Contemporary Management 8th Edition Jones Solutions Manual 1

Chapter 4 – Ethics and Social Responsibility
Contemporary Management 8th Edition

Jones ISBN 0078029538 9780078029530
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Chapter 4
Ethics and Social Responsibility
CHAPTER CONTENTS
Learning Objectives 4-2

Key Definitions/Terms 4-2
Chapter Overview 4-3
Lecture Outline 4-4
Lecture Enhancers 4-20
Management in Action 4-23
Building Management Skills 4-26
Managing Ethically 4-28
4-1
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Small Group Breakout Exercise 4-28

Exploring the World Wide Web 4-29
Be the Manager 4-30
Case in the News 4-30
Supplemental Features 4-32
Video Case 4-33
Manager’s Hot Seat 4-35
Self-Assessment(s) 4-35
Test Your Knowledge 4-35
Instructor PowerPoint Slides 4-36
4-2
LEARNING OBJECTIVES
LO4-1. Explain the relationship between ethics and the law.
LO4-2. Differentiate between the claims of the different stakeholder groups that are affected
by managers and their companies’ actions.
LO4-3. Describe four rules that can help companies and their managers act in ethical ways.
LO4-4. Discuss why it is important for managers to behave ethically.
LO4-5. Identify the four main sources of managerial ethics.
LO4-6. Distinguish among the four main approaches toward social responsibility that a
company can take.
KEY DEFINITIONS/TERMS
Accommodative approach: Companies and their managers behave legally and ethically and try
to balance the interests of different stakeholders as the need arises.
Defensive approach: Companies and their managers behave ethically to the degree that they
stay within the law and strictly abide by legal requirements.
Ethical dilemma: The quandary people find themselves in when they have to decide if they
should act in a way that might help another person or group even though doing so might go
against their own self-interest.
Ethics: The inner-guiding moral principles, values, and beliefs that people use to analyze or
interpret a situation and then decide what is the right or appropriate way to behave.
Ethics ombudsperson: A manager responsible for communicating and teaching ethical
standards to all employees and monitoring their conformity to those standards.
Individual ethics: Personal standards and values that determine how people view their
responsibilities to others and how they should act in situations when their own self-interests are
at stake.
Justice rule: An ethical decision distributes benefits and harms among people and groups in a
fair, equitable, or impartial way.
Moral rights rule: An ethical decision is one that best maintains and protects the fundamental or
inalienable rights and privileges of the people affected by it.
Obstructionist approach: Companies and their managers choose not to behave in a socially
responsible way and instead behave unethically and illegally.
4-3
Occupational ethics: Standards that govern how members of a profession, trade, or craft should
conduct themselves when performing work-related activities.
Organizational ethics: The guiding practices and beliefs through which a particular company
and its managers view their responsibility toward their stakeholders.
Practical rule: An ethical decision is one that a manager has no reluctance about communicating
to people outside the company because the typical person in a society would think it is
acceptable.
Proactive approach: Companies and their managers actively embrace socially responsible
behavior, going out of their way to learn about the needs of different stakeholder groups and
using organizational resources to promote the interests of all stakeholders.
Reputation: The esteem or high repute that individuals or organizations gain when they behave
ethically.
Social responsibility: The way a company’s managers and employees view their duty or
obligation to make decisions that protect, enhance, and promote the welfare and well-being of
stakeholders and society as a whole.
Societal ethics: Standards that govern how members of a society should deal with one another in
matters involving issues such as fairness, justice, poverty, and the rights of the individual.
Stakeholders: The people and groups that supply a company with its productive resources and
so have a claim on and stake in the company.
Trust: The willingness of one person or group to have faith or confidence in the goodwill of
another person, even though this puts them at risk.
Utilitarian rule: An ethical decision is a decision that produces the greatest good for the greatest
number of people.
CHAPTER OVERVIEW
This chapter examines the nature of the obligations and responsibilities of managers and the
companies they work for toward the people and society who are affected by their actions. First,
the nature of ethics and the source of ethical problems are discussed. Next, the major groups of
people, or stakeholders, who are affected by the decisions that companies make, are examined.
Then, four rules or guidelines that managers can use to decide if a specific business decision is
ethical or unethical are studied. Finally, the sources of managerial ethics and reasons why it is
important for a company to behave in a socially responsible manner are discussed.
4-4
LECTURE OUTLINE
NOTE ABOUT INSTRUCTOR

POWERPOINT SLIDES
The Instructor PowerPoint Slides include

most Student PowerPoint slides, along with
additional material that can be used to
expand the lecture. Images of the Instructor
PowerPoint slides can be found at the end of
this chapter on page 4-36.
BASIC POWERPOINT SLIDE 1
(INSTRUCTOR’S POWERPOINT SLIDE 1)
Ethics And Social Responsibility
A Manager’s Challenge (Pages 99-101)

Apple and Foxconn Protect Its Products and the Workers Who Make Them
Apple develops rules to protect the secrecy of its products and rules that protect the rights of the
workers who labor in factories to make those products, but spends most of the time developing
and enforcing the former. Apple has outsourced its product assembling function to Foxconn in
China.
In order to maintain secrecy about its new products Apple has developed uncompromising rules
that govern how its outsourcers should protect product secrecy. To keep its business, outsourcers
like Foxconn go to extreme lengths to follow Apple’s rules and follow stringent security
guidelines in their manufacturing plants to protect the details of its new products. For example,
employees are searched with metal detectors on their way out of the factory, to ensure they are
not carrying any component along with them and were discouraged from even leaving the
factory because it offers them a full array of low-cost services such as canteens, dormitories, and
recreational facilities. Apple was criticized for allowing its products to be made at plants with
poor employment practices—despite the fact that it claims to enforce many rules governing how
they should be treated.
After Tim Cook became CEO in 2011, he moved quickly to monitor whether or not Apple’s 160
suppliers were following its ethical stance on the treatment of employees. He made personal
visits to the factories and announced in 2012 that Apple had agreed to work with partner
Foxconn to substantially improve wages and working conditions at the factories that produce its
wildly popular products.
4-5
I. THE NATURE OF ETHICS
A. Ethical Dilemmas
• Ethical dilemma is the quandary people find

themselves in when they have to decide if they
should act in a way that might help another person
or group and is the right thing to do, even though
doing so might go against their own self-interest.
• Ethics are the inner guiding moral principles,
STUDENT POWERPOINT SLIDE 4
values, and beliefs that people use to analyze or
(INSTRUCTOR’S POWERPOINT
interpret a situation and then decide what is the
SLIDE 5)
right or appropriate way to behave.
The Nature of Ethics
• Ethics also indicate what is inappropriate behavior
and how a person should behave to avoid doing
harm to another person.
• The essential problem in dealing with ethical
issues, and thus solving moral dilemmas, is that
there are no absolute or indisputable rules or
principles can be developed to decide whether an
action is ethical or unethical.
LO4-1: Explain the relationship between
B. Ethics and the Law
ethics and the law.
• Society as a whole, using the political and legal

process, can lobby for and pass laws that specify
what people can and cannot do.
• Many different kinds of laws govern business.
o Laws also specify what sanctions or
punishments will follow if those laws are
broken.
• Different groups in society lobby for which laws
should be passed based on their own personal
interests and beliefs about right and wrong.
o The group that can summon the most support
can pass laws that align with its interests and
beliefs.
• In studying the relationship between ethics and
law, it is important to understand that neither laws
nor ethics are fixed principles that do not change
4-6
over time.
o Ethical beliefs change as time passes; and as
they do so, laws change to reflect the changing
ethical beliefs of a society.
C. Changes in Ethics over Time
• There are many types of behavior—such as

