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Applied ethics for managers

by Simon Longstaff

Introduction

It may be appropriate to begin this presentation by saying something about the nature and meaning of ethics. Quite a few people will automatically think of ethics as providing a system of guidance based on a set of principles or rules. These rules will help us to determine what is good, bad, right or wrong. There is a good deal of truth in this perception. However, it needs to be viewed in a much broader context.

Have you ever noticed that a lot of people seem uncomfortable when the discussion turns to ethics? Sometimes, the reason for this is that they think that the whole subject is too theoretical or that ethics is the same as morality - and therefore a private matter. While understandable, both positions need to be reassessed.

Ethics is about as practical a subject as you can get! History tells us that the first question to be asked in ethics was put by a Greek philosopher, called Socrates. Socrates lived in Athens at around 500 BC. His question was a deceptively simple one. He asked: “What ought one to do?” As you can see, it's not a question of theory. Instead, we are asked to think about how we should live our lives (in every aspect) and about what kind of people that we want to be.

This leads to a second point. Ethics is not the same as morality. To be talking about ethics is to be involved in a conversation about what we ought to do. Moralities provide alternative answers - different moralities are like different voices in that conversation. So there is a Christian voice, a Jewish voice, an Islamic voice, and so on... Then there are the voices of secular philosophers and all the others who think that they have something to say on the matter.

The tricky part, for all of us, is to pick out those voices that seem to be speaking to us with the most sense and inherent truthfulness. We are also faced with the challenge of joining in the conversation. If we are going to do that, then we will need to feel comfortable about using the language of ethics. How many of us feel comfortable about speaking of these issues at all? Many feel that they will be looked down as being a little 'weak' or pious if they institute a discussion about ethics. Others think that it is all irrelevant; just a waste of time. This can be the context in which people find themselves unable to ask even the simplest of questions, "Is it right?".

However, part of the power of Socrates' question is that it shows that we cannot avoid ethics - even if we want to! We might pretend that we aren't involved in the conversation. However, every time we make a choice, and every time we take a decision, then we unconsciously reflect our values and commitments. That is, we send a signal about what we think one ought to do in such-and-such a situation and at such-and-such a time.

It's not difficult to demonstrate the way in which ethics underpins everything that we say and do. Just imagine asking each person to explain why they pursued one course of action over another. People will give all sorts of reasons. Some of them will sound like ethical reasons, others will not.

For example, a person might reply by saying, "I did it because it seemed like a good idea at the time' or, "I did it because we've always done it that way". Both answers tell us something about the person's ethics. We learn something by noting their assumptions and the values that seem to underpin their approach to the matter in hand. We can go on to ask, "But why do things just because you think them a good idea at the time?" and "what's the fact that 'you always do it' have to do with the correctness of your decision?".

To repeat: you can't escape ethics. Ultimately, everything comes back to that primary question: "What ought one to do?". The way you live your life tells people something about what you believe a "good life' to be. Even if you never utter a word - the way you live your life tells people a considerable amount about your ethics. The pity is that some people never really think about this and instead operate on auto-pilot. They follow patterns and instructions designed by others.

This is not to suggest that it's always going to be easy to tackle issues in ethics. One frequently encounters an ethical dilemma. Such dilemmas can arise in various ways - most commonly when two or more principles call for contradictory responses to the same set of circumstances. As the word 'dilemma' indicates, if not left totally in the dark, we certainly experience the 'grey' region of judgement. In many situations our choice is restricted to the lesser of two evils. There is little that can be done about this. All the wisdom of the ages is powerless to rescue people from this particular aspect of the human condition.

Much of this suggests that the business of ethics is a very public matter. There might be personal moralities that relate to an individual's deepest convictions and beliefs. It may be that such private feelings ought not to be exposed to public debate. However, although we might agree that this principle is fair, the fact of the matter is that even private people exist in a social environment to which they contribute.

This suggests one really important insight about ethics; namely, that it is all about individuals and how they choose to live in community. Ethics is about relationships and, in particular, whether or not we recognise the way in which other people are affected by our actions, and that they may have a claim on us.

This is especially the case in the world of work where each of us is constantly engaged in making choices and decisions. It is at this point that we move into the realm of ethical management.

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Ethical management

Ethical Management is a form of management that is concerned not only with the technical, financial and legal aspects of a business, but also recognises and manages the values that operate at the heart of any enterprise. These values affect everyone in the organisation and all of those with which it has some association. In point of fact, there is no such thing as a value-free organisation. The values adopted by an organisation can be for good or for ill. That is, they can contribute to the organisation's ability to achieve its objectives or they can act as a hindrance.

