ETHICS AND SOCIAL RESPONSIBILITY TOPIC OBJECTIVES 1. Identify the philosophical principles behind business ethics. 2.

Explain how values relate to ethics 3. Identifcy factors and common contributors to lax ethics and common ethical temptations and violations 4. Apply a guide to ethical decision making 5. Describe the stakeholder viewpoint of social responsibilty and corporate social performance. 6. Present an overview of social responsibility initiatives. 7. Summarize the benefits of ethical and socially responsble behavior, and how managers can create an environment that fosters such behavior. BUSINESS ETHICS Understanding and practicing good business ethics is important part of a managers job. One of the many reasons ethics are important is that customers ans suppliers prefer to deal with ethical companies. Ethics is the study of moral obligations or separating right from wrong. Although many unethical acts are illegal, others are legal and issues of legality vary by nation. An example of the unethical acts in the United States is giving a government official a kickback for placing a contract with specific firm. An example of legal, yet unethical practice, is giving such a large gift to a corporate employee for signing for signing a sales contract that the gift such as a home entertainment center could be considered as a kickback. A useful perspective in understanding business ethics emphasizes moral internsity or the magnitude of an unethical act. When an unethical act is not of large consequence, a person might behave unethically without much thought. However, if the acy is of large consequence, the person might refrain from unethically or illegal behaviour. For example a manager, might make a photocopy of an entire book or copy somenone elses software (both unethical and illegal acts). The same manager, however, might hesitate to dump toxins into a river. PHILOSOPHICAL PRINCIPLES UNDERLYING BUSINESS ETHICS A standard way of understanding ethical desicion making is to know the philosophical basis for makin these decisions. When attempting to decide what is right ans wrong, managerial workers can focus on 1) consequence, 2) duties, obligations and principles; or intergrity. FOCUS ON CONSEQUENCES

When attempting to decide what is right or wrong, people can sometimes focus on the consequences of their decision or action. According to this criterion, if no one gets hurt, the decision is ethical. Focusing on consequences is often referred to as utilitarianism. The decision maker is concerned with the utility of the decision. What really counts is the net balance of good consequences over bad. An autonomotive bodyshop manager , for example, might decide that using low quality replacement fenders is ethically wrong because the fenders will rust quickly. To focus on consquences, the decision maker would have to be manager, aware of all the the good and bad consequences of a given decision. The body-shop manager would have to estimate such factors as how angry customers would be whose cars were repaired with inferior parts, and how much negative publicity would result. FOCUS ON DUTIES, OBLIGATIONS AND RESPONSILITIES Another approach to making an ethical decision is to examine ones duties in making the decision. The theories, underlying this approach are referred to as deontological from the Greek word, deon or duty. The deontological approach is based on universal principles such as honesty, fairness, justice and respect for persons and property. Rights such as the right for privacy or safety, are also important. From deontological perspective, the principles are more important than the consequences. If a given decision violates one of these universal principles, it is automatically unethical even if nobody gets hurt. An ethical body shop manager might think, It just isnt right to use replacement fenders that are not authorized by mobile manufacturer. Whether or not these parts rust quickly is a secondary consideration. FOCUS ON INTEGRITY (VIRTUE ETHICS) The third criterion for determinin the ethical of behavior focuses on the charateristics of the person involved in the decision or action. If a person in question has good character, and genuin motivation and intention, then he or she is behaving ethically. The ingredients making up character will often include the two other ethical criteria. One might judge a person to have good character if she or he follows the right principles and respects the rights of others. The decision makers environment or community, helps define what integrity means. You might have more lenient ethical standards for a person selling you speculative investment that you would for a bank vice president who accepted you deposit. The virtue ethics of managers and professionals who belong to professional societies can be judged readily. Business-related professionals having codes of ethics include accountants, purchasing managers and certified financial planners. To the extent, that the person abides by the tenets of the stated

