BUSINESS AND ETHICS ISIGK

INTRODUCTION

"Whenever you do a thing, act as if all

the world were watching."
Thomas Jefferson
Will you help create a moral code of business ethics based on honesty,

integrity, and quality?

This is about changing the world! About creating a climate where businesses

are expected to behave ethically, and where executives who try to drag

their companies into the unethical swamplands find that nobody's willing to

carry out their orders.

I believe that if I can get 25,000 business leaders—25,000 people to make

a commitment to spread the ideas in Principled Profit: Marketing That Puts

People first, that we can change the culture of business. Following the ideas

expressed in the book The Tipping Point, and the story of the 100th

Monkey, I feel, deep in my heart, that once a critical mass embraces the

idea that high ethical standards are not only possible, but actually more

profitable, society will change.

Some of those key ideas (among many) include:

● Businesses are more likely to succeed when they base themselves in

ethics—in honesty, integrity, and quality.

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• Amazing things can happen when all stakeholders (employees,

customers, suppliers, neighbourhoods residents, even competitors)

become your active champions-but that only happens if your business

specifically empowers each of these groups and addresses their

different needs and desires

• Line employees, managers, and even CEOs need support to show that

ethical principles will help their businesses succeed, and that they

won't be penalized by the marketplace for taking an ethical stand.

Society changes when enough people decide that something is seriously

wrong and when they feel empowered to do something about it. In my own

lifetime, we've seen critical masses arise and succeed, over and over, for

example:

• Blacks and whites joined together to desegregate the southern United

States

• People's movements tore down the Berlin Wall and the entire

network of totalitarian Soviet governments

• South Africa peacefully threw off the shackles of apartheid and

freed Nelson Mandela from prison to be its first democratically

elected President

All of these struggles started with a few people, but spiralled outward to

become an unstoppable movement for justice once enough people started to

believe and to act. Ordinary people in Montgomery, in Gdansk, in Soweto, in

so many other places, decided that things had to change—and they changed!

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◙ Ethics of production:

This area of business ethics deals with the duties of a company to ensure

that products and production processes do not cause harm. Some of the

more acute dilemmas in this area arise out of the fact that there is usually

a degree of danger in any product or production process and it is difficult

to define a degree of permissibility, or the degree of permissibility may

depend on the changing state of preventative technologies or changing social

perceptions of acceptable risk.

• Defective, addictive and inherently dangerous products and services

(e.g. tobacco, alcohol, weapons, motor vehicles, chemical manufacturing,

bungee jumping).

• Ethical relations between the company and the environment: pollution,

environmental ethics, carbon emissions trading

• Ethical problems arising out of new technologies: genetically modified

food, mobile phone radiation and health.

• Product testing ethics: animal rights and animal testing, use of

economically disadvantaged groups (such as students) as test objects.

◙Religious views on business ethics:

The historical and global importance of religious views on business ethics is

sometimes underestimated in standard introductions to business ethics.

Particularly in Asia and the Middle East, religious and cultural perspectives

have a strong influence on the conduct of business and the creation of

business values.

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Examples include:

• Islamic banking, associated with the avoidance of charging interest on

loans.

• Traditional Confucian disapproval of the profit-seeking motive. [1]

• Quaker testimony on fair dealing

◙Stories:
The most important business ethics story of 2004 is about what did not

happen. As we end this year, with our diverse cultural celebrations of

redemption and hope, it is worthwhile to note the absence of this event.

But before I tell you what didn't happen, let's look at what did.

The main business ethics stories of 2004 were further chapters of the

financial frauds that ended the 1990s. Wealth was being created at

incredible rate. Even the staid Alan Greenspan thought we were entering a

new phase of economics. For the first time in history, we could

communicate instantly and cheaply to every country in the world.

However, the new business models and the technology that made our

exuberance possible created expectations that fuelled a speculative bubble.

When it burst, tens of millions of stockholders, suppliers and employees felt

the pain. Dickens' description of the end of the 18th century fits well: It

was the best of times, it was the worst times. Let's look at four of these

chapters.

Chapter 1. When responsibility for the Enron debacle seemed to lead to

Jeffrey Skilling and Ken Lay, there was a widespread belief that no matter

how culpable, they would never be indicted. Not so. Skilling was indicted in

February on 35 counts of fraud and insider trading. Lay was indicted in

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July on 11 counts of securities and wire fraud. Why did it take three years

to bring these indictments? Cynics cite Enron's connections to President

Bush and the energy industry. Accountants and finance professionals argue

that the financial schemes constructed by CFO Andrew Fastow were so

complicated that it took this long for the government to build a winning

case. Whatever the reason for the delay, everyone expects Messrs.

Skilling and Lay to fight these indictments with all the resources at their

disposal, as is their right. But, should they?

Chapter 2. The Sarbanes-Oxley Act, designed to prevent more Enrons

and WorldComs, began to sink its teeth into corporate America in 2004.

For the first time in history, management is legally responsible to

thoroughly document and test financial controls. Some auditors are

predicting that 40 percent of companies will declare deficiencies in their

financial controls. What these reports will do to the stock price of these

companies and the credibility of financial markets remains to be seen. It

may not be pretty. It would be cruelly ironic if the law passed to restore

investor confidence eroded it further.

Chapter 3. Merck was accused of ignoring problems with Vioxx, a pain

reliever, that would have led to the drug being withdrawn from the market.

While the full story is not in, it appears that Merck ran a study that

suggested Vioxx increases the occurrence of heart attacks. The company

did not conduct further studies to see if this were so. In a study Merck

ran to see if Vioxx reduces colon cancer, the company was faced with the

ugly truth: Vioxx increases the risk of heart attacks. When Merck

withdrew the drug, its stock lost nearly 27 percent of its value, or more

than $26.6 billion. Merck argues that they did nothing wrong.

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Chapter 4. The CEO of Fannie Mae, Franklin Raines, resigned Dec. 21

amid accusations that the company exaggerated earnings by as much $9

billion. Beyond that, the company withheld funds that could have been used

to finance home loans for thousands of low-income households. Raines

stated, "By my early retirement, I have held myself accountable." Has he?

So what non-event is the biggest business ethics story of 2004? The

headline reads "Once again, no senior manager takes responsibility for

corporate frauds." The story would run something like this:

For the third consecutive year, no senior business leaders involved in a

major corporate fraud have stepped forward to acknowledge their

responsibility for their company's misdeeds. Specifically, Ken Lay (Jeffrey

Skilling, Dennis Kozlowski ...) did not say:

"It was my fault. No matter what I knew or did not know, it was my fault.

No matter what the standard practice was, it was my fault. By not taking

care of the company, I hurt investors, lenders, employees, suppliers,

retirees and whole communities. I contributed to the distrust of the

financial markets. I helped bring about the Sarbanes-Oxley Act that is now

costing American business billions of dollars. I am not asking for

forgiveness; I am taking responsibility. But talk is easy. The real

question is, what will I do?

