Chapter 4: The Institutionalization of Business Ethics

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3 Dimensions to effective Business Compliance

Voluntary practices
Core practices
Mandated Boundaries

Voluntary Practices

Beliefs, values, and voluntary contractual obligations of a business.
All business have some (Ie Philanthropy)

Core practices

Documented best practices, often encouraged by legal and regulatory forces and trade associations
Ie BBB can provide direction

Mandated Boundaries

Externally imposed boundaries of conduct
(Ie laws, rules, and regulations)

Legal compliance

Laws and regulations established by governments
Set minimum standards for responsible behavior
-Required because stakeholders do not trust business to do what is right (Ie Environmental protection, consumer safety)

Types of Laws

Civil Law
Criminal Law

Civil Law

Defines the rights and duties of individuals and organizations
-enforced by individuals in court

Criminal Law

Prohibits specific actions and imposes punishments for breaking the law
-enforced by state or nation

Five categories of Laws

Regulating competition
Protecting consumers
Protecting equity and safety
Protecting the environment
Incentives to encourage organizational compliance programs

Regulating competition

Pro-competitive legislation
encourage competition and prevent activities that restrain trade
Anti-Monopolisitc

Protecting consumers

Require businesses to provide accurate information about products and services and to follow safety standards (Ie FDA and FTC laws)
-Groups with specific vulnerabilities have higher levels of legal protection

Promoting Equity and Safety

Protect the rights of minorities, women, elderly, and disabled
-OSHA (health inspections)
-Title VII, EEOC, Affirmative Action, Equal Pay Act

Protecting the Environment

Created in response to stakeholder concerns about businesses' impact on environment
...Waste disposal is a serious problem for firms and individuals
-Sustainability
-EPA

The Green Consumer

Age groups under 30 are willing to pay more for "green" products

Gatekeepers

Overseers of business actions
-Accountants, regulators, lawyers, financial rating firms, auditors
Critical in providing accurate information to stakeholders

Accountants

Measure and disclose financial information to the public
Issues:Conflicts of interest, excessive focus on growth and profits

Risk Assessors

Failed in its duties during the most recent recession
-Problems with risk models led to inaccurate ratings
-Misled investors and stakeholders

Sarbanes-Oxley Act (SOX)

Established a system of federal oversight of corporate accounting practices.
-Gave the PCAOB authority to monitor accounting firms
-Requires top managers to certify their firms' financial reports (more accountability for C-group)
-Some legal protection for whistleblowers
Loopholes existed, misconduct continued

Dodd-Frank Wall Street Reform and Consumer Protection Act

Most sweeping consumer protection legislation since the Great Depression
Seeks to improve financial regulation, increase oversight, and prevent excessive risk-taking and deceptive practices
New offices: CFPB (Consumer Financial Protection Bureau)
-Increased whistle-blower protections (bounty program)

Federal Sentencing Guidelines for Organizations

Passed as an incentive for organizations to develop and implement programs for ethical and legal compliance
-All felonies and class-A misdemeanors committed by employees
Passed 1991, amended 2004, 2008, 2010

Highly appropriate core practices

Focus on developing sound organizational practices and structural integrity for performance measures
-Most ethical issues are nonfinancial

Voluntary Responsibilities to Stakeholders

4 Major Benefits:
-Improves quality of life in communities
-Reduces government involvement
-Develops employee leadership skills
-Helps create an ethical culture

Cause-related marketing

Ties an organizations products to a social concern through a marketing program

Strategic philanthropy

The synergistic and mutually beneficial use of a company's core competencies and resources to deal with social issues

Why is Institutionalization of Business Ethics important?

Embedding values, norms, and artifacts in organizations, industries, and society
--The failure to understand highly appropriate core practices provides the opportunity for unethical conduct

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