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Corporate Social Responsibility

Published July 22, 2013 by Mayrbear's Lair

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Companies are in the business of making a profit for the benefit of their stakeholders.  This in turn means they have a responsibility to the employees, customers, suppliers, communities and society at large. Boatright (2009) posits that most organizations are cognizant of their responsibilities. They seek strategies to reach desired outcomes and initiate directives that adhere to corporate social responsibility (CSR). In fact, evidence suggests it is becoming more difficult for companies to gain sufficient competitive advantage in today’s cut throat marketplace without CSR. Together with regulations that are in place, more corporations are engaged in practices that monitor such things as fair prices, fair labor conditions, direct trade, democratic and transparent organizational behavior, community development and environmental sustainability (Boatright, 2009).  Top managers, however, are not always in the best position to make ethical choices because of various components. In one case study for example, a manager was thrust into a situation that required decisions and judgments based upon the organizational culture. In addition, as an expectant parent, the leader’s financial status changed temporarily because his wife was on unpaid maternity leave. This now left him as the sole breadwinner. In short, the supervisor’s new situation made it difficult for him  to make the best choices that were in alignment with his personal moral views because of the external pressures from his job and the internal pressures of a husband and an expectant father. He was feeling stressed from being in a position where he had to contemplate choices that could ultimately result in his termination.

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The legal issue he contemplated were having to conform to new policies that lead to behavior in violation of federal trade commission laws and mandates. Upper management was pressuring him to engage in practices that encouraged using information from trusted clients to give them an advantage in the market. This in turn created unfair competition. In addition, he did not have the support of many of his departmental staff members. In fact, many voiced  loudly their objection to the new direction the firm was taking. Ferrell et al. (2012) suggest that a company’s history consists of the unwritten rules that become part of its culture. Leaders at the helm are considered responsible for their behavior as well as that of their subordinates.  Corporations that follow the guidelines set forth in the Sarbanes-Oxley Act define parameters that institutions are expected to comply with, which includes systems that monitor and assess the internal and external auditing of financial statements (Ferrell, Fraedrich, & Ferrell, 2013). By adopting these new practices proposed from upper management, their company was in a unique situation to utilize information from trusted client relationships in order to profit over other organizations. This is a serious offense that raises the alarm for stakeholders.

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There are advantages and disadvantages to the manager’s situation. The advantages are huge capital gains, status, recognition, and other enticing benefits. The disadvantage is conducting business unethically and illegally which can result in termination and incarceration. To incorporate these new practices, it encourages employees to chase monetary rewards based on commissions and fees on mutual funds that are risky, can go sour, and damage the credibility of the firm and its representatives. In short, chasing high profits unethically, will inevitably lead to the organization’s demise and the downfall of many respected careers. Because of the added pressures to provide for his expectant partner, the pressures from his superiors to engage in questionable practices, and the threat from one of his biggest clients, this leader had to face some very serious choices which could have long term negative outcomes. McGraw (2012) contends that surrounding yourself with the right people helps you learn the right actions to make the right decisions (McGraw, 2012). The financial industry tends to attract individuals that are drawn by power, which can turn to greed and corruption contingent upon personality traits. Many top executives find themselves in situations where they are called to participate in ethical misconduct from pressures like this leader faced. Their choices are: (a) comply and go with the directive of their superiors taking the risks that are involved with misconduct, (b) choose not to participate, which could ultimately cost them their job, or (c) find a solution that does not involve the exploitation of trusted client information to achieve similar positive outcomes. The last choice requires presenting a strong argument to upper management however, that supports changing the view of the superiors with reasons that urge them to engage in more ethical practices to achieve their goals. Ultimately it is up to each individual to come up with a strategy they can support and embrace with a healthy conscience.

References:

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

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

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

Ethical Training Programs

Published July 17, 2013 by Mayrbear's Lair

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Ethical training programs equip employees with strong reasoning abilities and intellectual skills that can help them comprehend and find more effective solutions to complex ethical challenges. Ferrell et al. (2013) identify six stages of moral development based on Kohlberg’s model of philosophy. They are: (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 studies also suggest that individuals continue to evolve and reshape their morals and ethical behavior based on training, education and experiences (Ferrell, Fraedrich, & Ferrell, 2013). For example, an ethical dilemma in one case, was created by an employee that works in customer service. In this situation, the employee received a gift from a customer as a small token of their appreciation. However, accepting gifts from clients goes against the company’s code of conduct policies. According to Ferrell et al., experts may identify this dilemma as stage one in Kohlberg’s cognitive moral development model. Identifying this stage, can help a supervisor address the nature of his moral dilemma to help find the best solution. In this stage of development individuals respond to obedience and punishment, where rules dictate the terms of right and wrong, and good and bad conduct, that help determine outcomes. Because the organization has clearly defined policies forbidding salespeople from accepting gifts from consumers and identifies what is acceptable business behavior, a supervisor may send the following email in response to the situation:

