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locate and cite the CSR policy of one well-known public company.
- Referring to your selected company’s CSR initiatives, identify which pillars of responsibility they seem most focused on: economic, legal, ethical, or philanthropic. Give at least two specific examples.
Research the mission statement of your chosen company. Describe how the company’s mission statement aligns with its CSR policy.
This chapter explores ways of applying ethics, the moral principles and standards that guide the behavior of an individual or group. We do so based on the premise that employees, their organizations, and their communities thrive over the long term when managers apply ethical standards that direct them to act with integrity. In addition, we consider the idea that organizations have a responsibility to meet social obligations beyond earning profits within legal and ethical constraints.ethics the moral principles and standards that guide the behavior of an individual or groupAs you study this chapter, consider what kind of manager you want to be. What reputation do you hope to have? How would you like others to describe your behavior as a manager?It’s a Big IssueIt seems ethics-related scandals have become a part of everyday life.4 Bad behavior can occur anywhere at any time. Recent business-related scandals include Facebook selling users’ data to Cambridge Analytica, Google influencing phone manufacturers to preload Google apps on new devices, and WhatsApp being used to circulate fake news about the Brazilian presidential election.5Top colleges are not immune to scandal. The Justice Department accused 50 people, including celebrities and business leaders, of taking part in a college admissions scandal. Celebrities like Lori Loughlin of Full House and Felicity Huffman of Desperate Housewives were convicted of bribing college officials and manipulating information to get their children admitted into top colleges. This is the largest college admissions scandal ever prosecuted by the Justice Department.6marekuliasz/Shutterstockpage 72What other news disturbs you about managers’ behavior? Tainted products in the food supply . . . damage to the environment . . . price fixing . . . Internet scams . . . employees pressured to meet lofty sales or production targets by any means? The list goes on, and the public becomes cynical. In a survey by public relations firm Edelman, just 56 percent of Americans trusted business in 2019.7“In matters of style, swim with the current. In matters of principle, stand like a rock.”—Thomas JeffersonUnethical behavior can happen anywhere, not just in business. It occurs when police officers take care of parking tickets so friends and family members do not have to pay fines.8 This may seem minor, but it is an unfair practice and an abuse of power. Prosecutors charged members of New York City’s Patrolmen’s Benevolent Association, a powerful police union, with ticket fixing.9Sports see their share of unethical behavior. For example, a district court judge sentenced three Adidas employees to federal prison time.10 The three men bribed high-profile college basketball recruits to ensure they signed with Adidas and certain business managers and financial planners if they turned pro.11The list of bad behavior goes on. Dr. Larry Nassar, former USA Gymnastics team doctor, was convicted and sent to jail for molesting 265 girls and young women over a 20-year period.12 Nassar was sentenced to up to 175 years for the molestation charges.13 His employer, Michigan State University, paid a $4.5 million fine for failing to address Nassar’s actions in an effective and timely manner.14Simply talking about famous examples of poor ethics does not get at the heart of the problem. Saying “I would never do anything like that” or “I would have reported it if it were me” is too easy. The fact is that temptations and levels of silence exist in all organizations. A recent survey of U.S. adults reported that nearly one-third said they reported seeing unethical conduct at work.15Another survey found that the top justification given for unethical behavior was “pressure to meet unrealistic goals and deadlines.”16 Many decisions you will face as a manager will pose ethical dilemmas, and the right thing to do is not always clear.It’s a Personal Issue“Answer true or false: ‘I am an ethical manager.’ If you answered ‘true,’ here’s an uncomfortable fact: You’re probably not.”17 These sentences are the first in a Harvard Business Review article called “How (Un)Ethical Are You?” The point is that most of us think we are good decision makers, ethical, and unbiased. But the fact is, most people have unconscious biases that favor themselves and their own group. For example, managers often hire people who are like them, think they are immune to conflicts of interest, take more credit than they deserve, and blame others when they deserve some blame themselves.
