Can someone do my Week 5 Discussion plus comments in Strategic Planning for Organizations?

Ethics and Corporate
Social Responsibility

Learning Objectives

By the time you have completed this chapter, you should be able to do the following:

• Understand the differences among ethics, morals, and values.
• Understand ethical issues and behavior.
• Learn about the various unethical behaviors that tempt managers and corporations.
• Learn about ethical dilemmas and an approach to coping with them.
• Ponder the extent to which ethics can be taught.
• Understand the nature of corporate social responsibility (CSR) and the role of corporations in being eco-
nomically, legally, ethically, philanthropically, and environmentally responsible.

10

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CHAPTER 10Section 10.1 Ethics, Morals, and Values

Chapter Outline

10.1 Ethics, Morals, and Values

10.2 Ethical Issues and Behavior

10.3 Unethical Behavior

10.4 Ethical Dilemmas and How to Approach Them

10.5 Can Ethics Be Taught?

10.6 Corporate Social Responsibility

Ethics and ethical behavior should be embedded into the way people are brought up and the
way business students are trained. But the sad fact is that unethical behavior is more the norm in
the business world than the exception. The fact that it is widespread in no way condones unethi-
cal behavior. This chapter will clarify the distinctions between ethics, morality, and values, what
unethical behavior is and isn’t, situations that make it difficult to be ethical and how to cope with
them, and the degree to which ethics can be taught.

The chapter also discusses corporate social responsibility (CSR), what it is, and the extent to which
corporations have a duty to be socially responsible. Finally, the physical environment (air, land,
water) is—or should be—an important stakeholder for corporations. What does the responsibility
to safeguard the environment mean, and what role should corporations play?

10.1 Ethics, Morals, and Values
The terms ethics, morals and values are often confused or used interchangeably in everyday
speech. Before discussing ethics in more detail, it is important to establish definitions of what each
means and the differences among them. A traditional definition of ethics is the art and discipline of
applying principles and frameworks to analyze and resolve complex moral dilemmas (Rossy, 2011).

The Josephson Institute of Ethics, a nonprofit organization based in Los Angeles, defines ethics
differently but perhaps more aptly for the business world: “Ethics is about how we meet the chal-
lenge of doing the right thing when that will cost more than we want to pay.”

This definition gets to the heart of why “doing the right thing” is sometimes so difficult; we are
unaware of the associated cost. The Institute breaks down the definition into two parts: (1) the
ability to discern right from wrong, good from evil, and propriety from impropriety; and (2) the
commitment or will to do what is right, good, and proper (Maxwell, 2003). People and organizations
need to develop a standard to follow and then the will to uphold it, an ongoing struggle for both.

A moral person knows right from wrong and chooses right; an immoral person knows the dif-
ference too but chooses wrong, while an amoral person either doesn’t know the difference or
doesn’t care. This description includes notions of bad versus good. Both require societal and
cultural norms of right and wrong and, because these evolve over time, what is “right” is far
from clear.

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CHAPTER 10Section 10.1 Ethics, Morals, and Values

Values are the tenets most important to people and the ways that govern how they choose to live
their life. That statement also applies to organizations (see Section 2.8). Some people have been
known to die for preserving a value very important to them (like freedom, or protecting another’s
life), and at the other end of the scale are people who think nothing of inflicting harm on others if
their cause warrants it (like allegiance to a gang and killing rival gang members to defend “turf”).

Virtually every company has an ethics code of behavior, which more accurately might be called
a moral code. Over 85% of organizations have developed and distributed organizational codes of
conduct. The fact that companies have one apparently has little effect on whether or not employ-
ees adhere to it; there is no evidence that they significantly affect ethical behavior (Rossy, 2011).
An example of a less-than-successful code is that of energy corporation Enron. Enron’s Code of
Ethics, which included 64 pages of specific details and an inspiring foreword by CEO Kenneth
Lay, failed to prevent one of history’s worst examples of systemic corporate ethical failure (Rossy,
2011). Enron went bankrupt as a result of corporate officers’ unethical accounting practices. By
inflating earnings and cash flow, and keeping liabilities off the books, Enron presented a distorted
picture of financial health, attracting investors in the process. Among the losses were the 401K
retirement accounts of Enron employees. In contrast, CEO Lay sold stock in the months before the
scandal broke and profited greatly (Oppel, 2001).

