Chat with us, powered by LiveChat Read the Equifaxs Data Breach:? Do you think the company reacted appropriately upon learning about the breach? Why why not? 2. What type(s) of ethical climate existed at Equifax, and did this | WriteDen

Read the Equifaxs Data Breach:? Do you think the company reacted appropriately upon learning about the breach? Why why not? 2. What type(s) of ethical climate existed at Equifax, and did this

Read the Equifax’s Data Breach (attached). Then, answer the following four questions: 

1. Do you think the company reacted appropriately upon learning about the breach? Why why not?

2. What type(s) of ethical climate existed at Equifax, and did this contribute to the hacking issues there?

3. What changes should managers and the board of directors make now to reduce the likelihood of an incident like this from occurring in the future?

4. What types of ethics training would you recommend for Equifax employees in the future to prevent such corrupt behavior?

Need 4-5 pages. No introduction/conclusion needed for this one.

Need peer-reviewed citations in APA format.


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Organizational Ethics

Faced with increasing pressure to create an ethical environment at work, businesses can take tangible steps to improve their ethical performance. The organization’s culture and ethical work climate play a central role in promoting ethics at work. Ethical situations arise in all areas and func- tions of business, and often professional associations seek to guide managers in addressing these challenges. Corporations can also implement ethical safeguards to create a comprehensive ethics program. This can become a complex challenge when facing different customs and regulations around the world.

This Chapter Focuses on These Key Learning Objectives:

LO 6-1 Classifying an organization’s culture and ethical climate.

LO 6-2 Recognizing ethics challenges across the multiple functions of business.

LO 6-3 Creating effective ethics policies and identifying responsible individuals to become the organization’s ethics and compliance officer.

LO 6-4 Constructing successful ethics reporting mechanisms, ethics training programs, and similar safeguards.

LO 6-5 Understanding how to conduct business ethically in the global marketplace.

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In 2016, British regulators fined the U.S. pharmaceutical giant Pfizer $107 million for overcharging 48,000 patients in their national health care system for the generic version of the epilepsy drug phenytoin sodium. Pfizer had worked with the drug distribution com- pany, Flynn Pharma Limited, to de-brand the drug in 2012 in order to raise the price to insurers. Generic drugs are not normally subject to government—pharmaceutical com- pany negotiations, so the prices could be freely determined by Pfizer. The drug company charged wholesalers and pharmacies a price 17 times higher than the amount it had charged before 2012.1

In 2016, Wells Fargo, a global banking and financial giant, was fined $185 million for issuing credit cards to consumers without their consent. Over a period of five years, Wells Fargo employees opened around 1.5 million unauthorized bank accounts and issued over half a million credit cards fraudulently. Over time, consumers started to accumulate banking fees for accounts they did not want or know about. Some of the victims were even contacted by debt collectors for not paying their fees. Wells Fargo refunded approximately $2.6 million to the affected consumers, but the damage to these individuals’ credit ratings lingered on. Over 5,300 Wells Fargo employees and managers involved in the scandal were fired as the firm cited major weaknesses in the company’s corporate culture.2

Pfizer and Wells Fargo are just two of many companies from around the world that over the years have been charged with excessive pricing, defrauding their customers, lying about their finances, mishandling investors’ funds, jeopardizing the safety of consumers, and many other illegal and unethical activities. Why are business executives, managers, and employees repeatedly being caught conducting illegal and unethical activities? What can firms do to minimize or prevent the unethical activities perpetrated by their executives and employees? Can companies set in place systems or programs to monitor workplace activities to detect illegal or unethical behavior?

Corporate Ethical Climates

Personal values and moral character play key roles in improving a company’s ethical per- formance, as discussed in Chapter 5. However, they do not stand alone, because personal values and character can be affected by a company’s culture and ethical climate.

