CH-3 Organizational Ethics – Business Ethics Now : Book Guide

Chapter 3 Organizational Ethics Chapter Summary This chapter examines how each functional department, within an organization, manages the challenge of building and maintaining an ethical culture. The chapter begins by defining organization’s culture and an organization in terms of its functional areas within a value chain. Then the chapter begins looking at the ethics involved in research and development, manufacturing, marketing, human resources, and finance. The ethical challenges presented by generally accepted accounting principle (GAAP) are explained and how the accounting industry is dealing with those challenges. The chapter also goes over potential conflicts of interest within various organizational functions. Learning Outcomes After studying this chapter, the student should be able to: 1. Define organizational ethics. 2. Explain the respective ethical challenges facing the functional departments of an organization. 3. Discuss the position that a human resource (HR) department should be at the center of any corporate code of ethics. 4. Explain the potential ethical challenges presented by generally accepted accounting principles (GAAP). 5. Determine potential conflicts of interest within any organizational function. Extended Chapter Outline Frontline Focus “Just Sign the Forms” Questions 1. HR requires that these training videos be viewed for a reason. What risks is Scott taking here? Review the four reasons on page 54 why HR should be directly involved in any code of ethics. The risk that Steve is taking here includes falsifying information. Telling Matt to simply sign off on something that he hasn’t actually done is unethical since it is false information. The text states that the HR department should be at the center of the corporate code of ethics and ensure that the following four critical areas are addressed: • HR professionals must help ensure that ethics is a top organizational priority. • HR must ensure that the leadership selection and development processes include an ethics component. • HR is responsible for ensuring that the right programs and policies are in place. • HR must stay abreast of ethics issues (and in particular the changing legislation and sentencing guidelines for unethical conduct). 2. Do you think Scott’s argument for skipping the training videos is justified? Students’ responses will vary. Steve knows the routine that new employees must go through and should not justify skipping the videos, regardless of the backlog that’s waiting. So, most students may not find Scott’s argument justified. 3. What should Matt do now? Students’ responses will vary. Some of them may feel that Matt should tell Scott that he doesn’t feel comfortable signing off on documents when Scott hasn’t completed the task. If Scott is not understanding of Matt’s request, then Matt should approach the HR department and inform them of his problem. Learning Outcome 1: Define Organizational Ethics. • Organizational culture is the values, beliefs, and norms that all the employees of that organization share. o The culture represents the sum of all the policies and procedures—both written and informal—from each of the functional departments in the organization in addition to the policies and procedures that are established for the organization as a whole. • A value chain is the key functional inputs that an organization provides in the transformation of raw materials into a delivered product or service. o Traditionally, these key functions are identified as: ➢ Research and development (R&D)—develops and creates new product designs ➢ Manufacturing—sources the components and builds the product ➢ Marketing (and advertising) ➢ Sales ➢ Customer service o Supporting each of these functional areas are the line functions: ➢ Human resource management—coordinates the recruitment, training, and development of personnel for all aspects of the organization. ➢ Finance—can include internal accounting personnel, external accounting personnel, and external auditors who are called upon to certify the accuracy of a company’s financial statements. ➢ Information systems (IS or IT)—maintain the technology backbone of the organization (data transfer and security, e-mail communications, internal and external websites, as well as the individual hardware and software needs that are specific to the organization and its line of business). ➢ Management—the supervisory role that oversees all operational functions. Learning Outcome 2: Explain the Respective Ethical Challenges Facing the Functional Departments of an Organization. • Research and development (R&D) professionals carry the responsibility for the future growth of the organization. o However, alongside this responsibility comes an equally critical commitment to the consumer in the provision of a product that is of the highest quality, safety, and reliability. ➢ Defective products not only put consumers at risk but also generate negative press coverage (damaging the organization’s reputation) and very expensive lawsuits that can put the organization at risk of bankruptcy. • For the R&D team, the real ethical dilemmas come when decisions are made about product quality. • The relationship between R&D and manufacturing is often a challenging one. o The pressures here are very similar to those in the R&D function as manufacturers face the ethical question, “Do you want it built fast, or do you want it built right?” • The marketing process (which includes advertising, public relations, and sales) is responsible for ensuring that the product reaches the hands of a satisfied customer. • Marketers see themselves as providing products (or services) to customers who have already expressed a need for and a desire to purchase those products. • Marketers emphasize customer service and argue that since their customers are satisfied, the good outcome justifies the methods used to achieve that outcome no matter how misleading the message or how unnecessary the product sold. o This represents a view of ethics called utilitarianism. ➢ Utilitarianism is the ethical choices that offer the greatest good for the greatest number of people. ➢ Critics argue that the process itself is wrong irrespective of the outcome achieved—that is, how can marketers be proud of an outcome when the customer never needed that product to begin with and was manipulated, or at the very least influenced, by a slick ad campaign into feelings of envy, inadequacy, or inequality if he or she didn’t rush out and buy it? ➢ On this side of the debate, people are considering universal ethics. ➢ Universal ethics are actions that are taken out of duty and obligation to a purely moral ideal, rather than based on the needs of the situation, since the universal principles are seen to apply to everyone, everywhere, all the time . • Marketing professionals abide by a code of ethics adapted by the American Marketing Association (AMA). o The code speaks eloquently about doing no harm, fostering trust, and improving “customer confidence in the integrity of the marketing exchange system,” and establishes clear ethical values of honesty, responsibility, fairness, respect, openness, and