Business Ethics Symposium

DRAFT, CHECK AGAINST DELIVERY

Divine Word University, Madang, 7 September 2012
12th Annual Business Ethics Symposium
Ethics in the developing of PNG through the power of positive vision

Ethical considerations in the accomplishment of Papua New Guinea's Vision 2050:
the role of universities
Dr. Albert Schram
Vice-Chancellor
Papua New Guinea University of Technology

INTRODUCTION

Since starting my PhD in 1990, I have been interested in the contribution to long-run national development large, technology-driven, multi-national companies. Historically, the activities of multi-national companies have contributed to development, while at the same time causing numerous conflicts, sometimes leading to their nationalisation (e.g. Zimbabwe) or to civil war (Guatemala, Colombia). The themes the ethical consistency of the behaviour of companies, and the moral integrity of individuals constantly came up in the public debates around these companies.

Today, I will reflect on:
1- the role of trust and reputation in a market economy including Corporate Social Responsibility and business ethics,
2- ethical consistency of organisations and individual moral integrity, and
3- how universities play a role in shaping both.
  While addressing these themes, I will reflect on the ethical dimensions of Papua New Guinea's national development strategy Vision 2050 from a organisational, individual and a university point of view.

At this conference, I am glad to have the opportunity to address these issues in a more systematic manner. My interest in ethical dimensions of national development has so far been indirect and dispersed, though my recent experience as vice-chancellor of UNITECH has given me new food for thought. 

Since 2008, as adjunct professor I taught the course on corporate social responsibility CSR at the University of Turabo, an AACSB accredited business school in Puerto Rico USA. Companies develop a CSR program to address wide-range of institutional pressures from diverse stakeholders, which consists of a series of corporate environmental, social and governance activities (ESG). In my courses, I would focus on the environmental management dimension, and leave social and governance activities aside. I realised however that companies performing well in the environmental dimension, would also have some special characteristics in social and governance aspects, often fed by deeply held beliefs and values.

In 2009, I had the opportunity to perform a policy review on CSR research for the European Commission, which was published on-line (Schram 2009). More recently, I started research with Prof. Ton Otto at the Cairns Institute on the impact on values and beliefs of the national cell phone network in Papua New Guinea. In academia our work as educators of young adults is deeply ethical. As Faculty members, we are deeply involved in shaping the values and behaviour or our students. Private, faith based universities like DWU and PAU do this explicitly. State universities implicitly try to instill a certain "ethos" among students by promoting codes of conduct, and rewarding positive and punishing negative behaviour. As university executives, we are constantly modifying, shaping creating norms and strengthening value systems of our Faculty members, professional staff, and students. 

I hope my words today can contribute to the conference by clarifying some concepts, examining Vision 2050 from a higher education perspective, and reflecting on the role of universities in forming the two main driving forces contributing to creating the necessary trust-based institutions for national development:
a- individuals who behave with moral integrity, and
b- organisations which act in an ethically consistent manner. 

The aspirations and wishes of Papua New Guineans have been codified in Vision 2050. You all have read and heard a lot about Vision 2050. I will not extensively analyse this document, but limit myself to a few remarks.

First, we can define Vision 2050 by what it is not. It is not a blueprint for a sustainable development or a green economy, but realistically gives a prominent place in national development to inherently unsustainable activities - such as mining - or environmentally damaging activities such as logging. We can deplore this, but in my view too much idealism would risk losing touch with PNG reality. A vision rooted in reality is what will get things changing for the better. 

Secondly, Vision 2050 is not a blueprint knowledge economy. Knowledge intensive sectors can not by themselves create the necessary jobs to assimilate all the young people coming on the labour market. 

Thirdly, although human capital development is the first of the 7 pillars, Vision 2050 is not a comprehensive educational policy, or any other policy for that matter. For higher education it established some indicative targets for the quantity of graduates, but it stops at that. 

Fourthly, I wish to outline the importance of targets: first regarding the 8 Millennium Development Goals (MDG) by 2015 and second concerning the Human Development Index (HDI) ranking by 2050. PNG has committed itself to achieving the MDG by 2015. Currently, with the support of UNDP it is establishing a framework to accelerate progress towards these goals. UNITECH has been established as a center of excellence for MDG in PNG. The mapping of development gaps currently undertaken, will allow more targeted investments to take place. 

