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Business Ethics & Professional Responsibility
Business Ethics &
Professional Responsibility
Dr. Ali Sajid alisajid61@yahoo.com www.alisajid.com
Dr. Ali Sajid
alisajid61@yahoo.com
www.alisajid.com
Corporate Culture • “First step in Evolution of “Ethics is a sense of solidarity with
Corporate Culture
• “First step in
Evolution of
“Ethics is a
sense of
solidarity with
other human
beings."
• Albert Schweitzer, early 20th-
century German Nobel Peace
Prize-winning mission doctor and
theologian

Self-actualized people are independent of

the good opinion of

others.

- Wayne Dyer

The greatest discovery of our generation is that a human being can alter his

life by altering his

attitudes.

- William James

Action

Logic will not change an emotion,

but action will.

The difference between a successful person and others is not a

―Lack of Strength‖, not a

―Lack of Knowledge‖, but rather in a

―Lack of Will‖.

In order to be big, you

have to think big. If you think small, you're going

to be small.

- EmerilLagasse

Believe • If you do not believe in yourself chances are nobody else will.
Believe
• If you do not believe in
yourself
chances are nobody
else will.

To be conscious that you are ignorant is a great step to knowledge.

- Benjamin Disraeli

The difference between a mountain and a molehill is your perspective.

- Al Neuharth

Being brokeis a temporary

situation.

Being poor is a stateof mind.

- Mike Todd

Hastey kay fareeb main mut aa jouyio asad

Alam Tumam halqa dam I Khal haain

If you have your sight, you are blessed. If you have insight, you are a thousand times blessed.

Don’t be afraid to lose moneyto

satisfy Internal & External customer

or sponsora

in Your Org.

Short-term Losses

can equal Long-termGains.

Wisdom Through Honesty in HRM
Wisdom Through Honesty in HRM
“Honesty is First Chapter in the Book of Wisdom” - Thomas Jefferson
“Honesty is First
Chapter in the
Book of Wisdom”
- Thomas Jefferson
Truth & Proj Mgmt
Truth & Proj Mgmt
“You cannot change the truth, but truth can change you” - Anonymous
“You cannot
change the truth,
but truth can
change you”
- Anonymous

The quality of a person's life is in direct proportion to his commitment to excellence,

regardless of their chosen field

of endeavor.

To do right is wonderful. To teach others to do right

is even more wonderful

and much easier.

- Mark Twain

―Self-pityis our worst enemy&

if we yield to it,

we can never do anything wise

in this world‖

- Helen Keller

Miguel de Cervantes Saavedra

―Treatpeopleas if theywere what theyoughtto be, & you help them to become

what theyare capableof being‖

- Johann Wolfgangvon Goethe

The race is not always to the swift but to those who keep on running.

Actions…

Action may not

alwaysbring

happiness,

but thereis

no happiness

without Action‖

- Benjamin Disraeli

Setting an example is not

the main means of influencing others, it is the only means.

- Albert Einstein

"We cannot solve our problems with the same level of thinking that created them.

(Albert Einstein)

"The true voyage of discovery

lies not in seeking new

landscapes, but in having new eyes."

• ―The mind of the superior man is conversant with

righteousness; the mind of the mean man is conversant with gain.‖ -Confucius

Start viewing the

probable as possible.

You'll be surprised at

what you can accomplish.

The best & most beautiful things in the world cannot be seen or even touched. They must be felt with the heart.

Self-actualized people are independent of

the good opinion of

others.

- Wayne Dyer

The greatest discovery of our generation is that a human being can alter his

life by altering his

attitudes.

- William James

Nature present us with an

infinite variety of Attitudes -

from gloomy mist to glorious sunshine. Our own moods, whether gloomy or bright,

radiate to those around us.

We may affirm absolutely that nothing great in the world has ever been accomplished without passion.

- George Hegel

Two Parts of Empathy:

Skill (tip of iceberg)

& Attitude

(mass of the iceberg).

Eighty percent of

success is related to

ATTITUDE rather than

competency.

Attitude

Your attitude determines

your altitude.

Pride is a personal

commitment; it is an

attitude which

separates excellence from mediocrity.

Attitude is a little thing that makes a

big difference.

Action

Logic will not

Change an emotion,

but action will.

The difference between a successful person and others is not a

―Lack of Strength‖, not a

―Lack of Knowledge‖, but rather in a

―Lack of Will‖.

Passion • We may affirm absolutely that nothing great in the world has been accomplished
Passion
• We may affirm absolutely
that nothing great in the
world has been
accomplished without
passion.
- Georg Wilhelm Friedrich Hegel

To be conscious that you are ignorant is a great step to knowledge.

- Benjamin Disraeli

The difference between a mountain and a molehill is your perspective.

- Al Neuharth

"When you are

thirsty,

It's too late to dig a Well.“

(Japanese Proverb.)

Good fortune is what happens

when Opportunity

meets with Planning

Banthay haan marey kargayia fakar maain anjum

He who fails to Plan, Plan to fails

"Better go home & make a net, rather than dive for fish at random."

(Chinese proverb)

Ethical Decision-Making:

Employer Responsibilities and Employee Rights

6-48

Ethical Decision-Making: Employer Responsibilities and Employee Rights 6-48

We can invest all the money on wall street in new technologies, but we can’t realize the benefits of improved productivity until companies rediscover the value of human loyalty.

1449

Frederick Reichheld

Ethics and Fair Treatment at

Work Thru HR Dept

Ethics

The principles of conduct governing an

individual or a group;

specifically, the standards you use to decide

what your conduct should be.

– Ethical behavior depends on the person’s

frame of reference.

1450

Ethics
Ethics
• • ''To argue, in the manner of Machiavelli, that there is one rule for
''To argue, in the manner
of Machiavelli, that there is
one rule for business and
another for private life,
Is to open the door to an
orgy of unscrupulousness
before which the mind
recoils.„
R. H. Tawney, the British historian '
door to an orgy of unscrupulousness before which the mind recoils.„ • R. H. Tawney, the
Ethics
Ethics
• “There is no such thing as business ethics - only ethics”.
• “There is no
such thing as
business
ethics - only
ethics”.
Ethics • “There is no such thing as business ethics - only ethics”. • Truett Cathy,
•
Ethics • “There is no such thing as business ethics - only ethics”. • Truett Cathy,

Truett Cathy, founder of Chick-fil-

Ethics • “There is no such thing as business ethics - only ethics”. • Truett Cathy,

A

Ethics Duty-Based v. Outcome-Based Ethics – Duty (Deontology) • Duty is an act done simply
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
intrinsic value, human dignity and moral rights of all
persons."
• Places High Value on Individual Rights
– Outcome
Ethical if best outcome for the majority
De-emphasizes individual rights

"Everyone is obligated to act only in ways that respect the

Involves cost-benefit analysis "Of any two actions, the most ethical one is that which will produce the greatest balance of benefits over harms."

Ethics Strategic v. Real Ethics – What is the motivation/purpose for acting ethically? – Pertol
Ethics
Strategic v. Real Ethics
– What is the motivation/purpose for acting
ethically?
– Pertol Prices in Pakistan
– Vs Kamran Lashri &
– OGDCL MD
– Pay to Flood Victims before Eid
– Tony Blair Son Vs Monis Pervaiz Elahi
– Sait Abid, Malik Riaz of Bahria Town Vs Abdul
Ali Khan of Aitchsion College
– Ramzan Price Hike Vs Roza
Unethical Behavior
Unethical Behavior
• Unethical behavior in business is not just a recent phenomenon
• Unethical behavior in
business is not just a recent
phenomenon
– In the sixth century, B.C., the philosopher Anacharsis once said, – ―The market is
– In the sixth century, B.C., the
philosopher Anacharsis once said,
– ―The market is a place
set apart where men
may deceive one
another.‖
the philosopher Anacharsis once said, – ―The market is a place set apart where men may
Business Ethics
Business Ethics
• Business Ethics is about: – Decision-Making – By People in Business – According to
• Business Ethics is about:
– Decision-Making
– By People in Business
– According to Moral Principles or
Standards
Decision-Making
Decision-Making
Decision-Making • Conflicting duties, loyalties or interests create moral dilemmas requiring decisions to be made

Conflicting duties, loyalties or interests create moral dilemmas requiring decisions to be made

Decision-Making • Conflicting duties, loyalties or interests create moral dilemmas requiring decisions to be made
Decision-Making
Decision-Making
•
Decision-Making • Ethical decision-making involves the ability to discern right from wrong along with the commitment

Ethical decision-making involves the ability to discern right from wrong along with the commitment to do what is right.

