MGMT 371 Chapter 3 Book and Lecture Notes
MGMT 371 Chapter 3 Book and Lecture Notes MGMT 371 001
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This 19 page Class Notes was uploaded by Savannah Baron on Saturday February 13, 2016. The Class Notes belongs to MGMT 371 001 at University of Mississippi taught by Dr. Danielle Ammeter in Winter 2016. Since its upload, it has received 40 views. For similar materials see Principles of Management in Business, management at University of Mississippi.
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Chapter 3—Book Notes I. Intro When confronting ambiguous situations, managers have to rely on their personal values, beliefs, and ethics to navigate difficult decisions Study of ethics is a complex topic in business At its core, ethics is the study of moral standards and their effect on behavior and conduct Morality: the standards that people use to judge what is right or wrong, good or evil With ethics, there is no universally accepted verification; managers must draw from their own personal beliefs and experiences, rely on socially acceptable norms, and assess cues in their environment Managers face pressures from their boss, shareholders, customers, and subordinates to satisfy economic, legal, and ethical obligations…all of which rarely align Increasing globalization causes issues because the morals developed in each society often clash with one another (i.e., bribery is widely practiced in other parts of the world) When making ethical decisions, it’s important to weigh the interests of all the stakeholders in your organization o Shareholders—profits; Employees—safe environment & fair compensation; Customers—truthful and transparent; Public —good citizens In 2010, 75% of US companies and nearly 100% of European companies reported corporate social responsibility (CSR) information on their websites o Companies seek to pursue activities that benefit society in some meaningful way CSR can improve a company’s brand, enabling them to charge more for products, attract better employees, and improve their stock price 2 key components of CSR initiatives: o Sustainability o Energy efficiency Companies need to carefully consider whether CSR is appropriate, cost-effective, and aligned with its overall strategy Pharmaceutical company Merck realizes that making an ethical decision rather than one that only affects profits can be better— providing to a country for free now can make them come back as loyal customers in the end II. Ethical Frameworks Many believe the law should be applied to public life while ethics should be applied to private life, but the law doesn’t always result in the right approach Ideas that are considered lawful may not necessarily be ethical Laws reflect society’s minimum standards, not the moral backbone to business Investors expect business to maximize profits, customers expect business to demonstrate leadership in socially responsible initiatives Leaders must have a strong moral compass (set of guiding principles that help an individual navigate complex ethical challenges A. Utilitarianism Operates under the “greatest happiness principle” as the foundation to its ethical theory Eminent in the founding of the United States and many other countries Utilitarianism: the ethical philosophy claiming that behaviors are considered moral if they produce the greatest good, or utility, for the greatest number of people In business, managers should seek good outcomes for affected parties, be objective in identifying others’ interests and the likely consequences of their actions, and be impartial when balancing others’ interests with their own “Good” things—happiness, utility, pleasure “Bad” things—pain, displeasure Utilitarianism can fall short—can lead to tyranny of the majority and a failure to respect individuals (i.e., minorities) B. Kantianism Rather than focusing purely on the positive and negative consequences of actions, Kant believes motives are critically important when judging moral action o People must make the right decisions for the right reasons Universal laws or rules should govern the way rational human beings behave o “I ought never to act except in such a way that my maxim should become a universal law” o People should envision their actions as if they became a universal rule People should be treated as ends and never purely as a means to an end; treating people as a means would be denying them the respect they deserve Respect for the human is an obligation Fiduciary Responsibilities o Fiduciary relationship exists when a party—an individual or a business—is entrusted with property, information, or power to make decisions on behalf of another party o In business, an investment adviser is a fiduciary for his client; members of a partnership are fiduciaries for one another; and corporate officers/directors/executives are fiduciaries for corporation and shareholders o Responsibilities include candor and disclosure, diligence and care, and loyalty and self-restraint o Fiduciary is obliged to be candid with beneficiary and disclose all relevant information o Have a duty of undivided loyalty, meaning they must avoid putting their own interests ahead of the beneficiary’s C. Virtues and Character Character is defined by: o A person’s ability to recognize the moral elements of a situation o How well a person makes moral judgments o How consistent a person’s actions are with those judgments o How well a person can teach others to exhibit th character 20 century, many believed that the only good business virtues were profit and competitiveness, but these can cause managers to focus on stock price and profitability Virtue Ethics: claim that morality’s primary function is to develop virtuous character, similar to the way people develop skills such as creativity and conflict management 6 stages spread