Social Responsibility and Managerial Ethics

1. Social Responsibility and Managerial Ethics Chapter Five

2. Classical View of Social Responsibility Management’s only social responsibility is to maximize profits.

3. Socioeconomic View of Social Responsibility Management’s social responsibility goes beyond making profits to include protecting and improving society’s welfare.

4. To Whom is Management Responsible? Lesser Social Responsibility Greater Exhibit 5-1

5. Socially Responsible Company Team Activity

6. Socially Responsible Companies • Ben & Jerry’s Ice Cream • John Deere & Company • Merck & Company • Procter & Gamble • Starbucks

7. Socially Responsible Company • Introduction/company background • Describe the company’s economic performance • Why is the company considered socially responsible? • How does the company preserve and promote this socially responsible focus? • How has the focus on social responsibility helped the company? • How has the focus on social responsibility harmed the company? • Conclusions

8. John Deere & Company • World’s premier producer of agriculture equipment • Does business in 160+ countries and employs over 46,000 people worldwide • Social responsibility section on website • Tagline: Running Green: Sustainable growth through stewardship • “We strive to manufacture products that maximize our customers’ productivity while minimizing the impact on the environment”. • Involved in a number of initiatives to preserve natural resources

9. Merck & Company • Global pharmaceutical company • Corporate Responsibility section on website • Access to healthcare—Find ways to improve the delivery of medicine in developing countries • Environment—Build high environmental health and safety standards into all processes and activities • Community—Link success to the health of the communities in which they live and work

10. Arguments For Social Responsibility • Public expectations—Public opinion now supports businesses pursuing economic and social goals. • Long-run profits—Socially responsible companies tend to have long-run profits. • Ethical obligations—The right thing to do. • Public image—Businesses can create a favorable public image by pursuing social goals.

11. Arguments For Social Responsibility (continued….) • Better environment—Businesses can help solve difficult social problems. • Discouragement of further government regulation—Socially responsible businesses would require less government regulation. • Balance of responsibility and power—Businesses have a lot of power and an equally large amount of responsibility is needed to balance that power.

12. Arguments For Social Responsibility (continued….) • Shareholder interests—Social responsibility will improve a business’s stock price in the long run. • Possession of resources—Businesses have the resources to support public and charitable projects that need assistance. • Superiority of prevention over cures—Businesses should address social problems before they become serious and costly to correct.

13. Arguments Against Social Responsibility • Violation of profit maximization—Business is being socially responsible only when it pursues economic interests. • Dilution of purpose—Pursuing social goals dilutes business’s primary purpose which is economic production. • Costs—Many socially responsible actions do not cover their costs and someone must pay for those costs.

14. Arguments Against Social Responsibility (continued….) • Too much power—Businesses have a lot of power already and if they pursue social goals they will have even more. • Lack of skills—Business leaders lack the necessary skills to address social issues. • Lack of accountability—There are no direct lines of accountability for social actions.

15. From Obligations to Responsiveness to Responsibility • Social obligation—The obligation of a business to meet its economic and legal responsibilities. • Social responsiveness—The capacity of a firm to adapt to changing social conditions. • Social responsibility—A business’s obligation, beyond that required by law and economics, to pursue long-term goals that are good for society.

16. Social Responsibility Versus Social Responsiveness Source: Adapted from S.L. Wartick and P.I. Cochran, “The Evolution of the Corporate Social Performance Model”. Academy of Management Review, October 1985, p. 766

17. The Greening of Management The recognition of the close link between an organization’s decisions and activities and its impact on the natural environment.

18. Global Environmental Problems • Natural resource depletion • Renewable (fisheries, forests, soil) • Non-renewable (oil, minerals) • Global warming • Pollution (air, water, and soil) • Industrial accidents • Toxic wastes

19. Approaches to Being Green High Low Environmental Sensitivity Activist Approach Legal Approach Market Approach Stakeholder Approach

20. Beyond Greening: Need for a Sustainable World • We may be approaching ecological recovery in the developed world. • Planet remains on an unsustainable course due to the explosive population growth and rapid economic development in the emerging economies. • In meeting our needs, we are destroying the ability of future generations to meet their needs. Source: Beyond Greening: “Strategies for a Sustainable World”, HBR, Jan-Feb 1997, pp. 65-76.