The terms culture and climate are often used interchangeably and, in fact, are highly interrelated. Corporate culture is a blend of ideas, customs, traditional practices, company values, and shared meanings that help define normal behavior for everyone who works in a company. Culture is “the way we do things around here.” Erica Salmon Byrne, executive vice president, governance and compliance for The Ethisphere Institute, warns businesses and the public:

“This is a lesson we have learned, re-learned, and will likely learn again. Regulators around the globe are increasingly calling on organizations to examine their cul- ture. From Enron to Volkswagen, the Challenger to WorldCom, there are multiple examples of organizations with formal systems that say one thing and cultures that promote another. When those kinds of alignment gaps are allowed to persist, you eventually have a failure of one variety or another: ethics, quality, safety, or a combination of all three .”3

1 “Pfizer Fined $107 Million for Overcharging U.K. for Epilepsy Drug,” The Wall Street Journal, December 7, 2016, 2 “Wells Fargo Fined $185 Million for Fraudulently Opening Accounts,” The New York Times, September 8, 2016, Page B1, 3 Erica Salmon Byrne, “Culture Matters,” Ethikos, September–October 2016, pp. 1–2.

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The Ethics Resource Center (ERC) observed that a “strong ethical culture in a company has a profound impact on the kinds of workplace behavior that can put a business in jeop- ardy.” Weak ethical cultures can foster ongoing bad behavior. In a national business ethics survey conducted by the Ethics and Compliance Initiative, 26 percent of employees reported that misconduct they had observed in their companies was part of an ongoing pattern. Forty-one percent claimed that the unethical behavior was repeated a second time, indicating a weak ethical work culture.4

Most companies have a kind of moral atmosphere. People can feel which way the ethi- cal winds are blowing. They pick up subtle hints and clues that tell them what behavior is approved and what is forbidden. The ethical climate represents an unspoken understanding among employees of what is and is not acceptable behavior based on the expected stan- dards or norms used for ethical decision making. It is the part of broader corporate culture that sets the ethical tone in a company. One way to view ethical climates is diagrammed in Figure 6.1. Three distinct ethical criteria are egoism (self-centeredness), benevolence (con- cern for others), and principle (respect for one’s own integrity, for group norms, and for society’s laws). (These parallel the levels of moral development developed by Lawrence Kohlberg that are discussed in Chapter 5.) These ethical criteria can be used to describe how individuals, a company, or society at large approach various moral dilemmas.

For example, if a company approaches ethics issues with benevolence in mind, it would emphasize friendly relations with its employees, stress the importance of team play and coop- eration for the company’s benefit, and recommend socially responsible courses of action. However, a company using egoism would be more likely to think first of promoting the company’s profit and striving for growth at all costs, as illustrated by the following example:

A Brazilian meat company, JBS, lost many of its customers and business partners amid a bribery scandal in 2017. The company admitted to bribing almost 2,000 politicians in exchange for subsidies that helped make JBS the largest meat- packer in the world. Restaurants and supermarkets in Brazil, including Domino’s Pizza Brasil and Subway, stopped buying JBS meats because of the corrupt behavior. The backlash against JBS even reached the United States, as Walmart publicly stated that they would not tolerate unethical behavior by their suppliers and would monitor the situation at JBS closely. Its shortsighted, self-focused actions had very high reputational costs to the company.5

Researchers have found that multiple ethical climates, or subclimates, may exist within one organization. For example, one company might include managers who often interact with the public and government regulators, using a principle-based approach, compared to

4 “National Business Ethics Survey 2013,” Ethics and Compliance Initiative, 2013, 5 “Business Partners Back Away from JBS amid Bribery Scandal,” The Wall Street Journal, June 8, 2017.

Ethical Criteria Focus of Individual Person Organization Society

Egoism (self-centered approach)

Self-interest Company interest Economic efficiency

Benevolence (concern- for-others approach)

Friendship Team interest Social responsibility

Principle (integrity approach)

Personal morality Company rules and procedures

Laws and professional codes

FIGURE 6.1 The Components of Ethical Climates

Source: Adapted from Bart Victor and John B. Cullen, “The Organizational Bases of Ethical Work Climates,” Administrative Science Quarterly 33 (1988), p. 104.

