Organizational Ethics Chapter 3 Organizational Ethics

Learning Outcomes Define organizational ethics Explain the respective ethical challenges facing the functional departments of an organization Discuss the position that a human resource (HR) department should be at the center of any corporate code of ethics

Learning Objectives (continued) Explain the potential ethical challenges presented by generally accepted accounting principles (GAAP) Determine potential conflicts of interest within any organizational function

Defining Organizational Ethics Business ethics is separate from the general subject of ethics because: Stakeholders have a vested interest in the ethical performance of an organization In a work environment, one maybe in a situation where one’s personal value system may clash with the ethical standards of the organization’s operating culture

Defining Organizational Ethics (continued) Organizational culture: Values, beliefs, and norms that all the employees of an organization share Value chain: Key functional inputs that an organization provides in the transformation of raw materials into a delivered product or service

Figure 3.1 - Representative Company Value Chain

Ethical Challenges in Research and Development Critical commitment to the consumer in the provision of product quality, safety, and reliability Noncompliance can lead to negative press coverage, expensive lawsuits, and risk of bankruptcy

Ethical Challenges in Research and Development (continued) Ethical dilemmas can arise when delivery of a design does not match the manufacturing cost Should best materials be used or second best to save money? Should a full battery of tests be run or just computer simulations?

Ethical Challenges in Manufacturing Ethical challenges inherent in arriving at a compromise Supply problem while building a product based on design specifications Should the delivery be delayed or an alternative and less reliable supplier be used? Will there be assurance of quality from the new supplier?

Ethics in Marketing Marketers provide products or services to customers who have already expressed a need for and a desire to purchase those products Unsuspecting customers are induced to buy products they don’t really need by commercials and advertisements Marketers emphasize customer service Argue that customer satisfaction justifies the methods used to achieve the outcome in spite of the misleading message

Ethical Challenges in Marketing: Utilitarianism versus Universal Ethics Ethical choices that offer the greatest good for the greatest number of people Utilitarianism Actions that are taken out of duty and obligation to a purely moral ideal rather than based on the needs of the situation Universal ethics

Ethical Challenges in Marketing (continued) Code of ethics by American Marketing Association (AMA) recommends the following: Do no harm Foster trust Improve customer confidence Establish clear ethical values of honesty, responsibility, fairness, respect, openness, and citizenship

Ethical Challenges in Human Resource (HR) Human resource function should be directly involved in the relationship between the company and the employee Responsibilities of the HR Creation of the job description for the position Recruitment and selection of the right candidate for the position

Ethical Challenges in Human Resource (HR) (continued 1) Orientation of the newly hired employee Efficient management of payroll and benefits for the happy and productive employee Documentation of periodic performance reviews Documentation of disciplinary behavior and remedial training Creation of a career development program for the employee

Ethical Challenges in Human Resource (HR) (continued 2) As a legally responsible function to prevent unethical conduct, HR should: Ensure that ethics is a top organizational priority Ensure that the leadership selection and development processes include an ethics component Ensure that the right programs and policies are in place Stay abreast of ethics issues

Areas in Finance Function Financial transactions - Handling flow of money through an organization Accounting function: Keeps track of all financial transactions By documenting the credits and debits and balancing the accounts at the end of the period Auditing function: Certification of an organization’s financial statements as being accurate by an impartial third-party professional

Internal Auditors According to the Institute of Internal Auditors, internal auditors should: Be grounded in professionalism, integrity, and efficiency Make objective assessments of operations and share ideas for best practices Provide counsel for improving controls, processes and procedures, performance, and risk management

Internal Auditors (continued) Suggest ways for reducing costs, enhancing revenues, and improving profits Deliver competent consulting, assurance, and facilitation services Generally accepted accounting principles (GAAP): Set of standard operating procedures that govern the accounting profession

Creative Bookkeeping Techniques Legal to defer receipts from one quarter to the next to manage the tax liability Accountants face ethical challenges when requests are made for: Falsifying accounts Underreporting income Overvaluing assets Taking questionable deductions

Creative Bookkeeping Techniques (continued) Other ethical challenges faced by accountants Unrealistic delivery deadlines Reduced fees Fees that are contingent on providing numbers that are satisfactory to the client Pressure is added due to competitive tension among accounting firms

Conflicts of Interest Situations where one relationship or obligation places one in direct conflict with an existing relationship or obligation Meeting the needs of an organization’s stakeholders Selling a product that has the potential to be harmful to customers Selling a product that has the potential to be harmful to the environment