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BUSINESS AND ETHICS

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INTRODUCTION
"Whenever you do a thing, act as if all
the world were watching."
Thomas Jefferson
Will you help create a moral code of business ethics based on honesty,
integrity, and quality?
This is about changing the world! About creating a climate where businesses
are expected to behave ethically, and where executives who try to drag
their companies into the unethical swamplands find that nobody's willing to
carry out their orders.
I believe that if I can get 25,000 business leaders25,000 people to make
a commitment to spread the ideas in Principled Profit: Marketing That Puts
People first, that we can change the culture of business. Following the ideas
expressed in the book The Tipping Point, and the story of the 100th
Monkey, I feel, deep in my heart, that once a critical mass embraces the
idea that high ethical standards are not only possible, but actually more
profitable, society will change.

Some of those key ideas (among many) include:


Businesses are more likely to succeed when they base themselves in
ethicsin honesty, integrity, and quality.

BUSINESS AND ETHICS

Amazing

things

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can

happen

when

all

stakeholders

(employees,

customers, suppliers, neighbourhoods residents, even competitors)


become your active champions-but that only happens if your business
specifically empowers each of these groups and addresses their
different needs and desires

Line employees, managers, and even CEOs need support to show that
ethical principles will help their businesses succeed, and that they
won't be penalized by the marketplace for taking an ethical stand.

Society changes when enough people decide that something is seriously


wrong and when they feel empowered to do something about it. In my own
lifetime, we've seen critical masses arise and succeed, over and over, for
example:

Blacks and whites joined together to desegregate the southern United


States
People's movements tore down the Berlin Wall and the entire

network of totalitarian Soviet governments

South Africa peacefully threw off the shackles of apartheid and


freed Nelson Mandela from prison to be its first democratically
elected President

All of these struggles started with a few people, but spiralled outward to
become an unstoppable movement for justice once enough people started to
believe and to act. Ordinary people in Montgomery, in Gdansk, in Soweto, in
so many other places, decided that things had to changeand they changed!

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Ethics of production:
This area of business ethics deals with the duties of a company to ensure
that products and production processes do not cause harm. Some of the
more acute dilemmas in this area arise out of the fact that there is usually
a degree of danger in any product or production process and it is difficult
to define a degree of permissibility, or the degree of permissibility may
depend on the changing state of preventative technologies or changing social
perceptions of acceptable risk.

Defective, addictive and inherently dangerous products and services

(e.g. tobacco, alcohol, weapons, motor vehicles, chemical manufacturing,


bungee jumping).

Ethical relations between the company and the environment: pollution,


environmental ethics, carbon emissions trading

Ethical problems arising out of new technologies: genetically modified


food, mobile phone radiation and health.

Product testing ethics: animal rights and animal testing, use of


economically disadvantaged groups (such as students) as test objects.

Religious views on business ethics:


The historical and global importance of religious views on business ethics is
sometimes underestimated in standard introductions to business ethics.
Particularly in Asia and the Middle East, religious and cultural perspectives
have a strong influence on the conduct of business and the creation of
business values.

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Examples include:

Islamic banking, associated with the avoidance of charging interest on


loans.

Traditional Confucian disapproval of the profit-seeking motive. [1]

Quaker testimony on fair dealing

Stories:
The most important business ethics story of 2004 is about what did not
happen. As we end this year, with our diverse cultural celebrations of
redemption and hope, it is worthwhile to note the absence of this event.
But before I tell you what didn't happen, let's look at what did.
The main business ethics stories of 2004 were further chapters of the
financial frauds that ended the 1990s. Wealth was being created at
incredible rate. Even the staid Alan Greenspan thought we were entering a
new phase of economics. For the first time in history, we could
communicate instantly and cheaply to every country in the world.
However, the new business models and the technology that made our
exuberance possible created expectations that fuelled a speculative bubble.
When it burst, tens of millions of stockholders, suppliers and employees felt
the pain. Dickens' description of the end of the 18th century fits well: It
was the best of times, it was the worst times. Let's look at four of these
chapters.

Chapter 1. When responsibility for the Enron debacle seemed to lead to


Jeffrey Skilling and Ken Lay, there was a widespread belief that no matter
how culpable, they would never be indicted. Not so. Skilling was indicted in
February on 35 counts of fraud and insider trading. Lay was indicted in
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July on 11 counts of securities and wire fraud. Why did it take three years
to bring these indictments? Cynics cite Enron's connections to President
Bush and the energy industry. Accountants and finance professionals argue
that the financial schemes constructed by CFO Andrew Fastow were so
complicated that it took this long for the government to build a winning
case. Whatever the reason for the delay, everyone expects Messrs.
Skilling and Lay to fight these indictments with all the resources at their
disposal, as is their right. But, should they?

Chapter 2. The Sarbanes-Oxley Act, designed to prevent more Enrons


and WorldComs, began to sink its teeth into corporate America in 2004.
For the first time in history,

management is legally responsible to

thoroughly document and test financial controls. Some

auditors are

predicting that 40 percent of companies will declare deficiencies in their


financial controls. What these reports will do to the stock price of these
companies and the credibility of financial markets remains to be seen. It
may not be pretty. It would be cruelly ironic if the law passed to restore
investor confidence eroded it further.

Chapter 3. Merck was accused of ignoring problems with Vioxx, a pain


reliever, that would have led to the drug being withdrawn from the market.
While the full story is not in, it appears that Merck ran a study that
suggested Vioxx increases the occurrence of heart attacks. The company
did not conduct further studies to see if this were so. In a study Merck
ran to see if Vioxx reduces colon cancer, the company was faced with the
ugly truth: Vioxx increases the risk of heart attacks. When Merck
withdrew the drug, its stock lost nearly 27 percent of its value, or more
than $26.6 billion. Merck argues that they did nothing wrong.

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Chapter 4. The CEO of Fannie Mae, Franklin Raines, resigned Dec. 21


amid accusations that the company exaggerated earnings by as much $9
billion. Beyond that, the company withheld funds that could have been used
to finance home loans for thousands of low-income households. Raines
stated, "By my early retirement, I have held myself accountable." Has he?
So what non-event is the biggest business ethics story of 2004? The
headline reads "Once again, no senior manager takes responsibility for
corporate frauds." The story would run something like this:
For the third consecutive year, no senior business leaders involved in a
major

corporate

fraud

have

stepped

forward

to

acknowledge

their

responsibility for their company's misdeeds. Specifically, Ken Lay (Jeffrey


Skilling, Dennis Kozlowski ...) did not say:
"It was my fault. No matter what I knew or did not know, it was my fault.
No matter what the standard practice was, it was my fault. By not taking
care of the company, I hurt investors, lenders, employees, suppliers,
retirees and whole communities. I contributed to the distrust of the
financial markets. I helped bring about the Sarbanes-Oxley Act that is now
costing

American

forgiveness;

business

billions

of dollars.

am not asking

for

I am taking responsibility. But talk is easy. The real

question is, what will I do?


