I need 3-4 pages double space (1000 words) on answering my questions

College of Administrative and Financial Sciences 

Assignment 2 

Course Name: Principles of Management Student’s Name: 

Course Code: MGT 101 Student’s ID Number:

Semester: I CRN:

Academic Year: 1440/1441 H

For Instructor’s Use only

Instructor’s Name:

Students’ Grade: --/05 Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY

• The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.

• Assignment submitted through email will not be accepted.

• Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.

• Students must mention question number clearly in their answer.

• Late submission will NOT be accepted.

• Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.

• All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).

• Submissions without this cover page will NOT be accepted.

Assignment Workload:

• This Assignment comprises of a short Case.

• Assignment is to be submitted by each student individually.

Assignment Purposes/Learning Outcomes:

After completion of Assignment-2 students will be able to understand the

LO 5. Ability to carry out organization’s role in ethics, diversity, and social responsibility. (Lo3.3)

Assignment-2

• Please read the case “UPS Actively Pursues Sustainability.” in Chapter 3 “The Manager’s Changing Work Environment & Ethical Responsibilities” available in your textbook - Management: A Practical Approach 7th edition by Kinicki, A., & Williams, B., and answer the following questions:

Questions: (1.25 x 4= 5 marks)

Q1. How does UPS's approach toward sustainability impact the triple bottom line? Be specific.

Q2. Which of the six general environmental forces influenced Mr. Kuehn's approach toward sustainability? Discuss.

Q3. To what extent is UPS's approach toward sustainability consistent with the four approaches to deciding ethical dilemmas?

Q4. Evaluate UPS's approach toward sustainability against Carroll's model of social responsibility shown in Figure.

Figure: Carroll’s Model of Social Responsibility

Answers:

1.

2.

3.

.........................................................................................................................................................................

How Do People Excuse Lying & Cheating?

“Students don’t just say ‘OK I cheated in school, but now I’m in the workplace and it ends here,’” says an Arizona professor of legal and ethical studies. “They are forming bad habits that carry over into the market.”1

The “Holier-Than-Thou” Effect & Motivated 

Blindness

Have you ever cheated—had unauthorized help on tests? Or plagiarized—misrepresented others’ work as your own? If it’s wrong, why do it?

The psychological mechanisms operating here are:

• The “holier-than-thou” effect. “People tend to be overly optimistic about their own abilities and fortunes—to overestimate their standing in class, their discipline, their sincerity,” suggests science writer Benedict Carey. “But this self-inflating bias may be even stronger when it comes to moral judgment.”2

• Motivated blindness. This is the tendency to overlook information that works against our best interest. “People who have a vested self-interest, even the most honest among us, have difficulty being objective,” says one report. “Worse yet, they fail to recognize their lack of objectivity.”3 Motivated blindness enables us to behave unethically while maintaining a positive self-image.4

Because of this psychology, cheating and plagiarism have become alarming problems in education, from high school to graduate school.5 Most students rationalize their behavior by saying “I don’t usually do this, but I really have to do it.” They would rather cheat, that is, than show their families they got an F.6

The Dynamics behind Cheating

Habitual cheating, Carey suggests, “begins with small infractions—illegally downloading a few songs, skimming small amounts from the register, lies of omission on taxes—and grows by increments.” As success is rewarded, these “small infractions” can burgeon into an ongoing deliberate strategy of deception or fraud.

How do people rationalize cheating? The justifications are mainly personal and emotional:

• Cheating provides useful shortcuts. We constantly make choices “between short- and long-term gains,” suggests Carey, “between the more virtuous choice and the less virtuous one.” The brain naturally seeks useful shortcuts and so may view low-level cheating as productive.

• Cheating arises out of resentment. People often justify lying and cheating because they have resentments about a rule or a boss.7

• Cheating seeks to redress perceived unfairness. The urge to cheat may arise from a deep sense of unfairness, such as your sense that other people had special advantages.

• Cheating is to avoid feeling like a chump. Many people cheat to avoid feeling like a chump—to “not being smart” and “finishing out of the money.”

For Discussion How would you justify cheating and plagiarism? Is it simply required behavior in order to get through college? (“I’m not going to be a chump.”) What do you say to the fact that, as the research shows, students who cheat and thus don’t actually do the assigned work are more likely to fail anyway?8 Do you think you can stop the lying and deception once you’re out in the work world?

“Profit is a tool,” says Judy Wicks, who founded the White Dog Café in Philadelphia 30 years ago. “The major purpose of business is to serve.”9

In traditional business accounting, the “bottom line” of a revenue-and-expenses statement is the organization’s profit (or loss). But in Wicks’s view, making money should be only one goal of business. The others are to foster social and environmental consciousness—the two other elements of what’s known as the “triple bottom line.” The triple bottom line—representing People, Planet, and Profit (the 

3 Ps)—measures an organization’s social, environmental, and financial performance. In this view of corporate performance, an organization has a responsibility to its employees and to the wider community (People), is committed to sustainable (green) environmental practices (Planet), and includes the costs of pollution, worker displacement, and other factors in its financial calculations (Profit). Success in these areas can be measured through a social audit, a systematic assessment of a company’s performance in implementing socially responsible programs, often based on predefined goals.

The White Dog Café, for instance, is known for such social and environmental a ctivities as buying wind-powered electricity, organic produce, and humanely raised meat and poultry, as well as sharing ideas with competitors and opening up its premises for educational forums and speakers. But the triple bottom line isn’t just to be practiced by small businesses. As a co-author of Everybody’s Business: The Unlikely Story of How Big Business Can Fix the World observes, “big businesses can . . . be really powerful, positive engines for social change.”10

The Millennials’ Search for Meaning

The notion of the triple bottom line has particular appeal to many of those in the “millennial” generation, which includes the two parts dubbed Generation Y, born 1977–1989, and Generation Z, born 1990–2000. (The definition of birth years varies.)11 In Chapter 1, we mentioned that one of the great challenges for a manager is in trying to achieve personal success, whether in striving for a happy life or a meaningful life—or, if possible, both.

“Millennials,” write two scholars who have done research in this area, “appear to be more interested in living lives defined by meaning than by what some would call happiness. They report being less focused on financial success than they are on making a difference.”12 In support of this view, one study found that the principal factor young adults ages 21–31 wanted in a successful career was a sense of meaning.13 Another study found that millennials who came of age during the 2007–2009 Great Recession reported more concern for others and less interest in material goods.14

In this chapter, we discuss two factors in achieving a meaningful life:

■ Understanding the environment in which a manager operates—the community of stakeholders inside and outside the organization.

 ■ The ethical and social responsibilities of being a manager. ●

In September 2010, a buried Pacific Gas & Electric natural-gas pipeline in the San Francisco–area suburb of San Bruno blew up in a spectacular pillar of fire, killing eight people and destroying 38 homes. “The gas-fed flames burned for more than 90 minutes while PG&E scrambled to find a way to shut off the line,” reported the San Francisco Chronicle.15 How did this come about?

To Whom Should a Company Be Responsible?

It turned out that PG&E had relied on gas-leak surveys to determine whether transmission pipelines were safe, but the company’s incentive system awarded bonuses to supervisors whose crews found fewer leaks and kept repair costs down.16 Indeed, the company’s own internal audit found the incentives actually encouraged crews to produce inaccurate surveys.

An independent audit found that over an 11-year period PG&E collected $430 million more from its gas operations than the government had authorized—and it “chose to use the surplus revenues for general corporate purposes” rather than for improved safety.17 In fact, in the three years prior to the explosion, the company spent $56 million a year on an incentive plan—stock awards, performance shares, and deferred compensation— for its executives and directors, including millions to the CEO. Despite this sleazy history—which will require the utility to spend $10 billion to test and replace gas lines 

74 PART 2 The Environment of Management

and cost a proposed $2.45 billion in penalties—it was unclear, the Chronicle said in 2012, “whether PG&E broke any criminal statutes governing its behavior, unless there was fraud.”18 Two years later, however, the utility was indicted on 12 criminal counts, for repeatedly violating the federal Pipeline Safety Act.19

Consider: Is a company principally responsible only to its stockholders and executives? Or are other groups equal in significance? Further, is it sufficient that a company simply be legal, as PG&E believes it was?20 Or, isn’t it equally important that it be ethical as well?

Internal & External Stakeholders

Perhaps we need a broader term than “stockholders” to indicate all those with a stake in an organization. That term, appropriately, is stakeholders—the people whose interests are affected by an organization’s activities.

Managers operate in two organizational environments, both made up of various stakeholders. (See Figure 3.1.) As we describe in the rest of this section, the two environments are these:

 ■ Internal stakeholders

■ External stakeholders FIGURE 3.1 The Organization’s Environment

The two main groups are internal and external stakeholders

Source: From Diverse Teams at Work by Lee Gardenswartz. Reprinted with permission of the Society for Human Resource Management (www.shrm.org), Alexandria, VA. Copyright © 2003, Society for Human Resource Management.

Internal Stakeholders

Whether small or large, the organization to which you belong has people in it who have an important stake in how it performs. These internal stakeholders consist of employees, owners, and the board of directors, if any. Let us consider each in turn.

