Managing Business Ethics and Social Responsibility Managing Business Ethics and Social Responsibility Introductory Lecture Martyn Kendrick De Montfort University

Learning Outcomes Define ethics and explain how ethical behavior relates to behaviour governed by law and free choice. Outline the utilitarian, individualism, moral-rights, and justice approaches for evaluating ethical behavior. Describe the factors that shape a manager’s ethical decision making. Identify important stakeholders for an organization and discuss how managers balance the interests of various stakeholders.

Learning Outcomes Explain the philosophy of sustainability and why organizations are embracing it. Define corporate social responsibility and how to evaluate it along economic, legal, ethical, and discretionary criteria. Discuss how ethical organizations are created through ethical leadership and organizational structures and systems.

Will You Be A Courageous Manager? Managers exercise the strength of their moral beliefs and sense of justice Moral lapses and financial scandals has made ethical and courageous behaviour an important trait for today’s managers

Ethics The code of moral principles and values that govern the behaviors of a person or group with respect to what is right or wrong.

Managerial Ethics Ethics can be difficult to define Ethics can be difficult to define Ethical issues are exceedingly complex Managers face a variety of difficult situations Ethics fall between law and free choice

Failure of Corporate Ethics Financial Scandals Health & Safety Scandals Corruption & Bribery Moral Scandals

Corporate Scandals ENRON (USA) - In just 15 years, Enron grew from nowhere to be America's seventh largest company, employing 21,000 staff in more than 40 countries. But the firm's success turned out to have involved an elaborate scam. Enron lied about its profits and was accused of a range of shady dealings, including concealing debts through “special purpose entities” so that they didn't show up in the company's accounts.

Corporate Scandals ENRON (USA) - The scandal at the one-time energy giant left 21,000 people out of work, and shook corporate America, when the firm went bankrupt in 2001 with debts of $31.8bn (£18bn). Former Enron CEO Jeffrey Skilling was sentenced to 24 years in prison in 2006 for his role in the giant fraud that led to the energy firm's 2001 collapse. Kenneth Lay, the former Chairman, was also found guilty, but died before his sentence was confirmed

Corporate Scandals SATYAM (India) - It has been called India's Enron given that the biggest-ever corporate fraud in the country had escaped unnoticed for so many years. $63 Billion fraud - filed for bankruptcy after fiddling accounts over long period to boost published profits. - India’s fourth-largest outsourcing services provider inflated the amount of cash it said was on its books by $1bn (£680m); incurred a $253m liability on funds personally arranged by its chairman and founder, Ramalinga Raju; overstated quarterly revenues for the period ending 30 September 2008 by 28% and overstated earnings by $125m.

Corporate Scandals SANLU (China) - In November 2009, China executed two people deemed responsible for the tainted milk scandal. At least six children had died and 300,000 were made ill. Sanlu, the company at the heart of the scandal, knew that its milk was making babies ill by May 2008, but it did not inform officials until August 2008. Tian Wenhua, the CEO, was given a life sentence after pleading guilty to charges of producing and selling fake or substandard products.Three other former Sanlu executives were given between five years and 15 years in prison. The mayor, party leader and other city officials in Shijiazhuang were sacked and China's food standards boss resigned due to the scandal

Ethical Dilemmas: What Would You Do? An ethical dilemma arises in a situation concerning right or wrong when values are in conflict Managers and employees are the moral agents who must make ethical choices Decisions about advertising, operations, and internet usage are all dilemmas YOU might face

Carroll’s level of values

Ethical Dilemmas – What would you do? Your company requires a money laundering screening for all new customers, which takes approximately 24 hours from the time an order is placed. But you can close a lucrative deal with a potential long-term customer (and secure a large bonus) if you agree to ship the products overnight, even though that means the required money laundering screening will have to be done after the fact

Ethical Dilemma – what would do? You are the accounting manager of a division that is $15,000 below profit targets. Approximately $20,000 of office supplies were delivered on December 21. The accounting rule is to pay expenses when incurred. The division general manager asks you not to record the invoice until next February so team can share a bonus for meeting target.

Criteria for Ethical Decision Making Utilitarian approach – moral behaviors should produce the greatest good for the greatest number Individualism approach – acts are moral when they promote the individual’s best long-term interests

Criteria for Ethical Decision Making Moral Rights Approach – moral decisions are those that best maintains the rights of those affected Justice Approach – decisions must be based on standards of equity, fairness, and impartiality

Defining Justice Distributive Justice – different treatment of people should not be based on arbitrary characteristics. Compensatory Justice – individuals should be compensated for the cost of their injuries by the party responsible.

Manager Ethical Choices An important personal trait that mangers poses is their stage of moral development

Globalization and Ethics Globalization makes ethical issues more complex Bribes are common practice in many countries -Transparency International ranks 178 countries based on Bribe Payers Index. http://www.transparency.org/policy_research/surveys_indices/cpi/2010

What is Corporate Responsibility? Corporate Social Responsibility (CSR) is the obligation of organization management to make decisions and take actions that will enhance the welfare and interests of society as well as the organization

What is Corporate Responsibility? Huge literature on CSR and growing all the time. Garriga and Mele suggest that research into CSR can be split into four general categories: Instrumental theories which focus on profit maximization Political theories which ascribe responsibilities to organizations as part of their social contract or ‘license to operate’

What is Corporate Responsibility? Integrative theories which suggest that the long-term success and profitability of organizations is closely allied to the well-being of society. Ethical theories which apply ethics on organizations and deduct the responsibility of firms from universal and/or conventional norms and values and fundamental moral principles

Organizational Stakeholders Stakeholders are any group within or outside the organization that has a stake in the organization’s performance.

The Ethics of Sustainability Sustainable Development Economic Development that generates wealth Meets the needs of current generation Saving the environment for future generations Managers are weaving sustainability into strategic decisions

Evaluating Corporate Responsibility

The Ethical Organization

Managing Company Ethics and Social Responsibility Code of Ethics – formal statement of the organization’s values regarding ethics and social issues Ethical Structures – systems, positions and programs to implement ethical behavior Whistle-Blowing – employee disclosure of illegal, immoral, or illegitimate practices

The Business Case for Ethics and Social Responsibility Paying attention to ethics and social responsibility is as important as profits and costs Ethical and social actions impact financial performance Companies are beginning to measure nonfinancial factors that create value Customers pay attention to a company’s ethics and social responsibility