BBA324 BUSINESS ETHICS

PREPARED BY MWESIGYE JIMMY

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 WEEK 1
Overview of Business Ethics.
Content outline
 Business Ethics Defined
Why Study Business Ethics?
 The Development of Business Ethics
 Developing an Organizational and Global Ethical Culture
 The Benefits of Business Ethics
 The Role of Organizational Ethics in Performance

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Business Ethics Defined
• Ethics is a part of decision making at all levels of work and management

 As important as functional areas of business

 Questions whether practices are acceptable

 There are no universally accepted approaches for resolving issues

• Comprises organizational principles, values, and norms that may originate from individuals,
organizational statements, or from the legal system that primarily guide individual and group
behavior in business

 Ethical decisions occur when accepted rules no longer serve and decision makers must weigh
values and reach a judgment
 Values and judgments play a critical role when we make ethical decisions

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Business Ethics Defined ctn

• Ethics is the set of moral principles by which people conduct themselves

personally, socially, or professionally.
• Business ethics are the principles and standards that determine acceptable conduct in
business organizations.
• Business ethics relates to an individual’s or a work group’s decisions that society
evaluates as right or wrong.
• The acceptability of behavior in business is determined by customers, competitors,
government regulators, interest groups, and the public, as well as each individual’s
personal moral principles and values.
• However, all actions deemed unethical by society are not necessarily illegal, and both
legal and ethical concerns change over time.
• Many problems and conflicts in business can be avoided if owners, managers, and
employees know more about business law and the legal system.

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A Crisis in Business Ethics
Nearly half of employees observe misconduct in the workplace
• After the financial crisis, business decisions and activities have come under scrutiny
• The financial sector has not regained stakeholder trust

Specific business ethics Issues

• Misuse of company resources
• Abusive behavior
• Harassment
• Accounting fraud
• Conflicts of interest
• Defective products
• Bribery
• Employee theft

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Why Study Business Ethics?

1. Ethical misconducts are under greater scrutiny today by stakeholders.

2. Misuse of company resources, abusive behavior, harassment, accounting fraud, conflicts of
interest, defective products, bribery, and employee theft are evidences of declining ethical
standards.
3. If society judges it to be unethical, whether correctly or not, that judgment directly affects
business goals.
4. Business ethics is not merely an extension of personal ethics. Having good personal ethics may
not prevent a person from violating the law in an organization context.
5. The values from family, religion, and school are not enough for complex business decisions on
product quality, advertising, pricing, sales techniques, hiring practices, and pollution control.
6. Studying business ethics helps you begin to identify ethical issues and recognize the approaches
available to resolve them.

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Unintentional Unethical Behaviour
People view themselves as more ethical, fair, and objective than others, yet often act against their
moral compass.

This unintentional unethical behavior or ethical blind spots lead good people to cross ethical
boundaries.

There are four avenues along which unintentional unethical behavior may be developed.

• Implicit justice

• In-group favouritism

• Claiming credit for others’ actions and

• Conflicts of interest

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Ethical Cycle

Ethical cycle is a systematic strategy to tackle ethics problem. It consists of five important steps.

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The Development of Business Ethics
Before 1960: Ethics in Business  Product safety
 A living wage  The environment

 Theology's domain The 1980s: The Consolidation

 Organized field of study
 Philosophy's domain
 Business ethics centers
The 1960s: The Rise of Social Issues in Business  Business ethics courses
 Defense industry initiative
 Consumer's Bill of Rights
 Multinationals
 Ralph Nader  Self-regulation (Reagan/Bush)

The 1970s: Business Ethics as an Emerging Field The 1990s: Institutionalization of Business Ethics

 Free trade
 Bribery  Self-regulation
 Deceptive advertising • Federal Sentencing Guidelines for Organizations (FSGO)
• More multinationals
 Price collusion
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Developing an Organizational and Global Ethical Culture

Organizational Ethical Culture

• To develop more ethical corporate cultures many businesses, communicate core values to their employees
via ethics programs and appointing ethics officers to oversee them.

 Goals of ethical culture:

 Minimize need for enforced compliance.
 Maximize utilization of principles/ethical reasoning in difficult or new situations.

• Global Ethical Culture

• Globally, businesses are working more closely together to establish standards of acceptable behavior.

• Companies can demonstrate their commitment to social responsibility through adopting globally recognized
principles, such as the Global Sullivan Principles (GSP), the Coalition for Environmentally Responsible
Economies (CERES) Principles, or the United Nation’s’ Global Compact.

