CHAPTER 3

Social Responsibilities and Ethics in

Strategic Management
  The concept of social responsibility proposes
that a private corporation has responsibilities to
society that extend beyond making a profit.
Strategic decisions often affect more than just
Social the corporation. A decision to retrench by
Responsibilities closing some plants and discontinuing product
of Strategic lines.

Decision Makers
  There is one and only one social
responsibility of business—to use its
resources and engage in activities
designed to increase its profits so long as
Responsibilities it stays within the rules of the game,
of a business which is to say, engages in open and free
firm competition without deception or fraud.
 1. Economic responsibilities of a business organization’s
management are to produce goods and services of value to
society so that the firm may repay its creditors and increase
the wealth of its shareholders.
2. Legal responsibilities are defined by governments in laws
that management is expected to obey. For example, U.S.

Carrol’s Four business firms are required to hire and promote people based
on their credentials rather than to discriminate on non-job-
Responsibilities related characteristics such as race, gender, or religion.
 3. Ethical responsibilities of an organization’s management
are to follow the generally held beliefs about behavior in a
society. For example, society generally expects firms to
work with the employees and the community in planning
for layoffs, even though no law may require this. The
affected people can get very upset if an organization’s
management fails to act according to generally prevailing
ethical values.
Carrol’s Four 4. Discretionary responsibilities are the purely voluntary
Responsibilities obligations a corporation assumes. Examples are
philanthropic contributions, training the hard-core
unemployed, and providing day-care centers. The
difference between ethical and discretionary responsibilities
is that few people expect an organization to fulfill
discretionary responsibilities, whereas many expect an
organization to fulfill ethical ones
  In order for a business corporation to be
sustainable—that is, to be successful over a
long period of time—it must satisfy all of its
economic, legal, ethical, and discretionary
responsibilities. Sustainability thus involves
SUSTAINABI many issues, concerns, and tradeoffs—leading
LITY us to an examination of corporate stakeholders.
  A corporation’s task environment includes a
large number of groups with interest in a
business organization’s activities. These groups
are referred to as stakeholders because they
affect or are affected by the achievement of the
CORPORATE firm’s objectives.
STAKEHOLD
ERS
 Stakeholder analysis is the identification and evaluation of
corporate stakeholders. This can be done in a three-step process.
 The first step in stakeholder analysis is to identify primary
stakeholders, those who have a direct connection with the
corporation and who have sufficient bargaining power to
directly affect corporate activities.

STAKEHOLD  The second step in stakeholder analysis is to identify the

secondary stakeholders — those who have only an indirect
ER’S stake in the corporation but who are also affected by corporate
ANALYSIS activities.
 The third step in stakeholder analysis is to estimate the effect
on each stakeholder group from any particular strategic
decision.
 Why are many business people perceived to be acting
unethically? It may be that the involved people are not even
aware that they are doing something questionable. There is no
worldwide standard of conduct for business people. This is
especially important given the global nature of business
activities. Cultural norms and values vary between countries
and even between different geographic regions and ethnic
Ethical decision groups within a country.
making some Some of these differences may derive from whether a
reasons for country’s governance system is rule-based or relationship
unethical behavior based. Relationship based countries tend to be less transparent
and have a higher degree of corruption than do rule-based
countries. See the Global Issue feature for an explanation of
country governance systems and how they may affect business
practices
 Some people justify their seemingly unethical
positions by arguing that there is no one absolute
code of ethics and that morality is relative. Simply
put, moral relativism claims that morality is relative
to some personal, social, or cultural standard and that
there is no method for deciding whether one decision
MORAL is better than another.
RELATIVISM
At one time or another, most managers have
probably used one of the four types of moral
relativism—naïve, role, social group, or cultural—to
justify questionable behavior.
  Based on the belief that all moral decisions are deeply
personal and that individuals have the right to run their
Naïve own lives, adherents of moral relativism argue that each
relativism person should be allowed to interpret situations and act
according to his or her own moral values
  Based on the belief that social roles carry with
them certain obligations to that role, adherents
of role relativism argue that a manager in
Role relativism charge of a work unit must put aside his or her
personal beliefs and do instead what the role
requires—that is, act in the best interests of the
unit.
  Based on a belief that morality is simply a
matter of following the norms of an
Social group individual’s peer group, social group relativism
argues that a decision is considered legitimate
relativism if it is common practice, regardless of other
considerations (“everyone’s doing it”).
  Based on the belief that morality is relative to a
particular culture, society, or community,
Cultural adherents of cultural relativism argue that
relativism people should understand the practices of other
societies, but not judge them.
  Another reason why some business people might be
seen as unethical is that they may have no well-
developed personal sense of ethics. A person’s
ethical behavior is affected by his or her level of
moral development, certain personality variables,
Kohlberg’s and such situational factors as the job itself, the

Levels of Moral supervisor, and the organizational culture. Kohlberg

proposes that a person progresses through three
Development levels of moral development. Similar in some ways
to Maslow’s hierarchy of needs, in Kohlberg’s
system, the individual moves from total self-
centeredness to a concern for universal values.
Kohlberg’s three levels are as follows:
  1. The preconventional level: This level is characterized by a
concern for self. Small children and others who have not
progressed beyond this stage evaluate behaviors on the basis
of personal interest—avoiding punishment or quid pro quo.
 2. The conventional level: This level is characterized by
Kohlberg’s considerations of society’s laws and norms. Actions are
justified by an external code of conduct.
Levels of Moral  3. The principled level: This level is characterized by a
Development person’s adherence to an internal moral code. An individual at
this level looks beyond norms or laws to universal values or
principles. See the Innovation Issue to see how someone
turned a pressing world need into a viable business.
  A code of ethics specifies how an organization
expects its employees to behave while on the
job. Developing a code of ethics can be a useful
way to promote ethical behavior, especially for
people who are operating at Kohlberg’s
CODE OF conventional level of moral development. Such
codes are currently being used by more than half
ETHICS of U.S. business corporations. A code of ethics
(1) clarifies company expectations of employee
conduct in various situations and (2) makes clear
that the company expects its people to recognize
the ethical dimensions in decisions and actions.
  Ethics is defined as the consensually
accepted standards of behavior for an
occupation, a trade, or a profession.
VIEWS OF Morality, in contrast, constitutes one’s
ETHICAL rules of personal behavior based on
BEHAVIOR religious or philosophical grounds. Law
refers to formal codes that permit or
forbid certain behaviors and may or may
not enforce ethics or morality.
  1. Utilitarian approach: The utilitarian approach proposes that
actions and plans should be judged by their consequences.
People should, therefore, behave in a way that will produce the
greatest benefit to society and produce the least harm or the
lowest cost.
 2. Individual rights approach: The individual rights approach
Three basic proposes that human beings have certain fundamental rights that
approaches to should be respected in all decisions. A particular decision or

ethical behavior should be avoided if it interferes with the rights of

others.
behavior:  3. Individual rights approach: The individual rights approach
proposes that human beings have certain fundamental rights that
should be respected in all decisions. A particular decision or
behavior should be avoided if it interferes with the rights of
others