murder, theft, slavery, rape, and driving while
intoxicated—that most people currently believe are
unacceptable and unethical and should therefore be
illegal.
• However, the ethics of many other actions and
behaviors are open to dispute.
o Some people might believe a particular
behavior—for example, smoking tobacco or
possessing guns—is unethical and so should
be made illegal.
o Others might argue that it is up to the
individual or group to decide if such behaviors
are ethical and thus whether a particular
behavior should remain legal.
• The important point to note is that while ethical
beliefs lead to the development of laws and
regulations to prevent certain behaviors or
encourage others, laws themselves change or even
disappear as ethical beliefs change.
o No absolute or unvarying standards exist to
determine how people should behave, and
people are caught up in moral dilemmas all the
time.
• Throughout the 2010s many scandals plagued
major companies such as Guidant, Siemens,
Merck, Pfizer, and others.
• Not being illegal does not make behavior ethical.
• Like ordinary people, managers must decide what
is appropriate and inappropriate as they use a
company’s resources to produce goods and
services for customers.
II. STAKEHOLDERS AND ETHICS
4-7
LO4-2: Differentiate between the claims
• The people and groups that supply a company with its of the different stakeholder groups that
productive resources and so have a claim on and a stake are affected by managers and their
in the company are called stakeholders. companies’ actions.
A. Stockholders
• Stockholders have a claim on a company because

when they buy its stock, they become its owners.
• Stockholders are interested in how a company
operates because they want to maximize the return
on their investment.
• Stockholders also want to ensure that managers are
behaving ethically and not risking investors’ STUDENT POWERPOINT SLIDE 5
capital by not engaging in actions that could hurt (INSTRUCTOR’S POWERPOINT
the company’s reputation. SLIDE 8)
Type of Company Stakeholders: Figure
B. Managers 4.1
• Managers are a vital stakeholder group because

they are responsible for using a company’s
financial, capital, and human resources to increase
its performance and thus its stock price.
• Managers have a claim on an organization because
they bring to it their skills, expertise, and
experience.
• Managers are the stakeholder group that bears the
responsibility to decide which goals an
organization should pursue to most benefit
stakeholders and how to make the most efficient
use of resources to achieve those goals.
o In making such decisions, managers are
frequently in the position of having to juggle
the interests of different stakeholders,
including themselves.
o These sometimes difficult decisions challenge
managers to uphold ethical values because
some decisions that benefit certain stakeholder
groups harm other groups.
• Managers must be motivated and given incentives
to work hard in the interests of stockholders.
4-8
o Their behavior must also be scrutinized to
ensure they do not behave illegally or
unethically, pursuing goals that threaten
stockholders and the company’s interests.
• In 2010s, many company’s corrupt managers
focused not on building the company’s capital and
stockholders’ wealth but on maximizing their own
personal capital and wealth.
o In an effort to prevent future scandals, the
Securities and Exchange Commission (SEC),
the government’s top business watchdog, has
begun to rework the rules governing a
company’s relationship with its auditor, as
well as regulations concerning stock options,
and to increase the power of outside directors
to scrutinize a CEO.
• Many experts argue that the rewards given to top
managers, particularly the CEO and COO, grew
out of control in the 2000s.
o Top managers are today’s “aristocrats,” and
through their ability to influence the board of
directors and raise their own pay, they have
amassed personal fortunes worth hundreds of
millions of dollars.
C. Ethics and Nonprofit Organizations
• The issue of what is fair executive compensation is

not limited to for-profit companies; it is one of the
many issues facing nonprofits.
• Unlike for-profit companies, which are required by
law to provide detailed reports of their operations
to their shareholders, nonprofits do not have
shareholders, so the laws governing disclosure are
far weaker. TEXT REFERENCE
o As a result, the board and its top managers ETHICS IN ACTION
have considerable latitude to decide how they Unethical Managers Imperil the Supply
will spend a nonprofit’s resources, and little of Peanut Butter
oversight exists. Stewart Parnell, President of Peanut
• To remedy this situation, many states and the Corporation of America (PCA) owned a
federal government are considering new laws that commercial peanut butter processing
4-9
would subject nonprofits to strict Sarbanes-Oxley- business, which operated three plants in
type regulations that force the disclosure of issues Virginia, Georgia, and Texas. The
related to managerial compensation and financial company produced industrial-sized
integrity. containers of peanut butter that were
o There are also efforts in progress to strengthen included as an ingredient in more than
the legal power of the IRS to oversee 3,900 products made by over 200
nonprofits’ expenditures so that it has more different companies, including Kellogg’s
scope to examine how these organizations and Nestlé. Also, the peanut butter was
spend their resources on managerial and shipped to school systems and food
director compensation and perks. outlets around the United States.
• Experts hope that the introduction of new rules and Suddenly a major nationwide outbreak of
regulations to monitor and oversee how nonprofits salmonella poisoning was traced by the
spend their funds will result in much more value Food and Drug Administration (FDA) to
being created from the funds given by donors. the peanut butter produced at his plant in
Blakely, Georgia. PCA’s contaminated
D. Employees peanut butter had caused over 600
illnesses and nine deaths across the
• A company’s employees are the hundreds of United States. On further investigation it
thousands of people who work in its various was found that the major cause of the
departments and functions. disaster was the unethical and illegal
• One principal way that a company can act ethically actions of owner and manager Parnell.
toward employees and meet their expectations is The FDA investigation that took place at
by creating an occupational structure that fairly the PCA Georgia plant in 2009 revealed
and equitably rewards employees for their serious problems with food safety at that
contributions. plant and inadequate cleaning and
sanitary procedures. The investigation
E. Suppliers and Distributors also revealed internal company
documents that showed at least 12
• Every company is in a network of relationships instances in which the company’s own
with other companies that supply it with the inputs tests of its products in 2007 and 2008
that it needs to operate. found they were contaminated by
• It also depends on intermediaries such as salmonella. But PCA managers had taken
wholesalers and retailers to distribute its products no steps to clean up operations or protect
to the final customers. food safety. (Box in text on Pages. 107-
• Suppliers expect to be paid fairly and promptly for 108)
their inputs; distributors expect to receive quality
products at agreed upon prices.
• Many ethical issues arise in how companies
contract and interact with their suppliers and
distributors.
o Important issues concerning product quality
4-10
and safety specifications are governed by the
contracts a company signs with its suppliers
and distributors.
o However, many problems can arise.
F. Customers
• Customers are often regarded as the most critical

stakeholder group because if a company cannot
attract them to buy its products, it cannot stay in
SLIDE 14)
business.
Some Principles from the Gap’s Code
o Thus managers and employees must work to
of Vendor Conduct: Table 4.1)
increase efficiency and effectiveness in order
to create loyal customers and attract new ones.
TEXT REFERENCE
o They do so by selling customers quality
ETHICS IN ACTION
products at a fair price and provide them good
Whole Foods Market Practices What It
after-sales service.
Preaches
• Many laws protect customers from companies that
The Whole Foods Market supermarket
attempt to provide dangerous or shoddy products.
chain is the world’s leading retailer of
o Laws allow customers to sue a company
natural and organic foods, with 184 stores
whose product causes them injury or harm.
in North America and the United
Kingdom. The store specializes in the sale
G. Community, Society, and Nation
of chemical and drug free meat, poultry,
and produce. Although it charges high
• The effects of the decisions made by companies
prices for its pure groceries, sales per
and their managers permeate all aspects of the
store continue to grow rapidly and the
communities, societies, and nations in which they
company hopes to double its size by 2010.
operate.
CEO John Mackey attributes the
• Community refers to physical locations like towns organization’s success to its adherence to
or cities or to social milieus like ethnic its ethical and socially responsible
neighborhoods in which companies are located. principles which impact everybody with
• A community provides a company with the whom the organization has contact. The
physical and social infrastructure that allows it to company’s mission is based on its
operate. members’ collective responsibility to the
• Through the salaries, wages, and taxes it pays, a well-being of its stakeholders and success
company contributes to the economy of its town or is measured by the extent to which
region and often determines whether it prospers or stakeholders are satisfied. (Box in text on
declines. Pages. 110-111)
• A company affects the prosperity of a society and a
nation and, to the degree that a company is
involved in global trade, all the countries it
4-11
operates in and thus the prosperity of the global
economy.
• Business ethics are important because the failure of
a company can have catastrophic effects on a
community; a general decline in business activity
affects a whole nation.
H. Rules for Ethical Decision Making

