Chapter 04 Demanding Ethical and Socially Responsible Behavior

Chapter Four LEARNING GOALS 1. Explain why obeying the law is only the first step in behaving ethically. 2. Ask the three questions you need to answer when faced with a potentially unethical action. 3. Describe management’s role in setting ethical standards. 4 -2

Chapter Four LEARNING GOALS 4. Distinguish between compliance-based and integrity-based ethics codes, and list the six steps in setting up a corporate ethics code. 5. Define corporate social responsibility and compare corporations’ responsibilities to various stakeholders. 6. Analyze the role of U. S. businesses in influencing ethical behavior and social responsibility in global markets. 4 -3

Profile BLAKE MYCOSKIE TOMS Shoes • While appearing on The Amazing Race, Mycoskie saw how badly local children in Argentina needed shoes. • He founded TOMS in 2006. • TOMS gives a pair of shoes to a child in need for every pair sold. 4 -4

Chapter Four NAME that COMPANY This company has a program it calls Social Service Leave that allows employees to take up to a year off to work for a nonprofit organization while earning their full salary and benefits, including job security. Name that company! 4 -5

Ethics is More Than Legality LIFE AFTER SCANDAL LG 1 • Scandals have shaken the real estate, mortgage and banking industries. • How do we restore trust in the free market system? - Punish those who have broken the law. - Make accounting records more transparent. - Consider what is ethical, not just what is legal. 4 -6

COST of CORRUPTION (Legal Briefcase) • Madoff Investment Securities: Bernie Madoff is serving 150 years behind bars after running his exclusive wealth management firm as a gigantic Ponzi scheme. • Enron: Jeffery Skilling is serving a 24 year sentence for accounting fraud while Richard Causey, who pled guilty, will be released in October 2011. Former CEO, Kenneth Lay, died before sentencing. • World. Com: Former CEO, Bernie Ebbers, was convicted of fraud, conspiracy and false filings and sentenced to 25 years. 4 -7

WHAT is a PONZI SCHEME? • A fraud by paying returns to existing investors from funds contributed by new investors. • New investors are promised opportunities claimed to generate high returns with little or no risk. • Fraudsters focus on attracting new money to make promised payments. Source: Securities and Exchange Commission, www. sec. gov, accessed June 2011. 4 -8

Ethical Standards are Fundamental WHAT are ETHICS? LG 1 • Ethics -- The standards of moral behavior. Behaviors that are accepted by society as right versus wrong. 4 -9

Ethical Standards are Fundamental BASIC MORAL VALUES LG 1 Right: • Integrity • Respect for human life • Self-control Wrong: • Cheating • Cowardice • Cruelty • Honesty • Courage • Self-sacrifice 4 -10

Ethics Begins with Each of Us ETHICS and YOU LG 2 • Plagiarizing from Internet materials is the most common form of cheating in schools today. • Studies found a strong relationship between academic dishonesty and dishonesty at work. 4 -11

FACEBOOK or FAKEBOOK? (Making Ethical Decisions) • Facebook scams are becoming more prevalent. • Some scammers pose as military servicemen and establish relationships with women, then request money for phone calls or trips home. • Surveys can generate money for scammers, but then some also teach others how to scam other users. • Do you think it’s ethical to create a fake account? Why not? 4 -12

Ethics Begins with Each of Us FACING ETHICAL DILEMMAS LG 2 • Ask yourself these questions: - Is it legal? - Is it balanced? - How will it make me feel about myself? 4 -13

Ethics Begins with Each of Us BRIBERY BAD BOYS Five Open FCPA Investigations LG 2 Company Case and Amount Reserved for Possible Settlements ABB Potential bribery on three continents. $300 million Weatherford Possible bribery issues in Europe and Africa. $106 million ENI Allegedly bribed Nigerian officials. $300 million Technip Allegedly bribed Nigerian officials. $300 million Alcatel-Lucent Bribed officials in Costa Rica, Kenya and Taiwan. $137 million settlement expected Source: Forbes, May 24, 2010. 4 -14

Progress Assessment PROGRESS ASSESSMENT • What are ethics? • How do ethics differ from legality? • When faced with ethical dilemmas, what questions can you ask yourself that might help you make ethical decisions? 4 -15

Managing Businesses Ethically and Responsibly ETHICS START at the TOP LG 3 • Organizational ethics begin at the top. • Managers can help instill corporate values in employees. • Trust between workers and managers must be based on fairness, honesty, openness and moral integrity. 4 -16

Managing Businesses Ethically and Responsibly LG 3 FACTORS INFLUENCING MANAGERIAL ETHICS Individual • Values • Work Background Organizational Environmental • Top Level Management Philosophy • Family Status • Firm’s Reward System • Personality • Competition • Economic Conditions • Job Dimensions • Social/Cultural Institutions 4 -17

Setting Corporate Ethical Standards ETHICS CODES LG 4 • An increasing number of companies have adopted written codes of ethics. • Compliance-Based Ethics Code -- Emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers. • Integrity-Based Ethics Code -- Define the organization’s guiding values, create an environment that supports ethically sound behavior and stress a shared accountability. 4 -18

