Ethics and Corporate Responsibility Chapter 05 McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives LO1 Describe how different ethical perspectives guide decision making LO2 Explain how companies influence their ethics environment LO3 Outline a process for making ethical decisions LO4 Summarize the important issues surrounding corporate social responsibility LO5 Discuss reasons for businesses’ growing interest in the natural environment LO6 Identify actions managers can take to manage with the environment in mind

Ethics Ethics The system of rules that governs the ordering of values What about yourself? How are they formed? Jimmy cricket

Ethical Dilemma An ethical dilemma arises in a situation concerning right or wrong when values are in conflict. Right and wrong cannot be clearly identified. © 2006 by South-Western, a division of Thomson Learning. All rights reserved.

Criteria for Ethical Decision Making Criteria for Ethical Decision Making Most ethical dilemmas involve A conflict between needs of the part & whole. The individual versus the organization. The organization versus society as a whole. © 2006 by South-Western, a division of Thomson Learning. All rights reserved.

Telling the Truth and Lying: Possible Outcomes Do the $.10 game here.

It’s a Personal Issue Most of us believe we are ethical but most have unconscious biases that favor ourselves and their own group Competition Consequences Degrees Win-win 5-7

It’s a Personal Issue Is it ethical to: Shop online during company time? Using office equipment for personal use? Read personal emails while at work? Cheating-code of conduct Steve Rellis story 5-8

Ethics Ethical issue Business ethics Situation, problem, or opportunity in which an individual must choose among several actions that must be evaluated as morally right or wrong Business ethics The moral principles and standards that guide behavior in the world of business. What is upside. What is downside? Will I get caught? How will I feel?

Ethical Systems Moral philosophy Universalism Principles, rules, and values people use in deciding what is right or wrong Universalism The ethical system stating that all people should uphold certain values that society needs to function. The Golden rule. The 10 Commandments.

Ethical Systems Egoism Utilitarianism An ethical system defining acceptable behavior as that which maximizes consequences for the individual Utilitarianism An ethical system stating that the greatest good for the greatest number should be the overriding concern of decision makers.

Ethical Systems Relativism Virtue ethics Philosophy that bases ethical behavior on the opinions and behaviors of relevant other people Virtue ethics Classification of people based on their level of moral judgment. Kohlberg’s model of cognitive moral development Perspective that what is moral comes from what a mature person with “good” moral character would deem right. Jiminy cricket

The Ethics Environment Sarbanes-Oxley Act An act passed into law by Congress in 2002 to establish strict accounting and reporting rules in order to make senior managers more accountable and to improve and maintain investor confidence Why?

Some Ethical Issues in Business Grade inflation. Wrong change in the supermarket. My cousin Vinny. Table 5.2

Business Ethics Ethical climate In an organization, the processes by which decisions are evaluated and made on the basis of right and wrong Examples from the class

Danger Signs Excessive emphasis on short-term revenues over longer-term considerations. Failure to establish a written code of ethics. A desire for simple, “quick fix” solutions to ethical problems. An unwillingness to take an ethical stand that may impose financial costs.

Danger Signs (cont.) Consideration of ethics solely as a legal issue or a public relations tool Lack of clear procedures for handling ethical problems. Responding to the demands of shareholders at the expense of other constituencies Heroes/rewards Leaders

Ethics Programs Compliance-based ethics programs Company mechanisms typically designed by corporate counsel to prevent, detect, and punish legal violations. Integrity-based ethics programs Company mechanisms designed to instill in people a personal responsibility for ethical behavior

A Process for Ethical Decision Making Figure 5.1

Ethical Decision Making Making ethical decisions takes: Moral awareness realizing the issue has ethical implications Moral judgment knowing what actions are morally defensible Moral character the strength and persistence to act in accordance with your ethics despite the challenges

Courage Why might employees lack courage in ethical issues? A belief that the company would not take corrective action A fear that management would retaliate against the employee for speaking up Doubt that the employee’s report would be kept confidential Financial 5-21

The Business Costs of Ethical Failure Figure 5.2

Corporate Social Responsibility Corporate social responsibility (CSR) Obligation toward society assumed by business.

Corporate Social Responsibility Economic responsibilities To produce goods and services that society wants at a price that perpetuates the business and satisfies its obligations to investors. Legal responsibilities To obey local, state, federal, and relevant international laws Public relations

Pyramid of Global Corporate Social Responsibility and Performance Stay in business, obey the law,perception, do what is right, give back. Figure 5.3

Contrasting Views First - holds that managers act as agents for shareholders and, as such, are obligated to maximize the present value of the firm Second - managers should be motivated by principled moral reasoning

Reconciliation Profit maximization and corporate social responsibility used to be regarded as antagonistic, leading to opposing policies. But the two views can converge Recent attention has also been centered on the possible competitive advantage of socially responsible actions

Ecocentric Management Goal is the creation of sustainable economic development and improvement of quality of life worldwide for all organizational stakeholders.

Ecocentric Management Life-cycle analysis (LCA) A process of analyzing all inputs and outputs, though the entire “cradle-to-grave” life of a product, to determine total environmental impact Sustainable growth Economic growth and development that meet present needs without harming the needs of future generations