Chapter 4: BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

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Chapter 4 BUSINESS ETHICS AND SOCIAL
RESPONSIBILITY

• Doing Well by Doing Good

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ETHICS AND SOCIAL RESPONSIBILITY
ETHICS Beliefs about right and wrong.
SOCIAL RESPONSIBILITY The obligation of a
business to contribute to society.
A Close Relationship, but Not the Same
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ETHICS/PERSONAL CHARACTER
A study of 43,000 high school students revealed
59 admitted that they cheated on a test at
school within the past 12 months 38 admitted
doing so two or more times.
62 admitted that they copied anothers homework
two or more times within the past 12 months.
18 admitted that they stole something from a
friend within the past 12 months.
28 admitted that they stole something from a
store within the past 12 months.
39 believe that a person has to lie or cheat
sometimes in order to succeed.
A 2011 Study conducted by Josephson Institute of
Ethics
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ETHICS MURKIER THAN YOU THINK
Legal and Unethical
Promoting R-rated movies to young teens
Producing products that you know will break before their time
Paying non-living wages to workers in developing countries
Consumer goods-producing companies subcontract to factories overseas in India, China, and Southeast Asia where there is use of child and sweatshop labor
Taking up an employees time to ask questions about a product with the intent to purchase it elsewhere
Legal and Ethical
Producing high quality products
Rewarding integrity
Leading by example
Treating employees fairly
Contributing to the community
Illegal and Unethical
Embezzling money
Engaging in sexual harassment
Practicing Collusion with competitors
Encouraging fraudulent accounting
Illegal and Ethical
Providing rock-bottom prices only to distributors in underserved areas
Collaborating with other medical clinics to guarantee low prices in low-income countries (collusion)
Stopping at a red light at a deserted intersection, out in the country, where you can see that there are no cars for miles, and then proceeding through the red light.
Smuggling of medicines into war- and disease-stricken areas
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UNIVERSAL ETHICAL STANDARDS
Developed by Character Counts, a nonpartisan
organization of educators, community leaders, and
ethicists.
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BUSINESS ETHICS NOT AN OXYMORON
Ethical Dilemma Negative Consequences Two
unfavorable options

• Ethical Dilemma
• Negative Consequences
• Two unfavorable options

Most challenging business decisions seem to arise
when values are in conflict
Business Ethics the application of right and
wrong in the workplace
Ethical Lapse Clear misconduct

• Business Ethics the application of right and
  wrong in the workplace.

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Ethical Dilemma

• Youve just done a great job on a recent project
  at your company. Your boss has been very vocal
  about acknowledging your work and the increased
  revenue that resulted from it.
• Privately, she said that you clearly earned a
  bonus of at least 10, but due to company
  politics, she was unable to secure the bonus for
  you. She also implied that if you were to submit
  inflated expense reports for the next few months,
  she would look the other way and you could pocket
  the extra cash as well-deserved compensation for
  your contribution.

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Ethical Dilemma

• One of the engineers on your staff has an
  excellent job offer from another company and asks
  your advice on whether or not to accept the
  position.
• You need him to complete a project that is
  crucial to your company (and to your own career).
  You also have been told --- in strictest
  confidence by senior management --- that when the
  project is complete, the company will lay off all
  internal engineers.
• If you advise him to stay, he would lose the
  opportunity and end up without a job. If you
  advise him to go, you would violate the companys
  trust and jeopardize your career.

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Ethical Dilemma

• As a successful entrepreneur, you see a new
  technology ready to be launched that is really
  good for the growth of your company and the
  clients. But, adopting the technology would mean
  reducing the man power of the company.
• You have to think about the betterment of the
  clients and provide them with the best of
  services, but on the other hand, you also have to
  think about the employees who have contributed in
  the growth of the company.
• If you think about your employees and reject the
  technology then are you doing justice with your
  clients? And if you accept the technology are you
  then betraying the employees?

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Ethical Dilemma

• Mary works as a secretary in a department within
  a branch of a large corporation. The branch
  director has decided that the job of her
  department director, Jim, will soon be
  discontinued. Although Mary and a few others in
  her department have this knowledge, Jim does
  not.  For a few weeks, Jim was directed to work
  on an array of special projects at his home
  office. In the meantime, an employee from a
  different department is told to move in to Jim's
  office.
• The branch director instructs Mary and other
  support staff to change Jim's voice mail, move
  his files out of the office, and erase his name
  from his assigned parking spot. Mary is told the
  human resources department will call Jim to let
  him know what has taken place.
• That week Jim calls Mary because he cannot get
  into his voice mail. He wants to know if there
  are any technical problems about which he should
  know. Mary feels torn should she tell him the
  truth now or should she rely on human resources
  staff to tell him?

