1. Copyright © 2004 South-Western. All rights reserved.3–1 Learning Goals Describe responsibilities of firms to: –Customers –Employees –Stockholders and creditor –Environment –Communities Explain the costs.

2. Copyright © 2004 South-Western. All rights reserved.3–2 Sunbeam’s Stock Price after It Was Accused of Overstating Its Revenues Exhibit 3.3

3. Copyright © 2004 South-Western. All rights reserved.3–3 Responsibility to Customers Responsible production practices –safety –warning labels Responsible sales practices

4. Copyright © 2004 South-Western. All rights reserved.3–4 Responsibility to Employees Employee Safety (OSHA, Violence @ work) Proper Treatment of Employees –Diversity training –Prevention of sexual harassment  Quid pro quo  Hostile Environment –Equal opportunity  Prohibit discrimination based on national origin, race, color, gender, or religion (Civil Rights Amendment 1964)  Applies to hiring, promotion, raises

5. Copyright © 2004 South-Western. All rights reserved.3–5 Responsibility to Stockholders Decisions should reflect the best interest of the owners –Tie compensation to firm performance –Disclosure of accurate info about financials

6. Copyright © 2004 South-Western. All rights reserved.3–6 Conflict With Excessive Executive Compensation Compensation of executives has increased dramatically –1980: 42 times the average compensation of employees –1990: 85 times the average compensation of employees –2000: 500 times the average compensation of employees

7. Copyright © 2004 South-Western. All rights reserved.3–7 Responsibility to Creditors Meeting financial obligations to creditors –Inform creditors if firm is having difficulty meeting obligations –If firm does not pay creditors what it owes them–may have to file for bankruptcy

8. Copyright © 2004 South-Western. All rights reserved.3–8 Violations of Responsibility Providing misleading financial information that exaggerates financial condition –Enron (Ken Lay and Jeff Skillings) –Global Crossing (Inflated earnings, bankruptcy) –WorldCom (63 year old CEO Ebber’s sentenced to 25 years –ImClone (Sam and Martha) –Tyco (Dennis)

9. Copyright © 2004 South-Western. All rights reserved.3–9 Responsibility to the Environment Production processes, as well as products, can harm the environment –Air Pollution –Land Pollution

10. Copyright © 2004 South-Western. All rights reserved.3–10 Responsibility to the Community Maximizing social responsibility may conflict with maximizing firm value –May reduce firm’s ability to provide products at reasonable prices Support charitable organizations, improve company image

11. Copyright © 2004 South-Western. All rights reserved.3–11 Social Responsibility: Examples Apple and IBM –Invest in education programs Home Depot –Donates to community programs for housing projects –Provided supplies and equipment to 9/11 rescue efforts Checkers –Provides jobs for inner-city residents Coca-Cola –Sponsors Boys and Girls Clubs

12. Copyright © 2004 South-Western. All rights reserved.3–12 Responsibilities in International Environment Awareness of cultural differences Avoid unethical payoffs Establish ethical global reputation

13. Copyright © 2004 South-Western. All rights reserved.3–13 Summary Business ethics influence decisions Firms have basic responsibilities –customers –employees –stockholders –environment –community

14. Copyright © 2004 South-Western. All rights reserved.3–14 Homework Rough draft and group evals Team meeting with instructor