Employees As a manager, could you run your part of the organization if you and your employees were constantly in conflict? Labor history, of course, is full of accounts of just that. But such conflict may lower the performance of the organization, thereby hurting everyone’s stake. In many of today’s forward-looking organizations, employees are considered “the talent”—the most important resource.

“My chief assets drive out the gate every day,” says Jim Goodnight, CEO of North Carolina–based SAS. “My job is to make sure they come back.”21 SAS is the world’s largest privately held software business and was ranked No. 2 (behind Google) on Fortune’s 2014 list of “100 Best Companies to Work For.” (It ranked 1, 1, 3, and 2, respectively, in the years 2010–2013.) Even during the Great Recession, when there were six unemployed workers for every available U.S. job opening, SAS continued to treat employees exceptionally well, resulting in a turnover rate of only 2% in 2009, compared with a software industry average of 22%.

Owners The owners of an organization consist of all those who can claim it as their legal property, such as Walmart’s stockholders. In the for-profit world, if you’re running a one-person graphic design firm, the owner is just you—you’re what is known as a sole proprietorship. If you’re in an Internet start-up with your brother-in-law, you’re 

both owners—you’re a partnership. If you’re a member of a family running a car dealership, you’re all owners— you’re investors in a privately owned company. If you work for a company that is more than half owned by its employees (such as W. L. Gore & Associates, maker of Gore-Tex fabric and No. 22 on Fortune’s 2014 “Best Companies to Work For” list, or Lakeland, Florida, Publix Super Markets, No. 75), you are one of the joint owners—you’re part of an Employee Stock Ownership Plan (ESOP).22 And if you’ve bought a few shares of stock in a company whose shares are listed for sale on the New York Stock Exchange, such as General Motors, you’re one of thousands of owners—you’re a stockholder. In all these examples, of course, the stated goal of the owners is to make a profit.

Board of Directors Who hires the chief executive of a for-profit or nonprofit organization? In a corporation, it is the board of directors, whose members are elected by the stockholders to see that the company is being run according to their interests. In nonprofit organizations, such as universities or hospitals, the board may be called the board of trustees or board of regents. Board members are very important in setting the organization’s overall strategic goals and in approving the major decisions and salaries of top management.

Not all firms have a board of directors. A lawyer, for instance, may operate as a sole proprietor, making all her own decisions. A large corporation might have eight or so members on its board of directors. Some of these directors (inside directors) may be top executives of the firm. The rest (outside directors) are elected from outside the firm. ●

Employee ownership. 

Employees of New Belgium Brewing, maker of Fat Tire ale, raised $500,000 for nonprofits through the bicycling carnival Tour de Fat. The Fort Collins, Colorado, brewer is 100% employee owned, through a device known as an Employee Stock Ownership Plan, in which employees buy company stock in order to become owners. Although the idea was conceived over 50 years ago, there are only about 10,000 ESOPs today out of hundreds of thousands of businesses. Why do you suppose more companies aren’t owned by their employees? 

In the preceding section we described the environment inside the organization. Here let’s consider the environment outside it, which consists of external stakeholders— people or groups in the organization’s external environment that are affected by it. This environment consists of:

 ■ The task environment.

 ■ The general environment.

The Task Environment

The task environment consists of 11 groups that present you with daily tasks to handle: customers, competitors, suppliers, distributors, strategic allies, employee organizations, local communities, financial institutions, government regulators, special-interest groups, and mass media.

1. Customers The first law of business (and even nonprofits), we’ve said, is take care of the customer. Customers are those who pay to use an organization’s goods or services. Many customers value service over price, and are generally frustrated by poor customer relations at telecommunications companies, airlines, and social media sites. “In defense of these industries,” says one observer, “no one notices them when things go well, but people get outraged when they lose service or get stuck for hours at an airport.”23 On the other hand, he adds, “these industries often don’t have to worry about making customers happy” because they have few competitors.

 EXAMPLE Taking Care of Customers: Amazon’s Jeff Bezos Obsesses about 

“the Customer Experience”

Since launching Amazon in 1995, founder and CEO Jeff Bezos has been “obsessed,” in his words, with what he calls “the customer experience.” Customers “care about having the lowest prices, having vast selection, so they have choice, and getting the products . . . fast,” Bezos has said. “And the reason I’m so obsessed with these drivers of the customer experience is that I believe that the success we have had over the past . . . years has been driven exclusively by that customer experience.”24

“Simple Is Not Easy.” Amazon has led the “Hall of Fame” of one online national survey of customer satisfaction four years in a row. The reason? “Amazon has always been very good at being simple, and simple is not easy,” says a consultant.25 The company’s user-friendly website, low prices, one-click shopping, free-shipping options, no-hassle returns policy, “and even the sense of community it fosters,” says one reporter, “has welcomed some 180 million happy buyers into the fold. Combined, those contented clickers buy an average of 9.6 million items a day.”26

Detractors. Not every stakeholder finds Amazon so congenial. States have objected to its hardball policies on avoiding taxes on Internet sales. Suppliers grumble about being squeezed. Walk-in retailers have worried as shoppers have deserted them en masse for Amazon e-commerce. Book publishers and sellers have seethed over loss of readers to online order systems and Kindle e-books. And Amazon’s own employees have complained about severe workplace rules in the company’s 115 distribution centers.27 For most customers, however, none of this other stuff matters, and Amazon’s famed customer service helped the company grow to $74.5 billion in revenues in 2013.

YOUR CALL

Does it matter to you how harshly a company treats other stakeholders so long as it handles its customer relations well? To what extent are Amazon’s policies consistent with the triple bottom line?

2. Competitors Is there any line of work you could enter in which there would not be competitors—people or organizations that compete for customers or resources, such as talented employees or raw materials? Every organization has to be actively aware of its competitors. Owners of florist shops and delicatessens must be aware that customers can buy the same products at Safeway or Kroger.

3. Suppliers A supplier is a person or an organization that provides supplies—that is, raw materials, services, equipment, labor, or energy—to other organizations. Suppliers in turn have their own suppliers: The printer of this book buys the paper on which it is printed from a paper merchant, who in turn is supplied by several paper mills, which in turn are supplied wood for wood pulp by logging companies with forests in the United States or Canada.

4. Distributors A distributor is a person or an organization that helps another organization sell its goods and services to customers. Publishers of magazines, for instance, don’t sell directly to newsstands; rather, they go through a distributor, or wholesaler. Tickets to Maroon Five, Phish, or other artists’ performances might be sold to you directly by the concert hall, but they are also sold through such distributors as TicketMaster, LiveNation, and StubHub.

Distributors can be quite important because in some industries (such as movie theaters and magazines) there is not a lot of competition, and the distributor has a lot of power over the ultimate price of the product. However, the popularity of the Internet has allowed manufacturers of cell phones, for example, to cut out the “middleman”— the distributor—and to sell to customers directly.

5. Strategic Allies Companies, and even nonprofit organizations, frequently link up with other organizations (even competing ones) in order to realize strategic advantages. The term strategic allies describes the relationship of two organizations who join forces to achieve advantages neither can perform as well alone.

With their worldwide reservation systems and slick marketing, big companies— Hilton, Hyatt, Marriott, Starwood, and so on—dominate the high-end business-center hotels. But in many cities, there are still independents—such as The Rittenhouse in Philadelphia, The Hay-Adams in Washington, DC, and The Adolphus in Dallas—that compete with the chains by promoting their prestigious locations, grand architecture, rich history, and personalized service. In recent years, however, some high-end independents have become affiliated with chains as strategic allies because chains can buy supplies for less and they have more far-reaching sales channels. The 105-year-old U.S. Grant in downtown San Diego, for example, became part of Starwood’s Luxury Collection to get better worldwide exposure.

6. Employee Organizations: Unions & Associations As a rule of thumb, labor unions (such as the United Auto Workers or the Teamsters Union) tend to represent hourly workers; professional associations (such as the National Education Association or the Newspaper Guild) tend to represent salaried workers. Nevertheless, during a labor 

dispute, salary-earning teachers in the American Federation of Teachers might well picket in sympathy with the wage-earning janitors in the Service Employees International Union.

In recent years, the percentage of the labor force represented by unions has steadily declined (from 35% in the 1950s to 11.3% in 2013).28 Indeed, more than five times as many union members are now public-sector workers compared to private-sector workers, whose unionizing has sharply fallen off, mainly because of recession-related job losses in manufacturing and construction. The composition of the membership has also changed, with 45% of the unionized workforce now female and 38% of union members holding a four-year college degree or more.29

7. Local Communities As more educated Gen Yers (ages 18–34) say they want to live in cities, more companies are following them by relocating their headquarters out of suburbia— as has Motorola Mobility, for instance, moving from small town Libertyville, Illinois, to downtown Chicago.30 Is this a problem? Local communities are obviously important stakeholders, as becomes evident not only when a big organization arrives but also when it leaves, sending government officials scrambling to find new industry to replace it. Schools and municipal governments rely on the organization for their tax base. Families and merchants depend on its employee payroll for their livelihoods. In addition, everyone from the United Way to the Little League may rely on it for some financial support.