"First, my family and I will live modestly. The rest of my wealth will be
devoted to making corporate America better and relieving the plight of
those who suffered due to my bad decisions. My mission is to reduce the
probability of corporate fraud to zero. To do this, I will work with other
business leaders. We will identify and suggest solutions to the most vexing
problems facing business organizations, such as misuse of travel funds;
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BUSINESS AND ETHICS

influencing hiring

and

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promotion for personal

reasons;

issuing

phony

consulting contracts to channel funds to friends, family, or oneself; using


company resources for hotels and apartments for illicit affairs. There are
ways to identify these problems and rectify them. This is my mission."
If the Skillings Lays and Embers of this world made this statement, they
would open themselves to jail and the loss of their fortunes. We can't
expect them to risk so much, can we? Perhaps, though, they would only
sacrifice the person they were, not the person they would become. They
could say, as their punishments came raining down: "It is a far, far better
thing that I do, than I have ever done; it is a far, far better rest that I
go to than I have ever known."
Expect here the rest would be the peace of mind we get when we have the
courage to own up to our responsibilities at great risk to ourselves. Not a
bad thought with Christmas just past and the new year on the way.
JOHN DIENHART holds the Frank Shrontz Chair for Business Ethics at the
Albers School of Business and Economics at Seattle University.

Is "business ethics" an oxymoron? Are doing business and being


ethical so contradictory that it is impossible to be both an
effective business manager and an ethical individual? No doubt
many--perhaps

most--would

answer

"yes"

to

both

these

questions. But if it is true that management effectiveness and


individual ethics are mutually exclusive, why would anyone want
to be a manager? Can it be that all of the people who are or
want to be managers are willing to sell their souls?

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The idea of this article is that business and ethics are not contradictory.
Indeed, good ethics is synonymous with good management. Two principles
based on ethical theory are presented that give ethical purpose to
management while at the same time making managers more effective. The
perception that business and ethics are contradictory is based on a
generally accepted view of what managers are supposed to do and, thus,
how they are supposed to act. We begin by examining that view.

The Role of the Manager:


What do most people believe managers should do? To the extent that there
is a social norm concerning the manager's role, people who assume that role
will be apt to fulfill that norm. Social norms and role expectations are
powerful drivers of behavior.
The traditional view of the managerial role is relatively clear. It has been
stated frequently by people writing about management. For instance, Milton
Friedman, in his essay "The Social Responsibility of Business Is to Maximize
Its Profits" (1970), says:
[A] Corporate executive is an employee of the owners of the business.
He has direct responsibility to his employers. That responsibility is to
conduct the business in accordance with their desires, which generally will
be

to

make as much money as possible while conforming to the basic rules

of the society, both those embodied in law and those embodied in ethical
custom.
In a similar vein are Albert Carr's comments "Is Business Bluffing Ethical?"
(1968):[A]s long as a company does not transgress the rules of the game
set by law, it has the legal right to shape its strategy without reference to
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anything but its profits. If it takes a long-term view of its profits, it will
preserve amicable relations, so far as possible, with those with whom it
deals. A wise businessman will not seek advantage to the point where he
generates dangerous hostility among employees, competitors, customers,
government, or the public at large.
These two statements define the manager's role on the basis of two
principles:
* Profit maximization is the exclusive goal of business management.
* The expectations of others (as reflected in law, ethical custom and
potentially hostile reactions) serve as constraints on a manager's ability to
achieve the exclusive goal of profit.
It is from this traditional view of the managerial role that people conclude
that business ethics is an oxymoron. Business is seen to encompass the
pursuit of self-interest, and ethics is recognized as involving consideration
of others. Concern for self and concern for others clash; hence, business
and ethics clash.

The Interdependent Environment of


Business:
As long as the role of management is defined in terms of profit
maximization, the conflict with ethics remains. But suppose describing the
role of manager in terms of profit maximization not only conflicts with being
ethical, but also is dysfunctional as an approach to management. Then it
would follow that the traditional role of manager should be changed,
perhaps in a way that does not conflict with ethics.

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The traditional description of the role of manager is dysfunctional because


it draws a manager's attention away from the essential part other people
play in the achievement of profit.
Such a description doesn't just fail to point out the importance of other
people in fulfilling that role; it actually portrays them as a constraint on
profit

maximization.

However,

participants

in

business

activities

are

interdependent on each other for success. They need to cooperate with one
another to achieve their objectives. For example, a company cannot succeed
without the help of its employers, suppliers, and customers. Managers
cannot succeed without the help of superiors and subordinates.
Situations of interdependence are referred to as non-zero-sum games. A
zero-sum game is one in which there must be a winner and a loser. In nonzero-sum games, however, there can be a winner and a loser (win-lose),
two losers (lose-lose), or two winners (win-win).
Certainly, most managers recognize the existence of interdependence and
create

win-win

situations

daily.

For

instance,

most

managers

don't

constantly insult their subordinates because they know if they do their


subordinates will be uncooperative--and that cooperation is essential to
getting most jobs done.
What about situations in which interdependence is not so obvious? How apt
are managers to recognize the existence of interdependence and the need
for cooperation in such situations? It seems that the second principle of the
managerial role, which describes other people as constraints on the
achievement of the exclusive goal of profit maximization, would likely cause
managers to fail to recognize less obvious situations of interdependence. If

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others are seen as constraints, they are apt to be seen as adversaries with
whom one should compete rather than cooperate.

Ethics talk asks ancient and timely question:


What do you do when you discover something wrong in the workplace?

Do you report it or keep quiet?


Can we maintain our personal integrity and remain competitive?
How do we adhere to a code of ethics when so many seem to avoid playing
by the rules?
In a new talk, based on his book, Jim Lichtman explores these questions
and others from responses to a questionnaire sent out to more than 2,200
individuals - corporate leaders, journalists, athletes, political leaders,
teachers and those who would call themselves "ordinary" Americans, along
with this follow-up:
Describe a 'moment of principle' in which your convictions were tested or a
story in which you were inspired by another."
"We know where we can find stories of people who do it wrong," Lichtman
says, "but where can we find stories of people who do it right?'
What Do You Stand For? Not only provides examples of people who do it
right, but shares the core ethical values that motivate them to take action.
Along the way, they inspire us all to live up to our highest values.

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The Need for an Ethical Culture:


In

todays

highly

competitive,

performance-driven

business

climate,

regulations are not enough; professional ethics codes are not enough; the
old model of business ethics is not enough.
According to a 2003 survey of corporate directors and general counsel
conducted by the National Association of Corporate Directors and the
American Corporate Counsel Association, the two groups overwhelmingly
agree

