Chapter 04
Demanding
Ethical and
Socially
Responsible
Behavior
McGraw-Hill/Irwin
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Four
LEARNING GOALS
1.
Explain why obeying the law is only the first step in behaving ethically.
2.
Ask the three questions you need to answer when faced with a potentially
unethical action.
3.
Describe management’s role in setting ethical standards.
4.
Distinguish between compliance-based and integrity-based ethics codes, and list
the six steps in setting up a corporate ethics code.
5.
Define corporate social responsibility and compare corporations’ responsibilities
to various stakeholders.
6.
Analyze the role of U.S. businesses in influencing ethical behavior and social
responsibility in global markets.
4-2
Ethics is More
Than Legality
LIFE AFTER SCANDAL
LG1
• Scandals have shaken the real estate, mortgage
and banking industries.
• How do we restore trust in the free market
system?
-
Punish those who have broken the law.
-
Make accounting records more transparent.
-
Consider what is ethical, not just what is legal.
4-3
COST of CORRUPTION
(Legal Briefcase)
• Madoff Investment Securities: Bernie Madoff is
serving 150 years behind bars after running his
exclusive wealth management firm as a gigantic Ponzi
scheme.
• Enron: Jeffery Skilling is serving a 24 year sentence
for accounting fraud while Richard Causey, who pled
guilty, will be released in October 2011. Former CEO,
Kenneth Lay, died before sentencing.
• WorldCom: Former CEO, Bernie Ebbers, was
convicted of fraud, conspiracy and false filings and
sentenced to 25 years.
4-4
WHAT is a PONZI SCHEME?
• A fraud by paying returns to
existing investors from funds
contributed by new investors.
• New investors are promised
opportunities claimed to
generate high returns with
little or no risk.
• Fraudsters focus on attracting
new money to make promised
payments.
Source: Securities and Exchange Commission, www.sec.gov, accessed June 2011.
4-5
Ethical Standards
are Fundamental
WHAT are ETHICS?
LG1
• Ethics -- The standards of moral behavior.
Behaviors that are accepted by society as right
versus wrong.
• Basic Morals – Right and Wrong
4-6
Ethics Begins
with Each of Us
ETHICS and YOU
LG2
• Plagiarizing from Internet
materials is the most
common form of
cheating in schools
today.
• Studies found a strong
relationship between
academic dishonesty
and dishonesty at work.
4-7
FACEBOOK or FAKEBOOK?
(Making Ethical Decisions)
• Facebook scams are becoming more prevalent.
• Some scammers pose as military servicemen and
establish relationships with women, then request
money for phone calls or trips home.
• Surveys can generate money for scammers, but
then some also teach others how to scam other
users.
• Do you think it’s ethical to create a fake account?
Why? Why not?
4-8
Ethics Begins
with Each of Us
FACING ETHICAL DILEMMAS
LG2
• Ask yourself these
questions:
- Is it legal?
- Is it balanced?
- How will it make
me feel about
myself?
4-9
Managing
Businesses
Ethically and
Responsibly
ETHICS START at the TOP
LG3
• Organizational ethics begin at
the top.
• Managers can help instill
corporate values in
employees.
• Trust between workers and
managers must be based on
fairness, honesty, openness
and moral integrity.
4-10
Managing
Businesses
Ethically and
Responsibly
LG3
FACTORS INFLUENCING
MANAGERIAL ETHICS
Individual
• Values
• Work
Background
Organizational Environmental
• Top Level
Management
Philosophy
• Family Status
• Firm’s Reward
System
• Personality
• Job Dimensions
• Competition
• Economic
Conditions
• Social/Cultural
Institutions
4-11
Setting
Corporate
Ethical
Standards
ETHICS CODES
LG4
• An increasing number of companies have
adopted written codes of ethics.
• Compliance-Based Ethics Code -- Emphasize
preventing unlawful behavior by increasing control
and by penalizing wrongdoers.
• Integrity-Based Ethics Code -- Define the
organization’s guiding values, create an environment
that supports ethically sound behavior and stress a
shared accountability.
4-12
Setting
Corporate
Ethical
Standards
LG4
HOW to IMPROVE AMERICA’S
BUSINESS ETHICS
1. Top management must adopt and unconditionally
support an explicit corporate code of conduct.
2. Employees must understand that senior
management expects all employees to act
ethically.
3. Managers and others must be trained to consider
the ethical implications of all business decisions.
4-13
Setting
Corporate
Ethical
Standards
LG4
HOW to IMPROVE AMERICA’S
BUSINESS ETHICS
4. An ethics office must be set up with which
employees can communicate anonymously.
Whistleblowers -- Insiders who report illegal or
unethical behavior.
5. Involve outsiders such as
suppliers, subcontractors,
distributors and customers.
6. The ethics code must be
enforced.
4-14
Setting
Corporate
Ethical
Standards
LG4
HOW to PREVENT UNETHICAL
BEHAVIORS
1. Managers must communicate the organization’s
vision on ethical behavior.
2. Organizations must have a code of ethics.
3. Policies have to be enforced regarding ethical
offences.
4. Ethical responsibility must be taught to all
employees.
Source: James Gehrke, Magnify Leadership & Development, November 2008.
