Chapter 2: Quality Management, Ethics, and Corporate Social Responsibility

Introduction

Ethics, basically, deals with what’s right and what’s wrong while CSR focuses on being a good citizen in the society by organizing and implementing appropriate social projects.

Quality has been related primarily to the products or services and their performances in the first stage. In the second stage, the focus shifted from production line to the process. In the third stage, the focus has moved from process to system. The fourth stage can be called as the Total Quality Management (TQM) stage, in which quality has become a more strategic issue and the focus is broadened towards the quality of the organization and its relationships with its environment such as customers, suppliers, competitors, and society at large.

Recent interpretations of TQM refer to concepts like organizational learning, business ethics , social responsibility, and governance, which go beyond improvement of production-related processes. Moreover, the rising importance of the product liability concept has made CSR a crucial aspect of quality.

Quality Management and Ethics Relationship

An organization that constantly creates a negative ethical impact may find the withdrawal of public approval and of the market for its product or services (Vinten, 1998:89). In this regard, ethics and quality management (i.e. TQM) are interrelated. Establishing the foundation quality management on ethical principles is necessary because TQM is a central managerial concept whose implementation has important implications for both business success and organizational stakeholders.

Ethics originates from ruling values in the society, marketplace, and organizations. It may therefore be seen as a crucial core value per se in TQM. The techniques and tools used in the implementation of TQM should also consider ethical fundamentals. The worldwide business environment is changing towards a stronger focus on ethics. As this environment changes, its members will expect and even demand more ethical behavior from its business leaders and their corporations.

Improving the organization’s ethical climate is essential to avoiding failures in the organization and enhancing the quality of its operation. This may be accomplished through various means. Of utmost importance is the need for top management leadership. The behavior of managers has the most important influence on the ethical behavior of their subordinates. Ethics policies are only as valid as the commitment management gives to them. Through its capacity to set up a personal example and shape policy, top management is in the ideal position to provide a highly visible role model for others to follow.

The Concept of Ethics

Ethics can be defined as the principles, norms, and standards of conduct governing an individual or group. In this definition, the word “conduct” is important. If the management focuses on conduct, ethics becomes an extension of good management. Leaders identify appropriate and inappropriate conduct, and they communicate their expectations to employees through ethics codes, training programs, and other communication channels. On the other hand, an ethical behavior in business can be defined as “behavior that is consistent with the principles, norms, and standards of business practice that have been agreed upon by the society”.

Ethical problems remain a major concern in the workplace. Despite a heightened emphasis on business ethics following the scandals earlier this decade, a significant number of employees say they still witness questionable workplace behavior.

The Importance of Ethics in Businesses

The importance of ethics can be arisen from the following:

• The ethical challenges of businesses have become increasingly complicated because of globalization, technological advancements, and sustainability issues.
• Ethical challenges are often at the same time business opportunities or can be turned into business opportunities.
• There are also increasing societal and legal expectations for business.
• Acting legally and ethically in business operations means saving millions each year in lawsuits, settlements, and theft.
• Absence of ethical conduct costs deterioration of relationships among the members of organizations; damage to reputation; declining employee productivity, creativity, and loyalty; in effective information flow throughout the organization; and absenteeism.
• Companies that have a reputation for unethical and uncaring behavior toward employees also have difficulties in recruiting and retaining valued professionals.
• Strong ethical leadership goes hand in hand with strong integrity.
• Both the public and consumers benefit from organizations acting in an ethically and socially responsible manner.
• Ethical companies create investor loyalty, customer satisfaction, and business performance and profits.

Philosophical Bases of Ethical Decision Making

A standard way of understanding ethical decision-making is to know the philosophical basis for making these decisions. Here, four types of philosophical basis directing ethical behaviors will be introduced: Utilitarianism, Pragmatism, Deontology, and Virtue Ethics.

As a philosophical view, focusing on consequences is often referred to as utilitarianism.

Pragmatism: The belief that there are no absolute principles or standards, no objective truth, and no objective reality.

Deontology: Refers to moral philosophies that center on the rights of individuals and the intentions associated with a particular behavior.

Virtue ethics: Focusing on the character of the person involved in the decision or action.

Factors That Determine Ethical and Unethical Behavior

Ethical dilemma: A problem or issue that confronts a person, group, or organization and that requires a decision or choice among competing claims and interests, all of which may be unethical.

Whether someone behaves ethically or unethically when faced with an ethical dilemma involves several factors: his or her stage of moral development and other moderating variables including individual characteristics, the organization’s structural design, the organization’s culture, and the intensity of the ethical issue.

People having weak moral sense are much less likely to do the wrong things if there are organizational rules, policies, job descriptions, or strong cultural norms that disapprove of such behaviors.

Individuals high in ego strength are more likely to do what they think is right and be more consistent in their moral judgments and actions than those with low ego strength. People with an internal locus of control are more likely to take responsibility for consequences and rely on their own internal standards of right and wrong to guide their behavior.

Creating an Ethical Work Environment

To create an ethical organization, an ethical work environment is needed. Businesses take on various initiatives. Among them are establishing formal positions, creating disclosure mechanisms, organizing regular training programs, improving communication, preparing code of ethics.

