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Management, 11ce Instructor’s Manual

Chapter 5
Managing Responsibly and Ethically
This chapter discusses the importance of being socially responsible and ethical for
organizations and managers. Chapter 5 presents contemporary concepts of managerial
ethics and social responsibility to help your students explore and appreciate the critical
role of these issues in today’s complex business environment. The chapter begins by
looking at what it means to be socially responsible and ethical and what role managers
play in both. It then reviews how managing responsibly contributes to organizational
performance and identifies sustainable management practices. Finally, we discuss the
principles of values-based management and current ethical issues. In studying this
chapter, your students will have the opportunity to consider how socially responsible an
organization needs to be in the light of the impact of social involvement on managerial
decision making and economic performance.

In addition, Chapter 5 probes the ethical dimensions of managerial decision making.


Students will read about factors that have the potential to influence an individual’s ethics
and actions and to improve the ethical behaviour of an organization. As the chapter
closes, timely issues of social responsibility and ethics are presented, and students are
challenged to think about how they will manage responsibly and ethically as future
managers in a changing world.

LEARNING OUTCOMES

5.1 Understand what it means to be a socially responsible manager.


5.2 Describe how managing responsibly contributes to organizational performance.
5.3 Identify sustainable management practices.
5.4 Understand the principles of values-based management.
5.5 Discuss current ethics issues.

CHAPTER VIGNETTE SUMMARY

Interface Inc., is a manufacturer of carpet tiles, founded by Ray Anderson in 1973, that
has grown into a billion-dollar business with 4000 employees. In 1994, after reading Paul
Hawken’s The Ecology of Commerce, Anderson made a drastic change in course for his
company. It became his mission to “turn the myth that you could do well in business or
do good, but not both, on its head.” Between 1996 and 1998, Interface reduced its
greenhouse gas emissions by 71 percent while growing its sales by two-thirds and
doubling its profits. Interface’s dedication to sustainability has evolved into the
company’s Mission Zero commitment, a promise to eliminate any negative impact
Interface has on the environment by 2020.

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This vignette highlights the key elements of corporate responsibility and the balance
between profitability and social responsibility. Interface’s Mission Zero commitment has,
in fact, created a competitive advantage.

In this chapter, students learn about the importance of deciding how much social
responsibility is enough and the types of ethical and social responsibility issues that
managers may have to address as they plan, organize, lead, and control. As managers
go about their business, social factors can and do influence their actions. In this chapter,
students are introduced to the issues surrounding social responsibility and managerial
ethics. Both corporate social responsibility and ethics are responses to a changing
environment and are influenced by organizational culture (Chapter 2); they have an
influence on how we do business globally (Chapter 3); and they are important
considerations when making decisions (Chapter 7).

CHAPTER OUTLINE

1. INTRODUCTION
This chapter discusses issues involving social responsibility and managerial
ethics and their effect on managerial decision making. Both social responsibility
and ethics are responses to a changing environment and are influenced by
organizational culture.
2. WHAT IS MEANT BY SOCIALLY RESPONSIBLE MANAGEMENT?
Managers regularly face decisions that have dimensions of social responsibility.
Examples include employee relations, philanthropy, pricing, resource
conservation, product quality and safety, and doing business in countries that
violate human rights. There are two opposing views of social responsibility. The
classical view is the view that management’s only social responsibility is to
maximize profits. Economist and Nobel laureate Milton Friedman is the most
outspoken advocate of this view. Friedman argues that managers’ primary
responsibility is to operate the business in the best interests of the
stockholders—the true owners of the organization. The socioeconomic view is
the view that management’s social responsibility goes beyond the making of
profits to include protecting and improving society’s welfare. This view purports
that corporations are not independent entities responsible only to stockholders.
A. From Obligations to Responsiveness to Responsibility. Social obligation
occurs when a firm engages in social actions because of its obligation to
meet certain economic and legal responsibilities. Social responsiveness
is seen when a firm engages in social actions in response to some
popular social need. Social responsibility is a business’s intention,
beyond its legal and economic obligations, to do the right things and act
in ways that are good for society. Exhibit 5-1 shows a socially
responsible organization does what is right because it feels it has an
ethical responsibility to do so.
B. The Evolution of Socially Responsible Management. Classicists say that
stockholders are the only legitimate concern. The four stages of the
progression of an organization’s social responsibility are shown in Exhibit
5-2.
a. In Stage 1 the manager adopts the classical view of social
responsibility by obeying all laws and regulations while caring for
stockholders’ interests.

