Reading: Lesson 3 - Ethical Issues and Social Responsibility

4.3.A - Ethical Issues and Social Responsibility

1. BUSINESS ETHICS

1. Laws provide a minimum standard of behavior for people and businesses to follow. However, many behaviors are neither allowed nor disallowed by law. The guide that then comes into play is ethics. Ethics refers to standards of moral conduct that individuals and groups set for themselves, defining what behavior they value as right or wrong. Ethical behavior is closely linked to personal values—underlying beliefs and attitudes that individuals or groups possess. To decide whether or not a particular action is ethical, we have to ask questions such as: Is the action right or is it wrong, regardless of what the laws state? Therefore, ethical conduct goes beyond state and federal laws.
   
2. A collection of principles and rules that define right and wrong conduct for an organization is called business ethics. Any action that does not conform to these moral principles is unethical behavior. Not all firms have the same rules of ethical conduct, however. Notions of right and wrong vary from manager to manager, business to business, and country to country. Generally, moral conduct that is favorable to the largest number of people is considered ethically desirable.
   
3. Business scandals at companies such as WorldCom, Enron, and Computer Associates have placed considerable importance on business ethics. This has led some companies to hire chief ethics officers. Their job is to ensure that workers are trained in how to comply with a company’s ethics policies. Many businesses have created codes of ethics to guide managers and workers in their behavior. A code of ethics is a formal, published collection of values and rules that reflect the firm’s philosophy and goals. Having such a code removes or reduces opportunities for unethical conduct. These codes deal with such issues as accepting business gifts, respecting employee privacy, using company property for personal use, and maintaining confidentiality. Business confidentiality means keeping sensitive company information secret.
   
4. Ethical codes are communicated to employees through memos, newsletters, posters, and employee manuals. Organizations establish procedures to handle situations that arise when employees violate the codes. To be effective, codes of ethics must have the full support of the organization’s top-level managers. Codes are ineffective if they are not enforced.
   
5. The issue of ethics often arises when it is not clear whether a particular action is legal or illegal. As the opening story illustrated, the supervisor, Rayshawn Clark, is caught in the dilemma of revealing the future plans of the company versus ensuring business as usual. Philosophers have debated the issue of right and wrong for centuries. One well-known approach is to ask the question: What is the value or worth of a specific behavior for society as a whole? The best behavior is that which does the most good for the most people. For example, assume a company employed 200 people and it eliminated 50 people so that it could continue to operate. Although 50 people were left jobless, 150 benefited by retaining their jobs.
   
6. Businesses are constantly faced with ethical dilemmas of various kinds. Should a lumber company cut down a forest if doing so would endanger a rare species of bird that nests there? Should oil drilling be permitted off a coast, thus destroying its natural beauty? Should a manager accept a request by a foreign official to arrange for his daughter’s admission to an American university if the company wants to land a contract? Should a business hire a woman to win support from women’s groups? How businesses handle these issues determines whether they are acting in an ethical manner. Notions of what is right or wrong change over time. Answers often are not clear-cut.
   
7. Because values also differ among nations, problems sometimes arise for firms involved in international business. Firms have to choose between the ethical practices of the foreign country and of their home country. For instance, it is an accepted business practice in Japan for employees to give expensive gifts to their bosses. Such behavior in the United States is generally discouraged. Should an American company behave in Japan as it does in the United States, or should it follow the Japanese practice? Answers to such questions are not readily apparent, and managers have to find ways to reconcile conflicting goals.
   

2. SOCIAL RESPONSIBILITY OF BUSINESS

1. A question often raised is: What is business’s responsibility to help solve society’s problems? The answer is not simple, because the profit motive of a business often collides with what is good for society. Should businesses accept lower profit, for instance, in order to keep jobs in a declining community? In such cases, businesses must decide for themselves what is right and wrong.
   
2. The primary goal of business is to make a profit for the owners. Businesses cannot survive for long if their owners are not rewarded for their investment. Although profit plays a key role in our business system, businesses today also emphasize another business goal—social responsibility. Social responsibility refers to the duty of a business to contribute to the well-being of society. Because businesses depend on society for resources, opportunities, and rights, they have an obligation to the communities in which they operate. Stakeholders are any individuals or groups that are affected by the firm’s actions, such as owners, customers, suppliers, employees, creditors, government, and the public. Stakeholders expect a business to be responsible and responsive to their interests. Such responsibility may mean a variety of things. Examples include donating money to flood victims, sponsoring an exhibition on Hindu art at a local museum, providing college scholarships to needy students, training reformed gang members in job-related skills, and setting up day-care centers for employees’ children.
3. Stakeholders usually believe that a business has the resources to contribute to a community’s well-being. Also, good deeds translate into favorable publicity for the business, which, in turn, means more sales and profits. The founders of Ben & Jerry’s, the ice cream company, for example, committed themselves to buying hormone-free milk from Vermont dairy farms, even though it is more expensive, as a way to support the environment and community. Ben & Jerry’s maintained that focus even after the company was purchased by Unilever. Such actions endear the company to the residents of Vermont, where its operations are based.
   