Given that values shape an organisation's ‘climate’ or ‘culture’, it is important that they be identified and managed in the best interests of the organisation and the people that it is there to serve. One of the key objectives of ethical management is to create the conditions and competencies through which an organisation's values can be harmonised in a way that best serves the organisation's mission.

Much current management theory implicitly (and sometimes explicitly) recognises the importance of the ethical dimension. For example, the principles of Total Quality Management contain the seeds for sound ethical management. The TQM approach is based on a recognition of the need for continual review of the processes of production and provides diagnostic tools of measurement to determine performance and measure progress.

The tenets of TQM are readily applied by management to the technical areas associated with the systematic control of goods and services that are produced for internal and external customers. However, this same approach can deliver impressive results when applied to the task of examining the prevailing culture of an organisation and its constituent parts. In this respect, it can be seen that the principles of TQM can be extended beyond the technical aspects of the business to the values that are operating there.

TQM's emphasis on a management style that is consultative and participatory, together with its emphasis on collaboration through the two-way flow of information and the use of teams, holds potential for effective ethical management. In the second session, this morning, we will look at a way of measuring values within an organisation and the steps that need to be taken to increase their effectiveness.

As noted above, they are what shape the corporate climate within which all the other productive processes are operating. When we speak, therefore, of ethical management, we are discussing an integrated approach that recognises the utility of examining the values that influence "the way things are done around here". The utility of such an approach can be found in the fact that an organisation's dominant values have a significant effect on, among other things, morale and productivity.

But there is another reason for examining such matters. Leaving aside questions of increased productivity, higher retention rates, improved compliance and so on; there is also the issue of simple decency in the way in which we organise our social institutions. We sometimes act as if businesses can exist as totally independent entities.

This dangerous fiction obscures the fact that businesses, governments, indeed all of our institutions are created by and for people. To take a serious look at values and ethics is to make a statement along the lines that we recognise the importance of the human dimension in what we do. It says that whilst notions of efficiency are important, they are not the whole of the story. It recognises that people are not cogs in a machine. It says that we are concerned about the kind of community that we want our organisation to be. It says that people matter.

The Code of Conduct, which we will examine this morning, spells out many of the behavioural implications of the values or ethic on which it is based. As such it is a potentially powerful tool for organisational change.

It might seem to some that the very idea of ethical management creates problems for those who would conduct a successful business. This seems to be doubly so when considering, the not unreasonable view, that a successful business will be run in a cost-effective and profitable fashion. Where, in all of this, is there room for ethics? Indeed, one could be forgiven for thinking that business and ethics are like oil and water - they don't mix. This is certainly the view of many members of the community. The evidence for this can be found in an intriguing piece of research conducted by Hugh Mackay.

Mackay discovered the not-too-surprising fact that members of the community consider that ethics are likely to be incidental to business. He reports that:

Australians find it difficult to make judgements about corporate morality, and part of the difficulty is that they see major differences between the behaviour of a corporation (where 'profit' is taken to be the driving force) and the behaviour of individuals (where motivations are far more varied and diffused). This line of thinking often leads people to such assertions as "business is there to make money", and to question whether ethics really "comes into it".

Many people would like the situation to be different, but there is an overwhelming sense that the very essence of business means that ethics will often function as an "optional extra' rather than being fundamental to the character of business corporations.

This view of business is frequently shared by those who are in the public sector and who face either commercialisation or privatisation. At one level there is fear about the ability to compete, at another is a sense of anticipation that corporatisation means that notions of public service can be ditched and that the 'gloves can come off'.

The problem with this is that the view of private enterprise held by the public is largely a caricature. However, before exposing the error, it may be useful to look at how the public views the ethics of the public sector! It will be recalled that the community is suspicious of the ethics of those who are driven by the profit motive. On this basis one might expect that the public service would be regarded with trust and esteem. Unfortunately not. Popular logic sees things quite differently. In fact, Hugh Mackay found that government institutions attract more criticism than private enterprise. He found that:

Paradoxically, the very absence of profit motive is sometimes thought to make government departments and instrumentalities more insensitive, more cavalier, and more bureaucratic in their behaviour: if "how they treat people" is regarded as one of the key symptoms of the ethical climate of an organisation, then the government institutions generally fare worse, in the public mind, than private enterprise.

In such cases, where profit is not regarded as a distraction from ethics, people are inclined to assume that a certain "slackness' takes over. It begins as inefficiency and may sometimes end as immorality. Because of the impression that government organisations are largely 'bureaucratic', the suggestion is also made that they lack clear and decisive leadership from the top, and that, in fact, the example set by bureaucratic managers probably encourages the very slackness which lies at the core of the problem.