An unethical act has immoral intent, done with the full knowledge that it is legally and morally
wrong or contravenes the prevailing societal or organizational culture (Rossy, 2011). It usually
violates clear corporate codes of ethics as well as laws and regulations. By contrast, an ethical
“mistake” is a decision or action that is unintentionally unethical and that an individual or group
later regrets and wishes they could somehow undo (Rossy, 2011). The following three key factors
differentiate unethical actions from ethical mistakes:

• Intentionality—was your intention good or bad? Did you know what you were doing was
wrong? Did you try to hide or disguise your motives?

• Remorse—do you regret what you did because you recognize you were behaving unethi-
cally? Or do you regret only being caught and exposed?

• Accountability—are you willing to admit your mistakes, accept responsibility for what
you’ve done, and be accountable for any unethical actions? Are you prepared to make
amends and do your best to reverse, or at least mitigate, the negative effects of your
actions? (Rossy, 2011)

The next four sections focus on ethics in business, amplifying the nature of ethical issues and
dilemmas, revealing the unprecedented extent of unethical behavior, offering some guidelines for
dealing with ethical dilemmas, and discussing the extent to which ethics can be taught.

Discussion Questions

1. Does obeying the law make a person “moral,” and breaking it “immoral”? Discuss the reasons for
your answer.

2. Can ethics vary from country to country? If you think so, provide an example of a country in
which principles, norms, and standards of conduct are different from the United States, and pro-
vide as much detail as you can (even anecdotes).

3. Is a dictator moral, immoral, or amoral? Give reasons for your answer and an example that could
validate your answer.

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CHAPTER 10Section 10.2 Ethical Issues and Behavior

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Ethical issues arise when people succumb
to pressure to achieve results. Executives
manipulate stock prices to increase value,
students cheat to get higher grades, and
workers produce inferior products to
increase production rates.

10.2 Ethical Issues and Behavior
The chairman of AOL Time Warner Book Group was having dinner in New York one evening with
John Maxwell, a prominent author on leadership issues from a Christian perspective, and sug-
gested he’d be the perfect fellow to write a book on business ethics. “There’s no such thing,”
replied Maxwell. When asked what he meant, he said, “There’s only ethics.” This conversation
spawned the title of the book Maxwell came to write (Maxwell, 2003).

People get into trouble when one set of ethics or values governs their private life and another their
working life. For example, a typical sales employee might say, “I’m an honest person, but it’s OK to
pad my expense report because that’s what everyone in the company does.” In fact, many people
are ethically duplicitous without realizing it. As Maxwell says, “The same person who cheats on his
taxes and steals office supplies wants honesty and integrity from the corporation whose stock he
buys, the politician he votes for, and the client he deals with in his own business” (Maxwell, 2003).

Ethical issues arise whenever people are tempted to behave unethically or not do the right thing.
Maxwell lists the five most common things that give rise to unethical responses:

• Pressure to achieve results when things aren’t
going as planned, which is why people often “cook
the books,” cut corners, or “bend the rules.” Stu-
dents often cheat to get higher grades, executives
manipulate information to increase stock price, fac-
tory workers produce inferior products to reduce
costs or increase throughput rate. Many of us are
under pressure—in 2005, the Ethics Resource Cen-
ter conducted a national survey of U.S. employees
and found that 10% of them at all levels reported
feeling pressure to compromise ethical standards
(Treviño & Nelson).

