Ch 1 Ethics Expectations Flashcards
The support for business, and business in general, depends on what three things?
1) Credibility that stakeholders place in corporate commitments
2) Company’s rep
3) Strength of company’s competitive advantage
It is unlikely that businesses or professions can achieve their LT strategic objectives w/o the support of key stakeholders like whom?
- S/Hs
- Employees
- Customers
- Creditors
- Suppliers
- Governments
- Host Committees
- Activists
What does authenticity mean?
- Being true to your own personality, values, and spirit, regardless of the pressure that you’re under to act otherwise
What could professional accountants have done to prevent the development of the “credibility” and “expectations” gap?
Auditors could have:
- Focus on primary loyalty to public
- Ensure independence before accepting an engagement
- Develop a culture of integrity at firm through clear communication, tone at top, integration, reinforcement, education
Why might ethical corporate behavior lead to higher profitability?
According to authors, ethical behavior can help corporations avoid costly items like:
- Clean up of pollution problems
- Fines
- Low morale, high turnover
- Loss or reputation
How can corporations ensure that their employees behave ethically?
- Develop a culture of integrity through
1) Clear communication
2) Personal commitment by senior management
3) Integration
4) Ethics must be reinforced
5) Education
Should executives and directors be sent to jail for the acts of their corporation’s employees?
- Depends
- US Sentencing Guidelines of 1991 impose harsh penalties on organizations whose employees have committed federal crimes
- Should not have to be responsible for corporate psychopaths who have no sense of right and wrong
Why are philosophical approaches to ethical decision making relevant to modern corporations and professional accountants?
- Provide insights into key dimensions of ethical reasoning
- Greater and growing ethical awareness and sensitivity; power of stakeholders can make a difference to the reputations and fortunes of companies and professional accountants
- Laws and codes often silent and philosophical approaches help us make well-rounded decisions
Is a professional accountant a businessperson pursuing profit or a fiduciary that is to act in the public interest?
- not an “OR” statement but an “AND” statement
- But when there is conflict b/w roles, professional accountant must place fiduciary duty above business duty
According to the authors, during the last 30 years, there has been an increasing expectation that business exists for what purpose?
To serve both S/Hs and society
Governance failures resulted from what?
- Directors, executives, and professional accountants serving themselves to the detriment of other stakeholders and the public interest
Success in business increasingly depends on what?
- Maintaining the support and trust of stakeholders
Stakeholders increasingly expect that a corporation’s activities will reflect what?
Stakeholders’ values and interests
We are increasingly environmentally sensitive. Give an example of how public health is affected by corporate behavior.
Air pollution
- Initially a local problem (smog)
- Later it can spread (acid rain)
- Now there’s global warming and climate change
When did we become increasingly sensitive to the lack of fairness and equitable treatment?
1980s and 1990s
- Feminist movement
- Persons with disabilities
- Consumer protection
- Employment laws
- Child labor
Where did ethical investors emerge from?
Scandals
- Nike products manufactured in sweatshops by children
What sorts of economic pressures lead to ethical lapses?
- Pressure from economic downturns like recession
- Growing pressure from global competitors
The difference b/w what the public thinks it is getting in audited f/s and what the public is actually getting is known as:
Expectations gap
Financial malfeasance has led to a crisis in confidence over what?
Corporate reporting and governace
Financial malfeasance has led to doubts in other spheres of corporate activity. What is this gap known as?
Credibility gap
What scandals made it clear that corporate governance was inadequate and governance reform was needed?
- Enron, Anderson, WorldCom scandals made clear that then existing corporate governance was not working
- Directors and executives were more worried about enriching themselves than identifying, assessing, and managing risk
Which corporate report discusses subjects that include environmental, health and safety, philanthropic, and other social impacts?
Corporate social responsibility report
Scandals have caused cumulative heightening of public’s awareness and desire for controls w/r/t unethical corporate behavior. This heightened awareness of the need for controls has led to what sorts of publications?
- U.S. Sentencing Guidelines
- SOX
Now, public expectations have changed to exhibit what three things?
1) Less tolerance
2) Heightened moral consciousness
3) Higher expectations of business behavior
Now, what watchdogs have emerged?
