Practice, Engage, Apply • Problem-BasedLearningAssignments—Problem-Based Learning assignments encourage students to ask questions, think critically, solve problems and, if working in a group, engage with others Problem-Based Learning assignments help students assume responsibility for their own learning, helping them to exercise leadership, and facilitate their ability to apply their knowledge Students who actively participate in their own learning process are better able to link concept to application • Branching,Decision-MakingSimulations—Put your students in the role of manager as they make a series of decisions based on a realistic business challenge The simulations change and branch based on their decisions, creating various scenario paths At the end of each simulation, students receive a grade and a detailed report of the choices they made with the associated consequences included • VideoExercises—Explore a variety of business topics related to the theory students are learning in class Quizzes assess students’ comprehension of the concepts covered in each video • eText—Keeps students engaged in learning on their own time, while helping them achieve greater conceptual understanding of course material Combining resources, such as videos, that illuminate content, MyLab with eText provides students with a complete digital learning experience—all in one place This page intentionally left blank Practice, Assess, Apply with MyLab Intro to Business đ ãDynamicStudyModulesHelps students study effectively on their own by continuously assessing their activity and performance in real time Here’s how it works: students complete a set of questions with a unique answer format that also asks them to indicate their confidence level Questions repeat until the student can answer them all correctly and confidently Once completed, Dynamic Study Modules explain the concept using materials from the text These are available as graded assignments prior to class, and accessible on smartphones, tablets, and computers • WritingSpace—Better writers make great learners who perform better in their courses Designed to help you develop and assess concept mastery and critical thinking, the Writing Space offers a single place to create, track, and grade writing assignments, provide resources, and exchange meaningful, personalized feedback with students, quickly and easily Thanks to assisted-graded, and create-your-own assignments, you decide your level of involvement in evaluating students’ work And because of integration with Turnitin®, Writing Space can check students’ work for improper citation or plagiarism • LearningCatalytics™—Is an interactive, student response tool that uses students’ smartphones, tablets, or laptops to engage them in more sophisticated tasks and thinking Now included with MyLab with eText, Learning Catalytics enables you to generate classroom discussion, guide your lecture, and promote peer-to-peer learning with real-time analytics • ReportingDashboard—View, analyze, and report learning outcomes clearly and easily, and get the information you need to keep your students on track throughout the course with the new Reporting Dashboard Available via the MyLab Gradebook and fully mobile-ready, the Reporting Dashboard presents student performance data at the class, section, and program levels in an accessible, visual manner • LMSintegration—You can now link from Blackboard Learn, Brightspace by D2L, Canvas, or Moodle to MyLab Intro to Business Access assignments, rosters, and resources, and synchronize grades with your LMS gradebook For students, single sign-on provides access to all the personalized learning resources that make studying more efficient and effective ALWAYS LEARNING This page intentionally left blank FiFth Edition global Edition Michael R SoloMon Contributing Editor MaRy anne PoatSy Montgomery County Community College Kendall MaRtin Montgomery County Community College Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong Tokyo • Seoul • Taipei • New Delhi • Cape Town • Sao Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan Vice President, Business Publishing: Donna Battista Director of Portfolio Management: Stephanie Wall Portfolio Manager: Nicole Sam Vice President, Product Marketing: Roxanne McCarley Director of Strategic Marketing: Brad Parkins Strategic Marketing Manager: Deborah Strickland Product Marketer: Becky Brown Executive Field Marketing Manager: Adam Goldstein Field Marketing Manager: Lenny Ann Kucenski Editorial Assistant: Courtney Paganelli Acquisitions Editor, Global Edition: Tahnee Wager Managing Editor, Global Edition: Steven Jackson Manager, Media Production, Global Edition: M Vikram Kumar Senior Manufacturing Controller, Production, Global Edition: Trudy Kimber Product Marketing Assistant: Jessica Quazza Vice President, Production and Digital Studio, Arts and Business: Etain O’Dea Director of 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this information, including all warranties and conditions of merchantability, whether express, implied or statutory, fitness for a particular purpose, title and non-infringement In no event shall Microsoft and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from the services The documents and related graphics contained herein could include technical inaccuracies or typographical errors Changes are periodically added to the information herein Microsoft and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time Partial screen shots may be viewed in full within the software version specified Microsoft® and Windows® are registered trademarks of the Microsoft Corporation in the U.S.A and other countries This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation Pearson Education Limited KAO Two KAO Park Harlow CM17 9NA United Kingdom and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2018 The rights of Michael R Solomon, Mary Anne Poatsy and Kendall Martin to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 Authorized adaptation from the United States edition, entitled Better Business, 5th edition, ISBN 978-0-13-452274-6, by Michael R Solomon, Mary Anne Poatsy and Kendall Martin, published by Pearson Education © 2018 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners ISBN 10: 1-292-21819-3 ISBN 13: 978-1-292-21819-9 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 14 13 12 11 10 Typeset in Palatino LT Pro-Roman by Integra Software Services Printed and bound by Vivar in Malaysia Dedication To Rose —Michael R Solomon For my husband, Ted, who unselfishly continues to take on more than his fair share to support me throughout this process; and for my children, Laura, Carolyn, and Teddy, whose encouragement and love have been inspiring —Mary Anne Poatsy For all the teachers, mentors, and gurus who have popped in and out of my life —Kendall Martin This page intentionally left blank Brief Contents ChAPTeR About the Authors 15 Acknowledgments 16 Reviewers 17 New to the Fifth Edition 20 Letter from the Authors 21 Prologue 22 PART Human Resource Management ChAPTeR 10 Online Business