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Solution Manual for Management 9th Edition

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CHAPTER 5

MANAGING ETHICS AND SOCIAL RESPONSIBILITY

CHAPTER OUTLINE
I. Will You Be A Courageous Manager?
II. What Is Managerial Ethics? and Ethical Dilemmas: What Would You Do?
III. Criteria for Ethical Decision Making
A. Utilitarian Approach
B. Individualism Approach
C. Moral-Rights Approach
D. Justice Approach
IV. Manager Ethical Choices
V. New Manager Self-Test: Self and Others
VI. What Is Corporate Social Responsibility?
A. Organizational Stakeholders
B. The Bottom of the Pyramid
VII. The Ethic of Sustainability
VIII. Evaluating Corporate Social Responsibility
IX. Managing Company Ethics and Social Responsibility
A. Codes of Ethics
B. Ethical Structures
C. Whistle-Blowing
D. The Business Case for Ethics and Social Responsibility

ANNOTATED LEARNING OBJECTIVES

After studying this chapter, students should be able to:

77
78 • Chapter 5

1. Define ethics and explain how ethical behavior relates to behavior governed by law and free
choice.

Ethics is difficult to define in a precise way. In a general sense, ethics is the code of moral
principles and values that govern the behaviors of a person or group with respect to what is right
or wrong. Ethics sets standards as to what is good or bad in conduct and decision making.
Human behavior falls into three categories. The first is codified law, in which values and
standards are written into the legal system and enforceable in the courts. The domain of free
choice is at the opposite end of the scale and pertains to behavior about which law has no say and
for which an individual or organization enjoys complete freedom. Between these domains lies
the area of ethics. This domain has no specific laws, yet it does have standards of conduct based
on shared principles and values about moral conduct that guide an individual or company.

2. Explain the utilitarian, individualism, moral-rights, and justice approaches for evaluating
ethical behavior.

The utilitarian approach holds that moral behaviors produce the greatest good for the greatest
number. In this approach, a decision maker is expected to consider the effect of each decision
alternative on all parties and select the one that optimizes satisfaction for the greatest number of
people.

The individualism approach, also called egoism, contends that acts are moral when they promote
the individual’s best long-term interests. Individuals calculate the best long-term advantage to
themselves as a measure of a decision’s goodness. The action that is intended to produce a
greater ratio of good to bad for the individual compared with other alternatives is the right one to
perform.

The moral-rights approach asserts that people have fundamental rights and liberties that cannot
be taken away by an individual’s decision. Thus, an ethically correct decision is one that best
maintains the rights of those affected by it. These rights include the right of free consent, the
right to privacy, the right of freedom of conscience, the right of free speech, the right to due
process, and the right to life and safety.

The justice approach holds that moral decisions must be based on standards of equity, fairness,
and impartiality. Three types of justice are of concern to managers. Distributive justice requires
that different treatment of people not be based on arbitrary characteristics. Procedural justice
requires that rules be administered fairly. Rules should be clearly stated and be consistently and
impartially enforced. Compensatory justice argues that individuals should be compensated for
the cost of their injuries by the party responsible. Individuals should not be held responsible for
matters over which they have no control.

3. Describe the factors that shape a manager’s ethical decision making.

Individual managers bring specific personality and behavioral traits to the job. Personal needs,
family influence, and religious background all shape a manager’s value system. Specific
personality characteristics, such as ego strength, self-confidence, and a strong sense of
independence may enable managers to make ethical decisions.
 Managing Ethics and Social Responsibility • 79

Organizational values are vitally important and corporate culture can exert a powerful influence
on behavior in organizations. Organizational culture provides ethical signals to employees.
Heroes provide role models that can support ethical decision making. High ethical standards are
affirmed through public awards and ceremonies. Myths and stories can reinforce heroic ethical
behavior. Other aspects of the organization such as rules and policies, the reward system, the
extent to which the company cares for its people, the selection system, emphasis on legal and
professional standards, and leadership and decision processes also impact on ethical decision
making.

4. Identify important stakeholders for an organization and discuss how managers balance the
interests of various stakeholders.

