Case on Executive Integrity PDF

Preview

Summary

case relative with business ethics
...

Description

Case on Executive Integrity Below are three examples of CEOs whose leadership of their firm has been called into question over matters of their personal integrity and behavior. Issues have included their personal political positions and contributions, personal behavior and relationships with employees while CEO, and illegal and inappropriate behavior in college.

Mozilla “Mozilla was built on the mission to promote openness, innovation and opportunity on the Web. Every day, we bring together over half a billion users and thousands of contributors from more than 80 countries to advance the cause outlined in the Mozilla Manifesto. The web is a vital public resource and Mozilla exists to protect it. That is what we do at Mozilla, our singular point of focus.” --From Mozilla’s blog Q and A regarding the resignation of Brendan Eich Brendan Eich was a co-founder of Mozilla, an organization set up as a nonprofit foundation, passionate about its purpose. Eich’s previous political support for the Defense of Marriage Act, which prior to 2015 defined marriage on the federal level as the union between one man and one woman, was well known by the board and employees prior to his appointment as CEO. What wasn’t known was how strongly employees and outsiders would react to a perceived disconnect between Eich’s personal values and the values of the company. In spite of posting about his commitment to continuing the organization’s support of the LGBTQ+ community through various policies and benefits and apology for “causing pain,” the issue did not die down. Eich made his own decision to resign as CEO and declined the board’s offer to take another C-level position in the company.

American Apparel “Passion, innovation & ethical practices for the clothing industry. That's American Apparel.”--From American Apparel’s website under “About Us” American Apparel founder Dov Charney has never apologized for using sex to sell clothes. In fact, it’s been central to his company’s strategy and marketing from Day One. He has also long acknowledged his personal behavior is strange and he is his own worst enemy. For example, 10 years ago, “Charney gave a now infamous interview with Claudine Ko, a reporter for Jane magazine, during which he masturbated, with her consent, while carrying on a conversation about business. He engaged in oral sex with an employee with Ko nearby, too” (Bloomberg Businessweek, July 9, 2014). Also, in 2006, American Apparel starting asking employees to sign a form indicating that they knew they were coming to work in a sexually charged environment. According to board co-chairmen, in mid 2014, Charney was removed as chairman by the board pending termination following a 30-day notice clause in his contract. The board first gave him the choice to resign if he gave up voting rights to his 27 percent share of the company. In that scenario, he would have received a four-year, multi-million dollar consulting contract. Officially removed for violating the company’s sexual harassment policy and misusing company funds, Charney refused to go quietly, which threw the company’s ownership and governance into play. Hedge fund Standard General stepped in with a cash infusion for the company following a loan call by another investment firm after Charney’s ouster. Five of the seven board directors voluntarily agreed to step down, and Standard General agreed to add three new directors. Charney stayed on as a strategic consultant but was eventually fired as CEO in December 2014.

Snapchat “Deletion should be the default.”--Snapchat’s mission statement

At the end of May 2014, details of sordid emails from Snapchat CEO Evan Spiegel’s college days were released to the media. Trouble is, his college years were only four years prior to these emails being released, because, in 2014, he was only 24. The emails detailed illegal drug use, underage drinking, and misogynistic behavior, including urinating on one after she passed out following sex, and harassing women who he believed were overweight. Some found elements of his emails racist as well. Spiegel’s privileged background and lavish lifestyle had always received plenty of press. After the email release, he began getting more press for his bad behavior than his app. He apologized immediately following the release of the e-mails saying, “ I’m obviously mortified and embarrassed that my idiotic emails during my fraternity days were made public. I have no excuse. I’m sorry I wrote them at the time and I was a jerk to have written them. They in no way reflect who I am today or my views towards women.” Spiegel remains CEO and was responsible for taking the company public in 2017. This case was originally written in 2014, and was revised in July 2018.

Leader Company Issue Brenda Mozilla n Eich

Outcome

Personal support of Prop 8 Resignation

American Sexual relationships with Dov Charne Apparel employees resulting in lawsuits for charges of y harassment, misuse of company funds for personal expenses

Dismissed as CEO in December of 2014 and removed as chairman prior to his termination

Evan Snapchat Misogynistic behavior, Spiegel drug use prior to serving as CEO

Still in place

Questions to Consider 1. Are there ethical issues involved in all of these cases? Which ones and why? 2. How important to a company’s investors and shareholders is the personal behavior of the CEO? Do people have to like him/her for the company to be successful? 3. Does mission matter when assessing gaps between a leader’s values and the organization he or she is running? 4. Should boards consider risky personal behavior in hiring executives? What should boards do if the risky personal behavior comes from the founding CEO?

