Ethical Decision Making Exam 2

Corporate Social Responsibility (CSR)

*A business's concern for society's welfare*. Requires consideration of not only the interests of the business (short and long term) but also its relationship to the society or community in which it operates (short and long term).

Types of Law

*Civil Law:* defines the rights and duties of individuals and organizations. - individuals (in court) enforce civil laws *Criminal Law:* prohibits specific actions and imposes punishments for breaking the law. - state or nation enforces criminal law

The Green Consumer

Age groups willing to pay significantly more for green products: - under 30: 19% - 30-45: 4% - 46-65: 7% - 65+: 5%

Fairness

The quality of being just, equitable, and impartial.

Implementing a Stakeholder Perspective

1. Assessing the Corporate Culture 2. Identifying Stakeholder Groups 3. Identifying Stakeholder Issues 4. Assessing Organizational Commitment to Social Responsibility 5. Identifying Resources and Determining Urgency 6. Gaining Stakeholder Feedback

Confrontation

Confrontation is the alternative to moral muteness Speaking up Not allowing misperceptions to continue Pointing out potential problems not previously considered Refusing to be "part of the team" The concept of "loyal opposition"

Kohlberg's Model of Cognitive Development

Consists of Six Stages: 1. Punishment and obedience 2. Individual instrumental purpose and exchange 3. Mutual interpersonal expectations, relationships, and conformity 4. Social system and conscience maintenance 5. Prior rights, social contract or utility 6. Universal ethical principles

Elements of an Ethical Culture

Culture Values, Norms, Artifacts, & Behavior Voluntary Actions, Governance, Core Practices, & Legal Compliance

Effective, Ethical Confrontation

Determine the facts If you don't know the facts, or can't know the facts, present the issue to those involved and affected Confront the person creating the issue - don't let them hear it from others Don't fail to act simply because of potential fallout and hassle

Discrimination

Discrimination is illegal in the United Sates. A company can be sued for discrimination if it... - refuses to hire an individual for discriminatory reasons. - unreasonably excludes an individual from employment. - unreasonable discharges an individual. - discriminates against an individual with respect to hiring, employment terms, promotion, and privileges.

Ethics and Corporate Culture

Ethical corporate culture is a significant factor in ethical decision making. If a firm's culture encourages/rewards/does not monitor unethical behavior, employees may act unethically. Management's sense of an organizational culture may differ from that guiding employees.

Conflicts of Interest

Exists when an individual must choose whether to advance his/her personal interests, those of the organization, or some other group. - *Individuals must separate personal interests from business dealings*.

Traits that Reflect Lack of Personal Integrity

Failure to tell the truth Failing to separate company from personal property Failure to keep promises Hypocrisy

Increasing Moral Talk

Foster an atmosphere where these conversations can occur - don't retaliate, allow time for discussion, lead by example Train managers to conduct moral reasoning Encourage managers to engage each other in moral talk Have patience - is a slow and sometimes messy task

How Do We Avoid Confrontation?

Hurt feelings Career destruction It not "nice" Time-consuming Exposure to liability Wishful thinking Avoid consequences of recognizing problem Belief that truth will not emerge

Intellectual Property Rights

Involve the legal protection of intellectual property such as music, books, and movies.

The Stakeholder Interaction Model

Offers a conceptualization of the relationship between businesses and stakeholders. There are reciprocal relationships between the firm and a host of stakeholders.

Moral Muteness

People are *morally mute* when they do not recognizably communicate their moral concerns in settings where such communicating would be fitting. Three Forms: - *Negative Expressions:* not blowing the whistle on observed abuses. - *Positive Expressions:* not speaking up for ideals. - *Not Holding Others Sufficiently Accountable:* not providing adequate feedback in supervisory relationships.

Duties of Personal Integrity

Responsive honesty Responsibility not to mislead Constructive honesty

Responsive Honesty

Telling the truth when asked Responding fully to direct questions.

Kohlberg's Model - 3 Levels of Ethical Concern

The model can be divided into 3 Levels of Ethical Concern: 1. Concern with immediate interests and with rewards and punishments 2. Concern with "right" as expected by the larger society or some significant reference group 3. Seeing beyond norms, laws, and the authority or groups and individuals

Gatekeepers and Stakeholders

Trust is the glue that holds businesses together. *Gatekeepers:* overseers of business actions - accountants, regulators, lawyers, financial rating firms, auditors. - are critical in providing accurate information to stakeholders

Motivation

*A force within the individual that focuses behavior toward achieving a goal.* *Job Performance:* a function of ability and motivation. An individual's hierarchy of needs may influence motivation and ethical behavior - *relatedness needs:* satisfied by social and interpersonal relationships. - *growth needs:* satisfied by creative or productive activities. Needs or goals amy change over time.

