BUSINESS ETHICS AND SOCIAL RESPONSIBILITY 2 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY © 2007 Prentice Hall, Inc. All rights reserved.

L E A R N I N G O B J E C T I V E S After reading this chapter, you should be able to: Explain how individuals develop their personal codes of ethics and why ethics are important in the workplace. Distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today. Show how the concept of social responsibility applies both to environmental issues and to a firm’s relationships with customers, employees, and investors. Identify four general approaches to social responsibility and describe the four steps that a firm must take to implement a social responsibility program. Explain how issues of social responsibility and ethics affect small business. © 2007 Prentice Hall, Inc. All rights reserved.

What’s in It for Me? By understanding the material in this chapter, you’ll be better able to: Assess ethical and socially responsible issues facing you as an employee and as a boss or business owner. Understand the ethical and socially responsible actions of businesses you deal with as a consumer and as an investor. Determine what type of organization you are working for, or are about to work for. © 2007 Prentice Hall, Inc. All rights reserved.

Ethical Dilemmas Is it OK to buy/sell a stock based on insider information? What if that information came from your broker? Meaning, you didn’t know it was inside information Is it OK to play a friend’s video game from a burned copy? Is it OK to use ANY software that comes to you on a blank CD? © 2007 Prentice Hall, Inc. All rights reserved.

Ethics in the Workplace Beliefs about what’s right and wrong or good and bad Ethical Behavior Behavior conforming to individual beliefs and social norms about what’s right and good Unethical Behavior Behavior conforming to individual beliefs and social norms about what is defined as wrong and bad Business Ethics The ethical or unethical behaviors by employees in the context of their jobs © 2007 Prentice Hall, Inc. All rights reserved.

Ethics example In the U.S., it is unethical to give bribes to influential people in order to gain favor In some foreign countries, bribes are about the ONLY way to do business So your manager assigns you to head the construction/opening of a new plant in one of these foreign countries. The only way you will be CLOSE to coming in on schedule is to bribe certain government officials What should you do? © 2007 Prentice Hall, Inc. All rights reserved.

Why should we care about business ethics? Brief history of corporations/stores We depend on the trustworthiness of business How many fully understand the return policies on things they purchase? You have to read them first…. Fair Profit Triangle balance Customer Satisfaction Community service © 2007 Prentice Hall, Inc. All rights reserved.

Individual Values and Codes Sources of Personal Codes of Ethics Childhood responses to adult behavior Influence of peers Experiences in adulthood Developed morals and values © 2007 Prentice Hall, Inc. All rights reserved.

Business and Managerial Ethics The standards of behavior that guide individual managers in their work Ethics affect a manager’s behavior toward: employees the organization other economic agents—customers, competitors, stockholders, suppliers, dealers, and unions Ethical Concerns Ambiguity (e.g., financial disclosure) Global variation in business practices (e.g., bribes) © 2007 Prentice Hall, Inc. All rights reserved.

Assessing Ethical Behavior Simple Steps in Applying Ethical Judgments Gather the relevant factual information Analyze the facts to determine the most appropriate moral values Make an ethical judgment based on the rightness or wrongness of the proposed activity or policy What does this cover? Conflict of interest Contracting a job out to a friend when it could be done with current employees Taking bribes Confidentiality agreements And how do you enforce these? What about letting the company pay for your education, then using that to get a better job elsewhere? © 2007 Prentice Hall, Inc. All rights reserved.

Assessing Ethical Behavior Ethical Norms and the Issues They Entail Utility: Does a particular act optimize the benefits to those who are affected by it? Do all relevant parties receive “fair” benefits? Rights: Does the act respect the rights of all individuals involved? Justice: Is the act consistent with what’s fair? Caring: Is the act consistent with people’s responsibilities to each other? © 2007 Prentice Hall, Inc. All rights reserved.

Company Practices and Business Ethics Encouraging Ethical Behavior Involves: Adopting written codes of conduct and establishing clear ethical positions for the conduct of business Having top management demonstrate its support of ethical standards Instituting programs to provide periodic ethics training Establishing ethical hotlines for reporting and discussion of unethical behavior and activities © 2007 Prentice Hall, Inc. All rights reserved.

FIGURE 2.2 Core Principles and Organizational Values © 2007 Prentice Hall, Inc. All rights reserved.

