{"id":8452,"date":"2016-11-10T21:12:51","date_gmt":"2016-11-10T21:12:51","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/masterybusiness2xngcxmasterspring2016\/?post_type=chapter&#038;p=8452"},"modified":"2017-04-18T19:00:31","modified_gmt":"2017-04-18T19:00:31","slug":"reading-building-business-ethics","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/chapter\/reading-building-business-ethics\/","title":{"raw":"Building Business Ethics","rendered":"Building Business Ethics"},"content":{"raw":"<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/12\/16211935\/5319185308_997b72aae2_b-1.jpg\"><img class=\"aligncenter wp-image-9065\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/12\/16211935\/5319185308_997b72aae2_b-1-300x225.jpg\" alt=\"Abstract painting or photograph showing twelve adjoining squares. The work is titled &quot;Ethics.&quot;\" width=\"600\" height=\"450\" \/><\/a>\r\n<h2>Introduction<\/h2>\r\n<span style=\"color: #333333;\">Governments use laws and regulations to point business behavior in what they perceive to be beneficial directions. <strong>Business<\/strong> <strong>ethics<\/strong>\u00a0implicitly regulates behavior that lies beyond governmental control. Business ethics refers to contemporary standards or sets of values that govern the actions and behavior of individuals in the business organization and the actions of the business itself. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.\u00a0[footnote]<a style=\"color: #333333;\" href=\"http:\/\/plato.stanford.edu\/entries\/ethics-business\/\">\"Business Ethics (Stanford Encyclopedia of Philosophy)\"<\/a>. Plato.stanford.edu. 2008-04-16. Retrieved\u00a02013-06-04.[\/footnote]\u00a0Corporations and professional organizations, particularly licensing boards, will usually have a written \u201cCode of Ethics\u201d that governs standards of professional conduct expected of all in the field.<\/span>\r\n<h2>Individual and Corporate Ethics<\/h2>\r\n<span style=\"color: #333333;\">As the definition of business ethics above suggests, business ethics is a broad term\u00a0that applies to the\u00a0behavior of the individuals\u00a0who work at a business as well as\u00a0the actions of the business itself. There is a narrower term, \"corporate ethics,\" that is used for this second area\u00a0of the actions of a business. Corporate\u00a0ethics express the values of an organization to its internal and external stakeholders. Corporate ethics has become such an important concern that companies such as <a style=\"color: #333333;\" href=\"http:\/\/ethicalquote.com\/\" target=\"_blank\">Covalence EthicalQuote<\/a> have cropped up to monitor the ethical behavior of businesses. These private firms track the world\u2019s largest companies in areas such as corporate social responsibility, ethics, and sustainability, and then provide ratings, news, and data to investors and the general public. Web sites such as <a style=\"color: #333333;\" href=\"http:\/\/www.ethicalconsumer.org\/\" target=\"_blank\">Ethical Consumer<\/a>\u00a0promote \"ethical consumerism\" to help consumers\u00a0act in the marketplace in ways that are consistent with their ethics. Year after year, companies such as Nestle, Bayer, and Monsanto grace the top of the \"worst of the worst\" lists.\u00a0<\/span>\r\n\r\n<span style=\"color: #333333;\">But it's not all grim news or tattling when it comes to business\u00a0ethics.\u00a0For example, the\u00a0Scottsdale, Arizona-based Ethisphere Institute\u2014an organization focused on gauging ethical business practices\u2014publishes a list of the \u201cWorld\u2019s Most Ethical Companies\" on an annual basis. The overall goal of Ethisphere\u2019s rankings is\u00a0to reward organizations with good practices and offer a model\u2014and actionable advice\u2014on how corporate entities should conduct themselves, says chief marketing and strategy officer, Tia Smallwood. \u201cThe papers are filled with scandals and companies that made judgment errors, that made policy errors or that don\u2019t have good practices in place to handle things like non-retaliation or transparency or open reporting, or have had a crisis and handled it poorly,\u201d she said. \u201cBut there a lot of companies that are really trying to do things the right way.\u201d \u00a0Notable call-outs this year are firms that have been honored every year of the list\u2019s existence.\u00a0Those include Aflac, Fluor Corporation, GE, Kao Corporation (Japan), Milliken &amp; Company, Starbucks and UPS.[footnote]http:\/\/www.forbes.com\/sites\/karstenstrauss\/2016\/03\/09\/the-worlds-most-ethical-companies-2016\/#1a81a32673dcontent here.[\/footnote]<\/span>\r\n<h2>Encouraging Ethical Behavior<\/h2>\r\n<span style=\"color: #333333;\">How, then, do businesses encourage and support ethical behavior?\u00a0Often the ethical tone of a business is set by organizational leadership.<\/span>\r\n\r\n<span style=\"color: #333333;\">Consider the following observation by the\u00a0Ethics and Compliance Initiative (ECI) on the results of the\u00a0National Business Ethics survey:<\/span>\r\n<blockquote>\r\n<div><span style=\"color: #333333;\">Managers\u2013those expected to act as role models or enforce discipline\u2013are responsible for a large share of workplace misconduct (60 percent) and senior managers are more likely than lower-level managers to break rules. Surveyed employees said that members of management are responsible for six of every ten instances of misconduct and they pointed the finger at senior managers in 24 percent of observed rule breaking. Middle managers were identified as the culprit 19 percent of the time and first-line supervisors were identified as bad actors 17 percent of the time.