Busn 100 Chapter 04Ethics

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Goals•Ethics•Legality is only the first step in behaving ethically•3 questions one should answer when faced with a

potentially unethical action•Management’s role in setting ethical standards•Compliance-based and integrity-based ethics code

▫6 steps in setting up a corporate ethics code•Corporate Social Responsibility•American’s role in influencing ethical behavior

and social responsibility in global markets

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Ethics

•Standards of moral behavior▫Behavior that is accepted by society as right versus

wrong

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Ethics - Textbook

•Similarities on basic moral values in the Bible, Aristotle’s Ethics, William Shakespeare’s King Lear, the Koran, and the Analects of Confucius:▫Golden rule: Do not do unto others as you would not

have them do unto you”

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Similarities On Basic Moral Values In The Bible, Aristotle’s Ethics, William Shakespeare’s King Lear, The Koran, And The Analects Of Confucius:

•Right:▫Integrity▫Respect for

human life▫Self-control▫Honesty▫Courage▫Self-sacrifice

•Wrong:▫Cheating▫Cowardice▫Cruelty

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Ethics - Textbook

• “Many Americans today have few moral absolutes.”• “Many decide situationally whether it’s OK to steal,

lie or drink and drive.”• “They seem to think that what is right is whatever

works best for the individual”

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Have USA Companies Acted Unethically?• Enron – Accounting fraud to invent income and

hide debts• Anderson – Accounting firm that helped Enron• WorldCom - $11 B. in accounting irregularities• AIG – Acted within law but acted unethically

when they insured people without setting aside money to pay off policy if they (Credit Default Swaps)

• Credit Agencies - acted unethically when they failed to see that companies like AIG had insured trillions of dollars without setting aside money to pay off insurance policies

• Homebuyers in USA• Mortgage brokers

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People

•Steeling supplies at work•Goofing off at work•Cheating in school•Plagiarism•Lying in interview

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Ethics of MBA StudentsEthics of MBA Students

Percent of MBA Students Who Would:Percent of MBA Students Who Would:

• Buy Stock on Inside InformationBuy Stock on Inside Information 52%52%

• Reveal Corp. Secrets to Spouse/FamilyReveal Corp. Secrets to Spouse/Family 50%50%

• Let a Gift Sway Purchasing DecisionLet a Gift Sway Purchasing Decision 26%26%

• Pay Someone Off to Close a Pay Someone Off to Close a 13%13%

Business DealBusiness Deal

Source: USA Today

What Are The Three Questions One Should Answer When Faced With A Potentially Unethical Action

•Textbook:▫Is it legal?▫Is it balanced?▫How will it make me feel about myself?

• I would say:▫Would I want this done to me?▫Will I feel bad in the long run even though there may

be a short-term gain?▫Does the action go against the idea that we should be

good citizens and be kind and caring toward others?▫Is it legal

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Ethical Orientation

•Ethical Orientation Questionnaire•Excel workbook

•Ethical Dilemmas:▫Choose between equally unsatisfactory

alternatives

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Why Should Businesses Act Ethically?

•If the humans that run and work for the business act ethically, all stakeholders are better off

•Other reasons:▫Avoid lawsuits▫Avoid new laws▫Avoid employee turnover▫To attain a good reputation (everything follows

from this)▫Keep customers, employees

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How Does Business Become More Ethical?

•If the people at the top:▫Set a good example▫Define guiding values▫Set clear rules with clear and enforceable

penalties

•Ethics is caught more than it is taught•Example: Anderson International

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Compliance And Integrity

•Compliance-based ethics codes▫Preventing unlawful behavior by:

Increasing control and Penalizing wrongdoers

•Integrity-based ethics codes▫Define the organization’s guiding values▫Create ethically sound environment▫Stress shared accountability among employees

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Code Of Ethics

•Johnson & Johnson: http://www.jnj.com/wps/wcm/connect/c7933f004f5563df9e22be1bb31559c7/our-credo.pdf?MOD=AJPERES

•Wholefoods:•http://www.wholefoodsmarket.com/values/in

dex.php

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Steps To Improve Business Ethics:

1. Top management support2. Employees’ understanding3. Managers’ & Employees’ training4. Ethics Office5. Outsiders must be informed6. Enforcement of ethics code

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Corporate Social Responsibility

•A business’s concern for the welfare of society•Some people argue that the pursuit of an

increase in shareholder wealth provides the best possible benefit to society

•Some argue that, like ordinary citizens, corporations must be good citizens with acts like donations and volunteering and other such acts

•Debate Between Milton Friedman and John Mackey:▫http://reason.com/archives/2005/10/01/rethinking-the-social-responsi

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Corporate Social Responsibility• Corporate Philanthropy

▫Dimensions of social responsibility that includes charitable donations

• Corporate Social Initiatives▫Enhanced forms of corporate philanthropy that are more

directly related to the company’s competencies• Corporate Responsibility

▫Dimensions of social responsibility that includes everything from hiring minority workers to making safe products

