Chapter 4: Demonstrating Ethical Behavior and Social Responsibility
I. ETHICS IS MORE THAN LEGALITY.
LEARNING GOAL 1
Explain why legality is only the first step in behaving ethically.
A. Recent scandals at Enron, Arthur Andersen, WorldCom, Tyco, and ImClone have focused attention on the subject of ETHICS.
1. What can be done to restore trust in the free-market system?
a. Those who have broken the law need to be punished accordingly.
b. Also helpful: New laws making accounting records more transparent and more laws making businesspeople more accountable.
2. Moral and ethical behavior are not the same as following the law.
a. Moral and ethical behavior goes BEYOND the law.
b. Ethics deals with the proper relations with and responsibilities toward other people.
c. Legality deals with much narrower issues.
d. It only refers to laws we have written to protect ourselvesCmany immoral acts fall within our laws.
B. Ethical Standards Are Fundamental.
1. ETHICS refers to the standards of moral behavior; that is, behavior that is accepted by society as right versus wrong.
2. Many Americans have few moral absolutes and make decisions situationally.
3. Historically, there have been moral truths that have guided leaders.
4. Even in today’s diverse culture, there are still common standards of ethical behavior.
5. All major religions support a version of the Golden Rule.
C. Ethics begins with each of us.
1. Americans are not always honest and honorable.
a. A recent survey revealed that two-thirds of the population never gave time to their communities.
b. Nearly one-third said they never contributed to a charity.
c. Half of college students said that they had cheated on an exam in the last year.
2. ETHICAL BEHAVIOR BEGINS WITH YOU AND ME.
a. We cannot expect “society” to become more moral and ethical unless we as individuals commit to becoming more moral and ethical ourselves.
3. It is important to KEEP ETHICS IN MIND when making a business decision.
a. There is not always an easy choice.
b. Sometimes the obvious solution from an ethical point of view has drawbacks from a personal or professional point of view.
c. Sometimes there is no desirable alternative, a situation referred to as ETHICAL DILEMMAS.
LEARNING GOAL 2
Ask the three questions one should answer when faced with a potentially unethical action.
4. Three “ETHICS CHECK QUESTIONS” can help individuals and organizations be sure their decisions are ethical:
a. Is it legal?
b. Is it balanced?
c. How will it make me feel about myself?
5. Individuals and companies that develop a strong ethics code have a better chance than most of behaving ethically.
II. MANAGING BUSINESS ETHICALLY AND RESPONSIBILY.
A. ORGANIZATIONAL ETHICS BEGINS AT THE TOP.
LEARNING GOAL 3
Describe management’s role in setting ethical standards.
1. People learn their standards and values from OBSERVING WHAT OTHERS DO, not what they say.
2. Corporate values are INSTILLED BY THE LEADERSHIP and example of strong top managers.
3. CEOs surveyed recently attributed unethical employee conducted to the “failure of the organization’s leadership in establishing ethical standards and culture.”
4. Any trust and cooperation between workers and managers must be based on fairness, honesty, openness, and moral integrity.
5. A business should be managed ethically for many reasons:
a. To maintain a good reputation.
b. To keep existing customers.
c. To avoid lawsuits.
d. To reduce employee turnover.
e. To avoid government intervention.
f. To please customers, employees, and society.
g. Simply to do the right thing.
6. Some managers think ethics is a personal matterCthat they are not responsible for an individual’s misdeeds.
a. Individuals do not usually act aloneCthey need the implied, if not the direct, cooperation of others to behave unethically in a corporation.
b. After the disastrous 1992 experience of Sears Automotive Services, Sears replaced 23,000 pages of policies and procedures with a simple booklet called “Freedoms & Obligations.”
7. However, in some corporations, such as Sears in the example above, corporate standards may work the other way.
B. SETTING CORPORATE ETHICAL STANDARDS.
LEARNING GOAL 4
Distinguish between compliance‑based and integrity‑based ethics codes, and list the six‑steps in setting up a corporate ethics code.
