3.3 Business Ethics

a price increase that exceeds the costs of additional expenditures, such as transportation and taxes

Gouging is blank________.

superiors

Obedience to authority is part of which of the following components of the ethical decision-making framework?

stakeholder orientation

The degree to which a firm understands and addresses stakeholder demands can be referred to as a: This orientation comprises three sets of activities: (1) the organization-wide generation of data about stakeholder groups and assessment of the firm's interactions with these groups, (2) the distribution of this information throughout the firm, and (3) the organization's responsiveness as a whole to this information.

the board of directors

The primary responsibility of ensuring that ethical, legal, and social standards are adhered to within a business rests with

ethics officers are responsible for

They are usually responsible for (1) assessing the needs and risks that an organization-wide ethics program must address, (2) developing and distributing a code of conduct or ethics, (3) conducting training programs for employees, (4) establishing and maintaining a confidential service to answer employees' questions about ethical issues, (5) making sure that the company is in compliance with government regulation, (6) monitoring and auditing ethical conduct, (7) taking action on possible violations of the company's code, and (8) reviewing and updating the code.

democratic

This leadership style relies on participation and teamwork to reach collaborative goals

corporate governance

To remove the opportunity for employees to make unethical decisions, most companies have developed formal systems of accountability, oversight, and control - known as

price discrimination

When a firm charges different prices to different groups of customers, it may be accused of:

They pay high taxes everywhere.

Which of the following is not a criticism of, or charge against, multinational corporations?

Coordinating the U.S. Sentencing Commission annual ethics audit.

Which of the following is not a typical activity for an ethics officer?

greater employee turnover

Which of the following is not one of the rewards for being ethical and socially responsible in business?

They guarantee an ethical business climate.

Which of the following statements about codes of conduct is false?

Strong ethical leaders are reactive.

Which of the following statements is false regarding strong ethical leaders?

dumping

occurs when companies sell products in foreign markets at low prices that do not cover all the costs of the products.

leadership styles

1. Coercive: the coercive leader demands instantaneous obedience and focuses on achievement, initiative, and self control. Although this style can be very effective during times of crisis or during a turnaround, it otherwise creates a negative climate for organizational performance. 2. Authoritative: the authoritative leader, considered to be one of the most effective styles, inspires employees to follow a vision, facilitates change, and creates a strong positive performance climate. 3. Affiliative: the affiliative leader values people, theiremotions and their needs, and relies on friendship and trust to promote flexibility, innovation, and risk taking. 4. Democratic: the democratic leader relies on participation and teamwork to reach collaborative decisions. This style focuses on communication and creates a positive climate for achieving results. 5. Pacesetting: the pacesetting leader can create a negative climate because of high standards that he or she sets. This style works best for attaining quick results from highly motivated individuals who value achievement and take the initiative. 6. Coaching: the coaching leader builds a positive climate by developing skills to foster long-term success, delegates responsibility, and is skillful in issuing challenging assignments.

negative public reaction to misconduct

An organizational ethics program should help reduce the possibility of penalties and

The Role of Leadership In Developing An Ethics Program

1. Conduct a rigorous self-assessment of the firm's values and its existing ethics and compliance program. 2. Maintain commitment from top managers. 3. Publish, post, and make codes of ethics available and understandable. 4. Communicate ethical standards through multiple channels (for example, paper documents and web pages). 5. Provide timely training to reinforce knowledge. 6. Provide confidential resources to whom employees can go for advice or to report their concerns. 7. Ensure consistent implementation. 8. Respond and enforce consistently, promptly and fairly. 9. Monitor and assess using appropriate methods. 10. Revise and reform to ensure continuous improvement.

