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In the previous section you studied meaning, objectives, classification of business and the
business environment. So, by now I hope you have understood and exposed to what is business,
and done in text questions and activities. In this chapter, we discuss the concepts of social
responsibility and business ethics. First we examine business ethics, guidelines for making
ethical decisions, the factors that influences ethics, and ways to encourage ethical behavior. Next
we examine the meaning and importance of social responsibility. Finally we describe the
responsibility of business firms to customers, employees, owners, and the environment.


After studying this section, you should be able to.

 Define ethics and business ethics

 List and describe the factors influencing business ethics
 Discuss guidelines for making ethical decisions
 Explain the meaning and importance of social responsibility
 Outline the responsibilities firms have to employees, customers owners and environment


The conduct of individuals, groups and society is governed by a set of valves, beliefs, norms, and
principles that are known collectively as “ethics.”

Most of us, without consciously thinking about them, conduct our lives by set of rules which we
rarely, if ever, question and which we have absorbed and assimilated as we have grown to adult

Ethical behavior is, by and large, governed by ideas of taking responsibility for one’s action, with
individuals seeing themselves acting as part of a wider community and wing something to
society at large. We have clear ideas about what is right and what is wrong; what is fair and what
is unfair; what confers status and what reduces status.
Generally, ethics involves learning what is right and wrong, and then doing the right thing.
Many philosophies consider ethics to be the science of “conduct; values which guide how we
ought to behave are considered moral values, example values such as respect, honesty, fairness,
responsibility etc.

? In your view what does ethics mean?


The concept has come to mean various things to various people, but generally it is about
knowing what is right or wrong in the work place and doing what is right this is in regard to
effects of products.

The role and sate of ethics in business is a growing, concern among managers and the public.
First, business activities involve an unethical activities by several business firms. Over the past
decade, some business firms have involved in illegal behavior such as misleading advertisement,
cheating customers, unfair credit practices, prejudice in hiring and promotion and under
payment of employees. These have led individuals and manager to believe that the level of
ethics in business should be emphasized.

Second business ethics have become a topic of concern for various medias because it is realizing
that ethical misconduct by management can be extremely costly for the company and for the
society as a whole.

Third, both managers and the public are realizing that the dynamics of ethics in management
decision making are an often complex and challenging phenomenon determining what is and
isn’t ethical is often difficult to do. In some situation, that accepting bribes from a supplier is or
dishonest advertising in promoting a product. However, the ethics of a business situation often
are more complex.

Every day, managers face ethical questions that have no easy answers. What, for example, is a
fair “profit? What is a “just” price for a product? How” honest” should a company be with the

Because the ethics of managerial decision-making are often complex and managers often
disagree on what constitutes an ethical decision, two subjects are particularly relevant.

1. The basis that the individual manager, can use for determining which a decision-making
situation, and
2. What organizations can do to ensure that mangers follow ethical standards in their

We discuss these topics in the following sub topics.

Ethical standards


There are many laws that regulate business practice. These include wage and salary legislation
by federal and state government that set the minimum wage and salary that business firms should
pay to their employees on the basins of their qualifications. The equal employment opportunity
rule by the government can be used as a standard for hiring and promoting of employees. The
environmental protection authority formulates rules and procedures to protect the environment
against pollution that the factory may release to the environment. So reliance up on laws is a
basis for ethical decisions.

3. Code of ethics

In recent years, it has become increasingly popular for enterprises to have their own ethical
codes. These codes of ethics may clarify what behavior is appropriate and what is not. Code of
ethics usually consists of a written statement of a company’s values, beliefs, and norms of ethical
behavior. This specifies its values and beliefs concerning its relationships and responsibilities
towards its different constituents (i.e., customers, employees, community and owners. Ideally, a
code of ethics should provide employees with direction in dealing with ethical dilemmas, clarify
the organization’s positions regarding areas of ethical uncertainty, and achieve and maintain
overall ongoing conduct that the organization views as ethical and proper.

3. Personal Morality

Personal morality is personal standards of conduct-individual commitment to values that respect

human right, and dignity, personal integrity and moral sensitivity, capable to adhere to
organizations codes of ethics, and understanding the legal statements of socially responsible
conduct. Managers or individuals who would evaluate alternative actions or make decisions in
terms of personal benefits are behaved unethically.

