3
CHAPTER
CHAPTER
Social Responsibility and Ethics in
Strategic Management
Learning Objectives
After reading this chapter, you should be able to:
3-1. Discuss the relationship between social responsibility and corporate
performance
3-2. Explain the concept of sustainability
3-3. Conduct a stakeholder analysis
3-4. Explain why people may act unethically
3-5. Describe different views of ethics according to the utilitarian, individual
rights, and justice approaches Learning Objectives
What is Social Responsibility?
• Social responsibility is having a sense of duty to
society and everything that is a part of it. In other
words, “social responsibility”
means managers are accountable to society at
large, not just their shareholders.
• Responsibilities to society that extend beyond
making a profit.
Responsibilities of a BUSINESS FIRM
(Milton Friedman and Archie Carroll)
1. Friedman’s Traditional View of Business
Responsibility
• Milton Friedman argued against the concept of social
responsibility as a function of business because for him, this is
just spending the shareholder’s money for a general social
interest and it could lead negative effects perhaps fatally – the
long-term efficiency of a business.
Friedman thus referred to the social responsibility of
business as a “fundamentally subversive doctrine” and
stated that:
There is one and only one social responsibility of
business—to use its resources and engage in activities
designed to increase its profits so long as it stays
within the rules of the game, which is to say, engages
in open and free competition without deception or
fraud.
2. Carroll’s Four Responsibilities of Business
4 RESPONSIBILITIES:
• Economic responsibilities of a business organization’s management are to
produce goods and services of value to society so that the firm may repay
its creditors and increase the wealth of its shareholders.
• Legal responsibilities are defined by governments in laws that management
is expected to obey.
• Ethical responsibilities of an organization’s management are to follow the
generally held beliefs about behavior in a society.
• Discretionary responsibilities are the purely voluntary obligations a
corporation assumes
FIGURE 3-1
Responsibilities of Businesses
Sustainability
Sustainability means meeting our own needs without compromising
the ability of future generations to meet their own needs and it includes
much more than just ecological concerns and the natural environment.
Crane and Matten point out that the concept of sustainability
should be broadened to include economic and social as well as
environmental concerns. They argue that it is sometimes
impossible to address the sustainability of the natural environment
without considering the social and economic aspects of relevant
communities and their activities.
CORPORATE STAKEHOLDERS
STAKEHOLDERS- a large number of groups with interest in a business
organization’s activities.
The primary stakeholders in a typical corporation are its investors,
employees, customers, and suppliers.
Enterprise strategy —an overarching strategy that explicitly articulates
the firm’s ethical relationship with its stakeholders. This requires not
only that management clearly state the firm’s key ethical values, but
also that it understands the firm’s societal context, and undertakes
stakeholder analysis to identify the concerns and abilities of each
stakeholder.
Stakeholder Analysis
Stakeholder analysis is the identification and evaluation
of corporate stakeholders. This can be done in a three-
step process.
1. Identify primary stakeholders, those who have a
direct connection with the corporation and who have
sufficient bargaining power to directly affect corporate
activities. Primary stakeholders include customers,
employees, suppliers, shareholders, and creditors.
2. Identify the secondary stakeholders — those who have only an
indirect stake in the corporation but who are also affected by corporate
activities. These usually include nongovernmental organizations (NGOs,
such as Greenpeace), activists, local communities, trade associations,
competitors, and governments.
3. Estimate the effect on each stakeholder group from any particular
strategic decision.
Stakeholder Input
Once stakeholder impacts have been identified, managers should decide
whether stakeholder input should be invited into the discussion of the
strategic alternatives.
Ethical Decision Making
Ethical decision-making refers to
the process of evaluating and choosing
among alternatives in a manner consistent
with ethical principles. In making ethical
decisions, it is necessary to perceive and
eliminate unethical options and select the
best ethical alternative.
SOME REASONS FOR UNETHICAL BEHAVIOR
• People involved are not even aware that they are doing
something questionable.
• Differences in values between business people and key
stakeholders.
Moral Relativism
moral relativism claims that morality is relative to some
personal, social, or cultural standard and that there is no method
for deciding whether one decision is better than another.
4 types of Moral Relativism
1. Naïve relativism: Based on the belief that all moral decisions are
deeply personal and that individuals have the right to run their
own lives, adherents of moral relativism argue that each person
should be allowed to interpret situations and act according to his
or her own moral values.
2. Role relativism: Based on the belief that social roles carry with
them certain obligations to that role, adherents of role relativism
argue that a manager in charge of a work unit must put aside his
or her personal beliefs and do instead what the role requires—
that is, act in the best interests of the unit.
3. Social group relativism: Based on a belief that morality is
simply a matter of following the norms of an individual’s peer
group, social group relativism argues that a decision is
considered legitimate if it is common practice, regardless of
other considerations (“everyone’s doing it”).
4. Cultural relativism: Based on the belief that morality is
relative to a particular culture, society, or community, adherents
of cultural relativism argue that people should understand the
practices of other societies, but not judge them.
Kohlberg’s Levels of Moral Development
3 levels of moral development:
1. The pre-conventional level: This level is characterized by a concern for
self. Small children and others who have not progressed beyond this
stage evaluate behaviors on the basis of personal interest—avoiding
punishment or quid pro quo.
2. The conventional level: This level is characterized by considerations of
society’s laws and norms. Actions are justified by an external code of
conduct.
3. The principled level: This level is characterized by a person’s adherence
to an internal moral code. An individual at this level looks beyond norms
or laws to find
ENCOURAGING ETHICAL BEHAVIOR
One way to do that is by developing codes of
ethics. Another is by providing guidelines for
ethical behavior.
Codes of Ethics
A code of ethics specifies how an
organization expects its employees to behave
while on the job.
Views on Ethical Behavior
Ethics is defined as the consensually accepted
standards of behavior for an occupation, a
trade, or a profession. Morality, in contrast,
constitutes one’s rules of personal behavior
based on religious or philosophical grounds.
Law refers to formal codes that permit or
forbid certain behaviors and may or may not
enforce ethics or morality.
3 basic approaches to ethical behavior:
1. Utilitarian approach: The utilitarian approach proposes
that actions and plans should be judged by their
consequences. People should, therefore, behave in a way
that will produce the greatest benefit to society and
produce the least harm or the lowest cost.
2. Individual rights approach: The individual rights approach
proposes that human beings have certain fundamental
rights that should be respected in all decisions.
3. Justice approach: The justice approach
proposes that decision makers be equitable,
fair, and impartial in the distribution of costs
and benefits to individuals and groups. It
follows the principles of distributive justice
(people who are similar on relevant
dimensions such as job seniority should be
treated in the same way) and fairness
(liberty should be equal for all persons).
Cavanagh proposes that we solve ethical
problems by asking the following three
questions regarding an act or a decision:
1. Utility: Does it optimize the satisfactions
of all stakeholders?
2. Rights: Does it respect the rights of the
individuals involved?
3. Justice: Is it consistent with the canons of
justice?
Kant presents two principles (called categorical
imperatives) to guide our actions:
1. A person’s action is ethical only if that person is
willing for that same action to be taken by everyone who
is in a similar situation. This is the same as the Golden
Rule: Treat others as you would like them to treat you.
For example, staying at upscale hotels while on the trip
to Europe is only ethical if the same opportunity is
available to others in the company at the same level.
2. A person should never treat another human being simply as a
means but always as an end. This means that an action is morally
wrong for a person if that person uses others merely as a means
for advancing his or her own interests. To be moral, the act should
not restrict other people’s actions so they are disadvantaged in
some way.
Thank You!