Exam 2: Chapt 6: Organizational Ethics

Corporate Ethics Awards and Certifications

Ethisphere Magazine honors ethical leadership and business practices worldwide based on an Ethical Quotient (EQ) score. The EQ score considers corporate responsibility performance; governance adherence; innovation that contributes to the public's well-being; exemplary leadership to the industry; executive leadership; the firm's legal, regulatory, and reputation track record; and the internal systems and ethics and compliance program developed at the firm. Ethisphere 's "the world's most ethical companies" financially outperformed the S&P 500 and FTSE 1000 every year since 2005. The Foundation for Financial Service Professionals sponsored the American Business Ethics Awards (ABEA). Established in 1994, the ABEA "recognizes companies that exemplify high standards of ethical behavior in their everyday business conduct and in response to specific crises or challenges."

(Ethics in a Global Economy)

For a complete list of all countries according to their perceived level of corruption, see cpi.transparency.org/cpi2011.

ethics audit

In such an audit, the auditor—either a hired outside consultant or an internal employee—is required to note any deviations from the company's ethics standards and bring them to the attention of the audit supervisor

Laws vs ethics

Laws and ethics are not quite the same. Laws are similar to ethics because both define proper and improper behavior. In general, laws are a society's attempt to formalize—that is, to reduce to written rules—the general public's ideas about what constitutes right and wrong conduct in various spheres of life. Ethical concepts—like the people who believe in them—are more complex than written rules of law. Ethics deal with human dilemmas that frequently go beyond the formal language of law and the meanings given to legal rules.

Marketing Ethics

Marketing refers to advertising, distributing, and selling products or services. Within firms, the marketing department is the functional area that typically interacts most directly with customers. Outside the firm, advertising agencies and other firms provide marketing services to businesses. emphasizes honesty and fairness in advertising. consumer health and safety are another key ethics issue in marketing. issues in marketing ethics: deceptive advertising, firm liability for consumer injury, and a firm's responsibility for the unethical use of products by buyers. To improve the ethics of the marketing profession, the American Marketing Association (AMA) has adopted a code of ethics for its members: advocates professional conduct guided by ethics, adherence to applicable laws, and honesty and fairness in all marketing activities. The code seeks to help marketing professionals translate general ethical principles into specific working rules.

(Efforts to Curtail Unethical Practices)

Numerous efforts are under way to curb unethical business practices throughout the world. The most common control is through government intervention and regulation. Efforts to address unethical business behavior often begin with national governments, which can enact stiff legislative controls, but also include efforts by international organizations. One of the most widespread and potentially powerful efforts to combat bribery was initiated by the Organization for Economic Cooperation and Development (OECD). The OECD treaty called on member countries to take steps to deter, prevent, and combat the bribery of public officials in foreign countries. Nearly 40 countries ratified the treaty, meaning that bribery is a crime and punishable by the country's courts. To support the trend toward anticorruption efforts, the OECD Working Group on Bribery called on businesses to adopt a clear and visible antibribery policy, instill a sense of responsibility for compliance at all levels of the company, conduct regular communication and training on foreign bribery for all employees, and encourage observance of antibribery compliance measures and disciplinary procedures to address their violations.

Other Functional Areas

Production and operation functions. Institute for Supply Management (ISM)

U.S. Foreign Corrupt Practices Act (FCPA)

Since 1977, executives representing U.S.-based companies have been prohibited by the U.S. Foreign Corrupt Practices Act (FCPA) from paying bribes to foreign government officials, political parties, or political candidates. To achieve this goal, the FCPA requires U.S. companies with foreign operations to adopt accounting practices that ensure full disclosure of the company's transactions. Given the magnitude of the illegal operations involving bribery, enforcement of the FCPA was increased and resulted in an 85 percent jump in the number of FCPA enforcement actions in 2010 from the prior year. The Department of Justice and the Securities and Exchange Commission brought a combined 122 FCPA enforcement actions in 2010 and 2011, far surpassing any prior 2-year period in the statute's 33-year history. Eight of the top 10 monetary settlements in FCPA history occurred in 2010

United Kingdom's Bribery Act vs. U.S.'s FCPA (Foreign Corrupt Practices Act)

The United Kingdom's Bribery Act was passed in 2010. Some believed it was even more stringent than the U.S.'s FCPA. The U.K. Bribery Act differs from the FCPA in that: • The Bribery Act prohibits the bribery of another person and receiving or accepting a bribe, whereas the FCPA only prohibits bribery of non-U.S. government officials. Bribery of a private business executive would be illegal under British, but not U.S., anticorruption law. • The Bribery Act does not require that the improper offer, promise, or payment be made "corruptly," but the FCPA does require evidence of the intent to corrupt. • The Bribery Act does not provide exemptions for "facilitating payments" or the defense that there are reasonable and bona fide contractual or promotional expenses, as the FCPA does. • The Bribery Act contains a strict liability offense for failure to prevent bribery by commercial organizations; the FCPA does not.

