Chapter-03 Ethics and Corporate Social Responsibility Dr. Gehan Shanmuganathan, (DBA)

Nestle India and social responsibility…..

Nestle India and social responsibility….. Vested in solving nation’s water problem while producing its products locally Nestle cater to Indian market with milk products, prepared dishes, cooking aids, and some beverages that are staples to Indian consumers The company has introduced a water education program, bored wells for nearly 100 village schools for children and teaches hygiene programs Nestle wants to create value for its shareholders and generate long-term values for society Social responsibility leads to long term profits through corporate brand equity

Objectives

Chapter Objectives… Identify the philosophical principles behind business ethics. Explain how values relate to ethics. Identify factors contributing to lax ethics and common ethical temptations. Apply a guide to ethical decision making. Describe the stakeholder viewpoint of social responsibility and corporate social performance. Present an overview of social-responsibility initiatives. Summarize how managers can create an environment that fosters ethically and socially responsible behavior and the benefits of such activity 2

Business ethics

Definition Business Ethics is the study of right and wrong and off the morality of the choices individuals make. An ethical decision or an action is one that is right according to some standard of behavior. Business ethics is duplication of moral standards to business situations. Ethics is the study of moral obligation, or separating right from wrong

What research findings say… Ethics is subjective- head-on advertising in the US Customers, suppliers, and employees prefer to deal with ethical companies Majority of full-time workers said that it is critical to work for an organization that is ethical More than one in three workers said they have left a job because of ethical misconduct by fellow employees or managers 82% of workers said they would like to receive less pay if they worked for an ethical company

Moral Intensity The magnitude of an unethical act A person might behave unethically if the magnitude of the consequence is low and versa vice-versa Manager’s plagiarism on someone’s speech or unauthorized copy of software could be considered as ethical Same manager might hesitate to sexually harass a business intern The social consensus- degree of peer agreement One would be hesitant to engage in an act if his or her peers think it is unethical

Philosophical Principles Underlying Business Ethics

Philosophical Principles of Business Ethics 4.2 Philosophical Principles of Business Ethics Consequences - If no one gets hurt, the decision is ethical. When attempting to decide what is right and wrong, managers can focus on: Duties, obligations, and principles - If a decision violates a universal principle, it is unethical. Integrity - If the person in question has good character, a genuine motivation and intention. 3

Psychological basis for ethical behavior Cognitive area- Pertinent Experience stimulus Perception attitude First, second, and third hand experiences

Some concepts under consequences based ethicality Pragmatism focusing on consequences “the belief is that there are no absolute principles or standards, and no objective truth and no objective reality” “The reality is whatever that works” E.g- Bernard L.Madoff the former Nasdaq chairman thought that lying to customers was pragmatic Utilitarianism The utility of the decision The net balance of good consequences verses bad

Values and Ethics

Values and Ethics Values are closely related to ethics Values are clear statements of what is critically important Ethics become the vehicle for converting values into actions E.g- we put people before profits (value) Avoiding delay payments to employees, and suppliers Excellent customer service (value) and infrastructure for performance

Values and ethical behavior Competitive Advantage Values Quality Customer service Ecological consciousness Social responsibility Cost consciousness Teamwork

Sources of Unethical Decisions and Behavior

Research reveals (survey of 2852) Lying to employees (19%) Engaging in conflicts of interest (16%) Lying to outside stakeholders (12%) Engaging in health and safety violations (11%) Producing poor product quality (9%) Stealing (9%) Sexual harassment (7%)

Factors Contributing to Ethical Problems 4.3 Factors Contributing to Ethical Problems An individual’s desire to maximize self-gain at the expense of others An organizational atmosphere that condones unethical behavior Moral laxity - slippage in moral behavior because other issues seem more important Pressure from higher management to achieve organizational goals Strength of relationships among people 4

Ethical Temptations and Violations

Ethical Temptations and Violations 4.4 Ethical Temptations and Violations Stealing from employers & customers Illegally copying software Accepting bribes for doing business with other companies Treating people unfairly Misuse of corporate resources Sexual harassment Divulging confidential information Corporate espionage Conflict of interest 5

Business Scandals as Ethical Violations

Business Scandals as Ethical Violations Internet fraud Identity theft Work-at-home (such as making you as an agent for transferring funds received from customers) Consequences of these scandals are, Job losses Wiping out pension funds Investments losses Bankruptcy

