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Busn 100 Chapter 04
Ethics
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Goals
• Ethics
• Legality is only the first step in behaving ethically
• 3 questions one should answer when faced with a
potentially unethical action
• Management’s role in setting ethical standards
• Compliance-based and integrity-based ethics code
▫ 6 steps in setting up a corporate ethics code
• Corporate Social Responsibility
• American’s role in influencing ethical behavior
and social responsibility in global markets
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Ethics
• Standards of moral behavior
▫ Behavior that is accepted by society as right versus
wrong
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Ethics - Textbook
• Similarities on basic moral values in
the Bible, Aristotle’s Ethics, William
Shakespeare’s King Lear, the Koran,
and the Analects of Confucius:
▫ Golden rule:
 Do not do unto others as you would not
have them do unto you”
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Similarities On Basic Moral Values In The Bible,
Aristotle’s Ethics, William Shakespeare’s King Lear,
The Koran, And The Analects Of Confucius:
• Right:
▫ Integrity
▫ Respect for
human life
▫ Self-control
▫ Honesty
▫ Courage
▫ Self-sacrifice
• Wrong:
▫ Cheating
▫ Cowardice
▫ Cruelty
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Ethics - Textbook
• “Many Americans today have few moral absolutes.”
• “Many decide situationally whether it’s OK to steal,
lie or drink and drive.”
• “They seem to think that what is right is whatever
works best for the individual”
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Have USA Companies Acted Unethically?
• Enron – Accounting fraud to invent income and hide
debts
• Anderson – Accounting firm that helped Enron
• WorldCom - $11 B. in accounting irregularities
• AIG – Acted within law but acted unethically when they
insured people without setting aside money to pay off
policy if they (Credit Default Swaps)
• Credit Agencies - acted unethically when they failed to
see that companies like AIG had insured trillions of
dollars without setting aside money to pay off insurance
policies
• Homebuyers in USA
• Mortgage brokers
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People
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Steeling supplies at work
Goofing off at work
Cheating in school
Plagiarism
Lying in interview
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Ethics of MBA Students
Percent of MBA Students Who Would:
• Buy Stock on Inside Information
52%
• Reveal Corp. Secrets to Spouse/Family
50%
• Let a Gift Sway Purchasing Decision
26%
• Pay Someone Off to Close a
13%
Business Deal
Source: USA Today
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What Are The Three Questions One Should Answer
When Faced With A Potentially Unethical Action
• Textbook:
▫ Is it legal?
▫ Is it balanced?
▫ How will it make me feel about myself?
• I would say:
▫ Would I want this done to me?
▫ Will I feel bad in the long run even though there may
be a short-term gain?
▫ Does the action go against the idea that we should be
good citizens and be kind and caring toward others?
▫ Is it legal
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Ethical Orientation
• Ethical Orientation Questionnaire
• Excel workbook
• Ethical Dilemmas:
▫ Choose between equally unsatisfactory alternatives
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Why Should Businesses Act Ethically?
• If the humans that run and work for the
business act ethically, all stakeholders are
better off
• Other reasons:
Avoid lawsuits
Avoid new laws
Avoid employee turnover
To attain a good reputation (everything follows
from this)
▫ Keep customers, employees
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▫
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How Does Business Become More Ethical?
• If the people at the top:
▫ Set a good example
▫ Define guiding values
▫ Set clear rules with clear and enforceable
penalties
• Ethics is caught more than it is taught
• Example: Anderson International
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Compliance And Integrity
• Compliance-based ethics codes
▫ Preventing unlawful behavior by:
 Increasing control and
 Penalizing wrongdoers
• Integrity-based ethics codes
▫ Define the organization’s guiding values
▫ Create ethically sound environment
▫ Stress shared accountability among employees
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Code Of Ethics
• Johnson & Johnson:
http://www.jnj.com/wps/wcm/connect/c79
33f004f5563df9e22be1bb31559c7/ourcredo.pdf?MOD=AJPERES
• Wholefoods:
• http://www.wholefoodsmarket.com/values
/index.php
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Steps To Improve Business Ethics:
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Top management support
Employees’ understanding
Managers’ & Employees’ training
Ethics Office
Outsiders must be informed
Enforcement of ethics code
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Corporate Social Responsibility
• A business’s concern for the welfare of society
• Some people argue that the pursuit of an
increase in shareholder wealth provides the
best possible benefit to society
• Some argue that, like ordinary citizens,
corporations must be good citizens with acts
like donations and volunteering and other such
acts
• Debate Between Milton Friedman and John
Mackey:
▫ http://reason.com/archives/2005/10/01/rethinkingthe-social-responsi
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Corporate Social Responsibility
• Corporate Philanthropy
▫ Dimensions of social responsibility that includes
charitable donations
• Corporate Social Initiatives
▫ Enhanced forms of corporate philanthropy that are more
directly related to the company’s competencies
• Corporate Responsibility
▫ Dimensions of social responsibility that includes
everything from hiring minority workers to making safe
products
• Corporate Policy
▫ Dimensions of social responsibility that refers to the
position a firm takes on social and political issues
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Businesses Area Responsible To:
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Customers
Investors
Employees
Society and Environment
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Responsibility To Customers
• Offer quality goods and service at a
reasonable price
• Customers:
▫ Prefer to do business with companies they
trust
▫ Do not want to do business with
companies they do not trust
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Responsibility To Investors
• Ethical behavior tends to increases
shareholder wealth
• Unethical behavior tends to decreases
shareholder wealth
• No Insider Trading (Managers know
details of future business activity)
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Responsibility To Employees
• Create jobs that reward hard work and
talent fairly
• Treat employees with respect and they
treat the company with respect
▫ Costco
▫ Starbucks
▫ Dick’s
 Give benefits that help employees to reach
personal goals
▫ Highline
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Responsibility To Society & Environment
• Make profit and grow
• Take care of their communities
(including the environment)
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Social Auditing
• A systematic evaluation of an organization’s progress
toward implementing programs that are socially
responsible and responsive
• How do you measure whether a business is socially
responsible?