1. Eighty percent of corporations have written codes of ethics.
2. Although ethics codes vary greatly, they can be classified into two major categories: compliance‑based and integrity‑based.
a. COMPLIANCE‑BASED ETHICS CODES are ethical standards that emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers.
b. INTEGRITY‑BASED ETHICS CODES are ethical standards that define the organization’s guiding values, create an environment that supports ethically sound behavior, and stress a shared accountability among employees.
3. A 6-STEP PROCESS can help improve America’s business ethics.
a. TOP MANAGEMENT must adopt and unconditionally support an explicit code of conduct.
b. EMPLOYEES must understand that expectations for ethical behavior begin at the top and that senior management expects all employees to act accordingly.
c. MANAGERS and others must be trained to consider the ethical implications of all business decisions.
d. AN ETHICS OFFICE MUST BE SET UP.
i. Phone lines should be established so that employees who don’t want to be seen with an ethics officer can inquire about ethical matters anonymously.
ii. WHISTLEBLOWERS (people who report illegal or unethical behavior) must feel protected from retaliation.
iii. The Corporate and Criminal Fraud Accountability Act (2002) contains protections for corporate whistleblowers.
e. OUTSIDERS such as suppliers, subcontractors, distributors, and customers must be told about the ethics program.
i. Often pressure to put aside ethical considerations comes from the outside.
ii. It helps employees resist such pressure when everyone knows what the ethical standards are.
f. THE ETHICS CODE MUST BE ENFORCED.
i. If rules are broken, CONSEQUENCES should follow quickly.
ii. This will communicate to employees that the code is serious and cannot be broken.
4. The selection of AN ETHICS OFFICER is another important factor to encourage ethical behavior.
III. CORPORATE SOCIAL RESPONSIBILITY.
LEARNING GOAL 5
Define and examine corporate responsibility to various stakeholders.
A. Definitions.
1. CORPORATE SOCIAL RESPONSIBILITY is a business’s concern for welfare of society.
2. SOCIAL PERFORMANCE of a company has several dimensions:
a. CORPORATE PHILANTHROPY is the dimension of social responsibility that includes charitable donations to nonprofit organizations.
b. CORPORATE RESPONSIBILITY is the dimension of social responsibility that includes everything from hiring minority workers to making safe products.
c. CORPORATE POLICY refers to the position a firm takes on social and political issues.
3. IMPACT OF CORPORATIONS ON SOCIETY.
a. Many people get a one-sided view of the impact that companies have on society.
b. Few people see the positive impacts, such as the commitments of many companies to volunteerism, such as Xerox’s Social Service Leave program.
c. The federal USA Freedom Corps was created to oversee Citizen Corps, a program designed to strengthen homeland security efforts.
d. In a recent survey, two-thirds of the MBA students surveyed said that they would take a lower salary to work for a socially responsible company.
e. Social responsibility is seen differently through the eyes of various stakeholders to whom businesses are responsible.
B. RESPONSIBILITY TO CUSTOMERS.
1. Business is responsible to satisfy customers with goods and services of real value.
2. Pleasing the customer is not as easy as it seems.
3. Three out of
five new businesses failCperhaps
because their owners failed to please their customers.
4. The text discusses the contrasting ways in which two car companiesCSuzuki
and Daimler-BenzChandled
defects.
5. The payoff for socially conscious behavior could be new business.
a. All else being equal, a socially conscious company is likely to be viewed more favorably than less socially responsible companies.
b. Customers prefer to do business with companies they trust.
C. RESPONSIBILITY TO INVESTORS.
1. Economist Milton Friedman has said that corporate social responsibility means MAKING MONEY FOR STOCKHOLDERS.
a. Ethical behavior is good for shareholder wealth.
b. Unethical behavior guarantees eventual failure.
2. Some believe that before you can do good you must do well; others believe that by doing good, you can also do well.
3. Many people believe that it makes financial as well as moral sense to invest in companies that are planning ahead to create a better environment.
4. Another ethical concern is INSIDER TRADING.
a. INSIDER TRADING is an unethical activity in which insiders use private company information to further their own fortunes or those of their family and friends.
b. The text uses these examples:
i. Martha Stewart’s sales of ImClone stock.
ii. An IBM secretary who benefited from advance knowledge of the Lotus merger.
c. Companies can misuse information for their own benefit at investors’ expense as well, as in the case of WorldCom’s fraudulent accounting practices.
