978-0134728391 Chapter 2 Part 1

Chapter 2: Understanding Business Ethics and Social Responsibility

Chapter Overview

Just because others see something as ethical doesn’t mean you will agree. There is not always a

yes/no, right/wrong, black/white answer to everything. We all develop a personal code of ethics

that we carry over into our jobs. Sometimes we decide what is ethical based on what is

acceptable to others—even though the behavior may be unethical.

This chapter presents a discussion of business ethics, the role of a formal code of ethics, as well

as business approaches to social responsibility. The chapter also discusses how the concept of

social responsibility applies both to environmental issues and to a firm’s relationships with

customers, employees, and investors, and how issues of social responsibility and ethics affect

small business.

Learning Objectives

2-1. Explain how individuals develop their personal codes of ethics and why ethics are

important in the workplace.

2-2. Distinguish social responsibility from ethics, identify organizational stakeholders, and

characterize social consciousness today.

2-3. Show how the concept of social responsibility applies both to environmental issues and

to a firm’s relationships with customers, employees, and investors.

2-4. Identify four general approaches to social responsibility and note the role of social

responsibility in small business.

2-5. Explain the role of government in social responsibility in terms of how governments and

businesses influence each other.

OBJECTIVE 6

2-6. Discuss how businesses manage social responsibility in terms of both formal and

informal dimensions and how organizations can evaluate their social responsibility.

LIST OF IN-CLASS ACTIVITIES: INSTRUCTOR’S CHOICE

Activity

Description

Time Limit

1. Ice–Breaker: What’s Ethical

in Business?

Students share their views on business

ethics.

20 min.

2. Class Discussion: Ethical

Judgment Making

Students discuss how ethical norms

affect ethical judgments.

15 min.

3. Up for Debate: Can Ethics Be

Taught?

Students discuss varying opinions on

ethics training as a class.

30 min.

CHAPTER OUTLINE

Learning Objective 2-1

Explain how individuals develop their personal codes of ethics and why ethics are

important in the workplace.

Ethics in the Workplace

Ethics are beliefs about wrong and right or bad and good; ethical behavior conforms to

individual beliefs and social norms about what is right and good. Business ethics refers to ethical

or unethical behaviors by employees in the context of their jobs.

A. Individual Ethics

Ethics are based on individual beliefs and social concepts; thus, they vary by person,

situation, and culture.

1. The Law, and the Real World. Societies adopt formal laws that reflect ethical

standards; however, real-world situations are sometimes difficult to interpret.

B. Business and Managerial Ethics

Managerial ethics are the standards of behavior that guide individual managers in their

work.

1. Behavior Toward Employees. This category covers hiring and firing, wages and

working conditions, and privacy and respect.

2. Behavior Toward the Organization. Conflict of interest, confidentiality, and honesty

are ethical issues. A conflict of interest occurs when an activity may benefit the

individual to the detriment of the organization. Many organizations have policies that

forbid buyers and other personnel from accepting gifts from suppliers or customers, thus

avoiding even the appearance of bribery. Padding expense accounts, and taking office

supplies for personal use are examples of problems in the honesty area.

3. Behavior Toward Other Economic Agents. Ethics also comes into play in the

relationship between the firm and a number of primary agents of interests, such as

customers, suppliers, competitors, stockholders, dealers, and unions. In 2009, Bernard

Madoff’s Ponzi scheme (investment scam) cost hundreds of clients their life savings as

countries.

C. Assessing Ethical Behavior

1. A simple process that is often recommended when making ethical decisions is for the

person to (1) gather relevant factual information, (2) analyze the facts to determine the

most appropriate moral values, and (3) make an ethical decision based on the rightness or

wrongness of the proposed activity or policy. Although ethical judgments are not always

easy to make or even always agreed upon, this process does at least give a good starting

point for an ethical decision making process.