Social Responsibility The overall way in which a business attempts to balance its commitments to relevant groups and individuals (stakeholders) in its social environment Organizational Stakeholders Groups, individuals, and organizations that are directly affected by the practices of an organization and, therefore, have a stake in its performance How much privacy does your employer owe you? Can they go through your email? Can they monitor your web activity? Can they monitor your phone conversations? Even if you are using your own cell phone? © 2007 Prentice Hall, Inc. All rights reserved.

FIGURE 2.3 Major Corporate Stakeholders © 2007 Prentice Hall, Inc. All rights reserved.

The Stakeholder Model of Responsibility Customers Businesses strive to treat customers fairly and honestly Employees Businesses treat employees fairly, make them a part of the team, and respect their dignity and basic human needs Investors Businesses follow proper accounting procedures, provide information to shareholders about financial performance, and protect shareholder rights and investments Suppliers Businesses emphasize mutually beneficial partnership arrangements with suppliers Local and International Communities Businesses try to be socially responsible © 2007 Prentice Hall, Inc. All rights reserved.

Or is the Stakeholder Model of Responsibility more like: Customers Screw them – we just want their money Employees Screw them – we can always hire a replacement Investors Screw them – we already have their money Suppliers Screw them – we’re trying to maximize profit on our end Local and International Communities Screw them – we don’t even know how they factor into things © 2007 Prentice Hall, Inc. All rights reserved.

Contemporary Social Consciousness The Concept of Accountability The expectation of an expanded role for business in protecting and enhancing the general welfare of society Responsibility Toward the Environment Controlling air, water, and land pollution Properly disposing of toxic waste Engaging in recycling © 2007 Prentice Hall, Inc. All rights reserved.

Areas of Social Responsibility (cont’d) Responsibility Toward Customers Involves providing quality products and pricing products fairly Consumerism Social activism dedicated to protecting the rights of consumers in their dealings with businesses Basic Consumer Rights To possess safe products To be informed about all relevant aspects of a product To be heard To choose what to buy To be educated about purchases To courteous service And along comes outsourcing… © 2007 Prentice Hall, Inc. All rights reserved.

Consumer Rights (cont’d) Unfair Pricing Collusion: When two or more firms agree to collaborate on such wrongful acts as price fixing Price gouging: Responding to increased demand with overly steep (and often unwarranted) price increases Ethics in Advertising Truth in advertising Morally objectionable advertising © 2007 Prentice Hall, Inc. All rights reserved.

Areas of Social Responsibility (cont’d) Responsibility Toward Employees Legal and social commitments to: not practice illegal discrimination provide a physically and socially safe workplace provide opportunities to balance work and life provide protection for whistleblowers (an employee who discovers and tries to put an end to a company’s unethical, illegal, or socially irresponsible actions by publicizing them) Responsibility Toward Investors Proper financial management (no insider trading) Proper representation of finances © 2007 Prentice Hall, Inc. All rights reserved.

Implementing Social Responsibility (SR) Programs Arguments Against SR The cost of SR threatens profits. Business has too much control over which and how SR issues would be addressed. Business lacks expertise in SR matters. Arguments for SR SR should take precedence over profits. Corporations as citizens should help others. Corporations have the resources to help. Corporations should solve problems they create. © 2007 Prentice Hall, Inc. All rights reserved.

Approaches to Social Responsibility Obstructionist Stance A company does as little as possible and may attempt to deny or cover up violations Defensive Stance A company does everything required of it legally but no more Accommodative Stance A company meets its legal and ethical requirements and also goes further in certain cases Proactive Stance A company actively seeks to contribute to the well-being of groups and individuals in its social environment © 2007 Prentice Hall, Inc. All rights reserved.

FIGURE 2.5 Spectrum of Approaches to Corporate Social Responsibility © 2007 Prentice Hall, Inc. All rights reserved.

Managing Social Responsibility Programs Social responsibility must start at the top and be considered as a factor in strategic planning. A committee of top managers must develop a plan detailing the level of management support. One executive must be put in charge of the firm’s agenda. The organization must conduct occasional social audits—systematic analyses of its success in using funds earmarked for its social responsibility goals. © 2007 Prentice Hall, Inc. All rights reserved.

K E Y T E R M S accommodative stance business ethics collusion consumerism defensive stance ethical behavior ethics insider trading managerial ethics obstructionist stance organizational stakeholders proactive stance social audit social responsibility unethical behavior whistle-blower © 2007 Prentice Hall, Inc. All rights reserved.