If a community gives a company tax breaks in return for the promise of new jobs and the firm fails to deliver, does the community have the right to institute clawbacks—rescinding the tax breaks when firms don’t deliver promised jobs? But what is a town to do if a company goes bankrupt, as did Hoku Materials, manufacturer of materials for solar panels, after the struggling town of Pocatello, Idaho, gave it numerous concessions?31

EXAMPLE Local Communities as Stakeholders: Are Financial Incentives to Business 

Really Necessary?

In 2013, only two movies with production budgets higher than $100 million were filmed in Los Angeles. The reason: “successful efforts by a host of states to use tax incentives to poach [movie] production business from California,” says one report.32 The states included Georgia, Louisiana, Nevada, New Mexico, New York, Oregon, and Texas, all seeking the supposed economic benefits film companies bring, such as purchasing supplies from local businesses.33

Public Incentives to Private Business. Film productions aren’t the only beneficiaries of such government incentives, which may come in the form of cash grants and loans, sales tax breaks, income tax credits and exemptions, free services, and property tax abatements. In San Francisco, tech companies Twitter, Microsoft, Zendesk, Zoosk, and Spotify have sought tax breaks for locating in seedy areas in need of revival.34 In Arizona, the town of Mesa “offered tax breaks, built power lines, fast-tracked building permits, and got the state to declare a vacant 1.3 million-square-foot plant a foreign trade zone,” says one account, to lure Apple Inc. to build a factory employing 700 people.35 In Connecticut, the government gave sports network ESPN, with headquarters located in Bristol, $260 million in tax breaks and credits over 12 years—just to preclude the highly unlikely possibility the multibillion-dollar conglomerate might want to move elsewhere.36

Community stakeholder. Sports network ESPN in Bristol, Connecticut, is located on 123 acres, employs about 4,000 workers, takes in more than $6 billion a year in subscriber fees, and has received millions in government tax incentives. No longer a start-up but a billion-dollar conglomerate, should the company continue to receive state tax subsidies to induce it to stay in Bristol? Or should that money be given to struggling entrepreneurs or provide teacher raises?

“Help Us Help You.” Such government inducements are extraordinarily commonplace—but often to the financial detriment of the local community. “A portrait arises,” The New York Times wrote, “of mayors and governors who are desperate to create jobs, outmatched by multinational corporations, and short on tools to fact-check what companies tell them. Many of the officials said they feared that companies would move jobs overseas if they did not get subsidies in the United States.”37 Although most incentive funds are directed toward manufacturing, followed by agriculture, the oil, gas, and mining sectors are in third place, the film business fourth, and technology companies not far behind.

YOUR CALL

How would you advise local public officials to handle the whole matter of tax incentives for business—especially if they are across the negotiating table from a conglomerate like Royal Dutch Shell or heavy-equipment maker Caterpillar? What obligations should a community expect of the companies located there?

8. Financial Institutions Want to launch a small company? Although normally reluctant to make loans to start-ups, financial institutions—banks, savings and loans, and credit unions—may do so if you have a good credit history or can secure the loan with property such as a house. During the Great Recession, even good customers found loans hard to get. There then emerged a new kind of financing called crowdfunding, or crowdsourcing, raising money for a project or venture by obtaining many small amounts of money from many people (“the crowd”), as we discuss further in Chapter 10.

Established companies also often need loans to tide them over when revenues are down or to finance expansion, but they rely for assistance on lenders such as commercial banks, investment banks, and insurance companies.

9. Government Regulators The preceding groups are external stakeholders in your organization since they are clearly affected by its activities. But why would government regulators—regulatory agencies that establish ground rules under which organizations may operate—be considered stakeholders?

We are talking here about an alphabet soup of agencies, boards, and commissions that have the legal authority to prescribe or proscribe the conditions under which you may conduct business. To these may be added local and state regulators on the one hand and foreign governments and international agencies (such as the World Trade Organization, which oversees international trade and standardization efforts) on the other.

Such government regulators can be said to be stakeholders because not only do they affect the activities of your organization, they are in turn affected by it. The Federal Aviation Agency (FAA), for example, specifies how far planes must stay apart to prevent midair collisions. But when the airlines want to add more flights on certain routes, the FAA may have to add more flight controllers and radar equipment, since those are the agency’s responsibility.

10. Special-Interest Groups In recent times, efforts to ban horse-drawn carriages that serve tourists wanting to take in urban sights have spread across the country, from Salt Lake City to Atlanta. In New York City, the 1,200 operators of horse-drawn carriage rides were being pressured by opponents who insisted the horses weren’t equipped to handle city noise and traffic, as well as intense summer heat. Spurred by some highly publicized deaths and injuries to horses, many of the complaints came from animal-rights groups, such as People for the Ethical Treatment of Animals (PETA). In New York, however, two-thirds of city voters said they didn’t want the bans. Some visitors also said they liked “the clip-clop of the horse’s feet.”38

Special-interest groups are groups whose members try to influence specific issues, some of which may affect your organization. Examples are PETA, Mothers Against Drunk Driving, the National Organization for Women, and the National Rifle Association. Special-interest groups may try to exert political influence, as in contributing funds to lawmakers’ election campaigns or in launching letter-writing efforts to officials. Or they may organize picketing and boycotts—holding back their patronage—of certain companies. In 2013, some Americans began a boycott of Stolichnaya vodka to protest what they saw as statesponsored homophobia in Russia—until they learned the vodka was made not in Russia but in Latvia.39

11. Mass Media No manager can afford to ignore the power of the mass media—print, radio, TV, and the Internet—to rapidly and widely disseminate news both bad and good. Thus, most companies, universities, hospitals, and even government agencies have a publicrelations person or department to communicate effectively with the press. In addition, toplevel executives often receive special instruction on how to best deal with the media.

EXAMPLE Managing the Media: What’s the Best Practice for Handling Product Recalls?

Every now and then, a company has to issue a product recall for defective products, but recently there has been almost a “recall sprawl.”

Lululemon Athletica was forced to recall some top-selling yoga pants after it found them to be too see-through.40 Children’s car seat makers Graco and Evenflo recalled 4.2 million and 1.4 million child restraints, respectively, because of buckle problems.41 GlaxcoSmithKline recalled an over-the-counter weight-loss drug after customer complaints about missing labels and possible tampering with seals.42 The biggest news, however, has been in automobiles—most recently those made by General Motors.

GM’s Cobalt Recall. In 2004 (five years before the company’s bankruptcy and government takeover), General Motors received the first reports of engines suddenly shutting down in Chevrolet Cobalts, owing to a defective ignition switch, a condition that ultimately led to 13 fatal crashes. It was not until December 2013, however, when Mary Barra (introduced in Chapter 1) was about to become GM chief, that top management was alerted to the problem, proving the adage that the larger an organization gets, the less likely bad news will travel smoothly up the hierarchy.43 Although government regulators had been alerted in 2007, they did not open an investigation.44 Barra herself said she had known nothing about the matter prior to becoming CEO.

Barra Steps Up. In 2014, amid a firestorm of consumer criticism, GM issued recalls, for Cobalts and other vehicles, covering 

6.3 million cars and trucks.45 In a move intended to reassure the public that GM had become more trustworthy and less bureaucratic and arrogant since it emerged from bankruptcy, Barra also testified before a congressional committee, but “her measured, carefully worded responses only seemed to inflame senators,” says one report.46

On the other hand, Barra has met with families of people killed in Cobalt accidents, something old GM managers would not have done. She also ordered an internal investigation to find out why GM failed to fix a safety defect for more than a decade.47

The Gold Standard. What is a company supposed to do when it has a public relations disaster? The gold standard in brand crisis management is the path followed by health products company Johnson & Johnson in 1982, after several consumers died from taking tainted Tylenol pills. J&J responded in a way that has become the preferred strategy taught in business schools, according to one account: “Communicate clearly with the public about a crisis, cooperate with government officials, swiftly begin its own investigation of a problem, and, if necessary, quickly institute a product recall.”48 A big part of the strategy is communicating honestly and frequently through the media.

YOUR CALL

For GM, “Mary Barra seems to fully embody the position of the CEO who is sorry,” says business ethics professor Amy Sepinwall. “She recognizes that she has to pass on the [corporation’s] deepest regrets, and I think she’s been pretty convincing on that score.”49 Do you agree? What else should she have done?

The General Environment

Beyond the task environment is the general environment, or macroenvironment, which includes six forces: economic, technological, sociocultural, demographic, politicallegal, and international.

You may be able to control some forces in the task environment, but you can’t control those in the general environment. Nevertheless, they can profoundly affect your organization’s task environment without your knowing it, springing nasty surprises on you. Clearly, then, as a manager you need to keep your eye on the far horizon because these forces of the general environment can affect long-term plans and decisions.

1. Economic Forces Economic forces consist of the general economic conditions and trends—unemployment, inflation, interest rates, economic growth—that may affect an organization’s performance. These are forces in your nation and region and even the world over which you and your organization probably have no control, as happened in the Great Recession and its aftermath.

