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Ethics in Business and Society Have I committed any of the following white collar crimes? Fraud -- Land fraud, computer fraud, odometer fraud, investment fraud, bank fraud, credit card fraud, etc. Embezzlement Forgery Insider trading -- When a person uses inside, confidential, or advance information to trade in shares of publicly held corporations. Received a ‘Kick Back’ for a business deal Blackmail Counterfeiting Extortion -- Occurs when one person illegally obtains property from another by actual or threatened force, fear, or violence, or under cover of official right. Have I committed any of the following white collar crimes? Laundered Money -- The investment or transfer of money from racketeering, drug transactions or other embezzlement schemes so that it appears that its original source either cannot be traced or is legitimate. Racketeering -- The operation of an illegal business for personal profit. Committed Tax Evasion Weights and Measures -- The act of placing an item for sale at one price yet charging a higher price at the time of sale Pyramid Scheme 88% lose in this particular scheme • The essential idea is that Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the "business" expands. • Such "businesses" seldom involve sales of real products or services. From www.forbes.com • The Ponzi scam is named after Charles Ponzi, a clerk in Boston who first orchestrated such a scheme in 1919. • A Ponzi scheme is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers. One difference between the two schemes is that the Ponzi mastermind gathers all relevant funds from new investors and then distributes them. Pyramid schemes, on the other hand, allow each investor to directly benefit depending on how many new investors are recruited. In this case, the person on the top of the pyramid does not at any point have access to all the money in the system. • For both schemes, however, eventually there isn't enough money to go around and the schemes unravel. Bernie Madoff Chairman of the NASDAQ stock exchange, and the admitted operator of the largest investor fraud ever committed by a single person. In March 2009, Madoff pled guilty to 11 felonies and admitted to defrauding thousands of investors of billions of dollars from the early 1990s onward ENRON Largest U.S. bankruptcy until WorldCom. Complex off-shore partnerships kept liabilities off Enron’s books. Ken Lay Going to Jail Enron – Merrill Lynch “Sham” energy deal with Merrill Lynch allowed Enron to meet Wall Street expectations and book $60 million profit (1999). Inflated profits drove up stock price, unleashed $$millions$$ in bonuses (Lay, Skilling, etc.) and was later cancelled as planned. WorldCom Overstated earnings by $3.8 million Laid off 17,000 employees Stock dropped from $64.50 to 0.83 in a matter of weeks Former CEO received $366 million in low interest loans TYCO CEO Dennis Kozlowski charged with evading $1 million in taxes and is accused with destroying documents. Kozlowski and other executives bought art work, and one executive bought a home. Tax avoidance with offshore incorporation. Martha Stewart Martha Stewart (a director of NYSE) allegedly sold stock on inside information provided by Merrill Lynch. Stock in Stewart’s Omnimedia declined 40%. (see Chpt. 16). She made tens of millions of dollars through these transactions. Merrill Lynch broker, Peter Bacanovic, allegedly warned her of illegality. From UVA's Honor Code: Academic Fraud: The Webster’s dictionary defines fraud as “a deception deliberately practiced in order to secure unfair or unlawful gain.” Such forms of cheating include, but are not limited to: Plagiarism: quoting or using the ideas of another author or source without acknowledging that those words or ideas were not your own. There are different methods for properly citing sources. For the correct method, you should speak with the faculty member or teaching assistant in charge of the particular assignment. Multiple Submission: The use of work turned in previously for the fulfillment of an academic course at UVA. or another institution. False Citation: Citing or attributing work to a source from which the referenced material was not obtained. False Data: The fabrication or alteration of data to mislead. Educational Institutions have established ethics codes for their students, e.g. the U.S. Air Force Academy: "We Will Not Lie, Steal Or Cheat, Nor Tolerate Among Us Anyone Who Does" -- Which do you think is the harder part: Line 1 or Line 2? Why? Teddy Roosevelt said, “To educate a person in mind and not in morals is to educate a menace to society.” In his best-seller, The Closing of the American Mind, Allan Bloom says that the eternal conflict between good and evil has been replaced with “I’m okay, you’re okay.” Students unthinkingly embrace a blind tolerance in which they consider it “moral” never