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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 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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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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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
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

 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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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 self-interest 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
shift 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
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.