Chapter 04

Demanding
Ethical and
Socially
Responsible
Behavior

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Ethics is More
Than Legality
LIFE AFTER SCANDAL
LG1

• Scandals have shaken the real estate,

mortgage and banking industries.

• How do we restore trust in the free market

system?
- Punish those who have broken the law.
- Make accounting records more transparent.
- Consider what is ethical, not just what is
legal.
4-2
 COST of CORRUPTION
(Legal Briefcase)

• Madoff Investment Securities: Bernie Madoff is

serving 150 years behind bars after running his
exclusive wealth management firm as a gigantic
Ponzi scheme.

• WorldCom: Former CEO, Bernie Ebbers, was

convicted of fraud, conspiracy and false filings
and sentenced to 25 years.

4-3
Ethical Standards
are Fundamental
WHAT are ETHICS?
LG1

• Ethics -- The standards of moral behavior.

Behaviors that are accepted by society as right
rather than wrong.

• All the world’s major religions support a version

of what some call the Golden Rule: Do unto
others as you would have them do unto you.

4-4
Ethical Standards
are Fundamental
BASIC MORAL VALUES
LG1

Right: Wrong:
• Integrity •Cheating
• Respect for human life •Cowardice
•Cruelty
• Self-control
• Honesty
• Courage
• Self-sacrifice

4-5
Ethics Begins
with Each of Us Ethics Begins with Each of Us:
LG2 ETHICS and YOU
• Plagiarizing material from the Internet, including
cutting and pasting information from websites without
giving credit, is the most common form of cheating in
schools today.

• Studies found a strong relationship

between academic dishonesty
among undergraduates and
dishonesty at work.
• In a recent study, 51 percent of high
school students admit that they
have cheated on tests in the last
year.
4-6
Ethics Begins
with Each of Us Ethics Begins with Each of
LG2 Us: ETHICS and YOU (Cont'd)

• It can be difficult to balance ethics and

other goals, such as pleasing stakeholders or
advancing in your career.
• Imagine that your supervisor has asked you to
do something you feel is unethical. You’ve just
taken out a mortgage on a new house to
make room for your first baby, due in two
months. Not carrying out your supervisor’s
request may get you fired. What should you
do?
4-7
 FACEBOOK or FAKEBOOK?
(Making Ethical Decisions)

• Facebook scams are becoming more

prevalent.
• Some scammers pose as military servicemen
and establish relationships with women, then
request money for phone calls or trips home.
• Do you think it’s ethical to create a fake
account? Why? Why not?

4-8
Ethics Begins
with Each of Us
FACING ETHICAL DILEMMAS
LG2

• According to management writer Ken Blanchard

and religious leader Norman Vincent Peale, it
helps to ask yourself the following questions when
facing an ethical dilemma:
- Is my proposed action legal?
- Is it balanced?
- How will it make me feel about myself?
• Individuals and companies that develop a strong
ethics code and use the three questions above have a
better chance than most of behaving ethically.
4-9
Progress
Assessment

• What are ethics?

• When faced with ethical dilemmas, what

questions can you ask yourself that might
help you make ethical decisions?

4-10
Managing
Businesses
Ethically and
Responsibly
LG3

• Organizational ethics begin at

the top.
• Managers can help instill
corporate values in employees.
• Trust between workers and
managers must be based on
fairness, honesty, openness and
moral integrity. The same
applies to relationships among
businesses and between
nations. 4-11
Managing
Businesses
Ethically and
Responsibly
LG3

A business should be managed ethically for many reasons:

 to maintain a good reputation;
 to keep existing customers and attract new ones;
 to avoid lawsuits;
 to reduce employee turnover;
 to avoid government intervention in the form of
new laws and regulations controlling business
activities; and
 to please customers, employees, and society;
and simply to do the right thing. 4-12
Managing
Businesses
Ethically and
Responsibly
FACTORS INFLUENCING
LG3 MANAGERIAL ETHICS

Individual Organizational Environmental

• Values • Top Level • Competition
Management
• Work Philosophy • Economic
Background Conditions
• Firm’s Reward
• Family Status System • Social/ Cultural
Institutions
• Personality • Job Dimensions

4-13
Setting
Corporate
Ethical
Standards
ETHICS CODES
LG4

• An increasing number of companies have

adopted written codes of ethics.
• Compliance-Based Ethics Code -- Emphasize
preventing unlawful behavior by increasing control
and by penalizing wrongdoers.

• Integrity-Based Ethics Code -- Define the

organization’s guiding values, create an environment
that supports ethically sound behavior and stress a
shared accountability among employees.

4-14
Setting
Corporate
Ethical HOW to IMPROVE AMERICA’S
Standards
LG4 BUSINESS ETHICS

Here are six steps many believe can improve U.S. business ethics:

1. Top management must adopt and unconditionally

support an explicit corporate code of conduct.

2. Employees must understand that senior

management expects all employees to act
ethically.

