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- •Defined as the values
- which an individual uses to interpret whether any particular action or behavior
- is considered acceptable and appropriate.
What Questions should you ask to identify values needed to interpret ethical behavior
- 1.Is the behavior or action consistent with the overall basic
- duties of the individual in question?
- 2.Does the behavior or action acknowledge and respect the
- underlying rights of all the individuals who will be impacted by the action?
- 3.Would the behavior or action be considered the best
- practice in that specific set of circumstances?
- 4.Does the behavior or action match the overall entrenched
- beliefs of the individual?
- the collective values of a business organization that can be used to
- evaluate whether the behavior of the collective members of the organization are
- considered acceptable and appropriate
three components of moral values have
- 1.The individual’s principles
- 2.The individual’s character
- 3.The consequences of a particular action
Types of Ethical Examinations
- Descriptive Ethics
- Analytical Ethics
- Normative Ethics
- Defined as the presentation of facts related to the specific ethical actions of an individual or organization
- Used when an observer wants to understand the course of events that generated the ethical issue
Described as understanding the reasons a course of action that may have an ethical impact took place
Moves from the how and when inquiry, which is the basis of the descriptive ethics viewpoint, to asking why
- Defined as a prescribed course of action that attempts to ensure that ethical behavior will be followed in the future
- •Moves the evaluation of ethical behavior from the past to future tense
- •Presents information on what should be done in the future rather than what was done in the past
•Focus on the results of the conduct of the individual
- •Three frameworks are
- –Ethical egoism
- –Sidgwick’s dualism
Based on the belief that every individual should act in a way to promote himself/herself if the net result will generate, on balance, positive rather than negative results
•Any action of an individual will provide the greatest good for the greatest number of people
•Based on the principle of utility where each person’s actions add to the overall utility of the community
- •Attempts to resolve the difference of whether the actions for one’s self-benefit impact just the individual or others
- •Argued that utilitarianism is a foundation component of any ethical framework
- •Focus on the duty or obligation in determining whether the actions are right or wrong
- –The three frameworks are
- •Kant’s ethics
- •Based on the underlying belief that the only person who can determine right and wrong is the person making the decisions
- •Each individual determines his or her own actions and is ultimately responsible for the consequences of those actions
- Also called social contract theory
- •Based on the belief that all individuals agree to social contracts to be members within a society
- •The free will to make decisions that were considered rational needed to be converted into a universal will
- •Considered a dualism because it attempts to bridge the gap between the existentialist and contractarian points of view
Guiding Principles to Support Ethical Actions
The Seven Deadly Sins
- •For centuries, human behavior has been evaluated on seven deadly sins.
Global Business Standards Codex
- •The codex captures the eight major underlying principles in which ethical behavior can be interpreted and evaluated
- •Each officer of a company has a legal fiduciary duty to act in the best interests of the stakeholders and other employees within the firm
- Traditional components include ensuring that there are no actual or potential conflicts of interest given the actions of the employee
- •Based on the belief that every employee should respect property as well as the rights of the owners of the property
- Traditional examples of violations of this principle include theft, misappropriation of funds, and wasting resources
- •Based on the belief that it is the employee’s responsibility to honor the commitments he or she has made to the firm
- –Traditional violations of this principle include breaching a promise or contract or not fulfilling a promised action
- •Based on the belief that every employee should conduct business in a truthful and open manner.
- –Traditional violations of this principle include fraudulent and deceptive actions of the employee
- •Based on the belief that each employee needs to respect the dignity of all individuals
- –Violations include humiliation, coercion, or other type of human offenses
- •Based on the belief that stakeholders who have a vested interest in the firm should be treated fairly
- •Four types of fairness
- 1.Reciprocal Fairness
- 2.Distributive Fairness
- 3.Fair Competition
- 4.Procedural Fairness
- •Based on the belief that every employee should act as a responsible citizen in the community
- –It is also expected that employees respect the laws of the community
- •Based on the belief that employees have a responsibility to respond to the requests for information about the operations from various stakeholders
- –Employees must also be responsive to ideas presented by the stakeholders
History of Business Ethics•1960’s:
- –Period of social unrest
- –Issues about the environment and drug use among employees were dilemmas for employers
- –This era show the birth of corporate social responsibility movement
History of Business Ethics•1970’s:
- –Economy suffered a recession
- –Human rights issues and environmental issues were major focal point of corporations
- –Companies began to cover up their wrongdoings rather than deal with the issues head-on
History of Business Ethics•1980’s:
- –Financial fraud surfaced
- –Loyalty to employers decreased dramatically
- –The Ethics Resource Center helped for the first business ethics office at General Dynamics in 1985
History of Business Ethics•1990’s:
- –Outgrowth of global opportunities for companies
- –Unsafe work practices, child labor issues and environmental issues
- –Rise of financial mismanagement
History of Business Ethics•2000’s:
- –Financial mismanagement problems
- –Intellectual property theft, cybercrime, and personal privacy issues
- –Passage of Sarbanes-Oxley Act in 2002 was the most significant event in the United States
The Role of Integrity
- •a firm adherence to a code of especially moral or artistic values
- –Integrity is based on employees’ continuous efforts to balance their personal values with the requirements to perform their jobs effectively throughout their careers.
