Core Principles of Fairness, Accountability, and Transparency in Business

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Notions of Accountability, Fairness, and Transparency

Business leadership affects the moral capability and performance of organizations. Business leaders influence the scope and character of formal ethics programs and the integration of ethics into everyday organizational life. However, most practicing business leaders in most countries most of the time are not held accountable for dysfunctional moral, social, and environmental performance. Many are seldom held accountable for adverse impacts of their decision-making, for example, deepening poverty, social disintegration, and environmental degradation. There is a need to convince managements that they should develop their “integrity capacity” which is the individual and/or collective capability for repeated process alignment of moral awareness, deliberation, character, and conduct that demonstrates balanced judgment, enhances sustained moral development, and promotes supportive systems for moral decision-making., These four key dimensions of integrity capacity—process, judgment, development, and system—should present challenges for business leaders so that they become more aware of moral concerns and thus respond more effectively to the problems that arise (Petrick and Quinn, 2001). The concept of “accountability” is discussed further below. 

Accountability

The record on business leadership accountability is mixed at best. In Great Britain, continental Europe, and Australia, the practice of social and environmental accounting has gained a strong foothold and expanded the scope of business leader accountability beyond maximizing shareholder wealth. The works of the Institute of Social and Ethical Accountability and other empirical research groups have demonstrated the corporate social performance-financial performance link. Unfortunately, many of today’s business people are not made to account for their activities and outcomes, especially for the things that go wrong and for their unethical actions. In terms of global accountability, many corporate leaders act under the myth that the public interest is synonymous with corporate property rights. Corporate business leadership’s external accountability only becomes an issue where a solid line is drawn between these two spheres.

Why is accountability important? Sound accountability structures are the most important aspect of prevention and detection of corruption. A civil society organization without proper accountability systems is fragile and open to rumors about mismanagement and abuse of power. Worst of all, it will prevent it from enjoying respect and full legitimacy in the eyes of its stakeholders including those duty bearers whom it intends to engage with advocacy.

Accountability – what it is:

    • To be accountable is to be liable to explain or justify one’s actions and decisions.
    • Accountability is the process of explanation and justification.
    • Holding to account is the process of requiring explanation and justification, but it is also about testing, forming a judgment, and if necessary, taking action.
    • Accountability implies responsibility: it is reasonable only to hold people to account for those things for which they are responsible.

Accountability what it is not:

    • It is not synonymous with responsibility.
    • It does not imply a management relationship.
    • It is not a “one off”annual event.
    • It is not the same as appraisal.
    • It is not about confrontation, “putting someone in his place” or “giving him a hard time.”

Accountability Structures

Accountability is the ability to account for your actions and performance to your stakeholders. Accountability includes the fact that persons (your stakeholders) are willing and able to hold you accountable. With the willing and able aspects of the definition, we have an operational understanding of accountability which can guide us in asking questions to accountability structures in the organization. Accountability, then, is the obligation to demonstrate that work has been conducted in compliance with agreed rules and standards or to report fairly and accurately on performance results vis-a-vis mandated roles and/or plans.

Fairness

It is the quality of making judgments that are free from discrimination. Judges, umpires, and teachers should all strive to practice fairness. Fairness comes from the old English fæger, meaning “pleasing, attractive.” This makes sense given that the word is also used to describe physical beauty. Fairness can refer to someone’s good looks, or if someone is very pale and blond, you might notice the fairness of her complexion. When someone shows fairness in making a decision, he is pleasing all parties involved and offering a solution that is attractive to everyone.

Fairness—in the context of a business organization—involves balancing the interests involved in all decision-making including any decisions related to hiring, firing (including the investigatory process), and the compensation and rewards system. Recent research has expanded the meaning of equity or fairness. Historically, equity theory focused on distributive justice, the employee’s perceived fairness of the amount of rewards and who received them. However, organizational justice draws a bigger picture. Employees perceive their organizations as just when they believe rewards and the way they are distributed are fair. In other words, fairness or equity can be subjective; what one person sees as unfair may be perfectly appropriate for another. In general, people see allocations or procedures favoring themselves as fair.

Overall, fairness has to do with justice, which is to give to another that which is due him or her. More concretely, justice: (1) looks at the balance of benefits and burdens distributed among members of a group; and/or (2) can result from the application of rules, policies, or laws that apply to a society or a group. In general, the just results of actions override utilitarian results.

Transparency

Transparency has become an increasingly popular word in recent times; it is used and sometimes misused by both scholars and practitioners. In this context, the associated academic literature has recently analyzed several issues associated with corporate transparency such as the ethical justifications for information disclosure, the ethical nature of corporate information transparency, or the use of transparency in management-employee relationships.

Transparency is an issue that often emerged in the documents by Pope Benedict XVI. Caritas in Veritate (CV) referred to transparency seven times. The intrinsic or ethical salience of transparency appears at the individual level, while its instrumental salience manifests itself on both the organizational and social levels. At the individual level, transparency acquires intrinsic or ethical salience as an important feature of a person’s relational dimension. It is described as a personal quality necessary to develop unity and communion between individuals (CV 53, 54). Indeed, a transparent approach allows an individual to be more authentic and genuine in his/her relationships to express his/her points of view and to actively work to find shared meanings and objectives. 

