Prompt: Review the What Would You Do? Item #3 at the end of Chapter 4, and describe in detail how you would handle it. Don’t forget to draw from class materials as appropriate.
ETHICS IN INFORMATION
TECHNOLOGY
Fifth Edition
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ETHICS IN INFORMATION
TECHNOLOGY
Fifth Edition
George W. Reynolds
Strayer University
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
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Ethics in Information Technology,
Fifth Edition
George W. Reynolds
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BRIEF CONTENTS
Preface
Chapter
1
An Overview of Ethics
xiii
1
Chapter
2
Ethics for IT Workers and IT Users
41
Chapter
3
Computer and Internet Crime
81
Chapter
4
Privacy
131
Chapter
5
Freedom of Expression
179
Chapter
6
Intellectual Property
217
Chapter
7
Software Development
261
Chapter
8
The Impact of Information Technology on Productivity
and Quality of Life
297
Social Networking
335
Chapter 10
Ethics of IT Organizations
369
Appendix A
A Brief Introduction to Morality
411
Appendix B
Answers to Self-Assessment Questions
427
Chapter
9
Glossary
429
Index
441
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TABLE OF CONTENTS
Preface
Chapter 1 An Overview of Ethics
Vignette
Cisco Chairman and CEO Advocates Ethical Behavior
What Is Ethics?
Definition of Ethics
The Importance of Integrity
The Difference Between Morals, Ethics, and Laws
Ethics in the Business World
Corporate Social Responsibility
Why Fostering Corporate Social Responsibility
and Good Business Ethics Is Important
Improving Corporate Ethics
Creating an Ethical Work Environment
Including Ethical Considerations in Decision Making
Develop a Problem Statement
Identify Alternatives
Evaluate and Choose an Alternative
Implement the Decision
Evaluate the Results
Ethics in Information Technology
Summary
Key Terms
Self-Assessment Questions
Discussion Questions
What Would You Do?
Cases
End Notes
Chapter 2 Ethics for IT Workers and IT Users
Vignette
New York City Payroll Project Riddled with Fraud
IT Professionals
Are IT Workers Professionals?
Professional Relationships That Must Be Managed
Professional Codes of Ethics
Professional Organizations
Certification
xiii
1
1
1
3
3
4
5
5
8
8
12
18
20
21
21
22
24
24
24
26
27
27
28
29
31
35
41
41
41
43
44
44
54
55
57
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Government Licensing
IT Professional Malpractice
IT Users
Common Ethical Issues for IT Users
Supporting the Ethical Practices of IT Users
Compliance
Summary
Key Terms
Self-Assessment Questions
Discussion Questions
What Would You Do?
Cases
End Notes
Chapter 3 Computer and Internet Crime
Vignette
The Reveton Ransomware Attacks
IT Security Incidents: A Major Concern
Why Computer Incidents Are So Prevalent
Types of Exploits
Types of Perpetrators
Federal Laws for Prosecuting Computer Attacks
Implementing Trustworthy Computing
Risk Assessment
Establishing a Security Policy
Educating Employees and Contract Workers
Prevention
Detection
Response
Summary
Key Terms
Self-Assessment Questions
Discussion Questions
What Would You Do?
Cases
End Notes
Chapter 4 Privacy
Vignette
What Is the National Security Agency (NSA) Up To?
Privacy Protection and the Law
Information Privacy
Privacy Laws, Applications, and Court Rulings
Key Privacy and Anonymity Issues
Data Breaches
Electronic Discovery
Consumer Profiling
viii
58
60
61
61
63
64
67
68
68
69
70
72
76
81
81
81
84
84
88
95
99
100
102
104
105
105
110
110
115
116
116
118
118
120
125
131
131
131
133
135
135
151
151
153
154
Table of Contents
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Workplace Monitoring
Advanced Surveillance Technology
Summary
Key Terms
Self-Assessment Questions
Discussion Questions
What Would You Do?
Cases
End Notes
Chapter 5 Freedom of Expression
Vignette
Reputation Changer, Online Reputation Management Company
First Amendment Rights
Obscene Speech
Defamation
Freedom of Expression: Key Issues
Controlling Access to Information on the Internet
Strategic Lawsuit Against Public Participation (SLAPP)
Anonymity on the Internet
Hate Speech
Pornography
Summary
Key Terms
Self-Assessment Questions
Discussion Questions
What Would You Do?
Cases
End Notes
Chapter 6 Intellectual Property
Vignette
Sinovel Steals Millions in Trade Secrets from American Superconductor
What Is Intellectual Property?
Copyrights
Copyright Term
Eligible Works
Fair Use Doctrine
Software Copyright Protection
The Prioritizing Resources and Organization for Intellectual Property
(PRO-IP) Act of 2008
General Agreement on Tariffs and Trade (GATT)
The WTO and the WTO TRIPS Agreement (1994)
The World Intellectual Property Organization (WIPO) Copyright
Treaty (1996)
The Digital Millennium Copyright Act (1998)
155
157
160
162
163
164
165
167
171
179
179
179
181
183
183
184
184
189
190
193
194
199
200
201
202
203
205
209
217
217
217
220
221
221
222
222
223
224
224
224
225
225
Table of Contents
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ix
Patents
Leahy-Smith America Invents Act (2011)
Software Patents
Cross-Licensing Agreements
Trade Secrets
Trade Secret Laws
Employees and Trade Secrets
Key Intellectual Property Issues
Plagiarism
Reverse Engineering
Open Source Code
Competitive Intelligence
Trademark Infringement
Cybersquatting
Summary
Key Terms
Self-Assessment Questions
Discussion Questions
What Would You Do?
Cases
End Notes
Chapter 7 Software Development
Vignette
Stock Markets Susceptible to Software Glitches
Strategies for Engineering Quality Software
The Importance of Software Quality
Software Product Liability
Software Development Process
Capability Maturity Model Integration
Key Issues in Software Development
Development of Safety-Critical Systems
Quality Management Standards
Summary
Key Terms
Self-Assessment Questions
Discussion Questions
What Would You Do?
Cases
End Notes
x
228
230
230
231
231
232
233
234
234
236
238
239
242
243
244
246
247
248
249
250
255
261
261
261
264
267
268
270
273
275
275
279
282
283
284
285
286
288
292
Chapter 8 The Impact of Information Technology on Productivity
and Quality of Life
297
Vignette
Problems with the E-Rate Program
The Impact of IT on the Standard of Living and Worker Productivity
IT Investment and Productivity
The Digital Divide
297
297
301
301
306
Table of Contents
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The Impact of IT on HealthCare Costs
Electronic Health Records
Use of Mobile and Wireless Technology in the Healthcare Industry
Telehealth
Medical Information Web Sites for Laypeople
Summary
Key Terms
Self-Assessment Questions
Discussion Questions
What Would You Do?
Cases
End Notes
Chapter 9 Social Networking
Vignette
Wanelo: Social Shopping Web Site Headed for Success
What Is a Social Networking Web Site?
Business Applications of Online Social Networking
Social Network Advertising
The Use of Social Networks in the Hiring Process
The Use of Social Media to Improve Customer Service
Social Shopping Web Sites
Social Networking Ethical Issues
Cyberbullying
Cyberstalking
Encounters with Sexual Predators
Uploading of Inappropriate Material
Online Virtual Worlds
Crime in Virtual Worlds
Educational and Business Uses of Virtual Worlds
Summary
Key Terms
Self-Assessment Questions
Discussion Questions
What Would You Do?
