Chapter 06 - Organizational Ethics and the Law

CHAPTER 6
ORGANIZATIONAL ETHICS AND THE
LAW

INTRODUCTION
Faced with increasing pressure to create an ethical and law-abiding environment
at work, businesses can take tangible steps to improve their ethical performance. The
organization’s culture and ethical work climate play a central role in promoting ethics at
work. Ethical situations arise in all areas or functions of business, and often professional
associations seek to guide managers in addressing these challenges. Corporations can
also implement ethical safeguards such as ethics policies, ethics and compliance officers
or ombudspersons, and employee ethics training. In addition to developing a
comprehensive ethics program, corporations must of course follow the laws of the nation.
This can become a complex challenge when facing different customs and regulations
around the world. Although ethics and the law are not exactly the same, both are
important emphases for businesses, especially when operating in the global marketplace.

PREVIEW CASE
Nortel Networks, Etc.
In addition to the cases described above, dozens and dozens of other companies
have been charged with accounting fraud, mishandling of investor’s funds, market
improprieties, and many other illegal activities. Why are businesses repeatedly being
caught conducting illegal activities? How does this pattern of unethical behavior
become common among businesses and their executives? And, most importantly, what
can businesses, and possibly government regulators and the courts, do about stemming
illegal and unethical activity?
The preview case should provide the students with a good starting point to discuss
other, possibly more current, examples of corporate wrongdoing. There are multiple
reasons why employees act unethically and illegally, as discussed in Chapter 5, as well as
examples – although not often portrayed in the media – of employees doing the right
thing. The discussion may focus on [1] the individual decision-maker and her/his
motivations to act ethically or not, [2] pressures faced by the decision-maker from her/his
employer, boss or peers, and [3] organizational systems that help or impede ethical
decision making at work. The emphasis may be on what businesses can do to help
employees act ethically, avoiding the examples depicted in the preview case, or must
efforts to ensure ethical behavior come from government, regulators or the courts?

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CHAPTER OUTLINE
I. CORPORATE CULTURE AND ETHICAL CLIMATES
A. Ethical Climates

Teaching Tip: Corporate and Ethical Climates

An assessment of the cultural and ethical climates of the

students’ college or university may provide the basis for

a lively discussion. Students easily can observe their

immediate surroundings and the impact of the schools’

culture and climates on ethical issues relevant to the

students’ lives.

II. BUSINESS ETHICS ACROSS ORGANIZATIONAL FUNCTIONS

Teaching Tip: Types of Business Ethics Issues

Have your students prepare a class report that identifies

an example of a business ethics issue for each functional

area. If the students have work experience, have them

draw upon their own experiences. If not, a review of

recent newspapers or business periodicals will provide a

rich research source. Challenge students – possibly

matching students majoring in a discipline to the

corresponding professional code of conduct (e.g.

Accounting majors matched to the AICPA code, etc.), to

identify ethical issues in the current press. Then, locate

passages in the professional code as a guide for those

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professionals encountering these ethical issues,

answering the question: What should these professionals

do when faced with the ethical issue?

A. Accounting Ethics

B. Financial Ethics

C. Marketing Ethics

D.

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E. Information Technology Ethics

Teaching Tip:

Ethical Problems in Information Technology Video

Tom Bearden hosts a discussion of the ethical

implications of radio frequency identification tags

(RFIDs), used to – among other things – track inventory.

Tags embedded in their clothing, electronic devices, or

identification papers individuals carry can potentially be

“read” by a variety of readers. What are the implications

for privacy and civil liberties?

* The video segment is from the Public Broadcasting Services’s

“News Hour with Jim Lehrer” and is available on the Instructor’s

Resource Manual DVD that accompanies the textbook, available

upon request from the publisher.

F. Other Functional Areas

III. MAKING ETHICS WORK IN CORPORATIONS

A. Building Ethical Safeguards into the Company

Teaching Tip: Ethical Safeguards

Examples of corporate codes of ethics are easily found

using the Internet, especially for firms heavily involved

in U.S. government contracting. Students could survey

local firms to see if they have codes, officers, hot lines,

training programs, etc. Some colleges or universities

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have codes of ethics to analyze. Some faculty members

have found great success in having students craft their

own code of ethics, governing their behavior in the class.

*Top Management Commitment and Involvement

*Ethics Policies or Codes
*Ethics Officers, Compliance Officers and Ombudspersons
*Ethics Assist Lines or Help lines
*Ethics Training Programs
*Ethics Audits

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B. Comprehensive Ethics Programs

Teaching Tip: Assessing Ethics Programs Video

Kwame Holman reports on the congressional hearing

where HP CEO Mark Hurd and former chairwoman

Patricia Dunn testified about HP’s use of pretexting and

other possibly illegal and/or unethical methods to

investigate boardroom leaks. The segment may be used

with a discussion of how companies implement ethical

safeguards in a comprehensive ethics program.

* The video segment is from the Public Broadcasting Services’s

“News Hour with Jim Lehrer” and is available on the Instructor’s

Resource Manual DVD that accompanies the textbook, available

upon request from the publisher.

