CHAPTER 3: ORGANIZATIONAL ETHICS

Ethics performance
The established codes of conduct and ethics programs address the following:
1. Avoidance and resolution of conflicts of interest between the company and employees
2. Compliance with all applicable laws, rules, regulations, standards, and policies
3. Emphasis on customer relations to enhance the company’s reputation
4. Proper use of confidential information
5. Encouragement of whistleblowers in reveal dishonesty and wrongdoings
What are organizational ethics?
o Organizational ethics are the standards that address human behavior, promote and adhere
to by organizations and businesses
o The standards:
 Attempt to quantify
 Regulate human relationships in an effort to: avoid harmful behavior, or damage
to the organization
o Defining and managing the values of a collective group of people within an organization
composes the practical application of organizational ethics
 If regulatory laws address ethical concerns, then these requirements are often
spelled out in detail in the ethical standards
o Ethical areas and concerns that may affect the organization’s stakeholders will likely be
considered
 Stakeholders may include stockholders, customers, neighbors, and those in the
company’s procurement chain.
o Ethical standards for an organization
 Attempt to quantify
 Define behaviors that produce beneficial effects in the organization and in the
organization’s sphere of influence
 To avert detrimental behavior
o An organization’s approach to ethics may range from laissez-faire to a highly proactive
methodology that spells out specific behavioral expectation in detail
 In a proactive approach, the organization attempts to climinate gray areas that may
cause ethical lapses
o Business ethics separate from General ethics for 2 reasons:
 Other parties have a vested interest in the ethical performance of an organization
 In a work environment, you may be placed in a situation where your personal
value system may clash with the ethical standards of the organization’s operating
culture.
Recognizing an ethical issue
o An ethical issue is a problem, situation, or opportunity that requires an individual or
group to choose among actions
o An ethical issue is a situation or a problem that requires thought, discission, or
investigation to make a decision
 New ethical issues are emerging constantly
 Can be difficult to recognize ethical issues
o Failure to do so puts corporations at risk
  It is a problem in industries where winning is perceived to be a game
Difficult ethical issues facing small firms
o Relationships with customers, clients, and competitors
Relationships with outside parties in the marketplace
o Human resource decisions
o Decisions relating to employment and promotion
o Employee obligations to employer
Employee responsibilities and actions that in some way conflict with the best interests of
the employer
o Management processes and relationships
Superior-subordinate relationships
o Governmental obligations and relationships
Compliance with governmental requirements and reporting to government agencies
o Relationships with suppliers
Practices and deceptions that tent to defraud suppliers
o Environmental and social responsibilities
Business obligations to the environment and society
Kinds of ethical issues
Ethical issues in business operations
o Income and expense reporting (income tax fraud)
o “truth in advertising” – persuasion and deception
o Bribing customers and rigging bids
o Direct selling – pyramid schemes, bait-and-switch selling
o Effects of owners’ ethics on their employees
o Accurately reporting financial information
How to identify an ethical issues?
o An activity approved by most members of the organization and customary in the industry
is probably ethical
o If the issue withstands open discussion between groups within and outside the
organization, it is probably ethical
o Convert discussion and destroyed or disguised documents indicate potential problems
Ethical issues and employees
o “to do an honest day’s work”
o Fraudulent worker’ compensation claims
o Theft of company property and embezzlement of funds
What are the drivers of unethical strategies and business behavior?
o The large numbers of immoral amoral business people
o Overzealous pursuit of personal gain, wealth, and other selfish interests
o Heavy pressures on company managers to meet or beat earnings targets
o A company culture that places profits and good performance ahead of ethical behavior
Defining organizational ethics
 Organizational culture
o The values, beliefs, and norms that all the employees of that organization share
 Value chain
 o The key functional inputs that an organization provides in the transformation of raw
materials into a delivered product or service

