Order ID | 53563633773 |
Type | Essay |
Writer Level | Masters |
Style | APA |
Sources/References | 4 |
Perfect Number of Pages to Order | 5-10 Pages |
A System Approach to Implementing Business Ethics in
the Corporate Workplace
Clifton Clarke Department
of Finance and Business Management, Brooklyn College, City University of New York
cclarke@brooklyn.cuny.edu
Abstract
The current vitriolic discourse over the financial scandals implicating Wall Street and its satellite institutions
dictates a fresh look at strategies intended to eradicate or prevent unethical practices in business activities.
The spate of recently published unethical behavior among business executives in the United States confirms,
unequivocally, that past and current strategies have failed. This paper reviews and evaluates the impact of
some of these strategies. It found that the strategies focus on legislation, written corporate codes of ethics and
assorted activities in business schools. It found that these strategies are largely isolated and missed the fact
that unethical business conduct is systemic, reflecting the ethical lapses of two systems: a public system
(consisting of governmental bodies, business schools, and the general citizenry) and a corporate system
(consisting of boards of directors, executives, managers and employees). It found that there is a significant
gap between the rhetoric of corporate executives and their attention to unethical conduct in the workplace. It
concludes that isolated legislative actions, apathetic business schools’ policies, complacent and complicit
corporate boards, contribute to the failure. It also concludes that, the implementation of business ethics in the
workplace requires a transformation of attitude within and between these systems and posits that a system
approach is the only strategy that can successfully transform these systems and that business schools are
uniquely capable of leading this transformation.
Keywords
Ethics, corporate workplace, transformation, culture, business schools, legislations
Introduction
Hearings held by a subcommittee of the Banking and Finance Committee of the United States Senate on
certain practices of financial institutions, particularly those practices that might have contributed to the
economic collapse in 2008, revealed the disconnect between the public‟s and corporations‟ perceptions of
ethical conduct (Hauser 2010). Several of the questions posed to the Chief Executive Officer, and the
Executive Director of Structure Products Group Trading of Goldman Sachs Group, Inc., focused on the
company‟s ethics. For example, the senators wanted to know whether it was ethical for the company to sell
investments that its own trading team knew were “worthless”. In their defense, this and other questionable
practices were an integral part of their company‟s business model. Similarly, Morganton (2011), of the New
York Times reported that the former Chief Executive Officer of Countrywide Financial, then the largest
mortgage lender in the United States, knowingly developed and sold questionable loans. He reported that “E-
Mails and other documents supplied to regulators in the Security and Exchange Commission‟s ( S.E.C.‟s) case
against Mr. Mozilo showed him discussing the company‟s lending practices and describing some of its loans
as „toxic‟ and „poison‟. Nevertheless, the company kept selling the types of loans Mr. Mozilo was
denigrating”. For Mr. Mozilo the benefits of his action outweigh the cost, noting that “Countrywide was
helping to breakdown the racial and economic barriers to homeownership. This approach went a long way to
mailto:cclarke@brooklyn.cuny.edu
Page | 2
avoiding a serious social problem down the line” (Protests 2011). From the perspectives of these executives
their actions were well within the boundaries of the free market system, a view rejected by the general public
who saw the market ideology defense as a ruse to obfuscate their unethical, if not illegal practices. The
public‟s position is consistent with that of Gras (1939), who argues that exploitation is an abuse of the
capitalist system and is not inherent in the system itself. The contradictions alluded to are symptomatic of the
discord between normative and practical ethics. It is not surprising that the conduct in question has resurrected
the age-old debate over ethics, and in particular, business ethics and the role of business schools.
Context and Definitions
The advocacy for the integration of ethics into business and accounting education dates back many years. An
editorial in the Journal of Accountancy posited that “Ethics should be a subject of study for every accounting
student” (Journal of Accountancy 1953, p. 293). The American Accounting Association‟s Committee on
Future Structure, Content and Scope of Accounting Education recommended inter alia that accounting
education should provide students with the knowledge to “appreciate ethical standards and conduct” (The
Bedford Committee 1986, p. 179). The National Commission on Fraudulent Financial Reporting calls for
changes in accounting education to “. . . include ethics discussions in every accounting course” (The
Treadway Commission 1987, p. 83). Derek C. Bok, former president of Harvard University urged the
Harvard Business School to introduce ethics into their MBA curriculum (Bok 1983). In 1982, The Wall Street
Journal reported on the proliferation of fraudulent and questionable financial reporting practices (Morris
1982). Recently, the highly publicized cases of fraudulent activities associated with the securities market and
financial accounting reporting and practices ( Bernard Madoff, Enron Corporation, The Galleon Group,
Primary Global Research, Arthur Andersen, WorldCom) to name a few, has fueled a chorus of demand for
ethical conduct from individuals in business. As the public looks for remedies to this seemingly corporate
cancer the question as to the role of corporate boards in stemming these behaviors in the workplace and the
role business schools in molding the character of their graduates grows louder and more pervasive. But the
precise actions expected from businesses and business schools have been evasive.
