In Depth SWOT Analysis
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-f… 1/36
9.6 Assessing the Strategic-Planning Process
Bene�its do not accrue automatically every time a company engages in strategic planning; they are more likely to be realized if they are consciously sought. Both strategic planners and the consultant facilitators advising them should strive to ensure that these bene�its are realized. The extent to which they are realized, therefore, constitutes an excellent assessment.
The 10 Bene�its
The 10 bene�its of effective strategic planning may also be viewed as criteria for assessing whether a company is doing strategic planning effectively. The 10 bene�its are organized to follow the Association for Strategic Planning's rubric of "Think—Plan—Act."
The 10 Bene�its of Effective Strategic Planning
"Think"
1. A shared understanding of external changes 2. The ability to anticipate future external changes 3. The ability to search for a better strategy or business model
"Plan"
4. Having a strategic vision 5. Choosing the best strategy from among viable alternatives 6. A constantly improving strategic-planning process 7. Having the board of directors on the same page
"Act"
8. Becoming a stronger competitor 9. Having an adaptive, innovative culture 10. Having all programs aligned with the vision, strategy, and company objectives
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-f… 2/36
Source: Abraham, S. (2010, February 23). Ten Bene�its of Effective Strategic Planning—and Why You Should Want Them All. Presentation at the 2010 ASP National Conference, Pasadena, CA.
1. A Shared Understanding of External Changes
To use a military analogy, just as con�licting accounts about an enemy's strength, position, and deployment make it dif�icult to devise a winning strategy, so too does the absence of a shared understanding of external changes and their impacts on the company make the crafting of a winning strategy extremely dif�icult. Because changes occur continuously, the only way to keep up with them and even anticipate some is to monitor them year round, and to keep the strategic planning group and board of directors informed as to key changes and developments in all areas. One person should be responsible for each area and be trained to collect and summarize data in useful form. A summary for the year with emphasis on recent trends should be prepared in advance of the annual strategic-planning meetings and be distributed to participants. To the extent this is done well the company's decision making will improve.
2. The Ability to Anticipate Future External Changes
A number of well-known techniques enable an organization to explore "soft" assumptions about the future and provide additional options for planning. These include scenario planning, forecasts, and simulations (Section 3.4). It may be that the �irm would be advised to engage a consultant that specializes in one of these areas, or pay attention to forecasts that have earned a good reputation over time. Expressed another way, the bene�it here is that the resulting information can guide the �irm toward actions that enable a preferred scenario to occur, or develop a contingency in case a hoped-for scenario does not occur.
3. The Ability to Search for a Better Strategy or Business Model
A company not actively seeking a better strategy is not doing a good job of strategic planning, and its strategic decisions will not be good ones. How else is a company to �ind a "blue ocean" or situational monopoly with no competition? How else could it guard against being disrupted by a company outside the industry or even plan a disruption itself in a proactive move? How else could it gain a competitive advantage it lacks or strengthen one it already has?
For every different strategy and business model contemplated, someone in the organization should assess its costs, feasibility, bene�its, and risks on an ongoing basis. The results of such assessments play directly into the strategic-decision-making process. Except when the �irm
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-f… 3/36
Your strategic vision should be realistic, achievable within a speci�ied time frame, inspirational, concise, and memorable.
Helder Almeida/iStockphoto/Thinkstock
needs to act immediately because the decision just won't wait, the information can wait until the annual strategic-planning process comes around.
4. Having a Strategic Vision
Every organization that wants to endure should have a strategic direction and strive to become something. Succeeding is more likely if there is a clear vision and if everyone knows what it is and is motivated to help the organization get there. Visions should be realistic (achievable within a set time frame, 5 or 10 years is typical), concise, inspirational, and memorable. They sometimes include a value statement, although listing values separately is more common (Section 2.1).
The real bene�it of a clear vision statement is to get everyone in the organization on board and wanting to achieve it; and though cumbersome, everyone in the organization should also have had a hand in creating it or at least providing feedback before it is adopted. As soon as the organization is close to achieving its vision, it should be changed, being careful to go through the same process of getting buy-in from everyone before adoption.
5. Choosing the Best Strategy from Among Viable Alternatives
Choosing from the best options available is a bene�it, as it allows people to trust the decision that was made and have faith in the direction the company is headed. This is bene�icial only if the strategic planning process generate good viable alternatives and a decision-making process for selecting the best one.
Having said that, such a "best strategy" doesn't guarantee success. It must be well executed for the �irm to succeed. It is much easier to "sell" the strategy down the line in a company and motivate a high level of execution if people know why it is the best from among the options considered.
6. A Constantly Improving Strategic-Planning Process
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-f… 4/36
The bene�it of improving the process should be clear: better strategic decision making. This might entail involving different people, getting better information, stimulating more spirited discussions and encouraging diverse views, or even using computer software to include inputs from everyone quickly (Warden & Russell, 2001). Without thoughtful annual improvements, an organization is likely to allow its strategic planning to become a rote exercise that is taken ever less seriously and one that participants, for those very reasons, resist wanting to participate in.
7. Having the Board of Directors on the Same Page
For public corporations and nonpro�its—and quite a few but not all privately held companies—it is imperative to ensure that the board of directors approves of all strategic decisions before any move to implement them is made. In fact, there are instances where the strategic decision comes from the board as in resisting a takeover bid or deciding to acquire another company. In the typical case where strategic planning is done by a top-management or strategic-planning team, there has to be some mechanism for the board to be kept apprised of the process. In 2005, management consulting �irm McKinsey & Co. polled over 1,000 directors and discovered that strategy coordination between the CEO and the board was the number-one cause for the success or failure of CEO appointments (Felton & Keenan Fritz, 2005). In some companies, the CEO is also chairman of the board, and so automatically serves as the desired link.
Boards of directors may have a strategic-planning committee whose chair would attend the meetings of the management group and keep the board informed. The bene�it, of course, is knowing that the strategic decisions made are in the best interests of the stockholders in the case of a public corporation or the sponsors and clients in the case of a nonpro�it organization. Ultimately it is the board that has responsibility for the strategic direction of the organization.
8. Becoming a Stronger Competitor
If strategic planning is done well and the strategy properly executed, then the company will become a stronger competitor. This, of course, is the principal bene�it for doing strategic planning in the �irst place. Many things have to contribute for this bene�it to be realized. For example:
Knowing how your industry and markets are changing Anticipating and meeting customers' needs Getting more customers to buy your product or service Creating or improving a core competence Knowing what your competitors are up to and outdoing them Defending one's position against attack from competitors Looking for "blue oceans" or monopolies with no competitors Looking for opportunities to disrupt the industry before someone else does
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-f… 5/36
Apple Computer's culture encourages innovation and new ideas to look for the "next big thing." Apple values learning from mistakes, sharing experiences, and developing ideas, no matter what the source.
Miguel Medina/Stringer/AFP/Getty Images
Cultivating a strong brand and staying true to it
Management knows that the company is a stronger competitor if it achieves gains in revenues and market share, and maintains high brand equity, or achieves other established measures of success the company holds dear.
9. Having an Adaptive and Innovative Culture
When a company has been following the same strategy for some time, the culture adapts to that strategy and gets it to work. However, if some major change is deemed necessary, such as pursuing a new strategy or adopting a new technology or manufacturing process, and the culture remains what it always was, then the change will not succeed. A mismatched culture is one of the principal reasons why changes and new strategies fail, and it is widely acknowledged that it is dif�icult to change a culture. The reason that it is dif�icult is that change imposed from above results in a lot of resistance. Many companies in this predicament resort to wholesale changes in personnel to change the culture.
With an adaptive culture, that draconian measure is not necessary. An adaptive culture is one that is willing to change if the reason for doing so makes sense. It is a culture that values open communication, education, teamwork, and individual initiative. Companies that have adaptive cultures make the necessary changes over time and succeed.
An innovative culture does not simply encourage innovation and new ideas and look for the next "big thing." It also puts a high value on learning from mistakes and giving people permission to make mistakes. Innovative cultures encourage the sharing of experiences and developing ideas no matter their source. Two of the best examples of innovative cultures are Apple Inc. and Google.
