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BUSINESS ETHICS Ethical Decision Making and Cases

TENTH EDITION

O. C. Ferrell University of New Mexico

John Fraedrich Southern Illinois University—Carbondale

Linda Ferrell University of New Mexico

Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States

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WCN: 02-200-203

To James Collins Ferrell and George Collins Ferrell.

—O.C. Ferrell

To Debbie FIBJ. —John Fraedrich

To Bruce and Becky Nafziger. —Linda Ferrell

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iv

FM TITLEBRIEF CONTENTS

4: Sustainability Challenges in the Gas and Oil Industry 424

5: New Belgium Brewing: Ethical and Environmental Responsibility 434

6: National Collegiate Athletic Association Ethics and Compliance Program 444

7: Google: The Quest to Balance Privacy with Profitss 458

8: Zappos: Delivering Customer Satisfaction 475

9: Enron: Questionable Accounting Leads to Collapse 486

10: Home Depot Implements Stakeholder Orientation 498

11: Frauds of the Century 508

12: Insider Trading at the Galleon Group 517

13: Whole Foods Strives to Be an Ethical Corporate Citizen 525

14: Apple Inc.’s Ethical Success and Challenges 537

15: PepsiCo’s Journey Toward an Ethical and Socially Responsible Culture 548

16: Ethical Leadership at Cardinal IG: The Foundation of a Culture of Diversity 563

17: Better Business Bureau: Protecting Consumers and Dealing with Organizational Ethics Challenges 572

18: Managing the Risks of Global Bribery in Business 583

19: Mattel Responds to Ethical Challenges 594

20: Best Buy Fights Against Electronic Waste 604

Index I-615

PART 1: An Overview of Business Ethics 1 1: The Importance of Business Ethics 1

2: Stakeholder Relationships, Social Responsibility, and Corporate Governance 28

PART 2: Ethical Issues and the Institutionalization of Business Ethics 57 3: Emerging Business Ethics Issues 59

4: The Institutionalization of Business Ethics 90

PART 3: The Decision-Making Process 125 5: Ethical Decision Making 126

6: Individual Factors: Moral Philosophies and Values 152

7: Organizational Factors: The Role of Ethical Culture and Relationships 181

PART 4: Implementing Business Ethics in a Global Economy 211 8: Developing an Effective Ethics Program 213

9: Managing and Controlling Ethics Programs 239

10: Globalization of Ethical Decision-Making 272

11: Ethical leadership 308

12: Sustainability: Ethical and Social Responsibility Dimensions 344

PART 5: Cases 380 1: Monsanto Attempts to Balance Stakeholder

Interests 382

2: Starbucks’ Mission: Social Responsibility and Brand Strength 396

3: Walmart Manages Ethics and Compliance Challenges 407

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v

FM TITLECONTENTS

Chapter 2: Stakeholder Relationships, Social Responsibility, and Corporate Governance 28 Chapter Objectives, 28 | Chapter Outline, 28

An Ethical Dilemma, 29

Stakeholders Define Ethical Issues in Business 31 Identifying Stakeholders, 32 • A Stakeholder Orientation, 33

Social Responsibility and Ethics 36 Issues in Social Responsibility 38 Social Responsibility and the Importance of a Stakeholder Orientation 40 Corporate Governance Provides Formalized Responsibility to Stakeholders 41

Views of Corporate Governance, 45 • The Role of Boards of Directors, 46 • Greater Demands for Accountability and Transparency, 46 • Executive Compensation, 47

Implementing A Stakeholder Perspective 48 Step 1: Assessing the Corporate Culture, 49 • Step 2: Identifying Stakeholder Groups, 49 • Step 3: Identifying Stakeholder Issues, 49 • Step 4: Assessing Organizational Commitment to Social Responsibility, 50 • Step 5: Identifying Resources and Determining Urgency, 50 • Step 6: Gaining Stakeholder Feedback, 50

