CHAPTER 4
Demanding
Ethical and
Socially
Responsible
Behavior
McGraw-Hill/Irwin
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
LEARNING OBJECTIVES
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
LEARNING OBJECTIVES
4. Distinguish between compliance-based and integritybased 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
PATTY STONESIFER
Martha’s Table
• Held high-level positions
with the Gates
Foundation and the
White House.
• Founded Martha’s Table
in 2013 with the goal of
providing healthy food,
affordable clothing and
quality education to
D.C.’s locals.
4-4
NAME that COMPANY
The wage and benefit packages offered by this
company are among the best in hourly retail.
Even part-time workers are covered by its
health plan. Increased benefits reduce
employee turnover to less than a third of the
industry average.
Name that company!
4-5
LIFE AFTER SCANDAL
LO 4-1
• Scandals have shaken the real estate, mortgage
and banking industries.
• How do we restore trust in the free market
system?
-
Punish those who have broken the law.
-
Make accounting records more transparent.
-
Consider what is ethical, not just what is legal.
4-6
BERNIE MADOFF’S
PONZI SCHEME
• Bernie Madoff is serving 150
years behind bars.
• His exclusive wealth
management firm was a
gigantic Ponzi scheme.
• Though exact amounts are
uncertain, it is believed he
stole about $65 billion from
his investors.
4-7
WHAT is a PONZI SCHEME?
LO 4-1
• 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 November 2014.
4-8
WHAT are ETHICS?
LO 4-1
• Ethics -- The standards of moral behavior.
Behaviors that are accepted by society as right
versus wrong.
4-9
BASIC MORAL VALUES
Right:
• Integrity
• Respect for human life
LO 4-1
Wrong:
• Cheating
• Cowardice
• Cruelty
• Self-control
• Honesty
• Courage
• Self-sacrifice
4-10
ETHICS and YOU
LO 4-2
• Plagiarizing from online
materials is the most
common form of cheating
in schools today.
• Studies found a strong
relationship between
academic dishonesty and
dishonesty at work.
4-11
FACING ETHICAL DILEMMAS
LO 4-2
• Ask yourself these
questions:
- Is it legal?
- Is it balanced?
- How will it make me
feel about myself?
4-12
BRIBERY BAD BOYS
LO 4-2
Five FCPA Investigations
Company
Case
Smith and Wesson
Improper payments to foreign officials.
Stryker
Corporation
Bribing doctors and government officials in five
countries.
Hewlett-Packard
Improper payments for contracts.
Bio-Rad
Laboratories
Subsidiaries made improper payments to officials in
Russia, Vietnam, and Thailand.
Diebold
Bribed officials at government-owned banks.
Source: SEC, www.sec.gov, accessed November 2014.
4-13
TURNING EX-CONS into
ENTREPRENEURS
• Life after prison can be very
difficult for those with criminal
records.
• Catherine Rohr started Defy
Ventures to help ex-cons launch
their own businesses.
• Defy and Rohr’s other
organizations have helped create
60 startups and many ex-cons
find employment.
TEST PREP
• What are ethics?
• How do ethics differ from legality?
• When faced with ethical dilemmas, what
questions can you ask yourself that might help
you make ethical decisions?
4-15
ETHICS START at the TOP
LO 4-3
• 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.
4-16
FACTORS INFLUENCING
MANAGERIAL ETHICS
Individual
• Values
• Work
Background
LO 4-3
Organizational Environmental
• Top Level
Management
Philosophy
• Family Status
• Firm’s Reward
System
• Personality
• Job Dimensions
• Competition
• Economic
Conditions
• Social/Cultural
Institutions
4-17
ETHICS CODES
LO 4-4
• 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.
4-18
HOW to IMPROVE AMERICA’S
BUSINESS ETHICS
LO 4-4
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.
4-19
HOW to IMPROVE AMERICA’S
BUSINESS ETHICS
LO 4-4
4. An ethics office must be set up with which
employees can communicate anonymously.
Whistleblowers -- Insiders who report illegal or
unethical behavior.
5. Involve outsiders such as
suppliers, subcontractors,
distributors and
customers.
6. The ethics code must be
enforced.
4-20
HOW to BLOW the WHISTLE
LO 4-4
1. Decide carefully and quickly.
2. Make sure you have all allegations filed with the
right agencies.
3. File your allegations with as many agencies that
are appropriate.
4. Gather your information legally.
5. Research the process.
Source: Kiplinger’s Personal Finance, June 2013.
