9/15/2022
Chapter 3
Organizational
Ethics
Copyright © 2014 McGraw-Hill Education.
CopyrightAll©rights
2013reserved. No reproduction
The McGraw-Hill or distribution
Companies, without
Inc. the prior
All rights written consent of McGraw-Hill Education.
reserved.
Defining Organizational Ethics
• Business ethics, as an area of study, is separate
from the general subject of ethics because:
• Stakeholders have a vested interest in the
ethical performance of an organization
• The situation where one’s personal value
system may clash with the ethical standards of
the organization’s operating culture
3-2
1
9/15/2022
Defining Organizational Ethics
• Organizational culture: Values, beliefs, and
norms that all the employees of that
organization share
• Value chain: Key functional inputs that an
organization provides in the transformation of
raw materials into a delivered product or
service
3-3
Figure 3.1 - A Representative
Company Value Chain
Sources: Adapted with permission of the Free Press, a division of Simon & Schuster Adult Publishing Group, from
Competitive Advantage: Creating and Sustaining Superior Performance, by Michael Porter. Copyright © 1995, 1998 by
Michael E. Porter. All rights reserved. And from A. A. Thompson Jr. and A. I. Strickland III, Crafting & Executing Strategy:
The Quest for Competitive Advantage: Concepts and Cases, 14th ed. (New York: Irwin McGraw-Hill, 2005), p. 99.
3-4
2
9/15/2022
Ethical Challenges in Research and
Development
• Critical commitment to the consumer in the
provision of product quality, safety, and
reliability
• Tough decisions made when delivery of a design
does not match the manufacturing cost figures
• Use of fresh materials or second best to save
money
• Full battery test run or just computer
simulations
3-5
Ethical Challenges in Manufacturing
• Ethical challenges inherent in arriving at a
compromise
• Supply problem if a product is built precisely
based on the design specifications
• Use of a less reliable supplier when delivery is
held up
• Assurance of quality from the alternative
supplier
3-6
3
9/15/2022
Ethical Challenges in Marketing
• 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 argue that customer satisfaction
justifies the methods used to achieve the
outcome inspite of the misleading message
3-7
Ethical Challenges in Marketing
Utilitarianism
• Ethical choices that offer the greatest good for
the greatest number of people
Universal ethics
• Actions that are taken out of duty and obligation
to a purely moral ideal rather than based on the
needs of the situation since the universal
principles are seen to apply to everyone,
everywhere, all the time
3-8
4
9/15/2022
Ethical Challenges in Marketing
• Code of ethics by American Marketing
Association (AMA)
• Do no harm
• Foster trust
• Improve customer confidence
• Clear ethical values
3-9
Ethical Challenges in Human
Resources
• 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
3-10
10
5
9/15/2022
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, or books, as
being accurate by an impartial third-party
professional
3-11
11
Internal Auditors
• 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
3-12
12
6
9/15/2022
Internal Auditors
• Suggest ways for reducing costs, enhancing
revenues, and improving profits
• Deliver competent consulting, assurance, and
facilitation services
3-13
13
Auditor’s Code of Ethics
• Not falsifying documents
• Not stealing money from the organization
• Not undertaking any other form of fraudulent
activity
• Related to the management of the
organization’s finances
3-14
14
7
9/15/2022
Ethical Challenges Faced by Internal
Auditors
• Generally Accepted Accounting Principles
(GAAP): Set of standard operating procedures
that govern the accounting profession
• Not a set of laws and established legal
precedents
3-15
15
Ethical Challenges Faced by Internal
Auditors
• Creative bookkeeping techniques
• Legal to defer receipts from one quarter to the
next to manage the tax liability
• Ethical challenges faced
• Falsifying accounts
• Underreporting income
• Overvaluing assets
• Taking questionable deductions
3-16
16
8
9/15/2022
Conflicts of Interest
• Situation where one relationship or obligation
places you in direct conflict with an existing
relationship or obligation
• Meeting the needs of your organization’s
stakeholders
• Selling a product that has the potential to be
harmful to your customers
• Selling a product that has the potential to be
harmful to the environment
3-17
17
