Conducting Business Ethically and Responsibly CHAPTER 3 1

LEARNING OBJECTIVES After reading this chapter, you should be able to: 1. Explain how individuals develop their personal codes 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 the concept of social responsibility applies both to environmental issues and to a firm’s relationships with customers, employees, and investors. © 2009 Pearson Education, Inc. 2

L E A R N I N G O B J E C T I V E S (cont’d) 4. Identify four general approaches to social responsibility and describe the four steps that a firm must take to implement a social responsibility program. 5. Explain how issues of social responsibility and ethics affect small business. © 2009 Pearson Education, Inc. 3

Ethics in the Workplace • Ethics – Beliefs about what’s right and wrong or good and bad • Ethical Behavior – Behavior conformed to individual beliefs and social norms about what’s right and good • Unethical Behavior – Behavior conforming to individual beliefs and social norms about what is defined as wrong and bad. • Business Ethics – The ethical or unethical behaviors by employees in the context of their jobs © 2009 Pearson Education, Inc. 4

Individual Values and Codes • How does an individual develop a code of personal ethics? (Sources of Personal Codes of Ethics) 1. Childhood responses to adult behavior: copying their parents in yelling when something goes wrong. 2. Influence of peers: friends gets some cigarettes. 3. Experiences in adulthood. E. g. Bad experience with the boss by being unfair. 4. Developed morals and values. all of the above develop morals and values in a person. Employees may need special attention or training if they come from another culture © 2009 Pearson Education, Inc. 5

Individual ethics Ethics are based on individual beliefs and social concepts. Therefore it is varied among individuals, situations and cultures. Ambiguity the law and ethics. Law developed from ethics. But still some ethics are not legislated. 6

Discussion A. Please develop a list of 2 examples of ethical behavior and 2 examples of unethical behavior in the workplace. 7

Discussion A. Please write down the possible source or personal code of ethics that might cause the ethical or unethical behaviors you shared with the class. 8

Discussion A. : What are the benefits of a formal code 1. 2. 3. 4. of ethics? Why does it make a difference? Can increase public confidence May help deflectturn aside potential new government regulation. Provides consistent standards of ethical conduct (increasingly important in a multinational/multicultural environment) Can help managers respond to unethical or illegal behavior on the part of employees or other stakeholders 9

Discussion: What would you want to know about a company’s code of ethics before you accepted an offer of employment? A. (Possibilities include policies on social responsibility and the environment, policies on Internet and email use, attitudes toward employees and other stakeholders, etc. ) 10

Business and Managerial Ethics • Managerial Ethics – The standards of behavior that guide individual managers in their work – Ethics affect a manager’s behavior toward: A. Employees: e. g. employee is constantly late for work. manager who discriminates against any ethnic minority in hiring exhibits both unethical and illegal behaviour. © 2009 Pearson Education, Inc. 11

Business and Managerial Ethics • Managerial Ethics – The standards of behavior that guide individual managers in their work – Ethics affect a manager’s behavior toward: A. The organization: A conflict of interest occurs when an activity benefits an individual at the expense of the employer. Most companies, for example, have policies that forbid company buyers from accepting gifts from suppliers. e. g. organization is very open and wants employee suggestions © 2009 Pearson Education, Inc. 12

Business and Managerial Ethics • Other economic agents—customers, competitors, stockholders, suppliers, dealers, and unions: e. g. manager may have developed a certain communication style • Ethical Concerns – Ambiguity (e. g. , financial disclosure): the manager may consider not disclosing, or hiding, certain financial information. – Global variation in business practices (e. g. , bribes). E. g. , Latin America, it can be quite common to bribe a government official or pay a little extra money to an agent to get permits. © 2009 Pearson Education, Inc. 13

Assessing Ethical Behavior • Simple Steps in Applying Ethical Judgments. • Example: consultant requires a billing prior finishing the task and company prefer this. 1. Gather the relevant factual information 2. Analyze the facts to determine the most appropriate moral values 3. Make an ethical judgment based on the rightness or wrongness of the proposed activity or policy. Is it OK to submit an illegitimate receipt in place of a © 2009 Pearson Education, Inc. lost legitimate receipt? 14

