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CHAPTER 2
BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY, AND
SUSTAINABILITY
CHAPTER OBJECTIVES
2.1 Discuss what ethics means and the sources of ethical guidance
2.2 Explore human resource management’s (HRM) role in creating an ethical culture
and a code of ethics
2.3 Define human resource ethics
2.4 Explain the concepts and practices related to corporate social responsibility and
corporate sustainability
2.5 Describe a social audit
KEY TERMS
LECTURE OUTLINE
DEFINING ETHICS AND THE SOURCES OF ETHICAL GUIDANCE
Ethics is the discipline dealing with what is good and bad, or right and wrong, or with
moral duty and obligation. The concepts of corporate social responsibility (CSR) and
corporate sustainability are related to ethics. CSR is the implied, enforced, or felt
obligation of managers, acting in their official capacity, to serve or protect the interests of
groups other than themselves. Corporate sustainability concerns with possible future
impact of an organization on society, including social welfare, the economy, and the
environment.
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BUSINESS ETHICS
Well-publicized corrupt conduct of companies such as WorldCom and Enron and their
senior managers provide many examples of unethical leadership. Even though most
Fortune 500 companies have a written code of ethics, business ethics scandals continue to
make headlines.
Compliance with the law sets the minimum standard for ethical behavior; however, ethics
is much more. There are many dimensions to ethics, and leaders must be able and willing
to instill ethics throughout the culture of an organization.
SOURCES OF ETHICAL GUIDANCE
The sources of ethical guidance should lead to our beliefs or a conviction about what is
right or wrong. Most would agree that people have a responsibility to avail themselves to
these sources of ethical guidance.
One might use a number of sources to determine what is right or wrong, good or bad,
moral or immoral. These sources include the Bible and other holy books in addition to the
still, small voice that many refer to as conscience. Another source of ethical guidance is
the behavior and advice of the people psychologists call significant others—our parents,
friends, role models, and members of our churches, clubs, and associations. For most
professionals, there are codes of ethics that prescribe certain behaviors.
LEGISLATING ETHICS
Much of the current legislation was passed because of business ethics breakdowns. There
have been four attempts to legislate business ethics since the late 1980s.
● PROCUREMENT INTEGRITY ACT of 1988—Prohibits the release of source
selection and contractor bid or proposal information. Passed after reports of
military contracts for $500 toilet seats.
● FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS of
1992—Outlined an effective ethics training program and explained the seven
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● WHISTLEBLOWER PROTECTION—A whistleblower is someone who
participates in an activity that is protected. The whistleblowing side of the Dodd-
Frank is shaped after a successful IRS program. In passing the Act, Congress
believed that award programs are an effective method to encourage people with
information regarding violations of the law to come forward with the information
executive compensation matters.
CREATING AN ETHICAL CULTURE AND A CODE OF ETHICS
Saying that a company has an ethical culture and actually having one may be two
different things.
Ethical Culture
1. It is psychologically unsafe to speak up
2. There is excessive pressure to reach unrealistic performance targets
3. Conflicting goals provoke a sense of unfairness
4. Ethical behavior is not part of the routine conversation
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5. A positive example isn’t being set
CODE OF ETHICS
A code of conduct should tell employees what the rules of conduct are. A code of ethics
established the rules that the organization lives by. This is an important distinction.
Topics in a code of ethics might include business conduct, fair competition, and
LINKING PAY TO ETHICAL BEHAVIOR
The importance of linking pay to performance is an appropriate topic when discussing
ethics. It is well known in the compensation world that “what you reward is what you
get.” If the statement is correct, then a problem exists because most companies do not
link pay to ethical behavior.
acting in their official capacity, to serve or protect the interests of groups other than
themselves. CSR encompasses meeting economic, social, and environmental
responsibilities concurrently. Many organizations have demonstrated the bottom line
impact of CSR activities.