4-21
TEST PREP
• What are compliance-based and integrity-based
ethics codes?
• What are the six steps to follow in establishing an
effective ethics program in a business?
4-22
CORPORATE SOCIAL
RESPONSIBILITY
LO 4-5
• 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.
4-23
CORPORATE PHILANTHROPY
and SOCIAL INITIATIVES
LO 4-5
• Corporate
Philanthropy -Includes charitable
donations.
• Corporate Social
Initiatives -- Include
enhanced forms of
corporate philanthropy.
4-24
CORPORATE RESPONSIBILITY
and POLICY
LO 4-5
• Corporate Responsibility -- Includes everything
from hiring minority workers to making safe products,
minimizing pollution, using energy wisely, and
providing a safe work environment.
• Corporate Policy -- The position a firm takes on
social and political issues.
4-25
POSTIVE IMPACTS
of COMPANIES
LO 4-5
• Xerox offers a Social Service Leave program.
• More and more companies are encouraging
employees to volunteer while on company time.
• The majority of MBA students surveyed reported
they would take a lower salary to work for a
socially responsible company.
4-26
HELPING HANDS
LO 4-5
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.
4-27
GENEROUS GUYS
LO 4-5
World’s Biggest Givers in 2013
Who?
How
Much?
What For?
Bill Gates
$2.5B
Malaria, public health, education
Warren Buffett
$2.63B
Gates Foundation
Leonard Lauder
$1.1B
Art museums
Mark Zuckerberg
$991M
Education, healthcare
George Soros
$734M
Human rights, democracy
Michael Bloomberg
$1.8B
Antismoking, education
Walton Family
$325M
Education, conservation
Gordon & Betty Moore
$321M
Science education
Chuck Feeny
$297M
Human rights
Pierre & Pamela Omidyar
$294M
Education
Source: Forbes, www.forbes.com, accessed November 2014.
4-28
PRESIDENT KENNEDY’S BASIC
RIGHTS of CONSUMERS
LO 4-5
• The Right to Safety
• The Right to be Informed
• The Right to Choose
• The Right to be Heard
4-29
HOW DO CUSTOMERS KNOW?
LO 4-5
• The 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’s
important for companies to live up
to their expectations.
4-30
SOCIAL CUSTOMER CONTACT
LO 4-5
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, www.entrepreneur.com, accessed September 2014.
4-31
INSIDER TRADING
LO 4-5
• 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
LO 4-5
• 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
AMERICA’S MOST ADMIRED
COMPANIES of 2014
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
LO 4-5
Apple
Amazon
Google
Berkshire Hathaway
Starbucks
Coca-Cola
Disney
FedEx
Southwest Airlines
General Electric
Source: Fortune, www.fortune.com, accessed November 2014.
4-34
WHEN EMPLOYEES
are UPSET…
LO 4-5
• 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
SOCIETY and
the ENVIRONMENT
LO 4-5
• 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 the
ENVIRONMENT
LO 4-5
• 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
SUSTAINABILITY’S in the BAG
• Rickshaw Bagworks makes
sustainable accessories built to
last.
• The “three Fs” are followed
company-wide.
1.
Form
2.
Function
3.
Footprint
4-38
SOCIAL AUDITING
LO 4-5
• Social Audit -- A systematic evaluation of an
organization’s progress toward implementing socially
responsible and responsive programs.
• Five Types of Watchdogs
1) Socially conscious investors
2) Socially conscious research
organizations
3) Environmentalists
4) Union officials
5) Customers
4-39
TEST PREP
• What is corporate social responsibility, and how
does it relate to each of a business’s major
stakeholders?
• What is a social audit, and what kinds of activities
does it monitor?
4-40
INTERNATIONAL ETHICS
LO 4-6
• Many businesses want socially responsible
behavior from their international suppliers.
• In the 1970s, the Foreign Corrupt Practices Act
criminalized the act of paying foreign businesses
or government leaders in order to get business.
• Partners in the Organization of American States
signed the Inter-American Convention Against
Corruption.
4-41
GOING by a
DIFFERENT STANDARD
• A telecommunications employee returns to his
home country to work and the company
reimburses living expenses so he can live in a
safe area. The employee is trying to do the
honorable thing for his family and the company is
trying to keep the employee safe.
If the employee uses the money to help his family
instead, is it right for the company to stop payment?
4-42
TEST PREP
• How are U.S. businesses demanding socially
responsible behavior from their international
suppliers?
• Why is it unlikely that there will be a single set of
international rules governing multinational
companies soon?
4-43