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Act: Ethics and Corporate Social Responsibility

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Chapter 8 Goals After experiencing this chapter, you’ll be able to:

1. Appreciate the complexity of the ethical dilemmas you may

face in the business world and the need to take a 360° view.

2. Characterize what an ethical organization looks like and the

tools that leaders use to create one.

3. Develop an ethical decision-making approach for your

career.

4. Identify the specific ethical dilemmas facing different areas of

an organization.

5. Justify how ethics are the foundation for a sustainable

organization and how companies engage in acts of corporate

social responsibility.

To Fire or Not to Fire? Martin Cunningham is battling cancer. To keep his life as normal as possible, he has kept his full-time accounting job at Jefferson & Wails. He’s worked for J&W for 25 years and has to hold on to his job for just one more year in order to receive full pension benefits. Although the cancer has taken its toll on

him, he tries his best to get to the office as often as he can and do the work requested of him.

Rebecca Cramer has worked as an account- ant at J&W for seven years. For the past two years, she and her three coworkers have been forced to pick up the slack because Martin isn’t as productive as he used to be. She thinks Martin is an amazing person and knows the company has kept him on in good faith, but she and her coworkers are frustrated at having to work nights and weekends because

Martin can no longer do his share.

Now that you’ve practiced making tough business decisions and seeing the results of your choices in this chapter’s BizSkill, it’s time to translate those skills into plain English. And if you skipped the BizSkill,

Donald Arnold is the executive director of the ac- counting department for J&W. Upper management informed him that he needs to downsize his depart- ment from five employees to three. Donald has worked with Martin for the past 15 years. He knows that such a drastic cut to the department means he can’t afford to keep Martin on staff and overwork the rest of the department even more. But with just one year until Martin is eligible for his full pension, it’s a terrible decision. After agonizing over the situation for days, Donald decides to let Martin go.

Although this story was fictionalized for this text, the events actually happened to a real person battling cancer. What do you think Donald should have done? Is it ethical to lay off a company veteran, es- pecially someone who obviously needs full medical benefits and is so close to retiring? Is there a right answer?

Would you fire Martin?

184 Leadership Vision

How does taking a 360� view help you make a better decision?

1. Ethical Dilemmas

When you first think about ethics, situations like cheating on an exam or getting too much change back from a cashier and keeping it may pop into your head. As the opening story shows,

business ethics is often very complicated because there are a lot of competing values and interests, multiple alternatives, and often very sizable consequences to consider.

When you have a war with your values, which is the essence of an ethical dilemma, it’s helpful to take a 360° view of the situa-

tion, or to think about the ethical dilemma from differ- ent perspectives. In our opening story, we looked

at the dilemma from the perspective of Martin, his coworker Rebecca, and Donald, his man-

ager. Taking the 360° view forces you to slow down, consider an- other person’s perspective, and

make a good decision you can live with.

You may think ethics is all about figuring out what’s right and wrong, but it’s more general than that: ethics is the study of human conduct and moral principles. Someone with

strong ethics shows a commitment to good human conduct, whereas some-

one with weak ethics shows more ques- tionable conduct. For example, let’s say a

supplier accidentally gave you an extra box of office supplies. What would you do? A

highly ethical person might notify the supplier to let the supplier know about the mistake. A less eth-

ical person might keep the supplies, rejoice at getting free stuff, and justify it by saying, “Who cares? It’s just a box of pens

and paper clips.” It’s easy to see why the less ethical option is an easy one: it is only a box of office supplies, after all. But if you look at the situation from all angles, it’s not so clear:

• Your coworkers may initially think it’s great that you got a free box of supplies; however, they may start to question your ethics on other, larger matters.

• And what would your boss think? If she asks you about the box and you tell her what hap- pened, you end up looking like a thief, and you don’t set a good example either within or outside the company.

• Now think about it from the delivery person’s perspective. He may not be able to account for the location of the box and could be reprimanded or even fired.

• Also, the supplier will be out the cost of the supplies—and if the company fires the deliv- ery person, it’ll have to pay to recruit and train his replacement. The impact of these ex-

penses could be the last straw that convinces the supplier to raise their prices, which would in turn put a dent in your company’s profits.

So, because of a little ethical laziness, you could be partially responsible for damaging the delivery person’s job, hurting the supplier’s—and possibly your own company’s—bottom line, and definitely responsible for messing up your reputation. Now who cares about those free pens and paper clips?

As you would guess, business ethics is the study of moral principles and conduct within a business environment. It studies how people behave

Ethical dilemmas and the 360˚ view

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Business ethics is often very complicated because there are a lot of competing values and interests, multiple alternatives, and often very sizable consequences to consider.

Chapter 8 | Act: Ethics and Corporate Social Responsibility 185

at work, which is not always how they behave in their lives outside work. But is business ethics a contradiction in terms? Many people, es- pecially investors in a company, consider the goal of a business to make profits, and ethics can sometimes hamper this goal.

For example, does a company have an ethical obligation to help needy people even if this assistance will cause the company to lose money? Take drug companies that develop lifesaving treatments for people who are desperate and can’t afford to pay for them. In December 2000, the pharmaceutical company Pfizer agreed to send $50 million worth of AIDS drugs to South Africa, free of charge.2 The drug, fluconazole, treated an AIDS infection called cryp- tococcal meningitis, which is a deadly brain disease.3 By supplying two years’ worth of free drugs, Pfizer was helping more than 100,000 South Africans stricken by the disease.4 Pfizer could have instead sold fluconazole only to people who could afford it, but when faced with an ethical choice, the company decided to put immediate profit on the back burner and donate the drug to the vic- tims in South Africa.

As we’ll discuss later, often organizations do these kinds of good deeds not only because they’re the right thing to do, but because of the long-term effects on the public. For example, by offering drugs for free to those in need, Pfizer garnered a good deal of positive publicity. Many customers prefer to work with companies that have good reputations and that help peo- ple. If all other things were equal, would you rather patronize an organization with question- able policies or a socially conscious organization? That’s an easy choice. Of course, it’s not quite that simple in real life—prices and other factors may affect which company customers choose. Still, a strong ethical foundation can go a long way in helping a business build and maintain a good reputation.

However, it would be naïve to think that the “bad guys” of the business world are always punished for unethical decisions. Many are not even caught, and in some cases, even if they are caught, they are not punished. In fact, some are even handsomely rewarded (think of the early days of the now collapsed energy giant Enron, when company execs were living large). Often, as with the example of Martin Cunningham at the beginning of the chapter, the right answer isn’t always clear, so what may be ethical to one person isn’t ethical to another.

“It takes many good deeds to build a good reputation, and only one bad one to lose it.”

—Benjamin Franklin1

Do It... 8.1: Take a 360° View Go back to the beginning of the chapter and re-

read the chapter-opening story (“To Fire or Not to Fire,” page 183) and take a 360° view of the situation. If you were Martin’s manager, would you fire Martin? Why or why not? Now consider the situation from a coworker’s point of view. Would you want the company you worked for to fire Martin? Why or why not? What if you were a customer of the company? What factors would af-

fect your decision? Finally, what if you were Martin yourself? Would you feel it was ethical for you to continue collecting a paycheck at the company? Limit your response to one page, and be prepared to submit it electronically or present it to your class.

Now Debrief... • Ethics is the study of human conduct and moral princi-

ples. • Business ethics is the study of moral principles and

conduct within a business environment. • In situations that test your ethics, the right thing to do

isn’t always obvious. • Often, when you’re having a war with your values, or an ethical

dilemma, it helps to try looking at it from all sides—taking a 360° view of the situation.

Concept A

Concept B

Concept C

Concept D

2. Ethical Organizations: How Do You Know?

People often say you learn the most about people in stressful situations.

Businesses are no different—during stressful times, you can often see a business’s “true colors.” What

if you want to know whether an organization is ethical, but there aren’t any major issues at the moment that put their ethics on display? In this case, there are other indicators that organizations have an ethical mind-set, some of which we’ve listed below. Note though that your employer, or potential employer, might not use all the items listed below. Just think of these as tools in a company’s ethical toolbox.

Tool 1: Leaders Setting an Ethical Example What do you look for in a leader? Whether it’s the president or chief executive officer (CEO) of a company or the captain of a softball team, you want someone you trust to make the right decisions and to set a good example. The same is true in the business world. That’s why the ethical tone of a company should be set by the men and women at the top of the company’s food chain. By having a solid ethical foundation, employees have a better chance of knowing the right thing to do in times of crisis. Two classic examples of what to do and what not to do are the Johnson & Johnson Tylenol crisis and the Exxon Valdez oil spill.

186 Leadership Vision

In 1982, seven people in the Chicago area died after ingesting what they thought were capsules of Tylenol pain reliever. Instead, what they were really ingesting was

cyanide. The makers of Tylenol, Johnson & Johnson (J&J), were not responsible for the poison- ings; someone had removed containers from store shelves, laced them with cyanide, and re- turned the bottles to the store. (All of this was before the advent of tamper-resistant seals. In

fact, this incident led to stronger safety measures for over-the-counter medications.)

