Ethics and Corporate Responsibility

1. McGraw-Hill/Irwin 3-1
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Learning Objectives
 L01: Describe how different ethical perspectives
guide decision making.
 L02: Explain how companies influence their ethics
environment.
 L03: Outline a process for making ethical decisions.
3-2

3. Learning Objectives
 L04: Summarize the important issues surrounding
corporate social responsibility.
 L05: Discuss reasons for businesses’ growing
interest in the natural environment.
 L06: Identify actions managers can take to manage
with the environment in mind.
3-3

4. Ethics
 The system of rules that governs the ordering of
values.
3-4

5. Things to Ponder…
 What kind of manager do you want to be?
 What reputation do you hope to have?
 How would you like others to describe your behavior
as a manager?
3-5

6. •Is it legal?
•Is it balanced?
•How will I feel about myself
(OR what would my mother say if she knew?)
3-6

7. Ethics…it’s a big issue
 In a recent survey, more than 1/3 of U.S. adults have
observed unethical conduct at work.
 In another survey, top justification for unethical
behavior was “pressure to meet unrealistic goals and
deadlines.”
3-7

8. Ethics…it’s a personal issue
 Most of us think we are good ethical decision
makers, but the fact is, most people are not.
 People lie or commit ethical transgressions
without realizing the consequences.
 Managers often hire people who are like them,
think they are immune to conflicts of interest,
take more credit than they deserve, and
blame others when they deserve some blame
themselves
3-8

9. Where are the Business Ethics?
 In a recent survey of 700 employees:
 39% said their supervisors sometimes didn’t
keep promises
 24% said their supervisor had invaded their
privacy
 23% said their supervisor covered up his or
her own mistakes by blaming someone else
3-9

10. Ethical Dilemmas YOU may face
 CEO pay
 Commercialism in schools
 Religion at work
 Sweatshops
 Wages
 Brands
3-10

11. Sarbanes-Oxley Act
 An act that established strict accounting and
reporting rules to make senior managers more
accountable and to improve and maintain
investor confidence.
 Requires that organizations
 Have more independent board directors, not just
company insiders
 Adhere strictly to accounting rules
 Have senior managers personally sign off on
financial results
3-11

12. Compliance with Sarbanes-Oxley Act
 Establish written standards of ethical conduct and
controls for enforcing them
 Assign responsibility to top managers to ensure that the
program is working as intended
 Exclude anyone who violates the standards from holding
management positions
 Provide training in ethics to all employees
 Monitor compliance
 Give employees incentives for complying and
consequences for violating the standards
 Respond with consequences and additional preventive
measures if criminal conduct comes to light
3-12

13. Downside of Sarbanes-Oxley
 Distracts from real work
 Makes executives more risk averse
 Costly time and money expenditures for compliance
3-13

14. The GE example of an ethical climate
 Top executives are committed to promoting high
levels of integrity without sacrificing the
commitment to business results.
 Established global standards for behavior to
prevent ethical problems.
 Managers are expected to consider legal and
ethical developments as they monitor the external
environment.
3-14

15. Ethical Criteria for making decisions
 Why do it?
 Good or bad motives?
 My responsibility or someone else’s?
 Who gets the credit or the blame?
3-15

16. What would you do?
You are international vice president of a multinational
chemical corporation. Your company is the sole producer
of an insecticide that will effectively combat a recent
infestation of West African crops. The minister of
agriculture in a small, developing African country has put in
a large order for your product. Your insecticide is highly
toxic and is banned in the United States. You inform the
minister of the risks of using your product, but he insists on
using it and claims it will be used “intelligently.” The
president of your company believes you should fill the
order, but decision is ultimately yours.
3-16

17. Danger signs
 Excessive emphasis on short-term revenues over
longer-term considerations
 Failure to establish a written code of ethics
 Desire for simple, “quick fix” solutions to ethical
problems
 Unwillingness to take an ethical stand that may
impose financial costs
3-17

18. Danger signs (cont’d)
 Consideration of ethics solely as a legal issue or a
public relations tool
 Lack of clear procedures for handling ethical
problems
 Responsiveness to the demands of shareholders at
the expense of other constituencies
3-18

19. Corporate Ethical Standards
 Managers formally and informally shape employees’
behavior with money, approval, good job
assignments, a positive work environment
 Managers must be ethical and lead others to behave
ethically
 “Set a goal for yourself to be seen by others as both
a “moral person” and also as a “moral manager.”
3-19

20. Ethical Leader
 One who is both a moral person and a moral
manager influencing others to behave ethically.
 Imagine how you would feel if you saw your decision
and its consequences on the front page of the
newspaper.
3-20

21. Writing an Effective Ethics Code Principles
 Involve those who have to live with the code in
the development of the code
 Focus on real-life situations that employees can
relate to
 Keep it short and simple, so it is easy to
understand and remember
 Write about values and shared beliefs that are
important and that people can really believe in
 Set the tone at the top, having executives talk
about and live up to the statement
3-21

