Transcript Slide 1

Responsibilities of a Business Firm
Social Responsibility: proposes that a private
corporation has responsibilities to society that extend
beyond making a profit
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Responsibilities of a Business Firm
Friedman’s traditional view of a business firm:
• Argues against the concept of social
– Primary goal of business is profit maximization not
spending shareholder money for the general social
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Responsibilities of a Business Firm
Carroll’s four responsibilities of business: (in order
of priority)
• Economic
• Legal
• Ethical
• Discretionary
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Carroll’s four responsibilities of business:
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Responsibilities of a Business Firm
Social capital refers to the goodwill of key stakeholders
and provides a company with:
• The ability to enter local and
international markets
• Enhanced reputation
• Competitive advantage
• Cost savings
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• The ability to charge premium
• Improved relationships with
suppliers and distributors
• The ability to attract better
• Goodwill in the eyes of public
• Access to capital
Responsibilities of a Business Firm
Characteristics of Sustainability
It is impossible to address the sustainability of the natural
environment without considering the social and the economic
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Corporate Stakeholders
Stakeholders have an interest in the business and affect
or are affected by the achievement of the firm’s
Enterprise strategy- articulates the firm’s ethical
relationship with its stakeholders
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Stakeholder Analysis- the identification of corporate
stakeholders in 3 steps:
1. Primary stakeholders
(customers, employees, suppliers,
have a direct connection with
the corporation and have sufficient bargaining power
to directly affect corporate activities
shareholders and creditors)
2. Secondary stakeholders (NGO, local communities, trade
have an indirect stake
in the corporation but are also affected by corporate
association, competitors, government)
3. Estimate the effect on each stakeholder from a
particular strategic decision
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Reasons for Unethical Behavior
Provocative Question -–Why are businesspeople perceived to be
acting unethically?
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Reasons for Unethical Behavior
Unaware that behavior is questionable
Lack of standards of conduct
Different cultural norms and values
Behavior-based or relationship-based governance
Different values between business people and
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Moral Relativism claims that morality is relative to some
personal, social, or cultural standard and that there is
not a method for deciding whether one decision is
better than another
A person’s ethical behavior is affected by his or
her level of moral development, certain personality
variables, organization culture.
Moral Revitalization could enable a person to
justify almost any sort of decision or action, so
long as it is not declared illegal.
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Types of Moral Relativism include:
Naïve relativism
Role relativism
Social group relativism
Cultural relativism
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Kohlberg’s Levels of Moral Development
Kohlberg proposes that a person progress through
three level of development and move from selfcenteredness to a concern of universal values.
This is similar to Marslow’s hierarchy of needs
Preconventional level: concern for one’s self
Conventional level: considerations for society’s laws
Principled level: guided by an internal code of ethics
and norms
Most people in the conventional level with fewer than 20% of
the U.S. adults in the principled level.
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Encouraging Ethical Behavior
Code of Ethics- specifies how an organization
Whistleblowers- employees who report illegal or
expects its employees to behave while on the job
unethical behavior on the part of others
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Key Terms in Ethical Behavior
Ethics- the consensually accepted standards of behavior
for an occupation, trade, or profession
Morality- the precepts of personal behavior based on
religious or philosophical grounds
Law is the formal codes that permit or forbid certain
behaviors and may or may not enforce ethics or
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Approaches to Ethical Behavior
Utilitarian- actions are judged by consequences (People
should behave in a way that produce the greatest
benefit to society and produce the least harm or the
lowest cost)
Individual rights- fundamental rights should be
respected (a particular decision or behavior should be
avoided if it interferes with the rights of others)
Justice- decisions must be equitable, fair and impartial in
the distribution of costs and benefits to individuals or
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Approaches to Ethical Behavior
Cavanagh’s questions to solve ethical problems:
1. Utility- does it optimize the satisfactions of the
2. Rights- Does it respect the rights of the individuals
3. Justice- Is it consistent with the canons of justice?
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Approaches to Ethical Behavior
Kant’s categorical imperatives:
1. Actions are ethical only if the person is willing for the
same action to be taken by everyone who is in a
similar situation “golden rule”
2. Never treat another person simply as a means but
always as an end. This means that an action is morally
wrong for a person if that person uses others merely
as means for advancing his or own interests.
