The interrelationship of governance, trust, and ethics in temporary organizations

Abstract

This paper addresses the variety of ethical decisions that managers in temporary organizations must make. The study investigates how these decisions are influenced by the governance structures of the organizations that provide the framework for governance of temporary organizations such as projects. The governance of these temporary organizations provides a basis for ethical decision-making. One of the links between governance and ethical decision-making is trust. This study investigates the roles of personal trust and system trust as a mechanism to steering ethical decision-making in different governance settings for temporary organizations. Nine case studies were conducted in Europe, Asia, and Australia. The results of this qualitative study show that ethical decision-making is contingent on trust, which, in turn, is contingent on the fulfillment of personal expectations within a given governance structure. The study provides a related model and a number of propositions. The findings are important for project managers as well as project sponsors and other governance institutions for temporary organizations, because they show the prerequisites for ethical decision-making and the consequences of lack of trust. Additional managerial and theoretical implications are discussed.

Keywords: project governance; trust; ethics; temporary organization

Introduction

Ethical decision-making has become a popular subject over the last decade. Many of the well-known scandals, such as ENRON, have been traced back to ethical issues and questionable ethical decision-making by managers, enabled by lack of transparency emanating from the corporate governance structure. Corporate governance encompasses all work done in an organization and thus governs the work in traditional line organizations in addition to the work done in temporary organizations such as projects. Corporate governance thereby interfaces and overlaps with, for example, project management governance (APM, 2004) and sets the boundaries for the governance of projects (Müller, 2009). Thus, the governance of projects is one of the major influences for ethical decision-making at the project level. This implies that the way projects are governed by their related governance institutions, such as steering committees, program and portfolio managers, project management offices (PMOs) and so forth, impacts ethical decision-making in projects. Decisions on ethical issues should therefore be understood within their context, which is the project's governance (Müller, 2009).

The mechanism through which governance is executed is the governance structure, which includes formal procedures, processes, policies, roles, responsibilities, and authorities. Governance structure is a materialized or “lived” form of governance. Recent research identified more informal mechanisms, especially trust, as an additional mechanism for governance (McEvily, Perrone, & Zaheer, 2003; Sydow, 2000). The particular strength of trust as a governance mechanism is that it creates economic value by lowering transaction costs (i.e., the administrative costs for agreeing and following up on contracts) between the parties in business exchanges (Dyer & Chu, 2003); so, governance sets the context, and trust is one of the mechanisms to execute governance in projects. Within this context, ethical decisions are made by managers.

This paper investigates some ethical issues raised in temporary organizations and explores them in their particular context of governance and trust. The investigation covered industry projects as well as military and help missions and other temporary endeavors. For ease of reading, the term project is used and synonymous with the temporary organization for the remainder of the paper.

The topic is of interest for several reasons, one being the understanding of the nature of the ethical issues in projects, which allows for addressing issues more effectively. The other is the understanding of the impact of governance context on project managers’ ethical decisions, which allows for adjusting governance structures to potential ethical issues, but also preparing for possible issues in given governance structures.

Background

In the aftermath of a number of international corporate scandals, researchers and managers have been eager to find ways to include ethics in the training and development of managers. Business communities and organizations have come to see the ethical competence of managers as a key component in avoiding future crises and scandals. Understanding the effects of organizational environment on conduct has also become a priority, which raises the questions about the nature of the ethical issues in projects.

Recently, a few studies looked into related questions such as misreporting and the moral predisposition of project managers. For example, Smith, Thompson, and Iacovou (2009) showed that intentional misreporting is less often found in organizations in which project managers are expected to strictly follow the rules, whereas more of this occurs in organizations with a culture of personal self-interest. Smith and Keil (2003) link the propensity for misreporting to the dyadic level of trust that the sender of the report has in the receiver of the report. Park and Keil (2009) investigated organizational silence (i.e., an individual's reluctance to report bad news) in IT projects. They showed how the combination of organizational structures/policies, managerial practices, and degree of demographic dissimilarity between the hierarchies create a climate of silence, which then impacts an individual's willingness to report. Managerial practices, especially managers responding negatively to bad news, were found most influential, followed by structures/policies that foster centralized decision-making and lack formal mechanisms for upward feedback. The smallest impact on organizational silence came from demographic dissimilarities in terms of age, gender, and ethnicity.

The impact of project managers’ moral philosophy on the decision to discontinue a project was investigated by Huang and Chang (2009). They found that managers with absolute moral principles (low ethical relativists) have a stronger tendency to discontinue a possibly failing project than those with high relativism. Similarly, they showed that those managers who decide on the basis of least harm for others (high idealists) are more likely to discontinue projects than those low on idealism.

The need for a better understanding of the variety of ethical issues that emerge in projects forms the first research question:

RQ1: What are the ethical dilemmas that projects are experiencing today?

Brien (1998) argues that direct approaches to instill ethical behavior through codes of ethics and other policy-like measures often fail, and that self-regulating approaches at the professional level are more successful because they build a culture of trust. Within this culture, ethical behavior is regulated through the members of the society that share this culture. Hosmer (1995, p. 399) links ethics even into the definition of trust: “Trust is the expectation by one person, group, or firm of ethically justifiable behavior—that is, morally correct decisions and actions based upon ethical principles of analysis—on the part of the other person, group, or firm in a joint endeavor or economic exchange.” Puranam and Vanneste (2009) approached trust from the governance perspective and showed different relationships between governance and trust, which may coexist: (1) trust may enhance the impact of governance on performance, (2) governance may reduce the level of trust between exchange-partners, and (3) ex-ante trust in projects may influence the level of governance complexity. The above indicates that trust is a mediator between the governance as executed in an organization (i.e., the governance structure) and ethics in a project and this leads to the next two research questions:

RQ2: What are the ethical implications of different project governance structures?

