Textbook- CH 6

• Some irresponsible corporate behaviour is disclosed by whistleblowers
• Used AF archive / Alamy Stock Photo
• CHAPTER 6: Ethics of Business: Management and Leadership
• Learning Outcomes


  After studying this chapter, you will be able to:

  LO 6.1 Recognize appropriate ethical leadership

  LO 6.2 Define and describe the pros and cons of a statement of values

  LO 6.3 Make the distinction between codes of conduct and codes of ethics

  LO 6.4 Appreciate the purpose of ethics training in an organization

  LO 6.5 Define an ethics audit and explain the role of ethics officers and ethics committees

  LO 6.6 Understand how ethics reporting systems work and define whistleblowing

  LO 6.7 Know who is responsible for managing the ethics of business

  LO 6.8 Identify the approaches to ethics programs

  LO 6.9 Evaluate ethics programs and list their benefits

  LO 6.10 Recognize that ethical misbehaviour may occur despite management efforts and the implementation of ethics programs
• Business has responded to the increased concern surrounding ethics and its social and environmental responsibilities. Various initiatives have been taken to institutionalize ethics; that is, to implement policies or programs that increase the awareness of ethics in the organization. Every organization has an ethics program, whether it knows it or not.
• Ethical leadership


  Leaders communicate ethical standards, encourage ethical conduct, provide a model of ethical behaviour, and set an example for others in the corporation
• Responsible leadership


  Focuses on financial performance and has an extended stakeholder view, where business is considered a means to address social problems and serve stakeholders
• Servant leadership


  Emphasizes concern for others, combines the motivation to lead with the need to serve, and focuses on all stakeholders and a wider set of goals than only profits
• Corporate ethics programs can comprise a statement of values, code of conduct, code of ethics, ethics training, ethics audits, ethics officers and committees, and ethics reporting systems
• Statement of values


  Contains a description of the beliefs, principles, and basic assumptions about what is desirable or worth striving for in an organization
• Code of conduct


  Explicitly states what appropriate behaviour is by identifying what is acceptable and unacceptable
• Code of ethics


  A statement of principles or values that guide behaviour by describing the general value system within which a corporation attempts to operate
• There is little consistency in the contents of codes of conduct and codes of ethics in practice
• Codes have been developed at different levels in the business system, including corporate/business enterprise, industry, and professional associations
• Codes of Conduct


  Enforced by an external power and authority; convey rules that tell people what they must or must not do. Members of organizations must obey or face penalties for failing to do so.
• Codes of Ethics


  Suggest guidelines to follow and empower individuals to act according to their consciences. Penalties are not imposed and writers emphasize the qualities they think members should have.
• Levels at which codes have been developed

  • Corporate or business enterprise
  • Professional organizations
  • Industry and sector
  • Single issue
  • Codes from national and international bodies
• Voluntary codes


  Industry associations formulate codes that corporations in the industry or sector may voluntarily follow
• Codes increase awareness, discourage ethical apathy, facilitate ethical decision making, and make it easier to refuse an unethical request
• Content of codes of conduct and codes of ethics

  • A general statement of ethics, values, or philosophies
  • Criteria for decision making and compliance with laws
  • Responsibility toward employees, including items such as health and safety, diversity, a respectful workplace, and privacy
  • Conflicts of interest, their identification, and how to handle them
  • Protection of corporate assets, including accurate accounting and record keeping, security or property, and insider information
  • Appropriate business practices, including honesty, fairness, obeying the law, and information disclosure
  • Appropriate conduct on behalf of the corporation; for example, relationships with customers, suppliers, competitors, creditors, and government
  • Responsibilities to society at large, including contribution to political parties, lobbying government, responses to media, treatment of communities, and concern for environmental protection
  • Implementation procedures, including familiarity with the code, reporting of violations, refusing unethical requests, and seeking help on ethical matters
  • Specification of enforcement/compliance procedures and the penalties for inappropriate or illegal behaviour
• The content of codes has evolved over time and through five generations
• Some critics claim that codes of ethics or conduct are at best a minimal but unenforceable standard and at worst a hollow pretense
• Codes are important devices for communicating and controlling employees' behaviour within the corporation, and the behaviour of corporations and industries in society
• Ethics training


  Teaching employees about the values and policies on ethics they should follow in their decision making
• Components of ethics training

  • Orientation on values or ethics and related policies
  • Dealing with reputation and legal risks
  • Use of code of ethics or statement of values
  • Use of handbooks or policy statements
  • Delivered by managers or outside consultants
  • Emphasis on management levels
  • Online exercises to increase awareness of ethical implications
• Checklists and tests to assist managers in making ethical decisions

  • Have you defined the problem accurately?
  • How would you define the problem if you stood on the other side of the fence?
  • How did this situation occur in the first place?
  • To whom and to what do you give your loyalty as a person and as a member of the corporation?
  • What is your intention in making this decision?
  • How does this intention compare with the probable results?
  • Whom could your decision or action injure?
  • Can you discuss the problem with the affected parties before you make your decision?
  • Are you confident that your position will be as valid over a long period of time as it seems now?
  • Could you disclose without qualm your decision or action to your boss, your CEO, the board of directors, your family, society as a whole?
  • What is the symbolic potential of your action if understood? If misunderstood?
  • Under what conditions would you allow exceptions to your stand?
• c potential of your action if understood? If misunderstood?


  Refers to considering the potential consequences of an action, both if it is understood correctly and if it is misunderstood
• Nash's "good puppy" theory


  Allows corporate morality to be defined and explored halfway between the rigorous moral analogy of the corporation being the "good person" and the purely amoral definition of good
• Moral capacity


  Perceived as present, but its potential is limited. A moral evaluation of the "good puppy" is possible but exists largely on concrete terms, without needing to identify the puppy's intentions as utilitarian
• Pagano's six tests of the ethics of a business action

  • Is it legal?
  • The benefit-cost test (utilitarian perspective of greatest good for greatest number)
  • The categorical imperative (do you want this action to be a universal standard?)
  • The light of day test (would you be proud if it appeared on TV?)
  • Do unto others (the Golden Rule)
  • The ventilation test (get a second opinion from a wise friend)
• The author feels Pagano's approach has the advantages of being compact and simple
• Conflict of interest


  A clash between the interests of an individual (manager or employee) and the organization that employs the individual. A situation where an individual has a private or personal interest sufficient to appear to influence the objective exercise of their duties
• Common conflicts of interest

  • Self-dealing
  • Accepting gifts or benefits
  • Influence peddling
  • Using employer's property
  • Using confidential information
  • Outside employment or moonlighting
  • Post-employment
  • Personal conduct
• Real conflict of interest


  A situation where a manager or employee has knowledge of a private economic interest, or any kind of private or personal gain, that is sufficient to influence the exercise of their duties and responsibilities
• Apparent conflict of interest


  A situation where a conflict of interest can be deduced from appearances; exists when there is a reasonable apprehension that a well-informed person could make the connection
• Potential conflict of interest


  A situation that may develop into an actual conflict; exists when an employee can foresee that they have a private interest that may be sufficient to influence a duty or responsibility
• Managers or employees must be aware of and concerned about all types and categories of conflict of interest
• Many corporations have statements describing potential conflicts of interest
• Managers and employees must be continuously sensitive to conflicts of interest, as their reputation and the corporation's is at stake
• An ethics audit is a systematic effort to discover actual or potential unethical behaviour in an organization