1. Copyright © 2013 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 Organizational Ethics Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. 3-2 Defining Organizational Ethics Business ethics, as an area of study, is separate from the general subject of ethics because: Stakeholders have a vested interest in the ethical performance of an organization The situation where one’s personal value system may clash with the ethical standards of the organization’s operating culture

3. 3-3 Defining Organizational Ethics Organizational culture: Values, beliefs, and norms that all the employees of that organization share Value chain: Key functional inputs that an organization provides in the transformation of raw materials into a delivered product or service

4. 3-4 Figure 3.1 - A Representative Company Value Chain Sources: Adapted with permission of the Free Press, a division of Simon & Schuster Adult Publishing Group, from Competitive Advantage: Creating and Sustaining Superior Performance, by Michael Porter. Copyright © 1995, 1998 by Michael E. Porter. All rights reserved. And from A. A. Thompson Jr. and A. I. Strickland III, Crafting & Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases, 14th ed. (New York: Irwin McGraw-Hill, 2005), p. 99.

5. 3-5 Ethical Challenges in Research and Development Critical commitment to the consumer in the provision of product quality, safety, and reliability Tough decisions made when delivery of a design does not match the manufacturing cost figures Use of fresh materials or second best to save money Full battery test run or just computer simulations

6. 3-6 Ethical Challenges in Manufacturing Ethical challenges inherent in arriving at a compromise Supply problem if a product is built precisely based on the design specifications Use of a less reliable supplier when delivery is held up Assurance of quality from the alternative supplier

7. 3-7 Ethical Challenges in Marketing 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 argue that customer satisfaction justifies the methods used to achieve the outcome inspite of the misleading message

8. 3-8 Ethical Challenges in Marketing 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 since the universal principles are seen to apply to everyone, everywhere, all the time Universal ethics

9. 3-9 Ethical Challenges in Marketing Code of ethics by American Marketing Association (AMA) Do no harm Foster trust Improve customer confidence Clear ethical values

10. 3-10 Ethical Challenges in Human Resources 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

11. 3-11 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, or books, as being accurate by an impartial third-party professional

12. 3-12 Internal Auditors 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

13. 3-13 Internal Auditors Suggest ways for reducing costs, enhancing revenues, and improving profits Deliver competent consulting, assurance, and facilitation services

14. 3-14 Auditor’s Code of Ethics Not falsifying documents Not stealing money from the organization Not undertaking any other form of fraudulent activity Related to the management of the organization’s finances

15. 3-15 Ethical Challenges Faced by Internal Auditors Generally Accepted Accounting Principles (GAAP): Set of standard operating procedures that govern the accounting profession Not a set of laws and established legal precedents

16. 3-16 Ethical Challenges Faced by Internal Auditors Creative bookkeeping techniques Legal to defer receipts from one quarter to the next to manage the tax liability Ethical challenges faced Falsifying accounts Underreporting income Overvaluing assets Taking questionable deductions

17. 3-17 Conflicts of Interest Situation where one relationship or obligation places you in direct conflict with an existing relationship or obligation Meeting the needs of your organization’s stakeholders Selling a product that has the potential to be harmful to your customers Selling a product that has the potential to be harmful to the environment