RQ3: How can project governance structures be used to build trust between the governance structure and the project managers?

The Unit of Analysis is the ethical dilemmas project managers face and their link to project governance structures.

The study takes a project management perspective toward the phenomenon. The aim is to create awareness among project stakeholders about the ethical dilemmas to be addressed by temporary organizations, such as projects and within project-based organizations, and the influence of governance structures and mechanisms, including trust, on those dilemmas. This follows Clegg, Kornberger and Rhodes’ (2006, p. 11) research agenda for ethics-as-practice, which assumes “… acceptance and discussion of ethical dilemmas is one step toward more ethically informed management.” The results provide value for companies by making them aware of the impact of governance structures on the ethical behavior of people working on projects. The results also provide value for individuals in organizations by making them aware of the implications of the impact of governance structures on people's ethical behavior and the trust between projects and their stakeholders.

This paper is structured as follows. In the next section, the key literature on ethical action, trust in organizations, and project governance are reviewed. The methodology chapter then describes the empirical case study research that was done to develop propositions. The report continues by describing the analyses of these empirical tests, and subsequently develops a research model, which can be tested in a future study. The paper finishes with a conclusion on the findings, the answers to the research questions, and an outline of the paper's contribution to knowledge.

Literature Review

The research questions indicate three main literature categories that are relevant for this study: trust, ethics, and governance.

Trust and its relation to governance

Trust is a frequently addressed topic in management literature. The most popular concept and definition of trust is by Mayer, Davis, and Schoorman (1995, p. 712), who define trust as “willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party.” The same authors define trust as a function of the trustworthiness of the trustee (i.e., the party being trusted). The authors conceptualize trustworthiness as a combination of:

  • Ability: the skills, competencies, and characteristics that allow a party to influence within a specific area of competence.
  • Benevolence: the extent “a trustee is believed to want to do good to the trustor, aside from an egocentric profit motive” (p. 718). This belief is typically based on a relationship or prior experience. It implies a perception that the trustee has a positive orientation toward the trustor, like in a relationship between a mentor (trustee) and a protégée (trustor).
  • Integrity: the extent “the trustee adheres to a set of principles that the trustor finds acceptable” (p. 719). Thus, it is a measure of the personal integrity that is found acceptable in a given circumstance.

Trust is seen as a psychological state that influences attitudinal, perceptual, behavioral, and performance outcomes (Dirks & Ferrin, 2001). Trust develops, starting from a person's initial propensity for trust and experience and is fostered through proactive collaboration among parties (Clases, Bachmann, & Wehner, 2003). Trust is not limited to human beings. Several classifications of trust exist, with system trust and person trust being the most often cited types. System Trust stems from trustworthiness of, for example, the organizational processes or management systems, which is the trust people have in the organization as a system. People Trust relates to the trust in individuals or groups (McKnight, Cummings, & Chervany, 1998; Sydow, 2000). There is a two-way relationship between the two types of trust, where on one side the system trusts the people (e.g., in the form of policies “trusting” people's ability, benevolence, and integrity to act in conformance to their role). This is typically gained through professional certification or experience (Grey & Garsten, 2001). On the other side, people trust the system by expecting that the creators had the ability, benevolence, and integrity to design and implement, for example, a governance structure that is appropriate for coping with the organization's challenges.

Together with its supplement, control, trust is seen as a major mechanism for governance in organizations. The two concepts are often seen as being parallel and supplementary to each other. However, the balance between control and trust must fit into the situation within which they are used as governance mechanisms; otherwise, it will lead to an erosion of trust (Clases et al., 2003). This balance is also reflected in the theories of Agency Theory and Stewardship Theory. Here the former explains the control and the latter trust as governance mechanisms (Schoorman, Mayer, & Davies, 2007). Interestingly, the earlier studies on Agency Theory used either the contract between principal and agent or financial results as their unit of analysis, whereas later studies included the level and nature of trust, thus moving the Unit of Analysis closer to Stewardship Theory (Müller, 2011).

Numerous studies have shown that trust, when used for governance, reduces transaction costs in organizations and improves performance (Das & Teng, 1998; Dyer & Chu, 2003; Gulati & Nickerson, 2008). Transaction cost reduction stems from lower levels of control, less hierarchical and more informal relationships, leading to a higher propensity to collaborate (Gulati & Nickerson, 2008). This is supported by the information processing capabilities of the organization, where higher information flow capabilities lead to the development of high levels of trust (Carson, Madhok, Varman, & John, 2003)

Despite the importance of trust, there are also risks associated with trust. These are mainly found in the increased possibility for opportunistic behavior or fraud in trusted relationships (Nooteboom, 1996) and inadequate team monitoring, especially for self-managed teams, which bears the risk of long-term harm to the organization (Langfred, 2004).

