Enhancing Business Performance and Leadership Success Research Paper

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Goldman Sachs and its role in the subprime mortgage crisis that escalated a downward financial spiral. In particular, focus on question 4 (page 250) at the end of the case.

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CHAPTER ONE Business Ethics, The Changing Environment, And Stakeholder Management Recent Examples of Ethical Events in Corporate America   Subprime lending crisis Scandals  Enron  Tyco  WorldCom,    etc. Excessive CEO pay and relative firm performance Sarbanes-Oxley Act of 2002 Outsourcing trends Figure 1.1: Environmental Dimensions Economic Factors      Increasingly global context for trade, markets, resources Business expansion, product expansion Stock & bond market volatility and interdependency The effects of the European Union (currency exchange, negotiating power, etc.) The rise of China and India Technological Environment       Internet and telecommunication innovations Change in jobs, financial transactions, market operations Change in business best-practices Integration of supply chains Access to information What privacy and surveillance issues arise for employers? Political Environment     Rise of global terrorism Change in international coalitions (NATO, EU) Increased awareness of issues via electronic technology Fall of communism/Soviet Union Governmental and Regulatory Environment  Constantly changing/updating laws and procedures  Sarbanes-Oxley, 2002  2004 Federal Sentencing Guidelines   Changing standards for products, processes (e.g., FDA approval) Judicial actions (e.g., Microsoft) against anticompetitive practices Legal Environment    Competing rights (Patriot Act) Consumer protection (tobacco, gun control, Firestone tires) Corporate copyright protection (Napster vs. recording industry) Demographic Environment   Globalization Workforce diversity and accompanying issues  Sexual harassment  Discrimination   Downsizing and outsourcing work force Aging workforce Figure 1.2: Stakeholders Secondary Stakeholders          Local community groups Special Interest groups Consumer groups Environmental groups Media Society-at-large American Civil Liberties groups ETC Should managers pay attention to the needs of these groups? What priority should they have? Stakeholder Managem ent Approach  Six Steps to developing w in/w in strategies: 1. 2. 3. 4. 5. 6. Identifying and prioritizing issues, threats, or opportunities Mapping w ho the stakeholders are Identifying their stakes, interests, and pow er sources Show ing w ho the m em bers of coalitions are or m ay becom e Show ing w hat each stakeholder’s ethics are and should be Developing collaborative strategies and dialogue from a higher ground perspective to m ove plans and interactions to the desired closure for all parties What is Business Ethics? Laura Nash has defined business ethics as “the study of how personal moral norms apply to the activities and goals of commercial enterprise,” as dealing w ith three basic areas of m anagerial decision m aking: 1. 2. 3. Choices about w hat the law s should be and w hether to follow them Choices about econom ic and social issues outside the dom ain of law Choices about the priority of self-interest over the com pany’s interests Unethical Business Practices of Em ployees  Show ing respect to those w ho act unethically  Abusive or intim idating behavior  Misrepresentation of hours w orked  Lying  Withholding inform ation  Context issues:   Com panies in transition (m ergers, dow nsizing) Younger em ployees and em ployees w ith low er tenure in the organization Ethics and compliance Programs   Employees believe that nothing will be done if they report unethical behavior, or they are unsatisfied with the actions taken Only 25% of employees:        are willing to seek advice about ethics questions that arise; feel they are prepared to handle situations that could lead to misconduct; indicate that they are rewarded for ethical behavior; report that their company does not reward success obtained through questionable means; say they feel positively about their company Employees feel that reports will not be held confidentially Why does business ethics m atter?      