Video Case 1.3: New Harvest Coffee Roasters Brews Up Fresh Business

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Kleinfeldt observes Starbucks’s tremendous success at

creating gathering places for people to enjoy coffee and

tea—as well as baked goods—in a relaxed social atmosphere. But he also notes with humor that, although cafes

and coffee bars were thriving a decade ago, these popular

hang-outs “weren’t really about coffee. They were about

smoothies and cookies. I thought, maybe it’s time to get

back to basics and roast some coffee.” Kleinfeldt recalls

that friends and colleagues—fellow coffee fans—felt the

same way. He believed that he had a basis to start a business. “We’re coffee people,” he explains. “There is a likeminded group of people.”

Kleinfeldt also points out that the movement toward

locally grown or produced foods has been a big help in

establishing and building support for his business. “The

idea of local coffee starts with the local roaster,” he

explains. Although the coffee beans themselves are grown

elsewhere—mostly on farms in Costa Rica—they are

roasted at New Harvest’s facility in Rhode Island, where

the company is based. “Freshness is a huge factor” in a

good cup of coffee, says Kleinfeldt. “Once it’s roasted, it’s

good for about two to twelve days, which is a good incentive to buy local.”

Buying local is exactly what retailers and coffee shops

such as Blue State Coffee do, creating a collaborative

relationship with New Harvest. Alex Payson, COO of Blue

State Coffee—a thriving shop in Rhode Island—observes

that most of his customers live within a five or ten-minute

walk from his business. Blue State customers are educated

about the coffee they drink. “They want to know,” says

Payson smiling. “We connect with our coffee farmers. Our

customers ask about the story behind our coffee,” including farming practices and working conditions. Payson and

his colleagues from New Harvest have traveled together

to some of the coffee farms in Costa Rica that grow the

beans they purchase. In fact, loyal customers can view the

progress of such trips on New Harvest’s Facebook page.

Relationships with companies like Blue State Coffee

as well as with consumers are the basis for New Harvest’s

growth as a business. “We need strategic alliances,” says

Rik Kleinfeldt. “Blue State is a great example of that.

They buy into what we’re doing and we support what

they are doing. They collaborate with us—what’s good

for Blue State is also good for New Harvest.” Blue State

educates its customers and employees about the benefits

of buying from a local firm like New Harvest, which in turn

works with certified organic, free trade growers. When



Blue State’s workers are able to discuss their products

knowledgeably with customers—including where and how

they are grown, harvested and roasted—a relationship is

developed.

Sharing activities, comments, news, and anecdotes

with customers, retailers, and coffee shops through social

media such as Facebook and Twitter allows New Harvest

to broaden its base without spending more on marketing

and advertising. These connections also put a personal

face on the company and allow New Harvest to gain

important knowledge about the views and preferences of

its customers. In addition, they provide valuable opportunities to showcase some of the company’s work in the community as well as its support for organizations such as the

Rainforest Alliance and New England GreenStart.

“Our mission is to be the leader in our region in

developing the palate and expectations of coffee drinkers, in order to create a permanent market for the coffee

produced by passionate and skilled growers,” states the

New Harvest Web site. For Rik Kleinfeldt’s company and

customers, coffee is much more than a hot cup of joe in

the morning. Coffee—organically grown, freshly roasted,

and served locally—represents a sustainable way to do

business.



Questions for Critical Thinking

1. Give examples of each of the four factors of

production that New Harvest must rely on to be

a successful operation. How does each contribute to the firm’s success?

2. Visit New Harvest’s Facebook page. Note specific

examples of the ways in which the firm is using

social media to manage its relationships.

3. Rik Kleinfeldt notes the importance of strategic alliances with firms like Blue State Coffee.

Describe how you think New Harvest benefits

from alliances with not-for-profit organizations such as Rainforest Alliance, New England

GreenStart, and Rhode Island PBS.

4. New Harvest builds much of its reputation on

its efforts toward environmental sustainability.

How does this reputation affect its relationship

with consumers?

