CHAPTER 4: BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

Doing Well by Doing Good

ETHICS AND SOCIAL RESPONSIBILITY

ETHICSBeliefs about

right and wrong.

SOCIAL RESPONSIBILITYThe obligation of a business

to contribute to society.

A Close Relationship, but Not the Same

ETHICS/PERSONAL CHARACTER

59% admitted that they cheated on a test at school within the past 12 months – 38% admitted doing so two or more times.

62% admitted that they copied another’s homework two or more times within the past 12 months.

18% admitted that they stole something from a friend withinthe past 12 months.

28% admitted that they stole something from a store withinthe past 12 months.

A study of 43,000 high school students revealed:

A 2011 Study conducted by Josephson Institute of Ethics

39% believe that a person has to lie or cheat sometimes in order to succeed.

ETHICS: MURKIER THAN YOU THINK

Legal and UnethicalPromoting R-rated movies to young teens

Producing products that you know will break before their time

Paying non-living wages to workers in developing countries

Consumer goods-producing companies subcontract to factories overseas in India, China, and Southeast Asia where there is use of child and sweatshop labor

Taking up an employee’s time to ask questions about a product with the intent to purchase it elsewhereIllegal and UnethicalEmbezzling money

Engaging in sexual harassment

Practicing Collusion with competitors

Encouraging fraudulent accounting

Legal and EthicalProducing high quality products

Rewarding integrity

Leading by example

Treating employees fairly

Contributing to the community

Illegal and EthicalProviding rock-bottom prices only to distributors in underserved areas

Collaborating with other medical clinics to guarantee low prices in low-income countries (collusion)

Stopping at a red light at a deserted intersection, out in the country, where you can see that there are no cars for miles, and then proceeding through the red light.

Smuggling of medicines into war- and disease-stricken areas

UNIVERSAL ETHICAL STANDARDS

Developed by Character Counts, a

nonpartisan organization of

educators, community leaders, and

ethicists.

BUSINESS ETHICS: NOT AN OXYMORON

Business Ethics – the application of right and wrong in the workplace.

Ethical Dilemma

Negative ConsequencesTwo unfavorable options

Ethical DilemmaNegative ConsequencesTwo unfavorable options

Ethical DilemmaNegative ConsequencesTwo unfavorable options

Business Ethics – the application of right and wrong in the workplaceBusiness Ethics – the application of right and wrong in the workplace

Ethical Lapse

Clear misconduct

Most challenging business decisions seem to arise

when values are in conflict

Ethical Dilemma:

You’ve just done a great job on a recent project at your company. Your boss has been very vocal about acknowledging your work and the increased revenue that resulted from it.

Privately, she said that you clearly earned a bonus of at least 10%, but due to company politics, she was unable to secure the bonus for you. She also implied that if you were to submit inflated expense reports for the next few months, she would look the other way and you could pocket the extra cash as well-deserved compensation for your contribution.

Ethical Dilemma:

One of the engineers on your staff has an excellent job offer from another company and asks your advice on whether or not to accept the position.

You need him to complete a project that is crucial to your company (and to your own career). You also have been told --- in strictest confidence by senior management --- that when the project is complete, the company will lay off all internal engineers.

If you advise him to stay, he would lose the opportunity and end up without a job. If you advise him to go, you would violate the company’s trust and jeopardize your career.

Ethical Dilemma:

As a successful entrepreneur, you see a new technology ready to be launched that is really good for the growth of your company and the clients. But, adopting the technology would mean reducing the man power of the company.

You have to think about the betterment of the clients and provide them with the best of services, but on the other hand, you also have to think about the employees who have contributed in the growth of the company.

If you think about your employees and reject the technology then are you doing justice with your clients? And if you accept the technology are you then betraying the employees?

Ethical Dilemma:Mary works as a secretary in a department within a branch of a large

corporation. The branch director has decided that the job of her department director, Jim, will soon be discontinued. Although Mary and a few others in her department have this knowledge, Jim does not.  For a few weeks, Jim was directed to work on an array of special projects at his home office. In the meantime, an employee from a different department is told to move in to Jim's office.

The branch director instructs Mary and other support staff to change Jim's voice mail, move his files out of the office, and erase his name from his assigned parking spot. Mary is told the human resources department will call Jim to let him know what has taken place.

That week Jim calls Mary because he cannot get into his voice mail. He wants to know if there are any technical problems about which he should know. Mary feels torn: should she tell him the truth now or should she rely on human resources staff to tell him?

