CONDUCTING BUSINESS ETHICALLY AND RESPONSIBLY CH APTER 2

1. CONDUCTING BUSINESS ETHICALLY AND RESPONSIBLYCHAPTER 2 Department of Business Administration EMU This slide set is prepared for use with Ebert and Griffin, Business Essentials. Fifth Edition. Prentice Hall, New Jersey, 2005. Limited use has been made of some slides that are part of the slide set by the publisher.

2. Topics Summary • Ethics in the Workplace • Social Responsibility • Areas of Social Responsibility • Implementing Social Responsibility Programs

3. What Is Ethical Behavior? Ethics: Right and wrong, good and bad, in actions that affect others Ethical Behavior: Conforming to generally accepted ethical norms

4. ETHICS IN THE WORKPLACE • Individual Ethics • What is ethics? Ethics : beliefs (inanç) about what is right and wrong or good and bad in our actions that affect other people or organizations (ahlak) • Ethical Behavior : behavior conforming to generally accepted social norms concerning beneficial and harmful actions • Unethical Behavior : behavior that does not conform to generally accepted social norms • Business Ethics : ethical or unethical behaviors by a manager or employer of an organization

5. ETHICS IN THE WORKPLACE • Ethics are based on social concepts and individual beliefs • change from person to person • change from situation to situation • change from culture to culture

6. ETHICS IN THE WORKPLACE • Business and Managerial Ethics • Managerial ethics: standards of behavior that guide individual managers in their work • Three categories of managerial ethics: • Behavior toward employees • hiring and firing • wages and working conditions • privacy and respect

7. ETHICS IN THE WORKPLACE • Behavior toward the organization • conflict of interest (çıkar çatışması) when an activity may benefit the individual employee to the detriment (zarar, kayıp) of his or her employer • confidentiality (gizlilik) • honesty (dürüstlük) • Behavior toward other economic agents • economic agents: customers, competitors, stockholders (hissedarlar), suppliers (tedarikçiler), dealers (bayiler), and unions (sendikalar) • price of drugs, wages paid to employees, quality of goods/services, financial reporting to stockholders; business practices in other countries – bribery (rüşvet), gifts, etc.

8. ETHICS IN THE WORKPLACE • Assessing Ethical Behavior • What is ethical and nonethical behavior? This is often a highly subjective issue. People have different opinions about what is ethical and what is not.. • A three-step model: 1. Gather relevant factual information 2. Analyze the facts to determine the most appropriate moral values 3. make an ethical judgement on the rightness or wrongness of the proposed activity or policy Example: expense accounts for managers

9. ETHICS IN THE WORKPLACE • Company Practices in Business Ethics • company influences individual ethical behavior • many companies take steps to encourage ethical behavior in the workplace • firms establish “codes of conduct” concerning the workplace (davranışkuralları)

10. ETHICS IN THE WORKPLACE • Demonstrating Commitment to ethical and legal behavior • Show by your actions that your company is committed to ethical behavior Example: Tylenol pain reliever(ağrı kesici) with cyanide in 1982 (Johnson & Johnson Company in the U.S.) Honesty and openness about the whole incident

11. ETHICS IN THE WORKPLACE • Adopting Written Codes • increase public confidence in the firm or industry • to prevent government regulation • to improve internal operations by providing consistent standards of ethical and legal conduct • to respond to problems that arise as a result of unethical or illegal behavior • Instituting Ethics Programs • educate employees about ethical and legal behavior

12. SOCIAL RESPONSIBILITY • Social Responsibility • Ethics affect individual behavior in the workplace • Social Responsibility (Kamuya karşı sorumluluk): the attempt of a business to balance its commitments to groups and individuals in its environment, including customers, other businesses, employees, investors (owners), and local communities.

