Prentice Hall, Inc. © STRATEGIC MANAGEMENT & BUSINESS POLICY 11 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 3 Ethics & Social Responsibility

Prentice Hall, Inc. © Ethics & Social Responsibility

Prentice Hall, Inc. © Corporate Governance Broader responsibility -- Private corporations have responsibility to society that extend beyond making a profit Do they?

Prentice Hall, Inc. © Social Responsibility There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. Milton Friedman

Prentice Hall, Inc. © Corporate Governance Carroll’s 4 Responsibilities –Economic –Legal –Ethical –Discretionary

Prentice Hall, Inc. © Mortensen’s View The order and strength of the priorities for the five stakeholders, as decided by the executives, sets the tone for a company: –Customers –Employees –Stockholders –Executives –Society

Prentice Hall, Inc. © Corporate Stakeholders “Corporate Stakeholders” Affect or are affected by the achievement of the corporation’s objectives

Prentice Hall, Inc. © Corporate Stakeholders Stakeholder Analysis – –Primary stakeholder Sufficient bargaining power to affect outcomes –Secondary stakeholder Indirect stake but are affected by corporation’s actions –Stakeholder Input Determine whether input is necessary

Prentice Hall, Inc. © Ethical Behavior “business ethics” –Argument that there is no such thing … it is an oxymoron

Prentice Hall, Inc. © Ethical Decision Making BAD Corporate practices -- –Massive write-downs and restatements of profit [after having gotten the bonuses for making their numbers] –Misclassification of expenses as capital expenditures –Pirating corporate assets for personal gain

Prentice Hall, Inc. © Ethical Decision Making Recent Survey Results -- –70% distrust business executives –Enron –WorldCom Provocative Question -- –Why are businesspeople perceived to be acting unethically?

Prentice Hall, Inc. © Reasons for Unethical Behavior Perceptions caused by -- –Not aware of impropriety –Cultural norms and values vary –Governance systems based on rule or relationships –Differences in values between businesspeople and key stakeholders

Prentice Hall, Inc. © Reasons for Unethical Behavior Allport-Vernon-Lindzey Study of Values -- –Aesthetic –Economic –Political –Religious –Social –Theoretical

Prentice Hall, Inc. © Reasons for Unethical Behavior Most common reasons for bending rules -- –Organizational performance required it –Ambiguous or out of date rules –Pressure from others – everyone else does it –[Greedy

Prentice Hall, Inc. © Moral Relativism “Moral Relativism” says that morality is relative to some personal, social, or cultural standard and there is no method for deciding whether one decision is better than another.

Prentice Hall, Inc. © Moral Relativism “Moral Relativism” says that morality is relative to some personal, social, or cultural standard and there is no method for deciding whether one decision is better than another. CRAP!

Prentice Hall, Inc. © Kohlberg’s Levels of Moral Development 1. Preconventional level –Characterized by a concern for self Personal interest Avoidance of punishment 2. Conventional level –Characterized consideration of society’s values External code of conduct 3. Principled level –Characterized by adherence to internal moral code Universal values or principles

Prentice Hall, Inc. © Encouraging Ethical Behavior Guidelines for Ethical Behavior Ethics Morality Law

Prentice Hall, Inc. © Encouraging Ethical Behavior Codes of Ethics –Specifies how an organization expects its employees to behave on the job.

Prentice Hall, Inc. © Encouraging Ethical Behavior Approaches to Ethical Behavior –Utilitarian Judged by consequences –Individual Rights Fundamental rights in all decisions –Justice Distribution in equitable fashion –Categorical imperative “golden rule” Means - Ends

Prentice Hall, Inc. © Strategy Bits 192 U.S. companies surveyed -- –92% monitored employees use of /Internet –26% monitored employees electronic activities all the time –Almost none had checks in place to protect employees privacy