Ethics Final! <3
What can we learn from the Enron case?
Ethics matters for business success Ethics matters on different levels: organizational ethics, leadership ethics, professional ethics, individual ethics, proper ethical framework (regulation; checks and balances) Crucial interconnections: leadership - ethical culture -individual behavior Business is a combination of competition and cooperation; competition means fair competition Some ethical issues of the Enron case have been more persistent and can be found again in other cases, particularly the financial crisis 2008
Professional Ethics
PROFESSION: A profession is a well-defined vocation whose expertise serves a specific public interest. A profession is typically based on extensive qualification, develops own standards and criteria of exclusion, and is self-regulated. Examples: Physicians, Lawyers, Engineers, Accountants PROFESSIONAL ETHICS: Specific professional expertise implies specific ethical responsibilities. If you are an expert in a certain field, others rely on you and trust you. You are responsible for properly using your expertise. The profession has an overall responsibility toward society to uphold and update professional standards and principles with regard to the public interest. In turn, society trusts the profession and grants rights of exclusion and self-regulation. CORE PRINCIPLES of professional ethics: 1. Competency:Stay up to date of professional knowledge; only work in areas of own competency 2. Objectivity: Adhere to established professional methods and norms 3. Responsibility: Use expertise in a responsible way with regard to all parties affected and professional standards 4. Integrity: Uphold professional principles and avoid conflicting and contradicting actions 5. Public interest: Consider public expectations and public welfare related to professional work
Employee Rights and Responsibilities
"... moral rights [are] relevant ... when central human interests are jeopardized by the actions of others. The more important these interests are to human wellbeing, the more likely we are to recognize that they should be protected by rights that impose duties on others to respect these interests." legal rights...E.g., minimum wage, freedom from discrimination; workplace safety, privacy, etc. contractual rights...E.g., job description, benefits, paid vacation days, etc. moral rights...E.g., respect, fairness, due process, privacy, safety, etc.
Accounting Ethics
"Accounting involves gathering, classifying, summarizing, and reporting financial information about an entity to interested users such as stockholders, creditors, potential investors and creditors,governments, and other stakeholders." PROFESSIONAL ORGANIZATIONS-ETHICS CODES: Code of professional conduct -AICPA(American Institute for Certified Public Accountants) Code of conduct - Institute of Management Accountants -IMA Code of ethics - Institute of Internal Auditors IIA ACCOUNTING ETHICS-MAIN PROFESSIONAL PRINCIPLES: 1. Competency o"Competence is derived from a synthesis of education and experience." (AICPA 0.300.060) o"...each member should undertake to achieve a level of competence that will assure that the quality of the member's services meets the high level of professionalism..." (ibid.) o"Each member is responsible for assessing his or her own competence of evaluating whether education, experience, and judgment are adequate for the responsibility to be assumed" (ibid.) 2. Objectivity o"Objectivity ... is a distinguishing feature of the profession. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest. Independence precludes relationships that may appear to impair a member's objectivity in rendering attestation services." (AICPA 0.300.050) oA member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability. (AICPA 0.300.060) 3. Responsibility o"...to the public, to clients, and to colleagues" (AICPA 0.300.010) o"...obligation of self-discipline above and beyond the requirements of laws and regulations." (ibid) o"... to exercise sensitive professional and moral judgments in all their activities." (AICPA 0.300.020) o"to maintain and enhance the traditions of the profession" (ibid) 4. Integrity o"Integrity is measured in terms of what is right and just. In the absence of specific rules, standards or guidance, or in the face of conflicting opinions, a member should test decision and deeds by asking: 'Am I doing what a person of integrity would do?'" [...] Integrity requires a member to observe both the form and the spirit of technical and ethical standards; circumvention of those standards constitutes subordination of judgment"(AICPA 0.300.040) 5. Public interest o"A distinguishing mark of a profession is acceptance of its responsibility to the public. The accounting profession's public consists of clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of members to maintain the orderly functioning of commerce." (AICPA 0.300.030) Accountants are crucial for the proper functioning of a capitalist market economy: reliable, objective, standardized and comparable financial information are crucial for all market participants to make optimal decisions and for fair competition. Accountants need to uphold the interests of various public parties (investors, shareholders, government, etc.)
