Chapter 6

Ethics and Social Responsibility

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Learning Objectives

Explain ethics as they relate to the five domains of individuals, organizations, stakeholders, government, and the global community

Demonstrate processes and practices for managing organizational ethics

Describe how businesses approach social responsibility Explain how organizations seek to prosper through social

responsibility Summarize management’s role in building responsible

businesses based on ethical decision making

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Ethics• The moral principles, values, and beliefs that

govern group or individual behavior according to what is right or wrong and what contributes to the balanced good of all stakeholders

• Ethical dilemma – a situation in which no choice is entirely right

What Are Ethics? (p. 144)

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Domains of ethical decision making

What Are Ethics? (cont.)

Figure 6.1

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Individuals (p. 145)• Lawrence Kohlberg’s “stages of moral development”

Progression from interests in self to interest in others (p. 146)

Preconventional – moral decisions are based primarily on self-protection or self-interest

Conventional – moral decisions are based primarily on social norms

• Societal norms – expectations about how people (and organizations) should behave

Postconventional – moral decisions are based primarily on what individual believes is good for society as a whole

What Are Ethics? (cont.)

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What Are Ethics? (cont.)

Kohlberg’s stages of moral development

Figure 6.2

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What Are Ethics? (cont.)

Organizations - posture of the organization toward the local and global communities (p. 146)

Figure 6.3

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What Are Ethics? (cont.)

Value-based management - company’s culture impacts employee behavior in ways that are consistent with theorganization’s mission and values (p. 147)

Figure 6.4

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What Are Ethics? (cont.)

Stakeholders (p. 148)• Internal and external constituents with a direct interest

in the organization’s behavior Experience the effects of company’s management decisions

Figure 6.5

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What Are Ethics? (cont.)

Externality – a cost (negative) or benefit (positive) that occurs beyond the direct exchange between an organization and its stakeholders (p. 148)

Escalation – an increase in an organization’s behavior as a direct response to a competitor’s behavior (p. 149)

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What Are Ethics? (cont.)

Governments (p. 149)• Enact legal requirements to prevent unethical

behavior E.g., Sarbannes-Oxley Act (2002) – requires greater

transparency in company accounting practices

• Face “fundamental large-firm problem” stemming from: Separation of ownership and control Decentralized regulation system

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What Are Ethics? (cont.)

Globe (p. 150)• Global-level of ethics – principles, values, and

beliefs that are widely considered universal United Nations’ - “The Global Compact”

• Intended to guide decision making in the areas of human rights, labor, the environment, and anti-corruption

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Making Ethical Decisions (p. 151)

Principles of ethics (p. 152)• Legal principle – decisions that follow both the

letter and spirit of the law• Individual rights principle – decisions that do not

infringe upon the rights of other people• Virtuous principle – decisions of which you would

be publicly proud• Long-term principle – decisions that support the

long-term interests of yourself and your organization

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Making Ethical Decisions (cont.)

Principles of ethics (cont.)• Community principle – decisions that contribute to

the strength and well-being of the community (p. 152)

• Utilitarian principle – decisions that provide the greatest good to the greatest number (or the least harm to the fewest number)

• Distributed justice principle – decisions that do not harm those who already are disadvantaged

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Making Ethical Decisions (cont.)

Codes of conduct - organization’s published guidelines of its expectations about ethical behavior (p. 153)• Typically address conduct in eight areas

Fiduciary Dignity Property Transparency Reliability Fairness Citizenship Responsiveness

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Making Ethical Decisions (cont.)

Principle-based management (p. 153)• Organization proactively connects values and

beliefs to behavior expectations• All stakeholders are continuously made aware of

standards for behavior• Stakeholders become a vital component to

decision making

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Social Responsibility (p. 154)

Social responsibility (p. 155)• Proactive behaviors for the benefit of society

Corporate social responsibility (CSR)• Programs that coordinate the company’s efforts to

address societal and community challenges as they emerge

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Social Responsibility (cont.)

Approaches to social responsibility (p. 155)• Proactive approach – organization goes beyond

industry norms to solve and prevent problems Begin by consulting the articles of incorporation May change the legal structure to support socially

responsible activities• B Lab – non-profit organization that certifies socially

responsible companies

• Accommodative approach – organization accepts responsibility and takes action in response to societal pressures (p. 156)

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Social Responsibility (cont.)

Approaches to social responsibility (cont.)• Defensive approach – organization accepts

responsibility, but does only the minimum required (p. 156)

• Reactive approach – organization denies responsibility for social problems and responds only when legally required

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How Does Social Responsibility Pay? (p. 157)

Social entrepreneurs - people who start a business for the dual purpose of profits and societal benefits• Consumers and investors becoming more active in

supporting and investing in socially responsible companies

• Social investing – e.g., Calvert Social Investment Fund screens companies on financial performance and:

Environment Workplace

Human rights Indigenous peoples’ rights

Community relations Product safety and impact

Governance business ethics

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Managing Social Responsibility Today (p. 158)

Managers must make principle-based decisions informed by industry and societal standards• Internalizing an externality – management

proactively addresses a negative externality for the benefit of its stakeholders

• Building an ethical culture Apply a framework for ethical decision making Ethics training

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Managing Social Responsibility Today (cont.)

Ethical decision making framework (p. 158)• Duties (p. 159)

Perfect duties – clearly articulated moral obligations Imperfect duties – moral obligations that can be

interpreted in different ways

• Rights –behaviors that can be expected from others, based on their duties

• Standards of excellence – organization’s highest expectations of behavior

• Commitments – self-defined principles unique to an individual or organization

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Managing Social Responsibility Today (cont.)

Ethical decision making framework (cont.)• Applying the framework (p. 159)

Understanding the situation Connecting behaviors to standards Impartial analysis

• Visibility – the “newspaper test”• Generality – would all organizational members be comfortable

with action taken• Legacy – would decision maker be comfortable being

remembered for the action taken

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Managing Social Responsibility Today(cont.)

Ethics training (p. 159)• Intended to prevent unethical behavior from occurring

Figure 6.6

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Managing Social Responsibility Today(cont.)

Ethics training (cont.)• Audience for training

Training characteristics – trainees’ current moral profile• Audience’s assertiveness, cognitive ability, perspective on ethical

behavior (p. 159)

Needs assessment – determine audience’s need for ethics training (p. 160)

Training transfer – steps to assure that what is learned about ethics will be used on the job

Evaluation – determine the effect of training on trainees’: Reaction to the training Workplace behavior Knowledge/skills tests Organizational performance

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Managing Social Responsibility Today(cont.)

In the interests of self or others? (p. 161)

Tragedy of

the commons

Figure 6.7

6 - 27Management 1e

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