1. Ethics and Social Responsibility
chapter four
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Learning Objectives
Explain the relationship between ethics and the law
Differentiate between the claims of the different stakeholder groups that are affected by managers and their companies actions
Describe four rules that can be used to help companies and their managers act in ethical ways

3. Learning Objectives
Discuss why it is important for managers to behave ethically
Identify the four main sources of managerial ethics
Distinguish between the four main approaches toward social responsibility that a company can take

4. The Nature of Ethics Ethical Dilemma
quandary people find themselves in when they have to decide if they should act in a way that might help another person even though doing so might go against their own self-interest

5. The Nature of Ethics Ethics
The inner-guiding moral principles, values, and beliefs that people use to analyze or interpret a situation and then decide what is the right or appropriate way to behave

6. Dealing with Ethical Issues
There are no absolute or indisputable rules or principles that can be developed to decide if an action is ethical or unethical
Neither laws nor ethics are fixed principles 6

7. Stakeholders and Ethics
The people and groups that supply a company with its productive resources and so have a claim on and stake in the company. 7

8. Types of Company Stakeholders
Figure 4.1
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9. Stockholders
Want to ensure that managers are behaving ethically and not risking investors’ capital by engaging in actions that could hurt the company’s reputation
Want to maximize their return on investment

10. Managers
Responsible for using a company’s financial capital and human resources to increase its performance
Have the right to expect a good return or reward by investing their human capital to improve a company’s performance
Frequently juggle multiple interests 10

11. Managers
Problem has been that in many companies corrupt managers focus not on building the company’s capital and stockholder’s wealth but on maximizing their own personal capital and wealth

12. Employees Expect to receive rewards consistent with their performance
Companies can act ethically toward employees by creating an occupational structure that fairly and equitably rewards employees for their contributions

13. Suppliers and Distributors
Suppliers expect to be paid fairly and promptly for their inputs
Distributors expect to receive quality products at agreed-upon prices

14. Some Principles from the Gap’s Code of Vendor Conduct
Table 4.1

15. Customers Most critical stakeholder
Company must work to increase efficiency and effectiveness in order to create loyal customers and attract new ones

16. Whole Food’s Stakeholder Approach to Ethical Business
Figure 4.2
Page 137

17. Community, Society, and Nation
Physical locations like towns or cities in which companies are located
A community provides a company with the physical and social infrastructure that allows it to operate
A company contributes to the economy of the town or region through salaries, wages, and taxes

18. Example – Houston Non-Profits
Many Houston area non-profits were adversely affected by the demise of Enron
Many were dependent on donations from Enron
The arts community was especially hit hard 18

19. Ethical Decision Making
Utilitarian Rule - Decision that produces the greatest good for the greatest number Therefore, managers should compare and contrast alternative courses of action based on the benefits and costs of those alternatives for different stakeholder groups.
How do you measure the benefits and harms that will be done to each stakeholder group?
How do you evaluate the rights and importance of each group?
Moral Rights rule - Decision that best maintains and protects the fundamental or inalienable rights and privileges of the people affected by it Therefore, managers should compare and contrast alternative courses of action based on the effect of those alternative on stakeholders’ rights.
Justice rule - Decision that distributes benefits and harms among people and groups in a fair, equitable, or impartial way Therefore, managers should compare and contrast alternative courses of action based on the degree to which the action will promote a fair distribution of outcomes. This model forces managers to create and utilize fair procedures that inflicts equal amount of benefit, discomfort or harm upon all stakeholders, regardless of differences in race, gender, position, authority, power, etc
Practical rule - Decision that a manager has no hesitation about communicating to people outside the company because the typical person would think it is acceptable
Figure 4.3
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20. Practical Decision Model
Does my decision fall within the acceptable standards that apply in business today?
Am I willing to see the decision communicated to all people and groups affected by it?
Would the people with whom I have a significant personal relationship approve of the decision?
A manager can assume a decision is ethical if he or she can answer ‘yes’ to the following three questions:

21. Why should managers behave ethically?
The relentless pursuit of self-interest can lead to a collective disaster when one or more people start to profit from being unethical because this encourages other people to act in the same way
Tragedy of the Commons – the social harms created when everyone acts to maximize their own self-interests without regard for the consequences when everyone follows suit. For example, if everyone steals music because they can, then musicians could not afford to create music (they’d need to find a way to support themselves) and so music would disappear, harming both musicians and all of us.

22. Some Effects of Ethical/Unethical Behavior
Figure 4.4
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23. Trust and Reputation Trust
willingness of one person or group to have faith or confidence in the goodwill of another person
When stakeholders believe that they are dealing with others who are basically moral and honest, trust exists.
Over time, trust between stakeholders allows them to work together more efficiently and effectively, thus raising company performance.

