Empirical Investigation of Corporate Moral Development, in the context of rapid and radical changes, case Estonia
Mari Kooskora
Researcher, PhD student, lecturer,
University of Jyväskylä
E-mail: mari.kooskora@econ.jyu.fi
Director of EBS Centre for Ethics, lecturer, Estonian Business School
E-mail: mari.kooskora@ebs.eeJune 2006
Empirical Investigation of Corporate Moral Development, in the context of rapid and radical changes, case Estonia
Mari Kooskora
Researcher, PhD student, lecturer,
University of Jyväskylä
E-mail: mari.kooskora@econ.jyu.fi
Director of EBS Centre for Ethics, lecturer, Estonian Business School
E-mail: mari.kooskora@ebs.ee
June 2006
Short Bio
Mari Kooskora, MA (TTU), MBA (EBS), PhD Student (JYU)
Business experience – 6 years as Marketing Manager in Estonian companies
Academic Experience – 7 years, as lecturer, researcher, Founder and Director of EBS Centre for Ethics, Editor-in-Chief of EBS Review
Academic Institutions - Estonian Business School, University of Jyväskylä, visiting lecturer - International School of Management – Kaunas
Scientific articles, conference presentations
E-mail: mari.kooskora@econ.jyu.fi
Main key-points of the presentation
The purpose of my research
Research questions
The importance of study and its aspects
Main theories used in the research
Research methodology
Brief presentation of articles
Illustrative framework of the research
Conclusions so far
Purpose of my research
The aim of the research is to increase knowledge and understanding of the phenomenon of corporate moral development (CMD) and investigate the possibility of applying it into the context of rapid and radical changes taken place in one business society.
More particularly to study, describe, analyse and interpret the situation of Estonian business society in the context of rapid and radical changes by analysing and interpreting empirical results of several studies of business ethics, responsibilities, governance and leadership carried out in the organisational context in Estonia.
Research Purposes
By finding out the characteristic features of the business leaders’ perceptions and understandings about balancing business (profits) and ethics and responsibilities in business activities to identify stages of ethical / moral understanding and behaviour among business leaders during the situation of rapid changes and uncertainty.
The theoretical aim of the research is to develop the concept of CMD to better portray the corporate moral development in the context of rapidly changing business environment.
Research questions
What is the level of moral development of companies and how it has changed in the context of rapid and radical changes?
How the level of moral development of companies can be developed through business education in this particular context?
Business Ethics – this plant does not want to grow well on our limestone ground. (EPL, H. Mets, nov 2005)
Importance of the research
Transition from former centrally-planned economies in Central and Eastern European Countries (CEECs) to market economies has been cited as one of the most interesting and most important issues in contemporary economics and in the development of the world economy (Vensel 1996).
Sölvell and Porter (2004) have referred to Estonia as one of the best examples of these transitions in economic sense.
Many social scientists in Estonia and other countries have done much research and written numerous articles about transition in Estonia, trying to define why the process has been so successful politically and macro-economically, but only a limited number of studies have been conducted about management and business corporations and practically nothing has been written in the area of corporate moral development (finding balance in ethics and profits in business activities) and related issues (BE, CSR, CG).
Our recent studies and examples of business practices have shown this as a problematic area in our society, which needs to be studied and discussed more.
Rapidly changing environment = development (?)
Estonia has made extraordinary progress following independence. Sound macroeconomic policies and far-reaching structural reforms have resulted in the successful establishment of a market economy and EU membership.
The country is witnessing a remarkable convergence in real terms to EU levels, with purchasing power parity per capita income increasing to 46 percent of the EU15 level.
Estonia has also achieved significant nominal convergence, meeting all of the Maastricht criteria, save for inflation.
Robust economic growth continues, largely driven by domestic demand. Real GDP growth increased to nearly 8 percent in 2004 (from 6¾ percent a year earlier) and accelerated further, to 8½ percent year-on-year, in the first half of 2005. Inflation has increased since mid-2004 and remains significantly above the Maastricht criterion. (IMF, Nov 4th , 2005 http://www.imf.org/external/np/sec/pn/2005/pn05152.htm
Change in our society can be considered as a development – particularly in economic and political sense.
In moral and ethical sense the changes can not be seen as development.
