MGMT 309 Exam 1 - Chap 4

o Accommodative Stance -

A firm that takes this stance meets its legal and ethical obligations but will also go beyond these obligations in selected cases • These firms agree to participate in social programs, but solicitors have to convince the organization that the programs are worthy of its support • The organizations don't proactively seek such avenues for contributing

• Corporate Social Audit -

A formal and thorough analysis of the effectiveness of a firms social performance o Usually conducted by a task force of high leveled managers from within the firm o Requires the organization to 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

Unethical Behavior -

Behavior that does not conform to generally accepted social norms

Indirect -

Can take a number of forms, most notably taxation policies • Gov can indirectly influence the social responsibility of organizations through its tax codes • In effect the gov can influence how organizations spend their social responsibility dollars by providing greater or lesser tax incentives

Most companies that strive to be responsible to their stakeholders concentrate first and foremost on three main groups:

Customers Employees Investors

Customers - Employees - Investors -

Customers • Strive to treat them fairly and honestly • Charge fair prices, honor warranties, meet delivery commitments, and stand behind the quality of products they sell • LL Bean, Lands' End, Dell & Johnson&Johnson Employees • Treat them fairly, make tem a part of the team, respect their dignity and basic human needs • Four Seasons, 3M Company, SAS Institute Investors • Follow proper accounting procedures • Provide appropriate information to shareholders about the financial performance of frim and manage the organization to protect the shareholder rights and investments • Be accurate and candid in their assessment of future growth and profitability and should avoid even the appearance of improprieties involving such sensitive areas as inside trading, stock price manipulation and withholding of financial data

The gov tries to shape social responsibility practices through both -

Direct and Indirect Channels

4 Basic Forms of Organizational Justice:

Distributive Justice Procedural Justice Interpersonal Justice Informational Justice

o Proactive Stance -

Highest degree of social responsibility that a firm can exhibit • These firms take to heart the arguments in favor of social responsibility • They view themselves as citizens in a society and proactively seek opportunities to contribute • EX: Ronald McDonald House Program • These firms indicate a sincere and potent commitment to improving the general social welfare and this represent a proactive stance to social responsibility • Organizations don't always fit neatly into one category

Ethical Behavior -

In the eye of the beholder, refers to the behavior that conforms to generally accepted social norms

Procedural Justice -

Individual perceptions of the fairness used to determine various outcomes • When workers perceive a high level of procedural justce, they are somewhat more likely to be motivated to participate in activities, to follow rules, accept relevant outcomes as being fair and view organization in an ethical light • EX: Someone who knows the job giving an evaluation - employee will see it being justice and fair • Perceptions of procedural injustice might be accompanied by interpretations based on the ethical conduct of others

Direct -

Involves regulation • Regulation - the establishment of laws and rules that dictate what organizations can and cannot do • Such regulation normally evolves form societal beliefs about what businesses should and should not be allowed to do • To implement the laws the gov usually creates special agencies to monitor and control certain aspects of business activity • EX: FDA, EPA, FTC all have the power to levy fines or bring charges against organizations that violate regulations • Another approach is through legislation - • For instance, among other things the US foreign corrupt practices Act provides for financial sanctions against businesses who engage in bribery

Informal dimensions for managing social responsibility are -

Leadership & Organization Culture How the Organization responds to whistleblowers

Formal organizational dimensions that can help manage social responsibility are:

Legal Compliance Ethical Compliance Philanthropic Compliance

4 Stances that an organization can take concerning its obligations to society fall along a continuum ranging from the lowest to the highest degree of socially responsible practices:

Obstructionist Stance Defensive Stance Accommodative Stance Proactive Stance

o Defensive Stance -

One step removed from the obstructionist stance is the defensive stance - the organization does everything that is required of it legally, but nothing more • Is most consistent with the arguments used against social responsibility • Managers in organizations that take a defensive stance insist that their job is to generate profits • Firms that take this position are unlikely to cover up wrongdoing and will generally admit their mistakes and tale appropriate corrective actions

