Chapter 3: Ethics and social responsibility

Ethics

The inner guiding moral principles, values, and beliefs that people use to analyze or interpret a situation and then decide what is the right or appropriate way to behave.

Stakeholders

The people and groups that supply a company with its productive resources and so have a claim on and a stake in the company.

Ethical Dilemma

The quandary people find themselves in when they have to decide if they should act in a way that might help another person or group even though doing so might go against their own self-interest.

Social Responsibility

The way a company's managers and employees view their duty or obligation to make decisions that protect, enhance, and promote the welfare and well-being of stakeholders and society as a whole.

ethics ombudsman

I. Ethics ombudsman is an ethics officer who monitors an organization's practices and procedures to be sure they are ethical. ii. Members/employees of an organization can communicate with the ombudsman about unethical behavior by managers and coworkers without fear of retribution.

Individual Ethics

Personal values and attitudes that govern how individuals interact with other people.

C. Four Different Approaches

1. A companies' commitment to social responsibility can be illustrated in four different approaches: obstructional approach, defensive approach, accommodative approach, and proactive approach.

A. Ethical Dilemmas

1. An ethical dilemma is the quandary people find themselves in when they have to decide if they should act in a way that might help another person or group even though doing so might go against their own self-interest. 2. An individual is confronting an ethical dilemma when their moral scruples come into play and cause them to hesitate, debate, and reflect upon the rightness or goodness of a course of action. 3. Ethics are the inner guiding moral principles, values, and beliefs that people use to analyze or interpret a situation and then decide what is the right or appropriate way to behave. 4. The problem with dealing with ethical issues is that no absolute or indisputable rules or principles can be developed to decide whether an action is ethical or unethical.

D. How to Make Ethics a Cornerstone of Corporate Culture

1. Ethics lies within the leadership of a company 2. Part of a leaders role is creating an organization's culture and fostering an environment that supports ethical practices. 3. Ethics and values of an organization are often modeled in a formal Code of Ethics or Code of Conduct.

D. Why Be Socially Responsible?

1. There are several advantages that result from a company behaving in a socially responsible manner which are I. Good reputation ii. Quality of Life

III. Approaches to Social Responsibility

A. A company's ethics are the result of differences in societal, organizational, professional, and individual ethics. B. A company's ethics determine its stance or position on social responsibility. C. Four Different Approaches D. Why Be Socially Responsible?

I. The Nature of Ethics

A. Ethical Dilemmas B. Ethics and the Law

II. Stakeholders and Ethics

A. Stakeholders B. Rules for Ethical Decision Making C. Why Should Managers Behave Ethically? D. How to Make Ethics a Cornerstone of Corporate Culture E. Sources of an Organization's Code of Ethics F. Ethical Organizational Cultures

Justice Rule

An ethical decision distributes benefits and harms among people and groups in a fair, equitable, or impartial way.

Utilitarian Rule

An ethical decision is a decision that produces the greatest good for the greatest number of people.

Practical Rule

An ethical decision is one that a manager has no reluctance about communicating to people outside the company because the typical person in a society would think it is acceptable.

Ethics Ombudsman

An ethics officer who monitors an organization's practices and procedures to be sure they are ethical.

Proactive Approach

Companies and their managers actively embrace socially responsible behavior, going out of their way to learn about the needs of different stakeholder groups and using organizational resources to promote the interests of all stakeholders.

Defensive Approach

Companies and their managers behave ethically to the degree that they stay within the law and strictly abide by legal requirements.

Accommodative Approach

Companies and their managers behave legally and ethically and try to balance the interests of different stakeholders as the need arises.

Obstructional Approach

Companies and their managers choose not to behave in a socially responsible way and instead behave unethically and illegally.

Professional Ethics

Standards that govern how members of a profession are to make decisions when the way they should behave is not clear-cut.

