The Ethics of Business in Slovenia
by Miroslav Glas

Radical economic and political changes during the period of transition raised public discussion concerning the state of business ethics in Slovenia. However, this debate remained rather abstract. A survey and measurement of attitudes and ethical views would better highlight the ethical realities. This paper draws arguments from two survey samples: the first in Slovenia only, and the second using the survey instrument developed by Solymossy & Hisrich (1996) which was also conducted in Ohio (USA). These sources provide comparisons of ethical views between entrepreneurs and managers of larger companies in Slovenia, as well as between Slovenian and American businessmen. The research findings indicate a controversial picture of business ethics in Slovenia during the 1990s, although in some respects businessmen adhere to certain standards of personal responsibility and accountability.

Background
During the 1980s, ethical dilemmas did not attract considerable research in Slovenia, and remained primarily in the domain of philosophers rather than researchers of the management behavior. Business ethics was not a priority in Slovene business curricula. This situation differed significantly from that of the US business environment, where virtually every textbook on Business, Government and Society includes a section on business ethics. Solymossy & Hisrich (1996) present ethical discussions and summaries of empirical inquiry in the USA over the past twenty years. Ivanjko (1996, p. 96) identifies the reason for this apparent absence of discussion in Slovenia in his view that in socialism, control mechanisms were of the informal character, hardly convenient as a research topic.

The transition period changed the picture of ethical issues in Slovenia. The commercialization of many aspects of societal life prompted a discussions on such ethical issues in business, which were a characteristics of the market economy (Ivanjko, 1996), but reached beyond pure economic issues. Ethical issues occupy a prominent place today in Slovenia due to:

• the destruction of the former moral and value system which created uncertainties concerning right / wrong or appropriate business behavior;
• the new ownership structure which exposed social property to the challenges of new business strata and holders of political power;
• slow legal changes and contradicting regulations which opened “gray zones” for circumventing rules, primarily related to the privatization processes;
• the economic recession which offered an easy “alibi” for some ethically unacceptable acts arguing the necessities to provide for the survival of troubled companies;
• decreasing living standards which lowered the social threshold for acceptability of such actions;
• some of the new “breed” of entrepreneurs who entered businesses where there was no strong competition to prevent dishonest practices;
• a liberal, highly permissive environment which did not encourage strong opposition to some deviant phenomena.

There are some additional reasons which encouraged ethically less acceptable behavior. Tavcar (1994, pp 150-158) and Vila (1995, p.134) list the classical reasons as put by Brenner and Molander (1977): high expectations raised by the changes in the political and economic system as well as by the independence of Slovenia have gradually eroded to the general disappointment, bringing substantial changes in attitudes. Between 1992 and 1995, the number of Slovenians considering the market economy as the right direction for the future development, has decreased from 61 % to only 40 %, to the levels of Slovakia, Hungary and Bulgaria. There is an 11 % increase in the share of Slovenians who describe the democratic progress as unsatisfactory (up to 60 % altogether). The percentage of Slovenians who feel that human rights are not properly respected increased by 18 % (Eurobarometer, 1996).

Some political parties chose morality and the fight against unethical deeds as key elements of their Autumn 1996 electoral campaign, building upon agitation by the media. Academics also opened the discussion (see Pleskovic, 1994, Thommen, 1994, the conference of economists at Portorož, 1995, the research on the managerial ethics, Ivanjko et al., 1996). Unfortunately, theoretical disputes predominated, providing virtually no empirical arguments on the attitudes and ethical views of different social groups within the Slovene population.

Ethical debate has a controversial tradition in Slovenia. In the past, discussants expressed a view of significantly different moral standards of business executives from socially owned enterprises and craftsmen. The later were, on the basis of the ideological prejudices, supposed to mediate the “petite bourgeois conservativisme”. With the Enterprise Law (1988), which triggered the creation of a large number of private ventures in 1990s (see Glas et al., 1997), the circumstances changed. The critical events became focused on the transformation of the social ownership: “wild” privatization, the process of downsizing, “by-pass” companies to serve the greed of some unscrupulous managers, destruction of large companies, the breech of competition clauses, insider trading, negligence in managing business, enforced bankruptcies etc. These phenomena countered a rather benign shadow economy, tax avoidance, illegal employment, all being justified by cumbersome state bureaucracy and stringent business conditions.