Dual Relationship

*A personal, loving, and/or sexual relationship with someone whom you share professional responsibilities*. - a key ethical issue in sexual harassment - *unethical dual relationship:* the relationship causes a conflict of interest or impairment of professional judgement.

Sexual Harassment

*A repeated, unwanted behavior of a sexual nature perpetrated upon an individual by another.* Hostile Work Environment - three criteria.. 1. the conduct was unwelcome 2. the conduct was severe, pervasive, and regarded by claimant as hostile/offensive 3. the conduct was such that a reasonable person would find it hostile or offensive.

Classifying Companies by Stage of Corporate Ethical Development

*Amoral* - only concern about law and ethics is they don't get caught. *Legalistic* - organization is concerned with meeting the letter of the law. *Responsive* - social pressures force these companies to a greater social role. *Emergent Ethical* - overt effort to manage ethical culture. *Ethical* - common set of ethical values suffuses the corporation.

Leaders Influence Corporate Culture

*An effective leader is one who does well for the stakeholders of the corporation.* - effective leaders are good at getting followers to common goals effectively and efficiently. *Power refers to the influence that leaders and managers have over the behavior and decisions of subordinates.* - an individual has power when his/her presence causes people to behave differently. *Power and influence shape corporate culture*

Fraud

*Any purposeful communication that deceives, manipulates, or conceals facts in order to create a false impression.* *Accounting Fraud:* - misrepresentation of company's financial reports - dramatic changes in accounting field - increased competition and pressures to perform can create opportunities for misconduct - accountants should abide by a strict code of ethics

Four Organizational Culture Types

*Apathetic Culture:* minimal concern for people or performance. *Caring Culture:* high concern for people; minimal concern for performance. *Exacting Culture:* minimal concern for people; high concern for performance. *Integrative Culture:* high concern for people and performance.

Relationships and Business

*Building effective relationships is one of the most important areas of business today*. Business ethics is a team sport and few decisions are made my one individual. - *Stakeholder Frame:* helps identify internal and external stakeholders. helps monitor and respond to needs, values, and expectations of stakeholder groups. - *Corporate Governance:* the formal system of accountability and control of ethical and socially responsible behavior.

Compliance Culture vs. Values-Based Culture

*Compliance-Based Cultures* use a legalistic approach to ethics. - revolve around risk management, not ethics. - lack of long-term focus and integrity. *Value-Based Cultures* rely on mission statements that define the firm and stakeholder relations. - focus on values, not laws. - top-down integrity is critical.

Two Dimensions of Organizational Culture

*Concern for People:* - The organization's efforts to care for its employees' well-being. *Concern for Performance:* - The organization's efforts to focus on output and employee productivity.

Laws Protecting the Environment

*Created in response to stakeholder concerns about businesses' impact on the environment* - *Sustainability:* meeting the present needs without compromising future generations' abilities to meet their own needs. being a green company can boost profits. - *The Environmental Protection Agency (EPA)* was created to coordinate environmental agencies. Waste disposal is a serious problem for firms and individuals.

Centralized Organizational Structure

*Decision making authority is concentrated in the hands of top-level managers.* Little authority delegated to lower levels. Best for organizations... - that make high-risk decisions - whose lower-level managers are not skilled in decision-making - where processes are routine May have a harder time responding to ethical issues.

Decentralized Organizational Structure

*Decision making authority is delegated as far down the chain of command as possible.* - Flexible and quicker to recognize external change - Can be slow to recognize organizational policy changes - Units may diverge and develop different value systems (ethical misconduct may result)

Discrimination - Laws and Programs

*Equal Employment Opportunity Commission (EEOC)* *The Age Discrimination in Employment Act:* specifically outlaws hiring practices that discriminate against people 40 years of age of older, as well as those that require employees to retire before the age of 70. *Affirmative Action Programs:* involve efforts to recruit, hire, train, and promote qualified individuals from groups that have traditionally been discriminated against on the basis of race, gender, or other characteristics.

Three Fundamental Elements that Motivate People to be Fair

*Equality:* how wealth or income (benefits and resources) is distributed. *Reciprocity:* Occurs when an action that has an effect upon another is returned. *Optimization:* the tradeoff between equity (equality) and efficiency (maximum productivity).