and Technology Production, Operations, and Supply Chain Management 340 Mini ChAPTeR Business Communications ChAPTeR PART Economics and Banking 58 Ethics in Business Marketing and Consumer Behavior 90 ChAPTeR 14 152 Promotion and Distribution starting and struCturing a Business 162 Small Business and the Entrepreneur 162 prinCipLes of finanCe 488 Financing and Accounting for Business Operations 488 194 Mini ChAPTeR Constructing an Effective Business Plan 224 managing a Business and empLoyees 232 ChAPTeR 16 Investment Opportunities in the Securities Market 528 Mini ChAPTeR Personal Finance ChAPTeR 232 ChAPTeR Motivation, Leadership, and Teamwork 474 ChAPTeR 15 ChAPTeR Business Management and Organization 442 Mini ChAPTeR Finding a Job PART ChAPTeR PART 380 Product Development, Branding, and Pricing Strategies 412 120 Mini ChAPTeR Forms of Business Ownership 380 ChAPTeR 13 ChAPTeR Business in a Global Economy prinCipLes of marketing ChAPTeR 12 ChAPTeR PART 370 34 ChAPTeR Business Law 314 ChAPTeR 11 Looking at the Business environment 34 Business Basics 284 258 560 Appendix 572 Glossary 581 Index 595 Answer Key 624 ChAPTER 83 FIGUrE 2.12 Trend of Effective Federal Funds rate 1954–2016 20.0 Source: “Historical changes of the target Federal Funds and Discount Rates 1971– Present,” Federal Reserve bank of New York, http://www.ny.frb.org/ Retrieved from FReD, Federal Reserve bank of St Louis, https://fred.stlouisfed.org/series/FF, August 29, 2016 17.5 15.0 (Percent) Economics and Banking 12.5 10.0 7.5 5.0 2.5 0.0 1960 1970 1980 1990 FRED 2000 2010 Effective Federal Funds Rate of federal funds rates over the past several decades As you can see, the federal funds rate has been at a historically low of 25 percent for many years open Market operations What are open market operations? The primary tool the Fed uses in its monetary policy is open market operations, buying and selling U.S Treasury and federal agency bonds on the “open market.” The Fed does not place transactions with any particular security dealer; rather, securities dealers compete for federal transactions in an open market When the Fed buys or sells U.S securities, it is changing the level of monetary reserves in the banking system by adding or taking away money from the system When the Fed sells securities, reserves are reduced to pay for the securities (money is said to be “tight”), and interest rates rise However, when the Fed buys securities, it adds reserves to the system (money is said to be “easy”), and interest rates drop Lower interest rates help stimulate the economy by decreasing people’s desire to save and increasing their demand for loans, such as home mortgages Using open market operations is probably the most influential tool the Fed has to alter money supply To make their decision about whether to buy a home, Nick and Jacinta would benefit by paying attention to the Fed’s monetary policies If the Fed buys securities, it’s likely that interest rates for mortgage loans will fall Additionally, Nick and Jacinta can look to the discount rate and the federal funds rate News about the lowering of the discount rate will signal that banks might have funds available to lend out at potentially lower rates Although the federal funds rate does not have a direct impact on mortgage rates, it does have an indirect effect because interest rates respond to economic growth and inflation Reports on the news that the Fed is striving to change the federal funds rate will indicate to Nick and Jacinta whether it’s likely that interest rates will increase or decrease in the near future This in turn can help them determine the best time to buy a home Chapter summary 2-1 increase with a duopoly, or an oligopoly, in which two or a few sellers exist, respectively Monopolistic competition is characterized by many sellers that sell slightly different products at slightly different prices This increases the supply of the products and choices for consumers Similarly, there are many sellers in perfect competition, which also increases the supply of a good or service In a perfectly competitive market, the product being sold is virtually identical across suppliers and sells for the same price No single producer is able to affect the price at which the product is sold Define economics, and describe the different types of economic systems • Economics is the study of how individuals and businesses make decisions to best satisfy wants, needs, and desires with limited resources and how efficiently and equitably resources are allocated • There are different types of economic systems • A planned economic system is a type of economy in which the government has more control over what is produced, the resources to produce the goods and services, and the distribution of the goods and services Commu nism and socialism are planned economic systems • In market economies which are characterized by capitalism, individuals and private firms make the decisions about what to produce and how goods and services are distributed • Most modern economies in the Western world are mixed economies, which are a blend of market and planned economies 2-2 Explain the principles of supply and demand, and describe the factors that affect each principle • Supply refers to how much of a good or service is available The amount of it supplied will increase as its price increases Supply is affected by five factors: • Technology changes • Changes in resource prices • Price expectations • The price of substitute goods • The number of suppliers • Demand refers to how much people want to buy of a product at any given time The amount demanded increases as a product’s price declines Demand is affected by five factors: • Changes in income levels • Consumer preferences • Changes in population • Changes in the prices of substitute or complementary goods • Changes in expectations 2-3 Describe the various degrees of business competition • There are several degrees of competition, including monopoly, oligopoly, duopoly, monopolistic competi tion, and perfect competition • In a monopoly, where only one seller supplies a good or service, supply may be limited The supplies may 84 2-4 Explain how the various economic indicators— particularly the gross domestic product (GDP), price indices, the unemployment rate, and productivity—reflect the health of an economy • The gross domestic product (GDP) measures the overall market value of final goods and services produced in a country in a year GDP is an important economic indicator of an economy’s productivity and health When a nation’s GDP goes up, the country’s economy is moving in a positive direction • The consumer price index (CPI) and producer price index (PPI) are indicators of inflation or deflation • The CPI tracks changes in prices over time by measuring changes in the prices of goods and services that represent the average buying pattern of urban households • The PPI tracks the average change in prices of those goods sellers use to create products, such as raw materials and product components that require further processing, and finished