• When companies act ethically, their stakeholders
support them.
SLIDE 16)
• When making business decisions, managers must
Whole Food’s Stakeholder Approach to
consider the claims of all stakeholders.
Ethical Business: Figure 4.2
• To help themselves and employees make ethical
decisions and behave in ways that benefit their
stakeholders, managers can use four ethical rules LO4-3: Describe four rules that can
or principles to analyze the effects of their business help companies and their managers act
decisions on stakeholders: the utilitarian, moral in ethical ways.
rights, justice, and practical rules.
Utilitarian rule
• The utilitarian rule is that an ethical

decision is a decision that produces the
greatest good for the greatest number of
people.
• To decide which is the most ethical course of
business action, managers should first
consider how different possible courses of STUDENT POWERPOINT SLIDE 10
business action would benefit or harm (INSTRUCTOR’S POWERPOINT
different stakeholders. SLIDE 19)
o They should then choose the course of Ethical Decision Making: Figure 4.3
action that provides the most benefits,
or, conversely, the one that does the least
harm, to stakeholders.
• The ethical dilemma for managers is this:
How do you measure the benefit and harm
that will be done to each stakeholder group?
Moral Rights Rule
4-12
• Under the moral rights rule an ethical

decision is one that best maintains and
protects the fundamental or inalienable rights
and privileges of the people affected by it.
• From a moral perspective, managers should
compare and contrast different courses of
business action on the basis of how each
course will affect the rights of the company’s
different stakeholders.
o Managers should then choose the course
of action that best protects and upholds
the rights of all stakeholders.
• The ethical dilemma for managers is that
decisions that will protect the rights of some
stakeholders often will hurt the rights of
others.
Justice rule
• The justice rule is that an ethical decision

distributes benefits and harms among people
and groups in a fair, equitable or impartial
way.
• Managers should compare and contrast
alternative courses of action based on the
degree to which they will fairly or equitably
distribute outcomes to stakeholders.
• The ethical dilemma for managers is to
determine the fair rules and procedures for
distributing outcomes to stakeholders.
Practical Rule
• The practical rule is that an ethical decision

is one that a manager has no hesitation or
reluctance about communicating to people
outside the company because the typical
person in a society would think it is
acceptable.
• A business decision is probably acceptable
on ethical grounds if a manager can answer
4-13
yes to each of these questions:
o Does my decision fall within the
accepted values or standards that
typically apply in business activity
today?
o Am I willing to see the decision
communicated to all people and groups
affect by it—for example, by having it
reported in newspapers or on television?
o Would the people with whom I have a (INSTRUCTOR’S POWERPOINT
significant personal relationship, such as SLIDE 20)
family members, friends, or even Practical Decision Model
managers in other organizations,
approve of the decision?
• Applying the practical rule to analyze a
business decision ensures that managers are
taking into account the interests of all
stakeholders.
I. Why Should Managers Behave Ethically?
• The relentless pursuit of self-interest can lead to a

collective disaster when one or more people start to
profit from being unethical because this
encourages other people to act in the same way
• More and more people jump into the bandwagon,
and soon everybody is trying to manipulate the
situation to serve their personal ends with no
regard for the effects of their actions on others.
LO4-4: Discuss why it is important for
This situation is known as the “tragedy of
managers to behave ethically.
commons.”
• Suppose companies and their managers operate in
an ethical society, stakeholders have a greater
reason to trust others.
• Trust is the willingness of one person or group to
have faith or confidence in the goodwill of another
person, even though this puts them at risk.
o When one person acts in a trustworthy way,
this encourages others to act in the same way.
o Over time, as greater trust between
stakeholders develops, they can work together
4-14
more efficiently and effectively, which raises
company performance (Figure 4.4).
• An important safeguard against unethical behavior
is the potential for loss of reputation.
• Reputation, the esteem or high repute that people
or organizations gain when they behave ethically,
is an important asset.
o Stakeholders have valuable reputations that
they must protect because their ability to earn
a living and obtain resources in the long run
SLIDE 22)
depends on how they behave.
Some Effects of Ethical/Unethical
• If a manager misuses resources and other parties
Behavior: Figure 4.4
regard that behavior as being at odds with
acceptable standards, the manager’s reputation will
suffer.
o Behaving unethically in the short run can have
serious long-term consequences.
• All stakeholders have reputations to lose.
o Suppliers who provide shoddy inputs find that
organizations learn over time not to deal with
them, and eventually they go out of business.
o Powerful customers who demand ridiculously
low prices find that their suppliers become less STUDENT POWERPOINT SLIDE 11
willing to deal with them, and resources (INSTRUCTOR’S POWERPOINT
ultimately become harder for them to obtain. SLIDE 23)
o Workers who shirk responsibilities on the job Trust
find it hard to get new jobs when they are
fired.
III. Ethics and Social Responsibility
• There are four main determinants of differences in

ethics between people, employees, companies and
countries: societal ethics, occupational ethics,
individual ethics, and organizational ethics (Figure
4.5).
A. Societal Ethics SLIDE 24)
Reputation
• Societal ethics are standards that govern how
members of a society should deal with one another
4-15
in matters involving issues such as fairness, justice,
poverty, and the rights of the individual.
• Societal ethics emanate from a society’s laws, LO4-5: Identify the four main sources of
customs, and practices and from the unwritten managerial ethics.
values and norms that influence how people
interact with each other.
• Societal ethics vary among societies.
B. Occupational Ethics
• Occupational ethics are standards that govern

how members of a profession, trade, or craft
should conduct themselves when performing work-
related activities.
• Within an organization, occupational rules and
SLIDE 25)
norms often govern how employees should make
Sources of Ethics: Figure 4.5
decisions to further stakeholder interests.
• Employees internalize the rules and norms of their
TEXT REFERENCE
occupational group and often follow them
ETHICS IN ACTION
automatically when deciding how to behave.
Is it Right to Use Child Labor?
• Table 4.2 lists some failures or lapses in
Is it ethical to employ children in
professional ethics according to type of functional
factories, and should U.S. companies buy
manager.
and sell products made by these children?
Opinions about the ethics of child labor
C. Individual Ethics
vary widely. Former secretary of Labor
Robert Reich believes that the practice is
• Individual ethics are personal standards and
totally reprehensible and should be
values that determine how people view their
outlawed on a global level. Another view,
responsibilities to other people and groups, and
championed by The Economist magazine
thus how they should act in situations when their
is that, while nobody wants to see
own self-interests are at stake.
children employed in factories, citizens of
• Sources of individual ethics include the influence rich countries need to recognize that in
of one’s family, peers, and upbringing in general.
poor countries children are often a
family’s only breadwinners. The
D. Organizational ethics
Economist favors regulating the
conditions under which children are
• Organizational ethics are the guiding practices employed and hopes that over time, as
and beliefs through which a particular company poor countries become richer, the need for
and its managers view their responsibility toward child employment will disappear. While
their stakeholders. most of U.S. retailers who buy their
• The individual ethics of a company’s founders and clothing from low-cost suppliers have
4-16
top managers are especially important in shaping taken a stance on this issue, many do not
the organization’s code of ethics. check up on them, and abuses continue to
• Managers or workers may behave unethically if occur. (Box in text on Pages 118-119)
they feel pressured to do so by the situation they
are in and by unethical top managers. TEXT REFERENCE
o People typically confront ethical issues when ETHICS IN ACTION
weighing their personal interests against the Jonathan Reckford Rebuilds Goodwill at
effects of their actions on others. Habitat for Humanity
• If a company’s top managers consistently endorse Habitat for Humanity is the 17th largest
the ethical principles in its corporate credo, they charity in the U.S. Its mission is to build
can prevent employees from going astray. low cost, modest homes for needy
o Employees are much more likely to act families who repay the charity by helping
unethically when a credo does not exist or is to build new homes for other families and
disregarded. by repaying low interest loans. In 2004,
• Top managers play a crucial role in determining a the organization was struck by scandal
company’s ethics. when its CEO was accused of sexual
o It is clearly important, then, that when making harassment. Although guilt was never
appointment decisions, the board of directors proven, the board of directors decided to
should scrutinize the reputations and ethical oust him. He was replaced by retired
records of top managers. executive Jonathan Reckford, who has
devoted himself to strengthening the
IV. Approaches to Social Responsibility organization by soliciting additional
donations and implementing ‘best
• A company’s stance on social responsibility is the way practice’ management techniques. (Box in
its managers and employees view their duty or text on Pages 122-123)
obligation to make decisions that protect, enhance, and
promote the welfare and well-being of stakeholders and
society as a whole.
• Many kinds of decisions signal a company’s beliefs
about its obligations to make socially responsible
business decisions (Table 4.3).
A. Four Different Approaches
• The strength of companies’ commitment to social

