Revision Essentials Flashcards
Explain the descriptive, normative and instrumental stakeholder theories
Descriptive
- Focuses on actual behaviour, addressing decisions and strategies in stakeholder relationships
- Describes the organisation, the way it works, and its impact on the wider environment
- Eg. ‘The company does a lot of things for reasons besides profit motive. We want to leave the world better than we found it.’ Apple CEO
Normative
- Presumption that stakeholders have value (principle in practice - what’s best for all)
- Focus on how firms should treat stakeholders
Instrumental
- Examines stakeholder relationships and describes outcomes for particular behaviours
- Increased profitability, growth, sustainability
- Tests the connections between managing stakeholders and reaching business targets
What is social responsibility and what does it comprise?
Social responsibility is an organisation’s obligation to maximise its positive impact on stakeholders and minimise its negative impact (societal focus)
Four levels of social responsibility
- Philanthropic - giving back to society
- Ethical - following standards of acceptable behaviour as judged by stakeholders
- Legal - abiding by all laws and government regulations
- Economic - maximising stakeholder wealth and/or value
What is corporate governance
Degree to which businesses strategically meet the economic, legal, ethical and philanthropic responsibilities placed on them by their stakeholders
Includes formal systems of accountability, minimise misconduct opportunities and process of auditing and improving organisational decisions
-> long and short term strategies
-> board composition and structure
-> integrity and control of financial reporting
-> compliance with regulations
-> ethics programs
Briefly outline the five steps to implement a stakeholder perspective (need to satisfy these important people)
- Assess corporate culture
- Identify stakeholder groups and issues
- Assess organisational commitment to social responsibility
- Identify resources and determine urgency
- Gain stakeholder feedback
Outline each of the major business ethics issues:
- misuse of company resources
- abusive or intimidating behaviour
- deception/lying
- conflict of interest
- bribery
- corporate intelligence
- discrimination
- sexual harrassment
- fraud
- insider trading
- white collar crimes
Misuse of Company Resources
- Leading form of observed misconduct
- Range of unauthorised use of equipment and computers to embezzle company funds
- Time theft costs organisations hundreds of billions in lost productivity annually
= time that employees waste or spend not working during working hours
Abusive or Intimidating Behaviour
- One of the most common ethical problems
- Physical threats, false accusations, profanity, insults, harshness, ignoring someone, unreasonableness (intent important in determining abuse)
- Bullying is a growing problem and associated with hostile workplace
Deception/Lying
- > Three types of lies:
- Joking without malice
- Commission lying -> creating false perception with words that deceive the receiver (creating noise)
- Ommission lying -> intentionally not informing channel members of problems relating to a product that affects awareness, intention or behaviour
Conflicts of Interest
- Exist when an individual must choose whether to advance their personal interests, organisation or another group
- Individuals must separate personal interests from business dealings
Bribery
- Practice of offering something in order to gain an illicit advantage
- Active bribery: person who promises or gives bribes commits the offence
- Passive bribery: an offense committed by the official who receives the bribe
- Facilitation payments -> legal as long as small
Corporate Intelligence
- > Collection and analysis of information on:
- Markets
- Technologies
- Customers and competitors
- Socioeconomic and external political trends
- Trade secrets
- Hacking/eavesdropping
- Social engineering
Discrimination
- On the basis of race, colour, religion, sex, marital status, sexual orientation, disability, age is illegal
- On the basis of political opinions or affiliation with a union is harrassment
- Affirmative action programs -> efforts to recruit, hire, train and promote qualified individuals from groups that have traditionally been discriminated against
- > Companies can be sued for discrimination if it:
- Refuses to hire an individual for discriminatory reasons