24. Trust and Reputation Reputation
esteem or high repute that individuals or organizations gain when they behave ethically
If a manager misuses resources and if other parties regard that behavior as being at odds with acceptable standards, the manager’s reputation will suffer. All stakeholders have reputations to lose.

25. Sources of Ethics
Figure 4.5
Page 146

26. Societal Ethics Societal Ethics
Standards that govern how members of a society should deal with one another in matters involving issues such as fairness, justice, poverty, and the rights of the individual
People behave ethically because they have internalized certain values, beliefs, and norms

27. Occupational Ethics Occupational Ethics
Standards that govern how members of a profession, trade, or craft should conduct themselves when performing work-related activities
Medical & legal ethics
Table 4.2 page 149
See Table 4.2 for some failures in professional ethics.

28. Individual Ethics Individual Ethics
Personal standards and values that determine how people view their responsibilities to other people and groups
How they should act in situations when their own self-interests are at stake

29. Organizational Ethics
Guiding practices and beliefs through which a particular company and its managers view their responsibility toward their stakeholders
Top managers play a crucial role in determining a company’s ethics
Top managers should consistently endorse the ethical principles in its corporate credo.

30. Social Responsibility
The way a company’s managers and employees view their duty or obligation to make decisions that protect, enhance, and promote the welfare and well-being of stakeholders and society as a whole
Table 4.3 page 154
See Table 4.3 for forms of socially responsible behavior.

31. Approaches to Social Responsibility
Figure 4.6
Page 155

32. Approaches to Social Responsibility
Obstructionist approach
Companies choose not to behave in a social responsible way and behave unethically and illegality
An obstructionist approach is at the low end of the commitment scale in which companies and their managers choose to behave unethically and illegally. They then do all they can to prevent knowledge of their behavior from reaching other stakeholders and society at large.

33. Approaches to Social Responsibility
Defensive approach
companies and managers stay within the law and abide strictly with legal requirements but make no attempt to exercise social responsibility
A defensive approach indicates at least a commitment to ethical behavior.

34. Approaches to Social Responsibility
Accommodative approach
Companies behave legally and ethically and try to balance the interests of different stakeholders against one another so that the claims of stockholders are seen in relation to the claims of other stakeholders
An accommodative approach is an acknowledgment of the need to support social responsibility. Managers adopting this approach want to make choices that are reasonable in the eyes of society and want to do the right thing when called on to do so.

35. Approaches to Social Responsibility
Proactive approach
Companies actively embrace socially responsible behavior, going out of their way to learn about the needs of different stakeholder groups and utilizing organizational resources to promote the interests of all stakeholders
Such companies are at the forefront of campaigns for a variety of social causes.

36. Why Be Socially Responsible?
Demonstrating its social responsibility helps a company build a good reputation
If all companies in a society act socially, the quality of life as a whole increases
The reward for a good reputation is increased trade and improved ability to obtain resources from stakeholders.
In a capitalist system companies, along with the government, have to bear the costs of protecting their stakeholders by providing health care, income, paying taxes, etc. So if all companies in a society act socially responsibly, the quality of life as a whole increases.
 The way companies behave toward their employees determines many of a society’s values and norms and the ethics of its citizens. Countries where organizations are highly socially responsible and as a result crime, poverty, and unemployment rates are relatively low, the literacy rate is relatively high, and socio-cultural values promote harmony between different groups of people.

37. Role of Organizational Culture
Ethical values and norms help organizational members:
Resist self-interested action
Realize they are part of something bigger than themselves
Managers can emphasize the importance of social responsibility by ensuring that ethical norms and values are a central component of the organization’s culture.
 Employees expect those in authority to provide leadership. Therefore, managers should behave as role models of ethical conduct, knowing that subordinates scrutinize their behavior.

38. Johnson & Johnson Credo
Johnson & Johnson is well known for its ethical culture. It has been judged to have the best corporate reputation for two years in a row, based on a survey of over 26,000 consumers. The company’s founder emphasized the importance of ethics and responsibility to stakeholders in 1943 when he wrote the company’s credo. This credo outlines the company’s commitments to its different stakeholder groups and continues to guide employees at Johnson & Johnson today. The company demonstrated its ethicality 20 years ago when it decided to stop marketing its baby oil as a tanning aid because of early evidence suggesting that health problems might result from too much exposure to the sun. That decision cost the company $5 million in lost sales. The company’s vice-president for recruiting finds that the company’s reputation helps them recruit and attract a diverse workforce. (Box in text on p. 136).
Figure 4.7
Page 158

39. Ethics Ombudsman
Responsible for communicating ethical standards to all employees
Designing systems to monitor employees conformity to those standards
Teaching managers and employees at all levels of the organization how to appropriately respond to ethical dilemmas
Organizations can encourage an ethical culture by creating the role of ethics officer, or ethics ombudsman. The ethics ombudsman has organization wide authority.