Organizational Justice, Ethics, and Corporate Social Responsibility

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CHAPTER 2 • ORGANIZATIONAL JUSTICE, ETHICS, AND CORPORATE SOCIAL RESPONSIBILITY 57 FIGURE 2.9 Martha Stewart: Target of One of Several Recent Ethical Scandals For several months spanning parts of 2004 and 2005, Martha Stewart served time in a federal penitentiary after being indicted on charges of obstructing justice. Far from the luxurious life she lived as a media mogul, the so-called “domestic diva” and former Chair of the company she founded and to which she lent her name, was punished for failing to disclose evidence bearing on the sale of personal stock following an illegal inside tip. Her personal reputation as well as her company suffered greatly as a result. Ms. Stewart is one of several highly visible high-ranking company officials who have been embroiled in ethical and legal scandals in the past few years. Why Does Ethical Behavior Matter in Organizations? It may seem obvious that we should care about ethics simply because behaving ethically is the right thing to do. Indeed, many famous people agree that ethical behavior is of paramount importance. For example, President George W. Bush said, “At this moment, America’s highest economic need is higher ethical standards—standards enforced by strict laws and upheld by responsible business leaders.” 36 In the same vein, Robert D. Hass, former chairman of Levi Strauss & Co., observed that “A company’s values—what it stands for, what its people believe in—are crucial to its competitive success.” 37 Despite these lofty and well-meaning statements from leaders, we already noted that people do not always do the right thing. Under the right circumstances, even seemingly ethical people behave unethically. Pressure to meet sales quotas, for example, have led some stockbrokers to boost their commissions by convincing unknowing clients to make bad investments. 38 Clearly, this is wrong on moral grounds. Although managers may be uncomfortable changing their morals, they must be concerned about promoting ethical behavior for two sound business reasons. First, over the long run, being ethical is profitable. Second, being ethical satisfies many of today’s legal regulations. Ethics and the Bottom Line Imagine that you have a small neighborhood grocery store. Competing with the big chains has been very challenging, and margins are razor thin. One day, out of desperation, you decide that you can make a few extra pennies at the butcher counter by rigging your scales
58 PART 1 • INTRODUCTION TO ORGANIZATIONAL BEHAVIOR TABLE 2.3 Famous Ethical Scandals from Decades Past Despite all the attention they have been receiving lately, ethical scandals are nothing new. Described here are a few of the most prominent ethical scandals from throughout the twentieth century. When? Who? What? 1920s Charles Ponzi Created a fraudulent investment scheme promising a 50 percent profit to investors in 90 days. Initial backers were paid with money from later investors. Eventually, the so-called “Ponzi scheme” failed, defrauding 40,000 people out of $15 million (“real money” back then). 1930s Ivar Krueger This “Swedish Match King” ran companies making two-thirds of the world’s matches. During the Great Depression, he made hundreds of “off-the-books” schemes that defrauded investors and banks. 1960s Billy Sol Estes Ran a vast scam getting federal agricultural subsidies. Until eventually being imprisoned, he received $21 million a year for “growing” and “storing” nonexistent crops of cotton. 1960s Bernie Cornfeld and Cornfeld invented Investors Overseas Services (IOS), a collection of fraudulent Robert Vesco mutual funds, eventually raising $2.5 billion before defaulting. Brought in to save the company by investing $5 million, Vesco looted the company of some $250 million and fled to Cuba. 1980s Charles Keating The founder of Lincoln Savings & Loan sold fraudulent “junk bonds” and manipulated financial statements to make the institution appear profitable before failing. 1990s Officials of the International Bribes allegedly were accepted as inducements to select Sydney, Australia and Olympic Committee Salt Lake City, Utah as cities for the 2000 and 2002 Olympic Games. Sources: Fordyce, 2004; Zagorian, 2005; see Note 33. so that a sale of 0.95 pound appears as 1.00 pound on the meter. No one would be the wiser, you think, and the odds of getting caught by the local agency that regulates weights and measures are small. When “weighed” against the added profit that you stand to make over time, the temptation is too great to dismiss. Besides, you rationalize that nobody will get hurt by your actions, although the benefit to you and your employees will be great because it will help you stay profitable—or even, remain in business at all (see Figure 2.10). FIGURE 2.10 Ethics and Profitability: You Can Have Them Both! Too many people believe that being profitable requires being unethical, at least sometimes. This proves to be untrue in the long run. In fact, the evidence is clear that “good ethics is good business” and that “bad ethics is bad business.” Source: Reprinted by permission of Carol*Simpson.
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Organizational Justice, Ethics, and Corporate Social Responsibility

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