Chapter 2

ETHICS AND SOCIAL RESPONSIBILITY

Business Ethics
- Is the study of appropriate business policies and practices regarding potentially controversial
subjects including corporate governance, insider trading, bribery,
discrimination, corporate social responsibility, and fiduciary responsibilities.
- it can be denoted as written or unwritten codes of morals, values, and principles. That governs
actions and decisions in a company. In the business world, standards are set for determining
good and bad behavior and decision-making. Thus, business ethics leads to a more productive
workplace.
- Companies are supposed to set high standards and adhere to certain common business
practices.
The Need for Ethical Behavior
- Employees make better decisions in less time with business ethics as a guiding
principle; this increases productivity and overall employee morale. When employees
complete work in a way that is based on honesty and integrity, the whole organization
benefits.
- Basic principles of ethics can help us lead a more fulfilling life whether on a personal or
professional level. ... Ethics is a system of principles that helps us tell right from wrong,
good from bad. Ethics can give real and practical guidance to our lives.

Areas of Concern for Business Ethics

 Ethics in business is knowing the difference between right and wrong and choosing to do
what is right.
 Ethics are a central concern for businesses, organizations, and individuals alike.
Behaving in a way that adds value without inappropriate conduct or negative
consequences for any other group or individual, organizational leaders in particular must
be completely aware of the consequences of certain decisions and organizational
trajectories, and ensure alignment with societal interests.
 Harassment and discrimination are arguably the largest ethical issues that impact
business owners today. Should harassment or discrimination take place in the
workplace, the result could be catastrophic for any organization.
 Every business needs to be aware of the anti-discrimination laws and regulations that
exist to protect employees from unjust treatment.

Current Issues in Ethics

  Ethical issues in business encompass a wide array of areas within an organization’s
ethical standards. Fundamental ethical issues in business include promoting conduct
based on integrity and trust, but more complex issues include accommodating diversity,
empathetic decision-making, and compliance and governance that is consistent with the
organization’s core values.
 Some issues that come up in a discussion of ethics include corporate governance,
insider trading, bribery, discrimination, social responsibility, and fiduciary responsibilities.
 The law usually sets the tone for business ethics, providing a basic guideline that
businesses can choose to follow to gain public approval.

COVERAGE OF COMPANY SPONSORED ETHICS PROGRAM

IMPROVEMENT OF ETHICAL PERFORMANCE

- ETHICS TRAINING they not only help promote awareness to the ethical practices in the
company, but ethics training programs boosts morale so that employees work more
effectively and harmoniously with their co-workers. Being ethically aware helps to
maintain a positive corporate culture and upholds a strong public image
- ETHICAL ADVOCATES an ethical advocate is someone who stands up for what they
believe is right in terms of human nature. Ethos is defined to an appeal to ethics and “the
means of convincing someone of the character or credibility of the persuader
- ETHICAL CODES A code of ethics is a guide of principles designed to help
professionals conduct business honestly and with integrity. ... A code of ethics also
referred to as an "ethical code," may encompass areas such as business ethics,
a code of professional practice and an employee code of conduct.
- WHISTLE-BLOWING- is the act of drawing public attention, or the attention of an
authority figure, to perceived wrongdoing, misconduct, unethical activity within public,
private or third-sector organizations.

WHAT IS SOCIAL RESPONSIBILITY?

 Social responsibility means that businesses, in addition to maximizing shareholder

value, should act in a manner that benefits society.
 Critics assert that being socially responsible is the opposite of why businesses exist.
 Socially responsible companies should adopt policies that promote the well-being of
society and the environment while lessening negative impacts on them.
 Companies can act responsibly in many ways, such as promoting volunteering, making
changes that benefit the environment, and engaging in charitable giving.

INTERESTED GROUP

- a group of people that seeks to influence public policy on the basis of a particular
common interest or concern.
- interest groups share a desire to affect government policy to benefit themselves or their
causes. Their goal could be a policy that exclusively benefits group members or one
segment of society (e.g., government subsidies for farmers) or a policy that advances a
broader public purpose (e.g., improving air quality).
OWNERS

- A business owner is the legal proprietor of a business. An individual or group that owns
the assets of a firm and profits from them.
- The owner has the ultimate control on its company and therefore decides whether to
delegate or not certain key executive functions on qualified professionals. The business
owner has the right to take the net profit obtained at the end of every fiscal year or
reinvest it in the company.
- One of the common conflicts between stockholders and the managers of a business
include the following: The more money that managers make in wages and benefits, the
less stockholders see in bottom-line net income.

