Business Ethics Chapter 3-6

Coroporate Social Responsibility (CSR)

the actions of an organization that are targeted toward achieving a social benefit over and above maximizing profits for its shareholders and meeting all its legal obligations. Also known as corporate citizenship and corporate conscience

board of directors

the individuals who are elected by stockholders of a corporation to represent their interests

Value Chain

the key functional inputs that an organization provides in the transformation of raw materials into a delivered product or service

audit committee

the outside, independent board of director members responsible for financial reporting, regulatory compliance, internal control, and hiring and overseeing internal and external auditors

organizational culture

the set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization

Corporate Governance

the system of governing a company so that the interests of corporate owners and other stakeholders are protected

carbon footprint

the total carbon dioxide emissions produced by an individual, group, or location

Title III SOX (Corporate responsibility)

- need for/role of audit committee - CEO/CFO Representations

Title IX of SOX (white-collar crime penalty enhancement)

Any person who committed a white collar crime will be treated just the same as any criminal Requires CEO and CFO to certify their periodic reports

Routine Governmental Action (FCPA)

Any regular administrative process or procedure, excluding any action taken by a foreign official in the decision to award new or continuing business.

what two scandals greatly increased the attention paid to the 1992 Cadbury report?

Bank of Credit Back of Credit and Commerce International

Institute of Internal Auditors (IIA)

Be grounded in professionalism Make objective assessments of operations Provide counsel in improving control processes and procedures Suggest ways for deducting costs, enhance profit Deliver competent consulting, assurance

Illegal behaviors under FCPA

Bribes Record-keeping and accounting fraud

The U.S. Federal Sentencing Guidelines For Organizations (FSGO) 1991

Holds organizations liable for the criminal acts of their employees and agents Penalties under FSGO included: Monetary fines Organizational probation The implementation of an operational program to bring the organization into compliance with FSGO standards

Title X of SOX (corporate tax returns)

Conveys the sense of the senate that the CEI should sign a company's federal income tax return

Ethical Challenges in Research and Development

Critical commitment to the consumer in product quality, safety, and reliability (Noncompliance can lead to negative press coverage, expensive lawsuits, and bankruptcy) Delivery of design does not match manufacturing cost

Human Resource

Directly involved in relationship between employee and company Creation of job description Recruitment/selection of right candidate Orientation Efficient management of payroll and benefits Documentation of performance and disciplinary Creation of development programs for employees

Title VII of SOX (studies and reports)

Directs federal regulatory bodies to conduct studies regarding consolidation of accounting firms

Code of ethics by American Marketing Association (AMA)

Do no harm Foster trust Improve customer service Establish clear ethical values of honesty, responsibility, fairness, respect, openness, and citizenship

Utilitarianism

Ethical choices that offer the greatest good for the greatest number of people.

Sarabanes-Oxley Act (SOX)

Regulations passed by Congress to reduce unethical corporate behavior. (In response to accounting scandals) covers financial management of businesses

Organizational probation can include

Reporting the business's financial condition to the court in periodic basis Remaining subject to unannounced examinations Reporting progress of a compliance program

Title V of SOX (conflicts of interest)

Requires SEC to adopt rules to address conflicts of interest that can arise when securities analysts recommend securities in research reports and public appearances

financial transactions

any exchange of money between two or more businesses or individuals

Title I of SOX requires that registered firms must adhere to what auditing standards?

-Audit workpapers must be maintained for seven years. -A concurring or second partner review is required for each audit report. -The audit report must describe the scope of the testing of the issuer's internal controls.

Monetary fines under FSGO go through a 3 step process

1. Determination of the base fine 2. The culpability score 3. Determining the final amount

Compliance Program Steps

1. Management oversight 2. Corporate policies 3. Communication of standards and procedures 4. Compliance with standards and procedures 5. Delegation of substantial authority 6. Consistent discipline 7. Response and corrective action

Death Penalty (FSGO)

A fine that is set high enough to match all the organization's assets - and basically put the organization out of business. This is warranted where the organization was operating primarily for a criminal purpose.