Answers of the questions. 1= yes there are ethical issues involved in all of these cases. Company

Issue

Mozilla

Personal support of Prop 8

American Apparel

Sexual relationships with employees resulting in lawsuits for charges of harassment, misuse of company funds for personal expenses

Snapchat

Misogynistic behavior, drug use prior to serving as CEO

2=

The ethical personal behavior of COE in company influence the investors and shareholders.

No people do not have to like him/her for the company to be successful, people like his honesty and ethical behavior to success the company.

3= When used properly mission, vision and values statements can be very powerful tools. They are inspiring words developed by leaders to clearly and ... will gain a sense of pride in working as part of an organization that ... Why do they matter? ... So, what is the difference between mission, vision and values

4= To avoid a diffusion of responsibility, the board of directors should designate a ethical theory, and the science of unethical behavior and should also possess. This individual should report to the board's ethics and compliance, goals or rewarding managers for deceiving customers into buying unsafe. Boards need to keep ahead of the public humiliation and loss of reputational equity caused by major CEO misbehavior or malfeasance. If they deny, or stall, they run the risk of ruining their company and turning themselves into the targets of shareholders' and the public's bloodlust.

Issue in the book. Case 1= Personal uses of organization equipments.

Fraud When an individual engages in deceptive practices to advance his or her own interests over those of his or her organization or some other group, charges of fraud may result. In general, fraud is any purposeful communication that deceives, manipulates, or conceals facts in order to create a false impression. Fraud is a crime and convictions may result in fines, imprisonment, or both. Fraud costs U.S. organizations more than $400 billion a year; the average company loses about 6 percent of total revenues to fraud and abuses committed by its own employees.41 Among the most common fraudulent activities employees report about their coworkers are stealing office supplies or shoplifting, claiming to have worked extra hours, and stealing money or products.42 Table 3–3 indicates what fraud examiners view as the biggest risk to companies. In recent years, accounting fraud has become a major ethical issue, but as we will see, fraud can also relate to marketing and consumer issues as well. Consumer fraud is when consumers attempt to deceive businesses for their own gain. The FTC estimates that more than 25 million consumers annually engage in consumer fraud.54 Shoplifting, for example, accounts for 35 percent of the losses at the largest U.S. retail chains, although this figure is still far outweighed by the nearly 44 percent of losses perpetrated by store employees, according to the National Retail Security Survey. Together with vendor fraud and administrative error, these losses cost U.S. retailers $36 billion annually and are on the rise. Retail shrinkage, or stealing from stores, accounts for losses averaging around 1.52 percent of total sales and 92 percent of retailers surveyed say that they have been a victim.

Case 2= harassment, misuse of company funds for personal expenses

Sexual Harassment Sexual harassment is a form of sex discrimination that violates VII of the Civil Rights Act of 1964. Title VII applies to employers with

15 or more employees, including state and local governments. To understand the magnitude of this volatile issue, in one year the EEOC received 13,136 charges of sexual harassment, of which over 15 percent were filed by men. In another recent year, the EEOC resolved 13,786 sexual harassment charges and recovered $37.1 million in penalties.31 Sexual harassment can be defined as any repeated, unwanted behavior of a sexual nature perpetrated upon one individual by another. It may be verbal, visual, written, or physical and can occur between people of different genders or those of the same sex. “Workplace display of sexually explicit material—photos, magazines, or posters— may constitute a hostile work environment harassment, even though the private possession, reading, and consensual sharing of such materials is protected under the Constitution.”32 Even the United Nations, an organization whose mission is to protect human rights globally, has dealt with a series of sexual harassment cases. Many U.N. employees who have made or faced accusations claim that the system is poorly equipped to handle complaints, resulting in unfair, slow, and arbitrary rulings. For example, one employee who claimed she was harassed for years in Gaza saw her superior cleared by one of his colleagues.

Conflicts of Interest A conflict of interest exists when an individual must choose whether to advance his or her own interests, those of the organization, or those of some other group. The medical industry has been faced with many accusations of conflicts of interest with doctors and medical schools regarding payments. For example, Harvard Medical School received an ‘F’ grade on its conflict of interest policies from the American Medical Student Association. One professor alone was forced to disclose 47 company affiliations from which he was receiving money.12 To address the problem, a government panel has called for full disclosure of all payments made to doctors, researchers, and universities. The fear is that financial donations from medical and pharmaceutical companies could sway researchers’ findings and what is taught in classrooms.13 To avoid conflicts of interest, employees must be able to separate their private interests from their business dealings. Organizations must also avoid potential conflicts of

interest when providing products.14 The U.S. General Accounting Office has found conflicts of interest when the government has awarded bids on defense contracts. The conflicts of interest usually relate to hiring friends, relatives, or retired military officers to enhance the probability of getting the contract.

