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Integrity management
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European Management Journal Vol. 17, No. 6, pp. 625–634, 1999 1999 Elsevier Science Ltd. All rights reserved Printed in Great Britain S0263-2373(99)00053-5 0263-2373/99 $20.00
Integrity Management MUEL KAPTEIN, Erasmus University, Rotterdam, and KPMG Integrity management is concerned with systematically and completely reviewing, analyzing and developing or safeguarding the ability of organizations to combat breaches of integrity. Breaches of integrity occur where conflicting interests are incorrectly weighed against each other, so that the actor infringes the legitimate interests of the company that employs him, or of individuals and parties inside or outside the company. These breaches of integrity cause enormous damage to the company itself, the employees and the external stakeholders. Breaches of integrity undermine the competitive advantage of the companies concerned. It is the task of the company’s management to find a balance between the conflicting interests employees face and to ensure that the balance is institutionalized. This article presents a conceptual framework for describing the integrity of organizations and provides a basis for developing specific activities. 1999 Elsevier Science Ltd. All rights reserved
Introduction Sexual intimidation, bullying, aggression and violence, price discrimination, fraud and bribery are just some of the types of breaches of integrity that occur in the business world. Moreover, they occur with increasing regularity. According to the International Labour Organization (Chappell and Di Martino, 1998), 7.6 per cent of women experience sexual harassment in the workplace. Research carried out by the Ethics Resource Center (1996) showed that 29 per cent of employees questioned feel under pressure from their manager to compromise their own ethical standards in line with the company’s objectives. And, to cite a completely different figure, Shell indicates in its social report that 23 Shell employees were dismissed in 1997 for accepting bribes, while in 1998 three employees were dismissed for this reason. These breaches of integrity cause enormous damage to the company itself, the employees and the external stakeholders. One third of Fortune 500 companies have been sued at least once for sexual harassment (Fisher, 1993). The US business community estimates that the costs in lost time, benefit payments and legal expenses as a result of violence in the workplace amount to around 4.2 billion dollars per year. European Management Journal Vol 17 No 6 December 1999
Walter (1995) has calculated that a victim of bullying harassment costs the company an average of 35,000 dollars. There is a considerable deterioration in the performance of both the perpetrators and victims of bullying. Moreover, victims tend to report sick much more often than normal. In The Netherlands, the financial consequences in terms of years of absence from work through physical violence and intimidation on the shop floor are 7800 and 11,800 man years, respectively. (Smulders et al., 1999). Although questions can be raised about the accuracy of the exact figures reported, the total costs of fraudulent acts committed by working Americans on a daily basis currently total $400 billion annually 625
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(LeClair et al., 1998). Especially in America, identified and adjudicated breaches of integrity can lead to fines of millions of dollars. For example, Archer-Daniels-Midland was fined $100 million after being found guilty of price-fixing. Besides the directly traceable financial damage, breaches of integrity also affect an organization’s image, which can lead to other effects such as the departure of highly valued staff, a loss of goodwill among consumers and suppliers, and a drop in share prices. Where trust is vital for business success, and integrity is perhaps most important for establishing trust (Shaw, 1997), breaches of integrity undermine the competitive advantage of the companies concerned. For moral reasons (companies are morally responsible for preventing dishonorable conduct and encouraging honorable conduct, so that stakeholders are let down as little as possible), legal reasons (companies are obliged by statute and case law to guarantee their own integrity and that of their employees) and economic reasons (breaches of integrity cost money and honorable practices are financially rewarding) companies should not accept or tolerate objectionable practices, or create a breeding ground for such practices. Therefore, companies like Shell, British Petroleum, Nestle´, Deutsche Telekom, British Telecom, and the ABN AMRO Bank do have a code of conduct in which they formulate the responsibilities of employees towards stakeholders and the company itself. In countries like The Netherlands the number of corporations with a code of conduct is increasing rapidly: the last two years 12 top 100 companies introduced their own code of conduct (Kaptein et al., 1999). In Germany as many as 42 per cent of the top 1000 companies have introduced a business code during the past three years (KPMG and Universita¨t Erlangen-Nu¨rnberg, 1999). In spite of the importance of organizing integrity, there is currently a lack of any conceptual or integrated framework to enable organizations to review and improve their integrity themselves. See for example Payne (1994); Pearson (1995). Moreover, breaches of integrity are generally not studied in relation to each other, (see for example Giacalone and Greenberg, 1997) so a patchwork of models and insights has arisen, which makes it difficult to adopt an effective and efficient approach to breaches of integrity in practice. In this article, I call for the development of the management discipline Integrity Management. Notwithstanding the start made by Payne (1994); LeClair et al. (1998) to describe the field of integrity management, I would like to make a start here on a more fundamental and coherent method of approach.
What Do We Mean by Corporate Integrity? An All-Encompassing and ‘hooray’ Word The term integrity is a typical all-encompassing term. There are huge differences of opinion between what 626
integrity actually means in practice and in theory. Integrity takes on many different appearances. A complicating factor is also that, in discussions about integrity, the term calls up shouts of ‘hooray’. Everyone is in favor of integrity. This is because it’s difficult to get a critical discussion going about what integrity entails. When someone’s integrity is in question or tarnished, the grounds for trust collapse. The person loses credibility or cannot fulfil the requirements of his/her job or role. Integrity is concerned with virtues such as purity, solidarity, involvement, intactness, sincerity and scrupulousness. An analogy with fruit comes to mind: a spot on an apple can indicate that it’s rotting inside. A person’s lapse raises questions about the person’s character and commitment.
Relational Notion In the world at large, it’s often argued that the assessment of whether or not a person has integrity is purely personal. Individuals should be able to decide for themselves whether they or others can be considered to have integrity. Reducing the notion of integrity to a purely personal question ignores the fact that integrity is important where people act together. After all, it’s difficult to maintain that people can be honest in isolation. The fact that integrity is important where people live and work together makes it an inherently social or relational notion.
Relative Concept As a social notion, integrity refers to the degree to which people or associations of people satisfy the legitimate expectations of the world around them. The emphasis here is on the adjective ‘legitimate’. It’s not a matter of fulfilling every expectation. Only those expectations that are widely supported and generally regarded as appropriate and essential can be regarded as legitimate expectations. Whether or not a person can be considered to have acted with integrity depends on the specific situation, the place, or the time. Integrity is therefore a relative concept. Today’s acceptable behavior may be considered objectionable tomorrow. What is considered normal in one country may be unacceptable in another.
Organization Level Discussions about the concept of integrity practically always refer exclusively to a characteristic that only human beings can have (see for example Taylor (1981); Becker (1998)). However, we can also speak of integrity at the organization level. Appropriate expectations also arise in and around companies with regard to the tasks and operations of the company or European Management Journal Vol 17 No 6 December 1999
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the people working for it. The way in which the various expectations are aligned with one another is of essential importance. Unfortunately, what the outside world may expect from a company doesn’t always correspond with the expectations that have developed in the company. Consequently, companies regularly appear to be relatively insensitive to the legitimate expectations of external stakeholders.
integrity is encouraged, if not enforced. It’s true that breaches of integrity cannot be entirely prevented but, by taking measures at the organization level, the management can ensure that the damage to the company and its environment is limited.
Result
What Do We Mean by Integrity Management?
The expectations developing in any company are given shape by its employees on a daily basis. Sometimes the expectations are explicit and formalized in rules and procedures, in which case we can speak of a formal organization. Informal expectations also develop in organizations: the informal organization. A couple of the elements of the informal organization are the degree to which questions of integrity can be discussed and the extent to which management sets the right example. Members of the organization may or may not be aware of the unwritten expectations (Drazin and Sandelands, 1992). When we speak of an organization’s integrity, we mean the degree to which its employees are actually encouraged, both formally and (consciously or otherwise) informally, to behave responsibly. The organization’s integrity is the result — not the sum or the average — of the integrity of its employees. It’s therefore also possible to speak as Goodpaster and Matthews (1982) do of the organization’s conscience.
