Business Ethics Exam Notes - Revision B (Emilya)

Business Ethics exam notes Format: Section A: 30 MCQ (All the chapters) Section B: Short answer Essay: 70 marks (Skip 1,5,7,9,10) (Study 2,3,4,6,8) Reminder: Section B Study all the steps for short answer essay but mainly chapter 2 Chapter 3 study about ethical issues Chapter 4 study example...

Business Ethics exam notes Format: Section A: 30 MCQ (All the chapters) Section B: Short answer Essay: 70 marks (Skip 1,5,7,9,10) (Study 2,3,4,6,8) Reminder: Section B Study all the steps for short answer essay but mainly chapter 2 Chapter 3 study about ethical issues Chapter 4 study example individual 4 factors like step of decision making Chapter 6 study differences about teams and groups Chapter 8 study all Chapter 1: the importance of business ethics What does ethics means to you? Integrity Principles Moral Honesty Right Fairness Responsibility Conscience Honor Value Choice Why do you think ethics is important in business? Ethics is what guides us to tell the truth, keep our promises, or help 1 someone in need. There is a framework of ethics underlying our lives on a daily basis, helping us make decisions that create positive impacts and steering us away from unjust outcomes Can you think of an example of a time a business engaged in unethical behavior? Gossiping about colleagues behind their back, usually badmouthing them. Taking time off by lying about sickness (oops, well enough to walk around in the neighborhood while out sick). Work hours/Time- sheet manipulation. Taking care of personal business on work time Business Ethics Defined Morals – A person s personal philosophies about what is right or wrong. Business ethics – Comprises organizational principles, values, and norms that may originate from individuals, organizational statements, ’ or from the legal system that primarily guide individual and group behavior in business. Principles – Specific and pervasive boundaries for behavior that should not be violated. These often become the basis for rules (human rights, freedom of speech). Values – Enduring beliefs and ideals that are socially enforced. (* Religion, Country)* Ethics - Behaviour or decisions made within a groups value or morals Right or wrong behaviour is defined by the group. Within corporate culture there are rules and regulations that determine right/wrong. 2 Why study business ethics? A Crisis in Business Ethics: Business ethics has become a major concern Workplace integrity - The pressure to compromise organisational standards, observed misconduct, reporting of misconduct when observed, and retaliation against reports. (Following rules and being honest) TABLE 1-1 OBSERVED MISCONDUCT IN THE U.S. WORKFORCE Response Percentage Observed misconduct 49% Abusive behavior 22% Lying to employees and external stakeholders 25% Conflicts of interest 23% Health violations 22% Pressure to compromise standards 30% Report observed misconduct 81% Experience retaliation for reporting 79% Specific issues: There are a number of ethical issues that must be addressed to prevent misconduct. Ethics plays an important role in the public sector as well. Every organization has the potential for unethical behavior. Most decisions are judged as right or wrong, ethical or unethical. Legislation usually follows. The Reasons for Studying Business Ethics: Business ethics is more than an extension of an individual s personal values. Professionals must deal with individuals personal moral dilemmas. 3 ’ ’  Moral dilemma– Two or more morals in conflict with one another. Value dilemma– Two or more beliefs/ideals in conflict with one another. Being a good person may not be sufficient to handle ethical issues in business. Studying business ethics will help you: Identify ethical issues when they arise. Recognize approaches for resolving ethical issues. Cope with conflicts between your own personal values and those of the organization in which you work. Gain knowledge to make more ethical business decisions Developing Organizational and Global Ethical Cultures Ethics and compliance are designed to establish appropriate conduct and core values. Ethical culture – Acceptable behavior as defined by the company and industry. Reflects the integrity of decisions made. Is a function of many factors, including: Corporate policies Top management s leadership on ethical issues The influence of coworkers The opportunity for unethical behavior Globally, businesses are working closely together to establish ’ standards of acceptable behavior. ISO 19600 is a global compliance management standard that addresses risks, legal requirements, and stakeholder needs. 4 [Many companies demonstrate their commitment toward acceptable conduct by adopting globally recognized principles.] [Global compact – Set of 10 principles concerning human rights, labor, the environment, and anti-corruption; the purpose is to create openness and alignment among business, government, society, labor, and the United Nations.] The Benefits of Business Ethics DEBATE ISSUE: TAKE A STAND While research suggests ethical businesses have better performance, there is also an alternate view. Many businesspeople think ethics and social responsibility require resources that do not contribute to profits, and time spent in ethics training could be better used for other business activities. Take a stand: Ethical businesses are the most profitable. The most ethical businesses are not the most profitable. Debate Issue: Debrief Those who argue that ethical businesses are more profitable could point to the different studies showing a positive correlation between ethics and profitability, the goodwill gained from ethical conduct, and the additional customer confidence associated with an ethical company. The opposition might point out that some dishonest companies have gotten away with only small penalties for misconduct and that companies must be more concerned with obtaining profits than spending time worrying about ethics. 5 Ethics Contributes to Employee Commitment: There is a willingness to sacrifice for the organization. It increases group creativity and job satisfaction and decreases turnover. There is less pressure to compromise ethical standards. It leads to a greater absence of misconduct. Strong community involvement increases loyalty and positive self identity. Ethics Contributes to Investor Loyalty: Ethics provides a foundation for efficiency, productivity, and profits. Negative publicity, lawsuits, and fines can lower stock prices, diminish customer loyalty, and threaten a company s long-term viability. The demand for socially responsible investing is increasing. Ethics Contributes to Customer Satisfaction: ’ High levels of perceived corporate misconduct decrease customer trust. 6  Companies viewed as socially responsible increase customer trust and satisfaction. Consumer respondents stated they would pay more for products from companies that give back to society in a socially responsible and sustainable manner. Ethics Contributes to Profits: Being ethical leads to better business performance. Corporate concern for ethical conduct is becoming a part of strategic planning toward obtaining the outcome of higher profitability. Business ethics is becoming more than just a function of compliance; it s becoming an integral part of management s efforts to achieve competitive advantage. What are the pros and cons of business ethics? PROS: ’ ’ Ethics contributes to employee commitment. Ethics contributes to customer satisfaction. Ethics contributes to profits. Ethics provides a foundation for efficiency, productivity, and profits. Negative publicity results in lawsuits, fines, lower stock prices, diminished customer loyalty. The demand for socially responsible investing is increasing. CONS: Ethics eats into revenues, sales, profitability. Ethics does not maximize shareholder benefits. Ethics decreases competitive edge. Chapter 2: Stakeholder Relationships, Social