Robbins 6e Ch05

Chapter 5

Social responsibility and managerial ethics

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Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442538603/Robbins et all/Management/6e 2

Learning Outline

Contrast the classical and socioeconomic views, and evaluate to whom managers could be responsible.

Discuss what it means to be socially responsible, and describe the factors which influence that decision.

Explain ecologically sustainable management, and discuss how organisations can ‘go green’.

Discuss the factors that lead to ethical and unethical behaviour.

Describe management’s role in encouraging ethical behaviour.

Discuss current social responsibility and ethics issues.



What is social responsibility?

In all organisations managers are faced with

the difficult task of determining how their

organisation ‘fits’ with its environment.

Virtually all societies have developed rules

and regulations about how business should

be transacted and how organisations should

be managed.



Two opposing views

The Classical View (conventional)• management’s responsibility is to maximise

profits/value to shareholders.

The Socio-Economic View (sustainable)• management’s responsibility goes well beyond

the making of profits. It also includes protecting and improving society’s welfare.


Classical/conventional viewShort term focus – profit motive• focus is on owners and

management

• “defeat the competitor” approach




To whom is management responsible?



News headlines….

Corporate fat-cats keep getting richer • Rupert Murdoch, more than $US20.6 million

($A27 million)

• Qantas chief executive Alan Joyce receives a base salary of $2 million, plus $1.5 million in target bonuses, plus $650,000 per year in stock options

• Average salary for chief executives in the top 100 Australian companies has risen to $4 million



News headlines….

Or do they …• The Commonwealth Bank’s chief Executive Ralph

Norris has taken $7 million pay cut in response to poor customer ratings, this has reduced his salary from $16.1 million to $8.6 million

• CEOs of international corporations have also received paycuts:• Sony – Howard Stringer – 16%

• Nintendo – Satoru Iwata 50%

• NIKE – Mark Parker – 16%



Socio-economic/sustainable view



Socio-economic/sustainable viewThe sustainable enterprise is an organic, mutually emergent system that is connected economically, environmentally, and socially to the world (Twomey, 2006)

The long-term financial interests of a company are not ‘mutually exclusive’ with acting fairly in the interests of stakeholders (other than shareholders) (PJC 2006).



News headlines….

Oxiana investors deny big payout for outgoing boss (19/7/08)

• Oxiana, comprehensively rejected a sweetheart pay deal for its chief executive Owen Hegarty. The rejection at yesterday's last annual meeting for Oxiana …. represented the first time Australian shareholders have rejected a termination payout for an outgoing boss.

• On at least two occasions, Telstra and AGL, remuneration votes have gone against the company.



Arguments for social responsibility

• Public expectations

• Long-term profits

• Ethical obligation

• Public image

• Better environment

• Discouragement of further government regulation

• Balance of responsibility and power

• Shareholder interest - long-term

• Possession of resources

• Superiority of prevention over cure



Arguments against social responsibility

• Violation of profit maximisation

• Dilution of purpose

• Costs of being socially responsible

• Too much power socially/politically for business

• Lack of skills beyond economics

• Lack of accountability



Social responsibility and economic performance

Positive relationship between social involvement and the economic performance of firms.

Difficulties:• public perceptions (subjective)

• economic performance (more objective, but short term)

• social screening (longer term)

General conclusion - a firm’s social actions do not harm its long-term performance.



Ecologically sustainable management



Green actions



Managerial ethics

Ethics help us to decide what is ‘right’ or ‘wrong’ in a particular social context according to a specific moral code

• absolute right and wrongs (Absolutists)

• ethical positions depend on the circumstances, the culture, the consequences of the action and so on (Relativists)

Ethics operate as rules or principles that guide individuals’ conduct


Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442538603/Robbins et all/Management/6e 18Figure 5.5

Factors that affect employee ethics



Stages of moral development



Levels of moral development

Pre-conventional: influenced exclusively by personal interest

Conventional: influenced by the expectations of others

Principled: influenced by personal ethical principles of what is right



Individual characteristics

Personal values• Personality influences

– ego strength○ Person’s convictions

– locus of control○ Degree to which people believe they

control their own fate



Structural variables



Culture influences ethical behaviour

• high in risk tolerance, control and conflict tolerance.

• awareness of ethical issues and can challenge

Source: F.R. David, “An Empirical Study of Codes of Business Ethics: A Strategic Perspective.” paper presented at the 48th Annual Academy of Management Conference, Anaheim, California August 1988.

Organisational Culture:



Values based management

Managers guided by the shared values in place

Four purposes:

1. guide decision making

2. shape employee behaviour

3. influence marketing efforts

4. build team spirit



Issue Intensity



Issue Intensity

1. Concentration of effect• how many people are affected?

• example: HIH, Fanny Mae and Freddie Mac

2. Consensus of evil• belief that this is good or bad

• example: shoplifting

3. Probability of harm• will it affect people?

• example: trials of new medical treatments



Issue Intensity

4. Immediacy of consequences• immediate or much later?

• example: James Hardie, asbestos

5. Proximity to victim• not in my backyard so don’t care

• example: plastic

6. Magnitude of consequences• the degree of harm

• example: heart bypass v hip replacement



Ethics in a global context

Ethical standards are not universal

• social and cultural differences determine acceptable

behaviours.

Australia's Foreign Corrupt Practices Act

• makes it illegal to corrupt a foreign official yet “token”

payments to officials are permissible when doing so is an

accepted practice in that country.



The global compact



Improving ethical behaviour

Employee selection

Codes of ethics and decision rules

Top management leadership

Job goals and performance appraisal

Ethics training

Independent social audits

Formal protective mechanisms



A formal statement of an organisation’s primary values and the ethical rules it expects its employees to follow.

• “be a dependable organisational citizen”

• “don’t do anything unlawful or improper that will harm the organisation”

• “be good to customers”

Source: F.R. David, “An Empirical Study of Codes of Business Ethics: A Strategic Perspective.” paper presented at the 48th Annual Academy of Management Conference, Anaheim, California August 1988.

Codes of ethics



Critical thinking question:

Is it possible to have society built upon organisations whose purposes are primarily altruistic, or is this an unrealistic ideal?



Critical thinking question:

Businesses mainly follow the utiliarianism view because it is consistent with maximising business goals, ie. efficiencies, productivity, and profits. How can individuals exercise ethical choices when this may counter the organisation’s approach?

Robbins 6e Ch05

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