EBUS1624/EFBM2625

General Management
Study pack

Chapter 4
Managerial ethics and social
responsibility

1
 SECTION A
PDF slides

These slides are a summary of the chapter. It

is highly recommended to read through the
chapter in the textbook.

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Chapter 4: Managerial ethics and social
responsibility
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 Learning outcomes
• Define ethical concepts and four forces that influence ethical
conduct.
• Discuss the nature of managerial ethics and ethical decision
making
• Apply the seven principles of a mature ethical culture in the
current business environment
• Differentiate between the different approaches to ethical
decision-making.
• Illustrate the importance of ethical behaviour.
• Summarise the codes of ethics.
• Discuss corporate social responsibility (CSR).
• Demonstrate the four criteria to evaluate effective corporate
social responsibility. 4
 Introduction

• Questions about business ethics and ethical behaviour rose to

prominence as a result of scandals in the business world – such as
KPMG, Steinhoff, EOH and Tongaat Hulett.

• Ethics and ethical behaviour are essential for good management.

– Ethics is the set of moral principles or values that define right and
wrong for a person.
– Ethical behaviour is the behaviour that matches the society’s
accepted principles of right and wrong.
– An ethical issue is a situation where the actions of a manager can
harm or benefit a person or group.
– Organisational ethics is the application of ethics in the organisation.

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 Forces for ethical conduct

Societal norms and

Individual perspective
culture

Four forces
that influence
ethical
conduct

Organisational practices
Laws and regulations
and culture z
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 Forces for ethical conduct (cont.)

Force 1: Individual perspective

Internal External

• Value system and morals • Environment

• Integrity • Peers
• Character • Leaders and managers
• Family, social groups,
and culture

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 Forces for ethical conduct (cont.)

Force 2: Societal norms and culture

Ethical standards mainly develop from the society one is living in:

Local standards

Belief system

Culture

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 Forces for ethical conduct (cont.)

Force 3: Laws and regulations

Laws usually guide people about what is right or wrong with a

series of rules and regulations formed over time by a certain
group of people.

A country’s legal system gives an indication of its ethical standards.

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 Forces for ethical conduct (cont.)

Force 4: Organisational practices and culture

• Is about shared meaning and beliefs held by members that distinguish

the organisation
• Ethical culture can thus be defined as all those elements in an
organisation’s values, assumptions, and beliefs that support or do not
support the ethical code of conduct.
• A company with a mature ethical culture has seven dimensions:
– Ethics accountability and responsibility
– Employee (non-managerial) commitment
– Middle management commitment
– Senior management commitment
– Ethical treatment
– Ethics talks
– Ethics awareness 10
 Forces for ethical conduct (cont.)

Force 4: Organisational practices and culture (cont.)

Founder transmits values in the workplace

Influences the ethical behaviour of employees:

• Encourages ethical behaviour and discourages unethical behaviour
• Strong culture should support high ethical standards

Largest influence on employees’ individual ethical behaviour.

Formal guidance:
• Rules, rituals and regulations, the organisational code of conduct, the
organisation’s set of values, publications, content of the training programs,
reward systems, or the disciplinary actions by the organisation.

Informal influences:
• The actions and example of the managers, especially top management.
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 Nature of managerial ethics

A moral A moral Four guidelines that will help

person refers manager will
to a person lead his or her managers to manage ethics:
with good employees to • Understand the exciting ethical
character. That make ethical
is honest, decisions – culture of the organisation and
trustworthy and to follow society.
and respected through with it
by employees
• Communicate the ethical
standards to all role players.
• Use the reward system to enhance
ethical behaviour.
• Promote ethical leadership
throughout the organisation.

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 Ethical decision-making

• Ethics guide decision-making and managers. They must consider the

impact of their decisions in the long term.
• The principles of business ethics can help improve ethical decision-
making by providing managers with the appropriate knowledge and
tools to allow them to identify, diagnose, analyse, and provide solutions
to the ethical problems and dilemmas with which they are confronted,
correctly.
• All decisions should be legal, fair, and effective, and if a manager
cannot answer yes to all three these issues, the next step should not be
taken.

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 Approaches to ethical decision-making
Long-term self-interest
• All decisions and action should lead to the organisation’s long-term self-interest.