A stakeholder is any group within or outside the organization that has a stake in the
organization’s performance. Each stakeholder has a different criterion of responsiveness because
it has a different interest in the organization. Important stakeholders include investors,
employees, customers, owners, creditors, suppliers, and investors. When any primary
stakeholder group becomes seriously dissatisfied, the organization’s viability is threatened.

5. Explain the bottom-of-the-pyramid concept and some of the innovative strategies companies
are using.

The bottom-of-the-pyramid (BOP) concept proposes that corporations can alleviate poverty and
other social ills, as well as make significant profits, by selling to the world’s poorest people. The
term bottom of the pyramid refers to the more than four billion people who make up the lowest
level of the world’s economic “pyramid” as defined by per capita income.

Unilever continues to expand a campaign to prevent the spread of disease in India by

demonstrating the importance of hand washing to people in rural areas of the country and selling
cheaper bars of soap to the poor in those areas. This strategy brings profits into the company, but
it also saves many needless deaths by preventing diarrhea-related diseases.

6. Explain the philosophy of sustainability and why organizations are embracing it.

Sustainability refers to economic development that generates wealth and meets the needs of the
current generation while saving the environment so future generations can meet their needs as
well. With a philosophy of sustainability, managers weave environmental and social concerns
into every strategic decision, revise policies and procedures to support sustainability efforts, and
measure their progress toward sustainability goals.

Organizations are embracing the philosophy of sustainability because they are finding that they
can create wealth at the same time they are preserving natural resources. A good example of this
is when companies develop innovative ways to sell waste from production processes that they
once paid to have hauled away.

7. Define corporate social responsibility and how to evaluate it along economic, legal, ethical,
and discretionary criteria.
80 • Chapter 5

Social responsibility is management’s obligation to make choices and take actions that will
contribute to the welfare and interests of society as well as to the welfare and interests of the
organization. It means being a good corporate citizen. Social responsibility can be evaluated
along four criteria.

Economic. The economic responsibility of a business is to produce the goods and services that
society wants and to maximize profits for its owners and shareholders. The purely
profit-maximizing view is no longer considered an adequate criterion of performance in Canada,
the United States, and Europe.

Legal. Legal responsibility defines what society deems acceptable with respect to appropriate
corporate behavior. Businesses are expected to fulfill their economic goals within the legal
framework.

Ethical. Ethical responsibility includes behaviors that are not necessarily codified into law and
may not serve the corporation’s direct economic interests. Unethical behavior occurs when
decisions enable an individual, group, or company to gain at the expense of society.

Discretionary. Discretionary responsibility is purely voluntary and guided by a company’s

desire to make social contributions not mandated by economics, law, or ethics. Discretionary
activities include philanthropic contributions that offer no direct financial payback to the
company and are not expected.

8. Discuss how ethical organizations are created through ethical leadership and organizational
structures and systems.

Management is responsible for creating and sustaining conditions in which people are likely to
behave themselves. Managers must take active steps to ensure that the company stays on an
ethical footing. Management methods for helping organizations be more responsive include
leadership by example, codes of ethics, ethical structures, and supporting whistle-blowers.

LECTURE OUTLINE
I. WILL YOU BE A COURAGEOUS MANAGER?

Many managers slide into unethical or illegal behavior simply because they don’t have the
courage to stand up and do the right thing. It probably won’t happen right away, but soon
enough students will be confronted with situations that will test the strength of their moral beliefs
or sense of justice. This exercise helps students gauge the extent of their courage in group
situations, which often reflects a person’s level of moral development.

II. WHAT IS MANAGERIAL ETHICS? and

ETHICAL DILEMMAS: WHAT WOULD YOU DO? Exhibit 5.1

Ethics is the code of moral principles and values that govern the behaviors of a person or group
with respect to what is right or wrong. Ethics sets standards as to what is good or bad in conduct
 Managing Ethics and Social Responsibility • 81

and decision making. Ethics deals with internal values that are a part of corporate culture and
shape decisions concerning social responsibility with respect to the external environment.
Human behavior falls into three categories.

• Codified law. Values and standards are written into the legal system and are enforceable in
the courts. Lawmakers have ruled that people and corporations must behave in a certain way
such as obtaining licenses for cars or paying taxes.
• Free choice. Free choice pertains to behavior about which law has no say and for which an
individual or organization enjoys complete freedom.

