BUSINESS ETHICS AND CORPORATE GOVERNANCE

LO1: ETHICS AND BUSINESS

WHAT IS ETHICS

Rightness or wrongness of behaviour, but not everyone agrees on what is morally right or wrong, good or bad, ethical or unethical. Business ethics is an area of growing public, corporate and academic concern.

Distinguish between personal and organisation ethics

PERSONAL ETHICS

Personal ethics is a rule which an individual would want to follow. The basic principles and

values that govern interactions among individuals. Ethics are principles for they are the foundation of every understanding, which uses them as eternal truths. Sound personal ethics are typically those that positively impact the experience of

others when used to govern an individual's social or business related behavior, and at the very

least, such ethics should not have a negative impact on others.

Personal ethics is a category of philosophy that determines what an individual believes about

morality and right and wrong. This is usually distinguished from business ethics or legal

ethics. These branches of ethics come from outside organizations or governments, not the

individual’s conscience. These branches of ethics occasionally overlap. Personal ethics can

affect all areas of life, including family, finances and relationships.

Personal ethics is a rule which an individual would want to follow

For example I do not like someone speaking too loudly in public places so at max I can ask

the person if known to me to lower her voice else might not tag her along the next time.

Manners, thoughts all build up into personal ethics. They are important since they define an

individual. If does do not like something, the mind will always echo a no, still if they go

ahead then end up almost not being happy. For eg if you don’t smoke and still want to be

with few smoker friends you may eventually end up feeling sick. A) Since you cannot stand

the smell of smoke B) It made you feel low since you turned into a passive smoker. On the

other hand if

you would have acknowledged that you dont like thats why you stay with a different group of

friends is quite acceptable

DIFFERENCE BETWEEN PERSONAL AND PROFESSIONAL ETHICS

Personal ethics refers to the ethics that a person identifies with in respect to people

and situations that they deal with in everyday life. Professional ethics refers to the

ethics that a person must adhere to in respect of their interactions and business

dealings in their professional life.

Personal work ethics are those values that guide you in performing your job that aren’t

spelled out in your contract or job description. While you might not be fired for showing up

late, gossiping, using company supplies for your personal use or doing the minimum to get

by, these can all be construed as a lack of personal work ethics. You might also not be given

a raise or thanked for working extra hours, volunteering to help other departments or not

trashing our managers, but if you believe you’re a part of a team, these are examples of

activities that reflect on your level of professionalism. If you want a raise or promotion, it’s

ethical to put in extra effort in exchange for those rewards.

In some cases, personal and professional ethics may clash and cause a moral

conflict. For example:

A police officer may personally believe that a law that he is required to enforce

is wrong. However, under the Code of Conduct for the New Zealand Police,

he is required to obey all lawful and reasonable instructions to enforce that

law unless there is good and sufficient cause to do otherwise.

A doctor may not personally believe that the course of medical treatment

chosen by a patient is the right one. However, under the Code of Ethics for

the New Zealand Medical Association, she must respect the rights, autonomy

and freedom of choice of the patient.

ORGANISATION ETHICS

Business ethics (also known as corporate ethics) is a form of applied ethics or professional

ethics, that examines ethical principles and moral or ethical problems that can arise in a

business environment. It applies to all aspects of business conduct and is relevant to the

conduct of individuals and entire organizations.[1] These ethics originate from individuals,

organizational statements or from the legal system. These norms, values, ethical, and

unethical practices are the principles that guide a business. They help those businesses

maintain a better connection with their stakeholders.[2]

Business ethics refers to contemporary organizational standards, principles, sets of values and

norms that govern the actions and behavior of an individual in the business organization.

Business ethics have two dimensions, normative business ethics or descriptive business

ethics. As a corporate practice and a career specialization, the field is primarily normative.

Academics attempting to understand business behavior employ descriptive methods. The

range and quantity of business ethical issues reflects the interaction of profit-maximizing

behavior with non-economic concerns.

Interest in business ethics accelerated dramatically during the 1980s and 1990s, both within

major corporations and within academia. For example, most major corporations today

promote their commitment to non-economic values under headings such as ethics codes and

social responsibility charters.

The way an organization should respond to external environment refers to organization ethics. Organization ethics includes various guidelines and principles which decide the way individuals should behave at the workplace. It also refers to the code of conduct of the individuals working in a particular organization.

Every organization runs to earn profits but how it makes money is more important. No organization should depend on unfair means to earn money. One must understand that money is not the only important thing; pride and honour are more important. An individual’s first priority can be to make money but he should not stoop too low just to be able to do that.

Children below fourteen years of age must not be employed to work in any organization. Childhood is the best phase of one’s life and no child should be deprived of his childhood.

Employees should not indulge in destruction or manipulation of information to get results. Data Tampering is considered strictly unethical and unprofessional in the corporate world. Remember if one is honest, things will always be in his favour.

There must be absolute fairness in monetary transactions and all kinds of trading. Never ever cheat clients.

Employees should not pass on company’s information to any of the external parties. Do not share any of your organization’s policies and guidelines with others. It is better not to discuss official matters with friends and relatives. Confidential data or information must not be leaked under any circumstances.

Organizations must not discriminate any employee on the grounds of sex, physical appearance, age or family background. Female employees must be treated with respect. Don’t ask your female employees to stay back late at work. It is unethical to discriminate employees just because they do not belong to an affluent background. Employees should be judged by their work and nothing else.

Organization must not exploit any of the employees. The employees must be paid according to their hard work and efforts. If individuals are working late at night, make sure overtimes are paid. The management must ensure employees get their arrears, bonus, incentives and other reimbursements on time.

Stealing office property is strictly unethical.

Organization must take care of the safety of the employees. Individuals should not be exposed to hazardous conditions.

Never lie to customers. It is unprofessional to make false promises to the consumers. The advertisements must give a clear picture of the product. Do not commit anything which your organization can’t offer. It is important to be honest with your customers to expect loyalty from them. It is absolutely unethical to fool the customers.

The products should not pose a threat to environment and mankind.

Employees on probation period can be terminated anytime but organizations need to give one month notice before firing the permanent ones. In the same way permanent employees need to serve one month notice before resigning from the current services. Employees can’t stop coming to office all of a sudden.

The importance of ethical behavior to an organization has never been more

apparent, and in recent years researchers have generated a great deal of knowledge

about the management of individual ethical behavior in organizations. We review this

literature and attempt to provide a coherent portrait of the current state of the field.

We discuss individual, group, and organizational influences and consider gaps in

current knowledge and obstacles that limit our understanding. We conclude by

offering directions for future research on behavioral ethics in organizations.

IMPORTANCE OF BUSINESS ETHICS

The importance of business ethics reaches far beyond employee loyalty and morale or the

strength of a management team bond. As with all business initiatives, the ethical operation of

a company is directly related to profitability in both the short and long term. The reputation

of a business in the surrounding community, other businesses and individual investors is

paramount in determining whether a company is a worthwhile investment. If a company

is perceived to not operate ethically, investors are less inclined to buy stock or otherwise

support its operations.

Companies have more and more of an incentive to be ethical as the area of socially

responsible and ethical investing keeps growing. The increasing number of investors seeking

out ethically operating companies to invest in is driving more firms to take this issue more

seriously.

With consistent ethical behavior comes an increasingly positive public image, and there are

few other considerations as important to potential investors and current shareholders. To

retain a positive image, businesses must be committed to operating on an ethical foundation

as it relates to treatment of employees, respecting the surrounding environment and fair

market practices in terms of price and consumer treatment.

Proper business practices and policies are guided by business ethics, according to the law or due to the framework a business follows to be accepted by the public.

Business ethics ensure that the public gets fair treatment and consideration through the building of a level of trust between the business and consumers.

It was in the 1960s when the concept of business ethics came about. Companies became more cognizant of the rise in a consumer-based environment. They became concerned with corporate responsibility, social issues and the world around them.

Business ethics evolved from recognizing what’s right and wrong to doing business legally instead of doing everything possible to be one up against competition. While there is a standing moral code businesses follow today, their ways of practicing it vary.

1. Corresponds to Basic Human Needs:

The basic need of every human being is that they want to be a part of the organisation which

they can respect and be proud of, because they perceive it to be ethical. Everybody likes to be

associated with an organisation which the society respects as a honest and socially

responsible organisation. The HR managers have to fulfill this basic need of the employees as

well as their own basic need that they want to direct an ethical organisation. The basic needs

of the employees as well as the managers compel the organizations to be ethically oriented.

2. Credibility in the Public:

Ethical values of an organisation create credibility in the public eye. People will like to buy

the product of a company if they believe that the company is honest and is offering value for

money. The public issues of such companies are bound to be a success. Because of this

reason only the cola companies are spending huge sums of money on the advertisements

now-a-days to convince the public that their products are safe and free from pesticides of any

kind.

3. Credibility with the Employees:

When employees are convinced of the ethical values of the organisation they are working for,

they hold the organisation in high esteem. It creates common goals, values and language. The

HR manager will have credibility with the employees just because the organisation has

creditability in the eyes of the public. Perceived social uprightness and moral values can win

the employees more than any other incentive plans.

4. Better Decision Making:

Respect for ethics will force a management to take various economic, social and ethical

aspects into consideration while taking the decisions. Decision making will be better if the

decisions are in the interest of the public, employees and company’s own long term good.

5. Profitability:

Being ethical does not mean not making any profits. Every organisation has a responsibility

towards itself also i.e., to earn profits. Ethical companies are bound to be successful and more

profitable in the long run though in the short run they can lose money.

6. Protection of Society:

Ethics can protect the society in a better way than even the legal system of the country.

Where law fails, ethics always succeed. The government cannot regulate all the activities that

are harmful to the society. A HR manager, who is ethically sound, can reach out to agitated

employees, more effectively than the police.

Ethics in Leadership

The management team sets the tone for how the entire company runs on a day-to-day basis.

When the prevailing management philosophy is based on ethical practices and behavior,

leaders within an organization can direct employees by example and guide them in making

decisions that are not only beneficial to them as individuals, but also to the organization as a

whole. Building on a foundation of ethical behavior helps create long-lasting positive effects

for a company, including the ability to attract and retain highly talented individuals, and

building and maintaining a positive reputation within the community. Running a business in

an ethical manner from the top down builds a stronger bond between individuals on the

management team, further creating stability within the company. 

