Ethics Notes PDF

W1: Introduction to Ethics What is ethics? Ethics = How we act, choose, behave and do things (How we live our lives) 1. We as individuals (personal integrity) ○ Morals = Underlying values on which our decisions are based ○ Ethics = Applications of moral values to decisions...

W1: Introduction to Ethics What is ethics? Ethics = How we act, choose, behave and do things (How we live our lives) 1. We as individuals (personal integrity) ○ Morals = Underlying values on which our decisions are based ○ Ethics = Applications of moral values to decisions 2. We as a community ○ Social ethics = Justice, Public policy, Law, Civic virtues, Organisational structure, Political philosophy ○ Decision making for social responsibility: Affects many other people other than the decision maker Managerial decisions often include both these aspects of ethics E.g. Runaway trolley problem: Self-driving cars are bringing the trolley problem into the real world Business ethics = A process of responsible decision making Concerned with how business institutions ought to be structured, about corporate social responsibility and about making decisions that will impact many people other than the individual decision maker Which values and principles should guide decision making? How ethics should be integrated within business? Ethical values = Beliefs that incline us to act/choose in one way rather than another Values are internal (Difference between values and norms) Ethical values need not be aligned to ethical norms which are external (Contradiction → Dilemma) Individuals can have their own personal values Institutions also have values Company’s core values = Those beliefs and principles that provide the ultimate guide in its decision making Ethical norms = Standards of appropriate and proper behaviour (normal behaviour) Deals with the reasoning of how and why people should act in a certain way Establishes the guidelines/standards for determining what we should do, how we should act and what type of person we should be Ethics is normative, not descriptive Corporate culture = Identifiable set of values for what is “normal” in a firm ○ Guides employees to behave in ways that the firm values ○ May/may not be ethical Ethics and the law: Course focuses on the intersection between business and ethics as well as the intersection between business, ethics and the law. Law provides a very important guide to ethical decision-making, but legal norms and ethical norms are not identical nor do they always agree Law may not be ethical: Different jurisdictions may follow different laws Law is the minimum ethical requirement: Prevents harm, but may not promote good  Impossible to legislate for everything ○ Law cannot anticipate every scenario ○ May result in unmanageable amounts of regulation Ethical Theories and Frameworks in Business Ethical framework = Provides a systematic answer to the fundamental ethical question of how should we act and how should we live our lives? Provides reason to support the answer: Consequences, Principles, Personal character 3 ethical frameworks: 1. Utilitarianism: Decide based on overall consequences of our acts 2. Principles based: Act on the basis of moral principles/duties a. Kantianism: Duty to protect human rights b. Libertarianism: The fundamental individual right to liberty c. Egalitarianism: Equality as the most central element of social justice 3. Virtue ethics: Consider the moral character of individuals and how various character traits can contribute to/obstruct a happy and meaningful human life Utilitarianism Utilitarianism = Choose actions that promotes the greatest human well being to the greatest number of people (Consequentialist approach) E.g. Freedom, Happiness, Health, Money, etc. Greatest good for the greatest number Maximise the overall good Should act in ways that result in better consequences than alternatives No absolute right/wrong in all cases across every situation as it depends on consequences ○ Need to consider support for competing alternatives E.g. Banning child labour as harmful to the overall good or Allow child labour as contributing to the overall good Utilitarianism and business ○ Free market economics to maximise the overall good Free markets produce goods and services that consumers want Most efficient allocation of scarce resources to optimally satisfy consumer wants Businesses should maximise profits to ensure scarce resources fo to consumers who value them the most ○ Public policy to predict outcomes of and implement policies to maximise overall good Establish and execute public policies that will enhance the overall good Limitations: a. Difficulties in counting, measuring, quantifying and comparing consequences (e.g. happiness, health, freedom) b. Distribution and intensity of good (e.g. 5% salary increase for all employees or 100% salary increase for senior management?) c. Do the ends always justify the means? (Principle based ethics)  Are there certain rules we should make or decisions we should follow regardless of the consequences? d. Does not respect individual rights E.g. Case Study: Bailout of the US auto industry in 2009 During the financial downturn of 2008, America’s “Big Three” automakers - GM, Chrysler and Ford - saw big drops in their sales and were badly hit. By 2009, the auto makers were facing bankruptcy and needed a bailout to continue operations. Utilitarianism: 1. Who are the stakeholders involved? ○ Government, Tax payers, Auto companies, Employees, Suppliers, Consumers, etc. 2. Who would be negatively/positively affected by the bailout? ○ Government: Bailout cost (US$49.5B), recouped US$39B, tax revenue, quality/quantity of public services, etc. ○ Citizens: Effect on employment (saved 1.9m jobs), effect on GDP, effect on standard of living, etc. ○ Auto companies: Effect on performance, effect on shareholders ○ May encourage people to engage in riskier behaviour as they might think that the government will always bail them out 3. Is it ethical/right for the government to have bailed out the auto industry? ○ Is the overall good (quantitative and qualitative) maximised? (Utilitarianism) Principles-based Ethics Principles-based ethics = Concerned with what people do, not with the consequences of their actions, Recognises that the ends may not justify the means (Supplements utilitarian principles) Some ethical decisions should be made as matter of principle rather than consequence ○ Some rules that we should follow even if doing so prevents good consequences/leads to bad consequences ○ People have a duty to do the right thing, even if it produces a bad result ○ Creates ethical duties that bind us to act/decide in certain ways Categorical imperatives = an unconditional moral obligation which is binding in all circumstances and is not dependent on a person's inclination/purpose Rules that are a part of a social agreement/contract which functions to organise and ease relations between individuals → We should follow ○ Legal rules (contracts, etc.) ○ Organisational rules ○ Role-based rules ○ Professional rules (e.g. ISCA Code of Professional Conduct and Ethics) Consider: Kantianism, Libertarianism, Egalitarianism Kantianism = Fundamental duty to treat each person as an end in themselves, not only as a means to our own ends Human rights: Protect individuals from being treated in ways that will violate their dignity and that will treat them as mere objects/means  Fundamental duty to respect human rights of others Human rights and social justice ○ Libertarianism: Fundamental individual right to liberty ○ Egalitarianism: Equality as the most central element of social justice Libertarianism = Fundamental individual right is the right to liberty (a right to choose and live freely provided we respect other people’s right to do the same) Businesses should be free to pursue profits voluntarily and in a non-deceptive manner, within law a. Government’s role is to ensure free and open competition and that economic transactions are free from cohesion, fraud and deception According to libertarianism: a. Should not be paternalistic legislation (e.g. seat belt law should not be forced on everyone) b. No moral legislation (e.g. no smoking laws) c. No redistribution of income from rich to poor (e.g. taxation is a kind of coercion) Allows for minimal state that taxes for national defence, police force, judicial system to enforce contracts and property rights Egalitarianism = Equality as the most central element of social justice Equal distribution of basic economic goods and services Typically supports greater government involvement in the economy as a means to guarantee equality Challenges to principles and rights based ethics: 1. No agreement on scope and range of ethics based rights ○ Rights vs Wants? ○ Who has the duty to provide them with this right? 2. Practical problems of application in real life ○ E.g. Conflicting rights of two parties (Categorical imperative) E.g. GM’s car recall decision Utilitarianism: Did GM do the right thing in not recalling the car? Was the “overall good” maximised? In the early 2000s, GM, like the other Detroit automakers, was under intense cost pressure, in the face of competition from overseas rivals and a legacy of high labor costs.” “decided not to change an ignition switch eventually linked to the deaths of at least 13 people because it would have added about a dollar to the cost of each car” “would continue using the old switch “until the piece cost can be eliminated or significantly reduced” Difficulty in anticipating costs (e.g. Fines, backlash) Principles-based ethics: Did GM have any ethical duty towards its customers? Barra said she found the concept of turning down the change because of tooling costs “very disturbing. That is not the way we do business in the New GM.” "People were hurt and people died in our cars," GM CEO Mary Barra told employees Thursday afternoon. “That's why we're here today." "This is a tragic situation and we understand that lives are impacted," she said. "We've made substantial changes, and people know we are sincere."  “Technically, it isn't illegal to sell a car that has a defect that can kill people, he explained. That's why instead he charged the company for failing to report the information it had about the defect.” Virtue Ethics Virtue ethics seeks a full and detailed description of those character traits/virtues that would constitute a good and full human life Focuses on who I am ○ E.g. Friendly, honest, etc. ○ Unlike utilitarian and principle based frameworks which focus on rules that we might follow in deciding what we should do ○ Focus shifts from what a person should do to who that person is Recognises that our identity as a person is constituted in part by our wants, beliefs, values and attitudes ○ The self is identical to a person’s most fundamental and enduring dispositions, attitudes, value and beliefs ○ Emphasises the more affective side of our character Recognises that human beings act in and from character ○ Social institutions (e.g. organisations and businesses) and our roles within them influence our character E.g. Why the Old Chang Kee boss prefers hiring elderly What kind of ethical moral reasoning does the founder of Old Chang Kee display? “Han feels morally compelled to contribute to the public good” “I have been the beneficiary of taxpayer money, and this nation is where my fortunes grew,” says the 64-year-old Han. “This (policy) is my social obligation.” ○ Loyal → Who he is → Virtue ethics (More intuitive, emotional) “Businesses succeed, thanks to good conditions. We have to give back to the environment that helped us rise from nothing.” Downsides Efficiency? Medical costs, etc? W2: Ethical Decision Making Ethics in Business Business ethics operates at 3 levels 1. Individual ○ Business ethics = Concerned with individual executives, employees and shareholders ○ Professional ethics = Concerned with the individual professional (lawyer, accountant, etc.) in the provision of expertise, skill and knowledge to clients 2. Organisational: Involves the culture of the organisation ○ Actions and speech of leaders ○ Values espoused 3. Systematic (Out of scope) ○ Deals with the morality of capitalism and the marketplace ○ Outside the control of individuals and organisations E.g. Truett Tate: Ethics (Personal vs. Corporate) 1. Is it possible to separate personal ethics from business ethics? ○ No: We are the same person at work and at home should follow the same values regardless ○ BUT are business decisions more complex? One decision may impact different stakeholders differently. Business is an inherently competitive environment? 2. Is it important to separate personal ethics from business ethics? ○ Are people and businesses held to the same benchmarks? ○ What are the consequences of a person acting unethically? ○ What are the consequences of a business acting unethically? A firm should care about ethics as ethics failures are business failures Unethical behaviour can create financial and marketing risk ○ E.g. Bankruptcy, fraud, consumer boycotts, etc. Ethical behaviour can provide a competitive advantage/disadvantage for firms Ethical behaviour encourages trust, loyalty, commitment, creativity within organisations Ethical failures can have far-reaching consequences Decisions that a business makes have far-reaching consequences and affect many different stakeholders ○ Business stakeholder = Anyone who affects/is affected by decisions made within the firm E.g. Consequences of ethical failures at Enron ○ Shareholders lost $1 billion in stock value ○ Thousands of employees lost jobs, retirement and healthcare benefits ○ Hundreds of suppliers who worked with Enron suffered economic losses ○ Arthur Anderson, its auditor, went out of business ○ Consumers in California suffered energy shortages caused by Enron's manipulation of the market ○ Individuals directly involved in the fraud went to jail  ○ Families of employees, suppliers, etc. were affected Model of Ethical Decision Making 1. Determine the facts of the situation ○ Understand the situation ○ Distinguish facts from opinions ○ Perceptual differences between individuals can lead to ethical disagreements ○ Person who acts in a way that is based on careful consideration of the facts has acted in a way that is more ethically responsible than someone who does not 2. Identify the ethical issues involved ○ Decisions with ethical implications = Affects the well being of the people involved (Happiness, health, dignity, integrity, freedom, respect ○ Business and ethical decisions are not mutually exclusive ○ Normative myopia = Inability to recognise ethical issues ○ Inattentional blindness = Focusing failures Focusing on wrong things or not focusing at all ○ Change blindness = Failure to notice gradual changes over time Slippery slope of getting away with small stuff ○ Utilitarianism = Fairness and justice of consequences ○ Principle-based ethics = Fulfilment of duties (Principles that must be obeyed) Kantianism = Respect for fundamental rights ○ Virtue ethics = Demonstration of values, character, etc. 3. Identify stakeholders and consider the situation from their points of view ○ Stakeholders = All groups and/or individuals affected by a decision, policy or operation of a firm E.g. employees, customers, shareholders, suppliers, government, local community ○ Considering different points of view makes decisions more accountable, reasonable and responsible (Be as comprehensive as possible) 4. Consider available alternatives (moral imagination) 5. Compare how alternatives will affect stakeholders ○ Predict likely, foreseeable and possible consequences to all relevant stakeholders ○ Is there anyway to mitigate, minimise or compensate for negative consequences? ○ Is there anyway to increase positive consequences? ○ BUT consequences are not the only consideration Principles-based ethics: Principles, rights and duties? Virtue ethics: Integrity, virtue and character? 6. Make a decision 7. Monitor and learn from outcomes ○ Responsibility to evaluate implications of decision ○ To monitor and learn from outcomes ○ Modif future actions accordingly Practical Aspects of Ethical Decision Making The Ethical Mind = The capacity to rise above mainstream doings to give allegiance to a higher cause or broader mission by doing what is good or right, potentially at a cost to oneself One of the 5 minds of cognitive capacities: Disciplined mind, synthesising mind, creating mind, respectful mind, ethical mind Difference between respectful and ethical mind: ethical mind is like an impartial spectator of the world; may have to sacrifice respect for another person if your role calls on you to do damage control to protect an idea or institution you believe in (e.g. whistleblowing) Maintaining an ethical mind in business: Professionals undergo training and earn a licence ○ Not so for business: Only requirements are to make money and not run afoul of the law Attributes of an ethical mind: 1. Asks “If everyone in my profession adopted the mindset I have or did what I do, what would the world be like?” 2. Considers one’s own momentary well-being as less important in the broader mission that he/she has endorsed 3. Is aware of the costs/consequences of being ethical but remains steadfast and unwavering Obstacles to an ethical mind: 1. Bad peer pressure ○ “Everyone does it”, “When I have made my mark, I will become exemplary” 2. Bad leadership ○ “Leaders themselves do it” 3. Not prepared for it. Not making time to formulate an ethical mind ○ Taken by surprise when an ethical dilemma arises ○ Giving in when under potent pressure The influence of business leadership on ethical mind Employees follow the lead of leaders → Pressured to emulate the bad behaviour or feel inspired to act ethically Best way for a leader to retain an ethical compass is to believe doing so is essential for the good of the organisation ○ Practise “positive periodic inoculations”: Meet individuals/Have experiences that force you to examine what you’re doing or to set a good example for others E.g. The training program 1. What are some consequences of this decision? ○ May not get employment in the US; would have to return to his home country earnings, career prospects, etc may be negatively affected (permanently?) 