Chapter 3: ETHICAL BEHAVIOUR AND SOCIAL RESPONSIBILITY

Chapter 3: ETHICAL BEHAVIOUR AND SOCIAL RESPONSIBILITY CHAPTER 3 STUDY QUESTIONS In studying this chapter, students should consider the following questions: What is ethical behaviour? How do ethical dilemmas complicate the workplace? How can high ethical standards be maintained? What is corporate social responsibility? How do organizations and governments work together in society? CHAPTER 3 LEARNING OBJECTIVES After completing this chapter, students should be able to: Define ethics and ethical behaviour; and describe the relationships between law, values, and ethical behaviour. Identify and discuss four alternative views of ethical behaviour. Discuss the influence of culture on ethical behaviour; compare and contrast cultural relativism and cultural universalism; and explain how companies can respect universal values across cultures. Define the term ethical dilemma and describe ethical dilemmas typically faced by managers. Identify four rationalizations for unethical behaviour. Identify and discuss the key factors influencing ethical behaviour. List and discuss the various ways in which high ethical standards can be maintained. Explain the concept of corporate social responsibility; explain the role of stakeholders in corporate social responsibility; identify the beliefs that guide socially responsible actions in businesses; and discuss contrasting perspectives on social responsibility. Define the term social responsibility audit; explain the roles of compliance and conviction in social performance; and describe four criteria for evaluating corporate social performance and the strategies that use them Explain how governments influence businesses and how businesses influence governments. Explain the nature of corporate governance and its importance to organizations. 40

41 Schermerhorn & Wright: Management Fundamentals CHAPTER 3 OVERVIEW Ethical behaviour and corporate social responsibility are critical issues for contemporary managers. This chapter seeks to make students aware of various ethical dilemmas they may face in their careers while encouraging them to adopt high ethical standards. It also examines the role of social responsibility in contemporary business. The chapter begins by defining key terms such as ethics and ethical behaviour before considering these terms in a managerial context. The utilitarian, individualism, moral-rights, and justice views of ethical behaviour are examined next. Opposing viewpoints on the relationship between culture and ethics are identified, as is the notion of universal ethical values for guiding the operations of multinational companies. Ethical dilemmas faced by managers are then described, along with four rationalizations for unethical behaviour. The person, the organization, and the environment are discussed as factors influencing ethical behaviour. Also considered are various approaches for maintaining high ethical standards, including ethics training, whistleblower protection, managers as ethical role models, and codes of ethics. From here, the focus of the chapter shifts to the related topic of corporate social responsibility. The stakeholder model is introduced as a useful way for viewing corporate social responsibility efforts. Also provided is a summary of the beliefs that guide socially responsible business practices. The arguments against and for social responsibility as well as four criteria for evaluating corporate social performance are also discussed. A continuum reflecting different strategies of social responsibility is also presented. Because government regulation influences and is, in turn, influenced by the level of social responsibility exhibited by corporations, the reciprocal relationship between businesses and government is described. Finally, consideration is given to the social responsibility and organizational performance impacts of both boards of directors via corporate governance and the company s managers via daily activities. CHAPTER 3 LECTURE OUTLINE Teaching Objective: To expose students to the issues of managerial ethics and organizational social responsibility and to encourage them to adopt high ethical standards. In your discussion of these issues, be sure to stress the long-term benefits of ethical behaviour and corporate social responsibility. Suggested Time: Two hours of class time are typically required to present the material in this chapter. I. Introduction to the Chapter 3 lecture. Study questions for Chapter 3 Organization of lecture material Examples of ethical and unethical actions in various businesses II. III. Study Question 1: What is ethical behaviour? Basic definitions Law, values, and ethical behaviour Alternative views of ethical behaviour Cultural issues in ethical behaviour Study Question 2: How do ethical dilemmas complicate the workplace? What is an ethical dilemma? Rationalizations for unethical behaviour Factors influencing ethical behaviour