ethics policies or codes

The purpose of such policies and codes is to provide guidance to managers and employees when they encounter an ethical dilemma. Research has shown significant differences among countries. In the United States and Latin America, ethics policies were found to be primarily instrumental —that is, they provided rules and procedures for employees to follow in order to adhere to company policies or societal laws. In Japan, most policies were a mixture of legal compliance and statements of the company ' s values and mission. Values and mission policies were also popular with European and Canadian companies. The creation of an ethics policy must be followed up with employee training so that the policy's provisions actually influence day-to-day company activities.

ethical climate

The unspoken understanding among employees of what is and is not acceptable behavior; (moral atmosphere) People can feel which way the ethical winds are blowing. They pick up subtle hints and clues that tell them what behavior is approved and what is forbidden. It is the part of corporate culture that sets the ethical tone in a company. One way to view ethical climates is diagrammed in Figure 5.1. Three distinct ethical criteria are egoism (self-centeredness), benevolence (concern for others), and principle (respect for one's own integrity, for group norms, and for society's laws).

Financial Ethics

Within companies, the finance department and its officers are typically responsible for managing the firm's assets and raising capital—ie, by issuing stocks and bonds. Financial institutions (commercial banks, securities firms etc) assist in raising capital and managing assets for both individuals and institutions.

ethics reporting mechanisms

company's ethics reporting mechanisms and call a "helpline" or send an e-mail expressing their concerns, anonymously if they wish. Ethics reporting systems typically have three uses: (1) to provide interpretations of proper ethical behavior involving conflicts of interest and the appropriateness of gift giving, (2) to create an avenue to make known to the proper authorities allegations of unethical conduct, and (3) to give employees and other corporate stakeholders a way to discover general information about a wide range of work-related topics. Ethics officers say more and more employees are willing to use their companies' ethical reporting mechanisms, but a number of challenges remain. Executives tend to use the helpline more often than those farther down the organizational chart. The Ethics Resource Center study found that middle managers were "an area of vulnerability within companies" since they were less likely to use the helpline. The report also discovered that rates of helpline usage were lower in foreign-owned companies than in their U.S. counterparts.

benevolence

concern for others (concern-for-others approach) Friendship. Team interest. Social responsibility. if a company approaches ethics issues with benevolence in mind, it would emphasize friendly relations with its employees, stress the importance of team play and cooperation for the company's benefit, and recommend socially responsible courses of action

White-collar crime

illegal acts committed by individuals, employees, or business professionals such as fraud, insider trading, embezzlement, or computer crime, accounts for more than 330,000 arrests each year in the United States, despite significant attention to prevent this type of crime. The Association of Certified Fraud Examiners (ACFE) reported in 2012 that the typical organization lost 5 percent of its revenues to fraud each year. This translated to a potential global fraud loss of more than $3.5 trillion. The most commonly reported white-collar crime is credit card fraud, followed by price misrepresentation, unnecessary repairs, monetary loss when using the Internet, and identity theft.

(Making Ethics Work in Corporations)

institutionalizing ethics: build ethical safeguards into its everyday routines

Comprehensive Ethics Programs

integrating various ethics safeguards into a comprehensive program is critically important. When all six components discussed in this chapter (top management commitment, ethical policies or codes, compliance officers, reporting mechanisms, training programs, and audits) are used together, they reinforce each other and become more effective. only 26% reported that their employer had developed a comprehensive, six-element ethics program. The startling discovery, however, was the dramatic impact a comprehensive ethics program, along with a strong ethical culture, had in creating an ethical work environment for employees. People working at a firm that did have a comprehensive ethics program were more likely to report ethical misconduct in the workplace to the appropriate company authority and to be satisfied with the company's investigation of and response to charges of ethical misconduct. In contrast, firms with only an ethics policy or code were often perceived as less ethically responsible and less able to address ethical misconduct in the workplace than firms without any ethical safeguards.

Corporate culture

is a blend of ideas, customs, traditional practices, company values, and shared meanings that help define normal behavior for everyone who works in a company. Culture is "the way we do things around here" (A way of life) The terms culture and climate are often used interchangeably and, in fact, are highly interrelated. Pattern: "organizations with strong ethical cultures find that fewer than 5 percent of their employees feel pressure to commit misconduct, compared with 15 percent in organizations with weak ethical cultures"

(business ethics across organizational functions)

major functional areas of a business firm: accounting, finance, marketing, informational technology.

employee ethics training

most expensive and time-consuming element of an ethics program. 20-40% of small businesses formally offer ethics training to their employees, often using less formal ways to communicate ethical values and procedures. Larger businesses, by contrast, usually conduct regular ethics training. Most ethics and compliance training programs focus on making sure employees know what the law requires and the company expects. Few firms, however, systematically measure the effectiveness of this effort or consider the impact of new training approaches. A new approach to employee ethics training emphasizes the importance of varied yet frequent efforts at ethics training, as seen at Raytheon. their delivery of ethics training through numerous vehicles: All employees participated in small-group sessions to study ethical dilemmas based on real workplace situations, watched videos that presented meaningful and relevant ethical issues in an entertaining way, and studied online learning modules on a wide range of topics. Follow-up assessment of the ethics training program revealed that employees were more likely to report alleged misconduct to the ethics office.

