Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-16
TEXT FIGURE 4.2
Overview of Johnson &
Johnson’s Code of Ethics
This text figure is an overview of Johnson & Johnson’s code
of ethics, what it calls its Credo.
TEXT FIGURE 4.3
Strategies for Ethics
Management
This text figure presents a comparison of compliance-based
and integrity-based ethics codes.
lecture enhancer 4-3
SELECTED CODES OF ETHICS
Codes of ethics are as unique as the companies that write
them. This lecture enhancer presents samples of ethics codes
for several major U.S. companies. (See the complete lecture
enhancer on page 4.55 of this manual.)
PPT 4-18
Ethics Codes
ETHICS CODES
4-18
LO 4-4
• 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
organization
’
s guiding values, create an environment
that supports ethically sound behavior and stress a
shared accountability.
critical thinking
exercise 4-3
RESEARCHING CODES OF ETHICS
Most companies now publish codes of ethics to provide ethical
guidelines for employees. This online exercise directs students
to research these codes of ethics on the Internet. (See the com-
plete exercise on page 4.65 of this manual.)
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-17
c. Step 3: MANAGERS and others must be
trained to consider the ethical implications of
all business decisions.
d. Step 4: AN ETHICS OFFICE must be set up.
i. WHISTLEBLOWERS (insiders who re-
port illegal or unethical behavior) must
feel protected from retaliation.
ii. The CORPORATE AND CRIMINAL
FRAUD ACCOUNTABILITY ACT (Sar-
banes-Oxley, 2002) contains protections
for corporate whistleblowers and the
Dodd–Frank Act includes a “bounty” for
whistleblowers if the information given
results in a successful enforcement ac-
tion.
e. Step 5: OUTSIDERS such as suppliers,
subcontractors, distributors, and customers
must be told about the ethics program.
f. Step 6: THE ETHICS CODE MUST BE EN-
FORCED.
i. If rules are broken, CONSEQUENCES
should follow quickly.
ii. ENFORCEMENT shows that the code is
serious and cannot be broken.
4. A company’s ethics code is worthless IF NOT
ENFORCED.
a. Enron’s management sent the message to
employees that unethical behavior would be
tolerated.
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-18
PPT 4-19
How to Improve America’s
Business Ethics
HOW to IMPROVE AMERICA’S
BUSINESS ETHICS
4-19
LO 4-4
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.
PPT 4-20
How to Improve America’s
Business Ethics
4. An ethics office must be set up with which
employees can communicate anonymously.
Whistleblowers — Insiders who report illegal or
unethical behavior.
HOW to IMPROVE AMERICA’S
BUSINESS ETHICS
4-20
LO 4-4
5. Involve outsiders such as
suppliers, subcontractors,
distributors and
customers.
6. The ethics code must be
enforced.
PPT 4-21
How to Blow the Whistle
HOW to BLOW the WHISTLE
Source:Kiplinger’sPersonalFinance,June2013. 4-21
LO 4-4
1. Decide carefully and quickly.
2. Make sure you have all allegations filed with the
right agencies.
3. File your allegations with as many agencies that
are appropriate.
4. Gather your information legally.
5. Research the process.
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-19
b. Johnson & Johnson’s response to the cya-
nide poisoning crisis in the 1980s enhanced
its bottom line.
5. An important factor to encourage ethical behav-
ior is the selection of AN ETHICS OFFICER
who:
a. Sets a positive tone, communicates effec-
tively, relates well with employees
b. Serves as a counselor or as an investigator
6. EFFECTIVE ETHICS OFFICERS are people
who:
a. Can be trusted to maintain confidentiality,
conduct objective investigations, and ensure
the process is fair
b. Can demonstrate to stakeholders that ethics
are important
learning objective 5
Define corporate social responsibility and compare corporations’ responsibilities
to various stakeholders.
III. CORPORATE SOCIAL RESPONSIBILITY
A. BASICS OF SOCIAL RESPONSIBILITY
1. CORPORATE SOCIAL RESPONSIBILITY
(CSR) is a business’s concern for the welfare of
society.
a. It is based on a company’s concern for the
welfare of all its stakeholders, not just the
owners.
b. Some CRITICS of CSR believe that a man-
ager’s sole role is to compete and win.