The Sarbanes-Oxley (SOX) Act

*Established a system of federal oversight of corporate accounting practices* - Gives the *Public Company Accounting Oversight Board* (PCAOB) authority to monitor firms. establishes standards and rules for auditors in accounting firms. - Requires top managers to certify their firms' financial reports. more accountability for CEO and CFO. - Some legal protection for whistle blowers - Loopholes existed and misconduct continued

Can People Control Their Actions Within a Corporate Culture?

*Ethical decisions are often made by committees and formal and informal groups.* - Many decisions are beyond the influence of individuals - Congruence between individual and organizational ethics—increases potential for making ethical decisions - Individuals need experience to understand how to resolve ethical issues

Highly Appropriate Core Practices

*Focus on developing sound organizational practices and structural integrity for performance measures*. (not a focus on individual morals) - Most ethical issues relate to non financial issues: - the SOX Act and Dodd-Frank Act provide standards for financial performance. - the Integrity Institute developed a model that standardizes measures for non financial performance

Groups in Corporate Structure and Culture

*Formal Groups:* committees, work groups, and teams. *Informal Groups:* the grapevine *Group Norms: - Standards of behavior that groups expect of members - Define acceptable/unacceptable behavior within the group

Corporate Governance

*Formal systems of accountability, oversight, and control* - *Accountability:* how closely workplace decisions align with a firm's strategic direction. - *Oversight:* a system of checks and balances to minimize opportunities for misconduct. - *Control:* the process of auditing and improving organizational decisions and actions.

Corporate Intelligence - Techniques for Accessing Valuable Corporate Information

*Hacking* - *System Hacking:* assumes the attacker already has access to a low-level, privileged-user account. - *Remote Hacking:* involves attempting to remotely penetrate a system across the internet. - *Physical Hacking:* *Social Engineering:* the tricking of individuals into revealing their passwords or other valuable corporate information. *Shoulder Surfing:* someone simply looks over an employee's shoulder while he or she types in a password. *Password Guessing:* using personal information you know about someone to guess their password. *Dumpster Diving:* going through trash once it is on a public street to find information. *Whacking:* wireless hacking. *Phone Eavesdropping:* monitoring and recording fax lines and phone calls to get information.

Role of Board of Directors

*Holds final responsibility for its firm's success, failure, and ethicality of actions.* - the global financial crisis motivated many to demand greater accountability from boards. - in reality, boards rarely manage but instead monitor executive decisions. - executive compensation is a growing ethical concern.

Legal Compliance

*Laws and regulations by governments set minimum standards for responsible behavior* - laws regulating businesses and required because stakeholders believe businesses cannot be trusted to do what is right in some areas. (ex. consumer safety, environmental protection) - policy changes over time in response to business abuses and consumer demands for safety -- telling employees what to do is meaningless without training in legal risk areas.

Laws Regulating Competition

*Laws passed to prevent the establishment of monopolies, inequitable pricing, and other practices that reduce or restrict competition among businesses* - sometimes called *procompetitive legislation* because they encourage competition and prevent activities that restrain trade.

Laws Promoting Equity & Safety

*Laws promoting equity in the workplace protect the rights of minorities, women, older persons, and disabled persons.* - Title VII of the Civil Rights Act - Equal Employment Opportunity Commission (EEOC) - Affirmative action programs - The Equal Pay Act *Occupational Safety and Health Administration (OSHA)* makes inspections to ensure a safe working environment. - many people still work in unsafe environments - companies may underreport accidents to avoid inspection and regulation

Laws Protecting Consumers

*Laws protecting consumers require businesses to provide accurate information about products and services and to follow safety standards* - the first *consumer protection law* was passed in 1906 in response to poor working conditions in factories. - the FTC's Bureau of Consumer Protection protects consumers against unfair, deceptive, or fraudulent practices. - the FDA regulates food safety, human drugs, and tobacco, among other things. Groups with specific vulnerabilities have higher levels of legal protection.

Executive Compensation

*Many boards spend more time discussing compensation than ensuring integrity of financial reporting systems.* - How closely linked is executive compensation to company performance? - Does performance-linked compensation encourage executives to focus on short-term performance at the expense of long-term growth?

Reputation

*One of an organization's greatest intangible assets with tangible value.* - difficult to quantify but very important - a single negative incident can influence an organization's image and reputation instantly and for years afterwards.

Abusive or Intimidating Behavior

*One of the most common ethical problems* - can be physical threats, false accusations, profanity, insults, harshness, ignoring someone, or unreasonableness. intent is important in determining abuse. - *bullying* is a growing problem. it is associated with a hostile workplace.