? Suppose you are a consultant, you learn a lot of confidential things about your clients
operations, business plans, and strategies. If, you leak this information to your client’s
competitors, is your action ethical or unethical? Explain.
Next, we consider some of the guidelines for making ethical decisions.

Guidelines for making Ethical Decisions

Managers must reconcile competing values in making decisions. They make decisions that
have consequence for themselves, the organizations that employee them, and the society in
which they and the organization exist. The following ideas provide you guidelines to make
ethical decisions.

Listen and learn

Recognize the problem or decision-making opportunity that confronts your company, team or
unit. Don’t argue, criticize, or defend yourself-keep listening and reviewing until you are
sure you understand others

Identify the ethical issues examine how coworker and consumers are affected by the situation or
decision at hand. Examine how you feel about the situation and understand the viewpoint of
those who are involved in the decision or the consequences of the decision.
Create and analyze options try to put aside strong feelings such as anger or desire for something
and come up with as many alter natives as possible before developing an analysis. Ask every
one involved for ideas about which option offer the best long-term results for you and the
company. Which option will increase your self-respect, and your company’s good will even if in
the long run, things do not work out the way you hope?
Identify the best option from your point of view. Consider it and test it against some established
criteria, such as respect, understanding, caring, fairness, honesty, and openness.
Explain your decision and resolves any difference that arise.

This may require neutral arbitration from a trusted mangers or taking “time out” to reconsider,
consult, or exchange written proposals before a decision is reached.

3.4. Factors influencing ethical behavior.

To encourage ethical behavior, executives, mangers, and owners, and owners of firms must
understand what influences behavior in business: the business environment, organizational
factors, and an individual’s personal moral philosophy.

3.4.1. The business environment:

Almost daily, business managers face ethical dilemmas resulting from the pressures of the
business environment. They are challenged to meet sales quotas, cut cost, increase efficiency, or
over take competitors. Managers and employees may sometimes think the only way to survive
in the competitive world of business is by deception or cheating.

Conflict of interest is another common ethical problem stemming from the business
environment. Often an individual has a chance to further selfish interests rather than the interests
of the organization or society. To gain favor with people who make purchasing decisions for
their companies, a seller may offer special favors or gifts or bribes. Such an illegal conduct will
damage the organization in the long run. In order to limit unethical behavior, business firms
must begin by expecting their employees to obey all laws and regulations.

3.4.2. The Organization

The organization itself also influences behavior. Individual often learn ethical or unethical
behaviors by interacting with others in the organization. An employee who sees a superior or co-
worker behaving unethically may follow suit. From an ethical point of view, superiors can be
models of negative as well as positive behavior. In addition, they may implicitly, or even
explicitly, encourage or demand unethical behavior on the part of their subordinates. Peers can
also be a source of ethical support as well as ethical compromise. Subordinates can exert a lot of
pressure on managers themselves. This issue most often takes the form of falsification of
documents and reports to superiors. Besides, they may also be a major source of pressure to
behave unethically.

3.4.3. The individual morality

A person’s own moral philosophy also influences his or her ethical behavior. A moral philosophy
is the set of principles that dictate acceptable behavior. These principles are learned from family,
friends, co-workers, and other social groups and through formal education.

Fig. Source of ethical standards influence

The organization

 Codes of ethics
 Superiors
 Peers/colleagues
 Subordinates
 Enterprise objectives
Ethical Behavior

The individual The business environment

 Family . Medias
 Religion . Government
 Friends . Society
 Culture . Competitors
. Suppliers

3.5. Encouraging Ethical Behavior.

Many organizations take positive steps to encourage ethical behavior. Some offer courses in
ethics and include ethics in training programs, which will focus on how to analyze ethical

The basic way for an organization to encourage ethical behavior is to establish a code of ethics.
A code of ethics is a statement specifying exactly what the organization considers ethical

Employees of an organization can also encourage ethical behavior by reporting unethical

practices. Employees can inform their superiors, the media, or a government regulatory agency
about unethical behavior within their organization.

3.6. Social Responsibility

Business firms conduct activities to produce goods and services and to generate profits. These
activities greatly affect over society.