Contributions of a Stakeholder Perspective 51 Summary 51 Important Terms for Review, 53 | Resolving Ethical Business Challenges 54 | Check Your EQ, 55

PART 1: AN OVERVIEW OF BUSINESS ETHICS 1

Chapter 1: The Importance of Business Ethics 1 Chapter Objectives, 1 | Chapter Outline, 1

An Ethical Dilemma 2

Business Ethics Defined 4 Why Study Business Ethics? 6

A Crisis in Business Ethics, 6 • Specific Issues, 7 • The Reasons for Studying Business Ethics 8

The Development of Business Ethics 9 Before 1960: Ethics in Business, 9 • The 1960s: The Rise of Social Issues in Business, 10 • The 1970s: Business Ethics as an Emerging Field, 11 • The 1980s: Consolidation, 11 • The 1990s: Institutionalization of Business Ethics, 12 •The Twenty-First Century of Business Ethics, 13

Developing an Organizational and Global Ethical Culture 14 The Benefits of Business Ethics 15

Ethics Contributes to Employee Commitment, 16 • Ethics Contributes to Investor Loyalty, 17 • Ethics Contributes to Customer Satisfaction, 17 • Ethics Contributes to Profits, 19

Our Framework for Studying Business Ethics 19 Summary 22 Important Terms for Review, 23 | Resolving Ethical Business Challenges, 24 | Check Your EQ, 25

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vi Contents

PART 2: ETHICAL ISSUES AND THE INSTITUTIONALIZATION OF BUSINESS ETHICS 57

Chapter 3: Emerging Business Ethics Issues 59 Chapter Objectives, 59 | Chapter Outline, 59

An Ethical Dilemma 60

Recognizing an Ethical Issue (Ethical Awareness) 61 Foundational Values for Identifying Ethical Issues 63

Integrity, 63 • Honesty, 63 • Fairness, 64 Ethical Issues and Dilemmas in Business 65

Misuse of Company Time and Resources, 66 • Abusive or Intimidating Behavior, 66 • Lying, 69 • Conflicts of Interest, 70 • Bribery, 70 • Corporate Intelligence, 71 • Discrimination, 73 • Sexual Harassment, 75 • Fraud, 76 • Consumer Fraud, 79 • Financial Misconduct, 80 • Insider Trading, 81 • Intellectual Property Rights, 82 • Privacy Issues, 83

The Challenge of Determining an Ethical Issue in Business 84 Summary 85 Important Terms for Review, 86 | Resolving Ethical Business Challenges, 87 | Check Your EQ, 88

Chapter 4: The Institutionalization of Business Ethics 92 Chapter Objectives, 92 | Chapter Outline, 92

An Ethical Dilemma 93

Managing Ethical Risk Through Mandated and Voluntary Programs 94 Mandated Requirements for Legal Compliance 96

Laws Regulating Competition, 97 • Laws Protecting Consumers, 101 • Laws Promoting Equity and Safety, 103

Gatekeepers and Stakeholders 105 Accountants, 105 • Risk Assessment, 106

The Sarbanes–Oxley (Sox) Act 106 Public Company Accounting Oversight Board, 108 • Auditor and Analyst Independence, 108 • Whistle- Blower Protection, 108 • Cost of Compliance, 109

Dodd–Frank Wall Street Reform and Consumer Protection Act 109

New Financial Agencies, 109 • Consumer Financial Protection Bureau, 110 • Whistle-Blower Bounty Program, 110

Laws That Encourage Ethical Conduct 111 Federal Sentencing Guidelines for Organizations 112 Highly Appropriate Core Practices 115

Voluntary Responsibilities, 116 • Cause-Related Marketing, 116 • Strategic Philanthropy, 117

The Importance of Institutionalization in Business Ethics 118 Summary 118 Important Terms for Review, 120 | Resolving Ethical Business Challenges, 121 | Check Your EQ,122