Larry Nassar is an American convicted serial child molester who was the USA Gymnastics national team doctor and an osteopathic physician at Michigan State University. Rena Laverty/EPA-EFE/ShutterstockKnowing that you have biases may help you try to overcome them, but usually that’s not enough. Consider the basic ethical issue of telling a lie. Many people lie—some more than others, and in part depending on the situation, usually presuming that they will benefit from the lie.18 At a basic level, we all can make ethical arguments against lying and in favor of honesty. People often lie or commit other ethical transgressions somewhat mindlessly, without realizing the full array of negative personal consequences.Ethics issues are not easy, and they are not faced only by top corporate executives and CEOs. You will face them; no doubt, you already have. You’ve got your own examples, but consider this one: If your employer pays for the computer and the time you spend sitting in front of it, is it ethical for you to use the computer to do tasks unrelated to your work? Would you bend the rules for certain activities or certain amounts of time? Maybe you think it’s OK to do a little online shopping during your lunch hour or to check scores during March Madness. But what if you stream video of the games or take a two-hour lunch to locate the best deal on a flat-panel TV?Besides lost productivity, employers are most concerned about computer users introducing viruses, leaking confidential information, and creating a hostile work environment by downloading inappropriate content.Sometimes employees write blogs or post comments online about their company and its products. Companies do not want their employees to say bad things about them. Some companies page 73are concerned about employees who plug their companies and products on comments pages without disclosing their relationship with their company. Another practice considered deceptive is when companies create fictional blogs as a marketing tactic without disclosing their sponsorship.study tip 4Remembering key terms during examsDid you ever forget the definition of a key term during an exam? You are not alone. The next time you study key terms, come up with an applied example for each term. You can apply the key terms to any organization: a current/past employer, a student club, a sports team, or a local restaurant. Creating applied examples will help you learn the key terms better, which may help you earn an A on the next exam.And in a practice known as Astroturfing—because the “grassroots” interest it builds is fake—businesses pay bloggers to write positive comments about them. Instagram influencers promote everything from makeup to coffee to cleaning products to their thousands of followers. Kim Kardashian, a top celebrity influencer, has more than 140 million followers and gets paid $1 million per post.19How credible are these promotions when the influencer is paid to promote the product? The Federal Trade Commission requires influencers to disclose influencer–company connections. The disclosure is intended to make consumers aware of the influencer’s motives and allow them judge the motivation behind the endorsement.20Are these examples too small to worry about? What do you do that has potential ethical ramifications? This chapter will help you think through decisions with ethical implications.LO1Describe how different ethical perspectives guide managerial decision making.1|YOUR PERSPECTIVES SHAPE YOUR ETHICSThe aim of ethics is to identify both the rules that should govern people’s behavior and the “goods” that are worth seeking. Ethical decisions are guided by the underlying values of the individual. Values are principles of conduct such as caring, being honest, keeping promises, pursuing excellence, showing loyalty, being fair, acting with integrity, respecting others, and being a responsible citizen.21Most people would agree that all of these values are admirable guidelines for behavior. However, ethics becomes a more complicated issue when a situation dictates that one value overrules others. An ethical issue is a situation, problem, or opportunity in which one must choose among several actions that must be evaluated as morally right or wrong.22ethical issue a situation, problem, or opportunity in which one must choose among several actions that must be evaluated as morally right or wrongEthical issues arise in every facet of life; we concern ourselves here with business ethics in particular. Business ethics comprises the moral principles and standards that guide behavior in the world of business.23business ethics the moral principles and standards that guide behavior in the world of businessMoral philosophy refers to the principles, rules, and values people use in deciding what is right or wrong. This seems to be a simple definition but often becomes terribly complex and difficult when facing real choices. How do you decide what is right and wrong? Do you know what criteria you apply and how you apply them?moral philosophy the principles, rules, and values people use in deciding what is right or wrongEthics scholars point to various major ethical systems as guides.24 We will consider five of these:1.Universalism.2.Egoism.3.Utilitarianism.
