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Business Chapter 2: Being Ethical and Socially Responsible

Ethics
the study of right and wrong and of the morality of the choices individuals make
Business Ethics
the application of moral standards to business situations
Ethical Issues
Ethical issues often arise out of a business’s relationship with investors, customers, employees, creditors, or competitors
– normally exerts pressure on the organization’s managers
– investors want management to make sensible financial decisions that will boost sales, profits, and returns on their investments

FAIRNESS AND HONESTY
– obey all laws and regulations
– refrain from knowingly deceiving, misrepresenting, or intimidating others
– employees are encouraged to report possible violations of company ethics polices using a 24 hour hotline or anonymous emails (accepted and protected behavior)
– personal data security breaches have become a major threat to personal privacy

ORGANIZATIONAL RELATIONSHIPS
*relationships with customers and co-workers often create ethical problems
– taking credit for others’ ideas or work
– not meeting one’s commitments in a mutual agreement
– pressuring others to behave unethically

CONFLICT OF INTEREST
– results when a businessperson takes advantage of a situation for his or her own personal interest rather than for the employee’s interest
– bribes = anything given to a person that might unfairly influence that person’s business decision = UNETHICAL
– it is not acceptable to receive gifts, entertainment, or other gratuities from people with whom P&G

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does business

COMMUNICATIONS
– false and misleading advertising is illegal and unethical, and it can infuriate customers

Factors Affecting Ethical Behavior
LEVEL OF ETHICAL BEHAVIOR
– Individual Behavior
– Social Factors
– Opportunity

INDIVIDUAL FACTORS AFFECTING ETHICS
– individual knowledge of an issue (a decision maker with a greater amount of knowledge make take steps to avoid ethical problems, whereas a less-informed person may take action unknowingly that leads to an ethical mess)
– personal values (value-related attitudes)
– personal goals (individual aspirations and the manner in which these goals are pursued)

SOCIAL FACTORS AFFECTING ETHICS
– cultural norms (some countries accept things that others may merely find illegal)
– co-workers (just because your co-worker does something unethical, it doesn’t mean that you should)
– significant others (friends, family, and relatives can also influence you to do whatever it takes to take care of them)
– use of the Internet (an employee’s behavior online can be viewed as offensive to co-workers and possibly lead to lawsuits against the firm if employees engage in unethical behavior)

OPPORTUNITY AS A FACTOR AFFECTING ETHICS
– presence of opportunity (amount of freedom an organization gives an employee to behave unethically if he or she makes that choice)
– ethical codes
– enforcement (the degree of enforcement of company policies, procedures, and ethical codes is a major force affecting opportunity)

Encouraging Ethical Behavior
GOVERNMENT’S ROLE IN ENCOURAGING ETHICS
– the government can encourage ethical behavior by legislating more stringent regulations (ex: Sarbanes-Oxley Act of 2002)
– increased regulation may help, but it surely cannot solve the entire ethics problem

TRADE ASSOCIATIONS’ ROLE IN ENCOURAGING ETHICS
– operates within particular industries and are in an excellent position to exert pressure on members who stoop to questionable business practices

INDIVIDUAL COMPANIES’ ROLE IN ENCOURAGING ETHICS
*code of ethics is the most effect way to encourage ethical behavior
– companies must create an environment in which employees recognize the importance of complying with the written code
– managers must provide direction by fostering communication, actively modeling and encouraging ethical decision making, and training employees to make ethical decisions
– in 1980s, an increasing number of organizations created and implemented ethics codes
– many are taking steps to strengthen their codes (ethics officers to help tell people of the right things to do, etc.)

*whistle-blowing when employees with high personal ethics that inform the press or government officials about unethical practices within one’s organization

– it is difficult for an organization to develop ethics codes, policies, and procedures to deal with all relationships and every situation
– openness and communication about choices will often build trust and strengthen business relationships

