Chapter 4Ethics and Social Responsibility

The Difference Between Ethics and LawsEthics

Socially accepted norms and behaviors We don’t make fun of other people We don’t swindle people out of money by tricking them. Example of unethical : puppy mills? Conflicts of

interest? CAN get you sued!

LawsEthics that have agreed-upon penalties attached to

them if violated. Example of illegal: Enron debacle, HealthSouth affair

Types of Ethical Tests for Daily DecisionsLegal

Is there a law against the decision you are making?

JusticeIs your decision or action fair and equitable?Is it balanced?

The Mama TestHow would I feel if my Mama found out about this?How about if it were communicated in the news?Does this just feel wrong??

Ethics in the Corporate WorldP. 94: “People learn their standards and

values from observing what others do, not hearing what they say. This is as true in business as it is at home.”

Employees watch others to determine what is socially acceptable.

Strong leaders know that their actions are being mimicked.

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• Enron: One executive is serving a 24 year sentence for accounting fraud while another will be released in October 2011.

• Arthur Andersen: Convicted of tampering with witnesses, the company was dissolved and about 28,000 people lost their jobs.

• Tyco International: Two executives stole $600 million from the company and are scheduled to be released from prison in 2030.

• Adelphia Communication: Two executives were convicted of conspiracy, bank and securities fraud and given sentences of 15 and 20 years.

• WorldCom: Former CEO was convicted of fraud, conspiracy and false filings and sentenced to 25 years.

PAYING the PRICE(Legal Briefcase)

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Ethics in the Corporate WorldRelationships at work should be based on trust,

openness, integrity, honesty, and fairness.

Businesses should act ethically because:Good reputationKeep customersKeep employeesAvoid lawsuitsSleep at night!

“Overly ambitious goals can create an environment in which unethical actions… can occur.”

Ethics in the Corporate WorldCompliance Codes of Ethics

Reinforced by penalties for violationsNegative reinforcement

Integrity-Based Codes of EthicsReinforced by cultural change and policies,

appealing to everyone’s greater goodPositive reinforcement

WhistleblowingRoger Boisjoly, formerly of Morton Thiokol

How to Make Ethics Work at Your Company1. There must be a code of ethics for the

company.2. Policies have to be communicated through

training.3. Policies have to be upheld.4. Ethics have to be brought up in decision-

making.5. Employees need to be reminded that they

are the ones protecting the company’s ethics.

Social ResponsibilityCorporate Philanthropy

Giving money and company time to other causes

Social initiativesThe company decides to set up a program to help

some cause (usually the program relates to what the company does)

Socially Responsible Practices and PoliciesWhat types of things do you think companies can do

to be more socially responsible other than the above?

Areas of Social ResponsibilityResponsibility to Consumers

Keep them safe, give them information, hear their feedback

Responsibility to InvestorsKeep them informed, be honest with them, try

to build their wealthResponsibility to Employees

Create jobs for them; make them contentedResponsibility to Community

Environmental impact, community welfare

Freidman or Smith?Milton Freidman:

Social responsibility is too close to socialism. A business’s role is to enhance shareholder wealth. Giving that to society is not a business’s right.

Adam Smith:Benevolence is the utmost responsibility. Self-

interested pursuit of profit is wrong The invisible hand must churn the wealth around.

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Source: Wall Street Journal, www.wsj.com, June 23, 2008.

Corporate Social Responsibility

To WHOM MUCH HAS BEEN GIVEN…

America’s Charitable GivingLG5

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¾ of U.S. adults give no time intheir community

Social AuditA systematic process of evaluating the

business’s effect on society, good and bad

Designed to meet the needs of each unique business

What types of things could be measured?

Ethics LegislationSarbanes-Oxley Act

All public corporations must have a way for employees to report unethical behavior anonymously AND to protect those people from retaliatory behavior from the company.

Regulation FD (SEC)Corporations must tell everyone when substantive news

happens, not just a chosen few.

Foreign Corrupt Practices ActAmerican businesspersons may not bribe foreign

officials.

International IssuesLabor

Hours worked, fumes, health, child laborLiving wage as a new concept

BriberySocially accepted gift-giving or illegal?

Environmental Impact Pollution, deforestation, mining

Global ImperialismAs U.S. companies expand, they take U.S. culture with them.

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Source: Forbes, www.forbes.com, March 24, 2008.

International Ethics and Social ResponsibilityGIVERS AROUND the WORLD

Share of GDPLG6

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