Chapter 4 Ethics and Social Responsibility

1. MGMT Chuck Williams Chapter 4Ethics and Social Responsibility Designed & Prepared byB-books, Ltd.

2. Ethics The set of moral principles or values that defines right and wrong for a person or group. Ethical and Unethical Workplace Behavior

3. What Is Ethical and Unethical Workplace Behavior? After reading these sections, you should be able to: • identity common kinds of workplace deviance. • describe the U.S. Sentencing Commission Guidelines for Organizations and explain how they both encourage ethical behavior and punish unethical behavior by businesses.

4. Common Kinds of Workplace Deviance 1.1

5. U.S. Sentencing Commission Guidelines Companies can be prosecuted and punished even if management didn’t know about the unethical behavior. 2

6. Who, What, and Why? • Nearly all businesses are covered • Punishes a number of offenses • Encourages businesses to be proactive 2.1

7. Money laundering Conflicts of interest Embezzlement Dealing in stolen goods Copyright infringements Extortion …and more Partial List of Offenses Invasion of privacy Price fixing Fraud Customs violations Antitrust violations Civil rights violations Theft 2.1

8. Compliance Program Steps Steps in determining fine size: • Determine the base fine. • Compute a culpability score. • Multiply the base fine by the culpability score. Proactive companies get smaller fines! 2.2

9. 1. Establish standards and procedures. 2. Assign upper-level managers to be in charge. 3. Delegate decision-making authority only to ethical employees. 4. Encourage employees to report violations. 5. Train employees on standards and procedures. 6. Enforce standards consistentlyandfairly. 7. Improve program after violations. Compliance Program Steps 2.2

10. How Do You Make Ethical Decisions? After reading the next two sections, you should be able to: • describe what influences ethical decision making. • explain what practical steps managers can take to improve ethical decision making.

11. Ethical Intensity of Decision Moral Development of Manager Ethical Principles Used Influences on Ethical Decision Making EthicalAnswersDepend on… 3

12. Magnitude of consequences Social consensus Probability of effect Temporal immediacy Proximity of effect Concentration of effect Ethical Intensity Depends on… 3.1

13. Kohlberg’s Stages of Moral Development Preconventional Conventional Postconventional Societal Expectations InternalizedPrinciples Selfish Moral Development 3.2

14. Preconventional Conventional Postconventional • Punishment andObedience • InstrumentalExchange • Good boy, nice girl • Law and order • Social contract • Universalprinciple Stages of Moral Development 3.2

15. Long-term self-interest Personal virtue Religious injunctions Government requirements Utilitarian benefits Individual rights Distributive justice Principles of Ethical Decision Making 3.3

16. Principle of long-term self-interest Never take any action not in your organization’s long-term self-interest. Principles of Ethical Decision Making 3.3

17. Beyond the Book Executive Bonuses • The credit crisis which hit the U.S. banking industry in 2008 caused companies such as Bear Stearns to go under and other companies such as Merrill Lynch to be sold. • Merrill Lynch suffered $11.67 billion in losses in 2008. • Given Merrill Lynch’s losses and the trend among other banks of not paying bonuses at all due to fiscal challenges in 2008, should it pay a $10 million bonus to its CEO, John Thain? Source: S. Craig, “Thain Spars with Board Over Bonus at Merrill,” The Wall Street Journal, 8 December 2008, A1.