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By composing this letter, the supervisor is immediately taking responsibility of the seriousness of the matter and addresses the situation with recommendations to the employee for a swift resolution. The leader analyzes the issue, acknowledges the situation intensity, and identifies the matter as unethical behavior. By addressing these components, it is easier to decide on the appropriate action required to reach a mutually beneficial and ethical solution. These actions portray a skilled leader whose direct approach is sharp and swift while remaining sensitive to a valued employee’s unmitigated circumstances. There is nothing wrong with employees or clients showing appreciation for outstanding performances. However, this situation dictates that employees and clients follow the parameters of company policies to avoid situations where a staff member may lose their job by inadvertently participating in ethical misconduct by innocently receiving a reward. Boatright (2009) reminds us that justice requires that everyone has the right of equal opportunity to succeed in life (Boatright, 2009). However, receiving favors and rewards from certain clients is not fair to other employees who work just as hard and are not acknowledged for their excellent performances. Policies can change over time, however in order to do so, it must be done on a corporate wide level and implemented into the company’s culture and code of ethics throughout the organization so that employees have clearly defined parameters of what is right and wrong behavior. In conclusion, arming employees with strong reasoning abilities and intellectual skills can help them better comprehend ethical challenges and find more effective solutions to complex issues that are in alignment with corporate procedures and policies.

References:

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

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

Ethical Decision Making

Published July 15, 2013 by Mayrbear's Lair

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Making difficult decisions in a corporate arena is a complicated process for leaders, especially if they lack sufficient skills to make effective ones. Ferrell et al. (2013) suggest there are a variety of components leaders take into consideration when making decisions. They include identifying: (a) the ethical issue intensity, (b) the individual factors, and (c) the organizational factors and opportunities. These are integral elements that influence the decision making process (Ferrell, Fraedrich, & Ferrell, 2013). When making decisions, leaders must comprehend that there are both advantages and disadvantages in each decision they make. For example, standing by their moral values, a loan officer may decline approval for a $10 million dollar loan to a subsidiary of a tobacco company because of their personal views on promoting deadly products. The advantage of this decision is that it supports that individual’s moral principles. This decision portrays an individual that has adopted an idealistic kind of approach in the way they conduct business, in that they have embraced special idealist values and applies them to help make decisions that reflect a socially responsible form of business practice. Because their views are not part of corporate policy, the disadvantage of this decision is that the client went to competitors instead and secured a loan. In short, the choices were ethical to the individual, but resulted in a huge profit loss for the corporation.

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When leaders engage in important decisions, they must also consider both the ethical and legal aspects of the situation to make the most effective decisions. Ferrell et al. (2013) suggest that an individual’s locus of control influences their behavior. Their studies deduced that people who believe their destiny is controlled by others are usually not as ethical as those who believe they control their own destiny (Ferrell, Fraedrich, & Ferrell, 2013). For example, CEO’s and other top level executives are in a position of power and control for both the short and long term destiny of the company. Each want to make the best decision that is in alignment with the ethical culture of the corporation as well as their own. Ethical decisions include such things as deciding who to conduct business with and whether profits are more significant than outcomes and social responsibilities. By choosing to do business with people that are distributing and manufacturing products or services that bring harm and death to others, leaders must not only face the ethical issues involved but the legal ramifications as well. For example, by selling tobacco products outside the US where restrictions are less binding, a manager is essentially supporting profits over the welfare of innocent people. Corporations are entities and therefore do not experience feelings for people, however, the leaders and managers with families of their own, tend to feel a sense of moral obligation to protect humanity regardless of color or race. Even though a corporation is an entity that does not have feelings, it can still feel the ramifications should legal action be taken against the corporation in the future by victims for intentionally selling merchandise that causes harm from the addictive and toxic additives that are included in their products.

