business ethics sociial responsibility notes 2013

BES401: BUSINESS ETHICS & SOCIAL RESPONSIBILITY

WEEK I - INTRODUCTION TO ETHICS

Definition of ethics

Ethics is the discipline dealing with what is good or bad,

or what is right or wrong or specifically with moral duty

and obligation.

Ethics has been defined as “inquiry into the nature and

grounds of morality where the term morality is taken to mean

moral judgment, standards and rules of conduct.

It has also been called the study and philosophy of human

conduct with an emphasis on the determination of right and

wrong”.

The American Heritage dictionary offers this definition of

ethics as “the study of the general moral choices, moral

philosophy and the rules or standards governing the conduct

of members of a profession”.

Ethics could also be described as the study of how our

decisions affect other people or as the study of people’s

rights and duties and the rules that people apply in making

decisions. In business we cannot avoid ethical issues just

like in other areas of our lives.

Ethics involves learning what is right or wrong, and then

doing the right thing but “the right thing” is not nearly as

straightforward as conveyed in a great deal of business

ethics literature. Most ethical dilemmas in the workplace

are not simply a matter of “Should Bob steal from Jack?” or

“Should Jack lie to his boss?’ (Many ethicists assert

there’s always a right thing to do based on moral principle,

and others believe the right thing to do depend on the

situation – ultimately it’s up to the individual.) Many

philosophers consider ethics to be the “science of conduct.”

Ethics includes the fundamental ground rules by which we

live our lives.

Values which guide how we ought to behave are considered

moral values, e.g., values such as respect, honesty,

fairness, responsibility etc. Statements around how these

values are applied are sometimes called moral or ethical

principles.

Business Ethics

Business ethics also called managerial ethics is the

application of ethical principles to business relationships

and activities. Managers who run businesses are human beings

who despite the laws set cannot behave the same regardless

of the circumstances. Managers face many ethical dilemmas

(two or more situations where both seem right but which are

conflicting).

Business ethics could apply in these areas.

a) relationships of the firm to the employees:

how they are to be treated

What are fair wages, fair dismissals etc.

b) relationship of the employee to the firm

how should they behave when faced with issues of

competing loyalties, e.g. accepting incentives from

suppliers, cases of moonlighting, secrecy or

espionage and honesty in small items; pens, paper,

telephone etc.

c) relationship of the firm to the environment

Ethical issues arise in how the firm relates to the

various elements of the environment e.g. customers,

competitors, stockholders, dealers and the community.

Many industries and organizations companies have formal,

written codes of ethics that provide specific guidelines for

managers and other employees. But the question is whether

when individuals violate the code of conduct, the

organization enforces it.

Many companies in an attempt to manage ethics have developed

specific codes of ethics. These establish guidelines for

ethical decision making in business. Areas covered may be:

truthfulness in advertising,

improper use of company assets,

political contributions,

payments in connection with business transactions,

conflicts of interest,

Trade secrets etc.

There are advantages for organizations to form industry

associations to develop and promote improved codes of

ethics. It is difficult for a single firm to pioneer ethical

practices if its competitors undercut them by taking

advantage of unethical shortcuts. If ethics are to be

improved, it is very important for top executives to

support, and emphasize ethical behaviour by adhering to

ethics themselves and also to train their staff in ethics.

Levels of Ethics

In business most of the ethical issues will fall into one of

the following four levels.

i. Societal Level

This level deals with the basic institutions in society.

e. g. issues on the role of the government in the market

place and merits or demerits of political parties or

political ideologies. Managers of organizations have an

obligation to shape debates on social welfare.

ii. Stakeholders Level

This level deals with employees, suppliers, customers,

shareholders, etc. Certain ethical considerations affect

this group of people. A company must deal with the issue

of how its decisions affect all those groups of people

Sources of Ethical guidance

Beliefs about what is right or wrong

Our ActionsLeads toType 1 Ethics

Determines Type 2 Ethics

e.g. what obligations does a company have to its

suppliers, to its customers, or even to its owners?

iii. Internal Policy Level

At this level the question of interest is the nature of a

company’s relationship with its employees and managers.

‘What kind of contract is fair? What rights should

employees have?’

iv. Personal Level

This level deals with how people treat one another within

a corporation, honesty with one another and obligations

of employees to their bosses, to subordinates or to

peers. Ethical questions are everywhere, at all levels of

business activity. Ethical issues concern the ground

rules of individuals, companies and social behaviour.

Being ethical calls for people to examine their actions

and be critical of the ground rules they apply in their

activities. A seller for example should ask such

questions as ‘should I tell the customer the product is

harmful?’ A buyer should ask ‘should I tell the clerk he

gave me too much change?”

A model of Ethics

It can be seen that ethics consist of two relationships,

indicated by arrows in the figure above.

A person or organization is ethical if these relationships

are strong and positive. There are a number of sources that

one might use to determine what is right or wrong, good or

bad, immoral or moral behaviour. These include the Bible,

the Koran and a number of other holy books. They also

include that “still small voice” referred to as the

conscience. Another source of guidance is the behaviour of

what psychologists call the “significant” others - our

parents, friends, role models, associates, peers etc.

The laws of the country prohibit any acts that are

sufficiently hurtful to others and therefore laws offer

guides to ethical behaviour. But distinction must be made

between what is illegal and what is unethical. Not

everything that is unethical is illegal. For example the law

has limits regarding honesty. If one picks a lost item and

keeps it, he probably has not done anything illegal but his

act is unethical. If a clerk Steals from his company in

order to feed the poor, he has done an illegal thing but for

ethical reasons. Decisions of ethics are quite difficult but

all managers need to know is that ethics goes beyond the

minimum requirements by law and by market economy. There are

so many unethical things that can be done in business, yet

there is no law against them!

Simply having strong beliefs about what is right and wrong

and basing them on the proper sources does not make one

ethical. Behaviour should conform to what we believe about

right and wrong.

Type I ethics refers to the strength of the relationship

between what an individual or organization believes and what

the sources of guidance suggest is morally correct.

Type II ethics is the strength of the relationship between

what one believes and how one behaves. To do what one

believes is wrong is unethical. But to be ethical one must

have both types of ethics.

The Tools of Ethics

i. Ethical Language

The key terms of the ethical language are values, rights,

duties and rules.

Values are permanent desires that seem to be good in

themselves like peace. Values are the answers of questions

of ‘why”; ‘why for example should managers behave

ethically?”.

A right is a claim that entitles a person to something.

A duty is an obligation to take specific steps; e.g. to pay

taxes.

Moral rules are set of laws that guide us through situations

where competing interests collide.

ii. Common Morality

This is the body of rules covering ordinary ethical problems

i.e. rules that we live by most of the time. Examples

include:

- promise keeping

- benevolence (kindness, compassion, generosity,

goodwill )

- mutual aid

- respect for persons and

- respect for property

WEEK 2- SCOPE AND OBJECTIVES OF ETHICS

Benefits of Managing Ethics in the Workplace

Ethics programs help maintain a moral course in

turbulent times.

Ethics programs cultivate strong teamwork and

productivity

Ethics programs support employee growth and meaning.

Ethics programs are an insurance policy; they help

ensure that policies are legal.

Ethics programs help manage values associated with

quality management, strategic planning and diversity

management; this benefit needs far more attention.

Ethics programs promote a strong public image.

1) Attention to business ethics has substantially improved

society

A matter of decades ago, children worked 16-hour days.

Workers’ limbs were torn off and disabled workers were

condemned to poverty and often to starvation. Trusts

controlled some markets to the extent that prices were fixed

and small businesses stifled/choked out. Price fixing

crippled normal market forces. Employees were terminated

based on personalities. Influence was applied through

intimidation and harassment. Then society reacted and

demanded that businesses place high value on fairness and

equal rights. Antitrust laws were instituted. Government

agencies were established. Unions were organized. Laws and

regulations were established.

2) Ethics programs help maintain a moral course in turbulent

times

Attention to business ethics is critical during times of

fundamental change -- times much like those faced now by

businesses, both non-profit and for-profit. During times of

change, there is often no clear moral compass to guide

leaders through complex conflicts about what is right or

wrong. Continuing attention to ethics in the workplace

sensitizes leaders and staff to how they want to act --

consistently.

3) Ethics programs cultivate strong teamwork and

productivity

Ethics programs align employee behaviors with those top

priority ethical values preferred by leaders of the

organization. Usually, an organization finds surprising

disparity between its preferred values and the values

actually reflected by behaviors in the workplace. Ongoing

attention and dialogue regarding values in the workplace

builds openness, integrity and community -- critical

ingredients of strong teams in the workplace. Employees feel

strong alignment between their values and those of the

organization. They react with strong motivation and

performance.