Federal Sentencing Guidelines for Organizations

*Passed as an incentive for organizations to develop and implement programs for ethical and legal compliance*. - applies to all felonies and class-A misdemeanors committed by employees - philosophy that legal violations can be prevented through organizational values and commitment to ethical conduct. - passed in 1991; amendments in 2004, 2008, and 2010.

Five Power Bases

*Reward Power:* offering something desirable to influence behavior. *Coercive Power:* penalizing negative behavior. *Legitimate Power:* the consensus that a person has the right to exert influence over others. *Expert Power:* derives from knowledge and credibility with subordinates. *Referent Power:* exists when goals or objectives are similar.

Views of Corporate Governance

*Shareholder Model of Corporate Governance:* founded in classic economic precepts, including maximizing wealth for investors and owners. *Stakeholder Model of Corporate Governance:* adopts a broader view of the purpose of business. includes satisfying concerns of primary stakeholders including employees, suppliers, regulators, communities and special interest groups.

Social Responsibility and Ethics

*Social responsibility* can be viewed as a contract with society. *Business ethics* involves carefully thought-out rules (heuristics) of conduct that guide decision making.

Social Responsibility Issues

*Social:* - deals with concerns that affect the welfare of our entire society, associated with the common good. *Consumer Protection:* - the company has the responsibility of taking precautions to prevent consumer harm. *Sustainability:* - businesses can no longer afford to ignore the natural environment as a stakeholder. *Corporate Governance:* - Research shows corporate governance has a strong positive relationship with social responsibility.

Demands for Accountability and Transparency

*Stakeholders demand that boards are accountable and transparent.* - directors offer expertise, competence, and diverse perspectives to strategic decisions. - qualified, knowledgeable, diverse, unbiased boards can prevent misconduct. *Interlocking Directorate* is the concept of board members being linked to more than one company.

A Stakeholder Orientation

*The degree to which a firm understands and addresses stakeholder demands.* Involves activities that facilitate and maintain value with stakeholders - generation of data about stakeholder groups - distribution of that information - responsiveness of the organization as a whole

Corporate Citizenship

*The extent to which businesses strategically meet their economic, legal, ethical, and philanthropic responsibilities*. Four Interrelated Dimensions: - strong sustained economic performance - rigorous compliance - ethical actions beyond what is legally required - voluntary contributions to advance reputation and stakeholder commitment

Financial Misconduct

*The failure to understand and manage ethical risks was a key problem in the recent financial crisis.* - many firms rewarded risk taking - difficult-to-understand financial instruments and murky accounting played roles *Government calls for reform* - stricter controls on hedge funds and other instruments - greater transparency - Dodd-Frank Wall Street Reform and Consumer Protection Act

Differential Association

*The idea that people learn ethical/unethical behavior while interacting with others.* - studies support that differential association supports ethical decision making. - superiors have a strong influence on subordinates. - employees may go along with superiors' moral judgements to show loyalty.

Misuse of Company Resources

*The leading form of observed misconduct* - can range from unauthorized use of equipment and computers to embezzling company funds. - time theft costs organizations hundreds of billions of dollars in lost productivity annually.

Dodd-Frank Wall Street Reform and Consumer Protection Act

*The most sweeping consumer protection legislation since the Great Depression* - seeks to improve financial regulation, increase oversight, and prevent excessive risk-taking and deceptive practices. - created new offices: The Office of Financial Research, The Financial Stability Oversight Council, and The Consumer Financial Protection Bureau (CFPB) - increased whistle blower protection (whistle-blower bounty program)

Bribery

*The practice of offering something in order to gain an illicit advantage*. There are Two Types of Bribery: - *Active Bribery:* the person who promises or gives the bribe commits the offense. - *Passive Bribery:* an offense committed by the official who receives the bride. *Facilitation Payments:* legal as long as they are small.

Three Dimensions of Institutionalization (and effective business compliance)

*Voluntary Practices:* include beliefs, values, and voluntary contractual obligations of a business. - all businesses have some voluntary practices - *philanthropy:* giving back to communities and causes *Core Practices:* documented best practices, often encouraged by legal and regulatory forces ad trade associations. - The *Better Business Bureau* can provide direction *Mandated Boundaries:* externally imposed boundaries on conduct (ex. laws, rules, and regulations)

Consumer Fraud

*When consumers attempt to deceive businesses for personal gain*. (price tag switching, item switching, or lying to obtain discounts) - *Collusion:* involves an employee who helps consumer commit fraud. - *Duplicity:* involves a consumer duping a store. - *Guile:* associated with a person who uses tricks to obtain an unfair advantage.

