1. Organizational Ethics
Chapter 3
Organizational Ethics

2. 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

3. Learning Objectives (continued)
Explain the potential ethical challenges presented by generally accepted accounting principles (GAAP)
Determine potential conflicts of interest within any organizational function

4. Defining Organizational Ethics
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

5. Defining Organizational Ethics (continued)
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

6. Figure 3.1 - Representative Company Value Chain

7. 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

8. Ethical Challenges in Research and Development (continued)
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?

9. 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 new supplier?

10. 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 don’t 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

11. Ethical Challenges in Marketing: Utilitarianism versus Universal Ethics
Ethical choices that offer the greatest good for the greatest number of people
Utilitarianism
Actions that are taken out of duty and obligation to a purely moral ideal rather than based on the needs of the situation
Universal ethics

12. Ethical Challenges in Marketing (continued)
Code of ethics 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

13. Ethical Challenges in Human Resource (HR)
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

14. Ethical Challenges in Human Resource (HR) (continued 1)
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

15. Ethical Challenges in Human Resource (HR) (continued 2)
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

16. 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

17. 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

18. Internal Auditors (continued)
Suggest ways for reducing costs, enhancing revenues, and improving profits
Deliver competent consulting, assurance, and facilitation services
Generally accepted accounting principles (GAAP): Set of standard operating procedures that govern the accounting profession

19. Creative Bookkeeping Techniques
Legal to defer receipts from one quarter to the next to manage the tax liability
Accountants face ethical challenges when requests are made for:
Falsifying accounts
Underreporting income
Overvaluing assets
Taking questionable deductions

20. Creative Bookkeeping Techniques (continued)
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

21. 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