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CHAPTER 4
CHAPTER OUTLINE
Social responsibility and ethics in

management
ORGANISATIONAL SOCIAL RESPONSIBILITY
Major perspectives
Social responsibilities of management
Social stakeholders
Does social responsibility pay?
Promoting innovation: Vanguard companies
ORGANISATIONAL SOCIAL RESPONSIVENESS

Monitoring social demands and expectations
Internal social response mechanisms
BEING AN ETHICAL MANAGER

Types of managerial ethics
Ethical guidelines for managers
Factors affecting corporate social responsibility and managers ethical behaviour
Ethical career issues
MANAGING AN ETHICAL ORGANISATION

Situational factors influencing ethical behaviour
Mechanisms for ethical management
LEARNING OBJECTIVES
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AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:
Explain three major perspectives on corporate social responsibility and

identify major stakeholder groups often mentioned in conjunction with social
responsibility.
Assess the extent to which organisational social responsibility pays.
Explain the characteristics of vanguard companies.
Outline approaches used to monitor social demands and expectations.
Describe internal social response mechanisms available to organisations.
Contrast three major types of managerial ethics.
Outline ethical guidelines for managers and explain actions they can take to
handle ethical situations and avoid ethical conflicts.
Describe situational factors influencing ethical behaviour and outline
mechanisms for ethical management.
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PART 1 Introduction
STRIVING FOR EXCELLENCE
CEO
FORUM
Article reprinted with the permission of

CEO Forum magazine: Australias first
magazine produced specifically to share
ideas and experiences within Australias
CEO community. Published quarterly in
March, June, September and December, the
aim of CEO Forum magazine and the
www.ceoforum.com.au website has
always been simple, but elusive: to capture
the essence of CEO-to-CEO dialogue.
ceoforum.com.au: Could you describe

some of the recent changes that have
occurred in GEs culture?
Steve Bertamini: Last year Jeff Immelt, our
Chairman, began to talk about the
development of growth leaders in order to
achieve our 8 per cent organic growth
target. This challenge requires that we have
a strong growth culture and that leadership
teams are provided with the training and
support needed in order to be successful.
Hence over the last 12 months, we
have seen the emergence of five specific
capabilities that we will develop and
measure our leaders against.
The first is about becoming more
external and outwardly focused in relation
to customers, stakeholders and the
community. Being part of a large and
successful company, people tend to think
that a lot of the best things come internally,
but as you know, this is not the case. We
are trying to change the mindset to be
more externally and customer focussed.
We want to define success in market
terms, not internal metrics.
The next is around being decisive and
thinking clearly. It means being able to
simplify strategy into specific actions,
decisions and priorities that people can
understand and rally around.
Why GE is changing: A profile of

Steven Bertamini
Just as companies must respond to new business conditions, so too must
an organisations culture evolve to meet new challenges. This applies even
(or especially) when you are one of the worlds most respected
companies, with a highly performancedriven culture. GE Australias CEO
Steve Bertamini explains.
Then there is imagination and courage,

which is all about taking bigger risks and
making bigger bets on both people and
ideas. We want to use our size as an
advantage but at the same time create an
entrepreneurial spirit within the company.
We have established a process to manage
what we call Imagination Breakthroughs.
This forum gives the best ideas in the
company a high degree of visibility and
support in order to drive organic growth.
Energising through inclusiveness is
critical to us. We want to ensure we are
building loyalty and commitment at every
level of the organisation.
The fifth trait is expertise. We are
looking to develop experts who have real
knowledge of their customers and
markets. It can also be in terms of
functional expertise. We want people to
have the confidence to drive change.
Experience and confidence allows leaders
to manage through the business cycles
and successfully manage difficult issues.
ceoforum.com.au: What do you see as the
key factors behind this change in cultural
emphasis?
SB: There was a recognition that we
needed to align our leadership training with
our growth expectations. We studied
successful business leaders within GE as

well as businesses outside GE and there
were some common themes.
Understanding what makes a leader
successful has driven the development of
these leadership traits, combining these
traits with our values will ensure that we
have strong leaders who can deliver on our
growth expectations for the next decade.
ceoforum.com.au: Some of those
attributes like external focus, clear thinking,
imagination and courage sound like they
would be a challenge to measure. Equally,
GE has always had a very strong
measurement culture. How will GE go about
measuring these values?
SB: As we were identifying the growth
leadership traits it was clear that there are
behaviours that can be measured that
demonstrate proficiency of a trait. For
example in terms of clear thinking, one test
we might apply is can an individual ...
clearly articulate complex business issues
in a simple and concise manner that results
in strategy being turned into business
objectives with accountability? Similarly,
imagination and courage can be measured
by looking at the environment the leader
has created. Have they allowed/developed
a situation where their team are
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Social Responsibility and Ethics in Management CHAPTER 4
comfortable to be creative and take the

big bets?
ceoforum.com.au: Presumably these
qualities and values will also be important in
new hires at GE as well as current
employees. Yet it would seem that they
would be even more difficult to assess here,
as you typically know less about potential
hires than your own employees. How will
you assess them in potential hires?
SB: Certainly that is true. As we have
discussed, there are behaviours that can
be measured to demonstrate proficiency of
a trait. Behaviour-based interviewing and in
some cases also role-playing can provide
good insight into an individual.
For example, even in an interview it will
be possible to probe and understand if an
individual has had to deal with complex
problems in the past. Are they able to
articulate problems that they have
simplified and dealt with? What level of
market/customer knowledge do they have?
ceoforum.com.au: Is it also true that the
approach to career development for senior
managers has changed as well in recent
times?
SB: Yes. In the past we have certainly
moved people through jobs very quickly i.e.
every two to three years. However, going
forward we are realigning senior leaders

expectations with the view that they need
to spend four to five years in a role. This
ensures that they have led a business
through a variety of business cycles and
have lived with the consequences of their
decisions. Our past experience has shown
us that in todays tough competitive
environment, experienced, stable teams do
111
where we can get into trouble. We provide

extensive training (personal and work
based) to ensure our people understand
our values and the spirit and letter of the
law. We always want to be seen as acting
in and behaving with the utmost integrity in
all our activities.
Source: ceoforum.com.au, CEO Forum, July 2005.
In todays tough competitive environment, experienced,

stable teams do a better job of managing through the
business cycles ...
a better job of managing through the
business cycles.
ceoforum.com.au: What is your view on
the relationship between personal and
corporate values?
SB: Clearly they cant be in conflict or that
person will be uncomfortable at times, but I
do think they also need to be considered
separately. For instance, you may be willing
on a personal basis to take a particular risk
but as a representative of the company
[you] must use our values set in deciding
whether something would work for GE.
Sometimes the lines get blurred and that is
ISSUES FOR YOU TO THINK ABOUT

1 What were the key challenges faced by
Steven Bertamini?
2 What were the most important actions
taken?
3 How was the level of success of the
turnaround measured?
ACTIVITIES FOR YOU TO UNDERTAKE
Undertake a web search on Steven
Bertamini. What can you find out about
his career path? Is he still with the same
company? If so, what has he achieved?
If not, what directions has his career
taken?
INANCIAL SCANDALS ACROSS THE GLOBE HAVE ROCKED THE CORPORATE world (Maniam,
Subramaniam & Johnson 2006), with Enron, WorldCom, HIH and OneTel being but a few
examples. Some ethical issues include fraudulent accounting practices, questionable transactions
and overstatement of income, inflating prices, knowingly selling inferior or unsafe products, risking
workers health and safety, endangering public health or harming the environment (pollution-related
issues), bribery, dishonest advertising and tax fraud. These issues and others ensure questions of ethics
have risen to near the top of the agenda of business issues for the 1990s (Nicholson 1994, p. 581).
Increasingly, society focuses on the social responsibility of organisations and the ethical standards of their
managers. In order to manage these concerns, it is important for organisations to be proactive regarding
social issues (Panwar, Rinne, Hansen & Juslin 2006). In spite of a public perception that ethical business
executive standards are declining, Michael Walsh, editor and publisher of Ethical Investor Magazine
(Spiller 2006), suggests Australian businesses increasingly embrace corporate social responsibility.
However, many managers fail to distinguish between corporate ethics and social responsibility when
trying to determine what it means for their company to be ethical (Berenbeim 2006).
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PART 1 Introduction
managerial ethics
Standards of conduct
and moral judgment
used by managers of
organisations in carrying
out their business
Ethics are standards of behaviour and moral judgment differentiating right from wrong (Post,
Frederick, Lawrence & Weber 1996). Managerial ethics are standards of conduct and moral judgment
managers use in their business. In this chapter, we explore the nature and extent of organisations social
responsibilities. We look at ways organisations fulfil their social responsibilities, and at managers ethics.
Finally, we examine the challenge of managing an ethical organisation.
Organisational social responsibility

organisational social
responsibility
The obligation of an
organisation to act to
protect and improve
societys welfare as well
as its own interests
corporate social
responsibility
A term used in reference
to the concept of
responsibility as applied
to business organisations
refers to an organisations obligation to act to protect and improve

societys welfare as well as its own interests. Organisational social responsibility is often called corporate
social responsibility when applied to business firms. Views differ on how much firms must consider
their social responsibilities (Bahree 1995), although increasingly they are identified as significant (Ryan
2003).
The level of social responsibility pursued by corporations is influenced by the approach an
organisation wants to take, be it economic, legal, ethical, and discretionary or philanthropic (Carroll
1979). The economic approach considers the organisations responsibility is to produce the goods and
services that society wants, and its task is to maximise profits (Friedman 1962). The legal approach
assumes that organisations fulfil the legal requirements of various government and regulatory agencies
while pursuing their economic goals. The ethical approach assumes that organisations have a
mechanism for respecting individuals rights and abiding by principles of equity, fairness and
impartiality. The discretionary approach, on the other hand, is completely voluntary. The organisations
taking this approach make generous contributions to the betterment of society, expecting no return
from their contributions or investments in social activities.
Organisational social responsibility
Major perspectives
Concern for organisational social responsibility is fairly recent. In America, for example, the issue of
social responsibility emerged in the late 1800s when organisations grew larger. Anti-competitive
activities (e.g. kickbacks and price fixing) led to pressure from government and labour. Concern grew
through the opening decades of the twentieth century until, after the stock market crash of 1929 and
during the Great Depression that followed, many business regulations were established. In 1936,
General Robert E. Wood, the CEO of Sears, argued for managerial, not just governmental, actions on
social concerns. Social movements (e.g. civil rights, womens liberation and environmentalism) during
the 1960s increased attention on organisational social responsibilities (Carroll 1980). Recent corporate
misbehaviour, domestically, regionally and globally (including HIH Insurance, OneTel and Enron),
has refocused attention on the issue of social responsibility (Kinicki & Williams 2003).
These historical forces have led to three contrasting views of corporate social responsibility: the
invisible hand, the hand of government and the hand of management (Goodpaster & Matthews 1982).
The invisible hand

invisible hand
A view holding that the
entire social responsibility
of a corporation can be
summed up as make
profits and obey the law
hand of government
A view arguing that the
interests of society are
best served by having
the regulatory hands of
the law and the political
process, rather than the
invisible hand, guide the
results of corporations
endeavours
Milton Friedman is the chief supporter for the invisible hand, or classical, perspective of corporate social
responsibility, but it can be traced to Adam Smith in the eighteenth century. The invisible-hand view
holds that the corporations social responsibility may be seen as make profits and obey the law. Thus,
each corporation works to increase legal profits. In this way, corporate responsibility is guided by the
invisible hand of free-market forces, eventually ensuring resource allocation for societys betterment.
Otherwise, business executives allocate resources, gaining excessive power with little accountability for
their decisions. Friedman (1962) also argues that the activities of charitable firms are not socially
responsible, because stockholders cannot make decisions about the disposal of funds.
The hand of government

From the hand-of-government perspective, corporations role is to be profitable within the law.
However, this view argues that societys interests are best served by having the regulatory hands of the
law and political process, rather than the invisible hand, guide corporations work (Galbraith 1962;
1975). The hand of government controls the possible negative actions of firms regarding employees
(minimum wage, safety and equal employment opportunity legislation), customers (product safety and
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advertising control) and the larger community (hazardous chemical and pollution control). Neither the
invisible hand nor the hand-of-government approach allows corporate leaders latitude on social issues.
The hand of management

The hand-of-management perspective says corporations and managers must act to protect and improve
societys welfare while advancing corporate economic interests (Post et al. 1996). Typically, three
arguments are used to support organisational social responsibility (Tuleja 1985). The anti-freeloader
argument holds that businesses benefit from a better society, and should bear some costs of
improvement by working toward solutions to social problems. The capacity argument states that the
private sector, with its considerable economic and human resources, must compensate for government
cuts to social programs. The enlightened self-interest argument holds that businesses exist at societys
pleasure and, for their own legitimacy and survival, they must meet public social-responsibility
expectations or suffer financially (Stevens 1995). This relates to the iron law of responsibility, which
states that in the long run, those who do not use power in a manner that society considers responsible
will tend to lose it (Post et al. 1996, p. 32). Generally, societys expectations of the social responsibilities
of business are growing. For example, one Business Week/Harris poll showed most people believe
business has social responsibilities beyond shareholder profits (See Table 4.1) (Tuleja 1985). Thus, the
hand-of-management approach is increasingly relevant (Carton 1995).
Social responsibilities of management

The idea that managers have social responsibilities comes, in part, from greater interdependencies.
These interdependencies have built ties of common interest between corporations and their
communities. This broad view of managements social responsibility involves economic, legal, ethical
and discretionary issues, as shown in Figure 4.1 (Carroll 1979; Gatewood & Carroll 1991).
Proportions in the figure suggest the size of each responsibility for corporate leaders.
Economic and legal responsibilities

Managements economic and legal responsibilities are recognised by all three corporate responsibility
perspectives: the invisible hand, the hand of government and the hand of management. These
responsibilities involve making a profit and obeying the law (Ziegler 1995).
Ethical and discretionary responsibilities

The hand-of-management perspective recognises ethical and discretionary responsibilities, as well as
the economic and legal responsibilities dictated by the invisible-hand and hand-of-government views.
Ethical responsibilities include behaviours and activities society expects of business. For example, in the
1980s, public pressure, and managerial concerns about apartheid, meant many firms closed their
TABLE 4.1
PERCEPTIONS OF BUSINESS RESPONSIBILITY
QUESTION: WHICH OF THE FOLLOWING STATEMENTS DO

