business ethics exam 2

corporate governance

 the method by which a firm is being governed, directed, administered, or controlled, and to the goals for which it is being governed

shareholder

Own stock in the firm, giving them ultimate control

board of directors

Govern and oversee management of the business

managers

The individuals hired by the board to manage to business on a daily basis

employees

Hired to perform actual operational work

legiimacy

a condition that prevails when there is a congruence between an organization’s activities and society’s expectations

legitimation

a dynamic process by which a business seeks to perpetuate its acceptance

micro level

• Adapt to operational methods to perceived societal expectations

• Attempt to change societal expectations or norms to conform to firm’s practices

• Seek to enhance its legitimacy by identifying itself with others that have a powerful legitimate base in society

macro level

• Focus is on the corporate system, the totality of business enterprises

• Business has a fragile mandate subject to ratification

• Business exists solely because society has given it that right

clawback provisions

Compensation recovery mechanisms that enable a company to recoup CEO pay, typically in the event of a financial restatement or executive’s misbehavior

stock options

Allows the recipient to purchase stock in the future at the price it is today

backdating

Allows the recipient to purchase stock at yesterday’s price, resulting in immediate wealth increase

spring-loading

Granting a stock option at today’s price, but with the inside knowledge that stock’s value is improving

bullet dodging

Delaying of a stock option grant until right after bad news

outside directors

are independent from the firm

inside directors

have some tie to the firm

insider trading

The practice of buying or selling a security by someone who has access to material information that is not available to the public

material information

information that a reasonable investor might want to use, and is likely to affect the price of the firm’s stock

sarbanes oxley act of 2002 (SOX)

• Amends securities laws to protect investors in public company

• Enhances public disclosure to require reporting of off-balance sheet transactions, and personal loans to executives

• Limits nonauditing services an auditor can provide to a firm it audits

• Makes it unlawful for accounting firms to provide services where conflicts of interest exist

• CEOs and CFOs must certify financials, and are held responsible for financial representations

business judgment rule

protects board members if they act in good faith, make informed decisions that reflect the company’s best interest, and not their own interest

SEC

responsible for protecting investor interest, critics argue they are more focused on the needs of businesses than on that of investors. (administrative capture)

director-primacy model of corporate governance

 based on the concept of a corporation that is not owned, but is an independent legal entity that owns itself, boards have a duty to shareholders, but boards are the ultimate decision-makers, whose duty is to the corporation

risk

a potential issue that may or may not occur

issue

 a gap between a firm’s actions and stakeholder expectations

crisis

an issue that has escalated to a critical state

risk management

concerns potential issues; it addresses an issue that has not yet occurred, and tries to keep the issue from arising, involves taking action today that will mitigate or prevent a problem that could arise in the future

preventable risks

internal risks that offer no strategic benefit (BP’s coffee lids)

strategic risks

risks taken to achieve greater returns (BP’s deep drilling)

external risks

risks that cannot be controlled (natural disasters and economic shocks)

sustainability

involves living in the present in a way that does not compromise the future

portfolio approach

Provides focus and coherence to the firm’s dealing with the mix of issues it faces

emerging issues

• The terms of the debate are not clearly defined

• The issue deals with matters of conflicting values and interest

• The issue does not lend itself to automatic resolution by expert knowledge

• Issue is often stated in value-laden terms

• Trade-offs are inherent

five forces as predictors of social change

• Events

• Authorities or advocates

• Literature

• Organizations

• Political jurisdictions

issue selling

Relates to middle managers exerting upward influence in organizations as they try to attract the attention of top managers

issue buying

Top managers adopt a more open mind-set for the issues that matter to their subordinates

issue development process

1. Felt need

2. Media coverage

3. Leading political jurisdictions

4. Regulation or litigation

rules for crisis management

1. Don’t wait

2. Don’t run from the truth

3. Don’t hide

nature of crises

an extreme event that may threaten your very existence. At the very least, it causes substantial injuries, deaths, and financial costs, as well as serious damage to your reputation,

organizational crisis

• a low-probability, high-impact event that threatens the viability of the organization and is characterized by ambiguity of cause, effect, and means of resolution, as well as by a belief that decisions must be made swiftly

five steps in managing crises

1. Identifying areas of vulnerability

2. Develop a plan for dealing with threats

3. Forming crisis teams

4. Simulating crisis drills

Learning from experience

three employee rights issues

• Right not to be fired without good cause

• Right to due process and fair treatment

• Right to freedom of speech in the workplace

sources of employee rights

• Statutory rights

• Collective bargaining rights

• Enterprise rights

employment-at-will

• Doctrine that holds that employees are free to quit and employers can discharge employees for any reason, or no reason

  • Subject to discrimination laws, other federal/state laws, and/or collective bargaining agreements

  • Only applies to private employees

legal challenges to employment-at-will

• Public policy exceptions

• Implied contract

• Breach of good faith actions

public policy exception

• 43 states

• Protects employees from being fired or refusing to commit crimes or doing a privilege they are granted by law

  • Jury duty

  • Subpoena

implied contract exception

Statements in employee handbooks or personnel manuals, job-offer letters, and even oral assurances about job security can be interpreted as implied contracts that the management is not at liberty to violate

good faith principle

• 20 states (not Kansas)

• Employers run risk of losing lawsuits for firing if they fail to show employees had every reasonable opportunity to improve performance

title VII of the civil rights act of 1964

Prohibits discrimination based on race, color, religion, sex, or national origin. It also protects against retaliation for filing a complaint.

age discrimination in employment act of 1967 (ADEA)

• Protects individuals who are 40 or older from age-based discrimination in hiring, firing, and other employment decisions.

americans with disabilities act of 1990 (ADA)

Prohibits discrimination against qualified individuals with disabilities and requires employers to provide reasonable accommodations unless it causes undue hardship.

genetic information nondiscrimination act of 2008 (GINA)

Makes it illegal for employers to discriminate based on genetic information, such as family medical history.

pregnancy discrimination act

An amendment to Title VII that makes it illegal to discriminate because of pregnancy, childbirth, or a related medical condition.

ombudsman

neutral and promises confidentiality, can handle employee concerts in a way that keeps the problem from getting out of hand

arbitration

neutral party resolves a dispute between two or more parties and the resolution is binding

mediation

neutral party helps parties share interests and issues. Does not issue a binding resolution

whistle blower

an organization member who discloses illegal, immoral, or illegitimate practices under the control of their employers, to persons or organizations that may be able to effect action

national labor relations act (NLRA)

• Protects employees from retaliation against “concerted activity”

• Actions by two or more employees to improve their wages, hours, or working conditions

• Can be a single employee if they are trying to initiate or represent group action

employee polygraph protection act (EPPA) of 1998

• banned most private-sector use of the lie detector

occupational safety and health act

• Sets safety and health standards to protect employees and their families

• Applies to all private employers that engage in interstate commerce

right-to-know laws

Many states have passed laws imposing a duty on employers to provide employees with information on the hazards of workplace chemicals and to make sure that workers understand what the information means in practical terms

family and medical leave act (FMLA)

Designed to make life easier for employees with family or health problems