Professional Documents
Culture Documents
Professional Responsibility
• Unethical behavior in
business is not just a recent
phenomenon
Honesty
– Builds/Maintains Trust
– Fosters Community
– Makes Communication more Efficient &
Effective
– Demonstrates Respect for the Dignity of
Others
Values - Honesty
• Whose Values?
According to Ethical or
Moral, Values, Principles or
Standards
– Personal
– Family
– Peers
– Religious
– Company
– Community, Regional, National,
International
According to Ethical or
Moral, Values, Principles or
Standards
• Learned Where?
According to Ethical or
Moral, Values, Principles or
Standards
– Home
– School
– Church (or other place of worship)
– Life Experience
– Work Experience
– Books
– News Media
– Entertainment Media
According to Ethical or Moral,
Values, Principles or
Standards
• The average American, by the age of 65, will have spent the
equivalent of 15 years of their life watching television.
• Truett Cathy,
founder of
Chick-fil-A,
argues there is
no such thing as
business ethics
- only ethics.
Ethics
Duty-Based v. Outcome-Based Ethics
– Duty (Deontology)
• Duty is an act done simply for the sake of what is right.
• Duty is determined by “revealed truths” and involves
universal principles
• Often religion-based
• e.g. Kant’s Categorical Imperative
– "Everyone is obligated to act only in ways that respect the
intrinsic value, human dignity and moral rights of all
persons."
• Places High Value on Individual Rights
– Outcome (Consequentialism)
• Ethical if best outcome for the majority
• Involves cost-benefit analysis
• e.g. Bentham & Mill’s Utilitarianism
– "Of any two actions, the most ethical one is that which
will produce the greatest balance of benefits over harms."
• De-emphasizes individual rights
Ethics
Strategic v. Real Ethics
– What is the motivation/purpose
for acting ethically?
Integrity
• Integrity: from the Latin integritas, meaning
wholeness, completeness, or purity. To
courageously hold to what one believes is right
and true, without compromise. To stand
undivided, immovable, consistent in both heart
and action, word and deed. Involves the
maintenance of virtue and the pursuit of moral
excellence. Integrity is demonstrated by not only
espousing your values, but by living according to
them. Integrity describes both who you are and
what you do. People of integrity are
conscientious, trustworthy, accountable,
committed and consistent. A key to maintaining
integrity is “counting the cost” before committing
yourself.
Integrity
• “Psychologists have found integrity to be
essential to an individual's sense of identity and
self-worth, enabling the successful navigation of
change and challenge. Links between integrity
and the ability to gain and maintain the trust of
others have often been noted. Many purveyors of
practical advice, including Cicero and Benjamin
Franklin, have counseled that integrity is the
cornerstone of worldly success. According to
Franklin, "no Qualities [are] so likely to make a
poor Man's Fortune as those of Probity &
Integrity" (quoted in Beebe, 1992, p. 8)” - from
Blackwell’s Encyclopedic Dictionary of Business Ethics.
Integrity
• In Living a Life That
Matters Rabbi Harold
Kushner describes the
kind of people who are
able to overcome the
negativity in their lives as
shalem, people who are
“whole, united within
themselves, their internal
conflicts ended.” Because
of this, he says, they are
“persons of integrity.”
Integrity, says Kushner, is
a quality just as essential
to human well-being as is
the pursuit of peace and
justice.
justice
Integrity
• The Bible/Talmud says that:
– The man of integrity walks securely, but he
who takes crooked paths will be found out.
(Prov. 10:9)
– The integrity of the upright guides them, but
the unfaithful are destroyed by their duplicity.
(Prov. 11:3)
– Integrity brings peace (i.e. a clear conscience)
and marks the perfect man (Hebrew Word:
Tam = Man of Integrity) (Ps. 37:37, 1 Kings 9:4)
– The just [man] walketh in his integrity: his
children [are] blessed after him. (Prov. 20:7)
– A good name is better than precious ointment.
(Ecc. 7:1)
Integrity
• Some Biblical Examples of Integrity:
– Joseph, Gen. 39:1-12
– Jacob/Israel (Gen 32:29) known as a “simple man” (tam,
Gen 25:27) that is to say, that “his mouth was like his
heart.”