A new dimension was thus added to the discussion: the differences in ethical values between managers and entrepreneurs. Solymossy & Hisrich (1996) and other authors highlight the difficulties of balancing economic expediency with moral principles. Studying the ethics of entrepreneurs is interesting because it provides a better opportunity for understanding ethics on an individual rather than collective basis. In essence, entrepreneurs used their personal values to a greater extent, than managers of large companies (Humphreys et al., 1993), and they demonstrated different approaches to independent actions, innovations and risk taking (Longenecker and Schoen, 1975). However, we face a dilemma in identifying entrepreneurs: it is pragmatically solved by the substitution of “small businesses” and owner-managers as representing entrepreneurs (Longenecker et al., 1989). In this paper, some empirical findings on the business ethics in Slovenia are presented from two research undertakings, in 1995 and 1996.

Methodology
In spring 1995, we interviewed a sample of 203 students at the Faculty of Economics and 73 employees, with 49 owner-managers and staff in small business (from the Evening School of Entrepreneurship at Gea College, at different locations around Slovenia) and 24 part-time graduate students, who have a job within companies of varying sizes. The questionnaire was adapted from the previous research (Iannone, 1989) and respondents were asked about a) their personal ethical views, b) the evaluation of ethical standards in Slovenia, and c) their views on some ethical issues in organizations and in the society as whole (see Vranicar, 1995). We will focus on the attitudes of the employed respondents (Sample A).

The following year, we used a questionnaire provided by R. Hisrich, professor at the Case Western Reserve University, Cleveland, USA, which contained 34 binary response questions, 12 multidimensional scale scenarios, and 7 seven point Likert scale scenarios (see Solymossy & Hisrich, 1996). 54 full-time and 19 part-time students were interviewed along with a further 42 entrepreneurs (selected randomly from the Gea College database) and 99 managers from larger companies still under the privatization (sample provided by the Association of Managers). Again, we will present the responses of the entrepreneurs and managers who responded on a number of questions significantly differently than students (Sample B). We assume that their responses reflect the business realities of Slovenia. These findings have not been published until now.

Ethics in Slovene Society
In the past, business ethics was not included in Slovene business studies. However, since 1990 it has become a significant part of the Business Environment course work at the Faculty of Economics. In Sample B, only 19 % of entrepreneurs and 37 % of managers were exposed to ethical issues within their study (primarily ethical dilemmas in marketing and staffing).

TABLE 1
The definition of ethics (Sample A)

The majority of respondents acknowledged certain general responsibilities, societal norms or an implicit social contract. It is interesting that an explicit utilitarian concept was either not revealed or was rated behind implicit norms (see Business Ethics, p.8). It seems that Slovenes adhere to the theory of social justice; 64.4 % of respondents answered the next questions with the statement that the right behavior respected the rights of all people, fundamental human rights, and individual freedoms of all; 21.9 % considered the right behavior as implicitly confirming the equality of rights and an honest treatment of all; 6.8 % perceived legal norms as such a goal, and only 5.5 % identified maximum benefits for all within the company and broadly, in the society. In Slovenia, parents were the most influential in forming the respondents’ ethical norms (52 %), followed by the environment (company, fellow workers) and model persons. The influence of the religion and media was marginal. The respondents stated that the responsibility for their own behavior is entrusted:

The majority of them assumed both professional accountability and ethical dimensions in business decision-making (93.2 %), with only 5.5 % giving priority to professional accountability. Slovenes respect first their own personal views (49.3 %), then responsibility to co-workers (17.8 %), and third the potential harm to the company (15.1 %). A minor role is given to the company’s “code of ethics” (5.5 %), to the laws and regulations (2.7 %), and to public and social pressures (1.4 %). However, managers should follow a line of business success (55 %), the principles of fairness (27 %), the interest of customers (6 %) and the profit maximization principle (3 %). In 1995, the interests of owners did not play any role in responses by Sample A. With these views, there is the question as to whether business success could really be in harmony with personal views. Is the best solution for the company really congruent with personal values? We can share some doubt when considering how the respondents have assessed the ethical standards in Slovenia in 1995.