citizenship. Learning Outcome 3: Discuss the Position that a Human Resource (HR) Department Should Be at the Center of Any Corporate Code of Ethics. • The human resource function within an organization should ideally be directly involved in the relationship between the company and the employee throughout that employee’s contract with the company: o The creation of the job description for the position. o The recruitment and selection of the right candidate for the position. o The orientation of the newly hired employee. o The efficient management of payroll and benefits for the (hopefully) happy and productive employee. o The documentation of periodic performance reviews. o The documentation of disciplinary behavior and remedial training, if needed. o The creation of a career development program for the employee. • The HR department should coordinate the final paperwork, including any severance benefits, and should host an exit interview to ensure that anything the organization can learn from the departure of an employee is fed back into the company’s strategic plan for future growth and development. • Every step of the life cycle of a company-employee contract has the potential for ethical transgressions. o If the right people are hired in the first place, it is believed, many other problems are avoided down the road. • Many advocates of ethical business conduct argue that HR should be at the center of any corporate code of ethics—not as the sole creator of the code, since it is a document that should represent the entire organization, but certainly as the voice of reason in ensuring that all the critical areas are addressed. o HR professionals must help ensure that ethics is a top organizational priority. o HR must ensure that the leadership selection and development processes include an ethics component. o HR is responsible for ensuring that the right programs and policies are in place. o HR must stay abreast of ethics issues (and in particular the changing legislation and sentencing guidelines for unethical conduct). • The finance function of an organization can be divided into three distinct areas—financial transactions, accounting, and auditing: o The financial transactions—the process by which the flow of money through an organization is handled. o The accounting function—the function that keeps track of all the company’s financial transactions by documenting the money coming in (credits) and money going out (debits) and balancing the accounts at the end of the period (daily, weekly, monthly, quarterly, annually). o Auditing function—the certification of an organization’s financial statements, or “books,” as being accurate by an impartial third-party professional. An organization can be large enough to have internal auditors on staff as well as using external professionals—typically certified professional accountants and/or auditing specialists. • As an organization grows and eventually goes public by selling stock in the organization on a public stock exchange, the need for certified financial documents becomes even greater. o Existing and potential investors will make the decision to invest in the shares of an organization based on the information presented in the certified financial statements—specifically, the profit and loss statement and the balance sheet. • Internal auditors are well disciplined in their craft and subscribe to a professional code of ethics. o They are diverse and innovative. o They are committed to growing and enhancing their skills. o They are continually on the lookout for emerging risks and trends in the profession. o They are good thinkers. • To effectively fulfill all their roles, internal auditors must be excellent communicators who listen attentively, speak effectively, and write clearly. • Modern day internal auditors are consulted on all aspects of the organization and must be prepared for just about anything. o They are coaches, internal and external stakeholder advocates, risk managers, controls experts, efficiency specialists, and problem-solving partners. Learning Outcome 4: Explain the Potential Ethical Challenges Presented by Generally Accepted Accounting Principles (GAAP). • GAAP is the generally accepted accounting principles that govern the accounting profession— not a set of laws and established legal precedents but a set of standard operating procedures within the profession. • It is legal to defer receipts from one quarter to the next to manage the tax liability. o However, accountants face ethical challenges when requests are made for far more illegal practices, such as falsifying accounts, underreporting income, overvaluing assets, and taking questionable deductions. • A set of accurate financial statements that present an organization as financially stable, operationally efficient, and positioned for strong future growth can do a great deal to enhance the reputation and goodwill of an organization. o The fact that those statements have been certified by an objective third party to be “clean” only adds to that. o However, that certification is meant to be for the public’s benefit rather than the corporation’s. o This presents a very clear ethical predicament. o The accounting/auditing firm is paid by the corporation, but it really serves the general public, who are in search of an impartial and objective review. Learning Outcome 5: Determine Potential Conflicts of Interest Within Any Organizational Function. • A conflict of interest is a situation in which one relationship or obligation places people in direct conflict with an existing relationship or obligation. • As per the value chain model, the potential for conflicts of interest within an organization can go far beyond the finance department: o At the most basic level, simply meeting the needs of the organization’s stakeholders can present conflicts of interest when the organization considers the possibility that what is best for the shareholders may not be best for the employees and community. o Selling a product that has the potential to be harmful to the customers represents a conflict of interest. o Selling a product that has the potential to be harmful to the environment also carries a conflict of interest. ➢ These attempts to address conflicts of interest all have one thing in common. ➢ Whether that were prompted by internal strategic policy decisions or aggressive campaigns by customers and special interest groups, the decisions had to come from the top of the organization. o Changing the way an organization does business can sometimes begin with support from the front line of the organization, but eventually the key decisions on corporate policy and capital expenditure have to come from the senior leadership of the organization. Life Skills Being Ethically Responsible This Life Skills box discusses how each department in an organization holds a specific place and function in the value chain. The extent of interaction with other departments on that chain in a professional and ethical manner has a great deal to do with the long-term growth and success of the organization. When faced with ethical dilemmas, employees should remain aware of the bigger picture and consider the results for all the stakeholders involved in the decision. Progress ✓Questions 1. Explain the term organizational culture. Organizational culture can be defined as the values, beliefs, and norms that all the employees of that organization share. The culture represents the sum of all the policies and procedures—both written and informal—from each of the functional departments in the organization in addition to the policies and procedures that are established for the organization as a whole. 