Financially and Econom ically Relationships and Reputation Morale and Productivity Culture and Com m unication Integrity and the Com m on Good Figure 1.3: Five Levels of Business Ethics Key Questions if Faced with an Ethical Dilemma       What are my core values and beliefs? What are the core values and beliefs of my organization? Whose values, beliefs, and interests may be at risk in this decision? Why? Who will be harmed or helped by my decision or by the decision of my organization? How will my own and my organization’s core values and beliefs be affected or changed by this decision? How will I or my organization be affected or by the decision? Figure 1.5: 5 Business Ethics Myths Why Use Ethical Reasoning In Business?  Law s are insufficient  Free-m arket and regulated-m arket m echanism s are insufficient  Com plex m oral problem s require an intuitive or learned understanding and concern for fairness, justice, and due process to people, groups, and com m unities Kohlberg’s Levels and Stages Of Moral Developm ent  Level 1: Preconventional level (selforientation) ◼ ◼ Stage 1: Punishm ent Stage 2: Rew ard seeking  Level 2: Conventional level (others orientation) ◼ ◼ Stage 3: Good person Stage 4: Law and order  Level 3: Postconventional level (universal, hum ankind orientation) ◼ ◼ Stage 5: Social contract Stage 6: Universal ethical principles CHAPTER TWO Stakeholder And Issues Management Approaches Stakeholder vs. Stockholder Approach to Ethics  The stakeholder approach is based on the view that all stakeholders should be treated fairly, resulting in better perform ance in the m arketplace. act in the best interests of and for the benefit of customers, employees, suppliers, and stockholders  respect and fulfill these stakeholders’ rights   The stockholder approach focuses solely on financial and econom ic relationships, w ith stockholders/ow ners as prim ary beneficiaries of m anagerial decisions. Criticisms of Stakeholder Theory 1. 2. 3. 4. negates and weakens fiduciary duties managers owe to stockholders weakens the influence and power of stakeholder groups weakens the firm changes the long-term character of the capitalist system How do you counter these arguments? What arguments exist in support of stakeholder theory? Three Assum ptions of Stakeholder Theory 1. Profit maximization is constrained by justice 2. Regard for individual rights should be extended to ALL constituencies that have a stake in the affairs of a business 3. Organizations are not simply or only economic in nature but can and do act in socially responsible ways, not only because it is the right thing to do, but also to ensure their legitimacy Stakeholder Managem ent Approach  Identifying and understanding multiple and often competing claims of many constituencies  Uses analytical methods for identifying, mapping, and evaluating corporate strategy with stakeholders  Based on the theory that certain ethical principles can result in competitive advantage  GOAL: Win/Win vs. Zero Sum Primary Stakeholders Owners Suppliers Organization Employees Customers Secondary Stakeholders          Local community groups Special Interest groups Consumer groups Environmental groups Media Society-at-large American Civil Liberties groups ETC Should managers pay attention to the needs of these groups? What priority should they have? How To Conduct a Stakeholder Analysis The stakeholder analysis is a series of steps, conducted from an objective, third-party point of view : 1. Mapping stakeholder relationships 2. Mapping stakeholder coalitions 3. Assessing the nature of each stakeholder’s interest 4. Assessing the nature of each stakeholder’s pow er 5. Constructing a m atrix of stakeholder m oral responsibilities 6. Developing specific strategies and tactics 7. Monitoring shifting coalitions Questions for Stakeholder Review (Do these in Step 1 of S.A.) 1. Who are our current stakeholders? 2. Who are our potential stakeholders? 3. How does each stakeholder affect us? 4. How do we affect each stakeholder? 5. For each division and business, who are the stakeholders? Questions for Stakeholder Review (con’t) (Do these in subsequent steps in S.A.) 6. What assumptions does our current strategy make about each important stakeholder (at each level)? 7. What are the current “environmental variables” that affect us and our stakeholders? 8. How do we measure each of these variables and their impact on us and our stakeholders? 9. How do we keep score with our stakeholders? Figure 2.2: Sample Stakeholder Map for a Large Corporation Steps 2, 3 and 4: Assessing Coalitions, Interests and Power    Map any stakeholder coalitions that may help or hinder your strategy or decision Assess the nature of each stakeholder’s interest Assess the nature of each stakeholder’s power Voting power  Political power  Economic power  Technological  Legal  Environmental  Cultural  Power over target individuals and/or groups  Figure 2.3: Step 5 - Stakeholder Moral Responsibility Matrix Step 6: Develop Specific Strategies and Tactics 1. 