Chapter 5 Its Responsibility Produce The Goods And Services

CHAPTER 5

MANAGING ETHICS AND SOCIAL RESPONSIBILITY

CHAPTER OUTLINE

Will You Be A Courageous Manager?

I. What Is Managerial Ethics?

II. Ethical Management Today

III. Ethical Dilemmas: What Would You Do?

IV. Criteria for Ethical Decision Making

V. The Individual Manager and Ethical Choices

New Manager Self-Test: Servant Leadership

VI. What Is Corporate Social Responsibility?

ANNOTATED LEARNING OBJECTIVES

After studying this chapter, students should be able to:

1. Define ethics and explain how ethical behavior relates to behavior governed by law and free

choice.

Ethics is difficult to define in a precise way. In a general sense, ethics is the code of moral

2. Discuss why ethics is important for managers and identify recent events that call for a

renewed commitment to ethical management.

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The pervasiveness of ethical lapses during the first decade of this century has been astounding.

3. Explain the utilitarian, individualism, moral rights, justice, virtue ethics, and practical

approaches for making ethical decisions.

The utilitarian approach holds that moral behaviors produce the greatest good for the greatest

number. In this approach, a decision maker is expected to consider the effect of each decision

alternative on all parties and select the one that optimizes satisfaction for the greatest number of

people.

The moral-rights approach asserts that people have fundamental rights and liberties that cannot

be taken away by an individual’s decision. Thus, an ethically correct decision is one that best

maintains the rights of those affected by it. These rights include the right of free consent, the

right to privacy, the right of freedom of conscience, the right of free speech, the right to due

process, and the right to life and safety.

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4. Describe the factors that shape a manager’s ethical decision making, including levels of

moral development.

Individual managers bring specific personality and behavioral traits to the job. Personal needs,

family influence, and religious background all shape a manager’s value system. Specific

personality characteristics, such as ego strength, self-confidence, and a strong sense of

independence may enable managers to make ethical decisions.

5. Identify important stakeholders for an organization and discuss how managers balance the

interests of various stakeholders.

A stakeholder is any group within or outside the organization that has a stake in the

6. Explain the philosophy of sustainability and why organizations are embracing it.

Sustainability refers to economic development that generates wealth and meets the needs of the

current generation while saving the environment so future generations can meet their needs as

7. Describe what is meant by “the triple bottom line.”

The triple bottom line refers to measuring an organization’s social performance, its

environmental performance, and its financial performance. This is sometimes called the three Ps:

People, Planet, and Profit. The People part of the triple bottom line looks at how socially

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8. Define corporate social responsibility and how to evaluate it along economic, legal, ethical,

and discretionary criteria.

Social responsibility is management’s obligation to make choices and take actions that will

contribute to the welfare and interests of society as well as to the welfare and interests of the

organization. It means being a good corporate citizen. Social responsibility can be evaluated

along four criteria.

9. Discuss how ethical organizations are created through ethical leadership and organizational

structures and systems.

Management is responsible for creating and sustaining conditions in which people are likely to

LECTURE OUTLINE

WILL YOU BE A COURAGEOUS MANAGER?

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Many managers slide into unethical or illegal behavior simply because they don’t have the

courage to stand up and do the right thing. It probably won’t happen right away, but soon

enough students will be confronted with situations that will test the strength of their moral beliefs

or sense of justice. This exercise helps students gauge the extent of their courage in group

situations, which often reflects a person’s level of moral development.

I. WHAT IS MANAGERIAL ETHICS? Exhibit 5.1

Ethics is the code of moral principles and values that govern the behaviors of a person or group

with respect to what is right or wrong. Ethics sets standards as to what is good or bad in conduct

and decision making. Ethics deals with internal values that are a part of corporate culture and

II. ETHICAL MANAGEMENT TODAY Exhibit 5.2

The pervasiveness of ethical lapses during the first decade of this century has been astounding.

Although public confidence in business managers in particular is at an all-time low, politics,

concerns excessive executive compensation.

