social contract formal laws
The framework society has established that businesses must operate in. The 'rules'.
social contract informal understandings
Mutual expectations regarding each other's roles, responsibilities, and ethics. What 'ought' to be done.
Individuals or groups with which business interacts who have a vested interest in the firm.
ex. Government, consumers, the natural environment, community members
ex. Employees, owners
The social contract between business and society is partially articulated through ______ and ______ _______
laws; shared understandings
Iron law of responsibility
In the long run, those who do not use their power in a manner which society considers responsible will tend to lose it.
A set of 2-way understandings that characterize the relationship between major institutions.
Weaknesses of pluralism
Different institutions pursue their own self-interests, no unified direction of society, the goals of institutions overlap causing inefficiencies
In pluralistic societies, it is inevitable that ______ ______ become the subjects of criticism
The decentralization and diversity of power concentration
Strengths of pluralism
Prevents power from becoming concentrated, maximizes freedom, provides a series of checks and balances
Traditional/Classical/Economic Model of CSR
Based on Adam Smith's concept of the "invisible hand", stated that society would best determine its needs and wants through the marketplace. The invisible hand of the market transforms individual self-interest into social self-interest.
Criticisms of the Economic CSR model
While the market is good at efficiently allocating goods and services, it has not fared well in ensuring that businesses act fairly and ethically.
Three areas of modification to the Economic CSR model
Philanthropic, community obligations, paternalism
Providing for all of the needs of employees (ex. company towns)
Contemporary/Stakeholder model of CSR
The obligation of managerial decision makers to take actions which protect and improve the welfare of society as a while in conjunction with operating in the best interests of the organization.
Carroll's 4-part definition of CSR
The social responsibility of business encompasses the economic, legal, ethical, and philanthropic expectations that society has of organizations at a given point in time.
Carroll's Economic Responsibilities
The institution's objective is to product goods and services that society wants and sells them at a fair price while maintaining long-term financial feasibility.
Carroll's Legal Responsibilities
Complying with society's formal component of the social contract (codified basic ethics).
Carroll's Ethical Responsibilities
Embracing activities and practices that are in compliance with society's norms, standards, values, and expectations in regards to stakeholders.
Carroll's Philanthropic Responsibilities
"Giving back" to the community in order to engage in social activities that are not mandated, required, or ethically expected.
The components of Carroll's CSR should be addressed (sequentially or simultaneously)
Classical Economics/Friedman argument against CSR
The primary purpose of business is to maximize profits while conforming to the basic formal and informal rules of society. If the free market cannot fix societal issues, then it falls within the purview of government and legislation.
4 other arguments against CSR besides Classical Economics
1) Businesses are not equipped to handle social activities. Managers are business people, not social workers.
2) Dilutes the the primary purpose of business.
3) Businesses already have enough power.
4) By internalizing costs which were previously externalities, it becomes more difficult to compete globally.
Enlightened Self-Interest argument for CSR
It is in the businesses's long-term self-interest to be socially responsible. Large businesses are partially to blame for society's problems and therefore they need to help in solving these problems. If a business does not respond to society's problems, then society may seek to change the role of businesses (legislation, change in economic systems).
4 other arguments for CSR besides Enlightened Self-Interest
1) Government is already regulating too much.
2) Businesses have the resources necessary (management talent, functional expertise, and capital) to facilitate societal change.
3) Being proactive is less costly than being reactive.
4) Builds rapport with employees and communities.
The business case for CSR
By taking defensive, marginally beneficial, strategic, or innovative/learning approaches to responding to CSR pressures, it can give the company a competitive advantage.
Corporate Social Performance
In regards to responsiveness to company issues, what really matters is what a company has the realistic capacity to achieving.
3 perspectives about the relationship between CSP and CFP
1) high CSR -> high CFP - A better reputation translates into better business.
2) high CFP ->high CSR - More financial resources translate into more acts of social responsibility.
3) CSR <-> CFP - Reciprocal relationship between CSR, CFP, and the company's reputation.
