CHAPTER 4

Ethics and
Corporate
Responsibility

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 Learning Objectives
1. Describe how different ethical perspectives guide decision
making.
2. Identify the ethics-related issues and laws facing managers.
3. Explain how managers influence their ethics environment.
4. Outline the process for making ethical decisions.
5. Summarize the important issues surrounding corporate
social responsibility.
6. Discuss the growing importance of managing the natural
environment.

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 Ethics

The moral principles and standards that guide

the behavior of an individual or group.

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 It’s a Personal Issue (1 of 2)
Most of us think we are good decision makers, ethical,
and unbiased.
• But most people have unconscious biases that favor
themselves and their own group.
Managers often:
• Hire people who are like them.
• Think they are immune to conflicts of interest.
• Take more credit than they deserve.
• Blame others when they deserve some blame themselves.

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 It’s a Personal Issue (2 of 2)

Is it okay to do a little online shopping during your lunch hour or

to check scores during the World Series or March Madness?

Is it okay to stream video of the games for your own and your
coworkers’ enjoyment or take a two-hour lunch to locate the
best deal on a flat-panel TV?

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 Your Perspectives Shape Your Ethics
Ethical issue.
• Situation, problem, or
opportunity in which one must
choose among several actions
that must be evaluated as
morally right or wrong.
Business ethics.
• The moral principles and
standards that guide behavior
in the business world.

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 Ethical Systems (1 of 2)
Moral philosophy.
• Principles, rules, and values people use in deciding what is
right or wrong.
Universalism.
• The ethical system stating that all people should uphold
certain values that society needs to function.

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 Caux Principles
Caux Principles. Kyosei.
• Living and working
• Ethical principles
together for the common
established by good, allowing
international executives cooperation and mutual
based in Caux, prosperity to coexist with
Switzerland, in healthy and fair
competition.
collaboration with
Human dignity.
business leaders from
• Concerns the value of
Japan, Europe, and the
each person as an end,
United States. not a means, to the
fulfillment of others’
purposes.
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 Ethical Systems (2 of 2)

Egoism Relativism
• An ethical principle holding • Philosophy that bases
that individual self-interest ethical behavior on the
is the actual motive of all opinions and behaviors of
conscious action. relevant other people.

Virtue ethics Utilitarianism

• An ethical system stating • Perspective that what is
that the greatest good for moral comes from what a
the greatest number should mature person with “good”
be the overriding concern of moral character would
decision makers. deem right.
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 Exhibit 4.1 Kohlberg’s Stages of Moral
Development

Source: Adapted from L. Kohlberg, “Moral Stages and Moralization: The Cognitive-Development Approach.” in T. Lickona (ed.], Moral Development and
Behavior Theory, Research, and Social Issues (New York: Holt, Rinehart & Winston, 1976], pp. 31-53.
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 Ethical Dilemmas
Issues making ethics increasingly complex:
• Brands.
• CEO pay.
• Commercialism in schools.
• Religion at work.
• Sweatshops.
• Wages.

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 Ethics and the Law
Sarbanes-Oxley Act. Exhibit 4.2 Partial list of steps to meet SOX
guidelines.
• An act that established strict Establish written standards of ethical
conduct and controls for enforcing them.
accounting and reporting
Assign responsibility to top managers to
rules to make senior ensure that the program is working as
managers more accountable intended.
and to improve and Exclude anyone who violates the standards
maintain investor from holding management positions.

confidence. Provide training in ethics to all employees

and monitor compliance.
Give employees incentives for complying
Sources: “Staying on Course: A Guide for Audit Committees,” Ernst &
Young Center for Board Matters, www.ey.com, accessed April 15, 2016: and consequences for violating the
“2010 Report to the Nations on Occupational Fraud and Abuse,” standards.
Association of Certified Fraud Examiners, www.acfe.com/; Thompson Hine
LLP, “U.S. Sentencing Commission Announces Stiffened Organization
Sentencing Guidelines in Response to the Sarbanes and Oxley Act,” Respond with consequences and more
advisory bulletin, June 1, 2004, last modified August 31, 2006,
www.Thompson.com; and R.J. Zablow, “Creating and Sustaining an Ethical
preventive measures if criminal conduct
Workplace,” Risk Management 53, no. 9 (September 2006). Copyright occurs.
©McGraw-Hill Education. Permission required for reproduction or display.
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 The Ethical Climate Influences Employees
Ethical climate. A few of ethical
• In an organization, the dilemmas:
processes by which • CEO pay.
decisions are evaluated
and made on the basis of • Commercialization in
right and wrong. schools.
• Religion as work.
• Sweatshops.
• Wages.