across 3 levels of moral development o Preconventional morality usually occurs earlier in life during childhood, but adults may also exhibit this moral reasoning Obedience & Punishment: obeying rules means avoiding punishment Individualism & Exchange: children account for individual points of view and judge actions based on how they serve individual needs o Conventional Morality develops as people transition from highly dependent children to more independent adolescents, but may also be exhibited by adults Interpersonal Relationships: focused on living up to social expectations and roles; emphasis on conforming, being nice, and considering how choices influence relationships Maintaining Social Order: People begin to consider society as a whole as they focus on maintaining order by following the rules, doing their duty, and respecting authority o Postconventional Morality is exhibited by those with higher awareness of moral values, who can understand where values come from and compare the values of different cultures Not everyone reaches this level of understanding Social Contracts & Individual Rights: people begin accounting for different values, opinions, and beliefs of others. Members should agree on standards that govern society Universal Principles: people follow internalized principles of justice even when they conflict with laws and rules based on abstract reasoning D. Justice Provides the framework for society to judge what is morally right or wrong, fair or unfair, and established ways to evaluate or punish those who behave in morally wrong ways Justice: the notion that moral behaviors must be based on standards of equity, fairness, and impartiality to preserve order in society Distributive Justice deals with the distribution of wealth among members of a society o People who follow this thought are egalitarians & believe that individual differences are morally insignificant Each person should be permitted the maximum about of basic liberties, but once this basic equality is achieved, inequalities may exist between members if it will benefit everyone in society (John Rawls) Procedural Justice: notion that rules should be clearly stated, consistently obeyed, and impartially enforced o Provides the framework for societies to develop laws and procedures that result in fair or just outcomes III. Moral Dilemmas Ethical dilemmas are rarely as simple as knowing what is right and wrong o Many times, managers must decide between two wrongs, such as which employee to fire during a restructuring process Managers perform a crucial role in organizations and serve as role models While most people are inherently good and have good intentions, there are situations where an individual might make an immoral decision o Accountants and doctors can be prone to this behavior Managers must be alert about their own biases to avoid ethical pitfalls o Ex) favoring your own group, overclaiming credit for yourself, and constructing incorrect cause-effect relationships Other challenges involve the organizational culture, which can strongly influence ethical decisions and vary within subgroups of an organization A. Common Moral Dilemmas Faced by Organizations Organizations and managers face many moral dilemmas in their relationship with the environment, consumers, and emplothes In 20 century, businesses because more environmentally responsible and upheld a more honest relationship with their consumers and employees o Contributing to this- external advocacy groups and legislative actions Moral reasoning now deals with the transmission of information, which can be empowering, but can also be used for control, power, and manipulation 1. Environmental Dilemmas Pollution has been at the heart of public debate for many years What obligations do businesses have to future generations to preserve the environment? o Agricultural and timber industries have been hurt by pollution, acid raid, etc. o Health of the general public can be at risk Managers must determine the balance between their ethical obligations to the environment and costs incurred by their business Environmental dilemmas are apparent in the increasing depletion of natural resources that will have a cost for future generations For managers today, the difficult decisions are not if they should conserve resources, but how much they should conserve 2. Privacy Dilemmas Privacy: impacts consumers and employees Not protected by the bill of rights, but people feel passionately about their right to privacy (person’s right to determine the type and extent of information that is disclosed about him/her) In business environment, it’s nearly impossible for managers to avoid intrusion, especially because they are responsible for monitoring their subordinates’ work Overly intrusive practices include listening to phone conversations, installing hidden cameras, and using intense monitoring systems that can track time spent on the phone or the number of strokes keyed on a computer Key for managers is to strike the right balance between respecting privacy and learning about their subordinates 3 simple rules: o info should be directly relevant to the issue at hand o Employees must have the opportunity to give consent o Methods of learning information should be ordinary and reasonable B. The Role of the Individual in Confronting Moral Dilemmas 1. Conflicts of Interest When employees or managers engage in activities on behalf of the company and have a personal interest in the outcome of those activities Particularly a problem when their own interests oppose the company’s or their judgment is biased against their duty to the company Ex) Insider trading 2. Trade Secrets Trade Secret: any type of information used in conducting business that is not commonly known by others Especially valuable in research and development (R&D), as they often