YOU AGREE WITH MORE STRONGLY?
US corporations should have only one purposeto make the most profit for
their shareholdersand their pursuit of that goal will be best for America in
the long term.
% RESPONDING
Or
US corporations should have more than one purpose. They also owe something
to their workers and the communities in which they operate, and they should
sometimes sacrifice some profit for the sake of making things better for their
workers and communities.
Source: Business Week, 11 March 1996, p. 65.
95
hand of management
A view stating that
corporations and their
managers are expected
to act in ways that
protect and improve
societys welfare as a
whole, as well as
advance corporate
economic interests
anti-freeloader
argument
An argument holding that
since businesses benefit
from a better society,
they should bear part of
the costs by actively
working to bring about
solutions to social
problems
capacity argument
An argument stating that
the private sector,
because of its
considerable economic
and human resources,
must make up for
government cutbacks in
social programs
enlightened selfinterest argument
An argument holding that
businesses exist at
societys pleasure and
that, for their own
legitimacy and survival,
businesses should meet
the publics expectations
regarding social
responsibility
iron law of
responsibility
A law stating that in the
long run, those who do
not use power in a
manner that society
considers responsible will
tend to lose it
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PART 1 Introduction
FIGURE 4.1
Social responsibilities of management (adapted from Carroll 1979, p. 499)

discretionary responsibilities
ethical responsibilities
legal responsibilities
economic responsibilities
South African activities though not legally required to (Post et al. 1996). Ethical responsibilities are illdefined, often controversial and changeable. This is why business leaders can find them hard to identify.
On the other hand, discretionary responsibilities include voluntary activities not necessarily
expected of business by society. While firms would not be seen as unethical if they did not take part,
some part of society may see these activities as desirable. Examples of discretionary activity are
philanthropic contributions, sponsoring AIDS clinics and training the economically disadvantaged.
For instance, Merck provided the drug Ivermectin free to millions in Africa, South America and the
Middle East to protect them from the parasitic disease river blindness. This cost the firm millions of
dollars in forgone profits (Business Week 1988).
Social stakeholders
If corporations and managers are to be socially responsible, to whom they are to be responsible is
important. Six overlapping groups are identified: shareholders, employees, customers, local
community, general society (regional and national) and the international community (Tuleja 1985;
Donaldson & Preston 1995). They are social stakeholders, as corporations business activities can affect
them for better or worse.
Shareholders
Despite perceptions of the obligations of business to several constituencies, it is still agreed that the
main management role of public firms is to earn profits and shareholder dividends (Post et al. 1996).
Shareholders provide capital for companies to survive and grow.
Managers see themselves as responsible for the firms survival, to develop and expand it, balancing
stakeholders demands so that multiple demands do not result in failing to achieve company goals.
Different shareholder and management perspectives may produce conflict, particularly over dividend
levels (versus reinvestment allocations) or executive benefits such as stock options and club
memberships.
Shareholders may pressure management to change their social stance. Currently, shareholders are
concerned about CEOs being paid millions while their companies perform poorly. Top managers rarely
disclose their full compensation. In America, AT&T CEO Robert E. Allen was criticised for taking a
supplementary stock option of almost $11 million while announcing layoffs of 40 000 workersalso
important stakeholders (Byrne 1996a). Less extreme examples are common.
EmployeesManaging diversity
Organisations must at least honour specific employee agreements and obey relevant
employeeemployer relationship laws. Laws and regulations specify employer responsibilities on equal
employment opportunity, pensions and benefits, and health and safety. Recognition of workforce
diversity and public feelings about employer abuses has led to increased regulation (Robinson &
Dechant 1997).
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Top managers frequently refer to employees as family, but employee treatment can be quite
variable. For example, an extreme lack of concern for employees was shown by Film Recovery Systems,
Inc. in Chicago. Plant officials were convicted of murder after an employee died of cyanide poisoning.
The death came when workers (largely non-English-speaking immigrants) who were extracting silver
from film scraps were not warned that cyanide was being used, and were only given basic safety
equipment (Trost 1985).
At the other end of the scale of social concern for employees, Du Pont works to help employees
balance family and work pressures. For example, over three years it spent $1.5 million to build and
renovate child-care centres near company sites. Du Pont also has a generous leave policy for birth,
adoption or family illness. Employees have six weeks on full pay and up to six months of unpaid leave
with full benefits (Weber 1991).
Du Ponts actions show efforts to effectively manage diversity. Diversity management is the
planning and instituting of systems and practices that maximise the potential of employees to
contribute to organisational goals and develop employee capabilities unhindered by group identities
(such as gender, race or ethnic group) (Cox 1994). It is arguable that managers should effectively
manage diversity because it is socially responsible. However, socially responsible actions are good
business. As Table 4.2 shows, social responsibility is one argument for building competitive advantage
by effectively managing diversity.
Customers
Although the motto of many businesses was once caveat emptor (let the buyer beware), consumers
now expect more. Two current areas of social concern for consumers are health and safety, and quality
issues.
Product liability lawsuits are increasing, which negatively affect business prospects. For example, Bic
Corporations stock dropped after several lawsuits claimed that exploding Bic lighters led to severe
injuries, even death (Potts 1987). Increasing liability cases mean many firms find liability insurance
harder to find. As the social responsibilities of business have been questioned, the pendulum may have
swung too far toward the consumer. It is argued that a manufacturer should be liable for the safety of
a product only if it knew, or should have known, about its dangers. However, this is risky, as it can be
hard to determine what research a manufacturer needs to do to ensure all safety contingencies are
considered. A 100 per cent standard may mean products would take years to reach the marketif at
alland be expensive. Thus businesses that are concerned for consumers compromise by trying to be
99 per cent certain a product is safe, buying large insurance policies and hoping.
Qualitys importance as a consumer issue has grown. Keeping up with the competition is important
and some have linked quality to social responsibility. For example, during the 1970s Harley-Davidsons
quality dropped, customers became upset and the companys reputation suffered. It took much effort
to fix the situation. Richard Teerlink, Harley-Davidsons CEO, noted: We are living proof that you can
win your reputation back. But its not easy (Caminiti 1992, p. 76). Perrier learned the hazards of
TABLE 4.2 ARGUMENTS IN FAVOUR OF MANAGING DIVERSITY FOR COMPETITIVE ADVANTAGE

Socially responsible
Managing diversity can protect and improve societys welfare while

advancing corporate economic interests.
Cost effective
Attracting workers is costly; firms managing diversity effectively can

attract and retain good workers.
Enhances prospects for

customer satisfaction
A workforce mirroring customer-base diversity provides unique insight

into customer needs, and enhances prospects for customer satisfaction.
Encourages innovation
Innovations are more likely to emerge when diversity of thinking is applied

to business problems.
Facilitates globalisation
Openness to other cultures and ways of doing things helps doing

business around the globe.
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PART 1 Introduction
quality issues and social responsibility when it removed its mineral water from sale in 1990 due to
benzene contamination. Though levels were harmless, the company tried to protect its reputation.
Unfortunately, it took four months to fix the problem and many consumers changed brands.
Nestl acquired the company, and Perrier struggled to regain its prominence (Brown 1991; Browning
1992; 1993).
The Australian Competition and Consumer Commission (ACCC) has challenged the use of
misleading country of origin labelling by taking action against National Chemical for selling Chinesesourced eucalyptus oils as Australian (Costa 2003). Greater focus on customer relationship
management (CRM) shows that many organisations realise the need to focus on their customers needs
(Howarth 2003).
Local community
In regard to social responsibility, the organisations community is its local business influence area (Post
et al. 1996). However, the needs of most communities extend beyond the resources available; businesses
are often asked for more assistance than they can give, requiring priorities to be set.
While communities often want business aid, firms in turn need various forms of community
support. This includes adequate transport, fair taxes, sufficient school and recreational facilities, and
public services, including police, fire services, sewage, water, gas and electricity. Through these needs,
businesses and communities are interrelated and may function more effectively with mutual support
(see Figure 4.2) (Moskowitz 1989).
Society
Social responsibility at a societal level involves regional and national issues. For example, many business
leaders are involved in educational reform to prepare future labour-pool members. Aetna Insurance
trains up to 700 employees a year in basic reading, writing and mathematics (Segal 1992; Bernstein
1992). When the links between corporate social expenditures and business-related results are weak,
supporters of the invisible hand view of social responsibility will object. Conversely, the hand-ofgovernment view favours government regulation of social expenditures, after higher taxes allow
governmental funding.
International community
International issues can impact social responsibilities. The Union of International Associations in
Brussels listed 10 000 global problems, in categories such as international tensions, scarce resources and
growing pollution (Cornish 1990). Many firms responded by changing their practices (Ortega 1995).
FIGURE 4.2
Possible levels of business and community mutual support (Frederick et al. 1988, p. 342)
high
frequent
business
attitude
Support for business
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C
area
of desirable
mutual support
B
frequent
community
attitude
low
high
low
Support for community
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Does social responsibility pay?

One interesting question is the impact of social responsibility on financial success. Researchers have
explored links between corporate social responsibility and corporate financial performance, without
reaching a consensus (Chand 2006). Chand reviewed 51 studies completed between 1970 and 1995,
of which 33 showed a positive link, nine a negative link and nine no link or were inconclusive. These
contradictory results can be attributed to differences in how the study variables were defined (Chand
2006). Such studies are difficult as it is hard to accurately compare any firms social responsibility with
anothers. This makes definitive answers impossible. However, while no definite conclusion has been
reached on relationships between level of social responsibility and financial success, most studies show
a positive link (Arlow & Gannon 1982; Aupperle, Carroll & Hatfield 1985; McShane & Travaglione
2003; Chand 2006).
Research suggests a firms financial performance is a good predictor of its social responsibility, not
a result of it. Successful organisations are more likely to take on socially responsible activities. Firms
also engage in social responsibility to build stable stakeholder relationships and help reduce the chances
of legal action and government fines (McGuire, Sundgren & Schneeweis 1988).
Research has found that announcements of illegal corporate action lower a firms stock price, while
long-term impacts are unclear (Davison & Worrell 1988). Ironically, research suggests that generous
charitable donations may help perceptions of companies as socially responsible, even if they are
behaving illegally (Wokutch & Spencer 1987). Corporate contributions for charitable and social
responsibility purposes are called corporate philanthropy.
To balance conflicting stakeholders expectations, support socially responsible behaviour or
concentrate on profit, many firms focus on socially responsible activities affecting their profit. Dick
Hubbard founded Hubbard Foods Limited, a company based in New Zealand producing a range of 23
breakfast cereals targeted towards the middle- to high-price range in the cereal market. Dick believes a
number of key stakeholders have an interest in the business, including shareholders, employees,
customers, suppliers and the community. He also believes in sharing his financial success with those
outside the company. For more than ten years he has supported Outward Bound (a charitable trust
aimed at improving social and emotional learning through physically and mentally challenging
activities). A donation of 50 cents is made to the trust for every packet of the Outward Bound cereal
sold. The company is a member of the New Zealand Business Council for Sustainable Development
(NZBCSD) and Dick is on its executive board. The NZBCSD is a branch of the World Business
Council for Sustainable Development, and Hubbard follows a campaign of reducing waste, informing
and educating customers and producing innovative products that conform to the precepts of
sustainable development (Kirkwood & Ruwhiu 2003).
Promoting innovation: Vanguard companies

Though there may not be a direct relationship between social responsibility and financial performance
(at least in the short term), several firms score highly on both social responsibility and success. OToole
(1985) calls these vanguard corporations. His examples include John Deere, Honeywell, Levi Strauss
and Motorola. There are four common characteristics of vanguard organisations:
1 They try to satisfy all their stakeholders. The basic idea is that shareholders interests are best
served in the long term when firms work to satisfy the legitimate concerns of all stakeholders. These
companies work hard to resolve conflicts and find ways to serve all constituencies at once.
2 They are committed to a higher purpose. These corporations see their role as giving society needed
goods and services, employment and wealth creation in profits, to increase the general standard of
living and quality of life. In this sense, profit is the means, not the end, of corporate efforts.
3 They value continuous learning. These companies see flexibility, change and responsiveness as
vital to organisational survival. As a result, they monitor environmental changes, assessing the
applicability of their own strategies and practices.
4 They aim high. They are dedicated to being best in all they do. As a result, they emphasise
innovation to help them reach high goals.
Through commitment to these principles, vanguard companies have managed high-level social
responsibility and been financially successful too.
corporate philanthropy
Corporate contributions
for charitable and social
responsibility purposes
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PART 1 Introduction
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EME GING TR ENDS
EMER GING TR ENDS
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EMERRGING TR ENDS
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EMERGING TRENDS
Global organisational ethics
Time for change

The single desk for wheat exports was in trouble before the Iraq
scandal, but its support and authority are now blown away.
A broad coalition of wheat growers in the eastern states
want the single selling desk abolished, a move that would be
political dynamite for the National Party and the Grains
Council of Australia, which still support AWB being the sole
export authority. The consultancy group ACIL Tasman is
helping co-ordinate growers who say the oil-for-food scandal
is the final nail in the single desks coffin, and that the Federal
Government must act quickly and decisively to put in place
alternative marketing arrangements to secure the
beleaguered industrys future.
In the past, the National Party and the Grains Council (it
represents 45 000 farmers) have cited surveys showing that
80 per cent of wheat growers in the eastern states favour the
single desk. But polls by rural publications since the oil-forfood scandal unravelled show that support has fallen to 50
per cent.
A former chairman of the Grain Growers Association, Ron
Greentree, who farms 18 000 hectares at Mungindi, near
Moree, is typical of growers who want the desk abolished. I
am totally disenchanted with the single desk; its reputation
has been shot to pieces, he says. No wheat farmer can
have any faith in AWB. There are just so many questions that
demand answers: the role of the internal auditor; the role of
the board and the policy directions it is supposed to set; the
Wheat Export Authority. Its supposed to be my external
auditor. What has it been doing?
I came to Sydney for several days of the [Cole Royal
Commission] hearings. The evidence is very damning. This is
my livelihood as a wheat grower that AWB has been playing
around with. I export to the Japanese market. What do they
think it has done to my reputation in that market? But
Greentree, who exports high-protein wheat, known as
Australian prime hard, insists the need to abolish the single
desk predates the oil-for-food scandal. He says: There have
been several solid reports that have highlighted problems with
the single desk. Indeed, I would argue that the moment the
[Australian Wheat Board] was privatised, its monopolies
should have been dismantled. Its quite simple really; its duty
to maximise returns to shareholders conflicts with its
obligation to maximise returns to wheat growers.
It is not just on the export front. In other areas they went

from offering a service to growers to becoming profit centres.
AWBs like a parasite, trying to suck blood out of the grower.
Greentree is right. Although maintaining the single desk has
been the official line from key industry powerbrokersnotably
AWB, the Grains Council and the National Partysmarter
grain growers have known for years that its days are
numbered. Report after report has highlighted its deficiencies.
For example, the conclusions ACIL Tasman reached in its
report for the Pastoralists and Graziers Association of
Western Australia would resonate with Greentree: The
national export pool does not provide sufficient market signals
to WA wheat growers to respond to changing customer
needs. Higher prices are often paid for wheat from a
particular port zone in WA for specific characteristics, but are
distributed across the national pool for that grade. This does
not directly reward growers who produce higher-value grain.
Pools also prevent accurate price signals reaching growers
who produce poorer quality grain, [as well as] smooth out
prices over time, preventing buyers and sellers contracting for
specific qualities and quantities.
AWBs days of blithely ignoring its critics are over. Reform is
coming and it is not just AWB that will feel the winds of
change. The National Party can recognise this reality and take
a leadership role as the industry changes or cling to the status
quo and become largely irrelevant to the debate. Privately, the
Minister for Trade and National Party leader, Mark Vaille, has
acknowledged the shortcomings of the single desk. Greentree
says: Why are the Nationals so attached to the single desk? It
is the same old story in the bush: 80 per cent of wheat
growers produce 20 per cent; 20 per cent of growers produce
80 per cent. The Nationals typically listen to the former.
It is not just the National Party. The Grains Council
continued to give AWB unqualified support even after the
Volcker report for the United Nations announced its
devastating findings. Growers argue that it is too closely
linked with AWB. It is these relationships between the Grains
Council, AWB and the National Party that will now be under
scrutiny. Not one of them is likely to enjoy the experience.
Activities for discussion, analysis and further

research
Carry out some research to determine the outcomes of this
case since it was written.
Source: Way, N. 2006, Time for change, Business Review Weekly, John Fairfax Holdings Limited, 9 February, p. 21.
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CASE IN POI T
C A S E I N P O I NN T
C A S EE I N P O I N T
CAS IN POI NT
CASE IN POI
CASE
119
CASE IN POINT
Hyundai Motor chairman in jail over fraud charges
Group head Chung Mong Koo was arrested and thrown into
a prison on charges of embezzlement and breach of trust
following a month-long probe into a slush fund scandal.
Chung was arrested amid fears that he could go into hiding
or might destroy evidence.
This is very different from the lavish praise that the
organisation had lavished on it for the transformation of its
brand. Once dismissed as shoddy and third rate, its new
Sonata and Santa Fe models have been scooping up
awards.
Prosecutors also are seeking to indict Chung Eui-sun, the
Chairmans son and President of Kia Motors Corporation,
without detaining him. There are concerns of a leadership
vacuum at the countrys top car maker that is pushing to
become the worlds fifth-largest car manufacturer by 2010,
along with affiliate Kia.
The charges were made regarding the operation of slush
funds, and offering cash for political favours via a lobbyist.
There are also some concerns over how the countrys
sprawling family-run conglomerates shift money within group

companies using complex share ownership networks to
control their businesses. This has cast a long shadow over
one of the most profitable companies in Korea and has
prompted speculation the weakened car maker might
become a target for a takeover.
Embezzlement and misappropriation of corporate funds
can each carry life terms in jail in South Korea.

