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*Chapter Four

Demanding Ethical and

Socially Responsible

Behavior

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

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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

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Ethics

• More Than Legality

• Standards are Fundamental

•Ethics begins with each Ethics begins with each of usof us

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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?

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Reasons to maintain ethics in Business

• To maintain good reputation• To keep existing customers• To attract new customers• To avoid lawsuits• To reduce employee turnover• To avoid government intervention• To please customers, employees, society

And simply4-6

To do the RIGHT thing

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• Enron: One executive is serving a 24 year sentence for accounting fraud while another was 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)

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*Ethics Begins with Each of Us

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

ETHICS and YOU

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

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*Ethics Begins with Each of Us

• Ask yourself these questions:

- Is it legal?

- Is it balanced?

- How will it make me feel about myself?

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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

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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

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Steps to Improve Business Ethics

1. Top management support2. Employees’ understanding3. Managers’ training

4. Ethics Office- whistle blower

5. Outsiders must be informed6. Enforcement of ethics code with

timely action

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Corporate Social Responsibility

• Corporate Social Responsibility: A business's concern for thewelfare of society.

• Corporate philanthropy:The dimension of soclal

responsibility that includes charitable donations. ex: The Bill

& Melinda Gates Foundation

• Corporate social initiatives: Enhanced forms of corporate philanthropy directly related to the Company’s competencies.

• Corporate responsibility: includes everything from hiring minority, make safe products, minimizing pollution, using energy wisely, and providing a safe work environment

• Corporate policy: refers to the position a firm takes on social and political issues.

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Stakeholders to whom businesses are responsible

• Responsibility to Customers– Right to safety– Right to be informed– Right to choose– Right to be heard

• Responsibility to Investors – insider trading

• Responsibility to Employees

• Responsibility to society and the environment

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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

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