3. Managers and others must be trained to consider

the ethical implications of all business decisions.
4-15
Setting
Corporate
Ethical HOW to IMPROVE AMERICA’S
Standards
LG4 BUSINESS ETHICS (Cont'd)
4. An ethics office must be set up with which
employees can communicate anonymously.
Whistleblowers -- Insiders who report illegal or
unethical behavior.
5. Involve outsiders such as suppliers,
subcontractors, distributors and customers.
6. The ethics code must be enforced with timely
action if any rules are broken.
 This last step is perhaps the most critical. No matter
how well intended a company’s ethics code, it is
worthless if not enforced.
4-16
Setting
Corporate
Ethical HOW to PREVENT UNETHICAL
Standards
LG4 BEHAVIORS
1. Managers must communicate the organization’s
vision on ethical behavior.

2. Organizations must have a code of ethics.

3. Policies have to be enforced regarding ethical

offences.

4. Ethical responsibility must be taught to all

employees.

Source: James Gehrke, Magnify Leadership & Development, November 2008.

4-17
Setting
Corporate
Ethical HOW to PREVENT UNETHICAL
Standards
LG4 BEHAVIORS (Cont'd)

5. Discussions of ethics must be included in the

decision-making process.

6. Accountability must be taken seriously at all

levels in the organization.

7. Organizations must act fast when a crisis occurs.

8. Employees must know they have to defend and

maintain the company’s reputation.
Source: James Gehrke, Magnify Leadership & Development, November 2008.

4-18
Progress
Assessment

• What are compliance-based and integrity-

based ethics codes?

• What are the six steps to follow in establishing

an effective ethics program in a business?

4-19
Corporate
Social
Responsibility CORPORATE SOCIAL
LG5 RESPONSIBILITY
• Corporate Social Responsibility (CSR) -- The
concern businesses have for the welfare of society.

• CSR is based on a commitment to integrity, fairness,

and respect.

• CSR proponents argue that businesses owe their

existence to the societies they serve and cannot exist in
societies that fail.

• Firms have access to society’s labor pool and its natural

resources, in which every member of society has a
stake.
4-20
Corporate
Social
Responsibility CORPORATE SOCIAL
LG5 RESPONSIBILITY (Cont'd)
• Even Adam Smith, the father of capitalism,
believed that self-interested pursuit of profit was
wrong and that benevolence was the highest
virtue.

• CSR defenders argue that CSR makes more

money for investors in the long run. Studies
show that companies with good ethical
reputations attract and retain better employees,
draw more customers, and enjoy greater
employee loyalty.
4-21
Corporate
Social
Responsibility CORPORATE SOCIAL
LG5 RESPONSIBILITY (Cont'd)
• Some critics of CSR believe that a manager’s sole role
is to compete and win in the marketplace.

• The late U.S. economist Milton Friedman made the

famous statement that the only social responsibility of
business is to make money for stockholders. He thought
doing anything else was moving dangerously toward
socialism.

• Other CSR critics believe that managers who pursue

CSR are doing so with other people’s money—which
they invested to make more money, not to improve
society. In this view spending money on CSR activities
is stealing from investors. 4-22
Corporate
Social
Responsibility
CORPORATE PHILANTHROPY
LG5 and SOCIAL INITIATIVES

• Corporate Philanthropy -- The dimension of

social responsibility that includes charitable
donations. Example: Bill & Melinda Gates Foundation
• Corporate Social Initiatives -- Enhanced forms of
corporate philanthropy directly related to the
company’s competencies. Example: logistics giant TNT

4-23
Corporate
Social
Responsibility CORPORATE RESPONSIBILITY
LG5 and POLICY

• Corporate Responsibility -- Includes

everything from hiring minority workers to
making safe products, minimizing pollution,
using energy wisely, and providing a safe work
environment.

• Corporate Policy -- The dimension of social

responsibility that refers to the position a firm
takes on social and political issues.
4-24
Corporate
Social
Responsibility POSTIVE IMPACTS
LG5 of COMPANIES

• Xerox offers a Social Service Leave program.

• The recession in 2008-2009 caused 60% of

companies to cut their philanthropic donations.
However, now they’re more likely to give time and
goods rather than money.

• Two-thirds of MBA students surveyed reported

they would take a lower salary to work for a
socially responsible company.

4-25
Corporate
Social
Responsibility HELPING HANDS
LG5 Most Generous Celebrities

Who? For?
United Way;
George Clooney
UN Messenger of Peace
Angelina Jolie & Brad Pitt Make it Right Foundation; UN
Ben Affleck UN
Madonna Raising Malawi
Michael J. Fox Foundation for
Michael J. Fox
Parkinson’s Research
Keep a Child Alive;
Alicia Keys
Frum Tha Ground Up
Sir Elton John Elton John AIDS Foundation
GreenDimes; H2O Africa;
Matt Damon
Running the Sahara
Oprah Winfrey Angel Network

Source: Parade Magazine, www.parade.com, July 8, 2010.

4-26
Corporate
Social
Responsibility GENEROUS GUYS
LG5 World’s Biggest Givers

Who? How Much? What For?

