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4. Business ethics & social responsibility

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4. Business ethics & social responsibility

  1. 1. Ethics and Stakeholder Social Responsibility
  2. 2. Learning Objectives 1. State the importance of ethics for individual employees and organizations. 2. Describe four forces that influence the ethical behavior of individuals and organizations. 3. Describe the approaches that people use when making ethical judgments. 4. Explain stakeholder social responsibility and how it influences managers’ ethical decisions.
  3. 3. Importance • Studies indicate that ethics help companies achieve; 1. Stronger financial performance over long run. 2. Greater sales, brand image, and reputation 3. More employee loyalty & commitment 4. Less vulnerability to activist pressure & boycotts 5. Fewer or no fines, court imposed remedies & criminal charges
  4. 4. Shaping Ethical Conduct • Ethics is a set of values & rules that define right & wrong conduct • What is considered ethical may depend on the perspective from which ethical issues are considered.
  5. 5. Shaping Ethical Conduct • Four basic forces which influence ethical conduct of individuals & organizations; 1. Cultural Forces 2. Legal & Regulatory Forces 3. Organizational Forces 4. Individual Forces
  6. 6. Shaping Ethical Conduct (adapted from Figure 6.1) 1. Cultural Forces Fundamental personal values central to individuals include:  honesty  integrity  trustworthiness  respect for other people  self-respect  family  achievement  reliability  fairness  loyalty
  7. 7. Shaping Ethical Conduct (adapted from Figure 6.1) Laws are society’s values and standards That are enforceable in the courts. Cultural Forces 2. Legal and Regulatory Forces
  8. 8. Shaping Ethical Conduct 2. Legal & Regulatory Forces; a) Ethical or unethical normally is as per laws, government regulations, and court decisions. b) Laws are expressed society’s values & standards that are enforceable in the courts c) Legality of actions & decisions doesn’t necessarily make them ethical
  9. 9. Shaping Ethical Conduct (adapted from Figure 6.1) A code of ethics states the principles that employees are expected to follow when acting on behalf of the organization. Cultural Forces Legal and Regulatory Forces 3. Organizational Forces Some recommended actions include  Create a formal ethics system  Communicate ethical expectations  Include ethical conduct as a measure of performance evaluations (Integrity)  Make it acceptable to talk about ethics/Create mechanism
  10. 10. Shaping Ethical Conduct (adapted from Figure 6.1)  Moral Development  Whistle Blowing Cultural Forces Legal and Regulatory Forces Organizational Forces 4. Individual Forces
  11. 11. Shaping Ethical Conduct • Moral development: people develop morally, much as they do physically from early childhood to adulthood – – role of parents/family, – teachers/educational institutions & – society at large • Whistle-blowers: employees who report unethical or illegal actions by their colleagues or employers to other people or organizations that are capable of taking corrective actions
  12. 12. Whistle-Blowing 1. Alternatives to whistle-blowing; – Persuade other employees to act with you ( more difficult than taking action against one person). – Consider leaving the company; a. May not stop wrong doing but save you being caught in the situation b. Would not be tempted being drawn into wrong doing yourself c. May only result in feelings of guilt
  13. 13. Whistle-Blowing 2. Anyone considering whistle-blowing should consider the following; a) Is this the only way? b) Do I have the evidence? c) Why am I doing this? d) Am I ready to face consequences?
  14. 14. Shaping Ethical Conduct (adapted from Figure 6.1) Ethical Conduct • Individual • Organization Cultural Forces Legal and Regulatory Forces Organizational Forces Individual Forces
  15. 15. Approaches to Ethical Judgments 1. The Utilitarian Approach focuses on behaviors and their results, not on the motives for such actions. – Achieving organizational goals – Efficiency – Conflicts of interest: should not have personal interests that conflict with organization’s achievement of its goals
  16. 16. Approaches to Ethical Judgments • As per ‘classic capitalist theory’ primary managerial obligation is to maximize shareholders’ profits & their long term interests. • Main advocate of this approach: (Milton Friedman: Nobel Prize winning economist); – Only criteria of judging a manager’s decision being right or wrong is : consider its consequences for the co’s economic needs
  17. 17. Approaches to Ethical Judgments • Ethical standards prescribed by this approach; – Achieving Organizational goals: profits seen as reward for satisfying consumers – profits too high, new competitors will enter market & ultimately bring down prices. – Efficiency: minimizing inputs & maximizing outputs, producing at lower costs; • Regardless of consequences like layoffs, moving production overseas for lower wages, etc
  18. 18. Approaches to Ethical Judgments – Conflicts of Interest: Managers not to have personal interests conflicting with organization’s achievement of its goals
  19. 19. Approaches to Ethical Judgments 2. The Moral Rights Approach holds that decisions should be consistent with fundamental rights and privileges. – Life and safety – Truthfulness – Privacy – Freedom of conscience and speech
  20. 20. Approaches to Ethical Judgments 3. The Justice Approach involves evaluating decisions with regard to how equitably benefits and costs are distributed among individuals and groups . 3 principles while designing management systems; – Distributive Justice Principle: requires that individuals not be treated differently on the basis of arbitrarily defined characteristics; • Individuals who are similar in relevant respects should be treated similarly
  21. 21. Approaches to Ethical Judgments – Fairness Principle: both organizations & employees have obligations towards each other and both should accept their responsibilities – Natural Universal Principle: requires that decisions & behavior be based on universal principles as a responsible member of society; a) To help others without excessive personal risk or loss b) Not to harm or injure another c) Not to cause unnecessary suffering and d) To support & comply with just institutions.