code, he or she is behaving ethically. An example of such tenet would be for a financial planner to be explicit is about any commissions gained from a client accepting the advice. When faced with a complex ethical decision, a manager would be best advised to incorporate all three philosophical approaches. The manager might think through the consequences of a decision, along with the analysis duties, obligations, principles and intentions. VALUES AND ETHICS Values are closely related to ethics. Values can be considered clear statements of what is critically important. Ethics become the vehicle for converting values into actions, or doing the right thing. For example a clear environment is a value, whereas not littering is a praticing ethics. Many firms contend that they put people before profits (a value). If this assertion were true, a manager would avoid actions such as delaying payments to a vendor just to hold on to money longer or firing a group member for having a negotiated a deal that lost money. Values are important because the right values can lead to a competitive advantage. According to business writer Perry Pascarella, winning executives see values as a a competitive tool that enables their organizations to respond quickly and appropriately. These executives invest ime in nurturing values they thinks will help the organizations, including honesty, integrity, team work and risk taking. Another key value is satisfying the customer, that is associates are taught to try exra hard to please customers. The concept of ethically centered management helps put some teeth into an abstract discussion of how values relate to ethics. Ethically centered management emphasizes that the quality of an end products takes precedence over its scheduled completion. At the same time, it sets high quality standards for dealing with employees and managing production. Robert Elliot Allinson believes that many work-related catastrophes can be attributed to a management team that is not ethically centered. According to Allinson, management acted irresponsibly by not emphasizing the importance of quality control and clearly designating officials to be in-charge of quality. CONTRIBUTING FACTORS TO ETHICAL PROBLEMS Individuals, organizations and society itself must share some of the blame or unethical behavior in the workplace. Major contributors to unethical behavior are the individuals greed and gluttony or the desire to maximize self-gain at the expenses of others. Another major contributor to unethical behavior is an organizational atmosphere that condones such behavior. According to one study, even employees with hight ethical standards may stray in a climate that rewards unethical behavior. A firms official code of ethics may not coincide with its

actual climate. It is the firms top executives who set the companys moral tone. A more recent study on unethical employees found similar results. Onethrid of employee admitted to having stolen from their employer. The most frequent forms of theft were misuse of the employee-discount privilege and theft of the companys merchandise inventory or property. The researchers concluded that a perceived management climate more lenient than the norm for management is accompanied by employee attitudes that are more protheft. The opposite was also true, a management climate strongly opposed to theft leads to strongest anti-theft attitudes by employees. A third case of unethical behavior is moral laxity, slippage in moral behavior because other issues sent more important at the time. The implication is that the business person who behaves unethically has not carefully planned the immoral behavior but let is occur by not exercising good judgement. Unethical behavior is often triggered by pressure from higher management to achieve goals. Among the most common ethical violations were 1) cutting corners on quality, 2) covering up incidents that would make them look bad, 3) deceiving customers, 4) lying to a supervisor or group member, and 5) taking credit for a co-workers idea. A contributing factors to these five (5) types of unethical behavior is that a person has incentive for being unethical. Although emphasis on corporate training programs in ethics increases, illegal and unethical behavior on the job continues to be a major problem. A survey of 2390 working adults by KPMG, reinforces the study just mentioned as highlighted below: 70% of workers say they have witnessed unethical or illegal behavior by co-workers in the past year. The misconduct included theft, harassment, and discrimination, lying, mishandling of confidential information and cutting corners. Of those who saw misconduct, 49% considered it serious enough to damage public trust in their company if it ever became public knowledge. 60% suspected that higher-ups caught doing something unethical or illegal would be disciplined less severely than would lower ranking workers. 53% of the employees surveyed beleived their managers would not protect them from its retaliation if they turned in an ethical violator.

Although these findings might suggest that unethical and illegal behavior is on increase, another explanation is possible. Workers today might be more observant of ethical problems, and more willing to note them on a survey. Even if more people are aware of the ethical problems , self-interest continues to be a factor that influences ethics.