2. Define the term value chain. A value chain is the key functional inputs that an organization provides in the transformation of raw materials into a delivered product or service. 3. List the five key functional areas within an organization. The five key functional areas within an organization are: • Research and development (R&D) • Manufacturing • Marketing (including advertising) • Human resources (HR) • Finance (including accounting and auditing) 4. List the four primary line functions. The four primary line functions are: • Human resource management (HRM) • Finance • Information systems (IS or IT) • Management 5. Identify the three functional components of the marketing process. The three functional components of the marketing process include advertising, public relations, and sales. 6. Explain why marketers feel that their involvement in the production and delivery of goods and services is an ethical one. Marketers emphasize customer service and argue that since their customers are satisfied, the good outcome justifies the methods used to achieve that outcome, no matter how misleading the message or how unnecessary the product sold. This represents a view of ethics called utilitarianism. 7. Explain the opposing argument that marketing is an unethical process. Critics of marketing argue that the marketing process itself is wrong irrespective of the outcome achieved—that is, how can marketers be proud of an outcome when the customer never needed the product to begin with and was manipulated into buying it or was influenced by an ad campaign to feel envy, inadequacy, or inequality if he or she didn’t rush out and buy the product? 8. Which argument do you support? Provide an example to explain your answer. Students’ responses will vary. Unless you are selling a basic commodity in a developing country that needs your product, at some point you reach a point where customers can survive without your product or service. At this point your marketing must move from informing customers about your product or service to influencing or persuading them that their lives will be better with your company’s product. 9. Explain why HR personnel might consider themselves to be the conscience of the organization. Most HR professionals see their direct involvement in every aspect of an employee-employer contract and thus they consider themselves to be the conscience of the organization in many ways. If the right people are hired in the first place, it is believed, many other problems are avoided down the road. It’s when the organization fail to plan ahead for vacancies and promotions that the pressure to hire someone who was needed yesterday can lead to the gradual relaxation of what may be clearly established codes of ethics. In many scenarios, accountability for transgressions would end with the HR department as the corporate function that is legally responsible for ensuring that such things don’t happen. 10. Select one of the ethical transgressions listed in the HR sections and document how you would respond to that situation as the employee. Student’s answers will vary. Ethical transgressions are listed on page 53. 11. Why is HR’s involvement in the selection of the leaders of the company so important to ethical business conduct? HR must be involved in hiring leaders who not only endorse and support but also model the ethical standards needed to keep the company out of danger. The biggest challenge here is convincing the leadership team that it’s not just the rank-and-file employees who should be put through ethics training. 12. Why have ethics policies and ethics training suddenly become so important? The absence of appropriate policies and training programs can now increase the fines that are levied for unethical behavior. Response to the recent corporate scandals has been swift and frustratingly bureaucratic. Organizations now face reams of documentation that are designed to regulate ethical behavior in the face of overwhelming evidence that organizations cannot be trusted to do it on their own. 13. List the three primary areas of the finance function in an organization. The three primary areas of the finance function in an organization are: • Financial transactions • Accounting • Auditing 14. Explain how the accounting profession is governed by GAAP. GAAP is the generally accepted accounting principles that govern the accounting profession— not a set of laws and established legal precedents but a set of standard operating procedures within the profession. These principles are accepted as standard operating procedures within the industry, but, like any operating standard, they are open to interpretation and abuse. 15. Why would audited accounts be regarded as being “clean”? A set of accurate financial statements that present an organization as financially stable, operationally efficient, and positioned for strong future growth can do a great deal to enhance the reputation and goodwill of an organization. The fact that those statements have been certified by an objective third party to be “clean” only adds to that. However, that certification is meant to be for the public’s benefit rather than the corporation’s. 16. What key decision brought about the demise of Arthur Andersen? Arthur Andersen’s consulting business generated millions of dollars in fees from Enron alone. If the auditing side of their business chose to stand up to Enron’s requests for creative bookkeeping policies, those millions of dollars of consulting fees, as well as additional millions of dollars in auditing fees, would be placed in serious jeopardy. The senior partners on the Enron account chose not to stand up to Enron, and their decision eventually sank Andersen entirely. Ethical Dilemma 3.1 – A Firm Production Date 1. Tom was obviously overconfident in the final stages of the testing process, but was his behavior unethical? Why or why not? Students’ responses will vary. Tom assured Scott that the schedule for production was firm and Tom advised Scott that the tests were routine. Tom was too confident and he should have been upfront with Scott about any possible delays in the production process. 2. Given Scott’s concerns over R&D’s credibility, should he have taken Tom’s production data as being absolutely firm? Students’ responses will vary. Scott was aware of the reputation of the R&D department. He could have got something in writing to confirm the date along with documentation of the issues that could cause delays at that stage of the process. 