Economics of Ethics Jim McGraw, MCC-Longview Agenda

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Economics of Ethics Jim McGraw,
MCC-LongviewAgenda

• Background of workshop
• 15 minute draft presentation
• The problem (The Cheating Culture?)
• The challenge- How to foster ethical business
  practices
• Discussion and feedback
• Follow-up and closure

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Name that Scandal!

• Provide a brief description of the following
  well-known scandals, noting the ethical/legal
  issues involved

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Enron
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• Charles Prestwood, a 63 year old retired Enron
  employee who lost practically all of his 1.3
  million savings invested in the companys stock
  said, Something stinks here. There are people at
  Enron who made millions selling the stock while
  we, the rank and file, got burned.
• (Vickers, M. et al The Betrayed Investor,
  Australian Financial Review, Feb 19, 2002 p. 52)

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Jayson Blair?

• New York Times reporter for about 4 years.
• It was estimated that almost 50 of the articles
  he wrote since 2002 contained fabricated or
  plagiarized work.

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Napster!
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Politics?
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Cultural Trends

• In The Cheating Culture (2004), David Callahan
  asserts that a cultural shift in the 1980s
  toward a winner take all mentality has led to
  increased cheating behaviors in politics,
  business practice, sports, legal profession,
  medicine, pharmaceutical industry, journalism,
  auto repair, higher education..

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Other Examples

• Sears (auto repair)
• Princeton (hacked into Yales computer system)
• Taxes (it is estimated that the average taxpayer
  has to pay 3,000 per year to compensate for
  widespread tax evasion)
• Medicine and Pharmaceuticals

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Little indiscretions that add up.

• Loss estimates per year of US businesses from
  employee theft range from 10 billion to 200
  billion annually.
• U.S. Dept of Commerce estimates 33 of business
  failures can be traced to employee theft and
  other employee crimes.
• Cost of a daily free deli sandwich, chips, and
  soda taken by a supermarket employee for 1 year-
  approximately 840.00
• http//law.jrank.org/pages/1084/Employee-Theft-Leg
  al-Aspects-Estimates-cost.html

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The Problem

• Businesses are currently struggling to stay
  solvent
• According to Callahan (2004) some
  businesses/people bend ethical standards because
  everyone is doing it, and they dont want to
  lose the competitive edge
• Due to highly public scandals (Madoff) it is
  difficult to promote a restoration of trust
  with customers

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Good News!

• Most people that bend the rules (sacrifice
  integrity for financial stability) are basically
  good people
• Ethical standards and decision making processes
  are available and being used by organizations.
• Please name some companies that are recognized
  for ethical business practice.

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The good news never stops

• The 2009 National Business Ethics Survey reports
  (www.ethics.org)
• Misconduct at work is down (56 in 2007 to 49 in
  2009)
• Whistle blowing is up (58 in 2007 to 63 in
  2009)
• Ethical cultures are stronger (53 in 2007 to 62
  in 2009)
• Pressure to cut corners is lower (10 in 2007 to
  8 in 2009)

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Ethics Quiz 1 minute with a partner

• What are some general principles of
  moral/ethical practice?
• From a Rotary Perspective, we can ask ourselves.
• Is it true?
• Is it fair to all concerned?
• Will it build good will and better friendships
• Will it be beneficial to all concerned

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What Can Be Done?

• With a partner, please list 2 or 3 things
  business leaders can do to promote a culture of
  ethical business practice.
• What are the costs of these practices?
• What are the benefits?

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A few ideas from the Lees Summit Civic Roundtable

• Regular review of code of ethics
• Connect with Lees Summit Community of Character
  (e.g., recognize ethical practices) and Lees
  Summit 360
• Have clear expectations and accountability
• Take responsibility for self and others
• Lead by example, and admit mistakes
• Speak up when ethical issues arise

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A New Social Contract?

• It means striking a healthier balance between
  humanistic values like shared responsibility,
  mutual respect, and compassion for the weak- and
  market values like maximum efficiency, individual
  autonomy, and admiration for the strong
• (Callahan, 2004, p, 264)

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Ethics in Business Improves the Bottom Line Lynn
Paine- Professor at Harvard Business School
asserts that ethical practice

• 1) Helps companies manage risk
• 2) Increases functioning of companies by
  improving employee morale
• 3) Improves the company market position by
  maintaining or enhancing reputation
• 4) Improves the companies civic positioning,
  allowing better relations with communities and
  government
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  (Callahan, 2004, p. 285)

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1- Risk Management

• During a period of less than 15 years, Sears
  squandered public trust, incurred numerous
  criminal charges and multiple lawsuits, and paid
  fines and settlements that ultimately totaled
  over 2 Billion (Callahan, p. 33)

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2 Employee Morale

• Research conducted by Sears found that if
  employee satisfaction were to improve by 5
  points-
• Customer satisfaction would increase by 1.3
  points
• Leading to a 0.5 increase in revenue
• Resulting in additional sales of approximately
• 65 million per year
• Zadek, S, 2001 The Civil Corp. Earthscan

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3 and 4- Reputation Civic Position

• 91 of consumers are likely to buy from companies
  that can show they behave ethically.
• 78 of consumers say they would support a company
  that does good work in the community.
• Eye on Australia, Sweeney Research cited in
  Lloyd, Simon, Retail happy shopping, Business
  Review Weekly, Jun 8, 2001.

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Examples of Local Ethical Business Practice

• 1.
• 2.
• 3.

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General Follow-Up

• Read The Cheating Culture Why More Americans Are
  Doing Wrong to Get Ahead (David Callahan, 2004)
  www.thecheatingculture.com
• Visit www.ethics.org for resources and more
  detailed information on the 2009 National
  Business Ethics Survey
• Ethisphere..com (top companies 2008)
• Discuss with colleagues
• Increase awareness of workplace practices that
  have potential ethical ramifications

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Immediate Follow-Up Steps

• Post your organizational mission, vision, and
  values in a place to be viewed each day
• Recognize and acknowledge ethical behavior in
  colleagues and customers
• Model ethical behavior

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Suggestions or Requests?

• Jim McGraw- [phone]
• Jim.McGraw_at_mcckc.edu
• Thanks very much for your interest and
  assistance!

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Feedback and Next Steps

• Please complete the short feedback form regarding
  this draft presentation.
• Immediate suggestions?
• Ideas for next steps?