2. 3. 4. Consider whether to approach each stakeholder directly or indirectly Decide to do nothing, monitor, taken an offensive or a defensive position with the stakeholder Decide to accommodate, negotiate, manipulate, resist, avoid, or take a ‘wait and see’ approach Decide which combination of strategies will work best with each stakeholder Figure 2.4: Stakeholder Strategies Step 7: Monitor Shifting Coalitions Use the matrix from Step 6 to routinely monitor progress and the evolution of issues and actions by stakeholders (e.g., do they move from a ‘Marginal’ to a ‘Non-supporter’, or from a ‘Supporter’ to a ‘Marginal’?) Figure 2.6: Stakeholder Dispute Resolution Methods Resolving Stakeholder Disputes Integrative/Relational Distributive/Power-based  Problems: Win-win  Problems: Zero-sum  Resources: Expandable  Resources: Fixed (divide up the ‘pie’)  “Value creating”  Accommodate as many interests  “Value claiming” as possible  Splitting the difference    Relationship-building Dialogical Respect dignity and build understanding    Competition-focused Authoritative “Winning” Fry and Ury’s Four Principles of Negotiation 1. 2. 3. 4. Separate the people from the problem Focus on interests rather than positions Generate a variety of options before settling on an agreement Insist that the agreement be based on objective criteria Functional Managers’ Moral Responsibilities      Marketing and Sales professionals/managers R & D and Engineering professionals/managers Accounting and Finance professionals/managers Public Relations professionals/managers Human Resource professionals/managers Issues Management  A formal process used to anticipate and take appropriate action to respond to emerging trends, concerns, or issues that can affect an organization or its stakeholders Detects and addresses issues that may cause problems or harm  Helps to contain or resolve issues that could become potentially damaging crises  May be used as a complementary approach to stakeholder analysis (who is involved in the issue?)  Three frameworks  Issues Management and Stakeholder Analysis   Insert your issues management approach as the first step of your Stakeholder Analysis Enhance the Stakeholder Analysis by asking: Which stakeholders are affected by this issue?  Who has an interest in this issue?  Who is in a position to exert influence on the issue?  Who has expressed an opinion on the issue?  Tw o Issues Managem ent Approaches  6-Step Issue Management Process  Most straightforward  More appropriate for companies or groups trying to understand, manage, and control their internal environments  Organization-specific Figure 2.8: 6-Step Issues Management Approach Tw o Issues Managem ent Approaches  7-Phase Issue Development Process   Issues are believed to follow a developmental life cycle (Steven Fink) Life-cycle stages suggested for tracking an issue: ◼ ◼ ◼ ◼ ◼ ◼ ◼ A felt need arises Media coverage is developed Interest group development gains momentum Policies are adopted by leading political jurisdictions The federal government gives attention to the issue Issues and policies evolve into legislation and regulation Issues and policies enter litigation Figure 2.9: 7-Phase Issue Development Process A Related Model  4-Stage Issue Life Cycle (Thomas Marx):  Issues evolve from social expectations to social control through the following steps: ◼ ◼ ◼ ◼ Social expectations Political issues Legislation Social control Figure 2.10: 4-Stage Issue Life Cycle Two Crisis Management Approaches: Figure 2.11 Two Crisis Management Approaches: Figure 2.12 Suggested Corporate Actions during Crises  Face the problem  Take your lumps  Recognize that there is no such thing as a secret or private crisis  Stage war games  Use the firm’s philosophy, motto, or mission statement  Use the firm’s closeness to customers and end users for early feedback Prerequisites for Issues/Crises Management Success  Top management is supportive and participates  Involvement is cross-departmental  The issues management unit fits with the firm’s culture  Output, instead of process, is the focus CHAPTER THREE Ethical Principles, Quick Tests, And DecisionMaking Guidelines Levels and Types of Ethical Issues 1. 2. 3. 4. the individual or professional level the company or organizational level the industry level the societal, international, and global level Ethical Risks in Corporations ❑ Severe Risks ▪ ▪ ▪ ❑ High Risks ▪ ▪ ▪ ❑ Putting own interests ahead of organization Lying to employees Abusive behavior Stealing/Internet abuse/misreporting hours worked Discrimination and Harassment Improper hiring practices Guarded Risks ▪ ▪ ▪ Environmental violations Misuse of confidential organizational information, including competitors’ inside information Alteration of documents or financial records Defining Moments: Three Key Questions  Who am I? (individual) 1. 