MODULE 5 SOCIAL RESPONSIBILITY AND GOVERNANCE “Organizations have ethics, too” Organizations are made up of people who have ethical standards; some good, some not so good as we will see. What should we know about organizational environments and social responsibility? What are current issues in corporate governance?

The specific environment includes an organization’s stakeholders. SOCIAL RESPONSIBILITY AND GOVERNANCE Organizational Environments And Social Responsibility MODULE GUIDE 5.1 Organizations operate within conditions set by the general environment. The specific environment includes an organization’s stakeholders. Social responsibility is an organization’s obligation to best serve society. Social performance by organizations can be evaluated in different ways. Scholars argue cases for and against corporate social responsibility. Organizations follow different social responsibility strategies. Failures of ethics and social responsibility prompt calls for stronger governance. In this module, we will look at how organizations are impacted by their environment and how they, in turn, impact their environment.

General Environment Specific Environment Stakeholders ORGANIZATIONAL ENVIORNMENTS AND SOCIAL RESPONSIBILITY Organizational Environments General Environment Consists of cultural, economic, legal, political and educational conditions Specific Environment Consists of the people and groups with which an organization interacts Stakeholders People and Institutions most directly affected by an organization’s performance An organization’s control over its environment can be viewed as general and specific. The more general the environment, the less control. The more specific, the more control. There is very little over which an organization has total control. Even employees are not in total control.

ORGANIZATIONAL ENVIRONMENTS General Environment Economic Health of the economy in terms of inflation, income levels, gross domestic product, unemployment, and job outlook Sociocultural Norms, customs, and social values on such matters as human rights, trends in education and related social institutions, as well as demographic patterns in society Legal-political Prevailing philosophy and objectives of the political party or parties running the government, as well as laws and government regulations Technological Development and availability of technology, including scientific advancements Natural Nature and conditions of the natural environment, including levels of public concern expressed through environmentalism These are generally accepted as making up the General environment. Natural is a more recent category.

ORGANIZATIONAL ENVIRONMENTS Specific Environment The people and groups with whom an organization interacts. As you can see, organizations interact and affect many different groups. The larger the organization, the greater the effect.

ORGANIZATIONAL ENVIRONMENTS Social Responsibility Corporate Social Responsibility The obligation of an organization to serve its own interest and those of its stakeholders Social Responsibility Audit Assesses an organization’s performance in the area of social responsibility Corporate social responsibility is a long standing point of discussion and contention as we will see.

ORGANIZATIONAL ENVIRONMENTS Social Responsibility Social responsibility typically focuses on for profit corporations. The degree of responsibility depends on the corporation’s management and financial condition.

ORGANIZATIONAL ENVIRONMENTS Social Responsibility The Case “In Favor Of” Corporate Social Responsibility Responsibility Increases long-run profits Improves public image Helps avoid government regulation Businesses have resources and ethical obligations to act responsibly The Case “Against” Corporate Social Responsibility Reduces business profits Creates higher business costs Dilutes business purpose Gives too much social power to business There is a wide rang of beliefs regarding social responsibility depending on the type, size and position of the organization. For example, few would argue that a for profit corporation that is losing money is going to be able to do much in the way of social responsibility.

ORGANIZATIONAL ENVIRONMENTS Social Responsibility Strategies Corporate strategy depends on corporate objectives and the people that set them.

Weak corporate governance can result in more government regulation. SOCIAL RESPONSIBILITY AND GOVERNANCE Corporate Governance MODULE GUIDE 5.2 Failures of ethics and social responsibility prompt calls for stronger governance. Weak corporate governance can result in more government regulation. Moral management builds capacities for self-governance in organizations. Remember, corporate governance is the task of the Board of Directors or Trustees of the organization.

CORPORATE GOVERNANCE Corporate Governance The oversight of top management by a board of directors Weak corporate governance leads to government regulation Boeing WorldCom Enron Weak corporate governance may lead to more government regulation but not always. Remember, corporations also contribute substantial amounts to political funds.

CORPORATE GOVERNANCE Corporate Governance This is a typical structure for profit and non profit organizations. One of the problems facing corporations is finding qualified boards of directors. Why? Increasing legal liability.

CORPORATE GOVERNANCE Government Regulations Sarbanes-Oxley Act – 2002 Goal is to see that top CEO’s oversee the financial conduct of their organizations Occupational and Safety Act (OSHA) – 1970 Goal is to protect employees from workplace injuries Equal Opportunity Act (EEO) – 1972 Goal is to protect minorities against discrimination Consumer Product Safety Act – 1972 Goal is to protect consumers from harmful products There are many government regulations. The main problem is not regulations but the ability or desire to enforce them.

CORPORATE GOVERNANCE Moral management Moral Manager Considers ethical behavior as a personal goal Amoral Manager Is unethical but unintentionally Immoral Manager Chooses to behave unethically All three types exist. An amoral manager cannot remain in that state before becoming an immoral manager.

CORPORATE GOVERNANCE Moral Management All three types exist. An amoral manager cannot remain in that state before becoming an immoral manager.

CORPORATE GOVERNANCE Ethics Mindfulness Enriched awareness that leads to consistent ethical behavior Senior manager have the greatest impact on corporate culture and ethical behavior.

MANAGEMENT TIPS A social responsibility audit assesses an organization’s accomplishments in areas of social responsibility. Discretionary Responsibility: Contribute to Community Ethical Responsibility: Do What Is Right Legal Responsibility: Obey the Law Economic Responsibility: Be Profitable A social responsibility adult can be a useful benchmark in determining the corporation’s position in this area.