Business Ethics and Organizational Values

Business Ethics - Institutionalization

• Developing and implementing an effective ethics program, is crucial element.
• Institutionalization of business ethics is a significant factor.
• The responsibility of the corporation to its stakeholders is considered.
• Companies are viewed as moral agents accountable for their conduct.
• Society holds companies accountable for employee conduct and decisions.
• Implementing a centralized ethics program provides a cohesive and consistent set of statements and policies.

Learning Objectives

• Explain the need and scope for ethics and compliance management programs.
• Define ethics and compliance management.
• List the minimum requirements for an ethics and compliance management program.
• Describe the role of codes of ethics in managing ethical behaviors within a company.
• Identify factors and common mistakes for an effective ethics program.
• Distinguish between voluntary, private, and mandated boundaries of ethical conduct.
• List and explain consequences of non-compliance.
• Describe the changing roles of governments, business, and civil society in the regulatory process.

Minimum Requirements

• Establish standards and procedures to prevent and detect criminal conduct.
• Ensure the firm's board, top management, and high-level personnel exercise reasonable oversight.
• Make reasonable efforts to keep individuals with illegal activity out of key positions.
• Communicate standards and procedures through training.
• Monitor and audit the program to detect criminal conduct.
• Promote and consistently enforce the program with incentives and discipline.
• Take reasonable steps to respond to criminal conduct, and prevent further similar conduct— including necessary program modifications.

Responsibility of the Board of Directors

• The organization's governing authority must be knowledgeable about the content and operation of the compliance and ethics program.
• They must exercise reasonable oversight in the implementation and effectiveness of the compliance and ethics program.

Compliance Management - Example

• Alstom was convicted of not taking necessary precautions to prevent bribery, in 2011.
• The group implemented a compliance policy but did not enforce it.
• Some acts of bribery in various countries were not prevented.
• This demonstrates an organizational failure.

Ethical Culture

• Ethical leadership, Core Ethical Values, Ethical Corporate Culture, and Ethics Program are key elements of ethical corporate culture.
• Schwartz 2013 provided these categories.

Compliance in a Nutshell

• Ensure legally and ethically correct behavior of a company and its employees.

Reasons why Codes of Conduct Fail

• Codes are not promoted, and employees do not read them.
• Codes are not easily accessible.
• Codes are written too legalistically and are not understandable.
• Codes are written too vaguely.
• Top management does not refer to the code in practice.

Education and Training

• A major step in developing an effective ethics program is implementing a training program and communication system.
• Educate employees about the firm's policies, expectations, relevant laws, and regulations.
• Make employees aware of resources, support systems, and designated personnel.
• Empowerment of employees to ask tough questions about ethical concerns.

Organizational Measures

• Ethics officers and compliance function leaders are responsible for oversight of compliance.
• Assessing the organization's needs and risks.
• Developing a code of conduct or ethics.
• Training employees.
• Maintaining confidentiality for ethical concerns.
• Ensuring compliance with government regulations.
• Monitoring and auditing ethical conduct.
• Acting on possible violations.
• Reviewing and updating the code.

The Three Lines Model

• First Line: Operating management- provision of products/services to clients, managing risk,
• Second Line: Risk and compliance functions- expertise, support, monitoring, & challenging risk-related matters,
• Third Line: Internal audit (independent assurance)- objective assurance & advice on all matters related to achievement of organizational objectives.

Reporting, Advice, Monitoring

• Ensure how employees handle ethically charged situations.
• Reporting systems & guidelines are in place.
• Discussions about ethical issues and dilemmas should be common practice.
• Systems allowing employees to report misconduct.
• Using tools/software for screening and documenting
• Keeping the ethics program up-to-date.
• Identifying and addressing issues as needed.

Common Mistakes in Developing an Ethics Program

• Recognizing the need for an ethics program without addressing fundamental questions.
• Not setting realistic and measurable program objectives.
• Senior management failing to take ownership of the ethics program.
• Not addressing the needs of average employees.
• Transferring a national program to international operations.
• Designing an ethics program as limited to lecture topics.

Top Three

• Tone from the Top
• Updates are Key
• Beware of Paper Tigers (check-the-box approach)

Mandated, private, and voluntary boundaries of Ethical Conduct

• Laws, rules, and regulations externally imposed to enforce conduct.
• Industry associations or civil society groups encouraging practices.
• Management-initiated beliefs and values supported by voluntary contracts or strategic philanthropy.

Why Law is Not Enough

• Law is written in general terms, leaving room for interpretations and loopholes.
• Law typically operates reactively, dealing with harm already happened, rather than proactively.
• Legal power is often national, but ethical concerns often have international implications.
• Focusing solely on law as a solution would be insufficient, costly, and hostile.

Compliance Management - Costs of Noncompliance

• Monetary fines
• Risks to criminal and civil liability.
• Eroding consumer trust
• Reduced employee morale
• Loss of competitive advantage
• Shattered investor trust
• Investigations by foreign authorities

Example - Toyota Motor Corporation Recalls

• Three separate recalls of Toyota automobiles at the end of 2009 and start of 2010.
• The recalls were assisted by the U.S. NHTSA.
• Reports of unintended acceleration, prompting investigation and accusations of delay in acknowledging the issues.
• Toyota eventually agreed to pay a USD $32.4 million fine, followed by further fines.

Sarbanes-Oxley (SOX) Act

• Response to widespread accounting scandals in 2002.
• Made fraudulent financial reporting a crime and strengthened penalties.
• Required corporations to establish codes of ethics for financial reporting.
• Created the Public Company Accounting Oversight Board (PCAOB).
• Improved overall audit quality through oversight board and SEC quality-control.

Anti-Money Laundering - Regulatory Requirements

• FINMA's statutory powers to supervise banks, insurers, and other financial institutions.
• Regulations for financial market activities.

The Role of Government as Stakeholder

• Governments act as an elected representative of citizen interests.
• Governments have their own interests, in terms of mutual dependency with society and businesses.

Managing Business Ethics

• Explain the nature, evolution, and scope of business ethics management.
• Explain why managing social expectations alongside employee ethical behavior is a concern.
• Critically examine the role of codes of ethics, managing ethical employee behavior.
• Discuss current theory and practice regarding the overall management of stakeholder relationships.
• Explain tools like social accounting, auditing, reporting in assessing ethical performance.
• Demonstrate different organizations' ways of managing business ethics.

Key Concepts in Business Ethics

• Code of ethics, stakeholder management, social accounting, environmental management.
• Environmental management systems, ethical leadership.

Explore the essential concepts of mission statements, codes of ethics, and their impact on organizations. This quiz delves into the significance and effectiveness of ethical standards in business settings, including common shortcomings and factors affecting employee behavior. Test your understanding of how these elements work together to shape organizational culture.