research
1 Do some research on the structure of the Korean
chaebols and discuss the issues that you believe might
arise from such powerful conglomerates.
2 The chaebols are family owned. Does this entitle the
members of the family to use its resources as they like?
Why, or why not?
3 Identify the ethical issues that arise, given the structural
environments of such organisations.
Sources: Reuters, 2006, Hyundai Motor chairman in jail over fraud charges, Time Business, The Times of India, Mumbai, April 29. Fifields, A. 2006, Hyundai
on the skids as executives probed in bribery scandal, The Australian, 27 April, p. 28.
Organisational social responsiveness

While managers hold a view of their organisations social responsibilities, it becomes more concrete
when managers actually respond to social responsibilities. Organisational social responsiveness refers
to the development of organisational decision processes where managers anticipate, respond to and
manage social responsibility areas. Organisational social responsiveness is also called corporate
social responsiveness, as it is often applied to business organisations. However, other organisations
find social responsiveness to be important too (Bateman & Snell 2004). For example, not-forprofit schools and hospitals must monitor various stakeholders changing expectations and respond
to them.
Two processes are basic to the development of organisational social responsiveness. First, methods
must be set up to monitor the external environments social demands and expectations. Second,
internal social response mechanisms need to be developed.
Monitoring social demands and expectations

Means to assess social demands and expectations related to organisations include social forecasting,
opinion surveys, social audits, issues management and social scanning.
Social forecasting
Social forecasting is the systematic identification of social trends, evaluation of the organisational
importance of those trends, and their integration into an organisations forecasting program. One
responsiveness
A term referring to the
development of
organisational decision
processes where managers
anticipate, respond to and
manage areas of social
responsibility
corporate social
responsiveness
The concept of
responsiveness as applied
to business organisations
social forecasting
The systematic process of
identifying social trends,
evaluating the
organisational importance
of those trends, and
integrating these
assessments into the
organisations forecasting
program
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PART 1 Introduction
futurists
Individuals who track
significant trends in the
environment and attempt
to predict their impact on
the organisation
approach is the use of futurists; that is, individuals who track important environmental trends and try
to predict their organisational impact, usually ten or more years ahead. Other approaches include the
use of consultants and research institutes that specialise in social forecasting.
Opinion surveys
Associations and business publications conduct surveys on social issues. These often identify different
groups views of social responsibility. One poll, for example, showed that only 31 per cent of people saw
business executives as having good moral and ethical standards (also see Table 4.1) (USA Today 1992).
Social audits
social audit
A systematic study and
evaluation of the social,
rather than economic,
performance of an
organisation
A social audit is the systematic study and evaluation of social, rather than economic, organisation
performance. It includes assessment of the social impact of a firms activities, evaluation of programs
with social goals and identification of areas to be actioned. Social audits are difficult because
disagreements can arise about what to include, results can be intangible and/or difficult to measure,
and opinions may vary about what makes adequate or good social performance. Nevertheless, firms
increasingly assess their performance by social audits (Post et al. 1996).
Issues management
issues management
The process of
identifying a relatively
small number of
emerging social issues of
particular relevance to
the organisation,
analysing their potential
impact and preparing an
effective response
As applied to social responsiveness, issues management is the identification of a small number of

emerging social issues relevant to the organisation, analysing possible impacts and developing effective
responses. Usually ten to 15 issues are identified, depending on organisational events. Issues
management seeks to reduce surprises from environmental forces and facilitate a proactive approach
to environmental change (Fleming 1981; Wartick & Cochran 1985). At Monsanto, for example, the
Executive Management Committee, chaired by the president, worked with different parts of the
company to identify 170 social issues. The list was culled to five critical issues in the business
environment: fair trade, biotechnology regulation, intellectual property rights, agricultural policy, and
hazardous waste and public compensation. Through issues management, the firm led greater cooperation between industry and environmental groups.
Social scanning
social scanning
The general surveillance
of various elements in
the task environment to
detect evidence of
impending changes that
will affect the
organisations social
responsibilities
is the general surveillance of task-environment elements to find evidence of impending

changes that will affect organisational social responsibilities. Unlike issues management, social scanning is
more informal and unsystematic. Executives use their own experience of issues likely to affect the
organisation, but may rely on systematic assessments, as discussed before (Daft, Sormunen & Parkes 1988).
After assessing American social expectations, Sadahei Kusumoto, Minoltas president and CEO,
urged subsidiaries of Japanese companies to attend to US standards of corporate social responsibility.
Subsidiaries had not engaged in corporate philanthropy in the United States, as Japanese tax incentives
were lower and corporate giving was rare. Kusumoto argued that Japanese subsidiaries in the United
States must become more active or risk being branded as irresponsible outsiders and dim their
prospects for the future. Thus Kusumoto was important in environment scanning and noting trends
affecting Japanese companies in the United States. When Japan doubled corporate tax deductions for
foreign charitable gifts, the countrys global corporate giving doubled (Kusumoto 1989; Schroeder
1991). While social demands and expectations must be monitored, organisations must also develop
appropriate response mechanisms (Rue & Byars 2003).
Social scanning
Internal social response mechanisms

An organisations internal social response mechanisms include departments, committees and human
resources impacting its responsiveness to social environment changes (Strand 1987). The common
social responses of an organisation include individual executives, temporary task forces, permanent
committees or departments, or combinations of these (Holmes 1978; Post et al. 1996).
Individual executives
Using individual executives as a social response mechanism means either appointing or allowing
individuals to handle critical social issues as they happen. This is more common in small rather than
larger firms.
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121
Temporary task forces

This involves forming a committee of several people for a short time to deal with a critical social issue.
After acting, the committee or task force disbands. Temporary task forces are most effective when an
important social issue needs rapid input from various parts of the organisation.
Permanent committees
There are many types of permanent committees. Almost 100 of the Fortune 500 companies have
special committees on the board of directors to deal with social issues. These may be called public
policy, public issues, social responsibility and corporate responsibility committees (Lovdal, Bauer &
Treverton 1977). Permanent committees may comprise executive-level members, members across
management levels, or division-level committees funnelling critical issues to higher-level committees.
Permanent departments
Firms may have a permanent department to co-ordinate social responsibilities, and identify and
recommend policies for new social issues. This is often called the public affairs department. It may
co-ordinate government and/or community relations with other external activities. In a study of
large and medium-sized firms, 361 of 400 respondents had a public affairs unit, one-third set up
since 1975. The trend to such departments continues (Post, Murray, Dickie & Mahon 1983; Post
et al. 1996).
public affairs
department
A permanent department
that co-ordinates various
ongoing social
responsibilities and
identifies and
recommends policies for
new social issues
AS
EMM
L DIL EMMAS
A
I
R
DIL
AS
AGE
MAN AGERIAL DILEMM AS
L
N
M
A
A
I
M
M AGER
S
DILE
MAN AGERIAL DILEMMAAS
N
L
M
A
M AGERIA DILEM AS
MAN AGERIAL DILEMM AS
MAN AGERIAL DILEMM
MAN AGERIAL
MAN
MANAGERIAL DILEMMAS
Is Coke buying silence in India?
While the company is denying the claims, 17 shops and

restaurants around Mumbai area were identified in a memo
between officials of Hindustan Coca-Cola Marketing
Company suggesting that substances such as tobacco
pouches, dirt and fungus are frequently found in its
beverages. The company is said to have compensated with
several crates of product worth thousands of rupees.
Coca-Cola has a bottling plant in Keralas Plachimada
village, where it is facing charges of polluting local water
sources. The company admitted to instances of replacing
contaminated product but it is refusing to admit error. A
spokesperson for the Hindustan Coca-Cola Company
contends that the product was found to be spurious and that
the bottles had been tampered with.
The company claims to have taken the following steps:
1 The company has pursued both civil and criminal action
in the past against those who have deliberately
contaminated product receiving active support form the
police.
2 The company continues to take advantage of
technological advances to install electronic bottling
inspectors to detect even the minutest of foreign
particles. This updated technology is being progressively

installed at the bottling plants.
Exchange of bottles is a normal industry practice to
see to it that the trade is secure at all times.
Decision point
1 If you were a senior manager at Hindustan Coca-Cola
Bottling Company, would you give crates of product to a
store or restaurant that reported contaminated product?
Why or why not?
2 The company claims that it is routinely carrying out raids
as part of an effort to curb the practice of purposeful
contaminations. What strategies would you recommend
to overcome the problem of adulteration?
Reflection point
1 What do you think of the practices which appear to have
been developed in India?
2 What would you do to promote ethical behaviour if you
were in a position to do so?
3 Conduct a search on international corporations and the
manner in which they deal with differing ethical standards
around the world.
Source: Narayanan, D. 2006, Coke buying silence, Times Business, The Times of India, Mumbai, May 2, p. 21.
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PART 1 Introduction
Combination approaches
In practice, organisations use a combination of mechanisms to build social performance (Bhambri &
Sonnenfeld 1988). For example, division-level committees or a public affairs department may make
recommendations to an executive-level committee or to certain key executives. Levi Strauss, which has
a good reputation for social responsiveness, pioneered a novel use of permanent committees. The
program involves employees across the organisation and is co-ordinated by regional and corporate
community affairs departments.
Being an ethical manager

Company social responsibility and responsiveness are based on managers ethical standards. Media
articles about ethical problems in business are common. In a study using simulated business situations,
47 per cent of top executives, 41 per cent of controllers and 76 per cent of graduate-level business
students surveyed were ready to commit fraud by understating write-offs, reducing the value of some
assets. The write-offs would lower soon-to-be-reported profit levels (Brief, Dukerich, Brown & Brett
1996). Faced with these problems, many firms are clarifying ethical standards. To help employees
internalise company standards, Citicorp and Lockheed Martin Corporation designed games with cards
containing situations and issues that employees could face. Players move by selecting an option for
handling a scenario. They gain or lose points based on how their choices match company standards.
Some items from the Lockheed Martin game in the Grey Matters book are included in an exercise at
the end of this chapter (Wall Street Journal 1989a; Myers 1992).
In Australia, corporate governance guidelines have been established by the Australian Stock
Exchange for publicly listed companies (Walters 2003).
One issue is growing white-collar crime (fraud or embezzlement, by a business person, government
or not-for-profit organisation, or professional) (Websters New World Dictionary 1984). By US
estimates, street crime costs $4 billion a year, and white-collar crime about $40 billion, eventually paid
by consumers and taxpayers. The rise comes from the current emphasis on materialism and competitive
pressures. Women, previously rarely involved in white-collar crime, are increasingly taking it up (Koepp
1987; Bowen 1987; Burrough 1987).
Business ethics problems raise three significant issues about being an ethical manager: the types
of managerial ethics, the ethical guidelines a manager might adopt and ethical career issues one
may face.
Types of managerial ethics

Managerial ethics, as noted, are standards of conduct or moral judgment that managers use in their
work. The standards come from societys general norms and values; an individuals experiences in
family, religious, educational and other institutions; and interpersonal interactions. Thus, managerial
ethics differ between people (Post et al. 1996; Lee 1994; Business Week 1995b) (see Figure 4.3). Carroll
(1987) notes three major levels of moral or ethical judgment characterise managers: immoral
management, amoral management and moral management.
Immoral management
immoral management
An approach not only
lacking ethical principles
but actively opposed to
ethical behaviour
In business, immoral and unethical may be synonymous. Thus immoral management lacks ethical
principles, actively opposing ethical behaviour. Concern is exclusively with profit and success at any
cost, readiness to treat others unfairly, seeing laws as obstacles, and an inclination to cut corners.
Immoral managements key principle is: Can we make money with this action, decision or behaviour?
Implicit is the view that other considerations matter little, if at all.
Carroll (1987) cites an example of immoral management involving plant managers at a GM truck
plant. In violation of the work contract, managers used a secret control box to override a control panel
setting the assembly lines speed. Plant managers, pressured by higher-level managers after missed
deadlines, met production targets and were praised by their bosses. When it was uncovered, workers
won compensation.
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FIGURE 4.3
123
Extract from Business Week/Harris Poll (Business Week 1995b)
BUSINESS WEEK/HARRIS POLL:

IS AN ANTI-BUSINESS BACKLASH BUILDING?
A. Very favourable . . . . . . . . . . . . . 18%

Q. How would you describe your own attitude
Somewhat favourable . . . . . . . 54%
toward business in this country
Somewhat unfavourable . . . . . 18%
very favourable, somewhat favourable,
Very unfavourable . . . . . . . . . . . 6%
somewhat unfavourable, or very unfavourable?
Not sure . . . . . . . . . . . . . . . . . . . . 4%
Q. How would you rate the ethical standards
of business executives excellent,
pretty good, only fair, or poor?
A. Excellent . . . . . . . . . . . . . . . . . . . . 2%
Pretty good . . . . . . . . . . . . . . . . . 38%
Only fair . . . . . . . . . . . . . . . . . . . . . 46%
Poor . . . . . . . . . . . . . . . . . . . . . . . . 12%
Not sure . . . . . . . . . . . . . . . . . . . . 2%
Q. Do you think white-collar crime is very common, A. Very common . . . . . . . . . . . . . . . 49%

Somewhat common . . . . . . . . . 41%
somewhat common, not very common, or not
Not very common . . . . . . . . . . . 7%
common at all?
Not common at all . . . . . . . . . . . 2%
Not sure . . . . . . . . . . . . . . . . . . . . 1%
Amoral management
Amoral management is neither immoral nor moral but ignores or is oblivious to ethical issues. There are
two amoral management types: intentional and unintentional. Intentionally amoral managers exclude
ethical concerns from decisions and actions as they think general ethical standards are unapplicable.
Unintentionally amoral managers are inattentive or insensitive to the moral implications of their
decisions and actions and ignore ethical issues. Overall, amoral managers may be well meaning, but
give little attention to the impact of their behaviour as they chase profitability. They allow other
managers to behave as they will unless the behaviour generates notoriety or pressure. Amoral
managements basic principle is: Within the letter of the law, can we make money with this action,
decision or behaviour?
Nestls decision to market baby formula in Third World countries is one example of amoral
management. The Swiss company did not anticipate the results of impure water, poverty and illiteracy
on mothers and babies when marketing formula there. Its lack of concern led consumers worldwide to
boycott Nestl products.
amoral management
An approach that is
neither immoral nor
moral, but ignores or is
oblivious to ethical
considerations
Moral management
In contrast to both immoral and amoral management, moral management follows ethical principles and
precepts. While moral managers want to succeed, they do so only within ethical standards and ideals
of fairness, justice and due process. As a result, moral managers pursue twin business objectives of profit
making and engaging in legal and ethical behaviours. They follow both the letter and spirit of the law,
realising that moral management means working above legally mandated levels. The core principle is:
Is this action, decision or behaviour fair to us and all parties involved?
One example of an organisation taking ethical leadership and displaying moral management
involved the chainsaw manufacturer, McCulloch Corporation. Statistics showed chainsaws were
involved in 123 000 injuries a year. Despite the statistics, the Chain Saw Manufacturers Association
fought mandatory safety standards, arguing they were inflated and did not justify mandatory standards.
Displaying moral leadership, McCulloch put chain brakes on all its saws. Later, the firm left the
association after repeated attempts failed to have higher safety standards adopted.
Carroll (1987) believes amoral management dominates today, while arguing a moral management
stance is likely to be in the best long-term interests of organisations.
moral management
An approach that strives
to follow ethical
principles and precepts
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PART 1 Introduction
Ethical guidelines for managers

