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publishing as Prentice Hall

CHAPTER 3
Corporate Social Responsibility, Ethics, and Sustainability
CHAPTER OUTLINE
I.

FUNDAMENTALS OF SOCIAL RESPONSIBILITY

A.
B.
C.

D.

E.

Corporate social responsibility is the managerial obligation to protect and improve

the welfare of society as a whole as well as organizational interests.
The amount of attention given to social responsibility by both management and
society has increased in recent years and probably will continue to increase in the
future.
Areas of Corporate Social Responsibility: Going Green
1. Among the most publicized are urban affairs, consumer affairs, community
volunteerism, environmental affairs, and employment practices affairs.
2. Area of ecology conservation, or going green is receiving most recent
attention
3. An international effort sponsored by the United Nations to get large companies
to start thinking seriously about ecosystems and how to maintain them, is
underway.
Varying Opinions on Social Responsibility
1. Arguments FOR Business Performing Social Responsibility Activities
a. The best known argument uses the premise that business as a whole is a
subset of society as a whole and exerts a significant impact on the way in
which society exists; as such, business has the responsibility to help maintain
and improve the overall welfare of society.
b. Another argument is that profitability and growth go hand in hand with
responsible treatment of employees, customers, and the community.
2. Arguments AGAINST Business Performing Social Responsibility Activities
a. The best known argument is made by Milton Friedman, who argues that to
make business managers simultaneously responsible to business owners for
reaching profit objectives and to society for enhancing societal welfare
represents a conflict of interest that can potentially cause the demise of
business as it is known today.
b. Friedman also argues that to require business managers to pursue socially
responsible objectives may in fact be unethical, since it requires managers to
spend money that rightfully belongs to other individuals.
Conclusions About the Performance of Social Responsibility Activities by Businesses
1. There is general agreement that businesses should make a concerted effort to:
a. Perform all legally required social responsibility activities.
b. Consider voluntarily performing socially responsible activities beyond those
legally required.
c. Inform all relevant individuals of the extent which their organization will
become involved in performing socially responsible activities.
2. Performing Required Socially Responsible Activities
a. Federal regulations require businesses to perform certain socially
responsible activities.
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3. Voluntarily Performing Socially Responsible Activities

a. Performing socially responsible activities as required by law is the minimum
standard, but managers need to go beyond the minimum in order to
experience positive outcomes.
4. Communicating the Degree of Social Responsibility
a. Even though the amount of involvement is subjective, managers should
determine their position with respect to involvement and support of
societal positions.
II.

SOCIAL RESPONSIVENESS
A.
B.

C.

D.

Social responsiveness is the degree of effectiveness and efficiency an organization

displays in pursuing its social responsibilities.
Determining if a Social Responsibility Exists
1. Managers must determine specific social obligations implied by their business
situation. Management has an obligation to its stakeholders to be socially
responsible.
Social Responsiveness and Decision Making
1. Socially responsive organizations are both effective and efficient in meeting
their social responsibilities and they do not waste organizational resources in the
process.
2. Figure 3.1 is a flowchart providing managers with a general guideline for making
socially responsible decisions that enhance an organizations social
responsiveness.
Approaches to Meeting Social Responsibilities
1. According to Lipton, a desirable and highly socially responsive approach to
meeting social obligations:
a. Incorporates social goals into the annual planning process.
b. Seeks comparative industry norms for social programs.
c. Presents reports to organization members, the board of directors, and
stockholders on social responsibility progress..
d. Experiments with different approaches for measuring social
performance.
e. Attempts to measure the cost of social programs, as well as the return on
social program investments.

III. MODERN SOCIAL RESPONSIBILITY CHALLENGES

A.

B.

Social Audit Challenge

1. A social audit is the process of taking measurements of social responsibility in
organizational performance.
2. The basic steps are monitoring, measuring and appraising all aspects of an
organization's social responsibility performance.
3. Areas of measurement includes environmental area, community area,
responsible-buying area and wellness area.
Defining sustainability

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C.

D.

E.

F.

1. Sustainability is the degree to which a person or entity can meet its present needs
without compromising the ability of other people or entities to meet their needs
in the future.
Defining Sustainable Organizations
1. A sustainable organization is an organization that has the ability to meet its
present needs without compromising the ability of future generations to meet
their needs.
2. The three sustainability gauges are called the triple bottom-line:
a. the economy (not overproducing goods, fair profit for stakeholder)
b. the environment (protect natural resources)
c. the society (maintain wellbeing and protection of communities)
Why sustainability?
1. Increased profit
2. Increased productivity
3. Increased innovation
Steps for achieving sustainability
1. Managers can take the following steps to build a sustainable organization:
a. Setting sustainability goals
b. Hiring organization members who can help the organization become more
sustainable
c. Rewarding employees who contribute to an organizations sustainability goals
d. Tracking progress in reaching sustainability goals
Philanthropy Challenge
1. Promote welfare of others through generous monetary donations to social causes
like arts, education, world peace and disaster relief.
2. Managers should strive to make donations to societal areas that will afford the
organization a competitive edge

IV. MANAGERS AND ETHICS

A.

