IIA_Kalbers_Ethics_March22_2013

Report
Ethics, Corporate Culture, and
Business Decisions
Lawrence Kalbers, Ph.D., CPA (NY, OH)
R. Chad Dreier Chair in Accounting Ethics
Director, Center for Accounting Ethics, Governance, and the Public Interest
Loyola Marymount University
[email protected]
March 22, 2013
Overview
• Ethical approaches
• Why are unethical or “bad” decisions made
by organizations and individuals?
• Why is corporate culture important?
• Why do people “cheat”?
• Using an ethical decision making model
• Improving organizational ethics and decisions
• Q&A
Definition of Ethics
Ethics is “that branch of philosophy
dealing with values relating to
human conduct, with respect to the
rightness and wrongness of certain
actions and to the goodness and
badness of the motives and ends of
such actions.”
Source: http://dictionary.reference.com/browse/ethics
Ethics
• Personal
• Professional (IIA, AICPA, IFAC,
etc.)
• Organizational (codes, values)
Major Ethical Approaches
• Egoism
• Teleology: Utilitarianism &
Consquentialism
• Deontological: Duties/Motivation for
Behavior
• Justice & Fairness
• Virtue Ethics
AACSB Summary of Ethical Frameworks
• The consequentialist approach requires students to analyze
a decision in terms of the harms and benefits to multiple
stakeholders and to arrive at a decision that produces the
greatest good for the greatest number.
• A deontological approach raises issues related to duties,
rights, and justice considerations and teaches students to
use moral standards, principles, and rules as a guide to
making the best ethical decision.
• Virtue ethics focuses on the character or integrity of the
moral actor and looks to moral communities, such as
professional communities, to help identify ethical issues and
guide ethical action.
Source: AACSB International, Ethics Education in Business Schools, p. 12
http://www.aacsb.edu/resource%5Fcenters/EthicsEdu/EthicsEdu-in-B-Schools.pdf
Accidents or Corporate Culture?
The Ford Pinto Case
“When it was discovered the gas tank was unsafe, did
anyone go to Iacocca and tell him? “Hell, no,” replied an
engineer who worked on the Pinto, a high company
official for many years, who, unlike several others at
Ford, maintains a necessarily clandestine concern for
safety. “That person would have been fired. Safety
wasn’t a popular subject around Ford in those days.
With Lee it was taboo. Whenever a problem was raised
that meant a delay on the Pinto, Lee would chomp on
his cigar, look out the window and say ‘Read the
product objectives and get back to work.’”…Iacocca was
fond of saying, “Safety doesn’t sell.””
Source: Douglas Birsch and John H. Fielder, The Ford Pinto Case (quoted in Blind Spots,
by Max H. Bazerman and Ann E. Tenbrunsel).
Corporate Responsibility?
Responsible
We are committed to the safety and development of our people
and the communities and societies in which we operate. We aim
for no accidents, no harm to people and no damage to the
environment.
Mergers and Acquisitions
1978
2000
1988
2000
1998
BP Executives
Lord John Browne
Tony Hayward
Robert Dudley
Texas City Explosion
BP Texas City refinery exploded in 2005 killing
15 and injuring 170
http://symonsez.wordpress.com/2010/05/11/bp-safety-record-wont-help-in-court-of-publicopinion/
Thunderhorse Rig 2005, Hurricane Dennis
Prudhoe Bay Spill March 2006
Obama Announces New Policy: March 31, 2010
Deepwater Horizon Oil Spill: April 20, 2010
BP's Deepwater Horizon oil well explosion last
year killed 11 workers and caused the biggest
offshore spill in US history. Photograph: Reuters
http://www.guardian.co.uk/environment/2011/apr/20/deepwater-horizon-key-questions-answered
T-Shirts
Corporate Stakeholder Accountability
Shareholders
Activists
Governments
Creditors
Lenders
Employees
Corporation
Customers
Suppliers
Others, including the Media,
who can be affected by or who can
affect the achievement of the
corporation’s objectives
Source: Leonard J. Brooks, Business & Professional Ethics, 4th Edition
Determinants of Reputation
Credibility
Reliability
Corporate
Reputation
Trustworthiness
Responsibility
Fombrun, p. 72
Source: Leonard J. Brooks, Business & Professional Ethics, 4th Edition
Reasons for unethical or bad decisions
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Culture, values, norms, and socialization
Assigning responsibility
Rationalization
Self-deception
Organizational deviance
Society and Organizations
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Culture
Values
Norms
Socialization
Organizational Responsibility
A corporation is to be held responsible for
harmful conduct perpetrated by one of its
employees
• if the employee was acting under a general grant of
authority provided to him or her and
• if no measures were taken to prevent the harm, though
such measures could have been taken and the harm
could have been reasonably predicted.
