SESSION 12

Emphasizing Ethical Leadership Practices

Prepared by

Tawil Wiryadi (17/421958/PEK/23535)

Johanes A. Situmorang (17/422812/PEK/23658)
Dyna Yota Damanik (17/422804/PEK/23650)

STRATEGIC LEADERSHIP
 Table of Content

CASE: Taboo scenarios : How to think

Accuform : Ethical Leadership about the unthinkable

♗
And Its Challenges in the Era of
Globalization 6 1 ♘

Ethical Leadership and the

Psychology of Decision Making
5 2
Leadership in the age of
Transparency
♖ ♙

Moral Person and moral manager

How executives Develop a
Reputation for Ethical
4 3
♔
Strategic leadership of ethical
Leadership behavior in business

♜
www.youtube.com/c/powerupwithpowerpoint
 Ta b o o S c e n a r i o s
The first appearance of the English word “taboo” can be precisely dated. In 1777, Captain Cook’s book Voyage to
the Pacific Ocean recounts how Polynesians use the Tongan word “tabu” to describe anything “consecrated,
inviolable, forbidden, unclean or cursed.” The term could refer to fruits or meats that should not be eaten, improper
sexual relationships, or theft and murder within the tribe.

Taboo examples include: sanctioning an economic market for human organs, selling unwanted children to the
highest bidder, or, for some, even creating an incentive-based market for pollution credits. These controversial ideas
imply “taboo trade-offs” that put a finite value on things that, according to our reflexive moral intuitions, we deem of
infinite importance.

Organizational taboos also involve deeply embedded beliefs and values that restrict what is considered appropriate
thought, discussion, and action. Most organizations claim to prize creativity and open-minded inquiry and putatively
encourage managers to explore a wide range of options. Nonetheless, most organizational cultures also harbor
unspoken taboos that limit what managers can think, say, or do. Such taboos can vary from company to company,
and even within different areas of an organization itself.

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Public Reactions to Taboo Violations :
• Moral Outrage: punitive character attributions, as well as contempt, anger, and disgust;
• Sanctions: any and all forms of punishment/public humiliation, such as fines, demotion, loss of job, loss
of freedom, flogging, and execution; and
• Calls for Moral Cleansing: public hunger to see violators and their associates recommit to sacred values
through symbolic sacrificial acts—such as volunteerism, establishing foundations, tithes, denouncing
other violators, public flogging, or street clean-up by convicts.

As categorical as most taboos sound, many permit exceptions.

For example, killing another human may be acceptable in self-
defense, in the heat of war, in prisons via execution, or in
hospitals through passive euthanasia. Such exceptions are
useful and allow taboos to shift over time. Longstanding taboos
may need to be recalibrated due to innovation, technological
advance, or just new ways of thinking.
Taboos and the Power of Framing
Example 1
In one experiment, Participants were told about a thinly fictionalized government program charged with cleaning up waste sites to
eliminate public health risks. The Danner Commission, a group of community, business, and government leaders dedicated to improving
efficiency in public services, investigated the program and recommended reforms. If these reforms are followed, the program could save
200 lives, at a cost of only $100 million. If the program continues at the previous year’s budget of $200 million, 400 lives could be saved.
The Commission, however, recommends redirecting the saving of $100 million to other uses, including reducing the deficit and lowering
taxes.

The experiment assessed participants’ reaction to both the naked recommendation, and the rhetorical framing of the recommendation.
1. For two groups of participants, the Commission offered a vague smokescreen rationale
2. For a third group, the decision process was made transparent: people learned that the Commission decided that the cost of saving
the additional 200 lives is too high given other priorities.

For the first two groups, approval for the recommendation hovered at 72%.
In the third group, for whom the trade-off had been made explicit, approval plummeted to 35%.

This suggests the advantages of obfuscation: vacuous moralistic rationales are less likely to meet resistance than clearly articulated
trade-offs that specify a dollar valuation for human life.
Taboos and the Power of Framing
Example 2
In 1997, Republicans exposed Bill Clinton’s practice of allowing
big campaign donors to sleep in the Lincoln bedroom. The
implication was that Clinton was buying and selling access to a
sacred site.

