Business Ethics

and Social
Responsibility
Lesson 4
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Learning outcomes
 Contrast the two perspectives of social responsibility and the levels of social
responsibility
 Analyze how various stakeholders in the business interface with issues of ethics
 Explain the relationship between social responsibility and economic
performance
 Assess the aspects of value based management in organizations and relate them
to issues of ethics
 Demonstrate the significance of green management issues to social
responsibility of organizations
 Analyze factors that affect ethical and unethical behaviors of managers and
other individuals in the business
 Examine various aspects of ethical leadership and how this can be applied by
management in today’s world

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What is Social Responsibility

 Social responsibility deals with actions that affect

a variety of parties in a company’s environment.
 A socially responsible company shows concern for
its stakeholders
 Stakeholders refer to anyone who has a “stake” or
interest in the business,
 Includes like owners, employees, suppliers,
customers, and the communities in which it does
business
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The Classical View

 Management’s only social responsibility is to
maximize profits
 That is to create a financial return by operating the
business in the best interests of the stockholders
 Expending the firm’s resources on doing “social
good” unjustifiably increases costs
 This lower profits to the owners and raises prices
to consumers.
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The social Economic View

 Management’s social responsibility goes beyond
making profits to include protecting and
improving society’s welfare.
 Corporations are not independent entities
responsible only to stockholders.
 Firms have a moral responsibility to larger society
to become involved in social, legal, and political
issues.
 “To do the right thing”
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To Whom is Management
Responsible?

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 Arguments For and Against Social
7

Responsibility
• For • Against
 Public expectations  Violation of profit
 Long-run profits maximization
 Ethical obligation  Dilution of purpose
 Public image  Costs
 Better environment  Lack of skills
 Discouragement of further  Lack of accountability
governmental regulation
 Balance of responsibility
and power
 Stockholder interests

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From Obligation To Responsiveness

To Responsibility

 Social Obligation
 The obligation of a business to meet its economic and
legal responsibilities and nothing more.
 Social Responsiveness
 When a firm engages in social actions in response to
some a social need.
 Social Responsibility
 A business’s intention, beyond its legal and economic
obligations, to do the right things and act in ways that
are good for society.
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Social Responsibility versus Social
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Responsiveness
Social Responsibility Social
Responsiveness

Major consideration Ethical Pragmatic

Focus Ends Means
Emphasis Obligation Responses
Decision framework Long term Medium and short term

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Is Social Responsibility Beneficial

 Ithas been concluded in studies that there is a

positive relationship between social involvement
and the economic performance of firms.
 Difficulties in defining and measuring “social
responsibility” and “economic performance” raise
issues of validity and causation in the studies.
A general conclusion is that a firm’s social actions
do not harm its long-term performance.

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Responsibility of Management to the

Natural Environment

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The Greening of Management

 Managers should recognized that an organization’s
decisions and activities impact on its natural
environment
 Global environmental problems facing managers:
 Air, water, and soil pollution from toxic wastes
 Global warming from greenhouse gas emissions
 Natural resource depletion

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How Organizations go Green

 Legal (or Light Green) Approach
 Firms simply do what is legally required by obeying laws, rules, and
regulations willingly and without legal challenge.
 Market Approach
 Firms respond to the preferences of their customers for environmentally
friendly products.
 Stakeholder Approach
 Firms work to meet the environmental demands of multiple
stakeholders—employees, suppliers, and the community.
 Activist Approach
 Firms look for ways to respect and preserve environment and be
actively socially responsible.
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Evaluating the Greening of

Management
 Organizations become “greener” by
 Using the Sustainability Reporting Guidelines to
document “green” actions.
 Adopting ISO 14001 standards for environmental
management

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Managers and Ethical Behavior

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Value based Management

 Values-Based Management
 An approach to managing in which managers establish and
uphold an organization’s shared values.
 The Purposes of Shared Values
 Guiding managerial decisions
 Shaping employee behavior
 Influencing the direction of marketing efforts
 Building team spirit
 The Bottom Line on Shared Corporate Values
 An organization’s values are reflected in the decisions and
actions of its employees.
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Purposes of Shared Values

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What are business Ethics

• Ethics refer to principles, values, and beliefs that define
what is right and wrong behavior.
 Business ethics is simply the application of ethical
behavior in a business context
 To be ethical means to know right from wrong and
to know when you’re practicing one instead of the
other.

