CHAPTER 4

Demanding
Ethical and
Socially
Responsible
Behavior

McGraw-Hill/Irwin

Copyright 2015 by the McGraw-Hill Companies, Inc. All rights reserved.

LEARNING OBJECTIVES

1. Explain why obeying the law is only the first step in

behaving ethically.
2. Ask the three questions you need to answer when
faced with a potentially unethical action.
3. Describe managements role in setting ethical
standards.

4-2

LEARNING OBJECTIVES
4. Distinguish between compliance-based and integritybased ethics codes, and list the six steps in setting
up a corporate ethics code.
5. Define corporate social responsibility and compare
corporations responsibilities to various stakeholders.
6. Analyze the role of U.S. businesses in influencing
ethical behavior and social responsibility in global
markets.
4-3

PATTY STONESIFER
Marthas Table

Held high-level positions

with the Gates
Foundation and the
White House.
Founded Marthas Table
in 2013 with the goal of
providing healthy food,
affordable clothing and
quality education to
D.C.s locals.
4-4

NAME that COMPANY

The wage and benefit packages offered by this
company are among the best in hourly retail.
Even part-time workers are covered by its
health plan. Increased benefits reduce
employee turnover to less than a third of the
industry average.
Name that company!
4-5

LIFE AFTER SCANDAL

LO 4-1

Scandals have shaken the real estate, mortgage

and banking industries.
How do we restore trust in the free market
system?
-

Punish those who have broken the law.

Make accounting records more transparent.

Consider what is ethical, not just what is legal.

4-6

BERNIE MADOFFS
PONZI SCHEME
Bernie Madoff is serving 150
years behind bars.
His exclusive wealth
management firm was a
gigantic Ponzi scheme.
Though exact amounts are
uncertain, it is believed he
stole about $65 billion from
his investors.
4-7

WHAT is a PONZI SCHEME?

LO 4-1

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.

Source: Securities and Exchange Commission, www.sec.gov, accessed November 2014.

4-8

WHAT are ETHICS?

LO 4-1

Ethics -- The standards of moral behavior.

Behaviors that are accepted by society as right

versus wrong.

4-9

BASIC MORAL VALUES

Right:
Integrity
Respect for human life

LO 4-1

Wrong:
Cheating
Cowardice
Cruelty

Self-control
Honesty
Courage
Self-sacrifice
4-10

ETHICS and YOU

LO 4-2

Plagiarizing from online

materials is the most
common form of cheating
in schools today.
Studies found a strong
relationship between
academic dishonesty and
dishonesty at work.
4-11

FACING ETHICAL DILEMMAS

LO 4-2

Ask yourself these

questions:
- Is it legal?
- Is it balanced?
- How will it make me
feel about myself?

4-12

BRIBERY BAD BOYS

LO 4-2

Five FCPA Investigations

Source: SEC, www.sec.gov, accessed November 2014.

4-13

TURNING EX-CONS into

ENTREPRENEURS
Life after prison can be very difficult
for those with criminal records.
Catherine Rohr started Defy
Ventures to help ex-cons launch
their own businesses.
Defy and Rohrs other organizations
have helped create 60 startups and
many ex-cons find employment.

TEST PREP
What are ethics?
How do ethics differ from legality?
When faced with ethical dilemmas, what
questions can you ask yourself that might help
you make ethical decisions?

4-15

ETHICS START at the TOP

LO 4-3

Organizational ethics begin at

the top.
Managers can help instill
corporate values in
employees.
Trust between workers and
managers must be based on
fairness, honesty, openness
and moral integrity.
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FACTORS INFLUENCING
MANAGERIAL ETHICS

LO 4-3

4-17

ETHICS CODES

LO 4-4

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

organizations guiding values, create an environment

that supports ethically sound behavior and stress a
shared accountability.
4-18

HOW to IMPROVE AMERICAS

BUSINESS ETHICS

LO 4-4

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.
4-19

HOW to IMPROVE AMERICAS

BUSINESS ETHICS

LO 4-4

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.

4-20

HOW to BLOW the WHISTLE

LO 4-4

1. Decide carefully and quickly.

2. Make sure you have all allegations filed with the
right agencies.
3. File your allegations with as many agencies that
are appropriate.
4. Gather your information legally.
5. Research the process.
Source: Kiplingers Personal Finance, June 2013.

4-21

TEST PREP

What are compliance-based and integrity-based

ethics codes?
What are the six steps to follow in establishing an
effective ethics program in a business?

4-22

CORPORATE SOCIAL
RESPONSIBILITY

LO 4-5

Corporate Social Responsibility (CSR) -- The

concern businesses have for the welfare of society.

CSR is based on a commitment to integrity,

fairness, and respect.
CSR proponents argue that businesses owe their
existence to the societies they serve and cannot
exist in societies that fail.
4-23

CORPORATE PHILANTHROPY
and SOCIAL INITIATIVES

LO 4-5

Corporate
Philanthropy --

Includes charitable
donations.

