978-0470639948 Chapter 8 Solution Manual Part 1

Unlock access to all the studying documents.

View Full Document

Chapter 8:

ETHICS REPORTING SYSTEMS

CHAPTER 8 CHAPTER AND ADDITIONAL QUESTIONS

In studying this chapter, students should consider the questions below.

“CQ1” refers to “Chapter Question 1.” This question appears at the end of the textbook

chapter.

“AQ1” refers to an “Additional Question 1.” This is an “additional” question related to

the chapter. It is not listed at the end of the textbook chapter as a “Chapter Question”.

These items are numbered within the two categories based on the order in which the

answer appears in the chapter.

CQ1: Why do some employees refuse to report ethical misconduct?

CQ2: What skills must a manager develop for employees to feel comfortable to discuss potential

unethical behaviors?

CQ3: Discuss the typical duties and skills of an Ethics & Compliance Officer? How can these

activities be managed in a small organization?

CQ4: Describe the fourteen-steps for developing and managing an internal reporting system

process.

AQ1: Describe other ethics reporting system mechanisms: Ombudsperson, Chaplains, and Assist

Lines.

AQ2: What is whistle-blowing and what protections do whistle-blowers have?

CQ5: What are some of negative outcomes that many whistle-blowers have experienced?

CHAPTER 8 LEARNING OBJECTIVES

After completing this chapter, students should be able to:

Understand why some employees do not report ethical misconduct

Describe how to engage employees in discussing ethical misconducts

Administer an internal reporting system for ethical issues

Create an Ethics & Compliance Officer and Ombudsman positions

Manage an assist line to receive employee complaints by telephone or Internet

Describe the negative outcomes whistle-blowing has on both the whistle-blower and the

organization

CHAPTER 8 OVERVIEW

High performance organizations depend on employees speaking honestly with their

colleagues, managers, and company owners when ethical problems arise. This chapter examines

why employees maintain silence when they observe ethical misconduct and what management

behaviors and internal mechanisms can elicit such essential information. Excellent managers are

the type of person colleagues and subordinates can trust and confide with such personally

sensitive information. But some employees remain comfortable sharing ethical issues with their

direct supervisors.

The chapter also explores three alternative internal communication mechanisms for

obtaining information about unethical behavior: an Ethics & Compliance Officer, an

ombudsman, and an assist line. A failure in these internal communication systems can result in

external whistle-blowing, which is damaging for both the organization and the whistle-blower.

CHAPTER 8 LECTURE OUTLINE

Teaching Objective: To offer a variety of ways that encourages employees to report unethical

conduct.

Suggested Time: Two to three hours of class time is recommended to present this chapter.

I. Chapter Question 1: Why do some employees refuse to report ethical misconduct?

II. Chapter Question 2: What skills must a manager develop for employees to feel

comfortable to discuss potential unethical behaviors?

III. Chapter Question 3: Discuss the typical duties and skills of an Ethics & Compliance

Officer? How can these activities be managed in a small organization?

IV. Chapter Question 4: Describe the fourteen-steps for developing and managing an

internal reporting system process.

V. Additional Question 1: Describe other ethics reporting system mechanisms:

Ombudsperson, Chaplains, and Assist Lines.

VI. Additional Question 2: What is whistle-blowing and what protections do

whistle-blowers have?

VII. Chapter Question 5: What are some of negative outcomes that many

whistle-blowers have experienced?

What is an organization?

CHAPTER 8 SUPPORTING MATERIALS

Textbook Inserts

Ethical Dilemma Analysis

What would you do?

Let’s Build a Building

In the Real World: Enron

Exhibits

Exhibit 8.1: Unreported Observed Ethical Misconducts

Exhibit 8.2: Reasons for Employee Silence

Exhibit 8.3: Internal Reporting System Process

Exhibit 8.4: AICPA Audit Committee Assist Line Checklist

Exhibit 8.5: Top Seven False Claims Acts Cases (as of September 2009)

Exhibit 8.6: Whistle-blower Protection Laws

Thematic Boxes

Tips and Techniques

Best Practice in Use

CHAPTER QUESTION 1: WHY DO SOME EMPLOYEES REFUSE TO REPORT

ETHICAL MISCONDUCT?

