2. Business Ethics and Corporate Social Responsibility
Chapter 4

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Learning Objectives
Discuss what it means to practice good business ethics and highlight three factors that influence ethical decision-making
Define Corporate Social Responsibility (CSR) and explain the difference between philanthropy and strategic CSR
Distinguish among the four perspectives on corporate social responsibility
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4. Learning Objectives (cont.)
Discuss the role of business in protecting the natural environment and define sustainable development
Identify four fundamental consumer rights and the responsibility of business to respect them
Explain the responsibilities businesses have toward their employees
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Public Perceptions of Business Ethics
Exhibit 4.1
One can argue whether public perceptions of business ethics accurately reflect the behavior of the entire community of business professionals or simply mirror the behavior of businesses and individuals who make headlines. However, there is no argument on his point: The general public doesn’t think too highly of business. This graph shows the percentage of Americans who rate the honesty and ethics of a particular profession as either “high” or “very high.” Several business professions are shown, with several nonbusiness professions for comparison.
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6. What is Ethical Behavior?
Ethics
The rules or standards governing the conduct of a person or group
Transparency
The degree to which affected parties can observe relevant aspects of transactions or decisions
Ethics are the principles and standards of moral behavior that are accepted by society as right versus wrong. Practicing good business ethics involves, at a minimum, competing fairly and honestly, communicating truthfully, being transparent, and not causing harm to others.
Business communication ethics often involve the question of transparency, which can be defined as “the degree to which information flows freely within an organization, among managers and employees, and outward to stakeholders.
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7. What is Ethical Behavior? (cont.)
Insider trading
The use of unpublicized information that an individual gains from the course of his or her job to benefit from fluctuations in the stock market.
All businesses have the capacity to cause harm to employees, customers, other companies, their communities, and investors. For example, insider trading, in which company insiders use confidential information to gain an advantage in stock market trading, harms other investors. (Insider trading is illegal, in addition to being unethical.)
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8. What is Ethical Behavior? (cont.)
Competing fairly and honestly
Communicating truthfully
Being transparent
Not causing harm to others
Businesses are expected to compete fairly and honestly and to not knowingly deceive, intimidate, or misrepresent themselves to customers, competitors, clients, employees, the media, or government officials.
Communicating truthfully is a simple enough concept: Tell the truth, the whole truth, and nothing but the truth.
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9. Factors Influencing Ethical Behavior
Cultural differences
Knowledge
Organizational behavior
Of the many factors that influence ethical behavior, three warrant particular attention: cultural differences, knowledge, and organizational behavior.
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10. Organizational Behavior
Code of Ethics
A written statement that sets forth the principles that guide an organization’s decisions
Whistle-Blowing
The disclosure of information by a company insider that exposes illegal or unethical behavior by others within the organization
Companies with strong ethical practices create cultures that reward good behavior—and don’t intentionally or unintentionally reward bad behavior. To help avoid ethical breaches, many companies develop programs to improve ethical conduct, typically combining training, communication, and a code of ethics that defines the values and principles that should be used to guide decisions.
Employees who observe unethical or illegal behavior within their companies and are unable to resolve the problems through normal channels may have no choice but to resort to whistle-blowing—expressing their concerns internally through formal reporting mechanisms or externally to the news media or government regulators. However, the decision to “blow the whistle” on one’s own employer is rarely easy or without consequences.
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11. Ethical Decision Making
Ethical Lapse
A situation in which an individual or a group makes a decision that is morally wrong, illegal, or unethical
Ethical Dilemma
A situation in which more than one side of an issue can be supported with valid arguments
When the question of what is right and what is wrong is clear, ethical decisions are easy to make: You simply choose to do the right thing. If you choose the wrong course, such as cheating on your taxes or stealing from your employer, you commit an ethical lapse. The choices were clear, and you made the wrong one.
However, you will encounter situations in which choices are not so clear. An ethical dilemma is a situation in which you must choose between conflicting but arguably valid options, or even situations in which all your options are unpleasant.
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12. Finding the Right Answer When Faced with an Ethical Dilemma
Make sure you frame the situation accurately, taking into account all relevant issues and questions.
Identify all parties who might be affected by your decision
Be as objective as possible
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13. Finding the Right Answer When Faced with an Ethical Dilemma (cont.)
