Corporate Ethical Midterm #2

Federal Sentencing Guidelines for Organizations:

-Chapter 8 of the guidelines that hold businesses liable for the criminal acts of their employees and agents -Requires that organization police themselves by preventing and detecting the criminal activity of their employees and agents -In its mission to promote ethical organizational behavior and increase the costs of unethical behavior, the FSGO establishes a definition of an organization that is so broad as to prompt the assessment that "no business enterprise is exempt" -Penalties under the FSGO include monetary fines, organizational probation, and the implementation of an operational program to bring the organization into compliance with the FSGO standards

Guidelines for OECD:

-Concepts and Principles -General policies -Disclosure -Employment and Industrial Relations -Environment -Combating bribery -Consumer interests -Science and Technology -Competition -Taxation

Sarbanes- Oxley Act 2002

-A legislative response to corporate accounting scandals of the early 2000s that covers the financial management for businesses -Public Account OVersight Board: an independent oversight body for auditing companies -SOX was hailed by some as "one of the most important pieces of legislation governing the behavior of accounting firms and financial markets since the legislation in 1930s

The Volcker Rule

-American economist and past federal reserve chairman paul volcker proposed that there should be a key restriction to meet the ability of banks to trade on their own accounts (proprietary trading) -The original volcker rule sought to stop the trading of derivatives (which are financial instruments based on the performance of other financial instruments, such as mortgage backed securities, but was scaled back to a compromise that limited the ethically questionable practices of banks taking opposing positions to trades that are simultaneously promoting to their clients.

Richard DeGeorge offers the following guidelines for organizations doing business in these situations:

-Do no intentional harm -Produce more good than harm for the host country's development -Contribute to the host country's development -Respect the human rights of their employees -Respect the local culture; work with it, not against it. -Pay their fair share of taxes -Cooperate with the local government to develop and enforce just background institutions -Majority control of a firm includes the ethical responsibility of attending to the actions and failures of the firm -Multinationals that build hazardous plants are obliged to ensure that the plants are safe and operated safely -Multinationals are responsible for redesigning the transfer of hazardous technologies so that such technologies can be safely administered in host countries

Whistle blowing is unethical when

-For money -For media attention -In retaliation -If its false

Aggravating factors

-High -level personnel were involved in or tolerated the criminal activity -The organization willfully obstructing justice -The organization had prior history of similar misconduct -The current offense violate a judicial order, an injunction or condition of probation

Revised Federal Sentencing Guidelines for Organizations

-They required companies to periodically evaluate the effectiveness of their compliance programs on the assumption of a substantial risk that any program is capable of failing -The revised guidelines required evidence of actively promoting ethical conduct rather than just complying with legal obligation -The guidelines defined accountability more clearly. Corporate officers are expected to be knowledgeable about all aspects of the compliance program, and they are required to receive formal training as it relates to their roles and responsibilities within the organization

The FSGO prescribes seven steps for an effective compliance program :

-Management oversight: a high level official ( such as a corporate ethics officer) must be in charge of and accountable for the compliance program -Corporate policies: policies and procedures designed to reduce the likelihood of criminal conduct in organization must be in in place -Communication of standards and procedures: the ethics policies must be effectively communicated to every stakeholder of the organization -Compliance with standards and procedures: evidence of active implementation of these policies must be provided through appropriate monitoring and report ( including a system for employees to report suspected criminal conduct without fear or retribution) -Delegation of substantial discretionary authority: no individual should be granted excessive discretionary authority that would increase the risk of criminal conduct -Consistent discipline: the organization must implement penalties for criminal conduct and for failing to address criminal misconduct in a consistent manner -Response and corrective action: criminal offenses, whether actual or suspected must generate an appropriate response, analysis and corrective action

How should managers or supervisors respond to an employee who brings evidence of questionable behavior to their attention?

-Manager should refer to the procedure and know what they are required to do in the situation -Have to investigate all reports of unethical behavior -Manager needs to follow up and evaluate if it is a true issue or not

Title II: Auditor Independence

-Prohibit specific "non audit" services of public accounting firms as violations of auditor independence -Prohibits public accounting firms from providing audit services to any company whose senior officials were employed by that accounting firm within previous 12 months -Requires senior auditors to rotate off an account every five years and junior auditors every seven years -Requires the external auditor to report to the client's audit committee on specific topics -Requires auditors to disclose all other written communication between management and themselves

In addition to monetary fines, organization also can be sentenced to probation for up to five years. The status or probation can include the following requirements:

-Reporting the business's financial condition to the court on periodic basis -Remaining subject to unannounced examination of all financial records by a designated probation officer and or/court appointed experts -Reporting progress in the implementation of a compliance program -Being subject to unannounced examination to confirm that the compliance program is in place and is working

Step 3: Determining the Total Fine amount.

