SY BBM IB SM Unit 4

Page 1: Ethical Decision Making

• Topics Covered:

  • Social responsibility and Ethics in Strategic Management

  • Reasons for Unethical Behavior

  • Effects of Unethical Behavior

  • Encouraging Ethical Behavior

  • Cases on Ethical Strategic Management

Page 2: Introduction

• Social Responsibility and Ethics: Help balance economic and social needs in organizations.

• Definitions:

  • Social Responsibility: An ethical framework requiring individuals and organizations to act in the best interests of society and the environment (also known as Corporate Social Responsibility - CSR).

  • Ethics: A set of values and principles guiding company operations (e.g., honesty, integrity, and fairness). Often codified in a company’s code of conduct.

• Strategic Planning: The process of determining how to improve and grow a business. Social responsibility and ethics are vital components.

Page 3: The Intersection of Ethics and Strategic Management

• Role of Ethics in Strategic Management:

  • Ethics is crucial to understanding strategic management—it shapes individual and societal behavior.

• Definition of Ethics: Accepted principles of right or wrong that govern personal conduct, professional behavior, and organizational actions.

Page 4: Business Ethics Defined

• Principles Governing Business Conduct:

  • Business ethics refers to the principles of right and wrong covering business organizations and their personnel.

  • Ethical decisions align with accepted principles, while unethical decisions violate these standards.

• Legal Implications:

  • Many ethical principles are codified into laws, making violations both unethical and illegal.

Page 5: Navigating Ethical Dilemmas

• Complexity of Ethical Decisions:

  • Managers often face ethical dilemmas where choices may seem equally ethical or unethical. This complicates decision-making in the absence of guiding principles.

• Impact on Goodwill and Future:

  • Ethical dilemmas can shape the organization’s reputation and long-term success.

Page 6: Role of Ethics in Organizations

• Difference Between Ordinary and Extraordinary Organizations:

  • Extraordinary organizations adopt ethical practices beyond legal requirements.

• Case Study: Johnson & Johnson:

  • Voluntarily recalled defective products, incurring losses but ultimately strengthening its brand reputation.

Page 7: Case Study: Nike

• Outsourcing Issues:

  • Nike faced backlash over unethical conditions in outsourced production facilities in developing countries.

  • Despite acting within legal boundaries, it suffered reputational damage due to labor practices.

Page 8: Stakeholder Rights

• Rights of Stakeholders:

  • Ethical obligations exist towards various stakeholders:

    • Stockholders: Right to accurate financial information.

    • Customers: Right to informed decisions about products/services.

    • Employees: Rights to safe working conditions and fair treatment.

Page 9: Community and Environmental Responsibilities

• Expectations of Communities:

  • Organizations must protect the environment, develop sustainable practices, and contribute positively to societal development.

Page 10: Considerations for Stakeholders

• Importance of Stakeholder Views:

  • Considering stakeholders' perspectives fosters support for organizational success.

Page 11: Case Study: Tata Motors

• Community Engagement:

  • Tata Motors trained local villagers during its plant shift, enhancing community productivity and benefiting its reputation.

Page 12: Types of Unethical Behaviors

• Self-Dealing:

  • Misusing corporate resources for personal gain.

• Anti-competitive Behavior:

  • Actions harming competitors, such as monopolistic pricing.

Page 13: Information Manipulation

• Example: Satyam Computers:

  • Ramalinga Raju manipulated financial statements, leading to significant legal and reputational repercussions.

Page 14: More Unethical Actions

• Opportunistic Exploitation:

  • Companies may impose unfair contract terms on suppliers.

• Corruption:

  • Illegal activities affecting financial integrity, exemplified by misappropriating investor funds.

Page 15: Collusion and Market Manipulation

• Collusion:

  • Large firms may illegally agree on prices, harming consumer choices.

• Substandard Working Conditions:

  • Paying below legal standards or neglecting workplace safety.

