WHAT IS ETHICS?

Each s o c i e t y forms a set of rules that establishes the boundaries of generally accepted behavior. These rules are often expressed in statements about h ow p e o p l e should behave, and they fit together to form the moral code by w h i c h a s o c i e t y lives. Unfortunately, the different rules often have contradictions, and people are sometimes uncertain about which rule to follow. For instance, if y o u witness a friend c o p y s o m e o n e else's answers while taking an exam, y o u might be caught in a conflict between loyalty to your friend and the value of telling the truth. Sometimes the rules do not s e em to c o v e r n ew situations, and an individual must determine how t o apply existing rules or develop n ew ones. You may strongly support personal privacy, but what rules do y o u think are acceptable for governing the appropriate use of c o m p a n y resources, such as e-mail and Internet access?

The term morality refers to social conventions about right and wrong that are so widely shared that they b e c o m e the basis for an established consensus. However, individual views of what i s moral may vary by age, cultural group, ethnic background, religion, life experiences, education, and gender. There i s widespread agreement on the immorality of murder, theft, and arson, but other behaviors that are a c c e p t e d in o n e 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, the death penalty, and gun control are continuously debated, and both sides 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 w h i c h are almost universal. However, although nearly everyone would agree that lying and cheating are unethical, opinions about what constitutes ethical behavior often vary dramatically. For example, attitudes toward software piracy—that is, the practice of illegally making c o p i e s 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 c o n d u c t i n g business. In 2 0 0 7 , 38 percentof all software in circulation worldwide was pirated—at a cost of nearly $ 4 8 billion(USD). The highest p i r a c y rate—93 percent—was in Armenia; Bangladesh, Azerbaijan, and Moldova all had piracy rates of 92 percent. The lowest piracy rates were in the United States (20%), Luxembourg (21%), and New Zealand ( 2 2 % ) . 6As children grow, they learn complicated tasks—walking, talking, swimming, riding a bike, writing the alphabet—that they perform out of habit for the rest of their lives. People also develop habits that make it easier to choose between what society considers good or bad. Virtues are habits that incline people to do what is acceptable , and vices are habits 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.

The Importance of Integrity

Your moral principles are statements of what y o u 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 y o u 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 resume? 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 y o u expect to receive from others. Unfortunately, consistency can be difficult to achieve, particularly when y o u 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 y o u should be fairly compensated for your work. Thus, if you r employer insists that you do not report the overtimehours that you have worked due to budget constraints, a moral conflict arises. You can do as your employer requests or you can insist on being fairly compensated, but y o u cannot do both. In this situation, you may be forced to compromise one of your principles and act with an apparent lack of integrity.

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Another form of inconsistency emerges if you apply moral standards differently according to the situation or people involved. To be consistent and act with integrity, you must apply the same moral standards in all situations. For example, y o u 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 Alaskanwildlife from being spoiled and also "right" to find new sources of oil to maintain U.S. reserves, but how do they balance these two concerns

The Difference Between Morals, Ethics, and Laws

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 w h i c h an individual belongs. For example, the ethics of the law profession demand that defense attorneys defend an a c c u s e d client to the best of their ability, even if they k n ow that the client i s guilty of the most heinous and morally objectionable crime o ne could imagine.

Law is a system of rules that tells us what we c a n and cannot d o . Laws are enforced by a set of institutions (the p o l i c e , courts, law-making b o d i e s ) . Legal acts are acts that c o n form to the law. Moral acts c o n f o rm with what an individual believes to be the right thing to do. Laws c a n p r o c l a im 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 w o r k environment, and suggests a model for ethical d e c i s i o n making. The chapter c o n c l u d e s with a discussion of ethics as i t relates to information t e c h n o l o g y ( I T ) .

ETHICS IN THE BUSINESS WORLD

Ethics has risen to the t o p of the business agenda because the risks associated with inappropriate behavior have increased, b o t h in their likelihood and in their potential negative impact. In the past decade, we have seen the failure of major corporations such as Enron and W o r l d C om due to accounting scandals. We have watched the collapse of financial institutions due to unwise and unethical d e c i s i o n making over the approval of mortgages 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. Clearly, unethical behavior has led to serious negative c o n s e q u e n c e s 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 m u c h more c o m p l e x w o r k environment that spans diverse cultures and societies, making i t m u c h m o r e difficult to apply principles and codes of ethics consistently. For example, numerous U.S. companies have garnered negative publicity for moving operations to third-world countries, where employees w o r k in c o n d i tions that would not be acceptable in most developed parts of the world.

