Fraud occurs every day all over the world. These tactics and strategies are helpful but are limited. Companies must create lower risk environments for fraud. To do so, organizations first must understand their own corporate ecology — the interrelations between people and their workplace — and tailor controls to the nature of those systems.
Packel Summer Those who work on issues of ethics are among the few professionals not suffering from the current economic downturn.
The last decade has brought an escalating supply of moral meltdowns in both the for-profit and the nonprofit sectors. Corporate misconduct has received the greatest attention, in part because the abuses are so egregious and the costs so enormous.
Even executives themselves acknowledge cause for concern. And more than one third of the executives reported that although their company would follow the law, it would not always do what would be perceived as ethical.
Employee surveys similarly suggest that many American workplaces fail to foster a culture of integrity. Results vary but generally indicate that between about one-quarter and three-quarters of employees observe misconduct, only about half of which is reported.
Nearly 40 percent of nonprofit employees who observed misconduct failed to report it, largely because they believed that reporting would not lead to corrective action or they feared retaliation from management or peers.
Addressing these ethical concerns requires a deeper understanding of the forces that compromise ethical judgment and the most effective institutional responses. To that end, this article draws on the growing body of research on organizational culture in general, and in nonprofit institutions in particular.
We begin by reviewing the principal forces that distort judgment in all types of organizations. Next, we analyze the ethical issues that arise specifically in the nonprofit sector.
Causes of Misconduct Ethical challenges arise at all levels in all types of organizations—for-profit, nonprofit, and government—and involve a complex relationship between individual character and cultural influences. Some of these challenges can result in criminal violations or civil liability: More common ethical problems involve gray areas—activities that are on the fringes of fraud, or that involve conflicts of interest, misallocation of resources, or inadequate accountability and transparency.
Research identifies four crucial factors that influence ethical conduct: They also diff er in their capacity for moral behavior—in their ability to cope with frustration and make good on their commitments.
Cognitive biases can compromise these ethical capacities. Those in leadership positions often have a high degree of confidence in their own judgment. That can readily lead to arrogance, overoptimism, and an escalation of commitment to choices that turn out to be wrong either factually or morally.
People tend to suppress or reconstrue information that casts doubt on a prior belief or action. In-group biases can also result in unconscious discrimination that leads to ostracism of unwelcome or inconvenient views.
That, in turn, can generate perceptions of unfairness and encourage team loyalty at the expense of candid and socially responsible decision making.
Skewed reward systems can lead to a preoccupation with short-term profits, growth, or donations at the expense of long-term values. Mismanaged bonus systems and compensation structures are part of the explanation for the morally irresponsible behavior reflected in Enron Corp.
Yet when the experiment was described to subjects, none believed that they would comply, and the estimate of how many others would do so was no more than one in In real-world settings, when instructions come from supervisors and jobs are on the line, many moral compasses go missing.
Ninety percent of subjects paired with someone who refused to comply also refused to administer the shocks. By the same token, 90 percent of subjects paired with an uncomplaining and obedient subject were equally obedient.
Research on organizational behavior similarly finds that people are more likely to engage in unethical conduct when acting with others. Under circumstances where bending the rules provides payoff s for the group, members may feel substantial pressure to put their moral convictions on hold.
That is especially likely when organizations place heavy emphasis on loyalty and off er significant rewards to team players. For example, if it is common practice for charity employees to inflate expense reports or occasionally liberate office supplies and in-kind charitable donations, other employees may suspend judgment or follow suit.
Once people yield to situational pressures when the moral cost seems small, they can gradually slide into more serious misconduct.
A frog thrown into boiling water will jump out of the pot. A frog placed in tepid water that gradually becomes hotter will calmly boil to death.Although Sen () argues that a self-interest and profit maximization as a motivation for exchange can co-exist with ethical behavior and the public good, it seems that this co-existence depends on the profit potential of ethics.
Although it may not be the first variable considered in analyzing the profits of a company, business ethics is an equally important catalyst to the success of a company.
Business Ethics in Management. The Ethics of Tobacco Marketing the tobacco companies are profiting from the suffering of others.
This product-awareness leads to consumer behavior, which is defined by Prentice Hall as “the process by which people determine whether, what, when, where, how, from.
Five Ways to Judge a Company's Level of Ethical Profitability By Lee Godden In the fallout from Enron and others, many investors are paying closer attention to a company's ethics, as well as their profits. And while ethical issues are perennially a problem, ethical lapses by nonprofits tend to increase during tough economic times.
Protect your nonprofit organization by being aware of key ethical issues and having a plan to avoid them at best, or deal effectively with them at the worst. Moral sensitivity (recognizing the presence of an ethical issue) is the first step in ethical decision making because we can’t solve a moral problem unless we first know that one exists.
A great many moral failures stem from ethical Ethical Decision Making and Behavior—— Component 2: Moral Judgment.