subclimates

multiple ethical climates, or subclimates, may exist within one organization. (any combination of the egotist, benevolence, or principled)

principle

respect for one's own integrity, for group norms, and for society's laws (integrity approach) Personal morality. Company rules and procedures. Laws and professional codes. one company might include managers who often interact with the public and government regulators, using a principle-based approach.

egoism

self-centeredness (self-centered approach) Self-interest. Company interest. Economic efficiency. be more likely to think first of promoting the company's profit and striving for efficient operations at all costs, perhaps at the sake of others or the environment

(Building Ethical Safeguards into the Company)

two distinct approaches to ethics programs: a compliance-based approach and an integrity-based approach. A compliance-based program seeks to avoid legal sanctions. This approach emphasizes the threat of detection and punishment in order to channel employee behavior in a lawful direction. | Compliance-based ethics programs increased employees' willingness to seek ethical advice and sharpened their awareness of ethical issues at work. Integrity-based ethics programs combine a concern for the law with an emphasis on employee responsibility for ethical conduct. Employees are told to act with integrity and conduct their business dealings in an environment of honesty and fairness. | Integrity-based programs, for their part, increased employees' sense of integrity, commitment to the organization, willingness to deliver bad news to supervisors, and their perception that better decisions were made. Top Management Commitment and Involvement: the example set by top executives—is critical to fostering ethical behavior. daily influence on employee behavior are the essential safeguards for creating an ethical workplace. Ethics Policies or Codes Ethics and Compliance Officers Ethics Reporting Mechanisms Ethics Training Programs Ethics Audits

bribery

unethical activity is bribery , a questionable or unjust payment often to a government official to ensure or facilitate a business transaction. Bribery is found in nearly every sector of the global marketplace. Transparency International's Corruption Perceptions Index (CPI) by a business scholar revealed that bribe-taking was more likely in countries with low per capita income, low salaries for government officials, and less variation in income distribution. The report also argued that "a legalistic approach, by itself, is unlikely to be effective in curbing bribery," since the culture of the society plays an important role in the occurrence of bribery. What may be effective in combating bribery is an integrative approach of economic advancement policies, social investment in education, and friendly business policies to foster economic growth, in addition to anticorruption laws and punishments to combat bribery while seeking to enhance economic development and gradual cultural adjustments. Bribery has significant economic, as well as ethical, consequences. U.S. Vice President Joseph Biden told a Russian audience, "Corruption is the number one impediment to better economic relations." The United Nations reported that corruption costs governments about $1.6 trillion every year. Economists estimated, based on polls conducted in 86 countries, that one businessperson in every four worldwide paid a bribe in the past year. Bribery is particularly prevalent in Russia. "Russia is the worst country in the world for companies in terms of employee theft and extortion by officials." Economists estimated that Russian corruption generated at least 50 percent of the country's gross domestic product, or around $650 billion annually. And it seems that things are getting worse. "The average size of a bribe has risen to 300,000 rubles (more than $10,000 US) in Russia," according to a high-ranking Russian official, compared to the average of 44,000 rubles just a year earlier. Moreover, in a survey of Russian citizens, many accept that corruption is "Russia's own special way" of conducting business.

Accounting Ethics

Accounting function--> critically important component of every business firm. By law, the financial records of publicly held companies are required to be audited by a certified professional accounting firm. Company managers, external investors, government regulators, tax collectors, and labor unions rely on such public audits to make key decisions. Honesty, integrity, and accuracy are absolute requirements of the accounting function, and the impact can be devastating for organizations when these values are absent. Accountants often are faced with conflicts of interest. International Financial Reporting Standards (IFRS) should replace the Generally Accepted Accounting Principles (GAAP). the desire for greater company oversight, accountability, and transparency gave support for a new international accounting system.

Information Technology Ethics

Ethical challenges in this field involve invasions of privacy; the collection and storage of, and access to, personal and business information, especially through e-commerce transactions; confidentiality of electronic mail communication; copyright protection regarding software, music, and intellectual property; and numerous others.

ethics and compliance officer

Ethical lapses in large corporations throughout the 1980s prompted many firms to create a new position: the ethics and compliance officer . A second surge of attention to ethics and the creation of ethics offices came in response to the 1991 U.S. Corporate Sentencing Guidelines. Finally, the recent wave of corporate ethics scandals and the passage of the Sarbanes-Oxley Act have again turned businesses' attention toward entrusting ethical compliance and the development and implementation of ethics programs to an ethics or compliance officer. From 2000 to 2004, the number of members in the Ethics Officers Association doubled from 632 to more than 1,200 members and remained at that level through 2012. To reflect the growing number of compliance officers heading companies' ethics programs, this association changed its name to the Ethics and Compliance Officers Association (ECOA). An ECOA study found that top ethics executives received compensation, including stock options, that was comparable to individuals in other executive-level jobs.