5 1 Mc GrawHill 2003 The Mc GrawHill

5 -1 Mc. Graw-Hill © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 -2 Chapter 5 Mc. Graw-Hill Ethics And Corporate Responsibility © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 -3 Learning Objectives l After studying Chapter 5, you will know: how different ethical perspectives guide decision making l how companies influence the ethics environment l the options you have when confronting ethical issues l the important issues surrounding corporate social responsibility l how the political and social environment affects your firm’s competitive position and legitimacy l the strategies corporations use to manage the political and social environment l the role of managers in our natural environment l Mc. Graw-Hill © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 -4 Ethics l the system of rules that governs the ordering of values l l affects people’s behavior and the ‘goods’ that are worth seeking values - principles of conduct l ethics becomes more complicated when a situation dictates that one value overrules another ethical issue - a situation, problem, or opportunity in which an individual must choose among several actions that must be evaluated as right or wrong l business ethics - the moral principles and standards that guide behavior in the world of business l Mc. Graw-Hill © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 -5 Ethics (cont. ) l Ethical systems moral philosophy - the principles, rules, and values people use in deciding what is right and wrong l universalism - individuals should uphold certain values, regardless of the immediate result l l l teleology - an act is morally right if it produces a desired result l l Mc. Graw-Hill the important values are those that society needs to function egoism - acceptable behavior maximizes consequences for the individual utilitarianism - seeks the greatest good for the greatest number of people, thereby maximizing total utility © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 -6 Ethics (cont. ) l Ethical systems (cont. ) l deontology - focuses on the rights of individuals l l l ensures that equal respect is given to all persons concentrates on means to particular ends relativism - ethical behavior defined by the opinions and behavior of relevant other people l l acknowledges the existence of different ethical viewpoints group consensus is sought l Mc. Graw-Hill positive consensus signifies that an action is right, ethical, and acceptable © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 -7 Ethics (cont. ) l Ethical systems (cont. ) l virtue ethics - morality defined by what a mature person with ‘good’ moral character would deem right l society’s rules provide a moral minimum l l Kohlberg’s model of cognitive moral development l l preconventional stage - decisions based on concrete rewards, punishments, and immediate self-interest conventional stage - actions conform to societal expectations l l ethical behavior deemed appropriate by groups or institutions principled stage - follow self-chosen ethical principle l Mc. Graw-Hill moral individuals can transcend rules by applying personal standards see beyond authority, laws, and norms © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 -8 Business Ethics Brands Artistic Control Commercialism in Schools CEO Pay Wages Current Ethical Issues Consumerism Frankenfoods Mc. Graw-Hill Urban Sprawl Sweatshops Globalization Politics © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

Ethics (cont. ) l 5 -9 The ethics environment l Ethical climate - processes by which decisions are evaluated and made on the basis of right and wrong l l Mc. Graw-Hill unethical corporate behavior may be the responsibility of an unethical individual often the company’s culture that is ethically lax © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 - 10 Climate Factors Conducive To Unethical Behavior Emphasis on shortterm revenues Shareholders concerns take precedence over other constituencies Lack clear procedures for dealing with ethical problems Ethics considered from legal or public relations viewpoint Mc. Graw-Hill No written code of ethics Danger Signs Desire for “quick fix” solutions Financial concerns take precedence over ethical considerations © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 - 11 Ethics (cont. ) l The ethics environment (cont. ) l Ethics codes - most visible sign of corporate commitment to ethical behavior l l l must be tailored to individual company’s philosophies address subjects such as employee conduct, community and environment, shareholders, customers, political activity Ethics programs l compliance-based - designed by corporate counsel to prevent, detect, and punish legal violations l l Mc. Graw-Hill increases surveillance and controls integrity-based - guiding principles that instill personal responsibility for ethical behavior © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 - 12 Ethical Decision Making Identify the relevant values in the situation Define the issue clearly Ethical Decision Making Implement the decision Mc. Graw-Hill Weigh conflicting values and choose option that balances them © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

Corporate Social Responsibility l 5 - 13 Corporate social responsibility l the obligation toward society assumed by business l maximizes it positive effects on society and minimizes it negative effects economic responsibilities - produce goods and services that society wants at a price that perpetuates the business l legal responsibilities - obey local, state, federal and relevant international laws l ethical responsibilities - meeting other societal expectations, not written as law l voluntary responsibilities - additional behaviors that society finds desirable and that the values of the business support l Mc. Graw-Hill © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

Pyramid Of Corporate Social Responsibility 5 - 14 Voluntary Responsibilities Be a good corporate citizen Ethical Responsibilities Be ethical Legal Responsibilities Obey the law Economic Responsibilities Be profitable Mc. Graw-Hill © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

