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Chapter 4: BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

Doing Well by Doing Good

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ETHICS AND SOCIAL RESPONSIBILITY

ETHICSBeliefs about

right and wrong.

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BUSINESS ETHICS: NOT AN OXYMORON

Business Ethics – the application of right and wrong in the workplace.

Ethical Dilemma

Negative Consequences

Two unfavorable options

Ethical Lapse

Clear misconduct

most challenging business decisions seem to arise

when values are in conflict

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ETHICS/PERSONAL CHARACTER

82% admitted that they lied to parent within the past 12 months about something significant.

60% admitted that they cheated on a test at school within the past 12 months.

33% admitted that they copied an Internet document within the past 12 months.

19% admitted that they stole something from a friend withinthe past 12 months.

28% admitted that they stole something from a store withinthe past 12 months.

A study of 36,000 high school students revealed:

A 2006 Study conducted by Josephson Institute of Ethics

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ETHICS: MURKIER THAN YOU THINK Unethical vs. Ethical

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UNIVERSAL ETHICAL STANDARDS

Developed by Character Counts, a nonpartisan

organization of educators, community leaders, and

ethicists.

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ETHICS AND THE INDIVIDUAL

• Framework for Ethical Decisions– Do you understand the

dimensions of the problem?– Who would benefit? Who would

suffer?– Are the alternative solutions

legal? Are they fair?– Does your decision make you

comfortable?– Could you defend your decision

on the nightly news?

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Creating and Maintaining an Ethical Organization

• Organizational Culture• Role of Top Management• Code of Ethics

– Executive Buy-in– Clear expectations– Integrated approach– Global and local– Whistleblower support– Reporting and Enforcement

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ETHICS FAME AND SHAME

Dennis Kozlowski, former CEO of Tyco was convicted of looting

millions from the company.

Ethics Hall of Shame

Sanjay Kumar of Computer Associates was convicted of massive accounting

fraud in 2006.

Martha Stewart was convicted of obstructing justice in a $40,00 well

timed stock sale.

Sheron Watkins, former vice president of Enron reported the accounting irregularitiesthat led to the discovery of corporate fraud.

Ethics Hall of Fame

Pierre Omidyar, the founder of eBay has given away over $100 million to

Tufts University Micro Finance Fund.

Paul Newman’s food company donates 100% of the profits to charity, totaling

more than $150 million to date.

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ETHICS AND SOCIAL RESPONSIBILITY

SOCIAL RESPONSIBILITYThe obligation of a business

to contribute to society.

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ETHICS AND SOCIAL RESPONSIBILITY

ETHICSBeliefs about

right and wrong.

SOCIAL RESPONSIBILITYThe obligation of a business

to contribute to society.

A Close Relationship, but Not the Same

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SPECTRUM OF SOCIAL RESPONSIBILITY

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SOCIAL RESPONSIBILITY

Responsibility to Whom? Stakeholders are any

groups that have a stake –

or a personal interest - in the

performance and actions

of an organization.

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RESPONSIBILITY TO……

EMPLOYEES

INVESTORS

COMMUNITY

ENVIRONMENT

CUSTOMERS

Creating Jobs that Work

Sustainable Development

Value, Honesty and Communication

Fair Stewardship and Full Disclosure

Business and the Greater Good

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RESPONSIBILITY TO EMPLOYEES: CREATING JOBS THAT WORK

• Meet Legal Standards• Workplace Safety• Minimum Wage/Overtime

Requirements• Value Employees• Provide Work/Life Balance

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DOES IT PAY TO PAY MORE?

Costco Wal-Mart’sSam’s Club

Average hourly wage $15.97 $11.52

Annual health costs per worker $5,735 $3,500

Covered by health plan 82% 47%

Employee turnover 6%/yr 21%/yr

Labor and overhead costs 9.8% of sales 17% of sales

Profits per employee $13,647 $11,039

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RESPONSIBILITY TO CUSTOMERS

CONSUMERISM:

• The Right to Be Safe

• The Right to Be Informed

• The Right to Choose

• The Right to be Heard

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ROTTEN APPLE?

Planned Obsolescence –

Deliberately designing products to fail in order to shorten

the time between consumer repurchases

APPLE COMPUTERS:

• iPods had irreplaceable battery.

• Batteries died after 18 months.

• Customers were encouraged to purchase new iPods

• Two customers posted high profile protest movies online.

• APPLE announced replacement program.

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RESPONSIBILITY TO INVESTORS

• Legal Requirements– Sarbanes-Oxley

• Responsible use of Corporate Dollars– Honesty

• Is Optimism or Pessimism Socially Responsible?

FAIR STEWARDSHIP AND FULL DISCLOSURE

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RESPONSIBILITY TO COMMUNITY

Corporate Philanthropy - business donations to

nonprofit groups, including both money and time.

Corporate Responsibility - The actions of the business

rather than donations of money and time.

Cause-related Marketing – partnerships between businesses

and nonprofit organizations, designed to spike sales for the

company and raise money for the nonprofit.

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RESPONSIBILITY TO ENVIRONMENT

Green Marketing – marketing environmental products and practices

to gain a competitive edge.

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RESPONSIBILITY TO ENVIRONMENT

• Responsibility to environment is a part of responsibility to community

• Reducing the amount of trash is more important than recycling

• Although consumers support green marketing, they may not be willing to sacrifice quality

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CAUSE RELATED MARKETING

• The term was coined in 1983 by American Express– Raise Funds for Statue of Liberty

Restoration

• Campaign to donate $.01 for every dollar charged on credit card.– New Cardholders Grew 45%– Card Usage Grew 28%– Statue of Liberty Restored Early

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ETHICS & SOCIAL RESPONSIBILITY IN THE GLOBAL ARENA

• Corruption is part of the culture in many countries– Bribes or Gifts

• Labor issues in host countries can be complicated– Living Wage– Child Labor

• Code of Conduct

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MONITORING ETHICS AND SOCIAL RESPONSIBILITY

A systematic evaluation of how well a firm is meeting its

ethics and social responsibility objectives.

SOCIAL AUDIT

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LOOKING BACK

• What is ethics and the universal ethics standards?

• What is business ethics and ethical dilemmas?

• How does ethics relate to individuals and the organization?

• What is social responsibility and its impact on stakeholder groups?

• What is the role of social responsibility in the global arena?

• How do companies evaluate their efforts to be socially responsible?