Part 1

Business in a
Changing World

Chapter 2

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 Part 1
CHAPTER 2
Business Ethics and Social Responsibility
• Business ethics and social responsibility
• Improving Ethical Behavior in Business

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 Learning Objectives

LO 2-1 Define business ethics and social responsibility

and examine their importance.
LO 2-2 Detect some of the ethical issues that may arise in
business.
LO 2-3 Specify how businesses can promote ethical
behavior.

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 Business Ethics
Business Ethics: are the principles and standards
that determine acceptable behavior/conduct in
business.
– Acceptable behavior is determined by:
 The organization
 Customers
 Competitors
 Government regulators
 Interest groups
 The public
 The individual’s personal principles and values 4
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 Aspects of Trust
– Good ethics lead to trust.
– In business, trust is the glue that holds
relationships together (with customers and
suppliers, attract investors, and retain
employees).
For Example:
– The recent global financial crisis took a toll on
consumer trust of financial services
companies
– Trust in banks is lower than in other
industries. 5
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 Social Responsibility
• Social Responsibility: is a business’s obligation
to maximize its positive impact and minimize its
negative impact on society.
– Examples: using less water, producing Eco friendly
products, reducing carbon footprints, advocating child labor
law, charitable giving, being the best place to work for…
• How Social Responsibility and Ethics Differ
o Ethics: refers to the decisions made by an
individual or a work group that society evaluates
as right or wrong (narrower concept)
o Social responsibility: refers to the impact of the
entire business’s activities on society (broader
concept) 6
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 What is the Role of Ethics in Business?
• Regardless of what an individual believes about a particular
action, if society judges it to be unethical or wrong, that
judgment directly affects the organization’s ability to achieve its
business goals.
• Business ethics goes beyond legal issues.
– Ethical conduct builds trust among individuals and in business
relationships, which validates and promotes confidence in
business relationships.
• Establishing trust and confidence is much more difficult in
organizations that have reputations for acting unethically.
• Ethical issues are not limited to for-profit organizations either.
– They include all areas of organizational activities. Whether made
in science, politics, sports, or business, most decisions are
judged as right or wrong, ethical or unethical.
• Negative judgments can affect an organization’s ability to build
relationships with customers and suppliers, attract investors, and
retain employees.
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 Recognizing Ethical Issues
• Ethical Issue:
is 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
– Recognizing ethical issues is the most important step in
understanding business ethics
• Examples of Ethical Issues:
1. Bribery
2. Misuse of company time
3. Bullying
4. Misuse of company resources
5. Conflict of interest
6. Plagiarism 8
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 1. Bribery
Bribes: are payments, gifts or special favors
intended to influence the outcome of a decision.

Example:
Ralph Lauren reported that
its subsidiary had bribed
foreign officials in
Argentina. Because it took
quick action to address the
misconduct, the company
did not face charges.

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 1. Bribery
• Many business issues seem easy to resolve
on the surface, but in reality, are very complex
– Ethics is related to the culture in which a
business operates.
– Experience with the culture in which a
business operates is critical to understanding
what is ethical or unethical.
– One of the principal causes of unethical
behavior in organizations is overly
aggressive financial or business objectives.

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 2. Misuse of Company Time
– Theft of time is a common area of
misconduct observed in the workplace
– Many employees spend an average of
one hour each day using social media
sites or watching YouTube
– Time theft costs are estimated to cost
companies hundreds of billions of dollars
annually

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 Abusive and Intimidating Behavior (For Employees)
• Abusive or intimidating behavior is the most
common ethical problem for employees
3. Bullying: is associated with a hostile workplace
when a person or group is targeted and is
threatened, harassed, belittled, verbally abused, or
overly criticized
• Abusive behavior such as
bullying can lead to:

© Orange Line Media/Cutcaster

– Low morale,
– Higher turnover,
– Increased absenteeism. 12
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 Actions Associated with Bullies
1. Spreading rumors to damage others
2. Blocking others’ communication in the workplace
3. Flaunting (showing off) status or authority to take
advantage of others
4. Discrediting others’ ideas and opinions
5. Using e-mail to demean others
6. Failing to communicate or return communication
7. Insults, yelling, and shouting
8. Using terminology to discriminate by gender, race, or
age
9. Using eye or body language to hurt others or their
reputation
10. Taking credit for others’ work or ideas 13
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 4. Misuse of Company Resources
• Misuse of company resources has been
identified as a leading issue in observed
misconduct in organizations
• Issues might include:
o Spending excessive time on personal e-mails
o Submitting personal expenses on company
reports
o Using company copier for personal use
o Many companies have implemented official
policies delineating (outlining) acceptable use
of company resources 14
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 5. Conflict of Interest (for Employees)
 Exists when a person must choose whether to
advance his or her own personal interests or those
of others
 To avoid, employees must be able to separate their
personal/financial interests from their business
dealings
 Examples of Conflicts of Interest:
o Insider trading; is the buying or selling of stocks by
insiders who possess material that is still not public
o Nepotism; giving favors to relatives and close
friends.
o Bribery; can also be a conflict of interest 15
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 Fairness and Honesty (For Students & Researchers)
6. Plagiarism: Taking someone else’s work and presenting
it as your own without mention of the source.

© Bloomberg/Contributor/Getty Images
TurnItIn is an Internet service that allows teachers to
determine if their students have plagiarized content.
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 Code of Ethics
Code of Ethics: are formalized rules and standards
that describe what a company expects of its
employees
 Employees must have established (their own)
ethics policies to determine what conduct is
acceptable
 Codes and policies on ethics encourage the
creation of an ethical culture in the company
 Enforcement of ethical codes and policies through
rewards and punishments increases the
acceptance of ethical standards by employees
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 Why a Code of Ethics is Important?
1. Alerts employees about important issues and risks to address.
2. Provides values such as integrity, transparency, honesty, and
fairness that gives the foundation for building an ethical
culture.
3. Gives guidance to employees when facing gray or ambiguous
situations or ethical issues that they have never faced before.
4. Alerts employees to systems for reporting or places to go for
advice when facing an ethical issue.
5. Helps establish uniform ethical conduct and values that
provides a shared approach to dealing with ethical decisions.
6. Serves as an important document for communicating to the
public, suppliers, and regulatory authorities about the
company’s values and compliance.
7. Provides the foundation for evaluation and improvement of
ethical decision making. 18
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 Whistleblowing
Whistleblowing: is the act of an employee exposing an
employer’s wrongdoing to outsiders like the media or
government regulatory agencies
 One of the most important
components of an ethics program
is a means through which
employees can report observed
misconduct anonymously
 More companies are
establishing programs to
encourage employees to report
illegal or unethical practices
internally

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 Improving Ethical Behavior in Business
 The current trend is to move away from legally-
based ethical programs to cultural-based or
integrity-based programs that make ethics a core
organizational value
 Effective business ethics programs are good for
business performance
 Firms that develop higher levels of trust,
function more efficiently and effectively and
avoid damaged company reputations and
product images.

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