42 Schermerhorn & Wright: Management Fundamentals IV. Study Question 3: How can high ethical standards be maintained? Progressive organizations and ethical standards Ethics training Whistleblower protection Ethical role models Codes of ethics V. Study Question 4: What is corporate social responsibility? Background on organizational social responsibility Stakeholder issues and analysis Perspectives on social responsibility Evaluating corporate social performance Social responsibility strategies VI. Study Question 5: How do organizations and governments work together in society? When government is called to act How governments influence organizations How organizations influence governments Role of corporate governance VII. Study summary for Chapter 3. CHAPTER 3 SUPPORTING MATERIALS Textbook Inserts Get Connected! Aldo Shoes Creating a Better World Figures Figure 3.1: Four Views of Ethical Behaviour Figure 3.2: The extremes of Cultural Relativism and Ethical Imperialism in International Business Ethics Figure 3.3: Factors Influencing Ethical Managerial Behaviour the Person, Organization, and Environment Figure 3.4: Multiple Stakeholders in the Environment of the Organization Figure 3.5: Criteria for Evaluating Corporate Social Responsibility Figure 3.6: Four Strategies of Corporate Social Responsibility From Obstructionist to Proactive Behaviour Figure 3.7: Centrality of Ethics and Social Responsibility in Leadership and the Managerial Role Manager s Notepad Manager s Notepad 3.1: How International Businesses Can Respect Universal Values Manager s Notepad 3.2: Checklist for Dealing with Ethical Dilemmas Thematic Boxes Canadian Company in the News: Mountain Equipment Co-op Canadian Managers: Volunteer Now! Around the World: Nonprofit Supports Social Accountability Worldwide Personal Management Personal Character

Chapter 3: Ethical Behaviour and Social Responsibility 43 Take It to the Case Tom s of Maine Where Doing Business Means Doing Good Integrated Learning Activities Cases/Projects Tom s of Maine Case Project 2 Corporate Social Responsibility Self-Assessments Terminal Values (#5) Instrumental Values (#6) Diversity Awareness (#7) Internal/External Control (#26) Exercises in Teamwork Confronting Ethical Dilemmas (#6) What Do You Value in Work (#7) Case of the Contingency Workforce (#22) Self-Test 3 (Textbook) CHAPTER 3 LECTURE NOTES I. Introduction to the Chapter 3 lecture. A. Study questions for Chapter 3 (see PowerPoint Slide 2 for Chapter 3). 1. What is ethical behaviour? 2. How do ethical dilemmas complicate the workplace? 3. How can high ethical standards be maintained? 4. What is corporate social responsibility? 5. How do organizations and governments work together in society? B. The lecture material for Chapter 3 is organized around the study questions. 1. Point out to the students that the text s Chapter 3 Learning Preview identifies the key topics contained in the chapter and links them to the appropriate study questions. C. The chapter opens with a description of Ben & Jerry s efforts to operate a successful business that shares prosperity and addresses social concerns. Contrasting examples of businesses being destroyed by unethical decisions and actions are then provided.

44 Schermerhorn & Wright: Management Fundamentals You can start out the discussion of this chapter by asking students to identify examples of ethical and unethical business practices that they have read about, heard about, or personally witnessed or experienced. Ask the students how these practices seem to have been viewed by the public at large. Also have the students discuss how these practices seem to have affected the organization and relevant stakeholders in both the short term and the long term. To bring ethical and unethical behaviour closer to home, discuss students behaviour within the college/university context. Topics may include cheating, adherence to campus regulations, maintenance of the physical environment, or unauthorized use of materials or equipment. II. Study Question 1: What is Ethical Behaviour? A. Basic definitions. 1. Ethics can be defined as the code of moral principles that sets standards of good or bad, or right or wrong, in one s conduct and thereby guides the behaviour of a person or group. (See PowerPoint Slide 3 for Chapter 3.) 2. Ethical behaviour is behaviour that is accepted as good and right as opposed to bad or wrong in the context of the governing moral code. (See PowerPoint Slide 3 for Chapter 3.) B. Law, values, and ethical behaviour (see PowerPoint Slide 4 for Chapter 3). 1. Legal behaviour is not necessarily ethical behaviour. Behaviour might be legal but that does not ensure that it is ethical. 2. What one considers to be ethical varies according to personal values the underlying beliefs and attitudes that help determine individual behaviour. 3. Types of values that influence ethical judgments: a. Terminal values are preferences about desired end states. b. Instrumental values are preferences regarding the means for accomplishing desired ends. C. Alternative views of ethical behaviour. 1. Figure 3.1 from the text shows four views of ethical behaviour (also see PowerPoint Slide 5 for Chapter 3). These views are as follows: a. Utilitarian view ethical behaviour is that which delivers the greatest good to greatest number of people. b. Individualism view ethical behaviour is that which best serves longterm self-interests.

