Chapter 4 Business Ethics & Social Reponsibility

1. Chapter 4Business Ethics & Social Reponsibility Lawyers’ houses are built on the heads of fools. Anonymous

2. What is Ethics? • Ethics is the study of how people should act • Ethics also refers to the values and beliefs related to the nature of human conduct • Based on ethical standards or moral orientation • Business ethics: business conduct that seeks to balance the values of society with the goal of profitable operation

3. Ethical Corporations 2006 TOP 12 Green Mountain Coffee Roasters Hewlett-Packard Advanced Micro Devices Motorola Agilent Technologies Timberland Company Salesforce.com Cisco Systems Dell Texas Instruments Intel Johnson & Johnson

4. What are Ethical Standards? • Positivist view asserts that moral standards are codified, or stated, in positive law • Thus, if an act is legal, the act must be ethical • Natural law theory asserts that moral standards are universal and cannot be changed or modified by law • Thus, these standards should be followed even if the standards are greater than the law requires Pamela S. Evers, Reindance Productions, LLC 2004

5. Divine Command: Do what the Bible tell you • Ethics of Conscience: Follow your conscience • Ethical Egoism: First do what’s best for yourself • Ayn Rand – “The Ethics of Selfishness” • Duty Ethics: Do the right thing • Immanuel Kant’s categorical imperative • Ethics of Respect: Show respect (don’t dis’ me) • Ethics of Rights: Everyone has inalienable rights • Utilitarianism: Do what is best for the most • Ethics of Justice: Do what is fair • Virtue Ethics: Be a good person Pamela S. Evers, Reindance Productions, LLC 2004

6. Compare Views “The one and only social responsibility of business is to increase its profits.” Milton Friedman (b. 1912), Nobel Laureate in Economics “The business of business is serving society, not just making money.” Dayton Hudson Corporate Constitution

7. Recognizing & Resolving Ethical Dilemmas

8. Ethical reasoning • Utilitarianism (Bentham & Mill) holds that all decisions should be evaluated to the utility they create – the good of the many over the good of the one or the few; a cost/benefit analysis • Duty-based Ethics (Kant’s categorical imperative) holds that one should not act unless you would be willing for all others to act similarly Pamela S. Evers, Reindance Productions, LLC 2004

9. Ethical reasoning • Situational ethics or moral relativism examines the circumstances of an act to determine whether the act was, or was not, ethical • The business stakeholder standard of behavior determines whether an act is, or is not, ethical by examining the interests of various stakeholders with regard to a particular business action Pamela S. Evers, Reindance Productions, LLC 2004

10. Too Complicated?

11. “Easier” Methods of Resolving Ethical Dilemmas • Laura Nash Model: • Have you defined the problem accurately? • How would you define the problem if you stood on the other side of the fence? • How did this situation occur in the first place? • What is your intention in making this decision? • How does the intention compare with probable results?

12. Laura Nash Model (cont): • Can you discuss your decision with the affected parties? • Are you confident that your position will be as valid over a long period of time as it seems now? • Could you discuss your decision with your supervisor, coworkers, officers, board, friends, and family? • Whom could your decision or action injure?

13. “Easier” Methods of Resolving Ethical Dilemmas • Blanchard & Peale Three-Part Test: • Is it legal? Positive law approach • Is it balanced? Stakeholder standard • How does it make me feel? Moral relativism • Front Page of the Newpaper Test: • If considering a business action, would you like to see it on the front page of the newspaper?

14. Think About These Situations And The Related Ethical Issues • Discrimination • Stealing food • Stealing a car • Disposing of hazardous waste • Writing an employee policy • Expanding or closing your business • Protecting your biz from competitors • Firing an employee

15. Example • Company Z sells a luxury car to Mr. X. After only 9 months, an auto detailer told Mr. X that the car had been repainted. Investigation reveals that Company Z routinely -- and secretly -- repaints cars damaged during shipping but sells the cars as new. Did Company Z act ethically? • Mr. X filed suit against Co. Z for fraud & won. • The real case: BMW North America, Inc. v. Gore, 116 S.Ct. 1589 (1996).

16. Ethics According to the Text • Book states: “…to date, there is little evidence that ethical behavior necessarily pays financially, either in the short or the long run.” • Note: there is little research on the theory, primarily because of inherent problems in research design • E.g., defining “ethical conduct” or measuring impact of ethical conduct on bottom line

17. Counterpoint • “Ethics and competitiveness are inseparable.” John Akers, former chairman, IBM • Evidence does exist that good ethical business is profitable! • Malden Mills (Polartec), Unilever, Patagonia, Sanrio (Hello Kitty), Proctor & Gamble, Whole Foods… • www.accountability.org.uk, www.business-ethics.com, www.ethicalcorp.com

18. Research in 2003: • Research by Institute of Business Ethics showed for first time that companies with a clear commitment to ethical conduct outperform those which do not • Study in UK of relationship between business ethics and business performance in large companies: • Four indicators of business success - economic value added (EVA), market value added (MVA), price/earnings ratio volatility (P/E ratio), and return on capital employed (ROCE) • Compared firms 1997-2001 with demonstrable commitment to ethical behavior through published code of business ethics to firms without codes • On three of four indicators (EVA, MVA, P/E) firms with codes clearly superior, and on ROCE results were less clear but supported overall trend

19. Responsibility to Employees & Shareholders • Apply various models for ethical decision-making to a company’s employment decisions • Safety requirements (Johnson Controls excluded women from manufacturing line at battery plant) • Executive compensation compared to hourly compensation • Plant closings • Outsourcing • Whistleblowers Whistleblowers Cooper, Rowley, and Watkins

20. Responsibility to Customers & Community • Apply the various models for ethical decision-making to a company’s product design decisions • Product safety and “acceptable risk” • Excess packaging that becomes waste • Using harmful raw materials • Outsourcing F150 crash test

21. Responsibility Overseas • Apply various models for ethical decision-making to a company’s international operations • Union Carbide and the Bhopal disaster • Texaco’s environmental disaster in Ecuador • Apparel manufacturers and child labor issues Texaco’s oil impacts Ecuadoran child; Aguinda v Texaco

22. Business Ethics is Important • Trust -- business activity is based upon trust whether between employer and employee, company and consumer, supplier and manufacturer, government and business • Reputation -- a good reputation is a valuable commodity (e.g., goodwill) • Law – unethical business activity ultimately, at least in theory, is limited by government, consumers, and other stakeholders who use the courts and legislation to limit unethical behavior

23. The bar chart shows the percentage of British citizens that engaged in the activity. About 15% of British citizens are “activists,” doing 5 or more activities within a year.

24. NEXT: International Law “The time is always right to do what is right.” Martin Luther King, Jr. Credits: Eminem & Eric Clapton