Ethics and Social Responsibility Notes

Ethics & Social Responsibility

• Ethics: Principles defining right and wrong for individuals or groups.
• Workplace deviance: Unethical behavior violating organizational norms.
• Social responsibility: How organizations respond to societal demands.

Ethics: Definition & Importance

• Ethics: Set of moral principles defining right and wrong.
• Ethical behavior: Conforms to society's accepted principles.
• Workplace deviance: Unethical behavior violating organizational norms.

Types of Workplace Deviance

• Production deviance: Hurts quality/quantity of work.
• Property deviance: Harms the organization's property (e.g., employee shrinkage which is employee theft of company merchandise).
• Political deviance: Using influence to harm others.
• Personal aggression: Hostile behavior toward others.

US Sentencing Commission Guidelines

• Established in 1984, allows prosecution of companies even without management's knowledge of unethical behavior.
• Penalties can reach up to $600M$.
• Covers nearly all businesses.
• Applies to offenses like:
  • Invasion of privacy
  • Price fixing
  • Fraud
  • Customs violations
  • Antitrust violations
  • Civil rights violations
  • Theft
  • Money laundering
  • Conflicts of interest
  • Embezzlement
  • Dealing in stolen goods
  • Copyright infringements
  • Extortion
• Aims to punish after and prevent before crimes.

Determining Punishment

• Lesser fines for proactive ethical behavior or voluntary disclosure.
• Fine calculation:
  • Base fine: determined by offense level.
  • Culpability score: assigns blame to the company.
  • Total fine: base fine multiplied by culpability score.
• The US Sentencing Guidelines outline seven essential components of an effective compliance program.

Influences on Ethical Decision Making

• Ethical intensity: Degree of concern about an ethical issue.
  • Factors:
    • Magnitude of consequences: Total harm/benefit from the decision.
    • Social consensus: Agreement on whether the behavior is good or bad.
    • Probability of effect: Chance of harm occurring.
    • Temporal immediacy: Time between act and consequences.
    • Proximity of effect: Distance between decision-maker and those affected.
    • Concentration of effect: Harm/benefit to the average person.

Practical Steps to Ethical Decision-Making

• Hire ethical employees (screening during selection).
• Establish a code of ethics.
• Communicate the code internally and externally.
• Develop specific standards and procedures.
• Train employees in ethical decision-making.
• Raise awareness of ethics.
• Teach a practical model of ethical decision-making.
• Create an ethical climate.
  • Ensure ethical behavior from managers.
  • Promote top management commitment.
• Develop a system for reporting violations.
• Fairly punish violators.

Compliance Program

The Seven Step of Compliance program includes:

1. Establish standards and procedures
2. Assign upper-level managers to be in charge
3. Delegate decision-making authority only to ethical employees
4. Encourage employees to report violations
5. Train employees on standards and procedures
6. Enforce standards consistently and fairly
7. Improve program after violations
8. Revise Compliance program if required

Best Practices - Whistleblower Scenario

• Employee reports executive sharing insider info with an investment firm.
• Best actions:
  • Reinforce whistleblower's actions to safeguard the company's ethical reputation.
  • Protect the whistleblower’s identity.

Social Responsibility of Organizations

• Social responsibility: Obligation to benefit society.
• Shareholder model: Maximize profit for shareholders.
• Stakeholder Model: Balances interests of all stakeholders.
  • Primary Stakeholders: Essential for long-term survival (employees, customers, suppliers, shareholders).
  • Secondary Stakeholders: Influence/are influenced by the organization; affect public perception (media, special interest groups).

Stakeholder Model Visualization

• Visual representation of Primary Stakeholders (Suppliers, Shareholders, Customers, Employees). Includes Secondary Stakeholders (Governments, Local Communities, Media, Trade Associations, Special Interest Groups).

Socially Responsible Organizations

• Fulfill responsibilities to benefit stakeholders:
  • Economic responsibility: Make a profit by providing valued products/services.
  • Legal responsibility: Obey laws and regulations.
  • Ethical responsibility: Adhere to accepted principles of right and wrong.
  • Discretionary responsibilities: Social roles beyond economic, legal, and ethical duties.

Social Responsiveness Strategies

• A company's strategy to respond to stakeholders’ expectations
• Reactive strategy: Does less than society expects.
• Defensive strategy: Admits responsibility but does the bare minimum.
• Accommodative strategy: Accepts responsibility and meets societal expectations.
• Proactive strategy: Anticipates problems and exceeds expectations.

Social Responsibility and Economic Performance

• There is no trade-off between social responsibility and economic performance.
• Stronger relationship when a company has a good reputation for social responsibility.
• No guarantee of profitability for socially responsible companies.

Warren Buffett Quote

• "In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you."