It would be dif�icult to make strategic decisions and implement them if the culture were not adaptive and innovative. The converse, of course, is also true. Making good strategic decisions that call for change and smooth execution will force the culture to be adaptive and innovative. Hiring people with similar traits will ensure that this desirable culture endures.
10. Having All Programs Aligned with the Vision, Strategy, and Company Objectives
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-f… 6/36
The importance of aligning everything the company does with its vision, strategy, and companywide objectives was discussed in the context of operational and budget planning (Chapter 8). The bene�it is the assurance of knowing that completing all programs, projects, and activities as planned will result in the strategy being implemented and the vision and company-wide objectives being fully realized (barring unforeseen circumstances).
In too many companies, what employees in the different functional areas and operational units actually do has little to do with the strategy that's in place, because little or no effort was expended to make sure that the two were aligned. As a result the strategy fails or "business as usual" triumphs. When operational planning is done, critical elements include performance measures (to track progress), appropriate training, and reward and incentive systems.
Discussion Questions
1. Of the 10 bene�its discussed in this section, which of them, in your opinion, are most often unrealized and why? 2. Which of these bene�its, again in your opinion, are most dif�icult to realize and why? 3. Do you believe that there are any bene�its that companies are less interested in realizing, hence probably won't? 4. In what ways are these 10 bene�its different from the annual improvement cycle recommended in Section 9.5?
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-f… 7/36
Chapter 10
Ethics and Corporate Social Responsibility
Cultura Limited/SuperStock
Learning Objectives
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-f… 8/36
By the time you have completed this chapter, you should be able to do the following:
Understand the differences among ethics, morals, and values. Understand ethical issues and behavior. Learn about the various unethical behaviors that tempt managers and corporations. Learn about ethical dilemmas and an approach to coping with them. Ponder the extent to which ethics can be taught. Understand the nature of corporate social responsibility (CSR) and the role of corporations in being economically, legally, ethically, philanthropically, and environmentally responsible.
Ethics and ethical behavior should be embedded into the way people are brought up and the way business students are trained. But the sad fact is that unethical behavior is more the norm in the business world than the exception. The fact that it is widespread in no way condones unethical behavior. This chapter will clarify the distinctions between ethics, morality, and values, what unethical behavior is and isn't, situations that make it dif�icult to be ethical and how to cope with them, and the degree to which ethics can be taught.
The chapter also discusses corporate social responsibility (CSR), what it is, and the extent to which corporations have a duty to be socially responsible. Finally, the physical environment (air, land, water) is—or should be—an important stakeholder for corporations. What does the responsibility to safeguard the environment mean, and what role should corporations play?
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-f… 9/36
10.1 Ethics, Morals, and Values
The terms ethics, morals and values are often confused or used interchangeably in everyday speech. Before discussing ethics in more detail, it is important to establish de�initions of what each means and the differences among them. A traditional de�inition of ethics is the art and discipline of applying principles and frameworks to analyze and resolve complex moral dilemmas (Rossy, 2011).
The Josephson Institute of Ethics, a nonpro�it organization based in Los Angeles, de�ines ethics differently but perhaps more aptly for the business world: "Ethics is about how we meet the challenge of doing the right thing when that will cost more than we want to pay."
This de�inition gets to the heart of why "doing the right thing" is sometimes so dif�icult; we are unaware of the associated cost. The Institute breaks down the de�inition into two parts: (1) the ability to discern right from wrong, good from evil, and propriety from impropriety; and (2) the commitment or will to do what is right, good, and proper (Maxwell, 2003). People and organizations need to develop a standard to follow and then the will to uphold it, an ongoing struggle for both.
A moral person knows right from wrong and chooses right; an immoral person knows the difference too but chooses wrong, while an amoral person either doesn't know the difference or doesn't care. This description includes notions of bad versus good. Both require societal and cultural norms of right and wrong and, because these evolve over time, what is "right" is far from clear.
Values are the tenets most important to people and the ways that govern how they choose to live their life. That statement also applies to organizations (see Section 2.8). Some people have been known to die for preserving a value very important to them (like freedom, or protecting another's life), and at the other end of the scale are people who think nothing of in�licting harm on others if their cause warrants it (like allegiance to a gang and killing rival gang members to defend "turf").
Virtually every company has an ethics code of behavior, which more accurately might be called a moral code. More than 85% of companies have created and circulated organizational codes of conduct. Simply having a code does not necessarily mean that employees will follow it, however; there is no proof that codes of conduct actually in�luence ethical behavior (Rossy, 2011). An example of a less-than-successful code is that of energy corporation Enron. Enron's 64-page Code of Ethics, which opened with a motivating forward by CEO Kenneth Lay, did not avert one of history's worst instances of corporate ethical failure (Rossy, 2011). Enron went bankrupt as a result of corporate of�icers' unethical accounting practices. By in�lating earnings and cash �low, and keeping liabilities off the books, Enron presented a distorted picture of �inancial health, attracting investors in the process. Among the losses were the 401K retirement accounts of Enron employees. In contrast, CEO Lay sold stock in the months before the scandal broke and pro�ited greatly (Oppel, 2001).
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 10/36
An unethical act is carried out with immoral intent, done with the full knowledge that it is legally and morally wrong or goes against societal or organizational norms (Rossy, 2011). It usually infringes obvious rules, laws, and corporate codes of ethics. An ethical "mistake," on the other hand, is an act that is not deliberately unethical, and is something an individual or group regrets afterward and desires to undo (Rossy, 2011). The following three components separate unethical actions from ethical mistakes:
Intentionality—did you harbor good or bad intention? Were you aware that you were doing something wrong? Did you attempt to hide or cover up your motives? Remorse—did you recognize and regret your unethical behavior? Or did you regret only being found out and exposed? Accountability—were you willing to own up to your mistakes and take responsibility for any unethical actions? Were you ready to try and reverse your actions and set things right? (Rossy, 2011)
The next four sections focus on ethics in business, amplifying the nature of ethical issues and dilemmas, revealing the unprecedented extent of unethical behavior, offering some guidelines for dealing with ethical dilemmas, and discussing the extent to which ethics can be taught.
Discussion Questions
1. Does obeying the law make a person "moral," and breaking it "immoral"? Discuss the reasons for your answer. 2. Can ethics vary from country to country? If you think so, provide an example of a country in which principles, norms, and standards of conduct are different from the United States, and provide as much detail as you can (even anecdotes).
3. Is a dictator moral, immoral, or amoral? Give reasons for your answer and an example that could validate your answer.
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 11/36
10.2 Ethical Issues and Behavior The chairman of AOL Time Warner Book Group was having dinner in New York one evening with John Maxwell, a prominent author on leadership issues from a Christian perspective, and suggested he'd be the perfect fellow to write a book on business ethics. "There's no such thing," replied Maxwell. When asked what he meant, he said, "There's only ethics." This conversation spawned the title of the book Maxwell came to write (Maxwell, 2003).
People get into trouble when one set of ethics or values governs their private life and another their working life. For example, a typical sales employee might say, "I'm an honest person, but it's OK to pad my expense report because that's what everyone in the company does." In fact, many people are ethically duplicitous without realizing it. As Maxwell says, "The same person who cheats on his taxes and steals of�ice supplies wants honesty and integrity from the corporation whose stock he buys, the politician he votes for, and the client he deals with in his own business" (Maxwell, 2003).
