2009 topic 5 ethics

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Topic 5

Managing ethics

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Topics coveredETHICS

Ethical versus legal

Concept of ethics Managerial ethics in organisations

Factors affecting ethical & unethical behaviour

Corporate Ethics

SOCIAL RESPONSIBILITY

What is Social Responsibility?

Major views of social responsibility

Arguments for and against social responsibility

Managing Social Responsibility

Example of impact of social responsibility decisions and activities

Does social responsibility pay?

Improving Ethical Behaviour

The changing trends

Socially responsible Australian companies

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Ethical versus legal

Ethical Challenges

Is behaviour ethical simply because it is not illegal?

In business, most illegal behaviour is unethical but

much unethical behaviour is technically legal*

*(Bosch, H. 1990, Gordon Gekkos ethics rule, OK?Marketing, December, pp. 8-18)

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Concept of ethics

Ethical Challenges

Behaviour may be lawful but not ethical in intent or

process or effect.

Examples to consider:

Taylorism: production without much thought for the welfare

of the worker.

Henry Ford: exploitative and autocratic management.

Asian sweatshops producing high-priced sportswear.

CEO salaries.

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Concept of ethics

Business and ethics?

In such highly competitive environment, can

organisations afford to be seen as sociallyirresponsible?

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Concept of ethics

Example: The Ribena case

One of the world's largest multinational food companies, GlaxoSmithKline is

fined NZ$227,500, and ordered to undertake a nationwide campaign of

corrective advertising for misleading its customers about the blackcurrant

drink Ribena

The Commerce Commission argued that this claim, while literally true, was

likely to mislead consumers about vitamin C in Ribena and orange drinks.

GlaxoSmithKline pleaded guilty to 15 representative charges covering

offences between 2002 and 2006. The manufacturer admitted its cartoned

Ready To Drink Ribena, which claimed 7mg of Vitamin C per 100ml, in facthad no detectable Vitamin C content, and admitted its advertisements were

misleading

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Concept of ethics

What is Ethics? Primarily concerned with questions such as what is morally rightand what is morally wrong, what is good and what is bad

How do people distinguish between the two

Ethics is the code of moral principles and values that govern thebehavior of a person or group with respect to what is right orwrong

Ethical behaviour: Behaviour that conforms to generally accepted social norms Whether behaviour is ethical or not is in the eye of the beholder

It is practical, something we do

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Concept of ethics

Ethical theory classifications

Consequentialist theories

eg. John Stuart Mills utilitarian ethic, the greatest good for

the greatest number

Rights, duties and contract-based theories eg. Immanuel Kant

Virtue ethics

eg. Japanese kaizen (continuous improvement)

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Managerial ethics in organisations

Managerial ethics: principles and standards that guide

individual managers in their work behaviour

Three domains of managerial ethics:

a) How the organisation treats it employees

b) How employees treat the organisation

c) How the organisation treats other economic agents

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Managerial ethics in organisations (cont)

a) How an organisation treats its employees

Recruitment

Selection

Occupational health and safety

Wages

Working conditions (including harassment, privacy

and personal respect)

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b) How employees treat their organisation

Rorting the system

Using organisational information improperly

Giving or selling company secrets

Conflicts of interest

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c) How an organisation treats its environment

Environment includes:

Customers

Suppliers

Shareholders Competitors

Dealers

Trade unions

Physical environment

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Four view of ethics

Managers make decisions on different ethical

perspective:

Utilitarian view

Rights view

Theory of Justice view Integrative social contracts view

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Four view of ethics (cont)

Utilitarian view Ethical decisions are made on the basis of their outcomes or

consequences

The utilitarian view holds that moral behaviour produces thegreatest good for the greatest number

Critics of this approach fear a tendency towards a Big Brother

approach and question whether the common good is squeezingthe life out of the individual

E.g. reducing 20% workforce to improve job security forremaining 80% & in the best interest of shareholders.


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Rights view

The moral rights view is the ethical concept that moral

decisions are those that best maintain the rights ofthose people affected by them

Respects and protects individual liberties and

privileges

E.g. protects individual right to free speech when theyreport violation of law by their employers.