Habits of Strong Ethical Leaders

1. Ethical Leaders Have Strong Personal Character: Ethical leadership is highly unlikely without a strong personal character. 2. Ethical Leaders Have a Passion to DO Right: Archie Carroll describes the passion to do right as "the glue that holds ethical concepts together." Some leaders develop this trait early in life, while others develop it over time through experience, reason, or spiritual growth. 3. Ethical Leaders Are Proactive: Ethical leaders do not hang around waiting for ethical problems to arise. They anticipate, plan, and act proactively to avoid potential ethical crises. 4. Ethical Leaders Consider Stakeholders' Interests: Ethical leaders consider the interests of and implications for all stakeholders, not just those that have an economic impact on the firm. Ethical leaders have the responsibility to balance stakeholder interests to ensure that the organization maximizes its role as a responsible corporate citizen. 5. Ethical Leaders Are Role Models for the Organization's Values: If leaders do not actively serve as role models for the organization's core values, then those values become nothing more than lip service. 6. Ethical Leaders Are Transparent and Actively Involved in Organizational Decision Making: Being transparent fosters openness, freedom to express ideas, and the ability to question conduct. It encourages stakeholders to learn about and comment on what a firm is doing. Transparent leaders will not be effective unless they are personally involved in the key decisions that have ethical ramifications. 7. Ethical Leaders Are Competent Managers Who Take a Holistic View of the Firm's Ethical Culture: Ethical leaders can see a holistic view of their organization and, therefore, view ethics as a strategic component of decision making, much like marketing, information systems, production, and so on.

accountability

A clear delineation of blank_____ helps employees, customers, investors, government regulators, and other stakeholders understand why and how the organization chooses and achieves its goals

effective ethics program

A company must have an effective ethics program to ensure that all employees understand its values and comply with the policies and codes of conduct that create its ethical culture.

moral intensity

A decision-maker's perception of pressure and the potential harm a decision could have on others is referred to as _________

advancing human rights

Advancing human rights includes the following principles: Engage in an open dialog with workers and management. Be aware of human rights issues and concerns in each country in which the company engages in business. Adopt the prevailing legal standard, but seek to embrace a "best practices" approach and standard.

is often justified on the basis of local cultural norms and values

Discrimination in international business _______________

Economist Milton Friedman

Economist Milton Friedman argued persuasively that the business of business was business, and that the primary role of a business was to maximize profits within the rules dictated by governments and society. He and others argued that companies should make charitable contributions and engage in social issues only if these actions also contributed to the companies' reputation, ability to recruit qualified employees, or other factors that ultimately contributed to profits and shareholder value. In society, he argued, there are other entities such as governments and non-profit organizations that bear the primary social responsibilities of society, and are best equipped to deal with social issues. (One of his articles can be found in the Davidson et al. book listed in references.)

terminating unethical persons

Fostering ethical decision making within an organization requires improving the firm's ethical standards and

discrimination issues

How Companies Might Address Discrimination Issues Develop a company policy on discrimination Communicate the policy internally and externally Determine benchmarks for activities in which discrimination can arise Determine indicators of possible noncompliance Establish methods for identifying noncompliance Develop a plan and implement the plan

By basing compensation on performance and achievement of goals.

How can a company align the interests of its owners with those of its managers through executive compensation?

stakeholders

In a business context, customers, investors and shareholders, employees, suppliers, government agencies, communities, the media, and many others who have a "stake" or claim in some aspect of a company's products, operations, industry, and outcomes are known as

the primary role of a business is to maximize profits

In response to calls for businesses to be more socially responsible, the Nobel Prize-winning economist Milton Friedman argued that blank_______.

individual factors

In the workplace, ethical issues can involve honesty, conflicts of interest, discrimination, nepotism, and theft, among others. The individual's stage of cognitive development can affect their decisions. Gender: Extensive research shows that in many aspects there are no differences between men and women; but when differences are found, women are generally more ethical than men. Education: The number of years spent in pursuit of academic knowledge is also a significant factor in the ethical decision-making process. Nationality: Nationality is the legal relationship between a person and the country in which they are born, or have become a naturalized citizen. Research about nationality and ethics suggests that there are significant differences regarding what is considered right and wrong in different nationality-based cultures. Age: Age is another individual factor that has been studied as it relates to business ethics. Several decades ago, it was believed that age was positively correlated with ethical decision making. However, recent research suggests that there is probably a more complex relationship between ethics and age. Locus of Control: This factor relates to individual differences in relation to a generalized belief about how one is affected by internal versus external events or reinforcements. Those who believe in external control (that is, externals) see themselves as going with the flow because that is all they can do. Conversely, those who believe in internal control (that is, internals) believe that they control the events in their lives by their own effort and skill. These individuals view themselves as masters of their destinies and trust in their capacity to influence their environment. Current research suggests that we cannot be sure how significant locus of control is in terms of ethical decision making. One study that found a relationship between locus of control and ethical decision making concluded that those people who believed that their fate is in the hands of others were more ethical than those who believed that they formed their own destiny.

they are also an executive of the same company

Members of the board of directors may have a conflict of interest if

opportunity factors

Opportunity describes the conditions in an organization that limit or permit ethical or unethical behavior. Opportunity results from conditions that either provide rewards, whether internal or external, or fail to erect barriers against unethical behavior. Opportunity relates to individuals' immediate job context: where they work, with whom they work, and the nature of the work.

suggests that there are significant differences regarding what is considered ethical in different nations

Research regarding how nationality might impact ethics blank_______

an organization's obligation to maximize its positive effects and minimize its negative effects on stakeholders

Social responsibility is blank_______.

