© 2009 South-Western, a division of Cengage Learning 1 Chapter 4: BUSINESS ETHICS AND SOCIAL RESPONSIBILITY Doing Well by Doing Good

© 2009 South-Western, a division of Cengage Learning 2 ETHICS AND SOCIAL RESPONSIBILITY ETHICS Beliefs about right and wrong.

© 2009 South-Western, a division of Cengage Learning 3 BUSINESS ETHICS: NOT AN OXYMORON Business Ethics – the application of right and wrong in the workplace. Ethical Dilemma Negative Consequences Two unfavorable options Ethical Lapse Clear misconduct most challenging business decisions seem to arise when values are in conflict

© 2009 South-Western, a division of Cengage Learning 4 ETHICS/PERSONAL CHARACTER 82% admitted that they lied to parent within the past 12 months about something significant. 60% admitted that they cheated on a test at school within the past 12 months. 33% admitted that they copied an Internet document within the past 12 months. 19% admitted that they stole something from a friend within the past 12 months. 28% admitted that they stole something from a store within the past 12 months. A study of 36,000 high school students revealed: A 2006 Study conducted by Josephson Institute of Ethics

© 2009 South-Western, a division of Cengage Learning 5 ETHICS: MURKIER THAN YOU THINK Unethicalvs.Ethical Illegal vs. Legal

© 2009 South-Western, a division of Cengage Learning 6 UNIVERSAL ETHICAL STANDARDS Developed by Character Counts, a nonpartisan organization of educators, community leaders, and ethicists.

© 2009 South-Western, a division of Cengage Learning 7 ETHICS AND THE INDIVIDUAL Framework for Ethical Decisions –Do you understand the dimensions of the problem? –Who would benefit? Who would suffer? –Are the alternative solutions legal? Are they fair? –Does your decision make you comfortable? –Could you defend your decision on the nightly news?

© 2009 South-Western, a division of Cengage Learning 8 Creating and Maintaining an Ethical Organization Organizational Culture Role of Top Management Code of Ethics –Executive Buy-in –Clear expectations –Integrated approach –Global and local –Whistleblower support –Reporting and Enforcement

© 2009 South-Western, a division of Cengage Learning 9 ETHICS FAME AND SHAME Dennis Kozlowski, former CEO of Tyco was convicted of looting millions from the company. Ethics Hall of Shame Sanjay Kumar of Computer Associates was convicted of massive accounting fraud in Martha Stewart was convicted of obstructing justice in a $40,00 well timed stock sale. Sheron Watkins, former vice president of Enron reported the accounting irregularities that led to the discovery of corporate fraud. Ethics Hall of Fame Pierre Omidyar, the founder of eBay has given away over $100 million to Tufts University Micro Finance Fund. Paul Newman’s food company donates 100% of the profits to charity, totaling more than $150 million to date.

© 2009 South-Western, a division of Cengage Learning 10 ETHICS AND SOCIAL RESPONSIBILITY SOCIAL RESPONSIBILITY The obligation of a business to contribute to society.

© 2009 South-Western, a division of Cengage Learning 11 ETHICS AND SOCIAL RESPONSIBILITY ETHICS Beliefs about right and wrong. SOCIAL RESPONSIBILITY The obligation of a business to contribute to society. A Close Relationship, but Not the Same

© 2009 South-Western, a division of Cengage Learning 12 SPECTRUM OF SOCIAL RESPONSIBILITY

© 2009 South-Western, a division of Cengage Learning 13 SOCIAL RESPONSIBILITY Responsibility to Whom? Stakeholders are any groups that have a stake – or a personal interest - in the performance and actions of an organization.

© 2009 South-Western, a division of Cengage Learning 14 RESPONSIBILITY TO…… EMPLOYEES INVESTORS COMMUNITY ENVIRONMENT CUSTOMERS Creating Jobs that Work Sustainable Development Value, Honesty and Communication Fair Stewardship and Full Disclosure Business and the Greater Good

© 2009 South-Western, a division of Cengage Learning 15 RESPONSIBILITY TO EMPLOYEES: CREATING JOBS THAT WORK Meet Legal Standards Workplace Safety Minimum Wage/Overtime Requirements Value Employees Provide Work/Life Balance

© 2009 South-Western, a division of Cengage Learning 16 DOES IT PAY TO PAY MORE? CostcoWal-Mart’s Sam’s Club Average hourly wage$15.97$11.52 Annual health costs per worker$5,735$3,500 Covered by health plan82%47% Employee turnover6%/yr21%/yr Labor and overhead costs9.8% of sales17% of sales Profits per employee$13,647$11,039

© 2009 South-Western, a division of Cengage Learning 17 RESPONSIBILITY TO CUSTOMERS CONSUMERISM: The Right to Be Safe The Right to Be Informed The Right to Choose The Right to be Heard

© 2009 South-Western, a division of Cengage Learning 18 ROTTEN APPLE? Planned Obsolescence – Deliberately designing products to fail in order to shorten the time between consumer repurchases APPLE COMPUTERS: iPods had irreplaceable battery. Batteries died after 18 months. Customers were encouraged to purchase new iPods Two customers posted high profile protest movies online. APPLE announced replacement program.

© 2009 South-Western, a division of Cengage Learning 19 RESPONSIBILITY TO INVESTORS Legal Requirements –Sarbanes-Oxley Responsible use of Corporate Dollars –Honesty Is Optimism or Pessimism Socially Responsible? FAIR STEWARDSHIP AND FULL DISCLOSURE

© 2009 South-Western, a division of Cengage Learning 20 RESPONSIBILITY TO COMMUNITY Corporate Philanthropy - business donations to nonprofit groups, including both money and time. Corporate Responsibility - The actions of the business rather than donations of money and time. Cause-related Marketing – partnerships between businesses and nonprofit organizations, designed to spike sales for the company and raise money for the nonprofit.

© 2009 South-Western, a division of Cengage Learning 21 RESPONSIBILITY TO ENVIRONMENT Green Marketing – marketing environmental products and practices to gain a competitive edge.

© 2009 South-Western, a division of Cengage Learning 22 RESPONSIBILITY TO ENVIRONMENT Responsibility to environment is a part of responsibility to community Reducing the amount of trash is more important than recycling Although consumers support green marketing, they may not be willing to sacrifice quality

© 2009 South-Western, a division of Cengage Learning 23 CAUSE RELATED MARKETING The term was coined in 1983 by American Express –Raise Funds for Statue of Liberty Restoration Campaign to donate $.01 for every dollar charged on credit card. –New Cardholders Grew 45% –Card Usage Grew 28% –Statue of Liberty Restored Early

© 2009 South-Western, a division of Cengage Learning 24 ETHICS & SOCIAL RESPONSIBILITY IN THE GLOBAL ARENA Corruption is part of the culture in many countries –Bribes or Gifts Labor issues in host countries can be complicated –Living Wage –Child Labor Code of Conduct

© 2009 South-Western, a division of Cengage Learning 25 MONITORING ETHICS AND SOCIAL RESPONSIBILITY A systematic evaluation of how well a firm is meeting its ethics and social responsibility objectives. SOCIAL AUDIT

© 2009 South-Western, a division of Cengage Learning 26 LOOKING BACK What is ethics and the universal ethics standards? What is business ethics and ethical dilemmas? How does ethics relate to individuals and the organization? What is social responsibility and its impact on stakeholder groups? What is the role of social responsibility in the global arena? How do companies evaluate their efforts to be socially responsible?