Summary : Managing business ethicsLinda K. Trevino & Katherine A. Nelson. Wiley; 5th edition
Chapter 4 – Addressing individuals’ common ethical problems
Ethical issue when people work together (privacy, discrimination, sexual harassment or simply how people get along. Key is fairness meaning equity, reciprocity, impartiality
- Equitable is when something is divided between 2 people according to the worth & inputs of the 2 individuals. Most people think it’s unfair when 2 people have performed the same duty but receive a different share of the reward
- Reciprocity: “if you do this for me I’ll do this for you”. Most ppl think it’s unfair if one person fails to hold up his part of the bargain
- Impartiality: “I am being judged fairly or is there bias & prejudice?”
Discrimination = when something other than qualifications affect how an employee is treated
How to look at an ethical problem:
- Deontological lens: Do we have a duty/obligation to the employee, employer, or both?
- Golden rule: How you would want the parties to behave if the situation was reversed
- Kant’s categorical imperative: What kind of world would it be if everybody was behaving like this?
- Rawl’s veil of ignorance: How would you make this decision if you had no idea if the employee was a man/woman?
Fairness incorporated in business law around the world + inalienable right in the US
Sexual harassment = unwelcomed sexually oriented behavior that makes someone feel uncomfortable at work. 2 types: 1) Quid pro quo, where sexual favors are required for advancement in the workplace and 2) Hostile work environment, sexual harassment makes someone uncomfortable
“Reasonable person standard”: How would a reasonable person assess the situation? Could you proudly describe your actions to your mom or priest without embarrassment?
Problem because it’s a form on discrimination, unfairly focuses job advancement on factors’ over than employability to do the job
Conflicts of interest
Occur when judgment or productivity is compromised (or seems to be compromised). Common conflicts of interest include overt or covert bribes and the trading of influence or privileged information. When confronted with conflicts of interest, most relevant is to consider what is fair, & look at the issue through the lens of virtue ethics (what could you do that you wouldn’t mind reading about in your local newspaper?). Conflicts of interest erode trust because not everyone is treated the same (they enhance 1 relationship at the expense of the others)
Customer confidence issues
Refers to issues affecting a relationship with a customer, and includes confidentiality, product safety, product effectiveness, truth in advertising & special fiduciary responsibilities.
Confidentiality = Privacy is a basic right and customer info should be kept private. Strict confidence should apply concerning M&A, financial info, employees’ private info.
Personal responsibility = Basic customer right. That the company takes personal honesty/responsibility for the goods and services they offer.
Telling the truth = Fine line between telling the truth and hyping a product/misleading a client
Special fiduciary responsibility = concerns special professions like banking, accounting, law defined as the need to care of the assets of the client.
Use of corporate resources
Use of corporate resources requires being responsible in the use of financial resources & reputation.
- Talking in the name of a company should be done with great care, as people assume you express of a point of view of the company (e.g. use of corporate letterheads for personal recommendations should be avoided). Involves a reputational danger
- Corporate equipment & services should be used only for corporate activities
- Use of corporate resources is critical because it represents fulfilling your part of your contract with your employer
Blowing the whistle
Whistle-blowing and courage at work can be seen as “calculated risk-taking”. Ask yourself:
- How strongly you feel about the particular issue
- Ask yourself about your intention (personal or for the greater good?)
- Consider power & influence: you will need to convince others
- Weight the risks & benefits of action
- Think about timing
- Develop alternatives
When dealing with a serious issue and followed the guidelines above, you can make the decision to blow the whistle. The steps are:
- Approach immediate manager first
- Discuss the issue with your family
- Take it to the next level
- Contact your company’s ethics officer or ombudsman
- Consider going outside your chain of command
- Go outside of the company
- Leave the company
- Critical to think about ethical issues before they arise.
Chapter 5 – Ethics as organizational culture
- Employees are not “just” individuals. They’re part of an organizational culture which influences their thoughts & actions. Ethical culture is a subset of the company’s organizational culture.
