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Chapter 6

Ethics and Corporate Social


Responsibility
Ethics:
A set of rules and
values that define right
and wrong conduct.
They indicate when
behavior is acceptable
and when it is
unacceptable.

Moral Principles
Moral principles prescribe rules of
acceptable behavior that are intended to be
impartial.

Moral Principles dive the rules of ethics

Ethical vs. Unethical Decisions
Ethical decision reasonable and
acceptable because it aids stakeholders,
organization, and society.
Unethical decision- decision that a manager
would prefer to disguise or hide from other
people because of individual gain is placed
above others needs.
Rules of thumb
Ethical Perspectives for
Evaluating Behavior
Societal
Organizational
Individual
Legal
Adapted from
Figure 6.1
Societal Perspective
Societal Ethics standards that govern how
members of a society are to deal with each other
on issues of fairness, justice, poverty, and
individual rights.
- The idea of what is ethical behavior is
largely influenced by the society in which the
behavior occurs.
Various public opinion surveys suggest a growing
disenchantment with the lack of ethical behavior
Legal Perspective
Laws: societys values and standards that
are enforceable in the courts.

Employment-at-will: a traditional common-
law concept holding that employers are free
to discharge employees for any reason at
any time and that employees are free to quit
their jobs for any reason at any time.
Legal Perspective (Ctd.)
Ethics are not laws by any means, simply beliefs
about what is right or wrong.
Legality of actions and decisions doesnt make
them ethical
Laws move with the current culture and moral
principles
- Lag behind because they are written and set
- Do no ensure or even promote ethical
behavior
Often laws and ethics are in conflict
Examples of Law/Ethical
Difference
Students borrowing and investing money
Caveat emptor-buyer beware
Reputation-costs and benefits
Organizational Perspective
To provide guidance for employees, an
organization can define ethical and
unethical behaviors.


Organizations can also guide employee
actions both formally and informally.


Individual Perspective
Despite prevalent societal, legal, and organizational
interpretations of what is ethical, individuals have their
own values and a sense of what is right or wrong.
Lawrence Kohlberg
- Suggested people develop morally, much as they
do physically, from early childhood to adulthood.
As they develop, their ethical criteria and patterns of
moral reasoning go through stages of moral
development
Individual Perspective (Ctd.)
Stages of moral development: according to
Kohlberg, people develop morally by going
through six stages of moral development:
obedience and punishment, instrumental,
interpersonal, law and order, social contract,
and universal principles.

Kohlbergs Stages of Moral
Development
Obedience & Punishment
Instrumental
Interpersonal
Law & Order
Social Contract
Universal Principles
Adapted from Figure 6.2
Childhood--------------Through-----------------Adulthood
Kohlbergs Stages (Ctd.)
1. Obedience and punishment: person does the right thing
mainly to avoid punishment or to obtain approval.
2. Instrumental: person becomes aware that others also have
needs and begins to defer to them to get what the individual
wants.
3. Interpersonal: person considers appropriate behavior as
what pleases, helps, or is approved by friends or family.
Kohlbergs Stages (Ctd.)
4. Law & Order: person recognizes that ethical behavior
is not determined only by reference to friends, family,
co-workers, or others whose opinions the individual
might value.
5. Social Contract: person is aware that people hold a
variety of conflicting personal views that go beyond the
letter of the law.
6. Universal Principles: person views appropriate conduct
as determined by a persons conscience, based on
universal ethical principles.


Ethical Models
Justice Utilitarian
Moral Rights
IDEAL
Outcome
Adapted from Fig 6.5
Utilitarian Model
Greatest good for the greatest number, but
many hurt a few.
Milton Friedman is the best-known
advocate of this approach.
All employees should strive to increase the
companys profits.
Parts to Utilitarian Model
(Organizational Goals): focusing on maximizing
profits. Profits are seen as the reward for
satisfying customers.
(Efficiency): achieved by both minimizing inputs
(e.g. labor, land, and capital) and maximizing
productive outputs.
(Conflicts of Interest): by having a financial
interest in a supplier a purchasing agent might be
more likely to buy from his supplier even if its not
in the companies best interest.
Moral Rights Model
Judging decisions and
behavior by their
consistency with
fundamental personal
and group liberties
and privileges.
(Life and Safety):
Employees, customers,
and public have the right
not to have their lives and
safety endangered.
(Truthfulness): They have
the right not to be
intentionally deceived on
matters about which they
should be informed.
(Privacy): Citizens have
the right to control access
to personal information.
Moral Rights Model (Ctd.)
(Free Speech): Employees have the right to
criticize the ethics or legality of their
employers actions.

(Private Property): This right allows people
to acquire, use, and dispose of shelter and
have lifes basic necessities.
Justice Model
Judging decisions an behavior by their
consistency with an equitable, fair, and impartial
distribution of benefits (rewards) and costs among
individuals and groups.