Estonia, being one of the smallest countries in Europe, is a post-socialist country, which has experienced relatively rapid economic growth since 1995, with an average GDP growth rate of 5.3% per annum (Estonian National Development Plan 2003: 23; Statistical Office Estonia), last year annual growth was . A stable macro-economic framework, together with rapid privatisation and other market-economy reforms have produced a favourable economic environment in Estonia and aided the country in its progress towards closing the gap between itself and the developed industrial countries (Terk & Varblane 2001). Today, according to some of the leading indexes and rankings, Estonia is considered the most successful reformer (in an economic sense) in Eastern and Central Europe (Sölvell & Porter 2004: 6; Invest in Estonia; Government of Estonia; Buchen 2005).
But at the same time, while looking at over 4,000 conflicts in Estonian organisations and society, real situations we have gathered with the help of our MBA and BBA students since the year 1999, (Virovere et al 2002; Virovere & Kooskora 2002; Kooskora 2004: 202, Kooskora 2003) we have had to admit that big problems in the field of ethical and responsible business behaviour are evident. We have witnessed that in too many cases neglecting the importance of ethi...
Main theories used in the research
Reidenbach and Robin (1991, 273, Snell 2000) suggest that just as individuals can be classified into the stage of moral development (Kohlberg 1969), so too can organisations.
Reidenbach and Robin have identified five levels of moral development describing the behaviour of the corporation as amoral, legalistic, responsive, emerging ethical and developed ethical.
The behaviour of the corporations derives mostly from the behaviour of its leaders.
Leaders’ behaviour and character have great impact on the others they influence the lives of many people.
Edward Aronson (2001) finds ethical behaviour a necessary condition for the establishment of an ethical organisation, but claims this alone not to be sufficient, as ethical leadership is required.
Ethical behaviour and effective leadership are intertwined and inseparable, leaders set the moral tone of the organisation and have great impact on others.
According to Ciulla (1995, 2004) good leadership refers not only to competence but also to ethics.
Max DePree (1993) places three things at the top of all leaders’ list, these are: an understanding of fiduciary nature of leadership, a broadened definition of leadership competence and the enlightenment afforded by a moral purpose.
Understanding the essence of leadership includes issues of ethics, every behaviour, every decision has two main dimensions: a world of action and a world of people and three levels: economic, psychological / sociological and ethical (Vasquez-Dodero 2002).
Organisations have often the face of their leaders.
Ethical behaviour and effective leadership are intertwined and inseparable, leaders set the moral tone of the organisation and have great impact on others.
The behaviour of the corporations derives mostly from the behaviour of its leaders.
Trevino (1986) and Ferrell and Gresham (1985) have attempted to model the ethical decision making process in organisations.
Using the concept of CMD
I argue that by using the concept of CMD we can describe the changes taken place in the perceptions about ethics and profits (also revealed in behaviour and activities) in business among business leaders in the context of rapid and radical changes, starting from the year 1985.
The stages of CMD exhibit the morality / moral maturity of the leader and organisation through certain behaviours, attitudes, values, corporate culture, explicit, implicit artefacts.
I approach CMD through studies concerning CSR, corporate governance and leadership as these results describe different stages of CMD and show how, when and why the changes in perceptions have taken place.
CMD is historically and culturally bounded, as historical events and cultural factors are influencing activities and behaviour of people as well as business leaders in their daily activities in the organisations.
Leaders and their behaviour set the moral tone in the organisation they are the role models and give the face to the whole organisation.
The highest stage of CMD describes ethical and responsible leadership, where there is total balance between ethics and profits.
Methodological Approach
The analysis of my research is qualitative and the chosen perspective is social constructivism (Berger and Luckmann 1966)
The central point is how perceptions of Estonian business leaders can be interpreted and understandings constructed.
The design of the study is abductive by nature. I particularly want to report the continuous dialogue between the empirical research materials, the analysis and theoretical approaches.
My research has qualitative approach; the methods used for data collection include semi-structured in-depth interviews, conversations and observations, written down during the period of last 7 years.
It can be also looked as a case study research (Yin 1994; Stakes 1995), one business society in concrete context, building explanation and developing a theory.
The constructivist paradigm assumes relativist ontology (multiple constructed realities), subjectivist and interpretive epistemologies, and interpretive, naturalistic set of methodological procedures.