Sources: New Harvest Web site, http://www.newharvestcoffee.com,

accessed January 24, 2012; Blue State Coffee Web site, http://www

.bluestatecoffee.com, accessed January 24, 2012.



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Learning Objectives

1 Explain the concern for ethical and societal issues.



Chapter



2



2 Describe the contemporary ethical environment.

3 Discuss how organizations shape ethical conduct.

4 Describe how businesses can act responsibly to satisfy society.

5 Explain the ethical responsibilities of businesses to investors and the financial



community.



loops7/iStockphoto



Business Ethics and Social

Responsibility



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PepsiCo’s Chickpeas to Relieve

World Hunger



W



hen you think of PepsiCo, the maker of Pepsi, Fritos,

Gatorade, and scores of other profitable food products, you

probably don’t think of the humble chickpea. Yet PepsiCo and

chickpeas are linked in a powerful new partnership, inspired by

Ethiopia’s prime minister, that the company hopes will not only

improve its own profits and bolster its growing global nutrition

business, but also boost Ethiopia’s economy and help alleviate

world hunger.

PepsiCo, with annual revenues of about $60 billion, recently

announced that it will be working with the United Nations

World Food Program and the U.S. Agency for International

Development (USAID) to increase the production of chickpeas

in Ethiopia. Chickpeas are an important ingredient in PepsiCo’s

hummus and other products, and they are also a nourishing

source of protein that is more sustainable than meat with far

lower risks of heart disease or diabetes. Demand for them is

increasing around the world. About 100,000 small Ethiopian

farmers currently grow the crop, and it is on their efforts that

the new partnership will focus.

PepsiCo plans to provide the farmers with better seeds and

irrigation methods so they can grow two crops a year instead



of one. The hope is that chickpeas can thus become a major

export crop for Ethiopia, improving the farmers’ lives and communities by increasing their income. PepsiCo itself will be the

biggest customer for the newly doubled yield, which will more

than meet what it needs as a raw ingredient for its own food

products. So, with its partners, PepsiCo will help ensure that

some of the extra production is used to produce a wholesome, ready-to-eat food called Wawa Mum that the World

Food Program has already used to reduce famine’s effects

in Pakistan. The humanitarian agency has been looking for

additional sources of chickpeas to alleviate hunger around the

developing world, especially among the very young, and this

partnership will go a long way toward helping it extend its

efforts.

Dubbed Enterprise EthioPEA, the three-way chickpea partnership shows PepsiCo’s commitment to corporate social responsibility in action. The company’s senior vice president of global

health and agriculture policy says, “not only will we be helping

to alleviate famine and malnutrition, but we will also ensure

that local farmers will get more work and guaranteed income

while enabling our long-term growth, innovation, and relevance

among customers.”1



Overview

PepsiCo’s work with small farmers in

Ethiopia demonstrates how collaboration

between business and other groups can bring

about change and make a difference in society. Many companies—large and small—are

concerned with issues such as poverty and

world hunger. Seeking answers to such

problems sometimes requires a company to

forgo short-term profits for a few in favor

of longer-term gains for many. It may also

involve creating mutually beneficial solutions,

as PepsiCo has done.

Although most organizations strive to

combine ethical behavior with profitable operation, some have struggled to overcome major

ethical lapses in recent years. Ethical failures

in a number of large or well-known firms led



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to lawsuits against firms. The image of the

CEO—and of business in general—suffered as

the evening news carried reports of executives

pocketing millions of dollars in compensation

while their companies floundered.

But sometimes bad news is a prelude to

good news. In the wake of such stories, companies have renewed their efforts to conduct

themselves in an ethical manner and one that

reflects a responsibility to society, to consumers, and to the environment. Recently, the

Federal Sentencing Commission expanded

and 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 also began to recognize



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the enormous impact of setting a good rather

than a bad example. Today you are likely to

hear about the goodwill that companies such

as Target Corporation, Ford Motor Company,

and Starbucks generate when they give back

to their communities through youth reading

programs, raise awareness about water scarcity,

recycling or energy conservation, or seek to

pay better prices to suppliers.

