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Chapter 2: Business Ethics and Social Responsibility — Vocabulary Flashcards

LO 2-1: Importance of business ethics and social responsibility

  • Definition: business ethics = the principles and standards that determine acceptable conduct in business; personal ethics = an individual’s values and standards.
  • Stakeholders influence acceptable behavior (employees, customers, competitors, regulators, interest groups, the public).
  • Ethical culture linked to profitability and satisfaction; unethical conduct often reduces profits rather than increases them.
  • Tone at the top: top management must commit to ethics and compliance, communicate expectations, train leaders, and guide crisis response.
  • Trust is essential for long-term relationships; ethical leadership helps build trust; high-profile misconduct raises public and regulatory scrutiny.

LO 2-2: Detecting ethical issues in business

  • Ethical issues can arise in several areas: bribery, conflicts of interest, fairness and honesty, misuse of resources, abusive or intimidating behavior, communications, product labeling, plagiarism, and business relationships.
  • Bribery: payments/gifts intended to influence decisions; often illegal across borders (e.g., Foreign Corrupt Practices Act in the U.S.).
  • Misuse of time/resources: time theft, personal use of company devices, and misuse of funds or assets.
  • Abusive or intimidating behavior: bullying, harassment; can harm health and productivity; many firms implement ombuds or reporting channels.
  • Conflicts of interest: personal interests conflicting with company duties; examples include insider trading and improper compensation.
  • Fairness and honesty: deception, misrepresentation, and dishonesty can erode trust; disclosure of risks and product issues is critical.
  • Communications and product claims: false advertising, misleading labeling, and misrepresentation of safety or quality.
  • Plagiarism: taking someone else’s work without attribution; can occur in reports or presentations.
  • Reported misconduct and prevalence: workers witness misconduct and may feel pressure to compromise standards; remote work changes monitoring dynamics.

LO 2-3: How businesses promote ethical behavior

  • Build an ethical culture with a strong tone at the top; integrate ethics into decision making and daily operations.
  • Tools to promote ethics:
    • Codes of ethics and conduct; ethics training; ethics officers; hotlines; whistleblower programs; anonymous reporting.
    • Open discussion of ethical issues to build trust and learning; reporting mechanisms reduce misconduct.
  • Three factors influencing ethical decisions (Figure 2.2):
    • Individual standards and values
    • Manager and coworker influence
    • Opportunity to engage in misconduct
  • Questions to determine if an action is ethical (Table 2.5):
    • Legal restrictions or violations? Is there a code of ethics or policy? Industry guidelines? Will coworkers accept it? Does it align with personal values?
  • Seven steps to an effective compliance program (Table A.5):
    1. Develop standards and procedures to reduce propensity for misconduct ext{(avoidance of criminal conduct)}
    2. Appoint a high-level compliance officer
    3. Avoid delegating to known misconduct risks
    4. Communicate standards through training and publications
    5. Monitor and audit misconduct; create reporting channels
    6. Enforce standards consistently
    7. Respond promptly to misconduct and prevent recurrence
  • Whistleblowing: reporting misconduct to outsiders; programs encourage internal reporting first; protections exist, but retaliation risks remain; ext{Dodd-Frank provides} whistleblower rewards of 10 ext{-}30 ext{ ext{%}} of penalties over ext{\$1,000,000}.
  • Shift from legally based ethics initiatives to culture/integrity-based programs; higher trust improves performance and reduces misconduct.