3. In fact, Scott was so skeptical of Tom’s production date that he recorded their original conversation without Tom’s knowledge and then produced the recording when Tom denied giving a firm production date. Tom responded: “You taped my conversation without telling me! That’s unethical.” Was it? Students’ responses will vary. It is better to document business issues in writing. Always consider whether actions are legal and if a taped conversation is legal in a particular state. If this issue went to the HR department, it could create a considerable amount of employment policies or actions that were not parallel with the organization’s policies and procedures. In the event that they wanted to discipline Tom over this incident, it could be considered a conflict of interest because the conversation was tape recorded. Tom could have a privacy violation against the company, or the company might not be able to use the tape-recorded conversation against Tom. 4. Has Scott’s behavior damaged future relations between marketing and R&D? In what way? How could this situation have been avoided? Students’ responses will vary. Scott was covering himself when he decided to tape record the conversation. The Marketing Department should develop contracts or sign off sheets from the R&D Department that stipulates the project is ready for the next step in the process. It is important to get all business deals in writing. 3.2 – A Different Perspective 1. Which ethics theories are being applied here? Students’ responses will vary. Most of them may say that the universal ethics theory may be applied here. Individuals made personal contractual obligations when they purchased their homes. They have a legal obligation to make their loan payments regardless of what happened in the financial markets. 2. If homeowners made poor financial decisions—taking too much equity out of their houses or buying at the wrong time—do the predatory lending practices of the banks and mortgage companies justify walking away from those mortgages? Students’ responses will vary. The homeowners need to consider their debt obligation and the derogatory credit reporting that is associated with not making their mortgage payments. There are moral, ethical, and legal ramifications involved if the homeowners decide not to make the mortgage payment. If the bank or financial institution pursued the homeowners and participated in predatory lending practices, the homeowners signed the loan agreements and they were more than likely represented by an attorney in the closing transaction. They knew, agreed, and understood the terms of the loan when they endorsed the loan-closing paperwork. 3. Are homeowners really “throwing good money after bad” in making payments on mortgages for homes that are worth much less than the mortgage? Students’ responses will vary. The issue here is that the homeowner has a credit obligation to the bank, finance company, or the holder of the mortgage. Homeowners need to consider the contract they signed when they purchased the home, regardless of what happened to the financial markets. 4. Would you walk away from your mortgage in this situation? How would you justify that decision? Students’ responses will vary. Some of students may feel that if an individual does not have the funds to make his/her mortgage payment then that person needs to consider the alternatives associated with not making a mortgage payment. Frontline Focus “Just Sign the Forms–Matt Makes a Decision” Questions 1. What should Matt tell the HR director? Matt should tell the HR director the truth. He should tell him that Scott approached him the first morning and asked him to start working right away because of the backlog. Scott had told him to simply sign off on the training videos because they were routine anyway. 2. What do you think the HR director’s reaction will be? Students’ answers will vary. The HR director will most likely be disappointed in both Scott and Matt. Routine or not, Scott should not have told Matt to skip watching the training videos, no matter the size of the backlog. And Matt should have been able to see the unethical situation forming and should have approached the HR director about Scott’s request, knowing that he would be meeting with him at the end of his probationary period anyway. 3. What are Matt’s chances of joining the management-training program now? Students’ answers will vary. Matt drastically reduced his chances of joining the management- training program because ethics and leadership are large part of any training program. If Matt isn’t capable or willing to do the right thing right from the start, it shows the HR director that he’s not ready for management. Key Terms Accounting Function: The function that keeps track of all the company’s financial transactions by documenting the money coming in (credits) and money going out (debits) and balancing the accounts at the end of the period (daily, weekly, monthly, quarterly, annually). Auditing Function: The certification of an organization’s financial statements, or “books,” as being accurate by an impartial third-party professional. An organization can be large enough to have internal auditors on staff as well as using external professionals—typically certified professional accountants and/or auditing specialists. Conflict of Interest: A situation in which one relationship or obligation places you in direct conflict with an existing relationship or obligation. GAAP: The generally accepted accounting principles that govern the accounting profession—not a set of laws and established legal precedents but a set of standard operating procedures within the profession. Organizational Culture: The values, beliefs, and norms that all the employees of that organization share. Universal Ethics: Actions that are taken out of duty and obligation to a purely moral ideal, rather than based on the needs of the situation, since the universal principles are seen to apply to everyone, everywhere, all the time. Utilitarianism: Ethical choices that offer the greatest good for the greatest number of people. Value Chain: The key functional inputs that an organization provides in the transformation of raw materials into a delivered product or service. Review Questions NOTE: Some questions allow for a number of different answers. Below are some suggestions. 1. Consider the functional departments we have reviewed in this chapter. Which department do you think faces the greatest number of ethical challenges? Why? Students’ responses will vary. Students should recall at least one of the functional areas of the organization. For example, students can discuss R&D, manufacturing, marketing, human resources, or finance, and discuss which department they believe faces the greatest number of ethical challenges in an organization. 2. Provide three examples of unethical behavior that you have observed at the company you work for (or a company you have worked for in the past). What were the outcomes of this behavior? Students’ responses will vary. Some examples of unethical behavior that students may have observed include, but are not limited to bullying or intimidating behavior, employee theft, or any other example that illustrates unethical behavior they observed at the company. They should also discuss the outcome of that behavior. 