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Administrative Law and Business

Published August 28, 2013 by Mayrbear's Lair

Administrative-Law

There are those that favor an increase of government regulation in the business arena in light of events like Enron and the credit crisis of 2008, while others believe that self-regulation is more effective without the intervention of government agencies and their administrative laws. Funk and Seamon (2009) suggest that administrative laws are like the air we ingest: invisible and ubiquitous.  Administrative agencies effect many areas of our lives that most people take for granted. In other words, they are part of the atmosphere that comprise modern society and like our physical environment, a necessary component (in some form) to help sustain civility (Funk & Seamon, 2009).  However many company leaders believe that government intervention is not effective and regard it as an unfair practice that forces financial burden on businesses, particularly small ones. Seaquist (2012) contends that the purpose of government agencies and their administrative laws is to help oversee and carry out specific government functions that help maintain a civil society (Seaquist, 2012). However, the effectiveness of these regulations are altered and evolve as society does and as administrations change and incorporate their political views.

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In order to better comprehend what role government regulation should play to ensure ethical corporate conduct, we must first understand what role administrative agencies and their laws are meant to play and why they were established in the first place. Funk and Seamon (2009) purport that historically, the most significant agencies (or departments), consisted of the President’s Cabinet or close advisory members.  There are fifteen areas these departments oversee: Agriculture, commerce, defense, education, energy, health and human services, homeland security, housing and urban development, interior, justice, labor, state, transportation, treasury, and veterans’ affairs. The formation of these agencies and the demands placed on the leaders altered the historic importance of the cabinet members (Funk & Seamon, 2009). Subsequently, as these agencies evolved, they slowly began to take on a life of their own. For example, the agencies focus on implementing and managing their administrative laws, which are primarily about procedure and the systems they maintain, in order to take action that affect citizens. The administrative laws in turn, are determined from judicial opinions, driven by judicial decisions – as opposed to statutory or regulatory content.  In the meantime, growing concerns over costs and the efficiency of these government regulations, continue to lead to the creation of many new laws and executive orders designed to reform them. In theory, as society evolves and new technology expands, these regulations and agencies continue to make adjustments and the cycle continues.

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One thing is for certain, administrative regulation agencies have been granted considerable power. Gellhorn and Levin (2006) purport that some of these powers are assigned on an industry wide basis like the FBI and IRS whereas other agencies enforce norms of conduct within the economy like the Federal Trade Commission (FTC) that enforces the ban on unfair methods of commerce and competition (Gellhorn & Levin, 2006). What makes these agencies dramatically unique is that each operates wielding the power of all three principal branches of government. In other words, they have legislative power to issue rules that control behavior, including the enforcement of heavy civil or criminal penalties for violations. They also have executive power to investigate possible violations and prosecute offenders. In addition, they have judicial power to adjudicate disputes that fail to comply with mandates. For example, the Securities Exchange Commission (SEC) created regulations that outline specific disclosures that must be taken into consideration in a stock prospectus. This later becomes a law that is passed by the legislature that the SEC uses to enforce and prosecute violators. Then, the SEC acts as the judge and jury by conducting adjudicatory hearings.  What makes this a unique situation is that these administrative agencies are typically unattached to any of the three branches of government (executive, legislative, or judicial). This then, raises questions of concern with respect to the constitutional distribution of authority in our government which is based on the principle of the separation of powers. We must remember that the division of these branches serves to provide a check and balance system of the power exercised by the other two branches. This means that the combined powers of the administrative agencies are not in alignment with the three part paradigm of the democratic government system the founding fathers designed. Institutions granted that kind of power can become dangerous because they have no one but themselves to answer to. In light of this significant information, it seems the real question is not whether government should increase or decrease their regulatory measures, the real question is how to make them effective at what they were designed to do, with checks and balances in place to ensure that these agencies and the government leaders that run them, manage society in a fair and ethical manner and that the distribution of power is more evenly divided to detect ethical misconduct before another crisis threatens the global economy.

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References:

Funk, W., & Seamon, R. (2009). Examples and explanations: Administrative law (Fourth ed.). New York, NY: Aspen Publishers.

Gellhorn, E., & Levin, R. (2006). Administrative law and process: In a nutshell (Fifty ed.). St. Paul, MN: West Publishing Co.

Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education, Inc.

Regulation and the Greater Good

Published August 26, 2013 by Mayrbear's Lair

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Innovations in technology and politics have been significant factors for the expansion of government agencies and the administrative laws that govern citizens. Seaquist (2012) suggests these government agencies are also considered the fourth branch of government. Since the 1930s, the federal government has been expanding its regulatory authority on most areas that affect commerce. Congress created these administrative agencies to oversee and manage specific functions. In addition, they are empowered to create agency rules set forth by guidelines provided from the Administrative Procedure Act (APA). Furthermore, these agencies have the force of the law to support them (Seaquist, 2012). For example, Federal agencies consist of two separate branches: (a) independent and (b) executive. These agencies manage regulatory control and are powerful entities. Independent agencies (some of which include the EPA, EEOC, FCC, ICC and FTC) are granted the power to create their own rules, enforce them, conduct investigations and arbitrate disputes. In other words, they have been granted the power to act as legislator, law-enforcement, judge and jury. Executive agencies, on the other hand, serve to assist carrying out the responsibilities of the executive branch of the government. These agencies include the Justice Department’s FBI, the Treasury Department’s US Customs Service, the FDA is part of the Health and Human Services Department, and the FAA is an offshoot of the Transportation Department. These agencies, unlike independent agencies, are under the direction and control of the US President, who is also responsible for appointing and removing staff members. These agencies serve to regulate and control laws that govern society.