Individual questions to ask yourself
•Publicity test- be ok published in the newspaper?
•Trusted friend test- be ok if a close friend knew?
•Reciprocity test- do you treat others how you want to be traeted?
•Universality test- is acceptable for anyone else to do it?
•Obituary test- are you confortable with your PAST actions?
Behaviors of High Integrity
- •Have Respect for the Individual
- •Celebrate the Good Fortune of Others
- •Develop Others
- •Reproach Unjust Acts
- •Be forgiving
- •Extend Self for Others
- •Possess Humility
- •Maintain Concern for the Greater Good
- •Be Truthful
- •Fulfill Commitments
- •Strive for Fairness
- •Take Responsibility
Role of Trust in Ethical Conduct
- •Trust is an important component in the ability for cooperation to be supported throughout the organization
- •Trust allows employees to believe he or she will be able to blow the whistle on other employees who are performing unethical acts without prejudice
A. A. Berle said
- –Stated that all of the powers that are given to a corporation are to be used to create benefits in the interest of the shareholders
- –Argued that managers should consider themselves trustees and guardians of investments made by the shareholders
E. Merrick Dodd
–Argued that corporations are allowed to become legal entities because they serve a purpose to the community instead of just providing opportunities for financial gain by its owners
- –“The Social Responsibility of Business is to Increase its Profits”
- –Argued that social responsibility is a fundamentally subversive ideal and that the only social responsibility a manager has is to enhance the level of profitability of the firm
- –Believed that stakeholders were any individuals or groups that can impact or be impacted by the actions of the firm
- –Broadened definition of stakeholder to encompass any individuals or groups that have a vested interest in the operations of the firm
•Managers can be classified based on three types of moral values
- •Does not care how his/her decisions impact the stakeholders and actions actively counter to what is the right and ethical thing to do
- –Recent examples are Ken Lay, Bernie Ebbers, and Dennis Kowlowski
- •Does not focus proactively on ethical issues nor does he or she try to purposely go against the social and legal norms that are expected of the firm by society
- –Example includes police department having stringent height and weight requirements for potential applicants
- •Those decision makers who understand the importance and relevance of considering ethical issues when they are making decisions
- –Proactive in presenting ethical leadership to the firm’s employees and other stakeholders
Stakeholder Impact on Organization
- 1.Stakeholders establish expectations about corporate performance
- 2.Stakeholders experience the effects of corporate behaviors
- 3.Stakeholders evaluate the effects of corporate behaviors on their interests
- 4.Stakeholders act upon their interests, expectations, experiences, and evaluations.
Triple Bottom Line Reporting
- Expands traditional financial reporting to include environmental and social reporting
The Benefit Corporation
- •A new type of corporation that addresses issues related to financial, social and environmental objectives
- •Three required criteria
- 1.Must meet social and environmental standards
- 2.Must meet higher legal accountability standards
- 3.Must build business constituencies for public policies
•Four critical areas in firm and customer relationship where ethical behavior must be the norm
- 1.The manufacturing process
- 2.Sales and quotes
- 4.Customer service
Corporate Social Responsibility
•The obligation companies have to develop and implement courses of action that aid in social issues that impact society
Components of Corporate Social Responsibility
•Economic Responsibilities- based on an underlying foundation that the business was created to develop economic value.
•Legal Responsibilities- should be able to perform economic responsibility following legal requirements.
•Ethical Responsibilities- society expects a firm to have ethical practices that change with the times.
•Discretionary Responsibilities- responsibilities that society doesnt have a message for but expect the mangers to have proper judgement
Firm Configurations to Address Stakeholder Issues
•Skeptical Firm- based on the view of the shareholders, not stakeholders. (tobacco and oil.)