Are banks’ interest rates going up in the United States? Then it will cost you more to borrow money to open new stores or build new plants. Is your region’s unemployment rate rising? Then maybe you’ll have more job applicants to hire from, yet you’ll also have fewer customers with money to spend. (A record 46 million Americans are presently considered poor; the poverty rate has fallen only to 15% from 19% in two generations.)50 Are natural resources getting scarce in an important area of supply? Then your company will need to pay more for them or switch to alternative sources.

One indicator that managers often pay attention to is productivity growth. Rising productivity leads to rising profits, lower inflation, and higher stock prices. In recent times, companies have been using information technology to cut costs, resulting in productivity growing at an annual rate of 2.7% from 2001 to 2007, slumping to 1.2% in the recession year 2008, then roaring back to 3.9% in 2010 and 2.8% in 2011, and slipping to 1.8% in 2012 and 2013.51 Aided by technology, U.S. manufacturing has actually surged 40.4% since 2001, although manufacturing jobs have declined.52

2. Technological Forces Technological forces are new developments in methods for transforming resources into goods or services. For example, think what the United States would have been like if the elevator, air-conditioning, the combustion engine, and the airplane had not been invented. No doubt changes in computer and communications technology—especially the influence of the Internet—will continue to be powerful technological forces during your managerial career. But other technological currents may affect you as well.

For example, biotechnology may well turn health and medicine upside down in the coming decades. Researchers can already clone animals, and some reports say they are close to doing the same with humans.

3. Sociocultural Forces Americans are driving less, more households are without vehicles, and young people are evincing a lack of interest in cars—causing deep worry in the auto industry.53 Long an American rite of passage, the act of getting a driver’s license at age 16 is no longer as popular as it was and is on the wane among the digital generation. In other words, Facebook, Twitter, and other social media are altering longstanding sociocultural patterns.

Sociocultural forces are influences and trends originating in a country’s, a society’s, or a culture’s human relationships and values that may affect an organization. Seismic changes are occurring in Americans’ views about sociocultural issues, recent polls show: 86% in approval of interracial marriage in 2011 (versus 48% in 1991), 55% in favor of same-sex marriage in 2013 (versus 27% in 1996), 52% supporting legalization of marijuana in 2013 (versus 12% in 1969), and so on.54

Entire industries have been rocked when the culture underwent a lifestyle change, most notably changes in approaches to health. Diet sodas, for instance, have gone through a nearly decade-long decline, causing major concerns for Coca-Cola and PepsiCo, because more Americans worry that artificial sweeteners are unhealthy, despite numerous studies that find them safe.55 Some killer diseases, such as measles, whooping cough, and meningitis, are creeping back because of an anti-vaccine movement based on philosophical and religious exemptions.56 Recently, with more attention focused on the epidemic of obesity, there has been some turnaround, with Americans consuming fewer calories and cutting back on fast food, cholesterol, and fat.57

4. Demographic Forces Demographics derives from the ancient Greek word for 

“people”—demos—and deals with statistics relating to human populations. Age, gender, race, sexual orientation, occupation, income, family size, and the like are known as demographic characteristics when they are used to express measurements of certain groups. Demographic forces are influences on an organization arising from changes in the characteristics of a population, such as age, gender, or ethnic origin.

Among recent changes: marriage rates are down, more couples are marrying later, black-white and same-sex marriages are increasing, one-person households are growing, the decline in fertility rates is leveling off, divorce rates are down, secularism (being nonreligious) is up, more households are multigenerational, and the percentage of people living in rural areas is the lowest ever.58 By 2050, it’s predicted, the U.S. population will soar to 401 million (from about 317 million today), and minorities are expected to exceed 50% of the population by around 2043.59

5. Political-Legal Forces Political-legal forces are changes in the way politics shape laws and laws shape the opportunities for and threats to an organization. In the United States, whatever political view tends to be dominant at the moment may be reflected in how the government handles antitrust issues, in which one company tends to monopolize a particular industry. Should Comcast and Time Warner Cable, for instance, be allowed to merge and have a dominant share of the pay-TV market?

As for legal forces, some countries have more fully developed legal systems than others. And some countries have more lawyers per capita. (The United States reportedly has more lawyers per person in its population than any of 29 countries studied except Greece.)60 American companies may be more willing to use the legal system to advance their interests, as in suing competitors to gain competitive advantage. But they must also watch that others don’t do the same to them.

6. International Forces International forces are changes in the economic, political, legal, and technological global system that may affect an organization.

This category represents a huge grab bag of influences. How does the economic integration of the European Union create threats and opportunities for American companies? U.S. companies that do significant business in Europe are subject to regulation by the European Union. For instance, in a three-year antitrust case, several companies in Europe were able to get Google to change the way it displays its search results, after they complained that, as one consumer rights advocacy group stated, Google could “stack its search results as suits itself.”61 We consider global concerns in Chapter 4.

How well Americans can handle international forces depends a lot on their training. Unfortunately, only 18% of Americans report speaking a language other than English, whereas 53% of Europeans, for example, can converse in a second language.62 One writer suggests U.S. companies should hire more key managers whose native language isn’t English because “research shows that we behave more rationally when we think in another language”—that is, it reduces biases in decision making.63 ●

Would you take supplies from the office supply closet on leaving a job? (Twenty-six percent of workers said they would, 74% said they wouldn’t, in one survey.)64 That may be an easy decision. But how would you handle a choice between paying a client money under the table in order to land a big contract, for example, and losing your job? That’s a much harder matter.

In business, choosing between economic performance and social performance is what most ethical conflicts are about.65 This is known as an ethical dilemma, a situation in which you have to decide whether to pursue a course of action that may benefit you or your organization but that is unethical or even illegal.

Defining Ethics & Values

Seventy-three percent of American employees working full time say they have observed ethical misconduct at work, and 36% have been “distracted” by it.66 Most of us assume we know what “ethics” and “values” mean, but do we? Let’s consider them.

Ethics Ethics are the standards of right and wrong that influence behavior. These standards may vary among countries and among cultures. Ethical behavior is behavior that is accepted as “right” as opposed to “wrong” according to those standards.

What are the differences among a tip, a gratuity, a gift, a donation, a commission, a consulting fee, a kickback, a bribe? Regardless of the amount of money involved, each one may be intended to reward the recipient for providing you with better service, either anticipated or performed.

For years, pharmaceutical companies have provided doctors with small gifts—pads with logos, tickets to sports events, free drug samples—to promote their drugs. However, in recent years, points out one editorial, “those trinkets have evolved into big money for doctors to speak to other doctors about new drugs,” as in presentations at dinner lectures.67 What if the drug makers’ strategy, as some critics accuse, is to use such methods even to expand the whole concept of high blood pressure or attention deficit disorder so as to increase the pool of people taking medications?68 Because of such concerns, a Sunshine Act provision was written into the Affordable Care Act, requiring drug companies to report payments to individual doctors.69

Values Ethical dilemmas often take place because of an organization’s value system, the pattern of values within an organization. Values are the relatively permanent and deeply held underlying beliefs and attitudes that help determine a person’s behavior, such as the belief that “Fairness means hiring according to ability, not family background.” Values and value systems are the underpinnings for ethics and ethical behavior.

Organizations may have two important value systems that can conflict: (1) the value system stressing financial performance versus (2) the value system stressing cohesion and solidarity in employee relationships.70

Four Approaches to Deciding Ethical Dilemmas

How do alternative values guide people’s decisions about ethical behavior? Here are four approaches, which may be taken as guidelines:

1. The Utilitarian Approach: For the Greatest Good Ethical behavior in the utilitarian approach is guided by what will result in the greatest good for the greatest number of people. Managers often take the utilitarian approach, using financial performance—such as efficiency and profit—as the best definition of what constitutes “the greatest good for the greatest number.”71

Thus, a utilitarian “cost-benefit” analysis might show that in the short run the firing of thousands of employees may improve a company’s bottom line and provide immediate benefits for the stockholders. The drawback of this approach, however, is that it may result in damage to workforce morale and the loss of employees with experience and skills—actions not so readily measurable in dollars.

2. The Individual Approach: For Your Greatest Self-Interest Long Term, 

Which Will Help Others Ethical behavior in the individual approach is guided by what will result in the individual’s best long-term interests, which ultimately are in everyone’s self-interest. The assumption here is that you will act ethically in the short run to avoid others harming you in the long run.

The flaw here, however, is that one person’s short-term self-gain may not, in fact, be good for everyone in the long term. After all, the manager of an agribusiness that puts chemical fertilizers on the crops every year will always benefit, but the fishing industries downstream could ultimately suffer if chemical runoff reduces the number of fish. Indeed, this is one reason why Puget Sound Chinook, or king salmon, are now threatened with extinction in the Pacific Northwest.72

3. The Moral-Rights Approach: Respecting Fundamental Rights Shared 

by Everyone Ethical behavior in the moral-rights approach is guided by respect for the fundamental rights of human beings, such as those expressed in the U.S. Constitution’s Bill of Rights. We would all tend to agree that denying people the right to life, liberty, privacy, health and safety, and due process is unethical. Thus, most of us would have no difficulty condemning the situation of immigrants illegally brought into the United States and then effectively enslaved—as when made to work 7 days a week as maids.

