1. Which of the following is a concern employees of an expanding business would have?
Passage to Answer the Question
Ethics is simply the principles of right and wrong and the morality of the choices involved.
Now, it’s also important to define what ethics is not. Ethics is not emotions or religion. It’s not science or norms of a society, necessarily. It’s also not simply following the law, because it’s perfectly acceptable to follow the law yet be an unethical person.
term to know Ethics The principles of right and wrong and of the morality of the choices
1a. Business Ethics
Business ethics is closely tied to what ethics is. It’s the principles of right and wrong of the morality of the choices made in the business world. Essentially, what we’re doing is taking the principles or the definition of ethics and applying it to business.
hint Whether you’re looking at business ethics or other types of ethics, ethical people will always follow the same ethical principles all the time, not just when it suits them.
term to know Business Ethics The principles of right and wrong and of the morality of the choices made in the business world
1b. Managerial Ethics Managerial ethics is simply ethics again. It is the principles of right and wrong and of the morality of the choices made in the context of management.
Managerial decisions impact employee behavior. How you hire or fire, the wages that you pay, or the working conditions at your business are all ethical decisions, and they can greatly impact employee attitudes and productivity.
Managerial ethics decisions can also impact behavior toward an organization. Do you have conflicts of interest or allow them? A conflict of interest is simply a circumstance in which the judgment of an individual or group may be impaired because of a difference in primary or secondary interest.
Is customer information kept confidential? Confidentiality is simply keeping private trusted data out of the hands of the public and other people who don’t need to see it.
think about it We hand our personal information, like credit card numbers, to a lot of different people online when we are shopping. What do you think it would do for a business if we suddenly found out that our information wasn’t as confidential as we thought it was? That would have a big impact on that particular business.
Collusion is an attempt by business to conspire to the detriment of customers, businesses, or the general public.
Lastly, managerial ethics decisions can also impact behavior toward economic agents, such as your customers or your competitors, stockholders, and suppliers. Competitors can take advantage of unethical behavior, and then customers may not want to do business with you anymore.
terms to know Managerial Ethics The principles of right and wrong and of the morality of the choices made in the context of management Conflict of Interest A circumstance in which the judgment of an individual or group may be impaired because of a difference in primary and secondary interest Confidentiality Keeping private trusted data out of the hand of the public and other people Collusion An attempt by businesses to conspire to the detriment of customers, other businesses, or the general public
A business assesses ethical behavior in the following ways:
There are also a set of ethical norms that are important to consider for each particular case involving a question of ethics:
As mentioned before, these need to be considered in each case, and each case is not always clear-cut. There are also other factors that may affect your decision, such as:
Keep in mind, these factors are by no means an exhaustive list.
Now, businesses can encourage or discourage ethical behavior. One of the ways they do this is through a written guide that defines the policies and standards of the business, which is called a code of conduct. This is an organizational set of rules that encourage responsibility and ethical behavior.
Businesses can also help set up an ethical environment. You see, businesses have to have an environment or a culture that encourages not only participation in the ethics program, but also rewards that participation and ethical behavior. One of the ways to do that is to have an employee representative that looks at each case and is responsible for the ethics of those decisions. The program should be company-wide; it shouldn’t be limited to one particular set of people within an organization. The size of the company is simply the scale of the program.
term to know
Code of Conduct Organizational rules to encourage responsible and ethical behavior
An ethical business person should do the following:
Understand different kinds of social responsibility and their benefits.
2.Which statement applies to the economic model of social responsibility?
The Passage to Answer this Question
Up until the 1930s, businesses were free to do virtually anything they wanted. They could make whatever claims they chose, put anything on a billboard, or put anything they wanted into the products that they sold to consumers.
did you know “Caveat Emptor” was the phrase of the day during this time period, which is a Latin phrase meaning “let the buyer beware.”
Around the time of the Great Depression, there were a plethora of economic problems. The president at the time, Franklin Delano Roosevelt, began a program of improving social conditions that has continued up until today.
