1. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 1 Chapter 5 Ethics And Corporate Responsibility

2. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 2 Learning Objectives After studying Chapter 5, you will know: how different ethical perspectives guide decision making how companies influence the ethics environment the options you have when confronting ethical issues the important issues surrounding corporate social responsibility how the political and social environment affects your firm’s competitive position and legitimacy the strategies corporations use to manage the political and social environment the role of managers in our natural environment

3. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 3 Ethics Ethics the system of rules that governs the ordering of values affects people’s behavior and the ‘goods’ that are worth seeking values - principles of conduct ethics becomes more complicated when a situation dictates that one value overrules another ethical issue - a situation, problem, or opportunity in which an individual must choose among several actions that must be evaluated as right or wrong business ethics - the moral principles and standards that guide behavior in the world of business

4. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 4 Ethics (cont.) Ethical systems moral philosophy - the principles, rules, and values people use in deciding what is right and wrong universalism - individuals should uphold certain values, regardless of the immediate result teleology - an act is morally right if it produces a desired result – focuses on ends egoism - acceptable behavior maximizes consequences for the individual – “virtue of selfishness” utilitarianism - seeks the greatest good for the greatest number of people, thereby maximizing total utility

5. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 5 Ethics (cont.) Ethical systems (cont.) deontology - focuses on the rights of individuals ensures that equal respect is given to all persons concentrates on means to particular ends right to privacy, free speech, freedom of conscience, safety, non- discrimination relativism - ethical behavior defined by the opinions and behavior of relevant other people acknowledges the existence of different ethical viewpoints group consensus is sought positive consensus signifies that an action is right, ethical, and acceptable

6. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 6 Ethics (cont.) Ethical systems (cont.) virtue ethics - morality defined by what a mature person with ‘good’ moral character would deem right society’s rules provide a moral minimum moral individuals can transcend rules by applying personal standards Kohlberg’s model of cognitive moral development preconventional stage - decisions based on concrete rewards, punishments, and immediate self-interest conventional stage - actions conform to societal expectations ethical behavior deemed appropriate by groups or institutions principled stage - follow self-chosen ethical principle see beyond authority, laws, and norms

7. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 7 Ethics (cont.) The ethics environment Ethical climate - processes by which decisions are evaluated and made on the basis of right and wrong unethical corporate behavior may be the responsibility of an unethical individual often the company’s culture that is ethically lax

8. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 8 Climate Factors Conducive To Unethical Behavior Financial concerns take precedence over ethical considerations Ethics considered from legal or public relations viewpoint Emphasis on short- term revenues Danger Signs No written code of ethics Shareholders concerns take precedence over other constituencies Lack clear procedures for dealing with ethical problems Desire for “quick fix” solutions

9. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 9 Ethics (cont.) The ethics environment (cont.) Ethics codes - most visible sign of corporate commitment to ethical behavior must be tailored to individual company’s philosophies address subjects such as employee conduct, community and environment, shareholders, customers, political activity Ethics programs compliance-based - designed by corporate counsel to prevent, detect, and punish legal violations increases surveillance and controls integrity-based - guiding principles that instill personal responsibility for ethical behavior

10. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 10 Define the issue clearly Identify the relevant values in the situation Weigh conflicting values and choose option that balances them Ethical Decision Making Ethical Decision Making Implement the decision

11. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 11 Corporate Social Responsibility Corporate social responsibility the obligation toward society assumed by business maximizes it positive effects on society and minimizes it negative effects economic responsibilities - produce goods and services that society wants at a price that perpetuates the business legal responsibilities - obey local, state, federal and relevant international laws ethical responsibilities - meeting other societal expectations, not written as law voluntary responsibilities - additional behaviors that society finds desirable and that the values of the business support

12. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 12 Philanthropic Responsibilities Be a good corporate citizen Ethical Responsibilities Be ethical Legal Responsibilities Obey the law Economic Responsibilities Be profitable Pyramid Of Corporate Social Responsibility

13. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 13 Corporate Social Responsibility (cont.) Contrasting views profit maximization view managers act as agents for shareholders obligated to maximize the present value of the firm economic performance is an organization’s primary social responsibility principled moral reasoning view ethical actions are not optional, but mandatory organizations have a wider range of responsibilities that extend beyond the production of goods and services for a profit organizations should actively and responsibly participate in the community and the larger environment

14. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 14 Corporate Social Responsibility (cont.) Reconciliation based on the idea that ethical behavior is both right and more profitable there are competitive advantages of socially responsible actions, especially over the long-term avoid unnecessary and costly regulation pay dividends to the reputation of the company profits can be made from attempts to solve society’s problems

15. McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved. 5 - 15 Performance Approach Posture or Strategy Do less than required Do the least that is required Do all that is required Do more than is required 1. Reactive 2. Defensive 3. Accommodative 4. Proactive Deny responsibility Admit responsibility but fight it Accept responsibility Anticipate responsibility Approaches To Corporate Social Responsiveness