- Ethical culture has a strong influence on individuals’ ethical judgment and actions
Organizational ethics as culture
Culture = body of learned beliefs, traditions & guides for behavior shared among members of a group
Cultures can be strong or weak. Strong cultures share a lot of common guidelines and rules that guide behavior (e.g. Heineken company). In weak cultures, various strong subcultures exist and guide behaviors that differ from one subculture to another (e.g. public universities). Weak cultures are not inherently bad as strong subcultures can be desirable.
Socialization (also enculturation) = process through which employees learn the company’s culture. Occurs through training, mentoring, or more informally through the daily behavior of peers.
Internalization = when an individual accepts the external culture standards as its own.
Socialization & internalization help understand why employees behave (un)ethically in an organization: most employees can be socialized into behaving unethically (if all employees lie to customers they are likely to do so too).
Ethical structure: a multisystem framework
How ethical culture is created and influenced
- In practice, lots of misalignments; where companies boast their ethical values while their day-to-day behavior shows the contrary
- Strong ethical culture helps to retain the best employees
Ethical Leadership
- Evidence suggest that founder of a new organization has a particularly important culture-creating role
- Senior executives create, maintain & change (in)formal culture systems by what they say, do and support
- Current executives can substantially change the current culture by formulating a new vision & values (e.g. Jack Welch turned GE from an old bureaucratic company to a dynamic, fast and competitive firm)
- Senior leaders must develop a reputation for ethical leadership. This is done by acting on 2 dimensions: a moral person dimension and a moral manager dimension. The moral person dimension represents the traits of the leaders that are visible to employees. It tells and shows how the leader behaves, and demonstrates his ethical qualities (e.g. honesty, integrity). The moral manager tells the employees how they should behave. It includes taking a role model and holding employees accountable for their own (un)ethical actions.
The leaders can be categorized according to their moral person and moral manager traits:
- Unethical leader = Known as weak moral managers and weak moral persons (e.g. Dunlap from Sunbeam). They can strongly influence the development of an unethical structure.
- Hypocritical leadership = Leader who talks about integrity and ethical values but engages in unethical conduct (doesn’t “walk the talk”).
- Ethically neutral leadership = Not a strong leader either ethically or unethically (ethically “silent”).
- Research proved that ethical leadership is critical to employees
- Also found evidence that ethical leadership flows down the organizational chart
- Senior directors must lead by example on ethical issues, they must be moral persons
Other formal cultural systems
- Selection systems = formal systems in place for recruiting/hiring new employees. Crucial to recruit people who fit the culture of the company (ethical persons)
- Value & mission statements = general statements of guiding beliefs, should be aligned with the other dimensions of culture
- Policies & codes = provide behavioral guidance in specific areas (e.g. expense reporting)
- Orientation & training programs
- Performance Management Systems = formal process of articulating employee goals, identifying performance metrics & providing a compensation structure that rewards individual/team effort in relation to those goals. Key component of the ethical culture, b/c it incentivizes people to be ethical
- Organizational Authority Structure = removing bureaucratic layers can help employees address ethical problems directly
- Decision making processes = can contribute to unethical behaviors by relying exclusively on quantitative analysis & financial outcomes
Informal cultural systems
In addition to the formal systems described above, ethical culture uses informal norms, heroes, rituals, myths & stories to be “kept alive”
Different “climates” in the organization are critical and can influence employees.
