Business Ethics Ch. 3B Management A Practical Introduction Angelo Kinicki & Brian K. Williams

Learning Objectives 1 Describe the importance of Ethics Explain the four approaches to deciding ethical dilemmas Explain Kohlberg’s three levels of morals development Suggest how firms can promote ethics Discuss the social responsibilities of mangers

Learning objectives 2 Discuss the importance of social responsibility to managers and organizations Explain the 4 ways managers approach social responsibility

3.3 The Ethical Responsibilities Of You As A Manager WHAT DO SUCCESSFUL MANAGERS NEED TO KNOW ABOUT ETHICS? Managers need to understand ethics, values, the four approaches to ethical dilemmas, and how to promote ethics Ethics are the standards of right or wrong that influence behavior, while ethical behavior is behavior that is accepted as “right” according to those standards An ethical dilemma is a situation in which you have to decide whether to pursue a course of action that may benefit you or your organization but that is unethical or even illegal Values are the relatively permanent and deeply held underlying beliefs and attitudes that help determine a person’s behavior Ethical dilemmas can take place when a firm’s value system is challenged

3.3 The Ethical Responsibilities Of You As A Manager WHAT ARE THE FOUR APPROACHES TO DECIDING ETHICAL DILEMMAS? 1. According to the utilitarian approach, ethical behavior is guided by what will result in the greatest good for the greatest number of people 2. Under the individual approach, ethical behavior is guided by what will result in the individual’s best long-term interests, which ultimately is in everyone’s self-interest 3. According to the moral-rights approach, ethical behavior is guided by respect for the fundamental rights of human beings 4. Ethical behavior under the justice approach is guided by respect for impartial standards of fairness and equity

3.3 The Ethical Responsibilities Of You As A Manager The recent frenzy of white-collar crime at companies like Enron and World.com has raised public and corporate awareness of corporate ethics In 2002, the Sarbanes-Oxley Act was passed to establish requirements for proper financial record keeping for public companies and penalties for non-compliance Laurence Kohlberg has suggested that personal morals can be developed at three levels: preconventional (follows the rules), conventional (follows expectations of others), and postconventional (guided by internal values)

3.3 The Ethical Responsibilities Of You As A Manager HOW CAN ORGANIZATIONS PROMOTE ETHICS? Firms can promote ethics in three ways: 1. Top management needs to support a strong ethical climate 2. Companies can adopt a code of ethics – a formal written set of ethical standards guiding an organization’s actions 3. Companies can promote ethical behavior by rewarding whistleblowers - employees who report organizational misconduct to the public

3.4 The Social Responsibilities Required Of You As A Manager WHAT ARE THE SOCIAL RESPONSIBILITIES OF MANAGERS? Social responsibility is a manager’s duty to take the actions that will benefit the interests of society as well as the organization So, while ethical responsibility focuses on being a good individual citizen, social responsibility focuses on being a good organizational citizen In the past, social responsibility was an afterthought for companies, but today, many firms believe it is critical to success

3.4 The Social Responsibilities Required Of You As A Manager IS SOCIAL RESPONSIBILITY WORTHWHILE? Milton Friedman argues that firms need to focus on making a profit, not on social responsibility Friedman claims that firms that focus on social responsibility get distracted from their real purpose However, Paul Samuelson suggests that firms need to be concerned for the welfare of society as well as corporate profits Samuelson claims that since firms create problems like pollution, they should help solve them

3.4 The Social Responsibilities Required Of You As A Manager HOW DO MANAGERS APPROACH SOCIAL RESPONSIBILITY? 1. Obstructionist managers put economic gain first and resist social responsibility as being outside the organization’s self-interest 2. Defensive managers make the minimum commitment to social responsibility—obeying the law but doing nothing more 3. Accommodative managers do more than the law requires and demonstrate moderate social responsibility 4. Proactive managers actively lead the way to being socially responsible for all stakeholders, using the organization’s resources to identify and respond to social problems

3.4 The Social Responsibilities Required Of You As A Manager CAN FIRMS BE SOCIALLY RESPONSIBLE AND ECONOMICALLY RESPONSIBLE? Jeb Emerson argues that firms do not have to make a tradeoff between making a profit or being socially responsible, they can do both simultaneously Emerson calls this idea blended value where all investments are understood to operate simultaneously in both economic and social realms

3.4 The Social Responsibilities Required Of You As A Manager WHAT ABOUT SUSTAINABILITY & PHILANTHROPY? Two issues linked to social responsibility are sustainability and philanthropy Sustainability is defined as economic development that meets the needs of the present without compromising the ability of future generations to meet their own needs Philanthropy involves making charitable contributions to benefit humankind

3.4 The Social Responsibilities Required Of You As A Manager HOW DOES BEING GOOD PAY OFF? Customers prefer to buy products from companies that are ethically and socially responsible even if the products cost more Managers consider a company’s social and ethical track record when considering joining and staying with companies

3.4 The Social Responsibilities Required Of You As A Manager A poor record of ethical and social responsibility can have a negative effect on profits Managers at companies where dishonesty is common tend to see misconduct Employee fraud costs U.S. firms about $652 billion per year People prefer to buy stock in companies they perceive as being ethical Profitability is enhanced by a reputation for honesty and good citizenship

Key Terms Accommodative Blended Values Code of Ethics Conventional Defensive approach Ethical Dilemmas Ethics Individual approach Justice approach Moral-rights approach Philanthropy Postconventional Preconventional Proactive approach Social responsibility Sustainability Utilitarian approach Values Whistleblower