Demanding Ethical and Socially Responsible Behavior Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

4-2 Ethics & Social Responsibility

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Ethics -- The standards of moral behavior. Behaviors that are accepted by society as right versus wrong. WHAT are ETHICS? 4-4

Ethics Doing What Is Right… As You Know It To Be Right. 4-5

Right: Integrity Respect for human life Self control Honesty Courage Self-sacrifice Wrong : Cheating Cowardice Cruelty BASIC MORAL VALUES 4-6

4-7 Ethics  Ethics Begins With Each of Us  Stem From Individual  More Than Legality 4-7

* * Enron: One executive is serving a 24 year sentence for accounting fraud while another will be released in October 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 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 4-8

4-9 Ethical Dilemma A situation requiring a choice between equally undesirable alternatives.

Ethics Begins with Each of Us Ask yourself these questions:  Is it legal?  Is it balanced?  How will it make me feel about myself? FACING ETHICAL DILEMMAS LG2 4-10

Ethics Begins with Each of Us Plagiarizing from Internet materials is the most common form of cheating in schools today. ETHICS and YOU Studies found a strong relationship between academic dishonesty and dishonesty at work. 4-11

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 4-12

An increasing number of companies have adopted written codes of ethics. ETHICS CODES 4-13

Texas Instruments The TI Ethics Quick Test - Is the action legal? - Does it comply with our values? - If you do it, will you feel bad? - How will it look in the newspaper? - If you know it's wrong, don't do it! - If you're not sure, ask. - Keep asking until you get an answer. For copies of the card or further information, contact the TI Ethics Office at ETHIC. (This information is provided to TI employees on a business-card size mini- pamphlet to carry with them.)

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 4-15

1. Top management must adopt and unconditionally support an explicit corporate code of conduct. 2. Employees must understand that senior management expects all employees to act ethically. 3. Managers and others must be trained to consider the ethical implications of all business decisions. (continued) HOW to IMPROVE AMERICA’S BUSINESS ETHICS 4-16

4. An ethics office must be set up with which employees can communicate anonymously. Whistleblowers -- People who report illegal or unethical behavior. HOW to IMPROVE AMERICA’S BUSINESS ETHICS, cont. 5.Involve outsiders such as suppliers, subcontractors, distributors and customers. 6.The ethics code must be enforced. 4-17

* * Source: James Gehrke, Magnify Leadership & Development, November Managers must communicate the organization’s vision on ethical behavior. 2. Organizations must have a code of ethics. 3. Policies have to be enforced regarding ethical offences. 4. Ethical responsibility must be taught to all employees. (continued) HOW to PREVENT UNETHICAL BEHAVIORS LG4 Setting Corporate Ethical Standards 4-18

* * Source: James Gehrke, Magnify Leadership & Development, November Discussions of ethics must be included in the decision-making process. 6. Accountability must be taken seriously at all levels in the organization. 7. Organizations must act fast when a crisis occurs. 8. Employees must know they have to defend and maintain the company’s reputation. HOW to PREVENT UNETHICAL BEHAVIORS LG4 Setting Corporate Ethical Standards 4-19

4-20 Social Responsibility

Social responsibility is management’s obligation to make choices and take actions that contribute to the welfare and interests of society as well as to those of the organization.

* * Corporate Social Responsibility Corporate Social Responsibility (CSR) -- The concern businesses have for the welfare of society. CSR is based on a commitment to integrity, fairness, and respect. CSR proponents argue that businesses owe their existence to the societies they serve and cannot exist in societies that fail. CORPORATE SOCIAL RESPONSIBILITY LG5 4-22

Corporate Responsibility -- Includes everything from hiring minority workers to making safe products, minimizing pollution, using energy wisely, and providing a safe work environment. Corporate Policy -- The position a firm takes on social and political issues. Corporate Philanthropy -- Includes charitable donations. CORPORATE RESPONSIBILITY and POLICY 4-23

Xerox offers a Social Service Leave program.Social Service Leave Citizen Corps encourages volunteers to help strengthen homeland security by helping in their community. Two-thirds of MBA students surveyed reported they would take a lower salary to work for a socially responsible company. POSTIVE IMPACTS of COMPANIES 4-24

