Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

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Ethics, Corporate Responsi-

chapter
5
bility, and Sustainability
CHAPTER CONTENTS
Learning Objectives 116

Key Student Questions 116

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Class Roadmap 117

Key Terms Presented in This Chapter 125

Bottom Line 126

In Practice 126

Lecturettes 126

Discussion Questions 129

Experiential Exercises 134

Concluding Case 136

Examples 137

Supplemental Features 139

Chapter Video 139

Manager’s Hot Seat 139

Self-Assessment 139

Test Your Knowledge 139

Expanded PowerPoint Slide Show 140

LEARNING OBJECTIVES

1 Describe how different ethical perspectives guide decision mak-

ing.
2 Explain how companies influence their ethics environment.

3 Outline a process for making ethical decisions.

4 Summarize the important issues surrounding corporate social re-

sponsibility.

5 Discuss reasons for businesses’ growing interest in the natural

environment.
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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

6 Identify actions managers can take to manage with the environ-

ment in mind.

KEY STUDENT QUESTIONS

Students see ethics from both an “insider” and an “outsider” perspective. As “insiders”, students are
faced with ethical dilemmas at work, and they want to know how to resolve their ethical dilemmas. As
“outsiders”, students see the unethical actions taken by business leaders today, and they want to know
how to prevent such things from occurring. They also want to know what impact ethical/unethical actions
can have on corporations.


1. “What are the options you have when confronting ethical issues?”
1a. “What should you do when your manager/CEO is behaving
unethically?”
2. “Why is ethical decision-making important in the business environment?”
2a. “What impact do ethical/non-ethical decisions have on businesses?”

All of these questions are answered in the text, but you will want to reinforce the pragmatic, practical side
to textbook answers in your lecture. Some suggested responses are given below.

Question 1. When discussing the options people have when confronting ethical issues, let students know
that the more they understand their own values, the clearer the appropriate course of action will be. A
more simplistic (and perhaps more practical) approach to ethical decision making is to: 1) Evaluate the
situation from your perspective; 2) Evaluate the situation from the perspective of as many other people
involved in it as possible; and 3) Ask yourself if your mother (or the person you respect most in the
world) would be happy with what you are planning to do.

Question 1a. The reality of this dilemma is a power differential, and a possible lack of information.
Again, one thing to stress is that the situation might look different from different perspectives, and before
any action is taken, it is important to get complete information. So the first thing you have to do in this
situation is to talk with the manager and find out why he/she is doing something that looks unethical to
you. If you are still convinced that the manager is behaving unethically, it is up to you to make one of
four choices: 1) Live with it; 2) Confront the manager directly; 3) Confront the manager’s supervisor; or
4) Leave the situation. One important thing to convey to students about this situation is why they should
only go to the supervisor or the supervisor’s manager (in the case of the CEO, the Board of Directors) di-
rectly. It is critical to let students know that they can’t “end run” someone above them in the corporation.

For questions 2a and 2b, ask students to answer their own questions. Most of them will be able to name
organizations where a lapse in ethics led to a corporate downfall - consider, for instance, Tyco, Enron or
Worldcom!

CLASS ROADMAP
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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Management Connection
How Can Ginni Rometty Ensure that IBM Does Well while Doing Good?
As chief executive of IBM, Ginni Rometty works in the shadow of her widely admired predecessor, Sam Palmisano.
Palmisano refreshed IBM culture with a “values jam,” during which employees helped to define corporate values
and a mission to help clients and build relationships based on trust and personal responsibility. It was also under
Palmisano that IBM began using its “Smarter Planet” tagline, suggesting a concern for global development and re-
sponsibility, addressed with guidance from IBM’s talented consultants.

Today Rometty sees the Smarter Planet strategy as positioning IBM well for long-term growth. Early results under
Rometty’s leadership suggest that the company indeed is continuing to innovate profitably even as it helps care for
the needs of cities, the business community, and the planet. According to Palmisano’s and Rometty’s values, a busi-
ness can be both ethical and successful.

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

I. Introduction
A. It’s a big issue
• Ethics - the system of rules that governs the ordering
of values.

B. It’s a personal issue

E.G.
Use Example 5.1 – Business ethics
• Ethical Issue- situation, problem or opportunity in
here
which an individual must choose among several
actions that must be evaluated as morally right or
wrong.
• Buisness Ethics-comprise the moral principles and
standards that guide behavior in the business
world
II. Ethics
a. Ethical systems
LO 1: Describe how different
i. Moral philosophy refers to the principles, rules, ethical perspectives guide de-
and values people use in deciding what is right cision making
or wrong.
ii. Universalism is the ethical system upholding
certain values regardless of immediate result.
iii. The Caux Principles are global, universal, ethi-
cal principles of business, created by a group
of international executives. They are based on
principles of working together for the common
good and human dignity.
iv. Egoism is an ethical system defining acceptable
behavior as that which maximizes conse-
quences for the individual.
v. Utilitarianism directly seeks the greatest good
for the greatest number of people

E.G.
vi. Relativism bases ethical behavior on the opin-
ions and behaviors of relevant other people.
vii. Virtue ethics is a perspective that what is moral
must also come from what a mature person Use Example 5.2 – Egoism here
with “good” moral character would deem right.
viii. Kohlberg’s model of cognitive moral develop-
ment classifies people based on their level of
moral judgement

b. Business Ethics

i. Questions of ethics in business have been

prominent in the news in recent years.

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Insider trading, illegal campaign contribu- LO 2: Explain how compa-

tions, bribery, famous court cases and other nies influence the ethics envi-
scandals have created a perception that busi- ronment
ness leaders use illegal means to gain com-
petitive advantage, increase profits, or im-
prove their personal positions. Shareholders
tended to ignore fraudulent financial report-
ing, as long as profits and market share
didn’t suffer.
ii. Most business leaders believe they uphold
ethical standards in business practices, and
they deal with a wide range of ethical issues
every day. (Tables 5.2 and 5.3)

c. The Ethics Environment

i. Sarbanes-Oxley Act.
1. Passed by Congress in 2002, this act
establishes an array of strict account-
ing and reporting rules in order to
make senior managers more ac-
countable and to improve and main-
tain investor confidence.
2. Law requires that companies and
their auditors provide reports to fi-
nancial statement users about the ef-
fectiveness of internal controls over
financial reporting procedures.
ii. Ethical climate refers to the processes by
which decisions are evaluated and made on
the basis of right and wrong.
iii. Danger signs that a company is morally lax:
1. excessive emphasis on short-term
revenues over long term considera-
tions
2. failure to establish a written code of
ethics
E.G.
Use Example 5.3 – Ethics pro-
3. a desire for simple, “quick fix” solu-
grams here
tions to ethical problems
4. an unwillingness to take an ethical
stand that may impose financial
costs
5. consideration of ethics solely as a le-
gal issue or a public relations tool
6. lack of procedures for handling ethi-
cal problems
7. responding to the demands of share-
holders at the expense of constituen-
cies

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

iv. Corporate ethical standards - organizations must

be explicit regarding their standards and expecta-
tions.
Teaching Tip :

To help students understand the dif-

v. Ethical leaders are both moral people and moral
managers, who influence others to behave ethically.
vii. Effective ethics codes: (Example, Table 5.4)
1. involve those who have to live with it
in writing the statement
2. focus on real-life situations that em-
ployees can relate to
3. keep it short and easily understood and
remembered
4. write about values and shared beliefs
that are important and that people can
really believe in
5. set the tone at the top.
ficulty of putting an ethical program
into place, break them up into small
groups, and have each group develop
a training outline for a school-related
ethics program. For example, one
group might develop a program for
writing papers, another for taking
tests, another for classroom behav-
ior, another for on-campus behavior,
etc. Make sure that student pro-
grams address all of the components
of ethics programs described above.

viii. Ethics programs

1. Compliance based vs. integrity

based
• Compliance-based eth-
ics programs-company LO 3: Outline a process for
mechanisms designed by making ethical decision
corporate counsel to pre-
vent, detect, and punish
legal violations
• Integrity-based ethics
programs- company
mechanisms designed to
instill in people a per-
sonal responsibility for
ethical behavior.

