Ethics and Social

Responsibility
Chapter Four
Copyright 2014 by The McGraw-Hill Education. All rights reserved.
Learning Objectives
1. Explain the relationship between ethics and
the law
2. Differentiate between the claims of the
different stakeholder groups that are affected
by managers and their companies actions
3. Describe four rules that can be used to help
companies and their managers act in ethical
ways
4-2
Learning Objectives
4. Discuss why it is important for managers to
behave ethically
5. Identify the four main sources of managerial
ethics
6. Distinguish between the four main
approaches toward social responsibility that
a company can take
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The Nature of Ethics
Ethical Dilemma
quandary people find themselves in when they
have to decide if they should act in a way that
might help another person even though doing so
might go against their own self-interest
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The Nature of Ethics
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
4-5
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
4-6
Stakeholders and Ethics
Stakeholders
The people and groups that supply a company
with its productive resources and so have a claim
on and stake in the company.
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Types of Company Stakeholders
4-8
Figure 4.1
Stockholders
Want to ensure that managers are behaving
ethically and not risking investors capital by
engaging in actions that could hurt the
companys reputation
Want to maximize their return on investment
4-9
Managers
Responsible for using a companys 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 companys performance
Frequently juggle multiple interests
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Managers
Problem has been that in many companies
corrupt managers focus not on building the
companys capital and stockholders wealth
but on maximizing their own personal capital
and wealth
4-11
Employees
Expect to receive rewards consistent with
their performance
Companies can act ethically toward
employees by creating an occupational
structure that fairly and equitably rewards
employees for their contributions
4-12
Suppliers and Distributors
Suppliers expect to be
paid fairly and
promptly for their
inputs

Distributors expect to
receive quality
products at agreed-
upon prices

4-13
Some Principles from the Gaps Code
of Vendor Conduct
4-14
Table 4.1
Customers
Most critical stakeholder
Company must work to increase efficiency
and
effectiveness in
order to create
loyal customers
and attract new
ones
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Whole Foods Stakeholder Approach to
Ethical Business
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Figure 4.2
Community, Society, and Nation
Community
Physical locations like towns or cities in which
companies are located
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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Example Houston Non-Profits
Many Houston area were adversely affected
by the demise of Enron
Many were dependent on donations from
Enron
The arts community was especially hit hard
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Ethical Decision Making
4-19
Figure 4.3
Practical Decision Model
1. Does my decision fall within the acceptable
standards that apply in business today?
2. Am I willing to see the decision communicated
to all people and groups affected by it?
3. Would the people with whom I have a significant
personal relationship approve of the decision?

4-20
Why should managers
behave ethically?
The relentless pursuit of self-interest can lead
to a collective disaster when one or more
people start to profit from being unethical
because this encourages other people to act
in the same way
4-21
Some Effects of
Ethical/Unethical Behavior
4-22
Figure 4.4
Trust and Reputation
Trust
willingness of one
person or group to
have faith or
confidence in the
goodwill of another
person
4-23
Trust and Reputation
Reputation
esteem or high repute that individuals or
organizations gain when they behave ethically

4-24
Sources of Ethics
4-25
Figure 4.5
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
companys ethics
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Social Responsibility
Social Responsibility
The way a companys managers and employees
view their duty or obligation to make decisions
that protect, enhance, and promote the welfare
and well-being of stakeholders and society as a
whole
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Approaches to Social Responsibility
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Figure 4.6
Approaches to Social Responsibility
Obstructionist approach
Companies choose not to behave in a social
responsible way and behave unethically and
illegality
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Approaches to Social Responsibility
Defensive approach
companies and managers stay within the law and
abide strictly with legal requirements but make
no attempt to exercise social responsibility
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Approaches to Social Responsibility
Accommodative approach
Companies behave legally and ethically and try to
balance the interests of different stakeholders
against one another so that the claims of
stockholders are seen in relation to the claims of
other stakeholders
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Approaches to Social Responsibility
Proactive approach
Companies actively embrace socially responsible
behavior, going out of their way to learn about
the needs of different stakeholder groups and
utilizing organizational resources to promote the
interests of all stakeholders
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Why Be Socially Responsible?
1. Demonstrating its social responsibility helps
a company build a good reputation
2. If all companies in a society act socially, the
quality of life as a whole increases
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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
4-37
Johnson & Johnson Credo
4-38
Figure 4.7
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
4-39
Video: Hewlett Packard
Why should an investor be concerned with a
potential $40 million severance package for
an exiting CEO?
Should severance clauses in an executive
contact be considered unethical?
4-40