Chapter 6 Ethics and Corporate Social Responsibility

Ethics: • A set of rules and values that define right and wrong conduct. • They indicate when behavior is acceptable and when it is unacceptable.

Moral Principles • Moral principles prescribe rules of acceptable behavior that are intended to be impartial. • Moral Principles dive the rules of ethics

Ethical vs. Unethical Decisions • Ethical decision – reasonable and acceptable because it aids stakeholders, organization, and society. • Unethical decision- decision that a manager would prefer to disguise or hide from other people because of individual gain is placed above others needs. • Rules of thumb

Ethical Perspectives for Evaluating Behavior Societal Legal Organizational Individual Adapted from Figure 6. 1

Societal Perspective • Societal Ethics – standards that govern how members of a society are to deal with each other on issues of fairness, justice, poverty, and individual rights. • - The idea of what is ethical behavior is largely influenced by the society in which the behavior occurs. • Various public opinion surveys suggest a growing disenchantment with the lack of ethical behavior

Legal Perspective • Laws: society’s values and standards that are enforceable in the courts. • Employment-at-will: a traditional commonlaw concept holding that employers are free to discharge employees for any reason at any time and that employees are free to quit their jobs for any reason at any time.

Legal Perspective (Ctd. ) • Ethics are not laws by any means, simply beliefs about what is right or wrong. • Legality of actions and decisions doesn’t make them ethical • Laws move with the current culture and moral principles • - Lag behind because they are written and set • - Do no ensure or even promote ethical behavior • Often laws and ethics are in conflict

Examples of Law/Ethical Difference • Students borrowing and investing money • Caveat emptor-buyer beware • Reputation-costs and benefits

Organizational Perspective • To provide guidance for employees, an organization can define ethical and unethical behaviors. • Organizations can also guide employee actions both formally and informally.

Individual Perspective • Despite prevalent societal, legal, and organizational interpretations of what is ethical, individuals have their own values and a sense of what is right or wrong. • Lawrence Kohlberg • - Suggested people develop morally, much as they do physically, from early childhood to adulthood. • As they develop, their ethical criteria and patterns of moral reasoning go through stages of moral development

Individual Perspective (Ctd. ) • Stages of moral development: according to Kohlberg, people develop morally by going through six stages of moral development: obedience and punishment, instrumental, interpersonal, law and order, social contract, and universal principles.

Kohlberg’s Stages of Moral Development Universal Principles Social Contract Law & Order Interpersonal Instrumental Obedience & Punishment Childhood-------Through---------Adulthood Adapted from Figure 6. 2

Kohlberg’s Stages (Ctd. ) 1. Obedience and punishment: person does the right thing mainly to avoid punishment or to obtain approval. 2. Instrumental: person becomes aware that others also have needs and begins to defer to them to get what the individual wants. 3. Interpersonal: person considers appropriate behavior as what pleases, helps, or is approved by friends or family.

Kohlberg’s Stages (Ctd. ) 4. Law & Order: person recognizes that ethical behavior is not determined only by reference to friends, family, coworkers, or others whose opinions the individual might value. 5. Social Contract: person is aware that people hold a variety of conflicting personal views that go beyond the letter of the law. 6. Universal Principles: person views appropriate conduct as determined by a person’s conscience, based on universal ethical principles.

Ethical Models Utilitarian Justice IDEAL Outcome Moral Rights Adapted from Fig 6. 5

Utilitarian Model • Greatest good for the greatest number, but many hurt a few. • Milton Friedman is the best-known advocate of this approach. • All employees should strive to increase the company’s profits.

Parts to Utilitarian Model • (Organizational Goals): focusing on maximizing profits. Profits are seen as the reward for satisfying customers. • (Efficiency): achieved by both minimizing inputs (e. g. labor, land, and capital) and maximizing productive outputs. • (Conflicts of Interest): by having a financial interest in a supplier a purchasing agent might be more likely to buy from his supplier even if it’s not in the companies best interest.

Moral Rights Model • Judging decisions and behavior by their consistency with fundamental personal and group liberties and privileges. • (Life and Safety): Employees, customers, and public have the right not to have their lives and safety endangered. • (Truthfulness): They have the right not to be intentionally deceived on matters about which they should be informed. • (Privacy): Citizens have the right to control access to personal information.

Moral Rights Model (Ctd. ) • (Free Speech): Employees have the right to criticize the ethics or legality of their employers actions. • (Private Property): This right allows people to acquire, use, and dispose of shelter and have life’s basic necessities.

Justice Model • Judging decisions an behavior by their consistency with an equitable, fair, and impartial distribution of benefits (rewards) and costs among individuals and groups. • Distributive Justice Principle: moral requirement that individuals not be treated differently because of arbitrarily defined characteristics.