2. Effective ethics programs include:

a. formal ethics codes
b. ethics committees to de-
velop policies
c. evaluation of actions
d. ethics officers or ombud-
spersons to investigate alle-
gations
e. ethics training programs
f. disciplinary processes

d. Ethical decision making

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

1. Ethical decision making requires:

a. moral awareness (realizing the is-
E.G.
sue has ethical implications) Use Example 5.4 – Ethical deci-
b. moral judgment (knowing what sion-making here
actions are morally defensible)
c. moral character (having the
strength and persistence to act in ac-
cordance with your ethics despite the
challenges.)

2. Understand all moral standards

3. Recognize all moral impacts
a. benefits to some
b. harms to others
c. rights exercised
d. rights denied

4. Define complete moral problem

5. Determine the economic outcomes
6. Consider the legal requirements
7. Evaluate the ethical duties
8. Propose convincing moral solution

e. Courage

a. Courage plays a role in the moral

awareness needed to identify some-
thing as unethical, the moral judge-
ment to consider potential conse-
quences, and the moral character to
take the ethical action
b. Whistleblowing occurs when em-
ployees tell others within or outside
the organization of wrongdoing.

III. Corporate Social Responsibility

a. Corporate social responsibility is the obliga-
tion toward society assumed by business.
b. Triple bottom line refers to an organiza-
tion’s economic, social, and environmen-
tal performance.

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

c. Some companies refer to their corporate so-

cial responsibility activities as “sustainabil-
ity.”
d. Types of corporate social responsibility in-
clude (Figure 5.3)
1. Economic responsibilities involve pro- LO 4: Summarize the im-
ducing goods and services that society portant issues surrounding
wants at a price that perpetuates the busi- corporate social responsibility
ness and satisfies its obligations to inves-
tors.
2. Legal responsibilities obey local, state,
federal, and relevant international laws.
3. Ethical responsibilities meet other social
expectations, not written as law.
4. Philanthropic responsibilities are addi-
tional behaviors and activities that soci-
E.G.
ety finds desirable and that the values of Use Example 5.5 – Philanthropic
the business support. responsibilities here

e. A transcendent education has five higher

goals that balance self-interest with respon-
sibility to others LO 5: Discuss reasons for
1. empathy businesses’ growing interest
2. generativity in the natural environment
3. mutuality
4. civil aspiration TEXT REFERENCE
5. intolerance of ineffective Management Connection – Pro-
gress Report
humanity In meeting its standards for trust, IBM
has one advantage: the public sees the
Contrasting views technology industry as the one most
likely to do what is right for society.
People are, however, concerned about
a. It holds that manager’s act as agents for the issues of data security and privacy.
shareholders and, as such, are obligated to IBM has established policies to address
those concerns.
maximize the present value of the firm. • Besides the measures described, how
b. Managers should be motivated by principled else can IBM promote ethical conduct by
moral reasoning. its employees?
IBM can establish global standards for
Reconciliation behavior and consider those standards as
a. Early attention to corporate social responsi- they monitor the external environment.
bility focused on alleged wrongdoing and Managers should watch for danger signs,
such as excessive emphasis on short-
how to control it. term financial performance and pressure
b. More recently, attention has focused on the for quick fixes. There should be clear
possible competitive advantage of socially procedures for handling ethical prob-
lems, as well as a code of ethics.
responsible actions. • In a company operating where bribing
c. The real relationship between corporate so- government officials is expected, how
cial performance and corportate financial can employees find the moral courage to
forgo bribery, at the risk of losing a big
performance is highly complex but evidence sale?

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability
indicates that overall, social responsibility is
associated with better financial perfor-
mance.
IV. THE NATURAL ENVIRONMENT
a. A risk society is one in which the creation and
distribution of wealth generate by-products that
can cause injury, loss, or danger to people and
the environment.
b. Ecocentric management has as its goals the cre-
ation of sustainable economic development and
improvement of quality of life worldwide for all
organizational stakeholders.
i. Sustainable growth meets present needs
without harming the needs of future gener-
ations.
ii. Life-cycle analysis (LCA) is a process of
analyzing all of the inputs and outputs of a
product, “cradle-to-grave” to determine the
total environmental impact of the product.
iii. Carbon footprints are the output of carbon
dioxide and other greenhouse gases.
C. Environmental Agendas for the Future
1. In the past, companies were oblivious to their negative
environmental impact. Today, many companies are striv-
ing for low impact and some are striving for positive im-
pact.
2. In the future, collaborative efforts will be essential, such
as the energy industry and environmentalists working to-
gether rather than against one another.
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Answers will vary; answering this ques-
tion is a way for students to begin think-
ing about the personal challenges of ethi-
cal conduct. Possible ideas for building
moral courage include practicing ethical
decision making for routine situations,
associating with ethical people, and set-
ting high standards for oneself. Students
may note that organizations can do much
to promote moral courage by rewarding
ethical conduct, even when it carries a
short-term financial cost.
(Box in text page 167)
_______________________
LO 6: Identify actions man-
agers can take to manage
with the environment in
mind.
TEXT REFERENCE
Management Connection – On-
ward
IBM builds trust with the public by pub-
lishing its values and policies online, as
well as an annual Corporate Responsibil-
ity Report. IBM describes itself as so-
cially responsible in that it applies its ex-
pertise to social problems and empowers
employees and others to serve their com-
munities. In addition, the company says,
“We integrate corporate citizenship and
social responsibility into every aspect of
our company.”
• Is IBM’s commitment to corporate so-
cial responsibility good for IBM as a
business? Explain.
Students may disagree (giving reasons),
but the text makes the case that being re-
sponsible can be good for business.
IBM’s socially responsible conduct not
only helps communities but also show-
cases the company’s problem-solving ca-
pabilities. They position the company as
an expert at tackling difficult projects.
•Improving energy-efficiency saves IBM
millions of dollars, but recycling its used
electronics requires hiring hundreds of
people. Is the recycling program justi-
fied? Why or why not?
Answers will vary. There is a moral ar-
gument for recycling as a way of taking
Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

responsibility for the company’s impact

on the environment. From a purely busi-
ness standpoint, recycling also could sta-
bilize or reduce the cost of resources
used by IBM over the long term. Be-
tween these extremes, IBM could benefit
from the positive reputation of being
concerned about the impact of its prod-
ucts on the environment and perhaps
could help to create a political climate in
which companies are not regulated as
much because they take responsibility on
their own. Some students may argue that
the recycling program is not justified un-
less it adds to the company’s profits or
value to shareholders.
(Box in text page 174)

E.G.
Use Example 5.6 – Environmen-
tal actions here

Teaching Tip :

Most companies’ corportate social

responsibility efforts are made
highly visible on their websites. Dur-
ing a break or before the discussion
of CSR, ask students to look up ex-
amples of what their favorite com-
pany is doing to be socially responsi-
ble. There will likely be common
trends among many companies (e.g.,
reducing waste, Habitat for Human-
ity) but ask students to point out any
examples that stand out as being a
unique or impressive CSR initiative.

