1. Copyright ©2011 by Cengage Learning. All rights reserved 1 Chapter 4 Ethics and Social Responsibility Designed & Prepared by B-books, Ltd. MGMT3 Chuck Williams

2. Copyright ©2011 by Cengage Learning. All rights reserved 2 Ethical and Unethical Workplace Behavior Ethics The set of moral principles or values that defines right and wrong for a person or group.

3. Copyright ©2011 by Cengage Learning. All rights reserved 3 What Is Ethical and Unethical Workplace Behavior? After reading these sections, you should be able to: 1.identity common kinds of workplace deviance. 2.describe the U.S. Sentencing Commission Guidelines for Organizations and explain how they both encourage ethical behavior and punish unethical behavior by businesses.

4. Copyright ©2011 by Cengage Learning. All rights reserved 4 1.1 Common Kinds of Workplace Deviance

5. Copyright ©2011 by Cengage Learning. All rights reserved 5 Beyond the Book Dan Ariely on Cheating In his studies on factors that lead to cheating, behavioral economist Dan Ariely has found that people are more likely to cheat when they don’t receive the payoff directly. Further cheating can build on itself, once a person takes the first step the next one becomes easier. Sometimes, however, honest behavior just requires a little reminder. In a test in which participants were rewarded for correct answers and allowed to report their own scores, Ariely found that quizzing participants on the Ten Commandments first eliminated cheating. Source: E. Gibson, “When People Reckon It’s O.K. to Cheat”, Business Week, 5 October 2009. 25.

6. Copyright ©2011 by Cengage Learning. All rights reserved 6 U.S. Sentencing Commission Guidelines Companies can be prosecuted and punished even if management didn’t know about the unethical behavior. 2 2 © iStockphoto.com/Terry Hankins

7. Copyright ©2011 by Cengage Learning. All rights reserved 7 Who, What, and Why? Nearly all businesses are covered Punishes a number of offenses Encourages businesses to be proactive 2.1

8. Copyright ©2011 by Cengage Learning. All rights reserved 8 Partial List of Offenses Invasion of privacy Price fixing Fraud Customs violations Antitrust violations Civil rights violations Theft Money laundering Conflicts of interest Embezzlement Dealing in stolen goods Copyright infringements Extortion …and more 2.1

9. Copyright ©2011 by Cengage Learning. All rights reserved 9 Steps in determining fine size: 1.Determine the base fine. 2.Compute a culpability score. 3.Multiply the base fine by the culpability score. Steps in determining fine size: 1.Determine the base fine. 2.Compute a culpability score. 3.Multiply the base fine by the culpability score. Compliance Program Steps Proactive companies get smaller fines! 2.2

10. Copyright ©2011 by Cengage Learning. All rights reserved 10 Compliance Program Steps 1. Establish standards and procedures. 7. Improve program a fter violations. 6. Enforce standards consistently and fairly. 5. Train employees on standards and procedures. 3. Delegate decision-making authority only to ethical employees. 4. Encourage employees to report violations. 2. Assign upper-level managers to be in charge. 2.2

11. Copyright ©2011 by Cengage Learning. All rights reserved 11 How Do You Make Ethical Decisions? After reading the next two sections, you should be able to: 4.describe what influences ethical decision making. 5.explain what practical steps managers can take to improve ethical decision making.

12. Copyright ©2011 by Cengage Learning. All rights reserved 12 Influences on Ethical Decision Making Ethical Answers Depend on… Ethical Intensity of Decision Moral Development of Manager Ethical Principles Used 3 3

13. Copyright ©2011 by Cengage Learning. All rights reserved 13 Ethical Intensity Depends on… Concentration of effect Magnitude of consequences Social consensus Probability of effect Proximity of effect Temporal immediacy 3.1

14. Copyright ©2011 by Cengage Learning. All rights reserved 14 Biz Flix: Emperor’s Club Take Two Video Click Based on the clip, what ethical principles do you think most inform William Hundert’s thinking? What was Sedgewick Bell’s level of moral development? Explain. Beyond the Book

15. Copyright ©2011 by Cengage Learning. All rights reserved 15 Moral Development Societal Expectations Selfish Internalized Principles PreconventionalPreconventionalConventionalConventionalPostconventionalPostconventional Kohlberg’s Stages of Moral Development 3.2

