Chapter 5 Ethics Textbook Notes

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University of Waterloo
Accounting & Financial Management
AFM 131
Robert Sproule

Chapter5-Ethics Ethics is more than Legality  Laws don’t make people honest, reliable and truthful but those who break the law should pay the consequences  Problem with writing laws to "correct" behaviour makes people think that any behaviour within the law is acceptable  Ethics reflects our relations with one another o Legality is much narrower o Many immoral and unethical acts fall well within our laws Ethical Standards are Fundamental  Ethics: standards of moral behaviour o Common moral values: Integrity, respect for human life, self-control, honesty, courage, self- sacrifice o Golden Rule: do onto others as you would have them do onto you Ethics Begins with Each of Us  Ethics should be exhibited in our daily lives, not just in a business environment  Students and ethical behaviour – what is practiced in school is practiced at work once someone finishes school  Keeping ethics in mind when making a decision is not always easy  Ethical dilemma: trade-offs between what is ethical versus personal or professional point of view o Must choose between equally unsatisfactory alternatives  Questions to consider when facing an ethical dilemma o It is legal?  Am I violating any law or company policy o Is it balanced?  Am I acting fairly? Try to always achieve win-win situations, decision that benefit all o How will it make me feel about myself?  Can I tell the decision to my family, friends, supervisor, or clients? Styles of recognizing and resolving ethical dilemmas  Ethics of justice o Based on justice, fairness, equality, authority o May lose sight of immediate interests of individuals  Ethics of care o Reduce harm or suffering, solutions based on individual circumstances o May loose fairness as decisions may be arbitrary  Justice of Process is an ethical perspective that you, as students, care a lot about o Each of you should be treated fairly o Receiving the same evaluation as a peer based on the submission of the same assignment or the same answer to an exam question Managing Businesses Ethically and Responsibility  Organizational ethics starts at the top of the business – employees learn standards by watching their managers  Trust and cooperation between workers and managers must be based on: fairness, honesty, openness, and moral integrity  Reasons for a business to behave ethically: reputation, keep existing customers, attract new customers, to avoid lawsuits, reduce employee turnover, avoid government intervention, to please customers/employees/society  Managers can indirectly encourage unethical behaviour by polices/programs o Ex: a poorly designed incentive program Setting Corporate Ethical Standards  Code of Conduct: is the central guide and reference for users in support of day-to-day decision making through clarifying an organization’s mission and values: o Open disclosure of how an organization operates o Provides visible guidelines for behaviour o Topics include: commitment to employees, standards for doing business and relationship with the community o Encourages discussions of ethics to improve how employees deal with ethical dilemmas o Creates a positive public identity which leads to a more supportive political and regulatory environment and increased level of public confidence and trust  Compliance-based Ethics Code: emphasize preventing unlawful behaviour by increase control and by penalizing wrongdoers  Integrity-based Ethics Code: define and organization’s guiding values, creates and environment that supports ethical behaviour, stresses a shared accountability  Six-step process to improve business ethics: o Top management must adopt and unconditionally support the code o Expectations for ethical behaviour start at the top and applies to everyone o Employees must be trained to consider ethical implications of decisions o Ethics office must be set-up for employees to report ethical issues, whistleblowers must be protected from retaliation o All external stakeholders informed of ethics program o Ethics code must be enforced  Important role of ethics officer to demonstrate to stakeholders the importance of ethics  Frank Bucaro’s four words: o Can’t: is the wrong focus for codes of ethics o Boredom: another consequence of negatively framed codes of conduct o Failure: logical consequence that should be applied to unethical behaviour o Problem: is the wrong perspective to take with ethical compliance The Sarbanes-Oxley Act of 2002  Goal was to ensure accuracy and reliability of public company financial information o Applies to all public companies under the SEC’s control o Requirements deal with proper admin routines, procedures, and control activities o Also protects whistleblowers from retaliation Whistleblower Legislation in Canada  Exists at the federal and some provincial levels to protect public sector employees o Federal Accountability Act, increases transparency of the federal government  No provision to protect private sector whistleblowers  Survey shows that whistleblowers uncovered far more fraud than internal audit and all other management control systems combined Corporate Social Responsibility  CSR: a business’s concern for the welfare of society o Commitment to integrity, fairness, and respect o Cultural values can also greatly effect ethics and CSR  Milton Friedman: only social responsibility of business is to make money for shareholders o Anything else more is socialism o Can be seen as stealing from investors o CSR can potentially make more money for in
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