Ethical Issues in BusinessEthical Issues in Business

The Meaning of Ethics Business Ethics across Organizational Functions Why Ethical Problems Occur in Business Ethics in a Global Economy Ethics, Law, and Illegal Corporate Behavior

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The meaning of ethicsThe meaning of ethics

Ethics

A conception of right and wrong conduct. It tells us whether our behavior is moral or immoral with fundamental human relationships.

Ethical Principles

Guides to moral behavior.

Business Ethics

The application of general ethical ideas to business behavior.

Figure 5.1

Observations of unethical behavior at work

Percentage of type of observed misconduct: Unsafe working conditions 56% Deceptive sales practices 56% Mishandling proprietary or confidential information 50% Violations of privacy rights 38% Shipping low-quality or unsafe products 37% Employment discrimination 36% Sexual harassment 34% Altering product quality or safety test results 32% Antitrust violations or unfair competitive practices 32% Environmental breaches 31%

Source: 2000 Organizational Integrity Survey: A Summary, Integrity Management Services, KPMG LLP

Figure 5.2

Why should business be ethical?

• To meet demands of business stakeholders.

• To enhance business performance.

• To comply with legal requirements.

• To prevent or minimize harm.

• To promote personal morality.

U.S. Corporate Sentencing Guidelines: U.S. Corporate Sentencing Guidelines: DirectivesDirectives

1. Establish standards and procedures to reduce criminal conduct.

2. Assign high-level officer(s) responsibility for compliance.

3. Not assign discretionary authority to “risky” individuals.

4. Effectively communicate standards and procedures through training.

5. Take reasonable steps to ensure compliance—monitor and audit systems, maintain and publicize reporting systems.

6. Enforce standards and procedures through disciplinary mechanisms.

7. Following detection of offense, respond appropriately and prevent reoccurrence.

Sarbanes-Oxley Act of 2002Sarbanes-Oxley Act of 2002

The firm’s audit committee is entrusted with auditor oversight with all independent directors on the committee.

Certain nonaudit services by auditors to clients are banned, nonaudit services must be preapproved by the audit committee, the lead auditor must be rotated every five years, and auditors report to the audit committee.

The CEO and CFO must sign off on financial statements as accurate and fair and must repay bonuses if a restatement of financials is undertaken.

Sarbanes-Oxley Act of 2002Sarbanes-Oxley Act of 2002

A Public Company Accounting Oversight Board is established. The firms are not permitted to offer loans to its executive officers

or board of directors. SEC rules will create guidelines for internal controls and

financial reporting procedures, require the adoption of or waiver for a code of ethics for the board, mandate a financial expert must serve on the board, and compel the firm to state its financial condition in plain English on a rapid or current basis.

ERISA penalties are increased from $5,000 to $100,000 and one year in prison to $100,000 to $500,000 and up to 10 years in prison.

Exhibit 5.Aa

Professional codes of conduct in accounting

American Institute of Certified Public Accountants (AICPA)

• Responsibilities: In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities..• The Public Interest: members should act in a way that will honor the public interest.• Integrity: members should perform all professional responsibilities with the highest sense of integrity.• Objectivity and Independence: a member should maintain objectivity and be free of conflicts of interest in discharging services.• Due care: a member should discharge professional responsibility to the best of the member’s ability.• Scope and nature of services: members should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided. Source: www.aicpa.org.

Exhibit 5.Ab

Professional codes of conduct in finance

Association for Investment Management and Research (AIMR)

Members of the Association shall:

1) Act with integrity, competence, dignity, and in an ethical manner when dealing with the public, clients, prospects, employers, employees, and fellow members.2) Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and their profession.3) Strive to maintain and improve their competence and the competence of others in the profession.4) Use reasonable care and exercise independent professional judgment.

Source: www.aimr.org/ethics

Exhibit 5.Ba

Professional codes of conduct in marketing

American Marketing Association (AMA)Members of the AMA have embraced the following topics:

• Marketers must accept responsibility for the consequences of their activities and make every effort to ensure that their decisions, recommendations, and actions function to identify, serve, and satisfy all relevant publics.

• Marketers shall uphold and advance the integrity, honor, and dignity of the marketing profession.

• Participants in a marketing exchange should be able to expect that products services offered are safe, communications about offered products and services are not deceptive, all obligations in an exchange are discharged in good faith, and appropriate internal methods exist for equitable redress of grievances concerning purchases.

• Marketers should not demand, encourage or apply coercion to obtain unethical behavior in their relationships with others.

Source: www.awma.org

Exhibit 5.Bb

Professional codes of conduct in information technology

Source: www.acm.org/constitution/code

Association for Computing Machinery (ACM)

General imperatives for ACM members include:

• contributing to society and human well-being,• avoid harm to others,• be honest and trustworthy,• be fair and take action not to discriminate,• honor property rights,• honor copyrights and patents,• give proper credit for intellectual property,• respect privacy of others, and• honor confidentiality.

Why ethical problems occur in businessWhy ethical problems occur in business

Personal gain and selfish interest

Selfish interest versus others’ interests

Egotistical mentality “I want it!”

Competitive pressures on profits

Firm’s interest versus others’ interests

Bottom-line mentality

“We have to beat the others at all costs!”

Figure 5.3

Cross-cultural contradictions

Company’s interests versus diverse cultural traditions and values

Ethnocentric mentality

“Foreigners have a funny notion of what’s right and wrong.”

Reason Nature of Ethical Problem

Typical Approach

Attitude

Business goals versus personal values

Boss’s interests versus subordinates’ values

Authoritarian mentality

“Do as I say, or else!”

Anticorruption and bribery efforts in RussiaAnticorruption and bribery efforts in Russia

President Putin’s commitment to end bribery and corruption is demonstrated by the following actions:

A probe of high-level bureaucrats led to charges against many officials including Railways Minister Nikolai Aksyonenko for illegally spending ministry funds.

Judges’ salaries were increased fivefold in an effort to cut down on courtroom bribery.

A new law banned the intervention of state prosecutors in private litigation between contending business parties, eliminating another potential bribery situation.

Other regulations sharply restricted discounts that railroad regulators could give to shippers.

The number of business activities that required a license was drastically reduced from 2,000 to 100—fewer licenses meant fewer chances for a bureaucrat to be in line for a bribe.

Exhibit 5.C

Source: “Cleanup Time: The Kremlin is Launching a Major Attack

on Corruption,” Business Week, January 14, 2002, pp.46-47

International codes of conduct and their focusInternational codes of conduct and their focusFigure 5.4

Ethical Focus ICC OECD ILO UN/CTC EU UN/GC

Economic development

X X X X X

Technology transfer

X X X X X X

Regulatory action X X X X X

Employment X X X X X

Human rights X X X X

Environmental protection

X X X

Consumer protection

X X

Political action X XSource: William C. Frederick, “The Moral Authority of Transnational Corporate Codes,” Journal of Business Ethics 10 (1991), pp. 165-177; and Kathleen A. Getz, “International Codes of Conduct: An Analysis of Ethical Reasoning,” Journal of Business Ethics 9(1990), pp. 567-577.