Economics of EthicsEconomics of Ethics Jim McGraw, MCC-LongviewJim McGraw, MCC-LongviewAgendaAgenda

Background of workshop Background of workshop 15 minute draft presentation15 minute draft presentation

– The problem (“The Cheating Culture?”)The problem (“The Cheating Culture?”)– The challenge- How to foster ethical business The challenge- How to foster ethical business

practicespractices Discussion and feedbackDiscussion and feedback

Follow-up and closureFollow-up and closure

Name that Scandal!Name that Scandal!

Provide a brief description of the following Provide a brief description of the following well-known scandals, noting the well-known scandals, noting the ethical/legal issues involved:ethical/legal issues involved:

EnronEnron

Charles Prestwood, a 63 year old retired Charles Prestwood, a 63 year old retired Enron employee who lost practically all of Enron employee who lost practically all of his $1.3 million savings invested in the his $1.3 million savings invested in the company’s stock said, “Something stinks company’s stock said, “Something stinks here. There are people at Enron who made here. There are people at Enron who made millions selling the stock while we, the rank millions selling the stock while we, the rank and file, got burned.”and file, got burned.”(Vickers, M. et al ‘The Betrayed Investor, Australian (Vickers, M. et al ‘The Betrayed Investor, Australian

Financial Review, Feb 19, 2002 p. 52) Financial Review, Feb 19, 2002 p. 52)

Jayson Blair?Jayson Blair?

New York Times reporter for about 4 years.New York Times reporter for about 4 years.

It was estimated that almost 50% of the It was estimated that almost 50% of the articles he wrote since 2002 contained articles he wrote since 2002 contained fabricated or plagiarized work.fabricated or plagiarized work.

Napster!Napster!

Politics?Politics?

Cultural TrendsCultural Trends

In In The Cheating Culture The Cheating Culture (2004), David (2004), David Callahan asserts that a cultural shift in the Callahan asserts that a cultural shift in the 1980’s toward a “1980’s toward a “winner take allwinner take all” mentality ” mentality has led to increased cheating behaviors in: has led to increased cheating behaviors in: politics, business practice, sports, legal politics, business practice, sports, legal profession, medicine, pharmaceutical profession, medicine, pharmaceutical industry, journalism, auto repair, higher industry, journalism, auto repair, higher education….. education…..

Other ExamplesOther Examples Sears (auto repair)Sears (auto repair) Princeton (hacked into Yale’s computer Princeton (hacked into Yale’s computer

system)system) Taxes (it is estimated that the average Taxes (it is estimated that the average

taxpayer has to pay $3,000 per year to taxpayer has to pay $3,000 per year to compensate for widespread tax evasion)compensate for widespread tax evasion)

Medicine and PharmaceuticalsMedicine and Pharmaceuticals

Little indiscretions that add up….Little indiscretions that add up….

Loss estimates per year of US businesses Loss estimates per year of US businesses from employee theft range from from employee theft range from 10 billion 10 billion to 200 billion annually.to 200 billion annually.

U.S. Dept of Commerce estimates 33% of U.S. Dept of Commerce estimates 33% of business failures can be traced to employee business failures can be traced to employee theft and other employee crimes.theft and other employee crimes.

Cost of a daily “free” deli sandwich, chips, Cost of a daily “free” deli sandwich, chips, and soda taken by a supermarket employee and soda taken by a supermarket employee for 1 year- approximately for 1 year- approximately $840.00$840.00

– http://law.jrank.org/pages/1084/Employee-Theft-Legal-Aspects-Estimates-cost.html -Aspects-Estimates-cost.html

The ProblemThe Problem

Businesses are currently struggling to stay Businesses are currently struggling to stay solventsolvent

According to Callahan (2004) some According to Callahan (2004) some businesses/people bend ethical standards businesses/people bend ethical standards because “everyone is doing it”, and they because “everyone is doing it”, and they don’t want to lose the competitive edgedon’t want to lose the competitive edge

Due to highly public scandals (Madoff) it is Due to highly public scandals (Madoff) it is difficult to promote a “restoration of trust” difficult to promote a “restoration of trust” with customers with customers

Good News!Good News! Most people that bend the rules (sacrifice Most people that bend the rules (sacrifice

integrity for financial stability) are basically integrity for financial stability) are basically “good people”“good people”

Ethical standards and decision making Ethical standards and decision making processes are available and being used by processes are available and being used by organizations. organizations.

Please name some companies that are Please name some companies that are recognized for ethical business practice.recognized for ethical business practice.

The good news never stopsThe good news never stops The 2009 National Business Ethics Survey The 2009 National Business Ethics Survey

reports (reports (www.ethics.org): ): Misconduct at work is down (56% in 2007 to Misconduct at work is down (56% in 2007 to

49% in 2009)49% in 2009) Whistle blowing is up (58% in 2007 to 63% Whistle blowing is up (58% in 2007 to 63%

in 2009)in 2009) Ethical cultures are stronger (53% in 2007 to Ethical cultures are stronger (53% in 2007 to

62% in 2009)62% in 2009) Pressure to cut corners is lower (10% in 2007 Pressure to cut corners is lower (10% in 2007

to 8% in 2009) to 8% in 2009)

Ethics Quiz: 1 minute with a Ethics Quiz: 1 minute with a partnerpartner What are some general principles of What are some general principles of

moral/ethical practice?moral/ethical practice? From a Rotary Perspective, we can ask From a Rotary Perspective, we can ask

ourselves….ourselves…. Is it true? Is it true? Is it fair to all concerned?Is it fair to all concerned? Will it build good will and better Will it build good will and better

friendshipsfriendships Will it be beneficial to all concernedWill it be beneficial to all concerned

What Can Be Done?What Can Be Done?

