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Chapter 3:
ETHICS AND SOCIAL RESPONSIBILITY
CHAPTER 3 TAKEAWAY QUESTIONS
In studying this chapter, students should consider the following questions:
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What is ethical behavior?
How do ethical dilemmas complicate the workplace?
How can high ethical standards be maintained?
What are social responsibility and corporate governance?
CHAPTER 3 LEARNING OBJECTIVES
After completing this chapter, students should be able to:
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Define ethics.
Explain why obeying the law is not always the same as acting ethically.
Explain the difference between terminal and instrumental values.
Identify the four alternative views of ethics.
Contrast cultural relativism with universalism.
Define ethical dilemma and give workplace examples.
Identify Kohlberg’s stages of moral development.
Explain how ethics intensity influences ethical decision making.
Explain how ethics decisions are influenced by an organization’s culture and the external
environment.
List four common rationalizations for unethical behavior.
Differentiate between amoral, immoral, and moral management.
Compare and contrast ethics training and codes of ethical conduct as methods for
encouraging ethical behavior in organizations.
Identify common barriers to whistleblowing and the factors to consider when determining
whether whistleblowing is appropriate.
Define sustainability and corporate social responsibility.
Discuss stakeholder management and identify key organizational stakeholders.
Summarize arguments for and against corporate social responsibility.
Define stewardship and explain its relationship to the triple bottom line.
Explain the classical, socioeconomic and shared values approaches to corporate social
responsibility
Explain four possible social responsibility strategies.
Discuss the importance of corporate self-governance and ethics self-governance.
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CHAPTER 3 OVERVIEW
Ethical behavior and corporate social responsibility are critical issues for contemporary
managers. This chapter seeks to make students aware of various ethical dilemmas they may face
in their careers, while encouraging them to adopt high ethical standards. It also examines the role
of social responsibility and governance in contemporary business.
The chapter begins by defining key terms such as ethics and ethical behavior before considering
these terms in a managerial context. The utilitarian, individualism, moral-rights, and justice
views of ethical behavior are examined next. Opposing viewpoints on the relationship between
culture and ethics are identified, as is the notion of universal ethical values for guiding the
operations of multinational companies. Ethical dilemmas faced by managers are then described,
along with a checklist for ethical decision-making. The person, situation, organization, and
environment influences are discussed as factors for ethical behavior, along with four
rationalizations for unethical behavior. Also considered are various approaches for maintaining
high ethical standards, including ethics training, codes of ethical conduct, moral management,
and whistleblower protection. The differences between immoral, amoral, and moral managers are
also examined.
From here, the focus of the chapter shifts to the related topics of sustainability and corporate
social responsibility. The stakeholder model is introduced as a useful way for viewing corporate
social responsibility efforts. Also provided is a summary of the beliefs that guide socially
responsible business practices. The arguments “against” and “for” social responsibility, as well
as four criteria for evaluating social performance are discussed. Finally, consideration is given to
the social responsibility and organizational performance impacts of both boards of directors via
corporate governance and the company’s managers via daily activities.
CHAPTER 3 LECTURE OUTLINE
Teaching Objective: To expose students to the issues of managerial ethics and organizational
social responsibility and to encourage them to adopt high ethical standards. In your discussion of
these issues, be sure to stress the long-term benefits of ethical behavior and corporate social
responsibility.
Suggested Time: Two hours of class time are typically required to present the material in this
chapter.
I.
Takeaway Question 1: What is ethical behavior?
Laws and values as determinants of ethical behavior
Alternative views of ethics
Cultural issues in ethical behavior
II.
Takeaway Question 2: How do ethical dilemmas complicate the workplace?
Ethics in the workplace
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Ethical dilemmas
Influences on ethical decision making
Rationalizations for unethical behavior
III.
Takeaway Question 3: How can high ethical standards be maintained?
Moral Management
Ethics training
Codes of ethical conduct
Whistleblower protection
IV.
Takeaway Question 4: What are social responsibility and corporate governance?
Stewardship and the triple bottom line
Stakeholders and stakeholder management
Perspectives on corporate social responsibility
Evaluating corporate social performance
Corporate governance
CHAPTER 3 SUPPORTING MATERIALS
Textbook Inserts
Learning from Others
 Everyone Gains When Our Planet Is A Priority
Learning about Yourself
 Individual Character
o Self-Check for Signs of Hyper-competitiveness
Figures
 Figure 3.1: Four views of ethical behavior
 Figure 3.2: Cultural relativism and universalism in international business ethics
 Figure 3.3: Kohlberg’s levels of individual moral development
 Figure 3.4: The many stakeholders of organizations
 Figure 3.5: Four strategies of corporate social responsibility  from obstructionist to
proactive behavior
 Figure 3.6: Ethics self-governance in leadership and the managerial role
Thematic Boxes
 Selections from Universal Declaration of Human Rights
 Child Labor Controversies Are an International Business Reality
 Management Smarts: Quick Check for Dealing with Ethical Dilemmas
 Facts for Analysis: The Most Common Unethical Acts by Managers Involve Verbal,
Sexual, and Racial Harassment
 Bernie Madoff’s Ponzi Scheme
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Ethics on the Line: Want a Car Loan? Get a Credit Check. Want a Job? Get a Social
Media Check
Management in Popular Culture: Ambition on the line in The Social Network
Follow the Story: Business Education Must Reframe the “Winner Takes All Mentality”
Research Brief: Prioritizing Stakeholders for Organizational Action
IBM Finds That Shared Value Links Better Cities with Business Profits
Applications
 Self-Test
 Further Reflections: Individual Character
 Self-Assessment: Terminal Values
 Team Exercise: Confronting Ethical Dilemmas
 Career Situations: What Would You Do?