Distributive Justice Principle: moral requirement
that individuals not be treated differently because
of arbitrarily defined characteristics.
Justice Model (Ctd.)
Fairness Principle:
moral requirement that
employees support the
rules of the
organization when
certain conditions are
met.
Natural Duty
Principle: moral
requirement that
decisions and
behaviors be based on
a variety of universal
obligations.
Society and the Environment
Sustainable development: conducting business in
a way that protects the natural environment while
making economic progress.
This model of thought has increased
environmental issues both internally and
externally for corporations such as 3M, Kodak,
and McDonalds.
Now include ethical principles of industrial
ecology in their strategic plans.
Example from 3M
1. Solve its own pollution and conservation
problems beyond compliance requirements.
2. Prevent pollution at the source, whenever
possible
3. Conserve natural resources through waste
reclamation and other methods
4. Assist regulatory and government agencies
concerned with environment
5. Develop products that are ecologically friendlier
Stakeholder Theory
Stakeholders: individuals or groups that
have interests, rights, or ownership in an
organization or the activities.
A broad category that covers a lot of
individuals and groups.
Some groups are more important to the
organization and its success.
Stakeholders of the Organization
Customers
Employees
Owners
Suppliers
Unions
Government
Strategic
Partners
Society
Local
Community
Adapted from
Figure 6.3
Stakeholders Concerns
Stakeholder Group

* Owners and Investors
Examples of Concerns

Financial Soundness
Consistency in meeting
shareholder expectations
Sustained profitability
Average return on assets
over five-year period
Timely and accurate
disclosure of financial
information
Stakeholders Concerns (Ctd.)
Stakeholder Group

* Customers
Examples of Concerns

* Product/service quality,
innovativeness, and
availability
*responsible management of
defective or harmful
products/services
*Safety records for
products/services
*Pricing policies and
practices
* Honest, accurate , and
responsible advertising.
Stakeholders Concerns (Ctd.)
Stakeholder Group

* Employees
Examples of Concerns


Nondiscriminatory, merit-
based hiring and
promotion
Diversity of the workforce
Wage and salary levels
and equitable distribution
Availability of training
and development
Workplace safety and
privacy
Stakeholders Concerns (Ctd.)
Stakeholder Group

* Community
Examples of Concerns

Environmental Issues
Environmental sensitivity
in packaging and product
design
Recycling efforts and use
of recycled materials
Pollution prevention
Global applications of
environmental standards
Stakeholders Concerns (Ctd.)
Stakeholder Group

* Community (Ctd.)
Examples of Concerns

Community Involvement
Percentage of profits
designated for cash
contributions
Innovation and creativity
in philanthropic efforts
Product donations
Availability of facilities
and other assets for
community use
Support for employee
volunteer efforts.
Evaluating Corporate Social
Performance
Fortune magazine founded Ron Brown
Award for Corporate Leadership in Ethics


Demonstrates corporate leadership in
Employee and Community Relations
(Ethics)
Affirmative Social Responsibility
Ron Brown Award
wants corporations
and their leaders to
move away from
traditional, utilitarian
models of business
and take a more
proactive stance with
regard to society.
Affirmative Social Responsibility
(Ctd.)
5 steps:
1. Broad Performance Criteria
2. Ethical Norms
3. Operating Strategy
4. Response to Social Pressures
5. Legislative and Political Activities
Affirmative Social
Responsibilities (Ctd.)
Taking this approach requires companies to
implement five different an expensive behaviors:
1. Broad Performance Criteria: management and
employees must recognize broader views to
measure growth.
2. Ethical norms: managers and employees must
take definite stands on issues of public concerns.
3. Operating strategy: managers and employees
should maintain or improve current standards of
the physical and social environment.
Ctd.
4. Response to social
pressures:
management and
employees should
accept responsibilities
for solving current
problems.
5. Legislative and
Political Activities:
Managers must show a
willingness to work
with outside
stakeholders for
enforcement.
Social audit: an
attempt to identify
and measure,
evaluate, report on,
and monitor the
effects that an
organization is
having on its
stakeholders and
society.
Conflict
Difficult to balance all
stakeholder problems.
Owls vs. Lumber
Pollution vs. Jobs
Politics vs. Profits
Firms might not know
of a stakeholder until
there is a problem
Whistle-blowing
Reporting unethical or
illegal behavior.
Has many
consequences/risks
When should you
blow the whistle?
Table 6.3 (p. 208)
Whistle-blowing (Ctd.)
Will not happen if:
1. If allegation of wrongdoing has little or
no merit.
2. Accusations are made to someone
outside the company.
3. Whistle-blower has no help from middle
or top management.
Sexual Harassment
Quid pro quo : asking for or forcing sexual
contact with an employee in exchange for
reward or to avoid punishment.

Hostile work environment: lewd jokes,
pornography, sexually oriented remarks
about ones appearance making that person
uncomfortable.

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