Employee’S Obligation To The Firm


Published on

1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Employee’S Obligation To The Firm

  1. 1. LESSON 23: EMPLOYEE’S OBLIGATION TO THE FIRM In the last lecture I explained the Rational Organization. All of Or, more simply, conflicts of interest arise when the self- us understand that both employees as well as employers have interest of employees in positions of trust leads them to duties towards each other and towards the organization. It is a discharge their offices in ways that may not be in the best mutual thing. You must have heard that if you want respect and interests of the firm. An official of a corporation, for love from somebody then even you have to give that person love example, is involved in a conflict of interest if he holds stock and respect. Nothing comes just like that. in one of the companies submitting bids for a construction In this lecture we are going to study the employee’s obligation con-tract. His interest in seeing the value of the stock improve to the firm and the ways in which employees fail to live up to may tempt him to give the contract to the building company the duty to pursue the goals of the firm. in which he holds stock, even though it did not offer the best terms to the corporation for which he works. Points to be covered in this lesson: • Conflicts of interest need not be financial. Conflicts of Interest between the Employee and the Firm • Conflicts of interest can also arise when officers or employees of one company hold another job or consulting position in In the rational view of the firm, the employee’s main moral an outside firm with which their own company deals or duty is to work toward the goals of the firm and to avoid any competes: a conflict of interest would be created if an activities, which might harm those goals. To be unethical, basically, is to deviate from these goals in order to serve one’s accoun-tant working for an insurance company also provides “independent” auditing services for some of the firms the own interests in ways that, if illegal, are counted as a form of insurance company insures: The accountant might be “white collar crime.” tempted to pass on to the insurance company some of the As administrator of the company’s finances, for example, the private information gathered when auditing the books of financial manager is entrusted with its funds and has the those other firms. responsibility of managing those funds in a way that will minimize risk while ensuring a suitable rate of return for the • Conflicts of interest may be actual or potential: An actual conflict of interest occurs when a person actually discharges company’s shareholders. Financial managers have this contrac- tual his or her duties in a way that is prejudicial to the firm and duty to the firm and its investors because they have contracted to does it out of self-interest. A potential con-flict of interest provide the firm with their best judgment and to exercise their occurs when a person is merely motivated or tempted by authority only in the pursuit of the goals of the firm and not for self-interest to act in a way that is prejudicial to the firm. their own personal benefit. Finan-cial manag- ers fail in their contractual duty to the firm when they If we accept the view that agreements impose moral duties, misappro-priate funds, when they waste or squander funds, then actual conflicts of interest are unethical because they are when they are negligent or fraudulent in the preparation of contrary to the implied contract that a worker freely accepts when financial statements, when they issue false or misleading taking a job with a firm. The administrative personnel of a firm reports, and so on. are hired to use their un-biased judgment to advance the goals of the firm. By accepting the position within the firm, the There are several ways in which the employee might fail to live up employee contracts to administer the assets of the firm in to the duty to pursue the goals of the firm: The employee might accordance with these goals and in return takes the salary act on a “con-flict of interest,” the employee might steal from the connected with ful-filling this administrative task. To break this firm, or the employee might use his or her position as leverage to contractual relation violates the rights and duties created by the force illicit benefits out of others through extortion or contract. commercial bribery. We will turn now to examine the eth-ical issues raised by these tactics. Potential conflicts of interest mayor may not be ethical depend- ing on the probability that the employee’s judgment will be Conflicts of Interest affected by the conflicting interest or will appear to be affected. Conflicts of interest in business arise when an employee or an Obviously, there are no general rules for determining whether or officer of a company is engaged in carrying out a task on behalf not an employee’s private and conflicting interests are significant of the company and the employee has a private interest in the enough to affect his or her judgment: Much depends on the outcome of the task: em-ployee’s personal psychology and intentions, on the a. That is possibly an-tagonistic to the best interests of the employee’s position in the firm and the nature of the employee’s company, and job, on how much he or she stands to gain from the transactions b. That is substantial enough that it does or reasonably might involved, and on the impact the employee’s actions will have on affect the independent judgment the company expects the others inside and outside the firm. employee to exercise on its behalf. 64 11.292
  2. 2. To avoid problems many companies: 6. Company policies regarding acceptance of such gifts: if a. Specify the amount of stock that the company will allow acceptance is contrary to company policy it is morally unacceptable; employees to hold in supplier firms, 7. Relevant laws: where acceptance of such gifts is banned by b. Specify the relationships with competitors, buy-ers, or law, it is morally unacceptable. suppliers that the company prohibits employees from having, and Employee Theft c. Require key officers to disclose all their outside financial investments. Conflicts of interest can be created by a variety of different kinds of sit-uations and activities. Two kinds of situations and activities demand further at-tention: bribes and gifts. Commercial Bribes and Extortion Commercial bribe are considerations given or offered to employees by persons outside the firm with the understanding that, when the employee transacts business with the giver, the giver will be dealt with favorably. The consideration may consist of money, tangible goods, and the “kickback” of part of an official payment, preferential treatment, or