Contemporary Business - Chapter 02.pdf - po ang - Januszek66

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Chapter 2

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.

Identify common ethical dilemmas

in the workplace.

Discuss how organizations shape

ethical behavior.

Describe how businesses’ social

responsibility is measured.

Summarize the responsibilities of

business to the general public, cus-

tomers, and employees.

Explain why investors and the

financial community are concerned

with business ethics and social

responsibility.

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W hen a small café in Waitsfield, Vermont, opened for

business in 1981, owner Bob Stiller didn’t expect that his

fresh-roast business would grow into a $137 million firm

or become one of the nation’s largest specialty-coffee

manufacturers. But that’s exactly what happened. Thanks

to the high quality of Green Mountain’s fresh-roasted

blends and its commitment to a set of highly ethical

guiding principles, the company has more than 7,000

wholesale clients and thousands of mail-order and

Internet customers around the country. Its ethical

guidelines put the health of the environment second

only to passion for coffee—and rank ethics above

all. The company’s Web site emphasizes Green

Mountain’s social conscience: “We create the

ultimate coffee experience in every life we touch

Green Mountain Cares about More Than Coffee

from tree to cup, transforming the way the world under-

stands business.”

As the company has grown, Green Mountain Coffee

Roasters has expanded the range of its commitments to

include not only making wise use of the world’s resources

but also safeguarding the welfare of all those it deals with,

from customers at home to coffee farmers far away. When

it comes to the environment, Green Mountain, now head-

quartered in Waterbury, Vermont, has three core values:

Wildlife cobranded coffees are made from shade-grown

beans harvested by trusted small-scale farms in Mexico

and Peru. Green Mountain is also a staunch supporter of

fair trade pricing, which guarantees farmers fair prices

for their crops so that “they can afford to feed their fami-

lies, keep their kids in school and invest in the quality of

their coffee.”

To contribute to the communities in which it operates,

Green Mountain encourages its nearly 600 employees to

volunteer their time and expertise. Its Community Action

for Employees (CAFÉ) program provides paid time off for

community service, including in a recent year nearly

2,000 hours of employee time donated to schools, fire

departments, rescue squads, and other community orga-

nizations. Employees even volunteer to visit Mexican and

Central American coffee farms to help farmers improve

their families’ and their communities’ healthcare and

housing.

Green Mountain’s corporate-wide efforts to help its

communities include financial support for charitable orga-

nizations such as the United Way, the Salvation Army, and

the Red Cross, as well as for many local organizations such

as libraries, schools, and food programs. The company

also created two matching funds to supplement the money

donated by employees to aid relief of the 2004 tsunami

•

to consider the environmental impact of its actions in

every decision

•

to seek continuous environmental innovation in its

products and programs

•

to promote employee awareness of and participation

in environmental efforts

The company works hard to put these values into

practice. For instance, National Wildlife Blend and

National Wildlife Decaf are two certified organic blends

Green Mountain developed in cooperation with the

National Wildlife Federation. These coffees offer con-

sumers an alternative to inexpensive commercial coffees

that must be grown in full sun, which means large-scale

land clearing for coffee-growing areas and the destruc-

tion of bird and other wildlife habitats. The National

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that struck Sumatra, where many coffee growers live and

work, and it continues to plan long-term strategies to

provide assistance there. In addition to such efforts, the

company each year contributes at least 5 percent of its

pretax profits to social programs, and it has been fre-

quently recognized for its good works by Forbes maga-

zine in its annual list of “200 Best Small Companies” and

Business Ethics magazine’s “100 Best Corporate Citizens.”

Within its organization, Green Mountain upholds the

values of open dialogue and communication. The firm

appreciates employee differences and tries to find oppor-

tunity in conflict and continuous learning. Teamwork,

shared ownership and use of resources, and a commit-

ment to personal excellence that includes self-awareness

and respect all encourage leadership throughout the

organization. Last but not least in this company’s set of

guiding values is to be “a force for good in the world.”

But good business decisions remain paramount. Says

CEO Stiller, “To help the world, we have to be successful.

If we help the world and go out of business, we’re not

going to help anybody.” 1

The values that drive Green Mountain’s operations at

home and abroad are not unique in the world of busi-

ness. Many firms are concerned about the environment

and their societies. Sometimes that means growing more

slowly than they might or reducing short-term profits for

longer, sustained benefits. Even Green Mountain faces

tough decisions, for example, if one of its small-scale

suppliers produces beans the firm must reject for qual-

ity reasons or because it has reached its production limit.

But although most organizations strive to combine

ethical behavior with profitable operation, some large

and prominent organizations have struggled to over-

come major ethical lapses in recent years. Ethical fail-

ures in a number of large or well-known firms led to

lawsuits, indictments, fines, guilty pleas, pleas of igno-

rance, jail sentences for high-profile executives, the

financial failures of several powerful U.S. businesses, job

losses for thousands of former employees at these firms,

and the loss of billions of dollars in investors’ savings

that had been held as stock shares in these companies.