"First, my family and I will live modestly. The rest of my wealth will be

devoted to making corporate America better and relieving the plight of

those who suffered due to my bad decisions. My mission is to reduce the

probability of corporate fraud to zero. To do this, I will work with other

business leaders. We will identify and suggest solutions to the most vexing

problems facing business organizations, such as misuse of travel funds;

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influencing hiring and promotion for personal reasons; issuing phony

consulting contracts to channel funds to friends, family, or oneself; using

company resources for hotels and apartments for illicit affairs. There are

ways to identify these problems and rectify them. This is my mission."

If the Skillings Lays and Embers of this world made this statement, they

would open themselves to jail and the loss of their fortunes. We can't

expect them to risk so much, can we? Perhaps, though, they would only

sacrifice the person they were, not the person they would become. They

could say, as their punishments came raining down: "It is a far, far better

thing that I do, than I have ever done; it is a far, far better rest that I

go to than I have ever known."

Expect here the rest would be the peace of mind we get when we have the

courage to own up to our responsibilities at great risk to ourselves. Not a

bad thought with Christmas just past and the new year on the way.

JOHN DIENHART holds the Frank Shrontz Chair for Business Ethics at the

Albers School of Business and Economics at Seattle University.

Is "business ethics" an oxymoron? Are doing business and being

ethical so contradictory that it is impossible to be both an

effective business manager and an ethical individual? No doubt

many--perhaps most--would answer "yes" to both these

questions. But if it is true that management effectiveness and

individual ethics are mutually exclusive, why would anyone want

to be a manager? Can it be that all of the people who are or

want to be managers are willing to sell their souls?

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The idea of this article is that business and ethics are not contradictory.

Indeed, good ethics is synonymous with good management. Two principles

based on ethical theory are presented that give ethical purpose to

management while at the same time making managers more effective. The

perception that business and ethics are contradictory is based on a

generally accepted view of what managers are supposed to do and, thus,

how they are supposed to act. We begin by examining that view.

◙The Role of the Manager:

What do most people believe managers should do? To the extent that there

is a social norm concerning the manager's role, people who assume that role

will be apt to fulfill that norm. Social norms and role expectations are

powerful drivers of behavior.

The traditional view of the managerial role is relatively clear. It has been

stated frequently by people writing about management. For instance, Milton

Friedman, in his essay "The Social Responsibility of Business Is to Maximize

Its Profits" (1970), says:

[A] Corporate executive is an employee of the owners of the business.

He has direct responsibility to his employers. That responsibility is to

conduct the business in accordance with their desires, which generally will

be to make as much money as possible while conforming to the basic rules

of the society, both those embodied in law and those embodied in ethical

custom.

In a similar vein are Albert Carr's comments "Is Business Bluffing Ethical?"

(1968):[A]s long as a company does not transgress the rules of the game

set by law, it has the legal right to shape its strategy without reference to

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anything but its profits. If it takes a long-term view of its profits, it will

preserve amicable relations, so far as possible, with those with whom it

deals. A wise businessman will not seek advantage to the point where he

generates dangerous hostility among employees, competitors, customers,

government, or the public at large.

These two statements define the manager's role on the basis of two

principles:

* Profit maximization is the exclusive goal of business management.

* The expectations of others (as reflected in law, ethical custom and

potentially hostile reactions) serve as constraints on a manager's ability to

achieve the exclusive goal of profit.

It is from this traditional view of the managerial role that people conclude

that business ethics is an oxymoron. Business is seen to encompass the

pursuit of self-interest, and ethics is recognized as involving consideration

of others. Concern for self and concern for others clash; hence, business

and ethics clash.

◙The Interdependent Environment of

Business:
As long as the role of management is defined in terms of profit

maximization, the conflict with ethics remains. But suppose describing the

role of manager in terms of profit maximization not only conflicts with being

ethical, but also is dysfunctional as an approach to management. Then it

would follow that the traditional role of manager should be changed,

perhaps in a way that does not conflict with ethics.

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The traditional description of the role of manager is dysfunctional because

it draws a manager's attention away from the essential part other people

play in the achievement of profit.

Such a description doesn't just fail to point out the importance of other

people in fulfilling that role; it actually portrays them as a constraint on

profit maximization. However, participants in business activities are

interdependent on each other for success. They need to cooperate with one

another to achieve their objectives. For example, a company cannot succeed

without the help of its employers, suppliers, and customers. Managers

cannot succeed without the help of superiors and subordinates.

Situations of interdependence are referred to as non-zero-sum games. A

zero-sum game is one in which there must be a winner and a loser. In non-

zero-sum games, however, there can be a winner and a loser (win-lose),

two losers (lose-lose), or two winners (win-win).

Certainly, most managers recognize the existence of interdependence and

create win-win situations daily. For instance, most managers don't

constantly insult their subordinates because they know if they do their

subordinates will be uncooperative--and that cooperation is essential to

getting most jobs done.

What about situations in which interdependence is not so obvious? How apt

are managers to recognize the existence of interdependence and the need

for cooperation in such situations? It seems that the second principle of

the managerial role, which describes other people as constraints on the

achievement of the exclusive goal of profit maximization, would likely cause

managers to fail to recognize less obvious situations of interdependence. If

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others are seen as constraints, they are apt to be seen as adversaries with

whom one should compete rather than cooperate.

◙Ethics talk asks ancient and timely question:

What do you do when you discover something wrong in the workplace?

Do you report it or keep quiet?

Can we maintain our personal integrity and remain competitive?

How do we adhere to a code of ethics when so many seem to avoid playing

by the rules?

In a new talk, based on his book, Jim Lichtman explores these questions

and others from responses to a questionnaire sent out to more than 2,200

individuals - corporate leaders, journalists, athletes, political leaders,

teachers and those who would call themselves "ordinary" Americans, along

with this follow-up:

Describe a 'moment of principle' in which your convictions were tested or a

story in which you were inspired by another."

"We know where we can find stories of people who do it wrong," Lichtman

says, "but where can we find stories of people who do it right?'

What Do You Stand For? Not only provides examples of people who do it

right, but shares the core ethical values that motivate them to take action.

Along the way, they inspire us all to live up to our highest values.

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◙The Need for an Ethical Culture:

In today’s highly competitive, performance-driven business climate,

regulations are not enough; professional ethics codes are not enough; the

old model of “business ethics” is not enough.

According to a 2003 survey of corporate directors and general counsel

conducted by the National Association of Corporate Directors and the

American Corporate Counsel Association, “…the two groups overwhelmingly

agree that the single measure that would most improve corporate

governance is the establishment by senior management of an ethical

business culture.” And, “Another clear message of the survey is that ethical

leadership from the top is the key to reducing corporate malfeasance.”

Considering the ethical failures in the last several years and the resulting

crisis in confidence, a sincere commitment to creating and sustaining an

ethical business culture in public and private sectors has never been more

important.

If we are ever going to return to the level of trust and confidence that we

had in our institutions and each other, we need to take a good look in the

mirror and ask ourselves what we stand for.

