Social Responsibility & Social Responsibility & Managerial EthicsManagerial Ethics

Ch 5Ch 5

What Is Social Responsibility?What Is Social Responsibility?

The Classical ViewThe Classical View Management’s only social responsibility is Management’s only social responsibility is

to maximize profits (create a financial to maximize profits (create a financial return) by operating the business in the return) by operating the business in the best interests of the stockholders (owners best interests of the stockholders (owners of the corporation).of the corporation).

Expending the firm’s resources on doing Expending the firm’s resources on doing “social good” unjustifiably increases costs “social good” unjustifiably increases costs that lower profits to the owners and raises that lower profits to the owners and raises prices to consumers.prices to consumers.

What Is Social Responsibility? (cont’d)What Is Social Responsibility? (cont’d)

The Socioeconomic ViewThe Socioeconomic View

Management’s social responsibility goes Management’s social responsibility goes beyond making profits to include protecting beyond making profits to include protecting and improving society’s welfare.and improving society’s welfare.

Corporations are not independent entities Corporations are not independent entities responsible only to stockholders.responsible only to stockholders.

Firms have a moral responsibility to larger Firms have a moral responsibility to larger society to become involved in social, legal, and society to become involved in social, legal, and political issues.political issues.

““To do the right thing”To do the right thing”

From Obligation to Responsiveness to From Obligation to Responsiveness to ResponsibilityResponsibility

Social ObligationSocial Obligation The obligation of a business to meet its economic The obligation of a business to meet its economic

and legal responsibilities and nothing more.and legal responsibilities and nothing more. Social ResponsivenessSocial Responsiveness

The capacity of a firm to adapt to changing The capacity of a firm to adapt to changing societal conditions through the practical decisions societal conditions through the practical decisions of its managers in responding to important social of its managers in responding to important social needs.needs.

Social ResponsibilitySocial Responsibility A firm’s obligations as a moral agent extends A firm’s obligations as a moral agent extends

beyond its legal and economic obligations, to the beyond its legal and economic obligations, to the pursuit of long-term goals that are good for pursuit of long-term goals that are good for society.society.

Does Social Responsibility Pay?Does Social Responsibility Pay?

Studies appear to show a positive relationship Studies appear to show a positive relationship between social involvement and the economic between social involvement and the economic performance of firms.performance of firms. Difficulties in defining and measuring “social Difficulties in defining and measuring “social

responsibility” and “economic performance raise responsibility” and “economic performance raise issues of validity and causation in the studies.issues of validity and causation in the studies.

Mutual funds use Mutual funds use social screeningsocial screening in in investment decision slightly outperformed other investment decision slightly outperformed other mutual funds.mutual funds.

A general conclusion is that a firm’s social actions A general conclusion is that a firm’s social actions do not harm its long-term performance.do not harm its long-term performance.

The Greening of ManagementThe Greening of Management

The recognition of the close link between an The recognition of the close link between an organization’s decision and activities and its organization’s decision and activities and its impact on the natural environment.impact on the natural environment. Global environmental problems facing Global environmental problems facing

managers:managers: Air, water, and soil pollution from toxic Air, water, and soil pollution from toxic

wasteswastes Global warming from greenhouse gas Global warming from greenhouse gas

emissionsemissions Natural resource depletionNatural resource depletion

How Organizations Go GreenHow Organizations Go Green

Legal (of Light Green) ApproachLegal (of Light Green) Approach Firms simply do what is legally required by obeying laws, Firms simply do what is legally required by obeying laws,

rules, and regulations willingly and without legal rules, and regulations willingly and without legal challenge.challenge.

Market ApproachMarket Approach Firms respond to the preferences of their customers for Firms respond to the preferences of their customers for

environmentally friendly products.environmentally friendly products. Stakeholder ApproachStakeholder Approach

Firms work to meet the environmental demands of Firms work to meet the environmental demands of multiple stakeholdersmultiple stakeholders——employees, suppliers, and the employees, suppliers, and the community.community.

Activist ApproachActivist Approach Firms look for ways to respect and preserve environment Firms look for ways to respect and preserve environment

and be actively socially responsible.and be actively socially responsible.

Values-Based ManagementValues-Based Management Values-Based ManagementValues-Based Management

An approach to managing in which managers establish An approach to managing in which managers establish and uphold an organization’s shared values.and uphold an organization’s shared values.