 Employee Ethics

When management is leading an organization in an ethical manner, employees follow in

those footsteps. Employees make better decisions in less time with business ethics as a

guiding principle; this increases productivity and overall employee morale. When employees

complete work in a way that is based on honesty and integrity, the whole organization

benefits. Employees who work for a corporation that demands a high standard of business

ethics in all facets of operations are more likely to perform their job duties at a higher level

and are also more inclined to stay loyal to that organization.

ETHICAL PROBLEMS IN BUSINESS

The most fundamental or essential ethical issues that businesses must face are integrity and

trust. A basic understanding of integrity includes the idea of conducting your business affairs with

honesty and a commitment to treating every customer fairly. When customers think a company is

exhibiting an unwavering commitment to ethical business practices, a high level of trust can

develop between the business and the people it seeks to serve. A relationship of trust between

you and your customers may be a key factor in your company's success.

Diversity Issues

Your current and potential employees are a diverse pool of people who deserve to have their

differences respected when they choose to work at your business. An ethical response to

diversity begins with recruiting a diverse workforce, enforces equal opportunity in all training

programs and is fulfilled when every employee is able to enjoy a respectful workplace

environment that values their contributions. Maximizing the value of each employees'

contribution is a key element in your business's success.

Employee Behavior and Legal Issues

There are legal consequences for some unethical employee behavior. For example, if a supervisor discriminated against an employee based on her gender, religion or ethnicity when making recommendations for a promotion, legal action could be sought. Small business owners can help to prevent ethical problems stemming from employee behavior by drafting a clear, attorney-reviewed set of standards that dictate behavior policies for employees at all levels.

Employee Working Conditions

In addition to employee behavior, there are a number of ethical issues business people must consider about employee working conditions. For example, employers must be aware of the safety of their work environment and if they have compensated employees for all the time they have worked. The must also consider if they have required an employee to work an unreasonably long period of time or if they have him doing an unusually difficult task. Just like there are legal consequences for some unethical issues regarding employee behavior, there are also legal consequences for unethical working conditions. For example, an employer who requires an employee to work without pay or who creates an unsafe working environment can face legal action.

Supplier/Customer Relations

In addition employees and business owners must consider the ethical issues involved with their

relationships between suppliers and customers. Business owners in particular must consider

whether it is ethical to do business with suppliers who have unethical practices. When dealing

with customers or clients, business people must ensure that they use their information correctly,

do not falsely advertise a product or service, and do not intentionally do sub-standard work.

Small Business Ethics

Although there are ethical issues like discrimination that apply to all areas of business, each

business area has its own ethical concerns. For example, business people who act as

consultants must ensure they are giving sound advice. In the area of small business, some major

ethical issues result from hiring, firing and dealing with employees. For example, conflicts of

interest may cause ethical issues in small businesses, especially if they are family run. When

personal family issues interfere with business decisions, this is a conflict of interest and an

ethical concern.

Accounting

“Cooking the books” and otherwise conducting unethical accounting practices is

a serious problem, especially in publicly traded companies. One of the most

infamous examples is the 2001 scandal that enveloped American energy company

Enron, which for years inaccurately reported its financial statements and its

auditor, accounting firm Arthur Andersen, signed off on the statements despite

them being incorrect. When the truth emerged, both companies went out of

business, Enron’s shareholders lost $25 billion, and although the former “Big

Five” accounting firm had a small portion of its employees working with Enron,

the firm’s closure resulted in 85,000 jobs lost.

Although the Federal Government responded to the Enron case and other

corporate scandals by creating the Sarbanes-Oxley Act in 2002, which mandates

new financial reporting requirements meant to protect consumers, the “Occupy

Wall Street” movement of 2011 and other issues indicate that the public still

distrusts corporate financial accountability.

Social Media

The widespread nature of social media has made it a factor in employee conduct

online and after hours. Is it ethical for companies to fire or otherwise punish

employees for what they post about? Are social media posts counted as “free

speech”? The line is complicated, but it is drawn when an employee’s online

activities are considered disloyal to the employer, meaning that a Facebook post

would go beyond complaining about work and instead do something to reduce

business.

For example, a Yelp employee wrote an article  on Medium, a popular blogging

website, about what she perceived as awful working conditions at the influential

online review company. Yelp fired her, and the author said she was let go

because her post violated Yelp’s terms of conduct. Yelp’s CEO denied her claim.

Was her blog post libelous, or disloyal conduct, and therefore a legitimate cause

for termination? In order to avoid ambiguity, companies should create social

media policies to elucidate what constitutes an infringement, especially as more

states are passing off-duty conduct laws that prohibit an employer’s ability to

punish an employee for online activities.

Harassment and Discrimination

Racial discrimination, sexual harassment, wage inequality – these are all costly

ethical issues that employers and employees encounter on a daily basis across the

country. According to a report from the Equal Employment Opportunity

Commission (EEOC), harassment and discrimination cost U.S. companies $372.1

million in 2013. The EEOC states that there are  several types of discrimination ,

including age, disability, equal pay, genetic information, harassment, national

origin, race, religion, retaliation, pregnancy, sex and sexual harassment.

One type of discrimination, families responsibilities discrimination (FRD), has

had an increase in cases of 269% over the last decade, even as other forms of

employee discrimination cases have decreased. FRD is found in every industry

and at every level within the company, according to a 2016 report  by the Center

for WorkLife Law at the UC Hastings College of Law. The report defines FRD as

“when an employee suffers an adverse employment action based on unexamined

biases about how workers with caregiving responsibilities will or should act,

without regard to the workers’ actual performance or preferences.” FRD includes

many types of family responsibilities and caregiving, including pregnancy and

eldercare. For example, a father being fired for wanting to stay home to care for

his sick child, or a pregnant employee not being allowed to take a break even

though it was her doctor’s orders.

These cases are expected to continue to rise due to the growing number of family

members who have disabilities, the increase in people 65 and older who need

care, the increase of men who are becoming caregivers, and growing expectation

for employees that they can work and provide family care. Employers will need

to adjust to these employee perspectives and restructure how work can be

accomplished to reduce FRD.

Health and Safety

The International Labour Organization (ILO)  states that  6,300 people die every

day from occupational accidents or work-related diseases. This results in more

than 2.3 million deaths per year. According to the Occupational Safety & Health

Administration, the top 10  most frequently cited violations of 2015 were:

1. Fall Protection, e.g. unprotected sides and edges and leading edges

2. Hazard Communication, e.g. classifying harmful chemicals

3. Scaffolding, e.g. required resistance and maximum weight numbers

4. Respiratory Protection, e.g. emergency procedures and respiratory/filter

equipment standards

5. Lockout/Tagout, e.g. controlling hazardous energy such as oil and gas

6. Powered Industrial Trucks, e.g. safety requirements for fire trucks

7. Ladders, e.g. standards for how much weight a ladder can sustain

8. Electrical, Wiring Methods, i.e. procedures for how to circuit to reduce

electromagnetic interference

9. Machine Guarding, e.g. clarifying that guillotine cutters, shears, power

presses and other machines require point of operation guarding

10. Electrical, General Requirements; i.e. not placing conductors or equipment

in damp or wet locations

Physical harm isn’t the only safety issue to be aware of, though. In 2016, an  ILO

report focused  on the impact of “psychosocial hazards” on workers’ health.

These risks, which include factors like job insecurity, high demands, effort-

reward imbalance, and low autonomy, have been associated with health-related

behavioral risks, including a sedentary lifestyle, heavy alcohol consumption,

increased cigarette smoking, and eating disorders.

Technology/Privacy

With developments in technological security capability, employers can now

monitor their employees’ activity on their computers and other company-

provided electronic devices. Electronic surveillance is supposed to ensure

efficiency and productivity, but when does it cross the line and become spying?

Companies can legally monitor your company email and internet browser history;

in fact, 66% of companies monitor internet connections,  according to research

2014 . 45% of employers track content, keystrokes and time spent on the

keyboard, and 43% store and review computer files as well as monitor email.

Overall, companies aren’t keeping this a secret: 84% told employees that they

are reviewing computer activity. Employees should review the privacy policy to

see how they are being monitored and consider if it can indicate a record of their

job performance.

Companies also monitor employees through video cameras, which allows them to

observe visually and record employee behavior and keep their work environment

safe. According to a Research study in 2015, the majority of respondents (54%)

found installing surveillance cameras that have facial recognition technology

acceptable, with one participant stating, “It would keep the workplace safe and

may also get the employees to perform their best.” Some employees were unsure and said it depended on how the footage is used while others completely disagreed: “Monitoring work by camera is insane,” and thought it would hinder rather than help work performance

Solving Ethical Problems in Business

Ethical dilemmas in the workplace can be more effectively dealt with if managers follow a few simple steps:

Identify the ethical issues. Ethical issues exist, in a broad sense, whenever one’s actions affect others. In the workplace, a manager’s decisions might affect employees, customers, suppliers, creditors and shareholders. These are the stakeholders of an organization.

Identify alternative courses of action. Every dilemma affords more than just one opportunity. The cautious handling of workplace ethics issues can resolve personal and business dilemmas. By identifying the alternatives, the next step can take place.

Using ethical reasoning to decide on a course of action. Ethical reasoning skills are essential to making ethical decisions. A variety of methods exist including:

Egoism: Egoism looks at each decision by considering the effects of a decision only as it relates to the individual decision-maker. Most ethicists dismiss this method because it fails to consider the consequences on the stakeholders. For example, if a CEO or CFO is dealing with financial statement reporting and wants the statements to look as good as possible regardless of the rules and effects on others, then egoism rules the day.

Enlightened Egoism: This method considers the consequences of alternatives on the stakeholders but ultimately a decision is made based on what’s in the best interest of the decision maker. So, a manager would consider the effects on the stakeholders and may decide that since a particular decision is harmful to the stakeholders because manipulatation of the financial statements compromises the validity of those statements, it is in the best interests of the manager to conform the statements to accounting rules.

