Chapter 2

Business Ethics and Social

Responsibility
Tanveer Hussain
M.Phil (A & F)
 ▪ Explain the concepts of business ethics and social
responsibility.
▪ Describe the factors that influence business ethics.
▪ List the stages in the development of ethical standards,
and discuss how organizations shape ethical behavior.
Learning ▪ Describe how businesses’ social responsibility is

Objectives measured, and summarize the responsibilities of

business to the general public, customers, and
employees.
▪ Explain why investors and the financial community are
concerned with business ethics and social
responsibility
 ▪ Business ethics: Standards of conduct and moral values
regarding right and wrong actions in the work
environment.
Concern for ▪ These issues are at the heart of social responsibility,

Ethical and whose primary objective is the enhancement of

society’s welfare through philosophies, policies,
Societal Issues procedures, and actions.

▪ Firms have many responsibilities—to customers, to

employees, to investors, and to society as a whole.
 ▪ Business ethics are now in the spotlight as never before.
▪ Johnson & Johnson has abided by the same basic code
of ethics, its well-known Credo, for more than 50 years.
The
▪ In the fall of 2009, Walmart announced a plan to pursue
Contemporary three sustainability goals:
Ethical ▪ to use only renewable energy sources

Environment ▪ to recycle all of its waste

▪ to sell products that “sustain people and the environment,”
according to Matt Kistler, the company’s senior vice
president for sustainability.
 ▪ The Sarbanes-Oxley Act of 2002 established new rules
and regulations for securities trading and accounting
practices.
▪ Companies are now required to publish their code of
ethics, if they have one, and inform the public of any
The changes made to it.
Contemporary ▪ Many companies now adopt a three-pronged approach
Ethical to ethics and social responsibility:
Environment ▪ engaging in traditional corporate philanthropy, which
involves giving to worthy causes
▪ anticipating and managing risks
▪ identifying opportunities to create value by doing the
right thing.
 ▪ Compliance standards and procedures. Establish
standards and procedures, such as codes of ethics and
identification of areas of risk, capable of reducing
misconduct or criminal activities.
▪ High-level personnel responsibility. Assign high-level
personnel, such as boards of directors and top
Minimum executives, the overall responsibility to actively lead
Requirements for and oversee ethics compliance programs.

Ethics Compliance ▪ Due care in assignments. Avoid delegating authority to

individuals with a propensity for misconduct or illegal
Programs activities.
▪ Communication of standards and procedures.
Communicate ethical requirements to high-level
officials and other employees through ethics training
programs or publications that explain in practical terms
what is required.
 ▪ Establishment of monitoring and auditing systems and
reporting system. Monitor and review ethical
compliance systems, and establish a reporting system
employees can use to notify the organization of
misconduct without fear of retribution.
▪ Enforcement of standards through appropriate
Minimum mechanisms. Consistently enforce ethical codes,
including employee discipline.
Requirements for ▪ Appropriate responses to the offense. Take reasonable
Ethics Compliance steps to respond to the offense and to prevent and
detect further violations.
Programs
▪ Self-reporting. Report misconduct to the appropriate
government agency.
▪ Applicable industry practice or standards. Follow
government regulations and industry standards
 ▪ In today’s business environment, individuals can make
the difference in ethical expectations and behavior.
▪ As executives, managers, and employees demonstrate
their
Individuals ▪ personal ethical principles
Make a ▪ or lack of ethical principles

Difference ▪ the expectations and actions of those who work for and
with them can change

▪ Some rationalize questionable behavior by saying,

“Everybody’s doing it.”
 ▪ Individuals typically develop ethical standards in the
three stages
▪ the preconventional,
▪ conventional,
Development of ▪ postconventional

Individual Ethics ▪ An individual’s stage in moral and ethical development

is determined by a huge number of factors.
Experiences help shape responses to different
situations.
 ▪ The preconventional stage: individuals primarily
consider their own needs and desires in making
Stages of Moral decisions.
and Ethical ▪ They obey external rules only because they are afraid
Development of punishment or hope to receive rewards if they
comply.
 ▪ The conventional stage: individuals are aware of and act
in response to their duty to others, including their
obligations to their family members, coworkers, and
Stages of Moral organizations.
and Ethical ▪ The expectations of these groups influence how they
Development choose between what is acceptable and unacceptable
in certain situations. Self-interest, however, continues to
play a role in decisions.
 ▪ The postconventional stage: represents the highest
level of ethical and moral behavior.
▪ The individual is able to move beyond mere self-
interest and duty and take the larger needs of society
into account as well.
Stages of Moral ▪ He or she has developed personal ethical principles for
and Ethical determining what is right and can apply those

Development principles in a wide variety of situations.