Transparency is essential in building families, and through families, in strengthening civil society as a whole: “The human family does not submerge the identities of individuals, peoples, and cultures, but makes them more transparent to each other and links them more closely in their legitimate diversity” (CV 53). On the organizational level, the instrumental salience of transparency is referred to in two instances (CV 47, 65) In the first case (CV 47), transparency is identified as an important mechanism for guaranteeing social accountability. The discussion is focused on the role that transparency plays in international and non-government organizations (NG0s) working in humanitarian projects. This understanding of transparency as a means for organizational accountability is consistent with previous Catholic Social Thought (CST) documents. Appropriate information disclosure is necessary to inform donors about how their money is used by these organizations. Benedict XVI makes precise indications about the kinds of information that should be disclosed, such as the percentage of funds directly used to help people, the activities and the results achieved, and how these organizations’ budgets are distributed among different organizational functions. Transparency allows stakeholders to understand whether the activities of social institutions such as international organizations and NGOs provide a genuine service to civil society and whether money is used appropriately.

Notions of Competence, Professionalism, and Responsibility

Studies show that moral character and technical competence are viewed as being equally important for worker excellence. The greater the need to engage with co-workers who have different values, interests and needs, the more important it becomes for employees to be able to connect with colleagues, to understand different perspectives, to balance sometimes conflicting claims and to act competently both interpersonally and ethically. In order to do that a responsible worker needs a minimum set of skills, as well as moral and relational qualities (Whetstone, 2003). The following are the minimum competencies expected of professionals. 

  • Technical skills encompass the ability to apply specialized knowledge or expertise. When you think of the skills of professionals such as civil engineers or oral surgeons, you typically focus on the technical skills they have learned through extensive formal education. Of course, professionals do not have a monopoly on technical skills, and not all technical skills have to be learned in schools or other formal training programs. All jobs require some specialized expertise, and many people develop their technical skills on the job (Robbins and Judge, 2013).
  • Human skill is the ability to understand, communicate with, motivate, and support other people, both individually and in groups, which defines human skills. Many people are technically proficient but poor listeners, unable to understand the needs of others, or weak at managing conflicts. Because managers get things done through other people, they must have good human skills (Robbins and Judge, 2013)
  • Conceptual skills are the skills and the mental ability that managers must have to analyze and diagnose complex situations. Decision-making, for instance, requires managers to identify problems, develop alternative solutions to correct those problems, evaluate those alternative solutions, and select the best one. After they have selected a course of action, managers must be able to organize a plan of action and then execute it. The ability to integrate new ideas with existing processes and innovate on the job is also a crucial conceptual skill for today’s managers (Robbins and Judge, 2013). 

The first and most basic necessary skill for a working professional is solid competence in the human sphere, in the sphere of work. Such competence requires the following characteristics: (a) human maturity—a person works not only hard and solidly but also efficiently, that is, with professionalism; and (b) work is done ina spirit of service and love for those around us—the worker has to take in and develop the social dimension that the work involves. He realizes that work is something that helps improve social conditions generally; it is a source of progress and well-being (Illanes, 2003).

The working professional also needs “relational intelligence (RI)” in order to connect and interact effectively and respectfully with people and stakeholders from various backgrounds, diverse cultures, and with different interests, inside and outside the organization, and to build lasting and trustful relationships. RI is based on a combination of emotional intelligence and “ethical intelligence.” Commercial viability and long-term business success depend on the ability of a firm and their leadership to act responsibly with respect to all stakeholders in business, society, and the environment. Responsibility means to make sure that the company’s products and services meet the needs of the cust6mers and clients, that they are safe and not harmful, and that real and potential risks are openly and transparently communicated (Maak and Pless, 2006).

Part of the responsibility of the worker is to be trustworthy: employees need to demonstrate that they have integrity, benevolence, and ability in situations where trust is important—say, where they could behave opportunistically or let employees down but do not. Trust can also be won in the ability domain simply by demonstrating competence. This trustworthiness is all the more important in managers: those who break this psychological contract with subordinates, demonstrating they are not trustworthy, will find employees are less satisfied and less committed, have a higher intent toward turnover, engage in less citizenship behavior, and have lower task performance. Managers who betray trust are especially likely to be evaluated negatively by followers if there is already a low level of leader-member exchange. Once it is violated, trust can be regained, but only in certain situations that depend on the type of violation. If the cause is lack of ability, it is usually best to apologize and recognize you should have done better. When lack of integrity is the problem, though, apologies do not do much good. When employees are engaged in issues relevant to their interests, in addition to having the competence and knowledge to make a useful contribution, as well as trust and confidence existing among all parties, then they are better motivated. When there is “participative management;’ (i.e., when management is willing to share decision-making with subordinates), then the result is an increase in or improvement in overall morale and productivity (Robbins and Judge, 2013). 