3. Philip Kotler argues that professional marketers “should have the same ambivalence as nuclear scientists who help build nuclear bombs.” Is that a valid argument? Why or why not? Students’ responses will vary. Students should discuss Kotler’s argument and express their opinion on whether or not they believe it is a valid argument. Some of them may say that nuclear bombs can be used as a source of energy as well as a weapon of mass destruction. How a person chooses to use it depends upon him or her not the nuclear scientist. Similarly, the professional marketer develops a number of products or services which may be useful for some and useless for others. It is the end-user who should make an informed and intelligent decision on whether he or she really needs the products or services before buying them. 4. Should the HR department be the ethics champion in the organization? Why or why not? Students’ responses will vary. Most of the students may say that the HR department should be the ethics champion in the organization. They may support their argument by saying that the HR department is responsible for the management of human resources in the organization. They need to set positive examples to their employees in the organization. Ethics is an important factor to consider when they deal with employees, applicants, and vendors on a daily basis. 5. What are “creative bookkeeping techniques”? Provide three examples. Students’ responses will vary. Accountants face ethical challenges when requests are made for far more illegal practices, such as falsifying accounts, underreporting income, overvaluing assets, and taking questionable deductions. In order to keep up with such requests, accountants may present a doctored set of financial statements that show the organization as financially stable, operationally efficient, and positioned for strong future growth. They use “creative bookkeeping techniques” while doctoring such financial statements. Unrealistic delivery deadlines, reduced fees, and fees that are contingent on providing numbers that are satisfactory to the client are some examples of the ethical challenges modern accounting firms face. 6. Would you leave your position with a company if you saw evidence of unethical business practices? Why or why not? What factors would you consider in making that decision? Students’ responses will vary. It is important that the corporation’s values should match a person’s personal values. Any unethical business practices witnessed should be confronted and “shed light upon.” If these practices do not shape up, it would be wise to leave the company so their irresponsibility does not jeopardize your reputation. Review Exercises 1. Is this unethical marketing? Explain why or why not. Students’ responses will vary. These tactics are still simply promoting a product; they’re not forcing consumers to purchase these items, but making the product more well-known through a different context. The information being conveyed is a “scripted opinion” and merely aims to make consumers aware of the products. No false claims about the products are made. 2. Critics argue that such campaigns “blur the lines between consumerism and con artistry.” Is that a fair assessment? Why or why not? Students’ responses will vary. These campaigns are not borderline con artistry because nothing is being stolen from the consumer. Consumers still have choices regarding their purchases. 3. How would you feel if you were involved in such an ambush? Students’ responses will vary. The decision is still ultimately the consumers’. No one can force you to purchase a product; they are purely trying to promote and inform consumers of their product. If the consumer had no or little previous knowledge of the product and decided to buy it and loved it, then the ambush would be viewed positively, and vice versa. 4. If the majority of consumers are already skeptical about most advertising they are exposed to, how do you think the general public would feel about such marketing campaigns? Students’ responses will vary. The general public would most likely not be advocates of such marketing campaigns if the majority of consumers are already skeptical about most advertising. 5. Supporters of these campaigns argue that our economy is built on consumerism and that if you don’t find more effective ways to reach consumers, the entire economy will suffer. Does that make the practice OK? Should we just accept it as a nuisance and a necessary evil like solicitation calls during dinner? Students’ responses will vary. Our economy is based on consumerism, but that doesn’t justify unethical practices. This practice, however, does not falsify information about the products or claim something that isn’t true about the product. 6. Would your opinion change if the advertisers were more obvious in their campaigns—such as admitting after each skit that the raving fans were really actors? Students’ responses will vary. Students should express their opinion about honest advertising techniques and whether or not the advertisers should disclose that fans or others associated with the advertisement were paid actors. Internet Exercises 1. Visit the U.S. government recall website www.recalls.gov, select a product recall event from the past three years and answer the following questions: a. What information would you consider to be evidence of an ethical transgression in this product recall? Students’ responses will vary. Students can choose a product recall of a consumer product, motor vehicle, boat, food, medicine, cosmetics, or environmental products. They will note the evidence associated with an ethical transgression in the product recall they choose. b. Other than recalling the product, what other actions did the company take to address the situation? Students’ responses will vary. Students should note whether the company abided by their code of ethics during the recall process. The company needs to uphold a positive image during the recall process. c. What steps would you suggest that the company should have taken to restore that reputation? Students’ responses will vary. Students should note that a product recall can present an ethical challenge. They may suggest that companies should not steal documents, falsify documents, or undertake in any other dishonest act during the recall process. d. Locate the websites for the American Marketing Association (AMA) and the American Institute of Certified Public Accountants (AICPA). One has a “Professional Code of Conduct”, and the other has a “Statement of Ethics.” Does the terminology make a difference? Why or why not? The website for the American Marketing Association (AMA) is http://www.marketingpower.com and the website for the American Institute of Certified Public Accountants (AICPA) is http://www.aicpa.org. Students’ responses will vary. They should note that the AICPA has a Professional Code of Conduct and the AMA has a Statement of Ethics. They should then explain their perception of the difference between a professional code of conduct and the statement of ethics. e. Compare and contrast the components of each approach. Students’ responses will vary. The AICPA and the AMA both contribute to professionalism in the workplace. The AMA has a “Statement of