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Chapter 2 Business Ethics and Social Responsibility MARIANNE M. JENNINGS B U S I N E S S Its Legal, Ethical & Global Environment 6th Ed. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Why Business Ethics? Importance of Values in Business Success Ethics Resource Center Study • Firms with written codes of ethics did substantially better as an investment than the general Dow Jones Composite over a 30-year period • Executives feel ethical behavior strengthens a firm’s competitive edge • Johnson & Johnson recall of Tylenol earned it high respect and higher earnings in spite of cost 2 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Why Business Ethics? Costs of Unethical Behavior Defense contractors and current reputation Beech-Nut and the loss in sales from selling fake “apple” juice Boycotts over Nestlé’s infant formula marketing programs in Third World nations 3 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Why Business Ethics? Costs of Unethical Behavior Savings and loan industry and abuses Exxon and the Valdez oil spill Barings Bank, Gibson Greetings, Procter & Gamble, Orange County, Bankers Trust and derivatives Staged gas tank explosion of GM trucks by Dateline NBC 4 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Why Business Ethics? Costs of Unethical Behavior To All Increased regulation for manufacturers Decreased profits to shareholders Loss of consumer confidence 5 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Why Business Ethics? Ethics as a Strategy Affords opportunity for planning and ability to answer social needs and cultural changes Creates goodwill between business and the community • Absence of goodwill can be costly 6 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Why Business Ethics? Business Ethics for Personal Reasons Not all ethical firms are profitable firms Not all unethical firms are unprofitable • Examples: Exxon and Johns-Manville Being personally ethical is really a personal standard of behavior. • It is the correct thing to do 7 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Why Business Ethics? The Value of a Good Reputation “A reputation, good or bad, is tough to shake.” Richard Teerlink, former CEO, HarleyDavidson “A bad reputation is like a hangover. It takes a while to get rid of, and it makes everything else hurt.” James Preston, former CEO, Avon 8 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Why Business Ethics? Leadership’s Role in Ethical Choices Leadership is the ability to see the problem before it becomes a legal liability and fix it. Enron, WorldCom scandals. 9 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Ethics and Leadership 10 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. What is Business Ethics? Applying Standards of Moral Reasoning to Business Dilemmas Moral standard is established Individual moral standards differ Debate over sources of moral standards Evaluate moral standards and conflicts as new data appear 11 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. What is Business Ethics? Sources of Moral Standards Actual or positive law Natural law Moral relativism or situational ethics Religious beliefs or divine revelation Conflicts Among Business Shareholders want profits Employees want safe, secure jobs 12 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. What is Business Ethics? Conflicts Among Business Social Responsibility • Wants plant’s economic base but does not want its environment destroyed • Dilemma: Should a company shut down to install stateof-the-art scrubbers on its plant? Friedman Perspective Should only undertake a project if it benefits the business. Example: Firms should engage in pollution control to attract workers not to benefit the community 13 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Ethical Postures, Social Responsibility and Business Practice WHOMResponsibilities SHOULD SHAREHOLDERS SERVE? Social of Corporations Moral question: Whose interest should corporation serve? Inherence Shareholders only Policy question: Best way to serve interest is if the corporation is responsive to: Shareholders only Enlightened selfinterest Invisible hand Shareholders only Larger society Larger society Shareholders only Social responsibility Larger society 14 Larger society Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Ethical Postures, Social Responsibility and Business Practice Whose interest does a corporation serve and what is the best way to serve that interest? The inherence school • Serve shareholders • Friedman view The enlightened self-interest school • Manager is responsible first to shareholders but serves them best by being responsible to larger society • Business value is enhanced if it is responsive to society needs 15 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Ethical Postures, Social Responsibility and Business Practice The invisible hand school Managers believes larger society should be served but manager does that best by serving shareholders first Do not become involved in political or social responsibility issues - allow others to handle issues and they will comply The social responsibility school Manager should serve larger society 16 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Recognizing Ethical Dilemmas The Language of Ethical