Responsibility, 7 andCorporate Governance What does the term “stakeholder” mean to you? Social responsibility is an organization s obligation to maximize its positive impact on stakeholders and minimize its negative impact. Stakeholders Define Ethical Issues in Business Stakeholders – Those who have a “stake” or claim in some aspect ’ of a company s products, operations, markets, industry, and outcomes. Customers Shareholders ’ Employees Suppliers Government Agencies Communities Normative – Identifies ethical guidelines that dictate how firms should treat stakeholders Descriptive – Focuses on the firm s behavior; addresses how decisions are made for stakeholder relationships Instrumental – Describes what happens if firms behave in a particular way ’ Identifying Stakeholders Primary stakeholders – Those whose continued association and resources are necessary for a firm s survival. -Employees, customers, and shareholders, as well as the governments and communities that provide necessary infrastructure. Secondary stakeholders – Stakeholders who do not typically ’ engage directly in transactions with a company and are therefore 8  not essential to its survival. -Media, trade associations, and special interest groups Stakeholder interaction model – This approach recognizes other stakeholders and explicitly acknowledges that dialogue exists between a firm s internal and external environments. ’ A Stakeholder Orientation Stakeholder orientation – The degree to which a firm understands, and addresses stakeholder demands. Activities that address stakeholder demands include: – Organization-wide generation of data about stakeholder groups and assessment of the firm s effects on these groups. – Distribution of this information throughout the firm. – Responsiveness of the organization to this information. To generate data about stakeholders: ’ Identify relevant stakeholders Identify concerns about the business that are relevant to each stakeholder group Evaluate their impact on the issues of importance to the various stakeholders identified 9  It is essential for information gathered to be circulated throughout the firm. A stakeholder orientation is not complete without including activities that address stakeholder issues. Activities are likely specific to a particular stakeholder group or issue. Firms are likely to adopt a stakeholder orientation to varying degrees. To measure a firm s stakeholder orientation, evaluate: -The extent the firm adopts behaviors that illustrate the generation and distribution of stakeholder intelligence. -The responsiveness to this intelligence. ’ KNOWLEDGE CHECK: Question: Shareholders are what type of stakeholders? Answer: Primary stakeholders. Those whose continued association and resources are necessary for a firm s survival. These include employees, customers, and shareholders, as well as the governments and communities that provide necessary infrastructure. 2.2 Social Responsibility and Business Ethics ’ Ethics and social responsibility are not the same but are interrelated. Social responsibility is an organization s obligation to maximize its positive impact on stakeholders and minimize its negative impact. There are four levels of social responsibility: Economic ’ Legal Ethical Philanthropic 10 Economics: maximising stakeholder wealth and value Legal: follow by all laws and government regulations Ethical: following standard of acceptable behaviour as judged by stakeholders Philanthropic: giving back to society Corporate citizenship – The extent to which businesses strategically meet the economic, legal, ethical, and philanthropic responsibilities placed on them by various stakeholders. Four interrelated dimensions: Strong sustained economic performance Rigorous compliance Ethical actions beyond what the law requires Voluntary contributions that advance the reputation and stakeholder commitment of the organization Reputation – A corporation s image and an intangible asset with tangible value 2.3 Issues in Social Responsibility Social responsibility rests on a stakeholder orientation: ’ Each stakeholder is given due consideration. Long-term relationships with stakeholders develop trust, loyalty, and the performance necessary to maintain profitability. Social issues are associated with the common good: These can relate directly or indirectly to business. Major issues today include data privacy, consumer protection, sustainability, and corporate governance. Corporate governance – The development of formal systems of 11  accountability, oversight, and control. Strong corporate governance mechanisms remove the opportunity for employees to make unethical decisions. 2.4 Social Responsibility and the Importance of a Stakeholder Orientation Legal and economic responsibilities are generally accepted as the most important determinants of performance. Economist Milton Friedman suggests the market is a better deterrent to wrongdoing than new laws and regulations. Adam Smith, founder of capitalism, said everyone must produce for the common good. -Smith established normative expectations for motives and behaviors in his theories about the invisible hand. Evidence suggests caring about the well-being of stakeholders leads to increased profits. Debate Issue: Take a Stand Is it acceptable to promote a socially irresponsible—but legal— product to stakeholders? For example, Ashley Madison, a dating website, encourages married individuals to have an affair. With the motto “Life Is Short. Have an Affair,” the website has had more than 60 million members worldwide over its lifetime. Take a stand: There is nothing wrong in providing a legal service many people desire. From a stakeholder perspective, it is wrong to provide socially irresponsible services. 2.5 Corporate Governance Provides Formalized Responsibility to 12 Stakeholders Most businesses operate under the assumption that the purpose of business is to maximize profits for shareholders. The stakeholder model places the board of directors in the position of balancing the interests and conflicts of a company s various constituencies. External control of a corporation resides with government regulators and key stakeholders (e.g., employees, consumers, and communities). ’ [Stakeholders exert pressure on the organization for responsible conduct] Social responsibility activities have a positive impact on consumer identification with an attitude toward the brand. Fiduciaries are persons placed in positions of trust that act on behalf of the best interests of the organization (e.g., directors and officers of corporations). – Directors are not generally held responsible for negative outcomes if they have been informed and are diligent in their decision making. Duty of care (duty of diligence) – The legal obligation of an individual or organization to make informed and careful decisions and avoid behavior that could cause harm to others. Duty of loyalty – The obligation of individuals to make decisions that are in the best interest of the corporation and its stakeholders Accountability – How closely workplace decisions align with a firm s stated strategic direction and its compliance with ethical and legal considerations. Oversight – Provides a system of checks and balances that limit employees and managers opportunities to deviate from policies and ’ strategies aimed at preventing unethical and illegal activities. Control – Process of auditing, improving organizational decisions 13 ’ ’ and actions. Corporate governance establishes fundamental systems and processes for: Preventing and detecting misconduct Investigating and disciplining Recovery and continuous improvement The development of a stakeholder orientation should interface with the corporation s governance structure. Corporate governance normally involves strategic decisions and actions by boards of directors, business owners, top executives, and other managers with high levels of authority and accountability. ’ Views of