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CHAPTER 2. ETHICS AND SOCIAL RESPONSIBILITY: DOING
THE RIGHT THING
Part 1: Learning Objectives
1. Define business ethics and describe the three levels of ethical standards.
2. Determine who is responsible for ethical behavior and why ethical lapses occur.
3. Explain how to establish and maintain high ethical standards
4. Explain the difference between social entrepreneurs and traditional entrepreneurs.
5. Define social responsibility.
6. Understand the nature of business’s responsibility to the environment.
7. Describe business’s responsibility to employees.
8. Explain business’s responsibility to customers.
9. Discuss business’s responsibility to investors.
10. Describe business’s responsibility to the community.
Part 2: Class Instruction
Introduction
Business ethics involves the moral values and behavioral standards that business people
draw on as they make decisions and solve problems. The ability to determine the values
and ethics that will shape how business will be conducted is a major motivation to
launching a venture. The values and morals that entrepreneurs drawn on to guide their
ethical behaviors can come from a variety of sources. Ethical dilemmas may be apparent;
however, more often ethical issues are less obvious and no clear cut right or wrong
answers exist. There may be conflicting interests among the company’s stakeholders.
Stakeholders include the various groups and individuals who affect and are affected by a
business (Refer to Figure 2.1, Key Stakeholders). Ethical leaders approach their
responsibilities with added dimensions of thought and action.
Ethics refers to a branch of philosophy that studies and creates theories about the basic
nature of right and wrong, duty, obligation, and virtue. A business operates as an
institution in our complex society; therefore, entrepreneurs are expected to behave in ways
that are compatible with the value system of society. Social responsibility refers to how
an organization responds to the needs of the many elements in society.
An Ethical Perspective LO 1
Business ethics consist of the fundamental moral values and behavioral standards that
form the foundation for the people of an organization as they make decisions and interact
with stakeholders. Maintaining an ethical perspective is essential to creating and
protecting a company’s reputation, but it is not easy. While building an ethical reputation
takes a long time, destroying that reputation can happen quickly.
Three Levels of Ethical Standards (Refer to Figure 2.2, Three Levels of Ethical
Standards)
1. The law – defines what is permissible and what is not permissible.
2. Organizational policies and procedures – specific guidelines for people as they
make daily decisions.
3. The moral stance – use when employees encounter a situation that is not governed
by the law or organizational policies and procedures.
Moral Management. There are three ethical styles of management, including immoral
management, amoral management, and moral management. (Refer to Table 2.1,
Approaches to Business Ethics)
Immoral Management. Managers are motivated by selfish reasons, primarily
greed.
Amoral Management. Managers are motivated to earn a profit, and neglect to
consider the impact their decisions have on others.
Moral Management. Managers strive for success but only within the boundaries of
legal and ethical standards.
The Benefits of Moral Management. (Refer to Table 2.2, Reasons to Run a Business
Ethically and the Factors That Drive Business Ethics)
Avoid damage from unethical behavior on their reputation.
Dealing with stakeholders is easier when a firm has a solid ethical foundation.
It is easier to attract and retain quality employees.
Ethical behavior has a positive impact on a firm’s bottom line.
Copyright © 2019 Pearson Education, Inc.
Chapter 2, Page 20
Customers prefer to buy from an ethical company.
Establishing an Ethical Framework
Step 1: Identify the personal moral and ethical principles that shape all business decisions.
Step 2: Recognize the ethical dimensions involved in the dilemma or decision.
Step 3: Identify the key stakeholders involved and determine how the decision will affect
them. The triple bottom line (3BL) involves measuring business performance using
profitability, its commitment to ethics and social responsibility, and its impact on the
environment (profit, people, and planet).
Step 4: Generate alternative choices and distinguish between ethical and unethical
responses.
Step 5: Choose the “best” ethical response and implement it.
Why Ethical Lapses Occur
The most common causes of ethical lapses (Refer to Figure 2.3, Causes of Ethical Lapses)
include:
Pressure to do whatever it takes to meet business targets.
Company’s code of conduct not taken seriously.
Will be rewarded for results and not the means used to achieve them.
Unfamiliar with ethical standards that apply to the job.
Fear of losing job if business targets not met.
Believe policies are easy to override.
Lack resources to get the job done without taking shortcuts.
Seeking to bend rules for personal gain.
Responsibility for Ethical Decisions LO 2
An Unethical Employee and an Unethical Organizational Culture. Employees who
are “bad apples” may make unethical decisions. The culture of the entire organization
rewards employees for unethical behavior.
