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MM5001 Business Ethics, Law and Sustainability

Midterm Take Home Test

Kristianto Wicaksana

29114305

Master of Business Administration


School of Business and Management
Institut Teknologi Bandung
2015

1. One of the myths in business ethics says that ethics is a personal, individual affair, not a
public, or debatable matter. Do you agree/disagree with the statement? Please elaborate your
answer.
In my opinion, as a person I think that ethics is a personal and individual affairs, and also
something that you cannot learn instantly. It takes time to really know what ethics is, because
the topic itself is in the gray area, meaning that it doesnt really have the right or wrong
closed end answer to speak and discuss about ethics and the cases about it.
We molded our own set of ethics, values, and principles from the closest of our families,
school environment, college environment, workplace, and finally the society as a whole. By
thinking how to be able to cope with our own environment, we automatically set our own
ethics based on societys perception of right and wrong. For example, in business, it is
considered unethical to somehow do tax evasion/avoidance, but it can be done to maximize
your companys profit. This simple example can create a great debate whether the tax
avoidance/allowance action is unethical or not. But we, as an individual should ask ourselves
and our own conscience whether this action is unethical or not. So in my own opinion, I
conclude that ethics is a personal and individual affair that is largely influenced by how
society works around us.

2. Why do you think it is important to teach ethics in business schools? Do you think ethics can
be taught and trained? Why/why not?
Ethics is important to be teached at business schools, because it can help the students to learn
the best value and principles about good ethics, leading to the improvement of the students
own set of ethics which they had before. By exposing themselves to the set of good ethics,
and also the way that ethics is discussed openly in class about certain topics of ethics which
they probably would not talked about outside the class, students can learn how others
perceive the same topic about ethics in so many different way, learn how other tackled the
ethics problem in different set of ethic value in each students, with the perception that there is
no certain right or wrong answer regarding ethics, and there is so many way of perceiving it.
Based on explanation on previous paragraph, I conclude that ethics can be taught and trained
in class. The best way to talk about ethics in class is by doing the case study about ethics real
example cases that happened in the real world (for example, Enron case and Citibank case
which will be discussed later). By reading the cases and discussing it openly in class, we can
gain another perspective of the cases and whether it is considered unethical or not, based on
everyones different perspective being discussed together. Also we can learn from the failure
of ethics in some cases, like Enron case and try to understand what needs to be done to make
sure that that kind of ethics problem will not happen again in the future.

3. What are the benefits of using stakeholder theory approach in ethical decision making? How
does this approach work?
Stakeholder theory looks at the relationships between an organization and others in its
internal and external. It also looks at how these connections influence how the business
conducts its activities. Think of a stakeholder as person or group that can affect or be
affected by an organization. Stakeholders can come from inside or outside of the business.
Examples include customers, employees, stockholders, suppliers, non-profit groups.
Govermemt, and local community, among many others.
The benefits of using stakeholder theory approach in ethical decision are:
A. The company and the decisions that is made can serve the interest of all the
stakeholder groups, rather than one particular groups
Stakeholder theory try to consider all the stakeholders interest in the effect of the
decision that the company made, so that it can satisfy all the stakeholders need
B. Company can gain insight and perspective of all the companys stakeholders before
making the decision
All stakeholders insight, advice, and perspective can be collected and processed to
gain the best input that will be used to formulate the best decision that will serve best
for both the company and all the stakeholder
The better that company can cope and handle their stakeholders and fulfilling all their needs,
the better the companys strength is, and this kind of situation can be used as the competitive
advantage for thrive in the market. The company can set up meeting consists of the top
management and all the stakeholders representative to gain an understanding of each
partys need, wants, and interest to achieve a consensus that can be used as a basis for the
ethical decision making that serve every partys need and is considered ethical decision for
every party.

