Chapter 15 - Business Ethics and Ethical Behaviour

Chapter 15 Business Ethics and Ethical Behaviour

Part 1 Definition of Business Ethics

- ethics is the analysis of right and wrong, and associated responsibility
- business ethics is the application of ethical values to business behaviour

Approaches to Deciding What is 'Right' or 'Wrong'?
- the consequences
- the motivation of the parties concerned
- guiding principles
- duties
- key values

Ethics can be divided into 3 areas:
- meta-ethics - the study of what is ethical behaviour
- normative ethics - how to arrive at practical standards of ethical behaviour
- applied ethics - applying ethical ideas to specific controversial issues

Part 2 Why Business Ethics is Important

For The Organisation:
- good ethics should be seen as a driver of profitability rather than a burden on business
- an ethical framework is part of good corporate governance and suggests a well-run business
- investors are reassured about the company's approach to risk management
- employees will be motivated in the knowledge that they operate in an environment of good ethical corporate behaviour

For The Individual:
- consumer and employee expectations have evolved over recent years
- consumers may choose to purchase ethical items, even if they are not the cheapest
- employees will not blindly accept orders to act in a manner that they personally believe to be unethical

Part 3 How Can the Ethics of a Business Decision be Judged?

Ethics goes beyond the legal requirement of a business.

Organizations can draft sets of criteria to be used in making difficult ethical decisions.
- Is it legal?
- Is it contrary to our company’s adopted code of ethics
- Is it contrary to any other published official code of ethics
- Would you mind other people knowing what you have decided?
- Who is affected by this decision? Would they regard the decision as fair?

Each company must identify its own set of core values which can be developed into code of ethics.
Strong visible support for the code from the BOD is essential if the code is to be effective.

Part 4 How is a Profession Distinguished from Other Occupations?

A profession is characterized by the following factors:
- mastering of specialized skills during a period of training
- governance by a professional association
- compliance with an ethical code
- a process of certification before being allowed to practices

The role of professional bodies in ensuring that their members possess adequate insurance so that members of the public can successfully sue the professional if they are harmed by the professional’s negligence.

Part 5 The Accountant's Role in Promoting Ethical Behaviour

In most business meetings and Board of directors, it is only the professional accountant who belongs to a profession and therefore has a duty to act in the public interest as well as in the interests of his employer and the shareholders.

There are a few ethical dilemmas which can be found throughout all aspects of business operations

Accounting Issues:

- Creative accounting to boost or suppress reported profits.

- Directors' pay arrangements

- Bribes

- Insider Trading

Production Issues:

- Production of guns, pornography, tobacco...etc

- Effects the production processes have on the environment

- Testing products on animals

Sales and Marketing Issues:

- Price fixing and anti-competitive behaviour

-Target advertising at children (overpricing during Christmas)

- Advertising by junk mail or spam mail

Part 6 Codes of Ethics and Codes of Conduct

-Most companies have formulate a set of internal policies and instructing employees to follow them.

-Ethics officers (also called compliance officer) are appointed to monitor the application of the policies and able to discuss ethical dilemmas with employees who approach them

-The policies can be Broad Generalizations (a corporate ethics statement) or can contain Specific detailed rules (a corporate ethics code)

Part 7 IFAC and ACCA Codes of Ethics

The IFAC (International Federation of Accountants) and ACCA (Association of Chartered Certified Accountants) have developed codes of ethics for their members to follow. The “Codes of Ethics for Professional Accountants” published by the IFAC lays down various ethical standards to be applied by accountants, internationally.

In some parts of the world, if there are existing codes to be practised by accountants, the more stringent codes must be used instead. The following are the elements of the IFAC’s code of ethics:

• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behaviour

Although the IFAC sets the codes of ethics, it has no direct ability to punish the violator, but expects that the member bodies take some action to punish the violator.

The “Code of Ethics and Conduct” issued by the ACCA and is within their annual rulebook. ACCA’s code of ethics is based on the IFAC’s codes and thus their fundamental elements are identical to that of IFAC’s.

ACCA Disciplinary Committee

An ACCA member (student, affiliates and members alike) may be called to appear before the Disciplinary Committee for breach of any ethical principles. The common consequences are warnings, fines, suspension or exclusion of the membership.