Ethical standards vary. For example, 43 per cent of respondents to an INC. (1992) survey saw paying
suppliers within 60 days as acceptable, while expecting accounts receivables to be paid in 30 days. Of
respondents, 16 per cent saw it as acceptable to make dealers take more product than needed. As
situations vary, it is hard to write hard-and-fast rules for all options. Ambiguities abound, with many
grey areas. For example, when is a token gift from a supplier a bribe? (Tuleja 1985; Rue & Byars
2003). To help staff with this issue, General Motors has a policy on gifts, entertainment and other
gratuities, outlined in a 12-page booklet with scenarios with fictional players. One scenario,
demonstrating the use of General Motors policy, is shown in Table 4.3.
Despite problems in setting specific ethical standards, guidelines can be useful to understand the
ethical implications of managerial decisions and behaviours. The guidelines below fit the principle of
enlightened self-interest (OToole 1985).
Obey the law. A basic social responsibility and managerial ethics tenet is obedience to the law,
preferably in both letter and spirit.
Tell the truth. Telling the truth is vital to build stakeholders trust. The Digital Equipment
Corporation (DEC) was asked by an employee group to look at a seemingly high miscarriage rate
among female workers on semiconductor assembly lines; DEC commissioned a study. The study found
the semiconductor area had miscarriage rates of 39 per cent in contrast to 18 per cent in other company
areas and the wider population. DEC gave employees the results, passing them to the Semiconductor
Industry Association (Moskowitz 1987).
Show respect for people. Treating people with respect has deep roots in the study of ethics. Respect
for the individual is a central aspect in the move to valuing diversity.
Stick to the Golden Rule. The Golden Rule: Do unto others as you would have others do unto you
is a standard for measuring the ethical dimensions of business decisions. In business terms, it means
treat people fairly, as managers would want the firm treated if it were a person (Tuleja 1985). When
Cummins Engine closed a components plant in Darlington, England, British trade union leaders went
to the firms head office in Columbus, Indiana, to get the decision changed. Cummins held to its
TABLE 4.3 GENERAL MOTORS REVISED GRATUITIES POLICY

GUIDELINES FOR A SPECIFIC SCENARIO AS SET OUT IN GMS REVISED POLICY ON
GIFTS, ENTERTAINMENT AND OTHER GRATUITIES
Scenario:
A distinguished investment banking firm has successfully concluded a major

acquisition for GM and invites, at the firms expense, all the GM employees who
worked with it to a dinner in New York at which each will be given a nice mantle
clock, appropriately inscribed, as a memento of the successful venture.
Policy:
The dinner and clock should be politely declined. While thank you gestures
are a nice custom socially, they can create wrong appearances if they are
lavish or extravagant. Firms that provide high-value services should be
rewarded by being considered for future work. There is no need or expectation
that they thank individual GM employees with gifts, entertainment or other
gratuities. Consistent with business custom and management approval, items
of no or nominal commercial value commemorating significant
accomplishments or expressing appreciation for past GM support, such as a
Lucite block, certificate or baseball cap, may be accepted from suppliers on an
infrequent basis.
Source: Wall Street Journal 1996, New GM rules kerb wining and dining, 4 June, p. B1.
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decision but offered to have 500 redundant workers retrained for new jobs. Union leaders praised the
firm for its concern (Moskowitz 1987).
Above all, do no harm (Primum non nocere). Some writers consider this principlethe first rule of
medical ethicsto be the bottom-line ethical concern and easily adopted by business. H. J. Heinz told
fruit and vegetable growers for its baby foods that products could not be treated with chemicals under
study by federal agencies as health dangers. This decision was made although the chemicals were still
legal (Moskowitz 1987).
Practise participation, not paternalism. This principle is aimed at finding stakeholders needs, rather
than deciding what is best for them. Weyerhaeuser, a forest-products firm, built a reputation among
environmentalists by asking their views before finalising plans for land or facility development.
Always act when you have responsibility. Managers have a responsibility to act when they have capacity
or resources. Managerial action is vital if someone is in need and a manager is the only one who can
help. For example, when Merck pledged free supplies of Ivermectin to combat river blindness, but
couldnt find an effective distribution system, the company set up a committee charged with
distribution of the drug.
For managerial guidance in these principles, read the discussion under Management skills for a
globalised economy: Questions to facilitate ethical business decisions (page 128).
Factors affecting corporate social responsibility and

managers ethical behaviour
Haigh and Jones (2006) identified six sets of factors that might influence corporate social
responsibility: internal pressures on managers, pressures from competitors (competitive dynamics),
institutional investors and end consumers, and regulatory pressures from government and nongovernment organisations. Ethical decision making is a function of various individual and situational
factors (Kelley and Elm 2003). These factors include stages of moral development, organisational
culture, moral intensity of ethical issues, intra-organisational factors and individual values. The
following sections provide a brief description of some of these factors.
Stages of moral development

In an attempt to describe moral evolution, Kohlberg (1969) presented a series of stories to children and
adults of various ages and cultural backgrounds, in order to determine whether there are universal
stages in the development of moral judgment. One of these stories is shown below.
Heinzs story: Ethical dilemma

In Europe, a lady was dying because she was sick. There was one drug the doctors said might save
her. This medicine was discovered by a man living in the same town. It cost him $200 to make it,
but he charged $2000 for just a little of it. The sick ladys husband, Heinz, tried to borrow
enough money to buy the drug. He went to everyone he knew to borrow the money. But he could
borrow only half of what he needed. He told the man who made the drug his wife was dying and
asked him to sell the medicine cheaper or let him pay later. But the man said No, I made the
drug and I am going to make money from it. So Heinz broke into the store and stole the drug.
Source: Baxter and Rarick (1987, pp. 2434)
By analysing responses to questions about these stories, such as Should Heinz have done that? Was it
actually wrong or right? Why?, Kohlberg identified six stages of moral development, which he
categorised into three broad levels (see Table 4.4). In the pre-conventional level, individuals judge right
or wrong based on their concern for personal loss minimisation and gain maximisation. In the
conventional level, moral judgment is based on whether the behaviour would be acceptable to the
125
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TABLE 4.4 STAGES OF MORAL DEVELOPMENT

LEVELS/STAGES
ILLUSTRATIVE BEHAVIOUR
Level I: Pre-conventional morality

Stage 1: Punishment orientation
Stage 2: Reward orientation
Obeys rules to avoid punishment

Conforms to obtain rewards or to have favours returned
Level II: Conventional morality

Stage 3: Good boy/good girl orientation
Stage 4: Authority orientation
Conforms to avoid disapproval of others

Uphold laws and social rules to avoid censure of
authorities and feelings of guilt about not doing ones
duty
Level III: Post-conventional morality

Stage 5: Social-contract orientation
Stage 6: Ethical principle orientation
Actions guided by principles commonly agreed on as

essential to the public welfare, principles upheld to retain
respect of peers and thus self-respect
Actions guided by self-chosen ethical principles, which
usually value justice, dignity and equality; principles
upheld to avoid self-condemnation
Source: Baxter and Rarick (1987, p. 244).
individuals immediate family and social organisations. In the post-conventional level, however,
individuals look beyond their immediate social organisations and focus on moral duty to the larger
society (Sridhar & Camburn 1993).
Kohlberg concluded that many people are limited to level II conventional morality, and very few
over the age of 16 display clear principled stage 6 thinking, such as that shown in the following
response from a 16-year old to Heinzs ethical dilemma:
By the law of society he was wrong but by the law of nature or of God the druggist was wrong
and the husband was justified. Human life is above financial gain. Regardless of who was dying,
if it was a total stranger, man has a duty to save him from dying.
Cited by Baxter and Rarick 1987, p. 2445 from Kohlberg 1972.
Relationships between stages of moral development and styles of conflict management have also
been explored (Rahim, Buntzman & White 1999).
Organisational culture
The 2005 documentary of Enrons collapse, Enron: The Smartest Guys in The Room, demonstrates how
organisational culture can corrupt its members. Lagan (2006, p. 72) contends that it can also have the
opposite effect: Since unethical behaviour can be learnt at work, so too can ethical behaviour. It is not
enough, however, for management to simply sign-off ethical codes; it must actively implement codes
by members. For this, the company values should underpin an organisations systems such as
recruitment, performance management, and reward and recognition systems. Ethics are then
embedded into every organisational aspect, and become visible and ingrained in management language
and process (Lagan 2006).
Moral intensity of ethical issues

The moral intensity of an ethical issue is critical to the decision-making process that defines a decision
makers ethical behaviour (Jones 1991). Jones argued that an issues moral intensity influences the
identification of an issue as an ethical problem. This then influences the decision-maker to make a
moral judgment, establish moral intent and finally engage in moral behaviour. The process begins with
the social, cultural and economic environment (Figure 4.4). Factors including group dynamics,
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FIGURE 4.4
127
Ethical decision-making model (Jones 1991)
MORAL INTENSITY
(characteristics of the issue)
Recognise
moral issue
Make moral
judgment
Environment (social,
cultural, economics, etc)
Establish
moral intent
Engage in
moral
behaviour
Organisational factors
Source: Jones, T. 1991, Ethical decision making by individuals in organizations: An issue-contingent model, Academy of Management Review,
Vol. 16, No. 2, pp. 36695.
authority factors and socialisation also affect the ethical decision-making process. Moral intensity varies
between issues. The characteristics of moral intensity include the magnitude of consequences from the
act, social consensus about the act, the probability of effect from the act, temporal immediacy,
proximity to victim(s), and the concentration of effect of the act upon the victim(s).
The magnitude of consequences is the sum of harms or benefits done to victims or beneficiaries of
the moral act. For example, an act causing the death of a human being is of greater magnitude of
consequence than an act causing a minor injury.
The social consensus is the degree of social agreement that an act is good or evil. For example, the
proposition that bribery is evil has greater social consensus in Australia than in many other countries.
The probability of effect of the act is a joint function of the probability the act will actually take place
and the act will actually cause the harm or benefit predicted. For example, selling a gun to a known
armed robber has greater probability of harm than selling a gun to a law-abiding citizen.
The temporal immediacy of the moral issue is the length of time before the consequences of the act in
question occur. A shorter period implies greater immediacy. For example, a drug that causes an acute
nervous reaction soon after ingestion in one per cent of those who take it has greater temporal immediacy
than a drug that causes one per cent of those who take it to develop nervous disorders after 20 years.
The proximity of the moral issue is the feeling of nearness (social, cultural, psychological or physical)
the moral agent has for victims of the wrong act. For example, to inhabitants of one country, the sale
of dangerous pesticides in their domestic market has greater moral proximity than does the sale of the
same pesticides on another continent.
The concentration of effect of the act is a measure of the extent to which a moral act affects a society.
It is inversely related to the number of people affected by an act of given magnitude. For example,
cheating an individual or small group of individuals out of a given sum has a more concentrated effect
than cheating an institutional entity.
Individual values
Individual value systems play a vital role in ethical decision making. Ethical decision makers
have positive value systems. A value is a conception that defines what a decision maker considers
as acceptable and can be viewed in four modes: practical, moral, gratifying and economic.
magnitude of
consequences
The sum of harms or
benefits done to victims
or beneficiaries of the
moral act
social consensus
The degree of social
agreement that an act is
good or evil
probability of effect
A joint function of the
probability the act will
actually take place and
the act will actually
cause the harm or
benefit predicted
temporal immediacy
of the moral issue
The length of time before
the consequences of the
act in question occur
proximity of the moral
issue
The feeling of nearness
(social, cultural,
psychological or
physical) the moral agent
has for victims of the
wrong act
concentration of effect
The extent to which a
moral act affects a
society; inversely related
to the number of people
affected
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PART 1 Introduction
practical mode
A drive to stay with what
has worked in the past
moral mode
A position of making
strong judgments with
regard to the right or
wrong of a decision or
act
gratifying mode
A position that is driven
by an overwhelming
quest to feel good about
a decision
economic mode
has a value system
focusing on
organisational resources
Managers use one or more of these modes that they consider compatible with their set of values
(Stanley 2006).
The practical mode deals with a drive to stay with what has worked in the past. The idea is to reduce
risk and increase the probability of success.
A decision maker who uses the moral mode makes strong judgments with regard to the right or
wrong of a decision or act. This type of value system usually rests on religious beliefs. A manager using
this mode will view decisions in a clear-cut manner.
A manager who operates from the gratifying mode is driven by an overwhelming quest to feel good
about a decision. This mode should lower individual stress levels.
A manager working in the economic mode has a value system focusing on organisational resources.
This mode is important for managers who, in order to survive in the current competitive environment,
must exercise proper control over resources.
Ethical career issues

Like most managers, you will have ethical dilemmas throughout your career. These arise generally in
grey areas, where a situation can be interpreted in different ways. As well as considering their social
responsibilities, managers must reflect on their personal values and need for self-protection in deciding
how to deal with these situations. They must consider anticipating and avoiding ethical conflicts
(Bhambri & Sonnenfeld 1987).
Assessing values and protecting yourself

When facing an ethical dilemma, three steps are important. First, seek expertise and support from a wide
network of trusted people. At times others may see a practice as ethical but you will be unsure. In such
cases, check with trusted friends, former classmates, peers and/or experts. This clarifies your values on
the issue and helps you decide what further action is needed. Second, if necessary, take internal actions
to achieve change. As a manager, get your facts straight before suggesting behaviour is inappropriate or
illegal. Then bring the issue to your superiors and try to persuade them to take corrective action. If the
dilemma persists, move to the third step, which is to take internal actions to protect yourself. As a
manager in the chain of command, you may be scapegoated for actions implicitly or explicitly condoned
by higher-ups. Claiming to be following orders will not excuse you if you have broken the law. Instead,
write a memo for the file, outlining your objections and discussions. Talk with other staff about your
LS
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M A N AG E M E N T S K I L L S
M A N AG E M E N
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MANAGEMENT SKILLS FOR A GLOBALISED ECONOMY
Questions to facilitate ethical business decisions
When faced with an ethical dilemma, you may find it helpful

to work through the following questions. These can help
clarify your thinking and decide on an action.
1 Have you accurately defined the problem?
2 How would you define the problem if you stood on the
other side of the fence?
3 How did this situation occur in the first place?
4 To whom and to what do you give your loyalty as a
person and as a member of the company?
5 What is your intention in making this decision?
6 How does this intention compare with the likely results?
7 Who could be injured by your decision or action?
8 Can you discuss the problem with affected parties

before you make your decision?
9 Are you confident your position will be as valid over a
long period of time as it seems now?
10 Could you disclose, without qualm, your decision or
action to your boss, your CEO, the board of directors,
your family, or society in general?
11 What is the symbolic potential of your action if
understood? If misunderstood?
12 Under what conditions would you allow exceptions to
your stand?
Source: Nash (1981). Reprinted by permission of Harvard Business Review.
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concerns. These actions together provide evidence you tried to halt the ethical problem. Seeking a new
job is another step to consider seriously. Above all, do not engage in illegal activities.
Anticipating ethical conflicts

