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MGMT 3370 Ch. 4

Ethics
-the set of moral principles or values that defines right and wrong for a person or group
-rights and wrongs are rarely crystal clear to managers charged with doing the right thing
-when people believe their work environment is ethical, they are six times more likely to stay with that company than if they believe they work in an unethical environment
Ethical Behavior
-behavior that conforms to a society’s accepted principles of right and wrong
Workplace deviance
-unethical behavior that violates organizational norms about right and wrong
-can be categorized by how deviant the behavior is, from minor to serious, and by the target of the deviant behavior, either the organization or particular people in the workplace
Types of workplace Deviance
1) Production Deviance
2) Property Deviance
3) Political Deviance
4) Personal Aggression
Production Deviance
-unethical behavior that hurts the quality and quantity of work produced
-ex: leaving early, taking excessively long work breaks, intentionally working slower, or wasting resources
-organizational/minor
Property Deviance
-unethical behavior aimed at the organization’s property or products
-ex: sabotaging, stealing, or damaging equipment or products and overcharging for services and then pocketing the difference
-organizational/serious
Employee Shrinkage
-a common form of property deviance
-it is employee theft of company merchandise
-“sweethearting”–> occurs when employees discount or don’t ring up merchandise
-“dumpster diving”–> employees unload trucks, stash merchandise in a dumpster, and then retrieve it after work
Which types of work place deviance harm companies and which types hurt particular people within companies
1) companies: Production and Property deviance
2) Particular people: Political deviance and Personal aggression
Political Deviance
-using one’s influence to harm others in the company
-ex: making decisions based on favoritism rather than performance, spreading rumors about coworkers, or blaming others for mistakes they didn’t make
-interpersonal/minor
Personal Agression
-hostile or aggressive behavior toward others
-ex: sexual harassment, verbal abuse, stealing from coworkers, personally threatening coworkers, workplace violence
-interpersonal/serious
US Sentencing Commission Guidelines for organizations
-historically, if management was unaware of unethical behavior, the company could not be held responsible for them
-since the US Sentencing Commission Guidelines For Organizations were established, companies can be prosecuted and punished even if management didn’t know about the unethical behavior
To whom do the US Sentencing Commission Guidelines apply and what they cover (Who, What, and Why?)
-WHO: nearly all companies: nonprofits, partnerships, labor unions, unincorporated organizations, incorporated organizations, pension funds, trusts, joint stock companies
-WHAT: guidelines cover offenses defined by federal laws: invasion of privacy, price fixing, fraud, theft, embezzlement, etc.
WHY: the purpose of the guidelines is not just to punish companies after violations, but to encourage companies to prevent violations before they happen –also give companies an incentive to cooperate with and disclose illegal activities to federal authorities
How an organization can be punished for unethical behavior of its managers and employees, according to the US Sentencing Commission Guidelines
-the guidelines impose smaller fines on companies that take proactive steps to encourage ethical behavior or voluntarily disclose illegal activities to federal authorities
3 Influences on Ethical Decision Making
1) Ethical intensity
2) Moral development
3) Ethical principles
Ethical Intensity
-the degree of concern people have about an ethical issue
-when addressing an issue of high ethical intensity, managers are more aware of the impact their decision will have on others–> more likely to view the decision as an ethical or moral decision than as an economic decision –> also more likely to worry about doing the right thing
What 6 factors must be taken into account when determining the ethical intensity of an action?
1) Magnitude of consequences
2) Social consensus
3) Probability of effect
4) Temporal immediacy
5) Proximity of effect
6) Concentration of effect
Magnitude of consequences
-the total harm or benefit derived from an ethical decision
-the more people who are harmed or the greater the harm to those people, the larger the consequences
Social consensus
-agreement on whether behavior is bad or good
Probability of effect
-the chance that something will happen that results in harm to others
If there is *clear agreement* (social consensus) that a managerial decision or action is *certain* (probability of effect) to have *large negative consequences* (magnitude of consequences) in some way, then…
-people will be highly concerned about that managerial decision or action, and ethical intensity will be high
Temporal immediacy
-the time between an act and the consequences the act produces
-ex: temporal immediacy is stronger if a manager has to lay off workers next week as opposed to three months from now
Proximity of effect
-the social, psychological, cultural, or physical distance between a decision maker and those affected by his or her decisions
-ex: proximity of effect is greater when a manager lays off employees he knows than when he lays off employees he doesn’t know
Concentration of effect
-the total harm or benefit that an act produces on the average person
-ex: temporarily laying off 100 employees for ten months without pay has greater concentration of effect than temporarily laying off 1,000 employees for one month
Which of the 6 factors has the most impact on ethical intensity?
