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Chapter 2
Business Ethics and
Social Responsibility
Business Ethics
The standards of conduct and moral values governing actions and
decisions in the work environment.
– Social responsibility.
– Balance between what’s right and what’s profitable.
– Often no clear-cut choices.
– Often shaped by the organization’s ethical climate (History,
Managers/CEO’s views on ethics, etc…).
High expectation of
business/organizations to uphold
ethical standards.
i.e NFL & domestic abuse.
• Vast majority of businesses
ethical.
• New corporate officers charged
with deterring wrongdoing and
ensuring ethical standards.
• Common areas where ethics are
violated:
– Putting own interest ahead of the
organization
– Lying to employee
– Misrepresenting hours
– Safety violations
– Internet Abuse
• Technology is expanding
potential for unethical behavior
Situation in which a business
decision may be influenced
for personal gain.
Employee’s disclosure
of illegal, immoral, or
unethical practices in
the organization.
Telling the truth and
adhering to deeply felt
ethical principles in
business decisions.
Businesspeople expect
employees to be loyal
and truthful, but ethical
conflicts may arise.
Social Responsibility
• Management must consider profit,
consumer satisfaction, and societal
well-being when trying to determine
ethical actions. Each are equally
important in todays 21st century
business world.
• Contributions to the overall economy,
job opportunities, and charitable
contributions/service.
• Organizations measure their
effectiveness through social audits.
• Public Health Issues. What to do about inherently dangerous
products such as alcohol, tobacco, vaccines, and steroids.
• Protecting the Environment. Using resources efficiently,
minimizing pollution.
• Recycling. Reprocessing used materials for reuse.
• Developing the Quality of the Workforce. Enhancing quality of
the overall workforce through education and diversity initiatives.
• Corporate Philanthropy. Cash contributions, donations of
equipment and products, and supporting the volunteer efforts of
company employees.
• The Right to Be Safe. Safe operation of products,
avoiding product liability.
• The Right to Be Informed. Avoiding false or misleading
advertising and providing effective customer service.
• The Right to Choose. Ability of consumers to choose
the products and services they want.
• The Right to Be Heard. Ability of consumers to
express legitimate complaints to the appropriate parties.
• Workplace Safety. Monitored by Occupational Safety and Health
Administration.
• Quality-of-Life Issues. Balancing work and family through
flexible work schedules, subsidized child care, and regulation
such as the Family and Medical Leave Act of 1993.
• Ensuring Equal Opportunity on the Job. Providing equal
opportunities to all employees without discrimination; many
aspects regulated by law.
• Age Discrimination. Age Discrimination in Employment Act of
1968 protects workers age 40 or older.
• Sexual Harassment and Sexism. Avoiding unwelcome actions
of a sexual nature; equal pay for equal work without regard to
gender.
• Obligation to make profits for shareholders.
• Expectation of ethical and moral behavior.
• Investors protected by regulation by the
Securities and Exchange Commission
and state regulations.
Reasons for importance of
ethics
1.
2.
3.
4.
5.
Reputation
Investor confidence
Financial performance
Unlocking human potential
Building trust
1. Reputation
Reputation
“The collective opinion of stakeholders
towards an organisation based on its past
record”
(Nakra)
1. Reputation
Importance of reputation






Credibility of leaders
Ability to sell products/services
Attract investors
Hire talented staff
Loyalty of supply chain
Exert influence on government
Reputation as competitive edge
 “Ethical behaviour is good business.
Companies that operate ethically have
a competitive edge over those that do
not” (Moore: Former Chairman of PWC)
Ethics and reputation
 Do you think Reputation matters?
 Can you think of examples where
companies reputations were hurt or
enhanced because of ethical/a lack of
ethical practices?
2. Investor confidence
 Investors are looking for:
• Responsible, Accountable, Fair and
Transparent management
• Enterprises with a strong ethical foundation
Why? Because they want to know that their money
will be safe, and that their own reputation will not be
damaged by being associated with a company.
McKinsey Investor Opinion
Survey
200+ institutional investors surveyed
(Managed more than US $2 trillion)
 85% consider corporate governance as
important as financial performance.
 73% will pay more for shares of well
governed company than for a poorly
governed company with comparable
financial results.
“Markets exists by the grace of investors.
If a country does not have a reputation for
strong corporate governance practices,
capital will flow elsewhere.
It serves us well to remember that no market
has a divine right to investor’s capital.”
Arthur Levitt
(Former Chair of US Securities Exchange)
3. Financial performance
Harvard Business School Study
Benefits of inculcated organisational values
1000
900
800
700
600
500
400
300
200
100
0
901
Percentage
growth organisational
values
756
682
282
166
36
Growth in
revenue
Growth in
workforce
74
Growth in
share value
1
Growth in
net
incomes
Percentage
growth - lack of
organisational
values
Data courtesy of
I-Value
Risk Management (Pty) Ltd
Ethics and financial
performance
Average MVA
Average Market Value Added (MVA)
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Company - with Code
Company - all
Company - no Code
1997
1998
1999
2000
So, does ethics pay?
 Possible bad consequences of
detected unethical business
– Corporate collapses
• Enron, Worldcom, Parmalat
– Losses of jobs, investments, pensions
 Still, in the short term, there is no
guarantee that good ethics will be
good (profitable) business
4. Unlocking human potential
Effects of unethical treatment on
employees:






Job dissatisfaction
High employee turnover
Absenteeism
Theft
Sabotage
Inhibit creativity
Ethics unlocks human
potential
“Respect for the individual “
The most pervasive theme in excellent
companies
Peters and Waterman: In Search of Excellence
Ethics unlocks human
potential
In a recent US study 3 factors ranked
among employees’ five top-ranked goals,
before good pay and job security
 Ethical corporate behavior
 Honest company communications
 Respectful treatment
5. Building trust
Why trust is needed in organisations:




Distrust is expensive
Trust facilitates co-operation
Trust unlocks knowledge
Trust promotes loyalty
Trustworthiness
 Trustworthiness = being worthy of others’
confidence/trust that one will act with the right motive
in accord with moral values (norms)
 The facilitators of trustworthiness
Openness
Competency
Integrity
Benevolence
Reputation
For all cases, answer the following questions:
1. What is the ethical issue in play here?
2. What rights does the main character have
in this situation?
3. How do you feel company management
should handle the situation?
4. If you were in that situation, how would you
handle things?