Chapter 6

Ethics and Corporate Social Responsibility

Ethics:
A set of rules and values that define right and wrong conduct. They indicate when behavior is acceptable and when it is unacceptable.

Moral Principles
Moral principles prescribe rules of acceptable behavior that are intended to be impartial.

Moral Principles dive the rules of ethics

Ethical vs. Unethical Decisions

Ethical decision reasonable and acceptable because it aids stakeholders, organization, and society. Unethical decision- decision that a manager would prefer to disguise or hide from other people because of individual gain is placed above others needs. Rules of thumb

Ethical Perspectives for Evaluating Behavior

Societal Organizational

Legal

Individual Adapted from Figure 6.1

Societal Perspective
Societal Ethics standards that govern how members of a society are to deal with each other on issues of fairness, justice, poverty, and individual rights. The idea of what is ethical behavior is largely influenced by the society in which the behavior occurs. Various public opinion surveys suggest a growing disenchantment with the lack of ethical behavior

Legal Perspective
Laws: societys values and standards that are enforceable in the courts. Employment-at-will: a traditional commonlaw concept holding that employers are free to discharge employees for any reason at any time and that employees are free to quit their jobs for any reason at any time.

Legal Perspective (Ctd.)

Ethics are not laws by any means, simply beliefs about what is right or wrong. Legality of actions and decisions doesnt make them ethical Laws move with the current culture and moral principles Lag behind because they are written and set Do no ensure or even promote ethical behavior Often laws and ethics are in conflict

Examples of Law/Ethical Difference

Students borrowing and investing money Caveat emptor-buyer beware Reputation-costs and benefits

Organizational Perspective
To provide guidance for employees, an organization can define ethical and unethical behaviors.

Organizations can also guide employee actions both formally and informally.

Individual Perspective
Despite prevalent societal, legal, and organizational interpretations of what is ethical, individuals have their own values and a sense of what is right or wrong. Lawrence Kohlberg Suggested people develop morally, much as they do physically, from early childhood to adulthood. As they develop, their ethical criteria and patterns of moral reasoning go through stages of moral development

Individual Perspective (Ctd.)

Stages of moral development: according to Kohlberg, people develop morally by going through six stages of moral development: obedience and punishment, instrumental, interpersonal, law and order, social contract, and universal principles.

Kohlbergs Stages of Moral Development

Universal Principles

Social Contract Law & Order Interpersonal Instrumental Obedience & Punishment
Childhood--------------Through-----------------Adulthood
Adapted from Figure 6.2

Kohlbergs Stages (Ctd.)

1. Obedience and punishment: person does the right thing mainly to avoid punishment or to obtain approval. 2. Instrumental: person becomes aware that others also have needs and begins to defer to them to get what the individual wants. 3. Interpersonal: person considers appropriate behavior as what pleases, helps, or is approved by friends or family.

Kohlbergs Stages (Ctd.)

4. Law & Order: person recognizes that ethical behavior is not determined only by reference to friends, family, co-workers, or others whose opinions the individual might value. 5. Social Contract: person is aware that people hold a variety of conflicting personal views that go beyond the letter of the law. 6. Universal Principles: person views appropriate conduct as determined by a persons conscience, based on universal ethical principles.

Ethical Models

Utilitarian
IDEAL
Outcome

Justice

Moral Rights

Adapted from Fig 6.5

Utilitarian Model
Greatest good for the greatest number, but many hurt a few. Milton Friedman is the best-known advocate of this approach. All employees should strive to increase the companys profits.

Parts to Utilitarian Model

(Organizational Goals): focusing on maximizing profits. Profits are seen as the reward for satisfying customers. (Efficiency): achieved by both minimizing inputs (e.g. labor, land, and capital) and maximizing productive outputs. (Conflicts of Interest): by having a financial interest in a supplier a purchasing agent might be more likely to buy from his supplier even if its not in the companies best interest.

Moral Rights Model

Judging decisions and behavior by their consistency with fundamental personal and group liberties and privileges.
(Life and Safety): Employees, customers, and public have the right not to have their lives and safety endangered. (Truthfulness): They have the right not to be intentionally deceived on matters about which they should be informed. (Privacy): Citizens have the right to control access to personal information.

Moral Rights Model (Ctd.)

(Free Speech): Employees have the right to criticize the ethics or legality of their employers actions.
(Private Property): This right allows people to acquire, use, and dispose of shelter and have lifes basic necessities.

