Ethics and Social Responsibility Chapter 5

The Nature of 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 Ethical Dilemma: a 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 There are no absolute or indisputable rules or principles that can be developed to decide if an action is ethical or unethical

Stakeholders and Stockholders Stakeholders: the people and groups that supply a company with its productive resources and so have a claim on and stake in the company. Stockholders: equity owners; want to ensure that managers are behaving ethically and not risking investors’ capital by engaging in actions that could hurt the company’s reputation

Types of Company Stakeholders

Some Principles from the Gap’s Code of Vendor Conduct

Four Ethical Rules

Utilitarianism – Spock’s Sacrifice “The needs of the many, outweigh the needs of the few. Or the one”

Justice Rule – Gravity Payments minimum salary

Rights Rule “We hold these truths to be self- evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed…” The United States Declaration of Independence “Two things awe me most, the starry sky above me and the moral law within me.” Immanuel Kant

Practical Decision Model – 3 Questions 1.Does my decision fall within the acceptable standards that apply in business today? 2.Am I willing to see the decision communicated to all people and groups affected by it? 3.Would the people with whom I have a significant personal relationship approve of the decision? Would you want your mother to know?

Some Effects of Ethical/Unethical Behavior

Trust and Reputation Trust: willingness of one person or group to have faith or confidence in the goodwill of another person Reputation: esteem or high repute that individuals or organizations gain when they behave ethically

13 1.Bernie Madoff, Chairman of NASDAQ 2.Bernie Ebbers, CEO of Worldcom 3.Ken Lay, CEO of Enron

Sources of Ethics

Ethics Guidelines Societal Ethics: standards that govern how members of a society should deal with one another in matters involving issues such as fairness, justice, poverty, and the rights of the individual Occupational Ethics: standards that govern how members of a profession, trade, or craft should conduct themselves when performing work-related activities Individual Ethics: personal standards and values that determine how people view their responsibilities to other people and groups Organizational Ethics: guiding practices and beliefs through which a particular company and its managers view their responsibility toward their stakeholders

Ethics Ombudsman Responsible for communicating ethical standards to all employees Designing systems to monitor employees conformity to those standards Teaching managers and employees at all levels of the organization how to appropriately respond to ethical dilemmas

Some Failures in Professional Ethics

Social Responsibility The way a company’s managers and employees view their duty or obligation to make decisions that protect, enhance, and promote the welfare and well- being of stakeholders and society as a whole The Classical View Management’s only social responsibility is to maximize profits (create a financial return) by operating the business in the best interests of the stockholders (owners of the corporation). The Socioeconomic View Management’s social responsibility goes beyond making profits to include protecting and improving society’s welfare.

Approaches to Social Responsibility

Forms of Socially Responsible Behavior

Examples Building Greener Stores Protecting Clean Water The Path to Sustainable Coffee 5–21 Starbucks Coffee Ben and Jerry’s Three Foci  Economic  Activism  Product

Arguments For and Against Social Responsibility For Public expectations Long-run profits Ethical obligation Public image Better environment Discouragement of further governmental regulation Balance of responsibility and power Stockholder interests Possession of resources Superiority of prevention over cures Against Violation of profit maximization Dilution of purpose Costs Too much power Lack of skills Lack of accountability

5–23 Does Social Responsibility Pay? Studies appear to show a positive relationship between social involvement and the economic performance of firms. Difficulties in defining and measuring “social responsibility” and “economic performance” raise issues of validity and causation in the studies. Mutual funds using social screening in investment decisions slightly outperformed other mutual funds. A general conclusion is that a firm’s social actions do not harm its long-term performance.

Whole Foods

Environmentalism or Business Decision?

Does Green necessary make Green $$$? 5–26 The search at the offices and plant of Solyndra, a California- based manufacturer of solar panels, came as Republicans on Capitol Hill demanded answers to questions about the company’s selection for the $535 million Energy Department loan guarantee. Some Democrats questioned whether the company misled federal officials about its deteriorating financial condition.Solyndra, a California- based manufacturer Energy Departmentloan guarantee Washington Post, By Carol D. Leonnig and Joe Stephens, Published: September 8Joe Stephens

The Quest for Clean Energy