As we discussed in Chapter 1, the underlying aim of business is to serve customers



1



business ethics standards of conduct and moral

values regarding right and

wrong actions in the work

environment.



Concern for Ethical

and Societal Issues

An organization that wants to prosper over the long term is well advised to consider 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, 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 society’s welfare through philosophies, policies, procedures, and actions. In short, businesses must find the proper balance between doing

what is right and doing what is profitable. Home Depot has developed a sophisticated

system through which certain goods—such as gas cans, generators, plywood,

flashlights, and batteries—are stocked in specific distribution locations so they

are readily available for shipment to areas that need them in the event of a natural disaster. Using its supply chain effectively not only benefits society, it boosts

Home Depot’s bottom line.2



StígurKarlsson/iStockphoto



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 employees at all levels can influence the decisions

and actions a business takes. Throughout your own 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.



You will encounter many decisions in your

career. How you choose to handle them will

shape your ethical values.



32



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at a profit. But most companies today try

to do more than that, looking for ways to

give back to customers, society, and the

environment. Sometimes 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

ethical standards? In response to the second

question, a growing number of businesses of

all sizes are answering no.



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 complex 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.



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2



Assessment

Check



The Contemporary Ethical

Environment

Business ethics are now in the spotlight as never before. Companies realize that they

have to work harder to earn the trust of the general public, and many have taken on the

challenge as if their very survival depends on it. This movement toward corporate social

responsibility should benefit all—consumers, investors, the environment, and the companies

themselves.



1. To whom do businesses

have responsibilities?

2. If a firm is meeting all its

responsibilities to others,

why do ethical conflicts

arise?



Most business owners and managers have built and maintained enduring companies without

breaking the rules. One example of a firm with a long-standing commitment to ethical practice

is Johnson & Johnson, the giant multinational manufacturer of health care 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 comFIGURE

pany’s employees periodically evaluate how well their

Johnson & Johnson Credo

firm is performing. Management is pledged to address

any lapses that are reported. This pledge was recently put

Our Credo

to the test when the company recalled several popular

drugs, including Tylenol, Benadryl, and Sudafed, when

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

it learned that equipment at one of its manufacturing

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

plants had not been cleaned properly.3



2.1



Many companies are conscious of how ethical

standards can translate into concern for the

environment. Recently, Walmart announced a plan to

pursue three sustainability goals:

1. to use only renewable energy sources,

2. to recycle all of its waste, and

3. to sell products that “sustain people and the environment,” according to Matt Kistler, the company’s

senior vice president for sustainability.

The company conducted a survey of its suppliers

on their sustainability practices as a first step in developing a “sustainability index” to help its customers

assess the impact—on the environment and on

society—of products in its stores.4

In its latest National Business Ethics Survey, the

Ethics Resource Center found that workplace misconduct appears to be at an all-time low, with more

employees willing to report such behavior when they

witness it. However, workers also said that although

ethical cultures were stronger, some felt more pressure

to cut corners to save money and get the job done, particularly in a difficult economy.5



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 Credo,” Johnson & Johnson Web site, http://www.jnj

.com, accessed February 15, 2012, © Johnson & Johnson.



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Sarbanes-Oxley Act of

2002 federal legislation

designed to deter and punish corporate and accounting fraud and corruption

and to protect the interests

of workers and shareholders through enhanced

financial disclosures, criminal penalties on CEOs and

CFOs who defraud investors, safeguards for whistleblowers, and establishment

of a new regulatory body

for public accounting firms.