Triple Bottom Line
Builds upon the concept of 3 spheres of sustainability - economic, social, and environmental. End goal is corporate sustainability.
An interest in or a share in undertaking something, or a right or claim (legitimate or perceived) to something
Owners, employees/managers, customers, suppliers/partners, communities/environment
Levels of stakeholders
Core, Strategic, Environmental
Typology of stakeholder attributes
Legitimacy, Power, Urgency
perceived validity of a stakeholder's claim
stakeholder's capacity to effect the organization
extent to which stakeholder's claim requires immediate attention
Examining obligations to owners and stakeholders. May use strategic, multifiduciary, or synthesis approaches.
Strategic approach to stakeholder management
Emphasizes fiduciary obligation to shareholders/owners (extreme disregard for stakeholders)
Multifiduciary approach to stakeholder management
Emphasizes an expansive viewpoint that there is a fiduciary responsibility to owners and stakeholders (extreme regard for stakeholders)
Synthesis approach to stakeholder management
Emphasizes a balanced viewpoint in which there is a fiduciary responsibility to owners and a moral responsibility to stakeholders.
Talcott Parson's definition of Legitimacy
One's activities are congruent with the goals and values of the social system within which they function.
Micro level of legitimacy
Individual firms achieving and maintaining legitimacy by conforming to societal expectations. Can be achieved by adapting operations to confirm with the prevailing standard, changing society's values and norms to conform to it's practices, or identifying itself with other powerful organizations, people, values, or symbols.
Macro level of legitimacy
Scaling the properties of a legitimate individual firm and applying it to business as a whole.
Corporate Governance (CG)
The method by which a firm is being governed and the goals for which it is being governed. Deals with the relative roles, rights, and accountability of stakeholder groups.
Shareholders as a CG role
Owners of a corporation. They have ultimate control over the corporation, which manifests as the right to select a company's board of directors.
Board of Directors as a CG role
Govern and oversee the management of a business. Responsible for ascertaining whether managers are putting the interests of the shareholders first.
Individuals hired by the board to run the company and manage it on a daily basis.
Hired by the company to perform the actual operational work. Used here to refer to nonmanagerial employees.
In the modern corporate era, authority, power, and control tend to rest with ________ instead of ________
Corporate Public Policy
A firm's stance regarding the public, social, global, and ethical aspects of stakeholders and corporate functioning.
3 steps to management control
1) Set standards against which performance will be compared
2) Compare actual performance to established standards
3) Take corrective action to bring actual performance up to standard (as necessary)
Systematic attempt to identify, measure, monitor, and evaluate an organization's performance with respect to its social efforts, goals, and programs.
The good and bad, right and wrong behavior and practices that take place within a business.
Describing, characterizing, and studying the morality of a people, organization, culture, or society. Also compares and contrasts different moral codes, systems, practices, beliefs, and values. Focus is on learning what is occurring in the realm of behavior, actions, decisions, policies, and practices within business. Deals with "what is".
LRN Ethics Study
Survey on ethical lapses and questionable behavior.
3 out of 4 employees reported ethical lapses.
1 in 3 were distracted by reported lapses.
1 in 3 who reported lapses reported they occurred at least weekly.
Younger workers reported more lapses than older workers.
The Ethical Problem
The gap which exists between society's ever-increasing expected levels of business ethics and the less-quickly increasing actual levels of business ethics.
The difference which exists in the two rates of increase cause the gap to become worse.
Concerned with supplying and justifying a coherent moral system of thinking and judging. Seeks to uncover, develop, and justify basic moral principles that are intended to guide behavior, actions, and decisions. Deals with "what ought to be".
Ethical Decision Making Venn Model
Decisions can fall within areas of Economic, Legal, and Ethical responsibility, or a combination of these.
Society's basic ethics which are codified in rules and regulations.
Consensus in principle
People agreeing on broad ideas
Consensus in practice
People agreeing when the principle is applied as actual rules. Much less likely than consensus in principle.