B.

Definition of Ethics
1. Ethics, in business, is the capacity to reflect on values in the corporate decisionmaking process, to determine how these values and decisions affect the various
stakeholders, and to establish how managers can use these observations in dayto-day company management.
Why Ethics is a Vital Part of Management Practices
1. Ethical practices can enhance overall corporate health in the following three
areas:
a. Productivity
i.
Productivity of employees
ii. If management acts ethically towards stakeholders, employees will be
positively affected..
b. Stakeholder Relations
i.
Positive impact on "outside" stakeholders, such as suppliers,
customers, and the general public.
ii. A positive image with respect to social responsibility will attract
customers and vendors.
c. Government Regulation
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i.
ii.

C.

D.

harm for

E.

Minimizing regulation from government agencies.

When companies are believed to be acting unethically the consumer
will ask the government to step in and regulate these companies.
A Code of Ethics
1. A code of ethics is a formal statement that acts as a guide for making decisions
and acting within an organization.
2. Managers should view these codes as tools that must be evaluated and refined
periodically so that they will be comprehensive and usable guidelines for
making ethical business decisions efficiently and effectively.
3. Address issues such as conflict of interest, competitors, privacy of information,
gift giving, political contributions.
Creating an Ethical Workplace
1. Managers can take the following steps to establish an ethical workplace:
a. Create, distribute, and continually improve a companys code of ethics.
b. Create a special office or department with the responsibility of ensuring
ethical practices within the organization.
c. Furnish organization members with appropriate training.
d. Managers can feel confident that a potential action will be considered ethical
by the general public if it is consistent with one or more of the following
standards:
i.
The golden rule
ii. The utilitarian principle
iii. Kant's categorical imperative
iv. The professional ethic
v.
The T.V. test
vi. The legal test
vii. The four-way test
e. Ethical standards guidelines:
i.
Utilitarian:
behavior can generally be considered ethical if it
provides the most good or does the least
the greatest number of people.
ii. Rights Standard: behavior is considered ethical if it respects and
promotes the rights of others.
iii. Virtue Standard: behavior to be ethical if it reflects high moral values
e. Managers can take responsibility for creating and sustaining conditions in
which people are likely to behave ethically, and minimizing conditions in
which people might be tempted to behave unethically.
Following the Law: SarbanesOxley Reform Standards
1. As a result of outrageous management practices discovered at several companies
including Enron, WorldCom, and Tyco that seemed aimed at unjustifiably
maximizing the personal wealth of top managers to the detriment of the wellbeing of other organizational stakeholders.
2. SarbanesOxley Act of 2002 was passed to try to prevent such future deception
in publicly owned companies.
a. This act supported whistle-blowing as a vehicle for both discouraging
deceptive management practices while encouraging ethical management
practices
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b. Whistle-blowing is the act of an employee reporting suspected misconduct

or believed to exist within an organization. A whistle-blower is the
employee who reports the alleged activities.
Essay questions:
1.

How can a manager make social responsibility operational in an organization?

A manager can make social responsibility operational in an organization by doing the following:
a.
b.
c.
2.

Perform all legally required social responsibility activities.

Consider voluntarily performing social responsibility activities beyond those legally
required.
Inform all relevant individuals of the extent to which the organization will become
involved in performing social responsibility activities.

Highlight the issues a manager must address to effectively and efficiently pursue the
organizations social responsiveness.

Managers must determine exactly which social responsibilities an organization should pursue.
They must pursue only those responsibilities which their organizations possess and have a right to
undertake. They should then decide the best way to undertake activities related to meeting this
obligation whether to undertake activities on their own or acquire the help of outsiders with
more expertise in the area.
3. Profit is an important, yet not the sole, criterion of gauging organizational performance.
Discuss this statement in the context of the triple bottom-line.
Managers have historically focused on profit parameters or the bottom line as the primary gauge
for evaluating organizational performance. Managers are now evaluating organizational
performance by examining three sustainable gauges: the economy (inclusive of profit), the
environment, and society. All three sustainability gauges are considered collectively and are
referred to as the triple bottom line.
4. Should managers be ethical without being competitive? Discuss some of the key areas where
ethical business practices improve corporate health.
A manager should not talk about ethics without talking about competitiveness. Companies cannot
be competitive if they are built on cultures based upon dishonesty, and where people stab one
another in the back, take advantage of one another, steal from one another.
Three important areas where ethical business practices improve corporate health are: productivity,
stakeholder relations, and government regulations.
5. What is your personal opinion of the whistle-blowing activities of managers now that you have
studied its implications as presented in this chapter?

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Whistle-blowing is the act of an employee reporting suspected misconduct or corruption which

they believe exists within an organization. Whistle-blowers can make their reports in a different
number of ways, such as reporting suspected organizational wrongdoings to proper legal
authorities or proper management authorities. Students may express their personal opinion on this
issue.