Business Ethics

1
CHAPTER 3

• Business Ethics Social Responsibility

2
Unethical Behavior

• Unethical behavior in business is not just a
  recent phenomenon
• In the sixth century, B.C., the philosopher
  Anacharsis once said, The market is a place set
  apart where men may deceive one another.

3
Unethical Behavior

• Two centuries later, Diogenes was spotted
  carrying around a lighted lamp, up and down the
  city streets, in the middle of the day. When
  asked what he was doing, he replied, that he was
  looking for an honest man.

4
Business Ethics

• Business Ethics is about
• Decision-Making
• By People in Business
• According to Moral Principles or Standards

5
Decision-Making

• Conflicting duties, loyalties or interests create
  moral dilemmas requiring decisions to be made

6
Decision-Making

• Ethical decision-making involves the ability to
  discern right from wrong along with the
  commitment to do what is right.

7
Decision-Making

• Some factors affecting decision-making (from
  Integrity Management, by D. T. LeClair et al,
  Univ. of Tampa Press, 1998)
• Issue Intensity
• (i.e. how important does the decision-maker
  perceive the issue to be?
• Can be influenced by company/management
  emphasis)
• Decision-Makers Personal Moral Philosophy
• Decision-Makers Stage of Moral Development
• Organizational Culture

8
Decision-Making

• 8 Steps to Sound, Ethical Decision-Making
• 1. Gather as many relevant material facts as
  circumstances permit.
• 2. Identify the relevant ethical issues (consider
  alt. viewpoints)
• 3. Identify, weigh prioritize all the affected
  parties (i.e. stakeholders) (see Johnson
  Johnson Credo, Taking Sides, p.25)
• 4. Identify your existing commitments/obligations.
  
• 5. Identify various courses of action (dare to
  think creatively)
• 6. Identify the possible/probable consequences of
  same (both short long-term)
• 7. Consider the practicality of same.
• 8. Consider the dictates and impacts upon your
  character integrity.

9
Decision-Making

• Disclosure Test How comfortable would I feel if
  others, whose opinion of me I value, knew I was
  making this decision?

10
Decision-Making

• The higher the level of a decision-maker
• the greater the impact of the decision
• and the wider the range of constituencies that
  will be affected by the decision.

11
By People In Business

• The moral foundation of the decision-maker
  matters
• He doesnt have a moral compass. Whistleblower
  Sherron Watkins describing Andrew Fastow, former
  CFO of Enron. (Watkins gets frank about days at
  Enron, Edward Iwata, USA Today, March 25, 2003,
  p. 3B.)

12
By People in Business

• Ultimately, one's own motivation for ethical
  behavior must be internal to be effective.
  External motivation has a limited value --
  punishment and fear is only effective in the
  short-run. If people believe that they are above
  the law, they will continue to act unethically.
  Organizations that have a clear vision, and
  support individual integrity are attractive
  places of employment. - Teri D. Egan, Ph.d,
  Associate Professor, The Graziadio School of
  Business at Pepperdine University, Corporate
  Ethics, Washington Post Live Online, Friday, Aug.
  2, 2002

13
Ethics

• Values guiding constructs or ideas, representing
  deeply held generalized behaviors, which are
  considered by the holder, to be of great
  significance.
• Morals a system or set of beliefs or principles,
  based on values, which constitute an individual
  or groups perception of human duty, and
  therefore which act as an influence or control
  over their behavior. Morals are typically
  concerned with behaviors that have potentially
  serious consequences or profound impacts. The
  word morals is derived from the Latin mores
  (character, custom or habit)
• Ethics the study and assessment of morals. The
  word "ethics" is derived from the Greek word,
  ethos (character or custom).

14
Morality

• The most important human endeavor is the
  striving for morality in our actions. Our inner
  balance and even our very existence depend on it.
  Only morality in our actions can give beauty and
  dignity to life.--Albert Einstein (in a letter
  11/20/50)

15
Morality

• The historian Arnold Toynbee observed "Out of 21
  notable civilizations, 19 perished not by
  conquest from without but by moral decay from
  within."

16
Absolutism vs. Relativism

• Ethical Absolutism What is right or wrong is
  consistent in all places or circumstances. There
  are universally valid moral principles. ( only
  by obedience to universal moral norms does man
  find full confirmation of his personal uniqueness
  and the possibility of authentic moral growth. -
  Pope John Paul II, see also Rom. 122 Heb. 138)
• Ethical Relativism (also called Situational
  Ethics) What is right or wrong varies according
  to the individual/society/culture or set of
  circumstances. There are no universally valid
  moral principles. (Related Biblical reference
  "everyone did what was right in his own eyes"
  (Deut. 128, Judges 176 2125) (see also Isa.
  520 24, Jer. 213, Rom. 118-32, 1 Cor.
  56-7, 2 Cor. 614-15, 1 John 18)

17
Absolutism vs. Relativism

• As Cardinal Joseph Ratzinger said, Relativism is
  presented as a position defined positively by
  the concepts of tolerance and knowledge through
  dialogue and freedom, concepts which would be
  limited if the existence of one valid truth for
  all were affirmed affirming that there is a
  binding and valid truth in history in the figure
  of Jesus Christ and the faith of the church is
  described as fundamentalism. Such fundamentalism,
  is presented in different ways as the
  fundamental threat emerging against the supreme
  good of modernity i.e., tolerance and freedom.
  - Address to Congregation for the Doctrine of
  Faith, Guadalajara, Mexico, May 1996

18
Absolutism vs. Relativism

• The demise of Americas legal foundations occur
  when society rejects laws that are based on
  solid, irrevocable, moral, universal, absolute
  values, to a society that bases its laws on an
  arbitrary system of relativism, situational
  ethics, materialism, individualism, hedonism,
  paganism, or in any secularist ideology. This
  secularization of law has influenced all branches
  of knowledge law, philosophy, business,
  religion, medicine, education, science, the arts,
  and mass media. Harold Berman, The Interaction
  of Law and Religion 21 (1974).