Business and Ethics From a business perspective, working under government

contracts can be very lucrative. In general, a steady stream of orders keep

coming in, revenue increases and the company continues to grow. There are

a few obvious downfalls to working with government contracts; a higher

quality is to be expected as well as extensive research accompanied by

accurate and complete documentation are usually required. If one part of

the process fails to perform correctly it can cause minor flaws as well a

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problems that can carry some serious repercussions; For example the case

of the failed computer chip at Company X. When both the employee and

company are found at fault, the question arises of how extensive should the

repercussions be? Is the company as a whole liable or do you look into

individual employees within that company? From an ethical perspective one

would have to look at the available information of both the employees and

their superiors along with the role of others in the situation. Next you

would have to analyze the final outcome from a corporate perspective and

then examine the corporate responsibility as a whole in order to find a

resolution for cases such as this. The first mitigating factor involved in the

Company X case is the uncertainty, on the part of the employees, on their

duties that they were assigned. It is possible that during the testing

procedure, an employee couldn't distinguish between the parts they were to

test under government standards and commercial standards. In some cases

they might have even been misinformed on the final product that they

tested. In fact, ignorance on the part of the employees would fully excuse

them from any moral responsibility for any damage that may result from

their work. Whether it is decided that an employee is fully excused, or is

given some moral responsibility, would have to be looked at on an individual

basis. The second mitigating factor is one of threats that an employee

might suffer if they do not follow through with their assignment. After the

bogus testing was completed in the Company X labs, the documentation

department also had to falsify documents stating that the parts had more

than met the governments testing standards. From a legal and ethical

standpoint, both the testers and the writers of the reports were merely

acting as agents on direct orders from upper management. The writers of

the reports were well aware of the situation yet they acted in this manner

on the instruction of a supervisor. Acting in an ethical manner becomes a

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secondary priority in this type of environment. As stated by Alan Reder, "if

they [the employees] feel they will suffer retribution, if they report a

problem, they aren't too likely to open their mouths." (113). The workers

knew that if the reports were not falsified they would come under

questioning and perhaps their job would be in jeopardy. Although working

under these conditions does not fully excuse an employee from moral fault,

it does give a starting point to help narrow down the person or department

that issued the original request for the unethical acts. The third mitigating

factor is one that perhaps encompasses the majority of the employees in

the Company X case. We have to balance the direct involvement that each

employee had with the defective parts. Thus, it has to be made clear that

many of the employees did not have direct involvement with the testing

departments or with the parts that eventually failed. Even employees or

sub-contractors that were directly involved with the production were not

aware of the ignorance on the part of the testing department. For

example, the electrical engineer that designed the defective computer chip

could have stated that it was tested and it did indeed meet the required

government tests. Also, for the employees that handled the part after the

testing process, they were dealing with what they believed to be a piece of

equipment that met government standards. If the part was not tested

properly, and did eventually fail, isn't the testing department more morally

responsible than the designer or the assembly line worker that was in

charge of installing the chip? In large corporations there may be several

testing departments and in some cases one may be held more responsible

than another depending on their involvement. A process like this can serve

as a dual purpose for finding irresponsible employees as well as those that

are morally excused. The fourth mitigating factor in cases of this nature is

the measure of the seriousness of the fault or error caused by the

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product. Since Company X was repeatedly being added to the list of

approved government contractors, one can safely assume that the level of

seriousness, in the opinion of the contractor approval committees, is not of

monumental importance. Yet a person has to wonder how this case would

have been different if it caused the loss of life in a military setting.

Perhaps the repercussions would have taken effect much faster and been

more stringent. The fact that Company X did not cause a death does not

make them a safe company. They are still to be held responsible for any

errors for which their products cause, no matter the extent. As for the

opposition to the delegating of moral responsibility, mitigating factors and

excusing factors, most would argue that the corporation as a whole should

be held responsible. The executives within a corporation should not be

forced to bring out all of the employees responsible. A company should be

reprimanded and be left alone to carry out its own internal investigation and

repercussions. From a business law perspective this is the ideal case since a

corporation is defined as being a separate legal entity. Furthermore,

opposition would argue that this resolution would benefit both the company

and the government since it would not inconvenience either party. The

original resolution in the Company X case was along these lines. The

government permanently removed Company X from its approved contractors

list and then Company X set out to untangle the web of wrongdoing from

within. This allowed for a relatively quick resolution as well as an ideal

scenario for Company X. In response, one could argue that the whole

corporation has no morals or even a concept of the word. A corporation is

only as moral and ethical as the employees that work for it. All employees,

including top ranking executives are working towards the advancement of the

company as a whole. All employees, including the sub-contractors and

assembly line workers, are in some part morally responsible. Every employee

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should have been clear on their employment duties and aware of which parts

were intended for government use. Uncertainty is not an excuse for moral

responsibility in the case of the workers. Also, the fact that some

employees failed to act in an ethical manner gives even more moral

responsibility to that employee. While some are definitely more morally

responsible than others, every employee has to carry some burden of weight

in this case. In fact, when the government reached a final resolution, they

decided to further impose repercussions and certain employees of Company

X were banned from future work in any government office (Velazquez, 54).

Looking at the case from the standpoint of Company X, the outcome was

favourable considering alternate steps in which the government could have

taken. As explained before, it is ideal for a company to be able to conduct

its own investigation as well as its own punishment. After all, it would be

best for a company to determine what specific departments are responsible

rather than having a court of law trying to decide which employee is to be

blamed. Yet, since there were ethical issues of dishonesty and secrecy

involved, Company X should have conducted a thorough analysis of their

employees as well as their own practices. It is through such efforts that a

corporation can raise the ethical standard of everyone in the organization.

This case brings into light the whole issue of corporate responsibility. The

two sides that must ultimately be balanced are the self interests of the

company, with main goal of maximum profit, and the impacts that a

corporation can cause on society (Sawyer, 78). To further strengthen this

need, one could argue that there are very few business decisions that do

not have an affect on society in one way or another. In fact, with the vast

number of growing corporations, society is being affected on various fronts;

everything from water contamination to air bag safety is becoming a major

concern. Every decision that a business makes is gauged by the financial

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responsibility to their corporation instead of their social responsibility to

the local community. This was pointed out on various occasions as the main

reason why Company X falsified their reports. The cost of reengineering of

the defective part did not outweigh the loss of business. In the opinion of

the executives, they were acting in a sensible manner. After all, no

executive wants to think of themselves as morally irresponsible. The

question that naturally arises, in debating corporate responsibility, is what

types of checks and balances can be employed within a company to ensure

that a corporation and all of its agents act in an ethical manner. Taking the

example of the Company X case, one can notice many failures in moral

responsibility. Company X would have to review its employees, particularly

the supervisors, for basic ethical values such as honesty. For example,

ultimately it was the widespread falsification of the testing documentation

that caused the downfall of Company X, not the integrity of it's employees.

