Ethics – The Right Thing To Do!
A Discussion of Corporate and Personal Ethics
Paul J. Soos – CIA, CFE, CICA
• BA (Accounting) Baldwin-Wallace College
• Manager of Anti-Fraud Services and AP
Recovery – CBIZ
• Past Audit Director - The Scott Fetzer Company
• CPA Candidate
• Member - IIA and ACFE
• Past President of NE Ohio ACFE Chapter
• National Speaker – Fraud, Anti-Fraud Programs,
Ethics, Data Analytics
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About CBIZ, Inc.
CBIZ MHM offices
in major cities,
nationwide.
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CBIZ Risk & Advisory Services
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M&A
&
Valuations
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&
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 Business Integration (etc.)
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“Old School” Ethics
“You must not steal. You must not cheat
people, and you must not lie to each
other.”
~Leviticus 19:11
(New Century Version)
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“New School” Ethics
“The more I help others to succeed, the
more I succeed.”
~Ray Kroc
Founder, McDonald’s
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“Newer School” Ethics
“We can afford to lose money – even a lot
of money. But we can’t afford to lose
reputation – even a shred of reputation.”
~Warren Buffet
Berkshire Hathaway
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Agenda
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Business Ethics Overview
Business Ethics and Public Opinion
Corporate Culture Defined
Code of Ethics/Ethics Policy
Areas of Ethical Responsibility
Personal/Individual Ethics
Case Studies
Questions
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Business Ethics Overview
• Ethics, also known as moral philosophy, is a
branch of philosophy that involves systematizing,
defending, and recommending concepts of right
and wrong behavior
• Business ethics (also corporate ethics) is a form
of applied ethics or professional ethics that
examines ethical principles and moral or ethical
problems that arise in a business environment. It
applies to all aspects of business conduct and is
relevant to the conduct of individuals and entire
organizations.
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Business Ethics Overview
Four Important Ethical Questions
• What is now?
• What ought to be?
• How to we get from what is to what
ought to be?
• What is our motivation for acting
ethically?
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Business Ethics and Public Opinion
• Gallup Poll finds that only 17%-20% of the
public thought the business ethics of
executives to be high or very high
• Public’s interest in business ethics has
increased during the last four decades
• Public’s interest in business ethics has
been spurred by the media
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Business Ethics and Public Opinion
• To understand public sentiment towards
business ethics, ask three questions
• Has business ethics really deteriorated?
• Are the media reporting ethical problems more
frequently and vigorously?
• Are practices that once were socially
acceptable no longer socially acceptable?
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The State of Business Ethics Today
Business Ethics Relationships Types
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Employee-Employer Relations
Employer-Employee Relations
Company-Customer Relations
Company-Shareholder Relations
Company-Community/Public Interest
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Ethics and the Law
• Law often represents an ethical minimum
• Ethics often represents a standard that
exceeds the legal minimum
Frequent Overlap
Ethics
Law
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Making Ethical Judgments
Behavior or act
that has been
committed
compared
with
Prevailing
norms of
acceptability
Value judgments
and perceptions
of the observer
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Business Ethics Venn Diagram
Legal and Ethical
Profitable and Ethical,
Probably Legal, too.
PROCEED
CAUTIOUSLY
1
Ethical
Responsibility
3
1
3
FIND WAY TO
MAKE PROFITABLE
4
Legal
Responsibility
2
Profitable and Legal.
PROCEED
CAUTIOUSLY
2
Economic
Responsibility
Profitable, Legal, and
Ethical
GO FOR IT!
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Corporate Culture Defined
• A set of values, beliefs, goals, norms, and
rituals that members or employees of an
organization share
• A company’s history and unwritten rules are
a part of its culture
• An organization’s failure to monitor or
manage its culture may result in unethical
behavior
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Corporate Culture Defined
Three Models of Management Ethics
• Immoral Management - A style devoid of ethical
principles and active opposition to what is ethical.
• Amoral Management
• Intentional - does not consider ethical factors
• Unintentional - casual or careless about ethical
considerations in business
• Moral Management - Conforms to high standards
of ethical behavior.
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Questionable Behaviors – Superiors/Peers
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Amoral decision making
Unethical acts, behaviors or practices
Acceptance of legality as a standard of behavior
Bottom-line mentality, expectations of loyalty and
conformity
Absence of ethical leadership
Objectives that overemphasize profits
Insensitivity toward how subordinates perceive
pressure to meet goals
Inadequate formal ethics policies
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The Effect of Corporate Ethics
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Factors Influencing Business Ethics
• Ethical Issue Intensity
• + Individual Factors
• + Corporate Culture
• = Ethical or Unethical Behavior
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Improving the Ethical Climate
Ethics Programs
and Officers
Realistic
Objectives
Ethical DecisionMaking Processes
Codes of
Conduct
Effective
Communication
Top
Management
Leadership
Moral
Management
Discipline of
Violators
Ethics Audits
Board of Director’s
Oversight
Ethics Training
Corporate
Transparency
Whistle-Blowing
Mechanisms
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Ethics and Reputation Risk
Reputation Remains Top Nonfinancial
Risk Management Concern of Directors
Chief Audit Executive Bulletin – 9/19/12
An EisnerAmper and NACD survey finds, for the second
consecutive year, that directors discuss reputational risk
in boardrooms more than any other nonfinancial threat.