Corporate Governance Shareholder model of corporate governance – Founded in classic economic precepts, including the goal of maximizing wealth for investors and owners. – For publicly traded firms, corporate governance focuses on developing and improving the formal system for maintaining performance accountability between top management and the firm s shareholders. Stakeholder model of corporate governance – A broader view of the purpose of business that considers stakeholder welfare in tandem with corporate needs and interests. ’ The Role of Boards of Directors Boards of directors hold the ultimate responsibility for their firms success or failure, as well as the ethics of their actions. – FSGO holds them accountable for creating an ethical culture that provides leadership, values, and compliance. – Assume legal responsibility for the firm s resources and decision ’ – Responsible for appointing top executive officers 14 ’  There is a new emphasis on accountability for board members. Greater Demand for Accountability and Transparency Directors are increasingly chosen for their expertise, competence, and ability to bring diverse perspectives to strategic discussions. Outside directors do not have a vested interest. Interlocking directorate — The concept of board members being linked to more than one company Legal unless it involves a direct competitor Executive Compensation Executive compensation – How executives are compensated for their leadership, organizational service, and performance. Was influenced by internal equity (how executive pay relates to employee pay). Shifted to a system of external equity (what CEOs at other companies are paid) – Caused executive compensation to increase Ratio of the salaries of the highest-paid executives to the median employee wage should be less. Stakeholders support a high level of compensation only when it is linked to strong company performance. 2.6 Implementing a Stakeholder Perspective Step 1: Assessing the Corporate Culture Identify the organizational mission, values, norms, and behavior likely to have implications for social responsibility Step 2: Identifying Stakeholder Groups 15  Recognize stakeholder needs, wants, and desires Step 3: Identifying Stakeholder Issues Level of stakeholders power and legitimacy determines degree of urgency Step 4: Assessing Organizational Commitment to Stakeholders and Social ’ Responsibility Used to evaluate current practices and to select concrete social responsibility initiatives. Social responsibility disclosures in company annual reports are directly related to the quality of corporate governance. Step 5: Identifying Resources and Determining Urgency Two main criteria: (1) Level of financial and organizational investments required by different actions and (2) urgency when prioritizing social responsibility challenges. When the challenge under consideration is viewed as significant and stakeholder pressures on the issue can be expected, the challenge is considered urgent. Step 6 Gaining Stakeholder Feedback A general assessment of a firm and its practices can be obtained through satisfaction or reputation surveys. To gauge stakeholders perceptions of a firm s contributions to specific issues, stakeholder- generated media such as blogs, websites, podcasts, and newsletters can be assessed. Formal research may be conducted using focus groups, ’ ’ 16  observation, and surveys. Chapter 3: EMERGING BUSINESS ETHICS ISSUES 3.1 RECOGNIZING AN ETHICAL ISSUE (ETHICAL AWARENESS) -People make ethical decisions when they find an ethical component in a particular issue or situation. Failure to acknowledge or be aware of ethical issues is hazardous to an organization: In a dilemma, all of the alternatives have negative consequences, so the less harmful choice is made. Collusion is a secret agreement between two or more parties for a fraudulent, illegal, or deceitful purpose. Deceitful purpose suggests trickery, misrepresentation, or a strategy designed to lead others to believe something less than the whole truth. 3.2 FOUNDATIONAL VALUES FOR IDENTIFYING ETHICAL ISSUES Integrity: Integrity – One of the most important elements of virtue; refers to being whole, sound, and in an unimpaired condition; implies a balanced organization that not only makes ethical financial decisions but also is ethical in the more subjective aspects of its corporate culture. At a minimum, businesses are expected to follow laws and regulations. Business relations should be grounded in integrity Honesty: Honesty – Refers to truthfulness or trustworthiness. Issues related to honesty arise because business is sometimes regarded as a game governed by its own rules rather than those of 17  society. Many argue that because people are not economically self- sufficient, they cannot withdraw from the relationships of business. -Business must make clear what rules apply. -Rules appropriate to the involuntary nature of its many participants must be developed. Dishonesty – A lack or absence of integrity, incomplete disclosure, and an unwillingness to tell the truth. Fairness: Fairness: The quality of being just, equitable, and impartial -Overlaps with concepts of justice, equity, and equality. Three fundamental elements that motivate people to be fair include: -Equality: Refers to the fair and even distribution of benefits and resources. -Reciprocity: An interchange of giving and receiving in social relationships. -Optimization: The trade-off between equity (equality) and efficiency (maximum productivity). Question: What are the three fundamental elements that motivate people to be fair? Answer: Equality, reciprocity, and optimization 3.3 EMERGING ETHICAL ISSUES AND DILEMMAS IN BUSINESS ❑ Ethical issue – A problem, situation, or opportunity that requires an individual, group, or organization to choose among several actions that must be evaluated as right or wrong, ethical or unethical. ❑ Ethical dilemma – A problem, situation, or opportunity that requires an individual, group, or organization to choose among several actions that have negative outcomes. 18 ▪ There is not a right or ethical choice in a dilemma, only less unethical or illegal choices as perceived by any and all stakeholders. Misuse of Company Time and Resources: Time theft is estimated to cost companies hundreds of billions of dollars annually. -Late arrivals, leaving early, long lunch breaks, inappropriate sick days, excessive socializing, engaging in personal activities. Using company computer software and internet services for personal business is one of the most common ways employees misuse company resources. -Many companies have policies delineating acceptable use of resources Abusive or Intimidating Behavior Abusive or intimidating behavior – Common ethical problem, may refer to: – Physical threats – False accusations – Being annoying – Profanity – Insults – Yelling – Harshness – Ignoring someone – Unreasonableness Within abusive behavior or intimidation, intent should be a consideration. Bullying creates a hostile environment. DEBATE ISSUE: TAKE A STAND Workplace bullying is abusive behavior used to assert one s power 19 ’  over another. The U.S. does not have laws against workplace bullying. – Many believe employees should be legally protected from workplace bullying because it is harmful (e.g., depression, anxiety, and low self- esteem). – Others believe this would limit managers ability to manage since they would be afraid their management styles could be perceived as bullying. – Bullying is hard to define, making such a law difficult to enforce. ’ Take a stand: 1. Bullying in organizations can be harmful to employees and therefore warrants legal action. 