In the outline of the case it is never mentioned that the employees

initiated this idea, it would seem that it was the supervisors that gave the

order to falsify the documents. Through open communication, a company can

resolve a variety of its ethical dilemmas. As for the financial aspects of

the corporation, it has to decide whether the long term effects that a

reprimand can have outweighs their bottom line. In other words,

corporations have to start moving away from the thought of instant profit

and start realizing both the long term effects and benefits. These long

term benefits can include a stronger sense of ethics in the work force as

well as a better overall example to society. In conclusion, I agree with the

use of mitigating factors in determining moral responsibility. A company, as

defined by law, is only a name on a piece of paper. The company acts and

conducts itself according to the employees that work for it. I use the word

employee because in ethical thinking there should be no distinction of rank

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within a company. There are times when executives can be held directly

responsible and at the same time, there are cases where employees are

acting unethically without the executives knowing. Neither title of executive

or employee is always morally perfect. Therefore, when a company has

acted irresponsibly, its employees must be held liable in a proportionate

amount. As for the future of ethics in business I would speculate that if

employees started to think more in long term benefits and profits, many of

the ethical dilemmas that we face today would be greatly reduced. As

mentioned before, businesses today uses the measuring stick of

profitability. We need to stress the importance of placing ethical weight on

all major business decisions. Opponents would argue that this is a long term

plan that requires too many radical changes. Also, there is no way that an

industry wide standard can be set due to the vast differences in

corporations. In response, I would argue that although there are no

industry standards that are feasible, but it is possible for every company

to examine their practices as well as the attitudes of their employees.

There will be a number of companies that will defend that are doing all

they can to make sure their employees are aware of their moral values. Yet

other companies will find that they do have areas that need improvement.

It is steps like these that spark change in an organization. Once a few

companies start to see the benefits, it can help to encourage other

companies to follow suit. After all, as seen in the case of Company X,

mistakes in one department can cause the deterioration of an entire

corporation. When a corporation realizes the costs involved with decisions

such as this, the changes required to rectify are small in comparison.

Works Cited Pave, Moses. "Corporate Responsibility and Financial

Performance." Quorum Books, March 1995. Reder, Alan. "In Pursuit of

Principle and Profit." G.P. Putnam’s Sons Publishing, 1995. Sawyer, George.

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"Business and Society: Managing Corporate Social Impact." Houghton Mifflin

Publishing, February 1993. Velazquez, Manuel. "Business Ethics: Concepts

and Cases." Prentice Hall Publishing, February 1992. "WebCrawler Search

Results." WebCrawler. With the query words ethics and business. 26

January 1997.

◙TOP 10 MISTAKES:
Top 10 Mistakes that Organizations Make in Developing Global Ethics

Programs

1) Lacking consensus on the objectives for globalization

2) Not integrating international personnel into the development process

3) Discounting the importance of promoting the program as a competitive

advantage

4) Basing company policies on legal requirements in the domestic market

5) Not establishing ethics offices or resources in international locations

6) Appointing headquarters staff or expatriates (i.e., non-

international employees) to fill ethics positions

7) Offering training materials only in English

8) Using the word “ethics” extensively in program materials

9) Translating the code without translating the code

10) Focusing on the few cultural differences rather than acknowledging

the many cultural similarities.

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◙Fe
rtility Clinic Errors:

This one's got everything it takes to soak up public attention: race,

healthcare, and paternity. It's like a perfect storm. Add in the word

"lawsuit" and you've got everything a good scandal needs.

The story is about a couple suing a New York fertility clinic for a sperm

mix up that resulted in a baby racially unlike its supposed parents.

As one faithful reader of this bloc asked, "Is this a business ethics issue,

or a bioethics issue, or are the parents just being jerks?"

Here's the story as reported by one NBC affiliate: Fertility Clinic Sued

over Too-Dark Baby

After they saw a baby girl they had gone to a fertility clinic to conceive,

her parents became convinced something was wrong, according to court

papers.

The girl's skin was darker than either parent's, a judge wrote in allowing

the parents to proceed with a lawsuit that claims the clinic botched the

insemination of the wife's eggs.

The title of the story obviously refers to the fact that the reason the

girl's paternity came into question in the first place is that she's darker

skinned than either parent. But the point here isn't that the clinic gave the

parents a black baby. The point is that the clinic did such sloppy work that

they gave the couple a baby that's not related to her own supposed father.

(The parents have actually tried to sue both for malpractice and for

emotional distress, etc. The court is proceeding with the former, but not

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the latter)

Now, certain corners of the web have been awash in commentary about the

parents being jerks. And it's easy enough to sympathize with that

conclusion. It might not exactly be great for this kid to know she was at

the centre of this kind of controversy. The girl (whom the parents say they

love dearly) is too young to understand now, but she'll understand

eventually. (Paging Dr. Phil...!)

But we shouldn't let that distract us from the fact that the clinic was

seriously sloppy and completely botched the job they were paid to do. They

should be held accountable. It seems unlikely that we want fertility clinics

to be the only commercial entities that still get to resort to the old

standard of "caveat emptor." Are the parents supposed to not hold the

clinic accountable, out of fear for this little girl's dignity?

Of course, this double-bind is fodder for the folks who argue against the

COM modification of fertility services. "Tsk, tsk, parents! You wouldn't

have unseemly little binds like this, if you weren't out buying babies to

start with." I'm not saying that would be my conclusion, but this case is a

pretty good example of a few of the consequences of commercializing

repro-medicine. At very least, this stuff ought to be foreseen & dealt with

preemptively.

◙A Case Study In professional Ethics:

This (true) story was researched by Julie McDonald O’Leary, my former

business manager.

She interviewed a property management company, whose client was a

hospital. In dealing with government agencies regarding hazardous waste,

the paperwork submitted has to be exact. In many cases, the paperwork is

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incidental to actual importance of cleanup work being done, and it can be

more time consuming and costly than the actual work itself. However, it’s

more than required – it’s mandatory.

The property management firm (let’s call them Acme) realized there was a

mistake in the paperwork regarding a specific cleanup for the hospital.

Basically, the paperwork said that waste was dumped in one particular site

when it actually went to another. Both sites were the same type, but a

clerical error had been made. No actual harm done because both sites

accept the same type of waste—but in these situations paperwork is

supposed to be exact.

This was Acme’s mistake, but it would be a costly one to rectify. The

team involved knew that they could say nothing and no one would ever know

and there would be no actual harm done.

They asked their CEO what to do, and he said: “We will meet with the

hospital and take it on the chin. We’ll look like fools—it’s a silly error. The

hospital has had a lot of bad press lately and the last thing they need is

any kind of environmental error going to the press.”

Up until now, the relationship with the hospital had been a great one

(representing a $0.5 million account) and admitting this mistake could

become a real thorn in Acme’s side, making them look incompetent. They

could lose the account and the word of mouth publicity that would follow

would hurt future business in health care circles.

Acme’s CEO decided to meet with the client, bringing along to the meeting

the whole team who had worked on the project – form the most senior

person to the most junior. He revealed the error and told the client that

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action was already in progress to fix the error. The meeting lasted 4.5

hours, adjourning with no outcome.

The next day, the CEO received a call from the client saying that they had

discussed it further and that it was obvious to them that Acme could have

swept the whole thing under the carpet and the hospital would never have

known the difference.

They also said that they recognized that Acme made a lot of extra work

for them by honouring what they knew the wishes of the hospital would be

and that is to fix it. They said “We totally trust you to do the right

thing.”

Another firm may have elected to go honest route as well, but may have

been reluctant to do so with their juniors as an audience. By witnessing all

of this first hand —lessons in professionalism are usually learned first hand

this was better than any training session. The juniors had a taste of what

“owning the problem” really means.

Acme’s young workers saw first hand the meaning of “ethics in action.”

They saw the CEO “take it on the chin” rather than be anything less than

completely excellent to very high standards. They also saw that because of

this, they had probably obtained a client who will work with them (and

advocate them to others) with total trust.

