SPE3002/SPK5002 COMMERCE AND ENTREPRENEURSHIP

Week 7 21 - 27 August 2006

AGENDA Entrepreneurship Education

Social Responsibility and Managerial Ethics

Social Responsibility and Managerial Ethics

LEARNING OUTLINE
.

What Is Social Responsibility?

Contrast the classical and socio-economic views of social responsibility. Discuss the role that stakeholders play in the four approaches to social responsibility.

LEARNING OUTLINE (contd)

Social Responsibility and Economic Performance
Explain what research studies have shown about the relationship between an organizations social involvement and its economic performance.

LEARNING OUTLINE (contd) .

Values-based Management
Discuss the four purposes that shared values serve. Describe the relationship of values-based management to ethics.

LEARNING OUTLINE (contd)

Managerial Ethics
Contrast the four views of ethics.
Discuss the factors that affect ethical and unethical behavior. Discuss the six determinants of issue intensity. Explain codes of ethics and how their effectiveness can be improved. Describe the important roles managers play in encouraging ethical behavior. Discuss how managers and organizations can protect employees who raise ethical issues or concerns.

What Is Social Responsibility?

The Classical View
Maximize profits for the benefit of the stockholders Doing social good unjustifiably increases costs

What Is Social Responsibility? (contd)

The Socio-economic View
Management should also protect and improve societys welfare Corporations are responsible not only to stockholders Firms have a moral responsibility to larger society to do the right thing

Approaches to Social Responsibility

Obstructionist Approach Disregard for social responsibility Defensive Approach Minimal commitment to social responsibility Accommodative Approach Moderate commitment to social responsibility Proactive Approach Strong commitment to social responsibility

No Social Responsibility

High Social Responsibility

Source: Adapted from S.L. Wartick and P.L. Cochran, The Evolution of the Corporate Social Performance Model, Academy of Management Review, October 1985, p. 766.

Arguments For and Against Social Responsibility

For
Public expectations Long-run profits Ethical obligation Public image Superiority of prevention over cure

For
Better environment Discouragement of further governmental regulation Balance of responsibility and power Stockholder interests Possession of resources

Arguments For and Against Social Responsibility

Against
Violation of profit maximization Dilution of purpose Costs Too much power Lack of skills Lack of accountability

Values-based Management
Values-based Management Managers establish and uphold an organizations shared values Purposes of Shared Values Guiding managerial decisions Shaping employee behavior Influencing the direction of marketing efforts Building team spirit The Bottom Line on Shared Corporate Values An organizations values are reflected in the decisions and actions of its employees

Purposes of Shared Values

SHARED ORGANIZATIONAL VALUES

Guide Managers' Decisions and Actions

Shape Employee behavior

Influence Marketing Efforts

Build Team Spirit

Stated Values of Organizations

Core Value
Percentage of Respondents

Core Value

Percentage of Respondents 42% 41% 37% 33% 32% 31% 24%

Cust. satisfaction 77% Ethics/integrity Accountability Respect others Open comm. Profitability Teamwork Innovation Cont. learning 76% 61% 59% 51% 49% 47% 47% 43%

Positive environ. Diversity Trust Security/safety Empowerment Job satisfaction Have fun

Community service 38% Social responsibility 33%

Source: AMA Corporate Values Survey, (www.amanet.org), October 30, 2002.

Managerial Ethics
Ethics Defined
The rules and principles that define right and wrong conduct

Four Views of Ethics

Utilitarian view Rights view Theory of justice view Integrative social contracts theory

Managerial Ethics (contd)

Utilitarian View
Greatest good is provided for the greatest number
Encourages efficiency and productivity and is consistent with the goal of profit maximization

Managerial Ethics (contd)

Rights View
Respecting and protecting individual liberties and privileges
Seeks to protect individual rights of conscience, free speech, life and safety, and due process

Managerial Ethics (contd)

The Theory of Justice Organizational rules are enforced fairly and impartially and follow all legal rules and regulations Protects the interests of underrepresented stakeholders and the rights of employees

Managerial Ethics (contd)

Integrative Social Contracts Theory Ethical decisions should be based on existing ethical norms in industries and communities Based on integration of the general social contract and the specific contract between community members

Factors That Affect Ethical and Unethical Behavior

Individual Characteristics Issue Intensity Ethical Dilemma Stage of Moral Development Ethical/Unethical Behavior

Moderators

Structural Variables

Organizational Culture

Factors Affect Employee Ethics

Stages of moral development Individual characteristics Structural variables Organizational culture Issue intensity
A measure of independence from outside influences

Levels of Individual Moral Development Pre-conventional level Conventional level Principled level

Factors Affect Employee Ethics

Stages of moral development Individual characteristics Structural variables Organizational culture Issue intensity
Stage of moral development interacts with: Individual characteristics The organizations structural design The organizations culture The intensity of the ethical issue

Stages of Moral Development

Lev el Principled Description of Stage 6. Following self -chosen ethical principles ev en if they v iolate the law 5. Valuing rights of others and upholding absolute v alues and rights regardless of the majority s opinion Conv entional 4. Maintaining conv entional order by f ulf illing obligations to which y ou hav e agreed 3. Liv ing up to what is expected by people close to y ou Preconv entional 2. Following rules only when doing so is in y our immediate interest 1. Sticking to rules to av oid phy sical punishment

Source: Based on L. Kohlberg, Moral Stages and Moralization: The Cognitive-Development Approach, in T. Lickona (ed.). Moral Development and Behavior: Theory, Research, and Social Issues (New York: Holt, Rinehart & Winston, 1976), pp. 3435.