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Most people rely on their own principles to resolve moral issues on a day to day basis. Every leader has significant ethical and legal issues to consider that rely on the organizational culture and the moral philosophies they adapt to help in the decision making process. For example, leaders whose decisions are based on a philosophy known as virtue ethics can make decisions that turn down large profits because their choices are dictated in accordance with that individual’s ideals and the sense of morality that individual develops from their own character which tend to consist of good morals and mature perspectives. Other executives reject deals to sell products that harm consumers because of a deontological moral philosophy which is based on preserving individual rights and the intent to remain steadfast to those beliefs. A corporation on the other hand, is an entity and only interested in end results: profits. Therefore, corporations tend to fall under the teleological view of moral philosophy with focus on achieving end results that benefits all. Regardless of moral philosophy, all decision makers must carefully consider the legal parameters involved as well to avoid violations and harsh penalties.

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In conclusion, leaders want to perform at optimum levels and corporations want to enjoy success. However, as the global market continues to expand, executives, together with their corporations, are taking more measures to incorporate commitment to product integrity and social responsibility. Boatright (2009) contend that a distinguishing aspect of business is its economic character because relationships are based on economics and profit (Boatright, 2009). The bottom line is that leaders have discovered making decisions that are socially responsible is just a good way of doing business in the modern era. Corporations that behave as a tool for change, hire leaders that are motivated to make decisions in alignment with ethical policies. They are conscious of making decisions that do not create harmful outcomes to their stakeholders or the environment. Leaders and corporations whose basic tenets display socially responsible practices like recycling, adopting environmentally conscious policies, incorporate transparency in their operations, and are mindful of how their business generates profits, build trust and confidence from primary and secondary stakeholders which ultimately contributes to the overall success of that organization.

References:

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

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

Regulatory Measures

Published July 12, 2013 by Mayrbear's Lair

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It seems like practically every day a new scandal is spotlighted in the media regarding ethical misconduct. For example, recently celebrity chef Paula Deen quickly lost several corporate endorsement deals because of revelations that she engaged in behavior that reflected views of bigotry and discrimination. Other scandals, like Enron on the other hand, were just as shocking because what appeared as a highly ethical organization was, in fact, quite the opposite. It is not clear whether Deen will survive her scandal, but because of Enron, regulatory measures were implemented to prevent another occurrence of this nature. Ferrell et al. (1998) suggested that because of events like Enron, the federal government intervened to help guide the ethical conduct of organizations and institutionalized ethics as a preventative measure to prevent corporate legal violations (Ferrell, LeClair, & Ferrell, 1998). This research is focused on three significant regulatory measures: (a) The Federal Sentencing Guidelines for Organizations (FSGO), (b) The Sarbanes-Oxley Act of 2002, and (c) the Consumer Financial Protection Bureau (CFPB). This study identifies the events that led to the development of these measures and scrutinizes the impact these directives played on business ethics. In addition, case examples are included to highlight how these mandates affect ethics in business. The results of these findings conclude that in a business arena, leaders who navigate without regulations are conducive to ethical misconduct.

Three Significant Regulatory Measures

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The Federal Sentencing Guidelines for Organizations (FSGO)

When regulatory measures are implemented, they have a great impact on the ethical manner in which organizations behave and operate. Ethical compliance programs are more of a process and a commitment from organizations to practice ethical behavior than they are specific blueprints for the direction of ethical conduct. In this context, regulatory measures serve to help leaders achieve positive outcomes with social awareness and accountability. Ferrell et al. (1998) pointed out that today’s leaders are dealing with complex issues that require effective leadership skills. For example, managers are required to identify, comprehend, and implement the acceptable use of corporate funds; recognize the falsification of important documents and account records and pinpoint controversial techniques sales representatives use for closing deals. These are some of the common challenges managers face in the modern workplace. In addition, competition, political pressure, and different value systems also influence ethical conduct (Ferrell, LeClair, & Ferrell, 1998). Organizational ethics programs are established, therefore, to outline the parameters of accountability and responsibility with respect to acceptable business conduct. For instance, news reports revealed unethical practices in the grocery industry where, in some cases, managers will re-date food products to extend a product’s shelf life. This kind of ethical misconduct is identified as a white collar crime (WCC) and as a result, the government responded by issuing the Federal Sentencing Guidelines (FSG).

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The goal of these mandates was to reward organizations for implementing legal and ethical compliance programs. They were created to encourage corporations to monitor internal control systems by decreeing punishment and restitution should the systems fail. For example, to demonstrate compliance, a company is required to create and document an internal conformity program by demonstrating their ethical culture. In addition, the legal standards are communicated throughout the entire organization to make sure violations do not occur. If and when they do occur, management must provide evidence that a proactive compliance program was implemented. In short, the main objectives of the FSGO are to take aggressive actions to police and self-monitor an organization’s ethical behavior to avoid unethical acts and punish perpetrators that are engaged in WCC and misconduct. The penalties for violating these mandates include the remedy of any harmed caused, are subject to stiff fines, and include any further actions required to reduce future criminal misconduct.