16. Copyright ©2011 by Cengage Learning. All rights reserved 16 Stages of Moral DevelopmentPreconventionalPreconventional 1.Punishment and Obedience 2.Instrumental Exchange 1.Punishment and Obedience 2.Instrumental ExchangeConventionalConventional 3.Good boy, nice girl 4.Law and order 3.Good boy, nice girl 4.Law and orderPostconventionalPostconventional 5.Social contract 6.Universal principle 5.Social contract 6.Universal principle 3.2

17. Copyright ©2011 by Cengage Learning. All rights reserved 17 Principles of Ethical Decision Making Long-term self-interest Personal virtue Religious injunctions Government requirements Utilitarian benefits Individual rights Distributive justice 3.3

18. Copyright ©2011 by Cengage Learning. All rights reserved 18 Principle of long-term self-interest Never take any action not in your organization’s long-term self-interest. Principles of Ethical Decision Making 3.3

19. Copyright ©2011 by Cengage Learning. All rights reserved 19 Principles of Ethical Decision Making Principle of Personal Virtue Never do anything that is not honest, open, and truthful and that you would not be glad to see reported in the newspapers or on TV. 3.3

20. Copyright ©2011 by Cengage Learning. All rights reserved 20 Principles of Ethical Decision Making Principle of Religious Injunctions Never take any action that is not kind and that does not build a sense of community. 3.3

21. Copyright ©2011 by Cengage Learning. All rights reserved 21 Principles of Ethical Decision Making Principle of Government Requirements Never take any action that violates the law, for the law represents the minimal moral standard. 3.3

22. Copyright ©2011 by Cengage Learning. All rights reserved 22 Principles of Ethical Decision Making Principle of Utilitarian Benefit Never take any action that does not result in greater good for society. 3.3

23. Copyright ©2011 by Cengage Learning. All rights reserved 23 Principles of Ethical Decision Making Principle of Individual Rights Never take any action that infringes on others’ agreed-upon rights. 3.3

24. Copyright ©2011 by Cengage Learning. All rights reserved 24 Principles of Ethical Decision Making Principle of Distributive Justice Never take any action that harms the least among us: the poor, the uneducated, the unemployed. Never take any action that harms the least among us: the poor, the uneducated, the unemployed. 3.3

25. Copyright ©2011 by Cengage Learning. All rights reserved 25 Practical Steps to Ethical Decision Making Select and hire ethical employees Establish a Code of Ethics Train employees to make ethical decisions Create an ethical climate 4 4

26. Copyright ©2011 by Cengage Learning. All rights reserved 26 Practical Steps to Ethical Decision Making Overt Integrity Tests Personality-Based Integrity Tests Select and hire ethical employees If you found a wallet containing $50, would you return it with the money? 4.1

27. Copyright ©2011 by Cengage Learning. All rights reserved 27 Beyond the Book Top B-Schools for Ethics Every two years, the Aspen Institute ranks the top business schools on how well they teach social, ethical, and environmental issues. Schools that integrate these issues into core classes like finance and accounting will score higher. The top schools are: 1.York University at Toronto (Schulich School of Business) 2.University of Michigan (Ross) 3.Yale University’s School of Business 4.Stanford Graduate School of Business 5.Notre Dame (Mendoza) Source: P. Glader, “York, Michigan, Yale Top Ethics Ranking”, The Wall Street Journal, 26 October 2009. http://online.wsj.com/article/SB10001424052748704335904574497761926234076.html (accessed 10/28/2009). http://online.wsj.com/article/SB10001424052748704335904574497761926234076.html

28. Copyright ©2011 by Cengage Learning. All rights reserved 28 Practical Steps to Ethical Decision Making Establish a Code of Ethics Communicate code of ethics both inside and outside the company Develop ethical standards and procedures specific to business http://www.nortelnetworks.com Web Link 4.2

29. Copyright ©2011 by Cengage Learning. All rights reserved 29 Ethics Training Develops employee awareness of ethics Achieves credibility with employees Teaches a practical model of ethical decision making http://ethics.bellsouth.com Web Link 4.3

