McGraw-Hill/Irwin Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved. Demanding Ethical and Socially Responsible Behavior CHAPTER 4

LEARNING OBJECTIVES Explain why obeying the law is only the first step in behaving ethically. 2. Ask the three questions you need to answer when faced with a potentially unethical action. 3. Describe management’s role in setting ethical standards.

LEARNING OBJECTIVES Distinguish between compliance-based and integrity- based ethics codes, and list the six steps in setting up a corporate ethics code. 5. Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders. 6. Analyze the role of U.S. businesses in influencing ethical behavior and social responsibility in global markets.

PATTY STONESIFER Martha’s Table 4-4 Held high-level positions with the Gates Foundation and the White House. Founded Martha’s Table in 2013 with the goal of providing healthy food, affordable clothing and quality education to D.C.’s locals.Martha’s Table

NAME that COMPANY 4-5 The wage and benefit packages offered by this company are among the best in hourly retail. Even part-time workers are covered by its health plan. Increased benefits reduce employee turnover to less than a third of the industry average. Name that company!

LIFE AFTER SCANDAL 4-6 LO 4-1 Scandals have shaken the real estate, mortgage and banking industries. How do we restore trust in the free market system?  Punish those who have broken the law.  Make accounting records more transparent.  Consider what is ethical, not just what is legal.

Bernie Madoff is serving 150 years behind bars. His exclusive wealth management firm was a gigantic Ponzi scheme. Though exact amounts are uncertain, it is believed he stole about $65 billion from his investors. BERNIE MADOFF’S PONZI SCHEME 4-7

WHAT is a PONZI SCHEME? Source: Securities and Exchange Commission, accessed November LO 4-1 A fraud by paying returns to existing investors from funds contributed by new investors. New investors are promised opportunities claimed to generate high returns with little or no risk. Fraudsters focus on attracting new money to make promised payments.

Ethics -- The standards of moral behavior. Behaviors that are accepted by society as right versus wrong. WHAT are ETHICS? 4-9 LO 4-1

Wrong : Cheating Cowardice Cruelty BASIC MORAL VALUES 4-10 LO 4-1 Right: Integrity Respect for human life Self-control Honesty Courage Self-sacrifice

ETHICS and YOU 4-11 LO 4-2 Plagiarizing from online materials is the most common form of cheating in schools today. Studies found a strong relationship between academic dishonesty and dishonesty at work.

FACING ETHICAL DILEMMAS 4-12 LO 4-2 Ask yourself these questions:  Is it legal?  Is it balanced?  How will it make me feel about myself?

BRIBERY BAD BOYS Five FCPA Investigations Source: SEC, accessed November LO 4-2

TURNING EX-CONS into ENTREPRENEURS Life after prison can be very difficult for those with criminal records. Catherine Rohr started Defy Ventures to help ex-cons launch their own businesses.Defy Ventures Defy and Rohr’s other organizations have helped create 60 startups and many ex-cons find employment.

TEST PREP 4-15 What are ethics? How do ethics differ from legality? When faced with ethical dilemmas, what questions can you ask yourself that might help you make ethical decisions?

ETHICS START at the TOP 4-16 LO 4-3 Organizational ethics begin at the top. Managers can help instill corporate values in employees. Trust between workers and managers must be based on fairness, honesty, openness and moral integrity.

FACTORS INFLUENCING MANAGERIAL ETHICS 4-17 LO 4-3

ETHICS CODES 4-18 LO 4-4 An increasing number of companies have adopted written codes of ethics. 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.

HOW to IMPROVE AMERICA’S BUSINESS ETHICS 4-19 LO 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.

4. An ethics office must be set up with which employees can communicate anonymously. Whistleblowers -- Insiders who report illegal or unethical behavior. HOW to IMPROVE AMERICA’S BUSINESS ETHICS 4-20 LO Involve outsiders such as suppliers, subcontractors, distributors and customers. 6.The ethics code must be enforced.