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The Sarbanes – Oxley Act of 2002 (SOX)

When corporations display unethical conduct that affects the public on a grand scale, the government is forced to step in to enforce penalties that will influence social responsibility. For example, the Enron financial disaster was one of the most significant events that occurred to rattle the modern business world. It revealed a level of corruption in the business arena on an unprecedented scale. For example, to many individuals, business ethics are considered different than individual ethics. Because of this perception, Enron staffers that were cognizant of the firm’s off-balance partnerships accepted these practices as part of doing business in a competitive market. Because they were informed these partnerships were legal, employees did not perceive this conduct as an issue of ethics. Bredeson & Prentice (2010) explained that in order to avoid this happening again, the Sarbanes-Oxley Act (SOX) was developed and imposed the most important security mandates since the great stock market crash of 1929, which led Congress to pass the original federal securities laws. SOX consists of provisions that: (a) created a new federal agency, (b) restructured the entire accounting industry, (c) implemented Wall Street practice reforms, (c) created extreme alterations in corporate governance practices nationally and internationally, and (d) attacked insider trading and obstruction of justice (Bredeson & Prentice, 2010). Since then, to support these laws, the Public Company Accounting and Oversight Board (PCAOB) was developed and, together with the SEC, issued additional rules and policies to implement SOX’s many regulations.

In addition to enforcing corporate giants to revamp their governance practices, the PCAOB was also designed to protect whistleblowers. Boatright (2009) suggested that protection to private sector employees who acted as whistleblowers was a significant issue that SOX addressed for the first time. In other words, as a result of the massive fraud events from Enron, WorldComm, and other conglomerates, this reform prevents the retaliation from corporate institutions against any employees that provide law enforcement evidence which relates to the exposure of trade commission offenses (Boatright, 2009). However, the immediate purpose for SOX was to restore stakeholder confidence in the securities market once again. Experts contend the only significant complaint leaders have about SOX is that post-Enron, SEC accounting rules require market to market estimations. This practice forces financial institutions to revalue assets in situations where the value is not easily ascertainable due to pricing fluctuations. All in all, most leaders agree that despite the additional costs and extra energy required to ensure big corporations adhere to these provisions, SOX effectively enforces best practice policies in both the corporate and accounting worlds.

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The Consumer Financial Protection Bureau (CFPB)

The mortgage and loan crisis of 2008, where lenders failed to educate brokers about the disastrous consequences of falsifying financial data to help people secure loans, contributed to organizational misconduct in the financial services industry. As a result, the government stepped in once again to take more regulatory measures by outlining the legal framework to help guide ethical practices in the financial service industry. Carpenter (2012) contended that as a result of that crisis, Congress was forced to pass significant reforms through a new regulatory system called the Dodd-Frank Wall Street Reform and Consumer Protection Act. This act entitled stakeholders financial protection and established the Financial Protection Act of 2010 (CFP Act). The CFP Act in turn served to help establish the Consumer Financial Protection Bureau (CFPB or Bureau) within the Federal Reserve System  (Carpenter, 2012). The Bureau was designed to oversee and provide the rulemaking, enforcement, and supervisory powers over a wide range of consumer financial products and services as well as the institutions that sell them.

The laws also enable the Bureau principal rulemaking authority over many federal consumer protection laws that were enacted prior to the Dodd-Frank Act. Among the numerous consumer protection laws developed were the Truth in Lending Act and the Real Estate Settlement Procedures Act. These directives were designed to help stakeholders comprehend the complicated lending transactions they engage in with more transparency and accountability. In short, the Bureau serves as a system for bank supervision to ensure corporations are in compliance with federal consumer financial protection laws and make sure the markets work for families rather than bankrupt them. In 2011, the Bureau reported their operations included the assessment of each institution’s internal ability to detect, prevent, and remedy violations that may harm consumers by examining the corporation’s internal procedures (CFPB Public Affairs, 2011). These mandates and regulatory measures serve to insure that corporate moguls follow ethical governance practices to avoid further financial disasters from occurring in financial service industries.