that

the

single

measure

that

would

most

improve

corporate

governance is the establishment by senior management of an ethical


business culture. And, Another clear message of the survey is that ethical
leadership from the top is the key to reducing corporate malfeasance.
Considering the ethical failures in the last several years and the resulting
crisis in confidence, a sincere commitment to creating and sustaining an
ethical business culture in public and private sectors has never been more
important.
If we are ever going to return to the level of trust and confidence that we
had in our institutions and each other, we need to take a good look in the
mirror and ask ourselves what we stand for.
Business and Ethics From a business perspective, working under government
contracts can be very lucrative. In general, a steady stream of orders keep
coming in, revenue increases and the company continues to grow. There are
a few obvious downfalls to working with government contracts; a higher
quality is to be expected as well as extensive research accompanied by
accurate and complete documentation are usually required. If one part of
the process fails to perform correctly it can cause minor flaws as well a
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problems that can carry some serious repercussions; For example the case
of the failed computer chip at Company X. When both the employee and
company are found at fault, the question arises of how extensive should the
repercussions be? Is the company as a whole liable or do you look into
individual employees within that company? From an ethical perspective one
would have to look at the available information of both the employees and
their superiors along with the role of others in the situation. Next you
would have to analyze the final outcome from a corporate perspective and
then examine the corporate responsibility as a whole in order to find a
resolution for cases such as this. The first mitigating factor involved in the
Company X case is the uncertainty, on the part of the employees, on their
duties that they were assigned. It is possible that during the testing
procedure, an employee couldn't distinguish between the parts they were to
test under government standards and commercial standards. In some cases
they might have even been misinformed on the final product that they
tested. In fact, ignorance on the part of the employees would fully excuse
them from any moral responsibility for any damage that may result from
their work. Whether it is decided that an employee is fully excused, or is
given some moral responsibility, would have to be looked at on an individual
basis. The second mitigating factor is one of threats that an employee
might suffer if they do not follow through with their assignment. After the
bogus testing was completed in the Company X labs, the documentation
department also had to falsify documents stating that the parts had more
than met the governments testing standards. From a legal and ethical
standpoint, both the testers and the writers of the reports were merely
acting as agents on direct orders from upper management. The writers of
the reports were well aware of the situation yet they acted in this manner
on the instruction of a supervisor. Acting in an ethical manner becomes a
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secondary priority in this type of environment. As stated by Alan Reder, "if


they [the employees] feel they will suffer retribution, if they report a
problem, they aren't too likely to open their mouths." (113). The workers
knew that if the reports were not falsified they would come under
questioning and perhaps their job would be in jeopardy. Although working
under these conditions does not fully excuse an employee from moral fault,
it does give a starting point to help narrow down the person or department
that issued the original request for the unethical acts. The third mitigating
factor is one that perhaps encompasses the majority of the employees in
the Company X case. We have to balance the direct involvement that each
employee had with the defective parts. Thus, it has to be made clear that
many of the employees did not have direct involvement with the testing
departments or with the parts that eventually failed. Even employees or
sub-contractors that were directly involved with the production were not
aware of the ignorance on the part of the testing department. For
example, the electrical engineer that designed the defective computer chip
could have stated that it was tested and it did indeed meet the required
government tests. Also, for the employees that handled the part after the
testing process, they were dealing with what they believed to be a piece of
equipment that met government standards. If the part was not tested
properly, and did eventually fail, isn't the testing department more morally
responsible than the designer or the assembly line worker that was in
charge of installing the chip? In large corporations there may be several
testing departments and in some cases one may be held more responsible
than another depending on their involvement. A process like this can serve
as a dual purpose for finding irresponsible employees as well as those that
are morally excused. The fourth mitigating factor in cases of this nature is
the measure of the seriousness of the fault or error caused by the
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product. Since Company X was repeatedly being added to the list of


approved government contractors, one can safely assume that the level of
seriousness, in the opinion of the contractor approval committees, is not of
monumental importance. Yet a person has to wonder how this case would
have been different if it caused the loss of life in a military setting.
Perhaps the repercussions would have taken effect much faster and been
more stringent. The fact that Company X did not cause a death does not
make them a safe company. They are still to be held responsible for any
errors for which their products cause, no matter the extent. As for the
opposition to the delegating of moral responsibility, mitigating factors and
excusing factors, most would argue that the corporation as a whole should
be held responsible. The executives within a corporation should not be
forced to bring out all of the employees responsible. A company should be
reprimanded and be left alone to carry out its own internal investigation and
repercussions. From a business law perspective this is the ideal case since a
corporation is defined as being a separate legal entity. Furthermore,
opposition would argue that this resolution would benefit both the company
and the government since it would not inconvenience either party. The
original resolution in the Company X case was along these lines. The
government permanently removed Company X from its approved contractors
list and then Company X set out to untangle the web of wrongdoing from
within. This allowed for a relatively quick resolution as well as an ideal
scenario for Company X. In response, one could argue that the whole
corporation has no morals or even a concept of the word. A corporation is
only as moral and ethical as the employees that work for it. All employees,
including top ranking executives are working towards the advancement of the
company as a whole. All employees, including the sub-contractors and
assembly line workers, are in some part morally responsible. Every employee
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should have been clear on their employment duties and aware of which parts
were intended for government use. Uncertainty is not an excuse for moral
responsibility in the case of the workers. Also, the fact that some
employees failed to act in an ethical manner gives even more moral
responsibility to that employee. While some are definitely more morally
responsible than others, every employee has to carry some burden of weight
in this case. In fact, when the government reached a final resolution, they
decided to further impose repercussions and certain employees of Company
X were banned from future work in any government office (Velazquez, 54).
Looking at the case from the standpoint of Company X, the outcome was
favourable considering alternate steps in which the government could have
taken. As explained before, it is ideal for a company to be able to conduct
its own investigation as well as its own punishment. After all, it would be
best for a company to determine what specific departments are responsible
rather than having a court of law trying to decide which employee is to be
blamed. Yet, since there were ethical issues of dishonesty and secrecy
involved, Company X should have conducted a thorough analysis of their
employees as well as their own practices. It is through such efforts that a
corporation can raise the ethical standard of everyone in the organization.
This case brings into light the whole issue of corporate responsibility. The
two sides that must ultimately be balanced are the self interests of the
company, with main goal of maximum profit, and the impacts that a
corporation can cause on society (Sawyer, 78). To further strengthen this
need, one could argue that there are very few business decisions that do
not have an affect on society in one way or another. In fact, with the vast
number of growing corporations, society is being affected on various fronts;
everything from water contamination to air bag safety is becoming a major
concern. Every decision that a business makes is gauged by the financial
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responsibility to their corporation instead of their social responsibility to


the local community. This was pointed out on various occasions as the main
reason why Company X falsified their reports. The cost of reengineering of
the defective part did not outweigh the loss of business. In the opinion of
the executives, they were acting in a sensible manner. After all, no
executive wants to think of themselves as morally irresponsible. The
question that naturally arises, in debating corporate responsibility, is what
types of checks and balances can be employed within a company to ensure
that a corporation and all of its agents act in an ethical manner. Taking the
example of the Company X case, one can notice many failures in moral
responsibility. Company X would have to review its employees, particularly
the supervisors, for basic ethical values such as honesty. For example,
ultimately it was the widespread falsification of the testing documentation
that caused the downfall of Company X, not the integrity of it's employees.
In the outline of the case it is never mentioned that the employees
initiated this idea, it would seem that it was the supervisors that gave the
order to falsify the documents. Through open communication, a company can
resolve a variety of its ethical dilemmas. As for the financial aspects of
the corporation, it has to decide whether the long term effects that a
reprimand

can

have

outweighs

their

bottom

line.