Philosophers and politicians have struggled with the concept of ethics for centuries with conflicting
conclusions on how to define and implement it. Theodore Roosevelt (1858-1919), 26 th President of the United
State is reported to have said “To educate a man in mind and not in morals is to educate a menace to society”
(Roosevelt, n.d.) It is interesting to note that this was said in a period of U.S. history that is known for
„political discrimination‟, „economic exploitation‟ and „social segregation‟. And despite their campaign for a
just and moral society, Plato and Aristotle concurred that slavery was necessary for the success of their society
(Taeusch 1931). Likewise the literature is saturated with debates and discussions on the need to improve
ethics in business. Although there is a consensus that ethics should be at the core of business transactions,
there are chasms among the myriad of interpretations and applications. The inconsistencies alluded to above
reflect the challenge to wed general or normative ethics and situational or practical ethics. Critical questions
such as what is ethics, are there two ethics (business and personal), what role the extant culture plays in
decision-making, and what role can business schools effectively play in implementing ethics in the workplace,
have not been sufficiently answered.
A generally accepted definition of ethics is that it is the study of what is good and bad, right and wrong, just
and unjust. Others such as Kohlberg described it as moral judgment and argued that “the exercise of moral
judgment is a cognitive process” (Reimer et. al. 1983, p. 3). According to Cavanagh “ethics is a system of
moral principles and the methods for applying them; ethics thus provides tools to make moral judgments. It
encompasses the language, concepts, and models that enable an individual to effect moral decisions”
(Cavanagh 1984, p. 137). De George (1987) defines ethics as the study of morality and immorality. Kaviya
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(2011) offers this explanation “ethics is the discipline dealing with that which is good and bad and with moral
duty and obligation. Business ethics is concerned with the behavior of a businessman in doing a business and .
. . developed by the passage of time and custom. Custom differs from one business to another”. Ethics, for
some executives, has more nuances. It is casuistry, a cost-benefit calculation based on whether their behavior
accrues benefits to their shareholders (Drucker 1983). This view point is consistent with the utilitarian theory
of ethics (Bentham 1789) and (Mill 1863). Obviously, civil rights (Locke 1690) and justice (Aristotle 1953)
are not factors in their decision set. These normative concepts are easily understood. The challenge is to
implement them in tangible ways, that is, to construct strategies which promote business creativity and
innovation, while simultaneously protect all stakeholders.
The interpretation and therefore implementation of ethical principles are further complicated by social
concerns. Since ethics involves the interaction among people, it functions in a social system, whether that
system is the general society or the workplace or both. A social system undergirds culture, which may be
defined as the values and ideology that influence decision-making. Values determine the basis on which
choices are made. An ideology is comprised of the integrated values in a social system. It provides purpose,
directions and identity to that system. Thus an ideology determines goals, strategies and reputation of a
system. The implication is that ethics is communicated through social systems. The ideologies and strategies
that government, corporations and business schools employ to combat unethical business conduct and their
results are evaluated against this backdrop.
Government and Ethics
The solutions for unethical business conduct have evaded both federal and states governments for decades.
The origin of governments‟ involvement in business ethics can be traced to the Sherman Anti-trust Law of
1890 (Taeusch 1931). The objective of that and subsequent laws is to prevent or to deter unethical conduct
“through strengthening systems and controls, and promoting transparency, accountability and informed
citizenry” (Chene 2010). The central features of major federal legislation discussed in this section illustrate
the extent of governments‟ anti-fraud interventions. These legislative actions may be divided into two
categories; those designed to protect consumers on the one hand and investors on the other. The Sherman
Anti-trust Act of 1890, and the Clayton Act of 1914, are among the first set of consumer protection
legislations (Taeusch 1931). The former aims to prevent restraint of interstate and foreign trade while the later
prohibits price discrimination in contracts and other agreements that restrict competition. The Foreign Corrupt
Practices Act (FCPA) of 1977 and revised in 1988 has anti-bribery prohibitions and accounting and record-
keeping requirements (Gaetti 1997). The anti-bribery prohibitions “make it illegal for U.S. persons to bribe a
foreign government official for the purpose of obtaining or retaining business” (Gaetti 1997). The record-
keeping provisions require publicly traded companies in the U.S. “to devise and maintain an accounting
system which tightly controls and accurately records all dispositions of company assets” (Gaetti 1997). The
Credit Card Accountability Responsibility and Disclosure Act of 2009 (the Credit Card Act) prohibits
predatory practices in the credit card industry and confirms certain consumer rights (Detweiler 2009). The
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was enacted to protect both consumers
and investors. It, among other things, regulates transactions in products such as home mortgages, car loans,
credit cards and certain derivatives. The oversight of these legislations is distributed among a maze of
governmental agencies which oftentimes have overlapping objectives and contrary enforcement practices.
The securities markets are subject to the oversight of the Securities and Exchange Commission (SEC). The
purpose of the SEC is to protect investors and maintain market integrity. The online publication “How the
SEC Protects Investors, Maintains Market Integrity” discusses the main legislations in pursuit of this
objective. The Securities Act of 1933 requires publicly traded companies to register their securities and
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accurately disclose financial and other information that will influence investors‟ decisions. It also prohibits
deceit, misrepresentations, and other fraud in the sale of securities. The Securities Exchange Act of 1934
regulates companies and individuals engaged in the sale and exchange of securities. It also authorizes the SEC
to require periodic reporting of information by companies with publicly traded securities. The Investment
Company Act of 1940 regulates the organization of companies engaged primarily in investing and trading in
securities offered to the investing public. The Investment Advisers Act of 1940 and amended 1996, with
certain exceptions, requires investment advisers to register with the SEC and comply with rules designed to
protect investors. Finally, the Sarbanes-Oxley Act of 2002, was enacted in response to the Enron, WorldCom
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