Ch 8 notes
The responsibility of the corporation to stakeholders
• Corporations are viewed not merely as profit making entities but also as moral agents
accountable for their conduct to their stakeholders, including employees, investors,
suppliers, governments, and customers
• A key reason why people seem to engage in misconduct is they feel pressured to do
“whatever it takes to meet business targets”
• A corporate culture without values and appropriate communication about ethics can
facilitate individual misconduct
• Although ethics is often viewed as an individual matter, many believe the best way to
develop an ethical corporate culture is to provide character education to existing
employees or hire individuals with good character and sensitize them to ethical issues
The need for organizational ethics programs
• One reason ethics programs are required in one form or another is to sensitize employees
to the potential legal and ethical issues within their work environment
• Studies show ethics programs can increase employees’ ethical awareness, participation in
ethical decision making, and ethical behavior
• Organizations can also become bad barrels, not because individuals are bad, but the
pressures to succeed create opportunities that reward unethical decisions. In the case of
bad barrels, firms must redesign their image and culture to conform to industry and social
standards of acceptable behavior
An effective ethics program
• A company must have an effective ethics program to ensure all employees understand its
values and comply with the policies
• Because we come from diverse business, educational, and family backgrounds, it cannot
be assumed we know how to behave appropriately when we enter a new organization or
job
• Within the ethics program the most important component to deter misconduct is
accountability policies
• An ethics program can help avoid legal problems
o Some corporate cultures provide opportunities for or reward unethical conduct
because management is not sufficiently concerned about ethics or the company
failed to comply with the minimum requirements for FSGO
o The FSGO encourages companies to assess their key risk areas and customize a
compliance program to address these risks ad satisfy key effectiveness criteria
o An effective risk assessment involves not only examining legal issues but also
environmental, health and safety, and other risk area
o At the heart of the FSGO is a “carrot and stick” philosophy. Companies that act to
prevent misconduct by establishing and enforcing ethical and legal compliance programs may receive a carrot and avoid penalties should a violation occur. The
ultimate “stick” is the possibility of being fined or put on probation if convicted of
a crime
o The FSGO encourages federal judges to increase fines for organizations that
continually tolerate misconduct and to reduce or eliminate fines for firms with
extensive compliance programs that make due diligence attempts to abide by legal
and ethical standards
• Values versus compliance programs
o No matter what their goals, ethics programs are developed as organizational
control systems, with the aim of creating predictability in employee behavior
o Two types of control systems can be created
o A compliance orientation creates order by requiring employees to identify with
and commit to specific required conduct. It uses legal terms, statutes, and
contracts that teach employees the rules and penalties for noncompliance
o The other system is a values orientation, which strives to develop shared values.
Although penalties are attached, the focus is more on an abstract core of ideals
such as accountability and commitment
o The advantage of a values orientation is it gives employees a clearly defined basis
on which to make decisions, one in which fairness, compassion, respect, and
transparency are paramount
o Establishing compliance standards helps employees understand rules of conduct
when there are identified risks
o Research into compliance and values based approaches reveals both types of
programs can interact or work toward the same end, but a values orientation has
the added benefit of sparking ethical reasoning among employees
Codes of conduct
• Most companies begin the process of establishing organizational ethics programs by
developing codes of conduct, or formal statements that describe what an organization
expects of its employees. Such statements make take 3 different forms: a code of ethics, a
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