Social responsibility is defined as the responsibility to act in a way that benefits society at large. In other words, it involves thinking not just of yourself, but of society as a whole. Companies must consider their impact on society because they play a big role in our everyday lives. They have to consider the consequences of their decisions–the potential benefit or detriment of those decisions to society as a whole.
term to know Social Responsibility The responsibility to act in a way to benefit society at large
1a. Two Models
There are two basic models of social responsibility:
Models of Social Responsibility Economic model Socioeconomic model In this model, society benefits when companies make profits. When companies make profits, they’re able to produce more product, which improves the lives of individuals. They’re also able to hire more people and pay them more, which provides jobs and allows employees to have a better standard of living. In this model, businesses have a responsibility to the stakeholders and society. The focus is not just on the profits, or the people “inside”; they need to consider the stakeholders as well.
Stakeholders are the people and parties directly affected by an organization. They can be any of the following:
Social Responsibility Advantages Disdvantages Can’t ignore social issues: Being socially responsible is really a part of business because it can increase profits, customers are more loyal, and people will want to invest in the business. Responsibility to shareholders: A manager’s primary job and responsibility are to the shareholders or the owners of the business. Therefore, anything that a manager does that distracts from that job takes away from the primary reason he or she is there. Have the resources to cause change: Businesses have resources that they can use to help solve some of these social issues–technically, financially, and managerially. Use resources for profit: Resources made by a business belong to the business, and they should be used to create profit, jobs, more resources and products for the community at large, and to increase employee morale and well-being. Creation of stable environment: By businesses helping, it creates a more stable environment for the rest of us. Social problems from society, not business: Businesses feel like this is not something that they should have to solve if they haven’t caused the problems in society. Decreases need for government intervention: If businesses are socially responsible to their stakeholders, this will decrease the need for government intervention with the business community and our everyday lives. Government accountable, not business: If government officials are falling down on the job, then they should be the ones held accountable, not necessarily the business.
As you can see, social responsibility isn’t just a catch phrase. It’s a lot of hard work, and the arguments for and against a company being socially responsible–depending on how you personally define it–are valid on both sides.
Let’s compare ethics to social responsibility because, clearly, there is some overlap between the two. To be ethical and to be socially responsible are very close to each other.
Ethics focuses on behaviors and actions–those individual things, similar to the concept of microeconomics.
Social responsibility involves a big-picture view. It’s how those ethical decisions as behaviors and actions affect the world at large–more like macroeconomics.
How do you balance the needs of the business with the needs of the other stakeholders that you can affect on an everyday basis?
Determine how social responsibility programs are implemented.
3.Which of the following represents ongoing leadership?
The Passage for this Question
A company can set up a social responsibility program to ensure that it acts in a socially responsible way. There are six different steps in setting up a social responsibility program:
step by step Step 0: Need Recognition: Let’s start with 0, because this first one is a pre-step, in a way. This step is need recognition, meaning that someone in the organization or a client notices that there’s a need for a social responsibility program, or that there is a deficiency in the company’s current social responsibility program. Step 1: Planning: This is where the goals and objectives, the funding, and the scope of the program come into play. Now, in planning this particular step, it’s vital that the leadership and the higher-ups in the company get involved. If a program–any program–is going to succeed, it must start from the top of the company. Step 2: Action: Next is action, or implementing the program. This involves getting the program started and off the ground. Step 3: Results: Then, you want to look at the results that the program is generating. It’s important to clearly identify measurable results that you can then track and observe, to see if you’re hitting your desired targets. Often, this is accomplished with a committee within the organization that is committed specifically to that program. Step 4: Ongoing Leadership: In this step, the company sets up a clear organization of responsibilities to the program to ensure it stays on track. Step 5: Follow-Through: Lastly, you want to check the program and make sure that it’s being followed. You’ll need to conduct audits, and when you find instances where the program isn’t succeeding as well as it should, you’ll need to alter and refine the practices that are involved, to ensure that the company stays on track. Now, these steps are going to be true regardless of what size company you have. With small businesses, it’s easy to get distracted by the day-to-day operation of the business. If you remember, partnerships and sole proprietors have limited resources on their hands, as far as personnel is concerned, so they’re going to be busy running the business. Keeping up with a recycling program in addition to those daily responsibilities can be a big distraction.