responsibility can range from low to high (Figure LO4-6: Distinguish among the four
4.6). main approaches toward social
• At the low end of the range is an obstructionist responsibility that a company can take
approach, in which companies and their managers
choose not to behave in a socially responsible way.
o Instead they behave unethically and often
4-17
illegally and do all they can to prevent
knowledge of their behavior from reaching
other organizational stakeholders and society
at large.
• A defensive approach indicates at least some
commitment to ethical behavior.
o Defensive companies and managers stay
within the law and abide strictly by legal
requirements but make no attempt to exercise
social responsibility beyond what the law STUDENT POWERPOINT SLIDE 14
dictates; thus they can and often do act (INSTRUCTOR’S POWERPOINT
unethically. SLIDE 31)
• An accommodative approach acknowledges the Approaches to Social Responsibility:
need to support social responsibility. Figure 4.6
o Accommodative companies and managers
agree that organizational members ought to
behave legally and ethically, and they try to
balance the interests of different stakeholders
so the claims of stockholders are seen in
relation to the claims of other stakeholders.
• Companies and managers taking a proactive
approach actively embrace the need to behave in
socially responsible ways.
o They go out of their way to learn about the
needs of different stakeholders and are willing
to use organizational resources to promote the
interests of all stakeholders.
o Proactive companies are often at the forefront
of campaigns for causes such as a pollution-
free environment; recycling and conservation
of resources; the minimization or elimination
of the use of animals in drug and cosmetics
testing; and the reduction of crime, illiteracy,
and poverty.
B. Why Be Socially Responsible?
• Demonstrating its social responsibility helps a

company build a good reputation.
o The rewards for a good company reputation
are increased business and improved ability to
4-18
obtain resources from stakeholders.
• In a capitalist system, companies as well as the
government, have to bear the costs of protecting
their stakeholders, providing health care and
income, paying taxes, and so on.
o So if all companies in a society act
responsibly, the quality of life as a whole
increases.
• How companies behave toward their employees
determines many of a society’s values and norms
and the ethics of its citizens.
o It has been suggested that if all organizations
adopted a caring approach and agreed that
their responsibility is to promote the interests
of their employees, a climate of caring would
pervade the wider society.
C. The Role of Organizational Culture

• Although an organization’s code of ethics guides
decision making when ethical questions arise, (INSTRUCTOR’S POWERPOINT
SLIDE 36)
managers can go one step further by ensuring that
important ethical values and norms are key Why Be Socially Responsible?
features of an organization’s culture.
• Employees naturally look to those in authority to
provide leadership, just as a country’s citizens look
to its political leaders, and managers become
ethical role models whose behavior is scrutinized
by subordinates.
• Managers can also provide a visible means of
support to develop an ethical culture.
• Increasingly, organizations are creating the role of
ethics officer, or ethics ombudsperson, to monitor
their ethical practices and procedures.
o The ethics ombudsperson is responsible for
communicating ethical standards to all
employees, designing systems to monitor
employees’ conformity to those standards, and
for teaching managers and employees at all
levels of the organization how to respond to
ethical dilemmas appropriately.
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SLIDE 37)
Role of Organizational Culture
SLIDE 38)
Johnson & Johnson Credo: Figure 4.7
LECTURE ENHANCERS
Lecture Enhancer 4.1

MODELING ETHICAL CONDUCT: THE BALANCING ACT AND LEVEL FIVE
LEADERSHIP
In the May 2000 issue of Executive Excellence, Dr. William Cottringer, the author of Managing
Fairness, asserts that, “the first and most important rule of good management is fundamental
fairness.” According to Cottringer, leaders should follow the golden rule, treating all
stakeholders as they would like to be treated. This requires “an attitude of openness, a desire to
achieve a workable balance between valid opposing behaviors, and a keen sensitivity to know
when you cross over the line of fundamental fairness. According to Cottringer, by balancing ten
dilemmas, managers can achieve fairness. The ten dilemmas that any leader eventually faces
include giving vs. taking, change vs. stability, idealism vs. realism, organization vs. individuals,
and thinking vs. action.” Making sound judgments in these areas represents one of the greatest
challenges of leadership and is seldom easy. Unfortunately, we have become aware of too many
CEOs who apparently made little or no effort to manage fairness.
One way a CEO can attempt to achieve and maintain the balance described by Cottringer is to
aspire to what author Jim Collins has labeled Level 5 leadership. In his book, Good to Great,
Collins describes a Level 5 leader as one that “embodies a paradoxical mix of personal humility
and professional will. They are ambitious, to be sure, but ambitious for the company, not
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themselves. Level 5 leaders display a compelling modesty, are self-effacing, and understated.”
He contrasts Level 5 leaders with others who had “gargantuan personal egos that contributed to
the demise or continued mediocrity of the company.”
93% of 40,000 Americans surveyed admitted to lying regularly at work, according to a Fast
Company magazine report. 60% of employees who say or know about an ethical violation in
their company have not reported it, according to a survey by Walker Information and the Hudson
Institute.
These statistics illustrate that in too many organizations, bending the rules has become
legendary. The leader’s job is to create an environment that delivers results without sacrificing
integrity. While codes of ethics and ethics training are helpful, there is no program for making
integrity come to life. Rather, it requires employees witnessing their leaders successfully
managing their balancing act and demonstrating Level 5 leadership.

