CAPSIM

INTRODUCTION TO CAPSIM ETHICS &

MANAGEMENT
SIMULATIONS, INC. CORPORATE SOCIAL RESPONSIBILITY

111111- 1 -
 Introduction To Capsim Ethics & Corporate
Social Responsibility.

1: ETHICS AND BUSINESS PRACTICE In business, we face challenges – and opportunities –

every day. They can come in many forms. There are
practical problems that require expertise to solve. No
matter what the area of business (marketing, finance, engineering, purchasing, etc.), careful thought and
collaborative effort can produce clear-cut solutions.

Although these problems can arise from any part of the business, they involve both business practices and
our ethical beliefs. Solutions to these sorts of problems are often much less clear.

With practical problems, we can rely on established business principles, scientific data or management
theory to support our decision-making. When we are dealing with ethical business practice, we are
relying on our inner principles to help us choose the right path.

WHY IS IT IMPORTANT?

A „for profit‟ company exists to create economic wealth, and that means focusing on the bottom line and
delivering profits. The required „end‟ of making money, however, does not justify any „means‟ that
ignore or compromise business standards.

Companies that allow unethical business practices – at times even breaking the law - pay the price in
fines, legal fees, compensation for those who were wronged or even jail terms for individuals.

In this module, we will discuss the gray areas of ethical business practice in which breaches may not be so
blatant, but they still have real potential to damage our business.

When individuals start to believe that compromising standards and cutting corners is common business
practice, the costs may be hard to quantify, but they can be damaging to the entire enterprise. The costs
associated with a damaged corporate culture include loss of trust, good will and honesty. The unforeseen
ramifications – from legal problems, to poor business relationships – can seriously erode the
organization‟s ability to operate successfully.

HOW TO RECOGNIZE THE PROBLEM

Sometimes it is not obvious that we are dealing with an ethical dilemma until we are right in the middle
of it.

Inappropriate business practices are not always easy to identify in advance. You can be thrown into a
tough situation due to a comment, a direction from a superior, or a request from someone outside of the
organization.

Inappropriate practices can be even more difficult to spot if they have developed over time – if things
have gradually begun to be done a certain way.

-2-
A simple way to identify that a problem is brewing is to listen for certain phrases and rationales. Listed
below are some expressions that should trigger an alarm – and some questions you could ask yourself
when you hear them:

WARNING SIGNS
1. “This is not normally done, it is a „special‟ case.” Why is it special and what are the exceptional
conditions? Are they real, or is this a case of rationalization?
2. “Those folks are always like that, they are mavericks, don‟t worry about it.” What makes those
folks special? Are they entitled to any special dispensation? Is this a continuation of past
inappropriate behaviors and exceptions?
3. “You are out of step, everyone else is okay with it”. Mark Twain once wrote “Whenever I find
myself in the majority, I stop and reassess.” Does the fact that everyone is doing it make it right
for you?
4. “The Executive office really wants it done – it‟s their responsibility”. Exactly which executive
will take responsibility? Why have they not communicated this to you directly? If this conflicts
with your company‟s code of business conduct, why the change of heart? If the activity came to
light, would these same executives claim responsibility?
5. “This should be kept hush, hush”. If an activity would suffer from exposure in the harsh light of
day, how can it be right? Why should it be kept secret? How would it read as an article in
tomorrow‟s Wall Street Journal?
6. “It‟s fair because of what “they” did.” Who determines “fair” and on what basis? Is retaliation a
good strategy or will it lead to further retribution? What are we trying to achieve in our work,
and is worrying about someone else just a distraction?
7. “There is no real harm done here.” Who is defining harm? What is this definition? Is there
underlying harm – to the integrity of our people or our systems?

-3-
2: OBJECTIVES OF THE MODULE The objective of this module is to make you more aware of
the potential for ethical problems in the workplace, and to
provide basic guidelines for dealing with them. We will
achieve it by considering a range of issues and discuss, as a group, their possible outcomes, and look at
the effect of the team‟s action on your company.

