CHAPTER 6 – INDIVIDUAL FACTORS: MORAL PHILOSOPHIES &

VALUES

Moral Philosophy
The specific principles/values people use to decide right from wrong

- Guidelines for determining how to settle conflicts and optimize mutual benefits
- Provide direction in formulating strategies and resolving ethical issues
- No single moral philosophy is accepted by everyone

Economic Systems
Adam Smith

- The father of free market capitalism

- Smith’s 3 main underlying concepts:
o “Invisible hand”: suggests that people essentially vote with their dollars.
o Individuals pursuing their best self-interest results in greatest overall good to society
o That kinds of goods/services in market should be determined by free market alone

Milton Friedman

- Markets reward or punish for unethical conduct without the need for government regulation
- Currently the dominant form of capitalism
- “1 social responsibility of business: use resources & engage in activities to increase profits.”

Economic systems allocate resources/products

- Influenced by, and directly influences:

o Individual’s actions and beliefs (morals)
o Society (laws) as a whole
- Depend on individuals coming together and sharing philosophies
o Creates values, trust and expectations, allowing the system to work

Value Orientation
Economic value orientation: values measured by monetary means. Act produces value = ethical
Idealism: places special value on ideas and ideals as products of the mind

- (+) correlation to ethical decision-making

Realism: view that an external world exists independent of our perception. Guided by self-interest

- (-) correlation to ethical decision-making

Instrumental and Intrinsic Goodness

Monists: believe that only one thing is intrinsically good

- Hedonism: pleasure is the ultimate good (Qualitive & Quantitative hedonism)

Pluralists: believe that no one thing is intrinsically good

Instrumentalists: rejects the ideas that:

- Ends can be separated from the means

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 - Ends, purposes, or outcomes are intrinsically good in and of themselves

Moral Philosophy Types

Instrumental and intrinsic goodness

- Goodness theories: focus on end result of actions and the goodness created by them
- Obligated theories: focus on motives by which actions are justified (deontology, teleology)

Teleology: Considers acts as morally right if they produce a desired result

- Consequentialism: assess moral worth of a behaviour by looking at the consequences

Two important teleology philosophies:

- Egoism: right behaviour in terms of consequences to individual, maximized personal interest.

o Enlightened egoists: take a long-term look and allow for well-being of others though
own self-interests remain dominant.
- Utilitarianism: seeks the greatest good for the greatest number of people
o Rule utilitarian: determine behaviour from principles that promote the greatest utility
o Act utilitarian: examine a specific action itself; not the rules governing it.

Deontology: Focuses on the rights of individuals and on intentions associated with the behaviour

- Nonconsequentialism: a system of ethics based on respect for persons.

Teleological Deontological
Consequence-based view of ethics (Utilitarianism) Rule-based view of ethics (Kantian ethics)
Goodness or badness is determined by the outcomes Goodness or badness is determined by the action
greatest good for greatest number Behaviour that has good will behind it

Relative perspectives

Absolutism Relativism
Unchanging and absolute set of moral rights Wide variety of ethical beliefs and practices
Holds true in all situations What is ‘correct’ in any given situation will depend on
Common to all societies the conditions at the time

People derive definitions of ethical behaviour from experience:

- Descriptive relativism: related to observations of other cultures

- Metaethical relativism: proposes people see situations from their own perspectives
- Normative relativism: assumes one person’s opinion is as good as another’s

Virtue ethics

- Good corporate ethics programs encourage individual virtue and integrity

- The virtues associated with appropriate conduct form a good person
- The ultimate purpose is to serve the public good
- The well-being of the community goes together with individual excellence

Justice
Fair treatment and reward in accordance with ethical or legal standards

- Distributive justice: an evaluation of the results of a business relationship

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 - Procedural justice: considers the activities that produce desired outcomes
- Interactional justice: based on relationships between organizational members

Moral Philosophy and Ethical Decision-Making

Individuals use different moral philosophies for personal decisions than for work-related decisions.

- Pressures for workplace success differ from the goals and pressures in outside life
- Morale character may change to become well-suited with the work environment
- Moral philosophies must be assessed on a continuum

Kohlberg’s Model of Cognitive Moral Development

Consists of 6 stages:

- Punishment and obedience - Social system and ethics maintenance

- Individual instrumental purpose and - Prior rights, social contract, or utility
exchange - Universal ethical principles
- Mutual interpersonal expectations,
relationships
Kohlberg’s Model: 3 levels of ethical concern:

- Concern with immediate interests and rewards & punishments

- Concern with right as expected by the larger society
- Seeing beyond norms, laws, and the authority of groups/individuals

Importance and Problems with Kohlberg’s Theory

- Shows that individuals can change their values through moral development
- Supports management’s development of employee’s moral principles

However:

- Kohlberg used questionable research methods

- His theory contradicts basic moral philosophy
- His theory, while reliable, may not be valid

White Collar Crime

Illegal acts committed for personal/organizational gain by abusing trust & authority with a position

- White collar criminals are educated people in positions of power and respectability
- The financial sector has a high level of WCCs