•Pragmatic Firm- focused on maximizing financial performance by serving the influential stakeholders. Depends on business environment.
•Engaged Firm- focus on long-term sustainability of operations by commitment to stakeholders.
•Idealistic Firm- purpose is to serve the needs and interests of stakeholders.
Types of Corporate Philanthropy
•Peripheral Philanthropy- high market orientation, low competence orientation
•Constricted Philanthropy- low market orientation, high competence orientation.
•Dispersed Philanthropy- low market orientation, low competence orientation.
•Strategic Philanthropy- high market orientation, high competence orientation.
•Three potential conflicts of interest that can take place during the auditing process
- 1.Auditor-Firm conflicts of interest
- 2.Shareholder-Management conflicts of interest
- 3.Self Interest-Professional Standards conflicts of interest
The Role of Financial Reporting
- •Primary objective of financial reporting is provide interested parties with the ability to
- 1.Make investment, credit, and financial decisions that relate to the firm
- 2.Help the reader determine the level of cash flows for the firm
- 3.Identify the economic resources and obligations to the firm
•American Institute of Certified Public Accountants established code in 1988
- 2.The public interest
- 4.Objectivity and independence
- 5.Due care
- 6.Scope and nature of services
The Sarbanes Oxley Act Provisions
- •Established the Public Company Accounting Oversight Board
- •Requires that the external auditors who review the financial statements of the firms be restricted to performing audit based functions
- •The firm’s audit committee must preapprove all the services provided by the external auditors
- •The lead audit partner and the partner responsible for the audit must change at least once every five years
- •CEO and CFO must certify all annual and quarterly reports sent to the SEC
- •All board members and top executives must report all stock transactions to the SEC within two business days
- •Fiduciary duty of the firm’s lawyers to report to the BOD any violations of securities fraud
- •Every publicly traded company must include in its annual report a description of the firm’s internal controls
- •External auditor must review the internal control procedures of the firm
- •Each firm must develop and make a corporate code of ethics applicable to the firm’s top executives at a minimum
- •Firms are required to hold separate directors meetings where the CEO is not present
- •In direct response to the events at Enron, the act requires the firm to report, in detail, all off balance sheet transactions
Section 404 – Internal Controls
- •Companies are required to test internal controls on a regular basis
- •These tests must be done by an accounting firm different from the company’s outside auditor
- •Requires company to document and test their financial accounting controls
Least Expensive Aspects of SOX that companies adopt
- •CEO/CFO certification of financial statements
- •Developing an internal code of ethics
- •Appointing independent board members and an audit committee
- •Creating processes for reporting concerns and protecting informants from retaliation for complaints made in good faith
- •Insisting on true independence for outside professionals
- •More clearly defining the client as the organization as a whole
- •Splitting audit and non audit services between separate accounting firms
- •the demonstration of normatively appropriate conduct through personal actions and interpersonal relationship
- –and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making
- •Focused on developing a long term vision for the company
- •Based on inspirational motivation, idealized influence, individualized consideration and intellectual stimulation
- •It is argued that ethical leadership is transformational
- –Have an organic and interdependent view of external events
- –Moral altruistic motives are supported by the deontological philosophical frameworks
- –Focus on social obligations
- •Focus on operational and routine activities within the firm
- •It is argued that this is more of a “managership” in which control is used to protect the status quo of the firm
- •Use contingent rewards and management by exception to manage employees
- –Have an independent view of external events
- –Mutual altruistic motives are supported by teleological philosophical frameworks
- –Focus on the individual obligations
Transformation from a Moral Person to Ethical Leader
- •Decision Making
- •Moral Manager
- –Weak moral person and weak moral manager
- –Drive to reward their own self-interests
- –Examples include Jeff Skilling, Bernie Ebbers, and Dennis Kozlowski
- –Should be the ultimate ethical goal of any manager
- –Ability to use grounded ethical characteristics and transfer them to others within the organization through the characteristics of a moral manager
- –Manager has destroyed all three of the critical traits of a moral person
- –Says one thing about ethical values then acts unethically
- Example is Martha Stewart
- –A manager who has strong ethical traits, behaviors and decision making of a moral person, but is not able to transfer those values to other employees
- •Inconsistent because of the contradictory strength of the individual moral values and weak characteristics of a moral manager
- •Defined as the system that is used by firms to control and direct their operations and the operations of their representatives, the employees.