Ethical issues arise whenever people are tempted to behave unethically or not do the right thing. Maxwell lists the �ive most common things that give rise to unethical responses:
Pressure to achieve results when things aren't going as planned, which is why people often "cook the books," cut corners, or "bend the rules." Students often cheat to get higher grades, executives manipulate information to increase stock price, factory workers produce inferior products to reduce costs or increase throughput rate. Many of us are under pressure—in 2005, the Ethics Resource Center conducted a national survey of U.S. employees and found that 10% of them at all levels reported feeling pressure to compromise ethical standards (Treviño & Nelson). The desire for pleasure (if it feels good, do it) leads people to live beyond their means, abuse drugs (of all kinds), suffer divorce and broken homes, and so on. Executives that have achieved an elevated compensation level may do whatever they must to preserve their lifestyle. The consequences are never worth the promise of the temptation and are almost always regretted later. Abusing the power a person has been given. This, too, can act like a drug: "having power is like drinking salt water. The more you drink the thirstier you get" (Maxwell, 2003, p. 80). Powerful executives may develop a sense of entitlement. They believe that they and the institution are one, so they can take what they want when they want it (Abraham Zaleznik, as quoted in Maxwell, 2003). Those who want to keep their power at all costs are also most likely to compromise standard ethical behavior to do so. While pride itself is not a bad thing—after all, we have all been brought up to take pride in ourselves, our work, our family, and our country—having an exaggerated sense of pride and self-worth (hubris) is destructive. Pride is essentially competitive; one is proud only of being richer, smarter, or better looking than others. If everyone else were as rich, smart, or good looking, there would be nothing about which to be proud. If your goal is to outdo everyone else, then your focus is entirely on yourself and your own interests (Maxwell, 2003). "Pride can blind you to your own faults, to other people's needs, and to ethical pitfalls that lie in your path" (Maxwell, 2003, p. 86).
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 12/36
Ethical issues arise when people succumb to pressure to achieve results. Executives manipulate stock prices to increase value, students cheat to get higher grades, and workers produce inferior products to increase production rates.
Lisette Le Bon/SuperStock
Priorities. German poet and novelist Johann Wolfgang von Goethe said, "Things that matter most must never be at the mercy of things that matter least" (Quoted in Maxwell, 2003). Is being liked by others the most important thing to you? Is keeping your job more important than doing the right thing, like, blowing the whistle on some malfeasance? Do you know what your priorities are?
The following breakdown broadens our understanding of ethical issues in the corporate world:
Human-resources issues. An obvious example of this type of ethical issue is discrimination, which can lead to rampant unfairness. Sexual and other types of harassment may take the form of an individual in a hierarchy taking advantage of their position to use power to control others lower in the organizational structure. Harassment may also occur between peers and result in a hostile work environment for those who are the objects of the unwanted attention. Con�licts of interest may take many forms such as bribes and kickbacks, inappropriate in�luence, and the use of privileged information to bestow favor on special friends or interests. Customer-con�idence issues. In many business situations a person may be privy to con�idential information, which they may not reveal regardless of their position. To breach that con�identiality and divulge such information is a serious ethical violation. Product safety issues, whether the dangers to consumers were intentional or not, also fall into this category. When products are misrepresented, hyped beyond the bene�its they provide, or false claims are made, this transgresses truth in advertising ethical boundaries. In professions that handle other peoples' money, such as stockbrokers, there is an ethical obligation called �iduciary responsibility to base all actions on the best interest of the client. A stockbroker making an investment of a client's money for which the only motivation is the stockbroker's commission would be a violation of the broker's �iduciary responsibility. Issues arising from the use of corporate resources. These issues range from what may seem to be mundane to the extremely serious. Many people do not give a second thought to making personal calls from work, taking a long lunch or break, or taking stationery products from the supply room to use at home. All of these are examples of stealing company resources. Using company letterhead for personal reasons or allowing a personal view to be construed as the company's are misappropriations of the company's reputation. Most people would clearly recognize the ethical wrong in falsifying data to make a company's �inancial results look better or receive approval for a new drug (Treviño & Nelson).
The root problems in most of these instances are unfairness, lack of respect, and self-interest.
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 13/36
Discussion Questions
1. This section introduced the notion that people behave unethically rather than bear the costs of ethical behavior (an economic reason). Do you think this is prevalent in corporations today? Why or why not?
2. We have all heard of the Golden Rule: "Do unto others as you would they do unto you." According to John Maxwell, it is the only guide to ethics one needs. Do you agree?
3. Assuming you do the "right" thing all or most of the time, how do you know it? Elaborate on your answer as best you can. 4. Ethics exist in law, business, medicine, and other spheres of life, even politics. Other than the settings in each sphere, would you say that the concept of ethics was the same or different in all spheres? Discuss.
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 14/36
In the case of Bernie Madoff's Ponzi scheme, greed overruled all ethics. Madoff received a long-term prison sentence for bilking investors out of billions of dollars.
Stephen Chernin/Getty Images News/Getty Images
10.3 Unethical Behavior
Every day brings new reports of some new ethical violation or the disposition of a case brought against someone or a company for unethical behavior. Unethical behavior consists of conduct undertaken to bene�it a person or organization while knowingly (or being oblivious to the possibility of) harming others. Behavior is still considered unethical if the act is wrongful, whether or not it results in harm, for example, a deceitful representation even though not acted upon (Christopher D. Stone, J. Thomas McCarthy Trustee Chair in Law, University of Southern California Gould School of Law, personal communication, October 3, 2011).
Many cases involve greed, like the Ponzi scheme run by Bernard Madoff, a former chairman of the board of directors of the National Association of Securities Dealers (NASD). Madoff used money from new investors to pay "pro�its" to old ones until the situation imploded and the scam was revealed. People who trusted him with their investments lost billions of dollars. Another type of greed-induced unethical behavior is illustrated by the case of Raj Rajaratnam, founder of the Galleon Group, an international hedge fund based in New York. In 2011, Rajaratnam was convicted of securities fraud and conspiracy for insider trading and sentenced to 11 years in prison, the longest-ever term imposed for that type of offense. Unlike Madoff's Ponzi scheme, which swindled identi�iable victims directly of speci�ic amounts of money, insider trading cheats "the system" including all those investors who are not privy to the information on which pro�itable trades are made. At the heart of the prosecutors' case was an allegation that Mr. Rajaratnam gained access to con�idential information about a $5 billion investment in Goldman Sachs by Berkshire Hathaway Inc. in 2008 during the �inancial crisis. Prosecutors described an environment of rampant insider trading on Wall Street of which the defendant was only one prominent offender. In pronouncing his sentence, U.S. District Judge Richard Holwell stated that the billionaire investor's crimes "re�lect a virus in our business culture that needs to be eradicated." In addition to the prison term the judge also ordered Mr. Rajaratnam to pay a $10 million �ine and forfeit $53.8 million (Pulliam & Bray, 2011).
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 15/36
Company consumer contracts' �ine print allows a �irm to change the terms as they see �it at any time, initiate higher fees, and forbid consumers from �iling lawsuits.
Kai Chiang/iStockphoto/Thinkstock
Not all unethical behavior can be attributed to an individual acting out of the prospect of personal gain. Companies may collectively make unethical decisions that result in harm to others. Workers on the Deepwater Horizon oil platform in the Gulf of Mexico were concerned about safety on the rig months before the oil rig exploded but feared retribution and retaliation if they reported problems. In particular, employees reported that drilling took priority over maintenance that could have ensured safety. The explosion killed 11 employees and resulted in history’s largest accidental oil spill. The oil killed large numbers of wildlife, shut down crucial industries such as �isheries and tourism in large areas of the Gulf of Mexico, causing billions of dollars of economic damage and affecting untold numbers of people directly and indirectly (Urbina, 2010).
Entire industries may be tarred with the brush of unethical behavior in the interest of making pro�its. For decades the tobacco industry fought a cynical campaign to deny and discredit extensive research that demonstrated the very serious health risks of smoking. In the meantime, the tobacco companies were among the largest spenders on all forms of advertising to induce people to become addicted to smoking. As we all know, they �inally lost their protracted case, and it has been conclusively shown that executives were aware of the dangers even as they denied it publicly. Tobacco ads are no longer allowed on television, and it is now illegal to smoke in many public places such as restaurants, movie theaters, museums, aircraft, and so forth. Some states such as California have gone further, banning smoking in parks, apartment-complex balconies, and on the beach. There is now no disputing the fact that tobacco kills, yet these same tobacco companies continue to expand their markets for cigarettes around the world and get new generations addicted to smoking. The argument often used to justify their actions is that tobacco is a legal product. Of course, if tobacco was a new product being introduced to the market today, with all the attendant proven health
effects, there is no question that it would be immediately rejected by regulatory agencies as unsafe.
