Part 1
Business in a
Changing
World
© 2015 McGraw-Hill Education.
2-2
CHAPTER 1
The Dynamics of Business and Economics
CHAPTER 2
Business Ethics and Social Responsibility
CHAPTER 2
APPENDIX
The Legal and Regulatory Environment
CHAPTER 3
Business in a Borderless World
2-3
Learning Objectives
LO 2-1
Define business ethics and social responsibility and
examine their importance.
LO 2-2
Detect some of the ethical issues that may arise in
business.
LO 2-3
Specify how businesses can promote ethical behavior.
LO 2-4
Explain the four dimensions of social responsibility.
LO 2-5
Debate an organization’s social responsibilities to
owners, employees, consumers, the environment and
the community.
2-4
Business Ethics
Business Ethics
• Principles and standards that determine
acceptable conduct in business
Acceptable behavior is determined by:
 The organization
 The individual’s personal principles
 Customers and interest groups
 Competitors
 Government regulators
2-5
Business Ethics
American Trust in Different Institutions
 In business, trust is
the glue that holds
the customer
relationship
together
 The recent global
financial crisis took
a toll on consumer
trust of financial
services companies
2-6
Social Responsibility
Social Responsibility
• A business’s obligation to maximize its positive impact
and minimize its negative impact on society
Ethics refers to
individual’s or work
group’s decisions
Social responsibility
and ethics are not
the same
Social responsibility
is the impact of the
entire organization’s
activities on society
2-7
Laws and Regulations
SarbanesOxley Act
Dodd-Frank
Act
• Criminalized securities fraud and stiffened
penalties for corporate fraud
• Enacted after the accounting scandals in
the early 2000’s
• Passed to reform the financial industry
and offer consumers protection against
complex and/or deceptive financial
products
• Enacted after the most recent recession
2-8
The Role of Ethics in Business
Growing concerns about legal and ethical issues in business
strengthen the public’s perceptions that ethical standards and
the level of trust in business need to be raised
Recent Legal and Ethical Issues
•
•
•
•
•
Subprime loans and foreclosures
Accounting fraud
Cybercrimes
Deceptive advertising
Unfair competitive practices
Learning to
recognize and
resolve ethical
issues is a key
step in
evaluating ethical
decisions
2-9
Recognizing Ethical Issues
Ethical Issue
• An identifiable problem, situation, or opportunity that
requires a person to choose from among several
actions that may be evaluated as right or wrong,
ethical or unethical
 Many issues seem straightforward but in
reality are very complex
 One of the principal causes of unethical
behavior is overly aggressive financial or
business objectives
2-10
Recognizing Ethical Issues
► Retired NFL player Tiki
Barber was one of 2,000
players who sued the NFL
for knowledge about head
injuries
► The ethical issue here is
whether the NFL hid
information that linked head
injuries to subsequent
damages such as memory
loss, permanent head
trauma and dementia
2-11
Percentage of U.S. Workforce Observing
Specific Forms of Misconduct, 2009–2011
2-12
Actions Associated with Bullies
2-13
Recognizing Ethical Issues
Misuse of Company
Time
Misuse of Company
Resources
• Estimated to cost
hundreds of
billions a year in
lost productivity
• Company policies
help prevent
company resource
abuse
Conflict of Interest
• Exists when a
person must
choose whether to
advance their own
interests or those
of others
• Bribery is a form of
conflict of interest
Bribery
• Payments, gifts or special favors intended to influence
the outcome of a decision
2-14
Fairness and Honesty
Companies Must
Give full
Use fair
disclosure
competition of potential
harm by a
practices
product
Be truthful
in
advertising
Keep
company
secrets
Meet
obligations
Avoid
undue
pressure
forcing
others to
act
unethically
2-15
Fairness and Honesty
Employees Must
Abide by
the laws
Cause no
harm
through
dishonesty
Use
company
resources
fairly and
honestly
Be aware Recognize
of company
ethical
policies
behavior
2-16
Fairness and Honesty
 Many people felt Toyota was not
honest with consumers about its
vehicles’ accelerator problem – a
problem leading to a massive
recall and a public-relations
nightmare
 A later investigation by the
National Highway Traffic Safety
Administration blamed most of
the crashes on driver error
2-17

Greenwashing
There are two levels of greenwashing:
 When a company claims they are green because they have
a few green practices such as recycling but not water or
energy conservation

Hotel chains: Encouraging visitors on an extended stay to not
have their towels or bedclothes washed every day in order to
help the hotel save water, while at the same time serving
breakfast with Styrofoam cups and plastic utensils
 When a company puts a façade on their products/services
that looks and claims to be green, when in fact there is
nothing green about it