2. Are there any external factors that might influence Rajiv’s decision? ○ Everybody else is doing it ○ The owner of the firm is telling him to do it  3. What would the ‘ethical mind’ tell Rajiv to do in this situation? ○ Rajiv should do what is right. He should ignore what others are doing, and the consequences of his decision on his career 5 Barriers to an ethical organisation 1. Ill-conceived goals: Set goals and incentives to promote a desired behaviour but they encourage a negative one ○ E.g. Pressure to maximise billable hours in accounting, consulting and law firms leads to unconscious padding ○ Remedies: Brainstorm unintended consequences when devising goals and incentives. Consider alternative goals that may be more important to reward 2. Motivated blindness: Overlook unethical behaviour of others when it’s in our interest to remain ignorant ○ E.g. Baseball officials failed to notice they’d created conditions that encouraged steroid use ○ Remedies: Root out conflicts of interest. Simply being aware of them does not necessarily reduce their negative effect on decision making 3. Indirect blindness: Hold others less accountable for unethical behaviour when it’s carried out through third parties ○ E.g. A drug company deflects attention from a price increase by selling rights to another company, which imposes the increase ○ Remedies: When handing off/outsourcing work, ask whether the assignment might invite unethical behaviour and take ownership of the implications 4. Slippery slope: Less able to see others’ unethical behaviour when it develops gradually ○ E.g. Auditors may be more likely to accept a client’s questionable financial statements if infractions have accrued over time ○ Remedies: Be alert for even trivial ethical infractions and address them immediately. Investigate whether a change in behaviour has occurred 5. Overvaluing outcomes: Give a pass to unethical behaviour if the outcome is good ○ E.g. A researcher whose fraudulent clinical trial saves lives is considered more ethical than one whose fraudulent trial leads to deaths ○ Remedies: Examine both good and bad decisions for their ethical implications. Reward solid decision processes, not just good outcomes When Good People Do Bad Things at Work Situational factors that keep people from doing their best: 1. Scripts: Procedures that experience tells us to use in specific situations, stored in memory in a mechanical or rote fashion ○ Cognitive shortcuts that take the place of careful thinking ○ Allows us to avoid responsibility for the suffering of others when providing help may be costly 2. Distractions: Inattention to what is happening on the periphery when completing an involving task 3. Moral exclusion: Occurs when individuals/groups are perceived as being outside the boundary in which moral values and considerations of fairness apply (e.g. war) ○ Since they are different from me, that’s why different moral standards apply ○ Need to encourage contact with people who have been morally excluded E.g. Case study: What would you do? You are the newly appointed Financial Controller in ABC Pte Ltd, a large private manufacturing company. While doing a review of key customer accounts, you find that a small number of customers have credit balances on their sales ledger accounts. In particular, two of these are for sums of S$210,234 and S$340,456 respectively. These amounts relate to invoices which are now over 9 months old and which appear to have been paid twice. You find this odd and decide to raise the issue with your manager, Mr Tan, the Finance Director. You advise him of what you have found but Mr Tan laughs and advises, “This sort of situation is commonplace in the industry and as with refereeing decisions in football, some you win, some you lose, but at the end of the day it all balances itself out.” He then produces copies of letters from a file which are addressed to the Finance Directors of the respective customers, informing them of their companies’ overpayments. “There, everything is above board and you have no need to worry.” Said Mr Tan, “If these customers don’t act on such letters, then who are we to do anything further? If they ask for the money then they can have it back.” You return to your desk rather bewildered by Mr Tan’s comments. Customers have overpaid and he knows this to be the case. Yet he has no intention of returning their money unless prompted. You also think of the customers’ finance staff and how they managed to process a payment for the same invoice twice. Also, why have the customers’ Finance Directors not sought repayments despite having been advised by Mr Tan? Two months later, while doing another review, you notice that another customer, XYZ Pte Ltd, has recently also paid an amount owed to ABC Pte Ltd twice. You discuss this with Mr Tan, suggesting that ABC Pte Ltd issue an immediate repayment or, at the very least, a credit note to the customer. Mr Tan advises you that he will deal with this by writing to the Finance Director at XYZ Pte Ltd, and that there is no need to issue a credit note or make a repayment. “We did not ask to be paid twice,” added Mr Tan, “It’s the customer’s fault for doing so. However, I will deal with it. You shouldn’t be wasting time working for our customers – remember, they do not pay your salary.” 1. Determine the facts of the situation (Small paragraph) a. Facts: 3 large invoices have been paid twice Mr Tan produced letters that he claimed he had sent to the respective customers’ FD to inform them of the overpayment but nothing has been done Mr Tan insists that there is no need to issue a credit note or make a repayment b. Unknown: Did the FD actually send the letters to the clients? What were the circumstances around the double payments from the clients’ end? 2. Identify the ethical issues involved  a. Some invoices have been paid twice. While the FC has produced evidence that affected customers have been informed, it is unclear if the evidence is authentic or if the FDs of affected customers are working with your FC to defraud their companies b. If there is indeed fraud or inaccurate accounting taking place, many stakeholders may be negatively impacted. It would likely be also against the law. As an accountant, I also have a professional duty to ensure that financial fraud does not occur 3. Identify stakeholders and consider the situation from their POV a. ABC Pte Ltd Shareholders, Employees (FD, Others) Incurring additional cost to repay the customers if in the first place the customers did not ask to be repaid Me: My duty to ensure that the customers pay the correct amount and there is not overpayment Shareholders: Cash number are slightly inflated due to double payments b. Customers (Those who double paid) Shareholders, Employees It is their right to receive back the money regardless of whether the missed out the prompt or not c. Customers (Others) d. Others 4. Consider available alternatives a. Do nothing b. Contact FD’s supervisor c. Investigate further (Contact the affected customers/Speak to people who processed the payments) d. Report to the authorities 5. Compare how alternatives will affect the stakeholders 6. Make a decision (Based on Utilitarianism, Principle, Virtue) 7. Monitor and learn from outcomes (Small para) a. How would outcomes affect your decision? b. What do you learn? (E.g. Accounting department should have more controls) W3: Ethics in the Workplace Corporate Culture Corporate culture = The shared pattern of beliefs, expectations and meanings that influence and guide the thinking and behaviours of the members (internal and external) of that organisation Two-way influence of culture ○ Shapes the people who are members of the organisation ○ Shaped by the people who comprise the organisation Not static, can change over time Can give a firm direction and stability during challenging times OR can constrain an organisation ○ “That’s how things have always been done here” An ethical corporate culture = One in which employees are empowered and expected to act in ethically responsible ways even when the law does not require it and despite ethical norms and other factors (what other people are doing) When the law is ambiguous in providing direction for ethical decision making, corporate culture is likely to be the determining factor ○ Sets the expectations and norms that will determine which decisions get made Each of the steps in the decision making model can be supported/discouraged by corporate culture E.g. Mellody Hobson on Uber’s culture and latest controversies 1. Is an ethical culture a competitive advantage (or disadvantage)? ○ Ethical culture ensures employees ‘do the right thing’; provides reputational benefits (Brand reputation, Customer loyalty) ○ BUT do consumers care? Does this translate to profits? 2. Are there any costs associated with developing an ethical culture? ○ May be unable to do things that a less ethical competitor can? 3. Should a company be willing to sacrifice an ethical culture for profits? Compliance vs Values based Cultures Compliance-based culture = Emphasises obedience to the rules as the primary responsibility of ethics But there is a limit to the no. of rules that can be set and they can never be set to cover all situations Values-based culture = Reinforces a particular set of values rather than a particular set of rules Encourages a decision making process that uses values as underlying principles as guides (Rather than hard and fast rules) Recognises that when a rule does not apply, the firm must rely on the personal integrity of its workforce to make decisions Values and compliance based ethics are not mutually exclusive Values based: Aspirations, who we want to be Compliance based: Rules, emphasis on consequences  Can combine both in ethics programme Fostering an Ethical Corporate Culture Primary responsibility lies with corporate leadership to shape corporate culture (Tone at the top) Leaders set the tone via: 1. Personal behaviour Keeping promises and commitments Maintaining own standards Supporting others in doing so 2. Allocation of resources (“put your money where your mouth is”) Ethics officers Ethics programs An ethical leader: Is perceived as being people-oriented and is engaged in visible ethical action Has important personal traits: Receptivity, Listening, Openness, Integrity, Honesty and Trustworthiness Is perceived as having a broad ethical awareness and concern for stakeholders and uses ethical decision processes ○ E.g. Sustainability, Employee-employer relationships, Corporate governance, etc. Does things within the context of an ethics agenda (Ethics is part of objectives) ○ E.g. Workers need to be treated in what kind of way Is judged not simply on job performance but on performance that is consistent with a set of ethical values Demonstrates caring for people in the process Gets noticed by making courageous decisions in tough situations ○ A quietly ethical leader will not be perceived as being an ethical leader An effective leader is not the same as an effective and ethical leader Leader = One who guides, directs and escorts others towards a destination Effective leaders = Guide others to their destination (but methods/means may not be ethical) ○ E.g. May achieve their goals through threats, intimidation, harassment and coercion Ethical leaders = Lead using amenable interpersonal means such as modelling ethical behaviour, persuasion or using the impact of one’s institutional role ○ But means is not the only criteria → Need to also look at end ○ Ethical leadership embodies both utilitarianism and principles-based frameworks ○ E.g. Environment, Labour practices, Carbon footprint, Supplier relationships Mission statements: One of the key manifestations of ethical leadership is the articulation of values for the organisation Serves an articulation of the fundamental principles at the heart of the organisation Guides all decisions No decision should ever breach the underlying mission  Provides direction when faced with ethical dilemmas Codes of conduct = A statement of values (Compliance) Before affecting the culture through a code of conduct, a firm must first determine its mission so that decision makers have direction when dealing with dilemmas and other ethical challenges Shows how a business can apply its values in its daily business processes Enhances corporate reputation Provides concrete guidance for decision making Creates a built-in risk management system E.g. NKF scandal The National Kidney Foundation (NKF) financial scandal involved the revelation of a number of malpractices at the charity organisation, including the misuse of donated funds by its former chief executive officer T. T. Durai. Durai had served the NKF for 21 years as a volunteer before being appointed its CEO in 1992. An ST article, contained among other allegations, information that a gold-plated tap, and an expensive toilet bowl had been installed in Durai's office bathroom. Durai earned a salary of S$25,000 per month, with annual bonuses that amounted to S$1.8 million between 2002 and 2004. He also used NKF funds to maintain his personal car, travel frequently on first-class flights and finance a fleet of eight chauffeured cars. He was shown to be serving in paid directorships unbeknownst to the NKF board, under- declaring the amount of funds that NKF possessed, and exaggerating the number of patients under NKF’s care to encourage the public to donate more generously. Durai also admitted that he had shared an undisclosed commercial relationship with Matilda Chua, a fellow NKF board member. Chua was a representative of Proton Web Solutions as well as a founder of Global Net Solutions. Both companies had been involved in deals with the NKF under Durai’s tenure On 21 July 2005, a new NKF board was appointed with Gerard Ee as chairman. A civil lawsuit was eventually filed to recover at least S$12 million in salaries, benefits and failed contracts from Durai, his business associates and 3 former board members. In 2012, NKF revealed that they had recovered what they could from Yong, Loo and Chua. Durai had also repaid the S$4.05 million he owed the charity in instalments. GERARD EE Interview: So even though I couldn't speak proper Chinese, I requested to go on Chinese radio, and had a translator beside me. And the message I sent out was.. We have problems. Let’s come together and restore the honour of the family. So I attended as many temple functions as I could, whether it's the anniversary function or Chinese New Year, to make an appearance. Thank God the management of all the temples were so supportive and invited me there to just go on stage and receive even a token donation, $1,000, speaks very loudly. 1. What was the (ethical) culture at NKF like? ○ Poor ethical tone from the top ○ Disregard for policies and procedures ○ Routine misuse of corporate assets  ○ Misrepresenting the organisation’s capabilities to get donations ○ Lack of transparency and accountability ○ Self-serving, Dishonest 2. Did it change when Mr Gerard Ee became the chairman? ○ Articulation of desired culture ○ Improvement of tone from the top: Speak on temples and radios, Visible actions ○ Substantive actions, Showing reports, cut directors salaries ○ New team 3. What else would you do to change the culture of NKF if you were Mr Gerard Ee? ○ Enhance tone from the top? ○ Code of conduct ○ Ethics committee, Communication to employees, Internal controls, Internal investigation 4. What else would you do to change the culture of NKF if you were the CFO? ○ Procedures and policies ○ Allocate resources, ethics education, etc Employer Responsibility and Employee Rights Treating employees well: 2 distinct and sometimes conflicting perspectives 1. Utilitarianism: Employees treat employees well as a means to produce greater workplace productivity and harmony 2. Principles-based ethics: Employers treat employees well out of a sense of duty and rights (The right thing to do) ○ Can stem from the law, codes of conduct or moral principles Justice and fairness for employees in the workplace Fundamental questions of justice arise because employees are subject to considerable harm from a lack of job security in their jobs and do not have much power to create security Authority that employers have over employees should be used in a just manner Due process = RIght to be protected against the arbitrary use of authority Acknowledges an employer’s authority over employees Employers have such authority because they have the ability to discipline or fire an employee who does not comply with their authority Due process demands that this authority be used justly Due process should also extend to how employees are constantly supervised and evaluated in the workplace, not just dismissed from work Employment at will = Unless an agreement specifies otherwise, employers are free to fire an employee at any time and for any reason. An EAW worker may opt to leave a job at any time for any reason, without offering any notice at all Believe in free market: Discretion in using resources to maximise profits Total discretion over employment gives managers the ability to make efficient decisions that should contribute to the greater overall good BUT ○ Such tools should not be used to harm other people ○ Employer is often responsible for the employee’s livelihood while the opposite is unlikely to be true → Creates an unbalanced power relationship  There may be good reasons to limit these rights → Some courts have allowed exceptions to the EAW rule Downsizing = When a company lets many employees go at the same time Not necessarily an unethical decision but alternatives may be available ○ If don’t retrench → maybe bankrupt → everyone don’t have job ○ But should not be first choice decision Once decision has been made, company should ensure the process is executed in an ethical manner ○ Decision should be made by a representative group To consider the interests of all stakeholders To earn the trust of those who will be impacted ○ Facts should be collected and issues should be determined ○ Employees should be kept aware of business conditions and the reasons for downsizing ○ Firm should give notice of an intent to downsize as soon as the need is determined and let those who will be impacted know as soon as possible Need to balance cost and benefits of early notice ○ Managers need to be highly visible to their staff Should be trained to manage the process and deal with the aftermath to ensure that potential cost savings are not wasted on lost productivity, quality problems and service breakdowns Guidelines for responsible retrenchment in Singapore ○ Selection of employees for retrenchment should be based on objective criteria and no particular group should be discriminated against ○ MOM and Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP) should be notified ○ Should communicate the intentions for retrenchment to employees early but Productivity and quality can suffer Uncertainty and rumours that develop may outweigh the benefits gained in early notification Allowing a worker to remain in a position after being notified of impending termination may not be the best option E.g. Jack Ma’s AI and Automation Warning If you were the CFO of Uber 1. To what extent would you pursue automation (e.g. driverless cars)? ○ Considerations around efficiency, profitability, what the competition is doing, etc 2. How would you manage existing workers who have been or will be displaced by automation? ○ Retrain for other roles, retrench, freelance drivers, no need to manage 3. Are there any ethical considerations in replacing workers with robots? ○ These jobs represent workers’ livelihoods, may impact their families ○ Retrenched workers may not have skills to take on other jobs ○ But responsibility of managers is to maximise profits for shareholders? 4. Who is responsible for managing/addressing these ethical issues? ○ Government -> robot tax, universal income? ○ Companies, But what about profitability?  ○ Employees -> each responsible for his own career Health and Safety in the Workplace Wide consensus among developed economies that workers have a fundamental right to a safe workplace Safe workplace = When everyone is in flawless physical and psychological well-being, When it is completely free from risk Approaches to health and safety in the workplace: 1. H&S as acceptable risk 2. H&S being market controlled 3. H&S being government regulated H&S as acceptable risk = Employers cannot be responsible for providing an ideally safe and healthy workplace Focus on the relative risks workers face and the level of acceptable workplace risk ○ Risks = Probability of harm Workplace is considered safe if level of risk is acceptable ○ Probability of harm for any specific work activity ≤ Probability of harm for similar, more common activities → Activity is safe Challenges: ○ Treats employees disrespectfully by ignoring their input ○ Ignores the fundamental right an employee might have to a safe and healthy work environment ○ Assumes an equivalence between workplace risk and other types of risk ○ Incentives may be misaligned (Workers may not have a choice to alternative) Risks faced at work could be controlled by others who may not benefit from reducing them H&S being market controlled = Individual bargaining between employers and employees as the approach to workplace health and safety Employees would be free to choose the risks they are willing to face by bargaining with employers Those who demand higher safety standards and healthier conditions would have to settle for lower wages while those willing to take higher risks would demand higher wages ○ Would result in the optimal distribution of safety and income ○ Threat of compensation would also act as an incentive for employers to maintain a reasonably safe and healthy workplace Challenges: ○ Labour markets may not be completely competitive and free (may not have the power to negotiate) ○ Employees seldom possess perfect information (may not have the info to negotiate) ○ Important questions of social justice and public policy are ignored E.g. first generation problem (may not know the issues until the first generation) H&S being government regulated = Mandatory government standards address many of the problems raised against market strategies Standards can be set to overcome market failures that result from insufficient info Standards prevent employees from having to face the fundamentally coercive choice between job and safety Standards address the first generation problem by focusing on prevention rather than compensation after the fact Standards are fundamentally a social approach that can address public policy questions ignored by the markets E.g. What would you do if you were Tollyjoy’s CEO during the dotcom bust with regard to cutting costs? Q. You said many employees have stuck with Tollyjoy through thick and thin. How do you carry out good human resource practices when a crisis hits? ○ A. In the year of the dot.com bust, our business was down easily 30 or 40 per cent. The more senior staff with higher salaries, including myself, took a pay cut. We didn't think that it was the right thing to do to cut salaries across the board. Q. And the others? ○ A. We left their salaries alone. It was a sign of solidarity because people always think that workers on the lower end are the first to be hit. Q. Did this go down well with the senior staff? ○ A. They were understanding because I sat them down and we talked about it. We told ourselves, "Look, this is not an ordinary crisis". ○ The entire economy was in trouble. The company needed to show that it could be resilient, it could manage costs, and the way to start that was from the top. Because if you tell people that you want to cut salaries and that no bonus will be paid - you don't start with them. You start with yourself. 1. What is the ethical issue? ○ Business is down 30%, and Tollyjoy needs to cut costs to maintain its competitiveness and stay afloat. ○ But cutting costs will impact stakeholders. ○ The CEO must decide on how to cut costs while taking into consideration/balancing the interests of these stakeholders 2. Who are the stakeholders involved and what is their point of view? ○ Shareholders ○ Employees (senior management, incl CEO) Keep business running/remain employed through the crisis Demonstrate solidarity with employees through the crisis Abide by good HR practices Maintain wages ○ Employees (ordinary) Remain employed through the crisis Maintain wages To be treated fairly and in a non-discriminatory fashion by their company ○ Employees’ families 3. What are the available alternatives? ○ Retrenchment ○ Pay cut Across the board Only senior managers ○ Cut COGS, Offer incentives (ESOP), Offer other revenue streams 4. How will the alternatives affect the stakeholders? W4: Corporations and Sustainability Ethics and CSR Corporate social responsibility = What a business should/ought to do for the sake of society even if this comes with an economic cost Responsibility as accountability = Attributing liability/accountability for some event/action, creating an obligation to make things right again ○ Actions for which a business can be held accountable ○ To be concerned with society’s interests that should restrict/bind a business’s behaviour E.g. What is a corporations’ responsibility to society? Should a company pursue profits at all cost? ○ A company’s fundamental objective is profit maximisation ○ But are there any limits to the profit maximisation objective? Should it break the law? What if stakeholders are harmed in the process? Does it have any responsibility to society? ○ Does the company’s actions lead to any negative impact on society at large? Is the company liable to make things right? ○ Might there be duties not to cause harm, to prevent harm, or to do good? Are there any costs/benefits to the company in pursuing CSR ○ Profits (cost or benefit?), reputation, customer/employee loyalty, etc. Are there any costs/benefits to other stakeholders? ○ Society: meaningful engagement with the company, etc? ○ Employees: more engaged at work Is there any other party who should bear this responsibility? ○ Government, NGOs, private individuals, etc - but are these parties doing enough? 3 levels of responsibility: 1. Duty not to cause harm (Strongest sense of responsibility) ○ Businesses should be held liable if it causes harm and the harm can be avoided (Both legally and ethically) 2. Responsibility to prevent harm ○ Business may not be causing harm, but can prevent harm 3. Responsibility to do good ○ Businesses should give back to society ○ But is it something that a business ought to do? (Responsibilities vs Duties/obligations) 4 Models of CSR 1. Economic model of CSR: Business’ sole duty is to fulfil the economic functions they were designed to serve, to pursue profits within the law ○ Profits are an indication that a business is efficiently and successfully producing the goods and services that society demands, thus meeting society’s expectations ○ A business has no social responsibility beyond the economic and legal ends for which it was created 2. Philanthropic model of CSR: Businesses are free to contribute to social causes ○ But there is no ethical obligation to do so; Should be encouraged to contribute to society ○ Ostensibly philanthropic acts may overlap with the economic model: PR, Tax deductions, Build goodwill/reputation 3. Social web model of CSR: Businesses exist within a web of social relationships (Shareholders, employees, customers, suppliers, government, local community)  ○ Must conform to normal ethical duties and obligations that individuals face ○ Creating wealth and profits do not trump ethical responsibilities ○ According to stakeholder theory, business decisions affect a wide variety of people, benefiting some and imposing costs on others → Need to balance the ethical interests of all stakeholders ○ Often impossible to satisfy the needs of every stakeholder Some stakeholders have more power and impact on decisions than others Social responsibility → Prioritising competing and conflicting responsibilities Utilitarian, Deontological and Virtue ethical considerations ○ E.g. Implementing sustainability policies on suppliers as well 4. Integrative model of CSR: Bringing of social goals together with core business models leading to the integration of economic and social goals (>1 objective) ○ In social entrepreneurship and sustainability, we see that profits and doing good are not incompatible Can do good profitably and fully integrate social and economic goals ○ E.g. Social enterprises (Earns profits and is self sustainable as compared to charity) Create jobs, Support community, Help environment May rely on grants in initial stages CSR and Business Enlightened self-interest: CSR can benefit society and the business at the same time Can secure a business’ place in society Enhance a business’ reputation among stakeholders (customers, suppliers, employees, etc.) Social responsibility is part of corporate reputation ○ Don’t overdo it (Greenwashing: Gap between perception and reality → Backlash) ○ Runs the risk of becoming pure social marketing (Facts do not evidence a true commitment) E.g. Case against corporate social responsibility 1. Can companies be expected to voluntarily assume this responsibility ○ Yes: ethical leadership, shareholder pressure (green investing), business reputation, etc, development of ecosystem (Peer pressure to do good if not they would lose out on competition) ○ No: companies are created to maximise profits; will not voluntarily do anything that eats into profits, businesses not trained to do good → not efficient 2. Are there any ways that we can try to ‘force’ or ‘encourage’ companies to do more CSR? ○ Government regulation Tax incentives, Carbon tax, Sustainability reporting ○ Civil society: publish rankings, highlight companies who are not