This all makes for worrying reading, but what can be done? The response from some in t he in- dustry is to build more robu st ethical compliance programmes that enable better protection of user data and a sharing of best practice. It has been reported that Silicon Valley is currently drafting an industry-wide code of ethics that tackles important socio-political questions for the tech indust ry including: How can user privacy and data be protected from government intrusion? How can Si licon Valley prevent its technology from being used against citizens or in support of authorit arian reg imes? Such is the desire that an accepted code of ethics may one day govern the technology profession in the same way the Hippocratic Oath guides doctors and medical professionals. Irina Raicu, Director of the Internet Eth ics programme at the Markkula Cente r for Applied Ethics at Santa Clara University, takes this one step further, arguing that the tech industry needs to develo p not just a code of ethics but also more consistent and pervasive ethics training for technologists. She argues, 'codes of ethics are useful, but often vague-and have to be interpreted and applied to particular sets of facts and decisions that technologists face.' Instead, she believes that the industry 'moral muscle' should be stretched through 'ongoing ethics training... in colleges and unive rsities and coding boot-camps, but also in workplaces large and small.'  CHAPTER 5 Managing Busin ess Ethics 197 The key challenge of developing such codes of ethics and training programmes is in determining ex- actly how tech firms operationalize such codes and where the boundary between self-regulation and more stringent government backed legislation may lie. It is important to recognize that ethical issues, such as user privacy, surveillance, and censorship, are difficult areas for ICT companies to navigate, particu larly across geographies. Whi le countries such as China offer huge potential for developing new markets, and the US is home to the world's largest ICT firms, dealing with host governments can raise a range of problems that firms are ill prepared to deal with. If they refuse to accept the demands of governments they risk being fined or prevented from operating in the country. If they do accept th em, they risk being complicit in potential human rights abuses. Furthermore, initiatives such as the Global Network Initiative (GNI), launched back in 2008 to ' respect freedom of expression and privacy rights when faced w ith government pressure to hand over user data, remove content, or restrict communi- cations', offer some hope by way of industry coalition. Yet, such initiatives continue to grapple with a shifting legislative landscape. In 2017, the Federal Communications Commission (FCC) in the United States voted to dismantle rules that govern ' net neutrality'. Since a 2015 landmark ruling, it had been widely accepted that the internet should be free and open, providing equal access to all. The 2017 rul- ing, arg ued to be in the interest of businesses and consumers in stimulating innovation, dealt a major blow to those that have fought to protect democracy and free speech in an increasingly digital world. It also impacts on the way in which ethical issues are understood and managed within the tech industry. This leads many to argue that tech firms need to be better regulated. As questions are ra ised about not just the ethicalitv, but also the legatitv of Facebook's 'unprecedented harvesting', record fin es have been levied against the company for breaching the UK Data Protection Act and failing to protect users' information. Yet, as Laura Noren, a researcher at the Center for Data Science at New York University, argues, 'We need to at least teach people that there's a dark side to the idea that you should move fast and break things.' Perhaps, then, there is a role for instilling a more ethically reflexive culture w ithin tech ; championing 'softer' forms of self-regulation through codes of conduct and ethics training. Industry experts, regulators, and the general public continu e to ponder how best to hold tech firms to account. This begs the question: what is the key to managing ethics in a digital age: prevention, cure, or response? SO URCES http://idlew ords.com/talks/build_a_better_monster.htm https://investor.fb.com/corporate-governance/code-of-conduct/default.aspx https://ww w. scu.edu/ethics/internet-ethics-blog/three-recent-calls-for-a-tech-code-of-ethics https://qz.com/964159/the-president-of-y-combinator-sam-altman-is-leading-an-effort-to-develop-a- code-of-ethics-for-silicon-valley-in-response-to-president-donald-trump https://www. theatlantic.com/te ch nology/a rchive/2017 /05/rethi n king-ethics-train ing-in-sili con-val- ley/525456 https://globalnetworkinitiative.org https ://www. theg ua rd ia n.corn/corn mentisfree/2 018/ma r/19/f ace book-data-cam bridge-a na lytica-pri- vacy-breach https://www. nyti mes. com/2018/02/12/busi ness/com puter-science-eth ics-cou rses. htm I QU ESTION Think about the notion of a code of eth ics for the technology sector from the perspective of (a} rights, and (b) postmodern perspectives on ethics. What does each contribute and can they be reconciled? Visit the online resources for web links to useful sources of further information. 