Quantitative and conceptual studies on trust in the context of project governance showed a non-linear negative relationship between trust and control, thus permitting a substitution of one by the other, within limits. Research found that too much governance reduces trust, which impacts project results negatively (Turner & Müller, 2004). This is supported by Hartman (2002) who identified trust as an antecedent for project success, but with differences in the meaning of trust, contingent on the contractor or owner role in projects. In both roles, trust varies in its impact on satisfaction with relationships in projects and positive project outcomes (Pinto, Slevin, & English, 2009).

In summary, the link between trust and governance has been addressed extensively at the organizational level, but relatively little is published in the context of projects. The relationship between the combination of governance and trust with ethics has not been addressed in the project management literature so far.

Ethics

Contributions to research on ethics and management come from a range of academic disciplines. Researchers from philosophy, theology, and related disciplines develop links between traditional moral philosophy and management, in what can be called normative ethics approaches to the topic, whereas work from social psychologists and other social scientists can be put under the heading of behavioral ethics. The literature on project management has so far aligned with the former direction in ethics (Godbold, 2007, 2008; Godbold & Turner, 1996), and can benefit from further exploration of research within the latter.

Within normative ethics, the focus is on what a person or organization ought to do in a given situation. What are the principles and norms the agent should take into account when making a decision? Contributions to clarifying this question fall into three main categories, emphasizing process, outcome, and character, respectively. Table 1 indicates the main features of each category and their corresponding management concerns.

Table 1: Ethics literature categories.

Orientation Category Management perspective
Process Deontological Ethics explicates the rules, maxims, norms, and principles, to govern conduct. Moral obligations concerning justice and fairness. Social Contract theories Management's responsibility is to make sure processes are just, fair, and reasonable and don't violate human rights
Outcome Consequentialism defines right conduct in terms of the alternative likely to produce the best overall outcome for the stakeholders. Management's responsibility is to maximize the overall utility for the stakeholders
Character Virtue Ethics focuses on the moral virtues of honesty, integrity, fairness, courage, care, and so forth, and how they are developed and nurtured. Management should be exemplary conduct stemming from stable dispositions to act

Contributions to the normative ethics approach to management tend to map the respective traditions. The process orientation can be found in Micewski and Troy (2007). Ciulla (2009) develops a character-oriented approach by emphasizing care as a core element of management. Helgadottir (2009) presents an overview of normative ethics similar to the one above, without favoring one orientation.

Research within behavioral ethics attempts to determine why individuals behave unethically in the workplace. A wide range of empirical studies have shown that a dispositional approach (partly overlapping with virtue ethics) needs to be supplemented with a situational one. In a meta-analytical study, Kish-Gephart, Harrison, and Trevino (2010) distinguish between three areas of inquiry for behavioral investigations into why people behave unethically (Table 2).

Table 2: Reasons for unethical behavior (Kish-Gephart, et al., 2010).

Orientation Focus Explanation factors
Bad apples Individual Cognitive moral development, idealism, or relativism, Machiavellianism, locus of control, job satisfaction, demographics, age, education level
Bad cases Moral issue Moral intensity: magnitude of consequences, social consensus probability of effect, temporal immediacy, proximity, concentration of effect
Bad barrels Organizational environment Ethical work climate, ethical culture, ethical codes

Research on bad apples has shown that promoting a belief in determinism can increase cheating (Vohs & Schooler, 2007) that otherwise honest people may act unethically under specified circumstances (Shalvi, Handgraaf, & De Dreu, 2011), and that performance goal individuals tend to cheat more than mastery goal individuals (Van Yperen, Hamstra, & Van der Kaluw, 2011). The “bad cases” research focuses on the moral issue construct developed by Jones (1991) to explain unethical behavior in situational terms. The concepts and categories it introduces help to pinpoint how factors beyond the person's dispositions to act can affect behavior. Bad barrels and organizational environment have been investigated in terms of perceived ethical climate (Victor & Cullen, 1988) and perceived ethical culture (Trevino, 1986, 1990). Tseng and Fan (2011) found indicators that ethical climate affects individual's knowledge management participation.

All the three orientations within behavioral ethics offer important insights concerning ethics and management because they provide a background for understanding why individuals engage in unethical conduct. They are all present in the general literature on ethics and management, but not in the more specified literature on ethics in project management, which still applies the normative ethics approach.

The growing interest in the ethical aspects of management has also come under criticism for instilling the wrong remedies to avoid future scandals. Ghoshal (2005) argues that ethics in itself is not enough, because traditional management theories have contributed to the bad management practices leading to the corporate scandals. It is not a lack of ethics that has caused the scandals, but rather the assumption that human beings can be characterized as homo economicus, self-interested maximizers. Even more skeptical to the role of ethics in management is Donaldson (2008) who claims that teaching ethics to management candidates can be ineffectual and counterproductive.

Ethics in project management is a relatively new research area. It needs to link up with the development in behavioral ethics to supplement the current approaches based on normative ethics. The use of vignettes and dilemmas in preparation for ethically challenging situations in project management has been explored by Loo (2002) and is also an area in which there is a need for further research.

Governance in a project context

Governance has been gaining increasing attention in recent years and entered the field of project management about a decade ago (Turner & Keegan, 2001). Governance is ultimately concerned with creating the conditions for ordered rule and collective action (Stoker, 1998; p. 155). However, governance is a form of regulation in which the regulator is part of the system under regulation.

