Because learning changes everything.
Chapter 2
Business Ethics and
Social Responsibility
Learning Objectives
2-1 Describe the importance of business ethics and social
responsibility.
2-2 Detect some of the ethical issues that may arise in
business.
2-3 Specify how businesses can promote ethical behavior.
2-4 Explain the four dimensions of social responsibility.
2-5 Evaluate an organization’s social responsibilities to
owners, employees, consumers, the environment, and
the community.
2-6 Evaluate the ethics of a business’s decision.
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Video 1-Business Ethics and Social Responsibility
https://www.youtube.com/watch?v=izUflsDu7BI
Video 2-The Importance of Business Ethics
https://www.youtube.com/watch?v=pHrDUu4Rjtg
Video 3- CSR: What is Corporate Social Responsibility? Definition
Examples Benefits
https://www.youtube.com/watch?v=Zc102xiah1M
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Business Ethics and Social Responsibility 1
Business ethics versus personal ethics
Acceptable business behavior determined by:
• The organization.
• Stakeholders: customers, suppliers, competitors,
government regulators, interest groups, and the public.
• An individual’s personal principles and values.
An organization’s culture influences its ethical
behavior
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Figure 2.1 Global Trust in Different
Industries
Source: Edelman, 2020 Edelman Trust Barometer Global Report,
https://www.edelman.com/sites/g/files/aatuss191/files/2020-01/2020%20Edelman%20Trust%20Barometer%20
Global%20Report_LIVE.pdf (accessed February 8, 2021).
Access the text alternative for slide images.
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Business Ethics and Social Responsibility 2
Social responsibility—Business’s obligation to
maximize its positive impact and minimize its
negative impact on society
Social responsibility and ethics differ
• Ethics: decisions made by an individual or work group that
society evaluates as right or wrong.
• Social responsibility: impact of the entire organization’s
activities on society.
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Business Ethics and Social Responsibility 3
Business law
• Refers to the laws and regulations that govern the conduct
of business.
• Many problems and conflict could be avoided if owners,
managers, and employees knew more about business law
and the legal system.
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Table 2.1 Timeline of Ethical and
Socially Responsible Activities
Timeline Activities
Social issues, Consumer Bill of Rights, disadvantaged consumer,
1960s environmental issues, product safety
Business ethics, social responsibility, diversity, bribery,
1970s discrimination, identification of ethical issues
Standards for ethical conduct, financial misconduct, self-regulation,
1980s codes of conduct, ethics training
Corporate ethics programs, regulation to support business ethics,
1990s health issues, safe working conditions, detection of misconduct
Transparency in financial markets, cybersecurity, intellectual
2000s property, regulation of accounting and finance, executive
compensation, identity theft
Sustainability, supply chain transparency, sexual misconduct, data
2010s protection, disruptive technologies
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The Role of Ethics in Business 1
Society’s judgment directly affects an organization’s
ability to achieve its goals
Many firms are recognized for ethical conduct
Legal and ethical issues
• Ethical conflicts can evolve into legal disputes.
• Business ethics goes beyond legal issues.
• Not limited to for-profit organizations.
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POLLING QUESTION 1
You are a purchasing manager and forgot to submit a
purchase order last week for American Cosmetics, your
largest client. The company calls to check on the status
of the order. What do you do?
A. Apologize for your lapse in memory and immediately place the order.
B. Let them know the order is on its way and charge a significant sum of
money to overhead in order to have expedited shipping.
C. Explain that your department manager has not yet authorized the
purchase order but is expected to do so this afternoon.
D. Apologize to the customer for the delay and explain the requested
items are backordered and will not be received for another two weeks.
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The Role of Ethics in Business 2
Recognizing Ethical Issues in Business
• Ethical issue—an identifiable problem, situation, or
opportunity that requires a person to choose from among
several actions that may be evaluated as right or wrong,
ethical or unethical.
• Bribes—payments, gifts, or special favors intended to
influence the outcome of a decision.
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Table 2.2 Organizational Misconduct
in the United States
Misconduct Facts Percentage
Abusive behavior 25%
Conflicts of interest 27%
Corruption 19%
Discrimination 16%
Sexual harassment 13%
Violations of health and/or safety regulations 24%
Source: Ethics and Compliance Initiative, 2020 Global Business Ethics Survey: Pressure in the Workplace:
Possible Risk Factors and Those at Risk (Arlington, VA: Ethics and Compliance Initiative, 2020).