to think they are right because that might mean someone else is wrong. [Allan Bloom, The Closing of the American Mind, New York, Simon and Schuster, Inc. 1987] “Until about 50 years ago, it was commonly accepted that universities were to provide students not only with knowledge and skills, but also moral guidance based on the essentials of the Western tradition.” Business Prof Geoffrey Lantos This, though, is changing, as more and more business schools are realizing that to properly train someone as a businessman/woman, you need to train them to be ethical. “The truth of the matter is that you always know the right thing to do. The hard part is doing it.” -- General H. Norman Schwarzkopf "If the company is unethical, that company is going to be cheated by its own employees." -- Bunge's Walter Klein “If you believe in unlimited quality and act in all your business dealings with total integrity, the rest will take care of itself.” -- Frank Perdue Andrew Sigler, Chairman and CEO of Champion International states, "I don't believe that ethical behavior is an impairment to profitability. I cannot remember situations where if I do the bad thing we'll make a lot of money, but if I do the right thing we'll suffer." "Lots of responsible decisions," he explains, "aren't just ethically sound. They're damn smart and very smart business." “In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you.” -- Warren Buffet "If I do something unethical for some short term gain somebody else is going to get hurt, and they're not going to forget it. You're clearly trading a short term gain for something that's inevitably going to be worse down the road--you'll eventually lose business." -- Jerry R. Junkins, President and CEO of Texas Instruments, Truett Cathy, the Founder of Chick-Fil-A stated (quoting Proverbs 22:1): "A good name is more desirable than great riches; to be esteemed is better than silver or gold." At the Congressional Hearing on Accounting and Business Ethics in July 2002 Business Ethics -- 8 Reasons to be Ethical in Business 1) Litigation/Indictment Avoidance Without strong ethical values, companies easily drift to the legal edges-- dangerous territory where bending and breaking the law leads to lawsuits and indictments – or spending LOTS of money on lawyers/legal fees. 8 Reasons to be ethical in business 2. Public Acceptance Companies that tolerate unethical practices in today's transparent era will almost certainly be exposed and then boycotted and punished in the marketplace. There is strong research supporting the premise that companies with good reputations have better financial performance than those with poorer reputations. 8 Reasons to be ethical in business 3. Investor Confidence Today's investors will avoid a company that isn't responsible and ethical. 8 Reasons to be ethical in business 4. Supplier/Partner Trust No company is self- sufficient/an island unto itself. Successful partnerships are built on trust and trustworthiness. The technological revolution demands very high levels of trust--externally as well as internally. 8 Reasons to be ethical in business 5. Customer Loyalty Customers look at the reputation of the company. Customer surveys have consistently shown that a company's ethical reputation is a factor that affects purchase decisions. 6. Employee Performance People produce best in an open, creative, ethical environment. Companies that have a poor reputation have difficulty attracting and retaining top talent. Lower employee turnover and reduced training costs, together with higher productivity resulting from greater experience, has been shown to be an important factor in increasing revenue, reducing costs, and assuring corporate success. 8 Reasons to be ethical in business 7. Personal Pride Company leaders and employees can take genuine pride in their accomplishments knowing they didn't bend rules, cut corners, or hurt people to accomplish their goals. 8. It's the Right thing to do Most of the great moral teachers and leaders in human history argue that, no matter what the consequences, it is intrinsically good to do the right thing and be ethical. The “Loyalty Effect” Surplus SUPERIOR Cash CUSTOMER “The “Right Reinvested VALUE New Customers” Operations & Process SHAREHOLDER CUSTOMER LOYALTY LOYALTY EMPLOYEE “The “Right” The “Right” New Employees New Investors LOYALTY Productivity Profits The Good Guys for 2001 Business Ethics Magazine ranks the “100 Best Corporate Citizens” IBM General Mills Hewlett-Packard Avon Products Fannie Mae Intel St. Paul Companies State Street Corporation Procter & Gamble H.B. Fuller Motorola Timberland Cummins Engine Bank of America Herman Miller Amgen Business Ethics Program Small Group Exercise: Create a code of Business ethics for a company (you come up with the company name and purpose). Start at the top of the corporate ladder and go down from there. Identify and/or renew