CHAPTER 4
The Ethical and Social Environment
CHAPTER SUMMARY
This chapter explores the ethical and social context of management. The basic topics of discussion
include ethics and ethical issues, the nature of social responsibility, the relationship between organizations
and governments, and the management of social responsibility.
LEARNING OBJECTIVES
After covering this chapter, students should be able to:
1. Discuss managerial ethics, three areas of special ethical concern for managers, and how
organizations manage ethical behavior.
2. Identify and summarize key emerging ethical issues in organizations today.
The concept of “Fair Trade” has caught on in international trade, though the concept does have its critics.
According to this concept, buyers of various products (such as cocoa and coffee) should fund the
institution of programs to ensure minimum wage, environmentally friendly policies, etc. so that workers
of poor countries are not exploited. While the cost increase of the product to the end user is likely to be
only minimal, critics argue that these would eventually affect prices and would be hard to monitor.
Discussion Starter: There is a great deal of pressure on CEOs in recent years to use moral criteria in
LECTURE OUTLINE
I. INDIVIDUAL ETHICS IN ORGANIZATIONS
Ethics are an individual’s personal beliefs regarding right and wrong behavior.
Ethical behavior is behavior that conforms to generally accepted social norms.
sociocultural dimension of an organization’s general environment, as discussed in Chapter 3.
Chapter 4: The Ethical and Social Environment
Discussion Starter: A debate that has plagued some business programs is the extent to which colleges
A. Managerial Ethics
Interesting Quote: “Moral character is shaped by family, church, and education long before an
Managerial ethics are standards for behavior that guide individual managers in their work.
1. How an organization treats its employees
Teaching Tip: Note that as organizations enter a period of cutbacks and downsizing, the potential for
unethical treatment of employees tends to increase.
2. How employees treat the organization
can occur.
3. How employees and the organizations treat other economic agents
Managers also must have high ethical standards when dealing with customers,
organization and/or the treatment of their employer toward another organization.
Global Connection: The United States is not alone in having to deal with ethical scandals. For
example, several scandals have plagued Japan in recent years. In one instance, several large investment
houses were charged with providing illegal kickbacks to major clients to cover their investment losses.
B. Ethics in an Organizational Context
Unethical behavior by management and other employees sometimes occurs because the firm
Chapter 4: The Ethical and Social Environment
Discussion Starter: Ask students their opinion of the comment made by Wallner, a Hypercom
executive, regarding a manager who is apparently committing unethical actions: “He [is] bringing in
$70 million a year. Do you fire your number one rock star because he’s difficult?” Do the students
agree? Why or why not?
C. Managing Ethical Behavior
Extra Example: Other firms that have a code of ethics include Motorola, Coca-Cola, and Texas
Instruments.
II. EMERGING ETHICAL ISSUES IN ORGANIZATIONS
A. Ethical Leadership
1. Leaders set the ethical tone for the organization.
2. The Sarbanes-Oxley Act of 2002 requires top managers to personally vouch for the
truthfulness of their firm’s financial disclosures and imposes significant penalties for
violations.
III. SOCIAL RESPONSIBILITY AND ORGANIZATIONS
Social responsibility is the set of obligations an organization assumes to protect and enhance the
society in which it functions.
A. Areas of Social Responsibility
Chapter 4: The Ethical and Social Environment
1. Organizational stakeholders—people and organizations that are directly affected by the
practices of an organization and that have a stake in its performance. These stakeholders
Group Exercise: Have students develop a “map” similar to Figure 4.3 that shows the constituents of
another organization, such as your college or university, a local business, etc.
2. The natural environment—Laws now regulate how far a company can go with respect to
Global Connection: Note that environmental concerns are greater in some countries than they are in
Extra Example: Organizations with significant commitment to the natural environment are
3. General social welfare—Organizations also can promote the general social welfare by
contributing to charities, philanthropic organizations, and not-for-profit foundations and
associations, among other ways.
B. Arguments For and Against Social Responsibility
1. Arguments for social responsibility—There are four main reasons to support social
responsibility:
Discussion Starter: Ask students to help identify specific examples of how socially responsible
Chapter 4: The Ethical and Social Environment
Discussion Starter: Ask students to help identify examples of how socially responsible behavior may
have negative effects.
Discussion Starter: Ask students for their thoughts and opinions regarding the relative merits of the
C. Organizational Approaches to Social Responsibility
Firms can adopt a number of different stances regarding social responsibility.