provide strategic advantage for a company over its competitors Trade secrets, patents, copyrights, and trademarks are all considered intellectual property by law (treated the same way as tangible property o Owner has the right to sell, license, or assign ownership of a trade secret to others Owner of the IP is generally the company itself, not an individual employee o Individual employees should not reveal trade secrets without express consent of the company 3. Bribery One of the oldest and most basic moral violations in human history, with enforceable sanctions against it in the Roman Republic Bribery: offering something valuable to a party to act on his or her behalf, often to an unfair advantage Fundamentally about inducing a breach of trust Negative economic consequences: diversion of resources to inefficient uses, higher costs of doing business, and loss of investor confidence At governmental level, bribery undermines economic development because it decreases efficiency, breeds cynicism, and distorts international competition Most countries have adopted laws to prohibit it among public officials, even international laws against it 4. Whistle-Blowing Employees’ main duty is to work toward the goals of the firm and avoid activities that might harm those goals o However, employees may violate moral standards and others may need to step in Whistle-blowing: the release of information by a member of an organization that is evidence of illegal or immoral conduct to executives in a company or regulating agencies outside a company Employees who whistle-blow are acting ethically, but they may be blacklisted, fired, threatened, and treated unfairly, and they often endure financial hardship o Have a hard time finding other jobs because they are seen as disloyal IV. Corporate Social Responsibility Managers face pressure from external agencies as well as their own employees to engage in CSR activities CSR: business’s obligation to pursue the policies, decisions, and actions that align with the objectives and values of society Basic assumption is that business and society are ultimately interwoven: businesses rely on consumers to buy their products, and consumers rely on businesses to provide goods that will sustain their well-being Business has a social contract with the public, an implied set of rights and obligations o Specifics may change as society changes, but the contract remains as a source of legitimacy for business Now a common practice for businesses to create and distribute value to all of its stakeholders, so managers are responsible for distributing value fairly to consumers, shareholders, government agencies, employees, etc. o Interests among these stakeholders will conflict, resolving these conflicts will require sound ethical judgment A. Economic, Legal, and Ethical Responsibilities Role of business in society is to be a source of economic growth and a producer of material goods and services 3 core domains in which businesses have responsibility: o Economic o Legal o Ethical If businesses promote all 3, they will achieve a fair distribution of wealth to their stakeholders 1. Economic Responsibilities A business’s duty to make a profit and increase shareholder value Business institutions have a duty to produce goods and services that people want and to sell them at a profit Companies engage in activities to increase profits directly and indirectly o Direct activities include decreasing production costs and improving efficiency o Indirect actions refer to intangible things that improve economic performance overtime (improving employee morale, increasing brand awareness among consumers, and fostering strong leadership throughout an organization) 2. Legal Responsibilities To obey the state and federal laws pertaining to business activity Society expects business to pursue economic responsibilities within the boundaries of the law Most common ways to maintain this responsibility are complying with laws, anticipating future laws, and avoiding civil litigation Generally, laws serve as the minimum standard that businesses should hold 3. Ethical Responsibilities Behaviors the general population expects Difficult to define, but managers can use ethical frameworks to understand how to make decisions based on their stakeholders’ expectations B. Corporate Social Responsiveness Corporate Social Responsiveness: refers to how businesses should respond when society pressures them to do more When responding to pressures, managers can react, accommodate, defend, lead, use public relations, use law, bargain, or problem-solve Responsive firms characterized by 3 behaviors: o They monitor and assess environmental conditions on a constant basis o They seek to identify the needs of their stakeholders o They design plans and policies to respond to changing conditions V. Is Corporate Social Responsibility Good for Business? While social responsibility was believed to compete with the organization’s bottom line, recent research has shown that the two can work hand in hand to generate profit and improve social welfare A. CSR and Financial Performance Some observers believe CSR detracts from financial performance and undermines the purpose of business in a capitalistic society Milton Friedman- although social welfare is important, it should be left to the gov’t and the best thing businesses can do is maximize their profit within the limits of the law o Anything else would undermine society, moving it from capitalism to socialism CSR involves definite costs that fall on the bottom line, but only uncertain gains that may never reach the bottom line Other studies find a positive or neutral effect on performance o Researchers argue that CSR should be viewed as an investment that will lead to improved efficiency, innovation, and long-term financial success A positive link between