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

2. 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 5-2

3. Ethics  Ethics  The system of rules that governs the ordering of values 5-3

4. Telling the Truth and Lying: Possible Outcomes 5-4

5. It’s a Personal Issue  Most of us believe we are ethical but most have unconscious biases that favor ourselves and their own group 5-5

6. It’s a Personal Issue  Managers often:  Hire people who are like them  Think they are immune to conflicts of interest  Take more credit than they deserve  Blame others when they deserve some blame themselves 5-6

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? 5-7

8. It’s a Personal Issue  One suggestion is to change your vocabulary  The word “ethics” is too loaded  Substitute “responsibility” or “decency” instead  Act accordingly 5-8

9. Ethics  Ethical issue  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. 5-9

10. Ethical Systems  Moral philosophy  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. 5-10

11. Caux Principles  Kyosei  living and working together for the common good, allowing cooperation and mutual prosperity to coexist with healthy and fair competition  Human dignity  concerns the value of each person as an end, not a means to the fulfillment of others’ purposes 5-11

12. Question Which ethical system bases ethical behavior on the opinions and behaviors of relevant other people? A.Egoism B.Utilitarianism C.Relativism D.Virtue ethics 5-12

13. Ethical Systems  Egoism  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. 5-13

14. Ethical Systems  Relativism  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. 5-14

15. Ethical Systems  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. 5-15

16. Question What act passed into law by Congress in 2002 established strict accounting and reporting rules? A.Wagner Act B.Sarbanes-Oxley Act C.Chapin Act D.GAAP Act 5-16

17. 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 5-17

18. Some Ethical Issues in Business 5-18 Table 5.2

19. Business Ethics  Ethical climate  In an organization, the processes by which decisions are evaluated and made on the basis of right and wrong 5-19

20. Danger Signs 1.Excessive emphasis on short-term revenues over longer-term considerations. 2.Failure to establish a written code of ethics. 3.A desire for simple, “quick fix” solutions to ethical problems. 4.An unwillingness to take an ethical stand that may impose financial costs. 5-20

21. Danger Signs (cont.) 5.Consideration of ethics solely as a legal issue or a public relations tool 6.Lack of clear procedures for handling ethical problems. 7.Responding to the demands of shareholders at the expense of other constituencies 5-21

22. Danger Signs  Ethical leader  One who is both a moral person and a moral manager influencing others to behave ethically. 5-22

23. Ethics Programs  Compliance-based ethics programs  Company mechanisms typically designed by corporate counsel to prevent, detect, and punish legal violations. 5-23

24. Ethics Programs  Integrity-based ethics programs  Company mechanisms designed to instill in people a personal responsibility for ethical behavior 5-24

25. A Process for Ethical Decision Making 5-25 Figure 5.1

26. 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 5-26

27. 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 5-27

28. The Business Costs of Ethical Failure 5-28 Figure 5.2

29. Corporate Social Responsibility  Corporate social responsibility (CSR)  Obligation toward society assumed by business. 5-29

30. 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 5-30

31. Corporate Social Responsibility  Ethical responsibilities  Meeting other social expectations, not written as law. 5-31

32. Corporate Social Responsibility  Philanthropic responsibilities  Additional behaviors and activities that society finds desirable and that the values of the business support. 5-32

33. Pyramid of Global Corporate Social Responsibility and Performance 5-33 Figure 5.3

34. Corporate Social Responsibility  Transcendent education  An education with five higher goals that balance self-interest with responsibility to others  Empathy, generativity, mutuality, civil aspiration, intolerance of ineffective humanity 5-34

35. 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 5-35

36. 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 5-36

37. Ecocentric Management  Ecocentric management  Goal is the creation of sustainable economic development and improvement of quality of life worldwide for all organizational stakeholders. 5-37

38. Ecocentric Management  Sustainable growth  Economic growth and development that meet present needs without harming the needs of future generations 5-38

39. 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 5-39

40. Destination CEO: Bank of America  What communication pitfalls might exist at Bank of America?  Discuss the ethics of job cutting that result when mergers or acquisitions occur. 5-40