Chapter 3: Ethical Behaviour and Social Responsibility 45 c. Moral-rights view ethical behaviour is that which respects and protects the fundamental rights of all people. d. Justice view ethical behaviour is that which is impartial and fair in treating people according to legal rules and standards. (1) Procedural justice the degree to which policies and rules are fairly administered. (2) Distributive justice the degree to which people are treated the same regardless of individual characteristics based on ethnicity, race, gender, age, or other particularistic criteria. (3) Interactional justice the degree to which others are treated with dignity and respect. Ask students for examples of each of the above views of ethical behaviour. These can be either hypothetical examples or situations they have encountered in their own lives. Ask them to indicate which view they think is the most useful in business, and why. Also ask them to indicate which view they think is the most useful in their personal lives, and why. Compare and contrast the two sets of answers, exploring he nature and reasons for any differences in the two sets. D. Cultural issues in ethical behaviour (see PowerPoint Slide 7 for Chapter 3). 1. Ethical management in a global environment is challenged by the complexities of different cultures and value systems throughout the world. 2. Cultural relativism is the notion that there is no one right way to behave and that ethical behaviour is always determined by the cultural context. 3. Figure 3.2 from the textbook contrasts cultural relativism with the alternative position universalism that suggests if a behaviour is not acceptable in one s home environment, it shouldn t be acceptable practice anywhere else. Critics claim universalism is a form of ethical imperialism, or the attempt to externally impose one s ethical standards on others. 4. Business ethicist Thomas Donaldson argues instead that certain fundamental rights and ethical standards, or hyper-norms should transcend cultural boundaries. Even with a commitment to the core values underlying a transcultural ethical umbrella, international business behaviours can be tailored to local and regional cultural contexts. 5. Manager s Notepad 3.1 from the text summarizes how international businesses can show respect for core or universal values (also see PowerPoint Slide 7 for Chapter 3). Specifically, international companies should:

46 Schermerhorn & Wright: Management Fundamentals a. Respect human dignity by creating a corporate culture that values employees, customers, and suppliers; keeping a safe workplace; and producing safe products and services. b. Respect basic rights by protecting rights of employees, customers, and communities; and avoiding anything that threatens safety, health, education, and living standards. c. Be good citizens by supporting social institutions, including economic and educational systems; and working with local government and institutions to protect the environment. Using the criteria contained in Manager s Notepad 3.1, ask students to provide examples of how different international businesses have responded to these core or universal values. This can be used as a short outof-class assignment, either individually or in groups. III. Study Question 2: How do ethical dilemmas complicate the workplace? A. What is an ethical dilemma? 1. An ethical dilemma occurs when someone must choose whether or not to pursue a course of action that, although offering the potential of personal or organizational benefit or both, may be considered unethical. (See PowerPoint Slide 10 for Chapter 3.) 2. Ethical problems faced by managers. a. Potential sources of ethical dilemmas include discrimination, sexual harassment, conflicts of interest, customer confidence, and organizational resources. (See PowerPoint Slide 10 for Chapter 3.) b. According to a Harvard Business Review survey, many ethical dilemmas involve conflicts with superiors, customers, and subordinates.