Cases
End Notes
Chapter 10 Ethics of IT Organizations
Vignette
HP Finds Autonomy a Tough Pill to Swallow
Key Ethical Issues for Organizations
The Need for Nontraditional Workers
Contingent Workers
Advantages of Using Contingent Workers
Disadvantages of Using Contingent Workers
Deciding When to Use Contingent Workers
H-1B Workers
310
310
314
315
317
319
320
320
322
322
324
328
335
335
335
337
338
339
342
343
344
345
346
347
348
350
351
352
353
354
355
355
356
357
358
362
369
369
369
371
372
374
375
375
376
377
Table of Contents
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xi
H-1B Application Process
Using H-1B Workers Instead of U.S. Workers
Potential Exploitation of H-1B Workers
Outsourcing
Offshore Outsourcing
Pros and Cons of Offshore Outsourcing
Strategies for Successful Offshore Outsourcing
Whistle-Blowing
Protection for Whistle-Blowers
Whistle-Blowing Protection for Private-Sector Workers
Dealing with a Whistle-Blowing Situation
Green Computing
ICT Industry Code of Conduct
Summary
Key Terms
Self-Assessment Questions
Discussion Questions
What Would You Do?
Cases
End Notes
Appendix A A Brief Introduction to Morality
Introduction
The Knotty Question of Goodness
Relativism: Why “Common Sense” Won’t Work
Egoism vs. Altruism
Deontology, or The Ethics of Logical Consistency and Duty
Happy Consequences, or Utilitarianism
Promises and Contracts
A Return to The Greeks: The Good Life of Virtue
Feminism and the Ethics of Care
Pluralism
Summary
xii
379
380
380
381
381
383
384
385
386
387
387
390
392
394
395
395
397
398
401
405
411
411
412
413
414
416
418
420
421
423
424
425
Appendix B Answers to Self-Assessment Questions
427
Glossary
429
Index
441
Table of Contents
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PREFACE
We are excited to publish the fifth edition of Ethics in Information Technology. This new
edition builds on the success of the previous editions and meets the need for a resource
that helps readers understand many of the legal, ethical, and societal issues associated
with information technology. We have responded to the feedback from our previous
edition adopters, students, and other reviewers to create an improved text. We think you
will be pleased with the results.
Ethics in Information Technology, Fifth Edition, fills a void of practical business
information for business managers and IT professionals. The typical introductory information systems book devotes one chapter to ethics and IT, which cannot possibly cover
the full scope of ethical issues related to IT. Such limited coverage does not meet the
needs of business managers and IT professionals—the people primarily responsible
for addressing ethical issues in the workplace. Missing is an examination of the different
ethical situations that arise in IT as well as practical advice for addressing these issues.
Ethics in Information Technology, Fifth Edition, has enough substance for an
instructor to use it in a full-semester course in computer ethics. Instructors can also
use the book as a reading supplement for such courses as Introduction to Management
Information Systems, Principles of Information Technology, Managerial Perspective of
Information Technology, Computer Security, E-Commerce, and so on.
WHAT’S NEW
Ethics in Information Technology, Fifth Edition, has been updated and revised to incorporate the many new developments and ethical issues that have arisen since the last edition. There is new or expanded coverage of the following topics: the increased security
risks of bring your own device (BYOD) business policies, the role of the National Security
Agency in breaking of codes used to encrypt sensitive communications and for the interception of signals on behalf of the federal government, the ethics of using online reputation management companies, the use of strategic lawsuits against public participation
(SLAPP) and anti-SLAPP lawsuits, the theft by China of trade secrets from the United
States and Western Europe, and telehealth and telemedicine and their role in the delivery
of health care.
All opening vignettes and two-thirds of the end-of-chapter cases are new or extensively updated. Dozens of new real-world examples are presented in each chapter. At least
50 percent of the “Self-Assessment Questions,” “Discussion Questions,” and “What Would
You Do?” exercises are new. Based on reviewer feedback, we have also increased the
number of “Discussion Questions” and “What Would You Do?” exercises. Instructors of
online courses frequently use these as the basis for discussion forums that allow online
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students to share a variety of perspectives and experiences and to create a learning community. Such discussions provide students the opportunity to more deeply understand the
material while challenging their critical thinking skills.
ORGANIZATION
Each of the 10 chapters in this book addresses a different aspect of ethics in information
technology:
•
•
•
xiv
Chapter 1, “An Overview of Ethics,” provides an introduction to ethics,ethics
in business, and the relevance of discussing ethics in IT. The chapter defines
the distinction between morals, ethics, and laws. It identifies the most common forms of employee misconduct. The concept of corporate social responsibility is defined and discussed. It presents five reasons why practicing good
business ethics is important in business and provides a model for improving
corporate ethics. It examines the role of the chief ethics officer and board of
directors in establishing a strong organizational ethics program. The chapter
also outlines the need for an organizational code of ethics and describes key
steps in establishing a sound ethics program. It suggests a model for ethical
decision making and also discusses four commonly used philosophical
approaches to ethical decision making. The chapter ends with a discussion
of the role of ethics in IT.
Chapter 2, “Ethics for IT Workers and IT Users,” begins with a vignette that
illustrates major fraud on a real IT project involving the New York City
Payroll. This chapter explains the importance of ethics in the business
relationships of IT professionals, including those between IT workers and
employers, clients, suppliers, other professionals, IT users, and society. The
chapter also emphasizes the significance of IT professional organizations and
their codes of ethics, and it discusses the roles that certification and licensing
can play in legitimizing professional standards. The chapter also points out
the difficulties in licensing IT workers. The chapter touches on some ethical
issues faced by IT users—including software piracy, inappropriate use of
computing resources, and inappropriate sharing of information—and outlines
actions that can be taken to support the ethical practices of IT users. The
chapter introduces the topic of compliance and the role the audit committee
and members of the internal audit team have in ensuring that both the
IT organization and IT users are in compliance with organizational guidelines
and policies, as well as various legal and regulatory practices.
Chapter 3, “Computer and Internet Crime,” describes the types of ethical
decisions that IT professionals must make, as well as the business needs they
must balance when dealing with security issues. The chapter identifies the
most common computer-related security incidents and provides numerous
reasons why such incidents are increasing. Including the use of cloud computing, virtualization software, and bring your own device corporate business
policies. It describes some of the more common hacker attacks, including
viruses, worms, Trojan horses, distributed denial-of-service, rootkits, spam,
Preface
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•
•
phishing, spear-phishing, smishing, vishing, and ransom ware. In addition to
providing a useful classification of computer crimes and their perpetrators,
the chapter summarizes the major federal laws that address computer crime.
The chapter outlines both how to implement trustworthy computing to manage security vulnerabilities and how to respond to specific security incidents
to quickly resolve problems and improve ongoing security measures. A process for performing an assessment of an organization’s computers and network from both internal and external threats is presented. The chapter
discusses the need for a corporate security policy and offers both a process
for establishing a security policy and a number of security-related policy
templates that can help an organization to quickly develop effective security
policies. The roles of the United States Computer Emergency Readiness
Team (US-CERT) and the Department of Homeland Security in defending
against cyberterrorism are also discussed.
Chapter 4, “Privacy,” begins with a vignette on the National Security Agency
and its role in the interception of communications signals on behalf of the
federal government. This chapter goes on to explain how the use of IT affects
privacy rights and discusses several key pieces of legislation that have
addressed privacy rights over the years. The Fourth Amendment is explained,
and laws designed to protect personal financial and health data—as well as
the privacy of children—are discussed. Electronic surveillance is covered,
along with many laws associated with this activity, including the Foreign
Intelligence Surveillance Act and the USA Patriot Act. The chapter also
covers the various regulations affecting the export of personal data from one
country to another. The chapter explains how the personal information businesses gather using IT can be used to obtain or keep customers (or to monitor employees). It also discusses the concerns of privacy advocates regarding
how much information can be gathered, with whom it can be shared, how the
information is gathered in the first place, and how it is used. These concerns
also extend to the information-gathering practices of law enforcement and
government. Identity theft and data breaches are covered along with various
tactics used by identity thieves; the chapter also presents some safeguards
that can thwart identity theft. The expanding use of electronic discovery,
workplace monitoring, camera surveillance, and consumer profiling is discussed. Guidelines and principles for treating consumer data responsibly are
offered.
Chapter 5, “Freedom of Expression,” addresses issues raised by the growing
use of the Internet as a means for freedom of expression, while also examining the types of speech protected by the First Amendment of the U.S.
