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Etika Bisnis - Ferrell

Ferrel

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Part One

An Overview of
Business Ethics

Chapter 1
The Importance of
Business Ethics

2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Ethics is a part of decision making at all

levels of work and management
As important as functional areas of business
Questions whether practices are acceptable
There are no universally accepted approaches

for resolving issues

Comprises organizational principles, values, and

norms that may originate from individuals,
organizational statements, or from the legal
system that primarily guide individual and
group behavior in business
Ethical decisions occur when accepted rules no

longer serve and decision makers must weigh

values and reach a judgment
Values and judgments play a critical role when we

make ethical decisions

Morals: Refer to a persons personal

philosophies about what is right or wrong

Morals are personal and singular

Principles: Specific and pervasive boundaries

for behavior that should not be violated

Human rights, freedom of speech and justice

Values: Enduring beliefs and ideals that are

socially enforced
Teamwork, trust and integrity
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Nearly half of employees observe at least

one form of misconduct in the workplace
After the financial crisis, business decisions

and activities have come under scrutiny

The financial sector has not fully regained
stakeholder trust

Global Trust in
Industry Sectors

Source: Edelman Global Deck: 2013 Trust Barometer, http://www.edelman.com/trust-downloads/global-results-2/

(accessed January 30, 2013).

Misuse of company resources

Abusive behavior
Harassment
Accounting fraud
Conflicts of interest
Defective products
Bribery
Employee theft
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Having good individual morals is not enough

to stop ethical misconduct

Ethics training helps provide collective
agreement in diverse organizations
Business ethics decisions can be complicated
Helps to identify ethical issues when they
arise and recognize the approaches available
to resolve them
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Timeline of Ethical and

Socially Responsible Concerns
1960s

1970s

1980s

1990s

2000s

Environmental
issues

Employee
militancy

Bribes and
illegal
contracting
practices

Sweatshops and unsafe

working conditions in
third-world countries

Cybercrime

Civil rights issues

Human rights
issues

Influence
peddling

Rising corporate
liability for personal
damages (cigarette
companies)

Financial
misconduct

Increased
employeeemployer
tension

Covering up
rather than
correcting issues

Deceptive
advertising

Financial
mismanagement
and fraud

Global issues,
Chinese product
safety

Changing
work ethic

Disadvantaged
consumers

Financial fraud
(savings and
loan scandal)

Organizational ethical
misconduct

Sustainability

Rising drug use

Transparency
issues

Intellectual
property theft

Source: Adapted from Business Ethics Timeline, Ethics Resource Center , http://www.ethics.org/resource/business-ethicstimeline (accessed June 13, 2013). Copyright 2006, Ethics Resource Center (ERC). Used with permission of the ERC, 1747
Pennsylvania Ave. N.W., Suite 400, Washington, DC, 2006, www.ethics.org.
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Theological discussions of ethics emerged

Catholic social ethics were concerned with

morality in business, workers rights, and

living wages
The Protestant work ethic encouraged
individuals to be frugal, work hard and attain
success in the capitalistic system
These traditions provided a foundation for
the future field of business ethics
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Social consciousness emerged

Increased anti-business sentiment
JFKs Consumer Bill of Rights a new era of

consumerism
Right to safety, to be informed, to choose, and to

be heard

Consumer protection groups fought for

legislation changes
Ralph Nader
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Corporate social responsibility - an

organizations obligation to maximize positive
impact and minimize negative impact on
stakeholders
Philosophers increased their involvement
Businesses concerned with public image
Conferences held and centers developed

Issues:
Bribery
Price collusion
Environment

Deceptive advertising
Product safety

Business ethics became an acknowledged

field of study and firms established ethics

committees
Ethics centers provided publications,
courses, conferences, and seminars
Defense Industry Initiative on Business
Ethics and Conduct (DII)
Foundation for the Federal Sentencing Guidelines

for Organizations to come in the 1990s

President Reagan introduced self-regulation

that changed the rules of business

Continued support for self-regulation and

free trade
Health-related issues more regulated
The Federal Sentencing Guidelines for

Organizations (FSGO) in 1991

Set tone for compliance
Preventative actions against misconduct
A company could avoid/minimize potential

penalties
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Continued corporate non-compliance

Increased public/political demand for improved
ethical standards
Sarbanes-Oxley Act (2002)

Increased accounting regulations

FSGO reforms

Requires governing authorities to be informed of

business ethics programs

Dodd-Frank Wall Street Reform and Consumer

Protection Act (2010)

Aimed at making the financial industry more

transparent/responsible

Ethical culture: acceptable behavior as

defined by the company and industry
Creates shared values and support for ethical

decisions driven by top management

Goal:
Minimize need for enforced compliance
Maximize utilization of principles/ethical

reasoning in difficult or new situations

Collaborative efforts to establish goals and

set minimum levels of ethical behavior
European Union
NAFTA
MERCOSUR
WTO

Companies can demonstrate their

commitment to social responsibility through

adopting international standards like the
United Nations Global Compact
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Cengage Learning 2015

Role of Organizational
Ethics in Performance

Commitment comes from employees who are

invested in the organization and willing to make
personal sacrifices for the organization
The more company dedication to ethics, the

greater the employee dedication

Concerns include a safe work environment,
competitive salaries and benefits packages, and
fulfillment of contractual obligations

Investors are increasingly interested in a

companys reputation and recognize how:

ethical culture provides a foundation for

efficiency, productivity, and profitability

negative publicity, lawsuits, and fines threaten a
companys long-term viability

Gaining investors trust and confidence is

vital to sustaining financial stability

Customer satisfaction is an important factor

in a successful business strategy

Companies seen to be socially responsible increase

customer trust and satisfaction

Trust is essential for long-term customer
relationships
A strong organizational ethical climate places
customers interests first

Ethical conduct toward customers builds a

strong competitive position shown to

positively affect performance and innovation
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Companies need profits in order to meet

their responsibilities
Corporate concern for ethical conduct is
being integrated with strategic planning
Maximizing profitability

Ethics has moved from being a compliance

standard to becoming an integral part of

achieving a competitive advantage

Part One
An Overview of
Business Ethics
Chapter 2
Stakeholder
Relationships, Social
Responsibility and
Corporate
Governance
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Building effective relationships is one of the most

important areas of business today
Business ethics is a team sport and few decisions

are made by only one individual

Stakeholder framework
Helps identify internal and external stakeholders
Helps monitor and respond to needs, values, and

expectations of stakeholder groups

Corporate governance
The formal system of accountability and control

of ethical and socially responsible behavior

Stakeholders: Those who have a stake or claim

in some aspect of a companys products,
operations, markets, industry, and outcomes
Customers
Employees
Government agencies

Investors
Suppliers
Communities

The relationship between companies and

their stakeholders is a two-way street
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Three approaches to stakeholder theory

Normative
Principles and values help identify ethical

guidelines that dictate how to treat stakeholders

Descriptive
Focuses on actual behavior, addressing decisions

and strategies in stakeholder relationships

Instrumental
Examines stakeholder relationships and describes

outcomes for particular behaviors

Primary stakeholders: those whose continued

association is absolutely necessary for a firms
survival
Employees, customers, investors, governments, and

communities

Secondary stakeholders: do not typically

engage in transactions with the firm and are not
essential to a firms survival
Media, trade associations, and special interest

groups
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Source: Adapted from Isabelle Maignan, O. C. Ferrell, and Linda Ferrell, A Stakeholder Model for Implementing Social
Responsibility in Marketing. European Journal of Marketing 39 (2005): 956977. Used with permission.
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The degree to which a firm understands

and addresses stakeholder demands

Involves activities that facilitate and
maintain value with stakeholders
Generation of data about stakeholder groups
Distribution of that information
Responsiveness of the organization as a whole

An organizations obligation to maximize its

positive impact on stakeholders and minimize
its negative impact
Four levels of social responsibility
Economic

Legal
Ethical
Philanthropic

Source: Adapted from Archie B. Carroll, The Pyramid of Corporate Social Responsibility: Toward the Moral Management of
Organizational Stakeholders, Business Horizons (JulyAugust 1991): 42, Fig. 3.

The extent to which businesses

strategically meet their economic, legal,
ethical, and philanthropic responsibilities
Four interrelated dimensions
Strong sustained economic performance
Rigorous compliance
Ethical actions beyond what is legally required
Voluntary contributions to advance reputation
and stakeholder commitment
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

LORAL

Petco

Xerox

Kellogg Company

OfficeMax

Starbucks

Cummins, Inc.

Target

Ford Motor Company Salesforce.com, Inc.

General Electric

T-Mobile USA

PepsiCo

Hasbro

Whole Foods Market

Microsoft Corporation

Aflac

ARAMARK

Source: Ethisphere Institute, 2013 Worlds Most Ethical Companies, Ethisphere,

http://m1.ethisphere.com/wme2013/index.html (accessed March 7, 2013).

Reputation is one of an organizations

greatest intangible assets with tangible
value
Difficult to quantify but very important
A single negative incident can influence

an organizations image and reputation

instantly and for years afterwards

Social Responsibility
Issues
Social

Deals with concerns that affect the welfare of our

entire society, associated with the common good

Consumer Protection

The company has the responsibility of taking

precautions to prevent consumer harm

Sustainability

Businesses can no longer afford to ignore the natural

environment as a stakeholder

Corporate Governance

Research shows corporate governance has a strong

positive relationship with social responsibility

Social Responsibility and

Stakeholder Orientation
Caring about stakeholders can lead to
increased profits
The purpose of a stakeholder orientation is to

maximize positive outcomes that meet

stakeholders needs
Stakeholders support companies they
perceive to be socially responsible, enhancing
profitability
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Bristol-Myers Squibb

International Business Machines Corp.

Intel Corp.

Microsoft Corporation

Johnson Controls Inc.

Accenture plc

Spectra Energy Corp.

Campbell Soup Co.

Nike, Inc.

10.

Freeport-McMoran Copper & Gold Inc.

Source: CRs 100 Best Corporate Citizens 2012 , http://www.thecro.com/files/100Best2012_List_3.8.pdf

(accessed February 14, 2013).

Formal systems of accountability,

oversight, and control
Accountability
How closely workplace decisions align with a

firms strategic direction

Oversight
A system of checks and balances to minimize

opportunities for misconduct

Control
The process of auditing and improving

organizational decisions and actions

Executive Compensation

Enterprise-Wide Risk Management

Short- and Long-Term Strategies

Board Composition and Structure

Shareholder Relations

CEO Selection, Termination, and Succession Plans

Role of the CEO in Board Decisions

Auditing, Control, and Integrity of Financial Reporting

Compliance with Government Regulation and Reform

Organizational Ethics Programs

Source: Corporate Alert: Top 10 Topics for Directors in 2011, December 6, 2010,
http://www.corpgov.deloitte.com/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/USEng/Documen
ts/Board%20Governance/Top%2010%20Topics%20for%20Directors%20in%202011_Akin_120610.pdf (accessed February 15, 2011).

