Making Ethical Decisions and Managing a Socially Responsible Business

1. 1 Making Ethical Decisions andManaging a Socially Responsible Business

2. 2 Learning Goals What philosophies and concepts shape personal ethical standards? How can organizations encourage ethical business behavior? What is social responsibility? How do businesses meet their social responsibilities to various stakeholders? What are the trends in ethics and social responsibility?

3. 3 How does the legal system govern business transactions and settle business disputes? What are the required elements of a valid contract; and what are the key types of business law? What are the most common taxes paid by businesses? Learning Goals: Appendix

4. 4 Understanding Business Ethics What philosophies and concepts shape personal ethical standards?

5. 5 Understanding Business Ethics Every day, managers and business owners make business decisions based on what they believe to be right and wrong. Through their actions, they demonstrate to their employees what is and is not acceptable behavior and shape the moral standard of the organization. Ethics is a set of moral standards for judging whether something is right or wrong. Every day, managers and business owners make business decisions based on what they believe to be right and wrong. Through their actions, they demonstrate to their employees what is and is not acceptable behavior and shape the moral standard of the organization. Ethics is a set of moral standards for judging whether something is right or wrong.

6. 6 Recognizing UnethicalBusiness Activities Taking things that don�t belong to you. Saying things you know are not true. Giving or allowing false impressions. Buying influence or engaging in a conflict of interest. Hiding or divulging information. Taking unfair advantage. Committing improper personal behavior. Abusing another person. Permitting organizational abuse. Violating rules. Condoning unethical actions. Researchers from Brigham Young University tell us that all ethical business activities fall into the categories shown on this slide. After recognizing that a situation is unethical, the next question is what to do. The action a person takes is partially based on their ethical philosophy. The environment in which we live and work also has a role. Researchers from Brigham Young University tell us that all ethical business activities fall into the categories shown on this slide. After recognizing that a situation is unethical, the next question is what to do. The action a person takes is partially based on their ethical philosophy. The environment in which we live and work also has a role.

7. 7 Factors Influencing Business Ethics Individual business ethics are shaped by personal choices and the environments in which we live and work. In addition, the laws of our society are guideposts for choosing between right and wrong. Justice influences individual business ethics. Justice is what is considered fair according to the prevailing standards of society--in the 20th century, an equitable distribution of the burdens and rewards that society has to offer. One of the philosophies that may influence choices between right and wrong is utilitarianism, which focuses on the consequences of an action taken by a person or organization. The notion that �people should act so as to generate the greatest good for the greatest number� is derived from utilitarianism. The philosophy that says people should meet their obligations and duties when analyzing an ethical dilemma is called deontology. This means that a person will follow his/her obligations because upholding one�s duty is what is considered ethically correct. Individuals and groups have certain rights that exist under certain conditions regardless of any external circumstances. These rights serve as guides when making individual ethical decisions. Legal rights include: freedom of religion, speech and assembly Protection from improper arrest, searches and seizures Proper access to counsel, confrontation of witnesses Cross-examination in criminal prosecutions Right to privacy in many matters Rights applied without regard to race, color, creed, gender, or ability Individual business ethics are shaped by personal choices and the environments in which we live and work. In addition, the laws of our society are guideposts for choosing between right and wrong. Justice influences individual business ethics. Justice is what is considered fair according to the prevailing standards of society--in the 20th century, an equitable distribution of the burdens and rewards that society has to offer. One of the philosophies that may influence choices between right and wrong is utilitarianism, which focuses on the consequences of an action taken by a person or organization. The notion that �people should act so as to generate the greatest good for the greatest number� is derived from utilitarianism. The philosophy that says people should meet their obligations and duties when analyzing an ethical dilemma is called deontology. This means that a person will follow his/her obligations because upholding one�s duty is what is considered ethically correct. Individuals and groups have certain rights that exist under certain conditions regardless of any external circumstances. These rights serve as guides when making individual ethical decisions. Legal rights include: freedom of religion, speech and assembly Protection from improper arrest, searches and seizures Proper access to counsel, confrontation of witnesses Cross-examination in criminal prosecutions Right to privacy in many matters Rights applied without regard to race, color, creed, gender, or ability

8. 8 Concept Check

9. 9 How Organizations InfluenceEthical Conduct How can organizations encourageethical business behavior?

10. 10 How Organizations Influence Ethical Conduct Poor business ethics can create a negative image for a company, can be expensive for the firm, and can result in bankruptcy and jail time. Organizations can reduce the potential for these types of liability claims by educating their employees about ethical standards, by leading through example, and through various informal and formal programs. Poor business ethics can create a negative image for a company, can be expensive for the firm, and can result in bankruptcy and jail time. Organizations can reduce the potential for these types of liability claims by educating their employees about ethical standards, by leading through example, and through various informal and formal programs.