While it can be hard to predict how likely ethical conflicts are, there are some steps to help. First, when
seeking employment, check for potential conflict signs. Ask your family, friends and teachers about the
firm. Check the web for articles and background information. Use job interviews to understand
company operations. Try to meet those you would work with. Look for signs of serious dissatisfaction
and dissension which might signal ethical conflicts. Second, check industry practices. Stable industries
may develop informal networks that encourage collusion among competitors. Industries with easy
entry, a highly competitive environment and severe market pressures may face ethical problems. Third,
avoid even small ethical compromises: they can escalate. To prevent being trapped in a situation where
compromises are hard to avoid, save some of your earnings in a backup account so you will be able to
leave a job if it becomes untenable.
Managing an ethical organisation

Although others are often blamed, people are responsible for their own actions. An important challenge
for managers is to operate a firm where business is done ethically. To do this, managers must know the
external and internal conditions that make unethical behaviour likely. They can also use mechanisms
to aid ethical behaviour.
Situational factors influencing ethical behaviour

Research on ethical versus unethical behaviour in organisations largely focuses on law breaking. Studies
suggest that several organisational environment factors encourage illegal, unethical behaviour (see
Table 4.5) (Finney & Lesieur 1982; Baucus & Near 1991). Of course, managers values also influence
whether people actually act unethically, though some situations make it more likely.
For example, environmental competitiveness encourages unethical behaviour. Industries where price
fixing is common, including the manufacture of motor vehicles, paper cartons, plumbing fixtures and
heavy electrical equipment, have strong competition, similar products, frequent price changes and
negotiations. Competition in not-for-profit organisations can also foster unethical behaviour. This
behaviour includes making illegal political contributions, and spending too high a proportion of
charitable contributions on administration, thus reducing the share actually received by the needy
(Bateman & Snell 2004).
Low and high environmental bounty may also encourage unethical behaviour. If environmental bounty
is low, opportunities for success are limited. The struggle for financial success in this environment may
result in firms behaving unethically. The second-largest US baby food manufacturer, the Beech-Nut
Nutrition Corporation, demonstrated this. Beech-Nut executives ignored chemists cautions that the
apple concentrate bought at below-market prices was probably being extensively altered. (In fact, the juice
was totally synthetic.) The firm was almost broke, and the warnings were ignored; the product was sold
with the label 100 per cent fruit juice. Two executives were jailed and fined for their part in the scandal,
which damaged the companys baby food products sales (Welles 1988; Queenan 1988).
High bounty may also lead to unethical activities, as firms try to grow quickly and gain from a
favourable situation. For example, an executive of Halsey Drug Co., a Brooklyn, New York, generic
TABLE 4.5
SITUATIONAL FACTORS INFLUENCING ETHICAL BEHAVIOUR
EXTERNAL FACTORS
INTERNAL FACTORS
Environmental competitiveness
Pressure for high performance
Environmental munificence
Labour dissatisfaction
Extreme dependency
Delegation
Encouragement of innovation
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PART 1 Introduction
drug maker, was sentenced to 18 months jail for conspiring to add ingredients not approved by the
Food and Drug Administration (FDA) to generic drugs for irregular heartbeats, meningitis and
hyperthyroidism (Pereira & Rebello 1995). The official was attempting to boost the drugs effectiveness
so that the company could benefit from growing markets for cheaper generics assumed to be
therapeutically equivalent to brand-name drugs. Another example involves the South Australian Olive
Corporation and Inglewood Olive Processors, who misrepresented the origins of their extra virgin olive
oil. The oil was advertised as being made in Australia, when in reality as much as 50 per cent was from
overseas sources (Costa 2003).
A third external factor influencing unethical behaviour is extreme dependency of one organisation
on another. These dependencies create pressures for bribes and payoffs (Ingersoll 1989).
Internal organisational factors can also make unethical behaviour more likely. Pressure for higher
performance and output pushes people to take shortcuts, including price fixing, secretly speeding up
an assembly line or releasing unsafe products (Eichenwald 1992; Economist 1995).
Labour dissatisfaction may also lead to unethical behaviour, when anger replaces logical, rational
behaviour. Ironically, delegation of authority and encouragement of innovation gives greater latitude and
creativity but may also increase unethical behaviour. For example, at Adam Opel AG, General Motors
German subsidiary, three senior board members and several employees resigned after being accused of
accepting free work on their homes, or engaging in a kickback scheme involving the awarding of
contracts. Opel chairman David Herman said that, in becoming leaner, the company may have cut
too many financial checks and balances. He warned, This is a word to the wise in other companies
(Kurylko 1995, p. 36).
As external factors and internal pressures increase the incidence of unethical activity, managers must
monitor with care. Under these conditions, managers must work harder to convey the importance of
ethical behaviour to staff.
A study suggests middle- and lower-level managers may feel greater ethical pressure than upper-level
managers (Posner & Schmidt 1984). This means upper-level managers may be unaware middle- and
lower-level managers experience these pressures, and do not act to counter them.
Mechanisms for ethical management

An important question is: How can managers foster ethical organisational behaviour? Behaviour is not
easy to influence; however, managers can generate an ethical climate. Mechanisms include the
following (Post et al. 1996).
Increasing awareness of diversity

Normally you view others from your own viewpoint, using your own attitudes, feelings, thoughts and
experiences to guide interactions. Diversity, however, demands awareness of the attitudes and
experiences of others. Diversity-awareness programs seek to raise participants awareness of (1) their
own attitudes, biases and stereotypes, and (2) disparate viewpoints of managers, subordinates, coworkers and customers. The common goals of these programs include (Carnevale & Stone 1994):
providing participants with accurate information on diversity
uncovering stereotypes and personal biases
assessing personal beliefs, attitudes and values
overturning inaccurate stereotypes and beliefs
developing an atmosphere where people can share perspectives and viewpoints
improving understanding of those who are different.
Top-management commitment
Managers can show their commitment through several mechanisms set out below and the positive
examples of their own behaviours (Jones 1995). Vernon R. Loucks Jr, president and CEO of Baxter
Travenol Laboratories Inc., argues that staff attend more to your actions than your words.
Codes of ethics
It is estimated 90 per cent of major corporations have a written code of ethics. A code of ethics is a
document that organisations prepare to guide members in encountering ethical dilemmas. While
almost all firms with a code say it helps maintain staff s ethical behaviour, a study showed only 36 per
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131
Mentors in Sydneys Fox Studios mentoring program with school students. The mentoring program was initiated
by local law firms to provide positive role models for at risk students.
These mentoring programs rely on positive corporate and individual value systems and ethical decision-making.
A value defines what a decision maker considers as acceptable. Though there may not be a direct relationship
between social responsibility and financial performance (at least in the short term), some firms score highly on
both social responsibility and success. There are four common characteristics of such organisations: they try to
satisfy all their stakeholders; they are committed to a higher purpose; they value continuous learning; and they
aim high.
Source: Newspix
cent issue their code to all staff and only 20 per cent display it widely (Otten 1986). Only about 40
per cent of firms in a comparative study in Britain, France and West Germany (prior to unification)
had codes of ethics, and with great variation between countries based on political, legal and
sociocultural variations (Langlois & Schlegelmilch 1990).
Ethics committees
According to an Ethics Resource Centre survey, about a third of Fortune 1000 companies have ethics
committees. An ethics committee is a group that helps set up policies and resolve major ethical
questions facing company members at work. The committee may oversee ethics training programs.
Often the committee has members from top management and/or the board of directors.
Ethics audits
Some firms conduct ethics auditssystematic efforts to assess conformity to organisational ethical
policies, aid understanding of these policies, and identify serious breaches needing remediation. Even
so, ethical problems can be hard to identify. For example, Dow Corning, with a model ethics program
and ethics audits, was enmeshed in a serious ethical crisis. In Australia an external measure, Reputec,
is increasingly used, although it has met with mixed reception from industry (Ryan 2003).
Ethics hot lines

An ethics hot line is a special telephone line set up to allow employees to bypass the normal chain of
command to report grievances and serious ethical issues. The line is normally managed by an executive
assigned to investigate and work to resolve reported issues. A hot line aids internal problem handling
and reduces the incidence of whistle-blowing employees. A whistle-blower is an employee who reports
a real or perceived wrongdoing under the control of their employer to those able to take needed action.
When a whistle-blower goes outside the organisation, bad publicity, investigations and lawsuits are
common (Dozier & Miceli 1985; Near & Miceli 1995).
code of ethics
A document prepared for
the purpose of guiding
organisation members
when they encounter an
ethical dilemma
ethics committee
A group charged with
helping to establish
policies and resolve
major questions involving
ethical issues confronting
organisation members in
the course of their work
ethics audits
Systematic efforts to
assess conforming to
organisational ethical
policies, aid
understanding of those
policies and identify
serious breaches
requiring remedial action
whistle-blower
An employee who reports
a real or perceived
wrongdoing under the
control of their employer
to those able to take
appropriate action
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PART 1 Introduction
Ethics training
Many organisations use ethics training to encourage ethical behaviour. Training can focus just on
ethical issues or be integrated into training on many other issues. Clarifying expectations and ethical
standards helps reduce unethical behaviour (Mitchell, Daniel, Hopper, George-Falvy & Ferris 1996;
Garland 1998). A better understanding of company standards leads to appropriate organisation
member decisions, the subject of the next chapter.
DGE
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GAIN ING THE EDGE
GAIN ING THE EDGE
GAIN ING THE EDGE
GAIN ING THE EDGE
GAIN ING THE EDGE
GAIN ING THE
GAIN
GAINING THE EDGE
What ticks us off
On a scale of one to ten, where ten is very important to

consumers and one is the least important, the top five things
that anger consumers about large corporations are that they:
Crime
Destroy the environment
Break laws
Treat workers badly
Fiddle the books
Sack people to make a quick profit
Importance
9.03
8.82
8.79
8.75
8.56
Source: Grey Worldwide
The desire to be socially responsible calls strongly to most of

corporate Australia, but many are reluctant to trumpet their efforts
for fear of consumer cynicism. Corporate Australia has tried hard
in the past few years to engage more actively with the general
community and to become more closely involved with charitable
and other not-for-profit causes. But the average consumer still
thinks big business has little or no social conscience.
The findings of a recent survey into consumer attitudes to
the corporate sector would exasperate any executive
committed to a socially responsible corporate agenda. But it
seems that the less Australians say they trust the ethics of big
companies, the more innovative these companies have
become with their community involvement strategies.
In the 2006 Grey Worldwide/Sweeney Research Eye on
Australia survey into consumer attitudes, almost 90 per cent
of respondents thought big business should do more to help
the community and 70 per cent said being a responsible
business meant more than making a profit.
Many companies are socially responsible in innovative
ways, but Australian consumers are clearly a long way from
being satisfied that companies are pulling their weight.
Consumers are, however, getting behind companies and
brands that are evidently performing a constructive
community role. Experts in corporate social responsibility
agree that the chairmans cheque-book approachcorporate
philanthropy comprised of no more than monetary donations to
charityhas all but disappeared. Financial assistance has

evolved into community programs that often actively involve a
companys employees, from the chief executive down.
Partnership is one of the most commonly heard words in any
discussion about companies and the community.
A specialist consultant in community engagement, Hailey
Cavill, says corporate social responsibility is almost
unrecognisable now compared with a decade ago.
Community programs are now a lot more innovative and
complex than they were ten years ago, when corporate social
responsibility involved little more than money to set up a
foundation or to sponsor a charity. Now companies want
partnerships with not-for-profit organisations, partnerships
that might include a sponsorship marketing element, getting
staff involved, and the company providing particular areas of
its own expertise. Much of this has come from shareholders
and consumers putting greater pressure on companies to be
more socially responsible, Cavill says.
She says the complexity of community programs is
growing. Its gone beyond just doing the right thing. Take
staff engagement for example. Every brief I get now has an
element of staff involvement. But that in itself has become a
challenge because a lot of companies want charities to in
effect run their staff motivation efforts, but most charities
dont have the resources to do that. Then you have different
levels of employees wanting to volunteer for different things,
so you might get senior staff wanting to be mentors and
junior staff happy to rattle a tin for fundraising. That all takes a
lot of resources and management, Cavill says.
One company that has a community program based
largely on staff involvement is Unilever Australia, which began
a remedial child literacy program in 2004. All 2000 Unilever
employees can become directly involved in the initiative if they
wish. Unilevers corporate relations director, Nick Goddard,
says the program has been so successful that the ANZ
Banking Group, Amcor, BHP Billiton and Rio Tinto have joined
the Reading for Life initiative, which aims to improve literacy
for 10 000 children by 2010.
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Goddard says: This gives employees a really strong

opportunity to invest in the community, so its not just the
company writing a cheque. It is saying were going to make a
difference. But he adds that it is a two-way street. One of the
underlying philosophies is that if a program is good for the
community, it also has to be good for our business. Were not just
doing the right thing to feel good, but also to help our business.
Arguably the toughest problem in corporate social
responsibility has to do with communication. Are companies
doing enough to tell their stakeholders and the wider community
about what they are doing? According to the Eye on Australia
survey, the answer is No. Asked if big business was doing
good things in the community, 80 per cent of respondents said
they did not hear much about it. Even company shareholders
75 per cent of respondentssaid they were not aware of big
businesss activities in the community. (This statistic alone should
concern companies spending considerable sums on their annual
reports, which almost always contain information about
corporate social programs.) But a lack of communication can be
just as counter-productive as too much communication.
Why? Because even if companies publish plenty of
information about what they are doing in the community,
consumers are so cynical they refuse to believe such activities
are motivated by altruism. In the Eye on Australia survey, 82 per
cent of consumers said companies give to charity but only do it
to look good. A common response was: It is just another type
of marketing. Almost 90 per cent said that when it came to
contributing to the community, companies only did what they
had to in order to meet legal obligations.
Companies are acutely aware of this, and many deliberately
avoid having the spotlight on their community activities. Goddard
of Unilever says: We take a conscious view we dont want to
promote what we do in the community. It should be expected
[from] a company you invite into your kitchen, bathroom or
laundry [via Unilevers household brands]. It should be expected
at the same time that companies like ours are investing in the
community, helping people get more out of life, both with our
products and with the things we do in the community. There are
a lot of companies like us, but there are also a lot who like to
blow their trumpet, and we dont see any benefit in that
approach.
Six years ago, the online recruitment company Seek.com.au
took a new approach to the concept of volunteering by providing
free web advertising space to not-for-profit organisations that
were looking for volunteers. Seeks marketing director, Tony
Balfour, says the free advertising program has boosted
volunteering in Australia by making it easier for people who want
to give their time.
At any time, there can be 10 000 to 20 000 ads for
volunteers on the Seek website, worth the equivalent of $1
million. Balfour stresses that the company never publicises the
initiative. He says: The founders wanted to give back to the
community with a bias towards innovation, and not something
133
we could do just by signing a cheque. A lot more people want

to volunteer than actually do, but they just dont know how to
go about it. We have two million visitors to our site every month
so we have the audience, and its relatively easy to direct them
to the volunteer section of the site.
If we can make it easy for people to sign up and choose
their volunteering time, well get more and more responses
because peoples excuses start to run out. But we dont go out
and make a big thing of this by wanting to tell the world. We fall
into the same camp as some of the organisations we are
helping, which is that we just want to do it rather than saying
Look at what were spending money on.
Ron Curry, the commercial director in Australia for the
computer games company Atari, echoes this view. Last year,
Atari formed a partnership with a new childrens charity, Create.
Curry says: We wanted to get involved with something positive,
where we could actually do something at the front end and
make a difference, but also we wanted a cause the whole
company could be involved with.
Atari is establishing new programs, including online
resources, to empower children in care, according to Curry, but
the company has no intention of making a loud noise about it.
Ataris target audience is the mid-teen to mid-20s age group,
which, as Curry acknowledges, is the most cynical about the
motives behind corporate philanthropy.
Social report card