goods sold to retailers • The unemployment rate is watched as an indicator of how well the economy is performing If unemployment is high, the economy is not using all of its resources and is probably experiencing a downturn An increasing unemployment rate generally has a corresponding increase in government spending on social policies (such as welfare and unemployment payments) • Increasing productivity means that a firm’s existing resources are producing more, which generates more income and more profitability 2-5 Describe the four stages of the business cycle, and explain how the government uses both fiscal policy and monetary policy to control swings in the business cycle • The four stages of the business cycle are the peak, recession, trough, and expansion or recovery • The government’s fiscal policy determines the appropriate level of taxes and government spending An increase in taxes translates into lower consumer ChAPTER spending and helps contain an economy that is growing too quickly Lowering taxes will stimulate spending and help boost a sluggish economy Economics and Banking 85 • The Federal Reserve System is responsible for the monetary policy of the United States The Fed keeps the economy from experiencing severe negative or positive swings by controlling the money supply through open market operations and by making changes in banks’ reserve requirements and changes in the discount rate • Monetary policy is the means by which the Federal Reserve manages to control inflation by changing interest rates, buying and selling government securities, or trading in foreign exchange markets Key terms business cycle capitalism communism complementary goods consumer price index currency cyclical unemployment deflation demand demand curve depression determinants of demand determinants of supply discount rate disinflation duopoly economic indicators economics economy equilibrium price federal funds rate Federal Open Market Committee Federal Reserve System fiscal policy frictional unemployment gross domestic product inflation law of supply M-1 M-2 M-3 macroeconomics market market economy market price microeconomics mixed economy monetary policy money supply monopolistic competition monopoly oligopoly open market operations perfect competition planned economic system privatization producer price index productivity recession reserve requirement seasonal unemployment shortage socialism structural unemployment substitute goods supply supply curve surplus unemployment rate MyLab Intro to Business To complete the problems with the MyLab Intro to Business , go to EOC Discussion Questions in the self test Multiple Choice You can find the answers on the last page of this text 2-1 Which of the following is a good example of microeconomics? a How a specific company would maximize its production and capacity so it could better compete in its industry 2-2 There are four coffee shops in your town All of them claim to have the “freshest-tasting coffee.” Each shop advertises the unique benefits of its coffee and prices This is an example of a pure monopoly b How an increase in the unemployment rate would affect a country’s GDP b monopolistic competition c How a decrease in taxation affects consumer spending d an oligopoly d All of the above c a regulated monopoly 86 PART onE Looking at the Business Environment 2-3 Jeannette has a successful organic spa busi- ness in which she gives massages, facials, and organic body treatments Last summer, another organic spa opened up in town The supply curve for Jeanette’s business would shift in which direction? a To the right b To the left c No change would occur d There is a shift along the demand curve only 2-4 How does a positive change to the determinants of demand affect the supply curve? a It shifts it to the left 2-8 At which point of the business occurs when an economic expansion is at its most robust point? a Recession b Trough c Recovery d Peak 2-9 Which of the following statements show that the link between taxation and inflation are incorrect? a Higher taxes translate into consumers spending less money b Spending less means that business growth is slowed b It shifts it to the right c The economy is slowed down by increasing the amount of money in the system c It has no affect d If the economy is slowed down, inflation is lowered d It depends on other determining factors 2-5 Which of the following indicators of economic growth is the most widely used by countries worldwide? 2-10 At which point in the business cycle is the econ- omy when GDP declines for two or more successive quarters? a Peak a Balance of Trade b Recession b GNP c Trough c GDP d Expansion or recovery d Interest Rates 2-6 Which of the following statements is true in relation to CPI? a It is a lagging indicator, so it shifts after the economy changes b It is a benchmark used to track changes in the demand for products and services c It measures changes in demand by creating a “market basket.” d It is calculated by combining prices of goods and services and working out an average cost 2-7 What type of unemployment occurs when firms must cut back their workforces when there is a downturn in the business cycle? a Frictional b Seasonal c Cyclical d Structural True/False You can find the answers on the last page of this text 2-11 Microeconomics is the study of the behavior of the overall economy True or False 2-12 The reserve requirement is the maximum amount of money banks must hold in reserve to give depositors who may want to withdraw it True or False 2-13 Sweden, with its high taxes and widespread gov- ernment programs, is a good example of a market economy True or False 2-14 The market price is the price at which supply equals demand True or False 2-15 M-3 is M-1 and M-2, plus less liquid funds True or False Critical Thinking Questions 2-16 To smooth out swings in the business cycle, the government influences the economy through its fiscal and monetary policies Compare and contrast the monetary and fiscal policies of the United States 2-17 The U.S Postal Service and Amtrak are examples of large organizations operated by the federal government Discuss the pros and cons of privatizing these businesses ChAPTER 2-18 The text defines GDP as a measurement of economic activity Think about other things that may “help” the GDP that are really not good for our society in general, such as the economic activity required to clean up oil spills or increases in consumer debt to buy more goods In addition, 87 there are other situations that may “hurt” the GDP by limiting expenditures on items but help the overall good of society, such as reusing plastic bags or installing solar water heaters (thus limiting spending on oil, gas, or electricity) Does the definition of GDP need to be revised? team time ThE GrEaT DEBaTE Your instructor will divide the class into three groups and assign each group one of the following debate topics Once in your group, divide the group into two smaller groups to prepare stances on your assigned debate issues Debate Topics 2-19 In 2009, the government bailed out several large banks and automotive and insurance firms in an effort to thwart a huge financial crisis Were the government’s actions successful? 