21. Why Should Corporations Seek a Sustainable Global Economy? • Difficult for corporations to do business when faced with impoverished customers and degraded environments. • Environmental opportunities may be a source of significant revenue growth. • Only corporations have the resources, the technology and the global reach to achieve sustainability. Source: Beyond Greening: “Strategies for a Sustainable World”, HBR, Jan-Feb 1997, pp. 65-76.

22. Strategies for a Sustainable World • Stabilize or reduce total environmental burden created by human activity. • Total environmental burden is a function of three factors: population (P), affluence/consumption (A) and technology (T). Technology is how wealth is created. • EB = P x A x T. Source: Beyond Greening: “Strategies for a Sustainable World”, HBR, Jan-Feb 1997, pp. 65-76.

23. Vision of Sustainability Stage One: Pollution Prevention • Minimize or eliminate waste before it occurs. • BASF, the German chemical giant, is helping to design and build chemical industries in China, India, Malaysia, and Indonesia that are less polluting than in the past. By co-locating facilities, the waste materials from one process becomes the raw materials for another. Source: Beyond Greening: “Strategies for a Sustainable World”, HBR, Jan-Feb 1997, pp. 65-76.

24. Vision of Sustainability Stage Two: Product Stewardship • Minimize all environmental impacts associated with the full lifecycle of a product. • Design for the environment (DFE) is a tool for creating products that are easier to recover, reuse, or recycle. • Xerox’s Asset Recycle Management program uses leased Xerox copiers as sources of high quality, low-cost parts and components for new machines. (~$350M in savings in 1995) Source: Beyond Greening: “Strategies for a Sustainable World”, HBR, Jan-Feb 1997, pp. 65-76.

25. Vision of Sustainability Stage Three: Clean Technology • Existing technology base in many industries is not environmentally sustainable. • Chemical industry’s reliance on the chlorine molecule. (Many organochlorides are toxic or persistent or bioaccumulative). • Urban pollution in Asia is oppressive. • Monsanto is shifting the technology base for its agriculture business from bulk chemicals to biotechnology. Source: Beyond Greening: “Strategies for a Sustainable World”, HBR, Jan-Feb 1997, pp. 65-76.

26. Building Sustainable Business Strategies • Lower material and energy consumption • Develop clean products and technology • Reduce pollution burden • Ensure sustainable use of nature’s economy • Replenish depleted resources • Build the skills of the poor Source: Beyond Greening: “Strategies for a Sustainable World”, HBR, Jan-Feb 1997, pp. 65-76.

27. Values & Ethics

28. Is It Ethical? • Using company email for personal use. • Not telling a potential customer about some product shortcomings. • Outsourcing manufacturing to an Indonesian company that is known to hire young children.

29. Values-Based Management An approach to managing in which managers establish and uphold an organization’s shared values. An organization’s values reflect what it stands for and what it believes in.

30. Purposes of Shared Values • Guide managers’ decisions and actions • Shape employee behavior • Influence marketing efforts • Build team spirit

31. Upholding Corporate Values • Have the values specifically stated in writing • Link values to performance evaluations and compensation

32. Ethics • Rules and principles that define right and wrong conduct. • Four Views on Ethics: • Utilitarian View of Ethics • Rights View of Ethics • Theory of Justice View of Ethics • Integrative Social Contracts Theory

33. Utilitarian View of Ethics • Ethical decisions are made solely on the basis of their outcomes or consequences. • Quantitative method for making decisions that focuses on how to provide the greatest good for the greatest number. • Pro: Encourages efficiency and productivity, and is consistent with the goal of profit maximization. • Drawback: Rights of some stakeholders may be ignored.