67% The percentage of Eye on Australia respondents who
do not trust large companies and believe they lack
morals, ethics and generosity of spirit.
97% The percentage of respondents who believe there may
be companies in Australia that are breaking the law.
77% The percentage of respondents who believe there are
companies that are committing human rights abuses.
Source: Lloyd, S. 2006, Deeds without words, Business Review Weekly, John
Fairfax, Ltd, 25 May, p. 58.

research
1 Why has corporate social responsibility met with such
cynicism from the general public?
2 Why do you think Atari chose to aim their corporate
social responsibility activities at the age group of midteens to mid-twenties, especially since this age group is
likely to be very cynical about Ataris motives?
3 Why have companies altered the style of their activities
from the Chairmans cheque-book approach to a more
partnership approach?
4 Do a web search on a variety of companies from your
area and catalogue the methods by which these
organisations undertake to fulfil their corporate good
citizenship. Do you feel cynical about any of these or
question their motivation? Why? Why not?
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PART 1 Introduction
FOCUS ON PRACTICE
Strategies for improving

1 Does your organisation have a code of ethics? If not, how would you go about convincing your
organisation that it needs to develop one?
2 Develop a strategy to implement the development of a code of ethics in an organisation that has
not seen the need for one.
3 How would you ensure managers in your organisation treat people equitably, whether or not
they are familiar with their backgrounds?
4 Develop a plan for helping managers in your organisation understand and avoid stereotypes.
Source: Jones et al. (2000).
www.mhhe.com/au/bartol5e
SUMMARY
Organisational, or corporate, social responsibility refers to a firms obligation to act to
protect and improve societys welfare jointly with its own interests. Three major
contrasting views on the nature of corporate social responsibility are the invisible
hand, the hand of government and the hand of management. Due to expanding social
expectations about the social responsibility of business and other organisations, the
relevance of the hand-of-management view to managers is increasing. The iron law of
responsibility suggests socially responsible behaviour may have a positive long-term
effect on organisational success.
Managements social responsibility focuses on six main stakeholder groups:
shareholders, employees, customers, the local community, the wider society and the
international community. Studies show no clear links between a firms socialresponsibility level and its short-run financial success. However, it is possible to be
both socially responsible and financially successful. More organisations are orienting
their socially responsible activities into areas that can affect their bottom line and
eventually give a competitive edge.
Corporate social responsiveness refers to development of organisational decision
processes where managers anticipate, respond to and manage areas of social

responsibility. As a rule, two processes are vital. First, methods of monitoring social
demands and expectations must be established. Major means are social forecasting,
opinion surveys, social audits and issues management. Second, internal social
response mechanisms must be developed. These include use of individual executives,
temporary task forces, permanent committees, permanent departments, or
combinations of these elements.
Ultimately, questions of corporate social responsibility and social responsiveness
depend on managers ethical standards. There are three types of managerial ethics:
immoral, amoral and moral. While amoral behaviour prevails, moral management is
likely to be in the organisations best long-run interests. Ethical guidelines for
managers include: obey the law; tell the truth; show respect for people; stick to the
golden rule; above all, do no harm; practise participation, not paternalism; and always
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A major management challenge is operating an organisation so that members
conduct their business ethically. To do so, managers must know what environmental
and organisational conditions increase the chances of unethical behaviour. They
should also use mechanisms facilitating ethical behaviour, such as top-management
commitment, codes of ethics, ethics committees, ethics audits, ethics training and
hot lines.
QUESTIONS FOR DISCUSSION AND REVIEW

1 Explain the three major perspectives on corporate social responsibility. What criteria
might you use to determine whether a companys management subscribes most closely
to the invisible-hand, hand-of-government or hand-of-management view?
2 Identify at least one regulation in each hand-of-government control category for your
local area. In what ways do these direct companies actions or responsibilities?
3 Identify an organisation fulfilling some discretionary activities in your local area. In what
ways will this affect the communitys perceptions of the firm?
4 Identify, from your local business press, one example in which pressure from
shareholders changed managements social stance. Will this make further changes
more likely? Why?
5 Identify six stakeholder groups to whom management owes a degree of social
responsibility. To what extent do these groups apply to your college or university? What
other stakeholders might you add?
6 Evaluate the extent to which organisational social responsibility can pay off financially.
Universities are often recipients of corporate philanthropy. Identify two ways such
philanthropy has helped your college or university. How might contributors benefit from
such donations?
7 Identify the major approaches used to monitor social demands and expectations.
Choose an organisation with which you are familiar and suggest how it might use these
methods to monitor relevant social issues.
8 Explain several internal social response mechanisms available to organisations. Identify
two mechanisms used by your college or university.
9 Distinguish between three major types of managerial ethics. Use Business Review
Weekly or Asia Inc. to identify an example of one of these types.
10 Enumerate the ethical guidelines for managers discussed in the chapter.
11 A number of organisations are assessing their triple bottom line. Using a familiar
organisation, explain how this will affect its performance.
www.mhhe.com/au/bartol5e
act when you have responsibility. Ethical career issues for managers may involve
assessing their own values and protecting themselves, as well as considering how
they can anticipate and avoid ethical conflicts.
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PART 1 Introduction
12 Suggest some steps you could take when seeking employment to help you detect
potential ethical problems. To what extent do your friends consider these issues when
seeking jobs?
13 What are the factors that influence the managers ethical behaviour?
14 What are the drivers of corporate social responsibility?
15 Describe the situational factors likely to influence ethical behaviour.
16 Which ethical force do carbon credits support?
17 Outline the basic mechanisms for ethical management. Suppose you have just been
appointed to a top-level position with a major contractor. How would you use these
mechanisms to help prevent some ethical difficulties, such as misrepresenting costs on
contracts, that are plaguing other contractors?
CRITICAL THINKING QUESTIONS

To answer some of these questions you will need to do further research. Useful references
are given below each section of the questions.
This chapter dealt with the difficult issues of organisational social responsibility and
managerial ethics. While few would argue that the traditional role of business has been
making a profit, it seems that it is also increasingly important to be socially responsible and
to practice corporate ethicsin essence, to be a good corporate citizen. This section will
examine some of the drivers of this changeas well as questioning the depth of what is
really occurring.
Reyes (2003) suggests that the do-well-by-doing-good philosophy has been around
since the 1950s, moving beyond the then-acceptable standard of corporate contributions
to charities to a wider view of a role within society.
1 What are the factors driving corporate citizenship initiatives?
2 One of the key social problems facing the Philippines, but familiar to many developing
countries around the world, is the issue of child poverty. What are some of the problems
and why should they be a target for corporate citizenship initiatives?
3 Given the above focus on child poverty as a key target for intervention, what sort of
initiatives would you expect to find being undertaken by volunteer aid groups funded
through private organisations, such as Childrens Hour Philippines, Inc.?
(Material relevant to questions 1 to 3 may be found in Reyes, I.M. 2003, Good corporate citizenship practices: A cycle of life for the
business sector, Business World, 19 December, p. 18.)
Although there have been some very positive outcomes of corporate social responsibility,
this does not imply that such initiatives are universal and altruistic. An eight-country study
across the Asia-Pacific region by public relations firm Edelman Worldwide in 2003
(McIntyre 2003) found that soft issues such as corporate ethics and integrity rated as
among the least important drivers of business reputation. The result? Edelman, which had
been a leading global advocate for corporate altruism as the basis for future growth
prospects, has become one of its newest detractors!
4 If corporate social responsibility strategies are a waste of time, what are the foundations
for a solid business reputation?
Edelmans regional chief, Alan VanderMolen, believes it is important to make the distinction
between corporate philanthropy and being a responsible corporate citizen, and then take
into account the impact these have on the business.
(Material relevant to question 4 may be found in McIntyre, P. 2003, Corporate philanthropy nice if everybody profits, Australian, 11
December, p. B11.)
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VanderMolens advice resonates well with the message of a recent book on the demise of
Arthur Andersen. After nearly 80 years as one of the top of accounting firms in the world, the
firm came to live out its final days mired in disgrace. Toffler and Reingold (2003) explain how
in Final Accounting: Ambition, Greed, and the Fall of Arthur Andersen. (Note: One of the
authors, Toffler, was partner-in-charge of the ethics and responsible business practices group
at Andersen from 1995 to 1999.) While the popular media view is that Andersens downfall
followed directly from its misdeeds at Enron, Toffler sees that as just the last nail in the coffin.
The Arthur Andersen case provides a good example of the short-term, spectacular
organisational death well documented by the mediawhich generally results in calls for
greater corporate social responsibilityversus the much slower and less spectacular collapse
of an organisation through inflexible corporate culture.
5 Given that Arthur Anderson has been one of the Western worlds most high-profile and
respected accountancy firms for decades, what do you think may have been among
some of the long- and short-term problems identified at Arthur Andersen by the 2002
US federal jury?
6 Given the rather more pessimistic approach to corporate social responsibility
demonstrated here, what do you think is the way to go about creating genuine
commitment to it?
(Material relevant to questions 5 and 6 may be found in Toffler, L. and Reingold, J. 2003, Final Accounting: Ambition, Greed, and the Fall of
Arthur Andersen, Broadway Books, New York.)
MANAGEMENT EXERCISES
EXERCISE 1 Skill building: Business ethical dilemmas
Use the questions in the discussion following Management skills for a global economy:
Questions to facilitate ethical business decisions to help you choose what to do in each of the
following situations taken from Grey Matters: The Ethics Game (Lockheed Martin 1992).
Situation 1
Since program funds are short, you have been directed by your supervisor to charge your
time to an account you know to be improper. What do you do?
Potential answers to situation 1 (choose one):
______ a Explain to your supervisor that mischarging on a government contract is fraud.
______ b Refuse to mischarge.
______ c Mischarge as directed by your supervisor.
______ d Ask finance for an overhead number to charge your time to.
Situation 2
A company-sponsored training course in your field is being held in Orlando, Florida. You have
no interest in the training but you are ready for a vacation and have never been to Disney
World. What do you do?
______ a Even though you have no interest in the training, ask your supervisor if he thinks it
will benefit you.
______ b Obviously, or maybe not so obviously, it will be of some benefit to you, so you sign
up.
______ c Reluctantly decline to go.
______ d Suggest that someone else go who has both a need and the interest.
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PART 1 Introduction
Situation 3
On the bus going home at night, the woman sitting next to you mentions that she is being
sexually harassed by one of her fellow employees. Although she does not work for you,
you both work for the same company. You are a manager in the company. What do
you do?
______ a Listen politely, but since she doesnt work for you, stay out of it.
______ b Suggest she speak to her supervisor about it.
______ c Suggest she speak to either your companys equal-opportunity office or ethics
officer.
______ d You contact your companys equal-opportunity officer or ethics officer.
EXERCISE 2 Measuring your ethical work behaviour

Objectives
1 To explore a range of ethically perplexing situations.
2 To understand your own ethical attitudes.
Instructions
Make decisions in the situations described in the ethical behaviour worksheet. You will
not have all the background information on each situation, and, instead, you should
make whatever assumptions you feel you would make if you were actually confronted
with the decision choices described. Select the decision choice that most closely
represents the decision you feel you would make personally. You should choose decision
options even though you can envision other creative solutions that were not included in
the exercise.
Ethical behaviour worksheet

Situation 1
You are taking a very difficult chemistry course, which you must pass to maintain your
scholarship and to avoid damaging your application for graduate school. Chemistry is
not your strong suit, and because of a just-below-failing average in the course you will
have to receive a grade of 90 or better on the final exam, which is two days away. A
janitor, who is aware of your plight, informs you that he found the master for the
chemistry final in a trash barrel and has saved it. He will make it available to you for a
price, which is high but which you could afford. What would you do?
______ a I would tell the janitor thanks, but no thanks.
______ b I would report the janitor to the proper officials.
______ c I would buy the exam and keep it to myself.
______ d I would not buy the exam myself, but I would let some of my friends, who are
also flunking the course, know that it is available.
Situation 2
You have been working on some financial projections manually for two days now. It
seems that each time you think you have them completed your boss shows up with a
new assumption or another what if question. If you only had a copy of a spreadsheet
software program for your personal computer, you could plug in the new assumptions
and revise the estimates with ease. Then, a colleague offers to let you make a copy of
some software that is copyrighted. What would you do?
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______ a I would accept my friend's generous offer and make a copy of the software.
______ b I would decline to copy it and plug away manually on the numbers.
______ c I would decide to go buy a copy of the software myself, for $300, and hope I
would be reimbursed by the company in a month or two.
______ d I would request another extension on an already overdue project date.
Situation 3
Your small manufacturing company is in serious financial difficulty. A large order of your
products is ready to be delivered to a key customer when you discover that the product is
simply not right. It will not meet all performance specifications, will cause problems for your
customer and will require rework in the field; however, this, you know, will not become
evident until after the customer has received and paid for the order. If you do not ship the
order and receive the payment as expected, your business may be forced into bankruptcy.
And if you delay the shipment or inform the customer of these problems, you may lose the
order and also go bankrupt. What would you do?
______ a I would not ship the order and place my firm in voluntary bankruptcy.
______ b I would inform the customer and declare voluntary bankruptcy.
______ c I would ship the order and inform the customer, after I received payment.
______ d I would ship the order and not inform the customer.
Situation 4
You are the co-founder and president of a new venture, manufacturing products for the
recreational market. Five months after launching the business, one of your suppliers
informs you it can no longer supply you with a critical raw material since you are not a
large quantity user. Without the raw material, the business cannot continue. What would
you do.
______ a I would grossly overstate my requirements to another supplier to make the
supplier think I am a much larger potential customer in order to secure the raw
material from that supplier, even though this would mean the supplier will no
longer be able to supply another, non-competing small manufacturer which may
thus be forced out of business.
______ b I would steal raw material from another firm (non-competing) where I am aware of
a sizable stockpile.
______ c I would pay off the supplier, since I have reason to believe that the supplier could
be persuaded to meet my needs with a sizable under the table payoff that my
company could afford.
______ d I would declare voluntary bankruptcy.
Situation 5
You are on a marketing trip for your new venture. The purpose of the trip is to visit the
purchasing agent of a major prospective client. Your company is manufacturing an
electronic system that you hope the purchasing agent will buy. During the course of your
conversation, you notice on the cluttered desk of the purchasing agent several copies of a
cost proposal for a system from one of your direct competitors. This purchasing agent has
previously reported mislaying several of your own companys proposals and has asked for
additional copies. The purchasing agent leaves the room momentarily to get you a cup of
coffee, leaving you alone with your competitor's proposals less than an arms length away.
What would you do?
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______ a I would do nothing but await the man's return.

