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Chapter 5: Social Responsibility and managerial ethics

WHAT IS SOCIAL RESPONSIBILITY?There is two opposing views:A. The classical view is the view that management’s only social

responsibility is to maximize profits. Economist Milton Friedman is the most outspoken advocate of this view.

B. The socioeconomic view is the view that management’s social responsibility goes well beyond the making of profits to include protecting and improving society’s welfare.

Reasons for social responsibility are: Public expectation, long run profits, ethical obligation, public image, better environment, discouragement of further government regulation, balance of responsibility and power, stockholder interests, possession of resources, superiority of prevention over cures.

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Chapter 5Reasons against social responsibility: Violation of profits

maximization, dilution of purpose, costs, too much power, lack of skills, lack of accountability, lack of broad public support.

Three different levels of social involvement can be defined in terms of obligations and responsiveness:

• Social responsibility is defined as obligation beyond that required by law and economics for a firm to pursue long term goals that are good for society

• Social obligation defines the obligation of a business to meet its economic and legal responsibilities

• Social responsiveness is the capacity of a firm to adapt to changing societal conditions.

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Chapter 5SOCIAL RESPONSIBILITY AND ECONOMIC PERFORMANCE

The majority of studies found a positive relationship between corporate social involvement and economic performance. A good measurement is to look at the performance of ‘socially conscious’ mutual stock funds. These mutual funds provide a way for individual investors to support socially responsible companies. There is little substantive evidence that a company’s ‘socially responsible’ actions significantly reduce its long term economic performance.

IS SOCIAL RESPONSIBILITY PROFIT MAXIMIZING BEHAVIOR?Is it possible that socially responsible actions are nothing more than

profit maximizing actions in disguise? ‘Cause related marketing’ is the name given to business performing social actions that are motivated directly by profits. The idea is to find a social cause that fits with a company’s product or service. Some of the social actions by company are profit motivated and consistent with the classical goal of economic maximization

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Chapter 5Value based management is an approach to managing in

which managers establish, promote, and practice an organization’s shared values. These shared corporate values serve many purpose:

1. Guide manager’s decisions and actions; 2. To shape employee behavior and communication what the organization expects of its members; 3. Influence the organization’s marketing efforts; 4. A way to build team spirit.

How does a company develop these shared values?: 1. Involvement of everyone is crucial. It may take long time

but employees are more likely to buy into the shared values; 2. Everyone actually use the values as they make decisions; 3. Finally training programs can be an important way to develop ownership of the corporate values.

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Chapter 5EXPANSION MODEL OF CORPORATE SOCIAL

RESPONSIBILITYStage 1 – manager promotes stockholders’ interests by

seeking to minimize costs and maximize profitsStage 2 – manager accepts responsibility for employees

and focuses on human resource concernsStage 3 – manager expands corporate goals to include

constituents in the specific environmentStage 4 – manager is responsible to society as a whole

MANAGERIAL ETHICSEthics refers to the rules and principles that define right

and wrong conduct. Four different views on ethical standard:

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Chapter 5• The utilitarian view says decisions are made solely on

the basis of their outcomes or consequences.• The ‘human rights’ view says decisions are concerned

with respecting and protecting basic rights of individuals

• The theory of justice view says decision makers seek to impose and enforce rules fairly and impartially

• The integrative social contracts view combining (what is) and normative (what should be) approaches to business ethics. This view is based on the integration of the two ‘contracts’ the general social contract and a more specific contract.

Five factors affecting a manager’s ethical response/ action:1. Stage of moral development: each successive stage, an

individual’s moral judgment grows less and less dependent on outside influences

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Chapter 52. Individual characteristics: our values are our basic

convictions about what is right and wrong. Our ego strength is a personality characteristic that measures the strength of a person’s convictions. Locus of control refers to a personality attribute that measure the degree to which people believe they are masters of their own fate.

3. Structural variables: the existence of formal rules and regulations, job descriptions, written codes of ethics, performance appraisal systems, and reward systems can strongly influence ethical behavior

4. Organization’s culture5. The intensity of the issue can affect ethical decisions.

Six factors determine the intensity: greatness of harm, consensus of evil, probability of harm, concentration of effect, proximity to victim and immediate consequences

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Chapter 5Social and cultural differences between countries are

important factors that influence ethical behavior e.g. Japanese hunt whales for food condemned by many countries.