Beauty products: A lot of beauty products have misleading
words in their names such as “natural”, “herbal”, “pure”, etc.,
when they actually contain chemicals and harsh components
that are not derived from nature
SOURCE: Candice Marie. “Misleading Marketing: Beware the Greenwash!”. www.eluxemagazine.com. February 12, 2013.
http://eluxemagazine.com/magazine/green-or-greenwashed-how-to-tell-the-difference-2/. (accessed September 24, 2013).
2-18
Making Decisions about Ethical Issues
o
It can be difficult to recognize specific ethical issues and
people often need years of experience to accurately
recognize and react to ethical situations
2-19
Improving Ethical Behavior in Business
Three factors that influence business ethics
Many employees
use different
ethical standards
at work than they
do at home
The activities and
examples set by
managers and
co-workers are
critical in gaining
consistent ethical
compliance
If a company fails
to provide good
examples and
direction,
confusion and
conflict will
develop
Leading to
unethical choices
in business
2-20
Improving Ethical Behavior in Business
Employees must have established ethics policies if
employees are to determine what conduct is acceptable
Code of Ethics
• Formalized rules and standards that describe what a
company expects of its employees
Whistleblowing
• The act of an employee exposing an employer’s
wrongdoing to outsiders, such as the media or
government regulatory agencies
2-21
Improving Ethical Behavior in Business
» The current trend is to move away from legally
based ethical programs to cultural or integrity-based
programs that make ethics a core organizational
value
» Effective business ethics programs are good for
business performance
» Firms that develop higher levels of trust function
more efficiently and effectively and avoid damaged
company reputations and product images
2-22
The Nature of Social Responsibility
2-23
The Nature of Social Responsibility
Corporate Citizenship
• The extent to which businesses meet the legal,
ethical, economic, and voluntary responsibilities
placed on them by their stakeholders
 Involves action and measurement of
how deeply the firm embraces the
corporate citizenship philosophy
 Then follows through by implementing
citizenship initiatives
2-24
The Nature of Social Responsibility
2-25
Social Responsibility
Social responsibility is a voluntary action taken on by companies to
varying degrees and it characterized by actions showing concern
for all stakeholders such as employees, consumers, the
environment and the community
 Supply chains and all the people that compose it are also

considered stakeholders
The Rana Plaza factory in Bangladesh, which collapsed in 2012,
is part of the supply chain for many global companies

In September of 2013, 29 companies associated with the factory
were invited to a meeting in Geneva to discuss contributing to a fund
for the victims of the disaster that caused over 1,000 deaths and
twice as many injuries

Only nine of the companies attended the meeting and only one
made a contribution to the fund--this lack of action on the part of the
companies indicates a lack of concern to all of their stakeholders
SOURCE: Jian Ghomeshi and Q staff. “Clothing Corporations Need to Step Up for Bangladesh Factory Collapse Victims”.
www.theguardian.com. September 18, 2013. http://www.theguardian.com/commentisfree/2013/sep/18/bangladesh-factory-victims-corporations.
(accessed September 24, 2013).
2-26
Social Responsibility Issues
The company’s
responsibilities
to owners and
stockholders
Maintaining
proper
accounting
procedures
Providing
investors with
all relevant
information
Protecting
owner’s rights
and
investments
2-27
Social Responsibility Issues
Company’s
responsibilities
to employees
Provide a safe
workplace and
pay them
adequately
Provide equal
opportunities for
all employees
Keep them
informed of what
is happening in
the company
Listen to their
grievances and
treat them fairly
2-28
Social Responsibility Issues
Company’s
responsibility
to consumers
Provide them
with satisfying,
safe products
Respect their
rights as
consumers
2-29
Social Responsibility Issues
John F. Kennedy’s 1962 Consumer Bill of Rights
* The right to safety
* The right to be informed
* The right to choose
* The right to be heard
2-30
Social Responsibility Issues
Consumerism
• The activities individuals, groups and organizations
undertake to protect their rights as consumer
 Write letters
 Lobby government agencies
 Make public service announcements
 Boycott irresponsible companies
2-31
Social Responsibility Issues
Sustainability
• Conducting activities in a way that allows for
the long-term well-being of the natural
environment, including all biological entities
• Involves the assessment and improvement of
business strategies, economic sectors, work
practices, technologies and lifestyles so they
maintain the health of the natural environment
2-32
Social Responsibility Issues
Home Depot has adopted eight core values as the
foundation for its ethical culture, including a strong
emphasis on sustainability
1.
2.
3.
4.
5.
6.
7.
8.
The Home Depot’s Values
Taking care of our people
Giving back to our
communities
Doing the right thing
Excellent customer service
Creating shareholder value
Building strong relationships
Entrepreneurial spirit
Respect for all people
2-33
Social Responsibility Issues
Sustainability
issues
Alternative
energy
Pollution
Water –
society is
demanding
clean water
Air – acid rain
and global
warming
Land –
garbage, strip
mining and
poor forest
conservation
Reducing
carbon
emissions forces
alternative
energy sources
2-34
Social Responsibility Issues
Company’s Responses to Sustainability Issues
Making
processes
more ecofriendly is
called “green”
business
Recycling
aluminum,
paper and
glass
Larger
Greenwashing
companies
Using green
is creating a
may have a
positive green
power
Vice President
association for
sources when
of
non-green
available
Environmental
products
Affairs
2-35
Social Responsibility Issues
Company’s
responsibility to the
general welfare of
their communities
Donations to local
and national
charities
Volunteer support
of local causes
2-36
Social Responsibility Issues
 Volunteers at Habitat for
Humanity construct a
house on Detroit’s east
side
 Many companies
encourage their
employees to volunteer for
charitable organizations
such as Habitat for
Humanity
2-37
Social Responsibility Issues
Unemployment, while an economic issue,
carries ethical implications
Some companies refuse to hire unemployed
workers due to lack of experience rather than
hiring and then training them
Factory closures are seen as unethical
because it contributes to unemployment
Protesters say unemployment leads to the
growing gap between rich and poor
2-38
Discussion
?
?
Do you think that
business should regulate
its own activities or that
the federal government
should establish and
enforce ethical standards?
Discuss the arguments
for and against social
responsibility by business?