The Sarbanes-Oxley Act of 2002 established new rules and regulations for securities

trading and accounting practices. Companies are now required to publish their code of ethics, if they have one, and inform the public of any changes made to it. The law may actually

motivate even more firms to develop written codes and guidelines for ethical business behavior. The federal government also created the U.S. Sentencing 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 specifically charged with deterring wrongdoing and ensuring that ethical standards are met. Ethics compliance officers, 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 discrimination charges, and monitoring any

potential conflicts of interest. But practicing corporate social responsibility is more than just

monitoring behavior. Many companies now adopt a three-pronged approach to ethics and

social responsibility:

1. engaging in traditional corporate philanthropy, which involves giving to worthy causes

2. anticipating and managing risks

3. identifying opportunities to create value by doing the right thing.6



TABLE



2.1



Minimum Requirements for Ethics

Compliance Programs



Compliance standards and procedures. Establish standards and procedures, such as codes of ethics and

identification of areas of risk, capable of reducing misconduct or criminal activities.

High-level personnel responsibility. Assign high-level personnel, such as boards of directors and top executives,

the overall responsibility to actively lead and oversee ethics compliance programs.

Due care in assignments. Avoid delegating authority to individuals with a propensity for misconduct or illegal

activities.

Communication of standards and procedures. Communicate ethical requirements to high-level officials and

other employees through ethics training programs or publications that explain in practical terms what is required.

Establishment of monitoring and auditing systems and reporting system. Monitor and review ethical

compliance systems, and establish a reporting system employees can use to notify the organization of misconduct without

fear of retribution.

Enforcement of standards through appropriate mechanisms. Consistently enforce ethical codes, including

employee discipline.

Appropriate responses to the offense. Take reasonable steps to respond to the offense and to prevent and

detect further violations.

Self-reporting. Report misconduct to the appropriate government agency.

Applicable industry practice or standards. Follow government regulations and industry standards.

Sources: “An Overview of the United States Sentencing Commission and the Federal Sentencing Guidelines,” Ethics and Policy

Integration Centre, http://www.epic-online.net; “The Relationship between Law and Ethics, and the Significance of the Federal

Sentencing Guidelines for Organizations,” Ethics and Policy Integration Centre, http://www.ethicaledge.com; U.S. Sentencing

Commission, “Sentencing Commission Toughens Requirements for Corporate Compliance and Ethics Programs,” USSC news release,

http://www.ussc.gov.



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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 principles—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

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

that some individuals do act unethically or illegally on the job. The National Business Ethics

Survey identifies such behaviors as putting one’s own interests ahead of the organization,

abuse of company resources, misreporting hours worked, Internet abuse, and safety violations, among others.7

Technology seems to have expanded the range and impact of unethical behavior. For

example, anyone with computer access to data has the potential to steal or manipulate

the data or to shut down the system, even from a remote location. Banks, insurance companies, and other financial institutions are often targeted for such attacks. The Identity

Theft Resource Center recently reported nearly 5 million customer records were

exposed in one health insurer’s data breach alone.8 While some might shrug these occurrences away, in fact they have an impact on how investors, customers, and the general

public view a firm. It is difficult to rebuild a tarnished image, and long-term customers

may be lost.

Nearly every employee, at every level, wrestles with ethical questions at some point or

another. Some rationalize questionable behavior by saying, “Everybody’s doing it.” Others act

unethically because they feel pressured in their jobs or have to meet performance quotas. Yet

some avoid unethical acts that don’t mesh with their personal values and morals. To help you

understand the differences in the ways individuals arrive at ethical choices, the next

section focuses on how personal ethics and morals develop.



FIGURE



2.2



Development of Individual Ethics



Stages of Moral and Ethical

Development

Stage 1: Preconventional



Individuals typically develop ethical standards in the three stages shown in

Figure 2.2: the preconventional, conventional, and postconventional stages. In stage 1,

the preconventional stage, individuals primarily consider their own needs and desires

in making decisions. They obey external rules only because they are afraid of punishment or hope to receive rewards if they comply.

In stage 2, the conventional stage, individuals are aware of and act in response to

their duty to others, including their obligations to their family members, co-workers,

and organizations. The expectations of these groups influence how they choose

between what is acceptable and unacceptable in certain situations. Self-interest, however, continues to play a role in decisions.