socially responsible, etc ○ Consumers ○ Citizens ○ Others Ethics and Environmental Sustainability Why care about the environment? Both present and future generations depend on the environment to survive Environmental issues can be global in nature and have permanent effects  Natural systems are interrelated, underscoring the wide range of human dependence on ecosystems Nature provides great aesthetic, spiritual and inspirational value Moral rights of animals and other living beings E.g. Who is responsible for environmental harm? Aluminium production is inherently energy intensive and is driven by consumer demand. However, many consumers discard aluminium cans rather than recycle them even though recycling them requires much less energy than producing aluminium. Who bears responsibility for reducing greenhouse emission from the production of aluminium? ○ Corporates: through design of business processes, use of resources, etc ○ Consumers: through demand for AL, behaviour (e.g. recycling), etc ○ Scientists: through the development less pollutive methods of production ○ Government: through regulation, incentives, campaigns to change behaviour, etc Who is in the best position to initiate change? ○ Everyone has a role to play! Approaches to business environmental sustainability 1. Market approach 2. Regulatory approach 3. Sustainability approach Market approach: Leads to the most efficient allocation of scarce resources Environmental problems are economic problems → Economic solution most appropriate There is an optimal level of pollution that would best serve society’s interests (costs vs benefits) Challenges: Market failures ○ Externalities: Costs are often borne by individuals outside the economic exchange (Optimal results are not guaranteed) ○ No market exists to create a price for important social goods (Clean air, scenic vistas, etc.) ○ Individual vs group consequences: Can miss important ethical and policy questions if decisions are left solely to the outcome of individual decisions Good and rational for a collection of individuals is not necessarily what is good and rational for a society ○ First generation problem: First generation is sacrificed Markets can prevent harm only through information supplied by the existence of market failures Regulatory approach Tort law: Places the burden on the person who was harmed and, at best, offers compensation for the harm Other regulatory standards: Prevents the occurrence of harm to the environment rather than to offer compensation after the fact ○ Businesses can pursue their own goals as long as it complies with these minimum standards established ○ Legislation in Singapore: Energy, Hazardous waste, etc. Challenges: ○ Society can play a part in establishing business’ environmental responsibilities As consumers: Demand environmentally friendly products  As citizens: Support environmental legislation ○ But businesses can influence legislation through lobbying, especially in US Businesses can influence consumer choice through advertising, etc. Regulation only extends as far as the law extends → Environmental issues can be international in nature Sustainability approach: Economic, environmental and ethical sustainability (3 pillars) Triple bottom line: Measures the full cost of doing business ○ But how to measure all these costs? Not everything is measurable in cash Sustainability tools ○ Eco-efficiency: Doing more with less E.g. Consumer products which are more energy efficiency (energy label) ○ Biomimicry: Mimicking the biological process (Closed loop, integrates waste into production) Cradle to grave responsibility Business is responsible for the entire life of its products, including the ultimate disposal even after the sale Businesses should be responsible for incorporating the end results of its products back into the productive cycle ○ Service based economy: Retains ownership of the entire lifecycle of the product (Production, maintenance, disposal) E.g. From selling carpets to leasing floor covering services Greenwashing = When a company/organisation spends more time and money claiming to be “green” through advertising and marketing than actually implementing business practices that minimise environmental impact Sustainability in business generally addresses 2 main categories: ○ Effect business has on the environment ○ Effect business has on society Investors today also use ESG (environmental, social and governance) metrics to analyse an organisation’s ethical impact and sustainability practices E.g. Pollution caused by cruise ships If laws are strict in one country and less strict in another, how should cruise operators choose? ○ Maximise profitability within the boundaries of the law; or ○ Abide by self imposed pollution standards What are the costs and benefits? ○ Profitability ○ Reputation ○ Long term business viability (will tourists want to visit polluted beaches?) On what basis should ports set pollution standards? ○ Stricter standards than competitors ○ Same standards as competitors ○ Lower standards than competitors What are the costs and benefits? ○ Profitability ○ Living environment of citizens ○ Long terms viability of tourism industry W5: Ethics in Governance, Accounting and Finance Ethical Duties of Accountants In free market economies, it is recognised that markets must function within the law (Must be free from fraud and deception) Some argue that only government regulation can ensure that these rules will be followed Others argue that enforcement of these rules is the responsibility of important internal controls that exist within market-based economic systems Some professions can be gatekeepers (Internal controls within the economic system) E.g Attorneys, Auditors, Accountants, Financial analysts (Scrutinise companies) Market participants rely on gatekeepers ○ Auditors verify a company’s financial statements so that investors’ decisions are free from fraud and deception ○ Analysts evaluate a company’s financial prospects/creditworthiness so that banks and investors can make informed decisions ○ Attorneys ensure that decisions and transactions conform to the law ○ Boards function as intermediaries between a company’s stockholders and its executive and should guarantee that executives act on behalf of the stockholders’ interests Professional duties: Roles provide a source of rules from which we can determine how professionals ought to act In entering these professions, we accept responsibilities based on our roles They ensure that those in the marketplace play by the rules and conform to the conditions that ensure the market functions as it is supposed to They act between the various parties in the market and they are bound to ethical duties in this role as well E.g. ISCA code of professional conduct and ethics - Fundamental principles ○ Integrity, Objectivity, Professional competence and due care, Confidentiality, Professional behaviour One ethical issue facing gatekeepers and intermediaries in business involves conflicts of interest ○ Conflict of interest = Where a person holds a position of trust that requires that he/she exercise judgement on behalf of others but where his/her personal interests and/or obligations conflict with those of others ○ Can also arise when ethical obligations in professional duties clash with personal interests ○ Gatekeepers have fiduciary duties (A professional and ethical obligation that override their own personal interests) Ethical issues and potential for conflicts surrounding accounting practices are extensive ○ E.g. underreporting income, falsifying documents, allowing/taking questionable deductions, illegally evading income taxes, engaging in fraud ○ Professional duties trump duties to your employer Trust is an integral issue for all involved in the finance industry (accounting and finance) Building a reputation for fair dealing is often a finance professional’s greatest assets Real/Perceived conflicts of interest erode trust and often exist as a result o fvarying interests of stakeholders E.g. Enron scandal What/who do you think contributed to the financial scandal and eventual collapse of Enron? Governance failure at the Board level Too much trust Incompetence - awareness and/or understanding of role, control & reporting systems Lack of motivation, conflicts of interest Dishonest management, conflicts of interest Culture of deception, self-interest Manipulation of accounting and disclosure Poor standard setting Auditor deficiencies Regulatory short-sightedness Ethics in Corporate Governance Corporate governance = The processes, rules, policies and practices relating to the management of a corporation (to ensure management does their job properly) Typically involves issues concerning: (Regulated by BOD) ○ Composition of and control by board of directors ○ Functions and roles of the board ○ Executive remuneration and directors’ fees ○ Rules on disclosures for the directors and management ○ Communications with shareholders on the company’s financial status in the annual report and other reporting requirements Duties of board members Many directors fail to comply with the law because they were ignorant of their statutory duties and responsibilities as a director Legal duties: ○ Duty of care = Involves the exercise of reasonable care by a board member to ensure that the corporate executives with whom he/she works carry out their management responsibilities and comply with the law in the best interests of the corporation Directors are permitted to rely on information and opinions only if they are prepared/presented by professionals whom the director believes to be reliable and competent in the