3 Managing Ethics, Social Responsibility, and Diversity Chapter Five: Ethics, Social Responsibility, and Diversity n Chapter 5 provides an excellent overview about the increasingly important topic of ethical management. A great way to start the chapter would be to highlight a recent article about an ethics problem in management (reports of these are all too common in the Wall Street Journal). n Students are often quick to denounce managers they see as unethical. For example, the Exxon Valdez oil spill is seen by many as a preventable accident on the part of Exxon managers. However, ask how they would prevent it from their office in New York. Sometimes, it is much easier to say you would prevent something than it is to actually do it. n Stress the different needs of stakeholders and how hard it is to satisfy them all. n           Finally, be sure to provide examples of highly ethical managers.  

Learning Objectives 1. Describe the concept of ethics, and the different models of ethics. 2. Describe the concept of social responsibility and detail the ways in which organizations can encourage both ethical and socially responsible behaviour among their employees. 2. Define diversity, and explain why the effective management of diverse employees is both an ethical issue and a means for an organization to improve its performance. 3. Identify instances of sexual harassment, and discuss how to prevent its occurrence.

Ethics It is difficult to know when a decision is ethical. Here is a good test: Managerial ethics: If a manager makes a decision falling within usual standards, is willing to personally communicate the decision to stakeholders, and believes friends would approve, then it is likely an ethical decision. n Ethics guide people in dealings with stakeholders and others, to determine appropriate actions. Managers often must choose between the conflicting interest of stakeholders.  

Ethical Models Utilitarian Model: An ethical decision is a decision that produces the greatest good for the greatest number of people. Moral Rights Model: An ethical decision is a decision that best maintains and protects the fundamental rights and privileges of the people affected by it. For example, ethical decisions protect people’s rights to freedom, life and safety, privacy, free speech, and freedom of conscience. Justice Model: An ethical decision is a decision that distributes benefits and harms among stakeholders in a fair, equitable, or impartial way. Managerial Implication for Utilitarian Model Decisions based on the benefits and costs of those alternatives for different organizational stakeholder groups. They should choose the course of action that provides the most benefits to stakeholders. Problems for Managers Using the Utilitarian Model How do managers decide on the relative importance of each stakeholder group? For example, how do managers choose between the interests of stockholders, workers, and customers? Managerial Implications for Moral Model Managers should compare and contrast alternative courses of action based on the effect of those alternatives on stakeholders’ rights. They should choose the course of action that best protects stakeholders’ rights. Problems for Managers Using the Moral Rights Model If a decision will protect the rights of some stakeholders and hurt the rights of others, how do managers choose which stakeholder rights to protect? Managerial Implications for Justice Managers should compare and contrast alternative courses of action based on the degree to which the action will promote a fair distribution of outcomes. Problems for Managers Using the Justice Model Managers must learn not to discriminate between people because of observable differences in their appearance or behaviour.

Figure 3.1 Sources of an Organization’s Code of Ethics (Text Figure 3.1) n It is difficult to know when a decision is ethical. Here is a good test: › Managerial ethics: If a manager makes a decision falling within usual standards, is willing to personally communicate the decision to stakeholders, and believes friends would approve, then it is likely an ethical decision.

Ethics and Stakeholders Stakeholders: people or groups that have an interest in the organization. Stakeholders include employees, customers, shareholders, suppliers, and others. Stakeholders often want different outcomes and managers must work to satisfy as many as possible. Ethics: a set of beliefs about right and wrong. Ethics guide people in dealings with stakeholders and others, to determine appropriate actions. Managers often must choose between the conflicting interest of stakeholders. n Stakeholders are people or groups that have an interest in the organization. › Ask students to provide stakeholders for your University. These include students, faculty, staff, administration, suppliers, community leaders, citizens, employers, alumni, and others. › Stakeholders often want different outcomes and managers must work to satisfy as many as possible. Ask students to discuss the desired interests of the above stakeholders. You will not find many that have the same, overriding interest.   n Ethics is the term that describes a set of beliefs about right and wrong.

Ethical Origins Societal Ethics: standards that members of society use when dealing with each other. Based on values and standards found in society’s legal rules, norm, and mores. Codified in the form of law and society customs. Norms dictate how people should behave. Societal ethics vary based on a given society. Strong beliefs in one country may differ elsewhere. Example: bribes are an accepted business practice in some countries. n Societal Ethics are standards that members of society use when dealing with each other. › These are based on values and standards found in society’s legal rules, norm, and mores and often codified in the form of law and society customs. n Stress that societal ethics vary based on a given society and that strong beliefs in one country may differ elsewhere. › Example: bribes are an accepted business practice in some countries.  

Ethical Origins Professional ethics: values and standards used by groups of managers in the workplace. Applied when decisions are not clear-cut ethically. Example: physicians and lawyers have professional associations that enforce these. Individual ethics: values of an individual resulting from their family& upbringing. If behaviour is not illegal, people will often disagree on if it is ethical. Ethics of top managers set the tone for firms. n Professional ethics are the values and standards used by groups of managers in the workplace. These are applied when a manager’s decisions are not clear-cut ethically. › Example: Point out to students that physicians and lawyers have professional associations that enforce specific decision practices. What other professions have similar rules? n Individual ethics are the values of an individual resulting from their family and upbringing. › This is a gray area. Many feel that if the behavior is not illegal, it is ethical. › A crucial point to stress is that the ethics of top managers set the tone for firms.  

