michael j. bootsma dean’s teaching fellow in accounting ......regular meetings were held to find...
TRANSCRIPT
Let‘s determine a working definition for ethics:
“Is abiding by the law good enough?“
“Are there victimless crimes?”
What is a legalist?
Do you agree with the following statements?
◦ “It’s just business, nothing personal”
◦ “Business ethics are different than personal ethics”
◦ “Non-profit entities should have different ethical standards than for-profit entities?”
To be ethical, one must keep the law
To be ethical, one must do more than just obey the law
To be ethical, one must avoid a self-serving biased approach to the law
To be ethical, one should have the same ethical standards regardless of the nature of their activity
1) Identify whether or not an ethical issue exists
2) Distinguish between favorable and unfavorable courses of action
3) Select the most ethical course of action
4) Follow-up ◦ Was ethical behavior employed?
◦ Was the proper tone set?
◦ Were safeguards put into place?
1) Identify whether or not an ethical issue existsA: Identify key principles or values which may have been compromised or may be compromised
B: Gather the facts, examine all viewpoints, guard against bias
An agency relationship exists when an agent agrees to act on behalf of a principal and subject to a principal’s control
A fiduciary duty is a duty to act in the best interest of another◦ A fiduciary is someone who acts on behalf of
another and is required to act with good faith, honesty, and in the best interest of another
Which principals do you serve?
Which agents report to you?
What fiduciary relationships exist in your life?
The case of the government employee
Duties of the Principal◦ Cooperation
◦ Reimbursement
Duties of the Agent◦ Duty of Loyalty
◦ Duty of Notification
◦ Duty of Care
◦ Duty to Abide by Orders
An agent must not represent two principals if the principals are engaged in competition.
Example: Janine sits on the Board of Directors for General Motors and Ford.
Question: do you have competing principals?
An agent must alert a principal of material matters affecting the agency
Example: Raphael must notify his employer of an unlocked door.
Question: does notification fulfill my ethical duties?
An agent must act with the level of prudence the reasonable person would believe is necessary *** note – what a reasonable person would believe is necessary is not that same as what they are likely to do
Example: Melony is an accountant. Melony should double check her work before submitting it for review.
Question: when are you most likely to breach your duty of care?
A professional is judged against other professionals.
Michael, a handsome, funny, and charming attorney, forgets to make an estate tax election for his client. Michael is judged against other estate attorneys not just attorney’s in general.
An agent must act with sincerity and honesty and never in violation of standards of fair dealing
Example: an agent must not lie when dealing with a customer of the principal
Corporate Mission Statement
Corporate Code of Conduct
Corporate Values
ISU Code of Fiduciary and Business Conduct◦ http://www.policy.iastate.edu/policy/business/conduct
ISU Foundation: ◦ http://www.foundation.iastate.edu/s/1463/index.aspx?
pgid=358&gid=1
Student Code of Conduct: ◦ http://www.policy.iastate.edu/policy/SDR#4.1.1
Code of Computer Ethics: ◦ http://www.policy.iastate.edu/policy/it/ethics
Electrical and Computer Engineering◦ http://www.ece.iastate.edu/academics/ethics/
What incentives might drive employees to act unethically?
What incentives might drive employees to act unethically? ◦ Competing duties
◦ Financial need
◦ Greed
◦ Pressure to perform
◦ Peer pressure
◦ Revenge
◦ Malice
◦ Stuck in a cover-up
What are common areas of stress in your life as well as of those of coworkers?
What rationalizations might drive employees to act unethically?
What rationalizations might drive employees to act unethically? ◦ Underpaid and over-worked
◦ No one is hurt
◦ Everyone else is doing this
◦ This is how business is done
A one-time high school dropout
Earns a degree in respiratory therapy from University of Alabama, Birmingham
Becomes an instructor at UAB
Works for a healthcare firm in Texas
Starts his own business after his employer is sold◦ Understood the declining reimbursement rates for
in hospital procedures
Regular meetings were held to find “dirt” to fill holes in revenue numbers expected by Wall Street
“Family members” were invited to meetings to help create journal entries. ◦ Reimbursement adjustment account was used to
record additional assets and decrease a the corresponding contra revenue account. Expenses were reduced in the same manner and liabilities sometimes disappeared.