Corporate Social Responsibility (cont. ) l 5 - 15 Contrasting views l profit maximization view l managers act as agents for shareholders l l l economic performance is an organization’s primary social responsibility principled moral reasoning view l l ethical actions are not optional, but mandatory organizations have a wider range of responsibilities that extend beyond the production of goods and services for a profit l Mc. Graw-Hill obligated to maximize the present value of the firm organizations should actively and responsibly participate in the community and the larger environment © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

Corporate Social Responsibility (cont. ) l 5 - 16 Reconciliation based on the idea that ethical behavior is both right and more profitable l there are competitive advantages of socially responsible actions, especially over the long-term l l Mc. Graw-Hill avoid unnecessary and costly regulation pay dividends to the reputation of the company profits can be made from attempts to solve society’s problems © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

Corporate Social Responsibility (cont. ) l 5 - 17 Corporate social responsiveness l the process companies follow and the actions they take in the domain of corporate social responsibility l l l CSR 1 (corporate social responsibility) - principles, philosophies, and beliefs CSR 2 (corporate social responsiveness) - processes companies follow and the actions they take stakeholder management - managers do not manage relationships with society but with stakeholders l l l Mc. Graw-Hill company issues employee issues shareholder issues supplier issues public issues © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

Approaches To Corporate Social Responsiveness Approach Posture or Strategy 5 - 18 Performance 1. Reactive Deny responsibility Do less than required 2. Defensive Admit responsibility but fight it Do the least that is required 3. Accommodative Accept responsibility Do all that is required 4. Proactive Anticipate responsibility Do more than is required Mc. Graw-Hill © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Political Environment l 5 - 19 Competitive advantage progressive organizations realize that government may be the source of competitive advantages for an individual company or an entire industry l numerous examples of public policy that assists business l l Corporate legitimacy motive for business involvement in the public policy process l organizations are legitimate to the extent that their goals and methods are consistent with those of society l domain defense - activities intended to counter challenges to the organization’s legitimacy l Mc. Graw-Hill © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Political Environment (cont. ) l 5 - 20 Strategies for influencing the political environment public affairs department - monitors key events and trends, analyzes their effects on the organization, recommends organizational responses, and implements political strategies l Lobbying - most traditional form of influence l l l Mc. Graw-Hill involves political professionals or company executives who establish communication channels with regulatory bodies, legislators, and their staffs Political action committees (PACs) - make donations to candidates for political office © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 - 21 Public Affairs Department Issues management Institutional advertising Corporate contributions Investor and stockholder relations Mc. Graw-Hill Government relations Activities of Public Affairs Public relations International relations © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Political Environment (cont. ) l 5 - 22 Strategies for influencing the political environment (cont. ) l Corporate constituency programs - organizational efforts to identify, educate, and motivate individuals to take political action that could benefit the organization l l Coalition building - finding other organizations or voter groups that share political interests on a particular legislative issue l Mc. Graw-Hill encourage interested stakeholders to take grassroots action on behalf of the organization combine efforts and power to influence the environment © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Political Environment (cont. ) l 5 - 23 Strategies for influencing the political environment (cont. ) l Stonewalling - use of public relations, legal action, and administrative processes to prevent or delay the introduction of legislation and regulation that may have an adverse impact on the organization l l Strategic retreat - response to adverse regulatory change l Mc. Graw-Hill consumes considerable time and money, and may boomerang efforts to adapt products and processes to changes in the political and social environments while minimizing the negative effects of those changes © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 - 24 The Natural Environmental issues l paradigm shift in corporate environmental management l l deliberate incorporation of environmental values into competitive strategies and the design and manufacturing of products A risk society fundamental sources of risk in modern society are excessive production of hazards and ecologically unsustainable consumption of natural resources l risk has proliferated due to population explosion, industrial pollution, and environmental degradation l Mc. Graw-Hill © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Natural Environment (cont. ) l 5 - 25 Ecocentric management has as its goal the creation of sustainable economic development and improvement of quality of life worldwide for all organizational stakeholders l seeks to minimize negative environmental impact l design for environment (DFE) - tool for creating products that are easy to recover, reuse, or recycle l l all environmental effects of a product are examined from cradle to grave l l Mc. Graw-Hill assessments of inputs analysis of how consumers will use and dispose of the product © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 - 26 Ecocentric Management Encourage low energy use Products with recyclable materials Products with ecofriendly packaging Mc. Graw-Hill Ecocentric Management Use smaller resource quantities Environmentally appropriate production technologies © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Natural Environment (cont. ) l 5 - 27 Environmental agenda for the future l corporations are the only organizations with the resources, technology, and global power to help create a sustainable world l l companies beginning to acquire the motivation to solve environmental problems l Mc. Graw-Hill webs of companies with a common ecological vision can combine their efforts into high-leverage, impactful action may represent the biggest opportunity in the history of commerce © 2003 The Mc. Graw-Hill Companies, Inc. All rights reserved.