Download Chapter 5

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Chapter
5
Ethics and Corporate Responsibility
McGraw-Hill/Irwin
Management, 7/e
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Learning Objectives
 After Studying Chapter 5, you will know:
 How different ethical perspective s guide decision
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making
How companies influence the ethics environment
A process for making ethical decisions
The important issues surrounding corporate social
responsibility
The importance to business of our natural
environment
Action managers can take to manage with the
environment in mind
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It’s a Big Issue
There’s an increased readiness to believe
negative things about corporations
today, which makes it a dangerous time
for companies. Executives haven’t had to
worry about social issues for a
generation, but there’s a yellow light
flashing now, and they better pay
attention.
- Daniel Yankelovich
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It’s a Big Issue
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It’s a Personal Issue
Ethical Issue: Yes or No
We want to get as much ice as
possible in the cups without
making it look like we’re overfilling
them. Ice is cheaper than cola
syrup. But you don’t want people
to see that you are giving them too
much ice. When it’s hot, people
would really rather have ice
anyway, don’t you think?
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Ethics Defined
 Ethics are aimed at identifying both the rules
that should govern people’s behavior and the
‘goods’ that are worth seeking
 Ethical decisions are guided by individual
values
 Values are principles of conduct such as
caring, honesty, keeping of promises, etc
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Ethics Defined
 Ethical Issues are situations, problems, or
opportunities in which an individual must
choose among several actions that must be
evaluated as morally right or wrong
 Business ethics are the moral principles and
standards that guide behavior in the world of
business
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Ethical Systems
 Moral Philosophy relates to the principles, rules, and
values people use in deciding what is right or wrong.
 Universalism is the ethical system upholding certain
values regardless of immediate result.
 Caux Principles are ethical principles established by
international executives based in Caux, Switzerland, in
collaboration with business leaders from Japan,
Europe, and the United States; has two basic focuses
 Kyosei – living and working together for the common
good
 Human dignity – the value of each person as an end,
not a means to an end
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Ethical Systems
 Egoism is an ethical system defining acceptable
behavior as that which maximizes consequences for
the individual.
 Utilitarianism is an ethical system stating that the
greatest good for the greatest number should be the
overriding concern of decision makers.
 Relativism bases ethical behavior on the opinions and
behaviors of relevant other people.
 Virtue ethics is a perspective that what is moral comes
from what a mature person with “good” moral
character would deem right.
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Business Ethics
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The Ethics Environment
 In response to the corporate scandals
congress passed the Sarbanes-Oxley Act
 The Sarbanes-Oxley Act was passed into law by
Congress in 2002 to establish an array of strict
accounting and reporting rules in order to make
senior managers more accountable and to improve
and maintain investor confidence.
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The Ethics Environment
 Ethical behavior may
also be influenced by
the company’s work
environment
 Ethical climate in an
organization refers to
the processes by
which decisions are
evaluated and made
on the basis of right
and wrong
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Danger signs
 Many factors create a climate conducive to unethical
behavior, some of these are:
 Excessive emphasis on short-term revenues over longer-term
considerations
 Failure to establishes a written code of ethics
 Desiring simple quick fix solutions to ethical problems
 Unwillingness to take an ethical stand that may impose
financial costs
 Consideration of ethics solely as a legal issue or a public
relations tool
 Lack of clear procedures for handling ethical problems
 Responding to the demands of shareholders at the expense of
other constituencies
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Corporate Ethics
 To create a culture that encourages ethical
behavior managers must lead others to
behave ethically
 An ethical leader is one who is both a moral
person and a moral manager influencing
others to behave ethically
 Managers should ask themselves how they
would feel if they saw their decision and its
consequences on the front page of the
newspaper
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Corporate Ethics
Here’s a small but potentially powerful
suggestion. Change your vocabulary: The
word ethics is too loaded , even trite.
Substitute responsibility or decency and then
act accordingly.
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Code of Ethics
 To be effective an ethics code must:
 Involve those who have to live with it in writing the
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statement
Have a corporate statement but also allow separate
statements by different units throughout the
organization
Keep it short and therefore easily understood and
remembered
Is not too corny – it is something important that people
really believe in
The tone is set at the top with executives talking about
and living up to the statement
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Ethics Programs
 Programs range from compliance-based to
integrity-based
 Compliance based programs are company
mechanisms typically designed by corporate
counsel to prevent, detect, and punish legal
violations
 Integrity-based programs are company
mechanisms designed to instill in people a
personal responsibility for ethical behavior
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Ethical Decision Making
 Making an ethical decision requires
 Moral awareness – realizing the issue has
ethical implications
 Moral judgment – knowing what actions are
morally defensible
 Moral character – the strength and persistence
to act in accordance with your ethics despite
the challenges
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Ethical Decision Making
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Ethical Decision Making
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Ethical Decision Making
 Evaluating your ethical duties require that you
identify the actions that:
 You would be proud to see widely reported in
newspapers
 Would build a sense of community among those
involved
 Will generate the greatest social good
 You would be willing to see others take when you might
be the victim
 Doesn’t harm the least among us
 Doesn’t interfere with the right of everyone to develop
their skills to the fullest
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Whistle Blowing
 Whistle blowing is when an individual will tell
others, inside or outside the organization, of
the wrong doing of employees
 People decide whether to blow the whistle
based on their perceptions of the:
 The wrongful act
 Their emotions
 Cost-benefit analysis
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Courage
Courage plays a role in the moral awareness
involved in identifying an act as unethical,
the moral judgment to fully consider the
repercussions, and the moral character to
take the right action.
