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Published on December 30, 2008

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Chapter 5 : Chapter 5 Ethics and Social Responsibility Learning Objectives : ©2005 Prentice Hall Learning Objectives Describe why an understanding of basic approaches to ethical decision making and corporate social responsibility is important. Explain the basic approaches to ethical decision making. Identify the different implications of each approach in real-life situations. After studying this chapter, you should be able to: Learning Objectives : ©2005 Prentice Hall Learning Objectives Explain the basic approaches to corporate social responsibility. Develop different implications for each approach to corporate social responsibility After studying this chapter, you should be able to: Some Observations : ©2005 Prentice Hall Some Observations Managers in large companies usually act as agents of the owners Implied obligation to act in best interest of the owners or shareholders Actions that benefit only themselves are likely to be unethical Ethics and strategy begin at the top of the organization Ethics in Business Award Winners : ©2005 Prentice Hall Ethics in Business Award Winners 2000 Winners The Bureau of National Affairs, Inc. For over a half-century of dedication to employee ownership, despite pressures to sell the company. Iceland, Inc. For a precedent-setting move in the U.K. toward the sale of all-organic store-brand food at not-organic prices. Whole Foods Market For a broad-based commitment to customer, stockholder, employee, community, and environmental service. Adapted from Exhibit 5.1: Excellence in Business Ethics Award Winners Ethics in Business Award Winners : ©2005 Prentice Hall Ethics in Business Award Winners 1999 Winners St. Lukes For creating a visionary model of employee ownership, out of the crisis of an unwanted merger. Equal Exchange For its path-breaking approach to fair trade, defining supplier welfare as part of business success. Fetzer Vineyards For a broad-based approach to environmental sustainability, combined with financial excellence. Adapted from Exhibit 5.1: Excellence in Business Ethics Award Winners Ethics in Business Award Winners : ©2005 Prentice Hall Ethics in Business Award Winners 1998 Winners SmithKline Beecham For its $1 billion commitment to disease eradication. Wainwright Bank For dedication to social justice, internally and externally. S.C. Johnson For its focus on sustainable community development. Adapted from Exhibit 5.1: Excellence in Business Ethics Award Winners The Development of Individual Ethics : ©2005 Prentice Hall The Development of Individual Ethics Family Friends Peers Teachers Religion Job experiences Life experiences Basic Approaches to Ethics : ©2005 Prentice Hall Basic Approaches to Ethics Ethical dilemmas The choice between two competing but arguably valid options Frameworks for ethical decision making Utilitarian approach Moral rights approach Universalism approach Justice approach Basic Approaches to Ethics : ©2005 Prentice Hall Basic Approaches to Ethics Focused on the consequences of an action What is the “greatest good?” Different people may see the outcome differently in terms of good or bad Utilitarian Approach Basic Approaches to Ethics : ©2005 Prentice Hall Basic Approaches to Ethics Focused on an examination of the moral standing of actions, independent of their consequences Some actions are simply “right” or they are “wrong” When two actions both have moral standing, then the positive or negative consequences of each will determine which is the more ethical decision or action Moral Rights Approach Basic Approaches to Ethics : ©2005 Prentice Hall Basic Approaches to Ethics “Do unto others as you would have them do unto everyone, including yourself.” Choose a course of action you believe can apply to all people under all situations The issue of rights Rights stem from freedom and autonomy Actions that limit freedom and autonomy generally lack moral justification Universal Approach Basic Approaches to Ethics : ©2005 Prentice Hall Basic Approaches to Ethics How equitably are the costs and benefits of actions distributed? Costs and benefits should be equitably distributed Rules should be impartially applied Those damaged because of inequity or discrimination should be compensated Distributive justice Equitable distribution is based on performance Justice Approach Basic Approaches to Ethics : ©2005 Prentice Hall Basic Approaches to Ethics Procedural justice Ensure that people affected by managerial decisions consent to the decision-making process Ensure that the process is administered impartially Compensatory justice If distributive and procedural justice fail, those hurt by inequitable distribution of rewards are compensated Justice Approach Moral Intensity in Ethical Decision Making : ©2005 Prentice Hall Moral Intensity in Ethical Decision Making Moral intensity The degree to which people see an issue as an ethical one Six components Moral Intensity in Ethical Decision Making : ©2005 Prentice Hall Moral Intensity in Ethical Decision Making Magnitude of the consequences Level of impact anticipated Impact is independent of whether consequences are positive or negative Adapted from Exhibit 5.2: Factors of Moral Intensity Moral Intensity in Ethical Decision Making : ©2005 Prentice Hall Moral Intensity in Ethical Decision Making Social consensus The extent to which members of a society agree that an act is either good or bad Population diversity weakens social consensus Adapted from Exhibit 5.2: Factors of Moral Intensity Moral Intensity in Ethical Decision Making : ©2005 Prentice Hall Moral Intensity in Ethical Decision Making Probability of effect How likely people think the consequences are The higher the probability of the consequence, the more intense the sense of ethical obligation Adapted from Exhibit 5.2: Factors of Moral Intensity Moral Intensity in Ethical Decision Making : ©2005 Prentice Hall Moral Intensity in Ethical Decision Making Temporal immediacy Interval between the time the action occurs and the onset of its consequences The greater the time interval, the less intensity people typically feel toward the issue Adapted from Exhibit 5.2: Factors of Moral Intensity Moral Intensity in Ethical Decision Making : ©2005 Prentice Hall Moral Intensity in Ethical Decision Making Proximity The closeness the decision maker feels to those affected Closeness leads to more consideration of the consequences Closeness increases feeling that decision has ethical implications Adapted from Exhibit 5.2: Factors of Moral Intensity Moral Intensity in Ethical Decision Making : ©2005 Prentice Hall Moral Intensity in Ethical Decision Making Concentration of effect Focus of effect on only a few or disbursed across many