TABLE 2
Ethical standards in Slovenia, 1995

It was difficult for a third of the respondents to form an assessment. Only 12.4 % expressed a positive statement and 52.1 % chose a negative one, with 15.1 % sharing a very critical view. The respondents listed the following excuses for the unethical actions of managers:

The violations of the ethical criteria included: business dealings reflecting the personal traits of managers: boasting, contempt, excessive criticism, egoism, authoritarianism, improper dealings with partners; cheating and deceiving, abuses of customers; unfulfillment of promises; poor industrial relations (tensions between managers and employees); the destruction of companies (business negligence), and lies and deceits. This violations differ substantially from the American survey (Laczniak et al., 1995, p. 43) which listed misleading advertising or labeling, padding expense accounts, insider trading, poor product or service safety and lack of equal opportunities for women and minorities.

There is no consensus on the rules governing ethical decision-making. As R. McGarvey (1994, p. 64) said quoting T. Dunfee, many unethical deeds are done simply out of ignorance. Rules of behavior are simply not well-known, we do not have “codes of ethics” to the extent as in the US (90 % of Fortune 1.000 companies have such a code), and training in ethical reasoning is almost nonexistent.

TABLE 3.
The criteria for ethical decision-making in Slovenia

The lack of consensual rules leaves a great deal of subjective assessments, with the danger of unequal treatment of participants in different cases. However, the general climate in Slovenia is significantly different from that of the USA as illustrated by the case of “whistle-blowing”.

TABLE 4.
The reaction of people when they discover unethical behavior in their own company

Sources: B. Vranicar (1995, p. 33) for Slovenia, G. Laczniak et al. (1995, p. 41) for the US

However, the ethical situation is changing quickly in Slovenia.

TABLE 5.
The assessment of the ethical climate in Slovenia today when compared with the state five years ago and the expectations for the next five years (in %)

The assessment of the present state of ethics is critical, with the majority perceiving it as worse than five years ago (68.5 %). At the same time, a “bottom” of ethics has been reached and the situation should improve significantly over the next five years (only 6.8 % are pessimistic). These changes should be influenced by the society (15.4 %), ethical standards (12.8 %), law enforcement (9.1 %), corporate behavior (7.8 %), pressures from abroad (6.8 %), politics (5.5 %), market (3.7 %); 36.1 % did not respond, because they had some doubts about the improvement.

Quite often, low ethical standards are attributed to media influence, in particular to the “yellow press”, which exaggerates, even abuses problems and cases of wrong-doing. In addition, it does not project the right attitudes or promote positive behavior.

TABLE 6.
An assessment of the media coverage of ethical issues in Slovenia
and correctness of views taken by media in Slovenia (in %)

Ethical issues have had some media coverage. However, media, press in particular, are seen as representing ethical issues with biased convictions or exaggerations.

Let us list the problems in Slovene society which respondents considered as being ethically most exposed (three options were available, the list provides crude rankings):

- problems related to the privatization, appropriating social ownership,
- the scandal concerning housing loans for members of parliament (R + 3 %),
- (high) salaries for members of parliament, government, and state officials,
- unauthorized sales / smuggling of weaponry,
- parliamentary affairs and the moral irresponsibility of politicians,
- avoidance or delays in paying taxes, contributions, wages, payments to suppliers,
- political intrigues and affairs, covering up the culprits and denying access to information,
- ecology, waste management, damages to the environment,
- business crimes (“white-collar” crime), violation of laws, concealment of accidents,
- unscrupulous reports in journals, violation of personal secrecy, slander etc.

We cannot present all the scenarios and comments. It was observed that respondents clearly perceived themselves as more ethical than others, and notice the ethical blunders of others. It is interesting to mention that students expressed more criticism of unethical behavior by companies than did employed individuals. We might assume that the general opinion shared by people and media is often worse than the reality itself.