Sarbanes-Oxley Act of 2002
provides sweeping new legal protection for employees who report corporate misconduct
– adopts tough new provisions to deter and punish corporate and accounting fraud and corruption, ensure justice for wrongdoers, and protect the interests of workers and shareholders
– deals with corporate responsibility, conflicts of interest, and corporate accountability
Code of Ethics
a guide to acceptable and ethical behavior as defined by the organization
Whistle-Blowing
informing the press or government officials about unethical practices within one’s organization
– whistle-blowers give us an insider’s perspective and have advanced our investigation immeasurably
– sometimes lose their jobs; however, the Sarbanes-Oxley Act of 2001 protects whistle-blowers who report corporate misconduct
Texas Instruments Code of Ethics
encourages ethical behavior through an extensive training program and a written code of ethics and shared values
– treating others as we want to be treated
– representing ourselves and our intentions truthfully
Social Responsibility
the recognition that business activities have an impact on society and the consideration of that impact in business decision making
ex: Walmart delivered $20 million in cash to the Hurricane Katrina victims
– costs money to be socially responsible
– company promises a job elsewhere for every one of its workers affected by the catastrophe
– customers eventually find out which firms act responsibly and which do not; just as easily as they can purchase a product made by a company that is socially responsible, they can choose against buying from the firm that is not
Ex: General Mills Foundation (financial resources – provides grants for youth nutrition and fitness, education, arts and culture, social services, and United Way; supports organizations with volunteers and mentors who share their expertise and talents)
– food is also donated following natural disasters such as, devastating earthquakes in Haiti and Chile, and flood relief in Pakistan
– GE has a long history of supporting the communities where its employees work and live through GE’s unique combination of resources, equipment, and employees’ and retirees’ hearts and souls
– GE awarded a five-year grant of $20 million to Milwaukee Public Schools to improve academic achievement and better prepare students for college and career opportuinities
The Evolution of Social Responsibility
HISTORICAL EVOLUTION OF BUSINESS SOCIAL RESPONSIBILITY
– during the first quarter of 20th century, businesses were free to operate pretty much as they chose
– to improve working conditions, employees organized and joined labor unions
– Caveat Emptor
Caveat Emptor
a Latin phrase meaning “let the buyer beware”
– what you see is what you get (if it is not what you expected, too bad)
– no consumer groups or government agencies existed to publicize their consumers’ grievances or to hold sellers accountable for their actions
– federal laws were passed and were aimed more at encouraging competition that at correcting abuses, although two of them deal with purity o food and drug products
– after the Great Depression, public pressure mounted for the government to do something about the economy and about worsening social conditions
– Federal programs became the foundation for increased government involvement in the dealings between business and society
Two Views of Social Responsibility
1) The Economic Model
– managers adopt a traditional attitude stating that social responsibility is someone else’s job
– managers who concentrate on profit believe that they fulfill their social responsibility indirectly through the taxes paid by their firms

2) Socioeconomic Model
– managers believe that they have a responsibility not only to stockholders but also to customers, employees, suppliers, and the general public
a) corporate is a creation of society
b) firms take pride in their social responsibility records
c) many businesspeople believe it is in their best interest to take the initiative in this area

PROS AND CONS OF SOCIAL RESPONSIBILITY
pg. 75

Economic Model of Social Responsibility
the view that society will benefit most when business is left alone to produce and market profitable products that society needs
– has its origins in the 18th century when businesses were owned primarily by entrepreneurs or owner-managers
Socioeconomic Model of Social Responsibility
the concept that business should emphasize not only profits but also the impact of its decisions on society
Consumerism
all activities undertaken to protect the rights of consumers
– fundamental issues pursued by consumer movement fall into three categories:
a) environmental protection
b) product performance and safety
c) information disclosure

THE SIX BASIC RIGHTS OF CONSUMERS
Consumers have a right to:
1) Safety (product purchased must be safe for their intended use, must include explicit directions for use, and must be tested by manufacturer to ensure product quality and reliability)
– Corrective Actions Can Be Expensive (Federal agencies have the power to force businesses that make or sell defective products to take corrective actions; ex: refunds, issuing public warnings, reimbursing consumers, etc.)
– Increasing Number of Lawsuits (consumers and the government have been winning an increasing number of product-liability lawsuits against sellers of defective products)
– Consumer Demand (consumers’ demand for safe products)
2) Be Informed (consumers must have access to complete information about a product before they buy it)
– must inform consumers about the potential dangers of using their products because they can be held responsible for personal injuries suffered because of their products
3) Choose (consumers must have a choice of products, offered by different manufacturers and sellers, to satisfy a particular need)
– the greater the competition, the greater is the choice available for consumers and additional benefits for customers by reducing prices
4) Be Heard (someone will listen and take appropriate action when customers complain)
– management began to listen after World War 2
– one way firms got a competitive edge was to listen to consumers and provide the products they said they wanted and needed
5) Consumer Education (entitles people to be fully informed about their rights as consumers)
6) Courteous Service (entitles consumers to convenience, courtesy, and responsiveness from manufacturers and sellers of consumer products)
– both rights were added by President Gerald Ford

MAJOR CONSUMERISM FORCES
1) Individual Consumer Advocates (protect the rights of consumers and band together into consumer organizations)
2) Organizations
– can be independent or under government sponsorship
– raise issues, help businesses to develop consumer-oriented programs (3), and pressure lawmakers to enact consumer protection laws (4)
3) Consumer Education Programs
– educating consumers to make wiser purchasing decisions is one of the most far-reaching aspects of consumerism
4) Consumer Laws
– major advances in consumerism have come through federal legislation