III. ETHICAL DILEMMAS: WHAT WOULD YOU DO?

An ethical dilemma arises in a situation concerning right or wrong when values are in conflict

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Discussion Question #1: Is it reasonable to expect that managers can measure their social and

environmental performance on the same level as they measure their financial performance with

a triple bottom line? Discuss.

NOTES________________________________________________________________________

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IV. CRITERIA FOR ETHICAL DECISION MAKING

Managers faced with tough ethical choices often benefit from a normative strategy based on

norms and values to guide their decision making. Normative ethics is based on norms and

values. Five approaches are relevant for managers in making ethical decisions.

A. Utilitarian Approach

1. The utilitarian approach holds that moral behavior produces the greatest good for

B. Individualism Approach

1. The individualism approach contends that acts are moral when they promote the

C. Moral Rights Approach

1. The moral-rights approach asserts that human beings have fundamental rights that

D. Justice Approach

1. The justice approach holds that moral decisions must be based on standards of

equity, fairness, and impartiality. Three types of justice are of concern to managers.

a. Distributive justice requires that different treatment of people not be based on

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E. Practical Approach

1. The practical approach sidesteps debates about what is right, good, or just and bases

decisions on prevailing standards of the profession and the larger society, taking the

NOTES________________________________________________________________________

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IV. THE INDIVIDUAL MANAGER AND ETHICAL CHOICES

Ethical or unethical business practices usually reflect the values, attitudes, beliefs, and behavior

patterns of the organizational culture. Ethics is as much an organizational issue as a personal

issue.

A. Exhibit 5.3

1. The manager brings specific personality and behavioral traits to the job. Personal

needs, family influence, and religious background all shape a manager’s value

system.

2. Personality characteristics, such as ego strength, self-confidence, and a strong sense

of independence may enable managers to make ethical decisions. The manager’s

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c. Postconventional level (also called principled level). At this level individuals

3. The great majority of managers operate at the conventional level. A few managers

have not advanced beyond the preconventional level. Only about 20 percent of

American adults reach the principled level of moral development.

Discussion Question #3: Imagine yourself in a situation of being encouraged by colleagues to

inflate your expense account. What factors do you think would influence your choice? Explain.

NOTES________________________________________________________________________

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NEW MANAGER SELF-TEST: SERVANT LEADERSHIP

Leaders differ in how they view human nature and the tactics they use to get things done through

others. This exercise helps students understand their orientation toward self versus others. High

scores suggest self-orientation; low scores suggest other-orientation.

VI. WHAT IS CORPORATE SOCIAL RESPONSIBILITY?

Social responsibility means distinguishing right from wrong. It means being a good corporate

A. Organizational Stakeholders Exhibit 5.4

1. Enlightened organizations view the internal and external environment as having a

variety of stakeholders. A stakeholder is any group within or outside the

organization that has a stake in the organization’s performance. Each stakeholder has

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4. Stakeholders can also have a tremendous effect on the organization’s performance

and success. Today, special interest groups continue to be one of the largest

Discussion Question #2: What various stakeholder groups did oil giant BP have to respond to in

regard to the massive 2010 oil spill in the Gulf of Mexico? From what you know about the BP

oil spill, how would you evaluate BP executives’ behavior in terms of corporate social

responsibility?

Discussion Question #4: Is it socially responsible for organizations to undertake political

activity or join with others in a trade association to influence the government? Discuss.