34. Rights View of Ethics • Concerned with respecting and protecting individual liberties and privileges such as the right to privacy, free speech, life and safety, and due process. • Pro: Protects individuals’ basic rights. • Drawback: Can hinder productivity and efficiency by creating a work climate that’s more concerned with protecting individual’s rights versus getting the job done.

35. Theory of Justice View of Ethics • Managers impose and enforce rules fairly and impartially by following all legal rules and regulations. • Pro: Protects workers who may be underrepresented or lack power. • Drawback: Can encourage a sense of entitlement that might make employees reduce risk-taking, innovation, and productivity.

36. Integrative Social Contracts Theory • Proposes that ethical decisions be based on existing ethical norms in industries and communities in order to determine what constitutes right and wrong. • Pro: Focuses on existing practices. • Drawback: Existing practice may be unethical.

37. Factors Affecting Employee Ethics • Stage of Moral Development • Individual Characteristics • Organization’s Structural Variables • Organization’s Culture • Issue Intensity

38. Stages of Moral Development • Preconventional—Choose right or wrong based upon personal consequences involved such as physical punishment, reward, or exchange of favors. • Conventional—Moral values reside in maintaining expected standards and living up to the expectations of others. • Principled—Clear effort to define moral principles apart from the authority of groups or society in general.

39. Stages of Moral Development continued…. Preconventional • Sticking to the rules to avoid punishment • Following rules only when doing so is in your immediate interest Conventional • Living up to what is expected by people close to you • Maintaining conventional order by fulfilling obligations to which you have agreed

40. Stages of Moral Development continued…. Principled • Valuing the rights of others and upholding absolute values and rights regardless of the majority’s opinion. • Following self-chosen ethical principles even if they violate the law

41. Individual Characteristics • Values—Basic convictions about what is right or wrong. • Ego Strength—A personality measure of the strength of a person’s convictions. • Locus of Control—A personality attribute that reflects the degree to which people believe they control their own fate. • Internal—control own destiny • External—luck, chance, higher being

42. Organization’s Structural Variables • Structural designs that minimize ambiguity and uncertainty through formal rules and regulations, and those that regularly remind employees of what is ethical are more likely to encourage ethical behaviors. • Performance appraisal systems that focus on means as well as outcomes.

43. Organization’s Culture • An organizational culture most likely to encourage high ethical standards is one that is high in risk tolerance, control, and conflict tolerance. • A strong culture will exert more influence on employees than a weak one.

44. Issue Intensity • Consensus of Wrong • Probability of Harm • Immediacy of Consequences • Proximity to Victims • Concentration of Effect • Greatness of Harm

45. Is It Ethical? Issue Intensity • Using company email for personal use. • Not telling a potential customer about some product shortcomings. • Outsourcing manufacturing to an Indonesian company that is known to hire young children.

46. Improving Ethical Behavior • Hire individuals with high ethical standards • Establish codes of ethics and decision rules • Lead by example • Delineate job goals and performance appraisal mechanisms • Provide ethics training • Provide support to individuals facing ethical dilemmas

47. Codes of Business Ethics • Be specific enough to avoid ambiguity, but loose enough to allow for freedom of judgment. • Typically include: • Be a dependable organizational citizen. • Do not do anything unlawful or improper that will harm the organization. • Be good to customers.

48. Ethics in an International Context • Social and cultural differences between countries prevent ethical standards from being universal. “Values in Tension: Ethics Away from Home”, HBR, September 1996, pp. 4-12

49. Cultural Relativism • No culture’s ethics are better than any other’s. • “When in Rome, do as the Romans”. • Morally blind. Ignores fundamental values that cross cultures. “Values in Tension: Ethics Away from Home”, HBR, September 1996, pp. 4-12

50. Ethical Imperialism • Do everything exactly as it is done at home since that’s the global standard. • Ignore different cultural traditions since there is only one appropriate behavior. • Ignore context when shaping ethical behavior since according to ethical imperialism there is a global standard for ethics. “Values in Tension: Ethics Away from Home”, HBR, September 1996, pp. 4-12