Management, 14e

Chapter 5: Managing Ethics and Social

Responsibility

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 Icebreaker
What would you do?
• Reflect on the above statement, either individually or pairing up with another
student. Then consider how you would react in the following situations:
− Your roommate asks you to tell a friend that you were both studying in your
room last night but, actually, your roommate was out drinking with other
friends.
− Someone left an Under Armour sweatshirt in a lecture hall, and no one is
likely to notice if you take it back to your room with you.
− The cashier only charged you for two of the three items you
put on the counter.

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 Learning Objectives (1 of 2)

• By the end of this chapter you should be able to:

1. Describe how ethical behavior relates to behavior governed by

law or free choice.
2. Explain the utilitarian, individualism, moral rights, justice, and
practical approaches for making ethical decisions.
3. Identify various factors that shape a manager’s ethical
decision making, including levels of moral development.

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 Learning Objectives (2 of 2)

• By the end of this chapter you should be able to:

4. Describe how the new purpose of a corporation as defined by

the Business Roundtable differs from the previously defined
corporate purpose.
5. Discuss how managers can create a more ethical organization
using techniques from both a values approach and a structure
approach.

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 Managerial Ethics
(LO 1)

• Ethics: code of moral principles and values that governs the behaviors of a
person or group with respect to what is right or wrong
• Three categories of behavior
− Codified law: values and standards written into the legal system and
enforceable in the courts
− Free choice: behavior not covered by law and for which an individual has
complete freedom
− Ethics: standards of conduct based on shared principles and values about
moral conduct

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5.1 Three Domains of Human Action
(LO 1)

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 Ethical Management Today
(LO 1)

• Ethical lapses have been pervasive

• Unethical behavior has many causes
− Personal ego
− Greed
− Pressure to increase profit
− Desire to appear successful
• Managers carry a big responsibility for setting an ethical climate

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5.2 Four Types of Ethical Manager Behavior
(LO 1)

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 The Business Case for Ethics
and Social Responsibility (LO 1)
• Studies have found a positive relationship between ethical and socially
responsible behavior and a firm’s financial performance
• People prefer to work for ethical companies
• Majority of customers would switch brands to do business with a company
that is ethical and socially responsible

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 Ethical Dilemmas
(LO 1)

• Ethical dilemma: situation concerning right or wrong when values are in conflict
• Right and wrong cannot be clearly defined
• Ethical issues can be especially complex
• Moral agent: the individual who must make an ethical choice in an organization

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 Polling Activity 1

Which of the following situations do you see as most unethical?

a. You know a team member is moving in a month and leaving the
company. You allow her to do a significant amount of the team’s work
on a client’s project before she leaves and then take credit for the
project results after she leaves.
b. You were a day late getting a project done because you
procrastinated, but you tell your overly demanding manager that you
didn’t get necessary information on time.
c. You are a doctor with a patient whose medication isn’t working. You
have several treatment options that vary in cost. You give him
samples for the most expensive option.

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 Frameworks for Ethical Decision Making (1 of 3)
(LO 2)

• Utilitarian approach: moral behavior produces the greatest good for the
greatest number
• Individualism approach: acts are moral if they promote the individual’s best
long-term interests
• Moral-rights approach: humans have fundamental rights and liberties that
cannot be taken away by an individual’s decision

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 Frameworks for Ethical Decision Making (2 of 3)
(LO 2)

• Justice approach: moral decisions must be based on standards of equity,

fairness, and impartiality
− Distributive justice: different treatment of people cannot be based on
arbitrary characteristics
− Procedural justice: rules must be administered fairly
− Compensatory justice: individuals should be compensated for the cost of
their injuries by the party responsible

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 Knowledge Check 1

A coworker’s spouse is setting up a home business. You see the coworker, who
is also a friend, taking office supplies such as paper and copier ink from your
company’s supply room. It’s not much, but clearly against company rules. You
decide to tell your supervisor. What approach have you just taken to resolve this
ethical dilemma?
a. Utilitarian
b. Procedural justice
c. Compensatory justice
d. Individualism

