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Getting to Know STEVE ELLIS, Founder and CEO of CHIPOTLE MEXICAN GRILL
The Chipotle Mexican Grill serves fast food made with high quality ingredients, but that’s not what makes
the restaurant so special. CEO Steve Ellis was motivated by a visit to a factory farm to institute the “Food With
Integrity” campaign. The philosophy is “we can always do better in terms of the food we buy.” Chipotle tries to
buy meat from suppliers that raise animals humanely—80% of the chicken and 50% of the beef is humanely
raised.
 learning goal 1
Explain why obeying the law is only the first step in behaving ethically.
I.
ETHICS IS MORE THAN LEGALITY.
A.
HISTORY OF SCANDALS
1.
In the early 2000s scandals at WorldCom, Tyco, and ImClone focused attention on the
subject of ETHICS.
2.
In the mid- to late-2000s, greedy borrowers and lenders helped precipitate a worldwide
financial crisis.
3.
What can be done to restore trust in the free-market system?
4.
B.
Those who have broken the law need to be PUNISHED ACCORDINGLY.
b.
Also helpful: New laws making accounting records more transparent and more
laws making businesspeople more accountable.
c.
Laws along don’t make people honest, reliable, or truthful.
Moral and ethical behavior are not the same as following the law.
a.
Moral and ethical behavior goes BEYOND the law.
b.
ETHICS deals with the proper relations with and responsibilities toward other
people.
c.
LEGALITY deals with much narrower issues.
d.
It only refers to laws we have written to protect ourselvesmany IMMORAL ACTS
FALL WITHIN OUR LAWS.
ETHICAL STANDARDS ARE FUNDAMENTAL.
1.
ETHICS are the standards of moral behavior; that is, behavior that is accepted by
society as right versus wrong.
2.
Many Americans have few moral absolutes and make DECISIONS SITUATIONALLY.
3.
Throughout history, there have been MORAL TRUTHS that have guided leaders.
4.
Even in today’s diverse culture, there are still COMMON STANDARDS OF ETHICAL
BEHAVIOR.
5.
C.
a.
a.
Integrity, respect for human life, self-control, honesty, courage, and self-sacrifice
are RIGHT.
b.
Cheating, cowardice, and cruelty are WRONG.
All major religions support a version of the GOLDEN RULE: “Do unto others as you
would have them do unto you.”
ETHICS BEGINS WITH EACH OF US.
1.
Americans in general are not always honest and honorable.
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2.
a.
A recent study identified low managerial ethics as a major factor in America’s
competitive problems.
b.
Another survey revealed that two-thirds of the population NEVER GAVE TIME to
their communities.
c.
The most common form of cheating is plagiarizing material from the Internet.
d.
In a recent study, 38% of teens felt that lying, cheating, plagiarizing, or behaving
violently are sometimes necessary.
e.
Many schools now require a certain number of hours of community service to
graduate.
It is important to KEEP ETHICS IN MIND when making a business decision.
a.
There is not always an easy choice.
b.
Sometimes the obvious solution from an ethical point of view has drawbacks from
a personal or professional point of view.
c.
Sometimes there is no desirable alternative, a situation referred to as an ETHICAL
DILEMMA.
 learning goal 2
Ask the three questions one should answer when faced with a potentially unethical action.
3.
Three “ETHICS CHECK QUESTIONS” can help individuals and organizations be sure
their decisions are ethical:
4.
a.
Is my proposed action LEGAL?
b.
Is it BALANCED?
c.
How will it make me FEEL ABOUT MYSELF?
Individuals and companies that develop a strong ethics code tend to behave more
ethically than others.
 learning goal 3
Describe management’s role in setting ethical standards.
II.
MANAGING BUSINESS ETHICALLY AND RESPONSIBLY
A.
ORGANIZATIONAL ETHICS BEGINS AT THE TOP.
1.
People learn their standards and values from observing what others do, not what they
say.
2.
Corporate values are instilled by the leadership and example of strong top managers.
3.
