business ethics ch 06

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

Chapter 6Strategic Planning, Corporate Culture

and Corporate Compliance

Understanding Business EthicsStanwick and Stanwick

2nd Edition

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

When Ethics Drive a Change in Strategy

• In 2003, Charles Prince took over as CEO at Citigroup

• He stated that one of his primary goals was to improve the firm’s corporate reputation and to focus on implementing stronger internal controls and a more comprehensive ethics program at the company

• Prince described Citigroup from a broader stakeholder perspective by styling the company as a “quasipublic institution”

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Ethics and Strategic Planning• Strategic Planning is the process in which

future courses of action are developed to achieve the firm’s short and long-term goals

• Five questions to ask before making a final decision1. Why is this bothering me?2. Is it my responsibility?3. What is the ethical concern?4. What do others think?5. Am I being true to myself?

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Ethics and Strategic Planning• Mirror Test

– involves the decision maker’s ability to look in the mirror after decisions have been made and state that he/she made the right choice

• The mirror test applies to the questions “Am I being true to myself?”

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The Ethical Cycle

• Stages of the Ethical Cycle– Moral problem statement– Problem analysis– Options for actions– Ethical judgment– Reflection

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The Ethical Cycle5


Using Strategic Ethical Decisions to Build Character

• The Ethical Cycle helps employees understand who they are from an ethical perspective.

• A defining moment is when a decision maker has a choice between two plausible and acceptable strategic options.– Who am I?– Who are we?– Who is the company?

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Wakenhut’s Core Values

1. Customer focus2. Partnership3. Employees4. Professionalism5. Benchmarking6. Innovation and versatility

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How to Address Ethical Crisis and Disaster Recovery

• An ethical crisis occurs when a event that was not part of the normal course of action takes place and has an impact on the firm.

• Crisis Typology Dimensions1. Whether issues is internal or external called

Center of Gravity2. Frequency of the issues classified as normal or

abnormal

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Corporate Culture

• Defined as the shared values and beliefs of employees within any given organization

• Must have strong ethical focus to ensure that unethical activities do not take place in the workplace

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Three Levels of Corporate Culture

• Artifacts– Factors such as what is seen and heard

within a firm• Shared Values

– Based on what groups within the firm learn about what is acceptable or not acceptable

• Basic Assumptions– The agreed starting point for decision

making within the firm

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How Managers Can Change a Corporate Culture

• Two types of mechanisms in which managers can change cultures

1. Primary Embedding Mechanisms

2. Secondary Articulation and Reinforcement Mechanisms

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How to Change Ethical Values• Three stage model of change

– Stage 1 (unfreezing) – unfreezing of the individuals existing beliefs

– Stage 2 (moving) - top management needs to ensure that what is considered acceptable and unacceptable is clear

– Stage 3 (refreezing) – top managers must reinforce their commitment to support strong ethical behavior

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Formalizing a Culture of Ethics• Culture should include three basic

components1. Define your philosophy and corporate

values in a mission statement2. Develop guidelines for employees3. Establish a formal channel for

employees to report violations

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Evaluation of Corporate Culture• Deloitte & Touche Cultural Assessment of a Firm

– Do rank and file employees understand the tone set by senior management?

– Do you know that your organization’s culture encourages ethical behavior at all levels?

– Can employees throughout your organization describe the company’s code of ethics?

– Do employees in all areas of your organization ask questions and express concerns?

– Do your employees believe that the mechanisms are in place to allow them to voice opinions without fear of retribution?

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Creating a Climate of Integrity• Suggestions:

1. Set an example through strong leadership

2. Set realistic goals3. Provide training4. Distinguish between compliance and

ethics

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Ethics and Corporate Compliance• Deloitte & Touche Five Step Process to

embed positive ethics and values– Step 1 – Conduct risk/cultural assessment– Step 2 – Review current compliance program– Step 3 – Review ethical policies and procedures– Step 4 - Review and revise the communication,

training, and implementation phases of program

– Step 5 – Develop an ongoing assessment of the program

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The U.S. Federal Sentencing Guidelines for Organizations

• Guidelines were passed in 1991 and revised in 2004

• Guidelines stage that organizations can be charged with and convicted of federal crimes

• Organizations can be fined, sentenced to probation for up to five years, and ordered to pay restitution to their victims

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Common Criminal Charges from Federal Sentencing Guidelines

• Ranked in order of frequency1. Fraud2. Environmental waste discharge3. Violations of taxation4. Antitrust violations5. Food and drug criminal violations

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Corporate Compliance Systems and Global Corruption

• Corruption – Defined as the conscious abuse of public

roles and resources for the private benefit of a firm and/or the individuals of the firm

• Bribery• Extortion• Embezzlement

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Corruption Classifications

• Petty Corruption• Grand Corruption• Influence Peddling

• Transparency International – A global civil society organization whose

mission is to try to reduce corruption around the world

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The U.S. Foreign Corrupt Practices Act

• Passed into law in 1977 and amended in 1988

• Prohibits any U.S. firm and its foreign subsidiaries from giving foreign government officials any financial incentives in exchange for either obtaining or retaining any government business in that country

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The U.S. Foreign Corrupt Practices Act

• Includes both United States—based firms and domestic concerns and individuals

• Criminal penalties for violation can be up to $2 million for a firm and $100,000 and five years in prison for an individual

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Questions for Thought1. In the opening vignette, why do you think it

was important for Sanford Weill to stay on as Chairman of the Board after Charles Prince was picked as the new CEO? Why did three top level employees at Citigroup want to leave after two years with Prince as CEO? Why do you think there were multiple ethical problems at Citigroup when Prince took over as CEO?

2. Explain why ethical decision making is so important.

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Questions for Thought3. Explain corporate culture in light of ethical

conduct.4. Examine the compliance program of a

publicly held company. Do they have a mission statement related to ethics? Comment on the program.

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