Ethics and Social Responsibility

1
Chapter 3

• Ethics and Social Responsibility

2
What Would You Do?

• PETA v. McDonalds
• Should McDonalds assure that animals are treated
  humanely?
• What ethical guidelines are relevant in this
  situation?

3
Learning ObjectivesEthics
After discussing this section you should be able
to

• discuss how the nature of a management job
  creates the possibility for ethical abuses,
• identify common kinds of workplace deviance,
• describe the 1991 U.S. Sentencing Commission
  Guidelines and how its recommendations now make
  ethical behavior much more important for
  businesses.

4
Ethics and the Nature of Management Jobs

• Ethical behavior follows accepted principles of
  right and wrong
• Intentional managerial unethical behaviors
• company resources for personal use
• mishandling information
• encouraging others unethical behavior

5
Ethics and the Nature of Management Jobs (Contd.)

• Unintentional managerial unethical behavior
• poorly constructed policies
• unrealistic employee goals

6
Workplace Deviance

• Behavior that violates organizational norms about
  right and wrong
• Two dimensions
• Degree of deviance
• minor to serious
• Target of deviant behavior
• the organization or particular people

7
Types of Workplace Deviance

• Production
• Property
• Political
• Personal Aggression

8
Production Deviance

• Hurts the quality and/or quantity of work
• Such as leaving early, taking excessively long
  breaks, etc.

9
Property Deviance

• Unethical behavior aimed at company property
• Such as sabotage, stealing, damaging equipment,
  etc.

10
Political Deviance

• Using ones influence to harm others in the
  company
• Such as favoritism, spreading rumors, falsely
  blaming others, etc.

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Personal Aggression

• Hostile or aggressive behavior toward others
• Such as sexual harassment, verbal abuse,
  threatening others, etc.

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Workplace Deviance
ORGANIZATIONAL

• Production Deviance
• leaving early
• excessive breaks
• working slow
• wasting resources

• Property Deviance
• sabotaging equipment
• accepting kickbacks
• lying about hours worked
• stealing from the company

MINOR
SERIOUS

• Personal Aggression
• sexual harassment
• verbal abuse
• stealing from co-workers
• endangering co-workers

• Political Deviance
• showing favoritism
• gossiping about co-workers
• blaming co-workers
• competing nonbeneficially

INTERPERSONAL
Adapted from Exhibit 3.1
13
U.S. Sentencing Commission Guidelines

• Companies can be prosecuted and punished even if
  management didnt know about the unethical
  behavior
• Who, What, and Why
• Determining Punishment

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Who, What, and Why

• Nearly all businesses - profit and nonprofit- are
  covered
• Punishes a number of actions
• Encourages businesses to be proactive on employee
  crime

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Determining Punishment

• Smaller fines for companies that are proactive
• Steps in determining fine size
• determine the base fine
• compute a culpability score
• multiply the base fine by the culpability score
• Compliance programs are important

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Compliance Program Steps for the 1991 U.S.
Sentencing Guidelines

• Establish standards and procedures to meet the
  companys business needs.
• Put upper-level managers in charge of the
  compliance program.
• Dont delegate decision-making authority to
  employees who are likely to act illegally or
  unethically.
• Use auditing, monitoring, and other methods to
  encourage employees to report violations.
• Use company publications and training to inform
  employees about the companys compliance
  standards and procedures.
• Enforce compliance standards by fairly and
  consistently disciplining violators.
• After violations occur, find appropriate ways to
  improve the compliance program.

Adapted from Exhibit 3.2
17
Learning ObjectivesMaking Ethical Decisions
After discussing this section you should be able
to

• describe what influences ethical decision making,
• explain what practical steps managers can take to
  improve ethical decision making.

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Influences on Ethical Decision Making

• Ethical Intensity of the Decision
• Moral Development of the Manager
• Ethical Principles Used to Solve the Problem

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Ethical Intensity of the Decision

• Magnitude of consequences
• Social consensus
• Probability of effect

• Temporal immediacy
• Proximity of effect
• Concentration of effect

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Moral Development of the Manager
Preconventional Level Stage 1 Punishment
Obedience Stage2 Instrumental Exchange
Conventional Level Stage 3 Good Boy - Nice
Girl Stage 4 Law Order
Post Conventional Level Stage 5 Legal
Contract Stage 6 Universal Principle
Adapted from Exhibit 3.3
Davidson Worrell, Business Society 34 (1995)
171-196
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Principles of Ethical Decision Making

• Principle of Long-term Self-interest
• Principle of Personal Virtue
• Principle of Religious Injunctions
• Principle of Government Requirements

• Principle of Utilitarian Benefits
• Principle of Individual Rights
• Principle of Distributive Justice

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Principle of Long-Term Self-Interest

• People should never take any action that is not
  in their or their organizations long-term
  self-interest
• The key is long-term, not short-term interests

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Principle of Personal Virtue

• People should never do anything that is not
  honest, open, and truthful, and which they would
  not be glad to see reported in the newspapers or
  on TV

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Principle of Religious Injunctions

• People should never take an action that is unkind
  or that harms a sense of community, such as the
  positive feelings that come from working together
  to accomplish a commonly accepted goal.