Any trust and cooperation between workers and managers must be based on
FAIRNESS, HONESTY, OPENNESS, AND MORAL INTEGRITY.
4.
Some managers think ethics is a personal matterthat they are not responsible for an
individual’s misdeeds.
5.
a.
Individuals do not usually act alonethey need the implied, if not the direct,
cooperation of others to behave unethically in a corporation.
b.
The text uses the example of cell phone sales reps who unethically pressure
customers.
In some corporations corporate standards may ENCOURAGE DISHONESTY.
 learning goal 4
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Distinguish between compliance-based and integrity-based ethics codes, and list the six-steps
in setting up a corporate ethics code.
B. SETTING CORPORATE ETHICAL STANDARDS
1.
Most corporations have WRITTEN CODES OF ETHICS.
2.
Although ethics codes vary greatly, they can be classified into TWO MAJOR
CATEGORIES: compliance-based and integrity-based.
3.
4.
a.
COMPLIANCE-BASED ETHICS CODES are ethical standards that emphasize
preventing unlawful behavior by increasing control and by penalizing wrongdoers.
b.
INTEGRITY-BASED ETHICS CODES are ethical standards that define the
organization’s guiding values, create an environment that supports ethically sound
behavior, and stress a shared accountability among employees.
A 6-STEP PROCESS can help improve America’s business ethics.
a.
Step 1: TOP MANAGEMENT must adopt and unconditionally support an explicit
code of conduct.
b.
Step 2: EMPLOYEES must understand that expectations for ethical behavior begin
at the top and all employees are expected to act ethically.
c.
Step 3: MANAGERS and others must be trained to consider the ethical
implications of all business decisions.
d.
Step 4: AN ETHICS OFFICE must be set up.
ii.
The CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY ACT
(Sarbanes-Oxley, 2002) contains protections for corporate whistleblowers.
Step 5: OUTSIDERS such as suppliers, subcontractors, distributors, and
customers must be told about the ethics program.
f.
Step 6: THE ETHICS CODE MUST BE ENFORCED.
i.
If rules are broken, CONSEQUENCES should follow quickly.
ii.
ENFORCEMENT shows that the code is serious and cannot be broken.
A company’s ethics code is worthless IF NOT ENFORCED.
a.
Enron’s management sent the message to employees that unethical behavior
would be tolerated.
Johnson & Johnson response to the cyanide poisoning crisis in the 1980s
enhanced its bottom line.
An important factor to encourage ethical behavior is the selection of AN ETHICS
OFFICER who:
a.
Sets a positive tone, communicates effectively, relates well with employees
b.
6.
WHISTLEBLOWERS (insiders who report illegal or unethical behavior) must
feel protected from retaliation.
e.
b.
5.
i.
Serves as a counselor or as an investigator
EFFECTIVE ETHICS OFFICERS are people who:
a.
Can be trusted to maintain confidentiality, conduct objective investigations, and
ensure the process is fair.
b.
Can demonstrate to stakeholders that ethics are important.
 learning goal 5
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Define corporate social responsibility and compare corporate responsibility to various stakeholders.
III.
CORPORATE SOCIAL RESPONSIBILITY
A.
BASICS OF SOCIAL RESPONSIBILITY
1.
2.
3.
B.
CORPORATE SOCIAL RESPONSIBILITY (CSR) is a business’s concern for welfare of
society.
a.
It is based on a company’s concern for the welfare of all its stakeholders, not just
the owners.
b.
Some CRITICS of CSR believe that a manager’s sole role is to compete and win.
c.
Milton Friedman stated that the only social responsibility of business is to make
money for stockholders.
d.
DEFENDERS argue that CSR makes more money for investors in the long run.
e.
One study showed a positive correlation between corporate social performance
and corporate financial performance.
SOCIAL PERFORMANCE of a company has several dimensions:
a.
CORPORATE PHILANTHROPY is the dimension of social responsibility that
includes charitable donations.
b.
CORPORATE SOCIAL INITIATIVES are enhanced forms of corporate
philanthropy directly related to the company’s competencies.
c.
