The assigns punishments to companies whose employees are involved in forms of workplace deviance.

Chapter Title: Ethics and Social Responsibility

4-1. Workplace deviance - Must make a profit by ethical means - Involves making decisions that makes do or does the least harm; Rights and wrongs are rarely crystal clear - Ethics: A set of moral principles or values that defines right and wrong for a person or group. - Stats regarding business ethics: o 75% of employees trust the company they work for o 55% believe that management always tells the truth o 47% believe that CEOs can be believed o 25% trust business leaders to honestly correct mistakes o >20& believe that business leaders will be truthful and make ethical decisions o 22% of employees were pressured to commit unethical acts o 33% of employees have observed unethical behavior o 62% of employees observing unethical behavior reported it to company officials o 36% of those reporting unethical behavior experience retaliation for doing so o 24% of unethical behavior committed by senior managers o 60% of unethical behavior committed by managers of all kinds - More likely to stay with a company if you believe it is operating ethically o Honesty and communication are the most important qualities that employees seek in their company leaders. These are also the two qualities ranked highest regarding what business leaders needed to improve on. - Ethical behavior: Following accepted principles of right and wrong - Workplace deviance: Unethical behavior that violates organizational norms about right and wrong. - Workplace deviance may cost companies up to $4 trillion a year = 5% of revenue

• Production Deviance o Hurts the quality and quantity of work produced

o Examples: leaving work early, taking excessively long paid breaks, intentionally working slower, or wasting resources.

• Cyberloafing: Wasting time on the job with non-work related social media sites and apps. o Estimated to cost US businesses $85 billion a year in lost productivity
• Property deviance: Unethical behavior aimed at company property or products. o Examples: Sabotaging, stealing, or damaging equipment or products, and overcharging for services and then pocketing the difference.
• Employee shrinkage: When employees steal company merchandise o Accounts for 23% of theft from US retailers, costs almost $10 billion/year o Trend is decreasing
• Sweethearting: When employees discount or don’t ring up merchandise their family or friends bring to the cash register.
• Dumpster diving: Unload trucks, stash merchandise in a dumpster, and then retrieve it after work
• Political deviance: Using one’s influence to harm others in the company o Examples: decisions based on favoritism rather than performance, spreading rumors about coworkers, or blaming others for mistakes they didn’t make.
• Personal aggression: Hostile or aggressive behavior toward others. o Examples: Sexual harassment, verbal abuse, stealing from coworkers, or personally threatening coworkers.
• Workplace violence o Dropped significantly in the last 18 years o 2 incidents per 10,000 full-time retail workers & 4 incidents per 10,000 workers in non-retail jobs o 8% of workplace deaths are homicides

4-2. US Sentencing Commission Guidelines Manual for Organizations - Guidelines Manual established that companies can be prosecuted and punished for ethical misconduct, even if management didn’t know about the behavior. o Max. fines up to $600 million o Later changes resulted in much stricter ethics training requirements and emphasized the importance of creating a legal and ethical company culture.

4-2a. Who, What, and Why? - Nearly all businesses covered by manual o Nonprofits, partnerships, labor unions, unincorporated organization and associations, incorporated organizations, pension funds, trusts, and joint stock companies. - Guidelines cover offenses defined by federal laws such as invasion of privacy, price fixing, fraud, customs violations, antitrust violations, civil rights violations, theft, money laundering, conflicts of interest, embezzlement, dealing in stolen goods, copyright infringements, extortion, and more. - Meant to encourage companies to take proactive steps that will discourage crime before it happens. - Incentive to cooperate with and disclose illegal activities to the federal authorities

4-2b. Determining the Punishment - Smaller fines imposed on companies that take proactive steps to encourage ethical behavior or voluntarily disclose illegal activities to federal authorities.

o 25% ordered to develop compliance program o 90% ordered to pay fines (avg. of $2 million) o 36% ordered to pay restitution (avg. of $4 million)

4-3. Influences on Ethical Decision-Making - How do you arrive at an answer in order to manage ethical ambiguity?

4-3a. Ethical Intensity of the Decision - Ethical intensity: The degree of concern people have about an ethical issue - Six factors to be considered when determining the ethical intensity of an action: o Magnitude of consequences: The total harm or benefit derived from an ethical decision.  The more people who are harmed or the greater the harm to those people, the larger the consequences. o Social consensus: Agreement on whether behavior is bad or good. o Probability of effect: The chance that something will happen that results in harm to others. o Temporal immediacy: Time between an act and the consequences the act produces.  Stronger if a manager has to lay off workers next week as opposed to three months from now. o Proximity of effect: Social, psychological, cultural, or physical distance of a decision maker from those affected by his or her decisions.  Greater when a manager lays off employees he knows than when he lays off employees he doesn’t know. o Concentration of effect: How much an act affects the average person.  Example: Eliminating health care coverage for 100 employees has a greater concentration of effect than reducing the health care benefits for 1, employees by 10 percent.

• Managers are more likely to view decisions as ethical issues when the magnitude of consequences is high and there is a social consensus that a behavior or action is bad.

4-3b. Moral Development - Three phases of moral development o Preconventional: Making decisions based on selfish reasons o Conventional: Making decisions based on societal expectations. o Postconventional: Use personal ethical principles to solve ethical dilemmas  Only 20% of adults ever reach this stage, where internal principles guide their decisions. This means that most look to and need leadership when it comes to ethical decision-making in the workplace.

