The Effects of
Business Ethics
Andy Gustafson
Creighton University
Point #1: Business Is Global
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Effects of Mortgage Securities failure in US:
1. IMF calculates worldwide losses in Trillions
2. Multi-Billion in Rescue Packages in US
3. 572 Billion in Rescue assurances in Ireland
4. France 280 Billion Euro Bank Bailout
5. 90 Billion British rescue package
6. Spain ‘’Bank Assurances” 72 Billion
More Effects of US Problems
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7. German DAX index -38%
8. Brazillian BM&F Bovespa -40%
9. Shanghai SE Composite -60%
10. Russian RTS -67%
11. US S&P -33%
11. Iceland is perhaps going to go bankrupt
12. Sovereign Wealth Funds have pulled out
Billions from US
Current Financial Crisis is Due to
Ethical Lapses at Every level
• 1. People borrowing for houses beyond their means
• 2. Banks and Mortgage Brokers not taking responsibility
for shaky loans
• 3. Financial Firms wrapping shaky loans into debt
securities, a novel financial tool.
• 4. Creative Accounting Irregularities
• 5. Investment/Financial firms focused on short-term
• 6. Analysts under-representing risks
• 7. Wall Street & Stock Consumers acted recklessly
• 8. Lack of regulation and oversight
• 9. Conflicts of interests throughout system
Root Symptoms
• Imprudence (unwise risk taking)
• Taking responsibility without
understanding risks
• Short term view
• Unrealistic optimism
• Greed
• Passing consequences to the unknowing
Our Financial Crisis is In part due
to ethical Lapses
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Failure to lead
Failure to take responsibility
Failure to watch out for interests of others
Self centered exuberance
What is Ethics?
• Minimal: What we shouldn’t do
• Don’t steal, don’t kill, don’t lie
• Better: What we should do (justice)
• Be fair, Be honest, Fulfill duties, work hard
• Best: What we could do to make things
excellent for all of us…
• Improve Current Methods
• Aim High & Create a Beautiful World as we make $
Business: Its purpose/goal
The purpose of business is to make me
money, and increase stockholder value
(Milton Friedman)
Business as a Means to Transform
Culture and Society
• How can we use our power, position, and
money to leverage real change in the
world around us through business
decisions which will change the face of our
cities and communities
where we are?
Business Ethics???
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Business needs ethics to thrive:
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Trust is foundational to contracts
Customer Satisfaction/loyalty
Happy Employees = productive employees
Transparency is essential to development
Unethical practices ultimately undermine
business
6. Globalization requires some common values
7. Many Customers want ethical businesses
8. Ethics is important for branding/marketing
Question:
• Does Ethical perception play a
significant role in consumer
behaviors?
--In other words—
• Do Customers really buy products
according to the ethics of companies??
Answer: Yes.
1. Boycotts by ethical shoppers cost big
brands at least £2.6bn a year
2. 2002 ethical consumption in the UK
was worth £19.86bn in 2002
(Co-operative Bank EP Index, 2003)
Consumers Care about Ethics
Co-operative Bank
Ethical Consumerism Report
• In 2002 every household in the UK spent
an average £366 ($730) in line with their
ethical values
• In 2006 they spent £664 ($1330)
(+ 81 per cent)
The “Ethics Factor”
• In developed competitive markets,
many companies distinguish
themselves by positioning their brand
as ‘ethical’ or ‘socially concerned’
Ethics Rankings
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The 100 Best Corporate Citizens list ranks
firms based on eight categories:
Shareholders
community
governance
diversity
employees
environment
human rights
product
Business Ethics 100 Best Corporate
Citizens 2007
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1. Green Mountain Coffee
2. Advanced Micro Devices
3. NIKE
4. Motorola
5. Intel Corporation
6. IBM Inc.
7. Agilent Technologies
8. Timberland
9. Starbucks
10. General Mills
11. Salesforce.com, Inc.
12. Applied Materials
13. Texas Instruments
14. Herman Miller
15. Rockwell Collins
16. Interface,
17. Steelcase
18. Dell Inc.
19. Cisco
20. Lam Research
21. Johnson & Johnson
22. Adobe Systems Inc.
23. Kimberly-Clark Corp
24. Gaiam, Inc.
Business Ethics 100 Best
Corporate Citizens 2007
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25Gap, Inc. (The)
26Chaparral Steel
27Pitney Bowes, Inc.
28Freddie Mac
29Google, Inc.
303M Company
31Heartland Financial USA
32Chicago Mercantile Ex
33Southwest Airlines Co.
34Eastman Kodak
35Cummins, Inc.
36American Express
37Northwest Natural Gas
38Wainwright Bank & Trust
39United Parcel Service
40Microsoft
41Chittenden, Inc
42PepsiCo, Inc.