- Greenpeace
- Ethical investors
- Ethical mutual funds
According to the authors, change in public expectations has triggered an evolution in the mandate for business. What is this evolution?
- From laissez-faire, profit only world view of Milton Friedman
- To view that business exists to serve society (and not the other way around)
According to the authors, ethical corporate behavior is expected to lead to what:
Higher profitability in the long term
True or false.
Most ethical companies significantly underperform the S&P 500.
False (they often outperform the S&P 500)
According to the authors, judgements of the future success of corporations will be made w/i what broader framework?
W/i broader stakeholder-oriented framework (including both what is achieved and how it is achieved)
What are key BOD control functions?
1) Set guidance and boundaries likes policies, codes, and culture
2) Set direction like strategies, goals, remuneration
3) Appoints CEO and CFO
4) Arranges for resources
5) Monitors feedback
6) Reports to S/Hs
7) Nominates and decides on auditor
True or false.
According to the authors, community is a primary stakeholder.
True
The following would be a key control function of the BODs:
a) Set guidance and boundaries
b) Appoint EO
c) Approve sale of company’s assets
d) Decide on co auditor
e) All of the above
e) All of the above
Professional accountants, in their fiduciary role, owe their primary loyalty to whom?
The general public
How have businesses reacted to the emerging governance and stakeholder accountability model trends?
1) Evolution from profit only model to one recognizing interdependence of business and society
2) Expanding legal liability for officers and directors
3) Management assertions to S/Hs about internal controls
4) Stated intention to manage risk and protect reputation
According to the authors, should executives and directors be sent to jail for the acts of their corporation’s employees?
Authors suggest yes
True or false.
Management began to take greater interest in ethics issues. Their initial approach was the ‘inventory and fix’ method.
True
Although corporations are legally responsible to shareholders, who are they strategically responsible to?
Stakeholders
How can management inculcate ethics into its corporate culture?
Through compliance and ethics programs
What is the most important factor in having an effective ethical corporate culture?
a) Tone at top
b) Efficient oversight by company’s BOD
c) Workplace ethics
d) Code of conduct
e) Ethics risk management programs
a) Tone at top
A value that is almost universally respected by stakeholder groups is called a what?
Hypernorm
If a company’s activities respect a hypernorm, the company is likely to be respected by whom?
Stakeholder groups (and will encourage stakeholder support for company activities)
Hypernorms involve the demo of what six basic values?
- Honesty
- Compassion
- Predictability
- Fairness
- Integrity
- Responsibility
What are the four determinants of corporate reputation?
1) Credibility
2) Trustworthiness
3) Reliability
4) Responsibility
Define risk.
The chance of something happening that will have an impact on objectives
Historically, most large corporations did not consider what risks in a broad and comprehensive way?
Ethics risks
True or false.
According to the corporate social contract, profits are not to be generated at any costs, but in a way that recognizes stakeholders’ interests and benefits society.
True
How does a consequentialist approach ethical decision making?
Ethical decision must have good consequences
How does a deontologist approach ethical decision making?
Ethical act depends on the duties and rights involved
How does a virtue ethicist approach ethical decision making?
An act is virtuous if it displays the virtues expected of the stakeholders
What are three modified approaches to ethical decision making?
- Modified 5 Questions Approach
- Modified Moral Standards Approach
- Modified Pastin Approach
What does the Modified 5 Question Approach focus on?
1) Profitability
2) Legality
3) Fairness
4) Impact on rights of each individual shareholder (environment specifically)
5) Whether it demos virtues expected by stakeholders
What does the Moral Standards Approach focus on?
1) Net benefit to society
2) Fair to all stakeholders
3) Whether it is right
4) Whether it demos virtues expected by stakeholders
What does the Modified Pastin Approach focus on?
1) Company’s ground rules (ground rule ethics)
2) Net benefit to society (end point ethics)
3) Impact on the rights of each individual shareholder and requires rules to resolve the conflict
4) Whether it abuses rights belonging to everyone (problem of the commons)
True or false.
Globalization has come to the accounting profession, both in accounting principles and ethics.
True