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While these days more employers are publicly endorsing a culture of ethics and social
responsibility, not all agree that CSR is important for companies. Milton Friedman was
an American economist, statistician, academic, and author who taught at the University
of Chicago for more than three decades and was a recipient of the Nobel Memorial Prize
in Economic Sciences. He argued that here is one and only one social responsibility of
business—to use its resources and engage in activities designed to increase its profits so
long as it stays within the rules of the game, which is to say, engages in open and free
competition without deception or fraud. Friedman disciples continue to condemn CSR as
a hodgepodge of, “value-destroying nonsense.”
CORPORATE SUSTAINABILITY
Corporate sustainability has evolved from the more traditional corporate social
responsibility. According to the World Commission on Environment and Sustainability,
the narrow definition of sustainability or sustainable development is, “meeting the needs
of the present without compromising the ability of future generations to meet their own
needs.” In recent years, sustainability has been changed to encompass the social,
2-1. What are ethics and business ethics?
2-2. What are some sources of ethical guidance?
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One might use numerous sources to determine what is right or wrong, good or
bad, and moral or immoral, such as holy books or one’s conscience. Another
source of ethical guidance is the behavior and advice of people, including our
parents, friends, and role models and members of our churches, clubs, and
associations. For most professionals, there are codes of ethics that prescribe
certain behavior.
What laws have been passed in an attempt to legislate ethics?
2-3. Why is it important to have a code of ethics?
2-4. Regarding business ethics, what does the statement, “what you reward is what
you get,” mean?
2-5. What are HR ethics?
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The application of ethical principles to human resource relationships and activities is
called human resource ethics.
2-6. What are the areas in which HR professionals can have a major impact on ethics?
2-7. What is corporate social responsibility?
2-8. What does corporate sustainability mean?
2-9. What are some of the practices companies can use to promote sustainability?
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Essentially it is about how a firm handles its business while understanding how these
decisions may affect others. One could think of corporate sustainability in a business
sense as providing long-term profitability. Thus, sustainability should be a fundamental
part of business strategy, product development, talent development, and capital
investment. Some organizations have emphasized the importance of corporate
sustainability by establishing the position of chief sustainability office.
DISCUSSION OF CHAPTER 2 INCIDENTS
HRM Incident 1: An Ethical Flaw
Amber Davis had recently graduated from college with a degree in general business.
Amber was quite bright, although her grades did not reflect this. She had thoroughly
enjoyed school, dating, playing tennis, and swimming, but found few stimulating
academic endeavors. When she graduated, she had not found a job. Her dad was
extremely upset when he discovered this, and he took it upon himself to see that Amber
became employed.
QUESTIONS
2-18. From an ethical standpoint, how would you evaluate the merits of Mr. Garbo’s
employing Amber? Discuss.
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Mr. Garbo should not have been pressured by Mr. Davis to hire his daughter, Amber. The
employment of a “friend’s” son or daughter may or may not be a good business practice.
If Amber had been competent, mature, ambitious, energetic, and wanted to learn the
business, then Mr. Garbo would have made a good decision. However, Amber did not
possess these characteristics, and so Mr. Garbo’s decision was based solely on his
business relationship with Mr. Davis. Obviously, employment decisions should be based
on business or professional judgment and not on personal relationships. Finally, it was
unethical of Mr. Davis to have pressured Mr. Garbo to hire Amber.
2-19. Now that she is employed, how would you suggest that the situation be resolved?
2-20. It may be that Mr. Garbo viewed the hiring of Amber as strictly a business
decision that would ensure receiving continued business from Amber’s father.
What might be some negative results of this questionable ethical decision?
HRM Incident 2: Illegal Hiring
The Foreign Corrupt Practices Act (FCPA) prohibits U.S. companies from bribing
foreign officials; yet, the number of violations each year is staggering. Some violations
center on the use of unethical HR practices. For example, the banking industry has been
investigated for its internship and full-time employment hiring practices. The Bank of
New York Mellon Corp. (BNY Mellon) gave internships to family members of foreign
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the FCPA can be ‘really abstract.’. . .” In the end, the bank agreed to pay a $5 million
penalty, give up $8.3 million, and pay $1.5 million in interest.
QUESTIONS
2-21. What would you have done in response to learning about these facts?
2-22. What factors in this situation might influence a company to make less-than-ethical
decisions.
