Week 5

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Chapter8.DevelopinganEffectiveEthicsProgram.pptx

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Part Four Implementing Business Ethics in a Global Economy

Chapter 8 Developing an Effective Ethics Program

Learning Objectives

Understand the responsibility of the corporation to stakeholders

Understand why businesses need ethics programs

List the minimum requirements for an ethics program

Describe the role of codes of ethics in identifying key corporate risk areas

Identify factors in successful ethics training, program types, and goals

Examine the ways ethical standards are monitored, audited, and enforced

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Ethics Programs

Designed to encourage ethical decision making in business.

Must be well-designed to prevent major misconduct.

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Responsibility of the Corporation to Stakeholders

Corporations are viewed as moral agents that are accountable to stakeholders.

Coverage of specific issues in the media about a firm adds to its reputation as a moral agent.

A corporation is created in society to perform specific social functions; accountable to the society for its actions.

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The Need for Organizational Ethics Programs (1 of 3)

Impossible to know and understand all laws.

To sensitize employees to potential legal/ethical issues in work environments.

Increase employees’ ethical awareness, participation in ethical decision making, and ethical behavior.

Fostering ethical decision making requires terminating unethical employees and improving the firm’s ethical standards.

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The Need for Organizational Ethics Programs (2 of 3)

Bad Apples (Employees)

Bad Barrel (Organization)

The more misconduct, the less trust employees feel toward the organization—and the greater the turnover.

Companies are vulnerable to ethical problems and legal violations if their employees do not know how to make the right decisions.

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The Need for Organizational Ethics Programs (3 of 3)

Develop a program by establishing, communicating, and monitoring the ethical value/legal requirements for corporate culture, industry, and country.

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TABLE 8-1 Minimum Requirements for Ethics and Compliance Programs

1.	Establish standards and procedures to prevent and detect criminal conduct.
2.	Ensure the firm’s board, top management, and high-level personnel exercise reasonable oversight of those standards and procedures.
3.	Make reasonable efforts to keep individuals whom organizations knew or should have known to have engaged in illegal activities out of key positions.
4.	Communicate standards and procedures by training directors, employees, and appropriate agents.
5.	Monitor and audit the program to detect criminal conduct, evaluate the program periodically, and have a system for reporting suspected violations.
6.	Promote and consistently enforce the program through appropriate incentives and appropriate discipline.
7.	After criminal conduct is detected, take reasonable steps to respond appropriately and prevent further similar criminal conduct, including necessary modifications to the ethics and compliance program.

Source: United States Sentencing Commission, Guidelines Manual, §3E1.1 (November 2016).

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An Effective Ethics Program (1 of 2)

Cannot be assumed people know how to behave appropriately in a job/firm/business context.

Organizational probation: Use of on-site consultants to observe and monitor legal compliance efforts as well as to report the firm’s progress toward avoiding misconduct to the U.S. Sentencing Commission.

Updated Foreign Corrupt Practices Act guidelines: Recommend incorporating incentives into the firm’s corporate culture to encourage ethical behavior.

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An Effective Ethics Program (2 of 2)

FSGO: A “carrot-and-stick” philosophy. Carrot = Avoid penalties should a violation occur. Stick = Possibility of being fined or put on probation if convicted of a crime. Encourages federal judges to increase fines for organizations that continually tolerate misconduct.

To reduce or eliminate fines for firms with extensive compliance programs that make due diligence attempts to abide by legal and ethical standards.

A program developed in the absence of misconduct will be more effective than one imposed as a reaction to scandal or prosecution.

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Values versus Compliance Programs (1 of 2)

Values orientation: Strive to develop shared values. Penalties are attached but the focus is on an abstract core of ideals (accountability and commitment). The foundation of an organizational ethical culture.

Gives employees a clearly defined basis on which to make decisions. Fairness, compassion, respect, and transparency are paramount.

Employee diversity: Requires explicit communication and training (financial reporting, use of company resources, and intellectual property).

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Values versus Compliance Programs (2 of 2)

Increase employees’ work ethics awareness, integrity, willingness to deliver information to supervisors, use of reporting mechanisms, and perception that ethical decisions are being made.

Research: When personal and organizational values are compatible with one another, it tends to positively influence workplace ethics.

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Compliance Programs

Compliance orientation: Requires employees to identify with and commit to specific required conduct. Uses legal terms, statutes, and contracts to teach employees the rules and penalties for noncompliance.

Helps employees understand rules of conduct when there are identified risks.

Linked to employees’ awareness of ethical risks at work and a clear understanding of rules and expectations that facilitates decision making.

Research: Both approaches can interact or work toward the same end.