4. Why does every ethical issue have dilemmas? Do you believe ethical dilemmas can be
prevented and solved morally without the use of principles? Explain.
An ethical dilemma is a complex situation that often involves an apparent mental conflict
between moral imperative, in which to obey one would result in transgressing another. The
most common example in ethical dilemmas is that between imperative not to steal and one to
care for a family that you cannot afford to feed without stolen money. Under an ethical
system in which stealing is always wrong and letting ones family to die from starvation is
always wrong, a person in such situation would be forced to commit one wrong to avoid
committing another, and be in constant conflict with those whose view of the acts varied.
Another example regarding to business is that when in company, you have to choose to obey
the companys unethical act (such as financial statement fraud or tax avoidance) because the
company is pressured to looks good in its public report, and the companys culture actually
allow such act to be done, or not doing the act because it is not right according to your ethical
value and risk being shunned from your colleague and supervisor, or even fired.
Based on these two paragraphs, almost all ethical issues that occur in real world have
conflicting dilemmas that intersect one ethical value of right and wrong to other ethical
values, simply because ones ethical values sometimes is not same as their environments
accepted ethical values (For example, school or workplace), thus creating dilemmas
mentioned before.
In my opinion, ethical dilemmas should be solved and prevented by using ones own set of
ethical values and principles. To separate the right and wrong of dilemmas, one must ask and
think about ones own set of ethical values and principle that has been present in their live
and that which they uphold dear to find the best possible solution of conflicting ethical values
and dilemmas that concur upon it.

5. Why is utilitarianism useful for conducting stakeholder analysis? What are the problems
using this principle?
Utilitarianism is a theory in normative ethics holding that the best moral action is the one that
maximizes utility. Utility is defined in various ways, but is usually related to the well-being
of sentient entities. It is also the belief that a morally good action is one that helps the
greatest number of people and that aim of action should be the largest possible balance of
pleasure over pain or the greatest happiness of the greatest number
Based on this explanation, utilitarianism is useful for conducting stakeholder analysis,
because utilitarianism means that company should analyze all the stakeholders need and
wants, and company also have to fulfill them all to bring happiness and pleasure to all of
companys stakeholders. The utilitarianism is also useful so the company give treatment and
fulfillment of need to all stakeholders equally, without favoring one stakeholder above
others.
The utilitarianism approach is not without problem though. The problem by using this
principle is
a) Too demanding
Most companies do not have sufficient resources to fulfill all stakeholders need and
want at the same time, as it will require a huge amount of resources to do that
b) Hard to define what is considered the happiness of the stakeholders
Every stakeholders happiness must be fulfilled according to utilitarianism. But it is
difficult to define each and every stakeholders definition happiness, again it will
require huge amount of resource and time allocated by the company
c) Conflicting interest between stakeholders
Sometimes one stakeholders needs and wants is conflicted to another stakeholders
needs and want, and company have to decide which needs and wants to fulfill, doing
that will create conflicting situation of interest, not according to the utilitarianism
approach.

6. In your opinion, what are the problems with the free-market society? What are the problems
with the regulated market society? Is there any third way solution?
A free market is a market economy system in which the prices for goods and services are set
freely by consent between vendors and consumers, in which the law and forces of supply and
demand are free from any intervention by a government, price-setting monopoly, or other
authority. The opposite is the regulated market, in which government intervenes in supply
and demand through non-market methods such as laws creating barriers to market entry or
price fixing. In free-market society, price for goods and services are set freely by the forces
of supply and demand and are allowed to reach their point of equilibrium without
intervention by government policy, and it typically entails support for highly competitive
markets and private ownership of productive enterprises.
In my opinion, the problems with free-market society is that the economy market cannot be
fully free because at some point that there will be individual, company, or even any parties
who will try to monopolize the market, seize all the profit for themselves, thus creating unfair
distribution of wealth and power among people. Simply put, the rich get richer and the poor
get poorer. Another problem is that in free market society, company can pursue as much
profit as possible without intervention and can literally do anything it takes to achieve it,
exploiting the workers of the company and thus creating ethical issues which is happening all
over the world (for example: low labor cost in China affecting their life, the Shell in Nigeria
case)
Meanwhile, the regulated markets also have its own problems. The regulated economy
system do not allow easy access to the market, because of the government regulated system
usually creates many layers of bureaucracy that can hinder potential new market or new
sector to grow, thus creating risk of slowing the whole economy down. The regulated system
also create so many rules imposed by the government for the economy sector, mostly in
water, gas, electricity, and mining supply, which in itself create some kind of privatization,
privilege special interest and ultimately monopoly system that can the market economy
system worse.
There is a third way solution, that is the free market system but with government intervention
at some point or in some economic area, because in reality, market economies do not exist in

