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Moral Philosophy

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The specific principles or values people use to decide right from wrong. - Person-specific - Guidelines for determining how to settle conflicts and optimize mutual benefit - Provide direction in formulating strategies and resolving ethical issues *No single moral philosophy is accepted by everyone

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Adam Smith

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The father of free market capitalism. Developed the idea of the invisible hand.

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Milton Friedman

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Markets reward or punish for unethical conduct without the need for government regulation. Currently the dominant form of capitalism.

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Economic Systems

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Allocate resources/products - Influenced by, and directly influence individual's actions and beliefs (morals) and Society (laws) as a whole - Depend on individuals coming together and sharing philospophies - Creates values, trust and expectations, allowing the system to work

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Economic Value Orientation

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Values that can be quantified by monetary means. - If an act produces value, accept it as ethical

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Idealism

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Places special value on ideas and ideals as products of the mind. - Positive correlation to ethical decision-making

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Realism

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The view that an external world exists independent of our perceptions. - Everyone is guided by self-interest - Negative correlation to ethical decision-making

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Monists

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Believe that only one good thing is intrinsically good. -Often characterized by hedonism

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Hedonism

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The idea that pleasure is the ultimate good - the best moral end involves the greatest balance of pleasure of pain.

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Quantitative Hedonists

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Those who believe more pleasure is better.

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Qualitative Hedonists

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Those who believe it is possible to get too much of a good thing (such as pleasure).

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Pluralists

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Believe that no one thing is intrinsically good. _Two or more things are intrinsically good. *Referred to as non-hedonists

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Instrumentalists (pragmatists)

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Reject the ideas that: (1) ends can be separated from the means that produce them (2) ends, purposes, or outcomes are intrinsically good in and of themselves.

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Goodness Theories

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Focus on the end result of actions and the goodness or happiness created by them.

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Obligation Theories

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Emphasize the means and motives by which actions are justified. Divided into two categories - Teleology - Deontology

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Teleology

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Refers to moral philosophies in which an act is considered morally right or acceptable if it produces some desired result, such as pleasure, knowledge, career growth, realization of self interest, utility, wealth or even fame. *assess the moral worth of a behavior by looking at the consequences, so these theories are often referred to as Consequentialism. **Two important teleological philosophies are Egoism and Utilitarianism.

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Egoism

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Defines right or acceptable behavior in terms of consequences to the individual. - Maximizes personal interests

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Enlightened Egoism

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Take a long-term perspective and allow for the well-being of others though their own self-interests remain paramount.

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Utilitarianism

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Is concerned with consequences. Seeks the greatest good for the greatest number of people.

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Rule Utilitarianism

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Determine behavior based on principles designed to promote the greatest utility. Argue that general rules should be followed to decide which action is best.

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Act Utilitarianism

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Examine a specific action itself; not the rules governing it. Argue that the rightness of each individual action must be evaluated to determine whether it produces the greatest utility for the greatest number of people.

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Deontology

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Refers to moral philosophies that focus on the rights of individuals and the intentions associated with a particular behavior rather than its consequences. **Equal respect must be given to all persons. - Believe individuals have certain absolute rights - Believe compliance with stable moral principles defines ethicalness - Sometimes referred to as Nonconsequentialism, a system of ethics based on respect for persons

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Immanuel Kant

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Developed the so-called categorical imperative.

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Categorical Imperative

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Developed by Immanuel Kant. If you feel comfortable allowing everyone in the world to see you commit an act and if your rationale for acting in a particular manner is suitable to become a universal principle guiding behavior, then committing the act is ethical.

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Rule Deontologists

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Believe conformity to general moral principles determines ethicalness. *Do unto others as you would have them do unto you. Determined by the relationship between the basic rights of the individual and a set of rules governing conduct.

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Act Deontologists

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Hold that actions are the proper basis on which to judge morality or ethicalness. *Requires a person use equity, fairness, and impartiality when making and enforcing decisions. *Past experiences more important than rules.

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Relative Perspective

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Evaluates ethicalness subjectively on the basis of individual and group experiences.

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Descriptive Relativism

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Relates to observations of other cultures.

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Meta-ethical Relativism

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Proposes people see situations from their own perspectives. -No objective way of resolving ethical disputes between different value systems and individuals *one culture's moral philosophy cannot logically be preferred to another's because no meaningful basis for comparison exists.

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Normative Relativism

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Assumes one person's opinion is as good as another's. Problem - it emphasizes peoples' differences while ignoring their basic similarities.

