3e FERRELL | HIRT | FERRELL McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

PART 1 CHAPTER 1 The Dynamics of Business and Economics CHAPTER 2 Business Ethics and Social Responsibility CHAPTER 3 Business in a Borderless World 2-2

Business Ethics An identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as right or wrong, ethical or unethical 2-3

Ethical Decisions in Organizations Most unethical activities are supported by a culture encouraging employees to bend the rules  Countrywide Financial  ‘Liar loans’  Culture that encouraged cutting corners in order to make profits  American International Group  Manipulation of accounting  Overstatement of earnings– forced to restate earnings $3.9 billion lower 2-4

Social Responsibility Business’s obligation is to maximize its positive impact and minimize its negative impact on society  Known for high-end luxury shoes and accessories  Launched a lower-cost brand Ferragamo WORLD  Aimed at socially conscious consumers  Eco-friendly materials  Proceeds go to help the Acumen Fund, which provides funding for businesses in East Africa, India and Pakistan 2-5

A Timeline of Ethical and Social Responsibility Concerns 2-6

Laws and Regulations  Laws and regulations encourage businesses to conform to society’s basic standards, values, and attitudes.  Sarbanes-Oxley Act, 2002  Troubled Assets Relief Program 2-7

The Role of Ethics in Business Growing concerns about legal and ethical issues in business  Antitrust violations  Accounting fraud  Cybercrimes  Unfair competitive practices  Tax fraud 2-8

Ethical Issues An identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as right or wrong, ethical or unethical 2-9

Ethical Issues  Involve all organizational activities For profit businesses Non-profits Government Schools and universities  Learning to recognize and resolve ethical issues are important in maintaining an ethical business climate 2-10

Ethical Conduct Helps To:  Build Trust  Promote confidence  Validate relationships 2-11

How to Judge the Ethics of a Situation  Examine the situation from your stakeholders’ position, including customers and competitors  People often need years of experience to accurately recognize and react to ethical situations  Ethical situations vary by culture 2-12

Are generally more profitable! Highly Ethical Companies Are generally more profitable!  Recognized as highly ethical  Awarded ‘Corporation of the Year’ by Michigan Minority Business Development Council  Perfect score three years in a row in a Competitive Enterprise Institute ranking  History of environmental advocacy and stakeholder awareness 2-13

Recognizing Ethical Issues in Business Many business issues may seem straightforward and easy to resolve on the surface, but are really very complex 2-14

Unethical Behavior in Business  Misuse of company resources  Abusive & intimidating behavior  Conflict of interest  Fairness & honesty  Communications  Business relationships 2-15

Sources of Unethical Behavior Misuse of Company Resources  The most commonly observed misconduct Time theft Use of personal and social networking sites at work is a growing problem Stealing office supplies Unauthorized use of equipment and software 2-16

Sources of Unethical Behavior Abusive and Intimidating Behavior / Bullying 2-17

Sources of Unethical Behavior in Organizations Conflict of interest  Advance personal interest over others’ interests  Benefit self at the expense of the company Bribes represent a conflict of interest because they benefit an individual at the expense of an organization or society 2-18

Corruption Perceptions Index Least Corrupt Countries… 1. New Zealand12. Hong King/Luxembourg (tied) 2. Denmark14. Australia 3. Singapore/ Sweden (tied)16. Germany/ Ireland (tied) 5. Switzerland17. Japan/ United Kingdom 6. Finland/Netherlands (tied)19. United States 8. Australia/Canada/Iceland (3- way tie) 20. Barbados 11. Norway Source: “Corruption Perceptions Index 2009,” Transparency International, surveys_indices/cpi/2009/cpi_2009_table (accessed January 22, 2010). 2-19

Fairness & Honesty Are at the heart of business ethics  How employees use resources  No deceit, coercion, or misrepresentations  Fair competition  Disclosure of potential harm caused by products 2-20

Ethical Concerns in Communications  False/misleading advertising  Deceptive personal selling tactics  Truthfulness in product safety and quality  Unsubstantiated claims  Product labeling 2-21

Ethical Concerns in Business Relationships Relationships with customers, suppliers and co-workers  Ethical behavior within a business is important Keeping company secrets Meeting obligations and responsibilities Avoiding undue pressure  Managers’ responsibility to create ethical work environment and provide a positive example 2-22

Plagiarism  The act of taking someone else’s work and presenting it as your own without mentioning the source  A major problem in schools and business  Students copying others’ work  A manager taking credit for a subordinate’s work  Employees copying reports and passing the work off as their own 2-23

Questions to Consider in Determining Whether an Action is Ethical Open discussion of ethical issues does not eliminate ethical problems; it does promote trust and learning in an organization 2-24

Personal Ethics Is honesty important to students?  In a survey of 25,000 high school students: 62% cheated on exams at least once 35% copied documents from the Internet 27% shoplifted 23% cheated to win at sports (Source: “The Biennial Report Card: The Ethics of American Youth,” Josephson Institute of Ethics, ) 2-25

Ethical Decisions in an Organization are Influenced by Three Key Factors 2-26

Code of Ethics Formalized rules and standards that describe what a company expects of its employees 2-27

Whistleblowing Occurs when an employee exposes an employer’s wrongdoing to outsiders  Many companies have internal reporting mechanisms in place Avoid legal action Negative publicity  Whistleblowers often treated negatively and have a difficult time finding other work 2-28

Four Dimensions to Social Responsibility 1. Economic 2. Legal 3. Ethical 4. Voluntary 2-29

The Pyramid of Social Responsibility 2-30

Corporate Citizenship The extent to which businesses meet the legal, ethical, economic, and voluntary responsibilities placed on them by their stakeholders 2-31

Best Corporate Citizens 1.Bristol Myers-Squibb 2.General Mills, Inc. 3.IBM Corp. 4.Merck & Co., Inc. 5.HP Co, LP 6.Cisco Systems, Inc. 7.Mattel, Inc. 8.Abbott Laboratories 9.Kimberly-Clark Corp. 10.Entergy Corp. 11.ExxonMobil Corp. 12.Wisconsin Energy Corp. 13.Intel Corp. 14.Proctor & Gamble Co. 15.Hess Corp. 16.Xerox Corp. 17.3M Co. 18.Avon Products, Inc. 19.Baxter International Inc. 20.Monsanto Co. 2-32

Formal Ethics and Compliance Programs Arguments for and against these programs 2-33

Stakeholder Relationships: Shareholders  Primarily concerned with profit or ROI  Financial community at large  Proper accounting procedures  Protecting owner’s rights and investments 2-34

Stakeholder Relationships: Shareholders  Provide a safe workplace  Adequate compensation  Listen to grievances  Fair treatment 2-35

Stakeholder Relationships: Consumers Consumerism  Activities that independent individuals, groups and organizations undertake to protect their rights as consumers  Critical issue is business’s responsibility to customers to provide satisfying, safe products and to protect their rights as consumers. 2-36

Kennedy’s Consumer Bill of Rights  The right to safety  The right to be informed  The right to choose  The right to be heard 2-37

Stakeholder Relationships: The Environment & Sustainability Issues Sustainability means conducting activities with the long-term well-being of the natural environment in mind.  Involves interaction between Nature Individuals Organizations Business strategies 2-38

Stakeholder Relationships: The Environment & Sustainability Issues  Pollution Land Water Air  Waste disposal  Future of energy Alternative energy 2-39

Response to Environmental Issues  Many companies have a President of Environmental Affairs Position  Most Fortune 500 companies have in place: Written environmental policy Recycling programs Waste-reduction initiatives  Environmental consciousness can save money through reducing waste  Greenwashing, or creating a positive association with environmental issues for an unsuitable product, service or practice Is a growing problem 2-40

Stakeholder Relationships: The Community General community and global welfare  The Avon Foundation  Breast Cancer Awareness Crusade  Target’s Take Charge of Education program  1% of Target Red Card purchases donated to educational causes Hardcore unemployed National Alliance of Business funds training to help hard-core unemployed to find work and gain self- sufficiency Enhanced self-esteem; help people become productive members of society 2-41