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There is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say engages in free and open competition, without
deception or fraud.
Chapter Roadmap
What Do We Mean by Business Ethics? Where Do Ethical Standards Come From Are They Universal or Dependent on Local Norms and Situational Circumstances? The Three Categories of Management Morality
BUSINESS ETHICS
Key Issues
Should there be a link between a companys efforts to craft and execute a winning strategy and its duties to
Business ethics involves applying general ethical principles and standards to business behavior Ethical principles in business are not different from ethical principles in general
Ethical Universalism
Ethical Relativism
Same standards of what is ethical and what is unethical resonate with peoples of most societies regardless of
Thus, common ethical standards can be used to judge conduct of personnel at companies operating in a variety of
Honesty Trustworthiness Treating people with dignity and respect Respecting rights of others Practicing the Golden Rule Avoiding unnecessary harm to
Draws on collective views of multiple societies and cultures to place clear boundaries on what constitutes
Ethical business behavior and Unethical business behavior Regardless of what country a company is operating in
Whenever basic moral standards do not vary significantly according to local cultural beliefs, traditions, or religious convictions, a multinational company can
Apply a code of ethics more or less evenly across its worldwide operations
Different societies/cultures/countries
Put more/less emphasis on some values than others Have different standards of right and wrong
Must be judged in light of local customs and social mores and Can vary from one country to another
Companies forbidding payment of bribes in their codes of ethics face a formidable challenge in countries where payments are entrenched as a local custom Foreign Corrupt Practices Act prohibits U.S. companies from paying bribes in all countries where they do business
D. should be considered ethically appropriate by a company so long as such payments are normal and customary in the countries where such payments are made. E. may be ethically acceptable according to the principle of ethical relativism if paying bribes and kickbacks is normal and customary practice in a country.
Few ethical absolutes to judge a companys conduct in various countries Plenty of situations where ethical norms are contoured to fit
Local customs and traditions Local beliefs about what is fair Local standards of right and wrong
Ethical problems in business cannot be fully resolved without appealing to the shared convictions of the parties in question
The ethical relativism rule of when in Rome, do as the Romans do presents problems
What if local standards condone kickbacks and bribery? What if local standards blink at environmental degradation?
From a global markets perspective, ethical relativism results in a maze of conflicting ethical standards for multinational companies wanting to address the issue of what ethical standards to enforce companywide
According to the integrative social contracts theory, the ethical standards a company should try to uphold are governed by both
A limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations
and
The circumstances of local cultures, traditions, and shared values that further prescribe what constitutes
Universal ethical principles establish moral free space based on the collective view of multiple societies and cultures Commonly held views about morality and ethical principles combine to form a social contract with society It is appropriate for societies or companies to go beyond universal ethical principles and specify local or secondorder ethical norms
Where firms have developed ethical codes, the standards they call for provide appropriate ethical guidance Social contracts theory maintains adherence to universal or first-order ethical norms should always take precedence over local or second-order norms!
Moral manager
Immoral manager
Amoral manager
Own actions
Considers it important to
Actively opposes ethical behavior in business Willfully ignores ethical principles in making decisions Views legal standards as barriers to overcome Pursues own self-interests Is an example of capitalistic greed Ignores interests of others Focuses only on bottom line making ones numbers Will trample on others to avoid being trampled upon
Believes business and ethics should not be mixed since different rules apply to
Does not factor ethical considerations into own actions since business activity lies outside sphere of moral judgment Views ethics as inappropriate for tough, competitive business world Concept of right and wrong is lawyer-driven (what can we get by with without running afoul of the law)
Is blind to or casual about ethics of decision-making and business actions Displays lack of concern regarding whether ethics applies to company actions Sees self as well-intentioned or personally ethical
Typical beliefs
Amoral or Immoral
Results of the 2005 Global Corruption Report indicate corruption is widespread across the world Corruption extends beyond bribes and kickbacks
Ensure a companys strategy is legal May or may not ensure all elements of strategies are ethical
Use shady strategies if they think they can get by with it Use unethical or borderline business practices Hide ethically questionable actions
Company cultures that place profits and good performance ahead of ethical behavior
People obsessed with wealth accumulation, greed, power, and status often
Push ethical principles aside in their quest for self gain Exhibit few qualms in doing whatever is necessary to achieve their goals Look out for their own best interests Have few scruples and ignore welfare of others Engage in all kinds of unethical strategic maneuvers and behaviors
Managers often feel enormous pressure to do whatever it takes to deliver good financial performance Actions often taken by managers
Cut costs wherever savings show up immediately Squeeze extra sales out of early deliveries Engage in short-term maneuvers to make the numbers Stretch rules to extreme, until limits of ethical conduct are overlooked
