Chapter 04

Demanding
Ethical and
Socially
Responsible
Behavior

McGraw-Hill/Irwin

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Four

LEARNING GOALS

1. Explain why obeying the law is only the first step in

behaving ethically.
2. Ask the three questions you need to answer when
faced with a potentially unethical action.
3. Describe managements role in setting ethical
standards.

4-2

Chapter Four

LEARNING GOALS

4. Distinguish between compliance-based and

integrity-based ethics codes, and list the six steps
in setting up a corporate ethics code.
5. Define corporate social responsibility and compare
corporations responsibilities to various
stakeholders.
6. Analyze the role of U.S. businesses in influencing
ethical behavior and social responsibility in global
markets.
4-3

Ethics is More
Than Legality

LIFE AFTER SCANDAL

LG1

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.

4-4

COST of CORRUPTION
Madoff Investment Securities: Bernie Madoff is

serving 150 years behind bars after running his

exclusive wealth management firm as a gigantic Ponzi
scheme.

Enron: Jeffery Skilling is serving a 24 year sentence

for accounting fraud while Richard Causey, who pled

guilty, will be released in October 2011. Former CEO,
Kenneth Lay, died before sentencing.

WorldCom: Former CEO, Bernie Ebbers, was

convicted of fraud, conspiracy and false filings and

sentenced to 25 years.
4-5

WHAT is a PONZI SCHEME?

A fraud by paying returns to
existing investors from funds
contributed by new investors.
New investors are promised
opportunities claimed to
generate high returns with
little or no risk.
Fraudsters focus on attracting
new money to make promised
payments.
Source: Securities and Exchange Commission, www.sec.gov, accessed June 2011.
4-6

Ethical Standards
are Fundamental

WHAT are ETHICS?

LG1

Ethics -- The standards of moral behavior.

Behaviors that are accepted by society as right

versus wrong.

4-7

Ethical Standards
are Fundamental

BASIC MORAL VALUES

LG1

Right:

Integrity
Respect for human life
Self-control

Wrong:
Cheating
Cowardice
Cruelty

Honesty
Courage
Self-sacrifice

4-8

Ethics Begins
with Each of Us

BRIBERY BAD BOYS

LG2

Source: Forbes, May 24, 2010.

4-9

Progress
Assessment

PROGRESS ASSESSMENT

What are ethics?

How do ethics differ from legality?
When faced with ethical dilemmas, what
questions can you ask yourself that might help
you make ethical decisions?

4-10

Managing
Businesses
Ethically and
Responsibly

ETHICS START at the TOP

LG3

Organizational ethics begin at

the top.
Managers can help instill
corporate values in
employees.
Trust between workers and
managers must be based on
fairness, honesty, openness
and moral integrity.
4-11

Managing
Businesses
Ethically and
Responsibly
LG3

FACTORS INFLUENCING
MANAGERIAL ETHICS

4-12

Setting
Corporate
Ethical
Standards

ETHICS CODES

LG4

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

organizations guiding values, create an environment

that supports ethically sound behavior and stress a
shared accountability.
4-13

Setting
Corporate
Ethical
Standards
LG4

HOW to IMPROVE
BUSINESS ETHICS

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.

4-14

Setting
Corporate
Ethical
Standards
LG4

HOW to IMPROVE
BUSINESS ETHICS

4. An ethics office must be set up with which

employees can communicate anonymously.
Whistleblowers -- Insiders who report illegal or
unethical behavior.

5. Involve outsiders such as

suppliers, subcontractors,
distributors and customers.
6. The ethics code must be
enforced.
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Setting
Corporate
Ethical
Standards
LG4

HOW to PREVENT UNETHICAL

BEHAVIORS

1. Managers must communicate the organizations

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.
Source: James Gehrke, Magnify Leadership & Development, November 2008.
4-16

Setting
Corporate
Ethical
Standards
LG4

HOW to PREVENT UNETHICAL

BEHAVIORS

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 companys reputation.
Source: James Gehrke, Magnify Leadership & Development, November 2008.
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Progress
Assessment

PROGRESS ASSESSMENT

What are compliance-based and integrity-based

ethics codes?
What are the six steps to follow in establishing an
effective ethics program in a business?

