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CHAPTER 5: SOCIAL RESPONSIBILITY

CHAPTER 5: SOCIAL RESPONSIBILITY AND MANAGERIAL ETHICS

1.Explain the classical and socioeconomic views of social responsibility.

2.List the arguments for and against businesses being socially responsible.

3. Differentiate between social obligation, social responsiveness and social responsibility.

4. Explain the relationship between corporate social responsibility and economic performance.

5. Describe values-based management and how it is related to organisational culture.

6. Explain what the ‘greening’ of management is and how organisations are ‘going green’.

7. Define stakeholders and describe their role in social responsibility.8. Differentiate between the four views of ethics.9. Identify the factors that affect ethical behaviour.10. Describe the stages of moral development.11. Discuss various ways organisations can improve the ethical

behavior of their employees.

Do banks have a social responsibility, and what is that responsibility? This is a hotly debated issue in Australia today. As banks rationalised their branch networks during the 1990s while posting one record profit after another – all four of Australia’s biggest banks made profits ranging from $1.9 billion to $2.4 billion in 2000/2001 – it is no wonder the question has arisen. As with many cases concerning social responsibility, there are two views.

One view, held by consumer advocates and perhaps most of the general public, is that banks should behave in a more socially responsible way than they have done.1 A bank in a rural community, for example, is seen as a well, and when that well dries up – closes down – so does the local community; people stop shopping locally because it is more convenient to shop in the same distant location to which they drive to do their banking. When banks cut back increasingly on the number of branch offices, to the detriment of country towns and local shopping strips in the suburbs, and charge more and more fees - $2 for a withdrawal over the counter, 60 cents from an automatic teller machine, and other service charges – it is no wonder that people become annoyed with them. In particular, it seems as if it is the most vulnerable in society who are hit the hardest


– the poor and the elderly who usually have small bank balances. Banks are also seen as enjoying privileged oligopolistic profits because of the structure of the market. Banks – particularly the big four that dominate the Australian market – have enough financial strength to match any attempts by small new entrants to the market, or simply to buy them up if they become too threatening.

The view from the banks has consistently been that they do regard themselves as socially responsible and they maintain that they take this role seriously.2 They have claimed that Australia needs a stable, efficient and secure banking system and the only way to achieve this is to ensure that banks are profitable and healthy. As commercial ventures they must be able to satisfy all their stakeholders – shareholders, customers, employees and members of the public. In defending themselves against criticism for the closure of branches, the banks point to their use of new technologies that have made it possible to offer bank and financial services in a new, more effective and efficient way. Phone banking, for example, and EFTPOS in stores reduce the need for a local branch.

At the end of 2001 as the criticism continued to increase, the banks finally started admitting that they perhaps had struggled with the balance between shareholders and customers. Many of them are now claiming that they are rebuilding their relationship with customers and the community after a serious fall-out. Perhaps the threat of deregulation also had an impact. The big four decided at the end of 2001 to offer fee-free accounts for those on social security and the industry promised to introduce a new, more consumer-focused Code of Banking Conduct in 2002.3

Do banks have a social responsibility because of their special position in our society, or are they just businesses that should be run on purely economic lines? What do you think? Clearly, ethics and social responsibility are issues that managers are increasingly being asked to deal with as they carry out the activities of planning, organising, leading and controlling work in their organization. Social factors will invariably influence their actions.

This chapter introduces the often complicated issues involved with social responsibility and managerial ethics. The discussion of these topics is placed at this point in the text to link them to preceding and following subjects. That is, we will discover that both social responsibility and ethics are responses to a changing environment and are influenced by organisational culture (Chapter 3). Also, both social responsibility and ethics are important considerations when making decisions (Chapter 6).


What is social responsibility?Empowered by Internet technology from digital formats such as MP3 and music-swapping Internet services such as Napster, music lovers all over the world obtain and share their favourite recordings for minimal costs. Large global corporations look to lower their costs and be more competitive by locating in countries where human rights are not a high priority and justify it by saying that they are bringing in jobs and helping strengthen the local economies. Car manufacturers build large petrol-guzzling four-wheel off-road vehicles that have the potential to seriously injure people in smaller, more fuel-efficient vehicles because customers want them and are willing to pay the high prices for them. Are these companies being socially responsible? What factors influenced managers’ decisions in these situations? Management now regularly faces decisions that have a dimension of social responsibility. Employee relations, philanthropy, pricing, resource conservation, product quality and safety, and doing business in countries that violate human rights are some of the more obvious issues. How do managers make such decisions? Let us begin by looking at two different perspectives on what it means to be socially responsible.

Two opposing views of social responsibility Few terms have been defined in as many different ways as social responsibility. Some of the more popular meanings include ‘profit making only’, ‘going beyond profit making’, ‘voluntary activities’, ‘ concern for the broader social system’ and ‘social responsiveness’.4

Most of the debate has focused on the extremes. On one side there is the classical – or purely economic – view that management’s only social responsibility is to maximise profits. On the other side stands the socioeconomic position, which holds that management’ responsibility goes well beyond making profits to include protecting and improving society’s welfare.

The classical viewThe classical view holds that management’s only social responsibility is to maximise profits. The most outspoken advocate of this approach is economist and Nobel laureate Milton Friedman.5 He argues that managers’ primary responsibility is to operate the business in the best interests of the shareholders (the true owners of a corporation). What are those interests? Friedman contends that shareholders have a single concern: financial return. He also argues that when managers decide on their own to spend their organisation’s resources for the ‘social good’, they are adding to the costs of doing business.


Someone must pay for this redistribution of assets. If socially responsible actions reduce profits and dividends, shareholders lose. If wages and benefits have to be reduced to pay for social actions, employees lose. If prices are raised to pay for social actions, consumers lose. If higher prices are rejected by consumers and sales drop, the business might not survive, in which case all the organisation’s constituencies lose. Moreover, Friedman argues that when professional managers pursue anything other than profit, they implicitly appoint themselves as non-elected policy makers. He questions whether managers of business firms have the expertise to decided how society should be. That, Friedman says, is what we elect political representatives to decide!

Friedman’s argument is probably best understood by using microeconomics. If socially responsible actions add to the cost of doing business, those costs have to be either passed on to consumers in the form of higher prices or absorbed by shareholders through a smaller profit margin. If management raises prices in a competitive market, it will lose sales. In a purely competitive market where competitors have not assumed the costs of social responsibility, prices cannot be raised without losing the entire market. In such a situation, the costs have to be absorbed by the business, and the result is lower profits. The classical view also contends that there are pressures in a competitive market for investment funds to go where they will get the highest return. If the socially responsible firm cannot pass on its higher social cost to consumers and has to absorb them internally, it will generate a lower rate of return. Over time, investment funds will gravitate away from socially responsible firms towards those that are not, because the latter will provide higher rates of return. In an extreme scenario, if all the firms in a particular country - such as Australia or Nealand - incurred additional social costs because management perceived doing so to be one of business’s goals, the survival of entire domestic industries could be threatened by foreign competitors who chose not to incur such social costs.The socioeconomic viewThe socioeconomic position maintains that times have changed, and with them society’s expectations of business. According to this view, corporations are not independent entities, responsible only to shareholders. They also have a responsibility to the larger society that creates and sustains them. One author, in supporting the socioeconomic view, reminds us that ‘maximising profits is a


company’s second priority, not its first. The first is ensuring its survival’. Take the case of the Manville Corporation in the United States. Fifty years ago its senior management had evidence that one of its products, asbestos, caused fatal lung disease. As a matter of policy, management decided to conceal the information from affected employees. The reason? Profits! In court testimony a lawyer recalled how in the mid - 1940s, he had questioned Manville’s corporate counsel about te company’s policy of concealing chest X-ray results from employees. The lawyer had asked, ‘Do you mean to tell me you would let them work until they dropped dead? The reply was, ‘Yes, we save a lot of money that way’. That might have been true in the short term, but it certainly was not in the long run. The company was forced to file for bankruptcy in 1982 to protect itself against thousands of potential asbestos-related lawsuits. It emerged from bankruptcy in 1988 but with staggering asbestos-related liabilities. The claims proved so overwhelming-the company had to set up a personal injury settlement trusr fund with US$2.6 billion in cash and bonds and the pledge of a certain percentage of future profits-that on 1 April 1996 Manville Corporation went out of business permanently. Only the independent trust fund that is to continue paying out settlements to asbestos claimants retains the Manville name.

What happened to Manville is an example of what can happen when managers take a short-term perspective. Many workers died needlessly, shareholders lost a great deal of money, and a major corporation went out of business. And if you think that can only happen in the United States, consider the following. In Wittenoom, Western Australia, blue asbestos was mined for years and workers were exposed to the dangerous mineral. So far, the owner of the Wittenoom mine, CSR, has settled with more than 200 former workers who have contracted asbestos-related cancer. It is estimated that 25 percent of al the men who worked in the mines will die of asbestos-related diseases.

Another example of why companies must act responsibly in order to ensure their survival can be seen in the continuing controversy and on going court cases over whether tobaco company executies knew serveral years ago about the dangers of smoking and passive smoking, and how their knowledge may have affected their decision. It may become an issue that will cost the tobaco companies billions of dollars.

A major flaw in classicist’s view, as seen by socioeconomic proponents, is their time frame. Supporters of the socioeconomic view contend that managers should be concerned with maximising financial returns over the long run. To do that, they must accept


some social obligations and the costs that go with them. They must protect society’s welfare by not polluting, not discriminating, not engaging in deceptive advertising. They must also play an activist role in improving society by involving themselves in their community and contributing to charitable organisations.

A final point made by proponents of the socioeconmic position is that the classical view flies in the face of reality. Modern business organisations are no longer merely economic institutions. They lobby, form political action committees and engage in other activities to influence the political process for their benefit. Society accepts and even encourages business to become involved in its social, political and legal environment. That might not have been true 50 years ago, but it is the reality of today. More and more organisations around the world are taking their social responsibilities seriously. In fact, a survey of business owners reported that 68 per cent would continue socially responsible practices even if they found that the activities were cutting into profits.

1. Describle the classical view of social responsibility.2. Describle the socioeconomic view of social responsibility.3. According to the socioeconomic view of social

responsibility, what are the flaws in the classical view?Arguments for and against social responsibilityAnother way to understand the role that social responsibility plays in influencing how managers make decision as they plan, organise, lead and control is by looking at the arguments for and against social responsibility. Table 5.1 outlines the major points that have been presented by the two sides.From obligations to responsivenessHow much and what type of social responsibility businesses should pursue continues to be a topic of heated debate. Now is probably a good time to pinpoint exactly what we mean by the term social responsibility. We define social responsibility as a business firm’s obligation, beyond that required by the law and economics, to pursue long-term goals that are good for society. Note that this definition assumes that business obeys laws and pursues economic interests. We take as a given that all business firms-those that are socially responsible and those that are not-will obey all relevant laws that society enacts. Also note that this definition views business as a mral agent. In its effort to do good for society, it must differentiate between right and wrong.