 Case Study 3: Patagonia—Leading a Green Revolution
CHAPTER 3 LECTURE NOTES
LEARNING FROM OTHERS on page 56 tells the story of how Stonyfield Farm, the world’s
largest maker of organic yogurt, is committed to the triple bottom line of being economically,
socially, and environmentally responsible in all it does.
LEARNING ABOUT YOURSELF on page 57 describes how some individuals change their
character when in the business world and become hypercompetitive, thinking that winning is the
only thing that matters. Ask students if they have ever been hypercompetitive in anything they
have ever done, such as playing sports or achieving grades in school.
DISCUSSION TOPIC
You can start the discussion of this chapter by asking students to identify examples of ethical and
unethical business practices that they have read about, heard about, personally witnessed or
experienced. Ask the students how these practices seem to have been viewed by the public at
large. Also, have the students discuss how these practices seem to have affected the organization
and relevant stakeholders in both the short term and the long term.
To bring ethical and unethical behavior closer to home, discuss students’ behavior within the
college/university context. Topics may include cheating, adherence to campus regulations,
plagiarism, maintenance of the physical environment, or unauthorized use of materials or
equipment.
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TAKEAWAY QUESTION 1: WHAT IS ETHICAL BEHAVIOR?
Ethics can be defined as the code of moral principles that sets standards of good or bad,
or right or wrong, in one’s conduct and thereby guides the behavior of a person or group.
Ethical behavior is behavior that is accepted as “good” and “right” as opposed to “bad”
or “wrong” in the context of the governing moral code.
LAWS AND VALUES AS DETERMINANTS OF ETHICAL BEHAVIOR
Anything legal is not necessarily ethical, since there may be different cultures with
competing ethical frameworks within the same country, or even legislation that lags
behind changes in moral positions within a society.
What one considers ethical varies according to personal values –– the underlying beliefs
and attitudes that help determine individual behavior.
Types of values that influence ethical judgments:
 Terminal values are preferences about desired end states.
 Instrumental values are preferences regarding the means for accomplishing desired
ends.
ALTERNATIVE VIEWS OF ETHICS
FIGURE 3.1 on page 59 of the text illustrates the four views of ethical behavior.
Utilitarian view –– ethical behavior is that which delivers the greatest good to the most
people.
Individualism view –– ethical behavior is that which advances long-term self-interests.
Moral-rights view –– ethical behavior is that which respects and protects the
fundamental rights of all people.
Justice view –– ethical behavior is that which is impartial and fair in treating people
according to legal rules and standards.
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Procedural justice –– the degree to which policies and rules are fairly applied.
Distributive justice –– the degree to which people are treated the same regardless
of individual characteristics based on ethnicity, race, gender, age, or other
particularistic criteria.
Interactional justice –– the degree to which others are treated with dignity and
respect.
Commutative justice – the degree to which an exchange or a transaction is fair to
all parties.
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All of these ethical views have drawbacks.
 Utilitarian view – relies on the assessment of future outcomes that are difficult to
predict and measure accurately.
 Individualism view – presumes that individuals are self-regulating.
 Moral-rights view – provides for individual rights, but does not ensure that the
outcomes associated with protecting those rights are beneficial to the majority of
society.
 Commutative Justice view – places an emphasis on fairness and equity, but this
viewpoint raises the question of which type of justice is paramount.
DISCUSSION TOPIC
Ask students for examples of each of the above views of ethical behavior. These can be either
hypothetical examples, from current events or situations they have encountered in their own
lives. Ask them to indicate which view they think is the most useful in business, and why. Also
ask them to indicate which view they think is the most useful in their personal lives, and why.
Compare and contrast the two sets of answers, exploring the nature and reasons for any
differences in the two sets.
CULTURAL ISSUES IN ETHICAL BEHAVIOR
Ethical management in a global environment is challenged by the complexities of
different cultures and value systems throughout the world.
Cultural relativism is the notion that there is no one right way to behave and that ethical
behavior is always determined by the cultural context.
Moral Absolutism suggests ethical standards apply universally across all cultures
Critics claim moral absolutism is a form of ethical imperialism or the attempt to impose
one’s ethical standards on others.
FIGURE 3.2 on page 62 of the text contrasts cultural relativism and moral absolutism.
Business ethicist Thomas Donaldson argues instead that certain fundamental rights and
ethical standards, or “hyper-norms” should transcend cultural boundaries. Even with a
commitment to the core values underlying a trans-cultural ethical umbrella, international
business behaviors can be tailored to local and regional cultural contexts.
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TAKEAWAY QUESTION 2: HOW DO ETHICAL DILEMMAS COMPLICATE THE
WORKPLACE?
ETHICAL DILEMMAS
An ethical dilemma occurs when someone must choose whether or not to pursue a
course of action that, although offering the potential of personal or organizational benefit
or both, may be considered unethical.
Potential sources of ethical dilemmas include:
 discrimination
 sexual harassment
 conflicts of interest
 product safety
 organizational resources
According to one survey, 56% of U.S. workers feel pressured to act unethically in their
jobs, and 48% said they had committed questionable acts within the past year.
