Business Ethics and Corporate Social Responsibility Chapter 4

Chapter 4 Objectives After studying this chapter, you will be able to: 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.

Chapter 4 Objectives Cont. Discuss business’s role in protecting the natural environment and define sustainable development. Identify four fundamental consumer rights and business’s responsibility to respect them. Explain the responsibilities businesses have toward their employees.

Ethics in Contemporary Business Recent unethical actions in the financial industry contributed to the global recession. As a result, public confidence in banking ranks at its lowest in 20 years. Yet the vast majority of businesses are run by ethical managers and staffed by ethical employees.

Ethics in Contemporary Business Social Responsibility The idea that a business has certain obligation to society beyond the pursuit of profits 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 5

What is Ethical Behavior? Ethics is the rules or standards governing the conduct of a person or group Ethical behavior involves: Competing fairly and honestly Communicating truthfully Being transparent Not Causing Harm to Others

Compete Fairly and Honestly Businesses are expected to compete fairly and honestly and not knowingly deceive, intimidate, or misrepresent customers, competitors, clients, or employees. While most companies compete within the boundaries of the law, some do knowingly break laws or take questionable steps in their zeal to maximize profits and gain a competitive advantage.

Communicating Truthfully Tell the Truth, Whole Truth and Nothing but the Truth Transparency 4-8 8

Not Causing Harm to Others All businesses have the capacity to cause harm to employees, customers, other companies, their communities, and investors. Insider trading, in which company insiders use confidential information to gain an advantage in stock market trading, harms other investors.

Ethical Business Behavior Cultural differences Knowledge Organizational behavior Influential Factors

Cultural Differences Globalization exposes businesspeople to a variety of different cultures and business practices. What may be considered unethical in the U.S. may be an accepted practice in another culture. Managers need to consider a wide range of issues, including: acceptable working conditions, minimum wage levels, product safety issues, environment protection.

Knowledge In most cases, a well-informed person is in a position to make better decisions and avoid ethical problems. Making decisions without all the facts or a clear understanding of the consequences could harm employees, customers, the company, and other stakeholders.

Organizational Behavior The foundation of an ethical business climate is ethical awareness. Organizations that strongly enforce company codes of conduct and provide ethics training help employees recognize and reason through ethical problems. 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.

Ethical Decision Making Ethical Dilemma Ethical Lapse

Ethical Decision Making An ethical dilemma is a situation in which one must choose between two conflicting but arguably valid sides. An ethical lapse is a stuation in which an individual makes a decision that is clearly wrong, such as divulging trade secrets to a competitor.

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 Don’t assume that other people think the way you do Watch out for conflicts of interest

Conflict of Interest Conflicts of interest, situations in which competing loyalties can lead to ethical lapses; in business, situations in which a business decision may be influenced by the potential for personal gain.

Conflict of Interest Insider trading is a good example of the ethical trouble that businesspeople can get into when they face a conflict of interest, a situation in which a choice that promises personal gain compromises a more fundamental responsibility.

Corporate Social Responsibility (CSR) Business has obligations to society beyond the pursuit of profits. Business and society need each other.

The Relationship between Business and Society Consumers in contemporary societies enjoy and expect a wide range of benefits, from education and health care to credit and products that are safe to use Profit-seeking companies are the economic engine that powers modern society; they generate the vast majority of the money in a nation’s economy Much of what we consider when assessing a society’s standard of living involves goods and services created by profit-seeking companies Companies cannot hope to operate profitably without the many benefits provided by a stable, functioning society CSR is both a moral imperative for business and a good thing for society. Each depends on the other being healthy and successful. 20

CSR Courses of Action Philanthropy Strategic CSR Social contributions that are directly aligned with a company’s overall business strategy The donation of money, time, goods, or services to charitable, humanitarian, or educational institutions

Perspectives on Corporate Social Responsibility

Corporate Social Responsibility Perspectives Minimalist View: The only social responsibility of a business is to pay taxes and obey the law. Milton Friedman: “There is only one social responsibility of business: to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” 23

Corporate Social Responsibility Perspectives Defensive View: Many companies today face pressure from a variety of activists and nongovernmental organizations (NGOs), nonprofit groups that provide charitable services or promote causes, and from workers’ rights to environmental protection. One possible response to this pressure is to engage in CSR activities as a way to avoid further criticism. 24

Corporate Social Responsibility Perspectives Cynical View: A company accused of irresponsible behavior promotes itself as being socially responsible without making substantial improvements in its business practices. 25

Corporate Social Responsibility Perspectives Proactive View: Company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs and proclamations with action—without being prompted to by outside forces. This approach doesn’t have to compromise profits or returns for investors. 26

CSR: The Natural Environment Pollution, the contamination of the natural environment by the discharge of harmful substances. Ecology, the study of the relationship between organisms and the natural environment.

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. Third, many of these issues often require tough trade-offs, occasional sacrifice, disruptive change, and decision making in the face of uncertainty. 28

CSR: The Natural Environment 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 29

CSR: The Natural Environment Sustainable development, 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.” 30

CSR Toward Consumers Consumerism A movement that pressures businesses to consider consumer needs and interests The right to buy safe products The right to be informed The right to choose The right to be heard Identity theft : A crime in which thieves steal personal information and use it to take out loans and commit other types of fraud

CSR Toward 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. 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.

CSR Toward Employees Cont. People with disabilities OSHA ADA Safety

AT & T Code of Ethics (excerpts)

Approaches to Resolving Ethical Dilemmas

Green and Clean? Where Our Electricity Comes From Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Fatal Occupational Injuries