D. RESPONSIBILITY TO EMPLOYEES.
1. Responsibilities of business:
a. Businesses have a responsibility to CREATE JOBS.
b. Business has an obligation to see to it that HARD WORK AND TALENT ARE FAIRLY REWARDED.
2. Studies have shown that the factor that most influences a company’s effectiveness is human resource management.
3. If a company treats employees with respect, they will respect the company; the text uses the example of Fel-Pro’s summer camp for employee children.
4. When employees feel they’ve been treated unfairly, they strike back.
a. Dissatisfied workers relieve their frustrations in subtle ways.
b. Employee theft more than doubled from 1994 to 2000.
E. RESPONSIBILITY TO SOCIETY AND THE ENVIRONMENT.
1. A major responsibility of business to society is to CREATE NEW WEALTH.
a. Most nonprofits own shares of publicly-held companies.
b. As those share prices increase, funds are available to benefit society.
2. Businesses are responsible for PROMOTING SOCIAL JUSTICE.
a. For its own well-being, business depends on its employees being active in civil society such as politics, law, churches, arts, and charities.
b. The text uses the example of Rhino Entertainment’s commitment to community service.
3. Many companies extend their social contribution to cleaning up the environment, caring of the elderly, and so on.
a. Samsung, a Korean electronics conglomerate, emphasizes volunteer involvement, such as sponsorship of a city park.
b. The pay-off: Employee loyalty even during the 1999 Korean political unrest.
4. Business is responsible for CONTRIBUTING TO MAKING ITS OWN ENVIRONMENT A BETTER PLACE.
5. Not all environmental efforts are financially successful, such as StarKist’s failed “tuna-safe” initiative.
6. Many corporations publish reports that document their net social contribution.
F. SOCIAL AUDITING.
1. How can you measure how well organizations are incorporating social responsiveness into top management’s decision making?
2. A SOCIAL AUDIT is a systematic evaluation of an organization’s progress toward implementing programs that are socially responsible and responsive.
3. Some suggest that positive actions be added up and NEGATIVE EFFECTS SUBTRACTED to get a NET SOCIAL CONTRIBUTION.
4. FOUR GROUPS serve as Awatchdogs@ monitoring how well companies enforce their ethical and social responsibility policies:
a. SOCIALLY CONSCIOUS INVESTORS, who insist that companies extent the company’s own high standards to all their suppliers.
b. ENVIRONMENTALISTS, who apply pressure by naming names of companies that don’t abide by the environmentalists’ standards.
c. UNION OFFICIALS, who hunt down violations and force companies to comply to avoid negative publicity.
d. CUSTOMERS, who take their business elsewhere if a company demonstrates socially irresponsible practices.
5. Since September 11, 2001, watchdog groups also screen public companies for ties to terrorism.
IV. INTERNATIONAL ETHICS AND SOCIAL
RESPONSIBILITY.
LEARNING GOAL 6
Analyze the role of American businesses in influencing ethical behavior and social responsibility in global markets.
A. ETHICAL PROBLEMS ARE NOT UNIQUE TO THE UNITED STATES.
1. The text gives the examples of recent Ainfluence peddling@ in Japan, South Korea, the People’s Republic of China, and others.
2. What is new is that LEADERS ARE BEING HELD TO NEW, HIGHER STANDARDS.
B. Many American businesses, such as Sears and Dow Chemical, are demanding socially responsible behavior from international suppliers.
1. They make sure their suppliers do not violate U.S. human rights and environmental standards.
2. In contrast there are companies such Nike that have often been criticized for the low pay, long hours, and unsafe working conditions for factory workers in Asia.
3. Should international suppliers be required to adhere to American ethical standards? What about countries where child labor is an accepted part of society? What about multi-national corporations?
a. None of these questions are easy to answer.
b. They show how complex social responsibility issues are in international markets.
4. International organizations, such as the Organization of American States, have adopted the INTER-AMERICAN CONVENTION AGAINST CORRUPTION.