MG 302 Chapter 4 Notes
MG 302 Chapter 4 Notes MG302
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This 14 page Class Notes was uploaded by Blaise Notetaker on Tuesday February 2, 2016. The Class Notes belongs to MG302 at University of Alabama at Birmingham taught by Michael Padalino in Winter 2016. Since its upload, it has received 92 views. For similar materials see Management Processes and Behavior in Business, management at University of Alabama at Birmingham.
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Date Created: 02/02/16
Chapter 4: Managing Ethics and Social Responsibility What Is Managerial Ethics? Managerial ethics are a set of standards that dictate the conduct of a manager operating within a workplace. Ethics is the code of moral principles and values that governs the behaviors of a person or group with respect to what is right or wrong. Managers frequently face situations in which it is difficult to determine what is right. In addition, they might be torn between their misgivings and their sense of duty to their bosses and the organization. Human behavior falls into three categories. The first is codified law, in which values and standards are written into the legal system and enforceable in the courts. In this area, lawmakers set rules that people and corporations must follow in a certain way, The domain of free choice is at the opposite end of the scale and pertains to behavior about which the law has no say and for which an individual or organization enjoys complete freedom. Between these domains lies the area of ethics. This domain has no specific laws, yet it does have standards of conduct based on shared principles and values about moral conduct that guide an individual or company. Many companies and individuals get into trouble with the simplified view that decisions are governed by either law or free choice. This view leads people to mistakenly assume that if it’s not illegal, it must be ethical, as if there were no third domain. A better option is to recognize the domain of ethics and accept moral values as a powerful force for good that can regulate behaviors both inside and outside organizations. Ethical Management Today In the business world, the names of oncerevered corporations have become synonymous with greed, deceit, irresponsibility, and lack of moral conscience. No wonder a poll found that 76 percent of people surveyed say corporate America’s moral compass is “pointing in the wrong direction”; 69 percent say executives rarely consider the public good in making decisions; and a whopping 94 percent say executives make decisions based primarily on advancing their own careers. Managers carry a tremendous responsibility for setting the ethical climate in an organization and can act as role models for others. Managers are responsible for seeing that resources are used to serve the interests of stakeholders, including shareholders, employees, customers, and society. Unfortunately, in today’s environment, an overemphasis on pleasing shareholders may cause some managers to behave unethically toward customers, employees, and the broader society. Managers are under enormous pressure to meet shortterm earnings goals, and some even use accounting gimmicks or other techniques to show returns that meet market expectations rather than ones that reflect true performance. oreover, most executive compensation plans include hefty stockbased incentives, a practice that encourages managers to do whatever will increase the share price, even if it hurts the company in the long run. When managers “fall prey to the siren call of shareholder value,” all other stakeholders may suffer. Ethical Dilemmas: What Would You Do? An ethical dilemma arises in a situation concerning right or wrong when values are in conflict. Although most companies have codes of ethics that specify expected behavior, disagreements and dilemmas about what is appropriate often occur. The individual who must make an ethical choice in an organization is the moral agent. Criteria for Ethical Decision Making Most ethical dilemmas involve a conflict between the needs of the part and the whole—the individual versus the organization or the organization versus society as a whole. Managers faced with tough ethical choices often benefit from a normative strategy—one based on norms and values—to guide their decision making. Normative ethics uses several approaches to describe values for guiding ethical decision making. Five approaches that are relevant to managers are the utilitarian approach, individualism approach, moralrights approach, justice approach, and practical approach. Utilitarian Approach The utilitarian approach, espoused by the nineteenthcentury philosophers Jeremy Bentham and John Stuart Mill, holds that moral behavior produces the greatest good for the greatest number. Under this approach, a decision maker is expected to consider the effect of each decision alternative on all parties and select the one that optimizes the benefits for the greatest number of people. Individualism Approach The individualism approach contends that acts are moral when they promote the individual’s best longterm interests. In theory, with everyone pursuing selfdirection, the greater good is ultimately served because people learn to accommodate each other in their own longterm interest. Individualism is believed to lead to honesty and integrity because that works best in the long run. Lying and cheating for immediate selfinterest just causes business associates to lie and cheat in return. Thus, proponents say, individualism ultimately leads to behavior toward others that fits standards of behavior that people want toward themselves. However, because individualism is easily misinterpreted to support immediate selfgain, it is not popular in the highly organized and grouporiented society of today. Moral-Rights Approach The moralrights approach asserts that human beings have fundamental rights and liberties that cannot be taken away by an individual’s decision. Thus, an ethically correct decision is one that best maintains the rights of those affected by it. To make ethical decisions, managers need to avoid interfering with the fundamental rights of others, such as the right to privacy, the right of free consent, or the right to freedom of speech. Justice Approach The justice approach holds that moral decisions must be based on standards of equity, fairness, and impartiality. Three types of justice are of concern to managers. Distributive justice requires that different treatment of people not be based on arbitrary characteristics. Procedural justice requires that rules be administered fairly. Rules should be clearly stated and consistently and impartially enforced. Compensatory justice argues that individuals should be compensated for the cost of their injuries by the party responsible. The justice approach is closest to the thinking underlying the domain of law in Exhibit 4.1 because it assumes that justice is applied through rules and regulations. Managers are expected to define attributes on which different treatment of employees is acceptable. Practical Approach The practical approach sidesteps debates about what is right, good, or just and bases decisions on prevailing standards of the profession and the larger society, taking the interests of all stakeholders into account. With the practical approach, a decision would be considered ethical if it is one that would be considered acceptable by the professional community, one that the manager would not hesitate to publicize on the evening news, and one that a person would typically feel comfortable explaining to family and friends. Using the practical approach, managers may combine elements of the utilitarian, moral rights, and justice approaches in their thinking and decision making. One expert on business ethics suggests managers can ask themselves the following five questions to help resolve ethical dilemmas: 1. What’s in it for me? 2. What decision would lead to the greatest good for the greatest number? 3. What rules, policies, or social norms apply? 4. What are my obligations to others? 5. What will be the longterm impact for myself and important stakeholders? The Individual Manager and Ethical Choices Personal needs, family influence, and religious background all shape a manager’s value system. Specific personality characteristics, such as ego strength, selfconfidence, and a strong sense of independence, may enable managers to make more ethical choices despite outside pressures and personal risks. One important personal trait is the stage of moral development. A simplified version of one model of personal moral development is shown in Exhibit 4.3. At the preconventional level, individuals are concerned with external rewards and punishments and obey authority to avoid detrimental personal consequences. In an organizational context, this level may be associated with managers who use an autocratic or coercive leadership style, with employees oriented toward dependable accomplishment of specific tasks. At the conventional level, people learn to conform to the expectations of good behavior as defined by colleagues, family, friends, and society. At the postconventional, or principled level, individuals are guided by an internal set of values based on universal principles of justice and right and will even disobey rules or laws that violate these principles. Internal values become more important than the expectations of significant others. When managers operate from this highest level of development, they use transformative or servant leadership, focusing on the needs of followers and encouraging others to think for themselves and to engage in higher levels of moral reasoning. Employees are empowered and given opportunities for constructive participation in governance of the organization. The great majority of managers operate at level two, meaning their ethical thought and behavior is greatly influenced by their superiors, colleagues, and other significant people in the organization or industry. Managers at level three of moral development will make ethical decisions whatever the organizational consequences are for them. What Is Corporate Social Responsibility? In one sense, the concept of social responsibility, like ethics, is easy to understand: It means distinguishing right from wrong and doing right. It means being a good corporate citizen. The formal definition of corporate social responsibility (CSR) is management’s obligation to make choices and take actions that will contribute to the welfare and interests of society, not just the organization. As straightforward as this definition seems, CSR can be a difficult concept to grasp because different people have different beliefs as to which actions improve society’s welfare. To make matters worse, social responsibility covers a range of issues, many of which are ambiguous with respect to right or wrong. Organizational Stakeholders From a social responsibility perspective, enlightened organizations view the internal and external environment as a variety of stakeholders. A stakeholder is any group or person within or outside the organization that has some type of investment or interest in the organization’s performance and is affected by the organization’s actions (employees, customers, shareholders, and so forth). Each stakeholder has a different criterion of responsiveness because it has a different interest in the organization. There is growing interest in a technique called stakeholder