Reasons for White Collar Crimes

- Activities becomes institutionalized and may encourage unethical behaviours
- Undecided employees go along with the majority
- WCCs increase after economic recessions
- Some businesspeople may have inherently criminal personalities, corporate psychopaths

Justifications for WCC

- Denial for responsibility - Appeal to a higher authority

- Denial for injury - Everyone else is doing it
- Denial of the victim - Entitlement
- Condemnation of the condemners

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Individual Factors
- Most unethical behaviour is not for personal gain, but to meet performance goals
- Rewarding performance goals & corporate culture are important for ethical decision making
- Equipping employees with skills to allow them to understand and resolve ethical dilemmas
will help them make good decisions

CHAPTER 7 – ORGANIZATIONAL FACTORS: THE ROLE OF ETHICAL

CULTURE & RELATIONSHIPS

Corporate Culture
- A set of values and norms + ways of solving problems shared by organizational members
- The shared beliefs top managers have about how they should manage themselves and other
employees and how they should conduct their business
- Gives organizational members meaning and sets the internal rules of behaviour

Sarbanes-Oxley 404
Culture is codified by the Sarbanes-Oxley 404 compliance section:

- Includes assessment of effectiveness of controls by management and external auditors

- Forces firms to adopt a set of values that make up part of the culture
- Compliance with 404 requires cultural change, not only accounting changes

Formal and informal

May be formal through statements of values, beliefs, and customs. Comes from upper management

- Memos, codes, manuals, forms, ceremonies

May be informal through direct/indirect comments conveying management’s wishes

- Dress codes, promotions, extracurricular activities

Dimensions of Organizational Culture

- Concern for people: organization’s efforts to care for its employees’ well-being
- Concern for performance: organization’s efforts to focus on output & employee productivity

Organizational Culture Types

- Apathetic: minimal concern for people or performance. E.g. countrywide financial
- Caring: high concern for people; minimal concern for performance. E.g. Ben & Jerry’s
- Exacting: minimal concern for people; high concern for performance. E.g. UPS
- Integrative: high concern for people and performance. E.g. Starbucks

Cultural audit: assessment of organization’s values, led by outside consultants.

Ethics and Corporate Culture

- Ethical corporate culture is a significant factor in ethical decision making
- If firm’s culture encourages/doesn’t monitor unethical behaviour, workers may act unethically
- Management’s sense of an organizational culture may differ from guiding employees

Compliance vs. Value-based Cultures

- Compliance-based cultures: use a legalistic approach to ethics

4
 o Revolve around risk management, not ethics
o Lack of long-term focus and integrity
- Value-based cultures: rely on mission statements that define firm and stakeholder relations
o Focus on values, not laws
o Top-down integrity

Differential Association
The idea that people learn ethical/unethical behaviour while interacting with others

- differential association supports ethical decision making

- Superiors have a strong influence on subordinates
- Employees may go along with superiors’ moral judgements to show loyalty.

Whistleblowing
Exposing an employer’s wrongdoing to company outsiders

- Some legal protections exit (The Sarbanes-Oxley Act, FSGO, & Dodd-Frank Act)

Leaders Influence Corporate Culture

Effective leader does well for the stakeholders of the corporation
Power: the influence that leaders/managers have over the behaviour/decisions of subordinates.

Five Power Bases

- Reward power: offering something desirable to influence behaviour
- Coercive power: punishing negative behaviour
- Legitimate power: the consensus that a person has the right to use influence over others
- Expert power: knowledge and credibility with subordinates
- Referent power: exists when goals are similar

Motivation
A force within the individual that focuses behaviour toward achieving a goal

- Job performance: a function of ability and motivation

- An individual’s hierarchy of needs may influence motivation and ethical behaviour
o Relatedness needs: satisfied by social and interpersonal relationships
o Growth needs: satisfied by creative or productive activities

Organizational Structures
Centralized: Decision making authority is concentrated in the hands of top-level managers

- Best for organizations;

o That make high-risk decisions
o Whose lower-level managers are not skilled in decision-making
o Where processes are routine
- May have a harder time responding to ethical issues

Decentralized: Decision making authority is delegated as far down the chain of command as possible

- Flexible and quicker to recognize external change

- Can be slow to recognize organizational policy changes
- Units may diverge and develop different value systems
- Ethical misconduct may result

5
Groups in Corporate Structure and Culture
- Formal groups: committees, work groups, and teams (within organization structure)
- Informal groups: grapevine (2 or + with common interest but not part of the formal structure)

Group norms: standards of behavior that groups expect of members

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 CHAPTER 8 – DEVELOPING AN EFFECTIVE ETHICS PROGRAM

Corporations as Moral Agents

- Corporations have the same rights and responsibilities as individuals
- Corporate culture without values & communication about ethics can lead to misconduct
- Ethical corporate culture does not evolve, but requires ethical policies
- Implementing a corporate ethics program promotes the corporation as a moral agent
- Corporations are viewed as moral agents that are accountable for their conduct to stakeholders

Most Common Observed Forms of Misconduct

- Personal business on company time - Health/safety violations
- Abusive behaviour - Company recourse abuse
- Lying to employees - Internet abuse
- Discrimination