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b. In Stage 2, managers expand their interests to include employees


in order to attract, keep, and motivate good employees.
c. In Stage 3, attention extends to other stakeholders like customers
and suppliers. Actions may include setting fair prices, producing
high quality products and services and maintaining good supplier
relations.
d. In Stage 4, a manager demonstrates his or her responsibility to
society as a whole and feels it is important to take actions that
will help advance the public good, even if it means having a
negative impact on profits.
3. CORPORATE SOCIAL RESPONSIBILITY AND ECONOMIC PERFORMANCE
How do socially responsible activities affect a company’s economic
performance?
A. The majority of studies found a positive relationship between social
involvement and economic performance, but some caution is necessary
because of methodological questions associated with trying to measure
corporate social responsibility and economic performance. Another way
to address this issue is to evaluate socially responsible investment (SRI)
funds. These mutual funds provide a way for individual investors to
support socially responsible companies. These funds typically use social
screening—applying social criteria (screens) to investment decisions.
The conclusion is that there is little evidence to say that a company’s
socially responsible actions will hurt an organization’s long-term economic
performance.
4. SUSTAINABLE MANAGEMENT PRACTICES
The recognition by business of the close link between its decisions and activities
and their impact on the natural environment is referred to as sustainable
management. The chapter looks at some sustainability issues managers may
have to address.
A. Global Environmental Problems. Some of the more serious global
environmental problems include global climate change, natural resource
depletion, pollution (air, water, and soil), industrial accidents, and toxic
wastes. Various reports have shown that wealthy societies account for
more than 75 percent of the world’s energy and resource consumption,
and create most of the industrial, toxic and consumer waste. As the world
population continues to grow and as emerging countries become more
market-oriented and well off, shortages in resources such as water and
other global environmental problems can be expected to worsen. But the
good news is that, increasingly, managers and organizations around the
world have begun to consider the impact of their organizations on the
natural environment and have embraced their responsibility to respect
and protect the earth. Sustainable management practices are increasingly
being implemented by organizations.
B. How Organizations Manage Sustainably. There are many ways managers
and organizations can protect and preserve the natural environment.
Some do no more than what is required by law—that is, they fulfill their
social obligation. Others have made radical changes to make their
products and production processes cleaner. There are many examples of
organizations committed to sustainable management. One model of
environmental responsibility uses the phrase shades of green to describe

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the different approaches that organizations take. Approaches include the


legal (or light green) approach, the market approach, the stakeholder
approach, and the activist approach. See Exhibit 5-3 for a continuum of
green approaches.
C. Evaluating Sustainable Management. As organizations become
“greener,” they are reporting their commitment to being green in several
ways, including fulfillment of guidelines issued by the Global Reporting
Initiative (GRI); meeting ISO 14001 standards. The ISO 26000 social
responsibility standards were released in November 2010. These
standards provide guidance to business and public sector organizations
on issues related to social responsibility. The ISO 26000 standards
represent an international consensus on what social responsibility means
and the issues that need to be addressed to implement it, based on broad
stakeholder input, including developing countries, business, government,
consumers, labour, and nongovernmental organizations.

LEADERS WHO MAKE A DIFFERENCE

Recent events have cast a bad light on the ethical behaviour of today’s CEOs. A
contradiction to this view is Yvon Chouinard, founder and president of Patagonia.
Chouinard realized early that everything his company did had a negative effect on the
environment. In response, he redefined his company’s mission to be proactive terms of
the environment. Since 1985, Patagonia has donated 1 percent of its annual sales to
grassroots environmental groups and has gotten more than 1,200 companies to follow
its lead as part of its “1% for the Planet” group.

