PEF316D: Chapter 1 Notes
Chapter 1: Ethics Expectations
So what is Business Ethics…..
It concerns ethical dilemmas or controversial issues faced by a
company. It involves a system of practices and procedures that
help build trust with the consumer.
Some business ethics are embedded in the law, such as
minimum wage, environmental regulations etc.
Business ethics can also be influenced by management
behavior with wide ranging effects across the company.
In summary business ethics are the moral principles that act as
a guideline for the way a business conducts itself and
transactions.
Assessment Criteria
• What current ethics expectations are?
• Why they have developed
• The importance of accountability to
shareholders
• How current ethics may affect:
▪ Business governance,
planning, decision making,
behavior, performance &
reporting
▪ Professional accounting
standards practices &
service in the public interest
▪ Personal behavior
Purpose
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Business & professions
function within a framework
created by the public
expectations e.g
Accountants
Scandals have traditionally
triggered a change of new
expectations for business
governance & accounting
profession around the world
The newest behavioral
expectations are based on
an acceleration of business
& professional ethics trends
that have been long in the
making.
As a result, business &
professional ethics have
become key determinants
of corporate & personal
success & focal points of
research & corporate
change.
Therefore, this chapter
explores the changes that
the ethics trends have
brought to the expectations
framework & developments
that have arisen in response
to those changes.
What changes in
expectations mean for the
directors, executives &
professional accountants?
So, business people need to
understand the historical
beginning of current
expectations, otherwise
they are likely to repeat the
errors of earlier executives
and directors.
The Ethics Environment for business: The battle for credibility,
Reputation & Competitive Advantage.
• Increase in expectation that business exist to serve the
needs of both, the shareholders & society
• People have a “stake” in a business, its activities and
impacts.
• If the interest of these stakeholders are not respected,
then action that is often painful to shareholders, officers
and directors usually occur. (NB)
• The business cannot achieve its goals without the support
of key stakeholders, such as shareholders, employees,
customers, creditors…
• Therefore, the support for a business, depends on the
credibility that stakeholders place in corporate
commitments, the company’s reputation & the strength of
its competitive advantage
Environmental concerns
What has produced change in public expectations for business
governance, behavior & accountability?
Ref to Page 3: Factors Affecting Public Expectations for Business
Behavior (NB)
Moral Sensitivity
• There has been a significant increase in the sensitivity to
the lack of fairness and to discrepancies in equitable
treatment normally afforded to individuals and groups in
society.
• Recognition by the public and corporate community of the
seriousness of sexual violence and abuse against women in
the workplace.
Bad Judgements & Activist Stakeholders
• As directors, executives and managers are human, they
make mistakes and at times public take offense and show
that they do not approve.
Economic & Competitive Pressures
• Economic growth
Financial Scandals: The Expectations Gap & the Credibility Gap
(NB)
• Public has been devastated by financial fiascos that has
been happening around the world.
• Public has become cynical about the financial integrity of
corporations
• Expectations gap – to described what the public thinks it is
getting in audited financial statements and what it is
actually getting (NB)
• Credibility gap, Audit committees and ethics committee,
increase in corporate governance reporting.
Increased Accountability & Transparency Desired
• Inclusive of corporate governance reporting
• Make more information available on website
New Expectations for Business
New Mandate for business
• The changes in public expectations have triggered, in turn,
an evolution in the mandate for business
• The business exists to serve society….
New Governance & Accountability Frameworks
• The Allegiances of directors and executives must reflect
stakeholder interests in terms of goals, processes and
outcomes.
Reinforced Fiduciary Role for Professional Accountants
• Accountants must focus their primary loyalty on the public
interest and adopt principles such as independence of
judgement, objectivity and integrity that protect the public
interest.
Responses & Developments
Emerging Governance & Stakeholder Accountability Models
• The evolution from a profit-only mandate to one
recognizing the interdependence of business and society
has progressed steadily.
• Important trends developed as a result of economic and
competitive pressures that have an effect on ethics of
business (NB) Page 15
• Corporations are legally responsible to shareholders, they
are strategically responsible to stakeholders
o Map of corporate stakeholder Accountability (NB:
Figure 1.1)
o Corporate Governance Framework (NB: Figure 1.2)
Management based on values, reputation and risks
• Determinants of Reputation
• Important risk management terms
• Ethics Risks – A Representative List
Accountability: Stakeholder report topics (NB)
Ethical Behavior & Developments in Business Ethics:
1. Philosophical approaches to ethical behavior
2. Business Ethics Concepts & Terms
3. Approaches to Ethical decision making
The Ethics Environment for professional Accountants
Role & Conduct, Governance & Services offered
Managing Ethics Risks & Opportunities: Developing a culture of
integrity (NB) page 30
Corporate Governance