• Ethics. Ethics lies between the domains of codified law and free choice. It has no specific
laws, but does have standards of conduct that are based on shared principles and values about
moral conduct that guide an individual or company. Because ethical standards are not
codified, disagreements and dilemmas about proper behavior often occur.

An ethical dilemma arises in a situation concerning right or wrong when values are in conflict
and right and wrong cannot be clearly defined. The individual who must make an ethical choice
in an organization is the moral agent.

Discussion Question #1: Dr. Martin Luther King, Jr., said, “As long as there is poverty in the
world, I can never be rich…As long as diseases are rampant, I can never be healthy…I can
never be what I ought to be until you are what you ought to be.” Discuss this quote with respect
to the material in this chapter. Would this be true for corporations, too?

NOTES________________________________________________________________________
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______________________________________________________________________________

III. CRITERIA FOR ETHICAL DECISION MAKING

Managers faced with tough ethical choices often benefit from a normative strategy based on
norms and values to guide their decision making. Normative ethics is based on norms and
values. Four normative approaches describe values for guiding ethical decision making.

A. Utilitarian Approach

1. The utilitarian approach holds that moral behavior produces the greatest good for
the greatest number. The decision maker is expected to consider the effect of each
decision alternative on all parties and select the one that will optimize satisfaction for
the greatest number of people.

B. Individualism Approach

1. The individualism approach contends that acts are moral when they promote the
individual’s best long-term interests. Individualism is believed to lead to honesty and
integrity because that works best in the long run. Because individualism is easily
82 • Chapter 5

misinterpreted to support immediate self-gain, it is not popular in the highly

organized and group-oriented society of today.

C. Moral-Rights Approach

1. The moral-rights approach asserts that human beings have fundamental rights that
cannot be taken away by an individual’s decision. An ethically correct decision is
one that best maintains the rights of those people affected by it. Six moral rights
should be considered during decision making.

a. The right of free consent. Individuals are to be treated only as they knowingly
and freely consent to be treated.

b. The right to privacy. Individuals can choose to do as they please away from work
and have control of information about their private life.

c. The right of freedom of conscience. Individuals may refrain from carrying out
any order that violates their moral or religious norms.

d. The right of free speech. Individuals may criticize truthfully the ethics or legality
of actions of others.

e. The right to due process. Individuals have a right to an impartial hearing and fair
treatment.

f. The right to life and safety. Individuals have a right to live without endangerment
or violation of their health and safety.

D. Justice Approach

1. The justice approach holds that moral decisions must be based on standards of
equity, fairness, and impartiality. Three types of justice are of concern to managers.

a. Distributive justice requires that different treatment of people not be based on

arbitrary characteristics. Men and women should not receive different salaries if
they are performing the same job; however, people who differ in a substantive
way can be treated differently.

b. Procedural justice requires that rules be administered fairly. Rules should be

clearly stated and be consistently and impartially enforced.

c. Compensatory justice argues that the party responsible should compensate

individuals for the cost of their injuries. Individuals should not be held
responsible for matters over which they have no control.

NOTES________________________________________________________________________
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______________________________________________________________________________
 Managing Ethics and Social Responsibility • 83

IV. MANAGER ETHICAL CHOICES

Ethical or unethical business practices usually reflect the values, attitudes, beliefs, and behavior
patterns of the organizational culture. Ethics is as much an organizational issue as a personal
issue.

A. The Manager Exhibit 5.2

1. The manager brings specific personality and behavioral traits to the job. Personal
needs, family influence, and religious background all shape a manager’s value
system.

2. Personality characteristics, such as ego strength, self-confidence, and a strong sense

of independence may enable managers to make ethical decisions. The manager’s
level or stage of moral development is an important personal trait in making ethical
decisions.

a. Preconventional level. At this level a manager is concerned with external rewards

and punishment and obeys authority to avoid detrimental personal consequences.
These managers are likely to be autocratic or coercive.

b. Conventional level. At this level managers learn to conform to expectations of

good behavior as defined by colleagues, friends, family, and society. These
managers are interested in interpersonal relationships and cooperation.

c. Postconventional level (also called principled level). At this level individuals

develop an internal set of standards and values and will disobey rules or laws that
violate these principles. Internal values are more important than expectations of
significant others. These managers typically use a transformative or servant
leadership style.

