Chapter One

Business Ethics and Corporate Social

Responsibility
 Objectives

● Upon completing the learning activities associated with this lesson, class participants should be
able to:
● Define business ethics and explain what it means to act ethically in business.
● Explain why we study business ethics.
● Identify ethical issues that you might face in business, such as insider trading, conflicts of interest,
and bribery, and explain rationalizations for unethical behavior
● Identify steps you can take to maintain your honesty and integrity in a business environment.
● Define corporate social responsibility and explain how organizations are responsible to their
stakeholders, including owners, employees, customers, and the community.
● Discuss how you can identify an ethical organization, and how organizations can prevent behavior
like sexual harassment.
● Learn how to avoid an ethical lapse, and why you should not rationalize when making decisions
Money is not created by stealing from the poor;
contrary to what you will hear on the media.
Money is not created by taking advantage of
someone else. Money is created, value is
created by creating products & services that
people need and want. And doing it at a price
that is less than they can do it themselves.
 Why We Learn About Ethics as Business Professional?

● —thics is relevant to us in our everyday life as at some

E
point in your professional or personal life you will have to
deal with an ethical question or problem.
● Ethics is a worthwhile subject of study for at least three
reasons: (1) studying ethics can help you appreciate
ethical problems, (2) behaving ethically may help the
long-term success of a business, and (3) behaving
ethically is often correlated with behaving legally.
● Learning about business ethics is crucial because
it fosters integrity, builds trust, and promotes long-term
success by guiding ethical decision-making, ensuring
legal compliance, and enhancing a company's
reputation and social responsibility.
● e.g. what is your level of responsibility towards
protecting another person from threat, or whether or not
you should tell the truth in a particular situation?
 Our Fables: Story Time to Internalize the Concept
● Truth, Falsehood, Water, and Fire were traveling together
and came upon four heads of cattle. They decided to split
the cattle evenly and each take an equal share. But
Falsehood was greedy and told Water that Fire was going to
burn his land and steal his cattle.
● Water believed him and jumped on Fire and put him out.
Falsehood tricked Truth into believing that Water was
going to steal their cattle so they took them to the top of a
hill for Water cannot run uphill.
● Falsehood laughed that he had tricked everyone
and Truth, realizing Falsehood had lied, began to
fight him for the cattle. They called Wind to determine
whom the cattle belonged to, but Wind did not know.
According to this fable, what are Falsehood and Truth
still doing?
● According to this fable told in Ethiopia and other
eastern African nations, Truth and Falsehood are still
in a battle with one another. Let's hope truth wins.
 Conceptualizing Ethics

● The term "ethics" is derived from the Greek word "ethos" which refers to character
or customs or accepted behaviors.
● The Oxford Dictionary states ethics as "the moral principle that governs a
person's behaviour or how an activity is conducted".
● “The discipline dealing with what is good and bad and with moral duty and
obligation.” Merriam-Webster’s Collegiate Dictionary
● [Link] define: “That branch of philosophy dealing with values relating
to human conduct, concerning the rightness and wrongness of certain
actions and the goodness and badness of the motives and ends of such actions”
 What are Ethics?
Ethics: To know right from wrong and to know when you’re practicing one instead of the other

Acting ethically in business means more than simply obeying applicable laws and regulations: It also
means being:

● Honest
● Doing no harm to others
● Competing fairly
● Declining to put your own interests above those of your company, its owners, and its workers

If you're in business, you obviously need a strong sense of what's right and wrong
 Some Concepts Related with Ethics

