Introduction to Business Chapter 4 Notes

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Introduction to Business

Chapter 4 Notes

Explain why obeying the law is only the first step in behaving ethically.I. ETHICS IS MORE THAN LEGALITY.

A. HISTORY OF SCANDALS

1. In the early 2000s scandals at WorldCom, Tyco, and

ImClone focused attention on the subject of ETHICS.

2. In recent years, greedy borrowers and lenders helped

precipitate a worldwide financial crisis.

3. What can be done to restore trust in the free-market system?

a. Those that have broken the law need to be PUNISHED

ACCORDINGLY.

b. Also helpful are new laws making accounting records

more transparent and more laws making

businesspeople more accountable.

c. Laws alone don’t make people honest, reliable, or

truthful.

4. Ethical behavior is not the same as following the law.

a. Ethical behavior goes BEYOND the law.

b. ETHICS deals with the proper relations with and

responsibilities toward other people.

c. LEGALITY deals with much narrower issues.

d. It refers only to laws we have written to protect

ourselves many UNETHICAL ACTS FALL WITHIN

OUR LAWS.

B. ETHICAL STANDARDS ARE FUNDAMENTAL.

1. ETHICS are the standards of moral behavior; that is,

behavior that is accepted by society as right versus wrong.

2. Many Americans have few moral absolutes and makeDECISIONS SITUATIONALLY.

3. Even in today’s diverse culture, there is still COMMON

STANDARDS OF ETHICAL BEHAVIOR.

a. Integrity, respect for human life, self-control, honesty,

courage, and self-sacrifice are RIGHT.

b. Cheating, cowardice, and cruelty are WRONG.



4. All major religions support a version of the GOLDEN RULE:“Do unto others as you would have them do unto you.”

Ask the three questions one should answer when faced with apotentially unethical action.

C. ETHICS BEGINS WITH EACH OF US.

1. Americans in general are not always honest and honorable.

a. A recent study identified low managerial ethics as a

major factor in America’s competitive problems.

b. Another survey revealed that 3/4 of the population

NEVER GAVE TIME to their communities.

c. The most common form of cheating is plagiarizing

material from the Internet.

d. In a recent study, 38% of teens felt that lying, cheating,

plagiarizing, or behaving violently are sometimes

necessary.

e. Many schools now require a certain number of hours of

community service to graduate.

2. It is important to KEEP ETHICS IN MIND when making a

business decision.

a. There is not always an easy choice.

b. Sometimes the obvious solution from an ethical point of

view has drawbacks from a personal or professional

point of view.

c. Sometimes there is no desirable alternative, a situation

referred to as an ETHICAL DILEMMA.

3. Three “ETHICS CHECK QUESTIONS” can help

individuals and organizations be sure their decisions are

ethical:

a. Is my proposed action LEGAL?

b. Is it BALANCED?

c. How will it make me FEEL ABOUT MYSELF?4. Individuals and companies that develop a strong ethics code

tend to behave more ethically than others.

Describe management’s role in setting ethical standards.

II. MANAGING BUSINESSES ETHICALLY AND RESPONSIBLY



A. ORGANIZATIONAL ETHICS BEGINS AT THE TOP.

1. People learn their standards and values from observing what

others do, not what they say.

2. Corporate values are instilled by the leadership and example

of strong top managers.3. Any trust and cooperation between workers and managers

must be based on FAIRNESS, HONESTY, OPENNESS,

AND MORAL INTEGRITY.

4. Some managers think ethics is a personal matter that they

are not responsible for an individual’s misdeeds.

a. Individuals do not usually act alone they need the

implied, if not the direct, cooperation of others to behave

unethically in a corporation.

b. The text uses the example of cell phone sales reps whounethically pressure customers.

5. In some corporations, corporate standards may encourage

dishonesty.

Distinguish between compliance based and integrity based ethicscodes, and list the six steps in setting up a corporate ethics code.

B. SETTING CORPORATE ETHICAL STANDARDS

1. Most corporations have WRITTEN CODES OF ETHICS.

2. Although ethics codes vary greatly, they can be classifiedinto TWO MAJOR CATEGORIES: compliance-based and

integrity-based.

a. COMPLIANCE - BASED ETHICS CODES are ethical

standards that emphasize preventing unlawful behavior

by increasing control and by penalizing wrongdoers.

b. INTEGRITY - BASED ETHICS CODES are ethical

standards that define the organization’s guiding values,

create an environment that supports ethically sound

behavior, and stress a shared accountability amongemployees.

3. A 6-STEP PROCESS can help improve America’s business

ethics.

a. Step 1: TOP MANAGEMENT must adopt and

unconditionally support an explicit code of conduct.



b. Step 2: EMPLOYEES must understand that

expectations for ethical behavior begin at the

top and all employees are expected to act ethically.

c. Step 3: MANAGERS and others must be trained to

consider the ethical implications of all businessdecisions.

d. Step 4: AN ETHICS OFFICE must be set up.

i. WHISTLEBLOWERS (insiders who report illegal

or unethical behavior) must feel protected from

retaliation.

ii. The CORPORATE AND CRIMINAL FRAUD

ACCOUNTABILITY ACT (Sarbanes-Oxley, 2002)

contains protections for corporate whistleblowers

and the Dodd-Frank Act includes a “bounty” for

whistleblowers if the information given results in a

successful enforcement action.

e. Step 5: OUTSIDERS such as suppliers, subcontractors,

distributors, and customers must be told about the

ethics program.

f. Step 6: THE ETHICS CODE MUST BE ENFORCED.

i. If rules are broken, CONSEQUENCES should

follow quickly.

ii. ENFORCEMENT shows that the code is serious

and cannot be broken.

