Part 1 Meeting the Challenges of the 21st Century

Chapter
3
Social
Responsibility
and Ethics

PowerPoint Presentation by Charlie Cook

The University of West Alabama
© 2007 Thomson/South-Western. All rights reserved.
 LEARNING OBJECTIVES
When you have finished studying this chapter, you
should be able to:
1. Discuss the stakeholder view of the firm and the
impact of the globalization of business on social
responsibility and ethics.
2. Describe the concept of corporate social
responsibility and the primary premises on which it
is based.
3. Distinguish between the four perspectives of
corporate social responsibility.
4. Identify and evaluate approaches for responding to
social issues.

© 2007 Thomson/South-Western. All rights reserved. 3–2

 LEARNING OBJECTIVES (cont’d)
When you have finished studying this chapter, you
should be able to:
5. Explain what values are, how they form the basis of
an individual’s ethical behavior, and how they may
vary in a global business environment.
6. Describe how advances in information technology
have created new ethical challenges.
7. Identify and discuss the differences in the utility,
human rights, and justice approaches to ethical
dilemmas.
8. Explain the methods used by organizations to
encourage ethical organizational behavior.

© 2007 Thomson/South-Western. All rights reserved. 3–3

 LEARNING OBJECTIVES (cont’d)
When you have finished studying this chapter, you
should be able to:
9. Describe the different approaches used in ethics
training programs.
10. Discuss what is meant by whistle-blowing in
monitoring ethical behavior.

© 2007 Thomson/South-Western. All rights reserved. 3–4

 Organizational Stakeholders in a
Global Environment
• Stakeholders
 All those who are affected by or can affect the
activities of the firm.
• Primary Stakeholders
 Those who have a formal, official, or contractual
relationship with the organization.
• Secondary Stakeholders
 Other societal groups who are affected by the
activities of the firm.

© 2007 Thomson/South-Western. All rights reserved. 3–5

 Figure 3.1 The Stakeholder View of the Firm

Source: Business & Society: Ethics and Stakeholder Management, 3rd edition, by A. B. Carroll. © 1996.
Reprinted with permission of South-Western, a division of Thomson Learning. Fax 800-730-2215.
© 2007 Thomson/South-Western. All rights reserved. 3–6
 Stakeholder Perspective
• Social Responsibility
 Relates to the obligation of business to society.
• Ethics
 Ethical issues are most relevant at an individual level,
for ethics are maintained by people.
• Corporate Social Responsibility
 The interaction between business and the social
environment in which it exists.

© 2007 Thomson/South-Western. All rights reserved. 3–7

 The Social Responsibility Debate
• What does social responsibility mean?
 Does it mean the corporation’s actions must not harm
society or does it mean a corporation’s actions should
benefit society?
• Social contract
 An implied set of rights and obligations that are
inherent in social policy and assumed by business.
• Moral agent
 The obligation of a business to act honorably and to
reflect and enforce values that are consistent with
those of society.

© 2007 Thomson/South-Western. All rights reserved. 3–8

 Table 3.1 Four Perspectives of Social Responsibility

Type of Societal
Responsibility Expectation Explanations

Economic Required by society Be profitable. Make sound strategic

decisions. Provide adequate and
attractive returns on investment.

Legal Required by society Obey all laws and regulations.

Fulfill all contractual obligations.
Honor warranties and guarantees.

Ethical Expected by society Avoid questionable practices

Respond to spirit as well as letter of law.
Assume law is floor of behavior and
operate above minimum required.
Do what is right, fair, and just.

Philanthropic Desired/expected Be a good corporate citizen.

by society Give back. Improve quality of life overall.

Source: A. Carroll and A Bucholtz, Business & Society: Ethics and Stakeholder Management, 6th ed. (Mason, OH: Thomson South-Western, 2006), 38.
© 2007 Thomson/South-Western. All rights reserved. 3–9
 Perspectives on Social Responsibility
• Economic Responsibility
 The only responsibility of business is to make a profit
within the “rules of the game.” (Milton Friedman)
 Organizations cannot be moral agents.
 Only individuals can serve as moral agents.

• Public Responsibility Perspective

 Businesses should act in a way that is consistent with
society’s view of responsible behavior, as well as with
established laws and policies.

© 2007 Thomson/South-Western. All rights reserved. 3–10

 Perspectives on Social Responsibility (cont’d)
• Social Responsiveness
 Business should proactively seek to contribute to
society in a positive way.
 Organizations should develop an internal environment
that encourages and supports ethical behavior at an
individual level.

