1. Demanding Ethical and Socially Responsible Behavior Chapter 04 McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 1. 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 GOALS Chapter Four 4-2

3. 4. 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. LEARNING GOALS Chapter Four 4-3

4. Profile While appearing on The Amazing Race, Mycoskie saw how badly local children in Argentina needed shoes. BLAKE MYCOSKIE TOMS Shoes He founded TOMS in 2006. TOMS gives a pair of shoes to a child in need for every pair sold. 4-4

5. Ethics is More Than Legality Scandals have shaken the real estate, mortgage and banking industries. How do we restore trust in the free market system?  Punish those who broke the law  Make accounting more transparent  Consider what is ethical, not just what is legal LIFE AFTER SCANDAL LG1 4-5

6. Madoff Investment Securities : Bernie Madoff is serving 150 years behind bars after running his exclusive wealth management firm as a gigantic Ponzi scheme. Enron : Jeffery Skilling is serving a 24 year sentence for accounting fraud while Richard Causey, who pled guilty, will be released in October 2011. Former CEO, Kenneth Lay, died before sentencing. WorldCom : Former CEO, Bernie Ebbers, was convicted of fraud, conspiracy and false filings and sentenced to 25 years. COST of CORRUPTION (Legal Briefcase) 4-6

7. WHAT is a PONZI SCHEME? 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. Source: Securities and Exchange Commission, www.sec.gov, accessed June 2011.www.sec.gov 4-7

8. Ethical Standards are Fundamental Ethics -- The standards of moral behavior. Behaviors that are accepted by society as right versus wrong. WHAT are ETHICS? LG1 4-8

9. Ethical Standards are Fundamental Right: Integrity Respect for human life Self-control Honesty Courage Self-sacrifice Wrong : Cheating Cowardice Cruelty BASIC MORAL VALUES LG1 4-9

10. Ethical Standards are Fundamental Values: Personal beliefs of right and wrong Morals: Social elements of right and wrong Ethics: Rules or standards governing the conduct of a person or the members of a profession VALUES, MORALS & ETHICS LG1 4-10

11. Ethics Begins with Each of Us Plagiarizing from the Internet is the most common form of cheating in schools today. ETHICS and YOU Studies found a strong relationship between academic dishonesty and dishonesty at work. LG2 4-11

12. Facebook scams are becoming more prevalent.Facebook Some scammers pose as military servicemen and establish relationships with women, then request money for phone calls or trips home. Surveys can generate money for scammers, but then some also teach others how to scam other users. Do you think it’s ethical to create a fake account? Why? Why not? FACEBOOK or FAKEBOOK? (Making Ethical Decisions) 4-12

13. Ethics Begins with Each of Us Ask yourself these questions:  Is it legal?  Is it balanced?  How will it make me feel about myself? FACING ETHICAL DILEMMAS LG2 4-13

14. BRIBERY BAD BOYS Five Open FCPA Investigations Ethics Begins with Each of Us LG2 Source: Forbes, May 24, 2010. 4-14

15. Managing Businesses Ethically and Responsibly 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. ETHICS START at the TOP LG3 4-15

16. Managing Businesses Ethically and Responsibly FACTORS INFLUENCING MANAGERIAL ETHICS LG3 4-16

17. Setting Corporate Ethical Standards 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. ETHICS CODES LG4 4-17

18. 1. 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. HOW to IMPROVE AMERICA’S BUSINESS ETHICS LG4 Setting Corporate Ethical Standards 4-18

19. 4. An ethics office must be set up with which employees can communicate anonymously. Whistleblowers -- Insiders who report illegal or unethical behavior. http://en.wikipedia.org/wiki/Edward_Snowden http://en.wikipedia.org/wiki/Edward_Snowden HOW to IMPROVE AMERICA’S BUSINESS ETHICS 5.Involve outsiders such as suppliers, subcontractors, distributors and customers. 6.The ethics code must be enforced. LG4 Setting Corporate Ethical Standards 4-19 Sherron Watkins-Enron

20. Source: James Gehrke, Magnify Leadership & Development, November 2008. 1. Managers must communicate the organization’s vision on ethical behavior. 2. Organizations must have a code of ethics. 3. Policies have to be enforced regarding ethical offences. 4. Ethical responsibility must be taught to all employees. HOW to PREVENT UNETHICAL BEHAVIORS LG4 Setting Corporate Ethical Standards 4-20

21. Source: James Gehrke, Magnify Leadership & Development, November 2008. 5. Discussions of ethics must be included in the decision-making process. 6. Accountability must be taken seriously at all levels in the organization. 7. Organizations must act fast when a crisis occurs. 8. Employees must know they have to defend and maintain the company’s reputation. HOW to PREVENT UNETHICAL BEHAVIORS LG4 Setting Corporate Ethical Standards 4-21