To Avoid Sexual Misconduct a Firm Needs

1. Statement of policy 2. Definition of sexual harassment 3. Non-retaliation policy 4. Specific procedures for prevention 5. Establish, enforce, and encourage victims to report 6. Establish a reporting procedure 7. Timely reporting requirements to the proper authorities

Social Responsibility

An organization's obligation to maximize its positive impact on stakeholders and minimize its negative impact. *Four Levels of Social Responsibility:* - *Economic:* maximizing stakeholder wealth and/or value. - *Legal:* abiding by all laws and government regulations. - *Ethical:* following standards of acceptable behavior as judged by stakeholders. - *Philanthropic:* "giving back" to society.

Social Responsibility and Stakeholder Orientation

Caring about stakeholders can lead to increased profits - the purpose of a stakeholder orientation is to maximize positive outcomes that meet stakeholder's needs. - stakeholders support companies they perceive to be socially responsible, enhancing profitability.

Constructive Honesty

Duty to inform of possible problems (example: professor at Penn State). Duty to inform of actions that could be misconstrued.

The Importance of Institutionalization in Business Ethics

Involves embedding values, norms, and artifacts in organizations, industries, and society. - the failure to understand highly appropriate core practices provides the opportunity for unethical conduct.

Mandated Requirement for Legal Compliance

Laws establish the basic group rules for responsible business activities. *Five Categories of Laws that Govern Business Activities:* 1. Regulating competition 2. Protecting consumers 3. Protecting equity and safety 4. Protecting the environment 5. Incentives to encourage organizational compliance programs

Privacy Issues

Many Privacy Issues in the business world include: - employee use of technology - consumer privacy It can be challenging for businesses today to meet the needs of consumers while protecting privacy. *Identify Theft* is a growing problem.

Individual Factors

Most business *managers do not embrace extreme philosophies* - most managers cannot communicate the exact moral philosophy that they use. A *personal moral compass is not sufficient to prevent ethical misconduct* in an organizational context. The *corporate culture* and the *rewards for meeting performance goals* are the most important drivers of ethical decision making. Equipping employees with skills that allow them to understand/resolve ethical dilemmas will help them make the right decisions. People often based their decisions regarding ethical issues on their own values and principles of right and wrong. Research on *gender* can ethical decision making has shown that *women are generally more ethical than men*. - *education, nationality and age* are other individual factors. *Locus of control* relates to individual differences in relation to a generalized belief about how one is effected by internal versus external events or reinforcements. - can be *external or internal*

Importance of Kohlberg's Theory

Shows individuals can change or improve their moral development. Supports management's development of employees' moral principles. The best way to improve employees' business ethics is to provide training for cognitive moral development.

Actions Associated with Bullies

Spreading rumors to damage others Blocking others' communication in the workplace Flaunting status or authority to take advantage of others Discrediting others' ideas and opinions Use of emails to demean others Failing to communicate or return communication Insults, yelling and shouting Using terminology to discriminate by gender, race, or age Using eye or body language to hurt others of their reputations Taking credit for others' work or ideas

Corporate Intelligence

The *collection and analysis of information* on markets, technologies, customers and competitors, and socioeconomic & external political trends.

Marketing Fraud

The process of dishonesty creating, distributing, promoting, and pricing products. - *Puffery:* exaggerated advertising claims, blustering, and boasting. (can be difficult to distinguish from fraud) - *Implied Falsity:* an advertising message that misleads, confuses, or deceives the public. - *Literally False:* claims can be divided into tests prove (establishment claims) and bald assertions (non-establishment claims).

Lying

Three Types of Lying: - *Joking without Malice* - *Commission Lying:* creating a false perception with words that deceive the receiver. creating noise (technical explanations that the communicator knows the receiver does not understand). - *Omission Lying:* intentionally not informing channel members of problems relating to a product that affects awareness, intention, or behavior.

Insider Trading

Two Types of Insider Trading: - *Legal Insider Trading:* involves legally bullying and selling stock in an insider's own company, but not all the time. - *Illegal Insider Trading:* the buying and selling of stocks by insiders who possess material that is not public.

Voluntary Responsibilities

Voluntary Responsibilities fall into the category of a businesses' contributions to its stakeholders. Businesses that address their voluntary responsibilities provide *four major benefits to society*: - improves quality of life in communities - reduces government involvement - develops employee leadership skills - helps create an ethical culture *Cause-Related Marketing:* ties an organization's products to a social concern through a marketing program. *Strategic Philanthropy:* the synergistic and mutually beneficial use of a company's core competencies and resources to deal with social issues.