Business Essentials, 7th Edition Ebert/Griffin Business Ethics and Social Responsibility Business Essentials, 7th Edition Ebert/Griffin PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College © 2009 Pearson Education, Inc.

What’s in It for Me? By understanding the material in this chapter, you’ll be better able to: Assess ethical and socially responsible issues facing you as an employee and as a boss or business owner. Understand the ethical and socially responsible actions of businesses you deal with as a consumer and as an investor. “What’s in it for me?” you might ask. By understanding social responsibility and ethics in the workplace, you will be able to assess ethical and socially responsible issues that you may face as an employee and as a boss or business owner. You will also understand the ethical and responsible actions of the businesses you deal with as a consumer and as an investor or other stakeholder. Teaching Tips: Please join with your student partner and make a list of five ethical or socially responsible issues you may face in your future from the perspective of one of the stakeholder groups we discussed earlier. Answers will vary but should address all of the stakeholder groups noted above. Issues could include anything from global warming, use of energy, treatment of employees, outsourcing of jobs, etc. © 2009 Pearson Education, Inc.

Ethics in the Workplace Beliefs about what’s right and wrong or good and bad Ethical Behavior Behavior conforming to individual beliefs and social norms about what’s right and good Unethical Behavior Behavior conforming to individual beliefs and social norms about what is defined as wrong and bad Business Ethics The ethical or unethical behaviors by employees in the context of their jobs When we explore the concept of ethics in the workplace, we need to examine four different areas: These include ethics, or beliefs about what is right and wrong or good or bad. In addition we need to examine ethical behavior, which is behavior conforming to individual beliefs and social norms about what’s right and good. What is unethical behavior? It is behavior confirming to individual beliefs and social norms about what is defined as wrong and bad. In order to succeed in business, we need to address the ethical or unethical behavior by employees in the context of their jobs. Teaching Tips: In your student team, please develop a list of 5 examples of ethical behavior and 5 examples of unethical behavior in the workplace. Answers will vary. © 2009 Pearson Education, Inc.

Individual Values and Codes Sources of Personal Codes of Ethics Childhood responses to adult behavior Influence of peers Experiences in adulthood Developed morals and values How does an individual develop a code of personal ethics? Here are some answers: First, a person can develop personal values through their own childhood responses to adult behavior. An example could include seeing parents yell at each other or at their children whenever something goes wrong in the household, whenever the child does not do something the parent likes, etc. By doing this, the child internalizes that whenever anything bad happens, they should yell or scream at the other people in their lives. On the opposite side, if children see that whenever they make an honest mistake or make an error, their parents correct them and demonstrate the appropriate behavior and give them a hug, then in the future, these children probably would be more patient with others when they make mistakes, correct them in an even tone, and show empathy. People may also be influenced by their peers, whether they are other children, teenagers or adults. For example, in middle school, one of the teens in a group of friends gets some cigarettes. The friends think it is cool and so they try it too. They may continue the behavior because they think it makes them look better in front of their friends. Adults do the same thing. They may see their friends buying new cars, new furniture and other things, and adults think they need to buy the same type of things, even though they may not have the money. Instead of paying cash, they use credit cards, and end up with a huge credit card balance they cannot pay. Other experiences in adulthood can also impact an individual’s values or codes. For example, an adult may decide they love working for their employer, and offer to stay late and work harder, but then when it comes time for a promotion, they are overlooked by someone who may have offered favors or friendship to the boss. The hard worker may begin to think it is not worth it to work hard. Of course, all of the above develop morals and values in a person. These are the foundation for their behavior both personally and within the workplace. Their morals and values seem correct to the individual, and so employees may need special attention or training if they come from another culture, where, for example, it is OK to stand very close to other people, while in the U.S. culture, people like to have about 3 feet of personal space around them in a business setting. Teaching Tips: Using your example from our last exercise, please remain in your teams and write down the possible source or personal code of ethics that might cause the ethical or unethical business behaviors you shared with the class. Once you have discussed these, we will share them with the class. Answers will vary but will include religion, family upbringing, culture or subculture, social class and income levels, etc. © 2009 Pearson Education, Inc.