Personal virtue
• Do the right and honest thing, as he or she would not want bad publicity in the
newspapers.
Religious injunction
• Never take a heartless and harmful decision to the community or the individual.

Utilitarian benefits
• Outcome must increase the happiness or decrease the misery of the greatest number of
people over the long term.
Moral rights
• Decisions should be in line with the rights of the society.

Justice
• Make decisions and take actions that equally distribute the benefits and costs among
individuals and groups.
Combination of approaches
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 Theories of business ethics (cont.)

1. Descriptive theories
Descriptive – focuses on what people believe and think is right, describes and
explains states of ethical affairs.
• Describes five modes of the preferred ways in which an organisation
would like to manage ethics:
1. The immoral mode is where unethical conduct is good business.
2. The reactive mode is where organisations experience challenges
and make some gestures towards ethical intent, but unethical
behaviour is ignored and remains unpunished.
3. The compliance mode is when organisations show commitment
towards the management and monitoring of ethical behaviour.
4. The integrity mode has an ethical system that is built on a value-
based set of principles.
5. The Totally Aligned Organisation (TAO) mode - the integration of
ethics is seen in their mission, vision, goals and values.
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 Theories of business ethics (cont.)

2. Normative theories
• Normative – describes how people ought to act, go beyond mere
descriptions of ethical states of affairs and venture into the domain of how,
ideally, specific ethical affairs should be.

• Go beyond mere descriptions of ethical states of affairs and venture

into the domain of how, ideally, specific ethical affairs should be. They
make value judgements that set a specific standard for how things
should be.

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 Theories of business ethics (cont.)

1. Normative theories
• Three theories that provide us with standards for judging whether an
action or state of affairs could be considered ethical or not:
1. The virtue theory of Aristotle. He believed that one should always
ask oneself “what would the virtuous man do?”. His theory is built
on the assumption that morality is needed and is the key to a well-
developed human being.
2. The utilitarian theory of Bentham and Mill states that whatever
one decides, the outcome must increase the happiness or
decrease the misery of the greatest number of people over the
long term.
3. Kant’s deontological theory states that it is impossible to
determine what we should do by studying what other people do.
Kant thought that every action should have a pure intention. If an
action is acceptable to all rational parties involved, it is ethical and,
secondly, one must always treat other people as ends, never
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merely as means.
 Theories of business ethics (cont.)

To apply these theories, organisations must

be clear on the following three questions:
1. Do organisations have moral
responsibilities?
2. Can organisations be regarded as moral
agents?
3. Whose interest should the organisation
serve?

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 Importance of managers to behave ethically

• Despite costs involved, managers must be

constantly aware of the value of operating
ethically within the organisation.

• Whether an organisation operates in an office

setting, a factory, boardroom, or construction site,
ethical behaviour is important.

• What are good reasons to be ethical?

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 Importance of managers to behave ethically (cont.)

Good reasons to be ethical

Customer satisfaction and loyalty – organisation must have good ethical
reputation – why is reputation important?

Employees follow what managers do rather than listening to what they say

Retain good employees – get talented and ethical employees

Develop a positive work environment – good example evokes a sense of

pride in the organisation

Improve society - Managers take actions that are beneficial to society

Avoid legal problems with good ethical decisions

Positive stakeholders – confidence in brand grows

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 Code of ethics

• Formal document that states an organisation’s primary values and the

ethical rules it expects employees to follow:
– Beliefs and values in code of ethics should be internalised by
everyone in the organisation.
– Address their unique business situation.
– Inform the public what the organisation stands for.

• Research shows:
– When executives and superiors emphasise ethics, keep promises, and
model ethical conduct, misconduct is much lower than when
employees perceive that the ethics walk is not consistent with the
ethics talk.

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 Codes of ethics (cont.)

• Where management is more directly involved in defining and

implementing the codes of ethical conduct, there is:
– better transparency, and
– greater public trust in the organisation.

• Good code of ethics is just as important for organisation as its

marketing plan, business plan, or financial strategy.

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 Codes of ethics (cont.)

The code of Concise

ethics must
be Properly enforced in the organisation to achieve the
objectives

An ongoing process and requires that organisations

must review and evaluate

Ethics committee in organisations can help with management of ethical

conduct.

