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CHAPTER 5

MANAGING ETHICS AND SOCIAL RESPONSIBILITY

CHAPTER OUTLINE

What is Your Level of Ethical Maturity?


I. What Is Managerial Ethics?
A. Ethical Management Today
B. The Business Case for Ethics and Social Responsibility
II. Ethical Dilemmas: What Would You Do?
III. Frameworks for Ethical Decision Making
IV. The Individual Manager and Ethical Choices
A. The Stages of Moral Development
B. Givers Versus Takers
New Manager Self-Test: Are You a Giver or a Taker?
V. What Is Corporate Social Responsibility?
A. Organizational Stakeholders
B. The Green Movement
C. Sustainability and the Triple Bottom Line
VI. Evaluating Corporate Social Responsibility
VII. Managing Company Ethics and Social Responsibility
A. Code of Ethics
B. Ethical Structures
C. Whistle-Blowing

ANNOTATED LEARNING OBJECTIVES


After studying this chapter, students should be able to:

1. Define ethics and explain how ethical behavior relates to behavior governed by law and free
choice.

Ethics is difficult to define in a precise way. In a general sense, ethics is the code of moral
principles and values that govern the behaviors of a person or group with respect to what is right
or wrong. Ethics sets standards as to what is good or bad in conduct and decision making.
Human behavior falls into three categories. The first is codified law, in which values and
standards are written into the legal system and enforceable in the courts. The domain of free
choice is at the opposite end of the scale and pertains to behavior about which law has no say and
for which an individual or organization enjoys complete freedom. Between these domains lies
the area of ethics. This domain has no specific laws, yet it does have standards of conduct based
on shared principles and values about moral conduct that guide an individual or company.

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80 Chapter 5

2. Discuss why ethics is important for managers and identify recent events that call for a
renewed commitment to ethical management.

The pervasiveness of ethical lapses during the first decade of this century has been astounding.
Although public confidence in business managers in particular is at an all-time low, politics,
sports, and non-profit organizations have also been affected. In the business world, the names of
once-revered corporations have become synonymous with greed, deceit, irresponsibility, and
lack of moral conscience. Managers carry a tremendous responsibility for setting the ethical
climate in an organization and can act as role models for others. The widespread ethical lapses
of the past decade have put managers under increasing scrutiny.

Some of these ethical lapses include the failures that occurred at AIG, Lehman Brothers, Enron,
Bear Sterns, Countrywide, and Worldcom. Unethical decisions made by managers at these and
other companies, resulted in losses of huge sums of money by stockholders, employees, and
investors. In some cases, the company itself was destroyed.

3. Explain the utilitarian, individualism, moral rights, justice, virtue ethics, and practical
approaches for making ethical decisions.

The utilitarian approach holds that moral behaviors produce the greatest good for the greatest
number. In this approach, a decision maker is expected to consider the effect of each decision
alternative on all parties and select the one that optimizes satisfaction for the greatest number of
people.

The individualism approach contends that acts are moral when they promote the individual’s best
long-term interests. Individuals calculate the best long-term advantage to themselves as a
measure of a decision’s goodness. The action that is intended to produce a greater ratio of good
to bad for the individual compared with other alternatives is the right one to perform.

The moral- rights approach asserts that people have fundamental rights and liberties that cannot
be taken away by an individual’s decision. Thus, an ethically correct decision is one that best
maintains the rights of those affected by it. These rights include the right of free consent, the
right to privacy, the right of freedom of conscience, the right of free speech, the right to due
process, and the right to life and safety.

The justice approach holds that moral decisions must be based on standards of equity, fairness,
and impartiality. Three types of justice are of concern to managers. Distributive justice requires
that different treatment of people not be based on arbitrary characteristics. Procedural justice
requires that rules be administered fairly. Rules should be clearly stated and be consistently and
impartially enforced. Compensatory justice argues that individuals should be compensated for
the cost of their injuries by the party responsible. Individuals should not be held responsible for
matters over which they have no control.

The practical approach sidesteps debates about what is right, good, or just and bases decisions
on prevailing standards of the profession and the larger society, taking the interests of all
stakeholders into account. A decision would be considered ethical if it is one that would be

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considered acceptable by the professional community, one the manager would not hesitate to
publish on the evening news, and one that a person would typically feel comfortable explaining
to family and friends.

4. Describe the factors that shape a manager’s ethical decision making, including levels of
moral development.

Individual managers bring specific personality and behavioral traits to the job. Personal needs,
family influence, and religious background all shape a manager’s value system. Specific
personality characteristics, such as ego strength, self-confidence, and a strong sense of
independence may enable managers to make ethical decisions.

