CHAPTER 4 Demanding Ethical and Socially Responsible Behavior

Ethics and Social Responsibility: A Close Relationship ETHICS Beliefs about right and wrong SOCIAL RESPONSIBILITY The obligation of a business to contribute to society (businesses concern for welfare of society) 4 -2

WHAT are ETHICS? LO 4 -1 §Ethics • The study of right and wrong and of the morality of the choices individuals make • An ethical decision is one that is “right” according to some standard of behavior §What’s Ethical? • Different standards for different people, cultures, countries, etc. • Gray areas? • More than just following the law • Fundamental standards (respect for life, honesty, integrity, etc. ) §Business ethics • The application of moral standards to business situations §Good ethics is good business! • The application of moral standards to business situations 4 -3

BASIC MORAL VALUES Right: • Integrity • Respect for human life LO 4 -1 Wrong: • Cheating • Cowardice • Cruelty • Self-control • Honesty • Courage • Self-sacrifice 4 -4

UNIVERSAL ETHICAL STANDARDS § Fairness and honesty • Businesspeople are expected to refrain from knowingly deceiving, misrepresenting, or intimidating others. • Follow the “Golden Rule” (treat other people like you want to be treated) § Organizational relationships • A businessperson should put the welfare of others and that of the organization above his or her own personal welfare. § Conflict of interest • Issues arise when a businessperson takes advantage of a situation for personal gain rather than for the employer’s interest. § Communications • Business communications that are false, misleading, and deceptive are both illegal and unethical.

FACTORS THAT INFLUENE ETHICAL BEHAVIOR Three general sets of factors appear to influence the standards of behavior in an organization. • Individual factors • Individual knowledge of an issue • Personal values and beliefs • Personal goals • Social factors • Business Climate (managers, co-workers) • Cultural norms, attitudes and beliefs • Religion • Significant others • Co. Enforcement • Code of Ethics • Co. Policies (ex. Use of the Internet) • Opportunity • Presence of opportunity 4 -6

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 -7

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 -8

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 -9

ETHICS START at the TOP • 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. LO 4 -3 Individuals must make their own ethical choices BUT The organization can have a significant influence on decisions 4 -10

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 -11

ETHICS CODES LO 4 -4 §External to a specific organization • Governmental legislation and regulations • Sarbanes-Oxley Act of 2002 • IFA (International Factoring Assoc. ), TIA (Trans. Intermediaries Assoc) • A written guide to acceptable and ethical behavior as defined by an organization; it outlines policies, standards, and punishments for violations • Trade association guidelines §Within an organization • Developing a Code of ethics • Organizational environment • • Reward ethical behavior Reduce opportunity Ethics officer Leadership & Communication Discipline unethical behavior Provide a forum for reporting Employee training Ethics Officer §Whistle-blowing • Informing the press or government officials about unethical practices within one’s organization 4 -12

CORPORATE SOCIAL RESPONSIBILITY LO 4 -5 Social Responsibility is the obligation of a business to contribute to society. Core stakeholder groups include employees, customers, investors, and community. Social Responsibility costs money but is also good business. How socially responsible a firm acts may affect the decisions of customers to do or continue to do business 4 -13

CAN A COMPANY BE REALLY SOCIALLY RESPONSIBLE? LO 4 -5 Economist Milton Friedman said, “Asking a corporation to be socially responsible makes no more sense than asking a building to be. ” Conflicts of CSR: Difficult to measure how CSR interacts with a long-term responsibility to the community or planet Difficult to balance profits for shareholders and quality for consumers 4 -14

TWO VIEWS OF SOCIAL RESPONSIBILITY Socioeconomic model (Actively Contribute) • • Business should emphasize not only profits but also the impact of its decisions on society. The corporation is a creation of society and it must act as any responsible citizen would. Firms take pride in their social responsibility obligations. It is in the best interest of firms to take the initiative in social responsibility matters. Economic model (Passive Contribution) • • Society will benefit most when business is left alone to produce and market profitable products that society needs. Managerial attitude: social responsibility is someone else’s job; the firm’s primary responsibility is to make a profit for its shareholders. Firms are assumed to fulfill their social responsibility indirectly by paying the taxes that are used to meet the needs of society. Social responsibility is the problem of government, environmental groups, and charitable foundations. 4 -15

THE PROS AND CONS OF SOCIAL RESPONSIBILITY Arguments for Passive Contribution of social responsibility (i. e. believers of Economic Model approach to Social Responsibility): 1. Business managers are primarily responsible to stockholders, so management must be concerned with providing a return on owners’ investments. 2. Corporate time, money, and talent should be used to maximize profits, not to solve society’s problems. 3. Social problems affect society in general, so individual businesses should not be expected to solve these problems. 4. Social issues are the responsibility of government officials who are elected for that purpose and who are accountable to the voters for their decisions. 4 -16

THE PROS AND CONS OF SOCIAL RESPONSIBILITY Arguments for PROACTIVE social responsibility (i. e. Believers of Socioeconomic Approach to Social Responsibility): 1. Because business is part of our society, it cannot ignore social issues. 2. Business has the technical, financial, and managerial resources needed to tackle today’s complex social issues. 3. By helping resolve social issues, business can create a more stable environment for long-term profitability. 4. Socially responsible decision-making by firms can prevent increased government intervention, which would force businesses to do what they fail to do voluntarily. 4 -17

BENEFITS OF CSR LO 4 -5 • A positive reputation in the marketplace • Strong recruitment and talent retention • Efficiency increases when companies use materials efficiency and minimize waste • Increased sales via product innovations and environmentally and ethically conscious labeling 4 -18

CORPORATE PHILANTHROPY and SOCIAL INITIATIVES LO 4 -5 • Corporate Philanthropy -Includes charitable donations. • Corporate Social Initiatives -- Include enhanced forms of corporate philanthropy. 4 -19

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 -20

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 -21

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 -22

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 -23

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 -24

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 -25

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 -26

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 Fed. Ex Southwest Airlines General Electric Source: Fortune, www. forbes. com, accessed November 2014. 4 -27

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 -28

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 -29

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 -30

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 -31