Evaluate Ethical Behavior

| April 29, 2015

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Task: Evaluate Ethical Behavior

Using the Folole Muliaga case study provided in Bridgeman (2010) and Eweje and Wu (2010), evaluate alternative actions and consequences to Mercury Energy. In your paper, be certain to specifically address the following:

• Briefly summarize the Folole Muliaga scenario

• Assess the consequences/outcome

• Determine if what Mercury Energy did was illegal

• Are you in agreement with the police and coroner decisions? Why or why not?

• What reforms/guidelines were adopted as a result of this tragedy?

Support your paper with a minimum of five (5) scholarly resources in addition to required resources. In addition to these specified resources, other appropriate scholarly resources, including older articles, may be included.

 

Beyond the Manager’s Moral Dilemma: Rethinking the ‘Ideal-Type’ Business Ethics Case Todd Bridgman

ABSTRACT. Case teaching occupies a central place in the history of business education and in recognition of its significance, the Journal of Business Ethics recently created a new section for cases. Typically, business ethics cases are used to teach moral reasoning by exposing students to real-life situations which puts them in the position of a decision-maker faced with a moral dilemma. Drawing on a critical management studies’ (CMS) critique of main- stream business ethics, this article argues that this ‘ideal- type’ decision-focused case underplays the social, political and economic factors which shape managerial decisions. An alternative ‘dark side’ case approach is presented, which highlights the structural features of capitalism and the role of government in regulating the market. The ‘dark side’ approach is illustrated with the case of a New Zealand woman, dependent on an oxygen machine, who died when her power was disconnected by her State- owned electricity supplier because of an unpaid bill. The case considers the actions of both the company and the industry regulator within the context of a ‘light-handed’ approach to government regulation. The article con- cludes with a discussion of how this approach to the case method, which moves beyond managers and their moral dilemmas, can provide students with a deeper under- standing of the complexity of business ethics.

KEY WORDS: business ethics, case teaching, critical management studies, management education, profes- sionalisation

Introduction: ethics teaching in the spotlight

The crisis which swept nancial markets in 2008 has prompted another round of questioning over the role played by business schools. Following the post-Enron introspection over the state of busi- ness education (Ghoshal, 2005), this latest bout of

soul-searching has intensied concerns about the moral shortcoming of today’s business school grad- uates. Labelled the ‘academies of the apocalypse’ (James, 2009), business schools are blamed for pro- ducing ‘wannabe Gordon Geckos’1 (Chibber, 2009) who believe that is greed is a virtue which holds the key to economic prosperity (Walker, 2009). The global nancial crisis (GFC) has re-ignited interest in the idea of management as a profession. The professionalisation project was prominent in the founding of business schools in the United States (Khurana, 2007), but it gave way in the 1960s to an emphasis on technical expertise following criticisms of poor quality research and low quality students (Gordon and Howell, 1959; Pierson, 1959) and was further undermined in the 1980s when economic theories, such as agency theory, came to dominate the curriculum, framing the task of management as the narrow pursuit of shareholder interests (Ghoshal, 2005). The idea of the corporate statesperson was in danger of becoming ‘increasingly obsolete and embarrassingly irrelevant’ (Danley, 1998, p. 21) – the lofty view of management as a profession with ‘higher aims’ abandoned in favour of a view which sees managersas‘hiredhands’servingshareholderinterests (Khurana, 2007). The GFC has led to attempts to resuscitate the gure of the management professional. Khurana and Nohria (2008) outline a Hippocratic Oath for Managers, based on that undertaken by medical professionals, in which managers pledge to serve the public’s interest. At their own institution, Harvard Business School, half of the graduating class of 2009 pledged to honour the values of the man- agement profession (Economist, 2009).2 At the heart of professionalisation is the issue of trust. The legitimation of management as a profession

Journal of Business Ethics (2010) 94:311–322 Springer 2011 DOI 10.1007/s10551-011-0759-3

rests on an ethos of service where managers serve society’s interests, rather than the narrower interest of thecorporation.Professionalisationoffersthepromise of a self-disciplinary mechanism, with its shared knowledge, standards and norms of conduct allowing a form of self-regulation to compensate for the imperfectionsofmoreformalisedregulatoryprocesses (Khurana, 2007). If organisations are run by moral managers, then the implication is that they can be trusted to govern themselves, rather than being sub- jected to heavy oversight from state-based regulatory mechanisms. The stakes are high, with accreditation agency Association to Advance Collegiate Schools of Business (AACSB, 2004, p. 7) warning that ‘at issue is no less than the future of the free market system, which depends on honest and open enterprise to survive and ourish’. As the response of governments to the GFC demonstrates, if managers cannot be trusted to act in the interests of society, then the freedoms extended to business will be curtailed. Where does this leave the teaching of business ethics? It is widely accepted that more ethics teaching is needed, but how should we teach ethics? A recent meta-analysis of business ethics programmes con- cluded pessimistically that such programmes have little impact on students’ perceptions, behaviour or awareness, although it did note that ‘the instructional approach that is most fruitful for ethics is a case- based approach’ (Waples et al., 2009, p. 147). The case-based approach has nearly 100 years of history within business schools and has been an integral part of ethics education by endeavouring to assist the development of students’ moral reasoning. This article identies an ‘ideal-type’ business ethics case, based on analysis of submission requirements to leading case journals, where students encounter managers who are faced with moral dilemmas and must balance the needs of multiple stakeholders in making ethical decisions. Underpinning this approach is an assumption that the moral deciencies of managers are the solution to the problem of repugnant corporate conduct. This article explores that assumption by drawing on a critique of main- stream business ethics by critical management studies (CMS), which encourages us to attend to systemic inuences. From this perspective, unethical behav- iour by corporate managers might alternatively be viewed as the rational pursuit of prot within a capitalist system. In considering ways to improve

corporate behaviour, this critique prompts us to look beyond the narrow concern with the ethical char- acter of managers to consider the rules of the system and those who create and administer those rules – government and its agencies. Instead of suggesting that we abandon the case method, this article proposes an alternative ‘dark side’ approach to case writing and teaching, which encourages students to attend to structural con- straints on managerial decision-making. In order to illustrate this alternative approach, a case is presented which tells the story of a New Zealand woman, dependent on an oxygen machine, who died when her power was disconnected by her State-owned electricity supplier because of an unpaid bill. Rather than place students in the position of a manager who is faced with an ethical dilemma, students are encouraged to analyse the interaction between a prot-seeking organisation and an industry regulator within a capitalist system. This is not an ‘ideal-type’ business ethics case, but it is argued that the teaching of business ethics would benet from its expanded denition of business ethics.

The contribution of CMS to a critique of business ethics’

The CMS questions the authority of mainstream management thinking. It is a pluralistic movement informed by a diversity of theoretical perspectives, but common to each is a view of management as a pervasive institution within capitalism (Alvesson et al., 2009). Critical management scholars have been active in the eld of business ethics, con- fronting ‘taboos’ (Kallio, 2007) avoided by main- stream theorists. Whilst a unitary CMS critique of mainstream business ethics does not exist, a recurrent theme is the mainstream’s construction of ‘business ethics’ as the solution to the problem of undesirable corporate behaviour. This illusion is maintained by a focus on the individual as the unit of analysis, underpinned by a view of the manager as an autonomous agent, and by an exclusion of politics which turns attention away from the role of gov- ernment and the inter-organisational dynamics of the regulatory environment. Critical management scholars have highlighted the separation of ‘ethics’ from ‘politics’ within the

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mainstream of business ethics (Jones et al., 2005; Parker, 2003; Parker and Pearson, 2005). This has allowed academics within business schools to create a distinct area of inquiry with boundaries which include moral philosophy and exclude politics and ideology. The effect is ‘a rather tidy afnity between a narrow use of the word ‘‘ethics’’ and a market managerial ideology that considers questions about persons to be legitimate but questions about political economy to be largely settled’ (Parker, 2003, p. 189). In this way, the construction of ‘business ethics’ as a eld of study or a subject for the cur- riculum is revealed as a political commitment to particular ideologies (the individual, managerialism) which serves to legitimate the discipline and those academics who identify with it. Mainstream business ethics has a preference for individualisticexplanations,whichdownplayoravoid completely the social context (Jones et al., 2005). The responsethatcorporatescandalsaretheresultof‘afew bad apples’ deects attention from the systemic inuencesonsuchbehaviour,bringingmanagerialism to the fore and relegating theories of political econ- omy to the background (Jones, 1996). Danley (1998) identies three components of managerialism: the separation of ownership and control which hands power to managers; the associated discretionary powers to pursue goals other than short-term prot maximisation; and professionalism. Taken together,

the key assumption is that managers have the discre- tionary power to do good, but they either don’t have the will or the knowledge to do good. Hence, the solution is to provide the knowledge through courses in management and ethics. (Danley, 1998, p. 25)

Whilst not wanting to ‘obliterate the micro’ (p. 28), for Danley, the problem is not with immoral managers, but with the structural, enduring features of capitalism. Danley concludes that assumptions of managerial discretion are probably false and that by applying a political lens ‘we may come to understand that management has little choice’ (p. 28). Corporate downsizing and outsourcing might be caused by ‘evil managers’ (p. 29), but are more likely responses to structural features of the external environment, he argues. If managers’ moral reasoning is not the problem, then teaching them about moral philoso- phy is not the solution (Danley, 1998).

