MANAGING ENVIRONMENTAL ETHICS

Program Magister AkuntansiFakultas Ekonomika dan BisnisUniversitas Gadjah Mada

ETHICS RISK AND OPPORUNITY MANAGEMENTRisks of not meeting stakeholder expectations leads to potential loss of support for a corporations objectivesExceeding expectations leads to an opportunity to garner support through the creation of a competitive advantage

Who are the Corporate StakeholdersCorporationShareholdersEmployeesCustomersSuppliersOthers, including the Media, who can be affectedby or who can affect the achievement of thecorporations objectives CreditorsGovermentsActivistsLenders

Approach to Risk ManagementThe full ethics risk management frameworkThe tone at the top, codes of conduct, employee awareness, pressures to meet unrealistic or inappropriate goals, managements willingness to override established controls, code adherence in performance appraisals, monitoring of internal control system effectiveness, whistle-blowing programs, and remedial actions in response to code violationsWithout those, corporations will continue to suffer from risks and lose opportunities

Position of External AuditorsSome executives presume external auditors would bring any risks found to the attention of managementAuditors review IC and business risks, but those that resulted in material misstatementNew standard redirect auditors toward greater fraud awareness, examination, and reporting thereon

Ethics Risk and Opportunity Identification and Gap AssessmentPhase IDevelop a projected, ranked understanding of stakeholder interests and expectationsIdentifyConfirmationDynamic AnalysisRank: urgency, power, legitimacy

Ethics Risk and Opportunity Identification and Gap AssessmentPhase IICompare activities to expectations to identify ethics risks and opportunitiesReputation driver: trustworthiness, credibility, reliability, responsibilityHypernorm: honesty, fairness, compassion, integrity, predictability, responsibilityPerformance: inputs, outputs, quality, virtues

Ethics Risk and Opportunity Identification and Gap AssessmentPhase IIIReports byStakeholder groupProduct or serviceCorporate objectiveHypernorm valueReputation driver

Diagnostic Typology of StakeholdersHighLowHighLowStakeholders potential for threatStakeholders potential for cooperation

Type 4Mixed Blessing

StrategyCollaborateType 1Supportive

StrategyInvolveType 3Nonsupportive

StrategyDefendType 2Marginal

StrategyMonitor

Workplace EthicsEmployee rights?Privacy and Dignity?Fair TreatmentHealthy and Safe Work EnvironmentAbility to Exercise Ones ConscienceTrust and Its Importance

Johnson & Johnsons Credo

Johnson & Johnsons Credo (continued)

The New Ethical Environment in Workplace

Common Business Ethical Challenges

On-the-Workplace Ethical DilemmasConflict of Interestsituation in which a business decision may be influenced for personal gain.

Honesty and Integritytelling the truth and adhering to deeply felt ethical principles in business decisions.

Loyalty versus Truthbusinesspeople expect their employees to be loyal and truthful. But ethical conflicts may arise.

Whistleblowingemployees disclosure to government authorities or the media of illegal, immoral, or unethical practices in the organization.

International OperationsImpact on Local Economies and their CulturesLabor markets: wage rates, availability of supplyRaw material and other input marketsPolitical and legal processesReligious and social customs

International OperationsConflicts between Domestic and Foreign Cultures Approval of briberyUse of child or slave laborUnhealthy labor conditionsTreatment of womenRespect for environmentetc

Corporate Social ResponsiblyActing responsibly to satisfy societySocial Responsibilitymanagements acceptance of the obligation to consider profit, consumer satisfaction, and societal well-being of equal value in evaluating the firms performance.Social Auditsformal procedures that identify and evaluate all company activities relate to social issues such as conservation, employment practices, environmental protection, and philanthropy.

Responsibilities of Business

Social Responsibility...

an organizations obligation to maximize its positive impact on stakeholders and to minimize its negative impact

includes legal, ethical, economic, and philanthropic (discretionary) dimensions

Responsibilities to the General Public

Responsibilities to the General PublicPublic Health IssuesProtecting the EnvironmentRecyclingreprocessing of used materials for reuse.Green marketingmarketing strategy that promotes environmentally safe products and production methods.

Guidelines for Environmental Claims in Green Marketing

Responsibilities to the General PublicDeveloping the Quality of the Workforce

Corporate Philanthropyact of an organization giving something back to the communities in which it earns profits.

Responsibilities to CustomersConsumerismpublic demand that a business consider the wants and needs of its customers in making decisions.

Right to Be SafeConsumers should feel assured that what they purchase will not harm them in normal useProduct Liability

Right to Be InformedConsumers should have enough access to education and product information to make responsible buying decisions

Wacky Warning Labels

The Right to ChooseTo select which goods and services they want and need to purchase

The Right to Be HeardShould be able to express legitimate complaints to appropriate parties

Responsibilities to EmployeesWorkplace Safety.Quality of Life Issues.Ensuring Equal Opportunity in the Job.Age Discrimination.Sexual Harrassment and Sexisminappropriate actions of a sexual nature in the workplace.