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

KEY TERMS PRESENTED IN THIS CHAPTER

Business ethics The moral principles and standards that guide behavior in the world of business
Caux Principles Ethical principles established by international executives based in Caux, Switzerland, in
collaboration with business leaders from Japan, Europe, and the United States
Carbon footprint The output of carbon dioxide and other greenhouse gases
Compliance-based ethics programs Company mechanisms typically designed by corporate counsel to
prevent, detect, and punish legal violations
Corporate social responsibility Obligation toward society assumed by business
Ecocentric management Its goal is the creation of sustainable economic development and improvement
of quality of life worldwide for all organizational stakeholders
Economic responsibilities To produce goods and services that society wants at a price that perpetuates
the business and satisfies its obligations to investors
Egoism An ethical system defining acceptable behavior as that which maximizes consequences for the
individual
Ethical climate In an organization, the processes by which decisions are evaluated and made on the basis
of right and wrong
Ethical issue Situation, problem, or opportunity in which an individual must choose among several ac-
tions that must be evaluated as morally right or wrong
Ethical leader One who is both a moral person and a moral manager influencing others to behave ethi-
cally
Ethical responsibilities Meeting other social expectations, not written as law
Ethics The system of rules that governs the ordering of values
Integrity-based ethics programs Company mechanisms designed to instill in people a personal responsi-
bility for ethical behavior
Kohlberg’s model of cognitive moral development Perspective that what is moral comes from what a ma-
ture person with “good” moral character would deem right
Legal responsibilities To obey local, state, federal, and relevant international laws
Life-cycle analysis (LCA) A process of analyzing all inputs and outputs, through the entire “cradle-to-
grave” life of a product, to determine total environmental impact
Moral philosophy Principles, rules, and values people use in deciding what is right or wrong
Philanthropic responsibilities Additional behaviors and activities that society finds desirable and that the
values of the business support
Relativism Philosophy that bases ethical behavior on the opinions and behaviors of relevant other people
Sarbanes-Oxley Act An act passed into law by Congress in 2002 to establish strict accounting and report-
ing rules in order to make senior managers more accountable and to improve and maintain investor
confidence
Sustainable growth Economic growth and development that meet present needs without harming the
needs of future generations
Transcendent education An education with five higher goals that balance self-interest with responsibility
to others

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Triple bottom line Economic, social, and environmental performance

Universalism The ethical system stating that all people should uphold certain values that society needs to
function
Utilitarianism An ethical system stating that the greatest good for the greatest number should be the over-
riding concern of decision makers
Virtue ethics Classification of people based on their level of moral judgment

BOTTOM LINE

p. 165: What are some costs of treating employees unethically?

Possible costs include retaliation (poor work, absences, lawsuits) by employees who feel hurt and angry,
as well as high rates of employee turnover, requiring costs to recruit and train replacements. Mistreated
employees also might complain publicly, embarrassing the company and possibly hurting sales. Histori-
cally, unhappy employees have sometimes formed unions, and unionized workers earn higher pay, on av-
erage, than nonunionized workers.

p. 174: Think of a product you recently purchased. How could its packaging have been more environmen-
tally friendly?
Answers will vary. Students could consider ways to reduce the amount of packaging or even to replace it
altogether with, say, just a tag attached to the product. They could also consider ways of replacing nonre-
newable packaging materials with renewable or recycled ones.

IN PRACTICE

p. 157: What should Madison do? Is that what you believe you would do in this situation?
Answers will vary. The placement of this example encourages students to identify particular values at is-
sue, such as being honest and not causing harm to others. The ethical challenge in the case is that by up-
holding those values, Madison might reduce her and her company’s earnings. However, some students
may notice that if going through with the sale leads to the sale of lower-grade signs, the problem might be
traced to Sign of the Times, resulting in harm to the company’s reputation that could outweigh the added
profits from deception. A damaged reputation is difficult to repair.

p. 162: As Red Frog grows, how should it reinforce its ethical climate to ensure ethical behavior?
Practices that reinforce an ethical climate include management demonstrating ethical values, establishing
standards for ethical behavior, and considering ethical issues when monitoring the external and internal
environment. Students may have additional ideas and should be encouraged to think creatively. Encour-
age a discussion of whether the level of trust in employees that works in a small business such as Red
Frog could be as effective in a large one.

LECTURETTES

LECTURETTE 5.1: The Ethics Imperative

THE NATURE OF ETHICS

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

1. Today, it seems that there is a higher ethical standard by which all behaviors must be judged. More
than ever before, society appears to apply the “ethics test” to all manners of human behavior. Ethical
behavior is seen as an essential ingredient in the effort to improve the quality of life.

2. At the same time, there is a depressing perception that our people—especially our young people—are
actually headed towards unethical or, at best, ethically neutral behavior

3. The media seems focused on unethical behavior in government, business, and daily living. The re-
sults from a Harris Poll released in 2000 state two-thirds of Americans give Corporate America credit
for the prosperity of recent years. At the same time, nearly three-quarters believe that business is too
powerful, and controls too many aspects of their lives. Slightly less than half think that what’s good
for business is good for most Americans. And two thirds think that big profits are more important to
big companies than safe, reliable products.

4. One can make a good case in support of the latter proposition, noting that unethical behavior in all
walks of life has always been with us, but we simply expect more from today’s leaders.

5. When defining ethical business behavior, corporate executives usually turn to codes of ethics that de-
scribe corporate commitment to constituency groups, or shareholders, rather than prescribed ethical
conduct for specific situations.

6. In an effort to make business ethics more useful, critics suggest that the following dimensions and
boundaries of ethical should be applied.
➢ Business ethics should be applied ethics, with specifics, not generalizations.
➢ Business ethics should deal with relationships, wherein validity depends on mutual acceptance.
➢ Business ethics should be institutionalized and supported by procedures and rules for administer-
ing and implementing them.
➢ Business ethics should provide a common denominator of understanding.

7. Managers need more than a code of ethics—they need a value system that continuously strives to
clarify ethical behavior.

A FRAMEWORK OF CRITICAL ETHICAL ISSUES

1. Business codes of ethics need some sort of framework within which they can be developed and im-
plemented. Such an ethical framework must be consistent with and emerging from a base of ethical
propositions for the manager of the future.