We can understand social responsibility better if we compare it with two similar concepts: social obligation and social responsiveness. As Figure 5.1 illustrates, social obligation is the obligation of a business to meet its economic and legal responsibilities. The


organisation does the minimum required by law. Following an approach of social obligation, a firm pursues social goals only to the extent that they contribute to its economic goals. This approach is based on the classical view of social responsibility; that is, the business feels its only social duty is to its shareholders. In contrast to social obligation, however, both social responsibility and social responsiveness go beyond merely meeting basic economic and legal standards.

Social responsibility adds an ethical imperative to do those things that make society better and not to do those that could make it worse. A socially responsible organisation goes beyond what

TABLE 5.1 ARGUMENTS FOR AND AGAINST SOCIAL RESPONSIBILITY

For Public expectations: public

opinion now supports businesses pursuring economic and social goals

Long-run profits: socially responsible companies tend to have more secure long-run profits

Ethical obligation: responsible actions are the right thing to do

Public image: businesses can create a favourable public image by pursuring social goals

Better enviroment: business involvement can help solve difficult social problems

Discouragement of further governmental regulation: by

AgainstViolation of profit

maximisation: Business is being socially responsible only when it pursues its economic interests

Dilution of purpose: pursuing social goals dilutes business’s primary purpose-economic productivity

Costs: many socially responsible actions do not cover their costs and someone must pay those costs

Too much power: businesses have a lot of power already and if they pursue social goals they will have even more

Lack of skills: business leaders lack the necessary skills to address social issues


becoming socially responsible, businesses can expect less government regulation

Balance of responsibility and power: businesses have a lot of power and an equally large amount of responsibility is needed to balance it

Shareholder interests: social responsibility will improve a business’s share price in the long run

Possession of resource: businesses have the resources to support public and charitable projects that need assistance

Superiority of prevention over cure: businesses should address social problems before they become serious and costly to correct

Lack of accountability: there are no direct lines of accountability for social acitons

On the other hand, social responsiveness refers to the capacity of a firm to adapt to changing societal conditions. The idea of social responsiveness stresses that managers make practical decisions about the societal actions in which they engage. A socially responsive organisation acts the way it does because of its desire to satisfy some expressed social need. Social responsiveness is guided by social norms. The value of social norms is that they can provide managers with a meaningful guide for decision making. The following example might help make the distinction between responsibility and responsiveness clearer:

TABLE 5.2 SOCIAL RESPONSIBILITY VERSUS SOCIAL RESPONSIVENESS

Social Social

Social Social Responsibility responsiveness

Social opligaiton


responsibility responsivenessMajor

considerationFocusEmphasisDecision

framework

EthicalEndsObligationLong term

PragmaticMeansResponsesMedium and short

term

Source: Adapted from S.L.Wartick and P.L.Cochran. ‘The evolution of the corporate social performance modek’, Academy of Management Review. October 1985 p.766

Suppose, for example, that a multiproduct firm’s social responsibility is to produce reasonably safe products. Similarly, the same firm is responsive every time it produces an unsafe product: it withdraws the product from the market as soon as the product is found to be unsafe. After, say, ten recalls, will the firm be recognised as socially responsible? Will the firm be recognised as socially responsive? The probable answers to these questions are ‘No’ to the first, but ‘Yes’ to the second.

How does this example illustrate the distinction between social responsibility and social responsiveness? The organisation’s decision to continue producing unsafe products, even though it espoused a responsibility to produce reasonably safe products, would make it appear socially irresponsible in the eyes of the public; that is, it was not doing the right, or ethical, thing. However, the organisation’s quick action in withdrawing unsafe products from the market would make it appear socially responsive because it was responding to what the public wanted it to do.

A company that meets pollution control standards established by the federal government or does not discriminate against women when it comes promotion decisions is meeting its social obligation and nothing more. When it provides on-site childcare facilities for employees, packages products in 100 per cent recycled paper, or announces that it will not purchase, process or sell any tuna caught in association with dolphins, it is being socially responsive. Why? Pressure from working parents and environmentalists makes such practises pragmatic. Of course, an organisation that provide childcare, offered recylce packaging or sought to protect dolphins back in the 1970s would probably have been accurately characterised as a socially responsible company.

Advocates of social responsiveness believe that the concept replaces philosophical talk with practical action. They see it as a more tangible and achievable objective than social responsibility. Rather than assessing what is good for society in the long term, managers in


a socially responsive organisation identify the prevailing social norms and then change their social involvement to respond to changing societal conditions. For instance, environmental stewardship seems to be an important social norm at present and many companies are looking at ways to be environmentally responsible. Alcoa of Australia developed a novel way to recycle the used linings of aluminium smelting pots, and Denso generates its own electricity and steam at many of its Japanese manufacturing facilities. Other organisations are addressing other popular social issues. For example, Shepparton Preserving Company (SPC) contributes to charity with its ‘Share a Can’ day, where volunteers from among employees, growers and suppliers donate a day’s work and materials to produce $750000 worth of food for the Victorian Relief Agency and Victorian Foodbank. Kellogg’s (Australia and New Zealand) has donated $1.9 million since 1998 to Kids Helpline, a free confidential telephone counselling service for young people aged five to eighteen.

and Kellogg’s is also a major supporter of Surf Life Saving Australia.19 These are examples of socially responsive actions for today.4. What are the argument for businesses being socially responsible? 5. What are some of the arguments against business involvement in social responsiveness and social responsibility.6. Differentiate between social obligation, social responsiveness and social responsibility.Social responsibility and economic performance

In this section we want to answer the question: do socially responsible activities lower a company’s economic performance?

A number of studies have locked at this question. 20 All recognised the methodological limitations related to measures of “social responsibility” and “ economic performance”. 21 Most determined a firm’s social performance by analysing the content of annual reports, citations of social actions in articles on the company or public perception “ reputation” indexes. Such criteria certainly have drawbacks as reliable measures of social responsibility. Although measures of economic performance ( such as net income, return on equity or share price) are more objective, they are generally used to indicate only short-term financial performance. It may well be that the impact of social responsibility on a firm’s profits – either positive or negative – takes a number of years to manifest itself. If there is a


time lag, studies that use short-term finacial data are not likely to show valid results. There is also the issue of causation. If, for example, the evidence showed that social involvement and economic performance were positively related, this relation would not necessarily mean that social involvement caused higher economic performance. It could well be the oppsite. That is, it might mean that high profits permit firms the luxury of being socially involved. 22

Given these cautions, what do the research studies find? The majority show a positive relationship between corporate social involvement and economic performance. Only one review of 13 studies found a negative association – in this case, the price of socially responsible companies’ shares did not do as well as national share indexes.23 The logic underlying this positive relationship is that social involvement provides benefits to a company that more than offset their costs. These benefits include positive consumer image, a more dedicate and motivated workforce, and less interference from regulators.24

There is another way to look at this issue. In many industrialised countrise a number of socially conscious mutual share funds (unit trusts) were set up in the 1980s and 1990s.25 Typically, these funds use some type of social screening, that apply social criteria to investment decisions. The drive behind these funds is to focus the investment on either “ ethical” or “ green” corporations. These conscience-driven funds have therefore not invested in companies that are connected with the manufacturing of defence weapons, that use nuclear power, or that are involved in liquor, gambling, tobacco, price fixing or criminal fraud. If we look at the performance of these funds in, for example, the United States, we find that the socially conscious funds performed very close to the same level as the average equity funds as a group. The interest in Australia and New Zealand in socially conscious funds has been limited, which might be explained by the investment community’s focus on high short-term performance by the funds.

However, some Australian fund managers seem to support the principle that good management and ethical concerns coincide.26

What conclusion can we draw from all this? The most meaningful conclusion we can make is that there is little evidence to say that a company’s socially responsible actions significantly hurt its long-term economic performance. Given political and societal pressures on business to be socially responsible, this means that managers should take social goals into consideration as they plan, organise, lead and control.

Values-based management


Values-based management is an approach to managing in which managers establish, promote and practise an organisation’s shared values. An organisation’s values reflect what it stands for and what it believes in. As discussed in Chapter 3, the shared organisational values form the organisation’s culture and influence the way the organisation operates and the way employees behave.27 For instance, at The Body Shop, the company’s shared values have become part of the overall business strategy. Every managerial decision at The Body Shop is evaluated in light of the values found in its Mission and Value Statement www.the-body-shop.com. The Body Shop is committed to social and environmental causes, such as human and civil rights, a cleaner environment, an end to animal testing community involvement, and fair trade with indigenous people.28 However, at the same time it is committed to being profitable and producing a competitive return for its share-holders. For any company that believes in and practises values-based management, the shared corporate values serve many purpose.

P u r p o s e s o f s h a r e s v a l u e s

The values that organisational members share serve at least four main purposes (see Figure 5.2). The first purpose of shared values is that they act as guideposts for managerial decisions and actions.29 For example, at US clothing manufacturer Blue Bell, a strong tradition of corporate values guides managers as they plan, organise, lead and control organisational activities. Their shared values were developed through a series of participative discussions and are expressed in the acronym PRIDE: Profitability through excellence, Respect for the individual, Involved citizenship, Dedication to fairness and integrity, and Existing for the customer. In fact, any new manager participating in Blue Bell’s management training progams quickly learns that an important part of being a manager for this firm is sharing and following the beliefs expressed by PRIDE.

Another purpose of shared values is the impact they have on sharing employee behaviour and communicating what the organisation expects of its members. For instance, employees at Herman Miller, which manufactures office, residential and health-care furniture, practise company values as they design, manufacture and ship furniture around the world. What are

Managing in the Asia Pacific regionyShepparton Preserving Company (SPC)

One organisation that has made a noticeable commitment to its role in society is Shepparton Preserving Company (SPC). As one of the major employers in the Victorian town of Shepparton – 1400 staff

http://www.the-body-shop.com/


during the peak season – it takes its social responsibilities very seriously. Part of its story rests on the fact that the company came close to collapse in the early 1990s, and its struggle for survival etched SPC into local legend.

SPC suffered huge losses in 1989-90 because of increased competition from cheap imports and finacial overexposure, and was close to ceasing operations. The company embarked on a very risky solution. It sacked five board members and ruduced its workforce by one-quarter. A new board was formed, consisting mainly of locals, and the company negotiated a controversial workplace agreement with its staff, involving reduced wages as a trade-off for trying to continue operating. The whole agreement-vigorously resisted by the Australian Council of Trade Unions-was based on immense trust between management and employees and a promise to repay the sacrificed wages when – and if – the company recovered. The outcome was a tunraround that has today become part of local folklore. SPC survived and it also fulfilled its promise by paying out $1.2 million to its employees as compensation for the sacrificed wages.

