CHAPTER 5

SOCIAL RESPONSIBILITY & MANAGERIAL ETHICS

5.1 Social Responsibilities

What Is Social Responsibility?

 Empowered by Internet technology, music lovers all over the

world obtain and share their favorite recordings for minimal

costs.
 Large global corporations-
 look to lower their costs and be more competitive by locating in countries
where human rights are not a high priority and justify it by saying that

they're bringing in jobs and helping strengthen the local economies.

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 5.1 Social Responsibilities

What Is Social Responsibility?

 Automobile manufacturers-

 build enormous, gas-guzzling sport utility vehicles that have

the potential to seriously injure people in smaller, more fuel-

efficient vehicles because customers want them and are willing
to pay the high prices for them.

 Are these companies being socially responsible?

 What factors influenced managers‘ decisions in these situations?

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 5.1 Social Responsibilities

What Is Social Responsibility?

 Managers now regularly face decisions that have a dimension

of social responsibility: Employee relations, pricing, resource

conservation, product quality and safety, and doing business in countries
that violate human rights are some of the more obvious.

 How do managers make such decisions? Let's begin by

looking at two different perspectives on what it means to be

socially responsible.

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 5.1 Social Responsibilities

Two Opposing Views of Social Responsibility

 Few terms have been defined in as many different ways as

social responsibility.

 For instance,

 It's been called "profit making only," "going beyond profit

making," "voluntary activities," "concern for the broader

social system," and "social responsiveness."

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 5.1 Social Responsibilities

Two Opposing Views of Social Responsibility

 A great deal of attention has been focused on the extremes.

 On one side, there's the classical—or purely economic—

view that management's only social responsibility is to
maximize profits.
 On the other side stands the socioeconomic position,
position which
holds that management's responsibility goes well beyond
making profits to include protecting and improving
society's welfare.
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 5.1 Social Responsibilities

Two Opposing Views of Social Responsibility

1. The Classical View

 The classical view holds that management's only social

responsibility is to maximize profits.

 The most outspoken advocate of this approach is economist

and Nobel laureate Milton Friedman.

 He argues that managers' primary responsibility is to operate

the business in the best interests of the stockholders (the true

owners of a corporation).
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 5.1 Social Responsibilities

Two Opposing Views of Social Responsibility

1. The Classical View

 What are those interests? Friedman contends that stockholders

have a single concern: financial return.

return
 He also argues that anytime managers decide on their own to

spend their organization's resources for the "social good," they

are adding to the costs of doing business.
 These costs have to be passed on to consumers either through
higher prices or absorbed by stockholders through a smaller
profit returned as dividends.
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 5.1 Social Responsibilities

Two Opposing Views of Social Responsibility

1. The Classical View

 Do note that Friedman is not saying that organizations should

not be socially responsible; he thinks they should.

 But the extent of that responsibility is to maximize

organizational profits for stockholders.

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 5.1 Social Responsibilities

Two Opposing Views of Social Responsibility

2. The Socioeconomic View

 The socioeconomic view is the view that management's

social responsibility goes beyond making profits to include

protecting and improving society's welfare.
 This position is based on the belief that society's
expectations of business have changed.

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5.1 Social Responsibilities

Two Opposing Views of Social Responsibility

2. The Socioeconomic View

 Corporations are not independent entities responsible only to

stockholders.
 They also have a responsibility to the larger society that

endorses their creation through various laws and regulations

and supports them by purchasing their products and services.
 In addition, proponents of the socioeconomic view believe that

business organizations are not just merely economic

institutions.
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5.1 Social Responsibilities

From Obligations to Responsiveness

 We define social responsibility as a business firm's

obligation, beyond that required by law and economics, to

pursue long-term goals that are good for society.
 Note that this definition assumes that an organization obeys

laws and pursues economic interests.

 We take as a given that all business firms—those that are

considered socially responsible and those that aren't—will

obey all relevant laws that society enacts.

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5.1 Social Responsibilities

From Obligations to Responsiveness

 We can understand social responsibility better if we compare it

to two similar concepts:

 Social Obligation and Social Responsiveness.

Social Obligation
 Social obligation is the obligation of a business to meet its

economic and legal responsibilities.

 The organization does the minimum required by law.

 Following an approach of social obligation, a firm pursues social

goals only to the extent that they contribute to its economic goals.
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5.1 Social Responsibilities

From Obligations to Responsiveness

Social Obligation
 This approach is based on the classical view of social

responsibility; that is, the business feels its only social duty is
to its stockholders.

Social Responsiveness
 In contrast to social obligation, however, both social
responsibility and social responsiveness go beyond merely
meeting basic economic and legal standards.
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5.1 Social Responsibilities

From Obligations to Responsiveness

Social Responsiveness
 A socially responsible organization does what is right because

it feels it has a responsibility to act that way.

 On the other hand, social responsiveness refers to the capacity

of a firm to adapt to changing societal conditions.