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The Benefits of Business Ethics

More firms recognize the link between business ethics and financial performance.
Among the rewards for being more ethical and socially responsible in business
are:

 increased efficiency in daily operations,

 greater employee commitment,
 increased investor willingness to entrust funds,
 improved customer trust and satisfaction
 better financial performance/ Contributes to Profits and
 Contributes to Investor Loyalty

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The Benefits of Business Ethics ctn

’ Build Customer Loyalty - A company’s reputation for ethical behavior can help it create a
more positive image in the marketplace, which can bring in new customers through
word-of-mouth referrals.
’ Retain Good Employees - Companies who are fair and open in their dealings with
employees have a better chance of retaining the most talented people.
’ Positive Work Environment - Ethical employees are perceived as team players rather
than as individuals just out for themselves.
’ Avoid Legal Problems - The resulting negative publicity can cause long-range damage to
the company’s reputation that is even more costly than the legal fees or fines.

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The Benefits of Business Ethics ctn

• Public Image - businesses earn a lot of respect and cultivate a strong

image in the public domain when they make ethical choices.

• Decision-Making - Ethical conduct in the workplace encourages a culture

of enhanced accountability and transparency when undertaking any
business decisions.

• Asset Protection - Employees who abide by workplace ethics would be

able to protect and respect business’s assets.
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The Role of Organizational Ethics in Performance

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 Week 2
Stakeholder Relationships, Social
Responsibility, and Corporate Governance

Content outline
• Stakeholders Define Ethical Issues in Business
• Social Responsibility and Ethics
• Corporate Governance

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Stakeholders: Define Ethical Issues in Business

Relationships and Business

• Building relationships is one of most important areas in business

today
Can be associated with organizational success and misconduct

• Stakeholder framework
Helps identify internal and external stakeholders
Helps monitor and respond to needs, values, and expectations of stakeholder
groups

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What Is a Stakeholder?

• Stakeholders are those who have a stake or claim in some aspect of a company’s
products, operations, markets, industry and outcomes
- Customers - Investors
- Employees - Suppliers
- Government agencies -Communities
• Stakeholders can influence and are influenced by businesses
Primary vs. Secondary Stakeholders
• Primary stakeholders: Those whose continued association is necessary for a firm’s
survival
• Employees, customers, investors, governments and communities
• Secondary stakeholders: Are not essential to a company’s survival
• Media, trade associations, and special interest groups
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The Stakeholder Interaction Model

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Stakeholder Orientation

• The degree to which a firm understands and addresses

stakeholder demands
• Three activities:
• Generation of data about
stakeholder groups
• Distribution of the information
throughout the firm
• Organization’s responsiveness to
this intelligence

Source: Digital Vision

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Stakeholder Orientation
• The degree to which a firm understands and
addresses stakeholder demands
• Three activities:
• Generation of data about
stakeholder groups
• Distribution of the information
throughout the firm
• Organization’s responsiveness
to this intelligence
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Implementing A Stakeholder
Perspective
• Assessing the corporate culture
• Identifying stakeholder groups
• Identifying stakeholder issues
• Assessing organizational commitment to
social responsibility
• Identifying resources and determining
urgency
• Gaining stakeholder feedback
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Social Responsibility

• Is an organization’s obligation to maximize its positive impact on stakeholders

and minimize its negative impact
• Four levels of social responsibility:
• Economic
• Legal
• Ethical
• Philanthropic

Social Responsibility and the Importance of Stakeholder Orientation

• From a social responsibility perspective, business ethics embodies standards,
norms, and expectations that reflect concerns of major stakeholders
• Social responsibility is associated with:
• Increased profits
• Increased employee commitment
• Greater customer loyalty
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 Social Responsibility and Ethics

• Social responsibility can be viewed as a contract with

society
• Business ethics involves carefully thought-out rules
(heuristics) of conduct that guide decision making

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The Steps of Social Responsibility

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Corporate Citizenship

• The extent to which businesses strategically meet their

economic, legal, ethical, and philanthropic responsibilities
• Four interrelated dimensions:
• Strong sustained economic performance
• Rigorous compliance
• Ethical actions beyond what is required by the law
• Voluntary contributions that advance reputation and
stakeholder commitment
Reputation
• Reputation is one of an organization’s greatest
intangible assets with tangible value
• Difficult to quantify,
but very important