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Virtue Ethics

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Argues that ethical behavior involves not only adhering to conventional moral standards but also considering what a mature person with a "good" moral character would deem appropriate in a given situation. Can be summarized as: - Good corporate ethics programs encourage individual virtue and integrity - The virtues associated with appropriate conduct form a good person - The well-being of the community goes together with individual excellence

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Justice

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Fair treatment and due reward in accordance with ethical or legal standards, including the disposition to deal with perceived injustices of others.

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Distributive Justice

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Is based on the evaluation of the outcomes or results of a business relationship. ex. employees paid different rate for same work *benefits derived, equity in rewards.

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Procedural Justice

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Considers the processes and activities that produce desired outcomes. *positively influences employees' attitudes and behaviors toward work-group cohesion. *Decision making process, level of access, openness, and participation

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Interactional Justice

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Based on relationships between organizational members, including employees and managers. *Accuracy of information, truthfulness, respect, and courtesy in the process.

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Kohlberg's Model of Cognitive Moral Development (CMD)

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Consists of six stages: (1) Punishment and obedience (2). Individual instrumental purpose and exchange (3) Mutual interpersonal expectations, relationships, and conformity (4) Social system and conscience maintenance (5) Prior rights, social contract, or utility (6) Universal ethical principles Reduced to three levels of ethical concern (1) Concern with immediate interests and rewards and punishments (2) Concern with right as expected by the larger society or some significant reference group (3) Seeing beyond norms, laws, and the authority of groups or individuals

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Kohlberg's Theory - Importance ; Problems

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- Shows that individuals can change their values through moral - Supports management's development of employee's moral principles However, the three hit theory says - Kohlberg used questionable research methods - His theory contradicts - His theory, while reliable, may not be valid

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White-Collar Crime (WCC)

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Illegal acts committed for personal and/or organizational gain by abusing the trust and authority associated with a given position. - White collar criminals are educated people in positions of power and respectability - The financial sector has a high level of WCCs - WCCs are increasing steadily - Technology allows WCCs to be committed at all levels, not just the top levels of management - Resulting in increased government efforts to detect and punish WCCs

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Top Internet Fraud Complaints

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FBI Related Scams 26.8% Identity Theft 21.7% Advance Fee Fraud 20.9% Non-auction non-delivery of merchandise 16.8% Overpayment Fraud 13.8%

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Common Justifications for White-Collar Crime

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1. Denial of responsibility. (Everyone can, with varying degrees of plausibility, point the finger at someone else.) 2. Denial of injury. (White-collar criminals often never meet or interact with those who are harmed by their actions.) 3. Denial of the victim. (The offender is playing tit-for-tat and claims to be responding to a prior offense inflicted by the supposed victim.) 4. Condemnation of the condemners. (Executives dispute the legitimacy of the laws under which they are charged, or impugn the motives of the prosecutors who enforce them.) 5. Appeal to a higher authority. ("I did it for my family" remains a popular excuse.) 6. Everyone else is doing it. (Because of the highly competitive marketplace, certain pressures exist to perform that may drive people to break the law.) 7. Entitlement. (Criminals simply deny the authority of the laws they have broken.)

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Corporate Culture

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**has many definitions: - A set of values, norms, and artifacts, including ways of solving problems shared by organizational members - The shared beliefs top mangers have about how they should manage themselves and other employees and how they should conduct their business - Gives organizational members meaning and sets the internal rules of behavior - All organizations have culture

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Sabanes-Oxley 404

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The characteristics of an ethical corporate culture were codified within the ____________. This section includes a requirement that management assess the effectiveness of the organization's internal controls and commission an audit of these controls by an external auditor in conjunction with the audit of its financial statements. It requires firms to adopt a set of values that forms a portion of the company's culture.

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Formal Corporate Culture

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May come through statements of values, beliefs, and customs - Comes from upper management - Memos, codes, manuals, forms, ceremonies

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Informal Corporate Culture

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May come through direct or indirect comments conveying management's - Dress codes, promotions, extracurricular activities

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Tone at the Top

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Is critical in creating ethical corporate culture

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Two Dimensions of Organizational Culture

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1) Concern for people: The organization's efforts to care for its employees' well-being 2) Concern for performance: The organization's efforts to focus on output and employee productivity

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Traits to Look for in Future Leaders (Survey)

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33% - Integrity 28% - Interpersonal/Communication Skills 15% - Ability to Motivate Others 12% - Business Savvy 2% - Other/Don't Know

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Apathetic Culture

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Minimal concern for people or performance. Individuals focus on their own self-interest. ex. Many companies view long-serving employees as dead wood and do not take into account past performance. *Countrywide Financial

