Recent scandals involving the corruption of some of the biggest companies in the world has forced the public to call for the teaching of business ethics at universities. Some of the biggest scandals have included Saytam, Lehman brothers, Bernie Madoff, American Insurance Scandal, Freddie Mac, HealthSouth, Tyco, Worldcom, Enron and the Waste Management; the start of an endless list. It is hoped that ethical training will train students make better decisions however it does not address the realities of most organizations. Business ethics is useless in the face of problems with the governance and structures of an organization. It is well known that shareholders, senior executives and elected boards members are compensated for their work or investment but have very little ownership over the company. They do not care about the long term survival of the company beyond their own role. Ethical behaviour of an organization needs to changed not through education but by restructuring governance, structures, leadership, layering, performance appraisal and the selection processes.
The writer suggests that governance can be changed so that compensation is based on ethical and accountable performance with an emphasis on some long term ownership of the company. The writer suggests that directors should be appointed for 5 years. One fifth of the directors should retire each year with the new member being replaced by a decision of the continuing four fifths. Other ideas from the writer included director’s fees that should be established per diem scale equivalent to the salary of the CEO. These fees should be paid 50% in cash each year and 50% in the shares current value at the end of that year. The shares would become redeemable commencing the year after retirement. They will receive their current value 5 years after issue, and no more than 20 % of their total value in any one year. Token, corporate and subsidiary CEO’s should be required to maintain an annual investment of 10% to 20% of salary in shares redeemable only 5 years after they were issued. The aim of this method is to bring about a long term interest in companies instead of short term career gain and the manipulation of compensation. Partnerships should also be reformed because the number has increased to a point where partners no longer have an interest in sitting down face to face and looking at the long term viability of the company.
Managerial employment hierarchies in most not for profit, public service and profit organizations are mostly deficient in operational effectiveness and are harmful to people working in those organizations. It often leads to suspicion and mistrust from managers to employees or unethical behaviour. The only reason that many companies have survived is because of the constructiveness of people and satisfaction that people get out of doing good work and can override the flaws.
There are too many layers of management resulting in the micromanaging or not enough management resulting in some managers being overburdened. The layers can result in a lack of leadership and employees that defend their behaviour to get to the next level. The result is an optimal organization of layers for all managerial hierarchies worldwide. Layers should be considered by means of a simple, objective measure of the size of jobs in terms of its time span. The structure gives a comfortable and effective relationship between managers and subordinates at all levels, because it provides for managers who have the right amount of capability for their subordinates.
Ethical behaviour would involve changing compensation systems completely, paying fair differentials in three levels of work including low, medium and high. Each person is paid for the work within their range and the time span of his or her role. This is judged by a manager and the level of effectiveness within the work range.
Senior executives are often selected without a consideration of the person’s fit and the size of the role. Over promoted CEOs and senior executives undermine the accountability of the system and manipulate results to look better. Under recognised employees will be alienated and get involved in unethical manipulations in order to correct a position and achieve decent careers. The size and complexity of a role can be measured and shift behaviour towards something more ethical.
There are many other flaws in companies such as unclear task assignment, context setting, wrong concepts of leadership in terms of personality, unformulated cross functional working relationships, management meetings, discipline. The managerial systems or practices need to change and let people do the work they should be compensated for. Free enterprise, democracy and the future of corporate governance depends on the change.
I chose this article because I believe that the social responsibility of companies is one of the biggest problems facing the U.S. So many of my friends and families have been effected by job shortages, layoffs, poor leadership, managerial and organizational structures of companies. They are also faced with dangerous or serious ethical dilemmas and need to make decisions that can put their job at risk but have to get the job completed and need to work around the problems.
The article taught me that business ethics education is useless without changing the structures of an organization and the way that organizations are led. Those in senior positions do not have to take ownership over the viability of the company because there is no incentive beyond their immediate short term career aspirations. People must be held accountable and the roles must be appropriate for the skills and knowledge of the CEO. There needs to be appropriate management layers so that each individual in a company is responsible for their actions but is not overburdened by too many management decisions resulting in confusion and a lack of transparency because some people are busy covering up their mistakes.
The future of business in the U.S relies on ethically trained people and a new look at the structures of management, performance and the selection of staff. It is only when the rewards and pay of high level staff are tightly regulated by their performance will the governance of companies change. This will have a flow on effect to U.S politics and the burden of corruption passed down by a system where people in privileged positions are allowed to run away from their responsibilities as elected individuals.
The 10 Worst Accounting Scandals of All Time. (n.d) Retrieved February 09, 2016, from http://www.accounting-degree.org/scandals/
Jacques, E. (2003). Ethics for Management. Managment Communication Quarterly , 136.