4. A company’s ethics code is worthless IF NOT ENFORCED.

a. Enron’s management sent the message to employees

that unethical behavior would be tolerated.

b. Johnson & Johnson’s response to the cyanide

poisoning crisis in the 1980s enhanced its bottom line.

5. An important factor to encourage ethical behavior is the

selection of AN ETHICS OFFICER who:

a. Sets a positive tone, communicates effectively, relates

well with employeesb. Serves as a counselor or as an investigator

6. EFFECTIVE ETHICS OFFICERS are people who:

a. Can be trusted to maintain confidentiality, conduct

objective investigations, and ensure the process is fair



b. Can demonstrate to stakeholders that ethics are

important

Define corporate social responsibility and compare corporations’

responsibilities to various stakeholders.

III. CORPORATE SOCIAL RESPONSIBILITY

A. BASICS OF SOCIAL RESPONSIBILITY

1. CORPORATE SOCIAL RESPONSIBILITY (CSR) is a

business’s concern for the welfare of society.

a. It is based on a company’s concern for the welfare of all

its stakeholders, not just the owners.

b. Some CRITICS of CSR believe that a manager’s sole

role is to compete and win.

c. Milton Friedman stated that the only social

responsibility of business is to make money for

stockholders.

d. DEFENDERS argue that CSR makes more money for

investors in the long run.

e. One study showed a positive correlation between

corporate social performance and corporate financial

performance.

2. SOCIAL PERFORMANCE of a company has several

dimensions:

a. CORPORATE PHILANTHROPY is the dimension of

social responsibility that includes charitable donations.

b. CORPORATE SOCIAL INITIATIVES are enhanced

forms of corporate philanthropy directly related to the

company’s competencies.

c. CORPORATE RESPONSIBILITY is the dimension of

social responsibility that includes everything from hiring

minority workers to making safe products.

d. CORPORATE POLICY is the dimension of social

responsibility that refers to the position a firm takes on

social and political issues.

3. IMPACT OF CORPORATIONS ON SOCIETY

a. Many people get a one-sided view of the impact that

companies have on society.



b. Few people see the POSITIVE IMPACTS, such as the

commitments of many companies to volunteerism, such

as Xerox’s Social Service Leave program.

c. The recent recession has changed corporate

philanthropy: Companies have cut donations since

2008 and are encouraging employees to volunteer

more.

d. Two-thirds of MBA students surveyed said that they

would take a lower salary to work for a socially

responsible company.

e. Social responsibility is seen differently through the eyes

of various STAKEHOLDERS to whom businesses are

responsible.

B. RESPONSIBILITY TO CUSTOMERS

1. President John F. Kennedy proposed four basic rights of

consumers:

a. The right to SAFETY

b. The right to BE INFORMED

c. The right to CHOOSE

d. The right to be HEARD

2. Business is responsible to SATISFY CUSTOMERS with

goods and services of real value, not an easy task.

3. Many new businesses fail

perhaps because their ownersfailed to please their customers.

4. Social media are a growing way companies communicate

their social efforts: over 70% use social media.

5. The text uses the example of how Celestial Seasoning

ignored its image of social responsibility when it poisoned

prairie dogs.

6.Customers prefer to do business with companies they trust.

C. RESPONSIBILITY TO INVESTORS

1. ETHICAL BEHAVIOR is good for shareholder wealth.

2. UNETHICAL BEHAVIOR does financial damage.

3. Some believe that BEFORE you can do good you must DO

WELL.

4. Others believe that BY DOING GOOD, you can also DO

WELL (example: Bagel Works).



5. Many people believe that it makes FINANCIAL as well as

MORAL sense to invest in socially responsible companies.

6. Another ethical concern is INSIDER TRADING.

a. INSIDER TRADING is an unethical activity in which

insiders use private company information to further their own fortunes or those of their family and friends.

b. The text uses these examples:

i. Raj Rajaratnam was accused of masterminding an

insider trading ring that made his hedge fund $45

million richer.

ii. An IBM secretary benefited from advance

knowledge of the Lotus merger.

c. In response to insider trading scandals, the SEC

adopted REGULATION FD for “fair disclosure.”d. If companies tell something to ANYONE, they must tell

EVERYONE at the same time.

e. Companies can MISUSE INFORMATION FOR THEIR

OWN BENEFIT at investors’ expense, as in the case of

WorldCom’s fraudulent accounting practices.

D. RESPONSIBILITY TO EMPLOYEES

1. RESPONSIBILITIES OF BUSINESSES:

a. Businesses have a responsibility to CREATE JOBS.

b. Businesses have an obligation to see that HARD

WORK AND TALENT ARE FAIRLY REWARDED.