4) Ethics programs support employee growth and meaning

Attention to ethics in the workplace helps employees face

reality, both good and bad -- in the organization and

themselves. Employees feel full confidence they can admit

and deal with whatever comes their way.

5) Ethics programs are an insurance policy -- they help

ensure that policies are legal

There is an increasing number of lawsuits in regard to

personnel matters and to effects of an organization’s

services or products on stakeholders. Ethical principles are

often state- of-the-art legal matters. These principles are

often applied to current, major ethical issues to become

legislation. Attention to ethics ensures highly ethical

policies and procedures in the workplace. It’s far better to

incur the cost of mechanisms to ensure ethical practices now

than to incur costs of litigation later. A major intent of

well-designed personnel policies is to ensure ethical

treatment of employees, e.g., in matters of hiring,

evaluating, disciplining, firing, etc.

6) Ethics programs help avoid criminal acts “of omission”

and can lower fines

Ethics programs tend to detect ethical issues and violations

early therefore; they can be reported or addressed. In some

cases, when an organization is aware of an actual or

potential violation and does not report it to the

appropriate authorities, this can be considered a criminal

act, e.g., in business dealings with certain government

agencies, such as the Defense Department. However, the

guidelines potentially lower fines if an organization has

clearly made an effort to operate ethically.

7) Ethics programs help manage values associated with

quality management, strategic planning and diversity

management

Ethics programs identify preferred va1ues and ensuring

organizational behaviors are aligned with those values. This

effort includes recording the va1ue developing policies and

procedures to align behaviors with preferred values, and

then training all personnel about the policies and

procedures. This overall effort is very useful for several

other programs in the workplace that require behaviors to be

aligned with values, including quality management, strategic

planning and diversity management.

Total Quality Management includes high priority on certain

operating values, e.g., trust among stakeholders,

performance, reliability, measurement, and feedback. Ethics

management techniques are highly useful for managing

strategic values, e.g., expand market share, reduce costs,

etc. Ethics management programs are also useful in managing

diversity. Diversity is much more than the color of people’s

skin; it’s acknowledging different values and perspectives.

Diversity programs require recognizing and applying diverse

values and perspectives. These activities are the basis of a

sound ethics management program.

8) Ethics programs promote a strong public image

Attention to ethics is also strong public relations --

admittedly, managing ethics should not be done primarily for

reasons of public relations. The fact that an organization

regularly gives attention to its ethics can portray a strong

positive image to the public. People see those organizations

as valuing people more than profit, as striving to operate

with the utmost of integrity and honour. Aligning behavior

with values is critical to effective marketing and public

relation programs. Ethical values, consistently applied, are

the cornerstones in building a commercially successfu1 and

socia1ly responsible business.

9) Overall benefits of ethics programs

Managing ethical values in the workplace legitimizes

managerial actions, strengthens the coherence and balance of

the organization’s culture, improves trust in relationships

between indivua1s and groups, supports greater consistency

in standards, qualities of products and cultivates greater

sensitivity to the impact of the enterprise’s values and

messages.

Core values in business ethics

Accept responsibility and be accountable for actions.

Respect and promote human rights in all our dealings

Honour agreements and commitments

Treat everyone being dealt with fairly, honestly and

with dignity and respect

Conduct business in an environmentally responsible

manner in accordance with the principles of sustainable

development.

Obey all laws that govern business

Manage activities for the benefit of stakeholders

Communicate to all stakeholders in honest and

straightforward manner

Carry out activities in a socially responsible manner

that benefit the local community in which the business

operates

Select and treat employees in a fair and equitable

manner.

Establish a work environment that is free from

discrimination, harassment, intimidation and hostility

of any kind.

Respecting privacy of employees and their families.

Characteristics of highly ethical organizations

They are at ease interacting with diverse internal and

external stakeholder groups.

They are obsessed with fairness. Their ground rules

emphasize that the other persons' interests count as

much as their own.

Responsibility is individual rather than collective,

with individuals assuming personal responsibility for

actions of the organization.

There exists a clear vision and picture of integrity

throughout the organization. The vision is owned and

embodied by top management, over time.

The reward system is aligned with the vision of

integrity.

Policies and practices of the organization are aligned

with the vision; no mixed messages.

It is understood that every significant management

decision has ethical value dimensions.

WEEK 3: MANAGERIAL ETHICS

Organizations can manage ethics in their workplaces by

establishing an ethics management program. Typically, ethics

programs convey corporate values, often using codes and

policies to guide decisions and behavior, and can include

extensive training and evaluating, depending on the

organization. They provide guidance in ethical dilemmas.

All organizations have ethics programs, but most do not know

that they do. A corporate ethics program is made up of

values, policies and activities which impact the propriety

of organization behaviors. Balancing competing values and

reconciling them is a basic purpose of an ethics management

program. Business people need more practical tools and

information to understand their values and how to manage

them.

There are numerous benefits in formally managing ethics as a

program, rather than as a one-shot effort when it appears to

be needed.

Ethics programs:

Establish organizational roles to manage ethics

Schedule ongoing assessment of ethics requirements

Establish required operating values and behaviors

Align organizational behaviors with operating values

Develop awareness and sensitivity to ethical issues

Integrate ethical guidelines to decision making

Structure mechanisms to resolving ethical dilemmas

Facilitate ongoing evaluation and updates to the

program

Help convince employees that attention to ethics is not

just a knee-jerk(automatic/thoughtless) reaction done

to get out of trouble or improve public image

Guidelines for Managing Ethics in the Workplace

The following guidelines ensure the ethics management

program is operated in a meaningful fashion:

Recognize that managing ethics is a process

Ethics is a matter of values and associated behaviors.

Values are discerned through the process of ongoing

reflection. Therefore, ethics programs may seem more

process- oriented than most management practices. Managers

tend to be sceptical/ doubtful of process- oriented

activities, and instead prefer processes focused on

deliverables with measurements. However, experienced

managers realize that the deliverables of standard

management practices (planning, organizing, motivating,

controlling) are only tangible representations of very

process-oriented practices.

For example, the process of strategic planning is much more

important than the plan produced by the process. The same is

true for ethics management. Ethics programs do produce

deliverables, e.g., codes, policies and procedures, budget

items, meeting minutes, authorization forms, newsletters,

etc. However, the most important aspect from an ethics

management program is the process of reflection and dialogue

that produces these deliverables.

The bottom line of an ethics program is accomplishing

preferred behaviors in the workplace

The most important outcome is behaviors preferred by the

organization. The best of ethical values and intentions are

relatively meaningless unless they generate fair and just

behaviors in the workplace. That’s why practices that

generate lists of ethical values, or codes of ethics, must

also generate policies, procedures and training that

translate those values to appropriate behaviours. Action

indeed is the sole medium of expression for ethics. Jane

Addams

The best way to handle ethical dilemmas is to avoid their

occurrence in the first place

That’s why practices such as developing codes of ethics and

codes of conduct are so important. Their development

sensitizes employees to ethical considerations and minimizes

the chances of unethical behavior occurring in the first

place.

Make ethics decisions in groups, and make decisions public

as appropriate

This usually produces better quality decisions by including

diverse interests and perspectives, and increases the

credibility of the decision process and outcome by reducing

suspicion of unfair bias (synergy)

Integrate ethics management with other management practices

When developing the values statement during strategic

planning, include ethical values preferred in the workplace.

When developing personnel policies, reflect on what ethical

values you’d like to be most prominent in the organization’s

culture and then design policies to produce these behaviors

Use cross-functional teams when developing and implementing

the ethics management program

It’s vital that the organization’s employees feel a sense of

participation and ownership in the program if they are to

adhere to its ethical values. Therefore, include employees

in developing and operating the program (participative

management)

Value forgiveness

The most important ingredient for remaining ethical is

trying to be ethical. Therefore, help people recognize and

address their mistakes and then support them to continue

trying to operate ethically.

Note that trying to operate ethically and making a few

mistakes is better than not trying at all.

Some organizations have become widely known as operating in

a highly ethical manner. Unfortunately, it seems that when

an organization achieves this strong public image, it’s

placed on a pedestal by some business ethics writers. All

organizations are comprised of people and people are not

perfect. However, when a mistake is made by any of these

organizations, the organization has a long way to fall. In

our increasingly critical society, these organizations are

accused of being hypocritical and they are soon pilloried/

ridiculed/ scorned by social critics. Consequently, some

leaders may fear sticking their necks out publicly to

announce an ethics management program. This is extremely

unfortunate. It’s the trying that counts and brings peace

of mind -- not achieving a heroic status in society.

