( An IACBE Accredited Institution )

Foundation Course
Principles of Management
Post Graduate Programme (2008 – 10)
(PGP)

Alliance Business School

Bangalore
 Chapter 3
Social
Responsibilities and
Managerial Ethics

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 1.1

Learning
Objectives
After reading this chapter, you should be able to:
o Explain social responsibility.

o State the importance of ethics for employees and

organizations
o Explain how the concerns of stakeholders influence
managers’ ethical decisions
o Describe how individuals and organizations can contribute
to improving ethical conduct at work.

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What Is Social
Responsibility?
Classical View
o Management’s only social responsibility is to
maximize profits (create a financial return) by
operating the business in the best interests of the
stockholders (owners of the corporation).

o Expending the firm’s resources on doing “social

good” unjustifiably increases costs that lower profits
to the owners and raises prices to consumers.

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What Is Social
Responsibility? (Contd.)
Socio-economic View
o Management’s social responsibility goes beyond
making profits to include protecting and improving
society’s welfare.
o Corporations are not independent entities responsible
only to stockholders.
o Firms have a moral responsibility to larger society to
become involved in social, legal, and political issues.

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To Whom is Management
Responsible?

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Arguments For and Against
Social Responsibility
For Against
o Public expectations o Violation of profit
o Long-run profits maximization
o Ethical obligation o Dilution of purpose
o Public image o Excessive Costs
o Better environment o Weakened international BOP
o Discouragement of further o Too much power
governmental regulation o Lack of skills
o Balance of responsibility and power o Lack of accountability
o Stockholder interests
o Possession of resources
o Superiority of prevention over cure

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From Obligation to
Responsiveness to
Responsibility
Social Obligation
o The obligation of a business to meet its economic and legal
responsibilities and nothing more.

Social Responsiveness
o The capacity of a firm to adapt to changing societal
conditions through the practical decisions of its managers in
responding to important social needs.

Social Responsibility
o A firm’s obligations as a moral agent extends beyond its
legal and economic obligations, to the pursuit of long-term
goals that are good for society.
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 Does Social Responsibility
Pay?
o Studies appear to show a positive relationship
between social involvement and the economic
performance of firms.
o Difficulties in defining and measuring “social
responsibility” and “economic performance raise
issues of validity and causation in the studies.
o A general conclusion is that a firm’s social actions
do not harm its long-term performance.

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CSR in Indian IT Sector
o Satyam Infoway (SIFY) – Social service organization
(Alambana) – attempts to help weaker sections of society
through Alambana Vidya Scheme – free IT education for 3
months, full time to young boys & girls and also helps to find
suitable jobs (Food World, DTP, etc.).

o NIIT – provide IT education to the children from

economically weaker sections of society – Bhavishya Jyothi
Scholarship Scheme – last 12 years one lakh students got
benefited. Also created a Computer Assisted Teaching
and Rehabilitation Program (CATERED), specially
designed for spastics and visually challenged children.

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Stakeholders
Stakeholders defined
Any constituencies in the organization’s external
environment that are affected by the organization’s
decisions and actions

Why Manage Stakeholder Relationships?

o It can lead to improved organizational performance.
o It’s the “right” thing to do given the interdependence of the
organization and its external stakeholders.

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 6.4

Stakeholders of the
Organization

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Managing Stakeholder
Relationships
1. Identify the organization’s external
stakeholders.
2. Determine the particular interests and
concerns of the external stakeholders.
3. Decide how critical each external
stakeholder is to the organization.
4. Determine how to manage each individual
external stakeholder relationship.
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 6.5

Stakeholders’ Concerns
Stakeholder Group Examples of Concerns
 Owners and  Financial Soundness
Investors  Consistency in meeting
shareholder expectations
 Sustained profitability
 Average return on assets
over five-year period
 Timely and accurate
disclosure of financial
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information
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 6.6