5. VALUES BASED MANAGEMENT


Values-based management is an approach to managing in which managers
establish, promote, and practice an organization’s shared values.
A. Purposes of Shared Values. Exhibit 5-4 shows the four purposes of
shared organizational values.
1. They act as guideposts for managerial decisions and actions.
2. They also serve to shape employee behaviour and to
communicate what the organization expects of its members.
3. The shared corporate values also can influence the organization’s
marketing efforts.
4. Finally, shared values are a way to build team spirit in
organizations.

6. MANAGERIAL ETHICS
The term ethics refers to principles, values, and beliefs that define what is right
and wrong behaviour. This section examines the ethical dimensions of
managerial decision making.
A. Factors That Affect Employee Ethics. Exhibit 5-5 shows the complex
interactions that influence whether a person acts ethically or unethically
when faced with an ethical dilemma.
1. Stages of Moral Development. Research confirms three levels of
moral development (see Exhibit 5-6). Each level has two stages.
a. First level is preconventional: a person’s choice based on
personal consequences involved.

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b. Conventional level indicates that moral values reside in


maintaining expected standards.
c. Principled level has individuals make a clear effort to
define moral principles apart from the authority of the
groups to which they belong.
d. Research on the stages of moral development shows that
people proceed through the six stages sequentially and
there is no guarantee of continued development. The
majority of adults are at Stage 4 and the higher the stage
an employee reaches, the more likely he or she will
behave ethically.
2. Individual characteristics also influence ethical behaviour.
a. Values are our basic convictions about what is right and
wrong.
b. Ego strength is a personality measure of the strength of a
person’s convictions. Individuals high in ego strength are
likely to resist impulses to act unethically and instead do
what they think is right.
c. Locus of control refers to a personality attribute that
measures the degree to which people believe they control
their own fate. Externals are less likely to take personal
responsibility for the consequences of their behaviour and
are more likely to rely on external forces.
3. Structural variables. The existence of formal rules and regulations,
job descriptions, written codes of ethics, performance appraisal
systems, and reward systems can strongly influence ethical
behaviour.
4. The organization’s culture is another factor that influences ethical
behaviour.
a. An organizational culture most likely to encourage high
ethical standards is one that’s high in risk tolerance,
control, and conflict tolerance.
b. In addition, a strong culture will exert more influence on
managers than a weak one.
c. However, in organizations with weak cultures, work groups
and departmental standards will strongly influence ethical
behaviour.
5. Finally, the intensity of an issue can affect ethical decisions. There
are six characteristics that determine how important an ethical
issue is to an individual (See Exhibit 5-7).
a. Greatness of harm
b. Consensus of wrong
c. Probability of harm
d. Immediacy of consequences
e. Proximity to victim
f. Concentration of effect
B. Ethics in an International Context.
Are ethical standards universal? Hardly! Social and cultural differences
between countries are important environmental factors that determine
ethical and unethical behaviour. The Tips for Managers lists the ten
principles of The Global Compact. At the World Economic Forum in

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January of 1999, the United Nations Secretary-General challenged world