1. Going green has become a new business imperative, driven by shifting social

C. Sustainability and the Triple Bottom Line

1. Many corporations are embracing an idea called sustainability or sustainable

development. Sustainability refers to economic development that generates wealth

2. The triple bottom line refers to measuring an organization’s social performance, its

environmental performance, and its financial performance. This is sometimes called

the three Ps: People, Planet, and Profit.

a. The first P, People, looks at socially responsible aspects including fair labor

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VII. EVALUATING CORPORATE SOCIAL RESPONSIBILITY Exhibit 5.5

A. Economic Responsibility

1. The first criterion of social responsibility is economic responsibility. The business

institution is the basic economic unit of society. Its responsibility is to produce the

B. Legal Responsibility

1. Legal responsibility defines what society deems important with respect to

appropriate corporate behavior. Businesses are expected to fulfill their economic

1. Ethical responsibility includes behaviors that are not necessarily codified into law

and may not serve the firm’s direct economic interests. To be ethical, decision

Discussion Question #7: Do you believe it is ethical for organizational managers to try to get

access to and scrutinize the Facebook pages of employees or job applicants? Discuss.

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NOTES________________________________________________________________________

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D. Discretionary Responsibility

1. Discretionary responsibility is voluntary and guided by a company’s desire to

make social contributions not mandated by economics, law, or ethics.

Discussion Question #9: The technique of stakeholder mapping lets managers classify which

stakeholders they will consider more important and will invest more time to satisfy. Is it

appropriate for management to define some stakeholders as more important than others?

Should all stakeholders be considered equal?

NOTES________________________________________________________________________

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VIII. MANAGING COMPANY ETHICS AND SOCIAL RESPONSIBILITY Exhibit 5.6

A. Code of Ethics

1. A code of ethics is a formal statement of the company’s values concerning ethics

and social issues. It communicates to employees what the company stands for.

Codes of ethics tend to exist in two types.

a. Principle-based statements are designed to affect corporate culture. They define

Discussion Question #8: Which do you think would be more effective for shaping long-term

ethical behavior in an organization: a written code of ethics combined with ethics training or

strong ethical leadership? Which would have more impact on you? Why?

NOTES________________________________________________________________________

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B. Ethical Structures

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1. Ethical structures represent the various systems, positions, and programs a company

can undertake to implement ethical behavior.

a. An ethics committee is a group of executives appointed to oversee the

C. Whistle-Blowing

a. Whistle-blowing is the disclosure by an employee of illegal, immoral, or

illegitimate practices by the organization. Some firms have instituted innovative

IX. The Business Case for Ethics and Social Responsibility

1. Most managers now realize that paying attention to ethics and social responsibility is

as much of a business issue as paying attention to costs, profits, and growth. In

today’s information age, bad behavior is increasingly hard to hide, and “outbehaving

Suggested Answers to End-Of-Chapter Discussion Questions

1. Is it reasonable to expect that managers can measure their social and environmental

performance on the same level as they measure their financial performance with a triple

bottom line? Discuss.

With a philosophy of sustainability, managers weave environmental and social concerns into

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2. What various stakeholder groups did oil giant BP have to respond to in regard to the massive

2010 oil spill in the Gulf of Mexico? From what you know about the BP oil spill, how would

you evaluate BP executives’ behavior in terms of corporate social responsibility?

It would be very difficult to provide an exhaustive list of the stakeholders to whom BP needed to

respond, but some of them include shrimpers, fishermen, and others who make their living from

3. Imagine yourself in a situation of being encouraged by colleagues to inflate your expense

account. What factors do you think would influence your choice? Explain.

While most students will probably want to answer that they would be most affected by their

individual moral development, this may be an idealistic exaggeration. As pointed out by the text,

4. Is it socially responsible for organizations to undertake political activity or join with others

in a trade association to influence the government? Discuss.

Generally speaking, most students will probably agree that it is socially responsible for

organizations to undertake political activities. The question is whether organizations should sit

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5. Managers at some banks and mortgage companies have argued that providing subprime

mortgages was based on their desire to give poor people a chance to participate in the

American dream of home ownership. What is your opinion of this explanation in terms of

ethics and social responsibility?

As with the BP evaluation in Question 2 above, the answer to this question revolves largely

6. A noted business executive said, “A company’s first obligation is to be profitable.

Unprofitable enterprises can’t afford to be socially responsible.” Discuss why you agree or

disagree with this statement.