The difficulty, however, is when rights are in conflict, such as employer and employee rights. Should employees on the job have a guarantee of privacy? Actually, it is legal for employers to listen to business phone calls and monitor all nonspoken personal communications.73

4. The Justice Approach: Respecting Impartial Standards of Fairness Ethical behavior in the justice approach is guided by respect for impartial standards of fairness and equity. One consideration here is whether an organization’s policies—such as those governing promotions or sexual harassment cases—are administered impartially and fairly regardless of gender, age, sexual orientation, and the like.

Fairness can often be a hot issue. For instance, many employees are loudly resentful when a corporation’s CEO is paid a salary and bonuses worth hundreds of times more than what they receive—even when the company performs poorly—and when fired is then given a “golden parachute,” or extravagant package of separation pay and benefits.

White-Collar Crime, SarbOx, & Ethical Training

At the beginning of the 21st century, U.S. business erupted in an array of scandals represented in such names as Enron, WorldCom, Tyco, and Adelphia, and their chief executives—Jeffrey Skilling, Bernard Ebbers, Dennis Kozlowski, and John Rigas— went to prison on various fraud convictions. Executives’ deceits generated a great deal of public outrage, as a result of which Congress passed the Sarbanes–Oxley Act, as we’ll describe. Did that stop the raft of business scandals? Not quite.

Next to hit the headlines were cases of insider trading, the illegal trading of a company’s stock by people using confidential company information. In 2004, Sam Waksal, CEO of ImClone, a biotechnology company, sold his shares of stock when he learned—before the news was made public—that the U.S. government was blocking ImClone’s new cancer drug. For this act of insider trading, he ultimately was sentenced to 87 months in prison and fined $3 million. (This was the case that affected lifestyle guru Martha Stewart, who also went to prison.) In 2011, billionaire hedge-fund manager Raj Rajaratnam was sentenced to 11 years in prison for trading on tips from persons at companies who slipped him advance word on inside information.74 In 2014, Mathew Martoma, a former portfolio manager at SAC Capital Advisors, went on trial for insider trading for using confidential information about an experimental Alzheimer’s drug.75 There were even cases in which two San Francisco Bay Area men were accused by federal authorities of doing insider trading because they traded stocks using confidential information gleaned 

from listening to their wives’ phone conversations.76

Also there was the shocking news of financier Bernard Madoff, who confessed to a $50 billion Ponzi scheme, using cash from newer investors to pay off older ones.77 He was sentenced to 150 years in prison.78 Another convicted of creating a Ponzi scheme was Texas financier R. Allen Stanford, who built a flashy offshore $7 billion financial empire; he was sentenced to 110 years in prison in 2012.79

The Sarbanes–Oxley Reform Act The Sarbanes–Oxley 

Act of 2002, often shortened to SarbOx, or SOX, established requirements for proper financial record keeping for public companies and penalties of as much as 25 years in prison for noncompliance.80 Administered by the Securities and Exchange Commission, SarbOx requires a company’s chief executive officer and chief financial officer to personally certify the organization’s financial reports, prohibits them from taking personal loans or lines of credit, and makes them reimburse the organization for bonuses and stock options when required by restatement of corporate profits. It also requires the company to have established procedures and guidelines for audit committees.81

How Do People Learn Ethics? Kohlberg’s Theories American business his-

tory is permeated with occasional malfeasance, from railroad tycoons trying to corner the gold market (the 1872 Crédit Mobilier scandal) to 25-year-old bank customer service representatives swindling elderly customers out of their finances. Legislation such as SarbOx can’t head off all such behavior. No wonder that now many colleges and universities have required more education in ethics.

“Schools bear some responsibility for the behavior of executives,” says Fred J. Evans, dean of the College of Business and Economics at California State University at Northridge. “If you’re making systematic errors in the [business] world, you have to go back to the schools and ask, ‘What are you teaching?’”82 The good news is that high school students are lying, cheating, and stealing less than they did a decade earlier.83 In addition, more graduate business schools are changing their curriculums to teach ethics.84 The bad news, however, is that a 2006 survey of 50,000 undergraduates found that 26% of business majors admitted to serious cheating on exams, and 54% admitted to cheating on written assignments.85 Another survey of 5,331graduate students at 32 universities found that 56% of the graduate business students and 47% of nonbusiness graduate students admitted to cheating one or more times during the preceding year.86

Of course, most students’ levels of moral development are established by personalities and upbringing long before they get to college, with some being more advanced than others. One psychologist, Laurence Kohlberg, has proposed three levels of personal moral development—preconventional, conventional, and postconventional.87

■ Level 1, preconventional—follows rules. People who have achieved this level tend to follow rules and to obey authority to avoid unpleasant consequences. Managers of the Level 1 sort tend to be autocratic or coercive, expecting employees to be obedient for obedience’s sake.

■ Level 2, conventional—follows expectations of others. People whose moral development has reached this level are conformist but not slavish, generally adhering to the expectations of others in their lives. Level 2 managers lead by encouragement and cooperation and are more group and team oriented. Most managers are at this level.

■ Level 3, postconventional—guided by internal values. The farthest along in moral development, Level 3 managers are independent souls who follow their own values and standards, focusing on the needs of their employees and trying to lead by empowering those working for them. Only about a fifth of American managers are said to reach this level.

What level of development do you think you’ve reached?

How Organizations Can Promote Ethics

Ethics needs to be an everyday affair, not a one-time thing. This is why many large U.S. companies now have a chief ethics officer, whose job is to make ethical conduct a priority issue.

There are several ways an organization may promote high ethical standards on the job, as follows.88

1. Creating a Strong Ethical Climate An ethical climate represents employees’ perceptions about the extent to which work environments support ethical behavior. It is important for managers to foster ethical climates because they significantly affect the frequency of ethical behavior. Managers can promote ethical climates through the policies, procedures, and practices that are used on a daily basis.

2. Screening Prospective Employees Companies try to screen out dishonest, irresponsible employees by checking applicants’ resumes and references. Some firms, for example, run employee applications through E-Verify, a federal program that allows employers to check for illegal immigrants. Some also use personality tests and integrity testing to identify potentially dishonest people.

3. Instituting Ethics Codes & Training Programs A code of ethics consists of a formal written set of ethical standards guiding an organization’s actions. Most codes offer guidance on how to treat customers, suppliers, competitors, and other stakeholders. The purpose is to clearly state top management’s expectations for all employees. As you might expect, most codes prohibit bribes, kickbacks, misappropriation of corporate assets, conflicts of interest, and “cooking the books”—making false accounting statements and other records. Other areas frequently covered in ethics codes are political contributions, workforce diversity, and confidentiality of corporate information.

In addition, according to a Society for Human Resource Management Weekly Survey, 32% of human resources professionals indicated that their organizations offered ethics training.89 The approaches vary, but one way is to use a case approach to present employees with ethical dilemmas. By clarifying expectations, this kind of training may reduce unethical behavior.90

4. Rewarding Ethical Behavior: Protecting Whistle-Blowers It’s not enough to simply punish bad behavior; managers must also reward good ethical behavior, as in encouraging (or at least not discouraging) whistle-blowers.

A whistle-blower is an employee, or even an outside consultant, who reports organizational misconduct to the public, such as health and safety matters, waste, corruption, or overcharging of customers.91 For instance, the law that created the Occupational Safety and Health Administration allows workers to report unsafe conditions, such as “exposure to toxic chemicals; the use of dangerous machines, which can crush fingers; the use of contaminated needles, which expose workers to the AIDS virus; and the strain of repetitive hand motion, whether at a computer keyboard or in a meatpacking plant.”92 In some cases, whistle-blowers may receive a reward; the IRS, for instance, is authorized to pay tipsters rewards as high as 30% in cases involving large amounts of money.93

True whistle-blowing involves acts that are against the law. However, the principal kinds of misconduct reported in one study—misuse of company time, abusive behavior, and lying to employees—aren’t necessarily illegal, although they may create an offensive work environment, the leading reason people leave their jobs.94 Retaliation against whistle-blowers is also on the rise, ranging from giving them the cold shoulder to passing them over for promotion.

In exposing unethical behavior, then, it’s important to be clear why you’re doing it (trying to help the company or just get someone in trouble), not report something for the wrong reason (discuss your concerns with someone who has similar values), and follow proper channels (like addressing the supervisor of the supposed culprit). Don’t try to report externally (lashing out on Facebook, for instance) without speaking to those who might resolve the problem.95

Have you ever thought about blowing the whistle on something you thought was unethical or illegal? Yes or no, your decision was guided in part by your own moral standards or ethical identity. We created the following self-assessment to aid your awareness about your propensity to expose unethical or illegal acts. ●

The slow economic recovery from the Great Recession has had a powerful impact on today’s college freshmen, with 86.3% in 2013 declaring that getting “a better job” is the top reason for going to college, the principal goal of freshmen for the past five years. (The second most cited reason, at 81.6%, was “to learn more about things that interest me,” which held the top spot for the first half of the past decade.)96 But is money the be-all and end-all in business? This is the concern behind the triple bottom line discussed earlier (p. 72).

