2. Fourth Edition Copyright ©2003 Prentice Hall, Inc. PART 1........................ Understanding the Contemporary Business Environment

3. Copyright ©2003 Prentice Hall, Inc. 3 - 2 Conducting Business Ethically Business Essentials Chapter 3 Business Essentials Chapter 3

4. Copyright ©2003 Prentice Hall, Inc. 3 - 3 “The more I help others to succeed, the more I succeed.” Ray Kroc, Founder, McDonald’s

5. Copyright ©2003 Prentice Hall, Inc. 3 - 4 Key Topics Individual codes of ethics and the importance of ethics in the workplace Key terms Social responsibility in business Environmental issues and stakeholder relationships Approaches and implementation Implications for small business

6. Copyright ©2003 Prentice Hall, Inc. 3 - 5 What Is Ethical Behavior? Ethics: Right and wrong, good and bad, in actions that affect others. shaped by personal values and morals Ethical Behavior: Conforming to generally accepted ethical norms. Business ethics: Ethical or unethical behaviors of managers and employers of an organization.

7. Copyright ©2003 Prentice Hall, Inc. 3 - 6 Discussion Identify examples of ethical and unethical business practices. Ethical Business Practices: Examples: Donating a percentage of profits to charity and community causes (Ben & Jerry’s donates 7- 1/2% of pre-tax profits, and Levi Strauss donates 2.4% of pre-tax profits to a variety of causes), encouraging employees to engage in volunteer work using paid work-release time (Walt Disney’s VoluntEARS program), recycling (McDonald’s has a far-reaching environmental protection program). Unethical Business Practices: Examples: Forwarding “marketing research” results to sales people, excessive violence in video games, and of course all forms of illegal behavior (e.g. deliberately selling cigarettes to minors).

8. Copyright ©2003 Prentice Hall, Inc. 3 - 7 Discussion How can a business maintain a competitive edge and still help others succeed? Cooperation – identify the sources of competitiveness, provide assistance. when does a gift become a bribe?), and the differences in tipping practices (tips are expected for virtually every service in Jamaica.

9. Copyright ©2003 Prentice Hall, Inc. 3 - 8 Ethical Considerations Regarding a particular norms (principles): Utility: Does it optimize what is best for those who are affected by it? All benefit from it. Rights: Does it respect the rights of the individuals involved? Justice: Is it consistent with what we regard as fair? Caring: Is it consistent with people’s responsibilities to each other? Is it OK to submit an illegitimate receipt in place of a lost legitimate receipt?

10. Copyright ©2003 Prentice Hall, Inc. 3 - 9 The Coca Cola Scare Case\panic Company Practices and Business Ethics Best Approach: Open, Honest, Responsive! The Tylenol Scare Case

11. Copyright ©2003 Prentice Hall, Inc. 3 - 10 Company Practices and Business Ethics The Tylenol Scare Case: Johnsons & Johnson: recalled in 1982 the Tylenol bottles (pain reliever) they were found tied with cyanide\poison. Coca-Cola in Europe because some of Belgian schoolchildren suffer of miner illness after drinking Coke made from bad bunch of carbon dioxide\ Gas. They removed the Coke from selves and apologized to the people.

12. Copyright ©2003 Prentice Hall, Inc. 3 - 11 Formalize commitment to business ethics Best Approach: Open, Honest, Responsive Adopting written codes. Instituting ethics programs. Teaching and training. Report unethical behavior.

13. Copyright ©2003 Prentice Hall, Inc. 3 - 12 Discussion : What are the benefits of a formal code of ethics? Why does it make a difference? 1. Can increase public confidence 2. May help deflect\turn aside potential government regulation. 3. Provides consistent standards of ethical conduct (increasingly important in a multinational/multicultural environment) 4. Can help managers respond to unethical or illegal behavior on the part of employees or other stakeholders Discussion: What would you want to know about a company’s code of ethics before you accepted an offer of employment? (Possibilities include policies on social responsibility and the environment, policies on Internet and email use, attitudes toward employees and other stakeholders, etc.)

14. Copyright ©2003 Prentice Hall, Inc. 3 - 13 Hewlett-Packard code of ethics 1. We have trust and respect for individuals. 2. We focus on a high level of achievement and contribution. 3. We conduct our business with uncompromising integrity. 4. We achieve our common objectives through teamwork. 5. We encourage flexibility and innovation.

