You are on page 1of 8


AAA model a seven-step ethical decision-making care (ethics of) care ethics emphasises concrete
model developed by Langenderfer and Rockness relationships and the obligation to care for those who
(1989) are dependent or vulnerable to ones decisions

adverse selection may occur when the agent CEO duality occurs when the CEO is also the chair
(manager) is in the possession of information that of the board
is not known to the principal (shareholder)
chief executive officer (CEO) the highest ranking
agency theory describes the potential o pportunistic executive responsible for a companys operations
behaviour of agents that have the capability to
client-centred conflicts of interest conflicts
transfer wealth from the owners to themselves
between the client and the professional or firm of
asset misappropriation is a fraud committed by an professionals
employee involving the theft of a companys assets
code of (professional) ethics a set of rules designed
audit the application of procedures for the to induce ethical behaviour and encourage pub-
purpose of expressing an opinion on the reliability lic confidence in the profession and professional
of managements representation in the financial practice
codetermination occurs when employees have a
behavioural controls formal (policies and proce- role in the management of the firm with employee
dures) and informal organisational controls (ethical representation on the board of directors
climate) that influence member behavioural choices
cognitive moral reasoning and development the
best owner the owner capable of maximising processes or logic that individuals use in making a
company value decision of an ethical nature

blockholder a shareholder owning a large number commission compensation from a third party for
of shares recommending or referring a product or service

blowing the whistle the activity of disclosing compensatory justice a type of justice that is
information externally that is normally regarded concerned with restoring what has been lost as the
asconfidential within the firm, but the disclo- result of a wrongful act
sureofwhich is deemed to be in the publics best
competence the attainment and maintenance of a
level of knowledge from formal education, training
board of directors a group of people elected by and continual professional development, that enables
shareholders charged with the overall direction, a professional to render services with expertise
control and responsibility of the organisation
compliance performing duties in conformance with
bribery involves offering, giving, receiving or industry standards and other regulatory require-
soliciting anything of value in order to influence ments promulgated by private and government
the decision or behaviour of an employee or public standard-setting authorities
confidentiality to ensure that information acquired
busy directors directors with many other board in the course of ones work is not disclosed to a third
positions party without express authority

Dellaportas_Glossary.indd 343 9/1/12 2:49 AM

344 Glossary

conflict of interest a situation that undermines the decision-making model provides a systematic
judgment of a professional at the expense of those framework to arrive at the best course of action
the professional has an obligation to serve
deontology (non-consequential theories) deon-
contingent fee a fee calculated on a predetermined tological theories define good by its intrinsic value
basis relating to the outcome or result of a transac- regardless of whether its obedience produces
tion or the work performed undesirable consequences. The intention of the act
itself is more important than its results. In simple
contingent governance the notion that banks will
terms, an act or decision is right because it is the
only intervene in company operations when they are
right thing to do. The best known examples of
non-consequential theories are the rights and justice
conventional level represents a level of moral theories
reasoning that conforms to and upholds rules,
dependent directors see executive directors
expectations or conventions
deprofessionalisation the diminution of professional
corporate code of conduct an authoritative
judgment with increasing regulation
statement of values and principles designed to set
a minimum standard of acceptable behaviour and descriptive theory a theory developed from
guide organisational members in resolving ethical detailed observation of existing practice culminating
conflicts in the construction of generalised conclusions

corporate culture comprises the values, beliefs and director a person who is an appointed or elected
traditions that influence the behaviour of organisa- as a member of the board of directors of a com-
tional members pany who has the responsibility for determining and
implementing the companys policy
corporate governance encompasses the direction,
control mechanisms, procedures and relationships disintermediation occurs when owners invest
involved in the economic, legal and operational directly in companies rather than through an
performance of a corporation intermediary such as banks