If ethical responsibility is about being a good individual citizen, social responsibility is about being a good organizational citizen. More formally, social responsibility is a manager’s duty to take actions that will benefit the interests of society as well as of the organization. When generalized beyond the individual to the organization, social responsibility is called corporate social responsibility (CSR), the notion that corporations are expected to go above and beyond following the law and making a profit.

Corporate Social Responsibility: 

The Top of the Pyramid

According to University of Georgia business scholar Archie B. Carroll, corporate social responsibility rests at the top of a pyramid of a corporation’s obligations, right up there with economic, legal, and ethical obligations. Some people might hold that a company’s first and only duty is to make a profit. However, Carroll suggests the responsibilities of an organization in the global economy should take the following priorities, with profit being the most fundamental (base of the pyramid) and corporate citizenship at the top:97

 ■ Be a good global corporate citizen, as defined by the host country’s expectations.

■ Be ethical in its practices, taking host-country and global standards into consideration.

 ■ Obey the law of host countries as well as international law.

 ■ Make a profit consistent with expectations for international business.

These priorities are illustrated in the pyramid opposite. (See Figure 3.2.)

Is Social Responsibility Worthwhile? Opposing & Supporting Viewpoints

In the old days of cutthroat capitalism, social responsibility was hardly thought of. A company’s most important goal was to make money pretty much any way it could, and the consequences be damned. Today for-profit enterprises generally make a point of “putting something back” into society as well as taking something out.

FIGURE 3.2 Carroll’s global corporate social responsibility pyramid

Source: Republished with permission of Academy of Management, from A. Carroll, “Managing Ethically and Global Stakeholders: A Present and Future Challenge,” Academy of Management Executive, May 2004, p. 116; permission conveyed through Copyright Clearance Center, Inc.

 global

Not everyone, however, agrees with these new priorities. Let’s consider the two viewpoints.

Against Social Responsibility “Few trends could so thoroughly undermine the very foundations of our free society,” argued the late free-market economist Milton Friedman, “as the acceptance by corporate officials of social responsibility other than to make as much money for their stockholders as possible.”98

Friedman represents the view that, as he said, “The social responsibility of business is to make profits.” That is, unless a company focuses on maximizing profits, it will become distracted and fail to provide goods and services, benefit the stockholders, create jobs, and expand economic growth—the real social justification for the firm’s existence.

This view would presumably support the efforts of companies to set up headquarters in name only in offshore Caribbean tax havens (while keeping their actual headquarters in the United States) in order to minimize their tax burden.

For Social Responsibility “A large corporation these days not only may engage in social responsibility,” said famed economist Paul Samuelson, who passed away in 2009, “it had damned well better to try to do so.”99 That is, a company must be concerned for society’s welfare as well as for corporate profits.

Beyond the fact of ethical obligation, the rationale for this view is that since businesses create problems (environmental pollution, for example), they should help solve them. Moreover, they often have the resources to solve problems in ways that the nonprofit sector does not. Finally, being socially responsible gives businesses a favorable public image that can help head off government regulation.

EXAMPLE Corporate Social Responsibility: Salesforce.com Wants to Change the Way the World Works

There are all kinds of ways by which corporate social responsibility is Journey toward Sustainability. Although Salesforce.com does expressed. Salesforce.com, a San Francisco business software com- no manufacturing or mineral extraction, it still strives to reduce pany, supports all the following four.100 carbon emissions in the operation of its data centers and office 

buildings, as well as in employee travel.

Operating with Integrity. Salesforce.com has adopted Business Conduct Principles and a Code of Conduct that, among Fostering Employee Success. At Salesforce.com, says the comother things, support ethical business practices, anticorrup- pany, “our goal is to deliver a dreamjob experience for our emtion, antidiscrimination, and rejection of forced or involuntary ployees. We are intense, passionate people on a mission to 

labor. change the way the world works.”

“1/1/1” Charitable Giving. When founder and CEO Marc Benioff 

set up Salesforce.com in 1999, he also created a foundation with YOUR CALL

a powerful but simple vision: donate 1% of Salesforce.com re- Do you believe corporate social responsibility really has benesources, 1% of employees’ time, and 1% of the firm’s technology fits? Can you think of any highly profitable and legal businesses to improving communities around the world. that do not practice any kind of social responsibility?

One Type of Social Responsibility: Climate Change, Sustainability, & Natural Capital

Nearly everyone is aware of the growing threat of climate change and global warming, which the vast majority (75%) of Americans agree is real, serious, and man-made.101 (Scientists say global warming is “unequivocal” and that it is extremely likely that humans are the primary contributors to it.”102) Climate change refers to major changes in temperature, precipitation, wind patterns, and similar matters occurring over several decades. Global warming, one aspect of climate change, refers to the rise in global average temperature near the Earth’s surface, caused mostly by increasing concentrations in the atmosphere of greenhouse gases, such as carbon emissions from fossil fuels.103 Sustainability, as we said in Chapter 1, is economic development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

The Benefits of Being Green “Coca-Cola has always been more focused on its economic bottom line than on global warming,” writes reporter Coral Davenport. But “as global droughts dried up the water needed to produce its soda,” its profits took some serious hits. Now the company “has embraced the idea of climate change as an economically disruptive force,” she writes, and is focused on water-conservation technologies, along with other sustainability measures.104

Today going green has entered the business mainstream, where sustainability programs are producing not only environmental benefits but also cost savings, revenue growth, and competitive advantages.105 Car maker Subaru of Indiana Automotive, for example, has proved that adopting environmentally friendly processes does not add to the cost of doing business but actually makes it more efficient (reducing water use by 50%, electricity by 14%, and so on).106 Dow Chemical, collaborating with the Nature Conservancy, an environmental group, is exploring coastal marsh and dune restoration (and paying nearby homeowners to replace lawns with native plants) to shield its Freeport, Texas, chemical complex from storm surges coming off the Gulf of Mexico.107

The Value of Earth’s Resources: Natural Capital Indeed, Planet (of the triple bottom line People, Planet, and Profit) is now identified by the name natural capital (or natural capital accounting), which many scholars think should figure seriously in economic decision making. Natural capital is the value of natural resources, such as topsoil, air, water, and genetic diversity, which humans depend on. “We’re driving natural capital to its lowest levels ever in human history,” says Stanford University ecologist Gretchen Daily.108

According to this view, we are approaching the planet’s limitations, with human activity threatening to exceed the earth’s capacity to generate resources and absorb wastes. For example, the mountain of electrical waste disposed of annually worldwide—cell phones, laptops, appliances, anything with a battery or a cord—is forecast to grow by a third by 2017.109 One United Nations report suggests climate change poses a risk to world food supplies, with output dropping perhaps 2% each decade, as rising temperatures make it harder for crops to thrive.110 The report also warns that waiting to cut carbon emissions could even outstrip technology’s ability to preserve the planet.111 Alarming predictions indeed.

Another Type of Social Responsibility: Philanthropy, “Not Dying Rich”

“He who dies rich dies thus disgraced,” 19th-century steel magnate Andrew Carnegie is supposed to have said, after he turned his interests from making money to philanthropy, making charitable donations to benefit humankind. Carnegie became well known as a supporter of free libraries.

When Bill Gates of Microsoft, the richest person in the world for 15 of the last 20 years (present net worth: $72 billion), stepped down from day-to-day oversight of Microsoft, the company he co-founded, he turned his attention to the Bill and Melinda Gates Foundation, through which he and his wife have pledged to spend billions on health, education, and overcoming poverty.112 The Gateses have been joined by other billionaires—Facebook founder Mark Zuckerberg and his wife (the most generous American philanthropists in 2013), oil and gas financier T. Boone Pickens, Berkshire Hathaway chairman Warren Buffett, and others—in taking the Giving Pledge, a commitment to dedicate a majority of their wealth to philanthropy.113

Not only do wealthy individuals and companies practice philanthropy, so even do ordinary individuals. Mona Purdy, an Illinois hairdresser, noticed while vacationing in Guatemala that many children coated their feet with tar in order to be able to run in a local race. So she went home and established the nonprofit Share Your Soles, which collects shoes and sends them around the world. “I always thought I was too busy to help others,” she says. “Then I started this and found myself wondering where I’d been all my life.”114

How Does Being Good Pay Off?

