Ethics in Business

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© 2014 Pearson Education, Inc.

Better Business

3rd EditionSolomon (Contributing Editor) ·

Poatsy · Martin

Ethics and Social Responsibility: A Close Relationship

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ETHICSBeliefs about

right and wrong

SOCIAL RESPONSIBILITYThe obligation of a business

to contribute to society

Ethics

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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

Universal Ethical Standards

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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 Influence Ethical Behavior

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Three general sets of factors appear to influence the standards of behavior in an organization.• Individual factors

– Individual knowledge of an issue– Personal values– Personal goals

• Social factors– Business Climate (managers, co-workers)– Cultural norms– Significant others– Co. Enforcement– Code of Ethics– Co. Policies (ex. Use of the Internet)

• Opportunity– Presence of opportunity

Ethics: Multiple Touchpoints

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Individuals must make their own

ethical choices

BUT

The organization can have a significant

influence on decisions

Determining Your Code of Personal Ethics

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Personal Ethics in a Business Environment

What if you are asked to act against your ethics?

What if you unknowingly do something “wrong”?

What if you knowingly do something unethical or even illegal?

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Encouraging a More Ethical Business Climate

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External to a specific organization• Governmental legislation and regulations

– Sarbanes-Oxley Act of 2002

• Trade association guidelines– IFA (International Factoring Assoc.), TIA (Trans. Intermediaries Assoc)

Within an organization• Developing a Code of ethics

– A written guide to acceptable and ethical behavior as defined by an organization; it outlines policies, standards, and punishments for violations

• Organizational environment– Reward ethical behavior - Discipline unethical behavior– Reduce opportunity - Provide a forum for reporting– Ethics officer - Employee training– Leadership & Communication - Ethics Officer

Whistle-blowing• Informing the press or government officials about unethical

practices within one’s organization

Identifying a Company’s Ethics

How can you examine a company’s ethics?

Companies document their philosophies, often through:– Code of ethics - a statement of the company’s

commitment to ethical practices– Mission statement - defines the core purpose of an

organization

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Ethical Focus from the Start

Steps to make sure employees get off to an ethical start:

• Code of ethics• Mission statement• Leading by example• Orientation programs

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Pricing Fixing

Price fixing – illegal practice when a group of companies agree to set a product’s price

Mark Whitacre, a senior executive with the agricultural giant Archer Daniels Midland (ADM), blew the whistle on ADM’s multinational price-fixing scheme

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Recovering fromWeak Ethical Conduct

Whistleblower

Common strategies to recover1. Find a leader

2. Empower all employees

3. Redesign internal rewards

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Ethical Focus Every Day • Communicate regularly

about acceptable behavior

• Check to make sure that the code of ethics is being followed

• Create a hotline for anonymous reports

• Employ on-going ethics training

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Can you affect how businesses operate ethically?

You can affect:- Your own ethical behavior

- Who you do business with

- Who you invest in

- Who you work for

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Legal Regulations and Compliance

Laws are created to govern the products or process of a specific industry

Example: Consumer Bill of Rights (1962)Right to safety Right to choose Right to informationRight to be heard

Legal compliance - conducting a business within the boundaries of all the legal regulations of that industry

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Violating Ethics & the Law: The Example of Enron

• Was the seventh largest U.S. company at its zenith• Had a written code of ethics including social and

environmental values• In 2001, fraudulent finance practices surfaced and the

company went bankrupt- Key officers found guilty of fraud and other charges- Arthur Andersen, Enron’s accounting firm, convicted of

obstruction of justice and the firm closed• Sarbanes/Oxley Act passed in 2002, with strict corporate

finance requirements and penalties

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Defining Social Responsibility

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Core stakeholder groups include employees, customers, investors, and community.

Social Responsibility is the obligation of a business to contribute to society.

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 with the firm.

Corporate Social Responsibility (CSR)

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Can a Company Really Be Socially Responsible?

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

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Two Views of Social Responsibility

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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.

The Pros and Cons of Social Responsibility

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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.

The Pros and Cons of Social Responsibility

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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.

Benefits of CSR• 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

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Measuring CSRIs it possible to measure a company’s CSR level?

Social audits

Ratings and rankings– Calvert Company– Fortune’s 10 Most-Admired

Companies

Self-reporting

Corporate philanthropy

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The Challenges of CSR

Balancing the demands of social responsibility with successful business practices

Conflicting demands pose numerous ethical challenges such as:

– Making life-saving drugs available to the world’s poor– Conducting a profitable business in an

environmentally sound manner

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The Effects of CSR on Society

• Environmental- Local and global impact

• Economic- Product availability, price and quality- Business sustainability

• Employee morale- Advancement- Work environment- Values

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