WEEK 4: BUSINESS ETHICS THEORIES

Ethical Theories are principles or rules that people use to

decide what is right or wrong. The most fundamental theories

in ethics that forms the foundation of all other theories

are the Classical Theories which includes:

Utilitarianism Theory

Utilitarian theory was developed by John Stuart Mill (1806-

1873) along with Jeremy Bentham (1748-1832). Utilitarian

theories hold that the moral worth of actions or practices

is determined solely by their consequences. An action or

practice is right if it leads to the best possible balance

of good consequences over bad consequences for all the

parties affected. In taking this perspective, utilitarian’s

believe that the purpose or function or morality is to

promote human welfare by minimizing harms and maximizing

benefits.

Mills discusses two foundations or sources of utilitarian

thinking: a normative foundation in the principle of ‘utility’

and psychological foundation in the human nature. He proposes the

“greatest happiness principle” as the foundation of

normative ethical theory. Actions are right in proportion to

their tendency to promote happiness or absence of pain, and

wrong in so far as they tend to produce pain or displeasure.

Mill’s second foundation derives from his belief that most

persons, and perhaps all, have a basic desire for unity and

harmony with their fellow human beings. Just as the people

feel horror at crimes, they have basic moral sensitivity to

the needs of others. The purpose of morality is therefore

tapping natural human sympathies to benefit others, while

controlling unsympathetic attitudes that cause harm to

others.

The principle of utility is conceived as the best means to

these basic human goals. The name of utilitarianism is

derived from the Latin ‘utilis’, meaning ‘useful’. In

utilitarianism, the consequences of actions are measured

against one value. This ‘useful’ value can be something like

happiness, welfare or pleasure. It should be maximized. It’s

a moral theory that dictates that people must choose the

action or follow the rule that provides the greatest good to

society.

However, there are several downsides to utilitarianism. Of

course it is very hard to determine how much pleasure an

action will actually give. Also, to find the total amount of

pleasure, we need to consider all individuals that are

involved and add up their pleasures. But how do we quantify

pleasure? And has the pleasure of one person the same value

as the pleasure of another? Also, how do we decide whether

one action gives more pleasure than another? Answering these

questions is difficult.

Deontology Theory

Deontological theory was advanced by a German Philosopher,

Immanuel Kant (1724-1804). His influential work on ethics is

entitled Fundamental Principles of the Metaphysic of Ethics,

first published in 1785. According to Kant, an action is

right if it is in accordance with a moral rule or principle.

A moral rule is one that is required by rationality.

According to Kant:

i) The universal rule is to respect human dignity because

human beings are rational beings. Kant’s respect for human

beings says persons should be treated as ends and never

purely as means. For example, manipulative advertising

attempts to make sales by interfering with the potential

buyer’s reflective choice violate the principle of respect

for persons.

ii) Human beings possesses a moral dignity and therefore

should not be treated as if they

had merely the conditional value possessed by machines,

industrial plants, robots and

capitals.

iii) Kant’s principle finds motives for actions morally

important, in that, it respects persons to make the right

decisions for the right reasons. If a corporation does the

right thing only when (and for the reason) that it is

profitable or when it will enjoy good publicity, its

decision is prudential not moral. Duty ethics is also called

Kantian or deontological theory and was founded by Immanuel

Kant hence the name. It’s a moral theory that says people

owe moral duties that are based on universal rules. It is based

on the premise that people can use reasoning to reach

ethical decisions. This theory would have people behave

according to the categorical imperative: “Do unto others as you

would have them do unto you.”

Deontology focuses on the rights of the individual and on

the intentions associated with behavior not on the

consequences. It holds that there are some things we should

not do regardless of the utility.

A criticism of this theory is that it is hard to reach a

consensus as to what the universal rules should be. There

are several downsides to the Kantian theory. In Kant’s

theory, rules cannot be bent. This reminds us of absolutism.

So, the question arises whether all the moral laws form a

consistent system of norms.

Another downside is that Kantian theory prescribes to

rigidly adhere to the rules, irrespective of the

consequences. But in real life, following a rule can of

course have very negative consequences. Kant’s theory does

not deal with these exceptions.

Virtue Theory

Virtue theory was developed by a Greek philosopher,

Aristotle ((384 BC – 322 BC)). His theories are mainly found

in a collection of his writings known as Nicomachean Ethics.

Aristole looks at ethics in terms of Moral Virtues. The moral

virtues are the character traits necessary to acting

rightly. They are consistent with eudaimonia (human

flourishing) and ensure that the chosen course of action is

not only appropriate in the given circumstances, but also

motivated by the most genuine and well meaning intentions.

There are four moral virtues advanced by Aristotle namely:

• Justice - Justice ‘demands that the claims of the institution

serve both the common good and the rights of individuals.

Justice is not only about promoting equity and equality of

opportunity but also about educating children in a way that

ensures that just people emerge and contribute to the

creation of a just society.

• Care - The virtue of agape can be roughly interpreted as

love for a fellow human being in the Christian sense of the

term. It encompasses a wide range of other regarding

virtues, including the three C’s of caring, concern and

connection. The virtue of care transcends that of justice

through benevolence and compassion, especially in supporting

the weak and the disadvantaged.

• Harmony - The virtue of harmony or concord has received

little if any attention in the discourse of authentic

leadership, and yet it provides the basis for a shared

vision, unity of purpose and collaboration in problem

solving. The virtue of harmony is dependent on at least two

other virtues of moral leadership. The first is gentleness

or good temper, essential to promoting good feeling and self

esteem in others. The second is that of liberality or

generosity, in empowering and building the confidence of

others.

• Courage - Courage of a moral kind is necessary if the leader

is to make tough decisions, particularly where there is a

conflict of values or stakeholder interests, or where there

is a need to show righteous indignation in the face of

injustice. It is a personal quality which is necessary to

the effective application of the other moral virtues under

discussion.

Meeting challenges and standing by what is regarded as the

right decision requires personal resolve and the exercise of

moral courage.

So, the central theme in virtue ethics is shaping people

into morally good and responsible creatures. Virtue ethics

is rather similar to duty ethics. But, whereas duty ethics

is based on certain rules/norms, virtue ethics is based on

certain virtues. Virtue ethics consists of trust, self

control, empathy, fairness, and truthfulness what is moral

is determined by current societal definitions.

In Summary: There are two broad categories of ethical

theories concerning the rightness or wrongness of actions:

consquentialist and non-consequentialist.

1. Consequentialism – Concerned with consequences (e.g. utilitarianism)

A consequentialist theory judges the rightness or wrongness

of an action based on the consequences that that action has.

The most familiar example would be utilitarianism--``that

action is best that produces the greatest good for the

greatest number'' (Jeremy Bentham).

2. Non-Consequentialism – Not concerned with consequences (e.g. virtue

and deontology)

A non-consequentialist theory of value judges the rightness

or wrongness of an action based on properties intrinsic to

the action, not on its consequences.

Quote:

“Nobody cares how much you know, until they know how much you care!”

(anonymous)

WEEK 5: CORPORATE SOCIAL RESPONSIBILITY (CSR)

What Is Corporate Social Responsibility (CSR)

- Social Responsibility of a business is the expectations

that will do more than what is required by Law and

profit maximization.

- It is a “firm’s obligation to, constituent groups in

society other than stockholders, and beyond that

prescribed by Law.

- The stakeholders of a business include shareholders,

employees, society, community, Government, competitors,

customers, suppliers and creditors.

- Social responsibility refers to the manager’s duty or

obligations to make decisions that nurture, protect,

enhance, and promote the welfare and well-being of

stakeholders and society as a whole.

Evolution of CSR

i. Prior to 1900

- Business had only one responsibility: to make profit.

The Social Responsibility of business was to make

profit within the Law.

- Phrases such as “survival of the fittest,” “buyer

beware” “Let sleeping dogs lie,” etc were popular

capitalist slogans and reflected the view of the day

regarding corporate (social) responsibility.

ii. 1900- 1960

During this period, journalists and human rights

crusaders saw the poor quality of products, exploitation

of workers, destruction of the environment, and decided

to come to the defence of the stakeholders of the

business organization. They used the power of the press

to stir up public indignation/fury/ rage/anger and

agitated for reform. Largely through their efforts, a

number of laws were passed to limit the power of

monopolies, and to establish safety standards for food

and drugs.

iii. After 1960

After the 1960’s management theorists have tended to

consider businesses as having many more stakeholders

than shareholders. These other stakeholders include

employees, the Public the suppliers and many others. In

addition many other large corporate organizations

associated their success with social satisfaction and

therefore decided to provide to society what the society

needed - social goods and services. The business

realized that its long-term interests were intrinsically

intertwined with that of the society in which it

operated. This approach has prevailed and even been

strengthened as we approach the 21st century.