DISCUSSION TOPIC
A good way to get students thinking about ethical dilemmas and to generate a lively discussion is
to ask students how they would respond to the following three dilemmas. The range of student
responses is likely to be quite broad. Next, you can present the results of the Harvard Business
Review survey from which they were taken.
Case 1: foreign payment. A governmental official of a foreign nation asks you to pay a
$200,000 consulting fee. In return for the money, the official promises special assistance in
obtaining a $100 million contract that would produce at least a $5 million profit for your
company. The contract will probably go to a foreign competitor if not won by you. Survey
results: 42% of the responding managers would refuse to pay; 22% would pay, but consider it
unethical; 36% would pay and consider it ethical in a foreign context.
Case 2: competitor’s employee. You learn that a competitor has made an important scientific
discovery. It will substantially reduce, but not eliminate, your profit for about a year. There is a
possibility of hiring one of the competitor’s employees who knows the details of the discovery.
Survey results: 50% would probably hire the person; 50% would not.
Case 3: expense account. You learn that a manager in your company who earns $50,000 a year
has been padding his expense account by about $1,500 a year. Survey results: 89% feel padding
is okay if superiors know about it; 9% feel it is unacceptable regardless of the circumstances.
(Source: Brenner, S.N., and Mollander, E.A. “Is the Ethics of Business Changing?” Harvard Business Review,
January-February 1977, Volume 55, p. 60.)
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MANAGEMENT SMARTS on page 64 of the text provides a checklist for dealing with
ethical dilemmas.
Step 1. Recognize the ethical dilemma.
Step 2. Get the facts and identify your options.
Step 3. Test each option: Is it legal? Is it right? Whom does it affect? Who benefits?
Who gets hurt?
Step 4. Decide which option to follow.
Step 5. Double-check with the spotlight questions:
“How will I feel if my family finds out about my decision?”
“How will I feel if my decision is reported in the local newspaper or posted on
the Internet?
Step 6. Take action.
DISCUSSION TOPIC
Ask small groups of students to identify an ethical dilemma that commonly occurs for students
as they pursue their educations. Each group should focus on a different dilemma. Then have each
group discuss how their dilemma should be handled, given the checklist contained in
Management Smarts
INFLUENCES ON ETHICAL DECISION MAKING
Increased awareness of typical influences on ethical behavior can help you better deal
with future ethical pressures and dilemmas.
The illustration on page 64 of the text illustrates factors influencing ethical managerial
behavior – the person, situation, organization, and the external environment.
Factors influencing ethical managerial behavior:
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The person:
o Family influences, religious values, personal standards, and personal
needs, financial and otherwise, will help determine a person’s ethical
conduct in any given circumstance.
o Those with solid ethical frameworks, personal rules or strategies for
ethical decision-making, will be more consistent and confident.
o Personal values that give priority to such virtues as honesty, fairness,
integrity, and self-respect provide ethical anchors that help people make
correct decisions even when circumstances are ambiguous and situational
pressures are difficult.
Figure 3.3 on page 65 of the text describes Lawrence Kohlberg’s three levels of
moral development:
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Preconventional – the individual is self-centered.
Conventional – the individual is social-centered.
Postconventional – the individual is principle-centered.
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The situation:
o Ethical dilemmas can catch individuals off guard, or cause one not to see a
dilemma at all.
o Depending on the circumstances, behavior is controlled by ethics intensity,
which indicates the degree to which an issue or a situation is recognized to
pose important ethical challenges. In essence, the greater the ethical
intensity of the situation, increased awareness will more likely cause the
decision maker to act in an ethical way.
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The organization:
o Supervisors can have a major impact on their subordinates’ behaviors by
what is requested of the subordinate, and how a subordinate’s actions are
rewarded or punished.
o Peers and group norms have a similar impact.
o Formal policy statements and written rules are also helpful.
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The environment:
o Organizations operate in competitive environments influenced by
government laws and regulations as well as social norms and values.
o Laws interpret social values to define appropriate behaviors for
organizations and their members; regulations help governments monitor
these behaviors and keep them within acceptable standards. The SarbanesOxley Act of 2002 now makes it easier for corporate executives to be tried
and sentenced to jail for financial misconduct.
o The climate of competition in an industry also sets a standard of behavior
for those who hope to prosper within it.
RATIONALIZATIONS FOR UNETHICAL BEHAVIOR
Convincing yourself that the behavior is not really illegal.
 This rationalization is particularly common in ambiguous situations. A good rule
of thumb is “When in doubt, don’t do it.”
Convincing yourself that the behavior is in everyone’s best interest.
 This rationalization involves the mistaken belief that because someone may
benefit, the behavior is also in the interest of the individual or the organization.
When asking, “How far can I push matters to obtain this performance goal?” the
best answer is “Don’t try to find out.”
Convincing yourself that nobody will ever find out what you’ve done.
 This argument assumes no crime is committed unless it is discovered. To deter
this view, make sure that sanctions for wrongdoing are public.
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Convincing yourself that the organization will “protect” you.
 This implies the organization will condone the practice, but organizational norms
should not be put above the law or social morality.
DISCUSSION TOPIC
Ask students for examples of rationalizations for unethical behavior that they have used
themselves or have observed others using. Discuss the individual and organizational effects of
these rationalizations.
TAKEAWAY QUESTION 3: HOW CAN HIGH ETHICAL STANDARDS BE
MAINTAINED?