Constitution. The chapter opens with a discussion of Reputation Changer,
an online reputation management company that helps businesses manage
potentially damaging information on the Web. It goes on to cover the ways
in which the ease and anonymity with which Internet users can communicate can pose problems for people who might be adversely affected by such
communications. It describes attempts at using legislation (such as the
Preface
xv
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•
•
•
xvi
Communications Decency Act, the Child Online Protection Act, and the
Children’s Internet Protection Act) and technology, such as Internet filtering,
to control access to Internet content that is unsuitable for children or
unnecessary in a business environment. The use of strategic lawsuits against
public participation (SLAPP) lawsuits is covered. The use of John Doe lawsuits to reveal the identities of anonymous posters is discussed. Defamation
and hate speech, pornography on the Internet, and spam are also covered.
Chapter 6, “Intellectual Property,” defines intellectual property and explains
the varying degrees of ownership protection offered by copyright, patent, and
trade secret laws. The opening vignette discusses how a Chinese company
stole valuable trade secrets from a U.S. firm and makes the point that the
theft of trade secrets by Chinese companies from the U.S. and Western companies represents the “greatest transfer of wealth in history.” Copyright,
patent, and trademark infringement are examined, using many examples. Key
U.S. and international rules aimed at protecting intellectual property are discussed, including the Prioritizing Resources and Organization for Intellectual
Property Act, the General Agreement on Tariffs and Trade, the World Trade
Organization Agreement on Trade-Related Aspects of Intellectual Property
Rights, the World Intellectual Property Organization Copyright Treaty, and
the Digital Millennium Copyright Act. The chapter explains software patents
and the use of cross-licensing agreements. It also addresses key intellectual
property issues such as plagiarism, reverse engineering, open source code,
competitive intelligence, trademark infringement, and cybersquatting.
The use of nondisclosure agreements and noncompete clauses in work contracts is also discussed. Finally, the chapter covers several key issues relevant
to ethics in IT, including plagiarism, reverse engineering of software, open
source code, competitive intelligence gathering, and cybersquatting.
Chapter 7, “Software Development,” provides a thorough discussion of the
software development process and the importance of software quality. The
opening vignette illustrates how susceptible stock markets are to software
glitches. The chapter covers issues software manufacturers must consider
when deciding “how good is good enough?” with regard to their software
products—particularly when the software is safety-critical and its failure can
cause loss of human life. Topics include software product liability, risk analysis, and different approaches to quality assurance testing. The chapter also
examines Capability Maturity Model Integration (CMMI), the ISO 9000 family
of standards, and the failure mode and effects analysis (FMEA) technique.
Chapter 8, “The Impact of Information Technology on Productivity and the
Quality of Life,” examines the effect that IT investment has had on the standard of living and worker productivity around the world. The increase in the
use of telework (also known as telecommuting) is discussed, as are the pros
and cons of this work arrangement. The chapter also discusses the digital
divide and profiles some programs designed to close that gap. The chapter
takes a look at the impact of IT on the delivery of health care and healthcare
costs. The potential costs and benefits associated with electronic health
Preface
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•
•
•
•
records is discussed. Telehealth and telemedicine are defined and their role
in the delivery of health care are discussed.
Chapter 9, “Social Networking,” discusses how people use social networks,
identifies common business uses of social networks, and examines many of
the ethical issues associated with the use of social networks. The opening
vignette illustrates how the use of social networks raises many privacy issues.
The business applications of social networks are covered including their use
in advertising, marketing, the hiring process, and improving employee communications and customer service. Social network ethical issues including
cyberbullying, cyberstalking, encounters with sexual predators, and the
uploading of inappropriate material are also discussed. The chapter covers
virtual life communities and the ethical issues associated with virtual worlds.
Chapter 10, “Ethics of IT Organizations,” covers a range of ethical issues facing IT organizations, including those associated with the use of nontraditional
workers, such as temporary workers, contractors, consulting firms, H-1B
workers, and the use of outsourcing and offshore outsourcing. The chapter
also discusses the risks, protections, and ethical decisions related to whistleblowing, and it presents a process for safely and effectively handling a
whistle-blowing situation. In addition to introducing the concept of green
computing, the chapter discusses the ethical issues that both IT manufacturers and IT users face when a company is considering how to transition to
green computing—and at what cost. It discusses the use of the Electronic
Product Environment Assessment Tool to evaluate, compare, and select electronic products based on a set of 51 environmental criteria. Finally, the
chapter examines a code of conduct for the electronics and information and
communications technology (ICT) industries designed to address ethical
issues in the areas of worker safety and fairness, environmental responsibility, and business efficiency.
Appendix A provides an in-depth discussion of how ethics and moral codes
developed over time.
Appendix B provides answers to the end-of-chapter Self-Assessment
Questions.
PEDAGOGY
Ethics in Information Technology, Fifth Edition, employs a variety of pedagogical features
to enrich the learning experience and provide interest for the instructor and student:
•
•
•
Opening Quotation. Each chapter begins with a quotation to stimulate
interest in the chapter material.
Vignette. At the beginning of each chapter, a brief real-world example
illustrates the issues to be discussed and piques the reader’s interest.
Questions to Consider. Carefully crafted focus questions follow the vignette
to further highlight topics that are covered in the chapter.
Preface
xvii
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
•
•
•
Learning Objectives. Learning objectives appear at the start of each chapter.
They are presented in the form of questions for students to consider while
reading the chapter.
Key Terms. Key terms appear in bold in the text and are listed at the end of
the chapter. They are also defined in the glossary at the end of the book.
Manager’s Checklist. Each checklist provides a practical and useful list of
questions to consider when making a business decision.
End-of-Chapter Material
To help students retain key concepts and expand their understanding of important IT
concepts and relationships, the following sections are included at the end of every
chapter:
•
•
•
•
•
Summary. Each chapter includes a summary of the key issues raised. These
items relate to the Learning Objectives for each chapter.
Self-Assessment Questions. These questions help students review and test
their understanding of key chapter concepts. The answers to the SelfAssessment Questions are included in Appendix B.
Discussion Questions. These more open-ended questions help instructors
generate class discussion to move students deeper into the concepts and help
them explore the numerous aspects of ethics in IT.
What Would You Do? These exercises present realistic dilemmas that
encourage students to think critically about the ethical principles presented
in the text.
Cases. In each chapter, three real-world cases reinforce important ethical
principles and IT concepts, and show how real companies have addressed
ethical issues associated with IT. Questions after each case focus students on
its key issues and ask them to apply the concepts presented in the chapter.
A set of additional case studies from previous editions will be available at the
Cengage Web site to provide the instructor with a wide range of cases from
which to select.
ABOUT THE AUTHOR
George W. Reynolds brings a wealth of computer and industrial experience to this project,
with more than 30 years of experience in government, institutional, and commercial IT
organizations. He has authored over two dozen texts and has taught at the University of
Cincinnati, Xavier University (Ohio), Miami University (Ohio), and the College of Mount
St. Joseph. He is currently teaching at Strayer University.
Teaching Tools
The following supplemental materials are available when this book is used in a classroom
setting. All of these tools are provided to the instructor on a single CD-ROM. You can also
find some of these materials on the Cengage Learning Web site at www.cengage.com/sso.
xviii
Preface
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
•
•
•
•
•
•
•
•
Electronic Instructor’s Manual. The Instructor’s Manual that accompanies
this textbook includes additional instructional material to assist in class
preparation, including suggestions for lecture topics. It also includes solutions
to all end-of-chapter exercises
Cengage Learning Testing Powered by Cognero. A flexible, online system
that allows you to:
author, edit, and manage test bank content from multiple Cengage Learning
solutions
create multiple test versions in an instant
deliver tests from your LMS, your classroom or wherever you want
PowerPoint Presentations. This book comes with Microsoft PowerPoint slides
for each chapter. The slides can be included as a teaching aid for classroom
presentation, made available to students on the network for chapter review,
or printed for classroom distribution. The slides are fully customizable.
Instructors can either add their own slides for additional topics they introduce to the class or delete slides they won’t be covering.
Figure Files. Figure files allow instructors to create their own presentations
using figures taken directly from the text.