198 PART A Understanding Business Ethics ETHICAL DILEMMA 5 Getting explicit about the code of conduct It is another rainy Monday morning and after a relaxing weekend you are sitting in your office prepar- ing your agenda for the week. As the IT manager of a small financial services company, you have to prepare for your staff meeting at 10am, when all of your 15 IT team members w il l be present. You are planning to discuss the launch of your new promotion scheme, which is due to begin at the end of the week. Fortunately, Paul, who is the main market analyst for the company, was prepared to do some extra work at home over the weekend in order to make sure the forecasts w ere ready for the meeting. While sipping your first cup of coffee someone knocks at the door. It is Faye, the hardware man- ager. She looks a bit embarrassed, and after a little stilted small talk, she tells you that 'a problem' has come up. She has just checked-in the laptop that Paul had taken out of the company's pool and used at home over the weekend in order to finish the forecasts you had asked for. When completing the routine check of the laptop, Faye tells you that she noticed links to various pornography sites in the history file of the laptop's internet browser. She tells you that they must have been accessed over the weekend when Paul had the laptop-the access dates refer to the last two days, and as is usual practice, the history file was emptied after the last person had borrowed it. There is a strict company policy prohibiting employees from making personal use of company hardware, and access to sites containing 'n:aterial of an explicit nature' is tantamount to gross misconduct and may result in the immediate termination of the employee's contract. When you r hardware manager leaves the office, you take a big breath and slowly finish your coffee. After a few minutes thinking through the problem, you ask Paul to come into your office. You have a quick chat about his work and tell him that you are really pleased with the forecasts he put togethe r over the weekend. Then, you bring up the problem with the laptop's history file. When you tell him what has surfaced, Paul is terribly embarrassed and assures you that he has absolutely no idea how this could have happened. After some thought, though, he tells you that he did allow a friend to use the laptop a couple of times over the weekend to check his email. Although Pau l says that this is the only possible explanation for the mystery files, he does not volunteer any more information about the friend involved. As it happens, this does not make you feel much better about the situation-the company's code of conduct also prohibits use of IT equipment by anyone other than employees. The company deals w ith a lot of private data that no one outside the company should have access to. You rem ind Paul of this and he tells you that he did not realize there was any such policy. You are left wondering when the last time was that anyone did any training around the ethics policy-certainly not re cently. Scratching your head, you tell Paul that you will need 24 hours to think it over, and you get on with preparing for the team meeting. While driving home that evening, you turn the issue over and over in your head. Yes, there is a corporate policy with regard to web access and personal use of company resources. And in prin- ciple you agree with this-after all, you were part of the committee that designed the policy in the first place. A company like yours has to be able to have clarity on such issues, and there have to be controls on what the company's equipment is used for-no doubt about that. You ca nnot help think- ing that Paul has been pretty stupid in breaking the rules, whether he visited the sites himself or not. On the other hand, you are al_so having a few problems with taking this further. Given the amount of embarrassment this has caused Paul already, is thi s likely to be just a one-off? Does the company not need Paul's experience and expertise, especially now with the big launch a few days off ? Why cause problems over a few websites, especially when the company has not been very active in com- municating its ethics policy? Would it be better to keep it quiet, give him a warning, and just get on with the launch? This looks set to be a tough call.  CHAPTER 5 Managing Business Ethi cs 199 QUESTIONS 1. What are your main ethical problems in this case? 2. Set out the possible courses of action open to you. 3. Assess these alternatives according to a utilitarian perspective and a duty-based perspective. Which is the most convincing? 