Social responsibility is the awareness that business activities have an impact on society, and the
consideration of that impact by firms in decision-making. Besides emphasizing profits, firms
concerned with social responsibility voluntarily engage in activities that benefit society. A
socially responsible firm makes deliberate, regular efforts to increase its positive impact an
society while reducing its negative impact.

Social responsibility raises many challenging questions for business firms. To whom are we
responsible? How far should we go to satisfy our customer and achieve organizational
objectives? Will our decisions affect any segments of society that we have not considered?
Decision makers in every type and size of firm must address many such questions, which rarely
have simple answers. Business activities have an impact on customers, employees, the
environment, and those investing in the firm. Socially responsible firms weight the
consequences of their decisions on these different concerns.


Recently different authors of social responsibility literatures identify three general meanings of
social responsibility: Social obligation, social reaction, and social responsiveness.

Social Responsibility as social obligation

According to this view, a business firms engages in socially responsible behavior when it pursues
a profit with in the constraints of law as imposed by society. Because society supports business
by allowing it to exist, business is obligated to repay society for that right by making profits.

This view is associated with some economist and others who believe that society creates business
firms to pursue special and specialized purposes producing goods and services. As economist
Milton Friedman stated: “There is one and only one social responsibility of business-to use its
resources and engage in activities designed to increase it profits so long as it stays with in the
rule of the game, which is to say, engages in open and free competition with out deception or

Proponents of social obligation as social obligation offer the following primary arguments in
support of their views.

First, they assert, businesses are accountable to their shareholder, the owners of the corporation.
Thus, management’s sole responsibility is to serve the owners’ interests by managing the
company to produce profits from which the owner benefits.

Second, socially responsible activities such as social improvement programs should be

determined by law, by public policy, and by actions and contributions of private individuals. As
representatives of the people, the government is best equipped to determine the nature of social
improvements and to realize those improvements in society. Businesses contribute in this regard
by paying taxes to the government, which right fully determines how they should be spent.
Third, if management allocates profits to social improvements activities, it is abusing its
authority. As Friedman notes, these actions amount to taxation with out representation.
Management is taxing the owners by taking their profits and spending them on activities that
have no immediate profitable return to the company.

Fourth, these actions by management may work to the disadvantage of society. In this sense, the
financial costs of social activities may over time cause the price of the company’s goods and
services to increase, and customers would pay the bill.

Although many people disagree with this meaning of social responsibility, a business discharges
its obligation to society by creating goods and services in exchange for profit with in the limits
defined by law.

Social Responsibility as Social Reaction

A second meaning of social responsibility is behavior that is in reaction to prevailing social

norms, values, and performance expectations. This pervasive view emphasizes that society has
expectation for business and corporate behavior that go beyond the provision of goods and
services. At minimum, business must be accountable for the ecological, environmental, and
social costs incurred by its actions at maximum, business must react and contribute to solving
society’s problems even those that can not be directly attributed to business.

A somewhat restrictive interpretation of social responsibility as social reaction is that it involves

only voluntary actions. This interpretation seeks to separate business legal imperative and those
that are initiative by voluntary motives. According to this view social responsibility goes beyond
the law. A firm is not being socially responsible if it merely complies with the minimum
requirements of the law social responsibility goes one step further.

Whether the firm’s actions are voluntary or involuntary, a brooder interpretation of the social
reaction view identifies as socially responsible those actions that go beyond the law. Typically,
these actions are reactions to the expectation of specific groups-unions, shareholders, social
activities, consumerists, and the like. The essence of this view of social responsibility is that
firms are reactive. Demands are made of them by them certain groups, and the firms are socially
responsible when they react, whether voluntarily or involuntarily, to satisfy these demands.

This meaning is unsatisfactory for those who believe social responsibility for those who believe
social responsibility should refer to proactive behavior.

Social Responsibility as social responsiveness

-According to this view, socially responsible behaviors are anticipatory and preventive rather
than reactive and restorative. The tem social responsiveness has become widely used in recent
years to refer to actions that go beyond social obligation and social reaction. The characteristics
of socially responsive behavior include taking stands on public issues, accounting willingly for
actions to any groups, anticipating future needs of society and moving towards satisfying them.
A socially responsive business enterprise actively seeks ways to and their organizations in a
position of responsibility for removed from the traditional one of being concerned solely with
economic means and ends.

