Managerial Ethics and Social Responsibility-3

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Chapter 6

Organizational Ethics

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Ch. 6: Key Learning Objectives

6-1 Classifying an organization’s culture and ethical climate.

6-2 Recognizing ethics challenges across the multiple functions of business.

6-3 Creating effective ethics policies and identifying responsible individuals to become the organization’s ethics and compliance officer.

6-4 Constructing successful ethics reporting mechanisms, ethics training programs, and similar safeguards.

6-5 Understanding how to conduct business ethically in the global marketplace.

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Corporate Culture and Ethical Climates1

Corporate culture: A blend of ideas, customs, traditional practices, company values, and shared meanings.

To help define normal behavior for everyone who works in a company.

Nearly twice as many employees observe misconduct by coworkers in weak ethical cultures companies.

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Corporate Culture and Ethical Climates2

Ethical climate: The unspoken understanding among employees of what is and is not acceptable behavior.

Based on the expected standards and norms.

Multiple climates (or subclimates) can exist within one organization.

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The Components of Ethical Climates

From Figure 6.1

Ethical Criteria	Focus of Individual Person	Organization	Society
Egoism (self-centered approach)	Self-interest	Company interest	Economic efficiency
Benevolence (concern for-others approach)	Friendship	Team interest	Social responsibility
Principle (integrity approach)	Personal morality	Company rules and procedures	Laws and professional codes

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Business Ethics Across Organizational Functions

Business operations can be highly specialized, leading to ethical challenges related to those functional areas.

Professional ethical standards may conflict with the ethical standards within the organization.

 Example of functional areas:

Accounting Ethics

Financial Ethics

Marketing Ethics

Information Technology Ethics

Supply Chain Ethics

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Accounting Ethics

Critically important component of every business firm.

Financial records must be audited by a certified professional accounting firm.

Requirements of the accounting function:

Responsibilities.

Public interest.

Integrity.

Objectivity and independence.

Due care.

Conflict of interest

Conflict with self-interest (of the accounting firm) and the interests of others (shareholders and the public).

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Financial Ethics

Responsibilities to manage the firm’s assets and raising capital.

Example of ethical issues:

Barclays PLC was accused of fraud.

The Royal Bank of Scotland scandal.

Self-regulation as the best path for ethical compliance.

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Marketing Ethics

Marketing: advertising, distributing, and selling products or services.

Issues in marketing ethics emphasize honesty and transparency in advertising.

Example: Outcome Health misled their customers.

American Marketing Association (AMA) code of ethics:

Do no harm.

Foster trust.

Embrace ethical values.

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Information Technology Ethics

Ethical challenges in this field involve:

Invasions of privacy.

The collection and storage of, and access to, personal and business information.

Confidentiality of electronic mail communication.

Cyberbullying.

 Example: Vtech collected personal information from children without parental consent.

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Supply Chain Ethics

Supply Chain: production and operations functions needed to create a product or service.

Issues in supply chain ethics emphasize integrity, value and loyalty in business dealings.

Example: Kobe Steel Limited misled their customers.

Institute for Supply Management (ISM) principles and standards:

Avoid impropriety.

Be responsible.

Protect confidentiality.

Follow the law.

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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 do so means institutionalizing ethics or building ethics safeguards in to everyday routines.

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Organizations’ Ethics Safeguards

Percentage of Firms Reporting They Have Ethical Safeguards

Figure 6.2

Access the text alternative for these images.

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Two Ethics Approaches

Compliance-based approach:

Seeks to avoid legal sanctions.

Emphasizes the threat of detection and punishment.

Integrity-based approach:

Combines concern for law with employee responsibility.

Promotes acting with integrity and conduct business with honesty and fairness.

Both approaches have been found to lessen unethical conduct, but in somewhat different ways.

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Ethics Programs and Policies1

Top Management Commitment and Involvement:

Critical to fostering employee ethical behavior.

Ethics Policies or Codes:

As a guidance to managers and employees to solve 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.

Ethics programs must be widely distributed and associated with ethics training.

Example: 3M’s Code of Conduct.

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Ethics Programs and Policies2

Ethics and Compliance Officers:

Many created as early as the 1980s.

Membership in professional association, Ethics and Compliance Officers Association (ECOA), doubled between 2000 and 2004.

Recently ECOA and Ethics Resource Center merged into the Ethics Compliance Alliance.

Ethics Reporting Mechanisms:

Often called the “helpline” or “hotline.”