Critical approaches to business ethics, therefore, highlight how the construction of business ethics as a eld of study within the institution of the business school functions ideologically to legitimate the workings of a free market system by promoting a trust in self-regulation by corporations and an asso- ciated distrust of government-imposed regulation. As a result, questions about the ethics of business within a capitalist system are silenced (Wray-Bliss, 2009). Later in the article, an approach to the case method is presented which places the ethics of business in the foreground. First however, let me briey review the literature on the case method of teaching.

Teaching business ethics using cases

‘What decision would you make?’ It seems to me that this is the entire burden and thrust behind using cases in an ethics course. That is, what would the individual students do if they found themselves in such and such a situation? In effect the instructor wants to force or lead the student into the habit of ethical thinking and ethical decision making. (Gini, 1985, p. 352)

The case method has a long history within man- agement education, associated in particular with Harvard Business School, dating back to the founding of the school in 1908 when the rst Dean, Edwin F. Gray, advocated the ‘laboratory method’ of instruction (Corey, 1998). At that time, there was little management theory, with teachers either writing cases about their own experiences as man- agers, or working with managers to prepare cases about the problems they encountered at work (Corey, 1998; Lundberg and Winn, 2005). Lynn (1999, p. 2) denes a teaching case as ‘a story, describing or based on actual events and cir- cumstances, that is told with a denite teaching purpose in mind and that rewards careful study and analysis’. Lynn identies ve types of cases: decision- forcing, policy-making, problem-dening, concept- application and illustrative. Decision-forcing (or decision-focused) cases are the most popular because of ‘the conviction among teachers in the professions that the essence of professional skill is the ability to make decisions under trying circumstances’ (p. 107). Characteristics of high-quality teaching cases are presented in Table I and highlight the dominance of

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the decision-focused type. According to these cri- teria, high-quality cases are those which identify an actor or actors who must make decisions and solve problems – irrespective of the type of case deployed. An analysis of the submission guidelines of leading business case journals supports the observation that the decision-focused case represents an ‘ideal type’.3 Case Research Journal only publishes decision-focused cases and gives priority to those which are based on eld-research, rather than secondary sources. The Business Case Journal has historically focused on decision-focused cases, though it now also accepts ‘descriptive cases’ which enable students to analyse how a situation was managed and encourage them to determine if it could have been handled better. The Case Journal is the most open of the three, with the submission guidelines explicit that cases do not have to have a decision focus. They also welcome illus- trative, descriptive and analytical cases. Within the eld of business ethics, a similar pref- erence for the ‘ideal-type’ decision-focused case is evident, with Gini’s (1985, p. 185) classication in Table I an exemplar. The Journal of Business Ethics has recently created a new section for cases on business ethics, in response to the growing presence of ethics in the business school curriculum. In their intro- duction to the new case section, Falkenberg and Woiceshyn (2008) note that the need for teaching materials is growing, yet available cases are com- monly either too short, too long, out of date or push students towards a ‘right’ answer and are typically

written from the perspective of senior management, thereby neglecting ethical dilemmas faced by middle management and professionals. The title of Falken- berg and Woiceshyn’s article makes clear its focus – ‘Enhancing business ethics: Using cases to teach moral reasoning’ (p. 213). The authors argue that a ‘consensus has started to emerge’ (p. 213) that the goals of case teaching should be to increase students’ awareness of ethics and to improve their reasoning and judgement skills by getting them to identify and apply their own values. For Falkenberg and Woice- shyn, the primary use of cases is to teach moral rea- soning by exposing students to real-life situations. Whilst acknowledging that issues such as business– government relationships, the organisation of the economic system and the conicts of stakeholders are important, the emphasis on teaching moral reasoning implies that ‘good’ cases explore these issues through the nodal point of the manager as decision-maker. Whilst I applaud Journal of Business Ethics’ recog- nition of the importance of case teaching, by taking a narrow view of the uses of ethics cases (to teach moral reasoning), other uses are neglected. For Fal- kenberg and Woiceshyn, good cases identify prob- lems and encourage students to make decisions to solve them. However, there is a danger that, in the rush for ‘solutions’, we may be missing important contributing factors to the ‘problems’. Within CMS, there exists a small but growing body of case writers who seek to challenge this case writing orthodoxy. The Dark Side Case Competition, organised by the

TABLE I Characteristics of high-quality teaching cases

Gini (1985) Lynn (1999) Lundberg et al. (2001)

Identies the problem or what is at stake

Poses a problem that has no obvious answer Describes a real situation

Requires the reader to identify the non-normativeorfactualissuesinvolved

Identies actor(s) who must solve the problem, make decisions

Is reasonably complex

Requires the reader to identify the normative or ethical issues involved

Requires the reader to use the information in the case to address the problem

Is decision focused

Requires the reader to consider the available alternatives

Requires the reader to think critically and analytically to evaluate the problem and potential solutions Requires the reader to make a decision Has enough information for a good analysis

Source: Gini (1985), Lynn (1999) and Lundberg et al. (2001).

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CMS Division of the Academy of Management, began in 2001 following an observation by the US critical scholar Paul Adler that cases libraries were dominated by ‘best practice’ cases or by cases which involved managers facing difcult decisions. Adler wanted the Dark Side Case Competition to focus not on ‘individual bastards, but on cases that tell us something about the broader system and how it permits, encourages, even forces rms to do terrible things’ (Adler, cited in Raufet and Mills, 2009, p. 5). ‘Dark side’ case writers, therefore, are united in the belief that restricting cases to focus on the moral reasoning of decision-makers tends to downplay the structural features of the capitalist system. This raises the possibility that what is identied as a consciously moral (or immoral) decision by a manager might alternatively be viewed as a rational business decision by prot-seeking organisations within a system based on capital accumulation (Raufet and Mills, 2009). The next section provides an illustration of this alternative approach to case writing.4 After intro- ducing the case, the analysis focuses on how this approach departs from the ‘ideal-type’ and how this might get students thinking differently about busi- ness ethics.

The dark side of ‘light-handed’ regulation: the death of Folole Muliaga5

Folole Muliaga, a 45-year-old Samoan woman, and her son Ietitaia were in their Auckland home on 29 May 2007.6 Mrs Muliaga was in the dining room and Ietitaia was seated at the computer in the living room. At 10.25 a.m., Ietitaia answered a knock on the door. ‘Good morning, I’m from Mercury Energy and Mercury Energy is disconnecting your power for arrears’, said the man, an employee of VirCom Energy Management Services (hereafter ‘the contractor’) which was contracted to perform Mercury Energy’s disconnections.7 He handed Ietitaia a disconnection notice which he took to his mother, who told him to invite the man into speak with her. By this time the contractor had cut the power supply to the house. Ietitaia asked him to come inside, and the man followed him to the dining room, stepping over a tube running from a machine in Mrs Muliaga’s bedroom to the prongs attached to her nose.

Mrs Muliaga was not a healthy woman. Since migrating to New Zealand in 2000 with her hus- band, Lopaavea and four children in search of a better life, her health had deteriorated. She rst received hospital treatment on 5 April 2007 for breathing difculties associated with her weight, which had risen to 212 kg. She was diagnosed with obesity hyperventilation syndrome, an illness which prevented her from breathing adequately to remove carbon dioxide from her body. Mrs Muliaga was treated with drugs and a ventilator and by the time of her discharge from hospital on 11 May 2007, her weight had fallen to 184 kg. She was given two machines to continue oxygen treatment at home. The contractor explained to Mrs Muliaga that he had disconnected the power on instruction from Mercury Energy, as the account wasNZ $168.40 (US $120) in arrears. Mrs Muliaga asked ‘So how do I get my power on?’ to which the contractor replied, ‘You either pay or ring Mercury Energy’. Ietitaia did not hear all of the conversation, but heard his mother say ‘Please give us a chance’ to which the contractor replied ‘I’m just doing my job’. The contractor could see the plastic tubes coming from Mrs Muliaga’s nose, but he did not know what they were for and did not feel it was his business to ask about them. He did not see any oxygen machines, or any tubes on the oor. He also did not hear the alarm which was triggered when power supply to the oxygen machine was cut. Once the contractor left the house, Mrs Muliaga’s health deteriorated rapidly. She took some pills, but Ietitaia and his brother Ruatesi, who had arrived home, were concerned. She asked Ietitaia to play a song on the guitar but halfway through the song she was struggling to breathe. Ietitaia went to the dining room to call an ambulance but their phone was disconnected. He returned to nd his mother unconscious and Ruatesi attempting resuscitation. Ietitaia went to the neighbours’ house and an ambulance was called. Two ambulance staff arrived and continued attempts to resuscitate her but it was too late. Folole Muliaga was dead.