Source: Joshua Margolis, 2001, Responsibility in Organizational Context, Business Ethics
Quarterly, 11(3), pp. 431-454.
Personal Responsibility
Organizational actors must
• investigate the projects they are working on and what
others are doing with the outputs of their work;
• communicate doubts and concerns;
• protect those with less power from adverse consequences
of investigation and communication;
• establish structures and mechanisms that prevent
wrongdoing;
• take precautions not to get involved in questionable
organizations to begin with.
Source: Joshua Margolis, 2001, Responsibility in Organizational Context, Business Ethics
Quarterly, 11(3), pp. 431-454.
Why Do We Cheat?
• Dan Ariely, behavorial economist
• Experiment on cheating (at MIT, Carnegie Mellon)
• Paying people to solve math problems
– A lot of people cheated a little bit
– Outcome was insensitive to the amount of money and
the probability of being caught
– Personal “fudge factor”
– Ten commandments/honor code
– Paid in tokens instead of money, then exchanged
– Acting student openly cheated (sweatshirt-norms)
Human Dignity
• The Golden Rule
• "Always recognize that human individuals are
ends, and do not use them as means to your
end.” (Immanuel Kant)
• “All human beings are born free and equal in
dignity and rights. They are endowed with
reason and conscience and should act towards
one another in a spirit of brotherhood.” (Article
1, The Universal Declaration of Human Rights,
1948)
The Fraud Triangle
Pressure/Need
Opportunity
Rationalization
Rationalization Tactics
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Legality*
Denial of responsibility*
Denial of injury*
Denial of victim*
Social weighting*
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Appeal to higher loyalties*
Balancing the ledger*
Everyone else is doing it**
Entitlement**
*Source: Blake Ashforth and Vikas Anand, “The Normalization of Corruption in Organizations,” Research in Organizational
Behavior, 2003, Vol. 25: 1-52.
**Source: Joseph Heath, “Business Ethics and Moral Motivation: A Criminological Perspective,” Journal of Business Ethics, 2008,
Vol. 83: 595-614.
“Ethical Fading”: The Role of Self-Deception
Avoiding or disguising moral implications
of a decision in favor of self-interest
• Language euphemisms
• The slippery slope
– “Numbing” through repetition
• Errors in perceptual causation
– Individuals, systems
Source : A. Tenbrunsel and D. Messick, “Ethical Fading: The Role of Self-Deception in Unethical Behavior,” Social Justice
Research, 2004, Vol. 17, No. 2: 223-236.
Organizational Deviance/Routine Nonconformity
The system responsible for the production of
routine nonconformity includes:
• the environment of organizations,
• organization characteristics (structure, processes, tasks), and
• the cognitive practices of individuals within them.
Source: Diane Vaughan. The Dark Side of Organizations: Mistake, Misconduct, and Disaster. Annual
Review of Sociology, Vol. 25 (1999), pp. 274.
Simple Approaches to Ethical Decisions
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The sniff test
The gut test
The momma test
The Wall Street Journal test
Laura Nash’s 12 Questions
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Have you defined the problem accurately?
How would you define the problem if you stood on the other side of the fence?
How did this situation occur in the first place?
To whom and what do you give your loyalties as a person and as a member of
the corporation?
What is your intention in making this decision?
How does this intention compare with the likely results?
Whom could your decision or action injure?
Can you engage the affected parties in a discussion of the problem before you
make your decision?
Are you confident that your position will be as valid over a long period of time
as it seems now?
Could you disclose without qualm your decision or action to your boss, your
CEO, the board of directors, your family, or society as a whole?
What is the symbolic potential of your action if understood? If misunderstood?
Under what circumstances would you allow exceptions to your stand?
Source: Laura L. Nash, Ethics without the sermon, Harvard Business Review, November-December, 1981, pp. 78-90.