-The base fine multiplied by the culpability score gives the total fine amount -In certain cases, however, the judge has the discretion to impose a so-called death penalty, where he fine is set high enough to match all the organization's assets -Death penalty: 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

Mitigating Factors:

-The organization had an effective program to prevent and detect violations of law -The organization self-reported the offense to appropriate governmental authorities, fully cooperate in the investigation and accepted responsibility for the criminal conduct

UN Global Compact:

-a voluntary corporate citizenship initiative endorsing 10 key principles that focus on four key areas of concern: the environment, anticorruption, the welfare of workers around the world, and global human rights -Relies on public accountability, transparency, and the enlightened self interest of companies, labor and civil society to initiate and share substantive action in pursuing the principles on which the Global Compact is based

The act encompasses all the secondary measures that were currently in use to prohibit such behavior focusing on two distinct areas:

-disclosure - prohibition

List 5 conditions for whistle blowing to be considered ethical?

1. when the company, through a product or decision will cause serious and considerable harm to the public 2. when the employees identities a serious threat of harm, he or she must report it and state his/ her moral concern. 3. when employees immediate supervisor does not act, the employee should exhaust the internal procedures. 4. The employee must have documented evidence that is convincing to a reasonable, impartial observer. 5. The employee thinks that public exposure could help bring the issue to a solution.

Important qualities of transparency include the following:

A requirement that is being enforced on markets and companies through regulation An enabler of better relationships with partners and customers (that is soon to be an expectation) A great opportunity to rework business processes to increase efficiency A risk to confidentiality intellectual property

Addressing the needs of whistleblowers

A well defined process to document how such complaints are handled-a nominated contact person, clearly identified authority to respond to the complaints, firm assurances of confidentiality, and noretailation against the employee An employee hotline to file such complaints, against with firm assurances of confidentiality and non retaliation to the employees A prompt and thorough investigation of all complaints A detailed report of all investigations, documenting all corporate officers and all action taken whistleblower hotline-a telephone line by which employees can leave messages to alert a company of suspected misconduct without revealing their identity Trust can be established by giving the information anonymously

Facilitation payments:

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

Employee position: promise of increased worker productivity

An employee of the company I recognize that my time at work represents the productivity for which I receive an agreed amount of compensation- either an hourly rate or an annual salary Agreement should not intrude on civil rights- as such I should be notified of any electronic surveillance and the purpose of that surveillance Arriving at a satisfactory resolution of these opposing arguments have proved to be difficult for two reasons: Availability of ongoing technological advancements has made it increasingly difficult to determine precisely where work ends and personal life beings The willingness to negotiate or compromise has risen and fallen in direct relation to the prevailing job market

Title V:

Analysis of Conflicts of Interest: requires the SEC to adopt rules to address conflicts of interest that can arise when securities analysts recommend securities in research reports and public appearances

Employer Position: promise of increased worker productivity

As an employee of the organization, your productivity during your free time at work represents the performance portion of the pay - for performance contract you entered into with the company when you were hired Other than lunch and any scheduled breaks, all your activity should be work-related and any monitoring of tht activity should not be regarded as an infringement of your privacy Obligation to stakeholders to operate as efficiently as possible and to do so it must ensure that company resources are not being misused or stole

Reactive ethical policies

policies that result when organizations are driven by events and/or a fear of future events

A well written code of ethics can do several things

Capture what the organization understands ethical behavior to mean-values statement Establish a detailed guide to acceptable behavior It can state policies for behavior in specific situation It can document punishments for violations of those policies

Celebrate and reward the ethical behavior demonstrated by your employees

Celebrate examples of good ethical behavior in your company newsletter Award prizes for ethical behavior and let the employee choose the reward Award prizes for new and creative ideas-and let the employee choose the reward Recognize employees who represent the standard of behavior to which you are committing Declare an ethics day and allow every department to share success stories

Title VI

Commission Resources and Authority: provides additional funding and authority to the SEC to follow through on all the new responsibilities outlined in the act

