Chapter Ethics and Social Responsibility PowerPoint slides by R Dennis Middlemist Colorado State University Learning Objectives After studying this chapter, you should be able to: Describe why an understanding of basic approaches to ethical decision making and corporate social responsibility is important Explain the basic approaches to ethical decision making Identify the different implications of each approach in real-life situations ©2005 Learning Objectives After studying this chapter, you should be able to: Explain the basic approaches to corporate social responsibility Develop different implications for each approach to corporate social responsibility ©2005 Some Observations Managers in large companies usually act as agents of the owners Implied obligation to act in best interest of the owners or shareholders Actions that benefit only themselves are likely to be unethical Ethics and strategy begin at the top of the organization ©2005 Ethics in Business Award Winners 2000 Winners The Bureau of National Affairs, Inc For over a half-century of dedication to employee ownership, despite pressures to sell the company Iceland, Inc For a precedent-setting move in the U.K toward the sale of all-organic store-brand food at not-organic prices Whole Foods Market For a broad-based commitment to customer, stockholder, employee, community, and environmental service ©2005 Adapted from Exhibit 5.1: Excellence in Business Ethics Award Winners Ethics in Business Award Winners 1999 Winners St Lukes For creating a visionary model of employee ownership, out of the crisis of an unwanted merger Equal Exchange For its path-breaking approach to fair trade, defining supplier welfare as part of business success Fetzer Vineyards For a broad-based approach to environmental sustainability, combined with financial excellence ©2005 Adapted from Exhibit 5.1: Excellence in Business Ethics Award Winners Ethics in Business Award Winners 1998 Winners SmithKline Beecham For its $1 billion commitment to disease eradication Wainwright Bank For dedication to social justice, internally and externally S.C Johnson For its focus on sustainable community development ©2005 Adapted from Exhibit 5.1: Excellence in Business Ethics Award Winners The Development of Individual Ethics Family Friends Peers Teachers Religion Job experiences Life experiences ©2005 Basic Approaches to Ethics Ethical dilemmas The choice between two arguably competing but valid options Frameworks for ethical decision making Utilitarian approach Moral rights approach Universalism approach Justice approach ©2005 Basic Approaches to Ethics Utilitarian Approach Focused on the consequences of an action What is the “greatest good?” Different people may see the outcome differently in terms of good or bad 10 ©2005 Moral Intensity in Ethical Decision Making How likely people think the consequences are The higher the probability of the consequence, the more intense the sense of ethical obligation 18 ©2005 Ma g Co nitu ns de eq ue of th nc e es Social Consequences Probability of effect y ili t b a t ob ec Pr f Eff o Moral Intensity Adapted from Exhibit 5.2: Factors of Moral Intensity Moral Intensity in Ethical Decision Making Interval between the time the action occurs and the onset of its consequences The greater the time interval, the less intensity people typically feel toward the issue 19 ©2005 Ma g Co nitu ns de eq ue of th nc e es Social Consequences Temporal immediacy y ili t b a t ob ec Pr f Eff o Moral Intensity Te Im mpo me dia l cy Adapted from Exhibit 5.2: Factors of Moral Intensity Moral Intensity in Ethical Decision Making decision maker feels to those affected Closeness leads to more consideration of the consequences Closeness increases feeling that decision has ethical implications 20 ©2005 y ili t b a t ob ec Pr f Eff o Moral Intensity Te Im mpo me dia l cy Proximity The closeness the Ma g Co nitu ns de eq ue of th nc e es Social Consequences Proximity Adapted from Exhibit 5.2: Factors of Moral Intensity Moral Intensity in Ethical Decision Making Focus of effect on only a few or disbursed across many individuals Higher concentration leads to feelings of greater ethical responsibility 21 ©2005 y ili t b a t ob ec Pr f Eff o Moral Intensity on ati r t t n ce ffec n Co of E Te Im mpo me dia l cy Proximity effect Ma g Co nitu ns de eq ue of th nc e es Social Consequences Concentration of Adapted from Exhibit 5.2: Factors of Moral Intensity Making Ethical Decisions The manager The organization Code of ethical conduct Formal statement outlining types of inappropriate behavior addressing three issues Being a good “organization citizen” Guiding employee behavior away from unlawful or improper acts that could harm the organization Addressing directives to be good to customers 22 ©2005 Categories Found in Corporate Codes of Ethics 7.1 Demonstrate Comply fully with antitrust laws honesty, and tradeand regulations courtesy, respect, fairness in relationships Maintain confidentiality of customer, employee, and corporate Exhibit standardssuppliers, of personal integrity and professional conduct with customers, competitors, and other employees records Complyand fullyinformation with accepted accounting rules and controls ethnic, religious, or sexual harassment is prohibited Racial, Comply with safety, health, and security regulations Do not provide false or misleading information to the the performance corporation, Avoid outside activities that conflict with or impair its auditors, or a government unethical,agency illegal activities to your manager Cluster questionable, Cluster Report Do not use abusive language ororactions of duties Make decisions objectively without regard to friendship or 10 Do not company property orinresources personalunlawful benefit or opportunities to participate community services and political “Be a dependable “Don’t dofor anything Seek Dress inuse businesslike attire personal gain any other improper purpose activities organizational citizen.” or improper that will harm the Possession of firearms on company premises is prohibited The acceptance of any form of bribe is prohibited organization.” 