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Saturday, October 12, 2019

Management discretion : Weighing the positive and negative ethical implications


ORLAINE APRIL T. TOLENTINO, MBA



ABSTRACT

This article aims to assess the positive and negative effects of management discretion and how it becomes an issue of morality in the organization. It identifies the moral arguments and limitations on the exercise of management discretion, how it becomes unfavorable and detrimental to an organization, and how it is perceived on a positive light which promotes common good. The author concludes that although the exercise of management discretion has been negatively perceived, there is a strong conviction that man is has an innate ability to make moral judgments.

Keywords: Management directions, ethical implications, positive use, abuse of discretion

INTRODUCTION

Discretion is plainly defined as an exercise of one’s own authority and judgment (Webster’s Third International Unabridged Dictionary). Sandilands (n.d.) provides a deeper sense to the definition and says that discretion it is “the ability to make a judgment, a choice or a responsible decision.” The etymology of the word date back to the 13th century where the word dyscrecyounne was first introduced and understood as the "ability to perceive and understand," and later on was given meaning in the mid-14th century as a "moral discernment, ability to distinguish right from wrong" (Online Etymology Dictionary, n.d.). The understanding of discretion as a moral discernment is supported and explained further through the theory that “man is a thinking being who acts with purpose and reason… and knows whether his actions are right or wrong/good or bad… and that man is a free being who acts according to his will and volitions and he has the capacity to exercise his choices and to choose and do what is good” (Abun, D. 2013). Discretion therefore, can be understood as moral judgment.

The terms Management Discretion, Management Prerogative, or Employer Discretion are commonly used interchangeably in the business world. These terms imply the right of an employer to make decisions that are deemed beneficial to the operation of the business. Discretionary powers are most often vested to high-ranking officers in a company who include department heads, managers, and directors who have a direct hand in the management of the company’s business operations. They may have the discretion on the company’s finances, discretion to hire or fire employees or discretion on the disclosure of company information.

Limitations to the exercise of discretion

The right to exercise discretion in making business decisions, however, is substantially bounded by the policies of each organization and by enacted laws. Every company has its written or unwritten rules stating the limits or each manager’s authority – often in the form of a job description or appointment letter. These limitations serve as the control measure in the exercise of discretion in decision-making. Issues related to abuse of discretion most frequently arise when managers over-step these limitations. In order to avoid this, the company’s top management must spell out clearly its rules and define the manager’s decision-making limits. In such cases that the manager makes decisions out of his capacity, top management must stand firm to impose the corresponding disciplinary measure to the erring manager.

Positive Use

Although the view on discretion varies from person to person, the exercise of discretion is pre-supposed to benefit the interest of the organization. Lord Scarman (n.d.), an English judge and barrister, who served as a Law Lord of England called discretion as “the Art of suiting action to particular circumstances.” Further, the idiom “Discretion is the better part of valor” is generally understood to mean the avoidance of problems or unnecessary risks by thinking carefully and exercising caution before taking action.

According to Espedal, B. (2013), “Managerial discretion is generally seen as a leadership capacity that affects organizations’ ability to adapt to new and changing demands and circumstances.” When exercised correctly, discretion becomes both an advantage and leverage for an organization to adapt to the consistent developments in the business world.

In addition, a study entitled “In Search of Informed Discretion: An Experimental Investigation of Fairness and Trust Reciprocity”, which was written by Victor S.Maas, Marcel van Rinsum and Kristy L.Towry and published in The Accounting Review revealed that that most managers are driven by powerful, non-selfish motives that include a strong preference for fairness. Although the use of managerial discretion is often associated with favoritism, the study revealed that managers have an inherent interest in fairness and trust reciprocity.

Above all, ethical consideration must be taken into account in order to maximize the benefit of management discretion, citing the statement of Acosta, P. (2015) to wit:
For one, as in all cases involving the use of management prerogative, it must be exercised in good faith for the advancement of the employer’s interest, not for the purpose of defeating or circumventing the rights of the employees under special laws or under valid agreements”

Abuse of Discretion

Discretion when exercised without careful consideration of facts and law constitute an abuse and raises the issue morality. One of the areas in an organization which is most concerned with regards to the use of discretion is human resources. The use of discretionary measures in the selection and appointment, performance appraisal, promotion, and employee discipline and termination, are often regarded with issues of morality.

The case of Dumisa vs The University of Durban Westville (2001, 7 BALR 753) tackles an issue on promotion where the employer decided not to promote the employee, Dumisa, citing the latter’s failure to meet the promotional policy criteria. And while there was no issue on the promotional policy criteria, it was found that the employer made a previous promise to consider the employee for promotion creating an expectation on the part of the employee. There is a question therefore as to what grounds does a manger have the discretion to decide that whether an employee is not suitable for promotion?
The “Endo” (coined term for End-of-Contract) is one of the recent issues of unfair labor practice in the Philippines, to which President Rodrigo R. Duterte has vetoed the bill that seeks to prohibit the practice of labor-only contracting method. A majority of companies in the Philippines who employ a large number of workers practice labor-only contracting, wherein the tenure of the said workers is up to six (6) months. However, to avoid a labor law granting permanent tenure on the sixth month of service of the employee, these companies hire their workers up to five (5) months only. The bill has been snubbed by many business groups and they argued that “Job contracting as an exercise of management prerogative and business judgment is anchored on two constitutional rights: right and freedom to contract and right to property.”

CONCLUSION

The question whether management discretion is beneficial or detrimental to a business is debatable.  On the point of view of the business owner, they may rightfully look at discretion more positively. After all, no business owner would execute a decision or an action that may be detrimental to his business. However, there is an underlying issue whether the person who posess such discretionary power has the adequate knowledge and experience, and the morality to make responsible and sound and responsible decisions. According to the great Greek philosopher, Socrates, knowledge of good and evil and its criteria are imbued in man and he can differentiate between the two if he desires so. Considering this innate ability to determine good and bad, and if a person possesses the qualities of a strong moral leader, he is likely to make moral judgments that is aimed towards common good.


REFERENCES

1.Sandilands, Tracey. (n.d.). What Does Discretion Mean in the Business World? Small Business - Chron.com. Retrieved from http://smallbusiness.chron.com/discretion-mean-business-world-50093.html
2.   
   Israelstam, Ivan. (2014) Management Discretion: How far does it stretch?
3. Karlsson, T. S. (2018) Searching for managerial discretion: how public managers engage managerialism as a rationalization for increased latitude of action.

4.      Acosta, P. (2015), Management prerogative must be exercised in good faith, The Manila Times.

5.      Cigaral, I. N. (2019) Why Duterte vetoed the anti-endo bill, Philstar.

6.      Cigaral, I. N. (2019) Upsetting key campaign promise, Duterte officially vetoes anti-endo bill, Philstar.

7.      Abun, D. (2013) Be A Moral Judge Of Your Action.

8.      Espedal, B. (2013) Is managerial discretion good or bad for organizational adaptiveness? Retrieved from https://journals.sagepub.com/doi/abs/10.1177/1742715013514879?journalCode=leaa#

9. Rinsum, M. v. (2013) Informed Discretion in Performance Evaluations, Rotterdam School Of Management, Erasmus University.

10.  The Labor Code of The Philippines http://www.chanrobles.com/legal4labor.htm
11.  Leslie Scarman, Baron Scarman (b.1911-d.2004) on Wikipedia https://en.wikipedia.org/wiki/Leslie_Scarman,_Baron_Scarman


13.  Online Etymology Dictionary https://www.etymonline.com/word/discretion


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