Studies indicate that managers are much more likely to view decisions as ethical issues when the magnitude of consequences (total harm) is high and there is a social consensus (agreement) that a behavior or action is bad
Kohlberg’s 3 phases of moral development
1) Pre-conventional
2) Conventional
3) Post-conventional
-Kohlberg believed that people would progress sequentially from earlier stages to later stages as they became more educated and mature
Pre-conventional level of moral development
-the first level of moral development, in which people make decisions based on selfish reasons
*Self-Interest*
2 stages of the Pre-conventional level of moral development
1) Punishment and Obedience: primary concern will be to avoid trouble for yourself
2) Instrumental Exchange: worry less about punishment and more about doing things that directly advance your wants and needs
Conventional level of moral development
-the second level of moral development, in which people make decisions that conform to societal expectations
-they look outside themselves to others for guidance on ethical issues
*Societal Expectations*
2 stages of the Conventional level of moral development (stages 3 and 4)
3) Good Boy, Nice Girls: normally do what the other “good boys” and “nice girls” are doing
4) Law and Order: look for external guidance and do whatever the law permits
Post-conventional level of moral development
the third level of moral development, in which people make decisions based on *internalized principles*
2 stages of the Post-conventional level of moral development (stages 5 and 6)
5) Social Contract: decisions based on the idea that as a whole, society is better off when the rights of others are not violated
6) Universal Principle: make decisions depending on your principles of right and wrong–> you will stick to your principles even if your decision conflicts with the law (Stage 4) or what others believe is best for society (Stage 5)
What stage of moral development are most adults in? What does this mean when it comes to ethical decision making in the workplace?
-most adults are in the conventional stage of moral development, in which they look outside themselves to others for guidance on ethical issues–> this means that most people in the workplace look to and need leadership when it comes to ethical decision making
-only 20 percent of adults ever reach the post-conventional stage of moral development, where internal principles guide their decisions.
Principles of Ethical Decision Making
1) Principle of long-term self interest
2) Principle of personal virtue
3) Principle of religious injunctions
4) Principle of government requirements
5) Principle of utilitarian benefits
6) Principle of individual rights
7) Principle of distributive justice
*all of these encourage managers and employees to take others’ interests into account when making ethical decisions*
Principle of long-term self interest
-an ethical principle that holds that you should never take any action that is not in your or your organization’s long-term self-interest
-does not promote selfishness: what we do to maximize our longterm interests (save more, spend less, exercise every day, watch what we eat) is often very different from what we do to maximize short-term interests (max out our credit cards, be couch potatoes, eat whatever we want)
Principle of personal virtue
-an ethical principle that holds that you should never do anything that is not honest, open, and truthful and that you would not be glad to see reported in the newspapers or on TV
Principle of religious injunctions
an ethical principle that holds that you should never take any action that is unkind or that harms a sense of community, such as the positive feelings that come from working together to accomplish a commonly accepted goal
Principle of government requirements
an ethical principle that holds that you should never take any action that violates the law, because the law represents the minimal moral standard of society
Principle of utilitarian benefits
-an ethical principle that holds that you should never take any action that does not result in greater good for society
-you should do whatever creates the greatest good for the greatest number
Principle of individual rights
-an ethical principle that holds that you should never take any action that infringes on others’ agreed-upon rights
Principle of distributive justice
-an ethical principle that holds that you should never take any action that harms the least fortunate among us in some way
-designed to protect the poor, the uneducated, and the unemployed
Ways managers can encourage more ethical decision making in their organizations
1) carefully selecting and hiring ethical employees
2) establishing a specific code of ethics
3) training employees to make ethical decisions
4) creating an ethical climate.
