Chapter 2 Business Ethics And Corporate Social Responsibility

Chapter 2Business Ethics andCorporate SocialResponsibilityCopyright 2016 Pearson Education, Inc.2-1

Ethics, Corporate Social Responsibility,and Corporate SustainabilityEthics: Discipline of dealing with: What is good and bad What is right and wrong Moral duty and obligationCorporate social responsibility (CSR):The implied, enforced, or felt obligation of managers, acting in theirofficial capacity, to serve or protect the interests of groups otherthan themselvesCopyright 2016 Pearson Education, Inc.2-2

Ethics, Corporate Social Responsibility,and Corporate Sustainability (Cont.)Corporate sustainabilityfocuses on the possiblefuture impact of an organization on society, including socialwelfare, the economy, and the environmentCopyright 2016 Pearson Education, Inc.2-3

Explore the Concept of Business Ethics Nearly every industry has experienced a painful ethicalcrisis in recent years Business ethics scandals continue to make headlines Examples: Lying on résumés Obstruction of justice Destruction of records Stock price manipulation Cutting corners to meet Wall Street’s expectations Fraud, waste, and abuseCopyright 2016 Pearson Education, Inc.2-4

Sources of Ethical Guidance Lead to our beliefs or convictions aboutwhat is right or wrong Examples: Bible and other holy books Conscience Significant others Code of ethicsCopyright 2016 Pearson Education, Inc.2-5

Legislating Ethics Procurement Integrity Act Federal Sentencing Guidelines forOrganizations (FSGO) Corporate and Auditing Accountability,Responsibility, and Transparence Act Dodd-Frank Wall Street Reform andConsumer Protection ActCopyright 2016 Pearson Education, Inc.2-6

Procurement Integrity Act of 1988 Prohibits release of source selection andcontractor bid or proposal information Places restrictions on former employees Passed after reports of military contractsfor: 500 toilet seats 5,000 hammerCopyright 2016 Pearson Education, Inc.2-7

Federal Sentencing Guidelines forOrganizations (FSGO) of 1992 Outlined effective ethics training program Promised softer punishments for waywardcorporations that had ethics programs in place Executives needed to be proactive Created: Ethics officer positions Ethics hotlines Codes of conductCopyright 2016 Pearson Education, Inc.2-8

Corporate and Auditing Accountability,Responsibility, and Transparency Act of 2002 Known as Sarbanes-Oxley Act Primary focus was to redress accountingand financial reporting abuses Criminalized many corporate acts Established whistleblower protections Prohibited loans to executives anddirectorsCopyright 2016 Pearson Education, Inc.2-9

Dodd-Frank Wall Street Reformand Consumer Protection Act Act brought on by worst financial crisissince Great Depression Executive compensation played a majorrole in financial services sector, as well asin capital markets, following the collapse ofinvestment service firmsCopyright 2016 Pearson Education, Inc.2-10

Creating an Ethical Culture andCode of Ethics Way for firm to create and sustain anethical culture is to audit ethics Climate at the top is fundamental tocompany's ethical culture Firms with weak ethical culturesexperience 10 times more misconductthan companies with strong ethicalculturesCopyright 2016 Pearson Education, Inc.2-11

Code of Ethics Statement of values adopted by: Company Its employees Directors Sets official tone of top management regardingexpected behavior Establishes rules by which organization operates Becomes part of organization’s corporate cultureCopyright 2016 Pearson Education, Inc.2-12

Ethics Officer Larger firms appoint ethics officers Keeps code on front burner for employees Ethics committee often establishedCopyright 2016 Pearson Education, Inc.2-13

Malcolm Baldrige National QualityAward Increased emphasis on ethics inleadership Criteria: Senior leaders should serve asrole models for the rest of theorganizationCopyright 2016 Pearson Education, Inc.2-14

Human Resource Ethics Application of ethical principles to HRrelationships and activities HR has a great deal to do with establishingan organization’s conscienceCopyright 2016 Pearson Education, Inc.2-15

Linking Pay to Ethical Behavior Few companies have made ethics andcompliance a process for determininghow employees are compensated Only about 1 in 6 companies tiesincentives to ethical performance More work needs to be doneCopyright 2016 Pearson Education, Inc.2-16

Ethics Training FSGO outlined effective ethics trainingprogram to educate employees incompany’s standards and procedures Ethics training should be for everyoneCopyright 2016 Pearson Education, Inc.2-17

Corporate Social Responsibility(CSR) CSR: Implied, enforced, or felt obligationof managers, acting in their officialcapacities, to serve or protect interests ofgroups other than themselves Corporation behaves as if it has aconscienceCopyright 2016 Pearson Education, Inc.2-18

CSR Illustration: Carroll’s PyramidCopyright 2016 Pearson Education, Inc.2-19

Who Determines CSR?Organization’s top executives usuallydetermine a corporation’s approach tocorporate social responsibilityCopyright 2016 Pearson Education, Inc.2-20

Not Everyone Is on Board with CorporateSocial Responsibility Some have challenged the conceptby saying that doing well is doinggood Milton Friedman—Only socialresponsibility of business is toincrease profits BP promoted themselves as beingeco-friendlyCopyright 2016 Pearson Education, Inc.2-21

Corporate Sustainability Evolved from the more traditional view ofcorporate social responsibility Expanded to include the social, economic,environmental, and cultural systemsneeded to support an organization Strives to use the best business practicesCopyright 2016 Pearson Education, Inc.2-22

Social AuditSystematic assessment of a company’sactivities in terms of their social impactCopyright 2016 Pearson Education, Inc.2-23

Possible Types of Social Audits Simple inventory of activities Compilation of socially relevantexpenditures Determination of social impact Ideal social audit: Involves determiningtrue benefits to society of any sociallyoriented business activityCopyright 2016 Pearson Education, Inc.2-24

Can Corporate Social Responsibility Succeed inthe Global Environment? Some global firms are questioning thewisdom of being socially responsible Adherence to CSR issues has declined First 15 years of CSR efforts have notproduced the desired results Significant changes will have to be made Reputation management?Copyright 2016 Pearson Education, Inc.2-25

Chapter 2 Business Ethics and Corporate Social Responsibility . ethical culture is to audit ethics Climate at the top is fundamental to . wisdom of being socially responsible Adherence to CSR issues has declined First 15 y