- Climate for fairness: whether employees believe they are treated fairly (for pay, promotions, termination, respect)
- Benevolence climate: whether the organization is concerned by its stakeholders
- Self-interest climate: whether people protect their own interest above all, whether attention is given to the social consequences of actions
- Rule-based climate: whether employees perceive that they employees in general follow both laws & the organization’s rules when making decisions
- ETHICS AT WORK GREATLY INFLUENCE BY THE ORGANIZATION’S ETHICAL CULTURE (not only personal traits influence ethics, see conclusion of chapter)
Cultural approach to changing organizational ethics
Changing ethical culture requires: Giving attention to all cultural systems Aligning the systems together (consistency) to support ethical conduct Time to be effective (from 6 to 15 years) Evaluating results over an extended period of time & track progress
Chapter 6 – Managing ethics and legal compliance
Compliance with laws and regulations must be managed
- Ethics/Legal compliance usually closely tied to maintenance of the firm’s reputation & brand value
- US Sentencing Guidelines = took effect in the 90s. Sets out punishment rules for individuals & corporations convicted of felonies. “Carrot and the stick” approach:
- Incentivizes corporations to develop a strong internal control system against illegal behavior
- Severe punishments and fines for convicted organizations who are not managing legal compliance
- US Sentencing Guidelines aims to encourage companies to create ethics programs driving integrity/ethical behavior in their business
Corporate ethics office = coordinates ethics initiatives and makes sure the US Sentencing Guidelines are being met. Used by large firms while smaller firms usually outsource their ethics management
Chief ethics officer = defined by the US Sentencing Guidelines as a “high-level individual responsible for overseeing legal compliance standards”. Can be an outsider or insider.
- Ethics offices infrastructures can be centralized, decentralized, or both. This is influenced by the company’s structure (a centralized ethics function is difficult to implement for highly decentralized firms) or by the different ethics needs of different business units (a subsidiary dealing with government contract will have special compliance requirements).
Corporate Ethics Committee = in some organizations, a corporate committee manages ethics. It is composed of senior managers from different functional areas. It provides guidance/oversight to the CEO and managers over ethics’ strategy.
Communicating ethics
- Align formal & informal communication systems. Formal communications are all written & electronic communication. Informal communications are also called “the grapevine” (news, rumors, impressions, perceptions). The grapevine can help assess the credibility of a company (does the company do what it says?). Alignment can be done by asking employees through survey/focus groups.
- Analyze the audience. The communication of an ethics plan depends on the type of people one is dealing with. Consider what employees already know, what they need to know, what biases/abilities they have, what the desired and required look like, where they can go report their ethical concerns. 3 main types of employees: moral, uneducated about ethics, and immoral.
Questions to evaluate the state of ethics communication:
- What kinds of ethical dilemmas are employees likely to encounter? (may be industry specific)
- What don’t employees know? (are they hired from another industry with different standards of conduct)
- How are policies currently communicated? (is the policy manual online & easy to access?)
- What communication channels exist? (How do employees receive messages from management and vice versa?)
Communication channels for formal ethics communication include: websites, recruiting brochures, campus recruiting, orientation meetings and materials, newsletters and magazines, booklets (e.g. USAA uses a “case study” approach to communicate ethical issues, employees read an ethics case from the news and can exchange/comment on it)
Organization policy = the « rules of the organization ». Describe laws, regulations, and internal policies. Critical to any company, usually is a manual or intranet website. Guidelines to follow for corporate policy:
- Communicate relevant rules to the people who need them (some policies apply only to specific employees)
- Prioritize policy (some policies e.g. confidentiality are more important than others)
- Make it understandable (plain English, not legalese)
- Make policy come alive (effective communication when a message is received & understood)
Senior management commitment to ethics should be well communicated. This requires a leader who sets high standards, takes responsibility in a crisis, is open, honest and accessible. He/She must also invest in ethics: value statements are not valuable without supporting systems.
Value statements and codes of conduct are not enough. Ethics training programs provide training about ethics and their application. They can target new employees (e.g. Lockheed Martin new recruits get a briefing on ethical/legal issues), existing employees (Lockheed Martin has annual awareness trainings for every employee), top management (ethics initiatives beginning at the top of a company and working their way down are referred to as cascading) and local management. Some trainings include ethics game.
- Make sure people can discuss opinions and thoughts openly
- Employees should feel free to question authority figures, talk openly about ethics (some firms implement an ethics hotline)
Evaluation of ethics programs
Many organizations commit resources to ethics but few systematically evaluate these efforts. Evaluation can be made using surveys (Lockheed Martin surveys employees every 2 years).
Corporate ethics can either emphasize a values or a compliance approach to managing ethics.
- Values approach = proactive & inspirational. Emphasizes expected behavior and an effort to achieve high standards. Relies on leader communication & role modeling. Ethics is something the organization is proud of.