Societal Ethics

Standards that govern how members of a society are to deal with each other on issues such as fairness, justice, poverty, and the rights of the individual.

ii. Defensive Approach

a. A defensive approach is when companies and their managers behave ethically to the degree that they stay within the law and strictly abide by legal requirements.

iv. Proactive Approach

a. A proactive approach is when companies and their managers actively embrace socially responsible behavior, going out of their way to learn about the needs of different stakeholder groups and using organizational resources to promote the interests of all stakeholders.

ii. Professional Ethics

a. Professional ethics are standards that govern how members of a profession are to make decisions when the way they should behave is not clear-cut. b. In an organization, professional rules and norms often govern how employees make decisions and act in certain situations, and these rules and norms may become part of the organization's code of ethics.

i. Good Reputation

a. Reputation is the trust, goodwill, and confidence others have in a company that lead them to want to do business with it. b. A company's good reputation can increase business, and build stockholder wealth.

i. Societal Ethics

a. Societal ethics are standards that govern how members of a society are to deal with each other on issues such as fairness, justice, poverty, and the rights of the individual. b. Societal ethics vary among societies.

i. Stockholders

a. Stockholders have a claim on a company because when they buy its stock or shares they are granted ownership of a certain percentage of the company and the right to receive any future stock dividends. b. Stockholders are interested in how a company operates because they want to maximize the return on their investment. c. Stockholders want to ensure that managers are behaving ethically and not risking investors' capital by engaging in actions that could hurt the company's reputation.

vi. Community, Society, and Nation

a. The decisions made by companies and their managers directly effects aspects of communities, societies, and nations in which they operate. b. Through salaries and taxes a company directly contributes to the local economy and plays a role in its prosperity or decline. c. Business ethics are important because the failure of a company can have a catastrophic effect on a community or nation.

iii. Employees

a. A company's employees are the hundreds of thousands of people who work in its various departments and functions. b. Companies can act ethically toward employees by creating an occupational structure that fairly and equitably rewards employees for their contributions. c. Employees are affected by business decisions that affect their job security, job satisfaction, and job fulfillment. d. Employees need to feel that they are valued, as demonstrated through appropriate pay, benefits, and fair treatment. e. Employees can suffer both mental and physical effects form work with an unethical manager for an extended period of time.

iii. Accommodative Approach

a. An accommodative approach is when companies and their managers behave legally and ethically and try to balance the interests of different stakeholders as the need arises.

i. Obstructional Approach

a. An obstructional approach is when companies and their managers choose not to behave in a socially responsible way and instead behave unethically and illegally.

iv. Suppliers and Distributors

a. Companies rely on relationships with suppliers who provide operational inputs, services, and human resources to the organization. b. Suppliers expect to be paid fairly and promptly, while distributors expect to receive high quality goods at agreed upon prices. c. Ethical issues can arise from supplier/distributor interactions based on expectations and business norms that surround labor practices and product/service representation. d. All companies must take an ethical position on the way they obtain and make products for sale.

E. Sources of an Organization's Code of Ethics

1. Codes of ethics are formal standards and rules based on beliefs about right and wrong that managers use to make appropriate decisions in the interest of their stakeholders. 2. The code of ethics derives from three principal sources in the organizational environment: societal ethics, professional ethics, and individual ethics.

B. Rules for Ethical Decision Making

1. Company decisions that favor one group of stakeholders is likely to harm the interests of others. 2. When companies act ethically their stakeholders (managers, employees, customers, etc.) support them, which in time often leads to company growth. 3. Results of unethical behavior is loss of reputation and resources, selling of shareholder stocks, loss of managers and employees, and dissatisfied customers. 4. When making business decisions managers must consider the claims of all stakeholders. 5. Managers can use four ethical rules/principles to analyze the effects of their business decisions on stakeholders

C. Why Should Managers Behave Ethically?

1. In business, the behavior of managers reflects on the company as well as on the manager. 2. A manager who behaves unethically devalues the company, and puts their own job at risk. 3. Managers have a responsibility to model behaviors that produce the following results: a. Preserves employee relationships b. Maintains a business's reputation c. Maintains operational efficiencies d. Respects resources

F. Ethical Organizational Cultures

1. Managers can emphasize the importance of ethical behavior and social responsibility by ensuring that ethical values and norms are part of the organizational culture. 2. Managers can provide a visible means of support to develop an ethical culture. 3. Organizations are beginning to create the role of ethics officer or ethics ombudsman

B. Ethics and the Law

1. Many different laws exist for businesses that protect consumers and employees against unethical treatment, deception and fraud. 2. Different groups in society lobby laws to be passed based on their own personal interests and beliefs about right and wrong. 3. Individuals who do not conform to the law can be prosecuted, and those found guilty of breaking the law can be punished by those incharge of enforcing the law. 4. Ethics and laws are not fixed principles and can change over time. 5. Ethics lead to the development of laws to prevent certain behaviors or encourage others, laws change or even disappear as ethics change.

