Business Ethics Ch. 9&10

Risk Compartmentalization

Occurs when corporate profit centers are unaware of the consequences of their decisions on the firm as a whole

Implementing Ethics Programs

Organizations must focus on implementation and planning an ethics program It should be apart of strategic planning and management activities

Ethical Crisis Management

Plans to respnd to and recover from disasters that can disrupt operations, destroy organizational reputation, and erode shareholder confidence. - It involves: -Contingency planning - Assessing organizational risks -Planning for potential occurrences -Providing tools to respond

Social democracy

Private ownership of property, but a large government

Multinational Corporation

Public companies that operate on a global scale, without significant ties to any one nation or region -Characterized by a global strategy of focusing on opportunities throughout the world

Two Schools of Economic Thought

Rational economics Behavior economics

Uncertainty Avoidance

Refers to how members of a society respond to uncertainty or ambiguity

Strategic Importance of Ethics Auditing

Should be conducted regularly -Provides a benchmark of overall effectiveness of ethics initiatives -Can be important in asset allocation and program development -Can demonstrate the positive impact of ethical conduct and social responsibility initiatives on the firm's bottom line.

The scope of an audit

The Scope is determined by the type of business, risk faced, and the opportunities to manage ethics

Cultural Relativism

The concept that morality varies from ones culture to another -Believes right and wrong is defined differently by each culture

Power Dimenson

The power inequality between superiors and subordinates (U.S. has an element of both power inequality and equality management EX: addressing supervisor by first name)

Dumping

The practice of charging high prices for products in domestic markets, while selling the same products in foreign markets at low prices; often below cost -Places local firms at a disadvantage -US has anti-dumping laws

Social Audit

The process of assessing and reporting a business's performance in fulfilling its economic, legal, ethical, and philanthropic responsibilities expected by stakeholders -Broader in scope than an ethics audit -An ethics audit might be a component

Antitrust activity

They are meant to encourage fair competition

Triple Bottom Line

This approach recognizes that business has a responsibility to positively influence a variety of stakeholders, including customers, employees, shareholders, community, and the natural environment

Global Common Values

Values shared across most cultures -2 types: -Desirable -Undesirable

Vertical system

When a channel member controls the entire business system (bad)

Bimodal wealth distribution

When the middle class shrinks, resulting in highly concentrate wealth among the rich and increased numbers of poor people with few resources

Collect and Analyze Information

-Identify tools for measuring progress in improving employees' ethical decisions -Collect relevant subject matter -Internal and external documents -Determine a baseline level of compliance -Determine all commitments -Stakeholders yield insights -Integrating stakeholder feedback is crucial in an audit -Audits should compare organizational performance to other comparable organizations

Risks in Ethics Auditing

-May uncover ethical problems a company does not wish to disclose. -May reveal a problem that cannot be remedied -Stakeholders may be dissatisfied with the information -Conducting ethics audits requires financial and record keeping resources -No guarantee that auditing is the solution -Lack of standardization in auditing

Milton Friedman

-Most recent form of capitalism -Returning to self-regulating free market system -Had the idea that deregulation could reach equilibrium without government regulation

Adam Smith

-Professor of logic and moral philosophy -Created the idea of the Laissez-faire (Invisible hand) The market has its own internal sets of checks and balances

Process Controls for Ethics Programs

-Proper selection of employees -Ethics training -Structural and communication systems -Ethics assistance line -Help desk -Management's commitment to the program -Comparing standards against actual behavior -Ethics audit

Measuring Non financial Ethical Performance (6 ways)

-Six Sigma -Balanced Scorecard -Triple Bottom Line -Global Reporting Initiative -AccountAbility AA1000 framework -Open Compliance Ethics Group

Things about MNC's

-Size and power of MNC's create ethical issues relating to the exploitation of both natural and human resources -Sometimes countries refuse to let MNC's in -The activities of some MNC's raise issues of fair competition -Some MNC's strive to be good global citizens -MNC's are not inherently unethical, size and power can be threatening

