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Definitions of social involvement Lecture 5

Social Responsibility and Managerial Ethics

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Social responsibility - obligation beyond that

of law and economics for a firm to pursue long term goals that are good for society

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Social obligation - obligation of business to

meet economic and legal responsibilities

Social responsiveness - capacity of firm to

adapt to changing societal conditions

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What is social responsibility? ·The classical view

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What is social responsibility? (Cont'd) ·The socioeconomic view

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Management 's only social responsibility is to maximise profits (create a financial return) by operating the business in the best interests of the stockholders (owners of the corporation). Expending the firm's resources on doing "social good" unjustifiably increases costs that lower profits to the owners and raises prices to consumers

Management 's social responsibility goes beyond making profits to include protecting and improving society 's welfare. Corporations are not independent entities responsible only to stockholders. Firms have a moral responsibility to larger society to become involved in social, legal, and political issues. "To do the right thing"

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

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Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

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Levels of social involvement

· · ·

Arguments for and against social responsibility

FOR Public expectations Long-run profits Ethical obligation Public image Better environment Discouragement of further governmental regulation Balance of responsibility and power Stockholder interests Possession of resources Superiority of prevention over cure ·AGAINST · Violation of profit maximisation · Dilution of purpose · Costs · Too much power · Lack of skills · Lack of accountability

Social responsibility

Social responsiveness

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Social obligations

· · ·

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Figure 5.2

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Does social responsibility pay?

Studies appear to show a positive relationship between social involvement and the economic performance of firms.

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Social responsibility vs. social responsiveness

Social responsibility Major consideration Focus Emphasis Decision framework

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Social responsiveness Pragmatic Means Responses Medium and short term

Table 5.2

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Difficulties in defining and measuring "social responsibility" and "economic performance raise issues of validity and causation in the studies. Mutual funds using social screening in investment decisions slightly outperformed other mutual funds.

Ethical Ends Obligations

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·A general conclusion is that a firm's social actions do not harm its long-term performance.

Long term

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Purposes of shared values

The `greening' of management

Shared Organisational Values

The recognition of the close link between an organisation's decisions and activities and its impact on the natural environment

Guide Managers' Decisions and Actions

Build Team Spirit

Influence Shape Employee Behaviour Marketing Efforts

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson EAustralia © Copyright 2003 Pearson Education ducation Australia

Figure 5.4

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Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

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Global problems management must address to `go green'

Natural Resources

Organisational approaches to environmental issues

Low

High Environmental sensitivity

Global issues affecting the environment

Global Warming

Pollution

Industrial Accidents

The "greening" of management

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Legal Market approach approach (light green)

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Stakeholder Activist approach approach (dark green)

Figure 5.3

Toxic Waste

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Values-based management

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Purposes of shared values

Values-based management

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An approach to managing in which managers establish and uphold an organisation's shared values.

The purposes of shared values

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Serving as guideposts for managerial decisions Shaping employee behavior Influencing the direction of marketing efforts Building team spirit An organisation's values are reflected in the decisions and actions of its employees.

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

The bottom line on shared corporate values

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Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Figure 5.4

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Stages of social responsibility

Stage 1 Owners/ management Lesser

S O C I A L R E S P O N S I B I L I T Y

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Managerial ethics: four views

Utilitarian view Rights view Theory of justice view Integrative social contracts view

Decisions are made solely on the basis of their outcomes or consequences. Decisions are concerned with respecting and protecting individual liberties and privileges. Decision makers seek to impose and enforce rules fairly and impartially and do so by following legal rules and regulations. Decisions should be made on the basis of empirical (what is) and normative (what should be) factors.

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Stage 2 Employees

Stage 3 Constituents

Stage 4 Broader society

Greater

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Stages of moral development

Factors that affect ethical and unethical behaviour

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Figure 5.6

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Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Figure 5.5

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Individual characteristics that affect ethics

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Factors affecting managerial ethics Structural variables--may help minimise ambiguity and encourage ethical behaviour Appraisal System Rules and Regulations Competitive Pressures Reward System Time Pressures Cost Constraints

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Values:

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represent basic convictions of what is right and wrong

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Personality variables: m ego strength- strength of personal convictions

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locus of control- degree one believes in control of own fate

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Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Factors that affect managerial ethics Content and strength of organisational culture: Strong

More influence

Factors that affect managerial ethics

Greatness of harm Consensus of wrong

Immediacy of consequences

Risk Tolerance Control Methods Conflict Tolerance

Weak

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Issue intensity

Proximity to victim(s) Less influence

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Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

Concentration of effect

Probability of harm

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Improving ethical behaviour

Steps towards improvement

Job goals Leadership Code of ethics Employee selection Protection

Code of ethics

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A formal statement of an organisation's primary values and the ethical rules it expects its employees to follow.

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Be a dependable organisational citizen Don't do anything unlawful or improper that will harm the organisation Be good to customers

Independent social audits

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Performance appraisal Ethics training

Source: F.R. David, "An Empirical Study of Codes of Business Ethics: A S trategic Perspective." paper presented at the 48t hAnnual Academy of Management Conference, Anaheim, California Au gust 1988.

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Effective use of a code of ethics

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How managers can improve ethical behavior in an organisation

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Develop a code of ethics as a guide in handling ethical dilemmas in decision making. Communicate the code regularly to all employees. Have all levels of management continually reaffirm the importance of the ethics code and the organisation's commitment to the code. Publicly reprimand and consistently discipline those who break the code.

Hire individuals with high ethical standards. Establish codes of ethics and decision rules. Lead by example. Delineate job goals and performance appraisal mechanisms. Provide ethics training. Conduct independent social audits. Provide support for individuals facing ethical dilemmas.

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5. 6.

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Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

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The value of ethics training

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Ethical leadership

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Training in ethical problem solving can make a difference in ethical behaviors. Training in ethics increase employee awareness of ethical issues in business decisions. Ethics training clarifies and reinforces the organisation's standards of conduct. Employees become more confident that they will have the organisation's support when taking unpopular but ethically correct stances.

Managers must provide a good role model by:

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Being ethical and honest at all times. Telling the truth; don't hide or manipulate information. Admitting failure and not trying to cover it up. Communicating shared ethical values to employees through symbols, stories, and slogans. Rewarding employees who behave ethically and punish those who do not. Protecting employees (whistleblowers) who bring to light unethical behaviors or raise ethical issues.

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Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson E ducation Australia

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ARTHUR ANDERSON CASE

1. What factors do you think contributed to how employees at Andersen behaved? 2. Identify the main stakeholders involved in this situation. What concerns might each stakeholder have had? Were any of the stakeholders' concerns in conflict with each other? Explain. What impact might this have had on employees? 3 Using Figure 5.7, analyse the intensity of the ethical dilemma facing Andersen's employees as they were pressured to grow revenues. How might the other factors that affect ethical and unethical behaviour be involved? (See Figure 5.5) 4. Evaluate Joe Berardino's ethical leadership. What recommendations would you have made to him? Is there anything that could have prevented the downfall of Andersen? If not, why not? If so, what?

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