Business Ethics: When the Rubber Hits the Road

Business Ethics: When the Rubber Hits the Road Presented by: Mona E. Barragan

Objectives • Define business ethics and whether business ethics may be taught • Define consumerism • Study business ethics as it relates to small business • Highlight the results of 386 questionnaire responses to general business ethics questions • Practice what you have learned by participating in a group exercise

Business Ethics Definitions • Business ethics is most narrowly defined in terms of what is right/wrong or good/bad • The definition that is more appropriate to business today is “The processes through which individuals apply their personal values, beliefs, and attitudes to new, dynamic situations in the workforce in order to make, implement, and evaluate optimal decisions.”

Can business ethics be taught? Some say ‘no’ because... • Values are fully formed by the time we reach adulthood • Business ethics is unscientific • Business instructors may not possess ethics expertise; ethics instructors may not possess business expertise • University business curricula and business training programs are already full

Most say ‘yes’ • Most textbook authors are including ethics in their university texts • Most authors researched believe that business ethics may be taught…their only point of contention is how it should be taught • Many professional organizations require members to obtain ethics training • Over 90% of questionnaire respondents believe that parents, teachers and employers should teach business ethics

Some Social Obligations of Small Firms Compliance with Government Regulations Response to Employee Needs Consumerism Protection of Environment Support of Education Contributions to Community Organizations Response to Community Needs • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing

Business Ethics/Social Responsibility • Should be recognized by all businesses--especially small businesses • Level may be limited because small businesses must make a profit to survive • Does what is best for the majority of stakeholders--not just what is in the owner’s best interest

Small business and ethics • In small business, the personal integrity of the founder or owner is the most important key to ethical performance • Code of ethics may become necessary as a business grows and the owner’s personal influence decreases

Small business and ethics (continued) • Studies suggest that entrepreneurs are more likely than other business managers and professionals to be unethical with respect to issues that directly affect profits • Small businesses are under greater pressure to act unethically, because they may not absorb the cost of making ethical decisions as easily as large firms

Consumerism Issues Key Emphasis: Let the seller beware! • Customer Expectations: • Products/services that reflect • Safety • Reliability • Durability • Quality • Accuracy in advertising • Small Firm Responses: • Clearly stated warranties • Efforts to satisfy customers • Honest advertising • Smoke-free areas • Standing behind repair work • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing

How Entrepreneurs Rationalize Cheating on Taxes “Everybody does it.” “It’s the way I get paid for unnecessary government red tape.” “I have to compete with people who cheat.” “Big operators have their loopholes; this just evens things up.” “Taxes are too high; the government doesn’t deserve that much money.” • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing

Difficult Ethical Issues Facing Small Firms “Putting old parts in a new device and selling it as new” “Lying to customers about test results” “Reporting to an unethical person” “Being asked by my superiors to do something that I know is not good for the company or its employees” “Receiving kickbacks by awarding overpriced contracts” “Theft of corporate assets” “Getting people to do a full day’s work” “Vendors want a second chance to bid if their bid is out of line.” “The ordering of supplies when cash flows are low and bankruptcy may be coming” Relationship with outside parties in the marketplace Superior subordinate relationships Employee responsibilities and actions that in some way conflict with the best interests of the employer Relationships with suppliers • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing

Difficult Ethical Issues Facing Small Firms Compliance with governmental requirements and reporting to government agencies Human resource decisions Environmental and social responsibilities “Having to deal with so-called antidiscrimination laws which in fact force me to discriminate” “Employing people who may not be legal [citizens] to work” “Whether to lay off workers who [are] surplus to our needs and would have a problem finding work or to deeply cut executive pay and perks” “Sexual harassment” “Whether to pay to have chemicals disposed of or just throw them in a dumpster” “Environmental safety versus cost to prevent accidents” • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing

Results of 386 Questionnaires • 186 respondents were graduating university seniors, post-graduate students, or graduate students • 200 respondents were business practitioners • Summary of respondents’ perceptions follow in Tables 1 through 8

Tables 1 - 6 Tables 1 - 6 compare student and practitioner responses to questions on business ethics

Table 1 I believe I am living in a time of general ethical decline in: (% of respondents that Agree) StudentsPractitioners Society 80% 79% Business 62% 64% * * * * * * * * * * * * * * Have you ever made a decision in the workplace that some may construe as unethical? YesNo Practitioners 33% 67%