Utilitarianism: Here the decision-maker evaluates harms and benefits of alternative decisions using a calculus/weighting approach. Under act utilitarianism, the decision would be to select the act where the benefits to the stakeholders exceed the harms (i.e., net benefits are greater than any other act I might take).  The problem here is a decision-maker might

weigh the alternative to manipulate the statements as having greater value than conforming to the rules. An alternative is to apply rule-utilitarianism where regardless of utilitarian benefits certain rules should never be violated, such as always follow proper accounting rules regardless of the consequences on others.

Rights and Obligations: In this method the decision-maker uses ethical judgment to evaluate the rights of others (i.e., the investors and creditors). These stakeholders have a right to expect accurate and reliable financial statements. Correspondingly, I, as a decision-maker, have an obligation to respect those rights when I select an alternative course of action. Rights Theory follows a universality approach in that I would ask, before deciding, whether I would want others in my position to make the same decision for the same reason if they were faced with a similar dilemma. If so, my action has universal appeal and should be taken.

Values-based decision making can be a complimentary thought process because the ethical values to be emphasized in the workplace mirror the rights and obligations approach. Decision makers should act in accordance with certain virtues of behavior, or character traits, such as truthfulness, trustworthiness, respect, fairness, responsibility, objectivity, and integrity. If I am a principled person, then my actions reflect these virtues and those who rely on my decisions expect to be treated in accordance with these ethical values.

Ethical decision-making in the workplace is fraught with danger because stakeholders of an organization may have competing demands. Investors and creditors expect to receive truthful information while top management may believe their own personal wealth and image is tied into putting the best face on the financial statements. It takes courage and perseverance for decision-makers to avoid the obstacles that may be in play and follow their conscience. Let your conscience be your guide is as true today as years ago. Of course, we are talking about people who

have the propensity to be ethical; otherwise, their conscience may not bother them if unethical actions are taken.

Finally, managers should avoid the proverbial ethical slippery slope where once a decision is made that violates ethical tenets the decision maker starts to descend the slippery slope and it is difficult to reverse course and reclaim the high road. Unethical decisions can lead to cover-up and more unethical decisions down the road. Remember, ethics is about what you do when no one is looking. In other words, you are what you do and ethical people are motivated to do the right thing, not make a decision based on selfishness – egoism.

Making Ethical Decisions

Every day leaders have to make decisions. Some of these are basic and require little to no processing. As much as we probably wish those were the only decisions we have to make, we still have to make those gut wrenching decisions that make us face our ethical foundation. These are the decisions that make us second guess if we will make a mistake, ruin a relationship, or break our internal laws and lead us astray from our moral compass. When faced with these decisions, there is a framework from various studies and standard knowledge that can be used to make those ethical decisions.

Step 1 Identify the problem and the potential issues involved.

Step 2 Answer the Ethical Decision Making Questions mentioned in our previous article, 5 Approaches to Ethical Decision Making. These questions help individuals reflect and relate to the various approaches for making ethical decisions, which include Utilitarian, Rights, Justice/Fairness, Common Good, and Virtue.

Step 3 Apply relevant laws and regulations. Does this decision violate any policies within our company? The government?

Step 4 Obtain consultation by recognizing who the relevant parties are.

Step 5 List the consequences of the probable courses of action.

Step 6 Decide on what appears to be the best course of action.

ESTABLISH THE FACTS IN A SITUATION

Establish exactly what has happened (or is happening) and who is involved in the situation before

trying to figure out what to do about it. Ask yourself the following questions:

- What has happened or what is happening? 

- When and where did certain events occur? 

- Who is (or might be) involved in or concerned by the situation?

- What do the parties involved have to say about the situation? 

. DECIDE WHETHER THE SITUATION INVOLVES LEGAL OR ETHICAL ISSUESThe next step consists of determining whether the situation has legal implications. The following questions can be useful in determining that: Has anyone been harmed by the action or decision of

another, and if so, in what way? Does the action or the situation contravene an existing law? Was

there a breach of contract? Were the actions of the athlete discriminatory or constituted harassment? 

DENTIFY YOUR OPTIONS AND POSSIBLE CONSEQUENCESAsk yourself: What could I do in this situation? Think about a variety of options. The first one to

consider should be not making any decision or taking no action. This would be the least demanding

option, and it could be thought of as representing one end of a continuum of possibilities. As a second

step, consider the other extreme of the continuum, and think of the most comprehensive or liberal

action you might take in the situation. Then, identify several intermediate options. Do not rule out any

option at this stage, even though at the outset it may appear an unlikely choice.  

 EVALUATE THE OPTIONS

Assess the pros and cons of each of your options outlined in step 3. This is critical in reaching a

decision. The notions of outcome sought (i.e. striving to do what is good for individuals or the team)

and means used (striving to do things right) are central to ethical thinking. A coach’s decision should

reflect a fair balance between outcomes sought and the means used to achieve them.

CHOOSE THE BEST OPTION

Making an ethical decision requires a final reflection on what is the best decision under the

circumstances, a just and reasonable decision that will apply where an ethical dilemma is involved. An

ethical decision is “the right thing to do” with regard to the duties and responsibilities of the person

making the decision, is made “the right way”, and is consistent with the values and behaviours

outlined in the NCCP Code of Ethics.

Above all, a coach’s duty is to ensure that the decisions he or she makes and the actions he or she

takes do not result in harm, physical or other, to athletes. It therefore follows that in a moral dilemma,

physical safety or the health of athletes is the overriding concern.

 IMPLEMENT THE DECISION

Putting your decision or plan of action into effect requires that you consider a number of things,

particularly if it involves dealing with individuals or groups of people. Consider the following as you

establish an action plan: 

- Choose your path. Exactly what are you going to do? Plan carefully the steps you are going to

take.

- Think about what may happen. Consider the likely outcomes of the decision and the how any

consequences will be managed.

- Identify who needs to know. Consider who needs to be informed of or involved in implementing

the action plan or decision.

- Determine if you can deal on your own with the person(s) involved. In issues not involving a

contravention of the law, it is often best to try to deal with the issue informally and directly with the

individual involved. 

- Warn, don’t threaten. This is an important concept when dealing with a situation at an informal

level. It entails informing the individual of the logical consequences of what can happen if a situation is

not resolved, rather than threatening the person with an end run. 

- Think about the next if the chosen plan of action doesn’t work. If the original decision or plan of

action is ineffective, think carefully about what to do next. Inform the individual that you now have to

follow up with Plan B.

Ethical Principles

The expression "basic ethical principles" refers to those general judgments that serve

as a justification for particular ethical prescriptions and evaluations of human actions.

Three basic principles, among those generally accepted in our cultural tradition,

are particularly relevant to the ethics of research involving human subjects: the

principles of respect of persons, beneficence and justice. These are based on

the Belmont Report.

1. Respect for Persons. -- Respect for persons incorporates at least two ethical

convictions: first, that individuals should be treated as autonomous agents, and

second, that persons with diminished autonomy are entitled to protection. The

principle of respect for persons thus divides into two separate moral

requirements: the requirement to acknowledge autonomy and the requirement to

protect those with diminished autonomy.

In most cases of research involving human subjects, respect for persons

demands that subjects enter into the research voluntarily and with adequate

information.

To respect autonomy is to give weight to autonomous persons' considered

opinions and choices while refraining from obstructing their actions unless they

are clearly detrimental to others. Respect for the immature and the incapacitated

may require protecting them as they mature or while they are incapacitated.

Some persons are in need of extensive protection. The extent of protection

afforded should depend upon the risk of harm and the likelihood of benefit. The

judgment that any individual lacks autonomy should be periodically reevaluated

and will vary in different situations.

2. Beneficence. -- Persons are treated in an ethical manner not only by

respecting their decisions and protecting them from harm, but also by making

efforts to secure their well-being. Such treatment falls under the principle of

beneficence. Two general rules have been formulated as complementary

expressions of beneficent actions in this sense: (1) do not harm and (2)

maximize possible benefits and minimize possible harms. As with all hard cases,

the different claims covered by the principle of beneficence may come into

conflict and force difficult choices.

3. Justice. -- Who ought to receive the benefits of research and bear its

burdens? This is a question of justice, in the sense of “fairness in distribution” or

“what is deserved.” An injustice occurs when some benefit to which a person is

entitled is denied without good reason or when some burden is imposed unduly.

Another way of conceiving the principle of justice is that equals ought to be

treated equally.

The Principle of Respect for autonomy Autonomy is Latin for "self-rule" We have an obligation to respect the autonomy of other

persons, which is to respect the decisions made by other people concerning their own lives.

This is also called the principle of human dignity. It gives us a negative duty not to interfere

with the decisions of competent adults, and a positive duty to empower others for whom we’re

responsible.

Corollary principles: honesty in our dealings with others & obligation to keep promises. 

The Principle of Beneficence 

We have an obligation to bring about good in all our actions. 

Corollary principle? We must take positive steps to prevent harm. However, adopting this

corollary principle frequently places us in direct conflict with respecting the autonomy of other

persons.

The Principle of non-maleficence 

(It is not "non-malfeasance," which is a technical legal term, & it is not "non-malevolence,"

which means that one did not intend to harm.) 

We have an obligation not to harm others: "First, do no harm." 

Corollary principle: Where harm cannot be avoided, we are obligated to minimize the harm we

do. 

Corollary principle: Don't increase the risk of harm to others.

Corollary principle: It is wrong to waste resources that could be used for good.

Combining beneficence and nonaleficence: Each action must produce more good than harm. 

The Principle of justice We have an obligation to provide others with whatever they are owed or deserve. In public

life, we have an obligation to treat all people equally, fairly, and impartially.

Corollary principle: Impose no unfair burdens. 

LO2: ETHICS IN BUSINESS

Question: Discuss the theory of ethics (20 mark)

Question: Discuss the four theories of ethics (20 marks)

Ethical Theories

Four broad categories of ethical theory include deontology, utilitarianism, rights, and

virtues. The deontological class of ethical theories states that people should adhere to their

obliga- tions and duties when engaged in decision making when ethics are in play.

Deontology

In moral philosophy, deontological ethics or deontology (from Greek δέον, deon, "obligation,

duty") is the normative ethical theory that the morality of an action should be based on whether that

action itself is right or wrong under a series of rules, rather than based on the consequences of the

action.