Organizational values are vitally important and corporate culture can exert a powerful influence
on behavior in organizations. Organizational culture provides ethical signals to employees.
Heroes provide role models that can support ethical decision making. High ethical standards are
affirmed through public awards and ceremonies. Myths and stories can reinforce heroic ethical
behavior. Other aspects of the organization such as rules and policies, the reward system, the
extent to which the company cares for its people, the selection system, emphasis on legal and
professional standards, and leadership and decision processes also impact on ethical decision
making.

At the preconventional level, a manager is concerned with external rewards and punishment and
obeys authority to avoid detrimental personal consequences. These managers are likely to be
autocratic or coercive.

At the conventional level, managers learn to conform to expectations of good behavior as defined
by colleagues, friends, family, and society. These managers are interested in interpersonal
relationships and cooperation.

At the postconventional level (also called principled level), individuals develop an internal set of
standards and values and will disobey rules or laws that violate these principles. Internal values
are more important than expectations of significant others. These managers typically use a
transformative or servant leadership style.

5. Identify important stakeholders for an organization and discuss how managers balance the
interests of various stakeholders.

A stakeholder is any group within or outside the organization that has a stake in the
organization’s performance. Each stakeholder has a different criterion of responsiveness because
it has a different interest in the organization. Important stakeholders include investors,
employees, customers, owners, creditors, suppliers, and investors. When any primary
stakeholder group becomes seriously dissatisfied, the organization’s viability is threatened.

6. Explain the philosophy of sustainability, including the triple bottom line, and why
organizations are embracing it.

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82 Chapter 5

Sustainability refers to economic development that generates wealth and meets the needs of the
current generation while saving the environment so future generations can meet their needs as
well. With a philosophy of sustainability, managers weave environmental and social concerns
into every strategic decision, revise policies and procedures to support sustainability efforts, and
measure their progress toward sustainability goals.

The triple bottom line refers to measuring an organization’s social performance, its
environmental performance, and its financial performance. This is sometimes called the three Ps:
People, Planet, and Profit. The People part of the triple bottom line looks at how socially
responsible the organization is in terms of fair labor practices, diversity, supplier relationships,
treatment of employees, contributions to the community, and so forth. The Planet aspect
measures the organization’s commitment to environmental sustainability. The third P looks at
the organization’s profit, the financial bottom line. Based on the principle that what you measure
is what you strive for and achieve, using a triple bottom line approach to measuring performance
ensures that managers take social and environmental factors into account rather than blindly
pursuing profit, no matter the cost to society and the natural environment.

Organizations are embracing the philosophy of sustainability because they are finding that they
can create wealth at the same time they are preserving natural resources. A good example of this
is when companies develop innovative ways to sell waste from production processes that they
once paid to have hauled away.

7. Define corporate social responsibility and how to evaluate it along economic, legal, ethical,
and discretionary criteria.

Social responsibility is management’s obligation to make choices and take actions that will
contribute to the welfare and interests of society as well as to the welfare and interests of the
organization. It means being a good corporate citizen. Social responsibility can be evaluated
along four criteria.

Economic. The economic responsibility of a business is to produce the goods and services that
society wants and to maximize profits for its owners and shareholders. The purely
profit-maximizing view is no longer considered an adequate criterion of performance in Canada,
the United States, and Europe.

Legal. Legal responsibility defines what society deems acceptable with respect to appropriate
corporate behavior. Businesses are expected to fulfill their economic goals within the legal
framework.

Ethical. Ethical responsibility includes behaviors that are not necessarily codified into law and
may not serve the corporation’s direct economic interests. Unethical behavior occurs when
decisions enable an individual, group, or company to gain at the expense of society.

Discretionary. Discretionary responsibility is purely voluntary and guided by a company’s


desire to make social contributions not mandated by economics, law, or ethics. Discretionary

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activities include philanthropic contributions that offer no direct financial payback to the
company and are not expected.

8. Discuss how ethical organizations are created through ethical leadership and organizational
structures and systems.

Management is responsible for creating and sustaining conditions in which people are likely to
behave themselves. Managers must take active steps to ensure that the company stays on an
ethical footing. Management methods for helping organizations be more responsive include
leadership by example, codes of ethics, ethical structures, and supporting whistle-blowers.

LECTURE OUTLINE

WHAT IS YOUR LEVEL OF ETHICAL MATURITY?

It probably won’t happen right away, but soon enough students will find in their duties as a new
manager that they will be confronted with a situation that will test the strength of their moral
beliefs or their sense of justice. Will they be ready? To find out, students will think about times
when they were part of a student or work group. They will decide to what extent does each of the
statements in this exercise characterizes their behavior when working with others in a group.

