Ethics and Ethics and Corporate Corporate

ResponsibilityResponsibility

Chapter 05Chapter 05

Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Learning ObjectivesLearning Objectives

LO1 Describe how different ethical perspectives guide decision making

LO2 Explain how companies influence their ethics environment

LO3 Outline a process for making ethical decisionsLO4 Summarize the important issues surrounding corporate

social responsibilityLO5 Discuss reasons for businesses’ growing interest in the

natural environmentLO6 Identify actions managers can take to manage with the

environment in mind5-2

EthicsEthics

Ethics The system of rules

that governs the ordering of values

5-3

Telling the Truth and Lying: Possible Telling the Truth and Lying: Possible OutcomesOutcomes

5-4

It’s a Personal IssueIt’s a Personal Issue

Most of us believe we are ethical but most have unconscious biases that favor ourselves and their own group

5-5

It’s a Personal IssueIt’s a Personal Issue

Managers often: Hire people who are like them Think they are immune to conflicts of interest Take more credit than they deserve Blame others when they deserve some blame

themselves

5-6

It’s a Personal IssueIt’s a Personal Issue

Is it ethical to: Shop online during company time? Using office equipment for personal use? Read personal emails while at work?

5-7

It’s a Personal IssueIt’s a Personal Issue

One suggestion is to change your vocabulary The word “ethics” is too loaded Substitute “responsibility” or “decency” instead Act accordingly

5-8

EthicsEthics

Ethical issue Situation, problem, or opportunity in which an

individual must choose among several actions that must be evaluated as morally right or wrong

Business ethics The moral principles and standards that guide

behavior in the world of business.

5-9

Ethical SystemsEthical Systems

Moral philosophy Principles, rules, and values people use in deciding

what is right or wrong Universalism

The ethical system stating that all people should uphold certain values that society needs to function.

5-10

Caux PrinciplesCaux Principles

Kyosei living and working

together for the common good, allowing cooperation and mutual prosperity to coexist with healthy and fair competition

Human dignity concerns the value of

each person as an end, not a means to the fulfillment of others’ purposes

5-11

QuestionQuestion

Which ethical system bases ethical behavior on the opinions and behaviors of relevant other people?

A.EgoismB.Utilitarianism C.Relativism D.Virtue ethics

5-12

Ethical SystemsEthical Systems

Egoism An ethical system defining acceptable behavior as

that which maximizes consequences for the individual

Utilitarianism An ethical system stating that the greatest good

for the greatest number should be the overriding concern of decision makers.

5-13

Ethical SystemsEthical Systems

Relativism Philosophy that bases ethical behavior on the

opinions and behaviors of relevant other people Virtue ethics

Classification of people based on their level of moral judgment.

5-14

Ethical SystemsEthical Systems

Kohlberg’s model of cognitive moral development Perspective that what is moral comes from what a

mature person with “good” moral character would deem right.

5-15

QuestionQuestion

What act passed into law by Congress in 2002 established strict accounting and reporting rules?

A.Wagner ActB.Sarbanes-Oxley ActC.Chapin ActD.GAAP Act

5-16

The Ethics EnvironmentThe Ethics Environment

Sarbanes-Oxley Act An act passed into law by Congress in 2002 to

establish strict accounting and reporting rules in order to make senior managers more accountable and to improve and maintain investor confidence

5-17

Some Ethical Issues inSome Ethical Issues inBusinessBusiness

5-18

Table 5.2

Business EthicsBusiness Ethics

Ethical climate In an organization,

the processes by which decisions are evaluated and made on the basis of right and wrong

5-19

Danger SignsDanger Signs

1. Excessive emphasis on short-term revenues over longer-term considerations.

2. Failure to establish a written code of ethics.3. A desire for simple, “quick fix” solutions to ethical

problems.4. An unwillingness to take an ethical stand that may

impose financial costs.

5-20

Danger Signs (cont.)Danger Signs (cont.)

5. Consideration of ethics solely as a legal issue or a public relations tool

6. Lack of clear procedures for handling ethical problems.

7. Responding to the demands of shareholders at the expense of other constituencies

5-21

Danger SignsDanger Signs

Ethical leader One who is both a moral person and a moral

manager influencing others to behave ethically.

5-22

Ethics ProgramsEthics Programs

Compliance-based ethics programs Company mechanisms typically designed by

corporate counsel to prevent, detect, and punish legal violations.

5-23

Ethics ProgramsEthics Programs

Integrity-based ethics programs Company

mechanisms designed to instill in people a personal responsibility for ethical behavior

5-24

A Process for Ethical Decision MakingA Process for Ethical Decision Making

5-25

Figure 5.1

Ethical Decision MakingEthical Decision Making

Making ethical decisions takes: Moral awareness

realizing the issue has ethical implications Moral judgment

knowing what actions are morally defensible Moral character

the strength and persistence to act in accordance with your ethics despite the challenges

5-26

CourageCourage

Why might employees lack courage in ethical issues? A belief that the company would not take

corrective action A fear that management would retaliate against

the employee for speaking up Doubt that the employee’s report would be kept

confidential

5-27

The Business Costs of Ethical FailureThe Business Costs of Ethical Failure

5-28Figure 5.2

Corporate Social ResponsibilityCorporate Social Responsibility

Corporate social responsibility (CSR) Obligation toward

society assumed by business.

5-29

Corporate Social ResponsibilityCorporate Social Responsibility

Economic responsibilities To produce goods and

services that society wants at a price that perpetuates the business and satisfies its obligations to investors.

Legal responsibilities To obey local, state,

federal, and relevant international laws

5-30

Corporate Social ResponsibilityCorporate Social Responsibility

Ethical responsibilities Meeting other social expectations, not written as

law.

5-31

Corporate Social ResponsibilityCorporate Social Responsibility

Philanthropic responsibilities Additional behaviors

and activities that society finds desirable and that the values of the business support.

5-32

Pyramid of Global Corporate SocialPyramid of Global Corporate SocialResponsibility and PerformanceResponsibility and Performance

5-33Figure 5.3

Corporate Social ResponsibilityCorporate Social Responsibility

Transcendent education An education with five higher goals that balance

self-interest with responsibility to others Empathy, generativity, mutuality, civil aspiration,

intolerance of ineffective humanity

5-34

Contrasting ViewsContrasting Views

First - holds that managers act as agents for shareholders and, as such, are obligated to maximize the present value of the firm

Second - managers should be motivated by principled moral reasoning

5-35

Reconciliation Reconciliation

Profit maximization and corporate social responsibility used to be regarded as antagonistic, leading to opposing policies. But the two views can converge

Recent attention has also been centered on the possible competitive advantage of socially responsible actions

5-36

Ecocentric ManagementEcocentric Management

Ecocentric management Goal is the creation of sustainable economic

development and improvement of quality of life worldwide for all organizational stakeholders.

5-37

Ecocentric ManagementEcocentric Management

Sustainable growth Economic growth and development that meet

present needs without harming the needs of future generations

5-38

Ecocentric ManagementEcocentric Management

Life-cycle analysis (LCA) A process of analyzing all inputs and outputs,

though the entire “cradle-to-grave” life of a product, to determine total environmental impact

5-39

Destination CEO: Bank of AmericaDestination CEO: Bank of America

What communication pitfalls might exist at Bank of America?

Discuss the ethics of job cutting that result when mergers or acquisitions occur.

5-40