BUSINESS ETHICS

Business Ethics

Business Ethics

Introduction

Ethical failures in multinational corporations have been prominent in the world news headlines over the last decade. Accounting scandals in particular have been highlighted as many billion dollar global corporations, including Arthur Andersen, one of the five largest auditing firms in the world, collapsed under the weight of fraudulent financial reporting. Annual costs to the world economies of fraudulent financial reporting are in the billions, and, in the U.S. alone, corporate fraud has been estimated to cost at least $600 billion each year. In addition to the direct costs associated with financial fraud, shareholders of firms registered on the U.S. stock exchange have lost billions of dollars as companies have been forced to implement costly new corporate governance programs to comply with legislation enacted by the government in response to the fraudulent financial reporting in the early part of the decade (Ahmed, 2003, 102).

Background of Business Ethics

The increase in corporate ethical failures has generated numerous questions by the business and finance community, government regulators, and, in the academic arena about potential reasons for the large increase in ethical lapses during the last decade. Possible explanations have included insufficient accounting regulations, ineffective corporate governance programs, and inadequate ethics training programs in business schools. Broader blame for the ethical lapses has been directed towards a capitalistic culture where the focus on money has resulted in the deterioration of peoples' overall values and behavior (Badawi, 2005, 14).

Implementation of Business ethics by organizations

Business ethics literature supports a link between increased globalization and unethical behavior. Many social theorists either implicitly or explicitly incorporated the effects of national culture into their ethical decision-making models. Also, many practitioners and empirical researchers have identified national culture as a predominant factor influencing differences in ethical attitudes and decision making across countries (Buckley, 2001, 73). Studies have also identified statistically significant differences in ethical reasoning by accountants in different countries. However, research relating to accountants in a cosmopolitan setting has largely measured data across many firms. Due to this limitation, researchers have been unable to differentiate between differences due to psychological culture and organizational factors (Bowen, 2004, 324).

The number of multinational companies and amount of global trade has grown tremendously during the last two decades. The U.S. Department of Commerce (2010) reported that worldwide employment by nonbank U.S. multinational companies totaled 33.4 million in 2008 representing a 35% increase since 1989. The Agency also reported that the number of employees working for U.S. affiliates of foreign owned multinational companies doubled during the same period, accounting for another 10.5 million jobs (Chavez, 2001, 56). Additionally, sales by U.S. parent multinational companies totaled $9,509 billion in 2008, and, majority-owned foreign affiliates' sales totaled $5,520 billion, representing 186% and 405% growth, respectively, between 1989 and 2008. Finally, U.S. trade of goods and services grew from $.55 trillion to $2.41 trillion from 1980 to 2000. The rapid expansion of globalization has increased the relevance of ethics in business as well as the potential for ethical misunderstandings as more nations with ...