A Guide to Ethical Decision Making

A Guide to Ethical Decision Making 4.5 A Guide to Ethical Decision Making Is it right? Is it fair? Who gets hurt? Would you be comfortable if the details of your decision were reported on the front page of your newspaper or throughout the company? Would you tell your child to do it? How does it smell? Based on intuition 6

Corporate Social Responsibility

Corporate social responsibility The idea that firms have obligations to society beyond their economic obligations to owners or stockholders and also beyond those prescribed by law or contract

Three components of social responsibility Cognitive component Thinking about the organization’s relationships with its parties at interest Linguistic component Explaining the organization’s reasons for engaging in certain activities and how it goes about sharing these explanations with others Conative component What the firm actually does along with the commitment and consistency it shows in conducting its acts of social responsibilities

Stockholder versus Stakeholder Viewpoints

Stockholder versus Stakeholder Viewpoints Stockholder viewpoint The traditional perspective on social responsibility that a business organization is responsible only to its owners and stockholders Stakeholder viewpoint The viewpoint of social responsibility contending that firms must hold themselves responsible for the quality of life of the many groups affected by the firm’s actions

The Stakeholder Viewpoint of Social Responsibility 4.6 The Stakeholder Viewpoint of Social Responsibility Owners Stockholders Internal Stakeholders Employees The Organization Board of Directors Customers Suppliers Creditors Labor Unions External Stakeholders Competitors Special Interest Groups Customer Groups Government Agencies Financial Institutions Adapted from Exhibit 4.4 7

Corporate Social Performance

Corporate Social Performance The extent to which a firm responds to the demands of its stakeholders for behaving in a socially responsible manner Discuss how Wal-Mart controls its supplies in order to achieve their cost advantage as an irresponsible corporate citizen in performing its social responsibility (lay-offs of employees of suppliers) discuss the bargaining power of Wal-Mart

Corporate Social Responsibility Initiatives

Social Responsibility Initiatives 4.7 Environmental Management Work/Life Programs Compassionate Downsizing Social Responsibility Initiatives Acceptance of Whistle Blowers Creating opportunities for Diverse workforce Community Redevelopment Projects 8

Corporate social responsibility initiatives Philanthropy Donate money to charity and other various causes Work/Life Programs Programs that the employees could balance the demands of work and personal life Community Redevelopment Project Investing on rebuild distressed communities Acceptance of Whistle-Blowers Employees who disclose organizational wrongdoing to parties who could take actions Compassionate Downsizing Controlling the downsizing to the minimum level Opportunities for diverse workforce

Environmental Protection

Environmental Protection Environmental protection is a concern the organization have in managing sustainable environment or “going green” Going green is an approach to defining and creating processes that are Environmentally friendly Economically viable Pragmatic in the long run

Some methods to manage Commit to lowering carbon dioxide and other hazardous emissions Developing green supply chain Make sustainability and eco-friendly policies in the business plan Implement four-day workweek Manufacture and sell products with recycled materials Invest heavily in recycling Plant a rooftop garden on your office building or factory

Creating an Ethical and Socially Responsible Workplace

Creating an Ethical and Socially Responsible Work Place 4.8 Creating an Ethical and Socially Responsible Work Place Create formal mechanisms to monitor ethics Provide written codes of conduct Offer training programs Confront ethical deviations Lead by example Talk about the issues 9

Benefits Derived from Ethics and Social Responsibility

Virtuous circle The relationship between investment on social responsible projects and financial performance where corporate social performance and corporate financial performance feed and reinforce each other

Virtuous circle Investments on Socially responsible Financial Projects Performance

What we learned…. Identify the philosophical principles behind business ethics. Explain how values relate to ethics. Identify factors contributing to lax ethics and common ethical temptations. Apply a guide to ethical decision making. Describe the stakeholder viewpoint of social responsibility and corporate social performance. Present an overview of social-responsibility initiatives. Summarize how managers can create an environment fosters ethically and socially responsible behavior and the benefits of such activity 2

Questions…….

Write five key things (areas) that you can critically remember in today’s discussion

Weekly assignment- 03 “Organizations have to be much profit oriented than being socially responsible, especially during an economic depression”. Do you agree or disagree? Discuss.