The blame game begins

Mercury Energy was the third largest energy retailer in New Zealand, providing electricity and gas ser- vices to 315,000 residential business customers

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throughout New Zealand. It was a protable busi- ness – between 2003 and 2007 its earnings nearly doubled, though its return on shareholders’ equity had fallen by more than half during this time to less than 6%. Mercury Energy had a strong presence in Auckland, with more than 50 years of history sup- plying customers in the region. Mercury Energy was active in community initiatives to support the company’s goal of ‘bringing together the Company and surrounding communities so that the needs of each are mutually understood’ (Mighty River Power, 2007, p. 28). In 2007, Mercury Energy insulated, free of charge, the homes of 50 patients of Auckland’s children’s hospital, who were suffering from respiratory illnesses, to make their houses warmer and drier. The day following Mrs Muliaga’s death news reports began to surface in New Zealand. These were soon picked up by international news outlets, including the BBC and CNN, their attention having been drawn by the apparent death of a woman over an unpaid electricity bill. Mercury Energy initially insisted it had done nothing wrong, but it softened its stance as further details of the case were revealed. Senior management visited the family’s home, dressed in traditional Samoan lava-lavas wrapped around their suits, to offer their condolences and money to cover funeral expenses. Politicians from New Zealand’s government and opposition parties were quick to start pointing the nger of blame. Prime Minister Helen Clark accused Mercury Energy of a ‘hard-nosed commercial attitude’ and said it was unbelievable that the contractor had gone ahead with the disconnection even though he saw a tube coming out of Mrs Muliaga’s nose (Eaton, 2007). Richard Prebble, former State Owned Enterprises Minister, said it was ironic that Prime Minister Clark was attacking Mercury Energy, given that her government owned it (Prebble, 2007). Two weeks after Folole Muliaga’s death, Police announced there was no evidence to justify any charge against either Mercury Energy or their con- tractors. Following an inquest, Coroner Gordon Matenga concluded that Mrs Muliaga died of an arrhythmia caused by morbid obesity and that ‘the cessation of oxygen therapy and stress arising from the fact of the disconnection (as opposed to the way in which the power was disconnected) have contributed to her death’ (Matenga, 2008, p. 33).

The VirCom contractor escaped blame, with the Coroner accepting that he knew nothing of Mrs Muliaga’s medical condition, the oxygen machine or the need for power to keep it operating. The Coroner accepted that had the contractor been aware of the situation, he would have followed the standard procedure and telephoned Mercury Energy to advise them that the power should not be cut off. The contractor had given two examples when he had done this in the past, one case involving children with intellectual disabilities and the other a newborn child.

New Zealand’s electricity industry reforms since 1984

While the focus of the media’s attention was the actions of the contractor and of Mercury Energy, Mrs Muliaga’s death can also be examined in the broader context of a radical transformation of New Zealand’s electricity sector which had begun 25 years earlier. Prior to 1984, electricity generation and transmission had been the responsibility of the Ministry of Energy, a government department, which was also responsible for policy advice and regulatory functions. The Ministry of Energy oper- ated New Zealand’s hydro-electricity network and its gas and coal-red stations, as well as maintaining the transmission system that distributed electricity to local power board and councils, which sold it to consumers. In 1984, the newly elected Labour government faced a foreign exchange crisis which provided the catalyst for a series of wide ranging neo-liberal economic reforms which transformed New Zealand from one of the most regulated economies in the OECD to arguably the least reg- ulated (Chapman and Duncan, 2007). Treasury, the department which advised the government on eco- nomic policy, argued the Ministry of Energy was over-staffed and inefcient and suggested a number of market reforms for the sector. In 1987, the Electricity Corporation of New Zealand (ECNZ) was set up as a company under the State Owned Enterprises Act to own and operate New Zealand’s generating stations and the trans- mission system. Policy and regulatory activities were separated out and largely retained within the Min- istry of Energy. Section 4 of the State Owned Enterprises Act 1986 stated that

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[1] The principal objective of every State Enterprise shall be to operate as a successful business and, to this end, to be:

[a] as protable and efcient as comparable busi- nesses that are not owned by the Crown; [b] a good employer; and [c] an organisation that exhibits the sense of social responsibility by having regard to the interests of the community in which it oper- ates and by endeavouring to accommodate or encourage these when able to do so (State Owned Enterprises Act, 1986).

In 1989, an Electricity Task Force recommended the development of a ‘light-handed’ regulatory regime, which involved the use of the existing com- petition policy regime to deal with anti-competitive behaviour, together with extensive information dis- closureandthethreatoffurtherregulationifdominant market players abused their natural monopoly posi- tion. ‘Light-handed’ regulation was seen as preferable to ‘heavy-handed’ regulation, such as price controls, which were considered complex, costly to administer and not always capable of producing the preferred result. By maintaining a ‘light-handed’ approach, regulations could be kept to a minimum, with addi- tional measures introduced to overcome any weak- nesses in the regulatory framework that arose over time (Ministry of Economic Development, 2006). In 1999, the newly elected Labour government inherited an electricity industry that was largely self- regulating, with market participants subject to few legislative and government restrictions. Whilst it was Labour that had begun the neo-liberal reforms in 1984, its electoral success in 1999 was based on a pledge to curb the excesses of the free market, especially in the provision of essential services, such as electricity. The government stated that it favoured industry solutions where possible, but signalled its intention to regulate if the industry failed to self- regulate responsibly. In 2000, it announced a new governance structure for the industry, including a self-governance board. However, by 2003, industry participants had failed to reach agreement on self- governance arrangements, prompting government to establish an Electricity Commission (EC) to take over governance of the industry.

The EC and its guidelines for low-income customers

The EC, funded by a levy on electricity companies, was responsible for overseeing the governance and operations of New Zealand’s electricity market. Consistent with New Zealand’s ‘light-handed’ regulatory approach, the EC had extensive powers to regulate but was expected to meet its objectives through persuasion rather than regulation. In 2005, the EC announced it was considering implementing a set of guidelines to assist low-income domestic consumers to ensure that minimal disconnections occurred, and to establish standards for these dis- connections. It was hoped that by introducing guidelines all parties would benet – retailers’ bad debts would be reduced as well as the costs that resulted from enforcing them, social agencies would reduce the money they were advancing to cus- tomers struggling to pay their bills and consumers would benet from a continuous supply of elec- tricity. The EC noted that some retailers made more strenuous efforts than others before making disconnecting low-income customers. Following the hearing of submissions from power companies, community groups and other interested parties, the EC released a nal set of guidelines which were ‘advisory, in line with its objective to encourage rather than regulate’ (Electricity Commission, 2005, p. 5). Critical to the Coroner’s investigation into Mrs Muliaga’s death was Mercury Energy’s actions leading up to the disconnection being ordered, in relation to the EC’s guidelines. The guidelines involved a two-step process: rst, the electricity retailer would inform its customers on how to identify themselves as a vulnerable customer who would face hardship if the electricity was discon- nected. The obligation was then on those customers to follow those instructions. At the time of Mrs Muliaga’s death, Mercury Energy did have a ‘Do Not Disconnect List’ which included 59 customers with medical conditions, but Mrs Muliaga was not on the list. Following her death, Mercury Energy accepted they had not fully complied with the EC guidelines. Whilst they did assist vulnerable customers who identied themselves, they did not provide information on the process of self-identifying as a vulnerable customer. The Coroner concluded that:

317Beyond the Manager’s Moral Dilemma

It is perhaps no surprise that the Muliaga family did not advise Mercury Energy of Mrs Muliaga’s medical condition. There is no evidence before me that the Muliaga family was aware that help was available to them. (Matenga, 2008, p. 16)

Why did Mercury Energy not implement the EC guidelines? There is no denitive answer to this question, but, in 2005, a submission was made by Mercury Energy’s parent company, Mighty River Power, to the EC on the proposed guidelines. In its submission, Mighty River Power supported the objectives of the guidelines but said that retailers already had processes around disconnection and the EC had failed to demonstrate there was a problem with them. Mighty River Power (2005) said that while disconnection was considered a ‘last resort’ (p. 14), the ability to disconnect was needed to ensure bad debts did not grow too big and to provide an incentive for bad debtors to pay their bills. Any actions which delayed disconnection would

distort the current prioritisation process by sending a very clear signal to low income and vulnerable indi- viduals that electricity should be the last obligation that they should be concerned about. (Mighty River Power, 2005, p. 5)

While the tragedy of Mrs Muliaga’s death has many contributing factors, it is not unreasonable to suggest that her death might have been avoided if Mercury Energy had chosen to implement the EC’s voluntary guidelines. We need also to con- sider the actions of the industry regulator itself. The EC could have chosen to regulate the way in which electricity suppliers disconnect low-income customers, rather than preferring voluntary guide- lines consistent with a ‘light-handed’ regulatory approach. Grey Power, a lobby group for those aged over 50, warned in its submission on the draft guidelines that electricity retailers might ignore guidelines they found difcult or costly to implement. The only way for the EC to ensure low-income consumers would be protected, they argued, was to regulate (Grey Power, 2005). In June 2007, as a direct result of the death of Mrs Muliaga, the EC put out a revised set of guidelines for assisting low-income consumers. Whereas the 2005 guidelines were ‘advisory’ (Electricity Commission,

2005, p. 5), the 2007 guidelines stated that ‘retailers must report annually on their level of compliance with the guidelines, and where the guidelines have been deviated from, provide reasons for each type of deviation’ (Electricity Commission, 2007, p. 3). This compliance information would be publicly available on the EC’s website. Despite this tougher stance, the EC stopped short of imposing regulations, preferring once again to threaten regulation if the response from retailers was unsatisfactory.