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Theory of Justice view

The justice approach is the ethical concept that moraldecisions must be based on standards of equity,

fairness and impartiality

Managers impose and enforce rules fairly andimpartially and do so by following legal rules and

regulations

E.g. Same rate of pay to individuals with similar levelof skills, performancy or responsibility


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Integrative social contracts view

Decisions should be made on the basis of empirical(what is) and normative (what should be) factors

(based on existing norms in industries & community)

E.g. while determining wage rate to pay in South

Africa, a company will decide base on existing wage

levels in that community.


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Ethical dilemma An ethical dilemma is a situation that arises when all

alternative choices or behaviours have been deemedundesirable because of potentially negative ethical

consequences, making it difficult to distinguish right fromwrong

Difficulty of Identification

Difficulty of Compliance

How a person deals with the ethical dilemma dependson a complex interaction between the individualsstage of moral development and several moderationvariables

Factors affecting ethical & unethical

behaviour


behaviour

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Factors affecting ethical & unethicalbehaviour (cont)

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behaviour (cont)

Stages of moral development

Pre-conventional:

influenced exclusively by personal interest

Conventional:

influenced by the expectations of others

Post-conventional:

influenced by personal ethical principles of what is right

For more information, refer text Pg 113 Kohlbergs stages of

moral development

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(cont)

Individual characteristics that affect ethics

Values:

represent basic convictions of what is right and wrong

Influence ethical behaviour

Values are developed in early years

Personality variables: ego strength- strength of personal convictions

locus of control- degree one believes in control of own

fate

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Determinants of individual ethics


(cont)

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RewardSystemRewardSystem

Competitive

Pressures

Competitive

Pressures

AppraisalSystem

AppraisalSystem

Time

Pressures

Time

Pressures

Rules and

Regulations

Rules and

Regulations

Structural variablesmayhelpminimise ambiguity and encourage ethical behaviour

Structural variablesmayhelpminimise ambiguity and encourage ethical behaviour

Cost

Constraints

Cost

Constraints


(cont)

F ff i hi l & hi l b h i

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Immediacyof

consequences

Proximity

tovictim(s)

Consensusof wrong

Probability

ofharm

Great-

nessof

harm

Concentrationof

effect

Issueintensity


(cont)

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Organisation culture

Strong culture will exert more influence on individualsthan weak culture

Strong culture with high ethical standards will influencethe decision of the individual to act ethically.

For weak culture, the individuals may rely onsubcultural norms as a behavioral guide (e.g. workgroups or departmental standards)


behaviour (cont)

F ff i hi l & hi l b h i

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Organisation culture (cont)

Organisations have also use culture to promote their socialresponsibility efforts:

Values-based management: An approach to managing in whichmanagers establish and uphold an organisations shared values.The purposes of shared values

Serving as guideposts for managerial decisions

Shaping employee behaviour

Influencing the direction of marketing efforts

Building team spirit

The bottom line on shared corporate values: An organisationsvalues are reflected in the decisions and actions of its employees


(cont)

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Corporate EthicsIn an international context Ethical standards are not universal.

Social and cultural differences determine acceptablebehaviours

Developing countries and worker safety standards,

environmental pollution regulations

Bribes

Foreign Corrupt Practices Act Makes it illegal to corrupt a foreign official yet token

payments to officials are permissible when doing so is anaccepted practice in that country

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Corporate Ethics (cont)

Ethics and Boards of Directors

Directors have a fiduciary responsibility for

shareholders funds

They need to be vigilant, knowledgeable and intuitivein order to pick up unethical or unwise behaviour on

the part of management or other directors

Laws, regulations and official publications aim to

assist directors in meeting their obligations

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Corporate Ethics (cont)

Ethics and the whistleblower

Whistleblowers: Employees who publicly disclose illegal or

unethical conduct by others within the organisation

The behaviour of whistleblower has been studied under the

category of Principled organisational dissent: The effort by

individuals in the workplace to protest about and/or change thestatus quo because they have a conscientious objection to

current policy or practice

Whistleblower protection legislation

Protection is welcome but may be insufficient

A culture that supports ethical behaviour may be more

effective

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Corporate Ethics

Socio-economics and economic rationalism

Recent developments have challenge the traditional economic

thinking, in favour of ethical development in organisations.

