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Spring 2007 Ethical Issues in Management 1 Ethical Issues in Management

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Page 1: 337 Ethical Issues

Spring 2007 Ethical Issues in Management 1

Ethical Issues in Management

Page 2: 337 Ethical Issues

Spring 2007 Ethical Issues in Management 2

Ethical Issues in Management

• Ethical perspectives and moral development

• Ethical decision making

• Social responsibility

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Spring 2007 Ethical Issues in Management 3

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

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Spring 2007 Ethical Issues in Management 4

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

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Spring 2007 Ethical Issues in Management 5

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

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Spring 2007 Ethical Issues in Management 6

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

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Spring 2007 Ethical Issues in Management 7

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.

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Spring 2007 Ethical Issues in Management 8

Ethical Perspectives: Justice

• Decisions made with equity and impartiality

• Types of justice• Distributive• Procedural• Compensatory

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Spring 2007 Ethical Issues in Management 9

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

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Spring 2007 Ethical Issues in Management 10

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

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Spring 2007 Ethical Issues in Management 11

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

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Spring 2007 Ethical Issues in Management 12

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.

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Spring 2007 Ethical Issues in Management 13

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

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Spring 2007 Ethical Issues in Management 14

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

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Th

e T

op

Ten

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

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Spring 2007 Ethical Issues in Management 16

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

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Spring 2007 Ethical Issues in Management 17

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

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Spring 2007 Ethical Issues in Management 18

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

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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

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Spring 2007 Ethical Issues in Management 20

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

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Spring 2007 Ethical Issues in Management 21

Who Are the Stakeholders?

• Primary and secondary (how close are they to the organization?)

• Who?• Management• Employees• Owners• Local community• Suppliers• Customers

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Spring 2007 Ethical Issues in Management 22

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

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Spring 2007 Ethical Issues in Management 23

Levels of Social Obligation

Proactive

Take social initiatives

Accommodating

Accept ethical responsibility

Defensive

Do only what is legally required

Obstructionist

Fight all the way

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Spring 2007 Ethical Issues in Management 24

Values-Based Management

• Using shared values as a basis for management decision-making

• Examples• Levi Strauss• Body Shop• ServiceMaster