4. What would you do, and why? 5. Based on your answer, what are the apparent benefits and limitations of the code of conduct in this example? Visit the online resources for a suggested response. MAN AGING STAKEHOLDER RELATIONS In Chapter 2 we introduced stakeholder theory as one of the key theories in the debate on the role and responsibilities of business in society. While our main concern there, and in Chapter 3, was to highlight the normative basis of stakeholder theory, it is important also to acknowledge the descriptive argument that managers do indeed appear to recognize dis- tinct stakeholder groups, engage with them, and manage their companies according to their interests. While in some countries this is institutionalized in corporate governance, such as in the German two-tier supervisory board, even in more shareholder-focused countries many managers appear to have embraced at least some degree of recognition for stakeholder interests. One survey, for example, found that nearly half of all business executives say that managing sustainability is becoming a strategic pursuit that is balanced with overall business go als, mission, or values, and is primarily focused on maintaining stakeholder relationships. 16 This sentiment is shared, not only among businesses small and large, but also organizations of many kinds, including charities, schools, universities, and governments. Each of these organizations have a range of stakeholders whose interests might need to be considered in making decisions and this has given rise to a significant body of research dealing with the management of stakeholder relations. Let us look at some of the main themes addressed in this literature. ASSESSING STAKEHOLDER IMPORTANCE: AN INSTRUMENTAL PERSPECTIVE Much of the stakeholder management literature has focused on the strategic aspects of identi- fying which stakeholders actually matter to the organization and how they should be dealt with in order for the organization to effectively achieve its goals. Thus, Jones and Hill (2013: 380-1), in one of the leading Strategic Management textbooks, suggest that: 'A company cannot always satisfy the claims of all stakeholders. The goals of different groups may conflict, and in practice few organizations have the resources to manage all stakeholders... Often the company must make choices. To do so, it must identify the most important stakeholders and give highest prior- ity to pursuing strategies that satisfy their needs.' 200 PART A Understand ing Business Ethics I Stakeholder management The process by which organizations seek to understa nd the interests and expectations of their stakeholders and attempt to satisfy them in a way that aligns w ith the core interests of the company. As Donaldson and Preston (1995) contend, it is important to distinguish this instrumental perspective on stakeholder theory from the normative perspective we developed in Chapters 2 and 3, and the descriptive perspective mentioned briefly above. Hill and Jones' (2013) argument is not so much that organizations have to rate the relative strength of the ethical claims of their various stakeholders, but rather that strategic objectives can best be realized by deciding which stakeholders are more likely to be able to influence the organization in some way. This is likely to be particularly important when organizations are in a position where they have to decide how to assign relative importance or priority to competing stakeholder claims. Following a comprehensive review of the stakeholder management literature, Mitchell, Agle, and Wood (1997) suggest three key relationship attributes likely to determine the perceived importance or salience of stakeholders: Power. The perceived ability of a stakeholder to influence organizational action. Legitimacy. Whether the organization perceives the stakeholder's actions as desirable, proper, or appropriate. Urgency. The degree to which stakeholder claims are perceived to call for immediate at- tention. According to Mitchell, Agle, and Wood (1997), managers are likely to assign greater sali ence to those stakeholders thought to possess greater power, legitimacy, and urgency. Thus, sta ke- holders thought to be in possession of only one of these attributes will be regarded as the least important and might be regarded as 'latent' stakeholders. Those in possession of two of the three attributes are moderately important and hence can be thought of as 'expectant' stakeho lders. Finally, those in possession of all three attributes will be seen as the most important constituen- cies and hence are termed 'defmitive' stakeholders. For businesses, these defmitive stakehold- ers often require active engagement in order to develop an effective and appropriate working relationship. Indeed, a variety of different relationships might be expected to emerge between businesses and their stakeholders, as we shall now see. TYPES OF STAKEHOLDER RELATIONSHIP As opposed to the sometimes antagonistic interactions portrayed in business-civil society inter- actions (see Chapter 10), it is increasingly recognized that there is a place for co-operation between stakeholders. Much of this development in broader stakeholder collaboration was pio- neered in the field of environmental management, but it has since expanded to a wide range of social issues. Extended forms of stakeholder collaboration have emerged in other areas of busi- ness: various charities have joined with