Chapter 5

Social Responsibility and Managerial Ethics

LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter.

• 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 (cont’d)
Follow this Learning Outline as you read and study this chapter.

• Social Responsibility and Economic Performance
– Explain what research studies have shown about the relationship between an organization’s social involvement and its economic performance.

LEARNING OUTLINE (cont’d)
Follow this Learning Outline as you read and study this chapter.

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

LEARNING OUTLINE (cont’d)
Follow this Learning Outline as you read and study this chapter.

• Managerial Ethics
– Contrast the four views of ethics. – Discuss the factors that affect ethical and unethical behaviour. – 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 behaviour. – 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? (cont’d)
• The Socio-economic View
– Management should also protect and improve society’s welfare – Corporations are responsible not only to stockholders – Firms have a moral responsibility to larger society “to do the right thing”

Exhibit 4.1 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.

Exhibit 4.2 Arguments For and Against Social Responsibility
• For • Against – Public expectations – Violation of profit – Long-run profits – Ethical obligation maximization – Public image – Dilution of purpose – Better environment – Costs – Discouragement of further – Too much power governmental regulation – Lack of skills – Balance of responsibility and power – Lack of accountability – Stockholder interests – Possession of resources – Superiority of prevention over cure

Values-based Management
• Values-based Management
– Managers establish and uphold an organization’s shared values

• Purposes of Shared Values
– – – – Guiding managerial decisions Shaping employee behaviour Influencing the direction of marketing efforts Building team spirit

• The Bottom Line on Shared Corporate Values
– An organization’s values are reflected in the decisions and actions of its employees

Exhibit 4.3 Purposes of Shared Values
SHARED ORGANIZATIONAL VALUES

Guide Managers' Decisions and Actions

Shape Employee Behavior

Influence Marketing Efforts

Build Team Spirit

Exhibit 4.4 Stated Values of Organizations

Core Value
Customer satisfaction Ethics/integrity Accountability Respect for others Open communication Profitability Teamwork Innovation/change Continuous learning Positive work environment Diversity Community service Trust Social responsibility Security/safety Empowerment Employee job satisfaction Have fun

Percentage of Respondents
77% 76% 61% 59% 51% 49% 47% 47% 43% 42% 41% 38% 37% 33% 33% 32% 31% 24%

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 (cont’d)
• Utilitarian View
– Greatest good is provided for the greatest number
• Encourages efficiency and productivity and is consistent with the goal of profit maximization

• 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 (cont’d)
• 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

• 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

Exhibit 4.5 Factors That Affect Ethical and Unethical Behaviour
Individual Characteristics Issue Intensity

Ethical Dilemma

Stage of Moral Development

Moderators

Ethical/Unethical Behavior

Structural Variables

Organizational Culture

Factors That 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

Exhibit 4.6 Stages of Moral Development
Level Principled Description of Stage 6. Following self-chosen ethical principles even if they violate the law 5. Valuing rights of others and upholding absolute values and rights regardless of the majority ’s opinion Conventional 4. Maintaining conventional order by fulfilling obligations to which you have agreed 3. Living up to what is expected by people close to you Preconventional 2. Following rules only when doing so is in your immediate interest 1. Sticking to rules to avoid physical punishment

Source: Based on L. Kohlberg, “Moral Stages and Moralization: The CognitiveDevelopment Approach,” in T. Lickona (ed.). Moral Development and Behavior: Theory, Research, and Social Issues (New York: Holt, Rinehart & Winston, 1976), pp. 34–35.

Factors That Affect Employee Ethics
• • • • • Stages of moral development Individual characteristics Structural variables Organizational culture Issue intensity
Stage of moral development interacts with: Individual characteristics The organization’s structural design The organization’s culture The intensity of the ethical issue

Factors That 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 That 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 person’s convictions

Factors That 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 That 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 organization’s culture –Intensity of the ethical issue

Factors That 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 That 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

Exhibit 4.7 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

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 labor • Principle 5: Abolish child labor • 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 (cont’d)
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

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

Code of Ethics
• A formal statement of an organization’s primary values and the ethical rules it expects its employees to follow
– Be a dependable organizational citizen – Don’t 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

Exhibit 4.8 Examining Ethics

Ethical Leadership
• 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 – Rewarding employees who behave ethically and punishing those who do not – Protecting employees (whistleblowers) who bring to light unethical behaviours or raise ethical issues

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

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