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Business Ethics


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Title: Business Ethics

  • Business Ethics Social Responsibility

Unethical Behavior
  • Unethical behavior in business is not just a
    recent phenomenon
  • In the sixth century, B.C., the philosopher
    Anacharsis once said, The market is a place set
    apart where men may deceive one another.

Unethical Behavior
  • Two centuries later, Diogenes was spotted
    carrying around a lighted lamp, up and down the
    city streets, in the middle of the day. When
    asked what he was doing, he replied, that he was
    looking for an honest man.

Business Ethics
  • Business Ethics is about
  • Decision-Making
  • By People in Business
  • According to Moral Principles or Standards

  • Conflicting duties, loyalties or interests create
    moral dilemmas requiring decisions to be made

  • Ethical decision-making involves the ability to
    discern right from wrong along with the
    commitment to do what is right.

  • Some factors affecting decision-making (from
    Integrity Management, by D. T. LeClair et al,
    Univ. of Tampa Press, 1998)
  • Issue Intensity
  • (i.e. how important does the decision-maker
    perceive the issue to be?
  • Can be influenced by company/management
  • Decision-Makers Personal Moral Philosophy
  • Decision-Makers Stage of Moral Development
  • Organizational Culture

  • 8 Steps to Sound, Ethical Decision-Making
  • 1. Gather as many relevant material facts as
    circumstances permit.
  • 2. Identify the relevant ethical issues (consider
    alt. viewpoints)
  • 3. Identify, weigh prioritize all the affected
    parties (i.e. stakeholders) (see Johnson
    Johnson Credo, Taking Sides, p.25)
  • 4. Identify your existing commitments/obligations.
  • 5. Identify various courses of action (dare to
    think creatively)
  • 6. Identify the possible/probable consequences of
    same (both short long-term)
  • 7. Consider the practicality of same.
  • 8. Consider the dictates and impacts upon your
    character integrity.

  • Disclosure Test How comfortable would I feel if
    others, whose opinion of me I value, knew I was
    making this decision?

  • The higher the level of a decision-maker
  • the greater the impact of the decision
  • and the wider the range of constituencies that
    will be affected by the decision.

By People In Business
  • The moral foundation of the decision-maker
  • He doesnt have a moral compass. Whistleblower
    Sherron Watkins describing Andrew Fastow, former
    CFO of Enron. (Watkins gets frank about days at
    Enron, Edward Iwata, USA Today, March 25, 2003,
    p. 3B.)

By People in Business
  • Ultimately, one's own motivation for ethical
    behavior must be internal to be effective.
    External motivation has a limited value --
    punishment and fear is only effective in the
    short-run. If people believe that they are above
    the law, they will continue to act unethically.
    Organizations that have a clear vision, and
    support individual integrity are attractive
    places of employment. - Teri D. Egan, Ph.d,
    Associate Professor, The Graziadio School of
    Business at Pepperdine University, Corporate
    Ethics, Washington Post Live Online, Friday, Aug.
    2, 2002

  • Values guiding constructs or ideas, representing
    deeply held generalized behaviors, which are
    considered by the holder, to be of great
  • Morals a system or set of beliefs or principles,
    based on values, which constitute an individual
    or groups perception of human duty, and
    therefore which act as an influence or control
    over their behavior. Morals are typically
    concerned with behaviors that have potentially
    serious consequences or profound impacts. The
    word morals is derived from the Latin mores
    (character, custom or habit)
  • Ethics the study and assessment of morals. The
    word "ethics" is derived from the Greek word,
    ethos (character or custom).

  • The most important human endeavor is the
    striving for morality in our actions. Our inner
    balance and even our very existence depend on it.
    Only morality in our actions can give beauty and
    dignity to life.--Albert Einstein (in a letter

  • The historian Arnold Toynbee observed "Out of 21
    notable civilizations, 19 perished not by
    conquest from without but by moral decay from

Absolutism vs. Relativism
  • Ethical Absolutism What is right or wrong is
    consistent in all places or circumstances. There
    are universally valid moral principles. ( only
    by obedience to universal moral norms does man
    find full confirmation of his personal uniqueness
    and the possibility of authentic moral growth. -
    Pope John Paul II, see also Rom. 122 Heb. 138)
  • Ethical Relativism (also called Situational
    Ethics) What is right or wrong varies according
    to the individual/society/culture or set of
    circumstances. There are no universally valid
    moral principles. (Related Biblical reference
    "everyone did what was right in his own eyes"
    (Deut. 128, Judges 176 2125) (see also Isa.
    520 24, Jer. 213, Rom. 118-32, 1 Cor.
    56-7, 2 Cor. 614-15, 1 John 18)

Absolutism vs. Relativism
  • As Cardinal Joseph Ratzinger said, Relativism is
    presented as a position defined positively by
    the concepts of tolerance and knowledge through
    dialogue and freedom, concepts which would be
    limited if the existence of one valid truth for
    all were affirmed affirming that there is a
    binding and valid truth in history in the figure
    of Jesus Christ and the faith of the church is
    described as fundamentalism. Such fundamentalism,
    is presented in different ways as the
    fundamental threat emerging against the supreme
    good of modernity i.e., tolerance and freedom.
    - Address to Congregation for the Doctrine of
    Faith, Guadalajara, Mexico, May 1996

Absolutism vs. Relativism
  • The demise of Americas legal foundations occur
    when society rejects laws that are based on
    solid, irrevocable, moral, universal, absolute
    values, to a society that bases its laws on an
    arbitrary system of relativism, situational
    ethics, materialism, individualism, hedonism,
    paganism, or in any secularist ideology. This
    secularization of law has influenced all branches
    of knowledge law, philosophy, business,
    religion, medicine, education, science, the arts,
    and mass media. Harold Berman, The Interaction
    of Law and Religion 21 (1974).