The relationships between internal and external stakeholders are geared to each other by means of organizations. I differentiate between three types of relationships that are relevant from the point of view of integrity: (a) the relationship between the employee and the company, (b) the functional relationship between employees, and (c) the relationship between the company and its stakeholders (Figure 1). If these relationships involve conflicting interests and expectations, we speak of dilemmas. An integrity dilemma exists if there is a discrepancy between the personal interests of the employees and the interests of the company (the entangled hands dilemma), if there is a conflict between the functional interests of employees, managers, departments and units (the many hands dilemma), and, if the interests and expectations of the stakeholders are incompatible with the interests of the company (the dirty hands dilemma).
A Matter of Organization Internal expectations may develop in a way that makes them harmful to the company or the company’s operational environment. Such cases constitute breaches of integrity. Companies display breaches of integrity in various ways: the actions of the company or its employees fail to meet the expectations that are seen as legitimate in and around the company. Other types of breaches of integrity, besides those mentioned in the introduction, include abuse of power, discrimination, leaking confidential information to the press or competitors, the reckless use of the organization’s assets, and nepotism. Breaches of integrity also include knowingly selling defective products, obscuring financial failures, extorting from suppliers, spying on competitors and evading environmental legislation. When breaches of integrity are also possible because of shortcomings in employee guidance, the blame can also be assigned to the company in question. It’s therefore a matter of organization, that cannot be tackled solely at the level of the individual employee. Developing a company’s integrity amounts to developing the organization in such a way that the various expectations that exist in and around the company are in line with each other, and behavioral European Management Journal Vol 17 No 6 December 1999
Dilemma of the Entangled Hands Corporations can only act through employees. As such, there is frequently the matter of entangled roles. An employee fills multiple roles simultaneously and wears more than one ‘hat’ (Nash, 1990; Velasquez, 1998). Employees have their own personal interests and expectations which do not necessarily parallel the interests and responsibilities of the corporation. I use the entangled hands dilemma as a metaphor for the conflicts between the interests of employees and the interests of the organization in which the corporate assets are at stake. Employees use their authority, thereby misusing information, funds, goods, equipment, time, and colleagues, which compromises their integrity. This dilemma would not exist, if employees had no interests at heart other than those of the corporation: employees would then have no motive for misusing the corporation’s assets. Some of the dilemmas that can occur are concerned with the extent to which employees are allowed to make use of the corporation’s assets, to hold other jobs that are incompatible with the interests of the organization, to accept promotional gifts, to have business relationships with family members, and to make private purchases from the corporation’s suppliers. 627
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Figure 1 Three Fundamental Integrity Problems
Dilemma of the Many Hands At first sight, the second type of dilemma probably seems less obvious than the dilemma of the entangled hands, but this doesn’t make it any less relevant. Within a corporation, each employee has his own job-related duties. Internal specialization and division of labor make efficient functioning of organizations possible. However, the distribution of these functional responsibilities may be inadequately coordinated, with the result that certain corporate responsibilities slip through the employees’ many ‘fingers’ or get lost (see for example Badaracco, 1992; Bovens, 1998). In assigning concrete tasks, corporations run the risk that employees or departments do their jobs with blinkers on, no longer concern themselves with the duties of others and lose the feeling that the corporation is a corporate body. As a result no one sees (or takes responsibility) for the whole picture (Trevino and Nelson, 1999). Specialization creates units which compete with one another for corporate resources and the interests of the unit are not necessarily the same as the interests of the entire corporation. Unclear or inadequate responsibilities can result in collective problems being left unresolved because nobody feels personally responsible for them. The metaphor of ‘many hands’ alludes to the moral risks ensuing from the need to employ more than one employee in an organization. Once an organization stops functioning as an entity, there is fragmentation, which impairs the wholeness (integrity) of the organization. Precisely because employees form part of an organization and collectively give shape to the organization’s responsibilities, it’s necessary to ensure proper agreement between their actions. In a corporation consisting of just one person, this dimension is irrelevant. Some of the dilemmas that occur in this area concern the extent to which employees have to be collectively or individually rewarded, the extent to which internal 628
cooperation or competitiveness is desirable, who can be held accountable for mistakes, and the extent to which functional responsibilities may be delegated.
Dilemma of the Dirty Hands Stakeholders may have a legitimate reason to complain when the company fails to identify or recognize their interests and/or specific expectations vis-a`-vis the company, or when the company’s distribution of the costs and benefits between various stakeholders or between the stakeholder and the company itself is inadequate. The dirty hands dilemma arises because a corporation is usually confronted by stakeholders with conflicting interests (Badaracco, 1997; Wempe, 1998). Precisely because of the pressure of competition and the need to survive, corporations may become inclined to ignore those stakeholder expectations that are not necessary for realizing their competitive objectives. The necessity to produce goods and services and to make profits may be seen as a justification for neglecting the legitimate moral expectations of stakeholders. It is sometimes inevitable for corporations and their representatives to get their hands dirty because a choice between conflicting norms, interests, and expectations is unavoidable. If an organization had no stakeholders, this dilemma would not exist. The metaphor of ‘dirty hands’ alludes to the efforts of the organization to keeps its ‘hands’ clean (i.e. to realize the expectations of stakeholders). Some of the typical dilemmas that occur in this area concern the extent to which employees may be dismissed to increase returns, environmental investments that go beyond what the law requires can be justified at the expense of profits, organizations are allowed to make use of child labor, the positive discrimination of employees is considered acceptable, how information about competiEuropean Management Journal Vol 17 No 6 December 1999
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tors can be obtained in a responsible manner, and the extent to which organizations have to take measures in connection with any improper use or deliberate misuse of their products that presents a threat to public health.
Fundamental dilemma
Description
a. The entangled hands dilemma
Tension between the individual interests of the employee and the interests of the organization
b. The many hands dilemma
Tension between individual and collective jobs, tasks and responsibilities in the organization
c. The dirty hands dilemma
Tension between the interests of the organization and the interests of the stakeholder
Consequences of Imbalance An imbalance between these conflicting interests and expectations leads to breaches of integrity. These fundamental dilemmas can be summarized as follows:
Cause of dilemma
Effects of imbalance Results of (breaches of imbalance integrity) Because employees Careless use or represent the misuse of: organization, they Time have access to Information corporate assets Funds which should be Authority used for the Equipment company’s purposes Goods but which they may Staff divert for their own use (mixing up of roles) The organization Counter-productive Stakeholders have consists of staff, competition between legitimate reason to departments and staff, departments complain divisions (many and divisions Welfare of hands), each with Responsibilities get stakeholders their own functional lost decreases or fails to responsibilities, Unresolved increase sufficiently which presents a collective problems The company’s risk of no-one Responsibilities are image is harmed having an eye for shrugged off Stakeholders are less the interests of Tasks are not willing to participate colleagues, performed or only Stakeholders remove departmental partially themselves from the interests and the organization interests of the License to operate entire organization expires The organization is Stakeholders are confronted with misled conflicting demands Stakeholders are from stakeholders misused and sometimes has The freedom of to make painful stakeholders is choices (dirty hands) limited The resources are taken away Stakeholders are discriminated against
Organizations differ sharply in the extent to which the three fundamental integrity problems are at issue and there is, therefore, a difference in the degree of attention paid to improving employee guidance. The entangled hands dilemma mainly occurs in organizations where employees have access to valuable information, goods or money, for example, or have extensive powers of decision. The problem may also occur European Management Journal Vol 17 No 6 December 1999
when employees have intensive contact with each other and there is a major inequality of power, which therefore increases the likelihood of undesirable etiquette. In companies, these issues play a role, for instance, within the procurement department where buyers have considerable competencies, where wrong decisions may have major consequences and where potential suppliers do everything to get in the 629
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buyer’s good books. The many hands dilemma generally occurs in large organizations. The complexity of the decision-making procedures, the considerable distance between the top and the bottom, and the partially conflicting interests of various units mean that large organizations are particularly prone to responsibilities getting lost and there is dysfunction. Many government bodies often have to face this dilemma when bureaucratic departments must jointly solve a social problem. The dirty hands dilemma generally affects organizations that have to deal with major losses or tight and shrinking budgets, and organizations that carry out highly polluting activities, have branches in divergent national cultures, or operate in a turbulent environment. A company like Shell (human rights issues in Nigeria, sinking of the Brent Spar in the Atlantic Ocean) has been wrestling with this dilemma.