Today, SPC is concerned about putting money back into the community, either directly or indrectly. Its purchasing policy is to buy Australian-sourced materials and services, and this extends into the local community. It also contributes to charity with its ‘Share a Can’ day. In April each year, 600 volunteers from among employees, growers and suppliers donate a day’s work and materials to produce $750 000 worth of food for the Victorian Relief Agency and Victorian Foodbank. SPC valued the support it received from the community when it came close to going out of business, and is today committed to repaying this loyalty by being generous and supportive towards the local community. SPC management knows that the company would not have been in existence today had it not been for the support of the local.

Source: Based on S.Paxinos, ‘ Locals value a great survivor’. The Age (An Age Special Report – Victoria: The State We’re In, II November 1998, p.7: and information at SPC website www.spc.com.au/commprog_sharecan.htm accessed 26 April 2002.

Those company values? A commitment to innovation and uncompromising quality, participative management, and environmental sterwardship.

Shared corporate values also influence marketing efforts. For example, Avon Products Inc. has made a significant commitment to educating women about breast cancer. Its support for this program

http://www.spc.com.au/commprog_sharecan.htm%20%20accessed%2026%20April%202002


came about after the company asked women what their number one health concern was and breast cancer was the answer. In response, the company created the Avon Worldwide Fund.

For Women’s Health, an umbrella organisation that has spread to 19 countries around the world. The company’s biggest women’s health program under this fund is its Breast Cancer Awareness Crusade. The company’s saleforce of more than 440 000 educates women about the disease by bringing brochures on their sales visits. The director of the crusade says, ‘All of the interaction that happens with an Avon rep on something as important as breast cancer should improve customer relations and make for easier sales.’ Avon has found a way to link its business to an important social concern and to improve its marketing efforts at the same time.

Finally, shared values are a way of building team spirit in organisations. When employees embrace the stated corporate values, they develop a deeper personal commitment to their work and feel obligated to take responsibility for their actions. Because the shared values influence the work is done, employees become more enthusiastic about doing things they support and believe in. At companies such as The Body Shop, Blue Bell, Avon Products, Herman Miller and numerous others, employees know what is expected of them on the job. They use the shared corporate values to shape the way the work. But how do organisations develop a set of share values?

Developing shared values

As any company that uses values-based management will tell you, it is not easy to establish the shared corporate values. At The Body Shop, the corporate values have been heavily influenced by Anita Roddick’s own beliefs and values, but they have also gradually been developed as the company grew and new people joined

SHARED ORGANISATIONAL

VALUES

Guide managers’ decisions and actions

Shape employee behavior

Influence marketing efforts

Build team’s


Roddick. Many of the company’s induction and training programs focus on such issues as ‘who we are’ and ‘what we are about’. In this way, The Body Shop has developed a culture that attracts people who share and believe in these values. They are values that really matter to most of the inviduals working for the company.

A survey of Fortune 1000 companies in 1993 found that 95 per cent of the respondents were convinced they would have to adopt more socially responsible business practices in coming years in order to preserve their cimpetitive edge. Getting employees to buy into a set of core values that emphasise a commitment to doing good requires strong corporate leadership. Corporate managers are responsible for shaping the organisation so that its values, norms and ideals appeal strongly to employess. Some specific suggestions for developing a good corporate values statement are listed in Figure 5.3.

Companies that live and practice values-based management have accepted a broad persepective regarding their commitment to being socially responsible and socially responsive. On value in

1. Involve everyone in the company.2. Allow customising of the values by individual

departments or units.3. Expect and accept employee resistance.4. Keep the statement short.5. Avoid trivial statements.6. Leave out religious references.7. Challenge it.8. Live it.

particular that many organisational managers are beginning to recognise as important has to do with the environmental responsibility of the organisation and of individuals. This ‘greening’ of management is what we are going to look at next.

7. What have research studies found about the relationship between an organisation’s social involvement and its economic performance?

8. How is values-based management related to the concepts of social responsibility and social responsiveness?

9. What purposes do shared values serve, and how should shared values be developed?

The ‘greening’ of management


Until the late 1960s, few people (and organisations) paid attention to the environmental consequences of their decision and actions.34

Although there were some groups concerned with conserving the land and its natural resources, about the only popular reference to saving the environment you would have seen at the time was the ubiquitous printed request ‘Please Do Not Litter’. Then a number of highly visible ecological problems and environmental disasters (the Exxon Valdez oil spill, mercury poisoning in Japan, and the Chernobyl nuclear power plant accident) brought about a new awareness and spirit of environmentalism among individuals, groups and organisations. Increasingly, managers began to confront questions about the natural environment and its impact on organisations. This recognition of the close link between an organisation’s decisions and activities and its impact on the natural environment is referred to as the greening of management. Let us look at some of the issues managers may have to address as they ‘go green’.

Global environmental problems

One ‘green’ issue managers must deal with as they become more involved in preserving the natural environment is recognizing the main global environmental problems and how these problems are changing. The list of global environmental problems is long. Some of the more serious ones include natural resource depletion, global warming, pollution (air, water and soil), industrial accidents and toxic wastes. How did these problems occur?

Much of the blame can be placed on industrial activities in developed (economically affluent) countries over the last half century.35 In fact, reports have shown that affluent societies account for more than 75 per cent of the world’s energy and resource consumption and also create most of the industrial, toxic and consumer waste.36 An equally disturbing aspect of these statistics is that, market-oriented and affluent, global environmental problems can be expected to worsen.37 However, many organisations around the world, large and small, have embraced their responsibility to respect and protect the natural environment. What role can organisations play in addressing global environmental problems? In other words, how can they ‘go green’?

How organisations go green?

There are many things that managers and organisations can do to protect and preserve the natural environment.38 Some organisations do no more than what is required by law (i.e. they fulfil their social obligation); others have made radical changes in the way they do business. Products and production processes have become cleaner.


The ‘Managing from a global perspective’ box ‘Being Green’ tells about the efforts of one individual who is developing radical ecofactories that have completely eliminated pollution in the production process. Many other companies have made environmentally friendly changes. For example, Whirlpool won a CFC-free high-efficiency refrigerator. (CFCs, short for chlorofluorocarbons, have been linked to the degradation of the ozone layer surrounding the earth.) The 3M Corporation has been a leader in waste-reduction efforts with its 3 Ps Program (Pollution Prevention Pays), and both Volkswagen and BMW are working to create recyclable cars. Finally, DuPont, Xerox and IBM have focused their environmental programs on preventing pollution, not just on cleaning it up. There are numerous other examples of environmentally friendly actions taken by global organisations. Although these examples may be interesting, they do not tell us much about how organisations go green. One approach to organisational roles in environmental responsibility uses the term shades of green to describe different approaches that organisations may embrace.39 What are these shades of green?

Managing from a global perspective

Being green

Gunter Pauli, a native of Belgium now living in Tokyo, represents a whole new breed of business person a social entrepreneur. His philosophy is that twenty-first-century companies will have to be not only financially sustainable but socially sustainable as well. Is Pauli a radical environmental activist with unrealistic and idealistic notions or an insightful visionary?

Pauli’s business background and credentials are impressive. He graduated from INSEAD (a prestigious European business school) and spent several years travelling across Europe lecturing and consulting for IBM, the global computer company. He has written eight management books and is fluent in six languages. But he considers himself more of a social crusader than a business leader. Since 1992, he has championed an ambitious program challenging how conventional companies work. He wants to create manufacturing facilities that function as closed-loop systems – that is, factories that completely eliminate waste by reusing or recycling all the raw materials they take in. Pauli calls this approach zero-emissions manufacturing and believes it is the next big breakthrough in business productivity. Total quality management meant zero defects. Just-in-time manufacturing meant zero inventories. In zero emissions, you are striving for zero waste; you use everything. You completely eliminate waste. He says, ‘This is part of the drive for higher productivity. We are always pushing to do more with labour and


capital. It is time to focus on the productivity of raw materials. Zero emissions sounds radical today. In 20 years it will be standard operating procedure.’

This radical operating concept is already in effect in a few places around the globe. Pauli is the former CEO of Ecover, a small Belgian company that produces cleaning products (laundry power, dishwashing liquid, shampoos, car wax and other products) from natural soaps and renewable raw materials. Ecover opened a near- zero-emissions factory in October1992 in Malle, Belgium. What is unique about this factory is that it is a ‘green’ marvel. A huge grass roof keeps the factory cool in summer and warm in winter. The water treatment system runs on wind and solar energy. The bricks in the factory walls are made of recycled clay from coal-mines. But Pauli does not even like the term ‘green’ to describe Ecover’s products or its factory. He says that most people assume that means lousy performance at a high price. Instead, what Ecover does is develop high-technology products based on a mastery of the chemistry of renewable resources. It is in the business of pioneering sustainable economic and social development.

Pauli believed that the media sensation created by Ecover’s green factory was a prime opportunity to create a global product brand by opening more factories around the world, but his lead investor and partner preferred a more cautious approach. So Pauli left Ecover and moved to Tokyo to work for the United Nations University and the Zero Emissions Research Initiative (ZERI). From there he coordinates a global net work of scientists, corporate executives and political leaders who are piecing together zero-emissions technology and documenting its performance benefits. ZERI’s budget for 1995 was US$50 million investment fund (to be financed by world governments) that would underwrite zero-emissions factories in different industries around the world.

In fact, construction was completed in mid-1997 on the world’s most unconventional brewery, in Namibia in southern Africa. The brewery was designed as a model of what zero-emissions factories would be like. Pauli describes it as a fully integrated biosystem. Water (the brewing process wastes massive amounts of water) flows from the brewery into ponds designed for fish farming. Mushrooms grow on piles of used grain (brewing also requires huge supplies of grain) from the fermentation process. Chickens feed on earthworms turned loose in the grain. The waste from the chickens is put into a machine called a digester, which generates methane gas that produces steam for the fermentation process. Pauli says, Does it make sense – morally,


environmentally, economically – just to waste those resources? Is there no food shortage in the world?(source: Butler, Green machine, Fast Company webpage, www.fastcompany.com 16 April 1997)

Organisations can take at least four approaches to environmental issues. As Figure 5.4 shows, the first approach is simply doing what is required legally: the legal approach. Under this approach, organizations exhibit little environmental sensitivity. They will obey laws, rules and regulations willingly and without legal challenge, and they may even try to use the law to their own advantage, but that is the extent of their being green. For example, many durable product manufacturers and oil refiners have taken the legal approach and comply with relevant environmental laws and regulations, but they go no further. This approach is a good illustration of social obligation: these organizations are simply following their legal obligations of pollution prevention and environmental protection.

