The document discusses the institutionalization of business ethics through three dimensions: voluntary practices like philanthropy, core practices that are often legally encouraged like best practices, and mandated boundaries like laws and regulations. It covers topics like the categories of laws governing businesses, incentives for organizations to implement compliance programs, and the importance of institutionalizing ethics through appropriate core practices.

1. Chapter 4:
The Institutionalization of
Business Ethics
Part Two:
Ethical Issues and the
Institutionalization of Business
Ethics
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2. Institutionalization in Business
Ethics
Three dimensions to effective business
compliance
 Voluntary practices: Include beliefs, values, and
voluntary contractual obligations of a business
 All businesses have some voluntary commitments
 Philanthropy: Giving back to communities and causes
 Core practices: Documented best practices, often
encouraged by legal and regulatory forces and
trade associations
 The Better Business Bureau can provide direction
 Mandated boundaries: Externally imposed
boundaries of conduct (e.g. laws, rules, and
regulations)
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3. Legal Compliance
Laws and regulations established by
governments
 Set minimum standards for responsible behavior
 Laws regulating businesses are required because
stakeholders believe businesses cannot be trusted
to do what is right in some areas
 Consumer safety
 Environmental protection
 Policy changes over time in response to business
abuses and consumer demands for safety
 Telling employees to obey the law is meaningless
without training in legal risk areas
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4. The Elements of an Ethical Culture
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5. Types of Laws
 Civil law defines the rights and duties of
individuals and organizations
 Individuals (in court) enforce civil laws
 Criminal law prohibits specific actions and
imposes punishments for breaking the law
 State or nation enforces criminal laws
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6. Relationship Between Top Management Talking about
Ethics and Employees NOT Observing Misconduct
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7. Mandated Requirement for Legal
Compliance
 Laws establish the basic ground rules for
responsible business activities
 Five categories of laws
1. Regulating competition
2. Protecting consumers
3. Protecting equity and safety
4. Protecting the environment
5. Incentives to encourage organizational compliance
programs
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8. Laws Regulating Competition
Laws passed to prevent the establishment
of monopolies, inequitable pricing, and
other practices that reduce or restrict
competition among businesses
 Sometimes called procompetitive legislation
because they encourage competition and
prevent activities that restrain trade
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9. Laws Protecting Consumers
 Laws protecting consumers require businesses to
provide accurate information about products and
services and to follow safety standards
 The first consumer protection law was passed in 1906
in response to poor working conditions in factories
 The FTC’s Bureau of Consumer Protection protects
consumers against unfair, deceptive, or fraudulent
practices
 The FDA regulates food safety, human drugs, and
tobacco, among other things
Groups with specific vulnerabilities have higher
levels of legal protection
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10. Laws Promoting Equity and Safety
Laws promoting equity in the workplace protect the
rights of minorities, women, older persons, and
disabled persons
 Title VII of the Civil Rights Act
 Equal Employment Opportunity Commission (EEOC)
 Affirmative action programs
 The Equal Pay Act
Occupational Safety and Health Administration
(OSHA) makes inspections to ensure a safe working
environment
• Many people still work in unsafe environments
• Companies may underreport accidents to avoid inspection
and regulation
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11. Laws Protecting the Environment
Created in response to stakeholder concerns
about businesses’ impact on environment
 Sustainability
 Meeting the present needs without compromising
future generations’ abilities to meet their own needs
 Being a green company can boost profits
 The Environmental Protection Agency (EPA) was
created to coordinate environmental agencies
Waste disposal is a serious problem for firms
and individuals
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12. The Green Consumer
Which age groups are willing to pay significantly more for green products?
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13. Gatekeepers and Stakeholders
Trust is the glue that holds businesses
together
 Gatekeepers: Overseers of business actions
 Accountants, regulators, lawyers, financial rating
firms, auditors
 Are critical in providing accurate information to
stakeholders
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14. Accountants
Measure and disclose financial information
to the public
 Assure accuracy
Some accountants have not adhered to their
stakeholder responsibilities
• Excessive focus on growth and profits
• Conflicts of interest
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15. Risk Assessors
A group that failed in its duties to
stakeholders during the most recent
recession
 Problems with risk models led to inaccurate
ratings
 Misled investors and stakeholders
More oversight of credit rating firms in the
future?
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16. The Sarbanes-Oxley (SOX) Act
Established a system of federal oversight of
corporate accounting practices
 Gives the Public Company Accounting Oversight
Board (PCAOB) authority to monitor accounting
firms
 Standards and rules for auditors in accounting firms
 Requires top managers to certify their firms’
financial reports
 More accountability for CEOs and CFOs
 Some legal protection for whistleblowers
 Loopholes existed and misconduct continued
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17. Dodd-Frank Wall Street Reform
and Consumer Protection Act
The most sweeping consumer protection
legislation since the Great Depression
 Seeks to improve financial regulation, increase
oversight, and prevent excessive risk-taking and
deceptive practices
 Created new offices
 The Office of Financial Research
 The Financial Stability Oversight Council
 The Consumer Financial Protection Bureau (CFPB)
 Increased whistle-blower protections
 Whistle-blower bounty program
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18. Federal Sentencing Guidelines for
Organizations
Passed as an 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
commitment to ethical conduct
 Passed in 1991; amendments in 2004, 2008,
and 2010
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19. Employees Who Feel Better Prepared are
More Likely to Report
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20. Highly Appropriate Core Practices
Focus on developing sound organizational
practices and structural integrity for
performance measures
 Not a focus on individual morals
 Most ethical issues relate to nonfinancial
issues
 The Sarbanes-Oxley Act and Dodd-Frank Act
provide standards for financial performance
 The Integrity Institute developed a model that
standardizes measures for nonfinancial
performance
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21. Voluntary Responsibilities
Relate to business’ contributions to
stakeholders
 Four major benefits
 Improves quality of life in communities
 Reduces government involvement
 Develops employee leadership skills
 Helps create an ethical culture
Cause-related marketing: Ties an organization’s
product(s) to a social concern through a marketing
program
Strategic philanthropy: The synergistic and
mutually beneficial use of a company’s core
competencies and resources to deal with social
issues
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22. The Importance of
Institutionalization in Business Ethics
Involves embedding values, norms, and
artifacts in organizations, industries, and
society
 The failure to understand highly appropriate
core practices provides the opportunity for
unethical conduct
© 2013 Cengage Learning. All Rights Reserved. 22