19
Absolutism vs. Relativism

• According to a recent poll of college seniors,
  73 agreed with the statement that What is right
  or wrong depends on differences in individual
  values and cultural diversity. Only 25 agreed
  with the statement that There are clear and
  uniform standards of right and wrong by which
  everyone should be judged."

20
Problems with Relativism

• Relativism undermines moral criticism of
  practices of particular individuals or in
  particular societies where those practices
  conform to their own standards. For instance, it
  could be used to permit slavery in a slave
  society or it could be used to justify trade and
  investment with basically evil regimes, e.g.
  Apartheid governments.
• But, as Cardinal Ratzinger said, There are
  injustices that will never turn into just things
  (such as, for example, killing an innocent
  person, denying an individual or groups the right
  to their dignity or to life corresponding to that
  dignity) while, on the other hand, there are just
  things that can never be unjust. - Address to
  Congregation for the Doctrine of Faith,
  Guadalajara, Mexico, May 1996

21
Problems with Relativism

• Relativism allows for oppression of those with
  minority views by allowing the majority in any
  particular circumstance to define what is morally
  right or wrong.
• In Germany they first came for the Communists,
• and I didn't speak up because I wasn't a
  Communist.
• Then they came for the Jews,
• and I didn't speak up because I wasn't a Jew.
• Then they came for the trade unionists,
• and I didn't speak up because I wasn't a trade
  unionist.
• Then they came for the Catholics,
• and I didn't speak up because I was a Protestant.
• Then they came for me
• and by that time no one was left to speak up.
• - German anti-Nazi activist, Pastor Martin
  Niemöller

22
Problems with Relativism

• Relativists speak in terms that soften harsh
  realities.
• "Intelligent, educated, religious people embrace
  illogical absurdities that set aside not only
  God's truth, but also our responsibility for the
  well-being of others. When words are warped and
  twisted perversely, they're eventually emptied of
  their true meaning. When you shine the light of
  common sense on deceptive language couched in
  medical, philosophical or intellectual terms, the
  logic evaporates. Moral choices require that we
  use language to describe reality. - Jean Staker
  Garton, Author/Lecturer, Co-Founder of Lutherans
  for Life

23
Problems with Relativism

• Relativists never need bother to examine why
  something is moral or immoral, they merely
  accept/tolerate alternative determinations, so
  that none are held to account
• Over the years I have found that those who call
  themselves atheists actually have a strong sense
  of the absolute truth they know exists. They just
  dont want to acknowledge that its true -
  because if they did, they would have to change
  the way they live. They flee on moral grounds
  refusing to submit themselves, they exchange the
  truth for a lie. - Chuck Colson -Being the Body,
  2003.

24
Problems with Relativism

• Commenting on the idea that legal reforms can
  compel corporate morality, Michael Prowse, in
  the Financial Times, stated that "The underlying
  problem is that we are living in times that might
  aptly be called 'post-ethical.'" People are now
  "emotivists," who relativize moral judgments and
  "obey the law, help others and respect customs
  and mores only if they calculate that this will
  benefit them personally in some way. ... The root
  problem is a loss of belief in objective ethical
  standards.

25
Problems with Relativism

• Jesus said in John 831-32, If you continue in
  my word, then are you my disciples indeed And
  you shall know the truth, and the truth shall
  make you free. It would seem follow then that,
  people cannot experience ultimate and true
  freedom unless and until they come to terms with
  ultimate, absolute truth inherent in and revealed
  by God.

26
Absolutism vs. Relativism

• Most ethicists reject the theory of ethical
  relativism. Some claim that while the moral
  practices of societies may differ, the
  fundamental moral principles underlying these
  practices do not. -Markkula Center for Applied
  Ethics

27
Values

• To ensure that employees can and will act with
  integrity organizations need a strong and
  consistent set of values that dictate appropriate
  individual actions. - Conclusion of study
  conducted by Professor Pratima Bansal, cited in
  Rebuilding trust, The integral role of leadership
  in fostering values, honesty and vision,by Carol
  Stephenson in the Ivey Business Journal, Jan/Feb.
  2004, Vol. 68, Issue 3.

28
Values

• Navigating the complexities of a situation ...
  requires a reliable compass. We can plot that
  "north" by determining clearly our own core
  values. We have to identify - and articulate -
  what we believe is important to us and to our
  companies. Our core values drive our behaviors,
  and our behaviors tell the world who we are and
  what we stand for. ...Identifying and adhering to
  a core-values compass point provides a standard
  that will make decisions easier, consistent and
  justified. - Parkinson, J. Robert, Thinking
  clearly, remembering values key to making the
  call, Milwaukee Journal Sentinel, March 22, 2004.

29
Values

• Without commonly shared and widely entrenched
  moral values and obligations, neither the law,
  nor democratic government, nor even the market
  economy will function properly.-- Vaclav Havel
  ("Politics, morality, and Civility" Summer
  Meditations)

30
Values

• What are the core values that are fundamental to
  the success of any individual or organization?

31
Values

• Honesty, respect, responsibility, fairness,
  compassion, perseverance and courage.

32
Values - Universal Rule?

• The Golden Rule , i.e. to do unto others as
  you would have them do unto you is an example of
  a value common to many cultures/religions
  (Mahabharata 51517, Hinduism, Talmud, Shabbat
  31a Leviticus 1918, Judaism, Matthew 712,
  Christianity, Udana-Varga 518, Buddhism,
  Analects 1523, Confucianism, Number 13 of Imam
  "Al-Nawawi's Forty Hadiths.", Islam)
• Note Several Corporations have directly
  incorporated some form of this rule in their
  codes of ethics including Coachman, Mary Kay,
  Progressive, Merrill Lynch and USAA

33
Corporate Culture

• Both individuals and organizations hold values
• A corporation is said to manifest its values in
  its corporate culture
• Corporate culture is loosely defined as the
  attitudes, behaviors and personalities that make
  up a company and that shape its behavior and
  reputation, or as Elizabeth Kiss of the Kenan
  Institute for Ethics puts it, corporate culture
  is how we perceive, think, feel and do things
  around here.
• Most employees take their cues from the company
  culture and behave accordingly.
• A business derives its character from the
  character of the people who conduct the business.
  - Ricky W. Griffin, Management. Boston
  Houghton Mifflin Company (2002)

34
Corporate Culture

• "Moral behavior is concerned primarily with the
  interpersonal dimension of our behavior how we
  treat one another individually and in groups
  and, increasingly, other species and the
  environment." The key here is that morality
  brings us into contact with others and asks us to
  consider the quality of that contact. -
• Quote from The Leadership Compass, John Wilcox
  and Susan Ebbs, as quoted in Everyday Ethics, by
  Thomas Shanks, S.J., Markkula Center for Applied
  Ethics.

