Foundations of Business 3e: Pride, Hughes, & Kapoor

Foundations of
Business 3e
Pride, Hughes, &
Kapoor
Being Ethical and Socially Responsible
Chapter
2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 2 | Slide 2
Learning Objectives
1. Understand what is meant by business ethics.
2. Identify the types of ethical concerns that arise.
3. Discuss the factors that affect the level of ethical
behavior in organizations.
4. Explain how ethical decision-making can be
encouraged.
5. Describe how our current views on the social
responsibility of business have evolved.
6. Explain the two views of the social responsibility
of business.
Chapter 2 | Slide 3
Learning Objectives
7. Discuss the factors that led to the consumer
movement and list some of its results.
8. Analyze how present employment practices are
being used to counteract past abuses.
9. Describe the major types of pollution, their causes,
and their cures.
10. Identify the steps a business must take to
implement a program of social responsibility
Chapter 2 | Slide 4
Business Ethics Defined
Ethics
The study of right and wrong and of the morality
of the choices individuals make

An ethical decision is one that is right
according to some standard of behavior
Business ethics
The application of moral standards to business
situations
Chapter 2 | Slide 5
Ethical Issues
Fairness and honesty

Businesspeople are expected to refrain from knowingly
deceiving, misrepresenting, or intimidating others.
Organizational relationships
A businessperson should put the welfare of others and that
of the organization above his or her own personal welfare.
Conflict of interest
Issues arise when a businessperson takes advantage
of a situation for personal gain rather than for the

employers interest.
Communications
Business communications that are false, misleading,
or deceptive are both illegal and unethical.

Chapter 2 | Slide 6
Factors Affecting Ethical Behavior
Chapter 2 | Slide 7
Factors Affecting Ethical Behavior (cont.)
Three general sets of factors appear to influence the

standards of behavior in an organization.
Individual factors
Individual knowledge of an issue

Personal values
Personal goals
Social factors
Cultural norms
Coworkers
Significant others
Use of the Internet
Opportunity
Presence of opportunity
Ethical codes
Enforcement
Chapter 2 | Slide 8
Encouraging Ethical Behavior
External to a specific organization

Governmental legislation and regulations
Sarbanes-Oxley Act of 2002
Trade association guidelines
Within an organization
Code of ethics
A written guide to acceptable and ethical behavior as defined by an

organization; it outlines policies, standards, and punishments for
violations
Organizational environment
Management direction
Employee training
Ethics officer
Whistle-blowing
Informing the press or government officials about unethical
within
2013 South-Western,practices
a part of Cengage Learning.
All rightsones
reserved. organization
Chapter 2 | Slide 9
Social Responsibility
The recognition that business activities have an

impact on society and the consideration of that
impact in business decision-making
Social responsibility
costs money but is also

good business.
How socially responsible
a firm acts may affect

the decisions of customers
to do or continue to do
business with the firm.
Chapter 2 | Slide 10
Guidelines for Making Ethical Decisions
The Evolution of Social

Responsibility in Business
Early 1900s: Caveat Emptor

A Latin phrase meaning let the buyer beware.
What you see is what you get, and if its not what you
expected, too bad.
Most people believed that competition and the
marketplace would correct abuses.

The government became involved only in cases of
obvious abuse.
Early Government Regulations

that Affected American Business
The Evolution of Social

Responsibility in Business (cont.)
The Great Depression and beyond

Pressure mounted for the government to help with
the economy and social conditions.

Franklin D. Roosevelt instituted economic and
social programs.
Laws were passed to correct business abuses.
As government has increased, so has everyones
awareness of the social responsibility of business.
Two Views of Social Responsibility
Economic model
Society will benefit most when business is left alone
to produce and market profitable products that

society needs.
Managerial attitude: social responsibility is someone
elses job; the firms primary responsibility is to make

a profit for its shareholders.
Firms are assumed to fulfill their social responsibility
indirectly by paying the taxes that are used to meet

the needs of society.
Social responsibility is the problem of government,
environmental groups, and charitable foundations.

Two Views of Social Responsibility (cont.)
Socioeconomic model
Business should emphasize not only profits but also the
impact of its decisions on society.

