Ethical Issues in Management

Spring 2007 Ethical Issues in Management 1

 Ethical Issues in Management

Ethical perspectives and moral

development
Ethical decision making
Social responsibility

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 What Are Ethics?
The area of philosophy concerned with human behavior in the
social context
Based on a consideration of values, rather than facts (although
it is necessary to determine the facts)
Both individual and shared values important
Not the same as legal considerations (although laws overlap
with societys agreed-upon ethical standards)
Social and economic factors are not part of ethical decisions
(although many ethical decision have social or economic
implications)

Morality vs. legality vs. social/economic forces

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 Ethical Perspectives: Utilitarian

Jeremy Bentham (1748 1832)

Decisions are made on the basis of
outcomes
Maximize benefits for the greatest
number
Example: Oregon & health care

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 Ethical Perspectives: Individualism

Adam Smith (1723-1790)

At the most basic level, Whats in it for
me?
However, theres a long-term equilibrium;
the invisible hand

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 Ethical Perspectives: Moral Rights
John Locke (1632 1704)
Respect individuals inherent rights and liberties
Natural rights of mankind
The right of life, liberty, and the pursuit of happiness
Rights?
Free consent
Privacy
The problem arises
Freedom of conscience
with how these are to
Free speech be put into action
Due process
Life and safety

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 Immanuel Kant (1724 1804)

For Kant, what is right is based on the

categorical imperative, which is the
notion that every person should act on
only those principles that he or she, as a
rational person, would prescribe as
universal laws to be applied to the whole
of humankind.

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 Ethical Perspectives: Justice

Decisions made with equity and

impartiality
Types of justice
Distributive
Procedural
Compensatory

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 Social Justice Perspective

Value placed on human dignity

Work for the common good
Human rights
Dignity of work
Society judged by treatment of poor and
vulnerable

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 Levels of Moral Development
Preconventional
Obey to avoid physical punishment
Follow rules if it is in your immediate interest
Conventional
Live up to what your family and friends expect
Maintain order by fulfilling obligations
Principled
Value others rights regardless of majority opinion
Follow self-chosen ethical principles even if they violate
the law

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 Ethical Decision Making
Codes of ethics
State basic principles
Can be for a specific organization
Many professions also have an ethical code
Can be very general (credo) or very specific
Leadership
Managers by definition are (or should be) role models
Ethical training

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 Components of Ethical Training
Provide trainees with an understanding of ethical
judgment philosophies and guidelines.
Provide industry/profession-specific areas of ethical
concern.
Provide trainees with organizational ethical expectations
and rules.
Provide trainees with an understanding of their own
ethical tendencies.
Take a realistic viewelaborate on the difficulties of
ethical decision making.
Get the trainees to practice and role-play.

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 How is Business Viewed by
Society?
The Simple Life Folks
Large organizations, by their very existence, are destructive of human
values
We should adopt a simpler lifestyle, freeing ourselves of the need for
large businesses
We are interested in maximizing human potential
Redemption-May-Be-Possible
Large organizations exploit those without power (especially
multinational firms and indigenous peoples)
Dont abolish business firms, but major reform is needed
Critics from Within
Businesses have done a lot to earn their bad reputation
Responsible business leaders must begin cleaning out the stables

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 Do the Facts Justify Criticism ??

Of the globes 100 largest economic entities, 51

are corporations; only 49 are countries
The 300 largest global corporations hold one-
quarter of the entire globes productive assets
72% of Americans say business has too much
power over too many aspects of American life

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 2004 Revenues ($B)
Saudi Arabia $310.2
1) WalMart $288.0
2) BP $285.1
3) Exxon / Mobil $270.8
The Top Ten
4) Royal Dutch / Shell $286.7
5) General Motors $193.5
Portugal $188.7
6) DaimlerChrysler $176.7
7) Toyota Motor $172.6
8) Ford Motor $172.2
Czech Republic $172.2
9) General Electric $152.9
10) Total Fina $152.6
Finland $151.2
 Social Responsibility
Social Obligations School
Maximize profits
The Friedman view
Stay within boundaries of law
Social Reaction School
Maximize profits, and at the same time.
Ensure the organizations survival by responding to
"currently prevailing social norms, values, and performance
expectations."
Social Responsiveness School
Corporations should prevent and solve social problems
Corporations can prevent and solve social problems

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 Milton Friedman
The Social Responsibility of Business is to Increase its
Profits

1) A corporation is an artificial person thus, unlike a real

person, it has no ethical or moral obligations
2) Managers are responsible to owners: That
responsibility is to conduct the business in accordance
with their desires, which generally will be to make as
much money as possible while conforming to the basic
rules of the society, both those embodied in law and
those embedded in ethical custom

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 Freidmans Reasoning, continued
3) Individual managers fulfill their private ethical / moral
obligations from their personal resources
4) If managers are to spend money on public uses, they
must be accountable, just as are politicians. The
analogy here is with taxation; by spending money pf
public uses, the manger is in effect taxing employees,
customers and owners for the benefit of society as a
whole
5) For Freidman, this is socialist -- using political
mechanisms, not market mechanismsthe
appropriate way to determine the allocation of scare
resources to alternate uses

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 Friedman, Finale
6) Further, if business social spending (the specific
expenditures) were a good ides (accepted by society),
it would be a public responsibility and funded through
taxes
7) However, an organization may legitimately spend
money on what may be perceived as social
responsibility, but where there is a benefit to the firm
(for example, funding education)
8) Thus, corporations are judged solely by financial
performance, as defined by the owners / shareholders

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 The Stakeholder Approach
How do we solve the problem of the free rider?
Organizations and people are bound together in a
network of mutual relationships
Stakeholders
Those people or groups essential to an organizations
success
Those people or groups affected by what an
organization does
People with a legitimate interest
An organization is obligated (duty) to consider the
interests of stakeholders

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 Who Are the Stakeholders?

Primary and secondary (how close are

they to the organization?)
Who?
Management
Employees
Owners
Local community
Suppliers
Customers

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 Taking a Stand
Looking at costs
Short term vs. the long term
Examples:
Doing well by doing good: Costco
Public relations: Sara Lee
Environmental cost savings
Obligation to just the stockholders or to
employees, and society as a whole ??????
Management values

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 Levels of Social Obligation
Obstructionist
Fight all the way

Proactive Defensive
Take social Do only what is
initiatives legally required

Accommodating
Accept ethical
responsibility
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 Values-Based Management

Using shared values as a basis for

management decision-making
Examples
Levi Strauss
Body Shop
ServiceMaster

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