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McGraw-Hill/Irwin

Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.

Demanding Ethical and Socially Responsible Behavior

CHAPTER 4

LEARNING OBJECTIVES

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  • Explain why obeying the law is only the first step in behaving ethically.
  • Ask the three questions you need to answer when faced with a potentially unethical action.
  • Describe management’s role in setting ethical standards.

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LEARNING OBJECTIVES

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  • Distinguish between compliance-based and integrity-based ethics codes, and list the six steps in setting up a corporate ethics code.
  • Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.
  • Analyze the role of U.S. businesses in influencing ethical behavior and social responsibility in global markets.

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PATTY STONESIFER
Martha’s Table

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  • Held high-level positions with the Gates Foundation and the White House.
  • Founded Martha’s Table in 2013 with the goal of providing healthy food, affordable clothing and quality education to D.C.’s locals.

NAME that COMPANY

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The wage and benefit packages offered by this company are among the best in hourly retail. Even part-time workers are covered by its health plan. Increased benefits reduce employee turnover to less than a third of the industry average.

Name that company!

Company: Costco

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LIFE AFTER SCANDAL

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LO 4-1

  • Scandals have shaken the real estate, mortgage and banking industries.
  • How do we restore trust in the free market system?
  • Punish those who have broken the law.
  • Make accounting records more transparent.
  • Consider what is ethical, not just what is legal.

See Learning Objective 1: Explain why obeying the law is only the first step in behaving ethically.

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  • Bernie Madoff is serving 150 years behind bars.
  • His exclusive wealth management firm was a gigantic Ponzi scheme.
  • Though exact amounts are uncertain, it is believed he stole about $65 billion from his investors.

BERNIE MADOFF’S
PONZI SCHEME

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See Learning Objective 1: Explain why obeying the law is only the first step in behaving ethically.

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WHAT is a PONZI SCHEME?

Source: Securities and Exchange Commission, www.sec.gov, accessed November 2014.

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LO 4-1

  • A fraud by paying returns to existing investors from funds contributed by new investors.
  • New investors are promised opportunities claimed to generate high returns with little or no risk.
  • Fraudsters focus on attracting new money to make promised payments.

See Learning Objective 1: Explain why obeying the law is only the first step in behaving ethically.

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  • Ethics -- The standards of moral behavior. Behaviors that are accepted by society as right versus wrong.

WHAT are ETHICS?

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LO 4-1

See Learning Objective 1: Explain why obeying the law is only the first step in behaving ethically.

The reputations of American businesses have been under assault due to numerous scandals over the past twenty years. Following the law is only the first step in being ethical. Ethics are standards of moral behavior and are accepted by society as right versus wrong.

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Wrong:

  • Cheating
  • Cowardice
  • Cruelty

BASIC MORAL VALUES

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LO 4-1

Right:

  • Integrity
  • Respect for human life
  • Self-control
  • Honesty
  • Courage
  • Self-sacrifice

See Learning Objective 1: Explain why obeying the law is only the first step in behaving ethically.

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ETHICS and YOU

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LO 4-2

  • Plagiarizing from online materials is the most common form of cheating in schools today.
  • Studies found a strong relationship between academic dishonesty and dishonesty at work.

See Learning Objective 1: Explain why obeying the law is only the first step in behaving ethically.

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FACING ETHICAL DILEMMAS

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LO 4-2

  • Ask yourself these questions:
  • Is it legal?
  • Is it balanced?
  • How will it make me feel about myself?

See Learning Objective 2: Ask the three questions to answer when faced with a potentially unethical action.

When facing an ethical dilemma it is important that you ask these three basic questions: Is it legal? Is it balanced? How will it make me feel about myself? Asking and answering these three questions will prevent many people from making unethical decisions.

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BRIBERY BAD BOYS
Five FCPA Investigations

Source: SEC, www.sec.gov, accessed November 2014.

4-*

LO 4-2

See Learning Objective 2: Ask the three questions to answer when faced with a potentially unethical action.

  • The Justice Department has over 104 open Foreign Corrupt Practices Act (FCPA) cases.
  • This slide highlights five of the cases.
  • To promote discussion, you can discuss how these companies are first extorted by the officials in foreign nations and then punished for their actions back at home. It is illegal for U.S. companies to participate in bribery, yet it is common practice in some countries. How are Americans supposed to deal with these issues? What is the ethical dilemma here?