3. The great majority of managers operate at the conventional level. A few managers
have not advanced beyond the preconventional level. Only about 20 percent of
American adults reach the principled level of moral development.

4. Women may, in general, make moral decisions based not on a set of absolute rights
and wrongs but on principles of not causing harm to others.

Discussion Question #3: Imagine yourself in a situation of being encouraged to inflate your
expense account. What factors do you think would influence your choice? Explain.

NOTES________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

V. NEW MANAGER SELF-TEST: SELF AND OTHERS

84 • Chapter 5

Leaders differ in how they view human nature and the tactics they use to get things done through
others. This exercise helps students understand their orientation toward self versus others. High
scores suggest self-orientation; low scores suggest other-orientation.

VI. WHAT IS CORPORATE SOCIAL RESPONSIBILITY? Exhibit 5.3

Social responsibility means distinguishing right from wrong. It means being a good corporate
citizen. Corporate social responsibility is management’s obligation to make choices and take
actions that will contribute to the welfare and interests of society as well as the organization.
Social responsibility can be a difficult concept to grasp because people have different beliefs as
to which actions improve society’s welfare. Social responsibility covers a wide range of issues
that are ambiguous with regard to what is right or wrong.

A. Organizational Stakeholders Exhibit 5.4

1. Enlightened organizations view the internal and external environment as having a

variety of stakeholders. A stakeholder is any group within or outside the organization
that has a stake in the organization’s performance. Each stakeholder has a different
criterion of responsiveness because it has a different interest in the organization.

2. The organization’s performance affects stakeholders. Socially responsible

organizations try to pay attention to all stakeholders who are affected by their actions.

3. Stakeholders can also have a tremendous effect on the organization’s performance

and success. Today, special interest groups continue to be one of the largest
stakeholder concerns that companies face. Environmental responsibility has become
a primary issue as both business and the public acknowledge the damage that has
been done to our natural environment.

Discussion Question #4: Is it socially responsible for organizations to undertake political

activity or join with others in a trade association to influence the government? Discuss.

NOTES________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

B. The Bottom of the Pyramid

1. The bottom-of-the-pyramid (BOP) concept proposes that corporations can alleviate

poverty and other social ills, as well as make significant profits, by selling to the
world’s poorest people. The term bottom of the pyramid refers to the more than four
billion people who make up the lowest level of the world’s economic “pyramid” as
defined by per capita income.

VII. THE ETHIC OF SUSTAINABILITY

 Managing Ethics and Social Responsibility • 85

Sustainability refers to economic development that generates wealth and meets the needs of the
current generation while saving the environment so future generations can meet their needs as
well. With a philosophy of sustainability, managers weave environmental and social concerns
into every strategic decision, revise policies and procedures to support sustainability efforts, and
measure their progress toward sustainability goals.

Discussion Question #2: Environmentalists are trying to pass laws for oil spills that would
remove all liability limits for the oil companies. This change would punish corporations
financially. Is this the best way to influence companies to be socially responsible?

NOTES________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

VIII. EVALUATING CORPORATE SOCIAL RESPONSIBILITY Exhibit 5.5

A. Economic Responsibilities

1. The first criterion of social responsibility is economic responsibility. The business

institution is the basic economic unit of society. Its responsibility is to produce the
goods and services that society wants and to maximize profits for its owners and
shareholders.

2. Economic responsibility carried to extreme is called the profit-maximizing view,

advocated by Nobel economist Milton Friedman. This view argues that the
corporation’s sole mission is to increase its profits so long as it stays within the
rules. This approach means that economic benefit is the only social responsibility
and can lead companies into trouble.

B. Legal Responsibilities

1. Legal responsibility defines what society deems important with respect to

appropriate corporate behavior. Businesses are expected to fulfill their economic
goals within the law. Legal requirements are imposed by local governments, state
legislators, and federal regulatory agencies.