Now here’s another interesting question. A CEO might take the decision to

handle things this way, but would a middle manager inside a company ever

feel empowered enough to make a similar decision (absorb a significant

expense to make right an error that no-one outside the company would ever

know about?)

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Or is this kind decision, which requires guts, courage and ethics, always

kicked upstairs? Are any companies so “ethical” that a middle manager

wouldn’t need to ask permission to “do the right thing?”

Within the role of issues in business ethics, image is everything. Image

issues in business ethics means a lot. It's like you're on the cover of a

business ethics magazine. Your business ethics problems reflect a great deal

on the importance of business ethics you have in your workplace. Your

physical appearance is just as important as your sales pitch. This is why you

pay homage to the mirror each morning, picking out the right outfit,

grooming, to show the world by your outward appearance that you are a

serious professional. There is no questioning the fact that physical

appearance is a critical component in how you are perceived, but what about

your ethical appearance? This is where the role of ethics in business comes

into play. The importance of business requires you to pay close attention to

it.

Make no mistake; the ethical impression you leave with others communicates

volumes about your character and the importance of business ethics you

have. People will judge you more quickly and more deeply based on your

actions rather than your clothes. No matter how clean your suit, leaving a

soiled perception of your ethics can negate whatever outward impression you

attempt to make. All it takes is one simple act or oversight to start the

ball rolling. It can cause an unfortunate chain of events that may tarnish

your reputation forever. Improving business ethics may be impossible

afterward. Perhaps you found yourself in the wrong place at the wrong

time? Maybe you're caught with your hand in the cookie jar? Or possibly

you did something truly foolish and wish you could start over. Whatever the

transgression, an indelible impression has been made and now you're trying

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to row upstream. Unfortunately, there is a part of our human nature that

gets satisfaction in another's misfortune and rushes to pass judgment

instantaneously. What happens after that fateful perception is made, you

can't control. Business ethics issues are like this. It's like it was published

in some kind of business ethics magazine or focus of some kind of business

ethics research. Luckily, this kind of ethics magazine doesn't exist to

illuminate your mistakes. Even without such business ethics research, gossip,

hearsay, even outright lies are sure to have plenty of willing listeners and

believers. Forget whatever you've heard about being judged fairly in a

court of law, this is the real word. Having your character and business

ethics judged by your fellow employees based on mere circumstance is about

as final as it gets. The tragedy here is that once an ethical impression is

made, there's little you can do to stop or repair it. The role of ethics in

business is to help prevent this. Damage control may set the record straight

to some extent, but a wounded reputation may be impossible to heal.

A crisis of ethical perception is not only a problem for liars, cheaters, and

bad guys; it's a problem for everyone. The first line of defence with

regard to ethics issues in workplace and business is to understand that

you're not above the fray. Just because you're an honest person doesn't

mean that you won't wake up tomorrow and find yourself in full-fledged

ethical dilemma. We all have bouts of mistakes, sloppiness, miscalculation,

panic, or bad judgment. Understanding our fallibility and being ethically

cognitive of our day-to-day behaviour helps enormously. If you're lucky,

your conscience will do most of the watchful work for you. But beware that

you don't close your eyes and let your guard down.

Another line of defence is to truly care about how others perceive your

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business ethical behaviour. At any given time, even in the most mundane and

insignificant actions of your workday, you are being judged. Think of your

co-workers as judges at an Olympic-style event holding up numbers to

evaluate your ethical performance. It's like you're in that ethics magazine

again. Your business ethics problems are there for the entire world to see.

When all is said and done, you hope to perform so that they will hold up

tens and not ones. You should care what people think and want others to

see you do the right thing because ethics important in business. You want to

be defined on the basis of your good character.

Finally, you should avoid the appearance of impropriety all costs. Just

as an attorney looks at every possible angle or potential problem, you too,

must judge your business ethics actions in the same way. Leave no stone

unturned. Cover your bases. Be transparent and open to scrutiny. Take time

with careful consideration to make sure that your ethical position appears

sound from every angle.

Don't leave others to second guess you. Perception is everything, not only in

your looks but in your character. Understand the role of ethics in business.

Treasure and protect your ethical reputation like a priceless commodity.

Tomorrow, as you prepare and primp in the mirror for your best physical

appearance at work, don't forget your ethical appearance. It costs you

nothing to put on, but costs you dearly to lose.

Ethics issues in workplace and business arenas are Global Ethics University's

specialty. Business ethics issues are such a large part of the image that

your company portrays. Business ethics problems cost you dearly if you

don't understand the importance of business ethics for sake of your image

and health of your company. Improving business ethics and raising the

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ethical bar is what a Global Ethics University course can do. You might

wonder, is ethics important to business? Yes, it is. Issues in business ethics

are vital. You can't just read about it in a business ethics magazine or read

about the most important business research of our day in some academic

journal, it is about the real issues in business ethics that your employees

face every day. Let Global Ethics University is your partner in improving

business ethics for your company today.

◙Workplace Ethics:

The Importance of Workplace Ethics Training

As far as workplace ethics goes, employers must do their part to make ethical

expectations clear and trust the employee to deliver. Sometimes ethics training works

and sometimes ethics training doesn't. Work place ethics shouldn't be a guessing game

if the employer has truly done all he or she can do to set employees up for ethical

success. There should not be a disconnect between the work ethics that employer has

and the work ethic of the employee. Understand that one's ethic is his or her system

of moral standards or principles that may or may not agree with the company's

professional work ethics standards. Despite the differences, promoting professional

work ethics requires the employer to do everything in his or power to set up employees

for success.

In the context of ethics in the work place employers lead the employees to ethical

success by requiring them to read the ethics manual, attend a training session, and

sign a document swearing to uphold the rules. With that done, employers sit back and

rely on the integrity, understanding, and self-discipline of each employee. This is

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where many ethics in workplace programs fall short. They demand the highest

standards of self-discipline possible yet do little to promote them in the long run.

The following four questions can be asked by both employees and employers who want

to seriously assess how well their company promotes self-discipline:

1. Are the work place ethics expectations in my organization clearly communicated?

People need to know what is expected of them. It's human nature. Some employers

cloud expectations in vague concepts to accommodate Gray areas, while others

promote distrust by controlling every aspect of the employee's existence. Clarity in

ethics training is the key. If the ethical issue is black and white, the employer must

leave no room for interpretation. If the issue relies on human judgment, the

expectation must be logical and be grounded in principle. Most people want to know

what's expected so they can get on with their job good work ethics.

2. Are the ethical expectations in the ethics training of my organization based in common
sense and reality?

Expectations shouldn't be burdensome, attainable only by saints. Having unattainable

expectations with regard to ethics in the work of people makes criminals out of

perfectly good people. It sets them up for failure. The key to this is to not be so

locked into rules that you fail to see how they affect real people in the real world.

There must be balance in ethics training. The irony is that oftentimes the fewer rules

the better. People will be more compliant in a work place ethics atmosphere of

freedom governed by principle rather than oppressive restrictions. In other words,

it's not the number of rules in the employee manual but what those rules mean and

how relevant they are to real people. For example, rather than having numerous rules

on caring for company property, a statement on "respect" written with clarity,

conviction, and principle may cover it all.