Ethics” that states that the AMA commits itself to promoting the highest standard of professional ethical norms and values for its members (practitioners, academics and students). The AICPA offers the “Professional Code of Conduct”, which outlines that the membership in the AICPA is voluntary and by accepting membership, a certified public accountant assumes an obligation of self-discipline above and beyond the requirements of law and regulations. f. Since the AMA offers certification as a “Professional Certified Marketer,” would the organization benefit from promoting a professional code of conduct like the AICPA? Why or why not? Students’ responses will vary. As noted in the text, when an organization involves a third-party professional who is contracted to work for a company, for example a CPA or a Professional Certified Marketer, the potential for ethical challenges and dilemmas increases. Team Exercises 1. Is it ethical to ambush? Divide into two teams. One team must prepare a presentation advocating the use of the ambush marketing tactics described in the Review Exercise. The other team must prepare a presentation explaining the ethical dilemmas those tactics present. Students’ responses will vary. The advocates of ambush marketing tactics can argue that the actors are not falsifying information or lying about any product claims, but merely getting the product’s name out there. Also, these actors are not forcing consumers to purchase their product. Opponents of ambush marketing tactics can argue that consumers are being led into believing these actors are real consumers who are happy with the product, but instead, they are only acting pleased with the products because they are being paid. 2. In search of an ethical department. Divide into groups of three or four. Each group must select one of the organizational departments featured in this chapter (HR, R&D, marketing, sales, and finance) and document the potential areas for unethical behavior in that department. Prepare a presentation outlining an example of an ethical dilemma in that department and proposing a solution for resolving it. Students’ responses will vary. Following are some of the examples of ethical dilemma for different departments. • R&D: o Product quality o Product safety o Product reliability o Defective products • Manufacturing: o “Built fast, or built right?” o Cutting corners/product quality • Marketing: o Justification of methods used because of customer satisfaction/Utilitarianism o Manipulation and influence/Universal ethics • Human Resources: o Hiring issues/illegal immigrants o Waiving waiting periods for friends or boss o Refusing to stay up-to-date on OSHA regulations o Payroll issues • Finance: o Falsifying financial transactions or accounting statements o Conflict of interest with internal auditors or external third-party auditors 3. An isolated incident? Divide into two groups and prepare arguments for and against the following behavior: You are the regional production manager for a tire company that has invested many millions of dollars in a new retreading process that will allow you to purchase used tires, replace the tread, and sell them at a significantly lower cost (with a very healthy profit margin for your company). Initial product testing has gone well and expectations for this very lucrative new project are very high. Promotion prospects for those managers associated with the project are also very good. The company chose to go with a “soft” launch of the new tires, introducing them into the Malaysian market with little marketing or advertising to draw attention to the new product line. Once demand and supply are thoroughly tested, the plan is to launch the new line worldwide with a big media blitz. Sales so far have been very strong based on the low price. However, this morning, your local contact in Malaysia sent news of a bus accident in which two schoolchildren were killed. The cause of the accident was the front left tire on the bus, which lost its tread at high speed and caused the bus to roll over. You are only three days away from your next progress report meeting and only two weeks from the big worldwide launch. You decide to categorize the accident as an isolated incident and move forward with your plans for the introduction of your discount retread tires to the world market. Students’ responses will vary. Advocates for moving forward with the introduction may argue that this was a fluke and the testing showed no signs of safety problems. Even new tires can lose tread and cause problems. Also, these products could be argued as a win-win—lower prices for the consumer and high profit margin for the company. Opponents of moving forward with the introduction may argue that it is unethical to introduce these tires because of the safety issues, especially after hearing of the school bus accident. Further in-depth testing needs to be conducted and this project may need to be stopped or modified. 4. The sole remaining supplier. Divide into two groups and prepare arguments for and against the following behavior: Back in the mid-1970s heart pacemakers ran on transistors before advances in technology replaced them with the silicon computer chips we are all familiar with today. Your company has found itself in a situation where it is the last remaining supplier of a particular transistor for the current models of heart pacemakers on the market. Your competitors have all chosen to get out of the business, claiming that the risks of lawsuits related to malfunctioning pacemakers was simply too great to make the business worthwhile. Your management team has now arrived at the same conclusion. The chief executive officer defends the decision by arguing that as a business- to-business supplier to other manufacturers, you have no say in how the transistors are used, so why should the fact that they are used in life-saving equipment factor into the decision? Your responsibility is to your shareholders, not to the patients who depend on these pacemakers. You are not responsible for all the other manufacturers getting out of the business. Students’ responses will vary. Advocates of continuing to sell the transistors can argue that it is the manufacturer’s responsibility to switch to buying the computer chips. It is also the manufacturer’s responsibility to make it known that their pacemakers are manufactured using transistors. Opponents of selling the transistors can argue that all competitors are already out of selling these out-of-date products and the risk of lawsuits is too high. Also, it is unethical to sell a product knowing that its quality is lacking in comparison to other technology and could potentially cause harm to people. Thinking Critically 3.1 – Boosting Your Résumé 1. Does the competitive pressure to get hired justify the decision to boost your résumé? Why? Students’ responses will vary. Most of the students may say that competitive pressure to get hired does not justify the decision to boost one’s résumé, because as the examples in the text exhibit, those “little white lies” will come back to haunt the person. Getting hired is a competitive process, but one should be motivated to excel at everything to accurately develop a résumé. 