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Bribery
A former Siemens executive plead guilty in a $100 million Argentina
bribery case. The engineering firm itself was involved in a decades-long
legal investigation.
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The Role of Ethics in Business 3
Recognizing Ethical Issues in Business continued
Misuse of company time
• late arrivals.
• leaving early.
• long lunch breaks.
• inappropriate sick days.
• excessive socializing.
• engaging in personal activities while on the job.
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The Role of Ethics in Business 4
Recognizing Ethical Issues in Business continued
Abusive and intimidating behavior
• Most common ethical problem for employees.
• Includes actions such as: physical threats, false accusations, profanity,
insults, yelling, ignoring someone.
• Difficult to assess and manage.
• Intent must be considered.
• Bullying is associated with a hostile workplace.
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Table 2.3 Actions Associated with Bullies
1. Spreading rumors to damage others.
2. Blocking others’ communication in the workplace.
3. Flaunting status or authority to take advantage of others.
4. Discrediting others’ ideas and opinions.
5. Using email to demean others.
6. Failing to communicate or return communication.
7. Spouting insults, yelling, and shouting.
8. Using terminology to discriminate by gender, race, or age.
9. Using eye contact or body language to hurt others or their
reputation.
10.Taking credit for others’ work or ideas.
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The Role of Ethics in Business 5
Recognizing Ethical Issues in Business continued
Misuse of company resources.
• Spending excessive time on personal e-mails.
• Submitting personal expenses on company reports.
• Using company copier for personal use.
• Many companies are implementing official policies delineating
acceptable use of company resources.
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The Role of Ethics in Business 6
Recognizing Ethical Issues in Business continued
Conflict of interest.
• When a person must choose whether to advance personal interests or
those of others.
• To avoid, employees must separate personal financial interests from
business dealings.
• Insider trading: the buying or selling of stocks by insiders who possess
material information that is still not public.
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Table 2.4 Least Corrupt Countries
Rank Country Rank Country
1 New Zealand 11 Canada
1 Denmark 11 United Kingdom
3 Finland 11 Australia
3 Switzerland 11 Hong Kong
3 Singapore 15 Austria
3 Sweden 15 Belgium
7 Norway 17 Iceland
8 Netherlands 17 Estonia
9 Luxembourg 19 Japan
9 Germany 20 Ireland
Source: Ethics and Compliance Initiative, 2020 Global Business Ethics Survey: Pressure in the Workplace: Possible Risk
Factors and Those at Risk (Arlington, VA: Ethics and Compliance Initiative, 2020).
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The Role of Ethics in Business 7
Fairness and Honesty
Communications
• False and misleading advertising.
• Deceptive personal-selling tactics.
• Product labeling.
Business relationships
• Keep company secrets.
• Meet obligations and responsibilities.
• Avoid undue pressure forcing others to act unethically.
Plagiarism
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The Role of Ethics in Business 8
Making Decisions about Ethical Issues
Questions to consider:
• Are there potential legal restrictions or violations that could result from
the action?
• Does your company have specific code of ethics or policy on the
action?
• Is this activity customary in your industry? Are there any industry trade
groups that provide guidelines or codes of conduct that address this
issue?
• Would this activity be accepted by your co-workers? Will your decision
or action withstand open discussion with co-workers and managers
and survive untarnished?
• How does this activity fit with your own beliefs and values?
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The Role of Ethics in Business 9
Improving Ethical Behavior in Business
• Ethical decisions in organizations are influenced by three
key factors:
1. Individual moral standards and values.
2. Influence of managers and co-workers.
3. Opportunity to engage in misconduct.
• Codes of ethics.
• Whistleblowing.
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Table 2.6 Why a Code of Ethics Is Important
1. Alerts employees about important issues and risks to address.
2. Provides values such as integrity, transparency, honesty, and fairness
that give the foundation for building an ethical culture.
3. Gives guidance to employees when facing gray or ambiguous
situations or ethical issues that they have never faced before.
