Introduction to Business Chapter 4 Notes
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Introduction to Business
Chapter 4 Notes
Explain why obeying the law is only the first step in behaving ethically.I. ETHICS IS MORE THAN LEGALITY.
A. HISTORY OF SCANDALS
1. In the early 2000s scandals at WorldCom, Tyco, and
ImClone focused attention on the subject of ETHICS.
2. In recent years, greedy borrowers and lenders helped
precipitate a worldwide financial crisis.
3. What can be done to restore trust in the free-market system?
a. Those that have broken the law need to be PUNISHED
ACCORDINGLY.
b. Also helpful are new laws making accounting records
more transparent and more laws making
businesspeople more accountable.
c. Laws alone don’t make people honest, reliable, or
truthful.
4. Ethical behavior is not the same as following the law.
a. Ethical behavior goes BEYOND the law.
b. ETHICS deals with the proper relations with and
responsibilities toward other people.
c. LEGALITY deals with much narrower issues.
d. It refers only to laws we have written to protect
ourselves many UNETHICAL ACTS FALL WITHIN
OUR LAWS.
B. ETHICAL STANDARDS ARE FUNDAMENTAL.
1. ETHICS are the standards of moral behavior; that is,
behavior that is accepted by society as right versus wrong.
2. Many Americans have few moral absolutes and makeDECISIONS SITUATIONALLY.
3. Even in today’s diverse culture, there is still COMMON
STANDARDS OF ETHICAL BEHAVIOR.
a. Integrity, respect for human life, self-control, honesty,
courage, and self-sacrifice are RIGHT.
b. Cheating, cowardice, and cruelty are WRONG.
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4. All major religions support a version of the GOLDEN RULE:“Do unto others as you would have them do unto you.”
Ask the three questions one should answer when faced with apotentially unethical action.
C. ETHICS BEGINS WITH EACH OF US.
1. Americans in general are not always honest and honorable.
a. A recent study identified low managerial ethics as a
major factor in America’s competitive problems.
b. Another survey revealed that 3/4 of the population
NEVER GAVE TIME to their communities.
c. The most common form of cheating is plagiarizing
material from the Internet.
d. In a recent study, 38% of teens felt that lying, cheating,
plagiarizing, or behaving violently are sometimes
necessary.
e. Many schools now require a certain number of hours of
community service to graduate.
2. It is important to KEEP ETHICS IN MIND when making a
business decision.
a. There is not always an easy choice.
b. Sometimes the obvious solution from an ethical point of
view has drawbacks from a personal or professional
point of view.
c. Sometimes there is no desirable alternative, a situation
referred to as an ETHICAL DILEMMA.
3. Three “ETHICS CHECK QUESTIONS” can help
individuals and organizations be sure their decisions are
ethical:
a. Is my proposed action LEGAL?
b. Is it BALANCED?
c. How will it make me FEEL ABOUT MYSELF?4. Individuals and companies that develop a strong ethics code
tend to behave more ethically than others.
Describe management’s role in setting ethical standards.
II. MANAGING BUSINESSES ETHICALLY AND RESPONSIBLY
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A. ORGANIZATIONAL ETHICS BEGINS AT THE TOP.
1. People learn their standards and values from observing what
others do, not what they say.
2. Corporate values are instilled by the leadership and example
of strong top managers.3. Any trust and cooperation between workers and managers
must be based on FAIRNESS, HONESTY, OPENNESS,
AND MORAL INTEGRITY.
4. Some managers think ethics is a personal matter that they
are not responsible for an individual’s misdeeds.
a. Individuals do not usually act alone they need the
implied, if not the direct, cooperation of others to behave
unethically in a corporation.
b. The text uses the example of cell phone sales reps whounethically pressure customers.
5. In some corporations, corporate standards may encourage
dishonesty.
Distinguish between compliance based and integrity based ethicscodes, and list the six steps in setting up a corporate ethics code.
B. SETTING CORPORATE ETHICAL STANDARDS
1. Most corporations have WRITTEN CODES OF ETHICS.
2. Although ethics codes vary greatly, they can be classifiedinto TWO MAJOR CATEGORIES: compliance-based and
integrity-based.
a. COMPLIANCE - BASED ETHICS CODES are ethical
standards that emphasize preventing unlawful behavior
by increasing control and by penalizing wrongdoers.
b. INTEGRITY - BASED ETHICS CODES are ethical
standards that define the organization’s guiding values,
create an environment that supports ethically sound
behavior, and stress a shared accountability amongemployees.
3. A 6-STEP PROCESS can help improve America’s business
ethics.
a. Step 1: TOP MANAGEMENT must adopt and
unconditionally support an explicit code of conduct.
