Chapter Five
Management’s Social and
Ethical Responsibilities
Chapter Objectives
• Define the term corporate social responsibility
(CSR) and specify the four levels in Carroll’s
global CSR pyramid.
• Contrast the classical economic and
socioeconomic models of business and
summarize the arguments for and against CSR.
• Identify and describe the four social responsibility
strategies and explain the concept of enlightened
self-interest.
• Summarize the four practical lessons from
business ethics research.
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Chapter Five | 2
Chapter Objectives (cont’d)
• Distinguish between instrumental and terminal
values and explain their relationship to business
ethics.
• Identify and describe at least four of the ten
general ethical principles.
• Discuss what management can do to improve
business ethics.
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Chapter Five | 3
Social Responsibility:
Definition and Perspectives
• Corporate Social Responsibility (CSR)
– The idea that business has:
• Social obligations above and beyond making a profit
• Social obligations to constituent groups in society other than
stockholders and beyond that prescribed by law
– Organizations include financial, environmental, and
social responsibility in their core business strategies.
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Figure 5.1: Carroll’s Corporate Global
Social Responsibility Pyramid
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Chapter Five | 5
Social Responsibility:
Definition and Perspectives (cont’d)
• What Does Social Responsibility Involve?
– Voluntary action
• Action is taken before lawsuits or other events force a firm to
act on a matter.
– An emphasis on means, not ends
• Emphasis is on how the decision to act was reached, not on
the decision itself.
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What Is the Role of
Business in Society?
• The Classical Economic Model (Adam Smith)
– An “invisible hand” (i.e., the efforts of competing
entrepreneurs) promoted the public welfare when
individuals tried to maximize short-run profits in pursuit
of their own economic self-interests.
• Equates short-run profitability to social responsibility
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What Is the Role of
Business in Society? (cont’d)
• The Socioeconomic Model
– Business has an obligation to meet the needs of the
many groups in society besides stockholders in its
pursuit of profit.
• Stakeholder audit: Systematically identifying all the parties that
could possibly be affected by the company’s performance
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Figure 5.2: A Sample Stakeholder Audit for
Wal-Mart, the World’s Largest Retailer
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Arguments For and Against
Corporate Social Responsibility
• Arguments For
– Business is unavoidably involved in social issues.
– Business has the resources to tackle today’s complex
societal problems.
– A better society means a better environment for doing
business.
– Corporate social action will prevent government action.
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Arguments For and Against
Corporate Social Responsibility (cont’d)
• Arguments Against
– Profit maximization ensures the efficient use of
society’s resources.
– As an economic institution, business lacks the ability to
pursue social goals.
– Business already has enough power.
– Because business managers are not elected, they are
not directly accountable to society.
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Toward Greater Social Responsibility
• Iron Law of Responsibility
– Those who do not use power in a socially responsible
way will eventually lose it.
– If business does not meet the challenge of social
responsibility, then government reform legislation will
force it to meet its obligations.
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Social Responsibility Strategies
• Reactive Strategy
– Denying responsibility while striving to maintain
the status quo by resisting change
• Defensive Strategy
– Resisting additional social responsibilities with
legal and public relations tactics
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Social Responsibility Strategies (cont’d)
• Accommodation Strategy
– Assuming social responsibility only in response
to pressure from interest groups or the
government
• Proactive Strategy
– Taking the initiative in formulating and putting in
place new programs that serve as role models
for industry
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Figure 5.3: A Continuum of Social
Responsibility Strategies
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Who Benefits from Corporate
Social Responsibility
• Altruism
– The unselfish devotion to the interests of others
• Research Findings
– There is a positive correlation between industry
leadership on a socially responsible issue (pollution
control) and profitability.
– Corporate social responsibility is a competitive
advantage in recruiting.
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Who Benefits from Corporate
Social Responsibility (cont’d)
• Enlightened Self-Interest
– A business ultimately helps itself by helping solve social problems.