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Caring Culture

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High concern for people; minimal concern for performance. *Ben & Jerry's

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Exacting Culture

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Minimal concern for people; high concern for performance. Focuses on the interests of the organization. *United Parcel Systems

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Integrative Culture

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High concern for people and performance. *Starbucks, BCG

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Cultural Audit

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Is an assessment of the organization's values. - Usually conducted by outside consultants; can be handled internally

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Compliance-Based Cultures

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Use a legalistic approach to ethics. - Revolve around risk management, not ethics - Lack of long-term focus and integrity

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Values-Based Cultures

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Rely on explicit mission statements that defines the core values of the firm and how customers and employees should be treated. - Focus on values (trust, transparency and respect), not laws - Top-down integrity is critical *Ikea

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Differential Association

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The idea that people learn ethical/unethical behavior while interacting with others who are part of their role-sets or belong to other intimate personal groups. - Studies support that differential association supports ethical decision making - Superiors have a strong influence on subordinates - Employees may go along with superiors' moral judgments to show loyalty

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Whistle-Blowing

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Exposing an employer's wrongdoing to outsiders. Internal reporting of misconduct to management, especially through anonymous reporting mechanisms. - Some legal protections exist - The Sarbanes-Oxley Act, the FSGO, and the Dodd-Frank Act have institutionalized whistle-blowing protections to encourage discovery of misconduct - Whistle-blowers fear retaliation

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Questions to Ask before Engaging in External Whistle-Blowing

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1. Have I exhausted internal anonymous reporting opportunities within the organization? 2. Have I examined company policies and codes that outline acceptable behavior and violations of standards? 3. Is this a personal issue that should be resolved through other means? 4. Can I manage the stress that may result from exposing potential wrongdoing in the organization? 5. Can I deal with the consequences of resolving an ethical or legal conflict within the organization?

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Power

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Refers to the influence that leaders and managers have over the behavior and decisions of subordinates. - A individual has power when his/her presence causes people to behave differently

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Reward Power

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Refers to a person's ability to influence behavior of others by offering them something desirable. -Offering something desirable to influence behavior *Money, Status, Promotion

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Coercive Power

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Penalizing negative actions or behavior. - The opposite of reward power.

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Legitimate Power

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Stems from the belief that a certain person has the right to exert influence and certain others have an obligation to accept it.

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Expert Power

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Derived from a person's knowledge (or perception that a person posses knowledge). - Derives from knowledge and credibility with subordinates. *Positively correlated to the number of years a person worked in a firm or industry, education, & honors received for performance.

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Referent Power

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May exist when one person perceives that his or her goals or objectives are similar to another's.

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Motivation

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A force within the individual that focuses his or her behavior toward achieving a goal.

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Job Performance

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A function of ability and motivation and can be represented by the equation: (job performance = ability x motivation). - An individual's hierarchy of needs may influence motivation and ethical behavior - Needs or goals may change over time

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Relatedness Needs

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Satisfied by social and interpersonal relationships

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Growth Needs

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Satisfied by creative or productive activities.

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Centralized Organization

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Decision making authority is concentrated in the hands of top-level managers - Little authority delegated to lower levels - Best for organizations... - That make high-risk decisions - Whose lower-level managers are not skilled in decision-making - Where processes are routine - May have a harder time responding to ethical issues *General Motors, Procter & Gamble

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Decentralized Organization

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Decision making authority is delegated as far down the chain of command as possible - Flexible and quicker to recognize external change - Can be slow to recognize organizational policy changes - Units may diverge and develop different value systems - Ethical misconduct may result *Nike, Southwest Airlines, Microsoft

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Formal Group

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An assembly of individuals with an organization that is explicitly accepted by the group.

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Informal Group

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Two or more individuals with a common interest but without an explicit organizational structure.

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Committee

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A formal group of individuals assigned to a specific task.

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Work Groups

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Used to subdivide duties within specific functional areas of a company.

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Teams

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Bring together the expertise of employees from several different areas of the organization on a single project.

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Group Norms

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Standards of behavior groups expect of their members.

