1. Ethics in Business Better Business 1st Edition Poatsy · Martin © 2010 Pearson Education, Inc.1 chapter 3 Slide presentation prepared by Pam Janson Stark State College of Technology

2. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. © 2010 Pearson Education, Inc.2

3. Learning Objectives 1.What are ethics and different ethical systems? 2.How does a person create a personal code of ethics? 3.How might personal ethics play a role in the workplace? 4.How can you evaluate a company’s ethical code using available resources such as a mission statement? 5.How do a company’s policies and decisions affect its achievement of corporate social responsibility? 6.What challenges does a company face in balancing the demands of social responsibility with successful business practices? 7.What is legal compliance, and how does it affect ethical conduct? 8.What strategies can a company use to recover from ethical lapses? 9.How can companies apply ethical standards to create new business opportunities? 10.What approaches can a company use to develop and maintain an ethical environment? © 2010 Pearson Education, Inc.3

4. Ethics What exactly are ethics? oDo all people share the same ethics? Ethical systems oMoral relativism oSituational ethics oJudeo-Christian ethics What is amoral behavior? © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4

5. Determining Your Code of Personal Ethics © 2010 Pearson Education, Inc.5

6. Personal Ethics in a Business Environment What if you are asked to act against your ethics? What if you unknowingly do something “wrong”? What if you knowingly do something unethical or even illegal? © 2010 Pearson Education, Inc. Publishing as Prentice Hall 6

7. Pricing Fixing Occurs when a group of companies agree to set a product’s price Mark Whitacre, a senior executive with the agricultural giant Archer Daniels Midland (ADM), blew the whistle on ADM’s multinational price-fixing scheme © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7

8. Business Ethics and Social Responsibility How can you examine a company’s ethics? oCompanies document their philosophies, often through: A code of ethics—A statement of the company’s commitment to ethical practices A mission statement—Defines the core purpose of an organization © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8 “Our mission is to enable people and businesses throughout the world to realize their full potential.” Can you guess this company?

9. Corporate Social Responsibility (CSR) © 2010 Pearson Education, Inc. Publishing as Prentice Hall 9

10. Can a Company Really Be Socially Responsible? Economist Milton Friedman said, “Asking a corporation to be socially responsible makes no more sense than asking a building to be.” How does a company balance CSR and the profits their stockholders expect? oWhat happens to CSR when the company isn’t doing well? oCan CSR benefit a company financially? © 2010 Pearson Education, Inc. Publishing as Prentice Hall 10

11. Benefits of CSR A positive reputation in the marketplace Strong recruitment and talent retention Increased efficiency and decreased scrap and waste Increased sales via product innovations and environmentally and ethically conscious labeling © 2010 Pearson Education, Inc. Publishing as Prentice Hall 11 Images courtesy of Whole Foods

12. Measuring CSR Social audits Ratings and rankings oCalvert Company Intel oFortune’s 10 Most-Admired Companies Apple Self-reporting Corporate philanthropy oDonating profits or resources Target © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12

13. The Challenges of CSR Balancing the demands of social responsibility with successful business practices oMany conflicting demands pose numerous ethical challenges, such as: Making life-saving drugs available to the world’s poor. Conducting business in an environmentally sound manner. © 2010 Pearson Education, Inc. Publishing as Prentice Hall 13

14. The Effects of CSR on Society Environmental oLocal and global Economic oProduct availability, price and quality oBusiness sustainability Employee morale oAdvancement oWork environment oValues © 2010 Pearson Education, Inc. Publishing as Prentice Hall 14

15. The Effects of Individuals on CSR Can you affect how businesses operate ethically? You can affect: oYour own ethical behavior oWho you do business with oWho you invest in Socially responsible investing oWho you work for © 2010 Pearson Education, Inc. Publishing as Prentice Hall 15

16. Legal Regulations and Compliance Specific laws are created governing the products or process of a specific industry Example: Consumer Bill of Rights (1962) oRight to safe products oRight to choose purchases oRight to information oRight to be heard Legal compliance oEnsuring adherence to legal regulations © 2010 Pearson Education, Inc. Publishing as Prentice Hall 16

17. Violating Ethics & the Law: The Example of Enron Seventh largest U.S. company at its zenith Had a written code of ethics including social and environmental values In 2001, fraudulent finance practices surfaced and the company went bankrupt oKey officers found guilty of fraud and other charges oArthur Andersen, Enron’s accounting firm, convicted of obstruction of justice and the firm closed Sarbanes/Oxley Act passed in 2002, with strict corporate finance requirements and penalties © 2010 Pearson Education, Inc. Publishing as Prentice Hall 17

18. Recovering from Weak Ethical Conduct Whistleblower Common strategies to recover 1.Lead by strong ethical example 2.Empower all employees to make ethical decisions and to report unethical situations 3.Redesign internal rewards to reward responsible and ethical behavior © 2010 Pearson Education, Inc. Publishing as Prentice Hall 18

19. Creating New Markets with an Ethical Focus Examples oOffering clean fuel oCreating medical vaccines oFighting censorship oGoing green Sustainability What other examples can you think of? © 2010 Pearson Education, Inc. Publishing as Prentice Hall 19 BagMonster image courtesy of ChicoBag Co