business leaders to “embrace and enact” this particular document
concerning doing business globally in the areas of human rights, labour,
environment, and anti-corruption (see Exhibit 5-8).
C. Encouraging Ethical Behaviour.
What can be done to encourage ethical behaviour? There are a number
of things organizations can do to cultivate ethical behaviour among
members. Eight suggestions will be explored:
1. Employee Selection: The selection process for bringing new
employees into organizations should be viewed as an opportunity
to learn about an individual’s level of moral development, personal
values, ego strength, and locus of control.
2. A code of ethics is a formal statement of an organization’s
primary values and the ethical rules it expects employees to
follow. Also, decision rules can be developed to guide managers
in handling ethical dilemmas in decision-making. Exhibit 5-9
reflects a process for addressing ethical dilemmas that can be
used to examine the ethics of a business decision.
3. Ethical leadership is also an important element in fostering
ethical behaviour. Top management’s leadership and commitment
to ethical behaviour is extremely important because it is the top
managers who set the ethical tone.
4. Employees’ job goals and performance appraisal should be
tangible and realistic, because when goals are clear and realistic,
they reduce ambiguity and motivate rather than punish. Job goals
are usually a key issue in performance appraisal. If an
organization wants it employees to uphold high ethical standards,
it must include this dimension in its appraisal process.
Performance appraisals should be comprehensive and not just
focus on economic outcomes.
5. Ethics training should be used to help teach ethical problem-
solving and to present simulations of ethical situations that might
arise. If it does nothing else, ethics training should increase
awareness of ethical issues.
6. Independent social audits evaluate decisions and management
practices in terms of the organization’s code of ethics and can be
used to deter unethical behaviour.
7. Finally, organizations can provide formal protective
mechanisms so that employees with ethical dilemmas can do
something about them without fear of reprisal. “Whistle-blowers”
can be a key part of a company’s ethics program because they
are willing to step forward and expose unethical behaviour, no
matter what the cost professionally or personally. The company
must limit these potential negative effects.

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ANSWERS TO REVIEW AND DISCUSSION


QUESTIONS

1. Differentiate among social obligation, social responsiveness, and social


responsibility.
Social obligation occurs when a firm engages in social actions because of its
obligation to meet certain economic and legal responsibilities. Social
responsiveness is seen when a firm engages in social actions in response to
some popular social need. Social responsibility is a business’s intention,
beyond its legal and economic obligations, to do the right things and act in ways
that are good for society.

2. What does social responsibility mean to you personally? Do you think business
organizations should be socially responsible? Explain.
Students will have different answers to this question. They should say something
to the effect that social responsibility means going “beyond the minimum required
by law.” They should pinpoint why they feel business firms should or should not
be socially responsible and explain their meaning.

3. What factors influence whether a person behaves ethically or unethically?


Explain all relevant factors.
Whether an employee acts ethically or unethically is the result of complex
interactions between the stages of moral development, individual characteristics,
structural variables, organizational culture and issue intensity.
Research confirms three levels of moral development. Each level has two
stages. The first level is preconventional: a person’s choice based on personal
consequences involved. The conventional level indicates that moral values
reside in maintaining expected standards. The principled level has individuals
make a clear effort to define moral principles apart from the authority of the
groups to which they belong. Individual characteristics also influence ethical
behaviour. Values are our basic convictions about what is right and wrong. Ego
strength is a personality measure of the strength of a person’s convictions.
Individuals high in ego strength are likely to resist impulses to act unethically and
instead do what they think is right. Locus of control refers to a personality
attribute that measures the degree to which people believe they control their own
fate. Externals are less likely to take personal responsibility for the consequences
of their behaviour and are more likely to rely on external forces.

Regarding structural variables, the existence of formal rules and regulations,


job descriptions, written codes of ethics, performance appraisal systems, and
reward systems can strongly influence ethical behaviour. The organization’s
culture is another factor that influences ethical behaviour. An organizational
culture most likely to encourage high ethical standards is one that’s high in risk
tolerance, control, and conflict tolerance. Finally, the intensity of an issue can
affect ethical decisions. There are six characteristics that determine how
important an ethical issue is to an individual.
a. Greatness of harm
b. Consensus of wrong
c. Probability of harm

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d. Immediacy of consequences
e. Proximity to victim
f. Concentration of effect

4. Do you think values-based management is just a “do-gooder” ploy? Explain your


answer.
If viewed as an actual approach to managing and not just a series of
guidelines, values-based management can be much more than a “do-
gooder” ploy. If an organization actually practices values-based
management, managers will use the shared values as they make
decisions and do their jobs.

