Institutionalizing Ethics

Business ethics are increasingly addressed in seminars and at conferences. Managers, especially top managers do have a responsibility to create an organizational environment that fosters ethical decision making by institutionalizing ethics. This means applying and integrating ethical concepts with daily actions. This can be accomplished in three ways:

  • by establishing an appropriate company policy or a code of ethics,
  • by using a formally appointed ethics committee, and
  • by teaching ethics in management development programmes;

The most common way to institutionalize ethics is to establish a code of ethics, much less common is the use of ethics board committees. Management development programmes dealing with ethical issues are very seldom used, although companies such as Allied Chemical, International Business machines, and General Electric have instituted such programmes.

The publication of a code of ethics is not enough. Some companies require employees to sign the code and include ethics criteria in the performance appraisal. Moreover, certain firms connect compensation, and rewards to ethical behaviour. Managers should also take any opportunity to encourage ethical behaviour and publicize it. On the other hand, employees should be encouraged to report unethical practices.  Most important, managers must be a good example through ethical behaviour and practices.

A code is a statement of policies, principles, or rules that guide behaviour. Certainly, codes of ethics do not apply only to business enterprises; they   should guide the behaviour of persons in all organizations and in everyday life.

Simply stating a code of ethics is not enough, and the appointment of an ethics committee, consisting of internal and external directors, is considered essential for institutionalizing ethical behaviour. The functions of such committees may include:

  • holding regular meetings to discuss ethical issues.
  • dealing with grey areas.
  • communicating the code to all members of the organization
  • checking for possible violations of the code
  • enforcing the code
  • rewarding compliance and punishing violations,
  • reviewing and updating the code, and
  • reporting activities of the committee to the board of directors.

Factors that raise Ethical standards:

The two factors that raise ethical standards the most according to the respondents in one study are 1) public disclosure and publicity and 2) the increased concern of a well-informed public. These factors are followed by government regulations and by education to increase the professionalism of business managers.

For ethical codes to be effective, provisions must be made for their enforcement. Unethical managers should be held responsible for their actions. This means that privileges and benefits should be withdrawn and sanctions should be applied. Although the enforcement of ethical codes may not be easy, the mere existence of such codes can increase ethical behaviour by clarifying expectations. On the other hand one should not expect ethical codes to solve all the problems. In fact, they can create a false sense of security. Effective code enforcement requires a consistent ethical behaviour and support from top management.

Another factor that could raise ethical standards is the teaching of ethics and values in business and other schools and universities.

Another way of encouraging ethical corporate behaviour is through whistle blowing that is making known to outside agencies what are considered unethical company practices.

There is even a whistle blower website that discusses whistle blowing issues including legal issues and protection. The Whistle blowing centre is a non-profit organization that helps enforce environmental laws and works for accountability of business and government organizations.  The primary objective is to protect and defend persons that disclose actions harmful to the environmental and public health.

The contractor for the rocket in the Challenger Space Shuttle pointed out the problems with the O-rings that became ineffective at low temperatures. His fears and concerns were largely ignored by the management and eventually led to the Challenger disaster. A nuclear power whistle blower who sued the Westinghouse Hanford Company. He was fired from his job, but later was rewarded by a federal judge an entitlement for a lifetime front pay. In America, legislation now gives greater protection to government whistle blowers. There is now some evidence that after the September 11, 2001 World Trade Centre bombing more employees have come forward to disclose security issues.

Different Ethical standards of various Societies:

Any person in business government a university or some other organization is  aware that ethical as well as legal, standards do differ particularly among nations and societies. For example, certain nations with privately owned companies permit corporations to make contributions to political parties, campaigns and candidates.

In some  countries, payments to government officials and other persons with political influence to ensure the favourable handling of a business transaction are regarded not as unethical bribes  but as proper payments for services  rendered. In many cases  payments made to ensure the landing of a contract are even looked upon as a normal and acceptable way of doing business.

  • Maj B K Sharma

    The ethics in any org are integrated by appointed ethics committees or by running management development programmes. The only way is to show by higher management they they mean business in applying ethics. In any case to run abusiness and remain in business the org has no choice but to follow ethics. To that extent they are must and not a choice. But shotsightedness by owners/ decision makers can kill a business as it happens so often. Even when unehical practices are followed employees comply because they have to.


  • Karun Sharma

    Topic is of great interest and importance. It is interesting to know factors that challenge ethics these could be customers as well as own employees. One example is low income of employees that make employers award more than required hours of overtime (unethical), similarly customers may suggest to compromise on ethics in order to ensure higher margins. 

  • Valan

    Good article.The Management of the any org they go by their own rules .If they follow some of the importance of Sr. staff  the orgn. will go very high .