When the news of the deaths broke, the chairman of J&J, Jim Burke, reacted quickly and formed a strategy team. The first item on the agenda was figuring out how to protect the public from danger. The team knew the right thing to do and re- called every bottle of Tylenol capsules in the country, even though the poisonings were limited to the Chicago area. This was over 30 million bottles of Tylenol.5 Burke

knew the credo, or guiding principle, of the company was to put people and their well-being before anything else.6

Burke’s decision to pull all bottles of the drug went against the advice of lawyers and con- sultants, and many analysts thought the company was finished. However, the company proved everybody wrong by rebounding with stronger safety measures and discounts when its products were relaunched. J&J’s management acted ethically because the company’s credo had been effec- tively communicated and reinforced through good practices such as routine ethical “challenge ses- sions” that helped management fully understand their commitment to the Tylenol brand.

Ethics at J&J

Which tool jumps out at you first? Why?

Tool 7: Ethics Committee

Code o f ETHI

CS

* To u se only

organi c ingre

dients

in our produc

ts.

* To m ake em

ployee and cus

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safety a prio

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our

plannin g and o

peratio ns.

* To o perate

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manner that c

auses the lea

st har m

to the enviro

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continu ed on n

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Ethics Committee

Ethic al To

olbox

We take full responsibility no matter the cost

Our Credo

99

Press Conference

Tool 4: A Code of Conduct

Tool 3: A Code of Ethics

Tool 1: Leaders Setting an Ethical Example

Code of CONDUCT * Swearing, drinking, fighting,

and all other unprofessional activities are prohibited.* Sexual harassment or

harassment of any kind is prohibited.

* Using company property for

personal matters is prohibited.* Employees cannot accept client gifts or favors from

clients for any reason. continued on next page

Tool 6: Ethics Management Program

Discussion: What helps us build a strong, united

workplace?

Tool 5: Ethics Training

Ethics GYM

Tool 2: A Focus on More than Just Profits

Sustainability

P la n e t

P e o p le P

r o f it

company’s ethics management program

We take full responsibility

for our products no matter

what the cost

Our Credo

99

Press Conference

Chapter 8 | Act: Ethics and Corporate Social Responsibility 187

Not too long after Tylenol was praised for standing by its ethical code, Exxon showed how a company can react when its ethical code is not part of its cul-

ture. In 1989, the Exxon Valdez oil tanker ran aground and spilled 11 million gallons of oil into Prince William Sound in Alaska. The spill caused tremendous ecological damage to the area and is still evident today.

Exxon’s reaction to the crisis was considered inadequate based on the level of damage done. The chairman of Exxon, Lawrence Rawl, failed to act quickly, and the company seemed to ignore the problem for almost a week. When Exxon did act, it tried to shift blame to the captain of the oil tanker, the Coast Guard, and the state of Alaska. Exxon’s attempts to contain the spill were not just slow in coming, they were ineffective and poorly planned. In fact, public opinion polling indicated that 77 percent of Americans believed that Exxon had not done a good job of handling the situation. This led many customers to boycott Exxon. The company paid a price, not only in fines, legal settlements, and cleanup costs, but also in goodwill with its customers for its failure to act ethically.7

Tool 2: A Focus on More than Just Profits In Chapter 3, we introduced the notion of sustainability and the triple bottom line (TBL), whereby companies focus not just on profit, but on people and the planet as well. Sustainable companies emphasize the importance of creating a successful business while also giving back to people in society and to the environment. Triple bottom line com- panies look for answers that are in line with all three values and try to do what’s best for both the organization and its stakeholders. We’ll discuss these concepts in more detail later in the chapter.

Tool 3: A Code of Ethics As the old saying goes, “Rome wasn’t built in a day.” By the same token, you can’t build an eth- ical organization overnight. It takes a lot of planning and work. A business’s code of ethics is a set of standards established by a company regarding ethical practices. A company may call its code something different, like a credo or a philosophy, or it may embed the code into its mis- sion statement, but whatever it’s called and wherever it’s found, a code of ethics is a set of stan- dards that employees live by when they are at work.

A code of ethics can act as a preventive measure, aiding employees in making ethical deci- sions and helping the organization as a whole maintain its moral center.8 To do this, though, a company’s code of ethics has to be more than just for show—it needs to be clearly communi-

cated to employees and actively integrated into the way the company does business. Think back to how Johnson & Johnson prepared its employees to act on its credo.

Where can you find a company’s code of ethics? Some companies have a sep- arate publication dedicated completely to explaining the company’s code of ethics. For example, the Society of Professional Journalists has a separate code of ethics lo- cated on its Web site (http://www.spj.org/ethicscode.asp). The first item in its code

is “Seek truth and report it.” Within this there are multiple bullets explaining the society’s definition of honest and fair reporting. Here is a sample of the list:

• Test the accuracy of information from all sources and exercise care to avoid inadvertent error. Deliberate distortion is never permissible.

• Identify sources whenever feasible. The public is entitled to as much information as possi- ble on sources’ reliability.

• Never plagiarize.9

Sometimes, a company’s ethics policies are combined with another document. For exam- ple, Texas Instruments (TI) has a document called “TI Standard Policies and Procedures.” Before updating or publishing the document, its policies are reviewed by TI’s Ethics Office. So, in this

Breach of Ethics at Exxon

Sustainability

P e o pl e

P la n e t P r o f it

Code o f ETHI

CS

* To u se only

organi c

ingredi ents in

our

produc ts.

* To m ake em

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custom er saf

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in all o f our

plannin g and

operat ions.

* To o perate

our f acilitie

s

in a ma nner t

hat cau ses

the lea st har

m to t he

environ ment.

continu ed on n

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188 Leadership Vision

case, you’ll find policies relating to ethical dilemmas, such as conflicts of interests, in this document, and not in a separate code of ethics.11

A strong code of ethics helps promote public confi- dence and loyalty. If an organization is doing everything it can to provide the best products to the public and it main- tains strong public relations, the organization can retain cus- tomers, employees, and stockholders for a lifetime.12

Tool 4: A Code of Conduct Even if you have an up-to-date code of ethics, that doesn’t mean anything by itself. The point

of creating a code is to guide people in the right direction. Employees may be famil- iar with the code, but unless they are abiding by the code, it isn’t really doing any- thing for the organization. To help translate these policies into actions, it is vital to establish specific training and procedures for everyone. For most employees, this process begins at an orientation for new hires.

A code of conduct is exactly as it sounds; it conveys to employees how an organization wants them to act, or conduct themselves, in the workplace. This is

different from a code of ethics in that ethics helps guide employees to make ap- propriate decisions. A company code of conduct is similar to the policies on aca-

demic honesty that you’re probably familiar with from your school. The main goal of a code of conduct is to let you know what you should and shouldn’t do. The code breaks down specific issues relating to the workplace and specifically states the proper behavior expected from everyone every day. Codes of conduct generally cover things like dress code, confidentiality, discrimination, and policies regarding receiving gifts and using company property.13

For example, the codes below could apply to almost any organization:

Employee Conduct

• Swearing, drinking, fighting, and all other unprofessional activities are prohibited.

• Sexual harassment or harassment of any kind is prohibited.

• Using company property for personal matters is prohibited.

Client Relations

• Employees cannot accept client gifts or favors from clients for any reason.

On paper these codes are just words strung together to form lifeless sentences. The key is to get these words to mean something in the eyes of employees. This dynamic occurs when codes are translated into everyday practices. Company mottos and mission statements are useful here because they’re generally short and to the point. The Ritz-Carlton hotel chain has a short and sweet motto that cuts to the core of what the company is about: “We are ladies and gen- tlemen, serving ladies and gentlemen.” Not only does this convey good service, but it can also make employees feel proud and inspired. People in the service industry are often taken for granted and dismissed easily, but this motto conveys self-respect to the employee, as well as the feeling that every employee is just as good as someone paying $600 for a night at the luxury hotel.

Tool 5: Ethics Training Having an ethical company is more complicated than saying,

“Here’s a list; do the right thing.” After all, situations aren’t always black or white, where one choice is clearly right and the other is clearly wrong. Employees need to be prepared to

“Business leaders should manage their companies by earning reasonable profits through modesty, not arro-

gance, and taking care of employees, customers, busi-

ness partners, and all stakeholders with a caring heart.” —Kazuo Inamori,

Chief Executive Officer of Japanese high-tech ceramics manufacturer, Kyocera10

Ethics GYM

Code of CONDUCT * Swearing, drinking, fighting,

and all other unprofessional

activities are prohibited.* Sexual harassment or harassment of any kind is prohibited.

