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Chapter 3. Ethics and Social Responsibility iStock.com/Shaun Learning Outcomes After studying this chapter, you will be able to . . . 3-1 Explain the determinants of a civil society 3-2 Explain the concept of ethical behavior 3-3 Describe ethical behavior in business 3-4 Discuss corporate social responsibility 3-5 Describe the arguments for and against social responsibility 3-6 Explain cause-related marketing 3-1. Determinants of a Civil Society 3-1 Explain the determinants of a civil society Have you ever stopped to think about the social glue that binds society together? That is, what factors keep people and organizations from running amok and doing harm, and what factors create order in a society like ours? The answer lies in social control, defined as any means used to maintain behavioral norms and regulate conflict. Behavioral norms are standards of proper or acceptable behavior. Social control is part of your life at every level, from your family to your local community, to the nation, to the global civilization. Several modes of social control are important to marketing: Ethics: Ethics are the moral principles or values that generally govern the conduct of an individual or a group. Ethical rules and guidelines, along with customs and traditions, provide principles of right action. Laws: Often, ethical rules and guidelines are codified into law. Laws governments create are then enforced by governmental authority. This process is how the dictum “Thou shall not steal” has become part of formal law throughout the land. Law, however, is not a perfect mechanism for ensuring good corporate and employee behavior. Laws often address only the lowest common denominator of socially acceptable behavior. In other words, just because something is legal does not mean that it is ethical. For example, Texas Pete is a hot sauce sold in grocery stores across the country. The packaging for Texas Pete features a lone star, just as the Texas state flag does, and a cowboy holding a lasso. The packaging, along with the name of the product, seems to indicate that the product is made in the state of Texas, or that it is at least made from ingredients sourced in Texas. Texas Pete, however, is produced by TW Garner Foods Company, a company headquartered in North Carolina, more than 800 miles from Texas. A class action lawsuit was filed against the company for false advertising. The lawsuit claimed that consumers were paying a premium price based on their belief that the product originated in Texas, which has a reputation for spicy food. Texas Pete does not explicitly state that the product is manufactured in Texas and actually lists TW Garner Foods’ North Carolina address on the bottle, but the name of the product and the packaging certainly suggest that it is a genuine Texas-based product and could be misleading to consumers. While this presentation is technically legal, is this ethical? What’s your opinion? Here’s another example: In every state, littering is a problem—and has been for many years. Threats of fines and even jail time are shrugged off as people toss food wrappers, plastic straws and cups, and everything else imaginable out the car window. Many companies are implementing new policies to try and curtail the negative effects of littering. For example, Starbucks in California no longer automatically gives straws and plastic cutlery to customers, but, rather, will only provide these items when customers specifically request them. Nicole Glass Photography/Shutterstock.com Formal and Informal Groups: Businesses, professional organizations (such as the American Marketing Association and the American Medical Association), and clubs (such as Shriners and Ducks Unlimited) all have codes of conduct. These codes prescribe acceptable and desired behaviors for their members. Self-Regulation: Self-regulation involves the voluntary acceptance of standards established by nongovernmental entities, such as the American Association of Advertising Agencies (AAAA) or the National Association of Manufacturers. The AAAA has a self-regulation arm that deals with deceptive advertising. Other associations have regulations relating to child labor, environmental issues, conservation, and a host of other issues. The Media: In an open, democratic society, the media play a key role in informing the public about the actions of individuals and organizations—both good and bad. Laundress, a luxury laundry detergent brand that claims to be better for you and better for the environment, came under fire after issuing a safety notice for almost all of its products. The company released the notice on its social media accounts but provided very little information about the reason for the notice. It was later revealed that the majority of the products the brand manufactured between January 2021 and September 2022 contained heightened levels of bacteria that were causing severe skin rashes and other physical ailments. Many major media outlets, including The New York Times and USA Today, published articles to inform the public of this safety notice and the product recall that eventually followed. An Active Civil Society: An informed and engaged society can help mold individual and corporate ethics, as well as socially responsible behavior. Research reveals that 56 percent of U.S. consumers stop buying from companies they believe are unethical. In the United Kingdom, 53 percent of consumers