Disclaimer: This study guide is NOT a substitute for reading the textbook chapters, and this guide

alone will not guarantee you a passing grade on exams. You must read the textbook chapters in their
entirety in order to fully prepare for the exam.

Management Chapter 4: Ethics and social responsibility

Ethics: The set of moral principles or values that defines right and wrong for a person or group.

Ethical behavior: Behavior that conforms to a society's accepted principles of right and wrong.
i.e. unethical behavior: producing unsafe product

Workplace deviance: Unethical behavior that violates organizational norms about right and
wrong.
i.e. pretending you are sick to get a sick day and go watch law and order at home

Production deviance: Unethical behavior that hurts the quality and quantity of work produced.
i.e. leaving early; taking too many breaks; manipulating data to finish early

Property deviance: Unethical behavior aimed at the organization's property or products.

i.e. sabotaging, stealing, damaging equipment to make some money of it, maybe insurance
fraud

Employee shrinkage: Employee theft of company merchandise.

Fun fact: employees steel more merchandise than shoplifters

Political deviance: Using one's influence to harm others in the company.

i.e. spreading rumors about coworkers

Personal aggression: Hostile or aggressive behavior toward others.

Sexual harassment, verbal abuse, threats
Ethical intensity: The degree of concern people have about an ethical issue.

1
i.e. You are less concerned with an employee taking printer paper home than you are about
whether or not an employee and his family deserve certain benefits

6 Factors affect ethical intensity:

1. Magnitude of consequences: The total harm or benefit derived from an ethical decision.
2. Social consensus: Agreement on whether behavior is bad or good.
3. Probability of effect: The chance that something will happen and then harm others.
4. Temporal immediacy: The time between an act and the consequences the act produces.
 Stronger if consequences happen sooner rather than later
5. Proximity of effect: The social, psychological, cultural, or physical distance between a
decision maker and those affected by his or her decisions.
 i.e. laying off someone you know affects you more than laying off a stranger
6. Concentration of effect: The total harm or benefit that an act produces on the average
person.
*****The strongest factors affecting ethical intensity are magnitude of consequences and then
social consensus.
You also take decisions based on level of moral development. (Lawrence Kohlberg):
 Preconventional level of moral development: Kohlberg's first level of moral
development, in which people make decisions based on selfish reasons.
o Primary concern is warding pain and punishment from one’s self
o Then you start worrying less about punishment and more about advancing
yourself so you copy a private company software
 Conventional level of moral development: Kohlberg's second level of moral
development, in which people make decisions that conform to societal expectations.
o If everyone else is copying the software than you do too..if no one dares than
you don’t dare
 Postconventional level of moral development: Kohlberg's third level of moral
development, people make decisions based on internalized principles.
o Ethical principles internalized here so people will only do what the law permits
o You submit to social contract because society is better off when people’s rights
and properties are not violated
o Then, you might have your own ideas about and wrong and feel so strongly
about them that you will do whatever you feel is write even if it is against the
law

2
7 Principles of Ethical Decision Making:
1. 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.
 Long term vs short term i.e. only give benefits after 30 years in company as less costly
2. 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 newspaper or on TV.
3. Principle of religious injunctions: An ethical principle that holds that you should never
take any action that is not kind and that does not build a sense of community.
4. Principle of government requirements: An ethical principle that holds that you should
never take any action that violates the law for the law represents the minimal moral
standard.
5. 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.
 What is utility?
6. Principle of individual rights: An ethical principle that holds that you should never take
any action that infringes on others' agreed-upon rights.
 John Locke: people exit nature and enter society knowingly giving up some of their
rights for the security and preservation of the ones they hold most dear
7. Principle of distributive justice: An ethical principle that holds that you should never
take any action that harms the least fortunate among us: the poor, the uneducated, the
unemployed.
 i.e. increasing interest rates on student loans
3 Steps to Select and hire ethical employees:
1. Overt integrity test: 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.
2. Personality-based integrity test: A written test that indirectly estimates job applicants'
honesty by measuring psychological traits, such as dependability and conscientiousness.
3. Whistleblowing: Reporting others' ethics violations to management or legal authorities.
 Make it easy for people to report if an ethical violation is going on
 Example: CFA; first study guide book is code of ethics

Social responsibility: A business’ obligation to pursue policies, make decisions, and take actions
that benefit society.
To whom are societies socially responsible?

3
  According to Milton Friedman, only company shareholders as reflected by shareholder
model
o Shareholder model: A view of social responsibility that holds that an
organization's overriding goal should be profit maximization for the benefit of
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.
o Stakeholders: Persons or groups with legitimate interests in a company's actions.
o Primary stakeholder: Any group on which an organization relies for its long-term
survival.
o Secondary stakeholder: Any group that can influence or be influenced by a
company and can affect public perceptions about its socially responsible
behavior.
Social responsibilities fall into 4 categories:
1. Economic responsibility: A company's social responsibility to make a profit by producing
a valued product or service.
2. Legal responsibility: A company's social responsibility to obey society's laws and
regulations.
3. Ethical responsibility: A company's social responsibility not to violate accepted
principles of right and wrong when conducting its business.
4. Discretionary responsibilities: The social roles that a company fulfills beyond its
economic, legal, and ethical responsibilities.
Social responsiveness: Refers to a company's strategy for responding to stakeholders'
expectations concerning economic, legal, ethical, or discretionary responsibility.
 Usually happens when company standards don’t meet stakeholder’s expectations
4 Different types of social responsiveness strategies:
1. Reactive strategy: A social responsiveness strategy in which a company does less than
society expects.
2. Defensive strategy: A social responsiveness strategy in which a company admits
responsibility for a problem but does the least required to meet societal expectations.
3. Accommodative strategy: A social responsiveness strategy in which a company accepts
responsibility for a problem and does all that society expects to solve that problem.
4. 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
address the problem.