Assessing Ethical Behavior • Ethical Norms and examining the Issues that we are facing in terms of: – Utility: Does a particular act optimize the benefits to those who are affected by it? Do all relevant parties receive “fair” benefits? – Rights: Does the act respect the rights of all individuals involved? – Justice: Is the act consistent with what’s fair? E. g. , level of salary, working hours. – Caring: Is the act consistent with people’s responsibilities to each other? Responsibility toward each other. © 2009 Pearson Education, Inc. 15

Encouraging Ethical Behavior in business: 1. Adopting written codes of conduct and establishing clear ethical positions for the conduct of business. E. g. , of written codes: Employees are not allowed to accept gifts from suppliers or customers. 2. Having top management demonstrate its support of ethical standards. E. g. , manager abide by the above rule. 3. Instituting programs to provide periodic ethics training 4. Establishing ethical hotlines for reporting and discussing unethical behavior and activities © 2009 Pearson Education, Inc. 16

Benefits of Adopting Written Codes 1. They increase public confidence in a firm or its industry. 2. They may help stem the tide of government regulation. 3. They improve internal operations by providing consistent standards of both ethical and legal conduct. 4. They help managers respond to problems that arise as a result of unethical or illegal behaviour. 17

Adopting Written Codes About two-thirds of Canada's largest corporations have codes of ethics (90 percent of large U. S. firms do). More and more regulatory and professional associations in Canada are recommending that corporations adopt codes of ethics. 18

The Evolution of Social Responsibility 1. Entrepreneurial Era: In the late 1800 s, big business began to flourish, but labor strife, predatorygreedy business practices, and environmental degradation were rampantout of control. Issued nation’s first law regulating basic business practices. 2. The Great Depression: The collapse of business and banking institutions in the 1930 s, combined with widespread job loss, led to a redefinition of the role of business to include protecting and enhancing the general welfare of society.

The Evolution of Social Responsibility 3 - The Era of Social Activism: Social unrest in the 1960 s and 1970 s led to laws that further expanded the role of business in promoting general welfare. When at that time characterized business as a negative social force. Many companies blamed to promote Vietnam war to sell weapons. 4 - Contemporary Social Consciousness: Through the economic expansion of the 1990 s, many firms have begun to integrate socially conscious thinking into their production and marketing plans. In many industries, this approach has manifested itself in environmentally friendly products. Another emerging example is the extension of employment benefits to domestic partners, use recycling materials. .

Social Responsibility • Social Responsibility – The overall way in which a business attempts to balance its commitments to relevant groups and individuals (stakeholders) in its social environment • Organizational Stakeholders – Groups, individuals, and organizations that are directly affected by the practices of an organization and, therefore, have a stake in its performance © 2009 Pearson Education, Inc. 21

The Stakeholder Model of Responsibility • Customers – Businesses strive to treat customers fairly and honestly • Employees – Businesses treat employees fairly, make them a part of the team, and respect their dignity and basic human needs • Investors – Businesses follow proper accounting procedures, provide information to shareholders about financial performance, and protect shareholder rights and investments • Suppliers – Businesses emphasize mutually beneficial partnership arrangements with suppliers • Local and International Communities – Businesses try to©be socially responsible 2009 Pearson Education, Inc. 22

There is a debate about which of these stakeholders should be given the most attention. One view, often called managerial capitalism, is held by Nobel laureate Milton Friedman, who says that a company's only social responsibility is to make as much money as possible for its shareholders 23

Contemporary Social Consciousness • The Concept of Accountability – The expectation of an expanded role for business in protecting and enhancing the general welfare/interests of society. – Example: for example, a company has a duty to place information on its website about product content, potential side effects from its use, like not following directions for use or instructions on installation or assembly. © 2009 Pearson Education, Inc. 24

Areas of Social Responsibility • Responsibility Toward the Environment – Properly disposing of toxic waste – Engaging in recycling – Controlling air, water, and land pollution © 2009 Pearson Education, Inc. 25

Areas of Social Responsibility – Green Marketing: The marketing of environmentally friendly goods: e. g. , power saving computers and monitors • Includes a number of strategies and practices: –Production processes –Product modifications –Carbon offsets/balance –Packaging reduction –Sustainability © 2009 Pearson Education, Inc. 26