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b. Step 2: EMPLOYEES must understand that
expectations for ethical behavior begin at the
top and all employees are expected to act ethically.
c. Step 3: MANAGERS and others must be trained to
consider the ethical implications of all businessdecisions.
d. Step 4: AN ETHICS OFFICE must be set up.
i. WHISTLEBLOWERS (insiders who report illegal
or unethical behavior) must feel protected from
retaliation.
ii. The CORPORATE AND CRIMINAL FRAUD
ACCOUNTABILITY ACT (Sarbanes-Oxley, 2002)
contains protections for corporate whistleblowers
and the Dodd-Frank Act includes a “bounty” for
whistleblowers if the information given results in a
successful enforcement action.
e. Step 5: OUTSIDERS such as suppliers, subcontractors,
distributors, and customers must be told about the
ethics program.
f. Step 6: THE ETHICS CODE MUST BE ENFORCED.
i. If rules are broken, CONSEQUENCES should
follow quickly.
ii. ENFORCEMENT shows that the code is serious
and cannot be broken.
4. A company’s ethics code is worthless IF NOT ENFORCED.
a. Enron’s management sent the message to employees
that unethical behavior would be tolerated.
b. Johnson & Johnson’s response to the cyanide
poisoning crisis in the 1980s enhanced its bottom line.
5. An important factor to encourage ethical behavior is the
selection of AN ETHICS OFFICER who:
a. Sets a positive tone, communicates effectively, relates
well with employeesb. Serves as a counselor or as an investigator
6. EFFECTIVE ETHICS OFFICERS are people who:
a. Can be trusted to maintain confidentiality, conduct
objective investigations, and ensure the process is fair
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b. Can demonstrate to stakeholders that ethics are
important
Define corporate social responsibility and compare corporations’
responsibilities to various stakeholders.
III. CORPORATE SOCIAL RESPONSIBILITY
A. BASICS OF SOCIAL RESPONSIBILITY
1. CORPORATE SOCIAL RESPONSIBILITY (CSR) is a
business’s concern for the welfare of society.
a. It is based on a company’s concern for the welfare of all
its stakeholders, not just the owners.
b. Some CRITICS of CSR believe that a manager’s sole
role is to compete and win.
c. Milton Friedman stated that the only social
responsibility of business is to make money for
stockholders.
d. DEFENDERS argue that CSR makes more money for
investors in the long run.
e. One study showed a positive correlation between
corporate social performance and corporate financial
performance.
2. SOCIAL PERFORMANCE of a company has several
dimensions:
a. CORPORATE PHILANTHROPY is the dimension of
social responsibility that includes charitable donations.
b. CORPORATE SOCIAL INITIATIVES are enhanced
forms of corporate philanthropy directly related to the
company’s competencies.
c. CORPORATE RESPONSIBILITY is the dimension of
social responsibility that includes everything from hiring
minority workers to making safe products.
d. CORPORATE POLICY is the dimension of social
responsibility that refers to the position a firm takes on
social and political issues.
3. IMPACT OF CORPORATIONS ON SOCIETY
a. Many people get a one-sided view of the impact that
companies have on society.
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b. Few people see the POSITIVE IMPACTS, such as the
commitments of many companies to volunteerism, such
as Xerox’s Social Service Leave program.
c. The recent recession has changed corporate
philanthropy: Companies have cut donations since
2008 and are encouraging employees to volunteer
more.
d. Two-thirds of MBA students surveyed said that they
would take a lower salary to work for a socially
responsible company.
e. Social responsibility is seen differently through the eyes
of various STAKEHOLDERS to whom businesses are
responsible.
B. RESPONSIBILITY TO CUSTOMERS
1. President John F. Kennedy proposed four basic rights of
consumers:
a. The right to SAFETY
b. The right to BE INFORMED
c. The right to CHOOSE
d. The right to be HEARD
2. Business is responsible to SATISFY CUSTOMERS with
goods and services of real value, not an easy task.
3. Many new businesses fail
perhaps because their ownersfailed to please their customers.
4. Social media are a growing way companies communicate
their social efforts: over 70% use social media.
5. The text uses the example of how Celestial Seasoning
ignored its image of social responsibility when it poisoned
prairie dogs.
6.Customers prefer to do business with companies they trust.
C. RESPONSIBILITY TO INVESTORS
1. ETHICAL BEHAVIOR is good for shareholder wealth.
2. UNETHICAL BEHAVIOR does financial damage.
3. Some believe that BEFORE you can do good you must DO
WELL.
4. Others believe that BY DOING GOOD, you can also DO
WELL (example: Bagel Works).
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5. Many people believe that it makes FINANCIAL as well as
MORAL sense to invest in socially responsible companies.
6. Another ethical concern is INSIDER TRADING.
a. INSIDER TRADING is an unethical activity in which
insiders use private company information to further their own fortunes or those of their family and friends.
b. The text uses these examples:
i. Raj Rajaratnam was accused of masterminding an
insider trading ring that made his hedge fund $45
million richer.
ii. An IBM secretary benefited from advance
knowledge of the Lotus merger.
c. In response to insider trading scandals, the SEC
adopted REGULATION FD for “fair disclosure.”d. If companies tell something to ANYONE, they must tell
EVERYONE at the same time.
e. Companies can MISUSE INFORMATION FOR THEIR
OWN BENEFIT at investors’ expense, as in the case of
WorldCom’s fraudulent accounting practices.
D. RESPONSIBILITY TO EMPLOYEES
1. RESPONSIBILITIES OF BUSINESSES:
a. Businesses have a responsibility to CREATE JOBS.
b. Businesses have an obligation to see that HARD
WORK AND TALENT ARE FAIRLY REWARDED.
