Chapter 2
Conducting Business Ethically and Responsibly
Chapter Overview
Individual ethics – people’s beliefs about right and wrong, good and bad – are
heavily shaped by personal values and morals, as well as social and cultural
influences. Ethical behavior is behavior that conforms to generally accepted
standards about beneficial and harmful actions. Since the ethical behavior of
individual employees has a direct effect on their companies, many organizations
are adopting formal statement of ethics.
Social responsibility refers to how a company meets the needs of its stakeholders:
those groups that are directly affected by an organization’s practices, and
therefore, have a stake in its performance.
Firms typically confront four dimensions of social responsibility. Responsibility
toward the environment means minimizing air, water, and land pollution.
Responsibility toward consumers means respecting consumer rights, pricing
products fairly, and maintaining ethics in advertising. Responsibility toward
employees means meeting the needs and concerns of workers, without
vindictiveness toward whistleblowers. Responsibility toward investors means
managing resources honestly, without misrepresentation of financial status.
The four most common approaches to social responsibility include the
obstructionist stance (doing as little as possible), the defensive stance (complying
with minimum legal requirements), the accommodative stance (going beyond the
minimum when asked), and the proactive stance (actively seeking opportunities to
contribute).
Small businesses face many of the same issues of ethics and social responsibility
as their larger counterparts. The differences are primarily of scale.
Chapter Objectives
1. Explain how individuals develop their personal code of ethics and why
ethics are important in the workplace.
2. Distinguish social responsibility from ethics, identify organizational
stakeholders, and characterize social consciousness today.
3. Show how the concept of social responsibility applies both to
environmental issues and to a firm’s relationships with customers,
employees, and investors.
4. Identify four general approaches to social responsibility and describe the
four steps that a firm must take to implement a social responsibility
program.
13
5. Explain how issues of social responsibility and ethics affect small
business.
REFERENCE OUTLINE
Opening Case: The Rules of Tipping
I.
Ethics in the Workplace
A. Individual Ethics
1. Ambiguity, the Law, and the Real World
2. Individual Values and Codes
B. Business and Managerial Ethics
1. Behavior Toward Employees
2. Behavior Toward the Organization
3. Behavior Toward Other Economic Agents
C. Assessing Ethical Behavior
D. Company Practices and Business Ethics
1. Adopting Written Codes
2. Instituting Ethics Programs
II.
Social Responsibility
A. The Stakeholder Model of Responsibility
1. Customers
2. Employees
3. Investors
4. Suppliers
5. Local Communities
B. Contemporary Social Consciousness
III.
Areas of Social Responsibility
A. Responsibility Toward the Environment
1. Air Pollution
2. Water Pollution
3. Land Pollution
B. Responsibility Toward Customers
1. Consumer Rights
2. Unfair Pricing
3. Ethics in Advertising
C. Responsibility Toward Employees
D. Responsibility Toward Investors
IV.
Implementing Social Responsibility Programs
A. Approaches to Social Responsibility
1. Obstructionist Stance
2. Defensive Stance
3. Accommodative Stance
14
4. Proactive Stance
B. Managing Social Responsibility Programs
C. Social Responsibility and the Small Business
LECTURE OUTLINE
I.
Ethics in the Workplace (Use PowerPoint 2.4.)
Ethics are beliefs about wrong and right or bad and good; ethical
behavior conforms to individual beliefs and social norms about what
is right and good.
A. Individual Ethics
Ethics are based on individual beliefs and social concepts; thus,
they vary from person to person, from situation to situation, and
from culture to culture.
1. Ambiguity, the Law, and the Real World. Societies
adopt formal laws that reflect ethical standards; however,
real-world situations are sometimes difficult to interpret.
2. Individual Values and Codes. Individuals’ personal
codes of ethics are determined by a combination of
factors.
B. Business and Managerial Ethics
Managerial ethics are the standards of behavior that guide
individual managers in their work.
1. Behavior Toward Employees. This category covers
hiring and firing, wages and working conditions, and
privacy and respect.
2. Behavior Toward the Organization. Conflict of
interest, confidentiality, and honesty are ethical issues.
3. Behavior Toward Other Economic Agents. Ethics also
comes into play in the relationship between the firm and a
number of primary agents of interests, such as customers,
suppliers, competitors, stockholders, dealers, and unions.
C. Assessing Ethical Behavior (Use PowerPoint 2.5.)
Ethical behavior is subjective and subject to differences of opinion.