11. 11 Establishing a Formal Code of Ethics A code of ethics is a set of guidelines that provides employees with the knowledge of what the firm expects in terms of their responsibilities and behavior toward fellow employees, customers, and suppliers. A code of ethics is a set of guidelines that provides employees with the knowledge of what the firm expects in terms of their responsibilities and behavior toward fellow employees, customers, and suppliers.

12. 12 Top Corporate Citizens Green Mountain Coffee Roasters Hewlett-Packard Advanced Micro Devices Motorola Agilant Technologies Timberland Companies Salesforce.com Cisco Systems Dell Texas Instruments The top corporate citizens in 2006, according to Business Ethics magazine, are listed on this slide. Cummins is one of 19 companies named every year since the list was created in 2000.The top corporate citizens in 2006, according to Business Ethics magazine, are listed on this slide. Cummins is one of 19 companies named every year since the list was created in 2000.

13. 13 Making the Right Decision In many situations there may be no simple right or wrong answers. These self-tests help guide the right ethical decisions. The feelings test asks �How does it make me feel?� This enables examination of the comfort level with particular decisions. The �front page of newspaper test� asks the question how a critical and objective reporter would report a decision in a front-page story. This test is helpful in spotting and resolving potential conflicts of interest. In many situations there may be no simple right or wrong answers. These self-tests help guide the right ethical decisions. The feelings test asks �How does it make me feel?� This enables examination of the comfort level with particular decisions. The �front page of newspaper test� asks the question how a critical and objective reporter would report a decision in a front-page story. This test is helpful in spotting and resolving potential conflicts of interest.

14. 14 Concept Check

15. 15 Managing a Socially Responsible Business What is social responsibility?

16. 16 Social Responsibility Social responsibility is the concern of businesses for the welfare of society as a whole. It consists of obligations beyond those required by law or union contract. This definition makes two important points: First social responsibility is voluntary. Second, the obligations of social responsibility are broad. Social responsibility is the concern of businesses for the welfare of society as a whole. It consists of obligations beyond those required by law or union contract. This definition makes two important points: First social responsibility is voluntary. Second, the obligations of social responsibility are broad.

17. 17 Social Responsibility Economic performance is the foundation for the other three social responsibilities. At the same time that a business pursues profits (economic responsibility), it is expected to obey the law (legal responsibility), to do what is right, just and fair (ethical responsibility), and to be a good corporate citizen (philanthropic responsibility). If the company does not make a profit, then the other three responsibilities are moot. Economic performance is the foundation for the other three social responsibilities. At the same time that a business pursues profits (economic responsibility), it is expected to obey the law (legal responsibility), to do what is right, just and fair (ethical responsibility), and to be a good corporate citizen (philanthropic responsibility). If the company does not make a profit, then the other three responsibilities are moot.

18. 18 Dimensions of Social Responsibility Peter Drucker said that we should look first at what an organization does to society, and second at what it can do for society. The idea suggests that social responsibility has two basic dimensions: legality and responsibility. Peter Drucker said that we should look first at what an organization does to society, and second at what it can do for society. The idea suggests that social responsibility has two basic dimensions: legality and responsibility.

19. 19 Social Responsibility

20. 20 Concept Check

21. 21 Responsibilities to Stakeholders How do businesses meet their social responsibilities to various stakeholders?

22. 22 Responsibilities to Stakeholders Stakeholders are the individuals or groups to whom a business has a responsibility. The stakeholders of a business are its employees, its customers, the general public, and its investors. An organization�s first responsibility is to provide a job to employees. Enron is an example of a company that violated this responsibility. A company must also satisfy its customers, deliver what it promises, and be honest and forthright. A business is responsible to society by providing jobs, goods, and services, and by paying taxes that support schools, hospitals, and better roads. Other societal responsibilities include protecting and improving the world�s environment, as well as corporate philanthropy. Although a company's economic responsibility to make a profit might seem its main obligation to its shareholders, many investors are putting more emphasis on other aspects of social responsibility. Investors are limiting their investments to securities that fit within their beliefs about ethical and social responsibility. This is called social investing. Stakeholders are the individuals or groups to whom a business has a responsibility. The stakeholders of a business are its employees, its customers, the general public, and its investors. An organization�s first responsibility is to provide a job to employees. Enron is an example of a company that violated this responsibility. A company must also satisfy its customers, deliver what it promises, and be honest and forthright. A business is responsible to society by providing jobs, goods, and services, and by paying taxes that support schools, hospitals, and better roads. Other societal responsibilities include protecting and improving the world�s environment, as well as corporate philanthropy. Although a company's economic responsibility to make a profit might seem its main obligation to its shareholders, many investors are putting more emphasis on other aspects of social responsibility. Investors are limiting their investments to securities that fit within their beliefs about ethical and social responsibility. This is called social investing.

