Chapter 04
Demanding
Ethical and
Socially
Responsible
Behavior
McGraw-Hill/Irwin
Copyright © 2013 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.
4-2
Chapter Four
LEARNING GOALS
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.
4-3
Profile
BLAKE MYCOSKIE
TOMS Shoes
• While appearing on The
Amazing Race, Mycoskie saw
how badly local children in
Argentina needed shoes.
• He founded TOMS in
2006.
• TOMS gives a pair of
shoes to a child in need
for every pair sold.
4-4
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 broke the law
-
Make accounting more transparent
-
Consider what is ethical, not just
what is legal
4-5
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.
4-6
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.
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Ethical Standards
are Fundamental
WHAT are ETHICS?
LG1
• Ethics -- The standards of moral behavior.
Behaviors that are accepted by society as right
versus wrong.
4-8
Ethical Standards
are Fundamental
BASIC MORAL VALUES
LG1
Right:
• Integrity
• Respect for human life
• Self-control
Wrong:
• Cheating
• Cowardice
• Cruelty
• Honesty
• Courage
• Self-sacrifice
4-9
Ethical Standards
are Fundamental
VALUES, MORALS & ETHICS
LG1
• Values: Personal beliefs of right and wrong
• Morals: Social elements of right and wrong
• Ethics: Rules or standards governing
the conduct of a person or the
members of a profession
4-10
Ethics Begins
with Each of Us
ETHICS and YOU
LG2
• Plagiarizing from the
Internet is the most
common form of
cheating in schools
today.
• Studies found a strong
relationship between
academic dishonesty
and dishonesty at work.
4-11
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?
4-12
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?
4-13
Ethics Begins
with Each of Us
BRIBERY BAD BOYS
Five Open FCPA Investigations
LG2
Company
Case and Amount Reserved for
Possible Settlements
ABB
Potential bribery on three continents.
$300 million
Weatherford
Possible bribery issues in Europe and Africa.
$106 million
ENI
Allegedly bribed Nigerian officials.
$300 million
Technip
Allegedly bribed Nigerian officials.
$300 million
Alcatel-Lucent
Bribed officials in Costa Rica, Kenya and Taiwan.
$137 million settlement expected
Source: Forbes, May 24, 2010.
4-14
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.
4-15
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
4-16
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.
4-17
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.
4-18
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. http://en.wikipedia.org/wiki/Edward_Snowden
5. Involve outsiders such as
suppliers, subcontractors,
distributors and customers.
6. The ethics code must be
enforced.
Sherron Watkins-Enron
4-19
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.
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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.
4-21
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.
4-22
Corporate
Social
Responsibility
LG5
CORPORATE PHILANTHROPY
and SOCIAL INITIATIVES
• Corporate Philanthropy -- Includes charitable
donations. (Bill and Melinda Gates)
• Corporate Social Initiatives -- Include enhanced
forms of corporate philanthropy. (Johnson & Johnson)
4-23
Corporate
Social
Responsibility
LG5
CORPORATE RESPONSIBILITY
and POLICY
• Corporate Responsibility -- Ranges from hiring
minority workers to making safe products, minimizing
pollution, using energy wisely & providing a safe work
environment. Companies have a responsibility to:
1.
2.
3.
4.
Customers or Consumers
Investors
Employees
Society and the Environment
• Corporate Policy -- The position a firm takes on
social and political issues.
4-24
Corporate
Social
Responsibility
LG5
POSTIVE IMPACTS
of COMPANIES
• Xerox offers a Social Service Leave program.
• The recent recession caused 60% of companies
to cut their philanthropic donations. However,
now they’re more likely to give time and goods.
• Two-thirds of MBA students surveyed reported
they would take a lower salary to work for a
socially responsible company.
4-25
Corporate
Social
Responsibility
HELPING HANDS
LG5
Most Generous Celebrities
Who?
For?