Larger businesses, however, have their own issues. Often, they’ll need to roll out the program in multiple phases and across different locations. For instance, if you have a recycling program that you’re trying to implement in stores across the country, that’s a big task and simply can’t be done all at once.
Now, what is change management? People get comfortable in certain situations, and they’re typically resistant to change. If you’re going to implement any type of change within an organization, you’ll need to manage that change.
We’ll cover this in much more detail in a later tutorial, but especially with a social responsibility program, it’s important to have a change management team to ensure that the program works and is accepted throughout the organization.
In this case, leadership is absolutely vital, and not just a leader for the team. You will need the approval and support of higher-ups and executive management in any company to help drive this change. If the leadership doesn’t set the tone and create an environment that is adaptable to the change, then it simply won’t happen.
Jake told Oliver that walking should be promoted as a part of a healthy lifestyle. Since they were developing a walking app, he wanted to promote exercise in their community. Jake explained his idea in which users could participate in a walking scavenger hunt. The registration fees could be donated to physical education programs at local schools.
Oliver loved the idea, and told Jake that they should implement that program when the app was introduced. They both wanted the company to provide a service and to be a leader in raising health awareness in the community. Social responsibility would be a priority for their company from its beginning.
4.Based on Oliver and Jake’s conversation, the company will take a(n) __________ stance towards social responsibility.
The Passage to answer this Question
There are different stances or responses that companies can have to social responsibility issues–or any change for that matter.
Stances Description Example Obstructionist An approach to social responsibility in which the organization actively tries to avoid, slow down, or stop social responsibility. The U.S. automotive industry is a good example of an obstructionist stance when it comes to the installation of seat belts in cars. When seat belt laws were first passed, requiring that they are installed in cars, the companies went out of their way to say that it was dangerous, or that it was too expensive. They tried every tactic to avoid, slow down, or stop this change from happening. Defensive An approach to social responsibility in which the organization will fight any allegations of social responsibility. This may involve statements along the line of, “No, I didn’t do that.” or “That didn’t really happen.” You might see the tobacco industry taking this type of a stance, in the way that they profess that they have no responsibility for what people do with their own bodies, and certainly no responsibility for the fact that people using tobacco are getting cancer. They are simply producing a product, and it ultimately up to people to choose to use that product or not. Accommodative An approach to social responsibility in which the organization goes beyond the minimal standards of social responsibility, but doesn’t necessarily seek to make major changes. In international trade, companies taking an accommodative stance abide by all the laws and ensure they’re not cheating anybody or doing something overt, but they’re not going to go out of their way to change the market in a way that might benefit the people who are producing the actual product for them. Proactive An approach to social responsibility in which the organization goes beyond the minimal standards of social responsibility by actively anticipating future issues. Recently, Ben and Jerry’s, the ice cream company, changed their entire recipe for Coffee Heath Bar Crunch. They stopped using Heath bars and sourced another producer who was engaged in free trade practices and used more organic material, something that was in line with Ben and Jerry’s stance on social responsibility. In doing this, they took a big risk of alienating people who eat that particular ice cream, but it was how that company wanted to act, and it fits their social responsibility stance.
It’s important to note that these stances may not occur in isolation. For instance, companies will generally take the same stance, but businesses may vary in their stance based on the specifics of their situation. Some departments, even within the same company, may take the same stance, but that stance may be different than others.
You can see that because of the difficulty involved in defining something as ambiguous as social responsibility, it can get a bit complicated, even within the same company that generally holds one particular stance on an issue.
Recognize both classic and modern examples of business ethics.
5.Which of the following was an aspect of the Enron scandal?
The Passage to this Question
Recall that ethics comprises the principles of right and wrong and the morality of the choices we make in everyday life.
Let’s explore two different case studies that serve as examples of unethical behavior at the company-wide level.
term to know Ethics The principles of right and wrong and of the morality of the choices Business Ethics The principles of right and wrong and of the morality of the choices made in the business world Managerial Ethics The principles of right and wrong and of the morality of the choices made in the context of management
Suppose you are an investor in 1999, and your broker approaches you with a great deal that you want to get in on. So far this year, the stock for this company has gone up 56%, beating the market by 36%. You think that is rather impressive, so you go ahead and buy it, putting all the money that you have into it.