The corporation is a creation of society and it must act as
any responsible citizen would.

Firms take pride in their social responsibility obligations.
It is in the best interest of firms to take the initiative in
social responsibility matters.
The Pros and Cons of

Arguments for increased social responsibility:
1.
Because business is part of our society, it cannot

ignore social issues.
2.
Business has the technical, financial, and

managerial resources needed to tackle todays
complex social issues.
3.
By helping resolve social issues, business can

create a more stable environment for long-term
profitability.
4.
Socially responsible decision-making by firms can

prevent increased government intervention, which
would force businesses to do what they fail to
do voluntarily.
The Pros and Cons of

Social Responsibility (contd)
Arguments against increased social responsibility:
1.
Business managers are primarily responsible to

stockholders, so management must be concerned
with providing a return on owners investments.
2.
Corporate time, money, and talent should be used to

maximize profits, not to solve societys problems.
3.
Social problems affect society in general, so

individual businesses should not be expected to
solve these problems.
4.
Social issues are the responsibility of government

officials who are elected for that purpose and who
are accountable to the voters for their decisions.
A Comparison of Economic and Socioeconomic Models

of Social Responsibility as Implemented in Business
Consumerism
The Six Basic Rights of Consumers
Major Federal Legislation Protecting

Consumers Since 1960
Major Federal Legislation Protecting

Consumers Since 1960 (cont.)
2010 List of Proposed Legislation
Bank and Savings Association Holding Company and Depository Institution
Regulatory Improvements Act of 2010
Consumer Financial Protection Act of 2010
Enhancing Financial Institution Safety and Soundness Act of 2010
Expand and Preserve Home Ownership Through Counseling Act
Federal Insurance Office Act of 2010
Financial Stability Act of 2010
Improving Access to Mainstream Financial Institutions Act of 2010
Investor Protection and Securities Reform Act of 2010
Mortgage Reform and Anti-Predatory Lending Act
Nonadmitted and Reinsurance Reform Act of 2010
Pay It Back Act
Payment, Clearing, and Settlement Supervision Act of 2010
Private Fund Investment Advisers Registration Act of 2010
Wall Street Transparency and Accountability Act of 2010
Employment Practices
The last five decades have seen progress toward

affirming the rights of employees to equal treatment
in the workplace.
Minority
A racial, religious, political, national, or other group
regarded as different from the larger group of which
it is a part and that is often singled out for
unfavorable treatment
A number of anti-discrimination laws were passed in

the 1960s and 1970s, but abuses still exist.
Comparative Income Levels
Employment Practices (cont.)
Affirmative Action Programs

Plans designed to increase the number of minority
employees at all levels within an organization

Objective is to ensure that minorities are represented in
the organization in approximately the same proportion as

the surrounding community
Written plans are required for employers with federal
contracts of more than $50,000 per year

Problems arise from the use of quotas and charges of
reverse discrimination
Equal Employment Opportunity Commission (EEOC)
The federal agency empowered to investigate complaints of
employment discrimination and to sue firms that practice it
Relative Earnings of Male and Female Workers
Employment Practices (cont.)
Training programs for the hard-core

unemployed
Hard-core unemployed
Workers with little education or vocational training

and a long history of unemployment
National Alliance of Business (NAB)
A joint business-government program to train the

hard-core unemployed
Concern for the Environment
Pollution
The contamination of water, air, or land through the
actions of people in an industrialized society
Environmental Protection Agency (EPA)

The federal agency charged with enforcing laws
affecting the environment
Safeguarding the environment requires

Environmental legislation
Voluntary compliance
EPA enforcement actions
Summary of Major Environmental Laws
Concern for the Environment (cont.)
Water pollution
Water quality has improved in recent years, but high
levels of toxic pollutants are still found in some waters.

Pollutants threaten the health of both people
and wildlife.
Cleanup is complicated and costly because of
runoff and toxic contamination.

Acid rain from sulfur emissions of industrial smokestacks
is contributing to the deterioration of coastal waters,

lakes, and marine life.
Air pollution
Aviation emissions of carbon dioxide in the upper
atmosphere are contributing to global warming.