Philosophical Bases for Social Responsibility

1) Religious Teaching

Thou shall not steal

Thou shall not kill

Do unto others as you would have them do unto you.

2) Utilitarianism

A philosophy used in making ethical decisions that aims

at achieving the greatest good for the greatest number. A

manager using this philosophical basis will figure out

the impact of his decision on everyone concerned, and

choose the alternative that creates the most satisfaction

for the most people. You would reject activities that

cater for narrow interests or those that failed to

satisfy the needs of the majority.

3) Individual Rights

The other philosophical basis is the belief in the

importance of individual rights. Because a belief in another

person’s rights implies that you have a duty to protect

those rights, you would reject any decision that violates

those rights. You would for example not deceive or trick

other people in acting against their interests.

4) Justice

In making decisions one might also be guided by principles

of justice. These principles, include a belief that people

should be treated equally, that rules should be applied

consistently and that people who have harmed others should

be held responsible and make restitution. A just decision

then is one that is fair, impartial, and reasonable in light

of the rules that apply to the situation.

The four philosophical bases are not mutually exclusive

alternatives. On the’ contrary, most people combine some or

all of them to reach a decision that will, satisfy as many

people as possible, without violating any person’s rights or

treating anyone unfairly.

Other Factors that determine CSR are:

(1) Laws and Rules/ Regulations

(2) Cultural Values

(3) Industry and/or Company Ethical Codes of Behaviour

(4) The dominant philosophical thoughts and ideals of the

decision maker

(5) The Society’s level of awareness regarding business

ethics

Arguments for Social Responsibility

People expect businesses and other institutions to be

socially responsible.

It is in the best interest of the business to pursue

socially responsible programs.

It improves the image of the firm.

Business should be involved in social projects because

it has the resources.

Corporations must be concerned about society’s

interests and needs because society in effect sanction

business operations.

If the business is not responsive to society’s needs

the public will press for more government regulation

requiring more socially responsible behaviour.

Socially responsible actions may increase profits for

the business in the long run.

Why Be Socially Responsible

When managers behave in a socially responsible manner, the

following benefits result:

i. Workers and society benefit directly because

organizations (rather than Government) bear some of the

costs of helping workers and society.

ii. The quality of life for all is increased. In fact if

all companies adopted a caring attitude, a climate of

caring would pervade the wider society. Crime would

fall.

iii. Companies that are responsible towards their

stakeholders benefit from increasing business and

support. It is therefore in the best interests of the

business to be socially responsible

Evidence suggests that in the long-run, managers who behave

socially responsibly will most benefit all organizational

stakeholders (including stockholders). Socially responsible

companies in comparison with less socially responsible

businesses are less risky investments, tend to be somewhat

more profitable, have a more loyal and committed workforce

and have better reputation, which encourages stakeholders

(including customers and suppliers) to establish long-term

business relationship with them.

Socially responsible companies are also sought out by

communities, which encourage them to locate in their cities

and offer incentives such as tax reductions, and

construction of roads and free utilities for their plants.

Arguments against Social Responsibility

Violates sound economic business decision making that

should rightfully concentrate on earning profits.

Might be illegal - executives do not have the legal

right to use corporate resources to pursue social

responsibility.

Costs are excessive compared to the benefits to society

and would tend to raise prices to excessive levels.

Managers are not trained, nor do they possess the skills

or resources to determine which socially desirable

projects to support.

Concentrates too much power in the hands of business

executives.

Leads to the deterioration of the free enterprise

system.

It is the responsibility of managers to meet the

interest of their shareholders as long as they stay

within the law.

Social responsibility is the responsibility of

government not of business.

Business is not equipped to deal with social

responsibility activities.

Dimensions of Social Responsibility

Obstructioni

st

Defensive Accommodati

ve

Proactive

Low social responsibility high

social responsibility

The strength of an organizations’ commitment to social

responsibility ranges from low to high.

At the low end of the range is an obstructionist dimension

or approach. In this approach managers choose not to behave

in a socially responsible way. Instead they behave

unethically and illegally and do all they can to prevent

knowledge of their behavior from reaching other

organizational stakeholders and society at large. This type

of approach obviously leads to loss of reputation of the

company and also devastation for all stakeholders involved.

Eventually the organizations are unable to sustain

themselves when they lose the support of their stakeholders.

Defensive approach In this approach managers indicate some

commitment to ethical behavior. Here managers stay within

the law and abide strictly with legal requirements but they

make no attempt to exercise social responsibility beyond

what the law dictates. All they ensure is that their

employees behave legally and they do not harm others. But

when making ethical choices, they put claims and interests

of their stockholders first, at the expense of other

stakeholders.

The Defensive approach reflects the philosophy of the

capitalist system. In a capitalist economic system, managers

are there to maximize shareholder interests as long as they

are within the law. It is not a manager’s job to make

socially responsible choices; their job is to abide by the

rules that have been legally established.

Accommodative approach In this approach managers

acknowledge the need to support social responsibility. They

agree that organizational members ought to behave legally,

and ethically and they try to balance the interests of

different stakeholders against one another so that the

claims of stockholders are seen in relation to the claims of

other stakeholders. Managers adopting this approach want to

make choices that are reasonable in the eyes of society and

want to do the right thing when called on to do so.

Proactive approach In this approach managers actively

embrace the need to behave in socially responsible ways.

They go out of their way to learn about the needs of

different stakeholders and are willing to utilize

organizational resources to promote the interests not only

of shareholders, but of the other stakeholders.

How should managers decide which social issues they will

respond to?

i) All illegal behavior should not be tolerated

ii. Whistle-blower-is a term used to refer to a person who

reports illegal or unethical behavior and takes a stand

against unscrupulous managers or other stakeholders who

are pursuing their own ends.

iii. Social audit - is a tool that allows managers to

analyze the profitability and social return of socially

responsible actions. The managers use the tool to rank

various alternative courses of action according to both

their profitability and their social benefits. When

this framework is used decisions showing both high

profitability and high social benefits are the most

likely to be implemented. Decisions with high

profitability but negative social effects would worry a

socially responsible organization and would not be

implemented

iv. Application of Ethical Standards and Values

- Managers’ own ethics and values influence their

behavior and strongly influence whether they will

take a pro-active approach to social responsibility

or not

- An organization ‘s code of ethics, usually printed

in its annual reports and mission statements, also

influences how conscientiously managers seek to

support the interests of their stakeholders.

Areas of Social Responsibility

a) Business giving

- giving gifts and donations

- supporting artistic activities

b) Ecology and environmental quality

clean up existing pollution

start process to reduce pollution

noise control

aesthetic improvements

recycling etc.

c) Consumerism

- truth in advertising, pricing, lending guarantees and

warranties.

- control of harmful products

- truth in quantities and quality

- response to consumer complaints

d) Community needs

reduction of poverty

improvement of health care and education

Social amenities e.g. roads, schools, etc.

e) Government relations

- restrictions on lobby

- control of business political action

- restrictions on international relations

- tax remittances

f) Minorities/Disadvantaged persons

vocational training

equal employment rights

programs for alcoholics and drug addicts

employment of physically handicapped

start of industries in marginal areas

equal pay for equal work

promotion on merit

g) Labour relations

- improvement of health and safety at work

- expansion of employee rights

- freedom of participation in company affairs

- care for employee families

h) Stockholder relations

full financial disclosures,

disclosure on activities affecting environment

selection of board members from various interest

groups

non-participation in apartheid regimes or states

full disclosure on business health

Managers are being socially responsible when they:

Provide severance payment to help laid off workers

make ends meet until they can find another job.

Provide workers with opportunities to enhance their

skills and acquire additional education so they can

remain productive and do not become obsolete because

of changes in technology.

Allow employees to take time off when they need to,

and provide health care and pension benefits to

employees.

contribute to churches or support various civic

minded activities in the cities or towns in which

they are located

Decide to keep open a factory whose closure would

devastate the local community.

Decide to keep a company’s operations in the country

to protect the jobs of the country’s people rather

than move operations to another country.

Decide to spend money to improve a new factory so

that it will not pollute the environment.

Decide not to invest in countries that have poor

human rights records choose to help poor countries

develop an economic base to improve living

conditions.