PART 3: THE DECISION- MAKING PROCESS 125

Chapter 5: Ethical Decision Making 126 Chapter Objectives, 126 | Chapter Outline, 126

An Ethical Dilemma 127

A Framework for Ethical Decision Making in Business 128

Ethical Issue Intensity, 128 • Individual Factors, 131 • Organizational Factors, 132 • Opportunity, 134 • Business Ethics Intentions, Behavior, and Evaluations, 137

Using the Ethical Decision-Making Model to Improve Ethical Decisions 138 Normative Considerations in Ethical Decision Making 139

Institutions as the Foundation for Normative Values, 140 • Implementing Principles and Core Values in Ethical Decision Making, 142

Understanding Ethical Decision Making 144 Summary 145 Important Terms for Review, 146 | Resolving Ethical Business Challenges, 147 | Check Your EQ, 148

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Contents vii

Chapter 6: Individual Factors: Moral Philosophies and Values 152 Chapter Objectives, 152 | Chapter Outline, 152

An Ethical Dilemma 153

Moral Philosophy Defined 154 Moral Philosophies 156

Instrumental and Intrinsic Goodness, 157 • Teleology, 158 • Deontology, 161 • Relativist Perspective, 162 • Virtue Ethics, 164 • Justice, 166

Applying Moral Philosophy to Ethical Decision Making 167 Cognitive Moral Development and Its Problems 168 White-Collar Crime 171 Individual Factors in Business Ethics 174 Summary 175 Important Terms for Review, 176 | Resolving Ethical Business Challenges, 177 | Check Your EQ, 178

Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships 181 Chapter Objectives, 181 | Chapter Outline, 181

An Ethical Dilemma 182

Defining Corporate Culture 183 The Role of Corporate Culture in Ethical Decision Making 185

Ethical Frameworks and Evaluations of Corporate Culture, 186 • Ethics as a Component of Corporate Culture, 188 • Compliance versus Values-Based Ethical Cultures, 189 • Differential Association, 191 • Whistle-Blowing, 192

Leaders Influence Corporate Culture 196 Power Shapes Corporate Culture, 196 • Motivating Ethical Behavior, 198 • Organizational Structure and Business Ethics, 199

Group Dimensions of Corporate Structure and Culture 202

Types of Groups, 202 • Group Norms, 204 Variation in Employee Conduct 205 Can People Control Their Actions Within a Corporate Culture? 206 Summary 207 Important Terms for Review, 208 | Resolving Ethical Business Challenges, 209 | Check Your EQ, 210

PART 4: IMPLEMENTING BUSINESS ETHICS IN A GLOBAL ECONOMY 211

Chapter 8: Developing an Effective Ethics Program 213 Chapter Objectives, 213 | Chapter Outline, 213

An Ethical Dilemma 214

The Responsibility of the Corporation as a Moral Agent 215 The Need for Organizational Ethics Programs 217 An Effective Ethics Program 219

An Ethics Program Can Help Avoid Legal Problems, 220 • Values Versus Compliance Programs, 222

Codes of Conduct 223 Ethics Officers 226 Ethics Training and Communication 227 Systems to Monitor and Enforce Ethical Standards 229

Continuous Improvement of an Ethics Program, 231 • Common Mistakes in Designing and Implementing an Ethics Program, 232

Summary 233 Important Terms for Review, 234 | Resolving Ethical Business Challenges, 235 | Check Your EQ, 236

Chapter 9: Managing and Controlling Ethics Programs 239 Chapter Objectives, 239 | Chapter Outline, 239

An Ethical Dilemma 239

Implementing Ethics Programs 241 The Ethics Audit 243 Benefits of Ethics Auditing 244

Ethical Crisis Management and Recovery, 247 • Measuring Nonfinancial Ethical Performance, 248 • Risks and Requirements in Ethics Auditing, 251

The Auditing Process 252 Secure Commitment of Top Managers and Board of Directors, 254 • Establish a Committee to Oversee the Ethics Audit, 255 • Define the Scope of the Audit Process, 255 • Review Organizational Mission, Values, Goals, and Policies and Define Ethical