A new explanation for the cause of unethical behavior emphasizes the strenght of relationship among people as a major factor. Assume that two people have close ties to each other, such as having worked together for a long time, or knowing each other both on and off the job. As a consequence, they are likely to behave ethically toward each other on the job. In contrast, if a weak relationship exists, between the two people, either party is more likely to engage in an unethical relationship. However, the oppurtunity for unethical behavior between strangers is often minimized because individuals typically do not trust strangers with sensetive information or valuables. ETHICAL TEMPTATIONS AND VIOLATIONS Certain ethical mistakes, including illegal actions recur in the wokrplace. Familiarizing oneself with these behaviors can be helpful in managing the ethical behavior of others as well as monitoring ones own behavior. A list of commonly found ethical temptations and violations, including criminal acts, follows: 1. Stealing from employers and customers. Retail employee steal goods from their employees and finance service employees steal money. Examples of theft from customers includes airport baggage handlers who steal from passenger suitcases and bank employees, stockbrokers, lawyers who siphon money from customers accounts. 2. Illegal copying of software. A rampant problem in the workplace is the making unathorized copies of either company or personal use. Similarly, many employees make illegal copies of videos, books and magazine articles instead of purchasing these products. 3. Treating peoply unfairly. Being fair to people means equity, receiprocity, and impartiality. Fairness revolves around the issue of giving people equal rewards for accomplishing the same amount of work. The goal of human resource legislation is make decisions about people based on their qualifications and performance.-not on the basis of demographic factors such as gender, race or age. A fair working enviroment is on where performance is the only factor that counts. (equity). Employer-employee expectations must be understood and met (reciprocity) Prejudice and biased must be eliminated (impartiality). 4. Sexual harassment. Sexual harassment involves making compliance with sexual favors a condition of employment or creating a hostile, intimidating environment related to sexual topics. Harassment violates the law and is also an unethical issue because it is morally wrong and unfair. Sexual harrassment led to problems of psychological well-being such as dissatisfaction with work. After being harassed, women tend to be absent and tardy more frequently. Sexual harassment is a widespread problem that employers take steps to prevent the problem.

5. Conflict of interest. Part of being ethical is making business judgement only on the basis of the merits of the situation. Imagine that you are a supervisor who is romantically involved with a worker within a group. When it comes to assigning raises, it would be difficult to be objective. A conflict of interest occurs when ones judgement or objectivity is compromised. 6. Divulging confidential information. An unethical person cannot be trusted by others not to divulge confidential information unless the welfare of others is at stake. The challenge of dealing with confidential information arises in many areas of business, including information about performance-appraisal results, compensation, personal problems of employees, disease status of employees and co-workers bankruptcies. 7. Misuse of corporate resources. A corporate resource is anything the company owns, including its name and reputation. 8. Greed, gluttony and avarice. An ethical temptation, particularly among top-level executives, is to misuse corporate resources in an extravagant, greedy manner. The temptation is greater for top execurtives because they more control over resources. 9. Corporate espionage. A growing unethical practice is to collect competitive information to the extent that its constitute spying on competitors. Among the common forms of spying are computer hacking, bribing present employees to turn-over trade secrets, and prying information from relatives of workers with useful information. Another controversial practice is dumpster diving or digging through the garbage of competitors or rivals to uncover trade secrets or derogatory information. Outright stealing of information about rival is obviously unethical. A less obvious form of a response would be to leave your company, join a competitor, and then reveal key insider information about your previous company to your new employer. 10. Poor Cyberethics. The internet creates new potential for unethical behavior, thereby making, it important for all employees, to resist the temptation of practising poor cyberethics. Example of questionable cyberethics, would be to send giant e-mail file containing your opinion about non-work related issue to everyone in your company. As a consequence, the servers would be blocked from conducting legitimate business. A GUIDE TO ETHICAL DECISION MAKING A practical way of improving ethical decision making is to run contemplated decisions through an ethics test when any doubt exist. The

ethics test presented was used at the Center for Business Ethics at Bentley College as part of corporate training programs. Decision makers are taught to ask themselves the following: 1. Is is right? This question is based on the deontological theory of ethics that there are certain universally accepted guiding principles of rightness and wrongness, such as thou shall not steal. 2. Is it fair? The question is based on the deontological theory of justice, implying that certain actions are inherently just or unjust. 3. Who gets hurt? This question is based on utilitarian notion of attempting to do the greatest good for the greatest number of people. 4. Would you be comfortable if the details if your decision were reported on the front page of your local newspaper or through your companys email system? This question is based on the universalist principle of disclosure. 5. Would you tell your child (young relative) to do it? This question is based on the deontological principle of reversability, referring to reversing who carries out the decision. 6. How does it smell? The questions is based on a persons intuition and common sense. A desision that was obviously ethical such as donating some managerial time for charitable organization would not need be run through the 6-question test. Neither, would a blatantly illegal act, such as not paying employees for work performed. But the test is useful for decisions that are neither obviously ethical nor obviously unethical. Among such gray areas would be charging clients based on their ability to pay and developing a clone of a successful competitive product. Another type of decision that often requires an ethical test is choosing between two rights (rather than right versus wrong). Suppose a blind worker in the group has personal problems so great that her job performance suffers. She is offered counseling but does not follow through seriously. Other members if the team complain about the blind workers performance because she is interering with the group achieving its goals. If the manager dismisses the blind worker, she might suffer severe financial consequences. ( She is the only wage earner in her family) However, if she retained the group will suffer consequences of its own. The manager must choose between two rights, or the lesser of two evils. SOCIAL RESPONSIBILITY Many people believe that firms have an obligation to be considered about outside groups affected by an organization. Social responsibility is the idea