LO 2-4: The four dimensions of social responsibility

  • Four stages (or dimensions):
    • Stage 1: Financial/Economic viability
    • Stage 2: Legal and regulatory compliance
    • Stage 3: Ethics, principles, and values
    • Stage 4: Philanthropic/voluntary activities
  • Alternate framing: Economic, legal, ethical, and voluntary (philanthropic).
  • Corporate citizenship: extent to which a firm meets legal, ethical, economic, and voluntary responsibilities; signals a strategic focus on social impact.
  • ESG framework (Environmental, Social, Governance):
    • Environmental: pollution, energy use, waste, sustainability
    • Social: equal pay, diversity, community relations
    • Governance: regulation, oversight, executive compensation, board independence
  • ESG is used by investors to evaluate sustainability and CSR progress; criticisms include non-standardized reporting and potential greenwashing.
  • Example: Starbucks and others illustrate Stage progression from financial viability to ethical leadership and philanthropy (e.g., mission-driven initiatives and community programs).
  • The World’s Most Ethical Companies list (Ethisphere) uses criteria like corporate citizenship, governance, innovation, leadership, and ethics programs to identify leaders in ethics.
  • Green initiatives and sustainability are increasingly central; debates exist over the breadth of CSR and its impact on profitability.

LO 2-5: Evaluating an organization’s social responsibilities to owners, employees, consumers, the environment, and the community

  • Stakeholder focus areas:
    • Owners/Stockholders: profitability, transparency, rights, and information disclosure; protect investors’ rights.
    • Employees: safe workplaces, fair pay, benefits, development, diversity, and inclusion; employee voice and well-being are critical.
    • Consumers: safety, informed choices, right to choose, and right to be heard; respond to product safety and truthful marketing.
    • Environment: pollution prevention, sustainable sourcing, energy efficiency, waste reduction; aim for long-term environmental health.
    • Community: charitable giving, local development, and donations; partnerships with nonprofits; measurable social impact.
  • Diversity, equity, and inclusion (DEI): diversity of people and inclusive culture improve performance; unconscious bias training used to reduce discriminatory behavior.
  • Unemployment and education: corporate efforts to reduce unemployment through training and opportunities; automation and AI may impact jobs, requiring retraining and soft skills development.
  • Consumer rights (JFK’s 1962 Consumer Bill of Rights): right to safety, right to be informed, right to choose, right to be heard; FTC divisions protect these rights (e.g., consumer protection focusing on false advertising, labeling, etc.).
  • Environmental sustainability and climate action: push toward alternative energy, pollution control, waste reduction; UN Global Compact and other frameworks guide corporate sustainability; concerns about greenwashing and standardized reporting.
  • Notable CSR initiatives and risks:
    • ESG reporting adds transparency but may be uneven in standards; risk of greenwashing if claims aren’t verifiable.
    • Public commitments to social causes can attract talent and customers, but require rigorous measurement and accountability.
  • Quick reference figures and facts (conceptual):
    • ESG dimensions: ext{Environmental}, ext{Social}, ext{Governance}
    • Whistleblower incentives under Dodd-Frank: ext{10 ext{-}30 ext{ ext%}} of penalties over ext{\$1,000,000}
    • Global trust in industries varies; strong ethical culture correlates with trust and performance.
  • Examples and signals to remember:
    • Ethical issues can arise in advertising (false claims), product labeling, and disclosure of risks.
    • Companies adopt ethics programs, codes of conduct, and reporting channels to manage risk and build trust.
    • Regulatory environment (FTC, FDA, CPSC, EPA, SEC, OSHA, etc.) shapes business behavior and enforcement.

Quick-reference terms and concepts

  • Business ethics vs. social responsibility; corporate citizenship; ESG
  • Whistleblowing and the whistleblower protections
  • Code of ethics and ethics training; ethics officers; hotlines
  • Three factors influencing ethical decisions: individual standards, leadership influence, and opportunity
  • The four dimensions of CSR: financial, legal, ethical, voluntary
  • Stakeholders: owners, employees, customers, suppliers, community, environment
  • Major regulatory bodies: FTC, FDA, CPSC, EPA, SEC, OSHA, among others
  • UCC Article II basics: sales of goods, warranties (express and implied), risk transfer
  • Seven steps to compliance (Table A.5)
  • Seven provisions of major legislation: Sarbanes-Oxley Act and Dodd-Frank Act (with whistleblower protections)
  • Green issues: sustainability, environmental protection, and potential greenwashing concerns