While the problems may appear complex, the solutions can be straight forward if you focus on the
following “Ethical Decision Making” process and the recommended “Action – Reaching a Decision”:

Ethical Decision-Making
1. Issue(s) 5. Impact of alternatives on
 identify the dilemma each stakeholder?
2. Facts  Stakeholders‟ resulting
 Obtain all unbiased facts impacts on you?
 Benefits/harms,
3. Alternatives rights/wrongs?
 what choices do you have
(look not only to a & b, but 6. Additional assistance
also to y & z!)  Guidance from ethical theory,
your profession, or your
4. Stakeholders organization
 Who has an interest?
 What are their motivations?
7. Action
 Now what?
 How much power does each
hold? 8. Monitor outcomes

© 2010-11 L. Hartman & P. Werhane

-4-
 Action – Reaching a Decision
 Is the alternative one that you would
expect others to choose?
 What kind of precedent will it set?
 Does this decision respect the dignity
of all stakeholders?
 Does it pass the “publicity” test?
 What harms or benefits are likely to
result (long-term and short-term)?
 Are there any rights at stake?
 Can we avoid violations of human
rights?
 Is this alternative consistent with your
personal values?
– It is consistent the mission and code
of your organization and/or
profession?
© 2010-11 L. Hartman & P. Werhane
 Will your choice stand the test of
time?
 Is it a model of “right” behavior,
individually and/or organizationally?
 How will you feel afterwards, will
you be proud? (Often called “the
mirror test”)
 Would it help to seek advice from
someone else?
 Does this alternative fall within legal
guidelines? Is your loyalty in the
“right” place?
 Is the alternative viable? Is it
possible to succeed?
 Is this something a leader should
do?

Note that the order is just a suggestion, when working on your decisions the order might be different.

3. HOW TO USE THIS MANUAL This manual has four topic areas plus an introductory section.
Please set aside some time to read the manual and prepare for the
team discussion and class meeting.

Each topic includes an overview and an issue (vignette) that might relate to your particular circumstances
or give you the opportunity to see issues from someone else‟s point of view.

The majority of the vignettes draw from the "gray" areas of business, in which solutions are not obvious,
and a clear right or wrong answer is hard to see without some soul searching. Try to "put yourself into"
the issue. Take on the role of the various characters, and ask yourself how you would feel, what options
you would consider, and how that might appear to others.

To get the best solution to the problem, it is important that everyone in the team/class contributes. Your
opinion is just as valuable and important as everyone else's. Please engage actively with your team, and
be open to the opinions of those around you.

* * * * *

-5-
 Conflicts of Interest

WHAT IS A CONFLICT OF INTEREST? A conflict of interest arises when the performance of

a person‟s business or professional responsibilities is
impaired or prevented by personal interests or
activities. These clashes can make it difficult to act with total objectivity in our working life.

Conflicts generally involve the potential for a personal, professional or business benefit that is
available only because of a unique association. The key question is whether or not that benefit
was achieved through ethical business practice.

All employees have a duty to avoid financial, business or other relationships that might be
opposed to their company‟s interests, and interfere with the performance of their responsibilities.

It is also important to avoid even the appearance of conflict between personal interests and those
of the company.

SOME CLEAR EXAMPLES OF CONFLICTS OF INTEREST ARE:

Ownership of or a substantial interest in a company that is a competitor or supplier to
your company.
Placing business with a firm in which an employee, or his or her family, has substantial
ownership or management interest.
Employment by your company‟s competitor, regardless of the nature of the employment,
while employed by your company.
Acting independently as a consultant to your company‟s customer or supplier while an
employee of your company.

HOW TO DEAL WITH CONFLICTS The telltale expressions that can alert you to a conflict of
interest include:

“This is not normally done, it is a „special‟ case.” Why is it special and what are the
exceptional conditions? Are they real, or is this a case of rationalization?
“It‟s fair because of what „they‟ did.” Who determines “fair” and on what basis? Is
retaliation a good strategy or will it lead to further retribution? What are we trying to
achieve in our work and is worrying about someone else just a distraction?
“There is no real harm done here.” Who is defining harm? What is this definition? Is
there underlying harm - to the integrity of our people or our systems?

