Managing Business Ethics
and Social Responsibility
Introductory Lecture
Martyn Kendrick
De Montfort University
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Learning Outcomes
• Define ethics and explain how ethical behavior
relates to behaviour governed by law and free
choice.
• Outline the utilitarian, individualism, moralrights, and justice approaches for evaluating
ethical behavior.
• Describe the factors that shape a manager’s
ethical decision making.
• Identify important stakeholders for an organization
and discuss how managers balance the interests
of various stakeholders.
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Learning Outcomes
• Explain the philosophy of sustainability and
why organizations are embracing it.
• Define corporate social responsibility and
how to evaluate it along economic, legal,
ethical, and discretionary criteria.
• Discuss how ethical organizations are
created through ethical leadership and
organizational structures and systems.
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Will You Be A
Courageous Manager?
• Managers exercise the strength of their
moral beliefs and sense of justice
• Moral lapses and financial scandals has
made ethical and courageous behaviour
an important trait for today’s managers
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Ethics
The code of moral principles and
values that govern the behaviors of
a person or group with respect to
what is right or wrong.
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Managerial Ethics
• Ethics can be difficult to define
• Ethical issues are exceedingly complex
• Managers face a variety of difficult
situations
• Ethics fall between law and free choice
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Failure of Corporate Ethics
• Financial Scandals
• Health & Safety Scandals
• Corruption & Bribery
• Moral Scandals
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Corporate Scandals
• ENRON (USA) - In just 15 years, Enron grew
from nowhere to be America's seventh largest
company, employing 21,000 staff in more than
40 countries.
• But the firm's success turned out to have
involved an elaborate scam. Enron lied about its
profits and was accused of a range of shady
dealings, including concealing debts through
“special purpose entities” so that they didn't
show up in the company's accounts.
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Corporate Scandals
• ENRON (USA) • The scandal at the one-time energy giant left
21,000 people out of work, and shook corporate
America, when the firm went bankrupt in 2001
with debts of $31.8bn (£18bn).
• Former Enron CEO Jeffrey Skilling was
sentenced to 24 years in prison in 2006 for his
role in the giant fraud that led to the energy
firm's 2001 collapse. Kenneth Lay, the former
Chairman, was also found guilty, but died before
his sentence was confirmed
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Corporate Scandals
• SATYAM (India) - It has been called India's Enron given
that the biggest-ever corporate fraud in the country had
escaped unnoticed for so many years. $63 Billion fraud filed for bankruptcy after fiddling accounts over long
period to boost published profits.
- India’s fourth-largest outsourcing services provider
inflated the amount of cash it said was on its books by
$1bn (£680m); incurred a $253m liability on funds
personally arranged by its chairman and founder,
Ramalinga Raju; overstated quarterly revenues for the
period ending 30 September 2008 by 28% and
overstated earnings by $125m.
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Corporate Scandals
• SANLU (China) - In November 2009, China executed
two people deemed responsible for the tainted milk
scandal. At least six children had died and 300,000 were
made ill. Sanlu, the company at the heart of the scandal,
knew that its milk was making babies ill by May 2008,
but it did not inform officials until August 2008.
• Tian Wenhua, the CEO, was given a life sentence after
pleading guilty to charges of producing and selling fake
or substandard products.Three other former Sanlu
executives were given between five years and 15 years
in prison. The mayor, party leader and other city officials
in Shijiazhuang were sacked and China's food standards
boss resigned due to the scandal
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Ethical Dilemmas: What Would You
Do?
• An ethical dilemma arises in a situation
concerning right or wrong when values
are in conflict
• Managers and employees are the moral
agents who must make ethical choices
• Decisions about advertising, operations,
and internet usage are all dilemmas YOU
might face
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Carroll’s level of values
Individual
Organisational
Associational
Societal
International
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Ethical Dilemmas – What would
you do?
• Your company requires a money laundering
screening for all new customers, which takes
approximately 24 hours from the time an order is
placed.
• But you can close a lucrative deal with a
potential long-term customer (and secure a large
bonus) if you agree to ship the products
overnight, even though that means the required
money laundering screening will have to be
done after the fact
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Ethical Dilemma – what would do?
• You are the accounting manager of a division
that is $15,000 below profit targets.
• Approximately $20,000 of office supplies were
delivered on December 21.
• The accounting rule is to pay expenses when
incurred.
• The division general manager asks you not to
record the invoice until next February so team
can share a bonus for meeting target.
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Criteria for Ethical
Decision Making
• Utilitarian approach – moral behaviors
should produce the greatest good for the
greatest number
• Individualism approach – acts are moral
when they promote the individual’s best longterm interests
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Criteria for Ethical
Decision Making
• Moral Rights Approach – moral decisions
are those that best maintains the rights of
those affected
• Justice Approach – decisions must be
based on standards of equity, fairness, and
impartiality
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Defining Justice
Distributive Justice – different treatment of
people should not be based on arbitrary
characteristics.
Compensatory Justice – individuals
should be compensated for the cost of
their injuries by the party responsible.
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Manager Ethical Choices
An important personal trait that mangers poses is their
stage of moral development
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Globalization and Ethics
• Globalization makes ethical issues more complex
• Bribes are common practice in many countries Transparency International ranks 178 countries based on
Bribe Payers Index.
http://www.transparency.org/policy_research/surveys_indices/cpi/2010
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
What is Corporate Responsibility?
Corporate Social
Responsibility (CSR) is the
obligation of organization
management to make
decisions and take actions
that will enhance the
welfare and interests of
society as well as the
organization
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
What is Corporate Responsibility?
• Huge literature on CSR and growing all the time.
• Garriga and Mele suggest that research into
CSR can be split into four general categories:
- Instrumental theories which focus on profit
maximization
- Political theories which ascribe responsibilities
to organizations as part of their social contract or
‘license to operate’
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
What is Corporate Responsibility?
- Integrative theories which suggest that the
long-term success and profitability of
organizations is closely allied to the well-being of
society.
- Ethical theories which apply ethics on
organizations and deduct the responsibility of
firms from universal and/or conventional norms
and values and fundamental moral principles
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Organizational Stakeholders
Stakeholders are any group within or outside the organization
that has a stake in the organization’s performance.
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
The Ethics of Sustainability
• Sustainable Development
– Economic Development that generates wealth
– Meets the needs of current generation
– Saving the environment for future generations
• Managers are weaving sustainability into
strategic decisions
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Evaluating Corporate
Responsibility
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
The Ethical Organization
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
Managing Company Ethics and
Social Responsibility
Code of Ethics – formal statement of the
organization’s values regarding ethics and
social issues
Ethical Structures – systems, positions and
programs to implement ethical behavior
Whistle-Blowing – employee disclosure of
illegal, immoral, or illegitimate practices
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning
The Business Case for Ethics and
Social Responsibility
• Paying attention to ethics and social
responsibility is as important as profits
and costs
• Ethical and social actions impact
financial performance
• Companies are beginning to measure
nonfinancial factors that create value
• Customers pay attention to a company’s
ethics and social responsibility
For use with Management
by Richard Daft, Martyn Kendrick and Natalia Vershinina
1844808823 © 2010 Cengage Learning