© 2008 Prentice-Hall Business Publishing Chapter 3: Ethics and Social Responsibility

After studying this chapter, you should be able to answer the following:  Who do corporations have a responsibility to ?  What is the best way to solve an ethical dilemma?  How should companies demonstrate corporate social responsibility?  What is the government’s role in corporate social responsibility? 2

 Obligation corporations have to constituencies and the nature and extent of those obligations  Constituencies include shareholders, customers, employees, specific communities, society at large, governments  Issue: constituencies may not share same expectations 3

Efficiency perspective: maximize profits for the owners of the business 4 MANAGERS AS OWNERS Self-interests of the manager-owner are best achieved by serving the needs of society MANAGERS AS AGENTS Managers have no obligation to act on behalf of society if it does not maximize value for the shareholders

FIRM EmployeesSuppliersCommunitiesFinanciersSocietyShareholders 5 Social responsibility perspective: firms have responsibilities and obligations to society as a whole, not just shareholders Key Stakeholders

6 Efficiency Perspective Managerially Irresponsible Social Responsibility Perspective Managerially Responsible Efficiency Perspective Managerially Irresponsible Social Responsibility Perspective Managerially Responsible Efficiency Perspective Managerially Irresponsible Social Responsibility Perspective Managerially Irresponsible Efficiency Perspective Managerially Irresponsible Social Responsibility Perspective Managerially Irresponsible Efficiency Perspective Managerially Responsible Social Responsibility Perspective Managerially Responsible Efficiency Perspective Managerially Responsible Social Responsibility Perspective Managerially Responsible Efficiency Perspective Managerially Responsible Social Responsibility Perspective Managerially Irresponsible Efficiency Perspective Managerially Responsible Social Responsibility Perspective Managerially Irresponsible Action harms other stakeholders No Yes No Yes Action harms other share- holders Adapted from Exhibit 2.1

Individual Ethics FamilyFriendsPeersTeachersReligion Job Experiences Life Experiences 7

 Stealing from your employer  Lying about your hours worked  Falsifying documents  Sexual harassment  “Cooking the books” For the above situations termination is likely. But…  What about…using the internet at work, taking personal calls at work, dating the boss, starting rumors? Examples

 Sometimes the course of action that you would take as a manager is not clear  See how you would handle the following situations.

1. Your boss informs you confidentially that one of your friends is going to be fired. Your friend is about to buy a house. Should you warn your friend that he is about to be fired, even though you promised your boss that you would not? 2. Your colleague has been violating your company’s code of ethics by accepting expensive gifts from sales person who does business with your company. Should you notify your supervisor? 3. One of your employees has been having serious personal problems, and you have tried to be understanding. However, your entire staff is suffering because of poor performance by this key team member. What should you do? Ones Twos Threes

BUSINESS ETHICS TENSIONS  Profit vs. higher wages  Production vs. pollution  Supplier benefits vs. consumer prices/lower costs  Having to make a choice between 2 competing but arguable valid options  Ethical Lapses: decisions that are contrary to an individuals stated beliefs and the policies of the company ETHICAL DILEMMAS

STEPS…COCA COLA CASE STUDY 1. Accurately identify the problem 2. List facts that have most bearing on decision 3. Consider who your decision could injure/harm 4. Explain what each affected person would want you to do about the issue 5. List 3 alternative actions 6. Determine your course of action  Problem: Coca-Cola bottling plant in India has some negative externalities  See article 12

© 2008 Prentice-Hall Business Publishing Day 2 Notes

Ethical dilemmas  The choice between two competing but arguably valid options Frameworks for ethical decision making:  Utilitarian approach  Moral rights approach  Universalism approach  Justice approach 14

 Focused on the consequences of an action  What is the “greatest good?”  Different people may see the outcome differently in terms of good or bad 15

Focused on moral standing of actions, independent of their consequences  Some things are simply “right” or “wrong”  When two actions have moral standing, then the positive or negative consequences of each will determine the more ethical 16

“Do unto others as you would have them do unto everyone, including yourself.”  Choose a course of action you believe can apply to all people under all situations  The issue of rights  Rights stem from freedom and autonomy  Actions that limit freedom and autonomy generally lack moral justification 17

Costs and benefits of actions:  Costs and benefits should be equitably distributed  Rules should be impartially applied  Those damaged should be compensated Distributive justice  Equitable distribution is based on performance 18

 Page 72  Apply each approach to this Nike case What would the Efficiency Perspective Say? What would the Social Responsibility Perp. Say? What would the Utilitarian approach say? What would the Moral Rights approach say? What would the Universalism approach say? What would the Justice approach say? 19

Code of ethics: a formal one- to-three page statement outlining the types of behavior that are and are not acceptable Codes generally stress:  Being a good “organization citizen”  Guiding employee behavior away from unlawful or improper acts that could harm the organization 20

Our Credo We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers' orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit.  We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mindful of ways to help our employees fulfill their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical. 21 Adapted from Exhibit 2.5

22 Percentage of Firms Adapted from Exhibit 2.7

Implementing a Code of Ethics CommunicationTraining Reward & Recognition Whistle- blowing 23

 Print notes –2 days worth  Team Exercise p. 82, “The Limits of Privacy”  Video Clips St. Elizabeth College, “Business Ethics Scenarios” The Office, “Business Ethics”  P. 81 Review Questions #1-9  HW: Read Ch 4: Law & The Legal Environment of Business 24