LEARNING OBJECTIVE

At the end of this topic, you should be able to:

• Know the Sarbanes-Oxley Act
• Define ethical climate
Ethics and Corporate Responsibility • Identify the danger signs for an organisation
with lax ethical climate
Topic: Ethical Decision Making • Identify the characteristics which define an
ethical standard
Dr. Kumaran Rajaram • Explain the process to make ethical decisions
• Identify the business costs of ethical failure
• Explain the channels to report ethical
College of Business
Nanyang Business School problems

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SARBANES-OXLEY ACT ETHICAL CLIMATE

Refers to the processes by

Passed into law by US Congress in 2002 to which decisions are
establish strict accounting and reporting rules to evaluated and made on the
make senior managers more accountable and basis of right and wrong
improve investor confidence
Set global standards for
ethical decision making to
prevents conflicts of interest
and serious issues
Requirements
Relativism acknowledges
More independent Senior managers to Violations lead to that different ethical
board directors, not personally sign off on heavy fines and
just company insiders financial results criminal prosecutions viewpoints exist

Norms or standards of
Ethics are not shaped only by laws and individual virtue expected and acceptable
May also be influenced by company’s work environment behaviour vary

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 DANGER SIGNS ETHICAL STANDARD

Excessive emphasis
for short-term
revenues over long-
Moral person and moral manager influencing others
term considerations Ethical leader to behave ethically

Lack of clear Responding to

procedures for expectations of
handling ethical shareholders at the
problems expense of other
constituencies
Danger Cultural Asia US
Considerations of signs Failure to differences
ethics solely as a legal establish a
issue or public written code
relations tool of ethics

Not admitting
Fear of exposure,
wrongdoing,
losing face,
Unwillingness to take an Desire for simple Ethical standard resign
stonewalling, self
ethical stand which may “quick-fix” solutions defense, no sign
immediately
impose financial costs to ethical problems of resignation

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CODE OF ETHICS ETHICS PROGRAMMES

• Written and tailored to individual company’s philosophies

• Prepared by company’s legal department with research done on Compliance-based Integrity-based
other companies’ codes
• Company mechanisms • Company mechanisms
Involve those who typically designed by designed to instill in
have to live with
writing the statement corporate counsel to people a personal
prevent, detect and responsibility for ethical
punish legal violations behaviour
• Reduce illegal • Set of guiding principles
Focus on real- behaviours and help which employees
Set the tone life situations
at the top Guidelines which employees company stay out of embrace
executives for an can relate to court • Training people to
effective • Programme elements change attitude and
ethic code include legal procedures mindset
and standards, auditing, • Integrate into
monitoring and operations, thinking and
Easy to compliance. behaviour
Connect to
understand
company’s
and remember
values and
beliefs

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 ETHICAL DECISION MAKING ETHICAL DECISION MAKING

Relativism,
Utilitarianism,
Realising the 1. Understand Egoism,
issue has ethical all moral Universalism and 4. Analyse
standards Virtue Ethics
implications implication of
3. Define decision
Moral complete • Consider
awareness moral legal 5. Propose
problem requirements convincing
and arrive • Determine moral solution
at moral economic
decision outcomes
2. Recognise • Evaluate
ethical duties
Moral Moral all moral At this juncture,
the full scope of
impacts
character judgment • Benefits to the moral
problem will be
some
known
• Harm to
Strength and Knowing what others
persistence to act in actions are • Rights
accordance with ethics morally defensible exercised Adapted from L.T. Hosmer,
despite challenges • Rights The Ethics of Management
denied

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BUSINESS COSTS OF ETHICAL FAILURE REPORTING OF ETHICAL PROBLEMS

Customer
Telephone
defections Email
Loss of hotline
Level 3 Costs

reputation
Employee
Channels
cynicism Online
Web-based
reporting
Level 2 Costs

Administrative Lost employee

tools
Level 1 Costs

and audit morale system

Legal and Employee
investigative turnover
Corrective Government • For employees (whistle
actions cynicism Drop boxes
Government Government Government blowers to report ethical
fines and oversight regulation problems
penalties
• Identity of whistle blower
Less damaging More damaging is to be kept secret
costs, get more costs, get less
executive attention executive attention

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