Chapter 4: Ethics and Social Responsibility Introduction to Business Unit 4: The Economy and You

Business Ethics Section 4.1

What Are Business Ethics? Ethics: moral principles by which people conduct themselves personally, socially, or professionally Business Ethics: rules based on moral principles about how businesses and employees aught to conduct themselves Providing safe products Creating jobs Treating employees fairly Protecting the environment Being truthful about financial situations Business ethics may vary across cultures, companies, and industries.

Common Ethical Practices for Business

Customers Can Be Unethical, Too! To make up for unethical behavior by customers, businesses have to charge more for their products. What other examples of unethical consumer behavior can you identify?

Ethics and the Law Laws = rules for conduct that may be used to punish violators Unethical ≠ illegal Unethical behavior may lead to passage of legislation to make the behaviors illegal

1911: Triangle Factory Fire (NYC) Factory located on 8th, 9th, and 10th floors of building; fire began on 8th floor 146 workers killed Most employees were teenage girls and recent immigrants Contributing factors Failure to enforce anti-smoking policy Only one fire escape (collapsed during fire) Factory door locked? (not proven in court)

Labor Reform 1911 – 1914: 36 new laws enacted to reform labor codes in New York Sweatshop: a shop or factory in which workers are employed for long hours at low wages and under unhealthy conditions Occupational Safety and Health Administration (OSHA): division of US Dept. of Labor that sets and enforces work-related health and safety rules

Code of Ethics Most businesses self-regulate with a code of ethics, a set of guidelines for maintaining ethics in the workplace. Common code of ethics topics include Employment Practices Workplace Harassment Equal Opportunity Diversity Fair Treatment of Staff Work-Family Balance Discrimination Illegal Drugs and Alcohol Use of Organization Property Conflicts of Interest Gifts and Gratuities Political Activity Outside Employment Family Members Employee, Client, and Vendor Information Maintaining Records and Information Privacy and Confidentiality Disclosure of Information Public Information & Communications Advertising and Marketing Development and Fundraising Clarity of Information Access to Information Transparency of Information

Ethics Are Good Business Unethical business practices include lying, knowingly offering substandard merchandise, and treating customers and employees unfairly. Direct consequences of unethical behavior Business violates government regulations  owner may be fined or go to jail Employee violates code of ethics  employee may be fired and/or lose license Indirect consequences of unethical behavior Mistreating customers  bad reputation, loss of sales Mistreating employees  lose investment in employee, benefits competitors

Conflict of Interest Conflict between self-interest (what benefits you personally) and professional obligation (what benefits the business) Hiring friends and family who are unqualified Giving business to a company in which you have an investment Supervising or evaluating someone with whom you have a personal relationship When making business decisions, employees have an ethical obligation to act in the best interests of the company (barring any threat to life, health, and/or safety).

Making Ethical Decisions Questions to Ask Is it against the law? Does it violate company or professional policies? Even if everyone is doing it, how would I feel if someone did this to me? (Golden Rule) Am I sacrificing long-term benefits for short-term goals? (consequences?)

Making Ethical Decisions 1. Identify the dilemma. What is the conflict? What principles are involved? 2. Discover alternative actions. What are my options? Think outside of the box. 3. Decide who might be affected. Stakeholders Consider ripple effect. 4. List probable effects of actions. Weigh pros and cons Consider consequences Think long-term 5. Select the best alternative. In whose interest? Achieving long-term goals? Respect yourself in the morning?

Social Responsibility Section 4.2

Business and Social Responsibility Business Ethics: focus on doing what is good vs. bad, correct vs. incorrect (generally reactive) Social Responsibility: the duty to do what is best for the good of society (generally proactive) Social responsibility goes beyond simply providing products that benefit society.

Business Stakeholders & Responsibilities Customers Employees Society Creditors & Owners

Responsibility to Customers Offer good, safe products and services at reasonable prices Food and Drug Administration (FDA): federal government agency that protects consumers from dangerous or falsely-advertised products Engage in fair competition Benefits of competition Competition is key component of market economy Allows customers to have choices Keeps prices under control Pushes companies to innovate Some companies use unethical tactics to eliminate competition (e.g. trusts)

Responsibility to Employees Provide work experience for employees Allow companies to engage in work-sponsored volunteerism Provide employees with safe working conditions, equal treatment, and fair pay Equal Pay Act (1964): requires that men and women be paid the same wages for doing equal work Americans with Disabilities Act (1992): bans discrimination against people with physical or mental disability Companies that fail to treat workers fairly may suffer from Low morale (“I hate my job!”) Poor production (“I didn’t feel like doing it.”) High turnover (“I quit!”)

Responsibility to Society Many different ways to contribute to society Environmental responsibility is a major issue in today’s society. Environmental Protection Agency (EPA): federal agency that enforces rules to protect the environment and control pollution

Responsibility to Creditors and Owners Stakeholders with a financial stake in the business Creditors: loaned money to the business (banks, suppliers) Owners: invested money in the business (owner, investors, stockholders) Primary responsibility of the business is to make a profit in order to repay loans and/or provide a return on investment. Businesses must keep accurate and truthful records Businesses that falsify records may cheat creditors, owners, and other stakeholders out of millions (Enron, Ponzi schemes) Sarbanes-Oxley Act (2002): Mandates truthful reporting Makes top management more accountable for actions of a firm’s financial managers

Questions to Consider Discuss the following questions with your table mates. Record your answers for submission (one paper per group). In a purely market economy, the only pressure on businesses to be socially responsible comes from consumers, who can “vote with their dollars.” Do you feel that this pressure is enough, or do countries need the mixed-market model to make sure that businesses behave? As consumers, how much do you consider social responsibility when making economic decisions (job selection, purchases, etc.)? Some countries (like the US) refuse to trade with other nations that have a poor human rights record. What are some pros and cons of such a decision? Do you think it is a good idea to have a policy like this?