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Chapter Four

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Demanding Ethical and Socially Responsible Behavior

McGraw-Hill/Irwin

Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

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STEVE ELLS
Chipotle Mexican Grill
Profile

Chipotle is dedicated to producing quality food which has led to current annual sales over $1 billion. Ells mission is to serve Food With Integrity.
Chipotle is the leading restaurant buyer of humanely raised meats.

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LIFE AFTER SCANDAL
Scandals have shaken the real estate, mortgage and banking industries.
How do we restore trust in the free market system?
Punish those who have broken the law. Make accounting records more transparent. Consider what is ethical, not just what is legal.
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Ethics is More Than Legality

LG1

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WHAT are ETHICS?
Ethical Standards are Fundamental

LG1

Ethics -- The standards of moral behavior.

Behaviors that are accepted by society as right versus wrong.

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BASIC MORAL VALUES
Right:
Integrity
Ethical Standards are Fundamental

LG1

Wrong:
Cheating Cowardice Cruelty

Respect for human life

Self control Honesty Courage Self-sacrifice

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PAYING the PRICE
(Legal Briefcase)

Enron: One executive is serving a 24 year sentence for accounting fraud while another will be released in October 2011. Arthur Andersen: Convicted of tampering with witnesses, the company was dissolved and about 28,000 people lost their jobs. Tyco International: Two executives stole $600 million from the company and are scheduled to be released from prison in 2030. Adelphia Communication: Two executives were convicted of conspiracy, bank and securities fraud and given sentences of 15 and 20 years. WorldCom: Former CEO was convicted of fraud, conspiracy and false filings and sentenced to 25 years.
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ETHICS and YOU
Ethics Begins with Each of Us LG2

Plagiarizing from Internet materials is the most common form of cheating in schools today.

Studies found a strong relationship between academic dishonesty and dishonesty at work.

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FACING ETHICAL DILEMMAS
Ethics Begins with Each of Us LG2

Ask yourself these questions: - Is it legal? - Is it balanced? - How will it make me feel about myself?

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To TUBE or NOT to TUBE
(Making Ethical Decisions)

Every minute, people upload 10 hours of video to YouTube not all is user-generated content. Viacom sued YouTube for $1 billion for allowing episodes of its popular shows on the site.

Viacom holds YouTube responsible for carrying the illegal content, rather than the individuals who uploaded it.
Who do you think should be accountable for the copyright violations -- the website or those who uploaded the videos?
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PROGRESS ASSESSMENT
Progress Assessment

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What are ethics?
How do ethics differ from legality? When faced with ethical dilemmas, what questions can you ask yourself that might help you make ethical decisions?

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ETHICS START at the TOP

Managing Businesses Ethically and Responsibly

LG3

Trust between workers and managers must be based on fairness, honesty, openness and moral integrity. Leadership can help instill corporate values in employees.

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FACTORS INFLUENCING MANAGERIAL ETHICS

Individual
Values Work Background Family Status Personality

Managing Businesses Ethically and Responsibly

LG3

Organizational
Top Level Management Philosophy Firms Reward System Job Dimensions

Environmental
Competition Economic Conditions Social/Cultural Institutions

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ETHICS CODES

* Setting Corporate
Ethical Standards LG4

An increasing number of companies have adopted written codes of ethics. Compliance-Based Ethics Code -- Emphasize
preventing unlawful behavior by increasing control and by penalizing wrongdoers.

Integrity-Based Ethics Code -- Define the

organizations guiding values, create an environment that supports ethically sound behavior and stress a shared accountability among employees.
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HOW to IMPROVE AMERICAS BUSINESS ETHICS

* Setting Corporate
Ethical Standards LG4

1. Top management must adopt and unconditionally support an explicit corporate code of conduct.
2. Employees must understand that senior management expects all employees to act ethically.

3. Managers and others must be trained to consider the ethical implications of all business decisions.
(continued)
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HOW to IMPROVE AMERICAS BUSINESS ETHICS

* Setting Corporate
Ethical Standards LG4

4. An ethics office must be set up with which employees can communicate anonymously. Whistleblowers -- People who report illegal or
unethical behavior.

5. Involve outsiders such as suppliers, subcontractors, distributors and customers. 6. The ethics code must be enforced.
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HOW to PREVENT UNETHICAL BEHAVIORS

* Setting Corporate
Ethical Standards LG4

1. Managers must communicate the organizations vision on ethical behavior. 2. Organizations must have a code of ethics. 3. Policies have to be enforced regarding ethical offences.

4. Ethical responsibility must be taught to all employees.

Source: James Gehrke, Magnify Leadership & Development, November 2008.

(continued)
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HOW to PREVENT UNETHICAL BEHAVIORS

* Setting Corporate
Ethical Standards LG4

5. Discussions of ethics must be included in the decision-making process. 6. Accountability must be taken seriously at all levels in the organization.

7. Organizations must act fast when a crisis occurs.

8. Employees must know they have to defend and maintain the companys reputation.
Source: James Gehrke, Magnify Leadership & Development, November 2008.

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PROGRESS ASSESSMENT
Progress Assessment

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What are compliance-based and integrity-based ethics codes? What are the six steps to follow in establishing an effective ethics program in a business?

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CORPORATE SOCIAL RESPONSIBILITY

*Corporate
Social Responsibility LG5

Corporate Social Responsibility (CSR) -- The

concern businesses have for the welfare of society.

CSR is based on a commitment to integrity, fairness, and respect.

CSR proponents argue that businesses owe their existence to the societies they serve and cannot exist in societies that fail.
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CORPORATE PHILANTHROPY and SOCIAL INITIATIVES

*Corporate
Social Responsibility LG5

Corporate Philanthropy -- Includes charitable

donations.