• Corporate Policy▫Dimensions of social responsibility that refers to the

position a firm takes on social and political issues

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Businesses Area Responsible To:

•Customers•Investors•Employees•Society and Environment

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Responsibility To Customers

•Offer quality goods and service at a reasonable price

•Customers:▫Prefer to do business with companies they

trust▫Do not want to do business with

companies they do not trust

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Responsibility To Investors

•Ethical behavior tends to increases shareholder wealth

•Unethical behavior tends to decreases shareholder wealth

•No Insider Trading (Managers know details of future business activity)

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Responsibility To Employees

•Create jobs that reward hard work and talent fairly

•Treat employees with respect and they treat the company with respect▫Costco▫Starbucks▫Dick’s

Give benefits that help employees to reach personal goals

▫Highline

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Responsibility To Society & Environment

•Make profit and grow•Take care of their communities

(including the environment)

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Social Auditing• A systematic evaluation of an organization’s progress

toward implementing programs that are socially responsible and responsive

• How do you measure whether a business is socially responsible?▫Some ways might be to determine if the business:

Donating executive time to community based or nonprofit organizations

Offering day care to workers or paying employees while they do community work

Support of museums or education Producing truthful ads or ensuring product safety (Daimler-

Benz) Negative effects such as: layoffs or pollution

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Watchdogs That Monitor How Well Companies Enforce Their Ethical And Social Responsibility Policies:

•Socially Conscious Investors (SCI)•Environmentalists•Union Officials•Customers (#1)

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International Ethics And Social Responsibility

•Multinationals and companies that use contract manufacturing must act ethically in all counties▫Customers in the USA still seem to prefer brand,

price and quality over their perception of a company’s humane treatment of workers and social responsibility (but that is changing a bit) Low wages:

Not fair when compared to wages in USA? But what if the company did not move to that country to

provide jobs?

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Explain Why Legality Is Only The First Step In Behaving Ethically

•Laws are more limited than the set of morals and ethics that a society holds▫Deceptive ads are often legal

http://www.excessvoice.com/article101.htm•Because laws have grey area, a person can act

unethically while breaking no laws

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Example:

•Enron and many banks in the current 2007-2008 banking crisis (Credit Crunch) hid liabilities and risks off their balance sheets while breaking no laws.

•Although they acted within the laws they mislead many people

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Example:• “No Income No Asset” loans made by banks in

2006 and 2007 were legal but unethical.•These were called “Liar Loans” because people

could lie about income, but still get $500,000 loans.

•Unethical Mortgage Brokers during the 2007-2008 Banking Crisis that acted within the law:▫http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3

906861&cl=9944104&ch=4226713&src=news

▫http://www.propublica.org/article/insiders-detail-how-greed-drove-credit-ratings-926/

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What Are The Three Questions One Should Answer When Faced With A Potentially Unethical Action

•Textbook:▫Is it legal?▫Is it balanced?▫How will it make me feel about myself?

• I would say:▫Would I want this done to me?▫Will I feel bad in the long run even though there may

be a short-term gain?▫Does the action go against the idea that we should be

good citizens and be kind and caring toward others?▫Is it legal

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Describe Management’s Role In Setting Ethical Standards

•Because people tend to “do as you do, not as you say”, when managers act unethically, others may tend to do the same

•As a manager, set clear rules (what to do and consequences)

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Distinguish Between Compliance-based And Integrity-based Ethics Code

•Compliance-based▫Follow the law, and punish

•Integrity-based▫Set clear rules, lead by example, train all

stakeholders, stress “the team”, follow the law, enforce consequences

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Define Corporate Social Responsibility And Examine Corporate Responsibility To Various Stakeholders

• It is in the business’s best interest to act socially responsible toward:▫Customers▫Community▫Employees▫Stockholders

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Analyze The Role Of American Businesses And Government In Influencing Ethical Behavior And Social Responsibility In Global Markets

•America has had some positive influenced and negative influence on global markets▫Positive Examples:

Spread of Free Markets This helps economies to grow Increases the middle class

Spread of Technology Spread of the internet and information Increases in competition Increase in Education

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America Has Had Some Positive Influenced And Negative Influence On Global Markets• Negative Examples:

▫ Going to war on flimsy evidence▫ Stating that the Genève Conventions do not apply to the “War

on Terror” Guantanamo Bay Abu grade prison

▫ Deregulating the Banking Industry▫ Keeping Interest Rates low while Europeans kept rates high▫ Inventing “No Income No Asset” Loans and Collateralized Debt

Obligations that were based on “No Income No Asset” Loans▫ American companies follow environmental rules at home, but

not abroad▫ Pollution▫ Culture

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Have USA Companies Acted Unethically?•Dick’s & Starbucks & Costco

▫Ethics = good business practice▫Happy Employees = productive Employees

•Pfizer (build hospitals) & Wal-Mart (gave out free food, diapers, etc.) helped after Katrina

•Digicel Group ($5 M) & Lowe's ($1 M) & FedEx Corp (donated airplanes to fly goods to Haiti) helped after the 7.0 earthquake in Haiti

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