- Compliance approach = focus on required behavior and disciplinary procedures. Obeying the law rather than aspiring to ethical principles.
- An effective program should have both values and compliance components
Best of formal ethics management programs have a strong value-based approach that incorporates legal compliance within the framework.
Keys to effective ethics management are:
- Commitment to ethics from the top of the hierarchy
- Involvement of leaders and employees at every level
- Recognition that ethics management is an ongoing effort requiring continuous reinforcement & integration into the larger corporate structure
Chapter 7 – Managing for ethical conduct
Introduction of basic management concepts that help to manage in a way that increases the probability that employees will behave ethically.
People are socialized to accept different behaviors depending on context+ People have different selves (e.g. Kenneth Lay, former CEO of Enron, had a philanthropist self, but still committed accounting fraud)
Managers are responsible for creating a work environment that supports ethical conduct & integrity. Ultimate goal is to bring your multiple selves together (to support the idea that an individual can be consistent) and make the individual as ethical at the office as he or she is at home.
People do what’s rewarded and avoid what’s punishedWhat gets rewarded gets done (financial industry employees had high rewards for selling risky mortgage-backed securities, which they did without consideration for risks).People go the extra mile to achieve goals set by managers. Goals combined with rewards can encourage unethical behavior (salespeople may engage in unethical behavior like deceiving customers to reach their bonus target)
Managers should avoid building rewards based on ends only, but should make sure that the means used to accomplish these goals (e.g. by salespeople) are ethical. It’s the manager’s responsibility to think about the likely behavioral outcomes and potential unintended consequences of the goals that are set. Both the bottom line (e.g. number of items sold) and the means (e.g. building trust with clients) should be measured and rewarded.
Ethical “Pygmalion effect” people in school & work settings generally live up to the expectations that are set for them, whether they’re high or low.
Power of indirect rewards/punishment:Social learning theory = People learn from observing the rewards & punishment of others (“Not everyone needs to get burned to know that the stove is hot”)
Manager should take note of the messages they’re implicitly sending to all of their workers by what they reward, punish, or fail to punish. Failing to punish also sends signals to employees and may affect their behavior.
Discipline:
- Should be administered fairly (punishment results in better outcomes if the recipient perceives it to be fair). The punishment should “fit the crime” and be consistent with what others have received for similar infractions
- Indirect effects of punishment should be recognized. Social learning theory other employees will be affected as well. The grapevine (see precedent chapters) is a great way to transmit information about punishment in the company.
- People want to believe their workplace is “just”, that people don’t get away with doing bad things
- People should be disciplined swiftly
People follow group norms
- “everyone’s doing it”= used to rationalize/justify unethical behavior
- “everyone’s doing it” also used as pressure to go along. Individuals are more likely to engage in unethical behavior in a group situation where they feel they have no choice but to comply. If left alone they would follow the rules but not in a group setting.
Managers: 1) Must be aware of the power of group norms (informal standards of behavior) which aren’t always consistent with the formal/written rules. 2) Norms are most likely to change via changes in the reward system.
People fulfill assigned roles
- Roles are strong forces for guiding behavior
- Focus on the role reduces the individual’s awareness of the self as an independent individual who’s personally responsible for an outcome deindividuation (cf Zimbardo prison experiment with prisoners and guardians)
- People enter work organizations in a state of role “readiness” likely to engage in behaviors consistent with their organizationally prescribed role, even if those behaviors violate other values they hold (example of multiple ethical selves)
- Conflicting roles can lead to unethical behavior minimize conflicting role demands
People do what they’re told
- Authority figures can make people do things they wouldn’t otherwise (cf. Milgram Experiment, where normal people inflict deadly electric shocks because a researcher asks them to do so.
Managers must recognize the power they hold as authority figures in work organizations. Authority figures must exhibit ethical behavior & must send powerful signals that high ethical standards are expected of everyone. As a manager, don’t assume there’s one “bad apple”. The culprit may have been influenced by a superior.