CORPORATE RESPONSIBILITY is the dimension of social responsibility that
includes everything from hiring minority workers to making safe products.
d.
CORPORATE POLICY is the dimension of social responsibility that refers to the
position a firm takes on social and political issues.
IMPACT OF CORPORATIONS ON SOCIETY
a.
Many people get a one-sided view of the impact that companies have on society.
b.
Few people see the POSITIVE IMPACTS, such as the commitments of many
companies to volunteerism, such as Xerox’s Social Service Leave program.
c.
The federal USA FREEDOM CORPS was created to oversee CITIZEN CORPS, a
program designed to strengthen homeland security efforts.
d.
Two-thirds of MBA students surveyed said that they would take a lower salary to
work for a socially responsible company.
e.
Social responsibility is seen differently through the eyes of various STAKEHOLDERS to whom businesses are responsible.
RESPONSIBILITY TO CUSTOMERS
1.
President John F. Kennedy proposed four basic rights of consumers:
a.
The right to SAFETY
b.
The right to BE INFORMED
c.
The right to CHOOSE
d.
The right to be HEARD
2.
Business is responsible to SATISFY CUSTOMERS with goods and services of real
value, not an easy task.
3.
Many new businesses failperhaps because their owners failed to please their
customers.
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C.
D.
4.
The text uses the example of how Celestial Seasoning ignored its image of social
responsibility when it poisoned prairie dogs.
5.
Customers prefer to do business with companies they trust.
RESPONSIBILITY TO INVESTORS
1.
ETHICAL BEHAVIOR is good for shareholder wealth.
2.
UNETHICAL BEHAVIOR does financial damage.
3.
Some believe that BEFORE you can do good you must DO WELL.
4.
Others believe that BY DOING GOOD, you can also DO WELL (example: Bagel Works.)
5.
Many people believe that it makes FINANCIAL as well as MORAL sense to invest in
socially responsible companies.
6.
Another ethical concern is INSIDER TRADING.
a.
INSIDER TRADING is an unethical activity in which insiders use private company
information to further their own fortunes or those of their family and friends.
b.
The text uses these examples:
i.
Martha Stewart’s sales of ImClone stock.
ii.
An IBM secretary who benefited from advance knowledge of the Lotus
merger.
c.
In response to insider trading scandals, the SEC adopted REGULATION FD for
“fair disclosure.”
d.
If companies tell something to ANYONE, they must tell EVERYONEat the same
time.
e.
Companies can MISUSE INFORMATION FOR THEIR OWN BENEFIT at
investors’ expense, as in the case of WorldCom’s fraudulent accounting practices.
RESPONSIBILITY TO EMPLOYEES
1.
RESPONSIBILITIES OF BUSINESS:
a.
Businesses have a responsibility to CREATE JOBS.
b.
Business has an obligation to see to it that HARD WORK AND TALENT ARE
FAIRLY REWARDED.
2.
A company’s effectiveness and financial performance depends on human resource
management.
3.
If a company TREATS EMPLOYEES WITH RESPECT, they will respect the company.
a.
In their book, Contented Cows Give Better Milk, Bill Catlette and Richard Hadden
compared “contented cow” companies with “common cow” companies.
b.
The “CONTENTED COW” companies grew faster and earned more than
“COMMON COW” companies.
4.
Replacing employees costs between 150% and 250% of their annual salary, so retaining
workers is good for business.
5.
By giving employees salaries and benefits that help them REACH THEIR PERSONAL
GOALS, the employer shows commitment and caring.
6.
When employees feel they’ve been TREATED UNFAIRLY, they strike back.
a.
DISSATISFIED WORKERS relieve their frustrations in subtle ways.
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b.
E.
RESPONSIBILITY TO SOCIETY AND THE ENVIRONMENT
1.
2.
F.
EMPLOYEE FRAUD causes 30% of business failures.
A major responsibility of business to society is to CREATE NEW WEALTH.
a.
Most nonprofits own shares of publicly-held companies.
b.
As those share prices increase, funds are available to benefit society.
There is also a growing GREEN MOVEMENT.
a.