They are:

Neoclassical economics:Humans are self-interested, rational and materialistic

Self-interest leads to optimal social outcomes

Socioeconomics:Humans live in community and there is a moral

dimension to motivation so social benefit, not just

financial sustainability and return, should be considered

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SOCIAL RESPONSIBILITY

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What is Social Responsibility?

Social responsibility is the set of obligations an organisation hasto protect and enhance the society in which it functions

Obligation beyond that oflaw and economics for a firm to

pursue long term goals that are good for society

It is the collective behaviour and actions of managers that makea company socially responsible or socially irresponsible

Managers who make THE RIGHT DECISIONS aredescribed as being or behaving ethically

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Corporate social responsibility: The desiredbehaviour of organisations in regard to economic,environmental and social performance i.e. triple

bottom line or sustainability reporting

Some managers see adherence to ethical guidelines asan avoidable cost.

Corporate social responsibility may be good forbusiness companies on the Dow Jones GlobalSustainability Index have outperformed those on thestandard index.

What is Social Responsibility (cont)?

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Major views of social responsibility

Two opposing views of social responsibility:

- Classical view

- Socioeconomic view

M j i f i l ibilit ( t)

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Major views of social responsibility (cont)The classical view:

The view that managements only responsibility is to maximise

profits

Milton Friedman: Nobel Prize winning economist argued thatmanagers are there to maximise financial returns for their

shareholders, and to attempt to enhance the social good weakensthe market forces

In free economy there is only one and only one responsibility

of business- to use its resources and engage in activitiesdesigned to increase its profits so long as it stays within the rulesof the game, which is to say, engages in open and freecompetition without deception or fraud Friedman (1992)

Friedmans ideology of shareholder value provides for only oneconstituency - the shareholders

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The socioeconomic view

R. Edward Freeman-Corporations have stake holders, that is groups and individuals

who benefit from or are harmed by, and whose rights areviolated or respected by corporate actions

Stakeholders:

Management

Owners

Suppliers Employees

Customers

Local community

Major views of social responsibility (cont)

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The socioeconomic view (cont)The stakeholders

Narrow approach:

Includes those groups that are vital to the survival andsuccess of the corporation

Wider approach:

Any group or individual who can affect or is affectedby the actions of corporation


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The socioeconomic view (cont)

Socioeconomic view challenges the classical view and theprevailing trend of economic rationalism

The view that managements social responsibility goes wellbeyond the making of profits to include protecting andimproving societys welfare

To do the right thing by the society


Arguments for and against social

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Arguments for and against socialresponsibility

(summary)

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

Lack of skills

Lack of accountability

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Arguments for corporate social responsibility

Business creates problems and should therefore helpsolve them

Corporations are citizens in our society

Business often has the resources necessary to solveproblems

Business is a partner in our society, along with thegovernment and the general population

Making clear and visible contribution to society maybe good for business

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Arguments against corporate social responsibility (cont).

The purpose of business in Australian society is to

generate profit for owners

Involvement in social programs gives business too

much power (potential for abuse & corruption) There is potential for conflict of interest (business may

have preference / ulterior motive for supporting a

cause)

Business lacks the expertise to manage social

programs (more reasonable to contribute to the

common good through taxes)

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Managing Social Responsibility

Recurrent questions:

To whom is the business responsible?

Who in the business is responsible for the organisations

practices?

Approaches that organisations may take to social

responsibility:

Social obstruction, social obligation, social response, socialcontribution

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Managing Social Responsibility (cont)Organisational approaches to social responsibility

Social obstruction:

do as little as possible and deny responsibility

Social obligation:defensive, minimal compliance, obligation to meet economic and legalresponsibilities

Social response:

accommodative, reactive

Social contribution:

proactive, contribute far more than required

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Managing Social Responsibility (cont)

Total corporate responsibility

Discretionary

responsibilityEthical

responsibility

Legal

responsibility

Economic responsibility

Contribute to the

community and

quality of life

Be ethical. Dowhat is right.

Avoid harm

Obey the

law

Be profitable

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Example of impact of social responsibility

decisions and activities

The greening of management

The recognition of the

close link between an

organisations decisions

and activities and its

impact on the natural

environment

Example (cont)

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Global issues

affecting theenvironment

The greening

of management

Natural ResourcesNatural Resources

Global WarmingGlobal Warming

Toxic WasteToxic Waste

Industrial AccidentsIndustrial Accidents

PollutionPollution

Example (con t)Global problems management mustaddress to go green

Example (cont):

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Low High

Environmental sensitivity

Legal

approach(light

green)

Market

approach

Stakeholder

approach

Activist

approach(dark

green)

Example (con t):Organisational approaches to environmental

issues (How organisations go green?)

