The Role of Government

From Ghilyer-Andrews Business Ethics Now | A presenta*on by Class F141

Presenters | Content
Anugrah Adeputra
Andhika Dyah Paramita
Ayu Savitri Meriany

Angela Jessica
Camelia Indah

Arieta Ariyanthi
Arsya Chairunnisa

Annisa Ayuningtyas

Key Legisla*ons
Framework

Case 1 : The Ethical Mind


Case 2 : How Great Companies
Think Dierently

Key Takeout

Key
Legislations

The Foreign Corrupt

Prac@ces Act
(1977)
The Dodd-Frank
Wall Street
Reform and
Consumer
Protec@on Act
(2010)

The Revised Federal

Sentencing Guidelines
for Organiza@ons
(2004)

The U.S. Federal

Sentencing
Guidelines for
Organiza@ons
(1991)

The Sarbanes-Oxley
Act
(2002)

The Foreign Corrupt

Practices Act
(FCPA)

Purposed to Control Bribery

Prior to FCPA, punishable only through
secondary sources of legisla@on:
1. The Securi@es & Exchange Commision (SEC)
2. The Bank Secrecy Act
3. The Mail Fraud Act
Compe''veness of U.S. Corpora'ons should be based
on price and product quality rather than the extent to
which companies had paid o foreign ocials and
poli'cal leaders

Disclosures
Fully disclose any
& all transac@ons
conducted with
foreign ocials
& poli@cians

Prohibi*on
Prevent the
movement of funds
overseas for
the purpose of
conduc@ng a
fraudulent scheme

A Bark Worse
Than Its Bite
FCPA s@ll cri@cized because of
its formal recogni@on of
Facilita@on Payments otherwise
be acknowledges as Bribes

FCPA nds these payments
acceptable provided they expedite
or secure the performances of a
rou@ne governmental ac@on

Examples of Routine Governmental Actions

1. Providing permits, licenses or other ocial documents to qualify a person to do a
business in a foreign country
2. Processing Governmental Papers, such as Visa and Work Orders
3. Providing Police Protec@on, Mail Pickup and Delivery, or Scheduling Inspec@ons
related to transit of goods across a country
4. Providing Phone Service, Power and Water Supply, Loading and Unloading Cargo, or
protec@ng Perishable Products or Commodi@es from Deteriora@on
5. Performing Ac@ons of Similar Nature

FCPA in Action
Chiquita Brands Interna*onal
Inc.


Disclosed that its Greek Unit
made improper payments
totaling $18,021 as part of a
local tax audit seglement similar
to its Colombian Subsidiary
made in 1996 & 1997

Monsanto Corpora*ons



In 2002, A Senior Manager
authorized and directed an
Indonesian Consul@ng Firm to
make an illegal payment to a
Senior Ocial of Ministry of
Environment to repeal an
unfavorable decree that could
aect the companys opera@ons

The U.S. Federal

Sentencing Guidelines
for Organizations

The Origin & Purpose

Established in 1984 by
The Comprehensive
Crime Control Act

Developing Uniform
Sentencing Guidelines for
oenders convicted of
federal crimes

The Coverage
Monetary
Fines

Organiza*onal
Proba*on

Compliance
Program

Eec@ve on
November 1, 1987
7 Chapters
Applied to
Individuals
Convicted of
Federal Oenses

1991
+1 Chapter
Ch.8 Federal
Sentencing
Guidelines for
Organiza@ons
(FSGO)
Applied to
Organiza@ons and
hold them liable
for criminal acts of
Employees and
Agents

Step III
Determining Total Fine
Step II
Culpability Score
Step I
Determina*on Base Fine
The Greatest of:
Monetary Gain to the
organiza@ons from the
Oense
Monetary Loss from the
Oense caused by the
organiza@ons
Amount determined by a
Judge based of FSGO Table

Mul@plier of Base Fine (1-4)

Can be increased by the
Aggrava@ng Factors
Can be decreased by the
Mi@ga@ng Factors

Total Fine = Base Fine *

Culpability Score
In certain cases, Judge has
discre@on to impose a so-
called Death Penalty: The
Fine is set high enough to
match all the organiza@ons
asset

Monetary Fine
Calculation Process

Organizational
Probation
Proba*on up to 5 years

Status of Proba@on can include following

requirements:

Repor@ng Business Financial Condi@on to
the court on a periodic basis
Remaining subject to unannounced
examina@ons of all nancial records by a
designated proba@on ocer and/or court-
appointed experts
Repor@ng progress in the implementa@on
of Compliance Program
Being subject to unannounced
examina@ons to conrm that the
compliance program is in place and is
working

Compliance
Program
7 Effective Steps

1. Management Oversight
2. Corporate Policies
3. Communica@on of Standards &
Procedures
4. Compliance with Standards &
Procedures
5. Delega@on of Substan@al
Discre@onary Authority
6. Consistent Discipline
7. Response & Correc@ve Ac@on

The Revision

May 2004
U.S. Sentencing
Commission
proposed that
there should be
modica*ons

November 2004
Formally adopted with
some key changes:
Compliance Programs
Eec@veness Evalua@on
(Periodically)
Evidence of Ac@vely
Promo@ng Ethical
Conduct
The Guidelines dened
Accountability more
clearly

Sarbanes-Oxley Act

In the early 2000s

The Finacial World
was turned
up side down
by accounting
scandals

Title I
Public Company Accounting Oversight Board
As Investors Condence fell in Wall St. Roller Coaster Ride;
an Independent Party was born

Maintain compliance with established standards and

enforcing rules and disciplinary procedures

Accoun@ng rms required to register with the board and abide any
opera@onal standards set by the board

Title II
Auditor Independence
Prohibit specic non-audit services of public accoun@ng rms as viola@ons of auditor
independence
Prohibits public accoun@ng rms from providing audit services to any company whose
senior ocers were employed by that accoun@ng rm in previous 12 months
Requires Senior Auditor to rotate o an account every ve years, and junior auditors
every seven years
Requires External Auditor to report to the clients audit commigee on specic topics
Requires auditors to disclose all other wrigen communica@ons between management
and themselves

Title III - XI

Title III: Corporate Responsibility

Title IV: Enhanced Financial Disclosures
Title V: Analysis Conicts of Interest
Title VI: Comission Resources and Authority
Title VII: Studies and Reports
Title VIII: Corporate and Criminal Fraud Accountability
Title IX: White Collar Crime Penalty Enhancements
Title X: Corporate Tax Returns
Title XI: Corporate Fraud and Accountability

Wall Street Reform

2008
Crisis

Aggressive Lending
Bankruptcy
Government
Interference -Bailout
SOX failed?
Lack of Oversight?

Example
American Insurance Group
Bailout Total : 85 Bio USD
Lack of Oversight & Poor Financial Judgment

Held events that cost 440k

USD aver bailout deal with
Government

CEO reassurance investor

about company nancial
health aver auditors warning
about companys exposure to
risky assets

THE DODD-FRANK
WALL ST REFORM
& CONSUMER
PROTECTION ACT
US nancial crisis in 2008 nancial
regulatory system allowed irresponsible
lenders to use hidden fees & ne print;
taking advantage of consumers

The Consumer Financial

Protec*on Bureau
Prevent predatory mortgage
lending
Improve the clarity of mortgage
paperworks for consumer
Reduce incen@ves for mortgage
brokers
Loan terms to be presented in
new and easy to read and
understand format

The Financial Stability

Oversight Council
To prevent banks from failing
and threatening the stability of
the us economy
Facilitate regulatory
coordina@on
Facilitate informa@on sharing
and collec@on
Designate nonbank nancial
companies for consolidated
supervision

UU Tipikor
Bribery

Business /
Organiza*on Crime

Corporate Accoun*ng

UU No. 40 Tahun 2007 PT

UU No. 19 Tahun 2003
BUMN
UU No. 5 Tahun 1962 BUMD
UU No. 13 Tahun 2003 -
Ketenagakerjaan
Peraturan Bank Indonesia
UU Pasar Modal
UU No. 5 Tahun 2011
Akuntan Publik
Pernyataan Standar Audit
Peraturan Bank Indonesia

No. 8 Tahun 1995 Pasar
UU
Modal

Financial Markets

Mul*lateral
Organiza*on

Corpora*ons
to do the right
thing

The Ethical Mind

A conversation with Psychologist
Howard Gardner

Hbr.org | March 2007 | Harvard Business Review

What is an ethical mind?