Beyond the manager’s moral dilemma

Based on the criteria of high-quality cases presented in Table I, the case presented above is not an ‘ideal- type’ business ethics case, in two respects. First, while it does retrospectively describe decision- making at multiple levels (the decision by Mercury Energy not to implement the voluntary guidelines, and the decision by the EC to create guidelines rather the regulations), it does not ask students to ‘step guratively into the position of a particular decision maker’ (Leenders et al., 2001, p. 3). Rather, students are encouraged to analyse the interplay of political and economic factors and organisational relationships and to suggest how this tragedy might have been prevented. Second, it does not t the ‘ideal-type’ ethics case because there is no apparent ethical dilemma. There is no evidence that any of the decision-makers in the case were conscious that the choices they made involved moral choices. Mercury Energy’s decision not to implement the guidelines could be inter- preted, retrospectively, as a moral dilemma, but it is unlikely to have presented itself as such at the time, since Mercury Energy appeared to believe its’ pro- cesses were sufcient. In addition, their concerns about providing a disincentive for people to pay their electricity bills can be interpreted as a rational pursuit of the primary objective of their governing legislation, the State Owned Enterprises Act, which requires such entities to be as protable as their private-sector competitors. It was noted earlier how, from the perspective of CMS, mainstream approaches to business ethics foreclose the ethical with their preoccupation with ethical dilemmas, which has the effect of counting

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out of a consideration of ‘ethics’ anything that does not engage the moral character of individuals (Jones et al., 2005). In analysing the case, students are encouraged to consider the government’s preference for light-handed regulation, the EC’s preference for voluntary guidelines regarding the treatment of low- income customers by electricity suppliers and the choice by Mercury Energy not to implement those guidelines, as politico-ethical choices which fall within an expanded denition of ethics. These are choices by powerful institutions either entrusted with social responsibility obligations or which claim social responsibility as a guiding value. These are ethical choices about the rules of capitalism and the role of the State within the capitalist system, but are not ethical dilemmas faced by managers. It is noteworthy that media coverage of Mrs Muliaga’s death was dominated by the search for a villain. Early coverage focused on the actions of the contractor in continuing the disconnection despite apparently obvious signs that Mrs Muliaga was in poor health. When it emerged that Mercury Energy’s processes had been decient, attention shifted to the company’s CEO and chairperson. The Coroner concluded that no individual was to blame for Mrs Muliaga’s death. Instead, he told a relatively mundane but no less important story about the creation of voluntary guidelines by the industry regulator for the protection of vulnerable customers which an electricity supplier chose not to imple- ment. In contrast to the comprehensive media coverage of Mrs Muliaga’s death, the release of the Coroner’s ndings generated relatively little report- age. It is also noteworthy that the Coroner concluded his investigation by congratulating Mercury Energy for acknowledging that their previous practices were not compliant with the 2005 guidelines and for voluntarily making changes to their disconnection practices following Mrs Muliaga’s death. The changes include treating all customers as vulnerable to ensure no one was missed and producing infor- mation brochures in six different languages (includ- ing Samoan). In addition, it was now routine that customers calling Mercury Energy were asked whether anyone in the household was either vulnerable or medically dependent on electricity. The faith in self-regulation appears unshaken by this tragedy.

Conclusion: business ethics and the management professional

A frequent response to corporate scandals has been for greater coverage of ethics in the business school curriculum, a response underpinned by continued faith in the possibility of moral managers who serve not just their organisation’s shareholders but some wider civic purpose. Implicit in this call is the belief that the key to securing improved standards of cor- porate conduct is to raise the moral character of individual managers. The nancial and economic turmoil of recent times has breathed new life into efforts to make management a profession. As recently as 2007, Khurana, one the professionalism’s strongest advo- cates, accepted it was a dead project within the contemporary business school. Khurana lamented the fact that the theories which dominate today’s curriculum question the relevance of ethics itself, giving reassurances from business school deans that ethics will be taken more seriously a hollow tone. Now, just 3 years later, the professionalisation of management is rmly back on the agenda. It can be expected that a renewed interest in teaching business ethics will follow this revival of the management professional. While the use of teaching cases in management education has a rich history, the case method has been criticised for reducing management to the tasks of collecting information and making decisions (Stonham, 1995), and for providing students with a false condence by increasing their tolerance for ambiguity and encouraging risk-taking (Shugan, 2006). This article argues that it not the case method per se that is the problem, but the ‘ideal-type’ deci- sion-focused case which dominates the teaching of business ethics, in which students are presented with a manager needing to make decisions in the face of an ethical dilemma. An alternative ‘dark side’ approach to case writing has been presented, which reveals the mainstream’s blind spot concerning the legitimate role of government in regulating eco- nomic activity. The blind spot exists because of the ideological commitments of mainstream business ethics to the free market, whereby considerations of how to conduct business within the rules of free market capitalism are legitimate, but discussions about the merits of changing the rules are considered

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illegitimate. The former is business; the latter is politics. An anticipated criticism of the increased attention given to the structural features of capitalism encouraged by this and other ‘dark side’ cases is that they present a deterministic view of the world which leaves no place for individual morality. By down- playing the importance of developing moral char- acter within future managers, does this not mean that so long as managers pursue their economic respon- sibilities within the law, then that is all that can, and should, be expected of them? Within some CMS writing on business ethics traces of determinism are evident. For example, Banerjee (2008), in his critique of mainstream CSR, concludes that ‘in the political economy we live in today, corporate strat- egies will always be made in the interests of enhancing shareholder value and return on capital, not social justice or morality’ (p. 74). Whilst it might be idealistic and naı ¨ve to assume that corporate executives will act in the interest of social justice and morality, the GFC shows us that they sometimes pursue strategies which enhance their own nancial interests at the expense of shareholder value. The political economy thesis therefore goes too far in denying managerial agency and as Parker (2003) notes, there is little to be gained from replacing a single-minded concern with agents with that of structures. It is possible however, to acknowledge the inuence that structures have on action, through creating conditions of possibility, without falling into a determinist position. This article has not been an argument against the possibility of the moral manager. Whatever inten- tions lie behind the student pledge undertaken by graduate MBAs at Harvard Business School, at the very least it encourages students to consider the difculties of undertaking to act ethically and responsibly whilst working within the structural constraints of capitalism. However, it is to be hoped that rather than relying naively on this mechanism of self-regulation, serious consideration can also be gi- ven to the role of government in delivering desirable societal outcomes from business activity. We should include this examination of the ethics of business in our construction of the eld of ‘business ethics’. The ‘ideal-type’ business ethics case, with its focus on the management professional as a decision-maker faced with a moral dilemma, works against this.

 

Khurana (2007) states that, in teaching business ethics, we should examine the pull of three institu- tional forces – the market, government regulations and the self-regulation of managers on some agreed- upon set of values. The decision-focused case, grounded upon the ideological assumptions of managerialism and self-regulation, does not deliver this. By looking to managers and their morality, it takes as given the virtues of the market and excludes from its possible range of ‘solutions’ that of greater government intervention. The GFC provides us with recent evidence that while abhorrent conduct by corporations can be conveniently blamed on ‘a few bad apples’, a deeper appreciation emerges when we consider the systemic inuences of the make-up of the nancial markets and of the role played by States in regulating (or choosing not to regulate) those markets. This article has argued that a ‘dark side’ approach to case-writing gives greater promi- nence to these economic and political factors, pro- viding students with a more complex understanding of business ethics and the constraints on managerial decision making.

