Ethics in BusinessBetter Business

1st EditionPoatsy · Martin

© 2010 Pearson Education, Inc. 1

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Slide presentation prepared by Pam JansonStark State College of Technology

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Learning Objectives1. What are ethics and different ethical systems?2. How does a person create a personal code of ethics?3. How might personal ethics play a role in the workplace?4. How can you evaluate a company’s ethical code using available

resources such as a mission statement?5. How do a company’s policies and decisions affect its

achievement of corporate social responsibility?6. What challenges does a company face in balancing the demands

of social responsibility with successful business practices?7. What is legal compliance, and how does it affect ethical

conduct?8. What strategies can a company use to recover from ethical

lapses?9. How can companies apply ethical standards to create new

business opportunities?10. What approaches can a company use to develop and maintain

an ethical environment?

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Ethics

• What exactly are ethics?o Do all people share the

same ethics?

• Ethical systemso Moral relativismo Situational ethicso Judeo-Christian ethics

• What is amoral behavior?

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Determining Your Code of Personal Ethics

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Personal Ethics in a Business Environment

• What if you are asked to act against your ethics?

• What if you unknowingly do something “wrong”?

• What if you knowingly do something unethical or even illegal?

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Pricing Fixing

• Occurs when a group of companies agree to set a product’s price

• Mark Whitacre, a senior executive with the agricultural giant Archer Daniels Midland (ADM), blew the whistle on ADM’s multinational price-fixing scheme

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Business Ethics and Social Responsibility

• How can you examine a company’s ethics?o Companies document their philosophies, often

through:• A code of ethics—A statement of the

company’s commitment to ethical practices• A mission statement—Defines the core

purpose of an organization

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“Our mission is to enable people and businesses throughout the world to realize their full potential.”

Can you guess this company?

Corporate Social Responsibility (CSR)

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Can a Company Really Be Socially Responsible?

• Economist Milton Friedman said, “Asking a corporation to be socially responsible makes no more sense than asking a building to be.”

• How does a company balance CSR and the profits their stockholders expect?o What happens to CSR when the company

isn’t doing well?o Can CSR benefit a company financially?

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Benefits of CSR

• A positive reputation in the marketplace

• Strong recruitment and talent retention

• Increased efficiency and decreased scrap and waste

• Increased sales via product innovations and environmentally and ethically conscious labeling

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Images courtesy of Whole Foods

Measuring CSR

• Social audits• Ratings and rankings

oCalvert Company • Intel

oFortune’s 10 Most-Admired Companies• Apple

• Self-reporting• Corporate philanthropy

oDonating profits or resources• Target

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The Challenges of CSR

• Balancing the demands of social responsibility with successful business practiceso Many conflicting demands pose

numerous ethical challenges, such as:• Making life-saving drugs available to the

world’s poor.• Conducting business in an environmentally

sound manner.

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The Effects of CSR on Society

• Environmentalo Local and global

• Economico Product availability, price and qualityo Business sustainability

• Employee moraleo Advancemento Work environmento Values

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The Effects of Individuals on CSR

• Can you affect how businesses operate ethically?

• You can affect:o Your own ethical behavioro Who you do business witho Who you invest in• Socially responsible investing

o Who you work for

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Legal Regulations and Compliance

• Specific laws are created governing the products or process of a specific industry

• Example: Consumer Bill of Rights (1962)o Right to safe productso Right to choose purchaseso Right to informationo Right to be heard

• Legal complianceo Ensuring adherence to legal regulations

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Violating Ethics & the Law: The Example of Enron

• Seventh largest U.S. company at its zenith• Had a written code of ethics including social and

environmental values• In 2001, fraudulent finance practices surfaced

and the company went bankrupto Key officers found guilty of fraud and other

chargeso Arthur Andersen, Enron’s accounting firm,

convicted of obstruction of justice and the firm closed

• Sarbanes/Oxley Act passed in 2002, with strict corporate finance requirements and penalties

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Recovering fromWeak Ethical Conduct

• Whistleblower• Common strategies to recover

1. Lead by strong ethical example2. Empower all employees to make

ethical decisions and to report unethical situations

3. Redesign internal rewards to reward responsible and ethical behavior

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Creating New Markets with an Ethical Focus

• Exampleso Offering clean fuelo Creating medical

vaccineso Fighting

censorshipo Going green

• Sustainability

What other examples can you think of?

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BagMonster image courtesy of ChicoBag Co

Developing an Ethical Environment

1. Create and communicate a meaningful and current mission statement

2. Set a clear example by management3. Offer orientation programs on

company ethics to new employees4. Provide ongoing ethics training

programs

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Tips for Maintaining an Ethical Environment

• Develop a strict code of ethics and ensure it is being followed.

