*

*Chapter Four

Demanding Ethical and

Socially Responsible

Behavior

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

*

*Profile

• Chipotle is dedicated to producing quality food which has led to current annual sales over $1 billion.

STEVE ELLSChipotle Mexican Grill

• Ells’ mission is to serve “Food With Integrity.”

• Chipotle is the leading restaurant buyer of humanely raised meats.

4-2

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*Ethics is More Than Legality

• 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.

LIFE AFTER SCANDAL

LG1

4-3

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*Ethical Standards are Fundamental

• Ethics -- The standards of moral behavior. Behaviors that are accepted by society as right versus wrong.

WHAT are ETHICS?

LG1

4-4

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*Ethical Standards are Fundamental

Right:• Integrity

• Respect for human life

• Self control

• Honesty

• Courage

• Self-sacrifice

Wrong:•Cheating•Cowardice•Cruelty

BASIC MORAL VALUES

LG1

4-5

*

*

• Enron: One executive is serving a 24 year sentence for accounting fraud while another will be released in October 2011.

• Arthur Andersen: Convicted of tampering with witnesses, the company was dissolved and about 28,000 people lost their jobs.

• Tyco International: Two executives stole $600 million from the company and are scheduled to be released from prison in 2030.

• Adelphia Communication: Two executives were convicted of conspiracy, bank and securities fraud and given sentences of 15 and 20 years.

• WorldCom: Former CEO was convicted of fraud, conspiracy and false filings and sentenced to 25 years.

PAYING the PRICE(Legal Briefcase)

4-6

*

*Ethics Begins with Each of Us

• Plagiarizing from Internet materials is the most common form of cheating in schools today.

ETHICS and YOU

LG2

• Studies found a strong relationship between academic dishonesty and dishonesty at work.

4-7

*

*Ethics Begins with Each of Us

• Ask yourself these questions:

- Is it legal?

- Is it balanced?

- How will it make me feel about myself?

FACING ETHICAL DILEMMASLG2

4-8

*

*

• Every minute, people upload 10 hours of video to YouTube – not all is user-generated content.

• Viacom sued YouTube for $1 billion for allowing episodes of its popular shows on the site.

• Viacom holds YouTube responsible for carrying the illegal content, rather than the individuals who uploaded it.

• Who do you think should be accountable for the copyright violations -- the website or those who uploaded the videos?

To TUBE or NOT to TUBE(Making Ethical Decisions)

4-9

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*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?

PROGRESS

ASSESSMENT

4-10

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*Managing Businesses Ethically and Responsibly

• Trust between workers and managers must be based on fairness, honesty, openness and moral integrity.

• Leadership can help instill corporate values in employees.

ETHICS

START

at the

TOP

LG3

4-11

*

*Managing Businesses Ethically and Responsibly

FACTORS INFLUENCING MANAGERIAL ETHICS

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

LG3

4-12

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* Setting Corporate Ethical Standards

• 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 among employees.

ETHICS CODES

LG4

4-13

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* Setting Corporate Ethical Standards

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.

(continued)

HOW to IMPROVE AMERICA’S BUSINESS ETHICS

LG4

4-14

*

* Setting Corporate Ethical Standards

4. An ethics office must be set up with which employees can communicate anonymously. Whistleblowers -- People who report illegal or unethical behavior.

HOW to IMPROVE AMERICA’S BUSINESS ETHICS

LG4

5. Involve outsiders such as suppliers, subcontractors, distributors and customers.

6. The ethics code must be enforced.

4-15

*

*

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

1. Managers must communicate the organization’s 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.

(continued)

HOW to PREVENT UNETHICAL BEHAVIORS LG4

Setting Corporate Ethical Standards

4-16

*

*

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

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 company’s reputation.

HOW to PREVENT UNETHICAL BEHAVIORS LG4

Setting Corporate Ethical Standards

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*

*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?

PROGRESS

ASSESSMENT

4-18

*

*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.

CORPORATE SOCIAL RESPONSIBILITY

LG5

4-19

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*Corporate Social Responsibility

• Corporate Philanthropy -- Includes charitable donations.

• Corporate Social Initiatives -- Includes enhanced forms of corporate philanthropy.

CORPORATE PHILANTHROPY and SOCIAL INITIATIVES

LG5

4-20

*

*Corporate Social Responsibility

• 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.

CORPORATE RESPONSIBILITY and POLICY LG5

4-21

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*Corporate Social Responsibility

• Xerox offers a Social Service Leave program.

• Citizen Corps encourages volunteers to help strengthen homeland security by helping in their community.

• Two-thirds of MBA students surveyed reported they would take a lower salary to work for a socially responsible company.