about failures to live up to expectations or any breaches; and 7. rewarding employees who live up to expectations or make an effort to do so, and disciplining employees who wilfully fail to live up to expectations. The above conditions are more readily described as a moral virtue or quality. Organizational virtues or qualities are morally desirable characteristics of the organization itself, which collectively constitute the organization’s integrity. An organization’s integrity can be determined on the basis of the extent to which the following moral virtues or qualities are anchored in the organization’s guidance of its employees: (1) clarity; (2) consistency; (3) achievability; (4) supportability; (5) visibility; (6) discussibility; and (7) sanctionability (Figure 2). An actual example of each quality in relation to the entangled hands dilemma is given in Exhibit 1.
Ethical Qualities Integrity management has to safeguard the conditions in the organization that enable employees to find a responsible balance between the three fundamental types of conflicting interests. Employee guidance can therefore be described in terms of three dimensions: the employees’ responsibilities vis-a`-vis the organization (‘entangled hands’), within the organization (‘many hands’) and on behalf of the organization (‘dirty hands’). An organization’s integrity is therefore reflected in the degree to which the aforementioned conditions actually exist. On the basis of an analysis of 150 different, factual and extremely varied breaches of integrity (e.g. in terms of company size, sector, country and consequences), I have come up with seven factors which encourage a prudent balance and are applicable in each of the three dimensions (Kaptein, 1998). Here, integrity management is concerned with: 1. providing clear expectations for employees with regard to making a responsible choice about the three integrity problems; 2. providing consistent and unambiguous expectations by, for example, ensuring managers set a good example; 3. formulating achievable expectations for employees regarding the three problems; 4. creating support for attempts to fulfil the expectations with regard to making a responsible choice about the three integrity problems; 5. providing insight into whether or not employees and the organization as a whole are living up to expectations; 6. making conflicting expectations discussible, both among employees themselves and between themselves and their managers, and encouraging employees and managers to tackle each other 630
Exhibit 1: A Few Examples of Breaches of Integrity Re 1. Example of insufficient clarity Construction workers begin by retailing the bricks left over from projects they worked on. The contractors themselves had not decided what to do with left-over materials. In a very short time, a bustling retail trade develops after large-scale orders are made on behalf of the company.
Re 2. Example of insufficient consistency The owners of a grocery store set the wrong example by frequently taking things out of the warehouse during working hours to give to their family and friends. In reality, only small amounts were involved, and it was actually more a question of taking it from the one hand and putting it in the other. But because all the warehouse staff knew of these practices, they had an excuse to take things home themselves. Once begun, the practice progressed from bad to worse. By the time these practices finally came out into the open, the wife of one of the employees was even selling products from the store at the street market.
Re 3. Example of insufficient achievability Employees of an investment fund are not permitted to trade privately in a particular security within a period of 24 hours before or after a transaction by the fund in that security. It is by definition impossible for employees to observe this rule always as (a) they are often unable to assess what the fund is going to do within the next 24 hours, and (b) they are unable to reverse private transactions when it becomes clear that the European Management Journal Vol 17 No 6 December 1999
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Figure 2 Seven Organizational Qualities
fund has traded in the same securities. The result is a lack of support among personnel for both the letter and the spirit of the rule. It becomes common practice for employees to trade privately in securities of which it is internally known that the fund will be buying or selling a large package shortly.
Re 4. Example of insufficient supportability The employees of a large production company treat company vehicles recklessly and carelessly. During working hours staff regularly enter into rally contests with the company vehicles on the company site. It is also common practice for employees to urinate in the company vehicles, to stick sandwiches into the radio fascias, and to disregard the traffic rules on the company site. If the oil light comes on showing that the oil needs to be topped up, the general reaction is: ‘No need to do anything, the light will go out of its own accord.’ Among other things the staff blame their behavior on the lack of any sense of company pride. Staff feel little if any involvement with the company, as they consider the management has never displayed any appreciation of their efforts.
Re 5. Example of insufficient visibility Funds transfers made by a bank’s internal staff are checked by a staff member controlling whether the signatures are valid and whether the accounts can cover the requested transfers. The transfer slips which have been checked are placed in an internal mail pouch which is not sealed until the end of the day. This gap in the processing process leads to several cases of fraud before the internal audit department becomes aware of this organizational failure. European Management Journal Vol 17 No 6 December 1999
Re 6. Example of insufficient discussibility An employee is aware of the outside activities of one of his co-workers. When he brings them up, he is roundly attacked. When he subsequently brings the matter up with the management, the incident is ignored. Before he can take his complaint to the CEO, the powerless employee is fired for dubious reasons. Re 7. Example of insufficient sanctionability One of the partners of a large accounting firm has been frequently harassing his female secretaries for several years. Such sexual harassment varies from questionable comments on the ‘tempting’ clothing of the secretaries to physical advances and mandatory dates after work. Two secretaries claim to have been forced to kiss the partner. The victims of these advances assumed that they would be fired for their ‘blasphemy’ against the partner. However, when the board of directors and the director of personnel finally hear of the matter, they refuse to take action against the accused partner. The reason behind their apathy is the director’s contribution to the success of the firm. He is good for winning more than ten new major clients a year. The (partial) lack of one or more of these qualities implies a risk of breaches of integrity for the company concerned. The breeding ground for breaches of integrity has been created. A company may be tackled about letting down stakeholders, if its attempts to embed these moral qualities in the organization have been inadequate. The extent to which the virtues are embedded is a measure of the organization’s moral excellence or virtuousness. The more embedded the virtues, the fewer grounds there are for blaming the organization in the event of 631
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unethical conduct arising. The management in particular plays an essential and irreplaceable role in embedding the qualities in the organization. On the one hand, it is the management that has the powers of decision to give meaning to the qualities. On the other hand, managers are important role models and have to embody the qualities, and thereby indirectly encourage others to imitate them.
ambiguous signals. On the one hand, an ethics procurement policy was employed, while on the other hand there were very high expectations that no compromises would be made during negotiations. On top of this, staff started to employ very dubious tactics. At the Ministry of Justice in The Netherlands it appeared that the formal expectations were regularly at odds with the perceived expectations and that all kinds of short cuts had developed within the organization to avoid many rules and procedures.
How to Manage Integrity?
One of the features of many organizations brought into focus with the audit is the inconsistencies in the organization that create an atmosphere lacking in clarity and that then open the way for breaches of integrity. A good example is the policy on giving and receiving presents. Organizations often draw up strict sets of rules to ensure that an employee’s judgment is unbiased. At the same time, they may seek to win a customer’s favor by giving very generous presents. That sends very mixed signals within the organization: using all the means at your disposal to influence possible customers is not in itself wrong, providing it is not done at the expense of the organization. Companies often also demonstrate double standards in respect of information. If employees leak information, it is regarded as a serious offense. When, however, it is a matter of getting information from others, any method would seem to be justified. A very clear example of double standards within an organization was given by a European based multinational bank. The culture of the organization was such that it was considered perfectly acceptable to break the law in order to keep customers happy. This bank quickly found, however, that creative branch managers not only provided these services to customers, but also developed certain practices for their own benefit, even when this was at the bank’s expense. There was one branch manager, for example, who got into currency speculation. Since the books didn’t need to balance, this branch manager would decide afterwards, solely for the purpose of keeping customers happy, whether the purchase should be recorded as a private purchase or as one on the bank’s behalf. This ended up costing the bank a great deal of money.
