Discuss about the Managerial Ethics for Evidence and Analysis.
Ethical dilemmas are occurrences that challenge a person’s ability in deciding a course of action that is most ethical (Brown and Treviño, 2006). Regardless of the choice made, there are always some undesired consequences. There are always values that guide on all decision making in such situations. According to Rozuel and Kakabadse (2010) ethics is the appropriate and desirable morals and values of an individual or society. This report will focus on the application of utilitarian and virtue based ethical theories when deciding the course of action in a dilemma and the essence of leadership in the same.
This thesis explains the importance of following organisational core values and policies when facing ethical issues and making a choice that has most benefits as well as cultivating a culture of organisational ethics among all stakeholders.
Wesfarmers limited started its operations in 1914 under the name of Western Australian Farmers cooperation. From its simple beginning as a farmers marketing association, the company has grown over the decades to one of the Australia’s largest company (Wesfarmers, 2017). The head quarters of the company are located in Western Australia. The company has diversified business operations that cover home improvement; supermarkets, convenience stores, hotels, liquor, office supplies, department stores and industrial division (energy, chemical fertilisers, safety products and coal) (Wesfarmers, 2017).
Early 2016 Wesfarmers found itself embroiled in an account scandal of its apparel and general merchandise subsidiary Target. This discovery took place after Wesfarmers restructured Kmart and Target into a single department store (Wesfarmers, 2017). The new management was brought to attention about regarding treatment of some supplier accounts that needed investigation. Ernest and young the company’s external auditor commenced investigation immediately (Wesfarmers, 2017). The investigations discovered artificial boosting of 2015-2016 half-year earnings by use of supplier rebates (Wesfarmers, 2017).
This rebate agreement resulted to $21million worth of income that could not be supported yet was recognised in the stores earnings for that period. According to Wesfarmers (2017) these arrangement would have negligible effect in the stores financial report because any benefit of the kind effected in the first half of the year would have to be reverse in the second half due to increased production cost. This turn of events lead to resigning of the then managing director of Target as a sign of taking responsibility though he claimed that he was not aware of the of the accounting issue (Wesfarmers, 2017).
Target is a Wesfarmers subsidiary department store that specialises in apparel and general merchandise in Australia. Target opened its doors in 1926 as a drapery store in Geelong, Victoria and operation name was Lindsay & McKenzie Pty Ltd. The enterprise adapted the name Target in 1973. The department store currently has over 23,000 employees serving in various outlets across Australia (Target Australia Pty, 2017).
According to Bevan and Corvellec (2007), utilitarian ethical theory puts into consideration the interest of all other people who might be affected by an action. The theory emphasises on the consequence of an action to stakeholders. With regard to the decisions made by the accounts department at Target, the managers did not take time to question about the effects their decision to accept rebate on the stakeholders of the company. The stakeholders include shareholders of the company, the company employees and the customers of the company.
The doctoring of books to give an impression of good performance was risky affair. The actions erode shareholders trust of the management of the department store. This can affect how shareholders make key investment decisions of the company. The image of the company in the eye of the public and the company’s customers is tainted by the scandal. This decision also affects employees who might pay for someone else’s actions.
This theory emphasises doing the right thing at the right place and at the right time (Shapiro & Stefkovich, 2016). The theory is guided by qualities that define the right behaviour and the correct action to take. In most institutions this qualities appear in form of organisational core values and policies. Wesfarmers is a very big and established corporation with established guidelines and policies about handling different issues. According to (Wesfamers, 2017) the company’s core values include:
Integrity – all stakeholders are expected to act ethically in all dealings. Therefore, the decision makers in the rebate saga needed to ask themselves if the deal they where undertaking met the company’s ethical standards.
Openness – this factors in that human is to error and lesson are drawn from mistakes made while encouraging honest and openness in reporting, giving feedback and idea sharing. This is one value that the decision makers in accounting department overlooked and reported doctored figures was very dishonest. However, the then managing director of Target acknowledged the error and willingly accepted the consequences of his actions as the top manager.
Accountability – this core value give authority and the decision making power to divisions which in turn are expected to be accountable for performance and protect and promote the company’s reputation. It is very clear that Target’s accounting department abused this authority entrusted to them. The result of this was a scandal that put the entire company in bad light. The failure of the accounting team to acknowledge performance that was below expectations and strategises to make business better in the next half financial year resulted to artificially blotted report.
Boldness – this core value challenges the employees to move out of comfort zone and try new things that promote growth and sustainability of the business. The implementation of rebate at Target was a bold move that had negative effects to the company.
According to virtue based ethical theory, Target managers had all the tools necessary to make the right decision that protected the organisations reputation and give clear direction on the actions that would be good for business growth.