Areas of Social Responsibility • Green washing: Using advertising to project a green image without adopting substantive environmentally friendly change. • Federal Trade Commission (FTC) started hearings in January 2008 regarding green marketing claims © 2009 Pearson Education, Inc. 27

Responsibility Toward Customers – Involves providing quality products and pricing products fairly • Consumerism – Social activism dedicated to protecting the rights of consumers in their dealings with businesses • Basic Consumer Bill of Rights 1. To possess safe products 2. To be informed about all relevant aspects of a product 3. To be heard 4. To choose what to buy 5. To be educated about purchases 6. To receive courteous/considerable service © 2009 Pearson Education, Inc. 28

Areas of Social Responsibility (cont’d) • Unfair Pricing – Collusion/agreement: When two or more firms agree to collaborate on such wrongful acts as price fixing. – Price gouging/scoring: Responding to increased demand with overly steep (and often unwarranted) price increases • Ethics in Advertising – Truth in advertising – Morally objectionable/offensive advertising, e. g. , using naked woman picture in ads. © 2009 Pearson Education, Inc. 29

Responsibility Toward Employees – Legal and social commitments to: • Not practice illegal discrimination • Provide a physically and socially safe workplace • Provide opportunities to balance work and life • Provide protection for whistleblowers (an employee who discovers and tries to put an end to a company’s unethical, illegal, or socially irresponsible actions by publicizing them) © 2009 Pearson Education, Inc. 30

Responsibility Toward Investors –Proper financial management (no insider trading) –Proper representation of finances 31

Responsibility Toward Investors A. Improper financial management: Offenses are typically unethical, rather than illegal. Examples include excessive salaries, and lavish/plentiful or frivolous perk s/benefits (e. g. regular corporate “retreats” to exotic island resorts). B. Check kiting: Illegal practice of writing checks against money that has not yet arrived at the bank on which it is drawn. C. Insider trading: Illegal practice of using confidential information to gain from the purchase or sale of stocks. D. Misrepresentation of finances: Typically, this takes the form of overly optimistic projections of earnings. 32

Implementing Social Responsibility (SR) Programs • Arguments Against SR – The cost of SR threatens profits. – Business has too much control over which SR issues would be addressed and how SR issues would be addressed. – Business lacks expertise in SR matters. • Arguments for SR – – SR should take precedence over profits. Corporations as citizens should help others. Corporations have the resources to help. Corporations should solve problems they create. © 2009 Pearson Education, Inc. 33

Approaches to Social Responsibility Businesses take four stances • Obstructionist Stance – A company does as little as possible and may attempt to deny or cover up violations • Defensive Stance – A company does everything required of it legally but no more • Accommodative Stance – A company meets its legal and ethical requirements and also goes further in certain cases • Proactive Stance – A company actively seeks to contribute to the well-being of groups and individuals in its social environment © 2009 Pearson Education, Inc. 34

FIGURE 2. 4: Spectrum/range of Approaches to Corporate Social Responsibility © 2009 Pearson Education,

Managing Social Responsibility Programs 1. Social responsibility must start at the top and be considered as a factor in strategic planning. 2. A committee of top managers must develop a plan detailing the level of management support. 3. One executive must be put in charge of the firm’s agenda. 4. The organization must conduct occasional social audits—systematic analyses of its success in using funds earmarked for its social responsibility goals. 5. Social Responsibility: The result of a well-managed program. © 2009 Pearson Education, Inc. 36

Managing Social Responsibility Programs Social Responsibility Social Audit Appointment of Director Strategic Planning Top-Management Support

Social Responsibility and the Small Business • Large Business versus Small Business Responses to Ethical Issues – Differences are primarily differences of scale – More issues are questions of individual ethics • Ethics and social responsibility are decisions faced by all managers in all organizations, regardless of rank or size © 2009 Pearson Education, Inc. 38

Homework A. Page 79 Answer question 1 -6. 39

Chapter review A. What basic factors should be considered in any ethical decision? A. Who are an organization’s stakeholders? Who are the major stakeholders with whom most businesses must be concerned? .

Chapter review A. What are the four basic approaches to social responsibility?

Chapter Review A. Discuss how individuals develop their personal codes of ethics.