1. Obstructionist stance—describes firms who do as little as possible in the social
responsibility arena. If cited for unethical behavior, they deny it, cover it up, or try to
hide it.
Teaching Tip: Be sure to stress that these four approaches represent points along a continuum, as
shown in Figure 4.5. Thus, there are often fine gradations between different approaches to social
responsibility.
Discussion Starter: Ask students to help identify other examples to illustrate each of the four
Teaching Tip: Note the relationship between the four approaches to social responsibility and the
Discussion Question: Ask students whether they believe tobacco will ever be outlawed. Ask their
thoughts on whether it should be banned.
IV. THE GOVERNMENT AND SOCIAL RESPONSIBILITY
A. How Government Influences Organizations
Chapter 4: The Ethical and Social Environment
1. Direct regulation—the establishment of laws and rules that dictate what businesses can
and cannot do in prescribed areas
2. Indirect regulation—finding ways to influence firms to act in a socially responsible way
without direct laws
B. How Organizations Influence Government
1. Personal contacts—relationships between business leaders and political leaders can be
used by businesses to present their cases or positions.
3. Political action committees (PACs)—special organizations created to solicit money and
then distribute it to political candidates.
Extra Example: In the 2008 presidential election year, prominent PACs included the American
V. MANAGING SOCIAL RESPONSIBILITY
A. Formal Organizational Dimensions
1. Legal compliance—the extent to which the organization complies with local, state,
federal, and international laws
Global Connection: As noted, international businesses have become frequent contributors in different
countries where they do business. For example, UPS supports national Olympic teams in dozens of
different countries.
B. Informal Organizational Dimensions
1. Organization leadership and culture—The basic culture and leadership practices of an
Chapter 4: The Ethical and Social Environment
Extra Example: Dave Thomas, former CEO of Wendy’s, gave millions of dollars to help needy
2. Whistle blowing—occurs when an employee discloses illegal or unethical conduct by
others within the organization.
Discussion Starter: Several recent corporate scandals, including Enron’s, have been disclosed by
whistle blowers. Ask students whether they agree that women tend to be more ethical than men.
Discussion Starter: Solicit student opinions regarding whistle-blowing. In particular, ask how many of
Extra Example: A popular 1999 movie entitled The Insider (starring Russell Crowe and Al Pacino)
C. Evaluating Social Responsibility
To evaluate a firm’s social performance, an organization can conduct a corporate social audit.
This is a formal and thorough analysis of the effectiveness of the firm’s social performance.
END OF CHAPTER QUESTIONS
Questions for Review
1. Define ethical and unethical behavior. Give three specific examples of ethical behavior and three
specific examples of unethical behavior.
Ethical behavior conforms to generally accepted social norms, while unethical behavior does not.
2. Summarize the basic stances that an organization can take regarding social responsibility.
3. Who are the important stakeholders of your college or university? What does each stakeholder
group get from the school? What does each give to the school?
Stakeholders at most universities would include students, students’ families, professors, staff, unions
4. Describe the formal and informal dimensions of social responsibility.
Chapter 4: The Ethical and Social Environment
Formal dimensions of social responsibility include legal compliance—adherence to laws; ethical
Questions for Analysis
5. What is the relationship between the law and ethical behavior? Can illegal behavior possibly be
ethical?
Organizations can act legally but not ethically. Individuals can act in what they feel is an ethical
6. Where do organizational ethics come from? Describe the contributions made by the organization’s
founder, managers, and workers as well as laws and social norms. Which do you think is most
influential? Why?
An organization’s founder sets the tone for the organization’s ethics, just as they establish the
7. There are many worthy causes or programs that deserve support from socially responsible
companies. In your opinion, which types of causes or programs are the most deserving? Explain
your reasoning.
Students will have a variety of responses. Some may prefer that companies spend money on causes
Questions for Application
8. Since 2000, a number of corporate scandals have been brought to light. Many organizations have
responded by, for example, appointing a chief ethics officer, beginning an ethics training program
for workers, writing a formal code of ethics, or setting up a hotline for whistleblowers. In your
opinion, are these measures likely to increase organizational ethics in the long run? If so, why? If
not, what would be effective in improving organizational ethics?
Students will readily see the difference between “talking the talk” and “walking the walk.” These
Chapter 4: The Ethical and Social Environment
9. Review the arguments for and against social responsibility. On a scale of 1 to 10, rate the validity
and importance of each point. Use these ratings to develop a position regarding how socially
responsible an organization should be. Now compare your ratings and position with those of two of
your classmates. Discuss your respective positions, focusing primarily on disagreements.