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Corporate Governance

• Formal systems of accountability, oversight, and control

• Accountability
• Refers to how closely workplace decisions are aligned
with a firm’s stated strategic direction
• Oversight
• Provides a system of checks and balances that limits
employees and minimizes opportunities for misconduct
• Control
• The process of auditing and improving organizational
decisions and actions

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 Common Corporate Governance Issues

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Corporate Governance Models

• Shareholder model
• Founded in classic economic precepts
• The maximization of wealth for investors and owners
• Stakeholder model
• A broader view of the purpose of business
• Includes satisfying concerns of a variety of stakeholders
Boards of Directors
• Hold final responsibility for their firms’ success, failure, and ethicality of
actions
• Increased demands for accountability/ transparency
• Trend toward “outside directors” chosen for expertise, competence, and
strategic decision making
• Executive compensation a large and growing concern
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Executive Compensation

• Many boards spend more time discussing compensation than

ensuring integrity of financial reporting systems
• How closely linked is executive compensation to company performance?
• Does performance-linked compensation encourage executives to focus on
short-term performance at the expense of long-term growth?

Implementing a Stakeholder Perspective

1. Assessing the corporate culture
2. Identifying stakeholder groups
3. Identifying stakeholder issues
4. Assessing organizational commitment to social responsibility
5. Identifying resources and determining urgency
6. Gaining stakeholder feedback
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 WEEK3
Emerging Business Ethics Issues
Content outline
• Recognizing an ethical issues
• Ethical issues and dilemmas in business
• The challenge of determining an ethical issue in business

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Ethical issues and dilemmas in business

• Ethical issue is a problem, situation, or opportunity that requires an

individual, group, or organization to decide as right or wrong.
• Ethical dilemma is a problem, situation, or opportunity that requires an
individual, group, or organization to choose among several wrong or
unethical actions. (less unethical).
Recognizing an ethical issue
• Not recognizing an ethical issue is very dangerous for business orgs if
business is treated as a game in which ordinary rules of fairness don’t
apply.
• When you think of just making profit and increase sales then.
• “Business is business” mentality.

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Recognizing an ethical issue honesty

• Honesty: truthfulness or trustworthiness.

• To tell the truth and nothing but the truth.
• Business is not a game to play.
• Business is not a warfare.
• Jiff skilling of Enron was dishonest because he thought of business as a
game and warfare. In the game of business the smart business man does
what he can to make money.
Fairness
• Being just equitable, and impartial
• Equity
• Reciprocity
• Optimization not maximization by selecting the right people into the right
job- discrimination is unfair game to play.
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• Integrity
• Being whole, credible, honest and reliable.
• Its uncompromising adherence to ethical values. Integrity is a very
important value for business people in the 21st century org.

Ethical issues and dilemmas in business

• Abusive or intimidating behavior. Very bad for employees.
• It begins by physical threat to false accusation, insults, harshness,
roundness, profanity(curse), swearing.
• Intent at the center.
Lying
• Distorting the truth, some is related to joking
• Lying be commission- like gimmicks in advertising and lying by omission
Bribery
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Offering something in order to get illegal
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Corporate intelligence and marketing intelligence
• CI is a legitimate inquiry into meaningful information that can be used for
staying competitive.
• Is it legal or illegal?

Corporate intelligence
• What is the role of technology and internet?
• Spying or espionage
hacking: is an internet method for obtaining trade secrets
• System hacking when the attacker has access to a user account.
• Remote hacking: attempting to remotely penetrate a system across the
internet
• Physical hacking: entering a facility personally.

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Discrimination

• Race, gender, and age discrimination are a major source of ethical and
legal debate in the workplace. I think that discrimination is a social,
cultural and psychological problem. Discrimination in some cultures is
more severe than other cultures- what do you think?
• EEO
• Affirmative action programs

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Fraud
Fraud: any intentional communication that deceives, manipulates or
conceals facts in order to create a false impression.
Costs US 400 million a year.
You still can List any unethical practices that are related to our local culture
and their impact on our business.
Types of fraud
• Accounting fraud
• Marketing fraud: communicating misleading marketing information or
marketing in general. Specifically via the communication and promotional
side of the 4ps.
• Consumer fraud: is when consumers attempt to mislead or deceive
businesses for their own gain- shoplifting, price tag switching, lying …etc
• What do you think about “the customer is always right?
• Consumer protection organizations.
Gimmicks in advertising is an example.
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 WEEK 4
Institutionalisation in Business
Ethics
Content outline
• Mandated Requirements for Legal Compliance
• Gatekeepers and Stakeholders
• The Sarbanes—Oxley Act
• Laws That Encourage Ethical Conduct
• Federal Sentencing Guidelines for Organizations