your company values, principles and norms of behavior. Come up with a corporate mission and vision statements. Homework: Ask Your Parents! Talk to your parents about what they do for a living. Talk to them about 5 different ways of how people can be ‘unethical’ in their particular business. What Should an Ethics Program Contain? And, where should you start? Information obtained from Business for Social Responsibility White Paper, “Business Ethics,” 2001-2002, and The Ethics Resource Center, Ethics Toolkit: “Code Construction and Content”, and „Common Ethics Code Provisions” Typical Code Provisions include: Employment Practices like harassment, diversity, fair treatment of staff, illegal drugs and alcohol, use of corporate property, volunteer activities, proper exercise of authority. Employee, Client and Vendor Information and Relationships like privacy and confidentiality, disclosure and records maintenance, procurement, negotiations, and contracts. Conflicts of Interest like gifts, gratuities, political activities, outside employment, family members, disclosure of financial interests. Communications and Information like advertising and marketing; clarity, access, transparency, accuracy and confidentiality of public and proprietary information. Environmental Practices, like commitment to the environment, employee health and safety. What Should an Ethics Program Contain? And, where should you start? Information obtained from Business for Social Responsibility White Paper, “Business Ethics,” 2001-2002, and The Ethics Resource Center, Ethics Toolkit: “Code Construction and Content”, and „Common Ethics Code Provisions” Provide adequate funding and resources for sustained ethics program. Distribute the Code widely. Develop and deliver comprehensive ethics training. Create an ethics help/hot line for employees’ anonymous questions and reports. Reward and publicize ethical behavior. Develop routine audit and evaluation systems for compliance. Require compatible, coordinated departmental programs to complement the corporate program (similar to Corporate Strategic Plan). Example: Thomas More Society (legal society of Catholic attorneys) Mission Statement of the St. Thomas More Society The St. Thomas More Society of Orange County Is an independent organization sponsored by lawyers and judges who are practicing members of the Roman Catholic Church. Ideals of St. Thomas More The legal profession is a high calling with corresponding responsibilities to society. The principal objective of every lawyer is to promote and seek justice. Thomas More Society Catholic Lawyers pursue the truth in both their spiritual and professional lives. “The duty of a Catholic lawyer is to remain faithful to Jesus Christ, His Church and its teachings at all times despite the personal consequences.” -- Thomas More Society “What will it profit a man if he gain the whole world but lose his own soul?” (Mark 8:36) Jesus Christ Business Ethics • Evil corporation -- How? What do you do? What is your purpose? How do you treat your workers? The environment? Etc. What are the consequences of your actions? Come up with a company logo. • A corporation informed by Christian principles -- same as above. • Good workers -- what are your rights and responsibilities as workers? What are the fruits of you being good workers? Come up with a slogan for your work. • Evil workers? How do you abuse the system? How do you not perform your duties as a worker? What are the consequences of your actions? Come up with a slogan as well. Creating an Ethical Corporate Climate •How would you run a business in an ethical manner? •What principles would guide you? •How would concretely do this? •1 page Homework -- Due Friday 1. Talk to your parents about what they do for a living. Have them list to you 5 different ways that people are unethical in their particular profession. 2. Ask them if they know of someone who got in trouble for something unethical that they did in business. Business Exercise 1. Come up with a company (and company name). 2. What would it mean to be unethical/ethical in your particular profession? 3. What is your purpose? How do you treat your workers? The environment? Etc. What are the consequences of your actions? Come up with a company logo. 4. What are the benefits of being ethical in your profession? How do you run your business/do what you do in an ethical/Christian way? 5. What potential temptations are there in your profession? What shortcuts might tempt you? 6. Come up with a company logo and company slogan. Profession Exercise: • Lawyer • Politician • Doctor • Engineer • Athletic Director and/or coach • Restaurant owner • Mechanic • Plumber • Military officer • Architect How could you be ethical in the professions listed above? How could you be unethical? What are the benefits of being ethical in your profession?
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