LECTURE NOTES

I. This may be the best, or the worst, time to discuss social responsibility and ethics. These issues are all around us with in the last several years. Too many top-level mangers have made decisions that apparently were only in their own interests and not in the interests of stockholders, employees or the society at large. They did things that were, at best unethical, and at worst, clearly illegal. In doing so, they certainly did not act responsibly from any perspective. Note: Depending on your interests and whether or not you thought it could get too unwieldy, you could start this discussion by referring to Enron, Tyco, Adelphia, etc. For years to come, issues raised by the managers in these companies, and others, will be playing out in public opinion and in the courts. II. Organizational Stakeholders in a Global Environment. A. Stakeholders: All those who are affected by or can affect the activities of an organization. 1. Primary Stakeholders: The primary stakeholders of a firm are those who have a formal, official, or contractual relationship with the organization. They include owners (stockholders), employees, customers, and suppliers. 2. Secondary Stakeholders: The secondary stakeholders of a firm are other societal groups that are affected by the activities of the firm. They include consumer groups, special interest groups, environmental groups, and society at large. B. As organizations become more global, their stakeholder base becomes wider and more diverse. III. Social Responsibility. A. Corporate Social Responsibility: The interaction between business and the social environment in which it exists. 1. Social Responsibility Debate: The debate over corporate social responsibility focuses on the nature of socially responsible behavior. 2. Does being socially responsible mean that the corporations actions must not harm society, or does it mean that the corporations actions should benefit society? B. The Premises of the Social Responsibility Debate. 1. Social Contract: An implied set of rights and obligations that are inherent in social policy and assumed by business. 2. Moral Agent: A businesss obligation to act honorably and to reflect and enforce values that are consistent with those of society. C. The Three Perspectives of Social Responsibility. 1. Economic Responsibility.

a. The responsibility of business is to make a profit within the rules of the game. b. Organizations cannot be moral agents. Only individuals can serve as moral agents. 2. Public Responsibility. a. Business should act in a way that is consistent with societys view of responsible behavior. b. Business should act in a way that is consistent with established laws and policy. 3. Social Responsiveness. a. Business should proactively seek to contribute to society in a positive way. b. Organizations should develop an internal environment that encourages and supports ethical behavior at an individual level. Note: Refer to Table 3.2 for examples of irresponsible behavior. Then, refer to the Body Shop, mentioned in At the Forefront, to discuss the relationship between being socially responsible and making a profit. It would help to get current financial information about the Body Shop. D. The Four Faces of Social Responsibility. 1. In a very general sense, an organizations social behavior can be categorized according to two dimensions: legality and responsibility. 2. As illustrated in Figure 3.3 in the textbook, four combinations of legal and responsible behaviors are possible: (1) legal/responsible, (2) legal/irresponsible, (3) illegal/responsible, and (4) illegal/irresponsible. 3. Organizations typically will behave in ways that are consistent with their overall strategy for responding to social issues. E. Social Responsibility Strategies. 1. Organizations take very different approaches to corporate social responsibility. Some organizations do little more than operate to ensure profitability for their stockholders, while others maintain aggressive and proactive social responsiveness agendas. 2. Figure 3.4 in the textbook illustrates a continuum of social responsibility strategies that range from do nothing to do much. Four distinct strategies can be identified along this continuum: reaction, defense, accommodation, and proaction. They vary according to the organizations tendency to be socially responsible or responsive. a. Reaction: An organization that assumes a reaction stance simply fails to act in a socially responsible manner. b. Defense: Organizations that pursue a defense strategy respond to social challenges only when it is necessary to defend their current position.

c. Accommodation: Corporations with an accommodation strategy of corporate social responsibility readily adapt their behavior to comply with public policy and regulation where necessary and, more important, attempt to be responsive to public expectations. d. Proaction: Organizations that assume a proaction strategy with regard to corporate social responsibility subscribe to the notion of social responsiveness. Note: It probably would be interesting to students to discuss examples of companies using each of the types of strategies listed above. IV. Social Responsibility in the New Millennium. A. Fallout from the collapse of many businesses recently will intensify the emphasis on accountability from business leaders. B. It will also put more emphasis on ethical behavior from business leaders. Note: Think about discussing the theme of the Leaders in Action box, Honesty is the best policy. You could get more information for this from Stephen Coveys book, Seven Habits of Highly Effective People. V. Ethics. A. Understanding Business Ethics. 1. Ethics: Ethics refers to the established customs, morals, and fundamental human relationships that exist throughout the world. 2. Ethical Behavior: Behavior that is morally accepted as good or right as opposed to bad or wrong. B. Foundations of Ethics. 1. Values: Relatively permanent and deeply held preferences on which individuals form attitudes and personal choices. a. Instrumental Values: Standards of conduct or methods for attaining an end. b. Terminal Values: Goals an individual will ultimately strive to achieve. 2. In most cases, the ethical standards and social responsibility of an organization or business reflect the personal values and ideals of the organizations founders or dominant managers. Note: Refer to Paul Wieand in the Facing the Challenge and Meeting the Challenge boxes. C. Business Ethics. 1. Business ethics is the application of general ethics to business behavior. 2. Businesses pay attention to ethics because the public expects a business to exhibit high levels of ethical performance and social responsibility.