40 % of boards split the CEO and Chair functions

Boards are getting smaller, with an average of 11 members
( 5 : 1 ratio independent: non-independent)

74 % of boards have mandatory retirement rules for directors

Almost all boards conduct annual board performance evaluations
71 % limit the time that board members can serve on outside boards
21 % of new directors are women, although 10 % of boards have no women directors
Over 50 % of CEOs in the S&P 500 do not serve on outside boards

Important characteristics in directors: strong financial background,

industry background, and international experience
Average board member retainer: $ 20,00 in 1986 ($ 40,000 in todays dollars) and $
80,000 in 2010
Average total director compensation has risen to $ 215,000 in 2010
Source: Julie Hembrock Daum, How Corporate Governance Changed from 19862010, Business Week ,
http://www.businessweek.com/managing/content/nov2010/ca2010118_316346.htm (accessed April 2, 2013).
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Shareholder model
Founded in classic economic precepts
Maximizing wealth for investors and owners

Stakeholder model
A broader view of the purpose of business
Includes satisfying concerns of primary

stakeholders including employees, suppliers,

regulators, communities and special interest
groups

Holds final responsibility for its firms

success, failure, and ethicality of actions
The global financial crisis motivated many to

demand greater accountability from boards

In reality, boards rarely manage but instead
monitor executive decisions
Executive compensation is a growing ethical
concern
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except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Demands for Accountability

and Transparency
Stakeholders demand that boards are
accountable and transparent
Directors offer expertise, competence, and

diverse perspectives to strategic decisions

Qualified, knowledgeable, diverse, unbiased
boards can prevent misconduct

Interlocking directorate is the concept of

board members being linked to more than
one company
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Many boards spend more time discussing

compensation than ensuring integrity of
financial reporting systems
How closely linked is executive compensation

to company performance?
Does performance-linked compensation
encourage executives to focus on short-term
performance at the expense of long-term
growth?
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
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1. Assessing the corporate culture

2. Identifying stakeholder groups
3. Identifying stakeholder issues
4. Assessing organizational commitment to

social responsibility
5. Identifying resources and determining
urgency
6. Gaining stakeholder feedback
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Part Two
Ethical Issues
and the
Institutionalization
of Business Ethics
Chapter 3
Emerging Business
Ethics Issues

An ethical issue is a problem, situation,

or opportunity that requires an individual
or group to choose among actions
New ethical issues are emerging constantly
Can be difficult to recognize ethical issues

Failure to do so puts corporations at risk

Is a problem in industries where winning is

perceived to be a game
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Specific Types of
Observed Misconduct
Behavior

2009 (%)

Misuse of company time

n/a

Abusive behavior

Lying to employees

Company resource abuse

Violating company Internet use policies

n/a

Discrimination

Conflicts of interest

Inappropriate social networking

n/a

Health or safety violations

Lying to outside stakeholders

Stealing

Falsifying time reports or hours worked

n/a

Employee benefit violations

Sexual harassment

Source: Ethics Resource Center, 2011 National Business Ethics Survey:

Workplace Ethics in Transition (Arlington, VA: Ethics Resource Center,
2012), 39.

2011 (%)

Integrity: Uncompromising adherence to

ethical values
One of the most important terms relating to virtue

Honesty: Truthfulness or trustworthiness

Telling the truth to the best of your knowledge
Dishonesty: A lack of integrity, incomplete

disclosure, or an unwillingness to tell the truth

Issues related to honesty arise when people
perceive business as something where normal
rules do not apply

Fairness: The quality of being just, equitable,

and impartial
Equality: How wealth or income is distributed

Reciprocity: Occurs when an action that has an

effect upon another is returned

Optimization: The tradeoff between equity and

efficiency

An ethical dilemma is a problem, situation, or

opportunity that requires an individual or group

to chose among several wrong or unethical
actions
There is no ethical choice

Shareholder
Issues
1. Core values
2. Shareholder participation in electing directors
3. Executive compensation

4. Legal compliance
5. Lobbying and political activities
6. Reputation management
7. Integrity in collecting and managing data
8. Supply chain relationships and human rights

The leading form of observed misconduct

Can range from unauthorized use of

equipment and computers to embezzling

company funds
Time theft costs organizations hundreds of
billions in lost productivity annually

One of the most common ethical problems

Can be physical threats, false accusations,

profanity, insults, harshness, ignoring

someone, or unreasonableness
Intent is important in determining abuse

Bullying is a growing problem

Is associated with a hostile workplace

Actions Associated
with Bullies
1. Spreading rumors to damage others
2. Blocking others communication in the workplace
3. Flaunting status or authority to take advantage of others
4. Discrediting others ideas and opinions
5. Use of e-mails to demean others
6. Failing to communicate or return communication
7. Insults, yelling, and shouting
8. Using terminology to discriminate by gender, race, or age
9. Using eye or body language to hurt others or their reputations
10. Taking credit for others work or ideas
Source: Adapted from Cathi McMahan, Are You a Bully? Inside Seven , California Department of Transportation
Newsletter, June 1999, 6.
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except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Three types of lies

Joking without malice
Commission lying is creating a false

perception with words that deceive the

receiver
Creating noise

Omission lying is intentionally not

informing channel members of problems

relating to a product that affects awareness,
intention, or behavior
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part,
except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Exist when an individual must choose

whether to advance his/her personal
interests, those of the organization, or
some other group
Individuals must separate personal interests

from business dealings

The practice of offering something in

order to gain an illicit advantage
Different types of bribery
Active bribery: The person who promises or

gives the bribe commits the offense

Passive bribery: An offense committed by the
official who receives the bribe

Facilitation payments: Legal as long as

they are small

The collection and analysis of information

on
Markets
Technologies
Customers and competitors
Socioeconomic and external political trends

Three intelligence models

Passive monitoring system for early warning
Tactical field support
Support dedicated to top management

strategy

Hacking
System hacking
Remote hacking
Physical hacking

Social engineering
Shoulder surfing
Password guessing
Dumpster diving
Whacking
Phone eavesdropping
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except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Is illegal in the U.S.

A company can be sued for discrimination if

it
Refuses to hire an individual for discriminatory

reasons
Unreasonably excludes an individual from
employment
Unreasonably discharges an individual
Discriminates against an individual with respect
to hiring, employment terms, promotion, or
privileges
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except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Equal Employment Opportunity

Commission (EEOC)
The Age Discrimination in Employment Act
Affirmative Action Programs
Efforts to recruit, hire, train, and promote

qualified individuals from groups that have

traditionally been discriminated against

A repeated, unwanted behavior of a sexual

nature perpetrated upon an individual by
another
Hostile work environment
The conduct was unwelcome
The conduct was severe, pervasive, and regarded

by claimant as hostile/offensive
The conduct was such that a reasonable person
would find it hostile or offensive
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A personal, loving, and/or sexual

relationship with someone with whom
you share professional responsibilities
A key ethical issue in sexual harassment
Unethical dual relationship: The

relationship causes a conflict of interest or

impairment of professional judgment

1. Statement of policy
2. Definition of sexual harassment
3. Non-retaliation policy

4. Specific procedures for prevention

5. Establish, enforce, and encourage victims to

report
6. Establish a reporting procedure
7. Timely reporting requirements to the proper
authorities
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except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Any purposeful communication that

deceives, manipulates, or conceals facts in
order to create a false impression
Accounting fraud
Misrepresentation of companys financial reports
Dramatic changes in accounting field
Increased competition and pressures to perform

can create opportunities for misconduct

Accountants should abide by a strict code of ethics
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except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Initial Detection of
Operational Frauds

Source: Association of Certified Fraud Examiners, Report to the Nations on Occupational Fraud and Abuse: 2012 Global
Fraud Study , 14.
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except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The process of dishonestly creating,

distributing, promoting, and pricing
products
Puffery: Exaggerated advertising claims,
blustering, and boasting
Can be difficult to distinguish from fraud
Implied falsity: An advertising message that
misleads, confuses, or deceives the public
Literally false: Claims can be divided into tests
prove (establishment claims) and bald assertions
(non-establishment claims)
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When consumers attempt to deceive

businesses for personal gain

Price tag switching, item switching, or lying to

obtain discounts

Collusion involves an employee who helps a

consumer commit fraud

Duplicity involves a consumer duping a
store
Guile is associated with a person who uses
tricks to obtain an unfair advantage
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except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The failure to understand and manage ethical

risks was a key problem in the recent

financial crisis
Many firms rewarded risk-taking
Difficult-to-understand financial instruments and

murky accounting played roles

Government calls for reform

Stricter controls on hedge funds and other

instruments
Greater transparency
Dodd-Frank Wall Street Reform and Consumer
Protection Act
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except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Two types of insider trading

Legal insider trading: Involves legally buying

and selling stock in an insiders own company, but

not all the time
Illegal insider trading: The buying or selling of

stocks by insiders who possess material that is not

public

Involve the legal protection of intellectual

properties
Books, movies, software

Many privacy issues in the business world

Employee use of technology
Consumer privacy
Can be challenging for businesses today to meet

the needs of consumers while protecting privacy

Identity theft is a growing problem

Most ethical issues become visible through

stakeholder concerns
Determining ethical issues is a challenge

Changing societal standards over time

The ethical decision making process starts

when ethical issue awareness occurs and a

discussion begins

Part Two
Ethical Issues
and the
Institutionalization
of Business Ethics
Chapter 3
Emerging Business
Ethics Issues

An ethical issue is a problem, situation,

or opportunity that requires an individual
or group to choose among actions
New ethical issues are emerging constantly
Can be difficult to recognize ethical issues

Failure to do so puts corporations at risk

Is a problem in industries where winning is

Specific Types of
Observed Misconduct
Behavior

2009 (%)

Misuse of company time

n/a

Abusive behavior

Lying to employees

Company resource abuse

Violating company Internet use policies

n/a

Discrimination

Conflicts of interest

Inappropriate social networking

n/a

Health or safety violations

Lying to outside stakeholders

Stealing

Falsifying time reports or hours worked

n/a

Employee benefit violations

Sexual harassment

Source: Ethics Resource Center, 2011 National Business Ethics Survey:

Workplace Ethics in Transition (Arlington, VA: Ethics Resource Center,
2012), 39.

2011 (%)

Integrity: Uncompromising adherence to

ethical values
One of the most important terms relating to virtue

Honesty: Truthfulness or trustworthiness

Telling the truth to the best of your knowledge
Dishonesty: A lack of integrity, incomplete

disclosure, or an unwillingness to tell the truth

Issues related to honesty arise when people
perceive business as something where normal
rules do not apply

Fairness: The quality of being just, equitable,

and impartial
Equality: How wealth or income is distributed

Reciprocity: Occurs when an action that has an

effect upon another is returned

Optimization: The tradeoff between equity and

efficiency

An ethical dilemma is a problem, situation, or

opportunity that requires an individual or group

to chose among several wrong or unethical
actions
There is no ethical choice

Shareholder
Issues
1. Core values
2. Shareholder participation in electing directors
3. Executive compensation

4. Legal compliance
5. Lobbying and political activities
6. Reputation management
7. Integrity in collecting and managing data
8. Supply chain relationships and human rights

The leading form of observed misconduct

Can range from unauthorized use of

equipment and computers to embezzling

company funds
Time theft costs organizations hundreds of
billions in lost productivity annually

One of the most common ethical problems

Can be physical threats, false accusations,

profanity, insults, harshness, ignoring

someone, or unreasonableness
Intent is important in determining abuse

Bullying is a growing problem

Is associated with a hostile workplace

Three types of lies

Joking without malice
Commission lying is creating a false

perception with words that deceive the

receiver
Creating noise

Omission lying is intentionally not

informing channel members of problems

Exist when an individual must choose

whether to advance his/her personal
interests, those of the organization, or
some other group
Individuals must separate personal interests

from business dealings

The practice of offering something in

order to gain an illicit advantage
Different types of bribery
Active bribery: The person who promises or

gives the bribe commits the offense

Passive bribery: An offense committed by the
official who receives the bribe

Facilitation payments: Legal as long as

they are small

The collection and analysis of information

on
Markets
Technologies
Customers and competitors
Socioeconomic and external political trends

Three intelligence models

Passive monitoring system for early warning
Tactical field support
Support dedicated to top management

strategy

Hacking
System hacking
Remote hacking
Physical hacking

Is illegal in the U.S.