In 2050, PNG aspires to be in the top 50 in the global HDI ranking. Since HDI is a mixture of economic, health and education indicators, and given the current state of the health and education system, substantial investment in infrastructure, health and education systems must be made now, in order to produce results in 10 or 20 years. In the 1950s, countries devastated by war, like Korea, or with an extremely non-diversified and vulnerable economy like Costa Rica, have smartly and massively invested in building up their infrastructure, health and education systems.

The case of Costa Rica - a country of about 4M inhabitants in Central America north of Panama - in my view is relevant for PNG, since this country's indigenous cultures and nature have so many similarities with PNG. Costa Rica is the only country in Latin America which has held regular elections since 1948. Admittedly, Costa Rica has failed to invest enough in its road infrastructure, which just as in PNG is very pricy with high tropical rainfall. It did invest, however, in tapping its potential for hydro-electricity, setting up a network of village schools in the 1960s, and a national health system including village clinics. It has a highly educated population with literacy rates of 99% and a life expectancy of 78 higher than many European countries. Currently, it is a middle income country with a substantial middle-class, a high ranking in the HDI, and on the happiness ranking. It is close to being a smart, wise, happy and fair society, which PNG aspires to become. 

The example of Costa Rica shows that investments in human capital pay off in the long-run, although it may take two or more decades. Only education will teach people moral integrity, and defend their values which drive their behaviour. Only with individuals with moral integrity and strong personal brands can build up resilient and effective organisations, which act in an ethically consist manner in carrying out their missions.

1- THE ROLE OF TRUST AND ETHICS IN DEVELOPMENT Let's first establish the important role of trust for the functioning of institutions in society, and any market transaction.   Amongst the necessary conditions for adequate functioning of institutions in developing countries are, on the one hand "hard" conditions regarding the legal system, and on the other hand "soft" conditions concerning business and personal ethics and trust. An "institution" is a system of well-established and prevalent social rules. Formal institutions are rule based organisations, where the rules are enforced by the state. Markets are the most important institutions for development, because it is on well functioning markets for land, commodities, products, and labour, that economic growth critically depends. 

Amartya Sen in "Development as Freedom" (1999) has emphasised the importance of trusting and trustworthy behaviour, and the upkeep of ethical norms as one conditions for a functioning market economy: "The development and use of trust in one another's words and promises can be a very important ingredient of market success" (Sen 1999). Interestingly, he bases this insight both on Adam Smith's Theory of Moral Sentiments (1759), and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). Sen points out that Adam Smith has often been misinterpreted as saying that unfettered markets will achieve socially optimal results. Concerning the "soft" conditions for market success, Sen's (1999) maintains that Smith never said markets would take care of themselves, or that the state does not have a crucial role in creating the conditions for efficient markets. Similarly, Sen interprets Adam Smith's remarks on the 'invisible hand' as an unintended consequence of production and consumption, rather than as a fundamental premise for properly functioning markets. According to Sen, the invisible hand argument does nothing to diminish the importance of the underlying trust relationships (Sen 1999, 150). 

In Sen's view, Smith's assertion that "It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest", can not be separated from Smith's discussion on the role of contracts, proper administration of justice, business ethics, or on trusting and trustworthy behaviour.   Another development economist at the other end of the political spectrum, Hernando de Soto describes development essentially as the replacement of informal and family or clan based institutions by formal constructs. He remarks, for example, there is no lack of entrepreneurship in the developing world, but due to informality it does not produce wealth on a large scale because of lack of formal market institutions (De Soto 2003). This idea goes back to Gunar Myrdal (1968) who described the difficulty of extending trust outside the circle of the family or clan, and vaguely echoes Smith's "circles of sympathy" in the Theory of Moral Sentiments (Myrdal 1968). 

