Management’s Social and Ethical Responsibilities Chapter Five Management’s Social and Ethical Responsibilities

Chapter Objectives Define the term corporate social responsibility (CSR) and specify the four levels in Carroll’s global CSR pyramid. Contrast the classical economic and socioeconomic models of business and summarize the arguments for and against CSR. Identify and describe the four social responsibility strategies and explain the concept of enlightened self-interest. Summarize the four practical lessons from business ethics research.

Chapter Objectives (cont’d) Distinguish between instrumental and terminal values and explain their relationship to business ethics. Identify and describe at least four of the ten general ethical principles. Discuss what management can do to improve business ethics.

Social Responsibility: Definition and Perspectives Corporate Social Responsibility (CSR) The idea that business has: Social obligations above and beyond making a profit Social obligations to constituent groups in society other than stockholders and beyond that prescribed by law Organizations include financial, environmental, and social responsibility in their core business strategies.

Figure 5.1: Carroll’s Corporate Global Social Responsibility Pyramid

Social Responsibility: Definition and Perspectives (cont’d) What Does Social Responsibility Involve? Voluntary action Action is taken before lawsuits or other events force a firm to act on a matter. An emphasis on means, not ends Emphasis is on how the decision to act was reached, not on the decision itself.

What Is the Role of Business in Society? The Classical Economic Model (Adam Smith) An “invisible hand” (i.e., the efforts of competing entrepreneurs) promoted the public welfare when individuals tried to maximize short-run profits in pursuit of their own economic self-interests. Equates short-run profitability to social responsibility

What Is the Role of Business in Society? (cont’d) The Socioeconomic Model Business has an obligation to meet the needs of the many groups in society besides stockholders in its pursuit of profit. Stakeholder audit: Systematically identifying all the parties that could possibly be affected by the company’s performance

Figure 5.2: A Sample Stakeholder Audit for Wal-Mart, the World’s Largest Retailer

Arguments For and Against Corporate Social Responsibility Business is unavoidably involved in social issues. Business has the resources to tackle today’s complex societal problems. A better society means a better environment for doing business. Corporate social action will prevent government action.

Arguments For and Against Corporate Social Responsibility (cont’d) Arguments Against Profit maximization ensures the efficient use of society’s resources. As an economic institution, business lacks the ability to pursue social goals. Business already has enough power. Because business managers are not elected, they are not directly accountable to society.

Toward Greater Social Responsibility Iron Law of Responsibility Those who do not use power in a socially responsible way will eventually lose it. If business does not meet the challenge of social responsibility, then government reform legislation will force it to meet its obligations.

Social Responsibility Strategies Reactive Strategy Denying responsibility while striving to maintain the status quo by resisting change Defensive Strategy Resisting additional social responsibilities with legal and public relations tactics

Social Responsibility Strategies (cont’d) Accommodation Strategy Assuming social responsibility only in response to pressure from interest groups or the government Proactive Strategy Taking the initiative in formulating and putting in place new programs that serve as role models for industry

Figure 5.3: A Continuum of Social Responsibility Strategies

Who Benefits from Corporate Social Responsibility Altruism The unselfish devotion to the interests of others Research Findings There is a positive correlation between industry leadership on a socially responsible issue (pollution control) and profitability. Corporate social responsibility is a competitive advantage in recruiting.

Who Benefits from Corporate Social Responsibility (cont’d) Enlightened Self-Interest A business ultimately helps itself by helping solve social problems. An Array of Benefits for the Organization Tax-free incentives to employees Retention of talented employees Help in recruiting the talented and socially conscious Help in swaying public opinion Improved community living standards Attracting socially conscious investors A nontaxable benefit for employees from company donations to charitable causes

The Ethical Dimension of Management Ethics The study of moral obligation involving the distinction between right and wrong Business Ethics The study of the complex business practices and behaviors that give rise to ethical issues in organizations

Practical Lessons from Business Ethics Research Ethical Hot Spots Balancing work and family Poor internal communications Poor leadership Work hours, work load Lack of management support Need to meet sales, budget, or profit goals Little or no recognition of achievements Company politics Personal financial worries Insufficient resources

Practical Lessons from Business Ethics Research (cont’d) Pressure from Above The problem of superiors pressuring subordinates to achieve results is widespread. Managers’ responses to pressure from above Consciously avoid putting undue pressure on subordinates (who may act unethically to relieve the pressure). Prepare to deal with excessive organizational pressure.

Practical Lessons from Business Ethics Research (cont’d) Ambiguous Situations Situations where there are no clear-cut ethical guidelines or ethical codes that can satisfy employees’ need for formal guidelines Rationalization: How Good People End Up Doing Bad Things Perceiving an objectively questionable action as normal and acceptable A Call to Action The deliberate and conscious action of a manager to do the right thing is an ethical and personal matter.

Table 5.1: How Employees Tend to Rationalize Unethical Conduct

Personal Values as Ethical Anchors Abstract ideals that shape one’s thinking and behavior Instrumental value: Enduring belief that a certain way (mode) of behaving is appropriate in all situations Terminal value: Enduring belief that a certain end-state of existence (being admired) is worth striving for Identifying Your Own Values Basic personal values are taken for granted. They are not arranged consciously in order of priority.

Managerial Ranking of Values Terminal Values Self-respect Family security Freedom A sense of accomplishment Happiness Instrumental Values Honesty Responsibility Capability Ambition Independence

General Ethical Principles Self-interests Personal virtues Religious injunctions Government requirements Utilitarian benefits Universal rules Individual rights Economic efficiency Distributive justice Contributive liberty

Encouraging Ethical Conduct Ethics Training Amoral managers: Managers who are neither moral nor immoral, but ethically lazy Key features of effective ethics programs Support of top management Open discussion A clear focus on ethical issues Integration of ethics into the organization A mechanism for anonymously reporting ethical violations Rewarding of ethical conduct

Table 5.2: Twelve Questions for Examining the Ethics of a Business Decision

Encouraging Ethical Conduct (cont’d) Ethical Advocate An ethics specialist who plays a role in top management’s decision making Code of Ethics Requirements for an effective code Describes specific events as unethical Is supported and equitably enforced by top management Whistle-Blowing The reporting of perceived unethical matters

Summary Corporate responsibility is the idea that management has broader responsibilities than just making a profit. The debate over the basic purpose of the corporation is long-standing. Management scholars who advocate greater corporate social responsibility cite the iron law of responsibility.

Summary (cont’d) Ethics research indicates that many employees have acted unethically, have been pressured to act unethically, desire ethical standards, and engage in rationalization to defend their behaviors. Managers must pay attention to the instrumental and terminal values that comprise employee’s personal value systems. There are at least ten general ethical principles that guide behavior. The typical manager is considered to be amoral.

Terms to Understand Social responsibility Stakeholder audit Iron law of responsibility Reactive social responsibility Defensive social responsibility Accommodative social responsibility Proactive social responsibility strategy Altruism Enlightened self-interest Corporate philanthropy Ethics Values Instrumental value Terminal value Amoral managers Ethical advocate Whistle-blowing