Page 16: Insider Trading

• Definition:

  • Misusing confidential information for personal gain in securities trading.

Page 17: Discrimination and Harassment

• Definitions:

  • Discrimination involves unfair employment practices, while harassment includes unwanted advance or comments.

Page 18: Misleading Communications

• Minor/Moderate Unethical Behaviors:

  • Examples include false advertising and creating unrealistic expectations.

Page 19: Fraudulent Behavior

• Severe Forms:

  • E.g., tax evasion, bribing officials, and fabricating quality reports.

Page 20: Anti-competitive Activity

• Severe Forms:

  • Includes practices like price fixing and bid rigging that harm competition.

Page 21: Withdrawal Behaviors

• Minor/Moderate Unethical Behaviors:

  • Examples include frequent unauthorized breaks and lack of effort.

Page 22: Political Deviance

• Minor/Moderate Unethical Behaviors:

  • Includes favoritism and undermining colleagues for personal advantage.

Page 23: Ostracism in the Workplace

• Minor/Moderate Unethical Behaviors:

  • Includes ignoring or avoiding colleagues.

Page 24: Interpersonal Deviance

• Severe Unethical Behaviors:

  • Making hurtful comments and engaging in workplace bullying.

Page 25: Aggression in the Workplace

• Severe Forms:

  • Includes physical threats and destruction of property.

Page 26: Bullying/Mobbing

• Severe Forms:

  • Consistent humiliation or ridicule of colleagues.

Page 27: Abusive Leadership

• Severe Forms:

  • Includes yelling, intimidation, and encouraging unethical behavior.

Page 28: Substance Abuse in the Workplace

• Minor/Moderate to Severe Behaviors:

  • Using drugs, alcohol affecting productivity, or endangering safety.

Page 29: Causes of Unethical Behavior

• Factors Include:

  • Performance pressure, excessive competition, role conflicts, and a negative company culture.

Page 30: More Causes

• Additional Factors:

  • Dishonesty, career advancement desires, poor leadership examples, and misallocation of resources.

Page 31: Consequences of Unethical Practices

• Consequences Include:

  • Decreased productivity, legal issues, damage to reputation, loss of employee morale, and financial losses.

Page 32: Preventing Unethical Behavior

• Strategies Include:

  • Setting realistic employee goals, creating ethical policies, ongoing training, and fostering open communication.

Page 33: Impacts of Unethical Behavior

• Effects:

  • Increased misconduct, turnover challenges, absenteeism, and dysfunctional behaviors.

Page 34: Dealing with Unethical Behavior

• Approach:

  • Foster ethical practices, set clear policies, and establish a reporting process.

Page 35: Encouraging Ethical Behavior

• Methods Include:

  • Acting ethically, engaging stakeholders, enforcing programs, and maintaining transparency.

Page 36: Defining Social Responsibility

• Concept:

  • Corporate accountability for actions benefiting society, with a focus on both profits and societal impact.

Page 37: Importance of Ethics in Social Responsibility

• Integration:

  • Ethics should guide corporate actions and interactions based on moral principles.

Page 38: Ethical Standards and Government Intervention

• Challenges:

  • Sometimes government intervention is necessary to enforce ethical standards and protect community interests.

Page 39: Business Responsibilities

• Corporate Obligations:

  • Responsibilities extend beyond profit-making to consider greater societal impacts.

Page 40: Friedman’s View on Business Responsibility

• Core Principle:

  • The primary social responsibility of business is profit maximization while operating within legal frameworks.

Page 41: Carroll’s Four Responsibilities

• Types of Responsibilities:

  • Economic, Legal, Ethical, and Discretionary responsibilities impacting societal expectations of businesses.

Page 42: Economic Responsibilities

• Goal of Businesses:

  • To provide valuable goods and services while ensuring creditor repayments and shareholder wealth.

Page 43: Legal Responsibilities

• Framework:

  • Compliance with laws and regulations concerning fair treatment and anti-discrimination.

