Ethics in Emerging Economies Implication for Businesses. Copyright 2003 by the Center for Ethical Business Cultures. 1

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1 1 Ethics in Emerging Economies Implication for Businesses Ron James President and CEO Center for Ethical Business Cultures 24 October 2014 Celebrating over 35 years of business commitment to ethical cultures. Business Cultures. 1

2 About the Center for Ethical Business Cultures Mission To assist business leaders in creating ethical and profitable business cultures at the enterprise, community and global levels Background 36 year old nonprofit organization Partnership with Ethics Faculty at University of St. Thomas Member of the Advisory Group to the US Sentencing Commission Advises Boards and Executive Leaders on Tone at the Top Building a Bridge Between Thought and Practice Leadership Ethical Perception Research Articles Assessing the good company. Academic and Professional Journals 2010 Dimensions of Ethical Business Cultures: Comparing Data from 13 countries of Europe, Asia, and the Americas. Human Resource Development International Minding the gap: exploring difference in perceptions of organizational ethics between executives, mid-level managers and non-managers. Human Resource Development International Ethical cultures in large business organizations in Brazil, Russia, India, and China. Journal of Business Ethics Building Ethical Business Cultures: BRIC by BRIC. The European Business Review Ethical Business Culture, Organizational Performance, and Employee Outcomes: Establishing a link between employee perceptions of ethical culture and performance metrics. Business Ethics: A European Review Modern Risk Management Through the Lens of the Ethical Organizational Culture. Risk Management Journal Business Cultures. 2

3 Understanding the Environment and the Model of Ethical Business Cultures Celebrating over 35 years of business commitment to ethical cultures. The Ethical Landscape Persistent Challenges Trust: 62% trust business 18% trust leaders in business to tell the truth (2013 Edelman Trust Barometer) Confidence in Leaders: 15% have confidence in leaders in business to do what s right (2012 Harris Confidence Poll) Misconduct at Work: 41% observe it 63% will report it Source: Ethics Eesource Center 2005 (2013 EBS - Ethics Resource Center) Cost of Ethical Breakdowns: Typical global organization loses 5% of annual revenues 40 to 50% do not recover losses (2014 ACFE Report on Fraud and Abuse) Legislating Good Behavior: Sarbanes Oxley Act 2002 Dodd Frank Act 2010 But you can t legislate integrity! Business Cultures. 3

4 Scope & Methods of Evaluation Feedback Measurement Driven Adjustments Assessment Establishes & Models Behavior Demands Ethical Conduct Exhibits Great Personal Integrity Doesn t Shoot the Messenger Does What He/She Says Leadership Effectiveness Mission Before Profit Long-term before Short-term Triple Bottom Line Long-term Board Takes the Long View Perspective Leaders Build for Next 50 Years Values Driven Stakeholder Balance Balances Interests Consistent Approach Balances Value & Profit Community / Global Respect & Fair Treatment Dedication to Quality On-going Training Aligns Performance Process Appraisals & Promotion Integrity Corporate Governance Open / Transparent Mission is Evident Clarity of Values Institutionalizes Trust & Respect Eliminates Misfits Builds for Long-term Celebrating over 35 years of business commitment to ethical cultures. The Ethical Perception Index: Linking the Model of Ethical Business Cultures Celebrating over 35 years of business commitment to ethical cultures. Business Cultures. 4

5 Global Employee Perspectives on Ethics in the Workplace CEBC Ethics Themes: Able to discuss ethical issues/concerns Senior management practices ethical conduct Company serves interest of multiple stakeholders Co-workers behavior consistent with values Must demonstrate company values to get ahead Ethics themes benchmarked globally through Kenexa, an IBM Company, WorkTrends TM Countries Surveyed: United States The Netherlands Argentina Russia Australia South Africa Brazil Spain Canada Sweden China Switzerland Denmark Turkey Finland United Kingdom France Indonesia Germany Korea India Kingdom of Saudi Italy Arabia Japan United Arab Emirates Mexico Qatar New Zealand Ireland Linking the CEBC Model of Ethical Business Cultures with the Ethical Perception Index Leadership Effectiveness Long-term Perspective Values Driven EPI Stakeholder Balance MEBC 3 4 Themes Process Integrity Business Cultures. 5

6 The CEBC Ethical Perception Index by Country 13 Country Analysis Minding the Gap Strong/Weak Culture Cambridge University Press Ethical Business Cultures in Emerging Markets Ethical Cultures in BRIC TEBR Ethical Insights: Working Across Cultures - Business and Ethics in China Ethical Perception Index The CEBC Ethical Perception Index by The Gap The Gap Means Individual Contributor Front Line Supervisor Mid Level Manager Executive/Senior Manager CQ7_3 Where I work, ethical issues and concerns can be discussed without negative consequences. CQ7_4 My organization's senior management supports and practices high standards of ethical conduct. CQ7_6 My organization strives to serve the interests of multiple stakeholders (e.g., customers, employees, suppliers, and community), not just the shareholders. CQ7_7 The behavior of the people I work with is consistent with my organization's mission, vision, and values. CQ7_8 Where I work, people do not 'get ahead' unless their behavior clearly demonstrates my organization s values. EPI Source: Kenexa, an IBM Company, 2012 WorkTrends Business Cultures. 6

