INTRODUCTION

● over the last 15 years, the environment and context in which companies operate has changed
● Globalization and the victory of laissez-faire economics has made competition keener in many
countries and markets around the world.
● Ethics is all about the art of navigating the slippery slope. There are some gray areas depending
on how you approach a certain situation. Unethical behavior is typically triggered by some kind
of pressure or incentive.Not all behavior that is unethical is illegal. Companies frequently are
faced with ethical dilemmas that are not necessarily illegal but are just as important to navigate
● the number of CEOs who are forced from office for ethical lapses remains quite small: There
were only 18 such cases at the world’s 2,500 largest public companies in 2016. But firings for
ethical lapses have been rising as a percentage of all CEO successions
● According to Sharon Keane, associate director of marketing at the University of Notre Dame,
people have different approaches, so there may be multiple solutions to each ethical dilemma
● crucial role of competition in the explanation of why activities morally sanctioned by the society
spread.
● more companies are pursuing growth in emerging markets where ethical risks are heightened
● The threats that companies face in the normal course of business have multiplied in recent
decades.

Here are some of the factors that can cause even honest and decent people to break the rules:
1. Intense pressure by management to reach unrealistic goals or targets (like the situation with the
Atlanta public school system)
2. Demands that they must consistently beat the competition (as was the case with News of the
World)
3. Management’s willingness to overlook small but persistent breaches of policy or ethics if the
employee gets results
4. Fear of job loss or internal competitive disadvantage
CONTENT POINT
● Companies are now pressured to respond instantly when problems, crises, or inquiries appear in
the news, erupt on social media, or arise directly from influential individuals. In this pressure-
cooker environment, it’s easy for the removal of the CEO to become the public’s — and
eventually the company’s — solution of choice.
● greater scrutiny of CEO behavior, a greater desire for swift justice and action, and a smaller
margin of error for all parties involved
● The 24/7 news cycle and the proliferation of media in the 21st century publicizes and amplifies
negative information in real time.The lightning-fast flow of Web-based financial news and data
ensures that information travels quickly and widely.

CONTENT POINT
● The demand for better performance such as a higher stock price (among other performance
indicators) has often led company executives to go beyond ethical boundaries.
● Some of the time, the reason a CEO or a high-ranking executive makes an unethical decision, it is
to increase the company’s profits or decrease a company’s expenses and thus improving a
company’s stock price.
● Once an unethical decision is made that is not known to the public, the stock price will most
likely positively reflect the increase in a company’s profits or the decrease operating expenses
● firms that do not manipulate their earnings / compete for glamourous executives might not
survive as independent entities long enough for reality to intervene.
● With pressure on short-term results, companies set unrealistic goals and employees feel extreme
pressure to meet them or face the possibility of losing their jobs.
● Social pressures tend to create larger problems.
● Employees and managers may be unwilling to admit they can’t meet performance targets. An
organization that prides itself on never missing a quarterly earnings target, for example, may
inadvertently create this kind of pressure
● We also found that CEOs forced out of office for ethical lapses had a median tenure of 6.5 years,
compared with 4.8 years for CEOs forced out for other reasons. Why? It’s possible that
companies with long serving CEOs tend to be those that have been achieving above-average
financial results, and thus may attract less shareholder and media scrutiny than companies that
have been performing poorly.
 ● (https://hbr.org/2017/06/ceos-are-getting-fired-for-ethical-lapses-more-than-they-used-to)

CONTENT POINT
● Managers who claim to use the law as a guide to ethical behavior often lack more than a
rudimentary understanding of complex legal issues.
● Managers would be mistaken, however, to regard legal compliance as an adequate means for
addressing the full range of ethical issues that arise every day.
● “If it’s legal, it’s ethical,” is a frequently heard slogan. But conduct that is lawful may be highly
problematic from an ethical point of view.
● Legal clearance does not certify the absence of ethical problems
● Even in the best cases, legal compliance is unlikely to unleash much moral imagination or
commitment. The law does not generally seek to inspire human excellence or distinction. It is no
guide for exemplary behavior—or even good practice.
● Those managers who define ethics as legal compliance are implicitly endorsing a code of moral
mediocrity for their organizations.
● governance and regulation in many countries has become both more proactive and more
punitive.shift the focus of accountability from companies to individuals