 

GabrielEwejeandMinyuWu

Department of Management and International Business, Massey University, Albany Campus, Auckland, New Zealand

The ethical behaviour and social responsibility of private companies, and in particular large corporations, is an important area of enquiry in contemporary social, economic and political thinking. In the past, a company’s behaviour would be considered responsible as long as it stayed within the law of the society in which it operated or existed. Although this may be necessary, it is no longer sufcient. In this paper, we examine an energy company’s response to an ethical incident in New Zealand which prompted different responses across the country about the role of business in society. Thus, we argue that when a corporation is accused of unethical behaviour, executives of the company are usually compelled to offer responses to defend their actions and corporate image. Further, we use communicative response model, social issue life cycle theory, and organisational learning, to analyse the incident and how the company responded. Using social issues life cycle theory and organisational learning theory, we demonstrate that sustained pressure can potentially trigger a change of strategy that may serve to improve the ethical posture of a corporation and thereby improve the corporate image long term. We conclude that, although corporations may understand the signicance of social issues to the performance and success of their business, this same understanding does not always translate into meaningful social action.

Introduction

Corporate social behaviour is a topical issue and has become an important aspect of business and society (Hooghiemstra 2000). Accordingly, there has been increasing public concern about the social perfor- mance of business and questions about corporate ethics have taken centre stage in boardroom discussions (Mellema 2003, Fombrun & Foss 2004, Coldwell et al. 2008). This inuence has resulted from considerable adverse publicity surrounding reports of unethical business behaviour by corporate managers. Consumers, citizens, pressure groups, governments and the media are making the link between the products (or services) of industries and the way they have been extracted or produced, and are subsequently calling for proactive responses to the behaviour and impact of business enterprises

(Vogel 1996, Matten et al. 2003). Indeed, purchasing decisions are based ‘more and more on non- commercial concerns, such as ethics, sustainability and corporate social responsibility’ (Tucker & Melewar 2005: 377). Just as individuals differ in how they respond to ethical dilemmas, organisations also differ in their response to ethical issues and use defence mechanisms to protect themselves from anxiety caused by internal and environmental pressures (Logsdon & Yuthas 1997, Brown & Starkey 2000, Ketola 2006, Ketola 2008a). An organisation’s social performance is largely judged by the way in which it addresses stakeholder relationships and issues (Logsdon & Yuthas 1997, Fombrun & Foss 2004). In addition, Greening & Gray (1994) and Wood (1991) have argued that business organisations have been increas- ingly held accountable for their corporate social

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performance in a variety of arenas. Similarly, as considerable pressure is put on business enterprises to improve their management of social issues, many businesses, especially large corporations, have taken steps to deal with a variety of social issues (Sethi 1979). They also know that corporate reputation is a critical feature of organisations (Carroll 1979, McGuire et al. 1988, Barney 1991, Tucker & Melewar 2005). Therefore, managers within organi- sations are motivated to manage that reputation, in part because the organisation’s reputation can reect on their own reputation (D’Aveni 1990, Carter & Dukerich 1998). In this paper we examine a corporate response to an ethical incident involving an energy company (Mer- cury Energy) in New Zealand (NZ) and one of its customers. Specically, the following questions will be addressed: (1) how should a corporation respond to an ethically intense incident; and (2) how should a corporation manage an ethically intense incident? The main focus is to present a moral analysis of how organisational practices can lead to unethical decisions. This paper is not about what happened per se in the case described below or how it hap- pened, but rather it is about the series of responses offered by the company, particularly their initial response that the company had done nothing wrong either legally or ethically. The case described in this paper has called attention to the prevalence of serious forms of ethical misbehaviour of business and also prompted different opinions across NZ about the role of business in society. The argument we are advancing is that the response approach or strategy taken by a corporation is as important as avoiding the alleged unethical behaviour. Therefore, this case illustrates the need to integrate ethical principles into decisions that occur at all levels in an organisation, including those made by their agents. This case touches on many issues, namely: corporate social responsibility (CSR), ethical incidents, and corporate response to ethical incidents. Information for the case study presented here was collected from secondary data in NZ through news items that were visible in the public domain through media sources. Information/data was drawn from approximately 3 months of reporting of news articles available from national and regional news media sources.

The case

Mercury Energy is one of the four power companies in NZ. On 29 May 2007 a customer of the company – a mother of four aged 44 – died 2hours after the power to her home was cut off, leaving the oxygen machine she relied on inoperable. Mercury Energy ordered the power cut because of an overdue power bill of US$168.40 (Bennett 2007, 24 June; Cleave 2007, 1 June; Lilley 2007, 31 May). Earlier, while she was in the hospital, the husband of the customer called Mercury Energy in early May and attempted to arrange to pay US$50 a week towards the bill. But due to the ‘Privacy Act’ the company could not discuss the bill with him without his wife’s authority, because the account was in her name. He went ahead to make a part payment of US$62 that day and a further US$45 on 17 May. Twelve days later the power was cut off (Bennett 2007, 24 June). There were conicting reports about Mercury Energy’s knowledge of the customer’s health before she died. Her family says the contractor who cut off the power saw the oxygen machine and was told she needed the breathing machine. Mercury Energy claimed it was not aware of any health problems. Health professionals who treated the victim said her severe health problems were exacerbated by compli- cations and it meant her life expectancy was short (Lilley 2007). The respiratory specialist who treated the victim said she was admitted to hospital in 2002 with respiratory failure. He said most people in her condition at that time would have a life expectancy of 1–3 years, yet she lived for 5 more years. Questions were also raised as to whether the victim’s families who were with her did enough to get help for her once the power was cut and whether she could have been saved. Immediately after this incident, Mercury Energy’s rst public response to the incident by their general manager was that he felt sure the power supplier was in the clear. He contended: ‘I’m condent that the processes we have put, the communications we had with the customer, were very clear about the circumstances that would happen’ (Cleave 2007, para 23). As far as he was concerned, the company had done nothing wrong legally or morally. Asked if the company had put a foot wrong, he said it

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had not. ‘We’ve got no reason to believe anyone is not telling the truth. That’s not our position to make that judgment’ (Cleave 2007, para 43). He said the family’s bill was overdue and attempts to pay it off were not keeping up. The NZ gas and electricity complaints commis- sioner (Judi Jones) notes power rms cannot hide behind contractors as an excuse for not dealing with customers’ needs. Judi Jones argues that energy companies could not use outside rms as an excuse for poor service as the contractors were acting under the company’s instructions. She added: ‘If they turn up at the door and are told that there is a vulnerable consumer inside who needs electricity, the very least they should do is phone the head ofce and say, ‘What should I do in this case?’ (Staff 2007). The NZ Prime Minister at the time of the incident, Rt Hon Helen Clark posited: ‘I’m prepared to accept that he [the contractor] went into the room, that the oxygen equipment was there, and again to proceed with a disconnection at that point is simply incredible to me’ (Cleave 2007, para 24). She also said the company’s citing of privacy concerns as a reason not to talk to the victim’s husband about arranging payments was worrying. She asserted: ‘That really seems to be a fairly ridiculous state of affairs . . . I hope it is one of many things which Mercury is putting right’ (Oliver 2007, para 10–11). She further announced that Cabinet had taken policy decisions on modernising the Privacy Act and a bill was now being drafted to give them effect. The former Prime Minister went on to say that many organisations misused the law: ‘Often people hide behind the Privacy Act without actually seeing whether it is a barrier at all. This has been quite common in ofcialdom – public and private – and I would seriously question how big a barrier that was to Mercury Energy actually making some practical arrangements’ (Oliver 2007, para 13). Miss Clark said Cabinet had received a draft of the Electricity (Disconnections) Amendment Bill, which would give the Government power to enforce guidelines through regulation, if the guidelines are not followed by power companies. She contended that the whole affair had been a ‘sorry and wretched business’. The former Prime Minister said the case, which has been reported around the world, also conveyed a bad

image of NZ. She stated: ‘This is intolerable. We all feel not just embarrassed but devastated that this incident of heartlessness by a company and a contractor has gone around the world conveying an image of New Zealand that we don’t like of ourselves’ (Lilley 2007, para 9). She went further in reecting the mood of the population: ‘We are not a heartless people. People do care as can be seen in the outpouring of sympathy and love for this family’ (Lilley 2007, para 10). She also attended the customer’s funeral. The government, public and media pressure mounted on Mercury Energy, particularly because of the initial response to the incident by the company, that they had had done nothing wrong and had followed the due process before the power was disconnected. In their second response, the chief executive (CEO) of Mercury Energy’s parent com- pany, Mighty River Power, stated Mercury Energy was not aware of the customer’s medical condition and the company was reviewing the way customers who struggled to pay their bills were treated. According to him, there were two versions – one from the customer’s family and the other from the contractor who cut the power to the home. The response prompted the former Prime Minister to suggest that Mercury Energy needed to stop defending its actions and be more open. The CEO asserted that he was concerned at how the situation had ended up and that if staff were alerted about potential medical problems involving a customer the company would work to assist them to ensure such tragedies could be avoided. Mercury Energy also announced a raft of measures to address issues around power disconnection. The company stated that customers facing power disconnection would receive a personal phone call to check whether there were medical or hardship reasons not to cut off the electricity. A month after the incident, following a series of ineffective responses from the company, Mercury Energy announced a range of new initiatives to improve its ability to identify and assist vulnerable customers who are medically dependent or suffer from nancial hardship. The CEO noted the new processes, designed in consultation with a number of community groups and social agencies, built in a greater level of proactive communication and new

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check points to avoid unnecessary disconnections. He stated:

We made a commitment that we would learn from this tragedy and take quick action to improve our credit management systems. This has been our top priority and we are condent that our new proce- dures will do our part to prevent another similar tragedy occurring in the future (Mercury Energy 2007, para 4).