Ethical norms include:

1. Utility: Does a particular act optimize the benefits to those who are affected by it?

2. Rights: Does it respect the rights of all individuals involved?

3. Justice: Is it consistent with what’s fair?

4. Caring: Is it consistent with people’s responsibilities to each other?

D. Company Practices and Business Ethics

Many companies set up codes of conduct and develop clear ethical positions on how the firm

and its employees will conduct business. The single most effective step a company can take

is to demonstrate top management support of ethical standards.

1. Adopting Written Codes. Almost all major corporations have written codes of ethics.

2. Instituting Ethics Programs. Ethical responses can be learned through experience;

companies must take the responsibility for educating employees. More and more

companies, like Boeing and ExxonMobil, require managers to go through regular ethics

training to remind them of the importance of ethical decision making and to update them

on current laws and regulations.

KEY TEACHING TIP

QUICK QUESTIONS

 What people and experiences have helped shape your individual code of ethics?

 What are some examples of conflicts of interest?

Use In-Class Activity 1: Ice-Breaker: What’s Ethical in Business?

Learning Objective 2-2:

Distinguish social responsibility from ethics, identify organizational stakeholders, and

1. Customers. Critical factors include charging fair prices, honoring warranties, meeting

delivery commitments, and standing behind product quality.

3. Investors. Managers must follow proper accounting procedures, provide appropriate

4. Suppliers. Partnership arrangements with suppliers can enhance market image and firm

5. Local and International Communities. Contributing to local and global programs has a

positive impact on the community.

B. Contemporary Social Consciousness

Views toward social responsibility continue to evolve as managers work to meet the needs of

various stakeholders in their business practices.

1. The concept of social responsibility has been developing since the days of John D.

Rockefeller, J.P. Morgan, and Cornelius Vanderbilt. The concept of accountability

was developed.

2. Unfortunately, the recent spate of corporate scandals (Enron, bailouts of banks, GM,

and Chrysler) colors the public’s perception of business in negative hues. However, with

KEY TEACHING TIP

Remind students that actions deemed unethical in the United States may be ethical in other

countries, and vice versa. For example, in some countries outside of the United States, bribing is

acceptable and even expected in business.

QUICK QUESTION

 How can companies benefit from adopting a written code of ethics?

Use In-Class Activity 3: Up for Debate: Can Ethics Be Taught?

Time Limit: 20 minutes

HOMEWORK

Social Responsibility

Now is a good time to assign Application Exercise 9 from the end-of-chapter materials as

homework. This assignment asks students to think about their own personal code of ethics and

the ethical framework they use to make decisions.

At-Home Completion Time: 30 minutes

Key Teaching Tip, especially for Online Classes

The End of Chapter activity, Building Your Business Skills, To Lie or Not to Lie: That Is the

Question is a good online assignment. Have students post their responses in Step 1 to the class

discussion board. For Step 3, have students work as small virtual teams to draft a corporate code

of ethics. Let their fellow classmates critique and post comments.

At-Home Completion Time: 30 minutes for individual assignments and 45 minutes for

group project.

Learning Objective 2-3:

Show how the concept of social responsibility applies both to environmental issues and to a

firm’s relationships with customers, employees, and investors.

Areas of Social Responsibility

A. Responsibility Toward the Environment

Controlling pollution is a significant challenge for contemporary business.

1. Air Pollution: Under current laws, many companies must install special devices to limit

pollutants they expel into the air. Such efforts are expensive.

2. Water Pollution: New legislation and increased awareness of chemical and waste

dumping and the resulting dangers has led to improved water quality in many areas of the

country.

3. Land Pollution: Proper toxic waste disposal and recycling programs are allowing

B. Responsibility Toward Customers

1. Consumer Rights: Consumerism is social activism dedicated to protecting the rights of

consumers in their dealings with businesses.

2. Unfair Pricing: Collusion occurs when two or more firms agree to collaborate on wrongful

acts, such as price fixing; price gouging occurs when firms respond to increased demand

with overly steep price increases.