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Mandated Requirements for Legal Compliance
Three dimensions to effective business ethics compliance
• Voluntary practices
• Mandated boundaries
• Core practices
Legal Compliance
• Laws and regulations established by governments
• Laws regulating business passed because stakeholders believe business cannot be trusted to do
what is right
Types of Laws

 Civil law defines the rights and duties of individuals and organizations
 Criminal law prohibits specific actions and imposes punishment for breaking the law
 The difference is enforcement
 Criminal laws enforced by the state or nation
 Civil laws enforced by individuals (generally inBBA324
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Most Laws Affecting Business Fall into 5 Categories
 Regulating competition

 Protecting consumers

 Protecting equity and safety

 Protecting the environment

 Those that encourage ethical conduct

Gatekeepers and Stakeholders

 Trust is the glue that holds businesses together

 Gatekeepers are overseers of business actions

 Accountants

 Risk Assessment
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The Sarbanes-Oxley Act
 Establishes a system of federal oversight of corporate accounting practices
 Gives the Public Company Accounting Oversight Board (PCAOB) authority to monitor
accounting firms that audit public corporations
 Requires top managers to certify their firms' financial reports
 Some legal protection for whistle-blowers
Federal Sentencing Guidelines for Organizations

 Incentive for organizations to develop and implement programs for ethical and legal
compliance
 Applies to all felonies and class A misdemeanors committed by employees
 Philosophy that legal violations can be prevented through organizational values and a
commitment to ethical conduct

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 Week 5
ETHICAL DECISION MAKING AND LEADERSHIP
Content outline
• Understanding the Ethical Decision-Making Process
• A frame work for ethical decision making in business
• The Role of Leadership in Corporate Culture
• Role of leadership in corporate culture
• Leadership styles influence ethical decisions
• Habits of strong ethical leaders

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Understanding the Ethical Decision- Framework for Understanding Ethical
Making Process Decision-Making in Business

• The first step in ethical-decision

making is to recognize that an
ethical issue requires an
individual or work group to
choose among several actions
that various stakeholders inside
or outside the firm will
ultimately evaluate as right or
wrong

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Ethical Issue Intensity
• Ethical issue intensity is the perceived
relevance or importance of an ethical issue in
the eyes of the individual, work group,
and/or organization.
• Reflects the ethical sensitivity of the individual
or work group and triggers the ethical decision
process
• Positive or negative incentives can affect the
perceived importance of an ethical issue.
• Employees need education regarding
potential problem areas.
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Individual Factors
• How people resolve ethical issues in their
daily lives is often based on values and
principles learned through family
socialization.
• In the workplace, ethical issues involve
honesty, conflicts of interest, discrimination,
nepotism (favoritism), and theft.
• The individual’s stage of cognitive
development can affect conduct.
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Individual Factors
• Individual factors include:
• Gender
• Education
• Work experience
• Nationality
• Age
• Locus of control
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Organizational Factors
• Corporate culture: a set of
values, beliefs, goals, norms and
ways to solve problems that
members (employees) of an
organization share
Some corporate cultures support
and reward unethical behavior.
Ethical climate is a component of
corporate culture
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Ethical Climate Significant Others
• The character or decision processes • The work group, which includes
used to determine whether actions people such as peers, managers, and
are ethical or unethical subordinates
• Consists of corporate codes of ethics, • Help on a daily basis with unfamiliar
top management actions, ethical tasks and provide advice and
policies, coworker influence, and the information formally
opportunity for unethical behavior and informally
• The perceived ethics of the • Have more influence
immediate work group has been on daily decisions
found to be a major factor than any other factor
influencing ethical behavior

