Business Ethics
Business Ethics
The managers are responsible to the prevalence of ethical misconducts due to their extent of authority. Managers ensure that employees do not incorporate any unethical practices and understand the organization’s ethical conducts. The prevalence of ethical misconducts among the employees is observed by the managers due to which the managers take necessary actions in order to ensure that the occurrence of such misconducts is hindered. The employees are observed in accordance with the organization’s ethical standards and these standards help in the shaping the organizational behavior and hence, ethical conducts are set (Crane & Matten, 2007).
The management ensures that the ethical conducts enhances the employees’ inclinations, society’s wellbeing and stakeholder’s value. The prospects of setting ethical conducts are developed on the basis of identifying the unethical practices, their antecedents and consequences, which eventually makes the managers to develop a set of standard, rules and policies to ensure that the prevalence of unethical practices is hindered. The effective implementation of the ethical standards and conducts shape the behavior of employees and ensures that the work related activities, including the employees’ tasks, duties and organizational processes are conducted in an ethical manner (Jones et al., 2007).
Role of Subordinates Towards Unethical Practices
The subordinates play a prominent role in helping the organization to identify the unethical practices by means of initiating the whistleblowing policy of the organization. The subordinates can incorporate the anonymous reporting to the concerned departments about the occurrence of unethical practices in order to enlighten the concerned departments and high authorities about the prevalence of unethical practices. Similarly, the subordinates can also file a compliant against the unethical practices, however, they can also consider confrontation with the employees who practice the unethical conducts in the organization. The employees can incorporate this mechanism in a polite manner so that the work processes of the organization are not negatively effected by the initiation of whistleblowing mechanism. Moreover, the extent of unethical practices determines the extent to which retaliation is required and under the prevalence of unethical practices at a large scale, the subordinates can incorporate a resolution in order to make the higher authorities understand the dynamics of the unethical practices (Tsahuridu & Vandekerckhove, 2008).
Corporate Ethics Scandal
The violation of ethical standards has been observed in WorldCom Inc., which is the second largest telecommunication company in the United States. The company was incorporating a merger with Sprint, which was rejected by the Department of Justice due to the prospects monopoly created by the merger of both companies. It hindered the stock price of the company due to which the banks demanded the margin calls to the CEO of the company, who owned millions of dollars in the company. The CEO, Bernard Ebbers, invested his capital in some other business projects and hence, he convinced the board of the company to lend him money so that he does not lose his holding position in the company by selling his stocks (Forbes, 2013).
Afterwards, Ebbers initiated an aggressive campaign in order to increase the stock price by means of representing fraudulent entries in the company accounts. It was discovered by the company’s internal audit function, which resulted in the SEC investigation and the case of bankruptcy was filed in the year 2002 in which Ebbers was convicted for conspiracy, fraud and false documentation. In 2006, the case resulted in the 25-year sentence in the federal prison for Ebbers (Forbes, 2013).
Cause of Ethical Misconduct
The prevalence of ethical misconduct takes place due lack of internal audit control over the period of years. The financial assets of the governing bodies and major stockholder of the organization are not analyzed in an effective manner in order to determine their potential towards incorporating unethical practices for manipulating stock price. Moreover, the key position holders of the company engage in the ethical misconducts when they consider their personal inclinations and interests more than the wellbeing of the organization. Similarly, lack of integrity towards maintaining the business related aspects in an ethical manner also causes the occurrence of such fraudulent activities (Rezaee, 2005).
Organization’s Implications
The organizations should incorporate proactive means to know its employees and key position holders in order to determine their inclination towards the maintenance of integrity. The adequate identification of the behavioral traits can help in identifying the inclination of the employees in an effective manner. The organization should also set up an adequate reporting system in order to ensure that the prevalence of unethical practices in the organization is reported to the concerned authorities. The hierarchical differences and systematic procedures in filing a complaint against the employer or higher authorities are required to be minimized so that employees can indicate the occurrence of unethical practices in an effective manner (Knights et al., 2001).
The organization should develop an open policy for the whistleblowing mechanism so that employees from any department can report the prevalence of fraudulent or suspicious activities. The organization is also required to incorporate an adequate reward mechanism for the employees who use the whistleblowing mechanism in an effective manner and help in determining the fraudulent activities. The organization should set up an internal auditing system that should be made functional in the organization and should be independent in carrying out its work processes. Moreover, the employees should also be made aware about the existence of the independent auditing system so that their inclination towards possible frauds can be hindered (Knights et al., 2001).
The organization should provide adequate training to the departments with respect to the effective identification of fraud so that employees possess the adequate knowledge to check on the organizational activities in order to determine the existence of fraud or any other unethical practice. The organization should ensure that the employees are highly committed to the organization and have an adequate level of organizational citizenship behavior by conducting the surveys so that it can provide the organization with the idea about the employees’ level of integrity, ownership and commitment to the wellbeing of the organization (Rae & Subramaniam, 2008).
Sarbanes Oxley (SOX) Act
The Sarbanes Oxley (SOX) Act was enacted in the year 2002 and it has set substantial requirements for the board members and management of the public organizations. It also addresses some aspects in the private organizations by means of making them liable to the Federal investigations in order to determine their level of integrity. It was enacted as a result of the fraudulent cases and accounting scandals, mainly that were observed in WorldCom and Enron. The Sarbanes Oxley (SOX) Act ensures that the auditors work independently in the organization and the organization should be made accountable for presenting the false financial figures to the investors (DeFond & Francis, 2005). It also ensures that the organization discloses its financial activities in an effective manner. This Act can lead the organization towards becoming more functional and responsible towards maintaining their accounting activities in an ethical manner because the violation of these acts can make the organization accountable in the Court of Justice (DeFond & Francis, 2005). In this manner, it can enhance the focus of the management to implement the ethical standards and consider adequate check and balance mechanism to ensure that the ethical practices are followed in the organization.
References
Crane, A., & Matten, D. (2007). Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press, USA.
DeFond, M. L., & Francis, J. R. (2005). Audit research after sarbanes-oxley. Auditing: A Journal of Practice & Theory, 24(s-1), 5-30.
Forbes. (2013). 5 Most Publicized Ethics Violations By CEOs. Forbes. Available from: http://www.forbes.com/sites/investopedia/2013/02/05/5-most-publicized-ethics-violations-by-ceos/#6f6d2c762799
Knights, D., Noble, F., Vurdubakis, T., & Willmott, H. (2001). Chasing shadows: control, virtuality and the production of trust. Organization studies,22(2), 311-336.
Jones, T. M., Felps, W., & Bigley, G. A. (2007). Ethical theory and stakeholder-related decisions: The role of stakeholder culture. Academy of Management Review, 32(1), 137-155.
Rae, K., & Subramaniam, N. (2008). Quality of internal control procedures: Antecedents and moderating effect on organisational justice and employee fraud. Managerial Auditing Journal, 23(2), 104-124.
Rezaee, Z. (2005). Causes, consequences, and deterence of financial statement fraud. Critical Perspectives on Accounting, 16(3), 277-298.
Tsahuridu, E. E., & Vandekerckhove, W. (2008). Organisational whistleblowing policies: Making employees responsible or liable?. Journal of Business Ethics, 82(1), 107-118.