[footnote]http:\/\/www.ethics.org\/newsite\/research\/eci-research\/nbes\/nbes-reports\/nbes-2013[\/footnote]<\/span><\/div><\/blockquote>\r\n<span style=\"color: #333333;\">If a \u00a0company is looking for\u00a0ways to\u00a0boost or ensuring ethical behavior in an organization, this is an interesting and alarming finding. In a supplemental report on Ethical Leadership, ECI reports that employees at all sizes of companies draw conclusions about their leaders\u2019 character primarily on the basis of the following:<\/span>\r\n<ul class=\"greenbullet\">\r\n \t<li><span style=\"color: #333333;\">The overall character of their leaders as experienced through personal interactions;<\/span><\/li>\r\n \t<li><span style=\"color: #333333;\">How senior managers handle crises; and<\/span><\/li>\r\n \t<li><span style=\"color: #333333;\">The policies and procedures adopted by senior leaders to manage the company.<\/span><\/li>\r\n<\/ul>\r\n<span style=\"color: #333333;\">Employees want to know, for example, whether leaders treat lower level employees with dignity and respect, share credit when good things happen, and uphold standards even when\u00a0it reduces revenues and profits. They watch to see whether leaders are steady in crisis, hold themselves accountable or, alternatively, shift blame to others. Workers also look at day-to-day management decisions to gauge whether ethical behavior is recognized and rewarded, or whether praise and promotions go to workers who bend the rules.[footnote]http:\/\/www.ethics.org\/newsite\/research\/eci-research\/nbes\/nbes-reports\/ethical-leadership[\/footnote]<\/span>\r\n\r\n<span style=\"color: #333333;\">These findings suggest the important role that\u00a0executives play in building ethical organizations\u2014ethics and integrity tend to start (or fail) at the top and trickle down.<\/span>\r\n<h2>The Role of Executives and Managers in Setting Ethical Standards<\/h2>\r\n<span style=\"color: #333333;\">When executives establish\u00a0specific, measurable objectives for the company, those objectives determine where people will focus their time and effort. When the objectives cannot be met\u00a0and there\u00a0are dire personal consequences for failure, such\u00a0conditions can lead to the compromise of ethics and standards.\u00a0In the National Business Ethics Survey, 70 percent of employees identified pressure to meet unrealistic business objectives as most likely to cause them to compromise their ethical standards, and 75 percent identified either their senior or middle management as the primary source of pressure they feel to compromise the standards of their organizations.<\/span>\r\n\r\n[caption id=\"attachment_3729\" align=\"alignleft\" width=\"300\"]<a style=\"color: #339966;\" href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/903\/2016\/01\/23225838\/1200px-Martin_Winterkorn_2013-09-09_001.jpg\"><img class=\"wp-image-3729\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/09200117\/1200px-Martin_Winterkorn_2013-09-09_001-1024x683.jpg\" alt=\"Photo of former VW CEO, Martin Winterkorn\" width=\"300\" height=\"200\" \/><\/a> Former Volkswagon CEO, Martin Winterkorn[\/caption]\r\n\r\n<span style=\"color: #333333;\">In the Volkswagen case, internal investigations have questioned how both the company culture and the behavior of former CEO Martin Winterkorn contributed to a systemic ethical breach.\u00a0Like many chief executives, Martin Winterkorn was a demanding boss who didn't like failure, but critics say the pressure on managers at Volkswagen was unusual, which may go some way toward explaining the carmaker's crisis. When he became CEO in 2007, Winterkorn set an objective to make VW the world's biggest carmaker, which would require tremendous growth in the highly competitive U.S. car market.\u00a0In the years since, VW has nearly\u00a0doubled it global annual sales to 10 million cars and its revenue to $225 billion. In early 2015, VW finally approached\u00a0its goal, selling marginally more vehicles than the world's number-one automaker, Toyota of Japan.\u00a0One former sales executive said that the pressure soared under the target. \"If you didn't like it, you moved of your own accord or you were performance-managed out of the business,\" he said.[footnote]http:\/\/www.reuters.com\/article\/us-volkswagen-emissions-culture-idUSKCN0S40MT20151010[\/footnote]<\/span>\r\n\r\n<span style=\"color: #333333;\">In describing a Winterkorn's leadership style, a\u00a0former VW executive confidentially told Reuters New Agency, \"There was always a distance, a fear and a respect . . . If he would come and visit or you had to go to him, your pulse would go up. If you presented bad news, those were the moments that it could become quite unpleasant and loud and quite demeaning.\"<\/span>\r\n\r\n<span style=\"color: #333333;\">A week after U.S. regulators revealed the company's cheating, Bernd Osterloh, the employee representative\u00a0on VW's supervisory board,\u00a0sent a letter to VW staff suggesting the change that was needed: \"We need in the future a climate in which problems aren't hidden but can be openly communicated to superiors,\" said Osterloh. \"We need a culture in which it's possible and permissible to argue with your superior about the best way to go.