● Ethical Behaviour: Behaviour that conforms to accepted standards of

conduct.
● Ethical Reasoning: The process of sorting out the principles that help
determine what is ethical when faced with an ethical dilemma.
● Ethical System: A specific formula for distinguishing right from wrong.
● Unethical: An action or conduct which violates the principles of one or
more ethical systems, or which is counter to an accepted ethical value,
such as honesty.
 Role of Ethics in Business
● Ethics in business are crucial for long-term sustainability and success,
building stake holder trust, enhancing reputation, and fostering a positive
work environment, ultimately leading to a competitive advantage.
1. Building Trust and Reputation:
 Customer Trust:
Ethical practices build trust with customers, leading to loyalty and positive word-
of-mouth referrals.
 Investor Confidence:
Ethical companies attract investors who value integrity and responsible business
practices.
 Positive Reputation:
A strong ethical foundation enhances a company's reputation, making it a more
attractive and reliable entity.
2. Enhancing Employee Relations:
 Attracting talent
 Employee Satisfaction:
● When employees feel their values are aligned with the
company's, they are more likely to be engaged and
satisfied.
 Reduced Turnover:
● Ethical workplaces foster a positive environment, leading
to lower employee turnover and increased retention.
 Increased Productivity:
● A culture of ethics can lead to higher productivity as
employees feel more motivated and engaged.
3. Promoting Social and Environmental Responsibility:
 Corporate Social Responsibility (CSR):
Ethical businesses often prioritize CSR, contributing to
positive social and environmental outcomes.
 Sustainable Practices:
Ethical companies are more likely to adopt sustainable
practices, ensuring long-term viability and minimizing
negative impacts.
 Transparency:
Ethical companies prioritize transparency in their operations,
building trust with stakeholders.
4. Fostering a Competitive Advantage:
 Attracting Talent:
Ethical companies attract and retain top talent who value working for
organizations with strong ethical values.
 Differentiating from Competitors:
A strong ethical reputation can differentiate a company from
competitors, attracting customers and partners.
 Building Stronger Relationships:
Ethical behavior builds stronger relationships with stakeholders,
including customers, suppliers, and partners.
 Brand recognition and growth
 Increased ability to negotiate
 Increased trust in products and services
 Customer retention and growth
5. Legal and Regulatory Compliance:
 Avoiding Legal Issues:
Ethical practices help companies avoid legal issues and penalties
associated with unethical behavior.
 Compliance with Regulations:
A strong ethical framework helps companies comply with relevant
laws and regulations.
 Reduced Risk:
Ethical businesses are less likely to face reputational damage or
legal consequences stemming from unethical actions.
 Principles of Business Ethics

● There are generally 12 business ethics principles:

1. Leadership: The conscious effort to adopt, integrate, and emulate the other 11
principles to guide decisions and behavior in all aspects of professional and
personal life.
2. Accountability: Holding yourself and others responsible for their actions.
Commitment to following ethical practices and ensuring others follow ethics
guidelines.
3. Integrity: Incorporates other principles—honesty, trustworthiness, and reliability.
Someone with integrity consistently does the right thing and strives to hold
themselves to a higher standard.
4. Respect for others: To foster ethical behavior and environments in the
workplace, respecting others is a critical component. Everyone deserves dignity,
privacy, equality, opportunity, compassion, and empathy.
5. Honesty: Truth in all matters is key to fostering an ethical climate. Partial truths,
omissions, and under or overstating don't help a business improve its performance.
Bad news should be communicated and received in the same manner as good news
so that solutions can be developed.
6. Respect for laws: Ethical leadership should include enforcing all local, state, and
federal laws. If there is a legal grey area, leaders should err on the side of legality
rather than exploiting a gap.
7. Responsibility: Promote ownership within an organization, allow employees to
be responsible for their work, and be accountable for yours.
8. Transparency: Stakeholders are people with an interest in a
business, such as shareholders, employees, the community a firm
operates in, and the family members of the employees. Without
divulging trade secrets, companies should ensure information about
their financials, price changes, hiring and firing practices, wages and
salaries, and promotions are available to those interested in the
business's success.
9. Compassion: Employees, the community surrounding a business,
business partners, and customers should all be treated with concern
for their well-being.
10. Fairness: Everyone should have the same opportunities and be
treated the same. If a practice or behavior would make you feel
uncomfortable or place personal or corporate benefit in front of equality,
common courtesy, and respect, it is likely not fair.
11. Loyalty: Leadership should demonstrate commitment to their
employees and the company. Inspiring loyalty in employees and
management ensures that they are committed to best practices.
12. Environmental concern: In a world where resources are limited,
ecosystems have been damaged by past practices, and the climate is
changing, it is of utmost importance to be aware of and concerned about
the environmental impacts a business has. All employees should be
encouraged to discover and report solutions for practices that can add to
damages already done.
 Ethical Issues and Dilemmas