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 Corporate social responsibility (CSR)

• Definition: “An organisation’s sense of responsibility towards the

community and environment (economic, ecological, and social) in which
it operates and the obligation to maximise its positive impact on
society”.

“For a long time people believed that the only purpose of industry was to
make a profit. They are wrong. Its purpose is to serve the general welfare.”
Henry Ford Sr (1863-1947)

• The Iron Law of Responsibility

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Code of Ethics example

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Approaches to corporate social responsibility

Shareholder approach – more

top-down approach

Stakeholders approach – more a

bottom-up approach

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 Approaches to corporate social responsibility (cont.)

• Shareholder approach
–Main focus is to make profit – it may raise the
share prices and increase the dividends that will
be paid out to the shareholders.
–According to this approach, spending time on
social causes and charity diverts time from an
organisation’s main focus to make money to
maximise profit.
–Organisations that follow this approach are Royal
Dutch Shell and Falcon.
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 Approaches to corporate social responsibility (cont.)

• Stakeholder approach.
–Shareholders are also important in this approach,
but the focus is not on them alone.
• Examples of concerns.
• Owners and investors.
• Financial soundness.
• Sustained profitability.
• Average return on investment.
• Timely and accurate disclosure of financial
information. 28
 Approaches to corporate social responsibility (cont.)
• Customers Product/service quality, innovativeness and
availability.
• Responsible management of defective or harmful
products/services.
• Pricing policies and practices.
• Honest, accurate and responsible advertising.
• Employees Non-discriminatory, merit-based hiring and
firing.
• Workforce diversity.
• Wage and salary levels.
• Availability of training and development.
• Workplace safety and privacy.
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 Approaches to corporate social responsibility (cont.)

• Community Environmental sensitivity in

product design and packaging.
• Recycling of products.
• Pollution prevention.
• Donations.
• Availability of facilities for community use.

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 Stakeholder approach
Stakeholder group Examples of concerns

Owners and investors Financial soundness and sustained profitability

Average return on investment
Timely and accurate disclosure of financial information

Customers Product/service quality, innovativeness and availability

Responsible management of defective or harmful products/services
Pricing policies and practices
Honest, accurate and responsible advertising

Employees Non-discriminatory, merit-based hiring and firing

Workforce diversity
Wage and salary levels
Availability of training and development
Workplace safety and privacy

Community Environmental sensitivity in product design and packaging

Recycling of products
Pollution prevention
Donations
Availability of facilities for community use
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Criteria for evaluating corporate social responsibility

Discretionary
responsibility
Ethical responsible • Generous,
goodhearted actions
• Behaviour that is not that offer no
codified by the law or remuneration and is
Legal responsibility the direct economic unexpected
• What society regards interest
as important
Economic criteria
• Focus on profit-
maximisation

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Management in action 4.3

Business Project Manager

Class discussion:

What seems to play an important role in creating the organisational culture

in this case?

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 Summary

• Ethical behaviour is defined as the right and wrong of performing

activities in an organisation.
• Four main forces that influence ethical behaviour and different
approaches have been discussed.
• Making these ethical decisions is to the advantage of the organisation
for several reasons.
• Organisations operate in a social environment where they have a
responsibility to a range of stakeholders.
• Corporate social responsibility refers to the responsibility that modern
organisations have to create a healthy and prosperous society.
• The benefits for an organisation of enhancing its ethical behaviour and
corporate social responsibility cannot be overemphasised.

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 SECTION B
Work activities

These activities will assist you when you work

through the chapter and to make your own
summary of the content

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4. Chapter Synopsis and Activities

Chapter 4 : MANAGERIAL ETHICS AND SOCIAL RESPONSIBILITY

OUTCOMES
After studying this chapter, you should be able to:

 Define ethical concepts

 Explain the four forces that influence ethical conduct
 Discuss the nature of managerial ethics
 Differentiate between the different approaches to ethical decision-making
 Define ethical decision making
 Illustrate the importance of ethical behaviour
 Summarize the codes of ethics
 Discuss Corporate Social Responsibility (CSR)
 Differentiate between the two approaches to Corporate Social Responsibility
 Demonstrate the four criteria to evaluate effective Corporate Social Responsibility

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4.1 Concepts of Ethics

In everyday life we see a lot of examples of ethical and unethical behaviour. All behaviour has
consequences in the short-term and in the long-term.

