Week 3

Chapter 4- Managerial Ethics and Corporate Social Responsibility

ü  Ethics is the code of moral principles that governs behavior with respect to what is right and wrong. An ethical issue is present in any situation when the actions of an individual or organization may harm or benefit others.

ü  Ethical decisions and behavior are typically guided by a value system. Four values-based systems that serve as criteria for ethical decision making are the utilitarian, individualism, moral-rights, and justice approaches.

ü  For an individual manager, the ability to make ethical choices depends partly on whether the person is at a preconventional, conventional, or postconventional level of moral development

The model for evaluating social performance uses four criteria: economic, legal, ethical, and discretionary.

ü  Managers can help organizations be ethical and socially responsible by practicing ethical leadership and using mechanisms such as codes of ethics, ethics committees, chief ethics officers, training programs, and procedures to protect whistle-blowers.

ü  Managing ethics and social responsibility is just as important as paying attention to costs, profits, and growth.

ü  Companies that are ethical and social responsible perform as well as- and often better than- those that are not social responsible.   

Sarbanes–Oxley Act

From Wikipedia, the free encyclopedia

v  The Sarbanes–Oxley Act of 2002 also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which set new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is named after sponsors U.S. Senator Paul Sarbanes and U.S. Representative Michael G. Oxley

v  The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of affected companies collapsed, shook public confidence in the nation's securities markets.

v  It does not apply to privately held companies. The act contains 11 titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. Harvey Pitt, the 26th chairman of the Securities and Exchange Commission (SEC), led the SEC in the adoption of dozens of rules to implement the Sarbanes–Oxley Act. It created a new, quasi-public agency, the Public Company Accounting Oversight Board, or PCAOB, charged with overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies. The act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure.

v  The act was approved by the House by a vote of 423–3 and by the Senate 99–0. President George W. Bush signed it into law, stating it included "the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt."^[1]

v 

v  Debate continues over the perceived benefits and costs of SOX. Supporters contend the legislation was necessary and has played a useful role in restoring public confidence in the nation's capital markets by, among other things, strengthening corporate accounting controls. Opponents of the bill claim it has reduced America's international competitive edge against foreign financial service providers, saying SOX has introduced an overly complex regulatory environment into U.S. financial markets.

 Sarbanes Oxley Pros & Cons

By Angie Mohr, eHow Contributor

Updated: May 31, 2010

·  The Sarbanes-Oxley Act (SOX) was signed into law in July 2002. The legislation's purpose was to bring stability and trust back to financial markets after a series of high-profile business failures. SOX was intended to make the directors and auditors of corporations more accountable. It also required more thorough and timely disclosure of operations. Many companies, especially smaller ones, struggled to implement SOX into their reporting processes.

Pro: Shareholder Information

·  SOX requires that companies disclose more information about their risk profiles, their assets and debts and their commitments. This information allows shareholders to make more informed assessments of these companies prior to investing in them. The increased disclosure ensures that public companies can be compared more transparently. This increase in shareholder confidence led to an increase in capital flowing into the markets.

Con: Cost

·  One of the harshest criticisms of SOX legislation is that the rules were the same for the largest multi-national corporations as for the smallest public companies. The costs involved in disclosure, testing and revamping internal controls and reporting to both shareholders and the SEC caused an uneven burden on smaller companies. SOX has been modified since its inception to lessen the reporting requirements on smaller companies; however, the cost of compliance is still high.

Pro: Internal Controls

·  Section 404 of SOX requires that management test internal controls quarterly and issue a report stating that the internal controls of the company are both sufficient and effective. While this component is the most expensive to comply with, the focus on internal controls helps to eliminate some of the management overrides that occurred during high-profile failures like Enron. Internal control testing ensures that transactions occur the way they are supposed to, and ensures that checks and balances are in place to catch aberrations.

Con: Increased Audit Fees

·  One of the consequences of implementing SOX is that auditors are now more responsible and accountable for their audit reports on their clients. This means that more audit testing is done, which has increased audit fees substantially since 2002. The increased liability of auditors also increases the audit fee.

Pros:

• Companies have better internal control environments as a result of Sarbanes-Oxley. This will lead to more accurate information being available to investors who are more confident in making investing decisions.
• All participants in financial reporting have increased responsibilities and consequences for not living up to those responsibilities.

Cons:

• The legislation was passed without any specific guidance to companies as to how it should be implemented. As a result, each company had to create its own methodology for ensuring compliance, which was inefficient and expensive.
• There continues to be a significant difference between what the SEC and Public Company Accounting Oversight Board are saying publicly -- that they want the process to be more efficient -- and how the PCAOB inspectors are conducting their reviews -- at a very detailed level, which is not helping auditors reduce their efforts.
• Smaller companies that are audited by the Big Four will have to pay higher audit fees even if they are not subject to Sarbanes-Oxley as the additional audit requirements of Sarbanes-Oxley creep into their methodologies. Many private companies and smaller public companies are realizing that the Big Four have designed their audits to serve the Fortune 500 companies and that this model is slow and expensive.

