Chapter 9

How do we know when an organization is behaving ethically?

1. Treating employees, customers, investors, and the public fairly 2. Making fairness a top priority 3. Holding every member personally accountable for his or her action 4. Communicating core values and principles to all members 5. Demanding and rewarding integrity from all members in all situations

Corporate social responsibility refers to the approach that an organization takes in balancing its responsibilities to its various stakeholders. These stakeholders include all of the following EXCEPT ______________.

A company's competitors are not stakeholders. There are other stakeholders in addition to owners, employees, suppliers, and communities. These include customers and unions.

stakeholders

Parties who are interested in the activities of a business because they're affected by them.

insider trading

Practice of buying or selling of securities using important information about the company before it's made public.

ethical lapse

Situation in which an individual makes a decision that's unmistakably unethical or illegal

conflicts of interest

Situation in which an individual must choose between the promotion of personal interests and the interests of others.

code of conduct

Statement that defines the principles and guidelines that employees must follow in the course of all job-related activities.

Sustainability

The principle of providing products today that don't compromise the ability of future generations to meet their needs

Which of the following is NOT true about ethics, business ethics or corporate social responsibility?

To act ethically in business, it is sufficient to obey applicable laws and regulations.

When is an item given by a supplier to someone in your manufacturing company considered a bribe rather than a gift?

When it is given for the purpose of influencing a business decision

Mark is the coach of his son's little league baseball team. Mark's brother just opened up a photography studio and needed to find some customers. Mark signs a contract with his brother to take pictures of his team as well as individual pictures of the team members. This action is best characterized as a ______________________.

conflict of interest

When asked to indicate which of the following applies to them, most people put themselves into which of the following categories?

i'm mostly ethical

ethical delimma

morally problematic situation: You have to pick between two or more acceptable but often opposing alternatives that are important to different groups.

whistle-blower

Individual who exposes illegal or unethical behavior in an organization.

Stages of Corporate Responsibility

1. Defensive. When companies are first criticized over some problem or issue, they tend to take a defensive, often legalistic stance. They reject allegations of wrongdoing and refuse to take responsibility, arguing that fixing the problem or addressing the issue isn't their job. 2. Compliant. During this stage, companies adopt policies that acknowledge the wishes of the public. As a rule, however, they do only what they have to do to satisfy their critics and little more. They're acting mainly to protect brands or reputations and to reduce the risk of litigation. 3. Managerial. When it becomes clear that the problem won't go away, companies admit that they need to take responsibility and action, so they look for practical long-term solutions. 4. Strategic. At this point, they may start to reap the benefits of acting responsibly. They often find that responding to public needs gives them a competitive edge and enhances long-term success. 5. Civil. Ultimately, many companies recognize the importance of getting other companies to follow their lead. They may promote participation by other firms in their industries, endorsing the principle that the public is best served through collective action.

How to Face an Ethical Dilemma

1. Define the problem: How to respond to the tampering case without destroying the reputation of the Tylenol brand. 2. Identify feasible options: (1) Recall only the lots of Tylenol that were found to be tainted with cyanide or (2) order a nationwide recall of all bottles of Extra-Strength Tylenol. 3. Assess the effect of each option on stakeholders: Option 1 (recalling only the tainted lots of Tylenol) is cheaper but puts more people at risk. Option 2 (recalling all bottles of Extra-Strength Tylenol) puts the safety of the public above stakeholders' financial interests. 4. Establish criteria for determining the most appropriate action: Adhere to the J&J credo, which puts the interests of customers above those of other stakeholders. 5. Select the best option based on the established criteria: In 1982, Option 2 was selected, and a nationwide recall of all bottles of Extra-Strength Tylenol was conducted.

How to Maintain Honesty and Integrity

1. Follow your own code of personal conduct; act according to your own convictions rather than doing what's convenient (or profitable) at the time. 2. While at work, focus on your job, not on non-work-related activities, such as e-mails and personal phone calls. 3. Don't appropriate office supplies or products or other company resources for your own use. 4. Be honest with customers, management,coworkers, competitors, and the public. 5. Remember that it's the small, seemingly trivial, day-to-day activities and gestures that build your character.

How to Avoid an Ethical Lapse

1. Is the action illegal? 2. Is it unfair to some parties? 3. If I take it, will I feel badly about it? 4. Will I be ashamed to tell my family, friends, coworkers, or boss? 5. Will I be embarrassed if my action is written up in the local newspaper?

Why do good people make bad choices? According to one study, there are four common rationalizations for justifying misconduct

1. My behavior isn't really illegal or immoral. Rationalizers try to convince themselves that action is OK if it isn't downright illegal or blatantly immoral. They tend to operate in a gray area where there's no clear evidence that the action is wrong. 2. My action is in everyone's best interests. Some rationalizers tell themselves: "I know I lied to make the deal, but it'll bring in a lot of business and pay a lot of bills." They convince themselves that they're expected to act in a certain way, forgetting the classic parental parable about jumping off a cliff just because your friends are. 3. No one will find out what I've done. Here, the self-questioning comes down to "If I didn't get caught, did I really do it?" The answer is yes. There's a simple way to avoid succumbing to this rationalization: Always act as if you're being watched. 4. The company will condone my actions and protect me. This justification rests on a fallacy. Betty Vinson may honestly have believed that her actions were for the good of the company and that her boss would, therefore, accept full responsibility (as he promised). When she goes to jail, however, she went on her own.

Kennedy identified four consumer rights:

1. The right to safe products. A company should sell no product that it suspects of being unsafe for buyers. Thus, producers have an obligation to safety-test products before releasing them for public consumption. The automobile industry, for example, conducts extensive safety testing before introducing new models (though recalls remain common). 2. The right to be informed about a product. Sellers should furnish consumers with the product information that they need to make an informed purchase decision. That's why pillows have labels identifying the materials used to make them, for instance. 3. The right to choose what to buy. Consumers have a right to decide which products to purchase, and sellers should let them know what their options are. Pharmacists, for example, should tell patients when a prescription can be filled with a cheaper brand-name or generic drug. Telephone companies should explain alternative calling plans. 4. The right to be heard. Companies must tell customers how to contact them with complaints or concerns. They should also listen and respond.

Employees with the following attitudes tend to suspect that their employers aren't as ethical as they should be

1. They consistently feel uneasy about the work they do. 2. They object to the way they're treated. 3. They're uncomfortable about the way coworkers are treated. 4. They question the appropriateness of management directives and policies

ethical

Ability and willingness to distinguish right from wrong and when you're practicing one or the other.

business ethics

Application of ethical behavior in a business context.

Corporate Social Responsibility

Approach that an organization takes in balancing its responsibilities toward different stakeholders when making legal, economic, ethical, and social decisions.

Which corporate executive is alleged to have run a giant Ponzi scheme that cheated investors of up to $65 billion?

Bernie Madoff, founder of Bernard L. Madoff Investment Securities is alleged to have run a giant Ponzi scheme that cheated investors of up to $65 billion. According to the Security Exchange Commission (SEC) charges, Madoff convinced investors to give him large sums of money. In return, he gave them an impressive 8 percent to 12 percent return a year. Madoff never really invested their money, and instead kept it for himself. He got funds to pay the first investors their return (or their money back if they asked for it) by bringing in new investors.

ethical decision

Decision in which there is a right (ethical) choice and a wrong (unethical or illegal) choice.

Fiduciary Responsibility

Duty of management to safeguard a company's assets and handle its funds in a trustworthy manner.