Business Ethics, Chapters 6, 7, 8, 9

Kohlberg's Theory - Importance & Problems

- Shows that individuals can change their values through moral - Supports management's development of employee's moral principles However, the three hit theory says - Kohlberg used questionable research methods - His theory contradicts - His theory, while reliable, may not be valid

Variation in Employee Conduct

10% - Follow their own values 40% - Always try to follow company policies 40% - Go along with the work group 10% - Take advantage of situations

Immanuel Kant

Developed the so-called categorical imperative.

Top Internet Fraud Complaints

FBI Related Scams 26.8% Identity Theft 21.7% Advance Fee Fraud 20.9% Non-auction non-delivery of merchandise 16.8% Overpayment Fraud 13.8%

Justice

Fair treatment and due reward in accordance with ethical or legal standards, including the disposition to deal with perceived injustices of others.

Codes of Conduct

Formal statements that describe what and organization expects of its employees.

Cultural Audit

Is an assessment of the organization's values. - Usually conducted by outside consultants; can be handled internally

Growth Needs

Satisfied by creative or productive activities.

Adam Smith

The father of free market capitalism. Developed the idea of the invisible hand.

Quantitative Hedonists

Those who believe more pleasure is better.

Corporate Culture

**has many definitions: - A set of values, norms, and artifacts, including ways of solving problems shared by organizational members - The shared beliefs top mangers have about how they should manage themselves and other employees and how they should conduct their business - Gives organizational members meaning and sets the internal rules of behavior - All organizations have culture

Compliance Orientation

- Creates order by requiring employees identify with an commit to specific required conduct. - Uses legal terms, statutes, and contracts to teach the rules and penalties for noncompliance.

Values Orientation

- Strives to develop shared values; focuses on ideals, such as accountability and commitment. - Is more effective at creating ethical reasoning, the foundation of an organizational ethical culture.

Ethics Program Common Design and Implementation Mistakes

-Failure to understand and appreciate goals -Setting unrealistic/immeasurable objectives -Unsupportive top management -Ineffective or incomprehensible content -Transferring an "'American" program to a firm's international operations -Designing a program that is little more than a series of lectures resulting in low recall

Two Dimensions of Organizational Culture

1) Concern for people: The organization's efforts to care for its employees' well-being 2) Concern for performance: The organization's efforts to focus on output and employee productivity

Ethical Behavior Four Spheres

1) Employees and other team members 2) Company and Shareholders 3) Customers, competitors, and suppliers 4) Public and communities

Codes of Ethics Fail Because:

1) The code is not promoted and employees do not read it 2) The code is not easily accessible 3) The code is written too legalistically and therefore is not understandable by average employees 4) The code is written too vaguely, providing no accurate direction 5) Top management never refers to the code in body or spirit

Code of Ethics Development/Implementation/Conduct

1. Consider areas of risk and state the values as well as conduct necessary to comply with laws and regulations. Values are an important buffer in preventing serious misconduct. 2. Identify values that specifically address current ethical issues. 3. Consider values that link the organization to a stakeholder orientation. Attempt to find overlaps in organizational and stakeholder values. 4. Make the code understandable by providing examples that reflect values. 5. Communicate the code frequently and in language that employees can understand. 6. Revise the code every year with input from organizational members and stakeholders.

Common Justifications for White-Collar Crime

1. Denial of responsibility. (Everyone can, with varying degrees of plausibility, point the finger at someone else.) 2. Denial of injury. (White-collar criminals often never meet or interact with those who are harmed by their actions.) 3. Denial of the victim. (The offender is playing tit-for-tat and claims to be responding to a prior offense inflicted by the supposed victim.) 4. Condemnation of the condemners. (Executives dispute the legitimacy of the laws under which they are charged, or impugn the motives of the prosecutors who enforce them.) 5. Appeal to a higher authority. ("I did it for my family" remains a popular excuse.) 6. Everyone else is doing it. (Because of the highly competitive marketplace, certain pressures exist to perform that may drive people to break the law.) 7. Entitlement. (Criminals simply deny the authority of the laws they have broken.)

Code of Ethics Benefits

1. Guide employees in situations where the ethical course of action is not immediately obvious. 2. Help the company reinforce—and acquaint new employees with—its culture and values. A code can help create a climate of integrity and excellence. 3. Help the company communicate its expectations for its staff to suppliers, vendors, and customers. 4. Minimize subjective and inconsistent management standards. 5. Help a company remain in compliance with complex government regulations. 6. Build public trust and enhance business reputations. 7. Offer protection in preempting or defending against lawsuits. 8. Enhance morale, employee pride, loyalty, and the recruitment of outstanding employees. 9. Promote constructive social change by raising awareness of the community's needs and encouraging employees and other stakeholders to help. 10. Promote market efficiency, especially in areas where laws are weak or inefficient, by rewarding the best and most ethical producers of goods and services.