Bribery laws and regulations

-The US Foreign Corrupt Practices Act (FCPA) -prohibits US companies from paying foreign officials to keep/obtain business, with exceptions The UK Bribery Act -goes much further

Report the Findings

-The final step -Spells out the purpose and scope of the audit, methods used, role of the author, and auditing and reporting guidelines -May be disseminated internally or externally -Ethics audits are similar to finacnial audits, but forms are different -Unqualified opinion -Qualified opinion -Adverse opinion -Disclaimer of opinion

Secure Commitment of Top Management and the Board

-The first step in the auditing process -Sarbanes-Oxley requires that boards of directors provide oversight -The board may initiate audits Managers may request an ethics audit to improve confidence in a firm's reporting processes

Establishing an Ethics Oversight Committee

-The second step in the auditing process -Boards of directors financial audit committee should oversee the audit -Managers or ethics officers conduct it in most firms -Internal and external parties should be involved -External auditors should not have other consulting or conflict-of-interest relationships with top managers or board memebers

Ethics as a strategy

-Viewing a business ethics program as a part of strategic planning and management activities is critical to the success of any firm -Some companies view ethics as a primarily individual matter, without realizing the impact it can have on the success of an organization in the long term. -Shared values among employees hold a business together in tough times.

Stages of an Ethical Disaster

1. Ethical issue recognition 2. The decision to act unethically 3. Organization's discovery of and response to the act

Keynes and Friedman agreed:

1. People have rational preferences among outcomes that can be identified and associated with value 2. Individuals seek to maximize utility; firms seek to maximize profits 3. People act independently on the basis of full and relevant information

5 Factors that can impact the success of ethics programs

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

Business for Social Responsibility (BSR) (4 things)

1. Tracks emergin issues and trends 2. Provides information on corporate leadership and best practices 3. Conducts educational workshops and training 4. Assists organizations in developing practical business ethics tools

The auditing Process (7 parts)

1.Secure management and board commitment 2. Establish an ethics audit committee 3. Define the scope of the audit 4.Review organizational mission, goals, and values 5. Collect and analyze relevant information 6. Verify the results through an outside agent 7. Report the findings

The UN Global Compact

A set of 10 principles promoting human rights, sustainability, and the eradication of corruption

Ethics Audit

A systematic evaluation of an organization's ethics program and performance to determine whether it is effective -It includes regular, complete, and documented measurements of compliance with policies and procedures -Can be a precursor to establishing an ethics program -Should be the most important part of an ethics program -Primary purpose is to identify risks and problems in activities and plan steps to adjust/correct/eliminate concerns

People in Modern economics

Adam Smith John Maynard Keynes Milton Friedman

Globalization (What is it?)

Advances in communication, transportation and technology has minimized the world's borders, creating a new global economy

Socialism

Advocates that wealth and power be shared across society, based on the amount of work expended in production (Karl Marx is famous)

Review Organizational Mission, Values, Goals, and Policies

An ethics audit should: -Include a review of the current mission statement and strategic objectives -Examine all formal and informal documents that make commitments with regard to ethical, legal or social responsibility -A firm should define its ethical priorities at this time

Human Rights

An inherent dignity with equal inalienable rights -The foundation of freedom, justice, and world peace It is codified in the UN Human Rights Declaration

Self-Reference Criterion (SRC)

An unconscious reference to one's own cultural values, experiences, and knowledge -(referring on ones own knowledge) -In business, Self-reference is the idea that "we" before "them"

Country cultural values

Are specific to countries, regions, sects or groups

Rational economics

Assumes that people are predictable and base their decisions on maximizing utility based on resources and that they act independently on full information

Bribery

Bribery's acceptance varies by country

Global Business

Brings together people from countries with varying cultures, values, laws, and ethical standards. -International businesspeople must understand the values, culture, and ethical standards of their own country AND must be sensitive to the same in other countries

Individualism/Collectivism

Collectivism: giving everything to the group/collective goals (Mexico and Asian countries) Individualism: Place high value on individual achievement and self-interest (U.S.)