MORAL MANAGEMENT
An immoral manager chooses to behave unethically.
An amoral manager fails to consider the ethics of his or her behavior, but does so
unintentionally.
A moral manager makes ethical behavior a personal goal.
Management scholar Archie Carroll suggests that most managers are amoral, in that they
remain mostly uninformed or undisciplined in considering the ethical aspect of behavior.
ETHICS TRAINING
Ethics training refers to structured programs that help participants understand the ethical
aspects of decision-making, and help people incorporate high ethical standards into their
daily behaviors. Ethics training helps people deal with ethical issues while under
pressure.
CODES OF ETHICAL CONDUCT
A code of ethics is a formal statement of an organization’s values and ethical standards
that provide guidelines on how to behave in situations susceptible to ethical dilemmas.
Most codes of ethical conduct identify expected behavior in terms of
 General organizational citizenship
 The avoidance of illegal or improper acts in one’s work
 Good relationships with customers.
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Areas often covered in written codes of ethics include the following:
 Bribes and kickbacks.
 Political contributions.
 Honesty of books or records.
 Customer-supplier relationships.
 Coworker relationships.
 Confidentiality of corporate information.
Ethical codes cannot cover all situations; nor are they automatic insurance for universal
ethical conduct.
WHISTLEBLOWER PROTECTION
A whistleblower is a person who exposes the misdeeds of others in organizations to
preserve ethical standards and protect against wasteful, harmful, or illegal acts.
Federal and state laws increasingly offer whistleblowers some protection from retaliatory
discharge. Still, legal protection can be inadequate.
Top reasons for not reporting wrongdoing are
 The belief that no corrective action would be taken.
 The fear that reports would not be kept confidential.
Organizational barriers to whistleblowing include:
 A strict chain of command that makes it difficult to bypass the boss.
 Strong work group identities that encourage loyalty and self-censorship.
 Ambiguous priorities that make it difficult to distinguish right from wrong.
DISCUSSION TOPIC
Ask students to describe what they would do if they happened to be in a situation where they
could become whistleblowers. Then share the following practical tips for whistleblowers:
1. Do make sure you really understand what is happening and that your allegation is absolutely
correct.
2. Do not assume the law automatically protects you.
3. Do talk to an attorney to ensure that your rights will be protected and proper procedures are
followed.
4. Do not talk first to the media.
5. Do keep accurate records to document your case; keep copies outside of your office.
6. Do not act in anticipation of a big financial windfall if you end up being fired.
7.
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TAKEAWAY QUESTION 4: WHAT ARE SOCIAL RESPONSIBILITY AND
CORPORATE GOVERNANCE?
SOCIAL RESPONSIBILITY
Sustainability is acting in ways that support a high quality of life for present and future
generations
Corporate social responsibility (CSR) is the obligation of the organization to act in
ways that serve both its own interests and the interests of society at large. A commitment
to social responsibility highlights the importance of the triple bottom line of a firm’s
economic, social, and environmental performance.
Follow the Story on page 72 of the text describes how business school students are
challenged to serve the greater good by abandoning a “winner task all mentality” for the
collective good of society.
In view of the many corporate scandals plaguing society today, college students, who will
be seeking future jobs, favorably view organizations that follow ethical and socially
responsible practices.
STAKEHOLDERS AND STAKEHOLDER MANAGEMENT
Stakeholders are the persons, groups, and other organizations directly affected by the
behavior of the organization and hold a stake in its performance.
Commonly cited stakeholders are:
 employees
 educational institutions
 suppliers
 legal institutions
 customers
 financial institutions
 owners/stockholders
 public interest groups
 labor unions
 future generations
 competitors
 federal, state and local governments
These stakeholders are similar to those of any organization.
As shown in the Research Brief on page 74 of the text, the needs of stakeholders with the
most power are given priority versus those with urgency or legitimacy. Select an
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organization where a student works or volunteers and ask which stakeholders are viewed
as the most powerful, and which demands would be seen as urgent or legitimate.
PERSPECTIVES ON CORPORATE SOCIAL RESPONSIBILITY
While the classical and socioeconomic views of corporate social responsibility have
stimulated debate in academic and public policy circles, the notion of a shared values
approach advocated by Porter and Kramer advocates that decisions should be made that
produce win-win solutions, i.e., both economic progress for the firm and social progress
for the broader community.
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The classical view of corporate social responsibility holds that management’s only
responsibility in running a business is to maximize profits.
The socioeconomic view of corporate social responsibility holds that management of
any organization must be concerned with the broader social welfare and not just with
corporate profits.
The shared value view of corporate social responsibility holds that business should
focus on broader social welfare as well as profits.
The arguments of the classical view “against” social responsibility and the arguments of
the socioeconomic view “in favor of” social responsibility are summarized below.
Arguments against corporate social
responsibility
Reduced business profits.
Higher business costs.
Dilution of business purpose.
Too much social power for businesses.
In favor of corporate social
responsibility
Will add long-run profits for
businesses.
Improve public image of businesses.
Help businesses to avoid more
governmental regulation.
Businesses have the resources and
ethical obligation to act responsibly.
Lack of business accountability to the
public.
In today’s world, the public at large expects businesses and other organizations to act
with genuine social responsibility.
Research indicates that high performance in social responsibility can be associated with
strong financial performance and, at worst, has no adverse financial impact. Indeed,
evidence suggests there is a virtuous circle regarding the relationship between improved
financial performance and additional emphasis on corporate social responsibility.