Project governance links the principles of corporate governance to projects. Project governance aims to ensure a consistent and predictable delivery of projects within the limitations set by corporate governance or the agreed upon subsets of corporate governance in contracts with external partners. Governance “coexists within the corporate governance framework. It comprises the value system, responsibilities, processes, and policies that allow projects to achieve organizational objectives and foster implementation that is in the best interests of all the stakeholders, internal and external, and the corporation itself.” (Müller, 2009, p. 4) Governance defines the objectives of a project, provides the means to achieving these objectives and to controlling progress (Müller, 2009; Turner, 2009).

Early research in project governance focused on the identification of different organizational structures, contingent on project size and number of customers in an organization (Turner & Keegan, 1999) and then went on to identify the roles in governance, described as the broker and steward model (Turner & Keegan, 2001). Many of the studies on project governance were industry or project type specific and developed frameworks for their particular setting (Clegg, Pitsis, Rura-Polley, & Marosszeky, 2002; Miller & Hobbs, 2005; Shenhar et al., 2005; Pryke, 2005; Klakegg, Williams, Magnussen, & Glasspool, 2008).

A more generic model defined project governance paradigms through integration of governance theory and organization theory (Müller, 2009). Four project governance paradigms were identified (Figure 1) by combining the shareholder versus stakeholder orientation of governance (Clarke, 2004), with the twin-control mechanisms of outcome versus process compliance (Brown & Eisenhardt, 1997; Ouchi & Maguire, 1975).

Figure 1: Four governance paradigms (Müller, 2009).

 

Four governance paradigms (Müller, 2009)

The Conformist paradigm represents organizations with a shareholder orientation (precept is the maximization of shareholder value) with a strict behavior control (i.e., process compliance). This aims for the lowest project costs in organizations with relatively homogeneous sets of projects. The Flexible Economist paradigm is used in the context of shareholder-oriented organizations with a control focus toward expected outcome. The aim is to keep project costs low through careful selection of project management methodologies, which ensure economic delivery by only marginally compromising other success criteria. The Versatile Artist paradigm is used in organizations with stakeholder focus and output control. The precept here is to balance the multitude of requirements stemming from the many different stakeholders of the organization. Stakeholder benefits are maximized by optimizing the diverse set of requirements arising from a number of different stakeholders. Organizations subscribing to the Agile Pragmatist paradigm, use stakeholder orientation and controlling by process compliance. They maximize usability and business value of a project's product through a time-phased approach to product release of functionality over a period of time (Müller, 2009).

Models for project governance were developed by Walker, Segon, and Rowlinson (2008), Turner (2009), and Müller (2009), with each having a different focus. The first emphasizes the distinction between hard and soft aspects in project governance and their particular impact on accountability and transparency in execution. The second emphasizes the processes and roles in project governance, outlining the roles of sponsor, steward, project manager, and project owner and the associate processes that link these roles from pre-project stages to post-project evaluation. The third model uses governance paradigms as the link between the ways organizations govern their projects (endeavors to accomplish outcome) with their governance of project management (the quality and quantity of project management done in an organization) to identify different approaches in different paradigms.

Little is found in the project governance literature in terms of the research questions stated in the introduction section. Trust and ethics are assumed ingredients of the various models and frameworks but are not explicitly addressed by the writers, and this indicates the need for an exploratory investigation into the research questions.

Methodology

This study identifies possible ethical issues in projects and then investigates the ethical decision-making related to these issues within different project governance settings. The study is conducted from the perspectives of project managers. To understand project managers’ decision-making requires a subjective ontological position, which aims for sensemaking of project managers’ decisions in their particular governance context, thus understanding the subjective ontology of project managers. Research on sensitive subjects like ethical issues runs the particular risk that informants provide merely institutionalized standard talk or politically correct answers (Alvesson & Kärreman, 2007). To filter this out, the chosen methodology must provide for critical and reflective action on the side of the researcher. Therefore, a social constructionist perspective was taken, which allows for the understanding of the ontology of informants through critical sensemaking of their meanings and reasoning in context.

A reflexive abductive methodology, known as mystery construction developed by Alvesson and colleagues (Alvesson & Kärreman, 2007; Alvesson & Sköldberg, 2009) was used. This approach “recognizes the [socially] constructed nature of empirical material and […] advocates a light or moderate version of constructionism, assuming that something is going on out there and there may be better or worse ways of addressing things, but also that frameworks, pre-understandings, and vocabularies are central in producing particular versions of the world” (Alvesson & Kärreman, 2007, p. 1265). The two-step method first aims for discovery of mysteries; that is, phenomena or parts of phenomena thatare not adequately explained by or are contrary to existing theory. The second step comprises the solution of the mystery through reflexive reasoning. The method requires (p. 1269):

  • “a flexible theoretical framework requiring multiple readings of the talk, the behaviors, the events, and the documents, and
  • a reflexive approach to empirical material that encourages alternative constructions and the self-critical interpretations of one's own paradigmatic, political, theoretical, methodological, and social predispositions”

An abductive approach is chosen, in which the empirical findings and existing theories are linked with the particular experience of the individual researcher into a reflective understanding of the phenomenon assessed in interviews. The move from individual reflections to joint reflexivity is achieved by the researchers jointly reflecting on their reflections, thereby actively seeking alternative explanations and converging upon a consensus explanation of the phenomenon, which covers the interviews and assessed cases (Alvesson & Sköldberg, 2009).

