Skill Development at it’s Best

Business Ethics
BBA & MBA
Lecture 101112
The Institutionalization of Business
Ethics
Course Lecturer: Farhan Mir

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Institutionalization in Business Ethics

• Relates to established laws, customs, and expected
organizational programs that are considered
normative in establishing reputation
• Institutions provide the requirements and societal
expectations to reward and sanction ethical decision
making

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Boundaries and Core Practices

• Boundaries
– Voluntary
– Mandated
• Core practices
– Helps ensure compliance with legal
requirements and industry regulation

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Laws and Regulatory Issues

• Established by the government to set

minimum standards for acceptable behavior
• Laws are passed because society does not
always trust business to act in its best
interest

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Types of Laws
• Civil
• Criminal
• The difference between the two is enforcement.

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Business Ethics Disputes

• Generally resolved through lawsuits
• Most laws affecting business fall into one of
five categories:
– Laws regulating competition
– Laws protecting consumers
– Laws promoting equity and safety
– Laws protecting the environment
– Laws that encourage ethical conduct

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Laws Protecting Consumers

• Require business to provide accurate

information about products and services
and to follow safety standards
• FTC’s Bureau of Consumer Protection

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Protecting Consumer Rights

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Laws Promoting Equity and Safety

• Laws promoting equity in the workplace

protect the rights of minorities, women,
older persons, and persons with disabilities
• Affirmative action programs

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Equal Employment Opportunity Laws in US

• Title VII of the 1964 Civil Rights Act

• Pregnancy Discrimination Act of 1978
• Civil Rights Act of 1991
• Equal Pay Act of 1963
• Age Discrimination in Employment Act of 1967
(ADEA)
• Americans with Disabilities Act of 1990 (ADA)

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Discrimination

Bona Fide
Disparate Occupational
Treatment Qualification
(BFOQ)

Disparate Four-fifths Retaliation

Impact Rule

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Laws Protecting the Environment

• Environmental Protection Agency (EPA)

• Many environmental laws have resulted in
the elimination or modification of goods
and services

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EPA Goals – UNDP Agenda

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Laws that encourage ethical conduct

The Sarbanes-Oxley Act

• Establishes a system of federal oversight

of corporate accounting practices
• Requires top managers to certify that
their firms’ financial reports are
complete and accurate, making CEOs and
CFOs accountable
• Provides protection for “whistle-
blowing” employees

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Background – Why was the Act passed?

• Financial scandals at Enron, WorldCom, and

others
• Desire to restore investor confidence and
increase the transparency of the financial
statements of publicly traded companies
• Desire to protect investors by improving the
accuracy and reliability of corporate disclosures

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Sarbanes-Oxley Act of 2002

• Section 302 requires certifications of each quarterly and
annual report by the CEO and CFO
• Section 404 requires an annual internal control report by
management stating the responsibility of management for
establishing and maintaining adequate internal control for
financial reporting, and providing an assessment of the
effectiveness of the internal control structure and procedures
for financial reporting
• The external auditor is required to attest to and report on
management's assessment pursuant to standards developed
by the Public Company Accounting Oversight Board (PCAOB)

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Benefits of Sarbanes-Oxley
• Greater accountability of top managers
• Renewed investor confidence
• Greater protection of retirement plans
• Greater penalties for senior managers

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Results from SOX

Compliance with the
Sarbanes-Oxley Act
makes good business sense,
minimizes organizational risks,
and is required by law.

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Results from SOX Act

EVERYONE
in the organization
is responsible
for effective internal
control.

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Challenges of Legal Compliance

• Estimated Cost: Around $1 million per $1 billion in
revenues - Especially compliance with Section 404
• For those countries considering provisions, such as
Sarbanes-Oxley, that place increased responsibilities on
directors.
• The prospect of directors’ civil liability such liability should
be viewed in the context of whether there are sufficient
legal defenses and other provisions available to mitigate
such liability without compromising directorial
responsibility
• So that corporations will be able to attract and retain
qualified corporate directors

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