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With all these agencies and the government regulations established, how was an event like the credit crisis of 2008 even possible? Blinder (2013) reminds us that as many witnessed the financial crisis unfold, one of the most perplexing issues Americans faced was how very little explanation was offered as to why and how it occurred. During the crisis, President Bush, on his way out of office, was elusive, and although President Obama was more visible, his explanation fell short of what the citizens deserved (Blinder, 2013). For example, the US economy, leading up to the crisis was that of growth and job creation. According to Jarvis (2012) Alan Greenspan, the head of the Federal Reserve governmental agency lowered interest rates which made investors eager to take advantage of (Jarvis, 2013). In other words he created cheap credit and made borrowing money easy which motivated bankers and lenders. The investment bankers in turn used their leverage to control outcomes to make more money by joining banks together with homeowners offering high risk sub-prime loans.

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So the million dollar question is, if these government agencies were established to oversee and regulate laws, how were Wall Street investors and bankers able to create the credit crisis in the first place? And even more important, why was no one held accountable for their conduct or their part in creating the crisis? Soros (2008) contends that the crisis was slow in coming and that authorities could have anticipated it several years in advance when the “dot com” industry of the internet exploded in 2000.  The Federal Government responded by cutting interest rates. This cheap money helped create a housing explosion because of leveraged buyouts and other excesses. The mind set was that because money was practically free, lenders kept lending until there was no one left to lend to (Soros, 2008). What could have prevented this? Many agree there is no one easy answer. Government agencies are there to help prevent situations like this, but when government officials are also being compensated by big business and are favored by Wall Street, they are more inclined to look the other way and go with the flow, until the situation reaches a tipping point. In other words, until those in places of authority are caught in ethical misconduct, these situations will occur because of issues like greed and power. Until serious reforms are implemented from trusted institutions these events will continue to surface. The first order of business in my view, is to identify the agencies and authorities that have a proven record of trust and ethical behavior including spotless track records. Use those as models to build others. Unfortunately, however, it has been difficult to discern who is trustworthy and truly have the citizen’s best interests at heart.

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The US economy has endured financial crises in the past, but the credit crisis was a new beast that spread like wildfire from one market across many others. One thing is certain, that the financial markets and authorities were very slow to recognize that the global economy would be affected. Perhaps there were those that did not care about the consequences because they were too consumed by the wealth and affluence they enjoyed. What this crisis did reveal however, was that greed and excesses were at the root of the credit crisis. The good news is that the value of the American dollar will continue to grow because of the ongoing expansion of raw materials and energy. For example, biofuel legislation is generating a boom in agricultural products. Economic growth and falling interest rates in countries like China that turn negative, are positive signs that is normally associated with economic growth. This gives hope that the winds of change are making progress.

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References:

Blinder, A. (2013). After the music stopped: The financial crisis, the response, and the work ahead. New York, NY: The Penguin Press.

Jarvis, J. (2013). The crisis of credit visualized. Pasadena, CA, USA. Retrieved August 11, 2013, from http://vimeo.com/3261363

Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education, Inc.

Soros, G. (2008). The new paradigm for financial markets: The credit crisis of 2008 and what it means. New York, NY: PublicAffairs.

Product Liability

Published August 21, 2013 by Mayrbear's Lair

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A huge issue that many business leaders face is product liability and the laws that govern this environment. Owens (2008) suggests that a typical product liability case consists of a claim for damages against the product of an organization that causes harm or injury when it is used. The plaintiff is the individual focused on proving the damage was caused by a defect in the manufacturing process or that the product was misrepresented and falsely described in their advertising. Furthermore, the plaintiff must proceed to demonstrate the product was used properly (Owen, 2008). Normally damage claims include medical expenses, disability, pain and suffering, lost wages, and perhaps emotional harm. The defendant on the other hand, attempts to prove the product was not deficient and presents evidence to suggest that perhaps there is another reason the product did not function properly.

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In this week’s case study we were asked to examine a situation exposed by a PBS news report, that revealed certain US retailers were importing products from China with unknown ingredients. What makes this case study interesting is that products imported from China are not scrutinized because of the inefficient regulations in place to monitor quality control on their exports. If any of the products are discovered to be tainted or contaminated the question posed is who is liable in tort for injuries sustained to consumers that have been harmed by the products? According to the PBS Newshour (2007) report that disclosed the information, journalist Margaret Warner stated that this situation presented an enormous challenge because none of the players involved really comprehended how serious it was.  In the news segment, spokesman, Donald Straussheim revealed that China has no history of providing label ingredients to their own citizens, let alone on their exports. The Chinese government does not have regulatory systems to inspect, monitor, or enforce the law on products they manufacture and export (Newshour, 2007). In other words, no information is provided with respect to the ingredients or from where the products originate. This means that companies are purchasing products and selling them to consumers with little information on the contents. To put this simply another way, a company that wants to cuts costs can easily substitute chalk for powdered milk in the manufacturing process of a product that requires powdered milk. Without regulatory systems in place to monitor quality control, it allows for unethical behavior like this exists because there are no penalties.

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The question then is if a US company is making purchases in large volumes that affects a vast portion of the population are they responsible or exempt from tort liability. Seaquist (2012) suggests that business leaders have a responsibility to operate a company with reasonable care and avoid hurting others in the process. If a company manufactures and sells a product that causes death or harm to consumers, the consequences will most likely end up in litigation (Seaquist, 2012). Duty of care is the term used to identify reasonable standards of behavior that businesses are expected to engage in. Because situations continue to change, the standard of care naturally does as well, as the world and marketplace continue to evolve. The facts are, that certain companies in the US purchase products from China that contain ingredients of unknown origin. In addition, there are no regulatory measures in place to insure these products are not contaminated. This is not uncommon practice. Huge corporations that are focused on cutting costs to raise their profits are inclined to purchase in volume from the most inexpensive wholesalers. However, this is one corner a company should never risk making cuts in, because consequences can result in severe illness and death due to tainted food products. Although the company is operating within the legal framework of the law, the ethics of their business strategies are questionable. By not including this information on their packaging, the company would and should be liable for negligence. If however, they include a label that provides information that the ingredients and origins are unknown, then it is up to the consumer to take responsibility to make the best decision based on the information available. This strategy provides transparency and empowers the consumer to make the choice and take responsibility for their actions. The challenge for the company in conducting business in this manner, is that they may lose sales because of the labeling. In that case, they can monitor the sales records and assess if in the long run this product is profitable. Then they can determine whether to continue to include it in their product line. If they see no change in sales figures and consumers still purchase the product that is clearly labeled, then they can continue to risk selling the product, until a problem does arise, which they will be forced to address then. In conclusion, it never makes sense for a business leader to purchase or sell inferior products.

