Chapter 6Chapter 6

Fostering Ethical BehaviorFostering Ethical Behavior

The Year of the Whistle-BlowerThe Year of the Whistle-Blower TimeTime magazine’s “Persons of the Year” for 2002 magazine’s “Persons of the Year” for 2002

were Sherron Watkins, Coleen Rowley, and Cynthia were Sherron Watkins, Coleen Rowley, and Cynthia Cooper, three prominent whistle-blowers.Cooper, three prominent whistle-blowers. Watkins is the Enron vice president who wrote a letter to Watkins is the Enron vice president who wrote a letter to

chairman Ken Lay warning him that the company was chairman Ken Lay warning him that the company was using improper accounting procedures.using improper accounting procedures.

Riley is an FBI staff attorney who caused a sensation with Riley is an FBI staff attorney who caused a sensation with a memo to FBI director Robert Mueller about how the a memo to FBI director Robert Mueller about how the bureau ignored pleas from her field office to investigate bureau ignored pleas from her field office to investigate Zacarias Moussaoui, now indicted as a 9/11 co-Zacarias Moussaoui, now indicted as a 9/11 co-conspirator.conspirator.

Cooper disclosed to WorldCom’s board of directors that Cooper disclosed to WorldCom’s board of directors that the company had covered up $3.8 billion in losses the company had covered up $3.8 billion in losses through fraudulent bookkeeping.through fraudulent bookkeeping.

Over the last few years, many major corporations, Over the last few years, many major corporations, including Enron, Arthur Andersen, Tyco, and including Enron, Arthur Andersen, Tyco, and WorldCom, have been the subjects of huge WorldCom, have been the subjects of huge scandals.scandals.

Encouraging Ethical BehaviorEncouraging Ethical Behavior

EthicsEthics are principles of morality or conduct.are principles of morality or conduct. Business ethicsBusiness ethics are rules about how are rules about how

businesses and their employees ought to businesses and their employees ought to behave.behave.

Business ethics help to guide an organization’s Business ethics help to guide an organization’s efforts and offer a foundation for its culture.efforts and offer a foundation for its culture.

The need for ethical behavior in organizations The need for ethical behavior in organizations has been dramatized by some very visible has been dramatized by some very visible ethical violations, including kickbacks, bribes, ethical violations, including kickbacks, bribes, and myriad other forms of corruption.and myriad other forms of corruption.

Bribes and KickbacksBribes and Kickbacks

Bribery in overseas dealings has increased sharply Bribery in overseas dealings has increased sharply in the last two decades; it has been estimated that in the last two decades; it has been estimated that bribes paid to acquire large contracts in developing bribes paid to acquire large contracts in developing countries now exceed 15% of the contracts’ value.countries now exceed 15% of the contracts’ value.

Outright bribes and payments for Outright bribes and payments for guanxiguanxi, or , or “connections,” total $3 billion to $5 billion in China.“connections,” total $3 billion to $5 billion in China.

Kickbacks occur when someone who has won a Kickbacks occur when someone who has won a contract or made a sale through favorable contract or made a sale through favorable treatment gives back part of the profits from the treatment gives back part of the profits from the transaction to the party providing the favor. They transaction to the party providing the favor. They are proliferating.are proliferating.

SweatshopsSweatshops

Many U.S. companies have been charged with running inhumane Many U.S. companies have been charged with running inhumane sweatshopssweatshops, most of them in developing countries, with low , most of them in developing countries, with low wages, long hours, and unhealthy conditions, often employing wages, long hours, and unhealthy conditions, often employing children or forced labor.children or forced labor.

John Sweeney, President of the AFL-CIO, said corporations are well John Sweeney, President of the AFL-CIO, said corporations are well looked after “while 250 million children around the world go to looked after “while 250 million children around the world go to work, not school, and tens of thousands of workers are chained work, not school, and tens of thousands of workers are chained into forced labor and prison camps.”into forced labor and prison camps.”

Activists charge that many products made by Gap and Nike, Activists charge that many products made by Gap and Nike, among others, are manufactured in Third World sweatshops.among others, are manufactured in Third World sweatshops.

The Fair Labor Organization is an anti-sweatshop group. Its The Fair Labor Organization is an anti-sweatshop group. Its members agree to accept the group’s code of conduct and accept members agree to accept the group’s code of conduct and accept external monitoring of their compliance to the code.external monitoring of their compliance to the code.

In 2003 Nike agreed to pay the Fair Labor Organization $1.5 million In 2003 Nike agreed to pay the Fair Labor Organization $1.5 million in a settlement relating to working conditions in its foreign in a settlement relating to working conditions in its foreign factories. factories.