Second, in today's recessionary e c o n o m i c 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 Peanut Corporation of A m e r i ca allegedly shipped tainted products from its plant in Georgia, which led to a salmonella outbreak in 2008 that killed at least eight p e o p l e and sickened over 5 5 0 p e o p l e in 43 states.7

Employees, shareholders, and regulatory agencies are increasingly sensitive to violations of accounting standards, failures to disclose substantial changes in business c o n d i tions, 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 d e c i s i o n making c a n be found in the Enron accounting scandal. In 2000, Enron e m p l o y e d over 2 2 , 0 0 0 people and had annual revenue of $ 1 0 1 billion. During 2 0 0 1 , i t was revealed that m u c h 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 $ 9 0 per share to less than $1 per share, and the c o m p a n y was forced to file for bankruptcy in December 2 0 0 1 . The Enron case was notorious, but many other corporate scandals have recently o c c u r r e d in spite of safeguards enacted as a result of the Enron debacle. Here are just a few examples from around the world:

• As discussed in the opening vignette, Hewlett-Packard hired investigators to identify members of its board of directors who were responsible for leaking c o n fidential c o m p a n y information to the press.

• Gomverse T e c h n o l o g y develops, designs, manufactures, and supports computer and telecommunications systems for multimedia communications. It provides its products to m o r e than 500 service providers in over 130 countries. In 2008, the company's founder and former GEO J a c o b Alexander admitted he backdated Gomverse s t o c k options for personal gain and i s being sued by the firm for $ 7 0 m i l l i o n . 8

• The chairman of the India-based outsourcing firm Satyam Computer Services admitted he falsified his firm's profits for years—by as m u c h as $1 billion. The revelation represents India's largest ever corporate scandal.9

• Two separate scandals, just weeks apart in 2006, caused China to lose ground in its effort to c a t c h up with advanced countries in building its own computer chips. W o r k on the Haxin chip—a digital signal processing chip—was halted and its lead designer disgraced when it was revealed to be a c o p y of a U.S. design. Shortly after, the state-supported R & D effort t o build the Arca-3 CPU c h i p had to be delayed when i t was uncovered that the research funds had b e en e m b e z z l e d . 1

This is just a small sample of the scandals that have led to an increased focus on business ethics within many IT organizations.

Why Fostering Good Business Ethics Is Important

Organizations have at least five g o o d reasons for promoting a w o r k environment in w h i ch employees are encouraged to act ethically when making business decisions:

1. Gaining the g o o d will of the c o m m u n i ty2. Creating an organization that operates consistently3. Fostering g o o d business practices4. Protecting the organization and its employees from legal action5. Avoiding unfavorable publicity

Gaining t h e G o o d Will of t h e C o m m u n i ty Although organizations exist primarily to earn profits or provide services to customers, they also have some fundamental responsibilities to society. Often they declare these responsibilities in a formal statement of their c o m p a n y ' s principles or beliefs (see Figure 1-1 for an example).

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 t h em through. We hold ourselves accountable to our customers, shareholders, partners, and employees by honoring our commitments, providing results, and striving for the highest quality. Source: Accessed at www.microsoft.com/about/default.mspx.

FIGURE 1-1 Microsoft's statement of values

"Technology companies are waking up to the fact that they have to attract and maintain loyalty with their customers," says Carol Cone, head of Boston marketing consulting firm Cone, Inc., which helps develop corporate giving programs. "Philanthropy allows a company to demonstrate its values in action and present a human face to its stakeho l d e r s . " 1 1 (A stakeholder i s s o m e o n e w h o stands to gain or lose, depending on h ow a situation is resolved.) As a result, many organizations initiate or support socially responsible activities, which include making contributions to charitable organizations and nonprofit institutions, providing benefits for employees in e x c e s s of any legal requirements, and devoting organizational resources to initiatives that are more socially desirable than profitable. Table 1-1 provides a f ew examples of s o m e of the many socially responsible activities supported by major IT organizations.

TABLE 1-1 Examples of IT organizations' socially responsible activitiesOrganization Example of socially responsible activityGoogle, Inc. Donated 833 million in free ads to nonprofit organizations in low-income areas1 2

Hewlett-Packard Employees work to implement technology solutions to benefit residents of central city communities1 3IBM Awards millions of dollars of grants each year to support the artsIntel Supplied 100,(100 computers to schools in low-income neighborhoods''Microsoft Matches its employees' direct contributions to thousands of nonprofit organizations13SAP America Awards up to nine undergraduate students a 810,000 scholarship each academic year1 6Yahoo! Allows employees to take time off to develop technology applications to aid charitable organizations17

The g o o d will that socially responsible activities create can make i t easier for c o r p o r a tions to c o n d u c t their business. For example, a c o m p a n y known for treating its employees well will find i t easier to c o m p e t e for the best j o b candidates. On the other hand, companies viewed as harmful to their c o m m u n i t y may suffer a disadvantage. For example, a corporation that pollutes the air and water (see Figure 1-2) may find that adverse publicity reduces sales, impedes relationships with some business partners, and attracts unwanted government attention.