2. 3.  Identify feelings and intuitions that are emphasized in the situation Identify deepest values in conflict brought up by the situation Identify the best course of action to understand the right thing to do Who are we? (group manager) 1. 2. 3. What strong views and understanding of the situation do others have? Which position or view would most likely win over others? Can I coordinate a process that will reveal the values I care about in this organization? Defining Moments: Three Key Questions (con’t)  Who is the company? (top executive) 1. 2. 3. Have I strengthened my position and the organization to the best of my ability? Have I considered my organization’s role vis-à-vis society and shareholders boldly and creatively? How can I transform my vision into action, combining creativity, courage, and shrewdness? Nash’s Twelve Questions  These twelve questions can help individuals:  Openly discuss the responsibilities necessary to solve ethical problems  Facilitate group discussions  Build cohesiveness and consensus  Serve as an information source  Uncover ethical inconsistencies  Help a CEO see how managers think  Increase the nature and range of choices Nash’s Twelve Questions (con’t) 1. 2. 3. 4. 5. 6. 7. Have you defined the problem accurately? How would you define the problem if you stood on the other side of the fence? How did this situation occur in the first place? To whom and to what do you give your loyalty as a person and as a member of the corporation? What is your intention in making this decision? How does this intention compare with the probable results? Who could your decision or action injure? Nash’s Twelve Questions (con’t) 8. 9. 10. 11. 12. Can you discuss the problem with the affected parties before you make your decision? Are you confident that your decision will be as valid over a long period as it seems now? Could you disclose, without qualm, your decision or action to your boss, your CEO, the board of directors, your family, and society as a whole? What is the symbolic potential of your action if understood? If misunderstood? Under what conditions would you allow exceptions to your stand? Decision Criteria for Ethical Reasoning  Moral reasoning must be logical  Factual evidence cited to support a person’s judgment should be accurate, relevant, and complete  Ethical standards used should be consistent A simple test:  What is my motivation for choosing a course of action? Moral Responsibility: When ARE you responsible 1. 2. When you knowingly and freely acted or caused the act to happen and knew that the act was morally wrong or hurtful to others When you knowingly and freely failed to act or prevent a harmful act and you knew it would be morally wrong for a person to refrain from acting Moral Responsibility: When are you NOT responsible  Two conditions that eliminate a person’s moral responsibility are:  Ignorance  Inability  Mitigating circumstances that excuse or lessen a person’s moral responsibility include:  A low level of or lack of seriousness to cause harm  Uncertainty about knowledge of wrongdoing  The degree to which a harmful injury was caused or averted Ethics Utilitarianism: ends justifies the means (consequentialist) Universalism: moral rules/duties Rights: inalienable rights Justice: fairness and equity Virtue: moral characteristics Relativism: societal consensus Utilitarianism: A Consequentialist Approach     An action is judged as right, good, or wrong on the basis of its consequences Greatest good for the greatest number of people Net benefits over costs are greater than other choices Rule-based vs. Act-based  Use when:     Resources are fixed, lacking or scarce Priorities are in conflict No clear choice fulfills everyone’s needs/goals Large or diverse groups are in a zero-sum decision Utilitarianism: A Consequentialist Approach  Problems with utilitarianism include:  No agreement exists about the definition of the “good” to be maximized  No agreement exists about who decides  How are the costs and benefits of nonmonetary stakes measured?  Actions are not judged, only consequences  Does not consider the individual  Principles of rights and justice may be ignored Utilitarianism: A Consequentialist Approach  Utilitarianism and stakeholder analysis 1. 2. 3. 4. 