Minimum Requirements for Ethical Compliance Programs

Standards and procedures, such as code of ethics, that are reasonably capable of detecting and preventing misconduct High-level personnel who are responsible for an ethics and compliance program No substantial discretionary authority given to individuals with a propensity for misconduct Standards and procedures communicated effectively via ethics training programs Establishment of systems to monitor, audit, and report misconduct Consistent enforcement of standards, codes, and punishment Continuous improvement of the ethical compliance program

Global ethical culture

The current trend is away from legally based compliance initiatives in organizations to cultural initiatives that make ethics a part of core organizational values. To develop more ethical corporate cultures, many businesses are communicating core values to their employees by creating ethics programs and appointing ethics officers to oversee them. The ethical component of a corporate culture relates to the values, beliefs, and established and enforced patterns of conduct that employees use to identify and respond to ethical issues.

Ethical issue intensity

The intensity of an ethical issue relates to its perceived importance to the decision maker. Ethical issue intensity, then, can be defined as the relevance or importance of an ethical issue in the eyes of the individual, work group, and/or organization. Research suggests that individuals are subject to six "spheres of influence" when confronted with ethical choices: the workplace, family, religion, legal system, community, and profession. The level of importance of each of these influences will vary depending on how important the decision maker perceives the issue to be.

Sarbanes-Oxley Act

The law made securities fraud a criminal offense and stiffened penalties for corporate fraud. It created an accounting oversight board that requires corporations to establish codes of ethics for financial reporting and to develop greater transparency in financial reports to investors and other interested parties. It required top executives to sign off on their firm's financial reports, and risk fines and long jail sentences if they misrepresented their company's financial position. It also required company executives to disclose stock sales immediately, and prohibited companies from giving loans to top managers. A 2004 amendment required that a business's governing authority be well informed about its ethics program with respect to content, implementation, and effectiveness. This placed the responsibility squarely on the shoulders of the firm's leadership, usually the board of directors.

is consistent with viewing the corporation as a moral agent

The perspective that a corporation should be held accountable for conduct towards employees, investors, suppliers, and customers,

control

The process of auditing and improving organizational decision and actions, and providing feedback on whether decisions have achieved the desired results, is referred to as

Studying business ethics is valuable for several reasons:

an individual's personal values and morality are only one factor in the ethical decision-making process; being a good person and having sound personal ethics may not be sufficient to handle the ethical issues that arise in a business organization; business strategy decisions involve complex and detailed discussions, and a high level of personal moral development may not prevent an individual from violating the law in an organizational context; the values people learn from family, religion, and school may not provide specific guidelines for complex business decisions. Studying ethics helps business people begin to identify ethical issues, recognize the approaches available to resolve them, learn about the ethical decision-making process and ways to promote ethical behavior, and begin to understand how to cope with conflicts between personal, organizational, and societal values.

social responsibility

an organization's obligation to maximize its positive impact on stakeholders and to minimize its negative impact.

Justice approach

approach suggests that decisions should be guided by impartial standards of fairness and equity. Justice can apply to both the outcomes of decisions (are differences in salaries paid to different employees justified by differences in the work they do) as well as the procedures by which decisions are made (was every applicant for a job evaluated using the same criteria).The first is referred to as distributive justice, while the second is procedural justice. The idea that we should treat others as we would like to be treated (the "golden rule"), or "don't do something if you would be embarrassed to see it on the front page of the paper," are also simple rules of ethics that can be applied in many situations. In an era where any email we write, any comment we post, or any action we take might be digitally captured and distributed, it has become harder for individuals to believe that unethical decisions they make will never be revealed.

Utilitarian approach

approach suggests that decisions should be made that result in the greatest good for the greatest number of people, while minimizing any negative consequences to others. Hence a community might decide to build a road that will improve the flow of traffic for many citizens, even if that means that some individuals may be forced to sell their land, homes, or farms to allow for the road. Similarly, a company should develop an employee benefits package that serves the interests of most employees, although some employees would prefer a slightly different package.