corporations in cause-related marketing camp aigns; governments have worked with corporations to develop public-private partnerships for tack.ling social, educational, health, and transportation problems; and NGOs, trade unions, and govern- ment organizations have worked with businesses to develop initiatives aimed at improving working conditions and stamping out child labour and other human rights abuses in develop - ing countries. While all of these developments will be discussed in greater detail in the second  CHAPTER 5 Managing Business Ethics 201 part of the book, what is immediately clear is that stakeholder relationships can take a variety of different forms, including everything from outright challenge and conflict, right up to joint ventures. Confrontational forms of relationship are still very commonplace. For example, in 2014 Greenpeace launched a global campaign against the Danish toy company Lego to try and force it to end its relationship with the oil company Shell, in which Shell-branded Lego sets were sold at petrol stations. Lego initially refused to talk to Greenpeace, but after a hugely successful social media campaign it eventually backed down and announced it would not renew the rela- tio nship (Vaughan 2014). Over time, however, there has clearly been a significant shift towards more collaborative types of relationship, such as stakeholder dialogue and alliances (Selsky and Parker 2005; Seitanidi and Crane 2014). Collaboration between stakeholders will certainly not always lead to beneficial ethical out- comes (consider, for example, the problems posed by two competitors collaborating over price setting). However, it is certainly an increasingly important tool for managing business ethics, primarily because closer forms of collaboration can bring to the surface evolving stakeholder demands and interests, and thereby provide companies with a greater opportunity to satisfy their stakeholders in some way. There has been greater acknowledgement of the business ben- efit of engaging in, rather than closing down, divisive and antagonistic stakeholder comments, particularly in the digital age where business-stakeholder interactions are more fluid (Schultz, Castello, and Morsing 2013). It has been found that organizations are, for instance, more able to facil itate ongoing dialogues and generate new knowledge about societal interests through participating in social media forums (Glozer, Caruana, and Hibbert 2018). Moreover, by involv- ing stakeholders more, it can be argued that a greater degree of democratic governance is introduced into corporate decision-making, thus enhancing corporate accountability. This is seen in the creation of online 'arenas for citizenship', which enable individual citizens to create, debate, and publicize corporate responsibility issues (Whelan, Moon, and Grant 2013). This also all boi ls down to a focus on developing effective communication strategies to not just manage stakeholders, but actively engage them in business ethics. COM MUNICATING WITH STAKEHOLDERS Am id rising stakeholder expectations, corporate responsibility communication-a process of anticipating stakeholders' expectations to provide true and transparent information on econom- ic, social, and environmental concerns (Podnar 2008)-has become a key element of stakeholder relationship management (Andriof and Waddock 2002). As Crane and Glozer's (2016) review of the corporate responsibility communication literature highlights, the majority of research in this area has focused on investigating how businesses communicate with external stakeholders (e.g. consumers, investors) to the detriment of internal stakeholders (e.g. employees). Stakehold- er management is, however, just one motivation for corporate responsibility communication. Other key purposes include more normative and prescriptive approaches to image enhancement, identity and reputation building, gaining legitimacy, and changing behaviour. Co rporate responsibility communication has predominately taken the form of annual reports, websites, and corporate advertorials. We will explore these forms in more detail below when we consider social accounting. However, as corporate responsibility communications are increasing- ly playing out in online contexts through textual, visual, and video means, such developments 202 PART A Understanding Business Ethics transform the very nature of communication in facilitating more fluid interactions, bu l also challenge how we might study communication processes. Traditionally, we might have seen communication as the development of a corporate responsibility message by internal executives and transferred outside of the organization to passive stakeholder recipients. This one-way or 'mono logical' model of information-transfer is somewhat problematized in the more 'di alogical' (two-way) online context. Indeed, a range of interactive social media tools are now utilized to engage and manage stakeholders, such as weblogs (e.g. food retailer Delhaize's 'Feed Tomor- row' biog), microblogs (e.g. Campbell Soup's CSR Twitter feed), content communities (e.g. Sam - sung's 'Resp