1. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 1 CHAPTER THREE CHAPTER THREE Management 3rd Edition Chuck Williams Ethics and Social Responsibility Prepared by Deborah Baker Texas Christian University

2. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 2 CHAPTER THREE What Would You Do?  the company’s finances contain numerous problems and mistakes  financial reports may have been “doctored” to improve results  CEO Martin Grass may “shoot the messenger” If ethics means “doing the right thing,” then what should you do? You are the new CFO of Rite Aid, and you are worried…

3. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 3 CHAPTER THREE What Is Ethical and Unethical Workplace Behavior? After reading the next three sections, you should be able to: 1.discuss how the nature of management jobs creates the possibility for ethical abuses. 2.identity common kids of workplace deviance. 3.describe the U.S. Sentencing Commission Guidelines for Organizations and explain how its recommendations make ethical behavior much more important for businesses.

4. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 4 CHAPTER THREE Ethics and the Nature of Management Jobs 1 Unethical Managerial Behavior Authority and Power Handling Information Influencing the Behavior of Others Setting Goals More

5. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 5 CHAPTER THREE Ethics and the Nature of Management Jobs 1 Managers can encourage ethical behaviors by…  using resources for company  handling information confidentially  not influencing others to engage in unethical behavior  not creating policies that reward employees for unethical behavior  setting reasonable goals Ethics: the set of moral principles or values that define right and wrong.

6. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 6 CHAPTER THREE Workplace Deviance 2  Behavior that violates organizational norms about right and wrong  Two dimensions  Degree of deviance  minor to serious  Target of deviant behavior  the organization or particular people

7. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 7 CHAPTER THREE Workplace Deviance 2 Personal Aggression Political Deviance Property Deviance Production Deviance Types of Workplace Deviance

8. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 8 CHAPTER THREE Production Deviance  Hurts the quality and/or quantity of work  Examples are leaving early, taking excessively long breaks, etc. 2

9. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 9 CHAPTER THREE Property Deviance 2  Unethical behavior aimed at company property  Examples are sabotage, stealing, damaging equipment, etc.

10. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 10 CHAPTER THREE Political Deviance 2  Using one’s influence to harm others in the company  Examples are favoritism, spreading rumors, falsely blaming others, etc.

11. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 11 CHAPTER THREE Personal Aggression  Hostile or aggressive behavior toward others  Examples are sexual harassment, verbal abuse, threatening others, etc. 2

12. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 12 CHAPTER THREE Workplace Deviance 2 MINOR ORGANIZATIONAL INTERPERSONAL SERIOUS Property Deviance sabotaging equipment accepting kickbacks lying about hours worked stealing from the company Personal Aggression sexual harassment verbal abuse stealing from co-workers endangering co-workers Political Deviance showing favoritism gossiping about co-workers blaming co-workers competing nonbeneficially Production Deviance leaving early excessive breaks working slow wasting resources Adapted from Exhibit 3.1

13. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 13 CHAPTER THREE U.S. Sentencing Commission Guidelines 3  Companies can be prosecuted and punished even if management didn’t know about the unethical behavior  Who, What, and Why  Determining Punishment

14. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 14 CHAPTER THREE Who, What, and Why? 3.1  Nearly all businesses are covered  Punishes a number of offenses  Encourages businesses to be proactive

15. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 15 CHAPTER THREE Steps in determining fine size 1.determine the base fine 2.compute a culpability score 3.multiply the base fine by the culpability score Steps in determining fine size 1.determine the base fine 2.compute a culpability score 3.multiply the base fine by the culpability score Compliance Program Steps 3.2 Smaller fines for companies that are proactive

16. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 16 CHAPTER THREE Compliance Program Steps 3.2 Adapted from Exhibit 3.3 1. Establish standards and procedures to meet the company’s business needs 7. After violations occur, find appropriate ways to improve the compliance program. 6. Enforce compliance standards by fairly and consistently disciplining violators. 5. Use company publications and training to inform employees about the company’s compliance standards and procedures. 3. Don’t delegate decision-making authority to employees who are likely to act illegally or unethically. 4. Use auditing, monitoring, and other methods to encourage employees to report violations. 2. Put upper-level managers in charge of the compliance program

17. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 17 CHAPTER THREE How Do You Make Ethical Decisions? After reading the next two sections, you should be able to: 4.describe what influences ethical decision making 5.explain what practical steps managers can take to improve ethical decision making.

18. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 18 CHAPTER THREE Influences on Ethical Decision Making 4 Ethical Answers Depend on… Ethical Intensity of Decision Moral Development of Manager Ethical Principles Used More

19. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 19 CHAPTER THREE Ethical Intensity 4.1 Concentration of effect Magnitude of consequences Social consensus Probability of effect Proximity of effect Temporal immediacy FactorsFactors

20. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 20 CHAPTER THREE Moral Development 4.2 Societal Expectations Selfish Internalized Principles PreconventionalPreconventionalConventionalConventionalPostconventionalPostconventional More Mature More Selfish More

21. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 21 CHAPTER THREE Stages of Moral Development 4.2 PreconventionalPreconventional 1.Punishment and Obedience 2.Instrumental Exchange 1.Punishment and Obedience 2.Instrumental Exchange ConventionalConventional 3.Good boy, nice girl 4.Law and order 3.Good boy, nice girl 4.Law and order PostconventionalPostconventional 5.Social contract 6.Universal principle 5.Social contract 6.Universal principle

22. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 22 CHAPTER THREE Principles of Ethical Decision Making 4.3 Principles of… Long-term self-interest Personal virtue Religious injunctions Government requirements Utilitarian benefits Individual rights Distributive justice More

23. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 23 CHAPTER THREE Principles of Ethical Decision Making 4.3 Principle of Long-term Self-Interest Never take any action not in your organization’s long-term self-interest

24. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 24 CHAPTER THREE Principles of Ethical Decision Making 4.3 Principle of Personal Virtue Never do anything that is not honest, open, and truthful and that you would not be glad to see reported in the newspapers or on TV

25. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 25 CHAPTER THREE Principles of Ethical Decision Making 4.3 Principle of Religious Injunctions Never take any action that is not kind and that does not build a sense of community

26. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 26 CHAPTER THREE Principles of Ethical Decision Making 4.3 Principle of Government Requirements Never take any action that violates the law, for the law represents the minimal moral standard.

27. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 27 CHAPTER THREE Principles of Ethical Decision Making 4.3 Principle of Utilitarian Benefit Never take any action that does not result in greater good for society

28. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 28 CHAPTER THREE Principles of Ethical Decision Making 4.3 Principle of Individual Rights Never take any action that infringes on others’ agreed-upon rights

29. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 29 CHAPTER THREE Principles of Ethical Decision Making 4.3 Principle of Distributive Justice Never take any action that harms the least among us: the poor, the uneducated, the unemployed. Never take any action that harms the least among us: the poor, the uneducated, the unemployed.

30. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 30 CHAPTER THREE Practical Steps to Ethical Decision Making 5 Select and hire ethical employees Establish a Code of Ethics Train employees to make ethical decisions Create an ethical climate More

31. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 31 CHAPTER THREE Practical Steps to Ethical Decision Making  Overt Integrity Tests  Personality-Based Integrity Tests 5.1 Select and hire ethical employees If you found a wallet containing $50, would you return it with the money?

32. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 32 CHAPTER THREE What Really Works Studies show that Integrity Tests…  Help reduce workplace deviance  Help hire workers who are better performers Studies show that Integrity Tests…  Help reduce workplace deviance  Help hire workers who are better performers However they have a smaller effect on assessing theft. More

33. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 33 CHAPTER THREE What Really Works (continued) Overt Integrity Tests & Workplace Deviance 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success82% Workplace Deviance (Counterproductive Behaviors) Personality-Based Integrity Tests & Workplace Deviance 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success68% More

34. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 34 CHAPTER THREE What Really Works (continued) Overt Integrity Tests & Job Performance 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 69% Job Performance Personality-Based Integrity Tests & Job Performance 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success70% More

35. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 35 CHAPTER THREE What Really Works (continued) Overt Integrity Tests & Theft 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 57% Theft

36. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 36 CHAPTER THREE Practical Steps to Ethical Decision Making 5.2 Establish a Code of Ethics  Communicate code of ethics to both inside and outside the company  Develop ethical standards and procedures specific to business http://www.nortelnetworks.com

37. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 37 CHAPTER THREE Ethics Training 5.3 Ethics Training  Develops employee awareness of ethics  Achieves credibility with employees  Teaches a practical model of ethical decision making http://active.boeing.com http://active.boeing.com General Info & Images, Ethics & Business Conduct, Take the Ethics Challenge http://active.boeing.com http://active.boeing.com General Info & Images, Ethics & Business Conduct, Take the Ethics Challenge

38. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 38 CHAPTER THREE A Basic Model of Ethical Decision Making 5.3 1. Identify the problem 2. Identify the constituents 3. Diagnose the situation 4. Analyze your options 5. Make your choice 6. Act Adapted from Exhibit 3.6

39. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 39 CHAPTER THREE Ethical Climate 5.4 Managers:  Act ethically  Are active in company ethics programs  Report potential ethics violations  Punish those who violate the code of ethics Establishing an Ethical Climate

40. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 40 CHAPTER THREE Been There Done That  Blowing the Whistle on the FBI, WorldCom, and Enron  Leaders must set the value system  All Americans are responsible for ethics and morals

41. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 41 CHAPTER THREE What Is Social Responsibility? After reading the next four sections, you should be able to explain: 6.to whom organizations are socially responsible. 7.for what organizations are socially responsible. 8.how organizations can choose to respond to societal demands for social responsibility. 9.whether social responsibility hurts or helps an organization’s economic performance.

42. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 42 CHAPTER THREE To Whom Are Organizations Socially Responsible? Shareholder Model Stakeholder Model Stakeholder Model Maximize Profits Satisfy Interests of Multiple Stakeholders Satisfy Interests of Multiple Stakeholders 6 More

43. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 43 CHAPTER THREE Shareholder Model 6  Managers cannot act effectively as moral agents for shareholders  Time, money, and attention diverted to social causes undermine market efficiency

44. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 44 CHAPTER THREE Stakeholder Model 6 Primary Stakeholders: Shareholders Employees Customers Suppliers Governments Local Communities Primary Stakeholders: Shareholders Employees Customers Suppliers Governments Local Communities Secondary Stakeholders: Media Special Interest Groups Trade Associations Secondary Stakeholders: Media Special Interest Groups Trade Associations

45. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 45 CHAPTER THREE Organization’s Social Responsibilities 7 Don’t violate principles of right and wrong Obey the Law. Ethical Legal Economic Discretionary Make a Profit Social responsibilities

46. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 46 CHAPTER THREE Blast from the Past 100 Years of Corporate Philanthropy 7  1800s – illegal under the doctrine of ultra vires  Late 1800s—benefits to employees acceptable and legal  1940s corporate philanthropy took place  1950s – corporate philanthropy “right thing” to do  Present-- U.S. companies donate approximately $6 billion a year

47. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 47 CHAPTER THREE Responses to Demands for Social Responsibility 8 StrategiesStrategies Reactive Defensive Accommodative Proactive More

48. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 48 CHAPTER THREE Responses to Demands for Social Responsibility 8 Adapted from Exhibit 3.10 Reactive Defensive Accommo- dative Proactive Fight all the way DO NOTHING DO MUCH Withdrawal Do only what is required Legal Approach Bargaining Problem Solving Public Relations Approach Be progressive Lead the industry

49. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 49 CHAPTER THREE Social Responsibility and Economic Performance 9 Adapted from Exhibit 3.10 Realities of Social Responsibility Can cost a company Sometimes it does pay Does not guarantee profitability

50. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 50 CHAPTER THREE What Would You Do--II? BMG Records BMG Records is concerned over the marketing of offensive recordings to children…  You are torn that children are listening to offensive materials  But, parental advisory labels sell product! How can you develop a strategy that meets social responsibilities and addresses the concerns of stakeholders? What would you do?