A product’s CARBON FOOTPRINT (the amount of carbon released during
production, distribution, consumption, and disposal) defines how green it is.
b.
No specific guidelines define the carbon footprint of products and businesses, but
many companies are making GREEN PRODUCTS available.
3.
Business is responsible for contributing to making its OWN ENVIRONMENT a better
place.
4.
The text uses the example of Ciba Specialty Chemicals developing a low-salt textile dye
that could be sold at a premium price.
5.
Not all environmental efforts are financially successful, such as StarKist’s failed “tunasafe” initiative.
6.
The green movement has had a positive impact on the U.S. labor force.
7.
To publicize their commitment to society, many corporations PUBLISH REPORTS that
document their net social contribution.
SOCIAL AUDITING
1.
How can you measure how well organizations are incorporating social responsiveness
into top management’s decision making?
2.
A SOCIAL AUDIT is a systematic evaluation of an organization’s progress toward
implementing socially responsible and responsive programs.
3.
Many SOCIAL AUDITS consider such things as:
a.
workplace issues
b.
the environment
c.
product safety
d.
communications
e.
military weapons contracting
f.
international operations
g.
human rights
4.
Some suggest that positive actions be added up and negative effects subtracted to get a
NET SOCIAL CONTRIBUTION.
5.
FOUR GROUPS serve as “WATCHDOGS” monitoring how well companies enforce their
ethical and social responsibility policies:
a.
SOCIALLY CONSCIOUS INVESTORS, who insist that companies extent the
company’s own high standards to all their suppliers.
b.
ENVIRONMENTALISTS, who apply pressure by naming names of companies that
don’t abide by the environmentalists’ standards.
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c.
UNION OFFICIALS, who hunt down violations and force companies to comply to
avoid negative publicity.
d.
CUSTOMERS, who take their business elsewhere if a company demonstrates
socially irresponsible practices.
6.
Since September 11, 2001, watchdog groups also screen public companies for ties to
terrorism.
7.
It isn’t enough for a company to be right when it comes to ethics and social
responsibility—it also has to convince customers that it’s right.
 learning goal 6
Analyze the role of U.S. businesses in influencing ethical behavior and social responsibility in global
markets.
IV.
INTERNATIONAL ETHICS AND SOCIAL RESPONSIBILITY
A.
ETHICAL PROBLEMS ARE NOT UNIQUE TO THE UNITED STATES.
B.
1.
The text gives the examples of recent “influence peddling” in Japan, South Korea, the
People’s Republic of China, and others.
2.
What is new is that leaders are being held to new, higher standards.
Many American businesses, such as Sears and Dow Chemical, are demanding socially
responsible behavior from international suppliers.
1.
They make sure their suppliers DO NOT VIOLATE U.S. HUMAN RIGHTS AND
ENVIRONMENTAL STANDARDS.
2.
In contrast companies such Nike have been criticized for the low pay, long hours, and
unsafe working conditions for factory workers in Asia.
3.
a.
Nike is working with Patagonia, Gap, and five others companies to create a single
set of labor standards.
b.
The JOINT INITIATIVE ON CORPORATE ACCOUNTABILITY AND WORKERS’
RIGHTS attempts to standardize labor standards among countries.
c.
One of the toughest issues is the LOCAL LIVING-WAGE PROPOSAL.
Should international suppliers be required to adhere to U.S. ethical standards? What
about countries where child labor is accepted? What about multi-national corporations?
a.
None of these questions are easy to answer.
b.
They show how complex social responsibility issues are in international markets.
4.
Many U.S. executives complain that the Foreign Corrupt Practices Act put their
businesses at a competitive disadvantage.
5.
STANDARDS ON SOCIAL RESPONSIBILITY:
a.
International organizations, such as the Organization of American States, have
adopted the INTER-AMERICAN CONVENTION AGAINST CORRUPTION.
b.
V.
SUMMARY
The INTERNATIONAL ORGANIZATION FOR STANDARDIZATION (ISO) has
developed a set of standards for social responsibility, but these are voluntary.