This document outlines key concepts from a chapter on ethics and social responsibility. It discusses perspectives on corporate social responsibility like efficiency and social responsibility. It also covers approaches to ethical decision making such as utilitarianism and justice. Additionally, it examines the concept of moral intensity and how companies can foster ethical behavior through codes of ethics, training, and other measures. The document uses exhibits to illustrate these concepts.

1. PowerPoint slides by
Susan A. Peterson, Scottsdale Community College
Chapter 2:
Ethics and Social
Responsibility
m a n a g e m e n t 2e
H i t t / B l a c k / P o r t e r

2. © 2008 Prentice-Hall Business Publishing 2
Learning Objectives
After studying this chapter, you should be able to:
Describe why an understanding of basic
approaches to ethical decision making and
corporate social responsibility is important
Compare and contrast the efficiency and social
responsibility perspectives
Explain the strategic corporate social responsibility
approach
Explain the basic approaches to ethical decision
making

3. © 2008 Prentice-Hall Business Publishing 3
Learning Objectives
Explain the aspects of moral intensity
Describe the actions that can foster a high degree
of ethical behavior in an organization

4. © 2008 Prentice-Hall Business Publishing 4
Corporate Social Responsibility
Obligation corporations have
to constituencies and the
nature and extent of those
obligations
Constituencies include
shareholders, customers,
employees, specific
communities, society at large,
governments
Issue: constituencies may not
share same expectations

5. © 2008 Prentice-Hall Business Publishing 5
Efficiency Perspective
Efficiency perspective:
maximize profits for the owners of the business
MANAGERS AS OWNERS
Self-interests of the
manager-owner are best
achieved by serving the
needs of society
MANAGERS AS AGENTS
Managers have no
obligation to act
on behalf of society
if it does not
maximize value for
the shareholders

6. © 2008 Prentice-Hall Business Publishing 6
Social Responsibility Perspective
Social responsibility perspective:
firms have responsibilities and obligations to society as
a whole, not just shareholders
Shareholders
Society
Financiers
Communities
Suppliers
Employees
FIRM
Key Stakeholders

7. © 2008 Prentice-Hall Business Publishing 7
Efficiency Versus Social Responsibility
Perspective
Efficiency Perspective
Managerially Irresponsible
Social Responsibility
Perspective
Managerially Responsible
Efficiency Perspective
Managerially Irresponsible
Social Responsibility
Perspective
Managerially Irresponsible
Efficiency Perspective
Managerially Responsible
Social Responsibility
Perspective
Managerially Responsible
Efficiency Perspective
Managerially Responsible
Social Responsibility
Perspective
Managerially Irresponsible
Action harms other stakeholders
No Yes
NoYes
Action
harms
other
share-
holders
Adapted from Exhibit 2.1

8. © 2008 Prentice-Hall Business Publishing 8
Corporate Responses
We will change when
legally compelled to
do so.
Maximize profits.
Abide by
the letter of the law.
Change when
legally compelled to
do so.
We must fight against
efforts to restrict or
regulate our activities
and profit-
making potential.
Maximize profits.
Find legal loopholes.
Fight new restrictions
and regulations.
Belief
Focus
Defenders Accommodators
Adapted from Exhibit 2.2

9. © 2008 Prentice-Hall Business Publishing 9
Corporate Responses (cont.)
We owe it to society to
anticipate and avoid
actions with harmful
consequences, even if
we are not pressured or
legally required to do so.
Obtain profits, Abide
by the law. Anticipate
harmful consequences
independent of
pressures and laws.
We should respond to
significant pressure even
if we are not legally
required to.
Protect profits. Abide
by the law. React to
pressure that could
affect business results.
Belief
Focus
Reactors Anticipators
Adapted from Exhibit 2.2

10. © 2008 Prentice-Hall Business Publishing 10
Strategic Corporate Social Responsibility
Perspective
Three fundamental criteria guide managers:
Inside-Out
Approach
Outside-In
Approach
Outside-Out
Approach
Look inside
company at
issues
that are
important
to the
company
Look outside
company at
issues
that
company has
an impact
upon
Look at social
issues in
general in
terms of the
extent to
which they
are
problematic

11. © 2008 Prentice-Hall Business Publishing 11
Strategic Corporate Social Responsibility
Adapted from Exhibit 2.3
Worthy
Cause
(for someone
else)
Prime
Focus
Low High
Critical to the Company
Low
Low
High
High
Affected
by the
Company
Problem
in Society