35
Corporate Culture

• "The first step in the evolution of ethics is a
  sense of solidarity with other human beings."
  Albert Schweitzer, early 20th-century German
  Nobel Peace Prize-winning mission doctor and
  theologian

36
Corporate Culture

• The Pressure to Conform
• We are all a kind of Chameleon, taking our hue -
  the hue of our moral character, from those who
  are about us. - John Locke (1632 - 1704)

37
Corporate Culture

• The Pressure to Conform
• Some years ago, a social scientist named Solomon
  Asch wanted to see how people dealt with social
  pressure so he designed an experiment to measure
  the results. He came up with a simple test that
  showed a series of lines on a board in front of
  the room, with one of the lines matching another
  in being the same length. The others were either
  much shorter or much longer. A person was brought
  into the room, along with others in a group,
  which unbeknown to the subject, were helpers to
  the professor. The whole group was asked to match
  the two lines that were the same length together.
  The helpers intentionally gave the wrong answer
  and it was found that in almost 75 of the time,
  the subjects would go along with the wrong
  answer, knowing full well it was wrong, but not
  wanting to stand out. - Opinion and Social
  Pressure, Scientific American, Nov. 1955, 31-35.

38
Corporate Culture

• The Pressure to Conform
• Culture shapes behavior. There are plenty of
  perfectly decent people who go astray because
  they're in a culture that creates an environment
  in which they can't get their jobs done unless
  they engage in unethical activities. - Harvard
  Business School professor and business ethicist
  Barbara Toffler, former partner at Arthur
  Andersen. Toffler left Andersen in 1999, well
  before the Enron and Global Crossing scandals
  destroyed the company. Her book, Final
  Accounting Ambition, Greed, and the Fall of
  Arthur Andersen (Random House/Broadway Books,
  2003), describes the process of ethical erosion
  in grim detail. Postcards from an Ethical
  Wasteland, CIO, June 1, 2003

39
Corporate Culture

• In Moral Man and Immoral Society, Reinhold
  Niebuhr proposed that individual persons are
  always more moral functioning alone than when
  they function in a social group. - Institutional
  Ethics An Oxymoron, By Joe E. Trull, Editor,
  Christian Ethics Today, Journal of Christian
  Ethics, Issue 035 Volume 7 No 4 August 2001 .
• Do you agree with this?

40
Corporate Culture

• Rarely do the character flaws of a lone actor
  fully explain corporate misconduct. More
  typically, unethical business practice involves
  the tacit, if not explicit, cooperation of others
  and reflects the values, attitudes, beliefs,
  language, and behavioral patterns that define an
  organizations operating culture. - Lynn Sharp
  Paine, Harvard Business School

41
Corporate Culture

• A strong corporate culture founded on ethical
  principles and sound values is a vital driving
  force behind strategic success. - Thompson
  Strickland
• One company stressed its commitment to RICE
  respect, integrity, communication, and
  excellence. The words have been on T-shirts,
  paperweights, and on signs. The firm printed a
  61-page booklet with its code of ethics and every
  employee had to sign a certificate of compliance.
  That company was Enron!

42
According to Ethical or Moral, Values, Principles
or Standards

• Whose Values?

43
According to Ethical or Moral, Values, Principles
or Standards

• Personal
• Family
• Peers
• Religious
• Company
• Community, Regional, National, International

44
According to Ethical or Moral, Values, Principles
or Standards

• Learned Where?

45
According to Ethical or Moral, Values, Principles
or Standards

• Home
• School
• Church (or other place of worship)
• Life Experience
• Work Experience
• Books
• News Media
• Entertainment Media

46
According to Ethical or Moral, Values, Principles
or Standards

• The average American, by the age of 65, will have
  spent the equivalent of 15 years of their life
  watching television.
• By contrast, over the same time period, the
  average weekly church-going American will have
  spent only 8 months of their life receiving
  spiritual instruction.

47
According to Ethical or Moral, Values, Principles
or Standards

• In the middle of an interview for acceptance to a
  prestigious Ivy League school back east, the
  interviewer asked his sure of himself
  candidate, If no one would ever find out, and no
  one got hurt, would you lie for 1M? The young
  man thought for a moment and said, If no one
  found out, and no one was hurt? Sure, I think I
  would! The interviewer then asked, Would you
  lie for a dime? The young man shot back, No
  way, what kind of man do you think I am? The
  interviewer responded, I have already determined
  that, I am just trying to determine your price.

48
According to Ethical or Moral, Values, Principles
or Standards

• So fearful were the ancient Chinese of their
  enemies on the north that they built the Great
  Wall of China, one of the 7 wonders of the
  ancient world. It was so high they knew no one
  could climb over it, so thick that nothing
  could break it down. Then they settled back to
  enjoy their security. But during the first 100
  years of the walls existence, China was invaded
  3 times. Not once did the enemy break down the
  wall or climb over its top. Each time they bribed
  a gatekeeper marched right through the gates.
  According to the historians, the Chinese were so
  busy relying upon the walls of stone that they
  forgot to teach integrity to their children.