\"[footnote]http:\/\/www.reuters.com\/article\/us-volkswagen-emissions-culture-idUSKCN0S40MT20151010[\/footnote]<\/span>\r\n\r\n<span style=\"color: #333333;\">In <em>Fortune<\/em> magazine, Dr. Paul Argenti suggested, \"Rather than playing the blame game, executives should ask if pressures to grow at all costs might have created dishonest employees.\"[footnote]http:\/\/fortune.com\/2015\/10\/13\/biggest-culprit-in-volkswagen-emissions-scandal\/[\/footnote]<\/span>\r\n\r\n<span style=\"color: #333333;\">It seems likely that aggressive corporate objectives (and more specifically marketing objectives related to market share) played a contributing role in the Volkswagen ethics scandal. Moreover, when executives set aggressive goals, it becomes more important to cultivate communication channels to openly address issues. This was obviously not the case at Volkswagon.<\/span>\r\n\r\n<span style=\"color: #333333;\">Executives play an important role in creating company\u00a0policies on ethics\u2014and by visibly following and\u00a0upholding\u00a0them. As the survey data cited above suggest, employees look to executives to decide\u00a0whether standards-of-business-conduct policies should be observed and\u00a0respected. When executives bend the rules or turn a blind eye to bad behavior,\u00a0the policies lose value and executives lose the respect of employees. This opens the door to a range of unanticipated issues, as employees look to ethical norms outside stated policy and beyond the executives' control.<\/span>\r\n\r\n<span style=\"color: #333333;\">Internal promotions send very strong signals about what is important to a company. When the company hires an employee from a different company, she is likely not well known by most employees. If the company promotes an employee who is already working at the company, others know him and understand what he has done to deserve\u00a0the promotion. If the company promotes individuals to\u00a0management positions when they have displayed questionable ethics in the workplace, it creates two issues. First, it creates a level of managers who\u00a0are more likely to encourage their employees to achieve business results at any\u00a0cost, even when ethics are compromised. Second, it sends a message to all employees that business results are more important than ethics.<\/span>\r\n<h2>Company Codes of Ethics and Codes of Practice<\/h2>\r\n<span style=\"color: #333333;\">An increasing number of companies requires employees to attend trainings\u00a0regarding business conduct. These typically\u00a0include discussions of the company's policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company's rules of conduct.<\/span>\r\n\r\n<span style=\"color: #333333;\">As part of more comprehensive compliance and ethics programs, many companies have formulated internal policies pertaining to the ethical conduct of employees. They are generally documented in one of two ways:\u00a0<\/span>\r\n<ol>\r\n \t<li><span style=\"color: #333333;\"><strong>Corporate Code of Ethics.<\/strong>\u00a0A code of ethics begins\u00a0by setting out the values that underpin the code and describes a company's obligation to its stakeholders. The code is publicly available and addressed to anyone with an interest in the company's activities and the way it does business. It includes details of how the company plans to implement its values and vision, as well as guidance to staff on ethical standards and how to achieve them. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters.<\/span><\/li>\r\n \t<li><span style=\"color: #333333;\"><strong>Code of Practice.\u00a0<\/strong>A code of practice is adopted by a profession or by a governmental or nongovernmental organization to regulate that profession. A code of practice may be styled as a code of professional responsibility, and it\u00a0will discuss difficult issues, difficult decisions that will often need to be made, and provide a clear account of what behavior is considered \"ethical\" or \"correct\" or \"right\" in the circumstances. In a membership context, failure to comply with a code of practice can result in expulsion from the professional organization.<\/span><\/li>\r\n<\/ol>\r\n<span style=\"color: #333333;\">Richard DeGeorge, author of <em>Business Ethics<\/em>, has this to say\u00a0about\u00a0the importance of maintaining a corporate code: <\/span>\r\n<blockquote><span style=\"color: #333333;\">Corporate codes have a certain usefulness and there are several advantages to developing them. First, the very exercise of doing so in itself is worthwhile, especially if it forces a large number of people in the firm to think through, in a fresh way, their mission and the important obligations they as a group and as individuals have to the firm, to each other, to their clients and customers, and to society as a whole. Second, once adopted, a code can be used to generate continuing discussion and possible modification to the code. Third, it could help to inculcate in new employees at all levels the perspective of responsibility, the need to think in moral terms about their actions, and the importance of developing the virtues appropriate to their position.[footnote]DeGeorge, Richard. <i>Business Ethics<\/i>. Prentice Hall. pp.