Demanding Ethical and

Socially Responsible

Behavior

Chapter 04

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

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.

LEARNING GOALSChapter Four

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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.

LEARNING GOALSChapter Four

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Profile

• While appearing on The Amazing Race, Mycoskie saw how badly local children in Argentina needed shoes.

BLAKE MYCOSKIETOMS Shoes

• He founded TOMS in 2006.

• TOMS gives a pair of shoes to a child in need for every pair sold.

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Ethics is More Than Legality

• 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 justwhat is legal

LIFE AFTER SCANDALLG1

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• 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.

COST of CORRUPTION(Legal Briefcase)

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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

• Ethics -- The standards of moral behavior. Behaviors that are accepted by society as right versus wrong.

WHAT are ETHICS?LG1

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Ethical Standards are Fundamental

Right:• Integrity

• Respect for human life

• Self-control

• Honesty

• Courage

• Self-sacrifice

Wrong:•Cheating•Cowardice•Cruelty

BASIC MORAL VALUESLG1

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Ethical Standards are Fundamental

• Values: Personal beliefs of right and wrong

• Morals: Social elements of right and wrong

• Ethics: Rules or standards governingthe conduct of a person or the members of a profession

VALUES, MORALS & ETHICSLG1

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Ethics Begins with Each of Us

• Plagiarizing from the Internet is the most common form of cheating in schools today.

ETHICS and YOU

• Studies found a strong relationship between academic dishonesty and dishonesty at work.

LG2

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• 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?

FACEBOOK or FAKEBOOK?(Making Ethical Decisions)

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Ethics Begins with Each of Us

• Ask yourself these questions:

- Is it legal?

- Is it balanced?

- How will it make me feel about myself?

FACING ETHICAL DILEMMASLG2

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BRIBERY BAD BOYSFive Open FCPA Investigations

Ethics Begins with Each of Us

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Company Case and Amount Reserved for Possible Settlements

ABBPotential bribery on three continents.

$300 million

WeatherfordPossible bribery issues in Europe and Africa.

$106 million

ENIAllegedly bribed Nigerian officials.

$300 million

TechnipAllegedly bribed Nigerian officials.

$300 million

Alcatel-LucentBribed officials in Costa Rica, Kenya and Taiwan.

$137 million settlement expected

Source: Forbes, May 24, 2010.

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Managing Businesses Ethically and Responsibly

• 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.

ETHICS START at the TOPLG3

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Managing Businesses Ethically and Responsibly

FACTORS INFLUENCING MANAGERIAL ETHICSLG3

Individual Organizational Environmental

• Values

• Work Background

• Family Status

• Personality

• Top Level Management Philosophy

• Firm’s Reward System

• Job Dimensions

• Competition

• Economic Conditions

• Social/Cultural Institutions

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Setting Corporate Ethical Standards

• 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.

ETHICS CODESLG4

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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.

HOW to IMPROVE AMERICA’S BUSINESS ETHICSLG4

Setting Corporate Ethical Standards

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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

HOW to IMPROVE AMERICA’S BUSINESS ETHICS

5. Involve outsiders such as suppliers, subcontractors, distributors and customers.

6. The ethics code must be enforced.

LG4

Setting Corporate Ethical Standards

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Sherron Watkins-Enron

Source: James Gehrke, Magnify Leadership & Development, November 2008.

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.

HOW to PREVENT UNETHICAL BEHAVIORSLG4

Setting Corporate Ethical Standards

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Source: James Gehrke, Magnify Leadership & Development, November 2008.

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.

HOW to PREVENT UNETHICAL BEHAVIORSLG4

Setting Corporate Ethical Standards

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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.

CORPORATE SOCIAL RESPONSIBILITYLG5

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• Corporate Philanthropy -- Includes charitable donations. (Bill and Melinda Gates)

• Corporate Social Initiatives -- Include enhanced forms of corporate philanthropy. (Johnson & Johnson)

CORPORATE PHILANTHROPY and SOCIAL INITIATIVESLG5

Corporate Social Responsibility

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• 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. Customers or Consumers2. Investors3. Employees4. Society and the Environment

• Corporate Policy -- The position a firm takes on social and political issues.

CORPORATE RESPONSIBILITY and POLICYLG5

Corporate Social Responsibility

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• 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.

POSTIVE IMPACTS of COMPANIESLG5

Corporate Social Responsibility

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Source: Parade Magazine, www.parade.com, July 8, 2010.

HELPING HANDSMost Generous CelebritiesLG5

Corporate Social Responsibility

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

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Source: Forbes, June 6, 2011.

GENEROUS GUYSWorld’s Biggest GiversLG5

Corporate Social Responsibility

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

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Source: Forbes, April 11, 2011.

LIFE AFTER TRAGEDYJapan’s Post-Tsunami Big GiversLG5

Corporate Social Responsibility

Who? What?

Masayoshi SonSent 12,000 cell phones to the area, created

an iPhone app for donations

Saji FamilyGave $3.7 million and shipped 360,000

bottles of water

Akio ToyodaToyota gave $3.7 million after 11 car plants

closed temporarily

Tadashi Yanai Gave $12 million

Kenji KasahariRaised $2 million on Mixi, aided in finding

missing persons

Yoshikazu TanakaSold volunteer avatars online and the

proceeds went to disaster relief

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Responsibility to Customers

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

1-RESPONSIBILITY to CONSUMERSLG5

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Responsibility to Customers

• 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.

HOW DO CUSTOMERS KNOW?LG5

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Source: Entrepreneur, September 2010.

SOCIAL CUSTOMER CONTACTDo’s and Don’ts of Using Twitter for BusinessLG5

Responsibility to Customers

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.

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• 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.

2-RESPONSIBILITY toINVESTORSLG5

Responsibility to Investors

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• Create jobs and provide a chance for upward mobility.

• Treat employees with respect.

• Offer salaries and benefits that help employees reach their personal goals.

3-RESPONSIBILITY to EMPLOYEESLG5

Responsibility to Employees

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Source: Fortune, www.fortune.com, March 21, 2011.

1. Apple

2. Google

3. Berkshire Hathaway

4. Southwest Airlines

5. Procter & Gamble

6. Coca-Cola

7. Amazon

8. FedEx

9. Microsoft

10. McDonald’s

AMERICA’S MOST ADMIRED COMPANIESLG5

Responsibility to Employees

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• 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

WHEN EMPLOYEES are UPSET…LG5

Responsibility to Employees

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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-RESPONSIBILITY to SOCIETY and the ENVIRONMENTLG5

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• Environmental efforts may increase costs, but can offer good opportunities.

• The emerging renewable-energy and energy-efficiency industries account for 9 million U.S. jobs.

4-RESPONSIBILITY to the ENVIRONMENT

• By 2030, as many as 40 million “Green” jobs will be created.

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Responsibility to Society and the Environment

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• 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.

SUSTAINABLE or SUSPECT:GREENWASHING

(Thinking Green)

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Social Auditing

• Social Audit -- A systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs.

• Five Types of Social Audit Watchdogs1) Socially conscious investors

2) Socially conscious research organizations

3) Environmentalists

4) Union officials

5) Customers

SOCIAL AUDITINGLG5

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International Ethics and Social Responsibility

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.

INTERNATIONAL ETHICSLG6

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International Ethics and Social Responsibility

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 briberyand corruption with governmentleaders when doing business.

INTERNATIONAL ETHICSLG6

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Progress Assessment

• 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?

IN CONCLUSION

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