Corporate Social Responsibility and Business Ethics

1. Corporate Social Responsibility and Business Ethics UBGA 107: Week 12

2. Today’s Agenda • Administrative Matters (return exams) • Only scantron is returned to you. Blue books are available to be viewed in Professor Gerlach’s office only. • Grade distribution adjustment? • Attendance sheet to be returned to me during class • Corporate Social Responsibility and Business Ethics • What are CSR and Ethics? • How are ethical questions analyzed

3. Review • Corporate Governance • U.S. v. Germany (Japan) • the ways in which rights and responsibilities are shared between the various corporate participants (In the US, especially the management and the shareholders). • The Facts • WorldCom’s meteoritic rise • The Scandal • Financial Manipulations • WorldCom’s incentive to commit fraud • Arthur Andersen’s incentive to look away • Key: Misalignment of Incentives

4. Definitions • What is Corporate Social Responsibility? • Corporate-wide activities carried out to improve a company’s image vis-à-vis various stakeholder groups • Examples • Corporate Philanthropy, Environmental Policies, Worker Rights Policies, etc. • What is business ethics? • Refers to actions by individuals and/or groups within organizations • Examples • Embezzlement, Sexual Harassment

5. Discussion Question #1 • Discuss the reading in the context of the corporate social responsibility of McWane and Acipco, providing some specific examples • Corporate Philanthropy • Environmental Policies • Workers’ Rights Policies

6. Corporate Philanthropy • Examples from Reading • $10 million donation to the science museum, the McWane Center • Millions to Alabama’s major cultural institutions, including the Birmingham Civil Rights Institute • McWane Scholarships • $2 million to renovate 56-foot statute of Vulcan • What is weird? • These gifts were made by the McWane family, not McWane corporation

7. Environmental Policies • McWane’s environmental records are abysmal • Persistent defiance of laws protecting workers and surrounding communities from toxic pollution • Discharged arsenic, copper and thallium into the air (Alabama) • Workers exposed to exceptionally high levels of silica • Failure to provide respirator, causing severe kidney failure due to arsenic poisoning • 8.5 mil-long slick in the Delaware River • Flushing thousands of gallons of polluted water through the storm drain (Birmingham) • Repeated failure to stop production to repair broken/ineffective pollution control • Equipment tampered with so as not to shut down automatically when pollution controls fail

8. Workers’ Rights Policies • A dangerous business … • Workers who protest dangerous work conditions “bull-eyed” for termination • Supervisors refused to wait a few hours for federal safety inspectors to arrive before restarting a conveyor belt that had crushed a man to death • Line workers who fail to make daily quotas get disciplinary actions • Discipline used to suppress union unrest and injury claims • Supervisors urged to discipline injured workers (to punish workers for reporting injuries) • “Safety director’s” request for more safety equipment and assistant ignored. • Blatant refusal to adhere to federal safety rules on weight-lifting limits • Company officials lie to OSHA regarding safety issues (elevator shaft example) • OSHA: respirator program totally ineffective • 404 OSHA violations 1995-2003

9. Contract with Acipco • “The only time you can get a job at Acipco is if somebody retires or dies.” • Workers take yoga glasses in a modern health club with the latest in weight-training equipment and a spring-loaded floor for aerobics • Workers get cash bonuses if they keep their cholesterol down • Spent millions of dollars to install air-conditioned booths in the hottest parts of the plant

10. McWane vs. Acipco • McWane Business Model • Profit at the expense of worker safety/environmental cleanliness. • Cost savings from ignoring safety/environmental standards much greater than fines • Acipco Business Model • If workers had a genuine stake they would work harder and smarter and produce more • Instituted profit-sharing for all employees

11. Ethical Choices

12. The Three Models of Ethical Analyses • Utilitarian • Comparing benefits and costs • Action is ethical if net benefits exceed net costs • But difficult to measure some human and social costs. Majority may disregard rights of minority • Rights • Respecting entitlements • Basic Human rights are respected • Difficult to balance conflicting rights • Justice • Distributing fair shares • Benefits and costs are fairly distributed • Difficult to measure benefits and costs. Lack of agreement on fair shares

13. Discussion Question #2 • Provide Robert Restor, a former plant manager at McWane, with advice on the ethical choices he could have made while at McWane based on the three ethical models discussed in class

14. Mr. Rester’s Ethical Dilemma • Over 24 years, Mr. Rester became numb to the constant body count, brushed hands and feet, disfiguring lacerations, burns from molten iron, amputations. • His sole focus, was finding a fresh body to keep production rolling. • For a McWane manager, taking time for safety or environmental problem holds few attractions. It means slowing production to fix equipment. It means more safety training, less time to make pipe. • The McWane dictum: TIME = PIPE, PIPE = MONEY

15. Advice to Mr. Rester • Utilitarian • Rights • Justice

16. News Updates • U.S. Brings New Set of Charges Against Pipe Manufacturer • May 26, 2004 • M cWane Inc., a major pipe maker and one of the nation's most persistent violators of workplace safety and environmental laws, faced a new round of criminal charges last night after a federal grand jury in the company's hometown, Birmingham, Ala., issued a 25-count indictment alleging illegal dumping and other environmental crimes. • The indictment charges that senior McWane managers, including Charles Robison, the corporation's vice president for environmental affairs, conspired to dump huge quantities of polluted wastewater into a creek that runs through McWane's oldest foundry, the McWane Cast Iron Pipe Company, on the outskirts of downtown Birmingham.

17. News Update • Plea Agreement Is Reached in Pipe Case • May 27, 2004 • A day after announcing a second indictment against McWane Inc., federal prosecutors disclosed Wednesday that a longtime McWane manager had agreed to cooperate with their investigation into environmental and safety violations at McWane, one of the nation's largest manufacturers of cast iron water and sewer pipe. • The manager, Donald Harbin, 58, has agreed to plead guilty to a single felony, conspiracy to violate environmental laws at the McWane foundry in Birmingham, Ala., where prosecutors charged this week that huge quantities of polluted wastewater had been illegally and routinely dumped into a creek. • Mr. Harbin is the first McWane employee to strike a plea agreement with prosecutors and the first to acknowledge criminal conduct. The maximum sentence is five years in prison and a $250,000 fine , but Mr. Harbin is almost certain to receive a much lighter sentence for agreeing to cooperate. In all, 10 McWane managers have been charged with crimes in Alabama and New Jersey.

18. Key Take Away • Sometimes, there are truly difficult ethical questions: • From a pro-life perspective, if a pregnant mother’s life is in danger, and you have to sacrifice the unborn child’s life, or condemn the mother to certain death, whose life do you choose? • But many of the so-called “ethical questions” in the business world arise from the choice between profit and socially desirable policy considerations. • Here, the “ethical” choice is not inherently difficult to discern, but often financial considerations push ethically desirable concerns to the background – Here, the cost of compliance > cost of fines • But the McWane – Acipco contrast highlights the fact that ethical decisions do not necessarily result in financial ruin. • In Mr. Rester’s example, the opposing forces were his self-interest and his conscience.