References:

Newshour, P. (Producer). (2007). Chinese imports & food safety [Motion Picture]. USA: PBS. Retrieved August 4, 2013, from http://www.youtube.com/watch?feature=player_embedded&v=BKe70AAU_lc

Owen, D. (2008). Products liability. St. Paul, MN: Thompson/West.

Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education, Inc.

Crimes That Harm Business VS Crimes Committed by Business

Published August 19, 2013 by Mayrbear's Lair

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Images of crime in the US reveal an increase of illegal activity from business executives. According to Simpson (2002) business crime is not a new social problem. illicit drugs and violence, for example, have been an issue of concern for business leaders and policymakers for a while now. Historically, criminals involved with drugs and violence were believed to have been contained within certain populations of criminal ethnic groups and immigrants. In other words, society was under the impression that crime was only confined to the constitutionally inferior and morally lax (Simpson, 2002).  However, with the expansion of the newly emerging capitalist society and its large institutions, the environment was becoming fertile for corporate criminals.

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Corporate crime is considered a form of white collar crime that is committed by persons of respectability and high social status. Some people refer to it as a crime of the rich and affluent. Cavender and Cullen (2006) postulate that it can include such infractions as (a) crimes by politicians; (b) crimes by professionals like accountants, physicians, and attorneys; (c) cheating on taxes; (d) theft or embezzlement; and (e) crimes committed by corporate organizations themselves (Cavender & Cullen, 2006). The topic of this discussion asks us to consider which presents the greatest threat to civil society: a corporation that commits crimes or a person who commits crimes that harm businesses. On the one hand, a corporation that commits a crime can create a wide range of contamination that spans across the globe. Take for example, a multinational corporation (MNC) that markets a defective product, or worse a deadly one (like the tobacco companies that hid the harmful effects of their products). In other words, when a corporation commits a crime, millions of people may be at risk on a global level. A crime that is committed by an individual, however, who causes harm to a business, such as when a physician defrauds the government by billing for false medical payments, will have different consequences that influences a smaller region. For example, it could result with the physician’s termination and loss of that practitioner’s medical license or worst case scenario the dissolution of the medical facility and the employees. So in this instance, just the physician or facility could be affected because it does not have the same influence on a global level. However, in the long run, it may affect the policies that physicians follow if reforms are introduced to prevent physicians from further engaging in this form of criminal conduct.

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Individuals that engage in criminal activity, even though they believe they outsmarted the system and got away with a criminal act, are always focused on not getting caught. It takes a considerable amount of energy to  maintain an illusion, and as soon as they become relaxed, they get sloppy and eventually the truth surfaces. Seaquist (2012) defines criminal law as the branch of law that is focused on punishing illegal acts that are deemed harmful to others and society at large (Seaquist, 2012). In some situations, it can be difficult to discern which form of crime presents more of a civil threat because there are many facets to consider. For example, as I pointed out, a corporation, especially an MNC, has a great influence on a global scale. Take a fast food franchise for instance, many of these corporations promote unhealthy food ingredients that have been scientifically proven to contribute to life threatening diseases like obesity, diabetes, arteriosclerosis and other debilitating illnesses that affect millions worldwide. These companies sell inferior products for huge profit and use clever marketing strategies to make it appear ethical. However, with advances in communication technology an individual can now also make an impact on global scale that can bring harm to a business or institution. Take for example political figures with low moral values like those that have been recently exposed in the headlines. Public figures like them pose a threat to society and in fact, can create damage on many levels including: (a) shame and humiliation that extends beyond just their families, (b) ridicule to the government institution and the office they represent, (c) lowering the bar for standards in ethics and moral values, and (d) making a mockery of the US political system. In conclusion, current events and research reveal that with the expansion of the global market both a corporation and an individual can create harm and cause considerable damage on a worldwide scale because of the media and advances in technology and communication. It’s a whole new world that is taking shape. The moral is, those who embrace an ethical culture are the ones who will help lead society to a better future.

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References:

Cavender, G., & Cullen, F. (2006). Corporate crime under attack (2nd ed.). Cincinnati, OH: Anderson Publishing.

Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education, Inc.

Simpson, S. (2002). Corporate crime, law, and social control. New York, NY: Cambridge University Press.

Ethics and Law

Published August 14, 2013 by Mayrbear's Lair

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Ethical theories help individuals to decide what is morally right. The concepts of right and wrong are determined by the group to which one belongs to. Geisler (1989) suggests that ethics is defined in terms of ethnics or what the community deems as morally right and that each society creates its own ethical standard. Similarities that exist between different social groups for instance, result from common needs and desires rather than universal moral prescriptions (Geisler, 1989). In a business environment, leaders must rely on their own views of morality and ethics to assist them in the decision making process. However, there are times when a leader is confronted with making a decision and is required to determine whether it is more important for the organization to engage in ethical practices or lawful ones. For example, many lenders in the mortgage and loan industry approved home loans for individuals who were not qualified. These practices were justified because of loopholes in the legal system. In this case, executives acted under the notion that their conduct was well within the parameters of the legal framework, and skirted past the ethics issue.