Moral rights approach

approach suggests that every human being has some fundamental rights that must always be protected, and that no decision should infringe upon those fundamental rights. Employees should not be expected, for example, to perform dangerous operations unless they are properly trained and are fully aware of the risks (e.g., firefighters). Similarly a toy manufacturer should not sell a product that is likely to be dangerous to children.

primary stakeholders

are those whose continued association is absolutely necessary for a firm's survival; these include employees, customers, investors, and shareholders, as well as the governments and communities that provide necessary infrastructure.

transactional leaders

attempt to create employee satisfaction through negotiating or "bartering" for desired behaviors or levels of performance. Transactional leaders focus on ensuring that required conduct and procedures are implemented. Their negotiations to achieve desired outcomes result in a dynamic relationship with subordinates in which reactions, conflict, and crisis influence the relationship more than ethical concerns.

social responsibility

business ethics embodies standards, norms, and expectations that reflect a concern of major stakeholders, including consumers, employees, shareholders, suppliers, competitors, and the community. In other words, these stakeholders have concerns about what is fair, just, or in keeping with respect to stakeholders' rights. Many businesspeople and scholars have questioned the role of ethics and social responsibility in business. Legal and economic responsibilities are generally accepted as the most important determinants of performance. Much evidence shows that social responsibility, including business ethics, is associated with increased profits. Social responsibility contributes to employee commitment and customer loyalty - vital concerns of any firm trying to increase profits. It should be obvious from this discussion that ethics and social responsibility cannot be just a reactive approach to issues as they arise.

corporate culture

can be defined as a set of values, beliefs, goals, norms, and ways of solving problems that members (employees) of an organization share. An important component of corporate or organizational conduct is the company's ethical culture. Whereas corporate culture involves values and rules that prescribe a wide range of behavior for organizational members, the ethical culture reflects whether the firm also has an ethical conscience. Corporate cultures can support and reward unethical behavior as well as ethical behavior.

ethical culture

can be viewed as the character of the decision-making process that employees use to determine whether their responses to ethical issues are right or wrong. Ethical culture is used to describe the component of corporate culture that captures the rules and principles that an organization defines as appropriate conduct.

Business ethics

comprises principles and standards that guide behavior in the world of business. Investors, employees, customers, interest groups, the legal system, and the community often determine whether a specific action is right or wrong -- ethical or unethical.

money laundering

consists of using or transferring illegally received funds in a financial transaction, in order to conceal their source of ownership or to facilitate an illegal activity.

compliance orientation

creates order by requiring that employees identify with and commit to specific required conduct. It uses legal terms, statutes, and contracts that teach employees the rules and penalties for noncompliance.

secondary stakeholders

do not typically engage in transactions with a company and thus are not essential for its survival; these include the media, trade associations, and special-interest groups. Both primary and secondary stakeholders embrace specific values and standards that dictate what constitutes acceptable or unacceptable corporate behaviors. It is important for managers to recognize that while primary groups may present more day-to-day concerns, secondary groups cannot be ignored or given less consideration in the ethical decision-making process.

facilitating payment

giving bribes

The Federal Sentencing Guidelines for Organizations (FSGO)

holds corporations responsible for conduct they engage in as an entity.

Ethical climate

includes the character or decision processes used to determine whether actions are ethical or unethical. The ethical climate also consists of corporate codes of ethics, top management actions, ethical policies, coworker influence, and the opportunity for unethical behavior. The perceived ethics of the immediate work group has been found to be a major factor influencing ethical behavior.

code of conduct

is a written document that may contain some inspirational statements but usually specifies acceptable or unacceptable types of behavior. A code of conduct is more akin to a regulatory set of rules and, as such, tends to elicit less debate about specific actions.

self reference criterion

is an unconscious reference or comparison to one's familiar cultural values, experiences, and knowledge. When confronted with a situation, we react on the basis of past experience accumulated over a lifetime and grounded in our culture of origin. ( we vs them)

The shareholder model of corporate governance

is founded in classic economic precepts, including the goal of maximizing wealth for investors and owners. For publicly traded firms, corporate governance focuses on developing and improving the formal system for maintaining performance accountability between top management and the firms' shareholders. Thus, a shareholder orientation should drive a firm's decisions toward serving the best interests of investors. Underlying these decisions is a classic agency problem, where ownership (investors) and control (managers) are separate. Investors cannot directly monitor all the actions and decisions of managers, for they do not have the same information as the managers. The shareholder model has been criticized for its somewhat singular focus because other stakeholders also "invest" in a company; suppliers, creditors, customers, employees, business partners, the community, and others invest their resources into a company.