▪ One issue that you may face at work is an ethically
compromised or “sticky” situation; the “Business
Etiquette” feature lists some tips to consider in
deciding how to handle such a dilemma.
 ▪ Suzy Welch suggests the following steps if you suspect
unethical behavior in the office
▪ Get all the facts. Ask tactful questions of people you know
are trustworthy—not sources of rumors or gossip. In
return, beware of revealing anything told to you in
confidence. Talk to your company’s human resources
What Can You Do department. Be investigative, not aggressive.

about an Ethical ▪ When you have the facts, ask yourself, Is this really a
moral dilemma? Or is it a case of office politics? What may
Dilemma? look like an ethical problem could be a power play in
disguise.
▪ If the situation really is an ethical dilemma, explain the
issue to a trusted friend outside the company—and
outside your family. That person may be able to take an
unbiased view and advise you about what to do next.
 ▪ Conflict of Interest: Situation in which an employee must
choose between a business’s welfare and personal
Common gain.
▪ Honesty and Integrity: An employee who is honest can
Business Ethical be counted on to tell the truth.
Challenge ▪ . Having integrity means adhering to deeply felt ethical
principles in business situations
 ▪ Loyalty versus Truth: Business people expect their
employees to be loyal and to act in the best interests of
the company.
▪ Individuals may have to decide between loyalty to the
Common company and truthfulness in business relationships.
Business Ethical ▪ an ethical conflict can arise
▪ Some place the highest value on loyalty, even at the
Challenge expense of truth.
▪ People may emphasize truthfulness and actively disclose
negative information, especially if the cost of silence is
high
 Common ▪ Whistle-blowing is an employee’s disclosure to
company officials, government authorities, or the media
Business Ethical of illegal, immoral, or unethical practices.
Challenge
 ▪ Development of a corporate culture to support business
How ethics happens on four levels:

Organizations ▪ Ethical awareness

▪ Ethical reasoning
Shape Ethical ▪ Ethical action
Conduct ▪ Ethical leadership
 ▪ Code of conduct: Formal statement that defines how an
organization expects its employees to resolve ethical
issues
▪ Johnson & Johnson’s Credo
▪ specify ground rules for acceptable behavior, such as
identifying the laws and regulations that employees must

Ethical obey.

▪ The aerospace giant Lockheed Martin

Awareness ▪ The code of conduct emphasizes “maintaining a culture of
integrity” and defines three basic core values: “do what’s
right; respect others; perform with excellence.”

▪ Harley-Davidson
▪ “Tell the truth, keep your promises, be fair, respect the
individual and encourage intellectual curiosity.”
 ▪ Businesses must provide the tools employees need to
evaluate the options and arrive at suitable decisions.
▪ Many firms have either instituted their own ethics
training programs or hired organizations such as Syrus
Global, which provides outsourced ethics and
compliance programs to businesses.
Ethical ▪ It also helps companies develop appropriate ethics
Education codes with ethics training customized to each
company’s needs, including specialized online,
interactive training systems.
▪ training can give employees the chance to practice
applying ethical values to hypothetical situations before
they face realworld situations
 ▪ firms must provide structures and approaches that allow
decisions to be turned into ethical actions.
▪ Texas Instruments gives its employees a reference card
▪ Is the action legal?
▪ Does it comply with our values?
Ethical Action ▪ If you do it, will you feel bad?
▪ How will it look in the newspaper?
▪ If you know it’s wrong, don’t do it!
▪ If you’re not sure, ask.
▪ Keep asking until you get an answer
 ▪ Executives must not only talk about ethical behavior but
also demonstrate it in their actions.
▪ the damage from ethical misconduct can powerfully
affect a firm’s stakeholders—customers, investors,
employees, and the public—pressure is exerted on
businesses to act in acceptable ways.
Ethical ▪ Harvard Business School interviewed corporate leaders
Leadership in their native India and Pakistan
▪ Use clear, explicit language rather than euphemisms for
corrupt behavior
▪ Encourage behavior that generates and fosters ethical
values
▪ Practice moral absolutism, insisting on doing right, even if it
proves financially costly.