5. Define how costs and benefits will be measured Define what information you will need Identify the procedures and policies you will use State your assumptions What moral obligations are being ignored Universalism: A Deontological (Duty-Based) Approach  The means justify the ends of an action (duty to act responsibly)  Kant’s Categorical imperative  Choose to act if and only if every person on earth, in that same situation, should act exactly the same way  Act in a way that respects and treats all others involved as ends as well as means to an end Universalism: A Deontological (Duty-Based) Approach  Major weaknesses include:  Principles are imprecise and lack practical utility  Hard to resolve conflicts of interest  Does not allow for prioritizing one’s duties Universalism: A Deontological (Duty-Based) Approach  Universalism and stakeholder analysis 1. Take into account the welfare and risks of all parties 2. Identify the needs of individuals involved in a decision, the choices they have, and the information they need to protect their welfare 3. Identify any manipulation, force, coercion, or deceit that might harm the individuals involved 4. Recognize the duties of respecting and responding to individuals PRIOR to adopting policies and actions 5. Ask under what conditions the desired action would be acceptable to the individuals involved Rights: An Entitlement-Based Approach  Three categories of rights     Legal Moral Contractual 1. the contract should not commit the parties to unethical or immoral conduct; 2. both parties should freely and without force enter the contractual agreement; 3. neither individual should misrepresent or misinterpret facts in the contract; 4. both individuals should have complete knowledge of the nature of the contract and its terms before they are bound by it Negative vs. Positive Rights Rights: An Entitlement-Based Approach The weaknesses of using a rights approach include: Can be used to disguise and manipulate selfish, unjust political interests and claims Protection of rights can be at the expense of others Limits of rights come into question Rights: An Entitlement-Based Approach  Rights and stakeholder analysis 1. Identify individuals whose rights may be violated 2. Determine the legal and moral bases of these rights 3. Any moral justification from utilitarian viewpoint or other approaches? Justice: Procedures, Compensation, Retribution  Two recognized principles of fairness include:  Equal treatment  Equal opportunity, access to advantages  Four types of justice include:     Compensatory Retributive Distributive Procedural Justice: Procedures, Compensation, Retribution  Problems using the principle of justice include:  Who decides what is fair, equitable?  Who has moral authority to punish those who act unfairly?  Can opportunities and burdens be fairly distributed?  Transforming Justice  Be aware of your rights and power  Establish legitimate power as a means for obtaining and establishing rights Justice: Procedures, Compensation, Retribution  Justice and stakeholder analysis 1. How equitable will the distribution of benefits, costs, rewards, punishment be among stakeholders? 2. How clearly have the procedures for distributing the costs and benefits of the policy been defined and communicated? 3. What are we doing for those who are unfairly affected by these decisions? Virtue: A Moral Character Approach  Focuses on the type of person we ought to be, not on specific actions that should be taken  Good character, motives, and core values  Practical wisdom  Problems with virtue ethics include:  Practicality/lack of specific guidelines  Mistakes of virtuous people (moral backsliding)  No list of particularly vulgar acts  Character traits change throughout lifetime Virtue Ethics and Stakeholder Analysis   Examining motives and character of various stakeholders helps to uncover greed, egotistical traits, irrational thinking Could be used for basis of character list required by top executives to avoid immoral acts such as those that occurred at Enron, Tyco, etc. The Common Good   The common good is a good to which all members of society have access, and from whose enjoyment no one can be easily excluded (Valasquez et al, 1992). Four constraining factors: The common good is defined differently by different people  The concept of ‘common good’ is counter to a culture in which individuals are rewarded for hard work  Free riders can take advantage  Unequal sharing of burdens and sacrifices by some groups  Ethical Relativism: A Consensus Approach  No universal standards or rules  People set their own moral standards for judging actions  Benefits include:  Ability to recognize and value the distinction between individual and social values, customs, and moral standards Ethical Relativism: A Consensus Approach Problems using an ethical relativism approach include: Implies an underlying laziness Contradicts everyday experience Creation of absolutists No mechanism to solve conflicts among different viewpoints Ethical Relativism: A Consensus Approach  Ethical Relativism and Stakeholder Analysis 1. What are the major moral beliefs and principles at issue for each stakeholder affected by this decision? 