Data collection

Nine case studies were conducted, including 28 interviews, review of existing policies, and process descriptions of some of the case companies, as well as collections of additional materials, such as reports or other artifacts as they relate to the study.

A holistic multiple-case design with a single Unit of Analysis in the sense of Yin (2009) was chosen. This replication logic design allows for a combination of within case and across case analyses; thus, the identification of the commonalities across cases. The sampling approach aimed for maximizing a variety of cases in order to identify underlying commonalities of general nature.

Table 3 shows the case companies, roles that were interviewed, and the number of interviews. Four cases were done in both Europe and Australia and one in China.

Table 3: Case study details.

Organization Region Roles interviewed Number of interviews
Case 1 Oil & Gas 1 Northern Europe CEO, project manager, PMO member 6
Case 2 Oil & Gas 2 Northern Europe Vice president finance, project manager 2
Case 3 Government institution Northern Europe Manager of procurement department, project manager 2
Case 4 Pharmaceutical manufacturer China Manager PMO, manager quality, project managers 7
Case 5 Subsidiary of European aluminum company Australia Project manager 2
Case 6 Subsidiary of U.S.-based information technology firm Western Europe Project manager 1
Case 7 Property services Australia Client (project owner), program 4
department in a university manager, project manager
Case 8 A change management consultancy firm with an architectural background. Australia Senior executive (project owner), project manager 2
Case 9 Subsidiary of a U.S.-based firm supplying IT hardware and solutions Australia Project owner, project and portfolio manager 2

In seven of the nine case companies, the interviews were held with project sponsors or upper management and program and project managers. In two case companies, only project managers were interviewed. Two sets of interview questions were developed, one addressing project sponsors and the other project managers. In each of the companies, a contact person was identified and interviewed first in order to subsequently decide on the eligibility of the company for the study. The contact persons then identified additional interviewees. All interviewees were informed about the study and invited to the interview through a study brief. After their acceptance of the invitation, they were provided with a potential list of questions and some examples of the types of ethical issues in projects.

The questions covered general information about the informant and the projects he or she is involved in plus details on:

  • Examples of ethical dilemmas and the selection of one particular dilemma for further investigation. The level of flexibility the project manager/sponsor has in solving ethical issues
  • The formal and informal limitation or guidance received through the governance structure for the response to the ethical dilemma, the possible and actual approaches to reporting, as well as the reaction after reporting of ethical issues.
  • The confidence and trust in the decision taken by the project sponsor/project manager, how ethical decisions have impacted this trust, and the confidence that other parties have in the decisions made by the interviewee.

The questions were tested within the team of researchers and some of their colleagues for validity, appropriateness and sequencing. With the exception of one telephone interview by one researcher alone, all interviews were held face-to-face and in pairs of researchers, where one researcher took notes, while the other led the discussion with the interviewee. All face-to-face interviews were tape-recorded for future analysis.

Data analysis

As noted above, the analysis followed the process suggested by Alvesson and Kärreman (2007) to deconstruct the data to identify explained and unexplained phenomena for further systematic analysis for the development of new understanding and resolutions for the unexplained.

All interview notes were typed up and distributed to the six-person research team before analysis. In an analysis workshop, the researchers started by presenting their particular case company, the interview data, and other information collected, as well as their own reflection on the case. Subsequently, the group of researchers reflected on the individual case until consensus on the interpretation was reached. In a second step, the group analyzed the reflections to develop a reflexive theory. This was done by developing proposition and refining them in light of each individual case.

Validity, reliability, and ethical issues

Validity and reliability in the case studies were addressed using the suggestions of Yin (2009). For that construct validity was addressed by using multiple informants and gaining access to the best informants possible. Internal validity was achieved through explanation building, and external validity through replication logic in multiple cases. Reliability was achieved through use of a common case study protocol for all researchers and all cases.

Ethical issues were addressed by the researchers being aware of the sensitive nature of the questions asked and related carefulness in discussing the interviewees’ ethical issues. Informed consent by the interviewees was aimed for through careful explanation of the study and its goals, but also by informing them about their right to stop the interview at any time, that no personal data will enter the analysis, and that no reported results will be traceable back to companies or individuals.

Analysis and Results

The first research question addresses the types of ethical dilemmas experienced by projects. The reported ethical issues, which lead to dilemmas in ethical decision-making, can be categorized into:

  1. Transparency issues: these were the most often reported ethical issues: Project managers were reluctant to report project performance issues (potentially causing cost and schedule overruns):
    • in the hope of being able to balance costs through reduced functionality of the product
    • in the hope of recovering through other means at some time in the future
    • in fear of project termination
    • in fear of face-loss by admitting planning mistakes
    • in fear of losing their bonus or other incentives
    • because they are unsure about proper timing for escalation
  2. Relationship issues: these emerge from or impact on interpersonal relationships, such as:
    • Closeness in the relationships between buyers and suppliers, leading to invitations, gifts and private ties, where it is difficult to identify the borderline between gift and bribe
    • Expatriates’ inappropriate contact with locals in some countries
    • Having to replace low-performing or unaccepted team members
    • Finding out about past unethical behavior of a current supplier
    • Allocating a job to the project manager to complete as part of a takeover, leading to a loss of the job for the project manager
    • Inability of a project manager to tell colleagues what will happen to them due to confidentially required in a company takeover.
  3. Optimization issues: these arise from the question of whether to optimize the project toward the sponsor/company or project manager objectives, as well as distribution of risk and benefits:
    • Delivery of projects as planned or at best value for the customer
    • Switching between existing and new suppliers. This means knowing about the weaknesses of existing suppliers versus believing the promises of possible new suppliers
    • Appropriateness of quality criteria. This means using existing quality criteria for acceptance while knowing that higher quality criteria would be possible but may be detrimental to project acceptance
    • Using the safety standards of the project's or team members’ home countries or the local standards of the country they work in
    • Pushing consultants towards 100% billable utilization to achieve company objectives, while knowing that this includes large amounts of unpaid work during leisure time
    • Expectation from sales that under quoted project costs would be recovered by the project or delivery manager as a change order