49
According to Ethical or Moral, Values, Principles
or Standards

• In the 1950s a psychologist, Stanton Samenow, and
  a psychiatrist, Samuel Yochelson, sharing the
  conventional wisdom that crime is caused by
  environment, set out to prove their point. They
  began a 17-year study involving thousands of
  hours of clinical testing of 250 inmates here in
  the District of Columbia. To their astonishment,
  they discovered that the cause of crime cannot be
  traced to environment, poverty, or oppression.
  Instead, crime is the result of individuals
  making, as they put it, wrong moral choices. In
  their 1977 work The Criminal Personality, they
  concluded that the answer to crime is a
  "conversion of the wrong-doer to a more
  responsible lifestyle." In 1987, Harvard
  professors James Q. Wilson and Richard J.
  Herrnstein came to similar conclusions in their
  book Crime and Human Nature. They determined that
  the cause of crime is a lack of proper moral
  training among young people during the morally
  formative years, particularly ages 1 to 6.

50
According to Ethical or Moral, Values, Principles
or Standards

• 33 of teens would act unethically to get ahead
  or to make more money if there was no chance of
  getting caught, according to a new Junior
  Achievement/Harris Interactive Poll of 624 teens
  between the ages of 13 and 18. 25 said they were
  not sure and only 42 said they would not.
  These results confirm our belief that ethics
  education must begin in elementary school. said
  Barry Salzberg, U.S. Managing Partner of Deloitte
  Touche.

51
According to Ethical or Moral, Values, Principles
or Standards

• Daniel R. Levine notes that "honesty and
  integrity have been replaced in many classrooms
  by a win-at-any-cost attitude that puts grades,
  expediency and personal gain above all else.
• "Moral standards have become so eroded that many
  children can no longer tell right from wrong,"
  says Kevin Ryan, founding director of the Center
  for the Advancement of Ethics and Character at
  Boston University.
• According to Stephen F. Davis, a professor of
  psychology, "There's no remorse. For students,
  cheating is a way of lire.
• Ryan further comments that "kids have no moral
  compass other than enlightened self-interest"
  Ryan blames the nation's schools for abandoning
  their traditional role of providing students with
  moral guidance.- "Cheating in Out Schools A
  National Scandal," Daniel R. Devine, Reader's
  Digest, October 1995, p. 66.), quoted in PERSONAL
  ETHICS VERSUS PROFESSIONAL ETHICS , Jerry E.
  White,, Airpower Journal, 08970823, Summer96,
  Vol. 10, Issue 2

52
According to Moral Principles or Standards

• Does society require a moral code to survive and
  prosper?

53
According to Moral Principles or Standards

• 17th Century Philosopher Thomas Hobbes postulated
  that life in an amoral society would be poor,
  nasty, brutish and short, lacking in industry
  and commerce, as well as knowledge and arts, and
  that its people would live in a constant state of
  fear and insecurity.

54
According Moral Principles or Standards

• Men qualify for freedom in exact proportion to
  their disposition to put moral chains on their
  own appetites. Society cannot exist unless a
  controlling power is put somewhere on will and
  appetite, and the less of it there is within, the
  more of it there must be without. - Edmund
  Burke(1774)

55
According to Moral Principles or Standards

• Without civic morality communities perish
  without personal morality their survival has no
  value. Bertrand Russell, 20th-century British
  mathematician and philosopher

56
According to Moral Principles or Standards

• Martin Luther King, Jr. once noted, " The most
  dangerous criminal may be the man gifted with
  reason but with no morals."

57
According to Moral Principles or Standards

• We have grasped the mystery of the atom and
  rejected the Sermon on the Mount. The world has
  achieved brilliance without wisdom, power without
  conscience. Ours is a world of nuclear giants and
  ethical infants. --General of the Army, Omar
  Bradley

58
According to Moral Principles or Standards

• There are seven sins in the world Wealth without
  work, Pleasure without conscience, Knowledge
  without character, Commerce without morality,
  Science without humanity, Worship without
  sacrifice and politics without principle. -
  Mahatma Gandhi (1869 - 1948)

59
Ethics

• R. H. Tawney, the British historian, once wrote
  ''To argue, in the manner of Machiavelli, that
  there is one rule for business and another for
  private life, is to open the door to an orgy of
  unscrupulousness before which the mind recoils.''

60
Ethics

• Truett Cathy, founder of Chick-fil-A, argues
  there is no such thing as business ethics - only
  ethics.

61
Ethics

• Duty-Based v. Outcome-Based Ethics
• Duty (Deontology)
• Duty is an act done simply for the sake of what
  is right.
• Duty is determined by revealed truths and
  involves universal principles
• Often religion-based
• e.g. Kants Categorical Imperative
• "Everyone is obligated to act only in ways that
  respect the intrinsic value, human dignity and
  moral rights of all persons."
• Places High Value on Individual Rights
• Outcome (Consequentialism)
• Ethical if best outcome for the majority
• Involves cost-benefit analysis
• e.g. Bentham Mills Utilitarianism
• "Of any two actions, the most ethical one is that
  which will produce the greatest balance of
  benefits over harms."
• De-emphasizes individual rights

62
Ethics

• Strategic v. Real Ethics
• What is the motivation/purpose for acting
  ethically?

63
Integrity

• Integrity from the Latin integritas, meaning
  wholeness, completeness, or purity. To
  courageously hold to what one believes is right
  and true, without compromise. To stand undivided,
  immovable, consistent in both heart and action,
  word and deed. Involves the maintenance of virtue
  and the pursuit of moral excellence. Integrity is
  demonstrated by not only espousing your values,
  but by living according to them. Integrity
  describes both who you are and what you do.
  People of integrity are conscientious,
  trustworthy, accountable, committed and
  consistent. A key to maintaining integrity is
  counting the cost before committing yourself.

64
Integrity

• Psychologists have found integrity to be
  essential to an individual's sense of identity
  and self-worth, enabling the successful
  navigation of change and challenge. Links between
  integrity and the ability to gain and maintain
  the trust of others have often been noted. Many
  purveyors of practical advice, including Cicero
  and Benjamin Franklin, have counseled that
  integrity is the cornerstone of worldly success.
  According to Franklin, "no Qualities are so
  likely to make a poor Man's Fortune as those of
  Probity Integrity" (quoted in Beebe, 1992, p.
  8) - from Blackwells Encyclopedic Dictionary of
  Business Ethics.

