1. Managing Social Responsibility and Ethics

2. Should Organizations Be Socially Involved?
SRI funds usually will not invest in companies involved in liquor, gambling, tobacco, nuclear power, weapons, price fixing, fraud, or in companies that have poor product safety, employee relations, and environmental track records
Sin funds?
Another way to view social involvement and economic performance is by looking at socially responsible investing (SRI) funds, which provide a way for individual investors to support socially responsible companies. (You can find a list of SRI funds at [ Typically, these funds use some type of social screening; that is, they apply social and environmental criteria to investment decisions

3. Should Organizations Be Socially Involved
Arguments For
Public expectations
Long-run profits
Ethical obligation
Public image
Better environment
Discouragement of further governmental regulation
Arguments Against
Violation of profit maximization
Dilution of purpose
Costs
Too much power
Lack of skills
Lack of accountability
Other than meeting their social obligations (which they must do), should organizations be socially involved? One way to look at this question is by examining arguments for and against social involvement. Several points are outlined in Exhibit 5-1

4. Encouraging Ethical Behavior
Employee Selection - an opportunity to learn about an individual’s level of moral development, personal values, ego strength, and locus of control
Code of ethics - a formal statement of an organization’s primary values and the ethical rules it expects its employees to follow
The selection process (interviews, tests, background checks, and so forth) should be viewed as an opportunity to learn about an individual’s level of moral development, personal values, ego strength, and locus of control. However, a carefully designed selection process isn’t foolproof and, even under the best circumstances, individuals with questionable standards of right and wrong may be hired.
A code of ethics, a formal statement of an organization’s values and the ethical rules it expects employees to follow, is a popular choice for reducing that ambiguity. Research shows that 97 percent of organizations with more than 10,000 employees have a written code of ethics. Even in smaller organizations, nearly 93 percent have one.

5. Codes of Ethics
A survey of companies’ codes of ethics found their content tended to fall into three categories as shown in Exhibit 5-7.

6. Codes of Ethics (cont.)

7. Business Ethics
Ethics is the study of right and wrong behavior; whether an action is fair, right or just.
In business, ethical decisions are the application of moral and ethical principles to the marketplace and workplace.

8. From Obligation to Responsiveness to Responsibility
Social obligation - the obligation of a business to meet its economic and legal responsibilities and nothing more.
Classical view - the view that management’s only social responsibility is to maximize profits
The concept of social responsibility has been described in different ways. For instance, it’s been called “profit making only,” “going beyond profit making,” “any discretionary corporate activity intended to further social welfare,” and “improving social or environmental conditions We can understand it better if we first compare it to two similar concepts: social obligation and social responsiveness. Social obligation is when a firm engages in social actions because of its obligation to meet certain economic and legal responsibilities. The organization does what it’s obligated
to do and nothing more. This idea reflects the classical view of social responsibility, which says that management’s only social responsibility is to maximize profits. The most outspoken advocate of this approach is economist and Nobel laureate Milton Friedman. He argued that managers’ primary responsibility is to operate the business in the best interests of the stockholders, whose primary concerns are financial

9. Two opposite views on the role of ethics in business Friedman Stakeholders

10. Milton Friedman (1970) Only purposes of a business is to make a profit and obey the law. Charitable duties are for the individual stockholder…

11. Why is Business Ethics Important?
Directors and Officers owe a complex set of ethical duties to the company, shareholders, customers, community, employees, and suppliers.
These parties are called “stakeholders”
When these duties conflict, ethical dilemmas are created.

12. Organizational Stakeholders
Exhibit 2-4 identifies some of an organization’s most common stakeholders. Note that these stakeholders include internal and external groups. Why? Because both can
affect what an organization does and how it operates.

13. From Obligation to Responsiveness to Responsibility (cont.)
Social responsibility - a business’s intention, beyond its legal and economic obligations, to do the right things and act in ways that are good for society.
A socially responsible organization goes beyond what it’s obligated to do or chooses to do because of some popular social need and does
what it can to help improve society because it’s the right thing to do. We define social responsibility as a business’s intention, beyond its legal and economic obligations, to do the right things and act in ways that are good for society. A socially responsible organization does what is right because it feels it has an ethical responsibility to do so.

14. Setting the Right Ethical Tone
Importance of Ethical Leadership.
Attitude of Top Management.
Howard Schultz, Starbuck’s CEO dropped his pay to $10,000 (1/2009)
Looking the Other Way.
In Re The Exxon Valdez

15. Exhibit 5-9 Being an Ethical Leader

16. Approaches to Ethical Reasoning
Duty Based Ethics = (Deontological ethics) derived from religious and philosophical duties.
Religious Ethical Standards.
Kantian Ethics.
Rights Principles.
Outcome-Based Ethics: Utilitarianism.
Seeks to ensure a given outcome.

17. Religious Ethical Standards
The rightness or wrongness of an action is judged according to its conformity to an absolute rule.
The motive of the actor is irrelevant.

18. Kantian Ethics
The categorical imperative is a central postulate of Kantian ethics.
The rightness or wrongness of an action is judged by estimating the consequences that would follow if everyone in a society performed the act under consideration.
Very similar to “The Golden Rule”

19. Principle of Rights
This principle derives from the belief that every duty gives rise to a corresponding right.
The belief in fundamental rights is a deeply embedded feature of Western culture.
The ethicality of an action is judged by how the consequences of the action will affect the rights of others.