pure form, since societies and goverments regulate them to varying degrees. For example, the
Indonesia economy system, which is free market, but also regulated. This can be seen when
the exchange rate of Rupiah against US Dollar is worsen, the government take action in form
of multiple economic regulation imposed by the ministry of finance and central bank
governor to help strengthen Rupiah exchange rate. We will not see this kind of action in free
market, whereas in free market government would have not interfere with the exchange rate,
and in regulated market, the government would stated and keep the exchange rate level at a
certain fixed level, just like Indonesia in the 70s and 80s.

7. Do you think ethics have universal values and apply similarly in different cultures? In a
country that has diverse culture like in Indonesia, can we have different ethical principles
among those local cultures?
A value is a universal value if it has the same value or worth for all, or almost all, people.
The claim for universal values can be understood in two different ways. First, it could be
something that has a universal value when everybody finds it valuable. Second, something
could have universal value when all people have reason to believe it has value. Based on this,
ethics have universal values because at a certain points in ethics, everybody finds it valuable,
like doing something that bring good to others. All people have reason to believe that doing
things that bring good to others is a set of good ethics that everyone should have
In Indonesia, we have diverse culture, this also means we have different ethical principles
among the local culture. For example, what was considered rude and unethical for Javanese
people, such as shouting, speaking loud, angry all the time is considered normal on culture
and ethics for most Sumatran people, especially Batak tribe in North Sumatera. Basically the
different region in Indonesia have diverse set of ethical principle. But the good thing is that
the universal values concept of good ethical value can be implemented in such diverse
culture of Indonesia, because all people believe in what is considered good ethical value and
behavior, even though our culture and environment that shapes people in Indonesia is
different from one region to another
The one set of principle that unites all people in Indonesia, in nationalism and/or in ethical
values of right and wrong is called Pancasila, a set of statement that point out good ethical
value that all Indonesian learn since they were kids and implemented in daily lives and in
society.

8. Do you agree with the statement that Corporate Social Responsibility (CSR) will help
corporations to attain sustainability? Please explain.
Corporate social responsibility policy functions as a self-regulatory mechanism whereby a
business monitors and ensures its activity compliance with the spirit of the law, ethical
standards and national or international norms. CSR aims to embrace responsibility for
corporate actions and to encourage a positive impact on the environment and stakeholders
including consumers, employees, investors, communities, and others.
Based on this explanation, in my opinion I agree that CSR will help corporations to attain
sustainability. Some companys action have a permanent damage to ecosystem as a whole,
for example oil spills, waste from chemical manufacturing, mining, agriculture, and fishing
activities that damage the environment to fulfill the companys goal to maximize profits. It is
difficult to deny that many corporations have profited from the deterioration of the global
environment.
To help attain sustainability, for the sake of ecosystem and community as a whole, company
can invest in CSR activity in local communities in order to offset the negative impact their
operation might have. A natural resources firm that begins to operate in a poor community
might build a school, offer medical services or improve irrigation and sanitation equipment.
Similarly, a company might invest in research and development in sustainable technologies,
even though the project might not immediately led to increased profitability.

9. What are the reasons for corporations to initiate their CSR programs? Is it only for obligatory
reason or are there other reasons?
One of the reasons that corporation do the CSR program is in order to account for the
importance of the social and ecological consideration in doing business, in other word its for
the obligatory reasons. According to this, some organization advocate the concept of the
triple bottom line: social, environmental, and economic or people,planet,profit. This
concept is rising in popularity nowadays, as many economist and accountant, especially those
focused in the sustainability field of research and social accounting is putting a lot of interest
and concern about the companys activity and the form of its CSR program. Although some
critics believe that CSR programs are undertaken by companies to distract the public from
ethical questions posed by their core operations.
It is also noted that company also have different agenda and motive when execute the
CSR program. Some of the reasons are:
a. Human resources
Potential recruits often consider a firms CSR policy. CSR can also help improve the
perception of a company among its staff, particularly when staff can become involved
through payroll giving, fundraising activities or community volunteering
b. Brand differentiation
CSR can help build customer loyalty based on distinctive ethical values that can be
used as a differentiation positioning tools that propelled the company from its
competitor (For example, The Body Shop company, which uses natural products in its
marketing campaign, and it worked as its differentiated strength)
c. Reducing the medias and governments attention to the company
Company is keen to avoid interference in their business through taxation and/or
regulations. A CSR program can persuade governments and the public that a
company takes health and safety, diversity and environment seriously, reducing the
likelihood that company practices will be closely monitored