Justice Model (Ctd. ) • Fairness Principle: • Natural Duty moral requirement that Principle: moral employees support the requirement that rules of the decisions and organization when behaviors be based on certain conditions are a variety of universal met. obligations.

Society and the Environment • Sustainable development: conducting business in a way that protects the natural environment while making economic progress. • This model of thought has increased environmental issues both internally and externally for corporations such as 3 M, Kodak, and Mc. Donalds. • Now include ethical principles of industrial ecology in their strategic plans.

Example from 3 M 1. Solve its own pollution and conservation problems beyond compliance requirements. 2. Prevent pollution at the source, whenever possible 3. Conserve natural resources through waste reclamation and other methods 4. Assist regulatory and government agencies concerned with environment 5. Develop products that are ecologically friendlier

Stakeholder Theory • Stakeholders: individuals or groups that have interests, rights, or ownership in an organization or the activities. • A broad category that covers a lot of individuals and groups. • Some groups are more important to the organization and its success.

Stakeholders of the Organization Customers Employees Owners Unions Suppliers Government Strategic Partners Local Community Society Adapted from Figure 6. 3

Stakeholders’ Concerns Stakeholder Group Examples of Concerns * Owners and Investors Financial Soundness • Consistency in meeting shareholder expectations • Sustained profitability • Average return on assets over five-year period • Timely and accurate disclosure of financial information

Stakeholders’ Concerns (Ctd. ) Stakeholder Group * Customers Examples of Concerns * Product/service quality, innovativeness, and availability *responsible management of defective or harmful products/services *Safety records for products/services *Pricing policies and practices * Honest, accurate , and responsible advertising.

Stakeholders’ Concerns (Ctd. ) Stakeholder Group * Employees Examples of Concerns • Nondiscriminatory, meritbased hiring and promotion • Diversity of the workforce • Wage and salary levels and equitable distribution • Availability of training and development • Workplace safety and privacy

Stakeholders’ Concerns (Ctd. ) Stakeholder Group Examples of Concerns * Community Environmental Issues • Environmental sensitivity in packaging and product design • Recycling efforts and use of recycled materials • Pollution prevention • Global applications of environmental standards

Stakeholders’ Concerns (Ctd. ) Stakeholder Group * Community (Ctd. ) Examples of Concerns Community Involvement • Percentage of profits designated for cash contributions • Innovation and creativity in philanthropic efforts • Product donations • Availability of facilities and other assets for community use • Support for employee volunteer efforts.

Evaluating Corporate Social Performance • Fortune magazine founded “Ron Brown Award for Corporate Leadership in Ethics” • Demonstrates corporate leadership in Employee and Community Relations (Ethics)

Affirmative Social Responsibility • Ron Brown Award wants corporations and their leaders to move away from traditional, utilitarian models of business and take a more proactive stance with regard to society.

Affirmative Social Responsibility (Ctd. ) • 5 steps: 1. Broad Performance Criteria 2. Ethical Norms 3. Operating Strategy 4. Response to Social Pressures 5. Legislative and Political Activities

Affirmative Social Responsibilities (Ctd. ) • Taking this approach requires companies to implement five different an expensive behaviors: • 1. Broad Performance Criteria: management and employees must recognize broader views to measure growth. • 2. Ethical norms: managers and employees must take definite stands on issues of public concerns. • 3. Operating strategy: managers and employees should maintain or improve current standards of the physical and social environment.

Ctd. • 4. Response to social pressures: management and employees should accept responsibilities for solving current problems. • 5. Legislative and Political Activities: Managers must show a willingness to work with outside stakeholders for enforcement. Social audit: an attempt to identify and measure, evaluate, report on, and monitor the effects that an organization is having on its stakeholders and society.

Conflict • Difficult to balance all stakeholder problems. • Owls vs. Lumber • Pollution vs. Jobs • Politics vs. Profits • Firms might not know of a stakeholder until there is a problem

Whistle-blowing • Reporting unethical or illegal behavior. • Has many consequences/risks • When should you blow the whistle? • Table 6. 3 (p. 208)

Whistle-blowing (Ctd. ) • Will not happen if: • 1. If allegation of wrongdoing has little or no merit. • 2. Accusations are made to someone outside the company. • 3. Whistle-blower has no help from middle or top management.

Sexual Harassment • Quid pro quo : asking for or forcing sexual contact with an employee in exchange for reward or to avoid punishment. • Hostile work environment: lewd jokes, pornography, sexually oriented remarks about one’s appearance making that person uncomfortable.