Factors Affect Employee Ethics

Stages of moral development Individual characteristics Structural variables Organizational culture Issue intensity
Research Conclusions:
People proceed through the stages of moral development sequentially There is no guarantee of continued moral development Most adults are in Stage 4 (good corporate citizen)

Factors Affect Employee Ethics

Stages of moral development Individual characteristics Structural variables Organizational culture Issue intensity
Values
Basic convictions about what is right or wrong on a broad range of issues

Ego strength

A personality measure of the strength of a persons convictions

Factors Affect Employee Ethics

Stages of moral development Individual characteristics Structural variables Organizational culture Issue intensity
Locus of Control A personality attribute that measures the degree to which people believe they control their own life
Internal locus: the belief that you control your destiny External locus: the belief that what happens to you is due to luck or chance

Factors Affect Employee Ethics

Stages of moral development Individual characteristics Structural variables Organizational culture Issue intensity
Organizational characteristics and mechanisms that guide and influence individual ethics:
Performance appraisal systems Reward allocation systems Behaviors (ethical) of managers An organizations culture Intensity of the ethical issue

Factors Affect Employee Ethics

Stages of moral development Individual characteristics Structural variables Organizational culture Issue intensity
Good structural design minimizes ambiguity and uncertainty and fosters ethical behavior

Factors Affect Employee Ethics

Stages of moral development Individual characteristics Structural variables Organizational culture Issue intensity
Cultures high in risk tolerance, control, and conflict tolerance are most likely to encourage high ethical standards
Weak cultures have less ability to encourage high ethical standards

Determinants of Issue Intensity

How much agreement is there that this action is wrong? How many people will be harmed? How likely is it that this action will cause harm?

Consensus of Wrong

Greatness of Harm
Issue Intensity Concentration of Effect
How concentrated is the effect of the action on the victim(s)?

Probability of Harm

Immediacy of Consequences Proximity to Victim(s)

Will harm be felt immediately?

How close are the potential victims?

Ethics in an International Context

Ethical standards are not universal
Social and cultural differences determine acceptable Behaviors

The Global Compact

Human Rights
Principle 1: Support and respect the protection of international human rights within their sphere of influence Principle 2: Make sure business corporations are not complicit in human rights abuses
Source: The Global Compact Web Site (www.unglobalcompact.org), November 7, 2004.

The Global Compact

Labor Standards
Principle 3: Freedom of association and the effective recognition of the right to collective bargaining Principle 4: Eliminate all forms of forced and compulsory labour Principle 5: Abolish child labour Principle 6: Eliminate discrimination in respect of employment and occupation
Source: The Global Compact Web Site (www.unglobalcompact.org), November 7, 2004.

The Global Compact (contd)

Environment
Principle 7: Support a precautionary approach to environmental challenges Principle 8: Undertake initiatives to promote greater environmental responsibility Principle 9: Encourage the development and diffusion of environmentally friendly technologies
Source: The Global Compact Web Site (www.unglobalcompact.org), November 7, 2004.

The Global Compact (contd)

Anticorruption
Principle 10: Work against all forms of corruption, including extortion and bribery

Source: The Global Compact Web Site (www.unglobalcompact.org), November 7, 2004.

How To Improve Ethical Behavior in an Organization

Hire individuals with high ethical standards.

Establish codes of ethics and decision rules.

Lead by example. Delineate job goals and performance appraisal mechanisms.

How To Improve Ethical Behavior in an Organization

Provide ethics training. Conduct independent social audits. Provide support for individuals facing ethical dilemmas.

Code of Ethics
A formal statement of an organizations primary values and the ethical rules it expects its employees to follow Be a dependable organizational citizen Dont do anything unlawful or improper that will harm the organization Be good to customers

Source: F.R. David, An Empirical Study of Codes of Business Ethics: A Strategic Perspective.

Paper presented at the 48th Annual Academy of Management Conference, Anaheim, California, August 1988.

Effective Use of a Code of Ethics

Develop a code of ethics to guide decision making Communicate the code regularly Have all levels of management show commitment to the code Publicly reprimand and consistently discipline those who break the code

Examining Ethics

Managers must provide a good role model by: Being ethical and honest at all times Telling the truth Admitting failure and not trying to cover it up Communicating shared ethical values to employees through symbols, stories, and slogans

Ethical Leadership

Managers must provide a good role model by: Rewarding employees who behave ethically and punishing those who do not Protecting employees (whistleblowers) who bring to light unethical behaviors or raise ethical issues

Ethical Leadership

The Value of Ethics Training

Training can make a difference in ethical behaviors Training increases employee awareness of ethical issues in business decisions Training clarifies and reinforces the standards of conduct Employees are more confident of support when taking unpopular but ethically correct stances