Picking and choosing sources of norms we wish to use based on what justifies our current actions or maximize our freedom.
Devoid of ethical principles or precepts but also implies a positive and active opposition to what is ethical. Manager knows what is right and wrong and chooses to do wrong. Motivation is likely selfish. Laws are viewed as barriers that management must overcome, and would likely engage in illegal activity as readily as immoral or unethical activity.
Conforms to the highest standards of ethical behavior or professional standards of conduct, even if the level of ethical standards isn't clear. Aspires to succeed, but only within the confines of sound ethical precepts (fairness, justice, respect of rights and due process). Focus is not only on the letter of the law but the spirit of the law as well.
Intentional Amoral Management
Ethics are not considered in decisions or actions because business is considered outside the sphere to which moral judgments apply. Different rules apply in business than in real life.
Unintentional Amoral Management
Ethics are not considered in decisions or actions due to casualness, carelessness, or inattentiveness to how they impact others. Insensitivity or self-absorption are likely causes.
Obedience to the law is the driving force of decision making, as opposed to ethics or integrity. Uses deterrence as the underlying assumption. Characteristic of amoral managers.
Kohlberg's levels of moral development
A series of levels comprised of stages that individuals can move through in the process of their moral development.
Kohlberg Level 1 - Preconventional
Focus on self. Not focused on write or wrong per se, but on the consequences of the actions for oneself.
Stage 1 - Reaction to punishment
Stage 2 - Seeking rewards
Kohlberg Level 2 - Conventional
Focus on others. Right and wrong determined by other's expectations, social norms, or the law.
Stage 3 - Good boy/good girl
Stage 4 - Law and order
Kohlber Level 3 - Postconventional
Focus on humankind. Right and wrong associated with underlying moral principles dissociated from the effect on oneself.
Stage 5 - Social contract
Stage 6 - Universal ethical principles
Ethics of Care
Alternative to Kohlberg's theory. Deals with gender differences, as Kohlberg's theory was primary focused on men.
Men tend to deal with moral issues in ways that are impersonal, impartial, and abstract.
Women tend to focus more on relationship maintenance and hurt avoidance.
External sources of moral values
Religious, philosophical, legal, professional.
Internal sources of moral values
Respect for authority, loyalty, conformity, performance norms, results.
the process by which organizations identify issues in the stakeholder environment, analyze and prioritize those issues in terms of their relevance to the org, plan responses to the issues, and evaluate and monitor the results
the process by which organizations respond to organizational crises
a major, unpredictable event that threatens the viability of the organization or has the potential to significantly harm the organization
Issues vs. Crises
Issues evolve gradually over a period of time and represent an ongoing area of concern.
Crises tend to occur abruptly and cannot be anticipated
4 Stages of Crisis Management
Promodal - warnings and symptoms may be identified
Acute - actual event occurs and immediate effects are felt
Chronic - lingering/ongoing stage, includes investigations, analyses, and responses
Resolution - post-crisis, a new "normal" is found
Ethical Decision Making - Teleological Theories
Focus on the consequences or results of actions to determine ethical behaviors. "The ends justify the means"
Ethical Decision Making - Deontological Theories
Focus on duties that determine what is considered to be ethical decision making. Consists of rights-based approaches (moral and legal, positive and negative rights) and Justice-based approaches (fairness and procedural, distributed, and compensatory justice)
Forces on individual character and virtue as guides to decision making
The process of making decisions, processes, and activities more visible to those not directly involved, thereby opening the practices up to more external scrutiny.
Codes of Conduct
Statements that define acceptable (and unacceptable) behavior at the organization, industry, or professional level.
4 Levels of Ethics
3 approaches to Ethical Decision Making
Conventional Approach (Kohlberg's 2nd level of Moral Development)
Ethical Tests Approach
Ethical Principles Approach
Anchoring ethical decisions in fundamental principles or guidelines that are well established. Consists of the Teleological, deontological, and aretaic theories.