From a hardheaded manager’s point of view, does ethical behavior and high social responsibility pay off financially? Here’s what some of the research shows.115

Effect on Customers According to one survey, 88% of the respondents said they were more apt to buy from companies that are socially responsible than from companies that are not.116 Another survey of 2,037 adults found that 72% would prefer to purchase products and services from a company with ethical business practices and higher prices compared with 18% who would prefer to purchase from a company with questionable business practices and lower prices.117

Effect on Employees’ Work Effort Workers are more efficient, loyal, and creative when they feel a sense of purpose—when their work has meaning, says Daniel H. Pink.118 When employers make profits their primary focus, employees develop negative 

Green power. Many electricity users can run their homes on renewable energy simply by asking their local utility. 

feelings toward the organization. “They tend to perceive the CEO as autocratic and focused on the short term,” says one report, “and they report being less willing to sacrifice for the company.”119 When employees observe the CEO balancing the concerns of customers, employees, and the community, plus being watchful of environmental effects, they report being more willing to exert extra effort—and corporate results improve!120

Effect on Job Applicants & Employee Retention Ethics can also affect the quality of people who apply to work in an organization, as can a firm’s record on social and environmental issues.121 One online survey of 1,020 people indicated that 83% rated a company’s record of business ethics as “very important” when deciding whether to accept a job offer; only 2% rated it as “unimportant.”122 A National Business Ethics Survey found that 79% of employees said their firms’ concern for ethics was a key reason they remained.123

Effect on Sales Growth The announcement of a company’s conviction for illegal activity has been shown to diminish sales growth for several years.124 One survey found that 80% of people said they decide to buy a firm’s goods or services partly on their perception of its ethics.125

Effect on Company Efficiency One study found that 71% of employees who saw honesty applied rarely or never in their organization had seen misconduct in the past year, compared with 52% who saw honesty applied only occasionally and 25% who saw it frequently.126

Effect on Company Revenue Unethical behavior in the form of employee fraud costs U.S. organizations around $652 billion a year, according to the Association of Certified Fraud Examiners.127 Employee fraud, which is twice as common as consumer fraud (such as credit card fraud and identity theft), costs employers about 20% of every dollar earned.128

Effect on Stock Price One survey found that 74% of people polled said their perception of a firm’s honesty directly affected their decision about whether to buy its stock.129 Other research found that, following fraud or financial restatement (redoing an earlier public financial statement), companies on average lose more than a quarter of their stock value but can nurse the stock price back to health by stepping up charitable giving along with other actions.130

Effect on Profits Studies suggest that profitability is enhanced by a reputation for honesty and corporate citizenship.131

Ethical behavior and social responsibility are more than just admirable ways of operating. They give an organization a clear competitive advantage. Where do you stand on these issues? We created the following self-assessment to measure your attitudes toward corporate social responsibility. Taking it will enhance your understanding about your views on social responsibility. ●

Where, you might ask, were the company boards of directors in recent years when the CEOs of firms such as Enron, WorldCom, Tyco, and Adelphia were doing the things that got them convicted for fraud? Aren’t directors supposed to protect the stockholders and other stakeholders by keeping an eye on senior management? Indeed, after the Enron and other scandals, there was a resumed interest in what is known as corporate governance, the system of governing a company so that the interests of corporate owners and other stakeholders are protected.

The Need for Independent Directors

Perhaps the biggest complaint concerns the independence of the directors. As we mentioned earlier in the chapter, inside directors may be members of the firm, but outside directors are supposed to be elected from outside the firm. However, in some companies, the outside directors have been handpicked by the CEO—because they are friends, because they have a business relationship with the firm, or because they supposedly “know the industry.” In such instances, how tough do you think the board of directors is going to be on its CEO when he or she asks for leeway to pursue certain policies?

Now, more attention is being paid to strengthening corporate governance so that directors are clearly separated in their authority from the CEO. While, of course, directors are not supposed to get involved with day-to-day management issues, they are now feeling more pressure from stockholders and others to have stronger financial reporting systems and more accountability.132

Corporate Governance: Chesapeake Energy’s CEO Gets Some Unusual EXAMPLE

Breaks from His Board of Directors

In 2008, CEO Aubrey K. McClendon topped the list of highestpaid chief executives for companies in the Standard & Poor’s 500-stock index. His firm, Oklahoma City–based Chesapeake Energy, which he co-founded at age 23, was the secondlargest producer of natural gas after ExxonMobil, and his personal fortune was estimated by Forbes as exceeding $1.2 billion. One interviewer described him as “without doubt the most admired—and feared—man” in the U.S. petroleum and natural gas industry but “also the most reckless, . . . with an off-the-charts risk tolerance.”133

A Little Help from the Company. Because aggressive financing practices combined with plunging oil and gas prices in 2008 lowered the value of Chesapeake stock by 80%, McClendon was forced to sell nearly all of his own shares. Strapped for cash, he turned to his handpicked board of directors, which gave him a $100 million pay package plus $75 million over five years to invest for a 2.5% stake in every well the company drilled.

In addition, the company agreed to buy McClendon’s personal collection of historical maps of the American Southwest (which decorated the company’s headquarters) for $12.1 million.134 The $12.1 million, the firm pointed out, was McClendon’s cost of acquiring the collection over the preceding six years— an appraisal, it noted, that came from “the dealer who had assisted Mr. McClendon in acquiring this collection.”135

Shareholders Sue. Besides the above-mentioned perks, the Chesapeake board also voted to give McClendon $600,000 for the private use of the corporate jets, nearly $600,000 for accounting services, and $131,000 for “personal engineering support”—and it agreed to pay $4.6 million to sponsor the NBA’s Oklahoma City Thunder, the pro basketball team that is one-fifth owned by McClendon.136 But when outsiders and stockholders found out about the maps, the story took on a life of its own, prompting several shareholder lawsuits.

Big shareholder groups sued Chesapeake for what they considered an irresponsibly generous 2008 compensation package to McClendon and demanded that the company overhaul its compensation practices. In the resulting settlement, McClendon agreed to buy back the 19th-century maps for $12.1 million plus pay a 2.28% interest for the repurchase. In addition, Chesapeake agreed to some corporate governance reforms: installation of a “more transparent” 

The map collector. Aubrey McClendon, chief of natural gas producer Chesapeake Energy, was the highest-paid of CEOs in 2008. But when plunging gas prices reduced the value of company shares by 80%, he was forced to sell off an antique map collection for $12.1 million. The appraiser: the expert who assembled the collection in the first place. The buyer: Chesapeake Energy. Does this pass the smell test?

management pay plan, electing board members by majority vote, and discontinuance of the practice of allowing senior management, such as McClendon, use of their company stock as collateral to buy more company stock, a major cause of the firm’s financial strains.137

Unfinished Business. McLendon resigned from Chesapeake Energy in 2013, citing “philosophical differences” with a reconstituted board, after burning through $19.4 billion in 2011 and $21.6 billion in 2012. (His successor cut those cash outlays in half.) Among the unfinished business McClendon left behind are lawsuits over hundreds of millions of dollars in personal loans made to him by company lenders, a Securities and Exchange Commission investigation into Chesapeake, and a Justice Department investigation into possible violations of antitrust law for collusion with another company over buying some Michigan acreage.138

YOUR CALL

If McClendon had stayed on as Chesapeake Energy’s CEO, what kinds of corporate reforms would you, as a shareholder, have insisted on so that you could trust what the company told you?

The Need for Trust

In the end, suggests Fordham professor Robert Hurley, “We do not have a crisis of ethics in business today. We have a crisis of trust.”139 Customers or employees may well think that certain people or companies are ethical—that is, moral, honest, and fair— but that does not mean they should trust them. Trust, says Hurley, “comes from delivering every day on what you promise—as a manager, an employee, and a company. It involves constant teamwork, communication, and collaboration.”

Trust comes from asking how likely the people you’re dealing with are to serve your interests, how much they have demonstrated concern for others, how well they delivered on their promises, how much they try to keep their word—and how effectively they communicate these skills. Would you agree? ●

may affect an organization’s performance. 

(2) Technological forces are new developments in methods for transforming resources into goods and services. (3) Sociocultural forces are influences and trends originating in a country, society, or culture’s human relationships and values that may affect an organization. 

(4) Demographic forces are influences on an organization arising from changes in the characteristics of a population, such as age, gender, and ethnic origin. (5) Political-legal forces are changes in the way politics shapes laws and laws shape the opportunities for and threats to an organization. (6) International forces are changes in the economic, political, legal, and technological global system that may affect an organization.

3.4 The Ethical Responsibilities Required of You as a Manager

• Ethics are the standards of right and wrong that influence behavior. Ethical behavior is behavior that is accepted as “right” as opposed to “wrong” according to those standards.

• Ethical dilemmas often take place because of an organization’s value system. Values are the relatively permanent and deeply held underlying beliefs and attitudes that help determine a person’s behavior.

• There are four approaches to deciding ethical dilemmas. (1) Utilitarian—ethical behavior is guided by what will result in the greatest good for the greatest number of people. 

(2) Individual—ethical behavior is guided by what will result in the individual’s best long-term interests, which ultimately is in everyone’s selfinterest. (3) Moral-rights—ethical behavior is guided by respect for the fundamental rights of human beings, such as those expressed in the U.S. Constitution’s Bill of Rights. (4) Justice— ethical behavior is guided by respect for the impartial standards of fairness and equity.

• Public outrage over white-collar crime (Enron, 

Tyco) led to the creation of the Sarbanes– Oxley Act of 2002 (SarbOx), which established requirements for proper financial record keeping for public companies and penalties for noncompliance.

• Laurence Kohlberg proposed three levels of personal moral development: 

(1) preconventional level of moral development—people tend to follow rules and to obey authority; (2) conventional level—people are conformist, generally adhering to the expectations of others; and (3) postconventional level—people are guided by internal values.