C. Ethical Responsibilities

1. Ethical responsibility includes behaviors that are not necessarily codified into law
and may not serve the firm’s direct economic interests. To be ethical, decision
makers should act with equity, fairness, and impartiality, respect the rights of
individuals, and treat individuals differently only when relevant to the
organization’s goals. Unethical behavior occurs when decisions enable an
individual or company to gain at the expense of society.
86 • Chapter 5

Discussion Question #7: Do you believe it is ethical for companies to compile portfolios of
personal information about their Web site visitors without informing them? What about
organizations monitoring their employees’ e-mail? Discuss.

NOTES________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

D. Discretionary Responsibilities

1. Discretionary responsibility is voluntary and guided by a company’s desire to

make social contributions not mandated by economics, law, or ethics.
Discretionary activities include philanthropic contributions that offer no direct
financial payback to the company and are not expected. Discretionary
responsibility is the highest criterion of social responsibility.

Discussion Question # 10: Lincoln Electric considers customers and employees to be more
important stakeholders than shareholders. Is it appropriate for management to define some
stakeholders as more important than others? Should all stakeholders be considered equal?

NOTES________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

IX. MANAGING COMPANY ETHICS AND SOCIAL RESPONSIBILITY Exhibit 5.6

A. Code of Ethics

1. A code of ethics is a formal statement of the company’s values concerning ethics and
social issues. It communicates to employees what the company stands for. Codes of
ethics tend to exist in two types.

a. Principle-based statements are designed to affect corporate culture. They define

fundamental values, company responsibilities, quality of products, and treatment
of employees.
b. Policy-based statements outline the procedures to be used in specific ethical
situations such as marketing, conflicts of interest, observance of laws, proprietary
information, political gifts, and equal opportunities.

Discussion Question #8: Which do you think would be more effective for shaping long-term
ethical behavior in an organization: a written code of ethics combined with ethics training or
strong ethical leadership? Which would have more impact on you? Why?

NOTES________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

B. Ethical Structures
 Managing Ethics and Social Responsibility • 87

1. Ethical structures represent the various systems, positions, and programs a company
can undertake to implement ethical behavior.

a. An ethics committee is a group of executives appointed to oversee the

organization’s ethics by ruling on questionable issues and disciplining violators.

b. A chief ethics officer is a company executive who oversees all aspects of ethics
and legal compliance.
c. Ethics training programs help employees deal with ethical questions and
translate the values stated in a code of ethics into everyday behavior.

C. Whistle-blowing

a. Whistle-blowing is the disclosure by an employee of illegal, immoral, or

illegitimate practices by the organization. Some firms have instituted innovative
programs and confidential hotlines to encourage and support internal whistle-
blowing. Companies must view whistle-blowing as a benefit to the company and
make dedicated efforts to protect whistle-blowers for this practice to be an
effective ethical safeguard.

D. The Business Case for Ethics and Social Responsibility

1. Some would argue that the current regulatory climate distracts managers from doing
what’s good for business. Others argue that the combination of a turbulent domestic
environment, the globalization of business, and the increasing public scrutiny
convinces many managers that paying attention to ethics and social responsibility is
as much of a business issue as paying attention to costs, profits, and growth.

2. Social responsibility efforts can be targeted in ways that also benefit the business.
Doing so makes good business sense at the same time it builds the image of the
company as a good corporate citizen.

Suggested Answers to End-Of-Chapter Discussion Questions

1. Dr. Martin Luther King, Jr., said, “As long as there is poverty in the world, I can never be
rich...As long as diseases are rampant, I can never be healthy…I can never be what I ought
to be until you are what you ought to be.” Discuss this quote with respect to the material in
this chapter. Would this idea be true for corporations, too?

Dr. King subscribed to the justice approach of ethics. Moral decisions must be based on
standards of equity, fairness, and impartiality. Distributive justice, which maintains that different
treatment of people not be based on arbitrary characteristics such as race, fits with Dr. King’s
statement. Moreover, he seems to have felt that compensatory justice should be used in the form
of affirmative action programs to compensate minorities for past injustices. How well this
approach applies to corporations depends on the values of those running the corporations;
88 • Chapter 5

however, most corporations subscribe to competitive values and would probably not agree with
this philosophy.

2. Environmentalists are trying to pass laws for oil spills that would remove all liability limits
for the oil companies. This change would punish corporations financially. Is this approach
the best way to influence companies to be socially responsible?