Business’s growing involvement in providing education, and solving society’s providing

education, and solving society’s problems such as poverty, unemployment, pollution, inflation
and crime and there by improving the quality of life for every one.

? Which of the three meaning of social responsibility reflects your opinion?

Social Responsibility as social responsiveness

According to this view, socially responsible behaviors are anticipatory and preventive rather than
reactive and restorative. The tem social responsiveness has become widely used in recent years
to refer to actions that go beyond social obligation and social reaction. The characteristics of
socially responsive behavior include taking stands on public issues, accounting willingly for
actions to any groups, anticipating future needs of society and moving towards satisfying them.
Socially responsive business enterprises actively seek ways to and their organizations in a
position of responsibility for removed from the traditional one of being concerned solely with
economic means and ends.

Business’s growing involvement in providing education, and providing education, and solving
society’s problems such as poverty, unemployment, pollution, inflation and crime and there by
improving the quality of life for every one.

? Which of the three meaning of social responsibility reflects your opinion?


So far, the discussion has revolved around abstract concepts of social responsibility. However,
recently an organization translates these abstract concepts of social responsibility in to concrete
expressions via specific, deliberate activities. So socially responsive can be classified in the
following ways.

When you make a purchase, you cast a vote for a product and indicate your approval of the
product and the company providing it. If your are satisfied with the product, you will buy and
use it again and may be recommend it to your friend. Consumers offer business organizations
the opportunity to carry out their business activities. There fore, business organizations are
responsible to the consumers which includes the right to safety, the right to be informed, the right
to choose, and the right to be heard. THE RIGHT TO SAFETY

The most basic consumer right is to products that are safe to possess and use. To ensure safety of
goods, manufacturers should test them and provide buyers with explicit directions for use.
Producers are obligated to protect customers against supplying, defective product, poison food
items and potentially dangerous products. Customers have the right to take the cause to the court
and then can claim compensation if products cause injury, health problem or death on then.

? Did you return a product to the seller which you found defective? The right to be informed received information available about a product before
they purchase it. Necessary information for goods includes ingredients and detailed
instruction for use. To aid shoppers making decisions in the supermarket, many food
producers list nutritional information on product labels for certain foods. Customers
seeking a loon from a blank for example, should be told of all costs and repayment terms
associated with the loan. THE RIGHT TO CHOOSE

Consumers have the right to choose and make purchases from a variety of products at
competitive prices. They also have the right to expect quality service at a fair price.


Like consumers, employees hold certain expectations of business firms. They expect safe
working conditions, fair compensation, equal opportunities, and adequate benefits. Business
firms’ responsibilities to employees can be minimally discharged by meeting the legal
requirements that relates to wage and hour provisions, working condition and unionization, and
the like. In addition to these responsibilities, the modern corporate practice of providing triangle
benefits-retirement funds, health and hospitalization insurance, and accident insurance.
A company may also assume other socially responsible activities such as providing
comprehensive employee training, career development, and counseling and establishing
employee assistance programs to help employees with drug and alcohol problems.

? Identify organizations in recent events whose action you believe to be notable expressions of
social responsibility.


The public is concerned with the impact of business decisions and actions an ecology and the
environment. Day 1990 raised public concern for the environment to anew level and began what
many people believe will be the decade of the environment. Socially responsible mangers join
consumers in this concern and take active measures to protect the environment.

One vital environment concern is pollution, the contamination of water, air, and land.

The dumping of toxic chemicals, sewage, and garbage in to rivers and streams causes water
pollution. Air pollution is caused by carbon monoxide that comes from motor vehicles and by
smoke and other pollutants from manufacturing plants. Finally, land pollution results from strip
mining of coal and minerals, forest fires, garbage disposal, and dumping of industrial wastes,
including chemicals. Land pollutions often results in water pollution because toxic wastes drain
in to water supplies. So business firm as partner of government and the public must be trying to
solve the problems of garbage disposal and land pollution and water pollution.


Business firms also have a responsibility to the people who invest money in them. Firms have a
responsibility to manage funds properly so as to return a fair profit to investors owners. Firms
have also the responsibility to make operation information available to all existing owner and
potential investors.