Ethics In Organizations              University of Budapest MBA Program              Gary Wheeler, SPHR, GPHR, CCP, CBP
On my way to Budapest
Joe Pulitzer•   18th of April, 1847•   Born in Mako, Hungary•   New York City•   Union Army during American Civil War•   S...
Joe Pulitzer, cont.•   Journalism as a university subject•   Columbia University in New York•   Died October 29, 1911•   F...
Opportunity• Ask questions• Clarify any myths• Gain a better understanding of U.S.  corporations• Share some of your thoug...
Objectives• Provide a basic understanding of what  constitutes ethical misconduct in the U.S.• Insight to two-historical U...
• Business Consulting Services Franchise  – Coach business owners on how to improve time, team    and money• Human Resourc...
Business Background• Restaurant Manager & Area Manager    Shoney’s Big Boy Enterprises    Pizza Hut, Inc.• United Parcel...
Education• University of Maryland University College   – B.S. Human Resources   – Master’s Business Administration (MBA)
Agenda•   What is Ethics•   Enron Case Study•   WorldCom Case Study•   What to avoid•   Sarbanes-Oxley•   Lockheed Martin ...
Opportunity• Ask Questions• Participate through interaction• Learn how business is conducted in the  U.S.• Clarify any myt...
Tell Me About You• First Name• Your Company  – Local  – Regional  – Global
What is Ethics• What is ethics?• Review of one definition of ethics• Why is ethical behavior a problem?
Ethics• “Ethics is a set of values defining right  from wrong.”• …ethical behavior is not black or white,  right or wrong.
Examples of Ethical Issues•   Cloning                •   Gene therapy•   Abortion               •   Nuclear energy•   Reli...
Ethics & the Individual• Ethics are a personal set of values• …ethics are relative to our perception of  reality, and are ...
Summary of Ethics• …ethics should not intrude upon the  private lives of other individuals who are  not harming anyone.
Case Studies• Enron and WordCom are not the norm• 99% of U.S. Companies are ethical• Two cases that have changed theway  b...
EnronCase Study•   The Company•   Insider Trading•   Fallout•   Pensions•   Accounting firm Arthur Anderson•   Societal & ...
Enron• Industry – Energy• Revenue – $111 billion in 2000• CEO – Ken Lay• Headquarters – Houston, Texas• Employees – 21,000...
Enron Products• Over 30 products• Natural gas, pipelines, and oil• Electricity, power plants, broadband• Pulp, paper, plas...
Enron Demise• Handout page four• Decline  – Bribes  – Irregular accounting procedures  – Controversial dealings• Insider t...
Where Are They Now?•   16 Employees pled guilty•   5 Others Found guilty at a trial•   At least one suicide•   Ken Lay, Ch...
Immediate Impact• Enron employees  – Jobs  – 401(k) pensions  – Enron stock• Enron investors• Arthur Anderson Accounting F...
Societal Impact• Primary reason for the creation of  Sarbanes-Oxley Act (SOX) of 2002• The most significant change to fede...
Enron Questions?
WorldComCase Study•   The Company•   Multiple Acquisitions•   Accounting Scandals•   Bankruptcy•   How did this happen?
MCI WorldCom• AT & T and the baby Bell’s breakup• Long Distance Discount Services, Inc.  (LDDS) later became WorldCom• Wor...
The CEO• Bernard Ebbers – CEO LDDS …..• Ebbers leveraged stock for other  investments• Declining stock• Banks made margin ...
Navigators• Scott Sullivan – CFO• David Myers – Controller• Buford Yates – Director of Accounting  – Misrepresenting and m...
Accounting Fraud• Underreporting “line costs”  (interconnection expenses with other  telecommunication companies) by  capi...
Internal Audit• WorldCom’s Internal Audit discovery• $3.8 billion in fraud• Alerted NEW audit company KPMG    – KPMG repla...
Bernie Ebbers• Found guilty of fraud, conspiracy, and  filing false documents• Sentenced to 25-years in prison (age 63)• F...
WorldCom Questions?
Ethics Issues•   Marietta Police Department•   Your home office•   Tests in College•   Don Imus•   Coca Cola Company•   So...