In

other

words,

corporations have to start moving away from the thought of instant profit
and start realizing both the long term effects and benefits. These long
term benefits can include a stronger sense of ethics in the work force as
well as a better overall example to society. In conclusion, I agree with the
use of mitigating factors in determining moral responsibility. A company, as
defined by law, is only a name on a piece of paper. The company acts and
conducts itself according to the employees that work for it. I use the word
employee because in ethical thinking there should be no distinction of rank
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within a company. There are times when executives can be held directly
responsible and at the same time, there are cases where employees are
acting unethically without the executives knowing. Neither title of executive
or employee is always morally perfect. Therefore, when a company has
acted irresponsibly, its employees must be held liable in a proportionate
amount. As for the future of ethics in business I would speculate that if
employees started to think more in long term benefits and profits, many of
the ethical dilemmas that we face today would be greatly reduced. As
mentioned

before,

businesses

today

uses

the

measuring

stick

of

profitability. We need to stress the importance of placing ethical weight on


all major business decisions. Opponents would argue that this is a long term
plan that requires too many radical changes. Also, there is no way that an
industry wide standard can be set due to the vast differences in
corporations. In response, I would argue that although there are no
industry standards that are feasible, but it is possible for every company
to examine their practices as well as the attitudes of their employees.
There will be a number of companies that will defend that are doing all
they can to make sure their employees are aware of their moral values. Yet
other companies will find that they do have areas that need improvement.
It is steps like these that spark change in an organization. Once a few
companies start to see the benefits, it can help to encourage other
companies to follow suit. After all, as seen in the case of Company X,
mistakes in one department can cause the deterioration of an entire
corporation. When a corporation realizes the costs involved with decisions
such as this, the changes required to rectify are small in comparison.
Works

Cited

Pave,

Moses.

"Corporate

Responsibility

and

Financial

Performance." Quorum Books, March 1995. Reder, Alan. "In Pursuit of


Principle and Profit." G.P. Putnams Sons Publishing, 1995. Sawyer, George.
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"Business and Society: Managing Corporate Social Impact." Houghton Mifflin


Publishing, February 1993. Velazquez, Manuel. "Business Ethics: Concepts
and Cases." Prentice Hall Publishing, February 1992. "WebCrawler Search
Results." WebCrawler. With the query words ethics and business. 26
January 1997.

TOP 10 MISTAKES:
Top 10 Mistakes that Organizations Make in Developing Global Ethics
Programs
1) Lacking consensus on the objectives for globalization
2) Not integrating international personnel into the development process
3) Discounting the importance of promoting the program as a competitive
advantage
4) Basing company policies on legal requirements in the domestic market
5) Not establishing ethics offices or resources in international locations
6)

Appointing

headquarters

staff

or

expatriates

(i.e.,

non-

international employees) to fill ethics positions


7) Offering training materials only in English
8) Using the word ethics extensively in program materials
9) Translating the code without translating the code
10) Focusing on the few cultural differences rather than acknowledging
the many cultural similarities.

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Fer
tility Clinic Errors:
This one's got everything it takes to soak up public attention: race,
healthcare, and paternity. It's like a perfect storm. Add in the word
"lawsuit"

and

you've

got

everything

good

scandal

needs.

The story is about a couple suing a New York fertility clinic for a sperm
mix up that resulted in a baby racially unlike its supposed parents.

As one faithful reader of this bloc asked, "Is this a business ethics issue,
or

bioethics

issue,

or

are

the

parents

just

being

jerks?"

Here's the story as reported by one NBC affiliate: Fertility Clinic Sued
over Too-Dark Baby
After they saw a baby girl they had gone to a fertility clinic to conceive,
her parents became convinced something was wrong, according to court
papers.
The girl's skin was darker than either parent's, a judge wrote in allowing
the parents to proceed with a lawsuit that claims the clinic botched the
insemination of the wife's eggs.
The title of the story obviously refers to the fact that the reason the
girl's paternity came into question in the first place is that she's darker
skinned than either parent. But the point here isn't that the clinic gave the
parents a black baby. The point is that the clinic did such sloppy work that
they gave the couple a baby that's not related to her own supposed father.
(The parents have actually tried to sue both for malpractice and for
emotional distress, etc. The court is proceeding with the former, but not
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the

latter)

Now, certain corners of the web have been awash in commentary about the
parents being jerks. And it's easy enough to sympathize with that
conclusion. It might not exactly be great for this kid to know she was at
the centre of this kind of controversy. The girl (whom the parents say they
love dearly) is too young to understand now, but she'll understand
eventually.

(Paging

Dr.

Phil...!)

But we shouldn't let that distract us from the fact that the clinic was
seriously sloppy and completely botched the job they were paid to do. They
should be held accountable. It seems unlikely that we want fertility clinics
to be the only commercial entities that still get to resort to the old
standard of "caveat emptor." Are the parents supposed to not hold the
clinic

accountable,

out

of

fear

for

this

little

girl's

dignity?

Of course, this double-bind is fodder for the folks who argue against the
COM modification of fertility services. "Tsk, tsk, parents! You wouldn't
have unseemly little binds like this, if you weren't out buying babies to
start with." I'm not saying that would be my conclusion, but this case is a
pretty good example of a few of the consequences of commercializing
repro-medicine. At very least, this stuff ought to be foreseen & dealt with
preemptively.

A Case Study In professional Ethics:


This (true) story was researched by Julie McDonald OLeary, my former
business manager.
She interviewed a property management company, whose client was a
hospital. In dealing with government agencies regarding hazardous waste,
the paperwork submitted has to be exact. In many cases, the paperwork is

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incidental to actual importance of cleanup work being done, and it can be


more time consuming and costly than the actual work itself. However, its
more than required its mandatory.
The property management firm (lets call them Acme) realized there was a
mistake in the paperwork regarding a specific cleanup for the hospital.
Basically, the paperwork said that waste was dumped in one particular site
when it actually went to another. Both sites were the same type, but a
clerical error had been made.

No actual harm done because both sites

accept the same type of wastebut in these situations paperwork is


supposed to be exact.
This was Acmes mistake, but it would be a costly one to rectify.

The

team involved knew that they could say nothing and no one would ever know
and there would be no actual harm done.
They asked their CEO what to do, and he said: We will meet with the
hospital and take it on the chin. Well look like foolsits a silly error. The
hospital has had a lot of bad press lately and the last thing they need is
any kind of environmental error going to the press.
Up until now, the relationship with the hospital had been a great one
(representing a $0.5 million account) and admitting this mistake could
become a real thorn in Acmes side, making them look incompetent. They
could lose the account and the word of mouth publicity that would follow
would hurt future business in health care circles.
Acmes CEO decided to meet with the client, bringing along to the meeting
the whole team who had worked on the project form the most senior
person to the most junior. He revealed the error and told the client that

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BUSINESS AND ETHICS

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action was already in progress to fix the error.

The meeting lasted 4.5

hours, adjourning with no outcome.


The next day, the CEO received a call from the client saying that they had
discussed it further and that it was obvious to them that Acme could have
swept the whole thing under the carpet and the hospital would never have
known the difference.
They also said that they recognized that Acme made a lot of extra work
for them by honouring what they knew the wishes of the hospital would be
and that is to fix it.

They said We totally trust you to do the right

thing.
Another firm may have elected to go honest route as well, but may have
been reluctant to do so with their juniors as an audience. By witnessing all
of this first hand lessons in professionalism are usually learned first hand
this was better than any training session. The juniors had a taste of what
owning the problem really means.
Acmes young workers saw first hand the meaning of ethics in action.
They saw the CEO take it on the chin rather than be anything less than
completely excellent to very high standards. They also saw that because of
this, they had probably obtained a client who will work with them (and
advocate them to others) with total trust.
Now heres another interesting question. A CEO might take the decision to
handle things this way, but would a middle manager inside a company ever
feel empowered enough to make a similar decision (absorb a significant
expense to make right an error that no-one outside the company would ever
know about?)