Chapter 3: Ethical Behaviour and Social Responsibility 47 A good way to get students thinking about ethical dilemmas and to generate a lively discussion is to ask students how they would respond to the following three dilemmas. The range of student responses is likely to be quite broad. Next, you can present the results of the Harvard Business Review survey from which they were taken. Case 1: foreign payment. A governmental official of a foreign nation asks you to pay a $200,000 consulting fee. In return for the money, the official promises special assistance in obtaining a $100 million contract that would produce at least a $5 million profit for your company. The contract will probably go to a foreign competitor if not won by you. Survey results: 42% of the responding managers would refuse to pay; 22% would pay, but consider it unethical; 36% would pay and consider it ethical in a foreign context. Case 2: competitor s employee. You learn that a competitor has made an important scientific discovery. It will substantially reduce, but not eliminate, your profit for about a year. There is a possibility of hiring one of the competitor s employees who knows the details of the discovery. Survey results: 50% would probably hire the person; 50% would not. Case 3: expense account. You learn that a manager in your company who earns $50,000 a year has been padding his expense account by about $1,500 a year. Survey results: 89% feel padding is okay if superiors know about it; 9% feel it is unacceptable regardless of the circumstances. (Source: Brenner, S.N., and Mollander, E.A. Is the Ethics of Business Changing? Harvard Business Review, January-February 1977, Volume 55, p. 60.) B. Rationalizations for unethical behaviour (see PowerPoint Slide 11 for Chapter 3). 1. Convincing yourself that the behaviour is not really illegal. This rationalization is particularly common in ambiguous situations. A good rule of thumb is When in doubt, don t do it. 2. Convincing yourself that the behaviour is in everyone s best interest. This rationalization involves the mistaken belief that because someone may benefit, the behaviour is also in the interest of the individual or the organization. When asking How far can I push matters to obtain this performance goal? the best answer is Don t try to find out. 3. Convincing yourself that nobody will ever find out what you ve done. This argument assumes no crime is committed unless it is discovered. To deter this view, make sure that sanctions for wrongdoing are public. 4. Convincing yourself that the organization will protect you. This implies the organization will condone the practice, but organizational norms should not be put above the law or social morality.

48 Schermerhorn & Wright: Management Fundamentals Ask students for examples of rationalizations for unethical behaviour that they have used themselves or have observed others using. Discuss the individual and organizational effects of these rationalizations. C. Factors influencing ethical behaviour. 1. Figure 3.3 from the text summarizes three factors the person, the organization, and the environment that influence ethical behaviour. (Also see PowerPoint Slide 10 for Chapter 3.) 2. The person in developing ethical frameworks as personal strategies for ethical decision making, managers are influenced by the following factors: a. Family influences. b. Religious values. c. Personal standards d. Personal needs. 3. The organization the organization also plays a key role in shaping managerial ethics through: a. Behaviour of supervisors. b. Expectations and reinforcement of peers, and peer group norms. b. Policy statements and written rules. 4. The environment managerial ethics are also shaped by the following components of the external environment: a. Government laws and regulations. b. Norms and values of society. c. Climate of competition in an industry. IV. Study Question 3: How can high ethical standards be maintained? A. Progressive organizations employ a variety of methods for maintaining high ethical standards. These include ethics training, whistleblower protection, ethical role models, and codes of ethics.

Chapter 3: Ethical Behaviour and Social Responsibility 49 B. Ethics training (see PowerPoint Slide 15 for Chapter 3). 1. Ethics training refers to structured programs that help participants understand the ethical aspects of decision making, and help people incorporate high ethical standards into their daily behaviours. Ethics training helps people deal with ethical issues while under pressure. 2. Manager s Notepad 3.2 from the text provides a checklist for dealing with ethical dilemmas. a. Recognize the ethical dilemma. b. Get the facts. c. Identify your options. d. Test each option: Is it legal? Is it right? Is it beneficial? e. Decide which option to follow. f. Double-check your decision by asking: How would I feel if my family finds out about my decision? How would I feel if my decision is printed in the local newspaper? g. Take action. Ask small groups of students to identify an ethical dilemma that commonly occurs for students as they pursue their educations. Each group should focus on a different dilemma. Then have each group discuss how their dilemma should be handled, given the checklist contained in Manager s Notepad 3.2. C. Whistleblower protection. 1. A whistleblower is a person who exposes the misdeeds of others in organizations to preserve ethical standards and protect against wasteful, harmful, or illegal acts. (See PowerPoint Slide 16 for Chapter 3.) 2. Federal and state laws increasingly offer whistleblowers some protection from retaliatory discharge. Still, legal protection can be inadequate (see PowerPoint Slide 16 for Chapter 3). 3. Organizational barriers to whistleblowing include (see PowerPoint Slide 17 for Chapter 3): a. A strict chain of command that makes it difficult to report unethical practices to higher-level managers. b. Strong work group identities that encourage loyalty and self-censorship.