\u00a0207\u2013208[\/footnote]<\/span><\/blockquote>\r\n<span style=\"color: #333333;\">Beyond establishing policies or codes that guide the ethical behavior of the company or employees, many companies are assessing the environmental factors that can lead employees to engage in unethical conduct. A competitive business environment may call for unethical behavior. For example, lying has become the norm\u00a0in fields such as stock and security\u00a0trading. Sometimes there is disconnection between the company's code of ethics and the company's actual practices. Thus, whether or not such conduct is explicitly sanctioned by management, at worst, this makes the policy duplicitous, and, at best, it is merely a marketing tool.<\/span>\r\n\r\n<span style=\"color: #333333;\">Not everyone supports corporate policies that govern ethical conduct. Some claim that ethical problems are better dealt with by relying\u00a0upon employees to use their own judgment.\u00a0Others believe that corporate ethics policies are primarily rooted in utilitarian\u00a0concerns, and that they are mainly to limit the company's legal liability, or to curry public favor by giving the appearance of being a good corporate citizen. Ideally, the company will avoid a lawsuit because its employees will follow the rules. Should a lawsuit occur, the company can claim that the problem wouldn't\u00a0have arisen if the employee had\u00a0followed the code properly.\u00a0<\/span>\r\n\r\n<span style=\"color: #333333;\">To see how companies go beyond a code of ethics, the following video by BAE Systems highlights how, according to the company, \"[W]e continue to embed our program internationally and drive the right behaviors by supporting employees in making ethical decisions and embedding responsible business practices.\"<\/span>\r\n<p style=\"text-align: center;\">https:\/\/youtu.be\/3VGWlXs8K6g<\/p>\r\n\r\n<h2>Check Your Understanding<\/h2>\r\nAnswer the question(s) below to see how well you understand the topics covered above. This short quiz does <strong>not<\/strong> count toward your grade in the class, and you can retake it an unlimited number of times.\r\n\r\nUse this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.\r\n\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/2998","rendered":"<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/12\/16211935\/5319185308_997b72aae2_b-1.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-9065\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/12\/16211935\/5319185308_997b72aae2_b-1-300x225.jpg\" alt=\"Abstract painting or photograph showing twelve adjoining squares. The work is titled &quot;Ethics.&quot;\" width=\"600\" height=\"450\" \/><\/a><\/p>\n<h2>Introduction<\/h2>\n<p><span style=\"color: #333333;\">Governments use laws and regulations to point business behavior in what they perceive to be beneficial directions. <strong>Business<\/strong> <strong>ethics<\/strong>\u00a0implicitly regulates behavior that lies beyond governmental control. Business ethics refers to contemporary standards or sets of values that govern the actions and behavior of individuals in the business organization and the actions of the business itself. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.\u00a0<a class=\"footnote\" title=\"&quot;Business Ethics (Stanford Encyclopedia of Philosophy)&quot;. Plato.stanford.edu. 2008-04-16. Retrieved\u00a02013-06-04.\" id=\"return-footnote-8452-1\" href=\"#footnote-8452-1\" aria-label=\"Footnote 1\"><sup class=\"footnote\">[1]<\/sup><\/a>\u00a0Corporations and professional organizations, particularly licensing boards, will usually have a written \u201cCode of Ethics\u201d that governs standards of professional conduct expected of all in the field.<\/span><\/p>\n<h2>Individual and Corporate Ethics<\/h2>\n<p><span style=\"color: #333333;\">As the definition of business ethics above suggests, business ethics is a broad term\u00a0that applies to the\u00a0behavior of the individuals\u00a0who work at a business as well as\u00a0the actions of the business itself. There is a narrower term, &#8220;corporate ethics,&#8221; that is used for this second area\u00a0of the actions of a business. Corporate\u00a0ethics express the values of an organization to its internal and external stakeholders. Corporate ethics has become such an important concern that companies such as <a style=\"color: #333333;\" href=\"http:\/\/ethicalquote.com\/\" target=\"_blank\">Covalence EthicalQuote<\/a> have cropped up to monitor the ethical behavior of businesses. These private firms track the world\u2019s largest companies in areas such as corporate social responsibility, ethics, and sustainability, and then provide ratings, news, and data to investors and the general public. Web sites such as <a style=\"color: #333333;\" href=\"http:\/\/www.ethicalconsumer.org\/\" target=\"_blank\">Ethical Consumer<\/a>\u00a0promote &#8220;ethical consumerism&#8221; to help consumers\u00a0act in the marketplace in ways that are consistent with their ethics. Year after year, companies such as Nestle, Bayer, and Monsanto grace the top of the &#8220;worst of the worst&#8221; lists.\u00a0<\/span><\/p>\n<p><span style=\"color: #333333;\">But it&#8217;s not all grim news or tattling when it comes to business\u00a0ethics.