I. WHAT IS MANAGERIAL ETHICS? Exhibit 5.1

Ethics is the code of moral principles and values that govern the behaviors of a person or
group with respect to what is right or wrong. Ethics sets standards as to what is good or bad
in conduct and decision making. Ethics deals with internal values that are a part of corporate
culture and shape decisions concerning social responsibility with respect to the external
environment. Human behavior falls into three categories.

 Codified law. Values and standards are written into the legal system and are enforceable
in the courts. Lawmakers have ruled that people and corporations must behave in a
certain way such as obtaining licenses for cars or paying taxes.

 Free choice. Free choice pertains to behavior about which law has no say and for which
an individual or organization enjoys complete freedom.

 Ethics. Ethics lies between the domains of codified law and free choice. It has no
specific laws, but does have standards of conduct that are based on shared principles and
values about moral conduct that guide an individual or company. Because ethical
standards are not codified, disagreements and dilemmas about proper behavior often
occur.

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84 Chapter 5

A. Ethical Management Today Exhibit 5.2

1. The pervasiveness of ethical lapses during the first decade of this century has been
astounding. Although public confidence in business managers in particular is at an
all-time low, politics, sports, and non-profit organizations have also been affected. In
the business world, the names of once-revered corporations have become
synonymous with greed, deceit, irresponsibility, and lack of moral conscience.

2. Managers carry a tremendous responsibility for setting the ethical climate in an


organization and can act as role models for others. The widespread ethical lapses of
the past decade have put managers under increasing scrutiny.

3. One hot-button ethical issue concerns excessive executive compensation.

B. The Business Case for Ethics and Social Responsibility

1. The relationship of ethics and social responsibility to an organization’s


financial
performance concerns has generated hundreds of studies. Studies have provided varying
results, but they have generally found a positive relationship between ethical and
socially responsible behavior and a firm’s financial performance.

2. Companies are making an effort to measure the nonfinancial factors that create
value. Researchers find that people prefer to work for companies that demonstrate a
high
level of ethics and social responsibility; thus, these organizations can attract and retain
high-quality employees.

II. ETHICAL DILEMMAS: WHAT WOULD YOU DO?

An ethical dilemma arises in a situation concerning right or wrong when values are in
conflict and right and wrong cannot be clearly defined. The individual who must make an
ethical choice in an organization is the moral agent.

Discussion Question #1: Is it reasonable to expect that managers can measure their social and
environmental performance on the same level as they measure their financial performance with
a triple bottom line? Discuss.

NOTES________________________________________________________________________
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III. CRITERIA FOR ETHICAL DECISION MAKING

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Managers faced with tough ethical choices often benefit from a normative strategy based on
norms and values to guide their decision making. Normative ethics is based on norms and
values. Five approaches are relevant for managers in making ethical decisions.

A. Utilitarian Approach

1. The utilitarian approach holds that moral behavior produces the greatest good for
the greatest number. The decision maker is expected to consider the effect of each
decision alternative on all parties and select the one that will optimize satisfaction for
the greatest number of people.

B. Individualism Approach

1. The individualism approach contends that acts are moral when they promote the
individual’s best long-term interests. Individualism is believed to lead to honesty and
integrity because that works best in the long run. Because individualism is easily
misinterpreted to support immediate self-gain, it is not popular in the highly
organized and group-oriented society of today.

C. Moral Rights Approach

1. The moral-rights approach asserts that human beings have fundamental rights that
cannot be taken away by an individual’s decision. An ethically correct decision is one
that best maintains the rights of those people affected by it. To make ethical
decisions, managers need to avoid interfering with the fundamental rights of others,
such as the right to privacy, the right of free consent, or the right to freedom of
speech.

D. Justice Approach

1. The justice approach holds that moral decisions must be based on standards of
equity, fairness, and impartiality. Three types of justice are of concern to managers.

a. Distributive justice requires that different treatment of people not be based on


arbitrary characteristics. Men and women should not receive different salaries if
they are performing the same job; however, people who differ in a substantive
way can be treated differently.

b. Procedural justice requires that rules be administered fairly. Rules should be


clearly stated and be consistently and impartially enforced.

c. Compensatory justice argues that the party responsible should compensate


individuals for the cost of their injuries. Individuals should not be held
responsible for matters over which they have no control.

E. Practical Approach

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86 Chapter 5

1. The practical approach sidesteps debates about what is right, good, or just and bases
decisions on prevailing standards of the profession and the larger society, taking the
interests of all stakeholders into account. A decision would be considered ethical if it
is one that would be considered acceptable by the professional community, one the
manager would not hesitate to publish on the evening news, and one that a person
would typically feel comfortable explaining to family and friends.

Discussion Question #5: Managers at some banks and mortgage companies have argued that
providing subprime mortgages was based on their desire to give poor people a chance to
participate in the American dream of home ownership. What is your opinion of this explanation
in terms of ethics and social responsibility?