* Using company property for

personal matters is prohibited. * Employees cannot accept

client gifts or favors from

clients for any reason. continued on next page

Chapter 8 | Act: Ethics and Corporate Social Responsibility 189

interpret the “shades of gray.” That’s where ethics training programs come in. During an ethics training program, an employer is trying to teach employees the appropriate way to act when encountered with an ethical dilemma. The challenge with ethics training is that it is difficult to teach someone exactly what to do when he or she is experiencing an ethical dilemma. Although formal training and distri- bution of an organization’s code of ethics are useful, it is ongoing policies and procedures that help employees continue to abide by the code.

Tool 6: Ethics Management Program Let’s say a company has all the ingredients in place—a code of ethics, a code of conduct, and ethics training. Now it’s time to throw all of these ingredi- ents into the pot and blend them into an ethics management program. An ethics management program establishes and maintains company-wide policies that explain and demonstrate acceptable behavior and decisions. When organizations institute ethics management programs, employees

should be on the same page in terms of vision and day-to-day policies.

A company’s ethics management program may involve ethics training seminars, or it may be incorporated as part of employee performance ap- praisals. When employees are evaluated on the basis of their ethical con- duct, they have a strong incentive to make sure they do the right thing on the job. The management program is often customized to fit the organi- zation. If you work for an auto body shop, for example, you wouldn’t use exactly the same ethics management program as a retail store.

It bears repeating that for any ethical program to work, the people in charge need to support and model the program. For example, Caterpillar, a major manufacturer and distrib- utor of machinery, utilizes an ethics management program that starts at the top and works its way down. Chief Ethics and Compliance Officer Ed Scott says, “our leaders work to en- sure that our Values In Action [Caterpillar’s worldwide code of conduct] are part of every- day life at Caterpillar.” As an international company, Caterpillar makes sure that its code of ethics is spread to its foreign offices. It has an annual ethics assessment and questionnaire that is translated into 14 languages and is a requirement for every employee. Indeed, Caterpillar has built an ethical reputation over the years, and the current company leadership strives to maintain this reputation. In fact, Caterpillar was selected as one of the 2009 World’s Most Ethical Companies by the Ethisphere Institute, an international think tank dedicated to pro- moting business ethics.14

Tool 7: Ethics Committees Making decisions for a company is never a one-person operation. The leaders of a

company often need to gather input from other people before taking action—es- pecially when it comes to ethics. That’s why some businesses set up a formal ethics

committee to oversee and implement ethics policies. An ethics committee helps a company reflect its values through everyday policies. If an ethics com- mittee decides to commit to helping the environment, you’d expect to see re- cycling receptacles through the area. Or, if the committee decides to focus on customer service and satisfaction, you’d expect to see policies regarding phone

calls or customer interaction.15

Your Own Code of Ethics and Conduct You’ve seen how companies establish a code of ethics and a code of conduct. Does that mean that employees just sit around and wait for the company to tell them how to act? Of course not. Every day, you make choices about how to behave based on your own informal, unwritten

Having an ethical company is more complicated than saying, “Here’s a list; do the right thing.”

Ethics Committee

company’s Ethics Management Program

Discussion: What helps us build a strong, united

workplace?

3. Making Ethical Decisions

In an ethical organization, every member of that organization must be an ethics manager. In this section, we’ll look at some approaches to making ethical decisions, and then we’ll establish a step-by-step process to help guide you through an ethical dilemma. Let’s start by looking at some informal approaches to making an ethical decision.

Informal Approaches to Making Ethical Decisions You probably know that going through the drive-through isn’t the best way to get a healthy meal, but it is often the easiest. The same is true for making ethical decisions—sometimes, mak- ing an unethical decision may be the easier road to travel. However, there are several quick checks you can perform to assess whether you’re headed down an ethical path:

1. Before you follow through with any decision, check out your stomach. Any butterflies there? If you feel uncomfortable with a decision, it might be time to reevaluate what you’re about to do.16

190 Leadership Vision

ethical code. But as an individual, it can be helpful to write down this personal code of ethics and conduct so that you can more carefully follow it in your life and career. Your code may include such things as the beliefs you value and the behaviors you will follow, such as not cheating or stealing. No matter whether you write them down or not, critically thinking about your own ethics will help you make decisions that are better in line with your values, both on a personal and professional level.

Do It... 8.2: Write Your Own Code of Conduct Write a code of con-

duct for your own life and career. Capture your entire code on one page, and be prepared to post or submit it electronically or present it to your class.

Now Debrief... • It’s important for businesses to establish an ethical

tone. To help them do this, there are various methods they can use: a sort of “ethical toolbox” consisting of a number of tools.

1. Leaders of the organization set an ethical example, doing the right thing as a model for employees.

2. The organization focuses on more than just profit.

3. A code of ethics is created.

4. A code of conduct is followed.

5. An ethics training program may be offered in some cases.

6. An ethics management program may be instituted to establish company-wide ethics policies.

7. An ethics committee may be formed to give ethical advice.

• A company does not have to use all of these tools to be ethical, but these tools provide solid guidelines.

Concept A

Concept B

Concept C

Concept D

Chapter 8 | Act: Ethics and Corporate Social Responsibility 191

Do the ends justify the means? This is the question posed by utilitarianism. Utilitarianism is a philosophical principle that approaches a decision, whether eth-

ical or not, by focusing on the best interests of the majority of the people involved. This em- phasizes the end product of a decision, not the process it takes to get there. Problems can arise, however, because some utilitarians believe the end result justifies whatever path was used to get there.17 When using this method, it’s important that you don’t completely overlook the path taken. If you do, you may be entering questionable ethical territory.

One idea of utilitarianism is that all benefits and drawbacks are quantifiable and can be boiled down into numbers. For example, let’s say a manufacturer of high chairs for babies real- izes a defect in the high chair that causes the tray in front of the baby to come loose if the baby moves around too much. If the tray becomes loose, the baby can potentially fall out of the chair. To fix the problem, it will cost the manufacturer $9 per chair to recall and replace the tray and bracket that connect to the chair. So far, the manufacturer has already produced 750,000 chairs. This means the total cost of repairing the defect is $6.75 million (750,000 � $9 to repair each chair).

After testing the chairs, the manufacturer realizes only 1 in 100 chairs have the defect, which is equivalent to 7,500 chairs. Let’s say the company estimates the cost of an injury to a baby at $50,000. If the manufacturer doesn’t fix the defect, the potential cost of injuries is $375 million (7,500 chairs � $50,000 per injury). The cost of the recall is substantially lower than the potential cost of injury ($6.75 million compared with $375 million), so it makes sense for the manufacturer to fix the problem, which is also good news for the babies involved.

Although this example had an obvious conclusion, what if the cost of injury had been less expensive than the cost of fixing the repair? Is it ethical for a company to sell high chairs that are potentially dangerous for babies? Also, is it acceptable to put a price on an injury or, in some cases, on a life? There is no definite yes or no answer to this. These are just examples of the uncomfortable decisions that businesses sometimes have to make.

2. Another quick way to test whether you’re on track with a decision is to consider what your boss or mentor might do in the same situation. Think about someone you know and respect. What would he or she do in your shoes? It might even be worth having a con- versation with your boss or mentor about the situation.

3. Another quick ethical check is to imagine what you would feel like if your decision were to appear on the front page of The New York Times or on your Facebook profile. How would you feel about your decision if it were publicly known?

Formal Approaches to Making Ethical Decisions Aside from these informal methods, there are also formal approaches that require you to re- ally think critically about a situation.

Utilitarianism

The high-chair recall scenario above is an example of a cost-benefit analysis. A cost-benefit analysis is used in budgeting and planning to compare the total

benefits of a project against the cost of going through with a project.

Let’s say a corporation is interested in volunteering to build a park in a busy urban area. Figuring out the cost is fairly easy; the company needs to buy the land, sod,

flowers, hire workers, etc. But how can a company figure out the benefits of a project like this? Some benefits are intangible: aside from the aesthetic beauty it brings to a neighbor- hood, the company is creating a safe place for children to play and a family to spend time. How much is that worth? And although this may be a philanthropic project, the corpo- ration may get publicity from local news stations, which could generate interest and po-

tential revenue. In addition, the philanthropic project may qualify the corporation for some tax breaks from the government.

Cost-Benefit Analysis

192 Leadership Vision

Business leaders must consider issues like these before jumping into a costly project of any kind. This analysis helps not only figure out the best action to take, but it also helps leaders de- cide whether action is necessary in the first place.

Of course, costs and benefits aren’t the only issues to take into account. There is also the moral rights principle. Moral rights (often called human rights)

are basic fundamental rights everyone possesses, such as the right to be free and to be treated equally. In 1948, the United Nations created a formal document called The Universal Declaration of Human Rights. Because the perception of moral rights varies, this declaration has helped re- duce squabbling over what actually constitutes moral rights. Followers of the moral rights ap- proach believe there are actions that are either right or wrong, and there are basic moral principles that should not be violated, even for the greatest good of the majority.