A company can be sued for discrimination if

it
Refuses to hire an individual for discriminatory

Equal Employment Opportunity

Commission (EEOC)
The Age Discrimination in Employment Act
Affirmative Action Programs
Efforts to recruit, hire, train, and promote

qualified individuals from groups that have

traditionally been discriminated against

A repeated, unwanted behavior of a sexual

nature perpetrated upon an individual by
another
Hostile work environment
The conduct was unwelcome
The conduct was severe, pervasive, and regarded

A personal, loving, and/or sexual

relationship with someone with whom
you share professional responsibilities
A key ethical issue in sexual harassment
Unethical dual relationship: The

relationship causes a conflict of interest or

impairment of professional judgment

1. Statement of policy
2. Definition of sexual harassment
3. Non-retaliation policy

4. Specific procedures for prevention

5. Establish, enforce, and encourage victims to

Any purposeful communication that

can create opportunities for misconduct

Initial Detection of
Operational Frauds

The process of dishonestly creating,

100

When consumers attempt to deceive

businesses for personal gain

Price tag switching, item switching, or lying to

obtain discounts

Collusion involves an employee who helps a

consumer commit fraud

101

The failure to understand and manage ethical

risks was a key problem in the recent

financial crisis
Many firms rewarded risk-taking
Difficult-to-understand financial instruments and

murky accounting played roles

Government calls for reform

Stricter controls on hedge funds and other

102

Two types of insider trading

Legal insider trading: Involves legally buying

and selling stock in an insiders own company, but

not all the time
Illegal insider trading: The buying or selling of

stocks by insiders who possess material that is not

public

103

Involve the legal protection of intellectual

properties
Books, movies, software

Many privacy issues in the business world

Employee use of technology
Consumer privacy
Can be challenging for businesses today to meet

the needs of consumers while protecting privacy

Identity theft is a growing problem

104

Most ethical issues become visible through

stakeholder concerns
Determining ethical issues is a challenge

Changing societal standards over time

The ethical decision making process starts

when ethical issue awareness occurs and a

discussion begins

105

Part Three
The Decision
Making Process

Chapter 5
Ethical Decision
Making

106

In business, people make decisions

differently than at home

Organizational pressures have a strong influence

The ethical decision making process includes

Ethical issue intensity
Individual factors
Organizational factors

The framework for ethical decision making

does not describe how to make ethical

decisions
Outlines the factors and processes related to

ethical decision making

107

Framework for Understanding Ethical

Decision Making in Business

108

The perceived relevance or importance of

an ethical issue to the individual, work
group, and/or organization
Reflects the ethical sensitivity of the

individual and/or work group

Triggers the ethical decision making process

109

Individuals are subject to six spheres of

influence
Workplace

Legal system

Family

Community

Religion

Profession

Moral intensity: Relates to a persons

perception of social pressure and the harm

his/her decision will have on others
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110

People base their ethical decisions on their

own values and principles of right or wrong

Values are learned through socialization
Good personal values decrease unethical behavior

and increase positive work behavior

Values are subjective; vary across cultures

111

An organization may intend to do right, but

organizational or social forces can alter this

intent
Research shows that various factors influence
ethical behavior
Genderwomen are more ethical than men

Education, work experience, nationality, and age

affect ethical decision making

112

Relates to individual differences in

relation to a general belief about how one
is affected by internal versus external
events or reinforcements

113

Managers with
External locus of control go with the flow

because thats all they can do

Internal locus of control believe they can
control events; are masters of their destinies and
trust in their capacity to influence their
environment

Unclear relationship between locus of

control and ethical decision making

114

Organizational culture has a stronger

influence on employees than individual
values
Corporate culture: A set of values, norms,

and artifacts that members of an

organization share
Ethical culture: Reflects whether the firm has an

ethical conscience; is a function of many factors

115

Significant others: Those who have

influence in a work group

Obedience to authority: Helps to explain
why many employees unquestioningly follow
superiors orders

116

The conditions in an organization that

limit/permit ethical/unethical behavior
Immediate job context: Where employees

work, with whom they work, and the nature

of the work

117

Opportunities for misconduct can be

reduced by establishing formal codes,

policies, and rules
Aggressive enforcement is required

Knowledge can sometimes lead to unethical

behavior
A person who has an information base, expertise,

or information about competition has an

opportunity to exploit knowledge

118

Most Common Office Supplies

Stolen by Employees
1. Post-It notes
2. Tape
3. Scissors
4. Toilet paper
5. Copier paper
6. USB memory sticks

Source: Top Office Supplies that Are

Stolen and the Average Value of Contents
In A Womans Purse!
KMLE, May 16, 2012,
http://kmle1079.cbslocal.com/2012/05/16/to
p-office-supplies-that-are-stolen/
(accessed April 12, 2013).

7. Notepads
8. Pens
9. Staplers
10. Highlighters
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119

Ethical dilemmas involve situations where

rules are vague or in conflict
Critical thinking skills and ability to take

responsibility are important

The final step is deciding what action to take
based on a persons intentions
Guilt or uneasiness is the first sign that an
unethical decision has occurred
Most businesspeople will make ethical
mistakes
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120

Impossible to objectively determine if a

business decision is right or wrong
Understanding how ethical decisions are

made will not solve ethical problems

Business ethics involves value judgments and

collective agreement about acceptable patterns of

behavior

Ethical decision making in business does not

rely on personal values and morals

Organizations take on cultures of their own
Informal relationships enforce an ethical culture
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121

Normative approaches: How

organizational decision makers should

approach an issue
Different from a descriptive approach that

examines how organizational decision makers

approach ethical decision making

Concepts like fairness and justice are highly

important in a normative structure

122

Most organizations develop a set of core

values to provide enduring beliefs about

appropriate conduct
Core values are central to an organization and

provide direction for action

By incorporating stakeholder objectives into

corporate core values, companies begin to

view stakeholders as significant

123

Institutions are important in establishing a

foundation for normative values

Organizations face certain normative
pressures from different institutions to act a
certain way
Internally and/or externally

Sort institutions into three categories: Political,

economic, and social

124

Political influences can take place within the

organization
An ethical organization has policies and rules
in place to determine appropriate behavior
Often the compliance component of the
firms organizational culture
Failure to abide by these rules results in

disciplinary action

125

Normative business ethics takes into account

the political realities outside the legal realm

in the form of industry standards
Legal issues such as price fixing, antitrust
issues, and consumer protection are
important in maintaining a fair and equitable
marketplace
These issues must be major considerations for

business when making ethical decisions

126

Competition affects how a company operates

as well as the risks employees take for the

good of the firm
Amount of competition in an industry can be
determined/described according to
Barriers to entry into the industry
Available substitutes for the products produced by

the industry rivals

Power of the industry rivals over their customers
Power of the industry rivals suppliers over the
industry rivals
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127

Social institutions include religion,

education, and individuals such as the family

unit
There are laws meant to ensure an
organization acts fairly, but there are no laws
saying people should do to others as they
would prefer to have done to them
Many cultures adopt this rule that has been

institutionalized into businesses with standards

on competing fairly, being transparent with
consumers, and treating employees with respect
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128

Industry shared values promote

organizational effectiveness when linked to

goals
Can also hinder effectiveness if more efficient
means of organization and structure are avoided
in exchange for stability
Risk that organizations might sacrifice new ideas
or methodologies in order to be more acceptable
Can limit innovativeness and productivity

Important that organization does not stray

too far from industry norms and values

129

When values from political, economic, and

social institutions are embedded into the

organizational culture to provide incentives
for appropriate behavior, firms tend to act
more socially responsible
If incentives do not align with institutional
normative values or if they contradict these
values, then misconduct is likely

130

John Rawls was one of the most influential

philosophers in his research on how

principles support the concept of justice
Veil of ignorance: A thought experiment that
examined how individuals would formulate
principles if they did not know what their
future position in society would be
Identified principles that were not biased by ones

social position

131

Two main principles of justice

Liberty principle (equality principle): States that

each person has basic rights that are compatible

to the basic liberties of others
Difference principle: States that economic and
social equalities (or inequalities) should be
arranged to provide the most benefit to the leastadvantaged members of society

Does not advocate for the complete elimination of

inequalities in society
The most ethical decision seeks to benefit and not harm
disadvantaged populations

132

Companies take basic principles and

translate them into core values

Core values provide the abstract ideals that
are distinct from individual values and daily
operational procedures
Value practices evolve and are translated into
normative definitions of ethical or unethical
Individual and organizational values can
differ significantly because of ethical
diversity among individuals
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133

Leaders, stakeholders, and the organizational

culture impact the development of core

values
A firms core values provide a blueprint into
the firms purpose as well as how it views
ethical decision making and prioritizes
stakeholders
Organizations that have ethics programs
based on a values orientation are found to
make a greater contribution than those based
simply on compliance
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134

Principles and
Values

135

Core Values of
Marriott

1. Put People First

2. Pursue Excellence

3. Embrace Change
4. Act with Integrity
5. Serve Our World
Source: Marriott, 2011 Annual Report, http://investor.shareholder
.com/mar/marriottAR11/index.html (accessed April 19, 2013).

136

Ethical issue intensity, individual factors,

and opportunity result in business ethics
evaluations and decisions
An organizational ethical culture is shaped

by effective leadership
Top level support is required for ethical behavior

An ethical corporate culture needs shared

values and proper oversight

The more you know about ethical decision
making, the more likely you will be to make
good decisions
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137

Part Three
The DecisionMaking
Process
Chapter 6:
Individual Factors:
Moral Philosophies
and Values

138

The specific principles or values people

use to decide right from wrong
Person-specific

Guidelines for determining how to settle

conflicts and optimize mutual benefit

Provide direction in formulating strategies
and resolving ethical issues

No single moral philosophy is accepted by

everyone
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139

Adam Smith
The father of free market capitalism
Developed the idea of the invisible hand

Milton Friedman
Markets reward or punish for unethical conduct

without the need for government regulation

Currently the dominant form of capitalism

The U.S. is exporting the idea of free

market capitalism to other countries
Free markets may not solve all problems
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140

Economic systems allocate resources/products

Influenced by, and directly influence
Individuals actions and beliefs (morals)
Society (laws) as a whole

Depend on individuals coming together and

sharing philosophies
Creates values, trust and expectations, allowing the

system to work

141

Economic value orientation: Values that

can be quantified by monetary means

If an act produces value, accept it as ethical

Idealism: Places special value on ideas and

ideals as products of the mind

Positive correlation to ethical decision-making

Realism: The view that an external world

exists independent of our perceptions

Everyone is guided by self-interest
Negative correlation to ethical decision-making
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142

Monists believe that only one thing is

intrinsically good
Hedonism: Pleasure is the ultimate good

Qualitative hedonism
Quantitative hedonism

Pluralists believe that no one thing is

intrinsically good
Instrumentalists reject the ideas that
Ends can be separated from the means
Ends, purposes, or outcomes are intrinsically good

in and of themselves
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143

Goodness theories: Focus on the end result

of actions and the goodness or happiness

created by them
Obligation theories: Emphasize the means
and motives by which actions are justified
Divided into two categories

Teleology
Deontology

144

Considers acts as morally right or

acceptable if they produce a desired result
Pleasure, knowledge, career growth, realization of

self interest, utility, wealth or even fame

Theological philosophies assess the moral

worth of a behavior by looking at the

consequences, so these theories are often
referred to as Consequentialism

145

Two important teleological philosophies are

egoism and utilitarianism
Egoism defines right or acceptable behavior
in terms of consequences to the individual
Maximizes personal interests

Enlightened egoists: Take a long-term

perspective and allow for the well-being of

others though their own self-interests remain
paramount
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146

Utilitarianism seeks the greatest good

for the greatest number of people
Rule utilitarians: Determine behavior

based on principles designed to promote the

greatest utility
Act utilitarians: Examine a specific action
itself; not the rules governing it