ETHICS, THE BOTTOM LINE, AND COMPETITIVE ADVANTAGE
Do ethics impact the bottom line? Yes, according to DePaul University and the Management
Review. A 1999 study of 300 large firms conducted by researchers at DePaul University found
that companies that make an explicit commitment to follow an ethics code provided more than
twice the value to shareholders than companies that didn’t. And according to Management
Review, published by the American Management Association, “For the 47 companies expressing
a more extensive or more explicit commitment to ethics, the market value added difference was
larger—an average of $10.6 billion, or almost three times the MVA (market value added) of
companies without similar commitments.”
Do ethics impact competitive advantage? Yes, it does, if a business either partially or fully
attributes its competitive advantage to its workforce. The ability to attract talented employees can
be tarnished by a poor reputation, since for many executives a firm’s ethical stance strongly
influences their decision to accept a job there. In a survey conducted by TheLadders.com, an
executive job search service, 83 percent of the survey’s 1,020 respondents rated a company’s
record of business ethics “very important” when deciding whether to accept a job offer. Only 2
percent rated it “unimportant,” and 15 percent said it was “important, but not a deal breaker.”
Marc Cenedella, Ladders founder and executive chairman, says executives “clearly see the
public images of the companies they work for as a reflection of their own credibility in the
marketplace. In companies like Enron, where there is systemic misbehavior across all levels of
the company,” he says, “folks don’t want to be in that environment.”
Executives are “drawing subtle distinctions between what’s an acceptable corporate misstep and
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what’s an outright reputational disaster,” Cenedella believes. “I think what people are seeing is
that at some companies there are executives, or a group of executives, who are doing wrong, but
now that’s been changed.” In these cases, he says, job seekers “don’t punish the underlying
company” for the behavior of a few.
As an example, Cenedella cites the case of Martha Stewart Living Omnimedia. Respondents
were split almost evenly: 51 percent wouldn’t want to work there, 49 percent would. “In that
case,” Cenedella says, “Martha’s crime had nothing to do with her business, so that’s a
mitigating factor.” However, “the brand is so tightly wrapped up in her personal behavior and
her lifestyle that the brand has been tarnished,” he says. “That’s why people are right in the
middle on this.”
Would you work for these companies? Below are additional results from TheLadder.com’s
survey:
Company Name Responding No

Enron 72%
WorldCom 65%
Adelphia 59%
Global Crossing 47%
Tyco 38%
Symbol Technologies 37%
Taken from Jennifer Salopeck, “Right Thing – Business Ethics,” Training & Development, July
2001 and “Tarnished Employment Brands Affect Recruiting,” HR Magazine, November 2004.

SOCIAL RESPONSIBILITY: THE BEST OF THE GOOD
One way to distinguish companies that talk about social responsibility from those that live it is to
observe what employees do about it. You would expect a pharmaceutical maker such as Novo
Nordisk to have a charter full of noble visions and values—which it does. But the company also
requires all employees to spend at least one day a year with someone connected to diabetes—a
patient, a caretaker, or a health-care professional—and then to suggest improvements for how the
company does business. In addition, a group of 30 to 40 facilitators meets with every work unit
and employee over a three-year cycle to ensure that actions and decisions live up to Novo
Nordisk’s values.
A 2003-2004 survey by the Center for Corporate Citizenship at Boston College, with the U.S.
Chamber of Commerce and the Hitachi Foundation, finds firms at different stages in their
commitment to citizenship. Most executives acknowledge the importance of social and
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environmental responsibility to the bottom line (82%), to their companies’ reputations
(59%), and to their customers (53%). But when it comes to translating citizenship into
meaningful programs and embedding it in the business, firms range from leaders like Novo
Nordisk to laggards, with the majority somewhere in between.
Roughly 10% of company leaders have no clue about corporate citizenship beyond compliance
with laws and industry standards. Some echo economist Milton Friedman that their obligations
are solely to make a profit, pay taxes, and provide jobs. Others lack the resources to do much for
their employees, communities, or society at large.
At the other end, not quite 10% of companies are setting standards of performance. The social
and environmental activism of businesses like Timberland, Ben & Jerry’s, and Patagonia are
central to their missions and appeal to customers. Hewlett-Packard has invested in digital
communities in Brazil, in villages in India and South Africa, and in inner city Baltimore to
promote economic development. Nokia reaches 100,000 young people globally with its e-
learning curricula: The company’s “dashboard” performance measures include the number of
beneficiaries and gains in their life skills as well as impact on public opinion, brand reputation,
and stakeholder relationships. Ford and GM work closely with Focus Hope, a nonprofit that
trains and employs minorities to manufacture industrial parts and provides social services. The
strategic intent of all these programs is to create new markets by fusing citizenship and business
agendas.
The survey also found that companies aspiring to citizenship’s top tier are aligning activities
across and at every level of their businesses. On this count, boards are setting standards and
monitoring corporate performance. An analysis of the Dow Jones Sustainability Index reveals
that roughly one in five member companies have board-level citizenship committees.
McDonald’s Corporate Responsibility Committee, for example, is debating responses to the
furor over fast food and obesity.
Some companies, meanwhile, emphasize promoting citizenship into their lines of business. One
exemplar is beverage company Diageo, which has created several committees—one at the
executive level—to support citizenship in the units. 3M has a health, safety, and environment
management system with representatives in every business line. Both companies host teams of
internal consultants and business managers who offer advice and conduct social responsibility
audits in work units.
Although 75% of leaders attribute their commitment to organizational traditions and values,
external pressures keep corporate feet to the fire. Research from Environics and the Center for
Corporate Citizenship shows the public holds corporations accountable for, among other things,
restoring the environment, reducing human-rights violations, improving education, and reducing
extreme poverty. With expectations so broad and so high, fewer companies will be able to say
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that just following the law is enough.
Philip Mirvis, “The Best of the Good,” Harvard Business Review, December 2004, p. 20.
MANAGEMENT IN ACTION
Notes for Topics for Discussion and Action
DISCUSSION
1. What is the relationship between ethics and the law?
Ethical beliefs lead to the development of laws and regulations designed to prevent certain
behaviors and encourage others. However, a society’s ethical beliefs change over time, causing it
to question whether some of its existing laws that make certain actions legal or illegal remain
appropriate in today’s culture. Laws themselves can and do change as ethical beliefs change in
today’s society. In studying the relationship between ethics and law, it is important to understand
that neither laws nor ethics are fixed principles that do not change over time. Ethical beliefs
change as time passes; and as they do so, laws change to reflect the changing ethical beliefs of a
society.
Also managers should keep in mind that because an action or decision is legal does not guarantee
that it is ethical. Managers should strive to make decisions that are both legal and ethical.
Sometimes managers may be tempted to take the path of least resistance by hiding behind the
letter of the law. However, highly ethical decision makers realize that they must also recognize
the spirit of law and avoid using legal technicalities as a way of justifying behavior with
potentially harmful consequences.
2. Why do the claims and interests of stakeholders sometimes conflict?
Claims and interests of stakeholders sometimes conflict because each group’s primary concern is
their own self-interest. Managers have an ethical obligation to safeguard the well-being of all
stakeholders affected by its decisions, even when the interests of various stakeholder groups
conflict. For example, during an economic downturn, layoffs may help to cut costs and thus
benefit shareholders at the expense of the employees who lose their jobs. Dealing with such
ethical dilemmas is very difficult and challenging for managers.
3. Why should managers use ethical criteria to guide their decision making?
Managers should behave ethically because the relentless pursuit of self-interest can lead to a
collective disaster. When one or more managers start to profit from unethical conduct,
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unfortunately, other managers may make the decision to behave in the same way. The unbridled
pursuit of individual self-interest with no consideration for other stakeholders eventually leads to
disaster for each individual as well as the collective society, since scarce resources are destroyed.
Unethical behavior reduces efficiency and effectiveness of production and trade, which in turn
reduces company performance, resulting in a reduction of the national standard of living, well-
being, and prosperity.
Unethical decision making by managers can also lead to an erosion of the company’s reputation,
as well as erosion of stakeholder trust. Key relationships with important stakeholders, such as
customers, investors, suppliers and distributors can be severely damaged when their confidence
and faith in an organization’s goodwill begins to dissipate and when the esteem or high repute
they once associated with the company starts wearing away.
4. As an employee of a company, what are some of the most unethical business practices that you
have encountered in its dealing with stakeholders?
(Note to the instructor: Student responses to this question will vary based on their workplace
experiences.)
Examples of unethical practices that received a great deal of media attention during the early
2000s were Enron and WorldCom. At Enron, former chief financial officer, Andrew Fastow, and
his wife falsified the company’s books so that they could siphon off millions of dollars of the
company’s money for their own use. At WorldCom, the former CEO used his position to place
six personal, longtime friends on the board of directors, who would vote in his favor at board
meetings As a result of their support, the CEO received huge stock options and a personal loan of
over $150 million from the company. In both cases, investors, customers, and employees were
severely damaged by the despicable behavior of these top managers.
5. What are the main determinants of business ethics?
Business ethics are influenced by four principle sources in the organizational environment:
societal ethics, individual ethics, occupational ethics, and organizational ethics. It is very
important that boards of directors closely scrutinize the ethical record and reputation of
candidates for top management positions to determine if he or she has the maturity, integrity, and
experience required to be entrusted with the organization’s wealth and capital. Such background
information is critical, since leaders play a crucial role in determining its organization’s ethics. If
top management consistently endorses the ethical principles in its corporate code of ethics or
credo, employees are much less likely to behave unethically.
Societal ethics emanate from a society’s laws, customs, practices and the unwritten values and
norms that influence how people interact with each other. Since they help to determine the level
of self-interested behavior considered acceptable within a culture by individuals and
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organizations, they also influence business ethics. Societal ethics vary among societies and are
usually internalized by its citizens. Occupational ethics are standard that govern how members of
a profession, trade, or craft should conduct themselves when performing work-related activities.
For example, the American Marketing Association has a code of ethics with which most
marketing professionals are familiar and hopefully adhere to, thereby influencing the standard of
ethical conduct within a business.
ACTION
6. Find a manager and ask about the most important ethical rules he or she uses to make the
right decisions.
(Note to the instructor: Student responses to this question will vary based upon the manager
they query.)
They may find that many managers use the adage “Do unto others as you would have them do
unto you.” This is a moral rights principle that defines an ethical decision as one that best
maintains and protects the fundamental or inalienable rights and privileges of the people affected
by it. They may also find that the guidelines outlined in the practical rule are also frequently
used. Other managers may rely upon the utilitarian rule, which defines an ethical decision as one
that produces the greatest good for the greatest number of people, or the justice rule, which
defines an ethical decision as one that distributes benefits and harms among people and groups in
an equitable and impartial way.
7. Find an example of (a) a company that has an (a) obstructionist approach to social
responsibility and (b) one that has an accommodative approach.
When taking an obstructionist approach toward social responsibility, companies and their
managers choose to behave unethically and illegally and then do all they can to prevent
knowledge of their behavior from reaching other stakeholders and society at large. Examples
include the Mansville Corporation when it tried to hide evidence that asbestos causes lung
damage and the tobacco companies that sought to hide evidence that cigarette smoking causes
lung cancer.
Companies taking an accommodative approach agree that they should behave both legally and
ethically, and therefore they try to balance the interests and needs of various stakeholder groups,
as the need arises. This approach is the one taken by most large U.S. companies who understand
how much they could possible lose from unethical or illegal behavior. Johnson and Johnson
demonstrated an accommodative approach over twenty years ago when it decided to stop
marketing its baby oil as a tanning aid because of emerging but still inconclusive evidence
suggesting that health problems might result from too much exposure to the sun. That decision
cost the company $5 million in lost sales revenue.
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AACSB standards: Ethics, Analytic, Reflective Thinking
BUILDING MANAGEMENT SKILLS
Dealing with Ethical Dilemmas
(Note to the instructor: Student answers will vary. Below is some general information to help
guide class discussion.)
1. You are planning to leave your job to go work for a competitor. Your boss invites you to an
important meeting where you will learn about new products your company will be bringing out
next year. Do you go to the meeting?
The moral rights rule should be considered in this situation. Under the moral rights rule, an
ethical decision is one that best maintains and protects the fundamental or inalienable rights and
privileges of the people affected by it. For example, ethical decisions protect the rights of people
and organizations to freedom, life, safety, property, privacy, free speech and freedom of
conscience. Although the employee is free to pursue another career opportunity (as long as a
non-compete agreement was not signed), the employer also has the right to maintain the privacy
of its company secrets. Since it would be nearly impossible for the employee to avoid using the
confidential information gained at this meeting to compete against his former employer in his
new position, it is best that the employee not attend the meeting.
2. You’re the manager of sales in an expensive sports car dealership. A young executive who has
just received a promotion comes in and wants to buy a car that you know is out of her price
range. Do you encourage the executive to buy it so you can receive a big commission on the
sale?
The utilitarian rule should be considered in this situation. Self-interest may motivate the
salesperson to encourage the executive to purchase the expensive car. However, many others,
such as the bank financing the purchase and the executive’s family, could be harmed when the
executive eventually recognizes that the outcome of her impulsive decision is the burden of car
payments she can’t afford. By considering the greatest good for the greatest number, hopefully
both the salesperson and the executive will realize that the purchase being considered is not a
good idea.
3. You sign a contract to manage a young rock band, and that group agrees to let you produce
their next seven records, for which they will receive royalties of 5%. Their first record is a smash
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hit and sells millions. Do you increase their royalty rate on future records?
The justice rule should be considered in this situation. Because a contract has been signed, the
manager does not have a legal obligation to increase royalty payments. However, according to
the justice rule, an ethical decision is one that distributes the benefits or harms among people in a
fair and equitable way. Allowing the band to receive only 5% of revenues earned as result of
their creative talent is neither fair nor equitable.
AACSB standards: Ethics, Analytic, Reflective Thinking
MANAGING ETHICALLY
Apple Juice or Sugar Water?
1. Why is it that an organization’s values and norms can become too strong and lead to unethical
behavior?
Pursuit of self-interest is an accepted norm in most capitalist business environments. However, if