Purposes:

To provide interpretations of proper ethical behavior.

To create avenue for reporting unethical conduct.

To provide information-sharing tools for employees and stakeholders.

Executives tend to use the helpline more often than middle managers.

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Ethics Programs and Policies3

Ethics Training Programs:

Generally the most expensive and time-consuming element of an ethics program.

Found regularly in larger business organizations.

Small and medium businesses are more likely to offer training in alignment with regulatory guidelines.

Example: “Giving Voice to Values” program.

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Ethics Programs and Policies4

Objectives and Motivations for Employee Ethics Training Programs

Figure 6.3

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The World’s Most Ethical Companies

Forbes Magazine’s most ethical companies and their industries

From Figure 6.4

These firms were ranked among the highest ethical firms each year from 2007 through 2017.
AFLAC	Insurance
Deere and Company	Industrial manufacturing
Ecolab	Chemicals
Fluor Corporation	Engineering
General Electric	Diversified
International Paper	Paper products
Kao Corporation	Consumer products
Milliken & Company	Industrial manufacturing
PepsiCo	Food & beverage
Starbucks Coffee Company	Restaurants
Texas Instruments	Computers
UPS	Transportation
Xerox	Computers

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Ethics in a Global Economy

Doing business in global context brings up host of complex ethical challenges.

Bribery: 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.

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Efforts to Curtail Unethical Practices

Dow Jones Anti-Corruption Survey

Seventy-one percent of respondents stopped or delayed business dealings with corrupt partners.

Numerous efforts to prohibit bribery:

U.S. Foreign Corrupt Practices Act (FCPA).

The United Kingdom’s Bribery Act prohibits bribery.

Anti-Bribery Law in Brazil, India and Mexico.

Organization’s culture and ethical work climate play a central role in encouraging employees to act ethically.

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Accessibility Content: Text Alternatives for Images

Organizations’ Ethics Safeguards Text Alternative

The y-axis has six markings. From the bottom to the top, they read 0 percent, 20 percent, 40 percent, 60 percent, 80 percent, and 100 percent.

The x-axis contains four markings. From the left to the right, they read developed code of ethics, offered ethics training, created ethics office or officer, and established ethics hotline.

Horizontal bars arise from four different points along the x-axis. These bars extend upward representing percentages on the y-axis.

The data on the graphs reads as follows:

According to the center for business ethics, 1986 and 1992, approximately 90 percent of companies developed a code of ethics. Approximately 85 percent of companies developed their code of ethics according to the ethics resource center, 2005. According to Weber and Wasieleski, 2013, approximately 99 percent companies developed their code of ethics.

According to the center for business ethics, 1986, approximately 45 percent companies offered ethics training. According to the center for business ethics, 1992, approximately 50 percent companies offered ethics training. According to the ethics resource center, 1994, approximately 35 percent companies offered ethics training. According to the ethics resource center, 2005, approximately 70 percent companies offered ethics training. According to Weber and Wasieleski, 2013, approximately 99 percent companies offered ethics training.

According to the ethics resource center, 1994, approximately 35 percent companies created ethics offices or appointed ethics officers. According to the ethics resource center, 2005, approximately 64 percent companies created ethics offices or appointed ethics officers. According to Weber and Wasieleski, 2013, 100 percent companies created ethics offices or appointed ethics officers.

According to the ethics resource center, 2005, approximately 75 percent companies established an ethics hotline. According to Weber and Wasieleski, 2013, approximately 95 percent companies established an ethics hotline.

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Ethics Programs and Policies4 Text Alternative

The x-axis has eight markers indicating percentages labeled as follows: 0; 10; 20; 30; 40; 50; 60; and 70.

The y-axis lists ten reasons why companies create ethics training programs. Horizontal bars extend from the y-axis according to their respective percentages.

From the bottom to the top, the data reads as follows:

Establish strong legal defense fund at 8 percent.

Improving training effectiveness by deploying courses that are higher quality at 13 percent;

Reinforce tone at the top at 14 percent.

Improve the skills of senior leaders and managers at 14 percent.

Keep information secure and protected at 20 percent.

Meet audit or certification requirements at 21 percent.

Prevent future issues or misconduct at 39 percent.

Improve employee understanding of compliance priorities and obligations at 47 percent;

Create a culture of ethics and respect at 57 percent.

And, the most common reason for ethics training was to comply with laws and regulations at 59 percent.

Return to slide containing original image.

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