Product quality and customer satisfaction, ethics and
fraud, public perception, and IT security all factor into
board deliberations on reputation, the study notes.
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Company Practices/Business Ethics
Worst Approach: Secretive, Deceptive, Non-Responsive!
1999 – The Coca Cola Scare Case
By the time the recall was completed, 249 cases of Coke-related
sicknesses were reported throughout Europe, concentrated primarily in
Belgium. A total of 15 million cases of product were recalled costing the
bottler, Coca-Cola Enterprises (CCE), an estimated $103 million
dollars. When the outbreak began, Coca-Cola executives waited
several days to take action. Viewing the issue as low-priority, an
apology to consumers was not issued until more than a week after the
first public reports of illness. Top company officials did not arrive in
Belgium until June 18, ten days after the first incident was reported.
The company’s casual and muted approach to the crisis was first made
evident in its neglect to mention the May 12 incident – in which affected
consumers suffered similar symptoms – once the other cases were
reported, beginning in June.
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Company Practices/Business Ethics
Best Approach: Open, Honest, Responsive!
1982 – The Tylenol Scare Case
The Johnson & Johnson company, manufacturers of the Tylenol
product, has always been strict in having all of its employees adhere to
a code of ethics. There are surveys given periodically to all of their
employees to ensure that ethics are kept up. In the 1980s, there was
an incident in which seven Chicago residents died from ingesting
cyanide-laced capsules of Tylenol. The CEO at the time, James Burke,
was on a plane when the news came out and by the time he had
landed, the managers had already made the call to pull their products
off the shelves. Money was not the first priority for these mangers, but
the first priority was the social responsibility of the company for their
customers' safety.
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Approaches to Social Responsibility
Lowest
Level of Social Responsibility
Obstructionist
Stance
Defensive
Stance
Accommodative
Stance
Actively
Avoids
Responsibility
Does Legal
Minimum
Responds
to Requests
Highest
Proactive
Stance
Actively Seeks
Opportunities
to Contribute
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Code of Ethics/Ethics Policy
Formalizing the Commitment to Ethics
• Adopting Written Code of Ethics
• Instituting Ethics Programs
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Code of Ethics/Ethics Policy
What is a Code of Ethics?
• A formal statement of what an
organization expects in the way of
ethical behavior (what behaviors are
acceptable or unacceptable)
• It reflects senior management’s
organizational values, rules, and
policies
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Why Develop an Ethics Policy?
• To allow employees and stakeholders
to understand the values of the
business
• To comply with policies and codes of
conduct
• To create the ethical climate of the
business
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Ethics Program Components Example
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Reporting Violations
Investigations and Disciplinary Action
No Retaliation
General Standards of Conduct
Compliance with Applicable Laws
Conflicts of Interest
Guidelines on Gifts
Guidelines on Entertainment
Loans
Outside Employment
Service on Boards
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Business Opportunities
Annual Questionnaire
Accuracy of Company Records
Complaints
Media Policy
Unacceptable Activities
Company Property
Confidential Information
Personal Relations
Personal Appearance
Associate Responsibilities
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Implementing a Code of Ethics
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Distribute internally and externally
Assist employees in understanding
Specify management’s role
Make employee’s responsible for
understanding the code
• Establish grievance procedures
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How CEOs Support Ethics Initiatives
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Communicate directly with employees
Use their own “phraseology”
Tout successes and condemn failures
Use one standard for all employees
(regardless of level)
• Acknowledge and promote “ethically
aware” managers
• Survey employees about the program
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Role of an Ethics Officer
• Develop the Code of Ethics
• Coordinate the ethics program with
top management
• Develop effective ethics training tools
• Establish audit and control systems
• Develop enforcement techniques
• Monitor ethics training
• Revise the program as needed
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Forms of Ethics Training
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Lectures
Videos
CD-ROMs
Interactive CD-ROMs
Simulations
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Games
Cases
Brief scenarios
Manuals
Web-based materials
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Areas of Ethical Responsibility
•Responsibility Toward Society
•Responsibility Toward Customers
•Responsibility Toward Employees
•Responsibility Toward Investors
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Responsibility Toward Society
• The Environment
• Air pollution
• Water pollution
• Land pollution
• Toxic waste
• Recycling
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Responsibility Toward Society
• Public Health Issues
• Inherently dangerous products
• Alcohol, tobacco, vaccines, steroids
• Developing Workforce Quality
• Education and diversity initiatives
• Corporate Philanthropy
• Cash contributions, donations of
equipment and products
• Supporting the volunteer efforts of
company employees
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Responsibility Toward Customers
• Consumer Rights
• The Right to Be Safe - Safe operation of
products, avoiding product liability
• The Right to Be Informed - Avoiding false or
misleading advertising and providing effective
customer service
• The Right to Choose - Ability of consumers to
choose the products and services they want
• The Right to Be Heard - Ability of consumers to