This finding should tell us something – not because the popular perception is accurate, but because it is so distorted.

There is some recent, and rather compelling, evidence for concluding that the public has got it wrong. At a recent luncheon, held by the Australian Society of Certified Practising Accountants, the former Premier, Nick Greiner, was called upon to launch two new Centres of Excellence. Mr Greiner began his remarks by confessing that his recent experience of the private sector had led to what (for him) was a most unexpected conclusion. He then revealed that he now recognised that many public sector managers were as good as (and in some cases better than) their private sector counterparts.

Now, the significance of this goes beyond the simple point that common perceptions about the public service are somewhat partial. For, if one concludes that the public may have got it wrong about government enterprises then it is just as likely that they have a similarly distorted picture of the private sector. And this is, of course, pretty much the case.

Most people are satisfied with a false dichotomy about the relative strengths and merits of public and private enterprise. These misconceptions are carried over into the prejudices of those who are employed in the respective sectors. Thus, those in the private sector frequently think that public servants are lazy and/or bound by bureaucratic inertia. And those in the public sector think that the private sector is driven by greed and that its policies are pursued without any regard for the common good.

The truth is that best practice requires much the same of both sectors. For example, the private sector has a long tradition of succeeding where it has been able to focus on the broader interests and needs of the community in which businesses have been based.

Many successful industries and businesses have been run with an explicit aim of serving the public and making a better world (eg. Cadbury's). Others have been aware of their dependence on a healthy social infrastructure as the ultimate foundation for their profitability. In current times there is a perceptible return to management philosophies which recognise that, in the long term, good ethics is good business. So it would be a mistake to think that best practice in the private sector can be emulated by adopting a 'gloves off' stance.

In the same vein, the public sector has been leading the way by embracing new management philosophies designed to recognise that businesses are integrated units in which responsibility is best delegated along lines of accountability.

As Mr Greiner recognised, reforms in the public sector are seeing the implementation of policies and practices that are at one with the best. Good management is about choosing the right means to achieve justifiable ends. In the case of individuals or an organisation, these ends will need to be viewed in the context of how they affect the community's pursuit of wider 'goods' (be they economic or social goods). For example, in achieving the goal of designing faster, more economical trains is it proper to allow for a sacrifice in the margin of safety? The same question applies when considering the design of toasters, cots, life insurance and so on.

There are no black or white answers to such problems. That is why the community trusts (or perhaps hopes) that managers will recognise that business is ultimately about people in society and their common good or welfare.

It is in this context that the Code of Conduct needs to be situated. It would be far too easy to see the code as just another set of pious sentiments imposed from above. It would also be very easy to see the code as irrelevant or worse, as impractical. The truth is that the code should be seen as playing a fundamental role in helping to define and realise the notion of best practice.

One of the key components of successful management is a capacity to respond to change. Response time is retarded by inefficient or entrenched structures. Thus, the process of keeping a manual inventory of stocks and stores may be fondly thought of as possessing a certain kind of quaint charm. However, this should not be allowed to obscure the fact that the cost of maintaining an outdated work practice is to be borne by the whole enterprise. In some cases, where the tail wags the dog, such a system may even work to frustrate change at a more general level.

Management expert, Peter Drucker, has stressed that an ability to manage change is going to be the defining characteristic of the successful business of the future. If this is so, then it will mean building in a capacity to take a constructively critical look at all of our policies and practices.

Whilst it is important to reserve a place for healthy traditions, it is equally important that businesses release themselves from the shackles of habit. It is easy to see the significance of this when it comes to manufacturing processes, management procedures and all the other 'surface' characteristics of an enterprise. However, there is an even more fundamental level that, being taken for granted, is frequently overlooked.

This is the level of the organisation's culture or character (ethos). Custom and practice can be just as stultifying at this level. An uncritical environment can lead to a situation in which custom and practice are used to justify the indefensible. People become prisoners of values that might have made sense at another time but clearly fail in the clear light of present scrutiny. This then is the context in which the SRA Code of Conduct ought to be examined. It will then be seen to be an indispensable element in the overall architecture of the organisation

At first glance, the Code of Conduct seems to be all about behaviour. But its real foundation is in the values that it promotes.

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Behaving ethically

Before analysing the Code of Conduct, let us first explore the values on which it is based as these provide the key to ethical management. The key value not explicitly mentioned, but underlining the Code, is a recognition of the dignity of the human person.