What we gain through

applying ourselves in
a disciplined way
New ideas and prac*ces,
innovates, take chances,
discovers

Disciplined
Mind

Creating
Mind

Decide what is
Synthesizing important and worth
Mind
paying aken*on to
Respectful
Mind

Understand and form

rela*onships with
other human beings

Ethical Mind

A person with an ethical mind asks, If all workers in my

profession adopted the mind-set I have, or if everyone did
what I do, what would the world be like?
e.g. WHISTLE-BLOWERS

How Does The Ethical Mind Develop?

Ethical orienta*on
begins at home
Children absorb their
parents religious and
poli@cal value
Ethical community in a small city called
Reggio Emilia in Northern Italy

Aside from providing high-quality services and cultural

benets to its ci'zen, the city provides excellent infant
and toddler centers and preschools

When they grow up, they return this regard by caring
for others; becoming good workers and good ci'zens

As children get
older, their peers
have an
enormous eect

What Gets in The Way of Ethical Mind?

Sadly, even if you grow up with

a strong ethical sense, the bad
behavior of others can
undermine it

A study conducted by Duke
University recently found that
56% of MBA students in US admit
to chea@ng. They may assume
that chea@ng is the price of
success, or maybe you do it
because everyone does it.

We live in a @me of intense

pressure on individuals and
organiza@ons to cut corners,
pursue their own interests, and
forget about the eects of
their behavior on others.

Markets are amoral: the line
between shading earnings and
commixng outright fraud is not
always clear

Condence in business is under-

minded; individuals distrust
one another

Is It Harder For Business People To

Adhere Ethical Mind Than Professionals?

Business People

No license for prac@ce

To make money and run
afoul the law
Harder to have ethical mind
Easy to wander o the
proper path

True Professionals

Doctors, lawyers, engineer, architect

Set of control & sanc@on
who violate
Mentoring as ethical guides
Can be expelled from
professional guild

Would You Say That Compromised Work

Is Catching In The Same Way That The
Emotional State of Leader Affect Others?

Tend to listen to leader and

watch leader and colleague
more carefully

It magers enormously
whether the various interest
of stake in work (in harmony or
in conict) and whether the
par@cular of role models are
condent about the hats they
are wearing

Feel psychology
emboldened / pressured
Inspire employee,
long run business

How Does One Stand Up

To Those Pressure?

Retain an ethical compass

State your belief
Set rewards and sanc@on
Prac@ce rigorous self honesty
Time for reec@on
Posi@ve periodic of inocula@on
To examine what youre doing or to set a
good example

An@viral inocula@on
To draw object lessons from instances of
compromised work

One Need A More

Objective Gauge Than Oneself

Personal
Personal temperature gauge
(Michael Hackworth)

Business
1. A trusted counselors who are
within the organiza@on
2. Need the counsel of someone
completely outside the
organiza@on (old friend as
peer)
3. Need a genuinely independent
board

In Hiring Or Promotion,
Are There Ways Companies Can Sort
The Wheat FromThe Chaff?

MENTORING & ROLE MODELS MATTER

There is no subs@tute for detailed,
textured, conden@al oral
recommenda@ons from individuals
who know the candidates well and
will be honest

Gardner doesnt par@cularly trust
wrigen legers or the result of
psychological tests. A single
interview is not much help, either.

What If You Are

In A Position To Speak Truth To Power?
How Do You Gird Yourself For That Task?

It is not easy to confront

oending individuals
But it is essen@al if you want to
have an eec@ve organiza@on

Two factors make it easier:
1. You need a rm belief
that what you are doing
is right for the
organiza@on
2. You dont wait for
egregious behavior

If a person has been warned or

counseled, it is much easier to
take ac=on the next =me
a wrong is iden=ed

As for confron*ng superiors

If that is impossible, you are not

in the right organiza@on

If you are not prepared to resign
or be red for what you believe
in, then you are not a worker,
let alone a professional

You are a slave

Tradi@onal
view
The purpose of the
business is to make
money & maximizing
prot (economic value)
> short term

nancial logic

Great
Company view

Business is intrinsic part of the

society. They consider social
value & human value to build
enduring ins@tu@on beyond
their business porzolio >
long term perspec@ve

Ins@tu@onal logic

Six facet of Institutional Logic

Influence the Leadership & Corporate Behavior

Common Purpose
Long-term View
Emo@onal Engagement
Building Communi@es
Innova@on
Self-organiza@on

