Chapter 3

Chapter 3: Business Ethics and Social Responsibility

3.1 Business Ethics

• Definition: A set of values promoting ethical practices and social responsibility in business.

• Importance: Organizations built on sound ethical principles are more competitive and resilient in volatile markets.

• Role of Corporate Ethics: Core ethics dictate all decisions and processes, aiding in transparency and accountability.

Impact of Bad Business Practices

• Examples of unethical practices include McDonald's funding political campaigns and Uber's scandalous behavior.

• Businesses must protect stakeholders from unethical behaviors through clear governance rules.

Why Is Corporate Ethics Important?

• Subjectivity: The idea of business ethics can seem subjective but relies on acceptable behavior levels within the organization.

• Top-Down Approach: Ethical behavior starts with leadership, shaping the company’s ethics that guide employee conduct.

• Examples of Ethical Decision-Making:

  • Executive compensation during layoffs (CEO pay cut during layoffs indicates strong ethics).

  • Fair employee compensation related to cost of living adjustments.

Positive Outcomes of Ethical Practices

• Improved recruitment and retention rates.

• Strengthened customer relationships and positive public relations.

• Case Study: Dan Price from Gravity Payments raised employee wages, leading to increased revenues and high employee retention rates.

Negative Consequences of Unethical Behavior

• Reputation Damage: Unethical actions can lead to poor company reputation and negative online reviews.

• Employee Relations: Ethical discrepancies can cause disengagement and decreased productivity among staff.

• Recruitment Issues: Companies with negative reputations face difficulties in attracting and retaining talent.

• Credibility Loss: Unethical practices can trigger skepticism among customers and clients, impacting business.

History of Corporate Governance

• Corporate governance has gained attention only recently in history.

• Ethical practices have evolved due to past crises and the need for transparency and accountability in business.

Ethical Decision-Making Policies

1. Understand the issue fully and gather all related facts.

2. List all known facts and assumptions.

3. Note all concerns, including laws and ethical guidelines.

4. Develop potential solutions to the problem.

5. Evaluate solutions regarding their ethical aspects.

6. Recommend the solution along with necessary actions.

Establishing a Code of Conduct

• A code of ethics helps clarify mission, values, and guiding principles of the organization.

• Key Elements:

  • Legal Considerations: Define behaviors that could lead to legal trouble.

  • Value-Based Ethics: Outline community commitment practices.

  • Regulatory Ethics: Ensure data privacy and maintain industry standards.

  • Professional Behavior: Establish acceptable workplace behaviors to prevent harassment and abuse.

Handling Violations

• Implement a whistleblower policy to confidentially report violations.

• Strictly prohibit retaliation against whistleblowers.

3.2 Social Responsibility

• Definition: Corporate social responsibility (CSR) emphasizes making the world better through ethical practices.

• CSR can include donations, volunteerism, and environmentally friendly policies.

Benefits of Corporate Responsibility

• Improves company image and promotes causes aligned with company values.

• Attracts younger employees who prioritize making a positive impact.

Origin of Corporate Responsibility

• The concept has historical roots, with early examples of corporate philanthropy dating back hundreds of years.

• Rising to prominence post World War II with a focus on community improvement.

How CSR Benefits Businesses

• Direct and indirect benefits:

  • Investors: Positive perception linked with CSR translates to confidence and improved stock returns.

  • Eco-Friendly Practices: Improved operational performance through green initiatives.

  • Benevolent Halo Effect: Consumers see companies with CSR commitments as trustworthy.

Supporting CSR Initiatives

• Attracts talent and fosters consumer loyalty through engagements with local communities.

• Boosts marketing effectiveness when promoting genuine CSR initiatives.

The Triple Bottom Line (TBL)

• Definition: A framework measuring a company's sustainability efforts through profits, people, and the planet.

• Challenges: While profits are easy to measure, assessing social and environmental impacts can be complex and subjective.