These issues lead to four types of dilemmas in project managers’ decision-making:

Dilemma 1:    There is a conflict between two equally valid ethical choices

Dilemma 2:    There is a conflict between what is ethically correct and what company policy is

Dilemma 3:    There is a conflict between what is ethically correct and what the law requires

Dilemma 4:    There is a conflict between what is legally correct and company policy

Research question 2 asks for the ethical implications of different governance structures. Table 4 cross-references the dilemmas with the ethical issues in different governance structures and provides an overview of the remedies put in place by the organizations. Governance is categorized using the four paradigms described in Figure 1:

  • Outcome control with shareholder orientation. The governance approach of these cases includes low levels of control and builds on trust as a substitute of control. Reporting is minimized to approximately one report per year and little surveillance in the form of audits in case of no escalated issues. However, it is expected that issues will be escalated when they arise.
  • Outcome control with stakeholder orientation. The governance approach in these cases includes medium levels of control and builds on monthly reporting and scheduled meetings for status reporting and issue handling. Surveillance is kept low because the sponsor and project are at different locations.
  • Behavior control with a stakeholder orientation. These cases involve high control and surveillance, because this governance approach builds on strict adherence to the existing processes, formal controls, and immediate escalation of issues. Surveillance is enabled through geographic proximity of the partners.
  • Behavior control with shareholder orientation. Cases assessed in this paradigm use high levels of control and surveillance and strict conformance with existing processes. Surveillance is done through formal control systems, which act as a “closed control system” across the organization.

The three types of ethical issues emerge in all governance structures; however, the resulting dilemmas show patterns (see Table 4) with:

  • A slight dominance of transparency issues underlying the emergence of dilemmas 1 and 2 in all but the Conformist governance paradigm
  • A dominance of relationship issues underlying dilemmas 2, 3, and 4, albeit in different governance paradigms. Relationship issues under the Flexible Economist and Agile Pragmatist are associated with dilemma 2, whereas the same issues are associated with dilemmas 3 and 4 under the Versatile Artist paradigm.
  • Optimization issues are associated with all types of dilemmas; however, within each paradigm they are associated with a different dilemma.

Table 4 also shows the ways organizations address these ethical issues. In outcome controlled structures, transparency and relationship issues are addressed by sporadic audits for shareholder-oriented organizations, and fostering of formal and informal communication among partners, plus training in business ethics in stakeholder-oriented organizations. Too much informal communication can lead to relationship issues, which are addressed through more formal means and include organization-wide 24-hour hotlines for reporting ethical issues, training of team members and managers in ethical behavior, and related company policies. Behavior-controlled organizations emphasize process compliance for both shareholder and stakeholder-oriented organizations.

Optimization issues are addressed through training and consulting in outcome/shareholder oriented organizations, and formal organizational policies and interpretation of laws in outcome/stakeholder organizations. Behavior controlled organizations rely on policies, plus escalation procedures and interpretation of the law in stakeholder oriented organizations, and tight control procedures in shareholder oriented organizations. Optimization issues give rise to another two dilemmas: deciding for what is ethically or legally correct versus what provides the greatest economic returns to the decision-maker or the organization. This is mainly addressed through the organization's culture and its underlying morale.

Table 4: Types of ethical issues and dilemmas under different governance structures plus organizational remedies.

Governance paradigm: (Precept) Flexible Economist Outcome control with shareholder orientation (maximizing value for sponsor) Agile Pragmatist Behavior control with stakeholder orientation (following the process) Versatile Artist Outcome control with stakeholder orientation (balancing diverse requirement) Conformist Behavior control with shareholder orientation (following the process)
Dilemma 1: conflict between two equally valid ethical choices Transparency (1–3) Optimization (1–3) Transparency (4) Optimization (4 and 9) Transparency (1–3) Relationship (8)
Dilemma 2: conflict between what is ethically correct and the organization's policy Relationship (1–3) Optimization (4) Relationship (4, 7, and 9) Transparency (1–3)
Dilemma 3: conflict between what is ethically correct and what the law requires Relationship (1–3) Optimization (1–3)
Dilemma 4: conflict between what is legally correct and organization's policy Relationship (5) Optimization (6)
Organizational remedies to ethical issues:
Transparency issues Sporadic audits and site visits Policies Process compliance Periodic and formal reporting with follow-up meetings Informal meetings Process compliance
Relationship issues Trainings in business ethics 24-hr ethics hotline
Optimization issues Training / consulting about expected behavior Escalation to manager Policies Interpretation of laws Policies Interpretation of laws Policies “Closed loop” control system

(1–9) = case number

Research question 3 asks how project governance structures can be used to build trust between the project managers and the governance structure. The findings identified an ex-ante and an ex-post stage of the relationship.