any other kind of benefit. It is extortion, when the employee demands consider- ations from an outside agent as a condition for dealing favorably with them. Commercial gifts, considerations given to employees by outside agents with no understanding that the employee will deal favorably with them in return, while less culpable than outright bribes and extortion, nevertheless raise similar issues Many people consider accounting a tedious job, but not John since such gifts are often given in the hope of obtaining favorable Lewis. Throughout his three-year tenure with Unified Trucking treatment. he had ostensibly been a model employee, missing only a few Gifts days of work and conquering the Herculean task of bookkeep- Gifts Accepting gifts mayor may not be ethical. The purchasing ing single-handedly. The company continued growth and agent, for example, who accepts gifts from the salesperson with profitability were the only indications management had ever whom he or she deals without asking for the gifts and without needed to determine that John performed his job well. His making such gifts a condi-tion of doing business with them, may professionalism and dedication made supervision unnecessary. be doing nothing unethical. If the agent does not give favored John insisted on handling any problems or discrepancies treatment to those from whom he or she accepts gifts and is not personally, and made it clear that the buck stopped with him. In prejudiced against those who fail to give a “gift,” no actual fact, many bucks did stop with him, followed him home conflict of interest is created. A potential conflict of interest, and neatly deposited themselves into his bank account. In three however, may exist and the act may encourage a practice that in short years John managed to use his authority and exclusive some instances becomes an actual conflict of interest or that may bookkeeping access to bilk the company of nearly $100,000. As be subtly affecting the independence of a per-son’s judgment. often happens, John’s illicit activities were only revealed by Vincent Barry suggests that the following factors should be accident. If janitorial workers had not discovered a suspicious considered when evaluating the morality of accepting a gift amount of discarded receipts, the theft would have continued Undetected. Factors to be considered when evaluating the morality of Specialists say the cost of employee theft and embezzlement accepting such a gift include adds up to billions of dollars annually. For most companies, 1. The value of the gift: the more valuable the gift the more its employee theft is a much more serious concern than burglars or acceptance becomes morally questionable; shoplifters. In the retail industry, where theft of all types is a 2. The purpose of the gift: the greater the giver’s expectation of recurring problem, businesses recover an average of $1,350 gaining favorable treatment the worse the acceptance; from each employee apprehended for stealing, compared to 3. The circumstances of the gift, especially the openness with $196 recovered from shoplifters. With dramatic figures like which it was given: the more openly, the better; these, taking steps to eliminate theft and graft within a firm are sure to yield returns. 4. The position of the recipient: the greater recipient’s ability to advance the giver’s interests, the more acceptance of the gift is The employee of a firm has a contractual agreement to accept morally questionable; only cer-tain specified benefits in exchange for his labor and to use the resources and goods of the firm in pursuit only of the 5. Accepted business practice in this connection: the more legitimate aims of the firm. For the employee to appropriate generally such gift-giving is practiced the less questionable additional benefits for him or herself or to convert company acceptance of the gift; resources to the employee’s own use are forms of theft since to 11.292 65
  3. 3. do either is to take or use property that belongs to another (the Trade Secrets employer) with-out the consent of its rightful owner. Employee theft is often petty, involving the theft of small tools, office supplies, or clothing. At the managerial level, petty theft sometimes occurs through the manipulation or padding of expense accounts, although the amounts involved are sometimes substantial. Other forms of managerial theft, sometimes referred to as “white collar crime,” are embezzle- ment, larceny, and fraud in the handling of trusts or receiverships, and forgery. The ethics of these forms of theft, however, are relatively clear. Not always as clear are some par- ticularly modem kinds of theft: thefts involving various forms of information. Computer Theft What are the ethics of using a computer to gain entry into a company’s data bank? Of copying a company’s computer Businesses often rely on confidential information — inven- programs? Of using or copying a company’s computerized data? tions, strategies and processes — to keep their competitive edge. Of using a company com-puter during one’s own time? Unless If such information is improperly disclosed — for example, by a authorized explicitly or through a com-pany’s formal or informal former employee — or otherwise illegally acquired by a policies, all such activities are unethical forms of theft since they competitor, a business owner can turn to trade secret law for all involve taking or using property that belongs to someone else help. Here, you’ll learn what qualifies as a trade secret and how without the consent of its rightful owners. Of course, the to protect your sensitive business information. information con-tained in a data bank and the programs provided by a company are not tangi-ble property, and the employee who “Proprietary information” or “trade secrets” consist of examines, uses, or copies such informa- tion or programs might nonpublic information: leave the original information or programs un-changed (the 1. That concerns a company’s own activities, technolo-gies, company might never even realize what the employee did). Nev- future plans, policies, or records, and which, if known by ertheless, unauthorized examina- tion, use, or copying of competitors, would materially affect the company’s ability to computer information or programs constitutes theft. It is theft compete commercially against those competitors; because information gathered in a com-puter bank by a company 2. That is owned by the company (although it might not be and computer programs developed or purchased by a company, patented or copyrighted) because it was developed by the are the property of that company. company for its pri-vate use from resources it owns or it was Such theft is best understood by considering the nature of purchased for its private use from oth-ers