5. Internet file sharing programs are popular among college and university
students. These programs work by allowing anyone to access any local network
where desired files are located. Because these types of file-sharing programs
tend to clog bandwidth, local users’ ability to access and use a local network is
reduced. What ethical and social responsibilities does a university have in this
situation? To whom do they have a responsibility? What guidelines might you
suggest for university decision makers?
Students will probably come up with different answers here. Some students may
bring up the question of whether the network system belongs to them or not
based on the payment or nonpayment of campus computing fees. The issue of
whether or not sharing files is legal is also one that will most likely be raised.
Students should be encouraged to address the situation from the perspective of
the college or university and suggest guidelines that might be used to deal with
this situation. You may also want to discuss the current standing of litigation of
such companies as Napster.

6. What are some problems that could be associated with employee whistle-
blowing for (a) the whistle-blower and (b) the organization?
The whistle-blower might find that peers, managers and other company
employees ostracize him or her. If remaining employed at the organization, he or
she may find that it is difficult to get things done or to get needed resources.
The organization could face a tarnished reputation if the whistle-blowing incident
became public. Also, other employees could watch to see what happened and
how the organization treats whistle-blowers. A pattern for future ethical or
unethical behaviour could be set by the organization’s response to a whistle-
blower.

7. Describe the characteristics and behaviours of someone you consider to be an


ethical person. How could the types of decisions and actions this person
engages in be encouraged in a workplace?
An ethical manager is likely to have a strong values system that he or she uses
to distinguish right from wrong. The person is also likely to be in Stage 4, 5, or 6
of moral development. The person will probably have strong convictions; that is,
their ego strength will be high. And the individual would likely have an internal
locus of control. An ethical manager would probably behave by making decisions
and engaging in work activities that supported his or her values. You’d probably
also find that an ethical manager would challenge what he or she perceived as

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ethically questionable decisions or actions. If an organization wants its managers


to uphold high ethical standards, it must include ethics in its appraisal process.

8. Explain the ethical and social responsibility issues facing managers today.
Deciding how much social responsibility is enough—for instance, looking at when
it’s better to simply focus on profits—is just one example of the complicated types
of ethical and social responsibility issues that managers have to address as they
plan, organize, lead and control. As managers go about their business, social
factors can and do influence their actions. Both corporate social responsibility
and ethics are responses to a changing environment and are influenced by
organizational culture; they have an influence on how we do business globally;
and they are important considerations when making decisions.

ETHICS DILEMMA TEACHING SUGGESTIONS

Ethical Dilemma Exercise: Workers’ Rights

It’s not something we often think about when we’re purchasing the latest tech gadget.
However, look at this list of some issues that investigations have uncovered: work shifts
lasting up to 60 hours; factory explosion killing numerous workers that resulted from a
build-up of combustible dust; repetitive motion injuries that are so bad workers lose the
use of their hands. “According to recent press reports, that’s what work is like for
assembly workers in China who build Apple’s iPhones, iPads, and iPods.” In other
locations where workers are assembling products for other tech companies, factory
workers have committed suicide because of the pressure and stress.

Whose responsibility is it to ensure that workplaces are safe, especially when work is
outsourced? “It’s a tricky dance between first-world brands and third-world production.”
What do you think this statement means? Should ethical/corporate responsibility issues
be part of the international strategy decision-making process? Why or why not?
Teaching Suggestions:

In this particular exercise, students may have varying opinions on what they feel “should
be done” vs. what they would “actually do” if they were in this situation. This will
probably lead to some spirited discussion as to what the ethical or appropriate course of
action should be. Students should tie in their response to the theme of doing business
globally in their justification as to what the correct course of action should be. As such,
this exercise will provide an opportunity to review the considerations involved in doing
business globally and discuss in more detail some of the challenges that this poses to
employees, including whether or not whether ethical/corporate responsibilities issues
should be part of the international strategy decision-making process. In particular,
whether it is ethical the use third-world production labour to make first-world brands
when that is, in effect, taking jobs away from one’s own country, and perhaps exploiting
underage labour.

Students should be encouraged to share any work experiences or situations that they
may have encountered of a similar nature.

