Business ethics Flashcards
Ethics
“Doing the right thing.”
- Business ethics: Doing the right thing in business dealings
Morals
refer to personal philosophical choices, i.e., what is right and
wrong in intentions, decisions, and actions
Virtue
Demonstration of moral practice
Ethos
reflects an individual’s attitude toward values: “Doing the right
thing when no one is watching
Individualistic culture
Significant emphasis on individual
interests and independence
Prefer individuals to make decisions
Examples: Americans, Australians,
Canadians, Dutch, Scandinavians,
Anglo-Europeans
Group-oriented culture
Value groups’ collective beliefs and practices
Strong and dependable relationships critically
important
Decisions usually collective process to reach
group consensus
Examples: Turks, Chinese, Indians,
Indonesians, Japanese, Malaysians,
Philippines
“Corporate governance
involves a set of relationships between a
company’s management, its board, its shareholders and other stakeholders.
Corporate governance also provides the structure through which the
objectives of the company are set and the means of attaining those
objectives and monitoring performance are determined
International Organization for Standardization
has been guiding organizations in mediating ethical and corporate governance risks since 2009
- develops and publishes international quality management standards, environmental standards, and information security management standard
Ethics Theories
Ethical theories are frameworks that guide moral decision-making and are often embedded in our practices without explicit awareness. Understanding these theories can help clarify personal ethics and improve interactions with those who hold different ethical perspectives
Ethics
Ethics refers to having appropriate morals, values, and conduct that are accepted by society and individuals.
Moral development, like cognitive development, progresses over time with experience and practice.
Meta-Ethics
Meta-ethics examines the nature, foundations, and meaning of ethical concepts
Applied Ethics
Applied ethics addresses practical ethical questions in specific contexts, such as personal behavior and business.
Focuses on actions: “Is stealing ethical?” or “Is lying ethical?”
Act Utilitarianism
Focuses on evaluating each individual action based on its consequences.
Rule Utilitarianism
Advocates following general rules that are likely to produce the greatest happiness over time.
Universal Law
Act only according to maxims that can be willed as a universal law.
Humanity Principle
Treat people as ends in themselves, not merely as means to an end.
Kingdom of Ends
Act as if your actions establish universal laws in a community of rational beings.
Ethics from a Macroeconomic Perspective
Ethics at this level looks at the broader socio-economic system and how it influences business behavior and policies.
Ethics within a Mesosystem
This level focuses on ethical standards within organizations and businesses, addressing the roles of leaders, employees, stakeholders, and business operations.
Ethics of Micro-Conduct
Ethics at this level pertain to the individual actions and decision-making processes of leaders and professionals within an organization.
Accountability in Business Transactions
Duties include:
Legitimate sourcing, product safety, quality assurance, timely delivery and payments.
Failing duties often stems from financial motives.
Corporate Accountability in Human Rights
UN Guiding Principles (2011): Both governments and corporations must respect human rights.
Corporations must:
Avoid causing harm.
Mitigate adverse impacts related to their operations, even if not directly responsible.
Corporate Ethics Program (CEP)
A CEP is a proactive organizational measure to address ethics challenges comprehensively and mitigate potential harm.
Key Components (Ferrell et al., 2017):
Policies and procedures.
Appointment of an ethics officer.
Internal systems for monitoring, auditing, and reporting misconduct.
Communication and training programs for ethics.
Code of Conduct (COC)
Broad, high-level document detailing company values, principles, and societal relationships.
Code of Ethics (COE)
OC: Practical guide outlining specific expected behaviors in ethical dilemmas.
Consequentialism
Decisions focus on outcomes, aiming to maximize benefits and minimize harm for all stakeholders
Deontological Ethics
Emphasizes duties, obligations, and principles.
Example: Immanuel Kant’s Categorical Imperative: If an action can become a universal law (applicable to everyone), it is ethical.
Virtue Ethics
Focuses on personal character and the aspiration to be virtuous rather than the actions themselves.
Whistleblowing
Encourages raising concerns about unethical conduct when internal mechanisms fail.
False Claims Act
Reports government contractor fraud.
Fines: 3-5x the fraud amount.
Whistleblowers receive 15-30% of fines collected.
Dodd-Frank Act
Focuses on the financial industry.
Awards 10-30% of recoveries exceeding $10 million for original information provided.
Cyberspace Ethics
Ethics in online environments focuses on balancing freedom of expression with responsibilities and rights:
Key Issues:
Social media platforms (e.g., Facebook, Twitter, Google) face criticism for moderating content.