Ethics Issues•   Selection in China•   Intellectual Capital in China•   Child Labor•   Internet porn sites•   Internet at ...
Pressures that Compromise•   Following boss’s directive•   Meeting aggressive financial objectives•   Helping the organiza...
Pressures continued•   Advancing boss’s career interest•   Rationalizing that others do it•   Feeling peer pressure•   Res...
Types of Misconduct• Research survey by SHRM• 24 types of misconduct observed• Top Five  1. Misreporting hours worked  2. ...
Misconduct Survey           Misconduct Observed            %Misreporting hours worked                59Employees lying to ...
Misconduct Survey           Misconduct Observed            %Sexual harassment                        25Stealing / theft   ...
Misconduct Survey          Misconduct Observed                   %Violating privacy of employees              16Violation ...
Misconduct Survey          Misconduct Observed                 %Misrepresenting company financial assets 5Misusing insider...
What to Avoid
Conflict of Interest• Conflict of interest:  bribes, kickbacks, sharing inside  information, falsifying records, defraudin...
Protection of Company Assets• Protection of company assets: misuse of  company property, cash, information,  ideas, intell...
Employment Practices• Employment work practices: Federal,  state laws: sexual harassment, civil rights  violations, discri...
Antitrust• Antitrust: laws, price fixing, bid rigging,  allocation of customers, restraint of trade,  how to distance your...
Environmental Protection• Environmental protection: strict legal  compliance with corporate, state and  federal laws, pers...
Influences of Ethical Behavior•   Personal values•   Credible enforcement of ethics violations•   Attitude and behavior of...
Corporate and Criminal FraudAccountability Act                  SOX
The Sarbanes-Oxley Act• Sarbanes-Oxley Act of 2002• Required by law• Major changes to the regulation of  financial practic...
Reporting Responsibility• Corporate officers have reviewed the final  report• No untrue statements or omissions• Financial...
Reporting Responsibility cont.• List of all deficiencies in the internal controls  and information on any fraud that invol...
Disclosure of Periodic Reports• Financial statements are published by issuers are  required to be accurate and presented i...
Management Assessment• Issuers are required to publish information in  their annual reports concerning the scope and  adeq...
Management Assessment cont.• The registered accounting firm shall, in the  same report, attest to and report on the  asses...
Real Time Issuer Disclosures• Issuers are required to disclose to the  public, on an urgent basis, information on  materia...
Criminal Penalties• Up to 20 years imprisonment for altering,  destroying, mutilating, concealing,  falsifying records, do...
Corporate SentencingGuidelines•   Company fines•   Individual fines•   Jail time•   Loss in share value•   Company reputat...
Best Practices
EthicsThe Fabric of Business• 20-minute Video• A case study of Lockheed Martin, Inc.• Narration by Wayne Cascio, Ph.D.• Pr...
Corporate Charter• Vision• Mission• Core Values
Accountability•   Corporate Compliance Officer•   Internal Audit Team•   Board of Director Responsible•   Board Audit Sub-...
Business Code of Conduct• An outline of responsibilities of or best  practice for an individual or the  organization• Set ...
Training and Communication•    Ethics and Integrity    1.   New employee orientation    2.   Policy and/or employee handbo...
Whistle-blower Act• A whistleblower is an employee, former  employee, or member of an organization,  especially a business...
Voluntary Reporting• Immediately report appropriately  – Board of Directors  – Government  – Shareowners• Correct and put ...
Discipline• The punishment should fit the crime• Unintentional  – Write-up  – Impact on performance review• Deliberate  – ...
Social Responsibility• Report appropriate information  – Suppliers and Vendors  – Employees  – General public
Questions?
Thank You
Ethics in Organizations
Ethics in Organizations
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Ethics in Organizations

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Taken from courses taught by Gary Wheeler at the Univeristy of Budapest.

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Ethics in Organizations

  1. 1. Ethics In Organizations University of Budapest MBA Program Gary Wheeler, SPHR, GPHR, CCP, CBP
  2. 2. On my way to Budapest
  3. 3. Joe Pulitzer• 18th of April, 1847• Born in Mako, Hungary• New York City• Union Army during American Civil War• St. Louis, MO• St Louis Post-Dispatch & NY World• #1 Paper in the U.S.
