CHAPTER 8
Developing an Effective Ethics Program
SUMMARY
This chapter first provides an assessment of the corporation as an entity in society, and then gives an
overview of why businesses need to develop an organizational ethics program. It covers the factors that
are requisite parts of an ethics program: a code of conduct, the role of ethics officers and the appropriate
INSTRUCTOR NOTES FOR “AN ETHICAL DILEMMA”
Todd must face the possibility his best manager may be stealing and putting the company at risk for tax
liability action by the IRS. The company is Jennings Department Store, and its code of ethics is vague,
sparse, and lacks any contact information. Students should be aware that employee theft is a common
example of unethical behavior in the workplace. Why does Jennings’s code of ethics not address this
obvious industry threat? Using Table 8.1, Minimum Requirements for Ethics and Compliance
Programs, Jennings appears to fail on all seven counts contained in this table. Would a strong code of
ethics have stopped this behavior?
Both Zara and Jennings appear to be at fault in this instance. Jennings needs a better ethics program in
place to address issues similar to the one Todd currently faces. However, employees have a moral
obligation to both think and act ethically. Is Zara following this implied obligation? A corporate
LECTURE OUTLINE
I. The Responsibility of the Corporation to Stakeholders
A. Corporations are increasingly viewed as moral agents that are accountable for their conduct
to stakeholders.
1. Through legislation and court precedents, society holds companies accountable for the
2. Viewed as moral agents, companies are required to obey the laws and regulations that
define acceptable business conduct. However, because companies are not human, laws
and regulations are necessary to provide formal structural restraints and guidance on
ethical issues.
II. The Need for Organizational Ethics Programs
A. Understanding the factors that influence the ethical decision-making process can help
companies encourage ethical behavior and discourage undesirable conduct.
B. To promote legal and ethical conduct, an organization should develop an organizational
ethics program by establishing, communicating, and monitoring the ethical values and legal
requirements that characterize its history, culture, industry, and operating environment.
1. Organizations can become “bad barrels,” not because individuals are bad, but the
pressures to succeed create opportunities that reward unethical decisions.
C. Without uniform standards and policies of conduct, it is difficult for employees to determine
what behaviors are acceptable within a company, and they may make decisions based on
how their coworkers and superiors behave.
1. A strong ethics program includes a written code of conduct, an ethics officer to oversee
3. Ethics is not something to be delegated to lower-level employees.
a. If a company’s leadership fails to provide the vision and support needed for
ethical conduct, then an ethics program will not be effective.
III. An Effective Ethics Program
A. The more misconduct occurs at a company, the less trust employees feel toward the
organization—and the greater the turnover will likely be.
B. A company must have an effective ethics program to ensure that all employees understand
its values and comply with the policies and codes of conduct that create its ethical culture.
C. Managers cannot assume that employees will automatically know how to behave when
entering a new organization.
D. An Ethics Program Can Help Avoid Legal Problems.
1. Some corporate cultures provide opportunities for unethical conduct because their
management lacks concern or the company has failed to comply with the minimum
requirements of the FSGO, which can result in penalties and loss of public confidence.
2. An ethics program can help a firm avoid civil liability, but the company bears the
burden of proving that it has an effective program.
a. A program developed in the absence of misconduct will be more effective than
E. Values versus Compliance Programs
1. No matter what their goals, ethics programs are developed as organizational control
systems to create predictability in employee behavior.
2. Two types of control systems can be created.
a. A compliance orientation creates order by requiring that employees identify
with, and commit to, specific required conduct.
b. A values orientation strives to develop shared values, with a focus on core ideals
such as accountability and commitment.
i) Research has shown that a values orientation creates ethical reasoning among
IV. Codes of Conduct
A. Today, society expects to see organizational members adhere to ethical principles and
standards specified through company ethics programs. Most companies begin the process of
establishing organizational ethics programs by developing codes of conduct.
B. Such statements may take three different forms:
1. A code of conduct is a formal statement that describes what an organization expects of
its employees.
2. A code of ethics is the most comprehensive and consists of general statements,
sometimes altruistic or inspirational, that serve as principles and the basis for rules of
conduct.