HELPING HANDS – Most Generous Celebrities 4-25

Source: Forbes, June 6, GENEROUS GUYS World’s Biggest Givers 4-26

RESPONSIBILITY to CONSUMERS 4-27

The Right to Safety The Right to be Informed The Right to Choose The Right to be Heard PRESIDENT KENNEDY’S BASIC RIGHTS of CONSUMERS 4-28

Responsibilities to Customers The Right to Be Safe. Safe operation of products, avoiding product liability. The Right to Be Informed. Avoiding false or misleading advertising and providing effective customer service. The Right to Choose. Ability of consumers to choose the products and services they want. The Right to Be Heard. Ability of consumers to express legitimate complaints to the appropriate parties. Consumer Product Safety Commission

Over 70% of executives say their primary use of social media is to communicate CSR efforts. Social media allows companies to reach a broad, diverse group and connect directly to them. Now more than ever, it’s important for companies to live up to their expectations. HOW DO CUSTOMERS KNOW? 4-30

Source: Entrepreneur, September SOCIAL CUSTOMER CONTACT Do’s and Don’ts of Using Twitter for Business LG5 Responsibility to Customers 4-31

RESPONSIBILITY TO INVESTORS 4-32

Insider Trading -- Insiders using private company information to further their own fortunes or those of their family and friends. Unethical behavior does financial damage to a company and investors are cheated. RESPONSIBILITY TO INVESTORS 4-33

RESPONSIBILITY to EMPLOYEES 4-34

Create jobs and provide a chance for upward mobility. Treat employees with respect. Offer salaries and benefits that help employees reach their personal goals. RESPONSIBILITY to EMPLOYEES 4-35

Source: Fortune, March 21, Apple 2. Google 3. Berkshire Hathaway 4. Southwest Airlines 5. Procter & Gamble 6. Coca-Cola 7. Amazon 8. FedEx 9. Microsoft 10. McDonald’s AMERICA’S MOST ADMIRED COMPANIES 4-36

Employee fraud costs U.S. businesses about 5% of annual revenue and causes 30% of all business failures. Disgruntled workers relieve frustration by:  Blaming mistakes on others.  Manipulating budgets and expenses.  Making commitments they intend to ignore.  Hoarding resources.  Doing the minimum. WHEN EMPLOYEES are UPSET… 4-37

RESPONSIBILITY to the ENVIRONMENT 4-38

Over one-third of working Americans receive their salaries from nonprofits – who are dependent on funding from others. The green movement emerged as concern about global warming increased. Many companies are trying to minimize their carbon footprints – the amount of carbon released during an item’s production, distribution, consumption and disposal. SOCIETY and the ENVIRONMENT 4-39

Environmental efforts may increase costs but can offer good opportunities. The emerging renewable-energy and energy- efficiency industries account for 8.5 million U.S. jobs. RESPONSIBILITY to the ENVIRONMENT By 2030, as many as 40 million “Green” jobs will be created. 4-40

With public concern over the environment, companies are finding greener ways of doing business. Some companies are claiming they are more environmentally responsible than they actually are, a practice called “greenwashing.” Websites such as Greener Choices and Greenwashing Index screen ads for greenwashing.Greener Choices Greenwashing Index SUSTAINABLE or SUSPECT: GREENWASHING (Thinking Green) 4-41

Source: Money, November WORTHY CAUSES What $1,000 and $10,000 Can Buy 4-42

Social Audit -- A systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs. Five Types of Social Audit Watchdogs 1) Socially conscious investors 2) Socially conscious research organizations 3) Environmentalists 4) Union officials 5) Customers SOCIAL AUDITING 4-43

Many businesses want socially responsible behavior from their international suppliers. In the 1970s, the Foreign Corrupt Practices Act criminalized the act of paying foreign businesses or government leaders in order to get business. Partners in the Organization of American States signed the Inter-American Convention Against Corruption. INTERNATIONAL ETHICS 4-44

4-45 Social Responsibility Bottom Line: Should Companies Have?

4-46 Companies are citizens in the communities in which they reside, therefore, They do have a Social Responsibility! The Majority View

4-47 Milton Friedman - – Argues that firms need to focus on making a profit, not on social responsibility, and – Claims that firms that focus on social responsibility get distracted from their real purpose. An Economist’s View

4-48 Social Responsibility To Sum It Up: Doing Good vs. Doing Well Doing Good vs. Doing Well