Management Chapter 2 Inside Trading The Buying Selling Stocks Insiders Who Possess Material That Still

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Instructor’s Manual – Chapter 2

K E Y T E R M S A N D D E F I N I T I O N S

bribes

Payments, gifts, or special favors intended to influence the outcome of a

decision.

business ethics

Principles and standards that determine acceptable conduct in business.

codes of ethics

Formalized rules and standards that describe what a company expects of its

employees.

consumerism

The activities that independent individuals, groups, and organizations

undertake to protect their rights as consumers.

corporate citizenship

The extent to which businesses meet the legal, ethical, economic, and voluntary

responsibilities placed on them by their stakeholders.

ethical issue

An identifiable problem, situation, or opportunity that requires a person to

choose from among several actions that may be evaluated as right or wrong,

ethical or unethical.

plagiarism

The act of taking someone else’s work and presenting it as your own without

mentioning the source.

social responsibility

A business’s obligation to maximize its positive impact and minimize its

negative impact on society.

sustainability

Conducting activities in a way that allows for the long-term well-being of the

natural environment, including all biological entities. Sustainability involves the

assessment and improvement of business strategies, economic sectors, work

practices, technologies, and lifestyles so that they maintain the health of the

natural environment.

whistleblowing

The act of an employee exposing an employer’s wrongdoing to outsiders, such

as the media or government regulatory agencies.

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C O N T E N T O U T L I N E

The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, KEY TERMS

learners will need to take away from the course and a notation of when to use POWERPOINT SLIDES with

LECTURE NOTES to drive home teaching points. There is also a reminder on when CONNECT activities can be

used. This is created so that you can facilitate in–class or online discussion effectively.

LO 2-1

Define business ethics and social responsibility and examine their

importance.

• Introduction

• Business Ethics and Social Responsibility

• The Role of Ethics in Business

Key Terms:

• Business ethics

• Social responsibility

PowerPoint Slides

PPT 2.4

PPT 2.5

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Lecture Outline and Notes:

I. Business Ethics and Social Responsibility

A. Business ethics are principles and standards that determine acceptable

conduct in business

B. Acceptable behavior is determined by:

1. The organization

2. Stakeholders and interest groups

4. Government regulators

5. The public

6. The individual’s personal principles

C. Global Trust in Different Institutions (Figure 2.1)

1. In business, trust is the glue that holds the customer relationship

together

2. The recent global financial crisis took a toll on consumer trust of

financial services companies

D. “Tone from the top”

1. Managers must show a strong commitment to ethics and compliance

2. “Tone from the top” requires top managers to acknowledge their own

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3. Top managers must:

a. Create strong relationships with ethics and compliance

department

b. Clearly communicate expectations for ethical behavior to all

occurs

E. Social responsibility is a business’s obligation to maximize its positive

F. Laws and regulations

1. Timeline of Ethical and Socially Responsible Activities (Table 2.1)

2. Sarbanes-Oxley Act

a. Criminalized securities fraud and stiffened penalties for

3. Dodd-Frank Act

a. Passed to reform the financial industry and offer consumers

A. Growing concerns about legal and ethical issues in business strengthen

the public’s perceptions that ethical standards and the level of trust in

business need to be raised

2. Learning to recognize and resolve ethical issues is a key step in

evaluating ethical decisions

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LO 2-2

Detect some of the ethical issues that may arise in business.

o Recognize Ethical Issues in Business

o Making Decisions about Ethical Issues

Key Terms:

• Ethical issue

• Plagiarism

PPT 2.10

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B. Recognizing ethical issues

1. Ethical issue is an identifiable problem, situation, or opportunity that

evaluated as right or wrong, ethical or unethical

2. Recognizing ethical issues is the most important step in

understanding business ethics

3. Best way to judge the ethics of a decision is to look at a situation

from a customer’s or competitor’s viewpoint

2. Experience with the culture in which a business operates is critical to

understanding what is ethical or unethical

3. One of the principal causes of unethical behavior in organizations is

overly aggressive financial or business objectives

2011-2013 (Table 2.2)

E. Misuse of Company Time

1. Theft of time is a common area of misconduct observed in the

workplace

2. Many employees spend an average of 1 hour/day using social media

sites or watching YouTube

3. Time theft costs are estimated to cost companies hundreds of billions

of dollars annually

F. Abusive or intimidating behavior is the most common ethical problem for

employees

group is targeted and is threatened, harassed, belittled, verbally

abused, or overly criticized

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G. Actions Associated with Bullies (Table 2.3)