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WORKING TOGETHER —
TEAM-BASED EXERCISE TEACHING
SUGGESTIONS

Ethical Guidelines and Corporate Social Responsibility

Working together in a small group of three or four, answer the following questions:
1. How would you handle this situation?
2. What ethical guidelines might you suggest for individual and organizational
contributions in such a situation?

Teaching Suggestions

The premise behind the exercise is that the desire to be socially responsible has to be
balanced with the financial means to do so. In this case, students are asked to make it
personal and your role as facilitator could be to ask the question - “Are there others ways
that those who cannot afford to make a donation to philanthropic and charitable
organizations can help such organizations?”

CASE APPLICATION 1 – ANSWER


SUGGESTIONS

The Responsible Organization

1. Is RBC a responsible organization?


As students learn about corporate social and environmental responsibility in their
study of Chapter 5, they will recognize RBC as being a responsible organization.
In 2003, RBC was the first Canadian bank to adopt the equator principles, and in
2007, it was the only Canadian bank to be named one of the Global 100 Most
Sustainable Corporations in the World.

2. What is your best guess as to the initial reaction to this change in policy from
clients, branch managers, the investment community, and activists?
Virtually all stakeholders of RBC were affected by this change in policy, including
customers, employees, shareholders, branch managers, the investment
community, activists and suppliers. Internal stakeholders would certainly be
concerned with organizational economic factors such as profits and returns on
investments, job security, and corporate image and reputation. The confidence of
the company’s suppliers in the integrity and dependability of RBC might be
initially diminished but would quickly be heightened but could affect stakeholders’
willingness to conduct business with the corporation. Shareholders, consumers
and the public recognize the value of the sustainable and socially responsible
practices, which might improve corporate profits. Ultimately, the impact is one of
trust in leadership that is vital to a strong ethical environment.

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3. Identify both the business case and the ethical case for acting responsibly.
Students will identify the business case for acting responsibly as being based on
increased trust and respect by customers, employees, suppliers and
shareholders. Responsible business practices leading to higher profitability
increases the attractiveness of RBC and the value of the shares for
shareholders. This in turn increases the value of RBC stock, and increases
demand in stock and mutual fund markets. Students will also scope out the
ethical case for acting responsibly as being based on showing leadership in
environmental and sustainable practices, leading other companies to do so as
well. RBC’s 2009 Corporate Responsibility Report and Public Accountability
Statement identifies a combination of practices, including leading by example,
communicating and reinforcing a written code of ethics contributes to ethical
business conduct. Employees on every level of the company should be
encouraged to give input during the composition of the organization’s code of
ethics. When employees are empowered to participate in this process, they may
be more likely to follow the standards in the company’s ethics code.

CASE APPLICATION 2 – ANSWER


SUGGESTIONS

A Better Tomorrow

1. How can TOMS balance being socially responsible and being focused on profits?
TOMS has done so by donating a pair of shoes for every pair of shoes that is sold,
thus accomplishing both objectives.
2. Would you describe the TOMS approach as social obligation, social responsiveness,
or social responsibility? Explain.
TOMS approach reflects social responsibility, as what the company is doing is the
business’ intention, beyond its legal and economic obligations, to do the right
things and act in ways that are good for society.

3. It’s time to think like a manager. TOMS’ one-for-one approach is a wonderful idea,
but what would be involved with making it work?
It would most of all involve keeping track of how many shoes are sold, and having in
place a mechanism to ensure that a corresponding number of shoes are sent to
shoeless children around the world.
4. Do you think consumers are drawn to products with a charitable connection? Why or
why not?

Consumers are drawn to products with a charitable connection, since studies have
shown that people prefer to buy from companies that “give back” to the community,
particularly if they go beyond their legal requirements to do so. Although it may be

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Management, 11ce Instructor’s Manual

somewhat costly to be socially responsible, the additional cost can be made up by


the additional volume of sales that result from consumers being drawn to purchase
the products of socially responsible companies.

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