15. Copyright ©2003 Prentice Hall, Inc. 3 - 14 Email Internet Cellular Phones How Much Privacy Does Your Employer Owe You?

16. Copyright ©2003 Prentice Hall, Inc. 3 - 15 Discussion If you are setting Internet usage policies for their own companies, where would they set limits? Why? Discussion topics: productivity, company values, and protection of proprietary information. Is it ever OK to surf the web for personal reasons (e.g. shopping)? When? Why?

17. Copyright ©2003 Prentice Hall, Inc. 3 - 16 Principles, Ethics, and Corporate Policy Core Principles & Organizational Values

18. Copyright ©2003 Prentice Hall, Inc. 3 - 17 Social Responsibility: Balancing Commitments to Stakeholders Stakeholders: Groups, individuals, and organizations that are directly affected by the practices of an organization EmployeesInvestors Local Communities CustomersSuppliers CORPORATION

19. Copyright ©2003 Prentice Hall, Inc. 3 - 18 Social Responsibility It refers to the way in which a business tries to balance its commitments to certain groups and individuals in its social environment. Customers: Treat customers fairly and honestly (Examples of companies with excellent reputations in this area: L.L. Bean, Nordstrom, Dell Computer Corporation) Employees: Treat employees fairly, with respect for their dignity and basic human needs (Examples of companies with excellent reputations in this area: 3M, Southwest Airlines) Investors: Manage financial resources honestly and openly Suppliers: Seek mutually beneficial partnerships Local Communities: Minimize damage and maximize contributions to local communities Discussion: Who are the major stakeholders at your school? How does the school prioritize these stakeholders? What are your thoughts about this prioritization?

20. Copyright ©2003 Prentice Hall, Inc. 3 - 19 The Evolution of Social Responsibility Contemporary Social Consciousness Era of Social Activism The Great Depression Entrepreneurial Era

21. Copyright ©2003 Prentice Hall, Inc. 3 - 20 The Evolution of Social Responsibility Entrepreneurial Era: In the late 1800s, big business began to flourish, but labor strife, predatory\greedy business practices, and environmental degradation were rampant\out of control. Issued nation’s first law regulating basic business practices. The Great Depression: The collapse of business and banking institutions in the 1930s, combined with widespread job loss, led to a redefinition of the role of business to include protecting and enhancing the general welfare of society. The Era of Social Activism: Social unrest in the 1960s and 1970s led to laws that further expanded the role of business in promoting general welfare. Contemporary Social Consciousness: Through the economic expansion of the 1990s, many firms have begun to integrate socially conscious thinking into their production and marketing plans. In many industries, this approach has manifested itself in environmentally friendly products. Another emerging example is the extension of employment benefits to domestic partners, use recycling materials..

22. Copyright ©2003 Prentice Hall, Inc. 3 - 21 Encompasses three main areas: 1. Air pollution 2. Water pollution 3. Land pollution Toxic\deadly waste Recycling Responsibility Toward the Environment

23. Copyright ©2003 Prentice Hall, Inc. 3 - 22 Responsibility Toward Customers Consumer Rights Unfair Pricing Ethics in Advertising

24. Copyright ©2003 Prentice Hall, Inc. 3 - 23 Responsibility Toward Customers Consumerism is social activism dedicated to protecting consumers in their dealings with business. First proposed by John F. Kennedy, consumer rights include: The right to safe products The right to be informed about all relevant aspects of a product The right to be heard The right to choose what to buy

25. Copyright ©2003 Prentice Hall, Inc. 3 - 24 Responsibility Toward Customers Unfair Pricing: Pricing is considered unfair if it interferes with competition. Two possibilities: –Price fixing: Two or more firms agreeing to hold prices at a predetermined level. –Price gouging\scoring: Responding to increased demand with overly steep price increases. Analysts were amazed that price gouging was not more widespread in NY in the wake of the 9/11 attacks. Ethics in Advertising: Examples of shady practices: tobacco ads targeted toward young people, sexually suggestive ads featuring children. »Discussion: identifying other examples of ads that are ethically shaky.

26. Copyright ©2003 Prentice Hall, Inc. 3 - 25 Responsibility Toward Employees Legal & Social Commitments Whistle-blowers

27. Copyright ©2003 Prentice Hall, Inc. 3 - 26 Whistle-blowers The employee publicizing (by reporting to public or media) any company’s unethical, socially irresponsible and illegal actions. Usually these people will find themselves in trouble with their employers.