If a business wants to pride itself on being ethical, managers on all levels should both
understand and practice ethics.

Use the block below to reflect on the main ethics concepts discussed in your text book.

4.2 The 4 Forces that Influence Ethical Conduct

Write these forces down. Also include a short explanation of each.

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As you well know by now, each organisation is made up of people – and these people “make”
the organisation what it is. Likewise, you are a student and also indirectly part of the bigger
organisation called the UFS.

Exercise: By being a student you not only have a responsibility to pass all your subjects and
obtain your degree. You are also part of a larger society and institution.

Step 1: Think about how a student could practice being ethical.

Step 2: Also think about unethical student behaviour. Do you know/have you seen some
examples?

Step 3: Pair up with one other student and discuss your thoughts. Exchange your ideas and
write them down.

Step 4: Look at all the ideas you wrote down. Now see which forces relate to each idea. You
need to write down all your answers.

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4.3 The Nature of Managerial Ethics – Follow the Leader!

It is the fourth lecture of the new semester. During each contact session so far your facilitator
has interrupted the lecture to answer his/her cell phone. In one lecture this even happened six
times in one hour! So far all the students have upheld the “no cell phones in class” rule.

Today you are expecting a call from your boyfriend/girlfriend and you suspect that it might be in
class time. And….you are sitting in class right now. Your phone rings – and you decide to answer.

 What have you just done?

 What are the consequences of the above scenario in terms of general business
management?

4.3.1 Trevino and Brown’s Guidelines

Sometimes it is not as easy as 1-2-3 and A-B-C to know which option is the most ethical one or
to lead your team under ethical principles.

What do Trevino and Brown propose (fill it on the next page)?

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4.4 6 + 1 Approaches to Make Ethical Decisions

Do you know what they are? Write them here:

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4.5 Ethical Decision Making

You are standing at a food stall in a fresh food market. On the far end of the food stall your eyes
catch a glimpse of a young child. The child is dressed in torn clothes and it is evident that the
child is very hungry. The child looks around to see if anyone is watching him…and the next
moment he grabs a meat pie from the display and hides it under his clothes.

You are left with a decision to make. Do you reveal the matter to the food stall owner? What
other options do you have?

If you have to decide if your decision is ethical, which 3 things should your decision measure up
to?

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4.6 Ethical Behaviour – How is it Beneficial to Managers and Organisations?

Use the space on the next page to list the reasons/benefits. Ensure that you also understand
the related detail and description of each.

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4.7 Code of Ethics

What is a Code of Ethics? Why is it important and how do organisations use it?

4.8 Corporate Social Responsibility

What does the picture tell you? Are you sure that you are able to describe/explain CSR?

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4.8.1 Corporate Social Responsibility Approaches

4.8.2 Criteria for Evaluating Corporate Social Responsibility

Use the images below as hints for your summary for this section. For some of them you have to
draw your own pictures which will help you to remember them.

Hint: These might not be in order, so make sure that you find the correct one per image.

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 ?
?
4.9 Summary

Ethical behaviour is defined as the right and wrong of performing activities in an organisation.
There are four main forces that influence ethical behaviour and different approaches have been
discussed and making these ethical decisions is to the advantage of the organisation for several
reasons. Organisations operate in a social environment where they have a responsibility to a
range of stakeholders. Finally, corporate social responsibility refers to the responsibility that
modern organisations have to create a healthy and prosperous society. The benefits for an
organisation of enhancing its ethical behaviour and corporate social responsibility cannot be
overemphasised.

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 SECTION C

Practice questions and answers

These questions and answers were taken

from previous tests and exams. Sometimes
special exercise questions are also included
to help you reflect and master the content.

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Practise Questions

Multiple choice questions

1. Opportunities for and encouragement of unethical behaviour result when ________

A. it is easy to engage in unethical behaviour.

B. others engage in unethical behaviour.
C. there is a lack of rules or a lack of enforcement of the rules that do exist.
D. there are too many rules.
E. there are no rules.
2. An activity is probably ethical if ________

A. it is approved of by most individuals in the organisation and is customary in the

industry.
B. it is approved of by most individuals in the organisation.
C. it is customary in the industry.
D. it is legal.