20. Developing an Ethical Environment 1.Create and communicate a meaningful and current mission statement 2.Set a clear example by management 3.Offer orientation programs on company ethics to new employees 4.Provide ongoing ethics training programs © 2010 Pearson Education, Inc. Publishing as Prentice Hall 20

21. Tips for Maintaining an Ethical Environment Develop a strict code of ethics and ensure it is being followed. Create a hotline for employees to anonymously report violations. Set the tone that the company is serious about ethics. Communicate regularly about acceptable and unacceptable business practices. © 2010 Pearson Education, Inc. Publishing as Prentice Hall 21

22. Chapter Summary 1.What are ethics and different ethical systems? 2.How does a person create a personal code of ethics? 3.How might personal ethics play a role in the workplace? 4.How can you evaluate a company’s ethical code using available resources such as a mission statement? 5.How do a company’s policies and decisions affect its achievement of corporate social responsibility? 6.What challenges does a company face in balancing the demands of social responsibility with successful business practices? 7.What is legal compliance, and how does it affect ethical conduct? 8.What strategies can a company use to recover from ethical lapses? 9.How can companies apply ethical standards to create new business opportunities? 10.What approaches can a company use to develop and maintain an ethical environment? © 2010 Pearson Education, Inc. Publishing as Prentice Hall 22

23. Beyond the Book © 2010 Pearson Education, Inc. Publishing as Prentice Hall 23

24. Business Ethics Challenges Think about these scenarios that happen in organizations every day… An employee surfs the Internet shopping for personal items on company time A plant manager decides to ship a product to a customer even though he knows the parts have a quality problem because the problem doesn’t affect part function and the customer probably won’t notice An employee spends several hours a week on her cell phone talking with her children and their associated caregivers, schools, and friends © 2010 Pearson Education, Inc. Publishing as Prentice Hall 24 How do businesses stop these situations?

25. Business Ethics Challenges continued Think about these scenarios that happen in organizations every day... A salesperson marks parts as “sold” in the company database, thus depriving others of the ability to sell the parts, even though his sale is uncertain A store misrepresents the quality or functionality of an advertised sale item An employee takes office supplies home to stock his home office An accountant tells a supplier that the “check is in the mail” when she knows she hasn’t written the check © 2010 Pearson Education, Inc. Publishing as Prentice Hall 25 How do businesses stop these situations?

26. Johnson & Johnson’s Credo Written in 1943 by Robert Wood Johnson Begins: “We believe our first responsibility is to the doctors, nurses, and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers' orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit.” The credo is the company’s mission statement in a sense, guiding their actions through the years. © 2010 Pearson Education, Inc.26

27. Business Ethics 2006 Annual Award Winners Starbucks Coffee Company oFor leadership and corporate responsibility Patagonia, Inc. oFor environmental sustainability Berrett-Koehler Publishers oFor stakeholder accountability/collaborative product design with employees, partners and customers Hypertherm, Inc. oGeneral excellence award © 2010 Pearson Education, Inc. Publishing as Prentice Hall 27

28. Examples of Large “Green” Companies Honda: Most fuel-efficient auto company in the United States Continental Airlines: Most fuel-efficient aircraft PG&E: Investments in efficiency and renewables S.C. Johnson: Three generations of environmental stewardship Hewlett-Packard: Silicon Valley leader in ecosensitivity © 2010 Pearson Education, Inc. Publishing as Prentice Hall 28

29. The Largest Corporate Foundations RankName/(state)Assets 1.Bill & Melinda Gates Foundation (WA)$33,120,381,000 2.The Ford Foundation (NY)13,659,731,000 3.J. Paul Getty Trust (CA)10,133,371,844 4.The Robert Wood Johnson Foundation (NJ)10,094,684,000 5.The William and Flora Hewlett Foundation (CA)8,520,765,000 6.W. K. Kellogg Foundation (MI)8,402,996,155 7.Lilly Endowment Inc. (IN)7,601,664,181 8.The David and Lucile Packard Foundation (CA)6,350,664,410 9.John D. and Catherine T. MacArthur Foundation (IL)6,178,196,933 10.The Andrew W. Mellon Foundation (NY)6,130,849,710 © 2010 Pearson Education, Inc. Publishing as Prentice Hall 29

30. Sarbanes-Oxley Act of 2002 CEOs and CFOs must certify financial reports oOfficers may face criminal penalties if financial statements are misstated Corporate board of directors, especially audit committee, must provide strong guidance Audit firm independence requirements oEmployees of audit companies cannot become client employees immediately (waiting period required) oAudit firms may not provide consulting services © 2010 Pearson Education, Inc. Publishing as Prentice Hall 30

31. Sex vs. Ethics at American Apparel Engages in ethical treatment of employees and the environment oProduces its clothing in the U.S., paying $12-$13 per hour with medical benefits oIncreasingly using California organic cotton oAds tout company as “sweatshop free” Although the company is concerned with ethical issues, “Ethical sell is too limiting” says CEO Dov Charney Focus is now more on “making sexy (clothes) for young people” and using provocative ads to sell them © 2010 Pearson Education, Inc. Publishing as Prentice Hall 31