H. Misuse of company resources has been identified as a leading issue in

observed misconduct in organizations

1. Issues might include:

a. Spending an excessive amount of time on personal e-mails

b. Submitting personal expenses on company expense reports

c. Using the company copier for personal use

2. Many companies have implemented official policies delineating

acceptable use of company resources

I. Conflict of Interest

financial interests from their business dealings

3. Inside trading is the buying or selling of stocks by insiders who

possess material that is still not public

J. Fairness and Honesty

a. Abide by the laws

b. Cause no harm through dishonesty

d. Be aware of company policies

e. Recognize ethical behavior

2. Companies must:

a. Use fair competition practices

e. Meet obligations

f. Avoid undue pressure forcing others to act unethically

3. Plagiarism is taking someone else’s work and presenting it as your

own without mentioning the source

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K. Making Decisions about Ethical Issues

1. It can be difficult to recognize specific ethical issues

2. People often need years of experience to accurately recognize and

react to ethical situations

3. Questions to Consider in Determining Whether an Action is Ethical

(Table 2.5)

LO 2-3

Specify how businesses can promote ethical behavior.

o Improving Ethical Behavior in Business

Key Terms:

o Codes of ethics

o Whistleblowing

PPT 2.23

L. Improving Ethical Behavior in Business

1. Three factors that influence business ethics (Figure 2.2):

a. Individual Standards and Values

b. PLUS Managers’ and Co–Workers’ Influence

c. PLUS Opportunity: Codes and Compliance Requirements

d. EQUAL Ethical/Unethical Choices in Business

2. Many employees use different ethical standards at work than they

do at home

and conflict will develop

a. Leading to unethical choices in business

1. Employees must have established ethics policies if employees are to

culture in the company

3. The enforcement of ethical codes and policies through rewards and

punishments increases the acceptance of ethical standards by

employees

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N. Whistleblowing is the act of an employee exposing an employer’s

wrongdoing to outsiders such as the media or government regulatory

1. One of the most important components of an ethics program is a

means through which employees can report observed misconduct

2. More companies are establishing programs to encourage employees

to report illegal or unethical practices internally

“whistleblower bounty program”

O. Improving Ethical Behavior in Business

1. The current trend is to move away from legally based ethical

programs to cultural or integrity-based programs that make ethics a

performance

3. Firms that develop higher levels of trust function more efficiently

and effectively and avoid damaged company reputations and

product images

LO 2-4

Explain the four dimensions of social responsibility.

• The Nature of Social Responsibility

Key Terms:

• Corporate citizenship

PPT 2.28

connect

understanding social

responsibility? Visit

video tab for a brief

animated

explanation.

III. The Nature of Social Responsibility

A. Four Dimensions of Social Responsibility (Figure 2.3)

contributing to the community and quality of life

2. Ethical responsibilities: Being ethical; doing what is right, just, and

3. Legal responsibilities: Obeying the law (society’s codification of right

and wrong); playing by the rules of the game

4. Economic responsibilities: Being profitable

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B. Corporate citizenship is the extent to which businesses meet the legal,

ethical, economic, and voluntary responsibilities placed on them by their

stakeholders

1. Commitment to corporate citizenship indicates a strategic focus on

2. Involves action and measurement of the extent to which a firm

embraces corporate citizenship philosophy and following through by

C. The Arguments For and Against Social Responsibility (Table 2.8)

LO 2-5

Debate an organization’s social responsibilities to owners,

employees, consumers, the environment, and the community.

o Social Responsibility Issues

• Unemployment

Key Terms:

• Consumerism

• Sustainability

•

PPT 2.31

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IV. Social Responsibility Issues

A. Managers consider social responsibility on a daily basis.

1. Among the many social issues that mangers must consider are their

firms’ relations with:

a. Owners and stockholders

b. Employees

c. Consumers

d. The environment

e. The community

B. Company’s Responsibility to Owners and Stockholders

C. Company’s Responsibilities to Employees

1. Provide a safe workplace and pay them adequately

2. Provide equal opportunities for all employees

3. Keep them informed of what is happening in the company

4. Listen to their grievances and treat them fairly

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D. Consumerism involves the activities that independent individuals,