147

Moral philosophies focusing on the rights

of individuals and on the intentions
associated with a particular behavior
Believe individuals have certain absolute rights
Believe compliance with stable moral principles

defines ethicalness
Sometimes referred to as nonconsequentialism,
a system of ethics based on respect for persons

148

Contemporary deontology
Categorical Imperative Immanuel Kant
Ethical acts can be viewed by everyone and the

rationale behind the act is suitable as a universal

principle

Rule deontologists: Conformity to general

moral principles determines ethicalness

Act deontologists: Actions are the proper
basis on which to judge morality

149

Individuals and groups derive definitions

of ethical behavior subjectively from
experience
Descriptive relativism: Relates to

observations of other cultures

Metaethical relativism: Proposes people
see situations from their own perspectives
No objective way of resolving ethical disputes

between different value systems and individuals

Normative relativism: Assumes one

persons opinion is as good as anothers

150

Ethical behavior follows conventional

moral standards and compares behavior
against a standard good moral character
Can be summarized as
Good corporate ethics programs encourage

individual virtue and integrity

The virtues associated with appropriate conduct
form a good person
The ultimate purpose is to serve the public good
The well-being of the community goes together
with individual excellence
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151

Fair treatment and due reward in

accordance with ethical or legal standards
Distributive justice: An evaluation of the

results of a business relationship

Procedural justice: Considers the processes
and activities that produce desired outcomes
Interactional justice: Based on relationships
between organizational members, including
employees and managers
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152

Individuals use different moral

philosophies for personal decisions than
they use for work-related decisions
Two things may explain this behavior
Pressures for workplace success differ from the

goals and pressures in outside life

Morale character may change to become
compatible with the work environment

Moral philosophies must be assessed on

a continuum
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153

Consists of six stages

1. Punishment and obedience
2. Individual instrumental purpose and

3.
4.
5.
6.

exchange
Mutual interpersonal expectations,
relationships, and conformity
Social system and conscience maintenance
Prior rights, social contract, or utility
Universal ethical principles

154

Reduced to three levels of ethical concern

1. Concern with immediate interests and

rewards and punishments

2. Concern with right as expected by the larger
society or some significant reference group
3. Seeing beyond norms, laws, and the
authority of groups or individuals

155

Shows that individuals can change their values

through moral development

Supports managements development of
employees moral principles
However, the three hit theory says
Kohlberg used questionable research methods
His theory contradicts basic moral philosophy
His theory, while reliable, may not be valid
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156

Illegal acts committed for personal and/or

organizational gain by abusing the trust and
authority associated with a given position
White collar criminals are educated people in

positions of power and respectability

The financial sector has a high level of WCCs
WCCs are increasing steadily
Technology allows WCCs to be committed at all

levels, not just the top levels of management

Resulting in increased government efforts to
detect and punish WCCs
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157

Patterns of activities become institutionalized

and may encourage unethical behaviors

Undecided employees go along with the
majority, whether ethical or unethical
WCCs increase after economic recessions
Some businesspeople may have inherently
criminal personalities, corporate psychopaths

158

Top Internet
Fraud Complaints

Source: IC 3 , Internet Complaint Center 2011 Internet Crime Report ,

http://www.ic3.gov/media/annualreport/2011_ic3report.pdf (accessed April 25, 2013).

159

Common Justifications for

White Collar Crimes
1. Denial of responsibility. (Everyone can, with varying degrees of
plausibility, point the finger at someone else.)
2. Denial of injury. (White-collar criminals often never meet or interact with those
who are harmed by their actions.)
3. Denial of the victim. (The offender is playing tit-for-tat and claims to be
responding to a prior offense inflicted by the supposed victim.)

4. Condemnation of the condemners. (Executives dispute the legitimacy of the laws

under which they are charged, or impugn the motives of the prosecutors who enforce
them.)
5. Appeal to a higher authority. (I did it for my family remains a popular excuse.)
6. Everyone else is doing it. (Because of the highly competitive marketplace, certain
pressures exist to perform that may drive people to break the law.)

7. Entitlement. (Criminals simply deny the authority of the laws they have broken.)
Source: Adapted from Daniel J. Curran and Claire M. Renzetti, Theories of Crime (Needham Heights, MA: Allyn & Bacon, 1994).
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160

Most unethical behavior is not for personal

gain, but to meet performance goals

Rewards for performance goals and corporate
culture in general are the most important
drivers of ethical decision making
Equipping employees with skills that allow them
to understand and resolve ethical dilemmas will
help them make good decisions

161

Part Three
The Decision
Making Process

Chapter 7
Organizational
Factors: The Role
of Ethical Culture
and Relationships
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162

Corporate culture has many definitions

A set of values, norms, and artifacts,

including ways of solving problems shared by

organizational members
The shared beliefs top mangers have about
how they should manage themselves and
other employees and how they should
conduct their business
Gives organizational members meaning and
sets the internal rules of behavior
All organizations have culture
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163

Culture is codified by the SarbanesOxley 404 compliance section

Includes assessment of effectiveness of

controls by management and external

auditors
Forces firms to adopt a set of values that

make up part of the culture

Compliance with 404 requires cultural

change, not only accounting changes

164

May be formal through statements of values,

beliefs, and customs

Comes from upper management
Memos, codes, manuals, forms, ceremonies

May be informal through direct or indirect

comments conveying managements wishes

Dress codes, promotions, extracurricular activities

The tone at the top is critical in creating

ethical corporate culture

165

U.S. Banks Principles

For Integrity

Being a role model for ethical behavior

Promoting our culture of integrity

Fostering open communication

Recognizing behavior that exemplifies our ethical principles and values

Responding to misconduct and reporting violations

Source: U.S. Bank, Do the Right Thing: Code of Ethics and Business Conduct ,
https://www.usbank.com/hr/docs/policies/coeHandbook.pdf (accessed
March 8, 2011).

166

Concern for people

The organizations efforts to care for its

employees well-being

Concern for performance

The organizations efforts to focus on output and

employee productivity

167

Traits to Look for in

Future Leaders

Source: Robert Half Management Resources Survey: CFOs Cite Integrity as Most Important Trait for Future Leaders, PR
Newswire, September 30, http://www.prnewswire.com/news-releases/robert-half-management-resources-survey-cfoscite-integrity-as-most-important-trait-for-future-leaders-104072008.html (accessed April 26, 2013).
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168

Apathetic: Minimal concern for people or

performance
Caring: High concern for people; minimal
concern for performance
Exacting: Minimal concern for people; high
concern for performance
Integrative: High concern for people and
performance
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169

A cultural audit is an assessment of the

organizations values
Usually conducted by outside consultants;

can be handled internally

170

Company Examples of the

Four Organizational Cultures

171

Ethical corporate culture is a significant

factor in ethical decision making

If a firms culture encourages/rewards/does
not monitor unethical behavior, employees
may act unethically
Managements sense of an organizational
culture may differ from that guiding
employees

172

Compliance-based cultures use a legalistic

approach to ethics
Revolve around risk management, not ethics
Lack of long-term focus and integrity

Value-based cultures rely on mission

statements that define the firm and

stakeholder relations
Focus on values, not laws
Top-down integrity is critical

173

The idea that people learn

ethical/unethical behavior while
interacting with others
Studies support that differential association

supports ethical decision making

Superiors have a strong influence on
subordinates
Employees may go along with superiors
moral judgments to show loyalty
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174

Exposing an employers wrongdoing to

company outsiders
Some legal protections exit
The Sarbanes-Oxley Act, the FSGO, and the

Dodd-Frank Act have institutionalized

whistle-blowing protections to encourage
discovery of misconduct
Whistle-blowers fear retaliation

175

Questions to Ask before Engaging in

External Whistle-Blowing
1. Have I exhausted internal anonymous reporting opportunities within
the organization?
2. Have I examined company policies and codes that outline acceptable
behavior and violations of standards?
3. Is this a personal issue that should be resolved through other means?
4. Can I manage the stress that may result from exposing potential
wrongdoing in the organization?

5. Can I deal with the consequences of resolving an ethical or legal conflict

within the organization?

176

Percentage of Employees Who Experience

Retaliation after Reporting Misconduct

Source: Ethics Resource Center, 2011 National Business Ethics Survey: Workplace Ethics in Transition (Arlington, VA: Ethics
Resource Center, 2012), 15.

177

How Employees Report

Observed Misconduct

Source: Ethics Resource

Center, 2011 National
Business Ethics Survey:
Workplace Ethics in
Transition (Arlington, VA:
Ethics Resource Center, 2012),
21. 23715_ch07_lores_181212.indd 195 13/07/13 5:14 PM

178

An effective leader is one who does well for

the stakeholders of the corporation

Effective leaders are good at getting followers to

common goals effectively and efficiently

Power refers to the influence that leaders and

managers have over the behavior and

decisions of subordinates
A individual has power when his/her presence

causes people to behave differently

Power and influence shape corporate culture

179

Reward power: Offering something

desirable to influence behavior

Coercive power: Penalizing negative
behavior
Legitimate power: The consensus that a
person has the right to exert influence over
others
Expert power: Derives from knowledge and
credibility with subordinates
Referent power: Exists when goals or
objectives are similar

180

A force within the individual that focuses

behavior toward achieving a goal
Job performance: A function of ability and
motivation
An individuals hierarchy of needs may influence
motivation and ethical behavior

Relatedness needs: Satisfied by social and

interpersonal relationships

Growth needs: Satisfied by creative or productive

activities

Needs or goals may change over time

181

Decision making authority is concentrated in

the hands of top-level managers
Little authority delegated to lower levels
Best for organizations
That make high-risk decisions
Whose lower-level managers are not skilled in
decision-making
Where processes are routine
May have a harder time responding to ethical
issues
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182

Decision making authority is delegated as far

down the chain of command as possible
Flexible and quicker to recognize external
change
Can be slow to recognize organizational policy
changes
Units may diverge and develop different value
systems
Ethical misconduct may result

183

Structural Comparison of
Organizational Types Emphasis
Characteristic

Centralized

Decentralized

Centralized

Decentralized

Flexibility

Low

High

Adaptability

Low

High

Problem recognition

Low

High

Implementation

High

Low

Dealing with changes

Poor environmental
complexity

Good

Rules and procedures

Many and formal

Few and informal

Clear-cut

Ambiguous

Many employees

Few employees

Extensive

Minimal

Formal and
impersonal

Informal and
personal

Hierarchy of authority

Division of labor

Span of control
Use of managerial techniques
Coordination and control

184

Examples of Centralized and

Decentralized Corporate Cultures

185

Examples of Centralized and

Decentralized Corporate Cultures
Organizational
Culture

Characterized by

Nike

Decentralized

Creativity, freedom, informality

Southwest Airlines

Decentralized

Fun, teamwork orientation,

loyalty

Centralized

Unions, adherence to task

assignments, structured

Decentralized

Creative, investigative, fast

paced

Centralized

Experienced, dependable, a rich

history and tradition of
products, powerful

Company

General Motors

Microsoft

Proctor & Gamble

186

Formal groups
Committees, work groups, and teams

Informal groups
The grapevine

Group norms
Standards of behavior that groups expect of

members
Define acceptable/unacceptable behavior within
the group
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187

Variation in
Employee Conduct*
10%

40%

Follow their own Always try to

values and
follow company
beliefs; believe
policies
that their values
are superior to
those of others in
the company

40%
Go along with
the work group

10%
Take advantage
of situations if
the penalty is less
than the benefit
and the risk of
being caught is
low

* Estimates based on the authors research and reports from ethics and compliance officers from
many industries. 23715_ch07_lores_181-212.indd 205 13/07/13 5:14 PM

188

Ethical decisions are often made by

committees and formal and informal
groups
Many decisions are beyond the influence of

individuals
Congruence between individual and
organizational ethicsincreases potential for
making ethical decisions
Individuals need experience to understand
how to resolve ethical issues
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189

Part Four
Implementing
Business Ethics
in a Global
Economy
Chapter 8
Developing an
Effective Ethics
Program
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190

Corporations have the same rights and

responsibilities as individuals
All employees must obey laws and regulations

defining acceptable business conduct

Corporate culture without values and

appropriate communication about ethics can

facilitate individual misconduct
Ethical corporate culture does not evolve, but

requires ethical polices

Implementing a corporate ethics program
promotes the corporation as a moral agent
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191

Most Common Observed

Forms of Misconduct

Source: Ethics Resource Center, National Business Ethics Survey of Fortune 500 Employees: An Investigation into the
State of Ethics at America's Most Powerful Companies (Arlington, VA: Ethics Resource Center, 2012).