Title XI

Corporate Fraud and Accountability: provides additional authority to regulatory bodies and courts to take various actions, including fines or imprisonment, with regard to tampering with records, impeding official proceedings, taking extraordinary payments, retaliating against corporate whistleblowers, and certain other matter involving corporate fraud

Title III

Corporate Responsibility: requires audit committees to be independent and undertake specified oversight responsibilities

Title X:

Corporate Tax Returns: Conveys the sense of the Senate that the CEO should sign a company's federal income tax return

Title VIII:

Corporate and Criminal Fraud Accountability: provides tougher criminal penalties for altering documents, defrauding shareholder and certain other forms of obstruction of justice and securities fraud

Step 2: Culpability score

Culpability score def: the calculation of a degree of blame or guilt is used as a multiplier up to four times the base fine. The culpability score can be adjusted to aggravating or mitigating factors

Ask any CEO to describe the market she is working in and she will probably describe the same set of characteristics

Demanding customers- who want new and better products and services at a lower price Impatient stockholders-who want the stock price to rise each and every quarter Aggressive vendors[who want to sell you more of everything Demanding federal state and local officials who want to burden you with more rules and regulations while encouraging you to hire more people and pay more taxes Demanding creditors-whow ant their loan payments on time Aggressive competitor-who want to steal your customers for you

Title IV:

Enhanced Financial Disclosure: requires companies to provide enhanced disclosures including a report on the effectiveness of internal control and procedure for financial reporting and disclosure covering off-balance sheet transactions

making ethical behavior sustainable requires the involvement of the organization in committing to a formal structure to support an ongoing process of monitoring and enforcement:

Establish a code of ethics Support the code of ethics with extensive training for every member of the organization Hire an ethics officer Celebrate and reward the ethical behavior demonstrated by your employees Promote your organization's commitment to ethical behavior Continue to ignore the behavior as you grow

Examples of routing governmental action:

Ex: providing permits, licenses or other official documents to qualify a person to do business in a foreign country Processing governmental papers, such as visas and work orders Providing police protection, mail pickup and delivery or scheduling inspection associated with contract performance or inspection related to transit of goods across a country Providing service, power and water supply; loading and unloading cargo; or protecting perishable products or commodotion from deterioration Performing actions of a similar nature

If you are involved in creating a code of ethics from scratch, consider the following advice from the institute of business ethics

Find a champion Get endorsement from the chairperson and board Find out what bothers people Pick a well tested model Produce a company code of conduct Try it out first Issue the code and make it known Make it work

Under sox, complaining to the media isn't recognized as whistle blowing. Is that ethical?

It can be ethical if the employee goes to the media supervisor and they don't do anything about it SOX says were allowed to complain to the media and that doesn't fall under whistleblowing We need to be careful that if we put something out there it can ruin people if it is not true

By actively promoting the message of global compact, companies make public commitments to a set of core values that are captured in 10 key principles:

Human Rights -Businesses should support and respect the protection of internationally proclaimed human rights -Businesses should make sure they are not complicit in human rights abuses Labor Standards: -Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining -Businesses should uphold the elimination of all forms of forced and compulsory labor -Businesses should uphold the effective abolition of child labor -Businesses should uphold the elimination of discrimination in employment and occupation Environment -Businesses should support a precautionary approach to environmental challenges -Businesses should undertake initiative to promote greater environmental responsibility -Businesses should encourage the development and diffusion of environmentally friendly technologies Anti-corruption -Businesses should work against all forms of corruption, including extortion and bribery

If you whistle blow and the information turns out to be false, should the employee be liable for damages? Explain your answer.

If you're going to expose a wrongdoing, you need to have facts and a good motivation If they believed it was true - it depends how they frame it, if they say i've heard this is happening I can't confirm it but wanted to give you a heads up (they should not be liable) however if they go in and say they're 100% confident that is problematic

If you blow the whistle on a company for a personal vendetta against another employee but receive no financial reward, is it more or less ethical than doing it just for the money?

In both cases they're doing it for the wrong reason However, from the utilitarian perspective - regardless of the intentions, are they bringing the greatest amount of good to the largest amount of people?

Proactive ethical policies

policies that result when the company develops a clear sense of what it stands for as an ethical organization

Do you think a hotline that guarantees the anonymity of the caller will encourage more people to come forward?