As an organization becomes more aware of and sensitive to environmental issues, it may adopt the market approach and respond to the environment preferences of its customers. Whatever customers demand in terms of environmentally friendly products will be what the organization provides. The DuPont company is a good example of the market approach: it developed a new type of herbicide that has helped farmers around the world to reduce their annual use of chemicals by more than 20000 tons. By developing this product, DuPont was responding to the demands of its customers (farmers) who wanted to minimize the use of chemicals on their crops.

At the next stage, the stakeholder approach, the organizations chooses to respond to multiple demand made by stakeholders (any group in the organisation’s external environment that is affected by an organization will work to meet the environmental demands of such groups as employees, suppliers, investors and the community. Compaq Computer Corporation has developed corporate programs to minimize harmful emissions, to recycle, and to reduce both waste and energy consumption in response to demands by its various stakeholders. Both the market approach and the stakeholder approach are good illustrations of social responsiveness.

Finally, if an organization pursues an activist approach (also called a ‘dark green’ approach), it looks for ways to respect and preserve the earth and its natural resources. For example, Ecover, s Belgian company that produces cleaning products from natural soaps and renewable raw materials, operates a near-zero-emission factory.

http://www.fastcompany.com/


This green factory is an environmentally sound engineering marvel. The activist approach exhibits the highest degree of environmental sensitivity and is a good illustration of social responsibility.

Summing up social responsibility

The key issues in social responsibility are easier to understand if we think in terms of the people to whom managers are responsible. Classicists would say that shareholders or owners are an organization’s only legitimate concern. Progressives would respond that managers are responsible to any individual or group that is affected by the organisation’s decisions and policies. These stakeholders are any constituency in an organisation’s environment: government agencies, unions, employees, customers, suppliers, host communities and public interest groups.

Figure 5.5 illustrates a four-stage model of the expansion of an organisation’s social responsibility. What you do as a manager in terms of pursuing social goals depends on the people to whom you believe you are responsible – that is, the stakeholders. A AStage 1 manager will promote the shareholders’ interests by seeking to minimize costs and maximize profits. Although all laws and regulations will be followed, Stage 1 managers do not feel obligated to satisfy other societal needs. This is consistent with Friedman’s classic view of social responsibility. At Stage 2, managers will accept their responsibility to their employees and focus on human resource concerns. Because they want to recruit, keep and motivate good employees, they will improve working conditions, expand employee rights and increase job security.

At Stage 3, managers will expand their responsibilities to other stakeholders in the specific environment - that is, customers and suppliers. Social responsibility goals of Stage 3 managers include fair prices, high-quality products and services, safe products, good supplier relations and similar practices. Their philosophy is that they can meet their responsibilities to shareholders only by meeting the needs of their other constituents.Finally, Stage 4 aligins with the extreme socioeconomic definition of social responsibility. At this stage, managers feel a responsibility to socialty as a whole. Their business is seen as a public entity, and they feel a responsibility for advancing the public good. The acceptance of such responsibility means that managers actively promote social justice, preserve the environment,and support social ans cultural activities. They take these stances even if such actions negatively affect profits. For instance, Anita Roddick, the founder of the Body Shop, described earlier, could be considered a Stage 4 manager.


Each stage implies an increasing level of managerial discretion. As manager move to the right along the continuum shown in Figure 5.5, they have to make more judgmet calls. At stage 4, thay are required to impose their values of right and wrong on social. For example, when is a product dangerous to society? Is the Philip Morris corporation doing ‘right’ by sociaty when it markets Kraft cheeses but ‘wrong’ when it sells cigarettes? Or is producing a product with a high fat and sodium content also wrong? Is a public utility company that operates coal – fuelled power plants behaving irresponsibly towards society? Is it wrong for a company to makert bioengineered produce even though the produce is more disease resistant? Is a group of companies opposing the introduction of a greeenhouse tax because of alleged hardship and a potential loss of jobs behaving irresponsibly towards society? Is it wrong for a large company to take advantage of tax loopholes or to register itseft in a ‘tax haven’. When this means paying little or no tax on millions of dollars of profits? These are the types of social responsibility judgment calls that manager must make.There is no simple right – wrong dichotomy that can help managers to make socially responsible decisions. Clearly, managers of business firms have a basic responsibility to obey the laws in the communities and countries in which they operate, and to make a profit. Failure to achieve either of these goals threatens the organisations’survival.Beyond that, however, managers need to identify people to whom they believe they are responsilble.We sugget that by focusing on their stakeholder and their expectations of the organisation, managers can reduce the likelihood that they will ignore their responsibilities to sritical constituencies or alienate them, ans make more responsible choices as they deal with difficult issues. You may want to refect on Australia’s ‘big four’ banks,as discussed in the beginning of the chapter. How have they handled their social responsibility ? have they considered all their stakeholders, or only their shareholders? What is the banks’ standing in our society? What are the banks’ CEOs being rewarded for achieving? Will the current situation have long – term implications that could have adverse effects?10. What is the greening of management, abd why is it important?11. Describe how organisations can become green.12. What are the four stages of social responsibility, and what role do stakeholders play in each stage?Managerial ethicsIs it ethical for a salesperson to offer a bribe to a purchasing agent as an inducement to buy? Would it make any difference if the bribe came out of the salesperson’s commission? Is it ethical for someone


to understate their educations in order to get a job during an economicManagers who made a differenceGreg Bourne, Regional President, BPGreg Bourne, the Australian – based Regional President for the oil and energy company BP Amano, is seen as a manager who is taking a very strong stance with respect to corporate citizenship. For example, he has played a critical role in repostioning BP Amaco in the field of renewable and sustainable energies and with a genine concern for the environment, he has also been keen on developing the concept of triple bottomline reporting, where the organisation’s performance is measured not only in term osf economic performance but also with regard to social and enviromental performance. For Greg Bourne,sustainable development cannot be separated from being a good corporate citizen. In BP’s case this means looking at how the company can operate in an environmentally friendly way that goes beyond what is required by law. Greg Bourne beleives that businesses can not longer shy away from the adverse environmental impact of some of their practices or from their social obigations to their employees and the community at large.Under Greg Bourne’s leaderdship, BP Australia published its first Triple Bottom Line (TBL) report in November 2001,because it felt that the company had a responsibility to its stakeholders for more transparency in the way it reported on its activities. The BP group has been producing financial reports since 1948 and environmental and social reports since the 1990s, but BP Australia’s TBL report is part of BP’s experimentation in finding new way to report on the company’s activities and impacts. The TBL report aims to present positive and negative opinions on aspect of BP’s operations and to embrace input from external parties. For example, an international consultancy company, Environmental Resources Menagement (ERM), was commissioned to interview a range of stakeholders to gather their views about the extent to which BP is living up to its policies on ethics , employees relationships and HSE (Health, Safety and Environment) in Australia. These views were then published in full. While BP may not agree with all the views expressed by the interviewees and stakeholder, the company has demonstrated its sincere willingness to listen to what people think about the company.Source: AFR Boss true leader list 2001, Australia Financial Review – Boss August 2001,pp, 37 – 50; and various information at BP’s websites,(www.bp.com) and (www.bp. Com au), where a copy of the TBL report can be found, accessed 26 April 2002.

http://www.bp/

http://www.bp.com/


Slump if they would ordinarily be considered overqualified for the job? Is it ethical for someone to use a company car for private use? How about using company e – mail for personal correspondence?The term ethics commonly refers to the rules ans principles that define right and wrong conduct. In this section, we look at the ethical dimension of managerial decisions. Many decisions that managers make require them to consider who may be affected – in terms of the result as well as the process. To better understand the complicated issues involved in managerial ethics, and suggest ways that organsation can improve the ethical behaviour of employees.Four views of ethicsThere are four perspectives on business ethics. The first is the utilitarian view of ethics, in which decisions are made solely on the basis of their outcome or condequences. Utilitarian theory uses a quantitative method for making ethical decisions by looking at how to provide the greatest good for the greatest number. Following the utilitarian view, a manager might conclude that laying off 20 percent od the workforce in her plant isjustified because it will increase the plant’s profitability, improve job security for the remaining 80 per cent and be in the best interest of shareholders. Utilitarianism encourages efficiency and productivity and is consistent with the goal of profit maximisation. However, it can result in a biased allocation of resources, especially when some of those affected by the decision lack representation or a voice in the decision. Utilitarism can also result in the rights of some stakeholders being ignored. Another ethical perspective is the rights view of ethics, which is concerned with respecting and protecting individual liberties and privileges such as the rights to privacy, freedom of conscience, free speech, life and safety, and due process. This would include, for example, protecting the right of employees to free speech when they report violations of laws by their employers. The positive side of the rights perspective is that protects individuals’ basic rights, but it has a negative side for organisations. It can present obstacles to high productivity and efficiency by creating a work climate that is more concerned with protecting individuals’ rights than with getting the job done. The next view is the theory of justice view of ethics. Under this approach, managers are to impose and enforce rules fairly and impartially and to do so by following all legal rules and regulations. A manager would be using a theory of justice perspecive in decing to provide the same rate of pay to individuals who are similar in their levels of skills, performance or responsibility and not basing that decision on arbitrary difference such as gender, personality, race or


personal favourites. Using standards of justice also comes with pluses and minuses. It protects the interests of those stakeholders who may be under- represented or lack power, but it can encourage a sense of entitlement that might make employees reduce risk taking, innovation and productivity. The final perspective is a newer approach called the intergrative social contracts theory which proposes that ethical decisions should be based on empirical (what is) and normative (what should be) facors. This view of ethics is based on the integration of two ‘contracts’: the general social contract that allows businesses to operate and defines the acceptable ground rules, and a more specific contract among members of a community that addresses acceptable ways of behaving. For instance, in deciding what wage to pay workers in a new mining operation in South Africa, the mining company following the integrative social contracts theory would base the decision on existing wage levels in the community? This view of business ethics differs from the other three in that it suggests that managers need to look at existing ethical norms in industries and corporations to determine what constitutes right and wrong decisions and actions. Which approach to ethics do most business people follow? Not surprisingly, most business people follow the utilitarian approach.45

Why? It is consistent with such business goals as efficiency, productivity and high profits. By maximising profits, for instance, executives can argue that they are gaining the greatest good for the greater number. However, the perspective needs to change because of the changing world that faces managers. Utilitarianism tends to downplay the satisfaction of individual and minority interests for the benefit of the majority, and new trends towards individual rights, social justice and community standards mean that managers need ethical standards based on non- utilitarian criteria. This is an obvious challenge for managers because making decisions using such criteria as individual rights, social justice and community standards involves far more ambiguities than using utilitarian criteria such as effects on efficiency and profits. The result, of course, is that managers increasingly find themselves struggling with ethical dilemmas.13. What is ethics, and why is it important for managers to be aware of ethics?14. Describe the four views of business ethics.15. Which of the four views of business ethics is most popular among business people? Why?Factors that affects managerial ethics


Whether a manager acts ethically or unethically is the result of a complex interaction between the manager’s stage of moral development and several moderating variables including individual characteristics, the organisation’s structural design, the organisation’s culture and the intensity of the ethical issue (see Figure 5.6). People who lack a strong moral sense are much less likely to do the wrong thing if they are constrained by rules, policies, job descriptions, or strong cultural norms that disapprove of such behaviours. Conversely, very moral individuals can be corrupted by an organisational structure and culture that permits or encourages unethical pratices. Moreover, managers are more likely to make ethical decisions on issues where high moral intensity is involved. Let us look more closely at the factors that influence whether managers behave eethically or unethically.