3. A statement of values is conceived by management and fully developed with input
from all stakeholders.
C. Regardless of its degree of comprehensiveness, a code of ethics should reflect upper
managers’ desires for compliance with the values, rules, and policies that support an ethical
culture.
D. Research has found that corporate codes of ethics often contain six core values or principles
1. Trustworthiness
3. Responsibility
5. Caring
6. Citizenship.
E. These values will not be effective without distribution, training, and the support of top
management in making these values a part of the corporate culture. Codes of conduct will
V. Ethics Officers
A. Organizational ethics programs also must have oversight by high-ranking persons known to
respect legal and ethical standards called ethics officers.
1. Ethics officers are responsible for managing their organizations’ ethics and legal
compliance programs. They are usually responsible for:
a. assessing the needs and risks an organization-wide program must address
2. Although recommended as best practice, it is not common for ethics officers to report
directly to the board of directors. Ethics officers often report directly to the chief
VI. Ethics Training and Communication
A. A major step in developing an effective ethics program is implementing a training program
and communication system to educate employees about the firm’s ethical standards.
2. It can make employees aware of available resources, support systems, and designated
personnel who can assist them with ethical and legal advice.
4. Ethics training can influence (and be influenced by) corporate culture, coworkers and
supervisors, and the opportunities available to engage in unethical behavior.
a. Full awareness of a company’s philosophy of management, rules, and procedures
B. Ethics training must start with a foundation, a code of ethics, a procedure for airing ethical
concerns, line and staff involvements, and executive priorities on ethics that are
communicated to employees.
1. Training and communication initiatives should reflect the unique characteristics of an
organization.
3. Top executives must communicate with managers at the operations level and enforce
overall ethical standards within the organization.
4. When measuring the effectiveness of an ethics program, it is important to get input
from employees.
VII. Systems to Monitor and Enforce Ethical Standards
A. An effective ethics program employs a variety of resources to monitor ethical conduct and
measure the program’s effectiveness.
2. An external audit and review of company activities may sometimes be helpful in
developing benchmarks of compliance.
a. Questionnaires can serve as benchmarks in an ongoing assessment of ethical
performance by measuring employees’ ethical perceptions of their company,
3. Consistent enforcement and necessary disciplinary action are essential to a functional
ethics or compliance program.
B. Continuous Improvement of the Ethics Program
1. Implementation requires designing activities to achieve organizational objectives using
available resources and given existing constraints.
2. Implementation translates a plan for action into operational terms and establishes a
means by which an organization’s ethical performance will be monitored, controlled,
and improved.
a. A firm’s ability to plan and implement ethical business standards depends in part
on how it structures resources and activities to achieve its ethical objectives.
C. Common Mistakes in Designing and Implementing an Ethics Program
2. The first mistake is a failure to understand and appreciate the goals of an ethics
program.
4. Senior management’s failure to take ownership of the ethics program is a third
5. Developing program materials that do not address the needs of the average employee is
the fourth mistake.
6. Transferring an “American” program to a firm’s international operations is the fifth
7. A final mistake is designing an ethics program that is little more than a series of
lectures. In such cases, participants typically recall less than 15 percent the day after
the lecture.
DEBATE ISSUE: TAKE A STAND
Have your students split into two teams. One team will argue for the first point, and the other will
argue for the opposing view. The purpose is to get students to realize that there are no easy answers
to many of these issues. This debate asks students to examine whether they feel poorly written
codes of conduct can explain the level of misconduct in an organization. This case examines banks
and financial institutions because of the widespread misconduct that occurred in these industries.
Chapter 8: Developing an Effective Ethics Program 47
“RESOLVING ETHICAL BUSINESS CHALLENGES” NOTES
Mary works for JSYK Inc., a realty company that buys and sells businesses. Mary shows an idle
factory to a potential buyer, a local reverend, who wants to turn the site into a recreation center. The
reverend has $150,000 but is short $100,000 for the down payment. The remaining $750,000 cost of
the building is not a problem, only the down payment. Mary knows the building’s owner, a
curmudgeon, will not entertain the idea of lowering either the down payment or the price. After