chapter 2 business ethics and corporate social...
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Chapter 2
Business Ethics and
Corporate Social Corporate Social
Responsibility
Copyright © 2016 Pearson Education, Inc. 2-1
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Ethics, Corporate Social Responsibility,and Corporate Sustainability
Ethics: Discipline of dealing with:� What is good and bad
� What is right and wrong
� Moral duty and obligation� Moral duty and obligation
Corporate social responsibility (CSR):The implied, enforced, or felt obligation of managers, acting in their official capacity, to serve or protect the interests of groups other than themselves
2-22-2Copyright © 2016 Pearson Education, Inc.
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Ethics, Corporate Social Responsibility,and Corporate Sustainability (Cont.)
Corporate sustainability focuses on the possible
future impact of an organization on society, including social welfare, the economy, and the environment
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Explore the Concept of Business Ethics
� Nearly every industry has experienced a painful ethical crisis in recent years
� Business ethics scandals continue to make headlines
� Examples:
�Lying on résumés�Lying on résumés
�Obstruction of justice
�Destruction of records
�Stock price manipulation
�Cutting corners to meet Wall Street’s expectations
�Fraud, waste, and abuse
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Sources of Ethical Guidance
�Lead to our beliefs or convictions about what is right or wrong
�Examples:
�Bible and other holy books �Bible and other holy books
�Conscience
�Significant others
�Code of ethics
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Legislating Ethics
�Procurement Integrity Act
�Federal Sentencing Guidelines for Organizations (FSGO)
�Corporate and Auditing Accountability, Responsibility, and Transparence Act
�Dodd-Frank Wall Street Reform and Consumer Protection Act
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Procurement Integrity Act of 1988
�Prohibits release of source selection and
contractor bid or proposal information
�Places restrictions on former employees
�Passed after reports of military contracts
for:
�$500 toilet seats
�$5,000 hammer
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Federal Sentencing Guidelines for Organizations (FSGO) of 1992
�Outlined effective ethics training program
�Promised softer punishments for wayward corporations that had ethics programs in place
�Executives needed to be proactive
�Created:
�Ethics officer positions
�Ethics hotlines
�Codes of conduct
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Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002
�Known as Sarbanes-Oxley Act
�Primary focus was to redress accounting and financial reporting abuses
�Criminalized many corporate acts
�Established whistleblower protections
�Prohibited loans to executives and directors
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Dodd-Frank Wall Street Reform and Consumer Protection Act
�Act brought on by worst financial crisis since Great Depression
�Executive compensation played a major role in financial services sector, as well as role in financial services sector, as well as in capital markets, following the collapse of investment service firms
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Creating an Ethical Culture and Code of Ethics
�Way for firm to create and sustain an ethical culture is to audit ethics
�Climate at the top is fundamental to company's ethical culturecompany's ethical culture
�Firms with weak ethical cultures experience 10 times more misconduct than companies with strong ethicalcultures
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Code of Ethics
�Statement of values adopted by:
�Company
�Its employees
�Directors �Directors
�Sets official tone of top management regarding expected behavior
�Establishes rules by which organization operates
�Becomes part of organization’s corporate culture
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Ethics Officer
�Larger firms appoint ethics officers
�Keeps code on front burner for employees
�Ethics committee often established �Ethics committee often established
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Malcolm Baldrige National Quality Award
�Increased emphasis on ethics in leadership
�Criteria: Senior leaders should serve as �Criteria: Senior leaders should serve as role models for the rest of the organization
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Human Resource Ethics
�Application of ethical principles to HR relationships and activities
�HR has a great deal to do with establishing an organization’s consciencean organization’s conscience
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Linking Pay to Ethical Behavior
�Few companies have made ethics and compliance a process for determining how employees are compensated
�Only about 1 in 6 companies ties incentives to ethical performance
�More work needs to be done
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Ethics Training
�FSGO outlined effective ethics training program to educate employees in company’s standards and procedures
�Ethics training should be for everyone�Ethics training should be for everyone
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Corporate Social Responsibility (CSR)
�CSR: Implied, enforced, or felt obligation of managers, acting in their official capacities, to serve or protect interests of groups other than themselvesgroups other than themselves
�Corporation behaves as if it has a conscience
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CSR Illustration: Carroll’s Pyramid
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Who Determines CSR?
Organization’s top executives usually determine a corporation’s approach to corporate social responsibility
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Not Everyone Is on Board with Corporate Social Responsibility
�Some have challenged the concept by saying that doing well is doing good
�Milton Friedman—Only social responsibility of business is to increase profits
�BP promoted themselves as being eco-friendly
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Corporate Sustainability
�Evolved from the more traditional view of corporate social responsibility
�Expanded to include the social, economic, environmental, and cultural systems environmental, and cultural systems needed to support an organization
�Strives to use the best business practices
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Social Audit
Systematic assessment of a company’s activities in terms of their social impact
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Possible Types of Social Audits
�Simple inventory of activities
�Compilation of socially relevant expenditures
�Determination of social impact
�Ideal social audit: Involves determining true benefits to society of any socially oriented business activity
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Can Corporate Social Responsibility Succeed in the Global Environment?
�Some global firms are questioning the wisdom of being socially responsible
�Adherence to CSR issues has declined �Adherence to CSR issues has declined
�First 15 years of CSR efforts have not produced the desired results
�Significant changes will have to be made
�Reputation management? 2-252-25Copyright © 2016 Pearson Education, Inc.