Setting Corporate Ethical Standards LG 4 HOW to IMPROVE AMERICA’S BUSINESS ETHICS 1. Top management must adopt and unconditionally support an explicit corporate code of conduct. 2. Employees must understand that senior management expects all employees to act ethically. 3. Managers and others must be trained to consider the ethical implications of all business decisions. 4 -19

Setting Corporate Ethical Standards LG 4 HOW to IMPROVE AMERICA’S BUSINESS ETHICS 4. An ethics office must be set up with which employees can communicate anonymously. Whistleblowers -- Insiders who report illegal or unethical behavior. 5. Involve outsiders such as suppliers, subcontractors, distributors and customers. 6. The ethics code must be enforced. 4 -20

Setting Corporate Ethical Standards LG 4 HOW to PREVENT UNETHICAL BEHAVIORS 1. Managers must communicate the organization’s vision on ethical behavior. 2. Organizations must have a code of ethics. 3. Policies have to be enforced regarding ethical offences. 4. Ethical responsibility must be taught to all employees. Source: James Gehrke, Magnify Leadership & Development, November 2008. 4 -21

Setting Corporate Ethical Standards LG 4 HOW to PREVENT UNETHICAL BEHAVIORS 5. Discussions of ethics must be included in the decision-making process. 6. Accountability must be taken seriously at all levels in the organization. 7. Organizations must act fast when a crisis occurs. 8. Employees must know they have to defend and maintain the company’s reputation. Source: James Gehrke, Magnify Leadership & Development, November 2008. 4 -22

Progress Assessment PROGRESS ASSESSMENT • What are compliance-based and integrity-based ethics codes? • What are the six steps to follow in establishing an effective ethics program in a business? 4 -23

Corporate Social Responsibility LG 5 CORPORATE SOCIAL RESPONSIBILITY • Corporate Social Responsibility (CSR) -- The concern businesses have for the welfare of society. • CSR is based on a commitment to integrity, fairness, and respect. • CSR proponents argue that businesses owe their existence to the societies they serve and cannot exist in societies that fail. 4 -24

Corporate Social Responsibility LG 5 CORPORATE PHILANTHROPY and SOCIAL INITIATIVES • Corporate Philanthropy -- Includes charitable donations. • Corporate Social Initiatives -- Include enhanced forms of corporate philanthropy. 4 -25

Corporate Social Responsibility LG 5 CORPORATE RESPONSIBILITY and POLICY • Corporate Responsibility -- Includes everything from hiring minority workers to making safe products, minimizing pollution, using energy wisely, and providing a safe work environment. • Corporate Policy -- The position a firm takes on social and political issues. 4 -26

Corporate Social Responsibility LG 5 POSTIVE IMPACTS of COMPANIES • Xerox offers a Social Service Leave program. • The recent recession caused 60% of companies to cut their philanthropic donations. However, now they’re more likely to give time and goods. • Two-thirds of MBA students surveyed reported they would take a lower salary to work for a socially responsible company. 4 -27

Corporate Social Responsibility HELPING HANDS LG 5 Most Generous Celebrities Who? For? George Clooney United Way; UN Messenger of Peace Angelina Jolie & Brad Pitt Make it Right Foundation; UN Ben Affleck UN Madonna Raising Malawi Michael J. Fox Foundation for Parkinson’s Research Alicia Keys Keep a Child Alive; Frum Tha Ground Up Sir Elton John AIDS Foundation Matt Damon Green. Dimes; H 2 O Africa; Running the Sahara Oprah Winfrey Angel Network Source: Parade Magazine, www. parade. com, July 8, 2010. 4 -28

Corporate Social Responsibility GENEROUS GUYS LG 5 World’s Biggest Givers Who? How Much? What For? Bill Gates $28 B Malaria, public health, education Warren Buffett $8. 3 B Gates Foundation George Soros $8 B Human rights, democracy Gordon Moore $6. 8 B Environment Carlos Slim $4 B Education, healthcare Eli Broad $2. 6 B Education, arts Azim Premji $2. 1 B Education James Stowers $2 B Genetic research Michael Bloomberg $1. 8 B Antismoking, transportation Li Ka-Shing $1. 6 B Education, healthcare Source: Forbes, June 6, 2011. 4 -29

Corporate Social Responsibility LIFE AFTER TRAGEDY LG 5 Japan’s Post-Tsunami Big Givers Who? What? Masayoshi Son Sent 12, 000 cell phones to the area, created an i. Phone app for donations Saji Family Gave $3. 7 million and shipped 360, 000 bottles of water Akio Toyoda Toyota gave $3. 7 million after 11 car plants closed temporarily Tadashi Yanai Gave $12 million Kenji Kasahari Raised $2 million on Mixi, aided in finding missing persons Yoshikazu Tanaka Sold volunteer avatars online and the proceeds went to disaster relief Source: Forbes, April 11, 2011. 4 -30

