Business Chapter 2

Managerial Ethics

Standards of behavior that guide individual managers in their work

HP Way (Hewlett Packard)

- trust & respect for individuals - focus on a high level of achievement & contribution - conduct our business with uncompromising integrity - achieve our common objectives through teamwork - encourage flexibility & innovation

2 Approaches to Formalizing Top Management Commitment to Ethical Business Practices

1. Adopting written codes 2. Instituting ethics programs

3 Categories of Managerial Ethics

1. Behavior towards employees 2. Behavior towards the organization 3. Behavior towards other economic agents

Stakeholder Model of Responsibility

1. Customers 2. Suppliers 3. Employees 4. Investors 5. Local community

4 Areas of Social Responsibility

1. Environment: air, water & land pollution. Toxic waste disposal & recycling 2. Customers: To encourage responsibility, the Federal Trade Commission (FTC) regulates advertising and pricing practices, and the Food and Drug Administration (FDA) enforces labeling guidelines for food products. 3. Employees 4. Investors

3 Steps of Assessing Ethical Behavior

1. Gather relevant factual information 2. Analyze the facts to determine the most appropriate moral values 3. Make an ethical judgement based on the rightness/ wrongness of the proposed activity/ policy

4 Ethical Norms

1. Utility: does a particular fact optimize the benefits for those who were affected by it. Do all relevant parties benefit? 2. Rights: does it respect the rights of all individuals involved 3. Justice: is it consistent with whats fair? 4. Caring: is it consistent with people's responsibilities to each other

Consumer Bill of Rights

1. consumers have a right to safe products 2. consumers have a right to be informed about all relevant aspects of a product 3. consumers have a right to be heard 4. consumers have a right to chose what they buy 5. consumers have a right to be educated about purchases 6. consumers have a right to courteous service

Accommodative Stance Approach to Social Responsibility

A company if specially asked to do s, exceeds legal minimums in its commitments to groups and individuals in its social environment. A firm that adopts this stance meets and, in certain cases, exceeds its legal and ethical requirements. Such firms will agree to participate in social programs if solicitors convince them that given programs are worthy of their support.

Corporate Social Audit

A formal & thorough analysis of the effectiveness of a firms social performance. A task force of high-level managers from within the firm usually conducts the audit. It requires that the organization clearly define all of its social goals, analyze the resources it devotes to each goal, determine how well it is achieving the various goals, and make recommendations about which areas need additional attention.

Obstructionist Stance Approach to Social Responsibility

Approach to social responsibilities that involves doing as little as possible and may involve attempts to deny or cover up violations.

Defensive Stance Approach to Social Responsibility

Approach to social responsibility by which a company meets only a minimum legal requirements in its commitments to groups & individuals in its social environment. Defensive stance managers insist that their job is to generate profits and might, for example, install pollution-control equipment dictated by law but not higher-quality equipment to further limit pollution.

Social Responsibility

Attempt of a business to balance its commitment to groups & individuals in its environment including customers, other businesses, employees, investors & local communities. These groups & individuals are often called organizational stakeholders

Philanthropic Giving

Awarding of funds or gifts to charities or other worthy causes.

Ethical Behavior

Behavior conforming to generally accepted social norms concerning beneficial & harmful actions

Unethical Behavior

Behavior that doesn't conform to generally accepted social norms concerning beneficial and harmful actions

Ethics

Beliefs about what is fair and what is right or wrong

Suppliers

Businesses and managers should also manage their relations with suppliers with care. Many firms now recognize the importance of mutually beneficial partnership arrangements with suppliers. Thus, they keep suppliers informed about future plans, negotiate delivery schedules and prices that are acceptable to both firms etc.

Customers

Businesses that are responsible to their customers strive to treat them fairly and honestly. They also seek to charge fair prices, honor warranties, meet delivery commitments, and stand behind the quality of the products they sell.

Employees

Businesses that are socially responsible in their dealings with employees treat workers fairly, make them a part of the team, and respect their dignity and basic human needs.

Instituting Ethics Programs

Businesses that sincerely stress the importance of ethical behavior and that consistently promote ethical cultures tend to have fewer ethical scandals than businesses that only pay lip service to ethic. Interestingly, some of the more popular ethics training programs today are taught by former executives who have spent time in prison for their own ethical transgressions.

Legal & Social Commitments

By law, businesses cannot discriminate against people in any facet of the employment relationship for any reason not related to performance. a company cannot refuse to hire someone because of ethnicity or pay someone a lower salary than someone else on the basis of gender. A company that provides its employees with equal opportunities without regard to race, sex, or other irrelevant factors is meeting both its legal and its social responsibilities. Firms that ignore these responsibilities risk losing good employees and leave themselves open to lawsuits.

Proactive Stance Approach to Social Responsibility

Company actively seeks opportunities to contribute to the well being of groups and individuals in its social environment. Firms with the highest degree of social responsibility exhibit this stance. They take to heart the arguments in favor of social responsibility, view themselves as citizens in a society, indicate sincere commitment to improve the general social welfare, and surpass the accommodative stance by proactively seeking opportunities to contribute. The most common—and direct—way to implement this stance is to set up a foundation for providing direct financial support for various social programs.

