Professional Ethics for Organization and Project Managers Presented

Professional Ethics for Organization and Project Managers Presented by Mumtaz A. Usmen, Ph. D, PE Wayne State University Detroit, Michigan January 2016 1

CONTENTS q Ethics Fundamentals Ø Ø q Professional and Corporate Ethics Ø Ø Ø Ø q Definitions and Theories (Norms) Moral and Ethical Development Ethics and Law Ethical Decision Making Codes of Conduct PMI Code of Ethical Conduct Corporate Ethics Policies Factors Affecting Ethics in Organizations and Projects Hard and Soft Ethical Issues Ethics in Project Life Cycle Global Issues in Ethics Corporate Culture and Ethics Ø Ø Ethical Leadership Corporate Social Responsibility

ETHICS FUNDAMENTALS q Ethics Ø Discipline dealing with what is good and bad, and with moral duty and obligation Ø Judgments about the rightness and wrongness of human behavior, which help determine the appropriate response to a given situation (conduct) Ø An effective system for interaction between groups of people which results in predictability, sustainability, personal value, mutual success and mutual growth

ETHICS THEORIES Ethical norms affecting decisions and actions q Ø UTILITARIANISM - The greatest good for the greatest number of people (consequential optimization) Ø DUTY ETHICS – Adhering to universal truths and principles because it is the right thing (regardless of consequences) Ø RIGHTS ETHICS – Respect for the rights of others (moral rights, justice and fairness) Ø CARING – People’s responsibilities for each other q Virtue Ethics Ø Actions are right if they manifest good character traits (virtues), and bad if they display bad character traits (vices). Ø People with good character will behave ethically Ø Connects with personal development and ethical leadership

MORAL AND ETHICAL DEVELOPMENT Moral development - Gradual development of an individual’s concept of right or wrong – conscience, values, social attitudes and behavior. q. Kholberg’s stage theory – Individuals go through discrete stages of moral and ethical development as they mature. ØStage 1 - Obey authority and avoid punishment ØStage 2 - Individualism - what’s in it for me? ØStage 3 – Good interpersonal relationships; peer approval ØStage 4 – Maintain law and social order; follow rules, perform duty, respect authority (terminal stage for 80 % of people) ØStage 5 – Legalistic social contract – respect differing values, opinions, minority rights; improve laws within democratic system ØStage 6 - Universal ethical principles (abstract reasoning); moral principles over social norms (including civil disobedience); belief in dignity of humans q. Questions on applicability to Western vs. other cultures; males vs. females (justice vs. care) q

ETHICS and LAW q q q Business ventures (including projects) are governed by laws; rules we must obey. Ethics are norms according to which society expects us to behave; they underpin effectiveness of laws. Laws are minimum ethical standards that are acceptable to society Breaking the law results in penalties (fines, prison); breaching ethics results in loss of credibility and reputation (may also have financial impact). Unethical acts can transition into illegal acts. If there is no law against an act, it is legal, but it may not be ethical.

ETHICAL DECISION MAKING q Four Component Model (James Rest, 1994) Ø Moral sensitivity - Awareness/recognition that the situation has a moral issue (potential harm to people) Ø Moral judgment – Evaluation of alternative decisions to determine if morally sound Ø Moral motivation – Choosing value of morality over value of power Ø Moral courage – Deciding to take action in the direction of moral judgment and motivation q Moral Issue Intensity – Affects all four components Ø Ø Probability and magnitude of consequences Time elapsed between action and consequences Proximity of people affected Social consensus- agreement with expectations of peer group, or society at large

ETHICS TESTS (Michael Davis, 1997) q q q q Do the benefits of this choice outweigh harms, short and long term? Would I think this choice was good if I traded places? What if everyone behaved this way? What would professional colleagues think? Would this choice violate law or policy ( of employer, jurisdiction)? How would this action appraised by the media? What would my wise uncle/aunt do?

PROFESSIONAL AND CORPORATE ETHICS q Corporate ethics entail ethical issues and behavior in a corporate setting Ø Encompasses applied ethics from a professional and/or business perspective ØManagement decisions drive the quality of the ethical environment in a corporation, applicable to organization and project management. q Professional ethics Ø Ø Professional - A person holding a paid occupation, typically involving prolonged training, specialized skill and formal qualifications Professional ethics - Professionally accepted standards of personal and business behavior, values, and guiding principles (codes applicable to members of professional societies)

CODES OF CONDUCT q q The ethics code of an organization is a set of principles and rules that guides the members of that organization in making ethical judgments and exhibiting ethical conduct in their work Numerous codes exist for professional practice; some noteworthy ones are from Ø The National Society of Professional Engineers (NSPE) Ø Assoc. of Information Technology Professionals (AITP) Ø Project Management Institute (PMI) q Corporations and government agencies have also developed and utilize codes of ethics/ ethical conduct (including legal compliance)