11 Each employee is personally accountable company funds over Conserve resources and protect the quality for of the environment in Strive to provide products and services of the highest quality Follow directives fromcontrol supervisors 5.6 areas Payment toorany business, political organization, or public whichwhere he sheperson, has the company operates official for unlawfulduties or unauthorized purposes is prohibited Perform assigned toand thepunctuality bestCluster of your 3ability and in the best Unclustered Items Be reliable in attendance 12 Staff members not have anytointerest in anyattorneys, competitor or Members of the should corporation are not recommend interest of the corporation, its shareholders, and its accountants, Conduct personal and business dealings in compliance with all supplier personal of the company unless such has been fully insurance agents, stockbrokers, real estate agents, or “Beinterest good to our customers.” customers Manage finances in a manner consistent with employment relevant laws, regulations, and policies disclosed to the company similar individuals to customers by a fiduciary institution Convey true claims for products 23 ©2005 Adapted from Exhibit 5.4: Categories Found in Corporate Codes of Ethics Adoption of Codes of Ethics United Kingdom 31% 69% 18% France 82% 47% Germany With Codes Without Codes 24 ©2005 53% 10 20 30 Number of Firms 40 50 Adapted from Exhibit 5.5: Adoption of Codes of Ethics Subjects Addressed in Corporate Codes of Ethics Employee conduct Community and environment Customers Shareholders Suppliers and contractors Political interests Innovation and technology 25 ©2005 Most often for European firms Most often for United States firms Least often for European Countries Least often for United States firms Adapted from Exhibit 5.6: Subjects Addressed in Corporate Codes of Ethics Successfully Implementing Codes of Ethics Communication Training Implementing Code of Ethics Whistle-blowing 26 ©2005 Reward and Recognition The Government Foreign corrupt practices act Illegal to corrupt actions of foreign officials, politicians, or candidates for office Outlaws making payments to any person when they have "reason to know" that the payments might be used to corrupt the behavior of officials Requires that firms take steps to provide "reasonable assurance" that transactions are in compliance with the law and to keep detailed records of them 27 ©2005 Social Responsibility Efficiency perspective (maximize profits for the owners of the business) Managers as owners Self-interests of the manager-owner are best achieved by serving the needs of society Managers as agents Managers have no obligation to act on behalf of society if it does not maximize value for the shareholders Concerns with the efficiency perspective Corrective action to corporate harm often occurs after people are injured Externalities 28 ©2005 Social Responsibility Social responsibility perspective (firms have responsibilities and obligations to society as a whole, not just shareholders ) Stakeholders Employees, financiers, suppliers, communities, society at large, and shareholders To maximize the return to shareholders would take away returns owed to the other stakeholders Concerns with social responsibility perspective 29 Defining exactly what is reasonable or legitimate returns Shareholders have conflicting and competing concerns ©2005 Social Responsibility Action Harms Shareholders Comparing Efficiency and Social Responsibility Perspectives YES NO Efficiency Perspective Managerially Irresponsible Efficiency Perspective Managerially Irresponsible Social Responsibility Perspective Managerially Responsible Social Responsibility Perspective Managerially Irresponsible Efficiency Perspective Managerially Responsible Efficiency Perspective Managerially Responsible Social Responsibility Perspective Managerially Responsible Social Responsibility Perspective Managerially Irresponsible NO YES Action Harms Other Stakeholders 30 ©2005 Adapted from Exhibit 5.7: Subjects Addressed in Corporate Codes of Ethics Corporate Responses 31 Defenders Accommodators Belief: We must fight against efforts to restrict or regulate our activities and profit-making potential We will change when legally compelled to so Focus: Maximize profits Find legal loopholes Fight new restrictions and regulations Maximize profits Abide by the letter of the law Change when legally compelled to so ©2005 Adapted from Exhibit 5.8: Corporate Responses Corporate Responses 32 Reactors Anticipators Belief: We should respond to significant pressure even if we are not legally required to We owe it to society to anticipate and avoid actions with potentially harmful consequences, even if we are not pressured or legally required to so Focus: Protect profits Abide by the law React to pressure that could affect business results Obtain profits, Abide by the law Anticipate harmful consequences independent of pressures and laws ©2005 Adapted from Exhibit 5.8: Corporate Responses ... Basic Approaches to Ethics Justice Approach Procedural justice Ensure that people affected by managerial decisions consent to the decision-making process Ensure that the process is impartially... impartially Compensatory justice administered If distributive and procedural justice fail, those hurt by inequitable distribution of rewards are compensated 14 ©2005 Moral Intensity in Ethical Decision... relevant laws, regulations, and policies disclosed to the company similar individuals to customers by a fiduciary institution Convey true claims for products 23 ©2005 Adapted from Exhibit 5.4: Categories