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Addressing Ethical Dilemma

 An ethical dilemma is a morally problematic

situation
 You have to pick between two or more acceptable
but often opposing alternatives that are important
to different groups.
 Also referred to as right versus right
 Issues in Ethics

 Bribes Vs Gifts
 Conflicts of interests
 Conflicts of loyalty
 Whistle blowing
 Issues of honesty and integrity
 “I cannot tell you that honesty is the best policy. I can’t tell you that
if you behave with perfect honesty and integrity somebody
somewhere won’t behave the other way and make more money. But
honesty is a good policy. You’ll do fine, you’ll sleep well at night
and you’ll feel good about the example you are setting for your
coworkers and the other people who care about you.” Warren Buffet
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Issues in Ethics
 Issues of honesty and integrity
 “I cannot tell you that honesty is the best policy. I
can’t tell you that if you behave with perfect honesty
and integrity somebody somewhere won’t behave
the other way and make more money. But honesty is
a good policy. You’ll do fine, you’ll sleep well at
night and you’ll feel good about the example you are
setting for your coworkers and the other people who
care about you.” Warren Buffet

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Factors That Affect Ethical Or

Unethical Behavior

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Factors that Affect Employee Ethics

 Moral Development
 A measure of independence from outside influences
 Levels of Individual Moral Development
 Preconventional level, Conventional level, Principled level
 Stage of moral development interacts with:
 Individual characteristics
 The organization’s structural design
 The organization’s culture
 The intensity of the ethical issue
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Stages of Individual Moral

Development

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Individual Characteristics Affecting

Ethical Behavior

 Values
 Basic convictions about what is right or wrong on a broad range of
issues
 Personality Variables
 Ego strength
 personality measure of the strength of a person’s convictions
 Locus of Control
 A personality attribute that measures the degree to which people believe
they control their own life.
 Internal locus: the belief that you control your destiny.
 External locus: the belief that what happens to you is due to luck or
chance.
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Other Variables
 Structural Variables
 Organizational characteristics and mechanisms that
guide and influence individual ethics:
 Performance appraisal systems
 Reward allocation systems
 Behaviors (ethical) of managers

• An Organization’s Culture
• Intensity of the Ethical Issue

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Determinants of Issue Intensity

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Ethics in the International Context

 Ethical standards are not universal.

 Social and cultural differences determine acceptable
behaviors.
 Foreign Corrupt Practices Act
 Makes it illegal to corrupt a foreign official yet
“token” payments to officials are permissible when
doing so is an accepted practice in that country.

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How Managers can Enhance

Ethical Behavior
1. Recruit employees with high ethical standards.
2. Establish codes of ethics and decision rules.
3. Lead by example.
4. Set realistic job goals
5. Include ethics in performance appraisals.
6. Provide ethics training.
7. Conduct independent social audits.
8. Provide support for individuals facing ethical
dilemmas.
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Benefits of Ethics Training

 Can make a difference in ethical behaviors.
 Increases employee awareness of ethical issues in
business decisions.
 Clarifies and reinforces the organization’s
standards of conduct.
 Helps employees become more confident that they
will have the organization’s support when taking
unpopular but ethically correct stances.
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Effective Use of a Code of Ethics

 Develop a code of ethics as a guide in handling
ethical dilemmas in decision making.
 Communicate the code regularly to all employees.
 Have all levels of management continually
reaffirm the importance of the ethics code and the
organization’s commitment to the code.
 Publicly reprimand and consistently discipline
those who break the code.
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Ethical Leadership
 Managers must provide a good role model by:
 Being ethical and honest at all times.
 Telling the truth; don’t hide or manipulate information.
 Admitting failure and not trying to cover it up.
 Communicating shared ethical values to employees through
symbols, stories, and slogans.
 Rewarding employees who behave ethically and punish those
who do not.
 Protecting employees (whistleblowers) who bring to light
unethical behaviors or raise ethical issues
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Managing Ethical Lapses and Social

Irresponsibility

 Provide ethical leadership

 Protect employees who raise ethical issues (whistle-blowers)

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Discussion
 You are a manager of a company that manufactures
phosphates; during the manufacturing process, these
chemicals contaminate the environment and harm the
ecosystem of birds that nest in the area. Cleaning up the
chemicals would be too costly for your firm to continue to
be profitable.

a) What ethical dilemma is this manager facing?

b) Recommend 5 guidelines to ensure that the manager handles
the issue in an ethical manner.

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SUMMARY
 What is social responsibility
 Business Ethics
 Ethical behavior
 Enhancing ethical behavior
 Ethical leadership

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