Blackboard and WebCT™ Level 1 Online Content. If you use Blackboard or
WebCT, the test bank for this textbook is available at no cost in a simple,
ready-to-use format.
ACKNOWLEDGMENTS
I wish to express my appreciation to a number of people who helped greatly in the creation of this book: Charles McCormick, Jr., Senior Acquisitions Editor, for his belief in and
encouragement of this project; Jennifer Feltri-George and Divya Divakaran, Content Product Managers, for guiding the book through the production process; Kate Mason, Senior
Content Developer, for overseeing and directing this effort; Mary Pat Shaffer, Development
Editor, for her tremendous support, many useful suggestions, and helpful edits; Naomi
Friedman, for writing many of the vignettes and cases; and my many students who provided excellent ideas and constructive feedback on the text. I also wish to thank Clancy
Martin for writing Appendix A.
In addition, I want to thank an excellent set of reviewers who offered many useful
suggestions:
Pat Artz, Bellevue University
Astrid Todd, Guilford Technical Community College
Charles Watkins, Baker College
Last of all, thanks to my family for all their support, and for giving me the time to
write this text.
—George W. Reynolds
Preface
xix
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CHAPTER
1
AN OVERVIEW OF ETHICS
QUOTE
Integrity is doing the right thing, even when nobody is watching.
—Anonymous
VIGNETTE
Cisco Chairman and CEO Advocates Ethical Behavior
Cisco is a U.S.-based multinational corporation that designs, sells, and manufactures networking
equipment. The company’s operations generated $46 billion in sales and $8 billion in net income
for fiscal year 2012.1 Cisco has been named a “World’s Most Ethical Company” honoree by the
Ethisphere Institute for five consecutive years (2008–2012).2 Its Chairman and CEO John Chambers
states: “A strong commitment to ethics is critical to our long-term success as a company. The message for each employee is clear: Any success that is not achieved ethically is no success at all. At
Cisco, we hold ourselves to the highest ethical standards, and we will not tolerate anything less.”3
Cisco conducts numerous programs aimed at fulfilling what it sees as its corporate social
responsibilities. For instance, the company provides ethics training to its over 70,000 employees,
and it prides itself on providing employee benefits that foster a good work-life balance. Cisco employees are also encouraged to donate money and volunteer hours to nonprofit organizations around the
world. Cisco manages energy and greenhouse emission generated by its operations. The company
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demands the same high standards from its more than 600 supply chain partners in regard to ethics,
2
labor practices, health and safety, and the environment; it communicates its Code of Conduct to suppliers, monitors their compliance, and helps them improve performance. Cisco collaborates with
industry groups to raise standards and build sustainability capabilities throughout its supply chain.
The company uses its core expertise in networking technology to improve both the delivery and quality of education as well as to improve health care. It also intervenes to help meet critical human
needs in times of disaster by providing access to food, potable water, shelter, and other forms of
relief. For example, in 2012, Cisco employees pledged $1.25 million and 12,500 volunteer hours to
the Global Hunger Relief Program. Both the Cisco Foundation and Cisco Chairman Emeritus John
Morgridge match employee donations, thus tripling the potential donation.4
Questions to Consider
1. What does it mean for an individual to act in an ethical manner? What does it mean for an
organization to act ethically?
2. How should an organization balance its resources between pursuing its primary mission for
existence and striving to meet social responsibility goals?
Chapter 1
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LEARNING
3
OBJECTIVES
As you read this chapter, consider the following questions:
1.
What is ethics, and why is it important to act according to a code of
ethics?
2.
Why is business ethics becoming increasingly important?
3.
What are organizations doing to improve their business ethics?
4.
What is corporate social responsibility?
5.
Why are organizations interested in fostering corporate social
responsibility and good business ethics?
6.
What approach can you take to ensure ethical decision making?
7.
What trends have increased the risk of using information technology in
an unethical manner?
WHAT IS ETHICS?
Every society forms a set of rules that establishes the boundaries of generally accepted
behavior. These rules are often expressed in statements about how people should behave,
and the individual rules fit together to form the moral code by which a society lives.
Unfortunately, the different rules often have contradictions, and people are sometimes
uncertain about which rule to follow. For instance, if you witness a friend copy someone
else’s answers while taking an exam, you might be caught in a conflict between loyalty to
your friend and the value of telling the truth. Sometimes the rules do not seem to cover
new situations, and an individual must determine how to apply existing rules or develop
new ones. You may strongly support personal privacy, but do you think an organization
should be prohibited from monitoring employees’ use of its email and Internet services?
The term morality refers to social conventions about right and wrong that are so
widely shared that they become the basis for an established consensus. However, individual views of what behavior is moral may vary by age, cultural group, ethnic background,
religion, life experiences, education, and gender. There is widespread agreement on the
immorality of murder, theft, and arson, but other behaviors that are accepted in one culture might be unacceptable in another. Even within the same society, people can have
strong disagreements over important moral issues. In the United States, for example,
issues such as abortion, stem cell research, the death penalty, and gun control are continuously debated, and people on both sides of these debates feel that their arguments are
on solid moral ground.
Definition of Ethics
Ethics is a set of beliefs about right and wrong behavior within a society. Ethical behavior
conforms to generally accepted norms—many of which are almost universal. However,
although nearly everyone would agree that certain behaviors—such as lying and
cheating—are unethical, opinions about what constitutes ethical behavior can vary
An Overview of Ethics
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dramatically. For example, attitudes toward software piracy—a form of copyright infringement that involves making copies of software or enabling others to access software to
which they are not entitled—range from strong opposition to acceptance of the practice as
a standard approach to conducting business. In 2011, an estimated 43 percent of all personal computer software in circulation worldwide was pirated—at a commercial value of
$63 billion (USD).5 Zimbabwe (92%), Georgia (91%), Bangladesh (90%), Libya (90%),
and Moldova (90%) are consistently among the countries with the highest rate of piracy.
The United States (19%), Luxembourg (20%), Japan (21%), and New Zealand (22%) are
consistently among the countries with the lowest piracy rates.6
As children grow, they learn complicated tasks—such as walking, talking, swimming,
riding a bike, and writing the alphabet—that they perform out of habit for the rest of their
lives. People also develop habits that make it easier for them to choose between what
society considers good or bad. A virtue is a habit that inclines people to do what is
acceptable, and a vice is a habit of unacceptable behavior. Fairness, generosity, and loyalty are examples of virtues, while vanity, greed, envy, and anger are considered vices.
People’s virtues and vices help define their personal value system—the complex scheme of
moral values by which they live.
4
The Importance of Integrity
Your moral principles are statements of what you believe to be rules of right conduct. As a
child, you may have been taught not to lie, cheat, or steal. As an adult facing more complex decisions, you often reflect on your principles when you consider what to do in different situations: Is it okay to lie to protect someone’s feelings? Should you intervene with
a coworker who seems to have a chemical dependency problem? Is it acceptable to exaggerate your work experience on a résumé? Can you cut corners on a project to meet a
tight deadline?
A person who acts with integrity acts in accordance with a personal code of principles.
One approach to acting with integrity—one of the cornerstones of ethical behavior—is to
extend to all people the same respect and consideration that you expect to receive from
others. Unfortunately, consistency can be difficult to achieve, particularly when you are in
a situation that conflicts with your moral standards. For example, you might believe it is
important to do as your employer requests while also believing that you should be fairly
compensated for your work. Thus, if your employer insists that, due to budget constraints,
you not report the overtime hours that you have worked, a moral conflict arises. You can
do as your employer requests or you can insist on being fairly compensated, but you cannot do both. In this situation, you may be forced to compromise one of your principles and
act with an apparent lack of integrity.
Another form of inconsistency emerges if you apply moral standards differently
according to the situation or people involved. If you are consistent and act with integrity,
you apply the same moral standards in all situations. For example, you might consider it
morally acceptable to tell a little white lie to spare a friend some pain or embarrassment,
but would you lie to a work colleague or customer about a business issue to avoid
unpleasantness? Clearly, many ethical dilemmas are not as simple as right versus wrong
but involve choices between right versus right. As an example, for some people it is “right”
to protect the Alaskan wildlife from being spoiled and also “right” to find new sources of
oil to maintain U.S. oil reserves, but how do they balance these two concerns?
