m a n a g e m e n t 2e H i t t / B l a c k / P o r t e r Chapter 2: Social Responsibility and Managerial Ethics Note to student: To print these slides: Select File/Print Under “Print What,” select your preference (suggested: handouts, either 3 or 4 or 6 per page) Under “Color/grayscale,” select either “Color” for a color printer or “Pure Black and White” for a black and white printer. Do NOT select “Grayscale,” as your slides will not be legible.

Learning Objectives After studying this chapter, you should be able to: Describe why an understanding of basic approaches to ethical decision making and corporate social responsibility is important Compare and contrast the efficiency and social responsibility perspectives Explain the strategic corporate social responsibility approach Explain the basic approaches to ethical decision making

Learning Objectives Explain the aspects of moral intensity Describe the actions that can foster a high degree of ethical behavior in an organization

Corporate Social Responsibility Obligation corporations have to constituencies and the nature and extent of those obligations Constituencies include shareholders, customers, employees, specific communities, society at large, governments Issue: constituencies may not share same expectations

Efficiency Perspective maximize profits for the owners of the business MANAGERS AS OWNERS Self-interests of the manager-owner are best achieved by serving the needs of society MANAGERS AS AGENTS Managers have no obligation to act on behalf of society if it does not maximize value for the shareholders

Social Responsibility Perspective firms have responsibilities and obligations to society as a whole, not just shareholders Key Stakeholders

Efficiency Versus Social Responsibility Perspective Action harms other share-holders Efficiency Perspective Managerially Irresponsible Social Responsibility Perspective Managerially Responsible Efficiency Perspective Managerially Irresponsible Social Responsibility Perspective Yes Efficiency Perspective Managerially Responsible Social Responsibility Perspective Efficiency Perspective Managerially Responsible Social Responsibility Perspective Managerially Irresponsible No No Yes Action harms other stakeholders Adapted from Exhibit 2.1

regulate our activities Fight new restrictions Corporate Responses Defenders Accommodators Belief We must fight against efforts to restrict or regulate our activities and profit- making potential. We will change when legally compelled to do so. Focus Maximize profits. Find legal loopholes. Fight new restrictions and regulations. Maximize profits. Abide by the letter of the law. Change when legally compelled to do so. Adapted from Exhibit 2.2

Corporate Responses (cont.) Reactors Anticipators Belief We should respond to significant pressure even if we are not legally required to. We owe it to society to anticipate and avoid actions with harmful consequences, even if we are not pressured or legally required to do so. Focus Protect profits. Abide by the law. React to pressure that could affect business results. Obtain profits, Abide by the law. Anticipate harmful consequences independent of pressures and laws. Adapted from Exhibit 2.2

Strategic Corporate Social Responsibility Perspective Three fundamental criteria guide managers: Inside-Out Approach Outside-In Approach Outside-Out Approach Look inside company at issues that are important to the company Look outside company at issues that company has an impact upon Look at social issues in general in terms of the extent to which they are problematic

Strategic Corporate Social Responsibility Problem in Society Low High Prime Focus High Affected by the Company Worthy Cause (for someone else) Low Low High Critical to the Company Adapted from Exhibit 2.3

The Development of Individual Ethics

Basic Approaches to Ethics Ethical dilemmas The choice between two competing but arguably valid options Frameworks for ethical decision making: Utilitarian approach Moral rights approach Universalism approach Justice approach

Basic Approaches to Ethics: Utilitarian Approach Focused on the consequences of an action What is the “greatest good?” Different people may see the outcome differently in terms of good or bad

Basic Approaches to Ethics: Moral Rights Approach Focused on moral standing of actions, independent of their consequences Some things are simply “right” or “wrong” When two actions have moral standing, then the positive or negative consequences of each will determine the more ethical

Basic Approaches to Ethics: Universal Approach “Do unto others as you would have them do unto everyone, including yourself.” Choose a course of action you believe can apply to all people under all situations The issue of rights Rights stem from freedom and autonomy Actions that limit freedom and autonomy generally lack moral justification

Basic Approaches to Ethics: Justice Approach Costs and benefits of actions: Costs and benefits should be equitably distributed Rules should be impartially applied Those damaged should be compensated Distributive justice Equitable distribution is based on performance

Basic Approaches to Ethics: Justice Approach Procedural justice Ensure that people consent to the decision-making process Ensure that the process is administered impartially Compensatory justice If distributive and procedural justice fail, those hurt by inequitable distribution of rewards are compensated

Moral Intensity in Ethical Decision Making Consequences Social Moral intensity The degree to which people see an issue as an ethical one Magnitude of the Consequences Probability of Effect Moral Intensity Concentration of Effect Temporal Immediacy Proximity

