Chapter 3 Business Ethics, Social Responsibility

Business Ethics “doing well by doing good”

Why Study Business Ethics Perhaps when business people ask why they should be ethical, they have a different question in mind: what is the motivation for being good? Is their something in it for them? There is no denying that one can often do well by doing good. An ethical company is more likely to build a good reputation, which is more likely to bring financial rewards over the long term.

What is Ethics? Ethics: defined as the set of moral principles that distinguish what is right from what is wrong.

Arguments Supporting Business Ethics Ethics applies to all human activities. Business cannot survive without ethics. Ethics is consistent with profit seeking. Customers, employees, and people in general care about ethics. Studies suggest ethics does not detract from profits and seems to contribute to profits.

Why Behave Ethically? Managers should behave ethically to avoid harming others. Managers are responsible for protecting and nurturing resources in their charge. Unethical managers run the risk for loss of reputation. This is a valuable asset to any manager! Reputation is critical to long term management success. All stakeholders are judged by reputation.

Stakeholders and Ethics A person, group, or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization's actions, and policies. Key stakeholders in a business organization include creditors, customers, directors, employees, owners (shareholders), suppliers, and the community from which the business draws its resources. When the law does not specify how companies should behave, managers must decide what is the right or ethical way to behave toward the people and groups affected by their actions 6

Types of Company Stakeholders

Sources of Ethics

1. Social Ethics Social Ethics Standards that direct how members of a society should deal with one another in matters involving issues such as fairness, justice, poverty, and the rights of the individual People behave ethically because they have certain values, beliefs, and norms

2. Occupational Ethics Occupational Ethics Standards that direct how members of a profession, trade should conduct themselves when performing work-related activities Medical & legal ethics

3. Individual Ethics Individual Ethics Personal standards and values that determine how people view their responsibilities to other people and groups How they should act in situations when their own self-interests are at stake

4. Organizational Ethics Guiding practices and beliefs through which a particular company and its managers view their responsibility toward their stakeholders Top managers play a crucial role in determining a company’s ethics

Company Practices and Business Ethics Encouraging Ethical Behavior Involves: A company can encourage ethical behavior in a number of ways. These include: Adopting written codes of conduct Having top management support of ethical standards Instituting ethics programs Establishing ethical hotlines for reporting and discussing unethical behavior and activities A company can encourage ethical behavior in a number of ways. These include: Adopting written codes of conduct and establishing clear ethical positions for the conduct of business. These codes can include rules of conduct – for example, not allowing employees to accept gifts from suppliers or customers. Having top management demonstrate its support of ethical standards. This can include having management be very public in its manner of following the rules established for employees, as in not accepting gifts, trips, event tickets, etc. Instituting programs to provide periodical ethics training. This can include providing media training for key managerial employees so if they are contacted by the media during a potential crisis or product recall situation, they will know exactly what to say. Establishing ethical hotlines for reporting and discussing unethical behavior and activities. This practice encourages employees to call in and report on or discuss unethical behavior or activities in an anonymous manner. Teaching Tips: In your same team, please choose one of the four ways firms encourage ethical behavior. Please discuss and describe an example of your choice. Please share your example with the class. Answers will vary but could build on the examples listed above in this slide.

Code of Ethics Code of ethics: is a written document that clearly states what acceptable and unacceptable behaviors are for all of the employees in the organization. Employees working under the code of ethics have a standard by which they can judge their own behavior and that of others within the organization. Worldwide, McDonald's employees follow a standard ethical code.

Corporate Social Responsibility Corporate social responsibility refers to a corporation’s responsibilities or obligations toward society.

Managers Response to Social Responsibility There are many ways managers respond to this duty: 1. Obstructionist response ((ممانع: managers choose not to be socially responsible. Managers behave illegally and unethically. They hide and cover-up problems. 2. Defensive response مدافع)): 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.

3. Accommodative response:(متكييف) managers realize the need for social responsibility. Try to balance the interests of all stakeholders. 4. Positive response: managers actively support social responsibility. Go out of their way to learn about and help stakeholders.

Levels of Responsibility Obstruction response Defensive Accommodative Proactive Low High Social responsibility