PMI ETHICS CODE q CHAPTER 1 – Vision and Applicability Ø Purpose is to instill confidence in project management professionals and make them better practitioners (by doing what is right and honorable) Ø The Code applies to PMI members, PMI certificate holders/applicants, and volunteers Ø Values established by the global project management community to support the Code are responsibility, respect, fairness, and honesty

q CHAPTER 2 – Responsibility: Duty to take ownership of decisions and actions taken or not taken, and their consequences Ø Consider best interest of society, public safety and environment Ø Work in assignments compatible with background, skills and expertise Ø Fulfill commitments Ø Take ownership of errors and correcting them promptly; being accountable for consequences Ø Protect proprietary and confidential information Ø Uphold laws, policies, regulations governing project work; report unethical and illegal conduct to appropriate bodies.

q CHAPTER 3 – Respect : Duty to show high regard for self, others and entrusted resources (people, money, reputation, safety, natural resources, environment) Ø Avoid engaging in disrespectful behavior Ø Listen to others’ points of view with the intent to understand them Ø Approach directly persons with whom you have conflict/disagreement Ø Conduct yourself in a professional manner, even when not reciprocated Ø Negotiate in good faith Ø Do not exercise the power of your expertise or position to influence others’ decisions, benefiting personally at their expense Ø Do not act in an abusive manner to others Ø Respect the property rights of others q An environment of respect engenders trust, confidence, performance excellence and mutual cooperation, and encourages and values diverse perspectives and views.

q CHAPTER 4 – Fairness: Duty to make decisions, and act, impartially and objectively, free from competing self interest, prejudice and favoritism Ø Transparency in decision making Ø Constantly reexamine impartiality, take corrective action as needed Ø Provide equal access to information to authorized persons Ø Make opportunities equally available to qualified candidates Ø Proactively and fully disclose all conflicts of interest to stakeholders Ø Recuse yourself from decision making if there is a COI, unless cleared by the stakeholders and a mitigation plan Ø Avoid nepotism, favoritism and bribery in hiring and firing, or awarding and denying contracts Ø No discrimination based on gender, race, age, religion, disability, nationality, or sexual orientation Ø Apply the rules of the organization (employer, PMI or other group) without favoritism or prejudice.

q CHAPTER 5 – Honesty: Duty to understand communicate the truth, and act in a truthful manner Ø Provide accurate information in a timely manner Ø Make commitments and promises in good faith Ø Strive to create an environment where others feel safe to tell the truth Ø Do not engage in or condone deceptive communications or conduct; e. g. , making misleading or false statements, stating half-truths, withholding or manipulating information with intent to conceal questionable intent Ø Do not engage in dishonest behavior for self gain, or at the expense of another.

CORPORATE ETHICS POLICIES q q q Major business organizations have developed corporate ethics and compliance programs and policies, and engage ethics officers in their implementation. (Yet, still many firms worldwide have no such programs) Ethics and Compliance programs are designed to Ø Institute and maintain the highest ethical standards and conduct in the organization; Ø Detect, address, report and prevent any allegation of misconduct; and Ø Comply with applicable laws and standards. These programs can include: Ø Statement of commitment ( to clients, employees, vendors, community) Ø Personal responsibility for ethical conduct (consistent with roles) Ø Accurate and transparent record keeping

Ø Conflicts of interest Ø Client relations and business courtesies (Gifts) Ø Confidential information Ø Use of company assets Ø Political contributions Ø Software license and copyright compliance Ø Compliance with environmental laws Ø Antitrust laws Ø Dealing with foreign public officials abroad Ø Reporting violations (whistleblower and protection) Ø Discipline

HOW ETHICAL ARE U. S. BUSINESSES ? q Ø Ø Ethics Resource Center – National Business Ethics Survey (2013) 41% of respondents witnessed misconduct during past year 26% said misconduct was ongoing (rather than isolated incidents) 21% of who reported misconduct suffered retribution 60% of respondents report managers are responsible for a large share of misconduct Ø 24% suggest senior managers break rules more often Ø 19% believe mid-level managers are the culprits Ø 17% think first-line supervisors are the problem Ø Ø The survey revealed that misconduct was lower in companies valuing ethical conduct (e. g. using it as an employee performance metric) and building culture of accountability Increasing number of firms are providing ethics training.