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Leaders that find themselves in situations such as this, where they confront challenges that require them to make a choice that is lawful or ethical can draw from a variety of philosophical theories to help them make the most effective decision that will benefit the organization and their stakeholders. Seaquist (2012) outlines the following philosophical theories that help guide the decision makers: (a) ethical absolutism, religious fundamentalism, utilitarianism, deontology, ethical relativism, Nihilism, virtue and justice ethics (Seaquist, 2012). For example, if a leader in the mortgage and loan industry relied on the religious fundamentalism of Christianity, the executive would look to God’s will as to what is right or wrong to help guide their actions. This philosophical style is similar to the ethical absolutism, in that right and wrong concepts are absolute and do not change. Religious fundamentalism relies on the doctrines of truths laid out by the prophets and interpreted from Biblical scriptures. In this respect, an executive’s views are defined on a Christian’s perspective of ethics based on God’s will, which is absolute. From this philosophical view, an executive may choose to assist families that are at a disadvantage for making a first time home purchase, and engage in business practices they deem lawful, even though it may be considered unethical. In this respect, as a Christian, the individual’s choice is to find a way to help others first which in God’s eyes is good, even though the behavior, in the eyes of the financial institution they represent may consider it unethical.

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A leader, on the other hand, that draws conclusions from a philosophy that embraces ethical relativism, rejects the concept of absolute moral values. These leaders do not conform to ideas that moral judgments are finite. Huemer (2005) postulates, that ethical naturalism and intuition also play a role that can influence individuals. Ethical naturalism for instance holds the view that right and wrong can be identified by whatever promotes human welfare and happiness. Ethical intuitionism, on the other hand, refers to a philosophy that some things (actions, states of affair, etc.) independently consist of one’s attitudes towards various situations (Huemer, 2005). This view embraces an attitude that at least some moral truths are known intuitively and subject to individual interpretation. In other words it is generally understood that some moral truths are known directly and not through the perception of a person’s five senses, or based of other truths. Like the ethical relativism philosophy, they deny the existence of absolute moral principles. Leaders that conform to this kind of philosophy are focused on following the parameters of the laws and although are concerned with ethical values, do not place it as a priority in the decision making process. For example, an executive that embraces this philosophy may approve a loan to the tobacco industry to make a huge profit for the organization, even though it may be deemed unethical to support an industry that hides the harmful effects of their products. In conclusion, each leader must decide for themselves the kind of leadership style they intend to embrace and how they run their business efficiently. Hanh (2012) reminds us that business leaders do not have to sacrifice happiness or their values, to make a profit (Hanh, 2012). Business leaders that cultivate an ethical climate will automatically operate their organization within the framework of the law and incorporate this attitude into their codes of conduct. This effective leadership strategy is more likely to ensure an organization’s long term success.

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References:

Geisler, N. (1989). Christian ethics. Grand Rapids, MI: Baker Publishing Group.

Hanh, T. (2012). Work: How to find joy and meaning in each hour of the day. Berkeley, CA: Parallax Press.

Huemer, M. (2005). Ethical intuitionism. New York, NY: Palgrave MacMillan.

Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education, Inc.

Code of Ethics

Published August 9, 2013 by Mayrbear's Lair

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The world marketplace continues to expand at alarming speeds because of innovations in technology, transportation, and communication.  As a result, international borders have disappeared and a global sociopolitical economy has emerged where businesses now compete on a worldwide level.  This new environment permeates across boundaries where diverse cultures, values, regulations, and ethical standards exist.  Leaders have been forced to adopt and learn new ways of conducting business in order to maintain their share of the marketplace in this increasingly competitive, and, in extreme cases, hostile climate.  In order to gain the trust and support of stakeholders and prove that organizations and their leaders are engaged in ethical conduct, many organizations implement ethics programs and include a Code of Conduct Statement to represent their standards for ethical and moral behavior.  The focus of this research examines the components required for the development of a Code of Ethics doctrine that outlines the standards for ethical and moral conduct. To help develop and shape the doctrine’s framework, this research takes a closer examination of the fundamentals required including the following mechanisms: (a) a statement of values and principles; (b) a set of rules that frame the parameters of ethical performance; (c) training, communication, and implementation strategies; (c) the role of leadership; (d) corporate social issues; (e) laws and regulations that impact the organization; (f) oversight and enforcement strategies; (g) ethics auditing programs; and (h) considerations for globalization.  The findings of this research will conclude that although limitations and poorly designed codes of conduct encourage unintended outcomes, a company’s Code of Ethics represents an organization’s standards for ethical behavior and moral conduct because when significant disagreements emerge, these statements can achieve a measure of consensus; clarify standards which may otherwise be construed as vague expectations; and provide a clearly defined set of guidelines that represent a company’s values, principles, and aspirations.

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Statement of Values

A corporate Code of Ethics doctrine communicates the standards for ethical behavior in a business environment.  Ethics is a common way to determine what it means to be an upstanding citizen and is utilized as an effective tool for guiding the decision making process.  Ethics outlines the nature and basis of morality where moral judgments, standards, and rules of conduct are identified.  Business ethics, on the other hand, consists of the core values, ideals, and standards that guide behavior and define an organization’s specific principles.  These principles are usually conveyed in the corporation’s mission statement and Code of Ethics doctrines.  The policies in these documents outline pervasive behavioral boundaries and establish a guideline that identifies rules and regulations that the organization embraces as all-encompassing and absolute.  For example, Ross (2007) cited that Chinese factories where low-wage labor force conditions exist and staffers are subjected to eleven-hour work days, twenty-seven out of thirty days a month, could use a Code of Ethics doctrine to create better working conditions.  These conditions exist because: (a) factory leaders justify their ethical misconduct as a solution to satisfy the demands of the expanding global market and (b) there are no policies or regulations in place to deter this behavior (Ross, 2007).  Without clearly defined codes of conduct or regulations to prevent ethical misconduct and corporate abuse, factory bosses will continue to operate prioritizing profits over the well-being of the stakeholders that support them.