EVALUATING CORPORATE SOCIAL PERFORMANCE
A social responsibility audit is a systematic assessment and reporting of an
organization’s accomplishments in areas of social responsibility.
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Social performance is driven by either compliance (i.e., acting to avoid adverse
consequences) or conviction (i.e., acting to create positive impact).
FIGURE 3.5 on p. 76 of the text describes four strategies of social responsibility in terms
of level of commitment to social responsibility. These strategies are:
 The obstructionist strategy (“fight the social demands”) meets the organization’s
economic responsibility.
 The defensive strategy (“do the minimum legally required”) meets the organization’s
economic and legal responsibilities.
 The accommodative strategy (“do the minimum ethically required”) meets the
organization’s economic, legal, and ethical responsibilities.
 The proactive strategy (“take leadership in social initiatives”) meets all the criteria
of social performance –– economic, legal, ethical, and discretionary responsibilities.
FIGURE 3.6 on page 77 of the text illustrates ethics self-governance in leadership and
the managerial role. While working to fulfill our accountability for achieving
performance objectives, we must be certain to do so in an ethical and socially responsible
manner.
DISCUSSION TOPIC
Discuss ways in which businesses can protect the environment and save money at the same time,
such as grocery stores selling low-priced canvas bags to replace paper or plastic ones; coffee
shops encouraging patrons to bring in their own cups; and fast food restaurants providing
recycling bins so customers can sort their trash. Ask students for other examples.
CORPORATE GOVERNANCE
Corporate governance is the oversight of the top management of an organization by a
board of directors. Governance typically involves hiring, firing, and compensating the
CEO; assessing strategy; and verifying financial records.
Considerable pressure exists for corporate governance to be the key guarantor that
businesses and other organizations run properly.
When governance is weak and corporate scandals occur, sometimes the government will
step in with laws such as the Sarbanes-Oxley Act.
Ethics self-governance is making sure day-to-day performance is achieved ethically and
in socially responsible ways.
Many industries today have developed self-governance policies to police themselves,
resulting in enhanced industry reputations and limited government regulation.
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CHAPTER 3 TAKEAWAY QUESTIONS SUMMARY
Takeaway Question 1: What is ethical behavior?
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Ethical behavior is that which is accepted as “good” or “right” as opposed to “bad” or
“wrong.”
Because an action is not illegal does not necessarily make it ethical in a given situation.
Because values vary, the question “What is ethical behavior?” may be answered differently
by different people.
The utilitarian, individualism, moral-rights, and justice views offer alternative ways of
thinking about ethical behavior.
Cultural relativism argues that no culture is ethically superior to any other; universalism
argues that certain ethical standards apply everywhere.
FOR DISCUSSION: Is there ever a justification for cultural relativism in international business
ethics?
Takeaway Question 2: How do ethical dilemmas complicate the workplace?
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An ethical dilemma occurs when someone must decide whether to pursue a course of action
that, although offering the potential for personal or organizational benefit or both, may be
unethical.
Managers report that their ethical dilemmas often involve conflicts with superiors, customers,
and subordinates over such matters as dishonesty in advertising and communications, as well
as pressure from bosses to do unethical things.
Common rationalizations for unethical behavior include believing the behavior is not illegal,
is in everyone’s best interests, will never be noticed, or will be supported by the organization.
FOR DISCUSSION: Are ethical dilemmas always problems, or can they also be opportunities?
Takeaway Question 3: How can high ethical standards be maintained?
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Ethics training can help people better deal with ethical dilemmas in the workplace.
Written codes of ethical conduct formally state what an organization expects of its employees
regarding ethical behavior at work.
Immoral managers intentionally choose to behave unethically; amoral managers do not really
pay attention to or think through the ethics of their actions or decisions; moral managers
consider ethical behavior a personal goal.
Whistleblowers expose the unethical acts of others in organizations, even while facing career
risks for doing so.
FOR DISCUSSION: Is it right for organizations to require employees to sign codes of conduct
and undergo ethics training?
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Takeaway Question 4: What are social responsibility and corporate governance?
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Social responsibility is an obligation of the organization to act in ways that serve both its own
interests and the interests of its many stakeholders.
The triple bottom line for assessing organizational performance evaluates how well
organizations are doing on economic, social, and environmental performance.
The argument against corporate social responsibility says that businesses should focus on
making profits; the argument for corporate social responsibility says that businesses should
use their resources to serve broader social concerns.
An organization’s social performance can be evaluated on how well it meets economic, legal,
ethical, and discretionary responsibilities.
Corporate strategies in response to demands for socially responsible behavior include
obstruction, defense, accommodation, and proaction.
Corporate governance is the responsibility of a board of directors to oversee the performance
of the organization’s top management.
FOR DISCUSSION: What questions would you include on a social audit for an organization in
your community?
CHAPTER 3 KEY TERMS
Accommodative strategy (p. 76): a social responsibility strategy that meets the organization’s
economic, legal, and ethical responsibilities by “doing the minimum that is ethically required.”
Amoral manager (p. 69): a manager who fails to consider the ethics of his or her behavior, but
does so unintentionally.
Classical view of corporate social responsibility (p. 74): a view that management’s only
responsibility in running a business is to maximize profits.
Code of ethics (p. 70): a formal statement of an organization’s values and ethical principles that
provides guidelines on how to behave in situations susceptible to ethical dilemmas.