© 2007 Thomson/South-Western. All rights reserved. 3–11

 Figure 3.2 The Four Faces of Social Responsibility

Legal/Responsible

Illegal/Irresponsible

Source: D. R. Dalton and R. A. Cosier, “The Four Faces of Social Responsibility.” Printed with permission from Business
Horizons (May/June 1982): 19–27. Copyright © 1982 by the Trustees of Indiana University, Kelley School of Business.
© 2007 Thomson/South-Western. All rights reserved. 3–12
 Social Responsibility Strategies
• A continuum of possible strategies based on the
organization’s tendency to be socially
responsible or responsive.

Reaction Defense Accommodation Proaction

Do
DoNothing
Nothing Do
DoMuch
Much

© 2007 Thomson/South-Western. All rights reserved. 3–13

 Social Responsibility Strategies (cont’d)
• Reaction
 An approach to corporate social responsibility that
includes an organization denying responsibility for its
actions.
• Defense
 Organizations that pursue a defense strategy respond
to social challenges only when it is necessary to
defend their current position.

© 2007 Thomson/South-Western. All rights reserved. 3–14

 Social Responsibility Strategies (cont’d)
• Accommodation
 An approach to corporate social responsibility that
adapts to public policy in doing more than the
minimum required.
• Proaction
 An approach to corporate social responsibility that
includes behaviors that improve society.
 Organizations that assume a proaction strategy
subscribe to the notion of social responsiveness.

© 2007 Thomson/South-Western. All rights reserved. 3–15

 Table 3.4 The Ten Commandments of Corporate Social Responsibility

I. Take corrective action before it is required. Compliance with self-imposed

standards is almost always preferable to compliance with standards that
are imposed by outside constituencies.
II. Work with affected constituents to resolve mutual problems.
III. Work to establish industry-wide standards and self-regulation.
IV. Publicly admit your mistakes. Few things are worse for a company’s image
than being caught trying to cover up socially irresponsible behavior.
V. Get involved in appropriate social programs.
VI. Help correct environmental problems.
VII. Monitor the changing social environment.
VIII. Establish and enforce a corporate code of conduct.
IX. Take needed public stands on social issues.
X. Strive to make profits on an ongoing basis. An organization cannot
provide jobs and employ workers if it is not in a position to make
consistent profits.

Source: L. Alexander and W. Mathews, “The Ten Commandments of Corporate

Social Responsibility,” Business and Society Review 50 (1984): 62–66.
© 2007 Thomson/South-Western. All rights reserved. 3–16
 Ethics
• Ethics
 The established customs, morals, and fundamental
human relationships that exist throughout the world.
• Ethical Behavior
 Behavior that is morally accepted as good or right as
opposed to bad or wrong such as:
 Corruption (for example, bribery and improper
payments)
 Inadequate labor conditions
 Environmental responsibility

© 2007 Thomson/South-Western. All rights reserved. 3–17

 Foundations of Ethics
• Values
 the relatively permanent, deeply held preferences of
individuals or groups.
• Instrumental Values
 The standards of conduct or methods (means) for
attaining an end.
• Terminal Values
 Goals (ends) that an individual will ultimately achieve.

© 2007 Thomson/South-Western. All rights reserved. 3–18

 Business Ethics Defined
• The application of the general ethical rules to
business behavior.
 If a society deems dishonesty to be unethical and
immoral, then anyone in business who is dishonest
with employees, customers, creditors, stockholders,
or competition is acting unethically and immorally.

© 2007 Thomson/South-Western. All rights reserved. 3–19

 Ethics And Information Technology
• Employee Perspective
 Concerns about organizations and
government agencies gaining greater access
to private information about individuals.
• Organizational Perspective
 Concerns over unethical acts by employees
as a result of access to information technology
in the workplace.
• Societal Perspective
 Concerns raised in regard to businesses providing
customer information to other organizations.

© 2007 Thomson/South-Western. All rights reserved. 3–20

 Ethical Dilemma
• A situation in which a person must decide
whether or not to do something that, although
beneficial to oneself or the organization, may be
considered unethical and perhaps illegal.
• Examples of Ethical Dilemmas
 Should I conduct personal business on company
time?
 Should we spend more on pollution control?
 Is it O.K. to give a friend a special rate?
 If I find out that my boss took a bribe, should I tell
someone?

© 2007 Thomson/South-Western. All rights reserved. 3–21

 Guidelines for Deciding Ethical Dilemmas
• Utility Approach
 Decisions are based on an evaluation of the overall
amount of good that will result.
• Human Rights Approach
 Decisions are made in light of the moral entitlements
of human beings.
• Justice Approach
 Decisions are based on an equitable, fair, and
impartial distribution of benefits and costs among
individuals and groups.