Creating an Organization That O p e r a t e s C o n s i s t e n t ly

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 c o n s i s t e n c y means that employees k n ow what i s e x p e c t e d of t h em and can e m p l o y the organization's values to help t h em in their d e c i s i o n making. Consistency also means that shareholders, customers, suppliers, and the community know what they can expect of the organization—that i t 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 e a c h 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 c o n d u c t , 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

I n many cases, g o o d ethics can mean g o o d business and improved profits. Companies that produce safe and effective products avoid costly recalls and lawsuits. Companies that provide excellent service retain their customers instead of losing t h em to competitors. Companies that develop and maintain strong e m p l o y e e relations suffer lower turnover rates and enjoy better employee morale. Suppliers and other business partners often place a priority on working with companies that operate in a fair and ethical manner.

On the other hand, bad ethics c a n lead to bad business results. For example, according to the American Customer Satisfaction Index—an annual quality survey c o n d u c t e d by the University of Michigan—consumers rated their satisfaction with their personal computer manufacturer 3 percent lower in 2007 than in 2 0 0 6 . 1 8 Dell was especially hard hit. Its rating dropped 5 percent due to customers' p e r c e p t i o n of service and product reliability, a drop that likely cost it millions of dollars in lost sales. While this d r o p in customer satisfaction was generally linked to service and reliability on the survey, a lawsuit filed by New York Attorney General A n d r ew C u o m o p r o v e d that some of those issues were actually the result of deliberate consumer fraud on the part of Dell. In May 2007, a j u d g e found that Dell failed to provide the timely on-site technical support that customers were entitled to, frustrated customers seeking telephone tech support through long wait times and frequent transfers, failed to provide promised rebates, and failed to deliver on promises of no-interest-rate financing. At o n e time Dell was the world's largest personal computer manufacturer, but over a p e r i o d of a few years it lost that spot to Hewlett-Packard, with many industry experts citing p o o r customer service as a major f a c t o r

Likewise, bad ethics can have a negative impact on employees, many of w h om can 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 t h em against anticipated punishment. When such a discrepancy between employee and organizational ethics occurs, it destroys employee commitment to organizational goals and objectives, creates l

ow morale, fosters p o o r performance, erodes employee involvement in organizational improvement initiatives, and builds indifference to the organization's needs.

Protecting t h e O r g a n i z a t i o n a n d Its Employees f r om 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 p o l i c y and their employer's d i r e c t i o n s . 2 0 The principle established is called respondeat superior, or "let the master answer." An example of the application of this principle can be found in the collapse in 2002 of Arthur Andersen, one of the "Big Five" international accounting firms. Andersen was indicted by the Department of Justice for obstruction of j u s t i c e for the shredding of documents associated with the auditing work that a few of its partners performed for E n r o n . 2 1 Andersen was f o r c e d to relinquish its auditing license. It c l o s e d its U.S. offices due to lack of clients, and some 26,000 employees lost their j o b s .

A coalition of several legal organizations, including the Association of Corporate Counsel, the U.S. Chamber of C o m m e r c e , 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 liaibility if they have acted as responsible corporate citizens, making strong efforts to prevent and detect misconduct in the workplace . " One way to do this i s to establish effective ethics and c o m p l i a n c e programs.

Indeed, in 1991, the Department of Justice established sentencing guidelines that suggest more lenient treatment for c o n v i c t e d executives i f their companies have ethics programs. Fines for criminal violations can be lowered by up to 80 percent i f the organization has implemented an ethics management program and cooperates with authorities

Avoiding Unfavorable Publicity

The public reputation of a c o m p a n y strongly influences the value of its stock, h o w consumers regard its products and services, the degree of oversight i t receives from government agencies, and the amount of support and c o o p e r a t i o n 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 p e r c e i v e d as operating ethically, customers, business partners, shareholders, consumer advocates, financial institutions, and regulatory bodies will usually regard it more favorably.

Improving Corporate Ethics

Research by the Ethics Resource Center found that only o n e in four organizations has a well-implemented ethics and c o m p l i a n c e program. The Ethics Resource Center has defined the following characteristics of a successful ethics program:

• Employees are willing to seek advice about ethics issues.• Employees feel prepared to handle situations that c o u l d lead to misconduct.• Employees are rewarded for ethical behavior.• The organization does not reward success obtained through questionablemeans.• Employees feel positively about their c o m p a n y . 2 4

The risk of unethical behavior i s increasing, so the improvement of business ethics isbecoming m o r e important. The following sections explain s o m e of the actions corporationscan 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. Organizations send a clear message to employees about the importance of ethics and compliance in their d e c i s i on about w h o will be in charge of the effort and to w h o m that individual will report. Ideally, the corporate ethics officer should be a well-respected, senior-level manager w h

o reports directly to the CEO. Ethics officers c o m e from diverse backgrounds, such as legal staff, human resources, finance, auditing, security, or line operations.

