Understanding Business Ethics

1. Understanding Business Ethics An Introduction

2. Business Ethics Process (KPMG) • Program/ Practices/ Systems • Designed to motivate, measure, and monitor an organization’s ethical performance

3. Business Ethics and Business Reputation • Strong link between business ethics and business reputation • TV Rule • Management needs to take an active role in ‘managing’ ethics

4. Role of Management • Top Management is responsible for establishing, developing, and enforcing a code of ethical conduct • Shows all employees top management’s commitment to ethical behavior

5. Development of Code of Ethics • Ensures employees and the company can’t be challenged on their ethical integrity. • Establishes course of action for unethical behavior by employees • Need to establish a procedure for reporting unethical behavior

6. Educating Employees • Texas Instruments established a Quick Test for educating employees about what is right or wrong: • Is the action legal? • Does it comply with our values? • If you do it, will you feel bad? • How does it look in the newspaper? • If you know it is wrong, don’t do it. • If you aren’t sure, ask. • Keep asking until you get an answer.

7. Lockheed Martin established a quick quiz…When in doubt, ask yourself: • Are my actions legal? • Am I being fair and honest? • Will my action stand the test of time? • How will I feel about myself afterwards? • How will it look in the newspaper? • Will I sleep soundly tonight? • What would I tell my children to do? • How would I feel if my family, friends, and neighbors knew what I was doing?

8. Developing a Code of Ethics • Need to incorporate individual and corporate values when facing ethical dilemmas • Nortel states this clearly to all employees in their Ethical Business Practices document: • You have a personal responsibility to make sure that all your words and actions live up to these statements • You have a responsibility to ask questions when you have doubts about the ethical implications of any given situation or proposed course of action. • You have a responsibility to report any concerns about business practices within the corporation that may violate this code of business conduct.

9. Cost of Managing Ethics • Estimated $100 billion is spent each year for companies in North American to deal with ethical problems (KPMG) • investigating and resolving ethical dilemmas • establishing mechanisms to ensure the problem doesn’t happen again • Federal Sentencing Guidelines (est 1991) • fines from $5K to 72.5K for violation of ethical actions • Total penalties for a single company could approach $290 million

10. 1. Establish compliance standards and procedures 2. Assign top level management overall responsibility for compliance 3. Don’t delegate responsibility to employees who are not trustworthy 4. Communicate standards and procedures to all employees 5. Monitoring and audit systems used to detect unethical activities 6. Enforce ethical standards through appropriate disciplinary mechanisms 7. Make adjustment to ethical process if unethical behavior has occurred Federal Sentencing Guidelines - MinimumRequirements for Effective Ethics Compliance Program

11. Comprehensive Ethics Program May Include: • 1. Codes of conduct • 2. Mission statement • 3. Training and awareness program • 4. Town meeting • 5. Ethics officers • 6. Compliance hotlines • 7. Ethics offices

12. Ethics and Information Technology • 1. Property Rights and Obligations • 2. Policies Pertaining to Customer Information • 3. Employee E-Mail Privacy • 4. Workplace Monitoring

13. 1. Thou shalt not use a computer to harm other people. 2. Thou shalt not interfere with other people’s computer work. 3. Thou shalt not snoop around in other people’s computer files. 4. Thou shalt not use a computer to steal. 5. Thou shalt not use a computer to bear false witness. 6. Thou shalt not copy or use proprietary software for which you have not paid. 7. Thou shalt not use other people’s computer resources without authorization or proper compensation. 8. Thou shalt not appropriate other people’s intellectual output. 9. Thou shalt think about the social consequences of the program you are writing or the system you are designing. 10. Thou shalt always use a computer in ways that insure consideration and respect for your fellow humans. The Ten Commandments of Computer Ethics(Computer Ethics Institute)

14. Developing Policies to Address IT Issues • 1. Understanding Privacy Laws • Federal Privacy Act of 1974 • Fair Credit Reporting Act of 1970 • Right to Financial Privacy Act of 1978 • Privacy Protection Act of 1980 • Cable Communications Policy Act of 1984 • Electronic Communications Privacy Act of 1986 • 2. Establishing a Privacy Code • 3. Policy Content

15. Policy Content should include: • Technology equipment owned by the company gives the company exclusive rights to control and monitor • Private databases and emails developed using the company’s equipment can be reviewed • Deletion of a file/email does not guarantee that it has been permanently destroyed

16. Policy Content should include: • Guidelines on what is appropriate and inappropriate material • Guidelines for using emails for solicitation of employees • Violation of ethics policy will result in disciplinary action • Description of ethical treatment of information from external sources including customers

17. Policy Content should include: • Summary of types of disciplinary actions should be included in the written policy • Employees need to acknowledge content of policy by signing a written agreement

18. Using Ethical Policies for a Competitive Advantage • Internally: • help motivation of employees -- they know what behavior is expected of them • reduce company costs by reducing disciplinary actions including dismissal and reducing fines for ethical violations

19. Using Ethical Policies for a Competitive Advantage • Externally: • use the privacy policy to ensure customers that their personal information will not be misused • establish opt in/ opt out option -- allow customers to determine whether they agree to have their information available to other companies

20. Lockheed Martin Ethical Policy: • “While maintaining sensitivity to the diverse social and cultural settings in which we conduct our business, Lockheed Martin aims to set the standard for ethical conduct at all of our locations throughout the world. We will achieve this through behavior in accordance with six virtues: Honesty, Integrity, Respect, Trust, Responsibility, and Citizenship.”

21. Well, maybe just this once… No one will ever know… It doesn’t matter how it gets done as long as it gets done. It sounds too good to be true. Everyone does it. Shred that document. We can hide it. No one will get hurt What’s in it for me? This will destroy the competition. We didn’t have this conversation. You’re on Ethical Thin Ice When You Hear (Lockheed Martin):