For example, most people would rather pay less than more for a good. However, accord- ing to the U.N. Declaration, it’s not morally right to obtain inexpensive goods if they’re produced through the use of sweatshops (manufacturing centers with inhumane working conditions and excessively low wages) or if the company doesn’t follow other ethical guidelines in their pro- duction. If the only way to create cheap goods is through sweatshops or other unethical means, then people shouldn’t be able to buy these goods. A utilitarian may argue that many people are benefiting at the expense of a few laborers, so it justifies the decision. However, someone who believes that moral rights should hold some sway in business would claim that any violation of these rights is wrong.

You’ve heard of the Golden Rule: Do unto others as you would have them do unto you. The universalist principle has similarities to the Golden Rule in

that, before making a decision, you ask yourself if the decision would be fair for everyone in all circumstances. If so, then ask yourself how you’d feel if the decision was applied to you. Let’s say you run a shoe business. You currently manufacture your product in the United States and make a pretty good profit, but your family is telling you to manufacture overseas because it’s much cheaper. Then imagine you’re the U.S. worker who will lose your job to someone over- seas so your boss can make more money—does that seem right to you? Probably not. However, as the business owner, you may not be too worried about the U.S. workers, because your business is healthy and you’re living comfortably.

Universalist Principle

Let’s look at the previous example again. If you’re the shoe business owner, what if personal feelings come into play? What if you feel empathy for the U.S. workers

who are trying to support their families? You might be hesitant to move production overseas and take away their jobs, even though it would be the best move financially. This is where the virtue principle comes into play. The virtue principle looks at a person’s character. It involves figuring out which course of action relates to good moral character. Supporters of the virtue principle believe that good moral character can help guide someone toward a morally appro- priate decision. This relates back to one of the informal ethical checks discussed earlier: What would your mentor do in your shoes? If you suspect that decision A is the moral decision, then you’d probably make decision A. Showing good moral character or following in the footsteps of someone you consider to be moral helps you figure out the best thing to do.

Virtue Principle

Making ethical decisions isn’t just about what philosophies or principles you hold. Let’s look at something more practical: distributive justice. The distributive jus-

tice principle focuses on distributing benefits throughout society based on what’s fair—basi- cally, that people should receive fair benefits in relation to the work they do, or the burden they take on. One common example of distributive justice is salaries. Let’s say Jeremy and Alison work for the same company and have the same duties and salaries. However, Jeremy works longer hours and produces more work per hour than Alison, so theoretically shouldn’t he get paid more than she does? This approach is usually not strictly practiced, although this may help you explain why your coworker who does the same job as you makes less (or more) than you do. Generally, it acts more as a guide in distributing benefits fairly throughout an organization.

Table 8.1 sums up the formal approaches to ethical decision making we’ve discussed. Next let’s look at a step-by-step approach.

Distributive Justice

Moral Rights Principle

Chapter 8 | Act: Ethics and Corporate Social Responsibility 193

A Step-by-Step Approach to Making an Ethical Decision Although the previous approaches may help steer you in the right ethical direction, it’s helpful to have a concrete process to follow when faced with an ethical dilemma. Let’s say you’re a supervising editor for a maga- zine. You’ve just found out your best writer plagiarized from another pub- lication last year. You’re the only one who knows. What should you do?

1. When an ethical dilemma arises, your first step should be to get all the facts. Start by stating the issue as you know it in one or two sentences. Then ask yourself questions such as: (a) What do I know? (b) What are the hidden elements that are not obvious or are difficult to discuss? This is an important step—you can’t make a good decision if you don’t know all the facts.

• In the example of the writer who plagiarized, are you sure this is the only time she plagiarized? Try to figure out if there is anything you don’t know. What do you know about the other publication the writer plagiarized from? Why weren’t you able to catch the plagia- rism when it happened?

Making an Ethical Decision

1. Get all the facts. 2. Consider who your decision will affect. 3. Continue to gather moreinformation. 4. Use decision-making approaches to come up with potential solutions. 5. Choose the best approach

and look at it again from

different perspectives. 6. Take another look at your

decisionand implement it.

Approach Definition/Description Example

Utilitarianism • Focuses on the best interests of the Before recalling a faulty baby high majority chair, a company may compare

• Believes that benefits and drawbacks the estimated cost of injury to the are quantifiable cost of recalling every chair.

• Focuses on whether the ends justify the means

Cost-Benefit Analysis • Used in budgeting and planning to A corporation may weigh the cost compare the benefits of a project of building a new park with the against its cost benefits of building the park.

Moral Rights Principle • States that actions are either morally Customers may refuse to buy right or wrong, and that there are products that were made by basic moral principles that should not sweatshop workers because it be violated goes against their moral beliefs.

Universalist Principle • States that before making a decision, A business owner may need to you need to determine whether the decide whether moving production decision would be fair for everyone in overseas would be fair to his or her all circumstances employees.

Virtue Principle • Involves determining which course People might make a decision of action relates to good moral based on what they think their men- character tor would do in the same situation.

Distributive Justice • Focuses on distributing benefits to An employee who works more Principle individuals fairly according to the hours and produces more per hour

burdens they take on should be paid more than a less- productive worker.

Table 8.1 | Formal Approaches to Ethical Decision Making

194 Leadership Vision

2. Next, you need to consider who your decision will affect. Take a 360° view and consider the dilemma from multiple perspectives.

• Will your decision affect just you? Your coworkers? Your manager? Investors? Customers? If you fire this writer for plagiarism, how will it affect the company? What if you don’t fire the writer? What does that mean for your magazine? Is it possible the story might leak and the entire magazine might come under fire? If this happens, shareholders and readers may question other stories. What if you find other plagiarized material?

3. After figuring out all the major pieces of the puzzle, you need to continue to gather more information and research similar instances.

• Are there similar situations in your organization or in another that can shed light on the sub- ject? If so, research and learn all you can. What was the outcome? Was it successful? How was it similar? How was it different?

4. Take as much information as possible and use the formal decision-making approaches dis- cussed earlier to come up with potential solutions.

• For example, the virtue principle would require you to look inward for an answer to the dilemma. If you allow this person to continue writing for the magazine, what does that say about you? It may say you don’t want to rock the boat and are worried about what other peo- ple will think. On the other hand, it may say that by giving the writer another chance, you are embracing forgiveness.

5. After seeing all of your potential solutions, choose the best decision and look at it again from different perspectives. Look back at the four BizHats and how they will be affected by your decision. Also consider the triple bottom line perspective, which requires or- ganizations to consider people and the environment in addition to profit when making decisions.

• How will your decision about the writer’s plagiarism affect the four BizHats? Will it impact so- ciety at large? Or the ethical culture in your office? Your reaction to plagiarism may set a precedent in your company and directly affect similar instances in the future.

6. Next, take another look at your decision. If you still feel comfortable, implement it.

• In the case of detected plagiarism, you may decide to keep working with the writer or you may decide to fire her.

Clearly, arriving at a decision is not an easy process. But by following these steps, in most cases you should be able to decide on a course of action you and your business are comfortable with.

No matter what your decision, there will be consequences you should be prepared for. In the case of the writer who plagiarized, you would need to determine whether your decision caused any problems inside or outside the office. If so, you would want to look at your deci- sion again and see if there was a better solution you could apply should the dilemma reoccur.

Ethics Showdown: What to Do When Your Ethics Conflicts with Company Ethics Sometimes, personal ethics conflict with the actions or vision of employers. It can be minor— perhaps there is a disagreement with the termination of a coworker—or it can be major, such as discovering a cover-up within the organization. Here are a few suggestions for what you should do if you find yourself in the middle of an ethical struggle.

If you see someone doing something you believe is inappropriate:

• Give your coworker the benefit of the doubt. There may be something innocent going on that you don’t know about.

• It may be helpful to check your employee handbook and see if your company has any poli- cies dealing with the situation.

Employee

ID

Chapter 8 | Act: Ethics and Corporate Social Responsibility 195

• Approach your manager to get more information on what you should do. This gives your manager a chance to address the situation.

• If you don’t think your manager handled the situation effectively and if you think the situa- tion warrants it, your next step would be to contact your company’s human resources de- partment in private.

Again, if this doesn’t work, you should carefully consider taking the problem further up the chain of command. Using good judgment is key, as not all matters need to be taken up the corporate chain.

In extreme cases, if the company does not address the issue internally and the behavior is very serious—such as embezzlement or fraud or if customer health or welfare is on the line— you may consider contacting someone on the outside, such as the board of directors or a news- paper. If you speak out against an organization or publicize something unethical, you may be called a whistleblower. Whistleblowers are employees or former employees of an organiza- tion who allege misconduct by the organization.

