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INTRODUCTION TO INTRODUCTION TO BUSINESSBUSINESS

University of Management and Technology1901 N. Fort Myer Drive

Arlington, VA 22209 USAPhone: (703) 516-0035

Fax: (703) 516-0985Website: www.umtweb.edu

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Chapter 5:Chapter 5:Conducting Business Conducting Business Ethically and ResponsiblyEthically and Responsibly

Griffin, R. W. & Ebert, R. J. Business (7th ed.)

© 2004 Prentice Hall.

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Learning ObjectivesLearning Objectives

Upon successful completion, the student will be able to:Describe The Ethics in the Workplace

Define The Social Responsibility

Explain The Areas of Social Responsibility

Understand The Implementing Social Responsibility Programs


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Ethics in the WorkplaceEthics in the Workplace

"The more I help others to succeed, the more I succeed."—Ray Kroc, a 52 year-old salesman for a milkshake machine, who gained control of the McDonald’s restaurants in 1955.

Today, McDonald’s is the largest global food service retailer in the world, serving 45 million people daily.

The Ronald McDonald character enjoys worldwide recognition second only to Santa Claus (http://www.mcdonalds.com).

Ask yourself,Does this quote reflect the reality of business competition?

Why or why not?

To whom does “others” refer?

How can a business maintain a competitive edge and still help others succeed?


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Ethics in the WorkplaceEthics in the Workplace

Just what is ethical behavior?Ethics are one’s beliefs about what is right and wrong or good and bad in actions that affect others.

An individual’s values and morals, plus the social context in which his or her behavior occurs, determine whether behavior is regarded as ethical or unethical.In other words, ethical behavior is behavior conforming to generally accepted social norms concerning beneficial and harmful actions. Unethical behavior is behavior that does not conform to generally accepted social norms concerning beneficial and harmful actions. Business Ethics refers to ethical or unethical behaviors by a manager or employer of an organization.


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Individual EthicsIndividual Ethics

The Problem with AmbiguityBecause ethics are based on both individual beliefs and social concepts, they vary from person to person, from situation to situation, and from culture to culture.

Social standards tend to be broad enough to support certain differences in beliefs so that, without violating these general standards, an individual may develop personal codes of ethics that reflect a wide range of attitudes and beliefs.

Individual Values and Codes begin when we are children and are further developed throughout our life.

Each of these people’s personal code of ethics is determined by a combination of factors.


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Business and Managerial EthicsBusiness and Managerial Ethics

Business and Managerial Ethics are standards of behavior that guide individual managers in their work.

Behavior toward Employees—This category covers such matters as hiring and firing, wages and working conditions, and privacy and respect.Behavior toward the Organization—Ethical issues also arise from employee behavior toward employers, especially in such areas as conflict of interest, confidentiality, and honesty.

A conflict of interest occurs when an activity may benefit the individual to the detriment of his or her employer.

Behavior toward Other Economic Agents—Ethics also comes into play in the relationship between the firm and its employees with so-called primary agents of interest—mainly customers, competitors, stockholders, suppliers, dealers, and unions.


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Assessing Ethical Behavior Assessing Ethical Behavior

To reduce subjectivity in distinguishing ethical from unethical behavior, a firm should establish a process for applying ethical judgments to situations that may arise during the course of business activities.

Three-step model for applying ethical judgments to situations:

gather relevant factual information

determine the most appropriate moral values

make an ethical judgment based on the rightness or wrongness of the proposed activity or policy


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Assessing Ethical BehaviorAssessing Ethical Behavior

Unfortunately, the process doesn’t always work as smoothly as the scheme in the figures.What if the facts aren’t clear-cut?What if there are no agreed-upon moral values?Nevertheless, a judgment and a decision must be made.Experts point out that, otherwise, trust is impossible. And trust is indispensable in any business transaction.

Steps in Making Ethical Steps in Making Ethical JudgmentsJudgments


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Assessing Ethical Behavior Assessing Ethical Behavior

Ethical norms also come into play.

Four ethical norms:Utility—does a particular act optimize what is best for those who are affected by it?

Rights—does it respect the rights of the individual involved?

Justice—is it consistent with what we regard as fair?

Caring—is it consistent with people’s responsibilities to each other?


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Assessing Assessing Ethical Ethical BehaviorBehavior

This figure is an expanded version of the previous figure that incorporates the consideration of these ethical norms.

