Organizational Ethics

BUS560 2012

MODULE 2

Mar 23rd 2013

1. Consider the functional departments reviewed in chapter 3. Which department do you

think faces the greatest number of ethical challenges? Why?

The relationship between R&D and manufacturing is often a challenging one. Managers

complain about designs begin thrown over the wall to manufacturing with the implication that

the product design may meet all the required specifications, but now it falls to the

manufacturing team to actually get the things build. The pressures here are very similar to

those in the R&D function as manufacturers face the ethical questions, do you want it build

fast, or do you want it build right? Obviously, from an organizational perspective, you want

both, especially if you know that your biggest competitor also is racing to put a new product

on the market.

Here again, you face the ethical challenges inherent in arriving at a compromise which

corners can be cut and by how much. You want to build the product to the precise design

specifications, but what if there is a supply problem. Do you wait and hold up delivery, or do

you go with an alternative supplier? Can you be sure of the quality that alternative supplier

will give you?

Ethics in Marketing - once the manufacturing department delivers a finished product, it must

be sold. The marketing process is responsible for ensuring that the product reaches the

hands of a satisfied customer. If the marketers did their research correctly and

communicated the data to the R&D team accurately, and assuming the finished product

meets the original design specifications and the competition hasn’t beaten you to market
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with their new product, this should be a slam dunk, but with all these assumptions, a great

deal can go wrong.

Ethics in HR – the human resources function within an organization should ideally be

directly involved in the relationship between the company and the employee throughout that

employee’s contract with the company.

 The creation of the job description for the position.

 The recruitment and selection of the right candidate for the position.

 The orientation of the newly hired employee

 The efficient management of payroll and benefits for the happy and productive

employee.

 The documentation of periodic performance reviews the documentation of

disciplinary behavior and remedial training, if needed

2. Provide three examples of unethical behavior that you have observed at the company

you work or (or worked for in the past). What were the outcomes of this behavior?

At the most basic level, simply meeting the needs of your organizations stakeholders can

present conflicts of interest when you consider the possibility that what is best for your

employees and the community if the most efficient means to achieve those increased profits

is to close your factory and move production overseas. Selling a product that has the

potential to be harmful to your customers represents an equality significant conflict of

interest. The convenience of fast food carries with it the negative consequences of far more

calories than you need to consume in an average day. McDonalds for example has
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responded with increased menu choices to include salads and alternatives to French fries

and soda but the big mac continues to be one of its bestselling items.

Selling a product that has the potential to be harmful to the environment also carries a

conflict of interest. Computer manufacturers such as Dell and Hewlett-Packard now offer

plans to recycle your old computer equipment rather than through it into a landfill, fast-food

companies like McDonalds, have changed their packaging to move away from clamshell

boxes for their burgers. Beverage companies such as nestle are producing bottles for their

bottled water that use less plastic to minimize the impact on landfills. These attempts to

address conflicts of interest all have one thing in common. Whether they were prompted by

internal strategic policy decision or aggressive campaigns by customers and special interest

groups, the decisions

3. What are “Creative book keeping techniques”? Provide three examples.

Corporations try to manage their expansion at a steady rate of growth. If they grow too

slowly or too erratically from year to year, investors may see them as unstable or in danger

of falling behind their competition. If they grow too quickly, investors may develop unrealistic

expectations of their future growth. This inflated outlook can have a devastating effect on

your stock price when you miss your quarterly numbers for the first time. Investors have

shown a pattern of overreacting to bad news and dumping their stock. It is legal to defer

receipts from one quarter to the next to manage your tax liability. However, accountants face

ethical challenges when requests are make for far more illegal practices, such as falsifying

accounts, underreporting income, overvaluing assets, and taking questionable deductions.

These pressures are further compounded by competitive tension as accounting firms

compete for client business in a cutthroat market. Unrealistic delivery deadlines, reduced
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fees, and fees that are contingent on providing numbers that are satisfactory to the client are

just some examples of the ethical challenges modern accounting firms face.