According to utilitarian and virtue based theories, the Target managers actions were unethical. The managers prioritised their personal interest and decided to falsify financial performance. Moreover, the disregard of the organisations core values is a serious issue and begs the question of whether the company has created a culture of compliance. However, the decision of Wesfarmers was ethical as they used the core values of the organisation to bring to book employees who were involved in rebate saga.
Rozuel and Kakabadse (2010) explain ethics as the appropriate and desirable morals and values of an individual or society. An individual’s intentions and purity are considered when ethical issues are in play as it is the baseline for good and bad in different settings. According to Rozuel and Kakabadse (2010) and Singer (2011), ethics is a key component in leadership, indentifies a leader, and is the role of a leader. According to Brown and Treviño (2006) public, religion or law can shape what is considered ethical.
Ethical leadership is the kind of leadership that respects ethical believes, other people’s rights and dignity and values (Schminke (Ed.) 2011). The influence of a leader to followers in the pursuit of a common mission is of great importance. Therefore, the leaders cultivate an ethical environment in an organisation as well as formulate organisational values.
According to Schminke (Ed.) (2011), an ethical leader should be respectful of others and not use his followers for personal gains. He should never judge or take sides but is expected to show compassion and kindness and be dignified all times. A leader is a servant of the people. Therefore, should put interest of his followers ahead of his (He & Ho, 2011). He should treat people in a humane manner. According to Ford and Richardson (2013), fair and just treatment of all people is a very critical quality of an ethical leader. Morality is a component that a leader need to incorporate making judgement to avoid being impartial.
Ethical leadership is community oriented and takes to heart the concerns of the community where he lives and works (He & Ho, 2011). Therefore, a leader who has mastered ethics should be in favour of community development project and actively take part in the same. In addition, an effective leader should be a master of honesty in order to foster respect and give confidence to followers. When followers are confident in a leader it indicates that the leader can be relied on for major decisions.
Leaders are the role models to their followers and therefore set the example behaviour expected in an organisation. To teach new followers the kind of corporate behaviour expected of them, there is need to apply the process of socialisation and culture (Akhter, Islam & Uddin, 2009). Leaders should lead by action as the followers learn values by watching leaders putting them into action. This way the leader gains respect, confidence and trust among his followers. Leaders who take seriously ethical responsibility have greater sensitivity to the problems and needs of the followers, therefore, gain higher capacity of identifying emerging conflicts (Eon Rossouw &Van Vuuren, 2010). Ethical leadership leads to effectiveness of the leader, satisfaction of the followers, increased dedication and problem solving at work.
The leadership of Target should know that leadership is by example and that junior staff reciprocate what the leaders are doing. Therefore, by giving a false performance report sets a bad example to junior staff. Therefore, it is important that the managers lead by example, set, and adhere to high standards of work. Target should make compliance to values and policies a tradition for all employees. Value based leadership will result to employee satisfaction, loyalty to the company and compliance.
Eon Rossouw and Van Vuuren (2010) describe leadership as the ability to guide teams, organisations or individuals. Different leaders use different styles to give directions to followers. These styles include:
According to Bjugstad, Thach, Thompson and Morris (2006) this leadership style gives all decision-making powers to the leader (dictator). The subordinates are not allowed to give opinion of whatever kind. This kind of leadership has an advantage of giving room for quick decision-making as only one person determines the way forward for the rest of the group. The down side of this style is that biased decisions are made because no consultation is done and may only serve the interest of only a small group of people and some decisions may never be communicated to relevant personnel’s because the decision maker may choose not share the information.
In this leadership style, the leader consults the team members in decision making therefore promoting social equality (Limsila and Ogunlana, 2008). Through this style teamwork, employee satisfaction and loyalty are evident. This is because team members share and understand the goal of the work they are doing and get motivated by knowing that their contributions to the team are value. The down side of this style is that the process of decision making takes a very long time as a very long chain of consultation has to be done thus major delays in project implementation may be common.
The leader gives full decision-making authority to the followers and leaves the team to operate on its own. The communication in this style is free flowing and the leader does not use authority but only maintains contact with the team (Spears, 2010). This style is essential is developing personally in subordinates. It gives subordinates room for development and trains them on the need for taking initiative. These team members get motivation, satisfaction and morale in their work. Bjugstad, et al., (2006) observes that this style however put subordinates at a disadvantage because they do not have any guidance of a leader and therefore may take direction that is contrary to the main objective. It also results to difficulties in making major decisions.
According to Awasthi (2008) decision-making is the process of identifying and choosing alternatives to a problem depending on the preference of the person deciding. When making decisions two techniques are applicable.
In group decision making Lu and Ruan (2007) observes that there are several styles that can be applied. These include:
Decision making by consensus is a method aims to prevent parties of winners and losers. The majority give approval for an action and the minority agree and are comfortable to adopt the action. This method requires all parties involved to strike compromise position regarding the mater on the table. Voting method is used to decide by casting ballots to decide what happens to an issue. The majority wins the day regardless of how they have voted.