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Obedience to Authority
• An aspect of influence that
significant others can exercise
• Helps us explain why many
employees resolve business issues
by simply following the directives
of a superior
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Opportunity
• Relates to permitting ethical or
unethical behavior
• Results from rewards and
punishment and it plays a key role
• Relates to the employee’s
immediate job context ,where they
work? Whom they work with? Nature of work?
• Unethical behavior can be
eliminated by establishing formal
codes, policies, and rules that are
enforced
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Business Ethics Evaluations and
Intentions
• Ethical dilemmas involve problem-solving
situations in which decision rules are
often vague or in conflict.
• Critical thinking plays a key role for
solving problems.
• A person’s intentions along with the final
decision on what action to take is the last
step in the ethical decision-making
process.
• If intentions and behavior are not
consistent with ethical judgments, the
individual may feel guilt.
• Most businesspeople will make ethical
mistakes
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The Role of Leadership in Corporate
Culture
• Leadership is the ability or authority to
guide and direct others toward
achievement of a goal.
• Leaders are key to influencing an
organization’s corporate culture and
ethical posture.
• Leadership styles influence many aspects
of organizational behavior, including
employees’ acceptance of and adherence
to organizational norms and values.
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The Role of Leadership in Developing an Ethics Plan

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Leadership Styles Leadership
• Coercive leaders: demand obedient and
focus on achievement • The most successful leaders do not rely
• Authoritative leaders: The most effective on one style of leadership but alternate
styles.
• Affiliative leaders : Relies on friendship their technique based on the
• Democratic leaders: Relies on
participation characteristics of the situation
• Pacesetting leaders: relies on standards
and rules ,procedures
• Coaching leaders: Developing skills,
delegate responsibilities.

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Types of Leaders

• Transactional leaders attempt to create employee satisfaction

through negotiation, or bartering for desired behaviors or levels of
performance.
• Transformational leaders strive to raise employees’ level of
commitment and to foster trust and motivation.
• Transformational ethical leadership is best suited for organizations
that have higher levels of ethical commitment among employees and
strong stakeholder support for an ethical culture.

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Habits of Strong Ethical Leaders

1. Ethical leaders have a strong personal character.

2. Ethical leaders have a passion to do right.
3. Ethical leaders are proactive.
4. Ethical leaders consider stakeholders’ interests.
5. Ethical leaders are role models for the organization’s values.
6. Ethical leaders are transparent and actively involved in
organizational decision-making.
7. Ethical leaders are competent managers who take a holistic view
of the firm’s ethical culture.
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 Week 6
CAT1

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 Week 7
Individual Factors: Moral Philosophies &
values
Content outline
• Moral Philosophy Defined
• Moral Philosophies
• Applying Moral Philosophy to Ethical Decision
• Making
• Cognitive Moral Development
• White-Collar Crime
• The Role of Individual Factors in Business Ethics

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Moral Philosophy
Moral Philosophy Perspectives
 Principles or rules that people use to decide what
 Teleology
is right or wrong
 Deontology
 No single moral philosophy is accepted by
 The Relativist Perspective
everyone
 Virtue Ethics
 Moral Philosophy Defined  Justice Perspectives

 Economic value orientation Goodness Theories

 Idealism  Basic concepts

 Realism  Monists
 Pluralists
 Instrumentalists

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Moral Philosophy and Ethical Decision Making White Collar Crime

 Individuals use different moral philosophies  "Crimes of the suite" do more damage in monetary
depending on whether they are making a personal or and emotional loss in one year than the "crimes of
making a work-related decision the street" over several years combined

Kohlberg's Model of Cognitive Moral Development  The presence of technology has aided WCC

Consists of six stages: Individual Factors

1. Punishment and obedience  Most business managers do not embrace extreme

philosophies
2. Individual instrumental purpose and exchange
 A personal moral compass is not sufficient to prevent
3. Mutual interpersonal expectations, relationships, ethical misconduct in an organizational context
and conformity
 The corporate culture and the rewards for meeting
4. Social system and conscience maintenance performance goals are the most important drivers of
5. Prior rights, social contract or utility ethical decision making

6. Universal ethical principles  Equipping employees with skills that allow them to
understand/resolve ethical dilemmas will help them
make the right decisions

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 Week 8
Organizational Factors: The Role of Culture and
Relationships

Content outline

• Defining Corporate Culture

• The Role of Corporate Culture in Ethical Decision Making

• Leaders Influence Corporate Culture

• Motivating Ethical Behavior

• Organizational Structure and Business Ethics

• Group Dimensions of Corporate Structure and Culture

• Variation in Employee Conduct Can People Control Their Own Actions Within a Corporate Culture?