Absolutism vs. Relativism
  • According to a recent poll of college seniors,
    73 agreed with the statement that What is right
    or wrong depends on differences in individual
    values and cultural diversity. Only 25 agreed
    with the statement that There are clear and
    uniform standards of right and wrong by which
    everyone should be judged."

Problems with Relativism
  • Relativism undermines moral criticism of
    practices of particular individuals or in
    particular societies where those practices
    conform to their own standards. For instance, it
    could be used to permit slavery in a slave
    society or it could be used to justify trade and
    investment with basically evil regimes, e.g.
    Apartheid governments.
  • But, as Cardinal Ratzinger said, There are
    injustices that will never turn into just things
    (such as, for example, killing an innocent
    person, denying an individual or groups the right
    to their dignity or to life corresponding to that
    dignity) while, on the other hand, there are just
    things that can never be unjust. - Address to
    Congregation for the Doctrine of Faith,
    Guadalajara, Mexico, May 1996

Problems with Relativism
  • Relativism allows for oppression of those with
    minority views by allowing the majority in any
    particular circumstance to define what is morally
    right or wrong.
  • In Germany they first came for the Communists,
  • and I didn't speak up because I wasn't a
  • Then they came for the Jews,
  • and I didn't speak up because I wasn't a Jew.
  • Then they came for the trade unionists,
  • and I didn't speak up because I wasn't a trade
  • Then they came for the Catholics,
  • and I didn't speak up because I was a Protestant.
  • Then they came for me
  • and by that time no one was left to speak up.
  • - German anti-Nazi activist, Pastor Martin

Problems with Relativism
  • Relativists speak in terms that soften harsh
  • "Intelligent, educated, religious people embrace
    illogical absurdities that set aside not only
    God's truth, but also our responsibility for the
    well-being of others. When words are warped and
    twisted perversely, they're eventually emptied of
    their true meaning. When you shine the light of
    common sense on deceptive language couched in
    medical, philosophical or intellectual terms, the
    logic evaporates. Moral choices require that we
    use language to describe reality. - Jean Staker
    Garton, Author/Lecturer, Co-Founder of Lutherans
    for Life

Problems with Relativism
  • Relativists never need bother to examine why
    something is moral or immoral, they merely
    accept/tolerate alternative determinations, so
    that none are held to account
  • Over the years I have found that those who call
    themselves atheists actually have a strong sense
    of the absolute truth they know exists. They just
    dont want to acknowledge that its true -
    because if they did, they would have to change
    the way they live. They flee on moral grounds
    refusing to submit themselves, they exchange the
    truth for a lie. - Chuck Colson -Being the Body,

Problems with Relativism
  • Commenting on the idea that legal reforms can
    compel corporate morality, Michael Prowse, in
    the Financial Times, stated that "The underlying
    problem is that we are living in times that might
    aptly be called 'post-ethical.'" People are now
    "emotivists," who relativize moral judgments and
    "obey the law, help others and respect customs
    and mores only if they calculate that this will
    benefit them personally in some way. ... The root
    problem is a loss of belief in objective ethical

Problems with Relativism
  • Jesus said in John 831-32, If you continue in
    my word, then are you my disciples indeed And
    you shall know the truth, and the truth shall
    make you free. It would seem follow then that,
    people cannot experience ultimate and true
    freedom unless and until they come to terms with
    ultimate, absolute truth inherent in and revealed
    by God.

Absolutism vs. Relativism
  • Most ethicists reject the theory of ethical
    relativism. Some claim that while the moral
    practices of societies may differ, the
    fundamental moral principles underlying these
    practices do not. -Markkula Center for Applied

  • To ensure that employees can and will act with
    integrity organizations need a strong and
    consistent set of values that dictate appropriate
    individual actions. - Conclusion of study
    conducted by Professor Pratima Bansal, cited in
    Rebuilding trust, The integral role of leadership
    in fostering values, honesty and vision,by Carol
    Stephenson in the Ivey Business Journal, Jan/Feb.
    2004, Vol. 68, Issue 3.

  • Navigating the complexities of a situation ...
    requires a reliable compass. We can plot that
    "north" by determining clearly our own core
    values. We have to identify - and articulate -
    what we believe is important to us and to our
    companies. Our core values drive our behaviors,
    and our behaviors tell the world who we are and
    what we stand for. ...Identifying and adhering to
    a core-values compass point provides a standard
    that will make decisions easier, consistent and
    justified. - Parkinson, J. Robert, Thinking
    clearly, remembering values key to making the
    call, Milwaukee Journal Sentinel, March 22, 2004.

  • Without commonly shared and widely entrenched
    moral values and obligations, neither the law,
    nor democratic government, nor even the market
    economy will function properly.-- Vaclav Havel
    ("Politics, morality, and Civility" Summer

  • What are the core values that are fundamental to
    the success of any individual or organization?

  • Honesty, respect, responsibility, fairness,
    compassion, perseverance and courage.

Values - Universal Rule?
  • The Golden Rule , i.e. to do unto others as
    you would have them do unto you is an example of
    a value common to many cultures/religions
    (Mahabharata 51517, Hinduism, Talmud, Shabbat
    31a Leviticus 1918, Judaism, Matthew 712,
    Christianity, Udana-Varga 518, Buddhism,
    Analects 1523, Confucianism, Number 13 of Imam
    "Al-Nawawi's Forty Hadiths.", Islam)
  • Note Several Corporations have directly
    incorporated some form of this rule in their
    codes of ethics including Coachman, Mary Kay,
    Progressive, Merrill Lynch and USAA

Corporate Culture
  • Both individuals and organizations hold values
  • A corporation is said to manifest its values in
    its corporate culture
  • Corporate culture is loosely defined as the
    attitudes, behaviors and personalities that make
    up a company and that shape its behavior and
    reputation, or as Elizabeth Kiss of the Kenan
    Institute for Ethics puts it, corporate culture
    is how we perceive, think, feel and do things
    around here.
  • Most employees take their cues from the company
    culture and behave accordingly.
  • A business derives its character from the
    character of the people who conduct the business.
    - Ricky W. Griffin, Management. Boston
    Houghton Mifflin Company (2002)