IF YOU SEE A CONFLICT ARISING, ALTHOUGH THE PROBLEM MAY APPEAR COMPLEX, FOCUS ON
THE KEY PRINCIPLES FOR A SOLUTION OUTLINED ABOVE.

-6-
 Individual Rights & Responsibilities

WHY ARE THEY IMPORTANT? An individual‟s basic rights, whether within an

organization, or in society at large, are protected by law.
There is also a range of individual rights that we respect by
social convention – through good manners and respectful behavior – to ensure people retain their
personal dignity.

Inside an organization, respect for an individual‟s rights is crucial if employees are to be able to
operate at their full capacity, unhindered by prejudice, disrespect or other issues that will act as a
brake on their productivity.

An individual‟s responsibilities to an organization, and its business practices, are sometimes less
clearly defined. Why, after all, should an individual care about them? Surely the overall business
practices of an organization are the concern of the executive and managers? Not if you consider
what an organization is – simply a group of people working together for a common goal.

A company‟s employees are critical in creating value and creating the environment that is
the organization. Like any association of individuals, the group will only be as strong as the
weakest link, so every individual must maintain a certain set of standards for business practice.

A compromise by one, compromises all.

Every time you clip on your company‟s ID, you are no longer just an individual with clearly
defined rights, you are also part of an organization, with equally important responsibilities. You
become a valuable part of a very large, very successful, specialty sensor manufacturer. In order
to fulfill your obligations to your company you need to understand the business practice
standards expected of you and be prepared to live up to them.

WHAT ARE THOSE RESPONSIBILITIES ? Each person‟s job description sets out the basic
elements of their responsibility to the company –
including the tasks they are to perform, staff they
are to supervise and the outcomes for which they are responsible.

Companies usually have their Code of Conduct that outlines the employees a broader
responsibility to the company and standards expected of them. The Code cannot cover every
circumstance they‟ll experience in their day-to-day business dealings, but it sets out the broad
guidelines for them to apply as situations arise.

-7-
HELPING TO SOLVE PROBLEMS INVOLVING It is not easy to list all the situations that
may cause you to reflect on your rights
RIGHTS AND RESPONSIBILITIES and responsibilities as an employee.

They could arise when a new person joins

your team, when there is a change in the work required from your department or functional area,
or a change in technology. Some situations will develop in a seemingly innocent way, so you
won‟t initially see the chance for compromised business standards. The issues that follow will
help to identify and think about some of the possibilities.

Some of the telltale expressions to watch out for include:

“You are out of step, everyone else is okay with it.” Does that mean someone is
justifying the infringement of another‟s rights, or justifying a lack of personal
responsibility by trying to spread the blame over “everyone”?
“The Executive office really wants it done – it‟s their responsibility.” Who is really
responsible and are they taking responsibility?
“This should be kept hush, hush.” Why? To avoid making it obvious that someone‟s
rights are being denied? Or to ignore the fact that someone is avoiding responsibility?

IF YOU SEE AN ISSUE INVOLVING RIGHTS AND/OR RESPONSIBILITIES ARISING, ALTHOUGH THE
PROBLEM MAY APPEAR COMPLEX, FOCUS ON THE KEY PRINCIPLES FOR A SOLUTION.

-8-
 Information & Confidentiality

WHAT IS THE OBLIGATION OF CONFIDENTIALITY? As employees, we are asked to

undertake a number of activities
designed to create value for the
company, for its shareholders, for ourselves, and for its stakeholders.

To do our job and achieve our goals, we are provided with various tools and aids. One of the
most important tools is data. This data can come in a variety of forms – engineering designs or
plans, costing data, marketing forecasts, and business plans – and without it we couldn‟t perform
optimally in our jobs.

We understand that, in every case, data belongs to the company and should be treated as
proprietary. It was given to us to facilitate the completion of our mission and for no other
purpose.

Be aware that abusing the privilege of company information can happen through neglect as well
as through actively sharing the information. Simply leaving data around or handling it in a
haphazard way may constitute a breach of confidentiality.

Without a healthy attitude towards sharing information, no organization can optimize its success.
On the other hand, the careless stewardship of information can result in a number of negative
consequences, including litigation, both civil and criminal.