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another group of managers, whose work is geared toward routine process tasks and whose focus is mainly egoistic—higher personal pay or company profits.6

Corporate ethical climates can also signal to employees that ethical transgressions are acceptable. By signaling what is considered to be right and wrong, corporate cultures and ethical climates can pressure people to channel their actions in certain directions desired by the company. This kind of pressure can work both for and against good ethical practices.

Business Ethics across Organizational Functions

Not all ethics issues in business are the same. Because business operations are highly spe- cialized, ethics issues can appear in any of the major functional areas of a business firm. Accounting, finance, marketing, information technology, supply chain, and other areas of business all have their own particular brands of ethical dilemmas. In many cases, profes- sional associations in these functional areas have attempted to define a common set of ethical standards, as discussed next.

Accounting Ethics The accounting function is a critically important component of every business firm. By law, the financial records of publicly held companies are required to be audited by a cer- tified professional accounting firm. Company managers, external investors, government regulators, tax collectors, and labor unions rely on such public audits to make key deci- sions. Honesty, integrity, transparency, and accuracy are absolute requirements of the accounting function, and the impact can be devastating for organizations when these val- ues are absent.

In 2016, the United Kingdom established a new regulatory body, the Financial Reporting Council (FRC), to monitor auditing firms and investigate questionable financial statements. This action was in response to a $5.5 billion lawsuit against PricewaterhouseCoopers LLC for the auditing firm’s failure to uncover a mortgage lender fraud scheme. This action was part of a Europe-wide initiative to place audi- tors under greater scrutiny and to ensure they delivered fair and accurate accounting statements to organizational stakeholders.7

Accountants often are faced with conflicts of interest, introduced in Chapter 5, where loyalty or obligation to the company (the client) may be divided or in conflict with self-interest (of the accounting firm) and the interests of others (shareholders and the public). For example, while conducting an audit of a company, should the auditor look for opportunities to recommend to the client consulting services that the auditor’s firm can provide? Sometimes, accounting firms may be tempted to soften their audit of a company’s financial statements if the accounting firm wants to attract the company’s nonaudit busi- ness. For this reason, the Sarbanes-Oxley Act severely limits the offering of nonaudit con- sulting services by the auditing firm.

Examples of the U.S. accounting profession’s efforts promoting ethics are shown in Exhibit 6.A. Spurred by a threat of liability suits filed against accounting firms and a desire

6 James Weber, “Influences upon Organizational Ethical Subclimates: A Multi-departmental Analysis of a Single Firm,” Organization Science 6 (1995), pp. 509–23. For a summary of ethical climate research, see Aditya Simha and John B. Cullen, “Ethical Climates and Their Effects on Organizational Outcomes: Implications from the Past and Prophesies for the Future,” Academy of Management Perspectives, 2012, pp. 20–34. 7 “The Morning Risk Report: Auditors under Increased Scrutiny,” The Wall Street Journal, August 16, 2016,

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to reaffirm professional integrity, these standards go far toward ensuring a high level of honest and ethical accounting behavior.8

In addition, a new international Code of Ethics for professional accountants was unveiled in 2018. According to Kim Gibson, member of the International Ethics Standards Board for Accountants (IESBA), “the new standards are designed to be easier to use, nav- igate, and enforce; be more relevant for professional accountants in business, [and] distin- guish more clearly between requirements and application material.”9

Financial Ethics Within companies, the finance department and its officers are typically responsible for man- aging the firm’s assets and raising capital—for example, by issuing stocks and bonds. Finan- cial institutions, such as commercial banks, securities firms, and so forth, assist in raising capital and managing assets for both individuals and institutions. Whether working directly for a business or in a firm that provides financial services, finance professionals face a par- ticular set of ethical issues. Consider the following ethical lapses in corporate finance:

∙ Barclays PLC and four of their former top executives were charged with fraud by con- vincing Qatari to make payments to inflate the bank’s financial condition during the financial crisis. The United Kingdom’s Fraud Office filed the criminal suit against

8 For several excellent examples of ethical dilemmas in accounting, see Leonard J. Brooks and Paul Dunn, Business & Profes- sional Ethics for Directors, Executives and Accountants, 8th ed. (Stamford, CT: Cengage Learning, 2017); and Steven M. Mintz and Roselyn E. Morris, Ethical Obligations and Decision-Making in Accounting: Text and Cases, 4th ed. (New York: McGraw-Hill, 2016). 9 “5 Things You Need to Know about the New International Ethics Code,” Journal of Accountancy, May 8, 2018,

Excerpts of the Professional Codes of Conduct in Accounting and Finance


Code of Professional Conduct These Principles of the Code of Professional Conduct of the American Institute of Certified Public Accountants express the profession’s recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethi- cal and professional conduct. The Principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage. The Principles include: professional responsibilities, serving the public interest, maintaining integrity, maintaining objectivity and independence, exhibiting due care, and adhering to the Principles when providing services.*


CFA Institute Code of Ethics and Standards of Professional Conduct Members of CFA Institute (including Chartered Financial Analyst® (CFA®) charterholders) and candidates for the CFA designation (“Members and Candidates”) must act with integrity, competence, diligence, respect, and in an ethical manner, place the integrity of the investment profession and the interests of clients above their own personal interests, exercise independent professional judgment when making decisions, practice in a professional and ethical manner, promote the integrity for the ultimate benefit of society, and maintain their professional competence.†

*Source: AICPA Code of Professional Conduct. American Institute of CPAs. For a full text of the professional code, see †Source: CFA Institute. For full text see

Exhibit 6.A

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Barclays for conspiracy to commit fraud. Two separate financial capital investments by Qatari financiers raised nearly $15 billion to save the bank from collapse in the 2008 recession. This latest suit came on top of another investigation of Barclays over failures of disclosure linked to Qatar capital investments.10

∙ In 2018, the Royal Bank of Scotland agreed to pay $4.9 billion to settle with the U.S. Justice Department over the sale of toxic mortgage-backed securities during the lead-up to the global financial crisis. This settlement cleared the path for the bank’s privat- ization, ending the long-running probe into the bank’s actions. This settlement was in addition to the bank’s earlier payments involving these securities—$5.5 billion to the Federal Housing Finance Agency, $500 million settlement with the State of New York, and $125 million agreed to be paid to two large California pension funds.11

These and other lapses in ethical conduct occurred despite efforts by the finance profes- sions to foster an ethical environment. As shown in Exhibit 6.A, the highly regarded Char- tered Financial Analyst Institute, which oversees financial executives performing many different types of jobs in the financial discipline, emphasizes self-regulation as the best path for ethical compliance.12

Marketing Ethics Marketing refers to advertising, distributing, and selling products or services. Within firms, the marketing department is the functional area that typically interacts most directly with customers. Outside the firm, advertising agencies and other firms provide marketing services to businesses. The complex set of activities involved in marketing generates its own distinctive ethical issues.

One issue in marketing ethics emphasizes honesty and transparency in advertising and data about advertising.

In 2017, a tech start-up, Outcome Health, which installed and ran video monitors in physicians’ offices to show pharmaceutical advertising to patients, misled their corporate customers. Outcome Health inappropriately charged pharmaceutical com- panies for the placement of their ads on video screens that were never installed. The company even inflated data about how well the ads were performing and manipulated reports of third-party analyses of the success of the marketing strategy. The deceit also impacted the company’s investors, as Outcome Health overestimated its revenue by including the false data. These allegations were still being investigated in 2018.13

In addition to the general ethical questions that surround the marketing or advertising of products to consumers, consumer health and safety are another key ethics issue in mar- keting. Chapter 14 discusses several other issues in marketing ethics, including deceptive advertising, firm liability for consumer injury, and a firm’s responsibility for the unethical use of products by buyers.

