BUS137 Chapter 3

3-1McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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Learning ObjectivesL01: Describe how different ethical perspectives

guide decision making.L02: Explain how companies influence their ethics

environment.L03: Outline a process for making ethical decisions.

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Learning ObjectivesL04: Summarize the important issues surrounding

corporate social responsibility.L05: Discuss reasons for businesses’ growing

interest in the natural environment.L06: Identify actions managers can take to manage

with the environment in mind.

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EthicsThe system of rules that governs the ordering of

values.

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Things to Ponder…What kind of manager do you want to be?What reputation do you hope to have?How would you like others to describe your behavior

as a manager?

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•Is it legal?

•Is it balanced?

•How will I feel about myself (OR what would my mother say if she knew?)

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Ethics…it’s a big issueIn a recent survey, more than 1/3 of U.S. adults

have observed unethical conduct at work.In another survey, top justification for unethical

behavior was “pressure to meet unrealistic goals and deadlines.”

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Ethics…it’s a personal issueMost of us think we are good ethical decision

makers, but the fact is, most people are not.People lie or commit ethical transgressions

without realizing the consequences.Managers often hire people who are like them,

think they are immune to conflicts of interest, take more credit than they deserve, and blame others when they deserve some blame themselves

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Where are the Business Ethics?In a recent survey of 700 employees:

39% said their supervisors sometimes didn’t keep promises

24% said their supervisor had invaded their privacy

23% said their supervisor covered up his or her own mistakes by blaming someone else

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Ethical Dilemmas YOU may faceCEO payCommercialism in schoolsReligion at workSweatshopsWagesBrands

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Sarbanes-Oxley ActAn act that established strict accounting and

reporting rules to make senior managers more accountable and to improve and maintain investor confidence.

Requires that organizationsHave more independent board directors, not just

company insidersAdhere strictly to accounting rulesHave senior managers personally sign off on

financial results

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Compliance with Sarbanes-Oxley Act Establish written standards of ethical conduct and

controls for enforcing them Assign responsibility to top managers to ensure that the

program is working as intended Exclude anyone who violates the standards from holding

management positions Provide training in ethics to all employees Monitor compliance Give employees incentives for complying and

consequences for violating the standards Respond with consequences and additional preventive

measures if criminal conduct comes to light

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Downside of Sarbanes-OxleyDistracts from real workMakes executives more risk averseCostly time and money expenditures for compliance

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The GE example of an ethical climate

Top executives are committed to promoting high levels of integrity without sacrificing the commitment to business results.

Established global standards for behavior to prevent ethical problems.

Managers are expected to consider legal and ethical developments as they monitor the external environment.

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Ethical Criteria for making decisionsWhy do it?Good or bad motives?My responsibility or someone else’s?Who gets the credit or the blame?

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What would you do?You are international vice president of a multinational chemical corporation. Your company is the sole producerof an insecticide that will effectively combat a recentinfestation of West African crops. The minister ofagriculture in a small, developing African country has put ina large order for your product. Your insecticide is highlytoxic and is banned in the United States. You inform theminister of the risks of using your product, but he insists onusing it and claims it will be used “intelligently.” Thepresident of your company believes you should fill theorder, but decision is ultimately yours.

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Danger signsExcessive emphasis on short-term revenues over

longer-term considerationsFailure to establish a written code of ethicsDesire for simple, “quick fix” solutions to ethical

problemsUnwillingness to take an ethical stand that may

impose financial costs

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Danger signs (cont’d)Consideration of ethics solely as a legal issue or a

public relations toolLack of clear procedures for handling ethical

problemsResponsiveness to the demands of shareholders at

the expense of other constituencies

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Corporate Ethical StandardsManagers formally and informally shape employees’

behavior with money, approval, good job assignments, a positive work environment

Managers must be ethical and lead others to behave ethically

“Set a goal for yourself to be seen by others as both a “moral person” and also as a “moral manager.”

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Ethical LeaderOne who is both a moral person and a moral

manager influencing others to behave ethically.Imagine how you would feel if you saw your decision

and its consequences on the front page of the newspaper.

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Writing an Effective Ethics Code PrinciplesInvolve those who have to live with the code in

the development of the codeFocus on real-life situations that employees can

relate toKeep it short and simple, so it is easy to

understand and rememberWrite about values and shared beliefs that are

important and that people can really believe inSet the tone at the top, having executives talk

about and live up to the statement

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Ethics ProgramsCompliance-based ethics programs

company mechanisms typically designed by corporate counsel to prevent, detect and punish legal violations.