He further asserted that:

Customers with overdue accounts will benet from a greater level of communication from Mercury Energy, as well as a number of new safeguards and more exible systems to ensure where there is medical dependency or genuine nancial hardship we have taken every possible step to avoid disconnection (Mercury Energy 2007, para 5).

Using the above case example, we found evidence to support Verbos et al.’s (2007) argument that in aggregating ethics to the organisational level of analysis, factors relevant to an organisation’s ethical functioning include its leaders, formal and informal organisational processes, especially decision-making processes, and the organisational culture, including the climate regarding ethics. We argue that ethical principles should be integrated into decision-making process including decisions made by company agents. There is also support for Frederick et al.’s (1988) argument that decision makers need guidance in identifying ethical problems and arriving at ethically sound decisions. Donaldson (1989) further observed that corporations fail to meet moral considerations not because of greed or ill will, but because of inattention to the relevant parameters of moral problems. Furthermore, a moral issue occurred in the case described above when the contractor working on the instruction of Mercury Energy made a decision to cut off the electricity. This case somewhat resembles the argument of Velasquez & Rostankowski (1985) and Jones (1991), that a moral issue is present when a person’s actions, when freely performed, may harm or benet others. In other words, the action or decision must have consequences for others and must involve choice, or volition, on the part of the decision maker (Jones 1991). Accordingly, many

decisions are moral decisions simply because they have a moral component, such as the case presented in this paper. Similarly, the decision by Mercury Energy and the contractor demonstrates that a moral agent is present since the contractor was acting on rules and regulations created by Mercury Energy. Hence, a moral agent is a ‘person who makes a moral decision, even though he or she may not recognise that moral issues are at stake’ (Jones 1991: 367). According to Rest (1986), a moral agent must (a) recognise the moral issue, (b) make a moral judgement, (c) resolve to place moral concerns ahead of other concerns (establish a moral intent), and (d) act on the moral concerns. He points out that each component in the process is conceptually different and that success at one stage does not imply success in any other. We can conclude that the above is lacking in our case. Mercury Energy did not exhibit any moral concern until the company was pressured to do so. Ethical decision issues also transpired in this case. An ethical decision is dened by Jones (1991) as one that is that is both legal and morally acceptable to the larger community. In contrast, an unethical decision is either illegal or morally unacceptable to the larger community. Mercury’s behaviour was seen as morally unaccep- table and ethically incorrect by its stakeholders. As noted in Wood’s (1991: 389) comprehensive work on theory and research in corporate social performance, ‘it became apparent . . . particularly through social activism and regulatory activity, that social expectations of business had outstripped manager’s comprehension and capabilities’. For example, Carroll (1979) suggests corporations must be socially responsible by not only abiding by laws and economically producing the goods and services demanded by society, but also by meeting ethical responsibilities which are expected by society yet not explicitly required under law. Sethi (1975) developed an overlapping taxonomy, which suggests that a corporation’s responsibilities include social obliga- tions corresponding to Carroll’s economic and legal responsibilities, as well as social responsibility, which corresponds roughly to Carroll’s ethical responsibilities. In these and related taxonomies, ethics is often considered to be a dimension of CSR (Carter 2000), which is not required but expected of business (Carroll 1991).

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Theoretical perspectives

We have used several theoretical perspectives (Bradford & Garrett’s 1995 communicative response model; social issue life cycle theory; and organisa- tional learning) to analyse the incident and how the company involved responded. These theories, which are discussed later, are appropriate approaches in analysing corporate response to unethical behaviour in this case because they provide a step-by-step analysis of different approaches taken at different stages of the crisis.

CSR and corporate response to ethical incidents in the literature

According to Gatewood & Carroll (1981), a rst step for managers who recognise the importance of dealing with social issues is to develop a philosophy of response to guide their future actions. In adopt- ing a philosophy, it is worthwhile to review the responses of other companies to a social issue in the hope that the range of responses available and their likely consequences will be best understood. Against this background, many corporations have developed internal procedures and created formal staff func- tions to respond to the barrage of demands they face (Post et al. 1982). When corporations are accused of unethical behaviour by their stakeholders, managers are compelled to offer communicative responses to defend their corporate image (Szwajkowski 1992, Bradford & Garrett 1995, Ketola 2006). According to Garrett et al. (1989) and Szwajkowski (1992), the primary purpose of managers’ responses is to lessen stakeholders’ allegations of unethical behaviour so that public observers do not form an unfavour- able impression of the accused organisations. For example, Conlon & Murray (1996) argue that a company receiving a complaint about a product nds itself in the position of having to substantiate or legitimate its claimed image. The extent of the predicament depends on the severity of the problem and on the degree to which the company is viewed as responsible. Unethical corporate behaviour is dened in this paper as ‘business actions that seek prot without regard to the moral principles and standards

established by society’ (Bradford & Garrett 1995: 876). The initial behaviour and responses of Mer- cury Energy exhibited a lack of understanding of CSR and business ethics on the part of the company. The behaviour demonstrated that the company was naı¨ve and ill prepared in dealing with a grave ethical issue. Furthermore, an ethical incident discussed in this paper is dened as by Eweje (2005: 168) as:

A situation wherein the actions of a multinational enterprise [or large corporation] are commonly perceived to have had a detrimental impact on the host community [and other stakeholders], arousing powerful emotions which express themselves var- iously through such things as strikes, demonstra- tions, press campaigns, legal actions, nancial sanctions and sabotage.

In this case, the action of a large corporation involved was considered unethical and there were widespread press campaigns, demonstrations and legal actions as a direct result of the company’s behaviour. The stakeholders in this case, including the customer’s family, media and the government, expressed the belief that the company failed in its obligation to prevent the incident and did not demonstrate enough responsibility. The direct in- volvement of the Prime Minister and pressure from the media ‘forced’ the company to change its response and eventually it made sweeping changes to the way it deals with customers’ nancial matters. According to Aguilera et al. (2007), although it is still contested whether corporations have social responsibilities beyond their wealth-generating func- tion (Friedman 1970, Henderson 2001), there exist today increasing internal and external pressures on business organisations to full broader social goals. Hence, we subscribe to the denition of CSR originally suggested by Davis (1973) and reconsti- tuted by Aguilera et al. (2007: 837) as ‘the rm’s considerations of, and response to, issues beyond economic, technical, and legal requirements of the rm to accomplish social [and environmental] benets along with the traditional economic gains which the rm seeks’. This case relates to Carroll’s (1979) corporate social responsiveness model. Carroll (1979: 501) argues that social responsiveness can range on a ‘continuum from no response (do nothing) to a

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proactive response (do much)’. The assumption here is that business does not have a social responsibility (see also Friedman 1970) and that the prime focus is not on management accepting a moral obligation but on the degree and kind of managerial action. In addition, Sethi (1979) posits that the issue of social responsiveness is not how corporations should respond to social issues, but what their long-run role in a dynamic social system should be. He further argues that a corporation is expected to anticipate the changes that may be a result of the corporation’s current activities, due to the emer- gence of social problems in which the corporations must play an important role. Again, Sethi contends that, while CSR-related activities are prescriptive in nature, activities related to social responsiveness are proactive, that is, anticipatory and preventive in nature. Frederick (1994) has also argued the responsiveness idea in what he called CSR2:

Corporate social responsiveness refers to the capacity of a corporation to respond to social pressures. The literal act of responding, or achiev- ing a generally responsive posture, to society is the focus . . . One searches the organization for mechanisms, procedures, arrangements, and beha- vioral patterns that, taken collectively, would mark the organization as more or less capable of responding to social pressures.