50 Schermerhorn & Wright: Management Fundamentals c. Ambiguous priorities that make it difficult to distinguish right from wrong. 4. Two ways in which organizations have attempted to overcome these whistleblowing barriers and to encourage high ethical standards are (see PowerPoint Slide 17 for Chapter 3): a. The use of formally appointed ethics staff members to serve as ethics advocates. b. Moral quality circles. Ask students to describe what they would do if they happened to be in a situation where they could become whistleblowers. Then share the following practical tips for whistleblowers: 1. Do make sure you really understand what is happening and that your allegation is absolutely correct. 2. Don t assume the law automatically protects you. 3. Do talk to an attorney to ensure that your rights will be protected and proper procedures are followed. 4. Don t talk first to the media. 5. Do keep accurate records to document your case; keep copies outside of your office. 6. Don t act in anticipation of a big financial windfall if you end up being fired. D. Ethical role models (see PowerPoint Slide 18 for Chapter 3). 1. Because top managers serve as role models, their behaviour can either encourage or discourage unethical behaviour. 2. Although top managers have a special responsibility for setting the ethical tone of an organization, all managers are in a position to influence the ethical behaviour of the people who work for and with them. 3. Too much pressure to accomplish goals that are too difficult can also encourage unethical behaviour. 4. Part of any manager s ethical responsibility is to be realistic in setting performance goals for others. E. Codes of ethics (see PowerPoint Slide 19 for Chapter 3). 1. A code of ethics is a formal statement of an organization s values and ethical principles that provide guidelines on how to behave in situations susceptible to ethical dilemmas. 2. Most codes of ethical conduct identify expected behaviour in terms of general organizational citizenship, the avoidance of illegal or improper acts in one s work, and good relationships with customers. 3. Areas often covered in written codes of ethics include the following:

Chapter 3: Ethical Behaviour and Social Responsibility 51 a. Bribes and kickbacks. b. Political contributions. c. Honesty of books or records. d. Customer-supplier relationships. e. Confidentiality of corporate information. 4. Ethical codes cannot cover all situations; nor are they automatic insurance for universal ethical conduct. V. Study Question 4: What is corporate social responsibility? A. Background on corporate social responsibility (see PowerPoint Slide 20 for Chapter 3). 1. Corporate social responsibility looks at ethical behaviour from the organizational level rather than the individual level. 2. Corporate social responsibility is an obligation of the organization to act in ways that serve both its own interests and the interests of society at large. B. Stakeholder issues and analysis. 1. Organizational stakeholders are those persons, groups, and other organizations directly affected by the behaviour of the organization and holding a stake in its performance. (See Power Point Slide 21 for Chapter 3.) 2. Figure 3.4 from the text describes the environment of a typical business firm as a network of organizational stakeholders. 3. Commonly-cited stakeholders are employees, customers, suppliers, owners, competitors, regulators, and interest groups. (See PowerPoint Slide 21 for Chapter 3.) 4. Unethical business practices have an adverse impact on stakeholders, whereas ethical business practices have a positive impact on stakeholders. 5. Leaders exert a critical influence on organizations. The following beliefs guide socially responsible business practices (see PowerPoint Slide 21 for Chapter 3): a. The belief that people do their best in healthy work environments with a balance of work and family life. b. The belief that organizations perform best when located in healthy communities. c. The belief that organizations gain by treating the natural environment with respect.

