Management Chapter 7: Managing Social Responsibility and Ethics Study Notes
Core Concepts of Social Responsibility and Ethical Frameworks
Defining Social Responsibility, Responsiveness, and Obligation: - Social Obligation: This represents the foundational level where a business meets its economic and legal responsibilities and absolutely nothing more. The firm obeys the law and pursues its economic interests because it is obligated to do so. - Social Responsiveness: This occurs when a firm engages in social actions specifically in response to a popular social need. It is reactive in nature, responding to the demands of the public or specific groups. - Social Responsibility: This is defined as a business’s intention to do the "right things" and act in ways that are beneficial for society, going well beyond its basic legal and economic obligations.
Primary Perspectives on Management’s Responsibility: - Classical View: This perspective holds that management’s only social responsibility is to maximize profits for stockholders. Proponents argue that using resources for the "social good" adds to the costs of doing business, which must either be passed on to consumers through higher prices or absorbed by stockholders through lower dividends. - Socioeconomic View: This view asserts that management’s social responsibility extends beyond making profits to include protecting and improving the welfare of society as a whole. This view is based on the belief that corporations are not independent entities responsible only to stockholders, but have a responsibility to the larger society that creates and sustains them.
Social Screening and Socially Responsible Investing (SRI)
Social Screening: This involves applying social criteria—often referred to as "screens"—to investment decisions. These screens allow investors to filter out companies that do not meet certain ethical or social standards.
Socially Responsible Investing (SRI) Funds: These specific funds typically avoid investing in companies involved in activities deemed socially harmful. Common exclusions include companies involved in: - Liquor production and sales - Gambling - Tobacco - Nuclear power - Weapons manufacturing - Price fixing - Fraud - Poor product safety records - Poor employee relations - Negative environmental track records
Green Management and Environmental Sustainability
Green Management: This is defined as the process where managers consider the impact of their organization on the natural environment.
The Four Approaches to "Going Green" (Shades of Green): - Legal (or Light Green) Approach: Organizations do only what is legally required. They obey all laws, rules, and regulations willingly and without legal challenge, but do nothing additional for the environment. - Market Approach: Organizations become more sensitive to environmental issues in response to the preferences of their customers. When customers demand environmentally friendly products, the organization responds by providing them. - Stakeholder Approach: Organizations work to meet the environmental demands of multiple stakeholders, including employees, suppliers, and the local community, rather than just customers. - Activist (or Dark Green) Approach: This is the highest level of environmental sensitivity. Organizations look for active ways to respect and preserve the environment and be socially responsible regardless of external pressure. This corresponds to the "Dark Green" end of the spectrum in Exhibit 7.3.
Factors Determining Ethical and Unethical Behavior
Ethics Defined: Ethics are the principles, values, and beliefs that define right and wrong behavior. Managerial decisions require a focus on both the process used to reach a decision and the groups or individuals affected by the resulting outcome.
Stages of Moral Development (Kohlberg's Framework): - Preconventional Level: Right and wrong are determined by personal consequences from outside sources, such as punishment or reward. Included in Stages 1 and 2. - Conventional Level: Ethical decisions rely on maintaining expected standards and living up to the expectations of others (family, colleagues, or society). Included in Stages 3 and 4. - Principled Level: Individuals develop their own moral values apart from the authority of society or the specific groups to which they belong. Included in Stages 5 and 6. The higher the stage, the more likely a person is to behave ethically.
Individual Characteristics: - Values: These are basic convictions regarding what is deemed right and wrong. - Ego Strength: A personality measure of the strength of a person's convictions. Individuals with high ego strength are more likely to resist impulses and follow their convictions. - Locus of Control: A personality attribute measuring the degree to which people believe they control their own fate. - Internal Locus of Control: The belief that "I control my own destiny." - External Locus of Control: The belief that outcomes are due to luck or chance.
Structural Variables: Organization design, formal goals, performance appraisal systems, and reward allocation processes all influence ethical behavior.
Issue Intensity: Six characteristics determine how important an ethical issue is to an individual and how likely they are to behave ethically: - Greatness of Harm: The total number of people harmed. High numbers increase issue intensity. - Consensus of Wrong: The level of agreement that an action is wrong. Higher agreement increases intensity. - Probability of Harm: The likelihood that the action will actually cause the predicted harm. - Immediacy of Consequences: How quickly the harm will be felt after the action is taken. - Proximity to Victim(s): How close or familiar the person feels to the potential victims. - Concentration of Effect: How condensed or focused the effect of the action is on the victims.
Encouraging Ethical Behavior within Organizations
Managerial Strategies: 1. Employee Selection: Using interviews and pre-employment integrity tests to weed out dishonest applicants and learn about their moral development and locus of control. Organizations should explicitly state that background checks and reference contacts will be conducted. 2. Code of Ethics: Creating a formal statement of the organization's primary values and ethical rules that employees are expected to follow. 3. Leadership Commitment: Top managers must serve as role models in words and actions, as they set the cultural tone and uphold shared values. 4. Job Goals and Performance Appraisal: Unrealistic goals can lead to ethical lapses. Evaluation should focus on both the "ends" (goal achievement) and the "means" (following the code of ethics). 5. Ethics Training: Implementing seminars and workshops to encourage and reinforce ethical standards. 6. Independent Social Audits: Periodic evaluations of management practices and decisions against the code of ethics.
Global and Contemporary Issues in Ethics
International Context: Ethical standards vary significantly by culture and society. The Foreign Corrupt Practices Act makes it illegal for U.S. firms to corrupt foreign officials; however, small "token" payments are permissible if they are an accepted cultural practice in that specific country.
Whistle-Blowing: Managers must protect whistle-blowers—individuals who raise ethical concerns or issues—by establishing protective mechanisms that allow employees to report wrongdoing without fear of reprimand.
Social Entrepreneurship: Individuals or organizations that seek opportunities to improve society using practical, innovative, and sustainable approaches.
Philanthropy and Volunteering: - Corporate Philanthropy: Using company resources or charity to address societal problems. - Employee Volunteering: Promoting social change by encouraging employees to volunteer their time.
Review Questions and Discussion
Question 1: The "classical" view of social responsibility holds that management's only social responsibility is to maximize profits.
Question 2: Under the "Activist approach," an organization is driven to look for ways to respect and preserve the earth and its natural resources.
Question 3: True or False: The higher the stage of moral development an individual reaches, the more likely that he or she will behave ethically. (Answer: True).
Question 4: "Ethics" is defined as the principles and beliefs that define right and wrong decisions and behaviors.
Question 5: Characteristics that determine issue intensity include "concentration of effect" (Options like 'greatness of wrong' or 'consensus of harm' were incorrect variants of the actual terms).
Question 6: A person claiming "I control my own destiny and not even god can change it" is an example of an "internal locus of control."
Individual Assignment: Students must identify the victim in the specific case study discussed in class.