Chapter 2: Business Ethics and Social Responsibility (Vocabulary Flashcards)
LO 2-1: Describe the importance of business ethics and social responsibility
Definition of business ethics: the principles and standards that determine acceptable conduct in business organizations. Personal ethics relate to an individual’s values, principles, and standards of conduct.
Acceptable behavior in business is shaped by the organization and by stakeholders (employees, customers, competitors, regulators, interest groups, the public).
Public debates on ethics in well-known firms highlight the need to integrate ethics and responsibility into all business decisions.
Examples and evidence:
Activision Blizzard faced lawsuits and workplace misconduct claims, bringing ethics into focus for the company.
Colgate-Palmolive uses a mandatory ethics course for all employees to unify behavior with guiding principles.
Microsoft is cited as an example of a highly ethical company.
Trust as a foundational element: trust in financial services is lower than in many other industries; trust is essential for durable business relationships.
Ethical leadership, values, and compliance are widely regarded as essential for good ethics; a strong ethical culture encourages integrity and adherence to company values.
Tone at the top: senior management must commit to ethics, clearly communicate expectations, educate managers, and prepare for ethics crises.
Ethics and social responsibility are linked to performance: highly ethical firms tend to be more profitable, with more satisfied employees and customers; unethical conduct can reduce profits (evidence from high-profile scandals and enforcement actions).
Social responsibility is broader than ethics: firms have obligations to maximize positive social impact and minimize negative impact; ethics focuses on individual or group decisions, while social responsibility concerns the broader impact of a firm’s activities.
Real-world examples of corporate philanthropy and social contributions (e.g., Walmart and Sam’s Club donating billions of pounds of food to Feeding America).
The chapter emphasizes that profits and social contributions are not mutually exclusive; socially responsible firms often perform well financially.
Key connected concepts: trust, corporate citizenship, ESG considerations, environmental stewardship, and stakeholder engagement.
Table/figure references (for context): Figure 2.1 shows trust by industry; Table 2.1 outlines a timeline of ethical and socially responsible activities; Table 2.7 outlines social responsibility stages; Table 2.8 lists the world’s most ethical companies; Table A.6 (in the appendix) summarizes Sarbanes-Oxley provisions.
Ethical culture and transparency help build customer and employee loyalty and reduce misconduct over time.
LO 2-2: Detect some of the ethical issues that may arise in business
Ethical issues encompass across all organizational activities, including government, sports, and nonprofits.
Major ethical issue categories include:
Bribery and corruption: bribery is payments, gifts, or favors intended to influence outcomes; the Foreign Corrupt Practices Act (FCPA) imposes penalties on U.S. firms for bribing foreign officials; cultural differences in gifts (e.g., appreciation for gifts in some cultures vs. perceived bribes in others).
Misuse of time: time theft (late arrivals, long breaks, personal use of company resources); estimates suggest substantial annual costs; monitoring and acceptable-use policies are common.
Abusive and intimidating behavior: includes yelling, insults, profanity, and harassment; bullying is a widespread issue; organizations may implement ombudsperson programs; bullying can be associated with hostile work environments.
Misuse of company resources: using company assets for personal gain or non-work purposes; common forms include personal internet use, expenses, or vehicle use; Coca-Cola and others publish explicit acceptable-use policies.
Conflicts of interest: when personal interests compete with company interests; examples include insider trading and bribery; FHA policy on conflict of interest restricts dual roles and multiple compensation streams.
Fairness and honesty: deception, misrepresentation, and theft; examples include corporate espionage and trade-secret theft; disclosure of potential harms (e.g., misreporting injuries or faulty products); high-profile cases (e.g., sports betting, college admissions scandals) illustrate dishonesty in diverse settings.
Communications: false or misleading advertising and product claims; examples include Nikola Motor Company (misleading investors) and labeling debates (e.g., “natural” claims on cigarettes and FDA warnings).
Business relationships: managers’ influence on employee behavior; pressures that push employees to unethical conduct; Wells Fargo’s fake-accounts scandal illustrates how leadership and culture shape misconduct.
Plagiarism: presenting others’ work as one’s own; includes copying reports or ideas without attribution and taking credit for subordinates’ work.