  22. 22. Approaches to Ethical Judgments 4. Combining Ethical Approaches: – Use ‘Utilitarian Approach’ while solving business problems. – Consider issues of moral rights & justice only as required by law (US) • European countries, however, give greater weight to long term employee welfare. • Cultural norms & values explain differences in managers’ personal perspectives. • In US some believe giving more weight to utilitarian approach but also believe “doing what was right was one way for the company to do well”.
  23. 23. Stakeholder Social Responsibility • Stakeholder social responsibility holds that managers and other employees have obligations to certain groups that are linked with the achievement of an organizations goals. • Stakeholders are individuals or groups that have interests, rights, or ownership in an organization and its activities.
  24. 24. Common Stakeholders of Organizations Media Governments (Regulatory Agencies) Secondary Stakeholders Political Action Groups/ Activists Unions Non-governmental Organizations & Society Primary Stakeholders Suppliers& Vendors Customers Shareholders EmployeesThe Organization
  25. 25. Stakeholder Social Responsibility & Business Sustainability Primary reasons for embracing stakeholder social responsibility; 1. Enlightened self interest: – Better society creates a better environment for business. 2. Sound Investment: – It has a positive effect on Co’s net worth, thru superior financial performance over long run. 3. Interference Avoidance: it minimizes control of Co decisions by powerful stakeholders – Industry self- regulation is justified for interference avoidance
  26. 26. Examples of Types of Pressures from Primary Stakeholders (adapted from Table 6.3) • Employees – Pay and benefits – Safety and health – Rights at work/global labor standards – Fair/ethical treatment in hiring, reviews, promotion, and related areas • Shareholders – Demands for efficiency/profitability – Viability (sustainability) – Growth of investment – Ethical disclosure of financial information
  27. 27. Examples of Types of Pressures from Primary Stakeholders (cont.) (adapted from Table 6.3) • Customers – Competitive prices – Quality and safe products – Respect for customers’ privacy – Concern for environment – Truthful/ethical advertising and sales practices • Suppliers – Meet commitments – Repeat business – Fair trade practices/ethical treatment
  28. 28. Protecting Natural Environment • Sustainable development involves conducting business in a way that protects the natural environment while making economic progress, thus; a) meeting needs of the present generation & b) without compromising ability of future generations to meet their own needs
  29. 29. Protecting Natural Environment • A few examples for sustainable growth; a) Promote products that are safe & useful to society b) Packaging that is biodegradable, recyclable, reusable & made of recycled materials c) Use of renewable energy for transportation
  30. 30. Protecting Natural Environment • Benefits while addressing environmental issues; d) Reputation of being socially responsible. e) Also develop new & valuable organizational capabilities f) Learn to integrate concerns of multiple stakeholders when making key decisions
  31. 31. Evaluating Social Performance • Proactive Responsibility: As corporate citizen a) Broad performance criteria b) Ethical norms c) Operation strategy d) Response to social pressures e) Legislative and political activities • Path to long term profitability requires taking into account concerns of primary & secondary stakeholders. • Social Audits: identifies, monitors, and evaluates effects that the organization is having on its stakeholders & society as a whole.
  32. 32. Assignment for students • As a student , you often work as a team with other students on assignments. What you and your team members do to manage the ethical conduct of your team? Would it be useful to develop a Code of Conduct for your team? Explain your answer. Group No 3 & 4 to explain in the next class.
  33. 33. Thanks………….