Lecture Business and society: Stakeholders, ethics, public policy (14/e): Chapter 5 - Anne Lawrence, James Weber

Chapter 5 - Organizational ethics and the law. The purpose of this chapter is: Classifying an organization’s culture and ethical climate; recognizing ethics challenges across the multiple functions of business; creating effective ethics polices, ethics training programs, ethics reporting mechanisms, and similar safeguards;...

Chapter Organizational Ethics and the Law McGraw­Hill/Irwin Copyright © 2014 by The McGraw­Hill Companies, Inc. All rights reserved Ch 5: Key Learning Objectives  Classifying an organization’s culture and ethical climate  Recognizing ethics challenges across the multiple functions of business  Creating effective ethics polices, ethics training programs, ethics reporting mechanisms, and similar safeguards  Assessing the strengths and weaknesses of a comprehensive ethics program  Understanding how to conduct business ethically in the global marketplace  Identifying the differences between ethics and the law 5­2 Corporate Culture and Ethical Climates  Corporate culture  A blend of ideas, customs, traditional practices, company values, and shared meanings that help define normal behavior for everyone who works in a company  Ethical climate  The unspoken understanding among employees of what is and is not acceptable behavior  Multiple climates (or subclimates) can exist within one organization 5­3 Figure 5.1 The Components of Ethical Climates 5­4 Business Ethics across Organizational Functions  Business operations can be very specialized, leading to ethical challenges related to those functional areas  Professional ethical standards may conflict with the ethical standards within the organization  Professional associations may have specific ethical standards that apply to that function 5­5 Professional Codes of Conduct  Examples of business professional associations and their codes:  American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct  Chartered Financial Analyst (CFA)®, CFA Institute Code of Ethics and Standards of Professional Conduct  American Marketing Association (AMA) Code of Ethics  Association for Computing Machinery (ACM) Code of Ethics and Professional Conduct 5­6 Building Ethics Safeguard into the Company  To improve the quality of a company’s ethical performance you have to change the culture so that ethics is part of everyday decision-making  To so means institutionalizing ethics or building ethics safeguards in to everyday routines  A recent survey of ethics safeguards or programs of major corporations companies is shown on next slide 5­7 Figure 5.2 Organizations’ Ethics Safeguards Percentage of Firms Reporting They Have the Ethical Safeguard 5­8 Two Ethics Approaches  Compliance-based approach  Seeks to avoid legal sanctions  Emphasizes threat of detection and punishment to promote lawful employee behavior  Integrity-based approach  Combine concern for law with emphasis on employee responsibility for ethical conduct  Employees instructed to act with integrity and conduct business dealings honestly  Both approaches have been found to lessen unethical conduct, but in somewhat different ways 5­9 Ethics Programs and Policies  Top Management Commitment and Involvement  Critical to fostering employee ethical behavior  Ethics Policies or Codes  Provides guidance to managers and employees on what to when faced with an ethical dilemma  In U.S policies tend to be instrumental, providing rules and procedures  In Japan policies tend to be combination of legal compliance and company values  Just having a code or policy is insufficient, must be widely distributed and have associated training 5­10 Ethics Programs and Policies  Ethics and Compliance Officers  Relatively new position (started in 1980’s) that has grown significantly  Membership in professional association, Ethics and Compliance Officers Association, doubled between 2000 and 2004  Ethics Reporting Mechanisms  Purposes include providing interpretations of proper ethical behavior, avenue for reporting unethical conduct, and information-sharing tool  Employees can place a call on the company’s ethics assist or helpline  Executives tend to use the helpline more often than middle managers 5­11 Ethics Programs and Policies  Ethics Training Programs  Is very effective method for promoting workplace ethical behavior  Most expensive and time-consuming element of an ethics program  Ethics Audits  Formal study of deviations from company ethical standards  Management must report on corrective action to be taken in response to found deviations 5­12 Comprehensive Ethics Programs  Integration 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 integrating  Written policies, training, advice resources, hotline, ethics discipline, and evaluation systems  Those working at firms with a comprehensive program are  More likely to report ethical misconduct  More likely to be satisfied with any investigation and response to ethical misconduct 5­13 Corporate Ethics Awards  Awarded to companies for efforts in creating and improving their ethical performance  These companies serve as models for others to follow  Demonstrates that firms can be financially successful and ethically focused  The 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 challenges 5­14 Ethics in a Global Economy  Doing business in global context brings up host of complex ethical challenges  Common example is bribery  Bribery is defined as a questionable or unjust payment often to a government official to ensure or facilitate a business transaction  International watchdog agency, Transparency International, publishes a survey of countries’ levels of corruption  Bribe-taking more likely in countries with low per capita income, low salaries for government officials, and less income variation 5­15 Efforts to Curtail Bribery on the Global Level  Organization for Economic Cooperation and Development (OECD) Treaty  Effort for member countries to agree to steps to prevent and combat bribery  Nearly 40 countries ratified the treaty  Other initiatives  China’s National Corruption Prevention Bureau  International Labour Organization and the United Nations have attempted to develop an international code of conduct for multinational corporations  U.S Foreign Corrupt Practices Act prohibits executives of U.S based companies to pay bribes to foreign government officials 5­16 Relationship between Law and Ethics  Both define proper and improper behavior  Laws are society’s attempt to formalize ethical standards  Written to capture public’s wishes about what constitutes right and wrong behavior  Ethical concepts are more complex than laws  Often apply to areas not covered by laws  Some businesses proactively address ethical areas not covered by law through voluntarily adopted practices  Managers who are trying to improve their company’s ethical performance need to more than comply with laws 5­17 Cost of Corporate Lawbreaking  Lawbreaking in business is often a result of acts committed by the organizations’ own employees  White-collar crime accounts for more than 330,000 arrests a year  illegal 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 trillion 5­18 ... understanding among employees of what is and is not acceptable behavior  Multiple climates (or subclimates) can exist within one organization 5 3 Figure 5. 1 The Components of Ethical Climates 5 4 Business. .. ethical standards that apply to that function 5 5 Professional Codes of Conduct  Examples of business professional associations and their codes:  American Institute of Certified Public Accountants... government officials 5 16 Relationship between Law and Ethics  Both define proper and improper behavior  Laws are society’s attempt to formalize ethical standards  Written to capture public s wishes