Responsibility is diffused in organizations
- In organization, the individual often becomes disconnected from the consequences of his/her actions & doesn’t feel responsible for them responsibility is diffused
Responsibility is diffused because it’s:
- Taken away
- Shared with others in decision-making groups
- Obscured by the organizational hierarchy
- Diluted by psychological distance to potential victims
- Responsibility is diffused in groups and no single individual feels responsible. “Groupthink” individual’s group members tendency to conform to the decision they think most of the group’s members prefer / individual members find it difficult to express disagreement
- Responsibility is diffused by creating psychological distance more difficult to see oneself as responsible for any negative outcome when potential victims are psychologically distant/out of sight
Managers : People much more likely to act ethically if they perceive themselves as personally responsible for the outcomes of their decisions & actions. Make individual responsibility a salient issue for everyone. For groups, make it clear that every group member will be held personally responsible for the outcome of group decisions.
Chapter 8 – Ethical problems of managers
What responsibilities managers have? How you as a manager can encourage employee engagement & influence employees to make ethical decisions? How organizational culture influences manager decisions? How managers can help reinforce the ethical structure of their organization
Managers & Employee engagement
Employee engagement = discretionary effort / how committed employees are to their work. They can be divided in 3 engagement groups:
Link between employee engagement and ethics Increasing employee engagement can also improve an organization’s ethical culture. First, this requires focusing on the 4 drivers of engagement. Second, this requires identifying/developing great managers.
The 4 drivers of engagement are:
- Line of sight (employees understand the company’s strategic direction, how the company makes money)
- Involvement (employees actively participate in the company, their ideas are heard)
- Information sharing (information goes in all directions, people get the info they need to be effective
- Rewards & recognition (business goals/values are clearly spelled out, employees how to behave and what needs to be done to get rewarded)
Manager’s most important responsibility is to bring good people into the organization and then manage in a way that makes those good people want to stay. Need to hire people who fit the current culture, even if they’re different.
Performance management systems are efficient to implement desired behaviors into the organization.
Driving employee engagement is critical to establish a clear line of sight between the goals of individuals & the organization. When objectives & progress are tracked, it’s much easier for employees to perform.
Most effective way to discipline employees:
- Discipline must be constructive & done in a professional manner
- Discipline should be done privately
- Employees should have input into the process and be encouraged to explain their side of the story
- Discipline should be appropriately harsh & consistent with what other employees have received for similar offenses.
Discipline should be applied equally to all employees, even “star” employees (e.g. star salespeople). Star employees’ behavior shouldn’t be allowed to deviate from the organization’s culture & values consequence for all the employees
Terminations exist in different types:
- Termination for cause = an individual has committed an offense that can result in instant dismissal. “Cause” can represent different offenses, generally theft, assault, cheating on expense reports, forgery, fraud
- Termination for poor performance = most employers have a formal system of warning before the termination
- Downsizing / layoffs = can result from many kinds of reorganizations, M&A, relocations, or result from economic changes or changes in business strategy
- Layoffs have consequences for layoff survivors, employee motivation, etc. At least a clear reason for the layoffs needs to be provided for them to be perceived as fair
Hiring, performance, evaluation, discipline and terminations are all ethical issues b/c they involve honesty, fairness, & dignity of the individual. Lack of justice & fairness in how employees are treated can be costly: legal costs, fines, lowered employee morale & organizational reputation.
Managing a diverse workforce
- Workforce is becoming more diverse: key to managers’ success is to make diverse group work together effectively
- Managers must orchestrate team performance – alternating between teaching, coaching, communicating with employees & empowering them to make good decisions
- Managers must positively influence the relationships among other teams members
- They must also create an ethical work environment that enhances individual productivity
- Managers must be a referee who mediates/resolves disputes
Diversity Diverse workforce consists of workers of different sexes, races, ethnic groups, religions, sexual orientations Role of a manager is to create an environment that maximizes the contribution of each individual. Ignoring diversity can lead to problems (e.g. drop in sales if styling decisions are made by men, for a product purchased by women). Other diversity issues can include clothing should be aligned with other elements of culture
Harassment managers’ job is to keep a balance between the rights of the individual and the rights of the group; the objectives are fairness & respect for each individual
Family & personal issues conditions that, though not directly related to work, can affect a person’s ability to perform. A balance must be achieved between maintaining a worker’s right to privacy & ensuring fairness to co-workers. Includes personal illnesses, chemical dependencies, drug or alcohol abuse. Importance is to protect privacy & be fair with the concerned employee.