Page 44: Ethical Responsibilities

• ** society's Expectations:**

  • Businesses should adhere to ethical norms, even when not legally required.

Page 45: Discretionary Responsibilities

• Voluntary Obligations:

  • These include charitable endeavors, community support, and employee welfare programs.

Page 46: Benefits of Corporate Social Responsibility

• Potential Advantages:

  • Brand loyalty, enhanced reputation, talent attraction, and long-term partnerships.

Page 47: Ethical Decision Making Process

• Definition:

  • Choosing options consistent with ethical principles, which helps maintain a fair workplace culture.

Page 48: Ethical Decision-Making Tips

• Guidelines:

  • Consider impact, identify stakeholders, use a formal framework, and seek assistance when necessary.

Page 49: A 7-Step Guide to Ethical Decision-Making

• Steps Include:

  • Define the problem, check facts, identify factors, list options, test options, and make a decision.

Page 50: Reviewing Ethical Decisions

• Post-Decision Considerations:

  • Review all steps to learn from the decision-making process and consider organizational changes to improve future decisions.

Ethical Decision Making

Topics Covered:

• Social Responsibility and Ethics in Strategic Management: Understanding the intersection of social responsibility and ethical practices within the framework of strategic decision-making in organizations.

• Reasons for Unethical Behavior: Analysis of psychological, organizational, and societal factors contributing to unethical practices in businesses.

• Effects of Unethical Behavior: Detailed exploration of the short-term and long-term repercussions of unethical actions on organizational performance, employee morale, and public perception.

• Encouraging Ethical Behavior: Strategies and mechanisms organizations can implement to promote ethical behaviors among employees.

• Cases on Ethical Strategic Management: In-depth discussions of real-world business scenarios illustrating the outcomes of ethical versus unethical practices.

Introduction

• Social Responsibility and Ethics: These two principles help balance economic goals with social needs, reflecting a commitment to societal welfare and environmental stewardship.

  • Social Responsibility: An ethical framework requiring both individuals and organizations to act in the best interests of society and the environment, often encapsulated in the concept of Corporate Social Responsibility (CSR). This involves considerations such as sustainable practices, community engagement, and ethical sourcing.

  • Ethics: A set of values, principles, and norms guiding company operations and behavior—core values often include honesty, integrity, and fairness, which serve as the basis for corporate codes of conduct.

• Strategic Planning: Outlined as a systematic process of determining how to enhance business growth and performance, emphasizing that ethical considerations and social responsibility are integral parts of the planning process.

The Intersection of Ethics and Strategic Management

• Role of Ethics in Strategic Management: Ethics plays a significant role in shaping not just strategic direction but also corporate culture and employee behaviors. Ethical considerations are critical in understanding the implications of strategic decisions.

  • Definition of Ethics: Encompasses accepted principles of right and wrong, governing not only personal conduct but extending to professional behavior and organizational actions.

Business Ethics Defined

• Principles Governing Business Conduct: Business ethics encompasses a broad spectrum of principles regarding what constitutes right and wrong behavior within business contexts. Ethical decisions are defined by consistency with accepted standards, while unethical decisions often lead to violations of these established norms.

• Legal Implications: The connection between ethical principles and laws is emphasized; many ethical norms are codified into law, making ethical violations potentially illegal and subject to civil liabilities.

Navigating Ethical Dilemmas

• Complexity of Ethical Decisions: Ethical dilemmas frequently arise in management where the options available can appear equally ethical or unethical. This complexity challenges decision-making processes, particularly when guiding principles are unclear.

• Impact on Goodwill and Future: The outcomes of ethical dilemmas can significantly affect an organization’s reputation and long-term sustainability, highlighting the importance of ethical decision-making.

Role of Ethics in Organizations

• Difference Between Ordinary and Extraordinary Organizations: A distinction is made between organizations that merely comply with laws and those that adopt ethical practices that go beyond legal requirements, emphasizing the value of proactive ethical leadership.