Figure 5.6 factors that affect ethical and unethical behaviour

Stage of moral developmentResearch confirms the existence of three levels of moral development, each composed of two stages.46 At each successive stage, an individual’s moral judgment becomes less and less dependent on outside influences. The three levels and six stages are described in Figure 5.7. The first level is labelled preconventional. At this levels, a person’s choice between right and wrong are based on the personal consequences involved, such as phusical punishment, reward or exchange of favours. Ethical reasoning at the conventional level indicates that moral values reside in maintaining the conventional order and living up to the expectations of others. At the principled level, individuals make a clear effort to define moral principles

ModeratorsStage of moral development

Individual characteristics

Issue intensity

Ethical/unethical behaviour

Organisational culture

Structural variables

Ethical dilemma


regardless of the authority of the groups to which they belong or society in general. We can draw some conclusions from research on the levels and stages of moral development. 47 First, people proceed through the six stages sequentially. They gradually move up the moral ladder, stage by stage. They do not jump steps. Second, there is no guarantee of continued moral development. An individual’s moral development can stop at any stage. Third, the majority of adults are at Stage 4. They are limited to obeying the rules and will be inclined to behave ethically. Finally, the higher the stage a manager reaches, the more he or she will be predisposed to behave ethically. For instance, a Stage 3 manager is likely to make decisions that will receive peer approval; a Stage 4 manager will seek to be a ‘good corporate citizen’ by making decisions that respect the organisation’s rules and procedures; and a Stage 5 manager is likely to challenge organisational pratices that he or she believes to be wrong. Many of the recent efforts by universities to raise students’

Level Description of stage

Principled

6. following self – chosen ethical principles even if they violate the law5. valuing rights of others and upholding absolute values and rights regardless of the maionty opinion

convention

4. maintaining conventional order by fulfilling obligations to which you have agreed3. Living up to what is expected by people close to you

Preconventional

2.Following rules only when doing so is in your immediate interest 1. Sticking to rules to avoid physical punishment

FIGURE 5.7 STAGES OF MORAL DEVELOPMENTSource: Based on L.kohlberg. ‘Moral stages and moralization: The cognitive- development approach’, in T.Lickona(ed.).moral development and Behavior: Theory, and Social issues (Mew York: Holt, Rinehart Winston, 1976).pp.34- 35


Ethical awareness and standards are focused on helping then move to the principled level – the highest level of moral development.Individual characteristics Every person joins an organization with a relatively entrenched set of values. Our values – development in our early years from parents, teachers, friends, and others – represent basic conviction about what is right and wrong. Thus, managers in the same organization often possess very different personal values. Note that although values and stage of moral development may seem similar, they are not the same. Values are broad and cover a wide range of issues, while stage of moral development specifically is a measure of independence from outside influences.

Two personality variables have also been found to influence an individual’s actions according to his or her beliefs about what is right or wrong. They are ego strength and locus of control. Ego strength is a personality measure of the strength of a person’s convictions. People who score high on ego strength are likely to resist impulses and follow their convictions. More than those who are low on ego strength. That is, individuals high in ego strength are more likely to do what they think is right. We would expect managers with high ego strength to demonstrate more consistency between moral judgment and moral action than those with low ego strength.

Locus of control is a personality attribute that measures the degree to which people believe they are masters of their own fate. People with an internal locus of control believe that they control their own destinies, while those with an internal locus believe that what happens to them is do to luck or chance. How does this influence a person’s decision to act ethically or unethically? Externals are less likely to take personal responsibility for the consequences of their behaviour and are more likely to rely on external forces. Internal, on the other hand are more likely to take responsibility for consequences and rely on their own internal standards of right and wrong to guide their moral judgments and moral actions than will those with an external locus of control

Structural variables

An organization’s structural design helps to shape the ethical behaviour of managers. Some structures provide strong guidance, whereas others only create ambiguity and uncertainty for managers. Structural designs that minimize ambiguity and continuously remind


managers of what is ethical are more likely to encourage ethical behaviour.

Formal rules and regulations reduce ambiguity. Job descriptions and written codes of ethics are examples of formal guides that promote consistent behaviour. Research continues to show, though, that the behaviour of superiors is the strongest single influence on an individual‘s own ethical or unethical behaviour. People check to see what those in authority are doing and use that as a benchmark for acceptable practices and what is expected of them. Some performance appraisal systems focus exclusively on outcomes. Others evaluate means as well as ends. When managers are evaluated only on outcomes, they are increased pressure to do ‘whatever is necessary ‘ to look good on the outcome variables.

Closely associated with the appraisal system is the way rewards are allocated. The more rewards or punishment depend on specific goal outcomes, the more pressure there is on managers to do whatever they must to reach those goals and perhaps compromise their ethical standards. Structures also differ in the amount of time, competition, cost and similar pressures paced on job- holder. The greater the pressure, the more likely it is that managers will compromise their ethical standards.

16. Describe the stages of moral development and how they might affect a manager’s ethics.17. What individual characteristics might affect a manger’s ethics?18. How might structural variables affect a manager’s ethics?

Organizational cultureThe content and strength of an organization’s culture also influence ethical behaviour. An organizational culture most likely to shape high ethical standard is one that is high in risk tolerance, control and conflict tolerance. Manager in such a culture are encouraged to be aggressive and innovative, they are aware that unethical practices will be discovered, and they feel free to challenge openly demands of expectation they consider to be unrealistic or personally distasteful.

A strong culture will exert more influence on manager than a weak one. If the culture is strong and support high ethical standards, it should have a very powerful and positive influence on managers’ decisions to act ethical or unethically. The Boeing Company, for example, has a strong culture that has long stressed ethical corporate dealings with customers, employees, the community and shareholders. To reinforce the importance of ethics, the company developed a series of serious and thought-provoking posters


designed to get employees to viewed. In a weak organizational culture, however, manager are more likely to rely on subculture norms as a behavioural guide. Work groups and departmental standards will strongly influence ethical behviour in organizations with weak overall culture.

Issue intensityA student who would never consider breaking into a lecturer’s office to steal an introductory accounting exam might not think twice about asking a friend who took the same accounting course from the same lecturer last year that questions were on last year’s paper. Similarly, an executive might think nothing about taking home a few office supplies, yet highly concerned about the possible embezzlemment of company funds. These examples illustrate the final factor that affects a manager’s erthical behaviour- the characteristics of the ethical issue itself. As figure 5.8 shows six characteristics have been identified as relevant in determinding issue intensity.

1. How great a harm (or benefit) it done to victims (or benefitciaries) of the ethical act in question? Examples an act that puts 1 000 people out of work is more harmful than one affecting only ten people.

2. How much consensus is there that the act is evil (or good) example: more Australians and New Zealanders agree that it is wrong to bribe a customs official in their own country than agree that it is wrong to bribe a customs official somewhere in Afica.

3. What is the probability that the act will actually take place and will actually cause the harm (or benefit) predicted? Example: selling a gun to a known armed robber had greater probability of harm than selling a gun to a law-abiding citizen.

4. What is the length of time between the act in question and its expected consequences? Example: Reducing the retirement benefit of curent retirees had greater inmediate consequences than reducing the retirement the benefits of current employees who are between age of forty and fifty.

5. How close do you feel (socially, psychologically or physically) to the victims (or benefitciaries) of the evil (benefitcial) act in quention? Example: lay-offs in one’s own work unit hit closer to home than do lay-offs in a remote city.

6. How large is concentrated effect of the ethical act or the people involved? Example: A change in the warranty policy denying coverage to ten people with claims of $10 000 had of more concentrated effect than a change denying coverage to 10 000 people with claims of $10.


According to these guidelines, the large the number of people harmed, the greater the agreement the action in wrong, the greater the likelihood the action will cause harm, the more immediately that the consiquences pf the action will be felt, the closer the person feels to the victim(s) of the act, and the more concentrated the effect of the action on the victim(s), the greats the issue intensity. The more important an ethical issue is –that is, the more intense it is the more we should expect managers to behave ethicaly. 19. How does an organisation’s culture influence ethical behaviour?

How much agreement is there that this action is wrong

Will harm be felt immediaely

How likely it that this action will cause harm

How close are the potential victims

How many people will be harmed

How concentrated is the effect of the action on the victim(s)

Consensus

Issure intensity

Proximity tovictim(s)

probabilit

Immediacy of

consequenc

Concentration of effect

Greatness


20. Describe the type of organisational culture that is most likely to shape high ethical standards. 21. What determines the degree of intensity of an ethical issue?Ethics in a global context

Are ethical standards universal? Hardly! Social and cultural defferences between coutris are important environmental factors that determine ethical and unethical behaviour. For example, the manager of a Mexican firm bribes several high-ranking government officials in Mexico City to secure a profitable government contract for his firm. Such a practice would be seen as unethical, if not illegal, in Australia or New Zealand. But it is standard bussiness pratice in Mexico and many other coutries. Shoud Australian and New Zealand bussiness excutives operating in South –East Asia adhere to the ethical standards of their coutry, or should the phrase ‘when in Rome, do as the Romans do be the guide? If the Hong Kong construction company will pay $10 000 ‘ broker’s fee ‘ to a middleman to get a major contrac with a South-East Asian local government, should the Australian construction company be restricted from doing the same because such practices are considered impropert in Australia?

