Practicing Ethical Behavior and Social Responsibility Chapter 2

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Practicing Ethical Behavior and Social
ResponsibilityChapter 2
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• Two ImportantConcepts

Social Responsibility
Ethical Behavior
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Corporate Fraud

• The new millennium has ushered in a wave of
  fraud, investment scams, and ethical lapses
  unprecedented in scope. Worse yet, such
  corruption has cost thousands of employees their
  jobs, clipped investor stock portfolios by
  billions, and destroyed the faith of many in
  Corporate America and its underlying securities
  markets.
• Adelphia. For 50 years, John Rigas, the founder
  of the sixth largest U.S. cable company, lived
  the American Dream. But he and his two
  sonsTimothy and Michaelwere accused of
  committing one of the largest frauds ever
  perpetrated on investors and creditors.
• WorldCom. This long-distance telecom giant
  shocked investors when it revealed in 2002 that
  it had engaged in one of the biggest frauds in
  corporate history. The company admitted to
  overstating cash flow by 3.9 billion by
  reporting ordinary expenses as capital
  expenditures. The accounting fraud allowed
  WorldCom to post a 2001 profit of 1.4 billion
  instead of reporting a loss for that year.
• Ford and Firestone. Faulty Firestone tires on
  Ford Explorers are blamed for 271 deaths and more
  than 800 injuries worldwidenumbers that
  investigators said could've been much lower if
  both companies had reacted sooner to evidence of
  product failure. Firestone blamed the problem on
  Ford (and on Explorer drivers) Ford blamed the
  problem on Firestone. Firestone refused to recall
  the tires, then Ford stepped in and replaced the
  tires on nearly 50,000 vehicles in 16 counties
  outside the United Statesbut neither company
  bothered to inform U.S. authorities or customers
  until similar failures started to show up in this
  country.

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What Is Ethical Behavior?
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Unethical Behavior
Cheating on Expense Accounts
Misuse of Company Resources
Creative Accounting
Padding Invoices
Insider Trading
Conflicts of Interest
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Unethical Behavior

• Even legitimate companies can mislead investors
  by withholding vital information. For example
  Enron and WorldCom both showed that with a little
  creative accounting, a business that is in
  financial trouble can be made to look attractive,
  even to government regulators and astute
  investors.
• Some business executives take advantage of the
  investor by using the companys earnings or
  resources for personal gain. Perhaps the most
  common approach is to cheat on expense accounts.
• Padding invoices and then splitting the
  overcharge with the supplier is another common
  ploy.

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Unethical Behavior

• Other tactics include selling company secrets to
  competitors and using confidential, nonpublic
  information gained from ones position in a
  company to benefit from the purchase and sale of
  stocks. Such insider trading is illegal and is
  closely checked by the Securities and Exchange
  Commission (SEC).
• Another way that businesspeople can harm others
  is by getting involved in a conflict of interest
  situation. A conflict of interest exists when
  choosing a course of action will benefit one
  persons interests at the expense of another or
  when an individual chooses a course of action
  that advances his or her personal interests over
  those of the employer.

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Ethical Business Behavior
Organizational Behavior
Influential Factors
Knowledge
Cultural Differences
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Promoting Ethical Behavior

• Top executives
• Written code
• Ethics training
• Ethics officer
• Reporting system

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Making Ethical Decisions
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Ethical Situations
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Social Responsibility in Business
Early 20th Century
Middle 20th Century
Early 21st Century
Maximize Profits
Provide Jobs and Pay Taxes
Balance Profits and Social Issues
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Percentage of Executives Who Strongly Agree or
Agree That Companies Should
Percentage

• Be environmentally responsible
• Be ethical in operations
• Earn profits
• Employ local residents
• Pay taxes
• Encourage and support employee volunteering
• Contribute money and leadership to charities
• Be involved in economic development
• Be involved in public education
• Involve community representatives in business
  decisions
• Target a portion of purchasing toward local
  vendors
• Help improve quality of life for low-income
  populations

100 100 96 94 94 89 85 75 73 62 61 54
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Balancing Business and Stakeholders Rights
Business
Consumers
Employees
Investors
Society
Informed Purchase
Equity Health Safety
Profits Fair Disclosure
Clean Environment
Safe Products
Product Choice
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Efforts to Increase Social Responsibility
Social Audit
Philanthropy
Cause-Related Marketing
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Causes of Pollution
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Government Efforts to Reduce Pollution The
Environmental Protection Agency
Regulate Air and Water
Reduce Automobile Emissions
License Pesticides
Control Toxic Substances
Safeguard Drinking Water
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Business Effortsto Reduce Pollution
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Responsibility TowardConsumers
The Right to Safe Products
The Right to Be Informed
The Right to Choose
The Right to Be Heard
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Responsibility Toward Investors
Fair Profit Distribution
Ethical Behavior
Social Responsibility
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Responsibility TowardEmployees
Equal Employment Opportunity
Affirmative Action
Occupational Health and Safety
Americans with Disabilities Act
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Worldwide Ethics and Social Responsibility