CONSUMERS
- In a value chain, consumers play a very important role in driving the sales of a business.
They are the ones that directly or indirectly affect the profit margin of the company.
- Basic consumer rights ensure a level of protection for consumers. Consumer protection
makes markets work for both businesses and consumers.

EMPLOYEES
- The employees are the true assets of an organization. They are the ones who contribute
effectively towards the successful functioning of an organization. They strive hard to
deliver their level best and achieve the assigned targets within the stipulated time frame.
- The unstated role of employees in an organization is that they represent your business
and brand.
- One of the key features of running any successful business is not only focusing on
the customer's needs but ensuring your employees are well taken care of. Employers
have some legal and ethical responsibilities to the employees when it comes to pay,
benefits, and working conditions
FIGURE 7. THE BUSINESS FIRM AND VARIOUS INTEREST GROUP – shows that there are
8 common type of interest groups that is formed around “businesses”. Most of these groups
claim to work not for self-interest but for the best interest of the public.
MINORITY GROUP

- Are also described as "a group of people who, because of their physical or cultural
characteristics, are singled out from the others in the society in which they live for
differential and unequal treatment, and who therefore regard themselves as objects of
collective discrimination".
- Management must promote equity that promotes and give equal opportunities to this
kind of defined group in the society.
WOMEN
- Represent huge economic power and offer important consumer insight. They excel at
the soft skills needed for business leadership.

OLDER PEOPLE
- A population that will create large market demand because they, as consumers, may
have different needs compared with other consumer age groups, and companies must
strive to create a product or brand to meet those needs. There is a need for research
related to how older adult consumers behave, make decisions, and choose a brand from
 those available in the market. Understanding the relationship between antecedents of
brand loyalty on older adult consumers’ loyalty may provide important knowledge for
both marketers and consumers

HANDICAPPED
- Group that have unique needs that often inspire innovation. As one of the consumers,
businesses should think of them as “extreme users”—people who use existing products
in an extreme way or people who need extreme products. One way to meet extreme
users’ needs is to design products and places to be usable by everyone without further
adaptation—a concept known as universal design

THE COMMUNITY AT LARGE

- In the advent of modern progress, communities are now interconnected with big
corporations and companies; although there are certain advantages such as
infrastructures and equipments for education, they also have to bear the brunt of
pollution, traffic, substandard products, and unfair business practices - to name a few.

BENEFITS AND COSTS OF SOCIAL ACTIONS

- Benefits- offering benefits to your employees is important because it shows them you
are invested in not only their overall health, but their future. A solid employee benefits
package can help to attract and retain talent. Benefits can help you differentiate your
business from competitors
IMPROVED EMPLOYEE SATISFACTION AND MOTIVATION

- Job satisfaction is an individual's emotional response to his or her current job condition,
while motivation is the driving force to pursue and satisfy one's needs. Managers can
help employees achieve overall job satisfaction, which, with the employee's internal
motivation drive, increase performance on the job.
BECOMING MORE AWARE OF CHANGING CONSUMER TASTE AND PREFERENCES

- As the modern consumer continues to evolve, companies can expect to see a continued
demand for healthier foods, affordable options and greater distribution capabilities.
Finding capital to invest in initiatives that address these challenges is critical to
companies’ success, and supply chain finance offers companies access to cash without
negatively affecting the balance sheet, both for buyers and suppliers.
GREATER DEMAND FOR THE COMPANY’S PRODUCT AND SERVICES

