Busn 100 Chapter 04 Ethics 1

Goals Ethics Legality is only the first step in behaving ethically 3 questions one should answer when faced with a potentially unethical action Management’s role in setting ethical standards Compliance-based and integrity-based ethics code ▫ 6 steps in setting up a corporate ethics code Corporate Social Responsibility American’s role in influencing ethical behavior and social responsibility in global markets 2

Ethics Standards of moral behavior ▫ Behavior that is accepted by society as right versus wrong 3

Ethics - Textbook Similarities on basic moral values in the Bible, Aristotle’s Ethics, William Shakespeare’s King Lear, the Koran, and the Analects of Confucius: ▫ Golden rule:  Do not do unto others as you would not have them do unto you” 4

Similarities On Basic Moral Values In The Bible, Aristotle’s Ethics, William Shakespeare’s King Lear, The Koran, And The Analects Of Confucius: Right: ▫ Integrity ▫ Respect for human life ▫ Self-control ▫ Honesty ▫ Courage ▫ Self-sacrifice Wrong: ▫ Cheating ▫ Cowardice ▫ Cruelty 5

Ethics - Textbook “Many Americans today have few moral absolutes.” “Many decide situationally whether it’s OK to steal, lie or drink and drive.” “They seem to think that what is right is whatever works best for the individual” 6

Have USA Companies Acted Unethically? Enron – Accounting fraud to invent income and hide debts Anderson – Accounting firm that helped Enron WorldCom - $11 B. in accounting irregularities AIG – Acted within law but acted unethically when they insured people without setting aside money to pay off policy if they (Credit Default Swaps) Credit Agencies - acted unethically when they failed to see that companies like AIG had insured trillions of dollars without setting aside money to pay off insurance policies Homebuyers in USA Mortgage brokers 7

People Steeling supplies at work Goofing off at work Cheating in school Plagiarism Lying in interview 8

****** 4-9 Ethics of MBA Students Percent of MBA Students Who Would: Buy Stock on Inside Information52%Buy Stock on Inside Information52% Reveal Corp. Secrets to Spouse/Family50%Reveal Corp. Secrets to Spouse/Family50% Let a Gift Sway Purchasing Decision26%Let a Gift Sway Purchasing Decision26% Pay Someone Off to Close a 13%Pay Someone Off to Close a 13% Business Deal Source: USA Today

What Are The Three Questions One Should Answer When Faced With A Potentially Unethical Action Textbook: ▫ Is it legal? ▫ Is it balanced? ▫ How will it make me feel about myself? I would say: ▫ Would I want this done to me? ▫ Will I feel bad in the long run even though there may be a short-term gain? ▫ Does the action go against the idea that we should be good citizens and be kind and caring toward others? ▫ Is it legal 10

Ethical Orientation Ethical Orientation Questionnaire Excel workbook Ethical Dilemmas: ▫Choose between equally unsatisfactory alternatives 11

Why Should Businesses Act Ethically? If the humans that run and work for the business act ethically, all stakeholders are better off Other reasons: ▫ Avoid lawsuits ▫ Avoid new laws ▫ Avoid employee turnover ▫ To attain a good reputation (everything follows from this) ▫ Keep customers, employees 12

How Does Business Become More Ethical? If the people at the top: ▫ Set a good example ▫ Define guiding values ▫ Set clear rules with clear and enforceable penalties Ethics is caught more than it is taught Example: Anderson International 13

Compliance And Integrity Compliance-based ethics codes ▫ Preventing unlawful behavior by:  Increasing control and  Penalizing wrongdoers Integrity-based ethics codes ▫ Define the organization’s guiding values ▫ Create ethically sound environment ▫ Stress shared accountability among employees 14

Code Of Ethics Johnson & Johnson: 33f004f5563df9e22be1bb31559c7/our- credo.pdf?MOD=AJPERES 33f004f5563df9e22be1bb31559c7/our- credo.pdf?MOD=AJPERES Wholefoods: /index.php /index.php 15

Steps To Improve Business Ethics: 1.Top management support 2.Employees’ understanding 3.Managers’ & Employees’ training 4.Ethics Office 5.Outsiders must be informed 6.Enforcement of ethics code 16

Corporate Social Responsibility A business’s concern for the welfare of society Some people argue that the pursuit of an increase in shareholder wealth provides the best possible benefit to society Some argue that, like ordinary citizens, corporations must be good citizens with acts like donations and volunteering and other such acts Debate Between Milton Friedman and John Mackey: ▫ the-social-responsi the-social-responsi 17

Corporate Social Responsibility Corporate Philanthropy ▫ Dimensions of social responsibility that includes charitable donations Corporate Social Initiatives ▫ Enhanced forms of corporate philanthropy that are more directly related to the company’s competencies Corporate Responsibility ▫ Dimensions of social responsibility that includes everything from hiring minority workers to making safe products Corporate Policy ▫ Dimensions of social responsibility that refers to the position a firm takes on social and political issues 18

