Chapter 10
Establishing a Code of Ethics
and Ethical Guidelines
Understanding Business Ethics
Stanwick and Stanwick
1st Edition
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
10-1
Ethical Thought
• “I have found that the greatest help in
meeting any problem with decency and
self-respect and whatever courage is
demanded, is to know where you yourself
stand. That is, to have in words what you
believe and are acting from.”
– William Faulkner
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10-2
How We’re Fixing Up Tyco
• Eric Pilmore, Senior Vice President of Corporate
Governance at Tyco, had a giant task before him
– trying to repair the tarnished image of a
company that stayed profitable during its
notorious scandal
• All board members were changed – those who
were on ‘board’ from the Kozlowski era
• Two stage process
– The board evaluated all the activities of the former
executives and reviewed the financial statement for
each business unit
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10-3
How We’re Fixing Up Tyco
• Started from scratch to develop a new
code of ethics – their new value system
had to be incorporated into a formal
document to reestablish credibility with
their stakeholders
• Established the Guide to Ethical Conduct:
sexual harassment, potential conflicts of
interest, compliance rules, fraudulent
behavior
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10-4
Role of a Code of Ethics
• Code of ethics: a written document that
explicitly states what acceptable and
unacceptable behaviors are for all of the
employees in the organization.
– Represents the identification and interpretation of
what the firm considers acceptable behavior
• Components impacting the development of the
ethical standards of the firm:
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Social value
Institutional factors
Personal factors
Organizational factors
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10-5
Role of a Code of Ethics
• Four types of statements a company may
adopt to communicate the corporation’s
view of the subject of ethics:
– Values Statements
– Corporate Credos
– Codes of Ethics
– Internet Privacy Policies
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10-6
Code of Ethics and Stakeholders
• Code allows firm to declare its ethical
vision to all stakeholders
• Companies should consider four ethical
values when developing a code of ethics:
– Integrity
– Justice
– Competence
– utility
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10-7
Benefits of a Code of Ethics
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Employee loyalty increases
Questionable behavior decreases
Competitive positions improve
Managers get more confident
Employee relations improve
Customer relationships get more solid
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10-8
Content of a Code of Ethics
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Meeting customer expectations
Honesty
Nondelegable quality
Traceability
Respect for privacy and avoidance of conflicts of interest
Antidiscrimination
Empowerment through organizational freedom,
responsibility, and authority
• True reports
• Integrity
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10-9
Code of Ethics Content Areas
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Fiduciary responsibilities
Compliance
Accounting
Governance
Member communications
and confidentiality
• Commitment to learning
and skill enhancement
• Absence of prejudice and
harassment
• Conflict of interest
• Human resources
• Cooperation with other
credit unions
• Social responsibility
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10-10
Role of Total Responsibility
Management
• Total Responsibility Management (TRM)
– Begins with premise that the vision of the firm
drives the development of the code of ethics
– Firm’s vision establishes the benchmark goals
in which the firm is now accountable to its
stakeholders
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10-11
Role of Total Responsibility
Management
• Inspiration Process
– Vision setting and leadership commitment
– Responsibility vision and leadership
commitments
– Stakeholder engagement processes
– Foundation values
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10-12
Role of Total Responsibility
Management
• Integration: Changes in Strategies and
Management Practices
– Strategy
– Building human resource capacity
– Integration into management systems
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10-13
Role of Total Responsibility
Management
• Innovation: Focusing on Assessment,
Improvement, Learning Systems
– The responsibility measurement system
– Transparency and accountability
– Innovation, improvement and learning
systems
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10-14
Steps for an Effective Code of
Ethics
• Some companies begin their ethical codes
with a mission statement:
– Sets forth a brief explanation about what the
company stands for and why it exists
– Identifies stakeholders of the company and
explains the interactions with the group
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10-15
Elements for a Value Added Ethics
Program
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A well designed code of ethics
The assignment of functional responsibility
The proper employee training
An ethics hotline
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10-16
Reasons Ethical Codes Might be
Adopted
• Part of an internal control
system
• Product differentiation in
the marketplace
• Signal to stakeholders
about a firm’s quality and
when these stakeholders
may subsequently reward
firms for participation
• Reduced insurance
premiums and to provide
evidence of due diligence
• Peer pressure within the
same industry
• Government failure
• Applicability of codes of
conduct across
boundaries and borders
• Improvement of customer
relationships
• Maintenance of standards
along the supply chain
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10-17
Role of Government Regulations
• Section 406 of the Sarbanes Oxley Act of
2002 requires companies that are publicly
traded disclose whether or not they have a
code of ethics
– If lacking, must explain why
– Only top level managers are required to be
held accountable to the firm’s code of ethics
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10-18
Global Code of Ethics
• Caux Round Table Principles
• Organization of Economic Co-operation
and Development Guidelines for
Multinational Enterprises
• United Nations Global Impact
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10-19
Questions for Thought
1. Do you think codes of ethics really make a
difference in an organization? Explain.
2. Comment on the topics addressed in
JCPenney Code of Ethics. Do you feel the
code adequately achieves its purpose? Is the
Code as valid today as it was in 1913?
3. Many companies ignore or overlook
differences in translating codes of ethics into
other languages. Why is it important to have
codes of ethics translated into the native
languages of the countries in which the
company may operate?
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10-20
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may be reproduced, stored in a retrieval system,
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electronic, mechanical, photocopying, recording,
or otherwise, without the prior written permission
of the publisher. Printed in the United States of
America.
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10-21
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Chapter 10 Establishing a Code of Ethics and Ethical