Ch no. 5 Social Responsibility and Managerial Ethics

1. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–1
SocialSocial
Responsibility andResponsibility and
Managerial EthicsManagerial Ethics
ChapterChapter
55
Management
Stephen P. Robbins Mary Coulter
tenth edition

2. Social ResponsibilitySocial Responsibility
• Social Responsibility:Social Responsibility: the manager’s duty tothe manager’s duty to
nurture, protect and enhance the welfare ofnurture, protect and enhance the welfare of
stakeholders.stakeholders.
 Obstructionist response:Obstructionist response: managers choose not to bemanagers choose not to be
socially responsible.socially responsible.
 Defensive response:Defensive response: managers stay within the law butmanagers stay within the law but
make no attempt to exercise additional socialmake no attempt to exercise additional social
responsibility i.eresponsibility i.e Social ObligationSocial Obligation
 Accommodative response:Accommodative response: managers realize the needmanagers realize the need
for social responsibility. Also calledfor social responsibility. Also called socialsocial
responsivenessresponsiveness
 Proactive response:Proactive response: managers actively embracemanagers actively embrace
social responsibility.social responsibility. 5–2

3. 5–3
From Obligation to ResponsivenessFrom Obligation to Responsiveness
to Responsibilityto Responsibility
• Social Obligation (Defensive Approach)Social Obligation (Defensive Approach)
 The obligation of a business to meet its economic and legalThe obligation of a business to meet its economic and legal
responsibilities and nothing more.responsibilities and nothing more.
• Social Responsiveness (Accommodative Approach)Social Responsiveness (Accommodative Approach)
 When a firm engages in social actions in response to someWhen a firm engages in social actions in response to some
popular social need based on norms and values e.g culturalpopular social need based on norms and values e.g cultural
heritage and community service, demanded by society, eg childheritage and community service, demanded by society, eg child
care for employees, urging community to do some good bycare for employees, urging community to do some good by
newspaper etc.newspaper etc.
• Social Responsibility (Proactive Approach)Social Responsibility (Proactive Approach)
 A business’s intention, beyond its legal and economicA business’s intention, beyond its legal and economic
obligations, to do the right things and act in ways that are goodobligations, to do the right things and act in ways that are good
for society. E.g power company urging to reduce use offor society. E.g power company urging to reduce use of
electricity,electricity,

4. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–4
What Is Social Responsibility?What Is Social Responsibility?
• The Classical ViewThe Classical View
 Management’s only social responsibility is toManagement’s only social responsibility is to
maximize profits (create a financial return) bymaximize profits (create a financial return) by
operating the business in the best interests of theoperating the business in the best interests of the
stockholders (owners of the corporation).stockholders (owners of the corporation).
 Expending the firm’s resources on doing “social good”Expending the firm’s resources on doing “social good”
unjustifiably increases costs that lower profits to theunjustifiably increases costs that lower profits to the
owners and raises prices to consumers.owners and raises prices to consumers.

5. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–5
What Is Social Responsibility?What Is Social Responsibility?
• The Socioeconomic ViewThe Socioeconomic View
 Management’s social responsibility goes beyondManagement’s social responsibility goes beyond
making profits to include protecting and improvingmaking profits to include protecting and improving
society’s welfare.society’s welfare.
 Corporations are not independent entities responsibleCorporations are not independent entities responsible
only to stockholders.only to stockholders.
 Firms have a moral responsibility to larger societyFirms have a moral responsibility to larger society
(Stake holders) to become involved in social, legal,(Stake holders) to become involved in social, legal,
and political issues.and political issues.
 ““To do the right thing”To do the right thing”

6. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–6
Exhibit 5–2Exhibit 5–2 Arguments For and Against Social ResponsibilityArguments For and Against Social Responsibility
• ForFor
 Public expectationsPublic expectations
 Long-run profitsLong-run profits
 Ethical obligationEthical obligation
 Public imagePublic image
 Better environmentBetter environment
 Discouragement of furtherDiscouragement of further
governmental regulationgovernmental regulation
 Balance of responsibilityBalance of responsibility
and powerand power
 Stockholder interestsStockholder interests
 Possession of resourcesPossession of resources
 Superiority of preventionSuperiority of prevention
over curesover cures
• AgainstAgainst
 Violation of profitViolation of profit
maximizationmaximization
 Dilution of purposeDilution of purpose
 CostsCosts
 Too much powerToo much power
 Lack of skillsLack of skills
 Lack of accountabilityLack of accountability

7. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–7
Does Social Responsibility Pay?Does Social Responsibility Pay?
• Studies appear to show a positive relationshipStudies appear to show a positive relationship
between social involvement and the economicbetween social involvement and the economic
performance of firms.performance of firms.
 Difficulties in defining and measuring “socialDifficulties in defining and measuring “social
responsibility” and “economic performance” raiseresponsibility” and “economic performance” raise
issues of validity and causation in the studies.issues of validity and causation in the studies.
 Mutual funds using social screening in investmentMutual funds using social screening in investment
decisions slightly outperformed other mutual funds.decisions slightly outperformed other mutual funds.
• A general conclusion is that a firm’s socialA general conclusion is that a firm’s social
actions do not harm its long-term performance.actions do not harm its long-term performance.

8. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–8
The Greening of ManagementThe Greening of Management
• The recognition of the close link between anThe recognition of the close link between an
organization’s decision and activities and itsorganization’s decision and activities and its
impact on the natural environment.impact on the natural environment.
 Global environmental problems facing managers:Global environmental problems facing managers:
 Air, water, and soil pollution from toxic wastesAir, water, and soil pollution from toxic wastes
 Global warming from greenhouse gas emissionsGlobal warming from greenhouse gas emissions
 Natural resource depletionNatural resource depletion
 http://www.businesspundit.com/25-big-companies-that-are-going-grhttp://www.businesspundit.com/25-big-companies-that-are-going-gr

9. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–9
How Organizations Go GreenHow Organizations Go Green
• Legal (or Light Green) ApproachLegal (or Light Green) Approach
 Firms simply do what is legally required by obeying laws, rules,Firms simply do what is legally required by obeying laws, rules,
and regulations willingly and without legal challenge.and regulations willingly and without legal challenge.
• Market ApproachMarket Approach
 Firms respond to the preferences of their customers forFirms respond to the preferences of their customers for
environmentally friendly products.environmentally friendly products.
• Stakeholder ApproachStakeholder Approach
 Firms work to meet the environmental demands of multipleFirms work to meet the environmental demands of multiple
stakeholdersstakeholders——employees, suppliers, and the community.employees, suppliers, and the community.
• Activist ApproachActivist Approach
 Firms look for ways to respect and preserve environment and beFirms look for ways to respect and preserve environment and be
actively socially responsible.actively socially responsible.

10. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–10
Exhibit 5–4Exhibit 5–4 Green ApproachesGreen Approaches
Source: Based on R.E. Freeman. J. Pierce, and R. Dodd. Shades of Green:
Business Ethics and the Environment (New York: Oxford University Press, 1995).

11. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–11
Evaluating the Greening ofEvaluating the Greening of
ManagementManagement
• Organizations become “greener” byOrganizations become “greener” by
 Using the Sustainability Reporting Guidelines toUsing the Sustainability Reporting Guidelines to
document “green” actions.document “green” actions.
 Adopting ISO 14000 standards for environmentalAdopting ISO 14000 standards for environmental
management.management.
 Being named as one of the 100 Most SustainableBeing named as one of the 100 Most Sustainable
Corporations in the World.Corporations in the World.

12. Managerial EthicsManagerial Ethics
• Stakeholders:Stakeholders: people or groups that have anpeople or groups that have an
interest in the organization.interest in the organization.
 Stakeholders include employees, customers,Stakeholders include employees, customers,
shareholders, suppliers, and others.shareholders, suppliers, and others.
 Stakeholders often want different outcomes andStakeholders often want different outcomes and
managers must work to satisfy as many as possible.managers must work to satisfy as many as possible.
• Ethics:Ethics: a set of beliefs about right and wrong.a set of beliefs about right and wrong.
 Ethics guide people in dealings with stakeholders andEthics guide people in dealings with stakeholders and
others, to determine appropriate actions.others, to determine appropriate actions.
 Managers often must choose between the conflictingManagers often must choose between the conflicting
interest of stakeholders.interest of stakeholders.

13. EthicsEthics
Principles, values, and beliefs that define what is rightPrinciples, values, and beliefs that define what is right
and wrong behaviorand wrong behavior
It is difficult to know when a decision is ethical. HereIt is difficult to know when a decision is ethical. Here
is a good test:is a good test:
Managerial ethicsManagerial ethics:: If a managerIf a manager makesmakes
a decision falling within usual standards,a decision falling within usual standards,
is willing to personally communicate theis willing to personally communicate the
decision to stakeholders, and believesdecision to stakeholders, and believes
friends would approve, then it is likely anfriends would approve, then it is likely an
ethical decision.ethical decision.