Ethics -

One's personal beliefs about whether a behavior, action, or decision is right of wrong o People have ethics, organizations do not

Another important consideration in managing ethical behvaor in oragnizations is ensuring that -

People perceive decisions as being made in a fair and just manner

Distributive Justice -

People's perceptions of the fairness with which rewards and other valued outcomes are distributed within the organization • Takes a more holistic view of reward distribution than simply a comparison between one person and another • Perceptions of distributive justice affect individual satisfaction with various work-related outcomes such a s pay, work assignments, recognition, and opportunities for advancement o The more people see rewards being distributed in a just and ethical manner, the more satisfied they will be with those rewards

Businesses have 4 main methods of addressing gov pressures for more social responsibility:

Personal Contacts Lobbying Political Action Committees Favors

The Natural Environment -

Second critical area of social responsibility relates to the natural environment o Now many laws regulate the disposal of waste materials o Companies themselves have become more socially responsible in their release of pollutants and general treatment of • Still, much needs to be done - they need to come up with better ways to lessen their impact on the environment and climate change o Companies also need to develop safety policies that cut down on accidents that may have potentially disastrous environmental results o One of today's more contentious business practices related to the natural environment is fracking - injecting water and chemical compounds into underground rock formations in order to break them apart, oil companies can then extract petroleum more easily and in areas where drilling was previously impossible • Its led to a dramatic increase in supply of oil and has resulted in lower energy prices • At the same time environmentalists have expressed concern that the chemical compound used may be polluting underground water sources and causing instability in nearby towns and residential areas

Social Responsibility -

Set of obligations an organization has to protect and enhance the societal context in which is functions

Interpersonal Justice -

The degree of fairness people see in how they are treated by dignity and respect • Boss treating employee with respect - employee will give respect • Perceptions of interpersonal justice will most affect how people will feel about those with whom they interact and communicate

Informational Justice -

The perceived fairness of information used to arrive at decisions • If person feels another manager made a decision based on relatively complete and accurate information, the person will experience informational justice even if they don't agree with the decision

Organizational Justice -

The perceptions of people in an organization regarding fairness

Managerial Ethics -

The standards of behavior that guide individual managers in their work

Organizational Stakeholders - FIGURE 4.3

Those people and organizations who are directly affected by the practices by an organization and have a stake in its performance

o Obstructionist Stance -

Usually do as little as possible to solve social or environmental problems • When they cross the ethical or legal line that separates acceptable from unacceptable practices, their typical is to deny or avoid accepting responsibility for their actions

The interactions between the organization and these agents that may be subject to ethical ambiguity include:

o Advertising and promotions o Financial disclosures o Ordering and purchasing o Shipping and soliciting o Bargaining and negotiation o Other business relationships

Ethical Issues in Information Technology -

o Among the specific questions in this area are individual rights to privacy to and the potential abuse of information technology by indiciduals • As internet usage increases, surverys show that peopleare troubled by the amount of information being collected and who gets to see it o One way management can address these concerns is to post privacy policies on their website • They can offer web surfers the opportunity to review and correct information that has been collected

How Employees and the Organization Treat Other Economic Agents • Primary agents of interest:

o Customers o Competitors o Stockholders o Suppliers o Dealers o Unions

Making ethical choices may lead to very unpleasant outcomes:

o Firing o Rejection by colleagues o Forfeiture of monetary gain

Ethical Leadership -

o For every unethical senior manager, there are many highly ethical ones o As a direct result of Madoff, Kozlowski, Lay, and Ebbers - they have increased scrutiny directed at all executives • As a result, executives everywhere are being expected to help set the tone for the rest of the organization and to help establish both norms and a culture that reinforce the importance of ethical behavior • BASIC PREMISE - because leaders serve as role models for others, their every action is subject to scrutiny • A CEO must set the company's moral tone by being honest and straightforward and by taking responsibility for any identified shortcomings o This is why congress passed the Sarbanes -Oxley Act - requiring CEOs and CFOs to personally vouch for the truthfulness and fairness of their firms financial disclosures o It also imposes tough new measures to deter and punish corporate and accounting fraud and corruption