➢ Thus, the ethical manager or the ethical organization must first develop an acceptable body of
ethical propositions. For example, the study could begin with the 14 ethical propositions offered,
such as the following:
In the conduct of day-to-day business ethical conflicts and choices are inherent in business deci-
sion-making.
➢ Ethical behavior must exist on a plane above the law, which merely specifies the lowest common
denominator of acceptable behavior.
➢ There is no single, universal standard of ethical behavior that a manager can use to make specific
decisions.
➢ The determinants of ethical behavior are diverse and often conflicting.
➢ Individual values constitute the ultimate guide for ethical behavior.
➢ As the application of ethical standards moves from the general to the specific, agreement as to
what constitutes ethical behavior diminishes.
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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

➢ Top management is responsible for setting the moral tone of an organization.

➢ It is perceived by managers that the lower their organization rank, the greater is the pressure to act
unethically.
➢ Individual managers tend to perceive themselves to be more ethical than their peers.
➢ In order for codes of ethics to be effective, they should contain meaningful and clearly stated pro-
visions with sanctions for noncompliance that are both enforceable and enforced universally.
➢ Employees need a non-punitive mechanism for reporting ethical abuses in the organization.
➢ If codes of ethics are to be effective, the organization should appoint a senior manager to be re-
sponsible for acting as the organization’s ethical advocate.

The preceding ethical propositions are recommended for contemporary managers to improve
their decision-making abilities and long run organization performance.1

LECTURETTE 5.2: The Social Responsibility Debate

INTRODUCTION

Should a business firm use its resources to engage in programs to promote what that business firm per-
ceives to be the public good? Students should already have some awareness that this role of business in
the area of social responsibility has spawned a long-time, on-going debate. Strong arguments are made to
support the notion that firms (1) should and (2) should not expend company resources in pursuit of social
welfare activities that fall outside the scope of the firm’s business. Below are some of the more popular
pro and con positions regarding the social responsibility of business.

ARGUMENTS IN SUPPORT OF COMPANY SOCIAL RESPONSIBILITY PROGRAMS

➢ Business is unavoidably involved in social issues in its daily operations.

➢ Social responsible actions are the ethical things to do.
➢ The “Iron Law of Responsibility” holds that society can alter or revoke a business charter, so the
business can increase its chances for survival by socially responsible actions that will increase the
viability of the business system.
➢ Prevention is better that a cure, so business should solve problems before they become severe.
➢ Social responsibility will improve the environment for all concerned, especially in the long run.
➢ Investing in society is in the best interests of the business enterprise.
➢ Improving society is in the best interests of the stockholders to who the business has a clear re-
sponsibility.
➢ Since business has resources available, it stands to reason that business should try to solve social
problems.
➢ Business possesses a great deal of social power, so business needs to balance that power with re-
sponsible behavior.
➢ Societal expectations demand social responsibility on the part of business.
➢ Socially responsible behavior will improve the public image of the business enterprise.
➢ Socially responsible behavior can preclude unnecessary and costly governmental regulation and
intervention into the practices of business.
➢ Government can’t pass laws that will cover every social situation, and laws often fail to achieve
their purposes, so business needs to meet social needs on a voluntary basis.
➢ Socially responsible behavior can be profitable.

1Adapted from Harris Poll, Business Week, August 2000, A.D. Amar, “Ethics: No Duality,” The Mid-Atlantic Journal of Business,
March 1991, Michael Hyman, Robert Skinner, and Richard Tansey, “Ethical Codes Are Not Enough,” Business Horizons, March-
April 1990.

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

➢ The opportunity to be socially responsible should be viewed as a managerial challenge.

A strategy for management is to develop a socioeconomic plan of action to satisfy stakeholders

for the long-run success of a business entity.

ARGUMENTS IN OPPOSITION TO COMPANY SOCIAL RESPONSIBILITY PROGRAMS

➢ If businesses are allowed to engage in social programs, the public will lose control of society.
➢ In general, business involvement in social programs does not have broad public support.
➢ There is no acceptable way to measure the success of social programs.
➢ Businesses lack the skills for dealing effectively with social programs.
➢ Businesses already have vast amounts of power, and their involvement in social programs would
increase that power even more.
➢ Socially responsibility programs on the part of business could lead to unwanted business-govern-
ment collusion, as business plus government equals monopolist power.
➢ Businesses that use their resources for the public good dilute the purpose of business.
➢ Social action by the firm is in conflict with its responsibility to stockholders.
➢ Social responsibility programs are costly and would result in higher prices charged to consumers.
➢ Price increases resulting from expenditures on social programs would weaken the nation’s bal-
ance of payments.

Ethical practices should be ignored and profit maximization or bottom line management should
be the primary focus of management.2

DISCUSSION QUESTIONS

1. Consider the various ethical systems described early in the chapter. Identify concrete examples
from your own past decisions or the decisions of others you have seen or read about.

Students will need to review the information from the chapter and provide clear examples from their
life regarding decisions they have made.

2. Choose one or more topics from Table 5.2 and discuss the ethical issues surrounding them.

The discussion of ethical issues may include: Artistic control, brands, CEO pay, commercialism in
schools, consumerism, frankenfoods, globalization, politics sweatshops, urban sprawl, and wages.
While students may vary in the selection of the ethical topic to discuss, the following is a sample of
the answers that can be provided.

• Artistic
control: Rock musicians, indie filmmakers, and other artists are rebelling against control by
big media and retail companies.

2
Adapted from Gene Burton, Dev Pathak, and David Burton, “To Be or Not To Be: The Dilemma of Social Responsibility.” Proceed-
ings: 1977 Southern Management Conference, Atlanta1977: Keith Davis and William Frederik, Business and Society: Management,
Public Policy, and Ethics, 5th ed. (New York: McGraw-Hill, 1984), 28-41; Thomas Jones, “Corporate Social Responsibility Revisited,
Redefined.” California Management Review, Spring 1990, 59-61; R. Joseph Mansen, Jr., “The Social Attitudes of Management,:
California Management Review, in Joseph McGuire, ed., Contemporary Management Englewood Cliffs, N.J.; Prentice-Hall, 1974),
616: Mark Vamos and Stuart Jackson, “The Public Is Willing to Take Business On,” Business Week, May 29, 1989, 29.

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Artists are having their work reviewed, censured, rated and are fearful of losing their artistic tal-
ents. Musicians and artists have identified with the counterculture and are now being told what
sells and what does not sell, what consumers will buy and not buy.

• Brands: In-your-face marketing campaigns have sparked anti-brand attitudes among students.

Brand name products are expensive and promise things that are not true. For instance; buy Nike
shoes and you can run faster and jump higher. Students “see corporations as self-serving organi-
zations that violate human rights and pollute the earth.”

• CEO pay: Nearly three-fourths of Americans see executive pay packages as excessive.

CEOs earn multi-million dollar salaries yearly. Executives give themselves raises and the em-
ployee does not benefit. Average wages have increased only slightly while production has sky-
rocketed. Employees work long hours while their bosses are out golfing.

• Commercialism in schools: Parent groups have mounted battles in hundreds of communities against
advertising in the public schools.

Public schools provide a captive audience for promotion of products. These students are impres-
sionable and want to succeed, so companies that advertise in this realm are guaranteed to make
sales. With products telling students how to think, look and act, parents concerns are valid.

• Consumerism: Anger and frustration are mounting over high gasoline and drug prices, poor airline
service, and HMOs that override doctors’ decisions. The latest fiasco: faulty auto tires.