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Conclusion

The law is ubiquitous. It enables, prohibits, and regulates practically every activity of a human being directly or indirectly in some way. Mann & Roberts (2013) purported that in an effort to resolve moral issues, experts have struggled for years to fine tune various ethical behavioral systems. Laws were created to help define relations between individuals and corporations. These relations have an effect on the economic and social order and are the products of civilization’s governance practices. In this respect, the law is designed to reflect the social, political, economic, religious, and moral principles of a society (Mann & Roberts, 2013). In other words, laws are used as tools for social control. Their function is to regulate and guide conduct in human relations.

When corporate leaders misuse their power, government agencies step in to create mandates that outline acceptable and ethical conduct which protects people and keeps the public safe. Ferrell et al. (2013) contended that these regulatory measures provide motivation for organizations to develop core practices throughout their organizations to ensure ethical and legal compliance and are designed to move emphasis away from an individual’s moral obligations. Instead, focus is put on the development of structurally sound organizational core practices and structural integrity for both financial performance and nonfinancial performance purposes. These methodologies include access to 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). The findings of this research deduce that regulatory measures implemented by the federal government have played a significant role in the development of ethical behavior in organizations because time and time again, history proves that many influential leaders who are motivated to achieve high levels of success, and operate without regulations, are unable to avoid the temptation to engage in ethical misconduct when the stakes, profits – especially when competition in the marketplace is extraordinarily high.

References

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.

CFPB Public Affairs. (2011, July 12). Consumer financial protection bureau outlines bank supervision approach. Treasury Department Documents and Publications. Latham, US: Federal Information and News Dispatch, Inc. Retrieved June 26, 2013, from http://search.proquest.com/docview/876103177?accountid=32521

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

Ferrell, O., LeClair, D., & Ferrell, L. (1998, March). The federal sentencing guidelines for organizations: A framework for ethical compliance. Journal of Business Ethics. Dordrecht, Netherlands: Springer Science & Business Media. Retrieved June 26, 2013, from http://search.proquest.com/docview/198195145?accountid=32521

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

Stakeholders and Stakeholder Orientation

Published July 10, 2013 by Mayrbear's Lair

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Corporations establish stakeholder orientation because of the influence that ethical issues and social responsibility play in their success and longevity. Boatright (2009) posits that in the traditional system of corporate governance the decision making power is controlled by the shareholders. In addition to control, shareholders are also entitled to the profits (Boatright, 2009). In a business environment however, there are many other groups that have a claim or “stake” in some respect to an organization’s products and services. In addition to the shareholders and investors, the organization’s stakeholders also include the employees, customers, suppliers, government agencies, communities and other special groups that have a claim in some form of the organization’s merchandise, operations, markets, or other areas of interest. This group is known as the primary stakeholders. The secondary stakeholders are the special interest groups and the media that also help influence the operation of a company without direct economic exchange. In this context, primary and secondary stakeholders are in a position to help define an organization’s ethical policies.

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In addition, stakeholders influence business outcomes and businesses influence stakeholders as well. Ferrell et al. (2013) describes this as a two-way relationship. Stakeholder orientation is identified as the manner in which an organization comprehends and tackles stakeholder demands with respect to ethical and social responsibility issues. The corporate governance process is comprised of three sets of actions that include: (a) the collection of information and data throughout the firm, (b) the disbursement and integration of the information, and (c) the reaction of the organization to the information (Ferrell, Fraedrich, & Ferrell, 2013). In short, stakeholder orientation implements methods to address and manage stakeholder concerns with respect to social responsibility to the community and the environment.

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Because stakeholders have the ability to withdraw their resources, they are critical to an organization’s success and are in a position to define important ethical issues. Organizations that develop effective stakeholder orientation plans identify the corporate culture, stakeholder groups, their issues, and create an open atmosphere for feedback. These are corporate governance strategies that help leaders comprehend the importance of social and ethical responsibility. For example, when activist groups with the help of the media (secondary stakeholders) disclosed to the public that Burger King’s beef supplier was destroying the Brazilian Rainforests, primary stakeholders (consumers, employees, and government agencies) united to boycott the organization to change their behavior. This movement caused Burger King to experience huge profit losses and as a result was forced to implement more ethical decisions into their business practices. The media exposé made stakeholders respond to the significant environmental issue which influenced a change in the business policies that governed the corporation. By making this change, Burger King showed it was a socially responsible corporation. This tactic help them regain their fair share of the market again. In this context, the primary and secondary stakeholders clearly affected how the corporation engaged in tactics of social responsibility with honesty and fairness to achieve positive outcomes. The rain forest was no longer being destroyed by Burger King’s business practices and as a result embraced Greener policies. These actions displayed they were socially responsible by engaging in ethical practices. In doing so, they won back the public’s trust and confidence in their brand.

