MANAGING: A COMPETENCY BASED APPROACH Don Hellriegel Susan E. Jackson John W. Slocum, Jr. MANAGING: A COMPETENCY BASED APPROACH 11th Edition Chapter 3—Ethics and Social Responsibility Prepared by Argie Butler Texas A&M University

CHAPTER 3—ETHICS AND SOCIAL RESPONSIBILITY LEARNING GOALS 1. State the importance of ethics for individual employees and organizations Describe four influences that shape the ethical behavior and decisions of individuals and organizations Describe three approaches that people use when making ethical judgments Explain stakeholder social responsibility and how it influences managers’ ethical decisions and behavior Chapter 3: PowerPoint 3.1

IMPORTANCE OF ETHICS: SNAPSHOT “While the majority of corporate CEOs are honest leaders dedicated to building their companies, far too many got caught up in the quest for personal gain and wound up sacrificing their values and their stakeholders. Call it greed, because that’s what it is. It threatens the very fabric of our system.” William W. George, Former CEO and Chairman, Medtronic, Inc. Ethics The set of values, principles, and rules that define right and wrong conduct Chapter 3: PowerPoint 3.2

LONG-TERM ORGANIZATIONAL EFFECTIVENESS Stronger financial performance over the long run Greater sales, brand image, and reputation More employee loyalty and commitment Less vulnerability to activist pressure and boycotts Fewer or no fines, court-imposed remedies, and criminal charges Chapter 3: PowerPoint 3.3

SHAPING ETHICAL CONDUCT Cultural Influences Legal and Regulatory Influences Organizational Influences Individual Influences Ethical Conduct Individual Organization Chapter 3: PowerPoint 3.4 (Figure 3.1)

Cultural Influences Culture Culture Values The dominant pattern of living, thinking, and believing that is developed and transmitted by people, consciously or unconsciously, to subsequent generations Culture Values Those consciously and subconsciously deeply held beliefs that specify general preferences and behaviors, and define what is right and wrong Chapter 3: PowerPoint 3.5

Respect for Other People Personal Values Core Values in North American Culture Honesty Family Integrity Achievement Trustworthiness Reliability Respect for Other People Fairness Self-respect Loyalty Chapter 3: PowerPoint 3.6

Legal and Regulatory Influences At one time U.S. organizations could legally discriminate against women and minorities Legality doesn’t always mean ethical Laws: Society’s values and standards that are enforceable in the courts Chapter 3: PowerPoint 3.7

Legal and Regulatory Influences Examples of Lawful Reasons for Dismissing Employees Incompetence in performance that does not respond to training or to accommodation Gross or repeated insubordination Civil rights violations such as engaging in harassment Illegal behavior such as theft or physical violence Repeated lateness or unexcused absences Drug activity or drunkenness on the job Chapter 3: PowerPoint 3.8

Legal and Regulatory Influences Examples of Unlawful Reasons for Dismissing Employees Blowing the whistle about illegal conduct by the employer Reporting Occupational Safety and Health Administration violations Filing discrimination charges with the Equal Employment Opportunity Commission or a state or municipal fair employment agency Filing unfair labor practice charges with the National Labor Relations Board or a state agency Engaging in union activities, provided there is no violence or unlawful behavior Complaining or testifying about violations of equal pay, wage, or hour law Chapter 3: PowerPoint 3.9 (Adapted from Table 3.1)

Legal and Regulatory Influences Sarbanes-Oxley Act Imposes rigorous auditing, financial disclosure, executive compensation, and corporate governance requirements on publicly traded companies Snapshot “…today’s compliance challenges are really information challenges. At its core, the Sarbanes-Oxley Act is about ensuring that data is turned into financial information in a way that enables accurate, reliable, transparent and timely financial reporting.” Lee Dittmar, Principal, Deloitte Consulting LLP Chapter 3: PowerPoint 3.10

Organizational Influences Management’s Day-to-Day Behaviors and Decisions are Key Create Formal Ethics System Make It Acceptable to Talk About Ethics Communicate Ethical Expectations Fostering an Ethical Culture Include Ethical Conduct in Performance Evaluations Chapter 3: PowerPoint 3.11

Organizational Influences Abbreviated Principles in a World Code of Ethics Fiduciary Principle: Act as a fiduciary (representative) for the company and its investors Property Principle: Respect property and the rights of those who own it Reliability Principle: Honor commitments Transparency Principle: Conduct business in a truthful and open manner (continued) Chapter 3: PowerPoint 3.12 (Adapted from Table 3.2)

Continued: Abbreviated Principles in a World Code of Ethics Dignity Principle: Respect the dignity of all people; protect the health, safety, privacy, and human rights of others Fairness Principle: Engage in free and fair competition, deal with all parties fairly and equitably Citizenship Principle: Act as responsible citizens of the community Responsiveness Principle: Engage with parties who may have legitimate claims and concerns relating to the company’s activities Source: Adapted from L. Paine, R. Deshpandé, J.D. Margolis, and K.E. Bettcher. Up to code: Does your company’s conduct meet world-class standards? Harvard Business Review, 2005, 82(2), 122-133. Chapter 3: PowerPoint 3.13 (Adapted from Table 3.2)

Individual Influences Kohlberg’s Stages of Moral Development Universal Principles Social Contract Law & Order Interpersonal Instrumental Obedience & Punishment Childhood Through Adulthood Chapter 3: PowerPoint 3.14 (Figure 3.2)

Individual Influences Kohlberg’s Stages of Moral Development (cont’d) Obedience and Punishment Stage: a person does the right thing mainly to avoid punishment or to obtain approval Instrumental Stage: a person becomes aware that others also have needs and begins to defer to them to get what the individual wants Interpersonal Stage: a person considers appropriate behaviors as that which pleases or is approved by friends or family Chapter 3: PowerPoint 3.15