The Need for Organizational Ethics Programs

- Ethics programs increase ethical awareness
- Pressures to succeed create opportunities rewarding unethical behaviour
- Established ethics programs help employees determine what behaviours are acceptable
- Top management must integrate these codes, values, and standards into the corporate culture

Components of a Strong Ethics Program

- Written codes of conduct - Careful delegation of authority
- Ethics delegation of authority - Formal ethics training

- Rigorous auditing, monitoring, enforcing, and revision of program standards

An Effective Ethics Program

Effective ethics program ensure that all employees understand and comply with the ethical culture

- Cannot assume employees know how to behave when entering a new job
- Ethics programs act as important preventions to organizational misconduct

Ethics Programs and Avoiding Legal Problems

The FSGO encourages assessing key risks

- Firms can use assessments to update their internal control mechanisms

- Ethics programs must be designed and implemented to address these risks
- Ethics programs helps to avoid lawsuits if they show due diligence in preventing misconduct

Minimum Requirements for Ethics/Compliance

- Standards & procedures (codes of ethics) that are able to detect & prevent misconduct
- High level personnel who are responsible for ethics and compliance programs
- No optional authority given to individuals with a tendency for misconduct
- Standards and procedures communicated effectively via ethics training programs
- Systems to monitor, audit, and report misconduct
- Consistent enforcement of standards, codes, and punishment
- Continuous improvement of the ethics and compliance program

7
Compliance vs. Values Orientation
Compliance orientation: Requires employees identify with and commit to specific conduct. Uses legal
terms, statues and contracts to teach the rules and penalties for noncompliance.
Values orientation: Strives to develop shared values; focuses on ideal (accountability & commitment).

Codes of Conduct
Formal statements that describe what an organization expects of its employees

- Code of ethics: it consists of principles and the basis for the rules in a code of conduct
- Statement of values: it serves the general public and addresses stakeholder interests

A Comprehensive Code of Conduct Can: (benefits)

- Guide employees in situations where the ethical action is not obvious.

- Help to reinforce & acquaint new employees with its culture and values.
- Help company communicate its expectations for its staff to suppliers, vendors, and customers.
- Minimize subjective and inconsistent management standards.
- Help a company remain in compliance with complex government regulations.
- Build public trust and enhance business reputations.
- Offer protection in preventing or defending against lawsuits.
- Enhance morale, employee pride, loyalty, and the recruitment of outstanding employees.
- Promote + social change by raising awareness of community’s needs & encouraging
stakeholders to help.
- Promote market efficiency, especially areas with weak laws, by rewarding the most ethical
producers of goods/services.
Developing/Implementing a Code of Ethics and Conduct

- Consider areas of risk & state values & conduct necessary to obey laws and regulations.
- Identify values that specifically address current ethical issues
- Consider values that link the organization to a stakeholder orientation.
- Make the code understandable by providing examples that reflect values
- Communicate the code frequently and in language that employees can understand
- Revise the code every year with input from organizational members and stakeholders

Corporate Code of Ethics

Contain 6 core values:

- Trustworthiness - Responsibility - Caring

- Respect - Fairness - Citizenship

Ethics Officers
Ethics officers: responsible for managing the ethics and legal compliance programs

- Assessing the needs and risks that an organization-wide ethics program must address
- Developing and distributing a code of conduct or ethics
- Conducting training programs for employees
- Establishing & maintaining a private service to answer employees' qs about ethical issues
- Making sure that the company follows government regulation
- Monitoring and auditing ethical conduct
- Acting on possible violations of the company's codes
- Reviewing and updating the code

8
Ethics Training and Communication
- Observing employees - Reposting systems
Ethics training can
- Internal audits & investigations - External auditing
Educate employees about policies, expectations, laws, regulations, general social standards
- Surveys
- Raise awareness of resources and support systems
Continuous
- Empower Improvements
employees
Improving a system differs little from implementing any other business strategy
Goals of Successful Ethics Training Programs
- To improve ethical performance, firms change how it makes decisions-centralize/decentralize
- Identify key risk areas employees will face
- The key is to assign authority carefully so the organization can achieve ethical performance
- Provide experience in dealing with hypothetical ethical issues within the industry through
Designmini-cases, DVDs, or other
and Implementation experiential learning opportunities
Mistakes
-- Let employees know wrongdoing
Failure to understand and appreciate willgoals
never be supported in the organization and employee
- evaluations will take their conductgoals
Setting unrealistic/immeasurable in this area into consideration
-- Let employees know they
Unsupportive top management are individually accountable for their behavior
-- Align employee
Ineffective conduct with organizational reputation and branding
content
-- Provide ongoing feedback toprogram
Transferring an “American” employees to aabout
firm’show they are handling
international ethical issues.
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-- Allow for employees
Designing a program to thatvoice anonymous
is little more thanconcerns, butlectures
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Systems to Monitor and Enforce Ethical Standards
Effective programs employ various methods to measure effectiveness:

CHAPTER 9 – MANAGING AND CONTROLLING ETHICS PROGRAMS

Implementing Ethics Programs

Five factors can impact success of ethics programs:

- The content of the code of ethics

- The frequency of communication regarding the ethics program
- The quality of communication
- Senior management’s ability to incorporate ethics into the organization
- Local management’s ability to do the same

Process Controls for Ethics Programs

- Proper selection of employees

9
 - Ethics training
- Structural and communication systems (Ethics assistance line, Help desk)
- Management’s commitment to the program
- Comparing standards against actual behavior (Ethics audit)

The Ethics Audit

A systematic evaluation of organization’s ethics program & performance to determine if it is effective

- Regular, complete, and documented measurements of compliance with policies, procedures

- Can come before establishing an ethics program
- Should be the most important part of an ethics program
- Purpose is to identify risks & problems in activities & plan steps to correct/eliminate concerns

The Social Audit

The process of accessing & reporting business’s performance in fulfilling its responsibilities

- Broader in scope than an ethics audit

- An ethics audit is a component of a social audit

Benefits of an Ethics Audit

- Detect misconduct before it becomes a major problem
- Identifies potential ethical issues and improve legal compliance
- Improve organizational performance
- Improve relationships with stakeholders who demand greater transparency
- Sets goals against which to measure actual performance

Top Challenges for CEOs

- Human capital - Government regulation
- Operational excellence - Global expansion
- Innovation - Corporate brand and reputation
- Customer relationships - Sustainability
- Global political/economic risk - Trust in business

Ethical Crisis Management

Plans to respond to and recover from disasters that can disrupt operations, destroy organizational
reputation, and erode shareholder confidence. It involves:

- Contingency planning - Planning for potential occurrences

- Assessing organizational risks - Providing tools to respond

Stages of an Ethical Disaster

- Ethical issue recognition
- The decision to act unethically
- Organization’s discovery of and response to the act

Anticipation of and intervention can avoid organizational disasters

Improving Organizational Risk Management

- Create a Regulatory Reform Project Management Office with the suitable governance to
direct business and manage risk
- Chief Risk Officers should report to Group CROs or board members
- Involve risk and compliance at the beginning of the product development cycle.

10
 - Improve independent controls by setting appropriate governance frameworks with which
portfolio managers need to comply
- Manage and optimize the use of capital

Measuring Nonfinancial Ethical Performance

- Nonfinancial performance measures are crucial to a firm’s health (Measure wholeness and
soundness of a company, “Return on integrity”)
- Many organizations & regulatory frameworks offer a means of capturing ethical performance
(Structural, Behavioural)
- Integrity – balanced organization that not only makes ethical financial decisions but also
ethical in the more subjective aspects of its corporate culture.

Measuring Tools (Measuring Systems)

- Balanced scorecard: incorporates nonfinancial performance indicators into the evaluation
system to provide a more “balanced” view of organizational performance. It uses 4 metrics to
measure the overall performance of the firm:
o financial o learning and growth
o internal business processes o customer

- Six sigma: focuses on improving existing processes that do not meet quality specifications or
that need to be improved as well as developing new processes that meet 6 Sigma standards.
- Triple bottom line: This approach to measuring social, financial, environmental factors
(people, places, planet) recognizes that business has a responsibility to influence stakeholders.
- Global Reporting Initiative: Framework to report social and sustainability progress
- AccountAbility AA1000 framework: for ethics and social responsibility
- Open Compliance Ethics Group: Governance, risk and compliance framework

Risks in Ethics Auditing

- May uncover ethical problems a company does not wish to disclose
- May reveal a problem that cannot be cured
- Stakeholders may be dissatisfied with the information
- Requires financial and record keeping resources
- No guarantee that auditing is the solution
- Lack of standardization in auditing

The Auditing Process

Framework for ethics audit: (7 steps)
Secure management and board commitment
- Sarbanes-Oxley requires that boards of directors provide oversight
- The board may initiate audits
- Managers may request an ethics audit to improve confidence in a firm’s reporting processes

Establish an ethics audit committee

11
 - Boards of directors’ financial audit committee should oversee the audit
- Internal and external parties should be involved

Define the scope of the audit

- Scope is determined by type of business, risks faced, and the opportunities to manage ethics

Review organizational mission, goals, and values

- An ethics audit should:
o Include a review of the current mission statement and strategic objectives
o Examine formal/informal forms that make vows to ethical, legal, social responsibility
o A firm should define its ethical priorities at this time
Collect and analyze relevant information
- Identify tools for measuring progress in improving employees’ ethical decisions
- Collect relevant subject matter: Internal and external documents
- Determine a starting point level of compliance
- Determine all commitments
- Stakeholders produce insights: Integrating stakeholder feedback is crucial in an audit
- Audits should compare organizational performance to other comparable organizations
Verify the results through an outside agent
- Verification is an assessment of quality, accuracy, completeness of a company’s social report
- Should involve standard procedures to control reliability and validity of information