Gasoline prices have risen and drug prices are skyrocketing in the U.S. while they sell for lower
prices in the neighboring countries. Airlines are being cited for poor performance in areas of res-
ervations and lower standards of upkeep for their planes. Medical insurance cost is rising higher
but services are being cut.

• Frankenfoods: Europeans’ skepticism about genetically modified food is taking hold in the U.S.,
making targets of companies such as Monsanto.

This has become an ethical dilemma for Monsanto.

• Globalization:Environmentalists, students, and unionists’ charge that a global trade and economic
bodies operate in the interests of multinational companies.

Employees are being laid off and there are fewer employment opportunities. The question of
egalitarianism as to what is the greatest good for the greatest number is an ethical question.

• Politics: Public revulsion over the corporate bankrolling of politicians has energized campaign-fi-
nance reform activists.

The ethics of such practices can be forthcoming.

• Sweatshops:Anti-sweatshop groups have sprung up on college campuses; they routinely picket

clothing manufacturers, toymakers, and retailers.

The ethical question of the exploitation of labor can be challenged.

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

• Urban sprawl: Groups in more than 100 cities have blocked big-box superstores by Wal-Mart and
other chains.

These stores have a tendency to monopolize and buy market share and eliminate the independent
retailer from the market. These practices can be ethically challenged because of the competitive
edge the chain-store retailer over the small retailer.

• Wages: Some 56 percent of workers feel they are underpaid, especially as wages since 1992 have
topped inflation by 7.6 percent, while productivity is up 17.9 percent.

Management continues to operate with the bottom line approach to increase profits through in-
creased productivity. An important objective is to keep the stockholder satisfied and the em-
ployee is often sacrificed in achieving this goal. Ethical decisions by management can be chal-
lenged because of these practices.

3. What would you do in each of the scenarios described in Table 5.3, “Ethical Decision Making in
the International Context”?

The minister wants a bribe. Bribery is illegal in the United States, and those found guilty of
bribery can go to prison. Refusing to pay a bribe and reporting
the request to your superior and the company’s legal counsel
would seem to be the safest approach.

The use of a substance banned
in the United States in a West
African Country.
If the use of the chemical is legal in the West African
Country, then it should proceed. However, the company
should request a letter from the minister of agriculture
absolving it from any legal liability before proceeding.
Furthermore, you would want to provide detailed
instructions on its use and, probably, supervise the first
use of the chemical.

Deceptive advertising This is more a question of personal ethics. While the

in Southeast Asia deceptive advertising is unethical, it may go unnoticed and, even
if complaints are registered, the worst case
scenario will involve redoing the advertising.
However, if you proceed with the deceptive advertising, you
have established a precedent and are on the edge of a slippery,
downward slope. Your superiors are relying on your judgment,
and the best course of action would be to go back to the agency
and require that they change the campaign.

4. Identify and discuss illegal, unethical, and socially responsible business actions in the news.

Students might be instructed to define the three terms, then review the business pages of a local or
national newspaper or a magazine such as Business Week to identify at least one example in each of
the three categories.

5. Does your school have a code of ethics? If so, what does it say? Is it effective? Why or why not?

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Most schools include in their catalog(s) a section on academic and related regulations that deal with
violations of academic integrity such as cheating, plagiarism, collusion, lying, vandalism, etc. This
represents the institution’s code of ethics. It establishes what is acceptable and, more importantly,
what is not acceptable…and what will occur if a student breaks one of the rules.
The instructor might ask how many students are (a)aware of the school’s policies and (b)have actually
read them. This may suggest that they are not particularly effective. However, when a student is ac-
cused of any one of the violations, the policies may lay out a course of action for handling the prob-
lem.

6. You have a job that you enjoy and you work 40 to 45 hours per week. How much off-the-job
volunteer work would you do? What kinds of volunteer work? How would you react if your
boss made it clear he or she wants you to cut back on the outside activities and devote more
hours to your job?

One can well argue that what you do off the job is totally independent of your regular employment.
Some people who work 40 to 45 per week at their job put in the same amount of time in volunteer ac-
tivities. Others do nothing at all. It is a matter of personal choice, as is the selection of the type of vol-
unteer work.

The only concern would be if volunteer work left the individual incapacitated or too tired to do the
primary job or if there were a conflict of interest. A company might be delighted to see an employee
give 30 hours a week to a local charity but might question the same amount of time being given, on a
volunteer basis, to a for-profit organization in a competitive field.

If the boss makes it clear that he or she wants you to cut back on your outside activities for valid rea-
sons, then the employee has to make a decision; which is more important? If you are committed to the
volunteer activity, then you either have to negotiate a satisfactory arrangement with your boss or find
other employment.

7. What are the arguments for and against the concept of corporate social responsibility? Where
do you stand, and why? Give your opinions, specifically, with respect to the text examples.

Those who argue in favor of corporate social responsibility see the corporation as a member of soci-
ety that enjoys the many benefits offered by that society. Relatively few organizations could function
without roads, schools, airports, etc. Corporations have a responsibility, therefore, to actively partici-
pate in the community and the larger environment. They benefit from society and thus should give
back to society. It is also felt that, by being actively involved in society, the company improves its
image and may, in some cases, identify new business opportunities. It pays to be involved.
The other perspective (espoused by Milton Friedman) is that corporations have a responsibility to
maximize the return to their owners or stockholders. Profitability should be the goal, and the corpora-
tion should take a social perspective only when it is consistent with increasing the profitability of the
company. By increasing its profitability, the company can increase the number of employees, make
further investments, etc., and thus best serve the interests of society as a whole.

8. What do you think of the concept of a transcendent education, as described in the chapter?
What can be done to implement such a vision for education?

A transcendent education is a big undertaking, but one that will have as much of an impact on stu-
dent’s lives as it does on their business practices. In order to implement transcendent education, it
will be necessary to find teachers who can be role models and to give students extensive practice in
the behaviors the program is trying to impart.
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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

9. What is the current status of the Sarbanes-Oxley Act? Have there been any changes? What do
executives think of it now? What impact has it had?

All segments of the Sarbanes-Oxley Act are now implemented. It is, as noted in the text, still one of
the most influential pieces of legislation to ever hit corporations. Most executives are unhappy with
the act - the costs of which are enormous. According to one estimate, businesses will pay $1.4 trillion
implementing the act. However, Alan Greenspan has spoken up in defense of the act, saying that he
was surprised that a law passed so rapidly worked as well as it did. One interesting impact of the law
is the increase in demand for accountants and auditors. According to Deloitte, large firms are spend-
ing an average of 70,000 additional man hours complying with the law.3

10. A company in England slaughters 70,000 baby ostrich chicks each year for their meat. It told a
teen magazine that it would stop if they receive enough complaints. Analyze this policy, practice
and public statement using the concepts discussed in the chapter.

In terms of analyzing this business decision, students may refer to the steps for ethical decision mak-
ing outlined in the chapter. These include: (1) defining the issue, (2) identifying the relevant values in
the situation, (3) weighing the conflicting values and choosing a option that balances them, and (4)
implementing the decision.