guides.24 We will consider five of these:1.Universalism.2.Egoism.3.Utilitarianism.4.Relativism.5.Virtue ethics.These major ethical systems underlie personal moral choices and ethical decisions in business.1.1|UniversalismAccording to universalism, all people should uphold certain values that society needs to function. Universal values are principles so fundamental to human existence that they are important in all societies—for example, rules against murder, deceit, torture, and oppression.universalism the ethical system stating that all people should uphold certain values that society needs to functionSome efforts have been made to establish global, universal ethical principles for business. The Caux Round Table, a group of international executives based in Caux, Switzerland, worked with business leaders from Japan, Europe, and the United States to create the Caux Principles for Business.25 Two basic ethical ideals underpin the Caux Principles: kyosei and human dignity. Kyosei means living and working together for the common good, allowing cooperation and mutual prosperity to coexist with healthy and fair competition. Human dignity concerns the value of each page 74person as an end, not a means to the fulfillment of others’ purposes. Research conducted by the Institute for Global Ethics identified five core ethical values that are found in all human cultures, including truthfulness, responsibility, fairness, respectfulness, and compassion.26Universal principles can be powerful and useful, but what people say, hope, or think they would do is often different from what they really do, faced with conflicting demands in real situations. Before we describe other ethical systems, consider the following example, and think about how you or others would resolve it.Suppose that Sam Colt, a sales representative, is preparing a sales presentation on behalf of his firm, Midwest Hardware, which manufactures nuts and bolts. Colt hopes to obtain a large sale from a construction firm that is building a bridge across the Missouri River near St. Louis. The bolts manufactured by Midwest Hardware have a 3 percent defect rate, which, although acceptable in the industry, makes them unsuitable for use in certain types of projects, such as those that might be subject to sudden, severe stress. The new bridge will be located near the New Madrid fault line, the source of a major earthquake in 1811. The epicenter of that earthquake, which caused extensive damage and altered the flow of the Missouri, is about 190 miles from the new bridge site.Bridge construction in the area is not regulated by earthquake codes. If Colt wins the sale, he will earn a commission of $25,000 on top of his regular salary. But if he tells the contractors about the defect rate, Midwest may lose the sale to a competitor whose bolts are slightly more reliable. Thus Colt’s ethical issue is whether to point out to the bridge contractor that in the event of an earthquake, some Midwest bolts could fail.28Did You KnowAccording to a recent survey, employees who report unethical incidents at their companies are most likely to do so by making hotline calls. The second most common reporting method indicated in the survey was submitting website forms, followed by open door reports to their manager, their manager’s manager, or the HR department.271.2|EgoismAccording to egoism, individual self-interest is the actual motive of all conscious action. “Doing the right thing,” the focus of moral philosophy, is defined by egoism as “do the act that promotes the greatest good for oneself.” If everyone follows this system, according to its proponents, the well-being of society as a whole should increase. This notion is similar to Adam Smith’s concept of the invisible hand in business. Smith argued that if every organization follows its own economic self-interest, the total wealth of society will be maximized.egoism an ethical principle holding that individual self-interest is the actual motive of all conscious
An example of egoism is how individual self-interest may have contributed to the subprime mortgage crisis. According to Adam Smith, individual financial and mortgage professionals should have acted in their own best interest, and ultimately the invisible hand of the mortgage and financial markets would be the best control mechanism to ensure the greater good. If that were the case, why did the housing market reach an unsustainable level that could not be maintained? Did opportunism and the deceptive use of information play a role? Stated differently, did unethical managerial behavior contribute to the subprime mortgage crisis?Some financial and mortgage experts encouraged prospective home buyers to purchase homes that they could not afford by applying for adjustable-rate mortgages (ARMs). ARMs allow home buyers to pay a low introductory monthly payment for a few years; after this period expires, the monthly payment increases significantly.29 The experts convinced many home buyers to assume this risk by pointing out that as long as the value of their homes continued to rise, their wealth would increase. Homeowners were also told they could manage their risk by selling their homes anytime they wanted for a profit.How did these financial and mortgage professionals benefit? They received commissions and other fees from the loans they sold. Higher compensation became a driving force for these managers to continue pushing high-risk loans. Others in the financial industry also profited, including banks, mortgage firms, and investment companies.30The housing bubble burst when the economy went into a recession and homeowners began to struggle to pay their “adjusted” mortgage payments. The large number of foreclosures and defaults contributed to a historic shake-up of the financial industry, including the collapse of Lehman Brothers; huge losses at Morgan Stanley, Citigroup, and Merrill Lynch; and