1. PowerPoint slides by R. Dennis Middlemist Colorado State University Chapter 5 Ethics and Social Responsibility Hitt Black Porter m a n a g e m e n t

2. 2 Learning Objectives Describe why an understanding of basic approaches to ethical decision making and corporate social responsibility is important. Explain the basic approaches to ethical decision making. Identify the different implications of each approach in real-life situations. After studying this chapter, you should be able to:

3. 3 Learning Objectives Explain the basic approaches to corporate social responsibility. Develop different implications for each approach to corporate social responsibility After studying this chapter, you should be able to:

4. 4 Some Observations Managers in large companies usually act as agents of the owners Implied obligation to act in best interest of the owners or shareholders Actions that benefit only themselves are likely to be unethical Ethics and strategy begin at the top of the organization

5. 5 Ethics in Business Award Winners 2000 Winners The Bureau of National Affairs, Inc. For over a half-century of dedication to employee ownership, despite pressures to sell the company. Iceland, Inc. For a precedent-setting move in the U.K. toward the sale of all-organic store-brand food at not-organic prices. Whole Foods Market For a broad-based commitment to customer, stockholder, employee, community, and environmental service. Adapted from Exhibit 5.1: Excellence in Business Ethics Award Winners

6. 6 Ethics in Business Award Winners 1999 Winners St. Lukes For creating a visionary model of employee ownership, out of the crisis of an unwanted merger. Equal Exchange For its path-breaking approach to fair trade, defining supplier welfare as part of business success. Fetzer Vineyards For a broad-based approach to environmental sustainability, combined with financial excellence. Adapted from Exhibit 5.1: Excellence in Business Ethics Award Winners

7. 7 Ethics in Business Award Winners 1998 Winners SmithKline Beecham For its $1 billion commitment to disease eradication. Wainwright Bank For dedication to social justice, internally and externally. S.C. Johnson For its focus on sustainable community development. Adapted from Exhibit 5.1: Excellence in Business Ethics Award Winners

8. 8 The Development of Individual Ethics Family Friends Peers Teachers Religion Job experiences Life experiences

9. 9 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

10. 10 Basic Approaches to Ethics 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 Utilitarian Approach

11. 11 Basic Approaches to Ethics Focused on an examination of the moral standing of actions, independent of their consequences Some things are simply “right” or they are “wrong” When two actions both have moral standing, then the positive or negative consequences of each will determine the more ethical Moral Rights Approach

12. 12 Basic Approaches to Ethics “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 Universal Approach

13. 13 Basic Approaches to Ethics How equitable are the costs and benefits of actions distributed? Costs and benefits should be equitably distributed Rules should be impartially applied Those damaged because of inequity or discrimination should be compensated Distributive justice Equitable distribution is based on performance Justice Approach

14. 14 Basic Approaches to Ethics Procedural justice Ensure that people affected by managerial decisions 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 Justice Approach

15. 15 Moral Intensity in Ethical Decision Making Moral intensity The degree to which people see an issue as an ethical one Six components Magnitude of the consequences Social consensus Probability of effect Temporal immediacy Proximity Concentration of effect

16. 16 Moral Intensity 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 Adapted from Exhibit 5.2: Factors of Moral Intensity

17. 17 Moral Intensity Moral Intensity in Ethical Decision Making Social consensus 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 Social Consequences Adapted from Exhibit 5.2: Factors of Moral Intensity

18. 18 Moral Intensity Moral Intensity in Ethical Decision Making 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 Social Consequences Probability of Effect Adapted from Exhibit 5.2: Factors of Moral Intensity

19. 19 Moral Intensity Moral Intensity in Ethical Decision Making 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 Social Consequences Temporal Immediacy Probability of Effect Adapted from Exhibit 5.2: Factors of Moral Intensity

20. 20 Moral Intensity Moral Intensity in Ethical Decision Making 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 Social Consequences Proximity Temporal Immediacy Probability of Effect Adapted from Exhibit 5.2: Factors of Moral Intensity

