1. Chapter 4: Ethics and Social Responsibility
Introduction to Business
Unit 4: The Economy and You

2. Business Ethics
Section 4.1

3. What Are Business Ethics?
Ethics: moral principles by which people conduct themselves personally, socially, or professionally
Business Ethics: rules based on moral principles about how businesses and employees aught to conduct themselves
Providing safe products
Creating jobs
Treating employees fairly
Protecting the environment
Being truthful about financial situations
Business ethics may vary across cultures, companies, and industries.

4. Common Ethical Practices for Business

5. Customers Can Be Unethical, Too!
To make up for unethical behavior by customers, businesses have to charge more for their products.
What other examples of unethical consumer behavior can you identify?

6. Ethics and the Law
Laws = rules for conduct that may be used to punish violators
Unethical ≠ illegal
Unethical behavior may lead to passage of legislation to make the behaviors illegal

7. 1911: Triangle Factory Fire (NYC)
Factory located on 8th, 9th, and 10th floors of building; fire began on 8th floor
146 workers killed
Most employees were teenage girls and recent immigrants
Contributing factors
Failure to enforce anti-smoking policy
Only one fire escape (collapsed during fire)
Factory door locked? (not proven in court)

8. Labor Reform
1911 – 1914: 36 new laws enacted to reform labor codes in New York
Sweatshop: a shop or factory in which workers are employed for long hours at low wages and under unhealthy conditions
Occupational Safety and Health Administration (OSHA): division of US Dept. of Labor that sets and enforces work-related health and safety rules

9. Code of Ethics
Most businesses self-regulate with a code of ethics, a set of guidelines for maintaining ethics in the workplace.
Common code of ethics topics include
Employment Practices
Workplace Harassment
Equal Opportunity
Diversity
Fair Treatment of Staff
Work-Family Balance
Discrimination
Illegal Drugs and Alcohol
Use of Organization Property
Conflicts of Interest
Gifts and Gratuities
Political Activity
Outside Employment
Family Members
Employee, Client, and Vendor Information
Maintaining Records and Information
Privacy and Confidentiality
Disclosure of Information
Public Information & Communications
Advertising and Marketing
Development and Fundraising
Clarity of Information
Access to Information
Transparency of Information

10. Ethics Are Good Business
Unethical business practices include lying, knowingly offering substandard merchandise, and treating customers and employees unfairly.
Direct consequences of unethical behavior
Business violates government regulations  owner may be fined or go to jail
Employee violates code of ethics  employee may be fired and/or lose license
Indirect consequences of unethical behavior
Mistreating customers  bad reputation, loss of sales
Mistreating employees  lose investment in employee, benefits competitors

11. Conflict of Interest
Conflict between self-interest (what benefits you personally) and professional obligation (what benefits the business)
Hiring friends and family who are unqualified
Giving business to a company in which you have an investment
Supervising or evaluating someone with whom you have a personal relationship
When making business decisions, employees have an ethical obligation to act in the best interests of the company (barring any threat to life, health, and/or safety).

12. Making Ethical Decisions
Questions to Ask
Is it against the law? Does it violate company or professional policies?
Even if everyone is doing it, how would I feel if someone did this to me? (Golden Rule)
Am I sacrificing long-term benefits for short-term goals? (consequences?)

13. Making Ethical Decisions
1. Identify the dilemma.
What is the conflict?
What principles are involved?
2. Discover alternative actions.
What are my options?
Think outside of the box.
3. Decide who might be affected.
Stakeholders
Consider ripple effect.
4. List probable effects of actions.
Weigh pros and cons
Consider consequences
Think long-term
5. Select the best alternative.
In whose interest?
Achieving long-term goals?
Respect yourself in the morning?

14. Social Responsibility
Section 4.2

15. Business and Social Responsibility
Business Ethics: focus on doing what is good vs. bad, correct vs. incorrect (generally reactive)
Social Responsibility: the duty to do what is best for the good of society (generally proactive)
Social responsibility goes beyond simply providing products that benefit society.

16. Business Stakeholders & Responsibilities
Customers
Employees
Society
Creditors & Owners

17. Responsibility to Customers
Offer good, safe products and services at reasonable prices
Food and Drug Administration (FDA): federal government agency that protects consumers from dangerous or falsely-advertised products
Engage in fair competition
Benefits of competition
Competition is key component of market economy
Allows customers to have choices
Keeps prices under control
Pushes companies to innovate
Some companies use unethical tactics to eliminate competition (e.g. trusts)

18. Responsibility to Employees
Provide work experience for employees
Allow companies to engage in work-sponsored volunteerism
Provide employees with safe working conditions, equal treatment, and fair pay
Equal Pay Act (1964): requires that men and women be paid the same wages for doing equal work
Americans with Disabilities Act (1992): bans discrimination against people with physical or mental disability
Companies that fail to treat workers fairly may suffer from
Low morale (“I hate my job!”)
Poor production (“I didn’t feel like doing it.”)
High turnover (“I quit!”)

19. Responsibility to Society
Many different ways to contribute to society
Environmental responsibility is a major issue in today’s society.
Environmental Protection Agency (EPA): federal agency that enforces rules to protect the environment and control pollution

20. Responsibility to Creditors and Owners
Stakeholders with a financial stake in the business
Creditors: loaned money to the business (banks, suppliers)
Owners: invested money in the business (owner, investors, stockholders)
Primary responsibility of the business is to make a profit in order to repay loans and/or provide a return on investment.
Businesses must keep accurate and truthful records
Businesses that falsify records may cheat creditors, owners, and other stakeholders out of millions (Enron, Ponzi schemes)
Sarbanes-Oxley Act (2002):
Mandates truthful reporting
Makes top management more accountable for actions of a firm’s financial managers

21. Questions to Consider
Discuss the following questions with your table mates. Record your answers for submission (one paper per group).
In a purely market economy, the only pressure on businesses to be socially responsible comes from consumers, who can “vote with their dollars.” Do you feel that this pressure is enough, or do countries need the mixed-market model to make sure that businesses behave? As consumers, how much do you consider social responsibility when making economic decisions (job selection, purchases, etc.)?
Some countries (like the US) refuse to trade with other nations that have a poor human rights record. What are some pros and cons of such a decision? Do you think it is a good idea to have a policy like this?