Troubled firms included Enron, Tyco, MCI (formerly

WorldCom), Global Crossing, the investment firm Credit

Suisse First Boston,

corporate executives were paraded before the media in an

exercise previously reserved for local criminals. Follow-

ing a series of disclosures made in congressional investi-

gations and in civil and criminal investigations conducted

by state attorneys general, in 2002 Congress enacted the

Sarbanes-Oxley Act to correct these abuses by adding

oversight for the nation’s major companies and a special

oversight board to regulate public accounting firms that

audit the financial records of these corporations. In 2004

the Federal Sentencing Commission strengthened its

guidelines for ethics compliance programs, and more and

more firms began to pay attention to formulating more

explicit standards and procedures for ethical behavior.

Companies were also forced to recognize the enormous

impact of a good example, as it became clear that stated

ethical values mean little if they are not being strictly fol-

lowed at the very highest levels of the organization.

As we discussed in Chapter 1, the underlying aim of

business is to serve customers at a profit. But most com-

panies try to do more than that, looking for ways to give

back to customers, society, and the environment. Some-

times they face difficult questions in the process. When

does a company’s self-interest conflict with society’s and

customers’ well-being? And must the goal of seeking

profits conflict with upholding high principles of right

and wrong? In response to the second question, a grow-

ing number of businesses of all sizes are answering no.

and even the venerable auction

house Sotheby’s.

The image of the CEO—and of business in general—

suffered as the evening news carried dramatic pictures of

the so-called perp walk—in which indicted and handcuffed

CONCERN FOR ETHICAL

AND SOCIETAL ISSUES

An organization that wants to prosper over the long term cannot do so without considering

business ethics, the standards of conduct and moral values governing actions and decisions in

the work environment. Businesses also must take into account a wide range of social issues,

Part 1 Business in a Global Environment

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including how a decision will affect the environment, employees, and customers. These issues

are at the heart of social responsibility, whose primary objective is the enhancement of soci-

ety’s welfare through philosophies, policies, procedures, and actions. In short, businesses must

find the delicate balance between doing what is right and doing what is profitable.

In business, as in life, deciding what is right or wrong in a given situation does not always

involve a clear-cut choice. Firms have many responsibilities—to customers, to employees, to

investors, and to society as a whole. Sometimes conflicts arise in trying to serve the different

needs of these separate constituencies. The ethical values of executives and individual employ-

ees at all levels can influence the decisions and actions a business takes. Throughout your own

business career, you will encounter many situations in which you will need to weigh right and

wrong before making a decision or taking action. So we begin our discussion of business

ethics by focusing on individual ethics.

Business ethics are also shaped by the ethical climate within an organization. Codes of

conduct and ethical standards play increasingly significant roles in businesses in which

doing the right thing is both supported and applauded. This chapter demonstrates how a

firm can create a framework to encourage—and even demand—high standards of ethical

behavior and social responsibility from its employees. The chapter also considers the com-

plex question of what business owes to society and how societal forces mold the actions of

businesses. Finally, it examines the influence of business ethics and social responsibility on

global business.

Sarbanes-Oxley Act fed-

eral legislation designed

to deter and punish cor-

porate and accounting

fraud and corruption and

to protect the interests of

workers and sharehold-

ers through enhanced

financial disclosures,

criminal penalties on

CEOs and CFOs who

defraud investors, safe-

guards for whistle-blow-

ers, and establishment

of a new regulatory body

for public accounting

firms.

business ethics stan-

dards of conduct and

moral values involving

right and wrong actions

arising in the work

environment.

a ssessment c heck

THE NEW ETHICAL ENVIRONMENT

Business ethics are now in the spotlight as never before. High-profile investiga-

tions, lawsuits, arrests, and convictions, as well as business failures due to fraud

and corruption, have created a long string of headline news. While these events

have brought about rapid change in many areas and new laws to prevent them

from happening again, they have also obscured for many people the fact that most companies

and their leaders are highly ethical. The National Business Ethics Survey found that more than

80 percent of employees believed top management in their organizations kept promises and

commitments, and most believed that honesty and respect were more prevalent than a few

years ago. 2

Most business owners and managers have built and maintained enduring companies with-

out breaking the rules. One example of a firm with a longstanding commitment to ethical

practice is Johnson & Johnson, the giant multinational manufacturer of healthcare products.

The most admired pharmaceutical maker and the ninth-most-admired company in the world,

according to Fortune , Johnson & Johnson has abided by the same basic code of ethics, its

well-known Credo, for more than 50 years. The Credo, reproduced in Figure 2.1, remains the

ethical standard against which the company’s employees periodically evaluate how well their

firm is performing. Management is pledged to address any lapses that are reported. 3

Many CEOs personify the best in management practices and are highly respected for their

integrity, honesty, and business ethics. Jeff Immelt, General Electric’s CEO, lists four things

needed to keep the company at the top of the “most valuable” and “most admired” lists: Virtue

first, followed by execution, growth, and great people. Immelt began by appointing the com-

pany’s first vice president of corporate citizenship, Bob Corcoran, who started a program for

reviewing more than 3,000 of GE’s overseas suppliers for compliance with labor, health, and

safety standards. In its other workforce programs, the company now offers domestic partner

benefits to gay employees and has recently won awards for promoting women and African

“ They Said It ”

“Don’t major in P.E.

and try to run a

major company.”

