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3. business ethics and social responsibility
- 1. Business Ethics and Social Responsibility
- 2. L E A R N I N G O B J E C T I V E S After reading this chapter, you should be able to: 1. Explain how individuals develop their personal codes of ethics and why ethics are important in the workplace. 2. Distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today. 3. Show how the concept of social responsibility applies both to environmental issues and to a firm’s relationships with customers, employees, and investors.
- 3. L E A R N I N G O B J E C T I V E S (CONT’D) After reading this chapter, you should be able to: 4. Identify four general approaches to social responsibility and describe the four steps that a firm must take to implement a social responsibility program. 5. Explain how issues of social responsibility and ethics affect small business.
- 4. WHAT’S IN IT FOR ME? • By understanding the material in this chapter, you’ll be better able to: – Assess ethical and socially responsible issues facing you as an employee and as a boss or business owner. – Understand the ethical and socially responsible actions of businesses you deal with as a consumer and as an investor.
- 5. ETHICS IN THE WORKPLACE • Ethics – Beliefs about what’s right and wrong or good and bad • Ethical Behavior – Behavior conforming to individual beliefs and social norms about what’s right and good • Unethical Behavior – Behavior conforming to individual beliefs and social norms about what is defined as wrong and bad • Business Ethics – The ethical or unethical behaviors by employees in the context of their jobs
- 6. INDIVIDUAL VALUES AND CODES • Sources of Personal Codes of Ethics – Childhood responses to adult behavior – Influence of peers – Experiences in adulthood – Developed morals and values
- 7. BUSINESS AND MANAGERIAL ETHICS • Managerial Ethics – The standards of behavior that guide individual managers in their work – Ethics affect a manager’s behavior toward: • Employees • The organization • Other economic agents—customers, competitors, stockholders, suppliers, dealers, and unions • Ethical Concerns – Ambiguity (e.g., financial disclosure) – Global variation in business practices (e.g., bribes)
- 8. ASSESSING ETHICAL BEHAVIOR • Simple Steps in Applying Ethical Judgments – Gather the relevant factual information – Analyze the facts to determine the most appropriate moral values – Make an ethical judgment based on the rightness or wrongness of the proposed activity or policy
- 9. ASSESSING ETHICAL BEHAVIOR • Ethical Norms and the Issues They Entail – Utility: Does a particular act optimize the benefits to those who are affected by it? Do all relevant parties receive “fair” benefits? – Rights: Does the act respect the rights of all individuals involved? – Justice: Is the act consistent with what’s fair? – Caring: Is the act consistent with people’s responsibilities to each other?
- 10. COMPANY PRACTICES AND BUSINESS ETHICS • Encouraging Ethical Behavior Involves: – Adopting written codes of conduct and establishing clear ethical positions for the conduct of business – Having top management demonstrate its support of ethical standards – Instituting programs to provide periodic ethics training – Establishing ethical hotlines for reporting and discussing unethical behavior and activities © 2009 Pearson Education, Inc.
- 11. SOCIAL RESPONSIBILITY • Social Responsibility – The overall way in which a business attempts to balance its commitments to relevant groups and individuals (stakeholders) in its social environment • Organizational Stakeholders – Groups, individuals, and organizations that are directly affected by the practices of an organization and, therefore, have a stake in its performance
- 12. THE STAKEHOLDER MODEL OF RESPONSIBILITY • Customers – Businesses strive to treat customers fairly and honestly • Employees – Businesses treat employees fairly, make them a part of the team, and respect their dignity and basic human needs • Investors – Businesses follow proper accounting procedures, provide information to shareholders about financial performance, and protect shareholder rights and investments • Suppliers – Businesses emphasize mutually beneficial partnership arrangements with suppliers • Local and International Communities – Businesses try to be socially responsible
- 13. CONTEMPORARY SOCIAL CONSCIOUSNESS • The Concept of Accountability – The expectation of an expanded role for business in protecting and enhancing the general welfare of society
Editor's Notes
- In this chapter we will examine how individuals develop their personal codes of ethics and why ethics are important in the workplace. We will explore how to distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today. And, finally, we will show how the concept of social responsibility applies both to environmental issues and to a firm’s relationships with customers, employees and investors. Teaching Tips: Ask the class to engage in the following way with the each objective: Objective 1: Explain how individuals develop their personal codes of ethics and why ethics are important in the workplace. Please take out a piece of paper and write down two or three of your own personal values. Now join with another student and share your response. Once you have shared your responses, each pair of students will discuss how these personal values could be important in the workplace. The team will share their responses. Answers will vary. Have the class discuss how their personal codes of ethics developed and how they will impact the workplace. Objective 2: Distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today. Please remain in your teams from Objective 1. I would like each team to provide an example of an organizational stakeholder and why it is important. Then join with another team and share your answers with your combined team. The combined team will also discuss what characterizes social consciousness in business today. Each team will then share their responses with the class. The stakeholders include: Employees Investors Customers Suppliers Local community The organization itself Answers to the rest of the questions may vary based on the views of social consciousness today. Objective 3: Show how the concept of social responsibility applies both to environmental issues and to a firm’s relationships with customers, employees and investors. Please form new pairs of two students. Each pair will write down an example of how social responsibility applies to one of the stakeholders we just discussed. Each team will also list one way in which environmental issues might be important to the stakeholder group they chose. Each pair will then share their response with the class. Answers should include one of the stakeholder groups noted above. Environmental issues could include things such as pollution, global warming, environmental advertising, etc.