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-20
test
prep
PPT 4-22
Test Prep
TEST PREP
4-22
• 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?
PPT 4-23
Corporate Social Responsibility
CORPORATE SOCIAL
RESPONSIBILITY
4-23
LO 4-5
• 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.
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-21
c. Milton Friedman stated that the only social
responsibility of business is to make money
for stockholders.
d. DEFENDERS argue that CSR makes more
money for investors in the long run.
e. One study showed a positive correlation be-
tween corporate social performance and
corporate financial performance.
2. SOCIAL PERFORMANCE of a company has
several dimensions:
a. CORPORATE PHILANTHROPY is the di-
mension of social responsibility that includes
charitable donations.
b. CORPORATE SOCIAL INITIATIVES are
enhanced forms of corporate philanthropy
directly related to the company’s competen-
cies.
c. CORPORATE RESPONSIBILITY is the di-
mension of social responsibility that includes
everything from hiring minority workers to
making safe products.
d. CORPORATE POLICY is the dimension of
social responsibility that refers to the posi-
tion a firm takes on social and political is-
sues.
3. IMPACT OF CORPORATIONS ON SOCIETY
a. Many people get a one-sided view of the im-
pact that companies have on society.
b. Few people see the POSITIVE IMPACTS,
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-22
lecture enhancer 4-4
APPROACHES TO SOCIAL
RESPONSIBILITY
Corporations can take several approaches toward social re-
sponsibility: reaction, defense, accommodation, and proaction.
(See the complete lecture enhancer on page 4.57 of this manu-
al.)
lecture enhancer 4-5
HELPING VETERANS ADJUST
THROUGH PUBLIC SERVICE
Once home after deployment, many veterans are struggling for
employment. This organization helps vets re-enter the work-
force by volunteerism. (See the complete lecture enhancer on
page 4.57 of this manual.)
PPT 4-24
Corporate Philanthropy and Social
Initiatives
CORPORATE PHILANTHROPY
and SOCIAL INITIATIVES
4-24
LO 4-5
• Corporate
Philanthropy —
Includes charitable
donations.
• Corporate Social
Initiatives — Include
enhanced forms of
corporate philanthropy.
PPT 4-25
Corporate Responsibility and Policy
CORPORATE RESPONSIBILITY
and POLICY
4-25
LO 4-5
• 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.
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-23
such as the commitments of many compa-
nies to volunteerism, such as Xerox’s Social
Service Leave program.
c. The recent recession has changed corporate
philanthropy: people are more likely to do-
nate time instead of money.
d. The majority of MBA students surveyed said
that they would take a lower salary to work
for a socially responsible company.
e. Social responsibility is seen differently
through the eyes of various STAKEHOLD-
ERS to whom businesses are responsible.
B. RESPONSIBILITY TO CUSTOMERS
1. President John F. Kennedy proposed four basic
rights of consumers:
a. The right to SAFETY
b. The right to BE INFORMED
c. The right to CHOOSE
d. The right to be HEARD
2. Business is responsible to SATISFY CUSTOM-
ERS with goods and services of real value, not
an easy task.
3. Many new businesses fail⎯perhaps because
their owners failed to please their customers.
4. Social media are a growing way companies
communicate their social efforts.
5. The text uses the example of how Celestial
Seasonings ignored its image of social respon-
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-24
PPT 4-26
Positive Impacts of Companies
POSTIVE IMPACTS
of COMPANIES
4-26
LO 4-5
• Xerox offers a Social Service Leave program.
• More and more companies are encouraging
employees to volunteer while on company time.
• The majority of MBA students surveyed reported
they would take a lower salary to work for a
socially responsible company.
PPT 4-27
Helping Hands
Source:ParadeMagazine.
HELPING HANDS
Most Generous Celebrities
Who? For?
George Clooney United Way;
UN Messenger of Peace
Angelina Jolie & Brad Pitt Make it Right Foundation; UN
Ben Affleck UN
Madonna Raising Malawi
Michael J. Fox Michael J. Fox Foundation for
Parkinson’s Research
Alicia Keys Keep a Child Alive;
Frum Tha Ground Up
Sir Elton John Elton John AIDS Foundation
Matt DamonGreenDimes; H2O Africa;
Running the Sahara
Oprah WinfreyAngel Network
4-27
LO 4-5
PPT 4-28
Generous Guys
Source:Forbes,www.forbes.com,accessedNovember2014.