*IPO: INPUT PROCESSING OUTPUT

What’s an organizational culture?
o The values and behaviors that contribute to the unique social and psychological
environment of an organization
o It can be defined as the values, beliefs, and norms shared by all the employees of that
organization
o It is based on shared attitudes, beliefs, customs, and written and unwritten rules that
have been developed over time and are considered valid
o The culture represents the sums in all the policies procedures – both written an
informal – from each of the functional departments in the organization in addition to
the policies, and procedures that are established for the organization as a whole
o Organizational culture
- Includes an organization’s expectations, experience, philosophy, and values
that hold it together
- Is expressed in its self-image, inner workings, interaction with the outside
world, and future experience
Also called corporate culture, it’s shown in:
1. The ways the organization conducts its business, treats its employees, customers, and the
wider community
2. The extent to which freedom is allowed in decision making, developing new ideas, and
personal expression
3. How power and information flow through its hierarchy
4. How committed employees are towards collective objectives
o An organizational culture affects:
- The organization’s productivity and performance
- Provides guidelines on customer care and service, product quality and safety,
attendance and punctuality
- Concern for the environment
- It also extends to production-methods, marketing and advertising practices, and to
new product creation
o An organizational culture is unique for every organization and one of the hardest things
to change
Organizational ethics
Primary activities and costs