Ex-ante — Prerequisites of the Governance Structure

The interviews identified a number of attributes of a governance structure, which serve as prerequisites for being trusted and accepted by the project managers working with it. The governance structure influences ex-ante trust in the following ways:

  • Freedom to act:
    • The governance structure needs to allow people sufficient flexibility to face challenges. If it controls project managers too strongly or requires too much process adherence, then they have no room for decision-making. Thus, they are not given the chance to decide on their own, because the decisions are predetermined by the structure.
    • If the governance structure is too strong (as described above), project managers will not have the flexibility to address ethical questions by themselves and either mechanically do as the system tells them to do or start questioning the legitimacy of the decisions predetermined by the system. In both cases, this leads to a spiral of mistrust in the governance structure.

This was illustrated by Case 6. The company's governance structure tries to precisely dictate how people should behave ultimately leading to a lack of trust.

  • Appropriateness of the governance structure for the issue at hand
    • The governance structure must allow project managers to refer their challenges to the governance structure and seek for ethically appropriate decisions. Thus, it must be sufficiently wide in scope and flexible enough in application to cover a wide range of unforeseen circumstances and provide guidance for events that are outside the present scope of the system. Furthermore, it must address project managers in the particular language of their profession to allow them to link a decision-making situation to the system and its contents.
    • If the governance structure works to resolve the challenges the project manager is facing, then it builds trust, and the project manager will continue to use the governance structure in similar situations in the future
    • However, if the governance structure does not provide sufficient guidance or its suggestion is even in conflict with the law or the moral standards of the project manager, it can lead to a spiral of mistrust and circumvention of the governance structure in the future.

This was illustrated in Case 5. The project manager had faced an ethical issue, and the governance structure attempted to give the project manager guidance to resolve the issue. However, the project manager had hidden the last element of the issue from the governance structure because he did not feel that the guidance was appropriate.

Ex-post — Trust as the mechanism to linking governance structure and project managers

Trust was addressed by the interviewees in two different ways:

  • System trust: This represents the extent to which project managers trust the governance structure as a system. It is a function of the trustworthiness of the governance structure; thus, the project manager's belief about the ability, benevolence, and integrity of this structure, given to it by its creators.
  • People trust: This represents the extent the governance structure (or their creators) trusts the project managers. This is a function of the trustworthiness of the project managers; thus, the belief of the governance structure creators in the ability, benevolence, and integrity of the project managers.

Throughout the case studies, it was found that both types of trust are needed in order for the governance structure to provide an appropriate framework for decision-making. Interviewees indicated that the governance structure should provide a framework and not be overly restrictive. This implies some level of decision-making authority to be delegated to the project manager in order for the governance structure to function, which forms proposition number one:

P1: In order to be able to delegate the taking/facing of challenging situations, the governance structure needs to trust the staff's ability, benevolence, and integrity to make appropriate decisions

Similarly, the project managers should fulfill the requirements of trustworthiness in order to be trusted by the governance structure, which forms the second proposition:

P2: In order to act appropriately in the face of challenging situations, project managers need to recognize the challenging situation, evaluate it, decide on the appropriate course of action, and have the ability, integrity, and benevolence to take appropriate action

With propositions P1 and P2 representing the ex-ante situation, the following describes the flow of actions when a situation for ethical decision-making arises.

The governance structure sets the framework for project managers to act and thus provides limitations and guidance. To that end, the governance structure needs to provide help when project managers are caught in an ethical dilemma. For this the project managers need to perceive the governance structure as being trustworthy by the time ethical decision-making is required, which leads to proposition 3:

P3: If staff members feel they cannot act on their own, they need to have trust in the governance structure's benevolence, integrity, and ability to refer the challenging situation back to the governance structure

Once the governance structure has been put to the test for resolving the issue at hand, there are two possible outcomes. Hopefully, the governance structure helps the project manager to address the issue in an appropriate manner, which supports the existing trust in the governance structure. Otherwise, the governance structure is of little or no help for the project manager, which leads to a loss of trust in the governance structure, and this forms propositions 4A and 4B:

P4A: If the governance structure works to resolve the challenges, it reinforces the trust of the project manager in the governance structure and he or she will continue to use the governance structure.

P4B: If the governance structure does not work to resolve the challenges, it damages the trust of the project manager in the governance structure. If project managers lose trust in the governance structure, they will start to circumvent the governance structure and that, in turn, may damage the trust of the governance structure in the project manager.

Discussion

The study investigated the types of ethical dilemmas faced by project managers and the governance context within which they emerge. The results confirm those of a number of existing studies but also provide new insights into the phenomena of ethical decision-making in the context of different governance structures in temporary organizations such as projects.

In terms of the approaches presented in Table 1, no distinct priority is given to deontological, consequentialism, or virtue ethics. From a management perspective, normative ethics provides conceptual and theoretical resources for handling ethical dilemmas in a systematic manner.

The study also validates the distinction within behavioral ethics between bad apples, bad cases, and bad barrels, as presented in Table 2. Ethics in project management is likely to be the most effective when it addresses the factors influencing individual decision-making, and the potential risks posed by bad apples, as well as the moral issues that occur during project processes, and ethical work climate considerations.