For doing qualitative analysis I’m using Qualitative Research Analysis software NVivo 7. looking at interview answers as different cases, studied subjects in different documents, combined as sets, grouped nodes together by coding relevant characteristical issues, giving values to perceived responsibilities, stakeholder relations, actitvities types. The material is rich from concrete examples, told by well-known and reputable business leaders (owners, top managers) in Estonia.
Short overview of articles:
Societal level:
The general situation (impetus of the research) described and analysed in a chapter of a book published by Springer Verlag in Germany.
Article: Kooskora, M. 2004. Estonia [15] Incubating Radical Political and Economic Change, In: CSR Across Europe, Springer Verlag (Germany), André Habisch, Jan Jonker, Martina Wegner, René Schmidpeter (Eds.) November 2004, pp. 195-208 (refereed)
In this article attention is paid at the society’s attitudes towards business, the roles of economy, state and society, given a brief historic and cultural overview, described main drivers of CSR and based on the conducted studies analysed CSR situation in leading Estonian companies based on the size of the organisations.
Short overview of articles 2:
Organisational / leadership level:
Topic of ethics in leadership is analysed and discussed in mainly theoretical article.
Article: Kooskora, M. 2005. A Discussion of Ethical Leadership. Business Ethics and Corporate Social Responsibility, EBS Review, No 19, pp. 42-49 (peer-reviewed)
Perceptions of corporate responsibility among Estonian business leaders, based on the research of generalists, - empirical article.
Article: Kooskora, M. 2006. Perceptions of Business Purpose and Responsibility in the Context of Radical Political and Economic Development –– the Case of Estonia, Business Ethics – A European Review, April, Blackwell Publishing (refereed)
The article concentrates on studying over 2000 really happened conflict situations in Estonian society and organisations. Analysing these conflicts have given a relatively good overview about the situation in Estonian organisations and shown that the causes of conflicts were related to ethics and the fact that most of the conflicts which do not find resolution are related to the attitudes towards employees and power giving the signal of outdated values and an inability to adapt themselves to a changing world.
The article has concentrated on problems, which have emerged in the ongoing process of transforming a socialistic society to a western welfare society.
This article focused on studying and classifying perceptions of business purpose and responsibilities in last 20 years in Estonia. There are numerous of studies conducted and articles published about the transition process in Estonia. All these studies are mainly about macro-economics, or privatisation and internationalisation, there are only some about organisations and management but really few are looking at the morality of leaders / managers - and this is what I have done now. I have systematised and classified 5 periods and given the historic, cultural and economic background as a context in which I analysed the perceptions of leaders / managers about business purpose and responsibilities.
Short overview of articles 3:
Business education level:
University education is a way of shaping and reshaping individual identities, both personal and organizational. Business education and training, developing managerial competences and modifying values related to business focusing on education and training of ethical and responsible present and future business leaders are important prerequisite for developing ethical and responsible business society.
Article: Kooskora, M., Ennulo, J., Virovere, A. 2005. Developing an Awareness of and Teaching Business Ethics in Emerging Societies –– the Case of Estonia, Journal of Business Ethics Education (JBEE), Vol 2 (1) Senate Hall Academic Publishing, UK, (refereed)
Business schools can sculpture, modify the behaviour of current and future managers. For building up ethical society we need ethical people, the decisions business leaders / managers make influence more than just themselves and others in organisations. The way organisations conduct has impact on the society. The ways how current and future managers / business leaders are taught has and will have impact on the whole business society, therefore teaching and training business ethics is an important part in every business school activities.
Illustrative framework of the research
COMPANY COMPANY COMPANY COMPANY COMPANY ENVIRONMENT SOCIETY QUALITY OF
ACTIVITIES Article on Societal level Articles on Org
& Leadership level Article on Business
Education level
In order to be successful and sustainable in the long-term period the organisations have to be well-behaved actors in the society and environment. The behaviour, quality of activities and relationships play central role in successful and sustainable operations and development. The quality of activities and behaviour can be described by considering the importance of ethics and responsibilities of organisational operations and by implementing these concepts in organisations’ daily practices.