At the core, the ethics code must reflect the moral values and the underlying principles of the industry with honesty and integrity as well as address the significant ethical issues leaders face in today’s business culture.  These include: (a) protecting the environment, (b) avoiding fraud and ethical misconduct, (c) prohibiting financial corruption, (d) addressing the manufacturing of harmful products that puts the public at risk, (e) eliminating sexual harassment and discrimination, and (f) protection from piracy.

To develop an effective Code of Ethics, the first step is to begin devising a statement of values that includes the non-negotiable principles of the organization.  Fisher (2013) contends that leaders should design codes of conduct with the following objectives: (a) to express best ethical practices, (b) to articulate a specific value system that concisely delineates both decisional and behavioral rules, (c) to apply ethical conduct through leadership, (d) the requirement of staff participation, and (e) to accept and guide ethical behavior with incentives that motivate staff members (Fisher, 2013).  For example, companies like Ben & Jerry’s and Patagonia have established environmental sustainability as a positive core value and have committed their organizations to operate in an environmentally friendly manner.  Other companies, however, are driven by negative core values that focus on profit and self-interest only, like the tobacco companies that misled their consumers about the hazards of smoking.  A Code of Ethics doctrine should be influenced by the owner’s core values.  These principles could include: dependability, loyalty, commitment, open-mindedness, consistency, honesty, efficiency, creativity, humor, motivation, innovation, positive attitude, optimism, passionate, respectful, courageous, educated, endurance, empathy, and having fun.  These fundamental concepts can play a significant role to help shape a mission statement and a Code of Ethics doctrine.

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Training and Communication

Limitations and poorly written codes of conduct can present unintended consequences.  In the business world, ethics is an ambiguous concept that many leaders believe is a highly technical discipline to interpret and most feel unqualified addressing the subject.  In fact, Freeman and Wicks (2010) suggest that many top level managers suffer from moral muteness.  In short, they lack training and, as a result, are unable to fuse ethics with business conduct (Freeman & Wicks, 2010).  In truth, leaders must consider both the ethical and legal aspects of a situation to make the most effective decisions.  Top managers are in a position of influence and possess a power that controls the destiny of an organization.  Efficient ethical training programs help leaders: (a) make more effective decisions, (b) choose how and who to conduct business with, and (c) decide whether profits are more significant than achieving positive outcomes with social mindfulness.  By electing to conduct business ethically and engage with other like-minded organizations, leaders cultivate an ethical climate that helps avert facing issues of misconduct and avoid legal ramifications.

The most efficient way for leaders to engage in moral conduct and cultivate an ethical environment is to educate these executives to implement effective ethical training programs.  Ferrell et al. (2013) purport that ethical training programs equip staff members with strong reasoning abilities and intellectual skills that can guide them to comprehend and discover more effective solutions to complicated ethical issues.  They have identified the following six stages of moral development based on psychologist Lawrence Kohlberg’s model of philosophy: (a) punishment and obedience; (b) purpose and exchange; (c) interpersonal expectations, relationships, and conformity; (d) social system and conscience maintenance; (e) prior rights, social contract or utility; and (f) universal ethical principles.  Kohlberg’s theories further suggest that individuals should continue to evolve and reshape their morals and ethical behavior with extended training and education, as well as by drawing from personal experiences (Ferrell, Fraedrich, & Ferrell, 2013).  Leaders then apply their highly developed skills to identify and address the nature of the moral dilemmas as they arise to help them achieve optimum solutions.  For example, when a supervisor discovers a staff worker engaging in ethical misconduct, because of their high level of training, the manager can recognize the issue more easily and attempt to resolve it.  When leaders establish clearly defined policies, provide education and training systems to support them, staff members are more likely to abide by them and accept the consequences for behavior that falls outside those boundaries.  A Code of Ethics doctrine may also include a clause to address the training requirements expected from all staff members.

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Implementation Plan

When there are disagreements of an ethical nature, a Code of Ethics doctrine can help achieve a measure of consensus.  The most effective leaders comprehend the significance of identifying the voluntary and legally required aspects of institutional practices and the behavior that supports it.  In addition, this research supports that the most successful leaders engage in actions that demonstrate the leader’s conduct and business practices, while taking responsibility for cultivating of an ethical climate.  This strategy serves to inspire staffers to adopt similar practices.  Aristotle (384– 322 BC) suggested that a person’s character is developed by habituation.  In other words, a person’s righteous or iniquitous behavior is developed by the continuous engagement in acts that have a common quality.  These repetitious acts rely on the individual’s natural tendencies to gravitate towards virtuous or immoral behavior (Aristotle, 2012).  Equipped with this knowledge, leaders are better able to guide ethical behavior and implement programs that help guides staff members to develop patterns and habits that embrace moral conduct.  For example, investigators discovered Enron’s leaders had developed a culture of deceit to safeguard capital gains.  To assure stakeholders and to avoid repeating this situation again, leaders began to design and develop effective ethical training programs to educate employees and implement conducts of ethics as part of their organizational culture.  In addition, the establishment of the Sarbanes-Oxley Act (SOX) by Congress prompted corporations to work with the government in partnership by creating a federal oversight system that monitors corporate accounting practices, making fraud a punishable criminal offense.  Corporate leaders that implement programs inspired by the SOX mandates are able to address a wide range of provisions including corporate transparency in financial reporting; monitor corporate board members conduct; and complying with criminal justice practices.

