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Chapter 04 Demanding Ethical and Socially Responsible Behavior McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Ethical Standards are Fundamental WHAT are ETHICS? LG1 • Ethics -- The standards of moral behavior. Behaviors that are accepted by society as right versus wrong. • What is right is whatever works best for an individual… This is a mentality that has lead to current problems. • Everyone can work it out for themselves… 4-2 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. Bernie Madoff Source: Securities and Exchange Commission, www.sec.gov, accessed June 2011. 4-3 COST of CORRUPTION (Legal Briefcase) early 2000 • Madoff Investment Securities: Bernie Madoff is serving 150 years behind bars after running his exclusive wealth management firm as a gigantic Ponzi scheme. (started in 1970…wealth management firm) • 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. (hiding debt) 4-4 Ethical Standards are Fundamental BASIC MORAL VALUES Is it legal? Is it ethical? LG1 Right: • Integrity • Respect for human life • Self-control Wrong: • Cheating • Cowardice • Cruelty • Honesty 4-5 Ethics Begins with Each of Us ETHICS and YOU LG2 • 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. 4-6 Ethics Begins with Each of Us LG2 FACING ETHICAL DILEMMAS It can be a hard balance…with equally unsatisfactory alternatives • Ask yourself these questions: - Is it legal? Drinking and driving, stealing $ from your company Would I want to be treated this way, I’m I benefitting at the expense of others - Is it balanced? - How will it make me feel about myself? Will my family be proud, can I tell my supervisor, has someone told me not to tell? 4-7 Managing Businesses Ethically and Responsibly LG3 ETHICS START at the TOP • Organizational ethics begin at the top. • Managers can help instill corporate values in employees – leads to increased trust and cooperation. • Is ethics a personal matter? • Exp. Cell phone providers Overly ambitious goals and incentives can create an environment in which unethical actions like this can occur 4-8 Setting Corporate Ethical Standards ETHICS CODES • Not all US companies practices the same ethical standards. LG4 • 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. Exp. Budweiser’s campaign “Drink responsibly” 4-9 Setting Corporate Ethical Standards LG4 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. 4-10 Setting Corporate Ethical Standards LG4 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. 4-11 Corporate Social Responsibility LG5 CORPORATE SOCIAL RESPONSIBILITY • Corporate Social Responsibility (CSR) -- The concern businesses have for the welfare of society. • CSR proponents argue that businesses owe their existence to the societies they serve and cannot exist in societies that fail. 4-12 Corporate Social Responsibility LG5 CORPORATE PHILANTHROPY and SOCIAL INITIATIVES • Corporate Philanthropy -- Includes charitable donations. • Corporate Social Initiatives -- Include enhanced forms of corporate philanthropy. 4-13 Responsibility to Investors INSIDER TRADING LG5 • 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. Example – IBM take over of Lotus development SCC filed charges against 23 people…many paid penalties of twice their profit 4-14 Responsibility to Employees LG5 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. • Getting even…makes good people act poorly… 4-15 Social Auditing SOCIAL AUDITING LG5 • Social Audit -- A systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs. • Five Types of Social Audit Watchdogs – “outside groups” 1) 2) 3) 4) 5) Socially conscious investors Socially conscious research organizations Environmentalists Union officials Customers 4-16