2-20 Minimum-wage laws were introduced in the 1930s to protect workers after the Great Depression Whether to increase the minimum wage continues to be an animated topic of discussion What impact does increasing the minimum wage have on small business owners? Does increasing the minimum wage benefit the worker, or does it ultimately result in higher unemployment? 2-21 Taxation and tax cuts are fodder for volatile debate among political leaders Many of them claim that tax cuts help strengthen the economy by freeing up money to increase spending Others claim that past tax cuts have not had a positive effect on the economy, have caused greater stress on the government’s budget, and have reduced the government’s ability to spend on important public needs Do tax cuts benefit the economy? Process Step After dividing your group into two debate sides, meet separately to dis- cuss the issues of the debate Step Group members should then individually prepare their responses to their side of the debate issue Step Gather your smaller groups and discuss the responses provided by each group member Develop a single list of responses Step Determine who will be the group’s primary spokesperson for the debate Step Each group will be given five minutes to present its side of the issue After each group has presented its argument, each team will be given five minutes to prepare a rebuttal and then three minutes to present the rebuttal Step Repeat this process with the other groups Economics and Banking 88 PART onE Looking at the Business Environment Ethics and corporate social Responsibility EConoMIC InEQUaLITy Economic inequality refers to the differences of assets and income among groups It has long been the subject for great discussion and can refer to the inequality among individuals, city/rural areas, countries, or economic structures Questions for Discussion 2-22 How you define economic equality? For example, is economic equality simply making sure everyone has equal income, or is it enough to provide all equal opportunity to earn income? 2-23 Is economic equality feasible? Would other problems result from economic equality? 2-24 One method used to measure differences in national income equality around the world is the national Gini coefficient Research the Gini coefficient Which countries have the most equality? Which have greater inequality? 2-25 What other methods could be used to measure economic equality? Web Exercises 2-26 2-27 2-28 you do? What are the important variables? How does this game illustrate the effects of supply and demand? Getting Acquainted with Your Local Federal Reserve Bank What Federal Reserve Bank branch is nearest your home or school? Go to the website of your local Federal Reserve Bank and outline its latest policies What kind of information does the website give you? 2-29 AT&T and Antitrust Regulations Watch the video “AT&T History” by Stephen Colbert, which is posted on YouTube Then look at a more complete diagram of the outcomes of the forced breakup of AT&T in 1984 on the Quest Communications page on Wikinvest Briefly describe the government’s rationale for forcing the breakup of AT&T in 1984 and then comment on the subsequent corporate actions by AT&T and the “Baby Bells.” How have these corporate actions impacted the communications industry? Pro Sports and the Economy How professional sports and the economy interact? Play Peanuts and Crackerjacks on the Boston Federal Reserve Bank’s website (under Education Resources: Games and Online Learning) and test your knowledge of basic economic principles in the context of professional sports Write a brief summary of your experience What did you learn from playing the game? 2-30 Monetary Policy: You’re in Control How would it feel to be in control of the monetary policy for a country? Go to the Federal Reserve Bank of San Francisco website and under Student Activities find the Fed Chairman Game In this game, you act out the role of a fictitious central bank by implementing monetary policy in a simple virtual economy so you can get a feel for the options and limitations of monetary policy Write a brief summary of your experience What did you learn from playing the game? Learning More about Supply and Demand Find the Supply and Demand Game on Shmoop.com and play a round or two Using information you learned from this chapter, discuss your experience How did ChAPTER Economics and Banking 89 MyLab Intro to Business Go to the Assignments section of your MyLab Intro to Business to complete these writing exercises 2-31 How have the Kindle and the iPad affected the supply and demand for newspapers and other printed material (such as textbooks)? Discuss the impact of technology on those industries that produce printed information 2-32 The text describes how a monopoly occurs when a provider of a service or good has control of all or nearly all of its market Using this definition, consider whether professional sports leagues such as the National Football League, Major League Baseball, and the National Hockey League are monopolies or whether these leagues consist of a group of individual companies that operate under a single governing entity Consider players’ salaries, contract negotiations, and ticket sales in your answer What are the implications if these professional sports leagues are monopolies? References Average tax rate is defined as total tax revenue divided by gross domestic product See “Taxes and Other Revenues,” in CIA World Factbook, www.cia.gov/library/publications/ the-world-factbook/rankorder/2221rank.html (Country Comparisons: Taxes and Other Revenues n.d.), accessed April 6, 2016) Ruut Veenhoven, “World Database of Happiness,” http://worlddatabaseofhappiness.eur.nl (accessed April 6, 2016) U.S Department of Justice, “Justice Department Requires US Airways and American Airlines to Divest Facilities at Seven Key Airports to Enhance System-Wide Competition and Settle Merger Challenge,” November 12, 2013, http:// www.justice.gov/opa/pr/2013/November/13-at-1202 html (accessed April 6, 2016) Vanessa Wong “With Keurig 2.0, Green Mountain Wants Its Monopoly Back,” Bloomberg Businessweek, March 11, 2014, www.businessweek.com/articles/2014-03-11/greenmountain-releases-keurig-2-dot-0-to-help-restore-itsmonopoly (accessed April 6, 2016) The World Bank, Table: Central government debt, total (% of GDP), http://data.worldbank.org/indicator/GC.DOD TOTL.GD.ZS/countries (accessed April 6, 2016) Bureau of Labor Statistics, “Frequently Asked Questions, Question 6,” www.bls.gov/cpi/cpifaq.htm#Question_6 Bureau of Labor Statistics, “Table 1: Relative Importance of Components in the Consumer Price Indexes: U.S City Average,” December 2010, www.bls.gov/cpi/cpiri2010.pdf Allison Schrager, “The Great Debate,” Reuters, August 28, 2013, http://blogs.reuters.com/greatdebate/2013/08/28/five-years-after-recession-we-stillcant-agree-on-what-causes-joblessness “Historical