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CHAPTER 2: Business Ethics and Social Responsibility
Responsibility to CustomersResponsibility to EmployeesResponsibility to StockholdersResponsibility to CreditorsResponsibility to the EnvironmentWhat is Ethical Behavior?Competing Fairlyand HonestlyCommunicatingTruthfullyNot Harming OthersPlacing ones personal welfare above the welfare of the organization can cause harm to others. For instance, every year tens of thousands of people are the victims of investment scams. Insider trading is illegal and is closely checked by the Securities and Exchange Commission (SEC). Another way that businesspeople can harm others is by getting involved in a conflict of interest situation. A conflict of interest exists when choosing a course of action will benefit one persons interests at the expense of another or when an individual chooses a course of action that advances his or her personal interests over those of his or her employer.
2In business, besides obeying all laws and regulations, practicing good ethics means competing fairly and honestly, communicating truthfully, and not causing harm to others.
Businesses are expected to compete fairly and honestly and not knowingly deceive, intimidate, or misrepresent customers, competitors, clients, or employees. ENRON Case Study: Ethical IssueFormer Type : Public CompanyIndustry : Energy Founded : Omaha, Nebraska (1985)Founder(s) : Kenneth LayDefunct December 2, 2001Headquarters: Houston , United StatesRevenue $ 101 Billion (2000)Employees 22,000 (2000)
One Of The Worlds Leading Supplier Of Electricity, Natural Gas, Communications, AndPulp And Paper
Development Of Power Plants ,Pipelines CEO , CFO And Chairman Transformed Enron into Dramatic Growth
Fortune Named Enron "Americas MostInnovative Company" For Six Consecutive Years
Ethical Issue
Corporate Social ResponsibilityBusinesses need to have moral, ethical and philanthropic responsibilities along with their duty to earn a fair return for investors and to comply with law.
Corporate Social Responsibility(CSR) is defined as economic, ethical, legal and discretionary expectations that society has of organizations at a given point of time.
7EntrepreneursOrganize, manage and assume the risk of starting a businessOwnersShare ownership by issuing stock to investorsCreditorsProvide loans and charge interestEmployeesSuppliersProvide materials used to produce products and servicesCustomersBuy products that meet their needs and are priced fairlyDeliberate inclusion of public interest into corporate decision making and honoring of triple bottom line: People, planet and profit.
CSR includes not only stakeholders but also employees, suppliers, customers, local community, local, state and federal governments, environmental groups and other special interest groups.Corporate Social Responsibility8EntrepreneursOrganize, manage and assume the risk of starting a businessOwnersShare ownership by issuing stock to investorsCreditorsProvide loans and charge interestEmployeesSuppliersProvide materials used to produce products and servicesCustomersBuy products that meet their needs and are priced fairlyShould businesses involve in CSR?
9EntrepreneursOrganize, manage and assume the risk of starting a businessOwnersShare ownership by issuing stock to investorsCreditorsProvide loans and charge interestEmployeesSuppliersProvide materials used to produce products and servicesCustomersBuy products that meet their needs and are priced fairlyHow businesses contribute to society through CSR?
10EntrepreneursOrganize, manage and assume the risk of starting a businessOwnersShare ownership by issuing stock to investorsCreditorsProvide loans and charge interestEmployeesSuppliersProvide materials used to produce products and servicesCustomersBuy products that meet their needs and are priced fairlyShould businesses involve in CSR?Primary Stakeholder (Main)People that actively participated with the company and directly work there.Secondary Stakeholder (Supporter)Is stakeholder that has no directly business due to a project, but they concern so they have impact.Key StakeholderThat has legal in the decision making.11EntrepreneursOrganize, manage and assume the risk of starting a businessOwnersShare ownership by issuing stock to investorsCreditorsProvide loans and charge interestEmployeesSuppliersProvide materials used to produce products and servicesCustomersBuy products that meet their needs and are priced fairlyCorporateSocial ResponsibilitySocial AuditsCause-RelatedMarketingPhilanthropyRecyclingProgramsMedicalResearchWorthy CausesCharitiesHumanitarianAidEducation12Businesses that give back to society are finding that their efforts can lead to a more favorable public image and stronger employee morale. Thus, more and more organizations are attempting to be socially responsible citizens by conducting a social audit, by engaging in cause-related marketing, or by being philanthropic.A social audit is a systematic evaluation and reporting of the company's social performance. The report typically includes objective information about how the company's activities affect its various stakeholders. Companies can also engage in cause-related marketing, in which a portion of product sales help support worthy causes. Some companies choose to be socially responsible corporate citizens by being philanthropic; that is, they donate money, time, goods, or services to charitable, humanitarian, or educational institutions.