corporate citizenship

is often used to express the extent to which businesses strategically meet the economic, legal, ethical, and philanthropic responsibilities placed on them by their various stakeholders. Corporate citizenship has four interrelated dimensions: strong sustained economic performance, rigorous compliance, ethical actions beyond what the law requires, and voluntary contributions that advance the reputation and stakeholder commitment of the organization. A firm's commitment to corporate citizenship indicates a strategic focus on fulfilling the social responsibilities that its stakeholders expect of it.

reputation

is one of an organization's greatest intangible assets with tangible value. The value of a positive reputation is difficult to quantify, but it is very important. A single negative incident can influence perceptions of a corporation's image and reputation instantly and for years afterwards. Corporate reputation, image, and brands are more important than ever and are among the most critical aspects of sustaining relationships with constituents including investors, customers, financial analysts, media, and government watchdogs.

Ethical relativism

is the belief that only one culture defines ethical behavior for the whole globe with no exceptions.

Cultural relativism

is the concept that morality varies from one culture to another and that business practices are therefore differentially defined as right or wrong by particular cultures.

code of ethics

is the most comprehensive and consists of general statements, sometimes altruistic or inspirational, that serve as principles and the basis for rules of conduct. A code of ethics generally specifies methods for reporting violations, disciplinary action for violations, and a structure of due process. The six values that have been suggested as being desirable for codes of ethics include (1) trustworthiness, (2) respect, (3) responsibility, (4) fairness, (5) caring, and (6) citizenship.

The U.S. Foreign Corrupt Practices Act

prohibits American corporations from offering or providing payments to officials of foreign governments for the purpose of obtaining or retaining business abroad. This may place U.S. business at a disadvantage but this has been somewhat alleviated through global treaties. The expense of bribery around the world is becoming more apparent through business transparency leading more government agencies to crack down on the practice. .

intellectual property

refers to ideas and creative materials people develop to solve problems, carry out applications, educate, and entertain others. A patent is a legal document issued to an inventor that grants the right to exclude others from using or selling the product for a period of time. A copyright is protection that covers published and unpublished literary, scientific, and artistic works.

transformational leaders

strive to raise employees' level of commitment and foster trust and motivation. Transformational leaders promote activities and behavior through a shared vision and common learning experience. As a result, they have a stronger influence on coworker support for ethical decisions and building an ethical culture than do transactional leaders. Transformational ethical leadership is best suited for organizations that have higher levels of ethical commitment among employees and strong stakeholder support for an ethical culture.

leadership

the ability or authority to guide and direct others toward achievement of a goal, has a significant impact on ethical decision making because leaders have the power to motivate others and enforce the organization's rules and policies as well as their own viewpoints. Leaders are key to influencing an organization's corporate culture and ethical posture.

business relativist

there may be no ethical standards except for the one in the transaction culture or none at all.

World Trade Organization (WTO)

was established in 1995 at the Uruguay round of negotiations of the General Agreement on Tariffs and Trade (GATT). Today, the WTO has 133 member nations and an additional 33 nations that have applied for membership and hold observer status. On behalf of its membership, the WTO administers its own trade agreements, facilitates future trade negotiations, settles trade disputes, and monitors the trade policies of member nations. The WTO addresses economic and social issues involving agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards, food sanitation regulations, services, and intellectual property. It also provides legally binding ground rules for international commerce and trade policy. The organization attempts to reduce barriers to trade between and within nations and settle trade disputes. Although its goals are certainly lofty, the WTO has been criticized by a number of groups, especially environmental organizations.

price gouging

when prices increase beyond the level needed to meet the costs of these additional expenses, an ethical issue emerges. Increasing prices in this way is sometimes referred to as

statement of values

which serves the general public and also addresses distinct groups such as stakeholders. Values statements are conceived by management and are fully developed with input from all stakeholders. Despite our distinctions, it is important to recognize that these terms are often used interchangeably.

values orientation

which strives to develop shared values. Although penalties are attached, the focus is more on an abstract core of ideals such as respect and responsibility. Instead of relying on coercion, the company's values are seen as something to which people willingly aspire.