Corporate Culture
  • "Moral behavior is concerned primarily with the
    interpersonal dimension of our behavior how we
    treat one another individually and in groups
    and, increasingly, other species and the
    environment." The key here is that morality
    brings us into contact with others and asks us to
    consider the quality of that contact. -
  • Quote from The Leadership Compass, John Wilcox
    and Susan Ebbs, as quoted in Everyday Ethics, by
    Thomas Shanks, S.J., Markkula Center for Applied

Corporate Culture
  • "The first step in the evolution of ethics is a
    sense of solidarity with other human beings."
    Albert Schweitzer, early 20th-century German
    Nobel Peace Prize-winning mission doctor and

Corporate Culture
  • The Pressure to Conform
  • We are all a kind of Chameleon, taking our hue -
    the hue of our moral character, from those who
    are about us. - John Locke (1632 - 1704)

Corporate Culture
  • The Pressure to Conform
  • Some years ago, a social scientist named Solomon
    Asch wanted to see how people dealt with social
    pressure so he designed an experiment to measure
    the results. He came up with a simple test that
    showed a series of lines on a board in front of
    the room, with one of the lines matching another
    in being the same length. The others were either
    much shorter or much longer. A person was brought
    into the room, along with others in a group,
    which unbeknown to the subject, were helpers to
    the professor. The whole group was asked to match
    the two lines that were the same length together.
    The helpers intentionally gave the wrong answer
    and it was found that in almost 75 of the time,
    the subjects would go along with the wrong
    answer, knowing full well it was wrong, but not
    wanting to stand out. - Opinion and Social
    Pressure, Scientific American, Nov. 1955, 31-35.

Corporate Culture
  • The Pressure to Conform
  • Culture shapes behavior. There are plenty of
    perfectly decent people who go astray because
    they're in a culture that creates an environment
    in which they can't get their jobs done unless
    they engage in unethical activities. - Harvard
    Business School professor and business ethicist
    Barbara Toffler, former partner at Arthur
    Andersen. Toffler left Andersen in 1999, well
    before the Enron and Global Crossing scandals
    destroyed the company. Her book, Final
    Accounting Ambition, Greed, and the Fall of
    Arthur Andersen (Random House/Broadway Books,
    2003), describes the process of ethical erosion
    in grim detail. Postcards from an Ethical
    Wasteland, CIO, June 1, 2003

Corporate Culture
  • In Moral Man and Immoral Society, Reinhold
    Niebuhr proposed that individual persons are
    always more moral functioning alone than when
    they function in a social group. - Institutional
    Ethics An Oxymoron, By Joe E. Trull, Editor,
    Christian Ethics Today, Journal of Christian
    Ethics, Issue 035 Volume 7 No 4 August 2001 .
  • Do you agree with this?

Corporate Culture
  • Rarely do the character flaws of a lone actor
    fully explain corporate misconduct. More
    typically, unethical business practice involves
    the tacit, if not explicit, cooperation of others
    and reflects the values, attitudes, beliefs,
    language, and behavioral patterns that define an
    organizations operating culture. - Lynn Sharp
    Paine, Harvard Business School

Corporate Culture
  • A strong corporate culture founded on ethical
    principles and sound values is a vital driving
    force behind strategic success. - Thompson
  • One company stressed its commitment to RICE
    respect, integrity, communication, and
    excellence. The words have been on T-shirts,
    paperweights, and on signs. The firm printed a
    61-page booklet with its code of ethics and every
    employee had to sign a certificate of compliance.
    That company was Enron!

According to Ethical or Moral, Values, Principles
or Standards
  • Whose Values?

According to Ethical or Moral, Values, Principles
or Standards
  • Personal
  • Family
  • Peers
  • Religious
  • Company
  • Community, Regional, National, International

According to Ethical or Moral, Values, Principles
or Standards
  • Learned Where?

According to Ethical or Moral, Values, Principles
or Standards
  • Home
  • School
  • Church (or other place of worship)
  • Life Experience
  • Work Experience
  • Books
  • News Media
  • Entertainment Media

According to Ethical or Moral, Values, Principles
or Standards
  • The average American, by the age of 65, will have
    spent the equivalent of 15 years of their life
    watching television.
  • By contrast, over the same time period, the
    average weekly church-going American will have
    spent only 8 months of their life receiving
    spiritual instruction.

According to Ethical or Moral, Values, Principles
or Standards
  • In the middle of an interview for acceptance to a
    prestigious Ivy League school back east, the
    interviewer asked his sure of himself
    candidate, If no one would ever find out, and no
    one got hurt, would you lie for 1M? The young
    man thought for a moment and said, If no one
    found out, and no one was hurt? Sure, I think I
    would! The interviewer then asked, Would you
    lie for a dime? The young man shot back, No
    way, what kind of man do you think I am? The
    interviewer responded, I have already determined
    that, I am just trying to determine your price.

According to Ethical or Moral, Values, Principles
or Standards
  • So fearful were the ancient Chinese of their
    enemies on the north that they built the Great
    Wall of China, one of the 7 wonders of the
    ancient world. It was so high they knew no one
    could climb over it, so thick that nothing
    could break it down. Then they settled back to
    enjoy their security. But during the first 100
    years of the walls existence, China was invaded
    3 times. Not once did the enemy break down the
    wall or climb over its top. Each time they bribed
    a gatekeeper marched right through the gates.
    According to the historians, the Chinese were so
    busy relying upon the walls of stone that they
    forgot to teach integrity to their children.

