The Role of Organizational Values Merck corporate philosophy Improvement in society in which one lives as a reward in itself We try

ry never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remember it, the larger they have been.

Does Business Ethics Make Economic Sense? Exchange, Production & Distribution Adam Smith o Mutual benefits. o No need for ethics in bringing about the betterment of all parties involved. o We just need to regard our own respective interests, and the market is meant to do the rest in bringing about the mutually gainful exchanges. Organization and Exchange: Rules and Trust Besides regarding our own self interest, we need to trust the other party in order for market exchanges to occur. In the 3rd world, there is a deep-rooted skepticism of the reliability and the moral quality of business behavior. o MNCs unequal power in dealing with the more vulnerable countries o Left grounds for suspicion o Such suspicion may be quite misplaced. o Solution: establishing high standards of business ethics. Organization of Production: Firms and Public Goods Japanese ethos vs Confucian Ethics o Concern with honor o Non-profit motivations underlying many economic and business activities in Japan. o Selfless work & devotion to enterprise Public good o Use of commodities are non-competitive o Market mechanism, based on profit maximization, functions badly. The Challenge of Distribution: Values & Incentives Incentive problem The more narrowly profit-oriented an enterprise is, the more it would, in general, tend to resist looking after the interest of others workers, associaes, consumers. o This is an area in which ethics can make a difference. Business Criterion for improvement o Achievement of profits and business rewards o Concerns for others and for distributional equity are judged based on how they indirectly help to promote profits.

o Firms that treat their workers well are often very richly rewarded for it. o Workers are more reluctant to lose their jobs, since more would be sacrificed if dismissed from this (more lucrative) employment, compared with alternative opportunities. o The contribution of goodwill to team spirit and thus to productivity can also be quite plentiful.

Can Socially Responsible Firms Survive in a Competitive Environment? Friedman o There is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game engages in open and free competition without deception or fraud. o Managers who pursue broader social goals e.g. adopting more stringent emission standards than required by law e.g. donating corporate funds to charitable organizations Are simply spending shareholders wealth Friedman recognizes that there are many circumstances in which the firms narrow interests coincide with those of the broader community o Long-run interest of a corporation to devote resources to improving the community o Easier to attract desirable employees o Reduce wage bill Friedman argued against using the term social responsibility to characterize activities of a firm, because while serving the broader community, the firms profits are also augmented. o Misled politicians about the proper role of the corporation in society o Foster excessive regulation Align self interest with the interest of others o Firms pay their suppliers not because they feel a moral obligation to do so but because they require future shipments from them. o Repeated interactions give rise to behaviors that smack of social responsibility Cheating may still occur. (Game theory) o Erroneous to call these behavior praiseworthy A firm had no concern about the welfare of the braoder community would still have ample motive to engage in them. When material incentives favor cooperation, it is more descriptive to call the cooperating parties prudent than socially responsible.

Five Ways a Socially Responsible Firm Might Prosper Advantages often appear to be sufficient to offset the higher costs of socially responsible action.

1. By solving commitment problems with employees Shirking and opportunism Piece rates Career lock-in Rising wage profiles Other implicit contracts 2. By solving Commitment problems with customers Sellers and buyers would benefit if the seller can commit to providing a product of high quality. o Guarantee products o Develop public reputation for supplying high quality Clients are willing to pay premium fees to a firm run by someone they feel they can trust. 3. By solving commitment problems with other firms The subcontractor holdup problem Quality assurance Maintaining confidentiality 4. By reflecting consumers moral values Free-rider model: buyers will not be willing to pay a premium for products produced by socially responsible firms. Commitment model: many people have come to develop a tatste for socially responsible behavior. o Prefer dealing with socially responsible firms even when they realize that their own purchases are too small to affect the outcomes they care about. 5. By reflecting prospective employees moral values

Organisational culture and Management Philosophy Errors of Judgement Rarely reflective on organizational culture and management philosophy Reveal a culture that is insensitive or indifferent to ethical considerations Lacks effective organizational systems Exemplary behavior Reflects an organizational culture and philosophy that is infused with a sense of responsibility Shared set of values Guiding principles deeply ingrained throughout the organization.

Success in creating a climate for responsible and ethically sound behavior requires continuing effort and a considerable investment of time and resources. A glossy code of conduct, a high ranking ethics officer, a training program, an annual ethics audit these trappings of an ethics program do not necessarily add up to a responsible, law-abiding organization whose espoused values match its actions

A formal ethics program can serve as a catalyst and a support system, but organizational integrity depends on the integration of the companys values into its driving systems.

o Focus on the core values of integrity that reflect basic social obligations Respect for the rights of others, honesty, fair dealing, obedience to the law. o Focus on aspirations Values that are ethically desirably, but not necessarily morally obligatory Good service to customers, commitment to diversity, involvement in the community o When it comes to implementation, some companies begin with behavior. o Aristotle: one becomes courageous by acting as a courageous person.