Download Legal Environment Today, 5e

CHAPTER 2
Ethics and
Professional Responsibility
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
Business Ethics
• Ethics can be defined as the study of
what constitutes right or wrong
behavior.
• Business ethics focuses on how moral
and ethical principles are applied in the
business context.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Business Ethics
• The law reflects society’s convictions
on what constitutes right or wrong
behavior.
• Case 2.1 Time Warner Entertainment Co.
v. Six Flags Over Georgia, LLC (2002).
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Setting the Right Ethical Tone
• Ethical Leadership.
– Attitude of Management.
– ‘Looking the Other Way’.
– Creating Realistic Goals.
– Periodic Evaluation.
– Case 2.2: In Re the Exxon Valdez.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Setting the Right Ethical Tone
• Ethical Codes of Conduct.
– Costco as an example .
– Clear Communications.
– Johnson & Johnson – web training.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Corporate Compliance
Programs
• The Sarbanes-Oxley Act.
– Employers must set up confidential
reporting and auditing systems.
– Web-based system by Ethicspoint.
• Integrating Compliance Programs.
– Ethics programs must be disseminated
and coordinated among all departments.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
‹#›
Conflicts and Trade-Offs
• Today’s corporate decision makers must
balance profitability against ethical
responsibility when making their decisions.
• Instead of maximum profits, corporations
increasingly aim for optimum profits—
profits that can be realized by the firm while
pursuing actions that are not only legal and
profitable but also ethical.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
‹#›
Business Ethics
and the Law
• Legal compliance is the moral
minimum, but simply obeying the
law does not mean it is ethical.
• Laws regulating business.
• “Gray” areas in the law.
– Case 2.3 Guin v. Brazos Higher
Education Service Corp. (2006).
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
‹#›
Approaches to
Ethical Reasoning
Duty-based ethics:
• Ethics based on
religious beliefs and
philosophical
reasoning, such as
that of Immanuel
Kant.
• Example: Ten
Commandments.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
Outcome-based ethics:
•Ethics based on
philosophical
reasoning, such as
that of John Stuart
Mill.
• Example:
utilitarianism.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Professional Responsibility
• Accountant’s Duty of Care.
– Audit.
– Standard of Care/GAAP/GAAS.
– Violations of GAAP and GAAS.
• Attorney’s Duty of Care.
– Liability for Malpractice.
• Statutory Duties of Accountants.
– Duty under Securities Laws.
– Potential Criminal Liability of Accountants.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Defying the Rules:
The Enron Case
• Growth of Enron.
• Accounting Issues.
– Fudging and ‘Anticipated’ Earnings.
– Bonuses based on whether earnings were met.
• Off-The-Book Transactions.
– Subsidiaries inflated net worth of Enron.
– Most transactions occurred in Cayman
Islands.
• Self-Dealing.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
‹#›
Sarbanes - Oxley
• Sarbanes-Oxley Act of 2002.
– Public Company Accounting Oversight
Board.
– Applicability to Public Accounting
Firms.
– Auditor Independence.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Ethics In The Global Context
Despite the cultural and
religious differences
among nations, the most
important ethical
precepts are common to
virtually all countries.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Ethics in The Global Context
• Two notable
differences relate to:
– The role of women
in society.
– The practice of
giving side
payments to foreign
officials to secure
favorable contracts.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
• The Foreign Corrupt
Practices Act of 1977
(FCPA), prohibits the
bribery of foreign officials
through such side
payments, put U.S.
businesspersons at a
relative disadvantage to
businesspersons from
other countries who are
not subject to such laws.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Ethics in The Global Context
What is considered ethical in
society may change over time as
social customs change and new
developments alter our social and
business environment.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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