Traditionally experts have suggested a 3 step model for applying ethical judgments to situations that may be arise during the course of business activities:

o Gather the relevant factual info o Determine the most appropriate moral values o Make an ethical judgment based on the rightness of wrongness of the proposed activity or policy

A persons ethics are determined by a combination of factors:

o People start to form ethical standards as children, in response to their perceptions of their parents' and other adults' behaviors and in response to they behaviors they are allowed to choose o As children grow and enter school, they are also influenced by peers with whom they interact everday o Myriad important individual events shape people's lives and contribute to their ethical beliefs and behavior as they grow into adulthood o Values and morals also contribute to ethical standards, as do religious beliefs

Organizations may exercise social responsibility toward their:

o Stakeholders o Natural environment o General social welfare

Ethical Issues and Corporate Governance -

o The board of directors of a public corporation is expected to ensure that the business s being properly managed and that the decisions made by its senior management are in the best interests of shareholders and other stakeholders • But, some ethical scandals have actually started with a breakdown in the corporate governance structure o Although board members need to have some familiarity with both the firm and its industry to function effectively, they also need to have enough independence to carry out their oversight function o Corporate boards are creating strict rules dictating governance standards that provide a clear separation of authority between the board and the CEO

Any organization that is serious about social responsibility must ensure that its efforts are producing the desired benefits -

o This requires applying the concept of control to social responsibility

4 Ethical Norms: FIGURE 4.2 -

o Utility - whether a particular act optimizes what is best for the organization's constituencies o Rights - whether the act respects the rights of the people involved o Justice - whether the act is consistent with what most people would see as fair o Caring - whether the act is consistent with people's responsibilities to one another

Arguments Against Social Responsibility -

• (Milton Friedman) Argue that widening the interpretation of social responsibility will undermine the US economy by detracting from the basic mission of business: to earn profits for its owners • Another objection to deepening the social responsibility points out that corps already wield enormous power and that their activity in social programs gives them even more power o Another argument focuses on potential for conflicts of interest

Ethics in an Organizational Context -

• Although ethics are an individual phenomenon, ethical or unethical actions by particular managers do not occur in a vacuum - they most often occur in an organizational context that is conducive to them • Actions of peer managers and top managers, as well as the organizations' culture, all contribute to the ethical context of the organization • The starting point in understanding the ethical context of management is the person's own ethical standards • Organizational practices may strongly influence the ethical standards of employees • Some organizations openly permit unethical business practices as long as they are in the firms best interests • The organizations environment also contributes to the context for ethical behavior o In a highly competitive or regulated industry a manager may feel more pressure to achieve high performance o When managers feel more pressure to meet goals or lower costs, they may explore a variety of alternatives to help achieve these ends o In some cases the alternative they choose may be unethical or even illegal

o Personal Contacts -

• Because many corporate executives and political leaders travel in the same social circles, personal contacts and networks offer one method of influence

o Organizational Leadership and Culture -

• Can go a long way toward defining the social responsibility stance an organization and its members will adopt • Ethical leadership sets the tone for the entire organization

o Political Action Committees -

• Companies themselves cannot legally make direct donations to political campaigns, so they influence the gov through political action committees • Special organizations created to solicit money and then distribute it to political candidates • 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 • PAC's make the contributions themselves usually to a broad slate of state and national candidates

General Social Welfare o Examples include:

• Contributing financially to charities • Philanthropic organizations • Not-for-profit foundations and associations • Providing other support to museums, symphonies and public radio and television • Taking a role in improving public health and education

Ethical Compliance -

• Extent to which the members of the organization follow basic ethical (and legal) standards of behavior Organzations have increased their efforts in this area: • Providing training in ethics • Developing guidelines and codes of conduct May have formal ethics committees • May be asked to review projects • Help evaluate new hiring strategies • Assess a new environmental protection plan • Serve as peer review panels for ethical misconduct