65
Integrity

• In Living a Life That Matters Rabbi Harold
  Kushner describes the kind of people who are able
  to overcome the negativity in their lives as
  shalem, people who are whole, united within
  themselves, their internal conflicts ended.
  Because of this, he says, they are persons of
  integrity. Integrity, says Kushner, is a quality
  just as essential to human well-being as is the
  pursuit of peace and justice.

66
Integrity

• The Bible/Talmud says that
• The man of integrity walks securely, but he who
  takes crooked paths will be found out. (Prov.
  109)
• The integrity of the upright guides them, but the
  unfaithful are destroyed by their duplicity.
  (Prov. 113)
• Integrity brings peace (i.e. a clear conscience)
  and marks the perfect man (Hebrew Word Tam Man
  of Integrity) (Ps. 3737, 1 Kings 94)
• The just man walketh in his integrity his
  children are blessed after him. (Prov. 207)
• A good name is better than precious ointment.
  (Ecc. 71)

67
Integrity

• Some Biblical Examples of Integrity
• Joseph, Gen. 391-12
• Jacob/Israel (Gen 3229) known as a simple man
  (tam, Gen 2527) that is to say, that his mouth
  was like his heart.
• Job (Book of Job, see in particular description
  of Job at 23, 275)
• Daniel, Shadrach, Meshach Abednego (Daniel
  Chapters 3 6)
• David (Ps. 78)
• Solomon (1 Kings. 94)
• Contrast Ananias Sapphira, Acts 51-11 and
  Acts 2016-36

68
Integrity

• Consistency - the absence of contradictions - has
  sometimes been called the hallmark of ethics. -
  Markkula Center for Applied Ethics

69
Integrity

• Plato once said I would rather that the whole
  world should be at odds with me, and oppose me,
  than that I myself should be at odds with myself
  and contradict myself.

70
Integrity

• "In matters of style, swim with the current in
  matters of principle, stand like a rock. -
  Thomas Jefferson

71
Integrity - Example

• Cleveland Stroud had coached the Blue Collar
  Bulldogs for 18 years before his basketball team
  made it to the championship. Stroud recalls that
  it was a perfect night when they won. A night
  you dream of. He was carried around the gym on
  the shoulders of his triumphant players and their
  proud parents. But the excitement was short
  lived. Two months after the championship, during
  a routine grade check, Stroud discovered that one
  player was academically ineligible. The player in
  question had only played 45 seconds in the
  regional qualifying tournament. Stroud says, I
  thought it was all ruined. I went through a phase
  where I was really depressed. He struggled with
  what to do next. Yet, his commitment to integrity
  led him to the right decision. Winning is the
  most important thing for any coach, he said.
  But your principals have to be higher that your
  goals. He reported the error to the league and
  the Bulldogs forfeited their trophy. When the
  team lamented their loss in the locker room, he
  told them, Youve got to do what is honest, what
  is right, and what the rules say. People forget
  the scores of basketball games, but they dont
  ever forget what your made of.

72
Integrity

• Kenneth Blanchard, the co-author of The Power of
  Ethical Management, puts it There is no right
  way to do a wrong thing. Blanchard says that if
  you have to cheat to win you should think twice
  about the business youre in.

73
Integrity

• The most important persuasion tool you have in
  your entire arsenal is integrity. - Sales Guru
  Zig Ziglar

74
Integrity

• According to Michael Useem, Director of the
  Center for Leadership and Change Management,
  Warren Buffett's influence derives from his
  moral stature and integrity. In the aftermath of
  scandals that have rocked U.S. companies in the
  past few years, it is difficult to overemphasize
  the importance of ethics as a factor in
  leadership. -Leadership and Change Becoming
  the Best What You Can Learn from the 25 Most
  Influential Leaders of Our Times , Knowledge _at_
  Wharton Newsletter, Jan.28-Feb.4, 2004

75
Character

• Character The notable/conspicuous/
  distinguishing moral/ethical traits or
  characteristics of a person that give evidence of
  their essential nature and which ultimately shape
  their reputation.

76
Character

• Our character...is an omen of our destiny, and
  the more integrity we have and keep, the simpler
  and nobler that destiny is likely to be. - George
  Santayana (1863 - 1952), "The German Mind A
  Philosophical Diagnosis"

77
Character

• President Harry Truman used to say "Fame is a
  vapor, popularity an accident, riches take wings,
  those who cheer today may curse tomorrow, only
  one thing endures -- character.

78
Character

• Evangelist Charles Spurgeon wrote, "A good
  character is the best tombstone. Those who loved
  you, and were helped by you, will remember you
  when forget-me-nots are withered. Carve your name
  on hearts, and not on marble.

79
Character

• "What you are stands over you... and thunders so
  that I cannot hear what you say to the contrary.
  - Ralph Waldo Emerson

80
Character

• "Character is destiny." - Heraclitus, Greek
  Philosopher
• "Within the character of the citizen lies the
  welfare of the nation" - Cicero, Roman
  Philosopher

81
Character

• In his book The Death of Character, James Hunter,
  a noted sociologist from the University of
  Virginia, concludes that while Americans are
  innately as capable of developing character as
  they ever were in the past, there are now few
  cultural or institutional guidelines in our
  society that call for its cultivation or
  maintenance. The reason, he suggests, is because
  there is no consensus of moral authority.
• Do you agree with this?

82
Character

• Compartmentalization Many people believe that
  what individuals do in their private lives is
  their own business as long as it does not
  adversely impact the performance of their duties
  to the organization and they are able to deliver
  the goods professionally. Under this way of
  thinking even serious moral failures may be
  excused. Some refer to this kind of thinking as
  compartmentalization. (e.g. Bill Clinton/Monica
  Lewinsky situation)
• Do you agree with this?

83
Character

• Character vs. Reputation It has been said that
  an individuals character can be illustrated by a
  barrel of apples. The apples seen on top by all
  represent ones reputation, and the apples that
  lie hidden underneath are his character.