With regard to ethical decision-making, the study results support Trevino's (1986) contingency model, which showed that personal variables, such as ego strength, field dependence, and locus of control on ethical decisions, moderated by situational characteristics, such as organization's normative structure, referent others, obedience to authority, responsibility for consequences, reinforcement contingencies, and other pressures, as well as the impact of organizational culture in general. Similarly, the study supports Victor and Cullen's (1988) findings that different parts of organizations develop different ethical climates, which influence the ethical decision-making by individuals. The climates range from informing the members of an organization about what they can do up to what they ought to do. The present study refers to this as different governance contexts and identified the differences in ethical issues and decision-making therein.

Trust as a governance mechanism to achieve efficiency was identified by Dyer and Chu (2003) and is similarly identified in this paper as a key mechanism for governance of projects. The dual dimensional approach to governance using trust and control was identified by Das and Teng (1998) and is supported through the outcome and behavior approaches to governance in the present study. The levels of governance give rise to different types of dilemmas. The need for appropriate information flow to build trust was earlier identified as a major factor for the interaction between the governance structure and the individual. This is supported by Carson et al. (2003) who showed that information flow moderates the effectiveness of trust-based governance, especially when the parties share a mutual understanding of the task at hand. A finding that is implied in the propositions of the present study.

Taking a more psychological perspective, Jones and George (1998) showed how trust develops in organizations by gradually evolving from the interactions among people's values, attitudes, and moods and emotions. In the case studies described in this paper, these interactions were fostered through informal communication, training, and other means of personal interaction and sharing of organizational values.

Conclusions

This paper brings the discussion of governance, trust, and ethics into the realm of projects. The results of the nine case studies and 28 interviews showed that the integration of suppliers, project team members, and other stakeholders (including local nationals) can lead to issues of too good relationships between business partners or differences in their perception of good timings for escalations and levels of disclosure. This may then lead to ethical issues in decisions that have to be taken in terms of reporting, interpersonal relationships, and values of the organizations involved in the project.

In addressing ethical dilemmas, project management can use resources from normative ethics, which contain conceptual tools to analyze ethical challenges in a systematic manner, giving weight to process, outcome, and character. The increasing pressure within project management to deal with ethical dilemmas and to justify choices and priorities to various stakeholders, will only heighten the relevance of concepts and ideas from normative ethics.

Three types of issues were identified: transparency, relationship, and optimization issues, which were linked to four different types of dilemmas in ethical decision-making. Dilemmas related to decisions between equally ethical choices or ethical decisions versus organizational policies were linked back to all types of ethical issues and governance structures. Dilemmas involving choices between ethical correctness and the law were mainly found in the context of outcome and stakeholder-oriented governance structures. Dilemmas involving the choice between law and company's policies were found in behavior and shareholder-oriented organizations. This answers research questions one and two.

The study has shown that ethical vulnerability in project management should be addressed at all three levels suggested within behavioral ethics: Organizations must be aware of the potential dangers of bad apples, bad cases, and bad barrels. Systematic and constructive work within the organizations can neutralize these challenges.

Trust was found as a key mechanism linking the governance structure and the individual. Two types of ex-ante trust were identified: (1) the trust of the governance structure in the people, and (2) people's trust in the governance structure. Once both are in place, the interaction between the individual and its governance structure can be initiated. Repetitiveness in this interaction is, however, dependent on the acceptance of the governance structure from the side of the user, which is contingent on the usefulness of the governance structure for a given decision. In the case of acceptance by the person, the governance structure may continue to be the framework for ethical decision-making in the future. In the case of non-acceptance, the system may be circumvented in upcoming decisions of ethical nature. This answers research question three.

Managerial Implications

A number of recommendations are indicated through the analysis section above. Governance structures should be flexible and generic enough to cover a wide range of possible scenarios, as well as provide guidance as to what to do in the case of scenarios outside the scope of the structure. Furthermore, they should allow the people within the system to address their concerns about it and find guidance, but not predetermined answers to their questions. Too strict a governance structure will reduce flexibility of the system and threaten the acceptance of the governance structure. A certain level of trust in the ability, benevolence, and integrity of the people should underlie the design of the governance structure.

Theoretical Implications

Mayer et al.'s (1995) three-dimensional construct for trustworthiness helped to explain the interaction between the governance structure and the individuals in projects. This reciprocal relationship appears to be initially dependent on ex-ante mutual trust and is further on continuously fragile in nature, because of possible loss of trust in the case of inappropriateness of the governance structure for the decision on hand.

The study has shown that three types of ethical issues were identified from the cases and helped to explain that optimization issues and dilemmas of a legal nature link to stricter levels of governance, whereas transparency and relational issues are found in all governance approaches.

The strength of the current study lies in the depth of the collected material, which allowed for a deep analysis and theoretically supported results. Generalizability is, however, limited and should therefore be a topic of follow-up studies. This research could identify the commonalities and differences in the context of the identified issues. Generalizability requires a wider study with a larger sample size and potentially a quantitative approach to achieving generalizable results.

The present study's contribution to knowledge lies in the categorization of ethical issues in projects under different governance structures and the resulting ethical decision-making dilemmas, and in the identification of a behavioral (trust based) process that links governance and decision-making in projects and the conditions under which this process stays alive.

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