Business Ethics 3 Discussion
Serenity3203
week3readingandvideo.docxChapter 4 The Institutionalization of
Business Ethics
Chapter 4 Review
4-9aSummary
To understand the institutionalization of business ethics, it is important to understand the voluntary and legally mandated dimensions of organizational practices. Core practices are documented best practices, often encouraged by legal and regulatory forces as well as by industry trade associations. The effective organizational practice of business ethics requires three dimensions to be integrated into an ethics and compliance program. This integration creates an ethical culture that effectively manages the risks of misconduct. Institutionalization in business ethics relates to established laws, customs, and the expectations of organizational ethics and compliance programs considered a requirement in establishing reputation. Institutions reward and sanction ethical decision making by providing structure and reinforcing societal expectations. In this way, society as a whole institutionalizes core practices and provides organizations with the opportunity to take their own approach, only taking action if there are violations.
Laws and regulations established by governments set minimum standards for responsible behavior—society’s codification of what is right and wrong. Civil and criminal laws regulating business conduct are passed because society—including consumers, interest groups, competitors, and legislators—believes business must comply with society’s standards. Such laws regulate competition, protect consumers, promote safety and equity in the workplace, and provide incentives for preventing misconduct.
Largely in response to widespread corporate accounting scandals, Congress passed the Sarbanes–Oxley Act to establish a system of federal oversight of corporate accounting practices. In addition to making fraudulent financial reporting a crime and strengthening penalties for corporate fraud, the act requires corporations to establish codes of ethics for financial reporting and develop greater transparency in reporting to investors and other stakeholders. The Sarbanes–Oxley Act requires corporations to take greater responsibility for their decisions and provide leadership based on ethical principles. For instance, the law requires top managers to certify their firms’ financial reports are complete and accurate, making CEOs and CFOs personally accountable for the credibility and accuracy of their companies’ financial statements. The act establishes an oversight board to oversee the audit of public companies.
The oversight board aims to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports for companies.
Congress passed the FSGO to create an incentive for organizations to develop and implement programs designed to foster ethical and legal compliance. Their guidelines help the U.S. Sentencing Commission apply penalties to all felonies and class A misdemeanors committed by employees in their work. As an incentive, organizations that have demonstrated due diligence in developing effective compliance programs that discourage unethical and illegal conduct may be subject to reduced organizational penalties if an employee commits a crime. Overall, the government philosophy is that legal violations can be prevented through organizational values and a commitment to ethical conduct. A 2004 amendment to the FSGO requires a business’s governing authority be well informed about its ethics program with respect to content, implementation, and effectiveness. This places the responsibility squarely on the shoulders of the firm’s leadership, usually the board of directors. The board must ensure there is a high-ranking manager accountable for the day-to-day operational oversight of the ethics program. The board must provide adequate authority, resources, and access to the board or an appropriate subcommittee of the board. The board must also ensure there are confidential mechanisms available so the organization’s employees and agents report or seek guidance about potential or actual misconduct without fear of retaliation. A 2010 amendment to the FSGO directs chief compliance officers to make their reports to the board rather than to the general counsel.
The FSGO and the Sarbanes–Oxley Act provide incentives for developing core practices that ensure ethical and legal compliance. Core practices move the emphasis from a focus on the individual’s moral capability to a focus on developing structurally sound organizational core practices and integrity for both financial and nonfinancial performance.
Voluntary responsibilities touch on businesses’ social responsibility insofar as they contribute to the local community and society as a whole. Voluntary responsibilities provide four major benefits to society: improving the quality of life, reducing government involvement by providing assistance to stakeholders, developing staff leadership skills, and building staff morale. Companies contribute significant resources to education, the arts, environmental causes, and the disadvantaged by supporting local and national charitable organizations. Cause-related marketing ties an organization’s product(s) directly to a social concern through a marketing program. Strategic philanthropy involves linking core business competencies to societal and community needs. Social entrepreneurship occurs when an entrepreneur founds an organization with the purpose of creating social value.
Chapter 05: Ethical Decision Making - Reading
Chapter Review
5-5aSummary
The key components of the ethical decision making framework include ethical awareness, ethical issue intensity, individual factors, organizational factors, and opportunity. These factors are interrelated and influence business ethics evaluations and intentions that result in ethical or unethical behavior.
The first step in ethical decision making is to recognize that an ethical issue requires an individual or work group to choose among several actions that will ultimately be evaluated as ethical or unethical by various stakeholders. Ethical issue intensity is the perceived relevance or importance of an ethical issue to an individual or workgroup. It reflects the ethical sensitivity of the individual or work group that triggers the ethical decision making process. Other factors in our ethical decision making framework influence this sensitivity, and therefore different individuals often perceive ethical issues differently.
Individual factors such as gender, education, nationality, age, and locus of control affect the ethical decision making process, with some factors being more important than others. Organizational factors such as an organization’s values often have greater influence on an individual’s decisions than that person’s own values. In addition, decisions in business are most often made jointly, in work groups and committees, or in conversations and discussions with coworkers. Corporate cultures and structures operate through the ability of individual relationships among the organization’s members to influence those members’ ethical decisions. A corporate culture is a set of values, beliefs, goals, norms, and ways of solving problems that members (employees) of an organization share. Corporate culture involves norms that prescribe a wide range of behavior for the organization’s members. The ethical culture of an organization indicates whether it has an ethical conscience. Significant others—including peers, managers, coworkers, and subordinates—who influence the work group have more daily impact on an employee’s decisions than any other factor in the decision making framework. Obedience to authority may explain why many business ethics issues are resolved simply by following the directives of a superior.
Ethical opportunity results from conditions that provide rewards, whether internal or external, or limit barriers to ethical or unethical behavior. Included in opportunity is a person’s immediate job context that includes the motivational techniques superiors use to influence employee behavior. The opportunity employees have for unethical behavior in an organization can be eliminated through formal codes, policies, and rules that are adequately enforced by management.
The ethical decision making framework is not a guide for making decisions. It is intended to provide insights and knowledge about typical ethical decision making processes in business organizations. Ethical decision making within organizations does not rely strictly on the personal values and morals of employees. Organizations have cultures of their own that when combined with corporate governance mechanisms may significantly influence business ethics.
Normative approaches describe how organizational decision makers should approach an ethical issue. Institutional theory is an important normative concept that states that organizations operate according to taken-for-granted institutional norms and rules. Political, economic, and social institutions help organizations determine principles and values for appropriate conduct. Principles are important in preventing organizations from “bending the rules.” Philosopher John Rawls contributed important work on principles, particularly principles of justice. Core values are enduring beliefs about appropriate conduct and provide guidance for the ethical direction of the firm.
Week 3 Lecture video
https://www.youtube.com/watch?v=MuFGXSPrTj4&feature=youtu.be