If liability limits were removed, oil companies would seek insurance protection. Insurance rates
would then rise to compensate for this high risk. Oil companies would in turn raise prices, which
the public would pay at the pump. It seems that the public will have to pay either way. Perhaps
a better approach can be used to raise the level of social responsibility of oil companies;
however, society must protect itself if the oil companies do not respond. Legislative action may
have to be used to protect the environment since short-term profits are usually used as part of the
individualism approach or the utilitarian approach by oil companies.

3. Imagine yourself in a situation of being encouraged by colleagues to inflate your expense

account. What factors do you think would influence your choice? Explain.

While most students will probably want to answer that they would be most affected by their
individual moral development, this may be an idealistic exaggeration. As pointed out by the text,
most managers have not advanced beyond the conventional level where one feels that good
behavior is living up to what is expected by others and the social system. Many are still on the
preconventional level and would act in accordance with their own self-interests. Persons on both
of these levels would probably go ahead and inflate their expense accounts. Only persons on the
principled level would resist the pressure and not inflate the expense account if they felt it was
ethically wrong.

4. Is it socially responsible for organizations to undertake political activity or join with others
in a trade association to influence the government? Discuss.

Generally speaking, most students will probably agree that it is socially responsible for
organizations to undertake political activities. The question is whether organizations should sit
back and passively adapt to the external environment or whether they should be assertive and
attempt to control the external environment. Political activities and trade associations are
attempts to control the external environment to reduce uncertainty and obtain necessary
resources. Political activities do not violate the economic, legal, or ethical responsibilities of the
organization. Unless the organization is breaking laws, bribing officials, or doing some other
inappropriate behavior, it may make its views known and attempt to move in an appropriate
direction. An organization unwilling to be assertive with respect to the external environment
may ultimately lose out to competitors.

5. Was it ethical during the 1990s for automobile manufacturers to attempt to accommodate an
ever-increasing consumer appetite for SUVs with their low fuel efficiency? Was it good
business?

Answers will vary, depending on students’ views of corporate social responsibility. Those who
subscribe to Friedman’s profit-maximizing view will see nothing wrong with what the
automobile manufacturers did. In fact, they may argue that those companies had an obligation to
take advantage of the consumer demand for SUVs without regard to their low fuel efficiency.
 Managing Ethics and Social Responsibility • 89

Students who consider discretionary responsibilities to be of great importance will be very

critical of the automobile manufacturers for their extensive production of fuel-wasting vehicles.

Opinions on whether it was good business will follow similar lines. Students who consider good
business to be making profits will support the automobile manufacturers’ actions. Those who
consider environmental conservation to be good business will be critical of the automobile
manufacturers’ actions.

6. A noted business executive said, “A company’s first obligation is to be profitable.

Unprofitable enterprises can’t afford to be socially responsible.” Do you agree? How does
this idea relate to the bottom-of-the-pyramid concept?

The business executive’s statement is a bit of a red herring. Of course, for-profit organizations
must make at least some profit to stay in business. They cannot put social responsibility ahead of
profits over the long term without eventually being forced to go out of business. The question
here really centers on what it means to “be profitable”. If “being profitable” means to maximize
profits in ever-increasing amounts, then an “unprofitable” enterprise would be unable to afford
social responsibility efforts, since diverting any funds or resources toward those activities would
mean it was not maximizing profits. On the other hand, if “being profitable” means achieving a
positive net income, companies can certainly afford to devote funds and other resources to
socially responsible activities and still make a profit.

The bottom-of-the-pyramid (BOP) concept proposes that corporations can alleviate poverty and
other social ills, as well as make significant profits, by selling to the world’s poorest people. The
term bottom of the pyramid refers to the more than four billion people who make up the lowest
level of the world’s economic “pyramid” as defined by per capita income.

7. Do you believe it is ethical for companies to compile portfolios of personal information about
their Web site visitors without informing them? What about organizations monitoring their
employees’ e-mail? Discuss.

Under the moral-rights approach, such activity could be viewed as a violation of the right of free
consent and/or the right of privacy. This type of information is extremely sensitive and
companies must be careful about public disclosure of personal data pertaining to individuals’
portfolios. At a minimum, firms must be very careful about obtaining and storing personal data
in order to avoid litigation over violation of privacy laws.

