Chapter 2
Ethics and Social Responsibility: Doing
the Right Thing
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Ethical Behavior
• Ethical behavior: doing what is “right” as opposed to what
is “wrong.”
– Reflects entrepreneur’s personal values and beliefs
• It is important to consider the perspectives of different
stakeholders: the various groups and individuals who
affect and are affected by a business.
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Figure 2.1 Key Stakeholders
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Ethics and Social Responsibility
• Ethics: a branch of philosophy that studies and creates
theories about the basic nature of right and wrong,
duty,
obligation, and virtue.
• Social responsibility: how an organization responds to
the needs of the many elements in society.
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Business Ethics
• Business ethics: the fundamental moral values and
behavioral standards that form the foundation for the
people of an organization as they make decisions and
interact with stakeholders.
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Figure 2.2 Three Levels of Ethical Standards
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Moral Management (1 of 3)
• IMMORAL MANAGEMENT Immoral managers are motivated by selfish reasons such
as their own gains or those of the company. The driving force behind immoral
management is greed: achieving personal or organizational success at any cost.
Immoral management is the polar opposite of ethical management; immoral managers
do what they can to circumvent laws and moral standards and are not concerned about
the impact their actions have on others.
• AMORAL MANAGEMENT The principal goal of amoral managers is to earn a profit, but
their actions differ from those of immoral managers in one key way: They do not
purposely violate laws or ethical standards. Instead, amoral managers neglect to
consider the impact their decisions have on others; they use free-rein decision making
without reference to ethical standards. Amoral management is not an option for socially
responsible businesses.
• MORAL MANAGEMENT Moral managers also strive for success but only within the
boundaries of legal and ethical standards. Moral managers are not willing to sacrifice
their values and violate ethical standards just to make a profit. Managers who operate
with this philosophy see the law as a minimum standard for ethical behavior.
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Moral Management (1 of 2)
Table 2.1 Approaches to Business Ethics
Organizational
Characteristics Immoral Management Amoral Management Moral Management
Ethical norms Management decisions, Management is neither Management activity
actions, and behavior moral nor immoral; conforms to a standard of
imply a positive and decisions are not based on ethical, or right, behavior.
active opposition to what moral judgments. Management activity
is moral (ethical). Management activity is not conforms to accepted
Decisions are discordant related to any moral code. professional standards of
with accepted ethical A lack of ethical conduct.
principles. perception and moral Ethical leadership is
An active negation of awareness may be commonplace.
what is moral is implicit. implicit.
Motives Selfish. Management Well-intentioned but selfish Good. Management wants
cares only about its or its in the sense that impact on to succeed but only within
company’s gains. others is not considered. the confines of sound
ethical precepts such as
fairness, justice, and due
process.
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Moral Management (2 of 2)
[Table 2.1 Continued]
Organizational
Characteristics Immoral Management Amoral Management Moral Management
Goals Profitability and Profitability. Other Profitability within the
organizational success goals are not confines of legal obedience
at any price. considered. and ethical standards.
Orientation Legal standards are Law is the ethical guide, Obedience toward the letter
toward law barriers that preferably the letter of the and spirit of the law. Law is
management must law. The central question a minimal ethical behavior.
overcome to accomplish is “What we can do Prefer to operate well
what it wants. legally?” above what law mandates.
Strategy Exploit opportunities for Give managers free rein. Live by sound ethical
corporate gain. Cut Personal ethics may apply standards. Assume
corners when it appears but only if managers leadership position when
useful. choose. Respond to legal ethical dilemmas arise.
mandates if caught and Enlightened self-interest.
required to do so.
Source: Archie B. Carroll, “In Search of the Moral Manager,” reprinted from Business Horizons, March/April,
Copyright
1987 by the Foundation for the School of Business at Indiana University. Used with permission.
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Benefits of Moral Management
1. Companies avoid the damaging fallout from unethical
behavior on their reputation.
2. Dealing with stakeholders is much easier if a company
has a solid ethical foundation on which to build.
3. It is easier to attract and retain quality workers.
4. It has a positive impact on a company’s bottom line.
5. It has an impact on a company’s ability to provide
for its value
customers.
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Why be Ethical? (1 of 2)
Top Five Reasons to Run a Business
Ethically:
1. Protect brand and company reputation
2. It is the right thing to do
3. Maintain customers’ trust and loyalty
4. Maintain investors’ confidence
5. Earn public acceptance and recognition
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Why be Ethical? (2 of 2)
Top Five Factors That Drive Ethics:
Business
1. Corporate scandals
2. Marketplace competition
3. Demands by investors
4. Pressure from customers
5. Globalization
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Establishing an Ethical Framework (1 of 2)
Step 1: Identify the personal moral and ethical principles
that
shape all business decisions.
Step 2: Recognize the ethical dimensions involved in the
dilemma or decision.
Step 3: Identify
how the decisionthe
willkey stakeholders
affect them. involved and determine
• Triple bottom line (3BL): measuring business
performance using profitability, commitment to ethics
social responsibility,and
and its impact on the environment
(“profit, people, and planet”).
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Establishing an Ethical Framework (2 of 2)
Step 4: Generate alternative choices and distinguish
between ethical and unethical responses.
