Lecture 4

Ethics and Social Responsibility

Ethics

The set of moral principles or values

that defines right and wrong for a

person or group.

Ethics • A society of Human Resources Management Survey showed

that:

• only 27% of employees felt that their organization’s

leadership was ethical

• 48% of respondents admitted to actually committing an

unethical or illegal act in the pervious year

• cheating on an expense account

• discriminating against coworkers

• forging signatures

• paying or accepting kickbacks

• looking the other way when environmental laws were

broken

Ethics • On the other hand, there are also good news:

• when people believe their work environment is ethical,

they are 6 times more likely to stay with the company than

if they believe they work in an unethical environment

• One study asked 570 white-collar workers which of 28

qualities were important in company leaders

• The results: honesty and integrity/morals/ethics ranked

by far the highest

• caring/compassion was the third

Ethics and the nature of management jobs

• Ethical behavior follows accepted principles of right

and wrong

• By contrast, unethical management behavior occurs

when managers personally violate accepted principles

of right and wrong • e.g. lying about corporate profits

• knowingly producing an unsafe product

• exploiting workers

• bribing a potential customer

• using corporate funds for extravagant personal parties

Unethical management behavior

Unethical Managerial Behavior

Authority and Power

Handling Information

Influencing the Behavior of Others

Setting Goals

How to encourage ethical behavior

• Managers can encourage ethical

behaviors by…

using resources for company business only

handling information confidentially

not influencing others to engage in

unethical behavior

not creating policies that reward employees

for unethical behavior

setting reasonable goals

Workplace deviance

• Depending on which study you look at, 1/3 to 3/4 of all

employees admit that they have:

stolen from their employers

committed computer fraud

embezzled funds

vandalized company property

faked injuries to receive workers’ compensation benefits

We define workplace deviance as unethical behavior that violates

organizational norms of right and wrong

Types of Workplace Deviance

Influences on ethical decision making

• In making ethical decisions, the answers

that managers give to ethical questions

depends on:

• Ethical Intensity of Decision (managers don’t

treat all ethical decisions the same)

• Moral Development of Manager

• Ethical Principles Used

Tall and slender, Richard Addessi, and IBM employee, was an

apparently healthy man.

On Feb. 11, 1994, despite a heavy snowstorm that crippled

workplaces, he prepared to go to work. In his garage, he suffered a

massive heart attack and died at 48.

He was only four months short of full retirement.

With the 30-year pension, Joan Addessi and her children would get

almost $1,800 a month and free lifetime medical care.

Without it, she gets $340 a month and has to pay $473 a month for

medical benefits.

As VP in charge of benefits, you have to decide whether to award full

retirement benefits to Joan and her children

Ethical Intensity Depends on…

• Magnitude of consequences

• total harm or benefit derived from an ethical decision

• Social consensus

• agreement on whether the behavior is bad or good

• Probability of effect

• the chance that something will happen and then result in

harm to others

• Temporal immediacy

• the time elapsed between the act and the consequences

the act produces

• Proximity of effect

• the social, psychological, cultural or physical distance of

the decision maker from those affected by his decision

• Concentration of effect

• how much an act affects the average person

Kohlberg’s Stages of Moral

Development

Principles of Ethical Decision Making (think

of Addessi case for application example)

Long-term self-interest

Personal virtue

Religious injunctions

Government requirements

Utilitarian benefits

Individual rights

Distributive justice

Principle of long-term self interest

Never take any action that is not in

your organization’s long-term self-

interest

Principle of Personal Virtue

Never do anything that is not honest,

open, and truthful and that you would

not be glad to see reported in the

news.

Principle of Religious Injunctions

Never take any action that is not

kind and that does not build a

sense of community.

Principle of Government

Requirements

Never take any action that violates

the law, for the law represents

the minimal moral standard.

Principle of Utilitarian Benefit

Never take any action that does not

result in greater good for society.

Principle of Individual Rights

Never take any action that infringes on

others’ agreed-upon rights.

Principle of Distributive Justice

Never take any action that harms the

least fortunate among us:

the poor, the uneducated,

the unemployed.

Practical Steps to

Ethical Decision Making

Select and hire ethical employees

Establish a Code of Ethics

Train employees to make ethical decisions

Create an ethical climate

Code of Ethics

Communicate code of ethics to both inside and outside the company

Develop ethical standards and procedures specific to business

Ethics Training

Develops employee awareness of ethics

Achieves credibility with employees

Teaches a practical model of ethical

decision making

A basic model of ethical decision making

1. Identify the problem: What makes it an ethical problem ?

Think in terms of rights, obligations, fairness, relationships, and

integrity. How would you define the problem if you stood the

other side of the fence ?

2. Identify the constituents: Who has been hurt ? Who could

be hurt ? Who could be helped ? Are they willing players, or are

they victims ? Can you negotiate with them ?

3. Diagnose the situation: How did it happen in the first place

? What could have prevented it ? Is it going to get worse or

better ? Can the damage now be undone ?

A basic model of ethical decision making

4. Analyze your options: Imagine the range of possibilities.

Limit yourself to the two or three most manageable. What are

the likely outcomes of each ? What are the likely costs ? Look

to the company mission statement or statement of core

values/code of ethics for guidance

5. Make your choice: What is your intention in making this

decision ? How does it compare with the probable results ?

Can you discuss the problem with the affected parties before

you act ? Could you disclose without qualm your decision to

your boss, the CEO, the Board of Directors, your family, or

society as a whole ?

6. Act: Do what you have to do. Don’t be afraid to admit errors.

Be as bold in confronting a problem as you were in causing it.

Ethical Climate – part of organizational culture

Managers:

1. Act ethically

2. Are active in company ethics programs

3. Report potential ethics violations

4. Punish those who violate the code of ethics

5. Show leadership in the ethical sphere

What Is Social Responsibility?

A business’s obligation to…

• pursue policies

• make decisions • take actions that benefit society

To Whom Are Organizations

Socially Responsible?

Stakeholder

Model

Satisfy Interests

of Multiple Stakeholders

Shareholder

Model

Maximize Profits

Shareholder Model

Pros

Firm maximizes

shareholder wealth and

satisfaction

The company stock

increases in value

Cons

• Organizations cannot act

effectively as moral agents

for shareholders

• Time, money, and

attention diverted to social

causes undermine market

efficiency

Stakeholder Model

Primary

Stakeholders:

Shareholders

Employees

Customers

Suppliers

Governments

Local Communities

Secondary

Stakeholders:

Media

Special Interest Groups

Trade Associations

Social Responsibilities

Social Responsiveness

Social Responsibility and

Economic Performance

• No trade-off

• Small, positive relationship

• Social reputation

Relevant videos

Business ethics

https://www.youtube.com/watch?v=ghokREsbaoI

https://www.youtube.com/watch?v=R7sPDHrHj8c

Corporate social responsibility

https://www.youtube.com/watch?v=E0NkGtNU_9

w

https://www.youtube.com/watch?v=XWNol3TxvtI

Home assignment

Form a team of 2-3 persons and each read the

McKinsey case carefully. Choose a team member to play

the role of Dominic Barton, the other team mates to play

the role of members of the Crisis Management Team

Then get together, discuss the case and analyze the

issues based on what you learned in class, specifically

the BASIC MODEL OF ETHICAL DECISION MAKING

Be prepared to present and discuss the issues and your

decision next class