- Unreasonably excludes an individual from employment
- Unreasonably discharges an individual
- Discriminates against an individual with respect to hiring, employment terms, promotion or privilege
Sexual Harrassment
- Repeated, unwanted behaviour of a sexual nature perpetrated upon an individual by another
- Hostile work environment
- Conduct unwelcome
- Conduct severe, pervasive and regarded by claimant as hostile/offensive
- Conduct was such that reasonable person would find it hostile/offensive
inappropriate/dual relationships
- Personal, loving and/or sexual relationship with someone with whom you share professional responsibilities
-> Key ethical issue in sexual harrassment
= To avoid sexual misconduct, a firm needs:
- Statement of policy
- Definition of sexual harrassment
- Non-retaliation policy
- Specific procedures for prevention
- Establish, enforce and encourage victims to report
- Establish reporting procedure
- Timely reporting requirements to proper authorities
Fraud
- Any purposeful communication that deceives, manipulates or conceals facts in order to create false impression
- Marketing fraud ( puffery and labeling issues)
- > Consumer fraud
- When consumers attempt to deceive businesses for personal gain (eg. price tag switching, item switching or lying to obtain discounts)
- > Collusion involves an employee who helps a consumer commit fraud
- > Duplicity is a consumer duping a store
- > Guile is associated with a person using tricks to gain unfair advantage
Accounting fraud
- Failure to understand and manage ethical risks was a key problem in the financial crisis
Insider Trading
- Legal insider trading: legally buying and selling stock in an insider’s own company but not all the time
- Illegal inside trading: buying or selling of stocks by insiders who possess material that is not public
White Collar Crimes
- Individual or group committing an illegal act in relation to their employment
- Nonviolent criminal act involving deceit, concealment or other fraudulent activity
- Highly educated in a position of power, trust, respectability and responsibility
- Abuses the trust and authority normally associated with the position for personal and or organisational gain
-> Reasons for existence
- Patterns of activities become institutionalised and may encourage unethical behaviour
- Undecided employees go along with the majority, whether ethical or not
Increase after economic recession
What does a strong ethics program look like?
- Written codes of conduct
- Ethics officers to oversee programs
- Care in delegation of authority
- Formal ethics training
- Auditing, monitoring, enforcement and revision of program standards
Moral management
- corporate transparency
- codes of conduct
- whistle blowing mechanisms
What are some design/implementation mistakes with ethics programs?
- Failure to understand and appreciate goals
- Setting unrealistic/immeasurable objectives
- Unsupportive top management
- Ineffective or incomprehensible content
- Transferring ‘American’ program to firm’s international operations
- Designing a program that is little more than a series of lectures resulting in low recall
What are some controls to ensure successful ethics programs.
What are benefits of an ethics audit?
- Proper selection of employees
- Ethics training
- Structural and communication systems eg. ethics assistance line/help desk
- Management’s commitment to the program
- Compare standards against actual behaviour -> ethics audit
- > Ethics audit = systematic evaluation of an organisation’s ethics program and performance to determine whether it is effective
- Provides benchmark of overall effectiveness of ethics initiatives
- Can be important in asset allocation and program development
- Can demonstrate the positive impact of ethical conduct and social responsibility initiatives on the firm’s bottom line
Benefits ->
- detect misconduct before it becomes major problem
- Identify potential ethical issues and improve legal compliance
- Improve organisational performance
- Improve relationships with stakeholders who demand greater transparency
- Set goals against which to measure actual performance
-> Social audit = process of accessing and reporting a business’s performance in fulfilling the economic, legal, ethical and philanthropic responsibilities expected by stakeholders
Broader in scope than ethics audit, which may be a component of a social audit
What are the six steps in the auditing process?