– Job (Book of Job, see in particular description of Job at
2:3, 27:5)
– Daniel, Shadrach, Meshach & Abednego (Daniel
Chapters 3 & 6)
– David (Ps. 7:8)
– Solomon (1 Kgs. 9:4)
• In a recent poll, 58% of Americans said yes. This is not the view in
most developed countries. For example, in France, only 13% said yes.
(Nicholas D. Kristof, N.Y. Times}
• However, only 4 % of U.S. adults have a biblical worldview as the basis
of their decision-making, according to a new study by Barna Research
Group. "Although most people own a Bible and know some of its
content, our research found that most Americans have little idea how
to integrate core biblical principles to form a unified and meaningful
response to the challenges and opportunities of life," said researcher
George Barna. Among the most prevalent alternative worldviews was
postmodernism, dominant in the two youngest generations.
Spiritual Foundation
George Washington’s
Farewell Address,
September 17, 1796
Spiritual Foundation
• Intel: provides
education in
science & math in
countries where it
has plants.
Corporate Social Responsibility
Theory
• Citigroup: has
provided
significant funds to
microcredit
ventures.
Corporate Social Responsibility
Theory
• “Man … ought to regard himself,
not as something separated
and detached, but as a citizen
of the world, a member of the
vast commonwealth of nature …
to the interest of this great
community, he ought at all
times to be willing that his own
little interest should be
sacrificed.” - Adam Smith
Corporate Social
Responsibility Theory
• In the words of General Robert Wood Johnson,
founder of Johnson and Johnson: “The day has
passed when business was a private matter, if it
even really was. In a business society, every act of
business has social consequences and may
arouse public interest. Every time business hires,
builds, sells or buys, it is acting for the people as
well as for itself, and it must be prepared to
accept full responsibility”
Corporate Social
Responsibility Theory
• Problems with CSR in general?
– Dilutes the Business Purpose
– Viewed as fundamentally antagonistic to the
Capitalist Enterprise
– Often influenced by simplistic political and
social agendas
Corporate Social
Responsibility Theory
• The search for guilt-free affluence has helped to
transform "green" business into a mass-market
phenomenon.
• Patagonia, a designer and distributor of outdoor
clothing and gear, has long prided itself on being
green. For nearly two decades, it has given 10% of
pre-tax profits or 1% of sales, whichever is larger,
to environmental causes.
Corporate Social
Responsibility Theory
• (Source: Ethics and Economic Affairs,by Lewis, Alan; Wärneryd, Karl Erik, Publication:
London ; New York Routledge, 2002)
Capitalism
Source: Patrick E. Murphy, “Corporate Ethics Statements: Current Status and Future
Prospects,” Journal of Business Ethics 14: 727-740 (1995).
Self-Regulation of
Business Ethics
• Why have a Code of Ethics?
– to define accepted/acceptable behaviors;
– to promote high standards of practice;
– to provide a benchmark for members to use for
self evaluation;
– to establish a framework for professional
behavior and responsibilities;
Self-Regulation of
Business Ethics
• Why have a Code of Ethics?
– as a vehicle for occupational identity &
maturity;
– to increase ethical sensitivity & judgement;
– to enhance the sense of community among
members, of belonging to a group with
common values and a common mission;
Self-Regulation of
Business Ethics
• Why have a Code of Ethics?
– to compel people to think through their
mission and obligations, as a group & as
individuals;
– to strengthen support for individuals’ moral
courage;
– because a written document reinforces an
intention.
– to act as a vehicle to address public concerns.
Self-Regulation of
Business Ethics
• Why have a Code of Ethics?
– to discourage corruption, fraud and other
malfeasance
– to enhance credibility with stakeholders
– to provide a guidepost for addressing potential
problems such as potential conflicts of
interest
Self-Regulation of
Business Ethics
• Some Typical Components
– Preamble (Aspirations)
– Rules and principles.