• The desire for pleasure (if it feels good, do it) leads
people to live beyond their means, abuse drugs (of
all kinds), suffer divorce and broken homes, and
so on. Executives that have achieved an elevated
compensation level may do whatever they must
to preserve their lifestyle. The consequences are
never worth the promise of the temptation and are
almost always regretted later.

• Abusing the power a person has been given. This, too,
can act like a drug: “having power is like drinking salt
water. The more you drink the thirstier you get” (Max-
well, 2003, p. 80). Powerful executives may develop a
sense of entitlement. They believe that they and the
institution are one, so they can take what they want
when they want it (Abraham Zaleznik, as quoted in
Maxwell, 2003). Those who want to keep their power
at all costs are also most likely to compromise stan-
dard ethical behavior to do so.

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CHAPTER 10Section 10.2 Ethical Issues and Behavior

• While pride itself is not a bad thing—after all, we have all been brought up to take pride
in ourselves, our work, our family, and our country—having an exaggerated sense of pride
and self-worth (hubris) is destructive. Pride is essentially competitive; one is proud only of
being richer, smarter, or better looking than others. If everyone else were as rich, smart,
or good looking, there would be nothing about which to be proud. If your goal is to outdo
everyone else, then your focus is entirely on yourself and your own interests (Maxwell,
2003). “Pride can blind you to your own faults, to other people’s needs, and to ethical
pitfalls that lie in your path” (Maxwell, 2003, p. 86).

• Priorities. German poet and novelist Johann Wolfgang von Goethe said, “Things that mat-
ter most must never be at the mercy of things that matter least” (Quoted in Maxwell,
2003). Is being liked by others the most important thing to you? Is keeping your job more
important than doing the right thing, like, blowing the whistle on some malfeasance? Do
you know what your priorities are?

The following breakdown broadens our understanding of ethical issues in the corporate world:

• Human-resources issues. An obvious example of this type of ethical issue is discrimina-
tion, which can lead to rampant unfairness. Sexual and other types of harassment may
take the form of an individual in a hierarchy taking advantage of their position to use
power to control others lower in the organizational structure. Harassment may also occur
between peers and result in a hostile work environment for those who are the objects
of the unwanted attention. Conflicts of interest may take many forms such as bribes and
kickbacks, inappropriate influence, and the use of privileged information to bestow favor
on special friends or interests.

• Customer-confidence issues. In many business situations a person may be privy to con-
fidential information, which they may not reveal regardless of their position. To breach
that confidentiality and divulge such information is a serious ethical violation. Product
safety issues, whether the dangers to consumers were intentional or not, also fall into
this category. When products are misrepresented, hyped beyond the benefits they pro-
vide, or false claims are made, this transgresses truth in advertising ethical boundar-
ies. In professions that handle other peoples’ money, such as stockbrokers, there is an
ethical obligation called fiduciary responsibility to base all actions on the best interest
of the client. A stockbroker making an investment of a client’s money for which the only
motivation is the stockbroker’s commission would be a violation of the broker’s fiduciary
responsibility.

• Issues arising from the use of corporate resources. These issues range from what may
seem to be mundane to the extremely serious. Many people do not give a second
thought to making personal calls from work, taking a long lunch or break, or taking sta-
tionery products from the supply room to use at home. All of these are examples of
stealing company resources. Using company letterhead for personal reasons or allowing
a personal view to be construed as the company’s are misappropriations of the com-
pany’s reputation. Most people would clearly recognize the ethical wrong in falsifying
data to make a company’s financial results look better or receive approval for a new drug
(Treviño & Nelson).

The root problems in most of these instances are unfairness, lack of respect, and self-interest.

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CHAPTER 10Section 10.3 Unethical Behavior

Stephen Chernin/Getty Images

In the case of Bernie Madoff’s Ponzi scheme, greed overruled
all ethics. Madoff received a long-term prison sentence for bilk-
ing investors out of billions of dollars.