- We will also explore four general approaches to social responsibility and learn the four steps that a firm must take to implement a social responsibility program. In addition we will explain how issues of responsibility and ethics affect small business. Teaching Tips Objective 4: Identify four general approaches to social responsibility and describe the four steps that a firm must take to implement a social responsibility program. In your teams, please discuss and provide the rest of the class with the answer to the question “What is social responsibility?”. Answers should include: The overall way in which a business attempts to balance its commitments to relevant groups and individuals (stakeholders) in its social environment. Answers will also vary based on current business news and could include such things as the elimination of insider trading, environmental pollution, outsourcing of jobs to sweat shops in other countries, etc. Objective 5: Explain how issues of social responsibility and ethics affect small business. Please discuss how the ethics of a small business owner can affect his or her method of managing employees. Now please share your answer with the class. Answers can include the fact that the personality of the small business owner and his or her personal ethics will impact the way in which the business functions. Areas that could be addressed include the acceptance of gifts by the owner from suppliers, the way the owner treats his or her employees in terms of sick days, leaves of absence, personal use of office supplies, etc. The Gross Domestic Product is the value of all goods and services produced within a given period by a national economy through domestic factors of production. It measures aggregate output.
- “What’s in it for me?” you might ask. By understanding social responsibility and ethics in the workplace, you will be able to assess ethical and socially responsible issues that you may face as an employee and as a boss or business owner. You will also understand the ethical and responsible actions of the businesses you deal with as a consumer and as an investor or other stakeholder. Teaching Tips: Please join with your student partner and make a list of five ethical or socially responsible issues you may face in your future from the perspective of one of the stakeholder groups we discussed earlier. Answers will vary but should address all of the stakeholder groups noted above. Issues could include anything from global warming, use of energy, treatment of employees, outsourcing of jobs, etc.
- When we explore the concept of ethics in the workplace, we need to examine four different areas: These include ethics, or beliefs about what is right and wrong or good or bad. In addition we need to examine ethical behavior, which is behavior conforming to individual beliefs and social norms about what’s right and good. What is unethical behavior? It is behavior confirming to individual beliefs and social norms about what is defined as wrong and bad. In order to succeed in business, we need to address the ethical or unethical behavior by employees in the context of their jobs. Teaching Tips: In your student team, please develop a list of 5 examples of ethical behavior and 5 examples of unethical behavior in the workplace. Answers will vary.
- How does an individual develop a code of personal ethics? Here are some answers: First, a person can develop personal values through their own childhood responses to adult behavior. An example could include seeing parents yell at each other or at their children whenever something goes wrong in the household, whenever the child does not do something the parent likes, etc. By doing this, the child internalizes that whenever anything bad happens, they should yell or scream at the other people in their lives. On the opposite side, if children see that whenever they make an honest mistake or make an error, their parents correct them and demonstrate the appropriate behavior and give them a hug, then in the future, these children probably would be more patient with others when they make mistakes, correct them in an even tone, and show empathy. People may also be influenced by their peers, whether they are other children, teenagers or adults. For example, in middle school, one of the teens in a group of friends gets some cigarettes. They go behind the school and start smoking, then offer the cigarettes (or yes, it could be weed!) to their friends. The friends think it is cool and so they try it too. They may continue the behavior because they think it makes them look better in front of their friends. Adults do the same thing. They may see their friends buying new cars, new furniture and other things, and adults think they need to buy the same type of things, even though they may not have the money. Instead of paying cash, they use credit cards, and end up with a huge credit card balance they cannot pay. Other experiences in adulthood can also impact an individual’s values or codes. For example, an adult may decide they love working for their employer, and offer to stay late and work harder, but then when it comes time for a promotion, they are overlooked by someone who may have offered favors or friendship to the boss. The hard worker may begin to think it is not worth it to work hard. Of course, all of the above develop morals and values in a person. These are the foundation for their behavior both personally and within the workplace. Their morals and values seem correct to the individual, and so employees may need special attention or training if they come from another culture, where, for example, it is OK to stand very close to other people, while in the U.S. culture, people like to have about 3 feet of personal space around them in a business setting. Teaching Tips: Using your example from our last exercise, please remain in your teams and write down the possible source or personal code of ethics that might cause the ethical or unethical business behaviors you shared with the class. Once you have discussed these, we will share them with the class. Answers will vary but will include religion, family upbringing, culture or subculture, social class and income levels, etc.