192

It is nearly impossible to know all relevant laws

Ethics programs increase ethical awareness

Organizations can become bad barrels

Pressures to succeed create opportunities

rewarding unethical decisions

Established ethics programs help employees

determine what behaviors are acceptable

Top management must integrate these codes,

values and standards into the corporate culture

193

A strong ethics program includes

Written codes of conduct
Ethics officers to oversee the program

Careful delegation of authority

Formal ethics training
Rigorous auditing, monitoring, enforcement,

and revision of program standards

194

Effective ethics program ensure that all

employees understand and comply with
the ethical culture
Cannot assume employees know how to

behave when entering a new job

Ethics programs act as important deterrents
to organizational misconduct

195

The FSGO encourages assessing key risks

Firms can use assessments to update their
internal control mechanisms
Ethics programs must be designed and
implemented to address these risks
Ethics programs can help a firm avoid civil
liability if they show due diligence in preventing
misconduct

196

Minimum Requirements
for Ethics/Compliance
1. Standards and procedures, such as codes of ethics, that are
reasonably capable of detecting and preventing misconduct
2. High-level personnel who are responsible for an ethics and
compliance program
3. No substantial discretionary authority given to individuals with a
propensity for misconduct
4. Standards and procedures communicated effectively via ethics
training programs
5. Systems to monitor, audit, and report misconduct
6. Consistent enforcement of standards, codes, and punishment
7. Continuous improvement of the ethics and compliance program
Source: Adapted from U.S. Sentencing Commission, Federal Sentencing Guidelines Manual , effective November 1, 2004 (St.
Paul, MN: West, 2008).
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197

Which is Justified to
Survive

Source: Ernst & Young, Growing Beyond: a place for integrity12th Global Fraud Survey ,
http://www.ey.com/Publication/vwLUAssets/Global-Fraud-Surveya-place-for-integrity-12th-Global-Fraud-Survey/$FILE/EY12th-GLOBAL-FRAUD-SURVEY.pdf (accessed May 6, 2013).
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198

Compliance Versus Values

Orientation
Compliance orientation
Requires employees identify with and commit to

specific conduct
Uses legal terms, statutes, and contracts to teach
the rules and penalties for noncompliance

Values orientation
Strives to develop shared values; focuses on ideals,

such as accountability and commitment

Is more effective at creating ethical reasoning, the
foundation of an organizational ethical culture
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199

Codes of
Conduct
Formal statements that describe what an
organization expects of its employees
Codes of ethics
Most comprehensive; consists of general

statements serving as principles and the basis for

the rules in a code of conduct

Statement of values
Serves the general public and addresses

stakeholder interests
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200

Benefits Of Having
An Ethics Code
A Comprehensive Code of Conduct Can
1. Guide employees in situations where the ethical course of action is not immediately obvious.
2. Help the company reinforceand acquaint new employees withits culture and values. A
code can help create a climate of integrity and excellence.

3. Help the company communicate its expectations for its staff to suppliers, vendors, and
customers.
4. Minimize subjective and inconsistent management standards.
5. Help a company remain in compliance with complex government regulations.
6. Build public trust and enhance business reputations.
7. Offer protection in preempting or defending against lawsuits.
8. Enhance morale, employee pride, loyalty, and the recruitment of outstanding employees.
9. Promote constructive social change by raising awareness of the communitys needs and
encouraging employees and other stakeholders to help.

10. Promote market efficiency, especially in areas where laws are weak or inefficient, by
rewarding the best and most ethical producers of goods and services.
Source: Ten Benefits of Having an Ethics Code, Josephson Institute Center for Business Ethics, http://josephsoninstitute.org/
business/blog/2010/11/tenbenefits-of-having-an-ethics-code/ (accessed March 14, 2010). Originally adapted from Good Ideas for
Creating a More Ethical and Effective Workplace.
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201

Developing/Implementing
a Code of Ethics/Conduct
1. Consider areas of risk and state the values as well as conduct
necessary to comply with laws and regulations. Values are an
important buffer in preventing serious misconduct.
2. Identify values that specifically address current ethical issues.

4. Make the code understandable by providing examples that reflect

values.
5. Communicate the code frequently and in language that employees
can understand.
6. Revise the code every year with input from organizational members
and stakeholders.
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Cengage Learning 2015

3. Consider values that link the organization to a stakeholder

orientation. Attempt to find overlaps in organizational and stakeholder
values.

202

Often contain six core values

1. Trustworthiness
2. Respect

3. Responsibility
4. Fairness
5. Caring
6. Citizenship

203

Ethics officers are responsible for managing

the ethics and legal compliance programs
Assess needs and risks
Develop and distribute the code
Conduct training programs for employees
Confidentially answer employees questions
Ensure government compliance
Monitor and audit ethical conduct
Take action on possible code violations
Review and update the code
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204

Ethics training can

Educate employees about policies, expectations,

laws, regulations, and general social standards

Raise awareness of resources and support systems
Empower employees

Top executives must communicate and

enforce ethical standards

Employees need to know whom to contact for
guidance when encountering gray areas
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205

Goals Of Successful Ethics

Training Programs
1. Identify key risk areas employees will face.

2. Provide experience in dealing with hypothetical or disguised ethical issues

within the industry through mini-cases, online challenges, DVDs, or other
experiential learning opportunities.
3. Let employees know wrongdoing will never be supported in the organization
and employee evaluations will take their conduct in this area into consideration.
4. Let employees know they are individually accountable for their behavior.

6. Provide ongoing feedback to employees about how they are handling ethical
issues.
7. Allow a mechanism for employees to voice their concerns that is anonymous,
but provides answers to key questions (24-hour hotlines).
8. Provide a hierarchy of leadership for employees to contact when they are faced
table
fixhow
source
text
with an ethical Replace
dilemma with
they do
not8.5,
know
to resolve.

Cengage Learning 2015

5. Align employee conduct with organizational reputation and branding.

206

Effective programs employ various methods

to measure effectiveness
Observing employees
Internal audits and investigations
Surveys
Reporting systems
External audits

Consistent enforcement and necessary

disciplinary action are essential to a functional
ethics or compliance program
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207

Improving a system differs little from

implementing any other business strategy
To improve its ethical performance, a

company may change how it makes decisions

Centralize decisions, or decentralize them

The key is to delegate authority carefully so

the organization can achieve ethical

performance
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208

Larger Companies and

Responsibility Reporting

Research performed on 3,400 global companies, including the worlds largest 250 companies
Source: KPMG International Corporate Responsibility Reporting Survey, 2011,
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/corporateresponsibility/Documents/2011-survey.pdf
(accessed May 6, 2013).
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209

Failure to understand and appreciate goals

Setting unrealistic/immeasurable objectives
Unsupportive top management
Ineffective or incomprehensible content
Transferring an American program to a

firms international operations

Designing a program that is little more than a
series of lectures resulting in low recall
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210

Part Four
Implementing
Business Ethics
in a Global
Economy
Chapter 9
Managing and
Controlling Ethics
Programs

211

Five factors can impact success of ethics

programs
1. The content of the code of ethics

2. The frequency of communication regarding

the ethics program

3. The quality of communication
4. Senior managements ability to incorporate
ethics into the organization
5. Local managements ability to do the same
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212

Organizations must focus on

implementation and planning an ethics
program
Should be part of strategic planning and

management activities

213

Proper selection of employees

Ethics training
Structural and communication systems
Ethics assistance line
Help desk

Managements commitment to the program

Comparing standards against actual behavior
Ethics audit
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214

A systematic evaluation of an organizations ethics

program and performance to determine whether it
is effective
Regular, complete, and documented measurements

of compliance with policies and procedures

Can be a precursor to establishing an ethics program
Should be the most important part of an ethics

program
Primary purpose is to identify risks and problems in

activities and plan steps to adjust/correct/eliminate

concerns

Recent legislation encourages greater ethics audits

215

The process of accessing and reporting a

businesss performance in fulfilling its
economic, legal, ethical, and
philanthropic responsibilities expected by
stakeholders
Broader in scope than an ethics audit

An ethics audit might be a component

216

Detect misconduct before it becomes a major

problem
Identifies potential ethical issues and
improve legal compliance
Improve organizational performance
Improve relationships with stakeholders who
demand greater transparency
Sets goals against which to measure actual
performance

217

Top Challenges
For CEOs
1. Human capital

2. Operational excellence
3. Innovation
4. Customer relationships
5. Global political/economic risk
6. Government regulation

7. Global expansion
8. Corporate brand and reputation
9. Sustainability

N = 729 total responses. Response

rate varied for each challenge.
Source: The Conference Board, CEO
Challenge 2013 Summary Report,
2013.

10. Trust in business

218

Plans to respond to and recover from

disasters that can disrupt operations,
destroy organizational reputation, and
erode shareholder confidence
Involves

Contingency planning
Assessing organizational risks
Planning for potential occurrences
Providing tools to respond
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219

Ethical misconduct disasters progress in

stages
Ethical issue recognition
The decision to act unethically
Organizations discovery of and response to the

act

Anticipation of and intervention can stave off

organizational disasters
Formal mechanisms in place to detect risk

220

Improving Organizational
Risk Management
1. Create a Regulatory Reform Project Management Office with the
appropriate governance to direct business and operating models and
manage risks proportionately.

2. Chief Risk Officers should report to Group CROs or board members.

3. Involve risk and compliance at the beginning of the product
development cycle.

4. Improve independent controls by setting appropriate governance

frameworks with which portfolio managers need to comply.
5. Manage and optimize the use of capital.

Source: Ernst & Young, Risk Management for Asset Management: Ernst & Young Survey 2012 , 67,
http://www.ey.com/Publication/vwLUAssets/2012_EMEIA_asset_management_risk_survey/$FILE/Risk_Management_for_A
M_EY_Survey_2012.pdf (accessed May 14, 2013). 23715_

221

Nonfinancial performance measures are

crucial to a firms health

Measure wholeness and soundness of a company
Return on integrity

Many organizations and regulatory

frameworks offer a means of capturing

ethical performance
Structural
Behavioral

222

Description of
Measuring Tools
Measurement
Systems

Description

Balanced
Scorecard

Developed by Drs. Robert Kaplan and David Norton, the Balanced Scorecard
incorporates nonfinancial performance indicators into the evaluation system
to provide a more balanced view of organizational performance. The system
uses four metricsfinancial, internal business processes, learning and growth,
and customerto measure the overall performance of the firm.

Six Sigma

Six Sigma focuses on improving existing processes that do not meet quality
specifications or that need to be improved as well as developing new processes
that meet Six Sigma standards. To meet Six Sigma specifications, the process
must not produce more than 3.4 defects per million opportunities.

Triple Bottom
Line

This approach to measuring social, financial, and environmental factors (or

people, places, and planet) recognizes that business has a responsibility to
positively influence a variety of stakeholders, including customers, employees,
shareholders, community, and the natural environment. The challenge is how
to evaluate a businesss social and environmental impacts, since there are no
universally standard forms of measuring these criteria.