TYPES OF UNETHICAL ISSUES NOT REPORTED

Managers also rely on employees to take immediate corrective action when ethical misconduct

occurs or inform them so the manager can address the problem before the situation worsens. But

sometimes employees are hesitant to share personally sensitive issues with their manager.

Employee silence refers to an employee who observes ethical misconduct at work but

does not discuss the matter with the person engaged in the ethical misconduct or

someone else in the organization with authority.

oFrequency of ethical misconducts undertaken to benefit the company that go

unreported:

oFrequency of ethical misconducts undertaken to benefit an individual that go

unreported

The ERC study also differentiates “red-flag” financial reporting misconduct – falsifying

or manipulating financial information, overriding routine procedures, or creating

fictitious vendors or invoices – from other types of ethical misconducts.

REASONS FOR EMPLOYEE SILENCE

Review EXHIBIT 8.2 “Reasons for Employee Silence,” which highlights a wide range of

organizational factors, observer factors, and anticipated negative outcomes reasons for

maintaining silence about an observed ethical misconduct.

Organizational Factors

oWork culture discourages conveying negative information or dissent

Authoritarian leaders rule according to the saying: “My way or the

highway.”

oLoyalty to employees, manager, organization, and profession are not aligned with

ethics

oNo established reporting system beyond chain-of-command

oLack of anonymity for reporting misconduct

Observer Factors

oHabituation not to share sensitive information

oLow moral intensity

oLack of evidence

oLack of empowerment

Employee empowerment refers to employees possessing the authority to

make decisions affecting themselves and their work.

oUnsupportive supervisor

oLack of seniority

oLow hierarchical position

oLack of personal relationship with the person or person’s supervisor

oLack of moral courage

Anticipated Negative Outcomes

oBeing labeled or viewed negatively (e.g., troublemaker, complainer, tattletale)

oDamaging a relationship (e.g., loss of trust, respect, acceptance)

oRetaliation or punishment (e.g., loss or job or promotion)

oNegatively impacting others (e.g., don’t want to upset or embarrass someone, or

get someone in trouble)

oBeing blamed for the problem

oNo corrective action will be taken

DISCUSSION ACTIVITY

Have students review the list of unethical behaviors that typically are not reported. Have the

students observed any of those behaviors at work or school? Which of those behaviors didn’t

they report? Why? In small groups, have students describe the situation and explain why they

failed to do anything about it.

CHAPTER QUESTION 2: WHAT SKILLS MUST A MANAGER DEVELOP FOR

EMPLOYEES TO FEEL COMFORATBALE TI SCUS POTENTIAL UNETHICAL

BEHAVIORS?

The best ethics reporting system is a manager who welcomes ethical discussions with employees

and input on ethical misconduct. A diverse set of managerial techniques and attributes can help

employees become comfortable sharing sensitive ethical information.

oManagers can demonstrate familiarity with the types of ethical issues the organization

experiences by staying abreast of the ethics and diversity training workshop topics and

discussions, and ensuring the implementation of action plans supporting existing

strengths and addressing ethical weaknesses.

oApproachability begins with managerial honesty and transparency.

oA manager must be willing to discuss his or her own ethical mistakes in a manner that

humanizes the manager without losing authority.

oSharing concerns about a colleague or manager can be emotionally draining. The

information deserves to be kept private and confidential.

oNear the conclusion of any one-on-one meeting, ask the subordinate if there have been

any situations lately when living up to the Code of Ethics has been challenging. Share

examples that may be of concern to deepen managerial understanding of workplace

dynamics.

DISCUSSION ACTIVITY

Have students think about a time when they approached a boss, teacher, or some other authority

figure about unethical behaviors. Why did the student choose that person to convey such

sensitive information? What characteristics or skills did that person exhibit that led the student to

trust the person?

CHAPTER QUESTION 3: DISCUSS THE TYPICAL DUTIES AND SKILLS OF AN

ETHICS & COMPLIANCE OFFICER? HOW CAN THESE ACTIVITIES BE

MANAGED IN SMALL ORGANIZATIONS?

BACKGROUND

The Federal Sentencing Guidelines (see Chapter 2) provide a judicial incentive for assigning a

high-level employee the responsibility of managing ethical performance. A growing number of

organizations assign this responsibility to an Ethics & Compliance Officer (ECO).

oSome organizations create a separate ECO position focused solely on enhancing ethical

performance.

oMany organizations, however, add the title and job responsibilities to an existing position,

such as legal counsel, ombudsmen, regulatory compliance manager, internal auditor, or

human resources manager.