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Principle of Government Requirements

• The law represents the minimal moral standards of
  society
• People should never take any action that violates
  the law.

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Principle of Utilitarian Benefits

• People should never take any action that does not
  result in greater good for society
• People should do whatever creates the greatest
  good for the greatest number

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Principle of Individual Rights

• People should never take any action that
  infringes on others agreed-on rights

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Principle of Distributive Justice

• People should never take any action that harms
  the least among us in some way

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Practical Steps to Ethical Decision Making

• Selecting and Hiring Ethical Employees
• Codes of Ethics
• Ethics Training
• Ethical Climate

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Selecting and Hiring Ethical Employees

• Increase ethical behaviors by hiring more ethical
  employees
• Testing for ethics
• Overt integrity tests
• Personality-based integrity tests

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What Really Works?
Workplace Deviance (Counterproductive Behaviors)
Overt Integrity Tests Workplace Deviance
10 20 30 40 50 60 70 80 90 100
82
Probability of success
Personality-Based Integrity Tests Workplace
Deviance
10 20 30 40 50 60 70 80 90 100
Probability of success
68
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What Really Works? (Contd.)
Job Performance
Overt Integrity Tests Job Performance
10 20 30 40 50 60 70 80 90 100
Probability of success
69
Personality-Based Integrity Tests Job
Performance
10 20 30 40 50 60 70 80 90 100
Probability of success
70
33
What Really Works? (Contd.)
Theft
Overt Integrity Tests Job Performance
10 20 30 40 50 60 70 80 90 100
Probability of success
57
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Codes of Ethics

• Corporate statements on ethics
• The relationship between codes and behavior
  depend on
• companies communicating the codes to others both
  within and outside the company
• companies developing practical ethical standards
  and procedures specific to the companys line of
  business

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Ethics Training

• Develop employee awareness about ethics
• Achieve credibility with employees
• Teach employees a practical model of ethical
  decision making

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A Basic Model of Ethical Decision Making
Identify the problem
Identify the constituents
Diagnose the situation
Analyze your options
Make your choice
Act
Adapted from Exhibit 3.5
37
Managers act ethically
Managers are active in the ethics program
Ethical Climate
An effective reporting system
Fairly and consistently punish violators
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Learning ObjectivesSocial Responsibility
After discussing this section you should be able
to explain

1. to whom organizations are socially responsible,
2. for what organizations are socially responsible,
3. how organizations can choose to respond to
   societal demands for social responsibility,
4. whether social responsibility hurts or helps an
   organizations economic performance.

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To Whom Are Organizations Socially Responsible?

• Shareholders
• managers must satisfy the owners
• social responsibility is maximizing shareholder
  wealth
• Stakeholders
• persons with a legitimate interest in the company
• social responsibility is satisfying the interests
  of multiple stakeholders

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Been There, Done That
Anita Roddick, founder and co-chair of The Body
Shop International PLC

• Large multinational corporations are the cause of
  many social problems
• Businesses should be audited socially
  environmentally
• She is an activist against corporate corruption

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Shareholders Only - Friedman

• Managers cannot act effectively as moral agents
  for shareholders
• Time, money, and attention diverted to social
  causes undermine market efficiency

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Stakeholder View
special interests
Primary Stakeholders
media
Company
government
shareholders
suppliers
employees
Secondary Stakeholders
customers
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For What Are Organizations Socially Responsible?
Legal Responsibilities
Discretionary Responsibilities
Economic Responsibilities
Ethical Responsibilities
Adapted from Exhibit 3.8
Carroll, Academy of Management Review 4 (1979)
497-505
44
Blast From The Past100 Years of Corporate
Philanthropy

• 1800s - doctrine of ultra vires
• Benefits to employees allowed in late 19th
  century
• 1940s corporate philanthropy took place
• Now, U.S. companies donate approximately 6
  billion a year

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Responses to Demands for Social Responsibility
Reaction
Defense
Accommodation
Proaction
Do only what is required
Be Progressive
Lead the industry
Fight all the way
Public Relations Approach
Withdrawal
Legal Approach
Bargaining
Problem Solving
Do Nothing
Do Much
Adapted from Exhibit 3.9
Carroll, Academy of Management Review 4 (1979)
497-505
46
Social Responsibility and Economic Performance

• Social responsibility can sometimes cost a
  company significantly if it chooses to be
  socially responsible
• Sometimes it does pay to be socially responsible
• While socially responsible behavior may be the
  right thing to do, it does not guarantee
  profitability

47
What Really Happened?

• McDonalds formed the Animal Advisory Council
• Developed Animal Welfare Guiding Principles
• McDonalds changed their egg purchasing practices