84
Reputation

• Eli Lily introduced a drug, fialuridine, intended
  to treat hepatitis B. However, 15 patients who
  submitted to trials of the drug suffered liver
  toxicity and 6 died. Rather than follow the
  companys long-standing no comment policy, the
  new Chairman and CEO, Randall Tobias openly
  acknowledged the failure. His view was that
  communication stands at the top of the list in
  the elements of good leadership. In addition, he
  believed that if a company leaves a
  communications void, others will fill it with
  misinformation. (Put the Moose on the
  TableLessons in Leadership from a CEOs Journey
  Through Business and Life, Randall and Todd
  Tobias, Indiana University Press)

85
Reputation

• A railroad executive burst into Arthur Andersens
  office one day in 1914, demanding that the firms
  founder approve the railroads books. Accountants
  had discovered that the railroad was inflating
  its profits by failing to properly record
  expenses. Andersen refused, saying that there
  wasnt enough money in the city of Chicago to
  make him approve the fraudulent accounting.
  Andersens independence cost him the client, but
  it gained him something far more valuable, a
  reputation for integrity that gave investors
  confidence in Arthur Andersen audits, a
  reputation that helped the firm become one of the
  top 5 accounting firms in the U.S. After nearly
  90 years in business, Andersen imploded in 2002
  after acknowledging that its auditors had
  shredded documents relating to its audits of
  Enron.

86
Reputation

• Warren Buffett, CEO of Berkshire Hathaway, warns
  his executives once a year not to do anything
  that year they would be ashamed to read about in
  their local newspaper. You can lose a reputation
  that took 37 years to build in 37 seconds. And it
  might take more than 37 years to build it back.

87
Reputation

• The purest treasure mortal times can afford is a
  spotless reputation - William Shakespeare

88
Virtue

• VirtueThe quality of doing what is right and
  avoiding what is wrong.
• "Virtue develops from a habitual commitment to
  pursue the good. - Ronald F. Thiemann, a
  professor of religion and society at Harvard
  Divinity School
• Wisdom is know what to do next virtue is doing
  it. - David Starr Jordan (1851 - 1931), American
  naturalist

89
3 Theories of Social Responsibility

• Classical Theory
• Stakeholder Theory
• Corporate Social Responsibility Theory (CSR)

90
Classical Theory

• Definition The role of business is to maximize
  profits within the law (see Milton Friedman, "The
  Social Responsibility of Business Is to Increase
  Its Profits.", New York Times Magazine, 1970)

91
Classical Theory

• Put another way, by Harvard Professor Theodore
  Levitt, In the end business has only two
  responsibilities - to obey the elementary canons
  of face-to-face civility (honesty, good faith,
  and so on) and to seek material gain. - The
  Dangers of Social Responsibility, Harvard
  Business Review 36 (Sept.-Oct., 1958)

92
Classical Theory

• Serve the interests of the shareholders
• Social obligations limited to ordinary moral
  expectations.
• Views obligations to non-shareholders as a
  constraint
• Trusts in Adam Smiths Invisible Hand (The
  Wealth of Nations) - The assumption that society
  benefits most when individuals are allowed to
  define and pursue their own self-interests, with
  minimal interference from governments or other
  authorities.

93
Classical Theory - Contra

• Problems with Market Failures (e.g. Pacific
  Lumber a successful, balanced enterprise ruined
  by a corporate takeover)

94
Classical Theory - Contra

• When the 1990s Tech Stock Bubble burst it sent
  layoffs soaring, 401(k) assets tanking. According
  to the Center on Budget and Policy Priorities,
  between 1997 and 1999 the bottom 20 of earners
  saw their income decline, while the richest 1
  saw their income more than double. The invisible
  hand is a bit partial in the way it dispenses
  favors. (Marjorie Kelly, The Divine Right of
  Capital)

95
Classical Theory -Contra

• In fact, the purpose of a business firm is not
  simply to make a profit, but is to be found in
  its very existence as a community of persons who
  in various ways are endeavoring to satisfy their
  basic needs, and who form a particular group at
  the service of the whole of society. Profit is a
  regulator of the life of a business, but it is
  not the only one other human and moral factors
  must also be considered which, in the long term,
  are at least equally important for the life of a
  business. - Pope John Paul, Centesimus annus,
  May 1, 1991

96
Stakeholder Theory

• Definition The primary consideration in business
  decision-making is preserving/promoting the
  rights of stakeholders
• Takes into consideration the moral principle of
  mutual respect.

97
Stakeholder Theory

• Goal to maintain the benefits of the free market
  while minimizing the potential ethical problems
  created by capitalism (Phillips, Wharton School)
• Primary difference from Classical Theory
  elevation of nonshareholding interests to the
  level of shareholder interests in formulating
  business strategy and policy.

98
Stakeholder Theory

• Stakeholder an individual or group, inside or
  outside the organization, who has a meaningful
  stake in its performance.
• Who are the stakeholders of a business?
• Narrow view vs. Wide View

99
Stakeholder Theory

• Some Possible Stakeholders of a Business
• Customers
• Department/Employees
• Owners/Shareholders
• Creditors
• Suppliers
• Distributors
• Competitors

100
Stakeholder Theory

• Some Additional Possible Stakeholders
• Local Community
• National Citizens
• Global Inhabitants
• Non-Human Life
• the Environment

101
Stakeholder Theory

• Corporate citizenship the extent to which a
  business meets its responsibilities, to its
  various stakeholders, or to society at large.

102
Stakeholder Theory

• Problems with wider view?
• Discourages Investment - Undermines/Dilutes
  shareholder property rights
• Interest Group Politics - Leads to waste and
  inefficiency

103
Corporate Social Responsibility Theory

• Definition A voluntary assumption of
  responsibilities, beyond the legal and economic,
  that take into account moral/ethical/socially
  desirable goals and outcomes.
• Concept originated in the 1950s and began to
  gain a significant following in the 1960s.

104
Corporate Social Responsibility Theory

• Possible Examples
• Merck moved to develop Mectizan, a drug that
  would treat river blindness, a disease that
  primarily affected the poor. Merck knew that it
  would cost millions to develop and that they
  would most likely not realize a direct profit
  from the effort. But this resulted in a public
  relations windfall!

105
Corporate Social Responsibility Theory

• Mercks project was followed by
• Pfizer initiated a project to eliminate the eye
  disease trachoma.