supply chain sales and

operations distribution service profit margin
management marketing

Support activities and costs

Product R&D, Technology, and Systems Development
Human Resources Management
General Administration
Ethics in R&D
  Directly involved in future growth
- Without new products to sell, organizations can lose their customers to
competitors who are offering products that are “better, faster, cheaper”
 Critical commitment to product quality, safety, and reliability
 “better, cheaper, faster” mean compromises have to be made in functionality or
manufacturing in order to meet a targeted cost figure
 Too many features out – marketing and advertising have no story to tell – sales people
will face difficulties in selling against competition
 Too few changes made – company won’t be able to generate a profit
- Do we use the best materials available or the second best to save some money?
- Do we run a full battery of tests?
Ethics in Manufacturing
 Now it falls to the manufacturing team to actually get the thing built
 “do you want it built fast, or do you want it built right?
 From an organizational perspective, you want both
 Compromise – which corners can be cut and by how much
Ethics in Marketing
 Marketers see themselves as providing products (or services) to customers who have
already expressed a need for and a desire to purchase those products
 Critics of marketing see it as a more manipulative process whereby unsuspecting
customers are induced to buy products they don’t really need and could quite easily live
without by “slick” commercials and advertisements
Ethics in HR-I
The HR Relationship:
- The creation of the job description for the position
- The recruitment and selection of the right candidate for the position
- The orientation of the newly hired employee
- The efficient management of payroll and benefits for the (hopefully) happy and
productive employee
Ethics in Finance-I
 Financial transaction
 The accounting function
 The auditing function
Ethicas in Finance-II
 Ethical challenges
o GAAP:
- The Generally Accepted Accounting Principles that govern the accouting
proffestion – not a set of laws and established legal precedents, but rather a set
of standard operating procedures within the profession
- A set of accurate financial statements that present an organization as financial
stable, operationally efficient, and positioned for strong future growth can do
great deal to enhance the reputation and goodwill of an organization
o Creative bookkeeping techniques – it is legal to defer receipts from one quarter to
the next to manage your tax liability
 o Conflicts of interest – a situation where one relationship or obligation places you
in direct conflict with an existing relationship or obligation
Company culture places profits and good performance ahead of ethical behavior
 In a ethically corrupt or amoral work climate, people have a company-approved license
to:
- Ignore “what’s right”
- Engage in most any behavior or employ most any strategy they think they can get
away with
- Play down the relevance of ethical strategic actions and business conduct
 Pressures to conform to the norms of the corporate culture can prompt otherwise
honorable people to:
- Make ethical mistakes
- Succumb to the many opportunities around them to engage in unethical practices
 Cross-country variations also exist in the degree to which certain behavior are considered
unethical
 Apart from certain universal basics
- Honesty
- Trustworthiness
- Fairness
- Avoiding unnecessary harm
- Respecting the environment – variations exist in what societies generally agree to
be right and wrong in the conduct of business activities
 Factors affecting cross-cultural variability
- Religious beliefs
- Historic traditions
- Social customs
- Prevailing political and economic doctrines
Ethical vs Unethical conduct
 What constitutes ethical or unethical conduct can vary according to:
- Time
- Religion
- Local cultural norms
- Circumstance
 Thus, no objective way exist to prove that some cultures are correct and others wrong
about proper business ethics
Causes of unethical behavior
o Meeting overly aggressive financial or business objectives
o Meeting schedule pressures
o Helping the organization survive
o Rationalizing that others do it
o Resisting competitive threats
o Saving jobs
Conflicts of Interest
 o A situation that has the potential to undermine the impartiality of a person because of the
possibility of a clash between the person’s self-interest and professional interest or public
interest
o A situation in which a party’s responsibility to a second-party limits its ability to
discharge its responsibility to a third-party
A conflict of interest
 Arises in the workplace when an employee has competing interests or loyalties that either
are, or potentially can be, at odds with each other
 Causes an employee to experience a struggle between diverging interests, points of view,
or allegiances
 Are generally forbidden in company codes of conduct and/or employee handbooks
Implementing a stakeholder perspective
- Step 1: assessing the corporate culture
- Step 2: identifying stakeholder groups
- Step 3: identifying stakeholder issues
- Step 4: assessing organizational commitment to social responsibility
- Step 5: identifying resources and determining urgency
- Step 6: gaining stakeholder feedback
How we can improve corporate ethics?
- Appointing a corporate ethics officer
- Ethical standards set by board of directors
- Establishing a corporate code of ethics
- Conducting social audits
- Requiring employees to take ethics training
- Including ethical criteria in employee appraisals
 Responsibility include
o Complete oversight of the sights function
o Collecting and analysing data
o Developing and interpreting ethics policy
o Developing and administering ethics education and training
o Overseeing ethics investigations
1. Appointing a corporate ethics officer
2. Ethical standards set by board of directors
 Board responsible for supervising management team
 Directors of company are expected to
- Conduct themselves according to the highest standards of personal and
professional integrity
- Set standard for company-wide ethical conduct
- Ensure compliance with laws and regulations
3. Establishing a corporate code of ethics
 Code of ethics
- Highlights an organization’s key ethical issues
- Identifies overarching values and principles important to an organization
- Focuses employees on areas of ethical risk
- Cannot gain company-wide acceptance unless:
  Developed with employee participation
 Fully endorsed by organization’s leadership
- Must continually by applied to company’s decision making
4. Conducting social audits
 Social audit
- Identifies ethical lapses committed in the past
- Sets directives for avoiding similar missteps in the future
5. Requiring employees to take ethics training
 Comprehensive ethics education program encourages employees to act responsibly and
ethically
- Often presented in small workshop formats
 Principle – based decision making is based on principles in corporate code of ethics
6. Including ethical criteria in employee appraisals
 Some companies base a portion of employee performance evaluations on:
- Treating others fairly and with respect
- Operating effectively in a multicultural environment
- Accepting personal accountability
- Continually developing themselves and others
- Operating openly and honestly with suppliers, customers, and other employees
Ethical decision making
o Get the facts
o Identify stakeholders and their positions
o Consider the consequences of a decision
o Weigh various guidelines and principles
o Develop and evaluate options
o Review a decision
o Evaluate the results of a decision
Philosophical theories for ethical decision making
Approach to dealing with moral Principle
issues
Virtue ethics approach The ethical choice best reflects moral virtues in yourself
and your community
Utilitarian approach The ethical choice produces the greatest excess of benefits
over learn
Fairness approach The ethical choice treats everyone the same and shows no
favoritism or discrimination
Common good approach The ethical choice advances the common good

Ethics in formation technology

 Public concern about the ethical use of information technology includes:
- E-mail and internet access monitoring
- Peer-to-peer networks violation ò copyright
- Unsolicited email
- Hackers and identify theft
- Plagiarism
 - Cookies and spyware
Summary
o Ethics is a set of beliefs about right and wrong behavior
o Ethics in business is becoming more important because the risks associated with
inappropriate behavior have grown
o Corporations want to protect themselves and their employees from legal action