CONDUCTING BUSINESS ETHICALLY AND RESPONSIBLY CH APTER 2

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CONDUCTING BUSINESS CONDUCTING BUSINESS ETHICALLY AND RESPONSIBLYETHICALLY AND RESPONSIBLY

CHCHAPTER APTER 22

Department of Business AdministrationDepartment of Business Administration

EMUEMU

This slide set is prepared for use with Ebert and Griffin, Business Essentials. Fifth Edition. Prentice Hall, New Jersey, 2005. Limited use has been made of some slides that are part of the slide set by the publisher.

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• Ethics in the Workplace

• Social Responsibility

• Areas of Social Responsibility

• Implementing Social Responsibility Programs

Topics SummaryTopics Summary

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What Is Ethical Behavior?What Is Ethical Behavior?

Ethics: Right and wrong, good and bad, in actions that affect others

Ethical Behavior: Conforming to generally accepted ethical norms

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• Individual Ethics– What is ethics?

Ethics : beliefs (inanç) about what is right and wrong or good and bad in our actions that affect other people or organizations (ahlak)

– Ethical Behavior : behavior conforming to generally accepted social norms concerning beneficial and harmful actions

– Unethical Behavior : behavior that does not conform to generally accepted social norms

– Business Ethics : ethical or unethical behaviors by a manager or employer of an organization

ETHICS IN THE WORKPLACEETHICS IN THE WORKPLACE

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ETHICS IN THE WORKPLACEETHICS IN THE WORKPLACE

– Ethics are based on social concepts and individual beliefs

• change from person to person• change from situation to situation• change from culture to culture

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ETHICS IN THE WORKPLACEETHICS IN THE WORKPLACE

• Business and Managerial Ethics– Managerial ethics: standards of behavior

that guide individual managers in their work

– Three categories of managerial ethics:• Behavior toward employees

– hiring and firing– wages and working conditions– privacy and respect

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ETHICS IN THE WORKPLACEETHICS IN THE WORKPLACE• Behavior toward the organization

– conflict of interest (çıkar çatışması)

when an activity may benefit the individual employee to the detriment (zarar, kayıp) of his or her employer

– confidentiality (gizlilik)– honesty (dürüstlük)

• Behavior toward other economic agents– economic agents: customers, competitors,

stockholders (hissedarlar), suppliers (tedarikçiler), dealers (bayiler), and unions (sendikalar)

» price of drugs, wages paid to employees, quality of goods/services, financial reporting to stockholders; business practices in other countries – bribery (rüşvet), gifts, etc.

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ETHICS IN THE WORKPLACEETHICS IN THE WORKPLACE

• Assessing Ethical Behavior– What is ethical and nonethical behavior? This is often

a highly subjective issue. People have different opinions about what is ethical and what is not..

– A three-step model:1. Gather relevant factual information

2. Analyze the facts to determine the most appropriate moral values

3. make an ethical judgement on the rightness or wrongness of the proposed activity or policy

Example: expense accounts for managers

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ETHICS IN THE WORKPLACEETHICS IN THE WORKPLACE

• Company Practices in Business Ethics– company influences individual ethical

behavior– many companies take steps to encourage

ethical behavior in the workplace– firms establish “codes of conduct”

concerning the workplace (davranış kuralları)

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• Demonstrating Commitment to ethical and legal behavior– Show by your actions that your

company is committed to ethical behavior

Example: Tylenol pain reliever(ağrı kesici) with cyanide in 1982 (Johnson & Johnson Company in the U.S.)

Honesty and openness about the whole incident

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ETHICS IN THE WORKPLACEETHICS IN THE WORKPLACE

– Adopting Written Codes• increase public confidence in the firm or industry• to prevent government regulation• to improve internal operations by providing

consistent standards of ethical and legal conduct• to respond to problems that arise as a result of

unethical or illegal behavior

– Instituting Ethics Programs• educate employees about ethical and legal

behavior

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• Social Responsibility– Ethics affect individual behavior in the

workplace– Social Responsibility (Kamuya karşı

sorumluluk): the attempt of a business to balance its commitments to groups and individuals in its environment, including customers, other businesses, employees, investors (owners), and local communities.

SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITY

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Social Responsibility: Balancing Social Responsibility: Balancing Commitments to StakeholdersCommitments to Stakeholders

Stakeholders:Stakeholders: Groups, individuals, and organizations Groups, individuals, and organizations that are directly affected by the practices of an that are directly affected by the practices of an organizationorganization

Employees Investors

Local Communities

Customers SuppliersCORPORATION

Stakeholder: paydaş in Turkish

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Major Stakeholders of A Major Stakeholders of A CompanyCompany

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SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITY

• Stakeholder Model of Responsibility– customers

• treat customers fairly and honestly• charge fair prices; honor warranties; meet

delivery commitments; stand behind the quality of your products

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SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITY

– employees• treat your workers fairly; make them part of a

team; respect their dignity and basic human needs

– investors• follow proper accounting procedures; provide

information to shareholders (hissedarlar) about financial performance; manage the organization to protect shareholder rights and investments

• avoid insider trading, stock-price manipulation• do not withold financial data from shareholders

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SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITY

– suppliers (tedarikciler)• suppliers are organizations which sell you various goods, raw

materials, components, etc.• mutually beneficial partnership arrangements with suppliers• keep them informed about your delivery (teslim) and

production schedules• in short, excellent relationships with suppliers helps both

parties

– local communities• contribute to social programs; get involved in charitable

activities (hayır işleri)• be a good “corporate citizen” (kurumsal yurttaş)

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The Evolution of The Evolution of Social ResponsibilitySocial Responsibility

• Entrepreneurial Era• many new businesses

• powerful companies

• abuses of power led to backlash (güçlü tepki)

• labor problems

• The Great Depression (1929 +)

• Era of Social Activism (1960’s & 70’s)• increased activism led to government

intervention (health warnings on cigarettes, new safety features in autos, environmental protection laws, etc)

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– Contemporary Social Consciousness• greater social role for businesses

• many businesses are becoming more sensitive (duyarlı) to their social responsibilities

– Sears (a large mail-order company in the U.S.)) refuses to sell handguns

– many businesses try to sell products which are safe and environmentally friendly

» Example : use ozone rather than chlorine (a water pollutant) in production

– recyclable (dönüşümlü; geri kazanımlı) products or parts

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• Areas of Social Responsibility

Four areas of social responsibility:1. Environment

2. Customers

3. Employees

4. Investors (i.e. owners)

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1. Responsibility toward the Environment• Air pollution

• carbon monoxide, other chemicals• problem of acid rain (sulphur mixes with moisture

and falls as rain)• laws are in effect in many countries including

Turkey; the problem is enforcement (uygulama)

• Water pollution• oil spills, chemicals being dumped to rivers and

lakes

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– Land Pollution• city waste dumps (çöplük), quarries (taş ve maden

ocakları), toxic wastes• Two problems in dealing with land pollution:

1. how to restore land quality that has already been damaged

2. how to prevent future pollution

• Toxic waste disposal (must be stored since it cannot be destroyed or processed. Examples: mercury, uranium and plutonium)

• Recycling (geri kazanım): conversion of waste materials into useful products ( example -- paper products made from recycled paper)

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– Noise pollution : many of us living in Turkey and Cyprus (and some other countries) also suffer from extreme noise pollution. Do you agree? Examples?

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2. Responsibility toward Customers– Old concept was “business had only one

responsibility---to make a profit”– “Caveat Emptor”-- let the buyer beware

(malı alan düşünsün) was the order of the day; in other words buy the product, pay the price, and face the consequences.

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– Social responsibility toward customers falls into two categories:1. providing quality and safe products

2. pricing products fairly

– In many countries, the government through its various agencies, tries to protect the customers from unethical business practices. • U.S. -- Federal Trade Commission; Food and Drug

Administration; Securities and Exchange Commission• Turkey -- Sanayi ve Ticaret Bakanlığı; Rekabet

Kurulu; Sermaye Piyasası Kurulu; Sağlık Bakanlığı

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– Consumer Rights and Consumerism

Consumers have a right to1. safe products2. be informed about all relevant aspects of a

product3. be heard4. choose what they buy5. be educated about purchases (medicines)6. courteous service

– Consumerism : form of social activism dedicated to protecting the rights of consumers in their dealings with businesses (Consumers Union in the U.S.)

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– Started in the 80’s in Turkey; growing stronger

– Consumers must be conscious of their rights and their power in the marketplace.