NOTES________________________________________________________________________
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IV. THE INDIVIDUAL


V. MANAGER AND ETHICAL CHOICES

Organizational factors such as an unethical corporate culture and pressure from superiors and
colleagues can induce employees to behave unethically. Moreover, when people experience
organizational pressure to go against their sense of what is right, they typically become
frustrated and emotionally exhausted.

The manager brings specific personality and behavioral traits to the job. Personal needs,
family influence, and religious background all shape a manager’s value system. Personality
characteristics, such as ego strength, self-confidence, and a strong sense of independence
may enable managers to make ethical decisions.

A. The Stages of Moral Development Exhibit 5.3

1. Preconventional level. At this level a manager is concerned with external rewards


and punishment and obeys authority to avoid detrimental personal consequences.
These managers are likely to be autocratic or coercive.

2. Conventional level. At this level managers learn to conform to expectations of


good behavior as defined by colleagues, friends, family, and society. These managers
are interested in interpersonal relationships and cooperation.

3. Postconventional level (also called principled level). At this level individuals


develop
an internal set of standards and values and will disobey rules or laws that violate these
principles. Internal values are more important than expectations of significant others.
These managers typically use a transformative or servant leadership style.

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foruse as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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4. The great majority of managers operate at the conventional level. A few managers
have not advanced beyond the preconventional level. Only about 20 percent of
American adults reach the principled level of moral development.

B. Givers Versus Takers

1. When managers operate from a higher level of development, they may use a form of
servant leadership, focusing on the needs of followers and encouraging others to think
for themselves.

2. Research has shown that people will work harder and more effectively for people who
put others’ interests and needs above their own

3. The shift toward admiring and rewarding givers over takers can bring significant
positive changes within organizations. The simple categories of giver and taker help
people understand how they might contribute to or detract from an organization’s
ethical culture.

Discussion Question #3: Imagine yourself in a situation of being encouraged by colleagues to


inflate your expense account. What factors do you think would influence your choice? Explain.

NOTES________________________________________________________________________
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NEW MANAGER SELF-TEST: ARE YOU A GIVER OR A TAKER?

Managers differ in how they view other people and the tactics they use to get things done.
This exercise helps students view themselves and others. Their scores pertain to a concept that
was introduced by Robert Greenleaf in his book, Servant Leadership. Servant leadership means
that managers are “givers” and try to place service to others before self-interest, listen as a way
to care about others, and nourish others to help them become whole.

V. WHAT IS CORPORATE SOCIAL RESPONSIBILITY?

Social responsibility means distinguishing right from wrong. It means being a good
corporate citizen. Corporate social responsibility (CSR) is management’s obligation to
make choices and take actions that will contribute to the welfare and interests of society as
well as the organization. Social responsibility can be a difficult concept to grasp because
people have different beliefs as to which actions improve society’s welfare. Social
responsibility covers a wide range of issues that are ambiguous with regard to what is right or
wrong.

A. Organizational Stakeholders Exhibit 5.4

1. Enlightened organizations view the internal and external environment as having a


variety of stakeholders. A stakeholder is any group within or outside the
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88 Chapter 5

organization that has a stake in the organization’s performance. Each stakeholder has
a different criterion of responsiveness because it has a different interest in the
organization.

2. There is a growing interest in stakeholder mapping, a technique that provides a


systematic way to identify the expectations, needs, importance, and relative power of
various stakeholders.

3. The organization’s performance affects stakeholders. Socially responsible


organizations try to pay attention to all stakeholders who are affected by their actions.

4. Stakeholders can also have a tremendous effect on the organization’s performance


and success. Today, special interest groups continue to be one of the largest
stakeholder concerns that companies face. Environmental responsibility has become
a primary issue as both business and the public acknowledge the damage that has
been done to our natural environment.

Discussion Question #2: In September 2013, Tokyo Electric Power Company (Tepco) reported
highly contaminated water leaking from a storage tank at the Fukushima nuclear power plant
crippled in a March 2011 earthquake and tsunami. From what you know of the ongoing
Fukushima disaster, discuss the various stakeholder groups that Tepco should respond to in
order to handle this latest crisis

Discussion Question #4: Is it socially responsible for organizations to undertake political


activity or join with others in a trade association to influence the government? Discuss.

NOTES________________________________________________________________________
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B. The Green Movement

1. Going green has become a new business imperative, driven by shifting social
attitudes, new governmental policies, climate changes, and the information
technology that quickly spreads news of a corporation’s negative impact on the
environment. Energy is an area of ongoing concern for the green movement.

2. A recent survey found that 90 percent of Americans agree that there are important
“green” issues and problems, and 82 percent think that businesses should implement
environmentally friendly practices.

C. Sustainability and the Triple Bottom Line

1. Many corporations are embracing an idea called sustainability or sustainable


development. Sustainability refers to economic development that generates wealth
and meets the needs of the current generation while saving the environment so future

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generations can meet their needs as well. With a philosophy of sustainability,


managers weave environmental and social concerns into every strategic decision,
revise policies and procedures to support sustainability efforts, and measure their
progress toward sustainability goals.

2. The triple bottom line refers to measuring an organization’s social performance,


its environmental performance, and its financial performance. This is sometimes
called the three Ps: People, Planet, and Profit.

a. The first P, People, looks at socially responsible aspects including fair labor
practices, diversity, supplier relations, treatment of employees, and
contributions to community.

b. The second P, Planet, measures aspects such as the organization’s


commitment to environmental sustainability.

c. The third P, Profit, looks at the organization’s success in making sustainable


profits, the financial bottom line.

Based on the principles that what you measure is what you strive for and achieve,
using a triple bottom line approach to measuring performance ensures that managers
take social and environmental factors into account rather than blindly pursuing profit,
no matter the cost to society and the natural environment.

VI. EVALUATING CORPORATE SOCIAL RESPONSIBILITY Exhibit 5.5

A. Economic Responsibility

1. The first criterion of social responsibility is economic responsibility. The business


institution is the basic economic unit of society. Its responsibility is to produce the
goods and services that society wants and to maximize profits for its owners and
shareholders.

2. Economic responsibility carried to extreme is called the profit-maximizing view,


advocated by Nobel economist Milton Friedman. This view argues that the
corporation’s sole mission is to increase its profits so long as it stays within the
rules. This approach means that economic benefit is the only social responsibility
and can lead companies into trouble.

B. Legal Responsibility

1. Legal responsibility defines what society deems important with respect to


appropriate corporate behavior. Businesses are expected to fulfill their economic
goals within the law. Legal requirements are imposed by local governments, state
legislators, and federal regulatory agencies.

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90 Chapter 5

C. Ethical Responsibility

1. Ethical responsibility includes behaviors that are not necessarily codified into law
and may not serve the firm’s direct economic interests. To be ethical, decision
makers should act with equity, fairness, and impartiality, respect the rights of
individuals, and treat individuals differently only when relevant to the
organization’s goals. Unethical behavior occurs when decisions enable an
individual or company to gain at the expense of society.

Discussion Question #7: Do you believe it is ethical for organizational managers to try to get
access to and scrutinize the Facebook pages of employees or job applicants? Discuss.

NOTES________________________________________________________________________
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D. Discretionary Responsibility

1. Discretionary responsibility is voluntary and guided by a company’s desire to


make social contributions not mandated by economics, law, or ethics.

2. Discretionary responsibility is related to organizational virtuousness, which


means that an organization pursues a positive human impact, moral goodness, and
unconditional society betterment for its own sake

Discussion Question #9: The technique of stakeholder mapping lets managers classify which
stakeholders they will consider more important and will invest more time to satisfy. Is it
appropriate for management to define some stakeholders as more important than others?
Should all stakeholders be considered equal?

NOTES________________________________________________________________________
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VII. MANAGING COMPANY ETHICS AND SOCIAL RESPONSIBILITY Exhibit 5.6

A. Code of Ethics

1. A code of ethics is a formal statement of the company’s values concerning ethics and
social issues. It communicates to employees what the company stands for. Codes of
ethics tend to exist in two types.

a. Principle-based statements are designed to affect corporate culture. They define


fundamental values, company responsibilities, quality of products, and treatment
of employees.

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b. Policy-based statements outline the procedures to be used in specific ethical


situations such as marketing, conflicts of interest, observance of laws,
proprietary information, political gifts, and equal opportunities.

Discussion Question #8: Which do you think would be more effective for shaping long-term
ethical behavior in an organization: a written code of ethics combined with ethics training or
strong ethical leadership? Which would have more impact on you? Why?

NOTES________________________________________________________________________
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B. Ethical Structures

1. Ethical structures represent the various systems, positions, and programs a company
can undertake to implement ethical behavior.

a. An ethics committee is a group of executives appointed to oversee the


organization’s ethics by ruling on questionable issues and disciplining violators.

b. A chief ethics officer is a company executive who oversees all aspects of ethics
and legal compliance, including establishing and broadly communicating
standards, ethical training, dealing with exceptions or problems, and advising
senior managers in the ethical and compliance aspects of decisions.

C. Whistle-Blowing

a. Whistle-blowing is the disclosure by an employee of illegal, immoral, or


illegitimate practices by the organization. Some firms have instituted innovative
programs and confidential hotlines to encourage and support internal whistle-
blowing. Whistle-blowers are often considered as disgruntled employees, but
companies must view whistle-blowing as a benefit to the company and make
dedicated efforts to protect whistle-blowers for this practice to be an effective
ethical safeguard.

Discussion Question #10: The chapter described studies that show that people work harder and
better for managers who put the interests of others above their own. Why might this happen? Do
you believe being more of a “giver” than a “taker” will translate into greater career success for
these managers? Discuss

NOTES_______________________________________________________________________
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______________________________________________________________________________

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92 Chapter 5

Suggested Answers to End-Of-Chapter Discussion Questions

1. Is it reasonable to expect that managers can measure their social and environmental
performance on the same level as they measure their financial performance with a triple
bottom line? Discuss.

With a philosophy of sustainability, managers weave environmental and social concerns into
every strategic decision so that the financial goals are achieved in a way that is socially and
environmentally responsible. Managers that embrace sustainability measure performance in
terms of financial performance, social performance, and environmental performance, referred
to as triple bottom line. This is sometimes called the three Ps: People, Planet, and Profit.
Based on the principle that what you measure is what you strive for and achieve, using a
triple bottom line approach to measuring performance ensures that managers take social and
environmental factors into account rather than blindly pursuing profit, no matter the cost to
society and the natural environment.

2. In September 2013, Tokyo Electric Power Company (Tepco) reported highly contaminated
water leaking from a storage tank at the Fukushima nuclear power plant crippled in a
March 2011 earthquake and tsunami. From what you know of the ongoing Fukushima
disaster, discuss the various stakeholder groups that Tepco should respond to in order to
handle this latest crisis.

It would be very difficult to provide an exhaustive list of the stakeholders to whom Tepco
needed to respond, but some of them include workers who make their living at the power
company, people involved in the tourist industry in Japan , restaurant owners, operators, and
employees, local governments and residents of the local communities, the Japanese public at
large, and many others.

Evaluation of Tepco executives’ behavior depends on many factors, such as how much news
coverage students have seen, the extent of bias contained in that coverage, students’ own
world views, etc., and will range from those who believe Tepco executives did everything
possible to uphold their social responsibility to those who believe those efforts were minimal
at best and nothing more than a smokescreen.

3. Imagine yourself in a situation of being encouraged by colleagues to inflate your expense


account. What factors do you think would influence your decision? Explain.
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While most students will probably want to answer that they would be most affected by their
individual moral development, this may be an idealistic exaggeration. As pointed out by the
text, most managers have not advanced beyond the conventional level where one feels that
good behavior is living up to what is expected by others and the social system. Many are still
on the preconventional level and would act in accordance with their own self-interests.
Persons on both of these levels would probably go ahead and inflate their expense accounts.
Only persons on the principled level would resist the pressure and not inflate the expense
account if they felt it was ethically wrong.

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4. Is it ethical and socially responsible for large corporations to lobby against an SEC rule
requiring that they report the ratio of their CEOs’ pay compared to that of their average
employee, as described in the chapter? Discuss.

Generally speaking, most students will probably agree that it is socially responsible for
organizations to undertake political activities. The question is whether organizations should
sit back and passively adapt to the external environment or whether they should be assertive
and attempt to control the external environment. Political activities and trade associations are
attempts to control the external environment to reduce uncertainty and obtain necessary
resources. Political activities do not violate the economic, legal, or ethical responsibilities of
the organization. Unless the organization is breaking laws, bribing officials, or doing some
other inappropriate behavior, it may make its views known and attempt to move in an
appropriate direction. An organization unwilling to be assertive with respect to the external
environment may ultimately lose out to competitors.

5. Managers at some banks and mortgage companies have argued that providing subprime
mortgages was based on their desire to give poor people a chance to participate in the
American dream of home ownership. What is your opinion of this explanation in terms of
ethics and social responsibility?

The answer to this question revolves largely around one’s own worldview. Some will see
this as an attempt to help people who could not otherwise afford to buy a home, thereby
providing them an opportunity to improve their quality of life, while others will highlight the
irresponsibility of extending attractive loan offers to high-risk borrowers, thereby trapping
them in financial obligations they are unable to uphold.

6. A survey found that 69 percent of MBA students view maximizing shareholder value as the
primary responsibility of a company. Do you agree? What do you think this finding suggests
about the ethical and socially responsible stance of corporate managers over the next
couple of decades?

Of course, for-profit organizations must make at least some profit to stay in business. They
cannot put social responsibility ahead of profits over the long term without eventually being
forced to go out of business. The question here really centers on what it means to “be
profitable”. If “being profitable” means to maximize profits in ever-increasing amounts, then
an “unprofitable” enterprise would be unable to afford social responsibility efforts, since
diverting any funds or resources toward those activities would mean it was not maximizing
profits. On the other hand, if “being profitable” means achieving a positive net income,
companies can certainly afford to devote funds and other resources to socially responsible
activities and still make a profit.

