Ethical Behavior in Organizations - Introduction To Business - ثاني ثانوي

5.2 Ethical Behavior in Organizations Link to digital lesson www.ien.edu.sa Learning Outcomes Once you have completed this lesson, you should be able to: 5.2.1 Discuss the factors that affect the level of ethical behavior in organizations. 5.2.2 Explain how ethical decision making can be encouraged. Key Terms Contract Intellectual Property Organizational Culture Ethical Dilemma Whistle-Blowing Trade Associations Focus on REAL LIFE Maha had been working for a medical supply company that was trialling a new drug among a small group of local patients before rolling it out nationally. The company had invested a huge amount of money into developing and marketing the new drug, and there was pressure to meet the launch deadline. Patients had responded extremely well to the treatment and everything was set for the national launch. However, after visiting one hospital a week before, Maha learned that two patients had recently suffered severe symptoms and wondered whether they could have been unknown side effects of the drug. She immediately told her manager, who replied: "Forget about it, it's only two cases out of a thousand and there's no proof that the symptoms were related to taking the drug. The clinical trials were fine and no one has complained, so it's not worth delaying the launch over." The manager may have been right, but was it worth the risk to patients? Maha decided to check her company's policy to see what it said about what to do in this situation. LO 5.2.1 FACTORS AFFECTING ETHICAL BEHAVIOR IN ORGANIZATIONS The scenario outlined above is not unique. There are a number of factors that influence a businessperson's ethical decisions in a specific business setting. Countries and cultures have differing views of what is both legal and ethical. It is possible for an individual with strong moral values to make ethically questionable decisions, but the results of these decisions are hard to determine. ETENSMO Customs Clearance COMPLETED What are some major issues for anti-corruption organizations? There are a number of factors that influence the ethical behavior of individuals in an organization. Figure 5-2 outlines influences on ethical behavior within an organization. This includes the larger legal and cultural environments, an organizational culture, and individual factors. 154 Chapter 5 | Social Responsibility of Business وزارة التعليم Ministry of Education 2024-1446 GE44.PATHWAYS.G02.ITB.SB.PP1.indb 154 08/05/2024 09:14

INFLUENCES ON ETHICAL BEHAVIOR WITHIN AN ORGANIZATION Organizational Culture Individual Factors Ethical Behaviour Legal and Cultural Environment Source: The Saudi Ministry of Commerce FIGURE 5-2 Provide examples of legal or cultural environmental factors that can influence ethical behavior in an organization. Legal and Cultural Environment Ethical behavior is influenced by both the legal and cultural environment of a nation. There are a number of organizations that measure perceived and actual corruption within nations. One of these measures is Transparency International's Corruption Perceptions Index (CPI). Government workers may be underpaid and expected to make up for this low pay by accepting bribes. Cultural norms, expected practices, and social contracts can be based on unethical behavior. What can appear to be unethical to outsiders is seen as ethical behavior in these cultures. This CPI measure is tracked by the government of Saudi Arabia, as a key part of its strategy to protect integrity and combat corruption, following the principles of both Shariah law and international systems. The ethical behavior within a nation is, in part, the result of the level of enforcement of its laws. Unethical behavior can violate either criminal laws or government regulations. If there is an enforcement mechanism, a business can be held responsible for products that cause harm, unsafe working conditions, or corrupt practices. When there is no enforcement of existing laws, there is more opportunity to engage in unethical behavior. A country can have laws to provide a safe work environment and have standards for buildings, machines, and environmental regulations. If government inspection and regulation is weak, then there is more opportunity for an organization to not provide for safety. وزارة التعليم Ministry of Education 2024-1446 5.2 Ethical Behavior in Organizations | 155

Contracts are another example of expected government protection. A contract is an agreement to exchange goods or services for something of value, usually money. It is a basic part of doing business. Contract enforcement is typically through a nation's court system. The Saudi government has introduced the minimum wage law and established the Ajeer wage protection and employment system, to ensure justice and fairness for workers. In Intellectual property (IP) is creative work or technical knowledge such as patents, copyrights, and trademarks. These are protected by a number of international treaties and agreements. Saudi Arabia, the Saudi Authority for Intellectual Property (SAIP) regulates, supports, and enforces IP in the Kingdom in accordance with international best practices. It also provides for reporting violations of IP rights. SAIP has a vision to create an integrated body for IP, of global standing, and be a major hub for IP in the MENA region. Saudi Arabia is a member of the World Intellectual Property Organization (WIPO), an agency of the United Nations that supports innovation and creativity by strengthening IP protection. The WIPO administers 26 international treaties protecting IP rights. Saudi Vision 2030 has set goals for strengthening Saudi Arabia's private sector by reinforcing IP protection and establishing a digital infrastructure that supports entrepreneurs. Young Saudi entrepreneurs have dramatically increased requests for trademarks and patents. SAIP has reported that from 2020 and 2021 submitted patent applications rose by 11%, trademark registrations increased by 26%, registrations of industrial models grew by 48%, and registration of copyright works increased by 57% (source: the official website of the Saudi Authority for Intellectual Property). Organizational Culture An organizational culture provides the norms of behavior established by leaders that shape employee values, perceptions, and behaviors within an organization. Codes of ethics help to establish ethical organizational cultures, but only if these codes are enforced by leaders. There are numerous examples of unethical behavior in organizations, but in some cases this unethical behavior is part of the organizational culture. There are a number of conditions that can lead to corrupt organizational cultures. Organizations that set high growth targets where the “ends justify the means" may set sales or revenue targets for employees that can only be reached unethically. Leadership may turn a blind eye on this behavior to reach their own personal or leadership goals. Complex organizational structures can hide behaviors when only results are considered. Short term goals can set additional pressures to achieve results by any means. Over time, organizations can evolve into corrupt cultures where there is plenty of opportunity to PATENT What are some of the measures being taken to improve IP protection in Saudi Arabia? 156 Chapter 5 | Social Responsibility of Business Ministry of Education 2024-1446 engage in unethical behavior. Wells Fargo is a large international bank headquartered in the United States. Pressure from top executives on bank managers and bankers led to a practice of cross-selling. This would occur when a bank customer was encouraged to take out credit cards or open a new account, the result of which incurred fees that hadn't been anticipated. These would generate additional revenue for the bank. Bankers were given quotas to reach for cross-selling. Bank employees began to use unethical strategies to gain control over

