Chapter 4 The Institutionalization of Business Ethics

Learning Objectives Distinguish between the voluntary and mandated boundaries of ethical conduct Provide specific mandated requirements for legal compliance in specific subject matter areas related to competition, consumers, and safety Specifically address the requirements of the Sarbanes–Oxley legislation and implementation by the Securities and Exchange Commission (SEC)

Learning Objectives (continued 1) Describe the passage of the Dodd–Frank Wall Street Reform and Consumer Protection Act along with some of its major provisions Provide an overview of regulatory efforts that provide incentives for ethical behavior

Learning Objectives (continued 2) Provide an overview of the recommendations and incentives for developing an ethical corporate culture contained in the Federal Sentencing Guidelines for Organizations (FSGO) Provide an overview of highly appropriate core practices and their relationship to social responsibility

Table 4.1 - Voluntary Boundary, Core Practices, and Mandated Boundaries of Ethical Decisions

Figure 4.1 - Elements of an Ethical Culture

Mandated Requirements for Legal Compliance Any practice that does not reduce competition or harm consumers or society is permitted Categories of law Civil law: Defines the rights and duties of individuals and organizations Criminal law: Prohibits specific actions and imposes fines or imprisonment as punishment for breaking the law

Mandated Requirements for Legal Compliance (continued) Regulation of competition Protection of consumers Promotion of equity and safety Protection of the natural environment Incentives to encourage organizational compliance programs to deter misconduct

Laws Regulating Competition Sherman Antitrust Act, 1890 Clayton Act, 1914 Federal Trade Commission Act, 1914 Robinson–Patman Act, 1936 Wheeler–Lea Act, 1938 Lanham Act, 1946 Celler–Kefauver Act, 1950 Consumer Goods Pricing Act, 1975 FTC Improvement Act, 1975 Antitrust Improvements Act, 1976 Foreign Corrupt Practices Act, 1977 Trademark Counterfeiting Act, 1980 Trademark Law Revision Act, 1988 Federal Trademark Dilution Act, 1995 Digital Millennium Copyright Act, 1998 Controlling the Assault of Non- Solicited Pornography and Marketing Act (CAN-SPAM), 2003 Fraud Enforcement and Recovery Act, 2009

Laws Protecting Consumers Pure Food and Drug Act, 1906 Federal Hazardous Substances Labeling Act, 1960 Truth in Lending Act, 1968 Consumer Product Safety Act, 1972 Fair Credit Billing Act, 1974 Consumer Goods Pricing Act, 1975 Consumer Leasing Act, 1976 Fair Debt Collection Practices Act, 1978 Toy Safety Act, 1984 Nutritional Labeling and Education Act, 1990 Telephone Consumer Protection Act, 1991 Children’s Online Privacy Protection Act, 1998 Do Not Call Implementation Act, 2003 Credit Card Accountability Responsibility and Disclosure Act, 2009 Dodd–Frank Wall Street Reform and Consumer Protection Act (2010)

U.S. Laws Promoting Equity and Safety Equal Pay Act of 1963 Equal Pay Act of 1963 (amended) Title VII of the Civil Rights Act of 1964 (amended in 1972) Age Discrimination in Employment Act, 1967 Occupational Safety and Health Act, 1970 Title IX of Education Amendments of 1972 Vocational Rehabilitation Act, 1973 Vietnam Era Veterans Readjustment Act, 1974 Pension Reform Act, 1974 Equal Credit Opportunity Act, 1974 Age Discrimination Act, 1975 Pregnancy Discrimination Act, 1978 Immigration Reform and Control Act, 1986 Americans with Disabilities Act, 1990 Civil Rights Act, 1991

Sarbanes–Oxley (SOX) Act Passed to establish a system of federal oversight of corporate accounting practices Public Company Accounting Oversight Board Monitors accounting firms that audit public corporations Jumpstart Our Business Startups (JOBS) Act Exempts emerging growth companies from observing the auditor attestation requirements from Sarbanes–Oxley 404(b)

Sarbanes–Oxley (SOX) Act (continued) Auditor and analyst independence Section 201 prohibits registered public accounting firms from providing both non-audit and audit services to a public company Guarantees whistle-blower protection Motivates employees to disclose information in a judicial proceeding against the private employer Compliance costs have reduced over the years

Dodd-Frank Wall Street Reform and Consumer Protection Act Provisions Created new financial agencies Office of Financial Research Financial Stability Oversight Council (FSOC) Consumer Financial Protection Bureau (CFPB) Instituted a whistle-blower bounty program

Laws that Encourage Ethical Conduct Federal Sentencing Guidelines for Organizations (FSGO) Sarbanes–Oxley Act Dodd–Frank Act Goal - Require employees to report observed misconduct

Federal Sentencing Guidelines for Organizations Firm must develop a code of conduct that communicates required standards People in high positions within a company should have an oversight over the program Individuals with a potential for misconduct should not be put in a position of authority Establish communications system for disseminating standards and procedures Employees should be able to report misconduct without retaliation On detecting misconduct, the firm must take stern action Organization must prevent similar offenses in the future after a case of misconduct has been discovered

Core or Best Practices Focus on developing structurally sound organizational practices and integrity for financial and nonfinancial performance measures Voluntary responsibilities Cause-related marketing Strategic philanthropy Social entrepreneurship

Importance of Institutionalization in Business Ethics Institutionalization helps implant values, norms, and artifacts in organizations, industries, and society Failure to understand core practices provides the opportunity for unethical conduct Institutionalization of business ethics has advanced rapidly in recent years as stakeholders recognized the need to improve business ethics