Ethical Decisions A key ethical issue is how to disperse harm and benefits among stakeholders. If a firm is very profitable for two years, who should receive the profits? Employees, managers and stockholders all want a share. Should we keep the cash for future slowdowns? What is the ethical decision? What about the reverse, when firms must layoff workers. Final point: stockholders are the legal owners of the firm! n Students should be aware that stakeholders can have different goals. Thus, a key ethical issue is how to disperse harm and benefits from the organization among stakeholders. › Example: If a firm is very profitable for two years, who should receive the profits? Employees, managers, and stockholders all want a share. Or, perhaps we should keep the cash for future slowdowns. › What is the ethical decision? n What about the reverse, when firms must layoff workers: who should suffer first? n Don’t forget this final point: stockholders are the legal owners of the firm!

Ethical Decisions Some other issues managers must consider. Should you hold payment to suppliers as long as possible to benefit your firm? This will harm your supplier who is a stakeholder. Should you pay severance pay to laid off workers? This may decrease the stockholder's return. Should you buy goods from overseas firms that hire children? If you don’t the children might not earn enough money to eat. n Some other issues managers must consider. › Ask these questions to students: › Should you hold payment to suppliers as long as possible to benefit your firm? This will harm your supplier who is a stakeholder but benefit your stockholders. › Should you pay severance pay to laid-off workers? This may decrease the stockholder's return.   › Should you buy goods from overseas firms that hire children? If you don’t, the children might not earn enough money to eat. › As you can see, there are many difficult decisions to be made.

Promoting Ethics There is evidence showing that ethical managers benefit over the long run. Ethical Control System: a formal system to encourage ethical management. Firms appoint an ethics ombudsman to monitor practices. Ombudsman communicates standards to all employees. Ethical culture: firms increasingly seek to make good ethics part of the norm and organizational culture. n Perhaps the good folks really do win! n There is evidence showing that ethical managers benefit over the long run. n This finding can be enhanced by the development of a formal system to encourage ethical management called an Ethical Control System. › Usually, firms appoint an ethics ombudsman to monitor practices. The Ombudsman communicates the ethical standards to all employees. n           This can yield an ethical culture as firms increasingly seek to make good ethics part of the norm and organizational culture.  

Social Responsibility Social Responsibility: the manager’s duty to nurture, protect and enhance the welfare of stakeholders. n What social responsibility does a manager really have? Ask students if they agree that the manager’s duty is to nurture, protect and enhance the welfare of stakeholders. This can be done in many ways: n Some managers simply choose not to be socially responsible, a position called the Obstructionist response. › Here managers behave illegally and unethically by design and hide and cover-up problems. › Recall that the tone of the organization is set at the top and so middle managers acting this way likely get their cue from the top management.

Table 3.2 Forms of Socially Responsible Behaviour Managers are being socially responsible and showing their support for their stakeholders when they: Provide severance payments to help laid-off workers make ends meet until they can find another job. Provide workers with opportunities to enhance their skills and acquire additional education so they can remain productive and do not become obsolete because of changes in technology. Allow employees to take time off when they need to and provide extended health care and pension benefits for employees. Contribute to charities or support various civic-minded activities in the cities or towns in which they are located. Decide to keep open a factory whose closure would devastate the local community. Decide to keep a company’s operations in Canada to protect the jobs of Canadian workers rather than move abroad. Decide to spend money to improve a new factory so that it will not pollute the environment. Decline to invest in countries that have poor human rights records. Choose to help poor countries develop an economic base to improve living standards.

Figure 3.2 Approaches to Social Responsibility (Text Figure 3.2) n Typically, people are motivated to perform in a given way to receive benefits. What benefits can managers accrue by being responsible?

Approaches to Social Responsibility There are many ways managers respond to this duty: Obstructionist approach: managers choose not to be socially responsible. Managers behave illegally and unethically. They hide and cover-up problems. Defensive approach: managers stay within the law but make no attempt to exercise additional social responsibility. Put shareholder interest above all other stakeholders. Managers say society should make laws if change is needed.

Approaches to Social Responsibility Accommodative approach: managers realize the need for social responsibility. Try to balance the interests of all stakeholders. Proactive approach: managers actively embrace social responsibility. Go out of their way to learn about and help stakeholders. n Managers exercise the Defensive response when they stay within the law but make no attempt to exercise additional social responsibility. › Usually managers following this style put the shareholder interest above all other stakeholders. Such managers say society should make new laws if change is needed and making other changes is simply not their job. n Accommodative response occurs when managers realize the need for social responsibility. › Managers actively seek to balance the interests of all stakeholders. This is a difficult task at best. n Proactive response anchors the high ethical side of the scale as managers actively embrace social responsibility. › Managers go out of their way to learn about and help stakeholders. While very time-consuming, top managers with this outlook often build very high performance firms.