POSTIVE IMPACTS of COMPANIES

LG5

4-22

*

*

Source: Wall Street Journal, www.wsj.com, June 23, 2008.

Corporate Social Responsibility

To WHOM MUCH HAS BEEN GIVEN…

America’s Charitable Giving LG5

4-23

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*

Source: Parade Magazine, www.parade.com, September 14, 2008.

Corporate Social Responsibility

HELPING HANDSMost Generous Celebrities*

LG5

Who? How Much?

Oprah Winfrey $50.2 Million

Herb Alpert $13 Million

Barbara Streisand $11 Million

Paul Newman $10 Million

Mel Gibson $9.9 Million

Angelina Jolie & Brad Pitt $8.4 Million

Michael Jordan $5 Million

Eric Lindros $5 Million

Lance Armstrong $5 Million

*Donations made in 2007

4-24

*

*

Source: Conde Nast Portfolio, www.portfolio.com, January 2008.

1. California – 12.1%

2. New Jersey – 8.9%

3. Pennsylvania – 5.2%

4. Washington – 5%

5. New York – 5%

Corporate Social Responsibility

WHO GIVES?Five States Contribute More Than a Third of the Nation’s Donations LG5

4-25

*

*

Source: Fast Company, www.fastcompany.com, May 2008.

Corporate Social ResponsibilityGENEROUS AMERICANS

Americans Donated $295,020,000,000 in 2006LG5

4-26

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*Responsibility to Customers

• The Right to Safety

• The Right to be Informed

• The Right to Choose

• The Right to be Heard

PRESIDENT KENNEDY’S BASIC RIGHTS of CONSUMERS LG5

4-27

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*Responsibility to Investors

• 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.

INSIDER TRADING

LG5

4-28

*

*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.

RESPONSIBILITY to EMPLOYEES

LG5

4-29

*

*

Source: Fortune, www.fortune.com, March, 2009.

1. Apple2. Berkshire Hathaway3. Toyota4. Google5. Johnson & Johnson6. Proctor & Gamble7. FedEx 8. Southwest Airlines9. General Electric10. Microsoft

11. Wal-Mart12. Coca-Cola13. Walt Disney14. Wells Fargo15. Goldman Sachs16. McDonald’s17. IBM18. 3M19. Target20. J.P. Morgan Chase

Responsibility to Employees

AMERICA’S MOST ADMIRED COMPANIES LG5

4-30

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*Responsibility to 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 item’s production, distribution, consumption and disposal.

SOCIETY and the ENVIRONMENT

LG5

4-31

*

*Responsibility to Society and the Environment

• Environmental efforts may increase costs but can offer good opportunities.

• The emerging renewable-energy and energy-efficiency industries account for 8.5 million U.S. jobs.

RESPONSIBILITY to the ENVIRONMENT LG5

• By 2030, as many as 40 million “Green” jobs will be created.

4-32

*

*

• With public concern over the environment, companies are finding greener ways of doing business.

• Some companies are claiming they are more environmentally responsible than they actually are, a practice called “greenwashing”.

• Web sites such as Greener Choices and Greenwashing Index screen ads for greenwashing.

GREEN GREED(Thinking Green)

4-33

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*Social Auditing

• Social Audit -- A systematic evaluation of an organization’s progress toward implementing programs that are socially responsible and responsive.

• Four Types of Social Audit Watchdogs

- Socially conscious investors

- Environmentalists

- Union officials

- Customers

SOCIAL AUDITING

LG5

4-34

*

*Progress Assessment

• What’s corporate social responsibility, and how does it relate to each of a business’s major stakeholders?

• What’s a social audit, and what kinds of activities does it monitor?

PROGRESS

ASSESSMENT

4-35

*

* International Ethics and Social Responsibility

• Many businesses want socially responsible behavior from their international suppliers.

• The Joint Initiative on Corporate Accountability and Workers’ Rights was designed to make creating a single set of labor standards and inspecting factories easier.

• In the 1970s, the Foreign Corrupt Practices Act criminalized the act of paying foreign businesses or government leaders in order to get business.

INTERNATIONAL ETHICS

LG6

4-36

*

*

Source: Forbes, www.forbes.com, March 24, 2008.

International Ethics and Social Responsibility

GIVERS AROUND the WORLDShare of GDP

LG6

4-37

*

*

• Almost half of Motorola’s employees live outside the U.S.

• A Motorola 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?

ETHICAL CULTURE CLASH(Reaching Beyond Our Borders)

4-38

*

*Progress Assessment

• How are U.S. businesses demanding socially responsible behavior from their international suppliers?

• Why is it unlikely that there will be a single set of international rules governing multinational companies soon?

PROGRESS

ASSESSMENT

4-39