2. What are my moral beliefs and principles in this decision? 3. To what extent will my ethical principles clash if a particular course of action is taken? Why? 4. How can conflicting moral beliefs and principles be avoided or resolved in seeking a desirable outcome? Immoral, Amoral, Or Moral Management  Immoral management means intentionally going against ethical principles of justice and of fair and equitable treatment of other stakeholders.  Amoral management happens when others are treated negligently without concern for the consequences of actions or policies.  Moral management places value on equitable, fair, and just concern of others involved. 4 Social Responsibility Modes and Roles (Figure 3.4) Orientations Stockholder Stakeholder 1 2 Productivism Progressivism 3 4 Philanthropy Ethical Idealism Self-interest Motives Moral duty Individual Ethical Decision-Making Styles     Individualism Altruism Pragmatism Idealism  During conflicts:     Point out to individualists the benefits to their own interests Focus on the benefits of various constituencies for altruists Emphasize facts and potential consequences to the pragmatist For the idealist concentrate on principles or duties Quick Ethical Tests  Six guidelines or questions (Center of Business Ethics, Bentley College): 1. 2. 3. 4. Is it right? Is it fair? Who gets hurt? Would you be comfortable if the details of your decision were reported on the front page of your local newspaper? CNN? 5. What would you tell your child to do? 6. How does it smell/feel? Other Classical Ethical Tests The Golden Rule The Intuition Ethic The Means-Ends Ethic Test of Common Sense Test of One’s Best Self Test of Ventilation Test of the Purified Idea
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Running header: BUSINESS PERFORMANCE & LEADERSHIP SUCCESS

Business Performance & Leadership Success
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BUSINESS PERFORMANCE & LEADERSHIP SUCCESS

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Introduction
Today, one corporate goal is that of enhancing business performance and leadership
success. The success of a business and moral principles are closely related concepts. Leaders
who are respected globally use various tools to harness the strength of moral intelligence and
enhance business performance. Responsibility, integrity, forgiveness and compassion are four
important principles that are important in ensuring moral intelligence as a key for enhancing
business performance and business success.
Enhancing business performance and leadership success
Business success and moral principles are closely related concepts. Leaders who are
respected globally use various tools to harness the strength of moral intelligence and enhance
business performance. Fred Kiel and Doug Lennick have dug deep into the power contained in
moral intelligence on the mental capacity of an individual to find out how universal principles
are incorporated to personal goals, values and actions. This concept emphasizes on for basic
principles that are important for the achievement of sustained organizational and individual
success. These principles are responsibility, integrity, forgiveness and compassion. It is hard to
quantify the business advantages of moral intelligence, but the business costs as a result of moral
ignorance are far worse. We have at some point witnessed corporate executives being escorted in
handcuffs. Moral intelligence is the secret weapon of a leader for lasting individual and
organizational performance. In a nutshell, moral intelligence is considered to be the key to
enhancing business performance and success (Avery, 2011).
Moral intelligence
The best performing organizations have leaders who will actively apply the different
moral values in order to achieve the enduring organizational and personal success. Kiel and

BUSINESS PERFORMANCE & LEADERSHIP SUCCESS

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Lennick comprehensively point out the moral componen...


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