Patterns of Response to Social Demands

There are three strategic approaches that organizations may

take to respond to social demand.

i. Adoptive strategy

ii. Pro-active strategy, and

iii. Interactive strategy

i. Adoptive Strategy

This involves changing only when you are forced to do so

by the society. This is, complying with the law. The law

gives business a general guideline of what is expected

by a society. Legal compliance is the minimum that is

expected by a society. Organizations that use this

strategy adopt or react to the environment only when

there is strong outside pressure, e.g. producers of body

perfumes have to be ozone friendly.

ii. Pro-active/Voluntary Strategy

This involves an attempt at shaping the environment. The

company using this strategy tries to manipulate the

environment in ways that will be to their advantage. The

steps they take may - or may not be to the interest of

the society in the long run, e.g. paying off politicians

to avoid scrutiny.

iii. Interactive Strategy

When a company is able to anticipate environmental changes

and blend its own goals with those of the society, then it

is said to have taken an interactive strategy. This involves

reducing the gap between public expectations and business

performance. This calls for knowhow and skills on how to

manage the company’s social relations with external forces

which may affect the company. That is, the firm tries to

interact with the surrounding social environment in ways

that will be mutually beneficial.

WEEK 7 INDIVIDUAL MORAL PHILOSOPHIES

An outstanding example of moral philosophy research is in

the Piagetian tradition is the work of Lawrence Kohlberg.

Kohlberg has focused on moral development and has proposed a

stage theory of moral thinking which goes well beyond

Piaget's initial formulations.

Kohlberg, who was born in 1927, grew up in Bronxville, New

York, and attended the Andover Academy in Massachusetts, a

private high school for bright and usually wealthy students.

He did not go immediately to college, but instead went to

help the Israeli cause, in which he was made the Second

Engineer on an old freighter carrying refugees from parts of

Europe to Israel. After this, in 1948, he enrolled at the

University of Chicago, where he scored so high on admission

tests that he had to take only a few courses to earn his

bachelor's degree. This he did in one year. He stayed on at

Chicago for graduate work in psychology, at first thinking

he would become a clinical psychologist. However, he soon

became interested in Piaget and began interviewing children

and adolescents on moral issues. The result was his doctoral

dissertation (1958a), the first rendition of his new stage

theory.

Kohlberg is an informal, unassuming man who also is a true

scholar; he has thought long and deeply about a wide range

of issues in both psychology and philosophy and has done

much to help others appreciate the wisdom of many of the

"old psychologists," such as Rousseau, John Dewey, and James

Mark Baldwin. Kohlberg has taught at the University of

Chicago (1962-1968) and, since 1968, has been at Harvard

University.

PIAGET'S STAGES OF MORAL JUDGMENT

Piaget studied many aspects of moral judgment, but most of

his findings fit into a two-stage theory. Children younger

than 10 or 11 years think about moral dilemmas one way;

older children consider them differently. As we have seen,

younger children regard rules as fixed and absolute. They

believe that rules are handed down by adults or by God and

that one cannot change them. The older child's view is more

relativistic. He or she understands that it is permissible

to change rules if everyone agrees. Rules are not sacred and

absolute but are devices which humans use to get along

cooperatively.

At approximately the same time--10 or 11 years--children's

moral thinking undergoes other shifts. In particular,

younger children base their moral judgments more on

consequences, whereas older children base their judgments on

intentions. When, for example, the young child hears about

one boy who broke 15 cups trying to help his mother and

another boy who broke only one cup trying to steal cookies,

the young child thinks that the first boy did worse. The

child primarily considers the amount of damage--the

consequences--whereas the older child is more likely to

judge wrongness in terms of the motives underlying the act

(Piaget, 1932, p. 137).

There are many more details to Piaget's work on moral

judgment, but he essentially found a series of changes that

occur between the ages of 10 and 12, just when the child

begins to enter the general stage of formal operations.

Intellectual development, however, does not stop at this

point. This is just the beginning of formal operations,

which continue to develop at least until age 16.

Accordingly, one might expect thinking about moral issues to

continue to develop throughout adolescence. Kohlberg

therefore interviewed both children and adolescents about

moral dilemmas, and he did find stages that go well beyond

Piaget's. He uncovered six stages, only the first three of

which share many features with Piaget's stages.

KOHLBERG'S METHOD

Kohlberg's (1958a) core sample was comprised of 72 boys,

from both middle- and lower-class families in Chicago. They

were ages 10, 13, and 16. He later added to his sample

younger children, delinquents, and boys and girls from other

American cities and from other countries (1963, 1970).

The basic interview consists of a series of dilemmas such as

the following:

Heinz Steals the Drug

In Europe, a woman was near death from a special kind of

cancer. There was one drug that the doctors thought might

save her. It was a form of radium that a druggist in the

same town had recently discovered. The drug was expensive to

make, but the druggist was charging ten times what the drug

cost him to make. He paid $200 for the radium and charged

$2,000 for a small dose of the drug. The sick woman's

husband, Heinz, went to everyone he knew to borrow the

money, but he could only get together about $ 1,000 which is

half of what it cost. He told the druggist that his wife was

dying and asked him to sell it cheaper or let him pay later.

But the druggist said: "No, I discovered the drug and I'm

going to make money from it." So Heinz got desperate and

broke into the man's store to steal the drug-for his wife.

Should the husband have done that? (Kohlberg, 1963, p. 19)

Kohlberg is not really interested in whether the subject

says "yes" or "no" to this dilemma but in the reasoning

behind the answer. The interviewer wants to know why the

subject thinks Heinz should or should not have stolen the

drug. The interview schedule then asks new questions which

help one understand the child's reasoning. For example,

children are asked if Heinz had a right to steal the drug,

if he was violating the druggist's rights, and what sentence

the judge should give him once he was caught. Once again,

the main concern is with the reasoning behind the answers.

The interview then goes on to give more dilemmas in order to

get a good sampling of a subject's moral thinking.

According to Kohlberg’s model of cognitive moral

development, different people make different decisions in

similar ethical situations because they are in different

stages of mental (cognitive) moral development. Kohlberg

proposed that individuals develop through the following six

(6) stages:

Stage 1: The stage of Punishment and Obedience

A person in this stage will respond to rules and considers

“good” and “bad” in terms of the physical power of those who

determine such rules. In other words, right and wrong are

not associated with any personal philosophy but rather with

a person who has power. This stage is usually associated

with children but signs of this stage are also evident in

adults.

Stage 2: The stage of Individual Instrumental Purpose and

Exchange: An individual in this stage defines what is right

as that which serves one’s own interest or needs. In this

stage, the individual no longer makes moral decisions on the

basis of specific rules or authority figures. This person

evaluates his behaviour on the basis of fairness to him/her.

That is to say, it may be wrong for a businessman to give

gifts or bribes to buy customer loyalty. But if giving

gifts or bribes serves his purpose in an attempt to buy

customer loyalty that will be fine with him. In that

situation, he observes the principle of “You scratch my

back, I scratch yours”.

Stage 3: The stage of Mutual Interpersonal Expectations,

Relationships and Conformity

An individual in this stage emphasizes the needs of others

than himself. For example, a production manager may be

asked by the management to speed up the production line to

increase company’s profits and thus maintain employees’

jobs. When this manager follows the order, he does not only

do so to preserve his job but puts himself in the

management’s and employees’ shoes (situation).

Stage 4: The stage of Social System and Conscience

Maintenance: An individual in this stage determines what is

right by considering his/her duty to society not to just

other specific people. Duty and respect for authority and

maintenance of social order becomes the focal point of this

person, e.g. assuring the personal privacy in a work place

could be viewed by some as an employer’s duty.

Stage 5: The stage of Prior Rights and Social Contract or

Utility

In this stage, an individual is concerned with upholding the

basic rights, values and legal contracts to the society.

Individuals in this stage feel a sense of obligation or/and

commitment (social contract) to other groups and recognizes

that in some cases legal and moral points of view may

conflict. To reduce such conflict persons in this stage

base their decisions on the rational calculation of overall

utility.

Stage 6: The Stage of Universal Ethical Principles

An individual in this stage believes that they are alienable

rights which are universal in nature and consequence. A

person in this stage may be more concerned with social

ethical issues and not rely on the business organization for

ethical direction. e.g. a business person in this stage

might consider to discontinue a product that has caused

death and injury because the inalienable right to life makes

killing wrong regardless of the reason. Therefore a company

profit would not be justification from the continued sale of

the product.

WEEK 8: MORAL RESPONSIBILITY

- Moral values and behavioural standards that

businesspeople draw on as they make decisions and solve

problems.

- It originates from a commitment to do what is right.

- Entrepreneurs who succeed in the long term have a solid

base of personal values and beliefs that they articulate

to their employees and put into practice in ways that

others can observe.

- Value-based leaders do more than merely follow rules and

regulations, their conscience dictate that they do what

is right

- Ethical leaders link ethical behaviours to organizational

outcomes and incorporate social responsibility into

daily decisions

- They establish ethical behaviour and concern for society

and the environment as an integral part of organizational

training and the company culture

- Maintaining an ethical perspective is essential to

creating and protecting a company’s reputation

- Building a reputation for ethical behaviour takes a long

time, unfortunately destroying it requires no time at

all.

