Corporate Ethics

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A presentation I had to give on the consequences of bad business practices in ethics. I specifically cited Enron and WorldCom as my examples. The .ppt contains many hyperlinks to videos supporting my case.

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Corporate Ethics

  1. 1. Christian Fanning June 6 th , 2007
  2. 2. Decisions Decision making occurs as a reaction to a problem or an opportunity . Problem Opportunity
  3. 3. Stages of Moral Development 6. Following self-chosen ethical principles even if they violate the law. 5. Valuing rights of others and upholding absolute values and rights regardless of the majority’ s opinion. 4. Maintaining conventional order by fulfilling obligations to which you have agreed. 3. Living up to what is expected by people close to you. 2. Following rules only when doing so is in your immediate interest. 1. Sticking to rules to avoid physical punishment. Conventional Principled Preconventional Source: Based on L. Kohlberg, “Moral Stages and Moralization: The Cognitive-Developmental Approach,” in Moral Development and Behaviour: Theory, Research, and Social Issues , ed. T. Lickona (New York: Holt, Rinehart and Winston, 1976), pp. 34-35.
  4. 4. Stage of moral development Organizational environment Locus of control Ethical decision-making behaviour
  5. 5. Utilitarianism Rights Justice/Care Unethical Unethical Unethical Ethical o N o N o N s e Y s e Y s e Y Does the decision respect the rights of the individuals affected? Is the decision motivated by self-serving interests? Is the decision fair and equitable? Question 1 Question 2 Question 3
  6. 6. Judgement Shortcuts Daniel Kahneman & Amos Tversky Heuristics “ judgement shortcuts in decision making, to simplify the decision process, rather than going through all of the steps of the rational decision-making model”
  7. 7. Heuristics Framing “ you give radically different answers to the same question if it is posed in different ways” Availability Heuristic “ tendency for people to base their judgements on information that is readily available to them rather than complete data” Representative Heuristic “ basing a decision on the tendency of a small sample or pre-existing category” Ignoring the Base Rate “ judgement error that people make when ignoring the statistical likelihood that an event might happen” Escalation Of Commitment “ an increased commitment to a previous decision despite negative information, i.e. stick with original decision
  8. 8. Mindset “ All publicly traded corporations have been structured, through a series of legal decisions, to have a particular and disturbing characteristic. They are required by law to place the financial interests of their owners above the competing interests… … In fact, the corporation, is legally bound to put its bottom line ahead of everything else… … even the public good” The Corporation
  9. 9. Mindset “ They have no soul to save… … they have no body to incarcerate” Barron Thurleau
  10. 14. “ We have no obligation to make history… We have no obligation to make art… We have no obligation to make a statement… To make Money… … is our only obligation” Michael Eisner
  11. 15. “ You can manipulate consumers… into wanting… and therefore… … buying your products… It’s a game.”
  12. 16. “ In devastation… there is opportunity…”
  13. 18. Worldcom "It is disappointing that the company that commits the greatest fraud in American history, $11 billion, leading to a loss of $180 billion to the retirement accounts and savings of thousands of people receives only a slap on the wrist."
  14. 19. “ We like risk… because you make money taking risks.” J. Skilling Welcome to a Financial Fantasy Land
  15. 27. Mark to Market Accounting
  16. 30. an innovative trader…. is a good trader..
  17. 34. Financial Incentives “ In 2001 executives received huge one-time bonuses because Enron’s stock price hit various targets during 2000. Investigators have suggested that during 2000, those same executives were inflating the company’s profits by as much as a billion dollars. Legal experts suggest that the bonuses tied to stock price goals may have provided a motive for executives to distort the company’s performance… … How large were these bonuses? Well, Andrew S. Fastow, the former CFO, received more than $3 million (US) in bonuses over a one-month period! In the words of a former federal prosecutor, “The levels of compensation that we are talking about here would certainly seem to be a powerful incentive for anyone to do anything.”
  18. 37. The Tall Tale
  19. 38. Stage of moral development Organizational environment Locus of control Ethical decision-making behaviour
  20. 41. <ul><li>20,000 employees lost their jobs and medical insurance </li></ul><ul><li>Average severance pay: $4,500 </li></ul>Top executives were paid bonuses totalling $55 million
  21. 42. <ul><li>Employees lost $1.2 billion in retirement funds </li></ul><ul><li>Retirees lost $2 billion in pension funds </li></ul>Top executives cashed in $116 million in stock
  22. 43. <ul><li>Guilty Pleas: 15 </li></ul><ul><li>Convictions: 6 </li></ul><ul><li>Acquittals: 1 </li></ul><ul><li>Pending Cases: 11 </li></ul>
  23. 44. <ul><li>$35,000,000 in civil penalties </li></ul><ul><li>$85,000,000 stock reimbursement </li></ul><ul><li>$321,000,000 in pensions </li></ul><ul><li>$1,520,000,000 </li></ul><ul><li>for major role in energy crisis of 2000-2001 </li></ul><ul><li>= </li></ul><ul><li>$1,920,000,000 </li></ul>$30,000,000,000
  24. 45. <ul><li>Being sued… </li></ul><ul><li>$20,000,000,000.00 </li></ul>
  25. 46. “ Whether you obey the law or not is a matter of whether it is cost effective. If the chance of getting caught and the penalty are LESS than the cost to comply, people think of it as being just a business decision.” The Corporation
  26. 47. ask why.
  27. 48. Special Thanks
  28. 49. Stanley Milgram <ul><li>“ Ordinary people, simply doing their jobs, and without any particular hostility on their part, can become agents in a terrible destructive process. Moreover, even when the destructive effects of their work become patently clear, and they are asked to carry out actions incompatible with fundamental standards of morality, relatively few people have the resources needed to resist authority.” </li></ul>
  29. 50. Milgram’s Theories <ul><li>The first one is the theory of conformism based on Solomon Asch 's work. Milgram describes the fundamental relationship between the group of reference and the individual. A subject who has no ability or expertise to make a decision, especially in a crisis situation, will leave it to the group and its hierarchy. The group appears as a behavioral model. </li></ul><ul><li>The second one is the agentic state theory . According to Milgram, &quot;the essence of obedience consists in the fact that a person comes to view himself as the instrument for carrying out another person's wishes, and he therefore no longer sees himself as responsible for his actions . Once this critical shift of viewpoint has occurred in the person, all of the essential features of obedience follow&quot;. This is basically the foundation of military respect for authority, in that soldiers will follow orders and commands from superiors with the understanding that responsibility for the actions rests with the commanding officers. </li></ul>
  30. 51. Ethical Question

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