that firms have obligations to society beyond their economic obligations to owners or stockholders and also beyond those prescirbed by law or contract. Both ehtics and social responsibility relate to the goodness or morality of organizations. However, business ethics is a narrower concept that applies to the morality of an individuals desicions and behaviors. Social responsibility is a broader concept that relates to the to an organizations impact on society, beyond, doing what is ethical. To behave in socially responsble way, managers must be aware of how their actions influence the environment. An important perspective is that many socially responsible actions are the byproducts of sensible business decisions. For instance, it is both socially responsible ans profitable for a company to improve the language and math skills of entry-level workers. Literate and numerate entry-level workers for some jobs, may be in short supply, and employees who cannot follow wirtten intructions or do basic math may be unproductive. An expanded view of social responsibility regards organizations as having a corporate social consiousness. The term refers to a set of consciously held shared values that motivate and guide individuals to act in responsible way. As part of being responsible, the interests of the corporation are balanced against its accountability for the effect of its actions upon society, the environment, and other interested parties. A company with a strong corporate social consciousness would be profitable, pay high wages, attract high-quality job candidates, and be admired by the general public and government. A practical problem in having a corporate social consciousness is that not all interested parties agree on what constitutes responsible behavior. Target stores might have many customers who believe that citizens have a constitutional right to defend themselves with handguns against intruders in their home. To this group of customers, a retailer with a corporate consciousness would sell handguns to the public. Another group of personnel might believe strongly in tight gun controls. To this group, Target not selling handguns to the public would reflect social consciousness. STOCKHOLDERS VERSUS STAKEHOLDER VIEWPOINTS The stockholder viewpoint of social responsibility is the traditional perspective. It holds that business firms are responsble only to their owners and stockholders. The job of managers is therefore to satisfy the financial interest of the stockholders. By so doing, says the stockholder view, the interests of society will be served in the long run. Socially irresponsible acts ultimately result in poor sales. According to the stockholders viewpoint, corporate social responsibility is therefore a by-product of profit seeking. The stakeholder viewpoint of social responsibility contends that firms must hold themselves responsible for the quality of life of the many groups affected by the firms actions. These interested parties or stakeholders include those groups composing the firm general environment. Two categories of stakeholders exist. Internal stakeholders include owners, employees and

stockholders; external stakeholders include consumer groups and financial institutions.

customers, labor unions,

Another way of framing the stakeholder perspective is that society grants authority to business leaders, shareholders, employees and customers. Yet according to an iron law, in the long run those parties who do not use their power in an acceptable manner will lose that power. Under extreme misuse of power, the government might intervene, such as declaring a company to be illegal monopoly. Many organizations regard their various stakeholders as partners in achieving success, rather than as adversaries. The organizations and stakeholders work together for their mutual success. Part of understanding the stakeholder viewpoint is to recognize that not all stakeholders are the same. Instead they can be differentiated in three dimensions. Some stakeholders are more powerful than the others, some are more legitimate and some are more urgent than the others. CORPORATE SOCIAL PERFORMANCE Corporate social performance is the extent to which the organization responds to the demands of its stakeholders for beving in a socially responsble manner. After the stakeholders have been satisfied with the reporting of financial information, they may turn their attention to the behavior of the corporation as a good citizen in the community. One way of measuring social performance is to analyze the companys annual report in search of relevant statistical information. Another approach in measuring corporate social performance is to observe how a company responds to social issues by examining programs in greater detail. SOCIAL RESPONSIBILTY INITIATIVES The six social responsibility initiatives are the following: 1. Environmental Management. Many companies take the initiative to preserve the environment in a way that pleases environment groups. As a result, the company works in partnership with a group intent on such purposes as preserving forests or a species of fish or animal. Another key aspect of environmental management is to prevent pollution rather than control wastes after they had surfaced. 2. Work/life balance programs. Organizations take a major social responsiblity when they establish that help employees balance the demands of work and personal life. The intent of work/life program is to held employees lead a more balanced life, and be more satisfied