Stakeholders’ Concerns
(Contd.)
Stakeholder Group Examples of Concerns
 Customers  Product/service quality,
innovativeness, and
availability
 Responsible management of
defective or harmful
products/services
 Safety records for
products/services
 Pricing policies and practices
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 6.7

Stakeholders’ Concerns
(Contd.)
Stakeholder Group Examples of Concerns
 Employees  Nondiscriminatory, merit-
based hiring and promotion
 Diversity of the workforce
 Wage and salary levels and
equitable distribution
 Availability of training and
development
 Workplace safety and privacy
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 6.8

Stakeholders’ Concerns
(Contd.)
Stakeholder Group Examples of Concerns
 Society  Environmental issues
• Environmental sensitivity in
packaging and product
design
• Recycling efforts and use of
recycled materials
• Pollution prevention
• Global application of
environmental standards
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 6.9

Stakeholders’ Concerns
(Contd.)
Stakeholder Group Examples of Concerns
 Society  Community involvement
• Percentage of profits
designated for cash
contributions
• Innovation and creativity in
philanthropic efforts
• Product donations
• Availability of facilities and
other assets for community
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 Managerial Ethics
Ethics Defined
The rules and principles that define right and wrong
conduct.

Four Views of Ethics

o The Utilitarian View
o The Rights View
o The Theory of Justice View
o The Integrative Social Contracts Theory
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 Managerial Ethics
(Contd.)
Utilitarian View
o Ethical decisions are made solely on the basis of their outcomes
or consequences such that the greatest good is provided for
the greatest number.
o Encourages efficiency and productivity and is consistent with
the goal of profit maximization.
Rights View
o Concerned with respecting and protecting individual liberties
and privacy.
o Seeks to protect individual rights of conscience, free speech,
life and safety, and due process.

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 Managerial Ethics
(Contd.)
The Theory of Justice
o Organizational rules are enforced fairly and impartially and
follow all legal rules and regulations.
o Protects the interests of underrepresented stakeholders and
the rights of employee.
Integrative Social Contracts Theory
o Ethical decisions should be based on existing ethical norms in
industries and communities in order to determine what
constitutes right and wrong.
o Based on integration of the general social contract and the
specific contract between community members.

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Factors That Affect
Employee Ethics
Moral Development – A measure of independence
from outside influences
Levels of Individual Moral Development
o Pre-conventional level
o Conventional level
o Principled level
Stage of moral development interacts with:
o Individual characteristics
o The organization’s structural design
o The organization’s culture
o The intensity of the ethical issue

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Stages of Moral
Development

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Factors That Affect Ethical and
Unethical Behavior

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Code of Ethics

A formal statement of an organization’s

primary values and the ethical rules it
expects its employees to follow.
o Be a dependable organizational citizen
o Don’t do anything unlawful or improper that
will harm the organization
o Be good to customers

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 Effective Use of a Code
of Ethics
o Develop a code of ethics as a guide in handling
ethical dilemmas in decision making.
o Communicate the code regularly to all employees.
o Have all levels of management continually
reaffirm the importance of the ethics code and the
organization’s commitment to the code.
o Publicly reprimand and consistently discipline
those who break the code.

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 How Managers Can
Improve Ethical Behavior
in An Organization
1. Hire individuals with high ethical standards.
2. Establish codes of ethics and 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 ethical dilemmas.

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The Value of Ethics
Training
o Training in ethical problem solving can make a
difference in ethical behaviors.
o Training in ethics increase employee awareness of
ethical issues in business decisions.
o Ethics training clarifies and reinforces the
organization’s standards of conduct.
o Employees become more confident that they will
have the organization’s support when taking
unpopular but ethically correct stances.

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 Ethical Leadership
Managers must provide a good role model by:
o Being ethical and honest at all times.
o Telling the truth; don’t hide or manipulate information.
o Admitting failure and not trying to cover it up.
o Communicating shared ethical values to employees through
symbols, stories, and slogans.
o Rewarding employees who behave ethically and punish those
who do not.
o Protecting employees who bring to light unethical behaviors or
raise ethical issues.

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 ?
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