matters presented Board members are directed to use their “business judgement as prudent caretakers” Director does not need to be an expert ○ Duty of good faith = One of obedience which requires board members to be faithful to the organisation’s mission Directors are not permitted to act in a way that is inconsistent with the central goals of the organisation (Representing investors) ○ Duty of loyalty = Requires faithfulness; A board member must give undivided allegiance when making decisions affecting the organisation Conflicts of interest are always to be resolved in favour of the corporation Should never use info obtained through her/his position as a board member for personal gain But conflicts of interest present issues and significant challenges: Alignment of directors’ personal interests with those of the corporation Legally, the board has a fiduciary duty to the owners of the corporation (shareholders) but should the board also have ethical duties beyond the law? ○ E.g. CSR, Ethical behaviour of other board members/executives Singapore code of corporate governance is under the purview of MAS and SGX Compliance with the code not mandatory but listed companies are required under the Singapore Exchange Listing Rules to disclose their corporate governance practices and give explanations for deviations from the Code in their annual reports (“Comply or explain” Board matters (Conduct of affairs, composition and guidance, chairman and CEO, board membership, board performance, access to info) Remuneration matters (Procedures for developing policies, level and mix, disclosure) Accountability and audit (Accountability, risk management and internal controls, audit committee, internal audit) Shareholder rights and responsibilities (Communication, conduct of shareholder meetings) Executive compensation CEO pay and the S&P500 index follow similar trajectories Expected as “pay for performance” is often based on stock price as one element of measurable performance But actual corporate profits and worker pay have not increased at the same rate Led to perception of unfairness with regard to executive compensation Raise ethical issues Virtue ethics: Greed and avarice Distributive justice and fairness: How do such salaries compare to the pay of average workers or to the billions of people living in poverty Compensation packages can serve corporate interests in 2 ways: Utilitarian justification: Provide an incentive for executive performance Deontological justification: Serve as rewards for accomplishments However, ○ There is often no correlation between executive compensation and performance ○ Little evidence that the types of compensation packages are actually needed as incentives for performance ○ 1 way to increase stock prices is through layoffs → Is this in the best interests of the firm? ○ Stock options have also been partially to blame for the corruption involving managed earnings E.g. Enron: Incentivised in inappropriate way → Traders acted in a risky way, CEO and CFO acted in a unethical way There is conflicts of interest in executive compensation Board duties include ensuring that executives are fairly and not excessively paid and to evaluate the executive's performance However, executives being evaluated and paid also often serve as chair of BOD ○ Board is often comprised of members selected by senior executives ○ Compensation board members receive is determined by CEO, creating another conflict of interest Say on Pay = Ability of shareholders of a company to vote on how and how much executives of the company get compensated Divests the power to decide executive remuneration away from the companies and into the hands of investors Vote can be binding (e.g. US) or non binding (e.g. UK) (Company can still go ahead with compensation package even with the majority of votes disagreeing) Currently not a requirement in SG  Can potentially play a part in reducing inappropriate executive compensation ○ A mechanism for shareholders to directly express their displeasure over executive remuneration matters ○ Can increase the accountability, transparency and performance leakage of executive pay However, shareholders may not be able to make better or more informed decisions than the BODs when voting on executive remuneration ○ Also imposes significant costs on firms SoP in the US was also not effective as it is a market process of bidding for talented executives. If shareholders of Company A attempt to reign in the pay of their executives, shareholders of Company B could attempt to poach those executives with better pay → Rational choice is to agree to keep endorsing high levels of executive pay E.g. CEO pay vs. Average worker pay Do you think it is ethical for a company to pay its CEO so much more than the average worker? Utilitarianism: Pay to incentivise and attract good people, maximise profits and grow company, maximise overall utility Principles based ethics: Fiduciary duty to shareholders; issues around fairness and justice Libertarianism: CEO has the freedom to maximise his compensation Virtue ethics: Greed is bad Whistleblowing Whistleblowing = Involves the disclosures of unethical/illegal activities to someone who is in a position to take action to prevent/punish wrongdoing Can occur internally or externally (when reporting to legal authorities) Can expose and end unethical activity However, can seem disloyal, harm the business and come at significant cost to the whistleblower Whistleblowing mechanism: Internal whistleblowing is preferable (manageable) as external whistleblowing can be harmful to the whistleblower and the company Internal mechanisms should be effective ○ Confidentiality ○ Protect the rights of the accused party ○ Ethics hotline Mechanism to report wrongdoing, follow up and enforcement E.g. Sherron Watkins and whistleblowing What would you do if you were Sherron Watkin? What are the ethical issues involved? ○ Suspected fraud/illegal activities by senior managers ○ May have detrimental impact on various stakeholders Who are the stakeholders involved and what are their points of views? ○ Senior managers – self interest, firm continues as a going concern ○ Employees – job security ○ Watkins – self interest, justice/fairness, job security What are the alternatives available? ○ Do nothing ○ Whistle blow ○ Others How will each of the alternatives affect stakeholders? E.g. Edward Snowden: Whistleblower or traitor? What are the ethical issues involved? ○ Snowden is aware of potentially unethical activities carried out by the US military which invade the right to privacy of citizens ○ However, disclosing this information potentially threatens the national security of the US ○ Needs to decide what to do with this information Who are the stakeholders involved and what are their points of views? ○ US government: protect citizen’s rights, ensure that relevant laws are enforced ○ Military: safeguard military secrets, not compromise national security ○ Private citizens Right to privacy: rights are protected Right to security: country, property, people are secure ○ Edward Snowden: right to free speech, own safety, other considerations as a private citizen ○ His family: safety, right to continue living a normal life W7: Ethics in Marketing and Technology Ethics in Marketing Marketing = The heart of business activity, Involves all aspects of creating a product/service and bringing it to market where an exchange can take place (goods ↔ money) Marketing ethics = Examines the responsibilities associated with bringing a product/service to the market, promoting it to and exchanging it with buyers E.g. Patent and the African AIDS Epidemic Do you think pharma companies should make ARV drugs available to developing nations? ○ Would doing this be profitable? ○ Are there reputational benefits that might make it worthwhile? ○ Would this be fair to people in rich countries who pay full price? ○ Reduce incentive to R&D → ↓ long term benefits) Do you think pharma companies have the right to set prices of drugs that they hold patents to? ○ They bore the full cost of bring the product to market (R&D, testing, manufacture, etc) ○ BUT what if setting high prices leads to suffering and massive loss of lives? Do you think the circumstances of the African AIDS epidemic (large number of people infected, patients are generally poor, government unable to help, etc) justifies the use of compulsory licences? ○ Do pharma companies have a responsibility for the epidemic that they did not cause? Should this responsibility be forced on them? ○ But who else can help? Any other more effective method? Do you believe that compulsory licences are an ethically legitimate way to make life saving drugs available to people in developing nations? ○ Utilitarianism – but might this create a disincentive for future R&D efforts? ○ Principles based ethics (fairness, respecting right to live, etc ○ Virtues based ethics (kindness, etc) 4Ps of Marketing 1. Product = Life cycle responsibility of manufacturers ○ Design, production, distribution, use, disposal 2. Price ○ Market determines price but free market may fail (e.g. monopoly) 3. Promotion: Includes advertising 4. Placement = How product is exchanged with customers ○ Includes targeted marketing ○ Marketing to vulnerable consumers Marketing Framework (when related to 4Ps, can still use the original 3 frameworks) 1. Is exchange voluntary? (↓ voluntary → ↓ ethical) ○ Real alternative choices available ○ Anxiety and stress in some purchasing situations (e.g. limited deals → ↑ anxiety → ↓ voluntary) ○ Price fixing, monopolies, price gouging, etc. ○ Targeted and vulnerable consumers (e.g. child → cannot