The business executive’s statement is a bit of a red herring. Of course, for-profit organizations

must make at least some profit to stay in business. They cannot put social responsibility ahead of

7. Do you believe it is ethical for organizational managers to try to get access and scrutinize

the Facebook pages of employees or job applicants? Discuss.

Under the moral-rights approach, such activity could be viewed as a violation of the right of free

8. Which do you think would be more effective for shaping long-term ethical behavior in an

organization: a written code of ethics combined with ethics training or strong ethical

leadership? Which would have more impact on you? Why?

Codes of ethics and ethics training are important within an organization; however, simply

posting a code of ethics and holding ethics training once a year or even once a month will not

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9. The technique of stakeholder mapping lets managers classify which stakeholders they will

consider more important and will invest more time to satisfy. Is it appropriate for

management to define some stakeholders as more important than others? Should all

stakeholders be considered equal?

For an organization to succeed, its managers must define goals and specify activity that will help

the organization achieve them. In the pursuit of its strategies and goals, managers must make

10. According to a survey, many people think cheating is more common today than it was a

decade ago. Do you think cheating is really more common or does it just seem so? Why?

An argument for those who believe cheating only seems more common today is that, with the

rise of the internet and 24/7 cable news, people are simply more aware of behavior that has

Apply Your Skills: Experiential Exercise

Ethical Work Climates

Have students complete the self-examination of Ethical Work Climates. Note that ethical

Apply Your Skills: Small Group Breakout

Current Events of an Unethical Type

This exercise asks students to start by finding two newspaper or magazine articles from the past

several months relating to someone violating business ethics or potentially violating the law

regarding business practices and summarize the articles. Students then meet in groups, share

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Apply Your Skills: Ethical Dilemma

Should We Go Beyond the Law?

1. Talk to the manufacturing vice president and emphasize the responsibility Chem-Tech has as

an industry leader to set an example. Present her with a recommendation that Chem-Tech

participate in voluntary pollution reduction as a marketing tool, positioning itself as the

environmentally friendly choice.

This is the best option because it embodies the utilitarian view of ethics, to provide the greatest

2. Mind your own business and just do your job. The company isn’t breaking any laws, and if

Chem-Tech’s economic situation doesn’t improve, a lot of people will be thrown out of work.

Since Nathan appears to be operating at the postconventional level of moral development,

3. Call the local environmental advocacy group and get them to stage a protest of the company.

This is an extreme course of action that Nathan should take only if option 1 is rejected and he is

Apply Your Skills: Case for Critical Analysis

Too Much Intelligence?

1. How has Ken Bodine shaped the sales culture at Pace Technologies? Do you consider this

culture to be at a preconventional, conventional, or postconventional level of ethical

development? Why?

A former military intelligence officer, Ken Bodine brought that “sneaky” air into the Pace

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2. What would Ali Sloan do? What would you actually do if you were in her place? Explain.

Ali Sloan would report the matter to Bodine as she considered Cody’s act to be unethical and

3. How might Cody Rudisell’s decision differ if he based it on the utilitarian approach vs.

individualism approach vs. practical approach to ethical decision making? Which approach

does he appear to be using?

If Cody Rudisell’s decision was based on the utilitarian approach, he would have thought about

his decision affecting Raleigh-Tech rather than just profit or promotion.

On the Job Video Case Answers

Theo Chocolate

1. What practices at Theo Chocolate reflect the concept of sustainability?

Sustainability refers to economic activity that generates wealth and meets the needs of the

current generation while saving the environment for future generations. To implement a

2. What does Vice President Debra Music mean when she says that Theo is a “triple bottom line”

company? How is this different from any other company?

In the video, Debra Music says, “We see ourselves as a triple bottom line company, which means

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3. What does the term fair trade mean to the leaders at Theo? What happens if fair trade goals

conflict with a company’s primary responsibility to be profitable?

Fair trade is a financial relationship between producers, sellers, and consumers based on the

principle of equity within the exchange of goods. Joe Whinney says that fair trade is important