You may have heard of the famous whistleblower case of Jeffrey Wigand and the tobacco industry, dramatized in the 1999 movie The Insider. Wigand was the director of research at Brown & Williamson, then the third largest tobacco company in the United States, and made $300,000 a year.18 In the mid-1990s, Wigand went public with his accusations against the tobacco com- pany. Wigand claimed executives knew all along that nicotine was addictive. He also claimed ex- ecutives manipulated the effect of nicotine by adding chemical additives to tobacco products. Not surprisingly, Wigand was fired, but his ordeal wasn’t over. Anonymous callers threatened his fam- ily, and his wife eventually filed for divorce. Afterward, he wasn’t able to find a corporate job, so he ended up teaching high school science for a tenth of what he used to earn. Do you think he did the right thing? Wigand’s testimony before Congress was one of the most damning indict- ments against the tobacco industry. However, the tobacco industry is still going strong, while Wigand’s life will never be the same.

Do It... 8.3: Walk Through the Ethical Decision-Making Process Go back to the

beginning of the chapter and reread the chapter-opening story (“To Fire or Not to Fire,” page 183). Then, describe how Donald Arnold might walk through each of the six steps of the ethical decision-making process to arrive at a final decision about how he will downsize his department from five to three, and whether Martin Cunningham should be one of the employees to be let go.

Now Debrief... • Facing an ethical dilemma head-on can be stressful and

uncomfortable. However, there are approaches available to help you make a decision.

• Informal approaches include the butterflies-in-the-stom- ach, what would a mentor do, and front-page news tests.

• More formal approaches include utilitarianism, cost-benefit analysis, the moral rights prin- ciple, the universalist principle, the virtue principle, and the distributive justice principle.

• Another way to help you figure out a dilemma is to follow a step-by-step approach: 1. Get all the facts; 2. Consider who your decision will affect; 3. Research similar instances; 4. Use the formal decision-making approaches to come up with potential solutions; 5. Choose the best decision and look at it again from different perspectives; 6. Take another look at your decision; and if the decision still seems good, implement it.

• Employees or former employees of an organization who allege extreme misconduct by the organization to outside sources are referred to as whistleblowers.

Concept A

Concept B

Concept C

Concept D

196 Leadership Vision

4. Hot Spots for Ethical Dilemmas

Ethical dilemmas come up in all shapes and sizes. Not only do they vary by profession, but they also vary within different departments of an organization. For example, it’s not very likely that human resource employees would have the opportunity to hatch a scheme to embezzle money

from the company. That situation would be more likely to occur in the accounting de- partment. But an HR representative may act unethically when it comes to hiring. Let’s look at some ethical hot spots found in organizations.

Finance Remember the old adage, “Honesty is the best policy”? In accounting this is especially true. The past 10 years have seen accounting fraud and scandals that have misled hun- dreds of thousands of people. Accounting firm Arthur Andersen may take the cake as the king of accounting scandals. Arthur Andersen was a huge power player in the world of ac- counting. In 2001, the company had over $9 billion in revenue with more than 85,000 em- ployees around the world.

Then the company became embroiled in the infamous Enron debacle, in which top executives attempted to cover up losses to protect stock prices. Arthur

Andersen was the only outside auditing firm of Enron and had taken part in the corruption scandal. Arthur Andersen’s misdeeds don’t stop there. The day after finding out the company was being investigated by the government, the lead accountant for the Enron account, David Duncan, shredded documents and deleted thousands of e-mails—destroying the paper trail that could lead to prosecution. Duncan claims he was simply following orders. This was not an iso- lated fraud case, however. Arthur Andersen was also involved in overstating

$1.4 billion in earnings for Waste Management and inflating $110 million in earnings for Sunbeam.19 This is not to say that all the accountants who worked for Arthur Andersen were unethical, but the level of fraud does say something about the culture of the company.

More recently, in 2009, businessman Bernard Madoff pleaded guilty to 11 felony charges—including securities fraud and

money laundering—after running an elaborate Ponzi scheme (named after Charles Ponzi, its most notorious

practitioner in the United States) that bilked thousands of investors out of their life savings.20

Basically, Madoff would get people to give money to his company by promising them a big re- turn on their investment. Then, he would take money from new investors to make huge payouts to the old investors and repeat the process over and over. When Madoff’s crimes

were finally discovered, countless lives were ruined. Among his victims were director Steven Spielberg and the owner of the New York Mets.21

Government agencies like the U.S. Securities and Exchange Commission (SEC) were created to help protect investors from situations like these and to make sure the playing field in the se- curities industry is level and fair. To help consumers gain trust in the market, the government created the SEC in 1934, during the Great Depression. Two factors that led to the stock mar- ket crash in 1929 were unreliable information and abuse of financing.22 The two primary goals of the SEC are to have publicly traded companies provide honest information to the public and to have people who are involved in securities, such as brokers and dealers, put the interest of the investor first. With these two concepts in place, the public is able to make an informed de- cision for themselves.

One of the laws the SEC enforces is the Sarbanes-Oxley Act, which is officially called the Public Company Accounting Reform and Investor Protection Act of 2002. The act was created as a re- action to the collapse of mega companies such as Enron and WorldCom. The goal is to protect investors from fraudulent accounting practices. It stipulates financial responsibility by the CEO and the CFO (Chief Financial Officer) of the company, internal audits, and independent outside audits.

Evaluating an employee based on a personal relationship and

not their performance.

Reporting a sale as income before it really occurs.

Pirating company software for personal use.

Putting persona

l purcha ses

on your expens

e repor t.

What ethical hotspots are there in your life?

Chapter 8 | Act: Ethics and Corporate Social Responsibility 197

When auditors process financial statements, they need to follow generally accepted ac- counting principles (GAAP). In Chapter 1, you learned how these principles act as guidelines for accountants for preparing financial statements—sort of like rules in a soccer game. The point of having the principles is to make sure reported information is true. Outside parties, like stock- holders, need to trust that the information they receive is accurate. These guidelines help make sure reports are consistently accurate and that inaccuracies are caught, whether they’re delib- erate or not. Basically, GAAP tries to keep accountants honest and ethical.

Not all accounting scandals are splashed across the news, however. In fact, they may not be very scandalous at all. Here are some common dilemmas accountants face:

• At what point is a sale a sale—that is, when should a sale be recorded as revenue on an income statement?

• I’m a private accountant; is it unethical for me to work for competing companies?

• What should I do if a client asks me to “cook the books”—misrepresent financial data— to cover up some one-time expenses that will only end up alarming investors and hurting the company in the long run?

Human Resources You’ve seen how a few bad apples in the accounting department can wreak havoc on a com- pany. But that’s not the only department that can act unethically. For example, consider human

resource (HR) employees. HR employees have a part in hiring, firing, salary, and discipline de- cisions. They’re also involved in situations regarding harassment, confidentiality, and general grievances throughout the organization. In other words, there are many opportunities for un-

ethical behavior. HR employees assist in handling other people’s ethical dilemmas, but there are also challenges that HR employees themselves face.

The hiring process provides many opportunities for HR employees to act unethically. Although an HR employee may not interview a potential candidate, that person probably

reviews résumés and forwards them to the appropriate department. If inclined, an HR em- ployee could easily discriminate against candidates based on background, experience, or even names and only pass along résumés they like or of people they know.

In addition to this, here are a couple more common dilemmas HR employees have to deal with:

• I found inappropriate comments and pictures on an employee’s social networking account. What should I do?

• I heard from another coworker that a supervisor is dating his supervisee. What should I do?

• My supervisor told me that he would give me a bonus if I didn’t report a payroll “mistake.” What should I do?

Marketing When a commercial pops up on your TV, you probably don’t think about how much planning and careful consideration went into making it. Yet marketing employees face plenty of tricky ethical issues when deciding how to advertise. Although most adults can see through faulty claims, often children cannot. Children might see a fun tiger talking to them and being friendly, but they don’t understand the cereal being advertised is full of sugar. Situations such as these can lead to murky ethical choices. Although children are consumers and have some say in what their parents purchase, is it responsible to promote directly to them?

Marketing isn’t all about advertising though. Here are a few more common ethical dilem- mas marketing employees face:

• How far should I go to uncover information about a competitor? Is posing as a customer and calling my competitor’s toll-free number unethical?

198 Leadership Vision

• One of my favorite customers asked for a special deal that I wouldn’t offer other cus- tomers. Should I do it to get the sale?

• Our brochure lists a product feature we thought would be included with the product, but is not. Should I correct the brochure, or hope no one notices?

Management As a manager, how far would you go to keep your employees productive and your business prof- itable? Consider this: if you were on the board of directors for a company and discovered that

another board member was leaking company secrets to the press, how far would you go to figure out who was leaking the information? Would you try to access e-mails the board members sent? Would you physically follow board members and their families? Go through their trash? This last question may seem funny, but this exact scenario happened at tech- nology giant Hewlett-Packard (HP).