What about new drugs and medical products rushed to market without adequate testing or approval? In 2010, DePuy Orthopaedics, a unit of Johnson & Johnson, issued a global recall of its ASR XL Acetabular System and Hip Resurfacing System (hip implants) because of growing problems with the products and for selling them and other products without FDA approval (Kavilanz, 2011). Also in 2010, France's health regulators issued a recall of pre�illed silicone breast implants manufactured by Poly Implant Prothese (PIP), a French company, and said to
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 16/36
affect 35,000–45,000 women worldwide. The gel used in them was unauthorized, and the implants have been associated with abnormally high rupture rates (PIP breast implant recall, 2010). In these examples, the companies involved paid for reparations to victims—and PIP was even shut down.
An ethical concern that may not be as obvious as the preceding examples because the harm is harder to identify has to do with the immensely complicated "�ine print" that we seem to confront on an increasing basis. Every time we install or update a software package we are required to accept a lengthy user agreement �illed with legalese unintelligible to (and ignored by) most people. Hidden among the verbiage often are clauses that have been described as "weasel words in contracts that allow a company to change the terms at any time, or lay the groundwork for sky-high fees, or that forbid a consumer from �iling a lawsuit." Web service providers such as Facebook and Google have attracted �irestorms of protest when they have decided to make unilateral changes to their privacy policies that invariably give the companies more freedom to make commercial use of the users' information or browsing habits and eroding what little is left of the individual's privacy. As Web entrepreneur David Hirsch commented in an interview on the burgeoning practice, "This �ine-print world we're living in is bad for consumers, bad for business, and bad for the country. You've got people not understanding what they're agreeing to, and they're getting clobbered" (Lazarus, 2011).
It may be glib to say that executives cheat, lie, fudge, and line their own pockets because they can, or because it's unfortunately more acceptable nowadays, or because no one will �ind out. But isn't this at the heart of ethical behavior—to do the "right" thing, even when no one is looking? Doing otherwise is unethical, and there must be many more unreported instances where people and organizations intentionally get away with such behavior, thus, in their minds, legitimizing it.
Case Study Corporate Ethics
On January 13, 2012, Carnival Corporation's Costa Concordia cruise ship ran aground a reef and capsized off the Italian coast after its captain, Francesco Schettino, steered the ship off the approved course. The ship sustained a hole in its hull greater than the length of a football �ield, causing it to take on water immediately. The chaos that ensued aboard the ship of panic-stricken passengers futilely seeking information and a disorganized evacuation was heavily reported in international news reports. Surviving passengers even reported that the ship's safety brie�ing hadn't been conducted at the time of the disaster and wasn't scheduled until the next day—three days after the ship sailed. And this is just the beginning of the ethical issues that arose in the days following the crash.
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 17/36
The captain's ethics were called into question when reports emerged that he had an unauthorized female companion on the ship's bridge at the time of the crash with whom he'd also shared dinner and wine just minutes before, that he was performing a close "sail-by" to show off to the residents of the Island of Giglio or to "salute" a friend living on the island. Days later, recordings of conversations between the captain and Italian Coast Guard of�icials revealed that he had abandoned ship and was aboard a lifeboat before most of the ships passengers were evacuated. The Christian Science Monitor concluded that Schettino had engaged in "a pattern of untruths and attempted coverup" (Marquand, 2012, para. 1).
Carnival's corporate ethics were called into question, as well. For example, Schettino later de�lected attention from his initial "salute" story with the claim that his corporate managers told him to take the ship close to the shore as a publicity maneuver. Surviving passengers described chaos aboard the ship as language barriers, an unskilled crew, passenger lack of knowledge about evacuation procedures, and malfunctioning lifeboats all contributed to fear and panic. Reports indicate that passengers were initially told that the problem was an electrical failure; in an amateur video shot by a passenger, a crew member is heard telling passengers: "The situation is under control. Go back to your cabins. We ask you that you all return to your cabins. Once the electrical problem is sorted out everything will be back to normal shortly. Everything is under control. We are resolving the problem" (Pisa, 2012). An hour passed before the Captain ordered everyone to abandon ship, plunging nearly 4,000 people into complete chaos. During evacuation, crew members appeared to have little control and offered minimal support to panicked passengers—calling into questions corporate safety procedures.
Subsequent to the disaster, the corporation's moral compass was questioned when Carnival authorized call center employees to phone survivors and offer "30% off their next voyage." News accounts and editorials have labeled the offer "insensitive" and "crass," indicating that the decision to offer the discounts was an ill-conceived strategy for promoting company loyalty that might, in fact, further damage the cruise line's reputation (Costa Concordia disaster, 2012).
Finally, the wreck posed a grave threat to the maritime environment and the health and safety of coastal residents amid fears that the ship's 17 fuel tanks might begin to leak into the sea. As National Public Radio noted, "What do you do with a 1,000-foot wreck … Remove it. Very carefully" (Neuman, 2012, para. 1). The article further noted that removing the wreck involved "logistical and environmental issues that are just as large" as the ship (Neuman, 2012, para. 5).
Question for Critical Thinking and Engagement
Assume the role of a consultant hired by Carnival Corporation. Prepare a brie�ing on the critical issues that executives, management, and other leaders should address. What recommendations would you make to the corporation relative to public
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 18/36
concerns about employee ethics, corporate safety policies, and the impact of this disaster on the environment?
Discussion Questions
1. List as many reasons as you can why a company would wish to abide by ethical standards. Organize the reasons based on whether they are morally or economically motivated.
2. Do you think business executives, particularly CEOs, have a general public image of behaving sel�ishly and unethically? Do you think that reputation is deserved? Discuss.
3. Imagine you are looking for a job. Is the company's having an ethical culture or behavior important to you? If so, how would you go about determining this?
4. Imagine you are hiring people. Your company is proud of the fact that it makes a pro�it by being ethical. How would you ensure you are hiring people with a similar ethos?
5. Cite some examples of trust in business from your personal experience or from reading the newspapers. What happens when trust is lost?
6. What other industries not discussed in this section have also succumbed to unethical behavior? Cite examples to justify your choices.
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 19/36
10.4 Ethical Dilemmas and How to Approach Them
Every person will be faced with ethical dilemmas throughout life; it is inevitable. By de�inition, the "right answer" is elusive. An ethical dilemma arises when a person is presented with a choice (ordinarily of action) in which one consideration is the rightness or wrongness of the action (Christopher D. Stone, J. Thomas McCarthy Trustee Chair in Law, University of Southern California, personal communication, October 3, 2011). Some ethicists evaluate the action in itself, whatever the consequences. Consider a situation in which a person is attempting to shoot someone but realizes too late that the gun isn't loaded; the act is unethical even though the target didn't die. Others focus their evaluation on the consequences. For example, lying, which is a "bad" act, may have good consequences. Within the workplace, the "right thing to do" is usually complicated by time pressures and con�licting �inancial and political demands, and often comes with a price tag. While we never seem to have the right answer when we need it, there are �ive questions we can ask ourselves when faced with an ethical dilemma that might well help us avoid making the wrong decision:
1. What's in it for me? How will my loved ones and I bene�it, and what price will I pay in terms such as time, money, effort, and reputation? To fully understand what in�luences your self–interest in a situation, it can be helpful to ask, "Would I be comfortable sharing my real motives with the public?"
2. What decision or action would lead to the greatest good for the greatest number? This presupposes that one knows and understands the legitimate interests and values of others. John Stuart Mill's classic work on utilitarianism holds that the preferred decision is the one that will return the highest net social bene�it to all stakeholders (those people who might be affected by the outcome) (Mill, 1906). Value con�licts can make achieving such a noble outcome dif�icult; how do we de�ine the "greater good"? Many environmental and air-quality regulations, for example, are motivated by a desire to protect the general public and act in its behalf.
3. What laws, regulations, and written or unwritten social norms apply in this situation? German philosopher Immanuel Kant thought that moral decisions should be made by following a principle he called the Categorical Imperative; behave as though the maxim of your decision were to become a general law, required of all people. Patricia Werhane, Director of the Institute for Business and Professional Ethics at DePaul University, asks the following germane questions implied by such a rule-based perspective:
Does the action set positive or negative precedents? Is the action acceptable to other reasonable persons? Is it applicable to other similar situations? Does it respect, or at least not denigrate, human dignity? (Werhane, 1994)
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 20/36
The German philosopher Immanuel Kant believed that moral decisions should be based upon the one principle he called the "Categorical Imperative"–act as if the maxim of your action were to become the general law.