Integrity-based ethics programscompany mechanisms designed to instill in people

personal responsibility for the ethical behavior.

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How to make ethical decisionsMoral awareness – realizing the issue has ethical

implicationsMoral judgment – knowing what actions are morally

defensibleMoral character – the strength and persistence to

act in accordance with your ethics despite the challenges

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Process for Ethical Decision Making

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Excuses for Unethical BehaviorDenying responsibilityDenying injuryDenying the victimSocial weightingAppealing to higher loyalties

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Evaluate your Ethical Duties1. Would you be proud to see the action widely

reported in newspapers?2. Would it build a sense of community among those

involved?3. Would it generate the greatest social good?4. Would you be willing to see others take the same

action when you might be the victim?

5. Does it harm the “least among us”?

6. Does it interfere with the right of all others to develop their skills to the fullest?

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WhistleblowingTelling others, inside or outside the organization, of

wrongdoing.People decide whether to whistleblow based on their

perceptions of the wrongful act, their emotions, and a cost-benefit analysis

Can be either an asset or a threat to an organizations depending on the situation

Letter of the Law, WSJ 04 SEP 2008

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Corporate Social Responsibility

Obligation toward society assumed by business

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Pyramid of Global Corporate Social Responsibility and Performance

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Global Corporate Social ResponsiblityEconomic responsibility – to produce goods

and services that society wants at a price that perpetuates the business and satisfies its obligations to investors.

Legal responsibility – to obey local, state, federal, and relevant international laws.

Ethical responsibility – to meet other societal expectations, not written as law.

Philanthropic responsibility – to behave and act in ways that society finds desirable and valuable.

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Do businesses really have a social responsibility? Managers act as agents

for shareholders and are obligated to maximize the present value of the firm

Unethical for business leaders to decide what is best for society

Unethical for business leaders to spend shareholders’ money on projects unconnected to key business interests.

Managers should be motivated by principled moral reasoning

Adam Smith defined sympathy as proper regard for others and the basis for a civilized society

Organizations have a wider range of responsibilities beyond profitability

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Doing well by doing goodCompanies can maximize profits as well as act as

good corporate citizens.Corporate social responsibility can be used as a

competitive advantage.The effects of corporate social responsibility on the

bottom line depends on the corporate strategy

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Environmental consequences of economic activityAir pollutionSmogGlobal warmingOzone depletionAcid rain

Toxic waste sitesNuclear hazardsObsolete weapons

arsenalsIndustrial accidentsHazardous products

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Biodynamic WineDiscussion Questions

1. Describe how Benziger Family Winery represents sustainable growth practices

2. Review the description of life-cycle analysis in the text. Based on what you know, what are the total inputs and outputs for Benziger Family Winery?

For more information visit www.benziger.com

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YOU should be able to:L01: Describe how different ethical perspectives

guide decision makingL02: Explain how companies influence their ethics

environment.L03: Outline a process for making ethical decisions

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YOU should be able to:L04: Summarize the important issues surrounding

corporate social responsibilityL05: Discuss reasons for businesses’ growing

interest in the natural environmentL06: Identify actions managers can take to manage

with the environment in mind.

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The Nuts and Bolts of Ethics

Read Sam Colt’s ethical dilemma on page 53.

If you were Sam, what would you do?

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Test Your Knowledge

How do the five different ethical perspectives guide decision making?

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Test Your Knowledge

NovaCare and Wetherill Associates are examples of companies with: A) strong integrity-based ethics programs B) strong compliance-based ethics programs C) weak integrity-based ethics programs D) weak compliance-based ethics programs E) none of the above is correct

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Test your knowledge

Outline the process for ethical decision making

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Test Your Knowledge

All About U (AAU) Salon believes in and engages in meeting societal expectations whether or not written as law. AAU can be described as operating at which level of the pyramid of corporate social responsibility? A) Preconventional B) Conventional C) Economic D) Ethical E) Legal

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The Natural EnvironmentThen: industrial-age systems took a “take-make-

waste” approach to the natural environmentNow: organizations are incorporating environmental

values into competitive strategies and into the design and manufacturing of products

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Test Your Knowledge

What are the reasons for businesses’ growing interest in the natural environment?

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Telling the Truth and Lying

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Ethical climateProcesses by which decisions are evaluated and

made on the basis of right and wrong.

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The J & J Example