Fiduciary Responsibilities

Finally, managers have a fiduciary responsibilityDuty of management to safeguard a company’s assets and handle its funds in a trustworthy manner. to owners: They’re responsible for safeguarding the company’s assets and handling its funds in a trustworthy manner. This is a responsibility that was ignored by top executives at both Adelphia and Tyco, whose associates and families virtually looted company assets. To enforce managers’ fiduciary responsibilities for a firm’s financial statements and accounting records, the Sarbanes-Oxley Act of 2002 requires CEOs and CFOs to attest to their accuracy. The law also imposes penalties on corporate officers, auditors, board members, and any others who commit fraud.

Employees

Companies are responsible for providing employees with safe, healthy places to work—as well as environments that are free from sexual harassment and all types of discrimination. They should also offer appropriate wages and benefits. In the following sections, we’ll take a closer look at each of these areas of responsibility.

Safety and Health

Figure 2.8 Workplace Deaths by Event or Exposure, 1998–2003

Though it seems obvious that companies should guard workers’ safety and health, a lot of them simply don’t. For over four decades, for example, executives at Johns Manville suppressed evidence that one of its products, asbestos, was responsible for the deadly lung disease developed by many of its workers.Saul W. Gellerman, “Why ‘Good’ Managers Make Bad Ethical Choices,” Harvard Business Review on Corporate Ethics (Boston: Harvard Business School Press, 2003), 49–66. The company concealed chest X-rays from stricken workers, and executives decided that it was simply cheaper to pay workers’ compensation claims (or let workers die) than to create a safer work environment. A New Jersey court was quite blunt in its judgment: Johns Manville, it held, had made a deliberate, cold-blooded decision to do nothing to protect at-risk workers, in blatant disregard of their rights.Saul W. Gellerman, “Why ‘Good’ Managers Make Bad Ethical Choices,” Harvard Business Review on Corporate Ethics (Boston: Harvard Business School Press, 2003), 53.

About four in one hundred thousand U.S. workers die in workplace “incidents” each year. The Department of Labor categorizes deaths caused by conditions like those at Johns Manville as “exposure to harmful substances or environments.” How prevalent is this condition as a cause of workplace deaths? See Figure 2.8 "Workplace Deaths by Event or Exposure, 1998–2003", which breaks down workplace fatalities by cause. Some jobs are more dangerous than others. For a comparative overview based on workplace deaths by occupation, see Figure 2.9 "Workplace Deaths by Occupation, 2003".

Figure 2.9 Workplace Deaths by Occupation, 2003

Figure 2.10

Requiring workers to wear protective clothing like gloves, hard hats, and goggles cuts down on accidents. It also helps the firm reduce time lost from work due to injuries.

© 2010 Jupiterimages Corporation

For most people, fortunately, things are better than they were at Johns Manville. Procter & Gamble (P&G), for example, considers the safety and health of its employees paramount and promotes the attitude that “Nothing we do is worth getting hurt for.” With nearly one hundred thousand employees worldwide, P&G uses a measure of worker safety called “total incident rate per employee,” which records injuries resulting in loss of consciousness, time lost from work, medical transfer to another job, motion restriction, or medical treatment beyond first aid. The company attributes the low rate of such incidents—less than one incident per hundred employees—to a variety of programs to promote workplace safety.Procter & Gamble, 2003 Sustainability Report, http://www.pg.com/content/pdf/01_about_pg/corporate_citizenship/sustainability/reports/sustainability_report_2003.pdf (accessed April 24, 2006).

Freedom from Sexual Harassment

What is sexual harassment? The law is quite precise:

• Sexual harassment occurs when an employee makes “unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature” to another employee who doesn’t welcome the advances.
• It’s also sexual harassment when “submission to or rejection of this conduct explicitly or implicitly affects an individual’s employment, unreasonably interferes with an individual’s work performance or creates an intimidating, hostile or offensive work environment.”U.S. Equal Employment Opportunity Commission, “Facts about Sexual Harassment,” http://www.eeoc.gov/facts/fs-sex.html (accessed April 24, 2006).

To prevent sexual harassment—or at least minimize its likelihood—a company should adopt a formal antiharassment policy describing prohibited conduct, asserting its objections to the behavior, and detailing penalties for violating the policy.Joanna Grossman, “Sexual Harassment in the Workplace: Do Employers’ Efforts Truly Prevent Harassment, or Just Prevent Liability,” Find Laws Legal Commentary, Writ, http://writ.news.findlaw.com/grossman/20020507.html (accessed April 24, 2006). Employers also have an obligation to investigate harassment complaints. Failure to enforce antiharassment policies can be very costly. In 1998, for example, Mitsubishi paid $34 million to more than three hundred fifty female employees of its Normal, Illinois, plant to settle a sexual harassment case supported by the Equal Employment Opportunity Commission. The EEOC reprimanded the company for permitting an atmosphere of verbal and physical abuse against women, charging that female workers had been subjected to various forms of harassment, ranging from exposure to obscene graffiti and vulgar jokes to fondling and groping.Joanna Grossman, “Sexual Harassment in the Workplace: Do Employers’ Efforts Truly Prevent Harassment, or Just Prevent Liability,” Find Laws Legal Commentary, Writ, http://writ.news.findlaw.com/grossman/20020507.html (accessed April 24, 2006).