*Any laws broken will lead to lost sales, bad publicity, and lawsuits

Employment Practices
members who subscribe to the socioeconomic view of a business’s social responsibility, together with significant government legislation enacted to protect the buying public, have broadened the rights of consumers
– equal treatment in the workplace
– everyone should have an opportunity to land a job and to be rewarded on the basis of ability and performance
– yet opportunity has been denied to members of various MINORITY groups
– many laws have been passed forbidding discrimination in the workplace for almost 50 years, yet abuses still exist (disparity in income levels for whites, blacks, Hispanics, and Asians; lower incomes and higher unemployment rates also characterize Native Americans, handicapped persons, and women)

AFFIRMATIVE ACTION PROGRAMS
– objective of such programs is to ensure that minorities are represented within the organization in approximately the same proportion as in the surrounding community
– encompasses all areas of human resources management: recruiting, hiring, training, promotion, and pay
– plagued by 2 problems
1) Quotas (limits): they were forced to consider only minority applicants for job openings, yet such quotas were ruled as unconstitutional (reverse discrimination)
2) not all businesspeople are in favor of affirmative action programs
– Congress created the EQUAL EMPLOYMENT OPPORTUNITY COMMISSION (EEOC) = government agency with the power to investigate complaints of employment discrimination and sue firms that practice it (as a solution for the 2nd problem)

TRAINING PROGRAMS FOR THE HARD-CORE UNEMPLOYED
– Siyeza has provided stable, high-quality full-time jobs for a permanent core of 80 unemployed or underemployed minority inner-city residents (solution)
– NATIONAL ALLIANCE OF BUSINESS (NAB) = successful partnership of a joint business-government program to train the hard-core unemployed (is a major national business organization focusing on education and workforce issues)

Minority
a racial, religious, political, national, or other group regarded as different from the larger group of which it is a part and that is often singled out for unfavorable treatment
Affirmative Action Program
a plan designed to increase the number of minority employees at all levels within an organization
Equal Employment Opportunity Commission (EEOC)
a government agency with the power to investigate complaints of employment discrimination and the power to sue firms that practice it
Hard-Core Unemployed
workers with little education or vocational training and a long history of unemployment
National Alliance of Business (NAB)
a joint business-government program to train the hard-core unemployed
Concern For the Environment
responsible business managers, encouragement of a concerned government, and an increasing concern on the part of the public have led to a major effort to reduce environment POLLUTION, conserve natural resources, and reverse some of the worst effects of past negligence in this area
– business and government leaders either ignored the problem or were not concerned about it until pollution became a threat to life and health in America

EFFECTS OF ENVIRONMENT LEGISLATION
– legislation and regulations play a crucial role in pollution control
– laws to promote clean air, clean water, and even quiet work and living environments
– creation of Environmental Protection Agency (EPA) = the federal agency charged with enforcing laws designed to protect the environment
– some owners and managers, however, take the position that environmental standards are too strict (compliance with present standards is too expensive because it has been necessary for the EPA to take legal action to force firms to install antipollution equipment and to clean up waste storage areas)

Water Pollution (pg. 82-84)
Air Pollution (pg. 84-85)
Land Pollution (pg. 85)
Noise Pollution (pg. 85)

WHO SHOULD PAY FOR A CLEAN ENVIRONMENT?
– a few firms have discovered that it is cheaper to pay a fine than to install expensive equipment for pollution control
– tax money should be used to cleanup the environment and to keep it clean because business people believe that business is not the only source of pollution; therefore, they should not be forced to absorb the entire cost of cleanup
– environmentalists believe that the cost of proper treatment and disposal of industrial wastes is an expense of doing business; therefore, consumers probably will pay a large part of the cost – either as taxes or in the form of higher prices for goods and services

Pollution
the contamination of water, air, or land through the actions of people in an industrialized society
Implementing a Program of Social Responsibility
the firm must develop and implement a program to reach the goal of social responsibility and the program must have the firm’s total commitment or it will fail

DEVELOPING A PROGRAM OF SOCIAL RESPONSIBILITY
Requires 4 Steps:
1) Commitment of Top Executives (without the support of top executives, any program will soon falter and become ineffective)
2) Planning (a committee of managers should be appointed to plan the program)
3) Appointment of a Director (after the social responsibility plan is established, a top-level executive should be appointed to implement the organization’s plan)
4) THE SOCIAL AUDIT (comprehensive report of what an organization has done and is doing with regard to social issues that affect it)
– provides information the firm needs to evaluate and revise its social responsibility program
– human resources, community involvement, the quality and safety of products, business practices, and efforts to reduce pollution and improve the environment
– the audit should reveal both positive and negative aspects of the program

FUNDING THE PROGRAM: Can Come from 3 Sources
1) management can pass the cost on to consumers in the form of higher prices
2) corporation may be forced to absorb the cost of the program if the competitive situation does not permit a price increase (cost is treated as a business expense, and profit is reduced) ?
3) the federal government may pay for all or part of the cost through tax reductions or other incentives

Social Audit
a comprehensive report of what an organization has done and is doing with regard to social issues that affect it

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