Chapter Four
Ethics and Social
Responsibility
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
The Nature of Ethics
Business Environmental Factors
≈ Stakeholder Relationship Management
 MNGT 361
Ethics
≈ The inner-guiding moral principles, values, and
beliefs that people use to analyze or interpret
a situation and then decide what is the
“right” or appropriate way to behave
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Dealing with Ethical Issues
There are no absolute or indisputable rules or
principles that can be developed to decide if an
action is ethical or unethical
Neither laws nor ethics are fixed principles,
which do not change over time
≈ E.g., Civil Rights Act of 1964 made illegal
discrimination in employment on basis of race,
gender, religion
 Other forms of employment discrimination, such as on
basis of sexual orientation, not illegal under federal law
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Stakeholders and Ethics
Stakeholders –
≈ people and groups affected by the way a
company and its managers behave
≈ supply a company with its productive
resources and have a claim on its resources
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Types of Company Stakeholders
Figure 4.1
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Stockholders
Want to ensure that managers are
behaving ethically and not risking investors’
capital by engaging in actions that could
hurt the company’s reputation
Want to maximize their return on
investment
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Managers
Responsible for using a company’s
financial capital and human resources to
increase its performance
Have the right to expect a good return or
reward by investing their human capital to
improve a company’s performance
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Employees
 Companies can act ethically toward
employees by creating a pay structure that
fairly and equitably rewards employees for
their contributions
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Suppliers and Distributors
Suppliers expect to be paid fairly and promptly
for their inputs
≈ Note “AB InBev Supplier Feel Squeeze,” Wall
Street Journal, 4/17/09 -- new policy stipulating that
payment for goods can occur as late as 120 days
after Co gets invoice from supplier
Distributors expect to receive quality products
at agreed-upon prices
≈ Note termination by Chrysler and GM of contracts
with hundreds of dealerships
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Customers
 Most critical stakeholder
≈ Note that order of stakeholder importance is
point of some disagreement
 Company must work to increase efficiency
and effectiveness in order to create loyal
customers and attract new ones
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Whole Food’s Approach to Ethical Business
Note, however, that for about eight
years CEO posted numerous
messages on Yahoo Finance stock
forums as Rahodeb (an anagram of
Deborah, Mackey's wife's name).
Rahodeb cheered Whole Foods'
financial results, trumpeted his
gains on the stock and bashed Wild
Oats (which Co acquired in 2007).
(Source: WSJ, 7/12/07)
Figure 4.2
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Community, Society, and Nation
 Community
≈ A community provides a company with the
physical and social infrastructure that allows it
to operate
≈ A company contributes to the economy of the
town or region through salaries, wages, and
taxes
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Ethical Decision Making
Figure 4.3
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Trust and Reputation
 Trust
≈ willingness of one person or group to have
faith or confidence in the goodwill of another
person
 Reputation
≈ esteem or high repute that individuals or
organizations gain when they behave ethically
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Sources of Ethics
Figure 4.5
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Societal Ethics
Societal Ethics
≈ Standards that govern how members of a
society should deal with one another in matters
involving issues such as fairness, justice,
poverty, and the rights of the individual
People behave ethically because they have
internalized certain values, beliefs, and
norms
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Occupational Ethics
Occupational Ethics
≈ Standards that govern how members of a
profession, trade, or craft should conduct
themselves when performing work-related
activities
≈ Medical & legal ethics
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Individual Ethics
Individual Ethics
≈ Personal standards and values that determine
how people view their responsibilities to other
people and groups
≈ How they should act in situations when their
own self-interests are at stake
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Organizational Ethics
Organizational Ethics
≈ Guiding practices and beliefs through which a
particular company and its managers view their
responsibility toward their stakeholders
≈ Top managers play a crucial role in determining
a company’s ethics
 Note USI’s “Student Rights and Responsibilities: A
Code of Student Behavior”
 Q: How to maximize the likely effectiveness of a code
of conduct?
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Social Responsibility
Social Responsibility
≈ Way a company views its duty or obligation to
make decisions that protect, enhance, and
promote the welfare and well-being of
stakeholders and society as a whole
≈ Note critical view of social responsibility – that
purpose of business is to generate profit for
owners
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Role of Organizational Culture
 Ethical values and norms help
organizational members:
≈ Resist self-interested action
≈ Realize they are part of something bigger than
themselves
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Johnson & Johnson Credo
Figure 4.7
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Ethics Ombudsman
Responsible for communicating ethical
standards to all employees
Designing systems to monitor employees
conformity to those standards
Teaching managers and employees at all
levels of the organization how to
appropriately respond to ethical dilemmas
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Video Case: Whose Life is It Anyway?
Do you think it is ethical for Scott’s or other
companies to fire employees who smoke,
even if they only smoke outside of work?
In implementing Scott’s health initiatives,
does Hagedorn put the interests of one
group of stakeholders above those of
another?
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