Decision-Making • Some factors affecting • decision -making (from Integrity Management, by D. T. LeClair
Decision-Making
• Some factors affecting
• decision -making (from Integrity Management, by D. T. LeClair et al, Univ. of Tampa Press, 1998):
– Issue Intensity
• (i.e. how important does the decision-maker
perceive the issue to be?
• Can be influenced by company/management
emphasis)
– Decision-Maker’s Personal Moral Philosophy
– Decision-Maker’s Stage of Moral Development
– Organizational Culture
Decision-Making
Decision-Making
• 8 Steps to Sound, Ethical Decision-Making – – – – – –
• 8 Steps to Sound, Ethical Decision-Making

1. Gather as many relevant & material facts as circumstances permit. 2. Identify the relevant ethical issues (consider alt. viewpoints) 3. Identify, weigh & prioritize all the affected parties (i.e. stakeholders) 4. Identify your existing commitments/obligations. 5. Identify various courses of action (dare to think creatively) 6. Identify the possible/probable consequences of same (both short & long-term) 7. Consider the practicality of same. 8. Consider the dictates and impacts upon your character & integrity.

– –
Decision-Making
Decision-Making
• Disclosure Test: How comfortable would I feel if others, whose opinion of me I
• Disclosure Test: How comfortable
would I feel if others, whose opinion of
me I value, knew I was making this
decision?
Decision-Making
Decision-Making
• The higher the level of a decision-maker – the greater the impact of the
• The higher the level of a decision-maker
– the greater the impact of the decision
– and the wider the range of constituencies
that will be affected by the decision.
By People In Business • The moral foundation of the decision-maker matters • ―He doeS
By People In Business
• The moral
foundation of the
decision-maker
matters
• ―He doeS have a moral
compass.‖ Whistleblower Sherron
Watkins describing Andrew Fastow,
former CFO of Enron. (Watkins gets frank
about days at Enron, Edward Iwata, USA
Today, March 25, 2003, p. 3B.)
By People in Business
By People in Business
• Ultimately, one's own motivation for ethical behavior must be internal to be effective. •
• Ultimately, one's own motivation for ethical behavior
must be internal to be effective.
• External motivation has a limited value -- punishment
and fear is only effective in the short-run.
• If people believe that they are above the law, they will
continue to act unethically.
• Organizations that have a clear vision, and
support individual integrity are attractive places of
employment. –
• Teri D. Egan, Ph.d, Associate Professor, The Graziadio School of Business at Pepperdine University,
Corporate Ethics, Washington Post Live Online, Friday, Aug. 2, 2002;
Ethics •
Ethics
Values: guiding constructs or ideas, representing deeply held
Values: guiding constructs or ideas, representing deeply held

generalized behaviors, which are considered by the holder, to be of great significance.

are considered by the holder, to be of great significance. • Morals : a system or
•

Morals: a system or set of beliefs or principles, based on values, which constitute an individual or group’s perception of human duty, and therefore which act as an influence or control over their behavior. Morals are typically concerned with behaviors that

behavior. Morals are typically concerned with behaviors that have potentially serious consequences or profound impacts.

have potentially serious consequences or profound impacts. The

word ―morals‖ is derived from the Latin mores (character, custom or habit)

derived from the Latin mores (character, custom or habit) • Ethics: the study and assessment of
derived from the Latin mores (character, custom or habit) • Ethics: the study and assessment of
•
from the Latin mores (character, custom or habit) • Ethics: the study and assessment of morals.

Ethics: the study and assessment of morals. The word "ethics" is derived from the Greek word, ethos (character or custom).

study and assessment of morals. The word "ethics" is derived from the Greek word, ethos (character
Morality • ―The most important human endeavor is the striving for morality in our actions.
Morality
• ―The most important human endeavor
is the striving for morality in our
actions.
• Our inner balance and even our very
existence depend on it.
• Only morality in our actions can give
beauty and dignity to life.
• - Albert Einstein (in a letter 11/20/50)
Morality
Morality
• The historian Arnold Toynbee observed "Out of 21 notable civilizations, 19 perished not by
• The historian Arnold Toynbee observed
"Out of 21 notable civilizations,
19 perished not by conquest from
without but by moral decay
from within."
Absolutism vs. Relativism
Absolutism vs. Relativism
• Ethical Absolutism:
• Ethical Absolutism:

What is right or wrong is consistent in all places or circumstances. There are universally valid moral principles. (―… only by obedience to universal moral norms does man find full confirmation of his personal uniqueness and the possibility of authentic moral growth.‖

• - Pope John Paul II, see also Rom. 12:2; Heb. 13:8) • ―History is
- Pope John Paul II, see also Rom. 12:2; Heb. 13:8)
―History is a voice forever sounding across the
centuries the laws of the right and wrong.
Opinions alter, manners change, creeds rise and fall,

but the moral law is written on the tablets of eternity.‖

– James A. Forude
– James A. Forude
Absolutism vs. Relativism
Absolutism vs. Relativism
• Ethical Relativism • (also called “Situational Ethics”):
Ethical Relativism
(also called “Situational Ethics”):
• What is right or wrong varies according to the individual/society/culture or set of circumstances.
• What is right or wrong varies according to the
individual/society/culture or set of circumstances.
There are no universally valid moral principles.
• (Related reference "everyone did what was right in his own eyes" (Deut. 12:8, Judges
(Related reference "everyone did what was right in his own eyes" (Deut. 12:8, Judges 17:6;
21:25) (see also Isa. 5:20 & 24, Jer. 2:13, Rom. 1:18 -32, 1 Cor. 5:6 -7, 2 Cor. 6:14 -15, 1
John 1:8)
Values
Values

―To ensure that employees can and will

Values ―To ensure that employees can and will act with integrity … organizations need a strong

act with integrity … organizations need a strong and

consistent set of values that dictate appropriate individual actions.‖ – Conclusion of study conducted by
consistent set of values that dictate
appropriate individual actions.‖ –
Conclusion of study conducted by Professor Pratima Bansal , cited in‖ Rebuilding trust, The
integral role of leadership in fostering values, honesty and vision,‖by Carol Stephenson in
the Ivey Business Journal, Jan/Feb. 2004, Vol. 68, Issue 3.
Values
Values
―Without commonly shared and widely entrenched moral values and obligations, neither the law, nor democratic
―Without commonly
shared and widely
entrenched moral
values and obligations,
neither the law, nor
democratic government,
nor even the market
economy will function
properly.‖-
(Vaclav Havel Politics, morality, and Civility,
Summer Meditations)
the market economy will function properly.‖- (Vaclav Havel Politics, morality, and Civility, Summer Meditations)
Values • Navigating the complexities of a situation requires a reliable •
Values
• Navigating the complexities of a
situation
requires a reliable

compass. We can plot that "north" by determining clearly our own core values

•
by determining clearly our own core values • We have to identify -& articulate – What

We have to identify -& articulate What we believe is important to us and to our companies.

own core values • We have to identify -& articulate – What we believe is important
Values
Values

What are the core values that

are fundamental to the success of any individual or organization? make them

different in Ethical Practices

Values
Values
• Honesty • Respect • Responsibility • Fairness • Compassion • Perseverance • Courage
• Honesty
• Respect
• Responsibility
• Fairness
• Compassion
• Perseverance
• Courage
• Our core values drive our behaviors, & our behaviors tell world, who we are
• Our core values drive our
behaviors, & our behaviors tell
world, who we are and what we
stand
• Identifying and adhering to a
“Core-Values Compass”
point provides a standard that will
make decisions easier, consistent
and justified.‖
• - Parkinson, J. Robert, Thinking clearly, remembering values key to
making the call, Milwaukee Journal Sentinel, March 22, 2004.
Values - Honesty Honesty Being straightforward, sincere, truthful, free of fraud, deception or misrepresentation. •
Values - Honesty
Honesty
Being straightforward, sincere, truthful, free of
fraud, deception or misrepresentation.
• Transparency –

To be open, honest and available, to provide clear, accurate, and understandable information

•
• (in the context of financial disclosures). • Ethical business practices – Best measured by
• (in the context of financial disclosures).
• Ethical business practices –
Best measured by a company's
“Character and Commitment to Transparency”
than by their “Social Vision”.
Values - Honesty
Values - Honesty
Honesty – Builds/Maintains Trust – Fosters Community –
Honesty
Builds/Maintains Trust
Fosters Community

Makes Communication more Efficient &

Effective Demonstrates Respect for the Dignity of Others

Values - Honesty
Values - Honesty
Values - Honesty Moral Leaders welcome “Transparency & Truth” as opposed to “Secrecy & Deception”. •

Moral Leaders welcome “Transparency & Truth” as opposed to “Secrecy & Deception”.