G. C. Corporate Ethics Awards

Teaching Tip: Ethics Awards

Students could be given the assignment of identifying

businesses in the region that have demonstrated

exemplary ethical behavior. This project might conclude

by inviting a company spokesperson from the award-

winning company to speak to the class.

IV. ETHICS IN A GLOBAL ECONOMY

Teaching Tips: Global Ethics

Can there ever be an international code of ethics? Most

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students believe not. Have them locate the Caux

Roundtable Principles via the Internet

(www.cauxroundtable.org) or find other international

codes such as the Global Sullivan Principles for

discussion. Global ethics codes also are discussed in

Chapter 7.

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Teaching Tip: Global Ethical Challenges Video

Faisal Islam reports on Google’s decision to launch a

search engine in China. To do business there, the

company had to agree to comply with Chinese

government rules mandating censorship of political,

religious, and cultural content the authorities found

offensive. Was Google’s decision to do so a violation of

its espoused commitment to making the world’s

information universally useful and accessible? After an

opening segment, Jeffrey Brown interviews Rebecca

MacKinnon, a fellow at the Berkman Center for Internet

and Society at Harvard and the former Beijing bureau

chief for CNN.

* The video segment is from the Public Broadcasting Services’s

“News Hour with Jim Lehrer” and is available on the Instructor’s

Resource Manual DVD that accompanies the textbook, available

upon request from the publisher.

A. Efforts to Curtail Unethical Practices

V. ETHICS, LAW, and ILLEGAL CORPORATE BEHAVIOR

A. Corporate Lawbreaking and Its Costs

GETTING STARTED

KEY LEARNING OBJECTIVES

1. Classifying an organization’s culture and ethical climate.

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A company’s culture and ethical climate tend to shape the attitudes and actions of
all who work there, sometimes resulting in high levels of ethical behavior and at
other times contributing to less desirable ethical performance.
2. Recognizing ethical challenges across the multiple functions of business.

Not all ethical issues in business are the same, but ethical challenges occur in all major
functional areas of business. Professional associations for each functional area often
attempt to provide a standard of conduct to guide practice.
3. Developing effective ethics polices, ethics training programs, ethics assist lines,
and similar safeguards.
Companies can improve their ethical performance by creating a value-based
ethics program that relies on top management leadership and organizational
safeguards, such as ethics policies or codes, ethics or compliance officers or
ombudspersons, ethics training programs, and ethics audits.

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4. Assessing the strengths and weaknesses of a comprehensive ethics program.

Companies that have a comprehensive, or multi-faceted, ethics program often are

better able to promote ethical behavior at work and avoid unethical action by
employees.
5. Understanding how to conduct business ethically in the global marketplace.

Ethical issues, such as bribery, are evident throughout the world, and many
international agencies and national governments are actively attempting to
minimize such actions through economic sanctions and international codes.
6. Knowing the differences between ethics and law.
Although laws and ethics are closely related, they are not the same; ethical principles
tend to be broader than legal principles. Illegal behavior by business and its employees
imposes great costs on business and the general public.

KEY TERMS AND CONCEPTS USED IN THE CHAPTER



bribery, 127

compliance officer, 123

corporate culture, 113

ethical climate, 114

ethics assist line or helpline, 124

ethics audit, 126

ethics officer, 123

ethics policies or codes, 123

laws, 130

ombudsperson, 123

U.S. Foreign Corrupt Practices Act, 129

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white-collar crime, 131

INTERNET RESOURCES
www.business-ethics.com Business Ethics magazine
www.theecoa.org Ethics & Compliance Officers
Association
www.integrity-interactive.com Integrity Interactive Company
www.dii.org Defense Industry Initiative on
Business Ethics and Conduct
http://ethics.iit.edu/resources/onlineresources.html EthicScan,
Toronto-based ethics clearinghouse
www.globalethics.org Institute for Global Ethics

DISCUSSION CASE

PPG’s CORPORATE ETHICS PROGRAM

Discussion Questions

1. From the ethics cultures defined in this chapter, which ethics culture
best described PPG Industries? Do you think this culture type is the best for
promoting ethics in the workplace?

The selection of a culture for an organization might be somewhat subjective.

Some students may see PPG Industries as showing concern for others in their
ethics program literature, thus a “team interest” or “social responsibility”
culture type. Other might focus on PPG’s emphasis on ethical principles,
therefore select a “company rules and procedures” or “laws and professional
code” as PPG’s ethical culture. The normative question – Is this culture type best
for promoting ethics? – is also subjective, although according to the model
developed by Bart Victor and John Cullen, using principles for the ethical criteria
might be preferred over using benevolence.
2. How many of the ethical safeguards described in this chapter have
PPG Industries adopted in their corporate ethics program?

Students should use the ethical safeguards presented in the chapter to

respond to this question. PPG has many of the ethical safeguards mentioned, for
example a code of ethics, committee, and hot line.

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3. Do you see any deficiencies or weaknesses in PPG Industries’ ethics

program? What further steps, if any, would you recommend to the
company?

If some of the ethical safeguards are not mentioned in the discussion case,
these might be good suggestions for PPG’s next step in its further development of
an ethics program. Or, some of the current elements in their program may need
to be revised.

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