Ethics and Corporate Social Responsibility

Remember, syllabus and schedule highlights
are at
Ethics and Corporate Social
Responsibility/Corporate Governance
old edition Ch. 3
new edition Ch. 4
What are ethics
Why does it matter?
What are CSR and corporate governance?
What are stockholder and stakeholder views?
The system of rules that governs the ordering of
One survey: > 1/3 have observed unethical
conduct at work.
Another survey: #1 justification for unethical
behavior—“pressure to meet unrealistic goals
and deadlines.”
Another survey:
39% said supervisors sometimes didn’t keep
24% said supervisor had invaded their privacy
23% said supervisor covered up own mistakes
by blaming someone else
Ethical Dilemmas YOU may face
CEO pay
Commercialism in schools
Religion at work
Sarbanes-Oxley Act
Established strict accounting and reporting rules to
make senior managers more accountable and to
improve and maintain investor confidence.
Mostly driven by accounting fraud.
What would you do?
You are international vice president of a multinational
chemical corporation. Your company is the sole producer
of an insecticide that will effectively combat a recent
infestation of West African crops. The minister of
agriculture in a small, developing African country has put in
a large order for your product. Your insecticide is highly
toxic and is banned in the United States. You inform the
minister of the risks of using your product, but he insists on
using it and claims it will be used “intelligently.” The
president of your company believes you should fill the
order, but decision is ultimately yours.
Danger signs
Short-term revenue emphasized over longer-term
No written code of ethics, no ethics procedures
“Quick fix” solutions to ethical problems
Avoiding financial costs of ethical decisions
Focus much more on stockholders than other groups
Ethics focus mostly legal or PR
The J & J Example
Corporate Governance
•Discuss corporate governance
Why we have organizations,
How they differ,
Purpose of business,
Stockholders and stakeholders,
Mission statements
Criteria to assess them with
Comparison exercise
Ethics introduction to organization culture and values
Value systems comparison
Now…what’s corporate governance?
Governance structure:
how we govern/manage economic activity.
different ways of organizing.
Could be:
A market--a buyer and a seller
A hierarchy--a typical company of
Many other “in-between”, such as:
franchising, joint ventures, alliances, networks,
What’s corporate governance?
ALL organizations = F (social convention)
(we agree to them)
What’s corporate governance?
Why does this matter?
Structure affects, and is affected by, decisions
about who should benefit from the organization’s
One assumption of our social system: Property
“Your stuff is your stuff, my stuff is my stuff”
What’s corporate governance?
Agency theory: managers are agents working on
a principle’s (owner’s) behalf.
So…..on whose behalf should they work?
Who has property rights to a company?
What’s the purpose of business?
The sole purpose of being rich is to give away money.
As I grow older, I pay less attention to what men say. I just
watch what they do.
Andrew Carnegie, 1835-1919
vs. Freeman
What is the purpose of business?
Milton Friedman: The Social Responsibility of
Business Is to Increase Its Profits
Free enterprise, private-property system: executive is
employee of owners. Pursue their objectives, within
the rules of the game--open and free competition, no
deception, no fraud.
Invest in social or other objectives to the extent it is in
the best interest of the firm or as required by law.
Defining “best interests”?
Edward Freeman: Stakeholder Theory
Stakeholders are individuals or groups that have
an interest, claim, or stake in the company and its
Who are they?
Normative: “Firms/managers ought to…”
Externalities—free-riding, externalize costs
Moral hazards—seller passes on costs
Monopoly power—restraint of competition
It must be borne in mind that the tragedy of life doesn’t lie
in not reaching your goal.
The tragedy lies in having no goal to reach.
It is not a disaster to be unable to capture your idea, but it
is a disaster to have no ideal to capture.
It is not a disgrace not to reach the stars, but it is a
disgrace to have no stars to reach for.
Dr. Benjamin Mayes, former president,
Morehouse College, Atlanta
Ah, but a man’s reach should exceed his grasp,
Or what’s a heaven for?
Robert Browning, Andrea del Sarto
Core: statement/definition of purpose
Not always written
Can be: long—short, detailed—brief, abstract—specific,
vision and mission combined--separate statements
What criteria can we use to evaluate?
Goodyear’s vision:
…to be ranked by all measures as the best tire and rubber company
in the world.
What do you think of theirs? Give specific reasons.
John Kotter’s mission statement criteria
Imaginable: conveys a sense of the future
Desirable: appeals to long-term interests of most stakeholders
Feasible: suggests realistic attainable goals
Focused: provides clear guidance for decision-making
Flexible: allows individuals and groups to adapt to changing conditions
Communicable: easy to communicate
Mission Statement Exercise
What are ethics and how do they play a role?
Ethics = F (culture, values)
How will we conduct ourselves personally?
How will we act as an organization?
What kind of organization do we want?
Some values are about ethics:
“…honesty, fairness, trustworthiness, and
sincerity in all of our activities”
Seattle City Light mission statement
Some aren’t:
“Reserves must be created to provide for
adverse times”
Johnson & Johnson’s Credo
Credo: a set of fundamental guiding beliefs
Value systems: why do they matter?
Vary from firm to firm.
Affect individual and firm behavior.
Can be managed for the organization’s benefit
You can change them, but you can’t ignore them.
Influence how decisions are developed and implemented
Value system comparison exercise
Let’s compare some value systems. I’ll give you one—American-style democratic
capitalism. Can you come up with three more?
How can we compare them?
Comparing Value Systems
Static characteristics
Basic method of pursuit
Role of organization
Role of individual
Structure (formal)
Degree of centralization
Decision-making process
Locus of control
Extent of individual participation
Speed of decision
Speed/thoroughness of implementation
Democratic Capitalism
Comparing Value Systems
Dynamic characteristics
Built-in adaptation process
Responsiveness to change
in the environment
Accuracy/quality of response
Democratic Capitalism
The Ethics of Management
L.T. Hosmer
Let’s discuss the hand-out
Some typical questions relating to it
KNOW the hand-out well...
What have we done?
Why organizations exist, what forms exist
Purpose issues: stockholder, stakeholder
Defining mission:
organizations need a sense of long-term purpose
multiple criteria should be used to assess how well you express that
defining and expressing it well is difficult
Value systems/ethics/culture:
crucial organizational forces
influence how firms make and implement strategic decisions
The Ethics of Management (Hosmer) hand-out