corporate social responsibility and ethics

PowerPoint slides by

Susan A. Peterson, Scottsdale Community College

PowerPoint slides by

Susan A. Peterson, Scottsdale Community College

Chapter 2:Ethics and Social Responsibility

Chapter 2:Ethics and Social Responsibility

m a n a g e m e n t 2eH i t t / B l a c k / P o r t e r

m a n a g e m e n t 2eH i t t / B l a c k / P o r t e r

© 2008 Prentice-Hall Business Publishing2

Learning ObjectivesLearning Objectives

After studying this chapter, you should be able to:

Describe why an understanding of basic approaches to ethical decision making and corporate social responsibility is important

Compare and contrast the efficiency and social responsibility perspectives

Explain the strategic corporate social responsibility approach

Explain the basic approaches to ethical decision making

After studying this chapter, you should be able to:

Describe why an understanding of basic approaches to ethical decision making and corporate social responsibility is important

Compare and contrast the efficiency and social responsibility perspectives

Explain the strategic corporate social responsibility approach

Explain the basic approaches to ethical decision making


Learning ObjectivesLearning Objectives

Explain the aspects of moral intensity

Describe the actions that can foster a high degree of ethical behavior in an organization

Explain the aspects of moral intensity

Describe the actions that can foster a high degree of ethical behavior in an organization


Corporate Social ResponsibilityCorporate Social Responsibility

Obligation corporations have to constituencies and the nature and extent of those obligations

Constituencies include shareholders, customers, employees, specific communities, society at large, governments

Issue: constituencies may not share same expectations

Obligation corporations have to constituencies and the nature and extent of those obligations

Constituencies include shareholders, customers, employees, specific communities, society at large, governments

Issue: constituencies may not share same expectations


Efficiency PerspectiveEfficiency Perspective

Efficiency perspective:

maximize profits for the owners of the business

Efficiency perspective:

maximize profits for the owners of the business

MANAGERS AS OWNERS

Self-interests of the manager-owner are best achieved by serving the

needs of society

MANAGERS AS AGENTS

Managers have no obligation to act

on behalf of society if it does not

maximize value for the shareholders


Social Responsibility PerspectiveSocial Responsibility Perspective

Social responsibility perspective: firms have responsibilities and obligations to society as

a whole, not just shareholders

Social responsibility perspective: firms have responsibilities and obligations to society as

a whole, not just shareholders

Shareholders

Society

Financiers

Communities

Suppliers

Employees

FIRM

Key Stakeholders


Efficiency Versus Social Responsibility PerspectiveEfficiency Versus Social Responsibility Perspective

Efficiency PerspectiveManagerially Irresponsible

Social ResponsibilityPerspective

Managerially Responsible






Managerially Irresponsible




Efficiency PerspectiveManagerially Responsible












Action harms other stakeholdersAction harms other stakeholders

NoNo YesYes

No

No

Yes

Yes

Action harms other share-

holders

Action harms other share-

holders

Adapted from Exhibit 2.1


Corporate ResponsesCorporate Responses

We will change when legally compelled to

do so.

We will change when legally compelled to

do so.

Maximize profits. Abide by

the letter of the law. Change when

legally compelled to do so.

Maximize profits. Abide by

the letter of the law. Change when

legally compelled to do so.

We must fight against efforts to restrict or

regulate our activities and profit-

making potential.

We must fight against efforts to restrict or

regulate our activities and profit-

making potential.

Maximize profits. Find legal loopholes. Fight new restrictions

and regulations.

Maximize profits. Find legal loopholes. Fight new restrictions

and regulations.

BeliefBelief

FocusFocus

DefendersDefenders AccommodatorsAccommodators



Corporate Responses (cont.)Corporate Responses (cont.)

We owe it to society to anticipate and avoid actions with harmful

consequences, even if we are not pressured or legally required to do so.

We owe it to society to anticipate and avoid actions with harmful

consequences, even if we are not pressured or legally required to do so.

Obtain profits, Abide by the law. Anticipate

harmful consequences independent of

pressures and laws.

Obtain profits, Abide by the law. Anticipate

harmful consequences independent of

pressures and laws.