Integrity Audit Because each organization is unique, effective measures can only be taken if the management not only has an insight into the sort and extent of breaches of integrity, but also into their nature, i.e. the organizational causes. An integrity audit can help clarify and unravel the implicit and explicit, internal and external (conflicting) expectations confronting employees. The audited and analyzed expectations can form the basis for taking concrete steps to improve employee guidance. Some of the aspects that qualify for critical investigation include: 1. the formal expectations in the organization, such as the explicit tasks, powers, rules, guidelines, procedures, systems, measures and organization charts; 2. the experienced or perceived expectations in the organization, such as the actual norms and values, implicit codes, etiquette, customs and practices, rituals and exemplary behavior. 3. the existing, realized and unrealized expectations of stakeholders; and 4. the dilemmas caused by the above incompatible expectations with which employees are confronted in their daily work. Up until now 25, mainly Dutch, organizations, have been audited by asking employees to describe the organizational climate according to the three dilemmas and seven qualities described here. In the study at Amsterdam Airport Schiphol, for example, the following organizational qualities scored relatively low: lack of clarity as to how staff should handle the company’s resources, lack of discussability of dilemmas and criticism within the organization and inadequate supportability to disseminate the airport’s existing policy externally. This led, for example, to a situation whereby confidential information was regularly leaked to the press and that damage to capital equipment (including vehicles) was so prevalent that the insurance company threatened to declare the airport uninsurable. Within a reviewed sales organization it appeared that may dilemmas were caused by managers sending out 632
Interventions The results of an integrity audit form the starting point for the specific protection and improvement of the company’s integrity. Numerous measures are conceivable that can contribute to improving integrity, such as a code of conduct, an ethics officer, a compliance officer, segregation of duties, job rotation, a conflicting interests register, personification of products, administration, an adequate remuneration system, and recruitment and selection procedures. Some measures can be deployed to improve a large number of qualities. For example, a code of conduct may European Management Journal Vol 17 No 6 December 1999
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bring a large number of qualities explicitly to the attention of the employees. Some measures, however, apply to one or a small number of qualities. A register for conflicting interests of employees can particularly contribute to an increase in visibility with regard to the entangled hands problem. Personification of products and services can contribute to an increase in visibility with regard to the many hands and dirty hands problem, thus ensuring that employees can be called to account for reprehensible conduct (sanctionability) at an earlier stage. Despite the advantages to adopt a number of measures to prevent breaches of integrity, we need to be aware that managing integrity is not only about what measures are adopted. Integrity management tries to improve the way employees are stimulated to realize legitimate fundamental expectations of stakeholders. A written code of conduct can be an appropriate instrument to achieve this. However, the practice of integrity management is often more about beginning a focused, organization-wide process. Among other things, integrity management should focus on the creation of conditions within which an organizationwide consciousness-raising effort and internal interaction can take place. Collective insights can arise from organization-wide discussions. In the first place, these will be focused on understanding one another’s dilemmas within the organization and getting insight into the different opinions that employees have. That will quickly lead to the growth of new insights that those involved will experience as an enrichment. Having the employees to do the coding rather than having the employees themselves coded is the key to the process. Activities stimulating this process of coding are for example training programs, group assessment sessions, individual coaching, dilemma discussions and management by walking around. Thus it is possible to develop specific activities to find the right balance between the conflicting interests and expectations that confront companies and their representatives. It is not a matter of high-sounding ideals which organizations should strive to achieve. Instead, the task is to establish tangible and achievable requirements in terms of an organization’s integrity. By examining the organization from this perspective, it is possible to work on improving the organization’s integrity. Two years after the introduction of a code of conduct at Amsterdam Airport Schiphol it became clear that the ethics of those departments which paid attention to the code increased significantly in comparison with those departments which did not undertake anything. The relevant percentages were discussability 21 per cent,
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clarity 19 per cent and consistency 17 per cent. As a result, the damage to company vehicles caused by employees fell by 25 per cent. References Badaracco, J.L. (1997) Defining Moments: When Managers must choose between Right and Wrong. Harvard Business School Press, Boston MA. Becker, T.E. (1998) Integrity in organizations: beyond honesty and conscientiousness. Academy of Management Review 23, 154–161. Bovens, M. (1998) The Quest for Responsibility: Accountability and Citizenship in Complex Organisations. Cambridge University Press, Cambridge. Chappell, D. and Di Martino, V. (1998) Violence at Work. International Labour Organization. Drazin, R. and Sandelands, L. (1992) Autogenesis: a perspective on the process of organizing. Organizational Science 3, 230–249. Ethics Resource Center (1996) Ethics Poll. Fisher, A.B. (1993) Sexual harassment: what to do. Fortune, August 23, pp. 84–88. Giacalone, R.A. and Greenberg, J. (1997) Antisocial Behavior in Organizations. Sage Publications, Thousand Oaks. Goodpaster, K.E. and Matthews, J.B. (1982) Can a corporation have a conscience? In Business Ethics: Readings and Cases in Corporate Morality, 2nd ed., eds W.M. Hoffman and J.M. Moore, pp. 184–194. McGraw-Hill, London. Kaptein, M. (1998) Ethics Management: Auditing and Developing the Ethical Content of Organizations. Kluwer Academic Publishers, Dordrecht. Kaptein, M., Klamer, H. and Ter Linden, J. (1999) De Integere Organisatie: Het nut van bedrijfscodes. KPMG, NCW and Stichting Beroepsmoraal en Misdaadpreventie, The Hague. KPMG and Universita¨t Erlangen-Nu¨rnberg (1999) Unternehmensleitbilder in deutschen Unternehmen. Frankfurt. LeClair, D.T., Ferrell, O.C. and Freadrich, J.P. (1998) Integrity Management: A Guide to Managing Legal and Ethical Issues in the Workplace. University of Tampa Press, Florida. Nash, L.L. (1990) Good Intentions Aside: A Manager’s Guide to Resolving Ethical Problems. Harvard Business School Press, Boston, MA. Payne, L.S. (1994) Managing for organizational integrity. Harvard Business Review 72, 107–117. Pearson, G. (1995) Integrity in Organizations: An Alternative Business Ethic. McGraw-Hill, London. Shaw, R.B. (1997) Trust in Balance: Building Successful Organizations on Results, Integrity, and Concern. Jossey-Bass Publishers, San Francisco. Smulders, P.G.W., Kleine Hesseling, D.J. and Evers, G.E. (1999) Geweld, Intimidatie en Discriminatie op het Werk in de Europese Unie. Ministerie van Sociale Zaken en Werkgelegenheid, The Hague. Taylor, G. (1981) Integrity. Aristotelian Society 55, 143–159. Trevino, L.K. and Nelson, K.A. (1999) Managing Business Ethics: Straight Talk about How to do It Right. John Wiley and Sons, New York. Velasquez, M.G. (1998) Business Ethics: Concepts and Cases. Prentice-Hall, Englewood Cliffs. Walter, H. (1995) Van Kwaad tot Erger: Pesterijen en Psychoterreur op het Werk. Thema, Zaltbommel. Wempe, J. (1998) Market and Morality: The Problem of the Dirty and Many Hands. Eburon, Delft.
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MUEL KAPTEIN, Faculteit der Bedrijfskunde, Vakgroep Methodologie & Ethik, Erasmus Universiteit Rotterdam, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands, and KPMG Ethics and Integrity Consulting, Postbus 74555, DC Amsterdam. Dr Muel Kaptein is Assistant Professor of Business Ethics at Erasmus University, Rotterdam, and a Consultant for KPMG Ethics and Integrity Consulting, Amsterdam. His current research is directed towards socio-ethical reporting and sustainability management.
