Ethics and Social Responsibility Chapter 4. Ethics in Business Ethics – set of moral principles or values that govern behavior –Managers must face sometimes.

Ethics and Social Responsibility

Chapter 4

Ethics in Business

• Ethics – set of moral principles or values that govern behavior– Managers must face sometimes difficult

ethical decisions in business situations.

• Code of Ethics – document that outlines the principles of conduct to be used in making decisions within an organization

A Code of Ethics Content May Address the following:

• Honesty• Adherence to the law• Product safety and quality• Health and safety in the

workplace• Conflicts of interest• Employment practices• Staffing and marketing

practices• Financial reporting• Pricing, billing, and

contracting

• Trading in securities/using confidential information

• Acquiring and using information about competitors

• Security• Payments to obtain bonuses• Protection of the

environment

Behaving Ethically and Unethically

• Behaving ethically:– Helps employees gain the most of the people

with whom they work– Helps businesses gain the trust of customers,

suppliers, and others

• Behaving unethically:– Can hurt or end a businessperson’s career– Can cause a company to lose millions of

dollars or even go out of business altogether

Behaving Honestly

• Sarbanes-Oxley Act of 2002– Due to Enron and WorldCom scandals,

President Bush signed this act that affects the reporting and governance of public companies and their directors and officers.

• Employee Theft– Employers trust their employees not to steal

from them.• Embezzlement• Stealing supplies, inventory

Behaving Honestly• Hours worked

– Employees who behave ethically are honest about the hours they work.

– Ethical employees will only miss work when they are truly ill or have a legitimate reason to be home.

• Records– One of the worst ethical lapses an employee

can commit is falsifying records. • Damages company reputation• Can have grave effects on health of public (i.e.

pharmaceutical company)

Dealing with Ethical Dilemmas

• An ethical dilemma is a situation in which the ethical course of action is not clear.– Examples: your boss tells you your friend will

be fired, you notice a co-worker has been accepting expensive gifts (violating company’s code of ethics)

• Some companies, like Boeing, hire a Director of Business Practices to help with these situations.

Solving Ethical Dilemmas – Ask:

• Have you defined the problem accurately?

• How would you define the problem if you stood on the other side of the fence?

• Whom could your decision or action injure? Can you discuss the problem with the affected parties before you make your decision?

Solving Ethical Dilemmas - Ask

• Are you confident that your position will be as valid over a long period of time as it seems now?

• Could you disclose without qualm your decision to action to your boss, your CEO, the board of directors, your family, and society as a whole?

Laws Relating to Ethical Behavior• The Sherman Act

– Monopolies became illegal.

• The Clayton Act of 1914– Charging different wholesales customers

different prices became illegal.– Requiring customers to purchase a second

item also became illegal.

• Wheeler-Lea Act of 1938– Banned unfair or deceptive acts, such as false

advertising, inform customers of possible negative consequences of using products.

Consumer Protection

Several laws and agencies were designed to protect consumers against unethical and unsafe business practices:

• The Federal Food, Drug, and Cosmetic Act of 1938 – Food and Drug Administration (FDA)

• Consumer Product Safety Commission (CPSC) – Forces manufacturers to recall products that may

be defective

• Truth in Leading Act of 1968

Environmental Protection• National Environmental Policy Act of 1969

– Created Environmental Protection Agency (EPA)– Protects human health and safeguards the air,

water, and land.

• The Clean Air Act of 1970 – Regulates air emissions.

• The Toxic Substances Control Act of 1976 – Gave the EPA the ability to track industrial

chemicals produced In or importing into the U.S.

• The Clean Water Act of 1977– Sets standards on the type and quality of pollutants

that industries can put into bodies of water

Ethical Standards and Culture

• Corporate Gift Giving– In Japan, lavish gifts are a part of business.– In United States, government officials are not

allowed to accept gifts (and many corporations have policies against this).

– When doing business abroad, be sure to understand culture.

Ethical Standards and Culture

• Intellectual Property– Ownership of ideas, such as inventions,

books, movies, and computer programs– In the U.S., creators of intellectual property

have the exclusive right to market and sell their work (guaranteed through patent, trademark, and copyright laws)

Social Responsibility

• Social responsibility refers to the obligation that individuals or businesses have to help solve social problems. – Profit Maximization– Trusteeship Management– Social Involvement– Philanthropy and Volunteerism– Environmental Awareness– Sensitivity to Diversity and Quality of Work Life

Profit Maximization

In th19th and early 20th centuries, business owners in the U.S. believe that their role was simply to maximize profits their companies earned. Social problems were not considered a legitimate business activity.

Trustee Management

• Recognized that owners of business had obligations to do more than just earn profits.

• Businesses had obligations to their employees, their customer, and their creditors.

• Most businesspeople continued to hold this view until the 1960’s.

Social Involvement

• During the 1960’s, people believed businesses should use their influence to address social issues, such as poverty, crime, environmental destruction, and illiteracy.

• Business have obligations to all the people affected by their actions – stakeholders.– Employees, customers, suppliers, and the

community

Social Audit

• A review of a businesses social responsiveness

Philanthropy and Volunteerism

• A company can demonstrate social responsibility by contributing time and money to charitable, cultural, and civic organizations.

• Some companies grant employees paid time off to participate in charitable activities.

• Many companies offer “matching” programs.

Environmental Awareness

• Businesses limit the damage their business causes on the environment.

• Business can establish policies to reduce pollution.– For example, encouraging employees to

carpool.

• Business can use biodegradable and refillable containers.– Ex: The Body Shop

Sensitivity to Diversity and Quality of Work Life

• Maintaining ethnically diverse workforces hat reflect the societies in which they operate.

• Enacting policies that contribute to the quality of workers’ lives– Flexible hours– On-site day care