21. 21 Moral Intensity Moral Intensity in Ethical Decision Making 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 Concentration of Effect Social Consequences Proximity Temporal Immediacy Probability of Effect Adapted from Exhibit 5.2: Factors of Moral Intensity

22. 22 Making Ethical Decisions The manager The organization Code of ethical conduct Formal statement outlining types of inappropriate behavior addressing three issues Being a good “organization citizen” Guiding employee behavior away from unlawful or improper acts that could harm the organization Addressing directives to be good to customers

23. 23 Categories Found in Corporate Codes of Ethics Adapted from Exhibit 5.4: Categories Found in Corporate Codes of Ethics Cluster 3 “Be good to our customers.” Cluster 1 “Be a dependable organizational citizen.” Cluster 2 “Don’t do anything unlawful or improper that will harm the organization.” Unclustered Items

24. 24 Adoption of Codes of Ethics United Kingdom France Germany 01020304050 Number of Firms With Codes Without Codes Adapted from Exhibit 5.5: Adoption of Codes of Ethics 31% 69% 18% 82% 47% 53%

25. 25 Subjects Addressed in Corporate Codes of Ethics Employee conduct Community and environment Customers Shareholders Suppliers and contractors Political interests Innovation and technology Most often for European firms Most often for United States firms Least often for European Countries Least often for United States firms Adapted from Exhibit 5.6: Subjects Addressed in Corporate Codes of Ethics

26. 26 Whistle-blowing Successfully Implementing Codes of Ethics Communication Reward and Recognition Training Implementing Code of Ethics

27. 27 The Government Foreign corrupt practices act Illegal to corrupt actions of foreign officials, politicians, or candidates for office Outlaws making payments to any person when they have "reason to know" that the payments might be used to corrupt the behavior of officials Requires that firms take steps to provide "reasonable assurance" that transactions are in compliance with the law and to keep detailed records of them

28. 28 Social Responsibility 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 Concerns with the efficiency perspective Corrective action to corporate harm often occurs after people are injured Externalities

29. 29 Social Responsibility Social responsibility perspective (firms have responsibilities and obligations to society as a whole, not just shareholders ) Stakeholders Employees, financiers, suppliers, communities, society at large, and shareholders To maximize the return to shareholders would take away returns owed to the other stakeholders Concerns with social responsibility perspective Defining exactly what is reasonable or legitimate returns Shareholders have conflicting and competing concerns

30. 30 Social Responsibility Comparing Efficiency and Social Responsibility Perspectives Action Harms Other Stakeholders NO YES Action Harms Shareholders NO YES Adapted from Exhibit 5.7: Subjects Addressed in Corporate Codes of Ethics Efficiency Perspective Managerially Irresponsible Social Responsibility Perspective Managerially Responsible Efficiency Perspective Managerially Responsible Social Responsibility Perspective Managerially Responsible Efficiency Perspective Managerially Irresponsible Social Responsibility Perspective Managerially Irresponsible Efficiency Perspective Managerially Responsible Social Responsibility Perspective Managerially Irresponsible

31. 31 Corporate Responses Defenders We must fight against efforts to restrict or regulate our activities and profit-making potential. Maximize profits. Find legal loopholes. Fight new restrictions and regulations. Belief: Focus: Accommodators We will change when legally compelled to do so. Maximize profits. Abide by the letter of the law. Change when legally compelled to do so. Adapted from Exhibit 5.8: Corporate Responses

32. 32 Corporate Responses Reactors Belief:We should respond to significant pressure even if we are not legally required to. Protect profits. Abide by the law. React to pressure that could affect business results. Focus: Anticipators We owe it to society to anticipate and avoid actions with potentially harmful consequences, even if we are not pressured or legally required to do so. Obtain profits, Abide by the law. Anticipate harmful consequences independent of pressures and laws. Adapted from Exhibit 5.8: Corporate Responses