 The idea of social responsiveness stresses that managers make

practical decisions about the societal actions in which they

engage.
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5.1 Social Responsibilities

From Obligations to Responsiveness

Social Responsiveness
 A socially responsive organization acts the way it does

because of its desire to satisfy some popular social need.

 Social responsiveness is guided by social norms.

 The value of social norms is that they can provide managers

with a meaningful guide for decision making.

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5.2 Managerial Ethics
 The term ethics refers to rules and principles that define right

and wrong conduct.

 In this section, we examine the ethical dimension of
managerial decisions.
 Many decisions that managers make require them to consider

who may be affected—in terms of the result as well as the

process.

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5.2 Managerial Ethics

Four Views of Ethics

 The four perspectives on business ethics include:

o Utilitarian view,
o Rights view,
o Theory of justice view, and
o Integrative social contracts theory.

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5.2 Managerial Ethics

Four Views of Ethics

Utilitarian View
 The utilitarian view of ethics says that ethical decisions are

made solely on the basis of their outcomes or consequences.

 Utilitarian theory uses a quantitative method for making

ethical decisions by looking at how to provide the greatest

good for the greatest number.

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5.2 Managerial Ethics

Four Views of Ethics

Utilitarian View
 Following the utilitarian view, a manager might conclude that

laying off 20 percent of a plant's workforce is justified

because it will increase the plant's profitability, improve job
security for the remaining 80 percent, and be in the best
interests of stockholders.
 Utilitarianism encourages efficiency and productivity and is

consistent with the goal of profit maximization.

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5.2 Managerial Ethics

Four Views of Ethics

Rights View of Ethics

 Another ethical perspective is the rights view of ethics, which

is concerned with respecting and protecting individual

liberties and privileges such as the rights to privacy, freedom
of conscience, free speech, life and safety, and due process.
 This would include, for example, protecting the free speech
rights of employees who report legal violations by their
employers.

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5.2 Managerial Ethics

Four Views of Ethics

Rights View of Ethics

Positive side-
 It protects individuals' basic rights,

Negative side-
 It can present obstacles to high productivity and efficiency by

creating a work climate that is more concerned with

protecting individuals' rights than with getting the job done.

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5.2 Managerial Ethics

Four Views of Ethics

Rights View of Ethics

 Another ethical perspective is the rights view of ethics, which

is concerned with respecting and protecting individual

liberties and privileges such as the rights to privacy, freedom
of conscience, free speech, life and safety, and due process.
 This would include, for example, protecting the free speech
rights of employees who report legal violations by their
employers.

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5.2 Managerial Ethics

Four Views of Ethics

Rights View of Ethics

Positive side-
 It protects individuals' basic rights,

Negative side-
 It can present obstacles to high productivity and efficiency by

creating a work climate that is more concerned with

protecting individuals' rights than with getting the job done.

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5.2 Managerial Ethics

Four Views of Ethics

Theory of Justice View of Ethics

 Under this approach, managers are to impose and enforce rules fairly

and impartially and do so by following all legal rules and regulations.

 A manager would be using the theory of justice perspective by

deciding to provide the same rate of pay to individuals who are similar
in their levels of skills, performance, or responsibility and not basing
that decision on arbitrary differences such as gender, personality, race,
or personal favorites.

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5.2 Managerial Ethics

Four Views of Ethics

Theory of Justice View of Ethics

Positive side-
 It protects the interests of those stakeholders who may be

underrepresented or lack power,

Negative side-
 It can encourage a sense of entitlement that might make

employees reduce risk taking, innovation, and productivity.

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5.2 Managerial Ethics

Four Views of Ethics

The Integrative Social Contracts Theory

 The final ethics perspective, the integrative social contracts

theory, proposes that ethical decisions should be based on

empirical (what is) and normative (what should be) factors.
 This view of ethics is based on the integration of two

"contracts": the general social contract that allows businesses

to operate and defines the acceptable ground rules, and a more
specific contract among members of a community that
addresses acceptable ways of behaving.
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5.2 Managerial Ethics

Four Views of Ethics

The Integrative Social Contracts Theory

 For instance, in deciding what wage to pay workers in a new
factory in Dukem, Ethiopia, managers following the integrative
social contracts theory would base the decision on existing
wage levels in the community.
 This view of business ethics differs from the other three in that

it suggests that managers need to look at existing ethical norms

in industries and companies in order to determine what
constitutes right and wrong decisions and actions.
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5.2 Managerial Ethics

Conclusions on the Views of Ethics

Which approach to ethics do most businesspeople follow?

 It probably isn't a surprise that most businesspeople follow

the utilitarian approach.

Why?
 It's consistent with such business goals as efficiency,

productivity, and profits.

 However, that perspective needs to change because of the

changing world facing managers.

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5.2 Managerial Ethics

Conclusions on the Views of Ethics

 Trends toward individual rights, social justice, and community

standards mean that managers need ethical standards based on

non-utilitarian criteria.
 This is an obvious challenge for managers because making

decisions on such criteria involves far more ambiguities than

using utilitarian criteria such as efficiency and profits. The
result, of course, is that managers increasingly find themselves
struggling with ethical dilemmas.
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