The next year, in 2000, that stock goes up 87%. At this point, the sky’s the limit.
Well, that company was Enron, and it made a lot of people very wealthy for a while. The problem was that they weren’t doing it ethically.
Enron was an energy, commodities, and service business. They were in the business of providing, selling, and transmitting electricity and natural gas, among other things. The problems began when they started using something called mark-to-market accounting in the early 1990s. Mark-to-market accounting is an accounting practice that–while perfectly legal at the time–had never been used for Enron’s particular sector.
hint Suppose, for instance, you have a security, bond, or stock. Using mark-to-market accounting, you can account for the entire future value of that stock on today’s financials. Meaning, all the future value of that stock, you would count today. However, this is the only time you can take that income; you can’t use it again in the future.
Well, Enron was using mark-to-market accounting to hide the failures in their business. They were hiding the debt they had incurred. This created a huge problem for them. As a matter of fact, in 2000, the press finally started to notice and began to dig deeper into Enron’s books. Suddenly people realized that they had no idea how Enron was making their money.
At this point in the story, Arthur Andersen enters the picture. Arthur Andersen was the accounting firm that did the books for Enron. Not only did they do the books for Enron, but they also consulted. This created a conflict of interest for Arthur Andersen. You see, having the same firm advise you on how to do your accounting and then turn around and audit those very same practices is probably not a good idea.
At this point, Enron was pressuring the CEO of Arthur Andersen to make their calculations work and to hide things from the general public on their annual statements.
After Enron collapsed in 2000, the CEO of Enron, Jeffrey Skilling, and a few other people from that company went to jail. The company went into bankruptcy, and the stockholders were devastated.
did you know The demise of Enron also resulted in the creation of the Sarbanes-Oxley Act. This act requires company executives of any publicly-traded company to personally sign the annual statements to the stockholders, certifying them as true under penalty of law. Therefore, if something is amiss in the financials, and the CEO knows about it and signs his or her name, he or she is automatically going to jail. This act cracked down on conflict of interest situations like the one that happened with Arthur Andersen.
So, circling back to the fall of Enron, suppose, once again, that it’s 2000, you own that stock, and you’re up 100+ percent. Then, the collapse occurs. The beginning of the graph below shows August of 2000. The end of the graph is January 2002. Enron lost $90.00 and change in a two-year period. 3. Modern Example: Rana Plaza
The Rana Plaza building in Bangladesh was owned by a man named Sohel Rana, who was an international shirt manufacturer, among other things. This was the business he owned in this particular building–manufacturing shirts to be sold on a worldwide stage.
So, Rana would make the shirts there, taking advantage of the country’s cheap labor, and crank out shirts at a ridiculously low price in order to undersell the competition internationally. Of course, this attracted buyers from all over the world.
In April of 2013, people ran from the building in terror after hearing explosion-like sounds inside. An evacuation was ordered after an engineer inspected the building and deemed it unsafe. Now, the problem with the building was that it was never engineered or designed to house a factory. In addition, it was illegally raised from one story to five stories a few years earlier. Do you see an issue yet?
The Rana employees were forced to return to work, despite the building being unsafe. Mr. Rana himself had a press conference on the bottom floor of the building on April 24, 2013. He assured everyone that everything was fine, that it was just the plaster cracking. He claimed that the engineers had no idea what they were talking about.
On April 24, everyone went back to work. A generator on the roof started, which sent vibrations through the building, and the building collapsed. Over 1,100 people lost their lives in that collapse. Not only did all of these people perish, but there were 2,500 injured, and it sent the global market into disarray for shirt manufacturers.
Determine the considerations of business and trade.
6.Which of the following is an example of a trade deficit?
The Passage of this Question
The way countries trade is based on a couple of key concepts.
Think about Saudi Arabia and oil. They have an absolute advantage because they can produce more oil with the same amount of resources as other countries around the world.