Moral Intensity in Ethical Decision Making Magnitude of the consequences Level of impact anticipated Impact is independent of whether consequences are positive or negative Magnitude of the Consequences Moral Intensity Adapted from Exhibit 2.4 Adapted from Exhibit 5.2: Factors of Moral Intensity

Moral Intensity in Ethical Decision Making Consequences Social Social consequences The extent to which members of a society agree that an act is either good or bad Population diversity weakens social consensus Magnitude of the Consequences Moral Intensity Adapted from Exhibit 2.4 Adapted from Exhibit 5.2: Factors of Moral Intensity

Moral Intensity in Ethical Decision Making Consequences Social Probability of effect How likely people think the consequences are The higher the probability of the consequence, the more intense the sense of ethical obligation Magnitude of the Consequences Probability of Effect Moral Intensity Adapted from Exhibit 2.4 Adapted from Exhibit 5.2: Factors of Moral Intensity

Moral Intensity in Ethical Decision Making Consequences Social Temporal immediacy Interval between the time the action occurs and the onset of its consequences The greater the time interval, the less intensity people typically feel toward the issue Magnitude of the Consequences Probability of Effect Moral Intensity Temporal Immediacy Adapted from Exhibit 2.4 Adapted from Exhibit 5.2: Factors of Moral Intensity

Moral Intensity in Ethical Decision Making Consequences Social Proximity The closeness the decision maker feels to those affected Closeness leads to more consideration of the consequences Closeness increases feeling that it has ethical implications Magnitude of the Consequences Probability of Effect Moral Intensity Temporal Immediacy Proximity Adapted from Exhibit 2.4 Adapted from Exhibit 5.2: Factors of Moral Intensity

Moral Intensity in Ethical Decision Making Consequences Social Concentration of effect Focus of effect on only a few or disbursed across many individuals Higher concentration leads to feelings of greater ethical responsibility Magnitude of the Consequences Probability of Effect Moral Intensity Concentration of Effect Temporal Immediacy Proximity Adapted from Exhibit 2.4 Adapted from Exhibit 5.2: Factors of Moral Intensity

How Firms Make Better Ethical Decisions Code of ethics: a formal one-to-three page statement outlining the types of behavior that are and are not acceptable Codes generally stress: Being a good “organization citizen” Guiding employee behavior away from unlawful or improper acts that could harm the organization

Johnson & Johnson Credo Our Credo • We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. • In meeting their needs everything we do must be of high quality. • We must constantly strive to reduce our costs in order to maintain reasonable prices. • Customers' orders must be serviced promptly and accurately. • Our suppliers and distributors must have an opportunity to make a fair profit. Adapted from Exhibit 2.5

Johnson & Johnson Credo (cont.) • We are responsible to our employees, the men and women who work with us throughout the world. • Everyone must be considered as an individual. • We must respect their dignity and recognize their merit. • They must have a sense of security in their jobs. • Compensation must be fair and adequate, and working conditions clean, orderly and safe. • We must be mindful of ways to help our employees fulfill their family responsibilities. • Employees must feel free to make suggestions and complaints. • There must be equal opportunity for employment, development and advancement for those qualified. • We must provide competent management, and their actions must be just and ethical. Adapted from Exhibit 2.5

Johnson & Johnson Credo (cont.) • We are responsible to the communities in which we live and work and to the world community as well. • We must be good citizens – support good works and charities and bear our fair share of taxes. • We must encourage civic improvements and better health and education. • We must maintain in good order the property we are privileged to use, protecting the environment and natural resources. Adapted from Exhibit 2.5

Johnson & Johnson Credo (cont.) • Our final responsibility is to our stockholders. • Business must make a sound profit. • We must experiment with new ideas. • Research must be carried on, innovative programs developed and mistakes paid for. • New equipment must be purchased, new facilities provided and new products launched. • Reserves must be created to provide for adverse times. • When we operate according to these principles, the stockholders should realize a fair return. Adapted from Exhibit 2.5

Categories Found in Corporate Codes of Ethics Cluster 1 “Be a dependable organizational citizen” Cluster 2 “Don’t do anything unlawful or improper that will harm the organization.” Unclustered Items Cluster 3 “Be good to our customers.” Adapted from Exhibit 2.6

Adoption of Codes of Ethics Percentage of Firms Adapted from Exhibit 2.7

Subjects Addressed in Corporate Codes of Ethics Employee conduct Most often used for European firms Community and environment Most often used for United States firms Customers Shareholders Least often used for European firms Suppliers and contractors Political interests Least often used for United States firms Innovation and technology Adapted from Exhibit 2.8

Successfully Implementing Codes of Ethics

The Government: Foreign Corrupt Practices Act Cannot corrupt actions of foreign officials, politicians, or candidates Cannot make payments to any person when they have "reason to know" that the payments might be used to corrupt the behavior of officials Must take steps to provide "reasonable assurance" that transactions are in compliance with the law and to keep detailed records of them