George Clooney
United Way;
UN Messenger of Peace
Angelina Jolie & Brad Pitt
Make it Right Foundation; UN
Ben Affleck
UN
Madonna
Raising Malawi
Michael J. Fox
Michael J. Fox Foundation for
Parkinson’s Research
Alicia Keys
Keep a Child Alive;
Frum Tha Ground Up
Sir Elton John
Elton John AIDS Foundation
Matt Damon
GreenDimes; H2O Africa;
Running the Sahara
Oprah Winfrey
Angel Network
Source: Parade Magazine, www.parade.com, July 8, 2010.
4-26
Corporate
Social
Responsibility
GENEROUS GUYS
LG5
World’s Biggest Givers
Who?
How Much?
What For?
Bill Gates
$28B
Malaria, public health, education
Warren Buffett
$8.3B
Gates Foundation
George Soros
$8B
Human rights, democracy
Gordon Moore
$6.8B
Environment
Carlos Slim
$4B
Education, healthcare
Eli Broad
$2.6B
Education, arts
Azim Premji
$2.1B
Education
James Stowers
$2B
Genetic research
Michael Bloomberg
$1.8B
Antismoking, transportation
Li Ka-Shing
$1.6B
Education, healthcare
Source: Forbes, June 6, 2011.
4-27
Corporate
Social
Responsibility
LIFE AFTER TRAGEDY
LG5
Japan’s Post-Tsunami Big Givers
Who?
What?
Masayoshi Son
Sent 12,000 cell phones to the area, created
an iPhone app for donations
Saji Family
Gave $3.7 million and shipped 360,000
bottles of water
Akio Toyoda
Toyota gave $3.7 million after 11 car plants
closed temporarily
Tadashi Yanai
Gave $12 million
Kenji Kasahari
Raised $2 million on Mixi, aided in finding
missing persons
Yoshikazu Tanaka
Sold volunteer avatars online and the
proceeds went to disaster relief
Source: Forbes, April 11, 2011.
4-28
Responsibility
to Customers
LG5
1-RESPONSIBILITY to
CONSUMERS
Responsibility of Business: To satisfy customers
by offering them goods and services of real value.
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
4-29
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 is
important for companies to live
up to their expectations.
4-30
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.
4-31
Responsibility
to Investors
LG5
2-RESPONSIBILITY to
INVESTORS
• Some people believe that businesses are not in the
business of doing “good.” However, if in a business
does well, then it can do good things.
• Many believe that it makes financial, as well as moral
sense to invest in companies that are working toward
creating a better environment.
• 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.
4-32
Responsibility
to Employees
LG5
3-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.
4-33
Responsibility
to Employees
LG5
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
AMERICA’S MOST ADMIRED
COMPANIES
Apple
Google
Berkshire Hathaway
Southwest Airlines
Procter & Gamble
Coca-Cola
Amazon
FedEx
Microsoft
McDonald’s
Source: Fortune, www.fortune.com, March 21, 2011.
4-34
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
4-35
Responsibility
to Society and
the Environment
LG5
4-RESPONSIBILITY to
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.
4-36
Responsibility
to Society and
the Environment
LG5
4-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.
4-37
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.
4-38
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
4-39
International
Ethics and
Social
Responsibility
INTERNATIONAL ETHICS
LG6
1. Many businesses want socially responsible
behavior from their international suppliers.
2. In the 1970s, the Foreign Corrupt Practices
Act criminalized the act of paying foreign
businesses or government leaders in order to
get business.
3. Partners in the Organization of American
States signed the Inter-American Convention
Against Corruption.
4-40
International
Ethics and
Social
Responsibility
INTERNATIONAL ETHICS
LG6
4. The Joint Initiative on Corporate Accountability
& Workers’ Rights was designed to create an
easier to use (enforce) set of standards.
-Child Labor
-Poor Working Conditions
-Non-living Wages
5. Necessary to fight bribery
and corruption with government
leaders when doing business.
4-41
Progress
Assessment
IN CONCLUSION
• What are ethics and why are
they so important?
• What is management’s role in
setting ethical standards?
• How can you tell if your
business decisions are ethical?
4-42