Commutative justice (p. 61): the degree to which an exchange or a transaction is fair to all
parties.
Corporate governance (p. 77): the oversight of the top management of an organization by a
board of directors. The obligation of an organization to serve the interests of society in addition
to its own interests.
Corporate social responsibility (p. 71): the obligation of an organization to serve the interests
of society in addition to its own interests.
Cultural relativism (p. 62): the notion that there is no one right way to behave and that ethical
behavior is always determined by the cultural context.
Defensive strategy (p. 76): seeks to protect the organization by doing the minimum legally
necessary to satisfy expectations of social responsibility.
Demand legitimacy (p. 73): refers to the extent to which a stakeholder’s demand is perceived to
be valid.
Distributive justice (p. 61): focuses on the degree to which outcomes are distributed fairly.
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Ethical behavior (p. 58): behavior that is accepted as “good” and “right” as opposed to “bad” or
“wrong” in the context of the governing moral code.
Ethical dilemma (p. 63): a situation that requires a choice regarding a possible course of action
that, although offering the potential of personal or organizational benefit or both, may be
considered unethical.
Ethical framework (p. 64): a personal rule or strategy for making ethical decisions.
Ethical imperialism (p. 62): the attempt to impose one’s ethical standards on other cultures.
Ethics (p. 58): establish standards of good or bad, or right or wrong in one’s conduct.
Ethics intensity (p. 65): describes the extent to which an issue or a situation is perceived to pose
important ethics challenges.
Ethics self-governance (p. 77): making sure day-to-day performance is achieved ethically and
in socially responsible ways.
Ethics training (p. 70): structured programs to help participants understand the ethical aspects
of decision-making and to incorporate high ethical standards into their daily behavior.
Immoral manager (p. 69): a manager who chooses to behave unethically.
Individualism view (p. 60): ethical behavior is that advances long-term self-interests.
Instrumental values (p. 59): preferences regarding the means for accomplishing desired ends.
Interactional justice (p. 61): the degree to which others are treated with dignity and respect.
Issue urgency (p. 73): the extent to which a stakeholder’s demand requires immediate attention.
Justice view (p. 60): ethical behavior that is impartial and fair in treating people according to
legal rules and standards.
Moral absolutism (p. 62): applying ethical standards universally across all cultures.
Moral manager (p. 69): a manager who makes ethical behavior a personal goal.
Moral-rights view (p. 60): ethical behavior that respects and protects the fundamental rights of
people.
Obstructionist strategy (p. 76): avoids social responsibility and reflects mainly economic
priorities of an organization.
Proactive strategy (p. 76): a social responsibility strategy that meets the organization’s
economic, legal, ethical, and discretionary responsibilities by “taking leadership in social
initiatives.”
Procedural justice (p. 60): the degree to which policies and rules are fairly applied to all
individuals.
Shared value view (p. 75): approaching business decisions with the understanding that
economic and social progress are interconnected.
Social responsibility audit (p. 76): assesses an organization’s accomplishments in areas of
social responsibility.
Socioeconomic view of corporate social responsibility (p. 75): a view that management of any
organization must be concerned with social welfare and not just corporate profits.
Stakeholder power (p. 73): refers to the capacity of the stakeholder to affect positively or
negatively the operations of the organization.
Stakeholders (p. 73): persons, groups, and other organizations that are directly affected by the
behavior of the organization and that hold a stake in its performance.
Stewardship (p. 72): taking personal responsibility to always respect and protect the interests of
society at large.
Sustainability (p. 71): acting in ways that support a high quality of life for present and future
generations.
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Terminal values (p. 59): preferences about desired end states.
The 3 Ps of organizational performance (p. 73): are profit, people and planet.
Triple bottom line (p. 73): evaluates organizational performance on economic, social, and
environmental criteria.
Utilitarian view (p. 60): ethical behavior is that which delivers the greatest good to the most
people.
Values (p. 59): the underlying beliefs and attitudes that help determine individual behavior.
Virtuous circle (p. 75): occurs when corporate social responsibility improves the financial
performance of a firm, which in turn leads to more socially responsible actions in the future.
Whistleblower (p. 71): individual who exposes the misdeeds of others in organizations to
preserve ethical standards and protect against wasteful, harmful, or illegal acts.
SELF TEST ANSWERS
1.
Values are personal beliefs that help determine whether a behavior will be considered
ethical or unethical. An example of terminal value is __________.
(a) ambition (b) self-respect (c) courage (d) imagination
2.
Under the __________ view of ethical behavior, a business owner would be considered
ethical if she reduced a plant’s workforce by 10% in order to cut costs to keep the business
from failing and thus save jobs for the other 90%.
(a) utilitarian (b) individualism (c) justice (d) moral-rights
3.
A manager’s failure to enforce a late-to-work policy the same way for all employees on the
day shifts and night shifts is an ethical violation of __________ justice.
(a) ethical (b) moral (c) distributive (d) procedural
4.
The Sarbanes-Oxley Act of 2002 makes it easier for corporate executives to __________.
(a) protect themselves from shareholder lawsuits (b) sue employees who commit illegal
acts (c) be tried and sentenced to jail for financial misconduct (d) shift blame for
wrongdoing to boards of directors
5.
Two “spotlight” questions for conducting the ethics double-check of a decision are (a)
“How would I feel if my family found out about this?” and (b) “How would I feel if
_________?”
(a) my boss found out about this (b) my subordinates found out about this (c) this was
printed in the local newspaper (d) this went into my personnel file
6.