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TABLE 8-4 Benefits of Having an Ethics Code (1 of 2)

	A Comprehensive Code of Conduct Can...
1.	Guide employees in situations where the ethical course of action is not immediately obvious.
2.	Help the company reinforce—and acquaint new employees with—its culture and values. A code can help create a climate of integrity and excellence.
3.	Help the company communicate its expectations for its staff to suppliers, vendors, and customers.
4.	Minimize subjective and inconsistent management standards.
5.	Help a company remain in compliance with complex government regulations.
6.	Build public trust and enhance business reputations.
7.	Offer protection in preempting or defending against lawsuits.

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TABLE 8-4 Benefits of Having an Ethics Code (2 of 2)

8.	Enhance morale, employee pride, loyalty, and the recruitment of outstanding employees.
9.	Promote constructive social change by raising awareness of the community’s needs and encouraging employees and other stakeholders to help.
10.	Promote market efficiency, especially in areas where laws are weak or inefficient, by rewarding the best and most ethical producers of goods and services.

Source: Michael Josephson, “Ten Benefits of Having an Ethics Code,” Josephson Institute Center for Business Ethics, December 30, 2013, http://josephsononbusinessethics.com/2010/11/ten-benefits-of-having-an-ethics-code/ (accessed April 22, 2017). Originally adapted from Good Ideas for Creating a More Ethical and Effective Workplace.

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Codes of Conduct Types (1 of 3)

Code of ethics: Most comprehensive; consists of general statements, sometimes altruistic or inspirational, that serve as principles and as the basis for rules of conduct.

Generally specifies methods for reporting violations, disciplinary action for violations, and a structure of due process.

Six values that are desirable for codes of ethics: (1) trustworthiness, (2) respect, (3) responsibility, (4) fairness, (5) caring, and (6) citizenship.

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Codes of Conduct Types (2 of 3)

Code of conduct: More like a regulatory set of rules. Tends to elicit less debate about specific actions.

Reasons codes fail: Not promoted so employees don’t read it. Not easily accessible. Written too legalistically. Written vaguely, providing no accurate direction. Top management never refers to the code in body or spirit.

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Codes of Conduct Types (3 of 3)

Statement of values: Conceived by management, fully developed with input from all stakeholders.

The terms “code of ethics” and “statement of values” are often used interchangeably.

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TABLE 8-5 Developing and Implementing a Code of Ethics

1.	Consider areas of risk and state the values as well as conduct necessary to comply with laws and regulations. Values are an important buffer in preventing serious misconduct.
2.	Identify values that specifically address current ethical issues.
3.	Consider values that link the organization to a stakeholder orientation. Attempt to find overlaps in organizational and stakeholder values.
4.	Make the code understandable by providing examples that reflect values.
5.	Communicate the code frequently and in language that employees can understand.
6.	Revise the code every year with input from organizational members and stakeholders.

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Ethics Officers Responsibilities (1 of 2)

Assess needs/risks an organization-wide ethics program must address.

Develop/distribute the code of conduct or ethics.

Conduct training programs.

Establish/maintain confidential services to answer employees’ ethical questions.

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Ethics Officers Responsibilities (2 of 2)

Make sure company is in compliance.

Monitor/audit ethical conduct.

Take action on code violations.

Review/update code.

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Table 8-6 Key Goals of Successful Ethics Training

1.	Identify key risk areas employees will face.
2.	Provide experience in dealing with hypothetical or disguised ethical issues within the industry through mini-cases, online challenges, DVDs, or other experiential learning opportunities.
3.	Let employees know wrongdoing will never be supported in the organization and employee evaluations will take their conduct in this area into consideration
4.	Let employees know they are individually accountable for their behavior.
5.	Align employee conduct with organizational reputation and branding.
6.	Provide ongoing feedback to employees about how they are handling ethical issues.
7.	Allow a mechanism for employees to voice their concern that is anonymous, but provides answers to key questions (24-hour hotlines).
8.	Provide a hierarchy of leadership for employees to contact when they are faced with an ethical dilemma they do not know how to resolve.

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Systems to Monitor and Enforce Ethical Standards

How employees handle ethically charged situations.

Role-playing exercises.

Discussion regarding ethical issues and dilemmas.

Questionnaires.

Internal systems that allow employees to report misconduct.

Consultants.

Case-management services and software.

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Common Mistakes in Designing and Implementing an Ethics Program

Failure to understand and appreciate goals.

Setting unrealistic and unmeasurable program objectives.

Senior management’s failure to take ownership of the ethics program.

Developing program materials that do not address the needs of the average employee.

Transferring an “American” program to a firm’s international operations.

Designing an ethics program that is little more than a series of lectures.

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