These are issues that will be encountered by many managers and companies operating in the global maketplace. It is illuminating to look at nations that have had more experience in dealing with these issues. In the case of the payments to imfluence foreign officials or policians, there is a law to guide US managers. The Foreign Corrupt practices act, passed in 1977, makes it illegal for US firm knowingly to corrupt a foreign official. Even this law does not always reduce ethical dilemmas to black and white. In some Latin American countries, for example, government bureaucrats are paid ridiculously low salaries because costom dictates that they receive small payments from those they serve. Pay-offs to these bureaucrats ‘grease the mechinery’ of government and ensure that things get done. The Foreign Corrupt Practices Act does not expressly prohibit small pay-offs to foreign government employees who duties are primarily ministerial or clerical when such pay-offs are an accepted part of a country’s buseniss pratices.Levi Strauss has decided to export its United State ethical standards. After investigating its 400 foreign contractors, the company found that approximately 25% were overtly exploiting their worker. One contractor on the island of Saipan, for instance, worked its people 11 hours a day, 7 days a week! Others rountinly used child labour. To eliminate these abuses, Levi Strauss’s management has adopted strict guidelines for its foreign contractors-including providing safe and healthy working conditions and requiring pay levels that are no


lower than prevailing local wages. To ensure that the guidelines are followed, inspecters from US headquarters now make surpprise visits.Although it is important for individual managers working in foreign cultures to recognise the social, cultural, political and legal influences on what is appropriate and acceptable behaviour, global organisations must also clarify their ethical guidelines so that employees know what is expected of them while working in a foreign location.This adds another dimension to making ethical judgments.

At the World Economic Forum in January 1999, the United Nation Secretary-General challenged world business leaders to ‘embrace end enact’ the Global Compact, a document outlining nice principle for doing business globally in the areas of human rights, labour and environment.55 These nine principles listed in Figure 5.9.Global businesses have been asked to incorporate these guidelines into their business activities. Companies making this commitment are doing so because they believe that the world business community plays a significant role in improving economic and social conditions.

Human rightsPrinciple 1: Support and respect the protection of international human rights within their

sphere of influencePrinciple 2: Make sure business corporations are not complicit in human rights abuses

Labour standardPrinciple 3: Freedom of association and the effective recognition of the right to collective

bargainingPrinciple 4: The elimination of all forms of forced and compulsory labourPrinciple 5: The effective abolition of child labourPrinciple 6: The elimination of discrimination in respect of employment and occupation

EnvironmentPrinciple 7: Support a precautionary approach to environment challengesPrinciple 8: Undertake initiatives to promote greater environment responsibilityPrinciple 9: Encourage the development and diffusion of environmentally friendly technologiesFUGURE 5.9 THE CLOBAL COMPACTSource: The Global Compact website www.unglobalcompact.org 14 August 2000

http://www.unglobalcompact.org/


Toward improving ethical behaviour

Members of top management can do a number of things if they are serious about reducing unethical practices in their organisation.They can seek to hire individuals with high ethical standards, establish codes of ethics and decision rules, lead by example, delineate job goals and provide ethics training.Taken individually,these action will probably not have much impact.But when all or most of them are implemented as part of a comprehensive ethics program,they have to the potential to significantly improve an organisation’s ethical climate.The key term here,however, is potential.There are no guarantees that a well-designed ethics program will lead to the outcome desired.Dow Corning,for instance,was long recognised as a pioneer in corporate ethics,and its ethics program had been cited as among the most elaborate in corporate America.56 But the company’s ethics program did not stop its managers from covering up and misrepresenting the results of studies on their silicone-gel breast implants.Employee selectionGiven that individuals are at different stages of maral development and possess different personal value systems and personalities,an organisation’s employee selection process – interviews, tests, value systems and personalities, an organisation’s employee selection process – interview, test, background,check and the like – should be used to eliminate ethically underdirable applicants. The selection process should be viewed as an opportunity to learn about an individual’s level of moral development, personal values, ego strength and locus of control.57 But this is not an easy task! Even under the best of circumstances, individual with questionable standards of right and wrong will be hired. However,this should not pose a problem if other controls are in place.

Codes of ethics and decision rules

We have already seen how ambiguity about what is and is not ethical can be a problem for employees. A code of ethics, a formal statement of an organisation’s primary values and the ethical rules it expect its employees to follow,is a popular choice for reducing that ambiguity. For instance, nearly 95 percent of Fortune 500 companiesnow have codes of conduct.And codes of ethics are


becoming more popular globally. A survey of business organisations in 22 countries found that 78 percent have formally stated ethics standards and codes of ethics.58

What should a code of ethics look like? It has been suggested that codes should be specific enough to show employees the spirit in which they are supposed to do things,yet loose enough to allow for freedom of judgment.59 A survey of business ethics in the United States – including those of such varied firms as Exxon, Sara Lee, DuPont, Bank of Baston and Wisconsin Electric Power – found that their content tended to fall into three catgories: (1) be a dependable organisational citizen; (2) do not do anything unlawful or improper that will harm the organisation; and (3) be good to customers.60

Figure 5.10 lists the variable included in each od these clusters in order of their frequency of mention.An Australian study,which replicated the American study referred to above,found that from Cluster 1 only two issues were present to any significant degree in Austranlian codes.61 Comply with safety and health regulation appearedin 33 per cent of the codes; and Demonstrate courtesy, respect, honesty and fairness’ in dealing with customers,suppliers, competitor and other employees was present in 30 per cent of the codes. The items most frequently present came from Cluster 2, such as: avoid conflict of interest – 71 per cent;in business and personal affairs, comply with laws, regulations and policies – 70 per cent; and safeguard confidentiality of reccords and information of customers, employees and the firm – 68 per cent. This study concluded that ‘while code may perform other worthwhile functions for an enterprise, their contribution to ethical matters and to development and sustaining of ethical cultures has not been fully utilised in codes of ethics in Australian enterprise’.However, in the last few years there has been an increase in interest in the development of some form of ethics codes,in line with what is talking place in the United States and Europe. One Australian study found that government – owned organisations were more likely to have a code of ethics than other organisations. Also, most codes were quite short, with most being one to five pages long.62 A good example of a code of conduct can be seen on Lend Lease’s website < www.lendlease.com.au >

But how well do codes of ethics work? The reality is that they are not always effective in encouraging ethical behaviour in organisation. A survey of employees in US businesses with ethics codes found that 75 per cent of those surveyed had observed ethical or legal violations in the previous 12 months, including such things as deceptive sales practices, unsafe working conditions, sexual harassment, conflicts of interest and environmental violation.63 Does

http://www.lendlease.com.au/


this mean that codes of ethics should not be developed? No.But there are some suggestions that managers can follow. First, ethical codes should not be developed and applied in isolation. Information

Cluster 1. Be dependable organisational citizen1. Comply with safety, health and security regulations.2. Demonstrate courtesy, respect. Honesty and fairness.3. Illegal drugs and alcohol at work are prohibited.4. Manage personal finances well.5. Exhibit good attendance and punctuality.6. Follow directives of supervisors.7. Do not use abusive language.8. Dress in business attire.9. Firearms at work are prohibited.

Cluster 2. Do not do anything unlawful or improper that will harm the organization

1. Conduct business in compliance with all laws.2. Payments for unlawful proposes are prohibited.3. Bribes are prohibited.4. Avoid outside activities that impair duties.5. Maintain confidentiality of records.6. Comply with all antitrust and trade regulations.7. Comply with all accounting rules and controls.8. Do not use company property for personal benefit.9. Employees are personally accountable for company funds.10. Do not propagate false or misleading information.11. Make decisions without regard for personal gain.

Cluster 3. Be good to customers1. Convey true claims in product advertisements.2. Perform assigned duties to the best of your ability.3. Provide products and services of the highest quality.

FIGURE 5.10 CLUSTERS OF VARIABLES FOUND IN 83 CORPORATE CODES OF BUSINESS ETHICS

Source F.R.David. An empirical study of codes of business ethics: A strategic perspective. Copyright 1988 by Academy of Management.


Reproduced with permission of Academy of Management in the format textbook via Copyright Clearance Center.About ethical expectations and reminders about the organisation’s commitment to ethics should be continually replayed to employees. Second, all levels of management should support and continually reaffirm the importance of the code of ethics discipline those who break the code. When managers consider the code of ethics to be important, regularly, affirm its content and publicly reprimand rule-breakers, ethics codes can supply a strong foundation for an effective corporate ethics program. Finally, an organisation’s code of ethics might be designed around the 12 questions listed in Figure 5.11 that can be used as decision rules in guiding managers as they handle ethical dilemmas in decision making.

1. Have you defined the problem accurately?2. How would you define the problem if you stood on the other side

of the fence?3. How did this situation occur in the first place?4. To whom and to what do you give your loyalty as a person and

as a member of the corporation?5. What is your intention in making this decision?6. How does this intention compare with the probable results?7. Whom could your decision or action injure?8. Can you discuss the problem with the affected parties before

you make the decision?9. Are you confident that your position will be as valid over a long

period of time it seems now?10. Could you disclose without qualms your decision or action

to your boss, your chief executive officer, the board of directors, your family, society as a whole?

11. What is the symbolic potential of your action if understood? If misunderstood?

12. Under what conditions would you allow exceptions to your stand?

FIGURE 5.11 TWELVE QUESTIONS FOR EXAMINING THE ETHICS OF A BUSINESS DECISIONSource: adapted and reprinted by permission of Harvard Business Review. An exhibit from ‘Ethics without the sermon’ by L.L.Nash, November-December 1981, p.81. Copyright 1981 by the President and Fellows of Harvard College; all rights reserved.


Lend Lease’s code of conduct is available on its website for anyone to read.

Top management’s leadership

Doing business ethically requires a commitment from top

managers. Why? Because it is the top managers who set the cultural

tone. They are role models in both words and actions- though what

they do is probably far more important than what they say. If top

managers , for example, use company resources for their expense

accounts or give favoured trearment to friends, they imply that such

behaviour is acceptable for all employees.

Top managers also set the cultural tone by their reward and

punishment practices. The choice of whom and what are rewarded with

pay increases and promotions sends a strong messeges to employees.

The promotion of a manager for achivving impressive results in an

ethically questionable manner indicates to everyone that those

questionable ways are acceptable. When wrongdoing is uncovered,

managers who want to emphasise their commitment to doing business


ethically must punish the offender and publicise the fact by making the

outcome visible to everyone in the organization. This practice sends a

message that doing wrong has a price and it is not in employees’best

interests to act unethicaly!

22. Describle how the employee selection process might

be used to encourage ethical behaviour.

23. What are codes of ethics, and how can their

effectiveness be improved?

24. What role does ttop management’s leadership play

in encouraging ethical behaviour?

Job goals and performance appraisal

Employees should have realistic and tangible goals. Explicit goals

can create ethical proplems if they make unrealistic demands on

employees. Under the stress of unrealistic goals, otherwise ethical

employees will ofren take the attitude that ‘anything goes’.when goals

are clear and realistic,they reduce ambiguity for employeesand

motivate rather than punish.

Whether an individual achieves his or her job goals is usually a

key issue in performance appraisal. Keep in mind, though, that when

performance appraisals focus only on economic goals, ends will begin

to justify means. If an organization wants its employees to uphold high

ethical standard, it must include this dimension in its performance

appraisal process. For example, a manager’s annual review mighr

include a point- by- point evaluation of how his or her decisions

measured up against the company’s code of ethics and on how well

goals were met.

