Pride/Hughes/Kapoor Business, 10th Edition
Audio Review Transcript
Chapter 2 Being Ethical and Socially Responsible
1. Understanding what is meant by business ethics
It is indeed a delicate balancing act to ensure that a firm is exhibiting ethical and socially
responsible behavior, is not polluting the environment, and is providing appropriate
financial returns for its shareholders.
What do we mean by business ethics? Well, ethics is the study of right and wrong
and the morality of the choices individuals make. So business ethics naturally follows as
the application of moral standards to business situations. Ethical situations arise in
business every day, wherever two or more parties make transactions or develop
relationships. Each party wants and expects certain results from the transaction or
relationship. In some situations, the appropriate ethical response is clear, but in many
situations, it is less so. (LO 1 ends)
2. Identify the types of ethical concerns that arise in the business world
Common ethical issues fall into four broad categories. First, fairness and honesty
mean that businesspeople are expected to refrain from knowingly deceiving,
misrepresenting, or intimidating others. Second, businesspeople must not put their
personal welfare above that of other people or of the organization. Third, businesspeople
should avoid real or perceived conflicts of interest. And fourth, businesspeople must be
careful that their communications, often in the form of advertisements, do not mislead.
(LO 2 ends)
3. Discuss the factors that affect the level of ethical behavior in ethical organizations
Several factors affect the level of ethical behavior in organizations. These factors
fall into three groups: individual factors, social factors, and opportunity factors.
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Individual factors include a person’s level of knowledge about an issue and his or her
own moral values, attitudes, and personal goals. Social factors include cultural norms as
well as the actions and activities of coworkers and significant others, such as spouses,
relatives, and friends. Finally, opportunity factors refer to the amount of freedom an
organization gives an employee to behave unethically, and the degree of enforcement it
uses. (LO 3 ends)
4. Explain how ethical decision making can be encouraged
So how can organizations encourage ethical decision making? If a person is
determined to act unethically, probably no amount of regulations will stop him or her.
But more often a person may simply be caught unaware and simply react improperly. In
these cases, it can be useful to have a reference to turn to. Government regulations, trade
association guidelines, and corporate codes of ethics all strive to provide this guidance. A
code of ethics is a written guide to acceptable and ethical behavior as defined by an
organization. A code of ethics spells out an organization’s expectations for its employees
as well as what happens if an employee violates the code.
Unfortunately, some organizations do not practice ethical behavior. Sometimes
employees make the difficult decision to become whistle blowers. Whistleblowing means
informing the press or government officials about unethical practices within an
organization. It is a difficult position for many people to take, because it can mean social
ostracism and frequently the loss of a job. The Sarbanes-Oxley Act of 2002 provides
legal protection for employees who report corporate misconduct.
No code of ethics can cover every possible situation, but a quick test can usually
answer the question. Ask coworkers, customers, or suppliers if they would approve. (LO
4 ends)
5. Describe how our current views on the social responsibility of business have
evolved
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Social responsibility is the recognition that business activities have an impact on
society and that businesses must consider that impact when they make business decisions.
Some firms have complained that social responsibility costs too much money. Others
would respond that social responsibility makes good business sense. A brief look at the
historical development of the social responsibility movement shows that consumers
notice which firms have a strong record of social responsibility. And consumers reward
those firms with their dollars.
Business in the early 20th century was characterized by abusive business practices,
including poor and unsafe working conditions, long hours for little pay, and minimal
benefits. Labor unions were organized to help improve conditions, but even these had
little effect in the early years. The rule of caveat emptor, a Latin phrase meaning “let the
buyer beware” —or what you see is what you get—was in full effect. There were no
consumer groups or government agencies to hold sellers accountable for unscrupulous
practices. Although 6 laws were enacted during this period, most were aimed at
promoting competition rather than correcting abuses. Two notable exceptions were the
Pure Food and Drug Act and the Meat Inspection Act.
After the stock market collapse and during the Great Depression, several laws
were passed to correct the monopolistic abuses of big businesses and to provide various
social services to people. This greatly increased the role and influence of government on
business, and served to raise people’s awareness of the social responsibility of business.
Today, business owners, employees, consumers, and advocacy groups must work
together in a complex environment to try to satisfy each other’s concerns and
expectations. (LO 5 ends)
6. Explain the two views on the social responsibility of business and understand the
arguments for and against increased social responsbility
Two views on the social responsibility of business are at work today. The
economic model states that society will benefit most when business is left alone to
produce and market profitable products that society needs. Those that hold this traditional
view say that a firm is obligated to act in the interests of stockholders and that the taxes it
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pays go toward social programs. The socioeconomic model, on the other hand, states that
business should emphasize not only profits but also the impact of its decisions on society.