and productive on the job. Examples of a variety of work/life programs are as follow: Flexible work schedules. Child-care resource and referral Part-time options Compressed workweek Telecommuting Job sharing among or two employees Elder-care resource and referrals Elder-care case management and assessment Subsidy for emergency care for dependents Family sick days that permit employees to stay home and care for sick children Arrangements for school counselors to meet with parents on site during regular working hours Electric breast pumps for mothers of young children who want to return to work and continue breastfeeding Maintenance worker on company payroll whom employeen can hire for household tasks, by paying only for supplies Laundry service, including ironing on company premises Conceirge service in which company employee runs a variety of errands for employees Postal service Automatic Teller machines On-site fitness centers including massages. Of the programs listed, the flextime or flexible work schedules has grown in popularity because it has reduced employment turn-over, improved the morale and helped recruit new talent. 3. Social leaves of Absence. Some companies offer employees paid leaves of absence, of anywhere from several weeks to six months, to help them prevent burn-out. A social leave of absence gives selected employees time away from the job to perform a significant public service. Obtaining a leave of absence is competitive. Candidates for the leave fill out an application that describes the employees plans and qualifications for performing the community work. As with other firms offering social leaves, the community work must be integrated into the departments work plans. 4. Community Redevelopment Projects. As a large-scale initiative, business firms invest resources in helping rebuild distressed communities. Investment could mean constructing offices or factories in an impoverished section of town, or offering job training for residents from these area. A special goal of some community redevelopment projects is to replace a crime-ridden development with new housing that is associated with less crime and more community pride.

5. Acceptance of whisle blowers. A whistle blower is an employee who discloses organizational wrongdoing to parties who can take action. Whisle blowers are often ostracized and humiliated by companies they hope to improve, by such means as no further promotions or poor performance evaluations. More than half of the time, whisle blowers are ignored. Only organization with a strong social conscience would embrace employees who inform the public about its misdeeds. Yet some companies are becoming more tolerant of employees who help keep the firm socially responsible by exposing actions that could harm the society. 6. Compassionate downsizing. To remain competive and provide shareholders with a suitable return on investment, large organizations have undergone downsizing. Downsizing is slimming down of operations to focus resources and boost profits or decrease expenses. Downsizings occur regularly worldwide among corporations of all sized, yet the size of the layoffs are more substantial during business downturns. Compassionate downsizing focus on the social responsibility of downsizing which include the following considerations: Ponder whether downsizing is worthwhile from a financial perspective. Redeploy as many workers as possible by placing them in full-time or temporary jobs throughout the organization, whether their skills and personality fit. Provide outplacement services to laid-off employees thereby giving them professional assistance in finding new positions or redirecting their careers. Provide financial and emotional support to the downsized worker. Give hope to the more qualified employees who were laid off by reassuring them they will be on the top of the list if a job recall does take place in the future.

BENEFITS RECEIVED FROM ETHICS AND SOCIAL RESPONSIBILITY Highly ethical behavior and socially responsble acts are not always free. Investing in work/life programs, granting social leave of absence, and telling customers the absolute truth about potential product problems may not have an immediate return on investment. Nevertheless, recent evidence suggests that high ethics and social responsbility are related to good financial performance. The relationship between profits and social responsibility works two ways in another perspective. More profitable firms can better afford to invest in social responsibility initiatives, and these initiatives in turn lead to more profits. Researchers found that levels of corporate social performanc were influenced by prior financial success. This result suggests that financial success creates enough money left over to invest in corporate social performance. The study also found that good corporate

social performance contributes to improved financial performance as measured by return on assets and return on sales. Being ethical also helps avoid the costs of paying huge fines for being unethical. So many firms have been fined for unethical or illegal activities, it is almost unfair to select one as an example. A big pay off from socially responsible acts is that they often attract ans retain socially responsible employees and customers. CREATING AN WORKPLACE ETHICAL AND SOCIALLY RESPONSIBLE