In 2005, HP board members began seeing company secrets popping up in some of the country’s most prominent papers—secrets that included the future direction of

the organization and confidential discussions about purchasing other companies. HP was determined to find out the source of the leak—and they broke several laws trying to do

so. A few months later, the chairman of the HP board, Patricia Dunn, was indicted, along with private investigators, for spying. What had they done? Investigators had obtained Social

Security numbers for board members, employees, and reporters to access their personal phone records. This scheme, known as pretexting, involved investigators pretending to be someone else to get the telephone company to grant them access to private information. This allowed the investigators to create online accounts that contained phone logs for the

people under investigation.23 Aside from pretexting, investigators physically followed peo- ple, went through their trash, sent hidden software in e-mails to further facilitate spying, and discussed planting spies in the newsrooms that were reporting the leaked information.

Not only were these practices unethical, many of them were also illegal. HP’s leadership claimed they were able to identify the person who created the leak, but can this end result justify the methods used to get there?

Here are more ethical dilemmas management faces:

• What’s okay to charge on a business trip? I don’t feel like I get paid what I deserve. Is it okay to expense non-business-related items to make up for this shortfall?

• A friend of mine works for me. Is it inappropriate that I treat her differently from her coworkers, given that she is my friend?

• I’m managing projects for two competing companies right now. Is this unethical?

Information Technology (IT) Even though many IT workers may not work directly with clients and employees, they still have access to plenty of confidential information. Whenever a person is in a position to know a lot about someone or something, that person has a great responsibility not to misuse or abuse that power.24

If you’re an IT person, part of your job is to make sure people don’t access inappropriate sites, like illegal file-sharing sites. You can either block access to specific Web sites or monitor who’s looking at what. Or, you can do a little bit of both. But, how much is too much? When does monitoring morph into surveillance?

It’s the same with employee e-mail. Your company’s IT department may monitor its em- ployees’ e-mail usage to make sure they’re not goofing off. As an IT employee, is it ethical to read other people’s e-mails? If so, how many e-mails can be read or monitored before it’s considered inappropriate? The funny thing about ethics is that there is no all encom- passing “right” or “wrong” answer. Often, it’s up to the judgment of the person asking the question.

Chapter 8 | Act: Ethics and Corporate Social Responsibility 199

In addition to issues surrounding surveillance, IT people may also ask themselves:

• Does the fact that private information is accessible make it ethical to access it?

• Some employees save personal documents on their computers. Is it ethical to view these documents?

• What data belongs to an employer, and what data is private, on an employer-provided workstation?

• Do employees have a right to know the degree to which they are being monitored?

Global Ethics Issues With so many different countries and cultures around the world, sometimes things can get lost in translation. We covered some global ethical issues in Chapter 5, but we delve deeper into this topic here.

In the United States, you might give someone a thumbs-up sign to show happiness or ap- proval. But if you flashed a thumbs-up to someone in the Middle East, well, let’s just say it wouldn’t make anyone too happy. In some cultures, the thumbs-up is considered obscene.

In the same vein, business ethics can vary from culture to culture. With so many differ- ent beliefs and cultures working together throughout the world, there are bound to be

differences. Often, you hear about ethical problems involving multinational corpora- tions. A multinational corporation, as it sounds, is a corporation that has assets, including facilities, in at least one other country outside of its home location. The corporation gets involved with many different belief systems and cultures. Generally, hundreds or thousands of people across the world work together in these types of organizations. That is a lot of people who have very different beliefs about what is and isn’t ethical. Imagine you have a cleaning business. It’s much eas-

ier to clean one room than to clean all the houses on the block, right? Let’s also say that one of the homeowners isn’t as strict with what it means to be clean. This may

give you an opportunity to slack off. This means you could clean that house much faster and make the same amount of money. What an opportunity! This can mirror international

business operations. If one country isn’t as strict with regulations, this can lead to ethical problems.

Take for instance the Alang ship graveyard in Gujarat, India. This area used to be home to pristine, sandy beaches and clear water, but now it’s a giant scrap yard for ship breaking. After ships have worn down, many of them go to this beach to be ripped apart and recycled. Every year, approximately 300 ships go to Alang to be dismantled, amounting to three million tons of steel.25 There are no formal records at the shipyard, but estimates suggest as many as 30 to 40 thousand laborers work at the yard, and that 20 percent of families in the area depend on the shipyard for their livelihoods.26

To people in neighboring cities, Alang represents a modern-day boomtown. This keeps the supply of cheap labor steady. It isn’t until the workers get to the shipyard that they see how hard and dangerous the job is. There are no high-tech utilities or equipment, like electricity or machines; laborers use their hands, hammers, chisels, and blowtorches to break the ships apart. As the men work, fumes from burning steel and paint are everywhere. Not surprisingly, many men develop respiratory problems. Additionally, many of the ships contain asbestos and toxic chemicals that the men must work around. Doctors in the nearby Red Cross hospital also say that workers experi- ence high levels of malaria, cholera, and leprosy.27 The laborers often live in horrible conditions be- cause the owners of the shipyard do not provide homes, electricity, or running water. Aside from this long list of dangers, the actual job of ship breaking is dangerous; falling steel and burns often prove fatal. With all of these drawbacks, why do you think Alang is allowed to remain in business?

Some experts blame the West. Many of the contaminants and pollutants of these ships are banned by international law, but in some areas these laws are ignored in order to generate prof- its.28 There are many dirty jobs in the world that someone has to do. Business people know

200 Leadership Vision

Do It... 8.4: Identify What Went Wrong Read the following examples of ethical lapses and describe, in 25 words or less each, which step(s) of the ethical de-

cision-making process outlined on pages 193–194 was omitted, thus causing the situation to occur.

1. A consumer group presents evidence that a company inappropriately sold customer information they obtained from its Web site to other companies who wanted to target the same customers.

2. The HR department in an organization hires a lesser-qualified candidate be- cause he is in a personal relationship with a member of the hiring committee.

Now Debrief... • Ethical dilemmas or misconduct can take place any-

where in an organization, from entry level to CEO.

• Each department, area, or function has different hotspots where unethical and/or illegal acts are most likely to occur. For example, members of the accounting de- partment may face dilemmas regarding fraud; human resources, discrimination; marketing, manipulation; and management and IT, spying or invasion of privacy.

• Other conflicts can be created a world away. Multinational corporations have assets, includ- ing facilities, in at least one other country outside their home location. This brings together many different belief systems and cultural norms. Because of this, international organizations like the Caux Round Table have been created to promote morality and sustainability in the global workplace.

this, and they also know the cheaper the better. Many Western nations send their ships to Alang because they get the best deal, and because environmental and labor laws in their own countries would not allow the same practices. If a ship graveyard popped up in the United States, the cost would be significantly higher because of required safety standards. Areas like Alang, though, are lax in enforcing a code of standards regarding pay and safety. This can lead dishonest businessmen in multinational corporations to manipulate the system and take advan- tage of more favorable laws, taxes, and standards to increase their profit margins.

Situations like the one at Alang have caused many people to believe that international poli- cies need to be created and enforced. The Caux Round Table (CRT) is an international or- ganization focused on promoting morality and sustainability in the workplace.29 In order to guide businesses in the right direction, the CRT has developed a set of ethical principles that it be- lieves can translate to organizations all over the world. Incidents like the recent global financial crisis and Bernie Madoff’s Ponzi scheme highlight the need for concrete ethical practices and transparency in business. The seven basic principles of the CRT include:

1. Respect stakeholders beyond just shareholders;

2. Contribute to economic, social, and environmental development;

3. Respect the letter and spirit of the law;

4. Respect rules and conventions;

5. Support responsible globalization;

6. Respect the environment; and

7. Avoid illicit activities.30

Working together internationally is no easy task, but if companies can follow some basic ethi- cal principles, international business can flourish and still be ethical.

Concept A

Concept B

Concept C

Concept D

Chapter 8 | Act: Ethics and Corporate Social Responsibility 201

5. Corporate Social Responsibility and Sustainability: Working Together for People, the Planet, and Profit

When it comes to business ethics, the story isn’t over yet. Sure, ethics are important to busi- ness owners and employees. But what about everybody else? If businesses hope to be suc-

cessful, they need to look at the bigger picture and figure out how they can have a positive effect on the world around them.

In fact, as a result of sound ethical practices, there are now strict rules on child labor and safety measures. Anti-trust laws, which prohibit unfair practices and monopolies, also help level the business playing field and instill fairness in business. Additionally, unions and government agencies help establish good working conditions for employees. These positive results of business ethics are known today as corporate social responsi-

bility. Corporate social responsibility (CSR) involves an organization looking beyond its own self-interest to consider the interests of society. This means the organization is responsi- ble for its impact on shareholders, the community, and the environment. CSR is putting ethics into action. It’s when a company “walks the talk.”

Sustainability and the Triple Bottom Line One important part of CSR is sustainability. As we discussed in Chapter 3, sustainability is a company’s capacity to create profit for its shareholders today while making sure that its business interests are also in the best interests of the environment and other stakeholders. A company that uses resources irresponsibly and doesn’t have a solid plan for the future probably isn’t going to stick around very long. Thus, sustainable business organizations have an eye on both the present and the future.31 As men- tioned earlier, the traditional bottom line for business was profit. However, to re-

main sustainable, companies must focus on the triple bottom line of people, planet, and profit, combining economic success with responsible social and environmental activities. In fact, the

triple bottom line is slowly becoming the gold standard for measuring sustainable businesses.32

Focus on People So what is the point of corporate social responsibility and sustainability? In part it is to help people.

