Business Ethics at Construction Company - Case Study Example

Ethical Case Study Assignment Vinal Barbaros is the Smith Construction Company controller. He is supposed to oversee the activities of the company as far as the contracts are concerned. He directs the work and ensures that the set limits are met within the budgeted frame work. Vinal Barbaros has an option of maintaining his stand which indicates the correct figure of statement of the cost to complete the contract. If he maintains his stand to he will be applying the professional practices that are necessary for any business survival. This seems to be the point of contradiction between him and the president of the company, Smith construction. This is one of the hardest situations that Barbaros is facing as it has an effect of ruining the relationship between him and the company’s president. Here the company fears presenting the information to the auditors without adjustments because they fear loosing their long build reputation with their clients. Vinal Barbaros also has an option of accepting the offer from the company’s president, Michael Wolman, of having an inducement of 5 % increase in the salary if he agrees to his suggestion of understating the cost. This seems a lucrative option for both Barbaros and Michael Wolman, who seem to have a direct benefit from the option. Barbaros would be interested in the increment of salary by 5 % while Michael Wolman would be pleased to have statements that will impress Gibson Kate, the company owner. Ethics arises as a question of what is good and what is bad. By definition, business ethics are the moral standards by which people judge behavior (Chyssides and Kaler, 1993). What the society or individuals hold as the generally accepted or unaccepted behavior forms the ethics of any particular field. Ethics are mostly not any set of followed things but rather the perception of the individuals and the society at large. The first option that Vinal Barbaros had is ethical and very acceptable. The presentation of true and fair statement of the business is very important. Ethics requires that there should not be any manipulation of the either the financial statements or any other statement that is to communicate any information to the users. Window dressing of statements for purposes of impressing the shareholders, the investors, the suppliers or any other stakeholder is not acceptable at all and is very unethical. The second option where Vinal Barbaros accepts the inducement of 5 % of the salary increase if he agrees to understate the cost estimates. This collusion is one of the greatest unethical behaviors that for a long time been so rampant in business cases. The company president, Michael Wolman, is becoming very unethical because he induces the controller with a salary increment. This is meant to influence the judgement and the operation of Barbaros in favor of the company’s president. The ethic requires that the company’s president should get to the roots of the problem and address it from there rather than tying to manipulate the judgement of other by inducing them to collude to give false information doctored for certain individual gains. The above ethical and unethical behaviors have effects on various stakeholders. The case where Barbaros had to maintain his stand to give the understated statement may not favorable to the management of the Smith construction company but it can act as a proper guide to the providers of finances the shareholders and in decisions on future plans. Underestimation of the cost has an effect of presenting a false picture of the management of the company. The company’s president would like the owner of the company to be impressed by the presentation of the financial statements and also the results from the auditors. That is the reason the president is agitated by the high cost prediction and asks for the understatement of those costs. Barbaros decline to accept has an effect of jeopardizing the relationship between him and the company’s president. It can result to him losing his job or even make his stay in the company difficult. His stand also has an effect of making investors have a clear view of their investment plan and the base their projections on the statements. It will also give their client a light on how they should plan to avoid penalties and withdrawals of students’ payments. It is also carrying a big potentiality of making the bank fail to renew their loans which seems as a major source of their resources. The company’s president feels threatened by the bank realization that the company is undergoing some financial constraints and he is therefore opposed to Barbaros option. On the other hand, the inducement of the company controller, Vinal Barbara, has an effect of impressing the user of the information of the company by making the company controller to understate the cost thus making the profits of the company to rise higher .On the long-term perspective, the take can jeopardize the operations of the company because the window dressing will finally come to a level where it can not be absorbed again. This can be evidenced by high budgets, failure to meet deadline contracts and eventually large loss margin. As per the ethics of business, Barbaros is supposed to present the true and fair statements of the business contract, whether favorable or