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):
Develop standards and procedures to reduce propensity for misconduct ext{(avoidance of criminal conduct)}
Appoint a high-level compliance officer
Avoid delegating to known misconduct risks
Communicate standards through training and publications
Monitor and audit misconduct; create reporting channels
Enforce standards consistently
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