10. What traits should be preserved for us in order to be survived in globalization era?
Globalization is about the assimilation of all the culture in the world, connected
seaminglessly into our own culture, thanks to the development of the current technology and
communication that allows us to know what is going on at the other side of the world in the
blink of an eye. But it is also come at a cost of losing our own identity and competitiveness
when faced with immense competition in the free world of globalization.
In order for us to preserve and keep hold of our own set of ethical values and principle that
makes us what we are today, these traits are needed:
a. Ambitious
Keep challenging yourself that you can do more than what you can do now.
b. Determined
You are committed in everything that you do
c. Persistent
Dont give up easily, keep trying when you fail
d. Optimistic
Keep thinking positive that the outcome of what you do will be all right
e. Patient
Have patience and trust yourself that you will get the job done
f. Informed
Most of all, you have to be informed and up to date with what is happening all around
the world. Adapt and learn from the vast exchange of culture, assimilate it into your
own set of ethical code to become the person that is accepted by others and bring
good to others.

Enron
A. What led to the collapse of Enron?
B. How did Enrons corporate culture promote unethical decisions and actions?
Answer
a. Enron is doing the type of accounting reporting system that is called mark-to-market
accounting. This is done by building fixed assets, and if the assets is projected and it will
generate profits, then the profits immediately recognized and included in financial
statement, even if the asset have not made any amount of money at all.
When Enron concur losses because of its operation, Enron transfer the losses into their
Special Purposes Entities (SPEs), a subsidiary specially created by Enron as the puppet
subsidiary company to hide Enrons losses. Because at that time the US GAAP
(Generally Accepted Accounting Principle) allows a subsidiary below 50 % of ownership
not to be consolidated into its parent companys financial report, Enrons losses would
not show in its financial statement, making the companys financial status as healthy as
ever. This action undertaken by Enron had been gone for 10 more years from 1990 to
2001.
This kind of action is also helped by Enrons own auditor, the Arthur Andersen
Accounting Firm. Arthur Andersen helped Enron in terms of auditing financial reports
while also consulting for Enron at the same time, including the mark-to-market scheme
and the SPEs. This action clearly violated the Arthur Andersen accountability as an
auditor, whereas the most basic of principles that auditor should have is independence.
Unfortunately this scheme did not last long. In 2001, after several actions including the
resignation of Ken Lay and Jeff Skilling as CEO, Enron have to restate their
earnings/profit since 1997 to 2000 per request of the Securities and Exchange
Committees (SEC). Enron had losses of $591 million and had $628 million in debt at the
end of 2000, whereas before restatement, Enron had consolidated net income rising from
$581 million to $970 million.

After restatement, the stock price of Enron pummeled down into just 50 cents and less.
The Wall Street, especially Enron stockholders panicked and went into frenzy,
questioning the company. Ultimately by 2 December 2001, Enron filed for bankruptcy
In summary, the things that led the collapse of Enron is simply the result of arrogance
greed, and foolishness from the top management, all the way down. Many of the
companys losses started the collapse that could have been avoided, if someone has had
the nerve and the foresight to put a stop to it.
b. Enrons corporate cultures itself sadly help influence the scandal and all the action that
led to the collapse. CEO Jeff stilling implemented performance assessment system called
rank or yank. Under this system the bottom 10% performers is shown the door, in other
word fired immediately. This put heavy pressure in each and every Enrons employee to
achieve the target set, literally took whatever means necessary to achieve it, whatever the
cost. Employees frequently ranked their peers lower in order to enhance their own
positions in the company
Enrons compensation plan seemed oriented toward enriching executives rather than
generating profits for shareholders and encouraged people to break rules and inflate the
value of contracts even though no actual cash was generated. Enrons bonus program
encouraged the use of non-standard accounting practices and the inflated valuation of
deals on the companys books.
Each Enron division and business unit was kept separate from the others, and as a result
very few people in the organization had a big picture perspective of the companys
operations. Accompanying this emphasis on decentralization were insufficient
operational and financial controls as well as a distracted, hands-off chairman, a
compliant board of directors, and an impotent staff of accountants, auditors, and
lawyers.
All the corporate culture stated above helped promote the unethical decisions and action
taken by Enrons management which ultimately led to its downfall and bankruptcy,
becoming one of the worst scandals in modern economic history.