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 Danger Signs
1. Excessive emphasis on 5. Viewing ethics solely as a
short-term revenues legal issue or a public
over longer-term relations tool.
considerations. 6. Lack of clear procedures
2. Failure to establish a for handling ethical
written code of ethics. problems.

3. A desire for simple, 7. Response to the demands

of shareholders at the
“quick fix” solutions to
expense of other
ethical problems.
constituencies.
4. An unwillingness to take
an ethical stand that may
impose financial costs.
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 Ethics Programs
Compliance-based ethics programs.
• Company mechanisms typically designed by corporate
counsel to prevent, detect, and punish legal violations.
Integrity-based ethics programs.
• Company mechanisms designed to instill in people a
personal responsibility for ethical behavior.

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 Ethical Decision Making
Making ethical decisions takes:
• Moral awareness.
• Realizing the issue has ethical implications.
• Moral judgment.
• Knowing what actions are morally defensible.
• Moral character.
• The strength and persistence to act in accordance with
your ethics despite the challenges.

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 Exhibit 4.3  A Process for Ethical
Decision Making

Source: L.T. Hosmer, The Ethics of Management, 4 th ed. (New York: McGraw-Hill/Irwin, 2003), p. 32. © 2003 Reprinted with permission of
McGraw-Hill Education.

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 Exhibit 4.4  The Business Costs of
Ethical Failure

Source: T. Thomas, J. Schermerhorn, Jr. and J. Dienhart, “Strategic Leadership of Ethical Behavior in Business,” Academy of
Management Executive (May 2004), p. 58.

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 Exhibit 4.5  Pyramid of global corporate social
responsibility and performance

Source: A. Carroll, “Managing Ethically with Global Stakeholders: A Present and Future Challenge,”
Academy of Management Executive (May 2004), pp. 116, 114-20.

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 Corporate Social Responsibility (1 of 2)
Economic. Ethical.
• To produce goods and • Meeting other social
services that society expectations, not written
wants at a price that as law.
perpetuates the business
and satisfies its Philanthropic.
obligations to investors. • Additional behaviors and
activities that society
Legal. finds desirable and that
• To obey local, state, the values of the
federal, and relevant business support.
international laws.

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 Corporate Social Responsibility (2 of 2)
Transcendent education.
• An education with five higher goals that balance
self-interest with responsibility to others.
• Empathy, generativity, mutuality, civil aspiration,
intolerance of ineffective humanity.

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 Do Businesses Really Have a Social
Responsibility?
Shareholder model.
• Theory of corporate social responsibility that holds that
managers are agents of shareholders whose primary
objective is to maximize profits.
Stakeholder model.
• Theory of corporate social responsibility that suggests that
managers are obliged to look beyond profitability to help
their organizations succeed by interacting with groups that
have a stake in the organization.

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 You Can Do Good and Do Well

• Profit maximization and corporate social

responsibility used to be regarded as leading to
opposing policies. But the two views can converge.

• Recent attention has also been centered on the

possible competitive advantage of socially
responsible actions.

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 Development Can Be Sustainable
Ecocentric management.
• Creates sustainable economic development and improves
quality of life worldwide for all organizational stakeholders.
Sustainable growth.
• Economic growth and development that meet present
needs without harming the needs of future generations.
Life-cycle analysis (LCA).
• A process of analyzing all inputs and outputs, though the
entire “cradle-to-grave” life of a product, to determine
total environmental impact.

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 Challenge
ETHICAL DILEMMA:
• You are the CEO of a medium sized firm with plants in the
United States and Taiwan. There is a shipment of critical parts
held up indefinitely in Taiwan due to a paperwork issue.
• You learn that if a customs officer is paid a “facilitation fee”
the shipment will be released. Without these parts your
operation will shut down.
• What would you do?

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 Chapter Review
Different ethical perspectives.
• Universalism, egoism, utilitarianism, relativism, virtue ethic.

Sarbanes-Oxley Act.
Ethics codes, ethics programs.
• Integrity-based, compliance-based.

Ethical decision-making process.

Levels of corporate social responsibility.
• Economic, legal, ethical, philanthropic.

Ecocentric management, sustainable growth.

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