To recognise the dignity of each person is to see people as ends in themselves and not just means to be put at the service of others. It is to recognise that people cannot be used for the service of things, but things are to be used to serve people. Consequently there is a right way to treat people and a wrong way. The Code is about the right way to treat people and the principles enshrine a number of core values that also make sense in the context of running a successful modern business.

Honesty

Honesty is the first value to be specifically mentioned in the Code. At one level this involves a commitment to truthful and accurate communication. It also implies avoidance of deception; be it in financial reporting, marketing strategies or communication with one's colleagues, workers and other groups, in so far as is compatible with the obligation of confidentiality and with other responsibilities. To take a simple example, making promises that cannot be kept, such as unrealistic delivery dates, would be dishonest.

Courtesy

Courtesy involves the active expression of respect for other people. It involves listening without impatience, dealing with people fairly and honestly. It also involves respect for peoples' privacy. However, there may be important reasons why the organisation may require employees to provide it with highly personal information. Such records must be kept with care and discretion and only for legitimate reasons.

This means the organisation and individual are concerned about the impact of their behaviour on others. Many groups of people are affected by how the organisation conducts its business. These are known as stakeholders. They include employees, customers, suppliers, competitors, owners (which in this case is the Government) and the wider community. Being ethical means conducting business in a way that respects the various rights and interests of stakeholders as well as their needs and concerns. Identifying and weighing these concerns is what much of the Code of Conduct is about.

Integrity

Behaving ethically also implies that one will act with integrity. This would mean avoiding improper influences or conflicts of interests that would undermine ones independent and unbiased judgement. Integrity implies self-control and self respect. It requires managers to act with the courage of their convictions even when there is a price to be paid for doing so. Any use of drugs or substances that would interfere with the quality of ones work or judgement must be avoided.

Fairness is another virtue in behaving ethically. Individuals should not be disadvantaged for irrelevant reasons such as race, gender, religion or sexual orientation. Taking advantage of the vulnerable or ignoring the claims of those who have been wronged are other examples of unfairness. Unfair dealings destroy the morale of an organisation and contribute to a climate of cynicism.

Efficiency

Efficiency implies the careful use of resources which is part of any responsible stewardship of the limited resources available. Inefficiency adds to costs which ultimately reduces the services available to the public.

Respect for property

Finally, respect for property is an ethical virtue that underpins parts of the Code. Property may be considered to include: goods, information or real estate. Here the issue is not simply to avoid theft, but extends to proper care of the goods and property for which one is responsible.

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Managing values

Commitment to these values benefits both the organisation and the wider community. Because shared values form the basis of trust and co-operation, this commitment simplifies the task of management, helps avoid any legal trouble and reduces the need for managerial oversight. It improves productivity because people are more productive in a climate where they feel valued and respected. It brings pride into the workplace and people find strength and reassurance when they know ethical judgement is expected of them and is highly valued. It is on these foundations that business goals of profitability, market leadership and innovation rest.

However, ethical management is not always easy to exercise. There are times when different values come into conflict and one may have to choose the lesser of two evils. For example, a conflict could arise between an individual's right to privacy and the need for workers responsible for public safety, and who operate dangerous equipment, to ensure that they are not under the influence of chemical substances that could affect their performance. When managers need to give preference to one ethical value over another they should explain their decision to the affected parties and seek ways to minimise any damage to the competing value.

The climate of social trust that comes from a common commitment to ethical values is a public good. We cannot assume that everyone shares these values. For example, pressure for unethical behaviour will often come from outside influences such as: suppliers, contractors, or even customers. To have a significant impact on behaviour, values will need to be actively built into the organisation. Managers need to be clear on the standards that need to be adhered to and spell out their behavioural implications.

The ethical climate that is brought into existence is the net effect of all the transactions that take place within an organisation. In developing this climate, the role of leadership is critical. But it is important to realise that, within the context of ethical management, the successful leader will work to ensure that there is a shared interpretation of the meaning of values at work within the business. In practical terms, it is necessary for ethical standards to be taken into account in performance evaluations and promotions.

In summary, an organisation's values tell the community (as a whole) what it can expect. This message is conveyed to all stakeholders. In the case of SRA's Code of Conduct the message is that the community will be served by a public service that is fair, honest, reliable and efficient to do business with.

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The substance of the code

Having analysed the key values that form the framework of the code let us recall the four principles of conduct. Employees are required to:

1. Behave honestly, courteously and ethically.
2. Work in a safe, healthy and efficient manner.
3. Observe legislation, awards, policies and job requirements.
4. Act in the best interests of State Rail and its customers.