DEFINING THE "EXISTENCE OF AN EFFECTIVE COMPLIANCE AND ETHICS PROGRAM"
"An organization shall [...]promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.""The organization's governing authority shall be knowledgeable about the content and the operations of the compliance and ethics program and shall exercise reasonable oversight..."
FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS (a compliance program)
"The guidelines and policy statements in this chapter apply when the convicted defendant is an organization. ORGANIZATIONS can act only through agents and, under federal criminal law, GENERALLY ARE VICARIOUSLY LIABLE FOR OFFENSES COMMITTED BY THEIR CLIENTS. At the same time, individual agents are responsible for their own criminal conduct. Federal prosecutions of organizations therefore frequently involve individual and organizational co-defendants. Convicted individual agents of organizations are sentenced in accordance with the guidelines and policy statements in the preceding chapters. This chapter is designed so that the sanctions imposed upon organizations and their agents, taken together, will provide just punishment,adequate deterrence, and INCENTIVES FOR CORPORATIONS TO MAINTAIN INTERNAL MECHANISMS FOR PREVENTING, DETECTING, AND REPORTING CRIMINAL CONDUCT....... the fine range for [an ...] organization should be based on the seriousness of the offense and the culpability of the organization. [...]Culpability generally will be determined by six factors that the sentencing court must consider. The four factors that increase the ultimate punishment of an organization are: (i) the involvement in or tolerance of criminal activity; (ii) the prior history of the organization;(iii) the violation of an order; and (iv) the obstruction of justice. The two factors that mitigate the ultimate punishment of an organization are: (i)THE EXISTENCE OF AN EFFECTIVE COMPLIANCE AND ETHICS PROGRAM (ii) self-reporting, cooperation, or acceptance of responsibility."
Whistleblowing
(External) Whistleblowing is an intentional act of calling public attention to the wrongdoing of an organization. The act is done by a member of the organization and supports the public interest, but it is in conflict with the interests of the organization. „Whistleblowers sound an alarm from within the very organization in which they work, aiming to spotlight neglect or abuses that threaten the public interest." (Bok 2008: 128). DEFINITION: ETHICAL DILEMMA An ethical dilemma is a situation in which one must choose between two conflicting ethical values (norms, principles) Solving ethical dilemmas: ethical methods debunking dilemmas debunking wrong alternatives Ethical dilemma of whitsleblowing--> Loyalty, duty, responsibility to the organization of which one is part......OR Duty, responsibility, moral obligations to society (humanity)?? When is whistleblowing justified? 1. Checking the facts: Is there enough unbiased evidence about the wrongdoing/issue and its magnitude? (Is there really a serious issue?) 2. Checking other ways to address the issue: Is there no internal way to sufficiently deal with and fix the issue within the organization? 3. Checking ethical justification: Is the ethical argument considered well enough? Are there strong ethical reasons for blowing the whistle?oProfessional ethics oPrinciples (e.g. Constitution/Human Rights)oEthical reasons (e.g. three methods) IF THE ANSWER IS YES TO ANY OF THESE, THEN IT IS JUSTIFIED.