Table 2 I believe that ethical business practices lead to: (% of respondents that Agree) StudentsPractitioners increased profits 68% 75% increased returns on investment 65% 74% a positive work environment 91% 96% a positive public perception of 89% 94% the organization

Table 3 I corporate decision-makers should be accountable to: (% of respondents that Agree) StudentsPractitioners the government 58% 57% stockholders 88% 98% employees 92% 97% the communities in which 87% 91% they operate

Table 4 I believe I will face/have faced the following issues in my work experience: (% of respondents that Agree) StudentsPractitioners growing presence of women & minorities 95% 72% ecological responsibility 83% 40% illegal activity 74% 36% global complexities 88% 55% restructuring & reorganization 91% 85% mergers and acquisitions 87% 64% technological surveillance of employees 81% 53%

Table 5 I believe business managers should consider ethical/social implications before they make business decisions: (% of respondents that Agree) StudentsPractitioners 95% 96%

Table 6 I believe the following should be LEADERS in teaching ethics/ social responsibility in BUSINESS decision-making to future managers: (% of respondents that Agree) StudentsPractitioners parents 88% 91% teachers/professors 90% 97% clergy 70% 74% employers 88% 94%

Tables 7 - 8 Tables 7 - 8 present practitioners’ experiences with business ethics

Table 7 I have personally made/witnessed others make decisions in the workplace that involve(s) business ethics/ social responsibility: (% of respondents that Agree) PersonallyOthers at least weekly 49% 54% between weekly and monthly 26% 27% between monthly and yearly 17% 12% less than once a year 4% 4% never 5% 3%

Table 8 What do you believe are the motivating reasons for unethical behaviors by managers/non-management employees: (% of respondents that Agree) ManagersEmployees career advancement 74% 69% financial benefit 80% 71% no formal ethics training 33% 45% upbringing lacks ethics emphasis 57% 64% lack of accountability 64% 66% company policies do not address ethics 28% 33% corporate culture 56% 46% following directives 31% 37%

Class Scenarios

Scenario #1 Jeff is a salesman working at a small business that manufactures small tools. He is paid strictly on a commission basis. The higher the price he negotiates with his customers, the higher his commission, and thus, his paycheck. Many of Jeff’s customers are small businesses like the one he works for. While he needs to provide for a family, his small businesses customers cannot afford high prices for tools. How can Jeff balance the needs of his family and his customers? What are the ethical implications of the decisions Jeff makes?

Scenario #2 Sarah started a small Internet company two years ago. She sees that she is beginning to lose a lot of business to companies that pop up, produce advertisements that promise the world, do not deliver, and are gone in a year. Sarah has decided she has several options: (1) compete with them head to head by making the same promises, (2) exposing the fly-by-night businesses for what they are, (3) wait it out, hoping her business will survive and even thrive in the long run. What course of action should Sarah take? How will her actions affect all of her stakeholders?

Scenario #3 Samantha runs an antique store in Madisonville, Texas. She has an assistant manager, two sales clerks, one buyer, and a bookkeeper that work for her full time. The assistant manager resigns. One sales clerk with 15 years of experience, the buyer who has 6 years, and the bookkeeper who has 1 year all want the promotion. The sales clerk’s performance has been marginal, but she is a steady, dependable employee. The buyer has excellent connections to the auction market, which is why he was hired; however, Samantha and the buyer don’t always get along. The bookkeeper is a go-getter who always gives 200%. Who should Samantha promote, and why? Are there trade-offs between what is fair to the employees and what is best for the business?

Scenario #4 Paul works for a small communications company. His earnings and benefits are enough to provide nicely for his family of 4. He has just lost his largest customer, $2 million, because of an unethical decision made by Paul’s boss. Paul has discovered several things he could do: (1) go to his boss and address the unethical decision with him, (2) go to the customer and try to cut a personal deal with him, (3) leave the company. What should Paul do? Who will his decisions affect?

Scenario #5 Elena is the bookkeeper for a small oil & gas firm. She posts all entries, including all routine monthly entries that are required to close the books. The business is attempting to get a large loan from a bank, and so Elena works day and night to get the books closed quickly. After presenting the month-end reports to the business owner, the owner says, “we are at ____ in net income; we need to be at _____.” He subsequently gives her entries to make into the accounting records for which she has no backup. Elena calculates that including those entries, the net income will be where the owner wanted it to be. What should Elena do? What are her choices and who will her decisions affect?

