Chapter 2 Ethics and Social Responsibility

2 Chapter Objectives 1. Define business ethics and their relationship to personal ethics. 2. Explain the relationship between the law and ethics. 3. Compare and contrast duty-based ethics and utilitarian ethics. 4. Discuss the questions that are typically considered in the ethical decision- making process. 5. Identify the various groups to whom corporations are perceived to owe duties.

3 The Nature Of Business Ethics Ethics can be defined as the study of what constitutes right or wrong behavior. Business ethics focuses on how moral and ethical principles are applied in the business context. The law reflects society’s convictions on what constitutes right or wrong behavior.  The law has its limits, though, and some actions may be legal yet not be ethical.

4 Selling Banned Drugs Overseas U.S. drug laws are among the toughest in the world. Therefore, companies with products banned from sale in the U.S. will naturally look elsewhere for potential customers—particularly in developing countries that do not have such extensive restrictions on consumer products. Is it unethical of U.S. companies to sell banned drugs overseas? Would your answer be different if the drugs significantly benefited the health of consumers in overseas markets?

5 Sources of Ethical Standards Duty-based ethics: Ethics based on religious beliefs and philosophical reasoning, such as that of Immanuel Kant. Example: Ten Commandments Outcome-based ethics: Ethics based on philosophical reasoning, such as that of John Stuart Mill. Example: utilitarianism

6 Code of Ethics [Ex. 2-4] Notice how PriceCostco’s code uses compliance with the law as the baseline. Compliance with ethical standards may take more. OBEY THE LAW The law is irrefutable! Absent a moral imperative to challenge a law, we must conduct our business in total compliance with the laws of every community where we do business.

7 Obstacles To Ethical Business Behavior The corporate structure: Collective decision making tends to deter individual ethical assertiveness. The corporate structure tends to shield corporate actors from personal responsibility and accountability. Management: Uncertainty on the part of employees as to what kind of behavior is expected of them makes it difficult for them to behave ethically. Unethical conduct by management shows employees that ethical behavior is not a priority.

8 The Corporate Balancing Act Today’s corporate decision makers must balance profitability against ethical responsibility when making their decisions. Instead of maximum profits, corporations increasingly aim for optimum profits—profits that can be realized by the firm while pursuing actions that are not only legal and profitable but also ethical.

9 Corporate Social Responsibility Corporate social responsibility rests on the assumption that corporations should conduct their affairs in a socially responsible manner, but there is disagreement as to what constitutes socially responsible behavior.

10 Corporate Social Responsibility Corporations are perceived to hold duties to the following groups, duties that often come into conflict: Shareholders Employees Consumers Community Society

11 Measuring Corporate Social Responsibility It is difficult to measure corporate social responsibility because different yardsticks are used. Traditionally, corporate philanthropy has been used as a means of measuring corporate social responsibility. Increasingly, corporate process, or how a corporation conducts its business on a day-to-day basis, is a key factor in determining whether a corporation is socially responsible.

12 Duty to Shareholders Because the shareholders are the owners of the corporation, directors and officers have a duty to act in the shareholders’ interest (maximize profits).

13 Duty to Employees Employers have numerous legal duties to employees, including providing employees with a safe workplace and refraining from discriminating against employees on the basis of race, color, national origin, gender, religion, age, or disability. These duties often come into conflict. Many believe that employers hold ethical duties to their employees that go beyond those prescribed by law.

14 Case 2.1 Montero v. AGCO Corp. Shortly after being hired by AGCO Corp., Carrie Ann Montero was sexually harassed by Glenn Carpenter and Russ Newman. Although Montero knew that AGCO had a sexual-harassment policy, she did not report the incidents for almost two years. She then filed a suit against AGCO and the others of violating parts of Title VII. The court ruled in favor of AGCO in regards to title VII. The court felt that an employer’s sexual harassment policy, and an employee’s delay in enforcing the policy, can constitute a defense to a charge of harassment. What might have been the result in this case if AGCO had not had a sexual-harassment policy and reporting procedure?