Ethical Dilemma:

You are a psychiatrist and your patient has just confided to you that he intends to kill a woman. You're inclined to dismiss the threat as idle, but you aren't sure.

Should you report the threat to the police and the woman or should you remain silent as the principle of confidentiality between psychiatrist and patient demands?

Should there be a law that compels you to report such threats?

Ethical Dilemma:

On March 13, 1841, an American ship, the William Brown, left Liverpool, England for Philadelphia, Pennsylvania. In addition to her cargo, she carried 17 crewmen and 65 passengers, who were mostly Scots and Irish emigrants. On the night of April 19, 250 miles from Newfoundland, the William Brown struck an iceberg and began to sink rapidly. There were two lifeboats, one small and one large. The captain and most of the crew took the small lifeboat, and the passengers crowded aboard the large lifeboat. There was not enough space on the large lifeboat for all the passengers, and 31 died on board the William Brown when it sank.

First Mate Francis Rhodes, Alexander William Holmes, and another seaman commanded the large lifeboat. The passengers were still dressed in their night clothes and suffered terribly in the cold Atlantic weather, which was made worse by a pelting rain. The two lifeboats stayed together through the night but separated the morning of the 20th because the captain, George L. Harris, thought there was a better chance of rescue if the two boats took different directions.

Ethical Dilemma:

Rhodes said that his boat was overcrowded and that some people would have to be thrown overboard to keep it from capsizing. Captain Harris said, "I know what you'll have to do. Don't speak of that now. Let it be the last resort." Throughout the day of the 20th and into the night, the rain and the waves worsened. The boat began to leak and fill with water, despite constant bailing. Around ten o'clock that night, Rhodes cried out in despair, "This work won't do. Help me, God. Men, go to work."

Holmes and the other seaman began throwing people overboard. They threw 14 men and two women into the freezing water. They chose single men only, spared the married men on board, and threw the two women overboard only because they were sisters of a man already thus ejected and had demanded to be sacrificed with their kin. None of the crew was thrown out.

Ethical Dilemma:

Defendant: Alexander William HolmesCrime Charged: ManslaughterChief Defense Lawyer: David Paul BrownChief Prosecutor: William M. MeredithJudge: Baldwin (historical records do not indicate his first name)Place: Philadelphia, PennsylvaniaDates of Trial: April 13-23, 1842Verdict: GuiltySentence: 6 months in prison and a $20 fine

http://law.jrank.org/pages/2482/Alexander-Holmes-Trial-1842.html

Ethical Dilemma:

Jane has been operating a consulting business for about a year and has been doing very well. About a month ago, she decided she needed to hire someone to help her. After interviewing several candidates, she decided to hire the best one of the group, Sara. She called Sara on Monday to tell her she had gotten the job. They both agreed that she would start the following Monday and that Sara could come in and fill out all of the hiring paperwork at that time.

On Tuesday, of the same week, a friend of Jane's called her to say that she had found the perfect person for Jane. Jane explained that she had already hired someone, but the friend insisted. "Just meet Kim. Who knows, maybe you might want to hire her in the future!"

Ethical Dilemma:

Rather reluctantly, Jane consented. "All right, if she can come in tomorrow, I'll meet with her, but that's all." "Oh, I'm so glad. I just know you're going to like her!" Jane's friend exclaimed.

And Jane did like her. She like her a lot. Jane had met with Kim on Wednesday morning. She was everything that Jane had been looking for and more. In terms of experience, Kim far surpassed any of the candidates Jane had previously interviewed, including Sara. On top of that, she was willing to bring in clients of her own which would only increase business. All in all, Jane knew this was a win-win situation.

But what about Sara? She had already given her word to Sara that she could start work on Monday and she only had the resources to hire one person at this point.

Ethical Dilemma:

Clearly, the best business decision was to hire Kim. But what about the ethical decision? If her business did poorly or Sara couldn't provide enough support, the business would suffer. As a result, her family would suffer. Money was already tight, what with two boys in college. And yet she knew Sara also had a family she was supporting. Plus, she had been so enthusiastic about starting to work.

Obviously, Jane had a problem - an ethical problem. Should she hire Sara (whom she'd already given her word) or Kim (who was obviously the best person for the job)?

Ethical Dilemma:

According to Kenneth Blanchard and Norman Vincent Peale, authors of The Power of Ethical Management, there are three questions you should ask yourself whenever you are faced with an ethical dilemma.