ECO DUTIES

oECO duties include:

oManage internal reporting systems

oAssess areas for ethical risks

oOffer guidance

oMonitor the organization’s adherence to its Code of Ethics and Code of Conduct

oOversee the ethics communication strategy

oDevelop and interpret ethics policies

oOversee the ethics training program

oReceive information about potential wrongdoings

oCollect and analyze relevant data

oEnsure that decisions are made and enforced

oInform employees about outcomes

ECO SKILLS

oReview TIPS AND TECHNIQUES for best attributes of an ECO

oInsider status and is well-networked with business unit managers

oA high position that exemplifies authority

oThe trust and respect of organizational executives

oIndependence from senior staff and freedom from internal political pressure

oOperational experience

oKnowledge of organizational issues and activities

oAccess to internal information as needed

oKnowledge of ethical theories

oCounseling and communication skills

oProblem-solving skills

DISCUSSION ACTIVITY

Have students review the lists of ECO duties and skills. Assume you were employed by a small

business or college. What advice would you give to ensure that the duties of an ECO were

integrated in management operations?

CHAPTER QUESTION 4: DESCRIBE THE FOURTEEN-STEPS FOR DEVELOPING

AND MANAGING AN INTERNAL REPORTING SYSTEM PROCESS.

The ECO’s primary duty is to manage the organization’s internal reporting system. Review the

process model in EXHIBIT 8.3 “Internal Reporting System Process,” which provides guidance

on how to accomplish this.

oSTEP ONE: Develop the ethics reporting policy in partnership with upper management to

establish their buy-in.

oSTEP TWO: Communicate the ethics reporting policy to all employees through multiple

media, such as the employee handbook, e-mail, the company intranet site, department

meetings, and training sessions.

oSTEP THREE: Emphasize the importance of reporting concerns about unethical and

illegal conduct. Management cannot act on what it does not know.

oSTEP FOUR: Assure people that any form of retaliation against an employee who raises

an ethical concern is prohibited.

oSTEP FIVE: If appropriate, the employee should first attempt to resolve the issue by

directly approaching the individual engaged in the questionable activity.

oSTEP SIX: If direct discussion or resolution is not possible, then the employee should

confidentially meet with the ECO to discuss the issue.

oSTEP SEVEN: If the employee prefers not to reveal his or her identity, then the employee

should anonymously submit the concern to the ECO through the organization’s intranet

reporting system or in a sealed box. Establish a means of communication if the issue

becomes a high-priority item needing additional information from the employee.

oSTEP EIGHT: Assure the employee that his or her identity will not be revealed without

consent.

oSTEP NINE: Interview the employee and discuss clarifying questions.

oSTEP TEN: Develop a plan for investigating the case in a manner that honors the

employee’s confidentiality or anonymity.

oSTEP ELEVEN: Conduct the investigation in a fair and confidential manner.

oSTEP TWELVE: If the investigation reveals that the employee’s allegations are accurate,

take prompt action to correct the wrongdoing.

oSTEP THIRTEEN: Inform the employee about the outcome of the investigation.

oSTEP FOURTEEN: Establish an appeals process for employees dissatisfied with the

outcome of the initial investigation. Provide an advocate, probably from the human

resources department, to assist an employee who wishes to appeal an outcome.

DISCUSSION ACTIVITY

Tell students that the Dean of the School of Business, College president, or boss has asked them

to create an internal ethics reporting system. How would they design the system? What features

would they implement? How would they roll out the plan?

ADDITIONAL QUESTION 1: DESCRIBE OTHER ETHICS REPORTING SYSTEM

MECHANISMS: OMBUDSPERSON, CHAPLAINS, AND ASSIST LINES.

