Effects of Business Ethics

January 30, 2018 | Author: Anonymous | Category: Social Science, Sociology, Globalization
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The Effects of Business Ethics Andy Gustafson Creighton University

Point #1: Business Is Global • • • • • • •

Effects of Mortgage Securities failure in US: 1. IMF calculates worldwide losses in Trillions 2. Multi-Billion in Rescue Packages in US 3. 572 Billion in Rescue assurances in Ireland 4. France 280 Billion Euro Bank Bailout 5. 90 Billion British rescue package 6. Spain ‘’Bank Assurances” 72 Billion

More Effects of US Problems • • • • • • •

7. German DAX index -38% 8. Brazillian BM&F Bovespa -40% 9. Shanghai SE Composite -60% 10. Russian RTS -67% 11. US S&P -33% 11. Iceland is perhaps going to go bankrupt 12. Sovereign Wealth Funds have pulled out Billions from US

Current Financial Crisis is Due to Ethical Lapses at Every level • 1. People borrowing for houses beyond their means • 2. Banks and Mortgage Brokers not taking responsibility for shaky loans • 3. Financial Firms wrapping shaky loans into debt securities, a novel financial tool. • 4. Creative Accounting Irregularities • 5. Investment/Financial firms focused on short-term • 6. Analysts under-representing risks • 7. Wall Street & Stock Consumers acted recklessly • 8. Lack of regulation and oversight • 9. Conflicts of interests throughout system

Root Symptoms • Imprudence (unwise risk taking) • Taking responsibility without understanding risks • Short term view • Unrealistic optimism • Greed • Passing consequences to the unknowing

Our Financial Crisis is In part due to ethical Lapses • • • •

Failure to lead Failure to take responsibility Failure to watch out for interests of others Self centered exuberance

What is Ethics? • Minimal: What we shouldn’t do • Don’t steal, don’t kill, don’t lie

• Better: What we should do (justice) • Be fair, Be honest, Fulfill duties, work hard

• Best: What we could do to make things excellent for all of us… • Improve Current Methods • Aim High & Create a Beautiful World as we make $

Business: Its purpose/goal The purpose of business is to make me money, and increase stockholder value (Milton Friedman)

Business as a Means to Transform Culture and Society • How can we use our power, position, and money to leverage real change in the world around us through business decisions which will change the face of our cities and communities where we are?

Business Ethics??? •

Business needs ethics to thrive: 1. 2. 3. 4. 5.

Trust is foundational to contracts Customer Satisfaction/loyalty Happy Employees = productive employees Transparency is essential to development Unethical practices ultimately undermine business 6. Globalization requires some common values 7. Many Customers want ethical businesses 8. Ethics is important for branding/marketing

Question: • Does Ethical perception play a significant role in consumer behaviors? --In other words—

• Do Customers really buy products according to the ethics of companies??

Answer: Yes. 1. Boycotts by ethical shoppers cost big brands at least £2.6bn a year 2. 2002 ethical consumption in the UK was worth £19.86bn in 2002 (Co-operative Bank EP Index, 2003)

Consumers Care about Ethics Co-operative Bank Ethical Consumerism Report

• In 2002 every household in the UK spent an average £366 ($730) in line with their ethical values • In 2006 they spent £664 ($1330) (+ 81 per cent)

The “Ethics Factor” • In developed competitive markets, many companies distinguish themselves by positioning their brand as ‘ethical’ or ‘socially concerned’

Ethics Rankings • 1. 2. 3. 4. 5. 6. 7. 8.

The 100 Best Corporate Citizens list ranks firms based on eight categories: Shareholders community governance diversity employees environment human rights product

Business Ethics 100 Best Corporate Citizens 2007 • • • • • • • • • • •

1. Green Mountain Coffee 2. Advanced Micro Devices 3. NIKE 4. Motorola 5. Intel Corporation 6. IBM Inc. 7. Agilent Technologies 8. Timberland 9. Starbucks 10. General Mills 11. Salesforce.com, Inc. 12. Applied Materials

13. Texas Instruments 14. Herman Miller 15. Rockwell Collins 16. Interface, 17. Steelcase 18. Dell Inc. 19. Cisco 20. Lam Research 21. Johnson & Johnson 22. Adobe Systems Inc. 23. Kimberly-Clark Corp 24. Gaiam, Inc.

