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5-1 Chapter 5 Ethics and Corporate Responsibility McGraw-Hill/Irwin Management, 7/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. 5-3 Learning Objectives After Studying Chapter 5, you will know: How different ethical perspective s guide decision 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 5-4 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 5-5 It’s a Big Issue 5-6 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? 5-7 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 5-8 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 5-9 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 5-10 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. 5-11 Business Ethics 5-12 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. 5-13 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 5-14 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 5-15 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 5-16 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. 5-17 Code of Ethics To be effective an ethics code must: Involve those who have to live with it in writing the 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 5-18 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 5-19 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 5-20 Ethical Decision Making 5-21 Ethical Decision Making 5-22 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 5-23 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 5-24 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. 5-25 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 5-26 Corporate Social Responsibility 5-27 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 5-28 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 5-29 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 5-30 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 5-31 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 5-32 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 5-33 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 5-34 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 5-35 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 5-36 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. 5-37 Looking Ahead Chapter 6 International Management Why the world economy is becoming more integrated than 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.