reported that they would completely stop buying from a brand accused of sourcing from unethical suppliers. manufactured between January 2021 and September 2022 contained heightened levels of bacteria that were causing severe skin rashes and other physical ailments. Many major media outlets, including The New York Times and USA Today, published articles to inform the public of this safety notice and the product recall that eventually followed. An Active Civil Society: An informed and engaged society can help mold individual and corporate ethics, as well as socially responsible behavior. Research reveals that 56 percent of U.S. consumers stop buying from companies they believe are unethical. In the United Kingdom, 53 percent of consumers reported that they would completely stop buying from a brand accused of sourcing from unethical suppliers. 3-2a. Ethical Theories People usually base their individual choice of ethical theory on their life experiences. The following are some of the ethical theories that apply to marketing. Deontology The deontological theory states that people should adhere to their obligations and duties when analyzing an ethical dilemma. This theory means that a person will follow their obligations to another individual or society because upholding one’s duty is considered ethically correct. For instance, a deontologist will always keep their promises to a friend and follow the law. A person who follows this theory will produce very consistent decisions because those decisions will be based on the individual’s set duties. Deontological theory is not necessarily concerned with the welfare of others. For example, suppose a salesperson has decided that it is their ethical duty (and very practical) to always be on time for meetings with clients. Today they are running late. How are they supposed to drive? Is the deontologist supposed to speed, breaking the law to uphold their duty to society, or is the deontologist supposed to arrive at their meeting late, breaking their duty to be on time? This scenario of conflicting obligations does not lead us to a clear, ethically correct resolution, nor does it protect the welfare of others from the deontologist’s decision. Utilitarianism The utilitarian ethical theory is founded on the ability to predict the consequences of an action. To a utilitarian, the choice that yields the greatest benefit to the most people is the ethically correct choice. One benefit of this ethical theory is that the utilitarian can compare similar predicted solutions and use a point system to determine which choice is more beneficial for more people. This point system provides a logical and rational argument for each decision and allows a person to use it on a case-by-case basis. There are two types of utilitarianism: act utilitarianism and rule utilitarianism. Act utilitarianism adheres exactly to the definition of utilitarianism as just described. In act utilitarianism, a person performs the acts that benefit the most people, regardless of personal feelings or societal constraints like laws. Rule utilitarianism, however, considers the law and is concerned with fairness. A rule utilitarian seeks to benefit the most people but through the fairest and most just means available. Therefore, added benefits of rule utilitarianism are that it values justice and doing good at the same time. As is true of all ethical theories, however, both act and rule utilitarianism contain numerous flaws. Inherent in both are the flaws associated with predicting the future. Although people can use their life experiences to attempt to predict outcomes, no human being can be certain that their predictions will come true. This uncertainty can lead to unexpected results, making the utilitarian look unethical as time passes because their choice did not benefit the most people, as they had predicted. Another assumption a utilitarian must make is that they can compare the various types of consequences against each other on a similar scale. However, comparing material gains such as money against intangible gains such as happiness is impossible because their qualities differ so greatly. Casuist The casuist ethical theory compares a current ethical dilemma with examples of similar ethical dilemmas and their outcomes. This theory allows one to determine the severity of the situation and to create the best possible solution according to others’ experiences. Usually, one will find examples that represent the extremes of the situation so that a compromise can be reached to include the wisdom gained from the previous situations. One drawback to this ethical theory is that there may not be a set of similar examples for a given ethical dilemma. Perhaps that which is controversial and ethically questionable is new and unexpected. Along the same line of thinking, this theory assumes that the results of the current ethical dilemma will be similar to the results in the examples. This assumption may not be true and would greatly hinder the effectiveness of applying this ethical theory. Moral Relativism Moral relativism is a belief in time-and-place ethics, that is, the truth of a moral judgment is relative to the judging person or group. According to a moral relativist, for example, stealing is not always wrong—if you are a parent and your child is starving, stealing a loaf of bread is ethically correct. The proper resolution to ethical dilemmas is based on weighing the competing factors at the moment