Monitoring employees’ e-mail is permissible. Courts have ruled that employees do not have a
reasonable expectation of privacy with regard to the use of company computers for the Internet
or for e-mail.

8. Which do you think would be more effective for shaping long-term ethical behavior in an
organization: a written code of ethics combined with ethics training or strong ethical
leadership? Which would have more impact on you? Why?

Codes of ethics and ethics training are important within an organization; however, simply
posting a code of ethics and holding ethics training once a year or even once a month will not
suffice. Creating an ethical culture in an organization requires that ethics be part of virtually
90 • Chapter 5

everything a company does. Ethics should be emphasized in daily meetings, weekly meetings,
monthly meetings, at luncheons, during the hiring process, during the orientation and
socialization processes, during promotion ceremonies, and during retirement ceremonies. That
will only happen with strong ethical leadership. The bottom line is that employees will do what
their managers do, so managers must consistently and continuously demonstrate that ethical
behavior is important.

9. Lincoln Electric considers customers and employees to be more important stakeholders than
shareholders. Is it appropriate for management to define some stakeholders as more
important than others? Should all stakeholders be considered equal?

For an organization to succeed, its managers must define goals and specify activity that will help
the organization achieve them. In the pursuit of its strategies and goals, managers must make
choices. In a noncompetitive world, all stakeholders might be considered equal. In a capitalist
economy, the manager’s responsibility is to define which stakeholders are most valued. This
does not mean that low-ranking stakeholders will be exploited; it simply means that some
stakeholders are more instrumental in helping the organization attain its goals. Indeed, the
definition of ethical behavior is that organizations should treat individuals equally except when
differences are relevant to goals and tasks. The treatment of individuals should not be
capricious, but should help the organization accomplish its goals. To expect organizations to
treat all stakeholders equally is not reasonable.

10. Do you think bottom-of-the-pyramid business practices can really have a positive effect on
poverty and social problems in the developing world? Discuss.

It is possible to run a profitable business with a primary goal of improving society, as long as
there is recognition that maintaining a positive net income is necessary for survival. If the
company’s products or services themselves contribute to the betterment of society, that is all the
better. For example, Unilever continues to expand a campaign to prevent the spread of disease in
India by demonstrating the importance of hand washing to people in rural areas of the country
and selling cheaper bars of soap to the poor in those areas. This strategy brings profits into the
company, but it also saves many needless deaths by preventing diarrhea-related diseases.

Teaching Note for Experiential Exercise

Ethical Work Climates

Have students complete the self-examination of Ethical Work Climates. Note that ethical
climates can range from above 40 (very positive ethical climate) to below 20 (very poor ethical
climate). Discuss ethical changes students could make as a practicing manager. A teaching
suggestion is to discuss the four approaches to ethical dilemmas: utilitarian approach,
individualism approach, moral-rights approach, and justice approach.

Teaching Note for Ethical Dilemma

Should We Go Beyond the Law?
 Managing Ethics and Social Responsibility • 91

1. Talk to the manufacturing vice president and emphasize the responsibility Chem-Tech has as
an industry leader to set an example. Present her with a recommendation that Chem-Tech
participate in voluntary pollution reduction as a marketing tool, positioning itself as the
environmentally friendly choice.

This is the best option because it embodies the utilitarian view of ethics, to provide the greatest
good to the greatest number of people. By not polluting the water, the company is looking out
for future generations who will benefit from a cleaner environment. The company would avoid
actions that could harm others. Nathan would give the company a positive opportunity to right
the wrong as part of a marketing campaign.

2. Mind your own business and just do your job. The company isn’t breaking any laws, and if
Chem-Tech’s economic situation doesn’t improve, a lot of people will be thrown out of work.

Since Nathan appears to be operating at the postconventional level of moral development,

following self-chosen principles of justice and right, he will not be comfortable in an
organization that knowingly pollutes the environment. The company is operating at the
conventional level by upholding the law. There is a clash between these two levels of moral
development.

3. Call the local environmental advocacy group and get them to stage a protest of the company.

This is an extreme course of action that Nathan should take only if option 1 is rejected and he is
willing to risk losing his job over it.