Global Business Ethics: Challenges
-Lack of, or inadequate, regulation Bribery and corruption Extreme asymmetries in power and capabilities (risk of exploitation) Complex systems (supply chain; product life cycles, etc.) Justice issues (e.g. burdens of climate change, environmental justice) Participation and Distribution (e.g. fair share in economic development and wealth) Respect of cultural values and universal rights
Employee responsibilities
-Performance Professionalism Ethical and legal conduct Avoid harm to the organization Support the success of the organization
Employee Rights and Responsibilities (5)
1. RIGHT TO WORK Work is fundamental to secure basic human interests Work is a crucial part of a meaningful life The right to choose and pursue a profession/ job/ business The right to not be excluded from work by discrimination The right to keep a job "Right to work laws" in the US (26 states; not Colorado):prohibit contractual agreements between employers and unions that require participation in unions for all employees 2. DUE PROCESS IN THE WORKPLACE (RESPECT AND FAIRNESS) "... protections against arbitrary uses of authority."(DesJardins 2006: 106) [asymmetric power situation] "once hired, employees have a right to keep their job and can be fired only for good reason" (ibid) that is, by just cause. oMaterial reasons: e.g., performance, economic situation,harm to the firm, etc. oFormal process: "prior warning, documentation, written performance standards, probationary periods, ..." (ibid) "at-will employment" (common in the US): An employer can dismiss an employee for any reason (without cause) and without prior warning. 3. PARTICIPATION Respect rational individuals as ends in themselves "workplace democracy" (p.109) Compare different corporate governance models (e.g. EU;US; Benefit corporation) 4. SAFETY AND HEALTH minimum harm principle Feasible standards vs cost-benefit analysis 5. PRIVACY private property rights / right to personal information
What does "greenwashing" mean?
A specific dyeing process in the textile industry B. Laundering money C. An ecological way of washing clothes D. Making false or deceptive claims about the environmental friendliness of a product or company <---------------- E. A marketing strategy that is based on authentic environmental values to which the business is committed
Definition: Sustainable Business
A sustainable business is a business that systematically considers (local and global) environmental, societal, and future impacts of its business operations and products and, by this, improves its competitiveness and long-term success.
Definition: Sustainable economy
A sustainable economy is an economy that not only contributes to individual and societal welfare, but also to the wellbeing of all contemporaries, future generations, and nature, and, by this, is able to continue over time in a stable way.
Overall costs of the finanical crises (US)?
A. 500 million dollars B. 15 billion dollars C. 500 billion dollars D. 15 trillion <-------------------- E. 500 trillion
Which of the following cases is NOT primarily about an ethical issue in the supply chain?
A. Chocolate industry case B. E-waste case C. Adidas-Solomon case D. All of the above <------- E. None of the above
What was the main ethical issue in the chocolate industry case we discussed in class?
A. Disrespect of cultural values B. Violation of fiduciary duties C. Trafficking and child slavery <--------- D. Environmental justice issues E. Privacy issues
According to the thesis discussed in class, good leadership is:
A. Efficient and hierarchical B. Effective and ethical<-------- C. Authoritarian and hierarchical D. Transformative and efficient E. All of the above
Which of the following was NOT a major ethical issue that led to the downfall of Enron?
A. Lack of ethical leadership B. Lack of aggressive culture <--------------- C. Lack of organizational ethics D. Lack of professional ethics E. All of the above
Which aspect is NOT relevant for judging whether a leader/leadership is ethical?
A. Person and character of the leader B. Ends of the leadership C. Actions and means of the leadership D. Number of followers <------------- E. Impacts of the leadership
Legislative changes following Enron and other scandals require public companies to:
A. Promote a culture that is focused primarily on compliance B. Increase the number of criminal prosecutors C. Promote a culture of ethical integrity <----- D. Require whistleblowers to complain inside their companies before notifying the government E. Give cash bonuses to encourage whistleblowing
Which aspect is NOT relevant for judging whether a leadership is effective?
A. Successfulness in achieving the ends of the leadership B. Successfulness in making people follow C. Efficiency D. Ethical means of leadership <---------- E. All of the above
Which of the following describes best the ethical dimension of sustainability?
A. Sustainability is based on the ethical claim that the current generation has moral responsibilities toward future people, people around the world, and nature. <---------------- B. Sustainability is essentially about etiquette C. Sustainability is a requirement in the constitution D. Sustainability is mainly refering to...
Which of the following is an accurate definition of "due process"?
A. Well-established rules and procedures that guarantee fair and equal treatment and protect against arbitrary uses of authority <-------- B. Just-in-time production processes C. Prosecution D. Unrestricted use of power E. The process of using power without any specific conditions
What is an ETHICS PROGRAM?