express legitimate complaints to the
appropriate parties
• Unfair Pricing
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Responsibility Toward Employees
• Legal & Social Commitments
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Workplace Safety - Monitored by Occupational Safety and
Health Administration (OSHA)
Quality-of-Life Issues - Balancing work and family through
flexible work schedules, subsidized child care, and regulation
such as the FMLA of 1993
Ensuring Equal Opportunity on the Job - Providing equal
opportunities to all employees without discrimination; many
aspects regulated by law
Age Discrimination - Age Discrimination in Employment Act of
1968 protects workers age 40 or older
Sexual Harassment and Sexism - Avoiding unwelcome actions
of a sexual nature; equal pay for equal work without regard to
gender
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Responsibility Toward Employees
• Protect whistle-blowers
• Whistle-blowers often receive negative
performance appraisals, become
organizational “outcasts”, and lose their
jobs
• Companies often also establish internal
whistle-blower reporting mechanisms
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Responsibility Toward Investors
• Obligation to make profits for
shareholders
• Expectation of ethical and moral
behavior
• Improper financial management
• Avoid Insider trading
• No misrepresentation of finances
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Personal/Individual Ethics
Common Unethical Acts
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Lying to supervisors
Falsifying records
Alcohol and drug abuse
Conflict of interest
Stealing
Gift/entertainment receipt in violation of
company policy
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Sources of Ethical Norms
Fellow
Workers
Religious
Beliefs
Country or
Region
Family
The
Individual
Conscience
Profession
Friends
The Law
Employer
??????
Society at
Large
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Employee Conduct
• 10% of employees follow their
own values and beliefs
• 40% try to follow company rules
and policies
• 40% go along with the work group
• 10% take advantage of the
situation if the penalty is low and
risk of being caught is low
B
E
T
T
E
R
W
O
R
S
E
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Employee Conduct Implications
• Employees use different approaches to making
ethical decisions
• A large percentage of employees (50%) will either
go along with coworkers or take advantage of the
situation
• An Ethics Officer Association Survey indicated that
48% of employees indicated that they had done
something unethical or illegal in the past year, at a
cost of $400 billion
• Organizations must provide communication and
control mechanisms to maintain an ethical climate
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Kohlberg’s Stages of Moral Development
Lawrence Kohlberg – Developed while a psychology
postgraduate student at the University of Chicago in
1958 - originally conceived of by the Swiss
psychologist Jean Piaget
Level 1 (Pre-Conventional)
1. Obedience and punishment orientation
 How can I avoid punishment?
2. Self-interest orientation
 What's in it for me?
 Paying for a benefit
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Kohlberg’s Stages of Moral Development
Level 2 (Conventional)
3. Interpersonal accord and conformity
 Social norms
 The good boy/good girl attitude
4. Authority and social-order maintaining
orientation
 Law and order morality
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Kohlberg’s Stages of Moral Development
Level 3 (Post-Conventional)
5. Social Contract orientation
 Uphold basic rights and values
6. Universal Ethical Principles
 Principled conscience
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Ethics Case Studies
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Ethics Case Study #1
HIV in Africa and the US Bank
A CEO of a large US Bank wondered how he should think
about the issue of HIV in Africa. The bank had no
operations in Africa, but it had many African American
employees, a group of whom have come to the CEO
and asked what the bank was doing on this issue. One
leading industry executive and physician claimed that
the scientists had turned HIV into a chronic disease like
diabetes, yet thousands of people were dying daily of
the disease in many parts of the world.
What advice would you give to this CEO?
(c) 2008 R. Edward Freeman. All rights reserved.
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Ethics Case Study #2
The Business Model Dilemma
Company A had a business model that depended on low
wages and low benefits to employees. They employed
the very best techniques of efficiency management to
insure that employees were productive.
Company B in the same industry had a similar wage
structure but paid educational and health benefits for all
employees, even part time ones. Company B’s product
mix was different from A, but the two competed for entry
level employees.
How should Company A compete?
(c) 2008 R. Edward Freeman. All rights reserved.
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Ethics Case Study #3
In the News
Company X was a leading technology company in
industry A. Their technology was a key to improving the
efficiency of the conversion of plant stocks to fuel.
Company X had a worldwide reputation for social
responsibility and stakeholder engagement. They
awoke one morning to discover that were associated
with poverty and hunger, simply because their
technology helped make fuel from plants.
How should the executives at Company X think about this
issue?
(c) 2008 R. Edward Freeman. All rights reserved.
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Ethics Case Study #4
The Development Program
Company Y understands much of what we have talked
about. They believe that they need to develop their
managers to deal with this new world. But, they must
continue to get results from the old business model built
on shareholder value and relative predictability.
How should they think about this challenge?
(c) 2008 R. Edward Freeman. All rights reserved.
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Questions?
Paul J. Soos - CFE, CIA, CICA
psoos@cbiz.com 216.990.2036
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