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Ethics 

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Business Ethics: o comprises organizational principles, values, and norms/standards that guide behaviour in business. o Ethics is a part of decision making at all levels of work and management. o Not universally. o Businesses must balance their desires for profits against the needs and desires of society. o Values, organizational principles and judgements play a crucial role Reasons for study business ethics: o Identify ethical issues (Awareness of ethical risks) o Ethical decision-making (supporting frameworks) o Promote ethical behaviour (language, methods and approaches / ethical business culture) Morals: personal about right or wrong Values (=Wert, Nutzen) are enduring beliefs and ideals that are socially enforced – moral compass

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Corporate Culture: Investors, employees, customers, interest groups, the legal system, and the community often determine whether a specific action is right or wrong and ethical or unethical. Principles are specific and pervasive boundaries for behaviour that are universal and absolute

History  

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Before 1960: o Theological discussions - Catholic social ethics 1960s: The Rise of Social Issues in Business Ethics o FK’s Consumer Bill of Rights— a new era of consumerism  Right to safety, to be informed, to choose, and to be heard o Rise of consumerism: Activities undertaken by independent individuals and groups to protect their rights as consumers The 1970s: Business Ethics as an Emerging Field o Corporate social responsibility - an organization’s obligation to maximize positive impact and minimize negative impact on stakeholders o Public image The 1980s: Consolidation o Defence Industry Initiative on Business Ethics and Conduct (DII): To guide corporate support for ethical conduct by establishing a method for discussing best practices 1. Development and distribution of understandable, detailed codes of conduct. 2. Provision of ethics training and development of communication tools to support the periods between training. 3. Creation of an open atmosphere in which employees feel comfortable reporting violations, without fear of retribution. 4. Performance of extensive internal audits and development of effective internal reporting and voluntary disclosure plans. 5. Preservation of the integrity of the defense industry. 6. Adoption of a philosophy of public accountability. o Self regulation is better than regulation by government – was in public’s best interest The 1990s: Institutionalization of Business Ethics o Institutionalisation of business ethics was largely driven by the Federal Sentencing Guidelines for Organizations (FSGO) – based on DII The Twenty-First Century of Business Ethics o Sarbanes-Oxley Act: It was enacted to restore confidence in financial reporting and business ethics after accounting scandals in the early 2000s – accounting oversight board, greater transparancy o Business leaders should consider the greatest danger to their organizations lies in not discovering any serious misconduct or illegal activities that may be lurking (lauern)

Developing an Organizational and Global Ethical Culture 

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Core values: In a business context, core values are the highest values that guide a firm’s actions, unite its employees, and define its brand – what makes you special? Ethics Programs Ethics officer for overseeing Ethical culture: acceptable behavior as defined by the company and industry, goal: o Knowing how to act in certain situations

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Shared values Support ethical decision No enforced decisions / people are empowered to decide Utilisation of ethical principles in difficult situation

Benefits

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Employee Commitment and Trust: safe work environment, competitive salaries, benefits packages, contractual obligations Investor Loayality and Trust: Reputation -> Financing possibilitites Customer Satisfaction and Trust: Long-term, placing customers interest first Profits: Ethics has moved from being a compliance standard to an integral part of achieving a competitive advantage. Caring about stakeholders can lead to increased profits

Stakeholder Relationships, Social Responsibility and Corporate Governance 

Corporate governance: The formal system of accountability, oversight and control (of ethical and socially responsible behaviour) - Zentrales Thema der CG ist das Verhältnis zwischen Aktionären als Eigentümer, dem Verwaltungsrat und der operativen Geschäftsführung. Die Basis dafür bilden die rechtlichen Pflichten des Verwaltungsrats, wobei die Anforderungen an die Verwaltungsräte - auch bei KMU - immer umfassender und komplexer geworden sind. Corporate Governance bedeutet denn auch mehr als die reine Einhaltung von rechtlichen

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Vorgaben. Auch für mittelständische Unternehmen ist es von Nutzen, die Grundsätze guter Corporate Governance zu befolgen. o Liability of the Board of Directors (Swiss Code of Obligations) o Duties  Duty of care (duty of diligence) – The legal obligation of an individual or organization to make informed and prudent decisions and avoid behavior that could cause harm to others  Duty of loyalty – The obligation of individuals to make decisions that are in the best interest of the corporation and its stakeholders o Corporate Governance Principles  Accountability – How closely workplace decisions align with a firm’s stated strategic direction and its compliance with ethical and legal considerations  Oversight – Provides a system of checks and balances that limit employees’ and managers’ opportunities to deviate from policies and strategies aimed at preventing unethical and illegal activities  Control – Process of auditing, improving organizational decisions and actions  Roles and responsibilities of: Board of Directors, Executive Management, Shareholders, Financial Control, Auditor  Board of Directors holds the ultimate responsibility o CH: 2002 the Swiss Code of Best Practice (SCBP) from economiesuisse or Listing rules from stock exchange o current topics in governance  Environmental, social, and governance oversight  Human capital management  Audit committee oversight of internal controls  Remuneration of Board members  Corporate culture  Whistle-blower protections  Board diversity  Representation of women on boards  Disclosure rules Stakeholders: Those who have a stake or claim in some aspect of a company’s products, operations, markets, industry, and outcomes: two-way-street Stakeholder Orientation: The degree to which a firm understands, and addresses stakeholder demands - continuum Stakeholder Theory o Normative – Identifies guidelines that dictate how firms should treat stakeholders, and why they should take into considerations stakeholder interests o Descriptive – Focuses on the firm’s behavior; addresses how decisions are made for stakeholder relationships, and how companies actually take into consideration stakeholder interests o Instrumental – Describes what happens if firms behave in a particular way, why it is beneficial for a company to take into considerations stakeholder interests. Primary stakeholders: those whose continued association is absolutely necessary for a firm’s survival Secondary stakeholders do not typically engage in transactions and are not essential for its survival Stakeholder interaction model – This approach recognizes other stakeholders and explicitly acknowledges that dialogue exists between a firm’s internal and external environments. • 4

