BA 100 Chapter 4

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CHAPTER 4
Demanding
Ethical and
Socially
Responsible
Behavior

2. ©McGraw-Hill Education.
LEARNING OBJECTIVES 1 of 2
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 management’s role in setting ethical
standards.

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LEARNING OBJECTIVES 2 of 2
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.

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PATTY STONESIFER
Martha’s Table
• Held high-level positions with
the Gates Foundation and
the White House.
• Founded Martha’s Table in
2013 with the goal of
providing healthy food,
affordable clothing and
quality education to D.C.’s
locals.
Photocredit:CourtesyofBill&MelindaGatesFoundation

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NAME that COMPANY
The wage and benefit packages offered by this
company are among the best in hourly retail. Even
part-time workers are covered by its health plan.
Increased benefits reduce employee turnover to less
than a third of the industry average.
Name that company!

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LIFE AFTER SCANDAL LO 4-1
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.

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BERNIE MADOFF’S
PONZI SCHEME
• Bernie Madoff is serving 150
years behind bars.
• His exclusive wealth
management firm was a
gigantic Ponzi scheme.
• Though exact amounts are
uncertain, it is believed he
stole about $65 billion from
his investors.
Photo credit: © Timothy A. Clary/AFP/Getty Images

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WHAT is a PONZI SCHEME? LO 4-1
• 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 November 2014.

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WHAT are ETHICS? LO 4-1
Ethics -- The standards of moral behavior. Behaviors that
are accepted by society as right versus wrong.
Photo credit: © Image Source, all rights reserved.

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BASIC MORAL VALUES LO 4-1
Right:
• Integrity
• Respect for human life
• Self-control
• Honesty
• Courage
• Self-sacrifice
Wrong:
• Cheating
• Cowardice
• Cruelty
Photo credit: © UpperCut Images/Alamy Stock Photo

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ETHICS and YOU LO 4-2
• Plagiarizing from online
materials is the most
common form of cheating
in schools today.
• Studies found a strong
relationship between
academic dishonesty and
dishonesty at work.
Cartoon credit: © Marty Bucella, www.cartoonstock.com

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FACING ETHICAL DILEMMAS LO 4-2
Ask yourself these
questions:
1. Is it legal?
2. Is it balanced?
3. How will it make me feel
about myself? Photo credit: © UpperCut Images/Alamy Stock Photo

13. ©McGraw-Hill Education.
BRIBERY BAD BOYS
Five FCPA Investigations LO 4-2
Company Case
Smith and Wesson Improper payments to foreign officials.
Stryker
Corporation
Bribing doctors and government officials in five
countries.
Hewlett-Packard Improper payments for contracts.
Bio-Rad
Laboratories
Subsidiaries made improper payments to officials in
Russia, Vietnam, and Thailand.
Diebold Bribed officials at government-owned banks.
Source: SEC, www.sec.gov, accessed November 2014.

14. ©McGraw-Hill Education.
TURNING EX-CONS into ENTREPRENEURS
• Life after prison can be very
difficult for those with
criminal records.
• Catherine Rohr started Defy
Ventures to help ex-cons
launch their own businesses.
• Defy and Rohr’s other
organizations have helped
create 60 startups and many
ex-cons find employment.
Photo credit: © Ann Hermes/ The Christian Science Monitor/Getty Images

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TEST PREP
1. What are ethics?
2. How do ethics differ from legality?
3. When faced with ethical dilemmas, what
questions can you ask yourself that might help
you make ethical decisions?

16. ©McGraw-Hill Education.
ETHICS START at the TOP LO 4-3
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.
Photo credit: ©Jose Luis Pelaez Inc/Blend Images LLC

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FACTORS INFLUENCING MANAGERIAL
ETHICS LO 4-3
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

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ETHICS CODES LO 4-4
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.

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HOW to IMPROVE AMERICA’S
BUSINESS ETHICS 1 of 2 LO 4-4
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.

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HOW to IMPROVE AMERICA’S
BUSINESS ETHICS 2 of 2 LO 4-4
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.
Photo credit: © Gianluca Colla/Bloomberg/Getty Images

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HOW to BLOW the WHISTLE LO 4-4
1. Decide carefully and quickly.
2. Make sure you have all allegations filed with the
right agencies.
3. File your allegations with as many agencies that
are appropriate.
4. Gather your information legally.
5. Research the process.
Source: Kiplinger’s Personal Finance, June 2013.

22. ©McGraw-Hill Education.
TEST PREP
1. What are compliance-based and integrity-based
ethics codes?
2. What are the six steps to follow in establishing an
effective ethics program in a business?

23. ©McGraw-Hill Education.
CORPORATE SOCIAL
RESPONSIBILITY LO 4-5
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.

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CORPORATE PHILANTHROPY
and SOCIAL INITIATIVES LO 4-5
Corporate Philanthropy --
Includes charitable donations.
Corporate Social Initiatives --
Include enhanced forms of
corporate philanthropy.
Photo credit: © Lannis Waters/Zuma Press/Newscom

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CORPORATE RESPONSIBILITY
and POLICY
LO 4-5
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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POSTIVE IMPACTS
of COMPANIES LO 4-5
Xerox offers a Social Service Leave program.
More and more companies are encouraging
employees to volunteer while on company time.
The majority of MBA students surveyed reported
they would take a lower salary to work for a socially
responsible company.

