Chapter Two

Business Ethics and Social Responsibility

L E A R N I N G O B J E C T I V E SL E A R N I N G O B J E C T I V E S

After reading this chapter, you should be able to:

1. Explain how individuals develop their personal codes of ethics and why ethics are important in the workplace.

2. Distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today.

3. Show how the concept of social responsibility applies both to environmental issues and to a firm’s relationships with customers, employees, and investors.

2-2

L E A R N I N G O B J E C T I V E S (cont.)L E A R N I N G O B J E C T I V E S (cont.)

After reading this chapter, you should be able to:

1. Identify four general approaches to social responsibility and describe the four steps that a firm must take to implement a social responsibility program.

2. Explain how issues of social responsibility and ethics affect small business.

2-3

What’s in It for Me?

• By understanding the material in this chapter, you’ll be better able to:• Assess ethical and socially responsible issues

facing you as an employee and as a boss or business owner.

• Understand the ethical and socially responsible actions of businesses you deal with as a consumer and as an investor.

2-4

Ethics in the Workplace

• Ethics• Beliefs about what’s right and wrong or good and bad

• Ethical Behavior• Behavior conforming to individual beliefs and social norms about

what’s right and good

• Unethical Behavior• Behavior conforming to individual beliefs and social norms about what

is defined as wrong and bad

• Business Ethics• The ethical or unethical behaviors by employees on the job

2-5

Individual Ethics

• Sources of Personal Codes of Ethics

• Childhood responses to adult behavior• Influence of peers• Experiences in adulthood• Morals and values

2-6

Business and Managerial Ethics

• Managerial Ethics

• The standards of behavior that guide individual managers in their work with:• Employees• The organization• Other economic agents—customers, competitors, stockholders,

suppliers, dealers, and unions

• Ethical Concerns

2-7

Assessing Ethical Behavior

• Simple Steps in Applying Ethical Judgments

• Gather the relevant facts

• Analyze the facts

• Make an ethical judgment

2-8

Assessing Ethical Behavior (cont.)• Ethical Norms

• Utility: Does it benefit everyone equally?

• Rights: Does the act respect the rights of all involved?

• Justice: Is it fair?

• Caring: Is it consistent with people’s responsibilities to each other?

2-9

Company Practices and Business Ethics

• Encouraging Ethical Behavior Involves:

• Adopting written codes of conduct

• Having top management support of ethical standards

• Instituting ethics programs

• Establishing ethical hotlines for reporting and discussing unethical behavior and activities

2-10

Social Responsibility• Social Responsibility• Balancing the organization’s commitments to groups

and individuals (stakeholders) in society

• Organizational Stakeholders• Any individual or group directly affected by the

practices of an organization and, therefore, have a stake in its performance

2-11

The Stakeholder Model of Responsibility

• Customers• Treat customers fairly and honestly

• Employees• Treat employees fairly and respect their dignity and basic

human needs• Investors• Follow proper accounting procedures; provide information

to shareholders about financial performance• Suppliers• Create mutually beneficial partnership arrangements with

suppliers• Local and International Communities• Involvement in programs and charities

2-12

Contemporary Social Consciousness

• The Concept of Accountability• The expectation of an expanded role for business

in protecting and enhancing the general welfare of society

2-13

Areas of Social Responsibility

• Responsibility Toward the Environment

• Disposal of toxic waste• Recycle• Control air, water, and land pollution • Green Marketing • Greenwashing: Using advertising to project a

green image without substantially altering processes or products

2-14

Areas of Social Responsibility (cont.)

• Responsibility Toward Customers• Involves providing quality products and pricing products fairly

• Consumerism• Protecting the rights of consumers in their dealings with businesses

• Basic Consumer Bill of Rights• The right to safe products; to be heard;

to be informed; to be educated about purchases; to be treated courteously; to choose what to buy

2-15

Areas of Social Responsibility (cont.)

• Unfair Pricing• Collusion: When two or more firms agree to collaborate

on such wrongful acts as price fixing• Price gouging: Responding to increased demand with

overly steep (and often unwarranted) price increases

• Ethics in Advertising• Truth in advertising• Morally objectionable advertising

2-16

Areas of Social Responsibility (cont.)

• Responsibility Toward Employees• Legal and social commitments to:

• Not discriminate• A safe workplace• Provide opportunities to balance work and life• Provide protection for whistleblowers

• Responsibility Toward Investors• Proper financial management (no insider trading)• Proper financial reporting

2-17

Implementing Social Responsibility (SR) Programs

• Arguments Against SR• The cost of SR threatens profits.• Business has too much control over which SR issues would

be addressed.• Business lacks expertise in SR matters.

• Arguments For SR• SR should take precedence over profits.• Corporations as citizens should help others.• Corporations have the resources to help.• Corporations should solve problems they create.

2-18

Approaches to Social Responsibility

• Obstructionist Stance• A company does as little as possible and may attempt to

deny or cover up violations• Defensive Stance• A company does everything required of it legally but no

more• Accommodative Stance• A company meets its legal and ethical requirements and

may go further• Proactive Stance• A company actively seeks to contribute to the well-being

of groups and individuals

2-19

FIGURE 2.4: Spectrum of Approaches to Corporate Social Responsibility

2-20

Managing Social Responsibility Programs

1. Social responsibility must start at the top and be part of strategic planning.

2. Top managers must plan for the level of management support.

3. One executive must be put in charge of the firm’s agenda.

4. The organization must conduct occasional social audits—systematic analyses of its success in using funds earmarked for its social responsibility goals.

2-21

Social Responsibility and the Small Business

• Large Business versus Small Business

• Differences are primarily differences of scale

• More issues are questions of individual ethics

• Ethics and social responsibility are decisions faced by all managers in all organizations, regardless of rank or size

2-22

Key Terms

accommodative stance business ethics collusion consumerism defensive stance ethical behavior ethics insider trading

managerial ethics obstructionist stance organizational stakeholdersproactive stance social audit social responsibility unethical behavior whistleblower

2-23