Inflation,” www.inflationdata.com/Inflation/ Inflation_Rate/HistoricalInflation.aspx 10 “The U.S Inflation Rate—1948–2007,” www.miseryindex us/irbyyear.asp 11 Sam Mamudi, “Lehman Folds with Record $613 Billion Debt—MarketWatch,” Wall Street Journal, September 15, 2008, www.marketwatch.com/story/ lehman-folds-with-record-613-billion-debt?siteid=rss 12 “Humbled GM Files for Bankruptcy Protection Business Autos Msnbc.com,” June 1, 2009, www msnbc.msn.com/id/31030038/ns/business-autos/t/ humbled-gm-files-bankruptcy-protection 13 Teresa Sullivan, “Bankruptcy Statistics 1980–2010,” www bankruptcyaction.com/USbankstats.htm Chapter Ethics in Business OBjEctivEs 3-1 Ethics: The Basics Describe ethics and the systems of ethical conduct, and illustrate how someone can create a personal code of ethics Ethics and business—many people consider these terms to be unrelated How can you maintain your own personal integrity while still fulfilling your business responsibilities? Examining your own personal ethical code is the first step in successfully navigating this potentially tricky terrain 3-2 Personal Ethics Meets Business Ethics Explain how personal ethics might play a role in the workplace and what resources one may use to evaluate a company’s ethical code Randy Marks had a recipe for success with his pottery business, but it went against his personal beliefs What you if your own ethics conflict with your business success? 3-3 Corporate Social Responsibility Analyze the ways in which a company’s policies and decisions affect its achievement of corporate social responsibility, and discuss the challenges it may face in balancing the demands of social responsibility with successful business practices Although the primary focus in business seems to be on making money, many businesses also make meaningful contributions to the social, environmental, and economic development of the world CEO Howard Schulz runs Starbucks with a mission to be a company with values and guiding principles that his employees could be proud of How can such a lofty goal lead to amazing profits and growth? 3-4 Dangers of a Weak Ethical Focus Summarize how legal compliance affects ethical conduct, and describe some strategies a company can use to recover from ethical lapses Of course, DVDs are copyrighted, but with a big trade show coming up, Lana’s project team needed to rip some videos to hard drives for testing Who would it hurt, after all? Sometimes it seems that if you break ethical standards just a bit, you’ll come out ahead But does it really pay in business to ignore ethics? Or good guys come out ahead? 3-5 Business Opportunities Created by Ethical Needs Identify ways in which companies can apply ethical standards to create new business opportunities Richard Stephenson saw a need—more compassionate medical care that was still state of the art in terms of its quality By creating new markets based on ethical needs, many companies like Stephenson’s reap financial rewards, improve employee morale, and make valuable contributions to the world 3-6 How Businesses Develop an Ethical Environment List some approaches that a company can use to develop and maintain an ethical environment Unbelievable There they were—the once-frozen test tubes of samples, leaking all over the back delivery dock Rashid Divecha’s heart sank He needed to manage his client—and his bosses—in an ethical way But what did that mean exactly? CHAPTER Objective 3-1 Ethics: the Basics Describe ethics and the systems of ethical conduct, and illustrate how someone can create a personal code of ethics When Tracy Bingham gets up each morning, he turns on SiriusXM Radio to listen to the Howard Stern broadcast, laughing along with the quips and jokes about stereotypes Next, Tracy grabs his keys and heads out the door to school As he leaves the line in the school cafeteria, he realizes that he received $20 in change instead of $1 and just keeps on walking He then heads into the photocopy room to duplicate his homework but discovers that the answer key to his next exam was left on the machine He shoves the answer key into his backpack, not sure what, if anything, he’ll with it Before the end of class, the professor compliments him in front of everyone for outstanding writing on his last paper Tracy knows the writing came from a friend in class but just nods in thanks That night, he thinks over the day, reviewing the choices he made along the way as he drifts off to sleep How Tracy’s personal ethics compare to your own? Source: ivelin Radkov/Fotolia Like Tracy, we all make ethical decisions every day We decide how we will act, which thoughts we will feed, and which we will dispel We make these decisions based on a set of beliefs about how the world works and what kinds of behaviors are rewarded These beliefs can be classified as our set of values In this chapter, we’ll see that businesses are similar in that they also have a set of values that guide their actions Let’s start by examining what ethics are and how we create a personal code of ethics Ethics Defined What exactly is ethics? Ethics is the study of the general nature of morals and the specific moral principles that govern a person’s behavior.1 In effect, ethics represents the guidelines you use to make decisions every day But not all people share the same ethics Many systems of ethical conduct exist Some are based on religious systems, some are cultural or national, and some have been passed from generation to generation within a specific ethnic group Systems of Ethical Conduct What are the different systems of ethical conduct? One ethical system is moral relativism, a perspective that holds that there is no universal moral truth; instead, there are only people’s individual beliefs, perspectives, and values This means that there is no single view that is more valid than any other Thus, no single standard exists to assess ethical truth According to moral relativists, each person has his or her own ideas of right and wrong, so no one should judge anyone else Imagine trying to organize any group of people—a family, a company, or a country—according to this ethical system 91 92 PART onE Looking at the Business Environment Another ethical system is situational ethics whereby people make decisions based on a specific situation instead of universal laws Joseph Fletcher, a Harvard Divinity School professor, developed the concept of situational ethics because he believed that applying the Golden Rule—treating others as you would like to be treated—was more important when it comes to making ethical decisions than applying complex sets of moral rules Because it challenged the idea that universal rules exist and can be applied to every situation, Fletcher’s ethical system was considered controversial Many other ethical systems exist, some of which are defined by religious traditions For example, Judeo-Christian ethics refers to the common set of basic values shared across both Jewish and Christian religious traditions These include respecting property and relationships, respecting one’s parents, and being kind to others Of course, people