More false claims may come forward because people would never find out it was you However, it would encourage more people to come forward with real evidence too

Before the passage of the FCPA, illegality of this behavior was punishable only through "secondary" sources of legislation:

The Securities and exchange Commission could find companies for failing to disclose such payments under its securities rules The Bank Secrecy Act also required full disclosure of funds that were taken out of or brought into the United States The Mail Fraud Act made the use of the U.S mail or wire communications to transact a fraudulent scheme illegal

Would the lack of financial reward make you more or less inclined to whistle blow?

No, whistleblowing should have ethical motivation behind it Financial reward should not be the goal in whistleblowing

Should an employee be given any reassurances of protection for making the tough decision to come forward and whistle blow?

Non retaliation policy If we have the evidence and know its true there should be no retaliation

Title VII:

Studies and Reports: direct regulatory bodies to conduct studies regarding consolidation of accounting firms, and certain roles of investment banks and advisors

Disclosure:

The act requires corporations to fully disclose any and all transaction conducted with foreign officials and politicians, in line with the SEC provisions

Step 1: Determination of the "Base Fine." the base fine will normally be greatest of :

The monetary gain to the organization from the offense The monetary loss from the offense caused by the organization, to the extent the loss was caused knowingly, intentionally or recklessly The amount determined by a judge based on an FSGO table

Monetary Fines Under the FSGO (three step procesS)

Three step process: 1. determination of the base fine 2.Culpability score 3. Determining the Final Amount

Title IX:

White- Collar Crime Penalty Enhancements: provide that any person who attempts to commit white-collar crimes will be treated under the law as if the person had committed the crime

Do you know where your personal information is?

With the availability of a network of fiber-optic cable that spans the globe and an increasingly educated global workforce that is fluent in English, the potential cost savings for American corporations in shipping work overseas to countries with lower labor costs is becoming increasingly attractive The first wave of technological advance came with the establishment of call centers in other parts of the world (predominantly India) to answer, for example your customer service calls to your credit card company or for tech support on your computer.

Organizational integrity

a characteristic of publicly committing to the highest professional standards and sticking to that commitment

Multinational corporations (MNC)

a company that produces and sells products and services across multiple national borders. Also known as transnational corporations -Economists disagree over the definitions of a MNC: some argue that to be truly multinational, an organization must have owners from more than one country (such as Shell's Anglo- Dutch structure) Other argue that an organization is multinational when it generates products and or services in multiple countries and when it implements operational policies (market-, staffing and production) that goes beyond national boundaries

Intranet:

a company's internal website, containing information for employee access only

Developed nation:

a country that enjoys a high standard of living as measured by economic, social and technological criteria

Less-developed nation

a country that lacks the economic, social and technological infrastructure of a developed nation

Global Code of Conduct

a general standard of business practice that can be applied equally to all countries over and above their local customs and social norms

Financial Stability Oversight Council:

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

Consumer financial protection bureau

a government agency with the federal reserve that overseas products and services

Qui tam lawsuit

a lawsuit brought on behalf of the federal government by a whistle blower under the false claims act of 1863

Cyber Liability

a legal concept that employers can be held liable for the actions of their employees in their internet communications to the same degree as if those employers had written those communications on company letterhead

Vicarious liability:

a legal concept that means a party may be held responsible for injury or damage even when he or she was not actively involved in an incident

Extranet:

a private piece of a company's internet network that is made available to customers and or vendor partners on the basis of secured access by unique password

Ethics officer

a senior executive responsible for monitoring the ethical performance of the organization both internally and externally

Employment and Industrial Relations

addresses major aspects of corporate behavior in this area including child and forced labor, nondiscrimination and the right to the bona fide employee representation, and constructive negotiations

Science and Technology:

aims to promote the diffusion by multinational enterprises of the fruits of research and development activities among the countries where they operate, thereby contributing to the innovative capacities of host countries

Internal whistleblowing

an employee discovering corporate misconduct and bringing it to the attention of his or her supervision who then follows established procedures to address the misconduct within the organization

External whistleblowing

an employee discovering corporate misconduct and choosing to bring it to the attention of law enforcement and or the media (the situation conflicts with their personal value system)

Whistleblower

an employee who discovers corporate misconduct and chooses to bring ti to the attention of others

Routine Governmental action

any regular administrative procedure, excluding any action taken by a foreign officials in the decision to award new or continuing business (The FCPA finds these payments acceptable provided they expedit or secure the performance of a routine governmental action)