How Do Slovenes Address Ethical Issues?
The sample B provides more important results by employing proven instruments to assess the ethical views. In the future, it will enable international comparison with other countries where the identical surveys have been performed. In the first section, the respondents gave a binary response to 19 questions to determine if certain actions were considered ethical or not. Table 7 presents the percentages of the negative responses from a sample of 41 entrepreneurs and 99 managers:

• entrepreneurs expressed different views on the overstating of expense accounts with respect to the extent of the overstatement (they would tolerate an overstatement by less than 10 % of the correct amount),
• a quarter of respondents think that it is not unethical to give gifts in exchange for preferential treatment, but less of them think the same for accepting gifts (managers are particularly critical),
• it is critical that many do not consider insider trading as unethical - however, it is in the European tradition not to prosecute it strictly (see: “Unlicensed Dealings on the Security Markets”, Delo, 26.9.1994; “Many do not know they are doing something wrong”, Delo, 12.6.1995; “The crimes which are the most difficult to prove”, Delo, 17.8.1996). The privatisation process in Slovenia has a form of insider trading inherent in the selection of privatisation methods,
• the attitude towards “whistle-blowing” in larger companies with respect to violations of internal rules or even laws by employees favors cover-up or simple ignorance,
• some businessmen would like to learn competitor’s trade secrets by hiring competitor’s employees, which was easily done due to the lack of competitive clauses in the contracts,
• some slackness in activities is tolerated.

Slovenian entrepreneurs and managers have shown high standards of personal responsibility and accountability. 95.2 % of entrepreneurs and all managers believe it wrong to pass blame onto an innocent co-worker, as did 97.8 % of American entrepreneurs. All Slovenes indicate that it is wrong to claim credit for a peer’s work, compared to 96.7 % of Americans. Exactly the same is true when considering the attitude towards falsifying internal time, quality, or quantity reports. Surprisingly, eighteen years ago, 86 % of American managers responded that it was ethically acceptable to overstate expense accounts by less than 10 % if the superior executives knew and said nothing. The survey of entrepreneurs in the USA reveals that 95.6 % of them believe it to be ethically wrong, with 92.1 % of entrepreneurs and 97 % of managers in Slovenia feeling the same.

TABLE 7
Entrepreneurs and managers considering it ethical for “someone” to do certain actions

The next section tested the views of entrepreneurs on the economic system, the relationship between government and business, and on aspects of business conduct. Table 8 illustrates the affirmative responses (“yes”) to 14 questions. Again, some would prefer to have the third alternative, because simple binary answers do not reflect complex realities. Table 8 contains a variety of different situations and it is difficult to find certain pattern of answers. However, the answers are not far from what could be expected knowing the Slovenian business environment:

• Entrepreneurs are to a significantly higher degree convinced that free enterprise is the best form of an economic system. The lower percentage by managers could reflect the fact that they do not enjoy the same autonomy in decision-making (but it may be a kind of recollection of benefits provided by the former system to larger companies).

TABLE 8
Affirmative responses on respondent’s opinion of economic dilemmas (in %)

• Entrepreneurs almost identically assessed the interference of the government with their business and (personl) life. For managers, these two issues differ and they do not feel their life to be governed much by laws.
• It is surprising that Slovenian respondents placed more trust in the value of a “code of ethics” than do their American counterparts.

TABLE 9
The benefit of having ethics codes for decision-making (in %)

Our research did not explicitly allow for a neutral answer, resulting in slightly higher share of affirmative answers. The relation between Yes and No closely resembles the responses in the American samples. However, given that there is a lack of tradition or experience with these codes in Slovenia, the level of trust in their value or assistance is surprisingly high.
• In the US, 94 % of entrepreneurs expressed their firm opinion that the government has too many laws regulating business, with only 74 % of entrepreneurs and 68 % of managers in Slovenia. We accept that government plays a stronger role of power in business affairs.:
• The attitude towards laws is more ambiguous in Slovenia: only 38 % of entrepreneurs and 32 % of managers believe that illegal things could not be ethical, while 56 % of American entrepreneurs share this opinion. The tolerance of the grey economy and illegal dealings in enterprises is higher in Slovenia, although rationalised by an excuse of rather unrealistic regulations, which are not in line with business life. Thus, a breach in such a law might not be really unethical.