The presence of a corporate ethics officer has b e c o m e increasingly c o m m o n . 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—when bids. A s e c o n d spike in appointments c a m e in the early 1990s, following the n ew U.S. sentencing guidelines that promised decreased fines for firms that adopted ethics programs. A third surge followed the myriad accounting scandals of the early 2000s. Another increase in appointments can be e x p e c t e d in the aftermath of the mortgage loan scandals u n c o v e r ed in 2008. Typically the ethics officer tries to establish an environment that encourages ethical decision making through the actions described in this chapter. Specific responsibilities include:

• 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 principles

Unfortunately, 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 i s 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, particularly the local community that the nonprofit serves.

The board fulfills some of its responsibilities directly and assigns others to various committees. The board i s 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 e x p e c t e d to c o n d u c t themselves according to the highest standards for personal and professional integrity, while setting the standard for company-wide ethical conduct and ensuring c o m p l i a n c e with laws and regulations. Employees will "get the message" if b o a r d 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 must create an environment in which employees feel they can seek advice about appropriate business c o n d u c t , raise issues, and report misconduct through appropriate channels. Unfortunately, while nearly half of all employees surveyed saw some form of ethical misconduct in 2007, less than 60 percent of those employees reported the misconduct to management, primarily because they feared retaliation of some kind or felt that no action would be taken even i f they did report it. Regrettably, o n e in eight employees did e x p e r i e n c e s o m e f o rm of retaliation.

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 d e c i s i o n making. The c o d e frequently includes a set of formal, written statements about the purpose of the organization, its values, and the principles that should guide its employees' actions. An organization's c o d e of ethics applies to its directors, officers, and employees. The c o d e of ethics focuses employees on areas of ethical risk relating to their role in the organization, offers guidance to help t h em recognize and deal with ethical issues, and provides mechanisms for reporting unethical c o n d u c t and fostering a culture of honesty and accountability within the organization. The c o d e of ethics helps ensure that employees abide by the law, follow necessary regulations, and behave in an ethical manner.

The Sarbanes-Oxley A c t of 2 0 0 2 was passed in response to public outrage over several major accounting scandals, including those a t Enron, WorldCom, T y c o , 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 r e n ew investors' trust in corporate executives and their firm's financial reports. _ The act led to significant reforms in the content and preparation of disclosure documents by p u b l i c companies.

For example, Section 404 of the act states that annual reports must contain a statement signed by the CEO and GFO attesting that the information contained in all of the firm's Securities and Exchange Commission filings i s accurate. The c o m p a n y 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 4 0 6 of the act also requires public companies to disclose whether they have a c o d e of ethics and to disclose any waiver of the c o d e for certain members of senior management. The Securities and Exchange Commission also approved significant reforms by the NYSE and NASDAQ that, among other things, require companies listed with t h em to have c o d e s of ethics that apply to all employees, senior management, and directors.

A c o d e of ethics cannot gain company-wide a c c e p t a n c e unless i t i s 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 c o de of ethics must continually be applied to a c o m p a n y ' s d e c i s i o n making and emphasized as an important part of its culture. Breaches in the c o d e of ethics must be identified and dealt with appropriately so that the c o d e ' s relevance is not undermined.

In March 2007, Business Ethics magazine rated U.S.-based, publicly held companies based on a statistical analysis of corporate service to seven stakeholder groups—employees, customers, community, minorities and women, shareholders, the environment, and non-U.S. stakeholders. The t o p IT company, based on performance between 2 0 0 0 and 2 0 0 7 , was Intel Corporation, the world's largest computer c h i p maker. A summary of Intel's c o d e of ethics is shown in Figure 1-3. A m o r e detailed version is spelled out in a 22-page document (Intel Code of Conduct, May 2007, found at www.intel.com/intel/finance/docs/code-of-conductpdf), which offers employees guidelines designed to deter wrongdoing, promote honest and ethical c o n d u c t , and c o m p l y 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

1. Intel conducts business w i t h honesty and integrity2. Intel follows the letter and spirit of the law3. Intel employees treat each other fairly4. Intel employees act in the best interests of Intel and avoid conflicts of interest5. Intel employees protect the company's assets and reputation

Source: Intel's public conduct code for employees, published in Intel's Social Media Guidelines, www.intel.com/sites/sitewide/en_US/social-media.htm (accessed January 26, 2009).FIGURE 1-3 Intel's five principles of conduct

Conducting Social Audits

An increasing number of organizations c o n d u c t social audits of their policies and practices. In a social audit, an organization reviews h o w well it is meeting its ethical and social •responsibility goals, and communicates its n ew 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, e a c h year Intel prepares its Corporate Responsibility Report, which summarizes the firm's progress toward meeting its ethical and social responsibility goals. A partial summaryof this report is presented in Table 1-2.