By contrast Elinor Ostrom - Nobel prize economics 2009, who sadly passed away on 12 June this year - points out the success of informal institutions dealing with natural resources (Ostrom 1990). Another neo-institutional economist and economic historian, Douglas North, - Nobel prize economics 1993 - who did much to open economists' eyes again to the role of institutions wrote: "The inability of societies to develop effective, low-cost enforcement of contracts is the most important source of both historical stagnation and contemporary underdevelopment in the Third World" (North 1990). 

Cultural economists have written about low or high trust societies (Fukuyama 1995), or the major difficulty of collectivist societies to establish trusting relationships transcending the individual or the tribal (G. Hofstede and Hofstede 2005). One weakness of cultural economists is that their level of generalisation is too high to promote proper understanding of particular phenomena, and that they see cultural as something immutable, while it is clear a moving target. In particular, in multi-cultural societies like PNG, the concept culture is hard to define, and extremely moldable and changing. 

Although none of the PNG cultures produced writing, because there was no need for it, their underlying values are deeply rooted in an oral tradition and traditions. As Jared Diamond has argued convincingly, the invention of agriculture in PNG over 40.000 years ago, promoted a transition from hunter gather societies to agricultural, sedentary societies. The low-productivity type of agricultural systems, however, pre-cluded in most cases the formation of larger political units or chiefdom (Diamond 1999). Every member of the tribe had to work too hard to produce sufficient food for groups of specialists such as artisans and chiefs to be formed. The existence of culturally rooted systems of promoting and maintaining peace and trust within and among different tribes, can be assumed since trade networks were extensive, both in the highlands and in coastal areas. 

To sum up, all authors agree trust and ethics is necessary for development. The answer is in my view that companies, or organization, must behave in a ethically consistent manner, and individuals must build their reputation or brand on moral integrity. Companies, for example, that proclaim to serve the interest of a set of local landowners, can not at the same time poison their land, or destroy their forests. Individuals claiming to lead Christian life and "love their enemies", for instance, can not be engaged in aggressively attacking their adversaries at every turn. Now what can organisations and individuals do to promote trust through ethical behaviour?

2- THE ETHICAL CONSISTENCY OF ORGANISATIONS AND THE MORAL INTEGRITY OF INDIVIDUALS

A- ORGANISATIONS
Organizations' actions should be consistent with their self-proclaimed values. When developing their strategy, organisations are supposed to state their long-term vision, their mission, and their values. In practice however organizations do not exhibit these values trying to achieve their vision by executing their mission. For example, different people in the organisation, are responsible for environmental and general management. What trust is build up by one section, can be destroyed by the actions of another section. Organisations get away with this usually, when it does not affect the trust necessary for doing business. The role of local and international NGO's in denouncing this kind of behaviour has however increased business risk from inconsistent application of business ethics.

In response to pressures from stakeholders, companies engage voluntarily in CSR activities. They perceive that doing good and doing well don't clash. They do this for many different reasons, but in general they seek a broader social license to operate. Companies, like Digicel, for example, engage in corporate philanthropy in order to enhance the cooperation of those communities that are necessary for their operations. Conventionally, five types of corporate engagement are distinguished: governance, philanthropy, CSR, social entrepreneurship and global citizenship.

The case for CSR as an independent domain is based on two fundamental premises discussed in business ethics literature related to the role of business in society. First, the implicit social contract between the company and stakeholders in the organization (employees, shareholders, customers, and suppliers), the community, state authorities, and the media, entails rights and obligations for all parties. When the company upholds its obligations of this social contract it maintains its permission to operate. The second premise is that the company is a moral agent. By its nature, the role of the company in society is an ethical question, where at the extremes some see corporations as the lackeys of society, while others don't accept any limitation to a corporation's freedom. Since corporations reflect and reinforce values, they inevitably act as moral agents and the case for complete freedom has hardly any basis (Wartick and Cochran 1985).

There is lack of a clear definition of CSR, however, since it has been used to designate a wide range of corporate "do-good" activities. By its nature, CSR is an essentially contested concept and internally complex. Its scope is unclear: where does the responsibility of the company end, and that of the state begin? Due to these conceptual problems, companies have started to speak about Environmental, Social and Governance (ESG) Activities, which bypasses the tricky question of "responsibility".