mapping, which basically provides a systematic way to identify the expectations, needs, importance, and relative power of various stakeholders, which may change over time. Stakeholder mapping helps managers identify or prioritize the key stakeholders related to a specific issue or project. Most organizations are influenced by a similar variety of stakeholder groups. Investors and shareholders, employees, customers, and suppliers are considered primary stakeholders, without whom the organization cannot survive. Investors, shareholders, and suppliers’ interests are served by managerial efficiency—that is, use of resources to achieve profits. Employees expect work satisfaction, pay, and good supervision. Customers are concerned with decisions about the quality, safety, and availability of goods and services. When any primary stakeholder group becomes seriously dissatisfied, the organization’s viability is threatened. Other important stakeholders are the government and the community, which have become increasingly important in recent years. Most corporations exist only under the proper charter and licenses and operate within the limits of safety laws, environmental protection requirements, antitrust regulations, antibribery legislation, and other laws and regulations in the government sector. Government regulations affecting business are increasing because of recent events. The community includes local governments, the natural environment, and the quality of life provided for residents. For many companies such as Gap, trade unions and human rights organizations are highly important stakeholders. Special interest groups may include trade associations, political action committees, professional associations, and consumerists. One special interest group of particular importance today is the green movement. The Green Movement Green movement relates to the growing concern with protection and preservation of the environment. Going green has become a new business imperative, driven by shifting social attitudes, new governmental policies, climate changes, and information technology (IT) that quickly spreads any news of a corporation’s negative impact on the environment. Sustainability and the Triple Bottom Line Some corporations are embracing an idea called sustainability or sustainable development. Sustainability refers to economic development that generates wealth and meets the needs of the current generation while preserving the environment and society so future generations can meet their needs as well. With a philosophy of sustainability, managers weave environmental and social concerns into every strategic decision so that financial goals are achieved in a way that is socially and environmentally responsible. Managers in organizations that embrace sustainability measure their success in terms of a triple bottom line. The term triple bottom line refers to measuring an organization’s social performance, its environmental performance, and its financial performance. This is sometimes called the three Ps: People, Planet, and Profit. The People part of the triple bottom line looks at how socially responsible the organization is in terms of fair labor practices, diversity, supplier relationships, treatment of employees, contributions to the community, and so forth. The Planet aspect measures the organization’s commitment to environmental sustainability. The third P, of course, looks at the organization’s profit, the financial bottom line. Based on the principle that what you measure is what you strive for and achieve, using a triple bottom line approach to measuring performance ensures that managers take social and environmental factors into account, rather than blindly pursuing profit no matter the cost to society and the natural environment. Evaluating Corporate Social Responsibility A model for evaluating corporate social performance is presented in Exhibit 4.5. The model indicates that total corporate social responsibility can be divided into four primary criteria: economic, legal, ethical, and discretionary responsibilities. These four criteria fit together to form the whole of a company’s social responsiveness. The first criterion of social responsibility is economic responsibility. The business institution is, above all, the basic economic unit of society. Its responsibility is to produce the goods and services that society wants and to maximize profits for its owners and shareholders. Economic responsibility, carried to the extreme, is called the profitmaximizing view, advocated by Nobel economist Milton Friedman. This view argues that the corporation should be operated on a profit oriented basis, with its sole mission to increase its profits so long as it stays within the rules of the game. This approach means that economic gain is the only responsibility and can lead companies into trouble, as recent events in the mortgage and finance industries have clearly shown. Legal responsibility defines what society deems as important with respect to appropriate corporate behavior. That is, businesses are expected to fulfill their economic goals within the framework of legal requirements imposed by local town councils, state legislators, and federal regulatory agencies. Ethical responsibility includes behaviors that are not necessarily codified into law and may not serve the corporation’s direct economic interests. As described earlier in this chapter, to be ethical, organization decision makers should act with equity, fairness, and impartiality, respect the rights of individuals, and provide different treatment of individuals only when relevant to the organization’s goals and tasks. Unethical behavior occurs when decisions enable an individual or company to gain at the expense of other people or