2. Do you think the board of directors of Bausch & Lomb made the right decision in choosing not to fire Zarrella? Why or why not? Students’ responses will vary. Zarrella has now placed a negative image on his and the company’s reputation. If he could fake some portion of his résumé, it is just possible that he may do further unethical works in the company. However, the board of directors obviously felt that he had proven himself, regardless of not earning his MBA like his resume stated. The board further claimed that Zarrella had brought too much value to the company and its shareholders and thus it won’t be right to dismiss him. 3. What steps should companies take during the hiring process to insure that such bad hires do not happen? Students’ responses will vary. Companies need to contact the universities where candidates claim to have received degrees and contact previous employers and references. The hiring process may become slightly long, but in the long run it will save a lot of time and money by avoiding unnecessary training and problems down the road. 4. Can you polish you résumé without resorting to little white lies? Provide some examples of how you might do that. Students’ responses will vary. A résumé can be polished by using keywords that describe your responsibilities at previous employment and the skills you possess. The organization and word usage is one of the best methods for polishing a résumé. 5. Your friend has been unemployed for two years. She decides to boost her résumé by claiming to have been a consultant for those two years in order to compete in a very tough job market. She explains that a colleague of hers did the same thing to cover a six-month period of unemployment. Does the longer period of unemployment make the decision any less unethical? Why or why not? Students’ responses will vary. Most of the students may feel that this would be rationalization. Being unemployed for two years should prompt this person to improve herself, her skills, polish her résumé, network with other professionals in her industry, but not lie on her résumé. 6. If you discovered that a colleague at work had lied on her résumé, what would you do? Students’ responses will vary. If a colleague lied on her résumé, most of the students may find that it would need to be addressed to the human resource department because it could affect the company’s performance and reputation further down the road. Once informed, the HR department could further investigate the issue. 3.2 – A Loss of Privacy 1. Why would newspaper journalists resort to such methods in order to deliver “breaking news”? Students’ responses will vary. The pressure to constantly come up with “breaking news” in order to compete with other newspapers in the market may have led the journalists to resort to such methods. 2. If the alleged phone hacking and bribery took place as far back as 2003, how is it possible that the story was not made public until 2009? Students’ responses will vary. The story was not made public until July 2009 because it was revealed that News Group Newspapers (the division of News Corporation that published The News of the World) had paid out more than £1 million to settle claims of the alleged involvement of its journalists in phone hacking between 2003 and 2007. 3. Why would Andy Coulson feel pressure to resign as head of the government’s media operations only eight months after being appointed to the position? Students’ responses will vary. Coulson’s public profile after leaving The News of the World continued to be a problem for News Corporation—especially when his role as communications chief for the Conservative Party led to his appointment as head of the government’s media operations with the election of David Cameron as prime minister in May 2010. The unrelenting public outcry over the phone-hacking scandal prompted Coulson’s resignation in January 2011. 4. Do you think that the closure of The News of The World represents an appropriate resolution of this scandal? Why or why not? Students’ responses will vary. Rupert Murdoch was were facing increasing pressure to shut down the paper in response to the phone-hacking scandal in which journalists from the paper sought the assistance of private investigators in accessing the cell phone voicemail accounts of celebrities, the British Royal Family, and bribing members of the police force for information in the search for “breaking news.” Some students may find that the closure of The News of The World represents an appropriate resolution of this scandal. 5. If the phone hacking had been restricted just to the cell phones of celebrities, would the public outcry have been so large? Why or why not? Students’ responses will vary. Some of them may say that celebrities are also people who have a right to their privacy. So, the public outcry could have been so large. 6. What could Rupert Murdoch have done differently here? Students’ responses will vary. Some of them may say that Rupert Murdoch’s excuse that with over 50,000 people to manage around the world, he couldn’t possibly be expected to know every detail of every company, is not justified. Probably he could have seen to it that his News Corporation had a written and clearly communicated code of conduct and ethics. His employees should have been warned that anyone breaking this code would be fired and also subject to legal proceedings. This might have worked as a deterrent. 3.3 – Johnson & Johnson and the Tylenol Poisonings 1. Although Johnson & Johnson took a massive short-term loss as a result of its actions, it was cushioned by the relative wealth of the company. Should it have acted the same way if the survival of the firm were at stake? Students’ responses will vary. Majority of them may say that Johnson & Johnson acted in a socially responsible manner by destroying all remaining Tylenol. The company proved to care about its customers and have benefited in the long-run. The same would be true even if the firm’s survival were at stake. It may have been a much longer recovery and rough road, but would have been the successful and ethical decision. 2. James E. Burke reportedly said that he felt that there was no other decision he could have made. Do you agree? Could he, for example, have recalled Tylenol only in the Midwest? Was there a moral imperative to recall all Tylenol? Students’ responses will vary. Some of them may say that there are always other decisions that can be made, but there are also risks and consequences that follow. In this case, Burke felt there was no other decision because he was not willing to risk having customers die in the East simply because he only recalled Tylenol in the Midwest. His decision was an ethical choice that led to the resolution of an ethical crisis. 3. What was the moral minimum required of the company in this case? Would it favor some stakeholders more than others? How would you defend balancing the interests of some stakeholders more than others? Students’ responses will vary. Some of them may argue that the moral minimum required of the company is to test the Tylenol and still distribute it, or to recall the Tylenol in the specific areas in which cases are reported. Only if no more cases of death or illness come about would stakeholders benefit more. Financially, the company would not have taken as large a hit and therefore, investors may have benefited more, but in the long-run, the stakeholders would still have been successful. 