Why Be Socially Responsible? Managers accrue benefits by being responsible. Workers and society benefit. Quality of life in society will improve. It is the right thing to do. Whistleblowers: a person reporting illegal or unethical acts. Whistleblowers now protected by law in most cases. Social audit: managers specifically take ethics and business into account when making decisions.   n Certainly, the manager’s workers benefit from ethical treatment. › The quality of life in the firm and society will improve. This might mean that the firm is a much nicer and enjoyable place to work. Plus, it is the right thing to do which has a number of personal benefits. n Whistleblowers: a person reporting illegal or unethical acts. › Students should know that whistleblowers now protected by law in most cases.

Managing A Diverse Workforce The workforce has become much more diverse during the last 30 years. Diversity refers to differences among people such as age, gender, race, religion. Diversity is an ethical and social responsibility issue. Managers need to give all workers equal opportunities. Not following this is against the law and unethical. When all have equal opportunity, the organization benefits. n Students are aware that diversity can be a real strength to any organization. This is particularly true in the workforce which has become much more diverse during the last 30 years. › Diversity refers to differences among people such as age, gender, race, religion and is both an ethical and social responsibility issue. n Managers need to give all workers equal opportunities. › There are several reasons for this. First, not following this is against the law and unethical. Second, when all have equal opportunity, the organization is more effective.

Figure 3.3 Sources of Diversity (Text Figure 3.3) n Managing Diversity is a topic of importance to managers and to your students.

Manage Diversity Effectively Distributive Justice: dictates members be treated fairly concerning pay raises, promotions, office space and similar issues. These rewards should be assigned based on merit and performance. A legal requirement that is becoming more prevalent in American business. Procedural Justice: Managers should use fair practices to determine how to distribute outcomes to members. This involves how managers appraise worker performance or decide who to layoff. n Good managers focus on: n Distributive Justice a system that dictates members be treated fairly to pay raises, promotions, office space and similar issues. These rewards should be assigned based on merit and performance. › Be aware that this is a legal requirement that is becoming more prevalent in American business. n Procedural Justice suggests that managers should use fair practices to determine how to distribute outcomes to members. › This involves how managers appraise worker performance or decide who to layoff.

Effectively Managing Diversity Makes Good Legal Sense Canadian Human Rights Act: against the law for federal employers to discriminate on the basis of race, national or ethnic origin, colour, religion, age, sex (including pregnancy and childbirth), marital status, family status, mental or physical disability (including previous or present drug or alcohol dependence), pardoned conviction, or sexual orientation Employment Equity Act: Four protected categories Aboriginal peoples Persons with disabilities Members of visible minorities Women n

Diversity Makes Business Sense Diverse employees provide new, different points of view. Customers are also diverse. Still, some employees may be treated unfairly. Biases: systematic tendencies to use information in ways that result in inaccurate perceptions. People often view those like themselves positively and have biases about others. Social status is a type of bias conferred to people of differing social position. Stereotypes: inaccurate beliefs about a given group. n Ask students how diversity management can actually help a firm perform better. › Example: Diverse employees provide new, different points of view which can match a diverse customer base. n Still, some employees may be treated unfairly when managers make these errors, › Biases are the systematic tendencies to use information in ways that result in inaccurate perceptions. People often view those like themselves positively and have biases about others. › Social status is a type of bias conferred to people of differing social position. › Stereotypes are the inaccurate, unproven beliefs about a given group.  

How to Manage Diversity Increase diversity awareness: managers need to become aware of their own bias. Understand cultural differences and their impact on working styles. Practice effective communication with diverse groups. Be sure top management is committed to diversity. n Students and managers can both benefit from an increased diversity awareness. Managers particularly need to become aware of their own bias. n Understand cultural differences and their impact on working styles. n Students can give some examples here! n Practice effective communication with diverse groups. n Be sure top management is committed to diversity.

Sexual Harassment Damages both the person being harassed and the organization. Both men and women can be victims. Quid pro quo harassment: victim is requested to perform sexual favors to keep a job or win promotion. Hostile work environment harassment: Some members are faced with a hostile, intimidating work environment. Lewd jokes, pornographic displays and remarks. n Harassment damages both the person being harassed and the organization. Be sure that students understand that both men and women can be victims. There are several differing types of harassment: n Quid pro quo harassment where the victim is requested to perform sexual favors to keep a job or win promotion. n Hostile work environment harassment in which some members are faced with a hostile, intimidating work environment. › This often takes the form of lewd jokes, pornographic displays and remarks. › NOTE: Most firms will not tolerate this behavior from managers or employees. Students must be aware that these actions can harm the career of the person doing the harassing as well as the person suffering the harassment.

Avoiding Harassment Develop and communicate a sexual harassment policy. Point out that these actions are unacceptable. Set up a fair complaint system to investigate allegations. If there are problems, correct them at once. Provide harassment training to employees and managers. n Management takes this issue seriously and leading firms now develop and communicate a sexual harassment policy. n Top management should point out that these actions are unacceptable. › The firm should set up a fair complaint system to investigate allegations. n If there are problems, correct them at once. › Provide harassment training to employees and managers.