Chapter 6
Ethics and Social Responsibility
Learning Objectives
 Explain ethics as they relate to the five domains of
individuals, organizations, stakeholders, government, and
the global community
 Demonstrate processes and practices for managing
organizational ethics
 Describe how businesses approach social responsibility
 Explain how organizations seek to prosper through social
responsibility
 Summarize management’s role in building responsible
businesses based on ethical decision making
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What Are Ethics? (p. 144)
 Ethics
• The moral principles, values, and beliefs that
govern group or individual behavior according to
what is right or wrong and what contributes to the
balanced good of all stakeholders
• Ethical dilemma – a situation in which no choice
is entirely right
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What Are Ethics? (cont.)
 Domains of ethical decision making
Figure 6.1
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What Are Ethics? (cont.)
 Individuals (p. 145)
• Lawrence Kohlberg’s “stages of moral development”
 Progression from interests in self to interest in others (p.
146)
 Preconventional – moral decisions are based primarily on
self-protection or self-interest
 Conventional – moral decisions are based primarily on
social norms
• Societal norms – expectations about how people (and
organizations) should behave
 Postconventional – moral decisions are based primarily on
what individual believes is good for society as a whole
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What Are Ethics? (cont.)
 Kohlberg’s stages of moral development
Figure 6.2
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What Are Ethics? (cont.)
 Organizations - posture of the organization
toward the local and global communities (p. 146)
Figure 6.3
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What Are Ethics? (cont.)
 Value-based management - company’s culture impacts
employee behavior in ways that are
consistent with the
organization’s mission
and values (p. 147)
Figure 6.4
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What Are Ethics? (cont.)
 Stakeholders (p. 148)
• Internal and external constituents with a direct interest
in the organization’s behavior
 Experience the effects of company’s management decisions
Figure 6.5
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What Are Ethics? (cont.)
CRITICAL
THINKING
 Externality – a cost (negative) or benefit (positive) that
occurs beyond the direct exchange between an
organization and its stakeholders (p. 148)
 Escalation – an increase in an organization’s behavior
as a direct response to a competitor’s behavior (p. 149)
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What Are Ethics? (cont.)
 Governments (p. 149)
• Enact legal requirements to prevent unethical
behavior
 E.g., Sarbannes-Oxley Act (2002) – requires greater
transparency in company accounting practices
• Face “fundamental large-firm problem” stemming
from:
 Separation of ownership and control
 Decentralized regulation system
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What Are Ethics? (cont.)
 Globe (p. 150)
• Global-level of ethics – principles, values, and
beliefs that are widely considered universal
 United Nations’ - “The Global Compact”
• Intended to guide decision making in the areas of human
rights, labor, the environment, and anti-corruption
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Making Ethical Decisions (p. 151)
 Principles of ethics (p. 152)
• Legal principle – decisions that follow both the
letter and spirit of the law
• Individual rights principle – decisions that do not
infringe upon the rights of other people
• Virtuous principle – decisions of which you would
be publicly proud
• Long-term principle – decisions that support the
long-term interests of yourself and your
organization
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Making Ethical Decisions (cont.)
 Principles of ethics (cont.)
• Community principle – decisions that contribute to
the strength and well-being of the community (p.
152)
• Utilitarian principle – decisions that provide the
greatest good to the greatest number (or the least
harm to the fewest number)
• Distributed justice principle – decisions that do not
harm those who already are disadvantaged
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Making Ethical Decisions (cont.)
 Codes of conduct - organization’s published guidelines
of its expectations about ethical behavior (p. 153)
• Typically address conduct in eight areas
 Fiduciary
 Dignity
 Property
 Transparency
 Reliability
 Fairness
 Citizenship
 Responsiveness
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Making Ethical Decisions (cont.)
 Principle-based management (p. 153)
• Organization proactively connects values and
beliefs to behavior expectations
• All stakeholders are continuously made aware of
standards for behavior
• Stakeholders become a vital component to decision
making
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Social Responsibility (p. 154)
 Social responsibility (p. 155)
• Proactive behaviors for the benefit of society
 Corporate social responsibility (CSR)
• Programs that coordinate the company’s efforts to
address societal and community challenges as they
emerge
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Social Responsibility (cont.)
 Approaches to social responsibility (p. 155)
• Proactive approach – organization goes beyond
industry norms to solve and prevent problems
 Begin by consulting the articles of incorporation
 May change the legal structure to support socially
responsible activities
• B Lab – non-profit organization that certifies socially
responsible companies
• Accommodative approach – organization accepts
responsibility and takes action in response to
societal pressures (p. 156)
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Social Responsibility (cont.)
 Approaches to social responsibility (cont.)
• Defensive approach – organization accepts
responsibility, but does only the minimum required
(p. 156)
• Reactive approach – organization denies
responsibility for social problems and responds
only when legally required
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How Does Social Responsibility Pay?
(p. 157)
 Social entrepreneurs - people who start a business for
the dual purpose of profits and societal benefits
• Consumers and investors becoming more active in
supporting and investing in socially responsible
companies
• Social investing – e.g., Calvert Social Investment Fund
screens companies on financial performance and:
Environment
Workplace
Human rights
Indigenous peoples’ rights
Community relations
Product safety and impact
Governance business ethics
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Managing Social Responsibility Today
(p. 158)
 Managers must make principle-based
decisions informed by industry and societal
standards
• Internalizing an externality – management
proactively addresses a negative externality for the
benefit of its stakeholders
• Building an ethical culture
 Apply a framework for ethical decision making
 Ethics training
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Managing Social Responsibility Today
(cont.)
 Ethical decision making framework (p. 158)
• Duties (p. 159)
 Perfect duties – clearly articulated moral obligations
 Imperfect duties – moral obligations that can be
interpreted in different ways
• Rights –behaviors that can be expected from others,
based on their duties
• Standards of excellence – organization’s highest
expectations of behavior
• Commitments – self-defined principles unique to an
individual or organization
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Managing Social Responsibility Today
(cont.)
 Ethical decision making framework (cont.)
• Applying the framework (p. 159)
 Understanding the situation
 Connecting behaviors to standards
 Impartial analysis
• Visibility – the “newspaper test”
• Generality – would all organizational members be comfortable
with action taken
• Legacy – would decision maker be comfortable being
remembered for the action taken
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Managing Social Responsibility Today
(cont.)
 Ethics training (p. 159)
• Intended to prevent unethical behavior from occurring
Figure 6.6
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Managing Social Responsibility Today
(cont.)
 Ethics training (cont.)
• Audience for training
 Training characteristics – trainees’ current moral profile
• Audience’s assertiveness, cognitive ability, perspective on ethical
behavior (p. 159)
 Needs assessment – determine audience’s need for ethics
training (p. 160)
 Training transfer – steps to assure that what is learned
about ethics will be used on the job
 Evaluation – determine the effect of training on trainees’:
 Reaction to the training
 Knowledge/skills tests
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Workplace behavior
Organizational performance
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Managing Social Responsibility Today
(cont.)
 In the interests of
self or others?
(p. 161)
 Tragedy of
the commons
Figure 6.7
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