- Consumers’ power is consolidating with improving access to information, ever widening

choice of goods and services, and opportunities to share their experience more widely.
As a result, consumers have become more demanding and many are now more
skeptical about the ability of the big brands to keep their promise.
- While digital revolution has handed additional power to the consumer, including more
information and more choices, it has also increased the complexity of making decisions
for consumers. Consumers have found ways of dealing with this ‘tyranny of choice’ and
many now use tool such as social media or price comparison websites to inform their
decisions and exert their power.
PREFERENCE FOR SOCIALLY RESPONSIBLE COMPANIES BY INVESTORS
 - Investors are increasingly conscious of the social and environmental consequences of
the decisions that governments and companies make.
- Socially conscious investors make decisions by screening for positive and negative
issues, shareholder advocacy, and community investing and providing social venture
capital.
ELIMINATION OF LEGISLATIVE CONTROLS ON BUSINESS ACTIVITY

- Governments establish many regulations and policies that guide businesses. Some
rules, like minimum wage, are mandatory, while other policies may influence your
business indirectly. Businesses need to be flexible enough to respond to changing rules
and policies. This is true not only at the national level but more locally as well, as states
and municipalities have their own sets of rules. Indeed, there are also international
treaties that can influence the way companies do business.
COST

- Reducing expenditures that are largely fixed costs. In a market system, the criterion for
determining the value of cost reducing is profitability or revenues

MONEY SPENT IS SUPPORT OF SOCIAL PROJECTS

- Social funds are agencies, based in government, which provide finance for small-scale
projects, normally infrastructure schemes, proposed by local government or community
organizations.
- Costs are associated with activities, and since each activity has a start date and a
duration period, it is possible to calculate how much money will be spent by any
particular date during the project.
- The money needed to pay for a project is usually transferred to the project account
shortly before it is needed. These transfers must be timed so that the money is there to
pay for each activity without causing delay in the start of the projects.

REDUCTION OF COMPETITIVE POWER

- A company lowers their price when new competitors enter the market and raises it when
the competitor exits. Both companies test pricing strategies without creating an unfair
market advantage

GOVERNMENT REGULATIONS MAY ALSO BE IMPOSED

- Government regulations can protect consumers and help businesses thrive at the same
time, but they can also reduce efficiency and limit innovations.
- Regulations can increase the power of dominant and abusive firms if policymakers are
not careful when they create new rules.
- Views public policy simply as the laws and regulations with which business must comply.
- States that the primary responsibility of business organizations is pleasing the public
sector (the governments).
COMPARING COSTS AND BENEFITS
 - Businesses should use a systematic approach to estimating the strengths and
weaknesses of alternatives used to determine options which provide the best approach
to achieving benefits while preserving savings (for example, in transactions, activities,
and functional business requirements). CBA (cost-benefit analysis) may be used to
compare completed or potential courses of actions, or to estimate (or evaluate) the value
against the cost of a decision, project, or policy.
SOCIAL RESPONSIBILITY STATEGIES

- REACTION STRATEGY- An organization that assumes a reaction stance is one that

does not act socially responsible.
- DEFENSE STRATEGY- This refers to responding to social challenges only to defend a
current position.
- ACCOMMODATION STRATEGY - Corporations with this strategy adapt their behaviors
to comply with public policy and regulation and attempt to be responsive to what the
public expects.
- PROACTIVE STRATEGY - Organizations that take a proactive strategy are those that
believe in the notion of social responsiveness. They proactively try to improve the
welfare of society.
SOCIAL AUDITS

 A social audit is a formal review of a company's endeavors, procedures, and code of

conduct regarding social responsibility and the company's impact on society. 
 A social audit is an assessment of how well the company is achieving its goals or
benchmarks for social responsibility.
 Ideally, companies aim to strike a balance between profitability and social responsibility.

The scope of a social audit can vary and be wide-ranging. The assessment can include social
and public responsibility but also employee treatment. Some of the guidelines and topics that
comprise a social audit include the following:

 Environmental impact resulting from the company's operations

 Transparency in reporting any issues regarding the effect on the public or environment.
 Accounting and financial transparency
 Community development and financial contributions
 Charitable giving
 Volunteer activity of employees
 Energy use or impact on footprint
 Work environment including safety, free of harassment, and equal opportunity
 Worker pay and benefits
 Nondiscriminatory practices
 Diversity

There is no standard for the items included in a social audit. Social audits are optional, which
means that companies can choose whether to release the results publicly or only use them
internally.