15 Protection for Older Workers An employee for Sears for thirty years, Thomas Long was laid off after his department was disbanded. Sears promised to transfer the employees of the department who had long-term employment and good performance ratings. Long was offered a severance package along with $39,000 in return for signing a waiver to release Sears of responsibility under the ADEA. Long later sued Sears for discrimination and for violating the OWBPA. A federal appellate court held against the “tender-back” requirement. When an older employee such as Long is laid off, does that person have any real choice when deciding whether or not to accept severance pay and sign a required release?

16 Case 2.2 Varity Corp. v. Howe Varity Corp. convinced certain current and former employees to accept a transfer to a subsidiary, not telling them that they expected the new subsidiary to fail. Did Varity breach their “fiduciary duty” to its employees? What is a “fiduciary duty?” Should a company continue to market a slow- selling line of products for the sole purpose of employing those who work on the products?

17 Duty to Consumers Corporate directors and officers have a legal duty to the users of their products. Most feel that corporations also have an ethical duty that goes beyond what the law requires. Controversy exists over the point at which corporate responsibility for consumer safety ends and consumer responsibility begins.

18 Case 2.3 Pavlik v. Lane Ltd./Tobacco Exporters International Twenty-year-old Stephen Pavlik died from intentionally inhaling the contents of Zeus brand butane distributed by Lane Ltd/Tobacco Exporters International. His father filed suit, claiming there was in adequate warning on the can about the dangers of butane inhalation. The court ruled in favor of the defendants claiming that Stephen must have known of the dangers and a more specific warning would not have changed his behavior.

19 Duty to Society Most people hold that a corporation has a duty to society in general, but they differ in their ideas on how corporations can best fulfill this duty. One view is that corporations serve society’s needs most effectively by maximizing profits because profits generally increase national wealth and social welfare. Another view holds that corporations, because they control so much of the country’s wealth and power, should use their own wealth and power in socially beneficial ways and not engage in actions that society deems unethical.

20 Ethical Responsibilities of Firms Do firms have a duty to prevent criminal misuses of their products? In a recent Colorado case, a man bought a cupful of gasoline at a gas station, threw it on a woman, and set her on fire. The woman argued that the gas station was negligent for selling him the gasoline. The Colorado Appellate Court stated that knowing a customer buying gasoline was going to intentionally throw it on a victim and set the victim on fire was not reasonably foreseeable.

21 Duty to the Community Most people believe a corporation has a duty to the community in which it operates. The corporation should consider the needs of the community when making decisions that substantially affect the welfare of the community.

22 Ethics In The Global Context Despite the cultural and religious differences among nations, the most important ethical precepts are common to virtually all countries.

23 Ethics In The Global Context Engaging in an international business deal can require different cultural courtesies, as shown here. How might cultural differences cause ethical conflicts between U.S. and foreign businesspersons?

24 Ethics in the Global Context Two notable differences relate to:  The role of women in society.  The practice of giving side payments to foreign officials to secure favorable contracts. The Foreign Corrupt Practices Act of 1977 (FCPA), prohibits the bribery of foreign officials through such side payments, put U.S. businesspersons at a relative disadvantage to businesspersons from other countries who are not subject to such laws.

25 The Foreign Corrupt Practices Act of 1977 The FCPA did not change international trade practices in other countries, but it effectively tied the hands of American firms trying to secure foreign contracts. In passing the FCPA, did Congress give too much weight to ethics and too little weight to international economic realities?

26 The Ever-Changing Ethical Landscape What is considered ethical in society may change over time as social customs change and new developments alter our social and business environment.

27 For Review 1.What are ethics? What are business ethics? 2.What are some sources of ethical standards? 3.What questions are considered in ethical business decision making? 4.To what groups does a corporation owe duties? Why do these duties sometimes come into conflict? 5.What is the difference between maximum profits and optimum profits?