Ethics and Firm PerformanceEthics and Firm Performance

One recent study found that companies that had an One recent study found that companies that had an “ethical commitment” -- as evidenced by inclusion “ethical commitment” -- as evidenced by inclusion of ethics codes in the management reports within of ethics codes in the management reports within annual reports -- had much higher levels of annual reports -- had much higher levels of performance than did those without such codes.performance than did those without such codes.

Also, some companies with an “ethical” Also, some companies with an “ethical” commitment had higher scores on commitment had higher scores on FortuneFortune reputation ratings.reputation ratings.

Committing specific unethical acts may have Committing specific unethical acts may have disastrous consequences for organizations and their disastrous consequences for organizations and their officers. officers.

Whistle-BlowingWhistle-Blowing Whistle-blowersWhistle-blowers are individuals who report to the press, are individuals who report to the press,

government, or other parties outside the firm illegal or government, or other parties outside the firm illegal or unethical activity within the firm.unethical activity within the firm.

Whistle-blowers may find their jobs and careers Whistle-blowers may find their jobs and careers threatened.threatened.

About 35 states now have laws protecting whistle- blowers.About 35 states now have laws protecting whistle- blowers. The federal False Claims Act allows whistle-blowers to sue The federal False Claims Act allows whistle-blowers to sue

government wrongdoers in the name of the United States.government wrongdoers in the name of the United States. Opponents of whistle blower protection argue that it may Opponents of whistle blower protection argue that it may

be misused by marginal employees, may result in be misused by marginal employees, may result in sidestepping of internal resolution mechanisms, and may sidestepping of internal resolution mechanisms, and may lead to “dialing- for-dollars” whistle-blowing.lead to “dialing- for-dollars” whistle-blowing.

Legal Remedies for Unethical Legal Remedies for Unethical BehaviorBehavior

One of the earliest legal codes dealing with unethical behavior was the One of the earliest legal codes dealing with unethical behavior was the Code of Hammurabi, consisting of 282 rules outlining all aspects of public Code of Hammurabi, consisting of 282 rules outlining all aspects of public involvement.involvement.

Governments are increasingly applying criminal laws to companies and Governments are increasingly applying criminal laws to companies and company executives.company executives.

The Foreign Corrupt Practices Act of 1977 was enacted in response to The Foreign Corrupt Practices Act of 1977 was enacted in response to disclosures that American companies were paying bribes to high disclosures that American companies were paying bribes to high government officials in foreign countries in an attempt to win contracts and government officials in foreign countries in an attempt to win contracts and sell products and services.sell products and services.

The 1991 Sentencing Guidelines for Organizations provide tough sanctions, The 1991 Sentencing Guidelines for Organizations provide tough sanctions, including jail sentences and fines in the millions of dollars, for those including jail sentences and fines in the millions of dollars, for those convicted of corporate lawbreaking.convicted of corporate lawbreaking.

In response to financial scandals, Congress passed the Sarbanes-Oxley Act In response to financial scandals, Congress passed the Sarbanes-Oxley Act of 2002, intended to increase the transparency, integrity, and of 2002, intended to increase the transparency, integrity, and accountability of public companies.accountability of public companies.

The Code of HammurabiThe Code of Hammurabi

6. If anyone steal the property of a temple or of the court, 6. If anyone steal the property of a temple or of the court, he shall be put to death, and also the one who receives he shall be put to death, and also the one who receives the stolen thing from him shall be put to death.the stolen thing from him shall be put to death.

55. If any one open his ditches to water his crop, but is 55. If any one open his ditches to water his crop, but is careless, and the water flood the field of his neighbor, careless, and the water flood the field of his neighbor, then he shall pay his neighbor corn for his loss.then he shall pay his neighbor corn for his loss.

102. If a merchant entrust money to an agent (broker) for 102. If a merchant entrust money to an agent (broker) for some investment, and the broker suffer a loss in the some investment, and the broker suffer a loss in the place to which he goes, he shall make good the capital place to which he goes, he shall make good the capital to the merchant.to the merchant.

106. If the agent accept money from the merchant, but 106. If the agent accept money from the merchant, but have a quarrel with the merchant (denying the receipt), have a quarrel with the merchant (denying the receipt), then shall the merchant swear before God and witnesses then shall the merchant swear before God and witnesses that he has given this money to the agent, and the that he has given this money to the agent, and the agent shall pay him three times the sum.agent shall pay him three times the sum.