Corporate Social
Initiatives -- Include

enhanced forms of
corporate philanthropy.

4-24

CORPORATE RESPONSIBILITY
and POLICY

LO 4-5

Corporate Responsibility -- Includes everything

from hiring minority workers to making safe products,

minimizing pollution, using energy wisely, and
providing a safe work environment.

Corporate Policy -- The position a firm takes on

social and political issues.

4-25

POSTIVE IMPACTS
of COMPANIES

LO 4-5

Xerox offers a Social Service Leave program.

More and more companies are encouraging

employees to volunteer while on company time.
The majority of MBA students surveyed reported
they would take a lower salary to work for a
socially responsible company.

4-26

HELPING HANDS

LO 4-5

Most Generous Celebrities

Source: Parade Magazine.

4-27

GENEROUS GUYS

LO 4-5

Worlds Biggest Givers in 2013

Source: Forbes, www.forbes.com, accessed November 2014.

4-28

PRESIDENT KENNEDYS BASIC

RIGHTS of CONSUMERS

LO 4-5

The Right to Safety

The Right to be Informed
The Right to Choose
The Right to be Heard

4-29

HOW DO CUSTOMERS KNOW?

LO 4-5

The primary use of social media

is to communicate CSR efforts.
Social media allows companies to
reach a broad, diverse group and
connect directly to them.
Now more than ever, its important
for companies to live up to their
expectations.
4-30

SOCIAL CUSTOMER CONTACT

LO 4-5

Dos and Donts of Using Twitter for Business

Source: Entrepreneur, www.entrepreneur.com, accessed September 2014.

4-31

INSIDER TRADING

LO 4-5

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.
4-32

RESPONSIBILITY to
EMPLOYEES

LO 4-5

Create jobs and provide a chance for upward

mobility.
Treat employees
with respect.
Offer salaries and
benefits that help
employees reach
their personal
goals.
4-33

AMERICAS MOST ADMIRED

COMPANIES of 2014
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

LO 4-5

Apple
Amazon
Google
Berkshire Hathaway
Starbucks
Coca-Cola
Disney
FedEx
Southwest Airlines
General Electric

Source: Fortune, www.fortune.com, accessed November 2014.

4-34

WHEN EMPLOYEES
are UPSET

LO 4-5

Employee fraud costs U.S. businesses about

5% of annual revenue and causes 30% of all
business failures.
Disgruntled workers relieve frustration by:
- Blaming mistakes on others.
- Manipulating budgets and expenses.
- Making commitments they intend to ignore.
- Hoarding resources.
- Doing the minimum.
4-35

SOCIETY and
the ENVIRONMENT

LO 4-5

Over one-third of working Americans receive their

salaries from nonprofits who are dependent on
funding from others.
The green movement emerged as concern about
global warming increased.
Many companies are trying to minimize their
carbon footprints the amount of carbon released
during an items production, distribution,
consumption and disposal.
4-36

RESPONSIBILITY to the
ENVIRONMENT

LO 4-5

Environmental efforts may increase costs, but

can offer good opportunities.
The emerging renewable-energy and energyefficiency industries account for 9 million U.S.
jobs.
By 2030, as many as
40 million Green jobs
will be created.
4-37

SUSTAINABILITYS in the BAG

Rickshaw Bagworks makes
sustainable accessories built to
last.
The three Fs are followed
company-wide.
1.

Form

2.

Function

3.

Footprint
4-38

SOCIAL AUDITING

LO 4-5

Social Audit -- A systematic evaluation of an

organizations progress toward implementing socially

responsible and responsive programs.

Five Types of Watchdogs

1) Socially conscious investors

2) Socially conscious research
organizations
3) Environmentalists
4) Union officials
5) Customers
4-39

TEST PREP

What is corporate social responsibility, and how

does it relate to each of a businesss major
stakeholders?
What is a social audit, and what kinds of activities
does it monitor?

4-40

INTERNATIONAL ETHICS

LO 4-6

Many businesses want socially responsible

behavior from their international suppliers.
In the 1970s, the Foreign Corrupt Practices Act
criminalized the act of paying foreign businesses
or government leaders in order to get business.
Partners in the Organization of American States
signed the Inter-American Convention Against
Corruption.
4-41

GOING by a
DIFFERENT STANDARD
A telecommunications employee returns to his
home country to work and the company
reimburses living expenses so he can live in a
safe area. The employee is trying to do the
honorable thing for his family and the company is
trying to keep the employee safe.
If the employee uses the money to help his family
instead, is it right for the company to stop payment?

4-42

TEST PREP

How are U.S. businesses demanding socially

responsible behavior from their international
suppliers?
Why is it unlikely that there will be a single set of
international rules governing multinational
companies soon?

4-43