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Ethical Dilemma

• You are a psychiatrist and your patient has just
  confided to you that he intends to kill a woman.
  You're inclined to dismiss the threat as idle,
  but you aren't sure.
• Should you report the threat to the police and
  the woman or should you remain silent as the
  principle of confidentiality between psychiatrist
  and patient demands?
• Should there be a law that compels you to report
  such threats?

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Ethical Dilemma

• On March 13, 1841, an American ship, the William
  Brown, left Liverpool, England for Philadelphia,
  Pennsylvania. In addition to her cargo, she
  carried 17 crewmen and 65 passengers, who were
  mostly Scots and Irish emigrants. On the night of
  April 19, 250 miles from Newfoundland, the
  William Brown struck an iceberg and began to sink
  rapidly. There were two lifeboats, one small and
  one large. The captain and most of the crew took
  the small lifeboat, and the passengers crowded
  aboard the large lifeboat. There was not enough
  space on the large lifeboat for all the
  passengers, and 31 died on board the William
  Brown when it sank.
• First Mate Francis Rhodes, Alexander William
  Holmes, and another seaman commanded the large
  lifeboat. The passengers were still dressed in
  their night clothes and suffered terribly in the
  cold Atlantic weather, which was made worse by a
  pelting rain. The two lifeboats stayed together
  through the night but separated the morning of
  the 20th because the captain, George L. Harris,
  thought there was a better chance of rescue if
  the two boats took different directions.

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Ethical Dilemma

• Rhodes said that his boat was overcrowded and
  that some people would have to be thrown
  overboard to keep it from capsizing. Captain
  Harris said, "I know what you'll have to do.
  Don't speak of that now. Let it be the last
  resort." Throughout the day of the 20th and into
  the night, the rain and the waves worsened. The
  boat began to leak and fill with water, despite
  constant bailing. Around ten o'clock that night,
  Rhodes cried out in despair, "This work won't do.
  Help me, God. Men, go to work."

Holmes and the other seaman began throwing people
overboard. They threw 14 men and two women into
the freezing water. They chose single men only,
spared the married men on board, and threw the
two women overboard only because they were
sisters of a man already thus ejected and had
demanded to be sacrificed with their kin. None of
the crew was thrown out.
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Ethical Dilemma

• Defendant Alexander William HolmesCrime
  Charged ManslaughterChief Defense Lawyer David
  Paul BrownChief Prosecutor William M.
  MeredithJudge Baldwin (historical records do
  not indicate his first name)Place Philadelphia,
  PennsylvaniaDates of Trial April 13-23,
  1842Verdict GuiltySentence 6 months in
  prison and a 20 fine

http//law.jrank.org/pages/2482/Alexander-Holmes-T
rial-1842.html
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Ethical Dilemma

• Jane has been operating a consulting business for
  about a year and has been doing very well. About
  a month ago, she decided she needed to hire
  someone to help her. After interviewing several
  candidates, she decided to hire the best one of
  the group, Sara. She called Sara on Monday to
  tell her she had gotten the job. They both agreed
  that she would start the following Monday and
  that Sara could come in and fill out all of the
  hiring paperwork at that time.
• On Tuesday, of the same week, a friend of Jane's
  called her to say that she had found the perfect
  person for Jane. Jane explained that she had
  already hired someone, but the friend insisted.
  "Just meet Kim. Who knows, maybe you might want
  to hire her in the future!"

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Ethical Dilemma

• Rather reluctantly, Jane consented. "All right,
  if she can come in tomorrow, I'll meet with her,
  but that's all." "Oh, I'm so glad. I just know
  you're going to like her!" Jane's friend
  exclaimed.
• And Jane did like her. She like her a lot. Jane
  had met with Kim on Wednesday morning. She was
  everything that Jane had been looking for and
  more. In terms of experience, Kim far surpassed
  any of the candidates Jane had previously
  interviewed, including Sara. On top of that, she
  was willing to bring in clients of her own which
  would only increase business. All in all, Jane
  knew this was a win-win situation.
• But what about Sara? She had already given her
  word to Sara that she could start work on Monday
  and she only had the resources to hire one person
  at this point.

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Ethical Dilemma

• Clearly, the best business decision was to hire
  Kim. But what about the ethical decision? If her
  business did poorly or Sara couldn't provide
  enough support, the business would suffer. As a
  result, her family would suffer. Money was
  already tight, what with two boys in college. And
  yet she knew Sara also had a family she was
  supporting. Plus, she had been so enthusiastic
  about starting to work.
• Obviously, Jane had a problem - an ethical
  problem. Should she hire Sara (whom she'd already
  given her word) or Kim (who was obviously the
  best person for the job)?

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Ethical Dilemma

• According to Kenneth Blanchard and Norman Vincent
  Peale, authors of The Power of Ethical
  Management, there are three questions you should
  ask yourself whenever you are faced with an
  ethical dilemma.