Carbon monoxide and hydrocarbons emitted by
motor vehicles and smoke and other pollutants

emitted by manufacturing plants can be partially
eliminated through pollution-control devices.
Weather and geography can contribute to
air pollution.
Land pollution
The fundamental issues are how to restore damaged or
contaminated land and how to protect unpolluted land

from future damage.
The problem is worsening because technology produces
chemical and radioactive waste.

There is a shortage of landfill space for waste disposal.
Incinerators help solve the landfill shortage problem,
but they produce toxic ash.

Other causes of land pollution include strip-mining,
nonselective cutting of forests, and development of

agricultural land for housing and industry.
The EPA has been criticized for its handling of the $1.6 billion
Superfund created in 1980 by Congress.
Noise pollution
Excessive noise can do physical harm.
Ways to reduce noise levels:
Isolating the source of the noise
Modifying machinery and equipment
If noise cannot be reduced, workers can be
protected by wearing noise-reduction gear.
Who Should Pay for a

Clean Environment?
Governments and businesses spend billions annually

to reduce pollution.
Much of the money required is supposed to come from

already depressed industries.
A few firms have discovered it is cheaper to pay a fine than

to install equipment for pollution control.
Many business leaders say tax money should be used

because business is not the only source of pollution.
Environmentalists say the cost is an expense of doing

business.
Consumers will probably pay a large part of the costseither

as taxes or in the form of higher prices.
Implementing a Program of
Developing a program of social responsibility

Secure the commitment of top executives.
Plan the program.
Appoint a top-level executive as director to implement
the plan.
Prepare a social audit.
A comprehensive report of what the organization has done and is

doing with regard to social issues that affect it
Funding the program

Pass program costs on to consumers as higher prices.
Absorb the program costs as a business expense.
Seek tax reductions or other incentives.

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Foundations of

Being Ethical and Socially Responsible

2013 South-Western, a part of Cengage Learning. All rights reserved.

2013 South-Western, a part of Cengage Learning. All rights reserved.

Business Ethics Defined

of the choices individuals make

according to some standard of behavior

2013 South-Western, a part of Cengage Learning. All rights reserved.

Fairness and honesty

deceiving, misrepresenting, or intimidating others.

of the organization above his or her own personal welfare.

of a situation for personal gain rather than for the

or deceptive are both illegal and unethical.

Factors Affecting Ethical Behavior

2013 South-Western, a part of Cengage Learning. All rights reserved.

Factors Affecting Ethical Behavior (cont.)

Three general sets of factors appear to influence the

Individual knowledge of an issue

Encouraging Ethical Behavior

External to a specific organization

Sarbanes-Oxley Act of 2002

Trade association guidelines

A written guide to acceptable and ethical behavior as defined by an

The recognition that business activities have an

costs money but is also

a firm acts may affect

2013 South-Western, a part of Cengage Learning. All rights reserved.

Guidelines for Making Ethical Decisions

2013 South-Western, a part of Cengage Learning. All rights reserved.

The Evolution of Social

Early 1900s: Caveat Emptor

Most people believed that competition and the

marketplace would correct abuses.

2013 South-Western, a part of Cengage Learning. All rights reserved.

Early Government Regulations

2013 South-Western, a part of Cengage Learning. All rights reserved.

The Evolution of Social

The Great Depression and beyond

the economy and social conditions.

awareness of the social responsibility of business.

2013 South-Western, a part of Cengage Learning. All rights reserved.

Two Views of Social Responsibility

to produce and market profitable products that

elses job; the firms primary responsibility is to make

indirectly by paying the taxes that are used to meet

environmental groups, and charitable foundations.

Two Views of Social Responsibility (cont.)

impact of its decisions on society.

any responsible citizen would.

social responsibility matters.

2013 South-Western, a part of Cengage Learning. All rights reserved.

The Pros and Cons of

Because business is part of our society, it cannot

Business has the technical, financial, and

By helping resolve social issues, business can

Socially responsible decision-making by firms can

2013 South-Western, a part of Cengage Learning. All rights reserved.

The Pros and Cons of

Business managers are primarily responsible to

Corporate time, money, and talent should be used to

Social problems affect society in general, so

Social issues are the responsibility of government