individuals Higher concentration leads to feelings of greater ethical responsibility Adapted from Exhibit 5.2: Factors of Moral Intensity Making Ethical Decisions : ©2005 Prentice Hall Making Ethical Decisions The manager The organization Code of ethical conduct Formal statement outlining types of inappropriate behavior addressing three issues Being a good “organization citizen” Guiding employee behavior away from unlawful or improper acts that could harm the organization Addressing directives to be good to customers Categories Found in Corporate Codes of Ethics : ©2005 Prentice Hall Comply fully with antitrust laws and trade regulations. Comply fully with accepted accounting rules and controls. Do not provide false or misleading information to the corporation, its auditors, or a government agency. Do not use company property or resources for personal benefit or any other improper purpose. Each employee is personally accountable for company funds over which he or she has control. Staff members should not have any interest in any competitor or supplier of the company unless such interest has been fully disclosed to the company. Maintain confidentiality of customer, employee, and corporate records and information. Avoid outside activities that conflict with or impair the performance of duties. Make decisions objectively without regard to friendship or personal gain. The acceptance of any form of bribe is prohibited. Payment to any person, business, political organization, or public official for unlawful or unauthorized purposes is prohibited. Conduct personal and business dealings in compliance with all relevant laws, regulations, and policies. Exhibit standards of personal integrity and professional conduct. Racial, ethnic, religious, or sexual harassment is prohibited. Report questionable, unethical, or illegal activities to your manager. Seek opportunities to participate in community services and political activities. Conserve resources and protect the quality of the environment in areas where the company operates. Members of the corporation are not to recommend attorneys, accountants, insurance agents, stockbrokers, real estate agents, or similar individuals to customers. Strive to provide products and services of the highest quality. Perform assigned duties to the best of your ability and in the best interest of the corporation, its shareholders, and its customers. Convey true claims for products. Demonstrate courtesy, respect, honesty, and fairness in relationships with customers, suppliers, competitors, and other employees. Comply with safety, health, and security regulations. Do not use abusive language or actions. Dress in businesslike attire. Possession of firearms on company premises is prohibited. Follow directives from supervisors. Be reliable in attendance and punctuality. Manage personal finances in a manner consistent with employment by a fiduciary institution. Categories Found in Corporate Codes of Ethics Adapted from Exhibit 5.4: Categories Found in Corporate Codes of Ethics Cluster 3 “Be good to our customers.” Cluster 1 “Be a dependable organizational citizen.” Cluster 2 “Don’t do anything unlawful or improper that will harm the organization.” Unclustered Items Adoption of Codes of Ethics : ©2005 Prentice Hall Adoption of Codes of Ethics United Kingdom France Germany Number of Firms With Codes Without Codes Adapted from Exhibit 5.5: Adoption of Codes of Ethics Subjects Addressed in Corporate Codes of Ethics : ©2005 Prentice Hall Subjects Addressed in Corporate Codes of Ethics Employee conduct Community and environment Customers Shareholders Suppliers and contractors Political interests Innovation and technology Most often for European firms Most often for United States firms Least often for European Countries Least often for United States firms Adapted from Exhibit 5.6: Subjects Addressed in Corporate Codes of Ethics Successfully Implementing Codes of Ethics : ©2005 Prentice Hall Successfully Implementing Codes of Ethics The Government : ©2005 Prentice Hall The Government Foreign corrupt practices act Illegal to corrupt actions of foreign officials, politicians, or candidates for office Outlaws making payments to any person when they have "reason to know" that the payments might be used to corrupt the behavior of officials Requires that firms take steps to provide "reasonable assurance" that transactions are in compliance with the law and to keep detailed records of them Social Responsibility : ©2005 Prentice Hall Social Responsibility Efficiency perspective (maximize profits for the owners of the business) Managers as owners Self-interests of the manager-owner are best achieved by serving the needs of society Managers as agents Managers have no obligation to act on behalf of society if it does not maximize value for the shareholders Concerns with the efficiency perspective Corrective action to corporate harm often occurs after people are injured Externalities Social Responsibility : ©2005 Prentice Hall Social Responsibility Social responsibility perspective (firms have responsibilities and obligations to society as a whole, not just shareholders ) Stakeholders Employees, financiers, suppliers, communities, society at large, and shareholders To maximize the return to shareholders would take away returns owed to the other stakeholders Concerns with social responsibility perspective Defining exactly what is reasonable or legitimate returns Shareholders have conflicting and competing concerns Social Responsibility : ©2005 Prentice Hall Social Responsibility Comparing Efficiency and Social Responsibility Perspectives Action Harms Other Stakeholders Action Harms Shareholders Adapted from Exhibit 5.7: Subjects Addressed in Corporate Codes of Ethics Corporate Responses : ©2005 Prentice Hall Corporate Responses Defenders We must fight against efforts to restrict or regulate our activities and profit-making potential. Maximize profits. Find legal loopholes. Fight new restrictions and regulations. Accommodators We will change when legally compelled to do so. Maximize profits. Abide by the letter of the law. Change when legally compelled to do so. Adapted from Exhibit 5.8: Corporate Responses Corporate Responses : ©2005 Prentice Hall Corporate Responses Reactors Belief: We should respond to significant pressure even if we are not legally required to. Protect profits. Abide by the law. React to pressure that could affect business results. Focus: Anticipators We owe it to society to anticipate and avoid actions with potentially harmful consequences, even if we are not pressured or legally required to do so. Obtain profits, Abide by the law. Anticipate harmful consequences independent of pressures and laws. Adapted from Exhibit 5.8: Corporate Responses

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