7. Do you believe it is ethical for organizational managers to try to get access and scrutinize
the Facebook pages of employees or job applicants? Discuss.

Under the moral-rights approach, such activity could be viewed as a violation of the right of
free consent and/or the right of privacy. At a minimum, firms must be very careful about
obtaining and storing personal data in order to avoid litigation over violation of privacy laws.
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94 Chapter 5

The key to determining the ethics of such activity may lie in whether companies view only
what is publicly authorized for viewing by the employee or applicant, or uses tactics
designed to circumvent the employee’s or applicant’s privacy settings within the social
networking site.

8. Which do you think would be more effective for shaping long-term ethical behavior in an
organization: a written code of ethics combined with ethics training or strong ethical
leadership? Which would have more impact on you? Why?

Codes of ethics and ethics training are important within an organization; however, simply
posting a code of ethics and holding ethics training once a year or even once a month will not
suffice. Creating an ethical culture in an organization requires that ethics be part of virtually
everything a company does. Ethics should be emphasized in daily meetings, weekly
meetings, monthly meetings, at luncheons, during the hiring process, during the orientation
and socialization processes, during promotion ceremonies, and during retirement ceremonies.
That will only happen with strong ethical leadership. The bottom line is that employees will
do what their managers do, so managers must consistently and continuously demonstrate that
ethical behavior is important.

9. The technique of stakeholder mapping lets managers classify which stakeholders they will
consider more important and will invest more time to satisfy. Is it appropriate for
management to define some stakeholders as more important than others? Should all
stakeholders be considered equal?

For an organization to succeed, its managers must define goals and specify activity that will
help the organization achieve them. In the pursuit of its strategies and goals, managers must
make choices. In a noncompetitive world, all stakeholders might be considered equal. In a
capitalist economy, the manager’s responsibility is to define which stakeholders are most
valued. This does not mean that low-ranking stakeholders will be exploited; it simply means
that some stakeholders are more instrumental in helping the organization attain its goals.
Indeed, the definition of ethical behavior is that organizations should treat individuals equally
except when differences are relevant to goals and tasks. The treatment of individuals should
not be capricious, but should help the organization accomplish its goals. To expect
organizations to treat all stakeholders equally is not reasonable.

10 The chapter described studies that show that people work harder and better for managers
who put the interests of others above their own. Why might this happen? Do you believe
being more of a “giver” than a “taker” will translate into greater career success for these
managers? Discuss

When managers operate from a higher level of development, they may use a form of servant
leadership, focusing on the needs of followers and encouraging others to think for
themselves. Research has shown that people will work harder and more effectively for
people who put others’ interests and needs above their own. The shift toward admiring and
rewarding givers over takers can bring significant positive changes within organizations. The

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simple categories of giver and taker help people understand how they might contribute to or
detract from an organization’s ethical culture.

Apply Your Skills: Experiential Exercise

Ethical Work Climates

Have students complete the self-examination of Ethical Work Climates. Note that ethical
climates can range from above 40 (very positive ethical climate) to below 20 (very poor ethical
climate). Discuss ethical changes students could make as a practicing manager. A teaching
suggestion is to discuss the four approaches to ethical dilemmas: utilitarian approach,
individualism approach, moral-rights approach, and justice approach.

Apply Your Skills: Small Group Breakout

Current Events of an Unethical Type

This exercise asks students to start by finding two newspaper or magazine articles from the past
several months relating to someone violating business ethics or potentially violating the law
regarding business practices and summarize the articles. Students then meet in groups, share
their summaries, identify similar themes and sources of unethical behavior, and hoped-for
outcomes. Finally, students discuss what managers could do to prevent similar unethical
behavior in their own organizations or to fix these situations after they happen.

Apply Your Skills: Ethical Dilemma

Should We Go Beyond the Law?

1. Talk to the manufacturing vice president and emphasize the responsibility Chem-Tech has as
an industry leader to set an example. Present her with a recommendation that Chem-Tech
participate in voluntary pollution reduction as a marketing tool, positioning itself as the
environmentally friendly choice.

This is the best option because it embodies the utilitarian view of ethics, to provide the
greatest good to the greatest number of people. By not polluting the water, the company is
looking out for future generations who will benefit from a cleaner environment. The
company would avoid actions that could harm others. Nathan would give the company a
positive opportunity to right the wrong as part of a marketing campaign.

2. Mind your own business and just do your job. The company isn’t breaking any laws, and if
Chem-Tech’s economic situation doesn’t improve, a lot of people will be thrown out of work.