Report the findings

- Purpose & scope of the audit, methods used, role of author, & auditing/reporting guidelines
- May be distributed internally or externally
- Ethics audits are similar to financial audits, but forms are different
o Unqualified opinion o Adverse opinion
o Qualified opinion o Disclaimer of opinion

Strategic Importance of Ethics Auditing

- Should be conducted regularly
- Provides a benchmark of overall effectiveness of ethics initiatives
- Demonstrates + impact of ethical conduct & social responsibility drive on firm’s bottom line

12
 CHAPTER 10 – BUSINESS ETHICS IN A GLOBAL ECONOMY

Global Culture, Value and Practices

- Country cultural values: Are specific to countries, regions, sects or groups
- National culture: Everything in our surroundings that is made by people

Classifying Cultural Differences

Hofstede identified 4 cultural dimensions that impact the business environment:

- Individualism/collectivism - Uncertainty avoidance

- Power distance - Masculinity/femininity

Self-Reference Criterion (SRC)

The unconscious reference to one’s own cultural values, experiences, and knowledge

- The idea that “we” differ from “them”

- Common in international business
- We react based on our knowledge

Cultural Relativism
The concept that morality varies from one culture to another.

Global Common Values

Shared across most cultures; often based on religion, reflected by law:

- Desirable common values: Integrity, family & community unity, equality, honesty, fidelity,
sharing, and unselfishness
- Undesirable common values: Ignorance, pride and egoism, selfish desires, lust greed,
adultery, theft, deceit, lying, murder, hypocrisy, slander, and addiction

Risk Compartmentalization
- Occurs when corporate profit centers are unaware of consequences of decisions on the firm
- No single person can be blamed, the problem is systemic

Key Figures in Modern Economics

- Adam Smith: Invisible hand
- John Keynes: Government can stimulate the private sector
- Milton Friedman: Return to self-regulating free market system

Keynes and Friedman Agreed That:

- People have rational preferences among outcomes that can be associated with value
- Individuals seek to maximize utility; firms seek to maximize profits
- People act independently on the basis of full and relevant information

Economic Systems
- Socialism: Wealth/power shared across society, based on amount of work done in production
- Social democracy: Private ownership of property, large government. (Offshoot of socialism)
- Bimodal wealth distribution: Many poor people, concentrated wealth at top and small middle
class. (Multinational corporations concentrate control of global economy to a few companies)

13
Two Schools of Economic Thought
- Rational economics: Assumes that people are predictable and base their decisions on
maximizing utility based on resources
- Behavioral economics: Assumes that humans do not always act rationally due to genetics,
emotions and learned behavior

The Multinational Corporation (MNC)

Public companies that operate on a global scale, without significant ties to any one nation or region

- The highest level of international business commitment

- Characterized by a global strategy of focusing on opportunities throughout the world
- Subject of much ethical debate due to their size and financial power

Business for Social Responsibility (BSR)

- Many MNCs have joined this globally based resource system
- Tracks emerging issues and trends
- Provides information on corporate leadership and best practices
- Conducts educational workshops and training
- Assists organizations in developing practical business ethics tools

The International Monetary Fund (IMF)

- Makes short-term loans to member countries
- Provides foreign currencies for its members
- Promotes responsible business conduct

The United Nations (UN)

- Promote world peace, improve inter-country relations, support better standards, human rights
- Focuses on environmental and human rights issues

The World Trade Organization (WTO)

- Administers trade agreements, facilitates trade negotiations and settles trade disputes
- Monitors trade policies of member nations
- Addresses economic and social issues of many industries; attempts to reduce trade barriers
- Provides legally binding ground rules for commerce
- Not all countries agree with the WTO on free trade

Dumping
The practice of charging high prices in domestic markets, while low prices in foreign markets

Global Ethics Issues

Global Ethical Risks

- Emerging markets carry significant risks for international investors

- Chinese leadership promotes nationalism, could threaten its relationships with other countries
- The economic outlook for many Eurozone countries remains weak

Bribery

- Bribery’s acceptance varies by country

- Bribery laws and regulations (The U.S. Foreign Corrupt Practices Act, The U.K. Bribery Act)

Anti-trust activity

14
 - Antitrust laws are meant to encourage fair competition
- Countries have differing levels of protections that creates difficulties in international business
- Vertical system: A channel member controls the entire business system

Internet Security and Privacy

- Internet crimes have public attention (Cyber hacking, Trojan horses, worms, malware)
- Privacy violations

Human Rights
An inherent dignity with equal and inalienable rights

- The foundation of freedom, justice, and world peace

- Codified in the UN Human Rights Declaration

Health Care

- Over a billion people lack access to health care globally

- Patents assign rights to companies, who can charge what they wish
- Some companies are dropping costly employee insurance plans

Labor and the Right to Work

- International firms today have many global ethical concerns related to labor:

o Gender pay equality o Standards of living

o Right to join unions

Compensation

- Living wage: The minimum wage that workers require to meet basic needs
- Executive compensation: Growing global demand for alignment between managerial
performance and compensation
Consumerism
The belief that consumers should dictate the economic structure of society

- States that consumed goods at an increasing rate is desirable

- Associates personal happiness with purchasing/consuming products
- Made-to-break: Encourages consumers to buy more items

Ethical Decision Making in Global Business

- Ethical decision making is essential to successfully operating a global business
- Some MNCs have created officers/committees to oversee global compliance issues
- Successful implementation of a global ethics program requires extensive employee training

15
 CHAPTER 11 – ETHICAL LEADERSHIP

Ethical Leadership
Leadership is the ability to guide and direct others toward a goal.