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European Management Journal Vol. 17, No. 6, pp. 625–634, 1999 1999 Elsevier Science Ltd. All rights reserved Printed in Great Britain S0263-2373(99)00053-5 0263-2373/99 $20.00
Integrity Management MUEL KAPTEIN, Erasmus University, Rotterdam, and KPMG Integrity management is concerned with systematically and completely reviewing, analyzing and developing or safeguarding the ability of organizations to combat breaches of integrity. Breaches of integrity occur where conflicting interests are incorrectly weighed against each other, so that the actor infringes the legitimate interests of the company that employs him, or of individuals and parties inside or outside the company. These breaches of integrity cause enormous damage to the company itself, the employees and the external stakeholders. Breaches of integrity undermine the competitive advantage of the companies concerned. It is the task of the company’s management to find a balance between the conflicting interests employees face and to ensure that the balance is institutionalized. This article presents a conceptual framework for describing the integrity of organizations and provides a basis for developing specific activities. 1999 Elsevier Science Ltd. All rights reserved
Introduction Sexual intimidation, bullying, aggression and violence, price discrimination, fraud and bribery are just some of the types of breaches of integrity that occur in the business world. Moreover, they occur with increasing regularity. According to the International Labour Organization (Chappell and Di Martino, 1998), 7.6 per cent of women experience sexual harassment in the workplace. Research carried out by the Ethics Resource Center (1996) showed that 29 per cent of employees questioned feel under pressure from their manager to compromise their own ethical standards in line with the company’s objectives. And, to cite a completely different figure, Shell indicates in its social report that 23 Shell employees were dismissed in 1997 for accepting bribes, while in 1998 three employees were dismissed for this reason. These breaches of integrity cause enormous damage to the company itself, the employees and the external stakeholders. One third of Fortune 500 companies have been sued at least once for sexual harassment (Fisher, 1993). The US business community estimates that the costs in lost time, benefit payments and legal expenses as a result of violence in the workplace amount to around 4.2 billion dollars per year. European Management Journal Vol 17 No 6 December 1999
Walter (1995) has calculated that a victim of bullying harassment costs the company an average of 35,000 dollars. There is a considerable deterioration in the performance of both the perpetrators and victims of bullying. Moreover, victims tend to report sick much more often than normal. In The Netherlands, the financial consequences in terms of years of absence from work through physical violence and intimidation on the shop floor are 7800 and 11,800 man years, respectively. (Smulders et al., 1999). Although questions can be raised about the accuracy of the exact figures reported, the total costs of fraudulent acts committed by working Americans on a daily basis currently total $400 billion annually 625
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(LeClair et al., 1998). Especially in America, identified and adjudicated breaches of integrity can lead to fines of millions of dollars. For example, Archer-Daniels-Midland was fined $100 million after being found guilty of price-fixing. Besides the directly traceable financial damage, breaches of integrity also affect an organization’s image, which can lead to other effects such as the departure of highly valued staff, a loss of goodwill among consumers and suppliers, and a drop in share prices. Where trust is vital for business success, and integrity is perhaps most important for establishing trust (Shaw, 1997), breaches of integrity undermine the competitive advantage of the companies concerned. For moral reasons (companies are morally responsible for preventing dishonorable conduct and encouraging honorable conduct, so that stakeholders are let down as little as possible), legal reasons (companies are obliged by statute and case law to guarantee their own integrity and that of their employees) and economic reasons (breaches of integrity cost money and honorable practices are financially rewarding) companies should not accept or tolerate objectionable practices, or create a breeding ground for such practices. Therefore, companies like Shell, British Petroleum, Nestle´, Deutsche Telekom, British Telecom, and the ABN AMRO Bank do have a code of conduct in which they formulate the responsibilities of employees towards stakeholders and the company itself. In countries like The Netherlands the number of corporations with a code of conduct is increasing rapidly: the last two years 12 top 100 companies introduced their own code of conduct (Kaptein et al., 1999). In Germany as many as 42 per cent of the top 1000 companies have introduced a business code during the past three years (KPMG and Universita¨t Erlangen-Nu¨rnberg, 1999). In spite of the importance of organizing integrity, there is currently a lack of any conceptual or integrated framework to enable organizations to review and improve their integrity themselves. See for example Payne (1994); Pearson (1995). Moreover, breaches of integrity are generally not studied in relation to each other, (see for example Giacalone and Greenberg, 1997) so a patchwork of models and insights has arisen, which makes it difficult to adopt an effective and efficient approach to breaches of integrity in practice. In this article, I call for the development of the management discipline Integrity Management. Notwithstanding the start made by Payne (1994); LeClair et al. (1998) to describe the field of integrity management, I would like to make a start here on a more fundamental and coherent method of approach.
What Do We Mean by Corporate Integrity? An All-Encompassing and ‘hooray’ Word The term integrity is a typical all-encompassing term. There are huge differences of opinion between what 626
integrity actually means in practice and in theory. Integrity takes on many different appearances. A complicating factor is also that, in discussions about integrity, the term calls up shouts of ‘hooray’. Everyone is in favor of integrity. This is because it’s difficult to get a critical discussion going about what integrity entails. When someone’s integrity is in question or tarnished, the grounds for trust collapse. The person loses credibility or cannot fulfil the requirements of his/her job or role. Integrity is concerned with virtues such as purity, solidarity, involvement, intactness, sincerity and scrupulousness. An analogy with fruit comes to mind: a spot on an apple can indicate that it’s rotting inside. A person’s lapse raises questions about the person’s character and commitment.
Relational Notion In the world at large, it’s often argued that the assessment of whether or not a person has integrity is purely personal. Individuals should be able to decide for themselves whether they or others can be considered to have integrity. Reducing the notion of integrity to a purely personal question ignores the fact that integrity is important where people act together. After all, it’s difficult to maintain that people can be honest in isolation. The fact that integrity is important where people live and work together makes it an inherently social or relational notion.
Relative Concept As a social notion, integrity refers to the degree to which people or associations of people satisfy the legitimate expectations of the world around them. The emphasis here is on the adjective ‘legitimate’. It’s not a matter of fulfilling every expectation. Only those expectations that are widely supported and generally regarded as appropriate and essential can be regarded as legitimate expectations. Whether or not a person can be considered to have acted with integrity depends on the specific situation, the place, or the time. Integrity is therefore a relative concept. Today’s acceptable behavior may be considered objectionable tomorrow. What is considered normal in one country may be unacceptable in another.
Organization Level Discussions about the concept of integrity practically always refer exclusively to a characteristic that only human beings can have (see for example Taylor (1981); Becker (1998)). However, we can also speak of integrity at the organization level. Appropriate expectations also arise in and around companies with regard to the tasks and operations of the company or European Management Journal Vol 17 No 6 December 1999
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the people working for it. The way in which the various expectations are aligned with one another is of essential importance. Unfortunately, what the outside world may expect from a company doesn’t always correspond with the expectations that have developed in the company. Consequently, companies regularly appear to be relatively insensitive to the legitimate expectations of external stakeholders.
integrity is encouraged, if not enforced. It’s true that breaches of integrity cannot be entirely prevented but, by taking measures at the organization level, the management can ensure that the damage to the company and its environment is limited.
Result
What Do We Mean by Integrity Management?
The expectations developing in any company are given shape by its employees on a daily basis. Sometimes the expectations are explicit and formalized in rules and procedures, in which case we can speak of a formal organization. Informal expectations also develop in organizations: the informal organization. A couple of the elements of the informal organization are the degree to which questions of integrity can be discussed and the extent to which management sets the right example. Members of the organization may or may not be aware of the unwritten expectations (Drazin and Sandelands, 1992). When we speak of an organization’s integrity, we mean the degree to which its employees are actually encouraged, both formally and (consciously or otherwise) informally, to behave responsibly. The organization’s integrity is the result — not the sum or the average — of the integrity of its employees. It’s therefore also possible to speak as Goodpaster and Matthews (1982) do of the organization’s conscience.