15
D. Company Practices and Business Ethics (Use PowerPoint 2.6,
2.7, 2.8.)
Many companies set up codes of conduct and develop clear ethical
positions on how the firm and its employees will conduct business.
1. Adopting Written Codes. Almost all major
corporations have written codes of ethics.
2. Instituting Ethics Programs. Ethical responses can be
learned through experience; companies must take the
responsibility for educating employees.
Notes:
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
II.
Social Responsibility
Social responsibility refers to the overall way in which a business
itself tries to balance its commitments to relevant groups and
individuals in its social environment.
A. The Stakeholder Model of Responsibility (Use PowerPoint
2.9.)
Most companies strive to be responsible to five main groups:
1. Customers. Critical factors include charging fair prices,
honoring warranties, and standing behind product quality.
2. Employees. Treating workers fairly, making them a part
of the team, and respecting their dignity promotes a
company’s reputation.
3. Investors. Managers must follow proper accounting
procedures, provide appropriate information to
shareholders, and manage the organization to protect
shareholder investments.
4. Suppliers. Partnership arrangements with suppliers can
enhance market image and firm reputation.
5. Local Communities. Contributing to local programs has
a positive impact on the community.
16
B. Contemporary Social Consciousness
Views toward social responsibility continue to evolve as managers
work to meet the needs of various stakeholders in their business
practices.
Notes:
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
III.
Areas of Social Responsibility
A. Responsibility Toward the Environment (Use PowerPoint
2.10.)
1. Air Pollution. Under new laws, many companies must
install special devices to limit pollutants they expel into
the air.
2. Water Pollution. Increased awareness of chemical and
waste dumping, and the resulting dangers, has led to
improved water quality in many areas of the country.
3. Land Pollution. Proper toxic waste disposal and
recycling programs are allowing companies to help
restore land quality and to prevent further contamination.
B. Responsibility Toward Customers (Use PowerPoint 2.11.)
1. Consumer Rights. Consumerism is the social activism
dedicated to protecting the rights of consumers in their
dealings with businesses.
2. Unfair Pricing. Collusion occurs when two or more
firms agree to collaborate on such wrongful acts as price
fixing; price gouging occurs when firms respond to
increased demand with steep price increases.
3. Ethics in Advertising. Consumers deserve to be given
product information that is truthful and can be proven, as
well as information that is not morally objectionable.
C. Responsibility Toward Employees (Use PowerPoint 2.12.)
17
Recruiting, hiring, training, promoting, and compensating are the
bases for social responsibility toward employees; a whistleblower
is an employee who discovers and tries to end a company’s
unethical, illegal, or irresponsible actions by publicizing them.
D. Responsibility Toward Investors (Use PowerPoint 2.13.)
Some wrongful acts include: improper financial management;
check kiting, in which a check has been written against money
that has not yet arrived at the bank; and insider trading, in which
someone uses confidential information to benefit from the
purchase or sale of stocks.
Notes:
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
IV.
Implementing Social Responsibility Programs
A. Approaches to Social Responsibility (Use PowerPoint 2.14.)
1. Obstructionist Stance. Organizations do as little as
possible to solve social or environmental problems.
2. Defensive Stance. Organizations will do everything that
is required of them legally but nothing more.
3. Accommodative Stance. The organization meets its
legal and ethical requirements but will also go further in
certain cases.
4. Proactive Stance. Firms that adopt this approach take to
heart the arguments in favor of social responsibility.
B. Managing Social Responsibility Programs (Use PowerPoint
2.15.)
Managers must take steps to foster social responsibility. Such
steps include: (1) Making social responsibility a factor in strategic
planning; (2) Developing a plan detailing the level of management
support; (3) Putting one executive in charge of the agenda; and (4)
Conducting occasional social audits.
C. Social Responsibility and the Small Business (Use PowerPoint
2.16.)
18
Many big-business responses to ethical and social responsibility
issues apply to small businesses; differences are primarily
differences of scale.
Notes:
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Answers to Questions and Exercises
Questions for Review
1. What basic factors should be considered in any ethical decision?
Answers will vary but students should address the circumstances of each
issue, legal implications, personal codes of ethics, and the effect of the
decision on others. They should also refer to the four ethical
considerations discussed in the chapter (utility, rights, justice, caring).
2. Who are an organization’s stakeholders? Who are the major
stakeholders with which most businesses must be concerned?
Stakeholders include customers, employees, investors, suppliers, and the
firm’s local communities. Most businesses should be concerned with all
stakeholders groups, although areas of emphasis may differ for individual
businesses.