52 Schermerhorn & Wright: Management Fundamentals d. The belief that organizations must be managed and led for long-term success. e. The belief that the organization s reputation must be protected to ensure consumer and stakeholder support. Ask students to identify leaders with whom they are sufficiently familiar to make a reasonable statement about the leaders beliefs. Have the students analyze these leaders beliefs relative to the above listing of socially responsible leadership beliefs. To what extent does each example of a leader s beliefs mirror the aforementioned socially responsible beliefs? What impact has each leader s beliefs apparently had on that leader s organization and its stakeholders? C. Perspectives on social responsibility (see PowerPoint Slide 23 for Chapter 3). 1. The classical view of corporate social responsibility holds that management s only responsibility in running a business is to maximize profits. 2. The socioeconomic view of corporate social responsibility holds that management of any organization must be concerned with the broader social welfare and not just with corporate profits. 3. The arguments of the classical view against social responsibility and the arguments of the socioeconomic view in favour of social responsibility are summarized below. (See PowerPoint Slide 24 for Chapter 3.) AGAINST Reduced business profits. Higher business costs. Dilution of business purpose. Too much social power for businesses. Lack of business accountability to the public. IN FAVOUR OF Will add long-run profits for businesses. Improve public image of businesses. Help businesses to avoid more governmental regulation. Businesses have the resources and ethical obligation to act responsibly. 4. In today s world, the public at large expects businesses and other organizations to act with genuine social responsibility.

Chapter 3: Ethical Behaviour and Social Responsibility 53 5. Increasing empirical evidence exists indicating that high performance in social responsibility can be associated with strong financial performance and, at worst, has no adverse financial impact. Indeed, evidence suggests there is a virtuous circle regarding the relationship between improved financial performance and additional emphasis on corporate social responsibility. D. Evaluating corporate social performance. 1. A social responsibility audit is a systematic assessment and reporting of an organization s accomplishments in various areas of corporate social responsibility. 2. Social performance is driven by either compliance (i.e., acting to avoid adverse consequences) or conviction (i.e., acting to create positive impact). 3. Figure 3.5 from the text links compliance and conviction with four criteria for evaluating corporate social performance. These criteria are (see PowerPoint Slide 26 for Chapter 3): a. Is the organization s economic responsibility met? Its economic responsibility is met when it earns a profit through the provision of goods and services desired by customers. b. Is the organization s legal responsibility met? Its legal responsibility is fulfilled when it operates within the law and according to the requirements of various external regulations. c. Is the organization s ethical responsibility met? Its ethical responsibility is met when its actions voluntarily conform to both legal expectations and the broader values and moral expectations of society. d. Is the organization s discretionary responsibility met? Its discretionary responsibility involves the organization s voluntary movement beyond basic economic, legal, and ethical expectations to provide leadership in advancing the well-being of individuals, communities, and society as a whole. E. Figure 3.6 from the text describes four strategies of social responsibility in terms of level of commitment to social responsibility. These strategies are (see PowerPoint Slide 28 for Chapter 3): 1. The obstructionist strategy ( fight the social demands ) meets the organization s economic responsibility. 2. The defensive strategy ( do the minimum legally required ) meets the organization s economic and legal responsibilities. 3. The accommodative strategy ( do the minimum ethically required ) meets the organization s economic, legal, and ethical responsibilities. 4. The proactive strategy ( take leadership in social initiatives ) meets all the criteria of social performance economic, legal, ethical, and discretionary responsibilities.

54 Schermerhorn & Wright: Management Fundamentals Discuss ways in which businesses can protect the environment and save money at the same time, such as grocery stores selling low-priced canvas bags to replace paper or plastic ones; coffee shops encouraging patrons to bring in their own cups; and fast food restaurants providing recycling bins so customers can sort their trash. Ask students for other examples. VI. Study Question 5: How do organizations and governments work together in society? A. When organizations do not act in a socially responsible manner, government is called upon to act in the public s behalf. B. How governments influence organizations. 1. Governments influence organizations by passing laws and establishing regulating agencies to control and direct firms behaviour. 2. Government agencies such as the Transportation Safety Board of Canada, provincial ministries of the environment and health, and the Canadian Food Inspection Agency, among others, are charged with monitoring and ensuring compliance with legislative mandates. 3. Business executives particularly, small business owners often complain that many laws and regulations are overly burdensome. 4. While the legal environment is complex and often frustrating for businesses, provincial and federal laws have had some positive effects in regulating business affairs, such as the following (see PowerPoint Slide 23 for Chapter 3): a. Occupational safety and health are regulated by the Occupational Health and Safety Act of 1973, which is intended to protect worker health and safety on the job. b. Fair labour practices are governed by laws such as the Employment Equity Act, originally passed in 1985 and adapted in 1995, is designed to reduce employment barriers for visible minorities, women, Aboriginals, and persons with disabilities. Unfortunately, the act applies only to federal government employees or employees of companies that have contracts with the federal government. c. Consumer protection is provided by The Hazardous Product Act, which gives government the authority to examine and force a business to withdraw from sale any product that it feels is hazardous to the consumer. Children s toys and flammable fabrics are within the great range of products affected by such regulation. d. Environmental protection is provided by several anti-pollution acts, including the Canadian Environmental Protection Act of 1999, which are designed to eliminate careless pollution of the air, water, and land.