GENEROUS GUYS
World’s Biggest Givers in 2013
Who? How
Much? What For?
Bill Gates $2.5B Malaria, public health, education
Warren Buffett $2.63B Gates Foundation
Leonard Lauder $1.1B Art museums
Mark Zuckerberg $991M Education, healthcare
George Soros $734M Human rights, democracy
Michael Bloomberg $1.8B Antismoking, education
Walton Family $325M Education, conservation
Gordon & Betty Moore $321M Science education
Chuck Feeny $297M Human rights
Pierre & Pamela Omidyar $294M Education
4-28
LO 4-5
lecture enhancer 4-6
CORPORATE RESPONSIBILITY IN
THE CLASSROOM
Social responsibility is becoming a hallmark of many compa-
nies. Many top graduate-level business schools are adding
CSR to their curricula. (See the complete lecture enhancer on
page 4.58 of this manual.)
PPT 4-29
President Kennedy’s Basic Rights
of Consumers
PRESIDENT KENNEDY’S BASIC
RIGHTS of CONSUMERS
4-29
LO 4-5
• The Right to Safety
• The Right to be Informed
• The Right to Choose
• The Right to be Heard
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-25
sibility when it poisoned prairie dogs.
6. Customers prefer to do business with compa-
nies they trust.
C. RESPONSIBILITY TO INVESTORS
1. ETHICAL BEHAVIOR is good for shareholder
wealth.
2. UNETHICAL BEHAVIOR does financial dam-
age.
3. Some believe that BEFORE you can do good
you must DO WELL.
4. Others believe that BY DOING GOOD, you can
also DO WELL.
5. Many people believe that it makes FINANCIAL
as well as MORAL sense to invest in socially re-
sponsible companies.
6. Another ethical concern is INSIDER TRADING.
a. INSIDER TRADING is an unethical activity
in which insiders use private company in-
formation to further their own fortunes or
those of their family and friends.
b. The text uses these examples:
i. Raj Rajaratnam was accused of mas-
terminding an insider trading ring that
made his hedge fund $45 million richer.
ii. An IBM secretary benefited from ad-
vance knowledge of the Lotus merger.
c. In response to insider trading scandals, the
SEC adopted REGULATION FD for “fair
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-26
lecture enhancer 4-7
PHARMACEUTICAL OR FOOD?
Companies are infusing foods with beneficial substances and
selling them as “healthy” even if they don’t live up to the ad-
vertising promises. (See the complete lecture enhancer on
page 4.59 of this manual.)
PPT 4-30
How Do Customers Know?
HOW DO CUSTOMERS KNOW?
4-30
LO 4-5
• The primary use of social media
is to communicate CSR efforts.
• Social media allows companies to
reach a broad, diverse group and
connect directly to them.
• Now more than ever, it’s
important for companies to live up
to their expectations.
PPT 4-31
Social Customer Contact
Source:Entrepreneur,www.entrepreneur.com,accessedSe ptember2014.
SOCIAL CUSTOMER CONTACT
Do’s and Don’ts of Using Twitter for Business
Do Don’t
Engage followers in discussion
relevant to your industry.Start political rants.
Think about your message
before tweeting. Deleted tweets
can still be found!
Tweet impulsively.
Frequently offer new content. Let your account lie dormant.
Create separate accounts for
business and personal use.
Make personal announcements
via your company’s Twitter
account.
4-31
LO 4-5
PPT 4-32
Insider Trading
INSIDER TRADING
4-32
LO 4-5
• 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.
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-27
disclosure.”
d. If companies tell something to ANYONE,
they must tell EVERYONE⎯at the same
time.
e. Companies can MISUSE INFORMATION
FOR THEIR OWN BENEFIT at investors’
expense, as in the case of WorldCom’s
fraudulent accounting practices.
D. RESPONSIBILITY TO EMPLOYEES
1. RESPONSIBILITIES OF BUSINESSES:
a. Businesses have a responsibility to CRE-
ATE JOBS.
b. Businesses have an obligation to see that
HARD WORK AND TALENT ARE FAIRLY
REWARDED.