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96 Chapter 5

Since Nathan appears to be operating at the postconventional level of moral development,


following self-chosen principles of justice and right, he will not be comfortable in an
organization that knowingly pollutes the environment. The company is operating at the
conventional level by upholding the law. There is a clash between these two levels of moral
development.

3. Call the local environmental advocacy group and get them to stage a protest of the company.

This is an extreme course of action that Nathan should take only if option 1 is rejected and he
is willing to risk losing his job over it.

Apply Your Skills: Case for Critical Analysis

Too Much Intelligence

1. How has Ken Bodine shaped the sales culture at Pace Technologies? Do you consider this
culture to be at a preconventional, conventional, or postconventional level of ethical
development? Why?

A former military intelligence officer, Ken Bodine brought that “sneaky” air into the Pace
culture, adding a bit of excitement to the day-to-day business of sales. Bodine wanted
everyone—customers, competitors, and the media to see Pace everywhere. Bodine
encouraged the air of invincibility and competitive spirit among the sales stuff.
This culture is considered to be postconventional as it is guided by Bodine’s internal set of
values.

2. What would Ali Sloan do? What would you actually do if you were in her place? Explain.

Ali Sloan would report the matter to Bodine as she considered Cody’s act to be unethical and
illegal. If I was in Ali Sloan’s place, I would first try and find out what Cody did was
completely unethical and illegal. Then I would find out if this is the culture of the
organization. After this, I would talk to Bodine about the matter.

3. How might Cody Rudisell’s decision differ if he based it on the utilitarian approach vs.
individualism approach vs. practical approach to ethical decision making? Which approach
does he appear to be using?

If Cody Rudisell’s decision was based on the utilitarian approach, he would have thought
about his decision affecting Raleigh-Tech rather than just profit or promotion.
According to the practical approach, which was used by Cody, he would sidestep debates
about what is right, good, or just, and bases decisions on prevailing standards of the
profession and larger society, taking the interests of all stakeholders into account.
According to the individual approach, which Cody appears to be using, his actions are ethical
if they promote his best long-term interest, because with everyone pursuing self-interest, the
greater good is ultimately served.
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On the Job Video Case Answers


Theo Chocolate: Managing Ethics and Social Responsibility

1. What practices at Theo Chocolate embody the concept of sustainability?

Sustainability refers to economic activity that generates wealth and meets the needs of the
current generation while saving the environment for future generations. To implement a
philosophy of sustainability, managers weave environmental and social concerns into strategic
decisions, revise policies and procedures to support sustainability efforts, and measure their
progress toward sustainability goals.

Theo’s sustainability practices include the following: using only pure ingredients that are
grown organically without pesticides, ensuring that growers earn a living wage and have access
to education for their families, promoting habitat preservation and reforestation in growing
regions, using green energy sources to power the chocolate factory, using sustainable
packaging and printing methods, and educating public about social and environmental
accountability.

2. What does Vice President Debra Music mean when she says that Theo is a “triple bottom line”
company? How is this different from any other company?

In the video, Debra Music says, “We see ourselves as a triple bottom line company, which
means we value people, the planet, and profit in equal measure. None of those things suffer at
the expense of something else.” The triple bottom line is a green corporate performance
measure that evaluates a company’s success in terms of “people, planet, and profits.” Widely
attributed to CSR guru John Elkington, the triple bottom line concept differs from the
traditional “bottom line” in that it attempts to judge a company’s success by three measures
instead of the singular measure of profitability.

3. What does the term fair trade mean to the leaders at Theo? What happens if fair trade goals
conflict with a company’s primary responsibility to be profitable?

Fair trade is a financial relationship between producers, sellers, and consumers based on the
principle of equity within the exchange of goods. Joe Whinney says that fair trade is important
since cocoa bean growers traditionally have not received adequate pay and have even been
subject to slave labor in some regions of the world. The social benefits of Fair Trade are far
reaching: fair trade enables farmers to take their livelihoods to the next level of sophistication
by blending the benefits of modern techniques with artisan practices. Whinney states: “What
we're really doing is trying to give an alternative to practices that have contributed to social,
economic, and environmental degradation. The average cocoa farmer earns less than a dollar a
day for their entire family, and they have very little options in cocoa growing regions to grow
other cash crops—as a result, they are beholden to an industry that is very oppressive. The
cocoa price has been so low compared to the cost of their production that in West Africa cocoa
farmers have had to resort to slavery."
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98 Chapter 5

Every company’s core social responsibility is to be profitable. Without economic sustainability,


all other concerns of the company crumble in bankruptcy. For companies like Theo, the
challenge is to find ways to effectively align social objectives with economic objectives.
Ideally, social entrepreneurs should organize the company in such a way that the pursuit of
profit simultaneously achieves the firm’s social objectives.

2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part . , except
foruse as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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