The recent accounting scandals have highlighted the critical role that investor confidence in the accuracy and lack of distortion of accounting data plays in the health of capital markets and, indeed, the whole economy. The legal and moral culpability of top-level company managers (as well as auditors) is an issue that will be addressed by the nation in the coming months. Whether or not legal sanctions are imposed on managers, it would be well to examine some of the reasons managers may feel compelled to distort accounting numbers as well as engage in other actions that damage the interests of company stakeholders, such as stockholders, employees, and the community.
Tom Morris, in his poignant book If Aristotle Ran General Motors, makes a compelling case that creating an ethical climate in the workplace is about more than promulgating clear guidelines for ethical behavior and developing codes of conduct. He argues persuasively that creating an ethical climate must transcend a compliance approach to ethics and focus instead on fostering socially harmonious relationships. (1) While Morris does an outstanding job of defining and illustrating these socially harmonious relationships that not only lead to more productive effort but ultimately to a more ethical climate, we believe most organizations may fail to see how current management policies and practices, in fact, may defeat or inhibit development of the kind of climate Morris is advocating. Consequently, we explore here those policies and managerial practices that militate against a culture of socially harmonious relationships in the workplace.
MANAGING BY OBJECTIVES AND RESULTS
Managing by Objectives and Results (MBO and MBR) is the prevailing style of management in most organizations. This approach entails giving employees goals/ targets, measuring their performance against these targets, and then ranking them against their peers or some other performance appraisal system. Usually, employees are rewarded or sanctioned based upon the outcome of this process.
It has been enlightening to note that while most of our graduate students report that the above process is fairly typical in their organizations, most also indicate that their organizations are attempting to foster a climate of teamwork, cooperation, and employee empowerment, which are all important factors in creating a climate of socially harmonious relationships. It is apparent to us that most organizations have not considered the disconnect between MBO/MBR and attempts to create a culture that fosters teamwork, cooperation, and harmony--all ingredients necessary for creating socially harmonious relationships.
THE FATAL FLAW IN MBO/MBR
Organizations develop systems of interdependent processes to accomplish some aim or purpose (for our purposes we will be using the terms process and system interchangeably). What is crucial in understanding this process/system view of an organization is to recognize two very important features common to all systems. First, all processes/systems demonstrate significant interdependencies. The individual processes have a significant influence/effect on each other and the total system's output. Consequently, the whole (the system effect) is not equal to the sum of the parts (the contribution of each individual process). Rather, the whole is greater than the sum of the parts due to the interdependent effects. MBO/MBR, with its emphasis upon component unit (i.e., individual, department, profit center, division) goal/target attainment, may hinder this system view of an organization.
The second crucial issue in understanding the process/system view of an organization is that all processes have a given capability that can be measured. Just as important, all processes exhibit variation. The variation that can occur may be the result of how the process was designed. This inherent or common cause of variation occurs randomly. Another type of variation, special cause variation, results from forces/events outside the system. …