TABLE 1-2 Partial Intel 2007 Corporate Responsibility Report

2007 Goals 2007 Performance

Audit 20% of our suppliers who may be We did not reach our 20% goal; chal- Did not meetat high risk for nonconformance to the lenges included industry-wide supplier goalEIGC classification and auditor training

Reduce greenhouse gas emissions per Goal remains on track; absolute green- Met our goalproduction unit by 30% from 2004 levels house gas emissions were down 6%bv2010

Reduce water usage per production unit Absolute water use was down 2%; usage Did not meet goalbelow 2005 levels by 2010 was up 4% per chip

Recycle more than 70% of both chemical In 2007, Intel recycled 89% of the solid Met our goaland solid waste generated from our waste and 87% of the chemical wasteworldwide facilities generated at our facilities worldwideEmpower students and teachers by Donated 27,000 full-featured PCs with Met our goaldonating 20,000 computers to schools Internet connectivity to more than 500in developing nations schools in 22 countries as part of our

education donation program

Source: Intel 2007 Corporate Responsibility Report, www.intel.com/go/responsibility

Requiring Employees to Take Ethics Training

The ancient Greek philosophers believed that personal convictions about right and wrong behavior c o u l d 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 o n e of the most crucial i s education. Other researchers have repeatedly supported the idea that people can continue their moral development through further education, such as working case studies and examining contemporary issues.

Thus, an organization's c o d e of ethics must be p r o m o t e d and continually communicated within the organization, from t o p to bottom. Organizations c a n do this by showing employees examples of h ow to apply the c o d e of ethics in real life. One approach i s 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 c o d e of ethics to hypothetical but realistic case studies. Employees may also be given examples of recent c o m p a n y decisions based on principles from the c o d e of ethics. It is critical that such training 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.

Ethics training not only makes employees m o r e aware of a company's c o d e of ethics and h o w to apply it, but also demonstrates that the company intends to operate in an ethical manner. The existence of formal training programs can also reduce a company's liability in the event of legal action.

Including Ethical Criteria in Employee Appraisals

Managers can ensure that employees are meeting performance expectations if they monitor employee behavior and provide feedback; however, a recent survey of HR professionals revealed that only 43 percent of organizations include ethical conduct as part of an employee's performance appraisal.2 ' Those that do so base a portion of their employees' performance evaluations on treating others fairly and with respect; operating effectively in a multicultural environment; accepting personal accountability for meeting business needs; continually developing others and themselves; and operating openly and honestly with suppliers, customers, and other employees. These factors are considered along with the more traditional criteria used in performance appraisals, such as an employee's overall contribution to moving the business ahead, successful completion of projects and tasks, and maintenance of good customer relations.

Creating an Ethical Work Environment

Most employees want to perform their j o b s successfully and ethically, but g o o d employees sometimes make bad ethical c h o i c e s . Employees in highly competitive workplaces often feel pressure from aggressive competitors,

cutthroat suppliers, unrealistic budgets, unforgiving quotas, tight deadlines, and bonus incentives. Employees may also be encouraged t o do "whatever i t takes" to get the j o b done. Such environments c a n make some employees feel pressure to engage in unethical c o n d u c t to meet management's expectations, especially if the organization has no corporate c o d e of ethics and no strong examples of senior management practicing ethical behavior. Table 1-3 shows h ow management's behavior can result in unethical employee behavior; Table 1-4 provides a manager's checklist for establishing

TABLE 1-3 How management can affect employees' ethical behavior

Managerial behavior that can encourage unethical Possible employee reactionbehavior

Set and hold people accountable to meet "stretch" "My boss wants results, not excuses, so I havegoals, quotas, and budgets to cut corners to meet the goals my boss has set

Fail to provide a corporate code of ethics and oper "Because the company has not established anyating principles to guide decisions guidelines, I don't think my conduct is really

wrong or illegal."

Fail to act in an ethical manner and instead set a "I have seen other successful people takepoor example for others to follow unethical actions and not suffer negative

repercussions."

Fail to hold people accountable for unethical "No one will ever know the difference, and ifActions they do, so what?"

When employees are hired, put a 3-inch thick "This is overwhelming. Can't they just give mebinder entitled "Corporate Business Ethics, Policies, the essentials? I can never absorb all this."and Procedures" on their desks. Tell them to"read it when you have time and sign the attachedform that says you read and understand the corporate policy."