The White House reframed the issue—the Clintons were not

violating a taboo by allowing a sacred site to have a market price,
but rather protecting and affirming a different value—that of
reciprocity and friendship.
In another experiment, Tetlock et al. asked people to judge the ethics of “Robert,” a hospital
administrator confronted with a decision that might save the life of a 5 year old boy named
Johnny.
Coping with Taboo
Below are seven suggestions that to help organization cope with taboo:
• List relevant business issues that employees prefer to avoid, engender shame, or
are off limits
• Assess the source of the misgivings about these subjects.
• Score the relevance of each taboo subject in terms of its potential for damage to the
company’s well-being as well as the probability of this happening.
• If several taboo issues are interconnected and surrounded by uncertainty, develop
scenarios that illustrate the full of range of issues, including taboo scenarios, and
how they might play out.
• Motivate the development of taboo scenarios by pointing out how common they are,
and that no organization is immune.
• If opposition is especially high to an important taboo view, create an organizational
unit that is tasked with challenging the received wisdom.
• Consider using shock therapy in strategy workshops by asking why and how the
company may be out of existence in 5 years (pre-mortems) or why some executives
might be in prison.

In some cases, circumstances suggest a Machiavellian solution: obfuscate the trade-

offs by embracing a vague public-decision posture that does two things: covertly takes
into account the taboo and permits plausible deniability.
To survive, many organizations may have to institutionalize hypocrisy in at least some
of their decision processes.
Leadership in the age of
Transparency

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Externalities
Externalities is the term economists use when they talk about the side
effects, or in the positive case, the spillover effects of a business’s
operations.
They’re the impacts that a business has on its broader milieu, either
directly or indirectly, but is not obliged to pay for or otherwise take into
account in its decision making.

Trends in three areas cause the demands to operate responsibly are

dramatically increasing:
1. the growing scale of companies and their impacts
2. improvements in sensors that measure impacts
3. heightened sensibilities of stakeholders

Stakeholders regard a company as responsible when they perceive that

it is steadily internalizing externalities—that is, using sensing capabilities
to measure and manage its impacts on society.
To think about how to embrace externalities, we can use ripples of
responsibility diagram.

At the center of this simple diagram is the business you run today:
the domain that you actively manage and the key performance
indicators you track.

• If a problem is directly attributable to you (like emissions levels), it

falls within your first ring and the onus will be on you, not some
other company or organization, to make up for it.

• If a problem is one you contribute to, but to which your direct

accountability can’t be measured it is in the second ring. You
need not take ownership of it, but given your competence and its
relevance, you should take action.

• The third ring consists of more distant ripple effects, in which you
should at least take an interest—and a visible one. You do not
have particular competence on this front, but relevance still
applies.
Ethical Change
Based on :
Strategic Leadership of Ethical Behavior in Business
Terry Thomas, John R. Schermerhorn and John W. Dienhart
Structure

Framework Adoption Action

Create sense of urgency It must be done Create urgency in company
by calculate cost of unethical
action

Action to center momentum It can be done Achieve ethics mindfulness

to change through leadership that
influence employee

Anchor change so it It is sustainable Strive to virtuous and anchor

sustainable change by building corporate
control
IT MUST BE DONE

ETHICAL COST
LIMITATION OF REGULATOR
CHANGE URGENCY
IT CAN BE DONE

CULTURE
Self Regulatory
Role Model
Influence
Ethics
Social Mindfulness
Context

Social Personal
I T I S S U S TA I N A B L E
LEADERS ACTION
I T I S S U S TA I N A B L E

INTEGRITY PROGRAM COMPLIANCE PROGRAM

Excellence Laws, Regulation and Rules

Self governance to self chosen Conformity to external standard

standard
Encourage shared commitment Prevent criminal

Management driven Lawyer driven

Evidence : Behavior, issues, decision making, commitment and willingness

LEADER’S RESPONSIBILITY
Become a public and vocal ethical role model not out of fear but
out of freedom, success and self confirmation

- Vocalize clear and consistent positive ethics message from the top
- Create and embrace opportunity for everyone in community to
communicate ethic value and practice
- Ensure consequences of ethical & non ethical conduct
 LEADERSHIP

MORAL PERSON AND MORAL MANAGER

By: Linda Klebe Trevino, Laura Pincus Hartman, Michael Brown

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Leadership Requirement

1 2 3
Moral Moral
Person : Manager : A reputation
Conforming Creating for ethical
complex code moral codes leadership
of morals for others
 Moral Manager

Trait Behavior Decision Making

• Integrity • Do the right • Hold to values

• Trustworthy thing • Objective/Fair
• Honesty • Show concern • Concern for
for people society
• Being open • Follow ethical
• Have personal decision rules
morality
Moral Manager

Role modeling through visible action

Communicating about ethics and values

The reward system

WHERE ARE US?
What can we do?