Moral Blindness. Sometimes ethical people make unethical blunders because they are
blind to the implications of their conduct.
Competitive Pressures. Managers and employees are under such pressure to produce
that they may sacrifice their ethical standards to reduce the fear of failure or the fear of
losing their jobs.
Opportunity Pressures. When the opportunity to get ahead by taking some unethical
action presents itself, some people cannot resist the temptation.
Globalization of Business. Globalization of business has intertwined what once were
distinct cultures; this cultural cross-pollination has brought about many positive aspects,
but is has created problems as well. (Refer to Table 2.4, Ethics Research Reveals Features
of Ethical Cultures)
Establishing and Maintaining Ethical Standards LO 3
Establishing Ethical Standards. Although small businesses may not have formal ethics
programs, entrepreneurs can encourage employees to become familiar with the following
ethical tests for judging behavior:
Utilitarian principle: choose the option that offers the greatest good for the
greatest number of people.
Kant’s categorical imperative: act in such a way that the action taken under the
circumstances could be a universal law or rule of behavior.
Professional ethic: take only those actions that a disinterested panel of professional
colleagues would view as proper.
Golden rule: treat other people the way you would like them to treat you.
Television test: would you feel comfortable explaining your actions to a national
television audience?
Family test: would you be comfortable explaining to your children, your spouse,
and your parents why you took this action?
(Refer to Table 2.5, Ten Ethical Principles to Guide Behavior)
Maintaining Ethical Standards. Implementing and maintaining ethical standards is the
real challenge.
Set the tone. Ethics starts at the top of the organization by the leader.
Create a company credo, which is a statement that defines the values underlying
the entire company and its ethical responsibilities to its stakeholders.
Establish high standards of behavior.
Involve employees in establishing ethical standards.
Create a culture that emphasizes two-way communication.
Develop a code of ethics, which is a written statement of the standards of behavior
and ethical principles a company expects from its employees.
Enforce the code of ethics through policies.
Recruit and promote ethical employees.
Conduct ethics training.
Reward ethical conduct.
Separate related job duties.
Perform periodic ethical audits
Social Entrepreneurship LO 4
Social entrepreneurship can be characterized by the following:
1. Social entrepreneurs seek solutions for social problems that are met by neither the
market nor the government.
2. Creating social benefit rather than commercial success motivates social
entrepreneurs.
3. Social entrepreneurs tackle social problems by taking full advantage of natural
market forces.
Social Responsibility LO 5
There is an expectation that business will produce benefits not only for themselves but also
for society as a whole. Companies must go beyond “doing well” – simply earning a profit
– to “doing good” – living up to their social responsibility.
Companies that are most successful in meeting their social responsibility select causes that
are consistent with their core values and their employees’ interests and skill sets. Whether
a company supports a social or an environmental cause has a significant effect on
shoppers’ behavior.
Other studies show a connection between social responsibility and profitability. One study
concluded that a positive correlation existed between a company’s profitability and its
reputation for ethical, socially responsible behavior. (Refer to Table 2.6, Simple Ways for
a Small Business to Be Socially Responsible)
Consider using You Be the Consultant: “Funding Social Ventures Through Franchise
Businesses” at this point.
Business’s Responsibility to the Environment LO 6
Companies have discovered that sound environmental practices make for good business.
Examples include lowering operating costs, and producing environmentally safe products
that attract environmentally conscious customers which give a company a competitive
edge in the marketplace. Socially responsible business owners focus on the three Rs:
Reduce the amount of energy and materials used.
Reuse whatever you can.
Recycle the materials that you must dispose of.
Progressive small firms are designed for “clean” manufacturing systems to avoid waste
and pollution, and using resources efficiently.
Business’s Responsibility to Employees LO 7
Entrepreneurs who understand the value of their employees follow a few simple
procedures by doing the following:
Listening to employees and respecting their opinions
Asking for their input and involving them in the decision-making process
Providing regular feedback – positive and negative – to employees
Telling the truth—always
Letting them know exactly what’s expected of them
Rewarding employees for performing their jobs well
Trusting them; creating an environment of respect and teamwork
Cultural Diversity in the Workplace. (Refer to Figures 2.4, Diversity Index by County,
and Figure 2.5, Projected Composition of the U.S. Workforce in 2020) Cultural diversity
provides an incredibly rich blend of ideas, perspectives, skills, talents, ideas, and creativity.
However, managing a culturally diverse workforce presents a real challenge for
employers. The Equal Employment Opportunity Commission suggests following a
“SPLENDID” approach to diversity:
Study issues related to diversity, including relevant laws.
