Chapter 04: Social Responsibility & Business Ethics

Chapter 04: Social Responsibility & Business Ethics

Layout of Chapter:

Our society expects firms to provide quality goods and services when they are needed and where they are needed, at acceptable prices. But we also expect business firms to do so in a manner that considers the good of the society.

1.         Social Responsibility.

A.      Responsibility to Consumers	B.     Responsibility to Employees
C.     Responsibility to Environment	D.     Responsibility to Investors

2.         Business Ethics.

1.                  Social Responsibility

The awareness that business activities have an impact on society and the consideration of that impact by firms in decision making.

A.      Responsibility of Consumers

v      Firms trying to succeed, provide products that satisfy the needs of their customers, since dissatisfied customers eventually take their business elsewhere.

v      When firms engage in practices that individuals or special-interest groups oppose, consumers sometimes boycott products to convey their dissatisfaction with a product or some of the firm’s activities. Consumers, the public and special-interest groups are making increasing demands that business firms demonstrate social responsibility; such pressure has prompted many business firms to adopt socially responsible policies.

v      Consumerism includes the activities of individuals, groups and organizations aimed at protecting consumer rights. Such activities include testing and reporting on the safety and performance of products and service firms, informing the public and government officials of consumer issues, and advocating legislation.

v      Evolution of Consumer Movement: The consumer movement began with the Industrial Revolution, when many workers faced unsafe conditions and consumers were exposed to harmful products. The movement gained momentum during the 1930s, the time of the Great Depression, and peaked again in the 1960s. During this time, President John F. Kennedy established the consumer “Bill of Rights”. The Bill confers the following four (4) rights on a consumer:

                I.      The Right of Safety – right to products that are safe to possess and use. To ensure safety of goods, manufacturers should test them and provide buyers with explicit directions for use.

               II.      The Right to be Informed – right to receive information available about a product before they purchase it. E.g. ingredients, nutritional info, instructions for use/ store, limitations etc. Customers seeking a loan from a bank should be told of all costs and repayment terms associated with the loan.

             III.      The Right to Choose – right to choose and make purchases from a variety of products at competitive prices. Also the right to expect quality service at a fair price.

            IV.      The Right to Be Heard – right to have their (consumers) opinions considered in the formation of government policies and in business firms’ decisions that affect them. E.g. Consumers may ask questions, make comments or complaints.

B.     Responsibility to Employees

·         Employees hold certain expectations of business firms. They expect safe working conditions, fair compensation, equal opportunities (regardless of age, race, gender, religion or national origin), and Adequate benefits (e.g. health insurance, vacation etc.)

·         The Occupational Safety and Health Administration (OSHA) monitors conditions in the workplace. The Equal Employment Opportunity Commission (EEOC) works toward increasing job opportunities for women, minorities, and handicapped people.

C.     Responsibility to Environment

Business decisions have a profound impact on the environment. Business activities can cause pollution – the contamination of air, water and land. Socially responsible firms and consumers take active measures to reduce pollution. (The Environment Protection Agency sets standards and monitors compliance among firms and industries).

·         Water Pollution – caused by dumping of toxic chemicals, sewage and garbage into rivers etc. and by using pesticides and fertilizers etc.

·         Air Pollution – caused by carbon monoxide and hydrocarbons that come from motor vehicles and by smoke and other pollutants from manufacturing plants (emission from automobiles, factories, etc. catalytic converters are there to help control air pollution)

ð         Ozone layer – shields the planet from the sun’s deadly ultra-violet rays. This is being destroyed with a global warming trend (major cause is Chlorofluorocarbons (CFC) that are used to cool refrigerators and air conditioners).

ð         Acid rain – when sulphur di-oxide is pumped into the air (often by manufacturing and power plants burning high sulphur coal) and mixes with air, rain with a high acid content is created.

·         Land Pollution – results from strip mining of coal and minerals, forest fires, garbage disposal and dumping of industrial wastes, including chemicals and medical supplies such as used hypodermic needles

ð         Land pollution often results in water pollution because toxic wastes drain into water supplies.

ð         Recycling – reusing materials such as paper, plastic, glass and aluminum to make other products. Recycling reduces the drain on resources and costs of producing new products and containers, and to slow the need for more and bigger landfills.

D.     Responsibility to Investors

Business firms have responsibility to the people who invest money in them. Recent problems such as mishandling of investor’s funds, insider trading (the practice of buying and selling stock on the basis of information gained through positions or contacts with others that is not available to other investors or the general public), and excessive compensation of executives, have contributed to a loss of money and trust on the part of investors. Firms have the following responsibilities:

·         Proper management of funds: to manage funds property so as to return a fair profit to investors.

·           Access to information: to make stock information available to all potential investors. Certain law prohibits insider trading and individuals violating such law may be prosecuted.

·           Executive compensation: to offer a fair compensation package to its executives. Executives who run firms carry tremendous responsibility and deserve to be compensated accordingly.

Advancing Social Responsibility

Socially responsible firms practice it through programs of community support, self-regulation, and social audit.

·         Community Support. E.g. contribute to build parks, donate equipment to schools, sponsor academic scholarships, plantation etc.

·         Self-Regulation, by establishing standards of conduct and ensuring that individuals follow them. e.g. Better Business Bureau helps consumers settle problems with specific firms, maintains records of complaints and warns consumers through local media when a firm is engaged in deceptive or questionable practices.

Businesspeople generally prefer self-regulation to that imposed by the government. The guidelines established within an industry are often more realistic than those established by the government.

·         The social audit – A systematic review of an organization’s performance of social responsibility activities. A social audit looks at the firm’s short and long-run contributions to society. With such information, managers can evaluate how effective the current programs are and decide whether they should initiate new courses of action. The managers can also determine whether the millions of dollars spent in social responsibility activities are spent wisely through a social audit.

2.                  Business Ethics

Social responsibility requires individuals engaging in business endeavours to behave in an ethical manner.

Ethics – the principles of behavior that distinguishes between right and wrong.

Business Ethics – the evaluation of businesses activities and behavior as right or wrong.

v      Ethical standards in businesses are based on commonly accepted principles or behavior established by the expectations of society, the firm, the industry and an individual’s personal values.

v      A violation of ethics makes trust and goodwill difficult to maintain.

The Organization

v      Individuals learn from ethical and unethical behaviors by interacting with others in the organization

v      By rewarding for ethical conduct and punishing unethical behavior may help the organization to promote ethical behavior among the employees.

The Individual

v      A person’s own moral philosophy influences his or her ethical behavior.

v      Moral Philosophy – the set of principles (learned from family, school, co-workers, friends) that dictate acceptable behavior.

In developing Moral Philosophy, individuals can follow two approaches:

1.      Humanitarian Philosophy:

• A set of moral principles focusing on individual rights and values.
• Individuals & organizations adopting this philosophy would honour their moral duties to customers and workers.

2.      Utilitarian Philosophy:

• A set of moral principles focusing on the greatest good for the largest number of people.

Encouraging Ethical Behavior:

Many organizations take positive steps to encourage ethical behavior. E.g. Ethics training programs etc.

·         Code of Ethics – A basic way for an organization to encourage ethical behavior is to establish a Code of Ethics (A statement spelling out exactly what an organization considers ethical behavior).

·         Whistle Blower – Employees of an organization can also encourage ethical behavior by reporting unethical practices. An employee who informs superiors, the media or a government regulatory agency about unethical behavior within an organization (often risking great professional and personal danger).

Efforts to encourage ethical behavior will be effective only with the support of top-level management.