Business ethics and social Responsibility

1. Ethics and Stakeholder
Social Responsibility

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. 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. 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. 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. 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. 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. 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. 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. Shaping Ethical Conduct
(adapted from Figure 6.1)
 Moral Development
 Whistle Blowing
Cultural Forces
Legal and Regulatory Forces
Organizational Forces
4. Individual Forces

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. 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. 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. Shaping Ethical Conduct
(adapted from Figure 6.1)
Ethical Conduct
• Individual
• Organization
Cultural Forces
Legal and Regulatory Forces
Organizational Forces
Individual Forces

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. 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. 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. Approaches to Ethical Judgments
– Conflicts of Interest: Managers not to have
personal interests conflicting with organization’s
achievement of its goals

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Thanks………….