Business and Managerial Ethics The standards of behavior that guide individual managers in their work Ethics affect a manager’s behavior toward: Employees The organization Other economic agents—customers, competitors, stockholders, suppliers, dealers, and unions Ethical Concerns Ambiguity (e.g., financial disclosure) Global variation in business practices (e.g., bribes) Managerial ethics are the standards of behavior that guide individual managers in their work. Ethics can affect a manager’s behavior toward: Employees: For example, in a case in which an employee is constantly late for work, if a manager’s ethics include perfection in attendance, this could present an issue. The organization: For example, if the organization is very open and wants employee suggestions, this could cause discord for employees reporting to a manager who is not accustomed to this type of input. Other stakeholders or economic agents such as customers, competitors, stockholders, suppliers, dealers and unions: For example, a manager may have developed a certain communication style across his or her career, and may have a specific manner of dealing with such agents, or may hold them as equals or as outsiders. Ethical concerns that should be considered when addressing business situations can include many issues. Let’s look at two examples: Ambiguity: When an organization is not performing as well as its investors would like, the manager may consider not disclosing, or hiding, certain financial information. There have been many examples of this during the past ten years. Global variation in business practices: When an organization does business in another country, especially Latin America, it can be quite common to have to bribe a government official or pay a little extra money to an agent to get permits, get shipments through customs, etc. While this is illegal under U.S. law and the Foreign Corrupt Practices Act, this cannot be avoided in some countries, such as the Jeitinho in Brazil, which is more like a personal favor payment to “find a way” to make the transaction move forward more rapidly. Many Latin American countries, such as Paraguay, have taken a hard stance against such practices. The police, for example, used to make extra money by stopping cars on the road just to search for something that might be wrong. In so doing, they would ask for bribes to allow the person to pass. There were strikes and some rebellion, but now this practice has for the most part been eliminated. Teaching Tips: In your same student teams, please choose one of the three areas where a manager’s ethics could have an impact (employees, the organization or other economic agents), and take a few minutes to apply the ethical codes you discovered in our last exercise. Discuss how these might impact the group you choose (i.e., employees, the organization or other economic agents). We will then discuss this topic as a whole class. Answers will vary based on responses to the last two exercise. Be sure to refer back to the answers from the last two exercises, as well as the examples you provided in this slide when weighing student response. Now that you have an understanding of some of the ethical concerns faced by businesses and organizations, please answer the following questions based on your own values and ethics: “What would you do if your manager asked you to force billings for sales of a new product in your territory in order to make the sales numbers look better for this quarter?” Answers will vary based on individual values, but of course the correct answer should be that the sales should only be reported specifically when the sale occurs. Sometimes customers may ask to be pre-billed for consulting work because it is included in their budget for the current fiscal year. In some cases the manager will have to accept the billing and the funds, but can place the funds received into an “escrow” account, and only report the actual sales when the work occurs. © 2009 Pearson Education, Inc.

Social Responsibility The overall way in which a business attempts to balance its commitments to relevant groups and individuals (stakeholders) in its social environment Organizational Stakeholders Groups, individuals, and organizations that are directly affected by the practices of an organization and, therefore, have a stake in its performance Let’s discuss the concept of social responsibility. Social responsibility is the overall way in which a business attempts to balance its commitments to relevant groups and individuals, or stakeholders, in its social environment. Who are stakeholders? They include groups, individuals, and organizations that are directly affected by the practices of an organization and therefore have a stake in its performance. Teaching Tips: Please form a team with a different student in the class. In your team, please discuss one way in which a business could act in a socially responsible manner. Please discuss which type of organization stakeholder might be affected by the social responsibility of the company. Answers may vary, but could include addressing local pollution with a group of citizens who are impacted by the pollution; donating a portion of the organization’s profits to a group of people who are in need, such as the homeless, AIDS victims in Africa, etc. © 2009 Pearson Education, Inc.