Responsibilities to Investors and the Financial CommunityFundamental goal of any business is to make a profit.Investors and the financial community demand that businesses behave ethically as well as legally.

Crisis ManagementIs an event that brings, or has a potential for bringing, an organization into disrepute and imperils its future profitability, growth, and possibly its very survival (Lerbinger)how to minimize all harmful impactsEthical consideration is very importantCompany should develop advance planning

**Conflict of Interest1. When an action benefiting one person or group has the potential to harm another2. Ethical ways to handle conflicts of interests can be avoiding them or disclosing them Honesty and Integrity1. Honesty when a person can be counted on to tell the truth2. Integrity involves adhering to deeply felt ethical principles; includes doing what you say you are going to do3. Violations are widespread*Social Responsibility1. Recognition that business must be concerned with qualitative dimensions of consumers, employees, and society benefits, as well as the quantitative measures of sales and profits.2. Historically, social performance was measured by the organizations contribution to the overall economy and employment opportunities.3. Today additional factors include: a. providing equal employment opportunities b. respecting cultural diversity of employees and customers c. responding to environmental concerns d. providing a safe, healthy workplace e. producing safe, high-quality products*Public Health Issues1. What is the firms responsibilities regarding the production, distribution and marketing of inherently dangerous products, such as tobacco, alcohol and handguns?2. Substance abuse is a serious issue and affects the workplace.3. Particular concerns about the impact of certain products on vulnerable groups, such as children, teens, and senior citizens4. Companies have had to train their employees about dealing with and working with colleagues and customers who may have AIDS

Protecting the Environment1. Businesses consumer large amounts of energy, which increases use of fossil fuels, and results in increased releases of carbon dioxide and sulfur2. Finding ways to minimize pollution and other environmental damage caused by a firm is increasingly important3. Recycling reprocessing used materials for reuse sometimes provides raw materials that manufacturing needs, thus conserving worlds natural resources and reduced landfills4. Consumers tend to favor industries that are environmentally friendly a. thus encouraging green marketing a strategy that promotes environmentally safe products and production methods b. Environmental concerns are creating new technologies, which raises new issues, such as concerns about genetic engineering*Developing the Quality of the Workforce1. A countrys true wealth lies in its people, and to remain competitive, businesses have had to become increasingly responsible for enhancing the workforce2. Businesses must encourage students to stay in school3. Businesses must help women and diverse peoples to contribute fully to the economy failing to do so wastes up to half the nations workforce

Corporate Philanthropy1. Not-for-profits are crucial for enhancing the public good and improving communities, which thus affects businesses ability to be successful2. Corporate philanthropy including cash donations, in-kind services and equipment, and volunteers is critical for the success of not-for-profits.3. Corporate philanthropy can assist businesses by: a. providing altruistic opportunities b. increasing employee morale c. enhancing the business image d. improving customer relationships e. making communities better places for businesses to exist f. providing an opportunity to align company marketing with their charitable giving*The Right to Be Safe1. Businesses have both moral and legal obligations to ensure the safe operation of their products2. Product Liability the responsibility of the manufacturer for injuries and damages caused by their products3. Many companies undertake rigorous testing.4. Many companies provide warnings.5. When threats to customer safety do exist, immediate action by the company to correct the problem or recall the product is essential.

The Right to Be Informed1. Consumers should have access to enough education and product information to make wise decisions2. False advertising is a violation of the Wheeler-Act3. FTC and other federal and state agencies enforce additional such regulations, prohibiting businesses from making misleading claims about performance*The Right to Choose1. Consumers have the right to determine which goods and services they need and want to purchase.2. Socially responsible firms attempt to preserve this right, even if their own sales are diminished.

The Right to Be Heard1. Consumers need to be able to express legitimate complaints to appropriate parties.2. Many companies expend considerable effort to ensure full hearings of consumer concerns

*Workplace Safety1. OSHA The Occupational Safety and Health Administration is the main federal force in setting health and safety standards at work.2. Although many companies complain about the number of OSHA regulations, most companies find they also need to establish their own additional standards specific to their workplace

Quality of Life Issues1. Balancing work and family is becoming an increasingly difficult task due to additional demands, such as caring for elderly parents and children, and running more complex households and schedules2. Companies respond in a number of ways, including: a. flexible work arrangements b. subsidized or on-site child care c. subsidized education d. assistance with household tasks3. The Family and Medical Leave Act of 1993 also assists families a. requires companies of more than 50 employees to allow up to 12 weeks of leave b. to care for children, aging parents or due to personal illness c. However, since the leave is unpaid, many workers cannot utilize the benefit*Responsibilities to Investors and the Financial Community1. Although the primary goal of business is to make a profit, investors and owners still want the company to behave ethically.2. State and federal agencies protect investors from financial misdeeds a. At federal level, the Securities and Exchange Commission investigates suspicions that publicly traded firms engaged in unethical or illegal behavior b. Accounting practices cannot be faulty or inaccurately portray the financial resources or profits3. Providing highly qualified managerial talent to run the company is another responsibility to investors