CSR and profit has become more commonly acknowledged Consumers have a favorable attitude toward companies engaging in CSR and make purchasing decisions based on CSR activity Other benefits include tax deductions, attracting talented employees, avoiding litigation, and saving costs B. CSR and Strategy: Using CSR for a Competitive Advantage Successful businesses need a healthy society to sustain increasing demand Practicing CSR can be a source of opportunity, innovation, and competitive advantage; an investment in the company’s future CSR must plan, implement, and evaluate CSR goals 1. Supporting Core Business Activities CSR is strategic when it supports core business activities that contribute to a firm’s mission, vision, and strategy Attracting and retaining employees who are skilled, creative, and driven are essential for satisfying customers and differentiating a company from its competitors o Recruiting top candidates is becoming even more important than process technology, financial market access, patents, etc. Companies with higher CSR activity are seen as more attractive places to work, which means talented employees are more willing to pursue these employers and stay with them over time Attracting better employees helps firms develop a better comparative advantage Companies can also use CSR to improve the quality of the business environment in which they operate 2. Creating a Strategic CSR Platform Strategic CSR: company identifies CSR initiatives that are directly related to their business activities so they can combine social welfare with financial welfare 4-step process o Identify points of intersection between company and society Inside-out linkages consist of all activities in a firm’s value chain that impact society (hiring/layoff policies, green house gas emissions, supply chain practices) Outside-in linkages consist of social dimensions that can affect a firm’s ability to improve productivity and execute strategy (industry regulation, access to natural resources, availability of human resources, and competitive rivalry) o Select social issues to address Guideline: whether there is an opportunity to generate a benefit for society while also benefitting the business Companies should refrain from supporting generic issues; should support issues that are directly related to their value chain or that can change the competitive context of their business o Create a corporate social agenda (incorporate with strategy) Agenda should support both inside-out and outside-in dimensions Ex) Whole Foods owns and operates its own seafood processing plants to ensure its sourcing tactics don’t affect other marine life o Create a social dimension to the value proposition Allows a firm to show that making a social impact is integral to the overall strategy Ex) Whole Foods sells natural, healthy food, thus customers are willing to pay a premium price VI. Chapter Review A. Summary Many business decisions are not simple choices between right and wrong Conflicting interests, ambiguous data, and differing personal/cultural perspectives contribute to the complexity of managerial decision making Ethical framework can help managers and provide guidance when the interests of a company conflict with the interests of society How does a manager decide what trade-offs are most important/relevant? o Personal moral philosophy and understanding of what is right and wrong o Utilitarian approach believes morality is derived from making decisions that produce the greatest good for the greatest number of people o Others believe morality is derived from making motives and moral obligations o Still others base moral decisions on their concept of justice As business landscape evolves, organizations will need to constantly re-assess their relationship to constituents (environment, consumers, and employees) to ensure they are properly addressing them Some difficult dilemmas faced by individuals involve conflicts of interest, trade secrets, and bribery o Individuals who fail to navigate these dilemmas appropriately/ethically can be subject to lawsuits or whistle-blowing CSR is an application of ethics in business and businesses are expected to engage in socially responsible behavior Firm has economic, legal, and ethical responsibilities to shareholders, customers, employees, and the public o Firms must balance competing interests and priorities to remain competitive CSR can be a competitive advantage if it is linked with the firm’s strategy and business activities (not always a clear link with financial performance) B. Key Terms Conflicts of interest Corporate social responsibility Corporate social responsiveness Distributive justice Economic responsibilities Ethical responsibilities Ethics Fiduciary Justice Kantianism Legal responsibilities Morality Privacy Procedural justice Strategic CSR Trade secret Utilitarianism Virtue ethics Whistle-blowing Lecture Notes I. Introduction Ethics (as a field of study): the study of moral standards and their effect on behavior and conduct Morality: the standards people use to judge what is right/wrong, good/evil o Life experiences o Cultural heritage o Personal values II. Why study ethics? Ethics—it’s good for business o Reduce operating costs o Increased productivity and quality o Enhanced brand image and reputation o Increased sales and customer loyalty o Increased ability to attract and retain employees o Reduced regulatory oversight o Access to capital o Improved financial performance III. Ethical Frameworks a. Utilitarianism Cost/benefit of consequences Claims that behaviors are considered moral if they produce the greatest good (utility) for the greatest number of people Ends justify the means Ex) effective drug, but with known side effects Ex) airline seats, tiered pricing b. Kantianism Claims that motives and universal rules are important