•

In a Ethical leadership survey, Majority by a wide margin, cited “Honesty”

as the quality most admired in a leader”.
as the quality most
admired in a leader”.
Values - Honesty
Values - Honesty

“Honesty & Transparency

make you Vulnerable. Be honest & Transparent anyway.‖ Mother Teresa
make
you Vulnerable.
Be honest &
Transparent anyway.‖
Mother Teresa
•
Be honest & Transparent anyway.‖ Mother Teresa • Contra: "Speech was given to man to disguise

Contra: "Speech was given to man to disguise his thoughts." - Charles-Maurice de Talleyrand

Mother Teresa • Contra: "Speech was given to man to disguise his thoughts." - Charles-Maurice de
Values - Respect
Values - Respect
To give particular attention to, show consideration for, or hold in high or special regard
To give particular attention to,
show consideration for, or hold
in high or special regard (Merriam-Webster's
Online Dictionary, 10th Edition)
• Should respect be given or must respect be earned?
• Should respect be given or must
respect be earned?
Values - Respect
Values - Respect
Values - Respect • “Every man is to be respected as an absolute end in himself;

“Every man is to be respected as an absolute end in himself; and it is a crime against the dignity that belongs to him as a human being, to use him as a mere means

for some external purpose.”
for some external purpose.”
Immanuel Kant, Prussian geographer and philosopher (1724-1804)
Immanuel Kant, Prussian geographer and philosopher (1724-1804)
Values - Respect - Tolerance?
Values - Respect - Tolerance?
• What about tolerance?
• What about tolerance?
Values - Respect - Tolerance?
Values - Respect - Tolerance?
• "Our culture has fallen into a kind of moral vertigo – • We value
• "Our culture has fallen into a kind of
moral vertigo –
• We value tolerance so much that we

don't know how to talk to each other about what is right and good”

how to talk to each other about what is right and good” • Kevin Phillips, Director
• Kevin Phillips, Director of the Business Leadership and Spirituality Network (BLSN) quoted in “Competing
Kevin Phillips, Director of the Business Leadership and Spirituality Network (BLSN)
quoted in “Competing Values”, by Jane Lampman, Christian Science Monitor, August
1, 2002.
Values - Compassion “Sympathetic consciousness of another's distress together with a desire to alleviate it"
Values - Compassion
“Sympathetic consciousness of
another's distress together with a
desire to alleviate it"
(Webster's 7th New Collegiate Dictionary],
Fellow feeling, the emotion of caring concern; the opposite of cruelty,
Fellow feeling, the emotion of caring
concern; the opposite of cruelty,
Hebrew rahamanut, from word rehem, 'womb', based on the idea of sibling love (coming from
Hebrew rahamanut, from word rehem, 'womb', based on the idea of
sibling love (coming from from the same womb).
Values - Compassion • Word 'care' finds its roots in Gothic 'Kara' which means lament.
Values - Compassion
• Word 'care' finds its roots in
Gothic 'Kara' which means lament.
• Basic meaning of care is:
• To grieve, to experience sorrow, to
cry out with
.
.
• A friend who cares makes it clear that whatever happens in external world, being
• A friend who cares makes it clear
that whatever happens in external
world, being present to each other
[now] is what really matters."
• [Henri Nouwen, Here and Now, p. 105]
Values - Compassion
Values - Compassion
“Southwest Airlines CEO Herb Kelleher has openly
“Southwest Airlines CEO Herb Kelleher has openly

demonstrated a willingness to go the extra mile for Southwest

employees. He has made it a priority to learn their names and to chip in
employees.
He has made it a priority to learn their names and to chip in and
work alongside them when the situation has demanded his
help. He has been observed lugging baggage and greeting
customers in an Easter Bunny costume. He has repeatedly
demonstrated a truly exceptional level of caring and
compassion for his employees, and his employees have
responded in kind. Perhaps the most dramatic example of
their commitment to their beloved leader occurred when they
pooled their own money and ran a $60,000 ad in USA Today
recognizing him on Bosses Day. In the ad they thanked
Kelleher for being a friend, not just a boss.” - from The
Leadership Wisdom of Jesus, Charles C. Manz, 1998.
Values - Fairness • Fair: just, equitable, impartial, unbiased, objective.
Values - Fairness
• Fair: just, equitable, impartial, unbiased,
objective.

Involves Elimination (or at least a minimization) of one's own feelings, prejudices and desires, so as

•
to achieve a proper balance of conflicting interests. • Equitable Distribution of “Burdens & Benefits”.
to achieve a proper balance of conflicting
interests.
• Equitable Distribution of “Burdens & Benefits”.
• Rules are fair if they are rules that People
operating under them would have agreed to,
had they been given an opportunity to accept or
reject them before hand.
(John Rawls argues in A Theory of Justice )
(John Rawls argues in A Theory of Justice )

Values - Fairness

• Justice: demonstrating fairness, equity, impartiality, righteous action
• Justice: demonstrating fairness, equity,
impartiality, righteous action
• To some, justice is about conformity to truth.
• To some, justice is about conformity to truth.
• To others, its about conformity to law
• To others, its about conformity to law
• But law and justice are 2 different concepts.
• But law and justice are 2 different concepts.
to law • But law and justice are 2 different concepts. “The law is something we

“The law is something we must live with. Justice is somewhat harder to come by.”

– Sherlock Holmes, in The Case of the Red Circle.
– Sherlock Holmes, in The Case of the Red Circle.
“Justice” occurs on earth when power and authority between people are
“Justice”
occurs on earth when
power and authority
between people are

exercised in conformity

with God‟s standards of

moral excellence. - Gary Haugen, in The Good News About Injustice, InterVarsity Press, 1999.
moral excellence.
- Gary Haugen, in The Good News About Injustice, InterVarsity Press, 1999.
Values - Perseverance • Perseverance/Fortitude –
Values - Perseverance
• Perseverance/Fortitude –

Steadfast determination to continue on despite adversity usually over a long period of

time. • Hawa hay tund o taiz mugar Chraig apany jala raha • Woo murd
time.
• Hawa hay tund o taiz mugar Chraig apany jala
raha
• Woo murd a durwais gisko haq nay dayian
haiaan andaz akhusrawarna …Iqbal
Values - Courage • First place to start is for every individual to become aware
Values - Courage
• First place to start is for every
individual to become aware of their
Core Values &To have:
• Courage & Discipline to live out of them in all aspects of their lives.
• Courage & Discipline
to live out of them in all aspects of
their lives.
• (“The rising tide won't lift this economy: Unless we're willing to confront the trust
problem we've helped to create”, Bill Grace, Founder & Executive Director, Seattle's
Center for Ethical Leadership, Guest Columnist, Seattle Post-Intelligencer, June 16,
2003.)
• Banda a momin ka dil baeem o raya say pak
hay……Iqbal
• Wahi haa sahib imroz gis nay apni humat say….
Iqbal
Values - Courage
Values - Courage

“Courage is a perfect sensibility of the measure of danger and a mental willingness to endure it.”

measure of danger and a mental willingness to endure it.” – General William T. Sherman (for
– General William T. Sherman (for whom the Sherman tank was named).
General William T. Sherman (for whom the Sherman tank was named).