3. In general when people discover unethical behaviour in their own company they usually

A. try to right the ethical wrong.

B. report it to the authorities outside the company.
C. mind their own business.
D. report it to authorities in the company.
E. gossip and complain about the transgressor.

4. Business ethics comprises

A. laws and regulations that guide behaviour in the world of business.

B. morals, values, and customs that guide behaviour in general.
C. moral principles and standards that guide behaviour in the world of business.
D. the obligations businesses assume to maximize their positive impact and
minimize their negative impact on society.
E. the mores, values, and customs that parents teach their children.

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Scenario questions

Read through the following scenarios and then select the correct option you think is correct in
terms of ethical behaviour.

Scenario 1
You are the communications director for a medium-sized industrial company that is listed on the
stock exchange, and you are asked to prepare internal and external communication strategies to
announce the layoff of 25 percent of its head office staff. This reduction is to occur within the
next two months. You are instructed to keep this information quiet until the actual
announcement. At a neighbourhood social gathering one weekend about 10 days after you begin
working on the project, a close friend – who works at your company and may be affected by the
layoff – looks you straight in the eye and asks if it's true that "half the head office, including me,
will be gone by this time next week."

What should be your response?

A. Claim that you have no idea what your friend is talking about.
B. Assure your friend that the layoffs will be only about one-fourth of the workforce, not
one-half, and that they couldn't possibly happen as soon as next week.
C. Tell your friend about all the other rumours you've heard regarding this situation.
D. Tell your friend that even if there were going to be layoffs, it would never happen in a
week because you think the company is required to provide 60 days notice to workers.
E. Say, "If I did have such knowledge, I wouldn't be able to discuss it."
[1]

Scenario 2
Your small PR agency, which has a strong relationship with an advertising agency, is called in by
a major client to help re-launch a product that has steadily been losing market share. The client
has asked the advertising agency and, by extension, your PR agency, to employ a message of
“new and improved” in the re-launch. As you work toward an extensive (and extremely
expensive) marketing communications re-launch, you learn that the product has only gone
through a name change and an extremely expensive packaging design. No existing product
features, attributes or benefits have been improved in any way.

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What should you do in the situation?

A. Recommend that some sort of research and/or testing be conducted to substantiate the
"new and improved" message.
B. Satisfy your client's needs by creating the most innovative, yet cost effective,
communication program because you cannot afford to lose this client or damage your
relationship with the advertising agency, which is your primary source of new clients and
income.
C. Discuss your concern with the client, the account director and the head of the
advertising agency about the fact that the only thing “new and improved” about the
product is its package. In this meeting, you request that a different approach be taken
and inform them that you are prepared to resign the account, if necessary.
D. Since this situation is covered by the caveat emptor (let the buyer beware) rule, no
ethical dilemma exists.
[1]

Video questions: General Motors: Connecting the dots

This video provided an interview on General Motors 1.6 million ignition flaw recall. Watch the
video and answer the following questions:

1. Define the term ‘ethical issue’ and explain the ‘ethical issue’ that faced GM’smanagement.
[2]

1. There are four forces that influence ethical conduct. Which one of these four forces was
mainly responsible for the situation at GM? [Mention only one force and Motivate your
answer].
[1 + 1 = 2]

3. Advise GM’s top management on the importance of managers to behave ethically.

[1]

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Answers:

Multiple choice
1. C
2. D
3. C
4. C

Scenarios
Scenario 1 – E 
Scenario 2 – C 

Video: General Motors: Connecting the dots

1. Ethical issue is a situation where the actions of a manager can harm or benefit a person or
group.  The ethical issue that GM experience was the death of 12 young people who died on
the car accident due to faulty ignition. 
[2]

2. Individual perspective, societal norms and culture, societal laws and regulation and
organisational practices and culture. 

The company felt they had the intergrity to recall all the faulty cars it was not about money
but to honour consistent commitment to ethical values and principles. 
[1 + 1 = 2]

3. What is important to note is that there are costs involved in conducting work and working
with ethical partners and employees and managers need to be aware of value of operating
ethically. 
[1]

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Ethical examples

 Example of Unethical Business Practices

Levuyo Computers, a global IT company, was defamed in a notorious list of companies involved
in fraudulent financial activities. The list includes names such as WorldCom, Parmalat, Lthabo
Trading, Zulu Clothing, Peters Peabody.