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Network model of stakeholders (Rowling, 1997) – This approach deals with the questions to what extent indirect relationships with a whole range of stakeholders, through a company’s immediate stakeholders, should be taken into considerat Stakeholder interaction model - Stakeholder Theory / Stakeholder Orientation / Stakeholder Model:

1. Identify relevant stakeholders 2. Identify concerns about the business that are relevant to each stakeholder group 3. Evaluate their impact on the issues of importance to the various stakeholder identified Social responsibility: organization’s obligation to maximize its positive impact on stakeholders and minimize negative impacts.  Overview Corporate social responisiblitiy Corporate social responsibility (CSR): o Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public. o By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental. o To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhance society and the environment, instead of contributing negatively to them. o Benefits to ESG and try to reduce the negative impact on this – used for reporting

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Importance  Create competitive advantage  Brand identity  Differentiation

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Corporate Citizenship: The extent to which businesses strategically meet the economic, legal, ethical, and philanthropic responsibilities placed on them by various stakeholder. Issues in Social Responsibility o Social issues (example outsourcing, insider trading) o Consumer Protection (often in form of laws, example advertising, disclosure (K&E)) o Sustainability (long term well-being of the natural environment) o Corporate Governance (accountability, oversight, control) Stakeholder orientation: o degree to which a firm understands and addresses stakeholder demands o activities that address stakeholder demands include:  Organization-wide generation of data about stakeholder groups and assessment of the firm’s effects on these groups  Distribution of this information throughout the firm  Responsiveness of the organization as a whole to this information o Framework for business ethics Generating Date about stakeholders o Identify relevant stakeholders, then o Identify concerns about the business that are relevant to each stakeholder group; then o Evaluate their impact on the issues of importance to the various stakeholders identified Shareholder Orientation: serving the best interests of investors Stakeholder and Corporate Governance:

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o A broader view on business purpose o determine which of their stakeholders are primary Implementing a Stakeholder Perspective: 1. Assessing (einschätzen) Corporate Culture 2. Identifying Stakeholder Groups 3. Identifying Stakeholder Issues 4. Assessing Organizational Commitment to Social Responsibility 5. Identifying Resources and determining urgency 6. Stakeholder Feedback Shared Value Approach o Integrating social and environmental issues as the core of a business. Focus on connection between societal and economic progress o 3 principles:  Redefining the products / services (exploiting opportunities of social challenges)  Optimizing the value-chain (cost efficiency, higher productivity, improvement of quality)  Enabling local cluster development (collaboration, participation, inclusive orientation

Emerging Business Ethics o

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Ethical issues typically arise because of conflicts between and individuals’ personal moral beliefs/philosophies and values and the core values and culture/attitude of the organizations where they work Ethical Issue (Ethical Awareness): recognize conflicts among individuals’ personal moral philosophies and values Ethical Awareness: ability to perceive whether a situation or decision has an ethical dimension Foundational Values for Identifying Business Ethics Issues (Grundlegende Werte zur Identifizierung von Fragen der Unternehmensethik): o Integrity: being whole, sound, and in an unimpaired condition o Honesty o Fairness: Reciprocity and equality Ethical Issues and dilemmas in business: o ethical issue: situation, or opportunity requiring an individual, group, or organization to choose among several actions that must be evaluated as right or wrong, ethical or unethical. o ethical dilemma: situation, or opportunity that requires an individual, group, or organization to choose among several actions that have negative outcomes. o Issues:  Misuse of company time and resources  Abusive or intimidating behaviour (beleidigendes oder einschüchterndes Verhalten)  Lying  Joking  White lie (Notlüge)  Commission Lying: intentionally confuce the receiver  Omissinon Lying: intentionally not informing  Intent not telling truth: unethical and illegal  Conflict of interest (personal and business) 8

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Bribery  Active Bribery  Passive Bribery  Facilitation Bribery (Erleichterungszahlungen) Corporate Intelligence: Getting Market / Customer Information  Hacking  Social Engineering: getting password Discrimination: Equal Employment Opportunity tries to fight this Sexual Harassment Fraud  Accounting Fraud  Marketing Fraud o Puffery (bolstering – you know it’s not true) o Implied falsity (tendency to mislead) o Literally false (false states / falsche Behaubtungen) Financial Missconduct Insider Trading Intellectual Property rights Privacy Issues