4. Imagine that a third-world country volunteers to take the recalled product. Its representatives make assurances that all the tablets will be visually inspected and random samples taken before distribution. Would that be appropriate in these circumstances? Would it have been a better solution than destroying all remaining Tylenol capsules? Students’ responses will vary. Some of them may point out the fact that random samples would not necessarily find all of the poisoned capsules and citizens of developing nations do not deserve to take the risk of being poisoned. Johnson & Johnson should not have acted on this decision; they did the ethically right thing by destroying all the remaining Tylenol capsules. 5. Apparently no relatives of any of the victims sued Johnson & Johnson. Would they have had a moral case if they had? Should the company have foreseen a risk and done something about it? Students’ responses will vary. Some of them may say that the company already possessed quality standards and knew that the poisoned Tylenol did not come from their factories and that the poisoning happened after the product was shipped. However, the product still had their name on the bottle and therefore, they should be held responsible to some degree. 6. How well do you think a general credo works in guiding action? Would you prefer a typical mission statement or a clear set of policy outlines, for example? Do you see any way in which the Johnson & Johnson Credo could be improved or modified? Students’ responses will vary. Some of them may say that although very short and simple, the Johnson & Johnson Credo served the company well in this situation. However, a properly written mission statement which incorporates the company’s credo would also be very beneficial and act as a guiding document for all employees and investors. Copyright © 2013 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 Organizational Ethics 3-2 Defining Organizational Ethics • Business ethics, as an area of study, is separate from the general subject of ethics because: • Stakeholders have a vested interest in the ethical performance of an organization • The situation where one’s personal value system may clash with the ethical standards of the organization’s operating culture 3-3 Defining Organizational Ethics • Organizational culture: Values, beliefs, and norms that all the employees of that organization share • Value chain: Key functional inputs that an organization provides in the transformation of raw materials into a delivered product or service 3-4 Figure 3.1 - A Representative Company Value Chain Sources: Adapted with permission of the Free Press, a division of Simon & Schuster Adult Publishing Group, from Competitive Advantage: Creating and Sustaining Superior Performance, by Michael Porter. Copyright © 1995, 1998 by Michael E. Porter. All rights reserved. And from A. A. Thompson Jr. and A. I. Strickland III, Crafting & Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases, 14th ed. (New York: Irwin McGraw-Hill, 2005), p. 99. 3-5 Ethical Challenges in Research and Development • Critical commitment to the consumer in the provision of product quality, safety, and reliability • Tough decisions made when delivery of a design does not match the manufacturing cost figures • Use of fresh materials or second best to save money • Full battery test run or just computer simulations 3-6 Ethical Challenges in Manufacturing • Ethical challenges inherent in arriving at a compromise • Supply problem if a product is built precisely based on the design specifications • Use of a less reliable supplier when delivery is held up • Assurance of quality from the alternative supplier 3-7 Ethical Challenges in Marketing • Provide products or services to customers who have already expressed a need for and a desire to purchase those products • Unsuspecting customers are induced to buy products they don’t really need by commercials and advertisements • Marketers argue that customer satisfaction justifies the methods used to achieve the outcome inspite of the misleading message 3-8 Ethical Challenges in Marketing • Ethical choices that offer the greatest good for the greatest number of people Utilitarianism • Actions that are taken out of duty and obligation to a purely moral ideal rather than based on the needs of the situation since the universal principles are seen to apply to everyone, everywhere, all the time Universal ethics 3-9 Ethical Challenges in Marketing • Code of ethics by American Marketing Association (AMA) • Do no harm • Foster trust • Improve customer confidence • Clear ethical values 3-10 Ethical Challenges in Human Resources • Ensure that ethics is a top organizational priority • Ensure that the leadership selection and development processes include an ethics component • Ensure that the right programs and policies are in place • Stay abreast of ethics issues 3-11 Areas in Finance Function • Financial transactions - Handling flow of money through an organization • Accounting function: Keeps track of all financial transactions by documenting the credits and debits and balancing the accounts at the end of the period • Auditing function: Certification of an organization’s financial statements, or books, as being accurate by an impartial third-party professional 3-12 Internal Auditors • Grounded in professionalism, integrity, and efficiency • Make objective assessments of operations and share ideas for best practices • Provide counsel for improving controls, processes and procedures, performance, and risk management 3-13 Internal Auditors • Suggest ways for reducing costs, enhancing revenues, and improving profits • Deliver competent consulting, assurance, and facilitation services 3-14 Auditor’s Code of Ethics • Not falsifying documents • Not stealing money from the organization • Not undertaking any other form of fraudulent activity • Related to the management of the organization’s finances 3-15 Ethical Challenges Faced by Internal Auditors • Generally Accepted Accounting Principles (GAAP): Set of standard operating procedures that govern the accounting profession • Not a set of laws and established legal precedents 3-16 Ethical Challenges Faced by Internal Auditors • Creative bookkeeping techniques • Legal to defer receipts from one quarter to the next to manage the tax liability • Ethical challenges faced • Falsifying accounts • Underreporting income • Overvaluing assets • Taking questionable deductions 3-17 Conflicts of Interest • Situation where one relationship or obligation places you in direct conflict with an existing relationship or obligation • Meeting the needs of your organization’s stakeholders • Selling a product that has the potential to be harmful to your customers • Selling a product that has the potential to be harmful to the environment Solution Manual for Business Ethics Now Andrew Ghillyer 9780073524696, 9781260262513