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TURNING EX-CONS into ENTREPRENEURS

  • Life after prison can be very difficult for those with criminal records.
  • Catherine Rohr started Defy Ventures to help ex-cons launch their own businesses.
  • Defy and Rohr’s other organizations have helped create 60 startups and many ex-cons find employment.

TEST PREP

4-*

  • What are ethics?
  • How do ethics differ from legality?
  • When faced with ethical dilemmas, what questions can you ask yourself that might help you make ethical decisions?

1) Ethics are society’s accepted standards of behavior, in other words behaviors accepted by society as right rather than wrong.

2) Ethics reflect people’s proper relationships with one another. Legality is narrower in that it refers to laws we have written to protect ourselves from fraud, theft, and violence.

3) It helps to ask the following questions when faced with an ethical dilemma: Is the proposed action legal? Is it balanced? Would I want to be treated this way? How will it make me feel about myself?

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ETHICS START at the TOP

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LO 4-3

  • Organizational ethics begin at the top.
  • Managers can help instill corporate values in employees.
  • Trust between workers and managers must be based on fairness, honesty, openness and moral integrity.

See Learning Objective 3: Describe management’s role in setting ethical standards.

Leadership helps to instill corporate values in employees. So, like many aspects of business, ethical behavior practiced and modeled by managers and executives will often trickle down to the employees at large.

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FACTORS INFLUENCING MANAGERIAL ETHICS

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LO 4-3

See Learning Objective 3: Describe management’s role in setting ethical standards.

Factors Influencing Managerial Ethics

  • Before you put this slide up, you may want to ask the students: What factors influence managerial ethics?
  • Ethics begins with the individual, but are influenced by the organization and the environment in which the business operates.
  • To bring the discussion to the present, you may ask: How can the firm’s reward system impact ethical behavior? How did these reward systems at large banks and other financial institutions exacerbate the financial crisis in this country? (Students should be able to discuss this point. Excessive risk taking imperiled all of the stakeholders of various financial institutions as well as the world economy.)

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ETHICS CODES

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LO 4-4

  • An increasing number of companies have adopted written codes of ethics.
  • Compliance-Based Ethics Code -- Emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers.
  • Integrity-Based Ethics Code -- Define the organization’s guiding values, create an environment that supports ethically sound behavior and stress a shared accountability.

See Learning Objective 4: Distinguish between compliance-based and integrity-based ethics codes, and list the six steps in setting up a corporate ethics code.

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HOW to IMPROVE AMERICA’S
BUSINESS ETHICS

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LO 4-4

  • Top management must adopt and unconditionally support an explicit corporate code of conduct.
  • Employees must understand that senior management expects all employees to act ethically.
  • Managers and others must be trained to consider the ethical implications of all business decisions.

See Learning Objective 4: Distinguish between compliance-based and integrity-based ethics codes, and list the six steps in setting up a corporate ethics code.

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  • An ethics office must be set up with which employees can communicate anonymously. Whistleblowers -- Insiders who report illegal or unethical behavior.

HOW to IMPROVE AMERICA’S
BUSINESS ETHICS

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LO 4-4

  • Involve outsiders such as suppliers, subcontractors, distributors and customers.
  • The ethics code must be enforced.

See Learning Objective 4: Distinguish between compliance-based and integrity-based ethics codes, and list the six steps in setting up a corporate ethics code.

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HOW to BLOW the WHISTLE

Source: Kiplinger’s Personal Finance, June 2013.

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LO 4-4

  • Decide carefully and quickly.
  • Make sure you have all allegations filed with the right agencies.
  • File your allegations with as many agencies that are appropriate.
  • Gather your information legally.
  • Research the process.

See Learning Objective 4: Distinguish between compliance-based and integrity-based ethics codes, and list the six steps in setting up a corporate ethics code.

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TEST PREP

4-*

  • What are compliance-based and integrity-based ethics codes?
  • What are the six steps to follow in establishing an effective ethics program in a business?