4-3c. Principles of Ethical Decision-Making (using Chimerix case study) - Principle of long-term self-interest: You should never take any action that is not in your or your organization’s long-term self-interest. o Eating well vs. eating fast food, which is better in the long-term? o Chimerix study:  For a small company like Chimerix, every development $ counts. When the child requested the drug, Chimerix had no FDA-approved drugs, only had investor funding, and suffered from a $173 million deficit.  Distributing experimental drugs for free represents a significant donation. It is very costly.  Based on long-term self-interest, Chimerix should refuse individual requests for its experimental drugs. - Principle of religious injunctions: You should never do something that is unkind or that harms a sense of community, such as positive feelings that come from working together to accomplish a commonly accepted goal. o Chimerix study:  Chimerix would have given Josh the treatment, even if it would have damaged the company financially. - Principle of government requirements: The law represents the minimal moral standards of society, so you should never take any action that violates the law. o Chimerix study:  No drugs were FDA-approved  Chimerix should deny the child’s request because he was not enrolled in the trials and could not legally receive the drug. - Principle of individual rights: You should never take an action that infringes on others’ agreed- upon rights. o Chimerix study:  The significant cost of donating the drug to Josh would infringe on the individual rights of investors (who expect their funds to be used prudently to produce a reasonable financial return), and patients who were already enrolled in Phase III trials (who might not receive treatment because of limited supply).  Chimerix should not give Josh Hardy the treatment. - Principle of personal virtue: You should never do anything that is not honest, open, and truthful and that you would not be glad to see reported in the newspapers or on TV. o Chimerix study:

• Managers must sponsor and be involved in ethics training to create ethical company culture
• First objective of ethics training: Develop employees’ awareness of ethics. o Help employees recognize which issues are ethical and avoid rationalizing unethical behavior o Board games, videos, and guest speakers are ways to improve awareness
• Second objective: Achieve credibility with employees o Employees complain that ethics programs taught by instructors or consultants from outside the company do not teach any material relevant to their jobs and practical, daily dilemmas o Ethics training is more credible when top managers teach the initial ethics classes to their subordinates who in turn teach their subordinates. o Co-founders, Presidents, and CEOs talking has a bigger and more personal impact on new employees
• Third objective: Teach employees a practical model of ethical decision-making

4-4d. Ethical Climate - Employees in strong ethical cultures observe less abusive behavior, workplace discrimination, and sexual harassment than employees in a weak ethical culture. - Employees in strong ethical cultures are more likely to report misconduct. - First step to establishing an ethical climate: Top managers must act ethically. - Second step: Top management must be active in and committed to the company ethics program. o Consistently talk about the importance of ethics and participate in ethics programs. - Third step: Put a reporting system in place that encourages managers and employees to report potential ethics violations. o “Whistleblowing” now has better protections since the 2014 US Supreme Court ruling. o Confidential ethics hotlines are put in place

 Anonymous reporting is critical to avoid company retaliation towards an employee. Retaliation can occur within three weeks of reporting an ethical violation.

• Fourth step: Management to fairly and consistently punish those who violate the company’s code of ethics. o When employees believe they will be held accountable for wrongdoing, they are 12 times more likely to act ethically

4-5 To Whom are Organizations Socially Responsible? - Social responsibility: A business’s obligation to pursue policies, make decisions, and take actions that benefit society. - Shareholder model: The only social responsibility that businesses have is to maximize profits. o By maximizing profit, the firm maximizes shareholder wealth and satisfaction. o Socially irresponsible for companies to divert time, money, and attention from maximizing profits to social causes and charitable organizations.  Organizations cannot act as moral agents for all company shareholders  Undermines market efficiency - Stakeholder model: Management’s most important responsibility is the firm’s long-term survival, which is achieved by satisfying interests of multiple corporate stakeholders. - Stakeholders: Persons or groups with legit interest in a company. - Primary stakeholders: Groups on which the organization depends on for its long-term survival; they include shareholders, employees, customers, suppliers, governments, and local communities. o If relationship is terminated, company could be seriously harmed. - Secondary stakeholders: Influence or be influenced by the company (i. media and special interest groups). o Do not engage in regular transactions with the company and are not critical to its long- term survival. o Can affect public perceptions and opinions about socially responsible behavior. - Many economic commentators argue companies are only responsible to shareholders, while companies are now coming to believe they must be responsible to their stakeholders as well. o 85% of top-level managers believe its unethical to focus just on shareholders.

4-6. For What are Organizations Socially Responsible? - Economic responsibility: Making a profit by producing a product or service valued by society o Two or three bad financial quarters and you’re fired o 16-29 percent of CEOs of large companies are fired each year - Legal responsibility: Company’s social responsibility to obey society’s laws and regulations as it tried to meet its economic responsibilities. o Ex: Volkswagen admitted to using software to falsify emissions tests for vehicles with diesel engines, to which they agreed to pay $22 billion in settlements and fines in the US for. - Ethical responsibility: Company’s social responsibility to not violate accepted principles of right and wrong when conductive business. o Ex: Apple admitted to slowing down processors in older iPhones to extend battery life, to which they had to subsequently apologize for and offered replacement batteries at reduced prices. They did the right thing at the cost of $10 million in revenue.

Which of the following are examples of political deviance?

Which model holds that as long as a company is operating legally its only social responsibility is to maximize profits?

Which of the following is an example of whistle blowing?

Is a social responsiveness strategy in which a company accepts responsibility for a problem and does all that society expects to solve that problem?