CONTENT POINT
● the focus of accountability has shifted from companies to individuals. Indeed, prison sentences
for corporate malfeasance have been increasing.In recent decades, power has also shifted away
from CEOs and toward boards and large shareholders
● The days of an “imperial CEO” presiding over a board largely composed of personal friends and
company insiders are gone. In 2016, according to the Spencer Stuart Board Index, 85 percent of
all board directors at S&P 500 companies were independent, and 27 percent of boards had a truly
independent chair, up from 9 percent in 20059
● https://www.pwc.com/ee/et/publications/pub/sb87_17208_Are_CEOs_Less_Ethical_Than_in_the
_Past.pdf
● Many people resist acknowledging the influence of organizational factors on individual
behavior—especially on misconduct—for fear of diluting people’s sense of personal moral
responsibility. But this fear is based on a false contrast between holding individual transgressors
accountable and holding “the system” accountable. Acknowledging the importance of
organizational context need not imply exculpating individual wrongdoers.
 ● Boards should support the CEO in implementing board decisions, such as awarding or ending
contracts. At times, the CEO may need to ask the board for intervention or support. CEO’s may
need the board to intervene with management in ways that help him raise performance. Boards
may also support CEO’s by using their networks within the community to support the work of the
organization.
● Boards that routinely infringe upon management duties and responsibilities risk upsetting a
structure that is intended to help both of them. CEO’s and other managers need to know that
boards have confidence in them to manage things when they go awry. Boards that cross over into
the management role risk turnover in the CEO and executive positions.
● The relationship between boards and management was strategically developed for high-
efficiency organizational success. Boards address the broader, mission-focused activities, leaving
the daily managerial activities to the CEO and other managers.
● On a broader level, the ethical contention would seem to be that in a single minded pursuit of
maximizing shareholder value (and performance bonuses) managers have resorted to the
exploitation of market imperfections and short term profitability
● .Arguably this shifts the focus more to the ethical duties of managers in their relationships toa l
stakeholders, including shareholders, and not simply their duties of maximizing value just for
shareholder

CONCLUSION
● corporate scandals shows that they tend to hurt companies in the short term, but have no long
term impact. investigation into scandals involving CEOs showed that investors react
unfavourably to the announcement of corporate scandals. We found that share prices plummeted
between 6.5% and 9.5% in the month after the misconduct was made public, collectively costing
shareholders an average of US$1.9 billion per scandal-hit firm. ((http://theconversation.com/why-
scandals-arent-bad-for-business-in-the-long-term-37663)
● Clearly, investors value ethics and they place a premium on it. Thus, when something unethical
comes to light, the company loses that premium and its share price drops instantaneously to
reflect that loss.
● The point of respite for investors, however, is that the damage is confined to the short run. In the
long run following a scandal, the stock price performance of the firms we studied went on to
match the performance of other similar firms that were scandal free. Nonetheless, it requires more
than a scandal to bring down a corporation
 ● When unethical behavior cuts costs, competition drives down prices & entrepreneurs' incomes,
and thereby reduces their willingness to pay for ethical conduct.
● Corruption may enable small businesses to get around unreasonable regulations, and actually
encourage economic development. Child labor may improve the economic circumstances of both
children and their families in places where the feasible alternatives are hunger and
malnutrition(Shleifer, Andrei. "Does Competition Destroy Ethical Behavior?," American
Economic Review, 2004, v94(2,May),)
● child labor might be a bad idea in a world with good access to capital markets and educational
opportunities, for many families in the developing world the alternative to child labor is
malnutrition and decease. These examples of a mismatch suggest that behavior condemned as
unethical is not always inefficient.
● In hiring children is cheaper than hiring adults (even taking into account differences in
productivity), and if one firm hires children, it can reduce prices. Its competitors must then hire
children also, or be driven out of business (or, in a less extreme world, their willingness to pay for
not hiring children declines when profits fall).

https://www.boardeffect.com/?s=ethics

http://www.jstor.org/stable/2392857

https://www.sciencedirect.com/science/article/pii/S0304405X14002608

http://onlinelibrary.wiley.com/doi/10.1002/pa.356/full

https://hbr.org/1994/03/managing-for-organizational-integrity
(Lynn S. Paine is the John G. McLean Professor of Business Administration at Harvard Business School.
)

https://www.pwc.com/ee/et/publications/pub/sb87_17208_Are_CEOs_Less_Ethical_Than_in_the_Past.p
df

http://www.tandfonline.com/doi/abs/10.1080/00036846.2014.995361#tabModule
https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2285785