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viii Contents

Priorities, 255 • Collect and Analyze Relevant Information, 258 • Verify the Results, 261 • Report the Findings, 262

The Strategic Importance Of Ethics Auditing 263 Summary 265 Important Terms for Review, 267 | Resolving Ethical Business Challenges, 268 | Check Your EQ, 269

Chapter 10: Globalization of Ethical Decision-Making 272 Chapter Objectives, 272 | Chapter Outline, 272

An Ethical Dilemma 273

Global Culture, Values, and Practices 274 Economic Foundations of Business Ethics 277

Economic Systems, 279 Multinational Corporation 283 Global Cooperation To Support Responsible Business 286

International Monetary Fund, 286 • United Nations Global Compact, 286 • World Trade Organization (WTO), 287

Global Ethics Issues 288 Global Ethical Risks, 288 • Bribery, 289 • Antitrust Activity, 292 • Internet Security and Privacy, 292 • Human Rights, 294 • Health Care, 294 • Labor and the Right to Work, 296 • Compensation, 297 • Consumerism, 298

The Importance of Ethical Decision Making in Global Business 299 Summary 301 Important Terms For Review, 302 | Resolving Ethical Business Challenges, 303 | Check Your EQ, 304

Chapter 11: Ethical leadership 308 Chapter Objectives, 308 | Chapter Outline, 308

An Ethical Dilemma 309

Defining Ethical Leadership 311 Requirements for Ethical Leadership 313 Benefits of Ethical Leadership 315 Ethical Leadership and Organizational Culture 316 Managing Ethical Conflicts 318

Conflict Management Styles, 319

Ethical Leaders Empower Employees 321 Ethical Leadership Communication 322

Ethical Leadership Communication Skills, 323 Leader–Follower Relationships in Communication 326

Ethics Programs and Communication, 327 • Power Differences and Workplace Politics, 328 • Feedback, 329

Leadership Styles Influence Ethical Decisions 329 The Radar Model 332 Summary 335 Important Terms for Review , 337 | Resolving ethical business challenges, 338 | Check Your EQ, 339

Chapter 12: Sustainability: Ethical and Social Responsibility Dimensions 344 Chapter Objectives, 344 | Chapter Outline, 344

An Ethical Dilemma 345

Defining Sustainability 347 How Sustainability Relates to Ethical Decision Making and Social Responsibility 347 Global Environmental Issues 349

Atmospheric, 350 • Water, 352 • Land, 354 Environmental Legislation 358

Environmental Protection Agency (EPA), 358 • Environmental Legislation, 359

Alternative Energy Sources 363 Wind Power, 364 • Geothermal Power, 364 • Solar Power, 364 • Nuclear Power, 365 • Biofuels, 365 • Hydropower, 365

Business Response to Sustainability Issues 366 Green Marketing, 368 • Greenwashing, 368

Strategic Implementation of Environmental Responsibility 369

Recycling Initiatives, 370 • Stakeholder Assessment, 371 • Risk Analysis, 371 • The Strategic Environmental Audit, 372

Summary 373 Important Terms for Review, 374 | Resolving Ethical Business Challenges, 375 | Check Your EQ, 376

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Contents ix

PART 5: CASES 380

Case 1: Monsanto Attempts to Balance Stakeholder Interests 382

Case 2: Starbucks’ Mission: Social Responsibility and Brand Strength 396

Case 3: Walmart Manages Ethics and Compliance Challenges 407

Case 4: Sustainability Challenges in the Gas and Oil Industry 424

Case 5: New Belgium Brewing: Ethical and Environmental Responsibility 434

Case 6: National Collegiate Athletic Association Ethics and Compliance Program 444