These are ethical issues because they concern fairness & respect for the individual
The manager as a lens
- Managers are a critical component of an organization’s success
- Managers need to “walk the talk” to be taken seriously by employees
- Begin with clear standards – avoid cultural misalignment, which is having written standards that do not reflect the real standards of the company. This destroys credibility. Managers must understand that they are setting standards and communicating organizational culture all the time.
- Design a plan to continually communicate standards – Managers must communicate with employees for employees to communicate with them. Being a good communicator is critical to know what is going on in the company and not be “out of the loop”. Also, communicating with many different groups at all levels is important. To not be blindsided, managers must make sure they are considered as approachable.
- Managers are role models, not because they want to, but because of their position.
- Managers must remember that as role models, what they do is way more important than what they say
- Pay attention that there’s no discrepancy between actions & words, otherwise, you will have no credibility
Managing up and across
- New performance appraisal method: 360-feedback. When evaluating an employee’s performance, the manager asks for input from the employee’s coworkers & subordinates
- Honesty is a crucial rule in business: lying can do enormous damage to one’s reputation. It’s critical to be honest and keep your promises.
- Standards go both ways: employees can also set ethical standards for their managers. Refuse to compromise your standards even if a manager asks otherwise you’ll be confronted with more unethical dilemmas
- Employees strongly influenced by the conduct of management
- Managers build & reinforce culture with everything they say & do
Chapter 9 – Corporate Social Responsibility (CSR)
Previous chapters emphasized ethical behavior within the organization. Here, CSR focuses on the relationship between the organization & its external stakeholders.
3 reasons why corporations should care about social responsibility:
- Pragmatic reason: businesses must use their power responsibly or risk losing it. Corporations enjoy advantages such as limited liability because society allows them to do so, but these advantages can be taken away for irresponsible firms (e.g. Arthur Andersen)
- Ethical reason: Businesses, as part of society, have a responsibility to behave ethically. Responsible executive have an ethical duty to care about multiple stakeholders, simply because it’s the right thing to do (e.g. BB&T deciding not to be in the business of negative amortization mortgages)
- Strategic reason: there’s an interdependence between business & society best CSR initiatives will be both good for the business & society (e.g. Toyota Prius, eco-friendly and innovative at the same time)
- Social responsibility efforts can backfire if the public perceives the company to engage in CSR program only when it can profit from it
Types of corporate social responsibility
- Economic responsibilities = producing goods/services that consumers need & want, while making an acceptable profit. Primary responsibility & foundation of CSR because it provides jobs, products, & contributes to the economy
- Legal responsibilities = businesses are expected to carry out their work in accordance with the current law & government regulation
- Ethical responsibilities = going beyond legal requirements to fulfill what the company perceives as right/ethical (e.g. not advertising cigarettes to minors in Asia even though it’s not forbidden)
- Philanthropic responsibilities = corporation’s participation in activities that promote human welfare or goodwill (generally through donations of time, money, or goods/services). Cynicism often encountered when people perceive the philanthropy efforts to be made just to compensate for other clearly harmful practices.
Triple bottom line & environmental sustainability
- Triple bottom line as another way to think about CSR
- Triple bottom line represents a firm’s economic, social, and environmental impacts.
- Economic bottom line refers to the economic impacts of a firm.