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Or is this kind decision, which requires guts, courage and ethics, always
kicked upstairs? Are any companies so ethical that a middle manager
wouldnt need to ask permission to do the right thing?
Within the role of issues in business ethics, image is everything. Image
issues in business ethics means a lot. It's like you're on the cover of a
business ethics magazine. Your business ethics problems reflect a great deal
on the importance of business ethics you have in your workplace. Your
physical appearance is just as important as your sales pitch. This is why you
pay homage to the mirror each morning, picking out the right outfit,
grooming, to show the world by your outward appearance that you are a
serious professional. There is no questioning the fact that physical
appearance is a critical component in how you are perceived, but what about
your ethical appearance? This is where the role of ethics in business comes
into play. The importance of business requires you to pay close attention to
it.
Make no mistake; the ethical impression you leave with others communicates
volumes about your character and the importance of business ethics you
have. People will judge you more quickly and more deeply based on your
actions rather than your clothes. No matter how clean your suit, leaving a
soiled perception of your ethics can negate whatever outward impression you
attempt to make. All it takes is one simple act or oversight to start the
ball rolling. It can cause an unfortunate chain of events that may tarnish
your reputation forever. Improving business ethics may be impossible
afterward. Perhaps you found yourself in the wrong place at the wrong
time? Maybe you're caught with your hand in the cookie jar? Or possibly
you did something truly foolish and wish you could start over. Whatever the
transgression, an indelible impression has been made and now you're trying

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to row upstream. Unfortunately, there is a part of our human nature that


gets satisfaction in another's misfortune and rushes to pass judgment
instantaneously. What happens after that fateful perception is made, you
can't control. Business ethics issues are like this. It's like it was published
in some kind of business ethics magazine or focus of some kind of business
ethics research. Luckily, this kind of ethics magazine doesn't exist to
illuminate your mistakes. Even without such business ethics research, gossip,
hearsay, even outright lies are sure to have plenty of willing listeners and
believers. Forget whatever you've heard about being judged fairly in a
court of law, this is the real word. Having your character and business
ethics judged by your fellow employees based on mere circumstance is about
as final as it gets. The tragedy here is that once an ethical impression is
made, there's little you can do to stop or repair it. The role of ethics in
business is to help prevent this. Damage control may set the record straight
to some extent, but a wounded reputation may be impossible to heal .

A crisis of ethical perception is not only a problem for liars, cheaters, and
bad guys; it's a problem for everyone. The first line of defence with
regard to ethics issues in workplace and business is to understand that
you're not above the fray. Just because you're an honest person doesn't
mean that you won't wake up tomorrow and find yourself in full-fledged
ethical dilemma. We all have bouts of mistakes, sloppiness, miscalculation,
panic, or bad judgment. Understanding our fallibility and being ethically
cognitive of our day-to-day behaviour helps enormously. If you're lucky,
your conscience will do most of the watchful work for you. But beware that
you

don't

close

your

eyes

and

let

your

guard

down.

Another line of defence is to truly care about how others perceive your
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BUSINESS AND ETHICS

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business ethical behaviour. At any given time, even in the most mundane and
insignificant actions of your workday, you are being judged. Think of your
co-workers as judges at an Olympic-style event holding up numbers to
evaluate your ethical performance. It's like you're in that ethics magazine
again. Your business ethics problems are there for the entire world to see.
When all is said and done, you hope to perform so that they will hold up
tens and not ones. You should care what people think and want others to
see you do the right thing because ethics important in business. You want to
be

defined

on

the

basis

of

your

good

character.

Finally, you should avoid the appearance of impropriety all costs. Just
as an attorney looks at every possible angle or potential problem, you too,
must judge your business ethics actions in the same way. Leave no stone
unturned. Cover your bases. Be transparent and open to scrutiny. Take time
with careful consideration to make sure that your ethical position appears
sound

from

every

angle.

Don't leave others to second guess you. Perception is everything, not only in
your looks but in your character. Understand the role of ethics in business.
Treasure and protect your ethical reputation like a priceless commodity.
Tomorrow, as you prepare and primp in the mirror for your best physical
appearance at work, don't forget your ethical appearance. It costs you
nothing

to

put

on,

but

costs

you

dearly

to

lose.

Ethics issues in workplace and business arenas are Global Ethics University's
specialty. Business ethics issues are such a large part of the image that
your company portrays. Business ethics problems cost you dearly if you
don't understand the importance of business ethics for sake of your image
and health of your company. Improving business ethics and raising the
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BUSINESS AND ETHICS

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ethical bar is what a Global Ethics University course can do. You might
wonder, is ethics important to business? Yes, it is. Issues in business ethics
are vital. You can't just read about it in a business ethics magazine or read
about the most important business research of our day in some academic
journal, it is about the real issues in business ethics that your employees
face every day. Let Global Ethics University is your partner in improving
business ethics for your company today.

Workplace Ethics:
The Importance of Workplace Ethics Training
As far as workplace ethics goes, employers must do their part to make ethical
expectations clear and trust the employee to deliver. Sometimes ethics training works

and sometimes ethics training doesn't. Work place ethics shouldn't be a guessing game
if the employer has truly done all he or she can do to set employees up for ethical
success. There should not be a disconnect between the work ethics that employer has
and the work ethic of the employee. Understand that one's ethic is his or her system
of moral standards or principles that may or may not agree with the company's
professional work ethics standards. Despite the differences, promoting professional
work ethics requires the employer to do everything in his or power to set up employees
for success.
In the context of ethics in the work place employers lead the employees to ethical
success by requiring them to read the ethics manual, attend a training session, and
sign a document swearing to uphold the rules. With that done, employers sit back and
rely on the integrity, understanding, and self-discipline of each employee. This is

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where many ethics in workplace programs fall short. They demand the highest
standards of self-discipline possible yet do little to promote them in the long run.

The following four questions can be asked by both employees and employers who want
to seriously assess how well their company promotes self-discipline:
1. Are the work place ethics expectations in my organization clearly communicated?

People need to know what is expected of them. It's human nature. Some employers
cloud expectations in vague concepts to accommodate Gray areas, while others
promote distrust by controlling every aspect of the employee's existence. Clarity in
ethics training is the key. If the ethical issue is black and white, the employer must
leave no room for interpretation. If the issue relies on human judgment, the
expectation must be logical and be grounded in principle. Most people want to know
what's expected so they can get on with their job good work ethics.
2. Are the ethical expectations in the ethics training of my organization based in common
sense and reality?

Expectations shouldn't be burdensome, attainable only by saints. Having unattainable


expectations with regard to ethics in the work of people makes criminals out of
perfectly good people. It sets them up for failure. The key to this is to not be so
locked into rules that you fail to see how they affect real people in the real world.
There must be balance in ethics training. The irony is that oftentimes the fewer rules
the better. People will be more compliant in a work place ethics atmosphere of
freedom governed by principle rather than oppressive restrictions. In other words,
it's not the number of rules in the employee manual but what those rules mean and
how relevant they are to real people. For example, rather than having numerous rules
on caring for company property, a statement on "respect" written with clarity,
conviction, and principle may cover it all.

