Business Ethics & Social Resp.

Ethics in Business
Better Business
3rd Edition
Solomon (Contributing Editor) ·
Poatsy · Martin
© 2014 Pearson Education, Inc.
Ethics and Social Responsibility: A
Close Relationship
Beliefs about
right and wrong
The obligation of a business
to contribute to society
© 2010 Pearson Education, Inc.
 Ethics
• The study of right and wrong and of
the morality of the choices individuals
• An ethical decision is one that is
“right” according to some standard of
 What’s Ethical?
• Different standards for different
people, cultures, countries, etc.
• Gray areas?
• More than just following the law
• Fundamental standards (respect for
life, honesty, integrity, etc.)
 Business ethics
 The application of moral standards to
business situations
 Good ethics is good business!
• The application of moral standards to
business situations
© 2014 Pearson Education, Inc.
Universal Ethical
 Fairness and honesty
• Businesspeople are expected to refrain from knowingly deceiving,
misrepresenting, or intimidating others.
• Follow the “Golden Rule” (treat other people like you want to be
 Organizational relationships
• A businessperson should put the welfare of others and that of the
organization above his or her own personal welfare.
 Conflict of interest
• Issues arise when a businessperson takes advantage of a
situation for personal gain rather than for the employer’s interest.
 Communications
• Business communications that are false, misleading, and
deceptive are both illegal and unethical.
© 2010 Pearson Education, Inc.
Factors That Influence
Ethical Behavior
Three general sets of factors appear to influence the standards of behavior in
an organization.
• Individual factors
– Individual knowledge of an issue
– Personal values
– Personal goals
• Social factors
– Business Climate (managers, co-workers)
– Cultural norms
– Significant others
– Co. Enforcement
– Code of Ethics
– Co. Policies
(ex. Use of the Internet)
• Opportunity
– Presence of opportunity
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Ethics: Multiple
Individuals must make their
ethical choices
The organization can have a
significant influence on
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Determining Your Code of Personal
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Personal Ethics in a Business
What if you are asked to
act against your ethics?
What if you unknowingly
do something “wrong”?
What if you knowingly do
something unethical or
even illegal?
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Encouraging a More
Ethical Business Climate
 External to a specific organization
• Governmental legislation and regulations
– Sarbanes-Oxley Act of 2002
• Trade association guidelines
– IFA (International Factoring Assoc.), TIA (Trans. Intermediaries Assoc)
 Within an organization
• Developing a Code of ethics
– A written guide to acceptable and ethical behavior as defined by an
organization; it outlines policies, standards, and punishments for violations
• Organizational environment
Reward ethical behavior
Reduce opportunity
Ethics officer
Leadership & Communication
- Discipline unethical behavior
- Provide a forum for reporting
- Employee training
- Ethics Officer
 Whistle-blowing
• Informing the press or government officials about unethical
practices within one’s organization
© 2010 Pearson Education, Inc.
Identifying a Company’s Ethics
How can you examine a company’s ethics?
Companies document their philosophies, often through:
– Code of ethics - a statement of the company’s
commitment to ethical practices
– Mission statement - defines the core purpose of an
© 2014 Pearson Education, Inc.
Ethical Focus from the Start
Steps to make sure
employees get off to an
ethical start:
Code of ethics
Mission statement
Leading by example
Orientation programs
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Pricing Fixing
Price fixing – illegal practice
when a group of companies
agree to set a product’s price
Mark Whitacre, a senior
executive with the agricultural
giant Archer Daniels Midland
(ADM), blew the whistle on
ADM’s multinational price-fixing
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Recovering from
Weak Ethical Conduct
Common strategies to recover
1. Find a leader
2. Empower all employees
3. Redesign internal rewards
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Ethical Focus Every Day
• Communicate
regularly about
acceptable behavior
• Check to make sure
that the code of ethics
is being followed
• Create a hotline for
anonymous reports
• Employ on-going
ethics training
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Can you affect how businesses
operate ethically?
You can affect:
- Your own ethical behavior
- Who you do business with
- Who you invest in
- Who you work for
© 2014 Pearson Education, Inc.
