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Topic 5
Managing ethics
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Topics coveredETHICS
Ethical versus legal
Concept of ethics Managerial ethics in organisations
Factors affecting ethical & unethical behaviour
Corporate Ethics
SOCIAL RESPONSIBILITY
What is Social Responsibility?
Major views of social responsibility
Arguments for and against social responsibility
Managing Social Responsibility
Example of impact of social responsibility decisions and activities
Does social responsibility pay?
Improving Ethical Behaviour
The changing trends
Socially responsible Australian companies
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Ethical versus legal
Ethical Challenges
Is behaviour ethical simply because it is not illegal?
In business, most illegal behaviour is unethical but
much unethical behaviour is technically legal*
*(Bosch, H. 1990, Gordon Gekkos ethics rule, OK?Marketing, December, pp. 8-18)
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Concept of ethics
Ethical Challenges
Behaviour may be lawful but not ethical in intent or
process or effect.
Examples to consider:
Taylorism: production without much thought for the welfare
of the worker.
Henry Ford: exploitative and autocratic management.
Asian sweatshops producing high-priced sportswear.
CEO salaries.
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Concept of ethics
Business and ethics?
In such highly competitive environment, can
organisations afford to be seen as sociallyirresponsible?
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Concept of ethics
Example: The Ribena case
One of the world's largest multinational food companies, GlaxoSmithKline is
fined NZ$227,500, and ordered to undertake a nationwide campaign of
corrective advertising for misleading its customers about the blackcurrant
drink Ribena
The Commerce Commission argued that this claim, while literally true, was
likely to mislead consumers about vitamin C in Ribena and orange drinks.
GlaxoSmithKline pleaded guilty to 15 representative charges covering
offences between 2002 and 2006. The manufacturer admitted its cartoned
Ready To Drink Ribena, which claimed 7mg of Vitamin C per 100ml, in facthad no detectable Vitamin C content, and admitted its advertisements were
misleading
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Concept of ethics
What is Ethics? Primarily concerned with questions such as what is morally rightand what is morally wrong, what is good and what is bad
How do people distinguish between the two
Ethics is the code of moral principles and values that govern thebehavior of a person or group with respect to what is right orwrong
Ethical behaviour: Behaviour that conforms to generally accepted social norms Whether behaviour is ethical or not is in the eye of the beholder
It is practical, something we do
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Concept of ethics
Ethical theory classifications
Consequentialist theories
eg. John Stuart Mills utilitarian ethic, the greatest good for
the greatest number
Rights, duties and contract-based theories eg. Immanuel Kant
Virtue ethics
eg. Japanese kaizen (continuous improvement)
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Managerial ethics in organisations
Managerial ethics: principles and standards that guide
individual managers in their work behaviour
Three domains of managerial ethics:
a) How the organisation treats it employees
b) How employees treat the organisation
c) How the organisation treats other economic agents
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Managerial ethics in organisations (cont)
a) How an organisation treats its employees
Recruitment
Selection
Occupational health and safety
Wages
Working conditions (including harassment, privacy
and personal respect)
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Managerial ethics in organisations (cont)
b) How employees treat their organisation
Rorting the system
Using organisational information improperly
Giving or selling company secrets
Conflicts of interest
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Managerial ethics in organisations (cont)
c) How an organisation treats its environment
Environment includes:
Customers
Suppliers
Shareholders Competitors
Dealers
Trade unions
Physical environment
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Managerial ethics in organisations (cont)
Four view of ethics
Managers make decisions on different ethical
perspective:
Utilitarian view
Rights view
Theory of Justice view Integrative social contracts view
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Four view of ethics (cont)
Utilitarian view Ethical decisions are made on the basis of their outcomes or
consequences
The utilitarian view holds that moral behaviour produces thegreatest good for the greatest number
Critics of this approach fear a tendency towards a Big Brother
approach and question whether the common good is squeezingthe life out of the individual
E.g. reducing 20% workforce to improve job security forremaining 80% & in the best interest of shareholders.
Managerial ethics in organisations (cont)
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Four view of ethics (cont)
Rights view
The moral rights view is the ethical concept that moral
decisions are those that best maintain the rights ofthose people affected by them
Respects and protects individual liberties and
privileges
E.g. protects individual right to free speech when theyreport violation of law by their employers.