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3. Does the system of dealing with ethical problems show respect and due process to
people involved?

In a nutshell, how are people treated once they are caught or accused of unethical

conduct? Our legal system operates under the assumption of innocence, in contrast to

the workplace, which operates on the assumption of guilt. Although the administration

of justice is the prerogative of the company, it must always be done with fairness and

respect for everyone involved. Using disciplinary action to punish or intimidate people

is in itself unethical and hypocritical. Employers must listen to all the facts. Discipline

is something that no one likes, but the process can work toward the good of the

organization if justice is genuinely sought and lessons are learned.

4. Is ethics a positive or negative issue in my organization?

It's no surprise that ethics is predominantly viewed in a negative light. Turning this

perception around requires a different way of thinking about what makes an

organization successful. There's more to ethics in workplace situations than just

preventing loss of assets. It's about making the company a better place to work and

conduct business. A positive ethics approach looks out for the best interests of both

the employees and the company with positive workplace ethics training. People want to

go to work every day knowing that they won't be harassed, that co-workers play by

the rules, supervisors treats them with respect, and the company will honour the

ethical principles they hold dear. A serious ethics program will attract and keep good

employees not scare them away. Try to see ethics as a vital component in building

something great. It can be framed as something that makes life better for everyone

not worse.

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◙Ethical Concerns in Business and Their

Solutions:

Undergraduate business majors but also everyday consumers and investors.

Sarah Meisinger

Dr. Fife Eng 300

04-18-05

It was one of the biggest bankruptcy cases in U.S. history, and many employees were

left without retirement savings while executives and higher management made a profit

(Cuplan 59). I think after reading about Enron and scandals like it we all have

wondered “how could this happen?” What was it that led them to believe that it was

okay to misrepresent their financial records? In the ethics community many people are

talking about these very questions and attributing unethical behaviour to personal

background, the business environment and the undergraduate business programs.

All three have their own arguments and solutions, whether it is better ethical training

or different business environments. Although it is a complex undertaking, something

must be done to improve conditions to prevent such scandals in the future. This

prevention is important as business ethics affect not only employees and undergraduate

business majors but also everyday consumers and investors.

If certain steps are taken in both the business world and the education of

business students, corporate scandals are likely to decrease noticeably.

With many different debates going on about ethical behaviour, one

argument stands out as the definitive contributor to ethical behaviour-- a

person’s convictions. These personal convictions can be due to a person’s

upbringing, culture and other life experiences, but the general consensus in

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the ethics community seems that this will override any sort of ethics

training or business structure. The logic to this argument is that in real life

situations with multiple pressures and responsibilities, a person is going to

perform based on the type of person they are and their personal value

system.

In a study of business students in Taiwan and American, the culture

of the student seemed to have an impact on how well they performed on

ethics reasoning tests (Venezia 204). Obviously moral values and attitudes

are going to differ between cultures. Because Taiwanese students are

taught to “save face” as part of their culture they are much less like likely

to behave dishonestly because of the values placed on doing your best for

the group (Venezia 200). In contrast to American culture, Taiwan has an

overriding need to blend in with a group and participate within that group

whereas in American culture the focus is on individualism and independence

(Venezia 200). The focus on the individual gain by American students often

resulted in them picking an alternative during the study that would be

beneficial to them rather than beneficial to the group (Venezia 200). In

some cases this focus led to them marking unethical behaviour as acceptable

as long as the benefits were high enough. This study supports the theory

that culture has an impact on how students respond to ethical situations.

Other studies have looked at how gender affects ethical reasoning

abilities. Female students tended to be more conservative and harsh in how

they scored each situation causing them to be less tolerant of dishonesty

(Fischer). The male students in the study tended to be more tolerant of

where the line was between ethical and unethical behaviour (Fischer). The

study offered no explanation other than females are traditionally more

empathetic than males and would look at how other people would be

effected more so than how it would advance their careers (Fischer). This

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same study also looked at how age affected each person’s score, which was

also shown to be a factor: students under 21 scored the lowest and the

scores went up consistently as age increased (Fischer). In the article

“Schools for Scandal” the author says “becoming a successful leader of men

and women in a turbulent business world requires maturity and wisdom.”

These results certainly show that the experience and maturity that come

with age affect how students scored in this study. Maturity and wisdom are

something an individual has to acquire outside of their college education and

workplace instruction, so this is something every person must come to terms

with on a personal level of what they believe is acceptable. There haven’t

been any long term studies to see if ethics training was presented to

students of a younger age, perhaps in junior high or high school, it would

help override personal experience and age. Children are often more open to

ideas and instruction, so it is my belief that earlier introduction might make

students receive their ethical training at the college level as more of a core

value than merely as a theory or practice.

Although most people in the business and ethics community believe

personal conviction to be the overriding determining factor in ethical

behaviour, there are several credible people who believe that business

structures are almost entirely responsible for corporate scandals. In Dr.

Joseph Castillo’s article “How Corporate Culture Impacts Unethical

Distortion of Financial Numbers,” he looks at how the managing by

objectives and results or MBO/MBR affects how employees perform. The

MBO/MBR form of management is a very common style for managers to use

and it involves giving targets to employees and then ranking them against

their colleagues based on how well they met the goals set for them (Castillo

37). Dr. Castillo says that the flaw in this type of management is “Goals

and targets are set without statistically determining whether they are

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beyond the capability of the existing process. Hence, employees are often

held accountable for results that cannot be achieved without distortion of

figures or they system” (38). Giving employees unrealistic goals and

penalizing them for not reaching these goals is “laying the groundwork for

an unhealthy climate through the use of MBO/MBR” (Castillo 38). An

example of how unrealistic goals led to scandal can be seen in the 1992

Sears Roebuck & Company auto service settlement of about $60 million in

refunds to its customers (Paine). Lynn Paine discusses this particular

instance in her article “Managing for Organizational Integrity” saying that

the main reason for the unethical business practices was “a new set of

organizational pressures and incentives with few options for meeting their

sales legitimately, some employees judgment understandably suffered.”

Even the CEO at the time, Edward Brennan, stated that the fault lay with

the managers because they “created an environment in which mistakes did

occur.” (Paine). Of course the danger I see in blaming business structures

and managers is that it diminishes a person’s accountability for their

actions, which have already been argued to be the biggest factor in

whether a person is ethical or unethical in their behaviour.

In the coverage of the Enron scandal, MBAs and higher management

were blamed for most of the scandal (Cuplan 59). This caused the media to

start looking at the MBA certification and teachings in undergraduate

programs to try and place blame on the lack of ethics training. In Sumantra

Ghoshal’s article “Bad Management Theories Are Destroying Good

Management Practices,” he says that “Many of the worst excesses of

recent management practices have their roots in a set of ideas that have

emerged from business school academics over the last thirty years”(75). He

goes on to say that specifically business schools are not adequately

preparing students for dealing with management pressures in the working

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world and only teach those theories that are not useful in ethics training

(Ghoshal 76). Dr. John Elliot, the dean at Oxford University, says that

“Business schools sometimes inadvertently enable and encourage greed

rather than moderating and controlling it” (569). The word that stands out

to me in this quote is “inadvertently” because universities are taking actions

to educate their students and the ethics community as a whole tends to

blame individual moral values and poor business management and structure

for larger unethical problems.