7 Minding the Gap by Countries Source: Ardichvili, A, Jondle, D., and Kowske, K. (2012). Minding the gap: exploring differences in perceptions of ethical business cultures among executives, mid-level managers and non-managers. Human Resource Development International, 15 (3): Strong/Weak CEBC EPI by Outcomes Strong/Weak CEBC EPI by Outcomes WEAK STRONG EPI CUSTOMER ORIENTATION INNOVATION MY FEELING ABOUT WORK MY ORG LEADERS MY ORG PERFORMANCE QUALITY AND IMPROVEMENT RETENTION Source: Kenexa, an IBM Company, 2012 WorkTrends Business Cultures. 7

8 Understanding Ethical Cultures in Emerging Economies: The BRIC s Academic Publications Ardichvili, A., Jondle, D., Kowske, B., Cornachione, E., Li. J., and Thakadipuram, T. (2012). Ethical Cultures in Large Business Organizations in Brazil, Russia, India, and China. Journal of Business Ethics, 105: European Publications Ardichvili, A., Jondle, D., Wiley, J., Cornachione, E., Li. J., and Thakadipuram, T. (2013). Building Ethical Business Cultures: BRIC by BRIC. The European Business Review, March-April, Ethical Cultures in Large Business Organizations in Brazil, Russia, India, China, & the US Findings are based on 13,000 responses from employees in large organizations in high growth emerging economies, Brazil, Russia, India, and China, and the US Significant differences among the four emerging countries with Brazil and India more favorable than Russia and China By 2050, the combined GDP of these four high growth countries will exceed the GDP of the G7 (seven largest developed economies) But these four high growth economies rank toward the bottom when surveyed for the perception of corruption (Transparency International Annual Corruption Perception Index) Authors: Alexandre Ardichvili, Douglas Jondle, Brenda Kowske, Edgard Cornachione, Jessica Li, and Thomas Thakadipuram Business Cultures. 8

9 The BRIC s Ethical Culture in Large Organizations Brazil Paternalism: superiors provide protection and guidance for loyalty and deference from subordinates jeitinho middle path between regulation and what is practicable Web of reciprocal obligations: Employee loyalty Leader responsible for group well-being The BRIC s Ethical Culture in Large Organizations Russia State dominance of business sphere and legal institution Personal loyalty and in-group allegiances shape business behavior Higher reliance on personal networks vs. legal contracts blat reliance for favors upon personal contacts with people in influential positions Business Cultures. 9

10 The BRIC s Ethical Culture in Large Organizations India Unconditional loyalty Places a premium on favors, friendship and clanship Government acts as a gatekeeper, not an enabler Money and connections are how things are done Intuitive decision making vs. normative The BRIC s Ethical Culture in Large Organizations China Trustworthiness emphasizes personal relationships not contracts Adherence to rules and prior arrangements not equated to trustworthiness Informal networks of support and reciprocal exchange of favors guanxi role-based duties provides privileges of favoritism and personal benefits to members of in-groups Business Cultures. 10

11 Characteristics of Business Cultures in the BRICs and the US Paternalistic Particularistic (Situational) Universalistic Collectivistic Individualistic Formal Informal Brazil x x x x Russia x x x x India x x x x China x x x x US x x x x Source: Ardichvili, A., Jondle, D., Kowske, B., Cornachione, E., Li. J., and Thakadipuram, T. (2012). Ethical Cultures in Large Business Organizations in Brazil, Russia, India, and China. Journal of Business Ethics, 105: The CEBC Ethical Perception Index by Country The CEBC EPI United States CQ7_3 Where I work, ethical issues and concerns can be discussed without negative consequences. CQ7_4 My organization's senior management supports and practices high standards of ethical conduct. CQ7_6 My organization strives to serve the interests of multiple stakeholders (e.g., customers, employees, suppliers, and community), not just the shareholders. CQ7_7 The behavior of the people I work with is consistent with my organization's mission, vision, and values. CQ7_8 Where I work, people do not 'get ahead' unless their behavior clearly demonstrates my organization s values. EPI Source: Kenexa, an IBM Company, 2012 WorkTrends 22 Business Cultures. 11

12 The CEBC Ethical Perception Index by Country Source: Kenexa, an IBM Company, 2012 WorkTrends 23 The CEBC Ethical Perception Index by Country Source: Kenexa, an IBM Company, 2012 WorkTrends 24 Business Cultures. 12

13 The CEBC Ethical Perception Index by Country Source: Kenexa, an IBM Company, 2012 WorkTrends 25 The CEBC Ethical Perception Index by Country Source: Kenexa, an IBM Company, 2012 WorkTrends 26 Business Cultures. 13

14 Next Up: Expanding the Research to More Emerging Economies: The MIST s Signed Cambridge University Press Book Contract in August, 2014 Ethical Business Cultures in Emerging Markets: BRIC s - Brazil, Russia, India and China The MIST s Mexico, Indonesia, South Africa and Turkey Contrasted with the original G7 Canada, France, Germany, Japan, Spain, United Kingdom, and the United States Publication in 2016 Leading Academics recruited from around the globe Engaging Business Practitioners to ensure essential linkage between business and academic insights Concluding Thought As economic power shifts, there are implications for the ethical and cultural standards that will guide business behavior and interactions! How are we preparing to address this issue? Questions and Discussion Business Cultures. 14

15 For Information on CEBC Phone the Center: Fax the Center: the Center: Visit the Web: Write the Center: 1000 LaSalle Avenue, TMH 331 Minneapolis MN USA 30 Business Cultures. 15