9/15/2022

Chapter 3

Organizational
Ethics

Copyright © 2014 McGraw-Hill Education.

CopyrightAll©rights
2013reserved. No reproduction
The McGraw-Hill or distribution
Companies, without
Inc. the prior
All rights written consent of McGraw-Hill Education.
reserved.

Defining Organizational Ethics

• Business ethics, as an area of study, is separate
from the general subject of ethics because:
• Stakeholders have a vested interest in the
ethical performance of an organization
• The situation where one’s personal value
system may clash with the ethical standards of
the organization’s operating culture

3-2

1
 9/15/2022

Defining Organizational Ethics

• Organizational culture: Values, beliefs, and
norms that all the employees of that
organization share
• Value chain: Key functional inputs that an
organization provides in the transformation of
raw materials into a delivered product or
service

3-3

Figure 3.1 - A Representative

Company Value Chain

Sources: Adapted with permission of the Free Press, a division of Simon & Schuster Adult Publishing Group, from
Competitive Advantage: Creating and Sustaining Superior Performance, by Michael Porter. Copyright © 1995, 1998 by
Michael E. Porter. All rights reserved. And from A. A. Thompson Jr. and A. I. Strickland III, Crafting & Executing Strategy:
The Quest for Competitive Advantage: Concepts and Cases, 14th ed. (New York: Irwin McGraw-Hill, 2005), p. 99.

3-4

2
 9/15/2022

Ethical Challenges in Research and

Development
• Critical commitment to the consumer in the
provision of product quality, safety, and
reliability
• Tough decisions made when delivery of a design
does not match the manufacturing cost figures
• Use of fresh materials or second best to save
money
• Full battery test run or just computer
simulations

3-5

Ethical Challenges in Manufacturing

• Ethical challenges inherent in arriving at a

compromise
• Supply problem if a product is built precisely
based on the design specifications
• Use of a less reliable supplier when delivery is
held up
• Assurance of quality from the alternative
supplier

3-6

3
 9/15/2022

Ethical Challenges in Marketing

• Provide products or services to customers who
have already expressed a need for and a desire
to purchase those products
• Unsuspecting customers are induced to buy
products they don’t really need by commercials
and advertisements
• Marketers argue that customer satisfaction
justifies the methods used to achieve the
outcome inspite of the misleading message

3-7

Ethical Challenges in Marketing

Utilitarianism

• Ethical choices that offer the greatest good for

the greatest number of people

Universal ethics

• Actions that are taken out of duty and obligation

to a purely moral ideal rather than based on the
needs of the situation since the universal
principles are seen to apply to everyone,
everywhere, all the time

3-8

4
 9/15/2022

Ethical Challenges in Marketing

• Code of ethics by American Marketing
Association (AMA)
• Do no harm
• Foster trust
• Improve customer confidence
• Clear ethical values

3-9

Ethical Challenges in Human

Resources
• Ensure that ethics is a top organizational
priority
• Ensure that the leadership selection and
development processes include an ethics
component
• Ensure that the right programs and policies are
in place
• Stay abreast of ethics issues

3-10

10

5
 9/15/2022

Areas in Finance Function

• Financial transactions - Handling flow of money
through an organization
• Accounting function: Keeps track of all financial
transactions by documenting the credits and
debits and balancing the accounts at the end of
the period
• Auditing function: Certification of an
organization’s financial statements, or books, as
being accurate by an impartial third-party
professional
3-11

11

Internal Auditors
• Grounded in professionalism, integrity, and
efficiency
• Make objective assessments of operations and
share ideas for best practices
• Provide counsel for improving controls,
processes and procedures, performance, and
risk management

3-12

12

6
 9/15/2022

Internal Auditors
• Suggest ways for reducing costs, enhancing
revenues, and improving profits
• Deliver competent consulting, assurance, and
facilitation services

3-13

13

Auditor’s Code of Ethics

• Not falsifying documents
• Not stealing money from the organization
• Not undertaking any other form of fraudulent
activity
• Related to the management of the
organization’s finances

3-14

14

7
 9/15/2022

Ethical Challenges Faced by Internal

Auditors
• Generally Accepted Accounting Principles
(GAAP): Set of standard operating procedures
that govern the accounting profession
• Not a set of laws and established legal
precedents

3-15

15

Ethical Challenges Faced by Internal

Auditors
• Creative bookkeeping techniques
• Legal to defer receipts from one quarter to the
next to manage the tax liability
• Ethical challenges faced
• Falsifying accounts
• Underreporting income
• Overvaluing assets
• Taking questionable deductions

3-16

16

8
 9/15/2022

Conflicts of Interest
• Situation where one relationship or obligation
places you in direct conflict with an existing
relationship or obligation
• Meeting the needs of your organization’s
stakeholders
• Selling a product that has the potential to be
harmful to your customers
• Selling a product that has the potential to be
harmful to the environment

3-17

17