In fact, ethics has become a bigger part of business education in

recent years. In the 1960s and 1970s, ethics training was very limited and

only took place in upper level auditing classes (Elliot 537). In 1979 The

Association for the Advancement of Collegiate Schools of Business (AACSB)

made ethics as a high priority for business schools and accreditation of

business schools (Elliot 573). Because of the AACSB increased emphasis on

ethics textbooks now have regular mentions of ethical issues and case

studies to encourage professors and students to think about ethics (Elliot

573) In Ronald Madison’s survey of universities he found that more than

half of the universities require an ethics course before graduation (24).

Ethical training in undergraduate education in accounting and other areas of

business is especially important because firms often don’t give extra training

to help their employees. Dr. Christin Earley found that “a study of

accounting firms attitudes toward ethical training found that the vast

majority of firms ‘rely primarily on colleges to cover the ethics and ethical

behaviour expected in the profession” (Earley 54). Earley’s findings alone

are enough to warrant improvements and encourage ethical training and

discussion in undergraduate education and business schools because firms

are obviously putting the burden of responsibility onto the schools. If firms

are expecting their employees to come into the business world prepared to

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deal with the pressures involved in being honest in the business environment

discussed above, then undergraduate programs need to step up and work on

the best methods for teaching their students.

Right now at Western there is a three-hour corporate governance and

ethics class specifically for business majors, but it is a primarily a web-

based class. This class is not required by accounting majors, but from the

discussion above should most certainly be to make sure students are

equipped with moral reasoning tools that their employers expect. There are

more ethics classes offered at Western under the philosophy and

psychology genres but they are not required for accounting majors. To be

fair many of the upper management courses have sections dealing with

ethical issues. However Dr. Stape observed in his research on

undergraduate business education that ”many professors are hard pressed

to find the time to teach the technical content let alone incorporate ethics

into their courses.” This could mean requiring an entire class devoted to

ethics before graduation to ensure that the proper amount of time is spent

on ethics education. A study done by Dr. Lawrence Poneman comparing

moral reasoning in business graduates from liberal arts and public

universities found that students from liberal arts universities score

significantly higher than graduates from public universities (204). He

suggested many reasons for this discrepancy but the one he found to be

most significant is that liberal arts schools typically have smaller classrooms

more based on discussion (Poneman 204). Clearly smaller classrooms are not

only helpful in all areas of learning but in ethical training as well. In fact

many studies have found discussion and personalizing situations to be the

most effective methods for improving ethical reasoning in undergraduate

students. In Dr. Daryl Koehn’s study of undergraduates over several

semesters, he found the most effective method was not case studies or

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context-specific instruction but rather that personal, real life discussions

and debates got students thinking and engaged in the material (143). For

example, instead of talking about Enron and analyzing where the executives

went wrong, the instructors would put students into groups and give them a

situation more applicable such as having trouble paying for their education

with ethical dilemmas along the way (Kohen 143). The students would then

debate among themselves the pros and cons of certain questionable actions

that they could take. The students who participated in this exercise

improved their scores significantly over a semester more than students who

received traditional case study instruction (Koehn 143). Dr. Earley did a

similar study with discussion-based approaches and found that “results

indicate that educational interventions are capable of increasing students

moral reasoning, regardless of the specific case context or other current

event” (Earley 61). It seems that whatever part undergraduate education is

failing to reach students with their ethical training is not from a lack of

effort but merely a bad approach. No long-term studies have been done to

see if the discussion based approaches carry over better to graduates in

the business world, but it seems that the personal and engaging method

seems to have a better chance of overriding past and cultural experiences.

Some universities have come up with other creative approaches such as

having an ex-con come in and talk to students about white collar crimes

(“Schools for Scandal”). This is an excellent approach to reach students as

I think it would bring home the gravity of the consequences they face if

they choose to behave unethically in business. As Elliot says, “Business

schools arrive late in the development of our students. We cannot undo

formative influences of family, religion, pop culture, environment and

heredity on the future behaviour of our students” (573). However from

looking at the different approaches, the undergraduate education can have

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some impact on an employee’s ethical behaviour. As Dr. Early says in his

conclusion, “Educational interventions regarding ethical issues can be

effective in improving student’s moral reasoning” (61).

Although corporations depend on undergraduate education for ethical

training, they are by no means exempt from preventing corporate scandals.

In a survey of 100 ethics officers, a mere 1% thought that ethics training

would have prevented a big scandal such as Enron (Verschor 24). As

discussed above, many business structures contribute to pressures that

make it difficult for employees to act in an ethical way, no matter their

undergraduate training. In Verschor’s study he found that only 40% of the

companies he surveyed punished employees for violating the company’s ethics

code. Even more disturbing is that 8% of the people who were found

violating the code were promoted (Vershor 22). By overlooking violations of

the ethics code, employees are being given the message that so long as the

results look good, managers don’t care how they were obtained. Dr.

Verschor observes that “in many organizations concern for the bottom line

or making the numbers seems to override any concern for ethical values

(22). This shows that businesses need to take a stricter stance when it

comes to minor ethics violations so that they don’t end up with a full blown

scandal. As with any job, but especially in business, it is about money.

Koehn’s survey’s found that “the number one ethical issue within American

corporations is perceived injustice of salary differentials”(148). When

looking at the higher level executive paycheck one sees that they are not

only given an annual salary but they are also rewarded based on how well

they manage and produce a profit. These rewards are often stock options

within the company (Cuplan 70). Senator Carl Levin said after the Enron

scandal, “Most executive pay packages rely heavily on options, encouraging

corporation managers to push accounting rules to the limit in order to make

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their financial statements look better so their stock prices will go up and

then executives can cash in their options” (Cuplan 70). If executives’

compensations were not so heavily based in stock options, this might let

some of the pressure up on misrepresenting financial data and in doing so

make it easier on employees to act in an ethical way. It seems that overall

the pressure and unattainable goals in the workplace are the factors that

researchers believe to be contributors in unethical behavior, so solutions to

these should be focused on creating what Dr. Castellano says is an

“atmosphere of harmonious relationships” (41). Employees should be given

budget goals that can be met with reasonable effort and dedication. Their

compensation and bonuses should not be based on how well they did

according to unrealistic standards but on how hard they worked and what

they did with what they had to work with. Obviously the biggest motivator

in the business world is keeping ones job, so companies need to be stricter

when unethical behaviour is discovered and definitely stop promoting the

offenders. Yet another problem is that there is really no good way for

employees to report unethical business practices. Many companies have

anonymous hotlines for things such as safety violations or harassment but no

such system for other unethical behaviour like financial dishonesty. I see

this as an added addition to any business because it allows employees to

bypass their managers, who from above are very interested in making their

finances look good, and do what they think is right without fear of being

fired or hurting their careers.