Responsibility to Customers LG 5 PRESIDENT KENNEDY’S BASIC RIGHTS of CONSUMERS • The Right to Safety • The Right to be Informed • The Right to Choose • The Right to be Heard 4 -31

Responsibility to Customers HOW DO CUSTOMERS KNOW? LG 5 • Over 70% of executives say their primary use of social media is to communicate CSR efforts. • Social media allows companies to reach a broad, diverse group and connect directly to them. • Now more than ever, it’s important for companies to live up to their expectations. 4 -32

Responsibility to Customers LG 5 SOCIAL CUSTOMER CONTACT Do’s and Don’ts of Using Twitter for Business Do Don’t Engage followers in discussion relevant to your industry. Start political rants. Think about your message before tweeting. Deleted tweets can still be found! Tweet impulsively. Frequently offer new content. Let your account lie dormant. Create separate accounts for business and personal use. Make personal announcements via your company’s Twitter account. Source: Entrepreneur, September 2010. 4 -33

Responsibility to Investors INSIDER TRADING LG 5 • Insider Trading -- Insiders using private company information to further their own fortunes or those of their family and friends. • Unethical behavior does financial damage to a company and investors are cheated. 4 -34

Responsibility to Employees LG 5 RESPONSIBILITY to EMPLOYEES • Create jobs and provide a chance for upward mobility. • Treat employees with respect. • Offer salaries and benefits that help employees reach their personal goals. 4 -35

Responsibility to Employees LG 5 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. AMERICA’S MOST ADMIRED COMPANIES Apple Google Berkshire Hathaway Southwest Airlines Procter & Gamble Coca-Cola Amazon Fed. Ex Microsoft Mc. Donald’s Source: Fortune, www. forbes. com, March 21, 2011. 4 -36

Responsibility to Employees LG 5 WHEN EMPLOYEES are UPSET… • Employee fraud costs U. S. businesses about 5% of annual revenue and causes 30% of all business failures. • Disgruntled workers relieve frustration by: - Blaming mistakes on others. Manipulating budgets and expenses. Making commitments they intend to ignore. Hoarding resources. Doing the minimum. 4 -37

Responsibility to Society and the Environment LG 5 SOCIETY and the ENVIRONMENT • Over one-third of working Americans receive their salaries from nonprofits – who are dependent on funding from others. • The green movement emerged as concern about global warming increased. • Many companies are trying to minimize their carbon footprints – the amount of carbon released during an item’s production, distribution, consumption and disposal. 4 -38

Responsibility to Society and the Environment LG 5 RESPONSIBILITY to the ENVIRONMENT • Environmental efforts may increase costs, but can offer good opportunities. • The emerging renewable-energy and energyefficiency industries account for 9 million U. S. jobs. • By 2030, as many as 40 million “Green” jobs will be created. 4 -39

SUSTAINABLE or SUSPECT: GREENWASHING (Thinking Green) • With public concern over the environment, companies are finding greener ways of doing business. • Some companies are claiming they are more environmentally responsible than they actually are, a practice called “greenwashing. ” • Websites such as Greener Choices and Greenwashing Index screen ads for greenwashing. 4 -40

Responsibility to Society and the Environment LG 5 WORTHY CAUSES What $1, 000 and $10, 000 Can Buy $1, 000 $10, 000 5 acres of Louisiana wetlands for The Conservation Fund 4 community fishing ponds in the Congo through Action Against Hunger 13 work uniforms for homeless people through Coalition for the Homeless 20 Dopplers to monitor pregnancies in Latin America for Global Links 8, 000 Vitamin A capsules for children overseas from Vitamin Angels 2, 155 mosquito nets for malaria protection through International Rescue Com. Source: Money, November 2010. 4 -41

Social Auditing SOCIAL AUDITING LG 5 • Social Audit -- A systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs. • Five Types of Social Audit Watchdogs 1) 2) 3) 4) 5) Socially conscious investors Socially conscious research organizations Environmentalists Union officials Customers 4 -42

Progress Assessment PROGRESS ASSESSMENT • What’s corporate social responsibility, and how does it relate to each of a business’s major stakeholders? • What’s a social audit, and what kinds of activities does it monitor? 4 -43

International Ethics and Social Responsibility INTERNATIONAL ETHICS LG 6 • Many businesses want socially responsible behavior from their international suppliers. • In the 1970 s, the Foreign Corrupt Practices Act criminalized the act of paying foreign businesses or government leaders in order to get business. • Partners in the Organization of American States signed the Inter-American Convention Against Corruption. 4 -44

ETHICAL CULTURE CLASH (Reaching Beyond Our Borders) • Almost half of Motorola’s employees live outside the U. S. • A Motorola employee returns to his home country to work and the company reimburses living expenses so he can live in a safe area. The employee is trying to do the honorable thing for his family and the company is trying to keep the employee safe. • If the employee uses the money to help his family instead, is it right for the company to stop payment? 4 -45

Progress Assessment PROGRESS ASSESSMENT • How are U. S. businesses demanding socially responsible behavior from their international suppliers? • Why is it unlikely that there will be a single set of international rules governing multinational companies soon? 4 -46