- Secure top management and board commitment
- Board members may initiate audits based on specific stakeholder concerns or in response to corporate governance reform
- Management could be held responsible for the ethical and legal compliance programs of their company
- Way to benchmark ethical performance - Establish an ethics audit committee to oversee the audit process
- Ideally, the board of directors financial audit committee would oversee the audit
- In most companies though, managers or ethics officers conduct the audits
- Individuals within the firm should be involved as well as external auditors - Define the scope of the audit
- Defined by the ethics audit committee and monitor progress
- Scope is determined by the type of business, risks faced, and opportunities to manage ethics
- Subject matter definition: environmental, privacy, discrimination, product liability, financial reporting, employee rights - Review current organisational mission, goals and values
- Review all formal documents that make explicit comments about ethical, legal or social responsibilities
- Define organisations ethical priorities - Collect and analyse relevant info
- Identify tools or methods for measuring progress in improving employee’s ethical decision and conduct
- Collect internal and external documents
- Determine baseline level of compliance
- Determine commitments met and unmet - Verify the results through outside agent
social/ethics audit consultant
- Financial accounting firm
- Nonprofit special interest group
Outline the role of the following organisations:
- International Monetary Fund
- World Trade Organisation
- United Nations Global Compact
International Monetary Fund
- regulates monetary relationships between national economies
- promotes responsible global business conduct
World Trade Organisation
- provides legally binding ground rules for international commerce and trade policy
- facilitates trade negotiations and settles trade disputes
United Nations Global Compact
- sets out specific principles based around the environment, human rights, labor and anti-corruption that CEOs should make a committment to upholding
Outline some of the key global ethical issues?
Bribery
- Acceptance varies by country (challenging to determine what a bribe is)
- US Foreign Corrupt Practices Act prohibits companies from paying foreign officials to keep/obtain business (with exceptions)
- Most developed countries recognise bribery as not conducive to business
Internet security and privacy
- Serious internet crimes have garnered public attention eg. cyber hacking, malware
- Privacy violations incl tracking through phone apps and company use of personal information
Human rights
- Opportunistic use of child labor, payment of low wages, abuse in foreign factories
- Relationships with subcontractors have proven problematic
- MNCs should view the law as a baseline for acceptable behaviour and strive for greater improvements in workers quality of life
Health care
- Major global human rights issue
- a billion people lack access to healthcare globally
- Patents assign rights to companies who charge what they wish
- Some companies are dropping costly employee insurance plans, leaving more without affordable insurance
Labor and right to work
- Many people work outside their homeland
- International firms today have many global ethical concerns relating to labor (eg. gender pay equality, right to join unions, standard of living)
Compensation
- Living wage: minimum wage that workers require to meet basic needs - some MNCs choose to outsource to countries that do not have
- Executive compensation: growing global demand for alignment between managerial performance and compensation
Consumerism
- Belief that consumers should dictate the economic structure of society
- States consuming goods at an increasing rate is desirable
- Equates personal happiness with purchasing and consuming products
- Made to break (planned obsolescence): encourages consumers to buy more items
- Meeting with backlash from stakeholders who do not believe consumerism leads to happiness -> not sustainable as resources diminish
Antitrust activity
- Meant to encourage fair competition
- Countries have differing levels of protection - create difficulties in international business
- Vertical system = channel member controls entire business system, occurs when MNCs are allowed to grow unchecked and create monopoly, reduces competition and can put small out of business
Businesses can respond to sustainability issues in a number of ways.