Executives feel pressure to hit performance targets since their compensation depends heavily on company performance Fundamental problem with a make the numbers syndrome
Company does not serve its customers or shareholders well by placing top priority on the bottom line
4. Company Culture Places Profits and Good Performance Ahead of Ethical Behavior
Ignore whats right and stretch rules Engage in most any behavior or employ most any strategy they think they can get away with Play down relevance of ethical strategic actions and business conduct
Make ethical mistakes Succumb to the many opportunities to engage in unethical practices and shady behavior
Prevalent at companies whose executives are immoral and unintentionally amoral Notions of right and wrong in business matters are defined by government via prevailing laws and regulations after that, anything goes If the law permits unethical behavior, why stand on ethical principles Companies are usually out to make greatest possible profit at most any cost Strategies used, while legal, may embrace elements that are ethically shady
Favored at companies whose managers are intentionally amoral but who fear scandal May adopt a code of ethics as window-dressing Adept at using spin to explain away the use of unethical strategy elements or discount the impact of shady actions Executives look the other way when shady behavior occurs Executives may condone questionable actions that help a company reach earnings targets or bolster its market standing
Lean toward being somewhat amoral but are highly concerned about having ethically upstanding reputations or Are moral and see strong compliance methods as best way to impose and enforce high ethical standards
Emphasis is on securing broad compliance and measuring degree to which ethical standards are upheld
Avoid cost and damage associated with unethical conduct or Gain favor from stakeholders from having a highly regarded reputation for ethical behavior
Make code of ethics a visible and regular part of communications with employees
Give ethics awards to employees for outstanding efforts to create an ethical climate
Install ethics hotlines to help detect and deter violations
Moral control resides in a companys code of ethics and in the ethics compliance system rather than in
Strong peer pressures for ethical behavior that come from ingraining a highly ethical corporate culture and An individuals own moral responsibility for ethical behavior
Top executives believe high ethical principles must Be deeply ingrained in the corporate culture Function as guides for how we do things around here
Company seeks to gain employee buy-in to Companys ethical standards Business principles Corporate values
Ethical principles in companys code of ethics are Integral to day-to-day operations Promoted as business as usual
An unethical strategy
Is morally wrong
Reflects badly on the character of company personnel
An ethical strategy is
Possess strong moral and ethical characteristics Strongly advocate a corporate code of ethics and strict ethics compliance Display genuine commitment to certain corporate values and business practices Walk the talk in
Displaying a companys stated values Living up to ethical business principles and standards
Adopt values statements/ethics codes that truly paint the white lines for a companys business practices Consciously opt for strategic actions passing moral scrutiny
If ethical standards are to have more than a cosmetic role, boards of directors and top executives must work diligently to see they are scrupulously observed in
Two sets of questions must be considered by senior executives when reviewing a new strategic initiative
Is what we are proposing to do fully compliant with our code of ethical conduct? Is there anything here that could be considered ethically objectionable? Is it apparent this proposed action is in harmony with our core values? Are any conflicts or concerns evident?
The notion that corporate executives should balance interests of all stakeholders began to blossom in the 1960s Social responsibility as it applies to businesses concerns a companys duty to
To benefit shareholders against any possible adverse impacts on other stakeholders To be a good corporate citizen
Corporate philanthropy Actions to earn trust and respect of stakeholders for a firms efforts to improve the general well-being of Customers Employees Local communities Society Environment
The combination of socially responsible endeavors a company elects to pursue defines its social responsibility strategy Management should match responsibility strategy to its
companys
social
Businesses should promote the betterment of society, acting in ways to benefit all their stakeholders because
Grants a business the right to conduct its business affairs Agrees not to unreasonably restrain a business pursuit of a fair profit
Act as a responsible citizen Do its fair share to promote the general welfare
Enhances recruitment of quality employees Increases retention of employees Improves employee productivity Lowers costs of recruitment and trainings
Minimizes costly legal and regulatory actions Provides for increased investments by socially conscious mutual funds and pension benefit managers Focusing on environment issues may enhance earnings
Four different views exist regarding use of company resources by do-good executives in pursuit of a better world
1. 2.
Any money authorized for social responsibility initiatives is theft from a companys shareholders Caution should be exercised in pursuing various societal obligations since this
3.
4.
Social responsibilities are best satisfied through conventional business activities (doing what businesses are supposed to do, which does not include social engineering) Spending money for social causes
Muddies decision making by diluting focus on a firms business mission Thrusts executives into role of social engineers
No widely accepted standard for judging if a company has fulfilled its citizenship responsibilities exists!
Incorporate measures of a companys social and environmental performance into its evaluation of top executives
Use compensation incentives to enlist support of down-theline company personnel to craft and execute a social responsibility strategy
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