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Ethics Multiple Touchpoints

• Individuals must make their own
• ethical choices
• BUT
• The organization can have a significant influence
  on decisions

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Creating and Maintaining an Ethical Organization

• Organizational Culture
• Role of Top Management
• Code of Ethics
• Executive Buy-in
• Clear expectations
• Integrated approach
• Global and local
• Whistleblower support
• Reporting and Enforcement

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ETHICS FAME AND SHAME
Sherron Watkins, former vice president of Enron
reported the accounting Irregularities that led
to the discovery of corporate fraud.
Stanley ONeal began as Merrill Lynch began
racking up losses that led to its collapse, he
announced his retirement.
Martha Stewart was convicted of obstructing
justice in a 40,000 well timed stock sale.
Whole Foods CEO, John Mackey posted thousands of
comments on Yahoo Finance, hyping his company
and attacking Wild Oats, which he was planning to
purchase.
Sanjay Kumar of Computer Associates was convicted
of massive accounting fraud in 2006.
Pierre Omidyar, the founder of eBay has given
away over 100 million to Tufts University Micro
Finance Fund.
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SPECTRUM OF SOCIAL RESPONSIBILITY
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SOCIAL RESPONSIBILITY
Responsibility to Whom?
Stakeholders are any groups that have a stake
or a personal interest - in the performance
and actions of an organization.
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RESPONSIBILITY TO
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RESPONSIBILITY TO EMPLOYEES CREATING JOBS THAT
WORK

• Meet Legal Standards
• Workplace Safety
• Minimum Wage/Overtime Requirements
• Value Employees
• Provide Work/Life Balance

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DOES IT PAY TO PAY MORE?
Costco Wal-Marts Sams Club
Average hourly wage 15.97 11.52
Annual health costs per worker 5,735 3,500
Covered by health plan 82 47
Employee turnover 6/yr 21/yr
Labor and overhead costs 9.8 of sales 17 of sales
Profits per employee 13,647 11,039
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RESPONSIBILITY TO CUSTOMERS

• The Right to Be Safe
• The Right to Be Informed
• The Right to Choose
• The Right to be Heard

Consumerism a social movement suggests that
consumer rights should be the starting point
Planned Obsolescence Deliberately designing
products to fail in order to shorten the time
between consumer repurchases
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APPLE COMPUTERS
Planned Obsolescence

• APPLE COMPUTERS
• iPods had irreplaceable battery.
• Batteries died after 18 months.
• Customers were encouraged to purchase new iPods
• Two customers posted high profile protest movies
  online.
• APPLE announced replacement program.

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APPLE iPHONES

• Apple introduced the iPhone on June 9, 2007 to
  rave reviews despite 599 price tag
• Apple dropped the price to 200 to increase
  customers
• Customers were livid!
• CEO, Steve Jobs apologized and gave customers
  100 store credit

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RESPONSIBILITY TO INVESTORS
FAIR STEWARDSHIP AND FULL DISCLOSURE

• Legal Requirements
• Sarbanes-Oxley
• Responsible use of Corporate Dollars
• Honesty
• Is Optimism or Pessimism Socially Responsible?

• Legal Requirements
• Sarbanes-Oxley
• Responsible use of Corporate Dollars
• Honesty
• Is Optimism or Pessimism Socially Responsible?

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RESPONSIBILITY TO COMMUNITY
Cause-related Marketing partnerships between
businesses and nonprofit organizations,
designed to spike sales for the company and
raise money for the nonprofit.
Corporate Responsibility - The actions of the
business rather than donations of money and time.
Corporate Philanthropy - business donations to
nonprofit groups, including both money and time.
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RESPONSIBILITY TO ENVIRONMENT
Green Marketing marketing environmental
products and practices to gain a competitive
edge.
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RESPONSIBILITY TO ENVIRONMENT

• Responsibility to environment is a part of
  responsibility to community
• Reducing the amount of trash is more important
  than recycling
• Although consumers support green marketing, they
  may not be willing to sacrifice quality

• Responsibility to environment is a part of
  responsibility to community
• Reducing the amount of trash is more important
  than recycling
• Although consumers support green marketing, they
  may not be willing to sacrifice quality

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CAUSE RELATED MARKETING

• The term was coined in 1983 by American Express
• Raise Funds for Statue of Liberty Restoration
• Campaign to donate .01 for every dollar charged
  on credit card.
• New Cardholders Grew 45
• Card Usage Grew 28
• Statue of Liberty Restored Early

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ETHICS SOCIAL RESPONSIBILITY IN THE GLOBAL ARENA

• Corruption is part of the culture in many
  countries
• Bribes or Gifts
• Labor issues in host countries can be complicated
• Living Wage
• Child Labor
• Code of Conduct

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MONITORING ETHICS AND SOCIAL RESPONSIBILITY
SOCIAL AUDIT
A systematic evaluation of how well a firm is
meeting its ethics and social responsibility
objectives.