Davis (1973: 312) denes CSR as the ‘the rm’s consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the rm’. He further contends that it is the rm’s obligation to evaluate its decision-making process and the effects of its decisions on the external social system in a manner that will accomplish social benets along with the traditional economic gains which the rm seeks. It is evident in the case presented here that the company lacks the under- standing of CSR and seems to be naı¨ve about the whole issue of business responsibility to its consti- tuents and what constitutes moral behaviour. As shown, the company argues that they have done nothing illegal. Furthermore, according to L’Etang (1995) CSR is classied into direct responsibility, indirect respon- sibility and corporate philanthropy. In this paper we briey examine the direct and indirect responsibility

because they are signicant to our arguments. L’Etang argued that direct responsibilities are those which arise directly from a company’s existence and operation. In this respect, organisations are respon- sible for, and should consider the rights and wrongs of, their internal structure. Organisations have obligations to the local community. The source of obligation a company owes the local community lies in the benet which the company derives from its operations in a particular area and thus beneting from local services and the availability of labour. On the other hand, according to L’Etang (1995: 128) the indirect responsibilities to society arise from the ‘position of power which companies have in society either individually or collectively’. This point of view suggests that, since corporations benet nancially from society, corporations should prevent society from any harm and other damage directly from their operations. The importance of managing issues and corporate response to ethical issues has received little research attention in recent years. The domain of issues management investigates how managers can effec- tively identify and respond to environmental devel- opments that may affect their organisations (Brown 1979, Chase 1984, Stanley 1985, Heath & Nelson 1986, Ketola 2006, 2008a,b). Others have examined responses to ethical issues (Ackerman 1973, Sethi 1975, Gatewood & Carroll 1981, Garrett et al. 1989, Bradford & Garrett 1995, Simola 2003). A critical element in the issues management process is management’s communicative response to accusation of unethical behaviour (Sethi 1979, Heath 1980, Dirsmith & Covaleski 1983, Shelby 1985, Crable & Vibbert 1986a,b, Heath & Nelson 1986). But, as the Mercury executives’ statements clearly demonstrated, the type of communicative response used in these pressurised situations can vary dramatically. As with this case, the rst manager’s statement shows that the company refused to accept responsibility for what happened and saw the incident as unrelated to their company. In contrast, the second statement by the CEO of the parent company did not take responsibility for what happened but promised to make some changes so that such an incident will never happen again. This occurred only after the Prime Minister, the media and civil society organisations expressed their

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disgust at the approach the company used to manage the incident. Finally, a month after the incident, the company made available the new guidelines for disconnecting customers’ electricity and methods of helping customers who are having difculty in paying their electricity bills. This was the stage at which Mercury accepted that their beha- viour had been questioned and their reputation had been severely damaged. In other words, it is not acceptable for a company to try to absolve itself from an alleged unethical behaviour, notwithstand- ing the fact that it may not have been directly involved in the ethical incident (see Eweje 2006). This argument is somewhat similar to Sethi’s (1979) assertion that, while few corporations have been accused of violating the laws of their nations, they have increasingly criticised for failing to meet societal expectations and to adapt their behaviour to changing social norms. Therefore, CSR implies bringing corporate behaviour up to a level where it is in ‘congruence with prevailing social norms, values, and performance expectations’ (p. 66). Hence, we argue that the pursuit of ethics requires that companies take two phrases in the ethics lexicon seriously: ‘social contract’ and ‘licence to operate’. They are not simply descriptors of a positive social positioning, but are vital to long-term business sustainability (Fombrun & Foss 2004). Accordingly, past research suggests that appro- priate explanations can reduce feelings of anger and resentment that often occur when people experience unfavourable events and enhance perceptions that the procedures used were fair (Folger et al. 1983, Bies & Shapiro 1987, Greenberg 1990). Bies & Shapiro have suggested that the presence of a justicatory explana- tion led to greater ratings of fairness than the identical outcome without explanation. It has been suggested that many factors inuence a manager’s choice of a communicative response, such as the nature of the alleged offence, the tactics used by the accusers, the manager’s prior issues management experience, and the accused organisa- tion’s objectives and goals (Garrett et al. 1989). Essentially, a manager’s choice may be inuenced by the organisation’s basic attitude towards business ethics, CSR, and the organisation’s assessment of the validity of the specic accusations of unethical behaviour. Mercury managers’ lack of prior issues

management experience (the case was the rst major issue in the public domain) and basic understanding of what constitutes unethical behaviour, com- pounded with wrong assessment of the situation, shows the vulnerability and lack of skill to manage social issues. It should be pointed out that CSR is not a dominant management concept in the NZ business community, but its importance in recent years has grown rapidly (Roper 2004, Collins et al. 2007). To further illustrate this point, according to Roper (2004: 23), the terms ‘social responsibility or busi- ness responsibility were not even publicly considered before 1998. This fact was a reection of the almost complete dominance of neo-liberal free-market ideology at that time’. However, many businesses have had to reconsider their role in society due to the election of a labour-led government in 1999; demands from the public; and the shift from free- market ideology.

Social response strategies

There have been a number of strategies that corpora- tions have embraced towards social issues. These strategies vary from those that are negative to those that are positive. Several scholars have described various conceptual frameworks for categorising cor- porate responses to ethical issues. For example, Wilson (1975) described four possible business strategies – reaction, defence, accommodation, and proaction. McAdam (1973) suggested four CSR philosophies that complement Wilson’s strategies and dene the range of social responsiveness. He proposes philosophies that include: ght all the way; do only what is required; be progressive; and lead the industry. Davis & Blomstrom (1975) also suggest alternative responses to societal pressures: withdra- wal; public relations approaches; legal approaches; bargaining; and problem solving. Sethi (1975) posits moving from social obligation to social responsibility to social responsiveness. Others have proposed different approach to corporate response to unethical incidents using different response and communicative models (Garrett et al. 1989, Szwajkowski 1992, Greening & Gray 1994, Bradford & Garrett 1995). Bradford & Garrett (1995) proposed the commu- nicative response model, which we believe is

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signicant to this paper. Their model focuses on confrontational situations in which an external factor publicly accuses a corporation of unethical organisational behaviour. As stated above, Mercury Energy was publicly accused of unethical behaviour by various stakeholders. Conversely, Mercury En- ergy was slow in responding to the accusation before eventually making amends. The four communicative responses model that focuses on the potential effectiveness of corporate communicative responses to accusations of unethi- cal behaviour was originally developed by Szwaj- kowski (1992) and empirically tested by Garrett et al. (1989) and Bradford & Garrett (1995). The four responses include denials, excuses, justica- tions, and concessions; they are discussed in relation to the case study below:

Denials

Denials are statements that deny the occurrence or existence of the questionable event, or deny that the accused organisation is the cause of the event. In this case, Mercury Energy denied that the organisation was responsible for the customer’s death as the customer was gravely ill at the time and the power cut only accelerated the inevitable. This is consistent with the argument of Garrett et al. (1989) and Bradford & Garrett (1995), who suggest that when an accused organisation can provide evidence that the company did not commit an allegedly unethical action, the organisation should use a denial com- municative response. Even though it appears that Mercury used this model, we posit that it is almost impossible for any organisation to win a moral argument when this model is used, no matter how strong the evidence provided by the organisation.

Excuses

Excuses are statements that argue that the accused organisation should not be held responsible for the occurrence and/or impact of the questionable event because certain factors limited the organisation’s control over the occurrence and/or impact the event. This viewpoint contends that when an accused organisation can provide evidence that it did not have control over the occurrence and/or impact of an alleged unethical behaviour, the company should

use an excuse communicative response. This model was also used by Mercury when it argued that because of the Privacy Act, the company would not consider the offer of a partial payment made by the husband of the customer as that would violate the Act. However, this assertion was vehemently criti- cised by the Prime Minister as a lame excuse, which demonstrates that the company did not have any measures in place to prevent such an incident from happening. Moreover, it also shows that the company was unprepared for the criticism that followed the incident and as a result decided to use a legal excuse that would exonerate the company of any unethical behaviour.

Justications

Justications are statements that argue that, even though the accused organisation is responsible for the questionable event, the standards being used by the accusers to evaluate the impact of this question- able event are inappropriate. This argument goes further to state that, when an accused company can provide evidence that inap- propriate standards are being used to evaluate this allegedly unethical action, the corporation should use a justication. With pressure mounting on Mercury, the company admitted partial blame but claimed the criticism that trails the incident was unexpected as the organisation had apologised to the family and paid for the funeral. In addition, the company managers’ contended that they were not aware of the customer’s health. Again, this model did not work for a simple reason: the initial response of denial made other assertions by the company ineffective.

Concessions

Concessions are statements that agree that the questionable event did occur, that the accused organisation caused this event, that the accused organisation had control over the occurrence and/or impact of this event, and that the evaluative standards being used by the accusers are appropriate. According to this view point, when the accused organisation concludes that the allegations raised are valid, the company should use a concession. The concession argument is valid in this case. As a result of criticism and pressure on the company,

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Mercury Energy’s managers indicated that they understood the mood in the country and the behaviour of their stakeholders that organisations should always take responsibility for all their direct and indirect actions. A month after the incident, the company eventually made some sweeping changes which include a range of new initiatives to improve its ability to identify and assist vulnerable custo- mers. With this development, Mercury Energy began to demonstrate understanding of the signi- cance of attending to social issues. Our general overview of the models discussed above is that it will be challenging for any organisation to use the rst two models in today’s business/society relationship. Organisations are ex- pected by various stakeholders to demonstrate CSR and, at the same time according to Primeaux & Stieber (1994: 228), ‘provide the goods and services the consumer wants, but doing so within the ethical mores of society’. The proposition is that social responsibility begins where the law ends. A corpora- tion is not being socially responsible if it merely complies with the minimum requirements of the law. As Stark (1993: 39) simply put it: ‘Ethical manage- ment is a process of anticipating both the law and the market – and for sound business reasons’.