Supporters of globalization

argue that it is bringing unprecedented improvements in the wealth and standards of living citizens in developing nations as they leverage their natural resources or low costs of living to attract foreign investment

Taxation

calls on enterprises to respect both the letter and spirit of tax laws and to cooperate with tax authorities

Transparency-

characteristics of an organization that maintains open and honest communications with all stakeholders

Sarbanes Oxley Act of 2002 ( in regard to whistle blowing)

congress took an integrated approach to the matter of whistle blowing by both protecting retaliation against whistleblowers and encouraging the act of whistle blowing itself

Sarbanes Oxley Act of 2002 in regard to whistle blowing

congress took an integrated approach to the matter of whistle blowing by both protecting retaliation against whistleblowers and encouraging the act of whistle blowing itself

Thick consent:

consent in which the employee has an alternative to unacceptable monitoring. For example, if jobs are plentiful and the employee would have no difficulty in finding another positions, then the employee has a realistic alternative for avoiding an acceptable policy

Thin consent:

consent in which the employee has little choice. For example, when an employee receives formal notification that the company will be monitoring all e-mail and web activity- either at the time of hire or during employment - and it is made clear in that notification that his or her continues employment w the company will be dependent on the employee's agreement to abide by that monitoring.

General policies:

contains the first specific recommendations, including provisions on human rights, sustainable development, supply chain responsibility, and local capacity building; and , more generally, calls on enterprises to take full account of established

Combating bribery

covers both public and private bribery and addresses passive and active corruption

Against globalization:

developing countries are ravaged for their raw materials with no concern for the longer-term economic viability of their national economies; workers exploited; and corporations are free to take full advantage of less restrictive legal environments

Competition

emphasizes the importance of an open and competitive business climate

Environment (global compact)

encourages enterprises to raise their performance in protecting the environment, including performance with respect to health and safety impacts. Features of this chapter include recommendations concerning environmental management systems and the desirability of precautions where there are threats of serious damage to the environment

Sustainable ethics

ethical behavior that persists long after the latests public scandal or the latest management buzzword

OECD Guidelines for Multinational Enterprises

guidelines that promoted principles and standards of behavior in the following areas: human rights, information disclosure, anti corruption, taxation, labor relations, environment, competition and consumer protection; a governmental initiative endorsed by 30 members of the Organization for Economic Cooperation and Development and 9 nonmembers (Argentina, Brazil, Chile, Estonia, Israel, Latvia, Lithuania, Romania and Slovenia)

Dodd frank wall street reform and consumer protection act of 2010- ( in regard to whistleblowers)

introduced a new reward program for whistleblowers who report securities law violation sto the SEC or CFTC

Foreign Corrupt Practices Act:

legislation introduced to control the bribery and other less obvious forms of payment to foreign officials and politicians by American publicly traded companies

The Dodd Frank Wall Street Reform and Consumer Protection Act:

legislation that was promoted as the "fix" for the xtreme mismanagement of risk in the financial sector that led to a global financial crisis in 2008-2010

Compliance Program:

one of the best ways to minimize your culpability score is to make sure that you have some form of program in place that can effectively detect and prevent violation of law

Disclosure

recommends disclosure on all material matters regarding the enterprise such as its performance and ownership, and encourages communication in areas where reporting standards are still emerging such as social, environmental and risk reporting

Consumer interests

recommends that enterprises, when dealing with consumers, act in accordance with fair business, marketing and advertising practices; respect consumer privacy; and take all reasonable steps to ensure the safety and quality of goods or services provided

Concepts and Principles

sets out the principles that underlie the guidelines, such as their voluntary character, their application worldwide and the fact that they reflect good practice for all enterprises

Telecommuting:

the ability to work outside of your office (from your home or anywhere else) and log in to your company network (usually via a secure gateway such as a virtual private network or VPN

Whistleblower protection act of 1989-

the act imposed specific performance deadlines in processing whistleblower complaints and guaranteed the anonymity of the whistleblower unless revealing the name would prevent criminal activity or protect public safety, the act also required prompt payment of any portion of the settlement to which the whistle blower would be entitled

Prohibition:

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

Globalization

the expansion of international trade to a point where national markets have been overtaken by regional trade blocs (Latin America, Europe, Africa). Leading eventually to a global marketplace

Adam moore stated the state of the job market will inevitably create a distinction between what two types of consent?

thick and thin consent

What does does the false claims act state?

those who expose fraudulent behavior against the government are entitled to between 10-30 percent of the amount recovered