Legal Regulations and Compliance
Laws are created to govern the products or
process of a specific industry
Example: Consumer Bill of Rights (1962)
Right to safety
Right to choose
Right to information
Right to be heard
Legal compliance - conducting a business
within the boundaries of all the legal
regulations of that industry
© 2014 Pearson Education, Inc.
Violating Ethics & the Law: The
Example of Enron
• Was the seventh largest U.S. company at its zenith
• Had a written code of ethics including social and
environmental values
• In 2001, fraudulent finance practices surfaced and the
company went bankrupt
- Key officers found guilty of fraud and other charges
- Arthur Andersen, Enron’s accounting firm, convicted of
obstruction of justice and the firm closed
• Sarbanes/Oxley Act passed in 2002, with strict corporate
finance requirements and penalties
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Defining Social
Social Responsibility is the obligation of a
business to contribute to society.
Core stakeholder groups include employees,
customers, investors, and community.
Social Responsibility costs money but is
also good business.
How socially responsible a firm acts may affect the decisions of
customers to do or continue
to do business with the firm.
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Corporate Social Responsibility
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Can a Company Really Be Socially
Economist Milton Friedman said, “Asking a
corporation to be socially responsible makes no
more sense than asking a building to be.”
Conflicts of CSR:
• Difficult to measure how CSR interacts with a long-term
responsibility to the community or planet
• Difficult to balance profits for shareholders and quality for
© 2014 Pearson Education, Inc.
Two Views of Social
 Socioeconomic model (Actively
Business should emphasize not only profits but also the impact of its
decisions on society.
The corporation is a creation of society and it must act as any responsible citizen
Firms take pride in their social responsibility obligations.
It is in the best interest of firms to take the initiative in social responsibility matters.
 Economic model (Passive Contribution)
Society will benefit most when business is left alone to produce and market
profitable products that society needs.
Managerial attitude: social responsibility is someone else’s job; the firm’s primary
responsibility is to make a profit for its shareholders.
Firms are assumed to fulfill their social responsibility indirectly by paying the taxes
that are used to meet the needs of society.
Social responsibility is the problem of government, environmental groups, and
charitable foundations. © 2010 Pearson Education, Inc.
The Pros and Cons of
Social Responsibility
Arguments for Passive Contribution of
social responsibility (i.e. believers of
Economic Model approach to Social
Business managers are primarily responsible to
stockholders, so management must be concerned
with providing a return on owners’ investments.
Corporate time, money, and talent should be used to
maximize profits, not to solve society’s problems.
Social problems affect society in general, so
individual businesses should not be expected to
solve these problems.
Social issues are the responsibility of government
officials who are elected for that purpose and who
are accountable to the voters for their decisions.
© 2010 Pearson Education, Inc.
The Pros and Cons of
Social Responsibility
Arguments for PROACTIVE social
responsibility (i.e. Believers of
Socioeconomic Approach to Social
Because business is part of our society, it cannot ignore
social issues.
Business has the technical, financial, and managerial
resources needed to tackle today’s complex social
By helping resolve social issues, business can create a
more stable environment for long-term profitability.
Socially responsible decision-making by firms can
prevent increased government intervention, which would
force businesses to do what they fail to
do voluntarily.
© 2010 Pearson Education, Inc.
Benefits of CSR
• A positive reputation in the
• Strong recruitment and
talent retention
• Efficiency increases when
companies use materials
efficiency and minimize
• Increased sales via
product innovations and
environmentally and
ethically conscious
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Measuring CSR
Is it possible to measure a company’s CSR level?
Social audits
Ratings and rankings
– Calvert Company
– Fortune’s 10 Most-Admired
Corporate philanthropy
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The Challenges of CSR
Balancing the demands of social responsibility with
successful business practices
Conflicting demands pose numerous ethical
challenges such as:
– Making life-saving drugs available to the world’s poor
– Conducting a profitable business in an
environmentally sound manner
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The Effects of CSR on Society
• Environmental
- Local and global impact
• Economic
- Product availability, price and quality
- Business sustainability
• Employee morale
- Advancement
- Work environment
- Values
© 2014 Pearson Education, Inc.
© 2014 Pearson Education, Inc.

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