Chapter 6 Organizational Ethics and the Law Mc

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Chapter 6 Organizational Ethics and the Law Mc. Graw-Hill/Irwin Copyright © 2008 The Mc.

Chapter 6 Organizational Ethics and the Law Mc. Graw-Hill/Irwin Copyright © 2008 The Mc. Graw-Hill Companies, All Rights Reserved.

Ch. 6: Key Learning Objectives Ø Classifying an organization’s culture and ethical climate Ø

Ch. 6: Key Learning Objectives Ø Classifying an organization’s culture and ethical climate Ø Recognizing ethics challenges across the multiple functions of business Ø Developing effective ethics polices, ethics training programs, ethics assist lines, and similar safeguards Ø Assessing the strengths and weaknesses of a comprehensive ethics program Ø Understanding how to conduct business ethically in the global marketplace Ø Knowing the differences between ethics and the law 6 -2

Corporate Culture and Ethical Climates Ø Corporate culture § A blend of ideas, customs,

Corporate Culture and Ethical Climates Ø Corporate culture § A blend of ideas, customs, traditional practices, company values, and shared meanings that help define normal behavior for everyone who works in a company Ø Ethical climate § The unspoken understanding among employees of what is and is not acceptable behavior § Multiple climates (or subclimates) can exist within one organization 3

Figure 6. 1 The Components of Ethical Climates 4

Figure 6. 1 The Components of Ethical Climates 4

Business Ethics across Organizational Functions Ø Business operations can be very specialized, leading to

Business Ethics across Organizational Functions Ø Business operations can be very specialized, leading to ethical challenges related to those functional areas § Professional ethical standards may conflict with the ethical standards within the organization Ø Professional associations may have specific ethical standards that apply to that function 5

Professional Codes of Conduct Ø Examples of business professional associations and their codes: §

Professional Codes of Conduct Ø Examples of business professional associations and their codes: § American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct § Chartered Financial Analyst (CFA)®, CFA Institute Code of Ethics and Standards of Professional Conduct § American Marketing Association (AMA) Code of Ethics § Association for Computing Machinery (ACM) Code of Ethics and Professional Conduct • For Information Technology professionals Ø See Exhibits 6. A and 6. B in text on pp. 118 -120 to review these codes 6

Building Ethics Safeguard into the Company Ø To improve the quality of a company’s

Building Ethics Safeguard into the Company Ø To improve the quality of a company’s ethical performance you have to change the culture so that ethics is part of everyday decision-making Ø To do so means institutionalizing ethics or building ethics safeguards in to everyday routines Ø A recent survey of ethics safeguards or programs of major corporations companies is shown on next slide 7

Figure 6. 2 Organizations’ Ethics Safeguards 8

Figure 6. 2 Organizations’ Ethics Safeguards 8

Two Ethics Approaches 1. Compliance-based approach § § Seeks to avoid legal sanctions Emphasizes

Two Ethics Approaches 1. Compliance-based approach § § Seeks to avoid legal sanctions Emphasizes threat of detection and punishment to promote lawful employee behavior 2. Integrity-based approach § § § Combine concern for law with emphasis on employee responsibility for ethical conduct Employees instructed to act with integrity and conduct business dealings honestly Both approaches have been found to reduce unethical conduct, but in somewhat different ways 9

Ethics Programs and Policies Ø Top Management Commitment and Involvement § Critical to fostering

Ethics Programs and Policies Ø Top Management Commitment and Involvement § Critical to fostering employee ethical behavior Ø Ethics Code or Policies § Provides guidance to managers and employees on what to do when faced with an ethical dilemma § In U. S. policies tend to be instrumental, providing rules and procedures, in Japan tend to be combination of legal compliance and company values § Just having a code or policy is insufficient, must be widely distributed and have associated training 10

Ethics Programs and Policies Ø Ethics Officers § May also be called Compliance Officer

Ethics Programs and Policies Ø Ethics Officers § May also be called Compliance Officer or Ombudsperson § Relatively new position (started in 1980’s) that has grown significantly § Membership in professional association, Ethics and Compliance Officers Association, doubled between 2000 and 2004 Ø Ethics Help Lines § Purposes include providing interpretations of proper ethical behavior, avenue for reporting unethical conduct, and information -sharing tool § Are present in over 83% of large companies recently surveyed 11

Ethics Programs and Policies Ø Ethics Training Programs § Is very effective method for

Ethics Programs and Policies Ø Ethics Training Programs § Is very effective method for promoting workplace ethical behavior Ø Ethics Audits § Formal study of deviations from company ethical standards § Management must report on corrective action to be taken in response to found deviations 12

Comprehensive Ethics Programs Ø Integration of various program/policy components is critical to effective ethics

