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 managers may be stealing and putting the company at risk for
tax liability action by the IRS. The company is Jennings Department Store and their 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’ 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?
A second issue here is the bonuses Zara pays to her employees. The company has paid no
payroll taxes on these extra “wages,” putting the company at risk with the IRS. While Todd is
aware this is against company policy, is Zara aware of the same policy? Is Zara aware she is
putting the company at risk? When opportunities to engage in unethical conduct abound,
LECTURE OUTLINE
I. The Responsibility of the Corporation as a Moral Agent
A. Corporations are increasingly viewed as moral agents that are accountable for their conduct
to stakeholders.
Chapter 8: Developing an Effective Ethics Program 43
1. Through legislation and court precedents, society holds companies accountable for the
conduct of their employees as well as for their decisions and the consequences of those
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.
3. Ethics is not something to be delegated to lower-level employees.
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
employee is charged with misconduct.
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.
44 Chapter 8: Developing an Effective Ethics Program
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.
C. Codes require continuous reinforcement to be effective.
D. Research has found that corporate codes of ethics often contain six core values or principles
1. Trustworthiness
2. Respect
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
not resolve every ethical issue encountered in daily operations, but they help employees and
managers deal with ethical dilemmas by prescribing or limiting specific activities.
V. Ethics Officers
A. Organizational ethics programs also must have oversight by high-ranking persons known to
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.
1. It can educate employees about the firm’s policies and expectations, relevant laws and
regulations, and general social standards.
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.
Chapter 8: Developing an Effective Ethics Program 45
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
C. Common Mistakes in Designing and Implementing an Ethics Program
1. Many business leaders recognize that they need to have an ethics program, but few
take the time to answer fundamental questions about the goals of such programs.
2. Not setting realistic and measurable program objectives.
3. Senior management’s failure to take ownership of the ethics program. Maintaining an
ethical culture may be impossible if CEOs do not support an ethical culture.
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.
Students who argue that the code of conduct does reflect why misconduct has run rampant in the
banking and finance industries could point out the seeming correlation between these companies’
46 Chapter 8: Developing an Effective Ethics Program
“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
explaining the situation to her supervisor, the boss encourages her to lie to the owner in order to get the