2. Laws against bullying are not feasible as they are hard to define and have the potential to limit managers ability to manage Lying Lying – Untruthfulness that can be joking without malice, commission lying, and omission lying ’ Commission lying is creating a perception or belief by words that intentionally deceive the receiver of the message. -It also entails intentionally creating noise in the form of technical explanations the communicator knows the receiver does not understand. Omission lying is intentionally not informing others of any differences, problems, safety warnings, or negative issues relating to the product or company that significantly affect awareness, intention, or behavior. Conflicts of Interest Conflict of interest – When an individual must choose whether to advance his or her own interests, those of the organization, or 20  those of some other group. Employees must be able to separate their private interests from their business dealings. Bribery Bribery – The practice of offering something (often money) in order to gain an illicit advantage from someone in authority. Active bribery – When the person who promises or gives the bribe commits the offense. Passive bribery – Offense committed by the official who receives the bribe. Facilitation payments – Payments made to obtain or retain business or other improper advantages that do not constitute bribery payments for U.S. companies in some situations. Corporate Intelligence Corporate intelligence – The collection and analysis of information on markets, technologies, customers, and competitors, as well as on socioeconomic and external political trends. There are three distinct types of intelligence models: -Passive monitoring system for early warning -Tactical field support -Support dedicated to top-management strategy Corporate intelligence involves an in-depth discovery of information from corporate records, court documents, regulatory filings, and press releases, as well as any other background information about a company or its executives. Discrimination Discrimination – Prejudices based on race, color, religion, sex, marital status, sexual orientation, public assistance status, disability, age, national origin, or veteran status; illegal in the United 21  States. Equal Employment Opportunity Commission (EEOC) – Federal agency that protects against workplace discrimination. Age Discrimination in Employment Act – Outlaws hiring practices that discriminate against people of 40 years or older, as well as those that require employees to retire before the age of 70. Affirmative action programs – Involve efforts to recruit, hire, train, and promote qualified individuals from groups that have traditionally been discriminated against on the basis of race, gender, or other characteristics. Sexual Harassment Sexual harassment – Any repeated, unwanted behavior of a sexual nature perpetrated upon one individual by another. Hostile work environment – Three criteria must be met: 1. The conduct was unwelcome; 2. The conduct was severe, pervasive, and regarded by the claimant as so hostile or offensive as to alter his or her conditions of employment 3. The conduct was such that a reasonable person would find it hostile or offensive. Dual relationship – A personal, loving, and/or sexual relationship with someone with whom you share professional responsibilities. 22 Fraud Fraud: Any purposeful communication that deceives, manipulates, or conceals facts in order to harm others. Accounting fraud: Inaccurate information in a corporation s financial reports, in which companies provide important information on which investors and others base decisions. Marketing fraud: dishonestly creating, distributing, promoting, and pricing products. ’ – Puffery: Exaggerated advertising and boasting upon which no reasonable buyer would rely. – Implied falsity: A message that has a tendency to mislead, confuse, or deceive the public. – Literally false: When advertising says that tests prove (establishment claims), when the advertisement cites a study that establishes the claim; and bald assertions (non establishment claims), when the advertisement makes a claim that cannot be substantiated. – Ambiguous statements. Consumer Fraud Consumer fraud: When consumers attempt to deceive businesses for their own gain. – Price tag switching, item switching, lying to obtain age-related or other discounts, taking advantage of return policies. Collusion involves an employee who assists the consumer in fraud. Duplicity may involve a consumer staging an accident and then seeking damages; purchasing, wearing, and then returning an item of clothing; or asking for a refund by claiming a defect. Guile is associated with a person who is crafty or understands right/wrong behavior but uses tricks to obtain an unfair advantage. 23 Financial Misconduct The failure to understand and manage ethical risks played a significant role in the global financial crisis (Great Recession). – Caused in part by a failure of the financial industry to take appropriate responsibility for use of risky, complex financial instruments -Subprime lending emerged as an ethics issue. -Loan officers received commissions on securing loans from borrowers with no consequences if the borrower defaulted on the loan. -“Liar loans” were developed to create more sales and higher personal compensation for lenders. Risk management in the financial industry continues to be a key concern. Insider Trading Insider trading: The buying or selling of stocks by insiders who possess information that is not yet public. – Buying or selling stocks using information that is not yet public is illegal. – Insider trading is legal if the individual legally buys or sells stock in 24 an insider s own company as long as the transaction(s) are reported to the SEC within two business days. 3.4 THE CHALLENGE OF DETERMINING AN ETHICAL ISSUE IN BUSINESS ’ ❖ Most ethical issues concerning a business will become visible through stakeholder concerns. ❖ Problems can become ethical issues as a result of changing societal values. ❖ Crisis management: The process of handling a high-impact event characterized by ambiguity and the need for swift action to access and respond to potential damage. Chapter 4: ethical decision making What factors within an organization do you think affect ethical decision making? -Culture -Climate -Significant others -Power -Oppuntinity 4.1 a framework for ethical decision making in business 25 Ethical Issue Intensity Ethical awareness – The ability to perceive whether a situation or decision has an ethical dimension. Ethical issue intensity – The relevance or importance of an event or decision in the eyes of the individual, work group, and/or organization. – Personal and temporal in character to accommodate values, beliefs, needs, perceptions, the special characteristics of the situation, and the personal pressures prevailing at a particular place and time. Moral intensity – Individuals perceptions of social pressure and the harm they believe their decisions will have on others. Individual Factors When people need resolve issue in their daily live, they often base ’ their decision on their own values, morals of right or wrong. They generally learn through the socialization process interacting with family and social groups, through religion and their formal education. Good personal values & morals have been found to decrease unethical practice and increase positive work behavior. Individual Factors that affect include:- Gender – In ethical decision making, research shows that in many aspects there are no differences between men and women. Education – A significant factor in the ethical decision-making process; generally, the more education or work experience people have, the better they are at making ethical decisions. Nationality – The legal relationship between a person and the country in which they are born. Cultural differences is impossible to state that ethical decision making in an organization context will differ significantly among individual of difference nations. 