Research on ethical dilemmas indicates that __________ is/are often the cause of unethical
behavior by people at work.
(a) declining morals in society (b) lack of religious beliefs (c) the absence of
whistleblowers (d) pressures from bosses and superiors
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7.
Customers, investors, employees, and regulators are examples of __________ that are
important in the analysis of corporate social responsibility.
(a) special-interest groups (b) stakeholders (c) ethics advocates (d) whistleblowers
8.
A(n) __________ is someone who exposes the ethical misdeeds of others.
(a) whistleblower (b) ethics advocate (c) ombudsman (d) stakeholder
9.
A proponent of the classical view of corporate social responsibility would most likely agree
with which of these statements?
(a) Social responsibility improves the public image of business. (b) The primary
responsibility of business is to maximize business profits. (c) By acting responsibly,
businesses avoid government regulation. (d) Businesses can and should do “good” while
doing business.
10.
An amoral manager __________.
(a) always acts in consideration of ethical issues (b) chooses to behave unethically (c)
makes ethics a personal goal (d) takes action without considering whether or not the
behavior is ethnical.
11.
An organization that takes the lead in addressing emerging social issues is being
__________, showing the most progressive corporate social responsibility strategy.
(a) accommodative (b) defensive (c) proactive (d) obstructionist
12.
The criterion of __________ responsibility identifies the highest level of conviction by an
organization to operate in a responsible manner.
(a) economic (b) legal (c) ethical (d) discretionary
13.
Which viewpoint emphasizes that business can find ways to profit by doing things that
advance the well being of society?
(a) classical (b) shared value (c) defensive (d) obstructionist
14.
A manager shows self-governance when he or she always tries to achieve performance
objectives in ways that are __________.
(a) performance effective (b) cost efficient (c) quality oriented (d) ethical and socially
responsible
15.
The triple bottom line of organizational performance focuses on the “3 Ps” of profit, people
and _________.
(a) principle (b) procedure (c) planet (d) progress
16.
Explain the difference between the individualism and justice views of ethical behavior.
The individualism view is that ethical behavior is that which best serves long-term
interests. The justice view is that ethical behavior is fair and equitable in its treatment of
people.
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17.
List four common rationalizations for unethical managerial behavior.
The rationalizations are believing that: (1) the behavior is not really illegal, (2) the
behavior is really in everyone’s best interests, (3) no one will find out, and (4) the
organization will protect you.
18.
What are the major arguments for and against corporate social responsibility?
The socioeconomic view of corporate social responsibility argues that socially responsible
behavior is in a firm’s long-run best interest. It should be good for profits, it creates a
positive public image, it helps avoid government regulation, it meets public expectations,
and it is an ethical obligation.
19.
What is the primary difference between immoral and amoral management?
Management scholar Archie Carroll describes the immoral, ammoral, and moral manager
this way. An immoral manager does bad things on purpose, choosing to behave
unethically. The ammoral manager does bad things sometimes, but this is not intentional or
calculated; it happens because the ammoral manager just doesn't incorporate ethics into
his or her analysis of the situation. The moral manager, by contrast, always includes ethics
as a criterion for evaluating his or her approach to decisions and situations. This manager
strives to act ethically and considers ethical behavior a personal goal.
20.
A small outdoor clothing company has just received an attractive offer from a business in
Bangladesh to manufacture its work gloves. The offer would allow for substantial cost
savings over the current supplier. The company manager, however, has read reports that
some Bangladeshi businesses break their own laws and operate with child labor. How
would differences in the following corporate responsibility strategies affect the manager’s
decision regarding whether to accept the offer: obstruction, defense, accommodation, and
proaction?
The manager could make a decision based on any one of the strategies. As an
obstructionist, the manager may assume that Bangladesh needs the business and that it is a
local matter as to who will be employed to make the gloves. As a defensive strategy, the
manager may decide to require the supplier to meet the minimum employment
requirements under Bangladeshi law. Both of these approaches represent cultural
relativism. As an accommodation strategy, the manager may require that the supplier go
beyond local laws and meet standards set by equivalent laws in the United States. A
proactive strategy would involve the manager in trying to set an example by operating in
Bangladesh only with suppliers who not only meet local standards, but also actively
support the education of children in the communities in which they operate. These latter
two approaches would be examples of universalism.
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MANAGEMENT SKILLS AND COMPETENCIES
FURTHER REFLECTION: INDIVIDUAL CHARACTER
Students’ answers will vary based upon their individual experiences.
SELF ASESSMENT: TERMINAL VALUES
Interpretation
Terminal values reflect a person’s preferences concerning the “ends” to be achieved. They are the goals
individuals would like to achieve in their lifetimes. Following the scoring instructions in the text,
encourage students to share their answers to the questions. Cultural differences among students may
produce some interesting variations in the rankings.
TEAM EXERCISE: CONFRONTING ETHICAL DILEMMAS
Preparation
Read and indicate your response to each of the situations below.
A. Ron Jones, vice president of a large construction firm, receives in the mail a large envelope marked
“personal.” It contains a competitor’s cost data for a project that both firms will be bidding on shortly.
The data are accompanied by a note from one of Ron’s subordinates saying: “This is the real thing!” Ron
knows that the data could be a major advantage to his firm in preparing a bid that can win the contract.