We should respond to significant pressure even

if we are not legally required to.

We should respond to significant pressure even

if we are not legally required to.

Protect profits. Abide by the law. React to pressure that could

affect business results.

Protect profits. Abide by the law. React to pressure that could

affect business results.

BeliefBelief

FocusFocus

ReactorsReactors AnticipatorsAnticipators



Strategic Corporate Social Responsibility Perspective Strategic Corporate Social Responsibility Perspective

Three fundamental criteria guide managers:Three fundamental criteria guide managers:

Inside-OutInside-OutApproachApproach

Outside-InOutside-InApproachApproach

Outside-OutOutside-OutApproachApproach

Look insidecompany at

issuesthat are

importantto the

company

Look outsidecompany at

issues that

company has an impact

upon

Look at social issues in general in

terms of the extent to

which they are

problematic


Strategic Corporate Social Responsibility Strategic Corporate Social Responsibility


WorthyCause

(for someoneelse)

PrimeFocus

Low High

Critical to the Company

Low

Low

High

High

Affectedby theCompany

Problemin Society


The Development of Individual EthicsThe Development of Individual Ethics

LifeExperiences

LifeExperiences

JobExperiences

JobExperiences

ReligionReligion TeachersTeachers

PeersPeers

FriendsFriends

FamilyFamily

IndividualEthics

IndividualEthics


Basic Approaches to EthicsBasic Approaches to Ethics

Ethical dilemmas

The choice between two competing but arguably valid options

Frameworks for ethical decision making:

Utilitarian approach

Moral rights approach

Universalism approach

Justice approach

Ethical dilemmas

The choice between two competing but arguably valid options

Frameworks for ethical decision making:

Utilitarian approach

Moral rights approach

Universalism approach

Justice approach


Basic Approaches to Ethics:Utilitarian ApproachBasic Approaches to Ethics:Utilitarian Approach

Focused on the consequences of an action

What is the “greatest good?”

Different people may see the outcome differently in terms of good or bad

Focused on the consequences of an action

What is the “greatest good?”

Different people may see the outcome differently in terms of good or bad


Basic Approaches to Ethics:Moral Rights ApproachBasic Approaches to Ethics:Moral Rights Approach

Focused on moral standing of actions, independent of their consequences

Some things are simply “right” or “wrong”

When two actions have moral standing, then the positive or negative consequences of each will determine the more ethical

Focused on moral standing of actions, independent of their consequences

Some things are simply “right” or “wrong”

When two actions have moral standing, then the positive or negative consequences of each will determine the more ethical


Basic Approaches to Ethics:Universal ApproachBasic Approaches to Ethics:Universal Approach

“Do unto others as you would have them do unto everyone, including yourself.”

Choose a course of action you believe can apply to all people under all situations

The issue of rights

Rights stem from freedom and autonomy

Actions that limit freedom and autonomy generally lack moral justification

“Do unto others as you would have them do unto everyone, including yourself.”

Choose a course of action you believe can apply to all people under all situations

The issue of rights

Rights stem from freedom and autonomy

Actions that limit freedom and autonomy generally lack moral justification


Basic Approaches to Ethics:Justice ApproachBasic Approaches to Ethics:Justice Approach

Costs and benefits of actions:

Costs and benefits should be equitably distributed

Rules should be impartially applied

Those damaged should be compensated

Distributive justice

Equitable distribution is based on performance

Costs and benefits of actions:

Costs and benefits should be equitably distributed

Rules should be impartially applied

Those damaged should be compensated

Distributive justice

Equitable distribution is based on performance


Basic Approaches to Ethics:Justice ApproachBasic Approaches to Ethics:Justice Approach

Procedural justice

Ensure that people consent to the decision-making process

Ensure that the process is administered impartially

Compensatory justice

If distributive and procedural justice fail, those hurt by inequitable distribution of rewards are compensated

Procedural justice

Ensure that people consent to the decision-making process

Ensure that the process is administered impartially

Compensatory justice

If distributive and procedural justice fail, those hurt by inequitable distribution of rewards are compensated


Moral Intensity in Ethical Decision MakingMoral Intensity in Ethical Decision Making