According to Ethical or Moral, Values, Principles
or Standards
  • In the 1950s a psychologist, Stanton Samenow, and
    a psychiatrist, Samuel Yochelson, sharing the
    conventional wisdom that crime is caused by
    environment, set out to prove their point. They
    began a 17-year study involving thousands of
    hours of clinical testing of 250 inmates here in
    the District of Columbia. To their astonishment,
    they discovered that the cause of crime cannot be
    traced to environment, poverty, or oppression.
    Instead, crime is the result of individuals
    making, as they put it, wrong moral choices. In
    their 1977 work The Criminal Personality, they
    concluded that the answer to crime is a
    "conversion of the wrong-doer to a more
    responsible lifestyle." In 1987, Harvard
    professors James Q. Wilson and Richard J.
    Herrnstein came to similar conclusions in their
    book Crime and Human Nature. They determined that
    the cause of crime is a lack of proper moral
    training among young people during the morally
    formative years, particularly ages 1 to 6.

According to Ethical or Moral, Values, Principles
or Standards
  • 33 of teens would act unethically to get ahead
    or to make more money if there was no chance of
    getting caught, according to a new Junior
    Achievement/Harris Interactive Poll of 624 teens
    between the ages of 13 and 18. 25 said they were
    not sure and only 42 said they would not.
    These results confirm our belief that ethics
    education must begin in elementary school. said
    Barry Salzberg, U.S. Managing Partner of Deloitte

According to Ethical or Moral, Values, Principles
or Standards
  • Daniel R. Levine notes that "honesty and
    integrity have been replaced in many classrooms
    by a win-at-any-cost attitude that puts grades,
    expediency and personal gain above all else.
  • "Moral standards have become so eroded that many
    children can no longer tell right from wrong,"
    says Kevin Ryan, founding director of the Center
    for the Advancement of Ethics and Character at
    Boston University.
  • According to Stephen F. Davis, a professor of
    psychology, "There's no remorse. For students,
    cheating is a way of lire.
  • Ryan further comments that "kids have no moral
    compass other than enlightened self-interest"
    Ryan blames the nation's schools for abandoning
    their traditional role of providing students with
    moral guidance.- "Cheating in Out Schools A
    National Scandal," Daniel R. Devine, Reader's
    Digest, October 1995, p. 66.), quoted in PERSONAL
    White,, Airpower Journal, 08970823, Summer96,
    Vol. 10, Issue 2

According to Moral Principles or Standards
  • Does society require a moral code to survive and

According to Moral Principles or Standards
  • 17th Century Philosopher Thomas Hobbes postulated
    that life in an amoral society would be poor,
    nasty, brutish and short, lacking in industry
    and commerce, as well as knowledge and arts, and
    that its people would live in a constant state of
    fear and insecurity.

According Moral Principles or Standards
  • Men qualify for freedom in exact proportion to
    their disposition to put moral chains on their
    own appetites. Society cannot exist unless a
    controlling power is put somewhere on will and
    appetite, and the less of it there is within, the
    more of it there must be without. - Edmund

According to Moral Principles or Standards
  • Without civic morality communities perish
    without personal morality their survival has no
    value. Bertrand Russell, 20th-century British
    mathematician and philosopher

According to Moral Principles or Standards
  • Martin Luther King, Jr. once noted, " The most
    dangerous criminal may be the man gifted with
    reason but with no morals."

According to Moral Principles or Standards
  • We have grasped the mystery of the atom and
    rejected the Sermon on the Mount. The world has
    achieved brilliance without wisdom, power without
    conscience. Ours is a world of nuclear giants and
    ethical infants. --General of the Army, Omar

According to Moral Principles or Standards
  • There are seven sins in the world Wealth without
    work, Pleasure without conscience, Knowledge
    without character, Commerce without morality,
    Science without humanity, Worship without
    sacrifice and politics without principle. -
    Mahatma Gandhi (1869 - 1948)

  • R. H. Tawney, the British historian, once wrote
    ''To argue, in the manner of Machiavelli, that
    there is one rule for business and another for
    private life, is to open the door to an orgy of
    unscrupulousness before which the mind recoils.''

  • Truett Cathy, founder of Chick-fil-A, argues
    there is no such thing as business ethics - only

  • Duty-Based v. Outcome-Based Ethics
  • Duty (Deontology)
  • Duty is an act done simply for the sake of what
    is right.
  • Duty is determined by revealed truths and
    involves universal principles
  • Often religion-based
  • e.g. Kants Categorical Imperative
  • "Everyone is obligated to act only in ways that
    respect the intrinsic value, human dignity and
    moral rights of all persons."
  • Places High Value on Individual Rights
  • Outcome (Consequentialism)
  • Ethical if best outcome for the majority
  • Involves cost-benefit analysis
  • e.g. Bentham Mills Utilitarianism
  • "Of any two actions, the most ethical one is that
    which will produce the greatest balance of
    benefits over harms."
  • De-emphasizes individual rights

  • Strategic v. Real Ethics
  • What is the motivation/purpose for acting

  • Integrity from the Latin integritas, meaning
    wholeness, completeness, or purity. To
    courageously hold to what one believes is right
    and true, without compromise. To stand undivided,
    immovable, consistent in both heart and action,
    word and deed. Involves the maintenance of virtue
    and the pursuit of moral excellence. Integrity is
    demonstrated by not only espousing your values,
    but by living according to them. Integrity
    describes both who you are and what you do.
    People of integrity are conscientious,
    trustworthy, accountable, committed and
    consistent. A key to maintaining integrity is
    counting the cost before committing yourself.

  • Psychologists have found integrity to be
    essential to an individual's sense of identity
    and self-worth, enabling the successful
    navigation of change and challenge. Links between
    integrity and the ability to gain and maintain
    the trust of others have often been noted. Many
    purveyors of practical advice, including Cicero
    and Benjamin Franklin, have counseled that
    integrity is the cornerstone of worldly success.
    According to Franklin, "no Qualities are so
    likely to make a poor Man's Fortune as those of
    Probity Integrity" (quoted in Beebe, 1992, p.
    8) - from Blackwells Encyclopedic Dictionary of
    Business Ethics.