Levels of moral standards

There are three levels:

a) The law: Defines for society as a whole which actions

are permissible and which are not. The law establishes

the minimum standard of behaviour.

b) Organizational policies and procedures: These serve as

specific guideline for people as they make daily

decisions e.g. sexual harassment.

c) The moral stance that employers take when they

encounter a situation that is not governed by level one

and two. These are the values that people learn early

in life at home, in the church and in school. As

Aristotle said, “You get a good adult by teaching a

child to do the right thing”.

Reasons for running a business morally

- Protect brand and company reputation.

- It is the right thing to do

- To maintain customer’s trust and loyalty

- To maintain investor’s confidence

- To earn public acceptance and recognition

Factors that drive business ethics

- Corporate scandals

- Marketplace competition

- Demands by investors

- Pressure from customers

- Globalization

Benefits of moral management

1) Companies avoid extremely damaging fallout from

unethical behaviour on their reputations (Unethical

businesses usually gain only short-term advantages, over

the long run)

2) A solid ethical framework guides managers as they cope

with an increasingly complex network of influence from

external stakeholders.

3) Businesses with solid reputation as ethical companies

find it easier to attract and retain quality workers

e.g. (I was looking for a company that has a

conscience) (I work for a company where you don’t

leave the values at the door).

4) A company’s ethical philosophy has an impact on its

ability to provide value for its customers.

5) Ethical behaviour is an investment to a company’s future

rather than merely a cost of doing business.

Establishing moral standards

Explain how to establish and maintain high ethical

standards. This is the 1st step in an ethics enhancing

program

- Small businesses are less likely to have ethical

programs. However, they can encourage employees to

become familiar with the following ethical tests for

judging behaviour. moral

a) The utilitarian principle: Choosing the option that

offers the greatest good for the greatest number of

people.

b) Kant’s categorical imperative: Acting in such a way

that the action taken under the circumstances could be

a universal law or rule of behaviour.

c) Professional ethics: Taking only actions that a

disinterested panel of professional colleagues would

view as proper.

d) Golden rule: Treat other people the way you would like

them to treat you.

e) The television test: Would you and your colleagues feel

comfortable explaining your actions to a national

television audience

f) Family test: Would you be comfortable explaining to

your children, your spouse and your parents why you

took the action?

The tests help employees identify the moral implications of

the decisions they face.

Ethical principles to guide moral Behaviour

- Honesty, integrity, promise keeping fidelity

- Fairness, caring for others, respect for others.

- Responsible citizenship, pursuit of excellence and

- Accountability

Maintaining ethical standards

Implementing and maintaining the standards is the real

challenge facing management.

Question: What can managers do to integrate ethical

principle into their companies?

1) Create a company credo: A company credo defines the

- Values underlying the entire company and its ethical

responsibilities to its stakeholders

- It offers a general guidance in ethical issues

- A company’s credo is important for a small company where

the managers’ values become the values driving the

business.

2) Develop a code of ethics

A code of ethics is a written statement of the standards of

behaviour and ethical principles a company expects from its

employees. They establish minimum standards of behaviour

throughout the organization.

3) Enforce the code fairly and consistently

Enforcing the code demonstrates to everyone that you believe

that ethical behaviour is mandatory.

4) Conduct ethics training

Instilling ethics in an organization’s culture requires more

than creating a code of ethics and enforcing it. Ethical

training raises employees’ consciousness of potential

ethical dilemmas. It raises employee’s awareness of ethical

issues and communicates the core of the company’s value

system.

5) Hire the right people

Hiring people with strong moral principles and values is the

best insurance against ethical violations. To make ethical

decisions people must have:

Ethical commitment – personal resolve to act

ethically and do the right thing.

Ethical competency- The ability to engage in sound

moral reasoning and develop practical problem solving

strategies.

6) Perform periodic ethical audits

This helps evaluate the effectiveness of an ethics system

through periodic audits (The review sends a signal to

employees that ethics is not just a passing fad.

7) Establish high standards of behaviour, not just rules

Managers should establish high levels of performance. “Stick

to your principles, hire people who want to live by them,

teach them thoroughly and insist on total commitment.

8) Set an impeccable ethical example at all time

Ethics starts at the top. If managers talk about the

importance of ethics and then act in an unethical manner,

they send mixed signals to employees.

9) Create a culture that emphasizes two-way communication.

Employees must have an opportunity to report any ethical

violations they observe.

10) Involve employees in establishing ethical standards

Encourage employees to offer feedback on how to establish

standards. Involving employees improved quality of company’s

ethical standards and increases the likelihood of employee

compliance.

WEEK 9: SOCIAL RESPONSIBILITY OF BUSINESS TO THE VARIOUS

STAKEHOLDERS

a) Business responsibility to environment:

- Company have become more sensitive to the impact of

their products, processes and packaging have on the

planet.

- Socially responsible company/ business owners’ focus on

three Rs: reduce, reuse and recycle.

- Reduce the amount of materials used in your company from

the factory floor to the copier room.

- Reuse whatever you can

- Recycle the materials that you must dispose off.

- Companies are taking their environmental policies a step

further, creating redesigned “clean” manufacturing

systems that focus on avoiding waste and pollution and

using resources efficiently. They design their products,

packaging and processes from the start with the

environment in mind, working to eliminate hazardous

materials and by-products and looking for ways to turn

what had been scrap into sellable products.

- The society is adversely affected by:

- Air pollution

- Water pollution

- Land pollution

Pollution: Threats to the physical environment caused by

human activities in an industrial society.

Air pollution: Is threatened by gaseous discharges and

dust particles.

Water pollution: Water is polluted by industrial by-

products, oil spills, run off from farm lands,

mining and urban centres.

Land pollution: Disposal of industrial waste directly

into the ground is probably the single

greatest threat facing the environment today.

b) Business responsibility to employees

- Employees are an organization’s most valuable resource.

- They are at the heart of increases in productivity

- They add the personal touch that puts passion in

customer service

- They produce the winning competitive advantage for an

organisation.

Responsibilities within the company include:

- Working conditions: Right to safe workplace

- Equal employment opportunity in a workplace regardless

of race, sex, religion, age and ethnic affiliation

- Affirmative action - Programs that attempt to remedy

historical problems of discrimination by increasing the

number of chances for (employment, promotion, etc for

the discriminated groups.

- Reverse discrimination: Discrimination that makes it

more difficult for the non-discriminated to get hired,

or promoted.

- Diversity training programs: Programs that attempt to

get workers to understand and value individual cultural

differences within the organization’s workforce.

- Economic security : The company should ensure:

(a) Employees have a steady, uninterrupted employment

earning a living wage.

(b) That those who are no longer working are provided for

either by providing pension or gratuity.

- Employee dignity and freedom from sexual harassment:

Organizations must ensure no form of harassment at

work for any employee.

- Excessive executive compensation: No “excessive”

compensation for executives

- Conflict of interest: Managers should not influence a

company decision which is clouded by the chance for a

personal gain;

Managers who understand the value of their employees follow

a few simple procedures by:

Listening to employees and respecting their

opinions.

Asking for their input and involving them in

decision making process

Providing regular feedback to employees

(positive and negative)

Telling them the truth always

Letting them know what is expected of them.

Rewarding employees for performing their jobs

well.

Trusting them; creating an environment of

respect and teamwork.

Ethical issues related to the management of human

resources in the organization.

Hiring and Termination Issues- Ethics plays a very important

role during the recruitment of new employees. Law

and regulations dictate that we have to be ethical

in hiring. However, ethical hiring practice goes

beyond them as well. It has been widely reported by

many researchers that ethical hiring practices

actually result in better employees being recruited.

It is therefore important that sound ethical rules

are followed when hiring a new employee.

Discrimination - Discrimination is the unfair or

preferential treatment of a person on the basis of

one or more uncontrollable characteristics,

including race, gender, age, color, religion, or

national origin, as well as handicapped or pregnancy

status. Discrimination against others in the

workplace can impair your ability to perform your

job according to company expectations.

Sexual Harassment- "unwelcome sexual advances, requests

for sexual favors, and other verbal or physical

conduct of a sexual nature."

Unjust promotions – favourism by boss, sexual favours,

bribery, nepotism, tribalism, lobbying and

canvassing. Promotions should be merit based.

Performance evidence justifying promotions

Benefits of managing Human resources ethical issues in

business organizations

Ethics programs support employee growth and meaning

Ethics programs cultivate strong teamwork and

productivity

Cope with work-related and personal problems and

challenges that impact on performance at work

Improve productivity and workplace efficiency

Lessen absenteeism and staff turnover

Promote workplace co-operation

Position the organization as a caring employer

Reduce grievances

Improve staff morale and motivation

Assist line managers in identifying and resolving

staff problems

c) Business responsibility to customers

- Building and maintaining a base of loyal customers is no

easy task. It requires more than just selling a product

or a service.