4. Milton Friedman, a renowned economist and Nobel laureate, once said, “The business of business is business.” People who follow his view believe that if a business uses some of its profits for social causes rather than using all of its profits to grow the business, the company will not remain very profitable. Thus, workers will get lower wages, customers will pay higher prices, and the owners will make less profit. Questions are also raised about the ability of a business to solve social problems. Does a manager know how to solve drug abuse? Should a business be responsible for promoting sporting events in the community? Are these not roles for the government or others to perform?
   
5. Despite these serious concerns, it is now widely recognized that business has an important responsibility to its stakeholders. Business has also realized that by getting involved socially, it advances its own interests. Enhancing goodwill in the community reduces government’s desire to regulate the business. Some businesses review their social programs regularly. The reviews show what the business is doing to fulfill its social responsibilities, its success in accomplishing its goals, and its plans for pursuing future activities.
   
6. The conduct of businesses is being increasingly and closely examined by various independent groups. Nongovernmental organizations (NGOs) use lobbying, publicity, and pressure tactics to influence businesses to alter their activities. Examples of such organizations are the American Civil Liberties Union and the Sierra Club. They specialize in particular issues, such as workplace discrimination or environmental protection.
   
7. Given the fast pace of change in the world today, society and business will face different issues in the future. Although it is difficult to predict the future, current trends provide hints of what may be in store in the years to come. Various economic and social data provide an in-depth picture of changes occurring in American society. The racial and ethnic mix of the labor force will continue to change. The Internet is dramatically altering how people communicate and businesses operate. Computer-related jobs are multiplying as entrepreneurs establish Internet companies and find new applications for this new technology.
   
8. Businesses are apt to become more involved in providing social services to the community that, in the past, have been provided by families, funded by the government, or purchased by individuals. The general public has become more conscious of environmental and human rights issues, and there is growing concern over balancing family and work life. Businesses and business leaders have to ensure that their activities do not harm the natural environment and that they respect the individual rights of a rapidly diversifying workforce. As societal values change, each business will continue to shape and be shaped by the society in which it functions.
   
9. Business innovations often transform societies in indirect ways. Henry Ford’s mass-marketed automobiles led to paved roads and highways across the United States, the eventual growth of suburbs, and a highly mobile culture based on the car. Modern innovations, including the Internet, have allowed for computer applications such as social networks. Facebook, LinkedIn, and other social networking sites allow individuals to connect and share information with others in their social network. Cell phones are replacing land line telephones in homes and are allowing individuals to have immediate access to the Internet and to networks of individuals through systems such as Twitter. Social networks and cell phones have helped people draw attention to social issues and organize protests against repressive governments.
   

3. CHOOSING AN ETHICAL COURSE

1. It may seem easy to identify an ethical course of action, but what one person may think is the correct ethical course, others may disagree. Great philosophers and thinkers over millennia have developed a number of ethical frameworks to aid in decision making. When Rayshawn Clark faced an ethical dilemma in the opening Reality Check, he needed a framework to consider his actions.
   
2. The Project Management Institute (PMI) developed an Ethical Decision-Making Framework (EDMF) process consisting of steps that guide management professionals when they are confronted with an ethical dilemma. First, managers need to assess the situation to make sure no laws are broken. Managers also need to ensure that decisions abide by PMI’s code of ethics and their business’s code of ethics. Next, managers should list and evaluate alternative courses of action. Then they need to analyze their decisions (potential solutions), such as by assessing the impact on both the short and long term. In making the decision, managers should use one or more of the ethical frameworks discussed below. Before making a final decision, managers should answer the following questions: Are they willing to accept responsibility for the decision? Will they feel good about the decision? If so, managers are ready to act—the final step.
   
3. Ethical frameworks provide guidance for ethical decision making. They represent your views and beliefs that guide you in problem solving. There are a number of ethical frameworks that can be used in business situations, including the five outlined in the Figure below. 
   

   
   

4. If Rayshawn Clark follows the PMI Ethical Decision-Making Framework process, he would first make sure no laws are broken. Clark then needs to ensure that his decisions abide by the business’s code of ethics. He should evaluate his alternative courses of action—telling or not telling Tyler Eastman about the plant closure. In analyzing this decision, Clark should assess the short- and long-term impact on the company, Tyler, and all of the other employees. In making his decision, Clark should use one or more of the ethical frameworks in the Figure above, such as the common-good principle. Finally, Clark should make a decision and act on it.
   

5. CEOs and managers often set the moral standards for their businesses. Employees who see their managers acting unethically will often lose respect for that manager and the business. This can lead to employees acting unethically or engaging in illegal acts. Acting unethically, such as being untruthful, can lead to problems. David Edmondson, the former CEO of RadioShack, lied on his resume. When this was uncovered, he was forced to resign from his position. Companies as varied as Hewlett-Packard and Walmart have been charged with supporting bribery in countries outside of the United States. This has resulted in fines for the companies and loss of jobs for managers.
   

6. Adam Smith, the author of The Wealth of Nations, is considered the father of modern free market economics. He held the belief that free markets would act as if guided by an invisible hand that would lead to the greater good when individuals pursued their own self-interests. Smith’s viewpoint was often misinterpreted to mean that self-interest was all that mattered. However, in his first book, The Theory of Moral Sentiments, Smith held the view that mankind should use an ethical framework whereby concern for others would help hold self-interest in check.