The Institutionalization of Business Ethics Ethical Decision Making for Business 8e Fraedrich/Ferrell/Ferrell CHAPTER 4 The Institutionalization of Business Ethics

Chapter Objectives To distinguish between the voluntary and mandated boundaries of ethical conduct To provide specific mandated requirements for legal compliance in specific subject matter areas related to competition, consumers, safety, and the environment To specifically address the requirements of the Sarbanes–Oxley legislation and implementation by the Securities and Exchange Commission

Chapter Objectives (cont.) To provide an overview of regulatory efforts to provide incentives for ethical behavior To provide an overview of the Federal Sentencing Guidelines for Organizations recommendations and incentives for developing an ethical corporate culture To provide an overview of voluntary boundaries and the relationship to social responsibility

Chapter Outline Managing Ethical Risk Through Mandated and Voluntary Programs Mandated Requirements for Legal Compliance Gatekeepers and Stakeholders The Sarbanes–Oxley Act Laws That Encourage Ethical Conduct Federal Sentencing Guidelines for Organizations Highly Appropriate Core Practices

Institutionalization in Business Ethics Three dimensions to effective business ethics compliance Voluntary practices Mandated boundaries Core practices

Legal Compliance Laws and regulations established by governments Laws regulating business passed because stakeholders believe business cannot be trusted to do what is right

Types of Laws Civil law defines the rights and duties of individuals and organizations Criminal law prohibits specific actions and imposes punishment for breaking the law The difference is enforcement Criminal laws enforced by the state or nation Civil laws enforced by individuals (generally in court)

Most Laws Affecting Business Fall into 5 Categories Regulating competition Protecting consumers Protecting equity and safety Protecting the environment Those that encourage ethical conduct

Gatekeepers and Stakeholders Trust is the glue that holds businesses together Gatekeepers are overseers of business actions Accountants Risk Assessment

The Sarbanes-Oxley Act Establishes a system of federal oversight of corporate accounting practices Gives the Public Company Accounting Oversight Board (PCAOB) authority to monitor accounting firms that audit public corporations Requires top managers to certify their firms’ financial reports Some legal protection for whistle-blowers

Federal Sentencing Guidelines for Organizations Incentive for organizations to develop and implement programs for ethical and legal compliance Applies to all felonies and class A misdemeanors committed by employees Philosophy that legal violations can be prevented through organizational values and a commitment to ethical conduct