1. Business Ethics and Corporate Social Responsibility- Bernie Madoff

Question 1

Definition of Business Ethics/ Morally/ Values

Answer 1

• Business Ethics = Study of business situations, activities and decisions where issues of morally right or wrong are addressed.
• Morally = Concerned with values and norms that define right or wrong for an individual and community
• Values = Desirable, trans-situational goals/ varying in importance/ Serve as guiding principles in people’s lives

Question 2

Definition/ Requirements/ Aims of CSR

Answer 2

• CSR = Responsibility off enterprises for their impacts on society
• Prerequisite = Respect for applicable legislation & collective agreements between social partners/ Existing place to integrate social, environmental, ethical, human rights, consumer concerns into core strategy in close collaboration with their stakeholders
• Aims = Identifying, preventing, and mitigating their possible adverse impacts/ Maximizing the creation of shared value for their shareholders and society at large

Question 3

Arguments against Business Ethics and CSR

Answer 3

• Just cosmetic
• Market transaction as bluff in a poker game (Mr. Carr) = “Keep the bed linen program” of hotels to reduce environmental impact just for cost reduction
• Business should only focus on increasing profits but (Mr. Friedman) = Only individuals have moral responsibility of their actions/ CSR makes no sense/ Managers only have to act in the interest of shareholders/ Social issue should be analyzed only by the Government/ But (!) = 1. Strategic Argument & 2. Ethical Argument from Freeman

Question 4

Evaluation of every business actions implies

Answer 4

• Ethical evaluation
• Economic evaluation
• Relational evaluation

Question 5

Economic crime and the industries and areas

Answer 5

• Financial sector, retail and consumer and communication services strongly affected by crime
• Africa and North America have the highest levels of economic crime

Question 6

What are the main drivers of SEC failure in controlling Madoff and causing?

Answer 6

• All leading to Moral Blindness!
• Lack of regulation
• Complexity of the investment scheme
• Madoff power and reputation
• Lack of skills and competencies
• Lack of resources

Question 7

What are the main drivers that explain AA’s employees’ behaviors?

Answer 7

• All leading to Overvaluing Outcomes!
• Conflict of interest at individual and organizational level
• Social proximity
• Overvaluing outcomes?

Question 8

Threats to auditor independence

Answer 8

• Self-interest = Auditor could benefit from financial interest in client
• Advocacy = Auditors promote an audit client’s position or opinion
• Intimidation = Auditor is subjected to intimidation
• Familiarity = Auditor in position of reviewing work they have been responsible for.
• Self-review = Auditor becomes too “friendly” with client by working for client a number of years

Question 9

Ethical decision-making process

Answer 9

• Recognize Moral Issue (Knowing what the right thing to do is)
• Make Moral Judgement (Knowing what the right thing to do is)
• Establish Moral Intent (Behaving in the right way)
• Engage in Moral Behavior (Behaving in the right way)
• Influenced by individual factors + situational factors
• Individual factors = Gender/ Age/ Education/ Personality/ Values
• Situational factors = Reward System/ Job Roles/ Framing of the Issue

Question 10

Psychological factors associated with misbehavior

Answer 10

• Overvaluing outcomes = We give a pass to ethical misbehaviors when the outcome is good/ Outcome can be economically, ethically, relationally
• Motivated blindness = We tend not to see the unethical behaviors of others when it is our interest to remain ignorant
• Ethical illusions = We think we are more ethical than we really are
• Slippery slope = Small unethical steps to crime/ People accept unethical behavior when changes in behavior occur gradually over time than when they occur suddenly/ Leads to unethical behavior If each step is sufficiently small to appear not qualitatively different/ Psychological distorted mechanism
• Ethical spillover = When individuals enter firms with specific norms they adapt to the (lack of) ethics of the organization/ Against Friedman’s argument/ Psychological distorted mechanism
• Denial (Verlegung) of responsibility = Actors perceive that they have no other choice than to participate in such activities/ Even though they have

Question 11

Business Ethics and the Law

Answer 11

• Unquestionable behaviors
• Grey area = Ethical values are in conflict/ Not illegal
• Illegal behaviors
• Deceptive Advertising = False advertising/ Unethical and offends societal norms/ E.G. Mc Donald’s)

Question 12

Argument in Favor for Business Ethics

Answer 12

• Ethical misbehaviors might become illegal behaviors = Grey area very close to illegality
• Ethical Spillover = Organizations can be seen as “quasi moral agents”/ Organization’s culture defines what is right or wrong and goes beyond the individual framework of responsibility
• Strategic Argument = Organizations rely on the contribution of much wider set of people rather than just shareholders/ Freeman argument against Friedman
• Ethical Argument = Organizations have the power to affect a much wider set of people rather than just shareholders / Have the duty to address their ethical expectations/ Freeman argument against Friedman
• The ethical gap between the actual level of business ethics and the expected level of business ethics is increased from 1990s to 2015/ Argument against “just cosmetics”/ External demand of ethical behaviors

Question 13

Summary of arguments in favor of BE and SR

Answer 13

• Avoid dangerous misconducts
• Business organizations as “quasi moral actors”
• Duties towards stakeholders