Questions to Ask before Engaging in External Whistle-Blowing

1. Have I exhausted internal anonymous reporting opportunities within the organization? 2. Have I examined company policies and codes that outline acceptable behavior and violations of standards? 3. Is this a personal issue that should be resolved through other means? 4. Can I manage the stress that may result from exposing potential wrongdoing in the organization? 5. Can I deal with the consequences of resolving an ethical or legal conflict within the organization?

Ethics Training Successful Programs (Goals)

1. Identify key risk areas employees will face. 2. Provide experience in dealing with hypothetical or disguised ethical issues within the industry through mini-cases, online challenges, DVDs, or other experiential learning opportunities. 3. Let employees know wrongdoing will never be supported in the organization and employee evaluations will take their conduct in this area into consideration. 4. Let employees know they are individually accountable for their behavior. 5. Align employee conduct with organizational reputation and branding. 6. Provide ongoing feedback to employees about how they are handling ethical issues. 7. Allow a mechanism for employees to voice their concerns that is anonymous, but provides answers to key questions (24-hour hotlines). 8. Provide a hierarchy of leadership for employees to contact when they are faced with an ethical dilemma they do not know how to resolve.

Minimum Requirements for Ethics/Compliance

1. Standards and procedures, such as codes of ethics, that are reasonably capable of detecting and preventing misconduct 2. High-level personnel who are responsible for an ethics and compliance program 3. No substantial discretionary authority given to individuals with a propensity for misconduct 4. Standards and procedures communicated effectively via ethics training programs 5. Systems to monitor, audit, and report misconduct 6. Consistent enforcement of standards, codes, and punishment 7. Continuous improvement of the ethics and compliance program

Ethics Programs Implementation Success Factors

1. The content of the code of ethics 2. The frequency of communication regarding the ethics program 3. The quality of communication 4. Senior management's ability to incorporate ethics into the organization 5. Local management's ability to do the same Should be part of strategic planning and management activities

Ethics and Compliance Officer Association (ECOA)

12oo members who are front-line managers of ethics programs in over 30 countries

Traits to Look for in Future Leaders (Survey)

33% - Integrity 28% - Interpersonal/Communication Skills 15% - Ability to Motivate Others 12% - Business Savvy 2% - Other/Don't Know

Motivation

A force within the individual that focuses his or her behavior toward achieving a goal.

Committee

A formal group of individuals assigned to a specific task.

Job Performance

A function of ability and motivation and can be represented by the equation: (job performance = ability x motivation). - An individual's hierarchy of needs may influence motivation and ethical behavior - Needs or goals may change over time

Components of a Strong Ethics Program

A strong ethics program includes: - Written codes of conduct - Ethics officers to oversee the program - Careful delegation of authority - Formal ethics training - Rigorous auditing, monitoring, enforcement, and revision of program standards

Economic Systems

Allocate resources/products - Influenced by, and directly influence individual's actions and beliefs (morals) and Society (laws) as a whole - Depend on individuals coming together and sharing philospophies - Creates values, trust and expectations, allowing the system to work

Formal Group

An assembly of individuals with an organization that is explicitly accepted by the group.

Virtue Ethics

Argues that ethical behavior involves not only adhering to conventional moral standards but also considering what a mature person with a "good" moral character would deem appropriate in a given situation. Can be summarized as: - Good corporate ethics programs encourage individual virtue and integrity - The virtues associated with appropriate conduct form a good person - The well-being of the community goes together with individual excellence

Normative Relativism

Assumes one person's opinion is as good as another's. Problem - it emphasizes peoples' differences while ignoring their basic similarities.

Interactional Justice

Based on relationships between organizational members, including employees and managers. *Accuracy of information, truthfulness, respect, and courtesy in the process.

Rule Deontologists

Believe conformity to general moral principles determines ethicalness. *Do unto others as you would have them do unto you. Determined by the relationship between the basic rights of the individual and a set of rules governing conduct.

Pluralists

Believe that no one thing is intrinsically good. _Two or more things are intrinsically good. *Referred to as non-hedonists

Monists

Believe that only one good thing is intrinsically good. -Often characterized by hedonism

Teams

Bring together the expertise of employees from several different areas of the organization on a single project.