● Ethical issues are the difficult social questions that involve some level of controversy over
what is the right thing to do. Environmental protection is an example of a commonly
discussed ethical issue, because there can be tradeoffs between environmental and
economic factors.
● Ethical dilemmas are situations in which it is difficult for an individual to make decisions
either because the right course of action is unclear or carries some potential negative
consequences for the person or people involved
 Conflict of Interest
Individuals must choose between taking actions that promote their personal
interests over the interests of others or taking actions that don’t.

Examples:
● Can I buy office supplies from my brother-in-law?
● My uncle owns a bakery, should I encourage my subordinates to use them for
all meetings?
Contemplating an Ethical Decision
 Basic Moral Value
Doing things Wrong
Doing things RIGHT ● Cheating
● Integrity ● Cowardice
● Respect for human life ● Cruelty
● Self control
● Honesty
● Courage
● Self-sacrifice
How to Maintain Honesty and Integrity
 Facing Ethical Dilemmas

● How do I know if an action is unethical?

● There's an app for that!
● The Golden Rule Test
● What if others find out, it becomes public?
● Do the right thing, even if no one is
looking
 Facing Ethical Dilemmas
How, for example, would you answer questions
like the following?
1) Is it OK to accept a pair of sports tickets from a
supplier?
2) Can I buy office supplies from my brother-in-
law?
3) Is it appropriate to donate company funds to a
local charity?
4) If I find out that a friend is about to be fired, can
I warn her?
 Refuse to Rationalize
There are four common rationalizations (excuses) for justifying misconduct:

1. My behavior isn’t really illegal or immoral. Rationalizers try to convince themselves

that an action is OK if it isn’t downright illegal or blatantly immoral. They tend to
operate in a gray area where there’s no clear evidence that the action is wrong.
2. My action is in everyone’s best interests. Some rationalizers tell themselves: “I know
I lied to make the deal, but it’ll bring in a lot of business and pay a lot of bills.” They
convince themselves that they’re expected to act in a certain way.
3. No one will find out what I’ve done. Here, the self-questioning comes down to “If I
didn’t get caught, did I really do it?” The answer is yes. There’s a simple way to avoid
succumbing to this rationalization: Always act as if you’re being watched.
4. The company will condone my action and protect me. This justification rests on a
fallacy. Betty Vinson may honestly have believed that her actions were for the good of
the company and that her boss would, therefore, accept full responsibility (as he
promised). When she goes to jail, however she’ll go on her own
 How to Improve Business Ethics

1. Top management must adopt and unconditionally support

an explicit corporate code of conduct.

2. Employees must understand that senior management

expects all employees to act ethically

3. Managers and others must be trained to consider the

ethical implications of all business decisions
 How to Improve Business Ethics
4. An ethics office and/or forum must be set up with
which employees can communicate anonymously.
Whistleblowers --People who report illegal or unethical
behavior.

[Link] outsiders (other Stakeholders) such as

suppliers, subcontractors, distributors and customers.
 Business Ethics and CSR
• Business ethics refers to the principles and
standards that guide behavior in the world of
business. It ensures companies operate
transparently, responsibly, and sustainably, fostering
trust among stakeholders.
• Corporate Social Responsibility (CSR)
complements business ethics by focusing on how
businesses contribute positively to society and the
environment beyond their financial goals
● Business ethics refers to the principles and standards that
guide behavior in the world of business. It ensures
companies operate transparently, responsibly, and
sustainably, fostering trust among stakeholders. Corporate
Social Responsibility (CSR) complements business ethics by
focusing on how businesses contribute positively to society
and the environment beyond their financial goals.
Key aspects of business ethics include:

● Accountability
● Transparency
● Ethical behavior
● Respect for stakeholder interests.