14. Ethical ModelsEthical Models
Social Ethics:
Legal rules, customs
Professional Ethics:Professional Ethics:
Values in workplaceValues in workplace
Individual Ethics:Individual Ethics:
Family influenceFamily influence
Organization’sOrganization’s
Code of EthicsCode of Ethics

15. Ethical OriginsEthical Origins
• Societal Ethics:Societal Ethics: standards that members ofstandards that members of
society use when dealing with each other.society use when dealing with each other.
 Based on values and standardsBased on values and standards found in society’sfound in society’s
legal rules, norm, and mores.legal rules, norm, and mores.
 Codified in the form of lawCodified in the form of law and society customs.and society customs.
 Norms dictate how people should behave.Norms dictate how people should behave.
• Societal ethics vary based on a given society.Societal ethics vary based on a given society.
 Strong beliefs in one country may differ elsewhere.Strong beliefs in one country may differ elsewhere.
 Example: bribesExample: bribes are anare an accepted business practice inaccepted business practice in
some countries.some countries.

16. Ethical OriginsEthical Origins
• Professional ethics:Professional ethics: values and standards used byvalues and standards used by
groups of managers in the workplace.groups of managers in the workplace.
 Applied when decisions are not clear-cut ethically.Applied when decisions are not clear-cut ethically.
 Example: physicians and lawyers have professionalExample: physicians and lawyers have professional
associations that enforce these.associations that enforce these.
• Individual ethics:Individual ethics: values of an individual resultingvalues of an individual resulting
from their family& upbringing.from their family& upbringing.
 If behavior is not illegal, people will often disagree on if itIf behavior is not illegal, people will often disagree on if it
is ethical.is ethical.
 Ethics of top managers set the tone for firms.Ethics of top managers set the tone for firms.

17. Ethical DecisionsEthical Decisions
• A key ethical issue is how toA key ethical issue is how to disperse harm anddisperse harm and
benefits among stakeholdersbenefits among stakeholders..
 If a firm is very profitable for two years, who shouldIf a firm is very profitable for two years, who should
receive the profits? Employees, managers andreceive the profits? Employees, managers and
stockholders all want a share.stockholders all want a share.
 Should we keep the cash for future slowdowns?Should we keep the cash for future slowdowns?
What is the ethical decision?What is the ethical decision?
• What about the reverse, when firms must layoffWhat about the reverse, when firms must layoff
workers.workers.
• Final point:Final point: stockholders are the legal owners ofstockholders are the legal owners of
the firm!the firm!

18. Ethical DecisionsEthical Decisions
• Some other issues managers must consider.Some other issues managers must consider.
 Should you hold payment to suppliers as long asShould you hold payment to suppliers as long as
possible to benefit your firm?possible to benefit your firm?
 This will harm your supplier who is a stakeholder.This will harm your supplier who is a stakeholder.
 Should you pay severance pay to laid off workers?Should you pay severance pay to laid off workers?
 This may decrease the stockholder's return.This may decrease the stockholder's return.
 Should you buy goods from overseas firms that hireShould you buy goods from overseas firms that hire
children?children?
 If you don’t the children might not earn enough money to eat.If you don’t the children might not earn enough money to eat.

19. Why Behave Ethically?Why Behave Ethically?
• Managers should behave ethically to avoidManagers should behave ethically to avoid
harming others.harming others.
 Managers are responsible for protecting and nurturingManagers are responsible for protecting and nurturing
resources in their charge.resources in their charge.
• Unethical managers run the risk for loss ofUnethical managers run the risk for loss of
reputation.reputation.
 This is a valuable asset to any manager!This is a valuable asset to any manager!
 Reputation is critical to long term managementReputation is critical to long term management
success.success.
 All stakeholders are judged by reputation.All stakeholders are judged by reputation.

20. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–20
Ethics in an International ContextEthics in an International Context
• Ethical standards are not universal.Ethical standards are not universal.
 Social and cultural differences determine acceptableSocial and cultural differences determine acceptable
behaviors.behaviors.
• Foreign Corrupt Practices ActForeign Corrupt Practices Act
 Makes it illegal to corrupt a foreign official, yet “token”Makes it illegal to corrupt a foreign official, yet “token”
payments to officials are permissible when doing so ispayments to officials are permissible when doing so is
an accepted practice in that country.an accepted practice in that country.
• The Global CompactThe Global Compact

21. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–21
Exhibit 5–8Exhibit 5–8 Ten Principles of the United NationsTen Principles of the United Nations
Human Rights
Principle 1: Support and respect the protection of international human rights within their
sphere of influence.
Principle 2: Make sure business corporations are not complicit in human rights abuses.
Labor Standards
Principle 3: Freedom of association and the effective recognition of the right to collective
bargaining.
Principle 4: The elimination of all forms of forced and compulsory labor.
Principle 5: The effective abolition of child labor.
Principle 6: The elimination of discrimination in respect of employment and occupation.
Environment
Principle 7: Support a precautionary approach to environmental challenges.
Principle 8: Undertake initiatives to promote greater environmental responsibility.
Principle 9: Encourage the development and diffusion of environmentally friendly
technologies.
Principle 10: Businesses should work against corruption in all its forms, including extortion
and bribery.
Source: Courtesy of Global Compact.