Managerial ethics in organisations (cont)
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Four view of ethics (cont)
Theory of Justice view
The justice approach is the ethical concept that moraldecisions must be based on standards of equity,
fairness and impartiality
Managers impose and enforce rules fairly andimpartially and do so by following legal rules and
regulations
E.g. Same rate of pay to individuals with similar levelof skills, performancy or responsibility
Managerial ethics in organisations (cont)
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Four view of ethics (cont)
Integrative social contracts view
Decisions should be made on the basis of empirical(what is) and normative (what should be) factors
(based on existing norms in industries & community)
E.g. while determining wage rate to pay in South
Africa, a company will decide base on existing wage
levels in that community.
Managerial ethics in organisations (cont)
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Ethical dilemma An ethical dilemma is a situation that arises when all
alternative choices or behaviours have been deemedundesirable because of potentially negative ethical
consequences, making it difficult to distinguish right fromwrong
Difficulty of Identification
Difficulty of Compliance
How a person deals with the ethical dilemma dependson a complex interaction between the individualsstage of moral development and several moderationvariables
Factors affecting ethical & unethical
behaviour
Factors affecting ethical & unethical
behaviour
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Factors affecting ethical & unethicalbehaviour (cont)
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Factors affecting ethical & unethical
behaviour (cont)
Stages of moral development
Pre-conventional:
influenced exclusively by personal interest
Conventional:
influenced by the expectations of others
Post-conventional:
influenced by personal ethical principles of what is right
For more information, refer text Pg 113 Kohlbergs stages of
moral development
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Factors affecting ethical & unethical behaviour
(cont)
Individual characteristics that affect ethics
Values:
represent basic convictions of what is right and wrong
Influence ethical behaviour
Values are developed in early years
Personality variables: ego strength- strength of personal convictions
locus of control- degree one believes in control of own
fate
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Determinants of individual ethics
Factors affecting ethical & unethical behaviour
(cont)
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RewardSystemRewardSystem
Competitive
Pressures
Competitive
Pressures
AppraisalSystem
AppraisalSystem
Time
Pressures
Time
Pressures
Rules and
Regulations
Rules and
Regulations
Structural variablesmayhelpminimise ambiguity and encourage ethical behaviour
Structural variablesmayhelpminimise ambiguity and encourage ethical behaviour
Cost
Constraints
Cost
Constraints
Factors affecting ethical & unethical behaviour
(cont)
F ff i hi l & hi l b h i
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Immediacyof
consequences
Proximity
tovictim(s)
Consensusof wrong
Probability
ofharm
Great-
nessof
harm
Concentrationof
effect
Issueintensity
Factors affecting ethical & unethical behaviour
(cont)
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Organisation culture
Strong culture will exert more influence on individualsthan weak culture
Strong culture with high ethical standards will influencethe decision of the individual to act ethically.
For weak culture, the individuals may rely onsubcultural norms as a behavioral guide (e.g. workgroups or departmental standards)
Factors affecting ethical & unethical
behaviour (cont)
F ff i hi l & hi l b h i
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Organisation culture (cont)
Organisations have also use culture to promote their socialresponsibility efforts:
Values-based management: An approach to managing in whichmanagers establish and uphold an organisations shared values.The purposes of shared values
Serving as guideposts for managerial decisions
Shaping employee behaviour
Influencing the direction of marketing efforts
Building team spirit
The bottom line on shared corporate values: An organisationsvalues are reflected in the decisions and actions of its employees
Factors affecting ethical & unethical behaviour
(cont)
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Corporate EthicsIn an international context Ethical standards are not universal.
Social and cultural differences determine acceptablebehaviours
Developing countries and worker safety standards,
environmental pollution regulations
Bribes
Foreign Corrupt Practices Act Makes it illegal to corrupt a foreign official yet token
payments to officials are permissible when doing so is anaccepted practice in that country
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Corporate Ethics (cont)
Ethics and Boards of Directors
Directors have a fiduciary responsibility for
shareholders funds
They need to be vigilant, knowledgeable and intuitivein order to pick up unethical or unwise behaviour on
the part of management or other directors
Laws, regulations and official publications aim to
assist directors in meeting their obligations
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Corporate Ethics (cont)
Ethics and the whistleblower
Whistleblowers: Employees who publicly disclose illegal or
unethical conduct by others within the organisation
The behaviour of whistleblower has been studied under the
category of Principled organisational dissent: The effort by
individuals in the workplace to protest about and/or change thestatus quo because they have a conscientious objection to
current policy or practice
Whistleblower protection legislation
Protection is welcome but may be insufficient
A culture that supports ethical behaviour may be more
effective
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Corporate Ethics
Socio-economics and economic rationalism
Recent developments have challenge the traditional economic
thinking, in favour of ethical development in organisations.