10.3 Unethical Behavior
Every day brings new reports of some new ethical violation or the disposition of a case brought
against someone or a company for unethical behavior. Unethical behavior consists of conduct
undertaken to benefit a person or organization while knowingly (or being oblivious to the possibil-
ity of) harming others. Behavior is still considered unethical if the act is wrongful, whether or not it
results in harm, for example, a deceitful representation even though not acted upon (Christopher
D. Stone, J. Thomas McCarthy Trustee Chair in , University of Southern California Gould School
of , personal communication, October 3, 2011).

Many cases involve greed, like
the Ponzi scheme run by Bernard
Madoff, a former chairman of the
board of directors of the National
Association of Securities Dealers
(NASD). Madoff used money from
new investors to pay “profits” to old
ones until the situation imploded
and the scam was revealed. Peo-
ple who trusted him with their
investments lost billions of dollars.
Another type of greed-induced
unethical behavior is illustrated
by the case of Raj Rajaratnam,
founder of the Galleon Group, an
international hedge fund based in
New York. In 2011, Rajaratnam was
convicted of securities fraud and
conspiracy for insider trading and
sentenced to 11 years in prison, the
longest-ever term imposed for that
type of offense. Unlike Madoff’s
Ponzi scheme, which swindled iden-
tifiable victims directly of specific amounts of money, insider trading cheats “the system” including
all those investors who are not privy to the information on which profitable trades are made. At the
heart of the prosecutors’ case was an allegation that Mr. Rajaratnam gained access to confidential

Discussion Questions

1. This section introduced the notion that people behave unethically rather than bear the costs of
ethical behavior (an economic reason). Do you think this is prevalent in corporations today? Why
or why not?

2. We have all heard of the Golden Rule: “Do unto others as you would they do unto you.” Accord-
ing to John Maxwell, it is the only ethics guide one needs. Do you agree?

3. Assuming you do the “right” thing all or most of the time, how do you know it? Elaborate on
your answer as best you can.

4. Ethics exist in law, business, medicine, and other spheres of life, even politics. Other than the
settings in each sphere, would you say that the concept of ethics was the same or different in all
spheres? Discuss.

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CHAPTER 10Section 10.3 Unethical Behavior

iStockphoto/Thinkstock

Company consumer contracts’ fine print
allows a firm to change the terms as they
see fit at any time, initiate higher fees, and
forbid consumers from filing lawsuits.

information about a $5 billion investment in Goldman Sachs by Berkshire Hathaway Inc. in 2008
during the financial crisis. Prosecutors described an environment of rampant insider trading on
Wall Street of which the defendant was only one prominent offender. In pronouncing his sentence,
U.S. District Judge Richard Holwell stated that the billionaire investor’s crimes “reflect a virus in our
business culture that needs to be eradicated.” In addition to the prison term the judge also ordered
Mr. Rajaratnam to pay a $10 million fine and forfeit $53.8 million (Pulliam & Bray, 2011).

Not all unethical behavior can be attributed to an individual acting out of the prospect of personal
gain. Companies may collectively make unethical decisions that result in harm to others. Workers
on the Deepwater Horizon oil platform in the Gulf of Mexico were concerned about safety on the
rig months before the oil rig exploded but feared retribution and retaliation if they reported prob-
lems. In particular, employees reported that drilling took priority over maintenance that could
have ensured safety. The explosion killed 11 workers and resulted in the largest accidental oil spill
in history. The oil killed large numbers of wildlife, shut down crucial industries such as fisheries
and tourism in large areas of the Gulf of Mexico, causing billions of dollars of economic damage
and affecting untold numbers of people directly and indirectly (Urbina, 2010).