unprecedented governmental intervention to help firms like JPMorgan to purchase Bear Stearns.31 It is useful to ask yourself the following questions: To what degree did egoism motivate individuals in the mortgage and financial markets to make and sell loans that became toxic assets? Is there an alternative explanation for what caused the subprime mortgage crisis?1.3|UtilitarianismUnlike egoism, utilitarianism directly seeks the greatest good for the greatest number of people. Refer back to the subprime mortgage crisis that was just discussed. Certain utilitarian policies and practices implemented after 9/11/2001 and the dot-com meltdown inadvertently contributed to the subprime mortgage crisis. In an effort to do the greatest good for the greatest number of people, the Federal Reserve slashed the federal funds rate from 6.5 percent in May 2000 to 1.75 percent in December 2001. In 2004, the Fed lowered the rate to 1.0 percent.32 The period from 2001 to 2004 became known as the “credit boom” page 75when mortgages, bank loans, and credit cards were easily obtained at low interest rates.33 The goal of these rate cuts was to spur the economy and job creation while also encouraging people to buy homes. This low interest rate policy made home ownership available to higher-risk borrowers.utilitarianism an ethical system stating that the greatest good for the greatest number should be the overriding concern of decision makers
Real estate signs at foreclosed properties. moodboard/Getty ImagesDid You KnowThe United States came in 23rd (tied with France) in a 2019 survey ranking 180 nations from most to least honest. The top honesty ratings went to New Zealand, Denmark, Finland, Singapore, Sweden, and Switzerland. The bottom-ranked nations—including Somalia, South Sudan, and Syria—tended to be among the poorest. Sadly, the combination of corruption and poverty in these nations can literally amount to a death sentence for many of their citizens.41While some subprime loans were properly documented and executed, many lacked supervision.34 This allowed opportunistic financial and mortgage experts to convince borrowers to assume subprime mortgages that had “teaser” introductory interest rates for a couple of years before automatically adjusting upward.Adding to the rapid growth of the subprime market were the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), two government-sponsored entities that bought many of these high-risk loans from banks and then packaged and sold them (as a way to diversify the risk of the loans) to U.S. and foreign investors. These two companies ran afoul of U.S. regulators. Freddie Mac admitted that it “underreported earnings by over $5 billion,” and in 2004, Fannie Mae was investigated for committing widespread accounting errors.35 Several former executives from these firms face civil charges ranging from manipulating earnings to fraud.36In 2006, the housing market began to weaken as prices started to decline and inflation started to increase. Contributing to the decline was the Federal Reserve’s decision to raise interest rates in order to decrease inflation. This move led banks to tighten credit and require borrowers to make larger down payments on homes, while many subprime mortgage owners saw their adjustable-rate mortgages increase to unexpectedly high levels. The net effect was that many homeowners could not make their mortgage payments and defaulted on their loans.37In determining whether decisions made at the Federal Reserve, Fannie Mae, and Freddie Mac, and other institutions achieved utilitarian outcomes, we need to ask: Did these decisions result in the greatest good for the greatest number of homeowners? Were the decisions completely rational, or did subjectivity lead to a suboptimal set of consequences? Was it egoism on the part of individuals or utilitarianism on the part of institutions that ultimately caused the subprime mortgage meltdown?1.4|RelativismIt may seem that an individual makes ethical choices by applying personal perspectives. But this view is not necessarily true. Relativism defines ethical behavior based on the opinions and behaviors of relevant other people.relativism a philosophy that bases ethical behavior on the opinions and behaviors of relevant other peopleRelativism acknowledges the existence of different ethical viewpoints. It defines ethical behavior according to how others behave. For example, norms, or standards of expected and acceptable behavior, vary from one culture to another. The perceived effectiveness of whistleblowing—telling others, inside and outside the organization, about wrongdoing—differs across cultures.38 While U.S. managers believe that whistleblower hotlines are effective at reducing unethical behaviors, managers in the Far East and Central Europe do not believe they are effective. For example, Chinese employees are less likely to report that their superiors have engaged in fraud or corruption.The Chinese government considers this a major problem. It is believed that guanxi, a Chinese term for personal relationships, prevents many Chinese employees from acting in an independent manner when it comes to blowing the whistle on unethical managers.39 However, Chinese workers are more inclined to report wrongdoing if they have a trustworthy leader and supportive team.401.5|Virtue EthicsThe moral philosophies just described apply different types of rules and reasoning. Virtue ethics is a perspective that goes beyond the conventional rules of society by suggesting that what is moral must also come from what a mature person with good “moral character” would deem right. Society’s rules provide a moral minimum; moral individuals transcend page 76rules by applying their personal virtues such as faith, honesty, and integrity.virtue ethics a perspective that what is moral comes from what a mature person with good “moral character” would deem rightIndividuals differ in their moral development. As illustrated in Exhibit 4.1, Kohlberg’s model of cognitive moral development classifies people into categories based on their level of moral judgment.42 People in the preconventional stage make decisions based on concrete rewards and punishments and immediate self-interest. People in the conventional stage conform to the expectations of ethical behavior held by groups or institutions such as society, family, or peers. People in the principled stage see beyond authority, laws, and norms and follow their self-chosen ethical principles.43 Some people forever reside in the preconventional stage, some move into the conventional stage, and some develop even further into the principled stage. Over time, and through education and experience, people may change their values and ethical behavior.Kohlberg’s model of cognitive moral development classification