TABLE 1-4 A manager's checklist for establishing an ethical work environment

Question Yes No

Does your organization have a code of ethics?Do employees know how and to whom to report any infractions of the code ofethics?Do employees feel that they can report violations of the code of ethics safely andwithout fear of retaliation?Do employees feel that action will be taken against those who violate the code ofethics?Do senior managers set an example by communicating the code of ethics andusing it in their own decision making?Do managers evaluate and provide feedback to employees on how they operatewith respect to the values and principles in the code of ethics?Are employees aware of sanctions for breaching the code of ethics?Do employees use the code of ethics in their decision making?Employees must have a knowledgeable resource with w h om they c a n discuss p e r c e i v edunethical practices. For example, Intel expects employees to report suspected violations ofits c o d e of c o n d u c t to a manager, the Legal or Internal Audit Departments, or a businessunit's legal counsel. Employees can also report violations anonymously through an internal Web site dedicated to ethics. Senior management at Intel has made i t clear that any employeec a n report suspected violations of corporate business principles without fear of reprisalor retaliation.

Including Ethical Considerations in Decision Making

We are all faced with difficult decisions in our w o r k and in our personal life. Most of us have developed a decision-making p r o c e s s that we execute automatically, without thinking about the steps we go through. For many of us, the p r o c e s s generally follows the steps outlined in Figure 1-4.

FIGURE 1-4 Decision-making process

ir• • • • I

The following sections discuss this decision-making process further and point out where and h ow ethical considerations need to be brought into the process.

Develop a Problem Statement

A problem statement i s a clear, c o n c i s e description of the issue that needs to be addressed. A g o o d p r o b l em statement answers the following questions: What do people observe that causes t h em to think there is a p r o b l e m ? W h o is directly affected by the p r o b l e m ? Is there anyone else affected? H ow often does i t o c c u r ? What i s the impact of the p r o b l e m ? How serious is the p r o b l e m ? Development of a p r o b l em statement is the most critical step in the decision-making process. Without a clear statement of the p r o b l em or the d e c i s i o n to be made, it i s useless to p r o c e e d . Obviously, if the p r o b l em is stated incorrectly, the d e c i s i on will not solve the problem.

One must gather and analyze facts to develop a g o o d p r o b l em statement. Seek information and opinions from a variety of p e o p l e to broaden your frame of reference. During this process, y o u must be extremely careful not to make assumptions about the situation. Simple situations can sometimes turn into c o m p l e x controversies because no one takes the time to gather the facts. For example, y o u might see your boss receive what appears to be an employment application from a j o b applicant and then throw the application into the trash after the applicant leaves. This would violate your organization's p o l i c y to treat e a c h applicant with respect and to maintain a r e c o r d of all applications for o n e year. You c o u l d report your boss for failure to follow the p o l i c y , or y o u c o u l d take a moment to speak directly to your boss. You might be pleasantly surprised to find out that the situation

was not as it appeared. Perhaps the "applicant" was actually a salesperson promoting a product for which your c o m p a n y had no use, and the "application" was marketing literature.

Part of developing a g o o d p r o b l em statement involves identifying the stakeholders and their positions on the issue. Stakeholders often include others b e y o n d those directly involved in an issue. Identifying the stakeholders helps y o u understand the impact of y o ur decision and c o u l d help y o u make a better decision. Unfortunately, i t may also cause y ou to lose sleep from wondering h ow y o u might affect the lives of others. By involving stakeholders in the decision, y o u gain their support for the r e c o m m e n d e d course of action. What i s at stake for e a c h stakeholder? What d o e s each stakeholder value, and what o u t c o m e does each stakeholder want? Do some stakeholders have a greater stake because they have special needs or because the organization has special obligations to t h e m ? To what degree should they be involved in the d e c i s i o n?

The following list includes one example of a g o o d p r o b l em statement as well as two examples of p o o r p r o b l em statements:

• Good p r o b l em statement: Our product supply organization is continually running out of s t o c k of finished products, creating an out-of-stock situation on over 15 percent of o u r customer orders, resulting in over 11300,000 in lost sales per month.• Poor p r o b l em statement: We need to implement a n ew inventory control system. (This is a possible solution, not a p r o b l em statement.)• Poor p r o b l em statement: We have a p r o b l em with finished product inventory. (This i s not specific enough.)

Identify Alternatives

During this stage of d e c i s i o n making, it is ideal to enlist the help of others, including stakeholders, to identify several alternative solutions to the problem. Brainstorming with just one other person will reduce your chances of identifying a broad range of alternatives and determining the best solution. On the other hand, there are times when it is inappropriate to involve others in solving a p r o b l em that y o u are not at liberty to discuss. In providing participants information about the p r o b l em to be solved, offer just the facts, without your opinion, so y o u don't influence others t o a c c e p t y o u r solution.

During any brainstorming process, try not to be critical of ideas, as any negative critic i sm will tend to "shut down" the group, and the flow of ideas will dry up. Simply write down the ideas as they are suggested.

Evaluate and C h o o s e an A l t e r n a t i ve

Once a set of alternatives has b e e n identified, the group attempts to evaluate them based on numerous criteria, such as effectiveness at addressing the issue, the extent of risk associated with each alternative, cost, and time to implement. An alternative that sounds attractive but that is not feasible will not help solve the problem.

