1. Organizational Ethics and the Law
Chapter 5
Organizational Ethics
and the Law

2. Ch. 5: Key Learning Objectives
Classifying an organization’s culture and ethical climate
Recognizing ethics challenges across the multiple functions of business
Creating effective ethics polices, ethics training programs, ethics reporting mechanisms, and similar safeguards
Assessing the strengths and weaknesses of a comprehensive ethics program
Understanding how to conduct business ethically in the global marketplace
Identifying the differences between ethics and the law

3. Corporate Culture and Ethical Climates
A blend of ideas, customs, traditional practices, company values, and shared meanings that help define normal behavior for everyone who works in a company
Ethical climate
The unspoken understanding among employees of what is and is not acceptable behavior
Multiple climates (or subclimates) can exist within one organization

4. The Components of Ethical Climates
Figure 5.1
The Components of Ethical Climates

5. Business Ethics across Organizational Functions
Business operations can be very specialized, leading to ethical challenges related to those functional areas
Professional ethical standards may conflict with the ethical standards within the organization
Professional associations may have specific ethical standards that apply to that function

6. Professional Codes of Conduct
Examples of business professional associations and their codes:
American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct
Chartered Financial Analyst (CFA)®, CFA Institute Code of Ethics and Standards of Professional Conduct
American Marketing Association (AMA) Code of Ethics
Association for Computing Machinery (ACM) Code of Ethics and Professional Conduct

7. Building Ethics Safeguard into the Company
To improve the quality of a company’s ethical performance you have to change the culture so that ethics is part of everyday decision-making
To do so means institutionalizing ethics or building ethics safeguards in to everyday routines
A recent survey of ethics safeguards or programs of major corporations companies is shown on next slide

8. Organizations’ Ethics Safeguards
Figure 5.2
Organizations’ Ethics Safeguards

9. Two Ethics Approaches
Compliance-based approach
Seeks to avoid legal sanctions
Emphasizes threat of detection and punishment to promote lawful employee behavior
Integrity-based approach
Combine concern for law with emphasis on employee responsibility for ethical conduct
Employees instructed to act with integrity and conduct business dealings honestly
Both approaches have been found to lessen unethical conduct, but in somewhat different ways

10. Ethics Programs and Policies
Top Management Commitment and Involvement
Critical to fostering employee ethical behavior
Ethics Policies or Codes
Provides guidance to managers and employees on what to do when faced with an ethical dilemma
In U.S. policies tend to be instrumental, providing rules and procedures
In Japan policies tend to be combination of legal compliance and company values
Just having a code or policy is insufficient, must be widely distributed and have associated training

11. Ethics Programs and Policies
Ethics and Compliance Officers
Relatively new position (started in 1980’s) that has grown significantly
Membership in professional association, Ethics and Compliance Officers Association, doubled between 2000 and 2004
Ethics Reporting Mechanisms
Purposes include providing interpretations of proper ethical behavior, avenue for reporting unethical conduct, and information-sharing tool
Employees can place a call on the company’s ethics assist or helpline
Are present in over 83% of large companies recently surveyed

12. Ethics Programs and Policies
Ethics Training Programs
Is very effective method for promoting workplace ethical behavior
Online training has emerged as the most widely used form of training over the last five to ten years
Ethics Audits
Formal study of deviations from company ethical standards
Management must report on corrective action to be taken in response to found deviations

13. Comprehensive Ethics Programs
Integration of various program/policy components is critical to effective ethics design
Integrated approach is called a “comprehensive” program
26% of companies recently surveyed had a “6 element” program integrating
Written policies, training, advice resources, hotline, ethics discipline, and evaluation systems
Those working at firms with a comprehensive program are
More likely to report ethical misconduct
More likely to be satisfied with any investigation and response to ethical misconduct

14. Corporate Ethics Awards
Awarded to companies for efforts in creating and improving their ethical performance
These companies serve as models for others to follow
Demonstrates that firms can be financially successful and ethically focused
In 2002 Business Ethics magazine created “Living Economy Award” for companies that focused on fair profit, locally based, stakeholder owned companies

15. Ethics in a Global Economy
Doing business in global context brings up host of complex ethical challenges
Common example is bribery
Bribery is defined as a questionable or unjust payment often to a government official to ensure or facilitate a business transaction
International watchdog agency, Transparency International, publishes a survey of countries’ levels of corruption
Bribe-taking more likely in countries with low per capita income, low salaries for government officials, and less income variation

16. Efforts to Curtail Bribery on the Global Level
Organization for Economic Cooperation and Development (OECD) Treaty
Effort for member countries to agree to steps to prevent and combat bribery
As of 2009, 38 countries had ratified the treaty
Other initiatives
China’s National Corruption Prevention Bureau
International Labour Organization and the United Nations have attempted to develop an international code of conduct for multinational corporations
U.S. Foreign Corrupt Practices Act prohibits executives of U.S. based companies to pay bribes to foreign government officials

17. Relationship between Law and Ethics
Both define proper and improper behavior
Laws are society’s attempt to formalize ethical standards
Written to capture public’s wishes about what constitutes right and wrong behavior
Ethical concepts are more complex than laws
Often apply to areas not covered by laws
Some businesses proactively address ethical areas not covered by law through voluntarily adopted practices
Managers who are trying to improve their company’s ethical performance need to do more than comply with laws

18. Cost of Corporate Lawbreaking
Lawbreaking in business is often a result of acts committed by the organizations'’ own employees
U.S. Justice Department cracking down on corporate illegal activity
New sentencing guidelines put corporate penalties on par with street crimes
Corporate executives convicted of white collar crimes no longer allowed to serve time in halfway houses, will serve time in federal prisons
Many costs of lawbreaking points to need for companies to promote ethical behavior