• Case Study: Johnson & Johnson: Their decision to voluntarily recall defective products, despite incurring financial losses, showcases a commitment to consumer safety that reinforces brand reputation and consumer trust.

Case Study: Nike

• Outsourcing Issues: Nike's experience highlights the consequences of outsourcing labor to countries with less strict labor standards and the resulting backlash over working conditions, underscoring the importance of ethical supply chain management.

Stakeholder Rights

• Rights of Stakeholders: Organizations carry ethical obligations towards various stakeholders:

  • Stockholders: Entitled to accurate and transparent financial information.

  • Customers: Have the right to make informed decisions regarding products and services.

  • Employees: Should work in environments that ensure safety and fair treatment.

Community and Environmental Responsibilities

• Expectations of Communities: Organizations are tasked with protecting environmental integrity, implementing sustainable development practices, and contributing positively to community enrichment.

Considerations for Stakeholders

• Importance of Stakeholder Views: Engaging with stakeholder perspectives fosters collective support necessary for organizational achievements.

Case Study: Tata Motors

• Community Engagement: Tata Motors’ initiative to train local villagers during its plant shift exemplifies how corporations can positively impact communities while enhancing their brand's reputation.

Types of Unethical Behaviors

• Self-Dealing: The act of misusing corporate resources for personal advantage—an abuse of power and trust.

• Anti-competitive Behavior: Practices that harm competitors and distort fair competition, such as engaging in monopolistic pricing tactics, undermining market integrity.

Information Manipulation

• Example: Satyam Computers: The case of Ramalinga Raju's fraudulent practices highlights the severe legal repercussions and reputational damage arising from manipulating financial statements.

More Unethical Actions

• Opportunistic Exploitation: Firms imposing inequitable contract terms on suppliers showcase unethical negotiation practices.

• Corruption: Engaging in illegal activities that undermine financial integrity, such as bribery and the misallocation of funds.

Collusion and Market Manipulation

• Collusion: Firms illegally agreeing on prices damages consumer choice and market functionality.

• Substandard Working Conditions: Failing to meet legal salary standards or neglecting health and safety codes illustrates ethical failures in corporate governance.

Insider Trading

• Definition: The unethical act of exploiting confidential information for personal financial gain in securities trading.

Discrimination and Harassment

• Definitions: Discrimination refers to biased employment practices, while harassment constitutes unwelcome advances or comments—both undermining workplace morale.

Misleading Communications

• Minor/Moderate Unethical Behaviors: Actions include deceptive advertising and creating false expectations that can mislead consumers.

Fraudulent Behavior

• Severe Forms: Examples include tax evasion, bribing government officials, and falsifying quality reports that violate legal standards.

Anti-competitive Activity

• Severe Forms: Practices such as price fixing and bid rigging which harm competition represent extreme unethical actions.

Withdrawal Behaviors

• Minor/Moderate Unethical Behaviors: Includes unauthorized absences and minimal engagement in job duties, affecting overall productivity.

Political Deviance

• Minor/Moderate Unethical Behaviors: Engaging in favoritism or undermining colleagues for self-serving interests diminishes organizational integrity.

Ostracism in the Workplace

• Minor/Moderate Unethical Behaviors: Acts of ignoring or avoiding colleagues contribute to a toxic work environment and undermine teamwork.

Interpersonal Deviance

• Severe Unethical Behaviors: Includes making disparaging comments or bullying others, harming workplace relationships significantly.

Aggression in the Workplace

• Severe Forms: Manifested as physical threats or destroying property, leading to an unsafe work atmosphere.

Bullying/Mobbing

• Severe Forms: Continuous humiliation or ridicule demonstrates a failure to uphold a respectful workplace culture.

Abusive Leadership

• Severe Forms: Involves leaders engaging in behaviors like yelling, intimidation, or endorsing unethical practices.

Substance Abuse in the Workplace

• Minor/Moderate to Severe Behaviors: Substance use can compromise productivity and workplace safety, leading to serious organizational risks.