What should he do?
B. Kay Smith is one of your top-performing subordinates. She has shared with you her desire to apply
for promotion to a new position just announced in a different division of the company. This will be tough
on you since recent budget cuts mean you will be unable to replace anyone who leaves, at least for quite
some time. Kay knows this and in all fairness has asked your permission before she submits an
application. It is rumored that the son of a good friend of your boss is going to apply for the job. Although
his credentials are less impressive than Kay’s, the likelihood is that he will get the job if she doesn’t
apply. What will you do?
C. Marty Jose got caught in a bind. She was pleased to represent her firm as head of the local
community development committee. In fact, her supervisor’s boss once held this position and told her in a
hallway conversation, “Do your best and give them every support possible.” Going along with this, Marty
agreed to pick up the bill (several hundred dollars) for a dinner meeting with local civic and business
leaders. Shortly thereafter, her supervisor informed everyone that the entertainment budget was being
eliminated in a cost-saving effort. Marty, not wanting to renege on supporting the community
development committee, was able to charge the dinner bill to an advertising budget. Eventually, an
internal auditor discovered the mistake and reported it to you, the personnel director. Marty is scheduled
to meet with you in a few minutes. What will you do?
Instructions
Working alone, make the requested decisions in each of these incidents. Think carefully about your
justification for the decision. Meet in a group assigned by your instructor. Share your decisions and
justifications in each case with other group members. Listen to theirs. Try to reach a group consensus on
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what to do in each situation and why. Be prepared to share the group decisions, and any dissenting views,
in general class discussion.
Instructor’s Note
This is an extremely useful exercise for exposing students to the kinds of ethical dilemmas that they can
expect to experience in their careers. As such, it provides them with an opportunity to consider how they
will respond to such dilemmas. During in-class discussions of these dilemmas, allow all students to
discuss their anticipated responses. There will likely be considerable variability in their answers, with
some students selecting much more “ethical” responses than others. During your discussion, emphasize
the long-term advantages of selecting highly ethical responses (e.g., maintaining one’s integrity,
demonstrating to others that you can be trusted, and having a clear conscience), since these advantages
may not be immediately apparent to all members of the class. Finally, instruct students to use the
following checklist for making ethical decisions to evaluate their initial responses to each of these
dilemmas. Doing so should prove to be beneficial in separating unethical from ethical responses to these
dilemmas.
A Quick Check for Dealing with Ethical Dilemmas (from Management Smarts in the text p.64)
Step 1. Recognize the ethical dilemma.
Step 2. Get the facts and identify your options.
Step 3. Test each option: Is it legal? Is it right? Whom does it affect? Who benefits?
Who gets hurt?
Step 4. Decide which option to follow.
Step 5. Double-check with the spotlight questions:
“How will I feel if my family finds out about my decision?”
“How will I feel if my decision is reported in the local newspaper or posted on
the Internet?
Step 6. Take action.
CAREER SITUATIONS: WHAT WOULD YOU DO?
Students’ answers will vary based upon their individual experiences and ethical perspectives.
Expect some discussion based upon cultural differences in ethics and values.
CHAPTER 3 CASE: PATAGONIA: LEADING A GREEN REVOLUTION
Discussion Questions
1. While Patagonia has a history of putting sustainability ahead of profits, it cannot do so at the
expense of operating capital. Based on what you learned about Patagonia’s ideals, how do you
think the company determines what possible ventures will be both practical and environmentally
friendly?
Chouinard has said that when they make decisions that are good for the environment, it turns out
profitable every time. For example, the decision to use only organic cotton in their products
wasn’t profitable at first, but when other manufacturers and retailers followed their lead, more
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growers went organic, supply increased and prices went down to the point where it is now used
in garments made for Wal-Mart. It seems that choices are made with the environment in mind
first with the assumption that profitability will follow. It’s conceivable that if their practices were
to ever face criticism for not being environmentally sound, there could be a consumer backlash.
2. What could Patagonia do today to confirm that Yvon Chouinard’s ideals become a permanent
part of the company’s culture after he leaves the company?
Chouinard is clearly the heart of the culture, much as Herb Kelleher is at Southwest Airlines and
Steve Jobs is at Apple. None will live forever, so they need to establish core values that everyone
believes in and build a culture around them that is reinforced and taught to new employees.
Elements of culture are covered more thoroughly in chapter 12.
Problem Solving
It seems Yvon Chouinard is never satisfied. He comes to you and asks for a proposal on a new—
“forward looking”—sustainability agenda for the firm. What would you include in this agenda
that will stretch the firm beyond what it is already doing, and why?
Students can let their imaginations run wild on this one. Suggestions may include sponsoring
sustainable food products, sustainable eco-friendly travel and adventure tours that include a
stop to help underprivileged people along the way, extending their clothing recycling to include
other fibers and consulting services that help other businesses or even communities mimic their
sustainable practices.
Further Research
Business decisions can often be a compromise between ethics and profitability, even for a
company with the idealism of Patagonia. Research Patagonia and see if you can find a business
decision that appeared to put profits ahead of the company’s publicly stated environmental goals.
Explain why you think that company made this decision and the competing factors you believe
were involved.
Caution students to conduct their online research with objective media sources. The college
library may offer free searches such as EBSCO Host that access a large number of periodicals
including industry publications that may provide thorough and accurate comparisons as well as
current industry trends.
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Chapter 3: Ethical Behavior and Social