Case for Critical Analysis

Empress Luxury Lines

1. When determining what his obligations are to his subordinate, Kevin Pfeiffer, what decision
would Antonio Melendez most likely reach if he applied the utilitarian approach to decision
making? What conclusions would probably result if he employed the individualism
approach?

Under the utilitarian approach, a decision can be made that considers only the people who are
directly affected by the decision, not those who are indirectly affected. With that in mind,
Antonio’s primary obligation to Kevin is to protect him from harm by keeping Kevin’s
communication confidential. Antonio also has an obligation to do the greatest good for the
greatest number under this approach, so he might try to deal with the situation himself in order to
expose the fraud and prevent this action from increasing insurance rates and, ultimately, costs to
customers.

If Antonio employed the individualism approach, he would likely protect himself by just
ignoring the situation, given the high degree of personal risk and the low probability that the
problem would actually be addressed.
92 • Chapter 5

2. Put yourself in Antonio’s position and decide realistically what you would do. Is your
response at a preconventional, conventional, or postconventional level of moral
development? How do you feel about your response?

Students’ responses will vary, but should indicate an understanding of preconventional,

conventional, and postconventional levels of moral development. At the preconventional level,
Antonio will probably ignore the situation to avoid any punishment from within the company.
At the conventional level, he will probably address the situation to top management and then do
what they expect him to do, although he may experience some conflict because he, as a company
employee, is complicit in illegal activities. At the postconventional level, Antonio will probably
find a way to expose the fraud based on his own principles of right and wrong.

3. If Antonio or Kevin were fired because they reported Empress’s fraud, would they be
justified in removing all traces of their employment at the cruise line from their resumes so
they don’t have to explain to a prospective employer why they were fired? Why or why not?

Both Antonio and Kevin may be justified in removing all traces of their employment at Empress
from their resumes; however, actually doing so may be more difficult, at least for Antonio.
Kevin is a new hire, still on probation, so he probably hasn’t been there very long and could
more easily “hide” that short period of time on his resume without any explanation to a
prospective employer. Antonio will have a more difficult time with this because if he removes
Empress from his resume he will have a lengthy gap in his employment that he will have to
explain to any prospective employer. Antonio may be better served by leaving Empress on his
resume and explaining the situation as simply and honestly as possible.

Continuing Case
General Motors: Part Two
The Volt: GM's Ultimate Green Machine

1. What management strategies might be most effective in helping GM adapt to uncertainty and
change in its external environment?

Answers will vary, but GM established interorganizational partnerships with DaimlerChrysler

AG and BMW AG to develop a hybrid fuel system able to compete with Toyota. In addition,
GM has talked of a merger with another Big Three company to help survive its financial crisis.
Finally, managers at GM exercise boundary-spanning roles to identify threats and opportunities
in the environment and to implement plans, strategies, and technologies that enable a quick
response.

2. What obstacles does GM face as it attempts to bring its corporate culture into alignment with
the needs and challenges of the twenty-first century?

Changing corporate culture is difficult for many reasons. Since assumptions are usually
unconscious, they are not easily confronted or debated. Moreover, culture is deeply ingrained
and behavioral norms well learned. This is especially true at GM, where organizational culture is
steeped in management trends and traditions of the past century. As a result, employees must
unlearn old norms before they can learn new ones. Managers may establish a new culture by
 Managing Ethics and Social Responsibility • 93

creating new stories and myths that support new values. If new employee behavior becomes
intrinsically motivated and persistent—even when rewards are not present—then management
can assume that a cultural shift has occurred.

3. As GM continues its attempts to demonstrate good corporate citizenship, what complex

issues and obstacles may frustrate its efforts?

Corporate social responsibility can be a difficult concept to grasp, as people have different
beliefs as to which actions improve society's welfare. To make matters worse, social
responsibility covers a range of issues, many of which are ambiguous with respect to right or
wrong. In addition, different stakeholders may have conflicting interests, making it impossible to
satisfy all constituencies. For example, attempts to satisfy environmentalists, regulators,
customers, and employees at once may prove futile. Such conflicts may become severe when
government turns discretionary responsibilities into legal responsibilities through overreaching
legislation. When such complexities threaten the survival of the organization, managers must
meet the needs of primary stakeholders and assert the organization's foundational responsibility
to be profitable.