Ethical and Social Responsibilities of Business IntroductionIntroduction Ethical responsibilitiesEthical responsibilities Social responsibilitiesSocial responsibilities Responsibilities to stakeholdersResponsibilities to stakeholders Reconciling conflictReconciling conflict

Definitions Ethical responsibility: acting in a manner that is appropriate to the stakeholder, beyond the law. It is a moral duty or obligation. Social responsibility: refers to businesses operating as a subset of society, thereby requiring them to act in a manner that is within acceptance of social standards of behaviour.

Introduction In today’s business environment, businesses have a responsibility to their stakeholders to ensure their interests are met, while at the same time minimizing conflicts that may arise between stakeholders. Emphasis has been placed on businesses social and ethical responsibilities.

Ethical Responsibilities Fairness and Honesty Communications Workplace Relations Conflict of interest

Fairness and Honesty Businesses must obey all laws and regulations (compliance) Society expects businesses to tell the truth and avoid misleading and deceptive information. Customers expect to be dealt with fairly and honestly e.g. delivery of a product on time

Communications False and misleading advertising is not only ethical but also illegal E.g. ‘special’ vs ‘on special’

Workplace Relations Confidential information may be leaked Harrassment and discrimination exist despite laws against it Unethical practices may exist e.g. insider trading Sometimes serious harrassment or negligence may force individuals to leave the company or bring legal action

Conflict of interest This occurs where an individual acts for their own personal gain rather than that of the employer/company E.g. gifts, bribes (although in some countries it is an acceptable way of conducting business) Corruption undermines the integrity of the business and its image in the society

FOCUS QUESTIONS Exercise 6.1 pp Questions

Encouraging Ethical business behaviour Strategy – Corporate Code of Conduct These codes are documented and used as guidelines for employee and manager behaviour.

Pressures affecting Ethical Decision Making and responsibilities to stakeholders Internal Business Environment  Shareholders  Management  Employees External Business Environment  Customers  Government  Society

Pressures influencing ethical decision making- INTERNAL Shareholders -Make financially sound decisions -Increased profit -Adequate return on investment Management -support CEO Adequate resources Employees - -Safe and healthy workplace - -Fair treatment for promotion - -Fair pay level

PRESSURES - EXTERNAL Consumers -Safe reliable products -Guarantees supported -No misleading advertising Government - -Pay taxes - -Abide by legal requirements Society -disclosure of public information -ethical practices

Evolution of the concept of Social Responsibility There are two views of social responsibility. The Economic Model (traditional): produce products, provide employment and earn a profit The Socioeconomic Model (non-traditional): not only responsibility to owners/shareholders but also to employees, suppliers, customers and society

Why is the socio-economic model so popular? Society now has a greater acceptance of corporate behaviour Many businesses take pride in their social responsibilities Many believe it is their interests to become socially responsible- ‘enlightened self interest’ i.e. it is good for business Refer: p.125-Body Shop

Ten Commandments of Corporate Responsibility 1.Correct before it becomes a problem 2.Consult with shareholders to reduce problems 3.Adopt industry wide standards 4.Publically admit mistakes 5.Become involved in community programs

Ten Commandments cont’d 6. Help improve the natural environment 7. Monitor the changing business environment 8.Adopt a corporate code of conduct 9.Take a public stand on issues 10. Strive to make a profit

Sustainability Report A business can measure its progress towards fulfilling its social responsibilities by preparing a SUSTAINABILITY REPORT. It attempts to measure and assess how the business’s practices and operations affect society and the environment.

FOCUS QUESTIONS Exercise 6.2 p.127 Questions 1,2,4,5,6 and 9

RESPONSIBILITIES TO STAKEHOLDERS

SHAREHOLDERS  Maximizing returns to shareholders on their investment through efficient operations thereby generating maximum profits  Providing an environment where shareholders can express their views and vote for the Board of Directors e.g. AGM’s  Provide information on the financial state of the business e.g. Annual Report  Operating within the law and/or Company Code of Practice

EMPLOYEES  Providing a safe working environment – physical & psychological  Offering fair remuneration for labour  Ensuring long term entitlement such as superannuation and long service leave.  Family friendly practices e.g. 9 months paid maternity leave to university employees.  Providing structures for advancement via promotion  Promoting equality in the workplace by eliminating discriminatory practices e.g. EEO  Empowering employees through effective communication and including them in decision making EMPLOYEES

MANAGERS  Having access to the necessary resources in order to carry out their role effectively  Having an effective communication system allowing information to be passed down the chain of command and allowing the delegation of authority  Support from the business owners and directors for their creativity & strategic thinking  Structured programs to develop their skills via training and developmentManagers

CONSUMERS Supply products that are safe and not adverse to their health e.g. PAN pharmaceuticals Offer quality products which are of ‘merchantable quality’ Provide reliable information about product e.g. labeling Provide means for redress if a product is faulty or fails to fulfill its stated purpose

SOCIETY Abiding by the laws when carrying out their operations e.g. Newmont Mines in Indonesia Providing employment for local area Ensuring business practices are ‘ecologically sustainable’ e.g. preventing or minimizing pollution, utilizing resources to minimize waste, preserving the natural environment Investing into the community to provide for social needs of the society such as welfare programs e.g. Ronald McDonald House, Sport Sponsorship.

FOCUS QUESTIONS EXERCISE 6.3 p.134 QUESTIONS 1-6

RECONCILING CONFLICT OF INTEREST RESOLVING CONFLICT OF INTERESTEach stakeholder has their own agenda and therefore a business must try to meet all stakeholders’ needs that are reasonable. Any conflicts that may arise will need management skills to resolve them. The key areas are: 1. Shareholders, society and future generations 2.Shareholders & employees

SHAREHOLDERS,SOCIETY & FUTURE GENERATIONS E.g. Shareholders wants to maximize profit at the cost of the environment. Cost cutting can result in environmental damage. These are: 1.dangerous levels of pollution 2.increased pollution due to the use of outdated technology 3.land degradation caused by clearing and failure to replant natural vegetation after mining Consequences; Future generations may not inherit a sustainable environment Strategies:__________________________________

RECONCILING CONFLICT SHAREHOLDERS & EMPLOYEES The most significant is the cost of providing employees with good working conditions and fair rewards for labour. Shareholders seek to maximize profit by minimizing costs and given that labour is the most significant cost to business, management needs to develop strategies to resolve this conflict. Management needs to recognize this conflict and provide strategies to reconcile it. Benefits to both:

FOCUS QUESTIONS Exercise 6.3 p.134 Questions 1,3,4,5,6,8 &10