Regulation

Establishment of laws & rules that dictate what organizations can & cannot do

Behavior Towards the Organization

Ethical issues can also arise from employee behavior toward employers, especially in such areas as conflict of interest, confidentiality, and honesty. This includes: - stealing supplies - padding expense accounts - calling in faking sick - using company phone for long distance/ personal calls

Business Ethics

Ethical/ unethical behavior by employees in the context of their job

Behavior Towards other Economic Agents

Ethics also come into play in the relationship of a business and its employees with so-called primary agents of interest. This includes: - advertising - financial disclosure - ordering & purchasing - bargaining & negotiation - business relationships

Legal Compliance

Extent to which an organization conforms to local, state, federal & international laws. The task of managing legal compliance is generally assigned to the appropriate functional managers

Ethical Compliance

Extent to which the members of the organization follow basic ethical & legal standards of behavior

Favors

Finally, organizations sometimes rely on favors and other influence tactics to gain support. Although these favors may be legal, they are still subject to criticism.

Consumerism

Form of social activism dedicated to protecting the right of consumers in their dealings with businesses

Organizational Stakeholders

Groups, individuals & other organizations that are directly affected by the practices of an organization & therefor have a stake in the performance

Consumer Rights

Interest in business responsibility toward customers can be traced to the rise of consumerism, social activism dedicated to protecting the rights of consumers in their dealings with businesses. The first formal declaration of consumer rights protection came in the early 1960s, when President John F. Kennedy identified four basic consumer right.

Unfair Pricing

Interfering with competition can take the form of illegal pricing practices

Behavior Towards Employees

Involves: - Hiring - Firing - Wages - Working conditions - Privacy - Respect Ethical guidelines suggest and legal standards require that hiring and firing decisions should be based solely on a person's ability to perform a job

Ethics in Advertising

Issue concerns advertising that some consumers consider morally objectionable—for products such as underwear, condoms, alcohol, tobacco products, and firearms. Laws regulate some of this advertising (for instance, tobacco cannot be promoted in television commercials but can be featured in print ads in magazines), and many advertisers use common sense and discretion in their promotions

Primary Agents of Interest

Mainly customers, competitors, stockholders, suppliers, dealers, and unions.

Responsibility Towards Investors

Managers can abuse their responsibilities to investors in several ways. As a rule, irresponsible behavior toward shareholders means abuse of a firm's financial resources so that shareholder owners do not receive their due earnings or dividends. Companies can also act irresponsibly toward shareholder owners by misrepresenting company resources.

Local/ International Communities

Most businesses also try to be socially responsible to their local communities. They may contribute to local programs, such as Little League baseball, get actively involved in charitable programs, such as the United Way, and strive to simply be good corporate citizens by minimizing their negative impact on communities.

Collusion

Occurs when 2 or more firms collaborate on such wrongful acts as price fixing.

Conflict of Interest

Occurs when an activity may benefit an individual to the determent of their employer

Personal Contact

Personal contacts and networks offer one method of influence. For instance, a business executive may be able to contact a politician directly and present his or her case regarding a piece of legislation being considered.

Price Gouging

Pricing products unreasonably high when the need is great or when consumers do not have other choices.

Formal Organizational Dimensions

Some dimensions of managing social responsibility involve a formal and planned activity on the part of the organization. Indeed, some businesses are approaching social responsibility from a strategic perspective. 1. Legal Compliance 2. Ethical Compliance 3. Philanthropic Giving

Political Action Committees

Special organizations created to solicit money and then distribute it to political candidates. Companies themselves cannot legally make direct donations to political campaigns, so they influence the government through political action committees. Employees of a firm may be encouraged to make donations to a particular PAC because managers know that it will support candidates with political views similar to their own. PACs, in turn, make the contributions themselves, usually to a broad slate of state and national candidates

Whistle Blowing

The disclosure by an employee of illegal or unethical conduct on the part of others within the organization. How an organization responds to this practice often illustrates its stance on social responsibility. Whistle-blowers may have to proceed through a number of channels to be heard, and they may even get fired for their efforts.39 Many organizations, however, welcome their contributions. A person who observes questionable behavior typically first reports the incident to his or her boss. If nothing is done, the whistle-blower may then inform higher-level managers or an ethics committee, if one exists

Government Influence Business

The government (national, state, or local) attempts to shape social responsibility practices through both direct and indirect channels. Direct influence most frequently is manifested through regulation, whereas indirect influence can take a number of forms, most notably taxation policies. 1. Personal contacts 2. Lobbying 3. Political action committees 4. Favors

Investors

To maintain a socially responsible stance toward investors, managers should follow proper accounting procedures, provide appropriate information to shareholders about financial performance, and manage the organization to protect shareholder rights and investments. Managers should also strive to be accurate and candid in assessing future growth and profitability, and they should avoid even the appearance of impropriety in such sensitive areas as insider trading, stock-price manipulation, and the withholding of financial data. Indeed, many of today's accounting scandals have stemmed from similarly questionable practices.

Lobbying

Use of people or groups to formally represent an organization or group of organizations before political bodies.

Insider Trading

Using confidential information to gain from the purchase or sale of stocks. Informed executives can also avoid financial loss by selling stock that's about to drop in value. Legally, stock can only be sold on the basis of public information available to all investors.

Adopting Written Codes

Written codes that formally announce their commitment to do business in an ethical manner. The number of such companies has risen dramatically in the last three decades, and today almost all major corporations have written codes of ethics.

Organization Leadership & Culture

leadership practices and the culture of the organization can help define the social responsibility stance an organization and its members will adopt. Ethical leadership often sets the tone for the entire organization.