Ethics training

More and more organizations are setting up seminars, workshops

and similar ethics training programs to encourage ethical behaviour.

Ethics researchers estimate that over 40 percet of US compaies provide


some form of ethics traning, whereas the figure in Australia is only

about 20 percent.64 but these traning programs are not without

controversy.the primary debate is whether you can actually teach

ethics. Critics tress that the effort is pointless because people establish

their individual value systems when they are very young. Proponents,

however, ote, that several studies have found that values ca be learned

after early childhood. In addition, they cite evidence that shows that

teaching ethical problem solvig can make an actual difference in

ethical behaviour;65 that training increased individuals’ level of moral

developmet; 66 and that, if it dose nothing else, ethics traning increases

awareness of ethcal isues in business.67

How do you teach ethics? Let ú examine how it es done at

Citicorp. There, as part of the company’s comprehensive corporate-

ethcs traning program, maagers participate in a game that allows them

to practice their understanding of the company’s ethical standards. 68

Players move makers around a game board when they correctly answer

multiple-choice questions presented on cards. Each card poses an

ethical dilemma a bank employee might encounter.as the game

progresses, players are’promote’ from entry level employee to

supervisor and eventually to senior manager.

Ethical dilemmas in management

Grand corruption is worldwide

Grand corruption became a worldwide phenomenon in the 1990s.

the World Bank has estimated that US $80 billion per year is paid in

international bribes and that some of the worst affected areas are

Africal, Asia and South Americal. What has also occurred is that,

although corruptionhas existed for thousands of years, the bribes have

escalated when it comes to the proportion of the contract price. Thirty

years ago 5 percent would have been regarded as fairly high, but today

20 percent is not uncommon. The concern is that corruption is


occurring even at the top of governments. Tow former presidents of

South Korea have been imprisoned,the secretary-general of NATO was

forced to resign, three former prime ministers of Italy were proseculted,

and a former prime minister of India and several of his Cabinet

ministers were prosecuted and forced to resign in the face of serious

accusations. Presidents Marcos of the Philoppines and Mobutu of

Zaire(now Congo) are other notable examples.

Although some business people argue that paying bribes is

standard business practice in the developing world or that all their

competitors are doing it, there is a huge downside to corruption. Henry

Bosch, chairman of the Australian chapter of Transparency

International – a high- profile anti- corruption group- suggests why

corruption should not be tolerated, apart from the immorality of the

practice. For example:

Huge amounts paid in bribes are diverted away from where

it is needed and into the personal wealth of individuals who often place

the moneu I foreign bank accounts. A Swiss report recently estimated

that US $ 20 billion is currently being held in banks in Switzerland o

behalf of the leaders of certain African countries, most of whose

citizens suffer extreme poverty.

Crand corruption distorts decision making when contractors

or developers are selected o the basis of what they offer the decision

maker rather than their ability to do the best job for the lowest price.

Grand corruption often leads to projects being done badly –

the quality of work is usually compromised or the environment is

exploited without regard to sustainable development ot the interests of

those who live in the developed areas.

Projects are commoly selected not because they are the

most needed in the country, but because they provide the easiest way

for the biggest bribes to be received.


Once a country becomes recognized internationally as one

with a comparatively high level of corruption, its reputation is seriously

damaged and it becomes more difficult to attract foreign investment.

Finally, there is a serious risk that corrupt practices

developed to win business in foreign countries will flow back to the

coutries from which the bribes originated as salespeople and marketing

managers are tempted to try similar tactics when they are transferred

back to the country.

What ethical gudelines might you suggest for organizations and

individuals to help avoid corrupt practices being established when

operating in a global environment?

Source: Based on H.Bosch, ‘Grand corruption:A damaging

cacer ’ New Zealand Charactered Accountants journal, September

1998.pp9-17

As an example, one question asks;’After successfully completing a complex deal for a Japanese client, he presents you with a vase to express his appreciation. It is an expensive item, and accepting agift of such value is clearly against Citicorp policy.yet returing it would insult your client. Would you: (a) return the vase to the client and explain diplomatically that is against Citicorp policy to accept gifts from clients; (b) accept the gifts because you can’t risk insulting an important client; (c) accept the gift on behalf of Citicorp, log it with premises management as a furnishing, and display it in a public area of the office; (d)accept the gift and use it as an award for an employee who displays service excellence?’ (Citicorp prefers answer (c).) Another question asks: ‘What do you do if the manager of a competing bank calls to suggest colluding on interest rates?’ If the player picks ‘Ask to meet him and discuss it further’, that player is ‘fired for breach of ethics’ and is out of the game!

Ethics training sessions can provide a number of benefits. They reinforce the organization’s standards of conduct. They are a reminder that top managers want employees to consider ethical issues in marking decisions. They clarify which practices are permissible and which are not. Finally, when employees discuss common concerns among themselves, they are reassured that they are not alone in facing ethical dilemmas. This reassurance can strengthen confidence their


confidence when they have to take unpopular but ethical correct stances.

Independent social audits

An important element of unethical behavior is fear of being caught. Independent social audits, which evaluate decisions and management practices in terms of the organization’s code of ethics, increase the likelihood of detection. These audits can be routine evaluations, performed on a regular basis just as financial audits are, or they can occur randomly with no prior announcement. An effective program should probably include both. To maintain integrity, the auditors should be responsible to the company’s board of directors and present their findings directly to the board. This practices not only gives the auditors clout but also lessens the opportunity for retaliation from those being audited.

Formal protective mechanisms

Our last recommendation is for organizations to provide formal mechanisms to protect employees who face ethical dilemmas so that they can do what is right without fear of reprimand. An organization might, for instance, designate ethical counselors. When employees face an ethics dilemma, they could go to these advisers for guidance. The ethical counsellor’s role would be that of a sounding board – a channek to let employees openly verbalise their ethical problem, the problem’s cause and their own options. After the options are clear, the adviser might take the role of an advocate who champions the ethically ‘right’ alternatives. Other organizations have appointed ethics officers who design, direct and modify the organization’s ethics program as needed. The organization could also create a special appeals process that employees could use without risk to themselves to raise ethical issues or ‘blow the whistle’ on violators.

Final thought

If you picked up a 25-year-old management text, it is almost certain that you would not find a chapter on social responsibility and ethics. If the terms appeared in the text all, they would not have received more than a paragraph of attention. What has happened to bring about this evolution?

One line of thinking is that the recent focus on these topics is a response to a decline in business’s willingness to accept its societal responsibilities and a decline in the ethical standards of managers. For


instance, a Gallup poll reported that 65 percent of Americans thought that the overall level of ethics in society declined between the mid-1970s. the widely publicized ethics scandals that rocked Wall Street in the late 1980s certainly helped to create that perception. Australia and New Zealand had similar experiences, with examples like the high-flying entrepreneurs Alan Bond, Christopher Skase, Allan Hawkins and Laurie Connell from the roaring 1980s, who were able to use technical or legal loopholes to avoid or severely delay legal proceedings. All of this created a perception that ethical and moral standards were slipping.

Perhaps the situation today is a product of our time. Organizations are now being asked to balance the needs of environmentalists, racial minorities, women, consumers and many others who are demanding a fairer deal. Who should come first, and what is most important? These are questions that do not always have clear-cut answers and require considerable deliberation. Multicultural societies such as Australia and New Zealand have particular concerns. How can an ethical common denominator be found when reactions to issues vary greatly across cultures? What is acceptable for one ethnic group might be totally unacceptable to another.

It should be clear that society’s expectations of business have changed. Cornelius Vanderbilt’s famous phrase ‘the public be damned’ was accepted by many in the 1890s. It is not acceptable in the twenty-first century. It may have been accepted to pump untreated industrial waste or sewage into the waterways in the 1950s, but it can not be allowed today!

What is the real situation at the present time? Some advances have been made in improving ethical behaviour, but it is debatable whether the overall situation has improved. A survey of employees shows that workplace pressures are leading more and more of the to consider acting unethically or illegally on the job: 56 percent felt such pressure, and 48 percent said that they had actually committed such activities. What types of unethical business activities were reported? Here is a sampling that respondents admitted to: cutting corners on quality control (16 percent); covering up incidents (14 percent); abusing or lying about sick days (22 percent); lying to or deceiving customers (9 percent); putting inappropriate pressure on others (7 percent); falsifying numbers or reports (6 percent); lying to or deceiving superiors on serious matters (5 percent); withholding important information (5 percent); misusing or stealing company property (4 percent); taking credit for someone’s work or idea (4 percent); taking credit for someone’s work or idea (4 percent); and engaging in copyright or software infringement (3 percent).


As we all know, unethical behaviours are prevalent across our society. Cheating, for instance, is a common occurrence in education. A range of studies shows that anywhere from 75 percent to 98 percent of students admit to having cheated in high school. One survey in the United States shows some ethically alarming results: 90 percent believe that cheaters never pay the price; 90 percent say that when they see someone cheating they do not turn the person in; 84 percent believe that they need to cheat in order to get ahead in the world today; and 63 percent say that it is fair for parents to help with their kids’ homework. It is not surprising that organizations have difficulty upholding high ethical standards when their future employees – these student – so readily accept unethical behaviour.

What are the implications for managers, current and future? Doing the right thing – that is, managing ethically – is not always easy. However, because society’s expectations of its institutions are regularly changing, managers must continually monitor those expectations. What is ethically acceptable today may be a poor guide for the future. Maybe the final words should be given to Kenneth Blanchard and Norman Peale; in their book The Power of Ethical Management, they suggest we ask ourselves three question when deciding how to handle an ethical dilemma:

1. Is the decision / action legal?2. Is the decision / action balanced or fair to everybody

concerned?3. How would it make me feel about myself if my decision / action

was published in the newspaper or if my family found out about it?In the final analysis it is usually up to each of us decide how we will act when caught in an ethical dilemma. 25. Describe how ethics training programs are used to encourage ethical behavior. 26. Describe how independent social audits and formal protective mechanisms can encourage ethical behavior. 27. What are the implications for managers of the surveys showing the status of ethical behaviour in the workplace?

Summary

This summary is organised by the chapter-opening learning objectives.1. According to the classical view,business’s only social respondsibility is

to maximise financial returns for shareholders. The opposing socioeconomic view holds that business has a respon-sibility to the large society.