Data points and examples:
Global Business Ethics Survey (GBES) shows that workers witness misconduct and feel pressure to compromise standards; prevalence data include favoritism (≈35 ext{ extperthousand}, i.e., 35 ext{\%}), management lying to employees (≈25 ext{\%}), conflicts of interest (≈23 ext{\%}), improper hiring (≈22 ext{\%}), abusive behavior (≈22 ext{ ext ext{%}}), health violations (≈22 ext{ ext{%}}).
The chapter notes a trend toward remote work during COVID-19 reducing some misconduct (e.g., bullying/harassment) but complicating monitoring.
Specific cases and issues described:
Bribery in international contexts and the FCPA penalties.
Time theft costs and measures to control personal use of company resources (e.g., site blocking, monitoring via GPS, email scans, and security cameras).
Abusive behavior and sexual harassment (EEOC data and number of reported cases) and the emergence of ombuds programs.
Conflicts of interest and insider trading risks in finance; the Corruption Perceptions Index by Transparency International; U.S. antitrust cases (e.g., Google) illustrating risks to fair competition.
Communications: deceptive advertising, staged videos (Nikola), labeling concerns, and truthful disclosure obligations.
Plagiarism: internal and external plagiarism risks; importance of attribution.
Concepts introduced for recognizing issues:
An ethical issue is any identifiable problem, situation, or opportunity requiring a choice among actions evaluated as right or wrong.
Gray areas occur when no clear policy or law addresses the situation; industry norms and cultural context matter.
The role of policies, codes of ethics, and open discussion in recognizing and resolving issues.
LO 2-3: Specify how businesses can promote ethical behavior
Core idea: three interdependent factors shape ethical choices: individual moral standards, influence of managers/co-workers, and opportunity to commit misconduct (Figure 2.2).
Organizational practices to promote ethics:
Establish a strong tone at the top: leaders communicate expectations, model ethical behavior, and ensure accountability.
Develop and enforce codes of ethics and explicit ethics policies; train employees and managers; provide ongoing ethics education.
Deploy formal ethics programs: hotlines, ethics officers, and confidential reporting channels; ensure protection from retaliation (whistleblower protections).
Open discussion and transparency: promote dialogue about ethical issues to build trust and reduce misconduct.
Whistleblowing: legal protections and incentives (e.g., the Dodd-Frank Act’s whistleblower bounty program—awarding between 10 ext{ extperthousand} and 30 ext{ extpercent} of penalties over 1 ext{ million}) to encourage reporting of illegal practices.
Three key questions to consider in ethical decisions (Table 2.5):
Are there legal restrictions or potential violations?
Does the company have a code of ethics or policy?
Is this activity customary in the industry, and would co-workers accept it?
Will the action withstand open discussion and align with personal values?
Codes of ethics and their importance (Table 2.6):
Codes guide acceptable vs. unacceptable behavior, limit misconduct opportunities, and support uniform behavior.
Benefits: improved ethical compliance, better risk management, enhanced reporting of misconduct, and strengthened public image.
Components: ethics training, hotlines, ethics officers, and regular updates to reflect new risks.
Practical steps and frameworks:
Seven Steps to Compliance (Table A.5):
1) Develop standards and procedures to reduce misconduct propensity.
2) Designate a high-level compliance manager/ethics officer.
3) Avoid delegating authority to people with a history of misconduct.
4) Communicate standards through training and publications.
5) Establish reporting mechanisms and auditing capabilities.
6) Enforce standards consistently with punishments or rewards.
7) Respond promptly to misconduct and take steps to prevent recurrence.Emphasize openness and a robust internal reporting culture; ethics programs support profitability, hiring, morale, and customer loyalty.
The role of external frameworks and governance:
Corporate citizenship involves meeting economic, legal, ethical, and voluntary responsibilities; ESG frameworks provide metrics for environmental, social, and governance performance.
The UN Global Compact outlines principles on human rights, labor, environment, and anti-corruption to align business with global standards.
Examples of purpose-driven initiatives:
Omaze: reinvents charity by pairing high-demand prizes with causes; company takes about 20 ext{ extpercent} of donations as net; pivot toward donor-friendly, cause-aligned campaigns; questions for Critical Thinking: money source, strengths in partnerships, and whether it is profit-driven, purpose-driven, or both.