- The key is to build relationships with customers.

- Customers have the following rights:

i) Right to safety:

Companies have the responsibility to provide their

customers with safe, quality products and services. This

is the right of customers to use products that do not

unnecessarily put them in danger.

ii) Right to know:

- Businesses have a responsibility to customers to be

truthful in their advertising. Customers have a

right to be informed and the right to be protected

against fraudulent deceitful, or grossly misleading

information, advertising, labelling, or other

practices, and to be given the facts one needs to

make an informed choice.

- Customers have a right to honest communication about

the products and services they buy and the companies

that sell them.

- Customers depend on company information they need to

make decisions about price, quality, features etc

iii) Right to be heard

- Socially responsible businesses provide customers with a

mechanism for resolving complaints about the products

and services.

- Some companies have established a customer communication

channels to address customer questions and complaints

e.g. customer hotlines, toll free numbers etc to serve

customers more effectively.

iv) Right to education

- Socially responsible businesses give customers access to

educational programs about their products and services

and how to use them properly.

- The goal is to give customers enough information to make

informed purchase decisions.

v) Right to choice

- Socially responsible businesses do not restrict

competition

- In a free enterprise system, the customers have a right

to choose among competing products and services.

d) Businesses’ responsibility to investors

- Companies should seek to maximize profits for their

investors

- Managers should not use information they have about

the company to personally benefit.

- Businesses have the responsibility to provide

investors with an attractive return on their

investment.

- Investors today want to know that entrepreneurs are

making ethical decisions and acting in a socially

responsible manner. This translates into a business

culture that sets the stage for a profitable business

operation.

- Businesses have a responsibility to report their

financial performance in an accurate and timely

fashion to their investors.

e) Businesses’ Responsibility to the community

- As corporate citizens, businesses have a responsibility

to the communities in which they operate.

- Socially responsible businesses give back to their

communities by:

Participating in projects that aid the elderly

or economically disadvantaged.

Adopting a clean way near the business to

promote a clean community.

Acting as volunteers for community groups such

as literacy programs, Red Cross (a community

food bank)

- Social responsibility has helped businesses enhance

their reputations, deepen employee loyalty, strengthen

ties with business partners and sell more products or

services.

f) Responsibility to competitors

- Society expects the company to engage in behavior

that do not interfere with free enterprise such as

monopoly, price fixing, price discrimination, and

behavior that tends to lessen competition.

g) Responsibilities to suppliers and creditors

- As a commercial customer, a company has the

responsibility to deal with its suppliers in a fair

and honest manner.

- It is also obliged to pay its bills on time.

- It is also obliged to avoid deception in

negotiations

- Creditors should be shown authentic financial

statements

- The company’s financial statements should be

accurate.

h) Responsibility to government

- Companies should fully comply with the law enacted by

Federal, Central or Local authorities.

WEEK 10: ETHICS IN ADVERTISING & MARKETING

Advertising serves social needs besides simply stimulating

sales. Newspapers, magazines, radio, TV, and many websites

all receive their primary income from advertising.

Shortcomings

- The profession has had to struggle with issues of

honesty and ethics through misleading and deceptive

advertising.

- Customers sometimes suffer from unsubstantiated product

claims (especially patent medicines and health

services).

Advertising practitioners formed groups to improve

advertising effectiveness and promote professionalism and

started vigilance committees to safeguard the integrity of

the industry.

The emphasis is on social accountability over self

fulfilment (profits)

Ethics in advertising is such an important issue

Ethical and legal aspects of advertising

(Advertising principles of American Business of the American

Advertising Federation AAF states that: Advertisers and

consumers need to work together to ensure that advertising

is used intelligently, ethically and responsibly for the

benefit of all.

Standards for truthful and responsible advertising:

1) Truth: Advertising shall tell the truth, and shall reveal

significant facts, the omission of which would mislead

the public.

2) Substantiation: Advertising claims shall be substantiated

by evidence in possession of the advertiser and the

advertising agency prior to making such claims.

3) Comparisons: Advertising shall refrain from making false,

misleading statement or claims about a competitor or

his/her products and services.

4) Bait advertising: Advertising shall not offer products or

services for sale unless such offer constitutes a bona

fide effort to sell device to switch consumers to other

goods or services, usually higher priced.

5) Guarantees and warranties: Advertising of guarantees and

warranties shall be explicit with sufficient information

to the consumers of their principal terms and limitations

or when space or time restrictions preclude such

disclosures, the advertisement shall clearly reveal where

the full text of the guarantee or warranty can be

examined by purchasing.

6) Price claims: Advertising shall avoid price claims that

are false or misleading or savings claims that do not

offer provable savings.

7) Testimonials: Advertising containing testimonials shall

be limited to those of competent witness who are

reflecting a real and honest opinion or experience.

8) Taste and decency: Advertising shall be free of

statements, illustrations or implications that are

offensive to good taste or public decency.

Arguments against Advertising

- Critics say advertising is deceptive

- It manipulates people into buying unneeded products

- It makes our society too materialistic. It encourages

us to buy more cars, more clothing and more junk we

don’t need. It destroys the essence of our “citizen

democracy”, replacing it with a self-oriented consumer

democracy.

- Critics argue that advertising manipulates us into

buying things by playing on our emotions and promising

greater status, social acceptance and sex appeals.

- It causes people to take up harmful habits and tempts

ordinary people to buy useless products in the vain

attempt to emulate celebrity endorsers.

- Advertising is so powerful consumers are helpless to

defend themselves against it.

- There is too much of it – so many products are

competing attention

- It perpetuates stereotypes – Advertising are criticised

for insensitivity to minorities, women, disabled, the

elderly etc

- It is offensive and in bad taste e.g. some are

pornographic, immoral offensive or strictly adult

oriented

- Sometimes it is misused

Ethical advertising means doing what the advertiser and the

advertiser’s peers believe is morally right in a given

situation.

√ Social responsibility means doing what society views as

best for the welfare of people in general or for a

specific community of people.

√ Advertisers and consumers need to work together to ensure

that advertising is used intelligently, ethically and

responsibly for the benefit of all.

ETHICAL ISSUES IN MARKETING

- Ethical marketing refers to the application of

marketing ethics into the marketing process. Marketing

ethics refers to the philosophical examination, from a

moral standpoint, of particular marketing issues that

http://en.wikipedia.org/wiki/Marketing

http://en.wikipedia.org/wiki/Marketing_ethics

are matters of moral judgment. Ethical marketing

generally results in a more socially responsible and

culturally sensitive business community.

- The establishment of marketing ethics has the potential

to benefit society as a whole, both in the short- and

long-term. Ethical marketing should be part of business

ethics in the sense that marketing forms a significant

part of any business model. Study of Ethical marketing

should be included in applied ethics and involves

examination of whether or not an honest and factual

representation of a product or service has been

delivered in a framework of cultural and social values.

- It promotes qualitative benefits to its customers,

which other similar companies, products or services

fail to recognize. The concern with ethical issues,

such as child labor, working conditions, relationships

with third world countries and environmental problems,

has changed the attitude of the Western World towards a

more socially responsible way of thinking. This has

influenced companies and their response is to market

their products in a more socially responsible way.

- Ethical issues in marketing may arise in relation to

the:

Safety of products.

Advertising and selling of products.

http://en.wikipedia.org/wiki/Marketing_ethics

http://en.wikipedia.org/wiki/Fact

http://en.wikipedia.org/wiki/Honesty

http://en.wikipedia.org/wiki/Applied_ethics

http://en.wikipedia.org/wiki/Business_ethics

http://en.wikipedia.org/wiki/Business_ethics

http://en.wikipedia.org/wiki/Business

Pricing

Distribution channels that directs the flow of product

from the manufacturer to the consumer.

To make ethical decisions the following questions should be

put into consideration

Is it legal? – This is the first condition that a business

decision has to meet in order to be considered ethically

sound. The law lays down a standard acceptable behaviour

which all citizens need to abide by in order to ensure safe

and just society. Since businesses are corporate citizens of

the societies within which they operate, they have an

obligation to ensure that they abide by the laws of their

societies.

Does it meet company standards? – The second condition is

tested against the ethical standards of the company. The

ethical standards of a company are usually formulated as a

set of company’s values, in a code of ethics, or in a policy

statements dealing with specific issues like procurement,

expense accounts or giving and receiving of gifts. Since

these documents are intended to prevent irresponsible

behaviour or to promote responsible behaviour, it’s clear

that they should play a central role in determining the

ethical soundness of business decisions.