– An Articulation of Core Values
Self-Regulation of
Business Ethics
• Some Elements of “Best Codes”
– Clear, Coherent, Understandable Language
– Involves sanctions and rewards
– Is more about values than compliance
– Involves “Ownership” (i.e. People from every
level of the company should be involved in its
development.
Self-Regulation of
Business Ethics
• Some Elements of “Best Codes”
– Provides a set framework for making ethical
decisions
– Demonstrates respect for all employees as
unique, valuable individuals
– Supports each individual employee's freedom,
growth, and development
– Promotes a “balanced life” & respect for
employee family concerns
Self-Regulation of
Business Ethics
• Some Elements of “Best Codes”
– Promotes employee health & safety
– Promotes tolerance & an atmosphere free of
harassment
– Promotes honesty
– Promotes fairness?
– Cultivates a positive attitude/outlook
Self-Regulation of
Business Ethics
• Some Elements of “Best Codes”
– Promotes openness/transparency (no cover-
ups)
– Promotes accountability/personal
responsibility
– Promotes risk-taking, within limits
– Promotes excellence
Self-Regulation of
Business Ethics
• Some Elements of “Best Codes”
– Promotes tolerance of errors & learning from
same
– Promotes unquestioned integrity
– Promotes consistency
– Promotes cooperation/collaboration
– Promotes courage & persistence
Self-Regulation of
Business Ethics
Self-Regulation of
Business Ethics
• But as Joshua Joseph, research manager at the
Ethics Resource Center in Washington, D.C. says,
corporate ethics codes alone have little effect on
employee behavior. Organizations must
communicate what’s in the code, provide training
on what it means and put systems into place that
allow workers to ask questions and report
possible misconduct without fear of reprisals.
Self-Regulation of
Business Ethics
• Some Implementation Methods
– Integration
– Endorsement
– Breach Response Plan (Gaps between values and
practices must be addressed)
– Personal Feedback
– Affirmation
– Regular Review
– Contracts
Self-Regulation of
Business Ethics
• Some Implementation Methods
– Training (Role-Playing) (including outside specialty
firms, e.g. Baker Hughes signed a 3-year contract
renewal and extension with LRN® , The Legal
Knowledge Company™ to provide online education,
training and testing in ethics, legal and compliance
issues to its global workforce through the LRN Legal
Compliance and Ethics Center)
Self-Regulation of
Business Ethics
• Some Implementation Methods
– Translation (e.g. Merck & Co.’s code has been
translated into 22 languages)
– Distribution (Pamphlets, On-Line, etc.)
– Annual Report
– Ethics Officer/Department
Self-Regulation of
Business Ethics
• Some Monitoring/Compliance Methods
– Required annual acknowledgement/review
– Periodic surveys
– Anonymous 24-hour contact point with real and
immediate investigation/follow-up
Self-Regulation of
Business Ethics
• Are Codes of Ethics/Conduct just for show?
(Taking Sides, p.22)
• Yes?
– Created in response to coercion
– Often Ambiguous language
– Enron had a Code of Ethics!
Self-Regulation of
Business Ethics
• Other Forms of Self-Regulation:
– Industry Codes
– Support character based education in your
community (e.g. Boy Scouts)
– Hiring Ethical People: hire people who can
uphold the company's high ethical standards
Self-Regulation of Business
Ethics
• Set your expectations
high; find men and women
whose integrity and
values you respect; get
their agreement on a
course of action; and give
them your ultimate trust. -
John Fellows Akers,
Chairman of IBM
Self-Regulation of Business
Ethics
• I am sure that in
estimating every
man’s value either in
private or public life, a
pure integrity is the
quality we take first
into calculation, and
that learning and
talents are only the
second.- Thomas
Jefferson
Self-Regulation of Business
Ethics
• In looking for people
to hire, you look for
three qualities:
integrity, intelligence,
and energy. And if they
don't have the first,
the other two will kill
you.-- Warren Buffet
Government Regulation
of Business Ethics
• Is It desirable or necessary for government
to protect/promote good business ethics?
