Lecture 15

Ethics and Social ResponsibilityMar 1, 2012

2

How to account for Ethics and Social Value?

Social Entrepreneurship

• Synergies and benefits when business principles are unified with social ventures.

• But we are working to build a for profit company. Is there any social value to this entity that should concern us?

Social Entrepreneurship

A social entrepreneur is someone who recognizes a social problem and uses entrepreneurial principles . . . to make social change..

Is there necessarily a big division between a profit making and a non-profit company?

Is there necessarily a big division between a profit making and a non-profit company?

The Big Difference

Profit Making Non- profitReturn to Shareholders Social Good

Is the gap that big?

• Consider Profit making companies– Avoid doing evil (Google)

• Environment (BP excepted)• Treating People well

– Employees – Customers– Suppliers– Partners

• Community• Financial• Obey the law

– Provide a service• Solve a customer problem at a price the customer is willing to pay

Is the gap that big?

• Consider Profit-making companies– Provide jobs– Pay taxes– Stimulate economy– Produce a useful product

• Consider social good of a smart phone

Profit-making Companies

• Of course there are exceptions!• Companies which kill people

– Tobacco• Companies which lie, cheat and steal• But consider, business can only function

through trust

Now Consider non-profits

• Have to meet their budgets– Income has to match expense– Have to audit their financials

• Have to raise money– Sales Function– Who is the customer?

• Donor?• Recipient?

• Have competition

Consider non-profits

• Is it any surprise then that– Non profits use the methodologies, tools, thought

processes etc., that have developed from profit making companies?

For Profit-making Company

Existential Question

Who Am I?

“Greed is Good”Doing Well

“Kumbaya”Doing Good

“Greed is Good”Doing Well

“Kumbaya”Doing Good

Where are you?

Some personal examples

• Social Entrepreneurship– LA Regional Foodbank– Intelligent Mobility International

LA Regional FoodbankMission - to mobilize resources to fight hunger in our community.

– acquire food – distribute to needy people

• through charitable agencies • directly through programs

– Energize the community to get involved and support hunger relief

– Conduct hunger education and awareness campaigns and advocate for public policies that alleviate hunger.

Our vision - no one goes hungry in Los Angeles County.

How it worksGovernmentPrograms

Supermarkets

Private Donations

Agencies Recipients

LA Regional FoodbankReached 1M people in 200954M pounds of food560 member agenciesFresh Fruits and Vegetables 20% of total19000 volunteersKid’s café Backpack programs

Done with admin and fundraising costs of 3.4%Public contributions of $8.4M

LA Regional FoodbankBusiness Principles • Strategic plan • Employee performance assessment and training programs• “Dashboard" measurements to track progress• Logistics

– just in time deliveries and – Fast inventory turns average (2 1/2 weeks)– "customer" (both agencies and food recipients) service feedback

LA Regional Foodbank• Rapidly adapts to new circumstance

– Great recession– Government vagaries

• Manage Complexity• Suppliers• Variations in Agencies• Other networks• Regulations• Fuel costs

A very well run “business”

E/ME 105 Product Design for the

Developing World

The concept of international product development teams

Collaboration between Caltech and Art Center (Pasadena) with Raphael Landivar University (Guatemala City)

Class learnings• Engineering Design

– Radical cheapness• Market Research

– Developing World challenges• Anthropology

– Importance of culture• Business Driver

– Tough to give things away– Create local businesses

• Motivation• Scalability

Intelligent Mobility International (IMI)

• Students designed a wheelchair in Class• They wanted to continue to develop their product-

a cheap-but rugged, easily-repairable wheelchair made from carved-up bicycles

• Graduation and getting jobs did not stop them• The formed a non-profit which they work on

(unpaid) as a second job.

Intelligent Mobility International

Challenge

• 20 million need wheelchairs worldwide• Hospital chairs− Durability−Replacement parts

A Brief History• Started in E/ME 105• Continued as Thesis project• Incorporated as 501c(3) Non-Profit • Continued R&D with Transitions, a local NGO

Metamorphosis

Metamorphosis (cont.)

Metamorphosis (cont.)

Currently

• Producing and Distributing in Guatemala• Over 80 Chairs

Difference

Accomplishments• Distributing wheelchairs to people in need in

Guatemala• Popular Mechanics Breakthrough Award

• for advances in science and engineering that will change the world.

Future

• India– $50 appropriate chair

• Barrier Mitigation– Connect the dots to

Employment

• World Expansion

Caltech Y ACT Fellowship

Worked with a partner disability organization, Transitions Foundation, based out of Antigua Guatemala.

Conducted user interviews and user

trials.

Caltech Y ACT Fellowship

Interviews with handicapped.

Caltech Y ACT Fellowship

Established suppliers in Guatemala for all new materials.