Source: Balanced Scorecard Basics,Balanced Scorecard Institute,

http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx (accessed May 14,
2013); What is Six Sigma, iSix Sigma, http://www.isixsigma.com/index.php?option=com_k2&view=item&id=1463:what-issix-sigma?&Itemid=155 (accessed May 14, 2013); Triple bottom line, The Economist , November 17, 2009,
http://www.economist.com/node/14301663?story_id=14301663 (accessed May 14, 2013). 23715_ch09_lores_239-271.indd 249
29/07/13 1:21 PM
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223

Six Sigma
Balanced Scorecard
Triple Bottom Line
Global Reporting Initiative
AccountAbility AA1000 framework
Open Compliance Ethics Group

224

AA 1000 Framework for

Ethics and Social Accountability

Source: Adapted from AccountAbility AA1000 Series of Standards, http://www.accountability21.net/aa1000series (accessed

March 12, 2009). Reprinted with permission of The Institute of Social and Ethical Accountability.
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225

AA 1000 Framework for

Ethics and Social Accountability

Source: The Open Compliance Ethics Group Framework Overview, http://www.oceg.org/framework.asp (accessed April
4, 2006). Reprinted with permission.
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226

May uncover ethical problems a company

does not wish to disclose

May reveal a problem that cannot be
remedied
Stakeholders may be dissatisfied with the
information
Conducting ethics audits requires financial
and record keeping resources
No guarantee that auditing is the solution
Lack of standardization in auditing

227

Audits should be unique to each company

The following steps provide a general

framework
Secure management and board commitment
Establish an ethics audit committee
Define the scope of the audit
Review organizational mission, goals, and values
Collect and analyze relevant information
Verify the results through an outside agent
Report the findings
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228

Framework for an
Ethics Audit

Secure the commitment of top managers and board of directors

Establish a committee to oversee the ethics audit

Define the scope of the audit process, including subject matter

areas important to the ethics audit

Review the organizations mission, policies, goals, and objectives

and define its ethical priorities

Collect and analyze relevant information in each designated

subject matter area

Have the results verified by an independent agent

Report the findings to the audit committee and, if approved, to

managers and stakeholders

Sources: These steps are compatible with the social auditing methods prescribed by Warren Dow and Roy Crowe in What
Social Auditing Can Do for Voluntary Organizations (Vancouver: Volunteer Vancouver, July 1999), and Sandra Waddock and
Neil Smith in Corporate Responsibility Audits: Doing Well by Doing Good, Sloan Management Review 41 (2000), 79.
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229

The first step in the auditing process

Sarbanes-Oxley requires that boards of

directors provide oversight

The board may initiate audits
Managers may request an ethics audit to
improve confidence in a firms reporting
processes

230

Model Corporate Social

Responsibility Structure

231

The second step in the auditing process

Boards of directors financial audit committee

should oversee the audit

Managers or ethics officers conduct it in most

firms

Internal and external parties should be

involved

External auditors should not have other

consulting or conflict-of-interest relationships
with top managers or board members

232

The ethics audit committee should establish

the scope of the audit and monitor its

progress
Scope is determined by the type of business,
risks faced, and the opportunities to manage
ethics

233

An ethics audit should

Include a review of the current mission

statement and strategic objectives

Examine all formal and informal documents

that make commitments with regard to

ethical, legal, or social responsibility
A firm should define its ethical priorities at

this time
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234

Identify tools for measuring progress in

improving employees ethical decisions

Collect relevant subject matter
Internal and external documents

Determine a baseline level of compliance

235

Determine all commitments

Stakeholders yield insights
Integrating stakeholder feedback is crucial in an

audit

Audits should compare organizational

performance to other comparable

organizations

236

Green Mountain Coffees

Code of Ethics

Respect the rights and the property of others

Maintain accurate records and report unethical behavior

Comply with all laws, rules, and regulatory requirements

Avoid conflicts of interest and any appearance of impropriety

Be responsible stewards in the use, protection, and management of GMCRs assets

and resources

Understand antitrust laws and uphold fair competitive practices

Share GMCRs story while following the Media Relations guidelines on consistent
communications

Act with integrity while maintaining the confidentiality of GMCR information

Support GMCRs purpose, Principles, Policies, and Procedures and encourage

GMCRs business partners to do so as well
Source: Adapted from GMCs Code of Ethics,
http://investor.gmcr.com/documentdisplay.cfm?DocumentID=7206 (accessed May 14, 2013).
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237

Where Cultures are Weaker,

Misconduct is More Prevalent

Source: Ethics Resource

Center, 2011 National
Business Ethics Survey:
Workplace Ethics in
Transition (Arlington, VA:
Ethics Resource Center,
2012), 20.
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238

Have an independent party verify the results

of the analysis
Companies often have results independently

audited

Verification is an assessment of the quality,

accuracy, and completeness of a companys

social report
Should involve standard procedures to control

reliability and validity of information

239

The final step in the auditing process

Spells out the purpose and scope of the audit,
methods used, role of the author, and auditing
and reporting guidelines
May be disseminated internally or externally
Ethics audits are similar to financial audits, but
forms are different

Unqualified opinion
Qualified opinion
Adverse opinion
Disclaimer of opinion
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240

Should be conducted regularly

Provides a benchmark of overall effectiveness

of ethics initiatives
Can be important in asset allocation and program

development

Can demonstrate the positive impact of

ethical conduct and social responsibility

initiatives on the firms bottom line
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241

Part Four
Implementing
Business Ethics
in a Global
Economy
Chapter 10
Business Ethics in
a Global Economy

242

Brings together people from countries with

varying cultures, values, laws, and ethical
standards
International businesspeople must

understand the values, culture, and ethical

standards of their own country
Must be sensitive to the same in other
countries

Success requires understanding the global

business environment
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243

Country cultural values: Are specific to

countries, regions, sects or groups

National culture: Everything in our
surroundings that is made by people
Both tangible and intangible
Each nation has a cultural belief about acceptable

business activities
Subcultures can be found within many nations

244

Geert Hofstede identified four cultural

dimensions that impact the business
environment
Individualism/collectivism

Power distance
Uncertainty avoidance
Masculinity/femininity

245

The unconscious reference to ones own

cultural values, experiences, and

knowledge
The idea that we differ from them
Common in international business
We react based on our knowledge
Accumulated over a lifetime
Grounded in culture of origin

246

The concept that morality varies from one

culture to another
Believes right and wrong is defined

differently by each culture

Can be a rationalization for straying from
ones cultural values

247

Shared across most cultures; often based

on religion, reflected by law
Desirable common values
Integrity, family and community unity, equality,

honesty, fidelity, sharing, and unselfishness

Undesirable common values

Ignorance, pride and egoism, selfish desires, lust

greed, adultery, theft, deceit, lying, murder,

hypocrisy, slander, and addiction
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248

Economic and political events and natural

disasters can affect the global ethical decision

making environment
Many ethical issues emerge in coping with crises

The last global recession caused massive

public distrust
People are now discussing, and even revising,

some fundamental capitalism concepts and

assumptions

249

Occurs when corporate profit centers are

unaware of the consequences of their
decisions on the firm as a whole
No single person can be blamed, the problem

is systemic

250

Adam Smith
Laissez-faire capitalism

John Maynard Keynes

Government can stimulate the private sector

Milton Friedman
Return to self-regulating free market system

251

1. People have rational preferences among

outcomes that can be identified and

associated with value
2. Individuals seek to maximize utility; firms
seek to maximize profits
3. People act independently on the basis of full
and relevant information

252

Socialism: Advocates that wealth and power

be shared across society, based on the

amount of work expended in production
Karl Marx

Social democracy: Private ownership of

property, but a large government

Formed in the 1940s as an offshoot of socialism

Bimodal wealth distribution: Many poor

people, concentrated wealth at the top and a

small middle class
Multinational corporations concentrate control of

the global economy to a few companies

253

Rational economics: Assumes that people

are predictable and base their decisions on

maximizing utility based on resources
Behavioral economics: Assumes that
humans do not always act rationally due to
genetics, emotions and learned behavior

254

Cengage Learning 2015

Economic Capitalism
Country Differential

255

Public companies that operate on a global

scale, without significant ties to any one
nation or region
The highest level of international business

commitment
Characterized by a global strategy of focusing
on opportunities throughout the world
Subject of much ethical debate due to their
size and financial power
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256

Business for Social

Responsibility (BSR)
Many MNCs have joined this globally based

resource system
Tracks emerging issues and trends
Provides information on corporate leadership
and best practices
Conducts educational workshops and
training
Assists organizations in developing practical
business ethics tools

257

Comparing Countries and

Corporations
Country

GDP (millions in
$ U.S.)

Company

Revenues
(millions $ U.S.)

United States

15,650,000

Royal Dutch Shell

484,489.0

China*

12,380,000

Exxon Mobile

452,926

Japan

5,984,000

Walmart

446,950

Germany

3,367,000

386,463

India

1,947,000

Sinopec Group

375,214

Iran

483,800

China National Petroleum

352,338

Argentina

474,800

State Grid

259,142

Taiwan

474,100

Chevron

245,621

Denmark

309,200

ConocoPhillips

237,272

Greece

255,000

Toyota Motor

235,364

*Note: Because China bases its exchange rate on the fiat, purchasing power parity was used to get a better
comparison of its GDP compared to other countries.
Source: Adapted from Global 500: Fortunes Annual Ranking of the Worlds Largest Corporations, CNNMoney , http://money.cnn.com/magazines/fortune/
global500/2012/full_list/ (accessed May 16, 2013). CIA World Fact Book , https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html
(accessed May 16, 2013).
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258

The International
Monetary Fund (IMF)
Emerged from Bretton Woods agreement, 1944

Makes short-term loans to member countries

Provides foreign currencies for its members
Promotes responsible business conduct
Recommended new rules for large firms

which represent the biggest systemic risk

259

The United
Nations (UN)
Founded in 1945; 193 member nations
Goal to promote world peace, improve inter-

country relations, and support better

standards and human rights
Focuses on environmental and human rights
issues

260

The United Nations

Global Compact
A set of ten principles promoting human

rights, sustainability, and the eradication of

corruption
Collaborative arrangement between
businesses, governments, NGOs, societies,
and the UN
Voluntary membership
Members report on progress toward goals
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261

Ten Principles of the UN

Global Compact
Human Rights
Principle 1: Businesses should support and respect the protection of internationally
proclaimed human rights; and
Principle 2: make sure that they are not complicit in human rights abuses.

Labour
Principle 3: Businesses should uphold the freedom of association and the effective
recognition of the right to collective bargaining;
Principle 4: the elimination of all forms of forced and compulsory labour;
Principle 5: the effective abolition of child labour; and
Principle 6: the elimination of discrimination in respect of employment and occupation.
Environment
Principle 7: Businesses should support a precautionary approach to environmental
challenges;
Principle 8: undertake initiatives to promote greater environmental responsibility; and
Principle 9: encourage the development and diffusion of environmentally friendly
technologies.
Anti-Corruption
Principle 10: Businesses should work against corruption in all its forms, including extortion
and bribery.
Source: The Ten Principles, United Nations Global Compact, http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html (accessed
May 16, 2013).
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262

Established in 1995 at the Uruguay round of

the General Agreement on Tariffs and Trade

(GATT); 159 member and observer nations
Administers trade agreements, facilitates trade

negotiations and settles trade disputes

Monitors trade policies of member nations
Addresses economic and social issues of many
industries; attempts to reduce trade barriers
Provides legally binding ground rules for commerce
Not all countries agree with the WTO on free trade

263

The practice of charging high prices for

products in domestic markets, while
selling the same products in foreign
markets at low prices; often below cost
Places local firms at a disadvantage
The U.S. has anti-dumping laws in place

264

Key areas of international risk

Emerging markets carry significant risks for

international investors
Chinese leadership is promoting
nationalism, which could threaten its
relationships with other countries
The economic outlook for many Eurozone
countries remains weak
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265

Global Business Ethics and

Legal Issues
U.S.
Ranking

European
Ranking

Code of Conduct

U.S. Antitrust

Mutual Respect

U.S. Foreign Corrupt Practices Act (FCPA)

Conflicts of Interest and Gifts

Proper Use of Computers

7
8

Important Issues

Insider Trading
6

Financial Integrity

Confidentiality

Records Management

Labor and Employment Law

Intellectual Property

Global Competition Law

Global Anti-bribery Requirements

Ethics and Values

Export Controls

Source: Adapted from

Integrity Interactive
Corporation, Top
Compliance Concerns of
Global Companies,
http://www.i2c.com
(accessed May 16, 2013).