  • In Living a Life That Matters Rabbi Harold
    Kushner describes the kind of people who are able
    to overcome the negativity in their lives as
    shalem, people who are whole, united within
    themselves, their internal conflicts ended.
    Because of this, he says, they are persons of
    integrity. Integrity, says Kushner, is a quality
    just as essential to human well-being as is the
    pursuit of peace and justice.

  • The Bible/Talmud says that
  • The man of integrity walks securely, but he who
    takes crooked paths will be found out. (Prov.
  • The integrity of the upright guides them, but the
    unfaithful are destroyed by their duplicity.
    (Prov. 113)
  • Integrity brings peace (i.e. a clear conscience)
    and marks the perfect man (Hebrew Word Tam Man
    of Integrity) (Ps. 3737, 1 Kings 94)
  • The just man walketh in his integrity his
    children are blessed after him. (Prov. 207)
  • A good name is better than precious ointment.
    (Ecc. 71)

  • Some Biblical Examples of Integrity
  • Joseph, Gen. 391-12
  • Jacob/Israel (Gen 3229) known as a simple man
    (tam, Gen 2527) that is to say, that his mouth
    was like his heart.
  • Job (Book of Job, see in particular description
    of Job at 23, 275)
  • Daniel, Shadrach, Meshach Abednego (Daniel
    Chapters 3 6)
  • David (Ps. 78)
  • Solomon (1 Kings. 94)
  • Contrast Ananias Sapphira, Acts 51-11 and
    Acts 2016-36

  • Consistency - the absence of contradictions - has
    sometimes been called the hallmark of ethics. -
    Markkula Center for Applied Ethics

  • Plato once said I would rather that the whole
    world should be at odds with me, and oppose me,
    than that I myself should be at odds with myself
    and contradict myself.

  • "In matters of style, swim with the current in
    matters of principle, stand like a rock. -
    Thomas Jefferson

Integrity - Example
  • Cleveland Stroud had coached the Blue Collar
    Bulldogs for 18 years before his basketball team
    made it to the championship. Stroud recalls that
    it was a perfect night when they won. A night
    you dream of. He was carried around the gym on
    the shoulders of his triumphant players and their
    proud parents. But the excitement was short
    lived. Two months after the championship, during
    a routine grade check, Stroud discovered that one
    player was academically ineligible. The player in
    question had only played 45 seconds in the
    regional qualifying tournament. Stroud says, I
    thought it was all ruined. I went through a phase
    where I was really depressed. He struggled with
    what to do next. Yet, his commitment to integrity
    led him to the right decision. Winning is the
    most important thing for any coach, he said.
    But your principals have to be higher that your
    goals. He reported the error to the league and
    the Bulldogs forfeited their trophy. When the
    team lamented their loss in the locker room, he
    told them, Youve got to do what is honest, what
    is right, and what the rules say. People forget
    the scores of basketball games, but they dont
    ever forget what your made of.

  • Kenneth Blanchard, the co-author of The Power of
    Ethical Management, puts it There is no right
    way to do a wrong thing. Blanchard says that if
    you have to cheat to win you should think twice
    about the business youre in.

  • The most important persuasion tool you have in
    your entire arsenal is integrity. - Sales Guru
    Zig Ziglar

  • According to Michael Useem, Director of the
    Center for Leadership and Change Management,
    Warren Buffett's influence derives from his
    moral stature and integrity. In the aftermath of
    scandals that have rocked U.S. companies in the
    past few years, it is difficult to overemphasize
    the importance of ethics as a factor in
    leadership. -Leadership and Change Becoming
    the Best What You Can Learn from the 25 Most
    Influential Leaders of Our Times , Knowledge _at_
    Wharton Newsletter, Jan.28-Feb.4, 2004

  • Character The notable/conspicuous/
    distinguishing moral/ethical traits or
    characteristics of a person that give evidence of
    their essential nature and which ultimately shape
    their reputation.

  • Our an omen of our destiny, and
    the more integrity we have and keep, the simpler
    and nobler that destiny is likely to be. - George
    Santayana (1863 - 1952), "The German Mind A
    Philosophical Diagnosis"

  • President Harry Truman used to say "Fame is a
    vapor, popularity an accident, riches take wings,
    those who cheer today may curse tomorrow, only
    one thing endures -- character.

  • Evangelist Charles Spurgeon wrote, "A good
    character is the best tombstone. Those who loved
    you, and were helped by you, will remember you
    when forget-me-nots are withered. Carve your name
    on hearts, and not on marble.

  • "What you are stands over you... and thunders so
    that I cannot hear what you say to the contrary.
    - Ralph Waldo Emerson

  • "Character is destiny." - Heraclitus, Greek
  • "Within the character of the citizen lies the
    welfare of the nation" - Cicero, Roman

  • In his book The Death of Character, James Hunter,
    a noted sociologist from the University of
    Virginia, concludes that while Americans are
    innately as capable of developing character as
    they ever were in the past, there are now few
    cultural or institutional guidelines in our
    society that call for its cultivation or
    maintenance. The reason, he suggests, is because
    there is no consensus of moral authority.
  • Do you agree with this?

  • Compartmentalization Many people believe that
    what individuals do in their private lives is
    their own business as long as it does not
    adversely impact the performance of their duties
    to the organization and they are able to deliver
    the goods professionally. Under this way of
    thinking even serious moral failures may be
    excused. Some refer to this kind of thinking as
    compartmentalization. (e.g. Bill Clinton/Monica
    Lewinsky situation)
  • Do you agree with this?

  • Character vs. Reputation It has been said that
    an individuals character can be illustrated by a
    barrel of apples. The apples seen on top by all
    represent ones reputation, and the apples that
    lie hidden underneath are his character.

