Chapter 6
Ethics and Corporate Social
• A set of rules and
values that define right
and wrong conduct.
• They indicate when
behavior is acceptable
and when it is
Moral Principles
• Moral principles prescribe rules of
acceptable behavior that are intended to be
• Moral Principles dive the rules of ethics
Ethical vs. Unethical Decisions
• Ethical decision – reasonable and
acceptable because it aids stakeholders,
organization, and society.
• Unethical decision- decision that a manager
would prefer to disguise or hide from other
people because of individual gain is placed
above others needs.
• Rules of thumb
Ethical Perspectives for
Evaluating Behavior
Adapted from
Figure 6.1
Societal Perspective
• Societal Ethics – standards that govern how
members of a society are to deal with each other
on issues of fairness, justice, poverty, and
individual rights.
• The idea of what is ethical behavior is
largely influenced by the society in which the
behavior occurs.
• Various public opinion surveys suggest a growing
disenchantment with the lack of ethical behavior
Legal Perspective
• Laws: society’s values and standards that
are enforceable in the courts.
• Employment-at-will: a traditional commonlaw concept holding that employers are free
to discharge employees for any reason at
any time and that employees are free to quit
their jobs for any reason at any time.
Legal Perspective (Ctd.)
• Ethics are not laws by any means, simply beliefs
about what is right or wrong.
• Legality of actions and decisions doesn’t make
them ethical
• Laws move with the current culture and moral
• Lag behind because they are written and set
• Do no ensure or even promote ethical
• Often laws and ethics are in conflict
Examples of Law/Ethical
• Students borrowing and investing money
• Caveat emptor-buyer beware
• Reputation-costs and benefits
Organizational Perspective
• To provide guidance for employees, an
organization can define ethical and
unethical behaviors.
• Organizations can also guide employee
actions both formally and informally.
Individual Perspective
• Despite prevalent societal, legal, and organizational
interpretations of what is ethical, individuals have their
own values and a sense of what is right or wrong.
• Lawrence Kohlberg
• Suggested people develop morally, much as they
do physically, from early childhood to adulthood.
• As they develop, their ethical criteria and patterns of
moral reasoning go through stages of moral
Individual Perspective (Ctd.)
• Stages of moral development: according to
Kohlberg, people develop morally by going
through six stages of moral development:
obedience and punishment, instrumental,
interpersonal, law and order, social contract,
and universal principles.
Kohlberg’s Stages of Moral
Universal Principles
Social Contract
Law & Order
Obedience & Punishment
Adapted from Figure 6.2
Kohlberg’s Stages (Ctd.)
1. Obedience and punishment: person does the right thing
mainly to avoid punishment or to obtain approval.
2. Instrumental: person becomes aware that others also have
needs and begins to defer to them to get what the individual
3. Interpersonal: person considers appropriate behavior as
what pleases, helps, or is approved by friends or family.
Kohlberg’s Stages (Ctd.)
4. Law & Order: person recognizes that ethical behavior
is not determined only by reference to friends, family,
co-workers, or others whose opinions the individual
might value.
5. Social Contract: person is aware that people hold a
variety of conflicting personal views that go beyond the
letter of the law.
6. Universal Principles: person views appropriate conduct
as determined by a person’s conscience, based on
universal ethical principles.
Ethical Models
Moral Rights
Adapted from Fig 6.5
Utilitarian Model
• Greatest good for the greatest number, but
many hurt a few.
• Milton Friedman is the best-known
advocate of this approach.
• All employees should strive to increase the
company’s profits.
Parts to Utilitarian Model
•(Organizational Goals): focusing on maximizing
profits. Profits are seen as the reward for
satisfying customers.
•(Efficiency): achieved by both minimizing inputs
(e.g. labor, land, and capital) and maximizing
productive outputs.
•(Conflicts of Interest): by having a financial
interest in a supplier a purchasing agent might be
more likely to buy from his supplier even if it’s not
in the companies best interest.
Moral Rights Model
• Judging decisions and
behavior by their
consistency with
fundamental personal
and group liberties
and privileges.
• (Life and Safety):
Employees, customers,
and public have the right
not to have their lives and
safety endangered.
• (Truthfulness): They have
the right not to be
intentionally deceived on
matters about which they
should be informed.
• (Privacy): Citizens have
the right to control access
to personal information.
Moral Rights Model (Ctd.)
• (Free Speech): Employees have the right to
criticize the ethics or legality of their
employers actions.
• (Private Property): This right allows people
to acquire, use, and dispose of shelter and
have life’s basic necessities.
Justice Model
• Judging decisions an behavior by their
consistency with an equitable, fair, and impartial
distribution of benefits (rewards) and costs among
individuals and groups.