Expanded Model of Expanded Model of Ethical Judgment Ethical Judgment MakingMaking


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Assessing Ethical BehaviorAssessing Ethical Behavior

More and more companies are struggling with unethical behavior on the part of their managers and employees alike. The best inoculation against these problems is a strong, public ethical commitment on the part of senior management. The power of an open, honest, responsive approach to ethics is clear in these two cases:

In 1982 a few Tylenol capsules were found laced with cyanide. The firm recalled all Tylenol from retailer shelves, going public with candid information throughout the crisis. Sales bounced quickly.Coca-Cola experienced a serious PR problem in Belgium due to Coke made from a bad batch of carbon dioxide, followed by Coke cans shipped with fungicide on the bottom. The CEO of Coca-Cola mitigated the problem by flying to Brussels, and publicly apologized to the consumers in Belgium.


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Company Practices and Business Company Practices and Business EthicsEthics

Perhaps the single most effective step a company can take is to demonstrate top management support. Actions by senior managers, whether commendable or otherwise, often set the tone in the organization.

Adopting Written Codes—Many companies have adopted written codes of ethics that formally acknowledge their intent to do business in an ethical manner.Instituting Ethics Programs—The question arises whether business ethics can be “taught.” Most analysts agree that companies must take the chief responsibility for educating employees.

Some firms have major training programs or ethical “hot line” numbers employees can call to discuss troubling situations or report unethical behavior of others.


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The figure illustrates the role that corporate ethics and values should play in corporate policy.

Basically, the figure suggests that although strategies and practices can change frequently and objectives can change occasionally, an organization’s core principles and values should remain steadfast.

Core PrinciplesCore Principlesand Organizational Valuesand Organizational Values


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What are the benefits of a formal code of ethics? Why does it make a difference?

A formal code of ethics:Can increase public confidence

May help deflect potential government regulation (e.g. voluntary TV industry ratings, movie ratings)

Provides consistent standards of ethical conduct (increasingly important in a multinational/multicultural environment)

Can help managers respond to unethical or illegal behavior on the part of employees or other stakeholders


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What would you want to know about a company’s code of ethics before you accepted an offer of employment?

Possibilities include policies on social responsibility and the environment, policies on Internet and email use, attitudes toward employees and other stakeholders, etc.


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Social ResponsibilitySocial Responsibility

Ethics affect individual behavior in the workplace.Social responsibility is a related concept, but it refers to the overall way in which a business itself tries to balance its commitments to relevant groups and individuals in its social environment.

Organizational Stakeholders—those groups, individuals, and organizations which are directly affected by the practices of an organization and which therefore have a stake in its performance.


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The Stakeholder Model of The Stakeholder Model of ResponsibilityResponsibility

The Stakeholder Model of ResponsibilityMost companies that strive to be responsible to their stakeholders concentrate on five main groups:

customers, employees, investors, suppliers, and local communities.

Contemporary Social ConsciousnessSocial consciousness and views continue to evolve, seemingly to today’s enlightened view stressing the need for a greater social role for business.

For instance, Sears and Target stores refuse to sell handguns and other weapons, and toy retailers like KayBee and Toys R Us won’t sell toy guns that look realistic.


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Major Corporate Major Corporate StakeholdersStakeholders


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Ben & Jerry’s: Social Responsibility versus Profits Founders Ben Cohen and Jerry Greenfield struggled long and hard to balance the company’s social initiatives with stockholder demands for better profits.

Since the company’s inception in 1978, they have donated 7.5% of pretax profits to a variety of social causes.

In 1999 the company was sold to Unilever, a $45 billion global giant that owns Breyer’s and Good Humor ice-cream brands.

Unilever promised that they will continue the socially responsible practices of Ben & Jerry’s with an initial donation of $5 million and continuing the 7.5% annual contribution.

Unilever also promised not to reduce jobs or alter the way the ice cream is made.


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Areas of Social ResponsibilityAreas of Social Responsibility

When defining its sense of social responsibility, a firm typically confronts four areas of concern:

Environment

Customers

Employees

Investors


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Responsibility Toward the Responsibility Toward the EnvironmentEnvironment

Pollution—the injection of harmful substances into the environment.

Air Pollution—Much of the damage to forests and streams in the eastern United States and Canada has been attributed to acid rain (which occurs when sulfur is pumped into the atmosphere, mixes with moisture, and falls to the ground as rain).