Business Ethics 100 Best Corporate Citizens 2007 • • • • • • • • • • • • • •

25Gap, Inc. (The) 26Chaparral Steel 27Pitney Bowes, Inc. 28Freddie Mac 29Google, Inc. 303M Company 31Heartland Financial USA 32Chicago Mercantile Ex 33Southwest Airlines Co. 34Eastman Kodak 35Cummins, Inc. 36American Express 37Northwest Natural Gas 38Wainwright Bank & Trust

39United Parcel Service 40Microsoft 41Chittenden, Inc 42PepsiCo, Inc. 43Energy Conversion Devices 44McGraw-Hill 45Ecolab 46Wells Fargo 47Autodesk 48Xilinx, 49Xerox Corporation 50TradeStation Group 51Kellogg Company

Most Ethically Perceived Brands • • • • • • • • • • • • • • •

United Kingdom United States Germany 1. Co-op 1. Coca Cola 1. Adidas 2. Body Shop 2. Kraft 2. Nike 3. Marks Spencer 3. Procter Gamble 2. Puma 4. Traidcraft 4 Johnson & Johnson 4. BMW 5. Cafédirect 4. Kellogg’s 5. Demeter 6. Ecover 4. Nike 5. gepa 7. Green Black 4. Sony 7. VW 7. Tesco 8. Ford 8. Sony 9. Oxfam 8. Toyota 8. Trigema 10. Sainsbury’s 10. LEVI 10. Bio Produkte 11. Innocent 10. Starbucks 10. Body Shop 12. Waitrose 12. Ben Jerry’s 10. Hipp 13. Clipper Tea 12. Dell 10. Mercedes 14. Asda.. 14. Campbell’s 10. Wrangler

BIG Brands want Ethical Brands • Cadbury Schweppes bought Green & Black's, a niche but fast growing UK-based organic and fair trade chocolate firm. • Nestlé launched Fairtrade certified Partners' Blend coffee • Kraft Foods introduced their Kenco Sustainable Development coffee brand

Unethical Behavior Costs Companies: • • • • • • • • • • •

Corporate Scandals—United States - Enron - Tyco - Adelphia - Xerox - Rite-Aid - Martha Stewart & Madoff - ImClone - K-Mart - Boeing - WorldCom

Corporate Scandals-- Europe • • • • • • • • • • • • •

- Mannesmann - ELF - Royal Dutch Shell - VW - ABB - France Telecom - ABN-Ambro - Heidelberg Cement - Ahold - Bank of Italy - Siemens - Daimler-Chrysler - Parmalat

Recent “Subprime” Scandals • • • • •

AIG Goldman Sachs Bear Stearns Pricewaterhouse Coopers Countrywide

These Scandals cost $ • • • • • • • • • • •

Settlements - AIG ($1.6B) - Time Warner-AOL ($510M) - KPMG ($465M) - Adelphia ($715M) - Tyco ($750M) - HCA ($1.7B) - Prudential ($600M) - Tenet ($325M) Marsh McLennan ($850M) Cardinal Health ($600M)

Results of Recent Scandals a. Investors have become more demanding about transparency b. Consumers have become more demanding about corporate behaviors (accounting, environment, production methods, etc) c. In U.S., government has become involved to ease investors’ concerns– more regulation for business!!

Environmentally “green” • “Today, social norms regarding the environment are changing and consumers are increasingly holding brands accountable for what they do … As a result, more and more companies are making investment decisions that incorporate brand impact and brand risk into their equations.” (David Wigder)

What Can Be Done? • There are a number of ways to improve the ethical image of your brand. • Superficial changes are not enough, and authentic ethical commitment of a brand is displayed in real action on the part of companies in order to have real effect.

Some Examples

Example: CocaCola •

Coke is proactively redesigning its bottle to reduce material use and pledging to recycle 100% of bottles sold in the US. • Results: 1. Reduce Material Costs 10% 2. Improve Public Relations/Image with Public

Ethical Production • Nike was criticized for sweatshop labor issues in East Asia, and many consumers boycotted Nike.

Nike’s Response

• Nike responded to these criticisms, changed some of their production arrangements, and returned to the list of the “100 most ethical companies” list

Financial Honesty and Transparency • Bad Example:

Financial Honesty and Transparency

• Wells Fargo Bank is known for its disclosure of financial data.

Treatment of Workers

• Costco is well known for its great treatment of employees

vs • • • • •

48% Insured 2 yr wait for ins. 66% paid by walmart 50% Turnover $7.50-11.45/hr

82% Insured 6 month wait 92% paid by costco 92% Turnover $10.50-17/hr

Strong Moral Leadership • “CEO leads troubled Tyco into turnaround” • Ed Breen, CEO • “Cleaned House”: • Fired Management • Fired Board •

What Causes Unethical Behavior? 1. Irrational exuberance + uninhibited self-interest 2. Arrogance 3. Fraud 4. Conflicts-of-interest 5. Preferential treatment 6. Accounting arbitrage 7. Failure of independent auditors 8. Failure of analysts 9. Failure of rating agencies 10. Failure of regulators 11. Failure of board oversight 12. Culture of greed

Corporate Culture and Performance

Starbucks Nordstroms FedEx Southwest Airlines Costco Kiewit Google

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