The relationships between internal and external stakeholders are geared to each other by means of organizations. I differentiate between three types of relationships that are relevant from the point of view of integrity: (a) the relationship between the employee and the company, (b) the functional relationship between employees, and (c) the relationship between the company and its stakeholders (Figure 1). If these relationships involve conflicting interests and expectations, we speak of dilemmas. An integrity dilemma exists if there is a discrepancy between the personal interests of the employees and the interests of the company (the entangled hands dilemma), if there is a conflict between the functional interests of employees, managers, departments and units (the many hands dilemma), and, if the interests and expectations of the stakeholders are incompatible with the interests of the company (the dirty hands dilemma).
A Matter of Organization Internal expectations may develop in a way that makes them harmful to the company or the company’s operational environment. Such cases constitute breaches of integrity. Companies display breaches of integrity in various ways: the actions of the company or its employees fail to meet the expectations that are seen as legitimate in and around the company. Other types of breaches of integrity, besides those mentioned in the introduction, include abuse of power, discrimination, leaking confidential information to the press or competitors, the reckless use of the organization’s assets, and nepotism. Breaches of integrity also include knowingly selling defective products, obscuring financial failures, extorting from suppliers, spying on competitors and evading environmental legislation. When breaches of integrity are also possible because of shortcomings in employee guidance, the blame can also be assigned to the company in question. It’s therefore a matter of organization, that cannot be tackled solely at the level of the individual employee. Developing a company’s integrity amounts to developing the organization in such a way that the various expectations that exist in and around the company are in line with each other, and behavioral European Management Journal Vol 17 No 6 December 1999
Dilemma of the Entangled Hands Corporations can only act through employees. As such, there is frequently the matter of entangled roles. An employee fills multiple roles simultaneously and wears more than one ‘hat’ (Nash, 1990; Velasquez, 1998). Employees have their own personal interests and expectations which do not necessarily parallel the interests and responsibilities of the corporation. I use the entangled hands dilemma as a metaphor for the conflicts between the interests of employees and the interests of the organization in which the corporate assets are at stake. Employees use their authority, thereby misusing information, funds, goods, equipment, time, and colleagues, which compromises their integrity. This dilemma would not exist, if employees had no interests at heart other than those of the corporation: employees would then have no motive for misusing the corporation’s assets. Some of the dilemmas that can occur are concerned with the extent to which employees are allowed to make use of the corporation’s assets, to hold other jobs that are incompatible with the interests of the organization, to accept promotional gifts, to have business relationships with family members, and to make private purchases from the corporation’s suppliers. 627
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Figure 1 Three Fundamental Integrity Problems
Dilemma of the Many Hands At first sight, the second type of dilemma probably seems less obvious than the dilemma of the entangled hands, but this doesn’t make it any less relevant. Within a corporation, each employee has his own job-related duties. Internal specialization and division of labor make efficient functioning of organizations possible. However, the distribution of these functional responsibilities may be inadequately coordinated, with the result that certain corporate responsibilities slip through the employees’ many ‘fingers’ or get lost (see for example Badaracco, 1992; Bovens, 1998). In assigning concrete tasks, corporations run the risk that employees or departments do their jobs with blinkers on, no longer concern themselves with the duties of others and lose the feeling that the corporation is a corporate body. As a result no one sees (or takes responsibility) for the whole picture (Trevino and Nelson, 1999). Specialization creates units which compete with one another for corporate resources and the interests of the unit are not necessarily the same as the interests of the entire corporation. Unclear or inadequate responsibilities can result in collective problems being left unresolved because nobody feels personally responsible for them. The metaphor of ‘many hands’ alludes to the moral risks ensuing from the need to employ more than one employee in an organization. Once an organization stops functioning as an entity, there is fragmentation, which impairs the wholeness (integrity) of the organization. Precisely because employees form part of an organization and collectively give shape to the organization’s responsibilities, it’s necessary to ensure proper agreement between their actions. In a corporation consisting of just one person, this dimension is irrelevant. Some of the dilemmas that occur in this area concern the extent to which employees have to be collectively or individually rewarded, the extent to which internal 628
cooperation or competitiveness is desirable, who can be held accountable for mistakes, and the extent to which functional responsibilities may be delegated.
Dilemma of the Dirty Hands Stakeholders may have a legitimate reason to complain when the company fails to identify or recognize their interests and/or specific expectations vis-a`-vis the company, or when the company’s distribution of the costs and benefits between various stakeholders or between the stakeholder and the company itself is inadequate. The dirty hands dilemma arises because a corporation is usually confronted by stakeholders with conflicting interests (Badaracco, 1997; Wempe, 1998). Precisely because of the pressure of competition and the need to survive, corporations may become inclined to ignore those stakeholder expectations that are not necessary for realizing their competitive objectives. The necessity to produce goods and services and to make profits may be seen as a justification for neglecting the legitimate moral expectations of stakeholders. It is sometimes inevitable for corporations and their representatives to get their hands dirty because a choice between conflicting norms, interests, and expectations is unavoidable. If an organization had no stakeholders, this dilemma would not exist. The metaphor of ‘dirty hands’ alludes to the efforts of the organization to keeps its ‘hands’ clean (i.e. to realize the expectations of stakeholders). Some of the typical dilemmas that occur in this area concern the extent to which employees may be dismissed to increase returns, environmental investments that go beyond what the law requires can be justified at the expense of profits, organizations are allowed to make use of child labor, the positive discrimination of employees is considered acceptable, how information about competiEuropean Management Journal Vol 17 No 6 December 1999
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tors can be obtained in a responsible manner, and the extent to which organizations have to take measures in connection with any improper use or deliberate misuse of their products that presents a threat to public health.
Fundamental dilemma
Description
a. The entangled hands dilemma
Tension between the individual interests of the employee and the interests of the organization
b. The many hands dilemma
Tension between individual and collective jobs, tasks and responsibilities in the organization
c. The dirty hands dilemma
Tension between the interests of the organization and the interests of the stakeholder
Consequences of Imbalance An imbalance between these conflicting interests and expectations leads to breaches of integrity. These fundamental dilemmas can be summarized as follows:
Cause of dilemma
Effects of imbalance Results of (breaches of imbalance integrity) Because employees Careless use or represent the misuse of: organization, they Time have access to Information corporate assets Funds which should be Authority used for the Equipment company’s purposes Goods but which they may Staff divert for their own use (mixing up of roles) The organization Counter-productive Stakeholders have consists of staff, competition between legitimate reason to departments and staff, departments complain divisions (many and divisions Welfare of hands), each with Responsibilities get stakeholders their own functional lost decreases or fails to responsibilities, Unresolved increase sufficiently which presents a collective problems The company’s risk of no-one Responsibilities are image is harmed having an eye for shrugged off Stakeholders are less the interests of Tasks are not willing to participate colleagues, performed or only Stakeholders remove departmental partially themselves from the interests and the organization interests of the License to operate entire organization expires The organization is Stakeholders are confronted with misled conflicting demands Stakeholders are from stakeholders misused and sometimes has The freedom of to make painful stakeholders is choices (dirty hands) limited The resources are taken away Stakeholders are discriminated against
Organizations differ sharply in the extent to which the three fundamental integrity problems are at issue and there is, therefore, a difference in the degree of attention paid to improving employee guidance. The entangled hands dilemma mainly occurs in organizations where employees have access to valuable information, goods or money, for example, or have extensive powers of decision. The problem may also occur European Management Journal Vol 17 No 6 December 1999
when employees have intensive contact with each other and there is a major inequality of power, which therefore increases the likelihood of undesirable etiquette. In companies, these issues play a role, for instance, within the procurement department where buyers have considerable competencies, where wrong decisions may have major consequences and where potential suppliers do everything to get in the 629
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buyer’s good books. The many hands dilemma generally occurs in large organizations. The complexity of the decision-making procedures, the considerable distance between the top and the bottom, and the partially conflicting interests of various units mean that large organizations are particularly prone to responsibilities getting lost and there is dysfunction. Many government bodies often have to face this dilemma when bureaucratic departments must jointly solve a social problem. The dirty hands dilemma generally affects organizations that have to deal with major losses or tight and shrinking budgets, and organizations that carry out highly polluting activities, have branches in divergent national cultures, or operate in a turbulent environment. A company like Shell (human rights issues in Nigeria, sinking of the Brent Spar in the Atlantic Ocean) has been wrestling with this dilemma.
