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Chapter Four

Ethical and



Chipotle Mexican Grill


• Chipotle is dedicated to producing quality food
which has led to current annual sales over $1
• Ells’ mission is to serve
“Food With Integrity.”
• Chipotle is the leading
restaurant buyer of
humanely raised meats.



Ethics is More
Than Legality



• Scandals have shaken the real
estate, mortgage and banking
• How do we restore trust in the
free market system?


Punish those who have broken the
Make accounting records more
Consider what is ethical, not just
what is legal.

* WHAT are ETHICS? Ethical Standards are Fundamental * LG1 • Ethics -. Behaviors that are accepted by society as right versus wrong.The standards of moral behavior. 4-4 .

* BASIC MORAL VALUES Ethical Standards are Fundamental * LG1 Right: • Integrity • Respect for human life • Self control Wrong: • Cheating • Cowardice • Cruelty • Honesty • Courage • Self-sacrifice 4-5 .

• Tyco International: Two executives stole $600 million from the company and are scheduled to be released from prison in 2030. • Adelphia Communication: Two executives were convicted of conspiracy. • WorldCom: Former CEO was convicted of fraud. • Arthur Andersen: Convicted of tampering with witnesses.* PAYING the PRICE (Legal Briefcase) • Enron: One executive is serving a 24 year sentence for accounting fraud while another will be released in October 2011. 4-6 * . bank and securities fraud and given sentences of 15 and 20 years. the company was dissolved and about 28. conspiracy and false filings and sentenced to 25 years.000 people lost their jobs.

* ETHICS and YOU Ethics Begins with Each of Us * LG2 • Plagiarizing from Internet materials is the most common form of cheating in schools today. 4-7 . • Studies found a strong relationship between academic dishonesty and dishonesty at work.

Is it legal? .Is it balanced? .How will it make me feel about myself? 4-8 .* FACING ETHICAL DILEMMAS Ethics Begins with Each of Us * LG2 • Ask yourself these questions: .

• Who do you think should be accountable for the copyright violations -. • Viacom sued YouTube for $1 billion for allowing episodes of its popular shows on the site. people upload 10 hours of video to YouTube – not all is user-generated content.* To TUBE or NOT to TUBE (Making Ethical Decisions) * • Every minute.the website or those who uploaded the videos? 4-9 . rather than the individuals who uploaded it. • Viacom holds YouTube responsible for carrying the illegal content.

* PROGRESS ASSESSMENT Progress Assessment * • What are ethics? • How do ethics differ from legality? • When faced with ethical dilemmas. what questions can you ask yourself that might help you make ethical decisions? 4-10 .

4-11 . openness and moral integrity. honesty. • Leadership can help instill corporate values in employees.* ETHICS START at the TOP Managing Businesses Ethically and Responsibly LG3 * • Trust between workers and managers must be based on fairness.

FACTORS INFLUENCING MANAGERIAL ETHICS Individual • • • • Values Work Background Family Status Personality Organizational • Top Level Management Philosophy • Firm’s Reward System • Job Dimensions * Managing Businesses Ethically and Responsibly LG3 * Environmental • Competition • Economic Conditions • Social/Cultural Institutions 4-12 .

4-13 . • Compliance-Based Ethics Code -. • Integrity-Based Ethics Code -.Define the organization’s guiding values. create an environment that supports ethically sound behavior and stress a shared accountability among employees.Emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers.ETHICS CODES * Setting Corporate Ethical Standards LG4 * • An increasing number of companies have adopted written codes of ethics.

Managers and others must be trained to consider the ethical implications of all business decisions. 3. (continued) 4-14 . Employees must understand that senior management expects all employees to act ethically. Top management must adopt and unconditionally support an explicit corporate code of conduct.HOW to IMPROVE AMERICA’S BUSINESS ETHICS * Setting Corporate Ethical Standards LG4 * 1. 2.