Sampoerna
What is the most challenging cross-cultural issue in Sampoerna after the acquisition process by
Philip Morris?
In my opinion, the most challenging cross-cultural issue in Sampoeran is whether the new Board
Of Directors and Commissioners will try to cope with the existing culture in Sampoerna, or will
it assimilate the American way of corporate culture into the company. Prior to the acquisition,
Sampoernas corporate culture is very family oriented, with most of the boards come from
Sampooerna family, the family that created the corporation. Putera Sampoerna was the CEO that
helped Sampoerna became one of the biggest tobacco company in Indonesia, before succedded
by his son, Michael Sampoerna. Michael sampoerna created the family-oriented, leadership style
of empowerment and support within the company, paying homage to the Sampoerna family
culture and the Javanese culture.
Putera Sampoerna created the Sampoerna Way, which is the guiding principles for the dedication
and professionalism of its employees (Honesty, competence, and inspiration):
a. Kami Memang Beda (We Are Different)
b. Anggarda Paramita/ Menuju Kesempurnaan (Striving Toward Excellence)
c. Three Hands (Relations of Manufacturer with Suppliers and Customers)
Phillp Morris as the new owner of PT Sampoerna must try to cope to the old ways of leadership
under Putera Sampoerna and Michael Sampoerna, two very respected leaders of the company,
especially Putera Sampoerna. Putera Sampoerna is a very influential figure in the company, such
as every big strategic decision have to come to Puteras approval to be executed, and everybody
respects him as the leaders. Phillip Morris should analyze the current Sampoerna culture, and try
not to change the culture drastically, but try to assimilate the humble local culture of Javanese
created by Putera Sampoerna all the years past with the vast experience of professional and
multinational corporation filled with professionalism and excellence from the western world by
Phillip Morris as the new owner of the company and the new Boards and Commisioners with a
lot of different education background and nationalities..

Citibank
What factors has made Citibank fail to maintain its standard operation procedure in both Melinda
Dee and Irzen Octa cases?
In my opinion, two factors that has made Citibank fail to maintain its standard operation
procedure are:
a. Failure by corporate leaders to create or govern the appropriate ethical culture.
Citibank had formulated a set of code of conduct that every employee have to read and
agree before joining the company, which is Common Purpose, Ingenuity, Leadership, and
Responsible Finance. Sadly, this fundamental ethical standards at that time of the cases of
Melinda Dee and Irzen Octa is neglected and shunned, one of the reasons this happens is
also the fierce competition of banking companies in Indonesia. Its like the Citibank
employee disregard the whole code of conduct and ethical value of the company to
achieve stated target, or worse to help reach their own gain, causing the scandal to
happen. This fault reside in the Citibank Indonesia leaders who fail to communicate and
address the ethical values of Citibank Properly.
b. Loose regulatory law about the corporate governance in Indonesia, especially in the
banking and finance sector
Indonesia back when these scandals happened have limited regulatory about how to
oversee the corporate governance that occurred in companies, including the banking
sector. This leads to Citibank Indonesias management has not done enough to ensure
their stated core principles are adopted through the company, simply because lack of
oversee in the governance sector by the governments authority.
My suggestion when handling the case of Melinda Dee and Irzen Octa, we have to analyze the
individual actors and organizational relationships to help mitigate the effects of these scandals.
After these scandals have been mitigated and the outcome have been handled well, we need to
asses and reinforce Citis ethical culture adherent to local situation in Indonesia to accurately
reflect their fundamental principles. All these action is done in order to prevent future ethical
crisis from happening.