Chapter 3
Organizational
Ethics
Instructor: Dr. Tôn Nữ Ngọc Hân
Center for Public Administration
International University
Vietnam National University HCMC
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Learning Outcomes
• Define organizational ethics.
• Explain the respective ethical challenges facing the functional
departments of an organization.
• Discuss the position that a human resource (HR) department
should be at the center of any corporate code of ethics.
• Explain the potential ethical challenges presented by generally
accepted accounting principles (GAAP).
• Determine potential conflicts of interest within any
organizational function.
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Defining Organizational Ethics
1
Business ethics is separate from the general subject of ethics
because:
• Stakeholders have a vested interest in the ethical performance of an
organization.
• In a work environment, one maybe in a situation where one’s personal
value system may clash with the ethical standards of the organization’s
operating culture.
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Defining Organizational Ethics
2
• Organizational culture: Values, beliefs, and norms that all the
employees of an organization share.
• Value chain: Key functional inputs that an organization
provides in the transformation of raw materials into a
delivered product or service.
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Figure 3.1: Representative Company Value Chain
Sources: Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Simon and Schuster, 2008);
and Arthur A. Thompson Jr., Alonzo J. I. Strickland III, and John E. Gamble. Crafting & Executing Strategy: The Quest for Competitive
Advantage: Concepts and Cases, 14th ed. (New York: McGraw-Hill, 2005), p. 99.
Access the text alternative for slide images.
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Ethical Challenges in Research and Development
Critical commitment to the consumer in the provision of product
quality, safety, and reliability.
• Noncompliance can lead to negative press coverage, expensive lawsuits,
and risk of bankruptcy.
Ethical dilemmas can arise when delivery of a design does not
match the manufacturing cost.
• Should best materials be used or second best to save money?
• Should a full battery of tests be run or just computer simulations?
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Ethical Challenges in Manufacturing
Ethical challenges inherent in arriving at a compromise.
• Supply problem while building a product based on design specifications.
• Should the delivery be delayed, or an alternative and less reliable supplier be
used?
• Will there be assurance of quality from the alternative supplier?
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Ethics in Marketing
Marketers provide products or services to customers who have
already expressed a need for and a desire to purchase those
products.
Unsuspecting customers are induced to buy products they do
not really need by commercials and advertisements.
• Marketers emphasize customer service.
• Argue that customer satisfaction justifies the methods used to achieve the
outcome in spite of the misleading message.
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Ethical Challenges in Marketing: Utilitarianism
versus Universal Ethics
Utilitarianism.
• Ethical choices that offer the greatest good for the
greatest number of people.
Universal ethics.
• Actions that are taken out of duty and obligation to a
purely moral ideal rather than based on the needs of the
situation.
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Ethical Challenges in Marketing
Code of ethics adopted by American Marketing Association
(AMA) recommends the following:
• Do no harm.
• Foster trust.
• Improve customer confidence.
• Establish clear ethical values of honesty, responsibility, fairness, respect,
openness, and citizenship.
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Ethical Challenges in Human Resource (HR)
1
Human resource function should be directly involved in the
relationship between the company and the employee.
Responsibilities of the HR.
• Creation of the job description for the position.
• Recruitment and selection of the right candidate for the position.
• Orientation of the newly hired employee.
• Efficient management of payroll and benefits for the happy and productive
employee.
• Documentation of periodic performance reviews.
• Documentation of disciplinary behavior and remedial training.
• Creation of a career development program for the employee.
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Ethical Challenges in Human Resource (HR)
As a legally responsible function to prevent unethical conduct,
HR should:
• Ensure that ethics is a top organizational priority.
• Ensure that the leadership selection and development processes include
an ethics component.
• Ensure that the right programs and policies are in place.
• Stay abreast of ethics issues.
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2
Areas in Finance Function
Financial transactions: Handling flow of money through an
organization.
Accounting function: Keeps track of all financial transactions.
• By documenting the credits and debits and balancing the accounts at the
end of the period.
Auditing function: Certification of an organization’s financial
statements as being accurate by an impartial third-party
professional.
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Internal Auditors
According to the Institute of Internal Auditors, internal auditors
should:
• Be grounded in professionalism, integrity, and efficiency.
• Make objective assessments of operations and share ideas for best
practices.
• Provide counsel for improving controls, processes and procedures,
performance, and risk management.
• Suggest ways for reducing costs, enhancing revenues, and improving
profits.
• Deliver competent consulting, assurance, and facilitation services.
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Ethical Challenges in the Finance, Accounting, and Auditing
Departments
Internal employees should not:
• Falsify documents.
• Steal money from an organization.
• Undertake any other form of fraudulent activity related to the
management of an organization’s finances.
Potential for ethical challenges and dilemmas increases
dramatically when third-party professionals who are contracted
to work for the company are involved.
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Generally Accepted Accounting Principles (GAAP)
• Govern the accounting profession.
• Not a set of laws and established legal precedents but a set of
standard operating procedures within the profession.
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Creative Bookkeeping Techniques
1
Legal to defer receipts from one quarter to the next to manage
tax liability.
Accountants face ethical challenges when requests are made for:
• Falsifying accounts.
• Underreporting income.
• Overvaluing assets.
• Taking questionable deductions.
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Creative Bookkeeping Techniques
2
Other ethical challenges faced by accountants.
• Unrealistic delivery deadlines.
• Reduced fees.
• Fees that are contingent on providing numbers that are satisfactory to the
client.
Pressure is added due to competitive tension among accounting
firms.
Code of Conduct issued by the American Institute of Certified
Public Accountants (A I C P A) provides ethical guidance and
leadership.
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Conflicts of Interest
Situations where one relationship or obligation places one in
direct conflict with an existing relationship or obligation.
• Meeting the needs of an organization’s stakeholders.
• Selling a product that has the potential to be harmful to customers.
• Selling a product that has the potential to be harmful to the environment.
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WATCHING YOUTUBE VIDEO
10 Examples of Modern Day Slavery
Link: https://www.youtube.com/watch?v=7oTqMk6qSdo
WHAT IS MORDERN DAY SLAVERY?
HOW THIS ISSUE RELATES TO ORGANIZATIONAL ETHICS AND
BUSINESS ETHICS?
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