Chapter 6 Ethics and Social Responsibility

Learning Objectives Explain ethics as they relate to the five domains of individuals, organizations, stakeholders, government, and the global community Demonstrate processes and practices for managing organizational ethics Describe how businesses approach social responsibility Explain how organizations seek to prosper through social responsibility Summarize management’s role in building responsible businesses based on ethical decision making Management 1e 6 - 2

What Are Ethics? (p. 144) Ethics The moral principles, values, and beliefs that govern group or individual behavior according to what is right or wrong and what contributes to the balanced good of all stakeholders Ethical dilemma – a situation in which no choice is entirely right Management 1e

What Are Ethics? (cont.) Domains of ethical decision making Figure 6.1 Management 1e

What Are Ethics? (cont.) Individuals (p. 145) Lawrence Kohlberg’s “stages of moral development” Progression from interests in self to interest in others (p. 146) Preconventional – moral decisions are based primarily on self-protection or self-interest Conventional – moral decisions are based primarily on social norms Societal norms – expectations about how people (and organizations) should behave Postconventional – moral decisions are based primarily on what individual believes is good for society as a whole Management 1e

What Are Ethics? (cont.) Kohlberg’s stages of moral development Figure 6.2 Management 1e

What Are Ethics? (cont.) Organizations - posture of the organization toward the local and global communities (p. 146) Figure 6.3 Management 1e

What Are Ethics? (cont.) Value-based management - company’s culture impacts employee behavior in ways that are consistent with the organization’s mission and values (p. 147) Figure 6.4 Management 1e

What Are Ethics? (cont.) Stakeholders (p. 148) Internal and external constituents with a direct interest in the organization’s behavior Experience the effects of company’s management decisions Figure 6.5 Management 1e

What Are Ethics? (cont.) Externality – a cost (negative) or benefit (positive) that occurs beyond the direct exchange between an organization and its stakeholders (p. 148) Escalation – an increase in an organization’s behavior as a direct response to a competitor’s behavior (p. 149) CRITICAL THINKING Management 1e

What Are Ethics? (cont.) Governments (p. 149) Enact legal requirements to prevent unethical behavior E.g., Sarbannes-Oxley Act (2002) – requires greater transparency in company accounting practices Face “fundamental large-firm problem” stemming from: Separation of ownership and control Decentralized regulation system Management 1e

What Are Ethics? (cont.) Globe (p. 150) Global-level of ethics – principles, values, and beliefs that are widely considered universal United Nations’ - “The Global Compact” Intended to guide decision making in the areas of human rights, labor, the environment, and anti-corruption Management 1e

Making Ethical Decisions (p. 151) Principles of ethics (p. 152) Legal principle – decisions that follow both the letter and spirit of the law Individual rights principle – decisions that do not infringe upon the rights of other people Virtuous principle – decisions of which you would be publicly proud Long-term principle – decisions that support the long-term interests of yourself and your organization Management 1e

Making Ethical Decisions (cont.) Principles of ethics (cont.) Community principle – decisions that contribute to the strength and well-being of the community (p. 152) Utilitarian principle – decisions that provide the greatest good to the greatest number (or the least harm to the fewest number) Distributed justice principle – decisions that do not harm those who already are disadvantaged Management 1e

Making Ethical Decisions (cont.) Codes of conduct - organization’s published guidelines of its expectations about ethical behavior (p. 153) Typically address conduct in eight areas Fiduciary Dignity Property Transparency Reliability Fairness Citizenship Responsiveness Management 1e

Making Ethical Decisions (cont.) Principle-based management (p. 153) Organization proactively connects values and beliefs to behavior expectations All stakeholders are continuously made aware of standards for behavior Stakeholders become a vital component to decision making Management 1e

Social Responsibility (p. 154) Proactive behaviors for the benefit of society Corporate social responsibility (CSR) Programs that coordinate the company’s efforts to address societal and community challenges as they emerge Management 1e

Social Responsibility (cont.) Approaches to social responsibility (p. 155) Proactive approach – organization goes beyond industry norms to solve and prevent problems Begin by consulting the articles of incorporation May change the legal structure to support socially responsible activities B Lab – non-profit organization that certifies socially responsible companies Accommodative approach – organization accepts responsibility and takes action in response to societal pressures (p. 156) Management 1e

Social Responsibility (cont.) Approaches to social responsibility (cont.) Defensive approach – organization accepts responsibility, but does only the minimum required (p. 156) Reactive approach – organization denies responsibility for social problems and responds only when legally required Management 1e

How Does Social Responsibility Pay? (p. 157) Social entrepreneurs - people who start a business for the dual purpose of profits and societal benefits Consumers and investors becoming more active in supporting and investing in socially responsible companies Social investing – e.g., Calvert Social Investment Fund screens companies on financial performance and: Environment Workplace Human rights Indigenous peoples’ rights Community relations Product safety and impact Governance business ethics Management 1e

Managing Social Responsibility Today (p. 158) Managers must make principle-based decisions informed by industry and societal standards Internalizing an externality – management proactively addresses a negative externality for the benefit of its stakeholders Building an ethical culture Apply a framework for ethical decision making Ethics training Management 1e

Managing Social Responsibility Today (cont.) Ethical decision making framework (p. 158) Duties (p. 159) Perfect duties – clearly articulated moral obligations Imperfect duties – moral obligations that can be interpreted in different ways Rights –behaviors that can be expected from others, based on their duties Standards of excellence – organization’s highest expectations of behavior Commitments – self-defined principles unique to an individual or organization Management 1e

Managing Social Responsibility Today (cont.) Ethical decision making framework (cont.) Applying the framework (p. 159) Understanding the situation Connecting behaviors to standards Impartial analysis Visibility – the “newspaper test” Generality – would all organizational members be comfortable with action taken Legacy – would decision maker be comfortable being remembered for the action taken Management 1e

Managing Social Responsibility Today (cont.) Ethics training (p. 159) Intended to prevent unethical behavior from occurring Figure 6.6 Management 1e

Managing Social Responsibility Today (cont.) Ethics training (cont.) Audience for training Training characteristics – trainees’ current moral profile Audience’s assertiveness, cognitive ability, perspective on ethical behavior (p. 159) Needs assessment – determine audience’s need for ethics training (p. 160) Training transfer – steps to assure that what is learned about ethics will be used on the job Evaluation – determine the effect of training on trainees’: Reaction to the training Workplace behavior Knowledge/skills tests Organizational performance Management 1e

Managing Social Responsibility Today (cont.) In the interests of self or others? (p. 161) Tragedy of the commons Figure 6.7 Management 1e

Copyright Copyright © 2014 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information herein. Management 1e