- Managerial ethics are the standards of behavior that guide individual managers in their work. Ethics can affect a manager’s behavior toward: Employees: For example, in a case in which an employee is constantly late for work, if a manager’s ethics include perfection in attendance, this could present an issue. The organization: For example, if the organization is very open and wants employee suggestions, this could cause discord for employees reporting to a manager who is not accustomed to this type of input. Other stakeholders or economic agents such as customers, competitors, stockholders, suppliers, dealers and unions: For example, a manager may have developed a certain communication style across his or her career, and may have a specific manner of dealing with such agents, or may hold them as equals or as outsiders. Ethical concerns that should be considered when addressing business situations can include many issues. Let’s look at two examples: Ambiguity: When an organization is not performing as well as its investors would like, the manager may consider not disclosing, or hiding, certain financial information. There have been many examples of this during the past ten years. Global variation in business practices: When an organization does business in another country, especially Latin America, it can be quite common to have to bribe a government official or pay a little extra money to an agent to get permits, get shipments through customs, etc. While this is illegal under U.S. law and the Foreign Corrupt Practices Act, this cannot be avoided in some countries, such as the Jeitinho in Brazil, which is more like a personal favor payment to “find a way” to make the transaction move forward more rapidly. Many Latin American countries, such as Paraguay, have taken a hard stance against such practices. The police, for example, used to make extra money by stopping cars on the road just to search for something that might be wrong. In so doing, they would ask for bribes to allow the person to pass. There were strikes and some rebellion, but now this practice has for the most part been eliminated. Teaching Tips: In your same student teams, please choose one of the three areas where a manager’s ethics could have an impact (employees, the organization or other economic agents), and take a few minutes to apply the ethical codes you discovered in our last exercise. Discuss how these might impact the group you choose (i.e., employees, the organization or other economic agents). We will then discuss this topic as a whole class. Answers will vary based on responses to the last two exercise. Be sure to refer back to the answers from the last two exercises, as well as the examples you provided in this slide when weighing student response. Now that you have an understanding of some of the ethical concerns faced by businesses and organizations, please answer the following questions based on your own values and ethics: “What would you do if your manager asked you to force billings for sales of a new product in your territory in order to make the sales numbers look better for this quarter?” Answers will vary based on individual values, but of course the correct answer should be that the sales should only be reported specifically when the sale occurs. Sometimes customers may ask to be pre-billed for consulting work because it is included in their budget for the current fiscal year. In some cases the manager will have to accept the billing and the funds, but can place the funds received into an “escrow” account, and only report the actual sales when the work occurs.
- Let’s look at some simple steps in applying ethical judgments: First, it is important to gather the relevant factual information. This could include the example of a customer requiring a billing prior to work being provided in a consulting situation. Second, we need to analyze the facts to determine the most appropriate moral values to apply. In our example of the prepayment for consulting fees, we find that the customer’s fiscal year is ending, they have budgeted the money for this year, and will lose it if the billing is not presented by your firm right now, and your firm will lose the opportunity for this work. And finally we will make an ethical judgment based on the rightness or wrongness of the proposed activity or policy. In our example, we could say it is wrong to accept money for work we have not yet performed. However, we can bill the customer in advance, noting this on the invoice. When the money is received, we can create an “escrow” account in our accounting system and place the funds there, like a pre-paid receivable, and as the work is performed per a plan we have submitted to the client, which the client has approved, we internally bill the work and send a client a report on hours worked against their prepayment for services. Teaching Tips: In your teams, please think of an example of a business situation that may require an ethical assessment. Then apply the three steps we have just reviewed to the problem. We will then share the situations with the class. Answers will vary based on the situation, but make sure the student teams apply the three steps you reviewed in this slide to the situation, and assist them or have the class assist them in determining the most appropriate ethical business behavior.