corporate social responsibility the way in which due care the quest for excellence in the provision of
firms seek to align the interests of owners and other professional services and acting in the best interests
stakeholders with the long-term best interests of of those who rely on those services
earnings management occurs when companies
corruption refers to schemes in which fraudsters use manipulate or misrepresent their true financial posi-
their influence in the business to obtain a benefit, tion either directly or through accounting practices
usually by way of bribes that may follow the letter of accounting standards
but deviate from the spirit of the standards
creative accounting or earnings management is the
process of interpreting accounting standards in a way egoism an ethical egoist is one who evaluates the
that makes financial statements appear different from rightness of a proposed action by choosing a course
the true state of an entitys economic affairs of action that maximises the net positive benefits to
cultural relativism holds that the standards that
guide ethical behaviour are those that have been employer-centred conflicts of interest conflicts
established by the host country arising between the professional in business and the
employing entity
decision-making the process of making a choice to
achieve a desired result from among two or more entitlement is a right or a claim of ownership, or to
alternatives have another behave a certain way

Dellaportas_Glossary.indd 344 9/1/12 2:49 AM

Glossary 345

entrenchment when managers create barriers which exclusionary closure achieving market control by
make it difficult to fire them so that they then stay on restricting access to the profession to a limited
for too long group of eligible people

equality claims that every person is entitled to executive directors (or dependent directors or
equal treatment under the law, is entitled to be inside directors) are dependent because they are
given equal opportunity, has equal worth and should employed by the firm as part of the management
receive equal rewards team

ethical consumerism the purchasing behaviour executives (see also managers) the people in
of customers influenced by trust and loyalty in charge of the company, subunits or work groups and
the company acquired by producing high quality, who have staff who report to them
reliable and safe products
facilitating payments are made to speed up a
ethical decisions what should be done to achieve a result (such as a licensing process) that would have
desired objective consistent with and supported by happened anyway
principles of good conduct
fairness refers to the just distribution of benefits as
ethical decision-making the process of identifying an equitable reward for contributions or efforts
a problem, generating alternatives and choosing
among them so that the alternative selected fiduciary relationship when the professional is in a
maximises the most important ethical values while position of truest and the client relies on the profes-
achieving the intended goal sional for expert judgment and advice

ethical dilemma a conflict between moral values or financial statement fraud involves the intentional
principles, in which to support one principle would misstatement or omission of material information
result in transgressing the other from the organisations financial reports to make an
organisation appear more profitable than it really is
ethical egoism people should do what benefits
them most founder the person who established the business

ethical issue two or more equally compelling and fraud is a theft committed in the course of employ-
competing alternatives give rise to positive and ment involving the use of deception to obtain a
negative consequences financial advantage

ethical sensitivity the ability to recognise the ethical free-rider one who consumes or enjoys the benefit
dimension of situations accruing from the efforts of others but does not con-
tribute (or contributes little) to the collective effort
ethics represents the fundamental principles that
guide right from wrong in human conduct group-think denotes how an individuals attitudes
yield to the consensus of the group
ethicsbusiness refers to written and unwritten
codes of principles and values that govern the way guanxi is a special type of relationship based on
corporations behave towards their stakeholders trust and loyalty providing preferential treatment to
members of the in-group
ethicspersonal the values individuals rely upon to
make ethical decisions and behave accordingly. See happiness a state of mind or feeling of content-
personal ethics ment, satisfaction and pleasure that is held to be the
ultimate goal of consequential ethics
ethicsprofessional the discharge of a duty of profes-
sional care consistent with the norms of the profession horizontal keiretsu consists of companies in
in which the member practises. See professional ethics different industries

Dellaportas_Glossary.indd 345 9/1/12 2:49 AM

346 Glossary

independence being free from any interests or managers (or executives) the people in charge of
relationships, whether in fact or appearance, that the company, subunits or work groups and who have
impair objective judgment staff who report to them

independent directors see non-executive mechanisms of governance processes or practices

directors that serve to mitigate agency problems

inside directors see executive directors moral hazard arises when the principals (the share-
holders) bear the cost of the risk-taking behaviour of
insider trading occurs when the professional
the agents (the managers)
violates the duty of confidence and uses the infor-
mation obtained from the client to gain a personal moral minimum provides the threshold or
financial advantage minimumobligations for businesses operating
institutional investor an organisation that trades
shares in large amounts usually for the benefit of nepotism occurs when favouritism is shown to
others (e.g. pension funds) attracting preferential relatives or close friends by those with power or
treatment such as lower commissions influence in an organisation