4-15
Setting
Corporate
Ethical
Standards
LG4
HOW to PREVENT UNETHICAL
BEHAVIORS
5. Discussions of ethics must be included in the
decision-making process.
6. Accountability must be taken seriously at all
levels in the organization.
7. Organizations must act fast when a crisis occurs.
8. Employees must know they have to defend and
maintain the company’s reputation.
Source: James Gehrke, Magnify Leadership & Development, November 2008.
4-16
Corporate
Social
Responsibility
LG5
CORPORATE SOCIAL
RESPONSIBILITY
• Corporate Social Responsibility (CSR) -- The
concern businesses have for the welfare of society.
• CSR is based on a commitment to integrity,
fairness, and respect.
• CSR proponents argue that businesses owe
their existence to the societies they serve and
cannot exist in societies that fail.
4-17
Corporate
Social
Responsibility
LG5
CORPORATE PHILANTHROPY
and SOCIAL INITIATIVES
• Corporate Philanthropy -- Includes charitable
donations.
• Corporate Social Initiatives -- Include enhanced
forms of corporate philanthropy.
4-18
Corporate
Social
Responsibility
LG5
CORPORATE RESPONSIBILITY
and POLICY
• Corporate Responsibility -- Includes everything
from hiring minority workers to making safe products,
minimizing pollution, using energy wisely, and
providing a safe work environment.
• Corporate Policy -- The position a firm takes on
social and political issues.
4-19
Responsibility
to Customers
LG5
PRESIDENT KENNEDY’S BASIC
RIGHTS of CONSUMERS
• The Right to Safety
• The Right to be Informed
• The Right to Choose
• The Right to be Heard
4-20
Responsibility
to Customers
HOW DO CUSTOMERS KNOW?
LG5
• Over 70% of executives say
their primary use of social media
is to communicate CSR efforts.
• Social media allows companies
to reach a broad, diverse group
and connect directly to them.
• Now more than ever, it’s
important for companies to live
up to their expectations.
4-21
Responsibility
to Customers
LG5
SOCIAL CUSTOMER CONTACT
Do’s and Don’ts of Using Twitter for Business
Do
Don’t
Engage followers in discussion
relevant to your industry.
Start political rants.
Think about your message
before tweeting. Deleted tweets
can still be found!
Tweet impulsively.
Frequently offer new content.
Let your account lie dormant.
Create separate accounts for
business and personal use.
Make personal announcements
via your company’s Twitter
account.
Source: Entrepreneur, September 2010.
4-22
Responsibility
to Investors
INSIDER TRADING
LG5
• Insider Trading -- Insiders using
private company information to
further their own fortunes or those
of their family and friends.
• Unethical behavior does
financial damage to a company
and investors are cheated.
4-23
Responsibility
to Employees
LG5
RESPONSIBILITY to
EMPLOYEES
• Create jobs and provide a chance for upward
mobility.
• Treat employees with respect.
• Offer salaries and benefits that help employees
reach their personal goals.
4-24
Responsibility
to Employees
LG5
WHEN EMPLOYEES
are UPSET…
• Employee fraud costs U.S. businesses about
5% of annual revenue and causes 30% of all
business failures.
• Disgruntled workers relieve frustration by:
-
Blaming mistakes on others.
Manipulating budgets and expenses.
Making commitments they intend to ignore.
Hoarding resources.
Doing the minimum.
4-25
Responsibility
to Society and
the Environment
LG5
SOCIETY and
the ENVIRONMENT
• Over one-third of working Americans receive
their salaries from nonprofits – who are
dependent on funding from others.
• The green movement emerged as concern about
global warming increased.
• Many companies are trying to minimize their
carbon footprints – the amount of carbon
released during an item’s production, distribution,
consumption and disposal.
4-26
Responsibility
to Society and
the Environment
LG5
RESPONSIBILITY to the
ENVIRONMENT
• Environmental efforts may increase costs, but
can offer good opportunities.
• The emerging renewable-energy and energyefficiency industries account for 9 million U.S.
jobs.
• By 2030, as many as 40
million “Green” jobs will
be created.
4-27
SUSTAINABLE or SUSPECT:
GREENWASHING
(Thinking Green)
• With public concern over the environment,
companies are finding greener ways of doing
business.
• Some companies are claiming they are more
environmentally responsible than they actually
are, a practice called “greenwashing.”
• Websites such as Greener Choices and
Greenwashing Index screen ads for
greenwashing.
4-28
Social Auditing
SOCIAL AUDITING
LG5
• Social Audit -- A systematic evaluation of an
organization’s progress toward implementing
socially responsible and responsive programs.
• Five Types of Social Audit Watchdogs
1)
2)
3)
4)
5)
Socially conscious investors
Socially conscious research organizations
Environmentalists
Union officials
Customers
4-29
International
Ethics and
Social
Responsibility
INTERNATIONAL ETHICS
LG6
• Many businesses want socially responsible
behavior from their international suppliers.
• In the 1970s, the Foreign Corrupt Practices Act
criminalized the act of paying foreign
businesses or government leaders in order to
get business.
• Partners in the Organization of American States
signed the Inter-American Convention Against
Corruption.
4-30