22. Corporate Social Responsibility 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 SOCIAL RESPONSIBILITY LG5 4-22

23. Corporate Philanthropy -- Includes charitable donations. (Bill and Melinda Gates) Corporate Social Initiatives -- Include enhanced forms of corporate philanthropy. (Johnson & Johnson) CORPORATE PHILANTHROPY and SOCIAL INITIATIVES LG5 Corporate Social Responsibility 4-23

24. Corporate Responsibility -- Ranges from hiring minority workers to making safe products, minimizing pollution, using energy wisely & providing a safe work environment. Companies have a responsibility to: 1. Customers or Consumers 2. Investors 3. Employees 4. Society and the Environment Corporate Policy -- The position a firm takes on social and political issues. CORPORATE RESPONSIBILITY and POLICY LG5 Corporate Social Responsibility 4-24

25. Xerox offers a Social Service Leave program.Social Service Leave The recent recession caused 60% of companies to cut their philanthropic donations. However, now they’re more likely to give time and goods. Two-thirds of MBA students surveyed reported they would take a lower salary to work for a socially responsible company. POSTIVE IMPACTS of COMPANIES LG5 Corporate Social Responsibility 4-25

26. Source: Parade Magazine, www.parade.com, July 8, 2010.www.parade.com HELPING HANDS Most Generous Celebrities LG5 Corporate Social Responsibility 4-26

27. Source: Forbes, June 6, 2011. GENEROUS GUYS World’s Biggest Givers LG5 Corporate Social Responsibility 4-27

28. Source: Forbes, April 11, 2011. LIFE AFTER TRAGEDY Japan’s Post-Tsunami Big Givers LG5 Corporate Social Responsibility 4-28

29. Responsibility to Customers Responsibility of Business : To satisfy customers by offering them goods and services of real value. PRESIDENT KENNEDY’S BASIC RIGHTS of CONSUMERS The Right to Safety The Right to be Informed The Right to Choose The Right to be Heard 1-RESPONSIBILITY to CONSUMERS LG5 4-29

30. Responsibility to Customers Over 70% of executives say their 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 is important for companies to live up to their expectations. HOW DO CUSTOMERS KNOW? LG5 4-30

31. Source: Entrepreneur, September 2010. SOCIAL CUSTOMER CONTACT Do’s and Don’ts of Using Twitter for Business LG5 Responsibility to Customers 4-31

32. Some people believe that businesses are not in the business of doing “good.” However, if in a business does well, then it can do good things. Many believe that it makes financial, as well as moral sense to invest in companies that are working toward creating a better environment. 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. 2-RESPONSIBILITY to INVESTORS LG5 Responsibility to Investors 4-32

33. Create jobs and provide a chance for upward mobility. Treat employees with respect. Offer salaries and benefits that help employees reach their personal goals. 3-RESPONSIBILITY to EMPLOYEES LG5 Responsibility to Employees 4-33

34. Source: Fortune, www.fortune.com, March 21, 2011.www.fortune.com 1. Apple 2. Google 3. Berkshire Hathaway 4. Southwest Airlines 5. Procter & Gamble 6. Coca-Cola 7. Amazon 8. FedEx 9. Microsoft 10. McDonald’s AMERICA’S MOST ADMIRED COMPANIES LG5 Responsibility to Employees 4-34

35. 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 WHEN EMPLOYEES are UPSET… LG5 Responsibility to Employees 4-35

36. Responsibility to Society and the Environment 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. 4-RESPONSIBILITY to SOCIETY and the ENVIRONMENT LG5 4-36

37. 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. 4-RESPONSIBILITY to the ENVIRONMENT By 2030, as many as 40 million “Green” jobs will be created. LG5 Responsibility to Society and the Environment 4-37

38. With public concern over the environment, companies are finding greener ways of doing business. Some companies are claiming they are more environmentally responsible than they actually are, a practice called “greenwashing.” Websites such as Greener Choices and Greenwashing Index screen ads for greenwashing.Greener Choices Greenwashing Index SUSTAINABLE or SUSPECT: GREENWASHING (Thinking Green) 4-38

39. Social Auditing Social Audit -- A systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs. Five Types of Social Audit Watchdogs 1) Socially conscious investors 2) Socially conscious research organizations 3) Environmentalists 4) Union officials 5) Customers SOCIAL AUDITING LG5 4-39

40. International Ethics and Social Responsibility 1. Many businesses want socially responsible behavior from their international suppliers. 2. In the 1970s, the Foreign Corrupt Practices Act criminalized the act of paying foreign businesses or government leaders in order to get business. 3. Partners in the Organization of American States signed the Inter-American Convention Against Corruption. INTERNATIONAL ETHICS LG6 4-40

41. International Ethics and Social Responsibility 4. The Joint Initiative on Corporate Accountability & Workers’ Rights was designed to create an easier to use (enforce) set of standards. -Child Labor -Poor Working Conditions -Non-living Wages 5. Necessary to fight bribery and corruption with government leaders when doing business. INTERNATIONAL ETHICS LG6 4-41

42. Progress Assessment What are ethics and why are they so important? What is management’s role in setting ethical standards? How can you tell if your business decisions are ethical? IN CONCLUSION 4-42