They are:
Neoclassical economics:Humans are self-interested, rational and materialistic
Self-interest leads to optimal social outcomes
Socioeconomics:Humans live in community and there is a moral
dimension to motivation so social benefit, not just
financial sustainability and return, should be considered
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SOCIAL RESPONSIBILITY
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What is Social Responsibility?
Social responsibility is the set of obligations an organisation hasto protect and enhance the society in which it functions
Obligation beyond that oflaw and economics for a firm to
pursue long term goals that are good for society
It is the collective behaviour and actions of managers that makea company socially responsible or socially irresponsible
Managers who make THE RIGHT DECISIONS aredescribed as being or behaving ethically
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Corporate social responsibility: The desiredbehaviour of organisations in regard to economic,environmental and social performance i.e. triple
bottom line or sustainability reporting
Some managers see adherence to ethical guidelines asan avoidable cost.
Corporate social responsibility may be good forbusiness companies on the Dow Jones GlobalSustainability Index have outperformed those on thestandard index.
What is Social Responsibility (cont)?
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Major views of social responsibility
Two opposing views of social responsibility:
- Classical view
- Socioeconomic view
M j i f i l ibilit ( t)
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Major views of social responsibility (cont)The classical view:
The view that managements only responsibility is to maximise
profits
Milton Friedman: Nobel Prize winning economist argued thatmanagers are there to maximise financial returns for their
shareholders, and to attempt to enhance the social good weakensthe market forces
In free economy there is only one and only one responsibility
of business- to use its resources and engage in activitiesdesigned to increase its profits so long as it stays within the rulesof the game, which is to say, engages in open and freecompetition without deception or fraud Friedman (1992)
Friedmans ideology of shareholder value provides for only oneconstituency - the shareholders
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The socioeconomic view
R. Edward Freeman-Corporations have stake holders, that is groups and individuals
who benefit from or are harmed by, and whose rights areviolated or respected by corporate actions
Stakeholders:
Management
Owners
Suppliers Employees
Customers
Local community
Major views of social responsibility (cont)
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The socioeconomic view (cont)The stakeholders
Narrow approach:
Includes those groups that are vital to the survival andsuccess of the corporation
Wider approach:
Any group or individual who can affect or is affectedby the actions of corporation
Major views of social responsibility (cont)
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The socioeconomic view (cont)
Socioeconomic view challenges the classical view and theprevailing trend of economic rationalism
The view that managements social responsibility goes wellbeyond the making of profits to include protecting andimproving societys welfare
To do the right thing by the society
Major views of social responsibility (cont)
Arguments for and against social
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Arguments for and against socialresponsibility
(summary)
FOR
Public expectations
Long-run profits
Ethical obligation
Public image
Better environment
Discouragement of further governmental
regulation
Balance of responsibility and power
Stockholder interests
Possession of resources
Superiority of prevention over cure
AGAINST
Violation of profit maximisation
Dilution of purpose
Costs
Lack of skills
Lack of accountability
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Arguments for corporate social responsibility
Business creates problems and should therefore helpsolve them
Corporations are citizens in our society
Business often has the resources necessary to solveproblems
Business is a partner in our society, along with thegovernment and the general population
Making clear and visible contribution to society maybe good for business
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Arguments against corporate social responsibility (cont).
The purpose of business in Australian society is to
generate profit for owners
Involvement in social programs gives business too
much power (potential for abuse & corruption) There is potential for conflict of interest (business may
have preference / ulterior motive for supporting a
cause)
Business lacks the expertise to manage social
programs (more reasonable to contribute to the
common good through taxes)
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Managing Social Responsibility
Recurrent questions:
To whom is the business responsible?
Who in the business is responsible for the organisations
practices?
Approaches that organisations may take to social
responsibility:
Social obstruction, social obligation, social response, socialcontribution
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Managing Social Responsibility (cont)Organisational approaches to social responsibility
Social obstruction:
do as little as possible and deny responsibility
Social obligation:defensive, minimal compliance, obligation to meet economic and legalresponsibilities
Social response:
accommodative, reactive
Social contribution:
proactive, contribute far more than required
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Managing Social Responsibility (cont)
Total corporate responsibility
Discretionary
responsibilityEthical
responsibility
Legal
responsibility
Economic responsibility
Contribute to the
community and
quality of life
Be ethical. Dowhat is right.