De Agostini Picture Library/De Agostini/Getty Images4. What are my obligations to others? To understand this, one has to appreciate the role of reciprocity and trust in society. Reciprocity is a universal norm common to all human cultures; it is embodied in the Golden Rule. Implicit in this view is that people have to trust one another. How do you feel when someone you've previously helped rejects your request for help? Will you ever forget when someone you have helped many times doesn't reciprocate?
5. What will the lasting impact be on me and on my key stakeholders? Informed self–interest requires looking at the big picture and assuming that one's self–interest is aligned with societal interests. That is, one's self-interest rests on doing what is right for others. For example, consider the actions of environmentalists and others who make sacri�ices for societal movements.
These �ive questions in fact constitute a framework for identifying ethical dilemmas and help think through any inherent con�licts among the values and obligations they underscore. The following three criteria will help you to choose from and resolve those con�licts:
Priority. In this instance, which questions are most applicable to the key values held by you and your company? Balance. If you must compromise among your values, which is the best tradeoff? Acceptance. How well will your decision and rationale fare if submitted to public scrutiny? (Rossy, 2011)
In conclusion, ensure that you consider all �ive questions before making a decision. Always keep in mind the pivotal role of values when assessing the implications of the issues at hand. Compare the short- and long-term consequences. Take your time and avoid the urge to give into quick solutions that may be too good to be true. Go with your instincts, but remain open to counsel and advice. And be brave—sometimes the ethical answer can be politically unpopular. As a way of thinking through the ethical criteria just presented, consider the following examples of common, everyday situations that many employees face, and answer the related questions.
Everyday Ethics
Sheryl often takes home pens, pencils, printer paper, and other small of�ice supplies for her personal use—even though she doesn't perform any work from home. Is Sheryl's behavior ethical or unethical? Why or why not? Is there any "gray area" to what Sheryl is doing? In other words, under any circumstances, is her behavior ethical? What are the potential consequences of Sheryl's behavior to others? To her organization? How about to herself?
In order to get some new business, Phil overpromised, knowing his company couldn't deliver. He told the prospect that their orders would be delivered within 14 days, when he knew that deliveries have been taking 30–45 days. He also told the client
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 21/36
that technology platforms were updated annually. However, due to the recent economic downturn, Phil knew that the platform hadn't been updated in over three years. What are the potential consequences of Phil's distortions? Is Phil's behavior unethical, or is he just doing what it takes to stay competitive in a tough economic climate?
Suzanne works in management for a pet supply retail chain and is upset by some questionable corporate policies about how small animals sold by the store are cared for. For example, she is not permitted to schedule cage cleaning for the hamsters and birds as often as she believes is necessary for their optimal health and well-being. What are her options? Are there any risks to Suzanne should she decide to expose her employer's policies? Do the bene�its of blowing the whistle on corporate policy outweigh the risks?
Cathy gets to work in the morning at the required hour, and spends about 20 minutes having coffee with her friends before heading to her desk. Cathy then spends the �irst hour of her day checking her personal e-mail, Facebook account, and even online dating sites. By about 10:00, she starts working; but she keeps Facebook and her personal e-mail account open throughout the day. Is Cathy's behavior ethical or unethical? Is there any "gray area" to what Cathy is doing? In other words, is her behavior acceptable? Would the answer be different if she is able to complete her assigned tasks and meet deadlines?
Eric is a supervisor for a transportation company that has several government contracts. This work is obtained through a strict competitive bidding process regulated by the federal government. He recently discovered that a coworker responsible for preparing project bids is having an affair with an insider at the government agency. Is the activity that Eric has observed (or learned of) unethical? Why or why not? If Eric is reasonably sure that the information he's learned is accurate, would it be unethical if he chose to ignore it? Why or why not? What are Eric's options?
Discussion Questions
1. Consider the case of a highly pro�itable public company that is rewarding its stockholders with capital gains on rising stock prices and dividend payouts. It is also awarding its top management generous compensation packages with guaranteed bonuses. Its rank-and-�ile employees, however, don't get raises or bonuses or otherwise realize the effects of such impressive corporate performance. In fact, the pro�it is achieved by keeping labor and other costs down. Is this an ethical issue? Do such companies perceive it as an ethical issue? Why or why not?
2. The role of unions has been to give a voice and some power to employees as stakeholders. Have they balanced the ethical issue? Do you see the rise in power of unions as a bad thing because they constrain what management can do and increase
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 22/36
labor costs? Discuss. 3. If a corporation did not have an ethics of�icer, to whom would someone report a breach of organizational ethics? What if the alleged perpetrator were that person's manager?
4. When are ethics and ethics standards especially important in companies? 5. Companies often require that their employees work long hours or travel extensively. If you worked for such a company but had young children or elderly relatives to care for, you might �ind that your career would be jeopardized if you declined these additional work pressures. Is it unethical for a manager or a company to expect so much of employees despite their needs as parents, caregivers, or other life outside work? Discuss.
6. Is employing illegal migrant workers ethical? Why or why not? What is the nature of the dilemma? 7. Why do companies do business with other companies in China or Indonesia given unsettling reports one hears concerning labor practices? Is saving a few extra dollars the most important thing? Do companies realize that by doing so, they are helping perpetuate such practices?
8. Companies don't give a second thought to outsourcing jobs to lower-cost countries. Does the end (making pro�its) always justify the means? What does it say about the companies' attitude to its workers?
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 23/36
Ethics classes may teach ethics, but by the time students get to college, most have learned their personal values from their family environment.
Associated Press/Matt Houston
10.5 Can Ethics Be Taught?
Today, every business school includes courses in ethics or requires ethics to be a part of every course in its curriculum. Judging by the results, however, the regular reports of unethical practices in business suggest the requirement hasn't made much difference. An informal poll of students in a business program a few years ago posed two questions: "Would you cheat if you knew for certain you would not be found out?" and "Would you cheat if everyone else was cheating?" Sadly, over 85% of the students answered "Yes" to each question. This experience seems to be shared by many instructors in business education. College business students are more likely to practice academic dishonesty, such as plagiarizing or cheating on exams, than students who are pursuing different majors or careers (McCabe & Treviño, 1995). Based on research showing that business-school students' moral reasoning skills may be ranked lower than students in philosophy, political science, law, medicine, and dentistry, business students may require increased ethics training (McCabe & Treviño, 1993). Lester Thurow, former Dean of the Sloan School of Management at MIT, believes the foundation of ethics must begin with family, clergy, schooling, and the jobs students hold prior to business school (Treviño & Nelson, 2007).
In the mid-'90s, Joseph Badaracco, an ethics professor at Harvard Business School did some research on MBA graduates that had taken an ethics course at Harvard and faced ethical dilemmas in the business world. Fifty percent of them had been employed by companies with of�icial ethics programs. He wrote: "Corporate ethics programs, codes of conduct, mission statements, hot lines, and the like provided little help . . . the young managers resolved the dilemmas they faced largely on the basis of personal re�lection and individual values, not through reliance on corporate credos, company loyalty, the exhortations of senior executives, philosophical principles, or religious re�lection" (Badaracco & Webb, 1995, p. 9). In other words, their personal integrity came from their upbringing rather than from ethics courses.
To �ind out how students felt about the business world, another professor asked his students a series of questions, one of which was whether they would dump known carcinogens in a river. Astonishingly, the students said that they would, claiming if they did not, someone else would.
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 24/36
When asked if such a pessimistic environment was one in which they would like to live, students made the argument that they already lived in one. Disheartened, the professor concluded that his students' attitudes had been shaped long before his course began. He decided, as others had before him, that as a society, our obsession with money and material goods was producing future generations eager to succeed at any cost (Treviño & Nelson, 2007).
People, it turns out, are taught values early in life. If they do have a set of values that includes honesty, fairness, and sel�lessness, being around others that dismiss their values out of self-interest will quickly erode them. Parents will attest to changes that take place when their teenage children begin paying more attention to their peer group than to them. It becomes really challenging when people learn that in order to "win" (whether it's passing a test or climbing the career ladder), they have to sacri�ice their values and ethics.