2. A company’s effectiveness and financial perfor-
mance depends on human resource manage-
ment.
3. If a company TREATS EMPLOYEES WITH
RESPECT, they will respect the company.
a. In their book Contented Cows Give Better
Milk, Bill Catlette and Richard Hadden com-
pared “contented cow” companies with
“common cow” companies.
b. The “CONTENTED COW” companies grew
faster and earned more than “COMMON
COW” companies.
4. Replacing employees costs between 150% and
250% of their annual salary, so retaining work-
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-28
critical thinking
exercise 4-4
SOCIAL RESPONSIBILITY
SUCCESSES AND FAILURES
This Internet exercise encourages students to use the Internet
to research companies that have succeeded or have failed to be
socially responsible. (See the complete exercise on page 4.66
of this manual.)
PPT 4-33
Responsibility to Employees
• Create jobs and provide a chance for upward
mobility.
RESPONSIBILITY to
EMPLOYEES
4-33
LO 4-5
• Treat employees
with respect.
• Offer salaries and
benefits that help
employees reach
their personal
goals.
lecture enhancer 4-8
APP-GATE AT UNIVERSITY OF MIS-
SOURI
Should the rules of intellectual property be the same for stu-
dents as it is for professors? The University of Missouri strug-
gled with this question and how talent should be rewarded to
both student and university. (See the complete lecture enhanc-
er on page 4.59 of this manual.)
PPT 4-34
America’s Most Admired
Companies
Source:Fortune,www.fortune.com,accessedNovember2014.
AMERICA’S MOST ADMIRED
COMPANIES of 2014
4-34
LO 4-5
1. Apple
2. Amazon
3. Google
4. Berkshire Hathaway
5. Starbucks
6. Coca-Cola
7. Disney
8. FedEx
9. Southwest Airlines
10. General Electric
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-29
ers is good for business.
5. By giving employees salaries and benefits that
help them REACH THEIR PERSONAL GOALS,
the employer shows commitment and caring.
6. When employees feel they’ve been TREATED
UNFAIRLY, they strike back.
a. DISSATISFIED WORKERS relieve their
frustrations in subtle ways.
b. EMPLOYEE FRAUD causes 30% of busi-
ness failures.
E. RESPONSIBILITY TO SOCIETY AND THE ENVI-
RONMENT
1. A major responsibility of business to society is to
CREATE NEW WEALTH.
a. Most nonprofits own shares of publicly held
companies.
b. As those share prices increase, funds are
available to benefit society.
2. There is also a growing GREEN MOVEMENT.
a. A product’s CARBON FOOTPRINT (the
amount of carbon released during produc-
tion, distribution, consumption, and disposal)
defines how green it is.
b. No specific guidelines define the carbon
footprint of products and businesses, but
many companies are making GREEN
PRODUCTS available.
3. Business is responsible for contributing to mak-
Chapter 04 – Demanding Ethical and Socially Responsible Behavior
4-30
PPT 4-35
When Employees Are Upset . . .
WHEN EMPLOYEES
are UPSET…
4-35
LO 4-5
• Employee fraud costs U.S. businesses about
5% of annual revenue and causes 30% of all
business failures.
• Disgruntled workers relieve frustration by:
– Blaming mistakes on others.
– Manipulating budgets and expenses.
– Making commitments they intend to ignore.
– Hoarding resources.
– Doing the minimum.
PPT 4-36
Society and the Environment
SOCIETY and
the ENVIRONMENT
4-36
LO 4-5
• 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 item’s production, distribution,
consumption and disposal.
PPT 4-37
Responsibility to the Environment
RESPONSIBILITY to the
ENVIRONMENT
• By 2030, as many as
40 million “Green”
jobs will be created.
4-37
LO 4-5
• Environmental efforts may increase costs, but
can offer good opportunities.
• The emerging renewable-energy and energy-
efficiency industries account for 9 million U.S.
jobs.
lecture enhancer 4-9
KEEPING THE NFL GREEN IN SUS-
TAINABLE STADIUMS
The NFL is joining in to ensure sustainability is part of the
stadium plans around the country. (See the complete lecture
enhancer on page 4.60 of this manual.)