Financial Stability Oversight Council (FSOC)

A government agency established to prevent banks from failing and otherwise threatening the stability of the U.S. economy.

outside director

A person on the board of directors who does not hold a management position at the corporation.

conflict of interest

A situation in which one relationship or obligation places you in direct conflict with an existing relationship or obligation

universal ethics

Actions that are taken out of duty and obligation to a purely moral ideal rather than based on the needs of the situation, since the universal principles are seen to apply to everyone, everywhere, all the time.

Consumer Financial Protection Bureau (CFPB)

An independent bureau within the Federal Reserve that helps consumers make financial decisions.

Compensation Committee

An operating committee staffed by members of the board of directors plus independent or outside directors. The committee is responsible for setting the compensation for the CEO and other senior executives. Typically, this compensation will consist of a base salary, performance bonus, stock options, and other perks.

corporate governance committee

Committee (staffed by board members and specialists) that monitors the ethical performance of the corporation and oversees compliance with the company's internal code of ethics as well as any federal and state regulations on corporate conduct.

Carbon Trading Market

Companies in violation of emissions are buying allowances from companies that emit less than the limit

Ethical Challenges in Manufacturing

Compromises Supply problem when building a product based on design specifications

Accountants face ethical challenges when

Falsifying accounts Underreporting income Overvaluing assets Taking questionable deductions Unrealistic delivery deadlines Reduced fees Fees that are contingent of providing numbers that are satisfactory

Derivatives

Financial instruments based on the value of other financial instruments (mortgage-backed securities)

Title XI of SOX (Fraud and Accountability)

Gives authority to regulatory bodies to take various actions with regard to corporate fraud

legal behaviors under the FCPA

Grease payments Marketing expenses Payments lawful under foreign laws Political contributions Donations to foreign charities

"Comply or Explain"

Guidelines that require companies to abide by a set of operating standards or explain why they choose not to.

Volker Rule

Investment banks can not use depositors money in commercial banks for speculative investments in Wall Street (propriety trades)

Revised Federal Sentencing Guidelines for Organizations

Requires companies to periodically evaluate effectiveness of compliance programs Requires evidence if actively promoting ethical conduct Defined accountability as knowledge of all aspects of compliance program and formal training

Creative Bookkeeping Techniques

Legal to defer receipts from one quarter to the next to manage tax liability

The Dodd-Frank Wall Street Reform and Consumer Protection Act

Legislation that was promoted as the fix of the extreme mismanagement of risk in the financial sector that led to a global financial crisis in 2008-2010

Examples of conflict of interest

Meeting the needs of an organization's stakeholders Selling a product that has potential to be harmful to customers or environment

Title IV SOX (Enhanced Financial Disclosures)

Requires companies to provide enhanced disclosures

Facilitation Payments (FCPA)

Payments that are acceptable (legal) provided they expedite or secure the performance of a routine governmental action.

strategic CSR

Philanthropic approach to CSR in which organizations target programs that will generate the most positive publicity or goodwill for the organization but which runs the greatest risk of being perceived as self-serving behavior on the part of the organization.

altruistic CSR

Philanthropic approach to CSR in which organizations underwrite specific initiatives to give back to the company's local community or to designated national or international programs.

Title II of SOX

Prohibits non-audit services and prohibits accounting services to companies where CFO's had recently worked at that accounting firm Requires senior auditors to rotate Requires external auditor to report Requires auditors to disclose all other written communications

Ethical Challenges in Marketing

Provide services to customers who have expressed a need/desire for a product Unsuspecting customers are manipulated into buying things they don't need Emphasis on customer service

Title VI of SOX (Commission Resources and Authority)

Provides additional funding and authority to SEC to follow through on all new responsibilities outlined in an act

Title VIII SOX (Corporate and Criminal Fraud Accountability)

Provides flight criminal penalties for altering docs Protects employees who provide evidence of fraud

Examples of routine governmental actions

Providing official documents to qualify a person to do business in a foreign country Processing governmental papers Providing police protection, mail pickup and delivery Proving phone service, power, water supply

ethical CSR

Purest or most legitimate type of CSR in which organizations pursue a clearly defined sense of social conscience in managing their financial responsibilities to shareholders, their legal responsibilities to their local community and society as a whole, and their ethical responsibilities to do the right thing for all their stakeholders.