Chapter 3: Ethical Behaviour and Social Responsibility 55 Have students identify other laws that affect the activities of businesses in each of the above areas. Alternatively, have students discuss how laws in the above areas have affected (b) them or their employment situations, or (b) people they know and their employment situations. C. How organizations influence governments. 1. Businesses seek to influence governments to adopt and pursue policies that are favourable to them. 2. Approaches that businesses take in influencing governments include the following (see PowerPoint Slide 31 for Chapter 3): a. Personal contacts and networks enable executives to get to know important people in government and to try to gain government s support for special interests. b. Public relations campaigns allow executives to communicate positive images of their organizations to the public at large. c. Lobbying enables executives to have their positions and preferences communicated directly to government officials. d. Political action committees (PACs) enable executives to seek influence through financial support for favoured political candidates. e. Illegal acts, such as bribes or illegal financial contributions to campaigns, are sometimes used in an attempt to influence public officials. Have students bring in examples of companies that have used any of the above approaches for influencing governments. Discuss the impact that these specific efforts have had on the organization and its various stakeholders. D. Role of corporate governance. 1. Corporate governance is the oversight of the top management of an organization by a board of directors. (See PowerPoint Slide 33 for Chapter 3.) 2. Governance typically involves hiring, firing, and compensating the CEO; assessing strategy; and verifying financial records. (See PowerPoint Slide 33 for Chapter 3.) 3. Considerable pressure exists for corporate governance to be the key guarantor that businesses and other organizations are run properly.

56 Schermerhorn & Wright: Management Fundamentals 2. All managers in contemporary organizations must accept personal responsibility for doing the right things. a. Managers play a crucial role in responding to public demands that organizations be held accountable for ethical and social performance as well as economic performance. b. Figure 3.7 from the text emphasizes the central role that ethics and social responsibility can and should play in managers decisions and activities. VII. Study summary for Chapter 3. A. Point out to the students that the text s Chapter 3 Study Questions Summary recaps the key theories, concepts, and ideas in the chapter in relation to the appropriate study questions. CHAPTER 3 STUDY QUESTIONS SUMMARY Study Question 1: What is ethical behaviour? Ethical behaviour is that which is accepted as good or right as opposed to bad or wrong. Simply because an action is not illegal does not necessarily make it ethical in a given situation. Because values vary, the question of What is ethical behaviour? may be answered differently by different people. Four ways of thinking about ethical behaviour are the utilitarian, individualism, moral-rights, and justice views. Cultural relativism argues that no culture is ethically superior to any other. Study Question 2:How do ethical dilemmas complicate the workplace? When managers act ethically they have a positive impact on other people in the workplace and on the social good performed by organizations. An ethical dilemma occurs when someone must decide whether to pursue a course of action that, although offering the potential of personal or organizational benefit or both, may be considered potentially unethical. Managers report that their ethical dilemmas often involve conflicts with superiors, customers, and subordinates over such matters as dishonesty in advertising and communications as well as pressure from their bosses to do unethical things. Common rationalizations for unethical behaviour include believing the behaviour is not illegal, is in everyone s best interests, will never be noticed, or will be supported by the organization. Study Question 3: How can high ethical standards be maintained? Ethics training in the form of courses and training programs helps people better deal with ethical dilemmas in the workplace. Whistleblowers expose the unethical acts of others in organizations, even while facing career risks for doing so. Top management sets an ethical tone for the organization as a whole, and all managers are responsible for acting as positive models of appropriate ethical behaviour.

