Chapter Five Management’s Social and Ethical Responsibilities

Chapter Five

Management’s Social and Ethical Responsibilities

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Chapter Objectives

• Define the term corporate social responsibility (CSR) and specify the four levels in Carroll’s global CSR pyramid.

• Contrast the classical economic and socioeconomic models of business and summarize the arguments for and against CSR.

• Identify and describe the four social responsibility strategies and explain the concept of enlightened self-interest.

• Summarize the four practical lessons from business ethics research.


Chapter Objectives (cont’d)

• Distinguish between instrumental and terminal values and explain their relationship to business ethics.

• Identify and describe at least four of the ten general ethical principles.

• Discuss what management can do to improve business ethics.


Social Responsibility: Definition and Perspectives

• Corporate Social Responsibility (CSR)– The idea that business has:

• Social obligations above and beyond making a profit• Social obligations to constituent groups in society other than

stockholders and beyond that prescribed by law

– Organizations include financial, environmental, and social responsibility in their core business strategies.


Figure 5.1: Carroll’s Corporate Global Social Responsibility Pyramid


Social Responsibility: Definition and Perspectives (cont’d)

• What Does Social Responsibility Involve?– Voluntary action

• Action is taken before lawsuits or other events force a firm to act on a matter.

– An emphasis on means, not ends• Emphasis is on how the decision to act was reached, not on

the decision itself.


What Is the Role of Business in Society?

• The Classical Economic Model (Adam Smith)– An “invisible hand” (i.e., the efforts of competing

entrepreneurs) promoted the public welfare when individuals tried to maximize short-run profits in pursuit of their own economic self-interests.

• Equates short-run profitability to social responsibility


What Is the Role of Business in Society? (cont’d)

• The Socioeconomic Model– Business has an obligation to meet the needs of the

many groups in society besides stockholders in its pursuit of profit.

• Stakeholder audit: Systematically identifying all the parties that could possibly be affected by the company’s performance


Figure 5.2: A Sample Stakeholder Audit for Wal-Mart, the World’s Largest Retailer


Arguments For and Against Corporate Social Responsibility

• Arguments For– Business is unavoidably involved in social issues.– Business has the resources to tackle today’s complex

societal problems.– A better society means a better environment for doing

business.– Corporate social action will prevent government action.


Arguments For and Against Corporate Social Responsibility (cont’d)

• Arguments Against– Profit maximization ensures the efficient use of

society’s resources.– As an economic institution, business lacks the ability to

pursue social goals.– Business already has enough power.– Because business managers are not elected, they are

not directly accountable to society.


Toward Greater Social Responsibility

• Iron Law of Responsibility– Those who do not use power in a socially responsible

way will eventually lose it.– If business does not meet the challenge of social

responsibility, then government reform legislation will force it to meet its obligations.


Social Responsibility Strategies

• Reactive Strategy– Denying responsibility while striving to maintain

the status quo by resisting change

• Defensive Strategy– Resisting additional social responsibilities with

legal and public relations tactics


Social Responsibility Strategies (cont’d)

• Accommodation Strategy– Assuming social responsibility only in response

to pressure from interest groups or the government

• Proactive Strategy– Taking the initiative in formulating and putting in

place new programs that serve as role models for industry


Figure 5.3: A Continuum of Social Responsibility Strategies


Who Benefits from Corporate Social Responsibility

• Altruism– The unselfish devotion to the interests of others

• Research Findings– There is a positive correlation between industry

leadership on a socially responsible issue (pollution control) and profitability.

– Corporate social responsibility is a competitive advantage in recruiting.


Who Benefits from Corporate Social Responsibility (cont’d)

• Enlightened Self-Interest– A business ultimately helps itself by helping solve social problems.

