3 - 1Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Chapter 3

Ethics and Social Responsibility

3 - 2Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Learning Objectives

Define ethics and understand the importance of ethical behavior for organizations

Discuss 4 perspectives on ethics and arguments for ethical relativism and universalism

Understand the efficiency and social responsibility perspectives of corporate social responsibility

3 - 3Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Learning Objectives (cont.) Know how ethics affect individual behavior in

organizations Consider ways of scientifically studying

organizational ethics Know methods for resolving cross-cultural

ethical conflicts Analyze your ethics and how they affect your

understanding of management and organizational behavior

3 - 4Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Unethical Behavior

The Wall Street scandals of the 1980s (insider trading)

Product piracy in China (CDs) Multinational corporate bribery Russian Mafia influence in 1990s

3 - 5Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Ethics

Moral standards, not governed by law, that focus on the human consequences of behavior (set of beliefs about right and wrong)

3 - 6Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Relativism Vs. Universalism

Ethical relativism (no absolute principle of right or wrong, good or bad)– individual ethical relativism (individuals

determine what’s right or wrong)

– cultural ethical relativism (right or wrong depends on one’s culture)

Ethical universalism (universal and objective ethical rules across societies)

3 - 7Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

The Social Responsibility of Corporations

The Efficiency Perspective (corporate responsibility to max. profits for shareholders)

The Social Responsibility Perspective (corporate responsibility to promote well-being of stakeholders)

Globalization promotes the stakeholder perspective

3 - 8Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Approaches to Social Responsibility 1)

Approaches to Social Responsibility 1)

Obstructionist response: corporations choose not to be socially responsible.– companies behave illegally and unethically

(hide and cover-up problems). Defensive response: corporations stay

within the law but make no attempt to exercise additional social responsibility.– Shareholder interest above all other

stakeholders.– Managers say society should make laws if

change is needed1) Jones et al., Cont. Management, 1998, Ch.5

3 - 9Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Accommodative response: corporations realize the need for social responsibility. – Try to balance the interests of all

stakeholders. Proactive response: corporations

actively embrace social responsibility.– Go out of their way to learn about and help

stakeholders.

1) Jones et al., Cont. Management, 1998, Ch.5

Approaches to Social Responsibility 1)

Approaches to Social Responsibility 1)

3 - 10Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Obstructionresponse

Defensiveresponse

AccommodativeAccommodativeresponseresponse

ProactiveProactiveresponseresponse

Low HighSocial responsibility

1) Jones et al., Cont. Management, 1998, Ch.5

Approaches to Social Responsibility 1)

Approaches to Social Responsibility 1)

3 - 11Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Examples of Internal Ethical Issues Dispersion of harm and benefits among

stakeholders– If a firm is very profitable for two years, who

should receive the profits? Employees, managers and stockholders all want a share.

– Should the cash being kept for future slowdowns?

What is the ethical decision? Layoff policy

radical approach (Chrysler laid off 60% of workforce) spread layoffs over longer terms

3 - 12Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Hold payment to suppliers as long as possible to benefit the firm?

harm to suppliers who are stakeholders

Severance pay to laid off workers? may decrease the stockholder's return

Buy goods from overseas firms that hire children?

If not the children might not earn enough money to eat.

Examples of Internal Ethical Issues

3 - 13Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Theft of intellectual property (some countries don’t honor copyrights/patents, encourage piracy)

bribery and corruption (e.g. lubrication bribes to facilitate/ speed up processes)

intentionally selling dangerous products (Nestle’ instant formula)

environmental pollution (different concerns in different countries)

intentional misrepresentations in negotiations (Bluff, fraud, intimidation)

Examples of Cross-Cultural Ethical Issues

3 - 14Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Will Corporations Behave Ethically?

If it is in the corporations (self-) interest– reputation and image

loss of reputation (Brent Spar and Shell) enhancing attractiveness to stakeholders (potential

employees/ managers, investors)

– corporate code of ethics (e.g. report illegal/ unethical behavior [whistle-blower], ethical ombudsman)

– national/ international law, accompanied by formal punitive sanctions

3 - 15Copyright 1998 by Prentice Hall, Inc. adapted by Prof. Dr. vom Kolke

Implications for Managers

Develop a Framework for Evaluating Ethical Codes and Determining Personal Ethics

Understand Behaviors and Ethics of Other Societies

Consider Approaches to Resolving Cross-Cultural Ethical Conflicts