Early20th CenturyMiddle20th CenturyEarly21st CenturyMaximizeProfitsProvide Jobsand Pay TaxesBalance Ethicsand ProfitsSocial Responsibility in BusinessPeople with equally good intentions can arrive at different conclusions based on different assumptions about the role of business in society. These perspectives can be grouped into three general categories: (1) the only responsibility of business is to make money, (2) business has a larger responsibility to society (and ethical behavior leads to financial success) and (3) businesses must balance social responsibility and financial objectives.
13Responsibility Toward ConsumersFreedom of ChoiceRight to Be HeardAccurate InformationProduct Safety14The 1960s activism that awakened business to its environmental responsibilities also gave rise to consumerism, a movement that put pressure on businesses to consider consumer needs and interests. At the federal level, President John F. Kennedy announced a "bill of rights" for consumers, laying the foundation for a wave of consumer-oriented legislation. These rights include the right to safe products, the right to be informed, the right to choose, and the right to be heard.The Consumer Product Safety Commission imposes many safety standards. However, unsafe goods and services are a major concern. While unsafe toys and automobiles grab a lot of the headlines, the range of product safety issues is quite broad, and it is evolving as technology advances and society changes.Consumers have a right to know what they are buying, how to use it, and whether it presents any risks to them. They also have a right to know the sales price of goods or services and the details of any purchase contracts. In the USA, the number of products available to consumers is amazing. But how far should the right to choose extend? Are we entitled to choose products that are potentially harmful, such as liquor, tobacco, and guns. Consumer groups, businesses, and the government are all concerned about such questions, but no clear answers have emerged. Many companies have established toll-free numbers for consumer information and feedback. More companies are establishing websites to provide product information and a vehicle for consumer feedback.
Responsibility TowardEmployeesEqual EmploymentOpportunityAffirmativeActionOccupationalHealth and SafetyAmericans withDisabilities Act15For some companies, the past 30 years have brought dramatic changes in the attitudes and composition of the workforce. These changes have forced businesses to modify their recruiting, training, and promotion practices, as well as their overall corporate values and behaviors. The Civil Rights Act of 1964 established the Equal Employment Opportunity Commission (EEOC)the regulatory agency that battles job discrimination. The Civil Rights Act of 1991 extended the original act by allowing workers to sue companies for discrimination and by granting women powerful legal tools against job bias.In the 1960s, affirmative action programs were developed to encourage organizations to recruit and promote members of minority groups. In addition to affirmative action programs, about 75 percent of U.S. companies have established diversity initiatives. In 1990 people with a wide range of physical and mental difficulties got a boost from the passage of the federal Americans with Disabilities Act (ADA), which guarantees equal opportunities for an estimated 50 million to 75 million people who have or have had a condition that might handicap them. During the activist 1960s, mounting concern about workplace hazards resulted in passage of the Occupational Safety and Health Act of 1970, which set mandatory standards for safety and health and which established the Occupational Safety and Health Administration (OSHA) to enforce them.Balancing Business and Stakeholders RightsBusinessSafe ProductsProduct ChoiceConsumersInformed PurchaseEmployeesEquityHealth & SafetyInvestorsProfitsFair DisclosureSocietyCleanEnvironment16Exactly how much can businesses contribute to social concerns? This is a difficult decision for most companies because they have limited resources. They must allocate their resources to a number of goals, such as upgrading facilities and equipment, developing new products, marketing existing products, and rewarding employee efforts, in addition to contributing to social causes. This juggling act is a challenge that every business faces. For example, if a company consistently ignores its stakeholders, its business will suffer and eventually fold. If the company disregards society's needs (such as environmental concerns), voters will clamor for laws to limit the offensive business activities, consumers who feel their needs and values are being ignored will spend their money on a competitor's products, investors who are unhappy with the company's performance will invest elsewhere, and employees whose needs are not met will become unproductive or will quit