These primary statements are essential as a source of direction when having to make judgements and decisions between competing priorities with limited knowledge, conflicting personal values and so on. For example, reference to these principles may help you to decide whether it is ethical to inflate budget estimates artificially and in order to achieve what you think you really need. Or, under pressure to get the job done, would you allow your staff to work in an unsafe manner, eg. lifting a 25kg box.

In each case, judgement is likely to be reliable if it is informed by sound ethical values. If in doubt, (as you will often be), you should consult with a colleague so that combined experience can recommend the appropriate action. However, the following guide-lines contained in the Code will help determine the appropriate behaviour. It should be noted that the following sections do not involve a critical assessment of these guide-lines. Rather, it is hoped that subsequent discussion may allow for this type of reflection. That which follows offers a limited commentary.

Improper advantage

The Code establishes a framework for personal and professional behaviour. This framework includes a fundamental provision that members of the public and colleagues be treated with honesty, courtesy and respect. A further general requirement is that personnel must not take improper advantage of their position at State Rail. It is worth noting that this has been, in other contexts, the subject of many ICAC investigations. Improper advantage might include:

• Seeking a benefit for doing your job eg. a trip overseas.
• Giving work to your own company or that of relative.
• Preferential treatment for friends and ex-employees.
• Obtaining benefit for friends or family in letting out contracts.
• Secret commissions.
• Obtaining benefit by deception.

The following is an example of how an ICAC enquiry shed light on this matter.

A case, dealt with by the ICAC, involved a manager from the Commercial Services Group who was found to have acted in a corrupt manner when engaged in a particular tendering procedure. Complaints were made by the unsuccessful tenderers. They alleged improprieties in the way the contract was let. It was alleged (and subsequently found) that one of the Department's principal officers, who was involved in letting out the contract, had accepted an overseas trip for himself and his wife. The trip, at the expense of the successful tenderer, was arranged during the course of the tender. The package on offer to the officer was further sweetened with a job offer from the subsequently successful tenderer.

At a formal level, the proper procedures for the letting of the tender were observed. However, the checking and preparation of submissions for approval was deficient. There was a total reliance on the propriety and judgement of one key individual who had a long employment history and was respected for his expertise. There were no checking of procedures to ensure that the best deal and product were obtained. Such a situation is fraught with danger, exposing the individual to corrupt inducements and threatening the integrity of the system.

To accept overseas trips, or any other commercial benefits at the supplier's expense is clearly open to question. Such offers are only intended to serve the supplier's commercial purpose.

The further issue of accepting a job with the supplier raises a number of other issues. Dealing with former colleagues could easily create the conditions for real or supposed favouritism. This will obviously leave an organisation vulnerable to censure (whether deserved or not). The solution to this problem is complex and must be considered in relation to the particular circumstances of each case.

Diligence

There is a requirement to use your time, skills and attention to the maximum of your ability. Clearly, sub-standard behaviour leads to additional costs and/or possible unsafe and illegal outcomes.

In the area of resources and information, there is an obligation to take care of State Rail and customers' property. Failure to do so could lead to unnecessary repair costs and may even involve the Authority in having to defend itself against a suit for negligence.

The resources of State Rail are not to be used for private purposes such as using an expense account to entertain friends or getting a subordinate staff to help paint the family home.

Official information

Official information or documents are not to be disclosed except as required by law. To do so would be a breach of trust. Colleagues are to be given access to all State Rail information that would assist them in the performance of their duties. Wrong decisions frequently result from a lack of necessary and accurate information.

Information gained in a official capacity should not be misused. Misuse would include:

• Financial speculation on the basis of confidential information.
• Seeking to take advantage of another person on the basis of information held in official records.

A further ICAC enquiry addressed this matter. At issue was the behaviour of a number of police officers who used information from their confidential files in order to harass a particular citizen. The only grounds for this lay in their ill feeling towards the person concerned. When the officers were called to account for their actions, they attempted a cover-up based on the presentation of false and misleading information. The case was proven against them and civil charges are to be laid against the officers involved.

Conflicts of interest

A key area of concern is that relating to Conflicts of Interest. One needs to ensure that there is no real or apparent conflict between one's personal interests and professional duties. It is important to stress that one must not only conduct oneself with integrity but be seen to be doing so.

This means, for example, that business cannot be contracted to a family company, a personal friend or your own company without taking the necessary steps to distance oneself from the decision and subsequent transactions. Consider the implications (both real and perceived) of negotiating a contract, on behalf of State Rail, to yourself via a company where you have a seat on the Board of Directors. The matter of conflicts of interest was clearly at the heart of the recent ICAC investigation.