about failures to live up to expectations or any breaches; and 7. rewarding employees who live up to expectations or make an effort to do so, and disciplining employees who wilfully fail to live up to expectations. The above conditions are more readily described as a moral virtue or quality. Organizational virtues or qualities are morally desirable characteristics of the organization itself, which collectively constitute the organization’s integrity. An organization’s integrity can be determined on the basis of the extent to which the following moral virtues or qualities are anchored in the organization’s guidance of its employees: (1) clarity; (2) consistency; (3) achievability; (4) supportability; (5) visibility; (6) discussibility; and (7) sanctionability (Figure 2). An actual example of each quality in relation to the entangled hands dilemma is given in Exhibit 1.
Ethical Qualities Integrity management has to safeguard the conditions in the organization that enable employees to find a responsible balance between the three fundamental types of conflicting interests. Employee guidance can therefore be described in terms of three dimensions: the employees’ responsibilities vis-a`-vis the organization (‘entangled hands’), within the organization (‘many hands’) and on behalf of the organization (‘dirty hands’). An organization’s integrity is therefore reflected in the degree to which the aforementioned conditions actually exist. On the basis of an analysis of 150 different, factual and extremely varied breaches of integrity (e.g. in terms of company size, sector, country and consequences), I have come up with seven factors which encourage a prudent balance and are applicable in each of the three dimensions (Kaptein, 1998). Here, integrity management is concerned with: 1. providing clear expectations for employees with regard to making a responsible choice about the three integrity problems; 2. providing consistent and unambiguous expectations by, for example, ensuring managers set a good example; 3. formulating achievable expectations for employees regarding the three problems; 4. creating support for attempts to fulfil the expectations with regard to making a responsible choice about the three integrity problems; 5. providing insight into whether or not employees and the organization as a whole are living up to expectations; 6. making conflicting expectations discussible, both among employees themselves and between themselves and their managers, and encouraging employees and managers to tackle each other 630
Exhibit 1: A Few Examples of Breaches of Integrity Re 1. Example of insufficient clarity Construction workers begin by retailing the bricks left over from projects they worked on. The contractors themselves had not decided what to do with left-over materials. In a very short time, a bustling retail trade develops after large-scale orders are made on behalf of the company.
Re 2. Example of insufficient consistency The owners of a grocery store set the wrong example by frequently taking things out of the warehouse during working hours to give to their family and friends. In reality, only small amounts were involved, and it was actually more a question of taking it from the one hand and putting it in the other. But because all the warehouse staff knew of these practices, they had an excuse to take things home themselves. Once begun, the practice progressed from bad to worse. By the time these practices finally came out into the open, the wife of one of the employees was even selling products from the store at the street market.
Re 3. Example of insufficient achievability Employees of an investment fund are not permitted to trade privately in a particular security within a period of 24 hours before or after a transaction by the fund in that security. It is by definition impossible for employees to observe this rule always as (a) they are often unable to assess what the fund is going to do within the next 24 hours, and (b) they are unable to reverse private transactions when it becomes clear that the European Management Journal Vol 17 No 6 December 1999
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Figure 2 Seven Organizational Qualities
fund has traded in the same securities. The result is a lack of support among personnel for both the letter and the spirit of the rule. It becomes common practice for employees to trade privately in securities of which it is internally known that the fund will be buying or selling a large package shortly.
Re 4. Example of insufficient supportability The employees of a large production company treat company vehicles recklessly and carelessly. During working hours staff regularly enter into rally contests with the company vehicles on the company site. It is also common practice for employees to urinate in the company vehicles, to stick sandwiches into the radio fascias, and to disregard the traffic rules on the company site. If the oil light comes on showing that the oil needs to be topped up, the general reaction is: ‘No need to do anything, the light will go out of its own accord.’ Among other things the staff blame their behavior on the lack of any sense of company pride. Staff feel little if any involvement with the company, as they consider the management has never displayed any appreciation of their efforts.
Re 5. Example of insufficient visibility Funds transfers made by a bank’s internal staff are checked by a staff member controlling whether the signatures are valid and whether the accounts can cover the requested transfers. The transfer slips which have been checked are placed in an internal mail pouch which is not sealed until the end of the day. This gap in the processing process leads to several cases of fraud before the internal audit department becomes aware of this organizational failure. European Management Journal Vol 17 No 6 December 1999
Re 6. Example of insufficient discussibility An employee is aware of the outside activities of one of his co-workers. When he brings them up, he is roundly attacked. When he subsequently brings the matter up with the management, the incident is ignored. Before he can take his complaint to the CEO, the powerless employee is fired for dubious reasons. Re 7. Example of insufficient sanctionability One of the partners of a large accounting firm has been frequently harassing his female secretaries for several years. Such sexual harassment varies from questionable comments on the ‘tempting’ clothing of the secretaries to physical advances and mandatory dates after work. Two secretaries claim to have been forced to kiss the partner. The victims of these advances assumed that they would be fired for their ‘blasphemy’ against the partner. However, when the board of directors and the director of personnel finally hear of the matter, they refuse to take action against the accused partner. The reason behind their apathy is the director’s contribution to the success of the firm. He is good for winning more than ten new major clients a year. The (partial) lack of one or more of these qualities implies a risk of breaches of integrity for the company concerned. The breeding ground for breaches of integrity has been created. A company may be tackled about letting down stakeholders, if its attempts to embed these moral qualities in the organization have been inadequate. The extent to which the virtues are embedded is a measure of the organization’s moral excellence or virtuousness. The more embedded the virtues, the fewer grounds there are for blaming the organization in the event of 631
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unethical conduct arising. The management in particular plays an essential and irreplaceable role in embedding the qualities in the organization. On the one hand, it is the management that has the powers of decision to give meaning to the qualities. On the other hand, managers are important role models and have to embody the qualities, and thereby indirectly encourage others to imitate them.
ambiguous signals. On the one hand, an ethics procurement policy was employed, while on the other hand there were very high expectations that no compromises would be made during negotiations. On top of this, staff started to employ very dubious tactics. At the Ministry of Justice in The Netherlands it appeared that the formal expectations were regularly at odds with the perceived expectations and that all kinds of short cuts had developed within the organization to avoid many rules and procedures.
How to Manage Integrity?
One of the features of many organizations brought into focus with the audit is the inconsistencies in the organization that create an atmosphere lacking in clarity and that then open the way for breaches of integrity. A good example is the policy on giving and receiving presents. Organizations often draw up strict sets of rules to ensure that an employee’s judgment is unbiased. At the same time, they may seek to win a customer’s favor by giving very generous presents. That sends very mixed signals within the organization: using all the means at your disposal to influence possible customers is not in itself wrong, providing it is not done at the expense of the organization. Companies often also demonstrate double standards in respect of information. If employees leak information, it is regarded as a serious offense. When, however, it is a matter of getting information from others, any method would seem to be justified. A very clear example of double standards within an organization was given by a European based multinational bank. The culture of the organization was such that it was considered perfectly acceptable to break the law in order to keep customers happy. This bank quickly found, however, that creative branch managers not only provided these services to customers, but also developed certain practices for their own benefit, even when this was at the bank’s expense. There was one branch manager, for example, who got into currency speculation. Since the books didn’t need to balance, this branch manager would decide afterwards, solely for the purpose of keeping customers happy, whether the purchase should be recorded as a private purchase or as one on the bank’s behalf. This ended up costing the bank a great deal of money.