References:

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

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

Identifying Ethical and Legal Issues

Published July 8, 2013 by Mayrbear's Lair

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Resolving ethical business challenges is not a topic many leaders are anxious to address. However, to stay successful in a competitive business market, leaders are required to make decisions as best as they can. One of the most sensitive issues leaders deal with are trade secrets and the complex set of problems they present with respect to the rights and obligations of personnel and their competitors. Boatright (2009) defined trade secrets as information that is used in the conduct of the business that outsiders do not have access to.  It consists of formulas, patterns, devices or a combination of information that is used in a business operation to give a company the competitive edge in the marketplace (Boatright, 2009).  An example of trade secrets may include ingredients to recipes like Mrs. Field’s Cookies, chemical compositions of products, the schematics and design of machines, details of the manufacturing of products like iPhones, the methods of quality control, results of marketing surveys, financial projections and lists of customer and suppliers.

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Ethical misconduct is common in the brokerage and financial industries because of the large amounts of money are exchanged. Wall Wall Street after all pays attention to corporations that yield high returns. Managers want to impress their family and friends and work hard to achieve high levels of success and affluence. Most are highly educated and well trained. They develop work ethic and patterns from colleagues and peers who achieved higher levels of success. Unfortunately, they do not always engage in ethical tactics to achieve their goals. But, because that is how everyone else conducts business affairs, most new employees follow suit. Unethical conduct is observed by new recruits. They learn the ropes from other high achieving brokers that purport this is how it is done in a competitive market.  New hires gather and use information to achieve higher levels profit and in doing so, cross many ethical boundaries. In this atmosphere, it is easier to go with the flow rather than stand up and go against it which could cause an employee to lose their positions and high status. In a relentless pursuit to achieve respect and success in a firm, in the community, and with their family, who look up to these successful executives, many top managers make unethical choices like using insider information to help favored clients and themselves for reasons of personal gain, because that is what the organizational culture established. The behavior was learned and expected from the peer pressure of succeeding like their colleagues.

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The longer people engage in unethical behavior the sloppier they get and begin to make mistakes they are unable to disguise or cover up. Ferrel et al. (2013) cite one case study of an executive that was engaged in unethical behavior. The case cited an executive that was copied on an email which contained inappropriate language that violated organizational policy. When the rude emails began to surface, rather than address the bad behavior, the executive chose to ignore them and forward them. By this time, in the executive’s career, the leader may have been so accustomed to an imbalance of ethics she no longer had a grip on what was considered ethical conduct. By forwarding the emails that contained rude content, she was considered a participant. Because this behavior left a paper trail that could be traced, it required disciplinary action from all those who engaged. This eventually led to her termination because of further investigations of her other business affairs. She was spotlighted. Evidence uncovered other unethical behavior and questionable business practices she engaged in that she learned from fellow co-workers. In addition, the investigation revealed she used insider information to favor certain customers to yield higher profits and returns. When people are engaged in unethical practices and make one mistake, that mistake shines a light in their direction and usually leads to further probing. That is how ENRON and other corporate scandals were revealed. Once a few unethical practices become evident, investigators intervene and discover more evidence of additional ethical misconduct that can ultimately bring the entire conglomerate down. Ferrel et al. remind us that people are likely to make ethical decisions when they discover the ethical component of an issue. They suggested that the initial stage of understanding business ethics is to develop ethical issue awareness (Ferrell, Fraedrich, & Ferrell, 2013).  Any type of misrepresentation, manipulation, or an indication of the absence of transparency in the decision making process has the potential to bring harm to others. When people covertly engage in fraudulent, illegal, or deceitful behavior it suggests a strategic plan that is meant to represent only a fragment of the truth. That kind of behavior lacks honesty and truth. Without honesty and truth, there is no trust and most people will not support businesses or leaders that are not trustworthy.