Ethics Training

Can -Educate employees about policies, expectations, laws, regulations, and general social standards -Raise awareness of resources and support systems -Empower employees

Procedural Justice

Considers the processes and activities that produce desired outcomes. *positively influences employees' attitudes and behaviors toward work-group cohesion. *Decision making process, level of access, openness, and participation

Kohlberg's Model of Cognitive Moral Development (CMD)

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 Reduced to three levels of ethical concern (1) Concern with immediate interests and 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 of groups or individuals

Corporations as Moral Agents

Corporations have the same rights and responsibilities as individuals - All employees must obey laws and regulations defining acceptable business conduct Corporate culture without values and appropriate communication about ethics can facilitate individual misconduct - Ethical corporate culture does not evolve, but requires ethical polices - Implementing a corporate ethics program promotes the corporation as a moral agent

Centralized Organization

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 *General Motors, Procter & Gamble

Decentralized Organization

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 *Nike, Southwest Airlines, Microsoft

Egoism

Defines right or acceptable behavior in terms of consequences to the individual. - Maximizes personal interests

Expert Power

Derived from a person's knowledge (or perception that a person posses knowledge). - Derives from knowledge and credibility with subordinates. *Positively correlated to the number of years a person worked in a firm or industry, education, & honors received for performance.

Rule Utilitarianism

Determine behavior based on principles designed to promote the greatest utility. Argue that general rules should be followed to decide which action is best.

Categorical Imperative

Developed by Immanuel Kant. If you feel comfortable allowing everyone in the world to see you commit an act and if your rationale for acting in a particular manner is suitable to become a universal principle guiding behavior, then committing the act is ethical.

Effective Ethics Program

Effective ethics program ensure that all employees understand and comply with the ethical culture. - Cannot assume employees know how to behave when entering a new job - Ethics programs act as important deterrents to organizational misconduct

Ethical Standards Monitored and Enforced

Effective programs employ various methods to measure effectiveness -Observing employees -Internal audits and investigations -Surveys -Reporting systems -External audits Consistent enforcement and necessary disciplinary action are essential to a functional ethics or compliance program.

Obligation Theories

Emphasize the means and motives by which actions are justified. Divided into two categories - Teleology - Deontology

Federal Sentencing Guidelines for Organizations (FSGO)

Encourages assessing key risks - Firms can use assessments to update their internal control mechanisms - Ethics programs must be designed and implemented to address these risks - Ethics programs can help a firm avoid civil liability if they show due diligence in preventing misconduct

Ethics Officers

Ethics officers are responsible for managing the ethics and legal compliance programs. -Assess needs and risks -Develop and distribute the code -Conduct training programs for employees -Confidentially answer employees' questions -Ensure government compliance -Monitor and audit ethical conduct -Take action on possible code violations -Review and update the code

Relative Perspective

Evaluates ethicalness subjectively on the basis of individual and group experiences.

Act Utilitarianism

Examine a specific action itself; not the rules governing it. Argue that the rightness of each individual action must be evaluated to determine whether it produces the greatest utility for the greatest number of people.

Whistle-Blowing

Exposing an employer's wrongdoing to outsiders. Internal reporting of misconduct to management, especially through anonymous reporting mechanisms. - Some legal protections exist - The Sarbanes-Oxley Act, the FSGO, and the Dodd-Frank Act have institutionalized whistle-blowing protections to encourage discovery of misconduct - Whistle-blowers fear retaliation

Goodness Theories

Focus on the end result of actions and the goodness or happiness created by them.

Integrative Culture

High concern for people and performance. *Starbucks, BCG

Caring Culture

High concern for people; minimal concern for performance. *Ben & Jerry's

Act Deontologists

Hold that actions are the proper basis on which to judge morality or ethicalness. *Requires a person use equity, fairness, and impartiality when making and enforcing decisions. *Past experiences more important than rules.

White-Collar Crime (WCC)

Illegal acts committed for personal and/or organizational gain by abusing the trust and authority associated with a given position. - White collar criminals are educated people in positions of power and respectability - The financial sector has a high level of WCCs - WCCs are increasing steadily - Technology allows WCCs to be committed at all levels, not just the top levels of management - Resulting in increased government efforts to detect and punish WCCs

Distributive Justice

Is based on the evaluation of the outcomes or results of a business relationship. ex. employees paid different rate for same work *benefits derived, equity in rewards.

Utilitarianism

Is concerned with consequences. Seeks the greatest good for the greatest number of people.

Tone at the Top

Is critical in creating ethical corporate culture

The Need for Organizational Ethics Programs

It is nearly impossible to know all relevant laws - Ethics programs increase ethical awareness Organizations can become bad barrels - Pressures to succeed create opportunities rewarding unethical decisions Established ethics programs help employees determine what behaviors are acceptable - Top management must integrate these codes, values and standards into the corporate culture

Milton Friedman

Markets reward or punish for unethical conduct without the need for government regulation. Currently the dominant form of capitalism.