26  Age – An individual factor that has a complex relationship with business ethics. – Believed age was positive correlated with ethical decision making. – The older you are, the more ethical has they have more experience and have greater knowledge. – Younger managers are far more influenced by organizational culture. This generation are more likely to form an opinion of company based on ethics, practice and social impact rather than on product or service quality Locus of control – Individual differences in relation to a generalized belief about how one is affected by internal versus external events or reinforcements. External control – Individuals with this locus of control see themselves as going with the flow because that is all they can do (life events are due to uncontrollable forces). They accept the result or outcomes depend on luck, chance and powerful people in their company. Internal control – Individuals with this locus of control believe they control the events in their lives by their own effort and skill; they view themselves as masters of their destinies and trust in their capacity to influence their environment. Accountable more by emphasizing and validating their own choices. 27 Organizational Factors Corporate culture – A set of values, norms, and artifacts, including ways of solving problems that members (employees) of an organization share. – Mission statements and objectives Ethical culture – Acceptable behavior, defined by the company and industry – Reflects the integrity of decisions made and is a function of factors, including corporate policies, top management s leadership on ethical issues, the influence of coworkers, and the opportunity for unethical behavior. Corporate culture & ethical culture are closely associated with the idea that significant others in organization help determine ethical ’ decisions. Significant others – Those who have influence in a work group, including peers, managers, coworkers, and subordinates. they help workers on daily basis with unfamiliar task and provide advice and information in both formal and informal way. Obedience to authority – A reason employees resolve business ethics issues by simply following the directives of a superior. 28 Opportunity -The conditions in an organization that limit or permit ethical or unethical behavior. It result from conditions that either provide rewards, whether internal or external, or fail to create barriers against unethical behavior. –Immediate job context : Where individuals work, whom they work with, and the nature of the work Can be deterred with formal codes, policies, and rules adequately enforced by management. – Misconduct can still occur without proper oversight Also comes from knowledge, exploiting knowledge. Business Ethics Intentions, Behavior, and Evaluations Ethical business issues, dilemmas involve problem-solving situations where the rules governing decisions are often vague or in conflict. When intentions and behavior are inconsistent with their ethical judgment, people may feel guilty. -Guilt is the first sign an unethical decision may have occurred. -The next step is changing the behavior to reduce such feelings. The road to success depends on how the businessperson defines success. -Success drives intentions and behavior in business either implicitly or explicitly. 4.2 Using the Ethical Decision-Making Model to Improve Ethical Decisions An ethical decision-making model does not help in determining if a business decision is right or wrong. – It is intended to provide insights about ethical decision making in businesses. – Business ethics involves value judgments and collective agreement 29 about acceptable patterns of behavior. Gaining an understanding of the factors that make up ethical decisions helps in differentiating between an ethical issue and a dilemma. It will help to know what the degree of ethical intensity as how individual factors such as gender, moral philosophy, education level and religion within you and others affect the process. 4.3 Normative Considerations in Ethical Decision Making Normative approaches: How organizational decision makers should approach an issue. – Different from a descriptive approach that examines how organizational decision makers approach ethical decision making. Most organizations develop a set of core values to provide enduring beliefs about appropriate conduct within the firm. -Instrumental concern: Focuses on positive outcomes, including firm profitability and benefits to society. Institutions as the Foundation for Normative Values Institutional theory – Theory that organizations operate according to taken-for-granted institutional norms and rules. – Government, religion, and education are institutions that influence the creation of values, norms, and conventions. Industry competition determined by: – Barriers to entry into the industry – Available substitutes for the products produced by the industry rivals – The power of the industry rivals over their customers – The power of the industry rivals suppliers over other rivals ’ 30 4.4 Understanding Ethical Decision Making Top-level support for ethical behavior is instrumental in helping employees engage in their personal approaches to ethical decision making. Normative perspectives set forth ideal goals to which organizations should aspire. Knowledge about ethical decision making helps in making good decisions. Chapter 5: Individual Factors: Moral Philosophies and Values Icebreaker What does the term “philosophy” mean to you? What does the term “moral philosophy” mean to you? When people talk about philosophy, they usually refer to the general system of values by which they live. What does the term “moral philosophy” mean to you? Moral philosophy, on the other hand, refers to the specific principles or values people use to decide what is right and wrong :: It is important to understand the distinction between moral 31  philosophy and business ethics. Moral philosophy – person specific, person principle & values. Business ethics- based on decisions made by groups when carrying out tasks to meet business objectives. It refer right or wrong actions in the business 5.1 Moral Philosophy Defined Moral philosophy – The specific principles or values people use to decide what is right and wrong Determining how conflicts in human interests are to be settled. Optimizing mutual benefit of people living together in groups. Moral philosophies are often used to defend a particular type of economic system (e.g., capitalism) and individuals behavior within these systems Adam Smith, considered the father of free-market capitalism, believed business was and should be guided by the morals of good people. ’ Some managers view profit maximization as the ultimate goal. -Economist Milton Friedman supported this viewpoint, contending the market will reward or punish companies for unethical conduct without the need for government regulation. -Economic freedom: A concept based on self-ownership, the right to choose, voluntary exchange, open markets, and clearly defined and enforced property rights. Many theories associated with morals which refer to a value orientation and concepts sch as:- Economic Value orientation Idealism Realism 32 Economic value orientation – Associated with values quantified by monetary means; according to this theory, if an act produces more economic value for its effort, then it should be accepted as ethical. Idealism – A moral philosophy that places special value on ideas and ideals as products of the mind. Refer to the efforts required to account for all objects in nature and experience. Realism – The view that an external world exists independent of our perceptions. According to realists, each person is ultimately guided by his or her own self interest. 