The Purposes of Shared ValuesThe Purposes of Shared Values Serving as guideposts for managerial decisionsServing as guideposts for managerial decisions Shaping employee behaviorShaping employee behavior Influencing the direction of marketing effortsInfluencing the direction of marketing efforts

The Bottom Line on Shared Corporate ValuesThe Bottom Line on Shared Corporate Values An organization’s values are reflected in the decisions An organization’s values are reflected in the decisions

and actions of its employees.and actions of its employees.

Managerial EthicsManagerial Ethics

Ethics DefinedEthics Defined The rules and principles that define right The rules and principles that define right

and wrong conduct.and wrong conduct. Four Views of EthicsFour Views of Ethics

The utilitarian viewThe utilitarian view The rights viewThe rights view The theory of justice viewThe theory of justice view The integrative social contracts theoryThe integrative social contracts theory

Managerial Ethics (cont’d)Managerial Ethics (cont’d)

Utilitarian ViewUtilitarian View Ethical decisions are made solely on the basis of Ethical decisions are made solely on the basis of

their outcomes or consequences such that the their outcomes or consequences such that the greatest good is provided for the greatest greatest good is provided for the greatest number.number.

Encourages efficiency and productivity and is Encourages efficiency and productivity and is consistent with the goal of profit maximization.consistent with the goal of profit maximization.

Rights ViewRights View Concerned with respecting and protecting Concerned with respecting and protecting

individual liberties and privacy.individual liberties and privacy. Seeks to protect individual rights of conscience, Seeks to protect individual rights of conscience,

free speech, life and safety, and due process.free speech, life and safety, and due process.

Managerial Ethics (cont’d)Managerial Ethics (cont’d) The Theory of JusticeThe Theory of Justice

Organizational rules are enforced fairly and Organizational rules are enforced fairly and impartially and follow all legal rules and impartially and follow all legal rules and regulations.regulations.

Protects the interests of underrepresented Protects the interests of underrepresented stakeholders and the rights of employee.stakeholders and the rights of employee.

Integrative Social Contracts TheoryIntegrative Social Contracts Theory Ethical decisions should be based on existing Ethical decisions should be based on existing

ethical norms in industries and communities in ethical norms in industries and communities in order to determine what constitutes right and order to determine what constitutes right and wrong.wrong.

Based on integration of the general social Based on integration of the general social contract and the specific contract between contract and the specific contract between community members.community members.

Factors That Affect Employee EthicsFactors That Affect Employee Ethics

Moral DevelopmentMoral Development A measure of independence from outside influencesA measure of independence from outside influences

Level of Individual Moral DevelopmentLevel of Individual Moral Development Preconventional levelPreconventional level Conventional levelConventional level Principled levelPrincipled level

Stage of moral development interacts with:Stage of moral development interacts with: Individual characteristicsIndividual characteristics The organization’s structural designThe organization’s structural design The organization’s cultureThe organization’s culture The intensity of the ethical issueThe intensity of the ethical issue

Factors That Affect Employee Factors That Affect Employee Ethics (cont’d)Ethics (cont’d)

Moral DevelopmentMoral Development Research Conclusions:Research Conclusions:

People proceed through the stages of moral People proceed through the stages of moral development sequentially.development sequentially.

There is no guarantee of continued moral There is no guarantee of continued moral development.development.

Most adults are in Stage 4 (“good corporate Most adults are in Stage 4 (“good corporate citizen”).citizen”).

Individual CharacteristicsIndividual Characteristics

ValuesValues Basic convictions about what is right or Basic convictions about what is right or

wrong on a broad range of issueswrong on a broad range of issues Stage of Moral DevelopmentStage of Moral Development

A measure of an individual’s A measure of an individual’s independence from outside influencesindependence from outside influences

Individual CharacteristicsIndividual Characteristics

Personality VariablesPersonality Variables Ego strengthEgo strength

A personality measure of the strength of a A personality measure of the strength of a person’s convictionsperson’s convictions

Locus of ControlLocus of Control A personality attribute that measures the degree A personality attribute that measures the degree

to which people believe they control their own life.to which people believe they control their own life. Internal locus:Internal locus: the belief that you control your the belief that you control your

destiny.destiny. External locus:External locus: the belief that what happens to the belief that what happens to

you is due to luck or chance.you is due to luck or chance.