Some types of conflict can lead to arrangements that are illegal. As you will know, criminal proceeding can result from obtaining a benefit by deception and fraud. There is also the risk that an aggrieved party will institute civil proceedings in order to obtain restitution, and it is as well to remember that these proceedings can target family assets.

Where there is the possibility of a conflict of interest full disclosure is the best policy. Disclosure should be made in writing to the appropriate person - usually your manager. Remember, without secrecy or deception there is no problem. Having said this, there are six options for those who would resolve or avoid conflicts of interests. They are:

1. Prohibition - legal or management direction forbidding such situations.
2. Declaration - tell your supervisor about the conflict so that he or she can take appropriate action.
3. Registration - ensure that you have registered your interest with an authorised officer. Board members are required to do this.
4. Authorisation - obtain an authorised clearance of your interests.
5. Divestment - this would involve disposing of your interest.
6. Disqualification - you disqualify yourself from any decision where you have a conflict of interest.

Once again the ICAC investigations are of relevance.

In examining the affairs of a municipal council, the ICAC found a case of corrupt conduct which resulted in the misuse of public monies. In a clear case of a conflict of interest, a council officer used his position to influence the decision regarding a contract for the hire of earthmoving equipment. The contract was given after having ignored the requirement that tenders be called. In this case, the council officer was the brother of the successful contractor and he did not disclose this important and relevant fact.

Gifts and benefits

Gifts and benefits are another area for care and disclosure. All employees are expected to place the interests of State Rail and the public before their own. Any gift, reward or benefit offered or suggested in connection with one's duties must be disclosed to your manager.

This protects both the employee and State Rail. Unscrupulous entrepreneurs will seek an advantage at any price. There is no way of predicting whether allegations will be made by unsatisfied contractors. Such an allegation may be the fuse that ignites a ticking bomb. For definitional purposes, 'benefits' would include free travel, hospitality, accommodation or entertainment for employees or their families.

Outside employment

Outside employment is another area of possible conflict of interest. Whilst not inherently improper, one needs to guard against situations in which the primary employer is 'short-changed' because of a person's commitment to another job.

For example, a second job would be open to question if it led a person to devote part of their time at work to matters that were really part of the second job. It would also be open to question if it led to a situation where, through lack of adequate rest, a person's performance at State Rail was impaired. There is also the further danger that close contact with the second employer might lead to the perception that the relationship could give rise to an unfair advantage when trying to secure State Rail contracts.

Once again, it should be observed that each situation will be different. However, it may be no bad thing that current policy requires that a manager give his or her approval before a colleague can engage in outside employment. This measure is likely to protect all parties and not just the State Rail organisation. In summary, where approval is given, then outside employment should be performed wholly in the employee's private time and should be such that it will not affect the performance of duties at State Rail.

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General observations

Managers have additional responsibilities for communicating standards of conduct in the workplace. This requires leadership. Failure to communicate the desired standards of behaviour effectively condones the undesirable behaviour of subordinates. As such, this could contribute to the development of a negative culture which would, amongst other things, inhibit performance.

For example, consider what might be the result of a situation in which a manager ignores the fact that, despite a well publicised policy of moderation, his staff regularly take extended lunch hours at the local pub. What are some of the implications of his failure to let them know that this is unacceptable behaviour? At one level it is easy to see that the manager is in a poor position to do something about repeated occurrences of this or any other abuse of privilege.

In fact the employees involved have a reasonable defence if they claim that past practices and precedent demonstrate that such behaviour is allowed. This is not to say that managers should be inflexible and unyielding. However, it is to point to a serious deficiency that can emerge when consistency is sacrificed for some other real or perceived good (such as popularity).

At the heart of the problem is the risk of creating what has been called a ‘values gap’. This is not just a matter of consistency, it also touches on the larger question of whether or not the organisation is keeping values-questions before it, and under review. A 'values gap' can occur at the level of the individual manager or it can affect the whole organisation. Andrall E. Pearson (1977) gives an account of the danger:

Managers need to ask the tough question: Do we have the right values for right now? And the place to begin is by honestly confronting the ‘values gap’ that has developed in most large companies, the pervasive difference between what the company says it stands for and what it actually delivers. The values gap is the largest source of cynicism and scepticism in the workplace today.

The maintenance of credibility is an essential prerequisite for effective leadership. A good leader will be consistent and will lead by example.