5.2 Moral Philosophies MORAL PHILOSOPHIES: Teleology Is considered morally right or acceptable if it produces some desired result, such as pleasure, knowledge, career growth, the realization of self interest, utility, wealth or even fame. 33  Two important teleological philosophies that often guide decision making in individual business decisions are egoism and utilitarianism. Egoism – depending on the egoist, self interest may be comes from physical well being, power, fame, satisfying career, good family and wealth. Utilitarianism – seeks the greatest good for the greatest number of people. They should make decisions that result in the greatest total utility or the greatest benefit for all those affected by a decision. :: Example: companies who legally sell harmful products (tobacco, guns or alcohol), despite their drawbacks, allowing them to be sold legally is less harmful than having them sold illegally. Deontology Deontological theory is the idea that equal respect must be given to all persons. :: For example:- deontologists would consider it wrong to kill an innocent person or commit a serious injustice against someone, no matter how much greater social utility might result from doing so, because such an action would overstep on individual rights. Relativist Perspective Relativist perspective – Definitions of ethical behavior are derived subjectively from the experiences of individuals and groups. Descriptive relativism – Relates to observations of other cultures. Meta-ethical relativism – Proposes that people naturally see situations from their own perspectives, and there is no objective way of resolving ethical disputes between different value systems and individuals. Normative relativism – The assumption that one person s opinion 34 ’  is as good as another s. :: Basic relativism acknowledges that people have many different views. The relativist observes the actions of members of an involved ’ group. (Attempts to determine group s consensus on a given behavior.) One problem with relativism is it emphasizes peoples differences while ignoring their basic similarities. ’ Virtue Ethics Virtue ethics – Argues that ethical behavior involves not only ’ adhering to conventional moral standards but also considering what a mature person with a “good” moral character would deem appropriate in a given situation. Good corporate ethics programs encourage individual virtue and integrity. By the employee s role in the community (organization), these virtues form a good person. An individual s ultimate purpose is to serve society s demands and the public good and be rewarded in their career. The well-being of the community goes hand in hand with individual ’ excellence. ’ ’ Justice Justice – Fair treatment and due reward in accordance with ethical or legal standards, including the disposition to deal with perceived injustices of others. Distributive justice – Based on the evaluation of the outcomes or results of a business relationship. Procedural justice – Considers the processes and activities that 35  produce a particular outcome. Interactional justice – Based on the relationships between organizational members, including the way employees and management treat one another. 5.3 Applying Moral Philosophy to Ethical Decision Making Individuals use different moral philosophies depending on whether they are making a personal or work-related decision. – Goals/pressure differ in a person s personal and professional lives. – Factors that make up a person s moral philosophy are weighted differently in a business (profit) situation. – Corporate culture has an influence. The concept of a moral philosophy is inexact. ’ – Must be assessed on a continuum rather than as static entities ’ Problems arise when employees encounter ethical situations they cannot resolve. Sometimes a company makes questionable decisions from the perspective of individual worker s values and moral philosophies. Chapter 6: ORGANIZATIONALFACTORS: THE ROLE OF ETHICAL CULTURE AND RELATIONSHIPS Icebreaker ’ What do the terms “corporate culture” and “organizational culture” mean to you? Organizational culture includes shared values, norms, and artifacts that influence employees and determine behavior, including ways of solving problems that members (employees) of an organization share. Corporate culture is “the shared beliefs top managers in a company have about how they should manage themselves and other employees, and how they should conduct their business(es).” 36  Do you think the terms corporate culture and organizational culture mean the same thing? All organizations, not just corporations, have some sort of culture, and, therefore, we use the terms organizational culture and corporate culture interchangeably 6.1 DEFINING CORPORATE CULTURE Organizational culture – Shared values, norms, and artifacts that influence employees and determine behavior. Corporate culture – The shared beliefs top managers in a company have about how they should manage themselves and other employees, and how they should conduct their business(es). – All organizations, not just corporations, have some sort of culture. – Corporate culture includes history and unwritten rules. :: – Leaders are responsible for the actions of their subordinates and corporations should have ethical corporate cultures. An ethical corporate culture is measured in the following ways: – Management and board demonstrate commitment to integrity, core values, ethics codes through communications and actions. – Employees encouraged and required to have hands-on involvement in compliance, especially internal control systems and reporting systems. – Ethical leadership starts with the tone at the top. – Employees expected to receive communication through resolutions and corrective actions related to ethical issues. – Employees can report policy exceptions anonymously to any member of the organization, including the CEO, other members of management and the board of directors. 6.2 The Role of Corporate Culture in Ethical Decision Making 37  Corporate culture has been associated with a company s success or failure. Explicit statements of values, beliefs, customs, and expected behavior usually come from upper management. ▪ Memos, written codes of conduct, handbooks, manuals, forms are ’ formal expressions of an organization s culture which usually can be found on company websites. Corporate culture is often expressed informally through statements that communicate the wishes of management (both direct and ’ indirect). ▪ Some companies, shared values are expressed by informal dress code, working late and participating in extra curricular activities. A culture that emphasizes the importance of ethics and social responsibility can reduce misconduct such as earnings manipulation in the finance area. ▪ When leaders are perceived as trustworthy, employees trust increases; leaders are seen as ethical and as honoring a higher level of duties. Ethical Frameworks and Evaluations of Corporate Culture : Two basic dimensions to describe an organization s culture:- 1. Concern for people- the organization s efforts to care for its employees well being. 