11. A Nike ad shows a picture of a girl, aged perhaps 8 or 9. The ad reads,

“If you let me play…
I will like myself more.
I will have more self-confidence.
I will suffer less depression.
I will be 60% less likely to get breast cancer.
I will be more likely to leave a man who beats me.
I will be less likely to get pregnant before I want to.
I will learn what it means to be strong.
If you let me play sports.”
Assess this ad in terms of chapter concepts surrounding ethics and social responsibility. What
questions would you ask in doing this analysis?

In analyzing this ad, a student should consider it in terms of corporate social responsiveness. The ap-
proaches to corporate social responsibility include: (1) reactive, (2) defensive, (3) accommodative,
and (4) proactive. The ad might provoke a debate regarding whether or not companies should focus
on corporate social responsibility or simply stakeholder management. Examples of questions to ad-
dress include:

➢ Is the ad ethical in terms of morals and business ethics?

➢ Who are Nike’s stakeholders (shareholders, public, loyal consumers, etc.) and how are they af-
fected by this campaign?
➢ What is Nike’s social responsibility in terms of the pyramid of corporate social responsibility?

12. Should companies like GE and Monsanto be held accountable for actions of decades past, then
legal, but since made illegal as their harmful effects became known?

3“Sarbanes-Oxley: A price worth paying?” The Economist. London: May 21, 2005, Vol. 375, Iss. 8427;
pg. 82.
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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Yes, management should be held accountable for their actions and decisions they have made in the
past. There is a statute of limitations that must be recognized, however management of these compa-
nies must be held accountable and should take an ethics credo for the actions they have taken in the
past. For example, in December 2001, GE was ordered by the EPA to spend $460 million to dredge
PCBs it had dumped into the Hudson River in earlier decades. It fought bitterly against the decision,
because of the cost and because the actions were taken decades ago, when they were legal. In 2002,
Monsanto faced the same problem from a facility in Mississippi that dumped PCBs, legally, from the
1930s to the 1970s.

13. Discuss courage as a requirement for ethical behavior. What personal examples can you offer,
either as an actor or as an observer? What examples are in the news?

Interestingly enough, Charles “Chuck” Prince, of Citigroup, is a good example of courage in the face
of adversity. He was hired to put Citigroup back on course, and he is persisting in his work, even
though his senior managers are leaving for other jobs, and there is general cynicism about the likelihood
that Citigroup will overcome the poor lending practices that characterized it in the past.

EXPERIENTIAL EXERCISES

EXERCISE 5.1 - MEASURING YOUR ETHICAL WORK BEHAVIOR

Objectives

1. To explore a range of ethically perplexing situations.

2. To understand your own ethical attitudes.

Suggested Responses

Situation 1 – Answer B is the most ethical approach for a student to take in this situation. A strong
ethics code will influence the outcome of making this type of decision.

Situation 2 – Answer C is appropriate assuming the individual has $300 to spend on the program. If
not, Answer B would involve manually working with the numbers.

Situation 3 – Answer B is the most ethical option to this situation because it is important to uphold an
ethics credo and inform your customer.

Situation 4 – Answer D is the most ethical decision because one must consider the long run effect of
making this kind of decision.

Situation 5 – The most ethical decision would be to exercise either option A or D. A strong ethics
code will build long run success where the benefits outweigh the costs of violating an
ethics credo.
Teaching Tips:
1. As the students complete each situation, ask for a show of hands in favor of each of the various
options.

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

2. Take the one situation out of the five that showed the class most divided and have those students
supporting each position from a group (either three or four groups depending on which situation
was selected) and have them discuss and present the arguments in favor of their position.

EXERCISE 5.2 - ETHICAL STANCE

Purpose:

To allow participants to evaluate ethical situations and compare their judgments with others.

Time:

20-30 min.

Resources/Set-up:

Copy of situations (in chapter).

Activity Instructions:

Participants are to read the situations and make ethical judgments about how the situations should be han-
dled.

Participants are to discuss their opinions in small or large groups.

Teaching Tips:
This activity works well as a lead in to a discussion or lecture on ethics.

If done in a large group, you may want to have the participants rank these on a scale of 1-10, 1 being ethi-
cal (or OK) and 10 being the least ethical (or most offensive). As you discuss these situations, you may
want to ask for rankings and post them on a board to examine the varying opinions of the different situa-
tions.

Another approach to helping students understand different perspectives on ethics is to post large numbers
(1-10) around the classroom, tell the students that the numbers represent “Strongly agree” to “Strongly
disagree” and have students “vote by walking” to stand in front of the number that best represents their
opinion about whether or not a given action is ethical.

Discussion/Debrief:

One take-away from this activity is that much like values, individuals possess different ethical perspec-
tives. How might these differences play out in the workplace…between a boss and subordinate? …be-
tween members of a team? Discuss.

CONCLUDING CASE

MA Earth Skin Care Tries to Stay Natural

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Case Summary:

Going to work for Ma Earth Skin Care was a “dream come true” for Heather Franklin. She was
proud to promote quality beauty products that were produced with a concern for the planet’s well-be-
ing.

As she and her team prepared a promotion campaign for a new product line, Ore’ Essentials, she was
interested to learn that the dye came from a plant extract called orellana. The company was harvest-
ing this fruit with the assistance of a tribe in the Amazon rain forest. During a review of photos, one
of the photographers commented that the tribe had gathered the fruit just for the photo shoot. It turns
out that the tribe was not interested in farming or growing the fruit. After a little research, Heather
discovered that the dye was actually an inexpensive dye purchased from a mainstream supplier.

The next day, Heather asked her boss why the company pretended to care about a remote village, if it
was actually just a front to brand a product. Heather’s boss, Megan McDonough responded, “But we
do care! We send them tens of thousands of dollars every year.” She went on to explain that the
company would be glad to purchase all of the fruit from the village to produce the dye, if only the
tribe members were interested in growing and harvesting it. Megan stated, “Our aid has provided a
school and a health clinic, not to mention food and clothing. We’ve helped the tribe members stay
healthy and preserve their language and culture.”

Heather tried to reconcile what she was hearing by asking, “So, does this mean we are using their cul-
ture to build an image for our brand, and in exchange, they get money from us to keep that culture
alive?” Megan confirmed this was correct. Now Heather had a new challenge…could her initial ide-
alism and enthusiasm withstand the disturbing knowledge that she had gained about how Ma Earth’s
pursued its mission.

Chapter Topics Related to the Case:

• Discuss the term ethics
• Discuss the term social responsibility
• Describe the impact the concept of moral philosophy may have on a business such as the Gar-
den Center
• Identify methods a company like Ma Earth Skin Care may engage to help it make ethical
business decisions
• Describe the types of social responsibilities a company like Ma Earth faces

Case Discussion Questions:

1. What ethical issues is Heather facing in this situation? What possible marketing claims about the
company’s relationship with the Amazonian tribe would cross a line into unethical territory?
What claims could it make ethically?

Suggested Response:

As the case study clearly identifies, Heather is experiencing a strong sense of internal conflict over
her company’s claims about being committed to using all natural ingredients, which are sustainably
grown or mined.
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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Students will have varying responses to this question. A suggested response might look like the fol-
lowing. An argument to support Heather’s continuing with the company might focus on the com-
pany’s assistance to the tribe in the Amazon rain forest. Heather might also use this opportunity to
convince company leaders to purchase the product from another region or to seek a more sustainable
and natural solution for purchasing the dye.