To improve the ethics of the marketing profession, the American Marketing Association (AMA) has adopted a code of ethics for its members, as shown in Exhibit 6.B. The AMA

10 “Barclays, Four Former Top Executives Charged with Fraud over Fundraising with Qatari Investors,” Wall Street Journal, June 20, 2017, 11 “RBS in $4.9 Billion U.S. Settlement Over Mortgage-Backed Securities,” The Wall Street Journal, May 10, 2018, 12 For a good example of other financial ethics issues, see John B. Boatright, Ethics in Finance, 3rd ed. (Malden, MA: Wiley-Blackwell, 2014). 13 “Outcome, A Hot Tech Startup, Misled Advertisers with Manipulated Information, Sources Say,” The Wall Street Journal, October 13, 2017,

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Excerpts of the Professional Codes of Conduct in Marketing and Information Technology


Statement of Ethics The American Marketing Association commits itself to promoting the highest standard of professional ethical norms and values for its members (practitioners, academics, and students). As Marketers, we must do no harm, avoiding harmful actions or omissions by embodying high ethical standards and adhering to all applica- ble laws and regulations; foster trust in the marketing system, striving for good faith and fair dealing as well as avoiding deception in product design, pricing, communication, and delivery of distribution; and, embrace ethical values, building relationships and enhancing consumer confidence by affirming these core values: honesty, responsibility, fairness, respect, transparency, and citizenship. We expect AMA members to be courageous and proactive in leading and/or aiding their organizations in the fulfillment of the explicit and implicit promises made to those stakeholders.*


Code of Ethics and Standards of Conduct This code begins with a commitment by each association’s member to promote the understanding of informa- tion processing methods and procedures, an obligation to fellow members to uphold the ideals of AITP and cooperate with my fellow members and treat them with honesty and respect at all times, an obligation to society to the dissemination of knowledge pertaining to the general development and understanding of infor- mation processing, an obligation to employers to discharge this obligation to the best of my ability, to guard my employer’s interests and to advise him wisely and honestly, an obligation to my country to uphold my nation and shall honor the chosen way of life of my fellow citizens, and to accept these obligations as a per- sonal responsibility and as a member of this Association.**

*Source: American Marketing Association’s Statement of Ethics, 2017, as it appears in

**Source: Association of Information Technology Professionals, 2011–16. A full text of the AITP code of ethics can be found at

Exhibit 6.B

code advocates professional conduct guided by ethics, adherence to applicable laws, and honesty and fairness in all marketing activities. The code seeks to help marketing profes- sionals translate general ethical principles into specific working rules.14

Information Technology Ethics One of the most complex and fast-changing areas of business ethics is in the field of informa- tion technology. Ethical challenges in this field involve invasions of privacy; the collection and storage of, and access to, personal and business information, especially through e-commerce transactions; confidentiality of electronic mail communication; copyright protection regard- ing software, music, and intellectual property; cyberbullying; and numerous others.

VTech, an electronics toymaker, agreed to pay a $650,000 penalty in 2018 for col- lecting personal information from hundreds of thousands of U.S. children without obtaining consent from their parents in violation of child privacy law. The Federal Trade Commission also required the Hong Kong-based company and its U.S. sub- sidiary to strengthen its data security measures and conduct external security audits of its operations as a part of the settlement. VTech’s actions were exposed after a

14 “Statement of Ethics,” American Marketing Association, n.d.,

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cyberattack incident in 2015, which revealed more than 6 million children’s per- sonal information, including name, gender, and birth date. Additionally, nearly 5 million parents’ personal information was breached.15

As discussed in later chapters of this book, the explosion of information technology has raised serious questions of trust between individuals and businesses. In response to calls by businesspeople and academics for an increase in ethical responsibility in the information technology field, professional organizations have developed or revised professional codes of ethics, as shown in Exhibit 6.B.16

Supply Chain Ethics Production and operations functions are part of an organizations’ supply chain and have also been at the center of some ethics storms.