“Courage is being scared to death and saddling up anyway.”

John Wayne
John Wayne

Corporate Culture

Corporate Culture Both individuals and organizations hold “values” – A corporation is said to manifest its

Both individuals and organizations hold “values” A corporation is said to manifest its “values” in its “corporate culture” Most employees take their cues from the company culture and behave accordingly.

in its “corporate culture” Most employees take their cues from the company culture and behave accordingly.
A Business derives its Character from the character of the People who conduct the Business.
A Business derives its
Character from the
character of the
People who conduct
the Business.
Ricky W. Griffin, Management, Boston: Houghton Mifflin
Company (2002)
Corporate culture is “How we perceive, think, feel and do things around here.” Elizabeth Kiss

Corporate culture is “How we perceive, think, feel and do

things around here.” Elizabeth Kiss of the Kenan Institute for Ethics
things around here.”
Elizabeth Kiss of the Kenan Institute for Ethics
Corporate culture is loosely defined as the a
Corporate culture
is loosely defined as the a

ttitudes, behaviors and personalities

that make up a company and that shape its behavior and reputation

defined as the a ttitudes, behaviors and personalities that make up a company and that shape
Corporate Culture
Corporate Culture

"Moral behavior is concerned primarily with

interpersonal dimension of our behavior:
interpersonal dimension of our behavior:

how we treat one another individually and

in groups, increasingly, other species and

the environment." •
the environment."
increasingly, other species and the environment." • Key -M orality brings us into contact with others

Key -Morality brings us into contact with others & asks us to consider the Quality of that contact.

& asks us to consider the Quality of that contact . Quote from The Leadership Compass
& asks us to consider the Quality of that contact . Quote from The Leadership Compass

Quote from The Leadership Compass, John Wilcox and Susan Ebbs, as quoted in Everyday Ethics, by Thomas Shanks, S.J., Markkula Center for Applied Ethics.

, John Wilcox and Susan Ebbs, as quoted in Everyday Ethics, by Thomas Shanks, S.J., Markkula
, John Wilcox and Susan Ebbs, as quoted in Everyday Ethics, by Thomas Shanks, S.J., Markkula
Corporate Culture • The Pressure to Conform –
Corporate Culture
• The Pressure to Conform

Some years ago, a social scientist named Solomon Asch wanted to see how people dealt with social pressure so he designed an experiment to measure the results. He came up with a simple test that showed a series of lines on a board in front of the room, with one of the lines matching another in being the same length. The others were either much shorter or much longer. A person was brought into the room, along with others in a group, which unbeknown to the subject, were helpers to the professor. The whole group was asked to match the two lines that were the same length together. The helpers intentionally gave the wrong answer and it was found that in almost 75% of the time, the subjects would go along with the wrong answer, knowing full well it was wrong, but not wanting to stand out. - “Opinion and Social

Pressure”, Scientific American, Nov. 1955, 31-35.
Pressure”, Scientific American, Nov. 1955, 31-35.
Corporate Culture
Corporate Culture
• “A strong corporate culture founded on ethical principles and sound values is a vital
• “A strong corporate culture founded on
ethical principles and sound values is a
vital driving force behind strategic
success.” - Thompson & Strickland
• One company stressed its commitment to
RICE : respect, integrity, communication,
and excellence. The words have been on
T-shirts, paperweights, and on signs. The
firm printed a 61-page booklet with its

code of ethics and every employee had to

sign a certificate of compliance. That
sign a certificate of compliance. That
company was Enron!
company was Enron!
According to Ethical or Moral, Values, Principles or Standards
According to Ethical or
Moral, Values, Principles
or Standards
• Whose Values?
• Whose Values?
According to Ethical or Moral, Values, Principles or Standards – Personal – Family – Peers

According to Ethical or Moral, Values, Principles or

Standards
Standards
– Personal – Family – Peers – Religious – Company – Community, Regional, National, International
– Personal
– Family
– Peers
– Religious
– Company
– Community, Regional, National,
International
According to Ethical or
According to Ethical or

Moral, Values, Principles or

Standards
Standards
• Learned Where?
• Learned Where?
According to Moral Principles or Standards
According to Moral
Principles or Standards
– Martin Luther King, Jr. once noted, " The most dangerous criminal may be the
– Martin Luther King, Jr.
once noted, " The
most dangerous
criminal may be the
man gifted with reason
but with no morals."
King, Jr. once noted, " The most dangerous criminal may be the man gifted with reason

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 & 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.

them. Integrity describes both who you are and what you do. • People of integrity are
• People of integrity are conscientious, trustworthy, accountable, committed and consistent.
• People of integrity are
conscientious, trustworthy,
accountable, committed and
consistent.
• A key to maintaining integrity is “counting the cost” before committing yourself.
• A key to maintaining integrity is
“counting the cost” before
committing yourself.
Integrity
Integrity
• ―Psychologists have found integrity to be essential to an individual's sense of identity and
• ―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 & ability to gain and
maintain the trust of others have often been
noted.
• Many purveyors of practical advice, counseled that integrity is the cornerstone
• Many purveyors of practical
advice, counseled that
integrity is the cornerstone
•

“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
Integrity“
• (quoted in Beebe, 1992, p. 8)” - from Blackwell’s
Encyclopedic Dictionary of Business Ethics.
Integrity
Integrity
• In Living a Life That Matters Harold Kushner describes • kind of people who
• In Living a Life That
Matters Harold Kushner
describes
• kind of people who are
able to overcome the
negativity in their lives.
People who are “whole,
united within themselves,
their internal conflicts
ended.”
• Because of this, they are
“Persons of integrity.”
• Integrity, is a quality just as essential to human well- being as is the
• Integrity, is a quality just
as essential to human well-
being as is the pursuit of
peace and justice.
• Integrity, is a quality just as essential to human well- being as is the pursuit
Character
Character
•

The notable/ conspicuous/ distinguishing moral/ethical traits or

characteristics of a person that give evidence of their essential nature and which ultimately shape
characteristics of a person that give
evidence of their essential nature
and which ultimately shape their
reputation.
Character • "Fame is a vapor, popularity an accident, riches take wings, those who cheer
Character
• "Fame is a vapor,
popularity an
accident, riches
take wings, those
who cheer today
may curse
tomorrow, only
one thing endures
-- character.”
• President Harry Truman
• President Harry
Truman

Is Ethical Behavior Good for Business?

Reputation Management

A reputation for integrity enhances customer loyalty (e.g. Johnson & Johnson Tylenol Case)

Conversely, damage to a

company's reputation can mean a sharp and often

irreversible

• Conversely, damage to a company's reputation can mean a sharp and often irreversible ―Loss of

―Loss of market share‖.

Is Ethical Behavior Good for Business?

Social Capital

Experts say

Most people forgive mistakes made by leaders

who have both conviction and a good heart.

DelJones,Leadership lessons from the Reagan years,USA Today,June 11,2004,

p.6B.

conviction and a good heart. – – DelJones,Leadership lessons from the Reagan years,USA Today,June 11,2004, p.6B.

Is Ethical Behavior Good for Business?

Decreases Costs

Though initiating & ethics program

sometimes involves significant upfront

costs,

it generally helps to avoid other larger costs

later.

Is Ethical Behavior Good for Business?

Encourages Investment

77% of Canadians are most likely to invest

in,

81% to purchase from, and

79% to work for companies they view as socially responsible.

(A Conference Board of Canada poll revealed)

Is Ethical Behavior Good for

Business?

"The successful entrepreneur must know how to glide over every moral restraint with almost childlike regard

and have besides other positive qualities, no scruples

whatsoever,

be ready to kill off thousands of victims -- without a murmur.

- John D. Rockefeller.

no scruples whatsoever, • be ready to kill off thousands of victims -- without a murmur.

Is Ethical Behavior Good for Business?

Some Costs of Ethical Misconduct

Public/Interest Group/NGO disgrace/scandal/ostracism/repudiation/protests

Litigation/Prosecution

Decreased Employee

Morale/Loyalty/Commitment/Performance/Productivity

Loss of Business/Profits

Loss of Customer/Supplier/Partner, Trust/Goodwill/Loyalty

Is Ethical Behavior Good for Business?

