1. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Chapter 13 Evaluating Corporate Ethics Understanding Business Ethics Stanwick and Stanwick 2 nd Edition

2. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. But We Did Get The Red Eye Out Maya Raber was Director of Engineering of Eastman Kodak’s EasyShare Gallery from 2002 until 2005, when she was fired. Raber alleged in her lawsuit that she was ordered to start compressing the pictures on the Web site to help control the costs of the operations even though quality would be compromised – Raber complained to Kodak that this decision would not best serve the needs of Kodak’s customers 1

3. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. But We Did Get The Red Eye Out Raber stated she was fired after threatening to submit a written report to top executives about her concerns relating to the compression decision Kodak stated that Raber was laid off as a part of a “restructuring.” – Raber’s position was the only one that was eliminated during the “restructuring.” 2

4. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Why Firms Need Ethics Training Programs PriceWaterhouse Coopers interviewed 3,877 senior executives from 78 countries for its 2011 Global Economic Crime Survey – 34% of the companies had been a victim of economic crime in 2010 – 56% reported that the most serious fraud committed to the company was by their own employees 3

5. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Why Firms Need Ethics Training Programs The Size of the Firm Experiencing Fraud in the Survey – 17% of firms with up to 200 employees – 29% of firms with 201-1,000 employees – 54% of firms with more than 1,000 employees 4

6. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Why Firms Need Ethics Training Programs 5

7. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Why Firms Need Ethics Training Programs 6

8. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Why Firms Need Ethics Training Programs 7

9. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Why Firms Need Ethics Training Programs Reasons fraud is committed – Lack of adequate internal controls which gave the individual the opportunity to commit the crime – Financial need to maintain a high standard of living, so there was an incentive to commit the crime – The individual was not aware that his or her actions were wrong, which allowed for rationalization 8

10. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Why Firms Need Ethics Training Programs How are they caught? 1.Corporate control 2.Corporate culture 3.Beyond the influence of management 9

11. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Specific Goals of Ethics Training Programs 1.Provide the necessary tools needed to understand the ethical decision making process 2.Give the employees an opportunity to assess ethical priorities 3.Explain the procedure when employees are in violation of the ethical standards established by the firm 10

12. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Specific Goals of Ethics Training Programs 4.Give the opportunity for employees to be able to identify ethical programs based on the firm’s ethical standards 5.Increase the level of sensitivity of the employees’ view pertaining to specific ethical issues 6.Enhance the ability of the employees to increase their level of individual reflection as it relates to ethical issues 7.Create a strong, positive ethical work climate in which ethical support systems and codes are in place within a firm 11

13. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Establishing a Global Ethics Training Program Morally Sensitive Cultural Education Provide Education on International Human Rights, not only on Foreign Law Compliance Try to Get Beyond ‘Rule Formalism’ Presenting a Rational Dialogue for Important International Issues When There is Dissent Global Cultural Dimensions and Ethics Training Programs Individualism vs. Collectivism High Context vs. Low Context Communication High Uncertainty vs. Low Uncertainty Avoidance Masculinity vs. Femininity High vs. Low Power Distance 12

14. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Enforcement and the Ethics Training Program Employees may be reporting every action seen as a violation of the code of ethics While a certain number of resources are expended with the investigation of each of the complaints – It may be necessary to investigate all of the valid complaints because of the effort expended when establishing the code of ethics 13

15. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Enforcement and the Ethics Training Program For a compliance program to work effectively – It is necessary for the code of ethics to be enforced properly The “tone from the top” is important – when enforcing the code of ethics in an organization 14

16. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Corporate Ethics Officers Federal Sentencing Guidelines for Organizations Act was passed in 1991 – A component of the act was the government’s encouraging firms to implement internal controls to help prevent, detect, and report criminal activities 15

17. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Ethical Auditing Defined as the regular comprehensive evaluation of the compliance of the firm’s ethical policies and procedures The ethical auditing process – Is an evaluation tool used by management to ensure that the ethical conduct described in the code of ethics is enforced throughout the organization 16

18. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Whistle-Blowing The process in which an employee informs another responsible employee about potentially unethical behavior Questions to ask: – Did the individual observe behavior that was illegal, immoral, or illegitimate? – Should the activity be reported? – Should the questioned activity be halted by the firm? – What should be done concerning the whistleblower? 17

19. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Government Regulations and Whistle- Blowing Sarbanes Oxley Act states that whistleblowers can be reinstated to their old jobs Under SOX, employees may not be discharged, demoted, suspended, threatened, harassed, or discriminated against because the employee provided information about fraudulent activities 18

20. Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Questions for Thought 1.Why do you think that many firms establish ethics policies but do not enforce them? 2.Can a company be ethical without having a formal ethics policy? Explain. 3.Do you believe that CPAs would be the best group to perform ethics audits? Why, or why not? 4.Do you think hotlines for reporting ethical violations work? Explain your answer. 19