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3. Does the system of dealing with ethical problems show respect and due process to
people involved?

In a nutshell, how are people treated once they are caught or accused of unethical
conduct? Our legal system operates under the assumption of innocence, in contrast to
the workplace, which operates on the assumption of guilt. Although the administration
of justice is the prerogative of the company, it must always be done with fairness and
respect for everyone involved. Using disciplinary action to punish or intimidate people
is in itself unethical and hypocritical. Employers must listen to all the facts. Discipline
is something that no one likes, but the process can work toward the good of the
organization if justice is genuinely sought and lessons are learned.
4. Is ethics a positive or negative issue in my organization?

It's no surprise that ethics is predominantly viewed in a negative light. Turning this
perception around requires a different way of thinking about what makes an
organization successful. There's more to ethics in workplace situations than just
preventing loss of assets. It's about making the company a better place to work and
conduct business. A positive ethics approach looks out for the best interests of both
the employees and the company with positive workplace ethics training. People want to
go to work every day knowing that they won't be harassed, that co-workers play by
the rules, supervisors treats them with respect, and the company will honour the
ethical principles they hold dear. A serious ethics program will attract and keep good
employees not scare them away. Try to see ethics as a vital component in building
something great. It can be framed as something that makes life better for everyone
not worse.

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BUSINESS AND ETHICS

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Ethical Concerns in Business and Their


Solutions:
Undergraduate business majors but also everyday consumers and investors.
Sarah Meisinger
Dr. Fife Eng 300
04-18-05

It was one of the biggest bankruptcy cases in U.S. history, and many employees were
left without retirement savings while executives and higher management made a profit
(Cuplan 59). I think after reading about Enron and scandals like it we all have
wondered how could this happen? What was it that led them to believe that it was
okay to misrepresent their financial records? In the ethics community many people are
talking about these very questions and attributing unethical behaviour to personal
background, the business environment and the undergraduate business programs.
All three have their own arguments and solutions, whether it is better ethical training
or different business environments. Although it is a complex undertaking, something
must be done to improve conditions to prevent such scandals in the future. This
prevention is important as business ethics affect not only employees and undergraduate
business majors but also everyday consumers and investors.
If certain steps are taken in both the business world and the education of
business students, corporate scandals are likely to decrease noticeably.
With many different debates going on about ethical behaviour, one
argument stands out as the definitive contributor to ethical behaviour-- a
persons convictions. These personal convictions can be due to a persons

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upbringing, culture and other life experiences, but the general consensus in
the ethics community seems that this will override any sort of ethics
training or business structure. The logic to this argument is that in real life
situations with multiple pressures and responsibilities, a person is going to
perform based on the type of person they are and their personal value
system.
In a study of business students in Taiwan and American, the culture
of the student seemed to have an impact on how well they performed on
ethics reasoning tests (Venezia 204). Obviously moral values and attitudes
are going to differ between cultures. Because Taiwanese students are
taught to save face as part of their culture they are much less like likely
to behave dishonestly because of the values placed on doing your best for
the group (Venezia 200). In contrast to American culture, Taiwan has an
overriding need to blend in with a group and participate within that group
whereas in American culture the focus is on individualism and independence
(Venezia 200). The focus on the individual gain by American students often
resulted in them picking an alternative during the study that would be
beneficial to them rather than beneficial to the group (Venezia 200). In
some cases this focus led to them marking unethical behaviour as acceptable
as long as the benefits were high enough. This study supports the theory
that culture has an impact on how students respond to ethical situations.
Other studies have looked at how gender affects ethical reasoning
abilities. Female students tended to be more conservative and harsh in how
they scored each situation causing them to be less tolerant of dishonesty
(Fischer). The male students in the study tended to be more tolerant of
where the line was between ethical and unethical behaviour (Fischer). The
study offered no explanation other than females are traditionally more
empathetic than males and would look at how other people would be
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effected more so than how it would advance their careers (Fischer). This
same study also looked at how age affected each persons score, which was
also shown to be a factor: students under 21 scored the lowest and the
scores went up consistently as age increased (Fischer). In the article
Schools for Scandal the author says becoming a successful leader of men
and women in a turbulent business world requires maturity and wisdom.
These results certainly show that the experience and maturity that come
with age affect how students scored in this study. Maturity and wisdom are
something an individual has to acquire outside of their college education and
workplace instruction, so this is something every person must come to terms
with on a personal level of what they believe is acceptable. There havent
been any long term studies to see if ethics training was presented to
students of a younger age, perhaps in junior high or high school, it would
help override personal experience and age. Children are often more open to
ideas and instruction, so it is my belief that earlier introduction might make
students receive their ethical training at the college level as more of a core
value than merely as a theory or practice.
Although most people in the business and ethics community believe
personal conviction to be the overriding determining factor in ethical
behaviour, there are several credible people who believe that business
structures are almost entirely responsible for corporate scandals. In Dr.
Joseph

Castillos

article

How

Corporate

Culture

Impacts

Unethical

Distortion of Financial Numbers, he looks at how the managing by


objectives and results or MBO/MBR affects how employees perform. The
MBO/MBR form of management is a very common style for managers to use
and it involves giving targets to employees and then ranking them against
their colleagues based on how well they met the goals set for them (Castillo
37). Dr. Castillo says that the flaw in this type of management is Goals
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BUSINESS AND ETHICS

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and targets are set without statistically determining whether they are
beyond the capability of the existing process. Hence, employees are often
held accountable for results that cannot be achieved without distortion of
figures or they system (38). Giving employees unrealistic goals and
penalizing them for not reaching these goals is laying the groundwork for
an unhealthy climate through the use of MBO/MBR (Castillo 38).

An

example of how unrealistic goals led to scandal can be seen in the 1992
Sears Roebuck & Company auto service settlement of about $60 million in
refunds to its customers (Paine). Lynn Paine discusses this particular
instance in her article Managing for Organizational Integrity saying that
the main reason for the unethical business practices was a new set of
organizational pressures and incentives with few options for meeting their
sales legitimately, some employees judgment understandably suffered.
Even the CEO at the time, Edward Brennan, stated that the fault lay with
the managers because they created an environment in which mistakes did
occur. (Paine). Of course the danger I see in blaming business structures
and managers is that it diminishes a persons accountability for their
actions, which have already been argued to be the biggest factor in
whether a person is ethical or unethical in their behaviour.
In the coverage of the Enron scandal, MBAs and higher management
were blamed for most of the scandal (Cuplan 59). This caused the media to
start looking at the MBA certification and teachings in undergraduate
programs to try and place blame on the lack of ethics training. In Sumantra
Ghoshals

article

Bad

Management

Theories

Are

Destroying

Good

Management Practices, he says that Many of the worst excesses of


recent management practices have their roots in a set of ideas that have
emerged from business school academics over the last thirty years(75). He
goes on to say that specifically business schools are not adequately
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BUSINESS AND ETHICS

