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Chapter 2BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

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L E A R N I N G O B J E C T I V E SL E A R N I N G

O B J E C T I V E S

After reading this chapter, you should be able to:

1. Explain how individuals develop their personal codes of ethics and why ethics are important in the workplace.

2. Distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today.

3. Show how the concept of social responsibility applies both to environmental issues and to a firm’s relationships with customers, employees, and investors.

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L E A R N I N G O B J E C T I V E S (cont’d)

L E A R N I N G O B J E C T I V E S (cont’d)

After reading this chapter, you should be able to:

4. Identify four general approaches to social responsibility and describe the four steps that a firm must take to implement a social responsibility program.

5. Explain how issues of social responsibility and ethics affect small business.

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What’s in It for Me?

By understanding the material in this chapter, you’ll be better able to: Assess ethical and socially responsible

issues facing you as an employee and as a boss or business owner.

Understand the ethical and socially responsible actions of businesses you deal with as a consumer and as an investor.

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Ethics in the Workplace Ethics

Beliefs about what’s right and wrong or good and bad

Ethical Behavior

Behavior conforming to individual beliefs and social norms about what’s right and good

Unethical Behavior

Behavior conforming to individual beliefs and social norms about what is defined as wrong and bad

Business Ethics

The ethical or unethical behaviors by employees in the context of their jobs

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Individual Values and Codes

Sources of Personal Codes of Ethics Childhood responses to adult behavior Influence of peers Experiences in adulthood Developed morals and values

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Business and Managerial Ethics Managerial Ethics

The standards of behavior that guide individual managers in their work

Ethics affect a manager’s behavior toward:employeesthe organizationother economic agents—customers,

competitors, stockholders, suppliers, dealers, and unions

Ethical Concerns Ambiguity (e.g., financial disclosure) Global variation in business practices (e.g.,

bribes)

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Assessing Ethical Behavior

Simple Steps in Applying Ethical Judgments

Gather the relevant factual information

Analyze the facts to determine the most appropriate moral values

Make an ethical judgment based on the rightness or wrongness of the proposed activity or policy

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Assessing Ethical BehaviorEthical Norms and the Issues They Entail

Utility: Does a particular act optimize the benefits to those who are affected by it? Do all relevant parties receive “fair” benefits?

Rights: Does the act respect the rights of all individuals involved?

Justice: Is the act consistent with what’s fair?

Caring: Is the act consistent with people’s responsibilities to each other?

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Company Practices and Business Ethics

Encouraging Ethical Behavior Involves:

Adopting written codes of conduct and establishing clear ethical positions for the conduct of business

Having top management demonstrate its support of ethical standards

Instituting programs to provide periodic ethics training

Establishing ethical hotlines for reporting and discussion of unethical behavior and activities

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Core Principles and Organizational ValuesCore Principles and Organizational Values

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Social ResponsibilitySocial Responsibility

The overall way in which a business attempts to balance its commitments to relevant groups and individuals (stakeholders) in its social environment

Organizational Stakeholders Groups, individuals, and organizations

that are directly affected by the practices of an organization and, therefore, have a stake in its performance

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Major Corporate StakeholdersMajor Corporate Stakeholders

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The Stakeholder Model of Responsibility

Customers Businesses strive to treat customers fairly and honestly

Employees Businesses treat employees fairly, make them a part of the

team, and respect their dignity and basic human needs Investors

Businesses follow proper accounting procedures, provide information to shareholders about financial performance, and protect shareholder rights and investments

Suppliers Businesses emphasize mutually beneficial partnership

arrangements with suppliers Local and International Communities

Businesses try to be socially responsible

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Contemporary Social Consciousness

The Concept of Accountability The expectation of an expanded role for

business in protecting and enhancing the general welfare of society

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Areas of Social Responsibility

Responsibility Toward the Environment Controlling air, water, and land pollution Properly disposing of toxic waste Engaging in recycling

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Areas of Social Responsibility (cont’d)

Responsibility Toward Customers Involves providing quality products and pricing

products fairly Consumerism

Social activism dedicated to protecting the rights of consumers in their dealings with businesses

Basic Consumer Rights To possess safe products To be informed about all relevant aspects of a product To be heard To choose what to buy To be educated about purchases To courteous service

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Consumer Rights (cont’d)

Unfair Pricing Collusion: When two or more firms

agree to collaborate on such wrongful acts as price fixing

Price gouging: Responding to increased demand with overly steep (and often unwarranted) price increases

Ethics in Advertising Truth in advertising Morally objectionable advertising

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Areas of Social Responsibility (cont’d)

Responsibility Toward Employees Legal and social commitments to:

not practice illegal discriminationprovide a physically and socially safe workplaceprovide opportunities to balance work and lifeprovide protection for whistleblowers (an

employee who discovers and tries to put an end to a company’s unethical, illegal, or socially irresponsible actions by publicizing them)

Responsibility Toward Investors Proper financial management (no insider trading) Proper representation of finances

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Implementing Social Responsibility (SR) Programs

Arguments Against SR The cost of SR threatens profits. Business have too much control over which

and how SR issues would be addressed. Business lacks expertise in SR matters.

Arguments for SR SR should take precedence over profits. Corporations as citizens should help others. Corporations have the resources to help. Corporations should solve problems they

create.

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Approaches to Social Responsibility

Obstructionist Stance A company does as little as possible and may

attempt to deny or cover up violationsDefensive Stance

A company does everything required of it legally but no more

Accommodative Stance A company meets its legal and ethical

requirements and also goes further in certain cases

Proactive Stance A company actively seeks to contribute to the

well-being of groups and individuals in its social environment

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Spectrum of Approaches to Corporate Social Responsibility

Spectrum of Approaches to Corporate Social Responsibility

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Managing Social Responsibility Programs

1. Social responsibility must start at the top and be considered as a factor in strategic planning.

2. A committee of top managers must develop a plan detailing the level of management support.

3. One executive must be put in charge of the firm’s agenda.

4. The organization must conduct occasional social audits—systematic analyses of its success in using funds earmarked for its social responsibility goals.

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Social Responsibility and the Small Business

Large Business versus Small Business Responses to Ethical Issues

Differences are primarily differences of scale.

More issues are questions of individual ethics.

Ethics and social responsibility are decisions faced by all managers in all organizations, regardless of rank or size.