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Variation in Employee Conduct

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10% - Follow their own values 40% - Always try to follow company policies 40% - Go along with the work group 10% - Take advantage of situations

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Corporations as Moral Agents

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Corporations have the same rights and responsibilities as individuals - All employees must obey laws and regulations defining acceptable business conduct Corporate culture without values and appropriate communication about ethics can facilitate individual misconduct - Ethical corporate culture does not evolve, but requires ethical polices - Implementing a corporate ethics program promotes the corporation as a moral agent

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The Need for Organizational Ethics Programs

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It is nearly impossible to know all relevant laws - Ethics programs increase ethical awareness Organizations can become bad barrels - Pressures to succeed create opportunities rewarding unethical decisions Established ethics programs help employees determine what behaviors are acceptable - Top management must integrate these codes, values and standards into the corporate culture

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Components of a Strong Ethics Program

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A strong ethics program includes: - Written codes of conduct - Ethics officers to oversee the program - Careful delegation of authority - Formal ethics training - Rigorous auditing, monitoring, enforcement, and revision of program standards

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Effective Ethics Program

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Effective ethics program ensure that all employees understand and comply with the ethical culture. - Cannot assume employees know how to behave when entering a new job - Ethics programs act as important deterrents to organizational misconduct

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Federal Sentencing Guidelines for Organizations (FSGO)

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Encourages assessing key risks - Firms can use assessments to update their internal control mechanisms - Ethics programs must be designed and implemented to address these risks - Ethics programs can help a firm avoid civil liability if they show due diligence in preventing misconduct

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Minimum Requirements for Ethics/Compliance

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1. Standards and procedures, such as codes of ethics, that are reasonably capable of detecting and preventing misconduct 2. High-level personnel who are responsible for an ethics and compliance program 3. No substantial discretionary authority given to individuals with a propensity for misconduct 4. Standards and procedures communicated effectively via ethics training programs 5. Systems to monitor, audit, and report misconduct 6. Consistent enforcement of standards, codes, and punishment 7. Continuous improvement of the ethics and compliance program

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Compliance Orientation

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- Creates order by requiring employees identify with an commit to specific required conduct. - Uses legal terms, statutes, and contracts to teach the rules and penalties for noncompliance.

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Values Orientation

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- Strives to develop shared values; focuses on ideals, such as accountability and commitment. - Is more effective at creating ethical reasoning, the foundation of an organizational ethical culture.

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Codes of Conduct

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Formal statements that describe what and organization expects of its employees.

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Codes of Ethics

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Most comprehensive; consists of general statements serving as principles and the basis for the rules in a code of conduct. -Generally specifies methods for reporting violations, disciplinary action for violations, and a structure of due process.

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Codes of Ethics Fail Because:

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1) The code is not promoted and employees do not read it 2) The code is not easily accessible 3) The code is written too legalistically and therefore is not understandable by average employees 4) The code is written too vaguely, providing no accurate direction 5) Top management never refers to the code in body or spirit

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Statement of Values (Value Statements)

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Serves the general public and addresses stakeholder interests.

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Codes of Ethics Six Core Values

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Trustworthiness Respect Responsibility Fairness Caring Citizenship

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Code of Ethics Benefits

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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. 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.

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Code of Ethics Development/Implementation/Conduct

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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

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Ethics officers are responsible for managing the ethics and legal compliance programs. -Assess needs and risks -Develop and distribute the code -Conduct training programs for employees -Confidentially answer employees' questions -Ensure government compliance -Monitor and audit ethical conduct -Take action on possible code violations -Review and update the code

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Ethics and Compliance Officer Association (ECOA)

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12oo members who are front-line managers of ethics programs in over 30 countries

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Ethics Training

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Can -Educate employees about policies, expectations, laws, regulations, and general social standards -Raise awareness of resources and support systems -Empower employees

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Ethics Training Successful Programs (Goals)

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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 concerns 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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Ethical Standards Monitored and Enforced

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Effective programs employ various methods to measure effectiveness -Observing employees -Internal audits and investigations -Surveys -Reporting systems -External audits Consistent enforcement and necessary disciplinary action are essential to a functional ethics or compliance program.

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Ethics Program Common Design and Implementation Mistakes

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-Failure to understand and appreciate goals -Setting unrealistic/immeasurable objectives -Unsupportive top management -Ineffective or incomprehensible content -Transferring an "'American" program to a firm's international operations -Designing a program that is little more than a series of lectures resulting in low recall

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Ethics Programs Implementation Success Factors

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1. The content of the code of ethics 2. The frequency of communication regarding the ethics program 3. The quality of communication 4. Senior management's ability to incorporate ethics into the organization 5. Local management's ability to do the same Should be part of strategic planning and management activities

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Ethical Behavior Four Spheres

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1) Employees and other team members 2) Company and Shareholders 3) Customers, competitors, and suppliers 4) Public and communities

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Ethics Programs Process Controls

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Proper selectionof employees Ethics training Structural and communication systems -Ethics assistance line -Help desk Management's commitment to the program Comparingstandards against actual behavior -Ethics audit

