Ethics and Social Responsibility McGraw-Hill/Irwin Contemporary Management, 5/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. chapter four

4-2 Learning Objectives 1.Explain the relationship between ethics & the law 2.Discuss why it is important for managers to behave ethically 3.Understand the ethics as it relates to all the stakeholders of an organization 4.Discuss the relationship between ethics and economics 5.Discuss social responsibility – pro’s and con’s and stakeholders

4-3 Ethics Ethics - The inner-guiding moral principles, values, and beliefs that people use to analyze or interpret a situation and then decide what is the “right” or appropriate way to behave * There are no absolute or indisputable rules or principles that can be developed to decide if an action is ethical or unethical (the halo and the $)

Business Ethics Business ethics - standards of business conduct and moral values. Ethical Dilemma - quandary people find themselves in when they have to decide if they should act in a way that might help another person even though doing so might go against their own self-interest Stakeholders – Groups and individuals to which businesses are responsible (see next slide)

4-5 Types of Company Stakeholders

Top Oxymorons of all time: Government Organization Same Difference Tight Slacks Peace Force Pretty Ugly Dodge Ram Jumbo Shrimp Q. Should “Business Ethics” be on this list?

Business Ethics: Perceptions vs. Reality What makes the news High profile investigations and arrests in headlines: Enron, Martha Stewart, Worldcom, Arthur Anderson, Madoff CEO’s with huge salaries (portrayed as villains) Individual retirements and pensions wiped out Customers ripped off Jobs going overseas

Business Ethics: Perceptions vs. Reality What the Reality Is Companies aren’t ethical or unethical…people are! The majority of all people running companies are ethical (Grandma check) Rip-offs are newsworthy; business as usual isn’t Jobs going overseas often save jobs in the U.S. and may help the U.S economy CEO salaries are a product of Capitalism

Ethics in Business Decision Making Business decision making must account for: 1.Legal obligations – companies and their employees must comply with the laws governing their business and individuals in society (this is NOT the same thing as Ethics!) 2.Ethics – the RIGHT thing to do (based upon some criteria) 3.Business Performance – businesses must maximize their profits, sales, growth, etc.

The Relation of Ethics and Business Performance Q. Do you believe that companies are rewarded by consumers for ethical behavior or punished by consumers for unethical behavior? Q. If you could, would you sell $3 ice scrapers for $10 each during a snowstorm?

Ethical behavior by companies will result in: Increased Customer Loyalty/Advocacy = $’s Increased Employee Trust/Morale/Loyalty = $’s Better Public Reputation = sales increases = $’s Reduced lawsuits and government intervention = $’s Feeling good about doing the right thing! The Relation of Ethics and Business Performance

Let’s play a Little Game… 1.Two people have $100 to divide. 2.The first person decides how they would like to divide the money. They can only make one proposal. 3.The second person can either accept the amount proposed or both parties get nothing.

How Companies Shape Ethical Conduct 1.Corporate Culture – the unwritten rules, pace, expectations, and ethics of a company 2.Ethical Training – playing offense and defense 3.Work Goals & Compensation – what companies demand and how they pay greatly influences ethics 4.Leadership – “a fish stinks from the head” 5.Code of Ethics - a formal statement that defines how the organization expects and requires employees to resolve ethical questions.

Content of Codes of Ethics Honesty. Adherence to the law. Product safety and quality. Health and safety in the workplace. Conflicts of interest. Employment practices. Selling and marketing practices. Financial reporting. Pricing, billing, and contracting. Trading in securities / using confidential information. Acquiring and using information about competitors. Payments to obtain business. Protection of the environment. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

Ethical Dilemmas 1.Your boss informs you confidentially that one of your friends is going to be fired. Your friend is about to buy a house. Should you warn your friend that he is about to be fired, even though you promised your boss that you would not? 2.One of your employees has not been performing her job properly. You know that she has been having serious personal problems, and you have tried to be understanding. However, your entire staff is suffering because of poor performance by this key team member. What should you do? McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

MORE ETHICAL DILEMMAS 1.Would you report an overpayment in your paycheck? 2. Would you tell someone at a store that you have been undercharged? 3. Would you use private, negative information about a co-worker to benefit your career?

SOCIAL RESPONSIBILITY Social Responsibility – the managerial obligation to protect and improve the welfare of society as a whole as well as the interests of the organization. A company must be profitable over the long run, but some % must be sacrificed for the good of society to be considered social responsibility Corporate behavior must be in line with today’s societal values, norms, and expectations, not just the laws It means sometimes choosing a less profitable course of action which is more socially desirable

SOCIAL RESPONSIBILITY Social Responsibility Includes: Demonstrating Environmentalism Supporting Consumer protection (Consumerism) Avoiding actions which benefit the company while harming the community in some way Contributing time and money to community organizations Supporting employees’ charitable and volunteering efforts Engaging in responsible economic growth

SOCIAL RESPONSIBILITY Q. Are managers (including business owners) obligated to be socially responsible? Q. What are some Pro’s and Con’s of taking socially responsible actions? (don’t peak)

Pro’s and Con’s of Social Responsibility Pro’s Impacts society Right thing to do – personal ethics It’s good for business – PR + loyalty Con’s Businesses who put society before profit could go under Managers shouldn’t spend stockholder $ to pursue socially responsible objectives Customers probably have to pay for it.

SOCIAL RESPONSIBILITY Bottom Line - Managers Need to… 1.Adhere to what the Law requires 2.Go beyond what is required and… 3.Tell everyone about it!.

Agencies that Enforce Social Responsibility Federal Agency Primary Agency Functions Equal Employment Opportunity Comm.Investigates and conciliates employment discrimination complaints that are based on race, sex, or creed Environmental Protection AgencyFormulates and enforces environmental standards in such areas as water, air, and noise pollution Consumer Product Safety CommissionStrives to reduce consumer misunderstanding of manufacturers’ product design, labeling, and so on, by promoting clarity of these messages Occupational Safety & Health Admin.Regulates safety and health conditions in non- government workplaces National Highway Traffic Safety Admin.Attempts to reduce traffic accidents through the regulation of transportation-related manufacturers and products.

Social Responsibility to Stakeholders Q. What Stakeholders Do Businesses Need to Be Socially Responsible To?.

Social Responsibility to STAKEHOLDERS StakeholderSome Social Obligations Owed Stockholders/owners of the orgTo increase the value of the organization Suppliers of materialsTo deal with them fairly Banks and other lendersTo repay debts Government agenciesTo abide by laws Employees and unionsTo provide safe working environment and to negotiate fairly with union reps ConsumersTo provide safe products CompetitorsTo compete fairly and to refrain from restraints of trade Local communities & society at largeTo avoid business practices that harm the environment.

Responsibilities to Stockholders They have invested in the company with the primary goal of making as much money as possible They can choose to invest in other companies, including the competition Most stockholders would agree that a company should adhere to high ethical standards and be socially responsible (“playing offense and defense”)

Corporate Social Responsibility Q. Who should companies be most responsible to? 1.Their Stockholders (the owners of the company) 2.The Local Community 3.Society as a whole 4.Their Customers 5.Their Employees