SHARE BECOME
Share your values : who Assume the role of moral
you are as an ethical manager : chief ethic
person officer in your organization

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 LEADERSHIP

Ethical Leadership and the Psychology of Decision Making

David M. Messick – Max H. Bazerman

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C H A N G E S I N TO D AY ’ S
BUSINESS
U N E T H I C A L B U S I N E S S D E C I S I O N S M AY
STEM FROM PSYCHOLOGICAL TENDENCIES
T H AT F O S T E R P O O R D E C I S I O N M A K I N G

Estimating Risk Biases when Outside

and Likehood Seeking Influances
Information

IDENTIFYING AND CONFRONTING THESE

TENDENCIES WILL INCRASE THE ETHICALITY
AND SUCCESS OF EXECUTIVE DECISION
MAKING
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Three Types of Theories

1 2 3
THEORIES THEORIES
THEORIES
ABOUT ABOUT
ABOUT THE
OTHER O U R S E LV E S
WORLD
PEOPLE

• Beliefs we hold about

• Our organized beliefs • Beliefs we are unique
how the world works
about how “we” are individuals
• Nature of the causal different from “they”
• Lead us to unrealistic
network in which we
• Includes ethnocentrism beliefs about ourselves
live
and stereotypes
• Wa y s i n w h i c h o u r
decision influence the
world
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 THEORIES
A B O U T T H E W O R L D
There are 3 components to this theories

The Consideration of The Judgment of risk The Perception of Causes

possible consequences
• Ignoring Low-Probability Events • Risk Trade Offs • Focus on People
• Limiting the Search for Stakeholders • Risk Framing • Different Events
• Ignoring the Possibility That the Public Will
“Find Out”
• Discounting the future
• Undervaluing Collective Outcomes 28
THEORIES ABOUT OTHER PEOPLE

ETHNOCENTRISM STEREOTYPES
Perception that “our way” is normal and preferred and • Exist about different nationalities, sexes, racial group and
that other way are somehow inferior occupations
Ex : Pearl Harbor • Risk making unfair, incorrect and possibly illegal
judgements

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 THEORIES
ABOUT OURSELVES
The illusion Self Serving
of Fairnes Overconfidence
superiority Biases

People view themselves Conflict between Most people are

positively fairness and the erroneously
desires outcome confident in their
Identified 3 such illusions
knowledge
1) Illusion of Favorability
2) Illusion of Optimism
3) Illusion of Control
Improving Ethical
Decision Making
QUALITY
Executives who make higher quality decisions
will tend to avoid ethical mistakes

BREADTH
Assesment of the full range of consequences
that policies entail

HONESTY
A policy of opened does not require executives
to tell all

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ACCUFORM: ETHICAL LEADERSHIP AND
ITS CHALLENGES IN
T H E E R A O F G L O B A L I S AT I O N
AMY LAU - RAYMOND WONG
 High Tech coating technology for garments involved attaching a
layer protective coating on the surface of fabrics and also around
the fibres so as enhance the functional value of garments, such as
FA B R I C wrinkle resistance, soil release, stain repellence, flame retardance
etc.

C O AT I N G The use of precise quantities and mixtures of chemical properties in

the coating production was important as the smallest changes
could lead to health risk such as allergies which would result from
skin contact.

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INDUSTRY
GROWTH AND The use of high end technology
to make garments was gaining

GLOBAL TRENDS wider popularity globally .

ONE

Fuelled by the emergence of new fibres, new fabrics and

innovative technologies, performance apparel became
one of the fastest growing sectors of the international
textile and clothing industry

TWO

Global market players believed

China’s Apparel market had a great
potential (growth 19,6%)
INDUSTRY
THREE S TA N D A R D S
 The standard for application of substances to fabric and fibre
varies between countries
 Several industry standards had been introduced by non-profits
associations as guidelines for textile and related industry
practice.
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 background

AccuForm CreaseFree DynaCoat

• Held 16% of total market share • Hongkong Company • Germany Company
(2nd) garment coating industry • Had very strict quality assurance
• Traditional Chinese culture,
within the Asia Region
adaptable to china’s business system, to ensure its products
• A lack of advantage in environment – guanxi worldwide maintained a
manufacturing cost, poorly consistently high standard of
• Low awareness of corporate
skilled local labour and R&D safety and quality while
social responsibility
talent protecting the natural
environment
• Expensive raw material cost,
transportation cost, tariff incurred • ISO 9001 (quality), ISO 14001
(From Europe) (professional integrity)

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 JOINT VENTURE
There are Incorporated in June 2000