30. Copyright ©2011 by Cengage Learning. All rights reserved 30 A Basic Model of Ethical Decision Making 1. Identify the problem 2. Identify the constituents 3. Diagnose the situation 4. Analyze your options 5. Make your choice 6. Act 4.3

31. Copyright ©2011 by Cengage Learning. All rights reserved 31 Ethical Climate Managers establish an ethical climate when they… 1.act ethically. 2.are active in company ethics programs. 3.report potential ethics violations. 4.punish those who violate the code of ethics. Establishing an Ethical Climate http://www.whistleblowers.org Web Link 4.4 © iStockphoto.com

32. Copyright ©2011 by Cengage Learning. All rights reserved 32 What Is Social Responsibility? After reading these sections, you should be able to explain: 6.to whom organizations are socially responsible. 7.for what organizations are socially responsible. 8.how organizations can choose to respond to societal demands for social responsibility. 9.whether social responsibility hurts or helps an organization’s economic performance.

33. Copyright ©2011 by Cengage Learning. All rights reserved 33 What Is Social Responsibility? Social Responsibility A business’s obligation to…  pursue policies  make decisions  take actions …that benefit society.

34. Copyright ©2011 by Cengage Learning. All rights reserved 34 To Whom Are Organizations Socially Responsible? Stakeholder Model Stakeholder Model Satisfy Interests of Multiple Stakeholders Satisfy Interests of Multiple Stakeholders Shareholder Model Maximize Profits 5 5

35. Copyright ©2011 by Cengage Learning. All rights reserved 35 Pros Shareholder Model Firm maximizes shareholder wealth and satisfaction The company stock increases in value Cons Organizations cannot act effectively as moral agents for shareholders Time, money, and attention diverted to social causes undermine market efficiency 5 5

36. Copyright ©2011 by Cengage Learning. All rights reserved 36 Stakeholder Model Primary Stakeholders: Shareholders Employees Customers Suppliers Governments Local Communities Primary Stakeholders: Shareholders Employees Customers Suppliers Governments Local Communities Secondary Stakeholders: Media Special Interest Groups Trade Associations Secondary Stakeholders: Media Special Interest Groups Trade Associations 5 5

37. Copyright ©2011 by Cengage Learning. All rights reserved 37 Organization’s Social Responsibilities Abide by principles of right and wrong Obey laws and regulations Ethical Legal Economic Discretionary Be profitable Serve a social role $ ? 6 6

38. Copyright ©2011 by Cengage Learning. All rights reserved 38 Responses to Demands for Social Responsibility Reactive Defensive Accommo- dative Proactive Fight all the way DO NOTHING DO MUCH Withdrawal Do only what is required Legal Approach Bargaining Problem Solving Public Relations Approach Be progressive Lead the industry 7 7

39. Copyright ©2011 by Cengage Learning. All rights reserved 39 Beyond the Book Green Labels at Wal-Mart Wal-Mart has announced a new environmental labeling program which will require all of its suppliers to calculate and disclose the full environmental costs of making their products. This plan has been controversial as it would increase costs for Wal-Mart’s 100,000 suppliers. Similar efforts in Europe have proven difficult to implement with sometimes confusing results for consumers. Some experts think customers could start seeing these labels as early as 2011. Source: M. Bustillo, “Wal-Mart Puts Green Movement Into Stores,” The Wall Street Journal, 16 July 2009. A1.

40. Copyright ©2011 by Cengage Learning. All rights reserved 40 Social Responsibility and Economic Performance Realities of Social Responsibility No tradeoff between social responsibility and profit No tradeoff between social responsibility and profit Usually it does pay Does not guarantee profitability 8 8

41. Copyright ©2011 by Cengage Learning. All rights reserved 41 Beyond the Book Nike’s Green Goes Undercover Nike is quietly incorporating green production methods. When Nike released an eco-friendly boot in 2005, critics said the earthy looking design detracted from the company’s high-tech image. So while Nike is implementing new measure to help cut costs and improve its bottom line, such as recycling rubber from old shoes into its new ones and investing in faster sewing machines to cut production times and save on electricity costs, Nike’s new greener side might not be apparent on the store shelves. Source: R. Jana, “Nike Goes Green. Very Quietly”, Business Week, 22 June 2009. 56.