- Now let’s examine the Ethical Norms that we can use when gathering information. We can examine the issue we are facing in terms of: Utility: Utility answers the question, “Does a particular act optimize the benefits to those who are affected by it?” and the question, “Do all relevant parties receive ‘fair’ benefits?”. Rights: Rights answers the question, “Does the act respect the rights of all individuals involved?”. Justice: Justice answers the question, “Is the act consistent with what’s fair?”. Caring: Caring answers the question, “Is the act consistent with people’s responsibilities to each other?”. If we return to our example of the prepayment for consulting services by one of our customers, let’s apply these four ethical norms: Utility: The answer to these two questions is yes in this case. The customer receives the ability to deduct the expense during his or her current fiscal year and the consulting firm receives the revenue. Rights: The answer to this question is yes. The fiscal calendar year of the customer is respected as is the right for the consultant to receive payment. Justice: The answer is yes because the customer is paying a fair price, and is just paying in advance. The consultant is receiving payment in advance for agreed-upon services. Caring: The answer is yes because the consultant is putting the money in “escrow,” or is holding it and only taking it into its books as it provides the services, while the customer is receiving the right to pay in advance and thus take a tax advantage during the current fiscal year. Teaching Tips: Please join again with your same class team. In your team please refer back to one of the ethical issues you picked in our earlier discussion. Please discuss your example through the use of these norms. Let’s share our examples with the class. Answers will vary but can build upon examples presented earlier in this slide.
- A company can encourage ethical behavior in a number of ways. These include: Adopting written codes of conduct and establishing clear ethical positions for the conduct of business. These codes can include rules of conduct, for example not allowing employees to accept gifts from suppliers or customers. Having top management demonstrate its support of ethical standards. This can include having management be very public in its manner of following the rules established for employees, as in not accepting gifts, trips, event tickets, etc. Instituting programs to provide periodical ethics training. This can include providing media training for key managerial employees so if they are contacted by the media during a potential crisis or product recall situation, they will know exactly what to say. Establishing ethical hotlines for reporting and discussing unethical behavior and activities. This practice encourages employees to call in and report on or discuss unethical behavior or activities in an anonymous manner. Teaching Tips: In your same team, please choose one of the four ways firms encourage ethical behavior. Please discuss and describe an example of your choice. Please share your example with the class. Answers will vary but could build on the examples listed above in this slide.
- Let’s discuss the concept of social responsibility. Social responsibility is the overall way in which a business attempts to balance its commitments to relevant groups and individuals, or stakeholders, in its social environment. Who are stakeholders? They include groups, individuals, and organizations that are directly affected by the practices of an organization and therefore have a stake in its performance. Teaching Tips: Please form a team with a different student in the class. In your team, please discuss one way in which a business could act in a socially responsible manner. Please discuss which type of organization stakeholder might be affected by the social responsibility of the company. Answers may vary, but could include addressing local pollution with a group of citizens who are impacted by the pollution; donating a portion of the organization’s profits to a group of people who are in need, such as the homeless, AIDS victims in Africa, etc.
- Major corporate stakeholders include the following: Customers: Businesses work to treat customers fairly and honestly. For example, car dealers are required to disclose financing deals to customers within their advertising. Employees: Businesses treat employees fairly, make them feel like they are part of the team, and respect their dignity and basic human needs. For example, a multinational corporation would commit to paying fair wages to employees in third-world developing countries and to not allowing children to work in sweat shops. Investors: Businesses follow proper accounting procedures, provide information to shareholders about financial performance and protect shareholder rights and investments. For example, a large publicly held consulting firm would report the prepayment for services by their customers as a pre-paid receivable asset in its accounting statement to shareholders. Suppliers: Businesses emphasize mutually beneficial partnership arrangements with suppliers. For example, Mercury SUVs promote the fact that they have Microsoft Sync technology in their vehicles. Microsoft is a supplier to Lincoln Mercury. The local and international communities in which the company operates: Businesses try to act in a socially responsible manner. For example, Microsoft has established the Bill and Melinda Gates Foundation, which offers medical assistance to eliminate malaria in Africa and meeting other United Nations Millennium Goals. Teaching Tips: In your student teams, please choose one stakeholder and one ethical issue that might affect that particular stakeholder. Discuss how the company should act toward the stakeholder your team has chosen. We will then share these with the class. Answers will vary but must include one of the five stakeholders discussed in this slide and can build on examples provided or contain additional examples of social responsibility to different stakeholder groups.
- Accountability is important in this electronic age. It is the expectation of an expanded role for business in protecting and enhancing the general welfare of society. What does this mean? It could mean, for example, that a company has a duty to place information on its website about product content, potential side effects from its use, or potential harm that could come if the product is not used properly, like not following directions for use or instructions on installation or assembly. Teaching Tips: In your teams of two, please choose an example of how an organization could protect or enhance the general welfare of society. After your team discussion, you will share your examples with the class. Answers will vary but could expand on other ways an organization could be accountable for society such as product packaging, health warnings, labeling, assembly instructions, etc.