28. Copyright ©2003 Prentice Hall, Inc. 3 - 27 Responsibility Toward Employees Legal and social commitments: Legally, companies are required to refrain from discrimination against any worker based on race, gender, religion, nationality or other irrelevant factors. Ethically, many people feel that companies should ensure that the workplace is physically and socially safe. How far should companies extend themselves to help employees who are laid off?

29. Copyright ©2003 Prentice Hall, Inc. 3 - 28 Responsibility Toward Investors Improper financial management: Offenses are typically unethical, rather than illegal. Examples include excessive salaries, and lavish or frivolous perks (e.g. regular corporate “retreats” to exotic island resorts). Check kiting: Illegal practice of writing checks against money that has not yet arrived at the bank on which it is drawn. Insider trading: Illegal practice of using confidential information to gain from the purchase or sale of stocks. Misrepresentation of finances: Typically, this takes the form of overly optimistic projections of earnings.

30. Copyright ©2003 Prentice Hall, Inc. 3 - 29 Level of Social Responsibility Approaches to Social Responsibility Defensive Stance Obstructionist Stance Accommodative Stance Proactive Stance Lowest Highest Actively Avoids Responsibility Does Legal Minimum Responds to Requests Actively Seeks Opportunities to Contribute

31. Copyright ©2003 Prentice Hall, Inc. 3 - 30 Approaches to Social Responsibility Obstructionist stance: Approach to social responsibility that involves doing as little as possible and may involve attempts to deny or cover up violations (e.g. PG&E’s water contamination and cover-up). Defensive stance: Approach to social responsibility by which a company meets only minimum legal requirements (e.g. tobacco companies that use warning labels in the U.S., but not abroad where they aren’t required to do so). Accommodative stance: Approach to social responsibility by which a company only exceeds minimum legal requirements if asked to do so by specific stakeholder groups. Proactive stance: Approach to social responsibility by which a company actively seeks opportunities to contribute to its social environment, often through a foundation.

32. Copyright ©2003 Prentice Hall, Inc. 3 - 31 Social Responsibility Managing Social Responsibility Programs Social Audit Appointment of Director Strategic Planning Top-Management Support

33. Copyright ©2003 Prentice Hall, Inc. 3 - 32 Managing Social Responsibility Programs Top management support: Top management support is the keystone of a successful social responsibility program. Strategic Planning: A committee of top managers must detail the level of support and set specific priorities. Appointment of a Director: One executive must be in charge of the program, with responsibility for monitoring the program and ensuring that its implementation is consistent with the firm’s strategic plan. Social Audits: The organization must periodically analyze the success of the program to ensure that it meets its goals efficiently and effectively. Social Responsibility: The result of a well-managed program.

34. Copyright ©2003 Prentice Hall, Inc. 3 - 33 Ethics, Social Responsibility, and the Small Business Do small businesses face different issues with regard to ethics and social responsibility? Discussion: What are some of the things that small businesses can do to be socially responsible? Are the costs and benefits different than they are for large businesses? If so, how?

35. Copyright ©2003 Prentice Hall, Inc. 3 - 34 Chapter review What basic factors should be considered in any ethical decision? students should address the circumstances of each issue, legal implications, personal codes of ethics, and the effect of the decision on others. They should also refer to the four ethical considerations discussed in the chapter (utility, rights, justice, caring). Who are an organization’s stakeholders? Who are the major stakeholders with whom most businesses must be concerned? Stakeholders include customers, employees, investors, suppliers, and the firm’s local communities. Most businesses should be concerned with all stakeholders groups, although areas of emphasis may differ for individual businesses.

36. Copyright ©2003 Prentice Hall, Inc. 3 - 35 Chapter review What are the four basic approaches to social responsibility? 1. Obstructionist: Does as little as possible to promote social responsibility 2. Defensive: Meets minimal legal requirements regarding social responsibility 3. Accommodative: Exceeds minimum requirements only by special request 4. Proactive: Actively seeks opportunities to contribute to the social environment

37. Copyright ©2003 Prentice Hall, Inc. 3 - 36 Chapter Review Discuss how individuals develop their personal codes of ethics. Explain why ethics matter in the workplace. Distinguish social responsibility from ethics. Show how social responsibility applies to environmental issues and to relationships with customers, employees, and investors.