—Jim Blackwood

Laid-off WorldCom

employee, on the conviction

of former CEO Bernard

Ebbers

“ They Said It ”

“Start with what is

right rather than what

is acceptable.”

—Peter Drucker

(1909–2005)

American business

philosopher and author

Chapter 2 Business Ethics and Social Responsibility

40523_02_c02_p030-061.qxd 9/12/06 5:56 PM Page 34

Americans to executive positions. It began an extensive

healthcare project in Ghana and purchased companies

that purify water, manufacture solar-energy equipment,

and produce wind energy—overall doubling its research

budget for investigating environmentally sound tech-

nologies. “Good leaders give back,” says Immelt. “The

era we live in belongs to people who believe in them-

selves but are focused on the needs of others.” 4

However, not all companies set and meet high ethi-

cal standards. A survey by Public Agenda and the Ket-

tering Foundation found that typical Americans, inter-

viewed in focus groups, thought that greed and poor

values had led many companies astray from their moral

bearings, and that a major ethical priority for business

should be preserving jobs. Executives interviewed for

the study believed that jobs were a business, rather than

an ethical, issue. 5

With passage of the Sarbanes-Oxley Act of 2002,

which establishes new rules and regulations for securi-

ties trading and accounting practices, a company is also

required to publish its code of ethics, if it has one, and

inform the public of any changes made to it. The new

law may actually motivate even more firms to develop

written codes and guidelines for ethical business behav-

ior. The federal government also created the U.S. Sen-

tencing Commission to institutionalize ethics compliance

programs that would establish high ethical standards and

end corporate misconduct. The requirements for such

programs are shown in Table 2.1.

The current ethical environment of business also

includes the appointment of new corporate officers specif-

ically charged with deterring wrongdoing and ensuring

that ethical standards are met. Ethics compliance offi-

cers, whose numbers are rapidly rising, are responsible

for conducting employee training programs that help

spot potential fraud and abuse within the firm, investigating sexual harassment and discrimina-

tion charges, and monitoring any potential conflicts of interest. In some firms, such as Molson

Coors, the ethics training program is closely linked to the audit department and the integrity of

the company’s financial statements. 6 This last responsibility is more important than ever, now

that the Sarbanes-Oxley Act requires financial officers and CEOs to personally certify the

validity of companies’ financial statements.

2.1 Johnson & Johnson Credo

Our Credo

We believe our ﬁrst responsibility is to the doctors, nurses and patients, to

mothers and fathers and all others who use our products and services. In

meeting their needs everything we do must be of high quality. We must

constantly strive to reduce our costs in order to maintain reasonable prices.

Customers’ orders must be serviced promptly and accurately. Our suppliers

and distributors must have an opportunity to make a fair proﬁt.

We are responsible to our employees, the men and women who work with

us throughout the world. Everyone must be considered as an individual. We

must respect their dignity and recognize their merit. They must have a sense

of security in their jobs. Compensation must be fair and adequate, and

working conditions clean, orderly and safe. We must be mindful of ways to

help our employees fulﬁll their family responsibilities. Employees must feel

free to make suggestions and complaints. There must be equal opportunity

for employment, development and advancement for those qualiﬁed. We

must provide competent management,

and their actions must be just and ethical.

We are responsible to the communities in which we live and work and to the

world community as well. We must be good citizens—support good works

and charities and bear our fair share of taxes. We must encourage civic

improvements and better health and education. We must maintain in good

order the property we are privileged to use, protecting the environment and

natural resources.

Our ﬁnal responsibility is to our stockholders. Business must make a sound

proﬁt. We must experiment with new ideas. Research must be carried on,

innovative programs developed and mistakes paid for. New equipment must

be purchased, new facilities provided and new products launched. Reserves

must be created to provide for adverse times. When we operate according

to these principles, the stockholders should realize a fair return.

Source: “Our Company: Our Credo,” Johnson & Johnson Web

site, accessed June 7, 2006, http://www.jnj.com .

“ They Said It ”

“Be the change you

want to see in the

world.”

—Mohandas K. Gandhi

(1869–1948)

Indian nationalist leader

Individuals Make a Difference

In today’s business environment, individuals can make the difference in ethical expectations

and behavior. As executives, managers, and employees demonstrate their personal ethical prin-

ciples—or lack of ethical principles—the expectations and actions of those who work for and

with them can change.

What is the current status of individual business ethics in the United States? Although eth-

ical behavior can be difficult to track or even define in all circumstances, evidence suggests

Part 1 Business in a Global Environment

Contemporary Business - Chapter 02.pdf

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