106
Corporate Social Responsibility Theory

• SmithKline Beecham (Now Glaxo SmithKline)
  developed a drug to eliminate lymphatic
  filariasis.
• GlaxoSmithKline has also announced that it
  intends to launch a new drug to tackle a virulent
  form of Malaria in sub-Saharan Africa. The
  company announced that Lapdap will be made
  available at a cost of 0.29 per adult and half
  that amount for children, and will treat
  plasmodium falciparum malaria, the most
  life-threatening malaria parasite, which kills
  between one and two million people every year.

107
Corporate Social Responsibility Theory

• Proctor Gamble developed a special nutrient
  product to address malnutrition.

108
Corporate Social Responsibility Theory

• BP gave solar powered refrigerators to doctors
  in Zambia to store malaria vaccines.

109
Corporate Social Responsibility Theory

• UPS was a key actor in delivering humanitarian
  aid to Kosovo.

110
Corporate Social Responsibility Theory

• Intel provides education in science math in
  countries where it has plants.

111
Corporate Social Responsibility Theory

• Citigroup has provided significant funds to
  microcredit ventures.

112
Corporate Social Responsibility Theory

• Also manifest in Philanthropy/Charitable
  endeavors (e.g. McDonalds Ronald McDonald
  Houses, Mark Kays program to combat breast
  cancer, Becton Dickinson Co./UNICEF partnership
  to conquer neo-natal tetanus and the Bill Gates
  Foundation war on Tuberculosis, and Gulf Powers
  support of a wildlife sanctuary)

113
Corporate Social Responsibility Theory

• Progressive benefits for employees (e.g.Xeroxs
  and Eastman Kodaks programs to encourage
  employee participate in community service
  projects and SAS Institutes in house child care,
  etc.)
• Public education (e.g. Norwich Union Insurance of
  Irelands free first-aid courses)

114
Corporate Social Responsibility Theory

• Man ought to regard himself, not as something
  separated and detached, but as a citizen of the
  world, a member of the vast commonwealth of
  nature to the interest of this great community,
  he ought at all times to be willing that his own
  little interest should be sacrificed. - Adam
  Smith

115
Corporate Social Responsibility Theory

• But what is most important is that management
  realize that it must consider the impact of every
  business policy and business action upon society.
  It has to consider whether the action is likely
  to promote the public good, to advance the basic
  beliefs of our society, to contribute to its
  stability, strength, and harmony - Peter Drucker

116
Corporate Social Responsibility

• Social Contract Theory Business does not exist
  in a vacuum. It involves a series of
  interdependent, intertwined, symbiotic
  relationships and coexists with many other
  institutions in society, including the family,
  the church, and the political, criminal justice,
  and educational systems. Each of these
  institutions contributes toward making capitalism
  possible The court system enforces contracts
  the political system provides monetary stability
  and the educational system trains future
  employees and prepares them for the workforce.
  Therefore, the firm is obligated to "give
  something back" to those that make its success
  possible. Business exists only because society
  allows it and therefore it must satisfy the
  demands of society. This creates an implicit
  social contract (see Changing the Social
  Contract A Role for Business, by Melvin Anshen,
  Columbia Journal of World Business 5 (Nov.-Dec.
  1070)

117
Corporate Social Responsibility Theory

• There is also the legal maxim of Salus populi est
  superma lex - regard for the public welfare is
  the highest law - R.H. Kersley, Brooms Legal
  Maxims.

118
Corporate Social Responsibility Theory

• In the words of General Robert Wood Johnson,
  founder of Johnson and Johnson The day has
  passed when business was a private matter, if it
  even really was. In a business society, every act
  of business has social consequences and may
  arouse public interest. Every time business
  hires, builds, sells or buys, it is acting for
  the people as well as for itself, and it must be
  prepared to accept full responsibility

119
Corporate Social Responsibility Theory

• Sol M. Linowitz, Chairman of the Board of Xerox
  declared To realize its full promise in the
  world of tomorrow, American business and
  industry... will have to make social goals as
  central to its decisions as economic goals and
  leadership in our corporations will increasingly
  recognize this responsibility and accept it. -
  Quoted in Bernard D. Nossiters The Mythmakers
  An Essay on Power and Wealth, 1964, p.100.

120
Corporate Social Responsibility Theory

• Intentionality acknowledges that investors have
  a right to a "reasonable return" but adds new
  corporate responsibilities, such as to "create
  new wealth" and "new jobs," guarantee "upward
  mobility, fairly reward "hard work and talent,"
  promote "progress in the arts and useful
  sciences" and "diversify the interests of the
  public. (Michael Novak, AEI)

121
Corporate Social Responsibility Theory

• Intentionality also adds "external
  responsibilities" including promoting "community"
  and "dignity," and "protecting the moral ecology
  of freedom," all of which are crucial to the
  health of civil society. Business is a moral
  calling as opposed to being merely a profession.

122
Corporate Social Responsibility Theory

• Problems with Intentionality?
• Considered admirable in concept but problematic
  in practice.
• Character demonstrated by actions, not by
  intentions, is the arguably a more reliable
  measure of corporate ethics (Jennings/Entine)

123
Corporate Social Responsibility Theory

• Problems with CSR in general?
• Dilutes the Business Purpose
• Viewed as fundamentally antagonistic to the
  Capitalist Enterprise
• Often influenced by simplistic political and
  social agendas

124
Corporate Social Responsibility Theory

• The search for guilt-free affluence has helped to
  transform "green" business into a mass-market
  phenomenon.
• Patagonia, a designer and distributor of outdoor
  clothing and gear, has long prided itself on
  being green. For nearly two decades, it has given
  10 of pre-tax profits or 1 of sales, whichever
  is larger, to environmental causes.

125
Corporate Social Responsibility Theory

• Rain Forest Chic - Socially responsible image
  as a marketing tool, source of free, positive
  publicity (e.g. The Body Shop, both customers and
  franchisees attracted by progressive reputation)

126
Corporate Social Responsibility Theory

• Anita Roddick/Body Shop
• Supports various social causes (e.g.-Save the
  Whales)
• But may have stolen store concept and unfairly
  deals with franchisees?