13. Employees Investors Customers Suppliers Local Communities Social Responsibility: Balancing Commitments to Stakeholders Stakeholders: Groups, individuals, and organizations that are directly affected by the practices of an organization CORPORATION Stakeholder: paydaş in Turkish

14. Major Stakeholders of A Company

15. SOCIAL RESPONSIBILITY • Stakeholder Model of Responsibility • customers • treat customers fairly and honestly • charge fair prices; honor warranties; meet delivery commitments; stand behind the quality of your products

16. SOCIAL RESPONSIBILITY • employees • treat your workers fairly; make them part of a team; respect their dignity and basic human needs • investors • follow proper accounting procedures; provide information to shareholders (hissedarlar) about financial performance; manage the organization to protect shareholder rights and investments • avoid insider trading, stock-price manipulation • do not withold financial data from shareholders

17. SOCIAL RESPONSIBILITY • suppliers (tedarikciler) • suppliers are organizations which sell you various goods, raw materials, components, etc. • mutually beneficial partnership arrangements with suppliers • keep them informed about your delivery (teslim) and production schedules • in short, excellent relationships with suppliers helps both parties • local communities • contribute to social programs; get involved in charitable activities (hayır işleri) • be a good “corporate citizen” (kurumsal yurttaş)

18. The Evolution of Social Responsibility • Entrepreneurial Era • many new businesses • powerful companies • abuses of power led to backlash (güçlü tepki) • labor problems • The Great Depression (1929 +) • Era of Social Activism (1960’s & 70’s) • increased activism led to government intervention (health warnings on cigarettes, new safety features in autos, environmental protection laws, etc)

19. SOCIAL RESPONSIBILITY • Contemporary Social Consciousness • greater social role for businesses • many businesses are becoming more sensitive (duyarlı) to their social responsibilities • Sears (a large mail-order company in the U.S.)) refuses to sell handguns • many businesses try to sell products which are safe and environmentally friendly • Example : use ozone rather than chlorine (a water pollutant) in production • recyclable (dönüşümlü; geri kazanımlı) products or parts

20. AREAS OF SOCIAL RESPONSIBILITY • Areas of Social Responsibility Four areas of social responsibility: • Environment • Customers • Employees • Investors (i.e. owners)

21. AREAS OF SOCIAL RESPONSIBILITY • Responsibility toward the Environment • Air pollution • carbon monoxide, other chemicals • problem of acid rain (sulphur mixes with moisture and falls as rain) • laws are in effect in many countries including Turkey; the problem is enforcement (uygulama) • Water pollution • oil spills, chemicals being dumped to rivers and lakes

22. AREAS OF SOCIAL RESPONSIBILITY • Land Pollution • city waste dumps (çöplük), quarries (taş ve maden ocakları), toxic wastes • Two problems in dealing with land pollution: • how to restore land quality that has already been damaged • how to prevent future pollution • Toxic waste disposal (must be stored since it cannot be destroyed or processed. Examples: mercury, uranium and plutonium) • Recycling (geri kazanım): conversion of waste materials into useful products ( example -- paper products made from recycled paper)

23. AREAS OF SOCIAL RESPONSIBILITY • Noise pollution : many of us living in Turkey and Cyprus (and some other countries) also suffer from extreme noise pollution. Do you agree? Examples?

24. AREAS OF SOCIAL RESPONSIBILITY 2. Responsibility toward Customers • Old concept was “business had only one responsibility---to make a profit” • “Caveat Emptor”-- let the buyer beware (malı alan düşünsün) was the order of the day; in other words buy the product, pay the price, and face the consequences.

25. AREAS OF SOCIAL RESPONSIBILITY • Social responsibility toward customers falls into two categories: • providing quality and safe products • pricing products fairly • In many countries, the government through its various agencies, tries to protect the customers from unethical business practices. • U.S. -- Federal Trade Commission; Food and Drug Administration; Securities and Exchange Commission • Turkey -- Sanayi ve Ticaret Bakanlığı; Rekabet Kurulu; Sermaye Piyasası Kurulu; Sağlık Bakanlığı

26. AREAS OF SOCIAL RESPONSIBILITY • Consumer Rights and Consumerism Consumers have a right to • safe products • be informed about all relevant aspects of a product • be heard • choose what they buy • be educated about purchases (medicines) • courteous service • Consumerism : form of social activism dedicated to protecting the rights of consumers in their dealings with businesses (Consumers Union in the U.S.)

27. AREAS OF SOCIAL RESPONSIBILITY • Started in the 80’s in Turkey; growing stronger • Consumers must be conscious of their rights and their power in the marketplace.

