Ethics and
Corporate
Responsibility
Chapter Four
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Ethics
 Ethics- the moral
principles and
standards that guide
the behavior of an
individual or groupl
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Telling the Truth and Lying: Possible
Outcomes
Exhibit 4.1
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It’s a Personal Issue
 Most of us think we are good decision
makers, ethical, and unbiased.
 But most people have unconscious biases
that favor themselves and their own group.
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It’s a Personal Issue
Managers often:
 Hire people who are like them
 Think they are immune to conflicts of interest
 Take more credit than they deserve
 Blame others when they deserve some blame
themselves
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It’s a Personal Issue
Is it ethical to:
 Shop online during company time?
 Using office equipment for personal use?
 Read personal emails while at work?
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Ethics
Ethical issue
 Situation, problem, or opportunity in which an
individual must choose among several actions
that must be evaluated as morally right or wrong
Business ethics
 The moral principles and standards that guide
behavior in the world of business.
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Ethical Systems
Moral philosophy
 Principles, rules, and values people use in
deciding what is right or wrong
Universalism
 The ethical system stating that all people should
uphold certain values, such as honesty, rules
against murder, deceit, oppression, etc. and
other values that society needs to function.
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Caux Principles
Caux Principles
 Ethical principles established by international
executives based in Caux, Switzerland, in
collaboration with business leaders from Japan,
Europe, and the United States.
 Two basic ethical ideals underpin the Caux
Principles:
• Kyosei
• Human Dignity
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Caux Principles
Kyosei
 living and working
together for the
common good,
allowing cooperation
and mutual prosperity
to coexist with healthy
and fair competition
Human dignity
 concerns the value of
each person as an
end, not a means to
the fulfillment of
others’ purposes
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Core ethical principles found in all societies:
 Truthfulness
 Responsibility
 Fairness
 Respectfulness
 Compassion
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Ethical Systems
Egoism
 an ethical principle holding that individual selfinterest is the actual motive of all conscious
action. “Take action that promotes the greatest
good for oneself.”
Utilitarianism
 An ethical system stating that the greatest good
for the greatest number should be the overriding
concern of decision makers.
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Ethical Systems
Relativism
 Philosophy that bases ethical behavior on the
opinions and behaviors of relevant other people
Virtue ethics
 perspective that what is moral comes from what
a mature person with “good” moral character
would deem right
 Moral individuals can transcend rules by appling
their personal virtues such as faith, honesty, and
integrity
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Ethical Systems
Kohlberg’s model of cognitive moral
development
 classification of people based on their level of
moral judgment
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Kohlberg’s Stages of Moral
Development
Exhibit 4.2
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Business ethics matter
Ethical dilemmas
 Questions of ethics in business have been prominent in
the news in recent years.
 Insider trading, illegal campaign contributions, bribery,
famous court cases and other scandals have created a
perception that business leaders use illegal means to gain
competitive advantage, increase profits, or improve their
personal positions.
 Shareholders tended to ignore fraudulent financial
reporting, as long as profits and market share didn’t
suffer.
Most business leaders believe they uphold ethical
standards in business practices, and they deal with a
wide range of ethical issues everyday.
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Ethical Dilemmas
Brands
CEO Pay
Commercialism in schools
Rel;igion at work
Sweatshops
Wages
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Ethics and the law
Sarbanes-Oxley Act
Passed by Congress in 2002, this act establishes
an array of strict accounting and reporting rules
in order to make senior managers more
accountable and to improve and maintain
investor confidence.
Law requires that companies and their auditors
provide reports to financial statement users
about the effectiveness of internal controls over
financial reporting procedures.
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The Ethical Climate Influences
Employees
Ethical climate
 In an organization, the
processes by which
decisions are
evaluated and made
on the basis of right
and wrong
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Danger Signs
1. Excessive emphasis on short-term revenues over
longer-term considerations.
2. Failure to establish a written code of ethics.
3. A desire for simple, “quick fix” solutions to
ethical problems.
4. An unwillingness to take an ethical stand that
may impose financial costs.
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Danger Signs (cont.)
5. Consideration of ethics solely as a legal
issue or a public relations tool
6. Lack of clear procedures for handling ethical
problems.
7. Responsiveness to the demands of
shareholders at the expense of other
constituencies
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Managers Shape Behavior
Ethical leadership
 Business ethics are valued but sometimes lacking
 Society demands an ethical climate
Corporate ethical standards
 organizations must be explicit regarding their
standards and expectations.
