Chapter 4

Demanding Ethical and

Socially Responsible Behavior

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 Learning Objectives
LO 4-1 Explain why obeying the law is only the first step in
behaving ethically.
LO 4-2 Ask the three questions you need to answer when faced
with a potentially unethical action.
LO 4-3 Describe management’s role in setting ethical standards.
LO 4-4 Distinguish between compliance-based and integrity-
based ethics codes, and list the six steps in setting up a
corporate ethics code.
LO 4-5 Define corporate social responsibility and compare
corporations’ responsibilities to various stakeholders.
LO 4-6 Analyze the role of U.S. businesses in influencing ethical
behavior and social responsibility in global markets.

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 Ethics Is More than Legality 1 of 2
Life after Scandal
• Scandals have shaken the real estate, mortgage, and banking
industries.
• How do we restore trust in the free market system?
• Punish those who have broken the law.
• Make accounting records more transparent.
• Consider what is ethical, not just what is legal.

Ethical Standards are Fundamental

• Ethics — Standards of moral behavior; that is, behavior
accepted by society as right versus wrong.
• Few Americans have moral absolutes.

LO 4-1
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 Ethics Is More than Legality 2 of 2
Basic Moral Values
Right: Wrong:
• Integrity • Cheating
• Respect for human life • Cowardice
• Self-control • Cruelty
• Honesty
• Courage
• Self-sacrifice

LO 4-1
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 Ethics Begins with Each of Us
Plagiarizing from online materials is the most common form
of cheating in schools today.
• Studies found a strong relationship between academic
dishonesty and dishonesty at work.

When facing ethical dilemmas, ask yourself these

questions:
1. Is my proposed action legal?
2. Is it balanced?
3. How will it make me feel about myself?

LO 4-2
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 Managing Businesses Ethically and
Responsibly

Ethics Start at the Top

• Managers can help instill corporate values in employees.
• Trust between workers and managers must be based on
fairness, honesty, openness, and moral integrity.
• Overly ambitious goals and incentives can create an
environment in which unethical actions can occur

LO 4-3
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 Setting Corporate Ethical
Standards 1 of 3

An increasing number of companies have adopted written

codes of ethics.
• Compliance-based ethics code
• Emphasize preventing unlawful behavior by increasing control and
by penalizing wrongdoers.
• Integrity-based ethics code
• Define the organization’s guiding values, create an environment that
supports ethically sound behavior, and stress a shared
accountability among employees.

LO 4-4
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 Figure 4.2 Overview of the Hershey
Company’s Code of Ethics

Jump to long description in

appendix
LO 4-4
©McGraw-Hill Education. Hershey’s Kiss photo: © Richard Watkins/Alamy
 Figure 4.3 Strategies for Ethics
Management

Blank Features of compliance- Features of integrity-based

based ethics codes ethics codes
Ideal Conform to outside standards Conform to outside standards
(laws and regulations) (laws and regulations) and
chosen internal standards
Objective Avoid criminal misconduct Enable responsible employee
conduct
Leaders Lawyers Managers with aid of lawyers
and others
Methods Education, reduced employee Education, leadership,
discretion, controls, penalties accountability, decision
processes, controls, and
penalties

LO 4-4
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 Setting Corporate Ethical
Standards 2 of 3

How to improve U.S. business ethics

1. Top management must adopt and unconditionally support an
explicit corporate code of conduct.
2. Employees must understand that senior management expects
all employees to act ethically.
3. Managers and others must be trained to consider the ethical
implications of all business decisions.

LO 4-4
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 Setting Corporate Ethical
Standards 3 of 3

How to improve U.S. business ethics continued

4. An ethics office must be set up with which employees can
communicate anonymously. Whistleblowers -- Insiders who
report illegal or unethical behavior.
5. Involve outsiders such as suppliers, subcontractors, distributors
and customers.
6. The ethics code must be enforced.

LO 4-4
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 Corporate Social Responsibility 1 of 9
Corporate social responsibility (CSR) — A business’s
concern for the welfare of society.
• CSR is based on a commitment to integrity, fairness, and
respect.
• CSR proponents argue that businesses owe their existence
to the societies they serve and cannot exist in societies that
fail.