Integrity Audit Because each organization is unique, effective measures can only be taken if the management not only has an insight into the sort and extent of breaches of integrity, but also into their nature, i.e. the organizational causes. An integrity audit can help clarify and unravel the implicit and explicit, internal and external (conflicting) expectations confronting employees. The audited and analyzed expectations can form the basis for taking concrete steps to improve employee guidance. Some of the aspects that qualify for critical investigation include: 1. the formal expectations in the organization, such as the explicit tasks, powers, rules, guidelines, procedures, systems, measures and organization charts; 2. the experienced or perceived expectations in the organization, such as the actual norms and values, implicit codes, etiquette, customs and practices, rituals and exemplary behavior. 3. the existing, realized and unrealized expectations of stakeholders; and 4. the dilemmas caused by the above incompatible expectations with which employees are confronted in their daily work. Up until now 25, mainly Dutch, organizations, have been audited by asking employees to describe the organizational climate according to the three dilemmas and seven qualities described here. In the study at Amsterdam Airport Schiphol, for example, the following organizational qualities scored relatively low: lack of clarity as to how staff should handle the company’s resources, lack of discussability of dilemmas and criticism within the organization and inadequate supportability to disseminate the airport’s existing policy externally. This led, for example, to a situation whereby confidential information was regularly leaked to the press and that damage to capital equipment (including vehicles) was so prevalent that the insurance company threatened to declare the airport uninsurable. Within a reviewed sales organization it appeared that may dilemmas were caused by managers sending out 632
Interventions The results of an integrity audit form the starting point for the specific protection and improvement of the company’s integrity. Numerous measures are conceivable that can contribute to improving integrity, such as a code of conduct, an ethics officer, a compliance officer, segregation of duties, job rotation, a conflicting interests register, personification of products, administration, an adequate remuneration system, and recruitment and selection procedures. Some measures can be deployed to improve a large number of qualities. For example, a code of conduct may European Management Journal Vol 17 No 6 December 1999
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bring a large number of qualities explicitly to the attention of the employees. Some measures, however, apply to one or a small number of qualities. A register for conflicting interests of employees can particularly contribute to an increase in visibility with regard to the entangled hands problem. Personification of products and services can contribute to an increase in visibility with regard to the many hands and dirty hands problem, thus ensuring that employees can be called to account for reprehensible conduct (sanctionability) at an earlier stage. Despite the advantages to adopt a number of measures to prevent breaches of integrity, we need to be aware that managing integrity is not only about what measures are adopted. Integrity management tries to improve the way employees are stimulated to realize legitimate fundamental expectations of stakeholders. A written code of conduct can be an appropriate instrument to achieve this. However, the practice of integrity management is often more about beginning a focused, organization-wide process. Among other things, integrity management should focus on the creation of conditions within which an organizationwide consciousness-raising effort and internal interaction can take place. Collective insights can arise from organization-wide discussions. In the first place, these will be focused on understanding one another’s dilemmas within the organization and getting insight into the different opinions that employees have. That will quickly lead to the growth of new insights that those involved will experience as an enrichment. Having the employees to do the coding rather than having the employees themselves coded is the key to the process. Activities stimulating this process of coding are for example training programs, group assessment sessions, individual coaching, dilemma discussions and management by walking around. Thus it is possible to develop specific activities to find the right balance between the conflicting interests and expectations that confront companies and their representatives. It is not a matter of high-sounding ideals which organizations should strive to achieve. Instead, the task is to establish tangible and achievable requirements in terms of an organization’s integrity. By examining the organization from this perspective, it is possible to work on improving the organization’s integrity. Two years after the introduction of a code of conduct at Amsterdam Airport Schiphol it became clear that the ethics of those departments which paid attention to the code increased significantly in comparison with those departments which did not undertake anything. The relevant percentages were discussability 21 per cent,
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clarity 19 per cent and consistency 17 per cent. As a result, the damage to company vehicles caused by employees fell by 25 per cent. References Badaracco, J.L. (1997) Defining Moments: When Managers must choose between Right and Wrong. Harvard Business School Press, Boston MA. Becker, T.E. (1998) Integrity in organizations: beyond honesty and conscientiousness. Academy of Management Review 23, 154–161. Bovens, M. (1998) The Quest for Responsibility: Accountability and Citizenship in Complex Organisations. Cambridge University Press, Cambridge. Chappell, D. and Di Martino, V. (1998) Violence at Work. International Labour Organization. Drazin, R. and Sandelands, L. (1992) Autogenesis: a perspective on the process of organizing. Organizational Science 3, 230–249. Ethics Resource Center (1996) Ethics Poll. Fisher, A.B. (1993) Sexual harassment: what to do. Fortune, August 23, pp. 84–88. Giacalone, R.A. and Greenberg, J. (1997) Antisocial Behavior in Organizations. Sage Publications, Thousand Oaks. Goodpaster, K.E. and Matthews, J.B. (1982) Can a corporation have a conscience? In Business Ethics: Readings and Cases in Corporate Morality, 2nd ed., eds W.M. Hoffman and J.M. Moore, pp. 184–194. McGraw-Hill, London. Kaptein, M. (1998) Ethics Management: Auditing and Developing the Ethical Content of Organizations. Kluwer Academic Publishers, Dordrecht. Kaptein, M., Klamer, H. and Ter Linden, J. (1999) De Integere Organisatie: Het nut van bedrijfscodes. KPMG, NCW and Stichting Beroepsmoraal en Misdaadpreventie, The Hague. KPMG and Universita¨t Erlangen-Nu¨rnberg (1999) Unternehmensleitbilder in deutschen Unternehmen. Frankfurt. LeClair, D.T., Ferrell, O.C. and Freadrich, J.P. (1998) Integrity Management: A Guide to Managing Legal and Ethical Issues in the Workplace. University of Tampa Press, Florida. Nash, L.L. (1990) Good Intentions Aside: A Manager’s Guide to Resolving Ethical Problems. Harvard Business School Press, Boston, MA. Payne, L.S. (1994) Managing for organizational integrity. Harvard Business Review 72, 107–117. Pearson, G. (1995) Integrity in Organizations: An Alternative Business Ethic. McGraw-Hill, London. Shaw, R.B. (1997) Trust in Balance: Building Successful Organizations on Results, Integrity, and Concern. Jossey-Bass Publishers, San Francisco. Smulders, P.G.W., Kleine Hesseling, D.J. and Evers, G.E. (1999) Geweld, Intimidatie en Discriminatie op het Werk in de Europese Unie. Ministerie van Sociale Zaken en Werkgelegenheid, The Hague. Taylor, G. (1981) Integrity. Aristotelian Society 55, 143–159. Trevino, L.K. and Nelson, K.A. (1999) Managing Business Ethics: Straight Talk about How to do It Right. John Wiley and Sons, New York. Velasquez, M.G. (1998) Business Ethics: Concepts and Cases. Prentice-Hall, Englewood Cliffs. Walter, H. (1995) Van Kwaad tot Erger: Pesterijen en Psychoterreur op het Werk. Thema, Zaltbommel. Wempe, J. (1998) Market and Morality: The Problem of the Dirty and Many Hands. Eburon, Delft.
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MUEL KAPTEIN, Faculteit der Bedrijfskunde, Vakgroep Methodologie & Ethik, Erasmus Universiteit Rotterdam, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands, and KPMG Ethics and Integrity Consulting, Postbus 74555, DC Amsterdam. Dr Muel Kaptein is Assistant Professor of Business Ethics at Erasmus University, Rotterdam, and a Consultant for KPMG Ethics and Integrity Consulting, Amsterdam. His current research is directed towards socio-ethical reporting and sustainability management.
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