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 Knowledge Check 1: Answer

A coworker’s spouse is setting up a home business. You see the coworker, who
is also a friend, taking office supplies such as paper and copier ink from your
company’s supply room. It’s not much, but clearly against company rules. You
decide to tell your supervisor. What approach have you just taken to resolve this
ethical dilemma?
b. Procedural justice

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 Frameworks for Ethical Decision Making (3 of 3)
(LO 2)

• Practical approach: bases decisions on prevailing standards, society, and all

stakeholders
− Criteria for a decision to be considered ethical
 Acceptable by the professional community
 Manager would not hesitate to publicize decision on the evening news
 Person would typically feel comfortable explaining to family and friends

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 A Manager’s Ethical Choices
(LO 3)

• Individuals bring their own personality and traits to organizations

• Personal needs, family influence, and religious background shape individuals’
value systems
• Personality characteristics such as ego, self-confidence, and independence
may enable managers to make ethical choices in the face of outside
pressures

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5.3 Three Levels of Personal Moral Development
(LO 3)

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 Discussion Activity 1

• Imagine yourself in a situation of being encouraged by colleagues to

inflate your expense account. What factors do you think would
influence your decision?

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 Discussion Activity 1 Debrief

• Imagine yourself in a situation of being encouraged by colleagues to

inflate your expense account. What factors do you think would
influence your decision?
− It is perhaps idealistic to believe that an individual’s moral development
would preclude following a colleague’s lead.
− Most managers have not advanced beyond the conventional level where
one feels that good behavior is living up to what is expected by others
and the social system. Many are still on the preconventional level and
would act in accordance with their own self ‑interests. Persons on both of
these levels would probably go ahead and inflate their expense accounts.
Only persons on the principled level would resist the pressure and not
inflate the expense account if they felt it was ethically wrong.
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 Giving Versus Taking
(LO 3)

• Servant leadership: managers focus on needs of followers and encourage

others to think for themselves
• Giving cultures, in which people help one another, lead to greater sharing of
information, collaboration, and effectiveness
− Harvard study showed the single biggest predictor of a team’s
effectiveness was the amount of help and support members gave one
another

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What Is Corporate Social Responsibility (CSR)?
(LO 4)

• Corporate social responsibility (CSR): management’s obligation to make

choices and take actions that will contribute to the welfare and interests of
society, not just the organization
• Stakeholder: any person or group within or outside the organization that has an
investment or interest in the organization’s performance
• Stakeholder mapping: a systematic way to identify the expectations, needs,
importance, and power of stakeholders

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5.4 The New Purpose of a Corporation Is to
Serve Multiple Stakeholders (LO 4)

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 CSR

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©2022 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25
 CSR

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 Knowledge Check 2

As a manager, you just completed an assessment of needs, expectations, and

priorities among your company’s customers, suppliers, and employees to give you
a framework for considering certain decisions in the future. What is this
assessment called?
a. Triple bottom line
b. Greenwashing
c. Ethical leadership
d. Stakeholder mapping

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 Knowledge Check 2: Answer

As a manager, you just completed an assessment of needs, expectations, and

priorities among your company’s customers, suppliers, and employees to give you
a framework for considering certain decisions in the future. What is this
assessment called?
d. Stakeholder mapping

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 The Green Movement
(LO 4)

• Driving forces in efforts to preserve the environment

− Shift in social attitudes
− Influence of social media and the Internet
• Greenwashing: company tries to portray itself as more environmentally
minded than it actually is

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 Sustainability and the Triple Bottom Line
(LO 4)

• Sustainability: ability to generate wealth with environmental responsibility and

social stewardship, thereby meeting the current and future needs of
stakeholders while preserving the environment and society
− Addresses environmental and social concerns in every strategic decision
• Triple bottom line: measurement of an organization’s social performance, its
environmental performance, and its financial performance
− Sometimes called the three Ps: people, planet, and profit

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5.5 Sustainability and the Triple Bottom Line
(LO 4)

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 Benefit Corporations and B Lab
(LO 4)

• Benefit corporation: a for-profit organization whose stated purpose includes

− Creating a material positive impact on society
− Requiring the consideration of the impact of all decisions on shareholders,
employees, the community, and the environment
− Voluntarily holding itself to high standards of accountability and transparency
• B Lab is a nonprofit organization that certifies businesses as B corporations

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5.6 Building an Ethical Organization
(LO 5)

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 Values-Oriented Approach
(LO 5)

• A values-oriented approach directly targets individuals’ internal desire to be

ethical
• Ethical leadership: means that managers are models of honesty and
trustworthiness, are fair in their dealings with employees and customers, and
behave ethically in both their personal and professional lives

Volunteerism: actively giving time and skills to a volunteer or charitable

organization

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 Code of Ethics
(LO 5)

• Code of ethics: a formal statement of a company’s values concerning ethics

and social issues
− Principle-based statements define fundamental values, company
responsibilities, quality of products, and treatment of employees
− Policy-based statements outline the procedures to be used in specific
ethical situations

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 Discussion Activity 2

• Which do you think would be more effective for shaping long-term ethical
behavior in an organization: a written code of ethics combined with ethics
training or strong ethical leadership? Which would have more impact on you?
Why?

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 Discussion Activity 2 Debrief
• Which do you think would be more effective for shaping long-term ethical
behavior in an organization: a written code of ethics combined with ethics
training or strong ethical leadership? Which would have more impact on
you? Why?
− Codes of ethics and ethics training are important within an organization;
however, creating an ethical culture in an organization requires that ethics be
part of virtually everything a company does.
− Ethics should be emphasized in meetings, during the hiring process,
orientation, and socialization processes, and at all significant ceremonial
events. That will only happen with strong ethical leadership.
− The bottom line is that employees will do what their managers do, so
managers must consistently and continuously demonstrate that ethical
behavior is important.
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 Ethical Structure
(LO 5)

• Ethical structures represent the systems, positions, and programs a company

can undertake to implement ethical behavior
• Ethics committee: group of executives appointed to oversee the organization’s
ethics by ruling on questionable issues and disciplining violators
• Chief ethics officer: a company executive who oversees all aspects of ethics
and legal compliance
− Includes ethics training to directly communicate the organization’s ethical
practices and policies

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 Whistle-Blowing
(LO 5)

• Whistle-blowing: employee disclosure of illegal, unethical, or illegitimate

practices on the employer’s part
• Company actions to make whistle-blowing an effective ethical safeguard
− View whistle-blowing as a benefit to the company
− Make dedicated efforts to protect whistle-blowers

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 Polling Activity 2

You discover that one of your employees has alerted the Federal Trade
Commission about a company executive who has been sharing insider
information about the company with an investment firm. What is your next
move?

a. Reinforce the whistle-blower’s actions to others in the company as a

way to safeguard the company’s ethical reputation
b. Talk with HR to ensure that the whistle-blower’s identity is protected
c. Say nothing to avoid putting yourself on the FTC’s radar
d. Review the company’s code of ethics with all your subordinates

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 Summary (1 of 2)

• Now that the lesson has ended, you should have learned how to:

1. Describe how ethical behavior relates to behavior governed by law

or free choice.
2. Explain the utilitarian, individualism, moral rights, justice, and
practical approaches for making ethical decisions.
3. Identify various factors that shape a manager’s ethical decision
making, including levels of moral development.

©2022 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 41
 Summary (2 of 2)

• Now that the lesson has ended, you should have learned how to:

4. Describe how the new purpose of a corporation as defined by the

Business Roundtable differs from the previously defined corporate
purpose.
5. Discuss how managers can create a more ethical organization using
techniques from both a values approach and a structure approach.

©2022 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 42