LO 2-4: Explain the four dimensions of social responsibility
Four stages (also described as economic, legal, ethical, and voluntary):
Stage 1: Financial/economic viability: a company must be profitable to sustain operations and investments.
Stage 2: Compliance with legal and regulatory requirements.
Stage 3: Ethics, principles, and values that shape culture and decision-making.
Stage 4: Philanthropic/voluntary activities that promote societal welfare beyond legal obligations.
Corporate citizenship and ESG:
ESG provides a framework to evaluate a firm’s sustainability, social impact, and responsible conduct; used by investors to assess risk and opportunity.
Critics argue ESG reporting lacks standardization and can risk greenwashing; regulators are pursuing standardized reporting requirements.
Starbucks example (Table 2.7): shows a staged approach from profit focus to philanthropic activities (Stage 4).
World’s Most Ethical Companies (Ethisphere Institute): selection criteria include citizenship/responsibility, governance, public well-being, leadership, and ethics/compliance programs; 26 companies on the list (Table 2.8).
Arguments for and against social responsibility (Table 2.9): summarizes the debate on whether business should engage in social initiatives beyond profit maximization.
Sustainability issues and environmental focus:
Environmental, social, and governance (ESG) factors cover pollution, sustainability, fair treatment of employees, supply chain ethics, governance, and transparency.
UN Global Compact and corporate sustainability initiatives guide corporate behavior toward a sustainable economy.
Examples of sustainability and social impact:
Hershey: Shared Goodness CSR program; focus on sustainable packaging, palm oil sourcing, zero-waste-to-landfill goals, and CLMRS to monitor child labor in cocoa supply chains.
Tyson Foods and plant-based products respond to animal-welfare and climate concerns.
Green marketing and greenwashing: companies face pressure to demonstrate real impact rather than superficial green branding.
The broader picture: sustainability requires balancing environmental protection with economic costs and societal needs; environmental stewardship is increasingly integrated into strategic planning.
LO 2-5: Evaluate an organization’s social responsibilities to owners, employees, consumers, the environment, and the community
Relations with owners and stockholders:
Responsibilities include accurate accounting, timely information, and protecting investors’ rights; maximize owners’ investments while maintaining trust.
Employee relations:
Safe workplaces, fair compensation, development opportunities, and inclusive cultures are expected; diversity and inclusion linked to profitability; programs for career development, and evidence that diverse leadership correlates with higher profits.
Equity and inclusion initiatives address historical disparities; unconscious bias training (e.g., Merck) helps reduce discriminatory behaviors.
Examples: Hilton’s employee-centric culture; Starbucks’ corporate commitments; Apple’s $100 million Racial Equity and Justice Initiative; Adobe’s community investments and software donations.
Consumer relations:
Consumer rights emphasized by consumerism: safety, information, choice, and the right to be heard.
John F. Kennedy’s 1962 Consumer Bill of Rights forms the ethical baseline: right to safety, right to be informed, right to choose, right to be heard.
The FTC’s Bureau of Consumer Protection enforces protection against unfair/deceptive practices; divisions address privacy, advertising, consumer education, enforcement, and more (Table 2.10).
Product safety and truthful labeling are central; cases include labeling disputes (FDA warnings about “natural” claims) and the need for accurate risk communication.
Environmental and ESG responsibilities:
Environmental stewardship, pollution reduction, sustainable sourcing, and governance reforms are core to corporate citizenship; ESG frameworks are used to measure progress and guide investment.
Green energy and alternative energy shifts (solar, wind, biofuels, electric vehicles) shape corporate strategy and investment; public and regulatory expectations push firms toward sustainability.
Climate change as a strategic and ethical issue: two-thirds of those surveyed view climate change as a global emergency; stakeholders demand accountability and measurable progress.
Community relations:
Corporate giving and community investment (e.g., General Electric and United Way; Adobe’s Foundation) reflect commitments to local communities and social causes.
Unemployment and workforce development are ethical concerns: programs to reduce barriers to employment for those with criminal records; hard-core unemployed programs; community reinvestment and skills development.
Unemployment and workforce changes:
Unemployment has macroeconomic implications but also ethical and social ones; automation and AI may affect job availability; the need for soft skills development and education partnership between business and institutions.
The job market in renewables is growing (e.g., predicted to reach 42 million jobs by 2050), creating opportunities in new green industries and ethics/compliance careers.