HOW to BLOW the WHISTLE Source: Kiplinger’s Personal Finance, June LO Decide carefully and quickly. 2.Make sure you have all allegations filed with the right agencies. 3.File your allegations with as many agencies that are appropriate. 4.Gather your information legally. 5.Research the process.

TEST PREP 4-22 What are compliance-based and integrity-based ethics codes? What are the six steps to follow in establishing an effective ethics program in a business?

CORPORATE SOCIAL RESPONSIBILITY 4-23 LO 4-5 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 PHILANTHROPY and SOCIAL INITIATIVES 4-24 LO 4-5 Corporate Philanthropy -- Includes charitable donations. Corporate Social Initiatives -- Include enhanced forms of corporate philanthropy.

CORPORATE RESPONSIBILITY and POLICY 4-25 LO 4-5 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.

POSTIVE IMPACTS of COMPANIES 4-26 LO 4-5 Xerox offers a Social Service Leave program.Social Service Leave More and more companies are encouraging employees to volunteer while on company time. The majority of MBA students surveyed reported they would take a lower salary to work for a socially responsible company.

Source: Parade Magazine. HELPING HANDS Most Generous Celebrities 4-27 LO 4-5

Source: Forbes, accessed November GENEROUS GUYS World’s Biggest Givers in LO 4-5

PRESIDENT KENNEDY’S BASIC RIGHTS of CONSUMERS 4-29 LO 4-5 The Right to Safety The Right to be Informed The Right to Choose The Right to be Heard

HOW DO CUSTOMERS KNOW? 4-30 LO 4-5 The 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.

Source: Entrepreneur, accessed September SOCIAL CUSTOMER CONTACT Do’s and Don’ts of Using Twitter for Business 4-31 LO 4-5

INSIDER TRADING 4-32 LO 4-5 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.

Create jobs and provide a chance for upward mobility. RESPONSIBILITY to EMPLOYEES 4-33 LO 4-5 Treat employees with respect. Offer salaries and benefits that help employees reach their personal goals.

Source: Fortune, accessed November AMERICA’S MOST ADMIRED COMPANIES of LO Apple 2. Amazon 3. Google 4. Berkshire Hathaway 5. Starbucks 6. Coca-Cola 7. Disney 8. FedEx 9. Southwest Airlines 10. General Electric

WHEN EMPLOYEES are UPSET… 4-35 LO 4-5 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.

SOCIETY and the ENVIRONMENT 4-36 LO 4-5 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.

RESPONSIBILITY to the ENVIRONMENT By 2030, as many as 40 million “Green” jobs will be created LO 4-5 Environmental efforts may increase costs, but can offer good opportunities. The emerging renewable-energy and energy- efficiency industries account for 9 million U.S. jobs.

SUSTAINABILITY’S in the BAG 4-38 Rickshaw Bagworks makes sustainable accessories built to last.Rickshaw Bagworks The “three Fs” are followed company-wide. 1. Form 2. Function 3. Footprint

SOCIAL AUDITING 4-39 LO 4-5 Social Audit -- A systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs. Five Types of Watchdogs 1) Socially conscious investors 2) Socially conscious research organizations 3) Environmentalists 4) Union officials 5) Customers

TEST PREP 4-40 What is corporate social responsibility, and how does it relate to each of a business’s major stakeholders? What is a social audit, and what kinds of activities does it monitor?

INTERNATIONAL ETHICS 4-41 LO 4-6 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.

GOING by a DIFFERENT STANDARD 4-42 A telecommunications employee returns to his home country to work and the company reimburses living expenses so he can live in a safe area. The employee is trying to do the honorable thing for his family and the company is trying to keep the employee safe. If the employee uses the money to help his family instead, is it right for the company to stop payment?

TEST PREP 4-43 How are U.S. businesses demanding socially responsible behavior from their international suppliers? Why is it unlikely that there will be a single set of international rules governing multinational companies soon?