20. Do you mind if I smoke? Principle of Rights says if everyone around consents, there is nothing wrong with the behavior Ex: Victimless crimes…

21. Outcome-based Ethics: Utilitarianism
A cost-benefit analysis must be performed to determine the effects of competing alternatives on the persons affected.
The best alternative is the one that produces the greatest good for the greatest number.

22. Economics as a discipline is Utilitarian Utility Curves Cost-Benefit Analysis Supply and Demand Morality in Economics?

23. Utilitarian Dilemna
Schadenfreude

24. Corporate Social Responsibility
CSR is the idea that those who manage corporations should be accountable to society for their actions.
Stakeholder Approach: corporations have a duty not only to shareholders but other groups (stakeholders) affected by corporate actions.
Corporate Citizenship: promote goals that society considers worthwhile and take positive steps towards solving problems.

25. Creating Ethical Codes
Creating Ethical Codes of Conduct.
Providing Employee Ethics Training.
Johnson and Johnson: web-based ethical training.
Sarbanes-Oxley Act (slang, SOX, the law was a response to Enron) and web-based reporting systems.

26. A Long Time Ago . . . Kenneth Lay Sweetheart of Wall Street
$2m to Bush/Cheney
On Bush’s White House Transition
Handpicked appointed regulators in energy
Harvard Business School
Enron Field (Houston Astros Park)

27. Enron’s Dubious Accounting
Arthur Anderson

28. Enron’s False Transactions & Bonuses
Kenneth Lay: $400,000,000 in Bonuses

29. CSR Example: Hershey School Started in 1909 for
“Healthy, white male orphans between 8 and 18.”
Started with 10 kids
Now 1700+
Donated fortune (now $7.8 B) in 1915 when his wife died. He died in 1945

30. Ethics in an International Context
Ethical standards are not universal
Social and cultural differences determine acceptable behaviors.
Are ethical standards universal? Although some common moral beliefs exist, social and cultural differences between countries are important factors that determine ethical and unethical behavior. In the case of payments to influence foreign officials or politicians, U.S. managers
are guided by the Foreign Corrupt Practices Act (FCPA), which makes it illegal to knowingly corrupt a foreign official. However, even this law doesn’t always reduce ethical dilemmas to black and white. In some countries, government bureaucrat salaries are low because custom dictates that they receive small payments from those they serve. Payoffs to these bureaucrats “grease the machinery” and ensure that things get
done.

31. The Ten Principles of the United Nations Global Compact
Exhibit 5-6 provides a guide to being ethical in international business according to the United Nations Global Compact, which is an initiative created by the United Nations outlining principles for doing business globally in the areas of human rights, labor, the environment,
and anti-corruption.

32. International Foreign Corrupt Practices Act.
Bribes and Accounting Practices.
Blat
Krysha
Guanxi
Fakelakia

33. FCPA Foreign Corrupt Practices Act Started in 1977 (Jimmy Carter)

34. FCPA
Two main provisions: Transparency for SEC companies Bribery of foreign officials prohibited

35. Applies to: Any business controlled by SEC (publicly traded stock) Any business located in US Any business conducting sales in US Any one acting on behalf of US business

36. How far does jurisdiction go? An involvement with a US bank or
Through a US internet provider is enough
SEC v Elek Staub (decided Feb 8, 2013)

37. Key: is the payment quid pro quo for some discretionary action by the foreign official

38. When is a payment not a bribe
When is a payment not a bribe? Payment to expedite a non-discretionary action (Facilitation payment) Lawful under the host country Bona-fide expenditure directly related to a contract

39. FCPA – Recent Violators
Recent Violators Include: Ralph Lauren Philips Electronics Eli Lilly Allianz Tyco Oracle Walmart Pfizer Morgan Stanley Siemens Rockwell York International Dow Chemical Electronic Data Systems Monsanto Bell South
Johnson & Johnson
Tyson Foods
Lucent
General Electric
Chrysler
Avery
Novo Nordisk
ITT
Halliburton
Fiat
Volvo
Westinghouse
Chevron
Ingersoll Rand
Chiquita
Avon
IBM

40. Walmart bribed Mexican authorities to get construction permits and then bribed those who investigated the crisis Hewlett Packard paid >$10m to Prosecutor General of Russia to get government contracts

41. Ralph Lauren in Argentina (2013) Self-reported $593k in gifts over four years ( ) NPA Require public admission (potential lawsuits) $1.6m in fines

42. Wall Street Journal, April 7, 2014
GlaxoSmithKline (UK) pharma Bribed a lot of folks in Iraq to get drugs approved there Hired 16 people as “consultants” who were actually full time workers for the Iraq government in charge of medical regulations

43. Strange Twist Smith & Wesson forced to pay $2m fine
Bribed someone in Pakistan and Indonesia,
But never got the contracts
Still had to pay the fine…
Wall Street Journal, July 28, 2014

44. How does it work? US Department of Justice Violations of Bribery: Company – criminal fines of $2m Individuals – criminal fines of $100k & five years in prison (Fines may increase to double the amount of the expected gain from the bribe!) Violations of Record Keeping: Company – fines of $25m Individuals – fines of $5m and up to 20 years in prison

45. Ignored?
From , DOJ only did 25 cases on FCPA Average one case a year… In June 2010, DOJ had 150 cases in progress

46. Why the new interest?
Profit Disgorgement (Take back profits from corrupt gain) Siemens - $800 million fine in 2008

47. Other governments handle corruption

48. Reality
If USA has a law against bribery, so we do not invest in “Country X” But Russia does invest (and bribes) What changed? USA business lost opportunity Bribes still persist