Another area of concern in recent years involves financial reporting by some e-commerce firms -

• In some countries, bribes and side payments are a normal and customary part of doing business • But the US forbids these practices, even if a firms rivals from other countries are paying them

o Whistleblowing -

• Is 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 indicates its stance on social responsibility • Whistleblowers may have to proceed through a number of channels to be heard, and they may even get fired for their efforts • Many organizations welcome their contributions though • They typically first report the incident to their boss, if nothing is done the whistleblower may then inform higher level managers or an ethics committee, if one exists. Eventually the person may have to go to a regulatory agency or media to be heard

How Employees Treat the Organization

• Many ethical issues also stem from how employees treat the organization, especially in regard to conflicts of interest, secrecy and confidentiality, and honesty • A conflict of interest occurs when a decision potentially benefts the ndividual to the possible detriment of the organization. • To guard against such practices, most companies have policies that forbid their buyers to accept gifts from suppliers • Divulging company secrets is also clearly unethical • A third area of concern is honesty in general o Usiing a business ohone to make personal calls o Stealing supples o Padding expense accounts o Calling in sick to get extra time off o Internet for personal use at work

How an Organization Treats Its Employees

• One important area of managerial ethics is the treatment of employees by the organization • This area includes policies such as hiring and firing, wages, and working conditions, and employee privacy and respect • Wages and working conditions are also areas for potential controversy • An organization is obligated to protect protect the pricvacy of its employees • The manner in which an organization addresses issues associated with sexual harassment involves employee privacy and related rights

Managing Social Responsibility

• Organizations should view social responsibility as a major challenge that requires careful planning, decision making, consideration, and evaluation • They can accomplish this through formal or informal dimensions of managing social responsibility

o Favors -

• Organizations sometimes rely on favors and other influence tactics to gain support • Although they may be legal, they are still subject to criticism

Creating Ethics Codes

• Some organizations go to even greater lengths to formalize their ethical standards • Some have guidelines that detail how employees are to treat suppliers, customers, competitors, and other constituents • Others have formal codes of ethics • Formal Codes of Ethics - written statements of the values and ethical standards that guide the firms actions

Managing Ethical Behavior

• Spurred partially by increased awareness of ethics scandals in business and partially by a sense of enhanced corporate consciousness about the importance of ethical and unethical behaviors, many organizations have reemphasized ethical behavior on the part of employees o This emphasis takes many forms, but any effort to enhance ethical behavior must begin with top management o It is Top managers who establish the organizations culture ad define what will and what wont be acceptable behavior

Philanthropic Compliance -

• The awarding of funds or gifts to charities or other worthy causes • Many corporations have had to cut back/limit their charitable gifts over the past several years as they continue to trim their own budgets • And many firms that continue to make contributions are increasingly targeting them to programs or areas where the firm will get something in return

Legal Compliance -

• The extent to which the organization conforms to local, state, federal and international laws • The task of managing legal compliance is normally assigned to the appropriate functional managers • Unfortunately legal compliance may not be enough - in some cases perfectly legal accounting practices have still resulted in deception and other problems

o Lobbying -

• The use of the persons or groups to formally represent an organization or group of organizations before political bodies, is also an effective way to influence the government

Arguments for Social Responsibility -

• They claim that because organizations create man of the problems that need to be addressed, such as air pollution and resource depletion, they should play a major role in solving them • They also argue that because corps are legally defined entities with most of the same priveledges as private citizens, businesses sould not try to avoid their oblgatios as citizens • They point out that whereas gov organizations have stretched their budgets to the limit, many large businesses often have surplus revenues that could be used to help solve social problems • Another reason for social responsibility is for profit itself

Applying Moral Judgment

• What distinguishes ethical from unethical behavior is often subjective and subject to differences of opinion