43Energy Conversion Devices
44McGraw-Hill
45Ecolab
46Wells Fargo
47Autodesk
48Xilinx,
49Xerox Corporation
50TradeStation Group
51Kellogg Company
Most Ethically Perceived Brands
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United Kingdom
United States
Germany
1. Co-op
1. Coca Cola
1. Adidas
2. Body Shop
2. Kraft
2. Nike
3. Marks Spencer
3. Procter Gamble
2. Puma
4. Traidcraft
4 Johnson & Johnson 4. BMW
5. Cafédirect
4. Kellogg’s
5. Demeter
6. Ecover
4. Nike
5. gepa
7. Green Black
4. Sony
7. VW
7. Tesco
8. Ford
8. Sony
9. Oxfam
8. Toyota
8. Trigema
10. Sainsbury’s
10. LEVI
10. Bio Produkte
11. Innocent
10. Starbucks
10. Body Shop
12. Waitrose 12. Ben Jerry’s
10. Hipp
13. Clipper Tea
12. Dell
10. Mercedes
14. Asda..
14. Campbell’s
10. Wrangler
BIG Brands want Ethical Brands
• Cadbury Schweppes bought Green & Black's,
a niche but fast growing UK-based organic and
fair trade chocolate firm.
• Nestlé launched Fairtrade certified Partners'
Blend coffee
• Kraft Foods introduced their Kenco
Sustainable Development coffee brand
Unethical Behavior Costs
Companies:
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Corporate Scandals—United States
- Enron
- Tyco
- Adelphia
- Xerox
- Rite-Aid
- Martha Stewart & Madoff
- ImClone
- K-Mart
- Boeing
- WorldCom
Corporate Scandals-- Europe
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- Mannesmann
- ELF
- Royal Dutch Shell
- VW
- ABB
- France Telecom
- ABN-Ambro
- Heidelberg Cement
- Ahold
- Bank of Italy
- Siemens
- Daimler-Chrysler
- Parmalat
Recent “Subprime” Scandals
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AIG
Goldman Sachs
Bear Stearns
Pricewaterhouse Coopers
Countrywide
These Scandals cost $
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Settlements
- AIG ($1.6B)
- Time Warner-AOL ($510M)
- KPMG ($465M)
- Adelphia ($715M)
- Tyco ($750M)
- HCA ($1.7B)
- Prudential ($600M)
- Tenet ($325M)
Marsh McLennan ($850M)
Cardinal Health ($600M)
Results of Recent Scandals
a. Investors have become more demanding
about transparency
b. Consumers have become more
demanding about corporate behaviors
(accounting, environment, production
methods, etc)
c. In U.S., government has become
involved to ease investors’ concerns–
more regulation for business!!
Environmentally “green”
• “Today, social norms regarding the
environment are changing and consumers
are increasingly holding brands
accountable for what they do … As a
result, more and more companies are
making investment decisions that
incorporate brand impact and brand risk
into their equations.” (David Wigder)
What Can Be Done?
• There are a number of ways to improve
the ethical image of your brand.
• Superficial changes are not enough, and
authentic ethical commitment of a brand is
displayed in real action on the part of
companies in order to have real effect.
Some Examples
Example: CocaCola
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Coke is proactively
redesigning its bottle to
reduce material use and
pledging to recycle 100% of
bottles sold in the US.
• Results:
1. Reduce Material Costs 10%
2. Improve Public
Relations/Image with Public
Ethical Production
• Nike was criticized for sweatshop labor
issues in East Asia, and many consumers
boycotted Nike.
Nike’s Response
• Nike responded to these criticisms,
changed some of their production
arrangements, and returned to the list of
the “100 most ethical companies” list
Financial Honesty and
Transparency
• Bad Example:
Financial Honesty and
Transparency
• Wells Fargo Bank is known for its
disclosure of financial data.
Treatment of Workers
• Costco is well known for its great
treatment of employees
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48% Insured
2 yr wait for ins.
66% paid by walmart
50% Turnover
$7.50-11.45/hr
82% Insured
6 month wait
92% paid by costco
92% Turnover
$10.50-17/hr
Strong Moral Leadership
• “CEO leads troubled Tyco into
turnaround”
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Ed Breen, CEO
• “Cleaned House”:
• Fired Management
• Fired Board
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What Causes Unethical Behavior?
1. Irrational exuberance + uninhibited self-interest
2. Arrogance
3. Fraud
4. Conflicts-of-interest
5. Preferential treatment
6. Accounting arbitrage
7. Failure of independent auditors
8. Failure of analysts
9. Failure of rating agencies
10. Failure of regulators
11. Failure of board oversight
12. Culture of greed
Corporate Culture and Performance
Starbucks
Nordstroms
FedEx
Southwest Airlines
Costco
Kiewit
Google