sometimes act in a manner that violates the beliefs they hold or the beliefs of the ethical system they say they follow Unethical behavior is defined as behavior that does not conform to a set of approved standards of social or professional behavior This is different from amoral behavior, in which a person has no sense of right and wrong and no interest in the moral consequences of his or her actions Personal Ethics What are personal ethics? Every day, you have thoughts that lead you to say and certain things As you choose your words and actions, you’re following a set of personal ethics, the principles that guide the decisions you make in your life Sometimes, people have a clear, well-defined set of principles that they follow Other times, a person’s ethics are inconsistent or are not applied the same way in every situation Still other times, people have not taken the time to clarify what they value most Sometimes, it seems clear that making an unethical decision will produce an immediate benefit This is when it is hardest to adhere to your own ethical system Consider this example: When applying for a dream job, a college senior exaggerates a bit on her résumé about her experiences and responsibilities during an internship to seem more qualified Is this lying, or is it justified behavior? Now consider how you treat property Say you bring home a few pads of paper, some pens, and a stack of blank Blu-rays from the supply closet at work Is this stealing? What if it were just one piece of paper you brought home? Some people would say it depends on whether you use the material to work at home What if you used some of it on work projects and some of it on personal projects? What if it wasn’t you who was taking office supplies but someone else with whom you work? It’s often easy to have one view when you’re taking the supplies and another when it’s the person you like least in the office taking the supplies How can I clarify what my personal ethics are? Taking the time to examine your personal ethical code is of great value If you have a clear idea of which values are most important to you, it will be easier to handle situations in your personal and professional life that require you to make complex ethical decisions ◼ TABLE 3.1 outlines one way to analyze your own ethical system Let’s look at each step in the process: Write down what kind of person you are What is your character? Would a friend describe you as honest and kind? Ambitious and self-serving? Interested in others’ well-being? Be honest in your assessment of yourself List the beliefs that influence your decision making For example, would you feel comfortable working in a lab that uses animal testing for medical research purposes? Do you think it is okay to lie? If so, which kinds of lies ChAPTER TAblE 3.1 Ethics in Business Determining Your Code of Personal Ethics Questions Examples Base character What characteristics would others use to describe you? Honest, reliable, kind, self-centered, aggressive, courageous Beliefs What are the most important beliefs you hold and use to make decisions in your life? “Nice guys finish last.” “Hard work always pays off.” “We must stand for right against wrong.” Belief origins Where did your beliefs and your view of your character come from? Family, religion, movies, personal experiences, people you admire Behavior How your relationships reflect your character and beliefs? “I have mostly shallow relationships because I tend not to follow through on my commitments.” “I have many deep, long-lasting friendships because I value friendship and work to take care of my friends.” © Michael R Solomon are acceptable to you, and which kinds are not acceptable? Are your answers inflexible—that is, are you committed to adhering strictly to your ethical positions? Now that you have your beliefs written down, think about how you came to believe them What we experience during our lives offers all of us opportunities to develop our personal ethics We also are taught about ethical behavior by our families, places of worship, first-grade teachers, and so on Sometimes, our experiences lead us to abandon some ethical rules and adopt others And for some of us, our ethical rules are modified depending on what is at stake Have you accepted your ethical beliefs without investigation, or they stand up to the test of real-world experiences in your life? Consider your behavior with regard to the places you work, study, and live and how you relate to people around you Would you like to change anything about your behavior? For example, you ever find yourself gossiping or speaking in a way that creates a more divisive atmosphere? You may feel justified in the comments you’re making, but is your ethical position on gossiping creating the kind of environment you ultimately want to live in? How can an ethical life get me ahead? Sometimes, ethics feels like an abstract ideal—ideas that would be nice in a utopian world but have no real impact on your life in the here and now Yet there are some clear benefits from living ethically First, society has established its own set of rules of conduct as laws Of course, ignoring laws can have an immediate negative impact on your life But because we live in a society of many different cultures, religions, and ethical systems, the laws not always reflect our personal ethics Acts of civil disobedience occur when people choose to nonviolently follow their own beliefs even when they go counter to current laws Whether it is complying with a law about the way you run your business or following laws that affect your personal life, deciding how your own ethics align with a society’s laws is critical Living ethically may even be good for your health When your day-to-day decisions are in conflict with the values you consider most important, you often feel stressed and angry In situations where constant conflict exists between what you value and what actions you take, a variety of types of mental and physical damage may follow Renate Schulster* is an example Schulster, a vice president *The name in this story was changed 93 94 PART onE Looking at the Business Environment Can living Ethically Make You happy? R esearch suggests that happiness itself is a result of living ethically Psychology has established this as a new focus with the emergence of an area of psychology known as positive psychology Dr Martin Seligman of the University of Pennsylvania’s Positive Psychology Center pioneered this field.2 Seligman and his colleagues work to discover the causes of happiness instead of addressing the treatment of mental dysfunctions His research has shown that by identifying your personal strengths and virtues (things like having empathy or a sense of justice) and aligning your life so you can apply your personal strengths and values every day, you will see an increase in happiness (and a decrease in depression) equivalent to the effects of antidepressant medication and therapy Finding a way to identify and then apply your ethics and virtues to your daily life does indeed have an impact