Don’t assume that other people think the way you do
Watch out for conflicts of interest
Conflict of interest
A situation in which competing loyalties can lead to ethical lapses, such as when a business decision may be influenced by the potential for personal gain
• Don’t assume that other people think the way you do. The time-honored “Golden Rule” of treating others the way you want to be treated can cause problems when others don’t want to be treated the same way you do.
• Watch out for conflicts of interest, situations in which competing loyalties can lead to ethical lapses. For instance, if you are in charge of selecting an advertising agency to handle your company’s next campaign, you would have an obvious conflict of interest if your husband or wife worked for one of the agencies under consideration.
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Approaches to Resolving Ethical Dilemmas
Exhibit 4.3
These approaches can help you resolve ethical dilemmas you may face on the job. Be aware that in some situations, different approaches can lead to different ethical conclusions.
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15. Corporate Social Responsibility
Corporate Social Responsibility (CSR)
The idea that business has obligations to society beyond the pursuit of profits
Corporate social responsibility (CSR) is the notion that business has obligations to society beyond the pursuit of profits. There is a widespread assumption these days that CSR is both a moral imperative for business and is a good thing for society, but the issues aren’t quite as clear as they might seem at first glance.
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16. Philanthropy vs. Strategic CSR
The donation of money, time, goods, or services to charitable, humanitarian, or educational institutions
Strategic CSR
Social contributions that are directly aligned with a company’s overall business strategy
Companies that engage in CSR activities can choose between two courses of action: general philanthropy or strategic CSR. Philanthropy involves donating money, employee time, or other resources to various causes without regard for any direct business benefits for the company.
In contrast to generic philanthropy, strategic CSR involves social contributions that are directly aligned with a company’s overall business strategy. In other words, the company helps itself and society at the same time. This approach can be followed in a variety of ways. A company can help develop the workforce by supporting job training efforts or use volunteering programs to help train employees.
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Perspectives on Corporate Social Responsibility
Exhibit 4.4
The perspectives on CSR can be roughly divided into four categories, from minimalist to proactive. Companies that engage in CSR can pursue either generic philanthropy or strategic CSR.
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Defensive CSR
Nongovernmental organizations (NGOs)
Nonprofit groups that provide charitable services or promote social and environmental causes.
Many companies today face pressure from a variety of activists and nongovernmental organizations (NGOs), nonprofit groups that provide charitable services or that promote causes, from workers’ rights to environmental protection.
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19. CSR: The Natural Environment
First, the creation, delivery, use, and disposal of products that society values virtually always generate pollution and consume natural resources
Second, “environmental” causes are often as much about human health and safety as they are about forests, rivers, and wildlife.
In recent years, few issues in the public dialogue have become as politicized and polarized as pollution and resource depletion. To reach a clearer understanding of this situation, keep three important points in mind. First, the creation, delivery, use, and disposal of products that society values virtually always generate pollution and consume natural resources.
Second, “environmental” issues are often as much about human health and safety as they are about forests, rivers, and wildlife. The availability of clean air, water, and soil affects everyone, not just people concerned with wild spaces.
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20. CSR: The Natural Environment (cont.)
Third, many of these issues often require tough trade-offs, occasional sacrifice, disruptive change, and decision making in the face of uncertainty.
Third, many of these issues are neither easy nor simple. They often require tough tradeoffs, occasional sacrifice, disruptive change, and decision making in the face of uncertainty. Meeting these challenges will require people to be clear-headed, open-minded, adaptable, and courageous.
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21. Efforts to Conserve Resources and Reduce Pollution
Cap and Trade
A type of environmental policy that gives companies some freedom in addressing the environmental impact of specified pollutants, by either reducing emissions to meet a designated cap or buying allowances to offset excess emissions
In addition to technological solutions to reduce pollution and resource consumption, businesses, governments, and NGOs are pursuing a variety of political and economic solutions. For example, cap and trade programs try to balance free-market economics with government intervention. Lawmakers first establish a maximum allowable amount of a particular pollutant that a designated group of companies or industries is allowed to emit (the “cap”) and then distribute individual emission allowances to all the companies in that group. If a company lowers its emissions enough to stay under its prescribed limit, it can sell, trade, or save leftover allowances (the “trade”).