This method has an individual making all the decisions. The available methods to use when coming up with a choice as an individual are:
Use a Decisional balance sheet to list all advantages and disadvantages of all available options (IE, 2010). Additionally, a simple prioritization method can aid in choosing the alternative that presents the highest potential. Still one can choose an option most acceptable or go for one that is most suitable in solving the problem. Still a decision maker can choose to establish a criterion for automated decision-making ((Bhushan & Rai, 2007).).
The first step to getting a solution to an issue is first recognising that a problem exists and acknowledging that a decision is necessary (Bhushan & Rai, 2007). At this stage, it important to ask, “What is the problem?”
It is important to know the cause of the problem and the process and people involved in the problem and the extent of the problem. This happens through thorough research and is important in looking for the right solution.
This is done by comparing all available alternatives. It involves considering the advantages and disadvantages of the potential solutions and gathering all relevant information regarding the alternatives in order to give informed choice (Bjugstad, et al., 2006).
After a detailed evaluation, make a decision on the choice of alternative best suited to solving the problem by considering the pros and cons of all listed alternatives. The best choice is always the alternative with the most advantages and the list disadvantages.
Once the best plan to solve a problem is identified, it is important to focus all energies to putting the plan into action.
After implementation, it is always good to evaluate the progress of the outcome. This aids in identifying if the plan is producing the desired result or not. It also assists in identifying where changes are necessary and determining if the whole process needs to continue or be halted
Ethics, leadership and decision-making are intertwined subjects (Akhter, et al., 2009). A leader cannot command respect and act as a role model if the ethical culture of the community he leads is not in him. Therefore, the quality of character is very important and plays a key role in determining how decisions making takes place as well as the outcome of the decisions. Following the core values and policies of an organisation empowers a leader with the knowledge of what is expected of him and helps in giving guidelines for decision-making that is in line with the organisations values and missions.
Leaders in organisations can create a culture of talking “ethics” in work place. This internalises the reality of existence of ethical guidelines in employees and encourage living the talk (Adams & McNicholas, 2007). Publishing the ethics guidelines and post them in different locations at work and evaluate all ethical actions. Make sure any unethical occurrence relating to work or taking place at work is followed up and the appropriate measures taken. This will instil the discipline of adhering to policies.
Adams and McNicholas (2007) suggest that during interviews it is wise to select persons who show responsibility to ethical dilemma. Training employees on the same puts more weight on the topic and makes it a serious affair for the organisation. Reward employees who behave ethically to set example for their colleagues.
According to Nieh and McLean (2011) in order to foster ethical decision-making a company needs to include ethical behaviour to business performance review. In reviewing how employees performed, it is important to appraise ethical decision making concerning business. Ensuring moral sensitivity of all stakeholders is also a way of enforcing ethical decision making in all aspect pertaining the business.
Elbanna (2006) says that making all parties aware of the consequences of their actions highlights the importance of ethics. Pegging the desired behaviour to a reward, while attaching the undesired behaviour to a penalty is an effective way of inculcating ethical culture. In addition, the occurrence of this two needs monitoring to encourage act the desired way.
To keep this culture running regular monitoring through customer and employee feedbacks and performance evaluations is important. Routine employee trainings to refresh on the importance of ethic need planned. All this monitoring procedures need to be budgeted for and enough resources allocated to keep the ethics fire burning. Elbanna (2006) suggest that it advisable to invite an independent team to review all the activities implemented be it business oriented or value oriented. This way an honest opinion about the state of affairs about implementation of ethics in decision-making will be give. This team will also suggest possible ways in which to better the program. Finally, it important to increase alertness on ethical decision-making every day and make it a routine and a daily practice and eventually convert the practice to an organisational culture. This is a practice that Wesfarmers can adopt on all its business and avert occurrence of scandals in future.
Conclusion
Wesfarmers is Australia’s largest retail shop that shot to limelight early 2016 by an accounting scandal at one of its subsidiary department store Target. This raised ethical and accountability questions about the top management of the department store and resulted to resignation of the managing director of the store. Those involved in making the accounting decision did not take their time to put into consideration what effects their actions would have on the company’s stakeholders nor did they pay attention to the organisations core values and policies. Else, this mistake was avoidable.
In addition, ethical leadership is paramount as it enables doing what is right at the right time and the right place. A culture of practicing ethics produces role models and respectable leaders. For a leader to lead effectively they have to adapt a leadership style that best suits their character and context of operations. This is important in good decision-making, as it will determine how decisions are made. When making decisions, it is wise to follow all the procedures for decision making from problem identification to outcome evaluations.
Finally, this thesis has argues that leaders in organisations should strive to create a culture of ethics and accountability. To implement this, it is important to publishing the policies, communicating the policies to all employees and rewarding those that act ethically and punishing those that do not comply with the requirement. Regular monitoring of this process is vital to ensure that the practice becomes a culture and eventually an organisational tradition.
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