Case 7: Google: The Quest to Balance Privacy with Profitss 458

Case 8: Zappos: Delivering Customer Satisfaction 475

Case 9: Enron: Questionable Accounting Leads to Collapse 486

Case 10: Home Depot Implements Stakeholder Orientation 498

Case 11: Frauds of the Century 508 Case 12: Insider Trading at the Galleon Group 517 Case 13: Whole Foods Strives to Be an Ethical Corporate Citizen 525 Case 14: Apple Inc.’s Ethical Success and Challenges 537 Case 15: PepsiCo’s Journey Toward an Ethical and Socially Responsible Culture 548 Case 16: Ethical Leadership at Cardinal IG: The Foundation of a Culture of Diversity 563 Case 17: Better Business Bureau: Protecting Consumers and Dealing with Organizational Ethics Challenges 572 Case 18: Managing the Risks of Global Bribery in Business 583 Case 19: Mattel Responds to Ethical Challenges 594 Case 20: Best Buy Fights Against Electronic Waste 604 Index I-615

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x

This is the Tenth Edition of Business Ethics: Ethical Decision Making and Cases. Our text has become the most widely used business ethics book, with approximately one out of three business ethics courses in schools of business using our text. We were the first major business ethics textbook to use a managerial framework that integrates ethics into strategic decisions. Today in corporate America, ethics and compliance has become a major functional area that structures responsible managerial decision making. Now that ethics has been linked to finan- cial performance, there is growing recognition that business ethics courses are as important as other functional areas such as marketing, accounting, finance, and management.

Our approach is to help students understand and participate in effective ethical deci- sion making in organizations. We approach business ethics from an applied perspective, focusing on conceptual frameworks, risks, issues, and dilemmas that will be faced in the real world of business. We prepare students for the challenges they will face in understand- ing how organizational ethical decision making works. We describe how ethical decisions in an organization involve collaboration in groups, teams, and discussions with peers. Many decisions fall into grey areas where the right decision may not be clear and requires the use of organizational resources and the advice of others. Students will face many ethical challenges in their careers, and our approach helps them to understand risks and be pre- pared to address ethical dilemmas. One approach to business ethics education is to include only a theoretical foundation related to ethical reasoning. Our method is to provide a bal- anced approach that includes the concepts of ethical reasoning as well as the organizational environment that influences ethical decision making.

The Tenth Edition includes the most comprehensive changes we have made in any revision. Each chapter has been revised based on the latest research and knowledge avail- able. Throughout the book, up-to-date examples are used to make foundational concepts come to life. There are 11 new cases, and the other nine cases have been revised with all major changes occurring through the middle of 2013. The most significant change is the inclusion of two new chapters that cover topics which were included in previous editions but that we now believe need separate chapters. First, chapter 11 focuses on ethical leader- ship. It is not enough to just make good ethical decisions; every employee has the respon- sibility and opportunity to lead others. Second, chapter 12 is dedicated to sustainability.

PREFACE

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Preface xi

While sustainability is usually associated with social responsibility, ethical issues and deci- sions in this area are important to the long-term success of the organization.

Using a managerial framework, we explain how ethics can be integrated into stra- tegic business decisions. This framework provides an overview of the concepts, processes, mandatory, core, and voluntary business practices associated with successful business eth- ics programs. Some approaches to business ethics are excellent as exercises in intellectual reasoning, but they cannot deal with the many actual issues and considerations that people in business organizations face. Our approach supports ethical reasoning and the value of individuals being able to face ethical challenges and voice their concerns about appropriate behavior. Employees in organizations are ultimately in charge of their own behavior and need to be skillful in making decisions in gray areas where the appropriate conduct is not always obvious.

We have been diligent in this revision to provide the most relevant examples of how the lack of business ethics has challenged our economic viability and entangled coun- tries and companies around the world. This book remains the market leader because it addresses the complex environment of ethical decision making in organizations and prag- matic, actual business concerns. Every individual has unique personal principles and values, and every organization has its own set of values, rules, and organizational ethical culture. Business ethics must consider the organizational culture and interdependent relationships between the individual and other significant persons involved in organizational decision making. Without effective guidance, a businessperson cannot make ethical decisions while facing a short-term orientation, feeling organiza- tional pressure to perform well and seeing rewards based on outcomes in a challenging competitive environment.

