The importance of corporate social responsibility surfaced in the 1960s when the activist movement began questioning the singular economic objective of business--existing to maximize profits. It has been a source of contention ever since. For example, was Dow Corning ignoring it social responsibility by marketing breast implants when data indicated that leading silicone could be a health hazard? Were tobacco companies ignoring health risks associated with nicotine and its addictive properties? Times have changed and managers must regularly make decisions about issues that have a dimension of social responsibility.
Few terms have been defined in as many different ways as social responsibility. Most of the debate on definitions has focused on the extremes. On one side, there is the classical or purely economic view that management’s social responsibility is to maximize profits. On the other side stands the socioeconomic position, which holds that management’s responsibility goes well beyond making profits to include protecting and improving society’s welfare.
Exhibit 2-1 lays out the major arguments for and against businesses being socially responsible.
For the purposes of this text, social responsibility is defined as a firm’s obligation that goes beyond that required by law and economics; it includes a firm pursuing long-term goals that are good for society. Social obligation is a company meeting its economic and legal responsibilities but no more. Social responsiveness is the ability of a firm to adapt to changing societal expectations and conditions.
Most of the studies used statements from annual reports as well as news articles about the companies to compile their results. While these sources may not be the most reliable, there is a public perception that companies who behave in a socially responsible way perform better. De Beers is a good example of a company that has a special interest in social responsibility. The diamond supplier has focused a great deal of attention on the competitive advantage of its diamonds that are mined in countries that respect human rights.
Mountain Equipment Co-Op is an organization that is seen as being socially responsible. It places high value on the environment and sells outdoor equipment that helps the customer treat the environment in a responsible manner. MEC also expects its managers to make decisions that are ethically sound.
Utilitarian view of ethics refers to a situation in which decisions are made solely on the basis of their outcomes or consequences. The goal is to provide the greatest good for the greatest number. It encourages efficiency and productivity and is consistent with the goal of profit maximization. It can, however, result in biased allocation of resources.
The rights view of ethics refers to a situation in which the individual is concerned with respecting and protecting individual liberties and privileges, including the rights to privacy, freedom of conscience, free speech, and due process. The positive side of the rights view is that it protects individual freedom and privacy. On the other hand, it can present obstacles to high productivity and efficiency by creating and overly legalistic work climate. The theory of justice view refers to a situation in which an individual imposes and enforces rules fairly and impartially. A manager would be using this perspective in deciding to pay a new entry-level employee $1.50 an hour over the minimum wage because that manager believes that the minimum wage is inadequate. While it does protect the interests of those stakeholders who may be underrepresented or lack power, it can encourage a sense of entitlement that reduces innovation and risk-taking.
People who lack strong moral development are much less likely to do the wrong things if they are constrained by rules, policies, job descriptions, or strong cultural norms that discourage such behaviours. On the other hand, highly moral individuals can be corrupted by an organizational structure and culture that permits or encourages unethical practices.
Eventually, individuals can make a clear effort to define moral principles apart from the authority of the groups to which they belong or society in general. For example, suppose that someone in our class has stolen the final exam and is selling copies for $50 each. You need to do well on this exam or risk failing the course. You expect that some classmates have bought copies--and that could affect any possibility of the exam being “curved” by the instructor. How the person handles this will depend on the person’s stage of moral development.
In addition to a person’s moral development, values that a person has will also influence ethical behaviour. Values are developed in early years by watching and learning from our parents, teachers, and friends. Values represent our basic convictions about what is right and wrong. This means that managers in the same organization may often possess very different personal values. Unlike moral development which can be measured, values are broad and cover a wide range of issues.
While values and moral development are part of personal development, organizational factors can also affect ethical behaviour. The strength of an organization’s culture influences ethical behaviour. An organizational culture most likely to encourage high ethical standards is one that is high in risk tolerance, control, and conflict tolerance. Managers in such cultures are encouraged to be aggressive and innovative, are aware that unethical practices will be discovered, and feel free to openly challenge expectations they consider to be unrealistic or personally undesirable. A strong culture will exert more influence on manages than a weak one. The structural design of an organization also shapes the ethical behaviour of managers. Some structures provide strong guidance and continuously remind managers of what is ethical while others create ambiguity and uncertainty.
The intensity or passion of the issue can influence ethical behaviour as shown above. These 6 characteristics determine how important an ethical issue is to an individual. According to these guidelines, the larger the number of people harmed, the more agreement that the action is wrong, the greater the likelihood that the action will cause harm, the more immediately that the consequences of the action will be felt, the closer the person feels to the victim, and the more concentrated the effect of the action on the victim, the greater the issue intensity. The more important or intense an ethical issue is, the more we should expect managers to behave ethically.
Given the various business scandals in the last several years, companies are refocusing attention on business ethics. The spotlight is not only on the managers who run things, but also on the boards of directors. Corporate governance refers to the mechanisms that make it possible to direct, control, and evaluate a company and its management. Boards also rely on corporate governance to protect the interests and rights of shareholders.
A company’s employee selection process is important to minimizing as much as possible the hiring of individuals with questionable ethical standards. Likewise, organizations can help employees understand ethical expectations with codes of ethics and decision rules. Codes of ethics are formal statements of an organization’s primary values and the ethical rules it expects its employees to follow. We’ll look at these in more detail later on. Managers of all levels set the tone by their own action and behaviours. Therefore it is important to lead by example if the organization wants people to pay attention to ethics. Job goals and performance reviews help reinforce the importance of ethical behaviour. By reviewing performance on a regular basis, a manager can discuss not only the economic goals of the organization but reviewing the manner in which the goals have been achieved.
More and more organizations are setting up seminars, workshops, and similar ethics training programs to encourage ethical behaviour. However, there is much debate about whether people can be taught ethics. Social audits have been designed to evaluate decisions and management practices in terms of the organization’s code of ethics. These audits are usually conducted by individuals outside the organization. Lastly, people can be supported when facing ethical dilemmas. Figure 2-4 provides a decision tree when faced with an ethical dilemma. In addition, a person can look at the mission and values statements or consider the impact of the decision on co-workers.
For codes to have the force and importance, a written introduction by the Chair of the Board and/or CEO is key. People in the organization look to top management as the benchmark of behaviours and actions. Without the support of managers, these become meaningless statements.
There are a variety of things managers have responsibility for relating to codes of ethics. Among those is active involving people in the development of the code to signify the importance the organization places on the code. Also, as has been stated before, managers must support the code by both word and action.
There is some concern that social responsibility and ethics has taken a back seat in business. A survey of employees shows that workplace pressures are leading more and more people to consider acting unethically or illegally on the job. The results indicated that 56% of those surveyed felt pressure to act unethically or illegally while 48% said they had actually committed such activities. But concerns about social responsibility are growing as more and more people understand the impact Canadian businesses have on not just the local community but also the world community. People are concerned about companies that cut corners in order to increase profits but in doing so pollute the environment. Acting ethically is not always easy. However, because society’s expectations of its institutions are changing regularly, managers must continually monitor those expectations. What is ethical today may be a poor guide in the future.