and find other jobs. As this slide shows, stakeholders' needs sometimes conflict. In such cases, which stakeholders should be served firstsociety, consumers, investors, or employees? Responsibility to Society and the EnvironmentNatural Resourcesand PollutionEnvironmental ActivismBusinessEnvironmentConsumers17The three-way relationship among business, the natural environment, and humans (consumers) who rely on the environment is a great example of the complex ethical decisions that managers often face. People want products to make their lives safer, simpler, and more enjoyable. However, the creation, delivery, and use of those products always generates pollution which can make peoples lives less safe, more complicated, and less enjoyable. Moreover, the process of business consumes natural resources, either directly or indirectly. Environmentalists sometimes portray business leaders as heartless profiteers who would strip the Earth bare for the sake of profit. Corporate leaders often cast environmentalists as tree-hugging, fringe lunatics. Try to keep two important points in mind. First, we all consume natural resources and generate pollution to some degree, so we are all part of the problem; and US consumers have not shown much willingness to make sacrifices in the interest of the environment. Second, environmentalists take on causes that are often as much about human health and safety as they are about forests, rivers, and wildlife. Pervasiveness of PollutionIndustrial DischargesVehicle EmissionsChemical Spills18Environmental issues exemplify the difficulty that businesses encounter when they try to reconcile conflicting interests: Society needs as little pollution as possible from businesses. But producing quality products to satisfy customers needs can cause pollution to some degree. For decades, environmentalists have warned businesses and the general public about the dangers of pollution (the contamination of the natural environment by the discharge of harmful substances). Our air, water, and land can easily be tainted by industrial discharges, aircraft and motor vehicle emissions, and a number of chemicals that spill out into the environment as industrial waste products. Moreover, the pollution in any one element can easily taint the others. For instance, when emissions from coal-burning factories and electric utility plants react with air, they can cause acid rain, which damages lakes and forests.
Business Effortsto Reduce PollutionEnvironmental IssuesEnvironmental StaffPerformance ExpectationsPerformance RewardsLong-Term CostProduct DevelopmentSupplier ExpectationsTraining and Awareness19While some companies must be pressured by the federal government or private citizens to stop polluting the environment, others do a good job regulating themselves. Many companies are addressing environmental concerns by taking the following actions: Considering environmental issues a part of everyday business and operating decisions. Accepting environmental staff members as full-fledged partners in improving the company's competitiveness. Measuring environmental performance. Tying compensation to environmental performance. Determining the long-term environmental costs before such costs occur. Considering environmental impact in the product-development process. Challenging suppliers to improve environmental performance. Conducting environmental training and awareness programs.In addition to these actions, companies are reducing the amount of solid waste they send to landfills by implementing company-wide recycling programs. Hundreds of thousands of tons of waste have also been eliminated through conservation and more efficient production.Responsibility Toward InvestorsFair ProfitDistributionEthicalBehaviorSocialResponsibility20Clearly, a business can fail its investors by depriving them of their fair share of the profits. Today a growing number of investors are concerned about the business ethics and social responsibility of the companies in which they invest. Aggrieved investors are filing lawsuits against the management of companies that admit to accounting irregularities, their boards of directors, and their audit committees. Global Ethics and Social ResponsibilityBriberyEnvironmental AbuseUnscrupulous Business Practices21As complicated as ethics and social responsibility can be for U.S. businesses, these issues grow even more complex when cultural influences are applied in the global business environment. Corporate executives may face simple questions regarding the appropriate amount of money to spend on a business gift or the legitimacy of payment to expedite business. Or they may encounter out-and-out bribery, environmental abuse, and unscrupulous business practices. In Chapter 3 we discuss global business and highlight how a countrys ethical codes of conduct, laws, and cultural differences are indeed put to test as more and more companies transact business around the globe.