3. What are the major areas of social responsibility with which
businesses should be concerned?
The major areas include: the environment, customers, employees, and
investors.
4. What are the four basic approaches to social responsibility?




Obstructionist: The entity does as little as possible to promote
social responsibility.
Defensive: The entity meets minimal legal requirements regarding
social responsibility.
Accommodative: The entity exceeds minimum requirements only
by special request.
Proactive: The entity actively seeks opportunities to contribute to
the social environment.
19
5. In what ways do you think your personal code of ethics might clash
with the operations of some companies? How might you try to resolve
these differences?
Answers will vary. Potential resolutions will probably range from raising
the employer’s awareness, to becoming a whistle-blower, to leaving the
company.
Questions for Analysis
6. What kind of wrongdoing would most likely prompt you to be a
whistle-blower? What kind of wrongdoing would be least likely?
Why?
Answers will vary.
7. In your opinion, which area of social responsibility is most important?
Why? Are there areas other than those noted in the chapter that you
consider important?
Answers will vary.
8. Identify some specific ethical or social responsibility issues that might
be faced by small-business managers and employees in each of the
following areas: environment, customers, employees, and investors.
Answers will vary, but students should note that small businesses face the
same issues as large businesses, simply on a smaller scale.
Application Exercises
9. Develop a list of the major stakeholders of your college or university.
As a class, discuss the ways in which you think the school prioritizes
these stakeholders. Do you agree or disagree with this prioritization?
Answers will vary.
10. Using newspapers, magazines, and other business references, identify
and describe at least three companies that take a defensive stance to
social responsibility, three that take an accommodative stance, and
three that take a proactive stance.
Answers will vary.
20
Answers to Exercising Your Ethics
1. Which side of the debate is easier to defend? Why?
Answers will vary, but students may notice that defending social
responsibility yields personal “PR” benefits, which also happens on a
larger scale to companies that promote social responsibility.
2. What is your personal opinion about the appropriate stance that a
business should take regarding social responsibility?
Answers will vary.
3. To what extent is the concept of social responsibility relevant to nonbusiness organizations such as universities, government units,
healthcare organizations, and so forth?
Answers will vary, but students should note that unlike business, the
primary purpose of these kinds of organizations is to promote the greater
social well-being.
Answers to Building Your Business Skills
1. What personal, social, and cultural factors do you think contribute to
lying in the workplace?
Answers will vary, but students may cite such factors as personal ethics,
desire for gain at any cost, fear of job loss, management pressure, poor
management role models, and the broader cultural environment.
2. Agree or disagree with the following statement: “The term business
ethics is an oxymoron.” Support your answer with examples from
your own work experience or that of a family member.
Answers will vary.
3. If you were your company’s director of human resources, how would
you make your code of ethics a “living document?”
Answers will vary, but students should note that visible top management
support and example play a critical role.
21
4. If you were faced with any of the ethical dilemmas described in step 1,
how would you handle them? How far would you go to maintain your
personal ethical standards?
Answers will vary widely.
Classroom Activities
1. Ask students to locate a newspaper article that relates to an ethics issue.
Each student should be prepared to discuss the issues at hand, offering
suggestions about how he or she would react (or would have reacted) as
the managers or decision maker in each situation.
2. Divide the class into small groups, asking them to address the questions in
the following ethics dilemma:
Situation: You are the VP of Marketing for the e-commerce wing of an
up-and-coming retailer. Your company has been very successful, despite
cutthroat competition throughout your industry. One day you have lunch
with your colleague and friend, the VP of Information Technology, and
she tells you in confidence that she has been offered a position with a
competitor, and that she has accepted the job. She plans to tell the
President in two weeks, and you suspect – given other defections in the
past year or two – that the President will escort her from the building in
order to protect sensitive information.
Ethics Issue: When your friend leaves to work for a competitor, it will be
a major blow to your company. In an industry that depends on proprietary
technology, your company’s technological advantage may now be
available to your key competitor. This will not only make your job much
harder, but it will put your profit from stock options in jeopardy. It may
even threaten the company’s long-term survival.
 Should you compromise your friend’s confidence
and let the President know that she is leaving in two
weeks to work for the competition?
 How much loyalty do you owe the company?
Why?
 What are the possible courses of action that you
could follow? What would be the ramifications of
each decision? What is the most ethical choice?
Why?
 How will you decide what to do?
22