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Ethics and Social Responsibility

Chapter 4

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Learning Objectives1. Define ethics and understand the relationship between law and

ethics.

2. Identify the stakeholders of organizations and understand each group’s claims on the organization and how each is affected by the organization’s actions.

3. Explain four approaches (utilitarian, moral rights, justice and practical) to help organizations evaluate choices in ethical dilemmas.

4. Describe the four main sources of a manager’s ethics – societal, occupational, individual, organizational ethics

5. Define corporate social responsibility and the four approaches which organization’s may take regarding social responsibility.

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What is Managerial Ethics?The inner-guiding moral principles, values, and

beliefs that people use to decide what is the “right” or appropriate way to behave. Ethics is about making decisions.

Poor managerial ethics Can generate negative publicity Bring down company’s stock price Put the company out of business.

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Ethical DilemmaAn ethical dilemma is a quandary which people find themselves in when

right and wrong cannot be clearly identified. Their actions might help one person at the expense of another or their own self-interest. All choices have potentially negative consequences Values are in conflict

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Ethics and Law

Ethics

• Unenforceable norms and values guide behavior

• There are no specific laws

Law

• Values are written into enforceable standards of behavior

• Laws are enforced by the justice system

Ethics and laws change as norms and values of society changes

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Stakeholders and EthicsOrganizational Stakeholders – people or groups that supply a

company with its productive resources and have a claim on its resources.

Has a stake in the organization’s performance

When there are no laws to specify behavior, managers must decide what is the ethical way to behave toward organizational stakeholders

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Stakeholders and Ethics

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Stakeholders and EthicsStockholders

Want to maximize their return on investment

Want to be sure management is not engaging in actions which could hurt company’s reputation

ManagersResponsible for using resources to increase organization’s performance

Have the right to expect a reward for their use of resources to improve organization’s performance

Juggle multiple interests

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Stakeholders and EthicsCustomers

Most critical stakeholder

Want quality product at low price – organization must create loyal customers and attract new ones

CommunityWant success of organization for economic development (taxes and income of citizens)

Want good quality of life with safe environment for citizens

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Stakeholders and EthicsEmployees

Organizations have a responsibility to create structure that rewards employees fairly for their contribution

Suppliers and DistributorsSuppliers expect to be paid fairly and promptly for their inputs

Distributors expect to receive quality products at agreed-upon prices.

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Approaches ForEthical Decision Making

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Utilitarian Approach Ethical dilemmas are resolved by making decisions which result

in the greatest good for the greatest number.

In making decisions, consider the effect of each alternative on all parties

Select the alternative which satisfies the greatest number of people.

Decisions are based on outcomes or consequences

Problem: Adhering to the common good approach can result in ignoring the individual’s rights.

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Moral Rights Approach Ethical dilemmas are resolved by making decisions which

maintain and protect the fundamental rights and privileges of people affected by the decision

Asserts human beings have fundamental rights and liberties.• Right to freedom, life and safety

• Right to privacy

• Right to free speech

• Right to freedom of conscience

Focuses on “ethics” of decision independent of consequences

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Justice Approach

Ethical dilemmas are resolved by basing decisions on standards of equity, fairness, and impartiality.

In making decisions, choose alternatives which result in fair and impartial treatment to the involved parties Different treatment should not be based on arbitrary

characteristics Administer rules fairly If harm done, injured party should be made whole

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Practical Approach

Ethical dilemmas are resolved by making decisions based on whether the typical person in society would think it is acceptable.

A decision is ethical if the manager can answer yes to three questions Is my decision within accepted values and standards

of business today? Are you willing to communicate the decision to all

groups? Would people I am closest to (family, friends)

approve of the decision?

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Determinants of Business Ethics

There are four main determinants of differences in ethics between people, employees, companies and countries

Societal Ethics

Occupational Ethics

Individual Ethics

Organizational Ethics

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Individual Ethics: Three Levels of Personal Moral Development (based on L. Kohlberg)

Preconventional Level

Individual is concerned with concrete consequences – stick to rules to avoid punishment. Ethical actions are those that “follow the rules.”

At a higher stage within this level, individual follows rules when it is in his/her immediate interests. Ethical actions are those that result in an equal exchange or “fair deal.”

Managers at this level expect dependable accomplishment of tasks within the approved methods

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Individual Ethics: Three Levels of Personal Moral Development Conventional Level

The individual conforms to expectations of what is good behavior. Expectations are defined by people closest to you, society, and groups.

Ethical actions are those that “live up” to what is expected by people close to you. Fulfill duties and obligations.

Managers at this level emphasize cooperation and collaboration to accomplish tasks.

Most adults operate at this level.

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Individual Ethics: Three Levels of Personal Moral Development

Postconventional or Principled Level

The individual is guided by own values and standards and will disobey rules which violate own principles.

Ethical actions are those which conform to an individual’s own principles and standards. May result in “civil disobedience.”

According to Kohlberg, less than 20 percent of American adults reach this level.

Managers at this level focus on the needs of employees and encourage them to think for themselves.

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Organizational Ethics Most of us operate at the Conventional level of moral

development, so …

The norms and values of your immediate work group, department and the organization will have great influence on ethical behavior.

Company culture lets people know what behaviors the company supports and those actions considered “unethical.”

The organization’s rules, policies and reward systems guide people’s actions

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Organizational Structures Develop a code of ethics or credo for the organization - A

formal statement of the company’s values concerning ethics and social issues; it communicates to employees what the company stands for.

Creation of Ethics officers – a management position dedicated to monitoring organizational practices and teaching ethical practices to employees

The Sarbanes-Oxley Act passed in 2003 requires procedures for handling whistleblowers’ concerns regarding accounting complaints

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Social Responsibility

The way a company’s managers and employees view their obligation to make decisions that protect, enhance and promote the welfare of society as well as the organization.

Does the organization have responsibilities beyond economic responsibilities (maximizing profits for owners and shareholders)?