Social issues life cycle theory

A range of theoretical perspectives have been developed to assist researchers and managers to understand the management of social issues. Among these, we consider that the social life cycle theory is useful to analyse the action of Mercury Energy in responding to the ethical incident. Social life cycle theory maintains that social issues follow a pre- dictable evolutionary trajectory (Mahon & Wad- dock 1992). The number of stages or periods through which an issue evolves varies from author to author. For instance, Ackerman (1975) identied three stages, whereas Mahon and colleagues identi- ed four. Most social issue theorists agree that social issues progress from a period in which the issue was unthought-of, to a period of increasing awareness and expectations for action, and then to a period where new standards for dealing with the issue become ingrained in the normal functioning of the company (Nasi et al. 1997).

The most inuential versions of the life cycle theory were developed by Ackerman (1975) in The Social Challenge to Business. In this book, he explored a number of instances of the evolution of the responses of business organisations to social issues. He found that, in general, the responsiveness of business organisations to social issues progresses through a three-phase trajectory; policy, learning, and commitment.1 This conforms to the situation in this case. The company started with the denial of the issue and progressed to improvement in the way it dealt with customers with nancial difculties by making changes (new commitment) to their policy. From the above description, four general trends can be identied according to Nasi et al. (1997): (a) increased organisational commitment to social ac- tion; (b) transition of organisational behaviour from mere lip service to concrete action; (c) increased organisational familiarity with the social issue and with ways to deal with it; and (d) increased standardisation of the responses to social and envi- ronmental issues at the operational level. Our rst proposition reects this:

Proposition 1: The social responsiveness of a corpora- tion will proceed in a predictable series of phases, from issue identication through a learning phase to a commitment phase.

Based on this case, it is clear that the perspective offered by the issue life cycle theory is useful in understanding corporate responsiveness to social issues. Over longer time periods, the issue life cycle perspective does have some applicability. The case company exhibited an overall trend towards in- creased commitment to a range of issues. In Phase 1, Mercury conrmed that there had been lapses with their approach when they were accused of not doing enough to ease the tension that followed the incident. This was due to the lack of understanding of the issues and the management’s lack of measures to deal with it, compounded with the fact that the company was shocked by the magnitude of criticism and interest the case generated. In later phases, with the development of greater commitment, the tone of the company changed dramatically. Mercury man- agers agreed that there must be measures to reduce

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such an incident from occurring again. The com- pany eventually committed itself to robust new processes and proactive communication methods to prevent unnecessary disconnections. Moreover, the pattern of steady increase in commitment predicted by the social life cycle theory was achieved by pressure from the government, the media and civil society organisations.

Organisational learning

We have also found evidence to suggest that Mercury Energy’s response to the incident has relevance to organisational learning in understand- ing the social needs of society. The organisational learning theory explains how Mercury Energy changed its behaviour in the process of responding to escalating social pressure. According to Argyris & Scho¨ n (1978), there is a two-level classication of organisational learning: single-loop and double- loop. Single-loop learning suggests how members of an organisation adapt to the environment within xed goals, norms and assumptions. On the other hand, double-loop learning signies how underlying norms or assumptions change, which may result in organisational transformation or reorientation. A useful concept to describe these types of organisational learning is the ‘dominant logic’ developed by Prahalad & Bettis (1986). Prahalad & Bettis describe dominant logic as a set of beliefs shared and residing in top management for strategic decision making. It not only inuences decision makers’ assumptions and beliefs but also impacts on their strategy process, including framing strategic problems, generating alternative solutions, and making strategic choices. Thus, dominant logic is a lter that screens and interprets information coming into an organisation, which inuences its strategic decision making. Similarly, Bettis & Prahalad (1995) argue that dominant logic plays a role as ‘organisa- tional intelligence’ that captures an organisation’s capability to learn. Under the current dominant logic, members of an organisation adapt to the external environment within xed goals, norms and assumptions, which is consistent with the concept of single-loop learn- ing. Initiating double-loop learning requires challen- ging and altering the existing belief systems of the

organisation. In order to achieve this goal, it re- quires abandoning some, if not all, of what has been learned by the organisation. In other words, there is a need to modify its current dominant logic. ‘Unlearning’ becomes a necessary activity at this stage. According to Hedberg (1981), unlearning refers to ‘a process through which learners discard knowledge’ which ‘makes way for new responses and mental maps’ (p. 18). Unlearning requires of managers to unlearn their existing operations that have been successful in the past (McGill & Slocum 1993, Vera & Crossan 2004) and to relearn within the organisation to catch up with the new strategic focus (Johnson 1990). However, unlearning is al- ways difcult because of the reinforce phenomenon of success (Argyris & Scho¨ n 1978, Levinthal & March 1993, Crossan & Bedrow 2003). Therefore, it needs a strong force to change the current dominant logic that dictates managers’ mindsets. Based on this approach, our second proposition is:

Proposition 2: A social incident may trigger double- loop learning of a corporation and change the dominant logic that dictates the managers’ mindsets.

In this case, Mercury Energy’s response to the ethical incident demonstrates both single-loop and double-loop learning over time. At the beginning, the company denied doing anything wrong legally or morally and argued that its procedure for discon- necting power was appropriate. The original domi- nant logic directed its initial response when the company posited that it had every right to cut the power if its client failed to pay for the electricity it provided. Apparently, it displayed typical single- loop learning at this stage. However, when the tragedy led to harsh con- demnation from various stakeholders, especially the Prime Minister, the company announced a new pro- cedure for power disconnection. This change ex- emplies the concept of double-loop learning, which takes place when underlying norms or assumptions are altered. Obviously, strong social and political pressures as well as inuential power of media played an important role to trigger the change in the dominant logic. Without enough energy to fuel organisational learning, fundamental change in an organisation is often hard to achieve.

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Thus, the implication of this case is that stake- holder pressure could be a catalyst for double-loop learning. Firms tend not to make immediate changes if their underlying belief systems remain. Strong and consistent stakeholder pressure will send a signi- cant signal to the top management to review the current dominant logic of the rm and facilitate a strategic change.

Conclusion

In this paper we have demonstrated that sustained stakeholder pressure can change the approach taken by a corporation to respond to an ethical incident in a more proactive manner rather than being defensive. Further, this case shows that a poorly managed corporate response can lead to a negative perception of the company. The key implication for corporate managers is that ethical incidents need to be managed, where possible, proactively and if not, then at least reactively (Tucker & Melewar 2005). This case called for corporations to build ethical criteria into their daily decisions. This can be done by re-educating and re-training their employees in the importance of such a policy and also making sure their agents or contractors are familiar with such ethical principles. We have also shown that, when a corporation is accused of unethical behaviour, an effective re- sponse to various stakeholders is fundamental to its legitimacy. The key premise of this paper is based on the argument that, when a corporation is accused of unethical behaviour, executives of the company are usually compelled to offer responses to defend their actions and corporate image. These response strate- gies range from those that are negative to those that are positive. We conclude that corporations under- stand the signicance of social issues to the per- formance and success of their business, however, awareness has not always been translated into meaningful social action due to lack of under- standing of social responsibility and ethical beha- viour expected by society where they operate. Furthermore, by using social issues life cycle theory and organisational learning theory, we have demonstrated that sustained pressure could trigger a change of strategy that may in fact improve the ethical posture of a corporation and improve the

corporate image in the long term. This study also conrms that, even though CSR and business ethics are topical issues and much research has been conducted on social responsibility and ethical behaviour of business, it seems there are still some major corporations that do not understand the power that the public, consumers and other stake- holders have over today’s business climate when there are accusations of unethical behaviour. Furthermore, we hope this paper will contribute to the literature on CSR and business ethics. We believe with time and continued focus and aware- ness, many companies will learn from this case and exhibit social responsibility and good ethical beha- viour in the manner they conduct their business. Finally, to have a complete picture of business response to accusations of unethical behaviour as well as CSR and business ethics awareness in NZ, future research should focus on empirical studying the level of understanding of CSR and business ethics (ethical issues) in NZ. Such studies would identify the level of awareness amongst New Zealand businesses and compare them with other OECD countries.

Note

 

1. Phase 1: Policy. During this phase, a given social or environmental issue rst emerges as a top management concern. Usually, the CEO identies the issue as one that deserves his or her personal attention, states the organisation’s concern with the issue, and formulates a general policy to deal with the issue. Phase 2: Learning. This phase is characterised by the addition to the corporate staff of a specialist who is given the responsibility of implementing the company’s social policy. Phase 3: Commitment. During this phase, organisational responsiveness is integrated into ongoing business decisions and becomes the responsibility of line managers. However, the transition from Phase 2 to Phase 3 is often traumatic and is the result of an externally or internally induced crisis

 

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