1. Business Ethics and Corporate Social Responsibility- Bernie Madoff Flashcards Preview

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Flashcards in 1. Business Ethics and Corporate Social Responsibility- Bernie Madoff Deck (13)
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Definition of Business Ethics/ Morally/ Values

  • Business Ethics = Study of business situations, activities and decisions where issues of morally right or wrong are addressed.
  • Morally = Concerned with values and norms that define right or wrong for an individual and community
  • Values = Desirable, trans-situational goals/ varying in importance/ Serve as guiding principles in people’s lives

Definition/ Requirements/ Aims of CSR

  • CSR = Responsibility off enterprises for their impacts on society
  • Prerequisite = Respect for applicable legislation & collective agreements between social partners/ Existing place to integrate social, environmental, ethical, human rights, consumer concerns into core strategy in close collaboration with their stakeholders
  • Aims = Identifying, preventing, and mitigating their possible adverse impacts/ Maximizing the creation of shared value for their shareholders and society at large

Arguments against Business Ethics and CSR

  • Just cosmetic
  • Market transaction as bluff in a poker game (Mr. Carr) = “Keep the bed linen program” of hotels to reduce environmental impact just for cost reduction
  • Business should only focus on increasing profits but (Mr. Friedman) = Only individuals have moral responsibility of their actions/ CSR makes no sense/ Managers only have to act in the interest of shareholders/ Social issue should be analyzed only by the Government/ But (!) = 1. Strategic Argument & 2. Ethical Argument from Freeman

Evaluation of every business actions implies

  • Ethical evaluation
  • Economic evaluation
  • Relational evaluation

Economic crime and the industries and areas

  • Financial sector, retail and consumer and communication services strongly affected by crime
  • Africa and North America have the highest levels of economic crime

What are the main drivers of SEC failure in controlling Madoff and causing?

  • All leading to Moral Blindness!
  • Lack of regulation
  • Complexity of the investment scheme
  • Madoff power and reputation
  • Lack of skills and competencies
  • Lack of resources

What are the main drivers that explain AA’s employees’ behaviors?

  • All leading to Overvaluing Outcomes!
  • Conflict of interest at individual and organizational level
  • Social proximity
  • Overvaluing outcomes?

Threats to auditor independence

  • Self-interest = Auditor could benefit from financial interest in client
  • Advocacy = Auditors promote an audit client’s position or opinion
  • Intimidation = Auditor is subjected to intimidation
  • Familiarity = Auditor in position of reviewing work they have been responsible for.
  • Self-review = Auditor becomes too “friendly” with client by working for client a number of years

Ethical decision-making process

  • Recognize Moral Issue (Knowing what the right thing to do is)
  • Make Moral Judgement (Knowing what the right thing to do is)
  • Establish Moral Intent (Behaving in the right way)
  • Engage in Moral Behavior (Behaving in the right way)
  • Influenced by individual factors + situational factors
  • Individual factors = Gender/ Age/ Education/ Personality/ Values
  • Situational factors = Reward System/ Job Roles/ Framing of the Issue

Psychological factors associated with misbehavior

  • Overvaluing outcomes = We give a pass to ethical misbehaviors when the outcome is good/ Outcome can be economically, ethically, relationally
  • Motivated blindness = We tend not to see the unethical behaviors of others when it is our interest to remain ignorant
  • Ethical illusions = We think we are more ethical than we really are
  • Slippery slope = Small unethical steps to crime/ People accept unethical behavior when changes in behavior occur gradually over time than when they occur suddenly/ Leads to unethical behavior If each step is sufficiently small to appear not qualitatively different/ Psychological distorted mechanism
  • Ethical spillover = When individuals enter firms with specific norms they adapt to the (lack of) ethics of the organization/ Against Friedman’s argument/ Psychological distorted mechanism
  • Denial (Verlegung) of responsibility = Actors perceive that they have no other choice than to participate in such activities/ Even though they have

Business Ethics and the Law

  • Unquestionable behaviors
  • Grey area = Ethical values are in conflict/ Not illegal
  • Illegal behaviors
  • Deceptive Advertising = False advertising/ Unethical and offends societal norms/ E.G. Mc Donald’s)

Argument in Favor for Business Ethics

  • Ethical misbehaviors might become illegal behaviors = Grey area very close to illegality
  • Ethical Spillover = Organizations can be seen as “quasi moral agents”/ Organization’s culture defines what is right or wrong and goes beyond the individual framework of responsibility
  • Strategic Argument = Organizations rely on the contribution of much wider set of people rather than just shareholders/ Freeman argument against Friedman
  • Ethical Argument = Organizations have the power to affect a much wider set of people rather than just shareholders / Have the duty to address their ethical expectations/ Freeman argument against Friedman
  • The ethical gap between the actual level of business ethics and the expected level of business ethics is increased from 1990s to 2015/ Argument against “just cosmetics”/ External demand of ethical behaviors

Summary of arguments in favor of BE and SR

  • Avoid dangerous misconducts
  • Business organizations as “quasi moral actors”
  • Duties towards stakeholders