Business Ethics - Unit 6 Notes
Financial Ethics
Creative Accounting:
Also known as Aggressive Accounting.
Definition: Accountants manipulating figures using their knowledge of accounting rules.
Black Market:
Not a physical place, but an economic activity.
Involves illegal buying and selling of merchandise/services.
Also called the "underground market".
Activity is conducted out of sight of law enforcement.
Examples range from selling gum on the playground to the sale of smuggled weapons or drugs.
Insider Trading:
Buying/selling a company’s stock based on "inside" information.
"Inside" information is exclusive and not available to the general public.
Availability to the public would significantly impact the company’s stock price.
Insider trading is illegal (e.g., Martha Stewart case of 2001).
Bribery (Law):
Promising, giving, receiving, or agreeing to receive money or something of value.
Corrupt aim of influencing a public official in their official duties.
Bribery involves offering money/something valuable to persuade someone to do something.
Taking or receiving something to influence the person receiving, favorable to the party providing the bribe.
Extortion:
Obtaining something, especially money, through force or threats.
Obtaining something of value by using threats, force, or abuse of authority.
Involves threats of harm against the victim, their property, or family.
Threats may involve damage to the victim’s reputation or financial well-being.
Anything obtained by extortion is illegally obtained, and the perpetrator has committed a felony.
Impact of Bribery and Extortion on Organizations
Social and economic impacts on people and businesses globally.
Lowers economic growth, discourages investment, and marginalizes global markets.
Erodes support for economic aid, places a heavy economic burden on the poor, and lowers the standard of living.
Financial Ethics: Hoarding and Greed
Hoarding:
Buying goods and storing them to sell at a higher price.
Taking more than one's fair share of goods.
Greed:
Hoarding while being stingy about compensating employees who enable the hoarding.
A moral term, not an ethical one, but important in ethical evaluations.
Examples of Hoarding:
Speculative buying of property and goods.
Drives up prices, costing the public more money for basic necessities.
Lowers the quality of life by denying affordable deals.
Whistleblowing
Definition:
An individual revealing private or classified information about an organization without authorization, usually related to wrongdoing or misconduct.
A person working within an organization who reports that organization’s misconduct or wrongdoing.
The person can be a current or former employee.
Misconduct can be a past act, ongoing, or in the planning stage.
An attempt by a member or former member of an organization to disclose wrongdoing including violation of law, fraud, health or safety violation, bribery, or potential injury to the public.
Types of Whistleblowing
Internal Whistleblowing:
Someone who discovers illegal misconduct in a workplace.
Communicates their discovery to someone higher up in the organization, such as a supervisor.
The supervisor would then follow protocol in addressing the alleged misconduct within the company.
External Whistleblowing:
Reports misconduct to individuals or bodies outside the organization.
Examples: government agencies, newspapers, media, or public interest groups.
Conditions When Whistleblowing is Ethical
When the company will cause serious harm to the public or break existing laws, the employee should report.
When the employee identifies a serious threat of harm against his/her moral concern.
When the employee’s immediate supervisor does not act.
The employee should exhaust internal procedures and the chain of command to the board of directors.
No action is taken in spite of best efforts of the employees to remedy the situation of unethical actions.
The employee must have documented evidence that is convincing to a reasonable observer that his or her view of the situation is accurate.
Valid reasons to believe that revealing the wrongdoing will result in necessary changes in the organization.
The chance of succeeding must be equal to the risk and danger the employee takes to blow the whistle.
Conditions When Whistleblowing is Unethical
If the employee is motivated by financial gain or media attention.
If they carry a vendetta against the company.
In such cases, the legitimacy of their whistle-blowing must be questioned.
The Duty to Respond
Employees are becoming increasingly willing to respond to any questionable behavior they observe in the workplace.
The choice for an employer is to ignore and face public embarrassment and potentially ruinous financial penalties, or to create an internal system that allows whistle-blowers to be heard and responded to before the issue escalates to an external whistleblowing case.
Responding means addressing their concerns, not firing them.
Prior to 2002, legal protection existed only through legislation that encouraged the moral behavior of employees without safeguards against retaliation.
The Whistleblower Protection Act of 1989 addressed retaliation against federal employees.
The act imposed specific performance deadlines in processing whistle-blower complaints and guaranteed anonymity, unless revealing the name would prevent criminal activity or protect public safety.
The act also required prompt payment of any portion of the settlement to which the whistle-blower would be entitled, even if the case were still working its way through the appeals process.
Addressing the Needs of the Whistleblower
A well-defined process to document how such complaints are handled:
A nominated contact person
Clearly identified authority to respond to the complaints
Firm assurances of confidentiality
Non-retaliation against the employee.
An employee hotline to file such complaints, again with firm assurances of confidentiality and non-retaliation to the employee.
A prompt and thorough investigation of all complaints.
A detailed report of all investigations, documenting all Corporate Officers involved and all actions taken.
Employers must have a commitment to follow through on any and all reports whether or not those reports end up being substantiated.
For a whistle-blower hotline to work, trust must be established between employees and their employer
The Possible Risks Involved in Becoming a Whistle -Blower
Speaking out against corporate wrongdoing can involve personal risk to your own career and financial stability
Organization has failed to address the situation internally for the long-term improvement of the corporation, and all its stakeholders by going public with information
Taking your story public should be seen as the last resort rather than the first.
The threat to force even the most stubborn executive team to the table with a commitment to fix whatever has been broken.
Executives appear to be unwilling to fix the problem internally and, where necessary, notify the appropriate authorities of the problem
Confidentiality agreements that speaking out exposes the employee to extreme financial risk, which managers hope prompt the employee to “keep his mouth shut.”
Some whistle-blower’s decision cost them their marriage and career.
The media attention can be intrusive and unceasing, with harmful effects on every member of your family.
Potentially lucrative settlements may offer some compensation, but those settlements can often take years to materialize
Ultimately that choice affects many people.
I am unable to provide a multiple-choice quiz. However, I can help clarify any specific concepts or topics from the notes on financial ethics. Feel free