Kobe Steel Limited, a Japanese metals manufacturer, admitted to misleading 500 companies about the quality of the copper the firm shipped to its customers for over 10 years. Japan’s Quality Assurance Organization is responsible for certifying that the quality of products meets Japanese and international standards. This agency investigated Kobe’s alleged manipulation of quality reports in 2017. The company admitted to falsifying quality documents on tens of thousands of metal orders involving copper piping and later to covering up evidence. Breaches in the failure to report accurate information expanded to include other manufacturing facilities owned by Kobe, violating laws, regulatory standards, and customers’ trust.17

Similar to other professional associations, supply chain managers also are guided by a professional code of ethics, shown in Exhibit 6.C.

Efforts by professional associations to guide their members toward effective resolution of ethical challenges make one point crystal clear: All areas of business, all people in busi- ness, and all levels of authority in business encounter ethics dilemmas from time to time. Ethics issues are a common thread running through the business world. Specific steps that businesses can take to make ethics work are discussed next.

15 “Electronic Toymaker VTech Reaches $650K FTC Settlement Over Child Privacy Rule Violations,” USA Today, January 8, 2018, 16 For further discussion of ethics in information technology, see Sara Baase, A Gift of Fire: Social, Legal, and Ethical Issues for Computing and the Internet, 5th ed. (Upper Saddle River, NJ: Pearson, 2017); and Richard A. Spinello, Cyberethics: Morality and Law in Cyberspace, 6th ed. (Burlington, MA: Jones & Bartlett Learning, 2016). 17 “Kobe Steel Admits 500 Companies Misled in Scandal,” The Wall Street Journal, October 13, 2017,; “Kobe Steel Finds More Products Shipped with Quality Issues,” The Wall Street Journal, October 20, 2017,

Professional Code of Conduct in Supply Chain Management

Similar to the other professional associations, whose codes of ethical conduct are presented in Exhibits 6.A and 6.B, the Institute for Supply Management (ISM) developed its Principles and Standards of Ethical Supply Chain Management Conduct with Guidelines that emphasize integrity, value, and loyalty across 10 main prin- ciples. The specific principles are avoid impropriety, conflict of interest, and negative influences; be responsi- ble to your employer, suppliers and customers, and social responsibility and sustainability practices; protect confidentiality; avoid reciprocity; follow applicable laws, regulations, and trade agreements; and exhibit pro- fessional competence.

Source: Institute for Supply Management’s Principles and Standards of Ethical Supply Management Conduct with Guidelines from

Exhibit 6.C

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Making Ethics Work in Corporations

Any business firm can improve the quality of its ethical performance. Doing so requires a company to build ethical safeguards into its everyday routines. This is sometimes called institutionalizing ethics. The percentage of the world’s largest firms (the Fortune 500 or 1000 as reported in Fortune magazine each year) that have adopted these safeguards since the 1980s is shown in Figure 6.2.

A 2015 Ethics Research Center study found that employees in large organizations with an effective ethics and compliance program were less likely to feel pressure to compromise their ethical standards (3 percent), compared to those without effective programs (23 percent). They were also less likely to observe misconduct (33 percent versus 62 percent) and less likely to experience retaliation (4 percent versus 59 percent). Employees at organizations with an effective ethics program were nearly three times more likely to report observed misconduct at work (87 percent versus 32 percent).18

Building Ethical Safeguards into the Company Managers and employees need guidance on how to handle day-to-day ethical situations; their own personal ethical compass may be working well, but they need to receive direc- tional signals from the company


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