The deontological class of ethical theories states that people should adhere to their obligations and

duties when engaged in decision making when ethics are in play. This means that a person will

follow his or her obligations to another individual or society because upholding one’s duty is what is

considered ethically correct. For instance, a deontologist will always keep his promises to a friend

and will follow the law. A person who adheres to deontological theory will produce very consistent

decisions since they will be based on the individual’s set duties. Deontology contains many positive

attributes, but it also contains flaws. One flaw is that there is no rationale or logical basis for deciding

an individual’s duties. For instance, a businessperson may decide that it is his/her duty to always be

on time to meetings. Although this appears to be something good, we do not know why the person

chose to make this his duty. Ask students what reasons they might provide for this behavior.

Sometimes, a person’s duties are in conflict. For instance, if the business person who must be on

time to meetings is running late, how is he/she supposed to drive? Is speeding breaking his/her duty

to society to uphold the law, or is the businessperson supposed to arrive at the meeting late, not

fulfilling the duty to be on time? Ask students how they would rectify the conflicting obligations to

arrive at an a clear ethically-correct resolution. Also ask students to bring into play the consideration

of the welfare of others as a result of the business person’s decision.

Utilitarianism

Utilitarian ethical theories are based on one’s ability to predict the consequences of an action. To a

utilitarian, the choice that yields the greatest benefit to the most people is the one that is ethically

correct. There are two types of utilitarianism, act utilitarianism and rule utilitarianism. Act

utilitarianism subscribes precisely to the definition of utilitarianism—a person performs the acts that

benefit the most people, regardless of personal feelings or the societal constraints such as laws. Rule

utilitarianism takes into account the law and is concerned with fairness. A rule utilitarian seeks to

benefit the most people but through the fairest and most just means available. Therefore, added

benefits of rule utilitarianism are that it values justice and includes beneficence at the same time.

Both act and rule utilitarianism have disadvantages. Although people can use their life experiences

to attempt to predict outcomes, no one can be certain that his/her predictions will be accurate.

Uncertainty can lead to unexpected results making the utilitarian decision maker appear unethical as

time passes, as the choice made did not benefit the most people as predicted. Another assumption

that a utilitarian decision maker must make concerns his/her ability to compare the various types of

consequences against each other on a similar scale. But, comparing material gains, such as money,

against intangible gains, such as happiness, is very difficult since their qualities differ to such a large

extent. An act utilitarian decision maker is concerned with achieving the maximum good. Thus, one

individual’s rights may be infringed upon in order to benefit a greater number of people. In other

words, act utilitarianism is not always concerned with justice, beneficence or autonomy for an

individual if oppressing the individual leads to the solution that benefits a majority of people. By

Larry Chonko, Ph.D. The University of Texas at Arlington Ethical Theories presents NOTES:

3 Still another source of challenge with act utilitarian decision makers occurs when an individual

faces one set of variable conditions and then suddenly experiences changes in those conditions. The

change in conditions may lead to a change in the original decision—being be nice to someone one

moment and then dislike them the next moment because the situation has changed, and liking the

person is no longer beneficial to the most people. In rule utilitarianism, there is the possibility of

conflicting rules. Recall the example of the business person running late for a meeting. Suppose the

business person happens to be the CEO, who may believe that it is ethically correct to arrive at

important meetings on time as the members of the company will benefit from this decision. The CEO

may encounter conflicting ideas about what is ethically correct if he/she is running late. Yet, the CEO

believes that he/she should follow the law because this benefits society. Simultaneously, he/she

believes that it is ethically correct to be on time for his meeting because it is a meeting that also

benefits the society. There appears to be no ethically correct answer for this scenario.

Rights

In ethical theories based on rights, the rights established by a society are protected and given the

highest priority. Rights are considered to be ethically correct and valid since a large population

endorses them. Individuals may also bestow rights upon others if they have the ability and resources

to do so. For example, a person may say that her friend may borrow her laptop for the afternoon.

The friend who was given the ability to borrow the laptop now has a right to the laptop in the

afternoon. A major complication of this theory on a larger scale is that one must decipher what the

characteristics of a right are in a society. The society has to determine what rights it wants to uphold

and give to its citizens. In order for a society to determine what rights it wants to enact, it must

decide what the society’s goals and ethical priorities are. Therefore, in order for the rights theory to

be useful, it must be used in conjunction with another ethical theory that will consistently explain

the goals of the society. For example in America people have the right to choose their religion

because this right is upheld in the Constitution. One of the goals of the Founding Fathers’ of America

was to uphold this right to freedom of religion.

Virtue

The virtue ethical theory judges a person by his/her character rather than by an action that may

deviate from his/her normal behavior. It takes the person’s morals, reputation, and motivation into

account when rating an unusual and irregular behavior that is considered unethical. For instance, if a

person plagiarized a passage that was later detected by a peer, the peer who knows the person well

will understand the person’s character and will judge the friend accordingly. If the plagiarizer

normally follows the rules and has good standing amongst his colleagues, the peer who encounters

the plagiarized passage may be able to judge his friend more leniently. Perhaps the researcher had a

late night and simply forgot to credit his or her source appropriately. Conversely, a person who has a

reputation for academic misconduct is more likely to be judged harshly for plagiarizing because of

his/her consistent past of unethical behavior. One weakness of virtue ethical theory is that it does

not take into consideration a person’s change in moral character. For example, a scientist who may

have made mistakes in the past may honestly have the same late night story as the scientist in good

standing. Neither of these scientists intentionally plagiarized, but the act was still committed. On the

other hand, a researcher may have a sudden change from moral to immoral character may go

unnoticed until a significant amount of evidence mounts up against him/her.

ETHICS IN THE WORKPLANCE

Encouraging Positive Workplace Behavior: Ethics on the Job Have you ever experienced a situation at work in which a highly performing and highly skilled employee was accused of some inappropriate behavior in the workplace? You probably watched, along with other employees, to see if the person being accused would be confronted if their behavior was indeed determined to be unethical. Maybe you were disappointed because your organization overlooked the unethical behavior due to the fact that the accused employee was such a “good” performer?

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Most of us have experienced or witnessed some type of inappropriate behavior in the workplace and have been involved or observed how our organization handled it. Many organizations do a good job of finding their moral grounding and deal with unethical behavior when it is encountered. Other organizations may struggle even though they understand and value the importance of practicing good ethical behavior in the workplace.

In an organization, workplace behavior ethics should be a core value. Aside from doing the right thing, conducting ourselves ethically has great rewards and returns. Being ethical is essential to fixing problems and improving processes. It is needed to establish baseline measures and increase efficiencies. Most importantly, it is essential to having strong working relationships with people. On the other hand, covering up our unethical behavior does the opposite of these important workplace practices and impedes on our ability to grow as leaders, as workers and as people.

SELF-REFLECTION

Let’s say that I believe that it is important to be an honest person. What do I do when I make an error at work? Do I admit it or do I cover my error and hope that no one finds out? I may rationalize, “If I tell my boss, she will be disappointed in me. I may not get that raise that is coming up next month. There is no harm in not telling her.”

We humans tend to weigh the benefits and consequences of our actions and we look for the path of least resistance, where we will suffer the fewest consequences. When we are deciding what to do with our error, we need to ask ourselves, “Do I really value honesty like I say I do? If I am willing to lie to cover up my error, what am I really valuing?” When we lie to cover up our error, we are doing so to protect ourselves from the consequences of our actions. So, what is the greater value to us, honesty or self-protection?

As leaders, the importance of being ethical must be emphasized even more. Leaders must always be cognizant of the fact that they are in a “fishbowl” and how they behave is clearly visible to others. Whatever they do will not only be seen by others, but may be duplicated as well. So how do we ensure that we not only say that honesty is important, but that we “walk the talk?”  Here are some important things to consider to shore-up your ethics in the workplace so that good behavior is practiced and encouraged.

ETHICS IN THE WORKPLACE1. Define your values. If you haven’t done so already, define your values and include honesty as a core value. Take your leadership team off on a retreat or use your staff meetings, but make sure that you have clear and visible statements about what is important to your core business principles. Put them up on a poster so that they are visible to all employees. Post them on your website, put them in your policy manual and your employee handbook. And, add them to your performance review process so that you can hold people accountable to them.

2. If you post, you must practice. Posting values and then not actively demonstrating them can be very damaging to an organization’s culture. Hold everyone accountable especially your senior management team. Make sure that they are “walking the talk” of ethical behavior. If they are doing anything that even could be perceived as questionable, confront it.

3. Integrate ethical workplace behavior into performance criteria. Don’t rate people as “high performers” if they do not practice ethical workplace behavior. Instill in your leaders that high performance means high integrity. They are not mutually exclusive. Don’t give big raises, promotions, etc. to people who perform “well,” but have questionable ethical behavior. Don’t let a highly skilled employee hold you “hostage.” Don’t let people get away with bending the rules of appropriate workplace behavior just because you don’t have a good backup plan for them if they quit and go to your competitor. Make sure you have a succession plan in place for anyone who has a skill that is critical to your success.

4. Watch out for the “slippery slope.” Have you ever used the term, “his behavior really crossed the line?” Each workplace has a “line” that separates appropriate behavior from the inappropriate. Organizations get into “hot water” when they define or ignore some unethical behavior because it is considered to be a “small” issue or “no big deal.” When they do this, they are moving their “line” farther down the slippery slope. Many companies who have been sued for large amounts of money due to ethical issues were allowing way too much unethical behavior because their “line” kept sliding down the “slippery slope.” Businesses must stand firm on their intolerance of any and all dishonesty and unethical behavior.

5. Being above reproach. Above reproach is the practice of not only staying above the “line,” but staying way above it. Ethical organizations manage perception, as well as reality. They ensure that even those types of behavior that might look like unethical behavior are discouraged as well and drive this point with their leadership team.

6. Getting past self-protective behavior. Remember that ethical behavior is not just about me knowing right from wrong, it is about my willingness to admit it when I have done something wrong and accepting the consequences for my actions. It is about valuing integrity even if it hurts. Good leaders not only practice ethical behavior themselves, they help people get past looking out just for themselves and seeing the greater good of team and corporate objectives.

Ethical behavior makes organizations succeed. A business that does not value integrity and does not “walk the talk” of being ethical will find themselves at the bottom of the slippery slope and wonder when and how they crossed the “line.” This is why we need ethics in the workplace.