Chapter 1
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The Difference Between Morals, Ethics, and Laws
5
Morals are one’s personal beliefs about right and wrong, while the term ethics describes
standards or codes of behavior expected of an individual by a group (nation, organization,
profession) to which an individual belongs. For example, the ethics of the law profession
demand that defense attorneys defend an accused client to the best of their ability, even if
they know that the client is guilty of the most heinous and morally objectionable crime
one could imagine.
Law is a system of rules that tells us what we can and cannot do. Laws are enforced
by a set of institutions (the police, courts, law-making bodies). Legal acts are acts that
conform to the law. Moral acts conform to what an individual believes to be the right thing
to do. Laws can proclaim an act as legal, although many people may consider the act
immoral—for example, abortion.
The remainder of this chapter provides an introduction to ethics in the business
world. It discusses the importance of ethics in business, outlines what businesses can do to
improve their ethics, provides advice on creating an ethical work environment, and suggests a model for ethical decision making. The chapter concludes with a discussion of
ethics as it relates to information technology (IT).
ETHICS IN THE BUSINESS WORLD
Ethics has risen to the top of the business agenda because the risks associated with
inappropriate behavior have increased, both in their likelihood and in their potential
negative impact. In the past decade, we have watched the collapse and/or bailout of
financial institutions such as Bank of America, CitiGroup, Countrywide Financial, Fannie
Mae, Freddie Mac, Lehman Brothers, and American International Group (AIG) due to
unwise and/or unethical decision making regarding the approval of mortgages, loans, and
lines of credit to unqualified individuals and organizations. We have also witnessed
numerous corporate officers and senior managers sentenced to prison terms for their
unethical behavior, including former investment broker Bernard Madoff, who bilked his
clients out of an estimated $65 billion.7 Clearly, unethical behavior has led to serious
negative consequences that have had a major global impact.
Several trends have increased the likelihood of unethical behavior. First, for many
organizations, greater globalization has created a much more complex work environment
that spans diverse cultures and societies, making it more difficult to apply principles and
codes of ethics consistently. For example, numerous U.S. companies have moved operations to developing countries, where employees work in conditions that would not be
acceptable in most developed parts of the world.
Second, in today’s difficult and uncertain economic climate, organizations are
extremely challenged to maintain revenue and profits. Some organizations are sorely
tempted to resort to unethical behavior to maintain profits. For example, the chairman of
the India-based outsourcing firm Satyam Computer Services admitted he had overstated
the company’s assets by more than $1 billion. The revelation represented India’s largestever corporate scandal and caused the government to step in to protect the jobs of the
company’s 53,000 employees.8
Employees, shareholders, and regulatory agencies are increasingly sensitive to violations of accounting standards, failures to disclose substantial changes in business
An Overview of Ethics
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conditions, nonconformance with required health and safety practices, and production of
unsafe or substandard products. Such heightened vigilance raises the risk of financial loss
for businesses that do not foster ethical practices or that run afoul of required standards.
There is also a risk of criminal and civil lawsuits resulting in fines and/or incarceration for
individuals.
A classic example of the many risks of unethical decision making can be found in the
Enron accounting scandal. In 2000, Enron employed over 22,000 people and had annual
revenue of $101 billion. During 2001, it was revealed that much of Enron’s revenue was
the result of deals with limited partnerships, which it controlled. In addition, as a result of
faulty accounting, many of Enron’s debts and losses were not reported in its financial
statements. As the accounting scandal unfolded, Enron shares dropped from $90 per share
to less than $1 per share, and the company was forced to file for bankruptcy.9 The Enron
case was notorious, but many other corporate scandals have occurred in spite of safeguards enacted as a result of the Enron debacle. Here are just a few examples of lapses in
business ethics by employees in IT organizations:
6
•
•
•
In 2011, IBM agreed to pay $10 million to settle civil charges arising from a
lawsuit filed by the Securities and Exchange Commission (SEC) alleging the
firm had violated the Foreign Corrupt Practices Act for bribing government
officials in China and South Korea to secure the sale of IBM products.
(The act makes it illegal for corporations listed on U.S. stock exchanges to
bribe foreign officials.) The bribes allegedly occurred over a decade and
included hundreds of thousands of dollars of cash, electronics, and entertainment and travel expenses in exchange for millions of dollars in government
contracts.10
The founders of the three largest Internet poker companies were indicted for
using fraudulent methods to circumvent U.S. antigambling laws and to obtain
billions of dollars from U.S. residents who gambled on their sites.11
The Office of the Comptroller of the Currency (OCC), which oversees large
U.S. banks, accused Citibank in 2012 of failing to comply with rules intended
to enforce the Bank Secrecy Act. This act is designed to deter and detect
money laundering, terrorist financing, and other criminal acts. Citibank
neither admitted nor denied the allegations, but the company did agree to
provide the OCC with a plan outlining how it would bring its program into
compliance.12
It is not unusual for powerful, highly successful individuals to fail to act in morally
appropriate ways, as these examples illustrate. Such people are aggressive in striving for
what they want and are used to having privileged access to information, people, and other
resources. Furthermore, their success often inflates their belief that they have the ability
and the right to manipulate the outcome of any situation. The moral corruption of people
in power, which is often facilitated by a tendency for people to look the other way when
their leaders act inappropriately has been given the name Bathsheba syndrome—a
reference to the biblical story of King David, who became corrupted by his power and
success.13 According to the story, David became obsessed with Bathsheba, the wife of one
of his generals, and eventually ordered her husband on a mission of certain death so that
he could marry Bathsheba.
Chapter 1
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Even lower-level employees can find themselves in the middle of ethical dilemmas, as
these examples illustrate:
•
•
•
7
A low-level employee of the Technical Services Department of Monroe
County, Florida, was entrusted with responsibility for both acquisition and
distribution of the county’s cell phones. A few months after her retirement,
the employee was indicted on charges of stealing 52 county-purchased
iPhones and iPads and then selling them to friends and coworkers.14
Army Private First Class Bradley Manning is believed to be responsible for
the release of thousands of classified U.S. embassy cables, which caused an
incident that became known as Cablegate. The incident caused many to
seriously question security at the Department of Defense and led to many
changes in the handling of intelligence and other classified information at
various U.S. intelligence agencies and departments.15
According to CyberSource Corporation (a subsidiary of Visa Inc. that offers
e-commerce payment management services), online revenue lost to fraud
increased 26 percent from 2010 to 2011 to the amount of $3.4 billion. This
represents 1 percent of the $340 billion retail e-commerce sales for the
United States and Canada.16
This is just a small sample of the incidents that have led to an increased focus on
business ethics within many IT organizations. Table 1-1 identifies the most commonly
observed types of misconduct in the workplace.
TABLE 1-1
Most common forms of employee misconduct
Type of employee misconduct
Percent of surveyed employees
observing this behavior
Misuse of company time
33%
Abusive behavior
21%
Lying to employees
20%
Company resource abuse
20%
Violating company Internet-use policies
16%
Discrimination
15%
Conflicts of interest
15%
Inappropriate social networking
14%
Health or safety violations
13%
Lying to outside stakeholders
12%
Stealing
12%
Falsifying time reports or hours worked
12%
Source Line: Ethics Resource Center, “2011 National Business Ethics Survey: Workplace Ethics in Transition,”
© 2011, www.ethics.org/nbes/files/FinalNBES-web.pdf.
An Overview of Ethics
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Corporate Social Responsibility
8
Corporate social responsibility (CSR) is the concept that an organization should act
ethically by taking responsibility for the impact of its actions on the environment, the
community, and the welfare of its employees. Setting CSR goals encourages an organization to achieve higher moral and ethical standards. As highlighted in the opening vignette,
Cisco is an example of an organization that has set and achieved a number of CSR goals
for itself, and as a result is recognized as a highly ethical company.