1) Compliance-based ethics codes emphasize preventing unlawful behavior by increasing control and penalizing wrongdoers. Integrity-based ethics codes define the organization’s guiding values, create an environment that supports ethically sound behavior, and stress shared accountability.

2) The six steps many believe will improve U.S. business ethics are: (1) Top management must adopt and unconditionally support an explicit corporate code of conduct; (2) Employees must understand that expectations for ethical behavior begin at the top and that senior management expects all employees to act accordingly; (3) Managers and others must be trained to consider the ethical implications of all business decisions; (4) An ethics office must be set up with which employees can communicate anonymously; (5) Outsiders such as suppliers, subcontractors, distributors, and customers must be told about the ethics program; (6) The ethics code must be enforced with timely action if any rules are broken.

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CORPORATE SOCIAL RESPONSIBILITY

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LO 4-5

  • Corporate Social Responsibility (CSR) -- The concern businesses have for the welfare of society.
  • CSR is based on a commitment to integrity, fairness, and respect.
  • CSR proponents argue that businesses owe their existence to the societies they serve and cannot exist in societies that fail.

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

CSR is based on a commitment to such basic principles as integrity, fairness and respect. Many for-profit companies have philanthropic endeavors as a part of their mission. Communities often depend on companies to help with social programs that make the lives of people in the community better. It stands to reason that businesses that strengthen their communities, as proponents of CSR argue, will grow stronger as their communities improve.

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CORPORATE PHILANTHROPY
and SOCIAL INITIATIVES

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LO 4-5

  • Corporate Philanthropy -- Includes charitable donations.
  • Corporate Social Initiatives -- Include enhanced forms of corporate philanthropy.

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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CORPORATE RESPONSIBILITY
and POLICY

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LO 4-5

  • Corporate Responsibility -- Includes everything from hiring minority workers to making safe products, minimizing pollution, using energy wisely, and providing a safe work environment.
  • Corporate Policy -- The position a firm takes on social and political issues.

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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POSTIVE IMPACTS
of COMPANIES

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LO 4-5

  • Xerox offers a Social Service Leave program.
  • More and more companies are encouraging employees to volunteer while on company time.
  • The majority of MBA students surveyed reported they would take a lower salary to work for a socially responsible company.

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

An ultimate example of a company helping the community is Xerox’s program, Social Service Leave, which allows employees to leave for up to a year and work for a nonprofit while still earning full salary, including benefits and job security.

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Source: Parade Magazine.

HELPING HANDS
Most Generous Celebrities

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LO 4-5

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

Students will find it interesting to see what some of their favorite celebrities have donated.

  • Oprah Winfrey earns well over $200 million per year and donates nearly $50 million.
  • The talk-show host and entertainment mogul is the founder of the Angel Network, a charity that raises money for poverty-stricken children and she has raised money to open schools for girls in South Africa.

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Source: Forbes, www.forbes.com, accessed November 2014.

GENEROUS GUYS
World’s Biggest Givers in 2013

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LO 4-5

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

  • Students may be surprised how much billionaires donate and the causes they support. You could prompt discussion by asking students why they believe billionaires give so much to education while celebrities choose more social causes.

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PRESIDENT KENNEDY’S BASIC RIGHTS of CONSUMERS

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LO 4-5

  • The Right to Safety
  • The Right to be Informed
  • The Right to Choose
  • The Right to be Heard

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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HOW DO CUSTOMERS KNOW?

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LO 4-5

  • The primary use of social media is to communicate CSR efforts.
  • Social media allows companies to reach a broad, diverse group and connect directly to them.
  • Now more than ever, it’s important for companies to live up to their expectations.

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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Source: Entrepreneur, www.entrepreneur.com, accessed September 2014.

SOCIAL CUSTOMER CONTACT
Do’s and Don’ts of Using Twitter for Business

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LO 4-5

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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INSIDER TRADING

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LO 4-5

  • Insider Trading -- Insiders using private company information to further their own fortunes or those of their family and friends.
  • Unethical behavior does financial damage to a company and investors are cheated.

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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  • Create jobs and provide a chance for upward mobility.

RESPONSIBILITY to
EMPLOYEES

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LO 4-5

  • Treat employees with respect.
  • Offer salaries and benefits that help employees reach their personal goals.

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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Source: Fortune, www.fortune.com, accessed November 2014.

