Chapter 4:

Responding to Compliance
and Social Responsibility
Opportunities

Part Two:
Ethical Challenges and Public
Policy Responses

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Institutionalization in Business Ethics

Three dimensions to effective business compliance

 Voluntary practices: Include beliefs, values, and
voluntary contractual obligations of a business
 All businesses have some voluntary commitments
 Philanthropy: Giving back to communities and causes
 Core practices: Documented best practices, often
encouraged by legal and regulatory forces and trade
associations
 The Best Business Bureau can provide direction
 Mandated boundaries: Externally imposed boundaries
of conduct (e.g. laws, rules, and regulations)

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Legal Compliance
Laws and regulations established by
governments
 Set minimum standards for responsible behavior
 Laws regulating businesses are required because
stakeholders believe businesses cannot be trusted
to do what is right in some areas
 Consumer safety
 Environmental protection
 Policy changes over time in response to, business
abuses and consumer demands for safety
 Telling employees to obey the law is meaningless
without training in legal risky areas
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The Elements of an Ethical Culture

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Types of Laws

 Civil law defines the rights and duties of

individuals and organizations
 Individuals (in court) enforce civil laws
 Criminal law prohibits specific actions and
imposes punishments for breaking the law
 State or nation enforces criminal laws

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Relationship Between Top Management Talking about
Ethics and Employees NOT Observing Misconduct

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Mandated Requirement for Legal Compliance

 Laws establish the basic ground rules for

responsible business activities
 Five categories of laws
1. Regulating competition
2. Protecting consumers
3. Protecting equity and safety
4. Protecting the environment
5. Incentives to encourage organizational compliance
programs

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Laws Regulating Competition

Laws passed to prevent the establishment

of monopolies, inequitable pricing, and
other practices that reduce or restrict
competition among businesses
 Sometimes called procompetitive legislation
because they encourage competition and
prevent activities that restrain trade

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Laws Protecting Consumers
 Laws protecting consumers require businesses to
provide accurate information about products and
services and to follow safety standards
 The first consumer protection law was passed in 1906
in response to poor working conditions in factories
 The FTC’s Bureau of Consumer Protection protects
consumers against unfair, deceptive, or fraudulent
practices
 The FDA regulates food safety, human drugs, and
tobacco, among other things
Groups with specific vulnerabilities have higher
levels of legal protection
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Laws Promoting Equity and Safety
Laws promoting equity in the workplace protect the
rights of minorities, women, older persons, and
disabled persons
 Title VII of the Civil Rights Act
 Equal Employment Opportunity Commission (EEOC)
 Affirmative action programs
 The Equal Pay Act
Occupational Safety and Health Administration
(OSHA) makes inspections to ensure a safe working
environment
• Many people still work in unsafe environments
• Companies may underreport accidents to avoid inspection and
regulation
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Laws Protecting the Environment

Created in response to stakeholder concerns

about businesses’ impact on environment
 Sustainability
 Meeting the present needs without compromising
future generations’ abilities to meet their own needs
 Being a green company can boost profits
 The Environmental Protection Agency (EPA) was
created to coordinate environmental agencies
Waste disposal is a serious problem for firms
and individuals

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The Green Consumer
Which age groups are willing to pay significantly more for green products?

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Gatekeepers and Stakeholders

Trust is the glue that holds businesses

together
 Gatekeepers: Overseers of business actions
 Accountants, regulators, lawyers, financial rating
firms, auditors
 Are critical in providing accurate information to
stakeholders

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Accountants

Measure and disclose financial information

to the public
 Assure accuracy

Some accountants have not adhered to their

stakeholder responsibilities
• Excessive focus on growth and profits
• Conflicts of interest – with other stakeholders’
tasks.

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Risk Assessors

A group that failed in its duties to

stakeholders during the most recent
recession
 Problems with risk models led to inaccurate
ratings
 Misled investors and stakeholders

More oversight of credit rating firms in the

future?

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The Sarbanes-Oxley (SOX) Act
Established a system of federal oversight of
corporate accounting practices
 Gives the Public Company Accounting
Oversight Board (PCAOB) authority to monitor
accounting firms
 Standards and rules for auditors in accounting firms
 Requires top managers to certify their firms’
financial reports
 More accountability for CEOs and CFOs
 Some legal protection for whistleblowers
 Loopholes existed and misconduct continued
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Dodd-Frank Wall Street Reform and Consumer
Protection Act

The most sweeping consumer protection

legislation since the Great Depression
 Seeks to improve financial regulation, increase
oversight, and prevent excessive risk-taking and
deceptive practices
 Created new offices
 The Office of Financial Research
 The Financial Stability Oversight Council
 The Consumer Financial Protection Bureau (CFPB)
 Increased whistle-blower protections
 Whistle-blower bounty program
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Federal Sentencing Guidelines for Organizations

Passed as an incentive for organizations to

develop and implement programs for
ethical and legal compliance
 Applies to all felonies and class-A
misdemeanors committed by employees
 Philosophy that legal violations can be
prevented through organizational values and
commitment to ethical conduct
 Passed in 1991; amendments in 2004, 2008,
and 2010
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Employees Who Feel Better Prepared are More
Likely to Report

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Highly Appropriate Core Practices

Focus on developing sound organizational

practices and structural integrity for
performance measures
 Not a focus on individual morals
 Most ethical issues relate to nonfinancial issues
 The Sarbanes-Oxley Act and Dodd-Frank Act
provide standards for financial performance
 The Integrity Institute developed a model that
standardizes measures for nonfinancial
performance

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Voluntary Responsibilities
Relate to business contributions to stakeholders
 Four major benefits
 Improves quality of life in communities
 Reduces government involvement
 Develops employee leadership skills
 Helps create an ethical culture
Cause-related marketing: Ties an organization’s
product(s) to a social concern through a marketing
program
Strategic philanthropy: The synergistic and mutually
beneficial use of a company’s core competencies and
resources to deal with social issues
© 2013 Cengage Learning. All Rights Reserved. 21
The Importance of
Institutionalization in Business Ethics

Involves embedding values, norms, and

artifacts in organizations, industries, and
society
 The failure to understand highly appropriate
core practices provides the opportunity for
unethical conduct

© 2013 Cengage Learning. All Rights Reserved. 22