With a partner, please list 2 or 3 things With a partner, please list 2 or 3 things business leaders can do to promote a culture business leaders can do to promote a culture of ethical business practice. of ethical business practice.

What are the costs of these practices?What are the costs of these practices? What are the benefits?What are the benefits?

A few ideas from the Lee’s A few ideas from the Lee’s Summit Civic RoundtableSummit Civic Roundtable

Regular review of code of ethicsRegular review of code of ethics Connect with Lee’s Summit Community of Connect with Lee’s Summit Community of

Character (e.g., Character (e.g., recognizerecognize ethical practices) ethical practices) and Lee’s Summit 360and Lee’s Summit 360

Have clear expectations and accountabilityHave clear expectations and accountability Take responsibility for self and othersTake responsibility for self and others Lead by example, and admit mistakesLead by example, and admit mistakes Speak up when ethical issues ariseSpeak up when ethical issues arise

A New Social Contract? A New Social Contract?

““It means striking a healthier balance It means striking a healthier balance between humanistic values like shared between humanistic values like shared responsibility, mutual respect, and responsibility, mutual respect, and compassion for the weak- and market compassion for the weak- and market values like maximum efficiency, individual values like maximum efficiency, individual autonomy, and admiration for the strong”autonomy, and admiration for the strong”– (Callahan, 2004, p, 264) (Callahan, 2004, p, 264)

Ethics in Business Improves the Bottom Line Ethics in Business Improves the Bottom Line Lynn Paine- Professor at Harvard Business Lynn Paine- Professor at Harvard Business School asserts that ethical practice:School asserts that ethical practice: 1) Helps companies manage risk1) Helps companies manage risk 2) Increases functioning of companies by 2) Increases functioning of companies by

improving employee moraleimproving employee morale 3) Improves the company market position 3) Improves the company market position

by maintaining or enhancing reputationby maintaining or enhancing reputation 4) Improves the companies’ “civic 4) Improves the companies’ “civic

positioning”, allowing better relations with positioning”, allowing better relations with communities and government communities and government

(Callahan, 2004, p. 285) (Callahan, 2004, p. 285)

#1- Risk Management#1- Risk Management

During a period of less than 15 years, Sears During a period of less than 15 years, Sears squandered public trust, incurred numerous squandered public trust, incurred numerous criminal charges and multiple lawsuits, and criminal charges and multiple lawsuits, and paid fines and settlements that ultimately paid fines and settlements that ultimately totaled over totaled over $2 Billion $2 Billion (Callahan, p. 33)(Callahan, p. 33)

#2 Employee Morale#2 Employee Morale

Research conducted by Sears found that if Research conducted by Sears found that if employee satisfaction were to improve by 5 employee satisfaction were to improve by 5 points- points- – Customer satisfaction would increase by 1.3 Customer satisfaction would increase by 1.3

points…points…– Leading to a 0.5% increase in revenue…Leading to a 0.5% increase in revenue…– Resulting in additional sales of approximately Resulting in additional sales of approximately

$65 million per year$65 million per year

Zadek, S, 2001 The Civil Corp. EarthscanZadek, S, 2001 The Civil Corp. Earthscan

#3 and #4- Reputation & Civic Position#3 and #4- Reputation & Civic Position

91% of consumers are likely to buy from 91% of consumers are likely to buy from companies that can show they behave companies that can show they behave ethically. ethically.

78% of consumers say they would support a 78% of consumers say they would support a company that does good work in the company that does good work in the community. community. – Eye on Australia, Sweeney Research cited in Lloyd, Eye on Australia, Sweeney Research cited in Lloyd,

Simon, “Retail: happy shopping’, Business Review Simon, “Retail: happy shopping’, Business Review Weekly, Jun 8, 2001. Weekly, Jun 8, 2001.

Examples of Local Ethical Examples of Local Ethical Business PracticeBusiness Practice

1.1.

2.2.

3. 3.

General Follow-Up General Follow-Up Read Read The Cheating Culture: Why More The Cheating Culture: Why More

Americans Are Doing Wrong to Get AheadAmericans Are Doing Wrong to Get Ahead ((David Callahan, 2004) David Callahan, 2004) www.thecheatingculture.com

Visit Visit www.ethics.org for resources and for resources and more detailed information on the 2009 more detailed information on the 2009 National Business Ethics SurveyNational Business Ethics Survey

Ethisphere..com (top companies 2008)Ethisphere..com (top companies 2008) Discuss with colleaguesDiscuss with colleagues Increase awareness of workplace practices Increase awareness of workplace practices

that have potential ethical ramifications that have potential ethical ramifications

Immediate Follow-Up StepsImmediate Follow-Up Steps

Post your organizational mission, vision, Post your organizational mission, vision, and values in a place to be viewed each dayand values in a place to be viewed each day

Recognize and acknowledge ethical Recognize and acknowledge ethical behavior in colleagues and customersbehavior in colleagues and customers

Model ethical behavior Model ethical behavior

Suggestions or Requests?Suggestions or Requests?

Jim McGraw- (816) 604-2313Jim McGraw- (816) 604-2313

Jim.McGraw@mcckc.edu

Thanks very much for your interest and Thanks very much for your interest and assistance!assistance!

Feedback and Next StepsFeedback and Next Steps

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