Performed engineering tests on wheelchair.

Caltech Y ACT Fellowship

Old Welding Process

New Welding Process

•Taught Transitions workers new welding and construction methods. •Learned much more than we taught!

Caltech Y ACT Fellowship

Kicked off Guatemalan Production

Caltech Y ACT Fellowship

Caltech Y ACT Fellowship

IMI - A Student’s Perspective

• Real-life application of product design and how it leads to high social impact

• Introduction and development of the business and entrepreneurial implications of product design

• Necessity of continued outreach to attain project sustainability

• For the final, include the Ethics and Social Responsibility guidelines for your company.

Organization

• We’ll send out model papers and presentations• Final March 9

– Invite your friends or anyone interested in Entrepreneurship.

– OK for guests to drop in or out of Final• Arrange to present to your Professors afterwards.

– At minimum send out Finals– I’ll call afterwards to get reaction

• Questions???

Introduction

• Have you ever been in an ethically ambiguous situation?

• How did you resolve it?

Ethics and Social Responsibility

• What is an Ethically and Socially Responsible Company?

• How do you create an Ethically and Socially Responsible company?

• How do you know you have accomplished this?

• Are there tools to help you?

Ethics and Social Responsibility

• What is an Ethically Responsible company?• Give an example

– Google– Microsoft– Paul newman– Ben and jerry– Whole foods– Trader joes– In and out

Ethics and Social Responsibility

• What is an evil company?• Monsanto• Goldman sachs• Chevron• Apple• Northrup grumman• DebeersVery profitable, abusing market market, monopoly,

abusing employees, pollute,negative externalities

Ethics and Social Responsibility

• What is a Socially Responsible company?• Give an example

Ethics and Social Responsibility

• How do you create an such a company?– Don’t be evil– Build community– Invest locally– Treat your employees/customers fairly– Positive product– Pollution

Ethics and Social Responsibility

• How do you create an such a company?– Vision statement– Hire ethical people fire unethical – Specify behaviors with vendors top to bottom– Product

• Safe• Full disclosure of issues• Market it without lies• When and how will the product work

– Code of Conduct– Get good legal assistance

Ethics and Social Responsibility

• How do you know you have created this?– Outside consultants audit– Ombudsman

• Sleep at night• Read newspaper• Communication• Ongoing training

Ethics and Social Responsibility

• How do you know you have created this?

Ethics and Social Responsibility

• Are there tools to help you?

Some Tools

• Code of Ethics• Training• Triple Bottom line• Outside audits• Communication

Some Tools Code of Ethics

Plusses• Sets forth principles• Could be wrong

Minuses• Lack of trust• Red tape• Words

Good Example?

Good Example?

How to write a good code of ethics?

IEEE Code of Ethics                                                       

We, the members of the IEEE, in recognition of the importance of our technologies in affecting the quality of life throughout the world, and in accepting a personal obligation to our profession, its members and the communities we serve, do hereby commit ourselves to the

highest ethical and professional conduct and agree: 1. to accept responsibility in making engineering decisions consistent with the safety, health and welfare of the

public, and to disclose promptly factors that might endanger the public or the environment; 2. to avoid real or

perceived conflicts of interest whenever possible, and to disclose them to affected parties when they do exist; 3. to be honest and realistic in stating claims or estimates based on available data; 4. to reject bribery in all its forms; 5. to improve the understanding of technology, its appropriate application, and potential consequences; 6. to maintain and improve our technical competence and to undertake technological tasks for others only if

qualified by training or experience, or after full disclosure of pertinent limitations; 7. to seek, accept, and offer honest criticism of technical work, to acknowledge and correct errors, and to credit

properly the contributions of others; 8. to treat fairly all persons regardless of such factors as race, religion, gender, disability, age, or national origin; 9. to avoid injuring others, their property, reputation, or employment by false or malicious action; 10. to assist colleagues and co-workers in their professional development and to support them in following this

code of ethics. Approved by the IEEE Board of DirectorsAugust 1990

A change in the culture??A Promise to Be Ethical in an Era of Immorality

New York Times May 29, 2009

Nearly 20 percent of the graduating (HBS) class have signed “The M.B.A. Oath,” a voluntary student-led pledge that the goal of a business manager is to serve “the greater good” It promises that Harvard M.B.A.’s will act responsibly, ethically and refrain from advancing their “own narrow ambitions” at the expense of others.

THE MBA OATHResponsible Value CreationAs a manager, my purpose is to serve the greater good by bringing together people and resources to create value that no single individual can build alone. Therefore I will seek a course that enhances the value my enterprise can create for society over the long term. I recognize that my decisions can have far reaching consequences that affect ‐the well being of individuals inside and outside my ‐enterprise, today and in the future. As I reconcile the interests of different constituencies, I will face difficult choices.