Bill Gates $28B Malaria, public health, education
Warren Buffett $8.3B Gates Foundation
George Soros $8B Human rights, democracy
Gordon Moore $6.8B Environment
Carlos Slim $4B Education, healthcare
Eli Broad $2.6B Education, arts
Azim Premji $2.1B Education
James Stowers $2B Genetic research
Michael Bloomberg $1.8B Antismoking, transportation
Li Ka-Shing $1.6B Education, healthcare

Source: Forbes, June 6, 2011.

4-27
Corporate
Social
Responsibility LIFE AFTER TRAGEDY
LG5 Japan’s Post-Tsunami Big Givers

Who? What?
Sent 12,000 cell phones to the area, created
Masayoshi Son
an iPhone app for donations
Gave $3.7 million and shipped 360,000
Saji Family
bottles of water
Toyota gave $3.7 million after 11 car plants
Akio Toyoda
closed temporarily
Tadashi Yanai Gave $12 million
Raised $2 million on Mixi, aided in finding
Kenji Kasahari
missing persons
Sold volunteer avatars online and the
Yoshikazu Tanaka
proceeds went to disaster relief

Source: Forbes, April 11, 2011.

4-28
Responsibility
to Customers PRESIDENT KENNEDY’S BASIC
LG5 RIGHTS of CONSUMERS

• The Right to Safety

• The Right to be Informed

• The Right to Choose

• The Right to be Heard

4-29
Responsibility
to Customers
HOW DO CUSTOMERS KNOW?
LG5

• Over 70% of executives say

their primary use of social media
is to communicate CSR efforts.

• Social media allows companies

to reach a broad, diverse group
and connect directly to them.

• Now more than ever, it’s

important for companies to live
up to their expectations.

4-30
Responsibility
to Customers
SOCIAL CUSTOMER CONTACT
LG5 Do’s and Don’ts of Using Twitter for Business

Do Don’t
Engage followers in discussion
Start political rants.
relevant to your industry.
Think about your message before
tweeting. Deleted tweets can still Tweet impulsively.
be found!

Frequently offer new content. Let your account lie dormant.

Make personal announcements

Create separate accounts for
via your company’s Twitter
business and personal use.
account.

Source: Entrepreneur, September 2010.

4-31
Responsibility
to Investors INSIDER TRADING
LG5

• Insider Trading -- Insiders

using private company
information to further their own
fortunes or those of their family
and friends.

• Unethical behavior does

financial damage to a
company and investors are
cheated.
4-32
Responsibility
to Employees RESPONSIBILITY to
LG5 EMPLOYEES
• Create jobs and provide a chance for upward
mobility.
• Treat employees with respect.
• Offer salaries and benefits that help employees
reach their personal goals.

4-33
Responsibility
to Employees AMERICA’S MOST ADMIRED
LG5 COMPANIES
1. Apple
2. Google
3. Berkshire Hathaway
4. Southwest Airlines
5. Procter & Gamble
6. Coca-Cola
7. Amazon
8. FedEx
9. Microsoft
10. McDonald’s
Source: Fortune, www.fortune.com, March 21, 2011.

4-34
Responsibility
to Employees WHEN EMPLOYEES
LG5 are UPSET…
• Employee fraud costs U.S. businesses about
5% of annual revenue and causes 30% of all
business failures.
• Disgruntled workers relieve frustration by:
- Blaming mistakes on others.
- Manipulating budgets and expenses.
- Making commitments they intend to ignore.
- Hoarding resources.
- Doing the minimum.
- Making results look better than they are.
4-35
Responsibility
to Society and
the Environment SOCIETY and
LG5 the ENVIRONMENT
• Over one-third of working Americans receive
their salaries from nonprofits – who are
dependent on funding from others.

• The green movement emerged as concern

about global warming increased.

• Many companies are trying to minimize their

carbon footprints – the amount of carbon
released during an item’s production,
distribution, consumption and disposal.
4-36
Responsibility
to Society and
the Environment RESPONSIBILITY to the
LG5 ENVIRONMENT
• Environmental efforts may increase costs, but
can offer good opportunities.

• The emerging renewable-energy and energy-

efficiency industries account for 9 million U.S.
jobs.
• By 2030, as many as 40
million “Green” jobs will
be created.

4-37
 SUSTAINABLE or SUSPECT:
GREENWASHING
(Thinking Green)

• With public concern over the environment,

companies are finding greener ways of doing
business.
• Some companies are claiming they are more
environmentally responsible than they actually
are, a practice called “greenwashing.”
• Websites such as Greener Choices and
Greenwashing Index screen ads for
greenwashing.
4-38
Social Auditing
SOCIAL AUDITING
LG5

• Social Audit -- A systematic evaluation of an

organization’s progress toward implementing
socially responsible and responsive programs.

• Five Types of Social Audit Watchdogs

1) Socially conscious investors
2) Socially conscious research organizations
3) Environmentalists
4) Union officials
5) Customers
4-39
Progress
Assessment

• What’s corporate social responsibility, and how

does it relate to each of a business’s major
stakeholders?

• What’s a social audit, and what kinds of

activities does it monitor?

4-40