Establishing a Formal Position

Management can assign responsibility for ethical values to a specific position. This not only allocates organization time and energy to the problem but also symbolizes to everyone the importance of ethics. One example is an ethics committee , which is a cross-functional group of executives who oversee company ethics. On the other hand, some large size businesses set up ethics departments that manage and coordinate all corporate ethics activities, headed by a chief ethics officer. Medium and small sized companies can assign one of the top-level managers for organizing ethical issues.

Disclosure Mechanisms: A confidential hotline is also an important mechanism for employees to voice concerns about ethical practices. Holding organizations accountable depends to some degree on individuals who are willing to speak up if they suspect illegal, dangerous, or unethical activities (a. k. a Whistle-blowers).

Training Programs : Some of the organizations establish training programs to create awareness of ethics, provide information on ethical issues, appropriate behaviors and actions, company’s ethical policies, etc.

Communication: Communicating a company’s ethical standards must take a variety of forms and be repeated. It is not enough to simply disseminate a one-time memo.

Code of Ethics: Compliance with ethical codes is essential to create and sustain a climate where ethical behaviors flourish.

An Exemplary Code of Ethics Focused on Quality : A code of ethics focused on quality concerns in business organizations would be definitely guiding light to deploy ethical behavior. The seven principles listed below indicate the human related statements that can be used as ethical codes focused on quality:

• Adopt the new philosophy that encourages high quality and effective training and ensures effective supervision.
• Institute training on the job.
• Adopt and institute leadership.
• Drive out fear.
• Break down barriers between staff areas.
• Eliminate numerical quotas for the workforce and numerical goals for management.
• Remove barriers that rob people of pride of workmanship, and eliminate the annual rating or merit system.

The following is an exemplary code of ethics developed by Stimson (2005) based on Deming’s principles:

• Meeting customer expectations
• Honesty
• Non-delegable quality
• Traceability, which reduces occasions for waste and fraud
• Respect for privacy and avoidance of conflicts of interest
• Antidiscrimination
• Empowerment through organizational freedom, responsibility and authority
• True reports
• Integrity

How TQM Can Foster Ethical Atmosphere Within Organizations

TQM can be regarded as a philosophy that deploys the quality consciousness across the organizations by suggesting appropriate approaches, behaviors and actions to do the right thing. In terms of doing the right thing, TQM and ethics have a common ground. TQM can make the ethical behavior widespread within an organization in many ways. The following are the examples how TQM can foster ethical behavior within organizations (Nayebpour & Koehn, 2003: 37-41):

• TQM leads to clear communication of commitments and goals.
• TQM fosters the development of good listening skills.
• TQM leads to early identification of problematic behavior.
• TQM promotes honesty and fair dealing.
• TQM helps eliminate the atmosphere where people look for someone to blame.
• TQM highlights the ethical dimension of production.

The Concept of Corporate Social Responsibility

Corporate social responsibility is the idea that firms have obligations to society beyond their economic obligations to owners or stockholders and also beyond those prescribed by law or contract.

• Among the most common CSR practices are:
• Reducing the organization’s carbon footprints,
• Improving organizational labor policies,
• Committing to fair trade,
• Charitable giving for various causes,
• Volunteering in the community initiatives,
• Developing policies for environmental protection,
• Making socially and environmentally conscious investments,
• Charitable acts such as donation of money.

CSR activities also have reflections for the organization itself. It has the capacity to provide businesses with reducing and limiting litigation, protecting brand image, improving customer satisfaction, reducing absenteeism and employee turnover, and increasing the ability to retain talented employees

Types of Responsibilities in CSR

Carroll (1991:39-42) conceptualized four levels of corporate social responsibilities. These four responsibilities do not exclude each other; in fact they are interconnected. Carroll depicted the relationship among them in his Pyramid of Corporate Social Responsibility (See Figure 2.2). The pyramid demonstrates that a socially responsible organization should act with respect to law, hold ethical values and demonstrate its virtues by acting as a good corporate citizen, along with making profits. Four responsibilities are as follows:

• Economic Responsibilities
• Legal Responsibilities
• Ethical Responsibilities
• Philanthropic Responsibilities

Overlapping Nature of Responsibilities in CSR

Whether philanthropy is a responsibility or not was found questionable by some theorists, Schwartz and Carroll later created a new model, which they call “the three-domain model of CSR”. The model is composed of the three responsibility areas: economic, legal, and ethical (See Figure 2.3).

A major feature of the three-domain model is the depiction of economic, legal, and ethical domains of responsibility in a way to show the overlapping nature of the domains and the resultant creation of seven categories. The ideal overlap resides at the center of the model where economic, legal, and ethical responsibilities are simultaneously fulfilled. Other pure and overlapping segments of the model create situations that decision makers may confront. Afterwards, depending upon the situation, managers may avoid the negative outcomes by creating, altering, abolishing CSR initiatives. In addition, they may capitalize more on the positive conditions by initiating new CSR initiatives.

Schwartz & Carroll (2003: 513-519) gives the basic characteristics of the overlapping domains (See Figure 2.3).

• Purely Economic Domain
• Purely Legal Domain
• Purely Ethical
• Economic/Ethical Domain
• Economic/Legal
• Legal/Ethical
• Economic/Legal/Ethical