An ethics program is a formal, internal mechanism that implements ethics and compliance throughout an organization. ELEMENTS OF AN ETHICS PROGRAM:Written standards (e.g. code of conduct) Ethics and compliance training Means for members to speak up and raise concerns Incentives for ethical actions Means to monitor, assess and develop the ethics program Ethics and compliance officers, CECO
Effectively Addressing Ethical Issues
Analysis + Action= solution I. ANALYSIS: 1. Identify the ethical issue 2. Identify (business) solutions II. ACTION (effectively addressing the issue): 1. What type of issue? Individual, organizational, value chain,supply chain, global? How serious/controversial is the issue? 2. Your position: Management, strategic planning, leadership, consulting, employee, owner, etc. 3. Context: culture, leadership - Do you expect hindrances, resistance, etc.? Are there well-defined procedures, ways to address the issue, or not? Is speaking up encouraged? 4. Whom could you speak with? How can you raise concerns? Psychology and communication strategies PSYCHOLOGICAL ASPECTS-EXAMPLES:1. 1. Surprise and lack of well-defined context: https://www.youtube.com/watch?v=mp6nCH35W3Y2. 2. Surprise II: The Aaron Beam situation https://www.youtube.com/watch?v=R_K7bQpDJzg (first 5 min) 3. Obedience to authority- the Milgram experiment https://www.youtube.com/watch?v=Kzd6Ew3TraA 4. Bystander effecthttps://www.youtube.com/watch?v=OSsPfbup0ac 5. Conformityhttps://www.youtube.com/watch?v=BgRoiTWkBHU
Efficiency Gains and New Markets and Strategic Managment
Efficiency Gains: e.g energy and material flow analysis; life cycle assessment; supply chain assessment New Markets: e.g green products, green buildings, organic and local food (heat pumps), potential to save energy Strategic Management: assessment of internal systainability potential and external political societal, technologcal, enviromntal, constraints and future developments; long terms and global risk assessment ex: nike
Global Business Ethics Cases
CASE 1: CHOCOLATE INDUSTRY•http://www.youtube.com/watch?v=7Vfbv6hNeng CASE2: CHILD LABOR-THE ADIDAS SOLOMON CASE 3: Ethical Theory and Business
INDIVIDUAL ROLES IN ORGANIZATIONS/ BUSINESS/ THE ECONOMY:
Consumer Entrepreneur Employer Employee Leadership roles Members of a certain profession Specific roles in an organization / business E.g.: Accounting CIS Finance & Real Estate Management Marketing
The Challenge of Sustainability and Ethical implications
Contemporaries (Local and Global) Science (human being)<--> Tech(nature)<-->Economy (future generations)
Why should business care about sustainability?
Ethical Reasons: -Business needs to consider societal and global norms/values -economic activities are major factor in causing sustainability issues -the economy and business should ideally be a positive force in the world, and we need to reconsider and reinforce this idea in the broader sustainability context -there are systemic (environmental) constraints to economic activities that visionary business leaders need to consider strategically for future business success -sustainability is a business opportunity; efficiency gains, new markets, new product design, ect. -business can be an important in force for sustainable development
What does compliance consist of?
Following laws, rules, regulations general laws business laws industry-specific regulations
Global Business Ethics Principles
GLOBAL(BUSINESS) NORMSGENERAL GLOBAL NORMS AND PRINCIPLES Declaration of Human Rights (compare: http://constitutionus.com/) Rio Declaration on Environment and Development RULES AND NORMS FOR GLOBAL BUSINESS WTO ILO UN Global Compact -10 principles BASIC GLOBAL BUSINESS ETHICS: <----------------------------------------------------> respected fundamental respect rights and business other cultures and norms and diff. cultural values II. ADVANCED(IDEAL) GLOBAL BUSINESS ETHICS: Use business as a positive force for the global world Improve conditions for all involved Participation Empowerment Development (uphold the original ideals of the free market economy)
What types of ethical issues can be identified in the Enron case?