28. AREAS OF SOCIAL RESPONSIBILITY • Unfair Pricing as a result of collusion Collusion : illegal agreement between two or more companies to commit a wrongful act (such as charging a very high price) PriceFixing : agreement between companies to charge the same price PriceGouging : increasing prices heavily in the face of increased demand

29. AREAS OF SOCIAL RESPONSIBILITY • Ethics in Advertising • giving false or misleading information to the public through advertising; • an example from Turkey some years ago -- “potato chips that do not cause you to gain weight” • “low fat” foods • orange juice vs. orange drink -- a recent example from Turkey • using morally objectionable practices in advertising • tobacco products advertising (especially targeting young people) • alcoholic drinks advertising • use of children in objectionable roles

30. AREAS OF SOCIAL RESPONSIBILITY 3. Responsibility toward Employees • Activities such as • recruiting (eleman arama) • hiring (işe alma) • training (eğitim) • promoting (yükseltme) • compensating (ödeme) are the basis for responsibility toward employees.

31. AREAS OF SOCIAL RESPONSIBILITY • A company should provide its employees with equal opportunities for rewards and advancement without regard to • sex • race • color • national origin • religion Laws in many countries protect employees from discrimination (ayırım) on the basis of the above.

32. AREAS OF SOCIAL RESPONSIBILITY • Other issues such as • safety at the workplace • healthy work environment • sexualharassment (cinsel taciz) at the workplace -- this is a big problem; many cases go unreported.

33. AREAS OF SOCIAL RESPONSIBILITY • Ethical Commitments: The Case of Whistleblowers • A whistleblower (muhbir; ihbar eden kimse) is an employee who finds out and tries to put an end to a company’s unethical, illegal, or socially irresponsible actions by publicizing them • In the U.S. there are laws that enable a whistleblower to receive a percentage (as high as 25-30 %) of the money that the government gets

34. AREAS OF SOCIAL RESPONSIBILITY 4. Responsibility toward Investors Managers can abuse their responsibilities to investors (owners) in a number of ways. Chief among them is the abuse (kötüyekullanmak) of a firm’s financial resources. • Improper financial management -- many ways of doing this (bad management, stealing funds, using financial resources for personal gains, etc)

35. AREAS OF SOCIAL RESPONSIBILITY • Check Kiting : illegal practice of writing checks against money that has not yet been credited at the bank on which checks are drawn (karşılıksız çek yazmak) • Insider Trading : using confidential information to gain from the purchase or sale of stocks (kamuya açıklanmamış bilgiden yararlanarak hisse senedi almak veya satmak)

36. AREAS OF SOCIAL RESPONSIBILITY • Misrepresentation of Finances Reporting financial information by misrepresenting (çarpıtarak) facts. Example: A company preparing three balance sheets -- one for the stockholders, one for borrowing from banks, and one for tax purposes

37. IMPLEMENTING SOCIAL RESPONSIBILITY PROGRAMS • There is disagreement among business about social responsibility. • one group -- “profits as business goal” • another group -- “social responsibility comes before profits” • Approaches to Social responsibility: • Obstructionist Stance: approach to social responsibility that involves doing as little as possible; it may involve attempts to deny or cover up violations (engelleyici tavır)

38. IMPLEMENTING SOCIAL RESPONSIBILITY PROGRAMS • Defensive Stance: company meets only minimum legal requirements in its commitment to groups and individuals in its social environment (savunmacı tavır) • tobacco industry is a good example • Accommodative Stance: exceeds minimum legal requirements in its commitments to groups and individuals, if specifically asked to do so (katılımcı/işbirlikci tavır) • banks and GSM operators in North Cyprus and Turkey are good examples

39. IMPLEMENTING SOCIAL RESPONSIBILITY PROGRAMS • Proactive Stance: company actively seeks opportunities to contribute to the well-being of groups and individuals in its social environment (önceden istekli tavır) • set up foundations to provide direct financial support for social programs • SABANCI Foundation (VAKSA) and Turkish Education Foundation (TEV) belonging to KOÇ Holding are two good examples of proactive stance

40. Level of Social Responsibility Approaches to Social Responsibility Highest Lowest Obstructionist Stance Proactive Stance Defensive Stance Accommodative Stance Actively Avoids Responsibility Does Legal Minimum Responds to Requests Actively Seeks Opportunities to Contribute

41. IMPLEMENTING SOCIAL RESPONSIBILITY PROGRAMS • Managing Social Responsibility Programs • Social responsibility must start at the top • A plan detailing level of management support • An executive must be put in charge of the program • Occasional social audits must be conducted • Social audit: systematic analysis of a firm’s success in using funds set aside for meeting social responsibility goals

42. IMPLEMENTING SOCIAL RESPONSIBILITY PROGRAMS • Social Responsibility and the Small Business • individual ethics • social responsibility