Business ethics and culture

Culture has a tremendous influence on ethics and its application in a business setting. In fact, we can argue that culture and ethics cannot be separated, because ethical norms have been established over time by and make sense to people who share the same background, language, and customs. For its part, business operates within at least two cultures: its organizational culture and the wider culture in which it was founded. When a business attempts to establish itself in a new environment, a third culture comes into play. With increasingly diverse domestic and global markets and the spread of consumerism, companies must consider the ethical implications of outsourcing production and resist the temptation to look the other way when their values are challenged by the reality of overseas supply or distribution chains.

The ethical culture in an organization can be thought of as a slice of the overall organizational

culture. So, if the organizational culture represents “how we do things around here,” the

ethical culture represents “how we do things around here in relation to ethics and ethical

behavior in the organization.” The ethical culture represents the organization’s “ethics

personality.”  

From an ethical systems perspective, creating and sustaining a strong ethical culture is the

key to creating an organization that supports people making good ethical decisions and

behaving ethically every day. There are so many forces and factors that lead people to take

ethical shortcuts. But when all relevant organizational systems are pushing people in the same

ethical direction, ethical failure is much less likely. 

According to Treviño and Nelson, ethical culture should be thought of in terms of a multi-

system framework that includes formal and informal systems that must be aligned to support

ethical judgment and action. Leadership is essential to driving the ethical culture from a

formal and informal perspective. Formally, leaders provide the resources to implement

structures and programs that support ethics. More informally, through their own behavior,

leaders are role models whose actions speak louder than their words, conveying “how we do

things around here.” Other formal systems include selection systems, policies and codes,

orientation and training programs, performance management systems, authority structures,

and formal decision processes. On the informal side are the organization’s role models and

heroes, the norms of daily behavior, organizational rituals that support or do not support

ethical conduct, the stories people tell about the organization and their implications for

conduct,and the language people use (i.e., is it okay to talk about ethics? Or is ethical

fading the norm?). 

Produce a Triangle of Business Ethics

Principles

Consequences Virtues

Step One The first step is to identify the ethical dilemma.25 This step is critical because identification of the ethical dilemma provides clarity and ensures that a predetermined decision is not made. As stated in the Army Leadership Manual, “Ethical choices may be between right and wrong, shades of gray or two rights.”26 Using the Ethical Triangle, the ethical dilemma of allocation of experimental treatment is defined in terms of right versus right. There are four categories of right versus right dilemmas: truth versus loyalty, individual versus community, short-term versus long-term, and justice versus mercy.27 Framing the ethical problem in this manner will allow testing of recommended actions. It is critical to take into consideration relevant contextual factors when fully ascertaining the ethical dilemma. One important contextual factor is that the supply of the experimental treatment is extremely limited. In our case study, only three doses of ZMapp are available. Because the number of patients infected with Ebola greatly outnumber the number of available ZMapp doses there are many individuals who will not receive the treatment. Cultural attitudes toward the receipt of experimental treatment should also be a consideration. Studies have shown that fear of treatment already exists in the Liberian population despite communication about the treatments.28 When taking these contextual factors into account, the ethical dilemma can be stated as, “Who should the Liberian government select to receive the three doses of ZMapp for the Ebola virus?”

Step Two The second step is to determine the possible COAs or decisions that can be made.29 Although there may be COAs which are obvious, such as doing nothing, it is critical that all COAs be considered. In this case study, after considering Figure 2. Depiction of the six-step process used when applying the Ethical Triangle to an ethical dilemma. Source: Jack D. Kem. “Ethical Decision Making: Using the ‘Ethical Triangle,’” Command and General Staff College, Fort Leavenworth, KS, August 2016. Arthur D. Simons Center for Interagency Cooperation, Fort Leavenworth, Kansas Features | 39 all choices, three possible COAs are identified: • COA 1 would be to provide ZMapp to those involved in the provision of healthcare to others infected with Ebola. The rationale for this COA is that healthcare workers provide supportive care to others infected with Ebola. Supportive care could contribute to additional lives saved. At first glance, this course may provide the “biggest bang for the buck.” • COA 2 takes a more egalitarian approach. Everyone infected with Ebola, who could clinically benefit from the drug, would be entered into a lottery providing a truly equal chance of receiving ZMapp. • COA 3, doing nothing is always COA. The Liberian government could take an all-ornothing approach and choose not to provide the three remaining doses to anyone with the Ebola virus. While no action may seem like it wastes the limited supply of ZMapp, with thousands of people infected with Ebola, COA 3’s “do nothing” approach is one way to ensure equitable distribution. In other words, if no one is prioritized to receive the experimental treatment, then everyone is treated fairly with regards to the distribution of ZMapp.

Step Three The third step is to examine the two most likely COAs through the perspectives of the three ethical systems of the Ethical Triangle.30 When considering the three courses of action identified in step two, the first and second courses of action are the two most likely. The first is prioritizing healthcare workers infected with Ebola to receive the experimental treatment. The second is conducting a lottery, which includes all individuals infected with Ebola, to determine who receives the three ZMapp doses. We will examine these courses of action from a principles-based ethical approach, a consequences-based ethical approach, and a virtues-based ethical approach. Principles-based approach When looking at each COA through the lens of a principles-based approach, the focus is on

universally accepted rules and one’s moral obligation. Two primary questions are asked to analyze each COA through a principles-based viewpoint: “What rules exist?” and “What are my moral obligations?”31 The answers to these questions will provide insight into the ethical ramifications of each COA from a principlesbased ethical lens. The first question when analyzing courses of action from a principles-based approach is “What rules exist?” In general, there are commonly-accepted, egalitarian principles that require resources to be distributed to minimize inequality in any form.32 When conditions of scarcity and competition for resources exist, the principles of material distributive justice come into play.33 There are six commonly agreed upon material distributive justice principles: to each person an equal share, to each person according to need, to each person according to effort, to each person according to contribution, to each person according to merit, and to each person according to free-market exchange.34 Which of the six principles are applied varies depending on the context and nature of the situation.35 • The principles of “to each person an equal share” and “to each person according to need” do not apply to this case study given that the thousands of patients with Ebola who need treatment greatly outnumbers the three doses of ZMapp available. There is no feasible way to provide each person an equal share, and the need was overwhelming in the 2014 Ebola outbreak.

Business Ethics and Conduct

The code of business conduct is also referred to as the code of ethics, depending on the company. It is a set of principles designed to guide workers to conduct themselves with honesty and integrity in all actions representing the company. Large companies such as Coca-Cola, have two code of business conduct rules; one for global employees and one for non-employee directors, who still represent the company. Think about your company's mission and how you want to the public to perceive you and the business.

Value-Based Code

Think about the values you want to permeate in all aspects of your company. The value-based

code of ethics sets the tone for how things are done. For example, a plumbing company might

require employees to wear a uniform to all house calls, which demonstrates professionalism.

They might further require courteous interactions, and to use specific language when speaking

with clients. Another company might focus on reducing a carbon-footprint and might require

office workers to move to digital environments.

These are just a couple of examples of how to integrate values into a code of business conduct.

Because these are part of a company mission and are not regulatory, it is up to management to

make certain that employees are following the protocol.

Compliance-Based Code

A compliance-based code of ethics requires that employees follow the rules and regulations set

forth by the state and the industry you're in. The entire mortgage industry was transformed after

the financial crash in 2008; a major part of the transformation had to do with a compliance-based

code of ethics, and to make certain that people really could afford the loans they were getting.

Similarly, the investment industry has a "know your customer" rule, which is a regulatory

requirement that is weaved into the company's code of business conduct.

Failure to follow compliance-based code of business conduct rules often results in legal action,

on top of in-house disciplinary action. As the business owner, when someone doesn't follow the

legal rules, such as protecting client data or properly handling money, the recourse to their

actions can harm your company. The failure to follow a legal rule such as described above isn't

the same as employees who don't follow a regulation to wear a uniform to work.

Creating Code of Business Conduct

Create this document, and include it as part of employee handbook. Review the code of business

conduct with employees at least once a year. Make adjustments, as values or compliance

regulations change.

Start the code of business conduct with four brief statements. The first is the company vision

statement, which should be in your business plan. Write a statement about the guiding principles

for the company. Then write a statement about the core company values. Complete this first

section with the company mission statement, again pulled from your business plan.

Use the next sections to explain why the code of business conduct is important; why the need for

trust and respect among co-workers is important; and why being seen by the public and how you

hope the company will achieve its mission is important. Use concise language to make the code

easily understood by all employees, from the clerk to the executive vice-president.

Define the laws that govern the company, as well as any specific regulations and compliance

issues that must be adhered to. For example, if you sell tobacco products, then in the code of

business conduct, it is imperative to explain the law of selling to minors and asking for proof of

age. The code should also set the tone for things like accepting gifts and promotional items from

clients or vendors.

A code of business conduct is often extensive, when considering the many things it must cover.

Use one of the many human resources templates that have a code of business conduct section

that you can study, section by section, so that you don't forget anything.

LO3 Roles & Responsibilities of Management

Management Responsibilities

Based on the functions approach, managers perform certain activities or responsibilities as efficiently and effectively coordinate the work of others. Henri Fayol proposed that all

managers perform five functions/responsibilities: planning, commanding, coordinating, and controlling.

PlanningIt is a management responsibility that involves setting goals, establishing strategies for achieving those goals, and developing plans to integrate and coordinate activities.

OrganisingThis is a management function/responsibility that involves arranging and structuring work to accomplish the organisation’s goals. Here managers determine what tasks are to be done, who is to do them, how the tasks are to grouped, who reports to whom, and where decisions are to be made.

LeadingA management function/responsibility that involves working with and through people to accomplish organisational goals. When managers organize they determine what tasks are to be done, who is to do them, how the tasks are to be grouped, who reports to whom, and where decisions are to be made.

ControllingThis involves monitoring, comparing and correcting work performance. After goals and plans are set (planning), tasks and structural arrangements put in place (organising), and people hired, trained and motivated (leading), there has to be some evaluation of whether things are going as planned. Thus, to ensure that goals are being met and that work is being done as it should be, managers must monitor and evaluate performance.