Leaders that implement ethical training programs for staff members establish a culture that discourages misconduct, prevents behavior that represents a false corporate image, prohibits executives from hiding poor performance outcomes, and acts as an oversight system to monitor accounting and auditing practices to ensure operational integrity.  In addition, to guarantee stakeholder trust and confidence, CEOs now sign off on all company financial forms to confirm that all organizational processors have complied with every mandate.  These significant topics can also be addressed and included in an organization’s Code of Conduct doctrine.

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The Role of Leadership

A Code of Ethics statement clarifies standards that may otherwise be vague expectations.  Most leaders consider themselves ethical.  Others, however, question whether ethics is a substantive component of effective leadership.  Regardless of their views, executives are in a unique situation and have the power to guide corporate culture and shape ethical conduct.  Chopra (2012) contends that despite the advantages a person may have – wealth, intelligence, popularity, or influential social connections – none of these components provides the magic wand to effective leadership (Chopra, 2012).  Leaders continue to face difficult dilemmas and how they cope with various situations can make the difference between a positive outcome that contributes to the benefit of others and whether it results in disastrous outcomes.  For example, a leader that cultivates an atmosphere of deception and misdirection fertilizes the environment for destruction.  Therefore, the most effective and successful leaders must have the ability to: (a) guide a corporation to profits for the sake of the stakeholders, (b) achieve organizational goals in an ethical manner, and (c) motivate employees to engage consistently in ethical behavior in alignment with the organization’s code of conduct consistently.  Furthermore, the most efficient top level managers incorporate policies to inspire high performance levels and motivate staff members to engage in conduct that goes beyond mere observation of policies.  The best leaders establish trust and earn the loyalty of all their stakeholders.  Leaders that work in partnership with personnel achieve greater levels of success.  In return, stakeholders that respect organizational leaders that are more likely to support them and volunteer services beyond achieving organizational goals.  The role of leadership can also be addressed immediately following the mission statement in the form of a Leadership Letter from the organization’s CEO.

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Corporate Social Issues

Codes of Conduct doctrines provide statements of value and can also address a corporation’s social responsibility policies.  Organizations with leaders that incorporate ethical choices and learn corporate social responsibility operate businesses that consist of little worry and fear from concerns of bringing harm to themselves, others, or the environment. This is because their values include business practices that contribute to the welfare of citizens and the environment rather than engage in conduct that exploits or depletes resources.  For example, organizations like Plum Village focus on creating a culture that supports happiness by developing a community of stakeholders that are motivated to support them.  Hanh (2012) postulates Plum Village founders achieved this by creating a model that is not solely focused on profits.  By cultivating an atmosphere that supports joy and happiness, their organization and others like them prove that businesses do not have to sacrifice happiness to achieve high levels of profit (Hanh, 2012).  Furthermore, time and time again, history proves organizations that engage in destructive behavior, commit fraud, and operate without regard for stakeholders or the environment do not enjoy the same long term success.  Leaders that focus on cultivating a climate to motivate ethical conduct without compromising their ability to profit are more likely to succeed as well as maintain the confidence and support of stakeholders.  These are concepts that can be included in the organization’s code of conduct statement or, alternatively, for smaller organizations, can be addressed by implementing green strategies into their daily business practice, like recycling and incorporating efficient systems that reduce energy and fuel costs.

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Laws, Regulations, Oversight, and Enforcement

A Code of Ethics doctrine can also incorporate regulatory measures as another method to influence the impact of the ethical behavior and outcomes in a business environment.  The development of ethical compliance programs serves as a process that establishes corporate commitment to practicing ethical behavior.  These programs are designed by utilizing codes of conduct as the blueprint to direct ethical performances.  In short, effective leaders implement regulatory measures to help them achieve positive outcomes with social awareness and corporate accountability.  For example, Carpenter (2012) contends that because of the complicated manner in which leaders conduct business in the global market, they are required to: (a) identify, comprehend, and implement the acceptable use of corporate funds; (b) recognize the falsification of important documents and account records; and (c) identify debatable techniques sales representatives engage in to close deals (Carpenter, 2012).  These are common issues managers address in the corporate arena.  In addition, competition, political pressure, and different value systems also influence ethical conduct and outcomes.  To help leaders address these complicated challenges, the US government established the Federal Sentencing Guidelines (FSG) to help prevent ethical misconduct that results from white collar crimes.  Bredeson and Prentice (2010) purported that the SOX act, for example, was developed and imposed stern security mandates to: (a) create an oversight program that is monitored by a new federal agency, (b) reform the entire accounting industry, (c) restructure Wall Street practices, (d) alter corporate governance practices, and (e) confront insider trading and obstruction of justice (Bredeson & Prentice, 2010).  As a result, the Public Company Accounting and Oversight Board (PCAOB) was also developed to help support these mandates and work in partnership with the Securities and Exchange Commission (SEC) to help implement SOX’s numerous regulations.  Furthermore, these new governance practices were designed to protect whistle-blowers that support ethical conduct.  The implementation of these regulations, oversights, and the enforcement of these strategies all serve to maintain stakeholder confidence.

Laws and Code of Ethic doctrines are created to help define relations between individuals and corporations that affect the economic and social order of a society’s governance practices.  Mann and Roberts (2013) postulate that these laws are developed to reflect the social, political, economic, religious, and moral principles of society (Mann & Roberts, 2013).  In other words, laws are used as tools to control behavior in society and function to regulate human conduct.  Corporate leaders work in partnership with government agencies to guide acceptable ethical conduct to protect people and keep them safe.  Regulatory measures provide the motivation for organizational leaders to develop core practices that ensure legal and ethical compliance.  They put focus on the development of structurally sound core practices that consist of structural integrity in both financial performance and non-financial performance outcomes.  An organization’s Code of Ethics doctrine should provide in great detail an outline of the policies and regulations that staff members are expected to abide by.

