Chapter 2 - Business Ethics and Social Responsibility

Ethical Issues- Misuse of Company Resources

Identified as a leading issue in observed misconduct in organizations Issues might include: - Spending excessive time on personal e-mails - Submitting personal expenses on company reports - Using company copier for personal use Many companies have implemented official policies delineating acceptable use of company resources

Social Responsibility - Sustainability Issues

Pollution: - Water—toxic chemicals and raw sewage - Air—acid rain and climate change - Land—garbage, strip mining, and poor forest conservation Alternative energy: - Reducing carbon emissions forces alternative energy sources - Challenges regarding economic viability Response to environmental issues: - Greenwashing—positive association with environmental issues - Using green power sources when available - Recycling aluminum, paper, glass, some plastics

Misconduct

Starts as ethical concerns, evolves into legal disputes Ethical gray areas - No values, codes, or laws for particular situation

Sustainability

Sustainability- conducting activities in a way that allows for the long-term well-being of the natural environment, including all biological entities. - Involves the assessment and improvement of business strategies, economic sectors, work practices, technologies, and lifestyles so that they maintain the health of the natural environment - Business plays a significant role

Whistleblowing

Whistleblowing occurs when an employee exposes an employer's wrongdoing to outsiders, such as the media or government regulatory agencies. - More companies are establishing programs to encourage employees to report illegal or unethical practices internally - Congress passed Dodd-Frank Act, which includes a "whistleblower bounty program"

Business Ethics

the principles and standards that determine acceptable conduct in business Acceptable behavior determined by: - Organization - Stakeholders and interest groups - Competitors - Government regulators - Interest groups - Public - Individual's personal principles

Trust

- In business, trust is the glue that holds relationships together - Trust in banks is lower than in other industries, except for media and government

Ethical Issues- Misuse of Company Time

- Theft of time is common in workplace - Many employees spend average of one hour each day using social networking sites or watching YouTube - Estimated to cost companies hundreds of billions of dollars annually

2000s Ethical and Socially Responsible Activities

- Transparency in financial markets - Cyber security - Intellectual property - Regulation of accounting and finance - Executive compensation - Identity theft

Unemployment

- economic issue, but carries ethical implications - Protesters say leads to growing gap between rich and poor - Factory closures seen as unethical - Some companies refuse to hire unemployed workers due to lack of experience rather than hiring and training them

Codes of Ethics

Professional codes of ethics are formalized rules and standards that describe what a company expects of its employees. - Provide guidelines and principles to achieve organizational objectives and address risks - Enforcement through rewards and punishments increases acceptance of ethical standards by employees

Ethical Conduct

- Builds trust in business relationships - Can be difficult if have reputation for ethical violations

Fairness and Honesty- Communications

- Avoid false and misleading advertising - Be honest about product safety and quality - Follow ethical labeling practices

1970s Ethical and Socially Responsible Activities

- Business ethics - Social responsibility - Diversity - Bribery - Discrimination - Identifying ethical issues

Deciding Whether an Action is Ethical

- Can be difficult to recognize specific ethical issues - Perceived importance of issue affects choices - Most receive no attention Are there potential legal restrictions or violations that could result from the action? Does your company have specific code of ethics or policy on the action? Is this activity customary in your industry? Are there industry trade groups that provide guidelines that address this issue? Would this activity be accepted by your co-workers? How does this activity fit with your own beliefs and values?

Ethical Issues- Abusive and Intimidating Behavior

- Continuum from minor distraction to disruption - Most common ethical problem for employees - Difficult to assess and manage due to diversity in culture and lifestyle - Intent should be a consideration - Bullying associated with hostile workplace when person or group is targeted and is threatened, harassed, belittled, verbally abused, or overly criticized

1990s Ethical and Socially Responsible Activities

- Corporate ethics programs - Regulation to support business ethics - Health issues - Safe working conditions - Detecting misconduct

Social Responsibility vs. Ethics

- Ethics refers to decisions made by individual or work group that society evaluates as right or wrong - Social responsibility refers to impact of entire organization's activities on society

Ethical Issues- Conflict of Interest

- Exists when person must choose whether to advance personal interests or those of others - To avoid, employees must be able to separate personal financial interests from business dealings - Insider trading or bribery (Insider trading is buying or selling of stocks by insiders who possess material that is still not public)

Social Responsibility- Cons

- It sidetracks managers from the primary goal of business (earning profit) - Participation in social programs gives businesses greater power, perhaps at the expense of concerned stakeholders. - Does business have the expertise needed to assess and make decisions about social and economic issues? - Social problems are the responsibility of the government agencies and officials, who can be held accountable by voters. - Creation of nonprofits and contributions to them are the best ways to implement social responsibility.

Fairness and Honesty- Business Relationships

- Keeping company secrets - Meeting obligations and responsibilities - Avoiding undue pressure that can cause others to act unethically - Plagiarism—taking someone else's work and presenting it as your own without mentioning the source—is another ethical issue.