115. If any one have a claim for corn or money upon 115. If any one have a claim for corn or money upon another and imprison him; if the prisoner die in prison a another and imprison him; if the prisoner die in prison a natural death, the case shall go no further.natural death, the case shall go no further.

196. If a man put out the eye of another man, his eye shall 196. If a man put out the eye of another man, his eye shall be put out.be put out.

Guidelines for Ethical BehaviorGuidelines for Ethical Behavior Be honest, direct, and open in your dealings with Be honest, direct, and open in your dealings with

others.others. Take ethical stands on difficult issues.Take ethical stands on difficult issues. Ask whether your actions respect the rights of Ask whether your actions respect the rights of

others.others. Ask whether your actions are just.Ask whether your actions are just. Ask how you would feel if the act was done to you.Ask how you would feel if the act was done to you. Use your power in ethical ways.Use your power in ethical ways. Apply the sunlight test.Apply the sunlight test.

“Always do right. This will gratify some people, and astonish the rest.”

Mark Twain

Encouraging Ethical Behavior in Encouraging Ethical Behavior in OthersOthers

Promote, communicate, and reward ethical Promote, communicate, and reward ethical behavior as a key value.behavior as a key value.

Model ethical behavior in public and private.Model ethical behavior in public and private. Speak out against unethical behavior when you Speak out against unethical behavior when you

see it.see it. Communicate expectations regarding ethical Communicate expectations regarding ethical

behavior, including through a code of ethics.behavior, including through a code of ethics. Make sure that goals don’t push employees into Make sure that goals don’t push employees into

unethical behavior; unreasonable goals are often unethical behavior; unreasonable goals are often the motivation for lying, cheating, and stealing.the motivation for lying, cheating, and stealing.

Encouraging Ethical Behavior in Encouraging Ethical Behavior in OthersOthers

(Continued)(Continued) Encourage ethics training.Encourage ethics training. Give employees ways to voice their ethical Give employees ways to voice their ethical

questions and concerns, such as through questions and concerns, such as through use of ethics hot lines and ombudsmen.use of ethics hot lines and ombudsmen.

Set up internal programs to resolve ethical Set up internal programs to resolve ethical conflicts.conflicts.

Create a culture of ethics.Create a culture of ethics.

Lockheed MartinLockheed MartinCode of Ethics and Business Conduct Code of Ethics and Business Conduct

(Excerpt)(Excerpt)Lockheed Martin aims to set the standard for ethical conduct at all of

our locations throughout the world. We will achieve this through behavior in accordance with six principles: Honesty, Integrity, Respect, Trust, Responsibility, and Citizenship.Honesty: to be truthful in all our endeavors; to be honest and forthright with one another and with our customers, communities, suppliers, and shareholders.Integrity: to say what we mean, to deliver what we promise, to fulfill our commitments, and to stand for what is right.Respect: to treat one another with dignity and fairness, appreciating the diversity of our work force and the uniqueness of each employee.Trust: to build confidence through teamwork and open, candid communication.Responsibility: to take responsibility for our actions, and to speak up — without fear of retribution — and report concerns in the workplace, including violations of laws, regulations and company policies, and seek clarification and guidance whenever there is doubt.Citizenship: to obey all the laws of the United States and other countries in which we do business, and to do our part to make the communities in which we live and work better.

http://www.lockheedmartin.com/wms/findPage.do?dsp=fec&ci=13120&rsbci=13127&ftihttp://www.lockheedmartin.com/wms/findPage.do?dsp=fec&ci=13120&rsbci=13127&fti=0&ti=0&sc=400=0&ti=0&sc=400

A Short Code of EthicsA Short Code of Ethics

A A VeryVery Short Code of Conduct Short Code of Conduct

ITT Industries Code of Corporate Conduct:ITT Industries Code of Corporate Conduct:

Doing the Right Thing – AlwaysDoing the Right Thing – Always

http://www.ittfluidtechnology.com/conduct/start/http://www.ittfluidtechnology.com/conduct/start/

The Bottom Line: Encouraging The Bottom Line: Encouraging EthicalEthical

Employee BehaviorEmployee Behavior

Develop aCode ofEthics

CommunicateStandards for

EthicalBehavior toEmployees

ProvideEthics

Training toEmployees

ModelAppropriate

EthicalBehavior forEmployees

Design andImplement

Policies ThatReward Ethical

EmployeeBehavior

Design and Implement

Policies ThatIdentify

UnethicalBehavior

Enforce aZero-Tolerance

Policy forUnethicalEmployeeBehavior

Establish andMaintain an

OrganizationalCulture That

Values EthicalBehavior