2. A company’s effectiveness and financial performance
depends on human resource management.
3. If a company TREATS EMPLOYEES WITH RESPECT, they
will respect the company.
a. In their book Contented Cows Give Better Milk, Bill
Catlette and Richard Hadden compared “contented
cow” companies with “common cow” companies.
b. The “CONTENTED COW” companies grew faster andearned more than “COMMON COW” companies.
4. Replacing employees costs between 150% and 250% of
their annual salary, so retaining workers is good for
business.
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5. By giving employees salaries and benefits that help them
REACH THEIR PERSONAL GOALS, the employer shows
commitment and caring.
6. When employees feel they’ve been TREATED UNFAIRLY,
they strike back.
a. DISSATISFIED WORKERS relieve their frustrations in
subtle ways.
b. EMPLOYEE FRAUD causes 30% of business failures.
E. RESPONSIBILITY TO SOCIETY AND THE ENVIRONMENT
1. A major responsibility of business to society is to CREATE
NEW WEALTH.
a. Most nonprofits own shares of publicly held companies.
b. As those share prices increase, funds are available to
benefit society.2. There is also a growing GREEN MOVEMENT.
a. A product’s CARBON FOOTPRINT (the amount of
carbon released during production, distribution,
consumption, and disposal) defines how green it is.
b. No specific guidelines define the carbon footprint of
products and businesses, but many companies are
making GREEN PRODUCTS available.
3. Business is responsible for contributing to making its OWN
ENVIRONMENT a better place.4. The text uses the example of Ciba Specialty Chemicals
developing a low-salt textile dye that could be sold at a
premium price.
5. Not all environmental efforts are financially successful, such
as StarKist’s failed “tuna-safe” initiative.
6. The green movement has had a positive impact on the U.S.
labor force.
7. To publicize their commitment to society, many corporations
PUBLISH REPORTS that document their net socialcontribution.
F. SOCIAL AUDITING
1. How can you measure how well organizations are
incorporating social responsiveness into top management’s
decision making?
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2. A SOCIAL AUDIT is a systematic evaluation of an
organization’s progress toward implementing socially
responsible and responsive programs.
3. Many SOCIAL AUDITS consider such things as:
a. Workplace issuesb. The environment
c. Product safety
d. Communications
e. Military weapons contracting
f. International operations
g. Human rights
4. Some suggest that positive actions be added up and
negative effects subtracted to get a NET SOCIAL
CONTRIBUTION.
5. FIVE GROUPS serve as “WATCHDOGS” monitoring how
well companies enforce their ethical and social responsibility
policies:
a. SOCIALLY CONSCIOUS INVESTORS, who insist that
companies extend the company’s own high standards
to all their suppliers.
b. SOCIALLY CONSCIOUS RESEARCH
ORGANIZATIONS, that analyze and report on CSR
efforts.
c. ENVIRONMENTALISTS, who apply pressure by
naming names of companies that don’t abide by the
environmentalists’ standards.
d. UNION OFFICIALS, who track down violations and
force companies to comply to avoid negative publicity.
e. CUSTOMERS, who take their business elsewhere if a
company demonstrates socially irresponsible practices.
6. Bob McDonald of P&G believes sustainability isn’t optional
anymore. It’s essential.
7. It isn’t enough for a company to be right when it comes to
ethics and social responsibility—it also has to convince
customers that it’s right.
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Analyze the role of U.S. businesses in influencing ethical behavior and social responsibility in global markets.
IV. INTERNATIONAL ETHICS AND SOCIAL RESPONSIBILITY
A. ETHICAL PROBLEMS ARE NOT UNIQUE TO THE UNITED
STATES.
1. The text gives the examples of recent “influence peddling” in
Japan, South Korea, Zaire, China, and others.
2. What is new is that leaders are being held to new, higher
standards.
B. Many American businesses, such as Sears and Dow Chemical,
are demanding socially responsible behavior from international
suppliers.
1. They make sure their suppliers DO NOT VIOLATE U.S.
HUMAN RIGHTS AND ENVIRONMENTAL STANDARDS.
2. In contrast, companies like Nike have been criticized for the
low pay, long hours, and unsafe working conditions for
factory workers in Asia.
3. Nike has been monitoring efforts to improve labor conditions
since the 1990s and in 2005 released names and locations
of factories to encourage transparency.
4. Should international suppliers be required to adhere to U.S.
ethical standards? What about countries where child labor is
accepted? What about multinational corporations?
a. None of these questions are easy to answer.
b. They show how complex social responsibility issues are
in international markets.
5. Many U.S. executives complain that the Foreign Corrupt
Practices Act put their businesses at a competitive
disadvantage.
6. STANDARDS ON SOCIAL RESPONSIBILITY:
a. International organizations, such as the Organization of
American States, have adopted the INTER-AMERICAN
CONVENTION AGAINST CORRUPTION.
b. The INTERNATIONAL ORGANIZATION FOR
STANDARDIZATION (ISO) has developed a set of
standards for social responsibility, but these are
voluntary.
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