Common Purpose

Conceiving of the rm as a social ins'tu'on serves

as a buer against uncertainty and change by
providing corpora'ons with a coherent iden'ty
o Purpose and values are at the core of an
organiza@ons iden@ty
o Meaning making is a central func@on of
Leaders with
o Organiza@onal Culture reinforced by
ins@tu@onal grounding providing con@nuity
between the past and the future

PepsiCo gradual shil

of resources from
fun for you to
beker for you to
good for you

Long-term View

Thinking of the rm as a social ins'tu'on generates

a long-term perspec've that can jus'fy any short-
term nancial sacrices required to achieve the
corporate purpose and to endure over 'me.
o Willing to sacrice short-term nancial
opportuni@es if incompa@ble with ins@tu@onal
values Short-term sacrice is seeing as risk
management for longer term
o Leaders willing to invest in the human side of
the organiza@on help crea@ng sustainable
ins@tu@ons
o Organiza@onal Culture guided by values that
central to the companys iden@ty and reputa@on

Shinhan Bank acquired

Chohung Bank
Shinhan invested heavily in what it called
emotional integration, holding a series of
retreats and conferences intended not only to
spread strategic and operational information
but also to foster social bonding and a feeling
of being one bank

Emotional Engagement

The transmission of ins'tu'onal values can evoke

posi've emo'ons, s'mulate mo'va'on, and propel
self-regula'on or peer regula'on.
o Well-understood values and principles can be a
source of emo@onal appeal, which can increase
employee engagement.
o Top leaders exemplify and communicate
values, embedded in tasks, goals, and
performance standards of the company
o Organiza@onal Culture perceived as process of
nurturing to put social purpose at everyones
mind and as a guidance for business decision

The emo*onal engagement for P&G

employees are strong; they feel
inspired by the fact that their product
is at the center of a mission
to save lives

Partnering with Public | Building Community

The need to cross borders must be accompanied by

concern for public issues, requiring the forma'on of
public-private partnerships in which execu'ves
consider societal interests along with their business
interests.
o Companies must build a base of rela@onship in
each country with government ocials, public
intermediaries, suppliers and customers
o Leaders pay agen@on in external rela@ons for
building rela@onships with the na@on and
community.

Innovation

Ar'cula'ng a purpose broader than making money

can guide strategies and ac'ons, open new sources
for innova'on, and help people express corporate
and personal values in their everyday work.
o The agen@on on social needs oven generates
ideas that lead to innova@ons through
connec@on among partners across ecosystem
o Leaders allocate @me, talent, and resources
to na@onal and community projects without
seeking immediate returns
o Organiza@onal Culture of crea@ng opportunity
for individuals to use company resources to
serve society furthers ins@tu@on-building goals

Self-organization

Great companies more likely to treat employees as

self-determining professionals who coordinate and
integrate ac'vi'es by self-organizing and
genera'ng new ideas.
o Self organize companies which create network
to share informa@on, new ini@a@ves or
innova@ons are oven the result.

At Procter & Gamble,

managers turned strategic
and organiza=onal tradi=ons
on their head

o Leaders ac@ng beyond formal structures

using ins@tu@onal logic in guiding and growing
the enterprise
o Organiza@onal Culture of trus@ng people to
make choices for ideas to surface, the eort
where they might contribute beyond their jobs.

Key
Takeout

Bribery

Business Crime

BUSINESS
Maximize
Profit?

Corporate
Accoun*ng

Financial
Market

GOVERNMENT
Enforce The Right Things

to Protect Stakeholders
through Regulations

If all workers in my
profession adopted the
mind-set I have,
or if everyone did what I do,
what would the world be
like?
-Ethical Mind

Choose Side;
Retain Ethical Compass

Spread Posi*vity
Through Mentoring
& Be rm about it

THE EMPLOYEE shapes & being

shaped by THE COMPANY

Tradi@onal
view

So,

The purpose of the

business is to make
money & maximizing
prot (economic value)
> short term

nancial logic

What Company
Do You Want To
Build?

Great
Company view

Business is intrinsic part of the

society. They consider social
value & human value to build
enduring ins@tu@on beyond
their business porzolio >
long term perspec@ve

Ins@tu@onal logic

How to?
Aligning Six facet
of Institutional Logic
on Leadership &
Corporate Behavior

Common Purpose
Long-term View
Emo@onal Engagement
Building Communi@es
Innova@on
Self-organiza@on

Inspired
Employees
=
Productivity

Inspired
Consumers
=
Loyalty /
Advocacy