Chapter 5 Social Responsibility and Managerial Ethics

ANNOTATED OUTLINE 1. INTRODUCTION This chapter discusses issues involving social responsibility and managerial ethics and their effect on managerial decision making. Both social responsibility and ethics are responses to a changing environment and are influenced by organizational culture. 2. WHAT IS SOCIAL RESPONSIBILITY? Managers regularly face decisions that have dimensions of social responsibility. Examples include employee relations, philanthropy, pricing, resource conservation, product quality, and doing business in countries that violate human rights.

A.Two opposing views of social responsibility are presented:

1. The classical view is the view that managements only social responsibility is to maximize profits. a. b. Economist and Nobel laureate Milton Friedman is the most outspoken advocate of this view. Friedman argues that managers primary responsibility is to operate the business in the best interests of the stockholdersthe true owners of the organization. 2. The socioeconomic view is the view that managements social responsibility goes beyond the making of profits to include protecting and improving societys welfare. a. This view purports that corporations are not independent stockholders. b. According to the socioeconomic view, modern organizations are no longer solely economic institutions; society now expects businesses to become involved in social, political, and legal issues. entities responsible only to

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Comparing the Two Views. Classicists maintain that the organizations only legitimate concern is its stockholders. A four-stage model of the progression of an organizations social responsibility is shown in Exhibit 5-1 and PowerPoint slide 5-9. Social responsibility may progress from the stance of obeying all laws and regulations while caring for stockholders interests (Stage 1) to the point of demonstrating responsibility to society as a whole (Stage 4), which characterizes the highest socioeconomic commitment.

B. C.

Supporting and opposing arguments can be found in regard to an organizations social responsibility (see Exhibit 5-2). From Obligations to Responsiveness to Responsibility. Social obligation occurs when a firm engages in social actions because of its obligation to meet certain economic and legal responsibilities. Social responsiveness is seen when a firm engages in social actions in response to some popular social need. Social responsibility is a businesss intention, beyond its legal and economic obligations, to do the right things and act in ways that are good for society.

3.

SOCIAL RESPONSIBILITY AND ECONOMIC PERFORMANCE How do socially responsible activities affect a companys economic performance? A. A majority of studies have found a positive relationship between social involvement and economic performance, but some caution in this regard is necessary because of methodological questions associated with the measurement of social responsibility and economic performance. B. Another way to address this issue is to evaluate socially conscious mutual stock funds. 1. 2. 3. These mutual funds provide a way for individual investors to support socially responsible companies. These funds typically use social screeningapplying social criteria (screens) to investment decisions. Morningstar reports that 37 percent of the social funds it follows earned four- or five-star ratings, compared to only 32 percent of all mutual funds.

C.

The conclusion is that there is little evidence to say that a companys socially responsible actions will hurt an organizations long-term economic performance.

4. THE GREENING OF MANAGEMENT A number of highly visible ecological problems and environmental disasters (e.g., Exxon Valdez oil spill, mercury poisoning in Japan, Three Mile Island, Chernobyl) brought about a new spirit of environmentalism. Recognizing the close link between an organizations decisions and activities and its impact on the natural environment is called the greening of management. A. Global natural B. Environmental resource Problems. Many issuesincluding: pollution, depletion, global warming,

accidents, and toxic wastechallenge business today. How Organizations Go Green. Approaches include the legal (or light green) approach, the market approach, and the stakeholder approach. C. Evaluating the Greening of Management. As organizations become greener, they are reporting their commitment to being green in several ways, including fulfillment of guidelines issued by the Global Reporting Initiative (GRI); meeting ISO 14001 standards; and inclusion on the list of the 100 Most Sustainable Corporations in the World. 5. VALUES-BASED MANAGEMENT Values-based management is an approach to managing in which managers are guided by the organizations shared values in their management practices. A. Purposes of Shared Values (See Exhibit 5-6) 1. 2. They act as guideposts for managerial decisions and actions. Shared values serve to shape employee behavior and to communicate what the organization expects of its members. 3. 4. B. Shared corporate values can influence an organizations marketing efforts. Shared values are a way to build team spirit in organizations. The Bottom Line on Shared Corporate Values

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A survey on corporate values by the AMA showed that managers at a number of organizations have made a commitment to a set of core values and are holding employees accountable to these values.

2.

Sixty-four percent of the respondents said that their corporate values were linked to performance evaluations and compensation.

3. 4.

An organizations values are revealed in the decisions and actions of employees. In a survey of global corporations, more than 89 percent of the companies surveyed reported that they had a written corporate values statement.

6.