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HELPING HANDS
Most Generous Celebrities LO 4-5
Who? For?
George Clooney
United Way;
UN Messenger of Peace
Angelina Jolie & Brad Pitt Make it Right Foundation; UN
Ben Affleck UN
Madonna Raising Malawi
Michael J. Fox
Michael J. Fox Foundation for
Parkinson’s Research
Alicia Keys
Keep a Child Alive;
Frum Tha Ground Up
Sir Elton John Elton John AIDS Foundation
Matt Damon
GreenDimes; H2O Africa;
Running the Sahara
Oprah Winfrey Angel Network
Source: Parade Magazine.

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GENEROUS GUYS
World’s Biggest Givers in 2013 LO 4-5
Who? How Much? What For?
Bill Gates $2.5B Malaria, public health, education
Warren Buffett $2.63B Gates Foundation
Leonard Lauder $1.1B Art museums
Mark Zuckerberg $991M Education, healthcare
George Soros $734M Human rights, democracy
Michael Bloomberg $1.8B Antismoking, education
Walton Family $325M Education, conservation
Gordon & Betty Moore $321M Science education
Chuck Feeny $297M Human rights
Pierre & Pamela Omidyar $294M Education
Source: Forbes, www.forbes.com, accessed November 2014.

29. ©McGraw-Hill Education.
PRESIDENT KENNEDY’S BASIC RIGHTS
of CONSUMERS LO 4-5
The Right to Safety
The Right to be Informed
The Right to Choose
The Right to be Heard
Photo credit: Library of Congress Prints and
Photographs Division [LC-USZ62-117124]

30. ©McGraw-Hill Education.
HOW DO CUSTOMERS KNOW? LO 4-5
The 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, it’s
important for companies to
live up to their expectations.
Photo credit: Denise McCullough

31. ©McGraw-Hill Education.
SOCIAL CUSTOMER CONTACT
Do’s and Don’ts of Using Twitter for Business LO 4-5
DO DON’T
Engage followers in discussion
relevant to your industry.
Start political rants.
Think about your message before
tweeting. Deleted tweets can still be
found!
Tweet impulsively.
Frequently offer new content. Let your account lie dormant.
Create separate accounts for
business and personal use.
Make personal announcements via
your company’s Twitter account.
Source: Entrepreneur, www.entrepreneur.com, accessed September 2014.

32. ©McGraw-Hill Education.
INSIDER TRADING LO 4-5
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.
Photo credit: © Steve Marcus/Reuters/Corbis

33. ©McGraw-Hill Education.
RESPONSIBILITY to
EMPLOYEES LO 4-5
Create jobs and provide
a chance for upward
mobility.
Treat employees with
respect.
Offer salaries and
benefits that help
employees reach their
personal goals.
Photo credit: © Wilfredo Lee/AP Images

34. ©McGraw-Hill Education.
AMERICA’S MOST ADMIRED COMPANIES
of 2014 LO 4-5
1. Apple
2. Amazon
3. Google
4. Berkshire Hathaway
5. Starbucks
6. Coca-Cola
7. Disney
8. FedEx
9. Southwest Airlines
10. General Electric
Source: Fortune, www.fortune.com, accessed November 2014.
Photo credit: © Chris Ryan/age fotostock

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WHEN EMPLOYEES
are UPSET… LO 4-5
Employee fraud costs U.S. 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.

36. ©McGraw-Hill Education.
SOCIETY and
the ENVIRONMENT LO 4-5
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
item’s production, distribution, consumption and
disposal.

37. ©McGraw-Hill Education.
RESPONSIBILITY to the
ENVIRONMENT LO 4-5
Environmental efforts may increase costs, but can
offer good opportunities.
The emerging renewable-energy and energy-
efficiency industries account for 9 million U.S. jobs.
By 2030, as many as
40 million “green”
jobs will be created.
Photo credit: © Jody Horton

38. ©McGraw-Hill Education.
SUSTAINABILITY’S in the BAG
Rickshaw Bagworks makes sustainable accessories
built to last.
The “three Fs” are followed company-wide.
1. Form
2. Function
3. Footprint
Photo credit: Courtesy of Rickshaw Bagworks, Inc

39. ©McGraw-Hill Education.
SOCIAL AUDITING LO 4-5
Social Audit -- A systematic evaluation of an
organization’s progress toward implementing socially
responsible and responsive programs.
Five Types of Watchdogs
1. Socially conscious investors
2. Socially conscious research
organizations
3. Environmentalists
4. Union officials
5. Customers
Photo credit: Courtesy of Rainforest Action Network

40. ©McGraw-Hill Education.
TEST PREP
1. What is corporate social responsibility, and how
does it relate to each of a business’s major
stakeholders?
2. What is a social audit, and what kinds of activities
does it monitor?

41. ©McGraw-Hill Education.
INTERNATIONAL ETHICS LO 4-6
Many businesses want socially responsible behavior
from their international suppliers.
In the 1970s, the Foreign Corrupt Practices Act
criminalized the act of paying foreign businesses or
government leaders in order to get business.
Partners in the Organization of American States
signed the Inter-American Convention Against
Corruption.

42. ©McGraw-Hill Education.
GOING by a
DIFFERENT STANDARD
A telecommunications employee returns to his home
country to work and the company reimburses living
expenses so he can live in a safe area. The
employee is trying to do the honorable thing for his
family and the company is trying to keep the
employee safe.
If the employee uses the money to help his family
instead, is it right for the company to stop payment?

43. ©McGraw-Hill Education.
TEST PREP
1. How are U.S. businesses demanding socially
responsible behavior from their international
suppliers?
2. Why is it unlikely that there will be a single set of
international rules governing multinational
companies soon?