The triple bottom line approach to sustainability suggests that when busi- nesses benefit, the benefit echoes throughout society—people have jobs and there-

fore money to buy goods, establish a home, and ensure a higher standard of living. Just think back to the crash of the U.S. housing market in 2008. Unsustainable practices led to the near-collapse of both the real estate and financial industries, and many people lost their jobs and their homes as a result.

A focus on people also leads to corporate philanthropy—social programs and char- itable donations made by businesses that have a tangible impact on people’s lives. Take, for example, the Target Corporation. It gives 5 percent of its income to communities, equaling about $3 million a week. This money is spent on various charitable and edu- cational programs, as well as the “Target House,” a home for families of children being treated at St. Jude Children’s Research Hospital in Memphis, Tennessee.33

However, as we mentioned in Chapter 3, companies with a triple bottom line focus do not just consider external customers and stakeholders. They also focus on their internal cus- tomers, individuals who work for the organization. By taking good care of their employees (or team members, as they are called at Target), providing health insurance and many other bene- fits, sustainable organizations are working to ensure a happy, loyal workforce for the long term.

Focus on the Planet You have undoubtedly heard of things “going green.” In fact, environmentalism is consid- ered one of the most important movements since the end of World War II.34 The prospect of

CSR is putting ethics into action. It’s when a company

“walks the talk.”

The triple bottom line approach to sustainability

suggests that when businesses benefit, the benefit

echoes throughout society.

Sustainability

P e o pl e

P la n e t P r o f it

202 Leadership Vision

dwindling natural resources and climate change has caused a lot of businesses to develop more environmentally sustainable practices.

How do companies actually go about adopting more sustainable practices? Two very basic ways are eco-efficiency and eco-capitalism. The idea behind eco-efficiency was created in 1992 by the World Council for Sustainable Development. Eco-efficiency means “producing more with less.”35 The goal is to produce more goods or services using fewer resources. This means reduc- ing waste and improving efficiency. As many companies that have focused on eco-efficiency have found, doing more with less can lead to a competitive advantage due to an increase in resource productivity.36

Another emerging idea that promotes sustainability is eco-capitalism. Eco-capitalism is the idea that “natural capital” exists through natural goods such as renewable and nonrenewable resources, and that capital is valuable for human consumption. Strategies and products that promote eco-cap- italism are good for the environment, and some are also cheaper alternatives compared to tradi- tional products. For example, New Jersey’s TerraCycle Inc.’s first product was organic plant food made from worm waste. The company took worm waste, processed it, and turned it into a prod- uct that renews natural capital.37 The company now sells a variety of environmentally friendly prod- ucts of all kinds.

Focus on Profits Sustainability sounds great, but achieving it is no easy task. Think of it from your own perspec- tive. As an individual, you may have your own triple bottom line. You may want to be envi- ronmentally friendly and give back to the community—but how can you give back if you can barely afford to pay your own rent? Without money, stuff can’t happen. This is why making money, or profit, is one of the three bottom lines, and the other two can’t exist without it. In business terms, profit motive refers to a company’s desire to make more money than it spends. It is the motive to do something for profit. You can probably relate to that. If a neigh- bor asked you to rake the leaves in his front yard for nothing, you probably wouldn’t want to do it. How about if your neighbor offered you $20? You’d probably feel more motivated.

So does being ethically responsible pay off? The Wall Street Journal conducted a test to see how much people were willing to pay for one pound of coffee that came from a company per- ceived to be ethical, a neutral company (the control group), or a company perceived to be un- ethical. Take a minute to think about how you would respond in this situation. If you knew a company made something the “right” way, how much would you favor it? How much would you avoid the unethical company? Would you even buy the unethical company’s coffee?

The results were interesting. The mean price that people were willing to pay for one pound of the ethically produced coffee was $9.71. It was $8.31 for the control group, and $5.89 for the unethically produced coffee.38 People were willing to pay nearly four dollars more for the coffee from the ethical company than from the unethical one. This is just a hypothetical situa- tion, but it gives a strong indication that being ethical can lead to greater profits for a company. Indeed, as we’ve discussed, focusing on sustainable business practices, both from a social and environmental point of view, can provide companies with a competitive edge, leading to long-term profits and sustainable success.

Walking the Talk The TBL is the new gold-standard in ethical, sustainable business. but some companies choose to go well above and beyond the TBL. In 1992, Gary Erickson founded Clif Bar to produce or- ganic energy bars. Just eight years later, he was offered $100 million for his company.39 But Erickson loved what he did so much that he turned down the offer. Seem crazy? Not neces- sarily. Unlike the majority of businesses, Clif Bar has not gone a single year without a profit, and it has never had to borrow from venture capitalists. So what makes Clif Bar different from most companies? Instead of focusing on short-term profits, Erickson believes in focusing on five key sustainability initiatives: planet, community, people, brands, and business.

Focusing on sustainable business practices, both from

a social and environmental point of

view, can provide companies with a competitive edge,

leading to long-term profits and sustainable

success.

Chapter 8 | Act: Ethics and Corporate Social Responsibility 203

If you think it’s just a gimmick, think again: The company works to make its employees healthier and happier with flexible scheduling, paid sabbaticals, company-sponsored classes, and a state-of-the-art fitness center. It also provides a concierge service so employees can complete errands during the day, and it allows employees to bring their children and pets to work. The company also sponsors a volunteer program, encouraging employees to volunteer on their own time or through company-sponsored events. If all those perks aren’t enough to convince you that Clif Bar is onto something, consider the fact that the company uses environmentally friendly packaging, incorporates organic ingredients into its products, and even uses energy from a wind farm in South Dakota. Skeptics might argue that Clif Bar doesn’t need to go to such great lengths to do nice things for their employees and the community. Technically, they’re right. (Does bringing your dog to work really help you create a better energy bar?) However, while Clif Bar’s benefits might be a bit unorthodox, they help make the company sustainable and at- tractive to employees, investors, and consumers alike.

For-Profit and Non-Profit Partnerships A potential new trend in CSR is partnerships between non-profit and for-profit companies, which can be mutually beneficial. In 2005, the CEO of Groupe Danone, Franck Riboud, met with Muhammad Yunus, founder of Grameen Bank, a bank dedicated to helping poor people around the world get loans. The two created Grameen Danone Foods, which is helping to feed fortified yogurt to hungry children in Bangladesh. Grameen Danone earns back the total cost of operations and gives 1 percent of the profit to investors. The remaining profit is funneled back into the company. Aside from feeding hungry children, the company also provides jobs for the people of Bangladesh by creating Grameen Danone factories across the country.40

The exciting part of this project is that the partnership between profit and non-profit is something that other local and international companies may follow to help a worthy cause. In the future, this could help change the corporate structure as we know it into a more socially responsible and mutually beneficial system.41

Do It... 8.5: Capture Sustainable Business Practices Together with a partner, go out

for a walk in your neighborhood’s business district with a digital camera or your cell phone camera. Take pictures of at least three readily observable business practices and classify them as either not sustainable or sustainable. Write a 25-word or fewer description below each photo to justify your classification. Be prepared to submit your photos and comments as one file to your instructor, if requested.

Now Debrief... • Corporate social responsibility involves an organiza-

tion looking beyond its own self-interest to consider the interests of society. This means the organization is re- sponsible for its impact on shareholders, the com- munity, and the environment.

• One important part of CSR is sustainability. To remain sustainable, companies must focus on the triple bottom line of people, planet, and profit, com- bining economic success with responsible social and environmental activities.

• Two ways to promote sustainability are eco-efficiency and eco-capitalism. Eco-efficiency in- volves producing more products using fewer resources; and eco-capitalism is the idea that natural capital exists in nature and that this capital is valuable for human consumption.

• Ethically focusing on profits is an important part of remaining sustainable. In business terms, profit motive refers to a company’s desire to make more money than it spends.

• To help encourage CSR, some for-profit and non-profit companies are working together and creating partnerships that may one day impact the corporate structure we know today.

Concept A

Concept B

Concept C

Concept D

204 Leadership Vision

1. Appreciate the complexity of the ethical dilemmas you may face in the business world and the need to take a 360° view. (pp. 184–185)

• Ethics is the study of human conduct and moral principles.

• Business ethics is the study of moral principles and conduct within a business environment.

• When having an ethical dilemma, it’s helpful to consider the situation from different points of view.

• Sometimes, companies need to do the right thing, even if it isn’t the most profitable. However, in the long term, a strong code of ethics can go a long way toward generating profit.

Summary: The business world is full of difficult situations that can call ethics into question. It’s important for a business to consider the outcomes of its actions and the impact these actions will have on the greater world.