Individual Influences Kohlberg’s Stages of Moral Development (cont’d) Law and Order Stage: a person considers proper behavior as doing one’s duty (obligation), showing respect for authority, and maintaining the social order for its own sake; loyalty to the nation and its laws are paramount Social Contract Stage: a person is aware that people hold a variety of conflicting personal views that go beyond the letter of the law; a “greatest good for the greatest number” emphasis Universal Principles Stage: a person considers appropriate conduct as determined by a person’s conscience, based on universal ethical principles Chapter 3: PowerPoint 3.16

Individual Influences Whistle-blowing Four questions to ask before whistle-blowing Whistle-blowers: employees who report unethical or illegal actions by their employers to other people or organizations that are capable of taking corrective action 1. Is this the only way? 4. Am I ready? Key Questions 2. Do I have the evidence? 3. Why am I doing this? Chapter 3: PowerPoint 3.17

Making Ethical Judgments: Utilitarian Approach Focuses on behaviors and their results, not on the motives for such actions Organizational Goal Primary managerial obligation is to maximize shareholders’ profits and their long-term interests Efficiency Obligation is to minimize inputs and maximize outputs Conflicts of Interest Personal interests are not to conflict with achievement of organizational goals Chapter 3: PowerPoint 3.18

Making Ethical Judgments: Utilitarian Approach Profit maximization Competition benefits society and consumers Rewards based on abilities and achievements Core Values Sacrifice and hard work Chapter 3: PowerPoint 3.19

Freedom of conscience and speech Moral Rights Approach Decisions should be consistent with fundamental rights and privileges (e.g., life, freedom, health, and privacy). Life and Safety Freedom of conscience and speech Moral Rights Truthfulness Privacy Chapter 3: PowerPoint 3.20 (Figure 3.3)

Tom Asacker, Business Consultant and Author of Sandbox Wisdom Moral Rights Approach Snapshot “If you are truly interested in teaching a grand and critically important concept like honesty, you must be willing to accept the awkward situations and inevitable flaring of human passions that are certain to occur. However, it’s unquestionably worth the effort.” Tom Asacker, Business Consultant and Author of Sandbox Wisdom Chapter 3: PowerPoint 3.21

Justice Approach Decisions and behavior are evaluated with regard to how equitably they distribute benefits and costs among individuals and group Distributive Justice Principle Requires that individuals not be treated differently on the basis of arbitrarily defined characteristics Individuals who are similar in relevant respects should be treated similarly Individuals who differ in relevant respects should be treated differently in proportion to the differences among them Chapter 3: PowerPoint 3.22

Justice Approach Fairness Principle Requires employees to support the rules of the organization as long as the organization is just (or fair) and employees have voluntarily accepted some benefits or opportunities in order to further their own interests Both the organization and its employees have obligations and both should accept their responsibilities Procedural justice: formal process for investigating grievances and taking remedial actions Chapter 3: PowerPoint 3.23

Justice Approach Universal duties Natural Duty Principle Requires that decisions and behaviors be based on universal principles associated with being a responsible member of society Help others who are in need or jeopardy, without excessive personal risk or loss Not to harm or injure another Universal duties To support and comply with just institutions Not to cause unnecessary suffering Chapter 3: PowerPoint 3.24

Combining Ethical Approaches Ideal in Ethical Decision Making Justice Approach Moral Rights Approach Ideal in Ethical Decision Making Utilitarian Approach Chapter 3: PowerPoint 3.25 (Figure 3.4)

Stakeholder Social Responsibility Managers and other employees have obligations to identifiable groups that are affected by or can affect the achievement of an organization’s goals Rationale Enlightened self-interest Sound investment Inference avoidance Chapter 3: PowerPoint 3.26

Common Stakeholders Secondary Stakeholders Governments (Regulatory Agencies) Media Primary Stakeholders Customers Political Action Groups/ Activists The Organization Suppliers Employees Unions Shareholders Nongovernmental Organizations Chapter 3: PowerPoint 3.27 (Figure 3.5)

Stakeholder Pressures Examples of Types of Stakeholder Pressures Employees Pay and benefits Safety and health Rights at work/global labor standards Shareholders Demands for efficiency/profitability Viability (sustainability) Growth of investment Chapter 3: PowerPoint 3.28 (Adapted from Table 3.4)

Stakeholder Stakeholder Pressures Examples of Types of Stakeholder Stakeholder Pressures (cont’d) Customers Competitive prices Quality and safe products Respect for customer’s privacy Suppliers Meet commitments Repeat business Fair trade practices/ethical treatment Chapter 3: PowerPoint 3.29 (Adapted from Table 3.4)

Sustainable Development Conducting business in a way that protects the natural environment while making economic progress, thus meeting the needs of the present generation without compromising the ability of future generations to meet their own needs Chapter 3: PowerPoint 3.30

Sustainable Development A Few Components of Sustainable Development and Sustainability Integrated solutions to environmental, social and economic needs Using resources more efficiently and decoupling growth from environmental damage Recognizing that decisions and actions taken locally have global impacts Acting now to address sustainable development concerns, many of which will be global and long-term in nature Win-win-win solutions possible, rather than trade-offs between social, environmental and economic issues Chapter 3: PowerPoint 3.31 (Adapted from Table 3.5)

Evaluating Social Performance Disclosure of Social and Environmental Information Creating Shareholder Value with Corporate Responsibility Communication and Engagement with Various Groups Major Themes Proactive Management Beyond Minimum Requirements Chapter 3: PowerPoint 3.32