Ethics and

Social
Responsibility
chapter four

Learning Objectives
1. Explain the relationship between ethics and
the law
2. Differentiate between the claims of the
different stakeholder groups that are affected
by managers and their companies actions
3. Describe four rules that can be used to help
companies and their managers act in ethical
ways

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Learning Objectives
4. Discuss why it is important for managers to
behave ethically
5. Identify the four main sources of managerial
ethics
6. Distinguish between the four main
approaches toward social responsibility that
a company can take

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The Nature of Ethics

Ethical Dilemma
quandary people find themselves in when they
have to decide if they should act in a way that
might help another person even though doing so
might go against their own self-interest

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The Nature of Ethics

Ethics
The inner-guiding moral
principles, values, and
beliefs that people use
to analyze or interpret
a situation and then
decide what is the
right or appropriate
way to behave

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Dealing with Ethical Issues

There are no absolute or indisputable rules or
principles that can be developed to decide if
an action is ethical or unethical
Neither laws nor ethics are fixed principles

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Stakeholders and Ethics

Stakeholders
The people and groups that supply a company
with its productive resources and so have a claim
on and stake in the company.

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Types of Company Stakeholders

Figure 4.1

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Stockholders
Want to ensure that managers are behaving
ethically and not risking investors capital by
engaging in actions that could hurt the
companys reputation
Want to maximize their return on investment

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Managers
Responsible for using a companys financial
capital and human resources to increase its
performance
Have the right to expect a good return or
reward by investing their human capital to
improve a companys performance
Frequently juggle multiple interests

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Managers
In the 2000s, it has been easy for top
managers to find ways to ruthlessly pursue
their self-interest at the expense of
stockholders and employees because laws and
regulations are not strong enough to force
them to behave ethically

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Employees
Expect to receive rewards consistent with
their performance
Companies can act ethically toward
employees by creating an occupational
structure that fairly and equitably rewards
employees for their contributions

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Suppliers and Distributors

Suppliers expect to be
paid fairly and
promptly for their
inputs

Distributors expect to
receive quality
products at agreedupon prices

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Some Principles from the Gaps Code

of Vendor Conduct

Table 4.1

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Customers
Most critical stakeholder
Company must work to increase efficiency and
effectiveness in
order to create
loyal customers
and attract new
ones

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Whole Foods Stakeholder Approach to

Ethical Business
Figure 4.2

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Community, Society, and Nation

Community
Physical locations like towns or cities in which
companies are located
A community provides a company with the
physical and social infrastructure that allows it to
operate

A company contributes to the economy of the

town or region through salaries, wages, and taxes

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Example Houston Non-Profits

Many charitable organizations in the Houston,
TX area, location of Enrons headquarters,
were adversely affected by its demise
Many were dependent on donations from
Enron
The arts community was especially hit hard

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Ethical Decision Making

Figure 4.3

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Practical Decision Model

1. Does my decision fall within the acceptable
standards that apply in business today?
2. Am I willing to see the decision communicated
to all people and groups affected by it?
3. Would the people with whom I have a significant
personal relationship approve of the decision?

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Why should managers behave

ethically?
The relentless pursuit of self-interest can lead
to a collective disaster when one or more
people start to profit from being unethical
because this encourages other people to act in
the same way

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Some Effects of
Ethical/Unethical Behavior

Figure 4.4

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Trust and Reputation

Trust
willingness of one
person or group to
have faith or
confidence in the
goodwill of another
person

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Trust and Reputation

Reputation
esteem or high repute that individuals or
organizations gain when they behave ethically

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Sources of Ethics

Figure 4.5
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Societal Ethics
Societal Ethics
Standards that govern how members of a society
should deal with one another in matters involving
issues such as fairness, justice, poverty, and the
rights of the individual

People behave ethically because they have

internalized certain values, beliefs, and norms

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Occupational Ethics
Occupational Ethics
Standards that govern how members of a
profession, trade, or craft should conduct
themselves when performing work-related
activities
Medical & legal ethics

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Individual Ethics
Individual Ethics
Personal standards and values that determine
how people view their responsibilities to other
people and groups
How they should act in situations when their own
self-interests are at stake

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Organizational Ethics
Organizational Ethics
Guiding practices and beliefs through which a
particular company and its managers view their
responsibility toward their stakeholders
Top managers play
a crucial role in
determining a
companys ethics

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Social Responsibility
Social Responsibility
The way a companys managers and employees
view their duty or obligation to make decisions
that protect, enhance, and promote the welfare
and well-being of stakeholders and society as a
whole

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Approaches to Social Responsibility

Figure 4-6

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Approaches to Social Responsibility

Obstructionist approach
Companies choose not to behave in a social
responsible way and behave unethically and
illegality

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Approaches to Social Responsibility

Defensive approach
companies and managers stay within the law and
abide strictly with legal requirements but make
no attempt to exercise social responsibility

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Approaches to Social Responsibility

Accommodative approach
Companies behave legally and ethically and 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

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Approaches to Social Responsibility

Proactive approach
Companies actively embrace socially responsible
behavior, going out of their way to learn about
the needs of different stakeholder groups and
utilizing organizational resources to promote the
interests of all stakeholders

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Why Be Socially Responsible?

1. Demonstrating its social responsibility helps
a company build a good reputation
2. If all companies in a society act socially, the
quality of life as a whole increases

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Role of Organizational Culture

Ethical values and norms help organizational
members:
Resist self-interested action
Realize they are part of something bigger than
themselves

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Ethics Ombudsperson
Responsible for communicating ethical
standards to all employees
Designing systems to monitor employees
conformity to those standards
Teaching managers and employees at all levels
of the organization how to appropriately
respond to ethical dilemmas

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Video Case: Whose Life is It

Anyway?
Do you think it is ethical for Scotts or other
companies to fire employees who smoke,
even if they only smoke outside of work?
In implementing Scotts health initiatives,
does Hagedorn put the interests of one group
of stakeholders above those of another?

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