Chapter 5: Organizational Ethics and the Law

Chapter 5 Organizational Ethics and the LawCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinCh. 5: Key Learning ObjectivesClassifying an organization’s culture and ethical climateRecognizing ethics challenges across the multiple functions of businessCreating effective ethics polices, ethics training programs, ethics reporting mechanisms, and similar safeguardsAssessing the strengths and weaknesses of a comprehensive ethics programUnderstanding how to conduct business ethically in the global marketplaceIdentifying the differences between ethics and the law5-*Corporate Culture and Ethical ClimatesCorporate cultureA blend of ideas, customs, traditional practices, company values, and shared meanings that help define normal behavior for everyone who works in a companyEthical climateThe unspoken understanding among employees of what is and is not acceptable behaviorMultiple climates (or subclimates) can exist within one organization 5-*The Components of Ethical ClimatesFigure 5.15-*Business Ethics across Organizational FunctionsBusiness operations can be very specialized, leading to ethical challenges related to those functional areasProfessional ethical standards may conflict with the ethical standards within the organizationProfessional associations may have specific ethical standards that apply to that function5-*Professional Codes of ConductExamples of business professional associations and their codes:American Institute of Certified Public Accountants (AICPA) Code of Professional ConductChartered Financial Analyst (CFA)®, CFA Institute Code of Ethics and Standards of Professional ConductAmerican Marketing Association (AMA) Code of EthicsAssociation for Computing Machinery (ACM) Code of Ethics and Professional Conduct5-*Building Ethics Safeguard into the CompanyTo improve the quality of a company’s ethical performance you have to change the culture so that ethics is part of everyday decision-makingTo do so means institutionalizing ethics or building ethics safeguards in to everyday routinesA recent survey of ethics safeguards or programs of major corporations companies is shown on next slide5-*Organizations’ Ethics Safeguards Percentage of Firms Reporting They Have the Ethical SafeguardFigure 5.25-*Two Ethics ApproachesCompliance-based approachSeeks to avoid legal sanctionsEmphasizes threat of detection and punishment to promote lawful employee behaviorIntegrity-based approachCombine concern for law with emphasis on employee responsibility for ethical conductEmployees instructed to act with integrity and conduct business dealings honestlyBoth approaches have been found to lessen unethical conduct, but in somewhat different ways5-*Ethics Programs and PoliciesTop Management Commitment and InvolvementCritical to fostering employee ethical behaviorEthics Policies or CodesProvides guidance to managers and employees on what to do when faced with an ethical dilemma In U.S. policies tend to be instrumental, providing rules and proceduresIn Japan policies tend to be combination of legal compliance and company valuesJust having a code or policy is insufficient, must be widely distributed and have associated training5-*Ethics Programs and PoliciesEthics and Compliance OfficersRelatively new position (started in 1980’s) that has grown significantlyMembership in professional association, Ethics and Compliance Officers Association, doubled between 2000 and 2004 Ethics Reporting MechanismsPurposes include providing interpretations of proper ethical behavior, avenue for reporting unethical conduct, and information-sharing toolEmployees can place a call on the company’s ethics assist or helplineExecutives tend to use the helpline more often than middle managers5-*Ethics Programs and PoliciesEthics Training ProgramsIs very effective method for promoting workplace ethical behaviorMost expensive and time-consuming element of an ethics programEthics AuditsFormal study of deviations from company ethical standardsManagement must report on corrective action to be taken in response to found deviations5-*Comprehensive Ethics ProgramsIntegration of various program/policy components is critical to effective ethics design Integrated approach is called a “comprehensive” program 26% of companies recently surveyed had a “6 element” program integratingWritten policies, training, advice resources, hotline, ethics discipline, and evaluation systemsThose working at firms with a comprehensive program areMore likely to report ethical misconductMore likely to be satisfied with any investigation and response to ethical misconduct5-*Corporate Ethics AwardsAwarded to companies for efforts in creating and improving their ethical performanceThese companies serve as models for others to followDemonstrates that firms can be financially successful and ethically focusedThe Foundation for Financial Service Professionals sponsors the American Business Ethics Awards (ABEA)recognizes companies that exemplify high standards of ethical behavior in their everyday business conduct and in response to specific crises or challenges5-*Ethics in a Global EconomyDoing business in global context brings up host of complex ethical challengesCommon example is briberyBribery is defined as a questionable or unjust payment often to a government official to ensure or facilitate a business transactionInternational watchdog agency, Transparency International, publishes a survey of countries’ levels of corruptionBribe-taking more likely in countries with low per capita income, low salaries for government officials, and less income variation5-*Efforts to Curtail Bribery on the Global LevelOrganization for Economic Cooperation and Development (OECD) TreatyEffort for member countries to agree to steps to prevent and combat briberyNearly 40 countries ratified the treaty Other initiativesChina’s National Corruption Prevention BureauInternational Labour Organization and the United Nations have attempted to develop an international code of conduct for multinational corporationsU.S. Foreign Corrupt Practices Act prohibits executives of U.S. based companies to pay bribes to foreign government officials 5-*Relationship between Law and EthicsBoth define proper and improper behaviorLaws are society’s attempt to formalize ethical standardsWritten to capture public’s wishes about what constitutes right and wrong behaviorEthical concepts are more complex than lawsOften apply to areas not covered by lawsSome businesses proactively address ethical areas not covered by law through voluntarily adopted practicesManagers who are trying to improve their company’s ethical performance need to do more than comply with laws5-*Cost of Corporate LawbreakingLawbreaking in business is often a result of acts committed by the organizations’ own employeesWhite-collar crime accounts for more than 330,000 arrests a yearillegal acts committed by individuals, employees or business professionals such as fraud, insider trading, embezzlement, or computer crime The Association of Certified Fraud Examiners (ACFE) reported in 2012 that the typical organization lost five percent of its revenues to fraud each year This translated to a potential global fraud loss of more than $3.5 trillion5-*