- Creates an ethical culture

- Have the power to motivate others and enforce the organization’s norms, policies, viewpoints
- + relationship with organizational citizenship of employees & - relationship with misconduct
- Many CEOs articulate the firm’s core values but fail to exhibit ethical leadership
- A leader must have followers’ respect and provide a standard of conduct
- Failure to establish effective leadership qualities creates the perception, managers don’t care

about company’s ethics program or they feel they’re above ethics & compliance requirements

Requirements for Ethical Leadership

Ethical leadership skills develop from years training, experience, & learning other ways of leadership

- Leadership qualities differ for each situation:

o Ethical leaders must model organizational values
o Place what is best for the organization over their own interests
o Train and develop employees throughout their careers
o Establish reporting mechanisms
o Understand employee values and perceptions
o Recognize the limits of organizational rules and values

Seven Habits of Strong Ethical Leaders

- Strong personal character - Role models for organization’s values
- Passion to do right - Clear & active in decision-making
- Proactive - Holistic view of firm’s ethical culture
- Consider all stakeholders’ interests

Benefits for Ethical Leadership

Has a direct impact on the corporate culture of the firm

- Communicate & monitor organization’s values, ensuring employees are familiar with
company’s purpose and beliefs
- Provide cultural motivations for ethical behavior (reward systems for ethical conduct)
- Can lead to higher employee satisfaction and commitment
- Creates strong relationships with external stakeholders
- + association between ethical commitment of employees & firm’s valuation on stock market

Ethical Leadership and Organizational Culture

Compliance-based approach: obedience to rules & regulations & sets processes for compliance

16
Integrity-based approach views ethics as an opportunity to implement core values

- Unethical leaders are usually ego-centric and do whatever it takes to achieve organization’s
objectives and their own
- Apathetic leaders care little for ethics within the company
- Ethical leaders include ethics at every operational level & stage of decision-making process

Managing Ethical Conflict

Ethical conflicts occur when there are two or more positions on an ethical decision

- Will not be brought to management’s attention without transparent communication

- Employees themselves should be trained to handle conflict situations

Conflict Management Styles

- Competing conflict management style: Highly assertive, not very cooperative, believe in
winning at any cost, and measure success by how much the other side loses
- Avoiding conflict management style: Not effective because they avoid conflict at any cost
even if it leads to misconduct, are uncooperative, and are non-assertive
- Accommodating conflict management style: Highly cooperative, non-assertive, and give in to
the other side even if it means sacrificing their own interests and values
- Compromising conflict management style: In between the assertiveness and cooperativeness
dimensions, believe best approach to resolving conflicts is for each side to give something up
in order to gain something of value
- Collaborating conflict management style: Most advantageous, leaders are cooperative,
assertive, & leaders collaborate with others to find a way to obtain a beneficial solution
Based on 2 dimensions:

- Assertiveness is acting in one’s own best interests

- Cooperativeness working toward the best interests of the other person

Ethical Leaders Empower Employees

Employee empowerment an essential component of a values-based organizational culture

Communication for Becoming A Better Leader

- Have the tough conversations that you’ve been meaning to have.
- Stop talking and listen more.
- Pick up phone/walk down hall to talk to someone than relying on impersonal emails
- Communicate bad news in the same way as good news.
- Share performance feedback with others regularly so others know how they can improve.
- Be purposeful and thoughtful in how you communicate.
- Ask for feedback so you can improve your skills.
- Work on your blind spots in your leadership abilities.

17
Ethical Leadership Communication
Dimensions of ethical communication:

- Create transparency by developing a culture where ethics is frequently discussed

- Reporting in which the communicator communicates with superiors and subordinates.
Can be formal and informal.

Ethical Leadership Communication Skills

Organizational communication is separated into 4 categories:

- Interpersonal communication: most well-known form of communication

o Often difficult to communicate to a superior
o Ethical leader must work to reassure employees by balancing interests of all
relevant stakeholders
- Small group communication: growing in organizations
o Increases collaboration & generates variety of perspectives on a particular issue
o Groupthink occurs when 1 or + members feel pressured to conform to the group’s
decision even if they personally disagree
o Group polarization: a group is more likely to move toward a more extreme
position than the group members might have done individually
- Nonverbal communication: communication expressed through actions, body language,
expressions, or other forms of communication not written or oral
- Listening: involves paying attention to both verbal and nonverbal behavior
o Without listening, communication becomes ineffective
o This will establish credibility and trustworthiness with employees