266

Briberys acceptance varies by country

Can be a challenge to determine what a bribe is

Bribery laws and regulations

The U.S. Foreign Corrupt Practices Act (FCPA)

prohibits companies from paying foreign officials

to keep/obtain business, with exceptions
The U.K. Bribery Act goes much further

Most developed countries recognize bribery

is not conducive to business

However, companies must determine what

constitutes a bribe
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267

Antitrust laws are meant to encourage fair

competition
Countries have differing levels of protections
Can create difficulties in international business

Vertical system: A channel member controls

the entire business system

Can occur when MNCs are allowed to grow

unchecked and create a monopoly

Reduces competition and can put small
competitors out of business
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268

Serious Internet crimes have garnered public

attention
Cyber hacking, Trojan horses, worms and malware

Privacy violations
Hacking into peoples personal accounts
Tracking users through their mobile phone apps
Companys use of personal information

269

An inherent dignity with equal and

inalienable rights
The foundation of freedom, justice, and world peace

Codified in the UN Human Rights Declaration

Is becoming a serious issue for companies due to

the health care issue

Many question whether health care is a right or a
privilege

270

A major global human rights issue

Over a billion people lack access to health

care globally
Patents assign rights to companies, who can
charge what they wish
Some companies are dropping costly
employee insurance plans, leaving more
people without affordable insurance
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271

Many people work outside their homeland

International firms today have many global

ethical concerns related to labor

Gender pay equality

Right to join unions

Standards of living

272

Living wage: The minimum wage that

workers require to meet basic needs

Some MNCs choose to outsource to countries that

do not have a minimum wage

Executive compensation
A major topic during the last global recession
Growing global demand for alignment between

managerial performance and compensation

273

The belief that consumers should dictate

the economic structure of society

States that consume goods at an increasing

rate is desirable
Equates personal happiness with purchasing
and consuming products
Made-to-break (Planned obsolescence):
Encourages consumers to buy more items
Detractors use the U.S. as an example of nonsustainable consumption
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274

Ethical decision making is essential to

successfully operating a global business

Some MNCs have created officers/committees
to oversee global compliance issues
Successful implementation of a global ethics
program requires extensive employee training
Global firms must tailor programs to
international markets
Global ethics is not one size fits all

275

Part Four
Implementing
Business Ethics
in a Global
Economy

Chapter 11
Ethical Leadership

276

Leadership is the ability or authority to

guide and direct others toward a goal
Ethical leadership creates an ethical culture
Have the power to motivate others and

enforce the organizations norms, policies,

and viewpoints
Positive relationship with the organizational
citizenship of employees and a negative
relationship with deviance or misconduct
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277

In many situations the actions of co-workers

profoundly impacts the ethical decisions of
employees
Many CEOs articulate the firms core values but
fail to exhibit ethical leadership

A leader must have followers respect and also

provide a standard of conduct
Failure to demonstrate effective leadership
qualities at the top creates the perception that
managers either do not care about the companys
ethics program or they feel they are above ethics
and compliance requirements
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278

Leaders Admired for

Ethical Conduct
Leaders Company
Warren
Buffett
Howard
Schultz

Tony Hsieh

Ethical Leadership Activities

Berkshire
Hathaway

Promotes ethical conduct as a necessity of business

Shares responsibility and decision making with managers of
various companies

Starbucks

Offers healthcare to part-time workers

Developed Create Jobs for USA program to fund small businesses
in America

Zappos

Creates a fun work environment for employees; encourages

employees to make decisions
Stresses an environment of quality customer service

Kenneth
Chenault

American
Express

Used his strong work ethic to turn around the struggling

company
Noted for ensuring that stranded cardholders found a way home
during the September 11th attacks and approved a $1 million
donation to the families of American Express employees lost in
the tragedy

Kip Tindell

The
Container
Store

Creates a corporate culture in which employees feel appreciated

and motivated to perform beyond expectations
Employees are provided with better pay and more training than
competing retailers

Source: 10 Most Ethical CEOs in America, Online MBA, March 28, 2012, http://www.onlinemba.com/blog/10-mostethical-ceos-in-corporate-america/ (accessed April 25, 2013).
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279

Ethical leadership skills develop through years of

training, experience, and learning other bestpractices of leadership
Leadership qualities differ for each situation

Ethical leaders must model organizational values

Place what is best for the organization over their own

interests

Train and develop employees throughout their careers

Establish reporting mechanisms

Understand employee values and perceptions

Recognize the limits of organizational rules and values

280

Strong ethical leaders are those passionate

about the organization and act in the

organizations best interests
Ethical leadership is highly unlikely without

strong personal character

Ethical leaders do not wait for ethical

problems to arise
Ethical leaders must model the

organizations values
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281

Seven Habits of Strong

Ethical Leaders
1. Ethical leaders have strong personal character.
2. Ethical leaders have a passion to do right.
3. Ethical leaders are proactive.

4. Ethical leaders consider all stakeholders interests.

5. Ethical leaders are role models for the organizations values.
6. Ethical leaders are transparent and actively involved in decision
making.
7. Ethical leaders take a holistic view of the firms ethical culture.

282

Whole Foods'
Core Values

Selling the highest quality natural and organic products

Satisfying and delighting our customers

Supporting team member happiness and excellence

Creating wealth through profits and growth

Caring about our communities and our environment

Creating ongoing win-win partnerships with our suppliers

Promoting the health of our stakeholders through healthy eating

education
Source: Our Core Values, Whole Foods Markets,
www.wholefoodsmarket.com/company/corevalues.php (accessed April 25, 2013).

283

Has a direct impact on the corporate culture of the

firm

Communicate and monitor an organizations values,

ensuring that employees are familiar with the
companys purpose and beliefs

Provide cultural motivations for ethical behavior, such

as reward systems for ethical conduct

Can lead to higher employee satisfaction and employee

commitment

Creates strong relationships with external stakeholders

Positive association between ethical commitment of

employees and a firms valuation on the stock market

284

Compliance-based approach emphasizes

obedience to rules and regulations and sets

processes in place to ensure compliance
Integrity-based approach views ethics as an
opportunity to implement core values
Take responsibility for the firms ethical culture

and hold employees accountable for practicing

ethical behaviors and core practices

285

Unethical leaders are usually ego-centric and

often do whatever it takes to achieve the

organizations objectives and their own
Apathetic leaders are not necessarily
unethical, but they care little for ethics
within the company
Does not listen to employees and does not

communicate well

Ethical leaders include ethics at every

operational level and stage of the decision

making process
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286

Ethical conflicts occur when there are

two or more positions on an ethical
decision
Will not be brought to managements

attention without effective mechanisms for

transparent communication
Employees themselves should be trained to
handle conflict situations
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287

Categorize conflict management into five

styles: competing, avoiding,
accommodating, collaborating, and
compromising
Based on two dimensions:
Assertiveness is acting in ones own best interests
Cooperativeness means working toward the best

interests of the other person

288

Conflict Management
Styles

Source: Adapted from Kenneth W. Thomas and Ralph H. Kilmann (March 2, 2010). ThomasKilmann Conflict Mode Instrument: Profile and Interpretative Report. CPP, Inc.
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289

Competing conflict management style: Highly

assertive, not very cooperative, believe in
winning at any cost, and measure success by how
much the other side loses
Avoiding conflict management style: Not
effective because they avoid conflict at any cost
even if it leads to misconduct, are uncooperative,
and are non-assertive

Accommodating conflict management style:

Highly cooperative, non-assertive, and give in to
the other side even if it means sacrificing their
own interests and values
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290

Compromising conflict management style: In

between the assertiveness and cooperativeness
dimensions, believe best approach to resolving
conflicts is for each side to give something up in
order to gain something of value
Collaborating conflict management style: Most
advantageous, leaders are cooperative and
assertive, and leaders collaborate with others to
find a creative way to obtain a beneficial solution

291

Employee empowerment is an essential

component of a values-based organizational
culture
Encourages employees to express concerns, bring
up ethical issues, and take a proactive approach
toward resolving conflicts

Ethical leadership training for both managers

and employees is helpful
Important in creating employee-centered ethical
leadership
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292

Communication for
Becoming A Better Leader
1.

Have the tough conversations that youve been meaning to have, including
telling people what they need (and not necessarily want) to hear.

2. Stop talking and listen more.

3. Pick up the phone or walk down the hall to actually talk with someone rather
than relying on more impersonal emails.
4. Communicate bad news in the same way, with the same zest, as good news.

5. Share performance feedback with others regularly so that others know how
they can improve.
6. Be purposeful and thoughtful in how you communicate.
7. Ask for feedback so you can improve your skills.
8. Work on your blind spots in your leadership abilities.
Source: Adapted from David K. Grossman, 13 Ways to Become a Better Leader, The Public Relations
Strategist , Winter 2012, pp. 1213.
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293

Transparency and reporting are two major

dimensions of ethical communication
Create transparency by developing a culture

where ethics is frequently discussed

Reporting is a two-way process in which the
communicator communicates with superiors
and subordinates
Can be formal or informal

294

Four Categories
Of Communication

295

Organizational communication is
separated into four categories:
1. Interpersonal communication is the most

well-known form of communication and

occurs when two or more people interact
with one another
Often difficult to communicate to a superior
Ethical leader must work to reassure employees by

balancing the interests of all relevant stakeholders

296

2. Small group communication is growing in

organizations
Can increase collaboration and generate a variety

of difficult perspectives and opinions on a

particular issue
Groupthink occurs when one or more group
members feel pressured to conform to the groups
decision even if they personally disagree
Group polarization refers to the fact that a group
is more likely to move toward a more extreme
position than the group members might have done
individually
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297

3. Nonverbal communication is

communication expressed through actions,

body language, expressions, or other forms
of communication not written or oral

Nonverbal cues are deemed more reliable that

what he or she states verbally

4. Listening involves paying attention to both

verbal and nonverbal behavior

Without listening, communication becomes

ineffective
Good listening skills tend to establish credibility
and trustworthiness with employees

298

Ways to Avoid Groupthink in

Small-Group Decision Making
1. Emphasize to each team member that he or she is a critical
evaluator with the responsibility to express opinions and
objections freely
2. Eliminate leadership biases by refusing to express an opinion
when assigning tasks to a group
3. Set up a number of independent groups to work on the same issue
4. Encourage each team member to express the groups ideas with
someone he or she can trust from outside the group

5. Express the need to examine all alternatives

6. Invite outside experts into group meetings, and allow members to
interact with these experts
7. Assign one person to be Devils advocate
Source: Irving L. Janis (1972). Victims of Groupthink: a Psychological Study of Foreign-Policy Decisions and
Fiascos. Boston, MS: Houghton-Mifflin.
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299

Leader-follower congruence occurs when

leaders and followers share the same vision,
ethical expectations, and objectives for the
company
Leader-exchange theory claims that leaders

form unique relationships with followers

through social interactions
Important for ethical leaders to frequently

communicate and interact with employees

300

One of the most observable ways of

communicating ethical values to employees

is through codes of ethics and training in
how to act in different situations
Codes of ethics provide important guidelines for

employees on how to act in different situations

Leader-follower communication connects

followers with those in the company who are

most familiar with the firms ethical values
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301

Ethical leaders can mitigate power differences

through frequent communication with workers
Organizational politics is often perceived as
trying to achieve ones own ends even if it means
harming others in the organization

Gossip, manipulation, playing favorites, and taking

credit for anothers work

There is a difference between having a high

degree of office politics and having good political
skills

Political skills can be used to promote organizational

goals and help rather than hinder other employees

302

Most companies recognize the need for

organizational leaders to provide feedback to
employees
Informal methods like simple conversation or
through more formal systems such as employee
performance evaluations
Need for organizational leaders to get feedback
from their employees
Employee feedback can be generated in many
different ways, including interviews, anonymous
surveys, ethical audits and websites

303

The most effective ethical leaders possess the

ability to manage themselves and their
relationships with others effectively, a skill
known as emotional intelligence
1.
2.
3.
4.
5.
6.