AMERICA’S MOST ADMIRED COMPANIES of 2014

4-*

LO 4-5

  • Apple
  • Amazon
  • Google
  • Berkshire Hathaway
  • Starbucks
  • Coca-Cola
  • Disney
  • FedEx
  • Southwest Airlines
  • General Electric

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

1. Before you put this slide up, you may want to ask the students: Are the ideals of maximization of profit and social responsibility in conflict?

  • Corporate social responsibility is the concern businesses have for the welfare of society, not just for their owners.

3. The vast majority of the companies listed in this slide are not only admired, but also financially successful.

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WHEN EMPLOYEES
are UPSET…

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LO 4-5

  • Employee fraud costs U.S. businesses about 5% of annual revenue and causes 30% of all business failures.
  • Disgruntled workers relieve frustration by:
  • Blaming mistakes on others.
  • Manipulating budgets and expenses.
  • Making commitments they intend to ignore.
  • Hoarding resources.
  • Doing the minimum.

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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SOCIETY and
the ENVIRONMENT

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LO 4-5

  • Over one-third of working Americans receive their salaries from nonprofits – who are dependent on funding from others.
  • The green movement emerged as concern about global warming increased.
  • Many companies are trying to minimize their carbon footprints – the amount of carbon released during an item’s production, distribution, consumption and disposal.

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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RESPONSIBILITY to the ENVIRONMENT

  • By 2030, as many as 40 million “Green” jobs will be created.

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LO 4-5

  • Environmental efforts may increase costs, but can offer good opportunities.
  • The emerging renewable-energy and energy-efficiency industries account for 9 million U.S. jobs.

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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SUSTAINABILITY’S in the BAG

4-*

  • Rickshaw Bagworks makes sustainable accessories built to last.
  • The “three Fs” are followed company-wide.
  • Form
  • Function
  • Footprint

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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SOCIAL AUDITING

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LO 4-5

  • Social Audit -- A systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs.
  • Five Types of Watchdogs
  • Socially conscious investors
  • Socially conscious research organizations
  • Environmentalists
  • Union officials
  • Customers

See Learning Objective 5: Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders.

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TEST PREP

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  • What is corporate social responsibility, and how does it relate to each of a business’s major stakeholders?
  • What is a social audit, and what kinds of activities does it monitor?

1) Corporate social responsibility (CSR) is the concern businesses have for the welfare of society, not just for their owners. CSR defenders believe that businesses owe their existence to the societies they serve and cannot succeed in societies that fail. CSR must be responsible to all stakeholders, not just investors in the company.

2) A social audit is a systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs. Many feel a social audit should measure workplace issues, the environment, product safety, community relations, military weapons contracting, international operations and human rights, and respect for the rights of local people.

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INTERNATIONAL ETHICS

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LO 4-6

  • Many businesses want socially responsible behavior from their international suppliers.
  • In the 1970s, the Foreign Corrupt Practices Act criminalized the act of paying foreign businesses or government leaders in order to get business.
  • Partners in the Organization of American States signed the Inter-American Convention Against Corruption.

See Learning Objective 6: Analyze the role of U.S. businesses in influencing ethical behavior and social responsibility in global markets.

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GOING by a
DIFFERENT STANDARD

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  • A telecommunications employee returns to his home country to work and the company reimburses living expenses so he can live in a safe area. The employee is trying to do the honorable thing for his family and the company is trying to keep the employee safe.

If the employee uses the money to help his family instead, is it right for the company to stop payment?

See Learning Objective 6: Analyze the role of U.S. businesses in influencing ethical behavior and social responsibility in global markets.

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TEST PREP

4-*

  • How are U.S. businesses demanding socially responsible behavior from their international suppliers?
  • Why is it unlikely that there will be a single set of international rules governing multinational companies soon?

1) Many U.S. businesses now demand that international suppliers do not violate U.S. human rights and environmental standards.

2) It’s unlikely there will be a single set of international rules governing multinational companies because of the widespread disparity among global nations as to what constitutes ethical behavior. For example, a gift in one culture can be a bribe in another. In some nations child labor is expected and an important part of a family’s standard of living. The fairness of adhering to U.S. standards of ethical behavior is not as easy as you may think.

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