Stage 3, the postconventional stage, represents the highest level of ethical and

moral behavior. The individual is able to move beyond mere self-interest and duty

and take the larger needs of society into account as well. He or she has developed

personal ethical principles for determining what is right and can apply those principles in a wide variety of situations. One issue that you may face at work is an ethically

compromised situation; the “Business Etiquette” feature lists some tips for relying on

basic etiquette to help you steer clear.



Individual is mainly looking out

for his or her own interests. Rules

are followed only out of fear of

punishment or hope of reward.

Stage 2: Conventional



Individual considers the interests

and expectations of others in

making decisions. Rules are

followed because it is a part of

belonging to the group.

Stage 3: Postconventional



Individual follows personal

principles for resolving ethical

dilemmas. He or she considers

personal, group, and societal

interests.



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BusinessEtiquette

Business Etiquette 101

You might be surprised to discover how easy it is to make an ethical slip at

work. If you’ve mastered the fundamentals of business etiquette, however,

you’ll have a good ethical foundation for making good decisions in tough

situations. Here are some guidelines:

• Stay focused on your business purpose. If you develop a close personal relationship with a client or supplier, you may risk a conflict of interest.

• Don't abuse privileges. It’s tempting to use sick days or personal days for

mini-vacations, but if your company distinguishes between these breaks,

you should too.

• Live your values. Few people are brought up to be untrustworthy. Even if

no one knows about it, an unethical choice that betrays your personal

values weakens your self-respect and reduces your contribution to the

workplace.

• Don't depend on excuses. If you’re constantly making excuses for your behavior, what does that say about your behavior?

• Monitor your online behavior. Never post anything online you wouldn’t want to

see on the news tomorrow.

• Don't steal. Using your work computer for personal tasks like shopping and

social networking is just as much theft of company resources as is taking

home office supplies.

• Treat others as you would be treated. This rule never fails to point the way to

ethical behavior and decisions you can be proud of.

Sources: Susan M. Heathfield, “Did You Bring Your Ethics to Work Today?” About.com Human

Resources, http://humanresources.about.com, accessed January 10, 2012; Lydia Ramsey, “The Top

Twelve Business Etiquette Tips for Social Media,” BusinessKnowHow, accessed January 10, 2012,

http://www.businessknowhow.com; Dan Schawbel, “Peggy Post on Workplace Etiquette,” http://

www.forbes.com/sites/danschawbel/2011/12/15, accessed January 10, 2012.



An individual’s stage in moral and ethical

development is determined by a huge number of

factors. Experiences help shape responses to different situations. A person’s family, educational,

cultural, and religious backgrounds can also play

a role, as can the environment within the firm.

Individuals can also have different styles of deciding ethical dilemmas, no matter what their stage of

moral development.

To help you understand and prepare for the

ethical dilemmas you may confront in your career,

let’s take a closer look at some of the factors

involved in solving ethical questions on the job.



On-the-Job Ethical Dilemmas

In the fast-paced world of business, you will

sometimes be called on to weigh the ethics of

decisions that can affect not just your own future

but possibly the future of your fellow workers,

your company, and its customers. As already

noted, it’s not always easy to distinguish between

what is right and wrong in many business situations, especially when the needs and concerns of

various parties conflict. In the recent past, some

CEOs (or their companies) who were accused of

wrongdoing simply claimed that they had

no idea crimes were being committed, but

today’s top executives are making a greater effort

to be informed of all activities taking place in

their firms.

Some clothing retailers donate unworn, unsold

garments to charities such as clothing banks.

Others, like Sweden-based H&M, destroy and dispose of unsold merchandise. H&M’s practice came

to the attention of a student in New York City.

When her offer to help put H&M in contact with

aid organizations went unanswered, the student

contacted The New York Times, which published a

story detailing how H&M—among other

retailers—routinely mutilated unsold garments

before discarding them to render them unsalable

by street vendors or other black-market sellers.