• An Array of Benefits for the Organization– Tax-free incentives to employees– Retention of talented employees– Help in recruiting the talented and socially conscious– Help in swaying public opinion– Improved community living standards– Attracting socially conscious investors– A nontaxable benefit for employees from company donations to

charitable causes


The Ethical Dimension of Management

• Ethics– The study of moral obligation involving the distinction

between right and wrong

• Business Ethics– The study of the complex business practices and

behaviors that give rise to ethical issues in organizations


Practical Lessons from Business Ethics Research

• Ethical Hot Spots– Balancing work and

family– Poor internal

communications– Poor leadership– Work hours, work load– Lack of management

support

– Need to meet sales, budget, or profit goals

– Little or no recognition of achievements

– Company politics– Personal financial

worries– Insufficient resources


Practical Lessons from Business Ethics Research (cont’d)

• Pressure from Above– The problem of superiors pressuring

subordinates to achieve results is widespread.– Managers’ responses to pressure from above

• Consciously avoid putting undue pressure on subordinates (who may act unethically to relieve the pressure).

• Prepare to deal with excessive organizational pressure.


Practical Lessons from Business Ethics Research (cont’d)

• Ambiguous Situations– Situations where there are no clear-cut ethical

guidelines or ethical codes that can satisfy employees’ need for formal guidelines

• Rationalization: How Good People End Up Doing Bad Things– Perceiving an objectively questionable action as normal

and acceptable

• A Call to Action– The deliberate and conscious action of a manager to do

the right thing is an ethical and personal matter.


Table 5.1: How Employees Tend to Rationalize Unethical Conduct


Personal Values as Ethical Anchors

• Values– Abstract ideals that shape one’s thinking and behavior

• Instrumental value: Enduring belief that a certain way (mode) of behaving is appropriate in all situations

• Terminal value: Enduring belief that a certain end-state of existence (being admired) is worth striving for

• Identifying Your Own Values– Basic personal values are taken for granted.– They are not arranged consciously in order of priority.


Managerial Ranking of Values

• Terminal Values– Self-respect– Family security– Freedom– A sense of

accomplishment– Happiness

• Instrumental Values– Honesty– Responsibility– Capability– Ambition– Independence


General Ethical Principles

• Self-interests

• Personal virtues

• Religious injunctions

• Government requirements

• Utilitarian benefits

• Universal rules

• Individual rights

• Economic efficiency

• Distributive justice

• Contributive liberty


Encouraging Ethical Conduct

• Ethics Training– Amoral managers: Managers who are neither moral nor

immoral, but ethically lazy– Key features of effective ethics programs

• Support of top management • Open discussion• A clear focus on ethical issues• Integration of ethics into the organization• A mechanism for anonymously reporting ethical violations• Rewarding of ethical conduct


Table 5.2: Twelve Questions for Examining the Ethics of a Business Decision


Encouraging Ethical Conduct (cont’d)

• Ethical Advocate– An ethics specialist who plays a role in top

management’s decision making

• Code of Ethics– Requirements for an effective code

• Describes specific events as unethical• Is supported and equitably enforced by top management

• Whistle-Blowing– The reporting of perceived unethical matters


Summary

• Corporate responsibility is the idea that management has broader responsibilities than just making a profit.

• The debate over the basic purpose of the corporation is long-standing.

• Management scholars who advocate greater corporate social responsibility cite the iron law of responsibility.


Summary (cont’d)

• Ethics research indicates that many employees have acted unethically, have been pressured to act unethically, desire ethical standards, and engage in rationalization to defend their behaviors.

• Managers must pay attention to the instrumental and terminal values that comprise employee’s personal value systems.

• There are at least ten general ethical principles that guide behavior.

• The typical manager is considered to be amoral.


Terms to Understand

• Social responsibility • Stakeholder audit• Iron law of responsibility• Reactive social

responsibility• Defensive social

responsibility• Accommodative social

responsibility• Proactive social

responsibility strategy

• Altruism• Enlightened self-interest• Corporate philanthropy• Ethics• Values• Instrumental value• Terminal value• Amoral managers• Ethical advocate• Whistle-blowing

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Chapter Five Management’s Social and Ethical Responsibilities