337 ethical issues

Spring 2007 Ethical Issues in Management 1
Ethical Issues in Management

Spring 2007 Ethical Issues in Management2
Ethical Issues in Management
• Ethical perspectives and moral
development
• Ethical decision making
• Social responsibility

What Are Ethics?
• The area of philosophy concerned with human behavior in the
social context
• Based on a consideration of values, rather than facts (although
it is necessary to determine the facts)
• Both individual and shared values important
• Not the same as legal considerations (although laws overlap
with society’s agreed-upon ethical standards)
• Social and economic factors are not part of ethical decisions
(although many ethical decision have social or economic
implications)
• Morality vs. legality vs. social/economic forces

Ethical Perspectives: Utilitarian
• Jeremy Bentham (1748 – 1832)
• Decisions are made on the basis of
outcomes
• Maximize benefits for the greatest
number
• Example: Oregon & health care

Ethical Perspectives: Individualism
• Adam Smith (1723-1790)
• At the most basic level, “What’s in it for
me?”
• However, there’s a long-term equilibrium;
the invisible hand

Ethical Perspectives: Moral Rights
• John Locke (1632 – 1704)
• Respect individual’s inherent rights and liberties
• Natural rights of mankind
• “The right of life, liberty, and the pursuit of happiness”
• Rights?
• Free consent
• Privacy
• Freedom of conscience
• Free speech
• Due process
• Life and safety
The problem arises
with how these are to
be put into action

Immanuel Kant (1724 – 1804)
• For Kant, what is right is based on the
categorical imperative, which is the
notion that every person should act on
only those principles that he or she, as a
rational person, would prescribe as
universal laws to be applied to the whole
of humankind.

Ethical Perspectives: Justice
• Decisions made with equity and
impartiality
• Types of justice
• Distributive
• Procedural
• Compensatory

Social Justice Perspective
• Value placed on human dignity
• Work for the common good
• Human rights
• Dignity of work
• Society judged by treatment of poor and
vulnerable

Levels of Moral Development
• Preconventional
• Obey to avoid physical punishment
• Follow rules if it is in your immediate interest
• Conventional
• Live up to what your family and friends expect
• Maintain order by fulfilling obligations
• Principled
• Value others’ rights regardless of majority opinion
• Follow self-chosen ethical principles even if they violate
the law

Ethical Decision Making
• Codes of ethics
• State basic principles
• Can be for a specific organization
• Many professions also have an ethical code
• Can be very general (credo) or very specific
• Leadership
• Managers by definition are (or should be) role models
• Ethical training

Components of Ethical Training
• Provide trainees with an understanding of ethical
judgment philosophies and guidelines.
• Provide industry/profession-specific areas of ethical
concern.
• Provide trainees with organizational ethical expectations
and rules.
• Provide trainees with an understanding of their own
ethical tendencies.
• Take a realistic view–elaborate on the difficulties of
ethical decision making.
• Get the trainees to practice and role-play.

How is Business Viewed by
Society?
• The Simple Life Folks
• Large organizations, by their very existence, are destructive of human
values
• We should adopt a simpler lifestyle, freeing ourselves of the need for
large businesses
• We are interested in maximizing human potential
• Redemption-May-Be-Possible
• Large organizations exploit those without power (especially
multinational firms and indigenous peoples)
• Don’t abolish business firms, but major reform is needed
• Critics from Within
• Businesses have done a lot to earn their bad reputation
• Responsible business leaders must begin cleaning out the stables

Do the Facts Justify Criticism ??
• Of the globe’s 100 largest economic entities, 51
are corporations; only 49 are countries
• The 300 largest global corporations hold one-
quarter of the entire globe’s productive assets
• 72% of Americans say business has too much
power over too many aspects of American life

TheTopTen
2004 Revenues ($B)
Saudi Arabia $310.2
1) WalMart $288.0
2) BP $285.1
3) Exxon / Mobil $270.8
4) Royal Dutch / Shell $286.7
5) General Motors $193.5
Portugal $188.7
6) DaimlerChrysler $176.7
7) Toyota Motor $172.6
8) Ford Motor $172.2
Czech Republic $172.2
9) General Electric $152.9
10) Total Fina $152.6
Finland $151.2

Social Responsibility
Social Obligations School
• Maximize profits
• Stay within boundaries of law
Social Reaction School
• Maximize profits, and at the same time….
• Ensure the organization’s survival by responding to
"currently prevailing social norms, values, and
performance expectations."
Social Responsiveness School
• Corporations should prevent and solve social problems
• Corporations can prevent and solve social problems
The Friedman view

Milton Friedman
• “The Social Responsibility of Business is to Increase its
Profits”
1) A corporation is an “artificial” person – thus, unlike a real
person, it has no ethical or moral obligations
2) Managers are responsible to owners: “That
responsibility is to conduct the business in accordance
with their desires, which generally will be to make as
much money as possible while conforming to the basic
rules of the society, both those embodied in law and
those embedded in ethical custom

3) Individual managers fulfill their private ethical / moral
obligations from their personal resources
4) If managers are to spend money on public uses, they
must be accountable, just as are politicians. The
analogy here is with taxation; by spending money pf
public uses, the manger is in effect taxing employees,
customers and owners for the benefit of society as a
whole
5) For Freidman, this is “socialist” -- using “political
mechanisms, not market mechanisms…the
appropriate way to determine the allocation of scare
resources to alternate uses”
Freidman’s Reasoning, continued

Friedman, Finale
6) Further, if business social spending (the specific
expenditures) were a good ides (accepted by society),
it would be a public responsibility and funded through
taxes
7) However, an organization may legitimately spend
money on what may be perceived as social
responsibility, but where there is a benefit to the firm
(for example, funding education)
8) Thus, corporations are judged solely by financial
performance, as defined by the owners / shareholders

The Stakeholder Approach
• How do we solve the problem of the free rider?
• Organizations and people are bound together in a
network of mutual relationships
• Stakeholders
• Those people or groups essential to an organization’s
success
• Those people or groups affected by what an
organization does
• People with a “legitimate interest”
• An organization is obligated (duty) to consider the
interests of stakeholders

Who Are the Stakeholders?
• Primary and secondary (how close are
they to the organization?)
• Who?
• Management
• Employees
• Owners
• Local community
• Suppliers
• Customers

Taking a Stand
• Looking at costs
• Short term vs. the long term
• Examples:
• Doing well by doing good: Costco
• Public relations: Sara Lee
• Environmental cost savings
• Obligation to just the stockholders or to
employees, and society as a whole ??????
• Management values

Levels of Social Obligation
Proactive
Take social
initiatives
Accommodating
Accept ethical
responsibility
Defensive
Do only what is
legally required
Obstructionist
Fight all the way

Values-Based Management
• Using shared values as a basis for
management decision-making
• Examples
• Levi Strauss
• Body Shop
• ServiceMaster

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