DPA's (Deferred Prosecution Agreements)

Companies that can prove they have an ethics and compliance program can often receive deferred prosecution (DPA) from the Department of Justice They admit wrongdoing, pay a fine, and agree to meet certain terms within a certain time frame

Balanced Scorecard

Developed by Drs. Robert Kaplan and David Norton -Incorporates non financial performance indicators into the evaluation system to provide a more "balanced" view of organizational performance -Uses 4 methods: (Financial, Internal Business processes, learning and growth, and customer) to measure the overall performance of the firm.

Six Sigma

Focuses on improving existing process that do not meet quality specifications or that need to be improved as well as developing new processes that meet Six Sigma standards.

What the WTO does

-Administers trade agreements, facilitates trade negotiations and settles trade disputes -Monitors trade policies of member nation -Addresses economic and social issues of many industries; attempts to reduce trade barriers -Provides legally binding ground rules for commerce -Not all countries agree with the WTO on free trade

Measuring Non financial Ethical Performance

-Crucial to a firm's health -Measures the wholeness and soundness of a company - "Return on integrity" -Many organizations and regulatory frameworks offer a means of capturing ethics performance -Structural -Behavioral

Benefits of an Ethics Audit

-Detects misconducts before it becomes a major problem -Identifies potential ethical issues and -Improve organizational performance -Improve relationships with stakeholders who demand greater transparency -Sets goals against which to measure actual performance

The International Monetary Fund (IMF)

-Emerged from Bretton Woods agreement (1944) -Makes short-term loans to member countries -Provides foreign currencies for its members -Promotes responsible business conduct -Recommended new rules for large firms which represent the biggest systemic risk

Global Ethical Risks

-Emerging markets carry significant risks for international investors -Chinese leadership is promoting nationalism, which could threaten its relationships with other countries -The economic outlook for many Eurozone countries remains weak

Geert Hofstede

-Famous frameworker for classifying cultural behavior patterns. -Identified 4 cultural dimensions that impact the business environment -Individualism/collectivism -Power distance -Uncertainty avoidance -Masculinity/feminity

The United Nations

-Founded in 1945 -193 nations -Goal is to promote world peace, improve inter-country relations, and support better standards and human rights -Focuses on environmental and human rights issues

John Maynard Keynes

-Government can stimulate economic growth and improve stability in the private sector -Through interest rates, taxes and public projects

Verify the Results

-Have an independent party verify the results of the analysis -Companies often have results independently audited -Verification is an assessment of the quality, accuracy, and completeness of a company's social report -Should involve standard procedures to control reliability and validity of information

Behavioral economics

assumes that humans do not always act rationally due to genetics, emotions and learned behavior

Consumerism

the belief that consumers should dictate the economic structure of society

Health Care

Major global human rights issue -Over a billion people don't have health care

Types of disasters:

Economic (Greece Social (Civil war in Syria) National (Japan's Nuclear Reactor)

Economic Foundations of Business Ethics

Economic and political events and natural disasters can affect the global ethical decision making environment -Many ethical issues emerge in coping with crisis'

Made-to-break (Planned obsolescence)

Encourages consumerism to buy more items

The World Trade Organization (WTO)

Established in 1995 at the Uruguay round of the General Agreement on Tariffs and Trade (GATT) 159 members

National culture

Everything in our surroundings that is made by people -Both tangible and intangible -(Language, law, politics, technology, etc.) -Each nation has a cultural belief about acceptable business activities -Subcultures can be found within many nations

The 4 main headings of the UN Global Compact

Human rights Labour Environment Anti-Corruption

Undesirable common values

Ignorance Pride and egoism selfish desires lust greed adultery theft lying

Desirable common values

Integrity family and community unity equality honesty fidelity sharing unselfishness

Compensation

Living wage -The minimum wage that workers require to meet basic needs Executive Compensation -Growing global demand for alignment between managerial performance and compensation

Things that can happen if there are not proper controls put in place:

Lying to customers, manipulating prices, abusive behavior, and misuse of organizational resources