CHAPTER 4 The Institutionalization of Business Ethics Institutionalization
CHAPTER 4 The Institutionalization of Business Ethics
Institutionalization in Business Ethics • Three dimensions to effective business ethics compliance – Voluntary practices: Include the beliefs, values, and voluntary contractual obligations • All businesses have some voluntary commitments (e. g. , philanthropy) – Mandated boundaries: Externally imposed boundaries of conduct (e. g. , laws and regulations) – Core practices: Documented best practices, often encouraged by legal and regulatory forces
Legal Compliance • Laws and regulations established by governments – Minimum standards for responsible behavior • Laws regulating business passed because stakeholders believe business cannot be trusted to do what is right Source: Hisham Ibrahim
Elements of an Ethical Culture
Types of Laws • Civil law defines the rights and duties of individuals and organizations • Criminal law prohibits specific actions and imposes punishment for breaking the law • The difference is enforcement – Criminal laws enforced by the state or nation – Civil laws enforced by individuals (generally in court)
Only 1 in 4 Companies Has a Well. Implemented Ethics Program Source: “ 2007 National Business Ethics Survey, ” Ethics Resource Center, p. 20
Most Laws Affecting Business Fall into 5 Categories • • • Regulating competition Protecting consumers Protecting equity and safety Protecting the environment Those that encourage ethical conduct Source: Ryan Mc. Vay
Laws Regulating Competition • Laws passed to prevent the establishment of monopolies, inequitable pricing practices, and other practices that reduce or restrict competition among businesses – Sometimes called procompetitive legislation: Enacted to encourage competition and prevent activities that restrain trade
Laws Protecting Consumers • Laws protecting consumers require businesses to provide accurate information about products and services and to follow safety standards • Groups with specific vulnerabilities have higher levels of legal protection • The FTC’s Bureau of Consumer Protection protects consumers against unfair, deceptive, or fraudulent practices
Laws Promoting Equity and Safety • Laws promoting equity in the workplace protect the rights of minorities, women, older persons, and persons with disabilities – Title VII of the Civil Rights Act – Equal Employment Opportunity Commission (EEOC) – Affirmative action programs – The Equal Pay Act • Occupational Safety and Health Administration (OSHA) makes regular inspections to ensure that employees have a safe working environment – Many still work in unsafe environments
Laws Protecting the Environment • Largely in response to stakeholder concerns about businesses’ impact on environment • Sustainability has become an important concept to businesses lately. – Means “meeting the present needs without compromising future generations’ abilities to meet their own needs” – Being a green company can boost profits • The Environmental Protection Agency (EPA) created in 1970 to coordinate environmental agencies
Shopping for Environmentally Friendly Products in a Recession Source: 2009 Cone Consumer Environmental Survey of 1, 087 adults, January 29– 30.
Gatekeepers and Stakeholders • Trust is the glue that holds businesses together • Gatekeepers are overseers of business actions – Accountants, regulators, lawyers, financial rating corporations, auditors – Are critical in providing accurate information that allows stakeholders to gauge the true health of a corporation Source: © image 100/Corbis
Risk Assessment • A group that failed in its duties to stakeholders during the most recent recession were assessors of financial products – Misled investors and stakeholders – More oversight of credit rating firms in the future? Source: Stockbyte
The Sarbanes-Oxley Act • Establishes a system of federal oversight of corporate accounting practices • Gives the Public Company Accounting Oversight Board (PCAOB) authority to monitor accounting firms that audit public corporations – Standards and rules for auditors in accounting firms • Requires top managers to certify their firms’ financial reports – More accountability for CEOs and CFOs • Some legal protection for whistle-blowers
Cost of Compliance • Estimated at $1 million per $1 billion in revenues • Compliance with Section 404 requires: – That management create reliable internal financial controls – That management attest to the reliability and accuracy of the financial statements – An independent auditor must attest to the statements Source: C Squared Studios
Federal Sentencing Guidelines for Organizations • Incentive for organizations to develop and implement programs for ethical and legal compliance • Applies to all felonies and class A misdemeanors committed by employees • Philosophy that legal violations can be prevented through organizational values and a commitment to ethical conduct
Percentage of U. S. Workforce Who Feel the Government is Currently Providing too Little Oversight Source: 2009 National Business Ethics Survey, Ethics Resource Center, p. 31
Highly Appropriate Core Practices • Sarbanes-Oxley and FSGO seek to provide incentives to develop appropriate core practices – Focus on developing structurally sound organization core practices and developing structural integrity for financial performance and non-financial performance
Employees’ Preparation to Respond to Ethical Misconduct Risk Source: National Business Ethics Survey, How Employees View Ethics in Their Organizations 1994 -2205, (Washington D. C. : Ethics Resource Center, 2005): 39
Philanthropic Issues • Involve business’s contribution to the local community and society • Quality of life issues – Responsible production of goods and services – Technology improvements…yet not damaging to the environment or jeopardizing personal privacy • Philanthropic issues – Making the local community a better place to live • Strategic philanthropy: Synergistic and mutually beneficial use of a company’s core competencies and resources to deal with social issues
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