The intellectual debate on CSR has been won, and it is now a main stream subject. The vision that the "only business of business is business" is therefore has never been, and is not part of mainstream thinking in economics (Friedman 1970). Implicitly accepting the premises underlying CSR, in the economics literature the conflicts between business and society are seen as originating principally from an externality problem (Crouch 2006). CSR issues arise when a company imposes costs on society which are not compensated financially - or so-called externalities -, or when costs or benefits of its activities are perceived to be unfairly distributed among the company's stakeholders. In the realistic case, when government has not resolved the externality issues and ensuing conflicts, there is a case for CSR to be made (Heal 2005).

What guidance can companies who wish to engage in CSR obtain? The International Standards Organisations has developed as set of standards to guide organisations (not just companies) in their CSR activities. The ISO14.000 series of standards regard environmental management systems, and are quite well known. Since they were first published 1996 over 150.000 organizations have received a certificate (ISO International Standards Organization 2008).

The ISO26.000 series of standards published in 2009 similarly guide organizations in their broader social responsibility activities. The standard distinguishes 7 key areas: human rights, labour practices, fair operating practices, consumer issues, the environment, community development and involvement, and organizational governance.

ISO26.000 describes seven social responsibility principles (Ch. 4)
1. Accountability
2. Transparency
3. Ethical behavior
4. Respecting stakeholders expectations
5. Compliance
6. Respecting international norms
7. Respecting Human Rights

For each of these principles, ISO26.000 provides guidance on how to implement them in an organisation.

In contrast to ISO9.000 (quality) and ISO14.000 (environmental management) ISO26.000 is a guidance document and not intended as a standard. Consequently compliance with ISO26.000 is not open to third party certification. Nevertheless, it will probably have substantial impact on promoting a common terminology in this wide field, emphasizing performance results and improving consistency with other social responsibility standards.

In sum, the idea that a company has stakeholders in addition to shareholders, and that a company is a moral agent is firmly established, and widely recognized. A company must do good - have a social license to operate - in order to do well. The libertarian fringe may still argue against it, but the debate on CSR has essentially been won. The ISO14.000 and ISO26.000 standard shows that a universal agreement on what social responsibility means for an organization is possibly, independent of context of culture. Compliance with these standards is the most convincing way of demonstrating an organisation's ethical consistency.

b- INDIVIDUAL
Before examining individual moral integrity, lets first focus on the domain of the non-ethical. Corruption according to a well known definition is the abuse of public office for private benefit (see for example World Bank). Only the perception of corruption can be measured, however, and this is much higher in low-income countries than in high-income countries. This index may in fact not be valid at all. In high-income countries, corruption is much more hidden and seldom involves cash transfers: access to old boys networks, sharing insider knowledge, and extending mutual favours go a long way in masking conflict of interest situations. In low-income countries, however, corruption is clearly an issue, and the complaints are numerous.

The literature on corruption reaches wide and far back in time. The first political scientist, Nicolo Machiavelli, likened corruption to a disease: easy to cure in the initial stages but much harder when it has progressed {Machiavelli, ##, p. ##}. The disease is lethal, and corruption literally means to utterly destroy. Some modern economists have developed a more positive view of the role of corruption in society. Taking a marginalist approach to corruption, defining a little corruption as lubricating oil to keep the wheels of government moving, while to much of it becomes sand. Both these similes - corruption as a disease and as lubricating oil - are dangerous, because corruption as a disease or as a substance, seems to suggest nobody is individually responsible for acts of corruption. This clearly not the case, which open the question whether individual moral integrity can diminish the scourge of corruption.

Now let's turn, to individual moral integrity. An ethical value help determine to describe the value of different actions. It deals with right conduct, and good versus bad. At times, for me it is disconcerting how easily people shift from one set of values to another one. Some people seem to have a multiple personality disorder: they are Christian on Sunday, business men on Monday, opportunitist on Tuesday, tribal warrior on Wednesday etc. At the same time, these same people will loudly profess how virtuous they are. These individuals have no concern for their reputation. They find that to talk the walk, is easier than walk the walk, and they are content with that. While these individuals juggle mutually exclusive value systems, they are still responsible the consequences of all their actions.