CEO Mark Zuckerberg defended Facebook, stating, “Real disagreements exist about where limits of online speech should be” (Romm et al., 2020).
Consumer Protection
Safeguard personal information unless users consent to sharing.
Privacy Rights
Uphold users’ rights “to be forgotten” and to avoid interference
Corporate Governance
A framework used by boards of directors to balance economic and social goals within organizations.
Purpose:
Ensure alignment with shareholder and societal expectations.
Prevent abuse of power by corporate leaders.
Regulate growing businesses and safeguard minority shareholder interests.
OECD Principle
Aimed at developing and improving the legal, institutional, and regulatory frameworks globally.
Encourages transparency, accountability, and sustainability.
ICGN Principles
Focuses on high standards of professional practice and investor stewardship.
Represents global investors managing $54 trillion in assets.
Control in Corporate Governance
Corporate governance encompasses both directive and controlling frameworks.
Family Governance Structure (Direct Control)
Family holds majority board and executive roles.
Encourages dynamic capabilities but may limit external input.
Corporate Governance Structure (Mixed Control
Shared leadership between family and external managers.
Promotes participation and improves organizational outcomes.
Governance Mechanisms
The formal and informal rules, practices, and processes from inside and outside a firm to direct and control firm behavior, aligning stakeholder interests”
Appointment of Directors
Shareholders formally elect directors, but the chairman often wields significant influence over nominations.
Limited diversity due to reliance on personal networks.
Potential alignment with chairman’s agenda, reducing independence.
Preventable Risks
Internal and controllable, e.g., defective products or safety lapses.
Managed through internal controls and training.
External Risks
Beyond organizational control, e.g., political turmoil or economic crises.
Mitigated through foresight and data analysis.
Strategic Risk
Deliberately undertaken risks, minimized via proactive strategies (e.g., credit checks).
Internal Control
Ensures financial reporting reliability through monitoring, risk assessment, and control activities (COSO, 2013).
Activities include:
Proper employee placement.
Authorization hierarchies.
Segregation of duties to prevent conflicts.
Documentation.
Surveillance
Defined as data collection for control and influence (Büchi et al., 2019).
Examples:
Cameras above cash registers.
Monitoring customer calls.
Perception:
Internal control is neutral and necessary.
Surveillance implies distrust but offers broader organizational insights for policy evaluation.
One-Tier System
Common in Anglo-American countries. Boards consist of executive and non-executive directors, who jointly oversee and manage the company.
Two-Tier System
Found mainly in Germany and the Netherlands. Separate supervisory and management boards provide oversight and execution functions.
Outsider System
External directors dominate governance; suited to markets with mature capital structures and limited employee participation.
Insider System
Internal directors or stakeholders play a dominant role in governance.
Tax Control Framework
Monitors tax risks, strategies, and compliance.
G20/OECD Principles of Corporate Governance
Published by the OECD in 1999, updated in 2015.
Focuses on financial and non-financial public companies.
Widely used globally but adapted differently in each country, leading to limited convergence.
ICGN Global Governance Principles (GGP):
Builds on the OECD Principles but emphasizes the interests of major investment firms.
Targets institutional investors managing assets exceeding $26 trillion.
Applicable in over 45 countries.
IFC Corporate Governance Practices in the European Union Guide:
Targets EU member states and affiliated countries.
Aims to harmonize governance across European nations.
Country-Specific Governance Codes
Countries adapt governance frameworks to suit their unique cultural, legal, and market environments.
Mandatory Compliance
Adopted by the US, UK, India, and UAE.
Comply or Explain
Common in France, Germany, the Netherlands, Norway, Switzerland, Australia, Brazil, China, and Russia. Firms disclose or voluntarily comply with governance standards.
Internal Governance:
Firms need to establish ethical connections within their governance frameworks, regardless of the system (e.g., one-tier, two-tier, French four-pillar system).
Power and hierarchy play significant roles in ensuring ethically oriented governance.
Compliance should be mandatory and embedded into organizational culture through:
Communication
Training
Demonstration by leadership
Regular evaluation
External Governance:
Firms interact with external stakeholders (e.g., auditors, environmental agencies) based on laws, contracts, and socio-economic expectations.
External collaborations should align with the company’s ethical standards and value propositions.
Expanding Corporate Governance to the Global Value Chain (GVC)
GVC encompasses all activities performed by multiple firms across countries to deliver a product or service from conception to end use.