Boys and girls that participate in sports in middle and high school and college are fortunate because, besides acquiring skills and stamina, they are taught the ethics of good sportsmanship and other character-building traits, such as teamwork, discipline, and sacri�icing individualism for the team. Unfortunately, there are coaches—and parents—that preach winning at any cost. In some sports such as track & �ield and cycling, we have almost reached a point where there is a presumption of guilt against those who are successful. When athletes in any sport are caught cheating, the common refrain is that "everyone else is doing it so I had to as well just to compete."
To conclude, the values and ethics ingrained in us from a very early age by our parents and family are the most reliable indicator of how we will fare when ethically tested later in our careers, no matter what those careers are. However, even people with good values and ethics can, when thrust into morally and ethically wanting corporations, behave unethically. When told by your manager to fudge some data or do something else that's wrong, do you comply in order to remain in their good graces and stay on that fast track up the corporate ladder, or do you stand your ground and risk not only your prospects but also your job? And when you are a few years from retirement, do you succumb to such demands or lose everything, knowing that getting another job at your age is highly unlikely? It is the unusual corporation that develops an ethical system and culture to make sure that employees behave ethically and want to behave ethically. One way that organizations can teach, encourage, and promote ethical behavior is by creating and modeling social responsibility and good citizenship through policies. Corporate social responsibility policies will be covered in the next section.
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 25/36
Economist Milton Friedman considers a corporation's sole responsibility to society to be to make a pro�it and continue to create wealth and jobs.
George Rose/Hulton Archive/Getty Images
10.6 Corporate Social Responsibility
Perceptions of corporate social responsibility vary widely. As University of Chicago economist Milton Friedman wrote almost 50 years ago: "Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate of�icials of a social responsibility other than to make as much money for their stockholders as possible" (Friedman, 1962). Many people still believe, like Milton Friedman, that a corporation's sole responsibility to society is to make a pro�it so it can continue to provide jobs for people and thereby sustain communities and standards of living. To many others, corporate social responsibility (CSR) is so much more. For example, The Gap Inc. has a comprehensive social responsibility commitment that encompasses a youth development program, an environmental protection plan that addresses supply chain and in-store issues, and community investment that confronts social challenges (Gap, n.d.).
CSR is the idea that business has a duty to serve society as well as the �inancial interest of stockholders (Pierce & Robinson, 2005). CSR was conceptualized by Archie B. Carroll of the University of Georgia as a pyramid that represents various kinds of social responsibility (Figure 10.1). Economic responsibilities, at the base of the pyramid, are met by all well- managed corporations; the ones that aren't well managed fail or are acquired. The economic responsibility is to make as much pro�it as possible in order to create wealth and jobs. Then follow in order of importance legal, ethical, and philanthropic responsibilities. The pyramid is useful because it not only provides a structure for discussion but also demonstrates the complexities of the topic—different people perceive CSR to mean different things.
Legal Responsibilities
Companies are duty bound to honor the law and not break it in whichever country they do business. This is called their legal responsibilities. As was discussed earlier, many regulations and laws are enacted to protect the public and the public good, and there are a plethora of government agencies responsible for enforcing them, including the following:
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 26/36
The Securities and Exchange Commission for ensuring the proper functioning of the securities industry (online and stock exchanges) and the integrity of �inancial reporting for public companies Occupational Safety Health Administration for ensuring safety in the workplace The Environmental Protection Agency for protecting the environment The US CPSC, while not a government agency, still has the authority to ensure the safety of consumer products sold in the United States The Internal Revenue Service for collecting taxes owed the federal government The National Labor Relations Board for minimizing unfair labor practices and ideally preventing them from happening
Figure 10.1: Corporate social responsibility pyramid
Source: From A. B. Carroll, "The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders." Business Horizons, Vol. 34 No. 4, 1991, pp. 39-48. Copyright © Elsevier. Used with
permission.
These agencies came into being to enforce appropriate regulations and laws to prevent corporations from in�licting harm on particular constituencies—investors, workers, consumers, the environment, and so on. Corporations know about these laws and the consequences for breaking them; it is their obligation to the shareholders and employees to be aware of the laws. Despite this, they may commit both errors of commission (they know about the laws but still try to circumvent them) and omission (they are not aware of particular laws or their consequences or don't agree with them). But are these laws effective? Do they succeed in changing the corporate behavior that is at the root of much malfeasance?
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 27/36
As far back as 1975, Christopher Stone (1975) of the University of Southern California Law School explored this very topic. He found maximization of pro�its to be the dominant characteristic of corporations and that, by and large, corrective actions by the law in terms of �ines and penalties for wrongdoing had little effect on changing behavior. They were perceived as a "cost of doing business" so long as they were a relatively small percentage of pro�its, so �irms simply paid them and then went about business as usual. In 2011 United States District Court Judge Jed Rakoff took a strong stand from the bench regarding the culpability of �inancial institutions in the mortgage crisis that contributed to the recent recession. He refused to approve a boilerplate agreement between Citigroup and the Securities and Exchange Commission to settle a civil fraud case in which Citi was accused of having loaded a $1 billion mortgage fund with securities that it believed would fail. Citi sold the fund to investors and then it bet against its customers and reaped enormous pro�its when values declined. The settlement Rakoff rejected called for Citigroup to pay $285 million, which the judged described as "neither fair, nor reasonable, nor adequate, nor in the public interest." He characterized the $285 million �igure as "pocket change to any entity as large as Citigroup," and stated that large �inancial institutions regard such penalties "as a cost of doing business." In reaching this opinion, Judge Rakoff noted that Citigroup had settled similar cases with the SEC in the past and promised not to repeat the same behavior. The judge, in rejecting the agreement referred to Citi as "a repeat offender" (Wyatt, 2011).
To make penalties so severe as to jeopardize a company's ability to continue to produce goods and possibly force it out of business would be counterproductive and perhaps viewed as overregulation. Stone made persuasive arguments in his book that the law, as part of the punishment for speci�ic kinds of wrongdoing should insert into the corporation a probation of�icer or trustee, answerable to the court, to make sure that procedures are changed and that the problem would not recur. The types of offenses for which he envisions this type of remedy include the kind where the source of the problem could be ascertained, like the poor design of a car, quality of materials purchased not checked, cooking foods to the wrong temperature, lack of quality inspections, and the like.
It seems that laws and regulations play a necessary but far from suf�icient role in trying to get corporations to behave more responsibly; so long as corporations can absorb the costs incurred when they are indicted, in all likelihood they will continue to do whatever they want in pursuit of pro�it. The best solution, as Stone surmises, is for corporations to want to behave ethically. While a good number do, that number is not nearly large enough.
Ethical Responsibilities
Notwithstanding the ethics of individuals within a company, companies themselves are often reluctant to become ethically responsible on their own. They are typically pushed to do so by critics or stockholders. Campaign GM, formed by Ralph Nader and others, bought stock in General Motors and proceeded to wage a proxy �ight to force GM to adopt stricter testing and environmental standards and to put women and representatives from minority groups on its board of directors. Corporations have found themselves trying to satisfy their critics while at the
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 28/36
Corporations dislike becoming ethically responsible of their own volition. Ralph Nader and others formed Campaign GM to buy GM stock and wage a proxy �ight against GM, urging them to adopt stricter testing and environmental standards.
Vince Mannino/Bettmann/Corbis
same time hoping the critics would go away. How could corporations become socially responsible if their management couldn't, even in principle, determine what their social obligations were (Wyatt, 2011)?
Corporations and researchers developed a new idea—instead of being socially responsible, why not be socially responsive? As long as a company was "responsive" to the demands of society and tried to anticipate and meet these demands, it didn't have to worry about being "responsible." In other words, it would have no obligation to be moral or ethical. Corporate social responsiveness is primarily pragmatic and perverts the connection between ethics and strategy. It is simple, easy, and wrongheaded (Freeman & Gilbert, 1988). It conveniently sidesteps the true notion of responsibility.
Ethical responsibilities encompass the more general responsibility to do the right thing and avoid doing undue harm to others. Unless a company's culture and public declarations put a priority on behaving ethically, individual managers will have a hard time being true to their values—swimming against the tide, so to speak. It is much easier to "go along" if it's okay with everyone else. In the rare instance when it's not okay, that individual will tender his or her resignation and join a company whose values are aligned with the individual's own.