unfavorable. He should refuse any intimidation by the company president if the increased cost has occurred genuinely. Barbaros should also decline to any offer not only from the president but also from any other person who is out to negatively influence his judgement. This is because it will jeopardize his integrity and also the transparency in his work. Teleological perspective generally refers to a reasoning that a super being, God, the creator of all things exists on the bases of the things seen in nature. In business, teleological perspective is the way decisions are made regarding the business based on the purpose believed to exist in nature due to the super being, the creator (Gasparski and Ryan, 1996). Teleology tries to propose that that there is a purpose of the way the nature works. Teleontologists believe that what is most important is the power of nature that that makes anything to the way it is. Consequences of any action should be the guiding factor. If the consequences of any action whether the action is correct or wrong are favorable then it is taken as a morally upright action. Deontological perspective is a belief that there is a duty to take any action under ones jurisdiction in the way and manner expected from it. Deontological approach asserts that what determines whether an action is good or bad is the motive that drives towards the behavior. An action does not qualify to be good if the initial intention was driven by a bad motive. The driving force is taken to mean more than the results and even the manner of action. It also proposes that one should even undertake some action which has some disastrous effect provided one is led by goodwill. The only measure for the morality of the action as proposed by the deontologists is the good will. Thus for correct moral choices one must know the moral duties and the regulations of those duties. Following ones duty qualifies to be a moral behavior under the deontological approach. Under the teleological perspective Barbaros may be justified to decline to the offer of 5 % inducement to the salary increment and his stand against the understatement of the cost estimate. His argument under this perspective will be that there is a reason as to why there is increased cost and their understatement may not bring out favorable results. It can be argued that nature has a reason for all the happening and one should appreciate the results. On the deontological perspective Barbaros is of the opinion that the step of accepting the inducement is good ad even the understatement of the estimated cost is correct if only the motive of doing it is correct. On the contrary he is not supposed to accept the offer and understate the estimated costs if he feels that the motive is not driven by good will. The codes of ethics for professional accountants, according to section 10, stresses on the integrity of the accountants. The code of the principle of integrity bestows a duty to all members to act in a straightforward manner and employ honest in business and professional relationships. Truthfulness and fairness are important concepts in integrity. The code also supposes that a member should not be associated with reports that are materially false or misleading, or any information recklessly tailored or any information that deliberately hides any such important information. Modification of reports to effect the statement in legally avoidance of possible falsification of statement or doctoring of information or obscure of required information does not qualify to breach of this principle of integrity. By Sharon accepting the $ 10000 in salary increase and modify the report, she will have breached the fundamental principle in APES 110, codes of Ethics for professional accountants. This is a code that stresses on integrity. Sharon is obligated not to collude with any person to falsify or doctor the said information. As a professional accountant she was supposed to decline to the offer for integrity reasons. The act of accepting the offer itself is also an unethical practice in any professional practice. First, Shalon would have breeched the section 110.1 which imposes an obligation on all members to be straightforward and honest in professional and business relationships. Secondly, she would have breeched section 110.2 which proposses a member should not be associated with reports of any information which is falsified, reckless, or which is hides some material information which are important to the users of the information. Modification of reports is one of the major offences a person can commit on professional work. Information should be presented in the correct way regardless of the consequences that will result there after .integrity principle requires judgement and presentation of information to be made without any undue influence like in Sharon’s case where an increase in salary is meant to make her collude. Kohlberg developed six stages of moral development which he grouped into three main categories namely the pre conventional, conventional and post conventional stage. The pre conventional stage is divided into two categories namely the obedience and punishment orientation stage and self-interest stage. The obedience and punishment orientation stage involves a scenario where individuals perform tasks because they fear the consequences which may