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Ethics Audit

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A systematic evaluation of an organization's ethics program and performance to determine whether it is effective. -Regular, complete, and documented measurements of compliance with policies and procedures -Can be a precursorto establishing an ethics program -Should be the most important part of an ethics program -Primary purpose is to identify risks and problems in activities and plan steps to adjust/correct/eliminate concerns *Recent legislation encourages greater ethics audits

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Social Audit

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The process of accessing and reporting a business's performance in fulfilling its economic, legal, ethical, and philanthropic responsibilities expected by stakeholders. -Broader in scope than an ethics audit -An ethics audit might be a component

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Ethics Audit Benefits

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-Detect misconduct before it becomes a major problem -Identifies potential ethical issues and improve legal compliance -Improve organizational performance -Improve relationships with stakeholders who demand greater transparency -Sets goals against which to measure actual performance

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Ethics Audit Key Areas

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Human Capital Operational Excellence Innovation Customer Relationships Global Political/Economic Risk Government Regulation Global Expansion Corporate Brand and Reputation Sustainability Trust in Business

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Ethical Crisis Management

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Plans to respond to and recover from disasters that can disrupt operations, destroy organizational reputation, and erode shareholder confidence Involves... -Contingency planning -Assessing organizational risks -Planning for potential occurrences -Providing tools to respond

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Non-financial Performance Measures

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**are crucial to a firm's health -Measure wholeness and soundness of a company -"Return on integrity" Many organizations and regulatory frameworks offer a means of capturing ethical performance -Structural -Behavioral *Six Sigma, Balanced Scorecard, Triple, Global Reporting Initiative, AccountAbility AA1000 framework, Open Compliance Ethics Group

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Six Sigma

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A methodology designed to manage process variations that cause defects, defined as unacceptable deviations from the mean or target, and to systematically work toward managing variation to eliminate those defects.

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Balanced Scorecard

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A management system that focuses on all the elements that contribute to organizational performance and success, including financial, customer, market, and internal processes.

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Triple Bottom Line

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Provides a perspective that takes into account the social, environmental, and financial impacts of decisions made within an organization.

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Global Reporting Initiative (GRI)

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A prominent framework that companies have adopted to report their social and sustainability progress. *Primary goal "the mainstreaming of disclosure on environmental, social, and governance performance."

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AccountAbility AA1000 Framework

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The AA1000 Framework was developed to help organizations build their accountability and social responsibility through quality social and ethical accounting, auditing, and reporting. It addresses the need for organizations to integrate their stakeholder engagement process into their daily activities. The Framework provides guidance to users on how to establish a systematic stakeholder engagement process that generates the indicators, targets, and reporting systems needed to ensure to ensure greater transparency, effective responsiveness to stakeholders and improved overall organizational performance.

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Open Compliance Ethics Group (OCEG)

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OCEG is a global, nonprofit think tank and community. Inform, empower, and help advance nearly 50,000 members on governance, risk management, and compliance

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Ethics Auditing Risks

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-May uncover ethical problems a company does not wish to disclose -May reveal a problem that cannot be remedied -Stakeholders may be dissatisfied with the information -Conducting ethics audits requires financial and record keeping resources -No guarantee that auditing is the solution -Lack of standardization in auditing

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Auditing Process

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Audits should be unique to each company. The following steps provide a general framework... -Secure management and board commitment -Establish an ethics audit committee -Define the scope of the audit -Review organizational mission, goals, and values -Collect and analyze relevant information -Verify the results through an outside -Report the findings

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Ethics Audit Framework

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1) Secure the commitment of top managers and board of directors 2) Establish a committee to oversee the ethics audit 3) Define the scope of the audit process, including subject matter areas important to the ethics audit 4) Review the organization's mission, policies, goals, and objectives and define its ethical priorities 5) Collect and analyze relevant information in each designated subject matter area 6) Have the results verified by an independent agent 7) Report the findings to the audit committee and, if approved, to managers and stakeholders

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Ethics Audit Step 1: Secure the commitment of top managers and board of directors

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The first step in the auditing process -Sarbanes-Oxley requires that boards of directors provide oversight -The board may initiate audits -Managers may request an ethics audit to improve confidence in a firm's reporting processes

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Ethics Audit Strategic Importance

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Should be conducted regularly -Provides a benchmark of overall effectiveness of ethics initiatives -Can be important in asset allocation and program development -Can demonstrate the positive impact of ethical conduct and social responsibility initiatives on the firm's bottom line

Business Ethics, Chapters 6, 7, 8, 9 – Flashcards

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