  • Eli Lily introduced a drug, fialuridine, intended
    to treat hepatitis B. However, 15 patients who
    submitted to trials of the drug suffered liver
    toxicity and 6 died. Rather than follow the
    companys long-standing no comment policy, the
    new Chairman and CEO, Randall Tobias openly
    acknowledged the failure. His view was that
    communication stands at the top of the list in
    the elements of good leadership. In addition, he
    believed that if a company leaves a
    communications void, others will fill it with
    misinformation. (Put the Moose on the
    TableLessons in Leadership from a CEOs Journey
    Through Business and Life, Randall and Todd
    Tobias, Indiana University Press)

  • A railroad executive burst into Arthur Andersens
    office one day in 1914, demanding that the firms
    founder approve the railroads books. Accountants
    had discovered that the railroad was inflating
    its profits by failing to properly record
    expenses. Andersen refused, saying that there
    wasnt enough money in the city of Chicago to
    make him approve the fraudulent accounting.
    Andersens independence cost him the client, but
    it gained him something far more valuable, a
    reputation for integrity that gave investors
    confidence in Arthur Andersen audits, a
    reputation that helped the firm become one of the
    top 5 accounting firms in the U.S. After nearly
    90 years in business, Andersen imploded in 2002
    after acknowledging that its auditors had
    shredded documents relating to its audits of

  • Warren Buffett, CEO of Berkshire Hathaway, warns
    his executives once a year not to do anything
    that year they would be ashamed to read about in
    their local newspaper. You can lose a reputation
    that took 37 years to build in 37 seconds. And it
    might take more than 37 years to build it back.

  • The purest treasure mortal times can afford is a
    spotless reputation - William Shakespeare

  • VirtueThe quality of doing what is right and
    avoiding what is wrong.
  • "Virtue develops from a habitual commitment to
    pursue the good. - Ronald F. Thiemann, a
    professor of religion and society at Harvard
    Divinity School
  • Wisdom is know what to do next virtue is doing
    it. - David Starr Jordan (1851 - 1931), American

3 Theories of Social Responsibility
  • Classical Theory
  • Stakeholder Theory
  • Corporate Social Responsibility Theory (CSR)

Classical Theory
  • Definition The role of business is to maximize
    profits within the law (see Milton Friedman, "The
    Social Responsibility of Business Is to Increase
    Its Profits.", New York Times Magazine, 1970)

Classical Theory
  • Put another way, by Harvard Professor Theodore
    Levitt, In the end business has only two
    responsibilities - to obey the elementary canons
    of face-to-face civility (honesty, good faith,
    and so on) and to seek material gain. - The
    Dangers of Social Responsibility, Harvard
    Business Review 36 (Sept.-Oct., 1958)

Classical Theory
  • Serve the interests of the shareholders
  • Social obligations limited to ordinary moral
  • Views obligations to non-shareholders as a
  • Trusts in Adam Smiths Invisible Hand (The
    Wealth of Nations) - The assumption that society
    benefits most when individuals are allowed to
    define and pursue their own self-interests, with
    minimal interference from governments or other

Classical Theory - Contra
  • Problems with Market Failures (e.g. Pacific
    Lumber a successful, balanced enterprise ruined
    by a corporate takeover)

Classical Theory - Contra
  • When the 1990s Tech Stock Bubble burst it sent
    layoffs soaring, 401(k) assets tanking. According
    to the Center on Budget and Policy Priorities,
    between 1997 and 1999 the bottom 20 of earners
    saw their income decline, while the richest 1
    saw their income more than double. The invisible
    hand is a bit partial in the way it dispenses
    favors. (Marjorie Kelly, The Divine Right of

Classical Theory -Contra
  • In fact, the purpose of a business firm is not
    simply to make a profit, but is to be found in
    its very existence as a community of persons who
    in various ways are endeavoring to satisfy their
    basic needs, and who form a particular group at
    the service of the whole of society. Profit is a
    regulator of the life of a business, but it is
    not the only one other human and moral factors
    must also be considered which, in the long term,
    are at least equally important for the life of a
    business. - Pope John Paul, Centesimus annus,
    May 1, 1991

Stakeholder Theory
  • Definition The primary consideration in business
    decision-making is preserving/promoting the
    rights of stakeholders
  • Takes into consideration the moral principle of
    mutual respect.

Stakeholder Theory
  • Goal to maintain the benefits of the free market
    while minimizing the potential ethical problems
    created by capitalism (Phillips, Wharton School)
  • Primary difference from Classical Theory
    elevation of nonshareholding interests to the
    level of shareholder interests in formulating
    business strategy and policy.

Stakeholder Theory
  • Stakeholder an individual or group, inside or
    outside the organization, who has a meaningful
    stake in its performance.
  • Who are the stakeholders of a business?
  • Narrow view vs. Wide View

Stakeholder Theory
  • Some Possible Stakeholders of a Business
  • Customers
  • Department/Employees
  • Owners/Shareholders
  • Creditors
  • Suppliers
  • Distributors
  • Competitors

Stakeholder Theory
  • Some Additional Possible Stakeholders
  • Local Community
  • National Citizens
  • Global Inhabitants
  • Non-Human Life
  • the Environment

Stakeholder Theory
  • Corporate citizenship the extent to which a
    business meets its responsibilities, to its
    various stakeholders, or to society at large.

Stakeholder Theory
  • Problems with wider view?
  • Discourages Investment - Undermines/Dilutes
    shareholder property rights
  • Interest Group Politics - Leads to waste and

Corporate Social Responsibility Theory
  • Definition A voluntary assumption of
    responsibilities, beyond the legal and economic,
    that take into account moral/ethical/socially
    desirable goals and outcomes.
  • Concept originated in the 1950s and began to
    gain a significant following in the 1960s.

Corporate Social Responsibility Theory
  • Possible Examples
  • Merck moved to develop Mectizan, a drug that
    would treat river blindness, a disease that
    primarily affected the poor. Merck knew that it
    would cost millions to develop and that they
    would most likely not realize a direct profit
    from the effort. But this resulted in a public
    relations windfall!

Corporate Social Responsibility Theory
  • Mercks project was followed by
  • Pfizer initiated a project to eliminate the eye
    disease trachoma.