Avoid harm
Obey the
law
Be profitable
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Example of impact of social responsibility
decisions and activities
The greening of management
The recognition of the
close link between an
organisations decisions
and activities and its
impact on the natural
environment
Example (cont)
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Global issues
affecting theenvironment
The greening
of management
Natural ResourcesNatural Resources
Global WarmingGlobal Warming
Toxic WasteToxic Waste
Industrial AccidentsIndustrial Accidents
PollutionPollution
Example (con t)Global problems management mustaddress to go green
Example (cont):
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Low High
Environmental sensitivity
Legal
approach(light
green)
Market
approach
Stakeholder
approach
Activist
approach(dark
green)
Example (con t):Organisational approaches to environmental
issues (How organisations go green?)
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Does social responsibility pay?
Studies appear to show a positive relationship
between social involvement and the economic
performance of firms
HBSC
Nestle
Nokia
RioTinto
GlaxoSmithKline after Ribena episode?
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Improving Ethical BehaviourCode of ethics/Code of conduct Organisational ethics must start with senior management.
Code of conduct: A statement of obligations imposed by anorganisation on its employees or officials, in addition to thosespecific duties imposed by legislation. May also entail ethical
education and ethics committees Example: re: text P131 Fig 4.5
Use more of word must
Code of ethics: A formal written statement of the values andethical standards that guide a companys actions.
Example: use more of words such as ought or should
More of a general guide for situation when code of conduct
is silent / unclear
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Code of ethics/Code of conduct (cont)
Examples - Code of ethics
Shell: How we work
Our core values of honesty, integrity and respect for people
define how we work
The Body Shop: Reason for being
To meaningfully contribute to local, national and internationalcommunities by adopting a code of conduct which ensures care,
honesty, fairness and respect
Vision of McDonald's CEO:
McDonald's will contribute to making the world a better place
Improving Ethical Behaviour (cont)
Improving Ethical Behaviour (cont)
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Improving Ethical Behaviour (cont)
1. Hire individuals with high ethical standards
2. Establish decision rules
3. Lead by example
4. Delineate job goals and performance appraisal
mechanisms
5. Provide ethics training
6. Conduct independent social audits
7. Provide support for individuals facing ethicaldilemmas
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Improving Ethical Behaviour (cont)
Ethics Hotline or Helpline
Whistleblowers publicly disclose illegal or unethicalconduct of others within their organisation
Personal costs to the whistleblower are usually veryhigh - including ostracism, job and career loss, legal
costs, ill health
Whistleblower protection schemes
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The changing trends
Social Issues have become strategic
Issues such as privacy, obesity, off-shoring and the
safety of pharmaceutical products can alter anindustry's ground rules, and the financial and
reputational impact of mishandling these issues can be
huge
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The changing trends (cont)
Social issues
The McKinsey Quarterly, January 2006 Global survey ofBusiness Executives), indicates that 84 percent of executivesthink business has a broader contract with society
They increasingly recognize that the creation of long-termshareholder value depends on a corporations ability tounderstand and respond to increasingly intense demands fromsociety
Socially responsible investing has been gaining ground asinvestors seek to incorporate concepts like sustainability andresponsible corporate behavior into their assessments of acompanys long-term value
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The changing trends (cont.)
Social issues (cont)
In the News: Business and obesity
In response to a growing public debate about the possible
connection between soda and childhood obesity, several of the
largest US beverage distributors have agreed to stop selling
carbonated beverages in most schoolsa move that highlights
the growing importance of social issues to business
(McKinsey Quarterly, May 6, 2006, number 2)
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Corporate ethics, social responsibility and the overpaid
executive
Is it acceptable behaviour to reward managers at levels
100 times or more that of the average worker?
Are packages with golden hellos, golden handshakes,
golden handcuffs and golden parachutes ethical?
Research indicates little or no correlation between
executive pay and company performance
The changing trends (cont.)
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Socially responsible Australian companies
Westpac named Australia's most socially responsible company,ahead of Toyota, ANZ and BHP Billiton
Most socially responsible small to medium business company
by St James Ethics Centre
Socially responsible initiatives at Savings & Loans include
flexible employment policies, sponsorship of Christmas
pageants, discounted interest rates on loans for environmentallyfriendly cars, and the Women's & Children's Hospital visa card
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In summary
Ethics are a persons beliefs about what constitutes
right and wrong behaviour
Social responsibility is the set of obligations an
organisation has to protect and enhance the society inwhich it functions
Organisations use leadership, culture, training, codes
of ethics and codes of conduct to help managers
manage ethical behaviour in organisations
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Food for thought
Is it right to
File falsified or inflated business expense reports
Borrow office supplies for personal use Outsource jobs for cheap labour
Apply various ethical approaches and see if the
answers differ with differing approaches