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Ethics Auditing Strategy

Codes of Conduct doctrines also serve to deter corporate leaders from misusing their power and putting stakeholders or the public in harm’s way.  Companies are in the business of making a profit for the benefit of their stakeholders.  Leaders must be conscious that they are required to engage in behavior that supports responsible conduct towards their stakeholders, consisting of employees, customers, suppliers, communities, and society at large.  Ferrel et al. (2013) assert that organizations devise transparent methods to monitor and audit organizational outcomes and behavior by having open access to observe and analyze the following components: communications, compensation, social responsibility, corporate culture, leadership, risk, stakeholder perceptions, and the more subjective aspects of earnings, corporate governance, technology, and other significant areas (Ferrell, Fraedrich, & Ferrell, 2013).  Leaders want their organizations to benefit from large capital gains.  To help achieve this, they integrate ethical programs and audit systems into their code of conduct practices to encourage positive outcomes.  These significant concepts should also be included in the corporations’ Codes of Ethics doctrine.

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The Global Marketplace

In today’s marketplace, a Code of Ethics doctrine must also communicate the standards for ethical conduct on the worldwide stage.  Because organizational leaders are forced to face some very serious choices that could have long term positive or negative outcomes, they initiate directives that support corporate social responsibility (CSR) to achieve a long term competitive advantage in today’s cut throat global marketplace.  McGraw (2012) contends that being surrounded by the right people helps individuals learn the right actions to make the right decisions (McGraw, 2012).  Because US Business practices regulations are not enforced worldwide, many American leaders must contemplate high risk issues like: (a) complying with superiors to engage in ethical misconduct to achieve goals, (b) choosing to refrain from unethical behavior at the cost of losing their position, or (c) discovering another a solution (that may be unpopular) to avoid misconduct to achieve positive outcomes.

As a solution to help establish a more level playing field among companies who compete in the global market, the World Trade Organization (WTO) was created, consisting of 153 members.  Narlikar (2005) declared the WTO provides a variety of noble objectives including: (a) improved standards of living, (b) full employment, (c) expanded production of and trade in goods and services, (d) sustainable development, and (e) an enhanced share of developing countries in global trade.  Members also receive a commitment from the WTO to contribute to these objectives, engaging in a mutually advantageous partnership focused on reducing substantive tariffs and other trade barriers.  In addition, members are assured of the elimination of discriminatory treatment in trade transactions (Narlikar, 2005).  In short, the WTO is committed to liberalizing global trade by addressing economic and social issues with respect to agriculture, textiles, clothing, banking, communications, government purchases, industrial standards, food and sanitation regulations, and intellectual property.

Another important issue many corporations face when entering the global arena are companies that make payments to influential people for the purpose of obtaining favors or receiving business contracts.  The US identifies this type of business conduct as bribery – an illegal practice and a criminal offense.  Ferrel et al. (2013) purport that many American companies were operating at a disadvantage when competing with foreign companies whose governments did not prohibit the act of bribery.  As a solution, in 1998 the US and 33 other countries signed an agreement to combat the practice of bribing foreign officials in global business transactions.  This agreement is called the US Foreign Corruption Practices Act (FCPA) and serves to prevent this kind of conduct from occurring (Ferrell, Fraedrich, & Ferrell, 2013).  The United Kingdom implemented a similar agreement with the UK Antibribery Act to hold corporations and individuals liable for bribery regardless of where the offense is committed.  These and other organizations like the International Monetary Fund (IMF), The United Nations Global Compact, and the Sherman Antitrust Act, provide businesses competing on in the worldwide market parameters and regulations that are enforced help to deter ethical misconduct.  These issues should also be addressed in the Code of Ethics doctrine.

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Conclusion

Code of Ethics doctrines are a set of rules that help establish the standards that guide individuals and organizational behavior.  The Constitution of the United States, for example, is a doctrine that provides – in detail – regulations with the idea of forming a more perfect union to establish equal justice and to promote general welfare among its citizens (Government, 2012).  Corporations are microcosms of a similar organizational system that converge with the intent to promote general welfare and to make a profit doing so.  Companies want to achieve their goals in a uniform manner and do so by operating within the frame of justice that supports the well-being of society and their stakeholders.  For this reason, the development of an efficient and effective corporate ethics program is essential to provide a clearly defined set of parameters that is communicated through the organization’s vision, mission statement, and is further detailed in their Code of Ethics doctrine.

If an organization’s Code of Ethics statement is to have success, it must have full support of the entire organization beginning with the top level managers and include all levels of personnel.  Boatright (2009) suggests that unless this occurs, the code is unlikely to be successful (Boatright, 2009).  The findings of this research have deduced that although limitations and poorly designed codes of conduct encourage unintended outcomes, the development of an effective Code of Ethics doctrine, together with the implementation of an organization’s ethical program, serves to communicate the company’s standards for ethical behavior and moral conduct.  Time after time, these doctrines prove to be essential because when there are disagreements, these statements can achieve a measure of consensus, clarify standards which may otherwise be construed as vague expectations, and provide a clearly defined set of guidelines that represent the company’s values and principles to effectively help with the decision making process.  These combined elements can help achieve the highest outcomes.  In conclusion, for an organization to function successfully and harmoniously with the community and their surrounding environment, they must establish a code of behavior that everyone is willing to accept and abide by.

This concludes my six week research on ethics in organizational management. Next week we begin our six week journey into the realms of Business Law! Thanks for staying with me on this epic adventure in organizational management.

-Mayr

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References

Aristotle. (2012). Ethics. Seattle, WA: Amazon Digital Services, Inc.

Boatright, J. (2009). Ethics and the Conduct of Business (Sixth ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Bredeson, D., & Prentice, R. (2010). Student guide to the Sarbanes-Oxley Act. Mason, OH, USA: Cengage Learning.

Carpenter, D. (2012). The consumer financial protection bureau. Washington, DC, USA: CreateSpace Independent Publishing Platform.