- Social dimension refers to a firm’s impacts on multiple stakeholders (employees, customers, suppliers
- Environmental dimension recognizes the impact of business on the natural environment. “Greenwashing” = disingenuous attempts at public relations rather than sincere efforts to reduce environmental harm or to do good
Socially responsible businesses
- Business has a huge stake in the way the rest of society perceives its ethical standards
- Scandals cause losses in the short-term
- However, a favorable corporate reputation allows premium prices, better applicants, access to investors & capital markets
- Socially responsible investors insist that their investments meet ethical & financial criteria
- Cost of illegal conduct High fines & jail sentence for responsible actors (CEO, traders) and decrease in stock price for the firms
- Increased government regulation is a huge cost of irresponsible business behavior
- Government regulation holds companies responsible for externalities (costs to society, such as environmental change, that are produced by companies but not reflected in the company’s cost structure)
CSR “Should have positive contribution to the bottom line” vs. “a cost that robs profit”
- Reputation for higher CSR = decreased firm financial risk
- Companies with good CSR = higher profitability, sales growth & market values
- Failure to be socially responsible is costly (socially irresponsible or illegal acts decrease shareholder wealth)
- Besides the financial bottom line, business people practice good ethics & social responsibility because they are people first, who value good reputation & the opinion of their friends, family & community.
- CSR is good for businesses, has real costs & rewards & is worth bothering about
Chapter 10 – Ethical problems of organizations
Managing stakeholders
Stakeholders can be divided into 2 groups:
- Primary stakeholders = groups/individuals with whom the organization has a formal, contractual relationship. In most cases, employees, customers, shareholders, suppliers & perhaps the government
- Secondary stakeholders = groups/individuals to whom the organization has obligations but who are not formal, contractual partners
Balance between satisfying primary stakeholders while keeping secondary stakeholders satisfied
Ethics & consumers
- Few laws protecting consumers before the 60s
- Current framework of consumer protection is based on 4 consumer rights: right to safety, right to be heard, right to choose, and right to be informed
Some argue that products & services should be produced according to the “due care” theory. Due care involves these elements:
- Design (products/services should meet all government regulations & be safe under all foreseeable conditions, including misuse by the consumer
- Materials (materials should meet government regulations & be durable enough to withstand reasonable use)
- Production (products should be made without defects)
- Quality control (products should be inspected regularly for quality)
- Packaging, labeling, warnings (should be safe & clearly describe any hazards)
- Notification (manufacturers should have a system in place to recall products that prove to be dangerous at some time after manufacture & distribution)
Conflicts of interest
Conflict of interest =occurring when someone could think that your judgment might be clouded because of a relationship you have. Corporate conflicts of interests can be very risky & should be avoided at all costs. Recent corporate conflicts of interest include Arthur Andersen & Enron, or investment banks & the housing bubble.
Product safety
Product safety is a major ethical obligation of any organization. Competition in the marketplace generally helps ensure that goods/services will be of acceptable quality to consumers. See J&J, Toyota cases.
- Most common fault in ethical decision making is ignoring the long-term consequences of a decision.
Advertising
Ethics in advertising is a difficult topic because of the varying opinions of what the truth is. There’s a thin line between enthusiasm for a product & high-pressure sales tactics. 2 industries where ethics could be questionable are the tobacco and the gambling industry.
Ethics & employees
- Employees are a key stakeholder group of any organization
- Organizations have many ethical obligations to employees (right to privacy, right not to be fired without cause, right to a safe workplace, right to due process & fair treatment, right to freedom of speech, right to work in an environment that is free of bias)
- Employee safety = right to work without being maimed/killed on the job
- Employee downsizing/layoffs = organization have an obligation to hire/fire responsibly. Layoffs can be justified by many business conditions but always create human misery which should be taken into account
Ethics & shareholders
An organization has clear ethical obligation to shareholders: serving the interest of owners & maximizing shareholder value. It also means not engaging in activities that could put the organization out of business/ not making decisions that might jeopardize the company’s health in the future.
Ethics & the community
Communities of which corporations are part are a major stakeholder in business. The most obvious way a company can affect its community is through its approach to the environment (e.g. Exxon, BP oil scandals)
- All ethical issues because they involve obligations to key stakeholders. These ethical obligations all include fairness, safety and honesty to the 4 main stakeholders of most organizations
- The abovementioned ethical considerations can be very costly & fatal to businesses
- All stakeholders are connected & their interests frequently overlap
- Top 3 factors in corporate reputation with the public are:1) Transparent & honest practices2) A company that can be trusted3) High-quality products & services