Some Additional Costs of Ethical Misconduct

Loss of Social/Reputation Capital/Goodwill (i.e. the willingness of stakeholders to overlook failings)

Shaken public confidence in company and in capital markets

Layoffs

Loss of Investments/Pensions

Increased Government Scrutiny/Regulation

Environmental/Health Damage

Is Ethical Behavior Good for Business?

Impact on the Bottom Line

Ethical Behavior Enhances profitability - Most

academic studies support the conclusion that

ethical behavior and profitability go hand in hand

Is Ethical Behavior Good for Business?

An investment of $1,000 ten years ago in each of ten companies highly regarded for ethical

behavior (G.E., Coca-Cola, Hewlett-Packard, Microsoft, Intel, Southwest Airlines, Berkshire Hathaway, Disney, Johnson & Johnson, and Merck)

would have resulted in a return nearly three times as much as an investment of $10,000 in the Standard & Poor’s 500 stock index. (Fortune)

Is Ethical Behavior Good for

Business?

An exception: In response to numerous lawsuits, gun manufacturer, Smith & Wesson's former CEO Ed Shultz decided to start including locks on its handguns in March 2000.

Although the decision was clearly ethical, customers especially the NRA) were unhappy with the change. Sales declined, employees were laid off

In this case, the ethical decision did not have a positive financial impact on the firm. Nonetheless, despite jobs lost, lives may have been saved by the change in product design.

financial impact on the firm. Nonetheless, despite jobs lost, lives may have been saved by the

Causes of Failures in Business Ethics

Decreased Authority of Moral Standards

Empty Gestures/Insincerity

Situational Ethics/Moral Relativism/Expansion of Cultural Diversity

Rapid Expansion and Decentralization of Control

Company/Personal Immaturity

Parties Perceived as Enemies or Not Worthy of Ethical Treatment/Moral Exclusion (e.g.

Lying to the FBR, cancer causing products and other defective products dumped on 3rd

world markets, Chinese Toys etc.)

Narrow View of Stakeholders

• Failing to ―Count of Cost‖ before committing to a particular course (see Luke 14:28-30)

• Lack of ―Owner‖ Accountability/Spin

Actual or Perceived Pressures

• Fixation on ―Results‖

Speed/Carelessness

Ethical Illiteracy

Distractions

or Perceived Pressures • Fixation on ―Results‖ • Speed/Carelessness • Ethical Illiteracy • Distractions

Causes of Failures in Business Ethics

Focus on Short Term Profits & Wrong Standards for Hiring

"If we select people principally for their charisma and

their ability to drive up stock prices in the short term

instead of their character, shower them with

inordinate rewards,"

"why should we be surprised when they turn out to lack integrity?‖ –

Bill George, Former CEO Medtronic Corp. - in "Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value," Jossey-Bass/Wiley, 2003.

– ―The mind of the superior man is conversant with righteousness; the mind of the mean man is conversant with gain.‖ -Confucius

Causes of Failures in Business Ethics

Emphasis on the Individual rights

– ―Instead of conceiving of society as something established for the defense of individual rights, fair contracts, and due process of law, we are invited to see it in terms of the biblical vision. This way of living, thinking, and acting where autonomy and related rights take priority has seriously jeopardized the meaning and values of all institutions in our society.‖ -

Detroit Archbishop Adam J. Maida, in a speech to Catholic judges including Rehnquist, Scalia, Kennedy, and O'Connor

Causes of Failures in Business Ethics

Self-Deception/Choosing Not to Know

Types

Tribalism, or the belief that the company is always right

Legalism,the inability to imagine moral obligations beyond

the law (Note: Kedoshim Tiyu is a requirement of a Jew not to just obey the

letter of the law but to obey the spirit of the law as well. Under Jewish law, it is

entirely possible for a person to be 100% observant or all the law and yet be a Naval B'rshut HaTorah , that is, a repulsive, disgusting individual. One must go beyond the law, called Lifnim Mishurat HaDin, and embrace the ethical imperatives that are within it.

Moral Gamesmanship, the excusing of unethical practices by

viewing business as "a game" and oneself as "a player‖

Scientism, the elevation of science-including management science-to a position of unquestioned authority.

• (see Corporate ―moral blindness‖ not solved by typical ethics, by John Knapp, Emory Report, April 26, 1999, Volume 51, No. 29, http://www.emory.edu/EMORY_REPORT/erarchive/1999/April/erapril.26/4_26_99morals.html)

Causes of Failures in Business Ethics

Emotions

Arrogance

"When men are most sure and arrogant they are

commonly most mistaken, giving views to passion without that proper deliberation which alone can

secure them from the grossest absurdities"

- David Hume quotes (Scottish philosopher, historian, economist and essayist. 1711-1776)

Causes of Failures in Business Ethics

Emotions

– ―Blind‖ Ambition

Desperation

Feeling of Invulnerability

Flirting with the Edge

Greed

Emotions – ―Blind‖ Ambition – Desperation – Feeling of Invulnerability – Flirting with the Edge –

Causes of Failures in Business Ethics

Is the Capitalist System or the Corporate Structure inherently Immoral or Amoral?

3 Theories of Social Responsibility

Classical Theory

Stakeholder Theory

Corporate Social Responsibility Theory (CSR)

Stakeholder Theory

Definition: The primary consideration in business decision-making is preserving/promoting the rights of

stakeholders

Takes into consideration the moral

principle of mutual respect.

Stakeholder Theory

Goal: to maintain the benefits of the free

market while minimizing the potential ethical problems created by capitalism (Phillips, Wharton School)

Primary difference from Classical Theory:

elevation of nonshareholding interests to the level of shareholder interests in

formulating business strategy and policy.

Stakeholder Theory

Stakeholder: an individual or group, inside

or outside the organization, who has a meaningful stake in its performance.

Who are the stakeholders of a business?

Narrow view vs. Wide View

Stakeholder Theory

Some Possible Stakeholders of a Business:

Customers

Department/Employees

Owners/Shareholders

Creditors

Suppliers

Distributors

Competitors

Stakeholder Theory

Some Additional Possible Stakeholders:

Local Community

National Citizens

Global Inhabitants

Non-Human Life

the Environment

Stakeholder Theory

Corporatecitizenship: the extent to which a business meets its responsibilities, to its various stakeholders, or to society at large.

Stakeholder Theory

Problems with wider view?

Discourages Investment - Undermines/Dilutes

shareholder property rights

Interest Group Politics - Leads to waste and

inefficiency

Corporate Social Responsibility Theory

Definition: A voluntary assumption of responsibilities, beyond the legal and economic, that take into account

moral/ethical/socially desirable goals and outcomes.

• Concept originated in the 1950’s and began

to gain a significant following in the 1960‖s.

Corporate Social Responsibility

Theory

Possible Examples

Merck: moved to develop Mectizan, a drug that would treat river blindness, a disease that primarily affected the poor. Merck knew that it would cost millions to develop and that they would most likely not

realizea direct profit from the

effort. But this resulted in a

publicrelations windfall!

that they would most likely not realizea direct profit from the effort. But this resulted in

Corporate Social Responsibility

Theory

Intel: provides

education in science & math in countries where it has plants.

Social Responsibility Theory • Intel: provides education in science & math in countries where it has

Corporate Social Responsibility

Theory

Citigroup: has

provided significant funds to microcredit ventures.

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

great community, he ought at all times to be willing that his own little interest should

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

―Rain Forest Chic‖ - Socially responsible image as a marketing tool, source of free, positive publicity (e.g. The Body Shop, both customers and

franchisees attracted by progressive reputation)

Corporate Social Responsibility

Theory

Anita Roddick/Body Shop

Supports various social causes (e.g.- Save the Whales)

Social Responsibility Theory • Anita Roddick/Body Shop – Supports various social causes (e.g.- Save the Whales)

Corporate Social Responsibility

Theory

• Ben & Jerry’s -

Fight global warming with Ice Cream

Annual one world one heart festival

Pint for a pint with InternationalRed Cross

global warming with Ice Cream – Annual one world one heart festival – Pint for a

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/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

According to a recent Transparency

International Report, Finland was rated the world's cleanest business environment, followed by New Zealand, Denmark, Iceland, Singapore, Sweden and Switzerland. (Note

Norway is somewhat farther back on the

list)

Corruption/Bribery - Least Corrupt

What national characteristics might explain this?