Establishing 'protocols'

SRA's process of restructuring has led to a situation in which managers are fully accountable. Each of you has a share of responsibility. One implication to flow from this is that incidences of unethical or corrupt behaviour are now considered to be every managers' responsibility and not, as was previously the case, the purview of ‘specialists’. Given this increase in personal accountability and responsibility, it is clearly in the interest of managers to implement measures that encourage sound practices. These measures will include the adoption of effective management systems and controls.

To talk of 'systems' and 'controls' may be a little misleading in that it gives the impression that people are like cogs in a machine. Perhaps a better word to be introduced in to the manager's lexicon is‘protocol’. Effective protocols will ensure, for example, that proper procedures for handling money are developed, reviewed and, of course, implemented. Reviews of the operation of each department by staff delegated to do so, or by Internal audit personnel, may uncover opportunities for improvement in the protocols.

It is advisable to keep a running check that will pick up variations in planned outcomes. For example, even small deviations from budget may indicate that a problem is just around the corner. It may seem, at the time, that a minor variation is of little importance. However, given that a small sign may be a portent of larger change, it cannot hurt to enquire as to the reason for the departure from agreed expectations. This holds good as a general rule of ethical management. But is this to buy greater control at the cost of increasing surveillance? Surely this will be inimical to the task of building an organisation based on trust.

Such misgivings are understandable. However, they are based on a misconception about the status of enquiry and review; especially when these protocols are set in the context of a framework of open communications. Instead of such a process being seen as invasive, insensitive or accusing, the aim is to develop a culture in which the decision-making process is transparent, credible and 'user-friendly. That is, the aim is to develop open communications in which the flow of constructive criticism and enquiry is able to surge in both directions.

Attending to 'custom & practice'

A policy of being prepared to ask questions of those responsible for sudden and unexpected departures from plans can be augmented by the practice of staff rotation. Such a practice assists in staff development and is of particular use when trying to develop a workforce that is multi-skilled and flexible in its approach to change.

It is also extremely valuable as a critical management tool, in that it ensures that a fresh perspective is constantly being brought to established problems (which may then be converted into opportunities).

As is well known, custom and practice can become rooted in organisations and their several parts. If left undisturbed for long enough, then the culture is likely to develop in such a way as to allow for its reproduction through the 'induction' of new people into the informal standards of "how things are done around here".

Whilst it will not always be practical to advance a general policy of multi-skilling, it is none-the-less worth recognising that business units can flourish in unexpected ways when new personnel focus on policies which should have (and would have) been questioned if only they had been exposed to scrutiny. If one adds the force of peer pressure it is possible to explain the dynamics of a system that can allow bad practices to continue unabated.

This sub-cultural phenomenon can exist because some managers are blithely unaware of its impact. Others are co-opted into its service. Still others may attempt to institute change. If this is made without explanation and without involving all participants, then the natural forces of conservatism are likely to resist and may prevail. If the manager is particularly resolute then she may achieve change, but risks doing so at the cost of creating considerable bitterness, resentment and a potential loss of morale. That is one of the reasons for considering the principles of ethical management.

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The consequences of change

Recognising the inherent value and dignity of each person engaged in the enterprise can result in management that is both sensitive and, above all, effective.

Managers who wish to rely on the old bulwarks of hierarchy are unlikely to enjoy the experience of applying the principles of ethical management. In fact, this observation corresponds with evidence gained from observing the effects of applying the principles of TQM. In both cases it seems that some managers find that the new role that they are expected to fill is an uncomfortable one.

That is because both approaches require qualities of leadership that must be developed in order to compensate for the fact that less power is available from sources such as the established hierarchy of position, specialisation and trade. It is therefore equally important that new approaches to managing an enterprise be accompanied by a realisation that some of the people concerned are going to find the change profoundly disturbing.

Indeed, in some cases it will seem as if the long-standing roles of established managers simply disappear. Helping people to understand new sets of relationships, such as those that obtain between leaders and their teams, will be of great assistance. It may also be necessary to let managers know that they are valued for themselves and not just for what they can do on behalf of the organisation. Such a morale boosting approach will help restore confidence to those who are unsure of their qualifications for leadership.

It should also be observed that employees can be made equally uncomfortable by the experience of being more closely involved in the decision-making processes of an enterprise. They too have enjoyed the relative luxury of either following decisions made by others or of simply opposing them. Either way, many people have found it easier to distance themselves from responsibility for the general wellbeing of the enterprise.

Ethical management suggests that every person in an organisation matters and, therefore, that every person in an organisation has a corresponding responsibility to contribute their skills, intelligence and imagination in the service of the organisation's objectives. Once again it should be realised that these obligations are not restricted to technical matters of job performance.

