Part Two: The Culture of Management Chapter 3: Managing Social Responsibility and Ethics Chapter 4: Managing Employee Diversity Chapter 5: Managing Organizational Culture and Change Chapter 6: Entrepreneurship

Chapter 3 Managing Social Responsibility and Ethics

3-3Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Management Challenges After reading this chapter, you should be able to: Apply the four key ethical criteria that managers and employees are likely to use when making business decisions. Apply the four key ethical criteria that managers and employees are likely to use when making business decisions. Understand why businesses establish codes of ethics as a way of guiding the conduct of employees faced with ethical dilemmas. Understand why businesses establish codes of ethics as a way of guiding the conduct of employees faced with ethical dilemmas. Recognize how to encourage ethical behavior in business. Recognize how to encourage ethical behavior in business.

3-4Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Management Challenges (continued) Make ethical decisions in morally challenging business situations. Make ethical decisions in morally challenging business situations. Recognize the significance of corporate social responsibility. Recognize the significance of corporate social responsibility. Value stakeholders and understand their influence on a company’s priorities and goals. Value stakeholders and understand their influence on a company’s priorities and goals.

3-5Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Ethics and social responsibility should be high-priority concerns of all members of an organization, not just managers and executives.

3-6Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. What are business ethics? Ethics are principles that explain what is good and right and what is bad and wrong and that prescribe a code of behavior based on these definitions. Ethics are principles that explain what is good and right and what is bad and wrong and that prescribe a code of behavior based on these definitions. Business ethics provide standards or guidelines for the conduct and decision making of employees and managers. Business ethics provide standards or guidelines for the conduct and decision making of employees and managers.

3-7Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. What are business ethics? (continued) In the absence of a code of ethics, In the absence of a code of ethics,  There is usually a lack of consensus about appropriate ethical behavior; and  Different people use different ethical criteria to determine whether a practice or behavior is ethical or unethical. Business ethics are not the same things as laws. Business ethics are not the same things as laws.

3-8Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. What are business ethics? (continued) People operate under different ethical value systems depending on their: People operate under different ethical value systems depending on their:  Personal experiences  Religious background  Education  Family background

3-9Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Management skills needed to make ethical decisions and deal with concerns of stakeholders: Ethical decision making skills Ethical decision making skills  Ability to see beyond own self-interest Skills at analyzing stakeholder concerns Skills at analyzing stakeholder concerns  Ability to be more proactive in dealing with stakeholder issues  Ability to identify stakeholders, how they are affected by company policies, how they have been treated in the past, and how they can affect your ability to pursue business goals

3-10Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Criteria for ethical decision making: Utilitarianism Utilitarianism  A means of making decisions based on what is good for the greatest number of people. Individualism Individualism  The degree to which a society values individual self-interest over group needs and goals.  Individual self-interest should be promoted as long as it does not harm others.

3-11Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Criteria for ethical decision making: (continued) Rights approach Rights approach  A means of making decisions based on the belief that each person has fundamental human rights that should be respected and protected. Justice approach Justice approach  An approach to decision making based on treating all people fairly and consistently when making business decisions.

3-12Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Code of Ethics Corporate Credos Ethical Policy Statements A company needs to ensure agreement about the relevant criteria on which to judge the ethics of a business decision so that people do not base decisions on personal value systems.

3-13Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Numerous companies have adopted ethical policy statements that inform employees of acceptable standards of conduct: St. Paul Companies St. Paul Companies  Employees may accept gifts of inexpensive pens or appointment diaries, but not liquor, lavish entertainment, travel, or clothing. Eli Lilly and Company Eli Lilly and Company  Employees may not conduct business with a company with which they or their relatives are associated, unless Eli Lily has given specific approval and authorization.

3-14Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Company examples (continued) General Dynamics Corporation General Dynamics Corporation  Employees may not use or share inside information (that is not available to the general public) for personal gain. J.D. Edwards and Company J.D. Edwards and Company  Profanity and racial and sexual slurs are not tolerated.  Language should convey a loving, caring, and sensitive attitude toward other people.

