Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Chapter 12 Establishing a Code of Ethics and Ethical Guidelines Understanding Business Ethics Stanwick and Stanwick 2 nd Edition

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. How We’re Fixing Up Tyco Eric Pilmore, the new senior vice president of corporate governance at Tyco, had to determine how he was going to repair the tarnished image of Tyco. Tyco would have to start from scratch to develop a new code of ethics in order to reestablish credibility with its stakeholders. 1

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. How We’re Fixing Up Tyco Established the Guide to Ethical Conduct which was applicable to all employees – Covered ethical areas such as sexual harassment, potential conflicts of interest, compliance rules, and fraudulent behavior – Also developed ethical vignette videos to highlight potentially unethical behavior in different situations 2

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Role of a Code of Ethics A code of ethics is a written document that explicitly states what acceptable and unacceptable behaviors are for all of the employees in the organization. Components that impact the development of the ethical standards of the firm 1.Social value 2.Institutional factors 3.Personal factors 4.Organizational factors 3

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Role of a Code of Ethics Four types of statements a corporation may adopt to communicate the corporation’s view of ethics: 1.Values Statements 2.Corporate Credos 3.Codes of Ethics 4.Internet Privacy Policies 4

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Code of Ethics and Stakeholders Code of ethics gives a firm an opportunity to declare its ethical vision to all its stakeholders Four ethical values to consider when developing a code of ethics: 1.Integrity 2.Justice 3.Competence 4.Utility 5

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Code of Ethics and Stakeholders JCPenney – Developed one of the first corporate codes of ethics – Stores were originally called the Golden Rule Stores – In 1913, when the JCPenney stores were formed, the Penney Idea was adopted 6

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Benefits of a Code of Ethics Employee loyalty increases Questionable behavior decreases Competitive positions improve Managers get more confident Employee relations improve Customer relationships get more solid 7

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Content of a Code of Ethics Meeting customer expectations Honesty and Nondelegable quality Traceability and Respect for privacy Avoidance of conflicts of interest Antidiscrimination Empowerment through organizational freedom, responsibility, and authority True reports and Integrity 8

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Code of Ethics Content Areas Fiduciary responsibilities Compliance Accounting Governance Member communications and confidentiality Commitment to learning and skill enhancement Absence of prejudice and harassment Conflict of interest Human resources Cooperation with other credit unions Social responsibility 9

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Role of Total Responsibility Management and a Code of Ethics Total Responsibility Management (TRM) – Starts with the premise that the vision of the firm drives the development of the code of ethics – The firm’s vision establishes the benchmark goals in which the firm is now accountable to its stakeholders 10

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Total Responsibility Management Three major stages of the TRM system 1.Inspiration process 2.Integration process 3.Innovation and improvement process 11

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Total Responsibility Management Inspiration Process 1.Vision setting and leadership commitment 2.Responsibility vision and leadership commitments 3.Stakeholder engagement processes 4.Foundation values 12

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Total Responsibility Management Integration: Changes in Strategies and Management Practices 1.Strategy 2.Building human resource capacity 3.Integration into management systems 13

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Total Responsibility Management Innovation: Focusing on Assessment, Improvement, and Learning Systems 1.The responsibility measurement system 2.Transparency and accountability 3.Innovation, improvement, and learning systems 14

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Steps for an Effective Code of Ethics Many companies begin their ethical codes with a mission statement – The mission statement sets forth a brief explanation about what the company stands for and why it exists Also identifies stakeholders of the company and explains the interactions with the group 15

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Elements of a Good Ethics Program 1.A well-designed code of ethics 2.The assignment of functional responsibility 3.The proper employee training 4.An ethics hotline 16

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Role of Government Regulations Section 406 of the Sarbanes Oxley Act of 2002 requires companies that are publicly traded to disclose whether or not they have a code of ethics – If code of ethics does not exist, the company must explain why – Based on SOX requirements, only top level managers are required to be held accountable to the firm’s code of ethics 17

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Global Code of Ethics 1.Caux Round Table Principles 2.Organization of Economic Co-operation and Development Guidelines for Multinational Enterprises 3.United Nations Global Impact 18

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Questions for Thought 1.Do you think codes of ethics really make a difference in an organization? Explain. 2.Find the Code of Ethics for UnitedHealth on the internet. Comment on the topics addressed in UnitedHealth’s Code of Ethics. Do you feel the code adequately achieves its purpose? 19

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Questions for Thought 3.Many companies ignore or overlook differences in translating codes of ethics into other languages. Why is it important to have codes of ethics translated into the native languages of the countries in which the company may operate? 20