Corporate Social Responsibility Theory
  • SmithKline Beecham (Now Glaxo SmithKline)
    developed a drug to eliminate lymphatic
  • GlaxoSmithKline has also announced that it
    intends to launch a new drug to tackle a virulent
    form of Malaria in sub-Saharan Africa. The
    company announced that Lapdap will be made
    available at a cost of 0.29 per adult and half
    that amount for children, and will treat
    plasmodium falciparum malaria, the most
    life-threatening malaria parasite, which kills
    between one and two million people every year.

Corporate Social Responsibility Theory
  • Proctor Gamble developed a special nutrient
    product to address malnutrition.

Corporate Social Responsibility Theory
  • BP gave solar powered refrigerators to doctors
    in Zambia to store malaria vaccines.

Corporate Social Responsibility Theory
  • UPS was a key actor in delivering humanitarian
    aid to Kosovo.

Corporate Social Responsibility Theory
  • Intel provides education in science math in
    countries where it has plants.

Corporate Social Responsibility Theory
  • Citigroup has provided significant funds to
    microcredit ventures.

Corporate Social Responsibility Theory
  • Also manifest in Philanthropy/Charitable
    endeavors (e.g. McDonalds Ronald McDonald
    Houses, Mark Kays program to combat breast
    cancer, Becton Dickinson Co./UNICEF partnership
    to conquer neo-natal tetanus and the Bill Gates
    Foundation war on Tuberculosis, and Gulf Powers
    support of a wildlife sanctuary)

Corporate Social Responsibility Theory
  • Progressive benefits for employees (e.g.Xeroxs
    and Eastman Kodaks programs to encourage
    employee participate in community service
    projects and SAS Institutes in house child care,
  • Public education (e.g. Norwich Union Insurance of
    Irelands free first-aid courses)

Corporate Social Responsibility Theory
  • Man ought to regard himself, not as something
    separated and detached, but as a citizen of the
    world, a member of the vast commonwealth of
    nature to the interest of this great community,
    he ought at all times to be willing that his own
    little interest should be sacrificed. - Adam

Corporate Social Responsibility Theory
  • But what is most important is that management
    realize that it must consider the impact of every
    business policy and business action upon society.
    It has to consider whether the action is likely
    to promote the public good, to advance the basic
    beliefs of our society, to contribute to its
    stability, strength, and harmony - Peter Drucker

Corporate Social Responsibility
  • Social Contract Theory Business does not exist
    in a vacuum. It involves a series of
    interdependent, intertwined, symbiotic
    relationships and coexists with many other
    institutions in society, including the family,
    the church, and the political, criminal justice,
    and educational systems. Each of these
    institutions contributes toward making capitalism
    possible The court system enforces contracts
    the political system provides monetary stability
    and the educational system trains future
    employees and prepares them for the workforce.
    Therefore, the firm is obligated to "give
    something back" to those that make its success
    possible. Business exists only because society
    allows it and therefore it must satisfy the
    demands of society. This creates an implicit
    social contract (see Changing the Social
    Contract A Role for Business, by Melvin Anshen,
    Columbia Journal of World Business 5 (Nov.-Dec.

Corporate Social Responsibility Theory
  • There is also the legal maxim of Salus populi est
    superma lex - regard for the public welfare is
    the highest law - R.H. Kersley, Brooms Legal

Corporate Social Responsibility Theory
  • In the words of General Robert Wood Johnson,
    founder of Johnson and Johnson The day has
    passed when business was a private matter, if it
    even really was. In a business society, every act
    of business has social consequences and may
    arouse public interest. Every time business
    hires, builds, sells or buys, it is acting for
    the people as well as for itself, and it must be
    prepared to accept full responsibility

Corporate Social Responsibility Theory
  • Sol M. Linowitz, Chairman of the Board of Xerox
    declared To realize its full promise in the
    world of tomorrow, American business and
    industry... will have to make social goals as
    central to its decisions as economic goals and
    leadership in our corporations will increasingly
    recognize this responsibility and accept it. -
    Quoted in Bernard D. Nossiters The Mythmakers
    An Essay on Power and Wealth, 1964, p.100.

Corporate Social Responsibility Theory
  • Intentionality acknowledges that investors have
    a right to a "reasonable return" but adds new
    corporate responsibilities, such as to "create
    new wealth" and "new jobs," guarantee "upward
    mobility, fairly reward "hard work and talent,"
    promote "progress in the arts and useful
    sciences" and "diversify the interests of the
    public. (Michael Novak, AEI)

Corporate Social Responsibility Theory
  • Intentionality also adds "external
    responsibilities" including promoting "community"
    and "dignity," and "protecting the moral ecology
    of freedom," all of which are crucial to the
    health of civil society. Business is a moral
    calling as opposed to being merely a profession.

Corporate Social Responsibility Theory
  • Problems with Intentionality?
  • Considered admirable in concept but problematic
    in practice.
  • Character demonstrated by actions, not by
    intentions, is the arguably a more reliable
    measure of corporate ethics (Jennings/Entine)

Corporate Social Responsibility Theory
  • Problems with CSR in general?
  • Dilutes the Business Purpose
  • Viewed as fundamentally antagonistic to the
    Capitalist Enterprise
  • Often influenced by simplistic political and
    social agendas

Corporate Social Responsibility Theory
  • The search for guilt-free affluence has helped to
    transform "green" business into a mass-market
  • Patagonia, a designer and distributor of outdoor
    clothing and gear, has long prided itself on
    being green. For nearly two decades, it has given
    10 of pre-tax profits or 1 of sales, whichever
    is larger, to environmental causes.

Corporate Social Responsibility Theory
  • Rain Forest Chic - Socially responsible image
    as a marketing tool, source of free, positive
    publicity (e.g. The Body Shop, both customers and
    franchisees attracted by progressive reputation)

Corporate Social Responsibility Theory
  • Anita Roddick/Body Shop
  • Supports various social causes (e.g.-Save the
  • But may have stolen store concept and unfairly
    deals with franchisees?

