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Understanding Ethical Decision Making and Corporate Governance

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Ethical issue intensity is the perceived relevance or importance of an ethical ... involve honesty, conflicts of interest, discrimination, nepotism, and theft. ... – PowerPoint PPT presentation

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Title: Understanding Ethical Decision Making and Corporate Governance


1
Chapter 4
  • Understanding Ethical Decision Making and
    Corporate Governance

2
Ethical Issue Intensity
  • Ethical issue intensity is the perceived
    relevance or importance of an ethical issue to
    the individual, work group, and/or organization.
  • reflects the ethical sensitivity of the
    individual or work group and triggers the ethical
    decision process
  • Positive or negative incentives can affect
    the perceived importance of an
    ethical issue.
  • Employees need education regarding
    potential problem areas.

3
Individual Factors...
  • How people resolve ethical issues in their daily
    lives is often based on values and principles
    learned through family socialization.
  • In the workplace, ethical issues
    involve honesty, conflicts of interest,
    discrimination, nepotism, and theft.
  • The individuals stage of cognitive development
    can affect conduct.

4
Organizational Factors...
  • Corporate culture a set of values, beliefs,
    goals, norms and ways to solve problems that
    members (employees) of an organization share.
  • Some corporate cultures support and reward
    unethical behavior.
  • Ethical climate is a component of
    corporate culture.

5
Ethical Climate…
  • the character or decision processes used to
    determine whether actions are ethical or
    unethical
  • consists of corporate codes of ethics, top
    management actions, ethical policies, coworker
    influence, and the opportunity for unethical
    behavior
  • The perceived ethics of the immediate work group
    has been found to be a major factor influencing
    ethical behavior.

6
Significant Others…
  • the work group, which includes people such as
    peers, managers, and subordinates
  • help on a daily basis with unfamiliar tasks and
    provide advice and information formally and
    informally
  • have more influence on daily
    decisions than any other
    factor

7
Opportunity…
  • relates to permitting ethical or unethical
    behavior
  • rewards and punishment play a key role
  • relates to the employees immediate job context
  • can be eliminated by establishing
    formal codes, policies, and rules
    that are enforced

8
Business Ethics Evaluations and
Intentions...
  • Ethical dilemmas involve decision rules which are
    often vague or in conflict.
  • Critical thinking plays a key role.
  • A persons intentions along with the final
    decision on what action to take is the last step
    in the ethical decision-making process.
  • If intentions and behavior are not consistent
    with ethical judgments, the individual may feel
    guilt.

9
Corporate Governance as a Dimension of Ethical
Decision Making
  • corporate governance formal systems of
    accountability, oversight and control
  • accountability
  • how closely workplace decisions are aligned with
    the firms strategic direction and its compliance
    with ethical and legal considerations
  • oversight
  • checks and balances that limit unethical and
    illegal acts
  • control
  • auditing and improving organizational decisions
    and actions

10
Corporate Governance Issues
  • - shareholder rights
  • - executive compensation- board of directors
    composition
  • - CEO selection and termination decisions
  • - integrity of financial reporting
  • - shareholder participation and input level
  • - compliance with corporate governance reform
  • - CEOs role in board decisions
  • - organizational ethics programs
  • -risk management
  • - auditing and control

11
Views of Corporate Governance
  • shareholder model of corporate governance
  • goal is to maximize wealth for investors and
    owners
  • developing and improving the formal system for
    maintaining performance accountability between
    top management and the firms stakeholders
  • stakeholder model of corporate governance
  • broader view of the purpose of business
  • company has a responsibility for economic
    success, it also should answer to other key
    stakeholders

12
Elements of Corporate Governance Related to
Ethical Decision Making
  • role of boards of directors
  • greater demand for transparency and
    accountability
  • trend toward outside directors chosen for their
    expertise, competence, and ability to improve
    strategic decision making
  • executive compensation
  • evaluate the extent to which executive
    compensation is linked to performance
  • does performance-linked compensation lead to a
    short term focus at the expense of long term
    growth
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