groups, and organizations undertake to protect their rights as consumers

1. Write letters

2. Lobby government agencies

3. Make public service announcements

4. Boycott irresponsible companies

E. Consumer Bill of Rights (John F. Kennedy, 1962)

1. The right to safety

2. The right to be informed

3. The right to choose

4. The right to be heard

F. Sustainability

1. Conducting activities in a way that allows for the long-term well-

being of the natural environment, including biological entities

2. Involves the assessment and improvement of business strategies,

economic sectors, work practices, technologies, and lifestyles so that

they maintain the health of the natural environment

G. Sustainability Issues

1. Pollution

c. Land: Garbage, strip mining, and poor forest conservation

2. Alternative energy

a. Reducing carbon emissions forces alternative energy sources

2. Recycling aluminum, paper, and glass

3. Using green power sources when available

4. Larger companies may have a Vice President of Environmental

Affairs

5. Greenwashing is creating a positive green association for non-green

products

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I. Company’s Responsibility to Their Communities

1. Donations to local and national charities

2. Volunteer support of local causes

V. Unemployment

A. Unemployment, while an economic issue, carries ethical implications

B. Some companies refuse to hire unemployed workers due to lack of

experience rather than hiring and then training them

D. Protesters say unemployment leads to the growing gap between rich and

poor

LO 2-6

Evaluate the ethics of a business’s decision.

Key Terms:

PPT 2.44

VI. Solve the Dilemma—Customer Privacy

A. Checkers Pizza was one of the first to offer home delivery service, with

overwhelming success

B. Major pizza chains soon followed suit, taking away Checkers’s

competitive edge

C. Checkers’s founder, Jon Barnard, needed a new gimmick to beat the

competition

1. Developed a computerized information database that would make

D. The new system was successful:

that maybe the family might not want all the attention and publicity

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E. Discussion questions:

1. What are some of the ethical issues in giving customers an award

for consumption behavior without notifying them first?

In such a situation, the consumption behavior of the rewarded

customer is communicated to the public. It violates the right of the

consumer to be informed. The company should know what the

effect of this award might have on the winner: negative

consequences may be as likely as positive ones.

2. Do you see this as a potential violation of privacy? Explain.

The publicity given to the customer violates privacy: it reveals to the

public some of his or her behaviors (here, pizza eating habits).

However, the family might not mind the publicity or feel like it

violates their privacy. Students might have different opinions

regarding the seriousness of this issue.

3. How would you handle the situation if you were Barnard?

Barnard should contact the family concerned and inform them that

an award rewarding Checkers’ best customer may be given to them

if the family accepts the award. The program of the award

(especially the news story associated with it) should be described in

detail. If the family refuses the award, the next best customer could

be contacted.

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B O X E D T E X T D I S C U S S I O N Q U E S T I O N S

ENTER THE WORLD OF BUSINESS—Antibacterial Soap Faces Regulatory and Consumer Pressure

The soap industry is a strong business within the United States, amounting to more than $5 billion in sales of

soaps, shower products, and body washes. The industry has come under scrutiny over product safety and

1. Describe the ethical issue.

2. What are some of the potential negative effects of triclosan?

3. What impact could the FDA’s proposal have on soap manufacturers?

CONSIDER ETHICS AND SOCIAL RESPONSIBILITY—Ralph Lauren Sets Example in FCPA Case

Ralph Lauren Corporation discovered that from 2005–2009, bribes were paid to customs and government

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1. How did Ralph Lauren violate the FCPA?

2. Why did Ralph Lauren receive less severe penalties for the misconduct?

3. How can the Ralph Lauren bribery case set a precedent for other firms when discovering misconduct?

GOING GREEN—Sustainability Tradeoffs: Lighter Vehicles and Higher Prices

Producing vehicles with materials such as aluminum, carbon fiber, and high-strength steel are decreasing the

weight of vehicles by about 200 pounds, while still providing the same amount of strength and without

1. Discuss some of the trade-offs of having lighter, more sustainable vehicles.

Lighter vehicles use less energy and are expected to cut fuel usage in half. Using lighter materials allows

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2. Discuss any ethical issues you can identify in this scenario.

There could be ethical issues if manufacturers know about the high temperatures possibly causing auto

3. In light of the negative consequences of producing these vehicles, do you think companies should

continue to produce lighter-weight vehicles in the name of sustainability? Why or why not?

Students’ answers will vary.

S U P P L E M E N T A L L E C T U R E

Recycling: A Dilemma for Business Firms

In the United States, the amount of consumer and industrial waste has been increasing regularly. It was

estimated that by the year 2010, total municipal solid waste reached 250 million tons. Ecological authorities

frequently tout recycling as a means of slowing down waste and the need for landfill space. Biodegradable

products, those which decompose, are also recommended.