Outline the following:
- Triple Bottom Line Approach
- Green marketing vs Greenwashing
- Strategic implementation of environmental responsibility
Triple bottom line approach
- Considers social and environmental performance and economic performance
- Better environmental performance reduces costs by
- Improving risk management and stakeholder relationships
- Reduces the amount of materials and energy used
- Reduce capital and labor costs
Green marketing:
- using stakeholder assessment to create long-term relationships with customers while maintaining, supporting and enhancing the natural environment
Greenwashing:
- misleading consumer into thinking a good/service is more environmentally friendly than it really is
- Negatively relates to financial performance
Strategic implementation of environmental responsibility
- Recycling
- Stakeholder assessment
- Risk analysis
- Strategic sustainability environmental audit
Explain the following aspects that lead to ethical/unethical behaviours:
- Ethical issue intensity/moral intensity
- individual factors
- organisational factors
- opportunity
Ethical issue intensity
= perceived relevance/importance of an ethical issue to the individual, work group, organisation
- Reflects the ethical sensitivity of the individual or work group and triggers the ethical decision process
positive/negative incentives can affect the perceived importance of an ethical issue
- Employees need education regarding potential problem areas
Moral intensity = person’s perception of social pressure and the harm the decision will have on others
- Posed that every ethical issue can be framed in terms of its moral intensity = situational intensity
- > Social consensus of evil = degree of social agreement that about the moral value (eg. evil) of proposed act
- > Magnitude of consequences = sum of the benefits/harm done to victims/beneficiaries of the moral act in question
- > Concentration of effect = how spread out/concentrated the harms/benefits of the proposed action
- > Probability of harm = joint of function of the probability that the act in question will actually take place and will actually cause predicted harm/benefit
- > Temporal immediacy of consequences = length of time between the present and onset of consequences of the moral act in question
- > Proximity to victim = feeling of neamness (social, cultural, psychological, physical) that the moral agent has for the victims/beneficiaries of the evil/good act in question
Individual Factors
- People base their ethical decisions on their own values/principles of right or wrong
- Values learned through socialisation
- Good personal values decrease unethical behaviour and increase positive work behaviour
- Values are subjective and vary across cultures
- How people resolve ethical issues in their daily lives is often based on values and principles learned through family socialisation
- In the workplace, ethical issues involve honesty, conflict of interest, discrimination, theft
- Individuals stage of cognitive development may affect conduct
- > Eg. gender, nationality
- > Education & work experience => more education, better at making ethical decisions
- > Age => complex relationship, older is more experience but younger rely on organisation’s culture
- > Locus of control => internal locus of control (formed own destiny) will be more ethical than external locus (believe their fate is in the hands of others)
Organisational Factors
- Consists of corporate culture (set of shared values, norms and artifacts that influence organisational behaviour), significant others, obedience to authority
- Organisational culture has stronger influence on employees than individual values
Significant Others
- Work group eg. peers, managers and subordinates
- Help on a daily basis with unfamniliar tasks and provide advice and information formally and informally
- Have more influence on daily decisions than any other factor
Obedience on Authority
- An aspect of influence that significant others can exercise
- Helps us explain why many employees resolve business issues by simply following the directives of a superior
Eg. Stanley Milgrim Experiment
Opportunity
- Relates to permitting ethical/unethical behaviour
- When employees act unethically, what are you encouraging them to do?
- Rewards and punishment play a key role
- Relates to the employee’s immediate job context
- Can be eliminated by establishing formal codes, policies and rules that are enforced
What are the political, economic and social aspects that make up normative values?
Political
- Political influences can take place within the organisation
- Ethical organisation has policies and rules in place to determine appropriate behaviour
- Often compliance component of the firm’s organisational culture
- Failure to abide by these rules result in disciplinary action
- Legal actions such as price fixing, antitrust issues and consumer protection are important in maintaining fair and equiable marketplace
Economic
- Competition affects how a company operates as well as risks employees take for the good of the firm
- Amount of competition in an industry can be determined according to:
- Barriers to entry in industry
- Available substitutes for the products produced by industry rivals
- Power of the industry rivals over customers
- Power of the industry rivals’ supplier over rivals
Social
- Social institutions incl religion, education and individuals such as family unit
- Laws meant to ensure an organisation acts fairly but no laws exist saying people should do to others as they would have done to them
- Many cultures adopt this rule that has been institutionalised nito businesses with standards on competing faily, being transparent with consumers and treating employees with respect
Outline how companies implement principles and core values to ensure ethical decision-making
Veil of ignorance
=thought experiment that examined how individuals would formulate principles if they did not know what their future position in society would be
Two main principles of justice
= Liberty principle (equality principle) -> states each person has basic rights that are compatible to the basic liberties of others
= Difference principle: economic and social equalities (or inequalities) should be arranged to provide the most benefit to the least-advantaged members of society
- Companies take basic principles and translate them into core values
- Value practices evolve and are translated into normative definitions of ethical/unethical
- Organisations that have ethics programs based on a values orientation found to make a greater contribution than those based simply on compliance
- Ethical issue intensity, individual factors and opportunity result in business ethics evaluations and decisions
- Organisational ethical culture is shaped by effective leadership