As part of the evaluation p r o c e s s , weigh various laws, guidelines, and principles that may apply. You certainly do not want to violate a law that can lead to a fine or imprisonment for yourself or others. Are there any corporate policies or guidelines that apply? Does the organizational c o d e of ethics offer guidance? Do any of your own personal principles apply?

Also consider the likely c o n s e q u e n c e s of e a c h alternative from several perspectives— What i s the impact on y o u , your organization, other stakeholders (including your suppliers and customers), and the environment?

The alternative selected should be ethically and legally defensible; be consistent with the organization's policies and c o d e of ethics; take into a c c o u n t the impact on others; and, of c o u r s e , provide a g o o d solution to the problem.

Philosophers have developed many approaches to aid in ethical decision making. Four of the most c o m m o n approaches, which are summarized in Table 1-5 and discussed below, provide a framework for decision makers to reflect on the acceptability of their actions and evaluate their moral judgments. People must find the appropriate balance between all applicable laws, corporate principles, and moral guidelines to help t h em make decisions.

(For a m o r e in-depth discussion of ethics and moral c o d e s , see Appendix A . )

TABLE 1-5 Four common approaches to ethical decision making

Approach to dealing with moral issues Principle

Virtue ethics approach The ethical choice best reflects moral virtues in yourself andyour community.

Utilitarian approach The ethical choice produces the greatest excess ot' benefitsover harm.

Fairness approach The ethical choice treats everyone the same and shows nofavoritism or discrimination.

Common good approach The ethical choice advances the common good.

Virtue Ethics ApproachThe virtue ethics approach t o decision making focuses o n how you should behave and think about relationships if you are concerned with your daily life in a community. It does not define a formula for ethical decision making, but suggests that when faced with a c o m -! x ethical dilemma, people do either what they are most comfortable doing or what they think a person they admire would d o . The assumption i s that p e o p l e are guided by their virtues to r e a c h the "right" decision. A proponent of virtue ethics believes that a disposition to do the right thing is more effective than following a set of principles and rules, and that people should perform moral acts out of habit, not introspection.

Virtue ethics can be applied to the business world by equating the virtues of a g o od businessperson with those of a g o o d person. However, businesspeople face situations that are peculiar to business, so they may need to tailor their ethics accordingly. For example, honesty and openness when dealing with others are generally considered virtuous; however, a corporate purchasing manager w h o is negotiating a multimillion dollar deal might need to be vague in discussions with potential suppliers.

A p r o b l em with the virtue ethics approach is that it doesn't provide m u c h of a guide for action. The definition of virtue cannot b e worked out objectively; it depends o n the circumstances—you w o r k i t out as y o u go. For example, bravery i s a great virtue in many circumstances, but in others it may be foolish. The right thing to do in a situation depends on which culture you're in and what the cultural n o rm dictates.

Utilitarian ApproachThe utilitarian approach to ethical d e c i s i o n making states that y o u should c h o o s e the action or p o l i c y that has the best overall c o n s e q u e n c e s for all p e o p l e w h o are directly or indirectly affected. The goal i s to find the single greatest g o o d by balancing the interests of all affected parties.

Utilitarianism fits easily with the c o n c e p t of value in e c o n o m i c s and the use of cost-benefit analysis in business. Business managers, legislators, and scientists weigh the benefits and h a rm of policies when deciding whether to invest resources in building a new plant in a foreign country, to enact a n ew law, or to approve a n ew prescription drug.

A complication of this approach is that measuring and comparing the values of certain benefits and costs is often difficult if not impossible. How do y o u assign a value to human life or to a pristine wildlife environment? It can also be difficult to predict the full benefits and harm that result from a decision.

Fairness ApproachThe fairness approach focuses on h ow fairly actions and policies distribute benefits and burdens among p e o p l e affected by the decision. The guiding principle of this approach is to treat all people the same. However, decisions made with this approach c a n be influenced by personal bias toward a particular group, and the decision makers may not even realize their bias. If the intended goal of an action or a p o l i c y is to provide benefits to a target group, other affected groups may consider the decision unfair.

Common Good ApproachThe common good approach to d e c i s i o n making i s based on a vision of s o c i e t y as a community whose members w o r k together to achieve a c o m m o n set of values and goals. Decisions and policies that use this approach attempt to implement social systems, institutions, and environments that everyone depends on and that benefit all people. Examples include an effective education system, a safe and efficient transportation system,and accessible and affordable health care.

As with the other approaches to ethical d e c i s i o n making, there are complications with the c o m m o n g o o d approach. People clearly have different ideas about what constitutes the c o m m o n g o o d , w h i c h makes consensus difficult. I n addition, maintaining the c o m m o n g o od often requires some groups to bear greater costs than others—for instance, homeowners pay property taxes to support public schools, but apartment dwellers do not.