Consider China and shirt manufacturing. There’s less of an opportunity cost loss in China to manufacture shirts than other places around the world, which is one way to think of it. 2. Balance of Trade
When thinking about trade between the products of two countries, we first need to consider the products in or out:
Trade surpluses occur when the balance of trade between two particular countries is in one country’s favor
Look at the graph below, which shows net imports and exports for Japan from 1979 to 2008. The imports are shown in red and the exports are in blue. 3. Globalization
Globalization is the expansion of business into international markets. Now, much of this is due to less restriction, both physical and nonphysical. We have better modes of transportation and fewer trade restrictions on countries around the world. It’s becoming a flattening world. 4. Business and Trade
Now, let’s discuss business and trade on an international level. International management of trade is rather unique. You see, products that work well at home may not necessarily work well overseas. You also have to consider the actual demand for that product you’re going to sell overseas, depending on the cultures and the norms of that particular nation. Will the product be accepted? Are there any changes that you have to make in packaging or marketing that will improve the acceptance of that product overseas?
Here are some other issues to consider in the context of business and trade:
Identify the influence of the World Bank on the global markets.
7.Which statement is true regarding global markets?
This the Passage for this Question
The global economy is centered around three main markets–not just physically, but also economically. Remember, it’s a connected world, so physical geography, at least as far as the markets go, tends to mean less and less. The three main markets are:
However, just because the world revolves around these markets, it doesn’t mean that they represent the whole picture.
The World Bank is an international banking organization connected to the United Nations. It is focused on developing poorer nations. In fact, to quote the World Bank, “We offer support to developing countries through policy advice, research and analysis, and technical assistance. Our analytical work often underpins World Bank financing and helps inform developing countries’ own investments.”
The World Bank does a lot of work as an agency of the United Nations. They examine per capita income, the wealth of nations, and they help develop poorer nations based on their own economic standing.
term to know World Bank An international banking organization connected to the United Nations and focused on developing poorer nations
The World Bank divides countries into different categories based on per capita income, which is defined as the average income of a group. In the World Bank’s case, this is calculated by taking the gross national income of a country, divided by the number of people living in that country. This determines how they divide countries into different categories, such as:
8. Understand how interactions with the global economy are regulated.
What would it be called if the United States government set a specific limit for the amount of coffee that can be imported into the country?
This is the Passage for this Question
One of the rules of the road for international trade is a tariff. A tariff is defined as any import or export tax that is placed on a group of products. International trade has increased in importance, and a lot of other nations are getting involved. As a matter of fact, you can see a globalized effort on the part of countries to get involved in international trade.
Tariffs are put in place to protect certain industries within a country. They can be revenue tariffs or protective tariffs. Another important concept to cover are quotas, which, in international trade, are limiting the amount of a good that can be traded to a specific amount or specific value. An embargo is a trade restriction that stops trade with a specific country.
A quota might dictate that you’re only allowed to import 100 million tons of sugar every year into the U.S. An embargo would be restricting any trade with Iran at all.
Another method that nations can use to help limit trade or create embargoes or quotas would be foreign exchange controls. Foreign exchange controls are restricting the use or import of currency within a nation. This is achieved by fixing a particular exchange rate within a country. They can ban the currency altogether from entering the country, or they can restrict the amount that can be used or the amount that can be possessed by its citizens. 2. Trade Restrictions
Trade restrictions are put in place to equalize the nation’s balance sheet–that balance of trade we discussed in an earlier tutorial. Trade restrictions can also help protect new or weak industries, like the sugar industry mentioned previously. It can be done for national security reasons or to protect the health of citizens. They are also used politically as a means of retaliation between nations. For instance, an embargo may be imposed to restrict the flow of material that can be used to produce nuclear power plants in Iran.
Lastly, countries can set up trade restrictions in order to protect new jobs or new, weak industries within that country. 3. Trade Agreements
Trade agreements are a trade treaty between nations which sets rates of tax and limit on any limit on restrictions. What is that, exactly? Basically, it’s an agreement between two countries that helps to encourage trade between those two nations. There are several trade agreements and trade alliances that exist, and before you enter into a particular international market, you would need to consider these particular trade alliances.
Some examples of these trade agreements are:
Note, more trade alliances exist, but this is simply an introduction to get you started. 4. Sourcing
Sourcing is determining the product location of goods based on external and internal variables. Companies will source different products around the world, depending on these factors. In fact, businesses often have whole departments or dedicated consultants that will focus solely on where to manufacture different products and where to source the resources needed to manufacture them. This can change from year to year.
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