4. Alerts employees to systems for reporting or places to go for advice
when facing an ethical issue.
5. Helps establish uniform ethical conduct and values that provides a
shared approach to dealing with ethical decisions.
6. Serves as an important document for communicating to the public,
suppliers, and regulatory authorities about the company’s values and
compliance.
7. Provides the foundation for evaluation and improvement of ethical
decision making.
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POLLING QUESTION 2
Many firms are recognized for their ethical conduct.
Prudential Financial has been placed on the World’s
Most Ethical Companies list seven year in a row.
Prudential’s ethical conduct can be seen as a(n)
A. Competitive advantage
B. Opportunity for the company
C. Philanthropic gesture
D. Weakness of the company
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The Nature of Social Responsibility 1
Corporate citizenship—is the extent to which
businesses meet the legal, ethical, economic, and
voluntary responsibilities placed on them by their
various stakeholders.
For example, companies introducing eco-friendly products
and marketing efforts.
Social Responsibility Issues
Relations with owners and stockholders.
• Maintain proper accounting procedures.
• Provide investors will all relevant information.
• Protect owners’ rights and investments.
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Corporate Citizenship
Quaker Oats rebranded its Aunt Jemima
products in an effort to adapt to
changing cultural norms. The new
brand, Pearl Milling Company, is free of
the racist stereotypes of its predecessor.
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Table 2.7 Social Responsibility
Requirements
Stages Examples
Stage 1: Financial and Starbucks offers investors a healthy return on
economic viability investment, including paying dividends.
Stage 2: Compliance Starbucks specifies in its code of conduct that
with legal and payments made to foreign government
regulatory officials must be lawful according to the laws
requirements of the United States and the foreign country.
Stage 3: Ethics, Starbucks’ mission and values create ethical
principles, and values culture with ethical leaders.
Stage 4: Philanthropic Starbucks created the Starbucks College
activities Achievement Plan that offers eligible
employees full tuition to earn a bachelor’s
degree in partnership with Arizona State
University.
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The Nature of Social Responsibility 2
Social Responsibility Issues continued
Employee relations
• Provide a safe workplace.
• Pay them adequately for their work.
• Keep employees informed of what is happening in their company.
• Obtain input from all employees.
• Focus on diversity, equity, and inclusion.
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The Nature of Social Responsibility 3
Social Responsibility Issues continued
Consumer relations.
• Consumerism.
• John F. Kennedy’s 1962 consumer bill of rights.
• Right to safety.
• Right to be informed.
• Right to choose.
• Right to be heard.
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The Nature of Social Responsibility 4
Social Responsibility Issues continued
Sustainability.
• Pollution.
• Water.
• Air.
• Land.
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Figure 2.3 Business Leaders’ Views
on Purpose-Driven Companies
Source: Porter Novelli, “The 2020 Porter Novelli Executive Purpose Study: Purpose-Driven Business Is Smart Business,”
September 2020, https://www.porternovelli.com/wp-
content/uploads/2020/09/PN_Executive_Reasearch_Report_9.8.2020.pdf (accessed February 9, 2021).
Access the text alternative for slide images.
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The Nature of Social Responsibility 5
Social Responsibility Issues continued
Alternative energy
• Fossil fuels are problematic.
• Sources include wind power, solar power, nuclear power, biofuels,
electric cars, and hydro- and geothermal power.
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The Nature of Social Responsibility 6
Social Responsibility Issues continued
Response to environmental issues.
• Greenwashing.
• Creating a positive association with environmental issues for an unsuitable
product, service, or practice.
• Recycling.
• The reprocessing of materials—aluminum, paper, glass, and some
plastic—for reuse.
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The Nature of Social Responsibility 7
Social Responsibility Issues continued
Community relations.
• Many businesses want to make their communities better places for
everyone to live and work.
• Most common way is through donations to local and national charitable
organizations.
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The Nature of Social Responsibility 8
Unemployment
• Unemployment carries ethical implications.
• Protesters say unemployment leads to growing gap
between rich and poor.
• Factory closures are ethical issues because they
contribute to unemployment.
• Employers have been accused of having unreasonable
hiring standards that most applicants cannot meet.
• Some businesses are working to reduce unemployment.
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