Ethical Issues in Management

Spring 2007

Ethical Issues in Management

Ethical Issues in Management

Ethical perspectives and moral development Ethical decision making Social responsibility

Spring 2007

Ethical Issues in Management

What Are Ethics?

The area of philosophy concerned with human behavior in the social context Based on a consideration of values, rather than facts (although it is necessary to determine the facts) Both individual and shared values important Not the same as legal considerations (although laws overlap with societys agreed-upon ethical standards) Social and economic factors are not part of ethical decisions (although many ethical decision have social or economic implications)

Morality vs. legality vs. social/economic forces

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Ethical Issues in Management

Ethical Perspectives: Utilitarian

Jeremy Bentham (1748 1832) Decisions are made on the basis of outcomes Maximize benefits for the greatest number Example: Oregon & health care

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Ethical Issues in Management

Ethical Perspectives: Individualism

Adam Smith (1723-1790) At the most basic level, Whats in it for me? However, theres a long-term equilibrium; the invisible hand

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Ethical Issues in Management

Ethical Perspectives: Moral Rights

John Locke (1632 1704) Respect individuals inherent rights and liberties Natural rights of mankind
The right of life, liberty, and the pursuit of happiness

Rights?
Free consent Privacy Freedom of conscience Free speech Due process Life and safety
The problem arises with how these are to be put into action

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Ethical Issues in Management

Immanuel Kant (1724 1804)

For Kant, what is right is based on the categorical imperative, which is the notion that every person should act on only those principles that he or she, as a rational person, would prescribe as universal laws to be applied to the whole of humankind.

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Ethical Issues in Management

Ethical Perspectives: Justice

Decisions made with equity and impartiality Types of justice
Distributive Procedural Compensatory

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Ethical Issues in Management

Social Justice Perspective

Value placed on human dignity Work for the common good Human rights Dignity of work Society judged by treatment of poor and vulnerable

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Ethical Issues in Management

Levels of Moral Development

Preconventional Obey to avoid physical punishment Follow rules if it is in your immediate interest Conventional Live up to what your family and friends expect Maintain order by fulfilling obligations Principled Value others rights regardless of majority opinion Follow self-chosen ethical principles even if they violate the law

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Ethical Decision Making

Codes of ethics
State basic principles Can be for a specific organization Many professions also have an ethical code Can be very general (credo) or very specific

Leadership
Managers by definition are (or should be) role models

Ethical training

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Components of Ethical Training

Provide trainees with an understanding of ethical judgment philosophies and guidelines. Provide industry/profession-specific areas of ethical concern. Provide trainees with organizational ethical expectations and rules. Provide trainees with an understanding of their own ethical tendencies. Take a realistic viewelaborate on the difficulties of ethical decision making. Get the trainees to practice and role-play.

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How is Business Viewed by Society?

The Simple Life Folks
Large organizations, by their very existence, are destructive of human values We should adopt a simpler lifestyle, freeing ourselves of the need for large businesses We are interested in maximizing human potential

Redemption-May-Be-Possible

Large organizations exploit those without power (especially multinational firms and indigenous peoples) Dont abolish business firms, but major reform is needed
Businesses have done a lot to earn their bad reputation Responsible business leaders must begin cleaning out the stables

Critics from Within

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Do the Facts Justify Criticism ??

Of the globes 100 largest economic entities, 51 are corporations; only 49 are countries The 300 largest global corporations hold onequarter of the entire globes productive assets 72% of Americans say business has too much power over too many aspects of American life

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2004 Revenues ($B) Saudi Arabia 1) 2) 3) 4) 5) 6) 7) 8) WalMart BP Exxon / Mobil Royal Dutch / Shell General Motors Portugal DaimlerChrysler Toyota Motor Ford Motor Czech Republic $310.2 $288.0 $285.1 $270.8 $286.7 $193.5 $188.7 $176.7 $172.6 $172.2 $172.2

9)

General Electric
Finland

$152.9
$152.6 $151.2

10) Total Fina

Social Responsibility
Social Obligations School Maximize profits Stay within boundaries of law
The Friedman view

Social Reaction School Maximize profits, and at the same time.

Ensure the organizations survival by responding to "currently prevailing social norms, values, and performance expectations." Social Responsiveness School Corporations should prevent and solve social problems Corporations can prevent and solve social problems
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Milton Friedman
The Social Responsibility of Business is to Increase its Profits

1) A corporation is an artificial person thus, unlike a real person, it has no ethical or moral obligations 2) Managers are responsible to owners: That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embedded in ethical custom

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Freidmans Reasoning, continued

3) 4) Individual managers fulfill their private ethical / moral obligations from their personal resources If managers are to spend money on public uses, they must be accountable, just as are politicians. The analogy here is with taxation; by spending money pf public uses, the manger is in effect taxing employees, customers and owners for the benefit of society as a whole For Freidman, this is socialist -- using political mechanisms, not market mechanismsthe appropriate way to determine the allocation of scare resources to alternate uses

5)

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Friedman, Finale
6) Further, if business social spending (the specific expenditures) were a good ides (accepted by society), it would be a public responsibility and funded through taxes However, an organization may legitimately spend money on what may be perceived as social responsibility, but where there is a benefit to the firm (for example, funding education) Thus, corporations are judged solely by financial performance, as defined by the owners / shareholders

7)

8)

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The Stakeholder Approach

How do we solve the problem of the free rider? Organizations and people are bound together in a network of mutual relationships Stakeholders Those people or groups essential to an organizations success Those people or groups affected by what an organization does People with a legitimate interest An organization is obligated (duty) to consider the interests of stakeholders

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Who Are the Stakeholders?

Primary and secondary (how close are they to the organization?) Who?
Management Employees Owners Local community Suppliers Customers

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Taking a Stand
Looking at costs
Short term vs. the long term

Examples:
Doing well by doing good: Costco Public relations: Sara Lee Environmental cost savings

Obligation to just the stockholders or to employees, and society as a whole ?????? Management values

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Levels of Social Obligation

Obstructionist Fight all the way

Proactive
Take social initiatives Accommodating

Defensive
Do only what is legally required

Accept ethical responsibility

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Values-Based Management
Using shared values as a basis for management decision-making Examples
Levi Strauss Body Shop ServiceMaster

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