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Ethics in Business 3-1 chapter 3 © 2014 Pearson Education, Inc. Better Business 3rd Edition Solomon (Contributing Editor) · Poatsy · Martin
Ethics and Social Responsibility: A Close Relationship © 2010 Pearson Education, Inc. 2 ETHICS Beliefs about right and wrong SOCIAL RESPONSIBILITY The obligation of a business to contribute to society
Ethics 3-3 © 2014 Pearson Education, Inc. 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 © 2010 Pearson Education, Inc. 4 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 © 2010 Pearson Education, Inc. 5 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 © 2010 Pearson Education, Inc. 6 Individuals must make their own ethical choices BUT The organization can have a significant influence on decisions
Determining Your Code of Personal Ethics © 2014 Pearson Education, Inc. 3-7
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? 3-8 © 2014 Pearson Education, Inc.
Encouraging a More Ethical Business Climate © 2010 Pearson Education, Inc. 9 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 3-10 © 2014 Pearson Education, Inc.
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 3-11 © 2014 Pearson Education, Inc.
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 3-12 © 2014 Pearson Education, Inc.
Recovering from Weak Ethical Conduct Whistleblower Common strategies to recover 1.Find a leader 2.Empower all employees 3.Redesign internal rewards 3-13 © 2014 Pearson Education, Inc.
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 3-14 © 2014 Pearson Education, Inc.
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 3-15 © 2014 Pearson Education, Inc.
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 information Right to be heard Legal compliance - conducting a business within the boundaries of all the legal regulations of that industry 3-16 © 2014 Pearson Education, Inc.
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 3-17 © 2014 Pearson Education, Inc.
Defining Social Responsibility © 2010 Pearson Education, Inc. 18 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) 3-19 © 2014 Pearson Education, Inc.
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 3-20 © 2014 Pearson Education, Inc.
Two Views of Social Responsibility © 2010 Pearson Education, Inc. 21 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 © 2010 Pearson Education, Inc. 22 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 © 2010 Pearson Education, Inc. 23 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 3-24 © 2014 Pearson Education, Inc.
Measuring CSR Is 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 3-25 © 2014 Pearson Education, Inc.
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 3-26 © 2014 Pearson Education, Inc.
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 3-27 © 2014 Pearson Education, Inc.
3-28 © 2014 Pearson Education, Inc.
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