MANAGERIAL ETHICS The term ethics refers to principles, values, and beliefs that define what is right and wrong behavior. This section examines the ethical dimensions of managerial decision making. A. Factors That Affect Employee Ethics Exhibit 5-8 and PowerPoint slide 5-23 show the complex interactions that influence whether a person acts ethically or unethically when faced with an ethical dilemma. 1. Stages of Moral Development. Research confirms three levels stages. a. The first level is called preconventional. At this level, the individuals choice between right or wrong b. At the is based second on personal consequences is up labeled to the involved. stage, and which living conventional, moral values reside in maintaining expected c. The third standards expectations of others. levelthe principled levelthe individual makes a clear effort to define moral principles apart from the authority of the groups to which the person belongs. d. Research on the stages of moral development indicates that people proceed sequentially of moral development (see Exhibit 5-9 and slide 5-25 ). Each level has two PowerPoint

through the six stages of these three levels, with no guarantee of continued development at any stage. The majority of adults are at Stage 4. The higher the stage an employee reaches, the more likelihood that he or she will behave ethically. 2. Individual Characteristics. A person joins an organization with a relatively entrenched set of values. a. Values are basic convictions about what is right and wrong. Values are broad and cover a wide variety of issues. b. Ego strength is a personality measure of the strength of a persons convictions. Individuals who score high on ego strength are likely to resist impulses to act unethically and will likely do what they themselves think is right. c. Locus of control is a personality attribute that measures the degree to which people believe they control their own fate. Individuals with an internal locus of control think that they control their destiny, while persons with an external locus of control are less likely to take personal responsibility for the consequences of their behavior and are more likely to rely on external forces. Externals believe that what happens to them is due to luck or chance. 3. A third factor influencing managerial ethics is structural variables. The existence of structural variables such as formal rules and regulations, job descriptions, written codes of ethics, performance appraisal systems, and reward systems can strongly influence ethical behavior. The content and strength of an organizations culture influences ethical behavior. a. An organizational culture most likely to encourage high ethical standards is one that is high in risk tolerance, control, and conflict tolerance. b. c. A strong culture exerts more influence on managers than does a weak one. However, in organizations with weak cultures, work groups and departmental standards strongly influence ethical behavior.

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Finally, the intensity of an issue can affect ethical decisions. Six characteristics determine issue intensity (see Exhibit 5-10 and PowerPoint slide 5-30): a. b. c. d. e. f. Greatness of harm Consensus of wrong Probability of harm Immediacy of consequences Proximity to victim Concentration of effect

C.

Ethics in an International Context Are ethical standards universal? Hardly! Social and cultural differences between countries are environmental factors that play an influential role in determining ethical and unethical behavior. Exhibit 5-11 and PowerPoint slide 5-32 list the nine principles of The Global Compact. At the 1999 World Economic Forum, the United Nations Secretary-General challenged world business leaders to embrace and enact this particular document that gives guidelines for doing business globally in the areas of human rights, labor, and anti-corruption.

D.

Improving Ethical Behavior Organizations can take a number of actions to cultivate ethical behavior among members. In this section of the text, eight suggestions are explored: 1. The selection process for bringing new employees into organizations should be viewed as an opportunity to learn about an individuals level of moral development, personal values, ego strength, and locus of control. 2. A code of ethics is a formal statement of an organizations primary values and the ethical rules it expects employees to follow. In addition, decision rules can be developed to guide managers in handling ethical dilemmas in decision making. Exhibit 5-12 lists the variables included in the three content categories found common to various corporate codes of ethics. Finally, Exhibit 5-13 provides twelve questions developed by Laura Nash that can be used

to examine the ethics of a business decision. 3. Top managements leadership and commitment to ethical behavior is extremely important since the cultural tone for an organization is established by its top managers. 4. Employees job goals should be tangible and realistic, because clear and realistic goals reduce ambiguity and motivate rather than punish. Job goals are usually a key issue in the performance appraisal process. 5. If an organization wants employees to uphold high ethical standards, this dimension must be included in the appraisal process. Performance appraisals should include this dimension, rather than focusing solely on economic outcomes. 6. Ethics training should be used to help teach ethical problem solving and to present simulations of ethical situations that could arise. At the least, ethics training should increase awareness of ethical issues. 7. Independent social audits evaluate decisions and management practices in terms of the organizations code of ethics and can be used to deter unethical behavior. 8. Organizations can provide formal protective mechanisms so that employees with ethical dilemmas can do what is right without fear of reprisal. 7. SOCIAL RESPONSIBILITY AND ETHICS ISSUES IN TODAYS WORLD Three current challenges managers face in being socially responsible and ethical leaders are examined in this section: (1) ethical lapses and social irresponsibility; (2) social entrepreneurship; and (3) social impact management. A. Managing Ethical Lapses and Social Irresponsibility. A recent survey shows that workplace pressures are leading more and more employees to act unethically or illegally on the job. 1. Ethical Leadership. Above all, managers must set an ethical example by modeling appropriate behavior and rewarding employees who act ethically.

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Protecting

Employees

Who

Raise

Ethical

Issues.

Managers must assure employees who raise ethical concerns that they will not encounter personal or career B. opportunities C. to risks. These individuals are called whistleblowers. Social Entrepreneurship. A social entrepreneur is an individual or organization who seeks out improve society by using practical, innovative, and sustainable approaches. Social impact management. Managers are increasingly expected to act responsibly in the way they conduct business. Managers using a social impact management approach examine the social impacts of their decisions and actions. When they consider how their actions in planning, organizing, leading and controlling will work in light of the social context within which business operates, managers become more aware of whether they are leading in a responsible manner.