2 ways an employer can increase chances of selecting and hiring ethical employees
1) Overt integrity tests
2) Personality-based integrity tests
Overt integrity tests
-a written test that estimates job applicants’ honesty by directly asking them what they think or feel about theft or about punishment of unethical behaviors
-unethical people will usually answer “yes” to such questions, because they believe that the world is basically dishonest and that dishonest behavior is normal
Personality-based integrity tests
-a written test that indirectly estimates job applicants’ honesty by measuring psychological traits, such as dependability and conscientiousness
-helps companies to selectively hire and promote people who will be more ethical
Code of Ethics
-Even if a company has a code of ethics, two things must still happen if those codes are to encourage ethical decision making and behavior: (1) a company must communicate its code to others both inside and outside the company, (2) in addition to having an ethics code with general guidelines like “do unto others as you would have others do unto you,” management must also develop practical ethical standards and procedures specific to the company’s line of business
-Specific codes of ethics make it much easier for employees to decide what to do when they want to do the right thing.
Ethics training
In addition to establishing ethical standards for the company, managers must sponsor and be involved in ethics and compliance training in order to create an ethical company culture
Objectives of Ethics Training
1) Develop employees’ awareness of ethics
2) Achieve credibility with employees
3) Teach employees a practical model of ethical decision making
Developing employees’ awareness of ethics
-objective of ethics training
-This means helping employees recognize which issues are ethical issues and then avoiding rationalizing unethical behavior by thinking, “This isn’t really illegal or immoral” or “No one will ever find out”
-Specific company-related questions and scenarios make it easier for managers and employees to recognize and be aware of ethical issues and situations
Achieve credibility with employees
-objective of ethics training
-employees can be highly suspicious of management’s reasons for offering ethics training–> some companies have hurt the credibility of their ethics programs by having outside instructors and consultants conduct the classes–> Employees often complain that outside instructors and consultants are teaching theory that has nothing to do with their jobs and the practical dilemmas they actually face on a daily basis
-Ethics training becomes even more credible when top managers teach the initial ethics classes to their subordinates who in turn teach their subordinates
Teach employees a practical model of ethical decision making
-objective of ethics training
-A basic model should help them think about the consequences their choices will have on others and consider how they will choose between different solutions
Ethical Climate
-Organizational culture is key to fostering ethical decision making
-employees in strong ethical cultures are also more likely to report violations because they expect that management wants them reported and won’t retaliate against them for doing so
Steps in establishing an ethical climate
1)managers, especially top managers, need to act ethically themselves
2)top management should be active in and committed to the company ethics program
3)put in place a reporting system that encourages managers and employees to report potential ethics violations–> “Whistleblowing”
4) management must fairly and consistently punish those who violate the company’s code of ethics
Whistleblowing
-reporting others’ ethics violations to management or legal authorities
-a difficult step for most people to take
-potential whistleblowers often fear that they, and not the ethics violators, will be punished
-factor that does the most to discourage whistleblowers from reporting problems is lack of company action on their complaints
To whom are organizations socially responsible
-because there are strong disagreements over to whom and for what in society organizations are responsible, it can be difficult for managers to know what is or will be perceived as socially responsible corporate behavior
Social responsibility
-a business’s obligation to pursue policies, make decisions, and take actions that benefit society
What are the two perspectives regarding to whom organizations are socially responsible?
1) shareholder model
2) stakeholder model
shareholder model
-According to Milton Friedman, the only social responsibility that organizations have is to satisfy their owners, that is, company shareholders
-a view of social responsibility that holds that an organization’s overriding goal should be profit maximization for the benefit of shareholders–> by maximizing profit, the firm maximizes shareholder wealth and satisfaction–> as profits rise, the company stock owned by shareholders generally increases in value
Friedman’s argument for the shareholder model
-argued that it is socially irresponsible for companies to divert time, money, and attention from maximizing profits to social causes and charitable organizations
-first problem, he believed, is that organizations cannot act effectively as moral agents for all company shareholders
-second major problem, is that the time, money, and attention diverted to social causes undermine market efficiency
Explanation of Friedman’s argument that organizations cannot act effectively as moral agents for all company shareholders
shareholders are likely to agree on investment issues concerning a company, but it’s highly unlikely that they have common views on what social causes a company should or should not support
Explanation of Friedman’s argument that the time, money, and attention diverted to social causes undermine market efficiency
In competitive markets, companies compete for raw materials, talented workers, customers, and investment funds–> A company that spends money on social causes will have less money to purchase quality materials or to hire talented workers who can produce a valuable product at a good price–> If customers find the company’s product less desirable, its sales and profits will fall–> If profits fall, the company’s stock price will decline, and the company will have difficulty attracting investment funds that could be used to fund long-term growth–> In the end, Friedman argues, diverting the firm’s money, time, and resources to social causes hurts customers, suppliers, employees, and shareholders
stakeholder model
-a theory of corporate responsibility that holds that management’s most important responsibility, long-term survival, is achieved by satisfying the interests of multiple corporate stakeholders (not just shareholders)
-Since stakeholders are interested in and affected by the organization’s actions, they have a stake in what those actions are
Stakeholders
-persons or groups with a stake, or legitimate interest, in a company’s actions
-Stakeholder groups may try to influence the firm to act in their own interests
2 questions raised from being responsible to multiple stakeholders
1) how does a company identify organizational stakeholders?