Chopra, D. (Composer). (2012). The seeds of success. [D. Chopra, Performer] On 21 Day Meditation Challenge: Creating abundance [Audio Sound Recording]. San Diego, CA, USA: D. Chopra.

Ferrell, Fraedrich, & Ferrell. (2013). Business ethics and social responsibility (9th ed.). Mason, OH: Cengage Learning.

Fisher, C. (2013). Decoding the ethics code: A practical guide for psychologists. Thousand Oaks, CA: SAGE Publications, Inc.

Freeman, E., & Wicks, A. (2010). Business ethics. Upper Saddle River, NJ: Pearson Education, Inc.

Government, U. (2012). the constitution of the United States of America. New York, NY: American Civil Liberties Union.

Hanh, T. (2012). Work: How to find joy and meaning in each hour of the day. Berkeley, CA: Parallax Press.

Mann, R., & Roberts, B. (2013). Business law and the regulatoin of business. Mason, OH, USA: Cengage.

McGraw, P. (2012). Life code. Los Angeles, CA, USA: Bird Street Books.

Narlikar, A. (2005). The world trade organization: A short introduction. New York, NY: Oxford University Press.

Ross, R. (2007). Slaves to fashion: Poverty and abuse in the new sweatshops. Ann Arbor, MI: University of Michigan Press.

Artifacts, Norms and Assumptions

Published April 24, 2013 by Mayrbear's Lair

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Baack (2012) discloses in his book, Organizational Behavior, that artifacts are the overtly stated values and norms that identify individuals and organizations (Baack, 2012). Individual artifacts include the car a person drives, the clothing and jewelry they wear, piercings and other forms of items of value. These artifacts transmit nonverbal messages or kinesic cues that are communicated in a nonlinguistic way. An organization’s culture on the other hand, is determined by the observable artifacts. They represent the physical signs of an organization’s dominant culture, like the golden arches of McDonalds.  The most significant observable artifact at Capitol-EMI Industries, my former place of employment is the historic Capital Records Tower building in Hollywood. Like McDonald’s golden arches, the Capitol Records Tower is instantly recognized by the unique design which represents a stack of record discs. As a newly hired employee, I was fascinated with the design of a round building. It’s one thing to marvel at it from the outside, but another experience entirely from within the tower walls. The offices I worked at were located on the eleventh floor, so the views from that height were magnificent. When the Paramount Studios lot caught fire from the set of one of the Star Trek movies, we were able to view it from the office bay windows.  It wasn’t until I was promoted and transferred to the EMI offices down the road that I really began to appreciate the tower building. Although I was content to find employment in a smaller one story structure, where our executive offices were located, I look back now at the tower with fond memories.

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The Capitol Records culture was transmitted in a variety of ways through the espoused values which include emphasis on sustainability and a commitment to high quality entertainment. The combination of observable artifacts which includes the company brand and logo, the tower building, and the catalog of famous artists, along with the espoused and enacted values helped create role clarity for the employees. For example, the lobby of the building displays many gold records from artists including: The Andrew Sisters, Frank Sinatra, The Beatles, The Beach Boys, Nat King Cole, Neil Diamond, Bob Seger, and Tina Turner. The personnel who work at the tower encounter these observable artifacts every day that gives staffer a sense of pride. Many of us grew up listening to these artists and were proud to be a part of such a prestigious family.

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Schein (2010) contends the connection between leadership and culture is clear in organizational cultures and micro-cultures. Managers influence the behavior of the subordinates. Those who are resistant to change do not last very long. (Schein, 2010). For example, when I was initially hired, I had just relocated from Arizona where I grew up. I had not resided in California long enough to adapt and blend in with the Southern California culture which was entirely different from that of a desert state like Arizona. My sense of style reflected that of a conservative small town. In fact, I recall one individual compare my fashion style to that of an airline flight attendant, which translated as professional, but not very hip. The dress code varied from floor to floor and department to department. For example, the executive offices where the CEO and high ranking officers worked (all male) and each dressed in suit and tie, while their administrative staff were dressed in professional accouterments that reflected their executive office. The floor where the A&R (Artist and Repertoire) and R&B (Rhythm and Blues) departments were located (where our Business Affairs division was also situated) the executives attire resembled that of the artists they represented. For instance, the executives who signed the rock bands dressed like the rock stars; the executives who signed the rap artists looked like rappers. I was employed with the attorneys that negotiated the artist contracts and eventually adapted a style that blended with the norm of the support staff on that floor, which consisted of a combination of those from the A&R department and the executive offices upstairs. It was a professional style but appropriate for the LA music scene.

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The espoused values and assumptions both helped and hindered moving the company into a learning organization. Executive leaders learned to work together cohesively and in tandem to achieve company goals, but at times engaged in conflicts from policies and actions that were not always supportive. For example, when an artist’s profits and popularity soars after their initial debut album, the artist’s manager and attorney immediately look to renegotiate the contract. The department head of A&R must decide to either go up against manager and artist and refuse their requests, or face the other executive branches to keep in alignment with the artist. It is here the negotiation process begins pitting company leader against company leader as the artist’s camp engages into debates with the policy holders. Each incident becomes a learning experience as each situation is unique and no two artists are the same. Our department became involved when contractual questions or disputes arose so that we could either arm the A&R executive or some case, deflect the A&R department from operating outside the parameters of the contractual commitments. As a rule however, the members of the Capitol Records family enjoyed a positive culture of stability. The recognizable observable artifacts, perceptions of espoused and functioning enacted values, helped generate a greater sense of clarity for the personnel.

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References:

Baack, D. (2012). Organizational behavior. San Diego, CA: Bridgepoint Education, Inc.

Schein, E. (2010). Organizational culture and leadership. San Francisco, CA: John Wiley & Sons, Inc.