◦ Lack of paper trail made it hard to audit
When gathering facts◦ Consider sources of information
◦ Examine viewpoints
◦ Guard against bias
How does one determine what a favorable outcome is? ◦ A favorable outcome is an outcome which does not
violate ethical standards
◦ An unfavorable outcome compromises ethical standards
“Greatest Good”◦ Three step process
1) Determine courses of action
2) Weight pros and cons of courses of action
3) Choose course of action with greatest good
- Referred to as a cost/benefit analysis
- Advantages? Easy to apply
Easy to justify
- Disadvantages? Hard to apply
Hard to justify outcomes
Individuals have a right to make choices themselves and their choice is ethical as long as their choice does not interfere with another’s rights◦ Immanuel Kant, among others, is credited with
shaping this theory
◦ Kant’s Categorical Imperative: “what if everyone acted this way?”
1. Right to privacy
2. Right to the truth
3. The right not to be injured
4. The right to make agreements
5. Right to own property
Aristotle◦ “equals should be treated equally and unequals
unequally”
Advantages?
Disadvantages?
John Stacey Adams
Must have perceived balance between an employee’s input to output ratio and the employee’s perceived ratio enjoyed by peers
Mike's Inputs Greg's Inputs
Mike's Outputs Greg's Outputs=
Inputs?◦ Hours of work
◦ Quality of work
◦ Flexibility
◦ Ability to manage projects and/or people
Outputs◦ Salary
◦ Recognition
◦ Responsibility
Mike's Inputs Greg's Inputs
Mike's Outputs Greg's Outputs=
Hard to quantify some inputs
Perceived bias
Inability to correct situation
Need to evaluate the effect of a decision on the stakeholders of a corporation/organization
Who are stakeholders?◦ Shareholders
◦ Creditors
◦ Employees
◦ Government
◦ Local Community
Who are university/college stakeholders?
“Do unto others as you would have them do unto you.”
“Thou shall not kill”
“Love is patient, love is kind. It does not envy, it does not boast, it is not proud. It does not dishonor others, it is not self-seeking, it is not easily angered, it keeps no record of wrongs. Love does not delight in evil but rejoices with the truth. It always protects, always trusts, always hopes, always perseveres.”
Prima facie duties: duties that one generally tries to promote
Actual duties: duties that one is left with after examining competing prima facie duties
Fidelity
Reparation
Gratitude
Justice
Beneficence
Self-improvement
Non-maleficence (avoiding actions that do harm)
Prima facie duties as an employee?
Prima facie duties as an employer?
Actual duties as an employee?
Actual duties as an employer?
The Coase Theorem was developed by Ronald Coase an economist
Theorem tries to replace the need for legislation/rules with economic bargaining
Mary lives next door to a rental house occupied by four ISU seniors. The seniors play their music at all hours of the night and at loud levels. ◦ Assume Mary values a goodnight sleep at $100
and the boys value playing the music $50. What outcome?
◦ What if Mary values a good night sleep at $100 but the boys value their music at $200?
COSO is the Committee of Sponsoring Organizations and their mission is to provide leadership in the area of developing frameworks to help prevent fraud, improve internal controls, enterprise risk management and organizational performance.
COSO defines internal control as “a process , affected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance.”
My definition: “safeguarding assets.”
Control Environment◦ “Organization demonstrates commitment to
integrity and ethical values”
◦ Strong tone at the top
◦ Established procedures
◦ Competency
◦ Accountability
Risk Assessment◦ Specifies objectives to identify and assess risks
◦ Organization wide focus
◦ Assesses potential for fraud
◦ Identifies and assesses changes
Control Activities◦ Organization uses control activities to mitigate risks
◦ Control activities are developed over technology
◦ Established policies and procedures are in place
Information and Communication◦ Organization utilizes “relevant and quality
information”
◦ Organization uses proper internal communication regarding internal control
◦ Organization communication with external parties regarding internal control
Monitoring Activities ◦ Organization engages in ongoing evaluations of
internal controls
◦ The organization follows up on control deficiencies
Create a Strong Tone at the Top.
Engage in Periodic Employee Reviews.
Establish Separate Employee Responsibility.
Institute Physical Controls.
Perform a Periodic Review of Safeguards and Risks.
The example set by managers is extremely important
Just ask the employees of Enron
What about the overall culture?
Positive Attributes Negative Attributes
Honesty
Principled
Respect
Integrity
Service
Mercy
Gratitude
Compassion
Conscientious
Gossip Merciless Insecure Prideful Self-centered Entitled Disrespectful Hostile Revengeful
Treating others as equals◦ Valuing their potential
◦ Understanding their personality type/needs
◦ “Is this helpful?”
◦ Non violent communication
◦ Be happy for others
Forgiveness
Mercy (no retribution)