4-18

Corporate
Social
Responsibility
LG5

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.
4-19

Corporate
Social
Responsibility
LG5

CORPORATE PHILANTHROPY
and SOCIAL INITIATIVES

Corporate Philanthropy -- Includes charitable

donations.

Corporate Social Initiatives -- Include enhanced

forms of corporate philanthropy.

4-20

Corporate
Social
Responsibility
LG5

CORPORATE RESPONSIBILITY
and POLICY

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.

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Corporate
Social
Responsibility
LG5

POSTIVE IMPACTS
of COMPANIES

Xerox offers a Social Service Leave program.

The recent recession caused 60% of companies

to cut their philanthropic donations. However, now
theyre more likely to give time and goods.
Two-thirds of MBA students surveyed reported
they would take a lower salary to work for a
socially responsible company.

4-22

Responsibility
to Customers
LG5

PRESIDENT KENNEDYS BASIC

RIGHTS of CONSUMERS

The Right to Safety

The Right to be Informed
The Right to Choose
The Right to be Heard

4-23

Responsibility
to Customers

HOW DO CUSTOMERS KNOW?

LG5

Over 70% of executives say

their primary use of social media
is to communicate CSR efforts.
Social media allows companies
to reach a broad, diverse group
and connect directly to them.
Now more than ever, its
important for companies to live
up to their expectations.
4-24

Responsibility
to Customers
LG5

SOCIAL CUSTOMER CONTACT

Dos and Donts of Using Twitter for Business

Source: Entrepreneur, September 2010.

4-25

Responsibility
to Investors

INSIDER TRADING

LG5

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.

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Responsibility
to Employees
LG5

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.

4-27

Responsibility
to Employees
LG5

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

AMERICAS MOST ADMIRED

COMPANIES

Apple
Google
Berkshire Hathaway
Southwest Airlines
Procter & Gamble
Coca-Cola
Amazon
FedEx
Microsoft
McDonalds

Source: Fortune, www.fortune.com, March 21, 2011.

4-28

Responsibility
to Employees
LG5

WHEN EMPLOYEES
are UPSET

Employee fraud costs businesses about 5% of

annual revenue and causes 30% of all business
failures.
Disgruntled workers relieve frustration by:
-

Blaming mistakes on others.

Manipulating budgets and expenses.
Making commitments they intend to ignore.
Hoarding resources.
Doing the minimum.
4-29

Responsibility
to Society and
the Environment
LG5

SOCIETY and
the ENVIRONMENT

Over one-third of working Americans receive

their salaries from nonprofits who are
dependent on funding from others.
The green movement emerged as concern about
global warming increased.
Many companies are trying to minimize their
carbon footprints the amount of carbon
released during an items production, distribution,
consumption and disposal.
4-30

Responsibility
to Society and
the Environment
LG5

RESPONSIBILITY to the
ENVIRONMENT

Environmental efforts may increase costs, but

can offer good opportunities.
The emerging renewable-energy and energyefficiency industries account for 9 million U.S.
jobs.
By 2030, as many as 40
million Green jobs will
be created.

4-31

Social Auditing

SOCIAL AUDITING

LG5

Social Audit -- A systematic evaluation of an

organizations progress toward implementing
socially responsible and responsive programs.

Five Types of Social Audit Watchdogs

1)
2)
3)
4)
5)

Socially conscious investors

Socially conscious research organizations
Environmentalists
Union officials
Customers
4-32

Progress
Assessment

PROGRESS ASSESSMENT

Whats corporate social responsibility, and how

does it relate to each of a businesss major
stakeholders?
Whats a social audit, and what kinds of activities
does it monitor?

4-33