Global Ethics: SAP ERPMIS 261 Fall 2009

Group Members: Amanda Esquivias, Krystal Nunes, & Russ Espinosa

Business Ethics?What is it?Business ethics is a form of applied ethics (matters of moral judgment) that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and business organizations as a whole.

Dow Jones Sustainability IndexWhat is it?The DJSI follow a best-in-class approach through analysis: of corporate economic, environmental and social performance Assesses issues such as: corporate governance, risk management, branding, climate change mitigation, supply chain standards and labor practices.

FTSE4Good IndexWhat is it?Was designed to measure the performance of companies that meet globally recognized corporate responsibility standards, and to facilitate investment in those companies.Global Challenges IndexWhat is it?Recognizes companies for transparency and anti-corruption .

Why is this relevant?Dow Jones Sustainability IndexSAP is named the leader in the software industry for upholding ethical, environmental, social, and governance values in its products and services.FTSE4Good IndexSap is recognized for its sustainable business practices by the Global 100 list of the most sustainable corporations in the world. Global Challenges IndexSAP has been named to recognize transparency and anti-corruption.

Governance, Risk, and ComplianceSAP strives to conduct business ethically and to pursue sustainability assertively, all under the umbrella of sound corporate governance. Solid governance and responsible business practices contribute to SAPs success and sustainable economic development at the macro level.

Corporate GovernanceWhat is it?Set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.

German Corporate GovernanceRules and principles of the German Corporate Governance Code.:Management and supervisory functions are segregated into two distinct bodies: Executive BoardSupervisory BoardThe Supervisory Board is led by the chairperson and approves the members of the Executive Board, who in turn lead the company. Members of one body are not allowed to be part of the other. Germanys unique corporate laws of co-determination provide for employee participation on the Supervisory Board.

Ensuring Ethical Business PracticesSAP conducts business dealings with integrity. All employees sign a Code of Business Conduct when they join the company. The code covers:Conduct with customers, suppliers, competitors, and partners Fair competition Conflicts of interest Anti-corruption Insider trading Confidentiality

SAP Corporate Governance

Code of Business ConductA statement of the company's commitment to safeguarding investors and customers against unfair competitive practices, corruption, or misleading statements. Sets the standard for all dealings with customers, partners, competitors, and vendors. International differences in culture, language, and legal and social systems make the adoption of a uniform code of business conduct across the entire SAP Group somewhat difficult. http://www.sap.com/about/governance/pdf/Framework_SAP_Code_of_Business_Conduct_2006-03-1.3a_Final.pdf

FTSE4Good SAP increased anti-corruption standards to include:A binding obligation upon partner sales agentsA prohibition against facilitation payments SAP is a founding member of the UN Global Compact. SAP participates in the anti-corruption working group and endorses the UN Global Compact Caring for Climate initiative to advance practical solutions and help shape public policy and public attitudes on climate change.

EnronEnron was once one of the worlds leading electricity, natural gas, pulp and paper, and communications companies until 2001 when Enron filed for bankruptcy. In 2000 Enron claimed nearly $101 billion in revenues with approximately 22,000 employees. Enron was touted as the seventh largest company in the U.S. Fortune magazine named Enron "America's Most Innovative Company" for six consecutive years. Enron shares traded at $90.75 at its height in August of 2000.

Enron CollapseEnron claimed to generate profits and revenue from deals with special purpose entities that were actually limited partnerships which Enron controlled. Enron was claiming billions in profits while it was actually losing money.Enron was using these partnerships to sell contracts back and forth to itself and booking revenue each time and to hide debts and losses that it suffered by not reporting them on its financial statements. By the late 1990s, Enron had begun shuffling much of its debt obligations into offshore partnerships. Chief Financial Officer Andrew Fastow created many of these offshore partnerships.

Enron Collapse (cont.)On October 16, 2001 Enron posted a $638 million loss for the third quarter and take a $1.2 billion reduction in shareholder equity due in part to Fastows partnerships On November 8, 2001 Enron revised its financial statements for the previous five years, acknowledging that instead of taking profits, it actually had posted $586 million in losses. Its stock value fell below $1 per share by the end of November and was de-listed on Jan. 16, 2002 Enron filed for bankruptcy on December 2, 2001The scandal caused the dissolution of one of the worlds top accounting firms Arthur Andersen. In 2002 the firm was found guilty of obstruction of justice for destroying documents related to Enrons audit.

Sarbanes-Oxley ActIs the reaction to a number of major corporate and accounting scandals including Enron, Tyco International, Adelphi, Peregrine Systems and WorldCom. Was enacted on July30th, 2002. Approved by the House by a vote of 423-3 and by the Senate 99-0. Sec. 302 contains the rules for corporate responsibility for financial reports and disclosureSec. 404 requires management and the external auditor to report on the adequacy of the company's internal control over financial reporting.