on their level of moral judgmentReturning to the bolts-in-the-bridge example, egoism would result in keeping quiet about the bolts’ defect rate. Utilitarianism would dictate a more thorough cost–benefit analysis and possibly the conclusion that the probability of a bridge collapse is so low compared to the utility of jobs, economic growth, and company growth that the defect rate is not worth mentioning. The relativist perspective might prompt the salesperson to look at company policy and general industry practice and to seek opinions from colleagues and perhaps trade journals and ethics codes. Whatever is then perceived to be a consensus or normal practice would dictate action.Finally, virtue ethics, applied by people in the principled stage of moral development, would likely lead to full disclosure about the product and risks and perhaps suggestions for alternatives that would reduce the risk.44Exhibit 4.1 Kohlberg’s stages of moral developmentPreconventional stageMake decisions based on immediate self-interest.Example: You take some office supplies home from work because you need them and do not want to pay for them.Conventional stageMake decisions that conform to expectations of groups and institutions like family, peers, and society.Example: You think about taking the office supplies home, but decide against it because it would not look right.Principled stageMake decisions based on self-chosen ethical principles.Example: You do not consider taking the office supplies from work because you believe that would be wrong.Source: Adapted from L. Kohlberg, “Moral Stages and Moralization: The Cognitive-Development Approach,” in T. Lickona (ed.), Moral Development and Behavior Theory, Research, and Social Issues (New York: Holt, Rinehart & Winston, 1976), pp. 31–53.LO2Identify the ethics-related issues and laws facing managers.2|BUSINESS ETHICS MATTERInsider trading, illegal campaign contributions, bribery and kickbacks, famous court cases, and other scandals have created a perception that business leaders use illegal means to gain competitive advantage, increase profits, or improve their personal positions. Neither young managers nor consumers believe top executives are doing a good job of establishing high ethical standards.45 Some even joke that business ethics has become a contradiction in terms.It gets worse. A national study in 2018 found the rate of retaliation against employees who report unethical behavior tripled over a recent 10-year period.If unethical behavior goes unchecked, it may spread to other managers, creating a toxic work environment where those in power are abusive, narcissistic, and unfair.46 These negative workplace behaviors affect the entire organization and encourage similar behaviors among other employees.472.1|Ethical DilemmasMost business leaders believe they uphold ethical standards in business practices.48 But many managers and their organizations frequently must deal with ethical dilemmas, and the issues are becoming increasingly complex. Here are just a few of the dilemmas challenging managers and employees:49Brands—In-your-face marketing campaigns have sparked anti-brand attitudes among people who see tactics as manipulative and deceptive.CEO pay—Nearly three-fourths of Americans say executives’ pay packages are excessive.Commercialism in schools—Parent groups in hundreds of communities have battled advertising in the public schools.Religion at work—Many people seek spiritual renewal in the workplace, in part reflecting a broader religious awakening in America, while others argue that this trend violates religious freedom and the separation of church and boardroom.Sweatshops—At many colleges, students have formed anti-sweatshop groups, which picket clothing manufacturers, toy makers, and retailers.Wages—More than half of workers feel they are underpaid, especially because wages since 1992 have not grown as fast as productivity levels.Despite the fact the United States pulled out of the Paris climate accord, more than 2,200 leaders of American companies—including page 77Apple, Facebook, Google, Intel, and Ingersoll Rand—declared they would remain committed to the accord’s goal of limiting greenhouse gas emissions and climate change.50 These “we are still in” companies are committed to making significant investments in renewable energy.51 For example, Budweiser committed to brewing beer with 100 percent renewable energy by 2025.522.2|Ethics and the LawResponding to a series of corporate scandals—particularly the high-profile cases of Enron and WorldCom—Congress passed the Sarbanes-Oxley (SOX) Act in 2002 to improve and maintain investor confidence. Violations could result in heavy fines and criminal prosecution. The law requires companies to do the following:Sarbanes-Oxley (SOX) Act an act that established strict accounting and reporting rules to make senior managers more accountable and to improve and maintain investor confidenceHave more independent board directors, not just company insiders.Adhere strictly to accounting