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References:

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

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

The Evolution of Business Ethics

Published July 5, 2013 by Mayrbear's Lair

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Most people develop their sense of values and principles from life experiences, spiritual institutions, the educational process, and their family environment. These are some of the components that shape an individual’s moral and ethical perceptions. However, in the business arena, Freeman and Wicks (2010) suggested that most organizational managers suffer from what is called moral muteness, or an inability to use the language of ethics as part of their managerial position. Leaders that suffer from moral muteness tend to shy away from engaging in conversations about ethical issues and look for ways to categorize and address them as bottom line challenges rather than genuine moral concerns (Freeman & Wicks, 2010). In short, ethics is an uncomfortable topic for many employers because, in most cases, it is considered a highly technical discipline requiring advanced levels of knowledge and degrees to decipher. As a result, when experts are absent, managers refrain from participating in ethical conversations because they do not have the tools to qualify as an authority on the subject. In addition, topics regarding ethics consist of blame and fault issues and leaders are hesitant to discuss these matters for various reasons including fear of making colleagues and peers their enemies, taking blame for a situation, or having their integrity questioned. This research takes a closer look at the evolution of business ethics. It includes an analysis of the development of business ethics over the past and examines how the rise of social issues played an important role.  It will illustrate how these changes impact current business philosophies and reporting practices, as well as how these components have helped shaped the author’s values and principles that evolved over time. The findings of this research conclude that while stagnation can set the stage for conflict, business ethics emerged as a result of the plethora of events that took place over time.  These events ultimately gave rise to changes in business philosophies, reporting practices, and the social issues that brought forth questions to prompt a closer examination of the morality issues in business practices.

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The Emergence of Business Ethics

The Development

Business ethics evolved from a myriad of changes that occurred over time. Ethics is a common way to determine what it means to be an upstanding citizen, a decent individual, an active participant as a parent, and is an effective tool for someone with excellent leadership skills. Ferrell et al. (2013) defined the term “ethics” as the analysis of the nature and basis of morality where moral judgments, standards, and rules of conduct are identified and addressed. Business ethics, therefore, consists of the values, ideals, and standards that guide behavior in a business climate. In this arena, organizations define specific principles that outline pervasive behavioral boundaries which are all-encompassing and absolute (Ferrell, Fraedrich, & Ferrell, 2013). In short, principles are used to develop norms that are socially accepted and enforced based on values like honor, accountability, and trust.

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The Early Stages

There were many events that occurred to impact change in business philosophies and reporting practices. Ferrell et al. (2013) postulated that initially, ethical issues as they related to business situations were discussed within the domain of philosophers and theologians in churches, synagogues, mosques, and other spiritual institutions. It is here where subjects like fair wages, labor, and the morality of capitalism were contemplated (Ferrell, Fraedrich, & Ferrell, 2013). The issues workers faced in the 1920s, for instance, brought attention to harsh working conditions and child labor laws. During this period, the concept of capitalism played an integral part in the evolution of business ethics. For example, a progressive movement provided citizens with what was defined as The Living Wage. The purpose of this movement was to encourage businesses to adopt policies that allocated sufficient income for workers to provide for their education, recreation, health, and retirement. By the 1930s, it evolved into what was known as The New Deal, in which businesses were asked to work closely with legislators to raise the family income. By the 1950s, President Truman transformed the plan into what became known as A Fair Deal. This plan addressed important concerns like civil rights and ethical issues regarding environmental responsibility.

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The 1960s

The social and political movements of the 1960s also brought forth major changes in the evolution of business ethics. Ferrell et al. (2013) point out that focus during that period evolved around environmental issues, civil right issues, increased employee/employer tensions, and the rising epidemic of alcohol and drug consumption (Ferrell, Fraedrich, & Ferrell, 2013). In 1962, for example, President Kennedy’s message to US citizens was focused on the protection of consumer interests.  He proposed a plan that introduced four basic consumer rights to help protect the public: (a) the right to safety, (b) the right to be informed, (c) the right to choose, and (d) the right to be heard. These eventually became known as the Consumer Bill of Rights and had a huge impact on the evolution of business ethics.

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The 1970s

The issue of business ethics continued to evolve and, as a result, began to emerge as a new field of study. Institutions popped up that offered more research, education, and training. Ferrell et al. (2013) contend that theology and philosophy also laid the groundwork for ethical behavior in the 1970s and identified a set of moral values that were acceptable with respect to business activities. Based on those foundations, professionals began the education process to teach and write about corporate social responsibilities offering practical strategies (Ferrell, Fraedrich, & Ferrell, 2013). Most leaders believed it was an organization’s obligation to maximize their positive impact on shareholders and consumers while minimizing their negative effects. During this period, employees were militant about ethical issues, human rights, cover-ups (following the Watergate Scandal), disadvantaged consumers, and transparency issues. These were a few of the relevant components that helped shaped business ethics at the time.