“Means – Ends”
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1. What is the relationship between corporate
governance and social responsibility?
2. What is your opinion of GAP International’s having
a code of conduct for its suppliers? What would
Milton Friedman say? Contrast his view with Archie
Carroll’s view.
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3. Does a company have to act selflessly to be considered
socially responsible? For example, when building a new
plant, a corporation voluntarily invested in additional
equipment that enabled it to reduce its pollution emissions
beyond any current laws. Knowing that it would be very
expensive for its competitors to do the same, the firm
lobbied the government to make pollution regulations
more restrictive on the entire industry.
Is this company socially responsible? Were its managers
acting ethically?
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4. Are the people living in a relationship-based governance
system likely to be unethical in business dealings?
5. Given that people rarely use a company’s code of ethics
to guide their decision making, what good are the codes?
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Basic Concepts of Strategic Management
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Carroll’s Four Responsibilities of
► Economic
responsibilities of a business
organization’s management are to produce goods
and services of value to society so that the firm
may repay its creditors and shareholders.
► Legal
responsibilities are defined by
governments in laws that management is
expected to obey. For example, U.S. business
firms are required to hire and promote people
based on their credentials rather than to
discriminate on non-job-related characteristics
such as race, gender or religion.
Ethical responsibilities of an organization’s
management are to follow the generally held beliefs
about behavior in society. For example, society generally
expects firms to work with the employees and the
community in planning for layoffs, even though no law
may require this. The affected people can get very upset
if an organization’s management fails to act according to
generally prevailing ethical values.
Discretionary responsibilities are the purely
voluntary obligations a corporation assumes. Examples
are philanthropic contributions, and providing day-care
centers. The difference between ethical and
discretionary responsibilities is that few people expect an
organization to fulfill discretionary responsibilities,
whereas many expect an organization to fulfill ethical
Examples of benefits received from
being socially responsible are:
► Their
environmental concerns may enable them to
charge premium prices and gain brand loyalty (for
example, Ben & Jerry’s Ice Cream)
► Their trustworthiness may help them generate
enduring relationships with suppliers and
distributors without requiring them to spend a lot
of time and money policing contracts (for
example, Maytag)
► They can attract outstanding employees who
prefer working for a responsible firm (for example,
Procter & Gamble)
► They
are more likely to be welcomed into a
foreign country (for example, Levi Strauss)
► They can utilize the goodwill of public officials
for support in difficult times. (For example,
Minnesota supported Dayton Hudson’s (now
Target) fight to avoid being acquired by Dart
Industries of Maryland)
► They are more likely to attract capital infusions
from investors who view reputable companies as
desirable long-term investments (for example,
Moral Relativism
Naïve relativism : Based on the belief that all moral
decisions are deeply personal and that individuals have the
right to run their own lives, adherents of moral relativism
argue that each persons should be allowed to interpret
situations and act on his or her own moral values. This is
not so much a belief as it is an excuse for not having a
belief or a common excuse for not taking action when
observing other lying or cheating.
Role relativism : Based on the belief that social roles
carry with them certain obligations to that role, adherent of
role relativism argue that manager in charge of a work unit
must put aside his or her personal belief and do instead
what the role requires, that is , act in the best interests of
the unit.
Moral Relativism (cont.)
Social group : Based on a belief that morality simply a
matter of following the norms of an individual’s peer group,
social group relativism argues that a decision is considered
legitimate if it is common practice, regardless of other
consideration (“everyone’s doing it”). A real danger in
embracing this view is that the person may incorrectly
belief that a certain action is commonly accepted practice
in an industry when it is not.
Cultural relativism : Based on the belief that morality is
relative to particular culture, society, community,
adherents of relativism argue that people should
understand the practices of other societies, but not judge
them. (“When in Rome, do as the Romans do”)
Marslow’s hierarchy of Needs