Step 5: Choose the “best” ethical response and implement it.
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Causes of Ethical Lapses
• An unethical employee
• An unethical organizational culture
• Moral blindness
• Competitive pressures
• Opportunity pressures
• Globalization of business
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Features of Ethical Cultures (1 of 2)
1. Leaders support and model ethical behavior.
2. Consistent communications come from all company
leaders.
3. Ethics is integrated into the organization’s goals,
business processes, and strategies.
4. Ethics is part of the performance management system.
5. Ethics is part of the company’s selection criteria and
selection process.
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Features of Ethical Cultures (2 of 2)
6. The needs of the various stakeholder are balanced when
making decisions.
7. A strong set of core values supports the vision and
mission of the company.
8. The company maintains a long-term perspective on all
decisions.
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Establishing and Maintaining Ethical
Standards
• Ethical tests for judging behavior:
– The utilitarian principle
– Kant’s categorical imperative
– The professional ethic
– The Golden Rule
– The television test
– The family test
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Maintaining Ethical Standards (1 of 3)
• Set the tone.
• Create a company credo:
– A statement that defines the values underlying the
entire company and its ethical responsibilities to its
stakeholders.
• Establish high standards of behavior.
• Involve employees in establishing ethical standards.
• Create a culture that emphasizes two-way communication.
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Maintaining Ethical Standards (2 of 3)
• Eliminate “undiscussables.”
• Develop a code of ethics:
– A written statement of the standards of and
behavior
ethical principles a company expects from its
employees.
• Enforce the code of ethics through policies.
• Recruit and promote ethical employees.
– Ethical commitment.
– Ethical consciousness.
– Ethical competency.
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Maintaining Ethical Standards (3 of 3)
• Conduct ethics training.
• Reward ethical conduct.
• Separate related job duties.
• Perform periodic ethical audits.
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Social Entrepreneurship
• Social entrepreneurs:
– Seek solutions for social problems that are met by
neither the market nor the government.
– Focus on creating social benefit rather than
commercial success.
– Tackle social problems by taking full advantage of
natural market forces.
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Social Responsibility
• Companies must go beyond “doing well” – simply earning
a profit – to “doing good” – living up to their social
responsibility.
• Surveys show:
– 55% of small businesses’ mission statements include
references to achieving social goals.
– 52% of small business owners give to charity.
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Being Socially Responsible
• Encourage recycling.
• Support local fundraisers.
• Join in community service.
• Reduce energy usage.
• Create a grant program.
• Support local causes.
• Partner with local school.
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Business’s Responsibility to the Environment
• Socially responsible business owners focus on the three
Rs:
1. Reduce the amount of energy and materials used in
your company.
2. Reuse whatever you can.
3. Recycle the materials you must dispose of.
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Business’s Responsibility to Employees
• Recognize the value of employees:
– Listen to them and respect their opinions.
– Ask for their input and involve them in the
decision-
– making process.
– Provide regular feedback – positive and negative.
– Tell them the truth – always.
– Let them know exactly what’s expected of them.
– Reward them for performing their jobs well.
Trust them – create an environment of respect and
teamwork.
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Drug Testing
• An effective, proactive drug program should include:
– A written substance abuse policy.
– Training for supervisors to detect substance-abusing
workers.
– An employee education program.
– A drug-testing program, when
– An employee assistance necessary.
program (EAP):
▪ A company-provided benefit designed to help
reduce workplace problems such as alcoholism,
drug addiction, a gambling habit, and other conflicts
and to deal with them when they arise.
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Sexual Harassment
• Sexual harassment: any unwelcome sexual advance,
request for sexual favors, and other verbal or physical
sexual conduct made explicitly or implicitly as a condition
of employment.
• Small businesses are especially vulnerable because they
lack the policies, procedures, and training to prevent it.
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What is Sexual Harassment?
• Behaviors that can result in sexual harassment charges:
– Quid pro quo harassment
– Hostile environment
– Harassment by nonemployees
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Preventing Sexual Harassment
• Education:
– Training programs can raise of what
awareness
constitutes harassment.
•
Policy:
– Implement a meaningful and enforceable policy against
harassment.
• Procedure:
– Provide a channel for employees to express their
complaints.
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Privacy
• Business owners should:
– Establish a clear policy for monitoring employees’
communications.
– Create guidelines for the proper use of the
company’s
communication technology and communicate them to
everyone.
– Monitor in moderation.
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Business’s Responsibility to Customers
• Businesses should build long-term relationships with their
customers.
• Abide by the Consumer Bill of Rights.
– Right to safety.
– Right to know.
– Right to be heard.
– Right to education.
– Right to choice.
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Business’s Responsibility to Investors
• Businesses have a responsibility to:
– Provide investors with an attractive return on their
investment.
– Meet ethical and social goals.
– Report their financial performance in an accurate and
timely fashion to their investors.
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Business’s Responsibility to the Community
• Businesses have a responsibility to:
– Provide jobs and create wealth.
– Contribute to the community in other
ways.
▪ Act as volunteers for community groups.
▪ Participate in projects to help the elderly or
▪ poor. a highway to promote a clean community.
Adopt
▪ Volunteer in school programs.
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