customer accounts without their knowledge and open cross-selling products. This resulted in additional fees to customers but allowed managers to reach bank goals. Ultimately, millions of fraudulent accounts were set up by Wells Fargo employees. When this fraud was revealed, over 5,000 employees were fired, and the CEO resigned. Total fines and compensation paid by Wells Fargo was over U.S. $3 billion. Wells Fargo's brand image has still not recovered. Work as a TEAM Employees will model the behavior of managers and other employees. If they see unethical behavior, they may think, "If others are doing it, why can't I?" Work as a team to identify the pressures to act unethically and how an employee can avoid unethical behavior in the workplace. Report your recommendations to the class. The lesson here is that a strong code of ethics with training and enforcement, and the significance management places on these policies, are important. When violations are dealt with consistently and firmly, the opportunity to be unethical is reduced. This all starts with top management. Codes of ethics are not just for lower-level employees; everyone in a business must act ethically. Individual Factors Several individual factors influence the level of ethical behavior in an organization, including personal knowledge, values, and goals. How much an individual knows about an issue is one factor. A decision maker with a greater amount of knowledge regarding a situation may take steps to avoid ethical problems, whereas a less informed person may take action unknowingly that could lead to ethical problems. An individual's moral values and value-related attitudes also clearly influence his or her business behavior and choices. Most organizations strive to hire people with a good character and values that complement their own. Finally, most people join organizations to accomplish personal goals. The types of personal goals an individual aspires to and the manner in which these goals are pursued have a significant impact on that individual's behavior in an organization. Individuals often look for organizational cultures that allow them to reach their personal goals. NET KNOWLEDGE Q The Saudi Arabia Capital Market Authority (CMA) is charged with developing and regulating the Saudi Arabian Capital Market, or financial investment market. The CMA's goals are to create an appropriate investment environment, boost confidence, and reinforce transparency and disclosure standards in all listed companies. This is designed to protect investors and dealers from illegal acts in the investment market. Use the Internet to identify how the CMA supports investor protection. Why do you think it is important for the CMA to provide investor protection? CHECKPOINT What are the influences on ethical behavior within an organization? وزارة التعليم Ministry of Education 2024-1446 5.2 Ethical Behavior in Organizations | 157

LO 5.2.2 ENCOURAGING ETHICAL DECISION MAKING Maha is faced with an ethical dilemma. An ethical dilemma is when there is a conflict between alternative choices, where each decision can violate ethical principles. Maha could follow her manager's advice and ignore the recent trial results, on the basis that only two patients in one thousand had problems, but this would violate her company's code of ethics, the Saudi Arabia Guide Manual to Business Ethics, and her own individual ethical views. On the other hand, if she raises the issue of the problems the two patients experienced, then the launch of the new drug will be delayed and patients will be left waiting. As indicated in this chapter, ethical decision making can be encouraged by: businesses, through their codes of ethics and ethical organizational cultures governments, by structuring laws and regulations business trade associations, which provide frameworks for ethical behavior directors and leaders, by modeling ethical behavior and encouraging ethical decision making Government's and Business' Roles in Encouraging Ethical Behavior A government can encourage ethical behavior in business by enacting more stringent regulations. Laws are ineffective unless there is an enforcement mechanism. Sometimes even employees who want to act ethically may find it difficult to do so. Unethical practices can become ingrained in an organization. Employees with high personal ethics may then take a controversial step called whistle-blowing. Whistle-blowing is informing government officials and related parties about unethical practices within an organization. In Saudi Arabia, the Oversight and Anti-Corruption Authority (Nazaha) enables the reporting of any administrative or financial corruption. Reporting corruption is not just a right, but an obligation. Whistle-blowers are protected; in addition, if a person witnesses a corruption crime and does not report it, that person can be penalized. Most company codes of ethics encourage openness. When companies set up anonymous hotlines to handle ethically questionable situations, employees actually may be more likely to engage in whistle-blowing. When firms create an environment that educates employees and nurtures ethical behavior, fewer ethical problems arise and the need for whistle-blowing is greatly reduced. The Role of Trade Associations in Encouraging Ethics Trade associations are an association of people or companies in a particular business or trade that promotes the common interests of the members. Trade associations can and often do provide ethical guidelines for their members. These organizations, which operate within particular industries, are in an excellent position to exert pressure on members to stop engaging in questionable business practices that may harm all firms in the industry. In accounting, the Association of International Certified Professional Accountants, which oversees the Certified Public Accountant (CPA) certification, has specific standards for ethical behavior. If a CPA violates the ethical standards, they can lose their CPA license. In Saudi Arabia, the Saudi Organization for Chartered and Professional Accountants (SOCPA) oversees the professional CPA and continues to hold more professional panel discussions to introduce and develop the codes of professional behavior and ethics. P158 Chapter 5 | Social Responsibility of Business Ministry of Education 2024-1446