\u00a0For example, the\u00a0Scottsdale, Arizona-based Ethisphere Institute\u2014an organization focused on gauging ethical business practices\u2014publishes a list of the \u201cWorld\u2019s Most Ethical Companies&#8221; on an annual basis. The overall goal of Ethisphere\u2019s rankings is\u00a0to reward organizations with good practices and offer a model\u2014and actionable advice\u2014on how corporate entities should conduct themselves, says chief marketing and strategy officer, Tia Smallwood. \u201cThe papers are filled with scandals and companies that made judgment errors, that made policy errors or that don\u2019t have good practices in place to handle things like non-retaliation or transparency or open reporting, or have had a crisis and handled it poorly,\u201d she said. \u201cBut there a lot of companies that are really trying to do things the right way.\u201d \u00a0Notable call-outs this year are firms that have been honored every year of the list\u2019s existence.\u00a0Those include Aflac, Fluor Corporation, GE, Kao Corporation (Japan), Milliken &amp; Company, Starbucks and UPS.<a class=\"footnote\" title=\"http:\/\/www.forbes.com\/sites\/karstenstrauss\/2016\/03\/09\/the-worlds-most-ethical-companies-2016\/#1a81a32673dcontent here.\" id=\"return-footnote-8452-2\" href=\"#footnote-8452-2\" aria-label=\"Footnote 2\"><sup class=\"footnote\">[2]<\/sup><\/a><\/span><\/p>\n<h2>Encouraging Ethical Behavior<\/h2>\n<p><span style=\"color: #333333;\">How, then, do businesses encourage and support ethical behavior?\u00a0Often the ethical tone of a business is set by organizational leadership.<\/span><\/p>\n<p><span style=\"color: #333333;\">Consider the following observation by the\u00a0Ethics and Compliance Initiative (ECI) on the results of the\u00a0National Business Ethics survey:<\/span><\/p>\n<blockquote>\n<div><span style=\"color: #333333;\">Managers\u2013those expected to act as role models or enforce discipline\u2013are responsible for a large share of workplace misconduct (60 percent) and senior managers are more likely than lower-level managers to break rules. Surveyed employees said that members of management are responsible for six of every ten instances of misconduct and they pointed the finger at senior managers in 24 percent of observed rule breaking. Middle managers were identified as the culprit 19 percent of the time and first-line supervisors were identified as bad actors 17 percent of the time.<a class=\"footnote\" title=\"http:\/\/www.ethics.org\/newsite\/research\/eci-research\/nbes\/nbes-reports\/nbes-2013\" id=\"return-footnote-8452-3\" href=\"#footnote-8452-3\" aria-label=\"Footnote 3\"><sup class=\"footnote\">[3]<\/sup><\/a><\/span><\/div>\n<\/blockquote>\n<p><span style=\"color: #333333;\">If a \u00a0company is looking for\u00a0ways to\u00a0boost or ensuring ethical behavior in an organization, this is an interesting and alarming finding. In a supplemental report on Ethical Leadership, ECI reports that employees at all sizes of companies draw conclusions about their leaders\u2019 character primarily on the basis of the following:<\/span><\/p>\n<ul class=\"greenbullet\">\n<li><span style=\"color: #333333;\">The overall character of their leaders as experienced through personal interactions;<\/span><\/li>\n<li><span style=\"color: #333333;\">How senior managers handle crises; and<\/span><\/li>\n<li><span style=\"color: #333333;\">The policies and procedures adopted by senior leaders to manage the company.<\/span><\/li>\n<\/ul>\n<p><span style=\"color: #333333;\">Employees want to know, for example, whether leaders treat lower level employees with dignity and respect, share credit when good things happen, and uphold standards even when\u00a0it reduces revenues and profits. They watch to see whether leaders are steady in crisis, hold themselves accountable or, alternatively, shift blame to others. Workers also look at day-to-day management decisions to gauge whether ethical behavior is recognized and rewarded, or whether praise and promotions go to workers who bend the rules.<a class=\"footnote\" title=\"http:\/\/www.ethics.org\/newsite\/research\/eci-research\/nbes\/nbes-reports\/ethical-leadership\" id=\"return-footnote-8452-4\" href=\"#footnote-8452-4\" aria-label=\"Footnote 4\"><sup class=\"footnote\">[4]<\/sup><\/a><\/span><\/p>\n<p><span style=\"color: #333333;\">These findings suggest the important role that\u00a0executives play in building ethical organizations\u2014ethics and integrity tend to start (or fail) at the top and trickle down.<\/span><\/p>\n<h2>The Role of Executives and Managers in Setting Ethical Standards<\/h2>\n<p><span style=\"color: #333333;\">When executives establish\u00a0specific, measurable objectives for the company, those objectives determine where people will focus their time and effort. When the objectives cannot be met\u00a0and there\u00a0are dire personal consequences for failure, such\u00a0conditions can lead to the compromise of ethics and standards.\u00a0In the National Business Ethics Survey, 70 percent of employees identified pressure to meet unrealistic business objectives as most likely to cause them to compromise their ethical standards, and 75 percent identified either their senior or middle management as the primary source of pressure they feel to compromise the standards of their organizations.<\/span><\/p>\n<div id=\"attachment_3729\" style=\"width: 310px\" class=\"wp-caption alignleft\"><a style=\"color: #339966;\" href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/903\/2016\/01\/23225838\/1200px-Martin_Winterkorn_2013-09-09_001.jpg\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-3729\" class=\"wp-image-3729\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/09200117\/1200px-Martin_Winterkorn_2013-09-09_001-1024x683.jpg\" alt=\"Photo of former VW CEO, Martin Winterkorn\" width=\"300\" height=\"200\" \/><\/a><\/p>\n<p id=\"caption-attachment-3729\" class=\"wp-caption-text\">Former Volkswagon CEO, Martin Winterkorn<\/p>\n<\/div>\n<p><span style=\"color: #333333;\">In the Volkswagen case, internal investigations have questioned how both the company culture and the behavior of former CEO Martin Winterkorn contributed to a systemic ethical breach.