The Institutionalization of Business Ethics

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Ethical Decision Making for Business 8e
Fraedrich/Ferrell/Ferrell
CHAPTER 4

• The Institutionalization of Business Ethics

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Chapter Objectives

• To distinguish between the voluntary and mandated
  boundaries of ethical conduct
• To provide specific mandated requirements for
  legal compliance in specific subject matter areas
  related to competition, consumers, safety, and
  the environment
• To specifically address the requirements of the
  SarbanesOxley legislation and implementation by
  the Securities and Exchange Commission

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Chapter Objectives (cont.)

• To provide an overview of regulatory efforts to
  provide incentives for ethical behavior
• To provide an overview of the Federal Sentencing
  Guidelines for Organizations recommendations and
  incentives for developing an ethical corporate
  culture
• To provide an overview of voluntary boundaries
  and the relationship to social responsibility

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Chapter Outline

• Managing Ethical Risk Through Mandated and
  Voluntary Programs
• Mandated Requirements for Legal Compliance
• Gatekeepers and Stakeholders
• The SarbanesOxley Act
• Laws That Encourage Ethical Conduct
• Federal Sentencing Guidelines for Organizations
  Highly Appropriate Core Practices

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Institutionalization in Business Ethics

• Three dimensions to effective business ethics
  compliance
• Voluntary practices
• Mandated boundaries
• Core practices

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Legal Compliance

• Laws and regulations established by governments
• Laws regulating business passed because
  stakeholders believe business cannot be trusted
  to do what is right

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Types of Laws

• Civil law defines the rights and duties of
  individuals and organizations
• Criminal law prohibits specific actions and
  imposes punishment for breaking the law
• The difference is enforcement
• Criminal laws enforced by the state or nation
• Civil laws enforced by individuals
• (generally in court)

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Most Laws Affecting Business Fall into 5
Categories

• Regulating competition
• Protecting consumers
• Protecting equity and safety
• Protecting the environment
• Those that encourage ethical conduct

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Gatekeepers and Stakeholders

• Trust is the glue that holds businesses together
• Gatekeepers are overseers of business actions
• Accountants
• Risk Assessment

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The Sarbanes-Oxley Act

• Establishes a system of federal oversight of
  corporate accounting practices
• Gives the Public Company Accounting Oversight
  Board (PCAOB) authority to monitor accounting
  firms that audit public corporations
• Requires top managers to certify their firms
  financial reports
• Some legal protection for whistle-blowers

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Federal Sentencing Guidelines for Organizations

• Incentive for organizations to develop and
  implement programs for ethical and legal
  compliance
• Applies to all felonies and class A misdemeanors
  committed by employees
• Philosophy that legal violations can be prevented
  through organizational values and a commitment to
  ethical conduct