Corporate Social Responsibility Theory
  • Ben Jerrys -
  • Fight global warming with Ice Cream
  • Annual one world one heart festival
  • Pint for a pint with International Red Cross
  • Rainforest Crunch Fiasco/Mistreatment of
    Employees/Sale to Unilever (4/12/2000)

3 Theories of Social Responsibility
  • If you were trying to decide which type of
    company to invest in, which would you choose and
    why? (Classical, Stakeholder, CSR)

Is Ethical Behavior Good for Business?
  • "The successful entrepreneur must know how to
    glide over every moral restraint with almost
    childlike regard...and have, besides other
    positive qualities, no scruples whatsoever, and
    be ready to kill off thousands of victims --
    without a murmur. - John D. Rockefeller.

Is Ethical Behavior Good for Business?
  • Some Costs of Ethical Misconduct
  • Public/Interest Group/NGO disgrace/scandal/ostraci
  • Litigation/Prosecution
  • Decreased Employee Morale/Loyalty/Commitment/Perfo
  • Loss of Business/Profits
  • Loss of Customer/Supplier/Partner,

Is Ethical Behavior Good for Business?
  • Some Additional Costs of Ethical Misconduct
  • Loss of Social/Reputation Capital/Goodwill (i.e.
    the willingness of stakeholders to overlook
  • Shaken public confidence in company and in
    capital markets
  • Layoffs
  • Loss of Investments/Pensions
  • Increased Government Scrutiny/Regulation
  • Environmental/Health Damage

Is Ethical Behavior Good for Business?
  • Impact on the Bottom Line
  • Ethical Behavior Enhances profitability - Most
    academic studies support the conclusion that
    ethical behavior and profitability go hand in hand

Is Ethical Behavior Good for Business?
  • A 1999 DePaul University study of 300 large firms
    found that companies that make an explicit
    commitment to follow an ethics code provided more
    than twice the value to shareholders than
    companies that didn't. And it gets better
    According to Management Review, published by the
    American Management Association, "For the 47
    companies expressing a more extensive or more
    explicit commitment to ethics, the market value
    added difference was larger--an average of 10.6
    billion, or almost three times the MVA of
    companies" without similar commitments.

Is Ethical Behavior Good for Business?
  • Two professors at the Harvard Business School
    did a study of 207 major companies over an
    11-year period. They used all sorts of measuring
    devices and came up with a ranking by corporate
    cultures. What they measured were things that are
    sometimes called the soft side of
    business-morale, rewards for creativity, emphasis
    on ethics, how well managers listen to their
    employees, and so on. In my business we call them
    more or less spirited workplaces. We could also
    call them companies with a high or low level of
    integrity. They then put these companies up
    against the hard side, the bottom line, on three
    measures 1 gains in operating earnings, 2
    return on investment, and 3 increase in stock
    prices. Terry Deal, who coined the term corporate
    culture, took a second look at those numbers, ran
    the same numbers again, and came up with an
    analysis of the top 20 companies vs. the bottom
    20. Here's what he found. The top 20--the
    companies with integrity--the spirited
    workplaces--averaged 571 higher earnings than
    the dispirited workplaces. The top 20 averaged a
    417 higher return on investment. The top 20
    enjoyed an increase in stock prices of 363 in
    the same period. One of American's most
    successful CEO's was right when he said, "the
    soft side is the hard side. - Restoring
    Integrity To Business , By Thompson, William
    David, Vital Speeches of the Day, 0042742X,
    10/15/2002, Vol. 69, Issue 1.

Is Ethical Behavior Good for Business?
  • An investment of 1,000 ten years ago in each of
    ten companies highly regarded for ethical
    behavior (G.E., Coca-Cola, Hewlett-Packard,
    Microsoft, Intel, Southwest Airlines, Berkshire
    Hathaway, Disney, Johnson Johnson, and Merck)
    would have resulted in a return nearly three
    times as much as an investment of 10,000 in the
    Standard Poors 500 stock index. (Fortune)

Is Ethical Behavior Good for Business?
  • An exception In response to numerous lawsuits,
    gun manufacturer, Smith Wesson's former CEO Ed
    Shultz decided to start including locks on its
    handguns in March 2000. Although the decision was
    clearly ethical, customers especially the NRA)
    were unhappy with the change. Sales declined,
    employees were laid off, and Shultz resigned. In
    this case, the ethical decision did not have a
    positive financial impact on the firm.
    Nonetheless, despite jobs lost, lives may have
    been saved by the change in product design.

Is Ethical Behavior Good for Business?
  • Reputation Management
  • A reputation for integrity enhances customer
    loyalty (e.g. Johnson Johnson Tylenol Case)
  • Conversely, damage to a company's reputation can
    mean a sharp and often irreversible loss of
    market share.

Is Ethical Behavior Good for Business?
  • Social Capital
  • Experts say most people forgive mistakes made by
    leaders who have both conviction and a good
    heart. - Del Jones, Leadership lessons from the
    Reagan years, USA Today, June 11, 2004, p.6B.

Is Ethical Behavior Good for Business?
  • Decreases Costs - Though initiating and ethics
    program sometimes involves significant up front
    costs, it generally helps to avoid other larger
    costs later.

Is Ethical Behavior Good for Business?
  • Encourages Investment - A Conference Board of
    Canada poll revealed that 77 of Canadians are
    most likely to invest in, 81 to purchase from,
    and 79 to work for companies they view as
    socially responsible.

Causes of Failures in Business Ethics
  • Decreased Authority of Moral Standards
  • Empty Gestures/Insincerity
  • Situational Ethics/Moral Relativism/Expansion of
    Cultural Diversity
  • Rapid Expansion and Decentralization of Control
  • Company/Personal Immaturity
  • Parties Perceived as Enemies or Not Worthy of
    Ethical Treatment/Moral Exclusion (e.g. Lying to
    the IRS, cancer causing pajamas and other
    defective products dumped on 3rd world markets,
  • Nar
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