FHTM

Delivered by:
musliha.ahmed@mnu.edu.mv

Corporate Social Responsibility

and Managerial Ethics

What Is Corporate Social Responsibility?

The Classical View

Maximize profits for the benefit of the
stockholders
Doing social good unjustifiably increases costs

What Is Corporate Social

Responsibility?

The Socio-economic View

Management should also protect and improve
societys welfare
Corporations are responsible not only to
stockholders
Firms have a moral responsibility to larger
society to do the right thing

Arguments For and Against

Social Responsibility

For
Public expectations
Long-run profits
Ethical obligation
Public image
Better environment
Discouragement of further governmental
regulation
Balance of responsibility and power
Stockholder interests
Possession of resources
Superiority of prevention over cure

Against
Violation of profit
maximization
Dilution of purpose
Costs
Too much power
Lack of skills
Lack of
accountability

Values-Based Management

Values-based Management

Managers establish and uphold an organizations

shared values

Purposes of Shared Values

Guiding managerial decisions

Shaping employee behaviour
Influencing the direction of marketing efforts
Building team spirit

The Bottom Line on Shared Corporate Values

An organizations values are reflected in the
decisions and actions of its employees

What Is Social
Responsibility?

The Classical View

Managements only social responsibility is to
maximize profits (create a financial return) by
operating the business in the best interests of the
stockholders (owners of the corporation).
Expending the firms resources on doing social
good unjustifiably increases costs that lower
profits to the owners and raises prices to
consumers.

What Is Social Responsibility?

(contd)

The Socioeconomic View

Managements social responsibility goes beyond
making profits to include protecting and
improving societys welfare.
Corporations are not independent entities
responsible only to stockholders.
Firms have a moral responsibility to larger society
to become involved in social, legal, and political
issues.
To do the right thing

To Whom is Management Responsible?

Arguments For and Against Social

Responsibility

For

Public expectations
Long-run profits
Ethical obligation
Public image
Better environment
Discouragement of further
governmental regulation
Balance of responsibility
and power
Stockholder interests
Possession of resources
Superiority of prevention
over cure

Against
Violation of profit
maximization
Dilution of purpose
Costs
Too much power
Lack of skills
Lack of accountability

From Obligation to
Responsiveness to Responsibility

Social Obligation
The obligation of a business to meet its economic
and legal responsibilities and nothing more.

Social Responsiveness
The capacity of a firm to adapt to changing societal
conditions through the practical decisions of its
managers in responding to important social needs.

Social Responsibility
A firms obligations as a moral agent extends
beyond its legal and economic obligations, to the
pursuit of long-term goals that are good for society.

Social Responsibility versus Social

Responsiveness
Social Responsibility

Social

Responsiveness
Major consideration Ethical

Pragmatic

Focus

Ends

Means

Emphasis

Obligation

Responses

Decision framework Long term

term

Medium and short

Does Social Responsibility

Pay?

Studies appear to show a positive relationship

between social involvement and the economic
performance of firms.
Difficulties in defining and measuring social
responsibility and economic performance raise
issues of validity and causation in the studies.
Mutual funds using social screening in investment
decisions slightly outperformed other mutual funds.

A general conclusion is that a firms social

actions do not harm its long-term performance.

 Managerial

Ethics

5
14

Managerial Ethics

Ethics Defined
The rules and principles that define right and
wrong conduct

Four Views of Ethics

Utilitarian view
Rights view
Theory of justice view
Integrative social contracts theory

Managerial Ethics

Utilitarian View
Greatest good is provided for the
greatest number
Encourages efficiency and productivity and is
consistent with the goal of profit maximization

Rights View
Respecting and protecting individual
liberties and privileges
Seeks to protect individual rights of
conscience, free speech, life and safety, and
due process

Managerial Ethics

The Theory of Justice

Organizational rules are enforced fairly and
impartially and follow all legal rules and
regulations
Protects the interests of underrepresented stakeholders
and the rights of employees

Integrative Social Contracts Theory

Ethical decisions should be based on existing
ethical norms in industries and communities
Based on integration of the general social contract and
the specific contract between community members

Factors That Affect Ethical

and Unethical Behaviour
Individual
Characteristics

Ethical
Dilemma

Stage of Moral
Development

Issue
Intensity

Moderators

Structural
Variables

Organizational
Culture

Ethical/Unethical
Behaviour

Factors That Affect Employee

Ethics
Stages of moral development
Individual characteristics
Structural variables
Organizational culture
Issue intensity

A measure of independence from outside influences

Levels of Individual Moral Development
Pre-conventional level
Conventional level
Principled level