and then deciding to take the lesser of the evils as the resolution. Moral relativists do not believe in absolute rules. Their beliefs center on the pressure of the moment and whether the pressure justifies the action taken. Virtue Ethics Aristotle and Plato taught that solving ethical dilemmas requires training—that individuals solve ethical dilemmas when they develop and nurture a set of virtues. A virtue is a character trait valued as being good. Aristotle taught the importance of cultivating virtue in his students and then having them solve ethical dilemmas using those virtues once they had become an integral part of his students’ being through their virtue training. Some modern philosophers have embraced this notion of virtue and have developed lists of what constitutes a virtuous businessperson. Some common virtues for businesspeople are self-discipline, friendliness, caring, courage, compassion, trust, responsibility, honesty, determination, enthusiasm, and humility. You may see other lists of virtues that are longer or shorter, but here is a good start for core business virtues. 3-3. Ethical Behavior in Business 3-3 Describe ethical behavior in business Depending on which, if any, ethical theory a businessperson has accepted and uses in their daily conduct, the action they take may vary. For example, faced with bribing a foreign official to get a critically needed contract or shutting down a factory and laying off a thousand workers, a person following a deontology strategy would not pay the bribe. Why? A deontologist always follows the law. However, a moral relativist would probably pay the bribe. While the boundaries of what is legal and what is not are often fairly clear (e.g., do not run a red light, do not steal money from a bank, and do not kill anyone), the boundaries of ethical decision making are predicated on which ethical theory one is following. The law typically relies on juries to determine if an act is legal or illegal. Society determines whether an action is ethical or unethical. In 2022, Oracle, an information technology company, was forced to pay $23 million to settle charges of violating the Foreign Corrupt Practices Act (FCPA). The U.S. Department of Justice and the Securities and Exchange Commission (SEC) allege that subsidiaries of the company in India, Turkey, and the United Arab Emirates used discount schemes and sham marketing reimbursements to finance funds that were then used to bribe foreign officials. Michael Egbert, corporate communications VP for Oracle, stated that “The conduct outlined by the SEC is contrary to our core values and clear policies, and if we identify such behavior, we will take appropriate action.” Morals are the rules people develop as a result of cultural values and norms. Culture is a socializing force that dictates what is right and wrong. Moral standards may also reflect the laws and regulations that affect social and economic behavior. Thus, morals can be considered a foundation of ethical behavior. Morals are usually characterized as good or bad. “Good” and “bad” have many different connotations. One such connotation is “effective” and “ineffective.” A good salesperson makes or exceeds the assigned quota. If the salesperson sells a new computer system or an OLED TV to a disadvantaged consumer—knowing full well that the person cannot keep up the monthly payments—is that still a good salesperson? What if the sale enables the salesperson to exceed their quota? “Good” and “bad” can also refer to “conforming” and “deviant” behaviors. A doctor who runs large ads offering discounts on open-heart surgery would be considered bad, or unprofessional, because they are not conforming to the norms of the medical profession. “Good” and “bad” also express the distinction between law-abiding and criminal behavior. And, finally, different religions define “good” and “bad” in markedly different ways. A Muslim who eats pork are considered bad by other Muslims, for example. Religion is just one of the many factors that affect a businessperson’s ethics. Academic researchers have examined how consumers react to the trade-offs between highly competent but less moral service providers and less competent but highly moral service providers. Their study found that consumers valued competence more than morality. In other words, purchasers of services want someone who can do the job right . . . even if that person might be a bit shady. For example, a house-painting company that does excellent work but has had some legal problems in the past would be preferred over a mediocre painting company that has never had complaints or legal problems. 3-3a. Morality and Business Ethics Today’s business ethics consist of a subset of major life values learned since birth. The values businesspeople use to make decisions have been acquired through family, educational, and religious institutions. Ethical values are situation specific and time oriented. Everyone must have an ethical base that applies to conduct in the business world and personal life. One approach to developing a personal set of ethics is to examine the consequences of a particular act. Who is helped or hurt? How long do the consequences last? What actions produce the greatest good for the greatest number of people? A second approach stresses the importance of rules. Rules come in the form of customs, laws, professional standards, and common sense. “Always treat others as you would like to be treated” is