It is interesting to compare the perceptions of some ethical issues for businessmen in the USA and Slovenia:

TABLE 10
Ethical perceptions regarding the behaviour of others (given in %)

Source: Solymossy & Hisrich (1996) for the USA; Survey B for Slovenia

The survey presents beyond any doubt the significantly lower perception of morality of businessmen in Slovenia. We should probably not look for an explanation in the “national character of Slovenian people”, but consider it as a result of the realities of the transition, with its uncertainties and unreliability of business partners. Currently, the general “faith in mankind” is significantly lower in Slovenia than in the US, particularly among managers. Considerably weaker is the trust in the high ethical standards of businessmen. The same story is reproduced when validating the trust in salespeople which is very critical among Slovenian entrepreneurs. It is evident, that the “wave” of entrepreneurship in Slovenia launched a fair number of untrustworthy people among entrepreneurs. Further arguments to back this statement are provided by news on business crimes. However, despite these reservations Slovenians still trust in honest / fair business. In the past, Americans provided a differentiated view about the honesty of managers of small / large companies: Baumhart (1963, p. 214) found that managers of larger companies tended to trust more in the honesty of their colleagues than small business owner-managers. Slovenian managers displayed the same attitude and the entrepreneurs think quite similarly to their American counterparts.

Significant differences between Slovenes and Americans were found with respect to the responses to different scenarios of business dealings. Let us illustrate the following scenario: One day you hear a rumour that a competitor has a new product feature that will make a big difference in sales. That evening, a business associate tells you that he can obtain a copy of the secret design plans for the new product feature. He asks if you would like him to send you a copy.

TABLE 11
How likely are you to accept the copy of plans?

The questionnaire allowed for a test of the distinctions of what actions might be considered as just / unjust, fair / unfair, right / wrong and good / not good (with the five point scale). However, for some respondents it was difficult to distinguish between these feelings. We will illustrate this point with the evaluation of the following on four dimensions: After being barred from selling in a foreign market, a bicycle manufacturing company paid a foreign businessman 500.000 USD to smooth the way to sell bicycles in that country and net about 5 USD million annually (see Table 12).

We could conclude: respondents have some difficulties assessing the decision in terms of just - unjust and fair - unfair, and the neutral option (3) was chosen by approximately a third of them. They did not have so many reservations with the right - wrong and good - not good dimension, where the functional aspect prevailed: it is important to sell and there is a commission fee. As long as it is far from consuming the net effect (1 : 10 in the scenario), it is a smart decision to smooth business. Entrepreneurs are more inclined to ease their access to the foreign market than managers.

TABLE 12
Evaluation of the scenario involving a bicycle manufacturing company

We will conclude with a comparison of Slovene and American respondents to the following scenario: A salesperson sells a more expensive product to a customer when a less expensive one would be better for the customer.

TABLE 13
The response to the scenario on the good - not good dimension

Slovenian respondents would be less honest to the customers. There are some contradictions involving managers; 90.8 % said earlier on that most companies care about individual customers, but within this scenario, they do not condemn a simple abuse of two of Dunfee’s foundation principles of business ethics: (6) acting in good faith in negotiations and (7) respect for human well-being.

Conclusions
The results of the research are summarised in the following statements concerning the state of business ethics among Slovenian businessmen:

• The ethical standards in Slovene business are relatively low and the ethics is dominated by more prominent goals of efficiency and profitability.
• There are differences between entrepreneurs and managers with respect to some ethical issues: entrepreneurs care more about their customers, but they are also more “flexible” in bending some rules in order to promote business.
• Slovenian entrepreneurs and managers might support high ethical standards on general issues about their ethical views, however, the picture deteriorates when considering the real issues of everyday business.
• Slovene ethical standards of business are far from those of American entrepreneurs.

Further research should throw more light on the fundamental reasons for such a state of ethical standards, apart from the general excuse based in the difficulties of transition. It is worthwhile to also continue research into differences between entrepreneurs and managers on issues of business ethics.

References
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