For young adults starting their professional careers it is important to reflect on the brand named "you". First of all, in order to define your brand, you need to know your own personality. For this purpose, you can do different type of personality tests, such as Myers-Briggs or others. Secondly, you need to ask yourself, what are the key values that drive your behaviour? Your brand is your promise to others, and when it is based on your core value it is much easier to maintain this promise. The more reliable your promise the stronger your personal brand. You will acquire a reputation for trustworthiness, and people will be eager to engage with you since they know what to expect. Thirdly, you need to package your brand nicely, so that people feel attracted to it. You can optimize your electronic presence, and develop your personal communication strategy. There are several web-sites and techniques that can help you to establish your brand, and I suggest you start working on it after this lecture.

In conclusion, professionals with moral integrity are necessary to accelerate progress achieving the Vision 2050 goals, and minimize the damage of corruption. The main task of our graduates is to create some order, and reduce the chaos and entropy in PNG public and private organisations, which favours the activities of those individuals who want to steal public resources or abuse their office for private gain.

3- THE ROLE OF UNIVERSITIES
The primary responsibility of universities is to produce enough, employable graduates. The social responsibility of the university is to instill in these graduates a set of coherent values, which drive their professional and personal behaviour. Indirect social responsibility can consist of contributing to job creation, generate the technology for a more sustainable or green economy, or solving social problems through community work.

While UNITECH needs to spend K24.000 to educate one undergraduate, it is only given K12.000. We strongly urge the government therefore to give UNITECH the resources needed to do the job. We are trying to improve governance and accountability. We want to increase revenue from our own assets, but we find we are limited in doing this by a series of legal constraints. The state needs to commit to higher education, and establish a target, say 6% of GDP for education, of which 2% earmarked for universities.

Traditionally, universities have somewhat neglected their social responsibility, or at best have not been very good at it. In the USA, for instance, in the post-Enron days, ethics teaching in business schools became more prominent, but the effectiveness in obtaining the desired outcomes in term of attitudes has been questioned. As I argued earlier, the role of universities in addressing societal problems is often indirect, but therefore far from negligible.

Universities in PNG have a long history of student unrest, and staff discontent. Students can only expected to live up to their promises, if the universities they attend live up to theirs. Quality is doing what you say you are doing. Too many legitimate expectations are crushed by the reality of structural underfunding, lack of infrastructure and staff. All university administration in the country are working hard to address these issues.

In sum, sufficiently funded Universities can and do address the moral integrity of their graduates, by delivering a high quality, outcome or competence based curriculum in which not only knowledge and skills are address but also the required attitude and therefore values. Faith-based universities can teach us how to build up these values in our graduates, by addressing them explicitly, rather than implicitly.

FINAL REMARKS
In this paper, we discussed three themes:
1- the role of trust and reputation in a market economy including Corporate Social Responsibility and business ethics,
2- ethical consistency of organizations, and individual moral integrity, and
3- how universities play a role in shaping both.
We hope to have shown the audience how individual moral integrity, ethical consistency of organisations and institutions, and national development are strongly intertwined.

Educated individuals with moral integrity can and will contribute to building up institutions which are ethically consistent, and thus contribute to achieving the goals of Vision 2050. The lack of value consistency in organisation, and absence of moral integrity in the individuals that make up these organization, will eventually lead to a complete breakdown of trust. In turn, this will destroy the institutions necessary for achieving the developmental goals of Vision 2050.

When universities will be given the necessary funds to start doing what they promise, graduates will respond, and live up to their personal and professional promises by exhibiting behaviour which is based on moral integrity and enhances their personal brand. At UNITECH, we are developing a student ethos which we call the UNITECH way. With our staff we are stimulating behaviour that is based on key values of efficiency and effectiveness, moral integrity and honesty, and learning and continuous improvement.

In these 8 months in PNG I have seen how well Papua New Guineans respond to these moral challenges, embrace positive change, and show tremendous capacity to learn and improve. In my short time here, I have met so many individual wonderful Papua New Guineans with a great capacity for team work. I am truly confident that progress towards the goals of Vision 2050 in the coming years will be much faster than in the years before.

References
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