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Ethical Corporate
Four Organizational culture Types
 Corporate culture includes the behavioral
patterns, concepts, values, ceremonies, and  Apathetic
rituals that take place in the organization
 Caring
Corporate Culture  Exacting
 May be formal statements of values, beliefs,  Integrative
and customs
• A cultural audit is an assessment of the
 May be informal through direct or indirect organization's values
comments conveying management's wishes
Compliance Versus Value-Based
• Two dimensions Culture
 Concern for people  Compliance-based cultures use their
 Concern for performance legal departments to determine ethical
risk
 Values-based cultures relies on an
explicit mission statement that defines
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the firm and stakeholder relations
Differential Association
 The idea that people learn ethical/unethical
behavior while interacting with others
Whistle Blowing
 Exposing an employer's wrongdoing to
outsiders (external to the company)
 The Sarbanes—Oxley Act and the FSGO has
institutionalized whistle-blowing to
encourage discovery of misconduct
Leaders Can Influence Corporate Culture
Five Power Bases
 Reward power: Offering something desirable
to influence behavior
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 Coercive power: Penalizing negative
behavior
 Legitimate power: Titles and positions of
authority
 Expert power: Knowledge based
 Referent power: Exists when goals or
objectives are similar
Motivation
 A force within the individual that focuses
behavior toward achieving a goal
 An individual's hierarchy of needs may
influence motivation and ethical behavior
 Needs or goals may change over time
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Organizational Structure and Business Ethics

 In a centralized organization, decision-making authority is concentrated in the hands of top-level managers

 In a decentralized organization, decision-making authority is delegated as far down the chain of command as
possible

Groups in Corporate Structure and Culture

 Formal groups
 Informal groups
 Group norms

Can People Control Their Own Actions Within a Corporate Culture?

 Organizational ethical decisions often made by committees and formal and informal groups
 Many decisions are beyond the influence of individuals
 Individuals entering the business will need several years of experience to understand how to resolve ethical
issues

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 Week 9
Developing an Effective ethics
program
Content outline
• The Need for Organizational Ethics Programs
• Codes of Conduct
• Ethics Officers
• Ethics Training and Communication
• Systems to Monitor and Enforce Ethical Standards

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The Need for Corporate Ethics Programs

 Scandals in corporate America have reduced trust in businesses

 Understanding the factors that influence ethical decision-making can help companies encourage ethical behavior
 Employees are not legal experts and need guidance
 Organizations should develop an organizational ethics program by establishing, communicating, and monitoring
uniform ethical values and legal requirements

Corporate Codes of Ethics

• Often contain six core values

1. Trustworthiness
2. Respect
3. Responsibility
4. Fairness
5. Caring

6. Citizenship
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Ethics Officers

Ethics officers or committees are responsible for oversight of the ethics/compliance program

 Assess the needs and risks that an ethics program must address
 Develop, revise, and disseminate the code
 Conduct training programs for employees
 Develop effective communication
 Establish audits and control systems
 Review and modify the program to improve effectiveness

Ethics Training and Communication

• Must start with a foundation, a code of ethics, a procedure for airing ethical concerns, and executive priorities
on ethics

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Systems to Monitor and Enforce Ethical Standards

 An effective ethics program employs many resources to monitor ethical conduct and measure the
program's effectiveness

o Observing employees
o Internal audits

o Surveys

o Reporting systems
o Investigations

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 Week10
Managing and Controlling Ethics
Programs
Content outline
• The Ethics Audit
• The Auditing Process
• Benefits of Ethics Auditing
• Risks of Ethics Auditing
• Measurement Tools
• Implementing Ethics Programs
• The Strategic Importance of Ethics Auditing
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The Ethics Audit

It’s a systematic evaluation of an organization’s ethics program and performance to determine

whether it is effective.

 Any attempt to verify outcome and compare them with standards can be considered an auditing
activity.
 Like a financial audit, should be conducted regularly rather than in response to problem or crisis
situations.
 Can be comprehensive or can focus on one or two areas.
 Can help fulfill mission statements to boost profits and reduce risk.
 Will help improve employment practices and operating practices.