2. How could Ma Earth create an ethical climate that would help managers such as Heather ensure
that they are behaving ethically?

Suggested Response:

Ma Earth could search for new natural sources to obtain their dyes. In addition, Ma Earth could es-
tablish its own organic farm to grow some of the rare or difficult to obtain products and pay its own
employees to manage the growing process.

Ma Earth should commit to “truth in advertising” and not exaggerate the truth or use false impres-
sions to market their products. Some companies have 800 lines for employees or customers to call to
report ethical violations.

3. How effectively do you think Ma Earth is practicing corporate social responsibility in this situa-
tion? Explain the reason behind your evaluation.

Suggested Response:

The student responses will reflect personal viewpoints regarding the degree of corporate social re-
sponsibility that each one feels is adequate for the company. However, each response should indicate
some degree of commitment to preventing harm to others and conducting business transactions in an
honorable manner.

EXAMPLES
Example 5.1 – Business ethics: INSEAD, an international business school, believes screening
for ethics reinforces their stance on ethical behavior. When making decisions as to who they will
admit, each student must pass through two separate interviews with alumni of the school. The
results of these interviews along with their standard test results determine whether or not they will
be admitted.4

Example 5.2 - Egoism: Egoism is shown in the actions taken by John Milne, the President and
Chief Financial officer of United Rentals. When he was approached by the Securities and Ex-
change Commission to answer questions about accounting practices, he responded that “his law-
yers had advised him that it would be ‘careless for him to meet with the board’s special commit-
tee to discuss complex matters that occurred several years ago’ unless ‘mutually agreeable cir-
cumstances’ can be reached.”5 Unfortunately, what Mr. Milne thought would be best for him re-
sulted in the loss of his job, which shows that misplaced egoism can sometimes backfire.

4
Holstein, William J., “Screening for ethics: How one school does it.” The New York Times, Nov. 20, 2005, Section 3, Column 1, pg.
9.
5
Cordeiro, Anjali. “United Rentals officer’s silence puts job in jeopardy.” Wall Street Journal, July 15, 2005, pg. B2.

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Example 5.3 – Ethics programs: Alyson Pitman Giles is President and CEO of CMC
Healthcare System and Catholic Medical Center and Chairman of the American College of
Healthcare Executives (ACHE). To reinforce the ACHE’s Code of Ethics, Alyson personally
speaks with all staff (including new employees). She feels if you use the notice of ethics as a
guiding principle in your organization, it impacts behavior and decision making, as well as dis-
courages people from doing things that are unfair, dishonest or immoral.6

Example 5.4 – Ethical decision-making: Worth Abbey, a Benedictine monastery in England, is

the focus of a hit TV series, and the setting for a new training program in business ethics based on
the rule of St. Benedict, a 5th century monk. Typical participants are senior managers charged by
their company “to make the business ethical.” They come thinking ethics is either command-
ments or opinion. They find out ethics is a decision making skill. Some of the Benedictine tips
for business leaders are:

• Take personal responsibility. The rule says: ‘Faithfully put advice into practice.’
• Subordinate yourself to bigger principles. The rule says: ‘Give up your own will.’
• Exercise self-management. The rule says: ‘Remember to whom you are accountable.’
• Create trust in the organization. The rule says: ‘Be a living example.’
• Keep morale high. The rule says: ‘Adapt to each monk’s character and intellect.’

Example 5.5 – Philanthropic responsibilities: Most students will be familiar with the company,
TOMS, whose well-known “one for one” mission is aimed at donating a pair of shoes to a child
in need for every pair of shoes purchased. TOMS sight initiative works in the same way, in that
for every pair of glasses purchased, funding is provided to a “giving partner” to restore or save
the signt of one individual in need. However, students might be less familiar with other aspects of
TOMS’ CSR efforts. For example, shoes are made with sustainable and vegan materials and
shoeboxes are printed with soy ink. Shoes are made in China, Ethiopia, and Argentina, and efforts
are made to ensure that slavery and human trafficking laws are enforced. TOMS’ flagship store in
California is incorporating environmentally-friendly practices into the store and its operations.
Lastly, TOMS invests in employees and includes a number of company oversight experts to im-
prove sustainability.7

Example 5.6 – Environmental actions: If you work in an office environment, chances are good
that you’ve encountered one of Teknion’s products. This Toronto, Canada-based operation deliv-
ers office furniture systems globally. What’s different about Teknion is their commitment to the
environment, which won them the 2007 Globe Award for Environmental Excellence. As de-
scribed on their website, Teknion started their environmental efforts by increasing their under-
standing of ISO 14001 environmental specifications. They created a “Green Team” to implement
the Environmental Management System specified by ISO, and they became one of the first furni-
ture manufacturers to be ISO 14001 certified. But Teknion went further, and also implemented
the guidelines set by LEEd® (Leadership in Energy and Environmental design), the U.S. Green
Building Council’s voluntary rating and certification program for developing high-performance,
sustainable, green-built environments. Every year, Teknion sponsors “Green Week”, during

6
Giles, A.P. “Fostering ethics: How developing individual, group expectations make for a better organization.” Modern Healthcare,
March 19, 2007, p. 28.
7
”Corporate responsibility at TOMS.” Retrieved 11/11/13 from http://www.toms.com/corporate-responsibility/l

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

which they tell their employees about what the company has done for the environment in the past
year, and what it plans to do in the upcoming year.

SUPPLEMENTAL FEATURES
Please see the following additional materials in Connect. Note: The expanded PPT can be found
on the Online Learning Center (OLC) or website at www.mhhe.com/bateman11e or in Connect.

CHAPTER VIDEO

• Cell Phones for Soldiers

Calling home can be very expensive for soldiers, or sometimes impossible if a base only has a
limited number of phones for them to share. All of that changed when a 12- and 13-year old
brother and sister decided that our troops deserved more. Robbie and Brittany Bergquist heard
about a solder who had an $8,000 cell phone bill from trying to call home to his loved ones.
They felt compelled to help the man who was protecting their country. The pair started with
small fundraisers to help troops call home and eventually decided to recycle cell phones to raise
money. Thus began the non-profit, Cell Phones for Soldiers.

Why is it important for Rob and Brittany Bergquist to be socially responsible?

Rob and Brittany work on a completely volunteer basis and have no paid employees, but as
Rob notes, “We are paid…and that’s knowing that soldiers get to call home free.” Rob and
Brittany appreciate the recognition they receive for their efforts but claim they would continue their work
even without the recognition. The pair notes that it means a lot to them to know that they’re changing
the lives of the people who protect their freedom. Their main motivation to keep going are the letters
they receive from family members of soldiers who were impacted by their non-profit.

MANAGER’S HOT SEAT (MHS)

• Ethics: Let’s Make a Fourth Quarter Deal

• Whistleblowing: Code Red or Red Ink?

SELF-ASSESSMENT

• Assessing Your Ethical Decision-Making Skills

TEST YOUR KNOWLEDGE

• Ethics

EXPANDED POWERPOINT SLIDE SHOW

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Expanded PowerPoint Slides include most Basic PowerPoint slides, along with additional mate-
rial that can be used to expand the lecture.