Scenario #6 Joyce works for a small real estate brokerage firm. They buy and sell property that has been abandoned or repossessed for non- payment of taxes. Although an initial environmental assessment of a property came up clean when a property was first purchased, Joyce has recently learned that a part of the property was used as a dumping ground for paints and other chemicals in the past. Joyce and her employer feel since the property passed an initial environmental inspection, it will pass again, and the company does not wish to disclose the environmental hazards. What are Joyce’s options when placing the property for sale? What are the implications of the decisions she makes? Who will her decisions affect?

Scenario #7 Jake, the owner of Mustang Supplies, believes that employees are stealing from him by placing small tools and equipment into their lunch boxes. A friend has suggested that Jake place hidden surveillance cameras in the break room and in the employee locker area. What should Jake do? Are there privacy issues involved in the decisions he makes? What are the implications of the decisions he makes?

Scenario #8 Max works for a small used car dealership. The owner has always allowed him to create his own advertisements. Recently, the owner has started pressuring Max about the “fine print” in his advertisements. That is, the owner wishes to price one vehicle at a super sale price, with the small print in the advertisement stating: “one at this price.” He wants to bring in more potential customers. What are your options? What are the ethical implications of these advertisements? What should Max do?

What may we learn from practitioners?

Scenario #1--a balancing act I'm in Sales. By definition I sell a product, service, etc., and try to increase the overall margin of a job. This means that I am trying to "bleed" money out of my customers. I have a budget. If I obtain the budgeted goal, I am rewarded by increased commissions. Question: What's at stake? I am constantly torn between putting the "screws" to a cust that trusts me and a company signs my pay check! This far, I believe I have been able to balance them both.

Scenario #2--my decisions affect millions of people Know yourself & your ethical boundaries. Be honest with yourself about what you can & cannot do. Be sure you understand the repercussions of your decisions-the consequences to your community, your family, your company/employees, friends and the consequences to yourself. One decision affects millions of people, more times than you think. That's a lot of responsibility. Always be prepared to take responsibility for your actions, but never expect to get credit for them.

Scenario #3--be fair Treat everyone fairly. I have seen so much back-stabbing either for getting ahead or getting out of trouble. You might have personality conflicts with people--but you still need to try to be neutral. Hope this helps with your study & try to make this world a better place by teaching ethics!

Scenario #4--time to leave I lost a 2 plus million dollar account because of the lack of ethics the president of the company had. I left the company shortly after.

Scenario #5--stand your ground "Awareness" is the key! Understand that eventually a situation will arise where ethics is an issue. If it comes from a client or management, don't be afraid to stand your ground. You can always get a new job, but it's very difficult to change your reputation.

Scenario #6--stepping over the line Students need to be informed how ethical decisions apply to everyone and that the decisions they make will affect everyone. Once upper management learns that you are willing to ethically lean toward the company's side or decision, they will return again and again for your help. If you make an unethical decision for the company's benefit you will be expected to cover it up and forget about it, until they need you to do it again. My ethical situations deal mainly with the environment.

Scenario #7--all-knowing Big Brother Continue teaching ethics, but aside from that place an emphasis on "Big Brother." The technological surveillance of employees is out of control. Welcome to Dell.

Scenario #8--bait advertising--reputation is all you have to lose Let them be fully aware that unethical behaviors will happen, and that they will be faced with it and will have to make a decision (be prepared). Unethical behavior always catches up to people. It may never catch up with them financially, however “reputation" in the business world will make or break you. Being in sales, I encounter unethical behaviors frequently. Large corporations are just as guilty as small businesses (it is not isolated to any segment of the market).

An Ethical Culture An ethical culture is one in which the company makes a good faith effort to meet its obligations to all its stakeholders not just to its employees, but also to its customers, shareholders, the community and the environment. The list of stakeholders gets longer every day, and their interests often conflict, but they cannot be ignored. Shaun O’Malley, chairman emeritus of Price Waterhouse • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing

“Cultivate literature and useful knowledge, • for the purpose of qualifying the rising generation • for patrons of good government, virtue, and happiness.” •  George Washington

Business Ethics: When the Rubber Hits the Road