BA 115: Ch.4 PP

Chapter 4: Demanding Ethical and Socially Responsible Behavior

Learning Objectives

  • LO 4-1: Explain that law compliance is just the first step in ethical behavior. Recognize the three essential questions for assessing unethical actions, the importance of management in establishing ethical standards, differences between compliance-based and integrity-based ethics codes, and the six steps for developing a corporate ethics code. Discuss corporate social responsibility and the responsibilities toward various stakeholders, as well as the influence of U.S. businesses on global ethical behavior.

Ethics Is More than Legality

  • Scandals in sectors like real estate and banking prompt a need for restoring trust in the free market.

  • Key Measures:

    • Punishments for lawbreakers

    • Increased transparency in accounting

    • Emphasis on ethics alongside legality.

Ethics and Scandals

  • Case Study: Wells Fargo scandal where the bank created unauthorized accounts, leading to fines exceeding $6 billion.

  • Example of Corporate Malfeasance affecting public trust and leading to stricter regulations.

Corporate Scandals Overview 1

Enron

  • Executives engaged in accounting fraud, inflating stock prices. Outcome: substantial losses for shareholders and the creation of the Sarbanes-Oxley Act to improve financial reporting accuracy.

WorldCom

  • Committed accounting irregularities that led to massive job losses and investor losses. Executives faced prison sentences.

Corporate Scandals Overview 2

Volkswagen

  • Cheated on emissions tests affecting 11 million cars; faced a $25 billion penalty.

Bernie Madoff

  • Executed the largest Ponzi scheme, losing upwards of $64.8 billion. Outcome: 150-year prison sentence.

Ethical Standards

  • Definition of Ethics: Societal standards of moral behavior; a normative context for distinguishing right from wrong.

  • Common ethical behaviors often stem from societal norms or religious principles.

Ethics Begins with Each of Us

Unethical Behavior Examples

  • In professional settings: Safety violations, lack of accountability.

  • In personal contexts: Lying, dishonesty.

Everyday Ethical Choices

  • Student Concerns with Plagiarism: Emphasis on integrity in academic endeavors, noting that using 'AI assistants' such as ChatGPT also constitutes plagiarism.

Ethical Dilemmas in Decision-Making

  • Engage in self-reflection when faced with an ethical dilemma:

    1. Is the action legal?

    2. Is it balanced?

    3. How will it impact self-perception?

Managing Ethical Behavior in Businesses

  • Ethical standards must be fostered by management:

    • Importance of trust based on fairness and moral integrity.

    • High-pressure objectives can lead to unethical decision-making.

Setting Corporate Ethical Standards

  • Types of Ethics Codes:

    • Compliance-based: Focus on preventing unlawful actions through penalties.

    • Integrity-based: Foster ethical behavior through shared values and accountability.

Six Steps to Enhance Business Ethics

  1. Senior management engages strongly with an ethical code of conduct.

  2. Employees must know ethical expectations.

  3. Training should emphasize ethical decision-making.

  4. An anonymous ethics office for reporting unethical conduct should exist.

  5. External feedback mechanisms involving stakeholders.

  6. Swift and consistent enforcement of the ethics code.

Whistleblowers: Ethical Advocates

  • Case of Erika Cheung at Theranos highlights the importance of whistleblowers in exposing fraud, reflecting on motivations behind ethical disclosures.

Corporate Social Responsibility (CSR)

  • Definition: The obligation of businesses to prioritize societal welfare alongside profit. Businesses need to establish integrity, fairness, and respect.

  • Companies recognized with a good ethical reputation tend to attract and retain talent, gain customer loyalty, and function effectively.

Dimensions of Corporate Social Performance

  • Categories:

    • Corporate philanthropy: Charitable donations.

    • Corporate social initiatives: Programs aligning with company competencies.

    • Corporate responsibility: Employment practices and product safety.

    • Corporate policy: Stance on social and political issues.

Community Volunteerism

  • Companies encourage employee involvement in volunteer efforts demonstrating a commitment to societal well-being.

Examples of Corporate Social Responsibility Efforts

The LEGO Group

  • Committed $400 million to sustainable practices by 2025.

Starbucks

  • Developed rust-resistant coffee plants to support farmers.

Responsibilities to Stakeholders

  • Consumer Rights:

    1. Right to safety

    2. Right to be informed

    3. Right to choose

    4. Right to be heard

Social Media and Corporate Responsibility

  • Companies leverage social media to communicate CSR initiatives, reaching broader audiences and being accountable to expectations.

Defining SMART Goals

  • Specific, Measurable, Attainable, Relevant, Timely goals are essential for business direction.

Ethical Responsibilities to Investors

  • Insider trading is unethical behavior severely damaging to the company and stakeholders.

Ethical Responsibilities to Employees

  • Ensure fair treatment, support job creation, and provide competitive compensation.

Social and Environmental Responsibilities

  • Companies engage in sustainability efforts to reduce environmental impacts, and address climate change concerns, while also reaping potential economic benefits.

Conclusion: Ethical Frameworks and Auditing

  • Social audits help assess corporate ethical stance and progress. Stakeholders include socially conscious investors, customers, and environmentalists.