The story prompted H&M management to stop

destroying unsold clothing. In response, H&M

introduced its “Waste” line: garments made of

leftover pieces and fabric scraps. The new line promotes recycling and helps reduce textile waste.9



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Businesses may sometimes refuse to purchase goods or services from

a particular country because of rights abuses by the government of that

country. The diamond industry has been plagued with such issues. For a

number of years, an international ban prohibited the trade of diamonds

from the Marange fields of Zimbabwe because of abuses against the

workers in those mines. Although the ban was recently lifted, nations and

human rights organizations have pledged to keep track of Zimbabwe’s

government.10

Solving ethical dilemmas is not easy. In many cases, each possible

decision can have both unpleasant consequences and positive benefits

that must be evaluated. The ethical issues that confront manufacturers

with unsold merchandise are just one example of many different types

of ethical questions encountered in the workplace. Figure 2.3 identifies four of the most common ethical challenges that businesspeople

face: conflict of interest, honesty and integrity, loyalty versus truth, and

whistle-blowing.



FIGURE



2.3



Common Business Ethical Challenges



Honesty

and

Integrity



Conflict

of

Interest

Ethical

Challenges



WhistleBlowing



Loyalty

versus

Truth



Conflict of Interest A conflict of interest occurs when a



businessperson is faced with a situation in which an action benefiting one

person or group has the potential to harm another. Conflicts of interest may pose ethical

challenges when they involve the businessperson’s own interests and those of someone to

whom he or she has a duty or when they involve two parties to whom the businessperson has

a duty. Lawyers, business consultants, or advertising agencies would face a conflict of interest

if they represented two competing companies: a strategy that would most benefit one of the

client companies might harm the other client. Handling the situation responsibly would be

possible, but it would also be difficult. A conflict may also exist between someone’s personal

interests and those of an organization or its customers. An offer of gifts or bribes for special

treatment creates a situation in which the buyer, but not necessarily the company, may benefit personally.



conflict of interest situation in which an employee

must choose between a

business’s welfare and personal gain.



A conflict of interest may also occur when one person holds two or more similar jobs

in two different workplaces. Ethical ways to handle conflicts of interest include (1) avoiding

them and (2) disclosing them. Some companies have policies against taking on clients who

are competitors of existing clients. Most businesses and government agencies have written

policies prohibiting employees from accepting gifts or specifying a maximum gift value. Or

a member of a board of directors or committee might abstain from voting on a decision in

which he or she has a personal interest. In other situations, people state their potential conflict of interest so that the people affected can decide whether to get information or help

they need from another source instead.



Honesty and Integrity Employers highly value honesty and integrity. An

employee who is honest can be counted on to tell the truth. An employee with integrity

goes beyond truthfulness. Having integrity means adhering to deeply felt ethical principles

in business situations. It includes doing what you say you will do and accepting responsibility for mistakes. Behaving with honesty and integrity inspires trust, and as a result, it can

help build long-term relationships with customers, employers, suppliers, and the public.

Employees, in turn, want their managers and the company as a whole to treat them honestly

and with integrity.



Chapter 2 Business Ethics and Social Responsibility



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integrity adhering to

deeply felt ethical principles

in business situations.



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Anna Bruyhanova/iStockphoto



Unfortunately, violations of honesty and integrity

are all too common. Some people misrepresent their

academic credentials and previous work experience

on their résumés or job applications. Although it may

seem tempting to embellish a résumé in a competitive job market, the act shows a lack of honesty and

integrity—and eventually it will catch up with you.

A recent news report details how a college football

coach resigned after information on his biography was

questioned.11

Others steal from their employers by taking home

supplies or products without permission or by carrying

out personal business during the time they are being paid

to work. For example, Internet misuse during the work

day is increasing. Employees use the Internet for personal

shopping, e-mail, gaming, and social networking. This

misuse costs U.S. companies an estimated $85 billion

annually in lost productivity.12 While the occurrence of

such activity varies widely—and employers may feel more

Employers and employees value honesty and integrity, but what should happen

when employees misuse Internet privileges for personal purposes?

strongly about cracking down on some activities than

others—most agree that Internet misuse is a problem.

Some have resorted to electronic monitoring and surveillance. Compliance with laws regarding the privacy and security of client information is another major reason given for the continuing increase in such monitoring.