A set of accurate financial statements that present an organization as financially stable,

operationally efficient and positioned for strong future growth can do a great deal to enhance

the reputation and goodwill of an organization. The fact that those statements have been

certified by an objective third party to be clean only adds to that. However, that certification

is meant to be for the public’s benefit rather than the corporations. This presents a very clear

ethical predicament. The accounting auditing firm is paid by the corporation, but it really

serves the general public, who are in search of an impartial and objective review.

4. Would you leave your position within a company if you saw evidence of unethical

business practices? Why or why not? What factors would you consider in making

that decision?

However, alongside this responsibility comes an equally critical commitment to the

consumer in the provision of a product that is of the highest quality, safety and reliability.

Defective products not only put consumers at risk but also generate negative press

coverage and very expensive lawsuits that can put the organization at risk of bankruptcy.

Professionals in their respective fields of science, engineering, and design, R&D teams are

tasked with making a complex set of risk assessments and technical judgments in order to

deliver a product design. However, if the delivery of that design does not match the

manufacturing cost figures that are needed to sell the product at a required profit margin,

then some tough decisions have to be made.

If better, cheaper faster is the ideal, then compromises have to be made in functionality or

manufacturing to meet a targeted cost figure. If too many features are taken out. Marketing
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and advertising won’t have a story to tell, and the salespeople will face difficulties in selling

the product against stiff competition .if too few changes are made, the company won’t be

able to generate a profit on each unit and meet its obligations to shareholders who expect

the company to be run efficiently and to grow over the long term. For the R&D team, the real

ethical dilemmas come when decision are made about product quality. Do we use the best

materials available or the second best to save some money? Do we run a full battery of test

or convince ourselves that the computer simulations will give us all the information we

need?

6. Explain the potential ethical challenges presented by generally accepted

accounting principles (GAAP).

Internal auditors are well disciplined in their craft and subscribe to a professional code of

ethics. They are diverse and innovative. They are committed to growing and enhancing their

skills. They are continually on the lookout for emerging risks and trends in the profession.

They are good thinkers. And to effectively full their roles, internal auditors mush is excellent

communicators who listen attentively, speak effectively, and write clearly. Sitting on the

right side of management, modern-day internal auditors are consulted on all aspects of the

organization and must be prepared for just about anything. They are coaches, internal and

external stakeholder advocates, risk managers, controls experts efficiency specialists, and

problem-solving partners.

For internal employees in the finance, accounting, and auditing department, the ethical

obligations are no different from those of any other employer of the organization. As such,

they are expected to maintain the reputation of the organization and abide by the code of

ethics. Within their specific job tasks, this would include not falsifying documents, stealing
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money from the organization, or undertaking any other form of fraudulent activity related to

the management of the organizations finance.

However, once we involve third-party professionals who are contracted to work for the

company, the potential for ethical challenges and dilemmas increases dramatically.

The accounting profession is governed not by a set of laws and established legal

precedents but by a set of generally accepted accounting principles, typically referred to as

GAAP. These principles are accepted as standard operating procedures within the industry,

but, like any operating standard, they are open to interpretation and abuse. The taxation

rates that Uncle Sam expects you to pay on generated profits may be very clear, but the

exact process by which you arrive at that profit figure is far from clear and places

considerable pressure on accountants to manage the expectations of their clients.

Review Issue 5 from Taking Sides: Clashing Views in Business Ethics and Society.

Which viewpoint do you side with? Why? Explain. Reference at least two outside

resources

Publicity owned companies in the U.S are subject to significant legal and fiduciary obligations

and securities regulations, such that further support the viewpoint you side with.as SOX, in this
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context the legal compliance and economic efficiency principles are heavily weighted in the

relationships of publicly owned corporation will prominently feature these two principles.

Privately owned enterprises, on the other hand, are relatively free of compliance requirements

from SOX, the securities & exchange, commission and shareholder lawsuits. Coming to the fore

of management’s attention instead are partners, customers, and suppliers, whose interests

need to be justice principles will be prominent in stakeholder relationships with privately owned

enterprises. When transactions, relationships, and contracts become ficult to anticipate all

possible situations and contingencies that may arise. In this situation, stakeholders are likely to

value opportunities to voice their preferences in the enterprise procedures and decision making

the definition of procedural justice.