Racial homogeneity? (But what about Japan & Korea?)

Geographic Isolation? (Iceland, New Zealand,

Singapore)

Strict Rule of Law? (Singapore)

Corruption/Bribery

What sets Norway apart?

Oil

Recent Statoil bribery allegations, planned to funnel a $15 million bribe to an Iranian official in exchange for help with contracts

Oil is considered a significant factor in Nigerian & Angolan

corruption as well.

Corruption/Bribery

Where do we stand?

In the same study , the U.S. tied for 17th with Belgium and Ireland.

It was perceived as more corrupt than Norway, Australia, the Netherlands, the U.K., Canada, Austria, Luxembourg, Germany and Honk Kong, but less corrupt than nations such as France, Spain, Japan, Israel, Italy, & Mexico.

Corruption/Bribery

Bribe - a payment of money, or something of

value, to a party, with the intent to influence, or in exchange for special consideration, that is incompatible with the party’s duties of office, position or role (―Coarse Bribery‖ that which affects a significant community interest)

Corruption/Bribery

Some examples of bribery

Corporate purchasing agents are often given

"kickbacks" in order to make their purchases

from a specific supplier.

Tour operators may receive special unpublicized commissions or payment in kind or services, in order to include certain airlines, hotels, restaurants, and stores in their

itinerary.

Corruption/Bribery

Civil servants in regulatory agencies,

usually badly paid relative to the economic power they possess, may find it hard to refuse payment in exchange for waiving the regulations or to tailor specifications and contracts, to suit special groups or firms. (Note: In India most government officials &

their families could probably not survive on

their salaries alone.)

Corruption/Bribery

Corruption/Bribery

Corruption/Bribery

Motivations: Firms, pressure groups and

citizens try to maximize their gains by paying bribes, while public officials try to maximize their illegal earnings and politicians their power and wealth.

Corruption/Bribery

Facilitating Payment - customary, local,

incentive/‖grease‖ payments or ―sweeteners‖

intended to expedite performance. Usually made to low-level public officials to ―speed things along‖. Typically involves issuing licenses or

permits, clearing goods through customs, etc. (In Italy, called bustarella. In Mexico, la mordida, ―the bite‖. In South Africa, ―dash‖. In the Middle/Near

East, baaksheesh. In Germany, schimengeld. In

France, douceur. (Ukraine adoption example)

Corruption/Bribery

The CEO of Unilever, the food and hygiene giant, insists Unilever does not pay bribes but it does pay "facilitating payments". "There are customary local things," he said. But they are only used where local custom and practice dictate in the 90+countries in which Unilever

operates. The idea is akin to tipping a waiter to get a better table, he said. He insisted that an overall code of conduct governs these matters, and bans the use of payments for unfair advantage although

trusted local managers have leeway to interpret the rules according

to local habits.

Corruption/Bribery

How do you distinguish between a bribe and a mere gift?

Its not always clear

Secrecy is a defining characteristic of

bribery/corruption.

Gifts are generally made openly and often declared

Bribes are often made using a middleman

Gifts are usually given directly

Bribes are usually of significant value

Gifts are typically of minimal value

Corruption/Bribery

How do you distinguish between a bribe and a mere gift?

Consider the social situation and context

Consider perceptions of donor and recipient

important

Consider whether or not a quid pro quo is

understood to be expected

Corruption/Bribery

Bribery commonly occurs in:

Large investment projects

Government Purchasing

Extra-Budgetary Activities (―Special Projects‖)

Corruption/Bribery

Reasons/Excuses for Participation in

Bribery

Competitive necessity

Respect for local cultural norms

Extortion

Inability or unwillingness to control rogue employees/delegation of power

Problems with Corruption/Bribery

Distorts otherwise sound, reasoned judgment

Creates partiality

Often shifts government spending away from vital functions such as education and publichealth, and into projects where public officialscan more easily extract bribes. (e.g. ―White Elephant Projects‖, ―Pork BarrelSpending‖, ―The Big Dig‖, etc.)

Disincentive to invest (Less security, lower return)

Bribery adds to the cost of goods, fueling inflation.

Inhibits fair and efficient markets,e.g. bribes are sometimespaid in order to keep a competitor out of the market, by preventing it from receiving a license or winning a bid. When companies choose to rely on bribe payments to secure market position, they are less concerned about increasing operating efficiency, or developing new products, services and technologies.

Problems with Corruption/Bribery

Can lower the quality of public goods and services and

even threaten safety (e.g. Turkish apartments that

collapse, African bridges without connecting roads)

Undermines public confidence in democracy - e.g. in

places like Argentina, Panama, Honduras, Guatemala,

Nicaragua, Venezuela, Bolivia, Ecuador and Haiti.

Opting to pay bribes damages company reputations

and makes it difficult to say no later (the reverse of

this is also true!)

Corruption/Bribery .

Governments are starting recognize and

respond to the damage caused by bribery/corruption

Why?

Lost revenues (taxes, duties, etc.)

Corruption/Bribery .

• Globalization: The ―borderless‖ global

marketplace is bringing national economies and corporations throughout

the world into increasingly greater

interdependence.

High profile cases (e.g. Lockheed/Japan, involved major companies as well as

political figures and staggering sums of money. Paid $12.5 million in bribes for $430

million sales contract.)

Corruption/Bribery .

U.S. Foreign Corrupt Practices Act of 1997

Prohibits payments to a foreign official for the purpose of influencing

any act or decision

or the omission of an act

in violation of the law of that country

to obtain or retain business

Implies intent

Only liable for actions of 3rd party agents when have reason to know of

Does not prohibit facilitating payments

(Note that the Justice Dept. only brings on average 1.5

cases per year- ―Special Report:Bribery and Business, Economist, March 2, 2002, p.64)

Corruption/Bribery .

At first, the rest of the world looked at it as a

sad case of an American moralism or moralistic imperialism

If other nations not follow suit does this = a competitive disadvantage for U.S.?

Corruption/Bribery .

1996 Interamerican Treaty Against

Corruption

1997 OECD treaty committing 34 countries

to similar restrictions, in effect beginning

in 1999.

Corruption/Bribery .

Other important anti-bribery initiatives

have recently been launched by the World Bank, the International Monetary Fund, the European Union, the Council of Europe, the Organization of American States, the Pacific Basin Economic Council, the Global Coalition for Africa and the United Nations.

Corruption/Bribery .

Ghana, Mozambique, Zambia & South Africa have also launched anti-corruption drives

Corruption/Bribery .

In addition, recent steps by President

Vladimir Putin to introduce tax reforms and new laws fighting money-laundering in Russia

But still high levels of bribery by firms from

Russia, China, Taiwan and South Korea, Italy, Hong Kong, Malaysia, Japan, USA and

France.

Corruption/Bribery .

Not much being done to address the

―demand‖ side of bribery (i.e. extortion)

RICO (Anti-Racketeering) Statutes in U.S.

Corruption/Bribery .

Reputation Management (Coca-Cola)

Coca-Cola is operational in many developing

countries, is doing well, is beating

competitors, and is not paying bribes. The

company is thoughtful and painstaking about how it enters new markets, how it selects local

business partners, and how it conducts itself in foreign countries.

Corruption/Bribery .

Integrity is key to its approaches.

Coca-Cola makes maximum effort to be

transparent in its dealings, to win public

support, and to develop the kind of strength --

from its consumers and the public at large -- that make top officials uneasy about seeking

bribes from the beverage giant.

Corruption/Bribery .

The reality is that to maximize

opportunities in the growing markets of developing countries, corporations must strive to be seen as honest, long-term, committed guests. Corporations must impress upon host governments, customers, suppliers, and the general

public that they seek fair, open, long-term

relationships.

Corruption/Bribery .