Justice Model
Judging decisions an behavior by their consistency with an equitable, fair, and impartial distribution of benefits (rewards) and costs among individuals and groups.
Distributive Justice Principle: moral requirement that individuals not be treated differently because of arbitrarily defined characteristics.

Justice Model (Ctd.)

Fairness Principle: moral requirement that employees support the rules of the organization when certain conditions are met. Natural Duty Principle: moral requirement that decisions and behaviors be based on a variety of universal obligations.

Society and the Environment

Sustainable development: conducting business in a way that protects the natural environment while making economic progress. This model of thought has increased environmental issues both internally and externally for corporations such as 3M, Kodak, and McDonalds. Now include ethical principles of industrial ecology in their strategic plans.

Example from 3M
1. Solve its own pollution and conservation problems beyond compliance requirements. 2. Prevent pollution at the source, whenever possible 3. Conserve natural resources through waste reclamation and other methods 4. Assist regulatory and government agencies concerned with environment 5. Develop products that are ecologically friendlier

Stakeholder Theory
Stakeholders: individuals or groups that have interests, rights, or ownership in an organization or the activities. A broad category that covers a lot of individuals and groups. Some groups are more important to the organization and its success.

Stakeholders of the Organization

Customers Employees Owners

Unions

Suppliers

Government Strategic Partners

Local Community Society Adapted from Figure 6.3

Stakeholders Concerns
Stakeholder Group
* Owners and Investors

Examples of Concerns
Financial Soundness Consistency in meeting shareholder expectations Sustained profitability Average return on assets over five-year period Timely and accurate disclosure of financial information

Stakeholders Concerns (Ctd.)

Stakeholder Group
* Customers Examples of Concerns * Product/service quality, innovativeness, and availability *responsible management of defective or harmful products/services *Safety records for products/services *Pricing policies and practices * Honest, accurate , and responsible advertising.

Stakeholders Concerns (Ctd.)

Stakeholder Group
* Employees

Examples of Concerns

Nondiscriminatory, meritbased hiring and promotion Diversity of the workforce Wage and salary levels and equitable distribution Availability of training and development Workplace safety and privacy

Stakeholders Concerns (Ctd.)

Stakeholder Group
* Community

Examples of Concerns
Environmental Issues Environmental sensitivity in packaging and product design Recycling efforts and use of recycled materials Pollution prevention Global applications of environmental standards

Stakeholders Concerns (Ctd.)

Stakeholder Group
* Community (Ctd.) Examples of Concerns Community Involvement Percentage of profits designated for cash contributions Innovation and creativity in philanthropic efforts Product donations Availability of facilities and other assets for community use Support for employee volunteer efforts.

Evaluating Corporate Social Performance

Fortune magazine founded Ron Brown Award for Corporate Leadership in Ethics

Demonstrates corporate leadership in Employee and Community Relations (Ethics)

Affirmative Social Responsibility

Ron Brown Award wants corporations and their leaders to move away from traditional, utilitarian models of business and take a more proactive stance with regard to society.

Affirmative Social Responsibility (Ctd.)

5 steps: 1. Broad Performance Criteria 2. Ethical Norms 3. Operating Strategy 4. Response to Social Pressures 5. Legislative and Political Activities

Affirmative Social Responsibilities (Ctd.)

Taking this approach requires companies to implement five different an expensive behaviors: 1. Broad Performance Criteria: management and employees must recognize broader views to measure growth. 2. Ethical norms: managers and employees must take definite stands on issues of public concerns. 3. Operating strategy: managers and employees should maintain or improve current standards of the physical and social environment.

 4. Response to social pressures: management and employees should accept responsibilities for solving current problems. 5. Legislative and Political Activities: Managers must show a willingness to work with outside stakeholders for enforcement.

Ctd.
Social audit: an attempt to identify and measure, evaluate, report on, and monitor the effects that an organization is having on its stakeholders and society.

Conflict
Difficult to balance all stakeholder problems. Owls vs. Lumber Pollution vs. Jobs Politics vs. Profits Firms might not know of a stakeholder until there is a problem

Whistle-blowing
Reporting unethical or illegal behavior. Has many consequences/risks When should you blow the whistle? Table 6.3 (p. 208)

Whistle-blowing (Ctd.)
Will not happen if: 1. If allegation of wrongdoing has little or no merit. 2. Accusations are made to someone outside the company. 3. Whistle-blower has no help from middle or top management.

Sexual Harassment
Quid pro quo : asking for or forcing sexual contact with an employee in exchange for reward or to avoid punishment.
Hostile work environment: lewd jokes, pornography, sexually oriented remarks about ones appearance making that person uncomfortable.