an example of a rule. 3-3a. Morality and Business Ethics Today’s business ethics consist of a subset of major life values learned since birth. The values businesspeople use to make decisions have been acquired through family, educational, and religious institutions. Ethical values are situation specific and time oriented. Everyone must have an ethical base that applies to conduct in the business world and personal life. One approach to developing a personal set of ethics is to examine the consequences of a particular act. Who is helped or hurt? How long do the consequences last? What actions produce the greatest good for the greatest number of people? A second approach stresses the importance of rules. Rules come in the form of customs, laws, professional standards, and common sense. “Always treat others as you would like to be treated” is an example of a rule. 3-3c. Ethical Guidelines and Training In recent years, many organizations have become more interested in ethical issues. Yet interest and action are not always the same thing. Although some companies are now appointing a Chief Ethics Officer (sometimes called a Chief Compliance Officer), this role is still not present at many companies. It is very common, however, for companies of various sizes to develop a code of ethics as a guideline to help marketing managers and other employees make better decisions. Creating ethics guidelines has several advantages as follows: A code of ethics helps employees identify what their firm recognizes as acceptable business practices. A code of ethics can be an effective internal control of behavior, which is more desirable than external controls, such as government regulation. A written code helps employees avoid confusion when determining whether their decisions are ethical. The process of formulating the code of ethics facilitates discussion among employees about what is right and wrong and ultimately leads to better decisions. Ethics training is an effective way to help employees put good ethics into practice. The Ethics & Compliance Initiative’s State of Ethics and Compliance in the Workplace Report found that 84 percent of employees who work for a company with a strong ethics and compliance program perceived their organization as having a strong ethical culture. Comparatively, only 13 percent of employees working for an organization classified as having an underdeveloped ethics and compliance program felt that their organization had a strong ethical culture. Strong ethical cultures give employees the appropriate guidance to handle situations involving potential wrongdoing and lead to lower rates of misconduct. Still, simply giving employees a long list of dos and don’ts does not really help employees navigate the gray areas or adapt to a changing world market. In Carson City, Nevada, all governmental lobbyists are required to attend a course on ethics and policy before they can meet with lawmakers. The training outlines exactly how and when lobbyists are allowed to interact with lawmakers and how to report any money they spend. A clear understanding of ethical expectations is essential to an industry like lobbying, where illicit—often illegal—actions are taken to promote individual causes. Because artificial intelligence (AI) is becoming so pervasive in marketing interactions with consumers, it must also be taught about ethical decision making. Already Microsoft, Adobe, and IBM, along with smaller firms and start-ups, are developing ethical guidelines and best practices for their AI use. Type “gymnast” into Google’s image search and the vast majority of the top results are female, as are the results for “nurse.” The term “parents” shows almost exclusively heterosexual couples. The results of these searches are driven by AI, which isn’t explicitly taught to discriminate. Rather, these prejudices are the result of the data submitted to the AI algorithm. “There is increasing concern that algorithms used by modern AI systems produce discriminatory outputs, presumably because they are trained on data in which societal biases are embedded,” notes Madalina Vlasceanu, an Assistant Professor of Psychology at New York University, whose research explores biases in internet search algorithms and the potential impact of these biased search results on society. The Most Ethical Companies Each year, Ethisphere magazine (targeted toward top management and focused on ethical leadership) examines more than 5,000 companies in 30 separate industries, seeking the world’s most ethical companies. It then lists the top 100. The magazine uses a rigorous format to identify true ethical leadership. A few of the selected winners are shown in Table 3.1. Table 3.1 Selected Winners of the World’s Most Ethical Companies Company Industry Country 3M Industrial manufacturing USA Accenture Consulting Services Ireland Aflac Accident and life insurance USA Apple Technology USA Colgate-Palmolive Consumer products USA Dell Technology USA EDP Energy and utilities Portugal General Motors Company Automotive USA Illy Food, beverages, and agriculture Italy Kao Health and beauty Japan L’Oreal Health and beauty France Mastercard Payment Services USA Natura Health and beauty Brazil Parsons Engineering and design USA Salesforce Application software USA U.S. Bank Banks USA Workday Software & Services USA Source: “The 2022 World’s Most Ethical Companies Honorees List,” https://worldsmostethicalcompanies.com/honorees/ (accessed January 30, 2023).