18. Principle of Personal Virtue Never do anything that is not honest, open, and truthful and that you would not beglad to see reported in the newspapersor on TV. Principles of Ethical Decision Making 3.3

19. Principle of Religious Injunctions Never take any action that is not kindand that does not build a sense of community. Principles of Ethical Decision Making 3.3

20. Principle of Government Requirements Never take any action that violates the law,for the law represents the minimalmoral standard. Principles of Ethical Decision Making 3.3

21. Principle of Utilitarian Benefit Never take any action that does not result ingreater good for society. Principles of Ethical Decision Making 3.3

22. Principle of Individual Rights Never take any action that infringes on others’ agreed-upon rights. Principles of Ethical Decision Making 3.3

23. Principle of Distributive Justice Never take any action that harms the least among us: the poor, the uneducated, the unemployed. Principles of Ethical Decision Making 3.3

24. Practical Steps to Ethical Decision Making Select and hire ethical employees Establish a Code of Ethics Train employees to make ethical decisions Create an ethical climate 4

25. Practical Steps to Ethical Decision Making • Overt Integrity Tests • Personality-Based Integrity Tests Select and hire ethical employees If you found a wallet containing $50, would you return it with the money? 4.1

26. Web Link http://www.nortelnetworks.com Practical Steps to Ethical Decision Making Establish a Code of Ethics • Communicate code of ethics both inside and outside the company • Develop ethical standards and proceduresspecific to business 4.2

27. Web Link http://ethics.bellsouth.com Ethics Training Ethics Training • Develops employee awareness of ethics • Achieves credibility with employees • Teaches a practical model of ethical decision making 4.3

28. Ethics Training Lockheed Boeing Bell South U.S. Dept. of Justice 3M City of Philadelphia …and more require employees to take ethics training.

29. A Basic Model of Ethical Decision Making 1. Identify the problem 2. Identify the constituents 3. Diagnose the situation 4. Analyze your options 5. Make your choice 6. Act 4.3

30. Web Link http://www.whistleblowers.org Ethical Climate Establishing an Ethical Climate Managers establish an ethical climate when they… • act ethically. • are active in company ethics programs. • report potential ethics violations. • punish those who violate the code of ethics. 4.4

31. What Is Social Responsibility? After reading these sections, you should be able to explain: • to whom organizations are socially responsible. • for what organizations are socially responsible. • how organizations can choose to respond to societal demands for social responsibility. • whether social responsibility hurts or helps an organization’s economic performance.

32. Social Responsibility • A business’s obligation to… • pursue policies • make decisions • take actions …that benefit society. What Is Social Responsibility?

33. StakeholderModel Satisfy Interests of Multiple Stakeholders To Whom Are Organizations Socially Responsible? ShareholderModel Maximize Profits 5

34. Cons • Organizations cannot act effectively as moral agents for shareholders • Time, money, and attention diverted to social causes undermine market efficiency Shareholder Model Pros • Firm maximizes shareholder wealth and satisfaction • The company stock increases in value 5

35. Primary Stakeholders: Shareholders Employees Customers Suppliers Governments Local Communities Secondary Stakeholders: MediaSpecial Interest GroupsTrade Associations Stakeholder Model 5

36. Serve a social role Discretionary Abide by principlesof right and wrong Ethical Obey laws andregulations Legal Be profitable Economic Organization’s Social Responsibilities ? $ 6

37. Reactive Defensive Accommo-dative Proactive Fight all the way Do only what is required Beprogressive Lead theindustry PublicRelationsApproach Legal Approach ProblemSolving Withdrawal Bargaining DO NOTHING DO MUCH Responses to Demands for Social Responsibility 7

38. Beyond the Book Staples and Environmental Sustainability • Staples, Inc. purchased 9% of its paper supply from Asia Pulp & Paper Co. Ltd. (APP) in Indonesia. • APP destroys natural rainforest for its supply, putting species like the Sumatran elephant at risk. Burning cleared forests makes Indonesia the world’s third-largest emitter of CO2. • Staples aims to draw on plantation trees rather than natural forest for its paper supply. Staples withdrew from its contracts with APP because of environmental concerns. Source: T. Wright, “Green-Minded Staples Ends Ties with Asia Pulp & Paper,” The Wall Street Journal, 7 February 2008.

39. Can cost a company Sometimes it does pay Realities ofSocialResponsibility Does not guarantee profitability Social Responsibility and Economic Performance 8