What can be done to encourage ethical behavior? There are 8 suggestions to cultivate ethical behavior:

1. The selection process for bringing new employees into company should be viewed as an opportunity to learn about an individual’s level of moral development, personal values, ego strength, and locus of control

2. A code of ethics is a formal statement of an organization’s primary values and the ethical rules it expects its employees to follow. Also, decision rules can be developed to guide managers in handling ethical situations that might arise

3. Top management’s leadership and commitment to ethical behavior is extremely important

4. Employee’s job goals should be tangible and realistic

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Chapter 5

5. Ethics training should be used to help teach ethical problem solving and present simulations of ethical situations that might rise.

6. Performance appraisals should be comprehensive and not just focus on economic outcomes

7. Independent audits which evaluate decisions and management practices in terms of the organization’s code of ethics can be used to deter unethical behavior

8. Organizations can provide formal mechanisms so that employees with ethical dilemmas can do something about them without fear of reprisal

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Chapter 6: Decision makingDecision making is a process that involves more than the simple act

of choosing among alternatives. The decision making process is defined as a set of eight steps that include:

1. Identifying a problem and cause(s); defined as a discrepancy between an existing and a desired state. Make sure it is a valid problem and the cause of the problem identified.

2. Identifying decision criteria; define what is relevant in a decision. 3. Allocating weights to the criteria. The criteria identified in step 2

of the decision making process must b weighted in order to give them correct priority in the decision

4. Developing solution alternatives for resolving the problem5. Analyzing the alternatives by evaluation against the criteria6. Selecting a solution7. Implement the solution8. Evaluate decision effectiveness; assess the result of the decision

to see whether or not the problem has been corrected

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Chapter 6Rational decision making describes choices that are

consistent and value-maximizing within specific constraints assuming:

1. The problem is clear and unambiguous2. A single well defined goal is to be achieved3. All alternatives and consequences are known4. Preferences are clear5. Preferences are constant and stable6. No time or cost constraints exist7. Final choice will maximize economic payoff

Types of problems: Well structured problems are straight forward, familiar and easily defined problems e.g. faulty goods returned by customers. Ill structured problems are new problems in which information ambiguous or incomplete

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Chapter 6Types of decisions: There two types of decisions that managers

might face1. Programmed decisions are repetitive decisions that can be

handled by a routine approach. In dealing with this type of decision, managers may utilize procedures( a series of interrelated sequential steps that can be used to respond to a structured problem), rules( an explicit statement that tells manager what they ought to do or not to do) or policy (is a guide that establishes parameters for making decisions).

2. Non programmed decisions are unique decisions that require a custom made solution.

Lower level managers typically confront familiar and repetitive problems and rely on programmed decisions. As managers move up the levels of the organization, the problems tend to become more ill structured. Managerial decisions in real world are programmed and non-program

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Chapter 6

Managers have different styles in making decision and solving problem. A problem avoider ignores information that points to a problem. These individuals do not want to confront problems. Problem solvers try to solve problem when face problem; thus reactive. A problem seeker actively seeks out problems to solve or new opportunities to pursue; thus proactive.

Another approach is an individual’s way of thinking; rational or intuitive; and another is an individual’s tolerance for ambiguity (low or high). These two dimensions can be combined into four different decision making styles:

1. Directive style – a low tolerance for ambiguity and rational thinking2. Analytic style – high tolerance for ambiguity and rational thinking3. Conceptual style – high tolerance for ambiguity and intuitive

thinking4. Behavioral style – low tolerance for ambiguity and intuitive thinking

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Chapter 6

Manager may face three different decision conditions; • Certainty – can make accurate decisions because the

outcome of every alternative is known• Risk – decision maker has to estimate the likelihood of

certain outcomes• Uncertainty – decision maker has neither certainty nor

reasonable probability estimates availableMany decisions in organizations are made in groups. The

advantages that group decision have over individuals include:

• Provide more complete information thus more accurate• Generate more alternatives• Increase acceptance of a situation• Increase legitimacy

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Chapter 6The disadvantages are:• Time consuming• Minority domination• Pressure to conform which can lead to group think• Ambiguous responsibility

The effectiveness of group decisions tends to be influenced by the size of the group. Groups should not be too large because it will not be efficient compare to individual decision makers.

Techniques for improving group decision making:• Brainstorming is an idea generating process that encourages

alternatives while withholding criticism• Nominal group technique – group members are physically

present but operate independently• Delphi technique – group decision making which members

never meet face to face• Electronic meeting – decision making groups interact by linked

computer