Financial Reporting RequirementsGenerally Accepted Accounting Principles (GAAP)

A key prerequisite for meaningful financial statements is that they be comparable to those for other companies, especially firms within the same industry. To meet that requirement, statements are prepared in accordance with Generally Accepted Accounting Principles (or, more commonly, GAAP), which "encompasses the conventions, rules and procedures, necessary to define accepted accounting practice at a particular time."

Accounting is how business keeps score. Accounting data is used internally as a tool for the business to determine if internal goals and budgets are being met. External users include potential creditors and investors. Accounting data must be uniform in order for it to be useful as the basis of financial analysis of a company.

Many accounting standards are firmly established, others continue to be debated vigorously among the players and a few are so highly controversial they get even people on the sidelines riled up. One example from the 2008 financial crisis is mark-to-market accounting, on which accountants, presidential candidates and pundits alike weighed in. Accounting standards setting then becomes part of the political process, and depending on the

strength and commitment of the various forces, the rules are eliminated, amended or left alone.

Accounting and accounting standards will continue to evolve over time as business continues to evolve. Online businesses have issues that couldn’t have been imagined even a decade ago. Standards and rules need to keep up with the evolution of the companies whose results they are designed to measure.

DisclosureAccounting disclosures are as important as the actual numbers. Besides the balance sheet, P&L and statement of cash flows, a great deal of information is provided in the notes to the financial statements. Some key financial information is put directly into the financial statements in parentheses (e.g. on the balance sheet and the number of shares authorized and issued for common stock). Footnotes contain often critical information that may be considerable and include tables.

The note to the readers that "the accompanying notes are an integral part of these statements" alerts them to the notes' importance and is warranted. But since they are at the bottom — and because they are often numerous, lengthy and, at times, impenetrable — more casual users ignore them. (To learn more, see Footnotes: Start Reading The Fine Print.) This is a critical mistake as the information contained in some footnotes is often key to fully understanding the financial statements and some of the assumptions that were used in compiling the numbers.

What's included in the notes? There's information on securities held, inventories, debt, pension plans and other key elements in determining the company's financial position. In addition, the notes will contain information about the company's accounting policies. Under GAAP, companies often do have discretion to use varying methods for valuing assets, and recognizing costs and revenue. This "Summary of Significant Accounting Policies" will appear as the first note to the statement or in a separate section.

There are other required disclosures external to the financial statements and notes, such as the Management Discussion and Analysis (MD&A), required by the SEC. In all, the list of required disclosures is long, detailed and complex. Although this exhaustive release of company information increases transparency, it does mean that financial statements become unwieldy. And the financial meltdown of 2008 —following the reforms implemented in the wake of the Enron scandals a few years before —had observers once again wondering whether, despite all the disclosures, the necessary information for decision-making is being included in financial

statements. (For further reading read An Investor's Checklist To Financial Footnotes.)

Formulate Internal Control Reporting

Implementing the Five Key Internal Controls

Purpose

Internal controls are processes put into place by management to help an organization operate efficiently and effectively to achieve its objectives. Managers often think of internal controls as the purview and responsibility of accountants and auditors. The fact is that management at all levels of an organization is responsible for ensuring that internal controls are set up, followed, and reviewed regularly. The purposes of internal controls are to:

Protect assets;

Ensure that records are accurate;

Promote operational efficiency;

Achieve organizational mission and goals; and

Ensure compliance with policies, rules, regulations, and laws. In administering various U.S. Department of Housing and Urban Development (HUD), Office of Community Planning and Development (CPD) programs, all grantee and subrecipient organizations deal with risks to achieving their organizational and programmatic goals. No rules, bad rules, or failure to follow rules disrupt the effectiveness of the internal controls and, ultimately, mission delivery. This bulletin explains the five internal control standards and ways to implement them effectively. It also provides case examples of deficiencies in internal controls and how those issues could have been avoided through use of internal controls.

Key 1. Establish a Control Environment

The control environment is the culture, values, and expectations that organizations put into place. Ways to establish and nourish the environment are:

Set “tone at the top” by implementing and promoting ethical standards, integrity, and accountability policies;

Set mission, goals and objectives (strategic planning) so the organization knows what it is to accomplish;

Establish structure, organizational responsibilities, and reporting chains;

Hire competent and trustworthy staff members and provide necessary training for them;

Provide leadership and good governance by staying on top of operations and performance, and correcting problems when identified;

Emphasize that compliance with laws and regulations is the expectation for the organization;

Assure that goals and objectives are clear (especially when there are multiple grant awards) and not in competition with each other or compliance requirements; and

Hold people accountable for their responsibilities.

Key 2. Conduct Risk Assessments In the past, risk management focused exclusively on financial dangers. Enterprise Risk Management (ERM) looks at the entirety of an organization and everything that could affect it. Leadership should oversee a risk management process and ways to accomplish this are:

Have each function identify the risks to operations and performance;

Brainstorm with staff to determine possible external risks (See the appendix at the end of the bulletin that shows examples of types of risks);

Learn about emerging risks through employee and customer surveys, etc.;

Consider the potential for fraud when identifying, analyzing and responding to risks;

Rate and rank the risks, and discuss controls or other actions needed to eliminate or reduce the risk;

Develop corrective actions and assign someone to be in charge of implementing each.

Key 3. Implement Control Activities

Control activities are the policies and procedures put into place to run operations, accomplish goals, and prevent fraud. Basic internal control methods are: Establish responsibility; o Assign each task to only one person. o Establish organizational structure. Implement separation of duties; o Don’t make one employee responsible for all parts of a process. o Use compensating controls, such as additional monitoring or secondary sign-offs, when separation is not possible. Restrict Access; o Don’t provide access to systems, information, assets, etc. unless needed. Create policies and procedures; o Implement written instructions with directives to follow them. o Assure controls cover all areas of compliance. o Assure controls cover security of assets and technology. Establish record keeping; o Document all expenditures and the justifications for them

Key 4. Implement Information and Communication Systems

Communications are essential for every organization. They rely on quality of information and effectiveness of dissemination. Use the following suggestions to guide your information and communication protocols:

Establish relevant and reliable information systems to track operations, goal progress, and compliance;

Broadly distribute information throughout the organization to ensure that critical information is delivered to the right staff in a timely way. Ask staff members what information they need but are not getting;

Establish separate lines of communication, such as fraud and ethics hotlines, for confidential information. Inform employees of these separate reporting lines, how they operate, and how reports are handled;

Establish both outgoing and incoming lines of communication with external entities. Stay aware of external events that could pose a risk.

Key 5. Monitor Internal Controls

Establishing controls is not enough. Once they are in place, managers need to verify the effectiveness of the controls. Ways to accomplish this include:

Establish a system of quality control over all processes such as supervisory reviews, approvals, and automated exception checks;

Conduct routine reviews of actual performance compared to goals and budgets;

Conduct separate management reviews of a function to determine whether it is working as intended, or controls need to be redesigned. Use the GAO Internal Control Management and Evaluation Tool to evaluate your internal controls;

Arrange for external audits and be responsive to findings;

Track all corrective actions, and ensure that they are implemented and working as intended;

Use monitoring to tie corrective actions back to improvements in Control 5 Environment and Control Activity standards;

Watch for signs of control problems. Even strong controls do not always work. As you implement control

Understand the concepts of independence, accountability and responsibility

Responsibility versus Accountability The roles taken on by public relations practitioners imply a responsibility to perform certain functions associated with those roles. Business historian Vincent E. Barry has defined the term responsibility, when used in business affairs, as referring to “a sphere of duty or obligation assigned to a person by the nature of that

person’s position, function, or work.”1 Responsibility could thus be viewed as a bundle of obligations associated with a job or function. Narrowly defined, role refers to a job description, which, in turn, encompasses, but is not limited to, function. For instance, a practitioner’s role may be that of media relations. Function would refer to the specifics of the job, including press release writing and dissemination, as well as the maintenance of good media relations. In this sense, responsibility refers to more than just the primary function of a role; it refers to the multiple facets of that function—both processes and outcomes (and the consequences of the acts performed as part of that bundle of obligations). A responsible actor may be seen as one whose job involves a predetermined set of obligations that must be met in order for the job to be accomplished. For example, the primary functional obligation of someone involved in media relations is the same as cited in the foregoing sentence: to maintain a good working relationship with the media in order to respond to queries and to successfully work with them to “get out the message.” In many cases, simply discharging this primary obligation (the function associated with the role) may be sufficient unto itself; however, responsibility can also include moral obligations that are in addition and usually related to the functional obligations of the role. Thus, responsibility assumes that the actor becomes also a moral agent possessed of a certain level of moral maturity and an ability to reason. It is important to note that as early as Aristotle, moral responsibility was viewed as originating with the moral agent (decision maker), and grew out of an ability to reason (an awareness of action and consequences) and a willingness to act free from external compulsion. For Aristotle, a decision is a particular kind of desire resulting from deliberation, one that expresses the agent’s conception of what is good. As Australian ethicist Will Barret points out, Moral responsibility assumes a capacity for making rational decisions, which in turn justifies holding moral agents accountable for their actions. Given that moral agency entails responsibility, in that autonomous rational agents are in principle capable of responding to moral reasons, accountability is a necessary feature of morality.2

LO4: Ethics Conflict

Distinguish between Ethics and Law

Law vs Ethics

This is the foundation of ethics.  They are rules of conduct that shows how our society

expects us to behave and are the guiding principles behind the creation of laws.

Based on society’s ethics, laws are created and enforced by governments to mediate in our

relationships with each other.  Laws are made by governments in order to protect its

citizens.  The judiciary, legislature, and public officials are the three main bodies in a

government that are assigned to the task of the creation of laws.

Laws have to be approved and written by these three branches of government before they are

implemented and enforced by the police and the military, with the help of the legal system

consisting of lawyers and other government servants.

While laws carry with them a punishment for violations, ethics does not.  In ethics

everything depends on the person’s conscience and self-worth.  Driving carefully and

within the speed limit because you don’t want to hurt someone is ethical, but if you drive

slowly because you see a police car behind you, this suggests your fear of breaking the law

and being punished for it.

Ethics comes from within a person’s moral sense and desire to preserve his self respect.  It

is not as strict as laws.  Laws are codifications of certain ethical values meant to help

regulate society, and punishments for breaking them can be harsh and sometimes even break

ethical standards.

Ethics and laws are therefore necessary to provide guidance and stability to people and

society as a whole.