Exhibit 4.7 Stages of Moral Development

Level
Level

Des
Description
criptionof
ofSStage
tage

Principled
Principled 6.
6.Following
Followingsself-chos
elf-chosen
enethical
ethicalprinciples
principles even
evenifif
they
violate
the
law
they violate the law
5.
Valuing
5. Valuingrights
rights of
ofothers
others and
andupholding
upholdingabs
absolute
olute
values
ss
values and
andrights
rights regardles
regardlesss of
ofthe
themajority
majority
opinion
opinion
Conventional
Conventional 4.
4.Maintaining
Maintainingconventional
conventionalorder
orderby
byfulfilling
fulfillingobligations
obligations
to
which
you
have
agreed
to which you have agreed
3.
Living
3. Livingup
upto
towhat
whatisis expected
expectedby
bypeople
peopleclos
closeeto
toyou
you
Preconventional
Preconventional 2.
2.Following
Followingrules
rules only
onlywhen
whendoing
doingssooisis ininyour
yourimmediate
immediateinteres
interest t
1.
1.SSticking
tickingto
torules
rules to
toavoid
avoidphys
physical
icalpunis
punishment
hment

Factors That Affect Employee

Ethics

Stage of moral development interacts with:

Individual characteristics
The organizations structural design
The organizations culture
The intensity of the ethical issue

Factors That Affect Employee

Ethics

Research Conclusions:

People proceed through the stages of moral development

sequentially
There is no guarantee of continued moral development
Most adults are in Stage 4 (good corporate citizen)

Factors That Affect Employee

Ethics

Values

Basic convictions about what is right or wrong on a broad

range of issues
Ego strength

A personality measure of the strength of a persons

convictions

Factors That Affect Employee

Ethics

Locus of Control
A personality attribute that measures the degree to which people believe they control their own life

Internal locus: the belief that you control your destiny

External locus: the belief that what happens to you is due
to luck or chance

Factors That Affect Employee

Ethics

Organizational characteristics and mechanisms that

guide and influence individual ethics:
Performance appraisal systems
Reward allocation systems
Behaviours (ethical) of managers
An organizations culture
Intensity of the ethical issue

Factors That Affect Employee

Ethics

Good structural design minimizes ambiguity and

uncertainty and fosters ethical behaviour

Factors That Affect Employee

Ethics

Cultures high in risk tolerance, control, and conflict

tolerance are most likely to encourage high ethical
standards
Weak cultures have less ability to encourage high
ethical standards

Determinants of Issue Intensity

How much agreement
is there that this
action is wrong?
How likely is it
that this action
will cause harm?

How many people

will be harmed?

Consensus
of Wrong
Greatness
of Harm

Probability
of Harm
Issue Intensity

Concentration
of Effect
How concentrated
is the effect of the
action on the victim(s)?

Immediacy of
Consequences
Proximity to
Victim(s)

How close are the

potential victims?

Will harm be felt

immediately?

Ethics in an International
Context

Ethical standards are not universal.

Social and cultural differences determine
acceptable behaviors.

Foreign Corrupt Practices Act

Makes it illegal to corrupt a foreign official yet
token payments to officials are permissible
when doing so is an accepted practice in that
country.

The Global Compact

Human Rights

Principle 1: Support and respect the protection of

international human rights within their sphere of
influence
Principle 2: Make sure business corporations are not
complicit in human rights abuses

Labour Standards

Principle 3: Freedom of association and the effective

recognition of the right to collective bargaining
Principle 4: Eliminate all forms of forced and compulsory
labour
Principle 5: Abolish child labour
Principle 6: Eliminate discrimination in respect of
employment and occupation

The Global Compact

Environment

Principle 7: Support a precautionary approach to

environmental challenges
Principle 8: Undertake initiatives to promote greater
environmental responsibility
Principle 9: Encourage the development and diffusion of
environmentally friendly technologies

Anticorruption

Principle 10: Work against all forms of corruption,

including extortion and bribery

How Managers Can Improve Ethical

Behaviour in an Organization

Hire individuals with high ethical standards.

Establish codes of ethics and decision rules.

Lead by example.

Delineate job goals and performance appraisal

mechanisms.

Provide ethics training.

Conduct independent social audits.

Provide support for individuals facing ethical

dilemmas.

Code of Ethics

A formal statement of an organizations

primary values and the ethical rules it
expects its employees to follow
Be a dependable organizational citizen
Dont do anything unlawful or improper that will
harm the organization
Be good to customers

Effective Use of a Code of Ethics

Develop a code of ethics to guide decision
making
Communicate the code regularly
Have all levels of management show
commitment to the code
Publicly reprimand and consistently
discipline those who break the code

Ethical Leadership

Managers must provide a good role model by:

Being ethical and honest at all times

Telling the truth
Admitting failure and not trying to cover it up
Communicating shared ethical values to
employees through symbols, stories, and slogans
Rewarding employees who behave ethically and
punishing those who do not
Protecting employees (whistleblowers) who
bring to light unethical behaviours or raise ethical
issues

The Value of Ethics Training

Training can make a difference in ethical
behaviours
Training increases employee awareness of
ethical issues in business decisions
Training clarifies and reinforces the
standards of conduct
Employees are more confident of support
when taking unpopular but ethically correct
stances