Supply chain sustainability is a component of CSR that focuses on developing and
maintaining a supply chain that meets the needs of the present without compromising the
ability of future generations to meet their needs. Supply chain sustainability takes into
account such issues as fair labor practices, energy and resource conservation, human
rights, and community responsibility. Many IT equipment manufacturers have made supply chain sustainability a priority, in part, because they must adhere to various European
Union directives and regulations (including the Restriction of Hazardous Substances
Directive, the Waste Electrical and Electronic Equipment Directive, and the Registration,
Evaluation, Authorization, and Restriction of Chemicals (REACH) Regulation) to be permitted to sell their products in European Union countries. In many cases, meeting supply
chain sustainability goals can also lead to lower costs. For example, since 2001, Intel has
invested over $45 million in efforts to reduce its energy costs. As a result of those initiatives, the company has saved on average $23 million per year.17
Each organization must decide if CSR is a priority and, if so, what its specific CSR
goals are. The pursuit of some CSR goals can lead to increased profits, making it easy for
senior company management and stakeholders to support the organization’s goals in this
arena. For example, many fast-food hamburger outlets (including McDonald’s, Wendy’s,
and Burger King) have expanded their menus to include low-fat offerings in an attempt to
meet a CSR goal of providing more healthy choices to their customers, while also trying to
capture more market share.18
However, if striving to meet a specific CSR goal leads to a decrease in profits, senior
management may be challenged to modify or drop that CSR goal entirely. For example,
some U.S. auto manufacturers have introduced automobiles that run on clean, renewable
electric power as part of a corporate responsibility goal of helping to end U.S. dependence
on oil. However, Americans have been slow to embrace electric cars, and manufacturers
have had to offer low-interest financing, cash discounts, sales bonuses, and subsidized
leases to get the autos off the sales floor. Manufacturers and dealers are struggling to
generate an increase in profits from the sale of these electric cars, and senior management
at the automakers must consider how long they can continue with this strategy.
Why Fostering Corporate Social Responsibility and Good Business
Ethics Is Important
Organizations have at least five good reasons for pursuing CSR goals and for promoting a
work environment in which employees are encouraged to act ethically when making business decisions:
•
•
Gaining the goodwill of the community
Creating an organization that operates consistently
Chapter 1
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•
•
•
Fostering good business practices
Protecting the organization and its employees from legal action
Avoiding unfavorable publicity
9
Gaining the Goodwill of the Community
Although organizations exist primarily to earn profits or provide services to customers,
they also have some fundamental responsibilities to society. As discussed in the previous
section, companies often declare these responsibilities in specific CSR goals. Companies
may also issue a formal statement of their company’s values, principles, or beliefs. See
Figure 1-1 for an example of a statement of values.
Our Values
As a company, and as individuals, we value integrity, honesty, openness, personal
excellence, constructive self-criticism, continual self-improvement, and mutual respect.
We are committed to our customers and partners and have a passion for technology. We
take on big challenges, and pride ourselves on seeing them through. We hold ourselves
accountable to our customers, shareholders, partners, and employees by honoring our
commitments, providing results, and striving for the highest quality.
FIGURE 1-1
Microsoft’s statement of values
Credit: Microsoft Statement of Values, “Our Values,” from www.microsoft.com. Reprinted by permission.
All successful organizations, including technology firms, recognize that they must
attract and maintain loyal customers. Philanthropy is one way in which an organization
can demonstrate its values in action and make a positive connection with its stakeholders.
(A stakeholder is someone who stands to gain or lose, depending on how a situation is
resolved.) As a result, many organizations initiate or support socially responsible activities,
which may include making contributions to charitable organizations and nonprofit institutions, providing benefits for employees in excess of any legal requirements, and devoting
organizational resources to initiatives that are more socially desirable than profitable.
Table 1-2 provides a few examples of some of the CSR activities supported by major IT
organizations.
The goodwill that CSR activities generate can make it easier for corporations to conduct their business. For example, a company known for treating its employees well will
find it easier to compete for the best job candidates. On the other hand, companies viewed
as harmful to their community may suffer a disadvantage. For example, a corporation that
pollutes the environment may find that adverse publicity reduces sales, impedes relationships with some business partners, and attracts unwanted government attention.
Creating an Organization That Operates Consistently
Organizations develop and abide by values to create an organizational culture and
to define a consistent approach for dealing with the needs of their stakeholders—
shareholders, employees, customers, suppliers, and the community. Such consistency
ensures that employees know what is expected of them and can employ the organization’s
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10
TABLE 1-2
Examples of IT organizations’ socially responsible activities
Organization
Examples of socially responsible activities
Dell Inc.
Dell partners with nonprofit organizations to develop ways of using
technology to help solve pressing problems. Its “Powering the Positive”
program initiatives include Children’s Cancer Care, Youth Learning,
Disaster Relief, and Social Entrepreneurship.19
Google
Google recently invested over $250 million in solar and wind power
projects.20
IBM
IBM employees donated 3.2 million hours of community service in
120 countries in 2011.21
Oracle
Oracle supports K-12 and higher education institutions with technology
education grants and programs that reach 1.5 million students each year.22
SAP, North America
SAP supports several major corporate responsibility initiatives aimed at
improving education, matches employee gifts to nonprofit agencies and
schools, and encourages and supports employee volunteerism.23
Microsoft
Microsoft conducts an annual giving campaign, and its employees have
contributed over $1 billion to some 31,000 nonprofit organizations
around the world since 1983.24
Source Line: Copyright © Cengage Learning. Adapted from multiple sources. See End Notes 19, 20, 21, 22,
23, 24.
values to help them in their decision making. Consistency also means that shareholders,
customers, suppliers, and the community know what they can expect of the organization—
that it will behave in the future much as it has in the past. It is especially important for
multinational or global organizations to present a consistent face to their shareholders,
customers, and suppliers no matter where those stakeholders live or operate their business.
Although each company’s value system is different, many share the following values:
•
•
•
•
•
•
Operate with honesty and integrity, staying true to organizational principles.
Operate according to standards of ethical conduct, in words and action.
Treat colleagues, customers, and consumers with respect.
Strive to be the best at what matters most to the organization.
Value diversity.
Make decisions based on facts and principles.
Fostering Good Business Practices
In many cases, good ethics can mean good business and improved profits. Companies that
produce safe and effective products avoid costly recalls and lawsuits. (The recall of the
weight loss drug Fen-Phen cost its maker, Wyeth-Ayerst Laboratories, almost $14 billion in
awards to victims, many of whom developed serious health problems as a result of taking
the drug.)25 Companies that provide excellent service retain their customers instead of
losing them to competitors. Companies that develop and maintain strong employee relations enjoy lower turnover rates and better employee morale. Suppliers and other business
partners often place a priority on working with companies that operate in a fair and
ethical manner. All these factors tend to increase revenue and profits while decreasing
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expenses. As a result, ethical companies tend to be more profitable over the long term
than unethical companies.
On the other hand, bad ethics can lead to bad business results. Bad ethics can have
a negative impact on employees, many of whom may develop negative attitudes if they
perceive a difference between their own values and those stated or implied by an organization’s actions. In such an environment, employees may suppress their tendency to act in
a manner that seems ethical to them and instead act in a manner that will protect them
against anticipated punishment. When such a discrepancy between employee and organizational ethics occurs, it destroys employee commitment to organizational goals and
objectives, creates low morale, fosters poor performance, erodes employee involvement in
organizational improvement initiatives, and builds indifference to the organization’s needs.
11
Protecting the Organization and Its Employees from Legal Action
In a 1909 ruling (United States v. New York Central & Hudson River Railroad Co.), the
U.S. Supreme Court established that an employer can be held responsible for the acts of
its employees even if the employees act in a manner contrary to corporate policy and
their employer’s directions.26 The principle established is called respondeat superior, or
“let the master answer.”