Summary:

1. Ethics are rules of conduct.  Laws are rules developed by governments in order to

provide balance in society and protection to its citizens.

2. Ethics comes from people’s awareness of what is right and wrong.  Laws are enforced by

governments to its people.

3. Ethics are moral codes which every person must conform to.  Laws are codifications of

ethics meant to regulate society.

4. Ethics does not carry any punishment to anyone who violates it.  The law will punish

anyone who happens to violate it.

5. Ethics comes from within a person’s moral values.  Laws are made with ethics as a guiding principle.

Identify unethical Business Behaviour

Unethical behavior in business runs the gamut, from simple victimless crimes to huge travesties

that can hurt large numbers of people. Whether it is stealing a pen, padding an expense report,

lying to avoid a penalty or emitting toxic fumes into the air, unethical behavior cannot be

condoned by a company. A strict ethics policy is the cornerstone for any business that wants to

maintain a good reputation.

Theft

Theft at work comes in a variety of forms, and oftentimes employees do not view it as unethical

behavior, believing no one gets hurt by the action. Employees take home office supplies, use

business computers for personal tasks, pad expense accounts and abuse sick time or allotted

personal days. Unethical behavior also includes having another employee punch a time card, or

not punching out for lunch hours or other nonapproved time off. Though these may seem like

minor infractions, they eventually have an impact on the bottom line of the company, which then

hurts all employees. Theft also affects employee morale and is disheartening to those who

choose to behave ethically.

Vendor Relationships

Businesses that buy from and sell products to other businesses are sometimes subject to

unethical behavior. The practice of accepting gifts from a vendor in exchange for increased

purchasing is not only unethical, it may have legal repercussions. The same can be said for

offering a customer kickbacks to increase his purchasing habits. Ethics policies often contain

guidelines for giving or accepting gifts with vendors or other business associates, such as a cap

on the value of the gift. Other businesses strictly forbid giving gifts or any other item with

monetary value. This is a safeguard to prevent any perception of unethical behaviour.

Bending the Rules

Bending the rules in a business situation is often the result of a psychological stimulus. If an

employee is asked to perform an unethical task by a supervisor or manager, he may do it

because his allegiance to authority is greater than his need to abide by the rules. Turning the

other way to avoid trouble for another employee is still unethical, even though the motivation may

be empathetic. For example, knowing that a coworker is having issues outside work justifies

watching him leave early each day without reporting it. Withholding information that can change

an outcome also falls under the umbrella of unethical behavior, even if the perpetrator believes

he is doing what is in the best interest of the business. For example, if a poor earnings report is

withheld until after a stockholder meeting.

Environmental

Unethical behavior by companies, such as releasing pollutants into the air, can affect cities,

towns, waterways and masses of people. Though accidents can occur, the release of harmful

toxins into the environment due to lax safety standards, improper maintenance of equipment or

other preventable reasons is unethical. If a business willingly continues production of a product

knowing inherent environmental risks exist, it can certainly be categorized as unethical behavior.

Wages and Working Conditions

Other unethical practices include not paying workers a fair wage, employing children under the

legal working age and unsafe or unsanitary working conditions. Any practices that are not in

compliance with fair labor standards and federal working guidelines fall into this category.

Solve ethical dilemmas Identify the ethical issues. Ethical issues exist, in a broad sense, whenever one’s actions affect others. In the workplace, a manager’s decisions might affect employees, customers, suppliers, creditors and shareholders. These are the stakeholders of an organization.

Identify alternative courses of action. 

Every dilemma affords more than just one opportunity. The cautious handling of workplace ethics issues can resolve personal and business dilemmas. By identifying the alternatives, the next step can take place.

Using ethical reasoning to decide on a course of action. Ethical reasoning skills are essential to making ethical decisions.

Recognise Conflicts of Interests

A conflict of interest refers to a situation where a conflict arises for an individual between two competing interests. These are often, but not exclusively, interests of public duty versus private interests. This refers to a reasonably perceived, potential or actual conflict of interest. Conflicts of interest can involve financial or non-financial interests of the staff member and the interests of a business partner or associate, family member, friend or person in a close personal relationship with the staff member.

Where a staff member has a financial/personal interest in an enterprise, with which the University does business and could be perceived to be in a position to influence relevant business decisions.

Activities that breach, or might reasonably be perceived to breach, any of the principles governing research supported by funds administered through the organisation in so far as these principles are relevant to individual behaviour.

A staff member having a commitment paid or unpaid outside the organisation that involves frequent or prolonged absence from the organisation on non-organisation business.

LO5: Managing Ethics

Determine Ethical Risk

The concept of « Ethical Risk » refers to unexpected negative consequences of unethical actions.

A proper training about ethical risks allows the identification, mitigation and transformation of ethical risks, improving organizational efficiency and developing organizational identity.

Identification

Identification

Due to the dual nature of the ethical judgment, most actions have both ethical and unethical aspects (Cf. Ethics as a grey zone). Actors tend to be unaware of the unethical aspects of the actions that they rationally choose, in particular when these actions are in their self-interest. Because of these unethical aspects, stakeholders act in an adversarial manner, imposing negative consequences on actors (legal and reputation costs in particular, but also breach of trust and revocation of license to operate). Because actors are unaware of the unethical aspects of their actions, these negative consequences are unexpected and constitute bad surprises.

Ethical training allows actors to identify systematically all possible unethical aspects of their actions, thus reducing the awareness bias and identifying ethical risks before they lead to bad surprises. Such ethical analysis can be carried out at the individual, organizational or societal levels.

Mitigation

When accused of unethical actions, actors tend to react negatively, emphasizing the ethical aspects of their actions and denying their unethical aspects. For instance, because they have implemented a compliance program, they find the exposure of their unethical aspects unfair and trap themselves in a reactive attitude. These attitudes further reduce the self-awareness of ethical risks and can progressively lead to an increased propensity towards unethical actions. This is the “slippery slope”. Such reactive attitudes mitigate ethical risks only superficially because denials and justifications are effective only for the conscience of the actor itself. They also lead to increase confidentiality of unethical aspects. On the other hand, denials and justifications tend to nurture the adversarial attitude of stakeholders that are alerted or harmed by actors’ unethical actions, overall leading to ethical crisis. Actors then face escalation of costs for the mitigation of unexpected negative consequences.

Ethical training allows actors to describe objectively their behavior and to anticipate the possible unraveling of ethical crisis. Aware of the unethical aspects of their actions, trained actors recognize the legitimate part of stakeholders’ reactions, communicate with more sincerity and engage with stakeholders, thereby preserving trust and alliances. Rather than behaving reactively, actors act proactively towards the mitigation of the unethical aspects of their actions.

Transformation

In reaction to their unethical behaviors, actors end up externalizing their locus of control, as if they had no other choice. In this manner, actors reduce their own power to identify a profitable alternative course of action. They reduce their freedom to choose. On the other hand, inclusive awareness of ethical and unethical aspects triggers a natural search for more ethical actions (Cf. Psychological attitudes towards ethical dissonance). A rational analysis of the interest of such a more ethical alternative allows avoiding exaggeration of its costs (without proper analysis, a typical justification of an unethical action is that an alternative course of action would be too costly). Further, awareness of potential ethical costs increases the relative attractiveness of an alternative more ethical action. The re-framing of the situation allows the identification of new opportunities otherwise hidden to the actors. Eventually, an alternative and more ethical action may be implemented with ethical effort and without much additional cost, considered as strategic investment. Avoidance of ethical risks then opens the path to unexpected positive consequences.

Ethical training allows actors to make sure they spend at least as much time looking for opportunities of more ethical actions than justifying the actions they expect to maximize their interest (i.e. unaware of the unethical risks these actions have). Decisions not to engage in more ethical actions are conscious, responsible and reflect a power of discrimination. They are not traps for the actor. Decisions to engage in more ethical actions do not follow a blind faith in the benefit of ethics. In this manner, ethical training turns ethical risks into opportunities by dedicating cognitive and organizational resources to the identification, mitigation and transformation of ethical risks.

Codify Ethical StandardsEthical codes are adopted by organizations to assist members in understanding the difference between right and wrong and in applying that understanding to their decisions. An ethical code generally implies documents at three levels: codes of business ethics, codes of conduct for employees, and codes of professional practice.

Code of Practice

A code of practice is adopted by a profession or by a governmental or non-governmental organization to regulate that profession. A code of practice may be styled as a code of professional responsibility, which will discuss difficult issues, difficult decisions that will often need to be made, and provide a clear account of what behavior is considered "ethical" or "correct" or "right" in the circumstances. In a membership context, failure to comply with a code of practice can result in expulsion from the professional organization. In its 2007 International Good Practice Guidance, Defining and Developing an Effective Code of Conduct for Organizations, the International Federation of Accountants provided the following working definition: "Principles, values, standards, or rules of behavior that guide the decisions, procedures and systems of an organization in a way that (a) contributes to the welfare of its key stakeholders, and (b) respects the rights of all constituents affected by its operations.

PRSA Code of Ethics[2]

“Loyalty: We are faithful to those we represent, while honoring our obligation to serve the public interest.”“Fairness: We deal fairly with clients, employers, competitors, peers, vendors, the media, and the general public. We respect all opinions and support the right of free expression.

SPJ Code of Ethics[3]

“Minimize Harm … Balance the public’s need for information against potential harm or discomfort. Pursuit of the news is not a license for arrogance or undue intrusiveness. … Balance a suspect’s right to a fair trial with the public’s right to know. Consider the implications of identifying criminal suspects before they face legal charges. …”“Act Independently … Avoid conflicts of interest, real or perceived. Disclose unavoidable conflicts.”

