1. m a n a g e m e n t 2e H i t t / B l a c k / P o r t e r
Chapter 2:
Social Responsibility and Managerial Ethics
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2. Learning Objectives
After studying this chapter, you should be able to:
Describe why an understanding of basic approaches to ethical decision making and corporate social responsibility is important
Compare and contrast the efficiency and social responsibility perspectives
Explain the strategic corporate social responsibility approach
Explain the basic approaches to ethical decision making

3. Learning Objectives Explain the aspects of moral intensity
Describe the actions that can foster a high degree of ethical behavior in an organization

4. Corporate Social Responsibility
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

5. Efficiency Perspective
maximize profits for the owners of the business
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

6. Social Responsibility Perspective
firms have responsibilities and obligations to society as a whole, not just shareholders
Key Stakeholders

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

8. regulate our activities Fight new restrictions
Corporate Responses
Defenders
Accommodators
Belief
We must fight against
efforts to restrict or
regulate our activities
and profit-
making potential.
We will change when
legally compelled to
do so.
Focus
Maximize profits.
Find legal loopholes.
Fight new restrictions
and regulations.
Maximize profits.
Abide by
the letter of the law.
Change when
legally compelled to
do so.
Adapted from Exhibit 2.2

9. Corporate Responses (cont.)
Reactors
Anticipators
Belief
We should respond to
significant pressure even
if we are not legally
required to.
We owe it to society to
anticipate and avoid
actions with harmful
consequences, even if
we are not pressured or
legally required to do so.
Focus
Protect profits. Abide
by the law. React to
pressure that could
affect business results.
Obtain profits, Abide
by the law. Anticipate
harmful consequences
independent of
pressures and laws.
Adapted from Exhibit 2.2

10. Strategic Corporate Social Responsibility Perspective
Three fundamental criteria guide managers:
Inside-Out
Approach
Outside-In
Approach
Outside-Out
Approach
Look inside
company at
issues
that are
important
to the
company
Look outside
company at
issues
that
company has
an impact
upon
Look at social
issues in
general in
terms of the
extent to
which they
are
problematic

11. Strategic Corporate Social Responsibility
Problem
in Society
Low
High
Prime
Focus
High
Affected
by the
Company
Worthy
Cause
(for someone
else)
Low
Low
High
Critical to the Company
Adapted from Exhibit 2.3

12. The Development of Individual Ethics

13. Basic Approaches to Ethics
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. Basic Approaches to Ethics: Utilitarian Approach
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. Basic Approaches to Ethics: Moral Rights Approach
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. Basic Approaches to Ethics: Universal Approach
“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. Basic Approaches to Ethics: Justice Approach
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. Basic Approaches to Ethics: Justice Approach
Procedural justice
Ensure that people consent to the decision-making process
Ensure that the process is administered impartially
Compensatory justice
If distributive and procedural justice fail, those hurt by inequitable distribution of rewards are compensated

19. Moral Intensity in Ethical Decision Making
Consequences
Social
Moral intensity
The degree to which people see an issue as an ethical one
Magnitude of the
Consequences
Probability
of Effect
Moral
Intensity
Concentration
of Effect
Temporal
Immediacy
Proximity

20. Moral Intensity in Ethical Decision Making
Magnitude of the consequences
Level of impact anticipated
Impact is independent of whether consequences are positive or negative
Magnitude of the
Consequences
Moral
Intensity
Adapted from Exhibit 2.4
Adapted from Exhibit 5.2: Factors of Moral Intensity

21. Moral Intensity in Ethical Decision Making
Consequences
Social
Social consequences
The extent to which members of a society agree that an act is either good or bad
Population diversity weakens social consensus
Magnitude of the
Consequences
Moral
Intensity
Adapted from Exhibit 2.4
Adapted from Exhibit 5.2: Factors of Moral Intensity

22. Moral Intensity in Ethical Decision Making
Consequences
Social
Probability of effect
How likely people think the consequences are
The higher the probability of the consequence, the more intense the sense of ethical obligation
Magnitude of the
Consequences
Probability
of Effect
Moral
Intensity
Adapted from Exhibit 2.4
Adapted from Exhibit 5.2: Factors of Moral Intensity

23. Moral Intensity in Ethical Decision Making
Consequences
Social
Temporal immediacy
Interval between the time the action occurs and the onset of its consequences
The greater the time interval, the less intensity people typically feel toward the issue
Magnitude of the
Consequences
Probability
of Effect
Moral
Intensity
Temporal
Immediacy
Adapted from Exhibit 2.4
Adapted from Exhibit 5.2: Factors of Moral Intensity

24. Moral Intensity in Ethical Decision Making
Consequences
Social
Proximity
The closeness the decision maker feels to those affected
Closeness leads to more consideration of the consequences
Closeness increases feeling that it has ethical implications
Magnitude of the
Consequences
Probability
of Effect
Moral
Intensity
Temporal
Immediacy
Proximity
Adapted from Exhibit 2.4
Adapted from Exhibit 5.2: Factors of Moral Intensity

25. Moral Intensity in Ethical Decision Making
Consequences
Social
Concentration of effect
Focus of effect on only a few or disbursed across many individuals
Higher concentration leads to feelings of greater ethical responsibility
Magnitude of the
Consequences
Probability
of Effect
Moral
Intensity
Concentration
of Effect
Temporal
Immediacy
Proximity
Adapted from Exhibit 2.4
Adapted from Exhibit 5.2: Factors of Moral Intensity

26. How Firms Make Better Ethical Decisions
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

27. Johnson & Johnson Credo
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.
Adapted from Exhibit 2.5

28. Johnson & Johnson Credo (cont.)
• 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.
Adapted from Exhibit 2.5

29. Johnson & Johnson Credo (cont.)
• We are responsible to the communities in which we live and work and to the world community as well. • We must be good citizens – support good works and charities and bear our fair share of taxes. • We must encourage civic improvements and better health and education. • We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.
Adapted from Exhibit 2.5

30. Johnson & Johnson Credo (cont.)
• Our final responsibility is to our stockholders. • Business must make a sound profit. • We must experiment with new ideas. • Research must be carried on, innovative programs developed and mistakes paid for. • New equipment must be purchased, new facilities provided and new products launched. • Reserves must be created to provide for adverse times. • When we operate according to these principles, the stockholders should realize a fair return.
Adapted from Exhibit 2.5

31. Categories Found in Corporate Codes of Ethics
Cluster 1
“Be a dependable
organizational citizen”
Cluster 2
“Don’t do anything
unlawful or improper
that will harm
the organization.”
Unclustered Items
Cluster 3
“Be good to our
customers.”
Adapted from Exhibit 2.6

32. Adoption of Codes of Ethics
Percentage of Firms
Adapted from Exhibit 2.7

33. Subjects Addressed in Corporate Codes of Ethics
Employee conduct
Most often used for
European firms
Community and environment
Most often used for
United States firms
Customers
Shareholders
Least often used for
European firms
Suppliers and contractors
Political interests
Least often used for
United States firms
Innovation and technology
Adapted from Exhibit 2.8

34. Successfully Implementing Codes of Ethics

35. The Government: Foreign Corrupt Practices Act
Cannot corrupt actions of foreign officials, politicians, or candidates
Cannot make payments to any person when they have "reason to know" that the payments might be used to corrupt the behavior of officials
Must take steps to provide "reasonable assurance" that transactions are in compliance with the law and to keep detailed records of them