• An Array of Benefits for the Organization
–
–
–
–
–
–
–
Tax-free incentives to employees
Retention of talented employees
Help in recruiting the talented and socially conscious
Help in swaying public opinion
Improved community living standards
Attracting socially conscious investors
A nontaxable benefit for employees from company donations to
charitable causes
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The Ethical Dimension of Management
• Ethics
– The study of moral obligation involving the distinction
between right and wrong
• Business Ethics
– The study of the complex business practices and
behaviors that give rise to ethical issues in
organizations
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Practical Lessons from
Business Ethics Research
• Ethical Hot Spots
– Balancing work and
family
– Poor internal
communications
– Poor leadership
– Work hours, work load
– Lack of management
support
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– Need to meet sales,
budget, or profit goals
– Little or no recognition
of achievements
– Company politics
– Personal financial
worries
– Insufficient resources
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Practical Lessons from
Business Ethics Research (cont’d)
• Pressure from Above
– The problem of superiors pressuring
subordinates to achieve results is widespread.
– Managers’ responses to pressure from above
• Consciously avoid putting undue pressure on
subordinates (who may act unethically to relieve the
pressure).
• Prepare to deal with excessive organizational
pressure.
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Practical Lessons from
Business Ethics Research (cont’d)
• Ambiguous Situations
– Situations where there are no clear-cut ethical
guidelines or ethical codes that can satisfy employees’
need for formal guidelines
• Rationalization: How Good People End Up Doing
Bad Things
– Perceiving an objectively questionable action as normal
and acceptable
• A Call to Action
– The deliberate and conscious action of a manager to do
the right thing is an ethical and personal matter.
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Table 5.1: How Employees Tend to
Rationalize Unethical Conduct
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Personal Values as Ethical Anchors
• Values
– Abstract ideals that shape one’s thinking and behavior
• Instrumental value: Enduring belief that a certain way (mode)
of behaving is appropriate in all situations
• Terminal value: Enduring belief that a certain end-state of
existence (being admired) is worth striving for
• Identifying Your Own Values
– Basic personal values are taken for granted.
– They are not arranged consciously in order of priority.
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Managerial Ranking of Values
• Terminal Values
– Self-respect
– Family security
– Freedom
– A sense of
accomplishment
– Happiness
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• Instrumental Values
– Honesty
– Responsibility
– Capability
– Ambition
– Independence
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General Ethical Principles
• Self-interests
• Personal virtues
• Religious
injunctions
• Government
requirements
• Utilitarian benefits
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•
•
•
•
•
Universal rules
Individual rights
Economic efficiency
Distributive justice
Contributive liberty
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Encouraging Ethical Conduct
• Ethics Training
– Amoral managers: Managers who are neither moral nor
immoral, but ethically lazy
– Key features of effective ethics programs
•
•
•
•
•
•
Support of top management
Open discussion
A clear focus on ethical issues
Integration of ethics into the organization
A mechanism for anonymously reporting ethical violations
Rewarding of ethical conduct
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Table 5.2: Twelve Questions for Examining
the Ethics of a Business Decision
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Encouraging Ethical Conduct (cont’d)
• Ethical Advocate
– An ethics specialist who plays a role in top
management’s decision making
• Code of Ethics
– Requirements for an effective code
• Describes specific events as unethical
• Is supported and equitably enforced by top management
• Whistle-Blowing
– The reporting of perceived unethical matters
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Summary
• Corporate responsibility is the idea that
management has broader responsibilities than
just making a profit.
• The debate over the basic purpose of the
corporation is long-standing.
• Management scholars who advocate greater
corporate social responsibility cite the iron law of
responsibility.
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Summary (cont’d)
• Ethics research indicates that many employees have
acted unethically, have been pressured to act unethically,
desire ethical standards, and engage in rationalization to
defend their behaviors.
• Managers must pay attention to the instrumental and
terminal values that comprise employee’s personal value
systems.
• There are at least ten general ethical principles that guide
behavior.
• The typical manager is considered to be amoral.
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Terms to Understand
•
•
•
•
Social responsibility
Stakeholder audit
Iron law of responsibility
Reactive social
responsibility
• Defensive social
responsibility
• Accommodative social
responsibility
• Proactive social
responsibility strategy
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•
•
•
•
•
•
•
•
•
•
Altruism
Enlightened self-interest
Corporate philanthropy
Ethics
Values
Instrumental value
Terminal value
Amoral managers
Ethical advocate
Whistle-blowing
Chapter Five | 31