© 2007 Thomson/South-Western. All rights reserved. 3–22

 Table 3.5 Developing Employee Awareness of Ethics

1. Enable the ethical component of a decision to be recognized.

2. Legitimize the consideration of ethics as part of decision making.
3. Avoid variability in decision making caused by lack of awareness
of rules or norms.
4. Avoid ambivalence in decision making caused by an
organizational reward system that psychologically pulls a person
in opposite directions.
5. Avoid ambivalence in decision making caused by confusion as to
who is responsible for misdeeds, particularly when the employee
has received an order from a superior.
6. Provide decision-making frameworks for analyzing ethical choices
and helping employees to apply such frameworks.

Source: S. J. Harrington, “What Corporate America Is Teaching about Ethics,”

Academy of Management Executives 5 (1991): 21–29.
© 2007 Thomson/South-Western. All rights reserved. 3–23
 Fostering Improved Business Ethics (cont’d)
• Code of Ethics
 Describes the general value system, ethical
principles, and specific ethical rules that a company
tries to apply.
• Ethics Training Programs
 Training designed to help managers clarify their
ethical framework and practice self-discipline when
making decisions in difficult circumstances.
• Whistleblowing
 Whistleblower: someone who exposes organizational
misconduct or wrongdoing to the public.

© 2007 Thomson/South-Western. All rights reserved. 3–24

 Table 3.6 Subjects Addressed by Most Codes of Ethics

• Bribery/improper payments • Workplace safety

• Conflict of interest • Political activities
• Security of proprietary • Community relations
information • Confidentiality of personal
• Receiving gifts information
• Discrimination/equal • Human rights
opportunity • Employee privacy
• Giving gifts • Whistle-blowing
• Environment • Substance abuse
• Sexual harassment • Nepotism
• Antitrust • Child labor

Source: R. Berenbeim, “Global Corporate Ethics Problems,”

Conference Board Research Report, 121243-99-RR, 1999.
© 2007 Thomson/South-Western. All rights reserved. 3–25
 Table 3.8 A Model Whistle-Blower Policy

• Publicize a reporting policy that encourages reporting of

valid complaints of wrongdoing.
• Establish a reporting procedure allows anonymous
complaints (required by Sarbanes–Oxley, at least for financial
wrongdoing) or complaints to someone outside of the chain
of command.
• Investigate the situation immediately.
• Go public. Publicize the outcomes of investigations. This
shows employees and other stakeholders that complaints
are taken seriously.

Sources: N. Swartz, “Whistleblower Complaints Growing,” Information Management Journal 38, no. 3 (May/June
2005): 8; T. Mohr and D. Slovin, “Making Tough Calls Easy,” Security Management 49, no. 3 (March 2005): 51–56;
L. Driscoll, “A Better Way to Handle Whistle-Blowers: Let Them Speak,” BusinessWeek, 27 July 1992, 36.
© 2007 Thomson/South-Western. All rights reserved. 3–26
 Implications for Leaders
• Explore ways in which the organization can be more
socially responsive.
• Recognize the effect of the organization’s actions on its
stakeholders.
• Create an environment in which employees commit to
behaving in socially responsive and ethical ways.
• Make sure that a code of ethics is put in place and
followed.
• Ensure that whistle blowing and ethical concerns
procedures are established for internal problem solving.

© 2007 Thomson/South-Western. All rights reserved. 3–27

 Implications for Leaders (cont’d)
• Involve line and staff employees in the identification of
ethical issues to help them gain understanding and
resolve issues.
• Determine the link between departments and issues
affecting the company and make them known to
employees in the departments.
• Integrate ethical decision making into the performance
appraisal process.
• Publicize, in employee communications and elsewhere,
executive priorities and efforts related to ethical issues.

© 2007 Thomson/South-Western. All rights reserved. 3–28

 Table 3.7 A Manager’s Guide for Developing a Strong Ethics Policy

1. Develop a written policy on ethics and communicate it

regularly to your employees.
2. Make sure that all employees understand the policies and
procedures in place for determining ethical behavior.
3. Establish fair and consistent rules for disciplining
violators.
4. Develop and continually monitor audit systems to prevent
and detect violations of the law or corporate policy.
5. Create a safe environment where employees can report
suspected violations anonymously without fear of
retribution.
6. Allow those accused of violating ethics policies the
opportunity to explain or defend their behavior.

© 2007 Thomson/South-Western. All rights reserved. 3–29

 Fostering Improved Business Ethics
• To foster improved business ethics in an
organization, action must be directed at five
levels:
 International
 Societal
 Organizational
 Individual
 Association

© 2007 Thomson/South-Western. All rights reserved. 3–30