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Does social responsibility pay?

Studies appear to show a positive relationship

between social involvement and the economic

performance of firms

HBSC

Nestle

Nokia

RioTinto

GlaxoSmithKline after Ribena episode?

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Improving Ethical BehaviourCode of ethics/Code of conduct Organisational ethics must start with senior management.

Code of conduct: A statement of obligations imposed by anorganisation on its employees or officials, in addition to thosespecific duties imposed by legislation. May also entail ethical

education and ethics committees Example: re: text P131 Fig 4.5

Use more of word must

Code of ethics: A formal written statement of the values andethical standards that guide a companys actions.

Example: use more of words such as ought or should

More of a general guide for situation when code of conduct

is silent / unclear

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Code of ethics/Code of conduct (cont)

Examples - Code of ethics

Shell: How we work

Our core values of honesty, integrity and respect for people

define how we work

The Body Shop: Reason for being

To meaningfully contribute to local, national and internationalcommunities by adopting a code of conduct which ensures care,

honesty, fairness and respect

Vision of McDonald's CEO:

McDonald's will contribute to making the world a better place

Improving Ethical Behaviour (cont)


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1. Hire individuals with high ethical standards

2. Establish decision rules

3. Lead by example

4. Delineate job goals and performance appraisal

mechanisms

5. Provide ethics training

6. Conduct independent social audits

7. Provide support for individuals facing ethicaldilemmas

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Ethics Hotline or Helpline

Whistleblowers publicly disclose illegal or unethicalconduct of others within their organisation

Personal costs to the whistleblower are usually veryhigh - including ostracism, job and career loss, legal

costs, ill health

Whistleblower protection schemes

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The changing trends

Social Issues have become strategic

Issues such as privacy, obesity, off-shoring and the

safety of pharmaceutical products can alter anindustry's ground rules, and the financial and

reputational impact of mishandling these issues can be

huge

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The changing trends (cont)

Social issues

The McKinsey Quarterly, January 2006 Global survey ofBusiness Executives), indicates that 84 percent of executivesthink business has a broader contract with society

They increasingly recognize that the creation of long-termshareholder value depends on a corporations ability tounderstand and respond to increasingly intense demands fromsociety

Socially responsible investing has been gaining ground asinvestors seek to incorporate concepts like sustainability andresponsible corporate behavior into their assessments of acompanys long-term value

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The changing trends (cont.)

Social issues (cont)

In the News: Business and obesity

In response to a growing public debate about the possible

connection between soda and childhood obesity, several of the

largest US beverage distributors have agreed to stop selling

carbonated beverages in most schoolsa move that highlights

the growing importance of social issues to business

(McKinsey Quarterly, May 6, 2006, number 2)

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Corporate ethics, social responsibility and the overpaid

executive

Is it acceptable behaviour to reward managers at levels

100 times or more that of the average worker?

Are packages with golden hellos, golden handshakes,

golden handcuffs and golden parachutes ethical?

Research indicates little or no correlation between

executive pay and company performance

The changing trends (cont.)

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Socially responsible Australian companies

Westpac named Australia's most socially responsible company,ahead of Toyota, ANZ and BHP Billiton

Most socially responsible small to medium business company

by St James Ethics Centre

Socially responsible initiatives at Savings & Loans include

flexible employment policies, sponsorship of Christmas

pageants, discounted interest rates on loans for environmentallyfriendly cars, and the Women's & Children's Hospital visa card

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In summary

Ethics are a persons beliefs about what constitutes

right and wrong behaviour

Social responsibility is the set of obligations an

organisation has to protect and enhance the society inwhich it functions

Organisations use leadership, culture, training, codes

of ethics and codes of conduct to help managers

manage ethical behaviour in organisations

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Food for thought

Is it right to

File falsified or inflated business expense reports

Borrow office supplies for personal use Outsource jobs for cheap labour

Apply various ethical approaches and see if the

answers differ with differing approaches

2009 topic 5 ethics

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