1. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 1

2. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 2 Chapter 5 Ethics And Corporate Responsibility

3. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 3 Learning Objectives After studying Chapter 5, you will know: how different ethical perspectives guide decision making how companies influence the ethics environment the options you have when confronting ethical issues the important issues surrounding corporate social responsibility how the political and social environment affects your firm’s competitive position and legitimacy the strategies corporations use to manage the political and social environment the role of managers in our natural environment

4. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 4 Ethics Ethics the system of rules that governs the ordering of values affects people’s behavior and the ‘goods’ that are worth seeking values - principles of conduct ethics becomes more complicated when a situation dictates that one value overrules another ethical issue - a situation, problem, or opportunity in which an individual must choose among several actions that must be evaluated as right or wrong business ethics - the moral principles and standards that guide behavior in the world of business

5. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 5 Ethics (cont.) Ethical systems moral philosophy - the principles, rules, and values people use in deciding what is right and wrong universalism - individuals should uphold certain values, regardless of the immediate result the important values are those that society needs to function teleology - an act is morally right if it produces a desired result egoism - acceptable behavior maximizes consequences for the individual utilitarianism - seeks the greatest good for the greatest number of people, thereby maximizing total utility

6. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 6 Ethics (cont.) Ethical systems (cont.) deontology - focuses on the rights of individuals ensures that equal respect is given to all persons concentrates on means to particular ends relativism - ethical behavior defined by the opinions and behavior of relevant other people acknowledges the existence of different ethical viewpoints group consensus is sought positive consensus signifies that an action is right, ethical, and acceptable

7. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 7 Ethics (cont.) Ethical systems (cont.) virtue ethics - morality defined by what a mature person with ‘good’ moral character would deem right society’s rules provide a moral minimum moral individuals can transcend rules by applying personal standards Kohlberg’s model of cognitive moral development preconventional stage - decisions based on concrete rewards, punishments, and immediate self-interest conventional stage - actions conform to societal expectations ethical behavior deemed appropriate by groups or institutions principled stage - follow self-chosen ethical principle see beyond authority, laws, and norms

8. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 8 Business Ethics Business Ethics Current Ethical Issues WagesBrands Commercialism in Schools Artistic Control CEO PayConsumerism Frankenfoods Globalization Politics Sweatshops Urban Sprawl

9. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 9 Ethics (cont.) The ethics environment Ethical climate - processes by which decisions are evaluated and made on the basis of right and wrong unethical corporate behavior may be the responsibility of an unethical individual often the company’s culture that is ethically lax

10. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 10 Climate Factors Conducive To Unethical Behavior Financial concerns take precedence over ethical considerations Ethics considered from legal or public relations viewpoint Emphasis on short- term revenues Danger Signs No written code of ethics Shareholders concerns take precedence over other constituencies Lack clear procedures for dealing with ethical problems Desire for “quick fix” solutions

11. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 11 Ethics (cont.) The ethics environment (cont.) Ethics codes - most visible sign of corporate commitment to ethical behavior must be tailored to individual company’s philosophies address subjects such as employee conduct, community and environment, shareholders, customers, political activity Ethics programs compliance-based - designed by corporate counsel to prevent, detect, and punish legal violations increases surveillance and controls integrity-based - guiding principles that instill personal responsibility for ethical behavior

12. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 12 Define the issue clearly Identify the relevant values in the situation Weigh conflicting values and choose option that balances them Ethical Decision Making Ethical Decision Making Implement the decision

13. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 13 Corporate Social Responsibility Corporate social responsibility the obligation toward society assumed by business maximizes it positive effects on society and minimizes it negative effects economic responsibilities - produce goods and services that society wants at a price that perpetuates the business legal responsibilities - obey local, state, federal and relevant international laws ethical responsibilities - meeting other societal expectations, not written as law voluntary responsibilities - additional behaviors that society finds desirable and that the values of the business support

14. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 14 Voluntary Responsibilities Be a good corporate citizen Ethical Responsibilities Be ethical Legal Responsibilities Obey the law Economic Responsibilities Be profitable Pyramid Of Corporate Social Responsibility

15. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 15 Corporate Social Responsibility (cont.) Contrasting views profit maximization view managers act as agents for shareholders obligated to maximize the present value of the firm economic performance is an organization’s primary social responsibility principled moral reasoning view ethical actions are not optional, but mandatory organizations have a wider range of responsibilities that extend beyond the production of goods and services for a profit organizations should actively and responsibly participate in the community and the larger environment

16. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 16 Corporate Social Responsibility (cont.) Reconciliation based on the idea that ethical behavior is both right and more profitable there are competitive advantages of socially responsible actions, especially over the long-term avoid unnecessary and costly regulation pay dividends to the reputation of the company profits can be made from attempts to solve society’s problems

17. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 17 Corporate Social Responsibility (cont.) Corporate social responsiveness the process companies follow and the actions they take in the domain of corporate social responsibility CSR1 (corporate social responsibility) - principles, philosophies, and beliefs CSR2 (corporate social responsiveness) - processes companies follow and the actions they take stakeholder management - managers do not manage relationships with society but with stakeholders company issuessupplier issues employee issuespublic issues shareholder issues

18. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 18 Performance Approach Posture or Strategy Do less than required Do the least that is required Do all that is required Do more than is required 1. Reactive 2. Defensive 3. Accommodative 4. Proactive Deny responsibility Admit responsibility but fight it Accept responsibility Anticipate responsibility Approaches To Corporate Social Responsiveness

19. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 19 The Political Environment Competitive advantage progressive organizations realize that government may be the source of competitive advantages for an individual company or an entire industry numerous examples of public policy that assists business Corporate legitimacy motive for business involvement in the public policy process organizations are legitimate to the extent that their goals and methods are consistent with those of society domain defense - activities intended to counter challenges to the organization’s legitimacy

20. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 20 The Political Environment (cont.) Strategies for influencing the political environment public affairs department - monitors key events and trends, analyzes their effects on the organization, recommends organizational responses, and implements political strategies Lobbying - most traditional form of influence involves political professionals or company executives who establish communication channels with regulatory bodies, legislators, and their staffs Political action committees (PACs) - make donations to candidates for political office

21. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 21 International relations Investor and stockholder relations Activities of Public Affairs Issues management Government relations Institutional advertising Corporate contributions Public relations Public Affairs Department

22. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 22 The Political Environment (cont.) Strategies for influencing the political environment (cont.) Corporate constituency programs - organizational efforts to identify, educate, and motivate individuals to take political action that could benefit the organization encourage interested stakeholders to take grassroots action on behalf of the organization Coalition building - finding other organizations or voter groups that share political interests on a particular legislative issue combine efforts and power to influence the environment

23. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 23 The Political Environment (cont.) Strategies for influencing the political environment (cont.) Stonewalling - use of public relations, legal action, and administrative processes to prevent or delay the introduction of legislation and regulation that may have an adverse impact on the organization consumes considerable time and money, and may boomerang Strategic retreat - response to adverse regulatory change efforts to adapt products and processes to changes in the political and social environments while minimizing the negative effects of those changes

24. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 24 The Natural Environment Environmental issues paradigm shift in corporate environmental management deliberate incorporation of environmental values into competitive strategies and the design and manufacturing of products A risk society fundamental sources of risk in modern society are excessive production of hazards and ecologically unsustainable consumption of natural resources risk has proliferated due to population explosion, industrial pollution, and environmental degradation

25. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 25 The Natural Environment (cont.) Ecocentric management has as its goal the creation of sustainable economic development and improvement of quality of life worldwide for all organizational stakeholders seeks to minimize negative environmental impact design for environment (DFE) - tool for creating products that are easy to recover, reuse, or recycle all environmental effects of a product are examined from cradle to grave assessments of inputs analysis of how consumers will use and dispose of the product

26. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 26 Environmentally appropriate production technologies Products with ecofriendly packaging Use smaller resource quantities Products with recyclable materials Ecocentric Management Encourage low energy use Ecocentric Management

27. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 27 The Natural Environment (cont.) Environmental agenda for the future corporations are the only organizations with the resources, technology, and global power to help create a sustainable world webs of companies with a common ecological vision can combine their efforts into high-leverage, impactful action companies beginning to acquire the motivation to solve environmental problems may represent the biggest opportunity in the history of commerce