Structural VariablesStructural Variables

Organizational characteristics and mechanisms Organizational characteristics and mechanisms that guide and influence individual ethics:that guide and influence individual ethics: Performance appraisal systemsPerformance appraisal systems Reward allocation systemsReward allocation systems Behaviors (ethical) of managersBehaviors (ethical) of managers An organization’s cultureAn organization’s culture Intensity of the ethical issueIntensity of the ethical issue

Good structural design minimizes ambiguity and Good structural design minimizes ambiguity and uncertain and foster ethical behavior.uncertain and foster ethical behavior.

Ethics in an International Ethics in an International ContextContext

Ethical standards are not universal.Ethical standards are not universal. Social and cultural differences Social and cultural differences

determine acceptable behaviorsdetermine acceptable behaviors Foreign Corrupt Practices ActForeign Corrupt Practices Act

Makes it illegal to corrupt a foreign Makes it illegal to corrupt a foreign official yet “token” payments to officials official yet “token” payments to officials are permissible when doing so is an are permissible when doing so is an accepted practice in that country.accepted practice in that country.

How Managers Can Improve Ethical How Managers Can Improve Ethical Behavior in An OrganizationBehavior in An Organization

1.1. Hire individuals with high ethical standards.Hire individuals with high ethical standards.

2.2. Establish codes of ethics and decision rules.Establish codes of ethics and decision rules.

3.3. Lead by example.Lead by example.

4.4. Delineate job goals and performance appraisal Delineate job goals and performance appraisal mechanisms.mechanisms.

5.5. Provide ethics training.Provide ethics training.

6.6. Conduct social audits.Conduct social audits.

7.7. Provide support for individuals facing ethical Provide support for individuals facing ethical dilemmas.dilemmas.

Effective Use of a Code of EthicsEffective Use of a Code of Ethics

Develop a code of ethics as a guide in handling Develop a code of ethics as a guide in handling ethical dilemmas in decision making.ethical dilemmas in decision making.

Communicate the code regularly to all Communicate the code regularly to all employees.employees.

Have all levels of management continually Have all levels of management continually reaffirm the importance of the ethics code and reaffirm the importance of the ethics code and the organization’s commitment to the code.the organization’s commitment to the code.

Publicly reprimand and consistently discipline Publicly reprimand and consistently discipline those who break the code.those who break the code.

The Value of Ethics TrainingThe Value of Ethics Training

Training in ethical problem solving can make a Training in ethical problem solving can make a difference in ethical behaviors.difference in ethical behaviors.

Training in ethics increase employee Training in ethics increase employee awareness of ethical issues in business awareness of ethical issues in business decisions.decisions.

Ethics training clarifies and reinforces the Ethics training clarifies and reinforces the organization’s standards of conduct.organization’s standards of conduct.

Employees become more confident that they Employees become more confident that they will have the organization’s support when will have the organization’s support when taking unpopular but ethically correct stances.taking unpopular but ethically correct stances.

Ethical LeadershipEthical Leadership Managers must provide a Managers must provide a good role modelgood role model by: by:

Being ethical and honest at all times.Being ethical and honest at all times. Telling the truth; don’t hide or manipulate Telling the truth; don’t hide or manipulate

information.information. Admitting failure and not trying to cover it up.Admitting failure and not trying to cover it up. Communicating shared ethical values to Communicating shared ethical values to

employees through symbols, stories, and slogans.employees through symbols, stories, and slogans. Rewarding employees who behave ethically and Rewarding employees who behave ethically and

punish those who do not.punish those who do not. Protecting employees (whistleblowers) who bring Protecting employees (whistleblowers) who bring

to light unethical behaviors or raise ethical issues.to light unethical behaviors or raise ethical issues.

Business Practices and Social Business Practices and Social IssuesIssues

Social Impact ManagementSocial Impact Management The field of inquiry at the intersection of The field of inquiry at the intersection of

business practice and wider societal business practice and wider societal concerns that reflects and respects the concerns that reflects and respects the complex interdependency of those two complex interdependency of those two realities.realities.

The question of how to go about increasing The question of how to go about increasing managers’ awareness within their decision-managers’ awareness within their decision-making processes of how society is impacted making processes of how society is impacted by the conduct and activities of their firms.by the conduct and activities of their firms.