Principals of Management - MBA Week5

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MBA503: Week 6

Ethics, Social Responsibility and

Sustainable Development

Dr Sardana Islam Khan



© John Wiley and Sons A

What is ‘Ethics’?

• Ethics:

– An individual’s personal beliefs regarding what is righ

and wrong, good or bad

• Ethical behaviour: – Behaviour that conforms to generally accepted socia

norms

• Whether behaviour is ethical or not is in the eye

of the beholder



© John Wiley and Sons A

Moral Development and

the Concept of Ethics



Examples of ‘unethical’ behaviour?

Australian examples:

– HIH (Ray Williams)?

– OneTel (Jodee Rich and

Brad Keeling)?

– James Hardie?

International examples:

– Nestlé selling baby formula

in Africa without

appropriate warning

labels? – Nike ‘sweatshop’ labour?

– Shell Nigeria?

– SanLu Fonterra?

– BP?

4



Another external pressure

• Another external pressure on organisations is tobe socially responsible

• Grey area:

– When your responsibilities required by law have beenfulfilled

– but perhaps the organisation’s moral obligation to

stakeholders or society at large has not been

fulfilled?



Obligation and Responsibility

• Obligation: – The requirements established by law, for example:

• Taxation, through Federal tax legislation

• Product safety, through Federal Trade Practices Act (1974)

• Working conditions, through State legislation and common law

• Anti-pollution legislation, through State legislation

• Anti-discrimination legislation, through State legislation.

• Responsibility:

– Pursuit of long-term goals that are good for society

– Completely voluntary on the part of the organisation.





The Economic/Legal Responsibility

• Key proponent: Milton Friedman• Argues that:

– Managers are obliged to operate businesses in the best

interests of shareholders

– Those interests are ‘financial returns’ on their investment

– Therefore, Friedman defines socially responsible as profit

maximisation

– Any activities which deviate from the goal of profit

maximisation will:

• Weaken capitalism• Weaken democracy

Milton Friedman



Danger to capitalism

• Market mechanisms are unable to allocate the costsof social responsibility

• Actions on the part of organisations, other than the

pursuit of profits, undermines the fundamental premise of

capitalism: – Reduce profits, then shareholders lose

– Reduce wages and salaries, then employees lose

– Increase prices, then consumers lose

– Distorts the market for investment capital, whole countries lose



Danger to Democracy

• Actions of organisations, other than thepursuit of profits, undermines democracy:

– Managers do not represent the community

– Their pursuit of anything except profit is an

intervention in Government policy – They do not have the expertise for policy-making

– They have not been elected to decide how societyshould be (i.e.: lack of accountability to society at

large).









Triple bottom line reporting

• Many organisations in Australia are now implementing

‘triple bottom line’ reporting: – Financial: includes financial performance, activities relating to

shaping demand for products and services, employeecompensation, community contributions and local procurementpolicies

– Environmental: includes impacts made through processes,products or services. These may include air, water, land, naturaresources, flora, fauna and human health

– Social: includes involvement in shaping local, national andinternational public policy, equality, treatment of minorities,employee issues and public concern

• Refer to Australian CPA website for further information• Role of accounting practices in this process



CSR and firm performance

• Do socially responsible firms outperform other

firms?

• Studies show mixed results:

– Refer to McWilliams (2001) – Results differ depending on industry, markets

product characteristics and approach to corporate

social responsibility.



Implications

• Business firms are specialised to achieve economicgoals

• CSR adds economic costs that distort markets

• Efficient markets benefit society.

However:

• Societal demands for CSR are growing

• CSR provides long-term economic benefits

• CSR can provide competitive advantages throughproduct differentiation and improved reputation.



The Utilitarian approach

• Utilitarian’s claim the purpose of morality is to

make the world a better place• Decisions are made solely on the basis of

their outcomes or consequences:

– to provide ‘the greatest good for the greatest

number’

– to provide pleasure of happiness

• Key theorists: Jeremy Bentham and John

Stuart Mill

Bentham

Mill



Individualism approach

• Ethical behaviour based on the belief that one’sprimary commitment is to the advancement of

one’s long term self interests

• By being self-interested, individual’s become self

regulating

• Premised on the promotion of honesty and

integrity, but in reality, can promote a „pecuniary

ethic‟ [a tendency to push the law to its outerlimits]



Moral-rights approach

• Decisions are concerned with respecting and

protecting the basic rights of individuals. – Right to privacy

– Freedom of association

– Free speech.

• Established minimal conditions of humandecency“… all men are created … with certain unalienable rights … thatamong these are life, liberty and the pursuit of happiness” (USDeclaration of Independence, 1776)

• The most influential moral notion of the past twocenturies



Justice approach

• Rawls’ (1971) theory revolves around theadaptation of two fundamental principles which

guarantee a just and morally acceptable society:

– the right of each person to have the most extensive

basic liberty compatible with the liberty of others

– social and economic positions are to be:

• to everyone's advantage; and

• open to all.

John Rawls



Theory of justice view of ethics

• Decision-makers seek to impose rules fairly and

impartially: – In administration (procedural justice)

– Irrespective of an individual’s characteristics (distributive justice)

– Individuals should be compensated for injury by party

responsible (compensatory justice)

• Protects the interests of stakeholders who are under-

represented or lack power

• Can encourage a sense of entitlement that may reduce

innovation, productivity and risk-taking.



The ‘unethical’ workplace

• Common ethical (and illegal) problems in

organisations: – Discrimination

– Sexual harassment

– Conflicts of interest

– Customer confidence

– Organisational resources

• Do organisations often reward behaviours that

violate ethical standards? – The pursuit of profit?



Recent ethics scandals in

Bangladesh

• Bribery in the cricket team

• Niko corp. bribe scandal in 2005

(See http://www.youtube.com/watch?v=DioKr9RdbWA)

• Hallmark corruption in Bangladesh

• Rana Plaza tragedy

.

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Interesting research

• Baucus and Near (1991): – Large firms are more likely to commit illegal acts than

small firms

– Probability of wrongdoing is greatest when resources areplentiful (environmental munificence)

– Illegal behaviour is more prevalent in dynamic, uncertainenvironments

– Organisations in some industries are predisposed toundertaking illegal activities

– Type of illegal activity varies according to particularcombinations of environmental and internal conditions.



Modern responses to ethical concerns

• Ethics training for workers and managers:

– Increase understanding of the impact of

decisions

– Identifying highly ethical behaviour

– Training to incorporate this into daily practice• Whistleblower protection:

– Expose the misdeeds of others in

organisations

– Ensures anonymity



Codes of Ethics

• Codes of ethics:

– Written guidelines, stating the values and ethical standards – Employees make ethical decisions based on appropriate

values e.g.‘treat people fairly’

• Policy-based codes of ethics outline how to act in specific ethicalsituations (reducing the need for thinking or shared values):

– Conflicts of interest – Proprietary information

– Political gifts

– Equal opportunities



Summary

• The study of human ethical behaviour is achallenge for managers

• Ideas of morality have been applied to gauge theethical behaviour of organisations

• What are the implications of ethical decision-making on the arguments posited by Friedman?

• Is being ethical anything more than good PR for anorganisation?

Documents

Principals of Management - MBA Week5