Each of the arguments should be given a value from one to ten. Based on the ratings, students
10. Give three specific examples of a way in which the government has influenced an organization.
Then give three specific examples of a way in which an organization has influenced the
government. Do you think the government’s actions were ethical? Were the company’s actions
ethical? Why or why not?
A sample answer could be: “OSHA regularly inspects the plants at Ford Motors to ensure worker
END OF CHAPTER EXERCISES
Building Effective Diagnostic and Decision–Making Skills
I. Purpose
This exercise aids students in developing their diagnostic and decision-making skills in relation to
an ethical business dilemma, focusing on the dilemmas posed by the online publication of music.
II. Format
III. Follow-Up
A. Start by considering each of the stakeholders in the online music publishing industry—
recording artists, recording companies, online file-sharing companies such as Napster, and
Chapter 4: The Ethical and Social Environment
the other hand, want convenient and inexpensive access to music, and they don’t want to lose
their “right” to free exchange of files over the Internet.
B. For each problem, determine the best outcome for each stakeholder.
The “best” outcome depends on how the ethical problem is defined for each stakeholder.
C. For each problem, do you see any way to satisfy the needs of every stakeholder? If yes,
explain how this outcome can be brought about. If no, explain why no mutually beneficial
solution is possible.
Although the needs of differing parties may seem to conflict, there may be an opportunity for
D. In what ways did your own code of ethics influence your various answers to question 2 and
your reasoning in question 3?
Students should recognize that their personal ethics will always effect their approach to
Building Effective Interpersonal Skills
I. Purpose
This exercise is designed to help students develop their interpersonal skills through the analysis of a
realistic ethical dilemma.
II. Format
III. Follow-up
A. Jot down some general notes for your conversation with the male employee.
Answers will vary, but students should consider pointing out to the man how his behavior
if the incidents don’t continue.
B. Jot down some general notes for your conversation with the female employee.
Students will probably mention the need to reassure the woman that she did the right thing by
reporting the problem and to assure her that the organization regrets the incident and will work
to ensure it doesn’t happen again.
C. Make sure that you have a handle on the ethical issues in this situation. Precisely what are they?
D. Consider the options of having the two employees work closely together or keeping them
separated. Which will you choose? Why?
Chapter 4: The Ethical and Social Environment
Students will probably see both sides of this issue. In the short run, separation might reduce
MANAGEMENT AT WORK
SEX, DRUGS, AND RECKLESS CONTROLS
Minerals Management Service (MMS) is an U.S. government agency charged with collecting royalties
paid by companies to extract oil and gas from public lands and also approving drilling for oil. A 2008
investigation indicated that MMS officials had gotten too cozy with oil industry executives by partying
with them. As a consequence of this, U.S. taxpayers lost about $4.4 million. A revamp of the industry did
not change things. A BP application for off-shore drilling in the Gulf of Mexico received approval over
the phone. In light of the disastrous oil spill, the agency was disbanded.
1. Case Question 1: The section on “Managerial Ethics” highlights three sets of relationships involved
in the exercise of managerial ethics – the relationship of the organization to its employees, of its
employees to the firm, and of the firm to other economic agents. Explain how each of these
relationships was a factor in the ethical failings of the Minerals Management service. In your
opinion, which of the three was the biggest factor? Explain your answer.
An organization has to set the right policies for its employees. In turn, employees have to consider
2. Case Question 2: It’s too late now, but if you had been drafted to fix MMS in the wake of the BP
oil spill, how would you have applied the approaches to “Managing Ethical Behavior” discussed in
the text? On which of these approaches would you have focused the most time and energy? Is it
likely that you’d have been successful? Why or why not?
Student responses will vary but issues laid out in the previous question – clearly identifying policies
3. Case Question 3: According to Earthjustice, a non-profit environmental law firm, the BP disaster
happened because “managers weren’t managing, oil companies and regulators were colluding, and
high risk was acceptable risk.” Obviously, problems like those that led up to the BP spill can be
extremely complex. In light of this fact, what, in your opinion, should be the primary
responsibilities of managers at regulatory agencies such as MMS? Of managers at oil companies
such as BP?
Student opinions will vary depending on how they view the organization-government relationship.
Chapter 4: The Ethical and Social Environment