FACTORS AFFECTING MANAGERS’ ETHICAL BEHAVIOR q Personal factors Ø Family background Religious beliefs Personal values and needs q Organizational factors Ø Ø Individual Values + Ø Organizational Values Policies, code of conduct + Behaviors of peers and supervisors External Organizational culture Influences q External Environment Ø Ø Government rules and regulations Societal norms and values Ethical climate of industry = Managerial Values

FACTORS AFFECTING UNETHICAL BEHAVIOR IN ORGANIZATIONS q q q Competition (individuals, groups, companies) Perspectives on short vs. long term benefits/success Pressure to perform (at all levels); schedule, quality, etc. Not knowing performance standards and expectations Unmanaged stress due to uncertainty, ambiguity, rapid change Poor information/communication Opportunity (thinking that one can get away with it) Feeling mistreated, marginalized, not respected Individual values not aligned with organizational values Hard to detect violations or compliance Lack of ethical leadership

ETHICAL DETERMINANTS IN PROJECTS q q q RELATIONSHIPS – Informal/formal relationships can affect project performance CULTURE – “Groupthink” can make project managers and team make unethical decisions (e. g. circumventing controls) POWER – “Absolute power corrupts absolutely” (from senior management, unions); power / tone can drive ethics (both good and bad) COMPETITION - May lead to dysfunctional decision making, power struggles, lack of information sharing and collaboration, win-lose paradigms in personal interactions REWARDS– Generally positive effects; however, they can also cause ethical transgressions if the reward is coveted excessively (e. g. falsifying data).

q q EXPERIENCE – If unethical acts have not been dwelled on in past experience, they may continue ROLE EXPECTATIONS – Project managers may be put in roles of meeting expectations of multiple stakeholders that may be in conflict with each other (e. g. cost vs. quality, or approach to disciplinary action) ORGANIZATIONAL STRUCTURE – Centralized decision making on ethical issues may keep the lower levels wondering; in decentralized organizations, ethical issues/lapses may remain under the radar. MANAGEMENT STYLE – The tone at the top influences ethics and can be reflected in formal policy documents and in ways of doing business. (The project may be “doomed” because the team members can not freely discuss their concerns).

ETHICAL ISSUES IN PROJECTS q Broadly speaking, ethical issues can be categorized as hard or soft (with some overlap between them). ØHard ethical issues – Can have legal and financial ramifications, and are easy to detect ØSoft ethical issues - Can also have financial and legal consequences; however they are more difficult to detect and to deal with

HARD ETHICAL ISSUES q q q q q Legal noncompliance – Criminal or civil penalties (Sarbanes-Oxley, OSHA, environmental laws, antitrust) No due diligence/due care – Failure to exercise “reasonable” behavior/precautions to prevent harm can put stakeholders at risk Inadequate health and safety – e. g. Haz. Mat / Haz. Com Substandard quality – Warranties and litigation Padding and low balling – Inflated estimates and change orders Mischarging – Billing for work not contracted Bribes and kickbacks – Common and hard to prove Conflict of interest – Includes appearance of it (e. g. project manager owning stock in a supplier firm) Unfair competition – Collusion

SOFT ETHICAL ISSUES q q q Short-term thinking – quick fix; passing the buck No commitment, responsibility, accountability – Overpromising, not delivering; not taking responsibility for action/results; blaming others (stakeholders) Repressive culture – Management intimidation resulting in ethical lapses Extreme behavior – Dominating management ignoring input and insights from team members, eliminating collaboration and communication Poor communication – Project managers communicate extensively with all stakeholders. Lack of honesty and openness in communications leads to credibility issues. Performance pressure – Cutting corners to meet cost and schedule targets. Excessive pressure can lead to finger pointing, shirking responsibility, sabotaging others.

ETHICS IN PROJECT LIFE CYCLE q Ethical issues may arise throughout a project ØPMI PMBOK Project Life Cycle

INITIATING PHASE q q q Dishonest approach to winning contract Not negotiating in good faith Omitting key stakeholders Misaligning with organization’s interests Conflicting interests

PLANNING PHASE q q q Padding cost estimates (separate from contingency. Lack of accountability - No one responsible for delivering results Lying and deception (due to lack of internal controls)

EXECUTING PHASE q q q q Mischarging Misinformation or disinformation Accepting offers for kickbacks or gifts from suppliers. Violating confidentiality Vilifying peers Violating employee rights Deliberately underperforming Squashing dissent

EXECUTING PHASE q Failing to equitably, consistently treating team members Ø Not encouraging collaboration Ø Dismissing without cause Ø Misusing power q q Not enforcing standards consistently Delivering a defective product to customer Change order and payment games False / frivolous claims