Plan
Lead
Encourage
Notice
Discussion
Inclusion
Dedication
Managing a culturally diverse workforce successfully requires a business owner to do the
following:
Assess your company’s diversity needs
Learn to recognize and correct your own biases and stereotypes
Avoid making invalid assumptions
Push for diversity in your management team
Concentrate on communication
Make diversity a core value in the organization
Continue to adjust your company to your workers
Drug Testing. Drug and alcohol abuse by employees results in reduced productivity,
increased medical costs, higher accident rates, and higher levels of absenteeism. An
effective, proactive drug program should include the following five elements:
1. Written substance abuse policy.
2. Training for supervisors to detect substance-abusing workers.
3. An employee education program.
4. A drug testing program.
5. An employee assistance program (EAP), which is a company-provided benefit
designed to help reduce workplace problems such as alcoholism, drug addiction, a
gambling habit, and other conflicts and to deal with them when they arise.
Sexual Harassment
Sexual harassment is any unwelcome sexual advance, request for sexual favors, and other
verbal or physical sexual conduct made explicitly or implicitly as a condition of
employment. Types of behavior that may result in sexual harassment charges include:
Quid Pro Quo Harassment occurs when a superior conditions the granting of a
benefit such as a promotion or raise on the receipt of sexual favors from a
subordinate.
Hostile Environment refers to behavior that creates an abusive, intimidating,
offensive, or hostile work environment. Examples include: displaying sexually
suggestive pictures or posters, engaging in sexually related humor within hearing
of someone who takes offense, talking about sexual matters where others can hear,
making sexual comments to other employees, dispensing assignments based on
sexual orientation, and repeated asking a coworker for a date after having been
refused multiple times.
Harassment by Nonemployees occurs when third parties (such as customers, sales
representatives, and others) engage in sexual harassment when the employer has
the ability to stop the improper behavior.
A company’s best weapons against sexual harassment are education, policy, and
procedures.
Education: training programs designed to raise employees’ awareness.
Policy: enact policies that management can enforce, including: clearly define what
behaviors constitute harassment, state that harassment will not be tolerated,
identify supervisors and employee responsibilities, define the sanctions and
penalties, spell out steps for reporting an incident.
Procedure: when a complaint arises, managers should do the following:
o Listen to the complaint and take notes.
o Investigate promptly. (Refer to Table 2.7, What to Do When an Employee
Files a Sexual Harassment Complaint)
o Interview the accused party and witnesses privately.
o Keep findings confidential.
o Decide what action to take relying on policies.
o Inform complaining person and alleged harasser of action.
o Document entire investigation.
The ‘Hands On… How To’ feature includes a test on sexual harassment for both
employees and managers.
Privacy. Modern technology has given business owners the ability to monitor
workers’ performance, but there is a line between monitoring productivity and
invasion of privacy. To avoid ethical and legal problems, business owners should
follow these guidelines:
o Establish a clear policy for monitoring employees’ communications.
o Create guidelines for the proper use of the company’s communication
technology and communicate them to everyone.
o Monitor in moderation.
Consider using You Be the Consultant: “Think Before You Tweet” at this point.
Business’s Responsibility to Customers LO 8
The Consumer Bill of Rights gives consumers the following rights:
Right to Safety. The greatest breach of trust occurs when businesses produce product
that, when properly used, injure customers.
Right to Know. Consumers have the right to honest communication about the products
and services they buy and the companies that sell them.
Right to be Heard. The right to be heard suggests that the channels of communication
between companies and their customers run in both directions. Socially responsible
businesses provide customers with a mechanism for resolving complaints about products
and service.
Right to Education. This refers to educational material about their products and services
and how to use them properly.
Right to Choice. This refers to socially responsible companies that do not restrict
competition, and willingness to abide by U.S. antitrust policy.
Business’s Responsibility to Investors LO 9
Although earning a profit is a company’s first responsibility, it must also meet its ethical
and social responsibility goals. A firm’s reputation is important to investors as they invest
more on the basis of the entrepreneur’s track record than on the entrepreneur’s idea.
Companies also have the responsibility to report their financial performance in an accurate
and timely fashion to their investors.
Business’s Responsibility to the Community LO 10
In addition to providing jobs and creating wealth, companies contribute to the local
community in many different ways. Small companies can commit their employees’ talent,
not just dollars, to carefully chosen social causes and then tell the world. Examples
include:
Consider using You Be the Consultant: Funding Social Ventures Through Franchise
Businesses and/or You Be the Consultant: But Is It Safe? at this point.
Conclusion