Individual wrongdoing of employees Lack of ethical leadership...traders, accountants Lack of organizational ethics...general responsibility, insider trading, covering up Lack of professional ethics...Culture; lack of formal ethics; problematic incentives Lack of regulation / responsibility of outside groups...E.g., accountants Problematic understanding of business e.g....e.g. SEC, banks, analysts, etc.
Some economic and ethical compliance programs
LAWS PROTECTING CONSUMERS- (economic and ethical reasons) LAWS PROTECTING THE ENVIRONMENT- (economic and ethical reasons) LAWS PROMOTING EQUITY AND SAFETY(EMPLOYEE RIGHTS) (mainly ethical reasons) CRUCIAL LEGAL FRAMEWORKS PROMOTING THE IMPLEMENTATION OF BUSINESS ETHICS AND RESPONSIBILITY IN ORGANIZATIONS: FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS THE SARBANES-OXLEY (SOX) ACT (increased penalties for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders. The act also increased the accountability of auditing firms to remain unbiased and independent of their clients.) DODD-FRANKACT
Marketing Ethics
Linking the business to existing and potential markets/ customers FIELDS OF MARKETING: Advertising Market research Pricing Sale Internet and database marketing ("big data analysis") Social media marketing ETHICAL ISSUES IN MARKETING- EXAMPLES: VW diesel ad Fiji Water ad: Greenwashing: making false or deceptive claims about the environmental friendliness of a product or company "Red Bull gives you wings" Big data analysis and marketing: the Target case Advertising to children AREAS OF MARKETING AND RELATED ETHICAL ASPECTS- OVERVIEW: Advertising (truthfulness, proper targeting) Pricing (fairness, transparency) Sale (issues: bribery, problematic sales practices) Internet and database marketing (privacy) Social media (manipulation, privacy) Market research (transparency, respect) Product safety (well-being, no harm principle) Ethical Branding (New Belgium and Patagonia)
What was the Enron case?
The Enron scandal, publicized in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was cited as the biggest audit failure. Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that - by the use of accounting loopholes, special purpose entities, and poor financial reporting - were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron's Board of Directors and Audit Committee on high-risk accounting practices, but also pressured Arthur Andersen to ignore the issues. Enron shareholders filed a $40 billion lawsuit after the company's stock price, which achieved a high of US$90.75 per share in mid-2000, plummeted to less than $1 by the end of November 2001.[2] The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a very low price. The deal failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron's $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history. Many executives at Enron were indicted for a variety of charges and some were later sentenced to prison. Enron's auditor, Arthur Andersen, was found guilty in a United States District Court of illegally destroying documents relevant to the SEC investigation which voided its license to audit public companies, effectively closing the business. By the time the ruling was overturned at the U.S. Supreme Court, the company had lost the majority of its customers and had ceased operating. Enron employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices. As a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies. One piece of legislation, the Sarbanes-Oxley Act, increased penalties for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders. The act also increased the accountability of auditing firms to remain unbiased and independent of their clients.
LAWS REGULATING COMPETITION (mainly economic reasons)
The Sherman Antitrust Act -->"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." ....this prohibits, e.g., monopolies, cartels, collusion that impedes competition, and concerted actions to fix prices Patent laws-->"...promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries"
Leadership ethics
WHAT IS GOOD LEADERSHIP? What persons would you consider as great leaders that is, as role models for good leadership? A basic definition: "Good leadership is effective and ethical Effective: -successfully achieve ends of leadership -Make people follow -efficiency Ethical: -Person and character of the leader (competent visionary inspiring fair responsible) -Actions and means of the leadership (ethical actions ethical means) -Ends of the leadership (ethical ends) -Impacts of the leadership (transformational leadership enhancement of followers long-lasting positive impacts)
Two main reasons behind laws that regulate business practice:
economic reasons: establishing and maintaining a competitive, free, capitalistic market economy - efficiency arguments ethical reasons: justice, fairness, protection of vulnerable groups, distributive aspects, etc.