• There are three ways an organization may foster high ethical standards. (1) Top managers must support a strong ethical climate. (2) The organization may have a code of ethics, which 

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consists of a formal written set of ethical standards. (3) An organization must reward ethical behavior, as in not discouraging whistle-blowers, employees who report organizational misconduct to the public.

3.5 The Social Responsibilities Required of You as a Manager

• Social responsibility is a manager’s duty to take actions that will benefit the interests of society as well as of the organization.

• The idea of social responsibility has opposing and supporting viewpoints. The opposing viewpoint is that the social responsibility of business is to make profits. The supporting viewpoint is that since business creates some problems (such as pollution) it should help solve them.

• One scholar, Archie Carroll, suggests the responsibilities of an organization in the global economy should have the following priorities: (1) Be a good global corporate citizen; (2) be ethical in its practices; (3) obey the law; and 

(4) make a profit.

• One type of social responsibility is sustainability, “going green,” or meeting humanity’s needs without harming future generations. A major threat is climate change, which refers to major changes in temperature, precipitation, wind patterns, and similar matters over several decades. Global warming, one aspect of climate change, refers to the rise in global average temperature near the Earth’s surface, caused mostly by increasing concentrations in the atmosphere of greenhouse gases, such as carbon emissions from fossil fuels.

• The component of the triple bottom line called Planet is now identified by the name natural capital, which is the value of natural resources, such as topsoil, air, water, and genetic diversity, which many scholars think should figure seriously in economic decision making.

• Another type of social responsibility is philanthropy, making charitable donations to benefit humankind.

• Positive ethical behavior and social responsibility can pay off in the form of customer goodwill, more efficient and loyal employees, better quality of job applicants and retained employees, enhanced sales growth, less employee misconduct and fraud, better stock price, and enhanced profits.

3.6 Corporate Governance

• Corporate governance is the system of governing a company so that the interests of corporate owners and other stakeholders are protected.

• One way to further corporate governance is to be sure directors are clearly separated in their authority from the CEO by insisting on stronger financial reporting systems and more accountability.

Understanding the Chapter: What Do I Know?

1. How would you explain the difference between 6. What’s the difference between insider trading and a internal and external stakeholders? Ponzi scheme?

2. Among external stakeholders, what’s the difference 7. How would you summarize Kohlberg’s levels of between the task environment and the general personal moral development?

 environment? 8. What are four ways that organizations can promote 

3. Of the 11 groups in the task environment, which ethics?

 five do you consider most important and why? 9. Describe the levels in Carroll’s corporate social 

4. Of the six groups in the general environment, which responsibility pyramid. Where does trying to one do you think has the least importance, and why? achieve sustainability fit in?

5. Distinguish among the four approaches to deciding 10. How would you explain the concept of corporate ethical dilemmas. governance?

Management in Action

UPS Actively Pursues Sustainability

Kurt Kuehn is the Chief Financial Officer at UPS and a 2013 winner of the C. K. Prahalad Award for Global Sustainability Leadership.

As a CFO who advocates sustainability, I’ve noticed that many of my peers take a lukewarm view of the idea, perhaps because they simply don’t see how sustainability can produce returns for a business. I can relate: I too am always looking for ways to allocate resources effectively and create value. . . .

As a founding member of UPS’s sustainability steering committee, I have wrestled with the challenge, and I’ve developed a point of view—one that emphasizes the power of organizational momentum and embraces “enlightened self-interest.” My approach is rooted in two beliefs: that companies have a responsibility to contribute to society and the environment, and that every investment a company makes should return value to the business.

These beliefs don’t have to be at odds. . . . In fact, the programs with greatest impact not only align with companies’ strategies but move in tandem with their activities. . . . UPS has established a five-step approach toward sustainability in order to balance the needs of various constituents. They are considered below.

1. Assess your strengths. What does your company have to offer that could make a big difference? Find out by assessing your core competencies, infrastructures, and relationships as part of your sustainability strategizing. You will probably discover strengths that charitable partners often lack, such as:

• Capital

• Specialized knowledge and experience

• Relationships

• Processes

• Physical assets

• Business acumen

2. Choose your spots. Finding the right space for your efforts in sustainability has to begin with narrowing down the field somehow. You might take cues from either external stakeholders or internal managers. Stakeholders include customers, shareholders, and suppliers that increasingly prefer to do business with companies they see as responsible—but also activists, who may be a risk. Managers know the company’s capabilities, cost structure, and objectives well, and can see the strategic fit of one proposed initiative versus another.

We think both these perspectives are important, and we combine them in what’s called a materiality matrix . . . one axis indicates how relevant our external stakeholders believe certain issues are to being a good corporate citizen; the other indicates which ones senior executives consider strategic and important to the company’s future success. . . .

One priority that UPS was able to identify through this method is safety training for drivers in certain emerging economies. Stakeholders were concerned that the rapid expansion of the middle class in Vietnam, Cambodia, South Africa, and elsewhere has created new traffic nightmares—not only more commercial vehicles on the road but also a huge influx of first-time drivers. They perceived UPS as an expert in road and workplace safety because of its systems and performance. Meanwhile, company managers recognized that these countries are strategically important to UPS as new growth markets. Thus a program that involved working with nonprofits and humanitarian relief agencies to deliver our proven safety training programs wouldn’t encounter resistance from either inside or outside stakeholders. Even public officials have endorsed it.

Environmental projects, too, are a strategic fit. We know that our vehicles and planes produce emissions and that we have an obligation to invest in a cleaner planet.

3. Find momentum. A materiality matrix narrows the field of possibilities, but it rarely points to a specific initiative. For example, it might indicate that a given company would do well to join the fight against AIDS or help preserve pristine forests or improve air quality, but within any of those areas numerous organizations are working in various places on different parts of the solution.

   Having a bias toward adding to momentum makes the next step easier. It leads you to focus on where energy is already in motion and where your company’s additional efforts could make a big difference. Ideally, your existing operations and initiatives will dovetail with societal or environmental needs for which others are already driving change.

   Sometimes the momentum a company needs to recognize comes from governmental priorities. Indeed, failing to respond to them may imperil its license to operate. . . .

4. Build productive partnerships. Most companies just sign up existing projects on the assumption that they and the NGO [nongovernmental organization] will figure out some way to shoehorn in the company’s strengths. . . .

   To ensure a productive collaboration from the outset, it helps to clearly articulate that the business’s hope is to apply its strengths and add to its momentum. Then the partners can proceed to understand each other’s strengths, weaknesses, and shared values and to compare perspectives about the impact they want to achieve. Next they should draft a strategic plan; define goals and objectives; establish a timetable, metrics, and milestones; and agree on the resources required and what will define success. Both sides need clear rules of engagement and an open dialogue to adjust to each other, or to know when it’s time to part ways. . . .

5. Convene other sources of strength. Large businesses all participate in networks of organizations, in their extended supply chains and across their industries. They have the power to convene other players and combine their strengths. If they do so for a good sustainability cause, they can add even more to its momentum.

   UPS has enjoyed success with multicompany projects, particularly those relating to humanitarian logistics and disaster relief. Most notably, we’ve joined with our competitors TNT and Agility to support the UN’s World Food Programme during disasters. . . .

   UPS has also joined forces with some customers on disaster relief projects, ensuring that their donated products are received on time around the world. The 

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effort is particularly productive when we can combine multiple customer-donation shipments, reducing transportation costs for all by sharing trucks and planes or using employee volunteers to pack emergency supplies. . . .

What We Are Choosing Not to Do

Following the principle of adding to momentum, UPS has moved its philanthropic giving over the past decade toward expertise and in-kind donations and has aligned it with the corporate mission to enable global commerce through logistics. Our more strategic approach to sustainability has led to many of the projects we’ve taken on recently. But the test of a good strategy is not just whether it has you doing good things; it must also allow you to decide what not to do. Aiming for “maximum efficiency, minimum effort,” we’ve been able to see more clearly that some projects and ideas aren’t for us.

More generally, UPS makes fewer one-off contributions. When all the components of a sustainability program are guided by a materiality matrix analysis and a plan to find and increase momentum, connections tend to form among them, creating a cumulative effect. . . .

Momentum’s Extra Benefits

When you approach sustainability from a position of your strengths, the line between the two realms of value creation—helping to make the business profitable and helping to keep the planet well—begins to blur. As I’ve noted, business competencies can reveal social possibilities. At the same time, sustainability work can inspire business improvements.

This can happen in very small ways—and small ways add up.

FOR DISCUSSION

1. How does UPS’s approach toward sustainability im-pact the triple bottom line? Be specific.

2. Which internal and external stakeholders are posi-tively and negatively affected by UPS’s approach to sustainability?

3. Which of the six general environmental forces influ-enced Mr. Kuehn’s approach toward sustainability? Discuss.

4. To what extent is UPS’s approach toward sustain-ability consistent with the four approaches to deciding ethical dilemmas?

5. Evaluate UPS’s approach toward sustainability against Carroll’s model of social responsibility shown in Figure 3.2.

6. How does UPS’s approach toward sustainability “pay off”? Discuss.

Source: Extracted from Kurt Kuehn and Lynette McIntire, “Sustainability a CFO Can Love,” Harvard Business Review, April 2014, pp. 66–74.