Social Responsibility of Business Is To Increase Its Profits Milton Friedman For Market to Be Free It Must Be Open (Competition without deception or fraud) Corporation is an artificial person therefore cannot have responsibility CEO acts as an agent not a principal

The primary function of the Executive is creation of wealth for stockholders, employees, and customers CEO is responsible to owners CEO who spends money on socially responsible activities –S–Spends stockholders dividend –S–Spends employees wages –S–Spends customers money

If A CEO Acts on Social Objectives –T–They need to be elected –T–They need to become expert in public policy A market when everyone acts in own self interests keep other people’s action in check The market forces conformity to the will of society

TEST ONE Page 1 Through 159

CRITICAL QUESTION? Will Society Pay a Premium to Socially Responsible Firms? If So How Much?

Can Socially Responsible Firms Survive in a Competitive Environment? Robert H. Frank Response to Milton Friedman Evolutionary Biology –Higher payoff at certain times for altruism –Commitment when may not be viewed as serving self interest –Will act altruistically if perceive other person will –Over time altruism pays

Reasons Socially Responsible Firms Prosper –Able to solve shirking problem with employees because of trust –Able to solve customer problems –Avoid Subcontractor Holdups, Assure Quality, and Maintain Confidentiality –Attract Customers –Attract Employees

CRITICAL QUESTION Why Are American Managers Unable or Unwilling to Discuss Ethical Behavior in the Workplace?

Moral Muteness of Managers Fredrick B. Bird and James A. Waters “There is a disinclination of American business people to admit they acted altruistically even if they did” Alex de Tocqueville (1800) Norms: –Standards of behavior that are sufficiently compelling and authoritative that people feel they must either comply with them, make a show of complying with them, or offer good reason why not

MORAL NORMS Moral norms are established through “moral expression.” This creates reality in the organization. Quadrants of moral action and speech –Talk about moral behave morally –Talk about morals but behave immorally (moral backsliding, moral fatigue, hypocrisy) –Don’t talk about moral behavior and don’t behave morally –Act morally but do not talk

CAUSES FOR MORAL MUTENESS THREAT TO ORGANIZATIONAL HARMONY –Whistle blowing, lack of candid performance appraisals, creates finger pointing THREAT TO EFFICIENCY –Takes away from problem solving discussion –Moral analysis doesn’t solve problems –Removes flexible, informal and amendable relationships (rigidity, rules, and regulations) THREAT TO IMAGE AND POWER –Viewed as idealistic and utopian. May reveal “ethical illiteracy”

CONSEQUENCES Moral Amnesia - – Creates the caricature that management is moral Narrowed Conception of Morality –Maintain neutrality by “stonewalling” moral discussion Neglect of Abuses –Organization will not recognize and deal with problems Decreased Authority of Moral Standards –Lack of dialogue creates lack of support of moral behavior

HOW TO FIX THE PROBLEM Create environment that legitimizes dissent –Remove blame, criticism and punishment for expression of views. Teach people how to dissent Teach people to incorporate moral discussion into regular expressions and arguments