Implement Decision

Once the alternative is selected, it should be implemented in an efficient, effective, and timely manner. This i s m u c h easier said than done, since people tend to resist change. In fact, the bigger the change, the greater is the resistance to it. Communication is the key to helping people accept a change. It i s imperative that s o m e o n e w h om the stakeholders trust and respect answer the following questions: Why are we doing this? What i s wrong with the current way we do things? What are the benefits of the n ew way for y o u ? A transition plan must be defined to explain to p e o p l e h ow they will move from the old way of doing things to the n ew way. It is essential that the transition be seen as relatively easy and pain free.

Evaluate the ResultsAfter the solution to the p r o b l em has b e e n implemented, monitor the results to see if the desired effect was achieved, and observe its impact on the organization and the various stakeholders. Were the success criteria fully m e t ? Were there any unintended c o n s e qu e n c e s ? This evaluation may indicate that further refinements are needed. If so, return to the p r o b l em development step, refine the p r o b l em statement as necessary, and w o rk through the process again.

ETHICS IN INFORMATION TECHNOLOGYThe growth of the Internet, the ability to capture and store vast amounts of personal data, and greater reliance on information systems in all aspects of life have increased the risk that information technology will be used unethically. In the midst of the many IT breakthroughs in recent years, the importance of ethics and human values has b e e n underemphasized— with a range of c o n s e q u e n c e s . Here are some examples that raise public c o n c e r n about the ethical use of information technology:

- Many employees might have their e-mail and Internet a c c e s s monitored while at work, as employers struggle to balance their need to manage important company assets and w o r k time with employees' desire for privacy and self direction.

- Millions of p e o p l e have downloaded music and movies at no charge and in apparent violation of copyright laws at tremendous expense to the owners of those copyrights.

- Organizations contact millions of p e o p l e worldwide through unsolicited e-mail (spam) as an extremely low-cost marketing approach.

- Hackers break into databases of financial and retail institutions to steal customer information, then use it to commit identity theft—opening n ew accounts and charging purchases to unsuspecting victims.

- Students around the world have b e e n caught downloading material from the Web and plagiarizing content for their t e rm papers.- Web sites plant c o o k i e s or spyware on visitors' hard drives to track their online purchases and activities.

This book is based on two fundamental tenets. First, the general public does not understand the critical importance of ethics as it applies to IT, as t o o m u c h emphasis has b e en placed on technical issues. Unlike most conventional tools, IT has a profound effect on society. IT professionals and users need to recognize this fact when they formulate policies that will have legal ramifications and affect the well-being of millions of consumers. The s e c o n d tenet on w h i c h this b o o k i s based i s that in the business world, important decisions are too often left to the technical experts. General business managers must assume greater responsibility for these decisions, but to do so they must be able to make broad-minded, objective decisions based on technical savvy, business know-how, and a sense of ethics. They must also try to create a working environment in which ethical dilemmas c a n be discussed openly, objectively, and constructively.

Thus, the goals of this text are to educate p e o p l e about the tremendous impact of ethical issues in the successful and secure use of information technology; to motivate people to recognize these issues when making business decisions; and to provide tools, approaches, and useful insights for making ethical decisions.

Summary 5 =Even within the same society, people can have strong disagreements over important moral issues.

Ethics has risen to the top of the business agenda because t he risks associated with inappropriate behavior have increased, both in their likelihood and in their potential negative impact.

Organizations have at least five good reasons for promoting a work environment in which they encourage employees to act ethically: (1) to gain the good will of the community, (2) to create an organization that operates consistently, (3) to foster good business practices, (4) to protect the organization and its employees from legal action, and (5) to avoid unfavorable publicity.

An organization with a successful ethics program is one in which employees are willing to seek advice about ethical issues that arise; employees feel prepared to handle situations that could lead to misconduct; employees are rewarded for ethical behavior; the organization does not reward success gained through questionable means; and employees feel positively about their company.

The corporate ethics officer (or corporate compliance officer) ensures that ethical procedures are installed and consistently adhered to throughout the organization, creates and maintains the ethics culture, and serves as a key resource on issues relating to corporate principles and ethics.

Managers' behavior and expectations can strongly influence employees' ethical behavior.

Most of us have developed a simple decision-making model that includes these steps: (1) develop a problem statement, (2) identify alternatives, (3) evaluate and choose an alternative, (4) implement the decision, and (5) evaluate the results.

One can incorporate ethical considerations into decision making by identifying and involving the stakeholders; weighing various laws, guidelines, and principles— including the organization's code of ethics—that may apply; and considering the impact of the decision on you, your organization, stakeholders, your customers and suppliers, and the environment.

Philosophers have developed many approaches to ethical decision making. Four common philosophies are the virtue ethics approach, the utilitarian approach, the fairness approach, and the common good approach.

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