In another context, an enterprise whose bargaining power isn’t strong enough to compel

agreements with its stakeholders may induce them to cooperate by calling attention to its

reputation for fair distribution of added value. An enterprise culture with visibly prominent

distributive justice principles is likely to attract and sustain critical relationships even when the

enterprise lacks compelling power. For example, a privately held internet grocer in the New York

area adds value for customers by offering quality farm-fresh food with the convenience of online

shopping and home delivery. New customers were its biggest source of revenue, and, to attract

them, the company offered discounts on large orders. Revenues were rising, but profits where

falling customers dropped the service after using their discounts. In addition, the business

wasn’t dominant in its local area, so customers had other grocery choice. In this context, we

expect this online grocer would improve relationships with its customer by emphasizing its

reputation for fair distribution of added value. Earlier principle and expressed the stakeholders

perspective as fair in prices costs and activities to support stakeholders preferences. For

publicly owned companies with relatively high power in stakeholder relationships we expect a
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reputation for economic efficiency and legal compliance to be the larger contributors toward

forming and sustaining important relationships critical to achieving enterprise objectives.

Internet Exercises

Toyota Motor Co., still in recovery mode after a series of problems that plagued its global

operations over the last three years, announced Wednesday it is recalling 2.5 million vehicles

sold in the United States due to a potential risk of fire. The recall involves 7.43 million vehicles

worldwide sold under the Toyota and Scion brands. This is the largest safety-related service
Organizational Ethics

action the maker has announced since it began a series of recalls related to the risk of

unintended acceleration in late 2009. That and other safety issues led Toyota to recall 14 million

vehicles in 2009 and 2010.It's the biggest single recall since Ford Motor Co pulled back 7.9

million vehicles in 1996. Many of the vehicles involved in the new Toyota recall also were called

back one or more times due to unintended acceleration issues. The latest recall is the result of a

problem with a potentially defective power window switch on the driver’s side of the affected

vehicles which, the maker says, “may experience a 'notchy' or sticky feel during operation. If

commercially available lubricants are applied to the switch in an attempt to address the 'notchy'

or sticky feel, melting of the switch assembly or smoke could occur and lead to a fire under

some circumstances.”

Toyota already announced recalls for several models involving similar window switches and in

February, the National Highway Traffic Safety Administration announced it would open an

investigation into the issue. But at the time it focused on just 830,000 Camry and RAV-4 models

sold during the 2007 model year. The massive size of the new recall underscores the risks

manufacturers like Toyota face when they share basic components on a wide range of vehicles

hoping to improve manufacturing economies of scale.

NHTSA has received more than 200 reports of problems involving the defective switch including

fires, though there are no known crashes or injuries. At least 39 similar problems were reported

in Japan, where 460,000 Toyota vehicles were recalled. Another 1.39 million vehicles are

subject to the new recall in Europe, while the massive safety campaign also covers Australia,

China and other parts of Asia and the Mideast.In the U.S. market, the Toyota announcement is

the largest recall of the year and could revive concerns about quality control at a manufacturer
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normally at the top of the charts. Such concerns plagued the maker during much of 2009 and

2010 and officials including President Akio Toyoda were hauled before Congress to explain the

massive recalls related to the unintended acceleration issue.

Toyoda has repeatedly promised, since that scandal began, to ramp up the maker’s quality

control process, and it is important to note that all the vehicles impacted by the latest recall were

produced during or before the 2009 model year. Nonetheless, the new service action will again

put an unwanted spotlight on the maker. Toyota had more vehicles involved in recalls than any

other maker in the U.S. in 2010 and came just short of achieving that dubious distinction again

in 2011. A large recall late in the year, however, put Honda at the top of the list. Indeed, Honda

recalled 1.7 million vehicles as part of three separate service actions last week while NHTSA

launched an investigation into potential problems involving another 600,000 vehicles. While

there have been scores of recalls announced this year involving every brand from Chevrolet to

Ferrari, with today’s announcement, it appears that both Toyota and Honda are again in an

unwanted race to lead the recall list again for 2012.

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