Ethical leader
 One who is both a moral person and a moral
manager influencing others to behave ethically.
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Ethics Programs
Compliance-based ethics programs
 Company mechanisms typically designed by
corporate counsel to prevent, detect, and punish
legal violations.
Effective ethics programs include:
 formal ethics codes
 ethics committees to develop policies
 evaluation of actions
 ethics officers or ombudspersons to investigate
allegations
 ethics training programs
 disciplinary processes
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Ethics Programs
 Integrity-based ethics
programs
 Company mechanisms
designed to instill in
people a personal
responsibility for ethical
behavior
 With such a program,
companies and people
govern themselves
through set of guiding
principles that they
embrace.
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Ethical Decision Making
Making ethical decisions takes:
Moral awareness
 realizing the issue has ethical implications
Moral judgment
 knowing what actions are morally defensible
Moral character
 the strength and persistence to act in accordance
with your ethics despite the challenges
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A Process for Ethical Decision
Making
Exhibit 4.3
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The Business Costs of Ethical
Failure
Exhibit 4.4
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Evaluating Ethical Decisions
Evaluating your ethical duties requires looking
for actions that meet the following criteria:
•
•
•
•
You would be proud to see widely reported in newspapers
It would build a sense of community among those involved
It would generate the greatest social good
You would be willing to see others take the same action
when you might be the victim
• It doesn’t harm “the least among us”
• It doesn’t interfere with the right of all others to develop
their skills to the fullest.
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Courage
Behaving ethically requires not just moral
awareness and moral judgment but also moral
character, including the courage to take
actions consistent with your ethical decisions
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Corporate Social Responsibility
Corporate social
responsibility (CSR)
 Obligation toward
society assumed by
business.
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Corporate Social Responsibility
Four levels of corporate social responsibility:
Economic
responsibilities
 To produce goods and
services that society
wants at a price that
perpetuates the
business and satisfies
its obligations to
investors.
Legal responsibilities
 To obey local, state,
federal, and relevant
international laws
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Corporate Social Responsibility
Ethical responsibilities
 Meeting other social expectations, not written as
law.
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Corporate Social Responsibility
Philanthropic
responsibilities
 Additional behaviors
and activities that
society finds desirable
and that the values of
the business support.
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Pyramid of Global Corporate Social
Responsibility and Performance
Figure 4.5
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Corporate Social Responsibility
Transcendent education
 An education with five higher goals that balance selfinterest with responsibility to others
• Empathy
– feeling your decisions as potential victims might feel them, to
gain wisdom
• Generativity
– Learning how to give as well as take, to others in the present as
well as to the future generations
• Mutuality
– Viewing success not merely as personal gain, but a common
victory
• Civil aspiration
– Thinking not just in terms of “don’ts”(lie, cheat, steal, kill), but
also in terms of positive contributions
• Intolerance of ineffective humanity
– Speaking out against unethical actions
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Contrasting Views
Shareholder model- holds that managers act as
agents for shareholders and, as such, are
obligated to maximize the present value of the
firm
Stakeholder model – holds that managers are
obliged to look beyond profitability to help their
organizations succeed by interacting with groups
that have a stake in the organization
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You can Do Good and Do Well
 Profit maximization and corporate social
responsibility used to be regarded as leading
to opposing policies. But the two views can
converge
 Recent attention has also been centered on
the possible competitive advantage of
socially responsible actions
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The Natural Environment
Economic activity has environmental
consequences
 A risk society is one in which the creation and
distribution of wealth generate by-products that
can cause injury, loss, or danger to people and
the environment.
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Ecocentric Management
Ecocentric management
 Goal is the creation of sustainable economic
development and improvement of quality of life
worldwide for all organizational stakeholders.
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Ecocentric Management
Sustainable growth
 Economic growth and development that meet
present needs without harming the needs of
future generations
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Ecocentric Management
Life-cycle analysis (LCA)
 A process of analyzing all inputs and outputs,
though the entire “cradle-to-grave” life of a
product, to determine total environmental
impact
Some organizations set environmental
agendas
 Companies not only have the ability to solve
environmental problems; they are coming to see
and acquire the motivation as well.
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Video: Hewlett Packard
 Why should an investor be concerned with a
potential $40 million severance package for
an exiting CEO?
 Should severance clauses in an executive
contact be considered unethical?
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