Water Pollution—Water quality in many areas of the United States is improving thanks to new legislation (such as laws forbidding phosphates in New York and Florida).


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Responsibility Toward the Responsibility Toward the EnvironmentEnvironment

Land Pollution—The two key issues in land pollution are restoring land that has already been damaged and preventing future contamination.

Toxic waste disposal—Toxic wastes are dangerous chemical or radioactive byproducts of manufacturing processes.

Recycling—the reconversion of waste materials into useful products—has become an issue not only for municipal and state governments but also for many companies engaged in high-waste activities.


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Responsibility Responsibility Toward the Toward the EnvironmentEnvironment

The figure tells a troubling story.

The chart shows atmospheric carbon dioxide ( ) levels for the period between 1750 and 2000.

It offers three possible scenarios for future levels under different sets of conditions.

Emissions, Past and FutureEmissions, Past and Future2C

2CO


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Responsibility Toward Responsibility Toward CustomersCustomers

The Federal Trace Commission (FTC) regulates advertising and pricing practices, and the Food and Drug Administration (FDA) enforces guidelines for labeling food products.Consumerism—form of social activism dedicated to protecting the rights of consumers in their dealings with businesses.President John F. Kennedy’s Consumer Bill of Rights1. Consumers have a right to safe products.2. Consumers have a right to be informed about all relevant aspects

of a product.3. Consumers have a right to be heard.4. Consumers have a right to choose what they buy.5. Consumers have a right to be educated about purchases.6. Consumers have a right to courteous service.


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Unfair Pricing—Interfering with competition can take the form of illegal pricing practices.

Collusion occurs when two or more firms agree to collaborate on such wrongful acts as price fixing

The U.S. Justice Department www.usdoj.gov recently charged three international pharmaceutical firms with illegally controlling worldwide supplies and prices of vitamins.

Price gouging is a response to increased demand with overly steep price increases.

For example, when DaimlerChrysler Launched its PT Cruiser in 2000, demand for the vehicle was so strong that some dealers sold them only to customers willing to pay thousands of dollars over sticker prices.


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Ethics in Advertising—Misleading, deceptive, or morally objectionable advertising have been criticized by consumers.

Because of controversies surrounding the potential misinterpretation of words and phrases such as light, reduced calorie, diet, and low fat, food producers are now required to use a standardized format for listing ingredients on product package.


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Responsibility Toward Responsibility Toward EmployeesEmployees

Legal and Social CommitmentsLegally, businesses cannot practice illegal discrimination against people in any aspect of the employment relationship.

A firm should strive to ensure that the workplace is physically and socially safe.


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Responsibility Toward Responsibility Toward EmployeesEmployees

WhistleblowerEmployee who detects and tries to put an end to a company’s unethical, illegal, or socially irresponsible actions by publicizing them.

Whistleblowers are sometimes demoted or fired when their accusations are made public.

The law offers them some recourse in the form of a civil suit for damages.


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Responsibility Toward InvestorsResponsibility Toward Investors

Improper Financial Management—Improper Financial Management-Occasionally organizations or their managers may be guilty of blatant financial mismanagement-offenses that are unethical but not necessarily illegal.

Check Kiting—illegal practice of writing checks against money that has not yet been credited at the bank on which the checks are drawn.

Insider Trading—occurs when someone uses confidential information to gain from the purchase or sale of stocks.

Misrepresentation of Finances—A firm’s failure to conform to generally accepted accounting practices (GAAP) when reporting its financial status is illegal.


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Implementing Social Implementing Social Responsibility ProgramsResponsibility Programs

In fact, there are dramatic differences of opinion concerning the role of social responsibility as a business goal.

Some people oppose any business activity that threatens profits.

Others argue that social responsibility must take precedence over profits.

Some skeptics of business-sponsored social projects fear that if business become too active, they will gain too much control over the ways in which those projects are addressed by society as a whole.

These critics point to the influence that many businesses have been able to exert on the government agencies that are supposed to regulate their industries

Other critics claim that business organizations lack the expertise needed to address social issues.


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Implementing Social Implementing Social Responsibility ProgramsResponsibility Programs

Proponents of socially responsible business believe that corporations are citizens and should, therefore, help to improve the lives of the fellow citizens.