Sarbanes-Oxley ActNot only affects the financial side of corporations, it also affects the IT departments whose job it is to store a corporation's electronic records. Sec. 802(a) deals with destruction, alteration, or falsification of records. Sec. 802(a)(1) defines the retention period for records storage. Sec. 802(a)(2) refers to the type of business records that need to be stored, including all business records and communications, including electronic communications.

Sarbanes-Oxley ActThe Sarbanes-Oxley Act requires companies listed in the United States to declare whether they have a code of ethics that, at minimum, applies to certain levels of management. SAP's Code of Business Conduct for Employees meets the standards set by the Sarbanes-Oxley Act and the regulations pursuant to the act.

Sarbanes Oxley and SAP

Enterprise Resource PlanningThe First BoomIn the late 1990s, enterprise resource planning system vendors saw sales skyrocket as organizations raced against the pressures of Y2K. The systems at the time were of unique value- organizations could be the first in their industry to take advantage of the values of an enterprise resource system. After Y2K, vendors found themselves at a bottom of a peak and without the unique value hook

Enterprise Resource PlanningThe First Boom (continued)Organizations questioned the real value of the highly expensive new systems. ROI increases would not be evident for years Original factor behind purchasing the software was due to Y2K compliance. As a result, many organizations were never fully trained to effectively use the software in their organizations

Enterprise Resource PlanningThe Second BoomSarbanes-Oxley brought a new light to ERP vendors as organizations sought out upgrades to their systems since original systems were not designed for compliance with the new standardsVendors stressed to unsatisfied customers that they could receive benefits from the previously purchased softwareOrganizations must be willing to implement the system into their business processes

Best PracticesOne way software vendors market their systems is by offering best practices pre-configured in software.Best practices: the most efficient methods that businesses should be followingIn order to use the software, businesses must alter or redesign their current practices and business structure to incorporate these best practices.

CustomizationVendors do offer customization allowing organizations the ability to create enterprise resource planning software to fit their current processesCosts are exceedingly highMajority of the costs come from the customizations not from the cost of the ERP systemUpgrading systems more difficultAdditional money to re-customize or un-customize to change their processes

Customization (cont.)ERP designers contest customization was the biggest mistake in the Y2K boom and recommend integrating the best practices into the business models and not customization.

Additional Reasons for ERPERP upgrades and new modules were needed by companies in growth stages. For example, companies who had implemented separate systems in countries where they operated needed to integrate a centrally managed global system for better efficiency and management of the companys productions. Installations done for Y2K were no longer adequate for their current needs2003-2004, companies tightened their IT budgets to invest in e-commerce and security, and now were returning back to their budgets and technological improvements.

Software UpgradesSoftware vendors continue to make improvements and upgraded models of ERP systemsTo receive the greatest value of their systems, organizations must continue to purchase the upgradesCritics of the ERP system, question the power of software vendors that this createsEXAMPLE:Dow Chemical Co. was one of the first companies to adopt SAP into their business processes by purchasing an extensive customized system.

Software Upgrades (cont.)EXAMPLE:Dow Chemical Co. was one of the first companies to adopt SAP into their business processes by purchasing an extensive customized system.They continued to use the system even as newer SAP upgrades were releasedSAP discontinued support for this older versionDow Chemical CO. was faced with the decision of either keeping their customized system and relying on their own knowledge and support or redesigning their system again in order to incorporate newer versions

In General: Six Dirty Vender TricksThe magic DemoUnderbid, then overchargeThe customer headlockThe billing mistakeThe forced upgrade marchThe clueless customer

The Magic DemoA software vender comes into your business, provides you with selling software that has all the answers to your companies needs and that their enterprise software package will deliver the tools to prove it

Underbid, then OverchargeVenders will come into a business and offer an lower price to initiate the sale of the productMake up the difference in added charges after the contract has been signed in possible service contracts and implementation fees

The Customer HeadlockOnce a vender has completed a sales contract with a company, they do everything in their power to keep them as clientsHigh implementation costsUse of the venders own engineers to implement the softwareUpgrades and maintenance fees

The Billing MistakeVendors charging for services, fees, upgrades, or software not contractedFewer than one in ten customer notice that the error has taken place

The Forced Upgrade MarchCoercing companies to upgrade their software; even when it is relatively new or a newer version will soon be out.Example: A vendor sold Awake in America upgrades and updates. Three weeks later, a newer version of the program came out. When confronted, the company explained they couldnt divulge such information about the upgrade at the time.

The Clueless CustomerCustomers put too much trust in systems integrators and vendors; and fail to do their own due diligence .Most projects fail because of conflicting agendas between customers, system integrators, and vendors.

Any Questions?