The Stakeholder Model of Responsibility Customers Businesses strive to treat customers fairly and honestly Employees Businesses treat employees fairly, make them a part of the team, and respect their dignity and basic human needs Investors Businesses follow proper accounting procedures, provide information to shareholders about financial performance, and protect shareholder rights and investments Suppliers Businesses emphasize mutually beneficial partnership arrangements with suppliers Local and International Communities Businesses try to be socially responsible Major corporate stakeholders include the following: Customers: Businesses work to treat customers fairly and honestly. For example, car dealers are required to disclose financing deals to customers within their advertising. Employees: Businesses treat employees fairly, make them feel like they are part of the team, and respect their dignity and basic human needs. For example, a multinational corporation would commit to paying fair wages to employees in third-world developing countries and to not allowing children to work in sweat shops. Investors: Businesses follow proper accounting procedures, provide information to shareholders about financial performance and protect shareholder rights and investments. For example, a large publicly held consulting firm would report the prepayment for services by their customers as a pre-paid receivable asset in its accounting statement to shareholders. Suppliers: Businesses emphasize mutually beneficial partnership arrangements with suppliers. For example, Mercury SUVs promote the fact that they have Microsoft Sync technology in their vehicles. Microsoft is a supplier to Lincoln Mercury. The local and international communities in which the company operates: Businesses try to act in a socially responsible manner. For example, Microsoft has established the Bill and Melinda Gates Foundation, which offers medical assistance to eliminate malaria in Africa and meeting other United Nations Millennium Goals. Teaching Tips: In your student teams, please choose one stakeholder and one ethical issue that might affect that particular stakeholder. Discuss how the company should act toward the stakeholder your team has chosen. We will then share these with the class. Answers will vary but must include one of the five stakeholders discussed in this slide and can build on examples provided or contain additional examples of social responsibility to different stakeholder groups. © 2009 Pearson Education, Inc.

Contemporary Social Consciousness The Concept of Accountability The expectation of an expanded role for business in protecting and enhancing the general welfare of society Accountability is important in this electronic age. It is the expectation of an expanded role for business in protecting and enhancing the general welfare of society. What does this mean? It could mean, for example, that a company has a duty to place information on its website about product content, potential side effects from its use, or potential harm that could come if the product is not used properly, like not following directions for use or instructions on installation or assembly. Teaching Tips: In your teams of two, please choose an example of how an organization could protect or enhance the general welfare of society. After your team discussion, you will share your examples with the class. Answers will vary but could expand on other ways an organization could be accountable for society such as product packaging, health warnings, labeling, assembly instructions, etc. © 2009 Pearson Education, Inc.

Areas of Social Responsibility Responsibility Toward the Environment Properly disposing of toxic waste Engaging in recycling Controlling air, water, and land pollution Green Marketing The marketing of environmentally friendly goods Includes a number of strategies and practices: Production processes Product modifications Carbon offsets Packaging reduction Sustainability Greenwashing: Using advertising to project a green image without substantially altering processes or products Federal Trade Commission (FTC) started hearings in January 2008 regarding green marketing claims Responsibility toward the environment is an important area of social responsibility for an organization. This can include: Properly disposing of toxic waste from manufacturing processes. Engaging in recycling of materials. This could include making sure computers that are outdated are recycled through appropriate state-level, prison-industry recycling programs. Green marketing, which includes the marketing of environmentally friendly goods such as power saving computers and monitors, flex fuel vehicles, etc. Such strategies can include a number of practices including: Production processes. Product modifications, such as the addition of flex fuel capabilities for cars. Carbon offsets that reduce the carbon footprint consumers and producers leave on the planet. Packaging reduction, for example, eliminating the foil wrapper from Hershey candy bars and just using paper. Sustainability, such as a product that is made from recycled plastics. Green marketers need to be aware of “green washing” or the use of advertising to project a “green” image without substantially altering the processes or products they produce. The Federal Trade Commission started holding hearings in January 2008 regarding false green marketing claims. Teaching Tips: What is an example of a product that uses “green washing”? BP was accused of promoting its company as being environmentally friendly with no backing for that claim. The company was charged in 2000 with not disclosing that a subcontractor was dumping toxic waste in Alaska. Other examples from the BP case in the introduction to this chapter can also be presented as well as other examples from current affairs. In your student teams, choose one of the “green marketing” strategies and practices we have just discussed and provide an example. We will then share the examples with the class. Answers may vary but can include those from the slide or those presented in the text. © 2009 Pearson Education, Inc.