By focusing on individual issues and organi- zational environments, this book gives students the opportunity to see roles and responsibilities they will face in business. The past decade has reinforced the value of understanding the role of business ethics in the effective management of an organization. Widespread misconduct reported in the mass media every day demonstrates that busi- nesses, governments, non-profits, and institutions of higher learning need to address business ethics.

Our primary goal has always been to enhance the awareness and the ethical decision-making skills that students will need to make business eth- ics decisions that contribute to responsible busi- ness conduct. By focusing on these concerns and issues of today’s challenging business environment, we demonstrate that the study of business ethics is imperative to the long-term well-being of not only businesses, but also our economic system.

6 Part 1: An Overview of Business Ethics

WHY STUDY BUSINESS ETHICS?

A Crisis in Business Ethics As we’ve already mentioned, ethical misconduct has become a major concern in business today. The Ethics Resource Center conducts the National Business Ethics Survey (NBES) of about 3,000 U.S. employees to gather reliable data on key ethics and compliance out- comes and to help identify and better understand the ethics issues that are important to employees. The NBES found that 45 percent of employees reported observing at least one type of misconduct. Approximately 65 percent reported the misconduct to management, an increase from previous years. 7 Largely in response to the financial crisis, business deci- sions and activities have come under greater scrutiny by many different constituents, including consumers, employees, investors, government regulators, and special interest groups. For instance, regulators carefully examined risk controls at JP Morgan Chase to investigate whether there were weaknesses in its system that allowed the firm to incur billions of dollars in losses through high-risk trading activities. In another investigation, regulators cited weaknesses in JP Morgan’s anti-money laundering practices. Regula- tors place large financial institutions under greater scrutiny with the intent to protect consumers and shareholders from deceptive financial practices. 8 Figure 1–1 shows the percentage of global respondents who say they trust a variety of businesses in various industries. Financial institutions and banks have some of the lowest ratings, indicating that the financial sector has not been able to restore its reputation since the most recent recession. There is no doubt negative publicity associated with major misconduct low- ered the public’s trust in certain business sectors. 9 Decreased trust leads to a reduction in customer satisfaction and customer loyalty, which in turn can negatively impact the firm or industry. 10

FIGURE 1–1 Global Trust in Industry Sectors

Source: Edelman Global Deck: 2013 Trust Barometer, http://www.edelman.com/trust-downloads/global-results-2/ (accessed January 30, 2013).

50%

50%

53%

58%

59%

62%

62%

65%

66%

69%

77%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Financial Services

Banks

Media

Energy

Pharmaceuticals

Brewing and spirits

Telecommunications

Consumer packaged goods

Food and beverage

Automotive

Technology

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xii Preface

PHILOSOPHY OF THIS TEXT

The purpose of this book is to help students improve their ability to make ethical decisions in business by providing them with a framework that they can use to identify, analyze, and resolve ethi- cal issues in business decision making. Individual values and ethics are important in this process. By studying business ethics, students begin to under- stand how to cope with conflicts between their personal values and those of the organization.

Many ethical decisions in business are close calls. It often takes years of experience in a particu- lar industry to know what is acceptable. We do not, in this book, provide ethical answers but instead attempt to prepare students to make informed ethical decisions. First, we do not moralize by indicating what to do in a specific situation. Sec- ond, although we provide an overview of moral philosophies and decision-making processes, we do not prescribe any one philosophy or process as best or most ethical. Third, by itself, this book will not make students more ethical nor will it tell them how to judge the ethical behavior of others. Rather, its goal is to help students understand and use their

current values and convictions in making business decisions and to encourage everyone to think about the effects of their decisions on business and society.