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Corporate Social Responsibility
 Corporate social responsibility is the obligation a corporation
has towards society assumed by the business
 Specifically categorized as:
 Economic responsibilities _ producing goods and services that
society wants at a price that perpetuates the business and
satisfies its obligations to investors
 Legal responsibilities – obeying local, state, federal, and
relevant international laws
 Ethical responsibilities – meeting other social expectations,
not written as law
 Philanthropic responsibilities – additional behaviors and
activities that society finds desirable and that the values of the
business support
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Corporate Social Responsibility
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Transcendent Education
 Transcendent education is an education that teaches
students to leave a legacy that extends beyond the bottom
line; it is made up of five higher goals that balance selfinterest with responsibility to others
 Empathy – feeling your decisions as potential victims might
feel them
 Generativity – learning how to give as well as take
 Mutuality – viewing success not merely as personal gain but a
common victory
 Civil aspiration – thinking not just in term of don’ts but also in
terms of positive contributions
 Intolerance of ineffective humanity – speaking out against
unethical actions
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Contrasting Views
 There are two basic contrasting views about
which principles should guide managerial
responsibility
 Managers act as agents for shareholders and
are obligated to maximize the present value of
the firm
 Managers should be motivated by principled
moral reasoning
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Reconciliation
 Historically it was thought that profit
maximization and corporate social
responsibility were regarded as antagonistic,
now the two views converge
 Early attention to corporate social
responsibility focused on alleged wrongdoing
and how to control it; more recently the
attention has been on how socially
responsible behavior can lead to a
competitive advantage
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Reconciliation
 Socially responsible actions can have long-
term advantages
 Companies avoid unnecessary and costly
regulation
 Honesty and fairness may pay great dividends
to the conscience, reputation, and public
image of the company
 Companies, like Pfizer, have shown that
companies can integrate social responsibility
with corporate strategy
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The Natural Environment
 Historically business looked
at the environmental issue as
a no win proposition
 By helping the environment
you hurt your business and by
helping your business you
hurt the environment
 There has been a paradigm
shit that has lead to the
deliberate incorporation of
environmental values into
competitive strategies
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A Risk Society
 The fundamental sources of risk in modern society are
the excessive production of hazards and ecologically
unsustainable consumption of natural resources
 Over 30,000 uncontrolled toxic waste sites have been
documented in the US; that number is increasing by
2,500 per year
 The world’s worst environmental problems are in
China
 6 of the 10 most polluted cities in the world are in
China
 Water in five of the country’s largest rivers is dangerous
to touch
 Living in some Chinese cities causes more lung damage
than smoking two packs of cigarettes a day
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Ecocentric Management
 Ecocentric management has as its goal the
creation of sustainable economic
development and improvement of quality of
life worldwide for all organizational
stakeholders
 It is concerned about sustainable growth
 Economic growth and development that meets
present needs with out harming the needs of
future generations
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Ecocentric Management
 Firms are paying attention
to the total environmental
impact throughout the life
cycle of their products
 Life-cycle analysis is a
process of analyzing all
inputs and outputs
through the entire life of a
product to determine the
total environmental impact
of the product
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Environmental Agendas for the Future
 What to do with discarded computers, TV’s,
and cell phones?
 Worldwide there is a question of how to deal
with the issues of
 Water
 Health
 Hygiene
 Safe and renewable energy
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Environmental Agendas for the Future
Companies not only have the ability to solve
environmental problems; they are coming to
see and acquire the motivation as well. Some
companies now believe that solving
environment problems is one of the biggest
opportunities in the history of commerce.
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Looking Ahead
 Chapter 6 International Management
 Why the world economy is becoming more integrated than
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ever before.
What integration of the global economy means for individual
companies and their managers.
The strategies organizations use to compete in the global
marketplace.
The various entry modes organizations use to enter overseas
markets.
How companies can approach the task of staffing overseas
operations.
The skills and knowledge managers need to manage globally.
Why cultural differences across countries influence
management.