Areas of Social Responsibility (cont’d) Responsibility Toward Customers Involves providing quality products and pricing products fairly Consumerism Social activism dedicated to protecting the rights of consumers in their dealings with businesses Basic Consumer Bill of Rights To possess safe products To be informed about all relevant aspects of a product To be heard To choose what to buy To be educated about purchases To receive courteous service Other examples of areas of social responsibility for a company include: Responsibility toward customers: This involves providing quality products and pricing products fairly. Consumerism: This includes social activism dedicated to protecting the rights of consumers in their dealings with business. The basic consumer bill of rights, which includes the rights: To possess safe products. To be informed about all relevant aspects of a product. To be heard. To choose what to buy. To be educated about purchases. To receive courteous service. Teaching Tips: In your student teams, choose one of the basic rights of consumers presented in the basic consumer bill of rights. Then in your team, discuss three products that have or have not granted that right to consumers. Also discuss how they did or did not accomplish providing this right. Answers will vary. © 2009 Pearson Education, Inc.

Areas of Social Responsibility (cont’d) Unfair Pricing Collusion: When two or more firms agree to collaborate on such wrongful acts as price fixing Price gouging: Responding to increased demand with overly steep (and often unwarranted) price increases Ethics in Advertising Truth in advertising Morally objectionable advertising Two other areas of social responsibility include unfair pricing and ethics in advertising. 1. Unfair pricing includes: Collusion: Collusion occurs when two or more firms agree to collaborate on such wrongful acts as price fixing. This practice has been outlawed for years by the Robinson-Patmann Act. An example is when airlines charge the same fare to the same destination. Price gouging: This occurs when businesses respond to an increased demand with overly steep and often unwarranted price increases. Anytime there is a natural disaster or act of war, stores may engage in this practice by allowing the demand for the products they have within their stores to drive prices much higher than would be normal for certain items. 2. Ethics in advertising includes: Providing truth in advertising, and not making false claims when stating product benefits. Avoiding morally objectionable advertising such as ads for women’s undergarments, condoms, etc. Teaching Tips: In your student teams, please list an example of unfair pricing and ethics in advertising. Discuss the strategies that were applied and be prepared to discuss these with the class. Answers will vary based on the product or company chosen, but must include either collusion or price gouging, such as occurred after Hurricane Katrina. Answers to the ethics in advertising issue must deal with truth in advertising or morally objectionable advertising. These answers could include examples from the text such as Victoria’s Secret ads, ads for condoms or ads promoting sexuality. © 2009 Pearson Education, Inc.

Areas of Social Responsibility (cont’d) Responsibility Toward Employees Legal and social commitments to: Not practice illegal discrimination Provide a physically and socially safe workplace Provide opportunities to balance work and life Provide protection for whistleblowers (an employee who discovers and tries to put an end to a company’s unethical, illegal, or socially irresponsible actions by publicizing them) Responsibility Toward Investors Proper financial management (no insider trading) Proper representation of finances Responsibility toward employees and investors includes both legal and social commitments to: Not practice illegal discrimination in hiring, job duties, firing, etc. Provide a physically and socially safe workplace, meeting OSHA and the Americans with Disabilities Act standards. Provide opportunities to balance work and life, such as providing fitness opportunities at work or memberships at gyms. Provide protection for whistleblowers (an employee who discovers and tries to put an end to a company’s unethical, illegal or socially irresponsible actions by publicizing them with the media). In addition, responsibility toward investors includes: Proper financial management, including no insider trading. Proper representation of finances, such as we discussed earlier in our prepaid consulting services example. Teaching Tips: In your student teams please choose one of the legal or social commitments toward employees and provide an example of it. We will share these with the class. Answers will vary, but need to be from one of the above mentioned legal and social commitments. Please give an example of insider trading. What is it and who has done this? One answer could be trading securities or stocks with knowledge of upcoming financial reports prior to their release to the public. Martha Stewart is an example of someone who was convicted of insider trading. © 2009 Pearson Education, Inc.