Many people believe that business ethics cannot be taught. Although we do not claim to teach ethics, we suggest that by studying business ethics a person can improve ethical decision making by identifying ethical issues and recognizing the approaches available to resolve them. An organization’s reward system can reinforce appropriate behavior and help shape attitudes and beliefs about important issues. For example, the success of some cam- paigns to end racial or gender discrimination in the workplace provides evidence that atti- tudes and behavior can be changed with new information, awareness, and shared values.

CONTENT AND ORGANIZATION

In writing Business Ethics, Tenth Edition, we strived to be as informative, complete, acces- sible, and up-to-date as possible. Instead of focusing on one area of ethics, such as moral philosophy or social responsibility, we provide balanced coverage of all areas relevant to the current development and practice of ethical decision making. In short, we have tried to keep pace with new developments and current thinking in teaching and practices.

The first half of the text consists of 12 chapters, which provide a framework to identify, analyze, and understand how businesspeople make ethical decisions and deal with ethical issues. Several enhancements have been made to chapter content for this edition. Some of the most important are listed in the next paragraphs.

Chapter 1: The Importance of Business Ethics 15

and respond to ethical issues. In our book the term ethical culture is acceptable behavior as defined by the company and industry. Ethical culture is the component of corporate cul- ture that captures the values and norms an organization defines and is compared to by its industry as appropriate conduct. The goal of an ethical culture is to minimize the need for enforced compliance of rules and maximize the use of principles that contribute to ethical reasoning in difficult or new situations. Ethical culture is positively related to workplace confrontation over ethics issues, reports to management of observed misconduct, and the presence of ethics hotlines. 33 To develop better ethical corporate cultures, many businesses communicate core values to their employees by creating ethics programs and appointing ethics officers to oversee them. An ethical culture creates shared values and support for ethical decisions and is driven by top management.

Globally, businesses are working closely together to establish standards of acceptable behavior. We are already seeing collaborative efforts by a range of organizations to estab- lish goals and mandate minimum levels of ethical behavior, from the European Union, the North American Free Trade Agreement (NAFTA), the Southern Common Market (MER- COSUR), and the World Trade Organization (WTO) to, more recently, the Council on Economic Priorities’ Social Accountability 8000 (SA 8000 ), the Ethical Trading Initiative, and the U.S. Apparel Industry Partnership. Some companies refuse to do business with organizations that do not support and abide by these standards. Many companies dem- onstrate their commitment toward acceptable conduct by adopting globally recognized principles emphasizing human rights and social responsibility. For instance, in 2000 the United Nations launched the Global Compact, a set of 10 principles concerning human rights, labor, the environment, and anti-corruption. The purpose of the Global Compact is to create openness and alignment among business, government, society, labor, and the United Nations. Companies that adopt this code agree to integrate the ten principles into their business practices, publish their progress toward these objectives on an annual basis, and partner with others to advance broader objectives of the UN. 34 These 10 principles are covered in more detail in Chapter 10 .

THE BENEFITS OF BUSINESS ETHICS

The field of business ethics continues to change rapidly as more firms recognize the bene- fits of improving ethical conduct and the link between business ethics and financial perfor- mance. Both research and examples from the business world demonstrate that building an ethical reputation among employees, customers, and the general public pays off. Figure 1–2 provides an overview of the relationship between business ethics and organizational per- formance. Although we believe there are many practical benefits to being ethical, many businesspeople make decisions because they believe a particular course of action is sim- ply the right thing to do as responsible members of society. Granite Construction earned a place in Ethisphere ’s “World’s Most Ethical Companies” for four consecutive years as a result of its integration of ethics into the company culture. Granite formulated its ethics program to comply with the Federal Sentencing Guidelines for Organizations and helped inspire the Construction Industry Ethics and Compliance Initiative. To ensure all com- pany employees are familiar with Granite’s high ethical standards, the firm holds six man- datory training sessions annually, conducts ethics and compliance audits, and uses field compliance officers to make certain ethical conduct is taking place throughout the entire