Chapter 6 Notes
Ethics in Management
Ponzi Scheme is a type of investment fraud that involves the payment of
purported returns to existing investors from funds contributed by new investors.
Ethics is a reflection of the moral principles or beliefs about what an individual
views as being right or wrong.
In many ways, ethics can be thought of as an invisible hand that guides us as we
Triple Yes Rule:
· Yes #1—Does the decision that I am making fall within the accepted values
or standards that typically apply to all organizational environments?
· Yes #2—Would I be willing to have this decision communicated to all of my
organization’s stakeholders, and have it reported on the front page of the
newspaper or serve as the lead story on a news channel?
· Yes #3—Would the people in my life with whom I have a significant personal
relationship (family, spouse, etc.), as well as managers of other
organizations, approve of and support my decision?
These sources are individual, societal, professional, and business culture influences.
In making decisions, we need to think in terms not of what is in our personal best
interests, but of what is in the best interests of the stakeholders and the public at
large. In making decisions, we need to think in terms not of what is in our personal best
interests, but what is in the best interests of the stakeholders and the public at
Integrity is honesty, reliability, ethics, and moral judgment
The most important skill you can bring to the workplace is your integrity.
Board of Directors is the term for the governing body of a corporation, comprising
individuals chosen or elected to oversee the management of the organization.
Just as companies are vulnerable to shifts in market conditions, changes in the
intensity of competitive rivalry, disruptive technologies, and changing customers,
so, too, are they vulnerable to the serious consequences and brand equity erosion
that accompanies unethical behaviour within their management and employee
For boards to effectively create a culture of ethical behaviour and financial integrity,
they must commit to the following specific actions
1. The board must clearly define and establish boundaries of acceptable behaviour
and financial integrity, and create performance standards to evaluate adherence to
2. These boundaries must be clearly understood and communicated to all
employees in the form of a policy or code of conduct. This code of conduct is not
limited to financial integrity, but should clearly identify boundaries associated with
ethical behaviour, both internal and external, and the consequences for failure to
adhere to such a policy or codes, protocols, and overall culture.
3. The board of directors must appoint a representative (individual or committee),
at the board level, whose responsibility is to audit managerial and employee
performance and action in critical areas of this policy or code of conduct. This
representative or committee would also be a key participant in reviewing
compensation packages and other personnel-related policies to ensure these are
not designed in a way which would encourage unethical behaviour.
4. The board of directors must create and support a mechanism for the reporting of
ethical concerns within the organization (called whistleblowing), with such a process
designed in a way that ensures employees who utilize such a process are not
penalized or ostracized.
5. The board of directors or its representative must interact with senior
management and external agencies monitoring the organization’s activities in order
to discuss issues that could arise with respect to management or employees, and
represent the best interests of the organization and its shareholders with respect to
questions of ethical behaviour or financial integrity.
Whistleblowing is the process through which an individual informs someone in
authority of a dishonest act or the dishonest behaviour of another person To truly create a culture of ethical behaviour and financial decision integrity, the
board of directors (or owner-representative body) must be active in the ongoing
monitoring of the organization and take a leadership role in the tightening of such
processes when and where it is required.
Code of Conduct is the name for a statement that describes the required
responsibilities, actions, and rules of behaviour of an organization’s employees.
The board of directors, as representatives of the stakeholders of an organization,