Ethics: Multiple Touchpoints

Individuals must make their own

ethical choices

BUT

The organization can have a significant

influence on decisions19

Creating and Maintaining an Ethical Organization

Organizational Culture Role of Top Management Code of Ethics

Executive Buy-in Clear expectations Integrated approach Global and local Whistleblower support Reporting and Enforcement

SPECTRUM OF SOCIAL RESPONSIBILITY

Businesses that do notrecognize obligationsto society and do onlywhat’s legally required

Businesses that respond on a case-by-case basis to requests for contributions

Businesses that integrate social responsibility into their strategic plans

LESS Responsible

MOREResponsible

SOCIAL RESPONSIBILITY

Responsibility to Whom? Stakeholders are any

groups that have a stake –

or a personal interest - in the

performance and actions

of an organization.

RESPONSIBILITY TO……

RESPONSIBILITY TO EMPLOYEES: CREATING JOBS THAT WORK

Meet Legal Standards Workplace Safety Minimum Wage/Overtime

Requirements Value Employees Provide Work/Life Balance

DOES IT PAY TO PAY MORE?

Costco Wal-Mart’sSam’s Club

Average hourly wage $15.97 $11.52

Annual health costs per worker $5,735 $3,500

Covered by health plan 82% 47%

Employee turnover 6%/yr 21%/yr

Labor and overhead costs 9.8% of sales 17% of sales

Profits per employee $13,647 $11,039

RESPONSIBILITY TO CUSTOMERS

The Right to Be Safe

The Right to Be Informed

The Right to Choose

The Right to be Heard

The Right to Be Safe

The Right to Be Informed

The Right to Choose

The Right to be Heard

Planned Obsolescence –

Deliberately designing products to fail in order to shorten the time between consumer repurchases

Consumerism: a social movement suggests that

consumer rights should be the starting point…

APPLE COMPUTERS

Planned Obsolescence –

APPLE COMPUTERS:

• iPods had irreplaceable battery.

• Batteries died after 18 months.

• Customers were encouraged to purchase new iPods

• Two customers posted high profile protest movies online.

• APPLE announced replacement program.

APPLE iPHONES

• Apple introduced the iPhone on June 9, 2007 to rave reviews despite $599 price tag

• Apple dropped the price to $200 to increase customers

• Customers were livid!

• CEO, Steve Jobs apologized and gave customers $100 store credit

RESPONSIBILITY TO INVESTORS

Legal Requirements Sarbanes-Oxley

Responsible use of Corporate Dollars Honesty

Is Optimism or Pessimism Socially Responsible?

FAIR STEWARDSHIP AND FULL DISCLOSURE

Legal Requirements• Sarbanes-Oxley

Responsible use of Corporate Dollars

• HonestyIs Optimism or Pessimism Socially Responsible?

RESPONSIBILITY TO COMMUNITY

Corporate Philanthropy - business donations to

nonprofit groups, including both money and time.

Corporate Responsibility - The actions of the business

rather than donations of money and time.

Cause-related Marketing – partnerships between businesses

and nonprofit organizations, designed to spike sales for the

company and raise money for the nonprofit.

RESPONSIBILITY TO ENVIRONMENT

Green Marketing – marketing environmental products and practices

to gain a competitive edge.

RESPONSIBILITY TO ENVIRONMENT

Responsibility to environment is a part of responsibility to community

Reducing the amount of trash is more important than recycling

Although consumers support green marketing, they may not be willing to sacrifice quality

• Responsibility to environment is a part of responsibility to community

• Reducing the amount of trash is more important than recycling

• Although consumers support green marketing, they may not be willing to sacrifice quality

CAUSE RELATED MARKETING

The term was coined in 1983 by American Express Raise Funds for Statue of Liberty

Restoration Campaign to donate $.01 for

every dollar charged on credit card. New Cardholders Grew 45% Card Usage Grew 28% Statue of Liberty Restored Early

ETHICS & SOCIAL RESPONSIBILITY IN THE GLOBAL ARENA

Corruption is part of the culture in many countries Bribes or Gifts

Labor issues in host countries can be complicated Living Wage Child Labor

Code of Conduct

MONITORING ETHICS AND SOCIAL RESPONSIBILITY

A systematic evaluation of how well a firm is meeting its

ethics and social responsibility objectives.

SOCIAL AUDIT