Coca-Cola trains its staff to learn about the

traditions, politics, and values of the people in all of the countries in which it operates. It gives key responsibilities to nationals of these countries and ensures that its image is never that of a ruthless multinational colonialist corporation.

Corruption/Bribery .

Coca-Cola plays an active role in most of

the countries in which it works, supporting education and the arts and social services in a long-term and genuine way.

GE & Texaco also have developed a

reputation of refusing to pay bribes.

Corruption/Bribery

Caux Roundtable Anti-Corruption Principles

1. Disclose publicly and make widely known its

endorsement of the Anti-Corruption Measures.

2. Establish a clearly articulated written policy prohibiting

any of the firm’s employees from paying or receiving

bribes and ―kickbacks.‖

3. Implement the policy with due care and take appropriate disciplinary action against any employee discovered to have made payments in violation of the policy.

4. Provide training for employees to carry out the policy, and provide continuing support, such as help lines, to assist employees to act in compliance with the firm’s

policy.

Corruption/Bribery

Caux Roundtable Anti-Corruption Principles

5. Record all transactions fully and fairly, in accordance

with clearly stated record-keeping

accounting controls, and conduct internal audits to assure that all payments made are proper.

procedures and

• 6. Report annually on the firm’s bribery and corruption policy, along with a description of the firm’s experiences implementing and enforcing the policy.

7. Have the annual report in step six above audited either by an independent financial auditor or an independent social auditor, or both.

8. Require all agents of the firm to affirm that they have neither made nor will make any improper payments in any

business venture or contract to which the firm is a party.

Corruption/Bribery

Caux Roundtable Anti-Corruption Principles

9. Require all suppliersof the firm to affirm that they have neither made nor will make any improper payments in any business venture or contract to which the firm is a party.

10. Establish a monitoring and auditing system to detect any improper payments made by the firm’s employeesand agents.

11. Report publicly any solicitations for payments whenever such reporting will not lead to harsh reprisalsof material consequencesto the company or its employees (or report privately to a monitoring

organization,such as Transparency International or a social auditor).

12. Establish a system to allowany employee or agent of the firm to report any improper payment without fear of retribution for their disclosures.

Accounting Principles Accountant‟s Duty of Care An accountant must possess the skills that an ordinarily
Accounting Principles
Accountant‟s Duty of Care
An accountant must possess
the skills that an ordinarily
prudent accountant would
have and exercise the degree
of care that an ordinarily
prudent accountant would
exercise.
Accounting Principles
Accounting Principles
The skills and care of an ordinarily prudent accountant are reflected in the: Generally accepted
The skills and care of an ordinarily
prudent accountant are reflected in
the:
Generally accepted accounting
principles (“GAAP”) promulgated by
the Financial Accounting Standards
Board (FASB), and the

Generally accepted auditing standards

Board (FASB), and the Generally accepted auditing standards (“GAAS”), promulgated by the American Institute of

(“GAAS”), promulgated by the American Institute of Certified Public Accountants (AICPA).

Accounting Principles
Accounting Principles

An accountant conforming to GAAP or

Accounting Principles An accountant conforming to GAAP or GAAS, and acting in good faith, will normally

GAAS, and acting in good faith, will normally not be held liable for incorrect

judgments or for relying on incorrect information.
judgments or for relying on incorrect
information.

On the other hand, a violation of GAAP or GAAS will be prima facie evidence

a violation of GAAP or GAAS will be prima facie evidence of the accountant‟s negligence, subject

of the accountant‟s negligence, subject to the accountant clearly qualifying her

opinion or disclaiming liability for particular errors.
opinion or disclaiming liability for
particular errors.

Relativism

• As R.H. Popkin describes relativism in his article on the subject in The Encyclopedia
• As R.H. Popkin describes relativism in his article on the
subject in The Encyclopedia of Religion, ―views are to be
evaluated relative to the societies or cultures in which
they appear and are not to be judged true or false, or
good or bad, based on some overall criterion but are to
be assessed within the context in which they occur.
Thus, what is right or good or true to one person or
group, may not be considered so by others … there are
no absolute standards … ―Man is the measure of all
things‖ (quoting the Greek philosopher Protagoras (481-
420, B.C.), and … each man could be his own measure

… [Relativism] urges suspension of judgment about right

and wrong.‖ (Ellis Washington, Reply to Judge Richard A. Posner on the Inseparability of Law
and wrong.‖ (Ellis Washington, Reply to Judge Richard
A. Posner on the Inseparability of Law and Morality,
Rutgers Journal of Law and Religion, Vol. 3)
Relativism
Relativism
• As Cardinal Joseph Ratzinger said, Relativism is ―presented as a position defined positively by
• As Cardinal Joseph Ratzinger said, Relativism is
―presented as a position defined positively by the
concepts of tolerance and knowledge through
dialogue and freedom, concepts which would be
limited if the existence of one valid truth for all were
affirmed … affirming that there is a binding and valid
truth in history in the figure of Jesus Christ and the
faith of the church is described as fundamentalism.
Such fundamentalism, … is presented in different
ways as the fundamental threat emerging against
the supreme good of modernity: i.e., tolerance and
freedom.‖ - Address to Congregation for the Doctrine
of Faith, Guadalajara, Mexico, May 1996
Absolutism v. Relativism
Absolutism v. Relativism
• ―The demise of America’s legal foundations occur when society rejects laws that are based
• ―The demise of America’s legal foundations
occur when society rejects laws that are
based on solid, irrevocable, moral, universal,
absolute values, to a society that bases it’s
laws on an arbitrary system of relativism,
situational ethics, materialism, individualism,
hedonism, paganism, or in any secularist
ideology. This secularization of law has
influenced all branches of knowledge – law,
philosophy, business, religion, medicine,
education, science, the arts, and mass
media.‖ Harold Berman, The Interaction of
Law and Religion 21 (1974).
Absolutism vs. Relativism
Absolutism vs. Relativism
According to a recent poll of college
According to a recent poll of college

seniors, 73% agreed with the statement that ―What is right or wrong depends on

the statement that ―What is right or wrong depends on differences in individual values and cultural

differences in individual values and cultural diversity.‖ Only 25% agreed with the statement that ―There are clear and uniform standards of right and wrong by which everyone should be

judged."
judged."
Problems with Relativism
Problems with Relativism
– Relativism undermines moral criticism of practices of particular individuals or in particular societies where
Relativism undermines moral criticism of practices of
particular individuals or in particular societies where
those practices conform to their own standards. For
instance, it could be used to permit slavery in a slave
society or it could be used to justify trade and
investment with basically evil regimes, e.g. Apartheid
governments.

But, as Cardinal Ratzinger said, ―There are injustices that will never turn into just things (for example, killing an innocent person, denying an individual or groups the right to their dignity or to life corresponding to that dignity) while, on the other hand, there are just things

the Doctrine of Faith, Guadalajara, Mexico, May 1996
the Doctrine of Faith, Guadalajara, Mexico, May 1996

that can never be unjust.‖ - Address to Congregation for

Problems with Relativism
Problems with Relativism
– Relativism allows for oppression of those with minority views by allowing the majority in
– Relativism allows for oppression of those with
minority views by allowing the majority in any
particular circumstance to define what is morally
right or wrong.
• ―In Germany they first came for the Communists,
• and I didn't speak up because I wasn't a Communist.
• Then they came for the Jews,
• and I didn't speak up because I wasn't a Jew.
• Then they came for the trade unionists,
• and I didn't speak up because I wasn't a trade unionist.
• Then they came for the Catholics,
• and I didn't speak up because I was a Protestant.
• Then they came for me —
• and by that time no one was left to speak up.‖
– - German anti-Nazi activist, Pastor Martin Niemöller
Problems with Relativism
Problems with Relativism
Relativists speak in terms that ―soften‖ harsh realities.
Relativists speak in terms that ―soften‖ harsh realities.