HOW TO DEAL WITH ISSUES OF CONFIDENTIALITY A foolproof formula for preventing

breaches of confidence is difficult
because there are so many varied
opportunities to breach a confidence.

When you are about to share some information that you know – or even suspect – is privileged
company information, ask yourself the following questions:

1. Who owns this information now?

2. What is the business purpose behind me revealing it?

When you are asked for information that you know – or even suspect - is privileged company
information, ask yourself the following questions:

1. Why am I being asked for this information?

2. What is the business purpose behind me revealing it?

-9-
SOME OF THE TELLTALE EXPRESSIONS TO WATCH OUT FOR THAT MAY INDICATE YOU ARE
ABOUT TO FACE A CONFIDENTIALITY ISSUE INCLUDE:

“This is just between you and me …” Often in business it is crucial that conversations are
kept between two professionals – is this really one of those instances?
“Off the record, can you tell me about …” If the person you are talking to later goes „on
the record‟ with this information, what will be the affect?
“This is not normally done, it is a “special” case.” Why is it special, what are the
exceptional conditions? Should or do they really apply? Is this a case of rationalization?

IF YOU SEE AN ISSUE INVOLVING RIGHTS AND/OR RESPONSIBILITIES ARISING, ALTHOUGH THE
PROBLEM MAY APPEAR COMPLEX, FOCUS ON THE KEY PRINCIPLES FOR A SOLUTION.

- 10 -
 Customer & Supplier Relations

WHAT ARE THE POTENTIAL PROBLEMS? There was a time when customer and supplier
relationships in the U.S. were often adversarial.
Over the past few decades, however, we have
come to realize that much more is to be gained by maintaining close and or at least cordial
relations with both our suppliers and our customers.

Partnering with customers allows us to tailor our products to more closely meet their needs and,
therefore, our goal of building business. It also ensures that we monitor the use of our products to
optimize the customer‟s use of our goods and services, maximizing customer satisfaction and
repeat business.

On the supplier side, maintaining strong vendor relations allows us to obtain components and
raw materials that best match our requirements, minimize costs and anticipate “surprises” such as
stock outs and quality problems.

This “new” attitude toward customer and supplier relations encourages a much closer and more
convivial atmosphere which has certain risks associated with it.

HOW CLOSE IS TOO CLOSE? The risks associated with these “closer” relationships can
show up at any time, often in apparently innocuous ways.

We have all been in some kind of marketing environment, a trade show for example, where those
attempting to market to us used some kind of trinket to attract our attention. We accept a pen
from a person delivering a sales pitch, or maybe a fridge magnet, or a little rubber ball, or a key
chain, or even a giant foam finger!

Most would agree that accepting such a trinket, whether this was a vendor of ours or not, is
harmless. So, if that is harmless, then surely accepting a t-shirt or a calendar from a vendor is
harmless too. Then is it okay if they give us cushions to sit on at the football stadium? Or better
still, a vacuum flask for our coffee, or maybe a blanket with our team logo on it, or a set of
tickets to the NFL playoffs where our team is playing, or maybe some airline tickets to the Super
Bowl, after all our team is going all the way this year!

At some point during that development from pen to airline tickets, most of us get an
uncomfortable feeling in our gut. At some point, the trinket went from harmless premium to
bribe. At the “trinket” level, we are unconcerned and feel no “quid pro quo” involved in our
acceptance of the item. At the “bribe” level, we know it is wrong, know that there are strings
attached and know the best way to handle the bribe to avoid ethical or legal difficulties.

In between, however, is a "gray" area – and it is in this "gray" area that the danger lurks.

- 11 -
The potential pitfalls in supplier/customer relationships are not just about giving and receiving of
gifts. They relate to our attempts to maintain relationships on a positive level, while executing
transactions in a commercial environment where the opportunities for misunderstandings – and
feelings of being “short-changed” – are many.

