Chapter Five: Ethics and Social Responsibility

Managerial ethics is the study of morality and standards in business conduct. Corporate social responsibility is the obligations that corporations owe to their constituencies such as shareholders, employees, customers and citizens at large. Ethical dilemmas involve making a choice between two competing but valid options which both choices resulting in undesired outcomes. Ethical lapses are decisions contrary to an individual's stated beliefs and policies of the company.

Basic approaches to ethical decision making includes utilitarian approaches (that focus on the consequence of an action), a moral rights approach (that concentrates on the examination of moral standing independent of consequences), a universal approach (a behaviour which can be universalised to all circumstances) a justice approach (focusing on the equitable distribution of costs and benefits cf., distributive justice, procedural justice and compensatory justice).

Moral intensity is the degree that people see an issue as an ethical one. Influences on moral intensity include magnitude of consequences, social consequence, concentration of effect, temporal immediacy and proximity. The magnitude of consequences is the anticipated level of impact of the outcome of a given action. The social consensus is the extent that members of a society agee that an act is good or bad and the probability of effect is the rise and fall of moral intensity depending on how likely people think the consequences are. Temporal immediacy is a function of the interval between the time an action occurs and the onset of consequences. Proximity refers to the psychological or emotional closeness the decision-maker feels to those affected by the decision. Concentration of effect refers to the extent to which consequences are focused.

Managers and organisations may seek to introduce a code of ethical conduct which is a formal settlement that outlines the types of behaviour that are and are not acceptable. Successful implementation of a code of ethics will often be introduced with a formal, written, code. It will also need to be communicated, training will have to be conducted and reward and recognition introduced. 'Whistleblowers' are employees who disclose illegal or unethical conduct on the part of others in an organisation; they tend not to be disgruntled employees, but rather conscientious, high-performing employees. They do not report incidents for notoriety but rather they believe that certain wrongdoings are so grave they must be exposed.

Corporate social responsibility is concerned with the constituents to which corporations are obligated and the nature and extent of these obligations. The efficiency perspective, enunciated by Milton Friedman following Adam Smith, argues that it is the managers responsibility to maximise profits for the owners of a business. A concern is the role externalities, the unintended consequences that occur from an action. The social responsibility perspective argues that society grants existence to firms therefore firms have responsibility to society. This introduces the notion of stakeholder, individuals or groups who have an interest in and are affected by the actions of an organisation. Corporate responses to stakeholder and societal criticisms may include defenders, accomadators, reactors and anticipators.