– Not everyone agrees that tough, new
regulations is the best way to stop corporate
fraud
Government Regulation of
Business Ethics
• ”Rules cannot
substitute for
character." — Alan
Greenspan, Chairman of the
U.S. Federal Reserve Board
Government Regulation of
Business Ethics
• Senator Joe Lieberman,
“We cannot put the
business ethics police on
every corner that might
be cut—nor would we
want to. Government will
never be able to legislate
or regulate morals into
every part of our markets.
Business people and
businesses must do that
themselves.”
Government Regulation of
Business Ethics
• Senator Joe Lieberman, “Those
who idealize the government's
role and suggest heaping so
many new regulations on
businesses may stifle the
American spirit of enterprise.
Those who idealize the
market's self-corrective
powers don't see the size of the
scar or the powerful
temptation to return to
business as it was before.
Government Regulation of
Business Ethics
• Senator Joe
Lieberman, “The Enron
scandal cries out for
governmental action,
but we must
acknowledge before
we act that there are
twin dangers—of
doing too little and
doing too much.”
Government Regulation of
Business Ethics
• Milton Friedman,
suggests that the market
and not new regulations
is a more effective
deterrent and punisher.
New regulations will only
hinder the growth of
American's economy, and
the "bad eggs" have
already have been
punished by the market.
Government Regulation
of Business Ethics
• The argument for regulation
– The existence of a code of ethics alone is not sufficient
to prevent unethical behavior (e.g. General Dynamics
code of ethics did not prevent some highly unethical
practices in the pursuit of government contracts and
Enron had an elaborate code of ethics)
– Change in the behavior of the corporation is initiated
to make it give more attention to social goals.
– Competition does not enable the manager to pay
attention to social goals and thus must be forced.
Government Regulation
of Business Ethics
• Has regulation been good for business in any way?
– Statutes like the Sherman & Clayton Antitrust Acts helped to
dissolve giant trusts (Though recent trends seem to be reversing
this)
– Statutes like the Wagner Act enabled labor unions to emerge as
responsible entities
– OSHA regulations have improved workplace safety
– Recent acts have forced disclosure of financial information
leading to a more honest and effective stock market.
Government Regulation
of Business Ethics
• But have recent new regulations actually
helped improve business ethics?
• Only 17% of respondents to a recent SHRM
online poll report seeing a decrease in
ethics violations at their companies. 35%
report an increase!
Government Regulation
of Business Ethics
• Levels
– Local
– State
– National
– International
Government Regulation
of Business Ethics
• Branches
– Executive
– Legislative
– Judicial
The Sarbanes-Oxley Act
• creates higher standards for corporate governance
• includes rigorous standards for audit committees
• requires more frequent & transparent financial
disclosures
• requires securities analysts to maintain greater
independence from investment banks.
• provides a series of new civil and criminal penalties for
violations of securities laws, and enhances penalties for
such violations under existing statutes.
The Sarbanes-Oxley Act
• Companies must disclose whether or not
they have a code of ethics, and if not why
not. They must also disclose any change in
or waiver of ethics codes.
• Whistleblowing employees are protected
for providing information to federal
officials, congressional members, and
company supervisors.
The Sarbanes-Oxley Act
• Created a public company accounting
oversight board to register public
accounting firms, to establish or adopt
auditing, quality control, ethics and
independence and accounting standards,
to conduct inspections of registered CPA
firms and to enforce compliance with the
Act.
The Sarbanes-Oxley Act
• Attorneys must report material evidence of
a securities law violation, or breach of
fiduciary duty, to the chief legal counsel or
CEO. If those parties fail to respond,
attorneys must report to the board. Some
attorneys believe this duty may conflict
with their field’s existing ethical codes of
conduct. (Though the ABA has recently
sanctioned this)
The Sarbanes-Oxley Act
• CEOs and CFOs must certify their financial
reports are accurate, or suffer penalties of
$1 million and up to 10 years in prison for
"knowing" violations, and up to $5 million
and 20 years for "willful" violations.
• All personal loans to executives and
directors by public companies are banned.
The Sarbanes-Oxley Act
• Executives are required to pay back
bonuses or equity-based compensation, if
companies later restate their financials.
• The penalty for certifying bad financials:
fines up to $5 million, and up to 20 years in
prison.