Equal Opportunity and Diversity

People must be hired, evaluated, promoted, and rewarded on the basis of merit, not personal characteristics. This, too, is the law—namely, Title VII of the 1964 Civil Rights Act. Like most companies, P&G has a formal policy on hiring and promotion that forbids discrimination based on race, color, religion, gender, age, national origin, citizenship, sexual orientation, or disability. P&G expects all employees to support its commitment to equal employment opportunity and warns that those who violate company policies will face strict disciplinary action, including termination of employment.Procter & Gamble, “Respect in the Workplace,” Our Values and Policies, http://www.pg.com/content/pdf/01_about_pg/01_about_pg_homepage/about_pg_toolbar/download_report/values_and_policies.pdf (accessed April 24, 2006).

Equal Pay and the Wage Gap

The Equal Pay Act of 1963 requires equal pay for both men and women in jobs that entail equal skill, equal effort, equal responsibility, or similar working conditions. What has been the effect of the law after forty years? In 1963, women earned, on average, $0.589 for every $1 earned by men. Today, that difference—which we call the wage gap—has been closed to $0.755 to $1, or approximately 75 percent. Figure 2.11 "Median Annual Earnings by Gender and Race" provides some interesting numbers on the differences in annual earnings based not only on gender but on race, as well. Figure 2.12 "Median Annual Earnings by Gender, Age, and Degree Level" throws further light on the gender wage gap when age and education are taken into consideration.

Figure 2.11 Median Annual Earnings by Gender and Race

What accounts for the difference, despite the mandate of federal law? For one thing, the jobs typically held by women tend to pay less than those typically held by men. In addition, men often have better job opportunities. For example, a man newly hired at the same time as a woman will often get a higher-paying assignment at the entry level. Coupled with the fact that the same sort of discrimination applies when it comes to training and promotions, women are usually relegated to a lifetime of lower earnings.

Figure 2.12 Median Annual Earnings by Gender, Age, and Degree Level

Wages and Benefits

At the very least, employers must obey laws governing minimum wage and overtime pay. A minimum wage is set by the federal government, though states can set their own rates. The current federal rate, for example, is $6.55, while the rate in the state of Washington is $8.55. When there’s a difference, the higher rate applies.U.S. Department of Labor, “Minimum Wage Laws in the States,” http://www.dol.gov/esa/minwage/america.htm# (accessed April 24, 2006). By law, employers must also provide certain benefits—social security (which provides retirement benefits), unemployment insurance (which protects against loss of income in case of job loss), and workers’ compensation (which covers lost wages and medical costs in case of on-the-job injury). Most large companies pay most of their workers more than minimum wage and offer considerably broader benefits, including medical, dental, and vision care, as well as pension benefits.

Financial Contributions

Many large corporations donate a percentage of sales or profits to worthwhile causes. Retailer Target, for example, donates 5 percent of its profits—about $2 million per week—to schools, neighborhoods, and local projects across the country; its store-based grants underwrite programs in early childhood education, the arts, and family-violence prevention.Target Brands Inc., “Target Gives Back over $2 Million a Week to Education, the Arts and Social Services,” http://target.com/target_group/community_giving/index.jhtml (accessed April 24, 2006). The late actor Paul Newman donated 100 percent of the profits from “Newman’s Own” foods (salad dressing, pasta sauce, popcorn, and other products sold in eight countries); the profits go to thousands of organizations, including the Hole in the Wall Gang camps for seriously ill children.Jennifer Barrett, “A Secret Recipe for Success: Paul Newman and A. E. Hotchner Dish Up Management Tips from Newman’s Own,” Newsweek, November 3, 2003, http://msnbc.msn.com/id/3339645 (accessed April 24, 2006).

Volunteerism

Many companies support employee efforts to help local communities. Patagonia, for example, a maker of outdoor gear and clothing, lets employees leave their jobs and work full-time for any environmental group for two months—with full salary and benefits; so far, more than 350 employees have taken advantage of the program.

Supporting Social Causes

Companies and executives often take active roles in initiatives to improve health and social welfare in the United States and elsewhere. Microsoft’s former CEO Bill Gates intends to distribute more than $3 billion through the Bill and Melinda Gates Foundation, which funds global health initiatives, particularly vaccine research aimed at preventing infectious diseases in undeveloped countries.Dan Ackman, “Bill Gates Is a Genius and You’re Not,” Forbes.com, July 21, 2004, http://www.forbes.com/2004/07/21/cx_da_0721topnews.html (accessed April 24, 2006). Noting that children from low-income families have twice as many cavities and often miss school because of dental-related diseases, P&G invests $1 million a year to set up “cavity-free zones” for 3.3 million economically disadvantaged children at Boys and Girls Clubs nationwide. In addition to giving away toothbrushes and toothpaste, P&G provides educational programs on dental hygiene. At some locations, the company even maintains clinics providing affordable oral care to poor children and their families.Philip Kotler and Nancy Lee, “Best of Breed,” Stanford Social Innovation Review, Spring 2004, 21.