Informal Corporate Culture

May come through direct or indirect comments conveying management's - Dress codes, promotions, extracurricular activities

Formal Corporate Culture

May come through statements of values, beliefs, and customs - Comes from upper management - Memos, codes, manuals, forms, ceremonies

Referent Power

May exist when one person perceives that his or her goals or objectives are similar to another's.

Apathetic Culture

Minimal concern for people or performance. Individuals focus on their own self-interest. ex. Many companies view long-serving employees as dead wood and do not take into account past performance. *Countrywide Financial

Exacting Culture

Minimal concern for people; high concern for performance. Focuses on the interests of the organization. *United Parcel Systems

Codes of Ethics

Most comprehensive; consists of general statements serving as principles and the basis for the rules in a code of conduct. -Generally specifies methods for reporting violations, disciplinary action for violations, and a structure of due process.

Coercive Power

Penalizing negative actions or behavior. - The opposite of reward power.

Idealism

Places special value on ideas and ideals as products of the mind. - Positive correlation to ethical decision-making

Meta-ethical Relativism

Proposes people see situations from their own perspectives. -No objective way of resolving ethical disputes between different value systems and individuals *one culture's moral philosophy cannot logically be preferred to another's because no meaningful basis for comparison exists.

Reward Power

Refers to a person's ability to influence behavior of others by offering them something desirable. -Offering something desirable to influence behavior *Money, Status, Promotion

Teleology

Refers to moral philosophies in which an act is considered morally right or acceptable if it produces some desired result, such as pleasure, knowledge, career growth, realization of self interest, utility, wealth or even fame. *assess the moral worth of a behavior by looking at the consequences, so these theories are often referred to as Consequentialism. **Two important teleological philosophies are Egoism and Utilitarianism.

Deontology

Refers to moral philosophies that focus on the rights of individuals and the intentions associated with a particular behavior rather than its consequences. **Equal respect must be given to all persons. - Believe individuals have certain absolute rights - Believe compliance with stable moral principles defines ethicalness - Sometimes referred to as Nonconsequentialism, a system of ethics based on respect for persons

Power

Refers to the influence that leaders and managers have over the behavior and decisions of subordinates. - A individual has power when his/her presence causes people to behave differently

Instrumentalists (pragmatists)

Reject the ideas that: (1) ends can be separated from the means that produce them (2) ends, purposes, or outcomes are intrinsically good in and of themselves.

Descriptive Relativism

Relates to observations of other cultures.

Values-Based Cultures

Rely on explicit mission statements that defines the core values of the firm and how customers and employees should be treated. - Focus on values (trust, transparency and respect), not laws - Top-down integrity is critical *Ikea

Relatedness Needs

Satisfied by social and interpersonal relationships

Statement of Values (Value Statements)

Serves the general public and addresses stakeholder interests.

Group Norms

Standards of behavior groups expect of their members.

Legitimate Power

Stems from the belief that a certain person has the right to exert influence and certain others have an obligation to accept it.

Enlightened Egoism

Take a long-term perspective and allow for the well-being of others though their own self-interests remain paramount.

Sabanes-Oxley 404

The characteristics of an ethical corporate culture were codified within the ____________. This section includes a requirement that management assess the effectiveness of the organization's internal controls and commission an audit of these controls by an external auditor in conjunction with the audit of its financial statements. It requires firms to adopt a set of values that forms a portion of the company's culture.

Differential Association

The idea that people learn ethical/unethical behavior while interacting with others who are part of their role-sets or belong to other intimate personal groups. - Studies support that differential association supports ethical decision making - Superiors have a strong influence on subordinates - Employees may go along with superiors' moral judgments to show loyalty

Hedonism

The idea that pleasure is the ultimate good - the best moral end involves the greatest balance of pleasure of pain.

Moral Philosophy

The specific principles or values people use to decide right from wrong. - Person-specific - Guidelines for determining how to settle conflicts and optimize mutual benefit - Provide direction in formulating strategies and resolving ethical issues *No single moral philosophy is accepted by everyone

Realism

The view that an external world exists independent of our perceptions. - Everyone is guided by self-interest - Negative correlation to ethical decision-making

Qualitative Hedonists

Those who believe it is possible to get too much of a good thing (such as pleasure).

Codes of Ethics Six Core Values

Trustworthiness Respect Responsibility Fairness Caring Citizenship

Informal Group

Two or more individuals with a common interest but without an explicit organizational structure.

Compliance-Based Cultures

Use a legalistic approach to ethics. - Revolve around risk management, not ethics - Lack of long-term focus and integrity

Work Groups

Used to subdivide duties within specific functional areas of a company.

Economic Value Orientation

Values that can be quantified by monetary means. - If an act produces value, accept it as ethical