1. 1 BUSINESS Ferrell Hirt Ferrell A CHANGING WORLD part EIGHTH EDITION
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McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 1 Business in a Changing World part
Chapter 2 discusses the importance and impact that business ethics and social responsibility have in the areas of: profitability, sustainability, and the global economy. After defining ethics and social responsibility, we will discuss how ethical issues may arise in business. You will learn how businesses can promote ethical behavior and how to evaluate the ethics of a business’s decision.
CHAPTER 1 The Dynamics of Business and Economics
CHAPTER 2 Business Ethics and Social Responsibility
CHAPTER 3 Business in a Borderless World
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4. ] [ Business Ethics http://www.youtube.com/watch?v=iKQePnQ8FUU
An identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as right or wrong, ethical or unethical
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5. Ethical Decisions in Organizations
Most unethical activities are supported by a culture encouraging employees to bend the rules
Countrywide Financial
‘Liar loans’
Culture that encouraged cutting corners in order to make profits
American International Group
Manipulation of accounting
Overstatement of earnings– forced to restate earnings $3.9 billion lower
The news has given us many examples of unethical companies in recent decades. Countrywide Financial and AIG are only two of the more famous examples. Other examples of ethical misconduct are Enron, or even Bernard Madoff.
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6. Social Responsibility
Business’s obligation is to maximize its positive impact and minimize its negative impact on society
Social responsibility and ethics do not mean the same thing.
Business ethics relates to an individual’s or a work group’s decisions that society evaluates as right or wrong, whereas social responsibility is a broader concept that concerns the impact of the entire business’s activities on society.
Click on the Salvatore Ferragamo logo to access an article on the Ferragamo/Acumen Fund partnership
Click on the Acumen Fund to access the organization’s website
Known for high-end luxury shoes and accessories
Launched a lower-cost brand Ferragamo WORLD
Aimed at socially conscious consumers
Eco-friendly materials
Proceeds go to help the Acumen Fund, which provides funding for businesses in East Africa, India and Pakistan
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7. A Timeline of Ethical and Social Responsibility Concerns
Major concerns of the 21st century are the environment and sustainable development, financial misconduct and intellectual property theft.
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8. Laws and Regulations
Laws and regulations encourage businesses to conform to society’s basic standards, values, and attitudes.
Sarbanes-Oxley Act, 2002
Troubled Assets Relief Program
The United States has a number of laws in place to protect consumers and to minimize corporate misconduct. These laws and regulations do not always stop organizations and individuals from engaging in ethical misconduct, however, as they are largely reactionary.
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9. The Role of Ethics in Business
Growing concerns about legal and ethical issues in business
Antitrust violations
Accounting fraud
Cybercrimes
Unfair competitive practices
Tax fraud
These are major ethical concerns in the business world today.
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10. Ethical Issues [ ]
An identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as right or wrong, ethical or unethical
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11. Ethical Issues Involve all organizational activities
For profit businesses
Non-profits
Government
Schools and universities
Learning to recognize and resolve ethical issues are important in maintaining an ethical business climate
Ethical issues can arise in virtually any context around the world and in any organization– no matter the purpose of that organization. Even non-profits dedicated to bettering the lives of others are not immune from ethical misconduct disasters.
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12. Ethical Conduct Helps To:
Build Trust
Promote confidence
Validate relationships
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13. How to Judge the Ethics of a Situation
Examine the situation from your stakeholders’ position, including customers and competitors
People often need years of experience to accurately recognize and react to ethical situations
Ethical situations vary by culture
The best way to evaluate the possible ethics of a situation or a decision is to try to imagine yourself in your competitor’s or stakeholder’s shoes. A decision that may seem like a good idea from your organization’s perspective may be harmful overall. This can be very difficult to do.
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14. Highly Ethical Companies
Are generally more profitable!
Recognized as highly ethical
Awarded ‘Corporation of the Year’ by Michigan Minority Business Development Council
Perfect score three years in a row in a Competitive Enterprise Institute ranking
History of environmental advocacy and stakeholder awareness
Click on HermanMiller for link to related article. HermanMiller makes high-end furniture and is a successful business. It is known for its open and welcoming corporate culture, as well as for its concern for the environment. They met their “One hundred percent green energy by 2020” ten years early —in 2010.
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15. Recognizing Ethical Issues
in Business
Many business issues may seem straightforward and easy to resolve on the surface, but are really very complex
Notice that between 2007 and 2009 many categories of reported unethical behavior went down. Ask the students why they think that is.