______ b I would sneak a quick peek at the proposal, looking for bottom line numbers.
______ c I would put the copy of the proposal in my briefcase.
______ d I would wait until the man returns and ask his permission to see the copy.
Source: Timmons, J.A. 1994, New Venture Creation, 3rd ed. pp. 28586. Copyright 1994 by Jeffry A. Timmons. Reproduced with
permission of the author.
INTEGRITY AT WORK
Ethical managementThat feather in your cap
The case study in this exercise is to help you explore the ethical issues associated with
credit earned and credit due. When credit is stolen, trust begins to erode. This exercise
deals with handling the stolen credit situation in order to restore an ethical balance.
John Foster is an employee in the finance department of XYZ company. His
immediate supervisor is Dave Albright. A firm believer in continuous improvement, John
has noticed certain changes that could be made to improve the companychanges that
would require top-level approval to implement. One day, John decided to take the
initiative and write up an improvement report to submit to the CEO of XYZ. Before
submitting the report, though, John asks Dave to review it. Days later, John learns his
report has been submitted to the CEO. The problem? Dave has put his name on the
report instead of Johns. To compound the difficulty of the situation, John hears the CEO
is preparing to give a cash award for the report ... to Dave.
1 How would you interpret the statement that one government employee says he would
like to deliver to his supervisor: That feather in your cap came out of my tail!
2 Discuss reasons why some supervisors take credit that isnt rightfully theirs and why
others are more inclined to acknowledge their employees contributions.
Make a list of ten commanagements that, ideally, supervisors/managers would follow to
create the best of all management worlds. Start each statement with a shall or shall
not sentence related to valuing employee contribution.
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END-OF-CHAPTER CASE ON THE RIM
In India: Unravelling the great Indian IPO trick

umbaiSometime in the summer of 2005, the
division chief (Investigations) at the Securities and
Exchange Board of India (Sebi) R. Ravichandran, a
former income-tax hand, decided to take a look into the grey
market for equities. Revichandran was curious why many
people frantically exchanged stock just before, especially the
previous day, new shares allotted in IPOs were listed on the
exchange.
The pattern was being repeated in almost every IPO.
However, it was difficult to look into each and every case. That
is when the YES Bank, a new generation private bank, entered
the equity market to sell about 70 million shares to investors to
raise 3 billion rupees (Rs). A quarter of the issue was reserved
for retail investors; that is, those who applied for shares worth
Rs50 000 or less. It was an ideal issue to stake out.
Sebi told the stock exchanges to find out details of the big
sellers on the YES Bank counter in the opening days. The
exchanges did not find anything unusual and they did not have
any data on off-market trades. For that, Sebi had to approach
the depositoriesNSDL and CDSLwhich keep the data on
movements of shares from one account to another. The
regulators gave the data to the exchanges to analyse.
The exchanges found that one Roopalben Panchal had
received nearly one million shares in her demat account just
before the shares were listed. She was neither a high net
worth individual nor an institutional investor, so the only way
she could have got the shares would have been through
fraudulent allotment. On further digging, it was found that
shares allocated to about 6300 demat accounts were
transferred to Panchals account. Sebi asked NSDL for a
sample of 200300 application forms for opening demat
accounts from among the 6300. Sebi found the loose ends of
a large-scale scheme in the forms. Most of them hardly
contained any information and all of them had the same
addressPanchals. That is when Ravichandran and his team,
comprising Anjali and Mahdu Sudan, realised that it was a
case of blatant fraud and forgery. The Sebi top brass was
apprised of the matter and the probe was widened to the IPO
of infrastructure financier IDFC Ltd. The whole investigation
was overseen by Sebi board member G. Anantharaman, a
former revenue service official who had a reputation for finding
the proverbial needle in a haystack of data.
The IDFC probe unearthed the most audacious attempt to
undermine the IPO process. A total of 52 000 fake and benami
accounts were used to corner shares from the retail segment.
By now, Sebi had identified two major groupsone pivoted by

Roopalben Panchal and another by Sugandh groupthat
were masterminding the operations.
A source told TOI that records seemed to have been
created after Sebi started the probe. The source added there
were instances when application forms appeared to have been
hastily created and depositories had almost acted in a hostile
manner when requested for information and documents, often
giving incomplete information.
Sebi discovered that while the activities of the groups
appeared to have intensified through 2004 and 2006, they had
begun the scheme in a small way with the stock sale by Maruti
and IPO by Indraprastha Gas Ltd in 2003. In fact, the
depository participants financiers appear to have used the
system already put in place by these groups. They had the
money and were willing to finance the operators, who
controlled the fake accounts, the source said.
While banks like Bharat Overseas Bank, Indian Overseas
Bank and Vijaya Bank gave loans worth about Rs300400
million in each IPO, other banks appear to have helped in
money transfers and opening accounts. The vicious circle was
complete with the registrars and the DPs taking care of the
documentation, the banks helping smooth movements of
funds and Panchal and friends providing the fronts.
Sebi first cracked down on the culprits in mid-December
2005 with an order in the YES Bank IPO. It followed up the
order a month later with another one in the IDFC case, and
launched a detailed investigation into IPOs since early 2003. In
the course of the investigation, the team pored over more than
100 000 pages of documents. It finally completed the 252page report in three months. This was the first investigation by
Sebi that relentlessly pursued the money trail to nail the
culprits.
But it wasnt without its share of intrigue. Sebi sources say
that they even got several threatening phone calls. A host of
complaints were made against the investigators to Sebi top
brass, apparently to scuttle the probe. Now the regulator plans
to prosecute those involved with the fraud and forgery of
documents under Section 68A of the Companies Act.
Modus operandi
1 A vicious circle of financiers, rogue bank officials,
unscrupulous depository participants, and individuals
acting as fronts created a web of fake and benami bank
and demat accounts. They used those accounts to corner
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END-OF-CHAPTER CASE ON THE RIM
shares in retail segment IPOs, where there are fewer

applicants and a greater chance of allotment. While other
investors were not hurt directly, they were certainly robbed
of a chance to get allotments.
2 Fictitious bank and demat accounts were opened. Several
bank officials such as those at Bharat Overseas Bank and
Indian Overseas Bank appear to have colluded with those
operators by not checking identities and helping them
transfer money easily.
3 DPs such as Karvy helped them open thousands of demat
accounts to receive allotments in IPOs. A few people like
Roopalben Panchal were used as the master account
holders, who received money from the financiers before
the IPO. Panchal would then transfer the money into
thousands of accounts.
4 Applications in the names of each of these account
holders would go out to the IPO issuers registrar, with
instructions to transfer shares into the persons demat
account upon allotment.
5 Shares received in the demat account were transferred to

the master accounts in off-market transactions. They, in
turn, sold the shares in the market as soon as they are
listed on the stock exchange, making a killing. The profit
was transferred to the financiers.
Source: Adapted from Narayanan, D. 2006, Unravelling the great Indian IPO trick,
Business Times, The Times of India, Mumbai, 29 April, p. 25.

research
1 Carry out some research regarding insider trading in
Australia or the US. Why is this practice illegal? Is it a
crime to deprive someone of the opportunity to make a
profit if they did not know that they could make a profit?
2 Is there such a thing as a victimless crime? Who defines
these and why do organisations try so hard to protect
themselves from them?
3 Compare this case to the Enron one and discuss why the
breach of public trust receives such harsh condemnation.
FURTHER READING
Barela, M.J. 2003, Executive insights: United colors of BenettonFrom
sweaters to success: An examination of the triumphs and controversies of a
multinational clothing company, Journal of International Marketing, Vol. 11,
No. 4, pp. 11329.
Soon, L.G. 2003, Differences in ethical judgement between Chinese and

Singaporeans: Individual reactions to self and organizational interest
considerations, Singapore Management Review, 2nd Half, Vol. 25, No. 2,
pp. 125.
Cary, C., Wen, H.J. and Mahatanankoon, P. 2003, Data mining: Consumer
privacy, ethical policy, and systems development practices, Human Systems
Management, Vol. 22, No. 4, pp. 15769.
Toth, O. 2003, The ethical progression, Media Asia, 5/30 Supplement,

pp. 424.
Doh, J.P., Rodriguez, P., Uhlenbruck, K., Collins, J. and Eden, L. 2003,
Coping with corruption in foreign markets, Academy of Management
Executive, August, Vol. 17, No. 3, pp. 11428.
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END-OF-PART CASE:
GOING GLOBAL
Reeling it in
Hideaway Bay is about as far south in Australia as you can go
without stepping off towards Antarctica. It is a place of forest
green hills and deep blue water. Achingly beautiful, it is the
kind of place where people give their homes names such as
Utopia or Serendipity.
The nearest village, Dover, sits at the head of Esperance
Bay and looks out over the islands of Faith, Hope and Charity.
At the end of a gravel road at Hideaway Bay lies a
remarkable Australian business story about how a young
farming couple, Frances and Peter Bender, swapped cattle
and sheep for Atlantic salmon 20 years ago at the birth of
Tasmanias salmon industry, almost lost everything, but are
now so successful that in 2007 the family business, Huon
Aquaculture Group, expects to turn over $100 million.
The wind whips off the mouth of the Huon River as Frances
Bender talks about farming a fish that has no earthly right to
swim in Australian waters, but has flourished profitably in the
ocean inlet farms of Tasmania.
I often wonder how the hell I got here, she says. Its like
living on a roller-coaster and you never know where youre
going to end up.
For millions of years the life cycle of the Atlantic salmon
began in the rivers that run into the North Atlantic Ocean in
Europe and on the east coast of North America.
The fish were brought to Australia in the early 1800s by
nostalgic pioneers.
Salmon and trout eggs were brought from England to
populate the rivers of New South Wales (NSW) for sport
fishing. They arrived by sailing clipper, surviving the voyage
wrapped in moss on large blocks of ice.
Near the confluence of the Snowy and Thredbo rivers, an
old workmens hut built in 1906 became the most famous
fishing lodge in Australia, The Creel. A hatchery was
established in the 1920s and later moved to Paddys Corner,
near Jindabyne, where it became known as the Gaden
Hatchery.
Atlantic salmon, which does not breed in the wild in
Australia, was introduced into Tasmania with government
support in 1984, when fertilised eggs were purchased from the
Gaden Hatchery.
These eggs were from stock originally imported into the
Snowy Mountains in the 1960s from Nova Scotia, Canada.
The first commercial harvest of Tasmanian salmon53
tonneswas in the summer of 19861987. The Benders were
there almost from the outset, beginning in 1987 as a family

business. At that stage, they were farming Murray Grey cattle
and sheep and doing their stockwork on horseback.
But their property had a significant foreshore. We looked
at this as a diversification for the familys interests, Bender
says. Her father had also been a commercial fisherman, an
abalone diver.
We knew nothing at all about fish, but basic farming
principles dont change, no matter what the stock is, Bender
says. You need to feed your stock well, you need to keep
them clean and their environment clean, and you need to not
stress them.
From 1987 to 2001, the Benders and their three children
built a reputation as contract growers to other companies,
including Tassal, which then dominated the Tasmanian
salmon industry.
But in May of that year, with Tassal in financial trouble
and the industry restructuring, the Benders, who financially
were about as low as it is possible to go, negotiated
themselves out of their contract and launched the Huon
Aquaculture brand.
The banks took some convincing.
They thought we were completely mad, Bender says.
They didnt quite understand for a while.
But the companys growth has been phenomenal. In 1994,
as a contractor, it was producing 500 tonnes a year.
This years produce is likely to be more than 7000
tonnes, second only to Tassal, which produces about
12 000 tonnes.
In the past five years, Huon has gained a 44 per cent share
of Australias wholesale domestic market, where demand is
growing at more than 20 per cent a year. It also exports to
France, the United States, Hong Kong, Taipei and Japan.
The company now has seven sea farms at different
locations on the Huon River and in DEntrecasteaux Channel,
among the most exposed environment for salmon farming in
the world.
From the early days of adapting northern hemisphere
equipment to Australian conditions, the Benders have become
industry leaders in innovation and technology. They developed
a computerised feeding system to feed on demand, maximise
growth and monitor the results on laptops in the companys
boats. They also invented a percussive-stun harvesting system
that Frances calls the most humane and effective fish
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END-OF-PART CASE:
GOING GLOBAL
harvesting system in the world, as well as new underwater

lighting technology and marine oxygenation systems.
Austalias share of the salmon industry is tiny by world
standards, not much more than a sliver on a graph alongside
Chile, Norway, Scotland and Canada.
Chile began producing salmon about the same time as
Australia in the 1980s, backed by Norwegian and Scottish
investment capital. But with fewer environmental controls and
low labour costs, it has become an industry whale while
Australia has remained a minnow.
Salmon has become Chiles second most important
export after copper. Like Norway, it produces more than
400 000 tonnes of salmon a year, compared with Tasmanias
18 000 tonnes.
But Tasmanias disease-free salmon is internationally well
regarded in key markets, including Japan, where it sells at
premium prices. With an ideal water temperature of from
14Cto 16C throughout the year, Tasmanian salmon grow
faster than anywhere else in the world, on a lower-energy diet
that adds to the firmness of the flesh.
The technology used in Australia is also regarded as cutting
edge. Were small, Bender says, but were not backward.
Tasmanian salmon now earns far more than apples on the
Apple Isle.
However, despite a turnover of more than $70 million in
2006, with $100 million expected to be reached in 2007, the
Benders say that they have never taken a dividendthey pump
everything back into the company, which now has a work force
of 300, including a strong Scottish influence. On the day we
spoke to them, experts from Denmark were discussing the
companys plans for a $20 million capital improvement, including
a $5 million re-circulation hatchery. At peak growth, the salmon
consume 40 tonnes of feed a day at $2000 a tonne.
Bender says that it is a good product, produced in pristine
conditions, low in calories, high in protein, and the second
highest source (after swordfish) of Omega-3 polyunsaturates
that help keep the body healthy.
Aquaculture has its opponents. Author Stephen Hume
dubbed it a a stain upon the sea and loud conservation
voices have been raised against it, in Australia as in
Scotland, Canada, Chile and Norway, where there have
been calls to close fjords to salmon farming, for their
environmental protection.
Some animal welfare activists argue there is little difference
between battery hen farming and sea farms, where pens
measuring 80 metres in circumference may contain 15 000

salmon. In 2006, Huon Aquaculture introduced 168 metrecircumference cagesthe largest growing salmon cages in the
world. Two years ago, Australias peak marine conservation
group, the Australian Marine Conservation Society, urged
Australians to boycott Tasmanian salmon, a call backed by the
Tasmanian Conservation Trust, whose director Craig Woodfield
says you cant put that much organic matter into the system
without changing something.
Internationally, an anti-farming campaign has accused the
industry of polluting waters, decimating fish species used to
feed the salmon and, in Chile, unhealthy working conditions
and low wages for workers.
In 2000, there was also an outcry when Tasmanias parks
and wildlife minister David Llewellyn suggested fur seals that
were feeding off Tasmanias multimillion-dollar salmon farms
should be put down like rogue dogs. In the village of
Lower Snug, Woodfields predecessor at the Tasmanian
Conservation Trust, Michael Lynch, says: Seals have as
much right to live as you and I, and why kill them when
all theyre doing is trying to have a feed?Seals are the
salmons main predator. Overseas, they shoot seals. In
Australia, it is forbidden.
We dont believe the community, or our customers, would
like us to be shooting seals, Bender says. Its not accepted
by the community that we shoot seals, because everyone
thinks seals are cute. They are, to a certain extent. But seals
can also carry tuberculosis, she says, and rogue seals can be
dangerous.
Tasmanias protectionist attitude towards its salmon farms
has also caused trade tensions. In 2000, the Tasmanian
government said it would hold out against federal authority
and Australias deals with the World Trade Organisation to
prevent imported fish contaminating the states Atlantic salmon
farms. Australian beef, lamb, sugar and wine industries were
expected to be the target of retaliatory Canadian tariffs on
Australian exports.
Unapologetic, Bender says: We would fight to the
dying breath to not lower our quarantine standard. We have
the most disease-free salmon stocks in the world and we
have had a fair old stoush over the years to maintain that level
of quarantine.
Tasmanian salmon does not have the diseases and
parasites that afflict northern hemisphere salmon, including
infectious salmon anaemia, although a significant problem is
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145
END-OF-PART CASE:
GOING GLOBAL
caused by microscopic amoeba that attach themselves to the

salmons gills, requiring the fish to be bathed in freshwater
cages, where they dislodge.
Bender says the governments environmental conditions are
strict. The company employs a marine biologist and they
rotate stock and equipment, just as a farmer fallows his fields.
Environmentally, we spend an enormous amount of our time
making sure that we are not fouling our own nest, so to
speak, she says.
Being a passionate Tasmanian, I actually think
salmon farming just fits so well with what Tasmania is all
about: the safe, clean food product, grown in an
environmentally sustainable way, with a fantastic flow-on
effect to the economy.
She says that it is also worth considering that with commercial
fishing stocks getting depleted rapidly, the only way we are
going to be able to keep feeding people is by aquaculture, which
is the fastest growing agri-business in the world.
Its rewarding when it all falls into place and you get
everything right. Its hard work, hard physical work ... Were all
passionate about it, she says. It sounds really corny, but it
actually isnt about the money. It never has been about
the money.
I think its about the challenge. Its about the challenge to

be the best. We dont want to be the biggest, we just want to
be the best.
Source: S. Rintoul, 2007, Reeling it in, The Australian, 2 January.