\u00a0Like many chief executives, Martin Winterkorn was a demanding boss who didn&#8217;t like failure, but critics say the pressure on managers at Volkswagen was unusual, which may go some way toward explaining the carmaker&#8217;s crisis. When he became CEO in 2007, Winterkorn set an objective to make VW the world&#8217;s biggest carmaker, which would require tremendous growth in the highly competitive U.S. car market.\u00a0In the years since, VW has nearly\u00a0doubled it global annual sales to 10 million cars and its revenue to $225 billion. In early 2015, VW finally approached\u00a0its goal, selling marginally more vehicles than the world&#8217;s number-one automaker, Toyota of Japan.\u00a0One former sales executive said that the pressure soared under the target. &#8220;If you didn&#8217;t like it, you moved of your own accord or you were performance-managed out of the business,&#8221; he said.<a class=\"footnote\" title=\"http:\/\/www.reuters.com\/article\/us-volkswagen-emissions-culture-idUSKCN0S40MT20151010\" id=\"return-footnote-8452-5\" href=\"#footnote-8452-5\" aria-label=\"Footnote 5\"><sup class=\"footnote\">[5]<\/sup><\/a><\/span><\/p>\n<p><span style=\"color: #333333;\">In describing a Winterkorn&#8217;s leadership style, a\u00a0former VW executive confidentially told Reuters New Agency, &#8220;There was always a distance, a fear and a respect . . . If he would come and visit or you had to go to him, your pulse would go up. If you presented bad news, those were the moments that it could become quite unpleasant and loud and quite demeaning.&#8221;<\/span><\/p>\n<p><span style=\"color: #333333;\">A week after U.S. regulators revealed the company&#8217;s cheating, Bernd Osterloh, the employee representative\u00a0on VW&#8217;s supervisory board,\u00a0sent a letter to VW staff suggesting the change that was needed: &#8220;We need in the future a climate in which problems aren&#8217;t hidden but can be openly communicated to superiors,&#8221; said Osterloh. &#8220;We need a culture in which it&#8217;s possible and permissible to argue with your superior about the best way to go.&#8221;<a class=\"footnote\" title=\"http:\/\/www.reuters.com\/article\/us-volkswagen-emissions-culture-idUSKCN0S40MT20151010\" id=\"return-footnote-8452-6\" href=\"#footnote-8452-6\" aria-label=\"Footnote 6\"><sup class=\"footnote\">[6]<\/sup><\/a><\/span><\/p>\n<p><span style=\"color: #333333;\">In <em>Fortune<\/em> magazine, Dr. Paul Argenti suggested, &#8220;Rather than playing the blame game, executives should ask if pressures to grow at all costs might have created dishonest employees.&#8221;<a class=\"footnote\" title=\"http:\/\/fortune.com\/2015\/10\/13\/biggest-culprit-in-volkswagen-emissions-scandal\/\" id=\"return-footnote-8452-7\" href=\"#footnote-8452-7\" aria-label=\"Footnote 7\"><sup class=\"footnote\">[7]<\/sup><\/a><\/span><\/p>\n<p><span style=\"color: #333333;\">It seems likely that aggressive corporate objectives (and more specifically marketing objectives related to market share) played a contributing role in the Volkswagen ethics scandal. Moreover, when executives set aggressive goals, it becomes more important to cultivate communication channels to openly address issues. This was obviously not the case at Volkswagon.<\/span><\/p>\n<p><span style=\"color: #333333;\">Executives play an important role in creating company\u00a0policies on ethics\u2014and by visibly following and\u00a0upholding\u00a0them. As the survey data cited above suggest, employees look to executives to decide\u00a0whether standards-of-business-conduct policies should be observed and\u00a0respected. When executives bend the rules or turn a blind eye to bad behavior,\u00a0the policies lose value and executives lose the respect of employees. This opens the door to a range of unanticipated issues, as employees look to ethical norms outside stated policy and beyond the executives&#8217; control.<\/span><\/p>\n<p><span style=\"color: #333333;\">Internal promotions send very strong signals about what is important to a company. When the company hires an employee from a different company, she is likely not well known by most employees. If the company promotes an employee who is already working at the company, others know him and understand what he has done to deserve\u00a0the promotion. If the company promotes individuals to\u00a0management positions when they have displayed questionable ethics in the workplace, it creates two issues. First, it creates a level of managers who\u00a0are more likely to encourage their employees to achieve business results at any\u00a0cost, even when ethics are compromised. Second, it sends a message to all employees that business results are more important than ethics.<\/span><\/p>\n<h2>Company Codes of Ethics and Codes of Practice<\/h2>\n<p><span style=\"color: #333333;\">An increasing number of companies requires employees to attend trainings\u00a0regarding business conduct. These typically\u00a0include discussions of the company&#8217;s policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company&#8217;s rules of conduct.