Chapter 3: Ethical Behaviour and Social Responsibility 57 Written codes of ethical conduct formally state what an organization expects of its employees regarding ethical conduct at work. Study Question 4: What is corporate social responsibility? Corporate social responsibility is an obligation of the organization to act in ways that serve both its own interests and the interests of its many external publics, often called stakeholders. Criteria for evaluating corporate social performance include economic, legal, ethical, and discretionary responsibilities. Corporate strategies in response to social demands include obstruction, defence, accommodation, and pro-action, with more progressive organizations taking proactive stances. Study Question 5: How do organizations and governments work together in society? Government agencies are charged with monitoring and ensuring compliance with the mandates of law. Managers must be well informed about existing and pending legislation in a variety of social responsibility areas, including environmental protection and other quality-of-life concerns. Organizations exert their influence on government in many ways, including interpersonal contacts of executives, use of lobbyists, and financial contributions to PACs. All managerial decisions and actions in every workplace should fulfill performance accountability with commitments to high ethical standards and socially responsible means.

58 Schermerhorn & Wright: Management Fundamentals CHAPTER 3 KEY TERMS Accommodative strategy Codes of ethics Corporate governance Corporate social responsibility Cultural relativism Defensive strategy Distributive justice Ethical behaviour Ethical dilemma Ethical imperialism Ethics Ethics training Individualism view Instrumental values Interactional justice Justice view Lobbying Moral-rights view Obstructionist strategy Organizational stakeholders Political action committees Proactive strategy A social responsibility strategy that meets the organization s economic, legal, and ethical responsibilities by doing the minimum that is ethically required. A formal statement of an organization s values and ethical principles that provide guidelines on how to behave in situations susceptible to ethical dilemmas. The oversight of the top management of an organization by a board of directors An obligation of an organization to act in ways that serve both its own interests and the interests of society at large. The notion that there is no one right way to behave and that ethical behaviour is always determined by the cultural context. A social responsibility strategy that meets the organization s economic and legal responsibilities by doing the minimum that is legally required. The degree to which people are treated the same regardless of individual characteristics such as ethnicity, race, gender, age, or other particularistic criteria. Behaviour that is accepted as good and right as opposed to bad or wrong in the context of the governing moral code. A situation wherein someone must choose whether or not to pursue a course of action that, although offering the potential of personal or organizational benefit or both, may be considered unethical. The attempt to externally impose one s ethical standards on others. The code of moral principles that sets standards as to what is good or bad, or right or wrong, in one s conduct and thereby guides the behaviour of a person or group. Structured programs that help people to understand the ethical aspects of decision making and to incorporate high ethical standards into their daily behaviour. Ethical behaviour is that which best serves long-term self-interests. Preferences regarding the means for accomplishing desired ends. The degree to which others are treated with dignity and respect. Ethical behaviour is that which is impartial and fair in treating people according to legal rules and standards. An approach for businesses to influence government that enables executives to have their positions and preferences communicated directly to government officials. Ethical behaviour is that which respects and protects the fundamental rights of people. A social responsibility strategy that meets the organization s economic responsibility by fighting social demands. Those persons, groups, and other organizations directly affected by the behaviour of the organization and holding a stake in its performance. An approach for businesses to influence government that enables executives to seek influence through financial support for favoured political candidates. A social responsibility strategy that meets the organization s

Chapter 3: Ethical Behaviour and Social Responsibility 59 Procedural justice Social responsibility audit Terminal values Universalism Utilitarian view Values Whistleblowers economic, legal, ethical, and discretionary responsibilities by taking leadership in social initiatives. The degree to which policies and rules are fairly administered. A systematic assessment and reporting of an organization s resource commitments and action accomplishments in various areas of corporate social responsibility. Preferences about desired end states. The ethical position that suggests if a behaviour is not acceptable in one s home environment, it shouldn t be acceptable practice anywhere else Ethical behaviour is that which delivers the greatest good to the greatest number of people. The underlying beliefs and attitudes that help determine individual behaviour. Individuals who expose the misdeeds of others in organizations to preserve ethical standards and protect against wasteful, harmful, or illegal acts.