Managing
Social
Responsibility
and Ethics
Copyright
2012 Pearson
Education,
Copyright © 2014
Pearson©Education,
Inc. publishing
as Prentice Hall
Inc. Publishing as Prentice Hall
5-1
Should Organizations Be
Socially Involved?
SRI funds usually will not invest in
companies involved in liquor, gambling,
tobacco, nuclear power, weapons, price
fixing, fraud, or in companies that have poor
product safety, employee relations, and
environmental track records
Sin funds?
Copyright
2012 Pearson
Education,
Copyright © 2014
Pearson©Education,
Inc. publishing
as Prentice Hall
Inc. Publishing as Prentice Hall
5-2
Should Organizations Be
Socially Involved
Arguments For
• Public expectations
• Long-run profits
• Ethical obligation
• Public image
• Better environment
• Discouragement of
further governmental
regulation
Arguments Against
• Violation of profit
maximization
• Dilution of purpose
• Costs
• Too much power
• Lack of skills
• Lack of
accountability
Copyright
2012 Pearson
Education,
Copyright © 2014
Pearson©Education,
Inc. publishing
as Prentice Hall
Inc. Publishing as Prentice Hall
5-3
Encouraging Ethical Behavior
• Employee Selection - an opportunity to
learn about an individual’s level of moral
development, personal values, ego
strength, and locus of control
• Code of ethics - a formal statement of an
organization’s primary values and the
ethical rules it expects its employees to
follow
Copyright
2012 Pearson
Education,
Copyright © 2014
Pearson©Education,
Inc. publishing
as Prentice Hall
Inc. Publishing as Prentice Hall
5-4
Codes of Ethics
Copyright
2012 Pearson
Education,
Copyright © 2014
Pearson©Education,
Inc. publishing
as Prentice Hall
Inc. Publishing as Prentice Hall
5-5
Codes of Ethics (cont.)
Copyright
2012 Pearson
Education,
Copyright © 2014
Pearson©Education,
Inc. publishing
as Prentice Hall
Inc. Publishing as Prentice Hall
5-6
Business Ethics
• Ethics is the study of right and wrong
behavior; whether an action is fair, right or
just.
• In business, ethical decisions are the
application of moral and ethical principles
to the marketplace and workplace.
7
From Obligation to Responsiveness
to Responsibility
• Social obligation - the obligation of a business
to meet its economic and legal responsibilities
and nothing more.
• Classical view - the view that management’s
only social responsibility is to maximize profits
Copyright
2012 Pearson
Education,
Copyright © 2014
Pearson©Education,
Inc. publishing
as Prentice Hall
Inc. Publishing as Prentice Hall
5-8
9
Two opposite views on the role of ethics in
business
Friedman
Stakeholders
10
Milton Friedman (1970)
Only purposes of a business is to make a
profit and obey the law.
Charitable duties are for the individual
stockholder…
Why is Business Ethics
Important?
• Directors and Officers owe a complex set
of ethical duties to the company,
shareholders, customers, community,
employees, and suppliers.
• These parties are called “stakeholders”
• When these duties conflict, ethical
dilemmas are created.
11
Organizational Stakeholders
Copyright
2012 Pearson
Education,
Copyright © 2014
Pearson©Education,
Inc. publishing
as Prentice Hall
Inc. Publishing as Prentice Hall
5-12
From Obligation to Responsiveness
to Responsibility (cont.)
• Social responsibility
- a business’s
intention, beyond its
legal and economic
obligations, to do the
right things and act in
ways that are good for
society.
Copyright
2012 Pearson
Education,
Copyright © 2014
Pearson©Education,
Inc. publishing
as Prentice Hall
Inc. Publishing as Prentice Hall
5-13
Setting the Right Ethical Tone
• Importance of Ethical Leadership.
– Attitude of Top Management.
• Howard Schultz, Starbuck’s CEO dropped his pay
to $10,000 (1/2009)
– Looking the Other Way.
– In Re The Exxon Valdez
14
Exhibit 5-9
Being an Ethical Leader
Copyright
2012 Pearson
Education,
Copyright © 2014
Pearson©Education,
Inc. publishing
as Prentice Hall
Inc. Publishing as Prentice Hall
5-15
Approaches to
Ethical Reasoning
Duty Based Ethics = (Deontological ethics)
derived from religious and philosophical
duties.
– Religious Ethical Standards.
– Kantian Ethics.
– Rights Principles.
Outcome-Based Ethics: Utilitarianism.
– Seeks to ensure a given outcome.
16
Religious Ethical Standards
• The rightness or wrongness of an action is
judged according to its conformity to an
absolute rule.
• The motive of the actor is irrelevant.
17
Kantian Ethics
• The categorical imperative is a
central postulate of Kantian
ethics.
– The rightness or wrongness of an
action is judged by estimating the
consequences that would follow
if everyone in a society
performed the act under
consideration.
Very similar to “The Golden Rule”
18
Principle of Rights
• This principle derives from the belief that
every duty gives rise to a corresponding
right.
• The belief in fundamental rights is a
deeply embedded feature of Western
culture.
• The ethicality of an action is judged by
how the consequences of the action
will affect the rights of others.
19
20
Do you mind if I smoke?
Principle of Rights says if
everyone around consents,
there is nothing wrong with
the behavior
Ex: Victimless crimes…
Outcome-based Ethics:
Utilitarianism
• A cost-benefit analysis must
be performed to determine the
effects of competing
alternatives on the persons
affected.