left unchecked, it can escalate to a level of greed and selfishness that is so pervasive that it will
subtly and gradually begin to outweigh concerns for other stakeholders and society at large.
Therefore, checks and balances must be built into the fabric of the organization’s structure and
culture to ensure that such an escalation is prevented from occurring.
2. What steps can a company take to prevent this problem—to stop its values and norms from
becoming so inwardly focused that managers and employees lose sight of their responsibility to
their stakeholders?
An organizational code of ethics should be established and followed. The CEO and other top
managers must lead by example. Managers must also go one step further by ensuring that
important ethical norms and values are embedded into the company’s culture. When ethical
values and norms are embedded into organizational culture, it helps employees resist pursuing
purely selfish actions and recognize that they are a part of something bigger than themselves.
Also companies can encourage employee whistle-blowing by creating an environment that
encourages it. Whistleblowers expose what they believe to be unethical behavior by their fellow
employees to either internal sources, such as upper level managers or the corporate ethics officer,
or to external sources, such as the government or newspapers.
AACSB standards: Ethics, Reflective Thinking
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SMALL GROUP BREAKOUT EXERCISE
Is Chewing Gum the “Right” Thing to Do?
1. What makes chewing gum acceptable in the United States and unacceptable in Singapore?
In Singapore, the legal system places greater importance on preserving the cleanliness of its
streets than on an individual’s right to possess and chew gum. Because disdain for gum chewing
has become an accepted value in Singapore and has been internalized by its residents as a social
norm, its unacceptability is no longer considered a matter of significance. However, societal
norms and values differ among cultures. In the United States, the importance of protecting an
individual’s right to freedom, property, privacy, and self-expression is highly valued. That’s why
American society has decided to tolerate gum chewing, as well as many other more offensive
practices.
2. Why can you chew gum on the street but not in a church?
In the U.S., many view gum chewing in public places as rude and therefore some (but not all)
organizations have created rules prohibiting it. As a whole, however, Americans are not so
strongly opposed to gum chewing that they feel the need to make it illegal.
3. How can you use ethical principles to decide when gum chewing is ethical or unethical and if
and when it should be made illegal?
If using the utilitarian rule, Singapore’s position can be viewed as highly ethical since a decision
to keep streets clean produces the greatest good for the greatest number of people. Of course, this
rests upon the assumption that Singapore residents place a high value on cleanliness. If using the
moral rights rule, however, the American position can be viewed as highly ethical, since an
ethical decision is seen as one that protects the fundamental or inalienable rights of others.
Neither ethics nor laws are fixed principles and both are subject to change over time. In either
nation, if societal opinions and attitudes regarding the ethicality of gum chewing were to
significantly shift, it may become appropriate to change the laws regarding gum chewing to
reflect that shift.
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EXPLORING THE WORLD WIDE WEB
1. What ethical principles guide Wal-Mart’s approach to global purchasing?
Wal-Mart’s approach to assessing and evaluating its global suppliers passes each of the questions
posed by the practical rule.
2. Does Wal-Mart appear to be doing a good job of enforcing its global code of conduct?
Yes, Wal-Mart’s system of monitoring and enforcing the ethical conduct of its many global
suppliers seems quite rigorous and thorough. In 2011, more than 9,737 audits on 8,713 factories
were conducted to verify that the company’s suppliers were adhering to its Standards for
Suppliers. This document states the company’s fundamental expectations regarding employment
practices and environmental compliance for all of its manufacturing facilities, subcontractors,
and packaging facilities. The Standards for Suppliers must be posted in English and the local
language in a common area, and a manual is available to help local facilities understand the
expectations of and its obligations to the corporate office.
Students can visit the following links to find more information:

http://corporate.walmart.com/global-responsibility/ethical-sourcing/audit-process
http://corporate.walmart.com/global-responsibility/ethical-sourcing/standards-for-suppliers
AACSB standards: Reflective Thinking
BE THE MANAGER
Creating an Ethical Code
(Note to the instructor: Student responses will vary. Below are some suggestions.)
• We will protect our company’s reputation and the trust of our customers by striving to
provide the highest quality food and service at all times.
• At all times, honesty, integrity, and candor will be used when conducting business affairs
internally with other employees or externally with suppliers, vendors, or consultants.
• We will conduct ourselves as a responsible and responsive corporate citizen in our
community.
• We will respect the environment and exercise good judgment concerning the impact of our
activities on the environment.
• Diversity is embraced and respected. Discrimination on the basis of race, color, gender, age
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or sexual orientation will not be tolerated.
• Competing with the company in any way is not permitted. Also, an employee may not use
company personnel, information, or other assets for personal benefit or gain.
• To avoid any appearances of impropriety, accepting and providing gifts, entertainment, and
services from customers or vendors not permitted.
CASE IN THE NEWS
Case Synopsis: J&J Names Gorsky as New CEO after Product Recalls
Johnson & Johnson named Alex Gorsky to succeed former CEO William C. Weldon, as the
company attempts to rebound from problems caused by the recall of many of its products.
Gorsky is described as an “experienced visionary and disciplined leader with more than 20 years
of increased and broad-based responsibilities with J&J.” J&J is the world’s second biggest health
care company.
During 2011, J&J generated $65 billion in revenue from manufacturing and selling everything
from Band-Aids to cancer drugs. Although the company has seen a revival in its drug business,
its devices unit faces thousands of lawsuits resulting from recalls. Also, J&J has struggled
mightily with quality control in its consumer health units. It has been forced to recall dozens of
brands, including hundreds of millions of over-the-counter medicines and 93,000 faulty hip
implants. It also faces a series of lawsuits for its alleged illegal marketing of prescription drugs.
Unemployment in the United States and European austerity measures has further compounded
the company’s woes.
Questions:
1. J&J used to be a company renowned for its focus on supporting the interests of its
stakeholders, and its managers went out of their way to control product safety. Using the
material in this chapter, what kinds of issues and factors do you think led managers to drop the
ball and make the mistakes that have cost the company hundreds of millions of dollars in fines?
(Note to the instructor: Student answers may vary.)
In the past, Johnson & Johnson has always taken a strategic approach toward organizational
ethics, incorporated key ethical values and norms into the organization’s culture, and taken a
proactive approach toward social responsibility. However, the company has moved away from
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these practices in recent years, according to the article cited below. Factors contributing to
quality issues at J&J include a change in corporate culture, cost cutting practices in response to
the economic downturn, lapses in leadership, too much decentralization, and a push for fatter
margins.
2. How can J&J’s new CEO Alex Gorsky work to improve the ethical values in J&J’s culture to
ensure it will not engage in unethical and even illegal actions again? What kind of stance on
social responsibility should J&J adopt to restore customer goodwill?
(Note to the instructor: Student answers may vary.)
J&J’s Credo shown in Figure 4.7 of the text is still place. The problem appears to be that the
foundational values and norms established in this document no longer guide managerial decision
making in the company. The new CEO must lead by example in restoring the company’s
traditional values and norms, since employees look up to those in authority to provide leadership.
Also Gorsky should consider appointing an ethics ombudsman who will be responsible for
designing systems that monitor employee conformity to the Credo and teaching employees the
appropriate way to respond to ethical dilemmas. Unfortunately, it appears that J&J has tumbled
downward to an obstructionist approach toward social responsibility, which has resulted in a loss
of its stellar reputation. Return to its proactive approach will help to restore customer goodwill.
3. Search the web for information about how J&J is working to improve its ethical decision
making.
J&J is on its way toward restoring the high levels of quality to which consumers were
accustomed from the company. The implementation of organizational changes to its supply
chain, manufacturing, quality, and compliance areas, which began early in 2010, has been
accelerated. A thorough review of manufacturing operations in each of their plants has been
undertaken, and the historical production records of McNeil Consumer Healthcare products
manufactured internally and sold in the U.S. were closely examined. The company will continue
to conduct reviews at external manufacturing sites and if these reviews reveal any further issues,
necessary steps will be taken, including further market action, to ensure that J&J products meet
world-class quality standards.
Source: http://www.investor.jnj.com/2010annualreport/pdf/2010-annual-report.pdf and

http://www.businessweek.com/magazine/content/11_15/b4223064555570.htm#p1
Source: Alex Nussbaum and Drew Armstrong, “J&J Names Gorsky as New CEO after Product
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Recalls,” Bloomberg Businessweek, February 21, 2012.
SUPPLEMENTAL FEATURES
Please see the following collections on the Asset Gallery located on the Instructor OLC at
www.mhhe.com/jonesgeorge8e.
VIDEO CASE
Whose Life Is It, Anyway?
At lunchtime at the Scott’s Miracle-Gro headquarters in Columbus, Ohio, employees select from
many attractive and healthful choices, like salmon and steamed vegetables. Scott’s goes to great
lengths to keep employees healthy. It provides a full-time doctor and clinic that is free to workers
and families enrolled in the company’s medical plan and a drive-through pharmacy next door
that stocks generic drugs. There’s also a gym that is free to those who work out more than twice
a week. Less-frequent users pay just $10 a month.
The lawn-care company, which has annual sales of $2.7 billion, has invested $5 million on
programs to help improve employees’ health and the bottom line. “It’s partly about money and
keeping our costs under control,” says Scott’s CEO Jim Hagedorn, “and partly about saying,
‘Why would you want to work an entire career here at Scott’s, retire, and die?’”
Scott’s tries to make it easy for employees to exercise, eat properly, and get medical advice.
Strong incentives encourage them to participate in wellness programs. At first, Scott’s offered
$120 in cash to workers who completed health risk appraisals, but only 70 percent participated.
That figure rose to 90 percent the next year, after the company required those who didn’t take a
health risk appraisal when enrolling in the health plan to pay an extra $40 per month in
premiums. Then Scott’s went a step further and assigned health coaches to employees whom
health appraisals identified as moderate- to high-risk. Employees who didn’t consult with their
health coaches were required to pay an additional $67 per month in health premiums the
following year.
Those steps may have seemed like tough love, but the company got even tougher with incentives
aimed at the smokers on the payroll, or about 30 percent of Scott’s 5,300 U.S. employees. The
issue hits home doubly for Hagedorn, a former smoker whose mother died of lung cancer, and a
CEO facing an estimated extra $4,000 per smoker per year in health care costs and lost
productivity. Scott’s adopted a strict policy that bans smoking by employees both on and off the
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job, with the possibility of losing their job if they don’t quit. The company tries to help by paying
for counseling, Nicorette, prescription drugs, and even hypnosis. Hagedorn says as long as
employees really try, they won’t get fired. Legally they could be, since Ohio is one of 20 states
without smokers’ rights laws.
It’s no surprise that Scott’s stringent no-smoking policy is controversial. Employment-law