Businesses also support the well-being of members of society through their other key functions. At the very least, a good business carefully avoids any actions that undermine the local or global common good. More positively, these businesses actively seek ways to serve genuine human needs within their competence and thus advance the common good. In some cases they actively promote more effective regulation on a regional, national, or international level. For example, some destructive business strategies, including corruption, exploitation of employees, or destruction of the natural environment, might thereby lower short-term costs for themselves, while leaving the much higher long-term costs to future generations of the local society (Pontifical Council for Justice and Peace, 2012). 

The Relationship of Accountability, Stewardship, and Responsibility with Ethical Businesses

Scholars have recently considered ethical leadership from a new angle by examining servant leadership. Servant leaders go beyond their own self-interest and focus on the opportunities to help followers grow and develop. They do not use power to achieve rf ends; they emphasize persuasion. Characteristic behaviors include listening, empathizing, persuading, accepting stewardship, and actively developing followers’ potential. Because servant leadership focuses on serving the needs of others, research has focused on its outcomes for the well-being of followers. What are the effects of servant leadership? One study of 123 supervisors found it resulted in higher levels of commitment to the supervisor, self-efficacy, and perceptions of justice, which all were related to organizational citizenship behavior (OCB). This relationship between servant leadership and follower appears to be stronger when followers are focused on being dutiful and responsible. Second, servant leadership increases team potency (a belief that one’s team has above-average skills and abilities), which in turn leads to higher levels of group performance. Third, a study with a nationally representative sample of 250 workers found higher levels of citizenship associated with a focus on growth and advancement, which in turn was associated with higher levels of creative performance (Robbins and Judge, 2013). 

Responsibility for one’s education and work experience has also been found to be related to ethical behavior in organizations. Some studies reported positive influences between education or employment or work experience and ethical behavior. For example, some of those studies found that individuals in the latter years of their career displayed higher ethical judgment. The major argument is that, as one gains further experience and education, higher levels of moral reasoning are expected. This higher level of moral reasoning, in turn, leads to more ethical behavior. 

The Notion of Organizational Diversity and the Role of Women in Business Organizations

Organizations use a variety of efforts to capitalize on diversity, including recruiting and selection policies, as well as training and development practices. Effective, comprehensive workforce programs encouraging diversity have three distinct components. First, they teach managers about the legal framework for equal employment opportunity and encourage fair treatment of all people regardless of their demographic characteristics. Second, they teach managers how a diverse workforce will be better able to serve a diverse market of customers and clients. Third, they foster personal development practices that bring out the skills and abilities of all workers, acknowledging how differences in perspective can be a valuable way to improve performance for everyone. Much concern about diversity has to do with fair treatment. Most negative reactions to employment discrimination are based on the idea that discriminatory treatment is unfair. Regardless of race or gender, people are generally in favor of diversity-oriented programs, including affirmative action, if they believe the policies ensure everyone a fair opportunity to show their skills and abilities. Some diversity programs are truly effective in improving representation in management. They include strategies to measure the representation of women and minorities in managerial positions, and they hold managers accountable for achieving more demographically diverse management teams (Robbins and Judge, 2013).

Women in Organizations

Several studies show that business organizations stand to gain from the presence of women, especially on their Boards of Directors. Although women will remain a distinct minority on boards for the foreseeable future, women continue to be appointed to boards through their personal relationships as well as track records and appropriate expertise (Burke, 1997). Findings appear to show that, among others: (1) firms employing more women managers have probably done a better job of recruiting capable managers from the total available talent pool, and consequently will be in a better position to link with customers, employees, and other constituencies (Shrader et al., 1997); (2) firms having a higher proportion of women serving on their boards do engage in charitable giving to a greater extent than firms having a lower proportion of women serving on their boards. Further, the results suggest a link between the percentage of women on boards and firm. philanthropy in the areas of community service and the arts, but found no link between women board members and firm giving issues (Williams, 2003); (3) investors (in Singapore) value the diversity and potential contribution of women on the board of directors, that is, the appointment of female directors may be viewed as a means of improving corporate governance affirms whose boards may be dominated by old-boys networks, besides adding to the diversity of corporate boards (Ding and Charoenwong, 2013); and (4) since women represent a significant proportion of the customer base in many corporations, the presence of female directors would bring the female perspective to the boardroom and positively impact the bottom-line of companies, as explained by evidence that male CEOs find the viewpoints of female directors beneficial in understanding female clients (Burke, 1994). 

An oft-repeated research topic in this area is whether and how the participation of women in the firm’s board of directors and senior management enhances financial performance. Some findings show that firms operating in complex environments do generate positive and significant abnormal returns when they have a high proportion of women officers. Although the participation of women as directors does not seem to make a difference in this regard, firms with a high proportion of women in both their management and governance systems generate enough value to keep up with normal stock-market returns. These findings tend to support the policies currently being discussed or implemented in some countries and organizations to foster the advancement of women in business (Francoeur et al., 2008). Likewise, firms employing higher percentages of women are likely to perform better inasmuch as they are more progressive and more competitive because their management contingents more closely mirror the composition of existing markets (Shrader et al., 1997).

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