2. Concern for performance- the organization s efforts to focus on output and employee productivity. ’ ’ There are four organizational culture classifications: Apathetic culture – Minimal concern for either people or ’ performance. Behavior can include avoiding risks, undervaluing employee efforts, 38 limiting internal communication, decreasing resources while increasing expectations. Example 1: A company freezes employee s pensions to keep their business operating/ companies view long serving employees as dead wood and do not take into account past performance. Example 2: A company s culture appeared to encourage unethical conduct in exchange for profits. ’ Caring culture – High concern for people but minimal concern for performance issues. ’ Example 1 : A company embraces community causes, treats its employees fairly, and expends numerous resources to enhance the well-being of its customers Exacting culture – Little concern for people but a high concern for performance. Example: United Parcel Systems (UPS) employees are held to high standards to ensure maximum performance, consistency of delivery, and efficiency. :: Integrative culture – High concern for people and performance. Example 2: A company exhibits a high concern for people through community causes, sustainability, and employee health care. Example 2 : Google is a financially successful global tech giant and values the employees by offers flexible schedules, the freedom to be creative, a fun work environment, free food and more. :: Companies can classify their corporate culture and identify their specific values, norms, beliefs, and customs by conducting a cultural audits. Cultural audit – Assessment of an organization s values. Usually 39 ’ conducted by outside consultants but may be performed internally as well. Ethics as a Component of Corporate Culture: ❖ The ethical component of corporate culture is a significant factor in ethical decision making. ❖ Culture dictates hiring people with specific, similar values. ❖ If company s primary objective is to make as much profit as possible through whatever means, its culture may foster behavior that conflicts with stakeholders ethical values. ❖ If an organization values ethical behavior, it rewards them through recognition and awards in a consistent and balanced manner. ’ ❖ All performance at the threshold level should be acknowledged, with praise or rewards given as close to performance as possible. ’ Compliance Versus Values-Based Ethical Cultures: Compliance culture – A legalistic approach to ethics – They use laws and regulatory rules to create codes and requirements. – Codes of conduct established with compliance as their focus 40 – Revolves around risk management – Compliance approach is good in the short term because helps management, stakeholders and legal agencies ensure laws, rules. – However, is its lack of long-term focus on values and integrity. Values-based ethics culture – Relies on an explicit mission statement that defines the core values of the firm and how customers and employees should be treated. – Top-down integrity approach with shared values, norms that provide guides for behavior, and visible artifacts such as codes of ethics that provide a standard of conduct. – Focus this type of corporate culture is on values such as trust, transparency, and respect to help employees to identify and deal with ethical issues. Whistle-Blowing: Whistle-blowing – Exposing an employer s wrongdoing to outsiders such as the media or government regulatory agencies. – Sometimes used to refer to internal reporting of misconduct to management. ’ SOX and Federal Sentencing Guidelines for Organizations (FSGO) institutionalized internal whistle-blowing. – Incentives to report through Dodd–Frank Act. Qui tam relator – An employee who provides information to the government about a company s wrongdoing under the Federal False Claims Act. – Whistle-blowing requires the individual have adequate knowledge of wrongdoing that could damage society.Organizational Structure ’ 41 6.3 Organizational Structure Centralized organization – Decision-making authority is concentrated in the hands of top-level managers, and little authority is delegated to lower levels. – Suited to organizations that make high-risk decisions and have lower-level managers not highly skilled in decision making. – It also suited for organizations when production process are routine, and efficiency is of primary importance. – Centralized organization stress formal rules, policies and procedures backed up with elaborate control systems. – Typically have little upward communication- top level managers may not be aware of problems and unethical activity. – Strict formalization, may be more ethical than decentralized Decentralized organization – Decision-making authority is delegated as far down the chain of command as possible. – Relatively few formal rules, and coordination and control are usually informal and personal. – Flow of information in both directions – With greater flexibility, managers can react more quickly to changes 6.4 Group Dimensions of Corporate Structure and Culture Types of Groups: Formal group – An assembly of individuals with an organized structure that is explicitly accepted by the group. Committee: Formal group of individuals assigned to a specific task Work groups: Subdivide duties within specific functional areas of a company -May or may not work in the same department :: Teams: Bring together the expertise of employees from several different areas of the organization 42 -Team has members who work interdependently on a specific, common goal to produce a result for their business. :: Informal group – Two or more individuals with a common interest but without an explicit organizational structure. – Grapevine, informal channels of communication Group Norms: Group norms – Standards of behavior groups expect of their members – Help define acceptable and unacceptable behavior – Define the limit allowed on deviations from group expectations – Provide explicit ethical directions – Can relate directly to managerial decisions – Have the power to enforce a strong degree of conformity among group members – Can define the different roles for various positions within the organization 43 Chapter 7: developing an implanting an effective ethics program 7.1 the responsibility of the corporation to stakeholders Increasingly, corporations are viewed as moral agents accountable for their conduct to their stakeholders. Through the law, society holds companies accountable for the conduct and decisions of their employees as well. -Because companies are not human, laws and regulations are necessary to provide formal structural restraints and guidance. -Employees have an ethical obligation to responsibly think through complex ethical issues to contribute to the ethical conduct of the corporation. Implementing a centralized corporate ethics program can provide an organized, internally consistent set of statements and policies representing the corporation as a moral agent. 7.2 The Need for Organizational Formal programs sensitize employees to the potential legal and 44  ethical issues within their work environments. Ethics scandals can destroy employee and public trust of business. Understanding the factors that influence ethical decision making can help companies encourage ethical behavior and discourage undesirable conduct. -Terminating unethical employees -Improving the firm s ethical standards Pressures to succeed create opportunities that reward unethical decisions. Organizations should develop a program by establishing, ’ communicating, and monitoring ethical values and legal requirements. No universal standards can be applied to organizational ethics programs. Chapter 8: An Effective Ethics Program An Ethics Program Can Help Avoid Legal Problems: ❖ Companies may face penalties and the loss of public confidence if one of their employees breaks the law. ❖ Federal Sentencing Guidelines for Organizations (FSGO) encourages companies to assess key risk areas, customize a compliance program. – It s important to monitor and weigh the risks of third-party suppliers and/or business partners. – At the heart of the FSGO is a “carrot-and-stick” philosophy. Carrot – Avoiding penalties (if company prevents misconduct by ’ establishing, enforcing ethical and legal compliance programs) 45  Stick – Possibility of being fined, put on probation if convicted of a crime. Values versus Compliance Programs: No matter what their goals, ethics programs are developed as organizational control systems, with the aim of creating predictability in employee behavior. Two types of control systems can be created:- Compliance orientation – A control system that creates order by requiring employees to identify with and commit to specific required conduct. It uses legal terms, statues, and contracts that teach employees the rules and penalties for noncompliance. Values orientation – A control system that strives to develop shared values. Gives employees a clearly defined basis on which to make decisions 46 -one in which fairness, compassion, respect, and transparency are principal. Both types of programs can interact or work toward the same end, but a values orientation has the added benefit of sparking ethical reasoning among employees. Values-based programs increase employees awareness of ethics at work, integrity, willingness to deliver information to supervisors, use of reporting mechanisms, and perception that ethical decisions are being made. Compliance-based programs are linked to employees awareness ’ of ethical risks at work and a clear understanding of rules and expectations that facilitates decision making. Final analysis, both orientations can be used to help employees and managers; however, a values-based program is the foundation ’ of an organizational ethical culture. 