Ethics and Social Responsibility BM003: Examine the role of ethics and social responsibility in business decision making

Ethics and Social Responsibility

BM003: Examine the role of ethics and social responsibility in business decision making.

BM03.01 Explain the relationship between ethics and government laws and regulations.

Define “Business Ethics”

A collection of principles and rules that define correct and incorrect behavior/conduct for a member of an organization.

Notions of what is right and wrong vary from manager to manager, business to business, and country to country.

Laws Relating to Ethics in Business

Competition lawsConsumer Protection lawsEnvironmental Protection lawsEmployment laws

Competition Laws

The Sherman Act of 1890– Insures that companies remain able to compete fairly– Makes it illegal for companies to monopolize trade– Prohibits mergers of new company if merged

company controls too large a share of the market

Competition Laws (cont.)

The Clayton Act of 1914– Makes it illegal to charge different prices to different

wholesale customers– Bans practice of requiring a customer to purchase a

second good


The Robinson-Patman Act of 1936– Amended portion of the Clayton Act dealing with the

pricing of goods– Prevents price discrimination—setting different

prices for different customers


Wheeler-Lea Act of 1938– Passed to strengthen earlier laws outlawing unfair

methods of competition– Bans unfair unfair or deceptive acts or practices,

including false advertising

Consumer Protection Laws

Federal Food, Drug, and Cosmetic Act of 1938– Bans the sale of impure, improperly labeled, falsely

guaranteed, and unhealthful foods, drugs, and cosmetics

– Enforced by the Food and Drug Administration (FDA)

Consumer Protection Laws (cont.)

Consumer Product Safety Commission 1972– Establishes minimum product safety standards on

consumer products– If product is defective, CPSC has the authority to force

the manufacturer to recall the product


Truth in Lending Act of 1968– Creditors are required to let consumers know how much

being paid in finance charges and interest– Business must show finance charge on statements as

annual percentage rates to make comparing rates easier.


Equal Credit Opportunity Act of 1975– Illegal for business to deny credit because of age, sex,

marital status, race, national origin, religion, or public assistance

– Requires businesses to notify credit card applicants of application status within 30 days and give reason for rejection


Fair Credit Reporting Act—gives cardholders right to see their credit agency reports and to correct errors

Fair Debt Collection Practices Act—forbids debt collectors to use abusive, deceptive, or unfair collection methods

Environmental Protection Laws

The National Environmental Policy Act of 1969– Key piece of legislation in environmental protection– Created the Environmental Protection Agency (EPA)

whose mission is to protect human health and safeguard the air, water, and land

Environmental Protection Laws (cont.)

The Clean Air Act of 1970– Comprehensive federal law that regulates air

emissions– Original act set maximum air pollution standards for

each of the 50 states– Amended in 1990 to deal with acid rain, ground- level

ozone, stratospheric ozone depletion, and toxic substances in the air


The Toxic Substances Control Act of 1976– Enacted to give EPA the ability to track the 75,000

industrial chemicals currently produced in or imported into the U.S.

– EPA screens these chemicals and can require reporting or testing of any that may pose an environmental or human health hazard


The Clean Water Act of 1977– Give EPA authority to set standards on type and

quantity of pollutants that industries can put into bodies of water

– Illegal to discharge any pollutant into navigable waters unless permit is obtained


CERES Principles (Coalition of Environmentally Responsible Economies)– Developed as result of Exxon Valdez accident, which

spilled oil along coastal Alaska in 1989– Organizations are asked to follow the principles

voluntarily, but are not legally required

Employment Laws

Equal Employment Opportunity Law– Civil Rights Act of 1964– Age Discrimination in Employment Act– Americans with Disabilities Act– Equal Pay Act

Employment Laws (cont.)

Occupational Safety and Health Laws– Enforced by Occupational Safety and Health

Administration (OSHA)– Sets standards for keeping workplaces clean and

free of hazards


Fair Labor Standards Act (Wage-Hour Laws)– Sets minimum wage– Sets number of hours employees can work in a week

without overtime pay– Prohibits companies from employing children under

the age of 14


Benefits Laws– Social Security Act– Employment Retirement Income Security Act

(ERISA)– Unemployment Insurance– Workers’ Compensation– Family and Medical Leave Act (FMLA)


Labor Relations Laws– Enacted by Congress to protect groups of

employees– National Labor Relations Act (NLRA)

• Organizing a union• Collective bargaining• Striking


BM03.02 Examine business codes of ethics and how they contribute to ethical business environments.