Ethical Decision Making

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Factors for recognition of ethical issue / ethical dilemma  Ethical Issue Intensity  relevance or importance of an event or decision in the eyes of the individual, work group, and/or organization  Ethical awareness (situation has a ethical dimension?)  subject to six “spheres of influence” when confronted with ethical choice o the workplace o family

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o religion o legal system o community o profession  Individual factors:  Moral intensity relates to a person’s perception of social pressure and the harm the decision will have on others  Influencing factors o Age o Nationality o Education o Gender o Locus of control (internal (ich bin d’schuld) and external (die andere sind d’schuld))  Organizational Factors  A corporate culture can be defined as a set of values, norms, and artefacts, including ways of solving problems that members (employees) of an organization share  Obedience (Gehorsam) to authority helps to explain why many employees resolve business ethics issues by simply following the directives of a superior  Opportunity  conditions in an organization that limit or permit ethical or unethical behaviour.  The absence of punishment essentially provides an opportunity for unethical behaviour Normative Considerations in Ethical Decision making  Normative approaches concern how organizational decision makers should approach an issue.  John Rawls concept of justice  liberty principle: each person has basic rights that are compatible to the basic liberties of others  difference principle: economic and social equalities (or inequalities) should be arranged to provide the most benefit to the least advantaged members of society (Nutzen für den wenigst begünstigten)  Veil of ignorance: Choice with background that you could be at every position in future – so it has to be fair for everyone

Individual Factors: Moral Philosophies and Values  

Moral philosophy refers to the principles or values/values that people use to decide what is right or wrong. Forms o Utilitarianism (= Nützlichkeitsprinzip)  seeks the greatest good for the greatest number of people  Evaluates the morality of an action on the basis of its consequences for everyone affected.

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Acording to utilitarianism one ought to choose the action which results in the greatest happiness for the greatest number of beings (greatest happiness principle) Deontology (= Pflichtethik, under the duty to do this or that)  Refers to moral philosophies that focus on the rights of individuals and on the intentions associated with a particular behavior rather than on its consequences.  accordance with a moral norm.  the sacrifice of a person (or more generally, the violation of a moral norm) can never be justified by reference to the good it might bring about  absolute rights, including  freedom of conscience  freedom of consent  freedom of privacy  freedom of speech  due process

Virtue ethics (= Tugend)  Argues that ethical behavior involves not only adhering to conventional moral standards but also considering what a mature person with a “good” moral character would deem appropriate Different Moral Theory (4 Steps Model) o Identify the ethical value at risk for every option o Define red lines (never morally acceptable – often law) o Evaluate the remaining options o Check if the decision is coherent (with moral judgements and / or standard of universality (e.g. Kant or Rawls)) Justice o Distributive justice is based on the evaluation of outcomes or results of the business relationship. o Procedural justice is based on the processes and activities that produce the outcome or results. o

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Interactional justice is based on the relationships between organizational members, including the way that employees and management treat one another. Cognitive Development o

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Global Culture, Values, and Practices     

Global business: practice that brings together people from countries that have different cultures, values, laws, and ethical standards. Country cultural values: specific to groups, sects, regions, or countries that express actions, behavior, and intent. National culture: everything in our surroundings that is made by people—both tangible items and intangible things such as concepts and values. cultural relativism: the concept that morality varies from one culture to another and that “right” and “wrong” are defined differently Geert Hofstede

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Economic Systems o Adam Smith (19th century)  Modern free market capitalism and economy o Keynesianism(1940)  Stimulation through governmental anticyclical interventions o Kar Marx  Socialism: wealth and power are shared and distributed evenly based on the amount of work expended in production o Miltom Friedmann  Self-regulation and free-market capitalism o bimodal wealth distribution: middle class shrink, either poor or rich o Rational economics: People decide rational and independent to maximize utility based on amount of resources available o Behavioural economics: People don’t act rational and are influenced by varieties o Multinational Corporations (MNCs): public companies that operate on a global scale without significant ties to any one nation or region  Business for Social Responsibility: globally based research system that tracks trends and issues and provides resources for corporations o Global Cooperation supporting responsible Business  International Monetary Fund (IMF)  United Nations Global Compact

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 World Trade organization (WTO): aim to free trade Global Ethics Issues  Bribery  Antitrust Activities: vertical systems (monopoly)  Internet security and privacy  Human rights  Health care  Labour and Right to work  Compensation  Consumerism (Überkonsum)

Legal 

Mandatory, Core and voluntary boundaries

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Compliance

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Compliance and Corporate Governance, CSR and Risk Management

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Costs of non-compliance (legal, financial, reputational) o Monetary fines o Criminal and civil liability risk o Eroded consumer trust o Loss of employee moral (commitment) o Decrease in competitive advantage o Loosing investor trust o Investigations by foreign authorities

Institutionalisation and developing an effective program 
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