result from not perfuming these acts. In this case, the action is perceived to be wrong when the person who des it has been punished (Kohlberg, 1981). This is often common in the classroom scenario where the teacher punishes other students so that the other will fear doing a given action. In the second stage i.e. the self interest stage, the individual is concerned about his own interests. Individuals in this stage are concerned about the direct consequences which come about through their actions. The actor or perpetrator of the action being done asks himself or herself about the position in which he or she holds in a given scenario. An individual’s best self interest is what matters in every scenario. The conventional level is the next level which was proposed by Kohlberg. This form of moral reasoning is common for adolescents and adults. This level consists of two stages namely the interpersonal accord and conformity and the authority versus social order maintaining orientation. In the interpersonal accord and conformity stage, an individual fits into the society by fulfilling social roles which the society dictates (Kohlberg, 1981). An individual’s behavior is therefore charged by the approval or disapproval which is made by others in the society. In the authority versus social-order maintaining orientations stage, an individual’s behavior is charged by the importance of the laws, social conventions and dictums which are stipulated in the society. These norms are the norms which are supposed to be followed in the society and are important so as the normal functioning takes place in the society. The third level which Kohlberg considered was the post-conventional level. This level consists of two stages namely the social contract orientation and the universal ethical principles stage. In the social contract orientation stage, the individual should be able to respect the rights, opinions and values which are diverse in the world. Every one’s opinions should be respected as unique and equally important (Kohlberg, 1981). Laws are considered as the social contracts which govern the individuals in the society rather the edicts which are rigid. In the second stage i.e. the universal ethical principles stage, the moral reasoning of individuals is based on the abstract reasoning which uses universal ethical principles. Rules and regulations are useful if they are grounded by justice and a commitment to justice which is followed by obligations which state that disobedience will lead to punishment. By refusing the idea of modifying the report, Sharon falls in the level of conventional stage. This is because she judges the actions which will befall the company based on the society’s expectations and views. She is able to discern and accept the society’s conventions basing on what is right and wrong in the society (Kohlberg, 1981). At this point, Sharon is able to follow the rules and the norms which are stipulated in the society and she avoids the consequences which may arise due to disobedience and obedience. Sharon is receptive to approval or disproval as is given by the society’s agreement with the perceived roles. Sharon believes that to be a good individual in the society is to live up to the expectations of the society. She believes that whatever actions which she needs to undertake should be based on the expectations and regulations set by the society. She follows her idea of not conforming to the other people’s movements because she understands that respect and gratitude are very fundamental aspects. Jimmy on the other hand wants to impress his seniors and he is ready to amend the report. He therefore falls in the stage of pre conventional stage and specifically the self interest stage. Jimmy is only concerned with his own best interest. He wants to get what he feels will make him inclined to higher positions or obtain some specific interests. He is therefore not interested with the discipline and the needs of others in the organization. This therefore puts the others at a state of compromise while for him he knows he enjoys some rights. Jimmy lacks that social perspective where he is required to follow the norms of the society (Kohlberg, 1981). Bibliography Chryssides, G. and Kaler, J (1993) An introduction to business ethics. Cengage Learning EMEA Bishop, P., Connors, C. and Sampford, C. (2003) Management, organization, and ethics in the public sector Law, ethics and governance. Ashgate Publishing, Ltd Messick, D. and Tenbrunsel, A.(1996) Codes of conduct: behavioral research into business ethics. Russell Sage Foundation. Clarke, F. , Dean, G and Dean, G.W. (2007) Indecent disclosure: gilding the corporate lily. Cambridge: Cambridge University Press. Wong, J. and CPA Australia.(2007) Auditing, assurance and ethics handbook 2008: Incorporating all Australian Auditing Standards (ASAs) and Accounting Professional and Ethical Standards (APESs) as stated at 15 November 2007. Pearson Education Australia. Gasparski, W. and Ryan, L (1996) Human action in business: praxiological and ethical dimensions Praxiology, Vol 5 Transaction Publishers Kohlberg, L. (1981). Essays on Moral Development, vol. I: The Philosophy of Moral Development. San Francisco, CA: Harper & Row. Kohlberg, L. (1973). The Claim to Moral Adequacy of a Highest Stage of Moral Judgment. Journal of Philosophy 70: 630–646. Read More