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16. Unethical Behavior in Business Misuse of company resources
Abusive & intimidating behavior
Conflict of interest
Fairness & honesty
Communications
Business relationships
Unethical behavior can manifest itself in many different ways in businesses, as you can see above. These will be discussed in further detail in the upcoming slides.
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17. Sources of Unethical Behavior Misuse of Company Resources
The most commonly observed misconduct
Time theft
Use of personal and social networking sites at work is a growing problem
Stealing office supplies
Unauthorized use of equipment and software
It is estimated that the average employee “steals” 4.5 hours of work time through doing things like surfing the Internet, taking long lunches and using unauthorized sick time. Undoubtedly, in some offices this number is much higher.
Some companies, like Boeing, have created company resource use policies to clarify what is acceptable.
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18. Sources of Unethical Behavior
Abusive and Intimidating Behavior / Bullying
Abusive behavior can mean a range of things (see above). Is a widespread problem that can cause psychological and health problems in the abused worker. 37% of U.S. workers admit to being bullied while at work. 81% of workplace bullies are supervisors, leaving the abused with few places to turn for help.
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19. Sources of Unethical Behavior in Organizations
Conflict of interest
Advance personal interest over others’ interests
Benefit self at the expense of the company
Bribes represent a conflict of interest because they benefit an individual at the expense of an organization or society
To avoid conflicts of interest, employees must separate their personal interests from the corporation’s– this is especially true in situations where money is involved.
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20. Corruption Perceptions Index
Least Corrupt Countries…
1. New Zealand
12. Hong King/Luxembourg (tied)
2. Denmark
14. Australia
3. Singapore/ Sweden (tied)
16. Germany/ Ireland (tied)
Switzerland
17. Japan/ United Kingdom
6. Finland/Netherlands (tied)
19. United States
8. Australia/Canada/Iceland (3-way tie)
20. Barbados
11. Norway
While the United States is far from the bottom of the list, the U.S. has a lot of room for improvement when it comes to transparency and openness.
Source: “Corruption Perceptions Index 2009,” Transparency International,
surveys_indices/cpi/2009/cpi_2009_table (accessed January 22, 2010).
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21. Fairness & Honesty Are at the heart of business ethics
How employees use resources
No deceit, coercion, or misrepresentations
Fair competition
Disclosure of potential harm caused by products
Fairness and honesty are important concepts because they relate back to the values of decision makers. Earning a reputation for dishonesty could hurt a business’s ability to attract and retain employees, as well as hurt its potential to make profits.
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22. Ethical Concerns in Communications
False/misleading advertising
Deceptive personal selling tactics
Truthfulness in product safety and quality
Unsubstantiated claims
Product labeling
Companies should be careful about claims made about their products– particularly health claims on packaging. If they are false claims, they are deceiving consumers and running the risk of lawsuits.
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23. Ethical Concerns in Business Relationships
Relationships with customers, suppliers and co-workers
Ethical behavior within a business is important
Keeping company secrets
Meeting obligations and responsibilities
Avoiding undue pressure
Managers’ responsibility to create ethical work environment and provide a positive example
Managers must be aware that they have the power and the authority to influence employees’ actions and should be careful how they use this power, as it could result in ethical problems.
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24. Plagiarism
The act of taking someone else’s work and presenting it as your own without mentioning the source
A major problem in schools and business
Students copying others’ work
A manager taking credit for a subordinate’s work
Employees copying reports and passing the work off as their own
Click on the hyperlink for an interesting article on how plagiarism is on the rise in the digital age.
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25. Questions to Consider in Determining Whether an Action is Ethical
Open discussion of ethical issues does not eliminate ethical problems; it does promote trust and learning in an organization
Recognizing ethical issues can be challenging. Once an issue has been recognized, it can then be discussed and the process of resolving the issue begins.
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26. Personal Ethics Is honesty important to students?
In a survey of 25,000 high school students:
62% cheated on exams at least once
35% copied documents from the Internet
27% shoplifted
23% cheated to win at sports
Students today do not recognize many ethical issues, and they do not recognize many ethical issues as problems. They are the future of the workforce, and business ethics education is therefore critical.
(Source: “The Biennial Report Card: The Ethics of American Youth,” Josephson Institute of Ethics, )
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27. Ethical Decisions in an Organization are Influenced by Three Key Factors
Understanding how people make ethical choices and what prompts someone to act unethically may reverse the trend toward unethical behavior in business.
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28. Code of Ethics
Does not have to be detailed, but should provide guidelines and frameworks for recognizing, addressing and avoiding ethical misconduct.