12. © 2008 Prentice-Hall Business Publishing 12
The Development of Individual Ethics
Life
Experiences
Job
Experiences
Religion Teachers
Peers
Friends
Family
Individual
Ethics

13. © 2008 Prentice-Hall Business Publishing 13
Basic Approaches to Ethics
Ethical dilemmas
The choice between two
competing but arguably valid
options
Frameworks for ethical
decision making:
Utilitarian approach
Moral rights approach
Universalism approach
Justice approach

14. © 2008 Prentice-Hall Business Publishing 14
Basic Approaches to Ethics:
Utilitarian Approach
Focused on the
consequences of an
action
What is the “greatest
good?”
Different people may see
the outcome differently in
terms of good or bad

15. © 2008 Prentice-Hall Business Publishing 15
Basic Approaches to Ethics:
Moral Rights Approach
Focused on moral standing of
actions, independent of their
consequences
Some things are simply “right”
or “wrong”
When two actions have moral
standing, then the positive or
negative consequences of
each will determine the more
ethical

16. © 2008 Prentice-Hall Business Publishing 16
Basic Approaches to Ethics:
Universal Approach
“Do unto others as you would have them do unto
everyone, including yourself.”
Choose a course of action you believe can apply
to all people under all situations
The issue of rights
Rights stem from freedom and autonomy
Actions that limit freedom and autonomy generally
lack moral justification

17. © 2008 Prentice-Hall Business Publishing 17
Basic Approaches to Ethics:
Justice Approach
Costs and benefits of actions:
Costs and benefits should be
equitably distributed
Rules should be impartially
applied
Those damaged should be
compensated
Distributive justice
Equitable distribution is based
on performance

18. © 2008 Prentice-Hall Business Publishing 18
Basic Approaches to Ethics:
Justice Approach
Procedural justice
Ensure that people consent to
the decision-making process
Ensure that the process is
administered impartially
Compensatory justice
If distributive and procedural
justice fail, those hurt by
inequitable distribution of
rewards are compensated

19. © 2008 Prentice-Hall Business Publishing 19
Moral Intensity in Ethical Decision Making
Moral intensity
The degree to which
people see an issue
as an ethical one
Moral
Intensity
Social
Consequences
Proximity

20. © 2008 Prentice-Hall Business Publishing 20
Moral
Intensity
Moral Intensity in Ethical Decision Making
Magnitude of the
consequences
Level of impact
anticipated
Impact is
independent of
whether
consequences are
positive or negative
Adapted from Exhibit 5.2: Factors of Moral Intensity
Adapted from Exhibit 2.4

21. © 2008 Prentice-Hall Business Publishing 21
Moral
Intensity
Moral Intensity in Ethical Decision
Making
Social consequences
The extent to which
members of a
society agree that
an act is either good
or bad
Population diversity
weakens social
consensus
Social
Consequences
Adapted from Exhibit 5.2: Factors of Moral Intensity
Adapted from Exhibit 2.4

22. © 2008 Prentice-Hall Business Publishing 22
Moral
Intensity
Moral Intensity in Ethical Decision
Making
Probability of effect
How likely people
think the
consequences are
The higher the
probability of the
consequence, the
more intense the
sense of ethical
obligation
Social
Consequences
Adapted from Exhibit 5.2: Factors of Moral Intensity
Adapted from Exhibit 2.4

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Moral
Intensity
Moral Intensity in Ethical Decision
Making
Temporal immediacy
Interval between the
time the action
occurs and the onset
of its consequences
The greater the time
interval, the less
intensity people
typically feel toward
the issue
Social
Consequences
Adapted from Exhibit 5.2: Factors of Moral Intensity
Adapted from Exhibit 2.4

24. © 2008 Prentice-Hall Business Publishing 24
Moral
Intensity
Moral Intensity in Ethical Decision
Making
Proximity
The closeness the
decision maker feels
to those affected
Closeness leads to
more consideration of
the consequences
Closeness increases
feeling that it has
ethical implications
Social
Consequences
Proximity
Adapted from Exhibit 5.2: Factors of Moral Intensity
Adapted from Exhibit 2.4