Corporate Social Initiatives -- Includes enhanced

forms of corporate philanthropy.

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CORPORATE RESPONSIBILITY and POLICY

*Corporate
Social Responsibility LG5

Corporate Responsibility -- Includes everything

from hiring minority workers to making safe products, minimizing pollution, using energy wisely, and providing a safe work environment.

Corporate Policy -- The position a firm takes on

social and political issues.

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POSTIVE IMPACTS of COMPANIES

*Corporate
Social Responsibility LG5

Xerox offers a Social Service Leave program.

Citizen Corps encourages volunteers to help strengthen homeland security by helping in their community. Two-thirds of MBA students surveyed reported they would take a lower salary to work for a socially responsible company.

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To WHOM MUCH HAS BEEN GIVEN

Americas Charitable Giving

* Corporate
Social Responsibility LG5

Source: Wall Street Journal, www.online.wsj.com, June 23, 2008.

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* Corporate
HELPING HANDS
Most Generous Celebrities*
Who? Oprah Winfrey Herb Alpert Barbara Streisand Paul Newman Mel Gibson Angelina Jolie & Brad Pitt Michael Jordan Eric Lindros Lance Armstrong
*Donations made in 2007 Source: Parade Magazine, www.parade.com, September 14, 2008.

Social Responsibility LG5

How Much? $50.2 Million $13 Million $11 Million $10 Million $9.9 Million $8.4 Million $5 Million $5 Million $5 Million

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WHO GIVES?
Five States Contribute More Than a Third of the Nations Donations

* Corporate
Social Responsibility LG5

1. California 12.1% 2. New Jersey 8.9% 3. Pennsylvania 5.2%

4. Washington 5%
5. New York 5%

Source: Conde Nast Portfolio, www.portfolio.com, January 2008.

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* Corporate
GENEROUS AMERICANS
Americans Donated $295,020,000,000 in 2006
Social Responsibility LG5

Source: Fast Company, www.fastcompany.com, May 2008.

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PRESIDENT KENNEDYS BASIC RIGHTS of CONSUMERS

The Right to Safety
The Right to be Informed

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Responsibility to Customers LG5

The Right to Choose

The Right to be Heard

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INSIDER TRADING
Responsibility to Investors LG5

Insider Trading -- Insiders using

private company information to further their own fortunes or those of their family and friends.

Unethical behavior does financial damage to a company and investors are cheated.

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RESPONSIBILITY to EMPLOYEES

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Responsibility to Employees LG5

Create jobs and provide a chance for upward mobility. Treat employees with respect. Offer salaries and benefits that help employees reach their personal goals.

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AMERICAS MOST ADMIRED COMPANIES

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Apple Berkshire Hathaway Toyota Google Johnson & Johnson Proctor & Gamble FedEx Southwest Airlines General Electric Microsoft 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

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Responsibility to Employees LG5

Wal-Mart Coca-Cola Walt Disney Wells Fargo Goldman Sachs McDonalds IBM 3M Target J.P. Morgan Chase

Source: Fortune, www.fortune.com, March, 2009.

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SOCIETY and the ENVIRONMENT

Responsibility to Society and the Environment

LG5

Over one-third of working Americans receive their salaries from nonprofits who are dependent on funding from others. The green movement emerged as concern about global warming increased.
Many companies are trying to minimize their carbon footprints the amount of carbon released during an items production, distribution, consumption and disposal.
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RESPONSIBILITY to the ENVIRONMENT

Responsibility to Society and the Environment

LG5

Environmental efforts may increase costs but can offer good opportunities. The emerging renewable-energy and energyefficiency industries account for 8.5 million U.S. jobs.

By 2030, as many as 40 million Green jobs will be created.

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GREEN GREED
(Thinking Green)

With public concern over the environment, companies are finding greener ways of doing business. Some companies are claiming they are more environmentally responsible than they actually are, a practice called greenwashing. Web sites such as Greener Choices and Greenwashing Index screen ads for greenwashing.
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SOCIAL AUDITING
Social Auditing LG5

Social Audit -- A systematic evaluation of an

organizations progress toward implementing programs that are socially responsible and responsive.

Four Types of Social Audit Watchdogs

Socially conscious investors

Environmentalists
Union officials Customers
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PROGRESS ASSESSMENT
Progress Assessment

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Whats corporate social responsibility, and how does it relate to each of a businesss major stakeholders? Whats a social audit, and what kinds of activities does it monitor?

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INTERNATIONAL ETHICS
Many businesses want socially responsible behavior from their international suppliers.

International Ethics and Social Responsibility

LG6

The Joint Initiative on Corporate Accountability and Workers Rights was designed to make creating a single set of labor standards and inspecting factories easier.

In the 1970s, the Foreign Corrupt Practices Act criminalized the act of paying foreign businesses or government leaders in order to get business.
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GIVERS AROUND the WORLD
Share of GDP

International Ethics and Social Responsibility

LG6

Source: Forbes, www.forbes.com, March 24, 2008.

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ETHICAL CULTURE CLASH

(Reaching Beyond Our Borders)

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Almost half of Motorolas employees live outside the U.S. A Motorola employee returns to his home country to work and the company reimburses living expenses so he can live in a safe area. The employee is trying to do the honorable thing for his family and the company is trying to keep the employee safe.

If the employee uses the money to help his family instead, is it right for the company to stop payment?
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PROGRESS ASSESSMENT
Progress Assessment

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How are U.S. businesses demanding socially responsible behavior from their international suppliers? Why is it unlikely that there will be a single set of international rules governing multinational companies soon?

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