Levuyo’s CEO, Rina Buntu, accepted his role in a broad accounting impropriety that had
overstated the company’s net revenue and profit. The company had earlier reported a cash
reserve of approximately R1.04 billion that actually existed only in books but not in reality.

 EXAMPLE OF BUSINESS ETHICS AS THE BASIS OF BUSINESS STRENGTH

Business leaders now believe that there are many preventive measures, which should be
leveraged to diminish market failure. The boards and business leaders now accept their role in
building institutional integrity capital. This, in turn, makes sure that the managers are capable
of managing the ethical perspectives in business decisions. There is, however, a critical role of
middle managers in believing the need for change and to be champions of that change.

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According to Corporate Executive Board (CEB) research, organizations with integrity
capital have low misconducts and more reporting, when employees do witness
wrongdoing. Integrity capital is embedded in the culture and it is not a matter of control. It can
shape employee behavior, including defrauding the company or offering bribes to get business.

Their research identifies five key factors in building organizational integrity −

 Management takes action in case of misconduct
 Employees can speak up about misconduct and don’t fear retaliation
 Senior leaders and managers respect employees
 Managers hold employees accountable
 High levels of trust exist among colleagues

However, inculcation of an integrity system takes time and requires commitment. The culture
of integrity is better than the regime of compliance.

 EXAMPLE OF CUSTOMER LOYALTY AND BUSINESS ETHICS

Today, the contribution of customers in developing ethical programs and social responsibility
standards is not quite clear. In a study, the ethical environment of a firm was found to be
positively associated with customer loyalty. However, there are many variants of customer
loyalty.

In competitive markets, market orientation and customer focus are the key drivers of
organizational performance. Still, intense competition may also create unethical behaviors. For
example, it is well documented how Pizza Hut and Papa John's attacked each other in
advertising campaigns, declaring that each provided the 'freshest' ingredients. The matter was
in the court of law and was resolved by civil litigation.

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 SECTION D
Questions to ask your academic
partner*

These questions will either be discussed in

the collaboration session or were included to
stretch your mind. Feel free to ask your
academic partner if you have trouble
answering them.

* “Academic partner” could be anyone who is part of the teaching team.

This includes lecturers, facilitators, tutors, etc.

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Tutorial discussion questions

For this chapter’s tutorial discussion, we will refer to a video and two scenarios.

Video: FORD Kuga Catching Fire

The following video is uploaded on Blackboard to help you to go through the chapter with ease.

Question 1
After watching the video, write down the following:

1.1 What was the challenge Kuga experienced with their cars and what impact did this
challenge have on the company?

1.2 Think of how can you advise Kuga to handle the challenges. What steps should they
take to remedy the situation ethically?

Scenarios:

Scenario 1
Imagine that you are about to start your own company, hoping to grow it within five years
to employ 200 people. What are the core ethical values that you would want to inspire
and guide your employees from day one? (You might phrase them in relation to specific
stakeholders, e.g., "honesty toward stockholders," or "maintaining a level playing field for
potential suppliers.")

Scenario 2
The relationship between corporate social responsibility and corporate financial
performance is a positive causal relationship between the two. If this is true, why might
unethical behaviors exist in so many business organisations? Motivate your answer with
an example from a company you know.

*We will discuss these answers in your online tutorial discussion session for Chapter 4.

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 SECTION E
Videos

Videos are uploaded separately on

Blackboard. Have a look at these videos to
enrich your understanding of the work.

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Two videos are available on Blackboard for chapter 4.

Video 1: Ford Kuga – catching fire

Video 2: GM Recall – Connecting the dots

We hope you enjoy watching the videos!

Reference list:

Video 1: Ford Kuga – catching fire

eNCA (2017). Ford Kugas spontaneously catching fire. Available at:
https://www.youtube.com/watch?v=2WhTfzPHn7E (Accessed: 2 August 2020)

Video 2: GM Recall – Connecting the dots

Bloomberg Quicktake (2014). GM Recall: Connecting Dots to Explain Teen Deaths. Available at:
https://www.youtube.com/watch?v=ezk8uan_wn8 (Accessed 10 August 2021)

End of the study pack ☺

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