23. 23 Best Places to Work Genentech Wegmans Food Markets Valero Energy Griffin Hospital W. L. Gore & Associates Container Store Vision Service Plan J. M. Smucker REI S. C. Johnson

24. 24 Responsibility to Society

25. 25 Responsibilities toInvestors

26. 26 Concept Check

27. 27 What are the trends in ethics and social responsibility? Trends in Ethics and Social Responsibility

28. 28 Trends in Ethics and Social Responsibility Today, the focus of corporate philanthropy is shifting to strategic giving, which ties philanthropy more closely to the corporate mission or goals and targets donations to regions where a company operates. Another trend in social responsibility is the effort by organizations to redefine their relationship with their employees. Now, companies are telling employees that they also have a responsibility when it comes to job security. The new contract goes like this: �There will never be job security. You will be employed by us as long as you add value to the organization, and you are continuously responsible for finding ways to add value. In return, you have the right to demand interesting and important work, the freedom and resources to perform it well, pay that reflects your contribution, and the experience and training needed to be employable here or elsewhere.� When American businesses expand into global markets, they must take their corporate code of ethics and social responsibility with them. Today, the focus of corporate philanthropy is shifting to strategic giving, which ties philanthropy more closely to the corporate mission or goals and targets donations to regions where a company operates. Another trend in social responsibility is the effort by organizations to redefine their relationship with their employees. Now, companies are telling employees that they also have a responsibility when it comes to job security. The new contract goes like this: �There will never be job security. You will be employed by us as long as you add value to the organization, and you are continuously responsible for finding ways to add value. In return, you have the right to demand interesting and important work, the freedom and resources to perform it well, pay that reflects your contribution, and the experience and training needed to be employable here or elsewhere.� When American businesses expand into global markets, they must take their corporate code of ethics and social responsibility with them.

29. 29 Global Ethics and Social Responsibility Respect local practices and customs Ensure harmony between staff and host population Provide management leadership Develop local managers who will be a credit to the community Implement ethical guidelines within the organization in the host country Balance conflicting interests, such as human rights As a citizen of several countries, a multinational corporation has several responsibilities, as listed on this slide. As a citizen of several countries, a multinational corporation has several responsibilities, as listed on this slide.

30. 30 Concept Check

31. 31 How does the legal system govern business transactions and settle business disputes? Appendix

32. 32 The Legal System�s Role

33. 33 The U. S. Court System The judiciary is the branch of government that is responsible for settling disputes by applying and interpreting points of law. It consists of the court system. The U.S. court system includes both state and federal courts, each organized into three levels. Most court cases start in trial courts. Appellate courts are the courts of appeals for decisions made by the trial courts. The Supreme Court is the highest court in the nation, and is the only court established by the U.S. Constitution. Nonjudicial methods of settling disputes include arbitration and mediation. With arbitration, parties agree to present their case to an impartial third party and are required to accept the arbitrator�s decision. Mediation is similar, but the parties are not bound by the mediator�s decision. The judiciary is the branch of government that is responsible for settling disputes by applying and interpreting points of law. It consists of the court system. The U.S. court system includes both state and federal courts, each organized into three levels. Most court cases start in trial courts. Appellate courts are the courts of appeals for decisions made by the trial courts. The Supreme Court is the highest court in the nation, and is the only court established by the U.S. Constitution. Nonjudicial methods of settling disputes include arbitration and mediation. With arbitration, parties agree to present their case to an impartial third party and are required to accept the arbitrator�s decision. Mediation is similar, but the parties are not bound by the mediator�s decision.

34. 34 Appendix What are the required elements of a valid contract; and what are the key types of business law?

35. 35 Elements of a Contract Contract requirements: Mutual assent: voluntary agreement by both parties to the terms of the contract Capacity: legal ability of a party to enter into contracts Consideration: exchange of some legal value or benefit between the parties Legal purpose: absence of illegality Legal form: oral or written form, as required Contract requirements: Mutual assent: voluntary agreement by both parties to the terms of the contract Capacity: legal ability of a party to enter into contracts Consideration: exchange of some legal value or benefit between the parties Legal purpose: absence of illegality Legal form: oral or written form, as required

36. 36 Remedies for Breach of Contract A breach of contract occurs when one party to a contract fails to fulfill the terms of the agreement. The other party has a right to seek a remedy in the courts. The remedies are: payment of damages. Money awarded to the party who was harmed by the breach of contract specific performance of the contract. A court order requiring the breaching party to perform the duties under the terms of the contract restitution. Canceling the contract and returning to the situation that existed before the contract A breach of contract occurs when one party to a contract fails to fulfill the terms of the agreement. The other party has a right to seek a remedy in the courts. The remedies are: payment of damages. Money awarded to the party who was harmed by the breach of contract specific performance of the contract. A court order requiring the breaching party to perform the duties under the terms of the contract restitution. Canceling the contract and returning to the situation that existed before the contract

37. 37 Tort Law

38. 38 Other Laws

39. 39 What are the most common taxes paid by businesses? Appendix

40. 40 The Dynamic Business Environment