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preparing students for dealing with management pressures in the working


world and only teach those theories that are not useful in ethics training
(Ghoshal 76). Dr. John Elliot, the dean at Oxford University, says that
Business schools sometimes inadvertently enable and encourage greed
rather than moderating and controlling it (569). The word that stands out
to me in this quote is inadvertently because universities are taking actions
to educate their students and the ethics community as a whole tends to
blame individual moral values and poor business management and structure
for larger unethical problems.
In fact, ethics has become a bigger part of business education in
recent years. In the 1960s and 1970s, ethics training was very limited and
only took place in upper level auditing classes (Elliot 537). In 1979 The
Association for the Advancement of Collegiate Schools of Business (AACSB)
made ethics as a high priority for business schools and accreditation of
business schools (Elliot 573). Because of the AACSB increased emphasis on
ethics textbooks now have regular mentions of ethical issues and case
studies to encourage professors and students to think about ethics (Elliot
573) In Ronald Madisons survey of universities he found that more than
half of the universities require an ethics course before graduation (24).
Ethical training in undergraduate education in accounting and other areas of
business is especially important because firms often dont give extra training
to help their employees. Dr. Christin Earley found that a study of
accounting firms attitudes toward ethical training found that the vast
majority of firms rely primarily on colleges to cover the ethics and ethical
behaviour expected in the profession (Earley 54). Earleys findings alone
are enough to warrant improvements and encourage ethical training and
discussion in undergraduate education and business schools because firms
are obviously putting the burden of responsibility onto the schools. If firms
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BUSINESS AND ETHICS

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are expecting their employees to come into the business world prepared to
deal with the pressures involved in being honest in the business environment
discussed above, then undergraduate programs need to step up and work on
the best methods for teaching their students.
Right now at Western there is a three-hour corporate governance and
ethics class specifically for business majors, but it is a primarily a webbased class. This class is not required by accounting majors, but from the
discussion above should most certainly be to make sure students are
equipped with moral reasoning tools that their employers expect. There are
more

ethics

classes

offered

at Western

under

the

philosophy

and

psychology genres but they are not required for accounting majors. To be
fair many of the upper management courses have sections dealing with
ethical

issues.

However

Dr.

Stape

observed

in

his

research

on

undergraduate business education that many professors are hard pressed


to find the time to teach the technical content let alone incorporate ethics
into their courses. This could mean requiring an entire class devoted to
ethics before graduation to ensure that the proper amount of time is spent
on ethics education. A study done by Dr. Lawrence Poneman comparing
moral

reasoning

in

business

graduates

from

liberal

arts

and

public

universities found that students from liberal arts universities score


significantly higher than graduates from public universities (204). He
suggested many reasons for this discrepancy but the one he found to be
most significant is that liberal arts schools typically have smaller classrooms
more based on discussion (Poneman 204). Clearly smaller classrooms are not
only helpful in all areas of learning but in ethical training as well. In fact
many studies have found discussion and personalizing situations to be the
most effective methods for improving ethical reasoning in undergraduate
students. In Dr. Daryl Koehns study of undergraduates over several
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BUSINESS AND ETHICS

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semesters, he found the most effective method was not case studies or
context-specific instruction but rather that personal, real life discussions
and debates got students thinking and engaged in the material (143). For
example, instead of talking about Enron and analyzing where the executives
went wrong, the instructors would put students into groups and give them a
situation more applicable such as having trouble paying for their education
with ethical dilemmas along the way (Kohen 143). The students would then
debate among themselves the pros and cons of certain questionable actions
that they could take. The students who participated in this exercise
improved their scores significantly over a semester more than students who
received traditional case study instruction (Koehn 143). Dr. Earley did a
similar study with discussion-based approaches and found that results
indicate that educational interventions are capable of increasing students
moral reasoning, regardless of the specific case context or other current
event (Earley 61). It seems that whatever part undergraduate education is
failing to reach students with their ethical training is not from a lack of
effort but merely a bad approach. No long-term studies have been done to
see if the discussion based approaches carry over better to graduates in
the business world, but it seems that the personal and engaging method
seems to have a better chance of overriding past and cultural experiences.
Some universities have come up with other creative approaches such as
having an ex-con come in and talk to students about white collar crimes
(Schools for Scandal). This is an excellent approach to reach students as
I think it would bring home the gravity of the consequences they face if
they choose to behave unethically in business. As Elliot says, Business
schools arrive late in the development of our students. We cannot undo
formative influences of family, religion, pop culture, environment and
heredity on the future behaviour of our students (573). However from
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BUSINESS AND ETHICS

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looking at the different approaches, the undergraduate education can have


some impact on an employees ethical behaviour. As Dr. Early says in his
conclusion, Educational interventions regarding ethical issues

can be

effective in improving students moral reasoning (61).


Although corporations depend on undergraduate education for ethical
training, they are by no means exempt from preventing corporate scandals.
In a survey of 100 ethics officers, a mere 1% thought that ethics training
would have prevented a big scandal such as Enron (Verschor 24). As
discussed above, many business structures contribute to pressures that
make it difficult for employees to act in an ethical way, no matter their
undergraduate training. In Verschors study he found that only 40% of the
companies he surveyed punished employees for violating the companys ethics
code. Even more disturbing is that 8% of the people who were found
violating the code were promoted (Vershor 22). By overlooking violations of
the ethics code, employees are being given the message that so long as the
results look good, managers dont care how they were obtained. Dr.
Verschor observes that in many organizations concern for the bottom line
or making the numbers seems to override any concern for ethical values
(22). This shows that businesses need to take a stricter stance when it
comes to minor ethics violations so that they dont end up with a full blown
scandal. As with any job, but especially in business, it is about money.
Koehns surveys found that the number one ethical issue within American
corporations is perceived injustice of salary differentials(148). When
looking at the higher level executive paycheck one sees that they are not
only given an annual salary but they are also rewarded based on how well
they manage and produce a profit. These rewards are often stock options
within the company (Cuplan 70).

Senator Carl Levin said after the Enron

scandal, Most executive pay packages rely heavily on options, encouraging


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BUSINESS AND ETHICS

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corporation managers to push accounting rules to the limit in order to make


their financial statements look better so their stock prices will go up and
then executives can cash in their options (Cuplan 70). If executives
compensations were not so heavily based in stock options, this might let
some of the pressure up on misrepresenting financial data and in doing so
make it easier on employees to act in an ethical way. It seems that overall
the pressure and unattainable goals in the workplace are the factors that
researchers believe to be contributors in unethical behavior, so solutions to
these should be focused on creating what Dr. Castellano says is an
atmosphere of harmonious relationships (41).

Employees should be given

budget goals that can be met with reasonable effort and dedication. Their
compensation and bonuses should not be based on how well they did
according to unrealistic standards but on how hard they worked and what
they did with what they had to work with. Obviously the biggest motivator
in the business world is keeping ones job, so companies need to be stricter
when unethical behaviour is discovered and definitely stop promoting the
offenders. Yet another problem is that there is really no good way for
employees to report unethical business practices. Many companies have
anonymous hotlines for things such as safety violations or harassment but no
such system for other unethical behaviour like financial dishonesty. I see
this as an added addition to any business because it allows employees to
bypass their managers, who from above are very interested in making their
finances look good, and do what they think is right without fear of being
fired or hurting their careers.
Ethics is an important issue within the business community. All the
business and educational factors are ones that can be improved and
hopefully reduce scandal in the future. I think that even though personal
experience and conviction is the overall contributor to ethical behaviour,
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BUSINESS AND ETHICS

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this does not mean we should give-up and accept another Enron. There are
specific fairly simple solutions: start ethics teaching before college, change
the ethics instruction to a more interactive and personal format, require
ethics courses as a graduation requirement, stop managing for the bottom
line, and have harsher punishments for violators of ethics in the workplace.
If these changes are made, I am confident that corporate scandals will
decrease and we will not have to see another Enron.