Institutionalise EthicsChanges in laws, expectations of the stakeholder, and unrelenting media scrutiny illuminate the challenges with integrity in organizations (Heineman, 2007) and illustrates that the potential for individuals and organizations to act unethically is infinite (Sims, 2003). The National Business Ethics Survey in 2005 reported that more than half of the respondents in the study observed unethical behavior in the workplace, a third of the respondents encountered a situation at work that they perceive invites ethical misconduct, and 10% of these employees felt pressured to compromise ethics standards (Ethics Resource Center, 2005). Even in highly successful companies surveyed, the leaders understood that employees at all levels and rank face temptation to make the numbers by “fudging the accounts, cutting corners, or worse” (Heineman, 2007, p. 1). White (1990) concluded that “ethical problems are inevitable at all levels of a business and this Downloaded from hrd.sagepub.com at PENNSYLVANIA STATE UNIV on April 8, 2016 means that it’s simply good sense for companies to take seriously the task of institutionalizing ethics in their organizations” (p. 19). The societal pressure to “restore an ethics consciousness in the workplace” (Sims, 2003, p. 299) has prompted leaders to acknowledge the impact ethics has on the success or failure of an organization (Clark & Lattal, 1993; Hatcher, 2002; Paine, 1997; Sims, 2003). One way this has played out is related to how organizations have responded to federal government legislation, which has forced organizations to comply with specific ethical standards and practices. Funding these compliance-based measures has proven to be costly and has cost U.S business billions of dollars to implement. Although these mandates

have been costly, they have begun to elevate organizational awareness, provide formal systems for regulating critical aspects of financial reporting, increase accountability of board of directors, and result in mechanisms that enable whistle-blowing (Carroll & Buchholtz, 2006; Ethics Resource Center, 2005;

A second implication of the mounting societal pressure is the issue of ethics in the workplace is increasingly being viewed not only from the compliance perspective but also as a critical aspect of organizational life. Fox (2007) stated, “In today’s post Enron era, being an ethical, socially responsible company can attract investors, customers, and top talent” (p. 43). Ethics is increasingly viewed as an integral component for organizational success related to organizational strategy, financial and legal issues, employee productivity (Paine, 1997), and “reputational capital” (Worden, 2003, p. 31). Due to the benefits of maintaining an ethical organization and, conversely, the negative ramifications of engaging in unethical behavior, leaders are becoming cognizant of the advantageous affect an ethical organization has on the organization’s reputation, talent recruitment, and its financial success (Jose & Thibodeaux, 1999; Lennick & Keil, 2005; Northouse, 2004; Paine, 1997; White, 1990; Wilcox, 2006).

Although these compliance-based initiatives are notable, experts strongly assert that instilling ethics in an organization must go beyond compliancebased initiatives and, instead, primarily focus on the development of an ethical and values-driven culture (Carroll & Buchholtz, 2006; Clark & Lattal, 1993; Hatcher, 2002; Paine, 1997; Sims, 2003). Indeed, the link between an ethical, values-driven culture and long-term sustainability has been affirmed in the recent National Business Ethics Survey in 2005. An important finding suggested that the implementation of formal ethics and compliance-based programs in an organization did not necessarily ensure the expected and desired organizational outcomes and that ethical culture often had more of an impact on achieving an effective ethics and compliance program (Ethics Resource Center, 2005). As this study intimates, formal programs and compliance-based ethics contribute to an ethical culture, but when they stand alone and are not supported by an organizational culture that embraces being ethical and responsible it is unlikely that sustained ethics would result. 294 Human Resource Development Review / September 2008 Downloaded from hrd.sagepub.com at PENNSYLVANIA STATE UNIV on April 8,

Make Ethical DecisionsRefer to previous notes (LO1)

Report and Disclose Ethical Performance

The endogenous nature of ethics and disclosure One possible linkage between ethical reporting and socially responsible disclosure is through information transparency. To examine the relation between ethical reporting and disclosure, we first consider their endogenous nature. In general, we expect that better information environment through extensive disclosure enhance investor’s awareness of ethical aspects. For instance, Schipper (1989) argues that the absence of full communication (or the existence of blocked communication) together with asymmetric information makes it possible for managers to engage in unethical behaviors, such as earnings manipulation. Consequently, we expect that corporate incentives for unethical decision making, such as earnings manipulation, will be high when information asymmetry regarding the firm’s economic earnings is high. Conversely, with less information asymmetry through persistent and frequent disclosures,

managers will be less likely to manipulate earnings. While the previous discussion suggests that extensive disclosure reduces the incentive for earnings management, it is also possible that lower disclosure is induced by a desire to manipulate earnings.

The theoretical model predictions of CSR vary. Some CSR models 5 predict that CSR expenditures will increase stock price up to certain point. Navarro (1988) assumes that CSR spending improves the quantity of sales, while Webb (1996) assumes that CSR spending improves price. Other model predicts that CSR expenditure will not affect stock price. In the simple world where there are no frictions, Small and Zivin (2002) develop a Modigliani-Miller’s (1958) irrelevance result by showing that if the investor optimally wishes to donate, the two firms’ stock prices will be equal and they will be independent of the level of donation made. Van De Ven and Jurissen (2005) maintain that although the mainstream of current thinking in business ethics recognizes that a firm should invest in CSR, the normative theory of how specific, competitive conditions affect a firm's social responsibility remains underdeveloped.

LO6: Corporate Governance

Define Corporate GovernanceCorporate governance is the mechanisms, processes and relations by which corporations are controlled and directed.[1] Governance structures and principles identify the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders) and includes the rules and procedures for making decisions in corporate affairs.[2] Corporate governance includes the processes through which corporations' objectives are set and pursued in the context of the social, regulatory and market environment. Governance mechanisms include monitoring the actions, policies, practices, and decisions of corporations, their agents, and affected stakeholders. Corporate governance practices are affected by attempts to align the interests of stakeholders.[3]

‘Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment’. A broader definition is provided by the Organisation for Economic Co-operation and Development (OECD) (1999), which describes corporate governance as: ‘a set of relationships between a company’s board, its shareholders and other stakeholders. It also provides the structure through which the objectives of the company are set, and the means of attaining those objectives, and monitoring performance, are determined’. Similarly, Sir Adrian Cadbury (1999) said: ‘Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals . . . the aim is to align as nearly as possible the interests of individuals, corporations and society’.

Understand Governance, Ethics and LawRefer to LO4 notes

Corporate ResponsibilityCorporate social responsibility has been defined by Sheehy as "international private business self-regulation."[4] Sheehy examined a range of different disciplinary approaches to defining CSR. The definitions reviewed included the economic definition of "sacrificing profits," a

management definition of "beyond compliance", institutionalist views of CSR as a "socio-political movement" and law's own focus on directors' duties. Further, Sheehy considered Carroll's description of CSR as a pyramid of responsibilities, namely, economic, legal, ethical, and philanthropic responsibilities.[20] While Carroll was not defining CSR, but simply arguing for classification of activities, Sheehy developed a definition differently following the philosophy of science—the branch of philosophy used for defining phenomena.

From a strategic perspective, the aim is to increase long-term profits and shareholder trust through positive public relations and high ethical standards to reduce business and legal risk by taking responsibility for corporate actions. CSR strategies encourage the company to make a positive impact on the environment and stakeholdersincluding consumers, employees, investors, communities, and others.[10] From an ethical perspective, some businesses will adopt CSR policies and practices because of ethical beliefs of senior management.

Corporate social initiatives[edit]Corporate social responsibility includes six types of corporate social initiatives: [47]

Corporate philanthropy: company donations to charity, including cash, goods, and services, sometimes via a corporate foundation

Community volunteering: company-organized volunteer activities, sometimes while an employee receives pay for pro-bono work on behalf of a non-profit organization

Socially-responsible business practices: ethically produced products which appeal to a customer segment

Cause promotions and activism: company-funded advocacy campaigns Cause-related marketing: donations to charity based on product sales Corporate social marketing: company-funded behavior-change campaigns

All six of the corporate initiatives are forms of corporate citizenship. However, only some of these CSR activities rise to the level of cause marketing, defined as "a type of corporate social responsibility (CSR) in which a company's promotional campaign has the dual purpose of increasing profitability while bettering society."[48]

Companies generally do not have a profit motive when participating in corporate philanthropy and community volunteering. On the other hand, the remaining corporate social initiatives can be examples of cause marketing, in which there is both a societal interest and profit motive.

The effect of Corporate Governance on Director’s Behaviour and Duties of Care and Skill

Companies appoint directors to carry out day-to-day functions required by the company.1 A company director, apart from owing the company a fiduciary duty, is also under a duty to exercise care and skill when executing his or her duties.2 A director’s duty of care and skill entails that he or she must carry out the functions of his or her office3 and exercise the powers of that office bona fide for the benefit of the company.4 In South Africa, the common law duty of directors to exercise care and skill has been partially codified by the Companies Act.5 There are practical difficulties in prescribing an appropriate and acceptable standard of care and skill for company directors mainly because directors are not members of a professional body.6 At common law the courts exercised judicial restraint when they assessed the directors’ exercise of powers in running the company.7 However with changes in the corporate landscape across the world, directors’ decisions are under constant scrutiny.8 A director who fails to observe his or her duties of care and skill to the company can be held

liable in delict for damages.9 In order to counter the new less subjective and more rigorous duty of directors to exercise care, skill and diligence, the Companies Act 71 of 2008 imported the Business Judgment Rule as a defence to be used by directors.10 This article examines a director’s duty to exercise care and skill under the common law.

If a director did not exercise care and skill in executing his or her duties then s/he will be liable for any loss suffered by the company as a result of his or her conduct. The director’s liability stems from delict and in some instances from a breach of contract. In Du Plessis NO v Phelps,11

Friedman JP ruled that “Apart from their statutory duties, directors owe fiduciary duties to the company as well as a common law duty to take reasonable care in the management of the company’s affairs. Liability in the event of a director failing to take reasonable care in the management of the company’s affairs is based on the principles of the Lex Aquilia. The basic requisite for liability under the Lex Aquilia is fault, i.e. dolus or culpa which results in loss to the plaintiff.”

Describe Best Practices"Best practices" is a term that can be applied broadly and across industries. In the world of business, the term is used in connection with everything from project management to audit functions, to explain a best or most efficient way of completing a business task.

A method or technique that has consistently shown results superior to those achieved with other means, and that is used as a benchmark.

Best practices are a set of guidelines, ethics or ideas that represent the most efficient or prudent course of action. Best practices are often set forth by an authority, such as a regulator, governing body or internally by management, depending on the circumstances. While best practices generally dictate the recommended course of action, some situations require that industry best practices be followed.

Best practices serve as a general framework for a variety of situations. For instance, in the production process, a list of best practices may be given to employees, highlighting the most efficient way to complete their tasks.