"Intelligent, educated, religious people embrace illogical

absurdities that set aside not only God's truth, but also
absurdities that set aside not only God's truth, but also

our responsibility for the well-being of others. When words are warped and twisted perversely, they're eventually emptied of their true meaning. When you shine the light of common sense on deceptive language

couched in medical, philosophical or intellectual terms, the logic evaporates. Moral choices require that we
couched in medical, philosophical or intellectual terms,
the logic evaporates. Moral choices require that we use
language to describe reality.‖ - Jean Staker Garton,
Author/Lecturer, Co-Founder of Lutherans for Life
Problems with Relativism
Problems with Relativism
Relativists never need bother to examine
Relativists never need bother to examine
with Relativism Relativists never need bother to examine why something is moral or immoral, they merely

why something is moral or immoral, they merely accept/tolerate alternative

is moral or immoral, they merely accept/tolerate alternative determinations, so that none are held to account
is moral or immoral, they merely accept/tolerate alternative determinations, so that none are held to account

determinations, so that none are held to account

determinations, so that none are held to account ―Over the years I have found that those

―Over the years I have found that those who call themselves atheists actually have a strong sense of the absolute truth they know exists. They just don’t want to acknowledge that it’s true - because if they did, they would have to change the way they live. They flee on moral grounds; refusing to submit

themselves, they exchange the truth for a lie.‖ - Chuck Colson -Being the Body, 2003.
themselves, they exchange the truth for a lie.‖ -
Chuck Colson -Being the Body, 2003.
Problems with Relativism
Problems with Relativism
• Commenting on the idea that legal reforms can compel corporate morality, Michael Prowse, in
• Commenting on the idea that legal reforms
can compel corporate morality, Michael
Prowse, in the Financial Times, stated that
"The underlying problem is that we are living

in times that might aptly be called 'post- ethical.'" People are now "emotivists," who relativize moral judgments and "obey the law,

who relativize moral judgments and "obey the law, help others and respect customs and mores only
who relativize moral judgments and "obey the law, help others and respect customs and mores only

help others and respect customs and mores only if they calculate that this will benefit them

personally in some The root problem
personally in some
The root problem
is a loss of belief in objective ethical standards.‖
is a loss of belief in objective ethical
standards.‖
Problems with Relativism
Problems with Relativism
• Jesus said in John 8:31-32, ―If you continue in my word, then are you
• Jesus said in John 8:31-32, ―If you
continue in my word, then are you my
disciples indeed; And you shall know
the truth, and the truth shall make you

free.‖ It would seem follow then that, people cannot experience ultimate and true freedom unless and until they come to terms with the absolute truth revealed by God.

cannot experience ultimate and true freedom unless and until they come to terms with the absolute
Absolutism vs. Relativism
Absolutism vs. Relativism
Most ethicists reject the theory of ethical relativism. Some claim that while the moral practices
Most ethicists reject the theory of
ethical relativism. Some claim that
while the moral practices of
societies may differ, the
fundamental moral principles
underlying these practices do not. -
Markkula Center for Applied Ethics

Corporations

• Today more than 25% of the world’s economic activity comes from the 200 largest corporations. - ―Top 200 The Rise of

Corporate Global Power‖, by Anderson & Cavanaugh, Institute for Policy Studies, 2000)

The largest 500 U.S. companies constitute

at least 75% of the U.S. economy.

Corporations

Many now believe that it is not the church or

state, but the corporation that is:

– ―the most important organization in the world‖ -

The Company: A Short History of a Revolutionary Idea,

by Micklethwait & Woolridge, 2003

or ―the central institution of contemporary

society‖ - ―Corporate Society: Class, Property, and Contemporary Capitalism, by McDermott, 1991.

– or ―society's dominant non-governmental

institution." - Value Shift: Why Companies Must Merge Social and Financial Imperatives, by Paine, 2003.

Corporations

These beliefs echo the prediction made by -French Sociologist Emile Durkheim (1858-1917), in his work Suicide, that ―following the collapse of the family and the church, the corporation would be the association in the future that would supply the social support that every individual needs to

maintain a moral life‖ . - Cited in ―An Essay on the Background of Business Ethics:Ethics, Economics, Law and the Corporation, by Lisa N. Newton & Maureen M. Ford, in Taking Sides.

Corporations

Legally speaking, Corporations are:

– ―fictional persons‖

• ―lacking body and soul‖, corporations cannot be

punished - Pope Innocent IV (13th Century)

• ―lacking a soul, corporations cannot commit treason, be outlawed, or excommunicated - Sir

Edward Coke, Chief Justice, King’s Bench (17th

Century)

Corporations

King George III's Lord

Chancellor Baron Thurlow

remarked at the end of the

18th Century: "How can you expect a corporation to have a conscience,

when it has no soul to be

damned and no body to be

kicked?"

can you expect a corporation to have a conscience, when it has no soul to be

Corporations

• As ―artificial persons‖ corporations cannot have ―real‖ responsibilities. - Nobel Prize Winning Economist Milton Friedman

Philosophy Professor Manuel Velasquez

argues that only corporate members and not corporations themselves, can be held

morally responsible.

Corporations

• However, ―Although a corporation is not something that can be seen or touched, it does have prescribed rights and legal obligations within the community.‖ - William

H. Shaw, Business Ethics.

Corporations

• ―The exclusively economic definition of the corporation is a deadly oversimplification , allowing overemphasis on self-interest at

the expense of the consideration of others.‖ - Kenneth Andrews, Professor, Harvard Business School

Corporations

Limited liability is the key feature of the corporate form, encouraging investment.

– Doesn’t that run directly counter to the value of

Responsibility/Accountability?

Self-Regulation of Business Ethics

Types of Codes of Ethics/Conduct

Compliance Oriented: Statement of business

standards or practices

Visionary: Statement of beliefs, core values,

mission, principles (e.g. Johnson and Johnson

Credo) or corporate philosophy (e.g. the ―HP

Way‖)

Combination: (e.g. G.E.’s Integrity Program called ―The Spirit and the Law‖.

Types of Codes

Forbes 500 Companies (237 respondents):

Date Introduced

< 5 yrs.

>20 yrs.

Revised in „90s

Code of Ethics

91%

18.5%

15.5%

82%

Values Statement

53%

51.0%

8.0%

83%

Corporate Credo

34%

41.0%

22.0%

81%

All Three Documents

49 cos.

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

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?

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

Self-Regulation of Business Ethics • Set your expectations high; find men and women whose integrity and

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

of Business Ethics • I am sure that in estimating every man’s value either in private

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

Ethics • In looking for people to hire, you look for three qualities: integrity, intelligence, and

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

Good people do not

need laws to tell them

to act responsibly,

while bad people will find a way around the

laws. - Plato

Good people do not need laws to tell them to act responsibly, while bad people will

Government Regulation of

Business Ethics

Dick Grasso, Former Chairman and CEO of the

New York Stock Exchange,

―You cannot legislate

honesty.‖ (Who was

forced to resign due to outrage over his $39.5 million salary)

Exchange, ―You cannot legislate honesty.‖ (Who was forced to resign due to outrage over his $39.5

Government Regulation of

Business Ethics

Leon Panetta, Former

White House Chief of Staff

in the Clinton

Administration,

"Restoring trust in

corporate America is crucial to our economy. Passing laws alone will

not guarantee honesty.

CEOs and Boards of

Directors have that

responsibility," he said.

Passing laws alone will not guarantee honesty. CEOs and Boards of Directors have that responsibility," he

Government Regulation of

Business Ethics

• ‖Rules cannot substitute for character." Alan

Greenspan, Chairman of the

U.S. Federal Reserve Board

• ‖Rules cannot substitute for character." — Alan Greenspan, Chairman of the U.S. Federal Reserve Board

Government Regulation of

Business Ethics

Senator Joe Lieberman,

Regulation of Business Ethics • Senator Joe Lieberman, ―We cannot put the business ethics police on

―We cannot put the

business ethics police on

every corner that might

be cutnor 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 businessesmay 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.

powers don't see the size of the scar or the powerful temptation to return to business

Government Regulation of

Business Ethics

Senator Joe Lieberman, ―The Enron

of Business Ethics • Senator Joe Lieberman, ―The Enron scandal cries out for governmental action, but

scandal cries out for governmental action, but we must

acknowledge before

we act that there are twin dangersof

doing too little and doing too much.‖

Government Regulation of

Business Ethics

Milton Friedman,

Regulation of Business Ethics • Milton Friedman, suggests that the market and not new regulations is

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