attorney Marvin Gittler questions the extent of the policy, saying, “Once you leave, once you
complete your eight hours, it is frankly none of the employer’s business what you do.”
Nevertheless, even employees who smoke understand the reasoning behind Scott’s smoking ban.
It’s a choice, says Kim Creviston, a pack-a-day smoker. “If you choose not to quit, then you
choose to get a different job,” she says. “And I truly believe we will see other companies doing
this.”
Questions
1. Do you think it is ethical for Scott’s or other companies to fire employees who smoke, even
if they only smoke outside of work?
Some students are likely to support each side. Amid growing anti-smoking sentiments,
many organizations and cities have banned smoking inside facilities or in other locations.
Since smoking is legal, smokers believe they have the right to smoke in other places and
always in their own vehicles and homes. Many states have smokers’ rights laws that
prohibit firing employees who smoke, but many don’t. When the law does not specify how
companies should behave, managers must decide what is the right or ethical way to behave
toward the people and groups affected by their actions.
2. In implementing Scott’s health initiatives, does Hagedorn put the interests of one group of
stakeholders above those of another?
With the anti-smoking policy, Hagedorn had to juggle the interests of stockholders,
employees, and management, while deciding the most efficient use of company resources.
As manager, he strives to maximize the return on stockholders’ investment. One way is to
keep down the fast-rising cost of employee health care. He also considered employees’
welfare. The health initiatives, including the strict smoking ban, are designed to help
employees maintain or improve health and increase their longevity and quality of life. The
smoking ban and penalty of firing smokers does put the welfare of stockholders,
management, and the majority of employees above the preference of employees who
smoke.
3. Which ethical rule does the strict smoking policy reflect?
4-34
The policy reflects the utilitarian rule, which bases an ethical decision on what produces
the greatest good for the greatest number of people.
Sources: Joanne Wojcik, “Financial Incentives Boost Wellness Program Participation,” Business
Insurance, December 3, 2007, p. 28; Michelle Conlin, “Get Healthy—Or Else: Inside One
Company’s All-Out Attack on Medical Costs,” Business Week, February 26, 2007, p. 58.
MANAGER’S HOT SEAT (MHS)
• Let’s Break a 4th Quarter Deal
SELF-ASSESSMENT(S)
• Ethics (#2 online)

o Assessing Your Ethical Decision-Making Skills
o Corporate Social Responsibility and Human Resource Management
TEST YOUR KNOWLEDGE
• Ethics (#2 online)
Note: Test your knowledge and the Self-Assessment are the same exercise although they have
different titles.
4-35
INSTRUCTOR’S POWERPOINT SLIDES
These Instructor’s PowerPoint slides can be used to supplement the lecture material.
INSTRUCTOR’S INSTRUCTOR’S INSTRUCTOR’S

POWERPOINT SLIDE 1 POWERPOINT SLIDE 2 POWERPOINT SLIDE 3
Chapter Title Learning Objectives Learning Objectives cont.

Ethical Dilemma Ethics Dealing with Ethical Issues
4-36

Stakeholders Type of Company Stockholders
Stakeholders: Figure 4.1

Managers Managers cont. Employees
INSTRUCTOR’S RNINGINSTRUCTOR’S INSTRUCTOR’S

Suppliers and Distributors Some Principles from the Customers
Gap’s Code of Vendor
Conduct: Table 4.1
4-37

Whole Food’s Stakeholder Community, Society, and Example—Houston Non-
Approach to Ethical Business: Nation Profits
Figure 4.2

Ethical Decision Making: Practical Decision Model Why should managers behave
Figure 4.3 ethically?

Some Effects of Trust Reputation
Ethical/Unethical Behavior:
Figure 4.4
4-38
INSTRUCTOR’S INSTRUCTOR’S
INSTRUCTOR’S
POWERPOINT SLIDE 25 POWERPOINT SLIDE 27
POWERPOINT SLIDE 26
Sources of Ethics: Figure 4.5 Occupational Ethics
Societal Ethics

Individual Ethics Organizational Ethics Social Responsibility
4-39

Approaches to Social Obstructionist approach Defensive approach
Responsibility: Figure 4.6

Accommodative approach Proactive approach Why Be Socially
Responsible?
4-40

Role of Organizational Johnson & Johnson Credo: Ethics Ombudsman
Culture Figure 4.7
INSTRUCTOR’S
POWERPOINT SLIDE 40
Video Case: Hewlett Packard
4-41

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Chapter 4 – Ethics and Social Responsibility

Contemporary Management 8th Edition

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Ethics and Social Responsibility

Learning Objectives 4-2

Small Group Breakout Exercise 4-28

LO4-4. Discuss why it is important for managers to behave ethically.

LO4-5. Identify the four main sources of managerial ethics.

NOTE ABOUT INSTRUCTOR

The Instructor PowerPoint Slides include

A Manager’s Challenge (Pages 99-101)

I. THE NATURE OF ETHICS

• Ethical dilemma is the quandary people find

• Society as a whole, using the political and legal

C. Changes in Ethics over Time

• There are many types of behavior—such as

II. STAKEHOLDERS AND ETHICS

• Stockholders have a claim on a company because

• Managers are a vital stakeholder group because

C. Ethics and Nonprofit Organizations

• The issue of what is fair executive compensation is

• Customers are often regarded as the most critical

H. Rules for Ethical Decision Making

• The utilitarian rule is that an ethical

Moral Rights Rule

• Under the moral rights rule an ethical

• The justice rule is that an ethical decision

• The practical rule is that an ethical decision

I. Why Should Managers Behave Ethically?

• The relentless pursuit of self-interest can lead to a

III. Ethics and Social Responsibility

• There are four main determinants of differences in

• Occupational ethics are standards that govern

A. Four Different Approaches

• The strength of companies’ commitment to social

B. Why Be Socially Responsible?

• Demonstrating its social responsibility helps a

C. The Role of Organizational Culture

STUDENT POWERPOINT SLIDE 13

Lecture Enhancer 4.1

Lecture Enhancer 4.2

Company Name Responding No

Lecture Enhancer 4.3

Notes for Topics for Discussion and Action

2. Why do the claims and interests of stakeholders sometimes conflict?

5. What are the main determinants of business ethics?

AACSB standards: Ethics, Analytic, Reflective Thinking

BUILDING MANAGEMENT SKILLS

Dealing with Ethical Dilemmas

AACSB standards: Ethics, Analytic, Reflective Thinking

Apple Juice or Sugar Water?

Pursuit of self-interest is an accepted norm in most capitalist business environments. However, if

AACSB standards: Ethics, Reflective Thinking

SMALL GROUP BREAKOUT EXERCISE

Is Chewing Gum the “Right” Thing to Do?

AACSB standards: Ethics, Reflective Thinking

EXPLORING THE WORLD WIDE WEB

1. What ethical principles guide Wal-Mart’s approach to global purchasing?

Students can visit the following links to find more information:

AACSB standards: Reflective Thinking

Creating an Ethical Code

AACSB standards: Ethics, Reflective Thinking

CASE IN THE NEWS

(Note to the instructor: Student answers may vary.)