Demanding Ethical and

Socially Responsible

Behavior

Chapter 04

Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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. 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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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 have broken the law.

- Make accounting records more transparent.

- Consider what is ethical, not just what 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.• Basic Morals – Right and Wrong

WHAT are ETHICS?LG1

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Ethics Begins with Each of Us

• Plagiarizing from Internet materials 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.

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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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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

TOP

LG3

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Managing Businesses Ethically and Responsibly

FACTORS INFLUENCING MANAGERIAL ETHICSLG3

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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.

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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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.

• Corporate Social Initiatives -- Include enhanced forms of corporate philanthropy.

CORPORATE PHILANTHROPY and SOCIAL INITIATIVESLG5

Corporate Social Responsibility

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• 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.

CORPORATE RESPONSIBILITY and POLICYLG5

Corporate Social Responsibility

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Responsibility to Customers

• The Right to Safety

• The Right to be Informed

• The Right to Choose

• The Right to be Heard

PRESIDENT KENNEDY’S BASIC RIGHTS of 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’s 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

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• 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.

INSIDER TRADINGLG5

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.

RESPONSIBILITY to EMPLOYEESLG5

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.

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.

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

• 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.

INTERNATIONAL ETHICSLG6

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