Lapses “Everybody else does it” • Example: Zoë Baird's employment of illegal immigrants and her failure to pay payroll taxes on their earnings “If we don’t do it, someone else will.” • Example: Selling O.J. Simpson masks and bloody knives 17 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Recognizing Ethical Dilemmas The Language of Ethical Lapses “That’s the way it has always been done.” • Examples: Audit committees, independence, and eventual SEC rules “We’ll wait until the lawyers tell us it’s wrong” • Example: Derivatives—legality does not determine morality 18 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Recognizing Ethical Dilemmas The Language of Ethical Lapses “It doesn’t really hurt anyone” • Examples: Freeway rubberneckers, health insurance claims and rising premiums “The system is unfair” • Example: Cheating does not improve the system “I was just following orders” • Example: German border guards, sometimes morality requires disobedience 19 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Recognizing Ethical Dilemmas Categories of Ethical Dilemmas Taking things that don’t belong to you • Example: Pens to postage to embezzlement Saying things you know are not true • Example: Blaming others for your slip-ups Giving or allowing false impressions • Example: Movie ads quoting reviews selectively to give the false impression that the reviewer likes the movie 20 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Recognizing Ethical Dilemmas Categories of Ethical Dilemmas Buying influence or engaging in conflict of interest • Example: Those who award contracts accept perks from bidders Hiding or divulging information • Example: In contract negotiations, failure to reveal important/material information; with employees, revealing private information 21 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Recognizing Ethical Dilemmas Categories of Ethical Dilemmas Taking unfair advantage • Example: Capitalizing on another’s inexperience Committing acts of personal decadence • Example: Office parties that result in drunken behavior that harms others Perpetrating interpersonal abuse • Example: Harassment 22 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Recognizing Ethical Dilemmas Categories of Ethical Dilemmas Permitting organizational abuse • Examples: Child labor issues, low wages Violating rules • Example: Follow procedures for finances because of internal control issues; work to change rules, don’t violate them Condoning unethical actions • Examples: Disclosing problems and confronting violators 23 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Resolution of Business Ethical Dilemmas Blanchard and Peale Is it legal Is it balanced How does it make me feel The Front-Page-of-the-Newspaper Test How would the story be reported Use an objective and informed reporter’s view 24 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Resolution of Business Ethical Dilemmas Laura Nash and Perspective How would I view the problem if I sat on the other side of the fence Am I able to discuss my decision with my family, friends, and those closest to me What am I trying to accomplish 25 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Resolution of Business Ethical Dilemmas The Wall Street Journal Model Compliance • Are you violating any laws Contribution • What does this action contribute to my customers, shareholders, bondholders, employees, community, and suppliers Consequences • How will this action affect me, my company, my family, our employees, and our shareholders 26 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Creating an Ethical Atmosphere The Tone at the Top Clear signals are necessary for good business ethics • Sears and its auto repair issues with pay incentives • Hotlines for reporting violations • Du Pont and its ethics bulletins Developing an Ethics Stance Setting parameters for personal and business behavior Setting tone of tolerance or intolerance for behavior 27 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Creating an Ethical Atmosphere RELATIVISM Did she understand that embezzlement is wrong Why did she take the money How long was she embezzling ABSOLULTISM Termination PRAGMATIC IDEALISTIC 28 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Creating an Ethical Atmosphere Watch for Dangers of Unethical Environment Intense competition and issues of survival Managers making poor judgments Employees with no personal values 29 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Ethical Issues in International Business Businesses Must Decide Whether to Operate Under One Uniform Set of Standards Cultures, Laws, and Standards Vary Creates issues of bribes, grease payments, and culture-related gifts Problems of economic development where bribery is common • Additional costs and Lack of Trust • Basic assumptions underlying economic model of capitalism do not exist and make investment more difficult 30 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Ethical Issues in International Business Least Corrupt Countries Denmark 9.94 Finland 9.48 Sweden 9.35 New Zealand 9.23 Canada 9.10 Netherlands 9.03 Norway 8.92 Australia 8.86 Most Corrupt Countries India 2.75 Indonesia 2.72 Mexico 2.66 Pakistan 2.53 Russia 2.27 Columbia 2.23 Bolivia 2.05 Nigeria 1.76 31 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved.