Transcript Ethics and Social Responsibility

CHAPTER 3
Ethics & Social
Responsibility
STRATEGIC MANAGEMENT & BUSINESS POLICY
10TH EDITION
THOMAS L. WHEELEN
Prentice Hall, Inc. © 2006
J. DAVID HUNGER
3-1
Corporate Governance
Broader responsibility --
Private corporations have responsibility to
society that extend beyond making a profit
Prentice Hall, Inc. © 2006
3-2
Social Responsibility
Milton Friedman
There is one and only one social responsibility of
business—to use its resources and engage in
activities designed to increase its profits so long
as it stays within the rules of the game, which is
to say, engages in open and free competition
without deception or fraud.
Corporate Social Responsibility –
“fundamentally a subversive doctrine”
Prentice Hall, Inc. © 2006
3-3
Corporate Governance
Carroll’s 4 Responsibilities
–Economic –
produce goods and services of value to society
repay creditors and shareholders
–Legal
defined by government laws
–Ethical
follow the generally held beliefs of about behavior in
society
–Discretionary
purely voluntary obligations that a corporation assumes
Prentice Hall, Inc. © 2006
3-4
Carroll’s 4 Responsibilities
in order of priority
Why be socially responsible?
•Avoid Governmental intervention
•Build “social capital”
Prentice Hall, Inc. © 2006
3-5
Corporate Stakeholders
Stakeholders versus Stockholders
Corporate Stakeholders
Affect or are affected by the
achievement of the corporation’s
objectives
Prentice Hall, Inc. © 2006
3-6
Corporate Stakeholders
Stakeholder Analysis –
1. Primary stakeholder (economic)
Sufficient bargaining power to affect outcomes
2. Secondary stakeholder (legal, ethical, discretionary)
Indirect stake but are affected by corporation’s actions
3. Estimate the impact on each group
Stakeholder Input - Determine whether input is necessary
Prentice Hall, Inc. © 2006
3-7
Ethical Behavior
“business ethics”
–Real or Fiction???
Prentice Hall, Inc. © 2006
3-8
Ethical Decision Making
Corporate practices -–Massive write-downs and restatements of profit
–Misclassification of expenses as capital
expenditures
–Pirating corporate assets for personal gain
Recent Survey Results -–70% distrust business executives
–Enron – investor trust?
–WorldCom – Weekend at Bernie’s
Prentice Hall, Inc. © 2006
3-9
Ethical Decision Making
Stock Purchase Loans
Shares @ $10/sh.
Buy
Margin/Borrow
100
100
200
$1000
$1000
$2000
$100
$200 (20% ROI=200/1000)
100
100
200
$2000
$2000
$4000
Dividend $1/sh.
$100
Sale @ $20/sh.
-$1000 loan
$3000 (300% ROI=3000/1000)
ROI = 2100/1000 = 210%
Prentice Hall, Inc. © 2006
ROI = 3200/1000 = 320%
+110%
3-10
Reasons for Unethical Behavior
Provocative Question -Why are businesspeople perceived to be acting
unethically?
Perceptions caused by --
–Not aware of impropriety
–Cultural norms and values vary
–Differences in values between businesspeople and
key stakeholders
–Governance systems based on rule or relationships
Prentice Hall, Inc. © 2006
3-11
Reasons for Unethical Behavior
Opacity Index (Kurtzman Group)
Measures risk associated with business
transparency
Relationship-based governance
versus
Rule-based governance
Prentice Hall, Inc. © 2006
3-12
Reasons for Unethical Behavior
Allport-Vernon-Lindzey Study of Values -–Aesthetic
–Economic
–Political
–Religious
–Social
–Theoretical
Prentice Hall, Inc. © 2006
Highest Rated
Lowest Rated
3-13
Reasons for Unethical Behavior
Most common reasons for bending rules --
–Organizational performance required it
–Ambiguous or out of date rules
–Pressure from others – everyone else does it
“82% of firms meet or exceed by 1% the Analyst
expectation for profit”
•Just lucky?
•Great planning?
•Other…
“frogs in boiling water”
Prentice Hall, Inc. © 2006
3-14
Moral Relativism
Moral Relativism
Morality is relative to some personal, social, or
cultural standard and there is no method for
deciding whether one decision is better than
another.
“everything may be moral in the right context”
Prentice Hall, Inc. © 2006
3-15
Kohlberg’s Levels of Moral Development
1. Preconventional level
– Characterized by a concern for self
•Personal interest (Child)
•Avoidance of punishment
2. Conventional level
–
Characterized consideration of society’s values
•External code of conduct
3. Principled level
–
Characterized by adherence to internal moral code
•Universal values or principles
Prentice Hall, Inc. © 2006
3-16
Kohlberg’s Levels of Moral Development
Principled
20% of Adults
Conventional
Most of us are here…
Preconventional
Prentice Hall, Inc. © 2006
3-17
Encouraging Ethical Behavior
Codes of Ethics
–Clarify the company expectations
–Recognize the ethical dimension in decision
making and actions
Prentice Hall, Inc. © 2006
3-18
Encouraging Ethical Behavior
Guidelines for Ethical Behavior
–Ethics
consensually accepted standards of behavior
for an occupation, trade or profession
–Morality
the precepts of personal behavior based on
religious or philosophical grounds
–Law
Formal codes that permit or forbid behaviors
(may or may not enforce ethics or morality)
Prentice Hall, Inc. © 2006
3-19
Encouraging Ethical Behavior
Approaches to Ethical Behavior
–Utilitarian
•Judged by consequences
•CEO values – power, legitimacy, urgency
–Individual Rights
•Fundamental rights in all decisions
•What are ”fundamental rights”?
–Justice
•Distributive Justice and Fairness
•Retributive Justice
•Compensatory Justice
Prentice Hall, Inc. © 2006
3-20
Encouraging Ethical Behavior
Approaches to Ethical Behavior
–Cavanaugh’s three questions
1. Utility: does it maximize satisfaction for all.
2. Rights: respects the rights of all.
3. Justice: is consistent with the canons of justice
–Categorical imperative
1. Action is acceptable for anyone in the same position.
2. Never treat others as a means to an end.
Prentice Hall, Inc. © 2006
3-21
Strategy Bits
192 U.S. companies surveyed -–92% monitored employees use of e-mail/Internet
–26% monitored employees electronic activities all
the time
–Almost none had checks in place to protect
employees privacy
Prentice Hall, Inc. © 2006
3-22
CHAPTER 3
Ethics & Social
Responsibility
STRATEGIC MANAGEMENT & BUSINESS POLICY
10TH EDITION
THOMAS L. WHEELEN
Prentice Hall, Inc. © 2006
J. DAVID HUNGER
3-23