22. 5–22
How Managers Can Improve EthicalHow Managers Can Improve Ethical
Culture in An OrganizationCulture in An Organization
1.1. Hire individuals with high ethical standards.Hire individuals with high ethical standards.
2.2. Establish codes of ethics and decision rules.Establish codes of ethics and decision rules.
3.3. Lead by example.Lead by example.
4.4. Set realistic job goals and include ethics inSet realistic job goals and include ethics in
performance appraisals.performance appraisals.
5.5. Provide ethics training.Provide ethics training.
6.6. Conduct independent social audits.Conduct independent social audits.
7.7. Provide support for individuals facing ethicalProvide support for individuals facing ethical
dilemmas.dilemmas.
8.8. Strong Culture as Culture Determine BehaviorStrong Culture as Culture Determine Behavior

23. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–23
Exhibit 5–9Exhibit 5–9 Codes of EthicsCodes of Ethics
Cluster 1. Be a Dependable Organizational Citizen
1. Comply with safety, health, and security regulations.
2. Demonstrate courtesy, respect, honesty, and fairness.
3. Illegal drugs and alcohol at work are prohibited.
4. Manage personal finances well.
5. Exhibit good attendance and punctuality.
6. Follow directives of supervisors.
7. Do not use abusive language.
8. Dress in business attire.
9. Firearms at work are prohibited.
Cluster 2. Do Not Do Anything Unlawful or Improper That
Will Harm the Organization
1. Conduct business in compliance with all laws.
2. Payments for unlawful purposes are prohibited.
3. Bribes are prohibited.
4. Avoid outside activities that impair duties.
5. Maintain confidentiality of records.
6. Comply with all antitrust and trade regulations.
7. Comply with all accounting rules and controls.
8. Do not use company property for personal benefit.
9. Employees are personally accountable for company funds.
10. Do not propagate false or misleading information.
11. Make decisions without regard for personal gain.
Cluster 3. Be Good to Customers
1. Convey true claims in product advertisements.
2. Perform assigned duties to the best of your ability.
3. Provide products and services of the highest quality.
Source: F. R. David, “An Empirical Study of Codes of Business Ethics: A Strategic Perspective,” paper
presented at the 48th
Annual Academy of Management Conference, Anaheim, California, August 1988.

24. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–24
Effective Use of a Code of EthicsEffective Use of a Code of Ethics
• Develop a code of ethics as a guide in handlingDevelop a code of ethics as a guide in handling
ethical dilemmas in decision making.ethical dilemmas in decision making.
• Communicate the code regularly to allCommunicate the code regularly to all
employees.employees.
• Have all levels of management continuallyHave all levels of management continually
reaffirm the importance of the ethics code andreaffirm the importance of the ethics code and
the organization’s commitment to the code.the organization’s commitment to the code.
• Publicly reprimand and consistently disciplinePublicly reprimand and consistently discipline
those who break the code.those who break the code.

25. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–25
Exhibit 5–11 Being an Ethical Leader
• Be a good role model by being ethical and honest.
° Tell the truth always.
° Don’t hide or manipulate information
° Be willing to admit your failures.
• Share your personal values by regularly communicating
them to employees.
• Stress the organization’s or team’s important shared
values.
• Use the reward system to hold everyone accountable to
the values.

26. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–26
Managing Ethical Lapses and SocialManaging Ethical Lapses and Social
IrresponsibilityIrresponsibility
• Provide ethical leadershipProvide ethical leadership
• Protect employees who raise ethical issuesProtect employees who raise ethical issues
(whistle-blowers)(whistle-blowers)
• Whistleblowers:Whistleblowers: a person reporting illegal ora person reporting illegal or
unethical acts.unethical acts.
 Whistleblowers now protected by law in most cases.Whistleblowers now protected by law in most cases.
 Movie: the InsiderMovie: the Insider

27. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5–27
Terms to KnowTerms to Know
• classical viewclassical view
• socioeconomic viewsocioeconomic view
• social obligationsocial obligation
• social responsivenesssocial responsiveness
• social responsibilitysocial responsibility
• social screeningsocial screening
• greening of managementgreening of management
• values-basedvalues-based
managementmanagement
• ethicsethics
• valuesvalues
• ego strengthego strength
• locus of controllocus of control
• code of ethicscode of ethics
• whistle-blowerwhistle-blower
• social entrepreneursocial entrepreneur