integrity being straightforward, honest, sincere and non-executive directors (or independent directors
using ones convictions to withstand pressure from or outside directors) are independent when
significant others to impair integrity they have no ties or special interest to the firm
such as ownership, employment or business
intermediation occurs when banks act as an inter- relationship
mediary between the company and shareholders
normative ethical theories provide the basis upon
internal whistleblowing occurs when the employee which judgment is used to solve moral dilemmas by
discloses sensitive information on company matters establishing p
rinciples that are used to determine
within the organisation rather than outside the right from wrong. N ormative ethical theories are
organisation normally classified into two types, consequential and
justice (theory of) the theory of justice focuses non-consequential
on how fairly our decisions and actions distribute normative theory a theory that provides a standard
benefits and burdens among members of the group. or guiding principles on what should or ought to
An unfair distribution is an unjust act, and an unjust happen and not what does happen
act is a morally wrong act
objectivity an impartial attitude that has regard for
keiretsu the distinctive Japanese characteristic considerations relevant only to the facts at hand
ownership mode in which groups of companies are
occupational closure see exclusionary closure
loosely connected by cross-ownership
opportunity represents the ability to commit fraud,
kickbacks are payments made by vendors to
to conceal it, and avoid being detected
employees of the purchasing companies to enlist
the employee in directing purchases to the vendor outrage costs represent excessive CEO compen-
sation that embarrasses or causes damage to the
loyalty is a devotion to protect and advance the
CEOs reputation
interests of one to whom an obligation is owed
outside directors see non-executive directors
Machiavellian a person who is manipulative,
emotionally detached from others, believes that the partner a member of a firm of professionals who
ends justify the means, and has disregard for moral hasoverall responsibility for managing the affairs of
standards clients

Dellaportas_Glossary.indd 346 9/1/12 2:49 AM

Glossary 347

pay-for-performance represents a compensation professional space (occupational space) profes-

package in which changes in compensation are the sional space refers to a field of practice that is per-
result of changes in measures of firm performance formed exclusively by members of the profession

personal ethics a measure of an individuals moral professionalisation a form of licensing that includes
reasoning abilities as measured by Kohlbergs theory the acquisition of formal education combined with pro-
of moral reasoning and development. See ethics fessional development and practical work experience
professionalism see professional ethics
philanthropy the practice of performing charitable
proprietary companies are not listed on the
or benevolent actions to increase the wellbeing of
stock exchange and cannot issue shares for public
post-conventional level represents the ethics of
psychological egoism is a descriptive theory of
conviction to self-determined moral principles
human nature concerned with explaining how
pre-conventional level reflects a level of moral people do in fact pursue their interests
reasoning that is exclusively self-centred
public companies companies that issue shares
pressure an inescapable force inducing stress in the which are traded on the stock exchanges
victim to restore their prosperity
public interest a duty to safeguard and advance the
profession a community of people bounded by the interests of the public before others
activities they perform based on a common theoreti-
public practitioners professionals, including the
cal background acquired through formal education
firm of professionals, employees and partners, who
and professional socialisation
provide professional services such as audit, tax or
professional association a group of people in a consulting, to clients
learned occupation responsible for controlling entry
public service a commitment to prioritise the
into the profession and maintaining standards of
interests of clients and society ahead of oneself
professional and ethical practice
rationalisation represents statements that justify
professional authority superior knowledge and exper- criminal behaviour in order to maintain a self-image
tise that creates a dependent relationship with clients of decency
and that places the professional in a position of power
referral the process of obtaining advice or services
professional behaviour behaviour that is consistent from experts for the special needs of the client
with the good reputation of the profession
related parties two parties who are joined by a
professional ethics acting in ways that are consist- special personal or formal business relationship
ent with the professional duties and responsibilities
entrusted to one in a professional role. See ethics relationship banking refers to the relationship
professional between a company and its bank that involves
personal relationships and information transfers to
professional in business is one who earns a salary assess the financial risks involved in the companys
rather than a fee and is employed in commerce and activities
industry or the public sector
rights (theory of) the theory of rights recognises
professional judgment to diagnose a situation and that all people have rights which imposes an obliga-
be able to draw inference from professional stand- tion on each person to respect the rights of others.
ards when coming to a conclusion on the treatment According to this theory, a good decision is one that
required in a particular problem does not impinge on the rights of another