Ethical management recognises that each person contributes to, and is therefore responsible for, the ethos (character) of an organisation. Such a responsibility has a practical impact on issues such as those discussed above; namely, the extent to which the organisation has open communications and is willing to engage in constructive criticism.

This notion of constructive criticism goes beyond being a call for constant vigilance. There is also a need for effective and responsible action. Put in stark but simple terms, it would be negligent not to take corrective action when unacceptable practices are identified. For example, audit reports cannot be ignored by Line Management but should be acted on by them in collaboration with their General Manager.

Watching the 'bottom line'

The principles of ethical management are not exhausted in notions of openness and critical reflection. It is also important to have a proper regard for the aim of the enterprise and for the fact that the business is being funded by the money of other people - principally, investors (the people of the State) and consumers.

Thus, there is a responsibility to optimise resources and minimise costs. That is, to ensure that the business produces goods and services of real and increasing value. This imperative is not only a creature of responsibility to others outside the organisation. Satisfying customer demand is the key to maintaining levels of employment - especially in times of great labour-saving, technical innovation. The imperative has a further, more natural source. It flows from the fact that people prefer to progress as the authors of things of quality and renown. People enjoy being associated with examples of excellence.

Running a business creates its own challenges and demands. The human dimension of work can be impoverished when expectations are too low and when a natural tendency to want to do well is stifled by bureaucratic indifference. It is in such circumstances that the ideal of noble labour can be transmuted into a reality of ignoble toil.

What a manager can actually achieve depends on the resources given, the performance level required and, of course, the degree of risk involved. Yet one should realise that even risk management provides one with an opportunity to reflect on best practice. At a practical level one can immediately see that it would not be cost effective to install a system costing $3m when it is likely to save you only $1m.

All managers are required to manage risk. They are required to identify risk, examine alternatives and determine the appropriate action. They are also required to ensure that their decisions are regularly reviewed. Recognising the important place of risk management is part of a process of acknowledging the integrated nature of the manager's role.

Managers are not only responsible for a range of functions across their spans of responsibility or along their lines of accountability. Integration means that each manager has an impact on every other person in the organisation. The principles of ethical management help us to see that risk for one is risk for all.

As has been noted above, each enterprise or organisation is part of a larger whole constituted by society. The community provides the infrastructure for all enterprise, and in our particular circumstances, it has adopted the principles of the market as the basis for conducting its economic life.

One of the advantages of the market system is that it is thought to be imbued with its own internal ethical standards. For example, it has been argued that the successful operation of 'invisible hand' (of the market) presupposes a basic morality which is based on elements such as: full disclosure leading to perfect information, voluntary fair trading, the abolition of anti-competitive processes and so on). As Professor Jeremy Davis (1989) has observed:

... in some sense we are contrasting a world in which the notion of "my word is my bond", a world of high trust, with a world which is purely caveat emptor, which implies very low trustworthy organisations. And the thing that I think economists teach us which bears on our morality is that the first is likely to be a much more productive society in any economic sense, because the entire deadweight loss of inspection, of protection, of insurance and of contracting is held to a minimum.

(Davis, 1989, p. 4)

The principles of ethical management draw attention to the fact that businesses may have a responsibility to harmonise their approach to that of the dominant economic system. So, for example, in tendering and procurement procedures the best outcome is to be obtained through the application of market forces (always considering time, cost and quality). Although there may be a case for developing relationships with 'strategic suppliers', continued patronage of a traditional supplier may not be sound practice if competition is eliminated.

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Conclusion

Ethical Management leads to a number of desirable outcomes essential to managing an enterprise the size of State Rail. It provides an environment in which people feel valued and respected and this enhances productivity. It minimises costs as supply and contract work are determined by market forces. It enhances quality as market competition forces suppliers to maintain standards in order to retain business. This gives the community a service that properly fulfils the wider social responsibility of State Rail. All of this can lead to a sense of corporate pride in having provided a first class service to the people of New South Wales.

The key to this is to grasp the central values of the dignity of each person: honesty, courtesy, fairness, efficiency and respect for property. In short a number of values that underpin ethical behaviour.

The Code simply spells out some of the implications of these in areas where the course of action is not clear. It provides minimal standards in certain areas so that individuals and the Authority are not exposed to risk. But it is no substitute for judgement, shared practices and understanding.

The key to ethical management is to understand the values and to let them form the basis for one's decision. If there is a simple key that opens the door to ethical management, it is this. When all other considerations have been taken into account, let any person freely ask, "But is it right?".

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