Business ethics is separated from general ethics because

Stakeholders have a vested interest in the ethical performance of an organization In a work environment, one maybe in a situation where one's personal value system may clash with the ethical standards of the organization's operating culture

Disclosure (FCPA)

The FCPA requirement that corporations fully disclose any and all transactions conducted with foreign officials and politicians.

Prohibition (FCPA)

The act includes wording from the Bank of Secrecy Act and the Mail Fraud Act ti prevén the movement of funds overseas for the express purpose of conducting a fraudulent scheme

Culpability Score (FSGO)

The calculation of a degree of blame or guilt that is used as a multiplier of up to 4 times the base fine. The culpability score can be adjusted according to aggravating or mitigating factors.

auditing function

The certification of an organization's financial statements, or "books," as being accurate by an impartial third-party professional. An organization can be large enough to have internal auditors on staff as well as using external professionals - typically certified professional accountants and/or auditing specialists.

accounting function

The function that keeps track of all the company's financial transactions by documenting the money coming in (credits) and money going out (debits) and balancing the accounts at the end of the period (daily, weekly, monthly, quarterly, annually).

Public Company Accounting Oversight Board (PCAOB)

The group charged with determining auditing standards and reviewing the performance of auditing firms.

Fiduciary Responsibility

The legal duty of a representative to manage property in the interest of the owner (based on trust)

social contract approach

The perspective that a corporation has an obligation to society over and above the expectations of its shareholders

instrumental approach

The perspective that the only obligation of a corporation is to maximize profits for its shareholders in providing goods and services that meet the needs of its customers.

GAAP (Generally Accepted Accounting Principles)

The standards and rules that accountants follow while recording and reporting financial activities.

Propriety trades

Trading on one's own accounts

the driving forces behind CSR

Transparency Knowledge Sustainability Globalization The Failure of the Public Sector

base fine

____ ____ is computed by determining the level of offense.

Aggravating factors

actions that may increase the seriousness of a crime

Mitigating factors

actions that show the offender's remorse or responsibility

three functional components of the marketing process

advertising public relations sales

Southwest Airlines, Shell Oil Corp., Home Depot, and Xerox use __________________ CSR

altruistic

the CRAFTED principles are

consistency responsibility accountability fairness transparency effectiveness that is Deployed

reasons why HR considered themselves the conscience of the organization

must ensure that ethics is top priority leadership and development include ethical components ensures right policies are in place must stay on top of ethical issues

"________________________________" has many organizations making charitable donations, underwriting projects in communities, sponsoring local events, and engaging in productive conversation with special interests groups

doing well by doing good

What is the argument in favor of merging the roles of chairperson and CEO?

efficiency

What is the argument against the merging the roles of chairperson and CEO?

no checks and balances CEO places friends on the board

Risks of a corporation to experiment with CSR

employees feel that they are working for an insincere company public sees little more than a token action concerned with publicity rather than community the organization does not perceive much benefit from CSR and so sees no need to develop the concept

The Body Shop, Ben and Jerry's, and Tom's of Maine all use the _____________ CSR

ethical

short-term governance

focuses on making the most profit

long-term governance

focuses on the sustainability of the company for future generations and the community

"Comply or Else"

guidelines that require companies to abide by a set of operating standards or face stiff financial penalties

line functions (support the key functions)

human resources management finance information systems (IS or IT) management

Foreign Corrupt Practices Act (FCPA)

legislation passed to prevent companies from bribing foreign officials to obtain business; also requires all publicly owned corporations maintain a system of internal accounting controls

4 legal obligations for corporations

payments of all taxes payment of all employer contributions for its workforce safe working environment delivering safe products

the Triple Bottom Line

recognition of the need for organizations to improve the state of people, the planet, and profit simultaneously if they are to achieve sustainable, long-term growth

key functions of a value chain

research and development manufacturing marketing sales customer service

Ford Motor Co uses the ___________________ CSR

strategic

Friedman's view of the CSR

supports the rights of individuals to make money with their investments (done honestly) recognizes the clear legality of the employment contract expected to make as much profit as possible