society as a whole. Discretionary responsibility is purely voluntary and is guided by a company’s desire to make social contributions not mandated by economics, law, or ethics. Discretionary activities include generous philanthropic contributions that offer no payback to the company and are not expected. Discretionary responsibility is the highest criterion of social responsibility because it goes beyond societal expectations to contribute to the community’s welfare. Managing Company Ethics and Social Responsibility Exhibit 4.6 illustrates ways in which managers create and support an ethical organization. One of the most important steps managers can take is to practice ethical leadership. Ethical leadership means that managers are honest and trustworthy, fair in their dealings with employees and customers, and behave ethically in both their personal and professional lives. Managers and firstline supervisors are important role models for ethical behavior, and they strongly influence the ethical climate in the organization by adhering to high ethical standards in their own behavior and decisions. Moreover, managers are proactive in influencing employees to embody and reflect ethical values. Managers can also implement organizational mechanisms to help employees and the company stay on an ethical footing. Some of the primary ones are codes of ethics, ethical structures, and measures to protect whistleblowers. Code of Ethics A code of ethics is a formal statement of the company’s values concerning ethics and social issues; it communicates to employees what the company stands for. Codes of ethics tend to exist in two types: principlebased statements and policybased statements. Principlebased statements are designed to affect corporate culture; they define fundamental values and contain general language about company responsibilities, quality of products, and treatment of employees. Policybased statements generally outline the procedures to be used in specific ethical situations. These situations include marketing practices, conflicts of interest, observance of laws, proprietary information, political gifts, and equal opportunities. General statements of principle are often called corporate credos. Having a strong code of conduct or code of ethics are one key element of the organization’s ethical framework. Codes of ethics state the values or behaviors expected and those that will not be tolerated. When top management supports and enforces these codes, including rewards for compliance and discipline for violation, ethics codes can boost a company’s ethical climate. Ethical Structures Ethical structures represent the various systems, positions, and programs that a company can undertake to encourage and support ethical behavior. An ethics committee is a group of executives (and sometimes lowerlevel employees as well) appointed to oversee company ethics. The committee provides rulings on questionable ethical issues and assumes responsibility for disciplining wrongdoers. Many companies set up ethics offices with fulltime staff to ensure that ethical standards are an integral part of company operations. These offices are headed by a chief ethics officer, sometimes called a chief ethics and compliance officer, a company executive who oversees all aspects of ethics and legal compliance, including establishing and broadly communicating standards, ethics training, dealing with exceptions or problems, and advising senior managers in the ethical and compliance aspects of decisions. Most ethics offices also work as counseling centers to help employees resolve difficult ethical issues. A tollfree confidential ethics hotline allows employees to report questionable behavior, as well as seek guidance concerning ethical dilemmas. Whistle-Blowing Employee disclosure of illegal, unethical, or illegitimate practices on the employer’s part is called whistleblowing. For this practice to be an effective ethical safeguard, however, companies must view whistleblowing as a benefit to the company and make dedicated efforts to encourage and protect whistleblowers. For people throughout an organization to be willing to “blow the whistle” on unethical or illegal behavior, managers have to revere whistleblowing and make heroes of those who come forward. To maintain high ethical standards, organizations need people who are willing to point out wrongdoing. Managers can be trained to view whistleblowing as a benefit rather than a threat, and systems can be set up to protect employees who report illegal or unethical activities. The Business Case for Ethics and Social Responsibility Most managers now realize that paying attention to ethics and social responsibility is as important a business issue as paying attention to costs, profits, and growth. Studies have provided varying results, but they have generally found a positive relationship between ethical and socially responsible behavior and firm financial performance. Companies are also making an effort to measure the nonfinancial factors that create value. Researchers find, for example, that people prefer to work for sustainable companies or companies that demonstrate a high level of ethics and social responsibility; thus, these organizations can attract and retain highquality employees. Enlightened managers realize that integrity and trust are essential elements in sustaining successful and profitable business relationships with an increasingly connected and wellinformed web of employees, customers, suppliers, and partners. Although doing the right thing might not always be profitable in the short run, many managers believe that it can provide a competitive advantage by developing a level of trust that money can’t buy.
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