Ethical Issues in Business

Accepting business giftsBribing government officialsRespecting the privacy and dignity of employeesUsing company property for personal use

General Content of Ethical Codes

HonestyAdherence to the lawProduct safety and qualityHealth and safety in the workplaceConflicts of interestEmployment practices


Selling and marketing practicesFinancial reportingPricing, billing, and contractingTrading in securities/using confidential informationAcquiring and using information about competitors


SecurityPayments to obtain businessPolitical activitiesProtection of the environment

Source: Business Management, Real World Applications & Connections, Glencoe/McGraw-Hill

Code of Ethics in a Business Environment

Removes or reduces opportunities for unethical conductMust be communicated to all employeesMust have procedures in place to handle violations of the codeMust have full support of top-level managersMust be enforced to be effective

Ethical Dilemmas

Course of action not always clearNotions of what is right or wrong changes over timeValues differ among nations– Corporate gift-giving– Intellectual property

• Copyrights• Patents• Trademarks

Solving Ethical Dilemmas

Have you defined the problem accurately?

How would you define the problem if you stood on the other side of the fence?

Whom could your decision or action injure? Can you discuss the problem with the affected parties before you make your decision?

Solving Ethical Dilemmas

Are you confident that your position will be as valid over a long period of time as it seems now?

Could you disclose without qualm your decision or action to your boss, your CEO, the board of directors, your family, and society as a whole?

Standards by Which Ethical Decisions Are Made

The Golden RuleUtilitarian PrincipleKant’s Categorical ImperativeThe Professional Ethic

Standards by Which Ethical Decisions Are Made

The TV TestThe Legal TestThe Four-Way TestRights ViewTheory of Justice

Guidelines for Acting Ethically

Know your organization’s policy on ethicsUnderstand the ethics policyThink before you actAsk yourself “what-if” questionsSeek opinions from othersDo what you truly believe is right

BM03.03 How does a business demonstrate social responsibility?

Social Responsibility—changing views– Profit Maximization (19th-early 20th century)– Trusteeship Management (1920s and 1930s)– Social Involvement(1960s-present)

Stakeholder—All people affected by the actions of a company

Measuring Social Responsibility

Social AuditPhilanthropy & VolunteerismEnvironment AwarenessSensitivity to diversity and quality of work life– Flexible work hours– On-site day care centers

Stakeholders & Social Obligations Owed to Them

Stakeholder Social Obligations Owed

Stockholders/owners of the organization To increase the value of the organization

Suppliers of materials To deal with them fairly

Banks and other lenders To repay debts

Government agencies To abide by laws

Employees and unions To provide safe working environment and negotiate fairly with union-representatives

Consumers To provide safe products

Competitors To compete fairly and to refrain from restraints of trade

Local communities and society at large To avoid business practices that harm the environment

Arguments FOR the assumption of social responsibilities by a businessPublic expectationsLong-run profitsEthical obligationPublic imageBetter environmentDiscouragement of further government regulation

Arguments AGAINST the Assumption of Social Responsibilities by a Business

Violation of profit maximizationDilution of purposeCostsToo much powerLack of skills


BM03.04 Emerging and Social Responsibility Issues in a Multinational Business Environment

Multinational Firms

Home country—where business has its headquartersHost country—foreign location where business has its facilitiesParent firm—company headquartersSubsidiaries—foreign branches

Challenges—Working in an International Environment

Differences in local lawsDifferences in local customs


Differences in business practices– Use of food at meetings– Punctuality or lateness– Use of business cards– Greetings– Formal/informal conduct– Bribes and unethical behavior

• Foreign Corrupt Practices Act—Prohibits use of bribes• Corporate gift-giving and stealing of intellectual property


Cultural Differences– Customs, beliefs, values,

and patterns of behavior– Language– Religion– Attitudes toward work,

authority, and family

Cultural Differences (cont.)– Practices regarding courtship,

etiquette, gestures, and joking– Manners and traditions– Differences within racial and

ethnic groups of same culture– Low-context culture– High-context culture

Maintaining Ethics in International Management

Respecting core human rights– Opportunity to achieve economic advancement and

improved standard of living– Right to be treated with respect

Respecting local tradition– Customs held in high regard– In countries like Japan, gift-giving is a tradition, not a

bribe

Maintaining Ethics in International Management

Determining right from wrong– Evaluate specifics of the situation to determine if the

activity is ethical– Some actions are unethical in one setting, but

acceptable in another

The End of Competency 003

Documents

Ethics and Social Responsibility BM003: Examine the role of ethics and social responsibility in business decision making