DynaCoat CreaseFree

R&D
Marketing and Purchasing Management of Company
Production

• Due to higher cost, the company had started to located supplier in Asia REGISTERED
• AccuForm coating distributed to mainland China and South East Asian countries TRADEMARK
• All these manufacturer were required to obtain licenses from AccuForm in order to
use its coatings
• Every garment manufactured with AccuForm coating had the Accuform label,
which was registered trademark in China, attached to the inside as a sign of
quality assurance.
R AY M O N D K I M – T H E L E A D E R S
LEADERSHIP
• Had been serving DynaCoat for 25 years. June 2000 appointed as GM for AccuForm.
• AccuForm ‘s vision to push forward the company’s position as a market pioneer in
advanced high-tech coating industry in Asia Pacific.
• 10% revenue will invest in R&D

CORPORATE CULTURE
• Charisma and excellent communication skills had allowed him to blend in organization
• Expected staff to be highly self-discipline
• Different culture by staff that transferred over from CreaseFree (dislike idea of having
report on their social and environmental commitment

R&D INITIATIVES
• Form a strong R&D team (recruiting chemical engineers, application technicians and project
managers)
• Bonus Scheme as a way to motivate the R&D workforce, competition become heat in organization
and staff had voluntarily chosen to work late and on weekend
• Given greater authority and flexibility to access corporate resources and information in order to
come up with new ideas and develop new invention. Team leader submit report on monthly basis 37
Albert Ching – R&D Manager

Referred by CreaseFree Purchasing Manager

Albert Ching, son of CreaseFree client, have many
connection in garment industry

Had over 8 years experience in managing project on

fabric modification

Ching had established good relationship with many of

AccuForm client and suppliers in China by adopting the
traditional guanxi-building approach

Ching also introduced two of his ex-colleagues to

AccuForm as production line supervisors

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The Outbreak of Allergies
Oct 20th 2005, eight children in Guangzhou were
reported in the news to have developed rare skin Over Utilization ????
rashes caused by the clothes that they newly bought.
AccuForm trademark is identified on these children
clothes (which were similar to those sold in AccuForm
The machines in those production lines easily
retail outlet in Hong Kong) broke down because of an over-utilization to
Kim relentless investigation with the help of a private
produce extra coatings.
investigator had somehow managed to unveil
“CoralWear”, the manufacturer who made the
garments.
Instead of disposing of those chemical wastes
properly; They were used to make defective
Kim investigated internal report, found :
coatings which were then delivered elsewhere
• 2 production line had recorded extraordinarily
and sold off by Ching for personal gain.
higher downtimes (reason : under repair)
• AccuForm’s production Line were less than four
years old and they are regularly serviced
• R&D (the team led by Ching) had recorded a higher
scrap rate than others.
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 GATHERING Confrontation
Other head department collecting some evidences that confirming

EVIDENCE •
•
Ching misconducts.
.
Invoice from recently recruited suppliers
Accounting report
Call business allies, to make inquiries about Ching • Production and productivity reports
• Waste treatment centre
relationship with his previous company • Comparison report from chemical waste collected and reported
amount of unsuccessful coatings
Approach some of plant staffs to find some fact on • Whistleblower’s letter
field/R&D staff (Anything about Ching involvement in the • Photo and document related to CoralWev
incident) :
Ching has indeed discreetly instructed some of his co-worker to ship
untested coating to CoralWear during weekend) Ching Misconduct

Private investigator, that Ching was the founder of

CoralWear established on April 2004 (15 month after
Ching was recruited)

Letter from anonymous sender (suspected R&D worker

under Ching’s Group) :
Ching had bribed his team member, two line supervisor and other worker
on production lines in question to remain silent
Asking money (under table) from recruited suppliers
 Denied that he had demanded a kickback form supplier, but
instead they just gave the money to him without him asking, as
an accepted norm in China-guanxi culture

Denied, about Ching using AccuForm’s name to promote

garments produced by his own company, CoralWear

Argued : its happen because user not washes the clothes before
wearing them

Ching Respond
Other Ching acts that are not allowed :
due to • Misappropriation of AccuForm’s Properties
the evidence • Forming corrupt network within company
• Blackmailing AccuForm’s employee
that was
collected by Kim
FLOW OF MONEY
LAUNDERING
Our Recommendation
Compliance Program Integrity Program
- Fire all employees that involved - Create an ethic committee that include
director from DynaCoat and
- Improve access restriction to RnD area
CreaseFree to align ethical perception
- Increase accountability of RnD in Accuform
personnel
- Improve ethical awareness by internal
- Establish a whistle blowing system program
- Reinforce ethical factor during
employee recruitment
- If needed, institutionalized the bribery
system into some promotional program
support
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