aspects in judging what is right or wrong Moral only if morally motivated Intent over consequences Ex) jilted employee stealing from company Ex) stakeholders are people, not “means to an end” – respect c. Virtue Ethics Claims that morality’s primary function is to develop virtuous character Not about action, but you embodying ethical character —how to be a good person Ex) core values statements in organizations (empathy, integrity, inclusiveness, courage, etc.) IV. Virtues and Character Measures of a virtuous character: o A person’s ability to recognize the moral elements of a situation o How well a person makes moral judgments o How consistent a person’s actions are with those judgments o How well a person can teach others to exhibit character V. Justice An ethical philosophy that provides the framework for society to judge what is morally right or wrong, fair or unfair, and establishes ways to evaluate or punish those who behave in morally wrong ways o Moral behaviors must be based on equity, fairness, and impartiality a. Distributive Justice A subset of justice that deals with the distribution of wealth and prosperity among members of a society Concentrates on outcomes o Pay o Praise Strict egalitarian v. basic liberties + beneficial inequalities b. Procedural Justice Subset of justice claiming that rules should be clearly stated, consistently obeyed, and impartially enforced Fairness and transparency of the process o Performance management systems o Syllabi VI. Crimes of Obedience Acts considered illegal or immoral by larger community o Performed in response to orders from an authority that they would otherwise not perform We have a duty to obey authority (maintaining social order) We have a duty to disobey orders that are illegal or immoral In war, soldiers obey authority because they are defending a way of life, there is an actual enemy, their survival depends on it o Still illegal to commit crimes against humanity But in corporate America, we have choices—so why don’t we question authority? Why do scandals happen? So many people involved… Are (un)ethical decisions/actions a result of: o Individual? (compare behavior with personal standards) o Society? (judge actions based on reactions of others?) o Moral issue/situation? Do you ever act against your own conscience but do what society says is correct? Do you ever act against societal norms, but with your own values? Individuals decide how to act based on the relative strength of their self-approval vs. the strength of social censure o But self-censure can be weakened by moral reasoning and social circumstances VII. Intelligent Disobedience Understand the mission of the organization, the goals of your activities, and the values that are supposed to govern how you achieve those goals o If you receive an order that seems to violate the mission, goals, or values for clarification. Then, further evaluate the order to determine the source of the problem, whether it involves safety, legality, morality, etc. Consciously decide whether to obey the order or whether to resist it and offer an acceptable alternative if possible VIII. Moral Dilemmas Faced by Organizations a. Environmental Increasing pollution and depletion of natural resources Managers face the question of how much they should conserve for future generations b. Privacy A person’s right to determine the type and extent of information that is disclosed about him or her Requires managers to strike balance between respecting privacy and learning about their subordinates IX. Ethical Dilemmas Faced by Individuals Conflict of Interest: conflicts that occur when employees or managers engage in activities on behalf of the company and have a personal interest in the outcome of those activities Trade Secret: information used in conducting business that is not commonly known by others o Provides a strategic advantage over competitors Bribery: offering something valuable to a party to act on his/her behalf, often to an unfair advantage Whistle-blowing: the release of info by a member of an organization that is evidence of illegal or immoral conduct to executives in a company or regulating agencies outside a company X. Corporate Social Responsibility (CSR) A business’s obligation to pursue policies, decisions, and actions that align with the objectives and values of society Economic responsibilities: a business’s duty to make a profit and increase shareholder values (required) Legal responsibilities: a business’s duty to pursue its economic responsibilities within the boundaries of law (required) Ethical responsibilities: a business’s duty to meet the expectations of society (expected) a. Corporate Social RESPONSIVENESS The practice of business responding to pressure from society Monitor and assess environmental conditions on a constant basis Seek to identify the needs of their stakeholders Design plans and policies to respond to changing conditions b. CSR and Financial Performance Higher CSR activity causes lower financial performance in the future (Friedman) Should be viewed as an investment that will lead to: o Improved efficiency o Innovation o Long-term financial success c. CSR and Strategy: Using CSR for Competitive Advantage Strategic CSR: corporate social responsibility activities that are directly related to their business activities so that they can combine social welfare with financial welfare o Must be planned specifically to support core business activities o Supervised carefully to create value for the community and the firm o Evaluated regularly to ensure that CSR activities benefit society while also benefitting the business d. Process to Implementing CSR 1. Identify points of intersection between company and society 2. Select social issues to address 3. Create a corporate social agenda 4. Create a social dimension to the value proposition