with its own property: Prop-erty consists of a bundle of rights that attach to funds; and some identifiable asset. The most important of these rights are 3. That the company indicates through explicit directives, the right to exclusive use of the asset, the right to decide whether through security measures, or through contractual and how others may use the asset, the right to sell, trade, or give agreements with employees that it does not want anyone away the asset, the right to any income generated by the asset, and outside the company to have that infor-mation. the right to modify or change the asset. (The rights of others, For example, if a company, using its own engineering and such as the right not to be harmed, of course, limit these rights) laboratory re-sources, develops a secret process to manufacture All of these rights can and do attach to those computers, computer “diskettes” that can carry more computer data than computer data, and computer pro-grams that a company used its any other company’s disks, and it takes explicit measures to own resources to develop or which the company purchased with ensure that process is not known to anyone else, detailed its own resources. Such information or programs consequently informa-tion about that process is a “trade secret.” Similarly, lists are the property of the company and only the company has the of suppliers or cus-tomers, research results, formulas, computer right to its use or benefits. To usurp any of the rights that attach programs, computer data, marketing and production plans, and to property, including the rights pertaining to use is a form of any other information that is developed by a company for its property theft and is, therefore, unethical. own private use from its own resources, can all constitute “trade secrets.” Since employees, especially those involved in company research and develop-ment, often have access to trade secrets which the company must entrust to them if it is to carry on its business, they often have the opportunity to use such se-crets for their own advantage by dealing with competitors. Such use of trade se-crets by employees is unethical because it is using the property of another agent for a purpose not sanctioned by that other agent, and because the employee has an implied (or even, in some cases, an explicit) contract not to use company re- sources for purposes not sanctioned by the company. 66 11.292
  4. 4. A female engineering em-ployee, for example, who is hired to Examples of insider trading cases: oversee the development of a secret manufacturing process that • Corporate officers, directors, and employees who traded the gives her company a competitive edge over others, acts wrongly if corporation’s securities after learning of significant, she decides to leave that company to work for a competitor who promises her a higher salary in exchange for setting up the same confidential corporate developments; process she de-veloped while being paid to do so by her former • Friends, business associates, family members, and other employer. “tippers” of such officers, directors, and employees, who However, skills that an employee acquires by working for a traded the securities after receiving such information; company do not count as trade secrets since trade secrets consist • Employees of law, banking, brokerage and printing firms of information and not skills. The skills that an employee who were given such information to provide services to the develops are considered part of his or her own person and are corporation whose securities they traded; not the property of an employer like proprietary informa-tion is. • Government employees who learned of such information Unfortunately, it is not always easy to distinguish skills from trade because of their employment by the government; and secrets. Some companies have tried to avoid the problem of trade secrets by hav-ing employees sign contracts agreeing not to work • Other persons who misappropriated, and took advantage of, confidential information from their employers. for competitors for one or two years after leaving the company, but courts have generally rejected the va-lidity of Insider trading is illegal, and during the past decade a large such contracts. Other companies have dealt with these problems number of stockbrokers, bankers, and managers were pros- by agreeing to provide departing employees with continuing ecuted for insider trading. In-sider trading is also unethical, not remuneration or future retirement benefits in exchange for their merely because it is illegal, but because, it is claimed, the person not revealing proprietary information. who trades on insider information in effect “steals” this information and thereby gains an unjust or unfair advantage The ethical issue of misusing proprietary information has over the member of the general public. become much more prominent in the last decade as new “information technologies” (such as the computer) have Overview increasingly turned information into a valuable asset to which • Conflicts of interest in business arise when an employee or employees have regular access. As information technologies an officer of a company is engaged in carrying out a task on continue to develop, this issue will continue to grow in behalf of the company, and the employee has a private importance. interest in the outcome of the task. Before leaving the subject of proprietary information, it is Activity worth recall-ing that a company’s property rights over propri- What is the employee’s main moral duty? Why do ‘conflicts of etary information are not un-limited. In particular, they are interest’ arise? limited by the rights of other agents, such as the rights of employees to know the health risks associated with their jobs. A com-pany’s right to keep information secret is not absolute but must be balanced against the legitimate rights of others. Insider Trading Insider trading” is a term that most investors have heard and usually associate with illegal conduct. But the term actually includes both legal and illegal conduct. The legal version is when corporate insiders—officers, directors, and employees—buy and sell stock in their own companies. Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information. Insider trading as the act of buying and selling a company’s stock on the basis of “inside” information about the company. “Inside” or “insider” information about a company is confidential or propri-etary information about a company that is not available to the general public outside the company, but which would have a material or significant impact on the price of the company’s stock. 11.292 67
  5. 5. For useful Documents like this and Lots of more Educational and Technological Stuff... Visit... www.thecodexpert.com