Week 2

Chapter 2- The environment and Corporate Culture

The organizational environment includes all elements existing outside the organization’s boundaries that have the potential to affect the organization. Events in the external environment are considered important influences on organizational behavior and performance, which consists of two layers: the task environment and the general environment.

The task environment includes customers, competitors, suppliers, and the labor market. The general environment includes technological, sociocultural, economic, legal-political, international, and natural dimensions.

It is important for an organization to adapt to the environment. Management techniques for helping the organization adapt to the environment include boundary-spanning roles, interorganizational partnerships, and mergers and joint ventures.

A major internal element that helps that helps the organizations adapt to the environment is culture. Corporate culture is an important part of the internal organizational environment and includes the key values, beliefs, understandings, and norms that organization members share.

Four types of culture are adaptability, achievement, involvement, and consistency. Strong cultures are effective when they enable an organization to meet strategic goals and adapt to changes in the environment.

Managers should create sustain adaptive high-performance cultures through cultural leadership.

Ø  In class with spoke about the “Rio Grande Supply Company” and its cultural dilemma the president faces. This case clearly shows that cultural objectives of a company need to be obeyed in order to be successful and in order to have a cultural environment within the company (page 72)

Ø  An example of a cultural leadership assessment of a historical leader is NAPOLEON BONAPARTE for example (take a look and see why he is well known as a historical leader)

Historical Leader- Napoleon Bonaparte (1769 – 1821)

Napoleon, also known as Napoleon Bonaparte, crowned himself emperor of France. He was the greatest military genius of his time and perhaps the greatest general in history. He created an empire that covered most of western and central Europe.

Napoleon was also an excellent administrator. He introduced many useful reforms, including the creation of a strong, efficient central government and the revision and organization of French laws into collections called codes. Many of Napoleon's reforms are evident today in the institutions of France and of areas once under French control.

Napoleon was an inspirational and dramatic leader. He could also be cynical and demanding, though this side of his character was usually hidden from the public. In addition, Napoleon had great energy and ambition. He personally directed complex military maneuvers and at the same time controlled France's press, police system, foreign policy, and domestic affairs. He chose capable subordinates and rewarded them generously with medals, wealth, military rank, and titles of nobility.

Napoleon's ambition ultimately led him to overextend his power. His downfall also resulted in part from feelings of nationalism in areas invaded by French troops and from economic hardship brought on by Napoleon's attempts to exclude British goods from continental Europe. Other factors that contributed to his downfall included bitter reaction to the taxes and conscription (the draft) that he imposed across his empire and opposition to Napoleon of many of Europe's royal rulers.

Rise to power

Napoleon had by now developed a highly successful military strategy that was to form the basis of his future campaigns. He would start a battle while holding back as large a reserve as possible. He would then seek the weakest point in the enemy's lines and throw all his strength against that point at the decisive moment. Napoleon had an extraordinary ability to recognize the best time to attack.

Napoleon's place in history

Napoleon is both a historical figure and a legend -- and it is sometimes difficult to separate the two. The events of his life have fired the imaginations of great writers, filmmakers, and playwrights whose works have done much to create the Napoleonic legend.

Napoleon was one of the greatest military commanders in history. But he has also been portrayed as a power-hungry conqueror. He denied being such a conqueror. He argued that he had tried to build a federation of free peoples in a Europe united under a liberal government. He did intend, though, to achieve this goal by concentrating power in his own hands. However, in the states he created, Napoleon granted constitutions, introduced law codes, abolished feudalism, created efficient governments, and fostered education, science, literature, and the arts.

SOURCE: IBM 1999 WORLD BOOK

Chapter 3- Managing in a Global Environment

Successful companies expanding their business overseas and successfully competing with foreign companies on their home turf. International markets provide many opportunities but are also fraught with difficulties.

Major alternatives for entering foreign markets are outsourcing, exporting, and franchising through joint ventures or wholly owned subsidiaries. 

Business in the global arena involves special risks and difficulties because of complicated economic, legal-political, and sociocultural forces.

Managers and companies doing business internationally face many challenges and must develop a high level of Cultural Intelligence (CQ) to be successful. CQ involves a cognitive component (head), an emotional component (heart), and a physical component (body). Those 3 things help managers interpret unfamiliar situations and devise culturally appropriate responses.

Social and cultural values differ widely across cultures and influence appropriate patterns of leadership, decision making, motivation, and managerial control.

Ø  Page 101 in our textbook shows us a poem that addresses cultural differences. You should read it; it is very interesting and amusing. 

Ø  The case “Managing in a global environment” (page 108) describes best how many things go into developing an international business and how important it is, not to only be profit oriented but also how to do business with other cultures and how to play after international rules and restrictions. The company EVO is a very successful business even though the company faces international difficulties and restrictions, but if you know how to work with it and to please your customers in the end it will work out to the company’s best interest. Check out their Web page and get a feeling how successful they are.

http://www.evo.com/default.aspx