OMBUDSPERSON

oAnother internal channel for communicating information about potential ethical and legal

violations is an organizational ombudsperson.

oThe ombudsman concept originated in government, and has spread to other types of

organizations, including corporations, hospitals, newspapers, universities, and nonprofits.

oAn ombudsman guarantees the employee anonymity, asks permission to contact key

people, develops a plan for gathering information without revealing the identity of the

complainant, investigates the claim outside the regular chain-of-command, reaches a

conclusion, and, if so concluded, advocates for implementing the appropriate change.

oBy providing employees with an institutional voice, the ombudsman serves as a deterrent

against managerial abuse of power and other unethical activities. The ombudsman is

granted access to all employees, including board members, when investigating a

complaint.

oAn ombudsman, similar to an accountant or lawyer, is held legally accountable to a

professional Code of Ethics. The International Ombudsman Association’s Code of Ethics

highlights four ethical principles and corresponding policies:

1. Independence. The ombudsman is independent in structure, function, and appearance

to the highest degree possible within the organization.

2. Neutrality and impartiality. The ombudsman remains unaligned and impartial, and

does not engage in any situation which could create a conflict of interest.

3. Confidentiality. The ombudsman holds all communications in strict confidence, and

does not disclose confidential communications unless given permission to do so. The

only exception to this privilege of confidentiality is when there is an imminent risk of

serious harm.

4. Informality. The ombudsman does not participate in any formal adjudicative or

administrative procedure related to concerns brought to his/her attention.

oReview BEST PRACTICES IN USE, which provides a list of issues reported to an

ombudsperson:

oA code of ethics violation

oTrading issues or violations

oLegal or compliance issues

oA situation that threatens employee safety

oUnfair treatment by a manager or co-worker

oUnfair pay as defined in the Fair Labor Standards Act

oUnfair treatment on the basis of sex, race, color, ethnic group, age, sexual

orientation, or other affiliation

CHAPLAINS

oSome businesses have contracted out with chaplain consulting organizations as a

mechanism for employees to confidentially share their personal and ethical concerns.

oChaplains are members of a religious clergy trained in providing spiritual advice.

oDating back to the 1940s, corporate chaplains originally provided, upon request, pastoral

care for employees and their families dealing with illnesses, death, addictions,

encouragement needs, or other personal issues, and were part of a company’s employee

benefits package.

oOver time, their list of services expanded to include helping employees manage ethical

dilemmas and interactions with other employees. Most corporate chaplains have

seminary degrees and are trained counselors.

oThe two most prominent providers of chaplains are Marketplace Chaplains and Corporate

Chaplains of America.

oThe chaplains are on-call twenty-four hours a day, seven days a week.

oWorkplace interactions between a chaplain and an employee are kept to a minimum.

oMost meetings are arranged for nonworking hours, unless in time of crisis.

oConversations with chaplains are confidential, although an employee can request the

chaplain to discuss a matter with corporate managers.

ASSIST LINES

oAssist lines, previously referred to as “ethics hotlines,” have long been popular with

organizations as a method of obtaining information about situations that may be unethical

or illegal.

oNearly all Fortune 500 companies provide toll-free assist lines for employees from all

over the world to share their concerns.

oSmall organizations can contract out to an assist-line managed by a third-party.

oScripted questions are delivered live by calling a particular phone number or through a

computerized system to gather the appropriate information.

oEmployees reporting to the assist line are ensured anonymity and privacy, and the

information provided is directed to the appropriate person within the employee’s

organization.

oAt Sears, whose assist line receives 16,000 to 18,000 calls a year from its 300,000

employees, only a very small percentage of the calls are about potential law violations.

oThe largest group of assist line callers consists of employees asking for assistance

to solve a human resources issue, such as how to respond to an unfavorable

performance evaluation or lack of work breaks.

oThe second largest group of assist line callers consists of employees asking for

ethics policy clarifications.

oConfidentiality and false accusations are two central issues addressed by effective assist

lines.

oReview EXHIBIT 8.4 “AICPA Audit Committee Assist Line Checklist,” which provides

a list of items the AICPA recommends for assessing the effectiveness of an audit

committee assist line.

o For colleges and universities, the EthicsPoint system highlights four categories of

wrongdoing. An “other” category is available for issues that do not fit any of these four

options.

1. Unethical financial abuse, such as fraud.

2. Unethical personal conduct, such as discrimination.

3. Unethical treatment of college property, such as theft.

4. Unethical use of information technology, such as data privacy abuse.

DISCUSSION ACTIVITY

Have students describe a situation when they observed someone at work behave unethically but

did not do anything about it. Would they have informed an “Ethics Assist Line” if one had been

available? Why?