25. © 2008 Prentice-Hall Business Publishing 25
Moral
Intensity
Moral Intensity in Ethical Decision
Making
Concentration of effect
Focus of effect on
only a few or
disbursed across
many individuals
Higher concentration
leads to feelings of
greater ethical
responsibility
Social
Consequences
Proximity
Adapted from Exhibit 5.2: Factors of Moral Intensity
Adapted from Exhibit 2.4

26. © 2008 Prentice-Hall Business Publishing 26
How Firms Make Better Ethical Decisions
Code of ethics: a formal one-to-
three page statement
outlining the types of
behavior that are and are not
acceptable
Codes generally stress:
Being a good “organization
citizen”
Guiding employee behavior
away from unlawful or
improper acts that could harm
the organization

27. © 2008 Prentice-Hall Business Publishing 27
Johnson & Johnson Credo
Our Credo
• We believe our first responsibility is to the doctors, nurses and
patients, to mothers and fathers and all others who use our
products and services.
• In meeting their needs everything we do must be of high
quality.
• We must constantly strive to reduce our costs in order to
maintain reasonable prices.
• Customers' orders must be serviced promptly and accurately.
• Our suppliers and distributors must have an opportunity
to make a fair profit.
Adapted from Exhibit 2.5

28. © 2008 Prentice-Hall Business Publishing 28
Johnson & Johnson Credo (cont.)
• We are responsible to our employees, the men and women
who work with us throughout the world.
• Everyone must be considered as an individual.
• We must respect their dignity and recognize their merit.
• They must have a sense of security in their jobs.
• Compensation must be fair and adequate, and working
conditions clean, orderly and safe.
• We must be mindful of ways to help our employees fulfill
their family responsibilities.
• Employees must feel free to make suggestions and
complaints.
• There must be equal opportunity for employment,
development and advancement for those qualified.
• We must provide competent management, and their actions
must be just and ethical.
Adapted from Exhibit 2.5

29. © 2008 Prentice-Hall Business Publishing 29
Johnson & Johnson Credo (cont.)
• We are responsible to the communities in which we live and
work and to the world community as well.
• We must be good citizens – support good works and charities
and bear our fair share of taxes.
• We must encourage civic improvements and better health and
education.
• We must maintain in good order the property we are
privileged to use, protecting the environment and natural
resources.
Adapted from Exhibit 2.5

30. © 2008 Prentice-Hall Business Publishing 30
Johnson & Johnson Credo (cont.)
• Our final responsibility is to our stockholders.
• Business must make a sound profit.
• We must experiment with new ideas.
• Research must be carried on, innovative programs developed
and mistakes paid for.
• New equipment must be purchased, new facilities provided
and new products launched.
• Reserves must be created to provide for adverse times.
• When we operate according to these principles,
the stockholders should realize a fair return.
Adapted from Exhibit 2.5

31. © 2008 Prentice-Hall Business Publishing 31
Categories Found in Corporate Codes of
Ethics
Cluster 1
“Be a dependable
organizational citizen”
Cluster 2
“Don’t do anything
unlawful or improper
that will harm
the organization.”
Unclustered Items
Cluster 3
“Be good to our
customers.”
Adapted from Exhibit 2.6

32. © 2008 Prentice-Hall Business Publishing 32
Adoption of Codes of Ethics
47%
18%
31%
53%
82%
69%
Germany
France
United Kingdom
With codes Without codes
Percentage of Firms
Adapted from Exhibit 2.7

33. © 2008 Prentice-Hall Business Publishing 33
Subjects Addressed in Corporate Codes
of Ethics
Adapted from Exhibit 2.8
Employee conduct
Community and environment
Customers
Shareholders
Suppliers and contractors
Political interests
Innovation and technology
Most often used for
European firms
Most often used for
United States firms
Least often used for
European firms
Least often used for
United States firms

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Successfully Implementing Codes of
Ethics
Implementing
a Code
of Ethics
Communication Training
Reward &
Recognition
Whistle-
blowing

35. © 2008 Prentice-Hall Business Publishing 35
The Government:
Foreign Corrupt Practices Act
Cannot corrupt actions of
foreign officials, politicians, or
candidates
Cannot make payments to any
person when they have "reason
to know" that the payments
might be used to corrupt the
behavior of officials
Must take steps to provide
"reasonable assurance" that
transactions are in compliance
with the law and to keep detailed
records of them