Social Responsibility- Relations with owners and stockholders

- Maintain proper accounting procedures - Provide investors with all relevant information - Protect owner's rights and investments

Social Responsibility- Community Relations

- Many businesses simply want to make their communities better places for everyone to live and work - Most common way is through donations to charitable organizations

Social Responsibility - Employee relations

- Provide safe workplace and pay them adequately - Keep them informed of what is happening in company - Listen to their grievances and treat them fairly - Provide equal opportunities regardless of sex, age, race, religion, or nationality

1960s Ethical and Socially Responsible Activities

- Social issues - Consumer Bill of Rights - Disadvantaged consumer - Environmental issues - Product safety

Social Responsibility- Pros

- Social responsibility rests on stakeholder engagement and results in benefits to society and improved firm performance. - Businesses are responsible because they have the financial and technical resources to address sustainability, health, and education. - As members of society, businesses should support society through taxes and contributions to social causes. - Socially responsible decision-making by businesses can prevent increased government regulation. - Social responsibility is necessary to ensure economic survival.

Bullying Actions

- Spreading rumors to damage others - Blocking others' communication in the workplace - Flaunting status or authority to take advantage of others - Discrediting others' ideas and opinions - Using e-mail to demean others - Failing to communicate or return communication - Insults, yelling, and shouting - Using terminology to discriminate by gender, race, or age - Using eye or body language to hurt others or their reputation - Taking credit for others' work or ideas

1980s Ethical and Socially Responsible Activities

- Standards for ethical conduct - Financial misconduct - Self-regulation - Codes of conduct - Ethics training

Chapter 2 Summary

1. Business ethics refers to principles and standards that determine acceptable conduct in business. Ethical behavior is determined by the public, government regulators, interest groups, and competitors. Unethical conduct is not always illegal, but it does not conform to the principles of society. Ethics goes beyond legal issues. It attempts to build trust among the participants of business. 2. Students who might favor businesses regulating their own activities might argue that businesses understand their industries better and would therefore have a better understanding of which ethical standards to adopt. Businesses could also come up with unique and creative ways to meet the needs of their stakeholders than if they were constrained by regulation. Those who favor government regulation might point toward the many business scandals that have occurred in recent years and the necessity for government regulation to close loopholes and keep businesses from advancing their own interests at the expense of society. 3. An ethical issue is an identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as right or wrong, ethical or unethical. The text categorizes a number of issues, including misuse of company time, bribery, abusive behavior, misuse of company resources, conflicts of interest, communications, and business relationships. These are ethical issues because they involve actions that may be considered unacceptable by society, because they could be perceived as unfair, and/or because they could cause potential harm to other stakeholders. 4. Arguments for social responsibility include (1) business helped create problems and should help to solve them; (2) business has the financial and technical resources to help solve problems; (3) as a member of society, business should do its fair share to help others; (4) social responsibility can help prevent increased government regulation; and (5) social responsibility helps to ensure economic survival. Arguments against social responsibility include (1) social responsibility detracts from the profit-making objectives of business; (2) participation in social responsibility programs gives business power at the expense of other segments of society; (3) business may not have the expertise to solve social problems; and (4) social problems are the responsibility of government agencies. Students may be able to offer additional arguments for or against being socially responsible.

Social Responsibility - Consumer Relations

Consumerism- The activities that independent individuals, groups, and organizations undertake to protect their rights as consumers - Write letters - Lobby government agencies - Make public service announcements - Boycott irresponsible companies John F. Kennedy's 1962 consumer bill of rights: - Right to safety - Right to be informed - Right to choose - Right to be heard

Fairness and Honesty- Employees and Companies

Employees and companies must: - Abide by laws and regulations - Cause no harm through dishonesty - Use company resources fairly and honestly - Use fair competition practices - Give full disclosure of potential harm by a product

Ethics from the Top (Management)

Managers must show strong commitment to ethics and compliance Requires top managers to acknowledge own role in supporting ethics and compliance - Clearly communicate expectations to all employees - Educate managers/supervisors - Train managers/employees on what to do if ethics crisis occurs

Laws and Regulations

Sarbanes-Oxley Act: - Criminalized securities fraud and stiffened penalties for corporate fraud - Enacted after accounting scandals in the early 2000s Dodd-Frank Act: - Passed to reform financial industry and offer consumers protection against complex and/or deceptive financial products - Enacted after most recent recession

Improving Ethical Behavior

Three factors that influence business ethics: 1. Individual standards and values 2. Influence of managers and co-workers - Exert control through authority and example - Critical in gaining consistent compliance 3. Opportunity to engage in misconduct - Current trend is to move away from legally based ethical programs to cultural- or integrity-based programs that make ethics a core organizational value - Effective business ethics programs are good for business performance - Firms that develop higher levels of trust function more efficiently and effectively, and avoid damaged company reputations and product images

Social Responsibility

We define social responsibility as a business's obligation to maximize its positive impact and minimize its negative impact on society.

Ethical Issues

an identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as right or wrong, ethical or unethical - Recognizing ethical issues is the most important step in understanding business ethics - Decisions require knowledge competence in business area of concern Ethical issues are very complex - Experience with culture in which business operates is critical - One principal cause of unethical behavior is overly aggressive financial or business objectives

Ethical Issues- Bribes

considered improper to give or accept bribes- payments, gifts, or special favors intended to influence the outcome of a decision.

Corporate Citizenship

the extent to which businesses meet the legal, ethical, economic, and voluntary responsibilities placed on them by their stakeholders. - Commitment indicates strategic focus on fulfilling social responsibilities expected of organization by stakeholders - Involves action and measurement of extent to which firm embraces corporate citizenship philosophy and following through by implementing appropriate initiatives