127
Corporate Social Responsibility Theory

• Ben Jerrys -
• Fight global warming with Ice Cream
• Annual one world one heart festival
• Pint for a pint with International Red Cross
• Rainforest Crunch Fiasco/Mistreatment of
  Employees/Sale to Unilever (4/12/2000)

128
3 Theories of Social Responsibility

• If you were trying to decide which type of
  company to invest in, which would you choose and
  why? (Classical, Stakeholder, CSR)

129
Is Ethical Behavior Good for Business?

• "The successful entrepreneur must know how to
  glide over every moral restraint with almost
  childlike regard...and have, besides other
  positive qualities, no scruples whatsoever, and
  be ready to kill off thousands of victims --
  without a murmur. - John D. Rockefeller.

130
Is Ethical Behavior Good for Business?

• Some Costs of Ethical Misconduct
• Public/Interest Group/NGO disgrace/scandal/ostraci
  sm/repudiation/protests
• Litigation/Prosecution
• Decreased Employee Morale/Loyalty/Commitment/Perfo
  rmance/Productivity
• Loss of Business/Profits
• Loss of Customer/Supplier/Partner,
  Trust/Goodwill/Loyalty

131
Is Ethical Behavior Good for Business?

• Some Additional Costs of Ethical Misconduct
• Loss of Social/Reputation Capital/Goodwill (i.e.
  the willingness of stakeholders to overlook
  failings)
• Shaken public confidence in company and in
  capital markets
• Layoffs
• Loss of Investments/Pensions
• Increased Government Scrutiny/Regulation
• Environmental/Health Damage

132
Is Ethical Behavior Good for Business?

• Impact on the Bottom Line
• Ethical Behavior Enhances profitability - Most
  academic studies support the conclusion that
  ethical behavior and profitability go hand in hand

133
Is Ethical Behavior Good for Business?

• A 1999 DePaul University study of 300 large firms
  found that companies that make an explicit
  commitment to follow an ethics code provided more
  than twice the value to shareholders than
  companies that didn't. And it gets better
  According to Management Review, published by the
  American Management Association, "For the 47
  companies expressing a more extensive or more
  explicit commitment to ethics, the market value
  added difference was larger--an average of 10.6
  billion, or almost three times the MVA of
  companies" without similar commitments.

134
Is Ethical Behavior Good for Business?

• Two professors at the Harvard Business School
  did a study of 207 major companies over an
  11-year period. They used all sorts of measuring
  devices and came up with a ranking by corporate
  cultures. What they measured were things that are
  sometimes called the soft side of
  business-morale, rewards for creativity, emphasis
  on ethics, how well managers listen to their
  employees, and so on. In my business we call them
  more or less spirited workplaces. We could also
  call them companies with a high or low level of
  integrity. They then put these companies up
  against the hard side, the bottom line, on three
  measures 1 gains in operating earnings, 2
  return on investment, and 3 increase in stock
  prices. Terry Deal, who coined the term corporate
  culture, took a second look at those numbers, ran
  the same numbers again, and came up with an
  analysis of the top 20 companies vs. the bottom
  20. Here's what he found. The top 20--the
  companies with integrity--the spirited
  workplaces--averaged 571 higher earnings than
  the dispirited workplaces. The top 20 averaged a
  417 higher return on investment. The top 20
  enjoyed an increase in stock prices of 363 in
  the same period. One of American's most
  successful CEO's was right when he said, "the
  soft side is the hard side. - Restoring
  Integrity To Business , By Thompson, William
  David, Vital Speeches of the Day, 0042742X,
  10/15/2002, Vol. 69, Issue 1.

135
Is Ethical Behavior Good for Business?

• An investment of 1,000 ten years ago in each of
  ten companies highly regarded for ethical
  behavior (G.E., Coca-Cola, Hewlett-Packard,
  Microsoft, Intel, Southwest Airlines, Berkshire
  Hathaway, Disney, Johnson Johnson, and Merck)
  would have resulted in a return nearly three
  times as much as an investment of 10,000 in the
  Standard Poors 500 stock index. (Fortune)

136
Is Ethical Behavior Good for Business?

• An exception In response to numerous lawsuits,
  gun manufacturer, Smith Wesson's former CEO Ed
  Shultz decided to start including locks on its
  handguns in March 2000. Although the decision was
  clearly ethical, customers especially the NRA)
  were unhappy with the change. Sales declined,
  employees were laid off, and Shultz resigned. In
  this case, the ethical decision did not have a
  positive financial impact on the firm.
  Nonetheless, despite jobs lost, lives may have
  been saved by the change in product design.

137
Is Ethical Behavior Good for Business?

• Reputation Management
• A reputation for integrity enhances customer
  loyalty (e.g. Johnson Johnson Tylenol Case)
• Conversely, damage to a company's reputation can
  mean a sharp and often irreversible loss of
  market share.

138
Is Ethical Behavior Good for Business?

• Social Capital
• Experts say most people forgive mistakes made by
  leaders who have both conviction and a good
  heart. - Del Jones, Leadership lessons from the
  Reagan years, USA Today, June 11, 2004, p.6B.

139
Is Ethical Behavior Good for Business?

• Decreases Costs - Though initiating and ethics
  program sometimes involves significant up front
  costs, it generally helps to avoid other larger
  costs later.

140
Is Ethical Behavior Good for Business?

• Encourages Investment - A Conference Board of
  Canada poll revealed that 77 of Canadians are
  most likely to invest in, 81 to purchase from,
  and 79 to work for companies they view as
  socially responsible.

141
Causes of Failures in Business Ethics

• Decreased Authority of Moral Standards
• Empty Gestures/Insincerity
• Situational Ethics/Moral Relativism/Expansion of
  Cultural Diversity
• Rapid Expansion and Decentralization of Control
• Company/Personal Immaturity
• Parties Perceived as Enemies or Not Worthy of
  Ethical Treatment/Moral Exclusion (e.g. Lying to
  the IRS, cancer causing pajamas and other
  defective products dumped on 3rd world markets,
  etc.)
• Nar