CSR is a self-regulating model where businesses ensure their

operations benefit society and the environment while
maintaining profitability
Definition of CSR

● CSR is defined as a company’s commitment to operate

ethically while contributing positively to society, the
environment, and economic development. It involves
practices that enhance societal well-being rather than
degrade it.
 Key Components of CSR:

● Environmental Responsibility: Reducing ecological impact through

sustainable practices.
● Ethical Responsibility: Ensuring fair treatment of employees, customers, and
stakeholders.
● Philanthropy: Supporting charitable causes and community development.
● Economic Responsibility: Operating profitably while considering societal
benefits.
CSR is often mistaken for ESG (Environmental, Social, Governance), but ESG
focuses on measurable criteria for ethical practices, whereas CSR emphasizes
broader societal contributions.
 Socially Responsible
Corporate social responsibility refers to the approach that an organization takes in balancing its
responsibilities toward different stakeholders when making legal, economic, ethical, and social
decisions

● Owners
● Managers
● Employees
○ Wages & Benefits
○ Health & Safety
● Customers
○ Consumer Rights
● Communities
○ Philanthropy
 Commitment to Employees
Wages & Benefits
● Minimum Wage
● Social Security
● Unemployment Insurance
● Workers Compensation
● Optional –Medical, Dental,
Vision Care
Health & Safety
● Never Assume
● Should be #1 Priority, no
exceptions
● Have to be reported to
Department of Labor
 Social Responsibility

Corporate Philanthropy– includes charitable

donation

Corporate Social Initiatives– Includes

enhanced forms of corporate philanthropy
 Corporate Citizenship

● Corporate citizenship refers to a company’s social

contributions within its community or society at
large.
● It encompasses legal, ethical, and economic
responsibilities aimed at improving societal
conditions.
 Stages of Corporate Citizenship Development:
● Elementary: Basic compliance with laws.
● Engaged: Active involvement in community initiatives.
● Innovative: Developing unique solutions for societal challenges.
● Integrated: Aligning social responsibility with business strategy.
● Transforming: Leading industry-wide change for societal
betterment.
By prioritizing corporate citizenship, companies can improve
employee morale, customer loyalty, and overall productivity while
building a strong reputation
 Social Responsiveness and Performance

Social responsiveness refers to a company’s ability to address

stakeholder expectations regarding social responsibility. It
involves strategies ranging from reactive (minimal compliance)
to proactive (industry leadership).
 Four Strategies of Social Responsiveness:

● Reactive: Doing less than expected; avoiding responsibility.

● Defensive: Acknowledging responsibility but meeting only
minimum requirements.
● Accommodative: Accepting responsibility and actively
solving problems.
● Proactive: Anticipating issues and exceeding expectations to
lead industry efforts
 Benefits of Social Responsiveness:

● Builds trust with stakeholders.

● Enhances brand reputation.
● Promotes long-term sustainability.
● Companies that adopt proactive strategies often achieve
higher levels of stakeholder satisfaction and industry
recognition for their ethical practices
 Conclusion

● Understanding business ethics and CSR is crucial for

fostering sustainable growth in modern organizations. By
integrating ethical principles with proactive social
responsibility strategies, companies can build trust,
promote sustainability, and achieve long-term success
while positively impacting society.
Takeaways
● Business ethics are hugely important and the
foundation for both corporate and individual
business behavior and decisions.

● There are various form of unethical business

conduct and you need to detect and avoid such
behavior.

● Unethical behavior has huge negative

consequences and can bring down companies and
end individual careers.

● Companies protect themselves and they encourage

ethical behavior through their code of conduct,
business ethics policies, diversity & inclusion
programs, anti-harassment policies and being good
corporate citizens through the concept of corporate
social responsibility. Your choices at college and in
the corporate wor