- •Provides a method in which the ethical vision can be measured and validated
Inside Board Member and Outside Board Member
- •Inside Board Member
- –Has direct financial ties to the firm
- •Outside Board Member
- –Does not have direct financial ties to the firm.
Types of Boards of Directors
•Passive Board- approves management decisions with little questions.
•Certifying Board- makes sure CEO is doing what is expected of him for the shareholders. willing to make adjustments to management when needed.
•Engaged Board- proactive role in decision making of firm. provides advice and support to CEO and managers.
•Intervening Board- actively involved with major decisions.
•Operating Board- this board actually makes the key decisions for the firm and top-management implements the boards decisions.
•Strategic Planning is the process in which future courses of action are developed to achieve the firm’s short and long-term goals
•Five questions to ask before making a final decision
- 1.Why is this bothering me?
- 2.Is it my responsibility?
- 3.What is the ethical concern?
- 4.What do others think?
- 5.Am I being true to myself?
•Stages of the Ethical Cycle
–Moral problem statement- moral problem statement developed based on 3 questions.
–Problem analysis- analyzed by 3 factors
–Options for actions- generate potential alternatives to moral problem.
–Ethical judgment- which decision would be best based on the moral values and beliefs.
–Reflection- the morally accepted action is decided on and implemented
moral problem statement 3 questions.
statement of what the moral problem is.
identification of who is affected by the resolution of the moral problem.
the moral issue of the problem.
3 factors to analyze a moral problem
which stakeholders are affected by the problem, and how does it affect their interests?
what are the moral values that need to be considered to analyze the problem?
What are the relevent facts related to the moral problem?
Wakenhut’s Core Values
- 1.Customer focus
- 6.Innovation and versatility
- •Defined as the shared values and beliefs of employees within any given organization
- •Must have strong ethical focus to ensure that unethical activities do not take place in the workplace
Three Levels of Corporate Culture
- –Factors such as what is seen and heard within a firm
- •Shared Values
- –Based on what groups within the firm learn about what is acceptable or not acceptable
- •Basic Assumptions
- –The agreed starting point for decision making within the firm
Managers Can Change a Corporate Culture
- •Two types of mechanisms in which managers can change cultures
- 1.Primary Embedding Mechanisms
- 2.Secondary Articulation and Reinforcement Mechanisms
How to Change Ethical Values
- •Three stage model of change
- –Stage 1 (unfreezing) – unfreezing of the individuals existing beliefs
- –Stage 2 (moving) - top management needs to ensure that what is considered acceptable and unacceptable is clear
- –Stage 3 (refreezing) – top managers must reinforce their commitment to support strong ethical behavior
•Culture should include three basic components
- 1.Define your philosophy and corporate values in a mission statement
- 2.Develop guidelines for employees
- 3.Establish a formal channel for employees to report violations
Creating a Climate of Integrity
- 1.Set an example through strong leadership
- 2.Set realistic goals
- 3.Provide training
- 4.Distinguish between compliance and ethics
•Deloitte & Touche Cultural Assessment of a Firm
- –Do rank and file employees understand the tone set by senior management?
- –Do you know that your organization’s culture encourages ethical behavior at all levels?
- –Can employees throughout your organization describe the company’s code of ethics?
- –Do employees in all areas of your organization ask questions and express concerns?
- –Do your employees believe that the mechanisms are in place to allow them to voice opinions without fear of retribution?
•Deloitte & Touche Five Step Process to embed positive ethics and values
- –Step 1 – Conduct risk/cultural assessment
- –Step 2 – Review current compliance program
- –Step 3 – Review ethical policies and procedures
- –Step 4 - Review and revise the communication, training, and implementation phases of program
- –Step 5 – Develop an ongoing assessment of the program
Common Criminal Charges from Federal Sentencing Guidelines
- •Ranked in order of frequency
- 2.Environmental waste discharge
- 3.Violations of taxation
- 4.Antitrust violations
- 5.Food and drug criminal violations
- –Defined as the conscious abuse of public roles and resources for the private benefit of a firm and/or the individuals of the firm
•Petty Corruption- private individuals give illegal financial incentives to non-elected public officials in exchange for favorable dealings.
•Grand Corruption- illegal financial incentives given to high ranked officials. usually for major industry based decisons
•Influence Peddling- illegal transaction take place along with legal ones. (illegal campaign contributions)