on your happiness for the human resources department at a financial services firm, was asked to investigate an employee’s allegation that the company’s CEO’s had engaged in sexual harassment.3 Schulster’s investigation led her to believe that the CEO of the corporation was guilty of the offense Her personal ethics dictated following through with the employee’s claim, which put her at odds with the company As pressure from the conflict between her own values and those of the CEO grew, she sought psychological counseling for the emotional impact of the stress she was experiencing Schulster was eventually able to recover her medical and legal expenses from her employer and left the company Although she held on to her integrity, the battle was not an easy one Personal ethics are a large part of how people define themselves, their roles in society, and their business conduct Remember Tracy? Like all of us, Tracy will continue to face ethical decisions throughout his lifetime By truly thinking about his thoughts and actions—that is, by developing a code of personal ethics—he will be in a better position to see what his options are in complex and challenging situations Objective 3-2 Personal Ethics Meets Business Ethics Explain how personal ethics might play a role in the workplace and what resources one may use to evaluate a company’s ethical code “It was a beautiful glaze,” Randy Marks says with a sigh His small pottery shop depends on orders from individuals and small architecture firms looking for authentic, custom pieces of tile to adorn their kitchens, floors, or fountains “I used copper and a special firing method to give the glaze a stunning crimson color,” Randy explains “It was our best-selling item.” An architect in New York City quickly contracted with Randy’s shop to produce a much larger number of tiles for his clients This meant Randy had to work more hours and hire more employees to handle the extra business However, part of the production process entailed the introduction of additional copper during firing, producing a thick black ChAPTER Ethics in Business 95 smoke laced with toxic copper As the orders increased, more often than not, the kiln in the back of the workshop spewed this smoke into the air, in contrast to the clean white smoke produced by normal glazes Randy had been part of environmental groups in his community for years, so he knew how detrimental to the environment this process was How could he find a way to stay true to his ethical standards and still be mindful of his responsibilities to his employees and customers? We often find ourselves torn between several choices, and finding a path that works for both you and the company you work for can be challenging In some settings, the line between right and wrong is difficult to see Other times, your own personal values just won’t align with the company’s, and you may wish you had better understood the company’s sense of ethical culture early in your career—before you invested your time and effort Let’s explore how personal ethics play a role in the workplace and some resources and techniques you can use to evaluate a company’s ethical code Source: Kendall Martin You as a Person and as an Employee What role personal ethics have in a business environment? Our personal ideas of right and wrong influence our actions, words, and thoughts But how does that carry over into the work environment? After all, our employer is purchasing our time and energy As employees, we feel a responsibility to follow the ethics that the owner or director has established for the business However, a business owner has no control over or even input into your conduct outside the office But is this really true? Perhaps at one time this model applied to life in the United States, but the modern workplace is more complex Today, off-the-job behavior, integrity, and honesty relate to on-the-job performance For example, in the modern workplace, workers telecommute, working from home using technologies to connect electronically to office documents and meetings In this newly expanded workplace, an employer may indeed care if an employee drinks at home during the workday or experiments with drugs recreationally Corporate boards of directors may keep a close eye on the decisions their CEOs make in using social media Tech CEO Greg Gopman posted a scathing rant on Facebook attacking the homeless population of San Francisco, painting an image of an elite, uncaring tech industry The backlash had personal consequences, derailing his career, but also had impact on the growing disenchantment of long-term San Franciscans with the tech industry in general The business environment is a changing landscape, and the lines of privacy laws are becoming blurred Should employers have a say over an employee’s behavior outside the office if that behavior may affect the company for which the person works? Likewise, stockholders (people who own stock in a company) and employees sometimes have a say over the behavior of management outside the office A classic example is seen when Boeing was recovering from a set of scandals involving how it obtained military contracts.4 The aerospace leader fired its current CEO and hired a former Boeing employee, Harry C Stonecipher, to lead the company back to Boeing fired its CEO, Harry Stonecipher, for unethical conduct Ironically, Stonecipher had been hired to lead Boeing back to stability after a number of scandals had rocked the aerospace company Source: Pierre verdy/AFP/Getty images 96 PART onE Looking at the Business Environment stability Fifteen months later, Stonecipher, who was married, was discovered having an affair with a female employee The same code of ethical conduct that Stonecipher had created and pointed to as a sign of the return of ethical conduct at Boeing was used to force his resignation There were no charges of sexual harassment, and the woman did not work directly for Stonecipher He never showed her any favored treatment within Boeing But there still was a conflict between his personal ethics and his role in the business It took a great toll on him personally as well as the company he was working to restore ADM was at the center of an international price-fixing scandal, meeting with its own competitors to set the price and amount of product it sold ADM employee Mark Whitacre became an FBI informant for three years to expose the scandal He was portrayed by Matt Damon in The Informant, a dark comedy about these events Source: timothy A clary/AFP/Getty images What if you are asked to something that conflicts with your understanding of ethical behavior? It can be challenging to decide whose ethics to follow, yours or your company’s, and each path has legal and moral consequences For example, Andrea Malone* was ordered by the president of her company to fire an employee who had a brain tumor because the tumor had lowered the employee’s productivity.5 Andrea knew that the Americans with Disabilities Act (ADA) covered such situations and that it was a violation of federal law to fire the employee under