<\/span><\/p>\n<p><span style=\"color: #333333;\">As part of more comprehensive compliance and ethics programs, many companies have formulated internal policies pertaining to the ethical conduct of employees. They are generally documented in one of two ways:\u00a0<\/span><\/p>\n<ol>\n<li><span style=\"color: #333333;\"><strong>Corporate Code of Ethics.<\/strong>\u00a0A code of ethics begins\u00a0by setting out the values that underpin the code and describes a company&#8217;s obligation to its stakeholders. The code is publicly available and addressed to anyone with an interest in the company&#8217;s activities and the way it does business. It includes details of how the company plans to implement its values and vision, as well as guidance to staff on ethical standards and how to achieve them. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters.<\/span><\/li>\n<li><span style=\"color: #333333;\"><strong>Code of Practice.\u00a0<\/strong>A code of practice is adopted by a profession or by a governmental or nongovernmental organization to regulate that profession. A code of practice may be styled as a code of professional responsibility, and it\u00a0will discuss difficult issues, difficult decisions that will often need to be made, and provide a clear account of what behavior is considered &#8220;ethical&#8221; or &#8220;correct&#8221; or &#8220;right&#8221; in the circumstances. In a membership context, failure to comply with a code of practice can result in expulsion from the professional organization.<\/span><\/li>\n<\/ol>\n<p><span style=\"color: #333333;\">Richard DeGeorge, author of <em>Business Ethics<\/em>, has this to say\u00a0about\u00a0the importance of maintaining a corporate code: <\/span><\/p>\n<blockquote><p><span style=\"color: #333333;\">Corporate codes have a certain usefulness and there are several advantages to developing them. First, the very exercise of doing so in itself is worthwhile, especially if it forces a large number of people in the firm to think through, in a fresh way, their mission and the important obligations they as a group and as individuals have to the firm, to each other, to their clients and customers, and to society as a whole. Second, once adopted, a code can be used to generate continuing discussion and possible modification to the code. Third, it could help to inculcate in new employees at all levels the perspective of responsibility, the need to think in moral terms about their actions, and the importance of developing the virtues appropriate to their position.<a class=\"footnote\" title=\"DeGeorge, Richard. Business Ethics. Prentice Hall. pp.\u00a0207\u2013208\" id=\"return-footnote-8452-8\" href=\"#footnote-8452-8\" aria-label=\"Footnote 8\"><sup class=\"footnote\">[8]<\/sup><\/a><\/span><\/p><\/blockquote>\n<p><span style=\"color: #333333;\">Beyond establishing policies or codes that guide the ethical behavior of the company or employees, many companies are assessing the environmental factors that can lead employees to engage in unethical conduct. A competitive business environment may call for unethical behavior. For example, lying has become the norm\u00a0in fields such as stock and security\u00a0trading. Sometimes there is disconnection between the company&#8217;s code of ethics and the company&#8217;s actual practices. Thus, whether or not such conduct is explicitly sanctioned by management, at worst, this makes the policy duplicitous, and, at best, it is merely a marketing tool.<\/span><\/p>\n<p><span style=\"color: #333333;\">Not everyone supports corporate policies that govern ethical conduct. Some claim that ethical problems are better dealt with by relying\u00a0upon employees to use their own judgment.\u00a0Others believe that corporate ethics policies are primarily rooted in utilitarian\u00a0concerns, and that they are mainly to limit the company&#8217;s legal liability, or to curry public favor by giving the appearance of being a good corporate citizen. Ideally, the company will avoid a lawsuit because its employees will follow the rules. Should a lawsuit occur, the company can claim that the problem wouldn&#8217;t\u00a0have arisen if the employee had\u00a0followed the code properly.\u00a0<\/span><\/p>\n<p><span style=\"color: #333333;\">To see how companies go beyond a code of ethics, the following video by BAE Systems highlights how, according to the company, &#8220;[W]e continue to embed our program internationally and drive the right behaviors by supporting employees in making ethical decisions and embedding responsible business practices.&#8221;<\/span><\/p>\n<p style=\"text-align: center;\">https:\/\/youtu.be\/3VGWlXs8K6g<\/p>\n<h2>Check Your Understanding<\/h2>\n<p>Answer the question(s) below to see how well you understand the topics covered above. This short quiz does <strong>not<\/strong> count toward your grade in the class, and you can retake it an unlimited number of times.<\/p>\n<p>Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.<\/p>\n<p>\t<iframe id=\"lumen_assessment_2998\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=2998&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_2998\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-8452\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Revision and adaptation. <strong>Authored by<\/strong>: Linda Williams and Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><li>Check Your Understanding. <strong>Authored by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Business Ethics. <strong>Provided by<\/strong>: Wikipedia. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/en.wikipedia.org\/wiki\/Business_ethics#cite_note-188\">https:\/\/en.wikipedia.org\/wiki\/Business_ethics#cite_note-188<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><li>Ethics. <strong>Authored by<\/strong>: Jed Sullivan. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/jed-sullivan\/5319185308\/\">https:\/\/www.flickr.com\/photos\/jed-sullivan\/5319185308\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc\/4.0\/\">CC BY-NC: Attribution-NonCommercial<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Our Ethics Programme. <strong>Provided by<\/strong>: BAE Systems. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/3VGWlXs8K6g\">https:\/\/youtu.be\/3VGWlXs8K6g<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section><hr class=\"before-footnotes clear\" \/><div class=\"footnotes\"><ol><li id=\"footnote-8452-1\"><a style=\"color: #333333;\" href=\"http:\/\/plato.stanford.edu\/entries\/ethics-business\/\">\"Business Ethics (Stanford Encyclopedia of Philosophy)\"<\/a>. Plato.stanford.edu. 2008-04-16. Retrieved\u00a02013-06-04. <a href=\"#return-footnote-8452-1\" class=\"return-footnote\" aria-label=\"Return to footnote 1\">&crarr;<\/a><\/li><li id=\"footnote-8452-2\">http:\/\/www.forbes.com\/sites\/karstenstrauss\/2016\/03\/09\/the-worlds-most-ethical-companies-2016\/#1a81a32673dcontent here. <a href=\"#return-footnote-8452-2\" class=\"return-footnote\" aria-label=\"Return to footnote 2\">&crarr;<\/a><\/li><li id=\"footnote-8452-3\">http:\/\/www.ethics.org\/newsite\/research\/eci-research\/nbes\/nbes-reports\/nbes-2013 <a href=\"#return-footnote-8452-3\" class=\"return-footnote\" aria-label=\"Return to footnote 3\">&crarr;<\/a><\/li><li id=\"footnote-8452-4\">http:\/\/www.ethics.org\/newsite\/research\/eci-research\/nbes\/nbes-reports\/ethical-leadership <a href=\"#return-footnote-8452-4\" class=\"return-footnote\" aria-label=\"Return to footnote 4\">&crarr;<\/a><\/li><li id=\"footnote-8452-5\">http:\/\/www.reuters.com\/article\/us-volkswagen-emissions-culture-idUSKCN0S40MT20151010 <a href=\"#return-footnote-8452-5\" class=\"return-footnote\" aria-label=\"Return to footnote 5\">&crarr;<\/a><\/li><li id=\"footnote-8452-6\">http:\/\/www.reuters.com\/article\/us-volkswagen-emissions-culture-idUSKCN0S40MT20151010 <a href=\"#return-footnote-8452-6\" class=\"return-footnote\" aria-label=\"Return to footnote 6\">&crarr;<\/a><\/li><li id=\"footnote-8452-7\">http:\/\/fortune.com\/2015\/10\/13\/biggest-culprit-in-volkswagen-emissions-scandal\/ <a href=\"#return-footnote-8452-7\" class=\"return-footnote\" aria-label=\"Return to footnote 7\">&crarr;<\/a><\/li><li id=\"footnote-8452-8\">DeGeorge, Richard. <i>Business Ethics<\/i>. Prentice Hall. pp.\u00a0207\u2013208 <a href=\"#return-footnote-8452-8\" class=\"return-footnote\" aria-label=\"Return to footnote 8\">&crarr;<\/a><\/li><\/ol><\/div>","protected":false},"author":26,"menu_order":5,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Revision and adaptation\",\"author\":\"Linda Williams and Lumen Learning\",\"organization\":\"\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by-sa\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Business Ethics\",\"author\":\"\",\"organization\":\"Wikipedia\",\"url\":\"https:\/\/en.wikipedia.org\/wiki\/Business_ethics#cite_note-188\",\"project\":\"\",\"license\":\"cc-by-sa\",\"license_terms\":\"\"},{\"type\":\"copyrighted_video\",\"description\":\"Our Ethics Programme\",\"author\":\"\",\"organization\":\"BAE Systems\",\"url\":\"https:\/\/youtu.be\/3VGWlXs8K6g\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"},{\"type\":\"cc\",\"description\":\"Ethics\",\"author\":\"Jed Sullivan\",\"organization\":\"\",\"url\":\"https:\/\/www.flickr.com\/photos\/jed-sullivan\/5319185308\/\",\"project\":\"\",\"license\":\"cc-by-nc\",\"license_terms\":\"\"},{\"type\":\"original\",\"description\":\"Check Your Understanding\",\"author\":\"Lumen Learning\",\"organization\":\"\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"330a604a-bfc3-4a88-b54e-51e693232f08, 830fa20a-9982-4f9a-99e5-9d44d0aeab85, eaf6d5e7-dded-4822-b247-dc3579647f13, 4b0208aa-6c94-4296-9587-6bdb85f72d4d, 2290294e-3f13-4d80-aa85-802cdfa4fb53","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-8452","chapter","type-chapter","status-publish","hentry"],"part":85,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/pressbooks\/v2\/chapters\/8452","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/wp\/v2\/users\/26"}],"version-history":[{"count":37,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/pressbooks\/v2\/chapters\/8452\/revisions"}],"predecessor-version":[{"id":11245,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/pressbooks\/v2\/chapters\/8452\/revisions\/11245"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/pressbooks\/v2\/parts\/85"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/pressbooks\/v2\/chapters\/8452\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/wp\/v2\/media?parent=8452"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=8452"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/wp\/v2\/contributor?post=8452"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-introbusiness\/wp-json\/wp\/v2\/license?post=8452"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}