8.1 Codes of Conduct Most companies begin the process of establishing organizational ethics programs by developing codes of conduct. ❖Codes of conduct – Formal statements that describe what an organization expects of its employees. ❖ Code of ethics – Consists of general statements, sometimes selfless or inspirational, that serve as principles and as the basis for rules of conduct. ❖ Value statement – A declaration of an organization s top priorities that serves the general public and also addresses distinct groups such as stakeholders. ’ 47 ❖ Codes should reflect upper managers desires for compliance with the values, rules, and policies that support an ethical culture. ❖ Codes should involve the board of directors, CEO, and executive officers who will implement the code. ❖ Legal staff should be called on to ensure the code has correctly ’ assessed key areas of risk and provides buffers for potential legal problems. ❖ Employee involvement enables empowerment of all members of the organization to create shared values. ❖ Desirable values of an effective code include trustworthiness, respect, responsibility, fairness, caring, citizenship. ❖ Employees at organizations with effective codes of conduct tend to be less tolerant of unethical behavior toward stakeholders. Why codes fail ? The code is not promoted, and employees do not read it. The code is not easily accessible. The code is written too legalistically and therefore is not understandable by average employees. The code is written too vaguely, providing no accurate direction. Top management never refers to the code in body or spirit. 8.2 Ethics Officers 48 Chapter 9: Ethics Training and Communication A major step in developing an effective ethics program is implementing a training program and communication system to educate employees about the firm s ethical standards. – Educate employees about the firm s policies and expectations, relevant laws and regulations, and general social standards. – Make employees aware of resources, support systems, and ’ designated personnel who can assist them with ethical and legal advice. ’ – Empower employees to ask tough questions and make ethical decisions. – Make employees aware of ethical issues. – Increase employees confidence they can make the correct decision. A key component is a firm grasp of techniques that clearly communicate the company s values, culture, and policies for dealing with ethical issues to employees. ’ Another training device is the behavioral simulation. When measuring the effectiveness of an ethics program, it is ’ 49  important to get input from employees. Chapter 10: Systems to Monitor and Enforce Ethical Standards Continuous Improvement of an Ethics Program: Implementation requires designing activities to achieve organizational objectives using available resources, given existing constraints. -Translates a plan for action into operational terms People s attitudes and behavior must be guided by a shared commitment to the business rather than by mere obedience to traditional managerial authority. Encouraging diversity of perspectives, disagreement, and the empowerment of people helps align the company s leadership with ’ its employees. If a company determines its ethical performance has been less than satisfactory, executives may want to change how certain decisions are made. ’ 50 Common Mistakes in Designing and Implementing an Ethics Program: Recognizing the need an ethics program, but not taking the time to answer fundamental questions about the goals of such a program. Not setting realistic and measurable program objectives. Senior management failing to take ownership of the ethics program. Not addressing the needs of the average employee. Transferring an American program to a firm s international operations. Designing an ethics program as little more than a series of lectures. ’ 10.1 The Ethics Audit Ethics audit – A systematic evaluation of an organization s ethics program and performance to determine effectiveness. Voluntary programs with fewer standards a company can apply regarding reporting frequency, disclosure requirements, and remedial actions. ’ Highlight trends, improve organizational learning, and facilitate communication and working relationship. Assess the effectiveness of programs and policies. Identify potential risks and liabilities, improve compliance. Improve relationships with stakeholders 51 Informal Ethics Audit: Interviews of employees and management. Provide key areas for improvement where management can better lead, educate employees. Questions to gauge employee s opinion on awareness, preparedness, and confidence over the existing ethics and compliance program. HR managers seen as ethical role models are almost always central to the ethics audit. ’ How to Conduct an Ethics Audit: Start with a detailed foundation: Have detailed and specific policies and procedures in place to make it easier to make comparisons in the audit. Develop metrics: Create tangible ethics measures and consider adding these goals to annual performance reviews. Create a cross-functional team: The ethics audit team should include the ethics and compliance manager, HR personnel, and when possible, an internal auditor and legal managers. Audit efficiently: Combine audits reviewing the same areas to limit 52  disruption in the organization. Look for other issues: Be aware of continuous improvement opportunities and share them with colleagues. Respond consistently and communicate: Ethics violations should be followed up with appropriate discipline as outlined in the code of conduct every time. Additionally, any issue can be used as an example in ethics-related communications and training. Integrity Measurement Frameworks: Balanced scorecard – A performance management tool that details a company s performance through financial and nonfinancial perspectives, giving management a comprehensive view of the business. – Measures financial, customer/stakeholder, internal process, organizational capacity ’ Triple bottom line – A perspective that considers the social, environmental, and financial impacts of decisions made within an organization. ESG – A framework for evaluation of firm performance in the areas of environmental, social, and governance. – Global Reporting Initiative (GRI) – A prominent framework that companies have adopted to report their social and sustainability progress ISO 19600 – A framework that emphasizes a “principles” approach to compliance management based upon commitment, implementation, monitoring and measuring, and continual improvement. 53 Implementing Programs, Audits, and Measurements to Sustain an Ethical Culture: Organizations are responsible for developing, managing an ethical culture. Ethics programs are necessary to sensitize employees and managers to recognize, navigate ethical issues. 54 – Risk areas are different for every organization. – Ethical leadership is necessary. Codes of ethics provide directions for both inspirational and required conduct to develop a strong ethical culture. Ethics officers provide necessary oversight. An ethics audit can keep the program on track and provide the opportunity for organizational learning. 55