Practical implications and career pathways:
Growing demand for ethics officers and compliance programs; roles include designing ethics policies, training, and advising boards; potential for careers in corporate social responsibility, community engagement, and ESG reporting.
The ethics and compliance field is a multibillion-dollar industry with scope in governance, policy development, and stakeholder engagement.
Key concepts and cross-cutting ideas (throughout the notes)
Trust is essential for sustainable business relationships and long-term profitability; unethical conduct undermines trust and can harm a firm’s ability to operate.
The role of governance and the “tone at the top” in shaping organizational ethics and compliance culture.
Ethics vs. social responsibility: ethics evaluate individual decisions, while social responsibility focuses on the broader impact of the entire organization on society.
Legal compliance and business ethics work together as a compliance system; laws provide minimum standards, while ethics and social responsibility push for higher standards.
Diversity, equity, and inclusion (DEI) as drivers of performance and social legitimacy; unconscious bias training as a mechanism to reduce discriminatory decision-making.
The debate over ESG: benefits in investment decision-making but challenges in standardization and potential greenwashing; ongoing regulatory development.
The importance of transparency in product labeling, marketing communications, and governance reporting to maintain consumer trust.
Real-world examples across sectors (tech, retail, food, entertainment) illustrate the practical tensions between profits, ethics, and social responsibility.
The regulatory environment (appendix) provides context for how laws shape business behavior: antitrust acts, securities regulation, privacy laws, and SOX/Dodd-Frank-type governance requirements.
Important entities and examples (quick reference)
Activision Blizzard: legal disputes over harassment and gender discrimination; organizational culture at issue.
Colgate-Palmolive: mandatory ethics course for all employees.
3M: emphasizes ethics as a competitive advantage; “tone at the top” manifests in program outcomes.
Omaze: reinventing charity models to combine purpose with profit; 20% net from donations; celebrity campaigns; emphasis on purpose-driven branding.
Hershey: Shared Goodness CSR program; CLMRS to monitor child labor in cocoa; sustainable packaging and supply chain visibility.
Wells Fargo: example of organizational misconduct (fake accounts) leading to regulatory action.
Starbucks: Stage-based approach to social responsibility; modern CSR emphasis.
Apple, Adobe, Hilton, Merck: diverse DEI, philanthropy, and inclusion initiatives.
FTC, FDA, CPSC, EPA: major U.S. regulatory bodies shaping consumer protection, advertising, product safety, and environmental standards.
Formatted references to LaTeX (selected numeric items)
Major prevalence figures: 35 ext{ ext ext{%}}, 25 ext{ ext{ ext{%}}}, 23 ext{ ext{ ext{%}}}, 22 ext{ ext{ ext{%}}} (from Table 2.2).
Whistleblower bounty: 10 ext{ ext{ ext{%}}} to 30 ext{ ext{ ext{%}}} of sanctions over 1 ext{ million}.
Unemployment today: 3.4 ext{ ext{ ext{%}}}.
ESG and environmental data points often include percentages and magnitudes; where applicable, values are presented in ext{ ext{%}} form using LaTeX.
Appendix and related regulatory context (high-level)
Key federal laws affecting business practices: Sherman Antitrust Act (1890); Clayton Act (1914); Federal Trade Commission Act (1914); Sarbanes-Oxley Act (2002); Dodd-Frank Act (2010). These laws shape competitive behavior, financial transparency, and corporate governance.
Federal agencies with enforcement powers: FTC, FDA, CPSC, EPA, OSHA, SEC, CFPB, etc. These bodies enforce consumer protection, product safety, financial regulation, and workplace safety.
The Uniform Commercial Code (UCC) Article II: governs sales of goods, warranties, and risk transfer in commercial transactions.
The internet and privacy: COPPA (2000) regulates data collection for children online; evolving data privacy regulation trends (e.g., California Consumer Privacy Act) affect how firms collect and use data.
The legal/regulatory environment is dynamic; effective ethics programs align with ongoing regulatory changes and industry norms.
Notes
This set of notes captures the major and many minor points from the provided transcript, organized by learning objectives and supplemented with key examples, data points, and regulatory context. It is designed to function as a comprehensive study aid that can stand in for the source material for exam preparation.