Ethics is an important issue within the business community. All the

business and educational factors are ones that can be improved and

hopefully reduce scandal in the future. I think that even though personal

experience and conviction is the overall contributor to ethical behaviour,

this does not mean we should give-up and accept another Enron. There are

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specific fairly simple solutions: start ethics teaching before college, change

the ethics instruction to a more interactive and personal format, require

ethics courses as a graduation requirement, stop managing for the bottom

line, and have harsher punishments for violators of ethics in the workplace.

If these changes are made, I am confident that corporate scandals will

decrease and we will not have to see another Enron.

◙Ethics — The Incomplete Solution :

Executives and legislators are once again going after the right problem with

the wrong solutions. Instead of curing the investor “confidence gap” in

corporate reporting, the current focus on ethics and legislation is like

putting a band-aid on your arm when your leg is haemorrhaging. It’s time to

clear up some misconceptions.

(1) Its not about ethics. “Business ethics” training has been around since

the beginning of commerce. In fact, BCS founder Bob Stuckey is one of

thousands of graduates of a popular executive ethics program who are

reluctant to even list it on a resume’. Why? It was conducted by Arthur

Andersen.

Executives don’t need to be taught not to lie about what they’re doing.

They learned that in kindergarten. Thinking you can turn shady employees

into upright moralists with some ethics course is lunacy.

(2) It’s not about regulation. The Sarbanes-Oxley Act of 2002 (Corporate

Reform Act) doesn’t prevent anything. It simply establishes potential after-

the-fact punishment along with a couple of governance restrictions. There

is nothing in the Act that indicates how organizations should make certain

their reporting is accurate. It’s like a coach teaching athletes how to win

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the Olympics by admonishing them to run faster. “Report well!” insists the

Act, leaving the how up to the company.

(3) It’s not about reporting accurately. While there may have been 50 or so

major scandals, the remaining top 1,000 companies are generally honest in

their statements. You can totally mismanage your company, but as long as

you report your terrible results accurately, you are in ethical and legal

compliance.

(4) It’s not about financial control. The classic financial control techniques

were founded in the era of Scrooge & Marley, but are now inadequate in

the age of empowerment, restructuring, outsourcing, and the Internet.

So what’s the real issue? Our research found that the most important

concern for investors should be corporate waste and inefficiency. You can

pick up any edition of the Journal and find a number of articles where

companies needlessly lost revenue and incurred unnecessary costs.

For example, Ford Motor took a $1 billion raw materials write-off (and lost

nearly a quarter of its market capitalization) because R&D wasn’t talking to

purchasing. The U.S. government wasted millions due to government

employees purchasing— among other things—lap dances! Having to honor

incorrect online air fares, paying more than retail for statewide PC

database software, fines for incorrect utility charges … the list of blunders

is endless. These are affecting investors far more than the lurid reporting

scandals. What organizations need today are effective business controls!

This is a level above traditional financial or process controls, and covers the

organization from boardroom to front-line.

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There are standard early warning signs of control problems. We have

identified six “out-of-control incubators” that provide the business

equivalent of warmth, moisture, and nutrients for small control issues to

grow into big problems. Two are ever-present: silo organizational structures

and new IT systems. Four are event-driven: downsizing, outsourcing,

restructuring/reorganization, and merger/acquisition/divestiture. When

these are occurring, control problems are sure to be present.

So what can companies and institutions do about it? The initial step is to

recognize that “business control” is a new organization-wide core

competency. It is now legally mandated, right up there with sexual

harassment and safety, and is going to take a comprehensive change in

processes to accomplish. Then there are required “best practice” activities

at several levels:

Public positioning … New legislation ensures that business control is not the

fad du jour. Commitment starts at the top. Companies must take a public

stand on their approach to business control. This means publicizing any

initiatives and including business control content in all positioning statements

and communications.

Board-level … The Corporate Reform Act recommends a few board-level

changes, but doesn’t go far enough. Boards now require different levels of

organization, expertise, and information to do their job correctly. This

includes having greater skills, taking a more active role, and getting more

information directly from company sources.

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Performance management … “Business control” must make its way into the

organization’s policy manual, competency models, job descriptions,

performance plans, appraisals, and compensation systems.

Skills development … Business control is now a mandatory competency for

supervisors on up. A certification process is required to ensure that

everyone in the organization understands control and has the skills to

achieve it. And many front-line professionals, such as IT systems

developers, will need specialized training on designing controls in.

Operations … Some companies are already setting up a dedicated, cross-

functional business controls team. This is a high-impact group that should

be populated with rising stars. The team becomes a central point for

communicating successes and learning from mistakes. Business controls

concepts also have to be integrated into project management and decision

templates, and process design tools.

Don’t think that you can knock these off one-by-one. An effective business

control system cannot be piecemealed. Just as a chain is only as strong as

its weakest link, the same holds true for an effective business control

system. In addition, business control is a forever endeavour. Controls

cannot remain static in the ever-changing business environment.

Implementing this entire program has two crucial advantages:

• Our research indicates that implementing effective business controls

is the fastest way to improve the bottom line by eliminating

unnecessary expenses and waste and preventing future mistakes.

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• It is also the only way to keep executives from being punished as a

result of honest error by providing the basis for an active defense,

i.e., “We did everything in our power to prevent this.”

While these activities may currently provide a competitive edge, they will

ultimately be a standard requirement. It’s only a matter of time before

some analyst during a briefing or some stockholder with microphone in hand

asks about the company’s status in these areas. Why invest in a company

that isn’t properly under control?

Idealistically, we wish that controls of any sort were not needed and that

we could rely on human integrity, i.e., ethics. Realistically, letting

employees get into situations where they have to make ethical decisions

simply means that the controls are inadequate. The only way to stop the

haemorrhaging is to treat the true cause of the bleeding … poor business

controls.

◙Business by example:

Imagine the employee who works loyally for the firm but sees a senior

manager engaged in fraud or some other unlawful action. If employee blows

the whistle and exposes the senior manager they may - even as the angel -

may lose their job. Crier opportunities may be severely dented. Turning a

blind eye is easier. It may be difficult to see anyway that anyone in

particular has been substantially hurt from the fraudulent activity.

The argument to confront however that individual is exercising free will

make moral choices. Indeed without free will can the notion of morality

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exist? Whilst a killer whale attacking and even mauling a seal is not

behaving unethically, we generally see due punishment for a serial killer or

rapist as necessary.

We may differ about the type of punishment and argue over contributory

and mitigating factors - tortured family up-bringing perhaps. If someone

was to steal a sheep today or paint a rude slogan about a politician or the

police chief or rival deity on the wall - we would regard it (Western liberal

reaction) as unethical if such misdemeanour was punished by a lobotomy or

amputation of the offending limb?

Yet a good resident of ancient Rome woundergraduate business

majors but also everyday consumers and investors. Old

choose to enjoy a good day out at the circus with captives on the lions'

menu. Friends and family label our Roman as a "party-pooper" if he had

stayed at home muttering «such barbarity....is unethical".

Today - Monty Python visiting a Spanish bull-fight or bull-baiting in a local

town festival - might be disgusted. Few holiday-makers seeking the sun,

sangria and the good life would be prepared to boycott Spanish holidays.

Furthermore most Spanish people would not agree with the argument that

the obsession with frightening, mutilating and killing bulls in a public

spectacle - a centuries old local tradition which outsiders do not appreciate

- is unethical.

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