Chapter 5

Managing Ethics and Social Responsibility

 Managerial Ethics
 Ethics – code of moral principles and values that
govern the behaviors of right or wrong
 Ethics set the standards about good/bad in conduct
and decision making
 Ethical issues can be complex
 People in organizations have divergent views
about right/wrong (spy vs learn about
competition)
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 Managerial Ethics
 Human Behavior fall into three codified
categories:
1. Domain of codified law (legal standards)
2. Domain of codified ethics (social standards)
3. Domain of Free Choice (personal standard)

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 Managerial Ethics

Domain of codified law (legal standards)

 Values and standards are written into the legal
system and enforceable into the courts
 Law makers set rules that people and corporations
must follow
Eg: tax, regulations to follow

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 Managerial Ethics

Domain of Free Choice (personal standard)

 At the opposite end of the scale and pertains to
behavior about which the law has no say
 The organization enjoys freedom on some decisions
like the candidate to choose for an open position

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 Managerial Ethics

Domain of codified ethics (social standards)

 Between the domains of codified law and the free
choice we have the domain of ethics
 This domain has no specific laws but has standards
of conduct based on shared principles and values
about moral conduct that guide an individual or
company
 Sexual Harassment (ethics and law) and intimate
relationship between employees (ethics of company)
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5.1 - Three Domains of
Human Action

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 Ethical Management
 Managers are responsible for setting the ethical
climate in an organization and act as a model to
others
 Managers are ethically responsible for seeing that
organizational resources are used to serve the interest
of stakeholders
 Unethical managers serve their own needs and
interests at the expense of stakeholders

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 Ethical Dilemmas
 Ethical dilemmas arise in situations concerning right or
wrong when values are in conflict
 Right and Wrong cannot be clearly identified
 The individual who must make an ethical choice in an
organization is called the Moral Agent,
 Practice p.140
 Managers faced with ethical dilemmas adopt normative
strategy (based on norms and values)
 Normative ethics uses several approaches to describe
values for guiding ethical decision making 9
 Ethical Approaches for Decision Making
 Utilitarian approach – the ethical behavior produces
the greatest good for the greatest number
Under this approach the decision maker is expected to
consider the effect on the alternative an select the one that
maximizes the benefit for the greatest number of people
 Individualism approach – the ethical behavior if it
promotes the individual’s long-term interest (if everyone
is pursuing self-interest it leads to greater good)
Individualism is easily misinterpreted to support immediate
self-gain and is considered not appropriate today

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 Ethical Approaches for Decision Making
 Moral-rights approach - humans have fundamental rights
and liberties that cannot be taken away by an individual’s
decision
An ethical decision is the one that observes the rights of those
affected by it. Managers avoid interfering with the
fundamental rights of the individuals (whistleblowers and non-
work activity monitoring)
 Justice approach - moral decisions must be based on
standards of equity, fairness, and impartiality,
Managers need to observe three types of justice
 Distributive justice: different treatment of individuals is not
based on arbitrary characteristics (Men vs Women salaries)
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 Ethical Approaches for Decision Making
Procedural justice: 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 and the individual should not be
held responsible for matters over which they have no
control
 Practical approach - bases decisions on prevailing
standards, society, and all stakeholders
 This approach step-sides about what is right, good or
just and combines the utilitarian, the moral rights and
justice approaches,
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 Ethical Approaches for Decision Making
 Questions to ask:
 What’s in it for me
 What decision would lead to the greatest good for the
greatest number
 What rules, policies, or social norms apply
 What are my obligations to others
 What will be the long term for myself and important
stakeholders

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 A Manager’s Ethical Choices
 Individuals bring their own personality and traits to
organizations
 Personal needs, family influence, and religious background
shape individuals
 Personality characteristics such as ego, confidence, and
independence may enable managers to make ethical choices
 Organizational pressures can influence people to go against
their own sense of right or wrong which can cause mental
stress to managers
 One important personal trait is the stage of moral development
of the manager, 14
 A Manager’s Ethical Choices
 Moral development refers to the ways we
distinguish right from wrong as we grow and mature.
Very young children generally do not have the same
level of moral development as adults.
 The Moral Development has three levels (the
Preconventional, Conventional, Postconventional)
and six stages,

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5.3 - Three Levels of Personal
Moral Development

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Corporate Social Responsibility (CSR)
 Distinguishing right from wrong as an organization
 Corporate Social Responsibility (CSR) concern the
ethics of the corporate,
 Good corporate citizenship
 Make choices that contribute to society and
stakeholders
 Difficulty of applying and understanding CSR is that
managers must answer “responsibility toward
whom”
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Corporate Social Responsibility (CSR)
 Stakeholders - any group within or outside the
company that have interest or is affected by the
organization’s actions
 Each stakeholder is different from the other and we
use the technique of Stakeholders mapping
 This is a technique that identifies the expectations, needs,
importance and relative power of different stakeholders. It
helps managers to make decisions related to issues or projects

Eg. Contractors polluted the Environment and engaged child

labor,
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Major Stakeholders Relevant to Gap Inc.

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 The Green Movement
 Companies are involved in “green” business to
compensate the harm and generate revenue and
efficiency to their work
 Organizations implement the environment friendly
practices and are embracing sustainability
 Sustainability refers to the economic development
that generates wealth and meets the needs of the
current generation while preserving the environment
and society for future generations

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 The Green Movement
 Managers that adopt sustainability use the Triple
Bottom Line to evaluate their performance
 Triple Bottom Line is a method to assess their
success
 The organization use the Triple Bottom Line to
measure the organization’s social performance,
environmental and financial performance
3Ps: People, Planet and Profit

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Evaluating Corporate Social Responsibility
 Measuring the Corporate Social Responsibility
includes 4 criteria:
 Economic: responsible to produce goods and services
to maximize the profit
 Legal: Fulfill the organization’s goals within the
frameworks of legal requirements
 Ethical: not codified by law and may not serve the
corporation direct interest (be ethical, do what is right)
 Discretionary: guided by the company’s goodwill, this
offers no payback for the company

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Criteria of Corporate Social Performance

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 Building an Ethical Organization
 To support and create an ethical organization we
need:
1. Ethical Leadership: Managers are honest,
trustworthy and fair in dealing with the
stakeholders (employees, customers …) They
need to behave ethically in their professional and
personal lives
2. Codes of Ethics: formal statement of the
organization’s values concerning ethics and
social issues

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Building an Ethical Organization
3. Ethical Structure: create a system, positions and
programs that a company can undertake to
encourage and support ethical behavior
Ethics committee: a group of executives appointed to
oversee company’s ethics

4. Support Whistleblowing: Company disclosure

of unethical behaviors,
Managers cannot rely exclusively on codes of
conduct and ethical structures to prevent unethical
behavior
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Building an Ethical Organization

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End of Chapter