Case 3= Abusive or Intimidating Behavior Abusive or Intimidating Behavior Abusive or intimidating behavior is the most common ethical problem for employees, but what does it mean to be abusive or intimidating? The concepts can mean anything— physical threats, false accusations, being annoying, profanity, insults, yelling, harshness, ignoring someone, and unreasonableness—and the meaning of these words can differ by person. It is important to understand that with each term there is a continuum. For example, what one person may define as yelling might be another’s definition of normal speech. Civility in our society has been a concern, and the workplace is no exception. The productivity level of many organizations has been damaged by the time spent unraveling abusive relationships.

Solve issues by book. Case 1= page 107 THE SARBANES–OXLEY ACT In 2002, largely in response to widespread corporate accounting scandals, Congress passed the Sarbanes–Oxley Act to establish a system of federal oversight of corporate accounting practices. In addition to making fraudulent financial reporting a criminal offense and strengthening penalties for corporate fraud, the law requires corporations to establish codes of ethics for financial reporting and to develop greater transparency in financial reporting to investors and other stakeholders. Supported by both Republicans

and Democrats, the Sarbanes–Oxley Act was enacted to restore stakeholder confidence after accounting fraud at Enron, WorldCom, and hundreds of other companies resulted in investors and employees losing much of their savings. During the resulting investigations, the public learned that hundreds of corporations had not reported their financial results accurately. Many stakeholders came to believe that accounting firms, lawyers, top executives, and boards of directors had developed a culture of deception to ensure investor approval and gain competitive advantage. Many boards failed to provide appropriate oversight of the decisions of their companies’ top officers. At Adelphia Communications, for example, the Rigas family amassed $3.1 billion in off-balance-sheet loans backed by the company. Dennis Kozlowski, CEO of Tyco, was accused of improperly using corporate funds for personal use as well as fraudulent accounting practices.

Case 2= page 74 To avoid sexual misconduct or harassment charges a company should, at the minimum, take the following steps: 1. Establish a statement of policy naming someone in the company as ultimately responsible for preventing harassment at the company. 2. Establish a definition of sexual harassment that includes unwelcome advances, requests for sexual favors, and any other verbal, visual, or physical conduct of a sexual nature; that provides examples of each; and that reminds employees that the list of examples is not all-inclusive. 3. Establish a nonretaliation policy that protects complainants and witnesses. 4. Establish specific procedures for prevention of such practices at early stages. However, if a company puts these procedures in writing, they are expected by law to train, measure, and ensure that the policies are being enforced.

5. Establish, enforce, and encourage victims of sexual harassment to report the behavior to authorized individuals. 6. Establish a reporting procedure. 7. Make sure that the company has timely reporting requirements to the proper authorities. Usually, there is a time limitation to file the complaint for a formal administrative sexual charge, ranging from six months to a year. However, the failure to meet a shorter complaint period (for example, 60 to 90 days) so that a “rapid response” and remediation may occur and to help to ensure a harassment-free environment could be a company’s defense against the charge that it was negligent.

Case 3= page 139 HIGHLY APPROPRIATE CORE PRACTICES The FSGO and the Sarbanes–Oxley Act provide incentives for developing core practices that help ensure ethical and legal compliance. Core practices move the emphasis from a focus on individuals’ moral capability to developing structurally sound organization core practices and developing structural integrity for both financial performance and nonfinancial performance. Although the Sarbanes–Oxley Act provides standards for financial performance, most ethical issues relate to nonfinancial issues such as marketing, human resource management, and customer relationships. Abusive behavior, lying, and conflict of interest are still the top three ethical issues. The Integrity Institute has developed an integrated model to standardize the measurement of nonfinancial performance. Methodologies have been developed to assess communications, compensation, social responsibility, corporate culture, leadership, risk, and stakeholder perceptions, as well as more subjective aspects of earnings, corporate governance, technology, and other important nonfinancial areas. The model exists to establish a standard that can predict sustainability and success of an organization. The Integrity Institute uses the measurement to an established standard as the basis of certification of integrity. The majority of executives and board members want to measure nonfinancial performance, but no standards currently exist. The Open

Compliance Ethics Group (oceg .org) has developed benchmarking studies available to organizations to conduct selfassessments to develop ethics program elements. Developing organizational systems and processes is a requirement of the regulatory environment, but organizations are given considerable freedom in developing ethics and compliance programs....