MONITORING AND CONTROLLING PHASE q q q Submitting false project status and progress reports. Overbilling Destroying/stealing vital information “Massaging” or not sharing information (with critical stakeholders) Falsifying expense reports Approving substandard test results

CLOSING PHASE q q q Not delivering results as promised Not satisfying contractual requirements Falsifying records

GLOBAL ISSUES IN ETHICS Gifts, bribery, and kickbacks q Financial improprieties (e. g. , money laundering) q Child labor, sweatshops and forced labor (political prisoners) q Immigration q Human rights q Harassment (physical, sexual, psychological) q Discrimination (age, national origin, religion, gender) q Employee hiring and dismissal q Harmful products and pollution q Price manipulation (e. g. , dumping, gouging) (This is a partial list, which is mostly applicable to many domestic projects, as well) q

THE U. S. FOREIGN CORRUPT PRACTICES ACT (FCPA) - 1977 q q q Created as a result of admitted bribery to foreign government officials and politicians by U. S. companies Aimed at stopping corruption and restoring integrity in American businesses Scope expanded in 1998 Ø Bribery is a criminal act Ø Strict accounting and record keeping requirements (internal controls) Ø Broadened definition of foreign official

HOT INDUSTRIES q q q q q Financial services Mining / extractive industries International manufacturing Oil and gas Telecommunications Medical services Pharmaceuticals Aerospace and defense Infrastructure / construction

CORPORATE CULTURE AND ETHICS q Corporate culture - Values, beliefs, behaviors, and attitudes that help members of an organization understand Ø Ø Ø q q q What it stands for How it does things What it considers important Powerful force that can shape organization’s long term effectiveness, while shared experiences bond members together Influenced by organizational founders’/leaders’ personal values and beliefs; i. e. ethics Such leaders not only are ethical in their own decisions and actions, but they influence members of the organization to behave ethically.

ETHICAL LEADERSHIP q q q Leadership and ethics must be unified Ethical leaders recognize that the organization’s long-term effectiveness depends on the integrity of the employees who are entrusted with crucial responsibilities and authority, and set the tone accordingly (leading by example) Ethical leadership attributes Ø Strong personal character; proactive; role model for organizational values; passion for doing what is right; transparent and actively involved in organizational decision making; considerate stakeholder interests; competent manager who takes a holistic view of the organizations ethical culture

CORPORATE SOCIAL RESPONSIBILITY AND ISO 2600 q q Corporate Social Responsibility (CSR) -Continuing commitment by business (and government) to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large ISO 26000 (European Union) Ø Offers “guidance”; not a “guideline”; voluntary Ø Contains recommendations, advice, and orientation Ø Not a management system standard Ø Does not contain requirements; not certifiable Ø Not for assessments ; not for contractual use Ø In no way obligatory…

ISO 26000 - SEVEN CORE SUBJECTS n n n n Organizational governance Human rights Labor practices The environment Fair operating practices Consumer issues Community involvement and development

ISO 26000 - SEVEN PRINCIPLES OF SOCIAL RESPONSIBILITY q q q q Ethical behavior Accountability Transparency Respect for stakeholder interests Respect for the rule of law Respect for international norms of behavior Respect for human rights

ETHISPHERE INSTITUTE q Mission - Improving corporate behavior in a way that positively impacts the world Ø global leadership in defining and advancing the standards of ethical business practices that fuel corporate character, marketplace trust and business success (ethisphere. com) q World’s most ethical companies (certification) Ø Ethics Quotient (EQ) Ø Ethics and compliance programs (35%) Ø Corporate citizenship and responsibility (20%) Ø Culture of ethics (20%) Ø Governance (15%) Ø Leadership, innovation and reputation (10%) q Message – Ethical business is profitable…

ETHICS RESOURCES q Ethics and Project Management by Ralph L. Kliem, PMP, CRC Press, 2012 q Professional Ethics for the Construction Industry by R. Mirsky and J Schaufelberger, Routledge, 2015 q Engineering Ethics: Concepts, Viewpoints, Cases and Codes by J. H. Smith, et. al. (editors), Murdough Center for Engineering Professionalism, Texas Tech University, 2 nd Edition, 2008 q Corporate Social Responsibility: An Implementation Guide for Business by P. Hohnen; J. Potts (editor), International Institute for Sustainable Development, 2017 q Seven Habits of Highly Effective People by Steven M. Covey, Franklin-Covey, 1989 q http: //www. nspe. org/resources/ethics q https: //nationalethicscenter. org/

Contact Information Mumtaz A. Usmen, Ph. D, PE College of Engineering Wayne State University Detroit, MI 48202 (313) 577 -3861 ; FAX (313) 577 -8171 Email: musmen@eng. wayne. edu Copyright © 2016