Comprehensive Ethics Programs Ø Integration of various program/policy components is critical to effective ethics design § Integrated approach is called a “comprehensive” program Ø 26% of companies recently surveyed had a “ 6 element” program integrating § Written policies, training, advice resources, hotline, ethics discipline, and evaluation systems Ø Those working at firms with a comprehensive program are § More likely to report ethical misconduct § More likely to be satisfied with any investigation and response to ethical misconduct 13

Corporate Ethics Awards Ø Awarded to companies for efforts in creating and improving their

Corporate Ethics Awards Ø Awarded to companies for efforts in creating and improving their ethical performance Ø These companies serve as models for others to follow Ø Business Ethics magazine has offered awards to model companies since 1989 § In 2002 created “Living Economy Award” for companies that focused on fair profit, locally based, stakeholder owned companies 14

Ethics in a Global Economy Ø Doing business in global context brings up host

Ethics in a Global Economy Ø Doing business in global context brings up host of complex ethical challenges § Common example is bribery § Bribery is defined as a questionable or unjust payment often to a government official to ensure or facilitate a business transaction Ø International watchdog agency, Transparency International, publishes a survey of countries’ levels of corruption § Bribe-taking more likely in countries with low per capita income, low salaries for government officials, and less income variation 15

Efforts to Curtail Bribery on the Global Level Ø Organization for Economic Cooperation and

Efforts to Curtail Bribery on the Global Level Ø Organization for Economic Cooperation and Development (OECD) Treaty § Effort for member countries to agree to steps to prevent and combat bribery § As of 2006, 36 countries had ratified the treaty Ø Other initiatives § Southern Africa Forum against Corruption § Council of Europe’s Criminal Law Convention § ILO and UN Ethics Codes for multinational corporations (to be studied in Ch. 7) 16

Efforts to Curtail Bribery on the National Level Ø Efforts in a number of

Efforts to Curtail Bribery on the National Level Ø Efforts in a number of countries § Chile – passed 50 anticorruption laws in 2003 § Indonesia – established independent corruption body § Switzerland – nullified tax advantages of paying commissions to foreign consultants § Russia – full scale battle against corruption (see Exhibit 6. D) Ø U. S. Foreign Corrupt Practices Act prohibits executives of U. S. based companies to pay bribes to foreign government officials 17

Exhibit 6. D Excerpts Anticorruption and Bribery Efforts in Russia Ø Russian President Vladimir

Exhibit 6. D Excerpts Anticorruption and Bribery Efforts in Russia Ø Russian President Vladimir Putin was serious about his pledge to clean up Russia, since he realized that the entrepreneurial sector of his country’s economy could never achieve its full potential without a fullscale battle against corruption. Ø A number of actions underscored Putin’s commitment to end bribery and corruption: § A probe of high-level bureaucrats led to charges against many officials including Railways Minister Nikolai Aksyonenko for illegally spending ministry funds. § Judges’ salaries were increased fivefold in an effort to cut down on courtroom bribery. § A new law banned the intervention of state prosecutors in private litigation between contending business parties, eliminating another potential bribery situation. § Other regulations sharply restricted discounts that railroad regulators could give to shippers. § The number of business activities that required a license was drastically reduced from 2, 000 to 100—fewer licenses meant fewer chances for a bureaucrat to be in line for a bribe. 18

Relationship between Law and Ethics Ø Both define proper and improper behavior Ø Laws

Relationship between Law and Ethics Ø Both define proper and improper behavior Ø Laws are society’s attempt to formalize ethical standards § Written to capture public’s wishes about what constitutes right and wrong behavior Ø Ethical concepts are more complex than laws § Often apply to areas not covered by laws § Some businesses proactively address ethical areas not covered by law through voluntarily adopted practices Ø Managers who are trying to improve their company’s ethical performance need to do more than comply with laws 19

Cost of Corporate Lawbreaking Ø Lawbreaking in business is often result of acts of

Cost of Corporate Lawbreaking Ø Lawbreaking in business is often result of acts of companies own employees Ø Recent surveys found § 1/3 of companies were victims of fraud, some with costs of $2 million annually § Corporate crimes from faulty goods, monopolistic practices, and other law violations cost American consumers between $174 and $231 billion § Corporate lawbreaking in Germany estimated at 50 billion marks ($29 billion US), and in UK $73 billion 20

Cost of Corporate Lawbreaking Ø Are physical and social costs related to workplace health

Cost of Corporate Lawbreaking Ø Are physical and social costs related to workplace health and safety violations § As high as 17 workplace deaths per day Ø U. S. Justice Department cracking down on corporate illegal activity § New sentencing guidelines put corporate penalties on par with street crimes § Corporate executives convicted of white collar crimes no longer allowed to serve time in halfway houses, will serve time in federal prisons Ø Many costs of lawbreaking points to need for companies to promote ethical behavior 21