2. The arguments for business being socially respondsibile include public expectations, long-run profits ethical obligation, public image, a better


environment, fewer government regulations, balancing of respondsibility and power, shareholder interests,procession of resources and the superiority of prevention over cure. The argument against hold that social respondsibility violatess the profit-maximisation objective, dilutes the organisation’s purpose costs too much, gives business too much power, requires skills that business does not have, and lacks account-

ability and wide public support.3. Social obligation is when an organisation has met its economic and

legal respondsibility and no more. Social responsiveness refers to the capacity of a firm to respond to social pressures and is guided by social norms. Social respondsibility refers to business’s pursuit of long-term goals that are good for society and requires business to determine what is right or wrong by seeking out fundamental ethical truths.

4. Although many studies have shown a positive relationship between social involvement and economic preformance , we need to be cautious about drawing conclusion , because of methodological concerns. The most meaningful conclusion we can make is that there is little evidence that a company’ s socially responsible actions signficantly hurt its long-term economic performace.

5. Values based management refers to an appoach to managing in which mangers establish, promote and practise the organisation’s shared values. The shared values make up the organi- saction’s culture and influence the way the organisation operates and employees behave.

6. The greening of the management is the recognition of the close link between an organisation’s

Decisions and activities and its impact on the natural environment. Organisations might go green using any of four approaches: the legal appoarch, the market appoarch,, the stakeholder appoarch and the activist appoarch.

7. A stakeholder is any constituency in an organisation’s environment that is affected by the organisation’s decisions and policies. By focusing on the organisation’s stakeholders and their expectiations of the organisation, management is not likely to ignore its responsibilities to critical constituencies.

8. The utilitarian view makes decisions on the basis of their outcome or consequences.The rights view seeks to respect and protect the basic rights of the individuals. The theory of justice view seeks to impose and enforce rules fairly and impartially. The integrative social contracts view


recognises the implicit contracts between organisations and ethical standards of the community within which they operate.

9. Whether a manager acts ethically or unethically is the result of a complex interaction between the manager’s stage of moral development, his or her individual characteristics, the organisation’s structural design,the organisation’s culture and the intensity of the ethical issue

10. There are three levels of moral development, each comprising two stages. The first two stages

are influenced exclusively by an individual’s personal interests. Stages 3 and 4 are influenced

by the expectations of others. Stages 5 and 6 are influenced by personal ethical principles about what is right.

11. A comprehensive ethical program would include hiring individuals with high ethical standards, estabishing codes of ethics and decision rules, leading by example, delineating job

goals and performance appraisal mechanisms, providing ethics training, conducting social audits and providing support to individuals facing ethical dilemmas.

Thinking about management issues

1. What does social responsibility mean to you personally? Do you think business organisations should be socially responsible? Expain.

2. Do you think values-based management is just a ‘do-gooder’ ploy? Explain your answer.

3. Dicuss this statement: ‘In the long run, those who do not use power in a way that society considers responsible will tend to lose it.’

4. A whistleblower is someone who reports his or her employer’s unethical practices to outsiders. What are some problems that could be associated with employee whistleblowing for (a) the whistleblower and (b) the organisation?

5. Describe the characteristics and behavior of what you would consider an ethical manager. How could the types of the decisions and actions in which this person engages be encouraged in a workplace?

LOG ON : INTERNET – BASED EXERCISE

An increasing number of organisations are making a commitment to understanding the impact of their decisions and actions on the natural environment. Using the Wed, find two examples of companies that fit the profile of each of the four appoarches to going green. For each example, desribe what specific activities the company is doing. Be sure to give the wesite addresses for the example you find.


TAKE IT TO THE NET

We invite you to visit the Robbins, Bergman, Stagg and Coulter companion website at <www.prenhall.com/robbins_au> for this chapter’s Internet resources. The following activities would be of interest in relation to the material covered in this chapter. This material is pin code protected. You will find your pin access code at the end of the book.

SELF-ASSESSMENT EXERCISES9- what do I value?19- how do my ethics rate?Two self-assessment exercises that you can use to valuate your own values and ethics are Exercise 9: what do I value? And 19- how do my ethics rate ? The first exercise, found in the self-assessment library in the section hat about me ? –personality insights , can help you to assess what is important to you .the second exercise ,in the self-assessment library in the section what about me ?-decision –making insights ,help you compare your own ethical values with the mean responses from a group of 243 management student. WORKING TOGETHER : TEAM-BASED EXERCISE

You have obviously faced many ethical dilemmas already in your life –at school , in social settings and even at work . Form groups of three to five individuals . appoint a spokesperson to present your group’s findings to the class. Each members of the group is to think of some unethical behaviours he or she has observed in organizations . the incidents could be something experienced as an employee, customer or client , or an action observed informally.Once everyone has identified some examples of ethically questionable behaviours ,the group should identify three important criteria that could be used to determine whether a particular action is ethical . think carefully about these criteria .they should differentiae between ethical and unethical behaviour .write your choice down .use these criteria to assess the examples of unethical behavior described by group members. CASE APPLICATION After the gold rush

Early in 2000 it become publicly know that after nearly two decades the Australian resource company BHP was looking at ways to get out of

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the troubled ok tedi gold and copper mine in Papua New Guinea(PNG) . BHP’s new CEO , Paul Anderson ,expressed that his assessment of the operation had made him uncomfortable about the company’s continued involvement in the operations, particularly in relation to the environmental damage of the mine ,which according to him ,had come to light quite recently. Although Anderson could not be blamed for the situation –the mine had been in operation for many years before he arrived at BHP –many critics questioned whether this really was something that BHP has found out. In 1983, when the explorations identified huge gold and copper deposits high in the Star Mountains of PNG there were high hopes and promises that the impact of the mining operation on the pristine wilderness could be contained. As the actual mining operation got under way, this proved to be a much too optimistic view. The original plans were that the mine was going to have a tailings dam, which was going to extract most of the sediments that the produced as the rock was crushed to extract the gold and copper. But the operating company OTLM (ok tedi mining limited), which managed the mine for BHP , ended up giving priority the construction of the processing plant over the tailings dam ,which resulted in the dam falling into disrepair and finally collapsing before the mine started its processing operation. After the dam had collapsed, OTLM started to look for other solutions, but they were not prepare to pay $300 million to construct a new dam because they were regarded the costs as higher than world benchmarks for similar dams. It finally came to a point where the PNG government withdrew its demand for a tailings dam because they were worried that BHP would withdraw from the project if the continued to insist on the dam being built. So when the ok tedi mine started it processing of the mined rock containing the gold and copper, there was no tailings dam in place to filter out the sediments. Some of the environmental specialists who had been working on the project for BHP were shocked when the mine started its processing. They had not thought that anybody would put such a huge mine and processing plant in operation without a tailings dam and that no government would allow it to happen, some of them left in disgust when they saw the once pristine wilderness river turned into a gutter for mining waste. After extracting the copper from 80 million tons of rock per year(235ton/day)the waste(approximately 55 million ton/year)was pumped out into the river and started its slow progress downstream. From having been a clear river, the river took on the appearance of grey-brown slurry. The heaviest sediment was deposited on the bed of the river,which caused the river to rise and flood the surrounding areas. The devastation soon reached Bige village on the bank of the ok tedi


river where people ere subsisting by catching fish and growing food in their gardens by the side of the river. As the river became increasingly polluted the fish disappeared, and as the river rose the gardens were flooded. Even subsistence living became impossible. However ,OTML continued to downplay the effects and instead pointed to the benefits it had brought to the surrounding area and to PNG in general. Thirty million dollars was pumped into the PNG economy through taxes and royalties. Tabubil, the mining town that had grown up to house employees and their families, was home to 10 000 people. Schools , hospitals, shops, new houses and services only dreamt about by most Papua New Guineans had given rise to an emerging middle-class in the most underdeveloped region of PNG. Here BHP was providing employment and training opportunities that were so badly needed. In mid-1990 the landowners filed legal proceedings against BHP with the help of Slater and Gordon in Melbourne. BHP settled out of court and agreed to pay $150 million in compensation to the landowners .they also promised to find a way to deal with the problem. However, the problem continued to escalate. Despite BHP’s attempts to dredge out the sediments, 14 years after it had started to pump the waste into the river. So at the end of the 1990s new legal proceedings were set in motion as a report from the World Bank was made public. The report identified tow environmental dangers that could escalate. First ,there was concern about the copper. Although most of the copper had been extracted, there was some left, and it was allowed to enter the river’s ecosystem. Periodically the high levels of copper could kill algae and fish. Second, an even bigger concern was acid-rock drainage. When ‘fresh’ rock is exposed, bacteria can start to attack the rock, producing acid which is then washed out with rain. The worst-case scenario was that the cost from such acid leakage could be in the order of US$3.7 billion per year for the next 50 years. It comes as no surprise that BHP and Paul Anderson had identified the ok tedi mine as a dysfunctional project in BHP’s portfolio, with potentially high costs to shareholders. In 2000 BHP faced attacks on four fronts: (1)renewed legal action by the landowners (the settlement in 1996 had given most of the small landowners an average of only $100 each), (2)threats to take BHP to the international court of justice for the environmental damages from landowners at the mouth of the river(400kilometres downstream) where the pollution had reached, and (4) possible crippling costs of copper damages and acid-rock drainage. After 16 years of operation, during which time gold and copper to the value of $8 billion was extracted, BHP started its manoeuvres to get out of the project, even through the mine was expected to operate until at least 2010 and the project was entering into its most profitable period.


This situation gives rise to a number of questions. After having profited from the mine, does BHP have any long-term responsibilities? BHP can walk away from the mess, but PNG has to live with the consequences when they trade off industria pollution against development and jobs. What business deals with large global companies? On 12 december 2001, BHP Billiton announced that it would pull out of ok tedi during early 2002, after enabling legislation had been introduced in the Papua New Guinea parliament the previous day. Under a deal worked with the new operator-a new company called PNG Sustainable Development Program will be set up in Singapore- BHP will give the program a repayable grant of up to $US250 million over three years.. BHP started that grant was not compensation. However . legal action has been initiated from Slater and Gordon, representing the landowners, to challenge the new legislation.



1. Has BHP been (a) meeting its social obligation, (b) socially responsive, or (c) socially responsible? Explain your choice, relating it to the time when it was operating the mine as well as now. To whom has BHP’s management seen themselves as being responsible? (See Figure 5.5.)

2. Identify the main stakeholders involved in this situation. What concerns might each stakeholder have? Are any of the stakeholders’ concerns in conflict with each other? Explain. What are the implications for the two main parties – BHP and the PNG government?

3. Using Figure 5.8, analyse the intensity of the ethical dilemma facing managers at BHP and in the PNG government. How might the other factors that affect ethical and unethical behaviour be involved? See Figure 5.6.

4. Do some research about the latest development in the BHP Ok Tedi case. What has happened since this description was written in early 2002?

Source: This case is based primarily on ‘After the gold rush’, Four Comers, ABC Television, 11 April 2000; and N. Wilson, ‘BHP pulls plug on Ok Tedi’, Australian, 12 December 2001, p. 37.

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