D. Pressures to Perform. 1. Managers must continually choose between maximizing the economic performance of the organization (as indicated by revenues, costs, profits, and so forth) and improving its social performance (as indicated by obligations to customers, employees, suppliers, and others). 2. Many ethical trade-offs are conflicts between these two desirable ends economic versus social performance. E. Managerial Guidelines for Ethical Dilemmas. 1. Ethical Dilemma: A situation in which a person must decide whether or not to do something that, although benefiting oneself or the organization, may be considered unethical and perhaps illegal. Note: Refer to the ethical dilemma facing Clay Martin in the Ethics: Take a Stand situation at the end of the text chapter. 2. Utility Approach: A situation in which decisions are based on an evaluation of the overall amount of good that will result. 3. Human Rights Approach: A situation in which decisions are made in light of the moral entitlements of human beings. 4. Justice Approach: A situation in which decisions are based on an equitable, fair, and impartial distribution of benefits and costs among individuals and groups. F. Fostering Improved Business Ethics. 1. Codes of Ethics: Describe the general value system, principles, and specific rules that a company follows. 2. Ethics Training Programs: Training designed to help managers clarify their ethical framework and practice self-discipline when making decisions in difficult circumstances. 3. Whistleblowing: A whistleblower is someone who exposes organizational misconduct or wrongdoing to the public. VI. Implications for Leaders. The challenge to be socially responsible can be met when managers A. Explore ways in which the organization can be more socially responsive. B. Recognize the effect of the organizations actions on its stakeholders. C. Create an environment in which employees commit to behaving in socially responsive and ethical ways. D. Make sure that a code of ethics is put in place and followed.

E. Ensure that whistleblowing and ethical concerns procedures are established for internal problem solving. F. Involve line and staff employees in the identification of ethical issues to help them gain understanding and resolve issues. G. Determine the link between departments and issues affecting the company and make them known to employees in the departments. H. Integrate ethical decision making into the performance appraisal process. I. Publicize, in employee communications and elsewhere, executive priorities and efforts related to ethical issues.

REVIEW QUESTIONS AND SUGGESTED ANSWERS

1. (Learning Objective 1) Describe the stakeholder view of the organization. How does the stakeholder view differ from the stockholder view, and what are the implications of these differences for the concept of corporate social responsibility? How has the globalization of the business environment impacted issues of social responsibility and ethics? The stakeholder view of the organization argues that anyone who is affected by or can affect the activities of a firm has a legitimate stake in the firm. This could include a broad range of constituencies. The stockholder view is much narrower, and only views the stockholders (i.e., owners) of a firm as having a legitimate stake in its activities. The stakeholder view can easily include actions that might be labeled public responsibility and social responsiveness. The stockholder view of the organization would tend to be aligned closer to the economic responsibility view of social responsibility. The globalization of the business environment has had a dramatic impact on issues of social responsibility and ethics. As organizations become involved in the international arena, they often find that their stakeholder base becomes wider and more diverse. As a result, they must cope with social responsibility and ethics related issues across a broad range of cultural and geographic orientations. 2. (Learning Objective 2) Define the concept of corporate social responsibility. What are the two premises advanced by Bowen in his original definition of social responsibility? Corporate social responsibility is the interaction between business and the social environment in which it exists. Bowen argued that corporate social responsibility rests on two premises: social contract, which is an implied set of rights and obligations that are inherent to social policy and assumed by business, and moral agent, which suggests that businesses have an obligation to act honorably and to reflect and enforce values that are consistent with those of society. 3. (Learning Objective 3) Compare and contrast the three perspectives of corporate social responsibility. The three perspectives of corporate social responsibility are economic responsibility, public responsibility, and social responsiveness. The three perspectives represent a continuum of commitment to social responsibility issues, ranging from economic responsibility at the low end and social responsiveness at the high end. The economic responsibility perspective argues that the only social responsibility of business is to maximize profits within the rules of the game. Moreover, the proponents of this viewpoint argue that organizations cannot be moral agents. Only individuals can be moral agents. In contrast, the public responsibility perspective argues that businesses should act in a way that is consistent with societys view of responsible behavior, as well as with established laws and policy. Finally, the proponents of the social responsiveness perspective argue that businesses should proactively seek to contribute to society in a positive way. According to this view, organizations should develop an internal environment that encourages and supports ethical behavior at an individual level. 4. (Learning Objective 4) Evaluate the four different strategies for social responsibility. Describe how these strategies differ, and give an example of a company that has pursued each strategy. The four strategies for social responsibility represent a continuum, with the reaction strategy on one end (i.e., do nothing) and the proaction strategy on the other end (do much). The defense and accommodation strategies are in the middle. (reaction, defense, accommodation, and proaction). Examples of firms that have pursued these strategies are as follows:

 Reaction: Over 40 years ago, the medical department of the Manville Corporation discovered evidence to suggest that asbestos inhalation causes a debilitating and often fatal lung disease. Rather than looking for ways to provide safer working conditions for company employees, the firm chose to conceal the evidence. It appears that tobacco companies have done the same thing. Defense: Over the years, rather than demonstrating social responsiveness in terms of air pollution reductions, vehicle safety, and gas shortages, the automobile companies did little to confront the problems head on. Currently, the high demand for pickup trucks and SUVs encourages the problem to continue. Accommodation: Many financial service companies, along with meeting the minimum requirements of disclosure regulations, maintain a more proactive code for voluntary, on-demand disclosure of bank information requested by customers or by any other member of the public. Proaction: Becton Dickinson & Company is a medical-supply firm that has targeted its charitable contributions to projects it believes will help eliminate unnecessary suffering and death from disease around the world. Similarly, Starbucks makes contributions to literacy programs and was one of the first companies to give health benefits to same sex partners. 5. (Learning Objective 5) What are the 20 commandments of social responsibility? Which perspective of social responsibility (see question 2) is most consistent with these commandments? The 10 Commandments of Social Responsibility are (1) take corrective action before it is required; (2) work with affected constituents to resolve mutual problems; (3) work to establish industry-wide standards and self-regulation; (4) publicly admit your mistakes; (5) get involved in appropriate social programs; (6) help correct environmental problems; (7) monitor the changing social environment; (8) establish and enforce a corporate code of conduct; (9) take needed public stands on social issues; and (10) strive to make profits on an ongoing basis. These commandments most closely represent the social responsiveness perspective of social responsibility. 6. (Learning Objective 6) What are values? Why are they the basis of an individuals ethical behavior? How might values vary across multinational, multicultural environments? Values are the relatively permanent and deeply held preferences of individuals or groups. Values are the basis of an individuals ethical behavior because a persons values govern how he or she approaches situations and resolves dilemmas. The second part of this question is a good thought question for your students. Most students will argue that values can vary substantially across cultures and geographic regions of the world. 7. (Learning Objective 7) Describe how advances in information technology have created new ethical challenges. Recent improvements in information technology have raised new issues with regard to business ethics. From an employee perspective, concerns about information privacy have escalated in recent years, as business organizations and government agencies have gained greater access to private information about individuals. From an organizational perspective, unethical acts by employees are increasing as a result of access to information technology in the workplace. 8. (Learning Objective 8) Describe the utility, human rights, and justice approaches to ethical dilemmas, and explain how they differ.

The utility approach to ethical dilemmas emphasizes the overall amount of good that can be produced by an action or a decision, judging actions by their consequences. The human rights approach emphasizes moral entitlements of humans, which should be respected in all decisions. The justice approach to ethical dilemmas emphasizes consideration of equity, fairness, and impartial distribution of rewards and costs among individuals and groups. These approaches differ by degree of emphasis on maintaining strong ethics (utility approach low and justice approach high). 9. (Learning Objective 9) What is a code of ethics? Describe the different goals an organization can have for developing a code of ethics. A code of ethics is a written document that articulates the ethical principles of a firm. Typically, businesses develop codes of ethics to encourage employees to adhere to specific standards of ethics and to alert all stakeholders of the standards of ethics of the organization. 10. (Learning Objective 10) What are the common approaches used in ethics training programs? Approaches used in ethics programs include case studies (of which there are many excellent cases in the ethics area), presentations of guidelines or rules for resolving ethical dilemmas, and developing checklists (of ethical issues) to aid managers in making critical decisions. 11. (Learning Objective 11) Explain what is meant by whistleblowing. What are the benefits that come from whistleblowing? What are some of the problems that might occur? Whistleblowing occurs when an employee of a firm exposes organizational misconduct or wrongdoing to the public. The benefits of whistleblowing include: (1) stopping a potentially dangerous activity, (2) requiring those responsible for unethical behavior to be accountable for their behavior, and (3) setting a standard for high standards of ethics that will hopefully be followed by others. The problems that might occur include: (1) the employee may encounter reprisals for reporting the wrongdoing, (2) the news media may sensationalize a story, making it sound worse than it actually is, and (3) by going public, a whistleblower may severely damage the reputation of individuals involved in an ethical problem.