Keeping Your Colleagues Honest
• Many Excuses for Silence
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It’s standard practice
It’s not a big deal
It’s not my responsibility
I want to be loyal
• Confronting the Problem
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Treat the conflict as a business matter
Recognize that this is part of your job
Be yourself
Challenge the rationalizations
Turn newbie into an asset
Expose faculty either/or thinking
Source: Mary C. Gentile, Keeping Your Colleagues Honest, Harvard Business Review, March 2010, pp. 114-117.
The Moral Person and Moral Manager
Moral Person
Moral Manager
Traits
Role Model
Behaviors
Rewards and Discipline
Decision-Making
Communicating About
Ethics and Values
Source: Trevino, L.K., L.P. Hartman, and M. Brown. Moral Person and Moral Manager: How Executives Develop a
Reputation for Ethical Leadership. California Management Review, Summer 2000, Vol. 42, Issue 4: pp. 128-142.
Applied Ethical Decision Model
• Recognize an Ethical Issue Consultation/
Collaboration
• Get the Facts
• Evaluate Alternative Actions
– Consider and prioritize:
• Professional principles and standards
• Consequences (stakeholder analysis)
• Personal and organizational values
• Make a Decision and Test It
• Act and Reflect on the Outcome
Give Voice
To Values
Adapted from an ethical decision model developed by the Markkula Center for Applied Ethics:
http://www.scu.edu/ethics/practicing/decision/making.pdf.
Potential Applied Ethical Approaches
• Professional Principles and Standards (Deontological)
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Accounting principles
Auditing standards
Tax laws
Professional and regulatory codes and rules of conduct
Fiduciary responsibilities
Legal responsibilities
Organizational rules and procedures
Other relevant standards of practice, codes, or rules
• Consequences (Consequentialism)
– Stakeholders and their interests
• Personal and organizational virtues/values (Virtue Ethics)
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Integrity
Responsibility
Commitment
Objectivity
Courage
Etc.
IPPF IIA Code of Ethics
• Principles and Rules
– Integrity
– Objectivity
– Confidentiality
– Competency
Integrity and Trust
• For an individual we distinguish integrity as a matter of
that person’s word being whole and complete. In that
context, we define integrity for an individual, group, or
organization as: honoring one’s word.
• Oversimplifying somewhat, “honoring your word”, as we
define it, means you either keep your word, or as soon as
you know that you will not, you say that you will not be
keeping your word to those who were counting on your
word and clean up any mess you caused by not keeping
your word. By “keeping your word” we mean doing what
you said you would do and by the time you said you
would do it.
Source: Erhard, Jensen, and Zaffron. 2009. Integrity: A Positive Model That Incorporates The Normative Phenomena of
Morality, Ethics, and Legality. Working Paper.
Stakeholder Analysis
Stakeholders: Now you are at a stage to identify the interested parties
(i.e., stakeholders) based on the compiled facts and alternatives.
• Who is affected by our decision or any of the alternatives?
• What are their relationships, their priorities to me, and what is their
power over my decision?
• Who has a stake in the outcome?
• Do not limit your inquiry only to those stakeholders to whom you
believe you owe a duty; sometimes a duty arises as a result of the
impact. For instance, you might not necessarily first consider your
competitors as stakeholders; however, once you understand the
impact of your decision on those competitors, an ethical duty may
arise.
Source: Laura P. Hartman, Perspectives in Business Ethics, Third Edition, McGraw-Hill Irwin, New York, 2005.
Consultation/Collaboration
• In applying the ethical decision model, DON’T GO IT
ALONE!
• Find others to get their feedback (consultation)
• Work with others toward a solution (collaboration)
Giving Voice to Values (GVV)
• Seven Pillars of GVV Curriculum
– Acknowledging shared values
– Choosing to act
– Normalizing values conflicts
– Defining professional purpose
– Understanding the self
– Using one’s voice
– Preparing responses (“scripts”)
Source: Mary C. Gentile, Voicing Values, Finding Answers, BizEd, July/August 2008, pp. 40-45.
Improving Organizational Ethics and Decisions
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Mission
Tone at the top
Leadership (at all levels)
Culture, shared values, shared responsibilities
Appreciation of cultural differences
Policies and procedures
Ethical decision models, including consultation/
collaboration
Risk assessment, including ethics/reputational risk
Proper reward structure
Training and reinforcement
Hiring and retention practices
Questions?

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