Why shared moral values by team players of the firm reduce conflict and dependency that occurs due to bounded rationality and opportunistic behavior.

Term paper for the module “Ethics, Compliance, and Alternative Dispute Resolution Mechanisms” at Hamburg School of Business Administration Prof. Dr. Christoph Niehus

Simon Rybach Langenfelder Damm 90 22525 Hamburg Tel.: 0173/ 2196726 simon@rybach.de Matriculation number: 1896 MBA HL 2013

Charles Darwin described 1871 that “[…] an advancement in the standard of morality […] will certainly give an immense advantage to one tribe over another. A tribe including many members who, from possessing in a high degree the spirit of patriotism, fidelity, obedience, courage, and sympathy, were always ready to aid one another, and to sacrifice themselves for the common good, would be victorious over most other tribes” (Darwin, 1871/1981). His work about the antecedent of men pointed out to the importance of shared moral values as an element for the survival of certain tribes. These findings in the context of evolution are still valid and appropriate in the context of building high productivity teams in firms as a competitive advantage. Organizations have to cope with today’s complexity of a global business environment. Meeting this challenge requires a high degree of flexibility in companies in order to adapt to constantly, rapidly changing external factors. The globalization forces companies to develop new organizational structures to deal with the competitive pressure by improving their quality and efficiency. Teams, defined as “a small group of people with complementary skills who are committed to a common purpose, performance goals, and approach for which they hold themselves mutually accountable” (Katzenbach and Smith, 1993), have been considered for the last forty years to be an integral part of organizational success. Teams are necessary in the business today to challenge with this constantly changing environment, improve company’s productivity and ensuring their survival (Gibson, Porath, Benson & Lawler, 2007). These well-functioning teams reduce individual bounded rationality and constrain opportunistic behavior, thereby improving organizational utilization efficiency of their resources. However, since humans are as complex as business environments, the establishment of high performance teams is complicated itself. Therefore, research focused on the integration of high skilled people in teams as well as the embedment into the structure of the company using several models to examine the effectiveness of teams, e.g. the IPO (McGrath 1964) or the IMOI model (Ilgen et al., 2005). Recent research focuses on the mediator mechanisms within the group proceeding the input (the team’s set of internal and external resources) into output. The taxonomy of Marks et al. (2001) therefore distinguishes between transition, action and interpersonal processes. Interpersonal processes have been identified as an essential factor for the success of intra-organizational teams. Team members as agents can show opportunistic behavior. Williamson describes this behavior as “a variety of self-interest seeking

but extends simple self-interest seeking to include self-interest seeking with guile” (Williamson, 1979). Once self-interests are prioritized over the common objective of the team, this might result in a negative impact on the performance and success. Relationship conflicts are inevitable. Furthermore, everyone in the team “invests” in the relationship to other team members. The more someone opens op himself the more vulnerable he gets for potential opportunism of other team members, who might take advantage of this vulnerability. Thus, the success of the team is dependent on the behavior of each individual. However, only if every single agent in the team contributes his experience and knowledge to the team, the bounded rationality of the group is reduced and the output of the team exceeds the sum of the individual’s output. Conflicts within teams have two dimensions. We differentiate between relationship and task conflicts (e.g. Parson & Bales, 1955, Amason & Schweiger 1997). Relationship issues arise from inter-personal incompatibilities due to differences in attitudes, taste, preferences and values. They are connected with negative feelings and thus have an impact on the performance (Amason 1996; Jehn 1995; Jehn and Mannix 2001; Pelled et al. 1999). In contrast, task issues can be described as intensive debates about specific topics. Everyone fights for his argument expressing different viewpoints. However, this exchange as product of different skills, knowledge and experience has a positive effect on the team’s output (Van Dyne, L., & Saavedra, R. (1996). Therefore, it is important for organizations to develop a foundation for communication openness which can balance information asymmetries due to honest exchange of opinions, data and perspectives. This openness facilitates sound and fast decision-making processes. Moral values are the foundation for our individual decision making. They tell us what is right or wrong. Plato first discovered something he called: a sphere of ideal being, which – according to Hartmann (“ideales Sein”) - includes values as integral part of it. People perceive the moral behavior of others. There is a human belief in a shared morality. It could be interpreted as a paraphrases of Kant’s “categorical imperative” demanding trust (Uslaner, 2002). We rely on moral values already when we meet people for the first time and perceive whether they are trustworthy. Or as Adam Smith argued: “How selfish so ever man be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it“ (Smith, 1761). This moralistic trust is the start of the relationship of a new team. It is broadened and deepened by a knowledge

based trust (Yamigishi & Yamigishi, 1994) or as Offe states: “Trust in persons result from past experience with concrete persons.” A shared understanding of moral values is crucial for the development of strong trust. Once trust is established between team members in business settings, it empowers team performance. It can be associated with several advantages like reduction of complexity and need for constant surveillance, decrease of transaction costs as well as production of positive attitudes and commitment (Becerra & Huemer, 2003). A moral commitment serves in consequence as constraint for opportunism. Beside of economic incentives and third-party regulation, moral selfregulation as free engagement in a shared understanding of values is thus an effective way to regulate opportunistic behavior. As described, there is a correlation between the interdependencies of team members and the team’s performance facilitated or limited by trust based on shared moral values. The implementation of moral values in ethical management systems seems to be straight forward or in other words: “rational”. It is addressed by ethical management systems, which merely have been developed for the purpose of avoiding the next Enron scandal. These systems serve the purpose achieving morally excellent corporate behavior with an effect on the individual’s behavior. It includes mechanism like codes of ethics, social accounts, standards and certifications. However, the integration of these tools is the bottleneck of such systems. Therefore, implicit and informal mechanisms are needed to achieve a full integration and implementation. Otherwise it is more appearance than substance. Furthermore, business leaders have to accept and consider that individuals are itself carriers of moral values. Enforcement of a set of values will not be successful – in particular when education is based on the concept of Adorno’s “Mündigkeit”. Instead, it is necessary to to get people to a moral commitment of shared values. On the other hand, instrumentalizing moral values for the company’s success for someone’s personal success could be called opportunistic as well. If we setup a code of conduct and force all employees to follow it, we do run into the risk of disguising opportunism under the guiltless term of ethics and moral. Team performance is dependent on the interdependence of its members. Only if these agents work together openly in a trustful relationship, the theory of teams as competitive advantage becomes reality. Ethical Management Systems can support the establishment of high-performance teams. In the time of globalization companies form international teams. Thus, an effective system for moral commitment based on shared values is more important than ever.

References
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