2. Characterize what an ethical organization looks like and the tools that leaders use to create one. (pp. 186–190)

• To help you figure out if an organ- ization is ethical, it’s helpful to look in the organization’s ethi- cal toolbox. Tools include:

• Tool 1: Leaders in an organization set an ethical example.

• Tool 2: Ethical organizations focus on the triple bottom line of people, planet, and profit.

• Tool 3: A code of ethics sets standards regarding ethical practices.

• Tool 4: A code of conduct conveys to employees how the organization wants them to act in the workplace.

• Tool 5: Ethics training programs help teach employees the way the organization wants them to react in an ethical dilemma.

• Tool 6: An ethics management program helps establish ethical values, codes, and policies.

• Tool 7: Ethics committees oversee ethics programs.

Summary: Creating an ethical organization is a difficult process. By implementing these tools, an organization can go a long way toward promoting ethical behavior.

Chapter 8 Visual Summary

Leadership Vision | Chapter 6: Lead Chapter 7: Own Chapter 8: Act

3. Develop an ethical decision- making approach for your career. (pp. 190–195)

• Informal ways to tell if you are about to do something unethical are the but- terflies-in-the-stom- ach, what would a mentor do, and front- page-of-the-newspaper tests.

• Formal approaches to de- cision making include utilit- arianism, cost-benefit analysis, the moral rights principle, the universalist principle, the virtue principle, and the distributive justice principle.

• Another way to figure out a dilemma is to follow a step-by-step approach: 1. Get all the facts; 2. Consider who your decision will affect; 3. Research similar instances; 4. Use the formal de- cision-making approaches to come up with poten- tial solutions; 5. Choose the best decision and look at it again from different perspectives; 6. Take an- other look at your decision; and if the decision still seems good, implement it.

• People who allege misconduct and speak out against something going on in an organization are sometimes referred to as whistleblowers.

Summary: Learning to prevent unethical deci- sions before they are made is a valuable skill for your career.

Tool 7: Ethics Committee

Code o f ETHI

CS

* To u se only

organi c ingre

dients

in our produc

ts.

* To m ake em

ployee and cus

tomer

safety a prio

rity in all of

our

plannin g and o

peratio ns.

* To o perate

our f acilitie

s in a

manner that c

auses the lea

st har m

to the enviro

nment .

continu ed on n

ext pag e

Ethics Committee

Ethic al To

olbox

We take full responsibility no matter the cost

Our Credo

99

Press Conference

Tool 4: A Code of Conduct

Tool 3: A Code of Ethics

Tool 1: Leaders Setting an Ethical Example

Code of CONDUCT * Swearing, drinking, fighting,

and all other unprofessional activities are prohibited.* Sexual harassment or

harassment of any kind is prohibited.

* Using company property for

personal matters is prohibited.* Employees cannot accept client gifts or favors from

clients for any reason. continued on next page

Tool 6: Ethics Management Program

Discussion: What helps us build a strong, united

workplace?

Tool 5: Ethics Training

Ethics GYM

Tool 2: A Focus on More than Just Profits

Sustainability

P la n e t

P e o p le P

r o f it

company’s ethics management program

Ethical dilemmas and the 360˚ view

John does my monthly reports and he is always finished on time

and does a great job

J o hn

br in gs

w o r k ho

m e an

d w o r k s o

n m

o r e p

r o je

c t s t

han

an y o

t he

r e

m p lo ye

e

Expense Report

John lied on his expense report!

J o hn

a n d

I p

la y

go lf

e ve

r y

m o n t h

t o ge

t he

r

Making an Et

hical De cision

1. Get all the

facts.

2. Con sider w

ho you r decis

ion will affec

t.

3. Con tinue t

o gathe r mor

e infor mation

.

4. Use decisi

on-ma king ap

proach es to

come u p with

potent ial solu

tions.

5. Cho ose th

e best approa

ch and look at

it

again f rom di

fferen t pers

pective s.

6. Tak e anot

her loo k at yo

ur dec ision

and im plemen

t it.

4. Identify the specific ethical dilemmas facing different areas of an organization. (pp. 196–200)

• Specific departments within an organization can face ethical dilemmas that other departments may not have to deal with.

• The accounting department needs to be aware of the potential for fraud and theft. Because of past scandals, agencies like the SEC, legislation like the Sarbanes-Oxley Act, and guidelines such as GAAP work to keep accountants honest.

• HR employees take part in hiring, firing, salary decisions, and discipline, which opens the door for many potential ethical dilemmas.

• The marketing department must be aware of manipulative or inaccurate messages.

• Management needs to keep a business productive and profitable, but must be mindful to do it in an ethical way.

• IT employees must be careful not to abuse the power they have through monitoring and surveillance.

• Globalization further complicates ethical issues because people with different beliefs and cultures work together.

Summary: Each department in a business is subject to ethical dilemmas in forms specific to that depart- ment’s line of work. Conducting international business can create ethical problems, as some cultures may disagree about what is and is not acceptable business behavior.

Chapter 8 | Act: Ethics and Corporate Social Responsibility 205

Evaluating an employee based on a personal relationship and

not their performance.

Reporting a sale as income before it really occurs.

Pirating company software for personal use.

Putting persona

l purcha ses

on your expens

e repor t.

5. Justify how ethics are the foundation for a sustainable organization and how companies engage in acts of corporate social responsibility. (pp. 201–203)

• Corporate social responsibility involves an organiza- tion looking beyond its own self-interest to consider the interests of society.

• To remain sustainable, companies must focus on the triple bottom line of people, planet, and profit.

• The triple bottom line approach suggests that when businesses benefit, these benefits dis- perse throughout society. This is simply because when business is good, businesses have more money to spend on helping people.

Summary: It is beneficial to businesses to support a triple bottom line of profit, people, and the environment. This also benefits the world at large.

Sustainability

P e o pl e

P la n e t P r o f it

Key Words

206 Leadership Vision

1. Appreciate the complexity of the ethical dilemmas you may face in the business world and the need to take a 360° view. (pp. 184–185) Ethics (p. 184)

Business ethics (p. 184)

2. Characterize what an ethical organization looks like and the tools that leaders use to create one. (pp. 186–190) Code of ethics (p. 187)

Code of conduct (p. 188)

Ethics training program (p. 189)

Ethics management program (p. 189)

3. Develop an ethical decision-making approach for your career. (pp. 190–195) Utilitarianism (p. 191)

Cost-benefit analysis (p. 191)

Moral rights principle (p. 192)

Universalist principle (p. 192)

Virtue principle (p. 192)

Distributive justice principle (p. 192)

Whistleblowers (p. 195)

4. Identify the specific ethical dilemmas facing different areas of an organization. (pp. 196–200) Sarbanes-Oxley Act (p. 196)

5. Justify how ethics are the foundation for a sustainable organization and how companies engage in acts of corporate social responsibility. (pp. 201–203) Corporate social responsibility (CSR) (p. 201)

Profit motive (p. 202)

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Get the most out of what you just read by practicing your skills and actually DOING something with the material! The best place to do this is at www.mybizlab.com. Here’s just some of what is available to you there:

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Chapter 8 | Act: Ethics and Corporate Social Responsibility 207

Prove It Prove It...

Now, let’s put on one of the BizHats. With the Manager BizHat squarely on your head, look at the following exercise:

You just started working for an insurance company as a manager in the HR depart- ment. In order to help gauge the culture in the office, your boss introduced you to

everyone as a salesperson, not an HR rep. After you questioned your boss about these tactics, she still wanted to be secretive, so you went along with the plan. Because people don’t suspect you are monitoring their behavior, they go about their jobs as they usually would.

Soon after you start, you begin small talk with the employees to get more information about what their work life is like. You start to realize that many employees are acting unethically.

They are taking home supplies, using their computers for personal use, fudging expense reports, and providing overall poor customer service. However, although you feel their behavior is un- acceptable, they do have some legitimate complaints. What are five things you would do to im- prove the ethical behavior at the company?

Manager

Mana ger

ID

Flip It... After you’ve decided how to improve the ethical behavior of the company as the Manager above, flip over to the Employee BizHat.

You are now an employee at the insurance company described above. Your manager held a meeting to introduce a new sales- person to the company. The salesperson was nice enough. She made small talk by the watercooler and seemed interested in getting to know everyone. However, a few weeks later, your manager holds another meeting to let you know the salesper- son isn’t who they said she was. She is really a new manager in the HR department who the company hired to look into employee behavior and satisfaction. Your manager is really upset at the report he re- ceived, so now everyone is in trouble. How would you feel if the company revamped its conduct and ethics policies using these tactics? What if some of the changes implemented benefited employees like you?

Worker Bee

ID

Employ ee

Manager

ID

Now Debrief It... Compare the perspectives of the two BizHats described above. How did taking up the perspective of the Employee change your view of the situation you first con- sidered from the Manager’s perspective? Is there a right or wrong answer in this situation?

Concept A

Concept B

Concept C

Concept D