2. A company’s effectiveness and financial performance

depends on human resource management.

3. If a company TREATS EMPLOYEES WITH RESPECT, they

will respect the company.

a. In their book Contented Cows Give Better Milk, Bill

Catlette and Richard Hadden compared “contented

cow” companies with “common cow” companies.

b. The “CONTENTED COW” companies grew faster andearned more than “COMMON COW” companies.

4. Replacing employees costs between 150% and 250% of

their annual salary, so retaining workers is good for

business.



5. By giving employees salaries and benefits that help them

REACH THEIR PERSONAL GOALS, the employer shows

commitment and caring.

6. When employees feel they’ve been TREATED UNFAIRLY,

they strike back.

a. DISSATISFIED WORKERS relieve their frustrations in

subtle ways.

b. EMPLOYEE FRAUD causes 30% of business failures.

E. RESPONSIBILITY TO SOCIETY AND THE ENVIRONMENT

1. A major responsibility of business to society is to CREATE

NEW WEALTH.

a. Most nonprofits own shares of publicly held companies.

b. As those share prices increase, funds are available to

benefit society.2. There is also a growing GREEN MOVEMENT.

a. A product’s CARBON FOOTPRINT (the amount of

carbon released during production, distribution,

consumption, and disposal) defines how green it is.

b. No specific guidelines define the carbon footprint of

products and businesses, but many companies are

making GREEN PRODUCTS available.

3. Business is responsible for contributing to making its OWN

ENVIRONMENT a better place.4. The text uses the example of Ciba Specialty Chemicals

developing a low-salt textile dye that could be sold at a

premium price.

5. Not all environmental efforts are financially successful, such

as StarKist’s failed “tuna-safe” initiative.

6. The green movement has had a positive impact on the U.S.

labor force.

7. To publicize their commitment to society, many corporations

PUBLISH REPORTS that document their net socialcontribution.

F. SOCIAL AUDITING

1. How can you measure how well organizations are

incorporating social responsiveness into top management’s

decision making?



2. A SOCIAL AUDIT is a systematic evaluation of an

organization’s progress toward implementing socially

responsible and responsive programs.

3. Many SOCIAL AUDITS consider such things as:

a. Workplace issuesb. The environment

c. Product safety

d. Communications

e. Military weapons contracting

f. International operations

g. Human rights

4. Some suggest that positive actions be added up and

negative effects subtracted to get a NET SOCIAL

CONTRIBUTION.

5. FIVE GROUPS serve as “WATCHDOGS” monitoring how

well companies enforce their ethical and social responsibility

policies:

a. SOCIALLY CONSCIOUS INVESTORS, who insist that

companies extend the company’s own high standards

to all their suppliers.

b. SOCIALLY CONSCIOUS RESEARCH

ORGANIZATIONS, that analyze and report on CSR

efforts.

c. ENVIRONMENTALISTS, who apply pressure by

naming names of companies that don’t abide by the

environmentalists’ standards.

d. UNION OFFICIALS, who track down violations and

force companies to comply to avoid negative publicity.

e. CUSTOMERS, who take their business elsewhere if a

company demonstrates socially irresponsible practices.

6. Bob McDonald of P&G believes sustainability isn’t optional

anymore. It’s essential.

7. It isn’t enough for a company to be right when it comes to

ethics and social responsibility—it also has to convince

customers that it’s right.



Analyze the role of U.S. businesses in influencing ethical behavior and social responsibility in global markets.

IV. INTERNATIONAL ETHICS AND SOCIAL RESPONSIBILITY

A. ETHICAL PROBLEMS ARE NOT UNIQUE TO THE UNITED

STATES.

1. The text gives the examples of recent “influence peddling” in

Japan, South Korea, Zaire, China, and others.

2. What is new is that leaders are being held to new, higher

standards.

B. Many American businesses, such as Sears and Dow Chemical,

are demanding socially responsible behavior from international

suppliers.

1. They make sure their suppliers DO NOT VIOLATE U.S.

HUMAN RIGHTS AND ENVIRONMENTAL STANDARDS.

2. In contrast, companies like Nike have been criticized for the

low pay, long hours, and unsafe working conditions for

factory workers in Asia.

3. Nike has been monitoring efforts to improve labor conditions

since the 1990s and in 2005 released names and locations

of factories to encourage transparency.

4. Should international suppliers be required to adhere to U.S.

ethical standards? What about countries where child labor is

accepted? What about multinational corporations?

a. None of these questions are easy to answer.

b. They show how complex social responsibility issues are

in international markets.

5. Many U.S. executives complain that the Foreign Corrupt

Practices Act put their businesses at a competitive

disadvantage.

6. STANDARDS ON SOCIAL RESPONSIBILITY:

a. International organizations, such as the Organization of

American States, have adopted the INTER-AMERICAN

CONVENTION AGAINST CORRUPTION.

b. The INTERNATIONAL ORGANIZATION FOR

STANDARDIZATION (ISO) has developed a set of

standards for social responsibility, but these are

voluntary.

Introduction to Business Chapter 4 Notes

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