  4. 4. Joe Pulitzer, cont.• Journalism as a university subject• Columbia University in New York• Died October 29, 1911• First Pulitzer Prize awarded 1917• Bust of Joe Pulitzer in a square in Mako• In 1988 Pal Fabry, Hungarian businessman living in New Orleans, LA established a Pulitzer memorial prize for Hungarian journalists
  5. 5. Opportunity• Ask questions• Clarify any myths• Gain a better understanding of U.S. corporations• Share some of your thoughts and ideas
  6. 6. Objectives• Provide a basic understanding of what constitutes ethical misconduct in the U.S.• Insight to two-historical U.S. cases• Share best practices
  7. 7. • Business Consulting Services Franchise – Coach business owners on how to improve time, team and money• Human Resource Business Partner Consultant, LLC – HR Consulting Practice
  8. 8. Business Background• Restaurant Manager & Area Manager  Shoney’s Big Boy Enterprises  Pizza Hut, Inc.• United Parcel Service  Industrial Engineering, Operations and Human Resources  District Human Resources Manager:  Central Tex - San Antonio, Texas  North Ohio - Cleveland, Ohio  West Long Island - Brooklyn, Queens, Bronx, Westchester, NY
  9. 9. Education• University of Maryland University College – B.S. Human Resources – Master’s Business Administration (MBA)
  10. 10. Agenda• What is Ethics• Enron Case Study• WorldCom Case Study• What to avoid• Sarbanes-Oxley• Lockheed Martin Case Study• Best Practices• Questions
  11. 11. Opportunity• Ask Questions• Participate through interaction• Learn how business is conducted in the U.S.• Clarify any myths• I will ask you to share
  12. 12. Tell Me About You• First Name• Your Company – Local – Regional – Global
  13. 13. What is Ethics• What is ethics?• Review of one definition of ethics• Why is ethical behavior a problem?
  14. 14. Ethics• “Ethics is a set of values defining right from wrong.”• …ethical behavior is not black or white, right or wrong.
  15. 15. Examples of Ethical Issues• Cloning • Gene therapy• Abortion • Nuclear energy• Religious tolerance • Death penalty• Homosexuality • Politics• Population growth • Open and honest• Gifts and persuasion • Democracy• Drinking • Dictatorships• Smoking
  16. 16. Ethics & the Individual• Ethics are a personal set of values• …ethics are relative to our perception of reality, and are based on our point of view.• It begins when children are taught…• No one viewpoint can seek to define ethics.
  17. 17. Summary of Ethics• …ethics should not intrude upon the private lives of other individuals who are not harming anyone.
  18. 18. Case Studies• Enron and WordCom are not the norm• 99% of U.S. Companies are ethical• Two cases that have changed theway business is conducted in the U.S.
  19. 19. EnronCase Study• The Company• Insider Trading• Fallout• Pensions• Accounting firm Arthur Anderson• Societal & Legal Impact
  20. 20. Enron• Industry – Energy• Revenue – $111 billion in 2000• CEO – Ken Lay• Headquarters – Houston, Texas• Employees – 21,000• Recognition – “America’s Most Innovative Company” six consecutive years• Filed bankruptcy in 2001
  21. 21. Enron Products• Over 30 products• Natural gas, pipelines, and oil• Electricity, power plants, broadband• Pulp, paper, plastics and steel• Transportation, shipping, risk management,• Water, waste water,• Media, computer chips, investments
  22. 22. Enron Demise• Handout page four• Decline – Bribes – Irregular accounting procedures – Controversial dealings• Insider trading – Hiding losses through offshore companies
  23. 23. Where Are They Now?• 16 Employees pled guilty• 5 Others Found guilty at a trial• At least one suicide• Ken Lay, Chair/CEO• Jeffrey Skilling CEO/COO – Convicted in October 2006 – Lay – six counts of fraud (45-years) – Lay died on July 5, 2006 – Skilling 19 of 28 counts of fraud – Skilling serving 24-years and 4 months
  24. 24. Immediate Impact• Enron employees – Jobs – 401(k) pensions – Enron stock• Enron investors• Arthur Anderson Accounting Firm – Surrender licenses and right to practice – 100 Civil suits – 85,000 employees worldwide
  25. 25. Societal Impact• Primary reason for the creation of Sarbanes-Oxley Act (SOX) of 2002• The most significant change to federal securities laws since Franklin Roosevelt in the 1930’s and the Great Depression
  26. 26. Enron Questions?