3-15Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Managing Ethics Ethics Training Ethical Structures Whistleblower Policies

3-16Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Whistleblower policies should include the following key features: The policy encourages reporting unethical conduct. The policy encourages reporting unethical conduct. Meaningful procedure to deal fairly with reported violations. Meaningful procedure to deal fairly with reported violations. Those who report violations are protected from retaliation. Those who report violations are protected from retaliation. Alternative reporting procedures. Alternative reporting procedures. Anonymous reporting to an ethics officer/committee. Anonymous reporting to an ethics officer/committee. Feedback to employees on ethics violations. Feedback to employees on ethics violations. Top management support and involvement. Top management support and involvement.

3-17Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Eight steps to sound ethical decision making in business: 1. Gather the facts. 2. Define the ethical issues. 3. Identify the affected parties. 4. Identify the consequences. 5. Identify your obligations. 6. Consider your character and integrity. 7. Think creatively about potential actions. 8. Check your gut feelings.

3-18Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Should firms be socially responsible? Do corporations have a responsibility to conduct their affairs ethically? Do corporations have a responsibility to conduct their affairs ethically? Should corporations be judged by the same standards as individuals? Should corporations be judged by the same standards as individuals? Should a business be concerned with more than the pursuit of profits for its shareholders? Should a business be concerned with more than the pursuit of profits for its shareholders?

3-19Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Benefits of social responsibility: Pursuit of social responsibility as a goal may ultimately lead to survival of the organization. Pursuit of social responsibility as a goal may ultimately lead to survival of the organization. Narrow focus on producing goods and services for profit may impair company performance in the long run. Narrow focus on producing goods and services for profit may impair company performance in the long run. Corporate responsibility is related to higher financial performance and the ability to recruit better quality job applicants. Corporate responsibility is related to higher financial performance and the ability to recruit better quality job applicants.

3-20Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Disadvantages of social responsibility: Socially responsible firms are likely to be less efficient and may be driven out of business by more efficient competitors willing to single-mindedly pursue profits. Socially responsible firms are likely to be less efficient and may be driven out of business by more efficient competitors willing to single-mindedly pursue profits. Firms that give profits are more likely to fail and become a detriment to society because jobs and stockholders’ investments are lost. Firms that give profits are more likely to fail and become a detriment to society because jobs and stockholders’ investments are lost.

3-21Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Organizational Stakeholders OwnersEmployees Governments Customers Community Competitors Social Activist Groups

3-22Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Strategies for Managing Stakeholders Confrontation Damage Control Accommodation Proactive Approach

3-23Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Applications of Management Perspectives: For the Manager It is critical for a manager to be seen as an ethical person. It is critical for a manager to be seen as an ethical person. Managers are role models for other employees and are held to a higher standard of personal conduct. Managers are role models for other employees and are held to a higher standard of personal conduct. Managers are responsible for creating an environment that supports ethical behavior and discourages unethical behavior. Managers are responsible for creating an environment that supports ethical behavior and discourages unethical behavior. A manager should set goals for ethical conduct. A manager should set goals for ethical conduct.

3-24Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Applications of Management Perspectives: For Managing Teams Teams must place a high priority on behaving ethically. Teams must place a high priority on behaving ethically. When teams or groups tolerate unethical conduct, it can be very difficult to extinguish this norm. When teams or groups tolerate unethical conduct, it can be very difficult to extinguish this norm. Tolerance of unethical activities can lead to more serious breaches of conduct that can damage the reputation of the entire team. Tolerance of unethical activities can lead to more serious breaches of conduct that can damage the reputation of the entire team.

3-25Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Applications of Management Perspectives: For Individuals Front-page ethical test. Front-page ethical test.  How would I feel if my decision became a headline in a local newspaper?  Would I feel comfortable describing my actions or decision to a customer or stockholder? Golden rule ethical test. Golden rule ethical test.  Would I be willing to be treated in the same manner? Personal gain test. Personal gain test.  Is an opportunity for personal gain clouding my judgment?