Involve outsiders such as suppliers. distributors and customers.HOW to IMPROVE AMERICA’S BUSINESS ETHICS * Setting Corporate Ethical Standards LG4 * 4. 4-15 . 5. subcontractors. Whistleblowers -. 6. An ethics office must be set up with which employees can communicate anonymously. The ethics code must be enforced.People who report illegal or unethical behavior.

2. Ethical responsibility must be taught to all employees. 3. Magnify Leadership & Development. (continued) 4-16 .HOW to PREVENT UNETHICAL BEHAVIORS * Setting Corporate Ethical Standards LG4 * 1. Organizations must have a code of ethics. Source: James Gehrke. Managers must communicate the organization’s vision on ethical behavior. 4. Policies have to be enforced regarding ethical offences. November 2008.

6. 7. 8. November 2008. Discussions of ethics must be included in the decision-making process. Organizations must act fast when a crisis occurs. 4-17 . Employees must know they have to defend and maintain the company’s reputation. Accountability must be taken seriously at all levels in the organization.HOW to PREVENT UNETHICAL BEHAVIORS * Setting Corporate Ethical Standards LG4 * 5. Magnify Leadership & Development. Source: James Gehrke.

* PROGRESS ASSESSMENT Progress Assessment * • What are compliance-based and integrity-based ethics codes? • What are the six steps to follow in establishing an effective ethics program in a business? 4-18 .

fairness. • CSR proponents argue that businesses owe their existence to the societies they serve and cannot exist in societies that fail.The concern businesses have for the welfare of society. • CSR is based on a commitment to integrity.CORPORATE SOCIAL RESPONSIBILITY *Corporate Social Responsibility LG5 * • Corporate Social Responsibility (CSR) -. and respect. 4-19 .

• Corporate Social Initiatives -.CORPORATE PHILANTHROPY and SOCIAL INITIATIVES *Corporate Social Responsibility * LG5 • Corporate Philanthropy -. 4-20 .Includes enhanced forms of corporate philanthropy.Includes charitable donations.

using energy wisely.CORPORATE RESPONSIBILITY and POLICY *Corporate Social Responsibility * LG5 • Corporate Responsibility -. and providing a safe work environment.The position a firm takes on social and political issues. minimizing pollution. 4-21 .Includes everything from hiring minority workers to making safe products. • Corporate Policy -.

4-22 . • Two-thirds of MBA students surveyed reported they would take a lower salary to work for a socially responsible company.POSTIVE IMPACTS of COMPANIES *Corporate Social Responsibility LG5 * • Xerox offers a Social Service Leave program. • Citizen Corps encourages volunteers to help strengthen homeland security by helping in their community.

www. 2008.wsj. 4-23 . June WHOM MUCH HAS BEEN GIVEN… America’s Charitable Giving * Corporate Social Responsibility LG5 * Source: Wall Street Journal.

parade. 2008. 4-24 .4 Million Michael Jordan $5 Million Eric Lindros $5 Million Lance Armstrong $5 Million * *Donations made in 2007 Source: Parade Magazine.2 Million Herb Alpert $13 Million Barbara Streisand $11 Million Paul Newman $10 Million Mel Gibson $9.* Corporate HELPING HANDS Most Generous Celebrities* Social Responsibility LG5 Who? How Much? Oprah Winfrey $50. September 14.9 Million Angelina Jolie & Brad Pitt $8.

2% 4.1% 2. New York – 5% Source: Conde Nast Portfolio. Washington – 5% 5. California – 12. 4-25 . January 2008. GIVES? Five States Contribute More Than a Third of the Nation’s Donations * Corporate Social Responsibility LG5 * 1. Pennsylvania – 5.9% 3. New Jersey – 8.* Corporate GENEROUS AMERICANS Americans Donated $295. 4-26 .000. May 2008. www.000 in 2006 Social Responsibility LG5 * Source: Fast Company.

