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*Chapter Four

Demanding Ethical and

Socially Responsible

Behavior

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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*Ethics is More Than Legality

• Scandals have shaken the real estate, mortgage and banking industries.

• How do we restore trust in the free market system?

- Punish those who have broken the law.

- Make accounting records more transparent.

- Consider what is ethical, not just what is legal.

LIFE AFTER SCANDAL

LG1

4-2

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*Ethical Standards are Fundamental

• Ethics -- The standards of moral behavior. Behaviors that are accepted by society as right versus wrong.

WHAT are ETHICS?

LG1

4-3

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*Ethical Standards are Fundamental

Right:• Integrity

• Respect for human life

• Self control

• Honesty

• Courage

• Self-sacrifice

Wrong:•Cheating•Cowardice•Cruelty

BASIC MORAL VALUES

LG1

4-4

*

*

• 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)

4-5

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*Ethics Begins with Each of Us

• Plagiarizing from Internet materials is the most common form of cheating in schools today.

ETHICS and YOU

LG2

• Studies found a strong relationship between academic dishonesty and dishonesty at work.

4-6

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*Ethics Begins with Each of Us

• Ask yourself these questions:

- Is it legal?

- Is it balanced?

- How will it make me feel about myself?

FACING ETHICAL DILEMMASLG2

4-7

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*Managing Businesses Ethically and Responsibly

• Trust between workers and managers must be based on fairness, honesty, openness and moral integrity.

• Leadership can help instill corporate values in employees.

ETHICS

START

at the

TOP

LG3

4-8

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*Managing Businesses Ethically and Responsibly

FACTORS INFLUENCING MANAGERIAL ETHICS

Individual Organizational Environmental• Values• Work Background• Family Status• Personality

• Top Level Management Philosophy

• Firm’s Reward System

• Job Dimensions

• Competition• Economic

Conditions• Social/Cultural

Institutions

LG3

4-9

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* Setting Corporate Ethical Standards

• An increasing number of companies have adopted written codes of ethics.

• Compliance-Based Ethics Code -- Emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers.

• Integrity-Based Ethics Code -- Define the organization’s guiding values, create an environment that supports ethically sound behavior and stress a shared accountability among employees.

ETHICS CODES

LG4

4-10

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* Setting Corporate Ethical Standards

1. Top management must adopt and unconditionally support an explicit corporate code of conduct.

2. Employees must understand that senior management expects all employees to act ethically.

3. Managers and others must be trained to consider the ethical implications of all business decisions.

(continued)

HOW to IMPROVE AMERICA’S BUSINESS ETHICS

LG4

4-11

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* Setting Corporate Ethical Standards

4. An ethics office must be set up with which employees can communicate anonymously. Whistleblowers -- People who report illegal or unethical behavior.

HOW to IMPROVE AMERICA’S BUSINESS ETHICS

LG4

5. Involve outsiders such as suppliers, subcontractors, distributors and customers.

6. The ethics code must be enforced.

4-12

*

*

Source: James Gehrke, Magnify Leadership & Development, November 2008.

1. Managers must communicate the organization’s vision on ethical behavior.

2. Organizations must have a code of ethics.

3. Policies have to be enforced regarding ethical offences.

4. Ethical responsibility must be taught to all employees.

(continued)

HOW to PREVENT UNETHICAL BEHAVIORS LG4

Setting Corporate Ethical Standards

4-13

*

*

Source: James Gehrke, Magnify Leadership & Development, November 2008.

5. Discussions of ethics must be included in the decision-making process.

6. Accountability must be taken seriously at all levels in the organization.

7. Organizations must act fast when a crisis occurs.

8. Employees must know they have to defend and maintain the company’s reputation.

HOW to PREVENT UNETHICAL BEHAVIORS LG4

Setting Corporate Ethical Standards

4-14

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*Corporate Social Responsibility

• Corporate Social Responsibility (CSR) -- The concern businesses have for the welfare of society.

• CSR is based on a commitment to integrity, fairness, and respect.

• CSR proponents argue that businesses owe their existence to the societies they serve and cannot exist in societies that fail.

CORPORATE SOCIAL RESPONSIBILITY

LG5

4-15

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*Corporate Social Responsibility

• Corporate Philanthropy -- Includes charitable donations.

• Corporate Social Initiatives -- Includes enhanced forms of corporate philanthropy.

CORPORATE PHILANTHROPY and SOCIAL INITIATIVES

LG5

4-16

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*Corporate Social Responsibility

• Corporate Responsibility -- Includes everything from hiring minority workers to making safe products, minimizing pollution, using energy wisely, and providing a safe work environment.

• Corporate Policy -- The position a firm takes on social and political issues.

CORPORATE RESPONSIBILITY and POLICY LG5

4-17

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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 Giving LG5

4-18

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*Responsibility to Customers

• The Right to Safety

• The Right to be Informed

• The Right to Choose

• The Right to be Heard

PRESIDENT KENNEDY’S BASIC RIGHTS of CONSUMERS LG5

4-19

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*Responsibility to Investors

• Insider Trading -- Insiders using private company information to further their own fortunes or those of their family and friends.

• Unethical behavior does financial damage to a company and investors are cheated.

INSIDER TRADING

LG5

4-20

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*Responsibility to Employees

• Create jobs and provide a chance for upward mobility.

• Treat employees with respect.

• Offer salaries and benefits that help employees reach their personal goals.

RESPONSIBILITY to EMPLOYEES

LG5

4-21

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*Social Auditing

• Social Audit -- A systematic evaluation of an organization’s progress toward implementing programs that are socially responsible and responsive.

• Four Types of Social Audit Watchdogs

- Socially conscious investors

- Environmentalists

- Union officials

- Customers

SOCIAL AUDITING

LG5

4-22

What do the watchdogs do?

• Investors – insist on high stds to suppliers• Environmentalists – they name companies

that do not comply with preset standards• Union officials – hunt violations and force

compliance to avoid public scrutiny• Customers – make buying decisions based on

social conscience

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* International Ethics and Social Responsibility

• Many businesses want socially responsible behavior from their international suppliers.

• The Joint Initiative on Corporate Accountability and Workers’ Rights was designed to make creating a single set of labor standards and inspecting factories easier.

• In the 1970s, the Foreign Corrupt Practices Act criminalized the act of paying foreign businesses or government leaders in order to get business.

INTERNATIONAL ETHICS

LG6

4-24

PROFESSIONAL ETHICS

• 1. HONESTY• 2. INTEGRITY• 3. FAIRNESS• 4. PURSUIT OF EXCELLENCE• 5. ACCOUNTABILITY