  27. 27. WorldComCase Study• The Company• Multiple Acquisitions• Accounting Scandals• Bankruptcy• How did this happen?
  28. 28. MCI WorldCom• AT & T and the baby Bell’s breakup• Long Distance Discount Services, Inc. (LDDS) later became WorldCom• WorldCom purchased MCI• MCI WorldCom – WorldCom• 2nd largest long distance company in U.S.• Growth thorough acquisitions• Acquired by Verizon in 2006
  29. 29. The CEO• Bernard Ebbers – CEO LDDS …..• Ebbers leveraged stock for other investments• Declining stock• Banks made margin calls on Ebbers stock• WorldCom board made over $400 million in personal loans to Ebbers to cover his margin calls
  30. 30. Navigators• Scott Sullivan – CFO• David Myers – Controller• Buford Yates – Director of Accounting – Misrepresenting and misreporting financial numbers
  31. 31. Accounting Fraud• Underreporting “line costs” (interconnection expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them• Inflating revenues with bogus accounting entries from “corporate unallocated revenue accounts”
  32. 32. Internal Audit• WorldCom’s Internal Audit discovery• $3.8 billion in fraud• Alerted NEW audit company KPMG – KPMG replaced Arthur Anderson• True number was $11 billion in fraud• Filed bankruptcy in 2002• Changed name to MCI• Purchased by Verizon in 2005
  33. 33. Bernie Ebbers• Found guilty of fraud, conspiracy, and filing false documents• Sentenced to 25-years in prison (age 63)• Five other people pleaded guilty to charges
  34. 34. WorldCom Questions?
  35. 35. Ethics Issues• Marietta Police Department• Your home office• Tests in College• Don Imus• Coca Cola Company• South America• Terminations
  36. 36. Ethics Issues• Selection in China• Intellectual Capital in China• Child Labor• Internet porn sites• Internet at work• Meal allowance
  37. 37. Pressures that Compromise• Following boss’s directive• Meeting aggressive financial objectives• Helping the organization survive• Meeting scheduled pressures• Wanting to be a team player• Saving jobs
  38. 38. Pressures continued• Advancing boss’s career interest• Rationalizing that others do it• Feeling peer pressure• Resisting competitive threats• Advancing own career interests
  39. 39. Types of Misconduct• Research survey by SHRM• 24 types of misconduct observed• Top Five 1. Misreporting hours worked 2. Employees lying to supervisors 3. Management lying to employees, customers, vendors or the public 4. Misuse of organizational assets 5. Lying on reports / falsifying records
  40. 40. Misconduct Survey Misconduct Observed %Misreporting hours worked 59Employees lying to supervisors 53Management lying to employees 31Management lying to customers / public 31Misuse of organizational assets 29Lying on reports / falsifying records 28
  41. 41. Misconduct Survey Misconduct Observed %Sexual harassment 25Stealing / theft 25Fraud 19Withholding information from employees 18Withholding from customers / public 18Violations of Fair Labor Standards Act 17
  42. 42. Misconduct Survey Misconduct Observed %Violating privacy of employees 16Violation of discrimination laws 16Accepting or giving bribes, kickbacks, gifts 14Violations of OSHA regulations 8Violations of Family Medical Leave Act 8Obtaining competitor’s proprietary 8information
  43. 43. Misconduct Survey Misconduct Observed %Misrepresenting company financial assets 5Misusing insider information 3Violating environmental laws or 3regulationsManagement lying to shareholders 2Withholding information from shareholders 2Mishandling employee 401(k) accounts 1
  44. 44. What to Avoid
  45. 45. Conflict of Interest• Conflict of interest: bribes, kickbacks, sharing inside information, falsifying records, defrauding customers, obstructing an investigation
  46. 46. Protection of Company Assets• Protection of company assets: misuse of company property, cash, information, ideas, intellectual property
  47. 47. Employment Practices• Employment work practices: Federal, state laws: sexual harassment, civil rights violations, discrimination, etc., reporting violations
  48. 48. Antitrust• Antitrust: laws, price fixing, bid rigging, allocation of customers, restraint of trade, how to distance yourself from a possible violation
  49. 49. Environmental Protection• Environmental protection: strict legal compliance with corporate, state and federal laws, personal and corporate responsibility
  50. 50. Influences of Ethical Behavior• Personal values• Credible enforcement of ethics violations• Attitude and behavior of supervisors• Attitude and behavior of senior managers• Friends and co-workers• Internal drive to succeed• Ethics related legislation
  51. 51. Corporate and Criminal FraudAccountability Act SOX
  52. 52. The Sarbanes-Oxley Act• Sarbanes-Oxley Act of 2002• Required by law• Major changes to the regulation of financial practice and corporate governance• Named after Senator Paul Sarbanes and Representative Michael Oxley
  53. 53. Reporting Responsibility• Corporate officers have reviewed the final report• No untrue statements or omissions• Financial statements and related information fairly present the financial condition• The signing officers are responsible for internal controls and have evaluated these internal controls within the previous ninety days and have reported on their findings
  54. 54. Reporting Responsibility cont.• List of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities• Any significant changes in internal controls or related factors that could have a negative impact on the internal controls
  55. 55. Disclosure of Periodic Reports• Financial statements are published by issuers are required to be accurate and presented in a manner that does not contain incorrect statements or admit to state material information.• These financial statements shall also include all material off-balance sheet liabilities, obligations or transactions.
  56. 56. Management Assessment• Issuers are required to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting.• This statement shall also assess the effectiveness of such internal controls and procedures.
  57. 57. Management Assessment cont.• The registered accounting firm shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting.
  58. 58. Real Time Issuer Disclosures• Issuers are required to disclose to the public, on an urgent basis, information on material changes in their financial condition or operations. These disclosures are to be presented in terms that are easy to understand supported by trend and qualitative information of graphic presentations as appropriate.
  59. 59. Criminal Penalties• Up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation.• Up to 10 years for any accountant who knowingly and willfully violates the requirements of maintenance of all audit or review papers for a period of 5 years
  60. 60. Corporate SentencingGuidelines• Company fines• Individual fines• Jail time• Loss in share value• Company reputation• Impact to employee morale• Recruiting and attracting talent
  61. 61. Best Practices
  62. 62. EthicsThe Fabric of Business• 20-minute Video• A case study of Lockheed Martin, Inc.• Narration by Wayne Cascio, Ph.D.• Produced by The Society for Human Resource Management (SHRM) Foundation• Positive approach to managing ethics
  63. 63. Corporate Charter• Vision• Mission• Core Values
  64. 64. Accountability• Corporate Compliance Officer• Internal Audit Team• Board of Director Responsible• Board Audit Sub-Committee• Training• Tracking and monitoring tools
  65. 65. Business Code of Conduct• An outline of responsibilities of or best practice for an individual or the organization• Set of principles of good corporate behavior adopted by the company
  66. 66. Training and Communication• Ethics and Integrity 1. New employee orientation 2. Policy and/or employee handbook 3. Periodic discussions in meetings 4. Formal annual communication 5. Performance reviews 6. Employee hotline
  67. 67. Whistle-blower Act• A whistleblower is an employee, former employee, or member of an organization, especially a business or government agency, who reports misconduct to people or entities that have the power and presumed willingness to take corrective action.• Generally the misconduct is a violation of law, rule, regulation and/or a direct threat to public interest -- fraud, health, safety violations, and corruption are just a few examples
  68. 68. Voluntary Reporting• Immediately report appropriately – Board of Directors – Government – Shareowners• Correct and put controls in place
  69. 69. Discipline• The punishment should fit the crime• Unintentional – Write-up – Impact on performance review• Deliberate – Termination
  70. 70. Social Responsibility• Report appropriate information – Suppliers and Vendors – Employees – General public
  71. 71. Questions?
  72. 72. Thank You

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