Coercive leader
Authoritative leader
Affiliative leader
Democratic leader
Pacesetting leader
Coaching leader

304

Transactional leaders attempt to create

employee satisfaction through negotiating, or
bartering, for desired behaviors or levels of
performance
Transformational leaders strive to raise
employees level of commitment and foster trust
and motivation

Authentic leaders are passionate about the

company, live out corporate values daily in their
behavior in the workplace, and form long-term
relationships with employees and other
stakeholders
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305

When ethical misconduct or issues arise, the leader

should have plans in place to answer stakeholder
concerns and recover from misconduct
The acronym RADAR is used to describe an ethical

leaders duty to:

Recognize ethical issues

Avoid misconduct whenever possible

Detect ethical risk areas

Answer stakeholder concerns when an ethical issue

comes to light

Recover from a misconduct disaster by improving

upon weaknesses in the ethics program

306

The RADAR
Model

Linda Ferrell, 2013

307

Questions to Ask for Discovery

and Assessment Processes

Does the company have a written code of ethics?

Have individuals from high-level positions in the organization

been assigned overall responsibility to oversee compliance with
standards and procedures?

What are the processes or other means by which ethics are

integrated into any or all manufacturing, marketing, distribution,
electronic commerce, and general corporate strategy decisions?

Is there a review process whereby legal, ethical, and business

practice considerations are presented, reviewed, or otherwise
considered by the board of directors?

What steps has the company taken to communicate its standards,

procedures, and policies to all employees through training
programs or publications that describe company expectations?

Adapted from Lynn Brewer, Robert Chandler, and O.C. Ferrell (2006). Managing Risks for Corporate Integrity
(Mason, OH: Thomson), 7684.
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308

Questions to Ask for Discovery

and Assessment Processes

Has the organization taken reasonable steps to achieve

compliance by utilizing, monitoring, and auditing systems
designed to detect misconduct and by providing a reporting
system whereby employees can report without fear of retaliation?

Is adherence to and implementation of, the code of ethics one of

the standards by which the corporate culture can be linked
directly to performance measures?

Has the organization used due care not to delegate substantial

responsibility to individuals that it knows does not have the
ability to implement organization wide risk-reduction processes?

Have the standards been sufficiently enforced through

appropriate methods, such as discipline of employees who violate
ethical policies?

309

Part Four
Implementing
Business Ethics
in a Global
Economy

Chapter 11
Ethical Leadership

310

Leadership is the ability or authority to

guide and direct others toward a goal
Ethical leadership creates an ethical culture
Have the power to motivate others and

enforce the organizations norms, policies,

311

In many situations the actions of co-workers

profoundly impacts the ethical decisions of
employees
Many CEOs articulate the firms core values but
fail to exhibit ethical leadership

A leader must have followers respect and also

312

Leaders Admired for

Ethical Conduct
Leaders Company
Warren
Buffett
Howard
Schultz

Tony Hsieh

Ethical Leadership Activities

Berkshire
Hathaway

Promotes ethical conduct as a necessity of business

Shares responsibility and decision making with managers of
various companies

Starbucks

Offers healthcare to part-time workers

Developed Create Jobs for USA program to fund small businesses
in America

Zappos

Creates a fun work environment for employees; encourages

employees to make decisions
Stresses an environment of quality customer service

Kenneth
Chenault

American
Express

Used his strong work ethic to turn around the struggling

Kip Tindell

The
Container
Store

Creates a corporate culture in which employees feel appreciated

and motivated to perform beyond expectations
Employees are provided with better pay and more training than
competing retailers

313

Ethical leadership skills develop through years of

training, experience, and learning other bestpractices of leadership
Leadership qualities differ for each situation

Ethical leaders must model organizational values

Place what is best for the organization over their own

interests

Train and develop employees throughout their careers

Establish reporting mechanisms

Understand employee values and perceptions

Recognize the limits of organizational rules and values

314

Strong ethical leaders are those passionate

about the organization and act in the

organizations best interests
Ethical leadership is highly unlikely without

strong personal character

Ethical leaders do not wait for ethical

problems to arise
Ethical leaders must model the

315

Seven Habits of Strong

Ethical Leaders
1. Ethical leaders have strong personal character.
2. Ethical leaders have a passion to do right.
3. Ethical leaders are proactive.

4. Ethical leaders consider all stakeholders interests.

316

Whole Foods'
Core Values

Selling the highest quality natural and organic products

Satisfying and delighting our customers

Supporting team member happiness and excellence

Creating wealth through profits and growth

Caring about our communities and our environment

Creating ongoing win-win partnerships with our suppliers

Promoting the health of our stakeholders through healthy eating

education
Source: Our Core Values, Whole Foods Markets,
www.wholefoodsmarket.com/company/corevalues.php (accessed April 25, 2013).

317

Has a direct impact on the corporate culture of the

firm

Communicate and monitor an organizations values,

ensuring that employees are familiar with the
companys purpose and beliefs

Provide cultural motivations for ethical behavior, such

as reward systems for ethical conduct

Can lead to higher employee satisfaction and employee

commitment

Creates strong relationships with external stakeholders

Positive association between ethical commitment of

employees and a firms valuation on the stock market

318

Compliance-based approach emphasizes

obedience to rules and regulations and sets

processes in place to ensure compliance
Integrity-based approach views ethics as an
opportunity to implement core values
Take responsibility for the firms ethical culture

and hold employees accountable for practicing

ethical behaviors and core practices

319

Unethical leaders are usually ego-centric and

often do whatever it takes to achieve the

organizations objectives and their own
Apathetic leaders are not necessarily
unethical, but they care little for ethics
within the company
Does not listen to employees and does not

communicate well

Ethical leaders include ethics at every

operational level and stage of the decision

320

Ethical conflicts occur when there are

two or more positions on an ethical
decision
Will not be brought to managements

attention without effective mechanisms for

321

Categorize conflict management into five

styles: competing, avoiding,
accommodating, collaborating, and
compromising
Based on two dimensions:
Assertiveness is acting in ones own best interests
Cooperativeness means working toward the best

interests of the other person

322

Conflict Management
Styles

323

Competing conflict management style: Highly

Accommodating conflict management style:

324

Compromising conflict management style: In

325

Employee empowerment is an essential

component of a values-based organizational
culture
Encourages employees to express concerns, bring
up ethical issues, and take a proactive approach
toward resolving conflicts

Ethical leadership training for both managers

326

Communication for
Becoming A Better Leader
1.

Have the tough conversations that youve been meaning to have, including
telling people what they need (and not necessarily want) to hear.

2. Stop talking and listen more.

3. Pick up the phone or walk down the hall to actually talk with someone rather
than relying on more impersonal emails.
4. Communicate bad news in the same way, with the same zest, as good news.

327

Transparency and reporting are two major

dimensions of ethical communication
Create transparency by developing a culture

where ethics is frequently discussed

Reporting is a two-way process in which the
communicator communicates with superiors
and subordinates
Can be formal or informal

328

Four Categories
Of Communication

329

Organizational communication is
separated into four categories:
1. Interpersonal communication is the most

well-known form of communication and

occurs when two or more people interact
with one another
Often difficult to communicate to a superior
Ethical leader must work to reassure employees by

balancing the interests of all relevant stakeholders

330

2. Small group communication is growing in

organizations
Can increase collaboration and generate a variety

of difficult perspectives and opinions on a

331

3. Nonverbal communication is

communication expressed through actions,

body language, expressions, or other forms
of communication not written or oral

Nonverbal cues are deemed more reliable that

what he or she states verbally

4. Listening involves paying attention to both

verbal and nonverbal behavior

Without listening, communication becomes

ineffective
Good listening skills tend to establish credibility
and trustworthiness with employees

332

Ways to Avoid Groupthink in

5. Express the need to examine all alternatives

333

Leader-follower congruence occurs when

leaders and followers share the same vision,
ethical expectations, and objectives for the
company
Leader-exchange theory claims that leaders

form unique relationships with followers

through social interactions
Important for ethical leaders to frequently

communicate and interact with employees

334

One of the most observable ways of

communicating ethical values to employees

is through codes of ethics and training in
how to act in different situations
Codes of ethics provide important guidelines for

employees on how to act in different situations

Leader-follower communication connects

followers with those in the company who are

335

Ethical leaders can mitigate power differences

through frequent communication with workers
Organizational politics is often perceived as
trying to achieve ones own ends even if it means
harming others in the organization

Gossip, manipulation, playing favorites, and taking

credit for anothers work

There is a difference between having a high

degree of office politics and having good political
skills

Political skills can be used to promote organizational

goals and help rather than hinder other employees

336

Most companies recognize the need for

337

The most effective ethical leaders possess the

ability to manage themselves and their
relationships with others effectively, a skill
known as emotional intelligence
1.
2.
3.
4.
5.
6.

Coercive leader
Authoritative leader
Affiliative leader
Democratic leader
Pacesetting leader
Coaching leader

338

Transactional leaders attempt to create

Authentic leaders are passionate about the

339

When ethical misconduct or issues arise, the leader

should have plans in place to answer stakeholder
concerns and recover from misconduct
The acronym RADAR is used to describe an ethical

leaders duty to:

Recognize ethical issues

Avoid misconduct whenever possible

Detect ethical risk areas

Answer stakeholder concerns when an ethical issue

comes to light

Recover from a misconduct disaster by improving

upon weaknesses in the ethics program

340

The RADAR
Model

Linda Ferrell, 2013

341

Questions to Ask for Discovery

and Assessment Processes

Does the company have a written code of ethics?

Have individuals from high-level positions in the organization

been assigned overall responsibility to oversee compliance with
standards and procedures?

What are the processes or other means by which ethics are

integrated into any or all manufacturing, marketing, distribution,
electronic commerce, and general corporate strategy decisions?

Is there a review process whereby legal, ethical, and business

practice considerations are presented, reviewed, or otherwise
considered by the board of directors?

What steps has the company taken to communicate its standards,

procedures, and policies to all employees through training
programs or publications that describe company expectations?

342

Questions to Ask for Discovery

and Assessment Processes

Has the organization taken reasonable steps to achieve

compliance by utilizing, monitoring, and auditing systems
designed to detect misconduct and by providing a reporting
system whereby employees can report without fear of retaliation?

Is adherence to and implementation of, the code of ethics one of

the standards by which the corporate culture can be linked
directly to performance measures?

Has the organization used due care not to delegate substantial

responsibility to individuals that it knows does not have the
ability to implement organization wide risk-reduction processes?

Have the standards been sufficiently enforced through

appropriate methods, such as discipline of employees who violate
ethical policies?

343

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