B. A company's ethics determine its stance or position on social responsibility.

1. Social Responsibility i. Social responsibility is the way a company's managers and employees view their duty or obligation to make decisions that protect, enhance, and promote the welfare and wellbeing of stakeholders and society as a whole. ii. Many kinds of decisions signal a company's beliefs about its obligations to make socially responsible business decisions.

A. Stakeholders

1. Stakeholders are the people and groups that supply a company with its productive resources and so have a claim on and a stake in the company.

Moral Rights Rule

An ethical decision is one that best maintains and protects the fundamental or inalienable rights and privileges of the people affected by it.

v. Customers

a. Customers are often regarded as the most critical stakeholder group as a company can't stay in business without them. b. Companies can create loyal customers and attract new ones by selling quality products, and offering superior service. c. Many laws protect customers from companies that attempt to provide dangerous and shoddy products or provide deceptive business services.

ii. Quality of Life

a. In a capitalist system, companies, as well as the government have to bear the costs of protecting stakeholders, providing health care, income, taxes, etc. b. Businesses that act in a socially responsible way improve stakeholders quality of life.

iii. Individual Ethics

a. Individual ethics are personal values and attitudes that govern how individuals interact with other people. b. Many decisions or behaviors that one person finds unethical may be acceptable to another person because differences in their personalities, values, and attitudes.

iii. Justice Rule

a. Justice rule states that an ethical decision distributes benefits and harms among people and groups in a fair, equitable, or impartial way. b. Managers should compare and contrast alternative courses of action based on the degree to which they will fairly or equitably distribute outcomes to stakeholders.

ii. Managers

a. Managers are a vital stakeholder group because they are responsible for using a company's financial, capital, and human resources to increase its performance and potentially its stock price. b. Managers have the right to expect a good return or reward (increased salary, benefits, stock options, promotion, etc.) by investing their human capital to improve a company's performance. c. Managers are the stakeholder group that decides which goals an organization should pursue to benefit stakeholders. d. Managers have to juggle the interests of several different stakeholders, which causes managers to make decisions that either uphold or ignore ethical values. e. In some companies, corrupt managers focus on their own personal gain rather than the reputation and health of the company. f. Government, regulatory organizations, and corporate board of directors have developed rules and/or laws requiring public disclosure of business practices to discourage corruption. g. Corruption can exist at all levels within an organization; thus, company policies, operational controls, reporting structures, and audit trails are effective tools in discouraging the abuse of managerial power.

ii. Moral Rights Rule

a. Moral rights rule states that an ethical decision is one that best maintains and protects the fundamental or inalienable rights and privileges of the people affected by it. b. Managers should compare and contrast different courses of business action on the basis of how each course will affect the rights of the company's different stakeholders.

iv. Practical Rule

a. Practical rule states that an ethical decision is one that a manager has no reluctance about communicating to people outside the company because the typical person in a society would think it is acceptable. b. A business decision is likely acceptable on ethical grounds if a manager can answer yes to each of three major questions. • Does the decision fall within the accepted values or standards that typically apply to business activity today? • Can the decision be willingly communicated to all people and groups affected by it? • Would family members, friends, employees, and managers in other organizations approve of the decision? c. Managers can analyze ethical situations by using an inquiry-based reasoning process that is comprised of eight questions. • Fairness - How can I act equitably and balance all interests? • Outcomes - What are the short-and long-term outcomes of possible actions? • Rights - What rights (innate, legal, social, etc.) apply? • Character - What actions are acceptable (to business, stakeholders, society)? • Liberty - What principles of freedom and personal autonomy apply? • Empathy - How would I respond if I cared deeply about those involved? • Authority - What do legitimate authorities expect of me? • Responsibility - What duties and obligations apply to me as a manager?

i. Utilitarian Rule

a. Utilitarian rule states that an ethical decision is a decision that produces the greatest good for the greatest number of people. b. Managers should consider how different courses of business action would benefit or harm different stakeholders.

four ethical rules/principles

i. Utilitarian Rule ii. Moral Rights Rule iii. Justice Rule iv. Practical Rule