Entire industries may be tarred with the brush of
unethical behavior in the interest of making profits.
For decades the tobacco industry fought a cynical cam-
paign to deny and discredit extensive research that
demonstrated the very serious health risks of smok-
ing. In the meantime, the tobacco companies were
among the largest spenders on all forms of advertising
to induce people to become addicted to smoking. As
we all know, they finally lost their protracted case, and
it has been conclusively shown that executives were
aware of the dangers even as they denied it publicly.
Tobacco ads are no longer allowed on television, and
it is now illegal to smoke in many public places such as
restaurants, movie theaters, museums, aircraft, and so
forth. Some states such as California have gone further,
banning smoking in parks, apartment-complex balco-
nies, and on the beach. There is now no disputing the
fact that tobacco kills, yet these same tobacco compa-
nies continue to expand their markets for cigarettes
around the world and get new generations addicted
to smoking. The argument often used to justify their
actions is that tobacco is a legal product. Of course, if
tobacco was a new product being introduced to the
market today, with all the attendant proven health
effects, there is no question that it would be immedi-
ately rejected by regulatory agencies as unsafe.

What about new drugs and medical products rushed
to market without adequate testing or approval? In 2010, DePuy Orthopaedics, a unit of Johnson
& Johnson, issued a global recall of its ASR XL Acetabular System and Hip Resurfacing System (hip
implants) because of growing problems with the products and for selling them and other products
without FDA approval (Kavilanz, 2011). Also in 2010, France’s health regulators issued a recall of
prefilled silicone breast implants manufactured by Poly Implant Prothese (PIP), a French company,
and said to affect 35,000–45,000 women worldwide. The gel used in them was unauthorized, and

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CHAPTER 10Section 10.3 Unethical Behavior

the implants have been associated with abnormally high rupture rates (PIP breast implant recall,
2010). In these examples, the companies involved paid for reparations to victims—and PIP was
even shut down.

An ethical concern that may not be as obvious as the preceding examples because the harm is
harder to identify has to do with the immensely complicated “fine print” that we seem to con-
front on an increasing basis. Every time we install or update a software package we are required
to accept a lengthy user agreement filled with legalese unintelligible to (and ignored by) most
people. Hidden among the verbiage often are clauses that have been described as “weasel words
in contracts that allow a company to change the terms at any time, or lay the groundwork for
sky-high fees, or that forbid a consumer from filing a lawsuit.” Web service providers such as Face-
book and Google have attracted firestorms of protest when they have decided to make unilateral
changes to their privacy policies that invariably give the companies more freedom to make com-
mercial use of the users’ information or browsing habits and eroding what little is left of the indi-
vidual’s privacy. As Web entrepreneur David Hirsch commented in an interview on the burgeoning
practice, “This fine-print world we’re living in is bad for consumers, bad for business, and bad for
the country. You’ve got people not understanding what they’re agreeing to, and they’re getting
clobbered” (Lazarus, 2011).

It may be glib to say that executives cheat, lie, fudge, and line their own pockets because they
can, or because it’s unfortunately more acceptable nowadays, or because no one will find out.
But isn’t this at the heart of ethical behavior—to do the “right” thing, even when no one is
looking? Doing otherwise is unethical, and there must be many more unreported instances
where people and organizations intentionally get away with such behavior, thus, in their minds,
legitimizing it.

Case Study
Corporate Ethics

On January 13, 2012, Carnival Corporation’s Costa Concordia cruise ship ran aground a reef
and capsized off the Italian coast after its captain, Francesco Schettino, steered the ship off the
approved course. The ship sustained a hole in its hull greater than the length of a football field,
causing it to take on water immediately. The chaos that ensued aboard the ship of panic-stricken
passengers futilely seeking information and a disorganized evacuation was heavily reported in inter-
national news reports. Surviving passengers even reported that the ship’s safety briefing hadn’t
been conducted at the time of the disaster and wasn’t scheduled until the next day—three days
after the ship sailed. And this is just the beginning of the ethical issues that arose in the days fol-
lowing the crash.