Philanthropic Responsibilities
Philanthropic responsibilities are voluntary and engage the corporation's participation in activities that promote human welfare and goodwill. These take the form of donations of time or money to any of a number of deserving causes, charities, and civic-related projects. However, because such activities are voluntary and discretionary, failure to be philanthropic is not considered unethical, and some don't consider it even a responsibility (Treviño & Nelson, 2007).
It was Milton Friedman who said, in not so many words, that giving corporate pro�its to charity or using them in a way that doesn't bene�it stockholders was tantamount to stealing from stockholders (Freeman & Gilbert, 1988). Wouldn't it make more sense to return excess pro�its to the stockholders and let them decide to donate the money to causes near and dear to their hearts? What right does the corporation (and its board of directors) have to give its money away?
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 29/36
In U.S. culture, wealthy individuals and businesses are expected to share their good fortune. Many of the wealthiest billionaires in the United States are proli�ic philanthropists. Bill and Melinda Gates top the list, having given $24 billion to their Bill and Melinda Gates Foundation to help bridge the gap in human health between the developed and developing world.
Eric Piermont/AFP/Getty Images
Fortunately, many companies feel it is their duty to "give back" to society and to contribute where the need is greatest. When the tsunami of 2004 hit Southeast Asia, companies like FedEx, Abbott Laboratories, and Coca-Cola jumped in to help. Over 100 companies are estimated to have sent $178 million worth of cash and medicine to affected countries, many doing so quietly, not announcing or advertising their contributions (Chandler, 2005). Many corporations also responded swiftly in September 2005 to help victims of hurricane Katrina after it rampaged through Louisiana, Mississippi, and Alabama. Walmart donated over $20 million to aid victims and donated 1,500 truckloads of free merchandise, food for 100,000 meals, and the promise of jobs for all displaced workers (Barbaro & Gillis, 2005). The recent earthquake, tsunami, and resultant nuclear accident that hit northern Japan on March 11, 2011, cost an estimated 22,000 lives and an estimated $300 billion, not counting the tens of thousands that were still homeless months later. The nuclear contamination is expected to persist for decades. The �lood of donations and assistance from countries, nongovernmental entities, corporations, and individuals has come from every region of the world. Businesses have provided donations of cash, materials, and services to help the victims. Many, such as Sony and Mitsubishi from Japan, Disney and
Goldman Sachs from the United States, and Pak Suzuki Motors from Pakistan have contributed matching funds to supplement employee donations (Philanthropy News Digest, 2011). Again, these are examples of the best of human nature, coming to the aid of those less fortunate and in dire need.
In the United States, there is a tradition of philanthropy on the part of wealthy individuals and businesses. In support of this, the federal tax code includes tax incentives to do so. Many of the wealthiest individuals and families in the United States are proli�ic givers. Bill Gates tops the list, having given generously to The Bill and Melinda Gates Foundation over the years to help bridge the gap in human health that exists between the developed and developing world (Treviño & Nelson, 2007). Warren Buffet, arguably the most successful investor in recent history, has, in addition to donating in excess of $9.5 billion to the Gates Foundation alone, committed to donating the bulk of his fortune to charity on his death. Further, he has persuaded more than 40 other billionaires to pledge the majority of their fortunes to charity during or after their lifetimes. The commitments by these benefactors are expressed in personal letters from each at Giving Pledge.com, describing the role philanthropy has played in their lives.
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 30/36
For consumers, the bene�its of using nuclear power rather than fossil fuels are overshadowed by the risk of nuclear accidents, such as the one that occurred at the Fukushima nuclear facility in Japan in March of 2011.
Associated Press/Tokyo Electric Power Co.
Other forms of philanthropy support the arts (such as symphony orchestras, opera companies, and museums), city beauti�ication projects (such as commissioning a work of art or a garden), scholarships for students, research facilities at universities, hospitals, libraries, and so on. Many high-pro�ile contemporary organizations have signi�icant corporate social responsibility programs. For example, retailer Target contributes 5% of its income to programs bene�itting local communities with a Target presence (Target.com, 2008). Philanthropy goes beyond "doing the right thing," because it is something no one has a right to expect but something for which everyone is thankful.
Many of America's cities owe their greatest cultural features—museums, artwork, buildings, auditoriums, schools, and community facilities to the philanthropic efforts of corporate families such as the Carnegies, Rockefellers, Vanderbilts, and many more. Just walk around any university campus, and the names of some of those who have donated to fund education will be evident in the names of the buildings.
Environmental Responsibilities
Externalities are costs to society, such as air and water pollution, that are produced by companies but not re�lected in the company's cost structure (Kuttner, 1997). Historically, it was cheaper for such companies to pollute than not to; pro�its won out over the harm being done to society. The only way to protect society was through regulation. Thus, despite the aversion that companies have for regulations, not all are bad; some force an ethical standard on companies that otherwise would be ignored.
Because environmental responsibilities was not included in the pyramid shown in Figure 10.1, one shouldn't assume that they are "less important" or of a "lower order" of responsibility than philanthropic responsibilities. On the contrary, they are a vital part of corporate social responsibility and becoming more so with each passing year.
What we are talking about here is a company accepting responsibility for and reducing the adverse environmental effects stemming from its operations. Not only are expectations rising for corporations to become more environmentally responsible but technologies are advancing even faster to make some actions possible that only a few years ago were not. Take genetically engineered crops and genetically modi�ied foods—are they safe, and what will be the effect on farmers in regions where GM crops are planted (Schwartz & Gibb, 1999)? Or consider the case of Paci�ic Gas and Electric's
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 31/36
contamination of the water supply in a small California town popularized in the �ilm Erin Brockovich. It turns out that 20 years later, water samples indicate that PG&E has not solved the problem.
Despite this bad news, a growing number of companies are becoming more environmentally responsible— leading one scholar to label the phenomenon business's new "megatrend" (Reid, 2010). For instance, the Coca-Cola Corporation has partnered with communities to restore watersheds (Coca-Cola Company, n.d.). Apple seeks to lead the industry in "reducing or eliminating environmentally harmful substances" from its packaging and the metal and plastic in its parts (Apple and the environment, n.d.); and hotelier Marriott is focused on "integrating greater environmental sustainability . . . through architecture and construction, engineering and procurement (Marriott, n.d.).
While companies are motivated by current pressures and existing laws to "clean up after themselves" in the short term, they resist making investments in causes such as research toward long-term solutions to the adverse environmental impacts of their operations. Generally, the immediate pressures to produce pro�its prevail. Michael Porter has said that pollution is in itself a form of inef�iciency in production, creating negative externalities that until now companies have been able to shift on to the public sector (Schwartz & Gibb, 1999). Will there come a time when the accounting profession begins to include costs for safeguarding the environment as a legitimate cost of doing business? Probably not until everyone in an industry is forced to do the same thing. Of course, in some industries, such costs are much higher than in others (for example, preventing oil spills, nuclear accidents, and tainted food).
Another problem is the growing skepticism the consumers have for technological advances being risk-free. A case in point is nuclear power, where the potential bene�its over using fossil fuels are balanced by the real risks of a nuclear accident such as the one experienced in Japan in March 2011. In a cost/bene�it analysis of nuclear power, how do you account for the possibility of a major nuclear accident or the risk in storing irradiated spent fuel for hundreds of years?
But whom do we blame for overly high levels of mercury in seafood? For the dumping of plastic and other indecomposable garbage now swirling in the Paci�ic Ocean in two pools, each the size of Texas? For rapidly depleting the world's supply of fossil fuel? For adding to our global carbon footprint? For changing global climate patterns?
Taking care of negative externalities caused by a particular �irm's operations is one thing, but there is growing evidence of massive environmental damage that is collectively caused, making it dif�icult to pin blame and rendering the law helpless. While I don't have any solutions (nor is this the appropriate forum for delving into the full extent of the problems), becoming aware of the problems is a �irst step, followed closely by nations getting together to try to mitigate them. How bad do they have to get before we are all forced to cooperate and take responsibility for solving them?