• Most importantly can demonstrate the positive impact of ethical conduct and social responsibility

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 Ethical audits are important to a business because:

- can improve performance and effectiveness

- increase attractiveness to investors

- improve its relationship with stakeholders

- identify potential risks

- decrease the risk of misconduct

- Similar to a financial audit

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The Auditing Process
1. Secure commitment of the firm’s top management and/or board of directors.
2. Establish a committee or team to oversee the audit process and reports results. In most firms’
managers and ethics officers conduct auditing
3. Establish scope of the audit - define key subject matter, identify risks, and available opportunities
to manage ethics.
4. Review of the firm’s mission, values, goals and policies.
5. Identifying the tools or methods that can be used to measure the firms progress, then analyzing the
information.
6. Having an independent party, then verify and analyze the results.
7. Final Step- Report audit findings to board of directors

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Benefits of Ethics Auditing

 Can enhance the firm's reputation - Social Responsibility

 Enables identifying potential risks and liabilities to improve compliance with the law to avoid
legal ramifications

 Helps companies assess the effectiveness of their programs and policies

 Allows a company to ensure that they are achieving the greatest possible impact with available
resources

 Reduces the likelihood of a recurrence of misconduct.

 Greater transparency for stakeholders

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Risks of Ethics Auditing
• The greatest fear of most corporate leaders is discovering misconduct or illegal activity that could
be reported by the mass media, used by competitors, or prosecuted by the government."

 A firm may uncover a serious ethical problem that is would prefer not to disclose until it has
remedied the situation
 One or more stakeholder's criticisms may not be easily addressed - imposes burdens that can be
costly
 An ethics audit could foster stakeholder dissatisfaction rather than stifle it
 Provides no assurance that ethical risks and challenges can be avoided
 Processes can be tricky because of a lack of standardization and widely accepted measures -
benchmarking is difficult

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 • Implementing Ethics Programs
• Measurement Tools
• Types of Controls (Formal Controls)
 Balanced Scorecard - to provide a more
 Proper selection of employees
balanced view of organizational performance  Effective ethics training
 Strong structural systems (communication
 Six Sigma - focuses on improving existing
systems)
processes that need to be improved
• The Strategic Importance of Ethics Auditing
 Triple Bottom Line - measuring social,
• Process Controls
financial, and environmental factors
 -Management's commitment
 Output Controls
 -Ethical audit

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 WEEK11
CAT2

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 Week 12
GLOBOLISATION OF ETHICAL DECISION MAKING
Content outline
Capitalism, Economics, and Business Ethics
•Common Values, Goals, and Business Practices
•Global Business Practices
•Sustainable Development
•International Monetary Fund (IMF)
•World Trade Organization (WTO)
•The Multinational Corporation (MNC)

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Capitalism, Economics and Business Practices

 The first decade of the 21st century was a turbulent one

o Ethical misconduct and excessive risk-taking seemed rampant
o Many stakeholders lost confidence in businesses
 Lack of fairness, trust and honesty made stakeholders question the stability of major institutions,
as well as the intentions of executives
 Even the competence of governmental regulatory institutions was called into question

Key Figures in Modern Economics

 Adam Smith
 John Maynard Keynes
 Milton Friedman

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Capitalism, Economics and Business Ethics

 Socialism: Advocates that wealth and power be shared equally across society based on the
amount of work expended in production
 Social democracy formed in the 1940s as an offshoot of socialism
 Current global economic system has created bimodal wealth distribution: The middle class
shrinks so that there are many poor and a few very wealthy

Common Values, Goals, and Business Practices

 Global common values: Shared across most cultures

 Country cultural values: Specific to certain groups that express actions, behavior and intent
 Culture: Everything in our surroundings that is made by people

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Global Business

 Dumping: The practice of charging high prices for products sold in domestic markets while selling the same products in foreign
markets at low prices, often below the costs of exporting them

Cultural Relativism

• The concept that morality varies from one culture to another

• There is a continuum of cultural relativism

• Sustainable Development

 Is a systematic approach to achieving development in such a way that the earth's resources are preserved for future generatio ns
 Some companies conduct their own sustainability performance reports

• International Monetary Fund

 The IMF emerged from the Bretton Woods agreement of 1944

 The IMF assumed a major role in the 1980s in the management of the less developed countries (LDC) debt crisis
 An ethical issue surrounding the IMF has to do with the increased inequality in LDCs

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World Trade Organization

 The WTO was established in 1995 and now includes 133 member nations and 33 others with
observer status
 Administers its own trade agreements, facilitates future trading negotiations, settles trade
disputes and monitors the trade policies of member nations

Multinational Corporation

 Are public companies that operate on a global scale without significant ties to any one nation or
region
 MNCs are subject to ethical criticism over their impact on the countries in which they do
business
 Because of increased scrutiny and pressure to be socially responsible, many corporations belong
to Business for Social Responsibility

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