2) how does a company balance the needs of different stakeholders?
*Distinguishing between primary and secondary stakeholders can help answer these questions*
Primary stakeholders
-any group on which an organization relies for its long-term survival; they include shareholders, employees, customers, suppliers, governments, and local communities
-addressing the concerns of primary stakeholders is important, because if a stakeholder group becomes dissatisfied and terminates its relationship with the company, the company could be seriously harmed or go out of business.
when managers are struggling to balance the needs of different stakeholders, the stakeholder model suggests that the needs of…
-primary stakeholders take precedence over the needs of secondary stakeholders
-also among primary stakeholders, some are more important than others–> higher priority is given to shareholders, employees, and customers than to suppliers, governments, and local communities
Secondary stakeholders
-any group that can influence or be influenced by a company (such as the media & special interest groups)
-do not engage in regular transactions with the company and are not critical to its long-term survival
-secondary stakeholders are still important because they can affect public perceptions and opinions about socially responsible behavior
For what are organizations socially responsible?
1) Economic responsibility
2) Legal responsibility
3) Ethical responsibility
4) Discretionary responsibility
*Companies can best benefit their stakeholders by fulfilling their economic, legal, ethical, and discretionary responsibilities*
What 2 responsibilities play the larger role in the social responsibilities of organizations
Economic and Legal responsibilities
economic responsibility
-a company’s social responsibility to make a profit by producing a valued product or service
-historically has been a business’s most basic social responsibility
-organizations that don’t meet their financial and economic expectations come under tremendous pressure
legal responsibility
a company’s social responsibility to obey society’s laws and regulations as it tries to meet its economic responsibilities
ethical responsibility
a company’s social responsibility not to violate accepted principles of right and wrong when conducting its business
discretionary responsibility
-the social roles that a company fulfills beyond its economic, legal, and ethical responsibilities
-carrying out discretionary responsibility is voluntary–> companies are not considered unethical if they don’t perform them
-Today, corporate stakeholders expect companies to do much more than in the past to meet their discretionary responsibilities
Social responsiveness
-refers to a company’s strategy to respond to stakeholders’ economic, legal, ethical, or discretionary expectations concerning social responsibility
when does a social responsibility exist?
whenever company actions do not meet stakeholder expectations
four strategies for responding to social responsibility problems:
1) reactive
2)defensive
3)accommodative
3)proactive
*they differ in the extent to which the company is willing to act to meet or exceed society’s expectations*
reactive strategy
-a social responsiveness strategy in which a company does less than society expects
-it may deny responsibility for a problem or fight any suggestions that the company should solve a problem
defensive strategy
a social responsiveness strategy in which a company admits responsibility for a problem but does the least required to meet societal expectations
accommodative strategy
a social responsiveness strategy in which a company accepts responsibility for a problem and takes a progressive approach by doing all that society expects to solve that problem
proactive strategy
a social responsiveness strategy in which a company anticipates responsibility for a problem before it occurs, and does more than society expects to take responsibility for and address the problem, and lead the industry in it’s approach
Social responsibility and economic performance
-There is no trade-off between being socially responsible and economic performance–> being socially responsible usually won’t make a business less profitable–> suggests that the costs of being socially responsible—and those costs can be high, especially early on—can be offset by a better product or corporate reputation, which results in stronger sales or higher profit margins
-It usually does pay to be socially responsible–> relationship becomes stronger particularly when a company or its products have a strong reputation for social responsibility
-There is no guarantee that socially responsible companies will be profitable.

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