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Approaches to Social Approaches to Social ResponsibilityResponsibility

The figure illustrates, the four stances that an organization can take concerning its obligations to society fall along a continuum ranging from the lowest to the highest degree of socially responsible practices.

Spectrum of Approaches to Social ResponsibilitySpectrum of Approaches to Social Responsibility


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Obstructionist stance involves the firm doing as little as possible and may involve attempts to deny or cover up violations.

Firms that adopt this position have little regard for ethical conduct and will generally go to great lengths to hide wrongdoing.

For example,IBP, a leading meat-processing firm, has a long (and undistinguished) record of breaking environmental protection, labor, and food processing laws and then trying to cover up its offenses.


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Defensive stance involves the firm meeting only minimum legal requirements in its commitments to groups and individuals in its social environment.

This approach is most consistent with arguments against corporate social responsibility.

Managers who take a defensive stance insist that their job is to generate profits.

Such a firm, for example,Would install pollution-control equipment dictated by law but would not install higher quality equipment even though it might further limit pollution.


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Accommodative stance involves the firm, if specifically asked to do so, exceeding legal minimums in its commitments to groups and individuals in its social environment.

Such firms voluntarily agree to participate in social programs, but solicitors must convince them that given programs are worthy of their support.

Both Shell and IBM, for example,Will match contributions made by their employees to selected charitable causes.


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Proactive stance involves the firm actively seeking opportunities to contribute to the well being of groups and individuals in the firm’s social environment.

Firms that adopt this approach take to heart the arguments in favor of social responsibility.

They view themselves as citizens in a society and proactively seek opportunities to contribute.

The most common—and direct—way to implement this stance is by setting up a foundation through which to provide direct financial support for various social programs.


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Top 15 Corporate Top 15 Corporate FoundationsFoundations


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Establishing a Social Establishing a Social Responsibility ProgramResponsibility Program

Managers must take steps to foster a companywide sense of social responsibility.

Social Audit is a systematic analysis of a firm’s success in using funds earmarked for meeting its social responsibility goals.

Social Responsibility and the Small Business—Ethics and social responsibility are decisions faced by all managers in all organizations, regardless of rank or size.


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Social reasonability must start at the top and be considered as a factor in strategic planning.

Without the support of top management, no program can succeed.

A committee of top managers must develop a plan detailing the level of management support.

Some companies set aside percentages of profits for social programs.

One executive must be put in charge of the firm’s agenda.Whether the role is created as a separate job or added to an existing one, the selected individual must monitor the program and ensure that its implementation is consistent with the firm’s policy statement and strategic plan.

The organization must conduct occasional social audits: systematic analyses of its success in using funds earmarked for its social responsibility goal.


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The figure summarizes those steps.


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SummarySummary

Individual ethics—people’s beliefs about right and wrong, good and bad—are heavily shaped by personal values and morals, as well as social and cultural influences.

Ethical behavior is behavior that conforms to generally accepted standards about beneficial and harmful actions.

Since the ethical behavior of individual employees has a direct effect on their companies, many organizations are adopting formal statements of ethics.


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SummarySummary

Social responsibility refers to an organization’s response to social needs.

One way to understand social responsibility is to view it in terms of stakeholders—those groups, individuals, and organizations that are directly affected by the practices of an organization and have a stake in its performance.

The social activism of the 1960s and 1970s have forced business to consider the public welfare to some degree so that a trend toward increased social consciousness and a heightened concern for the environment have emerged.


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SummarySummary

Social responsibility toward the environment requires firms to minimize pollution of air, water, and land.

Social responsibility toward customers requires firms to provide products of acceptable quality, to price them fairly, and to respect consumers’ rights.

Social responsibility toward employees requires firms to respect workers as resources and as people—who are more productive when their needs are met.

Social responsibility toward investors requires firms to manage their resources and to represent their financial status honestly.


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SummarySummary

An obstructionist stance is taken by a firm that does as little as possible to address social or environmental problems and may deny or attempt to cover up any problems that do occur.

The defensive stance emphasizes compliance with legal minimum requirements.

Companies adopting the accommodative stance go beyond minimum activities if asked.

The proactive stance commits a company to actively seek to contribute to social projects.


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SummarySummary

Implementing a social responsibility program has four steps: drafting a policy statement with the support of top management

developing a detailed plan

appointing a director to implement the plan

conducting social audits to monitor results

Small businesses face the same issues of social responsibility and the same need to decide on an approach to social responsibility as do large firms.

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