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– Unfair Pricing as a result of collusion

Collusion : illegal agreement between two or more companies to commit a wrongful act (such as charging a very high price)

Price Fixing : agreement between companies to charge the same price

Price Gouging : increasing prices heavily in the face of increased demand

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– Ethics in Advertising • giving false or misleading information to the public

through advertising;– an example from Turkey some years ago -- “potato chips that

do not cause you to gain weight” – “low fat” foods– orange juice vs. orange drink -- a recent example from Turkey

• using morally objectionable practices in advertising– tobacco products advertising (especially targeting young

people)– alcoholic drinks advertising– use of children in objectionable roles

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3. Responsibility toward Employees– Activities such as

• recruiting (eleman arama)• hiring (işe alma)• training (eğitim)• promoting (yükseltme)• compensating (ödeme)

are the basis for responsibility toward employees.

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– A company should provide its employees with equal opportunities for rewards and advancement without regard to

• sex• race• color• national origin• religion

Laws in many countries protect employees from discrimination (ayırım) on the basis of the above.

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– Other issues such as • safety at the workplace• healthy work environment• sexual harassment (cinsel taciz) at the

workplace -- this is a big problem; many cases go unreported.

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– Ethical Commitments: The Case of Whistleblowers

• A whistleblower (muhbir; ihbar eden kimse) is an employee who finds out and tries to put an end to a company’s unethical, illegal, or socially irresponsible actions by publicizing them

• In the U.S. there are laws that enable a whistleblower to receive a percentage (as high as 25-30 %) of the money that the government gets

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4. Responsibility toward InvestorsManagers can abuse their responsibilities to investors (owners) in a number of ways. Chief among them is the abuse (kötüye kullanmak) of a firm’s financial resources.– Improper financial management -- many ways

of doing this (bad management, stealing funds, using financial resources for personal gains, etc)

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– Check Kiting : illegal practice of writing checks against money that has not yet been credited at the bank on which checks are drawn (karşılıksız çek yazmak)

– Insider Trading : using confidential information to gain from the purchase or sale of stocks (kamuya açıklanmamış bilgiden yararlanarak hisse senedi almak veya satmak)

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– Misrepresentation of Finances

Reporting financial information by misrepresenting (çarpıtarak) facts.

Example: A company preparing three balance sheets -- one for the stockholders, one for borrowing from banks, and one for tax purposes

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• There is disagreement among business about social responsibility. – one group -- “profits as business goal”– another group -- “social responsibility comes before

profits”

• Approaches to Social responsibility:– Obstructionist Stance: approach to social

responsibility that involves doing as little as possible; it may involve attempts to deny or cover up violations (engelleyici tavır)

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– Defensive Stance: company meets only minimum legal requirements in its commitment to groups and individuals in its social environment (savunmacı tavır)

• tobacco industry is a good example

– Accommodative Stance: exceeds minimum legal requirements in its commitments to groups and individuals, if specifically asked to do so (katılımcı/işbirlikci tavır)

• banks and GSM operators in North Cyprus and Turkey are good examples

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IMPLEMENTING SOCIAL IMPLEMENTING SOCIAL RESPONSIBILITY PROGRAMSRESPONSIBILITY PROGRAMS

– Proactive Stance: company actively seeks opportunities to contribute to the well-being of groups and individuals in its social environment (önceden istekli tavır)

• set up foundations to provide direct financial support for social programs

– SABANCI Foundation (VAKSA) and Turkish Education Foundation (TEV) belonging to KOÇ Holding are two good examples of proactive stance

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Approaches to Social Approaches to Social ResponsibilityResponsibility

Level of Social ResponsibilityLevel of Social Responsibility

DefensiveStance

ObstructionistStance

AccommodativeStance

ProactiveStance

LowestLowest HighestHighest

Actively Avoids

Responsibility

Does Legal Minimum

Responds to Requests

Actively Seeks Opportunities to Contribute

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• Managing Social Responsibility Programs– Social responsibility must start at the top– A plan detailing level of management support– An executive must be put in charge of the

program– Occasional social audits must be conducted

• Social audit: systematic analysis of a firm’s success in using funds set aside for meeting social responsibility goals

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• Social Responsibility and the Small Business– individual ethics– social responsibility

IMPLEMENTING SOCIAL IMPLEMENTING SOCIAL RESPONSIBILITY PROGRAMSRESPONSIBILITY PROGRAMS