Ways to Avoid Groupthink in Small-Group Decision Making

- Emphasize to each team member that they’re a “critical evaluator” with the responsibility
to express opinions and objections freely
- Eliminate leadership biases by refusing to express opinion when assigning tasks to group
- Set up a number of independent groups to work on the same issue
- Encourage team members to express group’s ideas with someone they trust from outside
- Express the need to examine all alternatives
- Invite outside experts into group meetings, allow members to interact with these experts

Leader-Follower Relationships in Communication

Leader-follower congruence occurs when leaders and followers share the same vision, ethical
expectations, and objectives for the company

- Leader-exchange theory: leaders form relationships with followers via social interactions

Ethics Programs and Communication

- Most observable way of communicating ethical values to employees is through codes of
ethics and training in how to act in different situations
- Leader-follower communication connects followers with those in the company who are
most familiar with the firm’s ethical values

Power Differences and Workplace Politics

- Ethical leaders can lessen power differences through frequent communication with workers

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 - Organizational politics is often perceived as trying to achieve one’s own ends even if it means
harming others in the organization (Gossip, manipulation)
- There’s a difference between having a high degree of office politics & good political skills
o Political skills can be used to promote organizational goals vs. hinder employees

Feedback
- Informal methods (simple conversation) formal systems (employee performance evaluations)
- Need for organizational leaders to get feedback from their employees
- Employee feedback through interviews, anonymous surveys, ethical audits and websites

Leadership Styles Influence Ethical Decisions

Emotional intelligence: effective ethical leaders possess the ability to manage themselves and their
relationships with others effectively

- Coercive leader - Affiliative leader - Pacesetting leader

- Authoritative leader - Democratic leader - Coaching leader

Leadership Styles Influence Ethical Decisions

- Transactional leaders create employee satisfaction through negotiating for desired behaviors
- Transformational leaders raise employees’ commitment & foster trust and motivation
- Authentic leaders passionate about the company, live out corporate values daily in their
behavior at work, and form long-term relationships with stakeholders

The RADAR Model

When ethical issues arise, leader should have plans in place to answer stakeholder concerns and
recover from misconduct.
Ethical leader’s duty is to:

- Recognize ethical issues

- Avoid misconduct whenever possible
- Detect ethical risk areas
- Answer stakeholder concerns when an ethical issue comes to light
- Recover from a misconduct disaster by improving upon weaknesses in the ethics program

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 CHAPTER 12 – SUSTAINABILITY: ETHICAL AND SOCIAL
RESPONSIBILY DIMENSIONS

Sustainability
Sustainability: the potential for the long-term well-being of the natural environment. As well as the
mutually beneficial interactions among nature and individuals, organizations, and business strategies.

Sustainability, Ethics and Social Responsibility

Corporate Social Responsibility (CSR) is a corporate issue because:

- CSR can create competitive advantages

- Stakeholders have more power with increased access to information, both + and -.
- Companies can use their brand identity to create social value, quality and customer loyalty
- Allows a firm to differentiate themselves and promote their products

Social responsibility is part of the budget, sustainability is a tool for ethical decision making &
financial performance.

Global Environmental Issues

Atmospheric

- Air pollution
o Stationary (factories and power plants)
o Mobile (autos, planes, trains)
o Natural (windblown dust and volcanic eruptions)
- Acid rain
o When certain elements in air pollution mix with air and water to create a new
element, falling from the sky as corrosive rain. Can ruin paint and stone.
Water

- Water pollution
o Pollutants come from various sources with unknown side effects on humans/wildlife
o Contaminated oceans compromise human food supplies
- Water quantity

Land

- Land pollution
o Results from residential & industrial waste, strip mining and poor forest conservation
o Causes health issues, habitat destruction, erosion, and poisoned groundwater
- Waste management
o Plastics, obsolete computers, cell phones in landfills leak chemicals into the Earth
o Stakeholders believe manufacturers are responsible for their products’ proper disposal
- Deforestation
o Reasons include boom in biofuels, poverty, farming
- Urban sprawl
o Transformed U.S. from low-density communities to large-scale suburban changes
- Biodiversity
o Species play unique roles in ecosystem, loss of anyone may threaten entire ecosystem

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 - Genetically modified organisms
o Controversial, transplanting genes from 1 organism to another, creating new life form
o The long-term impact is unknown

Environmental Policy and Regulation

Environmental Protection Agency (EPA) The most influential regulatory agency; deals with
environmental issues and enforces environmental legislation in the U.S.

- Can file civil suits against companies that violate environmental laws
- Established 5 strategic goals:
o Taking action on climate change and improving air quality
o Protecting America’s water
o Cleaning up communities and advancing sustainable development
o Ensuring the safety of chemicals and preventing pollution
o Better waste management & restoration of contaminated waste sites

Environmental Legislation
- Clean Air Act: important implications for businesses & relationships with consumers
- Endangered Species Act: protects endangered and threatened species and their habitats
- Toxic Substances Control Act: Tracks industrial chemicals manufactured/imported into U.S.
- Clean Water Act: Makes it illegal to discharge pollutants in waters without a permit
- Pollution Prevention Act: changes in production, operation, raw material usage
- Food Quality Protection Act: safety standards for how the EPA regulates pesticides
- Energy Policy Act: alternative energy in hopes to lessen U.S. dependence on foreign oil