Learning Objectives Ethics

Ethics and
Corporate LO1 Describe how different ethical perspectives guide
decision making
 Ethics
Responsibility LO2 Explain how companies influence their ethics
 The system of rules
environment
that governs the
ordering of values
LO3 Outline a process for making ethical decisions
Chapter Five LO4 Summarize the important issues surrounding corporate
social responsibility
LO5 Discuss reasons for businesses’ growing interest in the
natural environment
LO6 Identify actions managers can take to manage with the
environment in mind
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Chapter Title Learning Objectives: Ethics
LO 1 – LO 6

Telling the Truth and Lying:

It’s a Personal Issue It’s a Personal Issue
Possible Outcomes
Table 5.1
Most of us think we are good decision Managers often:
makers, ethical, and unbiased.  Hire people who are like them
But most people have unconscious biases  Think they are immune to conflicts of interest
that favor themselves and their own group.  Take more credit than they deserve
 Blame others when they deserve some blame
themselves

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Telling the Truth… It’s a Personal Issue…. Managers Often…

It’s a Personal Issue Ethics Ethical Systems

 If the employer pays Ethical issue Moral philosophy

for the computer and  Situation, problem, or opportunity in which an  Principles, rules, and values people use in
the time you spend individual must choose among several actions deciding what is right or wrong
sitting in front of it, is that must be evaluated as morally right or wrong Universalism
it ethical for you to Business ethics  The ethical system stating that all people should
use the computer to  The moral principles and standards that guide uphold certain values that society needs to
do tasks unrelated to behavior in the world of business. function.
your work?

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Is It Ethical to…? Ethical Issue and Business Moral Philosophy and
Ethics: defn. Universalism

Caux Principles Caux Principles Question

Caux Principles  Kyosei
 Ethical principles established by international  living and working
executives based in Caux, Switzerland, in together for the
collaboration with business leaders from Japan, common good,
Europe, and the United States. allowing cooperation
and mutual
prosperity to coexist
with healthy and fair
competition
 Human dignity Which ethical system bases ethical behavior on
 concerns the value of the opinions and behaviors of relevant other
each person as an people?
end, not a means to
the fulfillment of
A. Egoism
others’ purposes B. Utilitarianism
C. Relativism
D. Virtue ethics

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Caux Principles Kyosei and Human Dignity Question

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Education.
Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Ethical Systems Ethical Systems Ethical Systems

Egoism Utilitarianism Relativism

 An ethical system defining acceptable behavior
as that which maximizes consequences for the
individual
 An ethical system stating that the greatest good
for the greatest number should be the overriding
concern of decision makers.
 Philosophy that bases ethical behavior on the
opinions and behaviors of relevant other people
Virtue ethics
 Classification of people based on their level of
moral judgment.

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Egoism Utilitarianism Relativism and Virtue Ethics

Ethical Systems Current Ethical Issues in Business Question

Kohlberg’s model of cognitive moral Table 5.2 What act passed into law by Congress in 2002
development established strict accounting and reporting
 Perspective that what is moral comes from what rules?
a mature person with “good” moral character A. Wagner Act
would deem right.
B. Sarbanes-Oxley Act
C. Chapin Act
D. GAAP Act

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Kohlberg’s model Current ethical issues in Question
business

The Ethics Environment Business Ethics Danger Signs

Sarbanes-Oxley Act  Ethical climate 1. Excessive emphasis on short-term revenues over

 An act passed into law by Congress in 2002 to  In an organization, longer-term considerations.
establish strict accounting and reporting rules in the processes by 2. Failure to establish a written code of ethics.
order to make senior managers more which decisions are 3. A desire for simple, “quick fix” solutions to
accountable and to improve and maintain evaluated and made
ethical problems.
investor confidence on the basis of right
and wrong 4. An unwillingness to take an ethical stand that
may impose financial costs.

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Sarbanes-Oxley Act Ethical Climate Danger Signs: 1-4

Danger Signs (cont.) Danger Signs Ethics Programs

5. Consideration of ethics solely as a legal Ethical leader Compliance-based ethics programs

issue or a public relations tool  One who is both a moral person and a moral  Company mechanisms typically designed by
6. Lack of clear procedures for handling ethical manager influencing others to behave ethically. corporate counsel to prevent, detect, and punish
problems. legal violations.
7. Responding to the demands of shareholders
at the expense of other constituencies

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Danger Signs: 5-7 Ethical Leader Compliance-based Ethics
Programs

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Education.
Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Ethics Programs A Process for Ethical Decision Making Ethical Decision Making
Figure 5.1
 Integrity-based Making ethical decisions takes:
ethics programs Moral awareness
 Company  realizing the issue has ethical implications
mechanisms
designed to instill in Moral judgment
people a personal  knowing what actions are morally defensible
responsibility for Moral character
ethical behavior
 the strength and persistence to act in accordance
with your ethics despite the challenges

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Integrity-Based Ethics Pro- Figure 5.1: A Process for Ethical Decision Making
grams Ethical Decision Making

Courage Corporate Social Responsibility Corporate Social Responsibility

Behaving ethically requires not just moral  Corporate social Economic responsibilities
awareness and moral judgment but also responsibility (CSR)  To produce goods and services that society wants
moral character, including the courage to take  Obligation toward at a price that perpetuates the business and
actions consistent with your ethical decisions society assumed by satisfies its obligations to investors.
business.
Legal responsibilities
 Triple bottom line
 To obey local, state, federal, and relevant
international laws

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Courage Corporate Social CSR: Economic and Legal
Responsibility: defn. Responsibilities

Pyramid of Global Corporate Social

Corporate Social Responsibility Corporate Social Responsibility
Responsibility and Performance
Ethical responsibilities
Figure 5.2
 Philanthropic
 Meeting other social expectations, not written as responsibilities
law.  Additional behaviors
and activities that
society finds
desirable and that
the values of the
business support.

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CSR: Ethical Responsibili- CSR: Philanthropic Figure 5.3 Pyramid of
ties Responsibilities Global CSR and Perfor-
mance

Corporate Social Responsibility Contrasting Views Reconciliation

Transcendent education
 An education with five higher goals that balance
self-interest with responsibility to others
 Empathy, generativity, mutuality, civil aspiration,
intolerance of ineffective humanity
First - holds that managers act as agents for
shareholders and, as such, are obligated to
maximize the present value of the firm
Second - managers should be motivated by
principled moral reasoning
Profit maximization and corporate social
responsibility used to be regarded as
antagonistic, leading to opposing policies. But
the two views can converge
Recent attention has also been centered on
the possible competitive advantage of socially
responsible actions

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CSR: Transcendent Contrasting Views Reconciliation
Education

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Chapter 05 - Ethics, Corporate Responsibility, and Sustainability

Ecocentric Management Ecocentric Management Ecocentric Management

Ecocentric management Sustainable growth Life-cycle analysis (LCA)

 Goal is the creation of sustainable economic  Economic growth and development that meet  A process of analyzing all inputs and outputs,
development and improvement of quality of life present needs without harming the needs of though the entire “cradle-to-grave” life of a
worldwide for all organizational stakeholders. future generations product, to determine total environmental
impact

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Ecocentric Management Sustainable Growth Life-cycle Analysis

Video: Cell Phones for Soldiers

 Why is it important
for Rob and Brittany
Bergquist to be
socially responsible?

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Video: Cell Phones for Sol-
diers

5-30
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Education.