HOW TO MANAGE CUSTOMER AND There are several telltale signs that your
relationship with your supplier or customer is
SUPPLIER RELATIONSHIPS slipping into dangerous waters. They include:

“This is not normally done, but it is a “special” case because we have such a good
relationship.” The supplier or customer is a Caterpillar supplier or customer just like any other –
what good business reason makes this case special?
“This should be kept hush, hush.” If the interaction between you would not stand public
scrutiny then it is very unlikely to be ethical.
“There is no real harm done here.” Perhaps in the short term, but what about the long term?
Who else may be affected?

IF YOU SEE AN ISSUE INVOLVING RIGHTS AND/OR RESPONSIBILITIES ARISING, ALTHOUGH THE
PROBLEM MAY APPEAR COMPLEX, FOCUS ON THE KEY PRINCIPLES FOR A SOLUTION.

- 12 -
Workbooks:
These are workbooks that you could use to help you identify the ethical dilemma, understand the
warning signs, and understand the consequences of your actions on your stakeholders.

------------------------------------------------------------------------------------

EXERCISE 1: RECOGNIZING ETHICAL DILEMMA & FACTS

FOR ISSUE #: _______

WHAT IS THE ETHICAL DILEMMA?

SELECT THE TOPIC AREA(S) & WARNING SIGNS

 SELECT THE TOPIC AREA
The issue falls under one or more topic areas. Please select the most appropriate
area(s):

Conflicts of Interest
Customer & Supplier Relations
Individual Rights & Responsibilities
Information & Confidentiality

 SELECT THE WARNING SIGNS

A simple way to identify that an ethical problem is brewing is to listen for certain
phrases and rationales. Listed below are some expressions that should trigger an
alarm—and some questions you could ask yourself when you hear them. Which of these
expressions alerted you that you are dealing with the category you selected above?

“This is not normally done, it is a ‘special’ case.” Why is it special and what are
the exceptional conditions? Are they real, or is this a case of rationalization?
“This is not normally done, but it is a “special” case because we have such a good
relationship.” The supplier or customer is a supplier or customer just like any
other – what good business reason makes this case special?
“This is not normally done, it is a “special” case.” Why is it special, what are the
exceptional conditions? Should or do they really apply? Is this a case of
rationalization?
“It’s fair because of what ‘they’ did.” Who determines “fair” and on what basis?
Is retaliation a good strategy or will it lead to further retribution? What are we
trying to achieve in our work and is worrying about someone else just a
distraction?

- 13 -
 “There is no real harm done here.” Who is defining harm? What is this definition?
Is there underlying harm - to the integrity of our people or our systems?
“There is no real harm done here.” Perhaps in the short term, but what about
the long term? Who else may be affected?
- “This should be kept hush, hush.” If the interaction between you would not
stand public scrutiny then it is very unlikely to be ethical.
- “This should be kept hush, hush.” Why? To avoid making it obvious that
someone’s rights are being denied? Or to ignore the fact that someone is
avoiding responsibility?
- “This is just between you and me …” Often in business it is crucial that
conversations are kept between two professionals – is this really one of those
instances?
- “Off the record, can you tell me about …” If the person you are talking to later
goes ‘on the record’ with this information, what will be the affect?
- “You are out of step, everyone else is okay with it.” Does that mean someone is
justifying the infringement of another’s rights, or justifying a lack of personal
responsibility by trying to spread the blame over “everyone”?
- “The Executive office really wants it done – it’s their responsibility.” Who is really
responsible and are they taking responsibility?

- 14 -
 EXERCISE 2: STAKEHOLDERS
FOR ISSUE #: _______

1. Rate the stakeholders from 0 to 3 based on level of importance.

(0 = unimportant; 3 = very important)

2. From the list of stakeholders, select the core stakeholders. Select at least 5 and no
more than 10. Core stakeholders are the ones with greatest impact on your
organization.

STAKEHOLDERS RATE (0 TO 3) CORE STAKEHOLDERS

Employees
Communities
Shareholders
Managers
Creditors
Customers
Suppliers
Labor unions
Government regulatory agencies
Professional associations
Non-governmental organizations and
other advocacy groups
Prospective employees
Prospective customers
Competitors
Future generations
Analysts and Media
Alumni (former employees)
Joint-venture partners
The board of directors
Donation partners
Legal department/lawyers

- 15 -