Alternative Energy Sources

- Wind power: Holds great promise for U.S. due to Great Plains –greatest wind power on planet
- Geothermal power: constant source of heat & is more reliable than other fuels, but expensive
- Solar power: 100% renewable energy but the technology remains expensive and inefficient
- Nuclear power: Pollution free/low cost, debated due to dangers of meltdown & waste storage
- Biofuels: Corn ethanol is unsustainable but new technologies using algae, grass hold promise
- Hydropower: Largest form of renewable energy but controversial due to habitat destruction

Environmental and Economic Performance

Green Marketing
Green Marketing is a strategic process involving stakeholder assessment to create long-term
relationships with customers, while maintaining, supporting and enhancing the natural environment

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Greenwashing
Greenwashing: misleading consumers into thinking product/service is environmentally friendly

Implementing an Environmental Strategy

Recycling Initiatives
Recycling is the reprocessing of materials for reuse. steel, aluminum, paper, glass

Stakeholder Assessment
- Requires acknowledging & actively monitoring environmental concerns of all stakeholders
- Strong stakeholder relationships is willingness to accept & openly address potential conflicts

Risk Analysis
- Risk analysis assesses the environmental risks associated with business decisions
o Difficult to measure costs/benefits of decisions
- High commitment companies must evaluate latest info & keep stakeholders communication

Strategic Environmental Audit

Highly committed companies conduct an audit of their environmental efforts, report results to
stakeholders

- May use global standards as benchmarks

- Environmental laws/regulations vary by country making it difficult to find acceptable
solutions on a global scale

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 TUTORIAL QUESTIONS

Chapter 6
1. What is white collar crime and why has it become such a widespread problem?
2. Compare and contrast the two teleological philosophies: egoism and utilitarianism. Include a
discussion of the bases that each type uses to evaluate the morality of activities.
3. Compare and contrast the two moral philosophies: teleology and deontology. Discuss the bases
each philosophy type uses to evaluate the morality of a particular activity.
4. Discuss the distinctions between the rule and act categories of utilitarianism and deontology. Why
do you think some people evaluate the morality of an action on the basis of the action itself,
whereas others evaluate it in terms of its conformity to particular moral principles or rules of
conduct?
5. Explain how the levels of Kohlberg's model of cognitive moral development may influence a
person's perception of and response to an ethical issue.

Chapter 7
1. Why do centralized organizations tend to be more ethical than decentralized ones? Can you think
of a situation or example in which a decentralized organization might be more ethical than a
centralized one?
2. How do societal expectations affect corporations and their ethical initiatives? Give an example of
a company that had to alter a product or service because of society’s concerns about its health,
moral, or social impacts.
3. Describe the four organizational cultures and provide a company example of each organizational
culture.
4. Describe the different kinds of power. Are some types of power more likely to result in ethical
behaviour than others?
5. How do group norms influence the ethical behaviour of an organization? What happens when the
norms of a particular group conflict with the organization's corporate culture or objectives?

Chapter 8
1. How can ethical dilemmas and behavioral simulations help employees make more ethical
decisions?
2. What are the major features of a successful ethics training program and communication systems?
Think of an example of a company with strong employee ethics training.
3. What is the role of an ethics officer within an organization? What are his or her duties? To whom
does the FSGO guidelines recommend that the ethics officer report?
4. Discuss the advantages and disadvantages of implementing an ethics program with a compliance
orientation versus one with a values orientation. Is one better than the other at maintaining an
ethical organization?

Chapter 9
1. Compare and contrast ethics auditing and financial auditing. How can the tools of financial
auditing be applied to ethics audits?
2. Explain the benefits and risks of ethics auditing.
3. How can companies secure stakeholder input during an ethics audit? Why is it important to do so?
4. Describe the process of conducting an ethics audit in detail.
5. What is the Global Reporting Initiative? What is its goal? Why has it grown in importance?

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Chapter 10
1. Why are many international business ethics issues different from domestic ethical issues?
2. How can differences in two countries' cultures create ethical issues in business?
3. Discuss the ethical issues associated with multinational corporations.
4. What are the roles of the IMF and the WTO in encouraging, monitoring, and regulating
international trade?
5. What is dumping and why is it considered anticompetitive? Does the United States allow
dumping?
6. Identify and describe some of the Global Ethics Issues.

Chapter 11
1. Discuss the role of leadership in understanding and executing ethical decision making in
organizations.
2. Describe the RADAR model, discussing key objectives needed to be obtained for each step of the
model.
3. Discuss the differences between the five styles of conflict management and provide an example
for each conflict management style.
4. Discuss the differences between groupthink and group polarization, providing examples of each.
5. Describe and differentiate between a compliance-based approach and an integrity-based approach
to leadership. Which approach is preferred, justify your response.

Chapter 12
1. How does sustainability relate to ethical decision making and social responsibility?
2. Discuss the benefits of green marketing and the long-term pitfalls of greenwashing.
3. Why is the Environmental Protection Agency (EPA) said to be the most influential regulatory
agency?

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