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The 1980s

Incidents like bribery, illegal contract practices, influential peddling, deceptive advertising, and financial fraud shaped the development of business ethics in the 1980s. Ferrell et al. (2013) studies revealed the military developed called the Defense Industry Initiative (DII) to addresses some of these issues in their own industry.  It was designed to guide corporate support for ethical conduct in the armed forces. Six principles of this initiative included: (a) the support of a code of conduct, (b) ethical training for employees, (c) an open atmosphere for employees to report violation without fear of retribution, (d) inclusion of internal audits with effective reporting, (e) the preservation of integrity in the defense industry, and (f) adopting a philosophy of public accountability (Ferrell, Fraedrich, & Ferrell, 2013). These initiatives have been adapted in many of today’s most successful organizations.

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The 1990s

Business ethics serves to question the morality of business practices. Unsafe working conditions and sweatshops were brought to the forefront of ethical business practices in the 1990s because of outsourcing practices to underdeveloped third world countries that a growing number of corporations were engaged in. For example, Ross (2007) disclosed that some privately owned factories in China worked their staffers twenty-seven out of thirty days, eleven hours a day, to satisfy the growing demands of the expanding global market (Ross, 2007). In addition to the atrocities committed in sweatshops, the rise of corporate liability for personal damages also played an integral role in the evolution of business ethics. This was due to the exposure of illicit practices by the tobacco industry and the ethical misconduct from the fraud and financial mismanagement scandals that were exposed. To tackle this, Bill Clinton’s administration set the climate that ushered the development of ethical compliance programs based on the principles outlined by the DII. These programs codified legal incentives to reward companies for being accountable and taking measures to prevent misconduct by implementing strategies to monitor internal legal and ethical practices.

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The New Millennium

Since the turn of the 21st century, new issues arose that continued to help business ethics evolve, like cybercrime, product safety, financial misconduct on a global level, theft of intellectual property, and ethical issues regarding the sustainability of organizations and products.  Ferrell et al. (2013) point to the increased abuses in corporate America that led an outraged public and government to demand an increase in the level of standard ethical practices in business operations.  For example, fraud and mismanagement in financial institutions led to the development of the Sarbane Oxley Act (Ferrell, Fraedrich, & Ferrell, 2013).  This new law made securities fraud a criminal offense with stiffer penalties for corporations engaged in those practices.  It also resulted in the creation of oversight boards that require companies to establish and identify a code of ethics with respect to financial reporting and the transparency of financial records to shareholders and other interested incumbents.

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Impact and Major Changes

The ethical issues leaders face today in a business culture focus on: (a) protecting the environment, (b) avoiding meltdowns like Enron, (c) the corruption of financial institutions, (d) making products that do not put the public’s health at risk, (e) keeping sexual harassment out of the work place, (f) avoiding discrimination, and (g) protecting intellectual property. Boatright (2009) suggested that law and ethics control two different domains. The law is established to protect public life, whereas ethics govern private matters (Boatright, 2009). In other words, the laws clearly define a set of enforceable rules that is applicable to everyone. Ethics on the other hand, are a matter of personal views that reflect how an individual chooses to navigate their own life. Like many leaders, this researcher discovered that in the business arena, more than the law must be taken into consideration when making important decisions and behavioral choices. In short, reliance on the law alone is not enough to make the most effective decisions to achieve the highest outcomes.

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Conclusion

Business ethics evolved from a variety of components that continue to bring about positive changeLeaders are required to operate within the framework of the law because they provide goods, services, and jobs, and are organized so that their success is reliant on the efficiency and effectiveness of their operations and the operators who guide them. In a professional arena, leaders must adhere to the parameters and legal frameworks established by society and their organization, as well as follow a standard code of ethics established by their company. The most effective employers understand that a strong foundation outlines the parameters of ethical practices and is a major contributing factor to employee commitment, investor loyalty, and consumer satisfaction that effect an organization’s profits and longevity. Freeman and Wicks (2010) purported that business ethics should not be an option for leaders. Instead, it should be embraced as an inescapable part of what it means to be a human being and apply those principles to run a successful organization (Freeman & Wicks, 2010). The findings of this research conclude that ethics is a way of communicating, behaving, and thinking to help people create and live better lives. Employers that apply ethical organizational behavior, improve their chances of making better decisions with the strength and honor of being able to defend their choices. Businesses with leaders who do not engage in ethical practices do not achieve the same successful long term outcomes. That in itself is reason enough to comply.

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References

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

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

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

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