Moral intensity

The degree to which people see an issue as an ethical one

Moral intensity

The degree to which people see an issue as an ethical one

MoralIntensity

Magnitude of the

Consequences

Concentratio

n

of Effe

ct

So

cialC

on

sequ

ences

Pro

xim

ity

TemporalImmediacy

Probability

of Effe

ct


MoralIntensity


Magnitude of the consequences

Level of impact anticipated

Impact is independent of whether consequences are positive or negative

Magnitude of the consequences

Level of impact anticipated

Impact is independent of whether consequences are positive or negative

Magnitude of the

Consequences

Adapted from Exhibit 5.2: Factors of Moral IntensityAdapted from Exhibit 2.4


MoralIntensity


Social consequences

The extent to which members of a society agree that an act is either good or bad

Population diversity weakens social consensus

Social consequences

The extent to which members of a society agree that an act is either good or bad

Population diversity weakens social consensus

Magnitude of the

Consequences

So

cialC

on

sequ

ences



MoralIntensity


Probability of effect

How likely people think the consequences are

The higher the probability of the consequence, the more intense the sense of ethical obligation

Probability of effect

How likely people think the consequences are

The higher the probability of the consequence, the more intense the sense of ethical obligation

Magnitude of the

Consequences

So

cialC

on

sequ

ences

Probability

of Effe

ct



MoralIntensity


Temporal immediacy

Interval between the time the action occurs and the onset of its consequences

The greater the time interval, the less intensity people typically feel toward the issue

Temporal immediacy

Interval between the time the action occurs and the onset of its consequences

The greater the time interval, the less intensity people typically feel toward the issue

Magnitude of the

Consequences

So

cialC

on

sequ

ences

TemporalImmediacy

Probability

of Effe

ct



MoralIntensity


Proximity

The closeness the decision maker feels to those affected

Closeness leads to more consideration of the consequences

Closeness increases feeling that it has ethical implications

Proximity

The closeness the decision maker feels to those affected

Closeness leads to more consideration of the consequences

Closeness increases feeling that it has ethical implications

Magnitude of the

Consequences

So

cialC

on

sequ

ences

Pro

xim

ity

TemporalImmediacy

Probability

of Effe

ct



MoralIntensity


Concentration of effect

Focus of effect on only a few or disbursed across many individuals

Higher concentration leads to feelings of greater ethical responsibility

Concentration of effect

Focus of effect on only a few or disbursed across many individuals

Higher concentration leads to feelings of greater ethical responsibility

Magnitude of the

Consequences

Concentratio

n

of Effe

ct

So

cialC

on

sequ

ences

Pro

xim

ity

TemporalImmediacy

Probability

of Effe

ct



How Firms Make Better Ethical DecisionsHow Firms Make Better Ethical Decisions

Code of ethics: a formal one-to-three page statement outlining the types of behavior that are and are not acceptable

Codes generally stress:

Being a good “organization citizen”

Guiding employee behavior away from unlawful or improper acts that could harm the organization

Code of ethics: a formal one-to-three page statement outlining the types of behavior that are and are not acceptable

Codes generally stress:

Being a good “organization citizen”

Guiding employee behavior away from unlawful or improper acts that could harm the organization


Johnson & Johnson CredoJohnson & Johnson Credo

Our Credo

• We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. • In meeting their needs everything we do must be of high quality. • We must constantly strive to reduce our costs in order to maintain reasonable prices. • Customers' orders must be serviced promptly and accurately. • Our suppliers and distributors must have an opportunityto make a fair profit.

Our Credo

• We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. • In meeting their needs everything we do must be of high quality. • We must constantly strive to reduce our costs in order to maintain reasonable prices. • Customers' orders must be serviced promptly and accurately. • Our suppliers and distributors must have an opportunityto make a fair profit.



Johnson & Johnson Credo (cont.)Johnson & Johnson Credo (cont.)

• We are responsible to our employees, the men and women who work with us throughout the world. • Everyone must be considered as an individual. • We must respect their dignity and recognize their merit. • They must have a sense of security in their jobs. • Compensation must be fair and adequate, and working conditions clean, orderly and safe. • We must be mindful of ways to help our employees fulfilltheir family responsibilities. • Employees must feel free to make suggestions and complaints. • There must be equal opportunity for employment, development and advancement for those qualified. • We must provide competent management, and their actions must be just and ethical.