• Distributive Justice Principle: moral requirement
that individuals not be treated differently because
of arbitrarily defined characteristics.
Justice Model (Ctd.)
• Fairness Principle:
moral requirement that
employees support the
rules of the
organization when
certain conditions are
• Natural Duty
Principle: moral
requirement that
decisions and
behaviors be based on
a variety of universal
Society and the Environment
• Sustainable development: conducting business in
a way that protects the natural environment while
making economic progress.
• This model of thought has increased
environmental issues both internally and
externally for corporations such as 3M, Kodak,
and McDonalds.
• Now include ethical principles of industrial
ecology in their strategic plans.
Example from 3M
1. Solve its own pollution and conservation
problems beyond compliance requirements.
2. Prevent pollution at the source, whenever
3. Conserve natural resources through waste
reclamation and other methods
4. Assist regulatory and government agencies
concerned with environment
5. Develop products that are ecologically friendlier
Stakeholder Theory
• Stakeholders: individuals or groups that
have interests, rights, or ownership in an
organization or the activities.
• A broad category that covers a lot of
individuals and groups.
• Some groups are more important to the
organization and its success.
Stakeholders of the Organization
Adapted from
Figure 6.3
Stakeholders’ Concerns
Stakeholder Group
Examples of Concerns
* Owners and Investors
Financial Soundness
• Consistency in meeting
shareholder expectations
• Sustained profitability
• Average return on assets
over five-year period
• Timely and accurate
disclosure of financial
Stakeholders’ Concerns (Ctd.)
Stakeholder Group
* Customers
Examples of Concerns
* Product/service quality,
innovativeness, and
*responsible management of
defective or harmful
*Safety records for
*Pricing policies and
* Honest, accurate , and
responsible advertising.
Stakeholders’ Concerns (Ctd.)
Stakeholder Group
* Employees
Examples of Concerns
• Nondiscriminatory, meritbased hiring and
• Diversity of the workforce
• Wage and salary levels
and equitable distribution
• Availability of training
and development
• Workplace safety and
Stakeholders’ Concerns (Ctd.)
Stakeholder Group
Examples of Concerns
* Community
Environmental Issues
• Environmental sensitivity
in packaging and product
• Recycling efforts and use
of recycled materials
• Pollution prevention
• Global applications of
environmental standards
Stakeholders’ Concerns (Ctd.)
Stakeholder Group
* Community (Ctd.)
Examples of Concerns
Community Involvement
• Percentage of profits
designated for cash
• Innovation and creativity
in philanthropic efforts
• Product donations
• Availability of facilities
and other assets for
community use
• Support for employee
volunteer efforts.
Evaluating Corporate Social
• Fortune magazine founded “Ron Brown
Award for Corporate Leadership in Ethics”
• Demonstrates corporate leadership in
Employee and Community Relations
Affirmative Social Responsibility
• Ron Brown Award
wants corporations
and their leaders to
move away from
traditional, utilitarian
models of business
and take a more
proactive stance with
regard to society.
Affirmative Social Responsibility
• 5 steps:
1. Broad Performance Criteria
2. Ethical Norms
3. Operating Strategy
4. Response to Social Pressures
5. Legislative and Political Activities
Affirmative Social
Responsibilities (Ctd.)
• Taking this approach requires companies to
implement five different an expensive behaviors:
• 1. Broad Performance Criteria: management and
employees must recognize broader views to
measure growth.
• 2. Ethical norms: managers and employees must
take definite stands on issues of public concerns.
• 3. Operating strategy: managers and employees
should maintain or improve current standards of
the physical and social environment.
• 4. Response to social
management and
employees should
accept responsibilities
for solving current
• 5. Legislative and
Political Activities:
Managers must show a
willingness to work
with outside
stakeholders for
Social audit: an
attempt to identify
and measure,
evaluate, report on,
and monitor the
effects that an
organization is
having on its
stakeholders and
• Difficult to balance all
stakeholder problems.
• Owls vs. Lumber
• Pollution vs. Jobs
• Politics vs. Profits
• Firms might not know
of a stakeholder until
there is a problem
• Reporting unethical or
illegal behavior.
• Has many
• When should you
blow the whistle?
• Table 6.3 (p. 208)
Whistle-blowing (Ctd.)
• Will not happen if:
• 1. If allegation of wrongdoing has little or
no merit.
• 2. Accusations are made to someone
outside the company.
• 3. Whistle-blower has no help from middle
or top management.
Sexual Harassment
• Quid pro quo : asking for or forcing sexual
contact with an employee in exchange for
reward or to avoid punishment.
• Hostile work environment: lewd jokes,
pornography, sexually oriented remarks
about one’s appearance making that person

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