The CEO and the general counsel of IT solutions and services provider GTSI Corporation were forced by the Small Business Administration (SBA) to resign, while three other
top GTSI executives were suspended, due to allegations that GTSI employees were
involved in a scheme with its contracting partners that resulted in the firm receiving
money set aside for small businesses. GTSI, which had over 500 employees and revenue
over $760 million, was providing services to the Department of Homeland Security in
partnership with contractors who qualified as small businesses, but GTSI—as a subcontractor—was actually performing most of the services and being paid most of the fees.27
In this case, top executives were punished for the acts of several unidentified employees.
The company was also suspended by the SBA from receiving new government contracts,
and was ultimately acquired by another company after a steep drop in revenue.28
A coalition of several legal organizations, including the Association of Corporate
Counsel, the U.S. Chamber of Commerce, the National Association of Manufacturers, the
National Association of Criminal Defense Lawyers, and the New York State Association of
Criminal Defense Lawyers, argues that organizations should “be able to escape criminal
liability if they have acted as responsible corporate citizens, making strong efforts to
prevent and detect misconduct in the workplace.”29 One way to do this is to establish
effective ethics and compliance programs. However, some people argue that officers of
companies should not be given light sentences if their ethics programs fail to deter
criminal activity within their firms.
Avoiding Unfavorable Publicity
The public reputation of a company strongly influences the value of its stock, how consumers regard its products and services, the degree of oversight it receives from government
agencies, and the amount of support and cooperation it receives from its business partners. Thus, many organizations are motivated to build a strong ethics program to avoid
negative publicity. If an organization is perceived as operating ethically, customers, business partners, shareholders, consumer advocates, financial institutions, and regulatory
bodies will usually regard it more favorably.
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12
In 2012, Google agreed to pay a fine of $22.5 million to end an FTC investigation into
allegations that the firm utilized cookies and bypassed privacy settings to track the online
habits of people using Apple’s Safari browser. The amount of the fine, while the largest in
FTC history, represented less than one day’s worth of Google’s profits. However, some IT
industry analysts believe that the bad publicity associated with the incident is much more
impactful than the fine in bringing about change at Google and in keeping it from violating
FTC rules in the future.30
Improving Corporate Ethics
Research by the Ethics Resource Center (ERC) found that 86 percent of the employees in
companies with a well-implemented ethics and compliance program are likely to perceive
a strong ethical culture within the company, while less than 25 percent of employees in
companies with little to no program are likely to perceive a culture that promotes integrity
in the workplace. A well-implemented ethics and compliance program and a strong ethical
culture can, in turn, lead to less pressure on employees to misbehave and a decrease in
observed misconduct. It also creates an environment in which employees are more comfortable reporting instances of misconduct, partly because there is less fear of potential
retaliation by management against reporters (for example, reduced hours, transfer to less
desirable jobs, and delays in promotions). See Figure 1-2.31
Driver 1
Well-implemented
program
Driver 2
Strong ethical
culture
Outcomes
Reduced
pressure for
misconduct
Decrease in
observed
misconduct
Increased
reporting of
misconduct
Goal
Reduced
ethics risk
FIGURE 1-2
Reduced
retaliation for
reporting
Causal
Correlational
Reducing ethics risk
Credit: Courtesy Ethics Resource Center, “2011 National Business Ethics Survey: Workplace Ethics in Transition”
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The ERC has defined the following characteristics of a successful ethics program:
•
•
•
•
•
13
Employees are willing to seek advice about ethics issues.
Employees feel prepared to handle situations that could lead to misconduct.
Employees are rewarded for ethical behavior.
The organization does not reward success obtained through questionable
means.
Employees feel positively about their company.
In its 2011 National Business Ethics Survey, based on responses from over 3,000
individuals, the ERC found evidence of some improvement in ethics in the workplace as
summarized in Table 1-3.32 These figures show that fewer employees witnessed misconduct on the job, but when they did, they were more willing to report it. The findings also
show that there are more employees who feel pressure to commit an unethical act, as well
as more employees who feel their organization has a weak ethics culture.
TABLE 1-3
Conclusions from the National Business Ethics Survey
2007 survey
results
2009 survey
results
2011 survey
results
Employees who said they witnessed misconduct on
the job
56%
49%
45%
Employees who said they reported misconduct when
they saw it
58%
63%
65%
Employees who felt pressure to commit an ethics
violation
10%
8%
13%
Percentage of employees who say their business has a
weak ethics culture
39%
35%
42%
Finding
Source Line: Ethics Resource Center, “2011 National Business Ethics Survey, Workplace Ethics in Transition,” www.ethics.org/news/new-research-2011-national-business-ethics-survey.
The risk of unethical behavior is increasing, so improving business ethics is becoming
more important for all companies. The following sections explain some of the actions corporations can take to improve business ethics.
Appointing a Corporate Ethics Officer
A corporate ethics officer (also called a corporate compliance officer) provides an organization with vision and leadership in the area of business conduct. This individual “aligns
the practices of a workplace with the stated ethics and beliefs of that workplace, holding
people accountable to ethical standards.”33
Organizations send a clear message to employees about the importance of ethics and
compliance in their decision about who will be in charge of the effort and to whom that
individual will report. Ideally, the corporate ethics officer should be a well-respected,
senior-level manager who reports directly to the CEO. Ethics officers come from diverse
backgrounds, such as legal staff, human resources, finance, auditing, security, or line
operations.
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14
Not surprisingly, a rapid increase in the appointment of corporate ethics officers typically follows the revelation of a major business scandal. The first flurry of appointments
began following a series of defense-contracting scandals during the administration of
Ronald Reagan in the late 1980s—when firms used bribes to gain inside information that
they could use to improve their contract bids. A second spike in appointments came in the
early 1990s, following the new federal sentencing guidelines that stated that “companies
with effective compliance and ethics programs could receive preferential treatment during
prosecutions for white-collar crimes.”34 A third surge followed the myriad accounting
scandals of the early 2000s. Another increase in appointments followed in the aftermath of
the mortgage loan scandals uncovered beginning in 2008.
The ethics officer position has its critics. Many are concerned that if one person is
appointed head of ethics, others in the organization may think they have no responsibility
in this area. On the other hand, Odell Guyton—who has been the director of compliance
at Microsoft for over a decade—feels a point person for ethics is necessary, otherwise “how
are you going to make sure it’s being done, when people have other core responsibilities?
That doesn’t mean it’s on the shoulders of the compliance person alone.”35
Typically the ethics officer tries to establish an environment that encourages ethical
decision making through the actions described in this chapter. Specific responsibilities
include the following:
•
•
•
Responsibility for compliance—that is, ensuring that ethical procedures are
put into place and consistently adhered to throughout the organization
Responsibility for creating and maintaining the ethics culture that the highest
level of corporate authority wishes to have
Responsibility for being a key knowledge and contact person on issues relating to corporate ethics and principles36
Of course, simply naming a corporate ethics officer does not automatically improve an
organization’s ethics; hard work and effort are required to establish and provide ongoing
support for an organizational ethics program.
Ethical Standards Set by Board of Directors
The board of directors is responsible for the careful and responsible management of an
organization. In a for-profit organization, the board’s primary objective is to oversee the
organization’s business activities and management for the benefit of all stakeholders,
including shareholders, employees, customers, suppliers, and the community. In a nonprofit organization, the board reports to a different set of stakeholders—in particular, the
local community that the nonprofit serves.
A board of directors fulfills some of its responsibilities directly and assigns others to
various committees. The board is not normally responsible for day-to-day management
and operations; these responsibilities are delegated to the organization’s management
team. However, the board is responsible for supervising the management team.
Board members are expected to conduct themselves according to the highest standards for personal and professional integrity, while setting the standard for company-wide
ethical conduct and ensuring compliance with laws and regulations. Employees will “get
the message” if board members set an example of high-level ethical behavior. If they don’t
set a good example, employees will get that message as well. Importantly, board members
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must create an environment in which employees feel they can seek advice about appropriate business conduct, raise issues, and report misconduct through appropriate channels. Failure of the board to set an example of high-level ethical behavior or to intervene
to stop unethical behavior can result in serious consequences as illustrated by the News
Corporation scandal.