LO 4-5
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 Corporate Social Responsibility 2 of 9
Corporate philanthropy — Includes charitable donations.
Corporate social initiatives — Include enhanced forms of
corporate philanthropy directly related to the company’s
competencies.
Corporate responsibility — Includes everything from
hiring minority workers to making safe products.
Corporate policy — The position a firm takes on social
and political issues.

LO 4-5
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 Corporate Social Responsibility 3 of 9
Positive Impacts of Companies
• Xerox offers a Social Service Leave program.
• More and more companies are encouraging employees to
volunteer while on company time.
• The majority of MBA students surveyed reported they would take
a lower salary to work for a socially responsible company.

LO 4-5
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 Corporate Social Responsibility 4 of 9
Responsibility to Customers
• President Kennedy’s basic rights of consumers
1. The right to safety
2. The right to be informed
3. The right to choose
4. The right to be heard

LO 4-5
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 Corporate Social Responsibility 5 of 9
Responsibility to Customers continued
• How do customers know about companies’ social efforts?
• The primary use of social media is to communicate CSR efforts.
• Social media allows companies to reach a broad, diverse group and
connect directly to them.
• Now more than ever, it’s important for companies to live up to their
expectations.

LO 4-5
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 Corporate Social Responsibility 6 of 9
Responsibility to Investors
• Insider trading — An unethical activity in which insiders use
private company information to further their own fortunes or
those of their family and friends.
• Unethical behavior does financial damage to a company and
investors are cheated.

Responsibility to Employees
• Create jobs and provide a chance for upward mobility.
• Treat employees with respect.
• Offer salaries and benefits that help employees reach their
personal goals.

LO 4-5
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 Corporate Social Responsibility 7 of 9
Responsibility to Employees continued
• Employee fraud costs U.S. businesses about 5% of annual
revenue.
• Disgruntled workers relieve frustration by:
• Blaming mistakes on others
• Not accepting responsibility
• Manipulating budgets and expenses
• Making commitments they intend to ignore
• Hoarding resources
• Doing the minimum
• Making results look better than they are

LO 4-5
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 Corporate Social Responsibility 8 of 9
Responsibility to Society and the Environment
• Over one-third of working Americans receive their salaries from
nonprofits who are dependent on funding from others.
• The green movement emerged as concern about climate change
increased.
• Many companies are trying to minimize their carbon footprints—
the amount of carbon released during an item’s production,
distribution, consumption, and disposal.
• Environmental efforts may increase costs, but can offer good
opportunities.
• The emerging renewable-energy and energy-efficiency industries
account for 9 million U.S. jobs.
• By 2030, as many as 40 million “green” jobs will be created.

LO 4-5
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 Corporate Social Responsibility 9 of 9
Social Auditing
• Social audit — A systematic evaluation of an organization’s
progress toward implementing socially responsible and
responsive programs.
• Five types of watchdogs
1. Socially conscious investors
2. Socially conscious research organizations
3. Environmentalists
4. Union officials
5. Customers

LO 4-5
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 International Ethics and Social
Responsibility

Many businesses want socially responsible behavior from

their international suppliers.
In the 1970s, the Foreign Corrupt Practices Act criminalized
the act of paying foreign businesses or government leaders
in order to get business.
Partners in the Organization of American States signed the
Inter-American Convention Against Corruption.

LO 4-6
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 Appendix of Long Image
Descriptions

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 Appendix 1 Figure 4.2 Overview of the
Hershey Company’s Code of Ethics
Code of Ethics
We have each made a commitment to operate ethically and to lead with integrity. This
commitment is embedded in the Hershey values. Our Code of Ethical Business Conduct
(“Code”) shows us how to uphold this commitment as we interact with the various groups
that have a stake in our Company’s success.
Our Commitment To Consumers: We maintain the trust consumers place in our brands,
providing the best products on the market and adhering to honest marketing practices.
Our Commitment To The Marketplace: We deal fairly with our business partners,
competitors and suppliers, acting ethically and upholding the law in everything we do.
Our Commitment To Stockholders: We act honestly and transparently at all times,
maintaining the trust our stockholders have placed in us.
Our Commitment To The Global Community: We comply with all global trade laws,
protecting our natural resources and supporting the communities where we live, work and
do business.

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