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22. Major Federal Environmental Legislation
Clean Air Act (1963)
Solid Waste Disposal Act (1965)
Clean Water Act (1972)
Toxic Substances Control Act (1976)
Nuclear Waste Policy Act (1982)
Oil Pollution Act (1990)
Clean Air Act (1963) - Assists states and localities in formulating control programs; sets federal standards for auto-exhaust emissions; sets maximum permissible pollution levels; authorizes nationwide air-pollution standards and limitations to pollutant discharge; requires scrubbers in new coal-fired power plants; directs EPA to prevent deterioration of air quality in clean areas; sets schedule and standards for cutting smog, acid rain, hazardous factory fumes, and ozone-depleting chemicals.
Solid Waste Disposal Act (1965) - Authorizes research and assistance to state and local control programs; regulates treatment, storage, transportation, and disposal of hazardous waste.
National Environmental Policy Act (1969) - Establishes a structure for coordinating all federal environmental programs.
Resource Recovery Act (1970) - Subsidizes pilot recycling plants; authorizes nationwide control programs.
Clean Water Act (1972) - Authorizes grants to states for water-pollution control; gives federal government limited authority to correct pollution problems; authorizes EPA to set and enforce water-quality standards.
Noise Control Act (1972) - Requires EPA to set standards for major sources of noise and to advise Federal Aviation Administration
on standards for airplane noise.
Endangered Species Act (1973) - Establishes protections for endangered and threatened plants and animals
Safe Drinking Water Act (1974) - Sets standards of drinking-water quality; requires municipal water systems to report on contaminant levels; establishes funding to upgrade water systems.
Toxic Substances Control Act (1976) - Requires chemicals testing; authorizes EPA to restrict the use of harmful substances
Resource Conservation and Recovery Act (1976) - Gives the EPA authority to control hazardous waste.
Comprehensive Environmental Response, Compensation, and Liability Act (1980) - Establishes the “Superfund” program to oversee the identification and cleanup of uncontrolled or abandoned hazardous waste sites.
Nuclear Waste Policy Act (1982) - Establishes procedures for creating geologic repositories of radioactive waste
Marine Protection, Research, and Sanctuaries Act (1988) - Prohibits ocean dumping that could threaten human health or the marine environment
Oil Pollution Act (1990) - Sets up liability trust fund; extends operations for preventing and containing oil pollution
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23. The Trend Towards Sustainability
Sustainable Development
Operating business in a manner that minimizes pollution and resource depletion, ensuring that future generations will have vital resources
Efforts to minimize resource depletion and pollution are part of a broader effort known as sustainability, or sustainable development, which the United Nations has defined as development that “meets the needs of the present without compromising the ability of future generations to meet their own needs.”
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CSR: Consumers
Consumerism
A movement that pressures businesses to consider consumer needs and interests
Identity theft
A crime in which thieves steal personal information and use it to take out loans and commit other types of fraud.
The 1960s activism that awakened business to its environmental responsibilities also gave rise to consumerism, a movement that put pressure on businesses to consider consumer needs and interests.
Product safety concerns range from safe toys, food, and automobiles to less-tangible worries such as online privacy and identity theft, in which criminals steal personal information and use it to take out loans, request government documents, get expensive medical procedures, and commit other types of fraud. According to Federal Trade Commission estimates, some 9 million Americans are victims of identity theft every year.
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CSR: Consumers (cont.)
The right to buy safe products – and to buy them safely
The right to be informed
The right to choose which products to buy
The right to be heard
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CSR: Employees
Discrimination
In a social and economic sense, denial of opportunities to individuals on the basis of some characteristic that has no bearing on their ability to perform in a job
The United States has always stood for economic freedom and the individual’s right to pursue opportunity. Unfortunately, in the past many people were targets of economic discrimination, being relegated to low-paying, menial jobs and prevented from taking advantage of many opportunities solely on the basis of their race, gender, disability, or religion.
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CSR: Employees (cont.)
Affirmative Action
Activities undertaken by businesses to recruit and promote members of groups whose economic progress has been hindered through either legal barriers or established practices
In the 1960s, affirmative action programs were developed to encourage organizations to recruit and promote members of groups whose past economic progress has been hindered through legal barriers or established practices. Affirmative action programs address a variety of situations, from college admissions to hiring to conducting business with government agencies. Note that although affirmative action programs address a variety of population segments, from military veterans with disabilities to specific ethnic groups, in popular usage, “affirmative action” usually refers to programs based on race.
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Fatal Occupational Injuries
Exhibit 4.8
Transportation accidents are the leading cause of death on the job in the United States. Overall, U.S. workers suffer fatal on-the-job injuries at a rate of 3.2 deaths per 100,000 full-time employees per year.
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