Business Ethics: Term Definition

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Table of Contents

Leaders and Decisions
Responsibilities of the Federal Sentencing Guidelines
Ethical issues and accounting practices
Morality in Business
Responsibilities of COSO and Enterprise Risk management
Enterprise Risk Management
Works Cited

“Business ethics is the study of business situations, activities and decisions where the issues of right and wrong are addressed” (By Andrew Crane and Dirk Matten). Business ethics usually gives the ability to evaluate both the problems and benefits associated with different methods of managing the ethics in the organization. (Crane and Matten, p.5).

Leaders and Decisions

Duties of board members

Board members of the organization should be first of all committed to the public and also to the mission fixed by the board. They should have good expertise in dealing with the values, vision and long term objectives of the business. The board members should also have the ability to take part successfully and positively in the discussions. They should be ready to make others also participate in the discussions and in taking decisions. They should have the willingness to share power and they should also involve in fair negotiations. They should make independent judgments and should have courage and good faith.

There are mainly four duties for a board member

Duty of attention

This means that the board members should find enough time to prepare and also to participate in the meetings and discussions. They should review related materials and ask questions in order to solve problems, if any.

Duty of loyalty

The board members should always be loyal to the public and also should act in the best interest of the public. They should disclose everything to the other members and also to the staff. They should avoid conflict of interests between the staff and the members.

Duty of care

They should take decisions with good faith and honesty. They should act prudently and should take good decisions. Adequate records should be made about the board actions so that they could be used for future reference.

Duty of obedience

The board members have to stick to administrative rules and regulations and should support the board decisions and policies. (Characteristics of Good Board Members).

Responsibilities of the Federal Sentencing Guidelines

The federal sentencing guidelines are applicable to all organizations of any nature, whether public or private. It is applicable to all corporations, partnerships, labor unions, pension funds, trust, non profit entities and also to the governmental units. An effective ethics and conformity program will in turn reduce punishment if there are any legal violations. The guidelines make clear that organization will be held liable if its employees commit any illegal actions. These guidelines provide a powerful encouragement to the employees to prevent them from taking unethical actions. The organization must provide an effective training program for its employees so that they can be made aware and might reduce the possible fines and punishment they might get in the future. So training is an important aspect that should be considered and must be provided to the members of the concerned authority, high level personnel, and employees of the organization. The guidelines also help the organizations in establishing standards and procedures so as to reduce criminal conducts. It also places responsibility among the high level authority and also the board members so as to comply with the organizational ethics. Persons who are engaged in unethical actions are prevented from serving the organizations. It also helps to make effective monitoring and auditing of the effectiveness of the program. (2004 Federal Sentencing Guidelines Requires Employers to Periodically Train All Employees on Work place Ethics).

Ethical issues and accounting practices

According to Taylor, moral norms are relative to particular cultures, and rules of conduct applicable in one society will not be acceptable in another society. It is assumed that each community has its own norms and morality with standard rules acceptable in that community.

The achievement of desirable economic outcome justifies a particular approach to an accounting rule. “The deontological point of view is that moral rules apply to the actual actions, the means where by an end is pursued. The teleological point of view is that an action should be judged on the basis of moral worth of the outcome.” (Gowthorpe, Blake and Pilkington, p.11).

Morality in Business

List of provisions of Sarbanes-Oxley act and its impact on corporate governance and boards:

Provisions

“The Sarbanes-Oxley Act’s major provisions include the following:

Creation of the Public Company Accounting Oversight Board (PCAOB)
A requirement that public companies evaluate and disclose the effectiveness of their internal controls as they relate to financial reporting, and that independent auditors for such companies “attest” (i.e., agree, or qualify) to such disclosure
Certification of financial reports by chief executive officers and chief financial officers
Auditor independence, including outright bans on certain types of work for audit clients and pre-certification by the company’s Audit Committee of all other non-audit work
A requirement that companies listed on stock exchanges have fully independent audit committees that oversee the relationship between the company and its auditor
Ban on most personal loans to any executive officer or director
Accelerated reporting of insider trading
Prohibition on insider trades during pension fund blackout periods
Additional disclosure
Enhanced criminal and civil penalties for violations of securities law
Significantly longer maximum jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements, although maximum sentences are largely irrelevant because judges generally follow the Federal Sentencing Guidelines in setting actual sentences
Employee protections allowing those corporate fraud whistleblowers who file complaints with OSHA within 90 days to win reinstatement, back pay and benefits, compensatory damages, and congressional page abatement orders, and reasonable attorney fees and costs.” (Sarbanes Oxley: Provisions).

Sarbanes-Oxley Act induced many changes in financial procedure of companies making them more transparent. In the long run, this is proved to be good for the companies. However, the Act created positive as well as negative impact on companies. This Act made it compulsory for the public companies to certify the accuracy of the yearly financial statement by CEO and CFO. It is applicable to all the public companies irrespective of their size. The Act required encouraging employees to reveal any information regarding fraudulent acts. This act also affects certain private companies which have dealing with public companies and other nonprofit firms. “The Sarbanes-Oxley Act made a significant impact on public companies. The Act affected not just the accounting firms but also ‘Certified Public Accountants’ that work as auditors for public companies. The Act was formulated to keep a check on the fraudulent working of companies in the financial sector.” (How the Sarbanes Oxley Act of 2002 Impacts The Accounting Profession).

Committee of Sponsoring Organizations (COSO) and control environment and elements.

According to COSO, “Internal control is a process effected by an entity board of directors, management and other personnel. It is designed to provide reasonable assurance regarding the achievement of objectives in effectiveness and efficiency of operations, reliability of financial reporting, compliance with applicable laws and regulations.” (Hallock).

Control environment is an environment in which the employee takes the major responsibility and which is affecting the company’s activities. It involves integrity and ethical values of employees, commitment, etc.

Responsibilities of COSO and Enterprise Risk management

Responsibilities of COSO are as follows:

To ensure companies’ actions are based on policy and principles.
To ensure fair and equal treatment of employees during the investigation,
To establish both internal and external communication guidelines.
To establish ramifications to those involved in fraud if it is discovered.

Enterprise Risk Management

Enterprise Risk Management is designed to save companies from issues and effects. Integrated framework of enterprise risk management, assist in ensuring effectiveness of operational and financial compliance with the internal controls.

Works Cited

Characteristics of Good Board Members. 2008.
Crane, Andrew., and Matten, Dirk. What is Business Ethics. Business Ethics. 2007.
Gowthorpe, Catherine., Blake, John., and Pilkington, Catherine. The Ethical Perspective: As Taylor Observes. Ethical Issues in Accounting. 1998. Web.
Hallock, Micah. Ethical ns Internal Control. U S Business Review. 2007.
How the Sarbanes Oxley Act of 2002 Impacts The Accounting Profession. BNET: The Go to Place for Management. 2008.
Johnson, Michael W. 2004 Federal Sentencing Guidelines Requires Employers to Periodically Train All Employees on Work place Ethics. Brightline Compliance: A Global Compliance Company. 2004.
Sarbanes Oxley: Provisions. Compliance Home: Regulatory Compliance Portal. 2008. Web.

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