Illustrative framework of the research
Balancing profits and ethics
(Ethical and responsible leadership, Activities & Behaviour) Org. goals, tasks
Corporate culture Ind. & org, values,
norms Decision-making Internal & external
Stakeholder relations communication Corporate Moral
Development BE & CR education & training Articles on Org
& Leadership level Article on Business
Education level Articles on Societal &
Org. level
Corporate Moral Development Model (adapted from Robin & Reidenbach 1991)
Developed ethical
(principle-driven)
Emerging ethical
(balancing ethics and profit, has ethical artifacts)
Responsive
(helps local community, social responsibility if profitable)
Legalistic
(follows the letter of the law, legal=ethical)
Amoral
(maximum profit at all costs)
Framework by Robin and Reidenbach, 1991
Inspired by the work on individual moral development by Kohlberg (1969) – moral development from strictly self-interested, self-serving to broader considerations on others and society, pre-conventional to post-conventional
Main idea - as individuals can be classified into the stage of moral development so too can organisations.
Reidenbach and Robin have identified five levels of moral development describing the behaviour of the corporation as:
Amoral, legalistic, responsive, emerging ethical and developed ethical.
The stages exhibit the morality / moral maturity of the leader and organisation through certain behaviours, attitudes, values, corporate culture, explicit, implicit artefacts.
‘Fast profit days are over, must find right partners, new opportunities’ ‘Good and wise business people do not neglect laws’ ‘It is not appropriate to ask about the origin of the first million’ ‘Unlearning old experiences was more demanding than learning new skills’ ‘Compensating inefficiencies of planned economy by searching new ‘business’ opportunities’ Illustration International stakeholders, international & local associations, NGOs Important stakeholders – public, media, customers are treated respectfully Banks, owners, shareholders, boards, customers Politicians, foreign investors, owners, shareholders, boards Ministries, higher & regional authorities,
biggest customers, workers, local community Perceived
stakeholders Investors securing their investments, internal & external stakeholders CSR activities have positive affect on image & customer’s expectations Earning profit, tendency to find loopholes in legislation A tendency to avoid
responsibilities survival, economic responsibilities Taking paternalistic role, caring for workers and local community Perceived responsibi-lities Maintaining success,
looking for new opportunities, finding new markets, innovation Long-term invest-ments, planning period min 5 years, pers-pective 10, strategy & benchmarking Short-term interests, restructuring, re-designing old Soviet style enterprises, star-ting from zero point Privatising former state-owned organisations, starting new businesses, earning profit Economic men searchin...
New typology of corporate moral development (supplemented by M. Kooskora)
Developed ethical
(principle-driven)
Emerging ethical
(balancing ethics and profit, has ethical artifacts)
Responsive
(helps local community, social responsibility if profitable)
Legalistic
(follows the letter of the law, legal=ethical)
Amoral
(maximum profit at all costs)
Immoral
(survival, nobody can afford to think of ethics)
Amoral organisations
‘Winning at any cost’; ‘They never know’; ‘Everybody does it’; ‘We wouldn’t be caught’
Dominant values - Productivity and Profitability, short-term interests
Ethics concerns – if exist at all, then reactive
CSR = to make profit
Main stakeholders – owners, banks, shareholders, customers
Management – by power and authority, obedience valued and rewarded
In Estonia – 1995-1999? (business boom period)
Legalistic organisations
‘If it’s legal then it’s OK’; ‘The lawyers have to check it’
Dominant values - Productivity and Profitability but according to the laws
Ethics concerns – if at all, then on post hoc basis; what’s legal = ethical;
CSR = paying taxes
Main stakeholders – public, media, customers
Management – compliance to laws and regulations, codes, legalistic thinking
In Estonia – 2000-2004/6? (catching-up period) (‘jokk’ – ‘juriidiliselt on kõik korrektne’)
Responsive organisations
‘Besides profits we have some social duties and obligations’; ‘Ethics pays’
Values – begin to strike balance between profits and doing right
Ethics concerns – to identify behaviours that will bring potential harm
CSR = concern for the communities, activities when it is profitable, different stakeholders
Main stakeholders – internal and external stakeholders, international partners
Management – beginning to realise importance of employees, soft and hard skills
In Estonia – 2005-? (some extent, EU convergence)
Emerging Ethical organisations
‘We want to do the right th...
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