• We are responsible to our employees, the men and women who work with us throughout the world. • Everyone must be considered as an individual. • We must respect their dignity and recognize their merit. • They must have a sense of security in their jobs. • Compensation must be fair and adequate, and working conditions clean, orderly and safe. • We must be mindful of ways to help our employees fulfilltheir family responsibilities. • Employees must feel free to make suggestions and complaints. • There must be equal opportunity for employment, development and advancement for those qualified. • We must provide competent management, and their actions must be just and ethical.




• We are responsible to the communities in which we live and work and to the world community as well. • We must be good citizens – support good works and charitiesand bear our fair share of taxes. • We must encourage civic improvements and better health and education. • We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.

• We are responsible to the communities in which we live and work and to the world community as well. • We must be good citizens – support good works and charitiesand bear our fair share of taxes. • We must encourage civic improvements and better health and education. • We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.




• Our final responsibility is to our stockholders. • Business must make a sound profit. • We must experiment with new ideas. • Research must be carried on, innovative programs developedand mistakes paid for. • New equipment must be purchased, new facilities providedand new products launched. • Reserves must be created to provide for adverse times. • When we operate according to these principles,the stockholders should realize a fair return.

• Our final responsibility is to our stockholders. • Business must make a sound profit. • We must experiment with new ideas. • Research must be carried on, innovative programs developedand mistakes paid for. • New equipment must be purchased, new facilities providedand new products launched. • Reserves must be created to provide for adverse times. • When we operate according to these principles,the stockholders should realize a fair return.



Categories Found in Corporate Codes of EthicsCategories Found in Corporate Codes of Ethics

Cluster 1“Be a dependable

organizational citizen”

Cluster 1“Be a dependable

organizational citizen”

Cluster 2“Don’t do anything

unlawful or improper that will harm

the organization.”

Cluster 2“Don’t do anything

unlawful or improper that will harm

the organization.”

Unclustered ItemsUnclustered ItemsCluster 3

“Be good to our customers.”

Cluster 3“Be good to our

customers.”



Adoption of Codes of EthicsAdoption of Codes of Ethics

47%

18%

31%

53%

82%

69%

Germany

France

United Kingdom

With codes Without codes

Percentage of FirmsAdapted from Exhibit 2.7


Subjects Addressed in Corporate Codes of EthicsSubjects Addressed in Corporate Codes of Ethics


Employee conductEmployee conduct

Community and environmentCommunity and environment

CustomersCustomers

ShareholdersShareholders

Suppliers and contractorsSuppliers and contractors

Political interestsPolitical interests

Innovation and technologyInnovation and technology

Most often used forEuropean firms

Most often used forEuropean firms

Most often used forUnited States firmsMost often used forUnited States firms

Least often used forEuropean firms

Least often used forEuropean firms

Least often used forUnited States firms

Least often used forUnited States firms


Successfully Implementing Codes of EthicsSuccessfully Implementing Codes of Ethics

Implementing a Code

of Ethics

Implementing a Code

of Ethics

CommunicationCommunication TrainingTraining Reward &RecognitionReward &

RecognitionWhistle-blowingWhistle-blowing


The Government: Foreign Corrupt Practices ActThe Government: Foreign Corrupt Practices Act

Cannot corrupt actions of foreign officials, politicians, or candidates

Cannot make payments to any person when they have "reason to know" that the payments might be used to corrupt the behavior of officials

Must take steps to provide "reasonable assurance" that transactions are in compliance with the law and to keep detailed records of them

Cannot corrupt actions of foreign officials, politicians, or candidates

Cannot make payments to any person when they have "reason to know" that the payments might be used to corrupt the behavior of officials

Must take steps to provide "reasonable assurance" that transactions are in compliance with the law and to keep detailed records of them

corporate social responsibility and ethics

Documents

social issue

business managers

business results

irresponsible action

corporate responses

needs of society managers

behalf of society

outside company