The Sarbanes-Oxley Act
• There are no objective standards for
exactly what CEO's or CFO's are actually
certifying. Under Section 906, they must
certify "that information contained in the
periodic report fairly represents, in all
material respects, the financial condition
and results of operations of the issuer." But
what does "fairly" mean? What is
"material"?
U.S. Federal Sentencing
Guidelines
• Created in 1984 in order to give greater uniformity and
effectiveness in sentencing for federal crimes.
• Took effect in 1991.
• Emphasis is on prevention and detection.
• Intent to wipe out illegal gains and compensate victims.
• Base fine from a table of ranked crimes, $5K to 72.5 K + or -
culpability score, factors e.g. level of personnel involved &
existence of an effective ethics program.
U.S. Federal Sentencing
Guidelines
• Codes of conduct must be developed that are capable of
reducing misconduct,
• Specific high level personnel must be responsible for the
compliance program (i.e., compliance officers) and
support the ethics/compliance program (i.e., top
management).
• Substantial discretionary authority in the organization
must not be given to persons with a propensity to engage
in illegal conduct.
U.S. Federal Sentencing
Guidelines
• Standards and procedures must be
communicated to employees, other agents
(such as advertising agencies), and
independent contractors (or consultants)
through training programs and formal
communication systems. (All relevant
stakeholders should be exposed to the
company code of conduct).
U.S. Federal Sentencing
Guidelines
• The organization must take reasonable
steps to achieve compliance with its
standards, by using monitoring and
internal auditing systems to detect
misconduct. A reporting system must allow
employees and agents to report
misconduct without fear (i.e., anonymous
ethics hotlines).
U.S. Federal Sentencing
Guidelines
• Standards and punishment must be
enforced consistently and the organization
must create a process to prevent further
offenses.
• A plan to review and modify the compliance
program is necessary to demonstrate a
continuous improvement process in self-
monitoring.
U.S. Federal Sentencing
Guidelines
• The Corporate Ethics movement has been
spurred by the Federal Sentencing
Guidelines which offer leniency where an
effective ethics program is in place.
U.S. Federal Sentencing
Guidelines
• Limitations:
– Motive for violation usually financial
opportunity
• Many large companies can afford the risk of
penalties
– Of the 208 sentenced organizations, only four
asked for mitigation based on the presence of
an effective ethics compliance program.
Limitations of Government
Action
• Punitive Nature: Laws & regulations are usually punitive rather than
motivational
• Difficult to Enforce: Regulations sometimes difficult to enforce as the costs of
conducting litigation are high
• Incompetence: “Political appointees” are sometimes not competent
• Failure to act in the Public Interest: Regulatory agency made earlier decisions
allowing Enron to engage in certain accounting practices and exempting the
energy-trading company from some federal requirements
• Non-compliance: Passing laws alone will not guarantee compliance.
• Ambiguity: Difficulty in reaching consensus, leading to ambiguity in
legislation: leaving it subject to various interpretations (e.g. good faith)
• Unethical does not always = illegal: (Enron’s worst sins seem to have been
lawful.)
• Creates a False Sense of Security: Regulation creates a moral hazard. We
don't understand finance, but it's regulated, so we're safe.
• Often Based on Inaccurate Assumptions: For example, the threat of longer
sentence assumes rational risk/reward analysis but ignores emotional
factors.
Limitations of Government
Action
• Jurisdictional limitations: Globalization has weakened the ability of
government agencies to regulate business.
• Conflicts of Laws: e.g. Government Regulation = free trade barrier under WTO
• Reactive: Law is usually reactive and rarely proactive
• Tech Lag: Regulation lags behind knowledge/Technology in an industry (e.g.
asbestos cancer causing effects).
• Inefficiency Defense: Compliance with government regulations makes
production slower and more expensive.
• Slow Process in Creating: The legal process is slow. Regulatory process
allows “comment” period and thus lobbying, misinformation, public
campaigns, legal challenges.
• Ineffective Enforcement: Regulatory agencies understaffed and underfunded
(by design?)