News Corporation is a media conglomerate founded by Rupert Murdoch—with recent
annual revenue over $30 billion generated by its cable networks (including Fox News
Channel), film and television production subsidiaries, and publishing units. In 2009, it
came to light that News Corporation’s British subsidiary, News International Ltd., publisher of the highly popular Sunday tabloid paper, News of the World, used telephone
hacking and bribes to police to obtain stories about celebrities, sports figures, politicians,
and ordinary citizens.37 It was alleged that the practice was well known to senior executives within the company. Based on strong negative public reaction, News Corporation
stopped publication of the News of the World tabloid, and the British government blocked
a major deal in which News Corporation was to fully acquire the highly successful British
broadcasting company BSkyB. These actions resulted in a $3 billion drop in the stock
value of News Corporation. In addition, the scandal led to the arrest of over 60 former and
current journalists, and many high-level executives resigned from the firm. In a lawsuit
filed in March 2011, shareholders claimed lack of board oversight for failing to react to
warning signals that should have alerted them to the telephone hacking.38
15
Establishing a Corporate Code of Ethics
A code of ethics is a statement that highlights an organization’s key ethical issues and
identifies the overarching values and principles that are important to the organization and
its decision making. Codes of ethics frequently include a set of formal, written statements
about the purpose of an organization, its values, and the principles that should guide its
employees’ actions. An organization’s code of ethics applies to its directors, officers, and
employees, and it should focus employees on areas of ethical risk relating to their role in the
organization, offer guidance to help them recognize and deal with ethical issues, and provide
mechanisms for reporting unethical conduct and fostering a culture of honesty and
accountability within the organization. An effective code of ethics helps ensure that
employees abide by the law, follow necessary regulations, and behave in an ethical manner.
The Sarbanes–Oxley Act of 2002 was passed in response to public outrage over several major accounting scandals, including those at Enron, WorldCom, Tyco, Adelphia,
Global Crossing, and Qwest—plus numerous restatements of financial reports by other
companies, which clearly demonstrated a lack of oversight within corporate America. The
goal of the bill was to renew investors’ trust in corporate executives and their firms’ financial reports. The act led to significant reforms in the content and preparation of disclosure
documents by public companies. However, the Lehman Brothers accounting fiasco and
resulting collapse as well as other similar examples raise questions about the effectiveness
of Sarbanes–Oxley in preventing accounting scandals.39
Section 404 of the act states that annual reports must contain a statement signed
by the CEO and CFO attesting that the information contained in all of the firm’s SEC
filings is accurate. The company must also submit to an audit to prove that it has controls
in place to ensure accurate information. The penalties for false attestation can include up
to 20 years in prison and significant monetary fines for senior executives. Section 406 of
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16
the act also requires public companies to disclose whether they have a code of ethics and
to disclose any waiver of the code for certain members of senior management. The SEC
also approved significant reforms by the NYSE and NASDAQ that, among other things,
require companies listed with those exchanges to have codes of ethics that apply to all
employees, senior management, and directors.
A code of ethics cannot gain company-wide acceptance unless it is developed with
employee participation and fully endorsed by the organization’s leadership. It must also be
easily accessible by employees, shareholders, business partners, and the public. The code
of ethics must continually be applied to a company’s decision making and emphasized as
an important part of its culture. Breaches in the code of ethics must be identified and
dealt with appropriately so the code’s relevance is not undermined.
Each year, Corporate Responsibility magazine rates U.S. publicly held companies,
using a statistical analysis of corporate ethical performance in several categories. (For
2012, the categories were environment, climate change, human rights, employee relations,
governance, philanthropy, and financial.) Intel Corporation, the world’s largest chip
maker, has been ranked in the top 25 every year since the list began in 2000, and was
ranked third in 2012.40 As such, Intel is recognized as one of the most ethical companies
in the IT industry. A summary of Intel’s code of ethics is shown in Figure 1-3. A more
detailed version is spelled out in a 22-page document (Intel Code of Conduct, January
2012, found at www.intel.com/content/www/us/en/policy/policy-code-conduct-corporateinformation.html), which offers employees guidelines designed to deter wrongdoing,
INTEL CODE OF CONDUCT
JANUARY 2012
Code of Conduct
Since the company began, uncompromising integrity and professionalism have been the
cornerstones of Intel’s business. In all that we do, Intel supports and upholds a set of core
values and principles. Our future growth depends on each of us understanding these
values and principles and continuously demonstrating the uncompromising integrity that is
the foundation of our company.
The Code of Conduct sets the standard for how we work together to develop and deliver
product, how we protect the value of Intel and its subsidiaries (collectively known as
‘Intel’), and how we work with customers, suppliers and others. All of us at Intel must
abide by the Code when conducting Intel-related business.
The Code affirms our five principles of conduct:
•
•
•
•
•
FIGURE 1-3
Conduct Business with Honesty and Integrity
Follow the Letter and Spirit of the Law
Treat Each Other Fairly
Act in the Best Interests of Intel and Avoid Conflicts of Interest
Protect the Company’s Assets and Reputation
Intel’s Code of Conduct
Credit: Intel’s Code of Conduct. © Intel Corporation. Reprinted by permission.
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promote honest and ethical conduct, and comply with applicable laws and regulations.
Intel’s Code of Conduct also expresses its policies regarding the environment, health and
safety, intellectual property, diversity, nondiscrimination, supplier expectations, privacy,
and business continuity.
17
Conducting Social Audits
An increasing number of organizations conduct regular social audits of their policies and
practices. In a social audit, an organization reviews how well it is meeting its ethical and
social responsibility goals, and communicates its new goals for the upcoming year. This
information is shared with employees, shareholders, investors, market analysts, customers, suppliers, government agencies, and the communities in which the organization
operates. For example, each year Intel prepares its “Corporate Responsibility Report,”
which summarizes the firm’s progress toward meeting its ethical and CSR goals. In 2011,
Intel focused on goals in three primary areas: (1) the environment—with targets set for
global-warming emissions, energy consumption, water use, chemical and solid waste
reduction, and product energy efficiency; (2) corporate governance—with goals to improve
transparency and strengthen ethics and compliance reporting; and (3) social—with goals
to improve the organizational health of the company as measured by its own Organizational Health Survey, to expand the number of supplier audits, and to increase the number
of community education programs.41
Requiring Employees to Take Ethics Training
The ancient Greek philosophers believed that personal convictions about right and wrong
behavior could be improved through education. Today, most psychologists agree with
them. Lawrence Kohlberg, the late Harvard psychologist, found that many factors stimulate a person’s moral development, but one of the most crucial is education. Other
researchers have repeatedly supported the idea that people can continue their moral
development through further education, such as working through case studies and examining contemporary issues.
Thus, an organization’s code of ethics must be promoted and continually
communicated within the organization, from top to bottom. Organizations can do this
by showing employees examples of how to apply the code of ethics in real life.
One approach is through a comprehensive ethics education program that encourages
employees to act responsibly and ethically. Such programs are often presented in
small workshop formats in which employees apply the organization’s code of ethics to
hypothetical but realistic case studies. Employees may also be given examples of recent
company decisions based on principles from the code of ethics. A critical goal of such
training is to increase the percentage of employees who report incidents of misconduct;
thus, employees must be shown effective ways of reporting such incidents. In addition,
they must be reassured that such feedback will be acted on and that they will not be
subjected to retaliation.
In its 2011 National Business Ethics Survey, the Ethics Resource Center reported
that 56 percent of all complaints are reported to an employee’s direct supervisor.42
Because these supervisors are essentially the eyes and ears of the company, they
“need adequate resources, support, and training to address the stress created by and
An Overview of Ethics
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18
the additional misconduct related to the implementation of company tactics” according to
the ERC.43
Motorola, designer of wireless network equipment, cell phones, and smartphones, is
committed to a strong corporate ethics training program to ensure that its employees
conduct its business with integrity. The focus of the training is to clarify corporate values
and policies and to encourage employees to report ethical concerns via numerous reporting channels. Motorola investigates all allegations of ethical misconduct, and it will take…
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