Causes of Unethical Behavior

• Factors Include: High performance pressure, intense competition, conflicting roles, and an organization with a negative culture can lead to unethical practices.

More Causes

• Additional Factors: Dishonesty, aspirations for career advancement, poor leadership role modeling, and inadequate resource allocation contribute to this issue.

Consequences of Unethical Practices

• Consequences Include: Results of unethical behavior can range from diminished productivity, legal challenges, reputational damage, degraded employee morale, to financial losses.

Preventing Unethical Behavior

• Strategies Include: Setting realistic goals for employees, establishing strong ethical policies, providing ongoing ethics training, and promoting open lines of communication within the organization.

Impacts of Unethical Behavior

• Effects: Unethical behavior can lead to increased misconduct, challenges with employee turnover, higher rates of absenteeism, and problems with dysfunctional behaviors within the workplace.

Dealing with Unethical Behavior

• Approach: Organizations should foster a culture of ethical practices, define clear policies, and implement a structured process for reporting unethical behavior.

Encouraging Ethical Behavior

• Methods Include: Leaders should model ethical behavior, involve stakeholders in ethical discussions, enforce compliance programs, and maintain transparency in operational practices.

Defining Social Responsibility

• Concept: Involves corporate accountability for actions that benefit society, emphasizing a balance between profit generation and positive social impact.

Importance of Ethics in Social Responsibility

• Integration: Ethics must guide corporate actions and interactions, as they are rooted in fundamental moral principles that affect both internal and external stakeholders.

Ethical Standards and Government Intervention

• Challenges: At times, the absence of voluntary adherence to ethical standards necessitates government intervention to safeguard the interests of the community and maintain fair market practices.

Business Responsibilities

• Corporate Obligations: Businesses today are expected to extend their responsibilities beyond merely profiting, actively considering their broader societal impacts.

Friedman’s View on Business Responsibility

• Core Principle: According to economist Milton Friedman, the paramount social responsibility of a business is to maximize profits while adhering to legal frameworks—this perspective has both supporters and dissenters.

Carroll’s Four Responsibilities

• Types of Responsibilities: Economic, Legal, Ethical, and Discretionary responsibilities all play crucial roles in shaping societal expectations of businesses and their operations.

Economic Responsibilities

• Goal of Businesses: This centers on delivering valuable goods and services while ensuring accountability to creditors and striving for shareholder wealth maximization.

Legal Responsibilities

• Framework: Corporations must adhere to laws and regulations governing fair treatment, anti-discrimination, and other ethical practices.

Ethical Responsibilities

• Society's Expectations: Businesses are expected to uphold ethical norms even when they are not mandated by law, reflecting higher standards of accountability.

Discretionary Responsibilities

• Voluntary Obligations: These include engaging in charitable endeavors, supporting community initiatives, and implementing employee welfare programs, reflecting a commitment to social good.

Benefits of Corporate Social Responsibility

• Potential Advantages: Positive impacts include fostering brand loyalty, enhancing corporate reputation, attracting top talent, and establishing long-lasting partnerships with stakeholders.

Ethical Decision Making Process

• Definition: Refers to the systematic approach to choosing options that align with ethical principles, crucial for maintaining a fair workplace culture.

Ethical Decision-Making Tips

• Guidelines: Important steps include considering the potential impact, identifying all stakeholders involved, utilizing a formal decision-making framework, and proactively seeking assistance when necessary.

A 7-Step Guide to Ethical Decision-Making

• Steps Include:

  1. Define the problem clearly.

  2. Check all relevant facts.

  3. Identify all factors influencing the decision.

  4. List possible options.

  5. Test options against ethical standards.

  6. Make a well-informed decision.

Reviewing Ethical Decisions

• Post-Decision Considerations: After making a decision, reviewing the entire process is critical to learning from experiences, identifying improvement opportunities, and ensuring ethical standards are continually met in future decisions.