Ethics The Incomplete Solution :


Executives and legislators are once again going after the right problem with
the wrong solutions. Instead of curing the investor confidence gap in
corporate reporting, the current focus on ethics and legislation is like
putting a band-aid on your arm when your leg is haemorrhaging. Its time to
clear up some misconceptions.
(1) Its not about ethics. Business ethics training has been around since
the beginning of commerce. In fact, BCS founder Bob Stuckey is one of
thousands of graduates of a popular executive ethics program who are
reluctant to even list it on a resume. Why? It was conducted by Arthur
Andersen.
Executives dont need to be taught not to lie about what theyre doing.
They learned that in kindergarten. Thinking you can turn shady employees
into upright moralists with some ethics course is lunacy.
(2) Its not about regulation. The Sarbanes-Oxley Act of 2002 (Corporate
Reform Act) doesnt prevent anything. It simply establishes potential afterthe-fact punishment along with a couple of governance restrictions. There

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is nothing in the Act that indicates how organizations should make certain
their reporting is accurate. Its like a coach teaching athletes how to win
the Olympics by admonishing them to run faster. Report well! insists the
Act, leaving the how up to the company.
(3) Its not about reporting accurately. While there may have been 50 or so
major scandals, the remaining top 1,000 companies are generally honest in
their statements. You can totally mismanage your company, but as long as
you report your terrible results accurately, you are in ethical and legal
compliance.
(4) Its not about financial control. The classic financial control techniques
were founded in the era of Scrooge & Marley, but are now inadequate in
the age of empowerment, restructuring, outsourcing, and the Internet.
So whats the real issue? Our research found that the most important
concern for investors should be corporate waste and inefficiency. You can
pick up any edition of the Journal and find a number of articles where
companies needlessly lost revenue and incurred unnecessary costs.
For example, Ford Motor took a $1 billion raw materials write-off (and lost
nearly a quarter of its market capitalization) because R&D wasnt talking to
purchasing. The U.S. government wasted millions due to government
employees purchasing among other thingslap dances! Having to honor
incorrect online air fares, paying more than retail for statewide PC
database software, fines for incorrect utility charges the list of blunders
is endless. These are affecting investors far more than the lurid reporting
scandals. What organizations need today are effective business controls!

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This is a level above traditional financial or process controls, and covers the
organization from boardroom to front-line.
There are standard early warning signs of control problems. We have
identified

six

out-of-control

incubators

that

provide

the

business

equivalent of warmth, moisture, and nutrients for small control issues to


grow into big problems. Two are ever-present: silo organizational structures
and new IT systems. Four are event-driven: downsizing, outsourcing,
restructuring/reorganization,

and

merger/acquisition/divestiture.

When

these are occurring, control problems are sure to be present.


So what can companies and institutions do about it? The initial step is to
recognize

that

business

control

is

new

organization-wide

core

competency. It is now legally mandated, right up there with sexual


harassment and safety, and is going to take a comprehensive change in
processes to accomplish. Then there are required best practice activities
at several levels:
Public positioning New legislation ensures that business control is not the
fad du jour. Commitment starts at the top. Companies must take a public
stand on their approach to business control. This means publicizing any
initiatives and including business control content in all positioning statements
and communications.
Board-level The Corporate Reform Act recommends a few board-level
changes, but doesnt go far enough. Boards now require different levels of
organization, expertise, and information to do their job correctly. This
includes having greater skills, taking a more active role, and getting more
information directly from company sources.

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Performance management Business control must make its way into the
organizations

policy

manual,

competency

models,

job

descriptions,

performance plans, appraisals, and compensation systems.


Skills development Business control is now a mandatory competency for
supervisors on up. A certification process is required to ensure that
everyone in the organization understands control and has the skills to
achieve it. And many front-line professionals, such as IT systems
developers, will need specialized training on designing controls in.
Operations Some companies are already setting up a dedicated, crossfunctional business controls team. This is a high-impact group that should
be populated with rising stars. The team becomes a central point for
communicating successes and learning from mistakes. Business controls
concepts also have to be integrated into project management and decision
templates, and process design tools.
Dont think that you can knock these off one-by-one. An effective business
control system cannot be piecemealed. Just as a chain is only as strong as
its weakest link, the same holds true for an effective business control
system. In addition, business control is a forever endeavour. Controls
cannot remain static in the ever-changing business environment.
Implementing this entire program has two crucial advantages:

Our research indicates that implementing effective business controls


is the fastest way to improve the bottom line by eliminating
unnecessary expenses and waste and preventing future mistakes.

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It is also the only way to keep executives from being punished as a


result of honest error by providing the basis for an active defense,
i.e., We did everything in our power to prevent this.

While these activities may currently provide a competitive edge, they will
ultimately be a standard requirement. Its only a matter of time before
some analyst during a briefing or some stockholder with microphone in hand
asks about the companys status in these areas. Why invest in a company
that isnt properly under control?
Idealistically, we wish that controls of any sort were not needed and that
we could rely on human integrity, i.e., ethics. Realistically, letting
employees get into situations where they have to make ethical decisions
simply means that the controls are inadequate. The only way to stop the
haemorrhaging is to treat the true cause of the bleeding poor business
controls.

Business by example:
Imagine the employee who works loyally for the firm but sees a senior
manager engaged in fraud or some other unlawful action. If employee blows
the whistle and exposes the senior manager they may - even as the angel may lose their job. Crier opportunities may be severely dented. Turning a
blind eye is easier. It may be difficult to see anyway that anyone in
particular has been substantially hurt from the fraudulent activity.

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The argument to confront however that individual is exercising free will


make moral choices. Indeed without free will can the notion of morality
exist? Whilst a killer whale attacking and even mauling a seal is not
behaving unethically, we generally see due punishment for a serial killer or
rapist as necessary.
We may differ about the type of punishment and argue over contributory
and mitigating factors - tortured family up-bringing perhaps. If someone
was to steal a sheep today or paint a rude slogan about a politician or the
police chief or rival deity on the wall - we would regard it (Western liberal
reaction) as unethical if such misdemeanour was punished by a lobotomy or
amputation of the offending limb?
Yet a good resident of ancient Rome wo undergraduate

business

majors but also everyday consumers and investors.

Old

choose to enjoy a good day out at the circus with captives on the lions'
menu. Friends and family label our Roman as a "party-pooper" if he had
stayed at home muttering such barbarity....is unethical".
Today - Monty Python visiting a Spanish bull-fight or bull-baiting in a local
town festival - might be disgusted. Few holiday-makers seeking the sun,
sangria and the good life would be prepared to boycott Spanish holidays.
Furthermore most Spanish people would not agree with the argument that
the obsession with frightening, mutilating and killing bulls in a public
spectacle - a centuries old local tradition which outsiders do not appreciate
- is unethical.

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