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 32/36
Discussion Questions
1. In your opinion, what is the most pressing environmental problem: (a) that particular corporations are responsible for, and (b) that the global community is responsible for. Explain your choices.
2. Why is the law so far behind developments and policymakers even further behind? (Stone's book, for example, is a call for policymakers to act.) Is it because not enough facts are available, or there is too much ambiguity, or the costs of following through too high? Discuss.
3. If companies were suddenly expected to bear the costs of their negative externalities, whether or not you agree that is just, how do you think it will affect their stock prices, their prospects for the future, their investors, and their other stakeholders?
4. Following on from (3), do you believe it will spur innovation and investment in innovation? 5. What particular advantages accrue to companies who proactively take steps to safeguard the environment (like BMW), besides giving them a warm, fuzzy feeling?
6. Just from your perception over the past few years of reading the papers and listening to the news, what has accelerated interest in environmental responsibilities of corporations? Has it been the growth of environmental "watchdogs," investor activism, or consumer pressure? Discuss your thinking.
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 33/36
Summary
Ethics is about how we meet the challenge of doing the right thing when it will cost more than we want to pay, which is a better de�inition for the business world than the traditional de�inition of "the art and discipline of applying principles and frameworks to analyze and resolve complex moral dilemmas." Morality is knowing the difference between right and wrong and choosing right. Someone who is immoral also knows the difference but chooses wrong. Values are tenets that are important to an individual or group and the ways that govern how they choose to live their life. An unethical act has immoral intent and is done with the full knowledge that it is legally and morally wrong or contravenes the prevailing societal or organizational culture. Unethical behavior consists of conduct undertaken to bene�it a person or organization while knowingly—or being oblivious to the possibility of—harming others. Behavior is still considered unethical if the act is wrongful, whether or not it results in harm.
Why do people behave unethically? In most instances, they are motivated by self-interest. Often they justify such behavior by claiming that other people are getting away with it. Fudging data to make quarterly results look good or to qualify for a bonus, cutting corners to meet production targets, and obeying an order by your manager to cover something up are a few examples of unethical behaviors. Organizations, particularly large ones, are so focused on meeting pro�it goals, buoying their stock price, and pleasing their stockholders that they may go to great lengths to avoid or minimize unnecessary expenditures. This includes a proclivity for externalizing whatever costs they can such as pollution. In some industries it is common for �irms to tolerate �ines and penalties for breaking the law or to settle a lawsuit so long as they are a fraction of pro�its, but continuing to do "business as usual." To some, this is simply a cost of doing business.
Ethical issues arise whenever people are tempted to behave unethically or not do the "right" thing. In the business world they include a host of issues. In the sphere of human resources, they include such matters as discrimination, sexual and other forms of harassment, and con�licts of interest. Customer-con�idence issues encompass con�identiality, product safety, truth in advertising, and �iduciary responsibilities. The use, or misuse, of corporate resources includes such behaviors as co-opting corporate reputation, stealing corporate resources, and falsifying data. The root problems in most of these instances are unfairness, lack of respect, and self-interest.
All of us face ethical dilemmas—a choice in which one consideration is the rightness or wrongness of the action—at some point in our careers. You will recognize you are facing one when you're not sure what the right thing to do is. However, asking yourself �ive questions might help you avoid making the wrong decision: (1) What is in it for me? (2) What decision or action would lead to the greatest good for the greatest number? (3) What laws, regulations, and social norms apply in this situation? (4) What are my obligations to others? (5) What will the lasting impact be on me and on my key stakeholders? Three further questions will aid in resolving con�licts you may encounter: In the
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 34/36
current situation, which questions above relate most to your personal and organizational values? If those values must be jeopardized, which is the best tradeoff? How well will your decision and rationale fare if submitted to public scrutiny?
It is naive to think that ethics can be taught either in the workplace or in business school. Research has shown that such courses make little if any difference and that one's values and ethics are molded early on in life by our parents, family, church or religious group, and so on. Those values and ethics turn out to be the most reliable indicator of how we will fare when ethically tested later in our careers, no matter what those careers are. However, even people with good values and ethics can, when thrust into morally and ethically challenged cultures, behave unethically.
Corporate social responsibility (CSR) is the idea that business has a duty to serve society as well as the �inancial interests of investors. CSR can be viewed as a pyramid. At the base is economic responsibility, which is in essence the obligation of a corporation to make pro�its, provide jobs, and pay taxes. Many people believe, like economist Milton Friedman, that they are a corporation's only social responsibility.
Companies are duty bound to honor the law in whichever country they do business, which constitutes their legal responsibilities. Over the years, many government agencies have been created to enforce appropriate regulations and laws to prevent corporations from in�licting harm on particular constituencies—investors, workers, consumers, the environment, and so on. While these agencies have been, to varying degrees, effective at enforcing regulatory compliance, it is debatable whether laws and regulations have produced change in corporate ethical behavior. An eminent legal scholar, Christopher D. Stone, surmises that the best solution is for corporations to want to behave ethically.
Ethical responsibilities encompass the more general responsibility to do what's right and avoid doing undue harm to others. Many corporations are reluctant to embrace such responsibilities absent pressure from critics, stockholder groups, and lawsuits. Corporations that have tried to be socially responsive act on the belief that they have no obligation to be moral or ethical. Social responsiveness is primarily pragmatic and conveniently sidesteps the true notion of ethical responsibility.
Philanthropic responsibilities promote company involvement in causes and events that encourage human welfare and goodwill. Since such undertakings are optional, an absence of philanthropy does not mark a company as unethical, and some do not consider it a responsibility. Fortunately, many companies feel it is their duty to "give back" to society and to contribute in times of emergency or disaster, or to fund cultural and civic activities. Philanthropy goes beyond "doing the right thing," because it is something no one has a right to expect but something for which everyone is thankful.
Environmental responsibilities involve a company's accepting responsibility for and reducing the adverse environmental effects stemming from its operations. While a growing number of corporations are voluntarily becoming more environmentally responsible, others must be
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 35/36
forced to do so by the regulations. There is also massive environmental damage that is collectively caused, making it dif�icult to assign responsibility to anyone and rendering the law helpless. The law lags behind the need, and policymaking lags behind the law; while changes are occurring, the pace is still too slow.
Concept Check
Key Terms
amoral Not knowing the difference between right and wrong or not caring.
corporate social responsibility (CSR) The idea that business has a duty to serve society as well as the �inancial interest of stockholders.
economic responsibilities Making pro�its so that the corporation grows and endures while providing jobs and paying taxes.
environmental responsibilities A company's accepting responsibility for and reducing the adverse environmental effects stemming from its operations.
ethical "mistake" An act that is not deliberately unethical, and is something an individual or group regrets afterward and desires to undo.
ethical dilemma A choice (ordinarily of action) in which one consideration is the rightness or wrongness of the action.
ethical issues Arise whenever people are tempted to behave unethically or not do the right thing.
ethical responsibilities Encompass the more general responsibility to do the right thing and avoid doing undue harm to others.
ethics (1) The art and discipline of applying principles and frameworks to analyze and resolve complex moral dilemmas.
1/31/2018 Print
https://content.ashford.edu/print/AUMGT450.12.2?sections=sec9.6,ch010,sec10.1,sec10.2,sec10.3,sec10.4,sec10.5,sec10.6,ch10summary&content=content&clientToken=f8632716-8dd1-c872-449b-… 36/36
ethics (2) Is about how we meet the challenge of doing the right thing when it will cost more than we want to pay.
externalities Costs to society, such as air and water pollution, that are produced by companies but not re�lected in the company's cost structure.
immoral Knowing right from wrong and choosing wrong.
legal responsibilities Where companies are duty bound to honor the law (in whichever country they do business) and not break it.
moral Knowing right from wrong and choosing right.
philanthropic responsibilities Are voluntary and promote company involvement in causes and events that encourage human welfare and goodwill.
unethical act Is carried out with immoral intent, done with the full knowledge that it is legally and morally wrong or goes against societal or organizational norms.
unethical behavior Conduct undertaken to bene�it a person or organization while knowingly (or being oblivious to the possibility of) harming others. Behavior is still considered unethical if the act is wrongful, whether or not it results in harm.
values The tenets most important to people and organizations and the ways that govern how they choose to live their life.