A growing number of firms are adopting the socioeconomic model. There are 3 reasons
why. One, since a corporation is a creation of society, if the corporation doesn’t perform
as a good citizen, society can and will demand changes. Two, a strong social
responsibility record is a source of pride for many firms. Three, many businesspeople
believe it is in their own best interest to take the initiative in this area and that it’s the
right thing to do.
Business owners, managers, customers, and government officials continue to
debate the pros and cons of the economic and socioeconomic models. The 4 primary
arguments for increased social responsibility include: (1) Business is part of society and it
cannot ignore social issues; (2) Business has the technical, financial, and managerial
resources needed to tackle today’s complex social issues; (3) Business can create a more
stable environment by helping resolve social issues; and (4) Business can reduce
government intervention by using socially responsible decision making. By contrast, the
4 primary arguments against social responsibility include: (1) Business managers are
responsible to stockholders; (2) Business should use its time, money, and talent to
maximize profits; (3) Businesses should not be expected to solve society’s problems; and
(4) Social issues are the responsibility of government.
Probably no firm completely follows one model to the exclusion of the other.
Most find a middle ground, with a tendency toward the socioeconomic view. This
tendency has produced positive results in 4 specific areas: consumerism, employment
practices, environmental concerns, and implementation of social responsibility programs.
(LO 6 ends)
7. Discuss the factors that lead to the consumer movement and list some of its results
Consumerism consists of all the activities undertaken to protect the rights of
consumers. The 6 basic rights of consumers include (1) the right to safety, meaning that
products must be safe for their intended use; (2) the right to be informed, which means
consumers must have access to complete information before they purchase a product; (3)
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the right to choose, which ensures that consumers will have choices of products to satisfy
a particular need; (4) the right to be heard, which means that someone will listen and take
appropriate action in response to a complaint; (5) the right to consumer education,
entitling people to be fully informed of their rights as consumers; and (6) the right to
service, which entitles consumers to convenience, courtesy, and responsiveness.
Consumer advocates and organizations, consumer education programs, and consumer
laws have all had major impacts on improving consumer issues. (LO 7 ends)
8. Analyze how present employment practices are being used to counteract past
abuses
As the rights of consumers have improved, so have the rights of employees.
Several laws have been enacted to try to correct past abuses. Laws that prohibit
discrimination of minorities came first. A minority is a racial, religious, political,
national, or other group that is regarded as different from the larger group of which it is a
part. It is often singled out for unfavorable treatment. One program that was established
to counteract such discrimination was affirmative action. An affirmative action program
is a plan designed to increase the number of minority employees at all levels within an
organization. Though the goal is admirable, these programs have suffered setbacks as a
result of quotas, which have occasionally led to a form of reverse discrimination; and a
lack of commitment by some in management. As a result, the Equal Employment
Opportunity Commission was set up with the power to investigate complaints of
employment discrimination and it was given the power to sue firms that practice it. This
has helped in several ways, but there is still a long way to go.
Some firms have taken on additional social responsibility by providing training
programs for the hard-core unemployed. This group includes workers with little
education or vocational training and a long history of unemployment. To help share the
cost of training this group, government and business have formed several partnerships.
The National Alliance of Business is one of the most successful. (LO 8 ends)
9. Describe the major types of pollution, their causes, and their cures
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In addition to taking care of consumers and employees, businesses are showing
more of a concern for the environment. Pollution, the contamination of water, air, or land
through the actions of people in an industrialized society, was largely ignored by business
for decades. People today expect business and government to clean up the environment
and to keep it clean. As a result of legislation, the expensive and time-consuming tasks of
cleaning up the waterways, the air, and the land have shown enormous improvement.
More recently, the noise control act has addressed noise levels that can lead to permanent
hearing loss. The cost of all this clean up is significant though, and it is still unclear who
will ultimately foot the bill for it all. Present cleanup efforts are funded partly by
government tax revenues, partly by business, and in the long run by consumers. (LO 9
ends)
10. Identify the steps a business must take to implement a program of social
responsiblity
Social responsibility does not come cheap. An effective program requires time,
money, and organization. The 4 steps to implementation are the commitment of top
executives, the establishment of a committee to plan the program, the appointment of a
director, and the preparation of a social audit. The social audit is a comprehensive report
of what an organization has done and is doing with regard to the social issues that affect
it. Funding for social responsibility programs may come from higher prices charged to
consumers, from contributions by organizations, or from federal government incentives.
(LO 10 ends)
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