Businesses Area Responsible To: Customers Investors Employees Society and Environment 19

Responsibility To Customers Offer quality goods and service at a reasonable price Customers: ▫ Prefer to do business with companies they trust ▫ Do not want to do business with companies they do not trust 20

Responsibility To Investors Ethical behavior tends to increases shareholder wealth Unethical behavior tends to decreases shareholder wealth No Insider Trading (Managers know details of future business activity) 21

Responsibility To Employees Create jobs that reward hard work and talent fairly Treat employees with respect and they treat the company with respect ▫ Costco ▫ Starbucks ▫ Dick’s  Give benefits that help employees to reach personal goals ▫ Highline 22

Responsibility To Society & Environment Make profit and grow Take care of their communities (including the environment) 23

Social Auditing A systematic evaluation of an organization’s progress toward implementing programs that are socially responsible and responsive How do you measure whether a business is socially responsible? ▫ Some ways might be to determine if the business:  Donating executive time to community based or nonprofit organizations  Offering day care to workers or paying employees while they do community work  Support of museums or education  Producing truthful ads or ensuring product safety (Daimler- Benz)  Negative effects such as: layoffs or pollution 24

Watchdogs That Monitor How Well Companies Enforce Their Ethical And Social Responsibility Policies: Socially Conscious Investors (SCI) Environmentalists Union Officials Customers (#1) 25

International Ethics And Social Responsibility Multinationals and companies that use contract manufacturing must act ethically in all counties ▫ Customers in the USA still seem to prefer brand, price and quality over their perception of a company’s humane treatment of workers and social responsibility (but that is changing a bit)  Low wages:  Not fair when compared to wages in USA?  But what if the company did not move to that country to provide jobs? 26

Explain Why Legality Is Only The First Step In Behaving Ethically Laws are more limited than the set of morals and ethics that a society holds ▫ Deceptive ads are often legal  Because laws have grey area, a person can act unethically while breaking no laws 27

Example: Enron and many banks in the current banking crisis (Credit Crunch) hid liabilities and risks off their balance sheets while breaking no laws. Although they acted within the laws they mislead many people 28

Example: “No Income No Asset” loans made by banks in 2006 and 2007 were legal but unethical. These were called “Liar Loans” because people could lie about income, but still get $500,000 loans. Unethical Mortgage Brokers during the Banking Crisis that acted within the law: ▫ = &cl= &ch= &src=news = &cl= &ch= &src=news ▫ how-greed-drove-credit-ratings-926/ how-greed-drove-credit-ratings-926/ 29

What Are The Three Questions One Should Answer When Faced With A Potentially Unethical Action Textbook: ▫ Is it legal? ▫ Is it balanced? ▫ How will it make me feel about myself? I would say: ▫ Would I want this done to me? ▫ Will I feel bad in the long run even though there may be a short-term gain? ▫ Does the action go against the idea that we should be good citizens and be kind and caring toward others? ▫ Is it legal 30

Describe Management’s Role In Setting Ethical Standards Because people tend to “do as you do, not as you say”, when managers act unethically, others may tend to do the same As a manager, set clear rules (what to do and consequences) 31

Distinguish Between Compliance-based And Integrity-based Ethics Code Compliance-based ▫ Follow the law, and punish Integrity-based ▫ Set clear rules, lead by example, train all stakeholders, stress “the team”, follow the law, enforce consequences 32

Define Corporate Social Responsibility And Examine Corporate Responsibility To Various Stakeholders It is in the business’s best interest to act socially responsible toward: ▫ Customers ▫ Community ▫ Employees ▫ Stockholders 33

Analyze The Role Of American Businesses And Government In Influencing Ethical Behavior And Social Responsibility In Global Markets America has had some positive influenced and negative influence on global markets ▫ Positive Examples:  Spread of Free Markets  This helps economies to grow  Increases the middle class  Spread of Technology  Spread of the internet and information  Increases in competition  Increase in Education 34

America Has Had Some Positive Influenced And Negative Influence On Global Markets Negative Examples: ▫ Going to war on flimsy evidence ▫ Stating that the Genève Conventions do not apply to the “War on Terror”  Guantanamo Bay  Abu grade prison ▫ Deregulating the Banking Industry ▫ Keeping Interest Rates low while Europeans kept rates high ▫ Inventing “No Income No Asset” Loans and Collateralized Debt Obligations that were based on “No Income No Asset” Loans ▫ American companies follow environmental rules at home, but not abroad ▫ Pollution ▫ Culture 35

Have USA Companies Acted Unethically? Dick’s & Starbucks & Costco ▫Ethics = good business practice ▫Happy Employees = productive Employees Pfizer (build hospitals) & Wal-Mart (gave out free food, diapers, etc.) helped after Katrina Digicel Group ($5 M) & Lowe's ($1 M) & FedEx Corp (donated airplanes to fly goods to Haiti) helped after the 7.0 earthquake in Haiti 36