• Complexity: “Generally accepted accounting principles” consist of 144
standards, each requiring a volume of explication. Title 17 of the CFR, covering
commodity and securities exchanges, is 2,330 pages long. Federal tax is 3,778
pages, with an additional 12,880 pages of regulations. There are plenty of
places to hide!
Limitations of
Government Action
• Agency Capture: Regulated industries set
out to "capture" their regulatory bodies.
– e.g. J. Steven Griles, a former mining and oil
industry lobbyist is now Deputy Secretary of the
Interior, John Graham, the director of a White
House office overseeing environmental
regulation founded a Harvard think tank that
produced studies questioning the need for
many regulations, etc.
Limitations of
Government Action
• Effects of Lobbying/Propaganda: (e.g. Pinto
Case)Auto industry powerful lobbyists still today
(e.g. fuel efficiency standards) Enron helped by
deregulation of energy industry a position they
heavily lobbied for.
– Over $5 billion a year spent by lobbyists in U.S.
– Lobbying budget in US greater than GDP of 57 nations
– Over 100 lobbyists per Member of Congress
Government Regulation
of Business Ethics
• Best Option: Combined Self & Government
Regulation?
Government Regulation
of Business Ethics
• Other regulators: The market, industry
associations (peer pressure), the
media/public opinion (boycotts), Public
Interest Groups /class action suits)
• Weakness: Approach based on
confrontation. Pressure usually irregular &
ad hoc in nature
Corruption/Bribery
Corruption/Bribery
• Corruption exists in every country and is
endemic to some, especially developing
countries.
– Africa: Corruption is perceived to be rampant in
Cameroon, Kenya, Angola, Uganda, Madagascar and
Nigeria. In Kenya, bribery costs the average citizen 20%
of their income. In 2004, Kenyan President Kibaki
launched a “zero corruption” initiative. (Unfortunately,
his government was recently forced to resign due to,
you guessed it, corruption). No African country was
listed among the 25 least corrupt countries in the most
recent Transparency International Survey (Botswana,
which was rated as Africa’s least corrupt nation, tied for
29th overall).
Corruption/Bribery
– Asia: Corruption is perceived to be rampant in
Bangladesh and Indonesia. In Indonesia, it is
estimated that 20% of business costs are bribes to
bureaucrats. The Financial Times recently
reported that “deep corruption [in China] is
corroding the exercise of state power.” Falsified
accounts used to cover up this corruption have the
effect of rendering China’s official statistics
“virtually meaningless.”
Corruption/Bribery
• Latin America: Corruption is perceived to be rampant in
Paraguay. In Ecuador, it is estimated the government could
pay off its foreign debt in five years if corruption was
brought under control. In Argentina, corruption in the
customs department defrauded the government out of $3
billion in revenues. Officials estimated that 30% of all
imports were being under-billed and approximately $ 2.5
billion of goods were brought into the country labeled “in
transit” to another country, thus illegally avoiding import
taxes altogether.
Corruption/Bribery
• In Albania, approximately one-third of potential
profits are lost to bribe payments that amount to
8% of inventory turnover.
• German companies are estimated to pay an
aggregate of over $ 3 billion a year in bribes to
obtain business contracts abroad.
• In industrial countries 15 % of businesses were
found to pay bribes, but in the former Soviet Union
this figure jumped to over 60 %.
• In Kazakhstan typical bribe to win approval of a
large construction contract is 15 to 20% of
contract price.
Political Corruption/Bribery
• In Mexico, suspicions surround the ability of Raul
Salinas, the brother of former President Carlos
Salinas, to amass a fortune of over $ 120 million
while a public official.
• Two former presidents of South Korea were
convicted of developing a fund of over $900
million while they were in office in the 1980s and
1990s.
• According to Transparency International, in 6 out
of 10 countries, political parties were determined
to be their nation’s most corrupt institutions.
Corruption/Bribery
• 1997 estimate by the World Bank placed the total
about of bribery involved in international trade at
$ 80 billion per year.
• A recent World Bank survey of 3,600 firms in 69
countries found that 40 % of businesses pay
bribes.
Corruption/Bribery - Least Corrupt