these conditions However, her company insisted she fire the employee and say that it was for other reasons, not the tumor Andrea chose to leave the company rather than fire the person unfairly, but she has since had difficulty finding another job Andrea held to her personal ethics but was not properly prepared for the short-term consequences What if you find you are taking part in unethical activity without realizing that you were doing so? Before Bruce Forest* accepted a job offer as a human resources director, he asked the firm about rumors that they hired undocumented immigrants He was assured that was no longer the case However, soon after Bruce started to work for the company, he began receiving information that the illegal hiring was still going on at the company Bruce’s boss ordered him not to investigate the situation, saying that the company would prefer the risk of being fined by U.S Citizenship and Immigration Services According to his boss, the fine would be “an acceptable business expense.”6 So now Bruce was complicit in an illegal activity and had to make some tough decisions Should he quit his job? Doing so might mean he would have to move his family, take a pay cut, and lose a bonus his company had promised him Mark Whitacre faced a situation similar to Bruce’s Whitacre was a senior executive with the agricultural giant Archer Daniels Midland (ADM) For years, ADM was involved in a multinational price-fixing scheme Price fixing occurs when a group of companies agree among themselves to set a product’s price artificially high so customers have to pay more than they should for the product Whitacre was a participant in the illegal activities and was set to rise to the top of the organization His wife, however, became increasingly conflicted with what was happening at ADM and with her own ethical values She finally threatened to divorce Whitacre unless he found a way to end his involvement Whitacre then went to the FBI and became the highest-level corporate executive in U.S history to become a whistle-blower He agreed to record secret meetings at ADM, ultimately capturing incriminating audiotape and videotape for the FBI over a three-year period.7 Whitacre himself ended up spending almost nine years in prison He is now the chief operating officer of a biotech firm in California The story is so compelling that it was made into a film starring Matt Damon— The Informant To stumble unknowingly into unethical and even illegal activity like Whitacre did puts people in a difficult situation, especially when their jobs are on the line Although some people decide they will “be flexible” with their own ethical *The name in this story was changed ChAPTER standards in the workplace, it can often take a toll on their mental state, relationships, and physical health Identifying a Company’s Ethics How I examine a company’s ethics? Some companies may have a written code of ethics, or a statement of their commitment to certain ethical practices Also called a code of conduct, it is meant to give employees guidance on how to handle themselves in challenging ethical situations Additionally, many companies have a public mission statement that defines the core purpose of the organization— why it exists The mission statement describes the company’s values, goals, and aspirations Consider the following mission statement of Fetzer Vineyards: Our vision is to operate in a way that restores, revitalizes, and regenerates ecosystems and communities, while producing premium quality wines, advancing the health and well-being of employees, and producing sustainable growth for shareholders.8 This mission statement has led to a plan to be fully green by 2030, awards for the conservation of energy, and a company-wide English as a Second Language training program offered as part of its education package for its employees How can I find out the best and worst aspects of a company’s ethical conduct? In addition to a company’s code of ethics and mission statement, other resources allow you to evaluate the acts of a company and legal violations it may have committed For example, you can check the legal compliance of a corporation by researching actual charges that have been filed or cases that have been adjudicated against a company Websites such as lawcrawler.findlaw.com help you find relevant case law generated by lawsuits filed by or against many corporations There are also organizations, such as the Boston College Center for Corporate Citizenship, that work with corporations to help them define, plan, and institute their corporate citizenship This center also highlights companies that act in positive ways by publicizing responsible corporate activities and listing on its website reports in the general media of ethical issues in business By doing so, the center works with companies to “leverage their assets to ensure both the company’s success and a more just and sustainable world.”9 We’ll discuss other ways you can assess a company’s ethics and sense of corporate responsibility in the next section What did Randy Marks decide to when his personal and business ethics collided with the production of the special pottery glaze? No one was “watching”; there was no censure from any environmental authority, and no laws were being broken But the conflict for Randy was too much “I had campaigned against factory emissions of air pollution for years,” Randy said “The ethical conflict was too great; I had to stop making the glaze.” Randy’s decision led to difficult times for the shop The New York architect canceled his order—the glaze had been the winning factor for his business The workers in the shop were also frustrated They loved producing interesting, beautiful pieces, and the new orders meant extra hours and extra earnings Their shop was so small, they argued, how could a little smoke possibly matter in the big scheme of things? Although Randy’s pottery shop does not have a formal written mission statement, his behavior and willingness to discuss his decision behind discontinuing the popular glaze let each employee see clearly the priorities Randy held for the business Randy had to be firm, repeatedly explaining that his personal ethics had to be consistent with his workplace ethics and that he was sure that, in the long run, the shop would benefit from his decision Even though Randy’s employees did not easily accept his decision, they felt the larger mission of the business was well defined and respected Ethics in Business 97 ... Challenges 10 9 How Businesses Develop an Ethical Environment 11 1 11 2 11 2 11 2 Summary 11 4 Key Terms 11 5 Self Test 11 5 Team Time 11 6 Ethics and Corporate Social Responsibility 11 7 Web Exercises 11 7 References... owners ISBN 10 : 1- 292- 218 19-3 ISBN 13 : 978 -1- 292- 218 19-9 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 14 13 12 11 10 Typeset... References 11 8 ChAPTeR 12 0 Legal Challenges Ethical Challenges THE LIST: powerful people to know 12 1 12 2 Reasons for the Rise in Globalization 12 3 14 3 14 4 14 4 14 5 Summary 14 6 Key Terms 14 7 Self Test 14 7