• Create a hotline for employees to anonymously report violations.

• Set the tone that the company is serious about ethics.

• Communicate regularly about acceptable and unacceptable business practices.

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Chapter Summary1. What are ethics and different ethical systems?2. How does a person create a personal code of ethics?3. How might personal ethics play a role in the workplace?4. How can you evaluate a company’s ethical code using available

resources such as a mission statement?5. How do a company’s policies and decisions affect its

achievement of corporate social responsibility?6. What challenges does a company face in balancing the demands

of social responsibility with successful business practices?7. What is legal compliance, and how does it affect ethical

conduct?8. What strategies can a company use to recover from ethical

lapses?9. How can companies apply ethical standards to create new

business opportunities?10. What approaches can a company use to develop and maintain

an ethical environment?

© 2010 Pearson Education, Inc. Publishing as Prentice Hall 22

Beyond the Book

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Business Ethics Challenges

Think about these scenarios that happen in organizations every day…

• An employee surfs the Internet shopping for personal items on company time

• A plant manager decides to ship a product to a customer even though he knows the parts have a quality problem because the problem doesn’t affect part function and the customer probably won’t notice

• An employee spends several hours a week on her cell phone talking with her children and their associated caregivers, schools, and friends

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How do businesses stop these situations?

Business Ethics Challenges continued

Think about these scenarios that happen in organizations every day...

• A salesperson marks parts as “sold” in the company database, thus depriving others of the ability to sell the parts, even though his sale is uncertain

• A store misrepresents the quality or functionality of an advertised sale item

• An employee takes office supplies home to stock his home office

• An accountant tells a supplier that the “check is in the mail” when she knows she hasn’t written the check

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How do businesses stop these situations?

Johnson & Johnson’s Credo

• Written in 1943 by Robert Wood Johnson• Begins:

“We believe our first responsibility is to the doctors, nurses, and patients, to mothers and fathers and all others who use our products and services.

In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices.

Customers' orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunityto make a fair profit.”

• The credo is the company’s mission statement in a sense, guiding their actions through the years.

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Business Ethics 2006Annual Award Winners

• Starbucks Coffee Companyo For leadership and corporate responsibility 

• Patagonia, Inc.o For environmental sustainability

• Berrett-Koehler Publisherso For stakeholder accountability/collaborative

product design with employees, partners and customers

• Hypertherm, Inc.o General excellence award

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Examples of Large “Green” Companies

• Honda: Most fuel-efficient auto company in the United States

• Continental Airlines: Most fuel-efficient aircraft

• PG&E: Investments in efficiency and renewables

• S.C. Johnson: Three generations of environmental stewardship

• Hewlett-Packard: Silicon Valley leader in ecosensitivity

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The Largest Corporate Foundations

Rank Name/(state) Assets

1. Bill & Melinda Gates Foundation (WA) $33,120,381,000

2. The Ford Foundation (NY) 13,659,731,000

3. J. Paul Getty Trust (CA) 10,133,371,844

4. The Robert Wood Johnson Foundation (NJ) 10,094,684,000

5. The William and Flora Hewlett Foundation (CA) 8,520,765,000

6. W. K. Kellogg Foundation (MI) 8,402,996,155

7. Lilly Endowment Inc. (IN) 7,601,664,181

8. The David and Lucile Packard Foundation (CA) 6,350,664,410

9. John D. and Catherine T. MacArthur Foundation (IL) 6,178,196,933

10. The Andrew W. Mellon Foundation (NY) 6,130,849,710

© 2010 Pearson Education, Inc. Publishing as Prentice Hall 29

Sarbanes-Oxley Act of 2002

• CEOs and CFOs must certify financial reportso Officers may face criminal penalties if

financial statements are misstated• Corporate board of directors, especially audit

committee, must provide strong guidance• Audit firm independence requirements

o Employees of audit companies cannot become client employees immediately (waiting period required)

o Audit firms may not provide consulting services

© 2010 Pearson Education, Inc. Publishing as Prentice Hall 30

Sex vs. Ethics at American Apparel

• Engages in ethical treatment of employees and the environmento Produces its clothing in the U.S., paying $12-

$13 per hour with medical benefitso Increasingly using California organic cottono Ads tout company as “sweatshop free”

• Although the company is concerned with ethical issues, “Ethical sell is too limiting” says CEO Dov Charney

• Focus is now more on “making sexy (clothes) for young people” and using provocative ads to sell them

© 2010 Pearson Education, Inc. Publishing as Prentice Hall 31