3. Ethics in Advertising: Consumers deserve to be given product information that is truthful

and not misleading, as well as information that is not morally objectionable.

C. Responsibility Toward Employees

1. Legal and Social Commitments: Recruiting, hiring, training, promoting, and compen-

whistleblowers from retaliation.

D. Responsibility Toward Investors

Financial Mismanagement: Insider trading occurs when someone uses confidential

information to benefit from the purchase or sale of stocks. Misrepresentation of finances is

where unethical managers project profits that they do not expect to get or hide losses and

expenses incurred to boost paper profits. Misrepresentation of finances: In maintaining and

reporting its financial status, every corporation must conform to generally accepted

accounting principles.

QUICK QUESTIONS

 What are some examples of what companies do to act in a socially responsible way toward

customers? Toward employees? Toward investors?

Learning Objective 2-4:

Identify four general approaches to social responsibility and note the role of social

responsibility in small business.

Implementing Social Responsibility Programs

A. Approaches to Social Responsibility

1. Obstructionist Stance: Organizations do as little as possible to solve social or

2. Defensive Stance: Organizations will do everything that is required of them legally but

nothing more.

3. Accommodative Stance: The organization meets its legal and ethical requirements but will

4. Proactive Stance: Firms that adopt this approach take to heart the arguments in favor of

social responsibility, view themselves as citizens in a society, indicate sincere commitment

to improve general social welfare, and surpass the accommodative stance by proactively

seeking opportunities to contribute.

B. Social Responsibility and the Small Business

Many big-business responses to ethical and social responsibility issues apply to small

businesses; differences are primarily differences of scale. Small business owners are faced by

the same ethical dilemmas as the large companies that we more frequently read about. It is

important that small companies develop ethical policies and procedures like their larger

counterparts. A key to business success is to decide in advance how to respond to the issues

that underlie all questions of ethical and social responsibility.

KEY TEACHING TIPS

 Make sure that students understand that firms taking the obstructionist stance usually

do as little as possible to solve social or environmental problems. If possible, list

some examples of firms that take such a stance.

 Remind students that firms taking an accommodative stance meet their legal and

ethical requirements and may even exceed those requirements in certain cases.

 Remind students that contemporary social consciousness varies, depending on how

turbulent the social, political, and economic times are.

 Make sure students understand that social responsibility programs must be initiated and

supported by top management; ultimately, a social responsibility program involves

everyone in the organization.

 Reinforce that small-business responses to social responsibility are similar to big–

business responses—the only difference is scale.

HOMEWORK

Identifying Approaches to Social Responsibility

Now is a good time to assign Application Exercise 10 from the end-of-chapter materials in the

textbook. The assignment asks students to use newspapers, magazines, and other references to

identify one company that take an obstructionist stance to social responsibility, one that takes a

defensive stance, one that takes an accommodative stance, and one that takes a proactive stance.

At-Home Completion Time: 1 hour

Learning Objective 2-5

Explain the role of government in social responsibility in terms of how governments

and businesses influence each other.

The Government and Social Responsibility

An especially important element of social responsibility is the relationship between business and

government.

A. How Governments Influence Business

The government (national, state, or local) attempts to shape social responsibility practices

through both direct and indirect channels. Direct influence most frequently is manifested

through regulation, whereas indirect influence can take a number of forms, most notably

taxation policies.

1. Direct Regulation: The government most often directly influences organizations through

regulation, the establishment of laws and rules that dictate what organizations can and

2. Indirect Regulation: Other forms of regulation are indirect. For example, the government

can indirectly influence the social responsibility of organizations through its tax codes. In

1. Personal Contacts: Because many corporate executives and political leaders travel in the

same social circles, personal contacts and networks offer one method of influence.

2. Lobbying: Lobbying, or the use of persons or groups to formally represent an organization

or group of organizations before political bodies, is also an effective way to influence the

government.

3. Political Action Committees: Political action committees (PACs) are special

organizations created to solicit money and then distribute it to political candidates.