Prentice Hall, Inc. © STRATEGIC MANAGEMENT & BUSINESS POLICY 13 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 3 Ethics & Social Responsibility

3-2 Ethics & Social Responsibility

3-3 Corporate Governance Broader responsibility -- Private corporations have responsibility to society that extend beyond making a profit Do they?

3-4 Social Responsibility There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. Milton Friedman

3-5 Corporate Governance Carroll’s 4 Responsibilities –Economic –Legal –Ethical –Discretionary

Prentice Hall, Inc. © Mortensen’s View The order and strength of the priorities for the five stakeholders, as decided by the executives, sets the tone for a company: –Customers –Employees –Stockholders –Executives –Society

Prentice Hall, Inc. © Corporate Stakeholders “Corporate Stakeholders” Affect or are affected by the achievement of the corporation’s objectives

Prentice Hall, Inc. © Corporate Stakeholders Stakeholder Analysis – –Primary stakeholder Sufficient bargaining power to affect outcomes –Secondary stakeholder Indirect stake but are affected by corporation’s actions –Stakeholder Input Determine whether input is necessary

Prentice Hall, Inc. © Ethical Behavior “business ethics” –Argument that there is no such thing … it is an oxymoron

3-10 Ethical Decision Making BAD Corporate practices -- –Massive write-downs and restatements of profit [after having gotten the bonuses for making their numbers] –Misclassification of expenses as capital expenditures –Pirating corporate assets for personal gain

3-11 Ethical Decision Making Recent Survey Results -- –70% distrust business executives –Enron –WorldCom –Banks Provocative Question -- –Why are businesspeople perceived to be acting unethically?

3-12 Reasons for Unethical Behavior Perceptions caused by -- –Not aware of impropriety –Cultural norms and values vary –Governance systems based on rule or relationships –Differences in values between businesspeople and key stakeholders

3-13 Reasons for Unethical Behavior Allport-Vernon-Lindzey Study of Values -- –Aesthetic –Economic –Political –Religious –Social –Theoretical

3-14 Reasons for Unethical Behavior Most common reasons for bending rules -- – Organizational performance required it – Ambiguous or out of date rules – Peer pressure – everyone else does it – [Greedy

3-15 Moral Relativism “Moral Relativism” says that morality is relative to some personal, social, or cultural standard and there is no method for deciding whether one decision is better than another.

3-16 Kohlberg’s Levels of Moral Development 1. Preconventional level –Characterized by a concern for self Personal interest Avoidance of punishment 2. Conventional level –Characterized consideration of society’s values External code of conduct 3. Principled level –Characterized by adherence to internal moral code Universal values or principles

3-17 Encouraging Ethical Behavior Guidelines for Ethical Behavior Ethics Morality Law

3-18 Encouraging Ethical Behavior Codes of Ethics –Specifies how an organization expects its employees to behave on the job.

3-19 Encouraging Ethical Behavior Approaches to Ethical Behavior –Utilitarian Judged by consequences –Individual Rights Fundamental rights in all decisions –Justice Distribution in equitable fashion –Categorical imperative “golden rule” Means - Ends

3-20 Strategy Bits 192 U.S. companies surveyed -- –92% monitored employees use of /Internet –26% monitored employees electronic activities all the time –Almost none had checks in place to protect employees privacy