ETHICS & SOCIAL RESPONSIBILITY

CHAPTER 4

Learning Objectives

Explain why ethics are important in business.Describe a Code of Ethics.Discuss ethical dilemmas.Describe laws that deal with ethical issues.Explain the change in corporations’ views of social responsibility.Describe the ways in which businesses demonstrate their social responsibility.

The Importance of Ethics

Ethics are a set of moral principles or values that govern behavior.Individuals make personal decisions about what they believe is right and wrong.These ethical rules help individuals decide on how to behave in different situations.

Code of Ethics

Code of Ethics is a document that outlines the principles of conduct to be used in making decisions within an organization.Most companies in the United States and Canada have codes of ethics.Codes of ethics are formal documents that are shared with all employees.

Content of Ethical Code

HonestyAdherence to the lawProduct safety and qualityHealth and safety in the workplaceConflicts of interestEmployment practicesSelling and marketing practices

Content of Ethical Codes cont’d

Financial reportingPricing, billing, and contractingTrading in securities, confidential informationAcquiring and using information about competitorsPayments to obtain businessPolitical activitiesProtection of the environmentSecurity

Behaving Ethically

Business people regularly make ethical decisionsMerely establishing a code of ethics does not prevent unethical behavior. To be effective, codes of ethics must be enforcedCodes of ethics that are not enforced probably do more harm than goodIt is very important that companies discipline employees who violate ethics

Behaving ethically cont’d

Behaving unethically can hurt, or even end, a business person’s career.It can cause a company to lose millions of dollars or even go out of business altogetherBehaving ethically helps employees gain the trust of the people with whom they workIt can also help businesses gain the trust of customers, suppliers, and others.

Laws Relating to Ethics in Business

These laws apply toCompetitive behaviorConsumer protection’Product safetyEnvironmental protection

Competitve Behaviour

The Sherman Act of 1890 makes it illegal for companies to monopolize trade. Under the law, mergers can be prohibited if the new company that results from the merger will control too large a share of the market. The purpose of the law is to ensure that companies remain able to compete fairly.

The Break-Up of the Trusts

The Interstate Commerce Act of 1887The first major piece of regulatory legislation in which a law was passed in response to the widespread practice in which the railroads gave rebates to some customers but not others. It forced railroads to publish their rates and forbade them to change rates without notifying the public. The law also established the Interstate Commerce Commission (ICC) to supervise the railroads

The Clayton Act of 1914

Makes it illegal to charge different prices to different wholesale customers. This means that a manufacturer of steel cannot charge one price to General Motors and another price to Chrysler.The Clayton Act also bans the practice of requiring a customer to purchase a second good. For example, a person buying a computer should not be required to buy software as well.

The Wheeler-Lea Act of 1938

Bans unfair or deceptive acts or practices, including false advertisingBusinesses must inform consumers of possible negative consequences of using their productsLabeling of cigarette packages is an example of this kind of disclosure

FOOD AND DRUGS

The Federal Food, Drug, and Cosmetic Act of 1938 bans the sale of impure, improperly labeled, falsely guaranteed, and unhealthful foods, drugs, and cosmetics.The law is enforced by the FDA—Food and Drug Administration, which has the power to force manufacturers to stop selling products it considers harmful.

CONSUMER PRODUCTS

CPSC—The Consumer Product Safety Commission was established in 1972. It establishes minimum product safety standards on consumer products. If a product is found to be defective, the CPSC has the authority to force the manufacturer to recall the product. For example, in 1999, the CPSC recalled a quarter of a million Nike water bottles because the cap was not attached properly, possibly causing users to choke.

LOANS

The Truth in Lending Act of 1968 protects consumers against unfair lending practices. Under this act, creditors are required to let consumers know how much they are paying in finance charges and interest.The Equal Credit Opportunity Act of 1975 prohibits creditors from making credit decisions on the basis of discriminatory practices.

Environmental Protection

Environmental Protection Agency of 1969 (EPA)—This law was created to protect human health and safeguard the air, water and land.Since 1969, many environmental laws affecting buinesses have been passed, including the following:

The Clean Air Act 1970The Toxic Substances Control Act 1976The Clean Water Act 1977

Ethical Standards & Culture

Business ethics differ around the world—this means that business practices that are acceptable in one country may not be acceptable in othes.Business executives working around the world must be aware of these cultural standardsCompanies must set guidelines on how to operate within their own culture and in other cultures

Corporate Gift Giving

Gift-giving customs differ around the worldIn some cultures, gifts are expectedFailure to present them is considered an insultIn Japan, for example, lavish gift giving is an important part of doing business with gifts exchanged at the first meeting.In the US, government officials are not allowed to accept expensive gifts from business regardless of the local practices.

Intellectual Property

Intellectual Property refers to the ownership of ideas, such as inventions, books, movies, songs, and computer programs.In the US and many other countries, creators of intellectual property have the exclusive right to market and sell their work.These rights are guaranteed through patent, trademark, and copyright laws which ensure that only the creators of such property profit from it.

Social Responsibility

Social responsibility refers to the obligation that individual businesses have to help solve social problems.Social obligation—the obligation of a business to meet its economic and legal responsibilities and no more.Social responsiveness—the ability of a firm to adapt to changing societal conditions.

Changing views of social responsibility

Profit maximization—in the 19th and early 20th centuries, business owners in the US believed that their role was simply to maximize the profits.Today businesses are also concerned with being held accountable.

THE NETHERLANDS—International Management

Companies in The Netherlands promote a culture of equality, encouraging individual autonomy and responsibility. Managers are not intimidated by their supervisors and can directly comment on their bosses’ performance. Work often bypasses organizational levels, and employees are given freedom to implement plans and perform tasks.

Review Questions

Why is it important for businesses to act ethically?Why is it important for businesses to behave in a socially responsible manner?List five areas a code of ethics should cover.Using the Internet as a research code, find ethical codes for two different corporations.Would you feel happier working for a company that demonstrates a strong sense of social responsibility? Why or why not?