Saudi Aram.co Summary GigaPOWERS Technology Impacts: The Management of Saudi Aramco's Oil and Gas Reservoirs Aiding Engineers and Geoscientists in Developing New Fields -Developing Alternate and New Production Scenarios to Maximize Hydrocarbon Recovery Deciding Where to Drill and How to Place Wells 12:188 www.saudiaramico.com 12/31/22 How are Saudi corporations leading the way to promote ethics? Directors' and Leaders' Roles in Encouraging Ethical Decision Making Managers must provide direction by fostering communication, actively modeling behavior, encouraging ethical decision making, and training employees to make ethical decisions. Some companies assign an ethics officer who guides ethical conduct and provides employees with someone to consult if they are not sure of the right thing to do. An ethics officer meets with employees and top management to provide ethical advice, establishes and maintains an anonymous confidential service to answer questions about ethical issues, and takes action on ethics code violations. Saudi Aramco has a Corporate Business Ethics Office which provides consulting to different management levels within the company, performs ethics and integrity culture assessments, supports Aramco's Conflict of Interest and Business Ethics Committee, and participates in developing ethics training programs. It is difficult for an organization to develop ethics codes, programs, and procedures to deal with all relationships and every situation. For this reason, businesses should set objectives to establish an organizational culture where it is easier to do the right thing than the wrong thing. Supervisors should repress illegal or improper conduct that can potentially endanger or embarrass the company. When an individual is faced with an ethical situation not covered by company policies or procedures the guidelines in Figure 5-3 can help individuals when making ethical decisions. Ethical decisions will always withstand scrutiny. وزارة التعليم Ministry of Education 2024-1446 5.2 Ethical Behavior in Organizations | 159

GUIDELINES FOR MAKING ETHICAL DECISIONS 1. Listen and learn 2. Identify the ethical issues 3. Create and analyze options 4. Identify the best option from your point of view 5. Explain your decision and resolve any differences that arise Recognize the problem that confronts your company, team, or unit. Don't argue, criticize, or defend yourself-keep listening and reviewing until you are sure that you understand others. Examine how co-workers and consumers are affected by the situation or decision at hand. Examine how you feel about the situation, and attempt to understand the viewpoint of those involved in the decision or in the consequences of the decision. Try to put aside strong feelings such as anger or a desire for power and prestige and come up with as many alternatives as possible before developing an analysis. Ask everyone involved for ideas about which options offer the best long-term results for you and the company. Then decide which option will increase your self-respect even if, in the long run, things don't work out the way you hope they will. Consider it and test it against some established criteria, such as respect, understanding, caring, fairness, honesty, and openness. This may require neutral arbitration from a trusted manager or taking “time out" to reconsider, consult, or exchange written proposals before a decision is reached. Source: Based on information in Tom Rusk with D. Patrick Miller, "Doing the Right Thing" FIGURE 5-3 Why should a businessperson apply the guidelines for making ethical decisions when faced with an ethical dilemma? 5.2 ASSESSMENT Key Concepts Determine the best answer. CHECKPOINT What are the steps an individual can follow to help make ethical decisions? 1. Which of the following are influences of ethical behavior within an organization? a. organizational culture b. individual factors c. legal and cultural environment d. all influence ethical behavior within an organization 2. True or False. A contract can only be legally binding if a country's legal system enforces the contract. 3. True or False. An ethical dilemma is when someone sees an unethical act. 4. A is someone who informs government officials and related parties about unethical practices within an organization. a. ethicist b. manager c. whistle-blower d. employee 160 Chapter 5 | Social Responsibility of Business Ministry of Education 2024-1446

Make Academic Connections 5. Research Use the Internet to view countries on a corruption index. Identify countries that are perceived to be the least corrupt and those that are perceived to be the most corrupt. List factors that could account for the positions of these countries. 6. Critical Thinking Explain how you can make ethical decisions by following the Guidelines for Making Ethical Decisions. وزارة التعليم Ministry of Education 2024-1446 5.2 Ethical Behavior in Organizations | 161