Loyalty versus Truth Businesspeople expect their employees to be loyal and to

act in the best interests of the company. But when the truth about a company is not favorable, an ethical conflict can arise. Individuals may have to decide between loyalty to the

company and truthfulness in business relationships. People resolve such dilemmas in various

ways. Some place the highest value on loyalty, even at the expense of truth. Others avoid

volunteering negative information but answer truthfully if someone asks them a specific

question. People may emphasize truthfulness and actively disclose negative information,

especially if the cost of silence is high, as in the case of operating a malfunctioning aircraft or

selling tainted food items.



whistle-blowing 

employee’s disclosure to

company officials, government authorities, or the

media of illegal, immoral,

or unethical practices committed by an organization.



38



c02.indd 38



Whistle-Blowing When an individual encounters unethical or illegal actions at

work, that person must decide what action to take. Sometimes it is possible to resolve the

problem by working through channels within the organization. If that fails, the person

should weigh the potential damages to the greater public good. If the damage is significant,

a person may conclude that the only solution is to blow the whistle. Whistle-blowing is

an employee’s disclosure to company officials, government authorities, or the media of illegal, immoral, or unethical practices.

A whistle-blower must weigh a number of issues in deciding whether to come forward.

Resolving an ethical problem within the organization can be more effective, assuming

higher-level managers cooperate. A company that values ethics will try to correct a problem;

staying at a company that does not value ethics may not be worthwhile. In some cases, however, people resort to whistle-blowing because they believe the unethical behavior is causing

significant damage that outweighs the risk that the company will retaliate against the

whistle-blower. Those risks have been real in some cases.

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www.downloadslide.net



State and federal laws protect whistle-blowers in certain situations, such as reports of

discrimination, and the Sarbanes-Oxley Act of 2002 now requires that firms in the private

sector provide procedures for anonymous reporting of accusations of fraud. Under the act,

anyone who retaliates against an employee for taking concerns of unlawful conduct to a

public official can be prosecuted. In addition, whistle-blowers can seek protection under the

False Claims Act, under which they can file a lawsuit on behalf of the government if they

believe that a company has somehow defrauded the government. Charges against health care

companies for fraudulent billing for Medicare or Medicaid are examples of this type

of lawsuit.

Despite these protections, whistle-blowing has its risks. When employee Hector Aldana

reported safety concerns to his supervisor and the human resources director at Virgin

America Airlines, his worries fell on deaf ears. After making numerous attempts to alert management officials, Aldana warned that he would have to contact the FAA. Aldana was immediately fired. Within a short time, he was not only jobless but also bankrupt and homeless.

When later asked if the current whistle-blowing laws protected him, Aldana replied with an

emphatic “no.”13



Assessment

Check

1. What role can an ethics

compliance officer play

in a firm?

2. What factors influence

the ethical environment

of a business?



Obviously, whistle-blowing and other ethical issues arise relatively infrequently in firms

with strong organizational climates of ethical behavior. The next section examines how a

business can develop an environment that discourages unethical behavior among individuals.



3



How Organizations Shape

Ethical Conduct

No individual makes decisions in a vacuum. Choices are strongly influenced by the standards of conduct established within the organizations where people work. Most ethical lapses

in business reflect the values of the firms’ corporate cultures.

As shown in Figure 2.4, development of a corporate culture to support business ethics

happens on four levels:

1. ethical awareness,



FIGURE



2. ethical reasoning,



2.4



Structure of an Ethical Environment



3. ethical action, and

4. ethical leadership.

If any of these four factors is missing, the ethical climate in

an organization will weaken.



Ethical

hip

Leaders



Ethical

on

Educati



Ethical Awareness

The foundation of an ethical climate is ethical awareness.

As we have already seen, ethical dilemmas occur frequently in

the workplace. So employees need help in identifying ethical

problems when they occur. Workers also need guidance about

how the firm expects them to respond.

Chapter 2 Business Ethics and Social Responsibility



c02.indd 39



Ethical

Action



Ethical

ess

w

A aren



39



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