Dellaportas_Glossary.indd 347 9/1/12 2:49 AM

348 Glossary

rule utilitarianism moral rules of behaviour that law, allowing some taxpayers to avoid their taxation
maximise positive consequences (happiness) to responsibilities
tax evasion actions or arrangements that allow a
satisfice management decisions that are taxpayer to unlawfully escape their true tax liability
satisfactory or adequate
tax minimisation occurs when a clients taxation
selection-socialisation a process of moral regression in affairs are legitimately arranged to reduce the
the firm hierarchy that results from management pro- amount of tax payable
moting only those employees that share common values
teleology (consequential theories) consequential
self-interest threat when a firm or a member of a theories define right from wrong solely by the results
firm can benefit from financial or other self-interest of an act or decision
conflicts with a client
trust the transfer of control to a professional on the
self-interest a personal benefit such as career optimistic expectation on the part of a client about
advancement or financial or reputational advantage the outcome of an event that is dependent on the
behaviour of the professional
self-regulation denotes control by a governing body
over the activities of its members tunnelling occurs when controlling owners take
money or direct business to themselves for personal
share option a contract that gives the holder the
right to purchase the underlying share at some
predetermined price at a future date Type 1 agency problems arise when the managers
(agents) interests are not aligned with the sharehold-
shareholders (or stockholders) individuals or
ers (principals) interests
entities that own shares of a for-profit corporation
Type 2 agency problems occur when there are
short-termism represents a focus on short-term per-
conflicts of interests between large and small
formance at the expense of long-term sustainability
social network a set of agents (firms, board mem-
Type 3 agency problems occur when the interests
bers, owners) connected by a set of ties (ownership,
of shareholders are pursued at the expense of the
board interlocks)
welfare of stakeholders
stage of moral development a structure of thought
universalism holds that there are absolute moral
that is concerned with how judgments are made and
truths which all entities obey at all times without
why one formulated the judgment
stakeholder a person or organisation that has a
utilitarianism concerned with making decisions
direct or indirect stake in a company because it can
that produce the greatest balance of pleasure over
affect or be affected by the companys actions
pain for the greatest number of people: an ethical
stakeholder theory emphasises how a company decision is one that maximises the net benefit for the
is part of the social system in which it recognises a greatest number of people
variety of internal and external groups of importance
value-based ethics an approach to ethics in which
to the company in addition to shareholders
ethical behaviour is the result of values such as
stress a tension or strain that results from challenges integrity, compassion and good character
that exceeds ones capabilities
values those things we regard as having ultimate
tax avoidance arrangements that comply with the importance or worth, often referred to as principles
letter of the law, but are not within the spirit of the or beliefs

Dellaportas_Glossary.indd 348 9/1/12 2:49 AM

Glossary 349

vertical keiretsu consists of groups in the same whistleblower one who has obtained knowledge of
industry in which suppliers are united as part of the an act or decision that has caused unnecessary harm to
supply chain others and has informed an external party of this fact

virtue ethics an agent-based ethical theory that is whistleblowing the activity of disclosing information
focused on character and traits, such as honesty and externally that is normally regarded as confidential
courage that engenders behaviour consistent with within the firm, but the disclosure of which is deemed
such traits to be in the publics best interest

Dellaportas_Glossary.indd 349 9/1/12 2:49 AM

Dellaportas_Glossary.indd 350 9/1/12 2:49 AM