Is it fair to all stakeholders? – Making ethical decisions

in business amount to ensuring that the interest of all

parties that are likely to be affected, are concerned and

respected. A decision to launch a product that can

potentially bring in huge profits for the company but is

unsafe for consumers and harmful to the natural environment

is a clear example of decision that only considers the

immediate interest of the company but fails to considers the

interests of the affected stakeholders. In order to ensure

that business decisions are ethically sound, the fairness

test needs to be applied. This means that you have to

consider the possible impact that a decision might have on

those who are likely to be affected by the decision.

Can it be disclosed? – And finally, the disclosure criterion

considers whether you would be comfortable in doing public

or private accounts for the decision that you have taken. If

you are comfortable to explain and defend your decision to

significant persons in your life or on a public forum, it’s

a good indication that the decision is ethically sound and

justifiable. The disclosure should be both public (TV, radio

or internet) and private (disclosure to more significant

persons).

WEEK 11: FINANCIAL ETHICS

Lack of ethics in finance is one of the primary factors that

led to the fall of Wall Street and the near collapse of the

U.S. economy in September and October of 2008. It

precipitated the worst recession since the Great Depression.

Many large banking and insurance firms failed.

After the deregulation of the banking system that started in

the 1980's and continued through the 1990's and into the

first of the new century, banks operated in the U.S.

financial system rather freely and without much regulation

to control factors like corporate greed and fraud. They

began to make risky loans, particularly risky mortgage

loans. The result was inevitable. When company's serve

themselves rather than their stakeholders, they are doomed

to failure. Here are the issues.

In a capitalist society, you have a free market and

companies live by the profit motive. They exist to make

money. Companies in a capitalist society exist to make money

but what is the best way to do that? The fall of Wall

Street confirms that corporate greed and fraud doesn’t

produce success at least not in the long run. Greed and

fraud may make short term profits for both large and small

business. But, if companies are to stay alive, short term

profit isn't very important. Long-term viability is the

issue.

Effects of Financial Ethics on Companies Performance

To stay viable and strong in the long-term companies must

practice financial ethics by satisfying its stakeholders.

Stakeholders are the groups that have some reason to be

invested in the future of the company, whether a large or

small business.

Investors or Stockholders - One group of stakeholders is the

investors in the company or the stockholders. Stockholders

have made an investment in your firm. They want a return on

that investment. When we saw the crash on Wall Street, we

saw stockholders earning large returns through management

employing fraudulent means in operating their businesses.

Many stockholders eventually lost their entire investment in

some of these firms because the firms failed.

Employees as Stakeholders - Another group of stakeholders in

business is employees. A business has a responsibility to

its employees. They deserve to be treated with dignity,

respect, and fairness. The business should provide jobs that

improve workers' living conditions, respect their health,

and avoid any discriminatory practices. Employees are hurt

if the management of a business does not act in good faith

or does not maintain the highest standards with regard to

financial ethics. When Wall Street crashed in

September/October of 2008, tens of thousands of financial

employees were immediately out of a job. This was a direct

result of the fraudulent activities of their employers. This

trickled down through the economy until we reached an

unemployment rate close to 10%.

Customers as Stakeholders - A business should consider its

customer base as a stakeholder. Customers, like employees,

must be treated with respect and dignity. Without employees

and customers, the business would not be operating. Treating

customers fairly and maintaining a high level of customer

service is one factor that will help maintain your customer

base. Respecting your customers in all aspects of your

business, including product pricing, advertising and

marketing..

Society as a Stakeholder - Since, in a capitalist society,

the means of production are privately held by business

firms, society itself is a stakeholder for the large and

small business alike. Businesses must promote harmonious

relationships between business and government and between

business and other segments of society. It is the

responsibility of all business to have a commitment to raise

the standard of living and promote sustainable development.

Examples

The near collapse of world economic system really began

sometime back with the financial failure of firms like

Enron. The Enron Corporation was a huge energy company that

went bankrupt in 2001. It employed 22,000 people and had

innumerable shareholders. It collapsed due to an accounting

scandal, or "cooking the books," perpetuated by its own

auditing firm, Arthur Andersen, one of the premier

accounting firms in the U.S., which also collapsed. Tens of

thousands of employees were left without a job and more

shareholders were left with a retirement portfolio full of

worthless Enron stock.

Enron was the country's largest bankruptcy until 2008 and

Lehman Brothers, a huge Wall Street financial services firm.

Lehman went under primarily due to the subprime mortgages it

made during the 1990s and the early 21th century. The

bankruptcy of Lehman Brothers began a domino effect on Wall

Street.

Since the fall of 2008, we have had many financial firm

failures and failures in other business sectors. Failures

have not been confined to large businesses. The only way for

capitalism to truly prosper is for every business, large

business and small business alike, to subscribe to a

doctrine of financial and business ethics. If business tries

to take shortcuts to profits, they will fail in the long run

as we've seen during the early part of the 21st century.

WEEK 12: GLOBALIZATION

It is a process whereby barriers to cross border trade and

investment are tumbling, perceived distance is shrinking due

to advances in transport and telecommunications technology,

material culture is starting to work similarly the world

over and national economies are merging into an

interdependent global economic system.

It refers to the growing interdependence of countries

worldwide through increasing volume and variety of cross

border transactions in goods and services and of

international capital flows and also through more rapid and

widespread diffusion of technology.

- It refers to the shift towards a more integrated and

interdependent world economy

- It has 2 main components

a) Globalization of markets

b) Globalization of production

Globalization of Markets

- This refers to merging of historically distinct and

separate national markets into one huge global market

place.

- The following barriers made it easier to sale

internationally. It is also argued that the tastes and

preferences of customers in different nations are

beginning to converge on some global norm thereby helping

to create a global market.

Globalization of Production

- This refers to the sourcing of goods and services from

locations around the globe to take advantage of national

difference in the cost and quality of factors of

production such as labour, energy, land and capital etc

- By doing this companies lower their overall cost

structure and improve the quality of functionality of

their product offering thereby allowing them to compete

more effectively.

The process of globalization

It takes place gradually through an evolutionary approach.

According to Ohmae, globalization has 5 stages.

1. Domestic company exports to foreign countries through

the dealers or distributors of the home country

(indirect exporting).

2. The domestic company exports to foreign countries

directly on its own (direct exporting)

3. The domestic company becomes an international company

by establishing production and marketing operations in

various key foreign countries.

4. The company replicates a foreign company in a foreign

country by handling all the facilities including

research and development, full-fledged human resources.

5. The company becomes a true foreign company by serving

the needs of foreign customers just like the host

country’s companies.

Advantages of globalization

1) Free flow of technology – it helps in technology transfer

from advanced countries to developing countries.

2) Free flow of capital- it helps the flow of capital from

one country to the other therefore helps the investor to

get a fair amount of dividend/interest and the global

companies to acquire finance at lower cost of capital.

3) Spread out the manufacturing facilities – globalization

of product leads to spread of manufacturing facilities

depending on the favourable factors of production.

4) Balance development of world economies- with the flow of

capital and technology developing countries industrialize

their economies which in turn leads to a balanced

development of all other countries.

5) Increase in production and consumption – increased

industrialization leads to increase in production along

with increase in income which in turn enhances the level

of consumption.

6) Low prices with high quality – increased

industrialization, spread of technology, increased

consumption and production levels enables the companies

to produce and sell products of high quality at low

prices

7) Cultural exchange and demand for variety of production –

cultural exchange makes people demand a variety of

products that are being consumed in other countries.

8) Increased in employment and income

9) Higher standards of living.

10) Increase in welfare and prosperity.

Disadvantages

1. It kills domestic business

- Magnitude of MNCs of companies in the developing

countries.

2. Exploit human resources

- lack adequate laws to protect human resources and the

environment unscrupulous foreign company abuse labour

and natural resources in order to have cost advantage

leads to exploitation of environment and abuse them.

3. It leads to unemployment and underemployment

- MNCs produce products in their home countries or in

some other countries and market in developing

countries resulting in a reduction in the domestic

industries operations

4. Decline in demand for domestic products

–this is because people like buying products that are

imported.

5. Decline in income

– Unemployment and decline in demand for domestic

products leads to reduction in income of the people.

6. Widening the gap between the rich and the poor

- this is because competent people with innovative

skills, efficiency etc get abnormal income while other

average people have to strive for even a minimum wage.

7. Leads to commercial and political colonialism

– Results in a commercial colonialism by the super

powers like European union & the sovereignty of

domestically elected government is undermined as the

policies are formulated and implemented by the

bureaucrats such as WTO, EU, UN etc

business ethics sociial responsibility notes 2013

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