▫ Some ways might be to determine if the business:
 Donating executive time to community based or nonprofit
organizations
 Offering day care to workers or paying employees while they
do community work
 Support of museums or education
 Producing truthful ads or ensuring product safety (DaimlerBenz)
 Negative effects such as: layoffs or pollution
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Watchdogs That Monitor How Well
Companies Enforce Their Ethical And
Social Responsibility Policies:
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Socially Conscious Investors (SCI)
Environmentalists
Union Officials
Customers (#1)
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International Ethics And Social Responsibility
• Multinationals and companies that use
contract manufacturing must act ethically in
all counties
▫ Customers in the USA still seem to prefer brand,
price and quality over their perception of a
company’s humane treatment of workers and
social responsibility (but that is changing a bit)
 Low wages:
 Not fair when compared to wages in USA?
 But what if the company did not move to that country to
provide jobs?
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Explain Why Legality Is Only The First Step In
Behaving Ethically
• Laws are more limited than the set of morals and
ethics that a society holds
▫ Deceptive ads are often legal
 http://www.excessvoice.com/article101.htm
• Because laws have grey area, a person can act
unethically while breaking no laws
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Example:
• Enron and many banks in the current 2007-2008
banking crisis (Credit Crunch) hid liabilities and
risks off their balance sheets while breaking no
laws.
• Although they acted within the laws they mislead
many people
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Example:
• “No Income No Asset” loans made by banks in
2006 and 2007 were legal but unethical.
• These were called “Liar Loans” because people
could lie about income, but still get $500,000
loans.
• Unethical Mortgage Brokers during the 2007-2008
Banking Crisis that acted within the law:
▫ http://cosmos.bcst.yahoo.com/up/player/popup/?rn
=3906861&cl=9944104&ch=4226713&src=news
▫ http://www.propublica.org/article/insiders-detailhow-greed-drove-credit-ratings-926/
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What Are The Three Questions One Should Answer
When Faced With A Potentially Unethical Action
• Textbook:
▫ Is it legal?
▫ Is it balanced?
▫ How will it make me feel about myself?
• I would say:
▫ Would I want this done to me?
▫ Will I feel bad in the long run even though there may
be a short-term gain?
▫ Does the action go against the idea that we should be
good citizens and be kind and caring toward others?
▫ Is it legal
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Describe Management’s Role In Setting Ethical
Standards
• Because people tend to “do as you do, not as you
say”, when managers act unethically, others may
tend to do the same
• As a manager, set clear rules (what to do and
consequences)
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Distinguish Between Compliance-based And
Integrity-based Ethics Code
• Compliance-based
▫ Follow the law, and punish
• Integrity-based
▫ Set clear rules, lead by example, train all
stakeholders, stress “the team”, follow the
law, enforce consequences
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Define Corporate Social Responsibility And
Examine Corporate Responsibility To Various
Stakeholders
• It is in the business’s best interest to act socially
responsible toward:
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Customers
Community
Employees
Stockholders
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Analyze The Role Of American Businesses And
Government In Influencing Ethical Behavior And
Social Responsibility In Global Markets
• America has had some positive influenced and
negative influence on global markets
▫ Positive Examples:
 Spread of Free Markets
 This helps economies to grow
 Increases the middle class
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Spread of Technology
Spread of the internet and information
Increases in competition
Increase in Education
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America Has Had Some Positive Influenced
And Negative Influence On Global Markets
• Negative Examples:
▫ Going to war on flimsy evidence
▫ Stating that the Genève Conventions do not apply to the “War
on Terror”
 Guantanamo Bay
 Abu grade prison
▫ Deregulating the Banking Industry
▫ Keeping Interest Rates low while Europeans kept rates high
▫ Inventing “No Income No Asset” Loans and Collateralized Debt
Obligations that were based on “No Income No Asset” Loans
▫ American companies follow environmental rules at home, but
not abroad
▫ Pollution
▫ Culture
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Have USA Companies Acted Unethically?
• Dick’s & Starbucks & Costco
▫ Ethics = good business practice
▫ Happy Employees = productive Employees
• Pfizer (build hospitals) & Wal-Mart (gave out free
food, diapers, etc.) helped after Katrina
• Digicel Group ($5 M) & Lowe's ($1 M) & FedEx Corp
(donated airplanes to fly goods to Haiti) helped after
the 7.0 earthquake in Haiti