• The best alternative is the one
that produces the greatest
good for the greatest
number.
21
22
Economics as a discipline is Utilitarian
Utility Curves
Cost-Benefit Analysis
Supply and Demand
Morality in Economics?
Utilitarian Dilemna
• Schadenfreude
23
Corporate Social Responsibility
• CSR is the idea that those who manage
corporations should be accountable to
society for their actions.
– Stakeholder Approach: corporations have a
duty not only to shareholders but other groups
(stakeholders) affected by corporate actions.
– Corporate Citizenship: promote goals that
society considers worthwhile and take positive
steps towards solving problems.
24
Creating Ethical Codes
• Creating Ethical Codes of Conduct.
– Providing Employee Ethics Training.
– Johnson and Johnson: web-based ethical
training.
• Sarbanes-Oxley Act (slang, SOX, the law
was a response to Enron) and web-based
reporting systems.
25
A Long Time Ago . . .
•
•
•
•
•
Kenneth Lay
Sweetheart of Wall Street
$2m to Bush/Cheney
On Bush’s White House Transition
Handpicked appointed regulators in
energy
• Harvard Business School
• Enron Field (Houston Astros Park)
26
Enron’s Dubious Accounting
Arthur Anderson
27
Enron’s False Transactions &
Bonuses
Kenneth Lay: $400,000,000 in Bonuses
28
CSR Example:
Hershey School
Started in 1909 for
“Healthy, white male orphans
between 8 and 18.”
Started with 10 kids
Now 1700+
Donated fortune (now $7.8 B) in
1915 when his wife died. He died in
1945
29
Ethics in an International
Context
• Ethical standards are not universal
– Social and cultural differences determine
acceptable behaviors.
Copyright
2012 Pearson
Education,
Copyright © 2014
Pearson©Education,
Inc. publishing
as Prentice Hall
Inc. Publishing as Prentice Hall
5-30
The Ten Principles of the United Nations
Global Compact
Copyright
2012 Pearson
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Inc. publishing
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5-31
International
• Foreign Corrupt Practices Act.
– Bribes and Accounting Practices.
– Blat
– Krysha
– Guanxi
– Fakelakia
32
FCPA
Foreign Corrupt Practices Act
Started in 1977 (Jimmy Carter)
http://www.youtube.com/watch?v=g1n0kat_i4s
FCPA
Two main provisions:
Transparency for SEC companies
Bribery of foreign officials prohibited
Applies to:
Any business controlled by SEC (publicly
traded stock)
Any business located in US
Any business conducting sales in US
Any one acting on behalf of US business
How far does jurisdiction go?
An involvement with a US bank or
Through a US internet provider is enough
SEC v Elek Staub (decided Feb 8, 2013)
Key: is the payment quid pro quo for some
discretionary action by the foreign official
When is a payment not a bribe?
Payment to expedite a non-discretionary
action (Facilitation payment)
Lawful under the host country
Bona-fide expenditure directly related to a
contract
FCPA – Recent Violators
Recent Violators Include:
Ralph Lauren
Philips Electronics
Eli Lilly
Allianz
Tyco
Oracle
Walmart
Pfizer
Morgan Stanley
Siemens
Rockwell
York International
Dow Chemical
Electronic Data Systems
Monsanto
Bell South
Johnson & Johnson
Tyson Foods
Lucent
General Electric
Chrysler
Avery
Novo Nordisk
ITT
Halliburton
Fiat
Volvo
Westinghouse
Chevron
Ingersoll Rand
Chiquita
Avon
IBM
Walmart bribed Mexican authorities to get
construction permits
and then bribed those who investigated the
crisis
Hewlett Packard paid >$10m to Prosecutor
General of Russia to get government
contracts
Ralph Lauren in Argentina (2013)
Self-reported
$593k in gifts over four years (2005-2009)
NPA
Require public admission (potential lawsuits)
$1.6m in fines
Wall Street Journal, April 7, 2014
GlaxoSmithKline (UK) pharma
Bribed a lot of folks in Iraq to get drugs
approved there
Hired 16 people as “consultants” who were
actually full time workers for the Iraq
government in charge of medical regulations
Strange Twist
Smith & Wesson forced to pay $2m fine
Bribed someone in Pakistan and Indonesia,
But never got the contracts
Still had to pay the fine…
Wall Street Journal, July 28, 2014
How does it work?
US Department of Justice
Violations of Bribery:
Company – criminal fines of $2m
Individuals – criminal fines of $100k & five years in prison
(Fines may increase to double the amount of the
expected gain from the bribe!)
Violations of Record Keeping:
Company – fines of $25m
Individuals – fines of $5m and up to 20 years in prison
Ignored?
From 1977-1998, DOJ only did 25 cases on
FCPA
Average one case a year…
In June 2010, DOJ had 150 cases in
progress
Why the new interest?
Profit Disgorgement
(Take back profits from corrupt gain)
Siemens - $800 million fine in 2008
Other governments handle
corruption
http://www.youtube.com/watch?v=DioKr9RdbWA
http://www.youtube.com/watch?v=unpQPu7TXls
Reality
If USA has a law against bribery, so we do
not invest in “Country X”
But Russia does invest (and bribes)
What changed?
USA business lost opportunity
Bribes still persist