make informed decisions → ↓ voluntarism) 2. Is consent to exchange really informed? (Facts of transaction, e.g. specifications) ○ Lack of information ○ Deception (Fraud, Misleading) ○ Complicated information ○ Consumers may not understand fully what they are purchasing  3. Are people truly benefited? ○ Impulse buying, “affluenza”, consumerism (controversial) May lead to regret; Are marketing techniques that appeal to these behaviours ethical? ○ Injuries, unsafe products ○ “Contrived” wants (Controversial) ○ How and in what ways do individuals and society benefit from an exchange of product? May transactions do not result in actual benefit (Consumers cannot purchase happiness) 4. Competing values (Catch all: Are there anything else unethical?) ○ Justice (e.g. redlining mortgages: discrimination, refuse to give mortgage based on neighbourhood) ○ Market failures (externalities) What are the true costs of production? Even if both parties to the exchange receive actual benefits from the exchange, other parties external to the exchange might be adversely affected ○ Are social values jeopardised by marketing practices? E.g. Fairness, justice, health, safety ○ Who else might be affected by the transaction? ○ A transaction is not ethically legitimate just because someone wants t buy something and someone else is willing to sell it Ethics and marketing helps to make ethical decisions, not correct decisions Identifies parameters surrounding rights, responsibilities, duties and obligations and causes and consequences Framework can then be used to analyse scenarios to arrive at decisions When 2 parties in the market make an exchange, it is taken to be ethically legitimate ○ Respect for autonomy ○ Mutual benefit (Utilitarianism) ○ But this ethical judgement is conditional because transaction must be truly voluntary, informed consent is needed, benefits might not occur and other values might conflict E.g. Cash for Kidneys Do you think it is right for people to be able to buy kidneys? Utilitarianism: Maximise utility for all parties involved..but is the sale voluntary?? Kantianism: “We are obligated always to act in a way that expresses respect for the dignity of humanity, Kant held. He believed that all of us, no matter where on the spectrum of talent, wealth, happiness, or others’ regard we may be, have a worth beyond price.”...fails to express proper respect for the seller’s own dignity. Use marketing framework: a. Voluntary? Human trafficking Poor and desperate, no real alternatives (targeted and vulnerable consumers) b. Informed? Buyer: Quality of kidney (Can mitigate: Health screening) Seller: Implications of selling kidney (Can mitigate: Education) What is the price of kidney? c. Are people truly benefitted? Possible Inherent risk: Host body rejection Regret selling  d. Competing values Rich can buy, poor cannot buy No reason to donate anymore (just sell) Government has the duty to safeguard public health → Need to make it regulated Ethics in Advertising Advertising = A paid non-personal communication about an organisation and its products that is transmitted to a target audience through a mass medium A form of mass communication that involves info about a commercial product andbrings choice to a consumer Ethically good and bad ways for influencing others ○ Good: Persuading, asking, informing and advising ○ Bad: Threats, coercion, deception, manipulation and lying May advertisements are deceptive and some are outright lies (manipulate consumers) ○ Marketing research = As one learns about customer psychology, the more one will be able to satisfy their desires but the more one will also be able to manipulate their behaviour ○ Many such practices also tend to target populations that are susceptible to such practices E.g. NTUC Income’s advertising campaign The campaign may have been in questionable taste, but it did bring attention to NTUC Income. Do you think the ends justifies the means? ○ Involves deception ○ Misleading to consumers Was anybody ‘hurt’ or ‘harmed’ in the whole episode? ○ Feelings might have been hurt ○ BUT nobody suffered financial loss Would you consider such advertising to be unethical? What rule(s) would you put in place to differentiate ethical from unethical campaigns? ○ Methods: deception, etc ○ Target audience: Children, etc Types of ethical issues in advertising: 1. Deception ○ Does not give true info ○ Half-truths (Exaggeration) ○ Test: Is a “reasonable person” deceived? 2. Irrational persuasion ○ Manipulation = To control/play upon by artful, unfair or insidious means especially to one’s own advantage ○ Plays on natural desires for security, acceptance, self-esteem, etc. ○ Tends to use imagery rather than words to bypass rational thought processes ○ General guide: Practices that seek to identify and target populations that can be easily influenced and manipulated are not acceptable Practices that appeal to fear, anxiety or other non-rational motivations are ethically improper 3. Subliminal advertising ○ Use of advertising to influence consumers without them being consciously aware of it Contrary to the consensual nature of such transactions ○ Product placements, ‘Disguised’ advertisements  4. Stereotypes and prejudices ○ Degrades and offends members of the stereotyped group ○ E.g. Fair and Lovely skin lightening cream in India Consumer autonomy Advertising and marketing can help shape culture and the individuals who develop within that culture ○ Can have direct and indirect impact on the people we become ○ How it does that is of ethical importance The dependence effect = Consumer demand depends on what producers have to sell ○ By creating wants, advertising is turning the law of supply and demand on its head → Demand becomes a function of supply ○ Advertising and marketing tends to create irrational and trivial consumer wants and this distorts the entire economy ○ Consumers are not actually free if those wants are created by marketing Marketing to vulnerable populations: State facts instead of manipulating/play on emotions ○ Consumer vulnerability = Occurs when a person has an impaired ability to make an informed consent to the market exchange Lack the intellectual capacities, psychological ability or maturity to make informed and considered consumer judgements Susceptible to the harm of not satisfying consumer desires and/or suffering the financial harm of losing money ○ General vulnerability = Occurs when someone is susceptible to some specific physical/psychological/financial harm Harm is other than the financial harm of an unsatisfactory market exchange ○ Consumers are also vulnerable when they are not aware that they are subject to a marketing campaign Stealth/undercover marketing = Intentional effort to hide the true marketing element of an interaction Advertising standards in Singapore Advertising Standards Authority of Singapore (ASAS) is set up in 1976 to promote ethical advertising in Singapore ○ Self-regulatory body of the advertising industry Singapore Code of Advertising Practices (SCAP) ○ All advertisements should be legal, decent, honest and truthful Ethics in Technology Privacy and Technology One common hiring practice is the unauthorised use of online info to formulate a decision/judgement about a job candidate. Not all info originates with the candidate and may sometimes be posted on the social media platforms of third parties ○ Should organisations use info that was ot provided online with the intention of being used by them? Yes: info is public; up to the individual to ensure that private info is not online No: Network privacy Right to privacy = Right to be left alone, Right to control info about oneself ○ If we value the inherent dignity and the right of each person to be treated with respect, then we must recognise that certain personal decisions and info are rightfully the exclusive domain of the individual  ○ While an employee has an obligation to respect the goals and property of the employer, the employer has a reciprocal obligation to respect the rights of the employee, including his/her right to privacy ○ Employee privacy is violated whenever: Employers infringe upon personal decisions that are not relevant to employment contract Personal info that is not relevant to that contract is collected, stored or used without the informed consent of the employee Customer profiling = Information collected allows organisations to create profiles of customers Can be used in ways that determine personal attributes ○ E.g. Ability to pay for certain goods and services, Ability to access credit, etc. Individuals are often unaware of the profiling or are unable to influence/contest it Invades privacy Best measure: Not individual profiling but demographic profiling (not so personal, not invading privacy) Building ethical artificial intelligence With rapid developments in AI technology, autonomous AI systems capable of performing increasingly complex tasks have become commonplace in many domain areas ○ To ensure that these autonomous AI systems take decisions/actions that do not cause harm to people, it is important for us to include ethical considerations when implementing AI Framework for development of ethical AI systems: ↑ autonomy → ↑ ethical sensitivity required ○ The development of AI in the coming years will incorporate some form of increased autonomy and increased sensitivity to ethical values in autonomous AI systems ○ Increased autonomy for artificial systems is a process that will continue to develop rapidly. At the same time, a key challenge for designers of autonomous systems is how to simultaneously move up along the axis specified by ethical sensitivity