Therefore I promise:I will act with utmost integrity and pursue my work in an ethical manner.I will safeguard the interests of my shareholders, co workers, customers and the‐society in which we operate.I will manage my enterprise in good faith, guarding against decisions and behaviorthat advance my own narrow ambitions but harm the enterprise and the societies it serves.I will understand and uphold, both in letter and in spirit, the laws and contractsgoverning my own conduct and that of my enterprise.I will take responsibility for my actions, and will represent the performance andrisks of my enterprise accurately and honestly.I will develop both myself and other managers under my supervision so that theprofession continues to grow and contribute to the well being of society.‐I will strive to create sustainable economic, social, and environmental prosperity worldwide.I will be accountable to my peers and they will be accountable to me for living by this oath.

This oath I make freely, and upon my honor.Signature

Date

MBA Oath

• As of January 2010, the initiative is driven by a coalition of MBA students, graduates and advisors, including nearly 2,000 student and alumni signers from over 500 MBA programs around the world.

• Goals:• to make a difference in the lives of the indivi

dual students who take the oath,• to challenge other classmates to work towar

ds a higher professional standard, whether they sign the oath or not

• to create a public conversation in the press about professionalizing and improving management.[2

How to write a meaningful codeThe Bottom Line Benefits of Ethics Code Commitment, Gilley et al

• Executive championing writing process (not dictating)

• Affects all stakeholders– Employees (who else)

• Yields value to them• Move from legalistic to inspirational• Linking to strategy• Ethics related dialog

Training

• Involves all employees• Fresh methodologies• Current Issues• Desired assignment• Led by top management

Triple Bottom Line

• What is it?

Triple Bottom Line

• What is it?– People– Planet– Profit

Why do it?

What’s the problem?

People

PlanetWhat is a Green Company?

PlanetWhat is a Green Company?

• Ecosystem concerned• spirit of times• The rest of the world is not your dump• Manufacturing• Software

– Data centers are hogs– Cloud computing– Donate used computers– Shrink wrap software is an issue

2010 trends “Green Business”

• Google “green company ideas”– 120, 000,000 hits

• Generational• Greenwashing

• Consider large company sites– BP is “beyond petroleum”– Ford

Accolo.com

• Reduce, reuse and then recycle – obviously, using less and buying less saves money and wasteFor internal documents, set up one of your printers to print only on the clean side of scrap paper – not only does this just make sense, it saves money on paperWrite an environmental vision statement – sometimes the creation of a (virtual) document can mean quite a lot … think Magna Carta, not Jerry McGuireObtain a Green Business certification, the next step after creating a vision statement – you get audited on what you’re doing, see where you can improve, and can commit to improving for subsequent certificationsSet up a composting bin in the office kitchen and use the compost in the company garden OR an employee’s home garden – make sure you get a real composting bin … because you want to go green, not smell green [tip: adding coffee grounds to the compost will help keep the bin smelling pleasant]Turn off any lights that are not ultimately necessary – this includes keeping the lights off in rooms not in useReplace all floor and desk lamps with CFLs – more than anything else, this saves money on your energy billTake a “lighting audit” to minimize the number of lighting fixtures in your office – if they’re not necessary, even if they have CFL bulbs, they’re wasting energyProvide transportation incentives to your employees – offering free bike maintenance repairs to employees who bike a significant portion of the week, offering subsidized public transportation for your employees, and even offering $5 for a toll bridge/road can go a long ways towards making single car commuters a thing of the past at your companyThe next time you need to buy paper, buy 100% PCW – that stands for post-consumer waste, and it's the most environmentally friendly recycled paper you can buyRecycle your printer’s toner cartridges – not only does it save the three quarts of oil that it takes to make a new cartridge, but your supplier will also pay you for themPurchase reusable kitchen supplies – this means no more single use plastic cups, plates and utensils, which will save your company money down the road…and if you want to save money on getting those dishes washed, hire an intern!Replace your single-serving coffee maker with a French press, traditional coffee pot or premium cappuccino maker – not only does it get rid of all those single-serving packages of grounds, there is also the added bonus of saving the local landfill from all those disposable cups your employees had been getting with their retail coffeeWhen purchasing new electronic equipment, buy Energy Star – Energy Star products are at least 1/3 more efficient than their identical counterpartsProvide filtered water at the tap – eliminate the notion that bottled is better!

Consider circumstances where People and Planet can subtract from profit?

Can the three objectives be aligned?

Yes No

What does all this have to do with a new start-up?

Some additional ideas

• Newspaper test• Four Questions

– What’s bothering you– What is the ethical issue involved?– Who are the people involved (stakeholders)– Are you being consistent with your beliefs