Ethics and Social Responsibility Chapter 4 Ethics and Social Responsibility

Learning Objectives Define ethics and understand the relationship between law and ethics. Identify the stakeholders of organizations and understand each group’s claims on the organization and how each is affected by the organization’s actions. Explain four approaches (utilitarian, moral rights, justice and practical) to help organizations evaluate choices in ethical dilemmas. Describe the four main sources of a manager’s ethics – societal, occupational, individual, organizational ethics Define corporate social responsibility and the four approaches which organization’s may take regarding social responsibility.

What is Managerial Ethics? What is Managerial Ethics? The inner-guiding moral principles, values, and beliefs that people use to decide what is the “right” or appropriate way to behave. Ethics is about making decisions. Poor managerial ethics Can generate negative publicity Bring down company’s stock price Put the company out of business.

Ethical Dilemma An ethical dilemma is a quandary which people find themselves in when right and wrong cannot be clearly identified. Their actions might help one person at the expense of another or their own self-interest. All choices have potentially negative consequences Values are in conflict

Ethics and Law Ethics Law Ethics and Law Ethics Unenforceable norms and values guide behavior There are no specific laws Law Values are written into enforceable standards of behavior Laws are enforced by the justice system Ethics and laws change as norms and values of society changes

Stakeholders and Ethics Stakeholders and Ethics Organizational Stakeholders – people or groups that supply a company with its productive resources and have a claim on its resources. Has a stake in the organization’s performance When there are no laws to specify behavior, managers must decide what is the ethical way to behave toward organizational stakeholders

Stakeholders and Ethics Stakeholders and Ethics

Stakeholders and Ethics Stakeholders and Ethics Stockholders Want to maximize their return on investment Want to be sure management is not engaging in actions which could hurt company’s reputation Managers Responsible for using resources to increase organization’s performance Have the right to expect a reward for their use of resources to improve organization’s performance Juggle multiple interests

Stakeholders and Ethics Stakeholders and Ethics Customers Most critical stakeholder Want quality product at low price – organization must create loyal customers and attract new ones Community Want success of organization for economic development (taxes and income of citizens) Want good quality of life with safe environment for citizens

Stakeholders and Ethics Stakeholders and Ethics Employees Organizations have a responsibility to create structure that rewards employees fairly for their contribution Suppliers and Distributors Suppliers expect to be paid fairly and promptly for their inputs Distributors expect to receive quality products at agreed-upon prices.

Approaches For Ethical Decision Making Approaches For Ethical Decision Making

Utilitarian Approach Ethical dilemmas are resolved by making decisions which result in the greatest good for the greatest number. In making decisions, consider the effect of each alternative on all parties Select the alternative which satisfies the greatest number of people. Decisions are based on outcomes or consequences Problem: Adhering to the common good approach can result in ignoring the individual’s rights.

Moral Rights Approach Ethical dilemmas are resolved by making decisions which maintain and protect the fundamental rights and privileges of people affected by the decision Asserts human beings have fundamental rights and liberties. Right to freedom, life and safety Right to privacy Right to free speech Right to freedom of conscience Focuses on “ethics” of decision independent of consequences

Justice Approach Ethical dilemmas are resolved by basing decisions on standards of equity, fairness, and impartiality. In making decisions, choose alternatives which result in fair and impartial treatment to the involved parties Different treatment should not be based on arbitrary characteristics Administer rules fairly If harm done, injured party should be made whole

Practical Approach Ethical dilemmas are resolved by making decisions based on whether the typical person in society would think it is acceptable. A decision is ethical if the manager can answer yes to three questions Is my decision within accepted values and standards of business today? Are you willing to communicate the decision to all groups? Would people I am closest to (family, friends) approve of the decision?

Determinants of Business Ethics Determinants of Business Ethics There are four main determinants of differences in ethics between people, employees, companies and countries Societal Ethics Occupational Ethics Individual Ethics Organizational Ethics

Individual Ethics: Three Levels of Personal Moral Development (based on L. Kohlberg) Preconventional Level Individual is concerned with concrete consequences – stick to rules to avoid punishment. Ethical actions are those that “follow the rules.” At a higher stage within this level, individual follows rules when it is in his/her immediate interests. Ethical actions are those that result in an equal exchange or “fair deal.” Managers at this level expect dependable accomplishment of tasks within the approved methods

Individual Ethics: Three Levels of Personal Moral Development Individual Ethics: Three Levels of Personal Moral Development Conventional Level The individual conforms to expectations of what is good behavior. Expectations are defined by people closest to you, society, and groups. Ethical actions are those that “live up” to what is expected by people close to you. Fulfill duties and obligations. Managers at this level emphasize cooperation and collaboration to accomplish tasks. Most adults operate at this level.

Individual Ethics: Three Levels of Personal Moral Development Individual Ethics: Three Levels of Personal Moral Development Postconventional or Principled Level The individual is guided by own values and standards and will disobey rules which violate own principles. Ethical actions are those which conform to an individual’s own principles and standards. May result in “civil disobedience.” According to Kohlberg, less than 20 percent of American adults reach this level. Managers at this level focus on the needs of employees and encourage them to think for themselves.

Organizational Ethics Organizational Ethics Most of us operate at the Conventional level of moral development, so … The norms and values of your immediate work group, department and the organization will have great influence on ethical behavior. Company culture lets people know what behaviors the company supports and those actions considered “unethical.” The organization’s rules, policies and reward systems guide people’s actions

Organizational Structures Organizational Structures Develop a code of ethics or credo for the organization - A formal statement of the company’s values concerning ethics and social issues; it communicates to employees what the company stands for. Creation of Ethics officers – a management position dedicated to monitoring organizational practices and teaching ethical practices to employees The Sarbanes-Oxley Act passed in 2003 requires procedures for handling whistleblowers’ concerns regarding accounting complaints

Social Responsibility Social Responsibility The way a company’s managers and employees view their obligation to make decisions that protect, enhance and promote the welfare of society as well as the organization. Does the organization have responsibilities beyond economic responsibilities (maximizing profits for owners and shareholders)?