PRESIDENT KENNEDY’S BASIC RIGHTS of CONSUMERS * Responsibility to Customers LG5 * • The Right to Safety • The Right to be Informed • The Right to Choose • The Right to be Heard 4-27 .

Insiders using private company information to further their own fortunes or those of their family and friends.* INSIDER TRADING Responsibility to Investors LG5 * • Insider Trading -. 4-28 . • Unethical behavior does financial damage to a company and investors are cheated.

• Offer salaries and benefits that help employees reach their personal goals. 4-29 .RESPONSIBILITY to EMPLOYEES * Responsibility to Employees * LG5 • Create jobs and provide a chance for upward mobility. • Treat employees with respect.

3. 12. 8. 9. Morgan Chase Source: Fortune. 7. www. 13. 16. 2009. 17. 10. * Responsibility to Employees LG5 * Wal-Mart Coca-Cola Walt Disney Wells Fargo Goldman Sachs McDonald’s IBM 3M Target J. 18.fortune.P. 14. 6. 15. 20. 5. 4-30 .AMERICA’S MOST ADMIRED COMPANIES 1. 19. March. Apple Berkshire Hathaway Toyota Google Johnson & Johnson Proctor & Gamble FedEx Southwest Airlines General Electric Microsoft 11. 4.

SOCIETY and the ENVIRONMENT * Responsibility to Society and the Environment * LG5 • Over one-third of working Americans receive their salaries from nonprofits – who are dependent on funding from others. 4-31 . • The green movement emerged as concern about global warming increased. distribution. consumption and disposal. • Many companies are trying to minimize their carbon footprints – the amount of carbon released during an item’s production.

4-32 .S. jobs. as many as 40 million “Green” jobs will be created. • By 2030.5 million U. • The emerging renewable-energy and energyefficiency industries account for 8.* RESPONSIBILITY to the ENVIRONMENT Responsibility to Society and the Environment LG5 * • Environmental efforts may increase costs but can offer good opportunities.

* GREEN GREED (Thinking Green) * • With public concern over the environment. companies are finding greener ways of doing business. • Some companies are claiming they are more environmentally responsible than they actually are. • Web sites such as Greener Choices and Greenwashing Index screen ads for greenwashing. 4-33 . a practice called “greenwashing”.

A systematic evaluation of an organization’s progress toward implementing programs that are socially responsible and responsive. • Four Types of Social Audit Watchdogs - Socially conscious investors - Environmentalists - Union officials - Customers 4-34 .* SOCIAL AUDITING Social Auditing LG5 * • Social Audit -.

and how does it relate to each of a business’s major stakeholders? • What’s a social audit. and what kinds of activities does it monitor? 4-35 .* PROGRESS ASSESSMENT Progress Assessment * • What’s corporate social responsibility.

* INTERNATIONAL ETHICS International Ethics and Social Responsibility LG6 * • Many businesses want socially responsible behavior from their international suppliers. the Foreign Corrupt Practices Act criminalized the act of paying foreign businesses or government leaders in order to get business. 4-36 . • The Joint Initiative on Corporate Accountability and Workers’ Rights was designed to make creating a single set of labor standards and inspecting factories easier. • In the 1970s.

* GIVERS AROUND the WORLD Share of GDP International Ethics and Social Responsibility LG6 * Source: Forbes. March 4-37 . 2008. www.forbes.

The employee is trying to do the honorable thing for his family and the company is trying to keep the employee safe. * • A Motorola employee returns to his home country to work and the company reimburses living expenses so he can live in a safe area. • If the employee uses the money to help his family instead.S.ETHICAL CULTURE CLASH * (Reaching Beyond Our Borders) • Almost half of Motorola’s employees live outside the U. is it right for the company to stop payment? 4-38 .

businesses demanding socially responsible behavior from their international suppliers? • Why is it unlikely that there will be a single set of international rules governing multinational companies soon? 4-39 .* PROGRESS ASSESSMENT Progress Assessment * • How are U.S.