Its development should involve employees from all levels of the organization. [ ]
Formalized rules and standards that describe what a company expects of its employees
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29. Whistleblowing
Occurs when an employee exposes an employer’s wrongdoing to outsiders
Many companies have internal reporting mechanisms in place
Avoid legal action
Negative publicity
Whistleblowers often treated negatively and have a difficult time finding other work
Organizations should have some sort of internal misconduct reporting mechanism so that employees do not have to resort to whistleblowing. Dealing with a problem before employees engage in whistleblowing is generally preferable.
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30. Four Dimensions to Social Responsibility
Economic
Legal
Ethical
Voluntary
Businesses that ignore other dimensions of responsibility in favor of focusing on profits are likely to suffer ethical misconduct problems in the future. At the very least, businesses must focus on the economic and legal dimensions of responsibility.
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31. The Pyramid of Social Responsibility
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32. Corporate Citizenship
Good corporate citizens will focus on the entire pyramid of corporate social responsibility when making business decisions. [ ]
The extent to which businesses meet the legal, ethical, economic, and voluntary responsibilities placed on them by their stakeholders
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33. Best Corporate Citizens
Bristol Myers-Squibb
General Mills, Inc.
IBM Corp.
Merck & Co., Inc.
HP Co, LP
Cisco Systems, Inc.
Mattel, Inc.
Abbott Laboratories
Kimberly-Clark Corp.
Entergy Corp.
ExxonMobil Corp.
Wisconsin Energy Corp.
Intel Corp.
Proctor & Gamble Co.
Hess Corp.
Xerox Corp.
3M Co.
Avon Products, Inc.
Baxter International Inc.
Monsanto Co.
“CRO’s 100 Best Corporate Citizens 2009.” CRO,
CRO100BestCorporateCitizensList2009.pdf (accessed January 22, 2010).
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34. Formal Ethics and Compliance Programs
Arguments for and against these programs
Not all organizations agree that ethics and compliance programs are necessary or important
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35. Stakeholder Relationships: Shareholders
Primarily concerned with profit or ROI
Financial community at large
Proper accounting procedures
Protecting owner’s rights and investments
Businesses must first be responsible to their owners. In the case of corporations, these owners are the shareholders.
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36. Stakeholder Relationships: Employees
Provide a safe workplace
Adequate compensation
Listen to grievances
Fair treatment
Without employees, a business could not carry out its goals and would be out of business quickly. Therefore, keeping employees satisfied is important.
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37. Stakeholder Relationships: Consumers
Consumerism
Activities that independent individuals, groups and organizations undertake to protect their rights as consumers
Critical issue is business’s responsibility to customers to provide satisfying, safe products and to protect their rights as consumers.
Consumers are critical of a business because they purchase the products and services that provide businesses with the profits needed to keep their doors open.
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38. Kennedy’s Consumer Bill of Rights The right to safety
The right to be informed
The right to choose
The right to be heard
The foundation of the ideas contained in consumerism can be found in former President John F. Kennedy’s 1962 Consumer Bill of Rights.
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39. Stakeholder Relationships: The Environment & Sustainability Issues
Sustainability means conducting activities with the long-term well-being of the natural environment in mind.
Involves interaction between
Nature
Individuals
Organizations
Business strategies
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40. Stakeholder Relationships: The Environment & Sustainability Issues
Pollution
Land
Water
Air
Waste disposal
Future of energy
Alternative energy
Copyright 2009 Utopian Empire Creativeworks | Biomass Energy Plant in Cadillac Michigan
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41. Response to Environmental Issues
Many companies have a President of Environmental Affairs Position
Most Fortune 500 companies have in place:
Written environmental policy
Recycling programs
Waste-reduction initiatives
Environmental consciousness can save money through reducing waste
Greenwashing, or creating a positive association with environmental issues for an unsuitable product, service or practice
Is a growing problem
While not all of these problems affect all businesses equally, businesses with a long-term view should be concerned about environmental and sustainability issues.
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42. Stakeholder Relationships: The Community
General community and global welfare
The Avon Foundation
Breast Cancer Awareness Crusade
Target’s Take Charge of Education program
1% of Target Red Card purchases donated to educational causes
Hardcore unemployed
National Alliance of Business funds training to help hard-core unemployed to find work and gain self-sufficiency
Enhanced self-esteem; help people become productive members of society
Click on the hyperlinks above to access the corresponding websites.
The community in which a business is located is important to the organization. Community support can help a business to thrive.
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