research
1 Consider the management roles that the Benders had to
undertake in order to set themselves up as a fish farm
and to penetrate the global market.
2 What are the external environmental issues that they
needed to address? How did they handle them?
Consider their competitors and look them up on the
web to determine the size of the market share of
each competitor. What would you suggest to the
Benders in order for them to increase their
market share?
3 There have been criticisms against fish farming for
eco issues. Consider the situation from an ethical and
social responsibility view point and make a case either
for or against the Benders initiative. Whichever stand you
take is fine, provided you support your arguments with
sound data and research.
146
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PART 1 Introduction
Getting a coach
Many CEOs will be aware of, or even actively considered, the benefits
and pitfalls of using an executive coach to further develop skills and
competencies. Rebecca Dee-Bradbury, recently appointed CEO of
Barbeques Galore Limited, and prior to that Managing Director of
Maxxium Australia, describes her experiences of being coached as a
CEO.
ceoforum.com.au: What made you decide to use a coach as part
of your own career development?
Rebecca Dee-Bradbury: Coaching, and being coached, has been a
constant theme in my career, mainly because I was fortunate to work
for some outstanding leaders who demonstrated the importance of
coaching and personal developmentit started with Charlie Bell at
McDonalds. At the time I sought an external coach, the requirements
of my role had become more complex; I needed to manage a fourway joint venture in an industry that was undergoing structural
change. I thought I could benefit from having an external coach who
could help get me ahead of the required learning and experience
curveestablishing a relationship with Ian Pollard was one of the best
decisions I made over this period. In my current role I can now look
to my Chairman to continue this process. I hope I never become
afraid of learning from others and becoming better at what I do.
ceoforum.com.au: How did you go about finding a suitable coach?
Didnt the very complexities of the role and issues you were facing
mean that it would be difficult to find coaches with the relevant skills
and experience?
RD: It was a little bit like mining for gold, no doubt about that. I was
very fortunate that our HR director was very knowledgeable about
high-level career development options, including executive coaching.
What was attractive about the firm we chose (the Global Coaching
Partnership) was that coaches had both the intellectual capacities and
a proven track record in delivering business outcomes. I already had
worked with organisational psychologists and although I had benefited
from their input, I was more looking for someone who had both the
experience and aptitude in managing the types of issues I faced.
I think that when looking for a coach, you need to be very
transparent about what you want to achieve in both a business and
a professional sense, and also in terms of what learning style works
best for you. I took a fairly structured approach, by looking at the
leadership competencies I needed to succeed in my role and how I
rated in each of them. Some skills I felt were real strengths and didnt
necessarily need too much attention, others may have been strengths
but had very strong upsides (e.g. stakeholder management, in an
environment where there were five boards to manage), and yet others
CEO
FORUM
Article reprinted with the permission of

CEO Forum magazine: Australias first
magazine produced specifically to share
ideas and experiences within Australias
CEO community. Published quarterly in
March, June, September and December, the
aim of CEO Forum magazine and the
www.ceoforum.com.au website has
always been simple, but elusive: to capture
the essence of CEO-to-CEO dialogue.
PRACTITIONER
REBECCA
DEE-BRADBURY
REFLECTIVE
were areas where I wanted to develop more and would value a

second opinion. Once you have done this you can match this against
the skills, competencies and backgrounds of a prospective coach.
ceoforum.com.au: What was the coaching process as you
experienced it?
RD: The first step is to recognise the personal and professional
challenges that you face, and whether you could, in fact, benefit from
coaching. This is about self-awareness, as well as understanding
your business. Once youve made that very personal decision, the
next step is to source an appropriate coach, then brief key
stakeholders about the process you are embarking upon. In my case,
this was something that both I and the HR director did. My
perspective was very much about how this could help us meet the
particular business challenges we were facing, while the HR director
spoke on why this could be an effective development option.
Once Id met my coach and ascertained we could work well

together, we made an agreement about what we wanted to
accomplish. We would then meet for a couple of hours every two
weeks or so, with the frequency being determined by what was
happening in the broader business. There was also preparation
before the session, identifying and developing the issues we
would work through in the session.
ceoforum.com.au: What have you found most useful about the
coaching you have experienced?
RD: It definitely helps you work through issues and scenarios, often
in advance of when you are confronted by them. As someone who
became a CEO at a relatively young age, I found it of great benefit to
be able to explore issues with someone older and more experienced.
I personally subscribe to the view that humility is the hallmark of a
strong leader.
6/8/07
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Page 147
Because of the atmosphere of trust that develops in the coaching

process, you can ask questions and explore options that might be
more difficult to examine in an
environment where you need to
prove yourself. Coaching is also a
very efficient form of learningyou
dont spend too much time on
issues you are already comfortable
with, so I found that you really do
get the best learning return on the
time you spend.
Finally, its just very rejuvenating. As a CEO you are, of course,
heavily involved in other peoples career development, so you can
easily neglect your own. I think a time comes where, if you dont
spend some time attending to your own development needs, you
wont have the energy to attend to other peoples.
instance, learn better in a more academic environment, which has

more of a reading/discussion/playback quality to it.
You also need a suitable
coach, which might not always
be easy to obtain for your
particular needs. Even when you
do get a good coach, you do
need to be very open with them
about what your goals and
limitations are, as well as being
alive to the possibility that the
coach can actually teach you something! If you dont honestly
believe this, then obviously you wont get a lot from the process.
If you are going to do coaching, you need to invest the time
and effort in the process, by preparing properly for the sessions,
being focused in them, and following up on issues raised
afterwards. Being coached is a very enjoyable process, but its
ultimately your own efforts and commitment that will make it
something much more.
You can ask questions and explore

options that might be more difficult to
examine in an environment where you
need to prove yourself ...
ceoforum.com.au: What about the limitations of coaching as a

development option?
RD: I dont think it is for everyone. It really comes down to whether it
is the right type of learning for you as an individual. Some people, for
147
Source: www.ceoforum.com.au, CEO Forum, May 2006.
148
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PART 1 Introduction
DANIEL ALMAGOR
GRADUATE GLIMPSE
GRADUATE GLIMPSE
GRADUATE GLIMPSE
GRADUATE GLIMPSE
Degrees obtained
University
Year of graduation
Current position
Bachelor of Aerospace Engineering

(With Honours)
Bachelor of Business Administration
(With Distinction)
RMIT
2001
President and CEO of Engineers
Without Borders Australia
Managing Director of Medivax Pty Ltd
Why did you decide to undertake those particular degrees?

I chose to do the Aerospace Engineering degree because I really liked Star Trek and I had dreams of being an
astronaut. I was hoping to become the next Captain Picard. Getting motion sickness on aeroplanes ended those
dreams pretty quickly. I did the business degree because I was always fascinated with people and leadership. I
think that the business community has an incredible power to be a leader in the world and with it comes a huge
responsibility far greater than just making profits. I believe that my management studies have helped me both
understand and influence the power of business and corporations to have a positive effect on people and our
environment. It can be done.
What have you done since graduation?
I worked for a while in Corporate Professional Development in the outdoors. This included taking senior
management groups on leadership and team-building seminars in the outdoors through activities such as ropes
courses, white water rafting, hiking and active games. After two years I started thinking of running my own
business and formed Medivax, a health services company which primarily provides workplace influenza
vaccinations for medium to large corporations. At the same time as Medivax, I was inspired through many of my life
experiences to create Engineers Without Borders Australia, a non-profit organisation. The main aim is to use
Australian technical and engineering skills to make a difference to disadvantaged communities in need of
engineering support in Australia and around the world.
What does your job entail?
Lots of meetings, managing staff, networking, fundraising, strategy and lots of public speaking. I try to schedule in
strategy time with each management staff member and personal time, otherwise the day gets filled with meetings
and fire fighting problems that arise.
How have your university studies assisted you in your career?
The business studies helped me in the strategic design and analysis of the organisational structure and
management. It was very useful and I still find that I remember and use stuff that I learned many years ago. Another
way that my studies have helped is the ability to speak and understand the business language and know what is
expected from a commercial sense. This has been vital, especially in the non-profit sector where the same drivers
are not necessarily present as they are in the private sector.
How do you use your knowledge of management principles in the day-to-day functions of your position?
The HR issues are very relevant. Management looks at leading and managing people. Relationships are the most
important aspect of business and the more you can understand about relationships and people, their motivations
and their sensitivities, the better you will be at business. Management principles relating to this are invaluable,
starting with the foundation stone of Maslows research, and extending to various social experiments and
management styles. Also, the strategy part of things with relation to structure, process and systems are used to
implement the day-to-day running of the organisation. I have used management principles on structure and
examples of strategic process extensively in my work both with Engineers Without Borders and Medivax.
What is an important management principle you frequently draw on in your role?
Surround yourself with people who are better at their job than you are at it and then trust them in that role. I find
that my people management relies very much on this concept. My job is to find the right people and guide their
activities through strategy and feedback, however they are the best people to actually do their job.
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VIDEO CASES RELATING TO THIS PART MAY BE ACCESSED THROUGH THE

ONLINE LEARNING CENTRE AT WWW.MHHE.COM/AU/BARTOL5E OR ON THE
INSTRUCTORS RESOURCE CD THAT ACCOMPANIES THIS TEXT.
149
VIDEOCASES
MANAGING ENVIRONMENTSMR PESTY

r Pesty is a small family owned pest control business in
its first year of operation. Owners Viktor and Leah are
struggling with the cyclical nature of the workin
summer they have to turn work away because they cannot keep
up with it, while in winter business drops off dramatically.
Sales expert Tim Shaw is giving them some ideas on how they
can smooth out this seasonality. They discuss where their
current business lies and how they might leverage that business
to generate new customers, as well as some tips on maximising
new opportunities during the slower months.
Finance expert Julia Bickerstaff then discusses the pros and
cons of whether, as the business expands, it is more costefficient to take on an employee, or use a contractor, to cope
with the extra work. They look at all the costs associated with
these two options and use these to calculate the viability of
taking on an employee.

research
1 Go to the Mr Pesty website and examine the range of
services the company is offering. What do you think is their
competitive advantage?
2 What additional suggestions could you make to Victor and
Leah to help them expand their business?
3 List all the costs likely to be associated with the owners
either taking on an employee or using a contractor for the
work overflow. Which is likely to be the most cost-efficient
and why?
Website: www.mrpesty.com.au
ORGANISATIONAL SOCIAL RESPONSIBILITY: INTERVIEW

WITH DAVID MORGAN, CEO WESTPAC
avid Morgan, CEO of Westpac is well known for his
commitment to the environment. He believes that
both private and public sectors in Australia are under
informed about each others policies when it comes to big
issues such as the environment; so he is passionate about
developing more public debate to bridge the gap between
private and public sectors. In this interview with David Koch,
he discusses how he might develop policies that can be tied
back to shareholder value.
While being responsible primarily to Westpac, he thinks that
self-regulation on the part of the private sector is preferable to
government regulation, especially when it comes to dealing with
issues around climate change and environmental sustainability.
Website: www.westpac.com.au

research
1 Consider how a company such as Westpac might develop
environment-friendly policies.
2 Go to the Westpac website and click on the corporate
responsibility tab to find some of the strategies that Westpac
has used to become a good corporate citizen.
3 How successful do you think Westpacs initiatives have
been? Do you think they have affected the companys
bottom line?
6/8/07
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Social responsibility and ethics in

ORGANISATIONAL SOCIAL RESPONSIVENESS

BEING AN ETHICAL MANAGER

MANAGING AN ETHICAL ORGANISATION

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:

Explain three major perspectives on corporate social responsibility and

STRIVING FOR EXCELLENCE

Article reprinted with the permission of

ceoforum.com.au: Could you describe

Why GE is changing: A profile of

Then there is imagination and courage,

successful business leaders within GE as

Social Responsibility and Ethics in Management CHAPTER 4

comfortable to be creative and take the

forward we are realigning senior leaders

where we can get into trouble. We provide

In todays tough competitive environment, experienced,

ISSUES FOR YOU TO THINK ABOUT

Organisational social responsibility

refers to an organisations obligation to act to protect and improve

Organisational social responsibility

The invisible hand

The hand of government

Social Responsibility and Ethics in Management CHAPTER 4

The hand of management

Social responsibilities of management

Economic and legal responsibilities

Ethical and discretionary responsibilities

PERCEPTIONS OF BUSINESS RESPONSIBILITY

QUESTION: WHICH OF THE FOLLOWING STATEMENTS DO

Social responsibilities of management (adapted from Carroll 1979, p. 499)

Social Responsibility and Ethics in Management CHAPTER 4

TABLE 4.2 ARGUMENTS IN FAVOUR OF MANAGING DIVERSITY FOR COMPETITIVE ADVANTAGE

Managing diversity can protect and improve societys welfare while

Attracting workers is costly; firms managing diversity effectively can

Enhances prospects for

A workforce mirroring customer-base diversity provides unique insight

Innovations are more likely to emerge when diversity of thinking is applied

Openness to other cultures and ways of doing things helps doing

Support for business

Social Responsibility and Ethics in Management CHAPTER 4

Does social responsibility pay?

Promoting innovation: Vanguard companies

Global organisational ethics

Time for change

It is not just on the export front. In other areas they went

Activities for discussion, analysis and further

Social Responsibility and Ethics in Management CHAPTER 4

Hyundai Motor chairman in jail over fraud charges

sprawling family-run conglomerates shift money within group

Activities for discussion, analysis and further

Organisational social responsiveness

Monitoring social demands and expectations

As applied to social responsiveness, issues management is the identification of a small number of

is the general surveillance of task-environment elements to find evidence of impending

Internal social response mechanisms

Social Responsibility and Ethics in Management CHAPTER 4

Temporary task forces

Is Coke buying silence in India?

While the company is denying the claims, 17 shops and

particles. This updated technology is being progressively