22. Ethics Programs
 Compliance-based ethics programs
 company mechanisms typically designed by corporate
counsel to prevent, detect and punish legal
violations.
 Integrity-based ethics programs
 company mechanisms designed to instill in people
personal responsibility for the ethical behavior.
3-22

23. How to make ethical decisions
 Moral awareness – realizing the issue has ethical
implications
 Moral judgment – knowing what actions are morally
defensible
 Moral character – the strength and persistence to
act in accordance with your ethics despite the
challenges
3-23

24. Process for Ethical Decision Making
3-24

25. Excuses for Unethical Behavior
 Denying responsibility
 Denying injury
 Denying the victim
 Social weighting
 Appealing to higher loyalties
3-25

26. Evaluate your Ethical Duties
1. Would you be proud to see the action widely
reported in newspapers?
2. Would it build a sense of community among those
involved?
3. Would it generate the greatest social good?
4. Would you be willing to see others take the same
action when you might be the victim?
5. Does it harm the “least among us”?
6. Does it interfere with the right of all others to
develop their skills to the fullest?
3-26

27. Whistleblowing
 Telling others, inside or outside the organization, of
wrongdoing.
 People decide whether to whistleblow based on their
perceptions of the wrongful act, their emotions, and
a cost-benefit analysis
 Can be either an asset or a threat to an
organizations depending on the situation
 Letter of the Law, WSJ 04 SEP 2008
3-27

28. Corporate Social Responsibility
Obligation toward society assumed by business
3-28

29. Pyramid of Global Corporate Social
Responsibility and Performance
3-29

30. Global Corporate Social Responsiblity
 Economic responsibility – to produce goods
and services that society wants at a price that
perpetuates the business and satisfies its
obligations to investors.
 Legal responsibility – to obey local, state,
federal, and relevant international laws.
 Ethical responsibility – to meet other societal
expectations, not written as law.
 Philanthropic responsibility – to behave and
act in ways that society finds desirable and
valuable.
3-30

31. Do businesses really have a social
responsibility?agents
 Managers act as  Managers should be
for shareholders and are motivated by principled
obligated to maximize moral reasoning
the present value of the  Adam Smith defined
firm sympathy as proper
 Unethical for business regard for others and the
leaders to decide what is basis for a civilized
best for society society
 Unethical for business  Organizations have a
leaders to spend wider range of
shareholders’ money on responsibilities beyond
projects unconnected to profitability
key business interests.
3-31

32. Doing well by doing good
 Companies can maximize profits as well as act as
good corporate citizens.
 Corporate social responsibility can be used as a
competitive advantage.
 The effects of corporate social responsibility on the
bottom line depends on the corporate strategy
3-32

33. Environmental consequences of economic
activity
 Air pollution  Toxic waste sites
 Smog  Nuclear hazards
 Global warming  Obsolete weapons
 Ozone depletion arsenals
 Acid rain  Industrial accidents
 Hazardous products
3-33

34. Biodynamic Wine
Discussion Questions
2. Describe how Benziger Family Winery represents
sustainable growth practices
3. Review the description of life-cycle analysis in the
text. Based on what you know, what are the total
inputs and outputs for Benziger Family Winery?
For more information visit www.benziger.com
3-34

35. YOU should be able to:
 L01: Describe how different ethical perspectives
guide decision making
 L02: Explain how companies influence their ethics
environment.
 L03: Outline a process for making ethical decisions
3-35

36. YOU should be able to:
 L04: Summarize the important issues surrounding
corporate social responsibility
 L05: Discuss reasons for businesses’ growing
interest in the natural environment
 L06: Identify actions managers can take to manage
with the environment in mind.
3-36

37. The Nuts and Bolts of Ethics
Read Sam Colt’s ethical dilemma on page 53.
If you were Sam, what would you do?
3-37

38. Test Your Knowledge
 How do the five different ethical perspectives
guide decision making?
3-38

39. Test Your Knowledge
NovaCare and Wetherill Associates are
examples of companies with:
A) strong integrity-based ethics programs
B) strong compliance-based ethics programs
C) weak integrity-based ethics programs
D) weak compliance-based ethics programs
E) none of the above is correct
3-39

40. Test your knowledge
 Outline the process for ethical decision making
3-40

41. Test Your Knowledge
All About U (AAU) Salon believes in and
engages in meeting societal expectations
whether or not written as law. AAU can be
described as operating at which level of the
pyramid of corporate social responsibility?
A) Preconventional
B) Conventional
C) Economic
D) Ethical
E) Legal 3-41

42. The Natural Environment
 Then: industrial-age systems took a “take-make-
waste” approach to the natural environment
 Now: organizations are incorporating environmental
values into competitive strategies and into the
design and manufacturing of products
3-42

43. Test Your Knowledge
What are the reasons for businesses’ growing
interest in the natural environment?
3-43

44. Telling the Truth and Lying
3-44

45. Ethical climate
 Processes by which decisions are evaluated and
made on the basis of right and wrong.
3-45

46. The J & J Example
3-46