The captain’s ethics were called into question when reports emerged that he had an unauthor-
ized female companion on the ship’s bridge at the time of the crash with whom he’d also shared
dinner and wine just minutes before, that he was performing a close “sail-by” to show off to the
residents of the Island of Giglio or to “salute” a friend living on the island. Days later, recordings
of conversations between the captain and Italian Coast Guard officials revealed that he had aban-
doned ship and was aboard a lifeboat before most of the ships passengers were evacuated. The
Christian Science Monitor concluded that Schettino had engaged in “a pattern of untruths and
attempted coverup” (Marqland, R).

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CHAPTER 10Section 10.3 Unethical Behavior

Carnival’s corporate ethics were called into question, as well. For example, Schettino later deflected
attention from his initial “salute” story with the claim that his corporate managers told him to take
the ship close to the shore as a publicity maneuver. Surviving passengers described chaos aboard
the ship as language barriers, an unskilled crew, passenger lack of knowledge about evacuation
procedures, and malfunctioning lifeboats all contributed to fear and panic. Reports indicate that
passengers were initially told that the problem was an electrical failure; in an amateur video shot
by a passenger, a crew member is heard telling passengers: “The situation is under control. Go back
to your cabins. We ask you that you all return to your cabins. Once the electrical problem is sorted
out everything will be back to normal shortly. Everything is under control. We are resolving the
problem” (Pisa, N, 2012). An hour passed before the Captain ordered everyone to abandon ship,
plunging nearly 4,000 people into complete chaos. During evacuation, crew members appeared to
have little control and offered minimal support to panicked passengers—calling into questions cor-
porate safety procedures.

Subsequent to the disaster, the corporation’s moral compass was questioned when Carnival autho-
rized call center employees to phone survivors and offer “30% off their next voyage.” News accounts
and editorials have labeled the offer “insensitive” and “crass,” indicating that the decision to offer
the discounts was an ill-conceived strategy for promoting company loyalty that might, in fact, further
damage the cruise line’s reputation (Costa Concordia disaster, 2012).

Finally, the wreck posed a grave threat to the maritime environment and the health and safety of
coastal residents amid fears that the ship’s 17 fuel tanks might begin to leak into the sea. As National
Public Radio queried, “What do you do with a 1,000 foot wreck that’s full of fuel and half-submerged
on a rocky ledge in the middle of an Italian marine sanctuary? Remove it. Very carefully . . . involving
logistical and environmental issues that are just as large [as the ship]” (Neuman, S, 2012).

Question for Critical Thinking and Engagement

Assume the role of a consultant hired by Carnival Corporation. Prepare a briefing on the critical issues
that executives, management, and other leaders should address. What recommendations would you
make to the corporation relative to public concerns about employee ethics, corporate safety policies,
and the impact of this disaster on the environment?

Discussion Questions

1. List as many reasons as you can as to why an organization would be interested in being ethical.
Classify the reasons in terms of whether they represent moral or economic motivation.

2. Do you think business executives, particularly CEOs, have a general public image of behaving self-
ishly and unethically? Do you think that reputation is deserved? Discuss.

3. Imagine you are looking for a job. Is the company’s having an ethical culture or behavior impor-
tant to you? If so, how would you go about determining this?

4. Imagine you are hiring people. Your company is proud of the fact that it makes a profit by being
ethical. How would you ensure you are hiring people with a similar ethos?

5. Cite some examples of trust in business from your personal experience or from reading the
newspapers. What happens when trust is lost?

6. What other industries not discussed in this section have also succumbed to unethical behavior?
Cite examples to justify your choices.

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CHAPTER 10Section 10.4 Ethical Dilemmas and How to Approach Them

De Agostini Picture Library/De Agostini/Getty Images

The German philosopher Immanuel Kant
believed that moral decisions should be
based upon the one principle he called
the “Categorical Imperative”—act as if the
maxim of your action were to become the
general law.

10.4 Ethical Dilemmas and How to Approach Them
Every person will be faced with ethical dilemmas throughout life; it is inevitable. By definition, the
“right answer” is elusive. An ethical …