Ethical Principles - Utilitarianism
Teleological principle of choosing actions which do the greatest good to the greatest number of people. Commonly results in the placing of numeric values on inherently unquantifiable things. Tends to ignore legality and fundamental rights for the "greater good". Very consistent with stakeholder analysis.
Ethical Principles - Rights
Dentological rights-based principle which focuses on the basic individual rights that cannot be violated for the sake of utility; when rights are in conflict, they can be ranked according to their fundamentality. Actions are ethical to the extent that they respect fundamental rights.
Important, justifiable claims and entitlements. They do not depend on a valid legal system.
The right to forgo or freely avoid something.
The right to receive something.
The problem of fairness in Justice-based ethical decision approaches
We simultaneously want the world to make exceptions according to our unique circumstances without creating an unfair system in which those exceptions are applied to others.
A rule is used to make fair decisions about everyone and everything.
A rule which focuses on the consequences of decisions on each individual's set of circumstances.
A rule which provides a mechanism for someone who has been treated unfairly to receive compensation.
Ethical Due Process
Making sure that fiarness characterizes the decision-making process. People can accept an outcome, even if it is not the preferred outcome, if they view the decision as being made ethically.
Another ethical due process model which consists of 3 factors:
Takes input from employees
Employees believe decisions were made and implemented appropriately
Employees believe managers behave appropriately
Rawl's Veil of Ignorance
Designing and implementing a law based on its merits and now how it impacts the legislator. Legislator mentally must assume that the after the law is implemented, he or she could be randomly dropped in either a group of those affected positively or negatively.
An aretaic system of ethics focused on desirable individual character traits; focuses less on "doing" than on "being". Actions that stem from virtuous traits are presumed to be ethical.
The Golden Rule is follows the _____ theory of ethical decision making
Kan'ts Categorical Imperative
Deontological approach to ethical decision making which is duty based. People should act in accordance with a set of principles that they wish would be applied to everyone universally. Contains 3 maxims:
A person acts morally if his or her conduct would, without condition, be the "right" conduct for any person in similar circumstances.
A conduct is "right" if it treats others as an end in themselves and not as a means to an end
The conclusion is that a person acts morally when he or she acts as if his or her conduct was establishing a universal law governing others in similar circumstances.
Post-decision-implementation tests used to evaluate a decision based on its ethical merits.
Ethical Tests - One's Best Self
After an ethical decision has been made, we ask ourselves "Would the best version of me decide this way?" Based on our idealized versions of ourselves.
Ethical Tests - Flashlight/Disclodure Test
After an ethical decision has been made, we ask ourselves "How would we like this decision to be announced publicly"
Ethical Tests - Avoiding the "Big 4"
The idea that "what can be developed, will be developed"
A gap which occurs due the speed of technological change exceeding ethical development in regards to technology.
Advocates of open markets with private firms moving freely across the globe. The view the effects of globalization as positive for stakeholders.
Protests the expansion and greed of corporate global enterprises. Globalization is responsible for the destruction of local markets and emerging economies, abuses of human rights, undermining of local cultures, and the sovereignty of nations. International trade bodies (WTO, IMF, WB)
MNCs should continue to follow its home country's ethical standards even while operating in another country. The U.S. has relatively high standards for the treatment of employees, consumers, and the environment, so this posture appeals to many managers.
MNCs fully embrace the culture and norms of the host country.
Foreign Corrupt Practices Act
Prohibits US companies from making bribes, direct or indirect, to government officials of foreign countries. It does make an exception for "grease money" to expedite routine government actions that should be done by officials as part of their normal duties.
Government-Business Relationship - Pre 1950's
Government focused on economic issues in regards to business (ex. antitrust [Sherman Act], Interstate Commerce Commission)
Government-Business Relationship - Post 1950's
Government focused on social and quality of life issues in regards to business (ex. civil rights, HR issues, OSHA, ADA)
The act of governing, directing, or bringing under control of law or authority.
Reasons for Regulation
Generally are reactionary in nature, usually to market failures. Used to:
Control natural monopolies
Control Negative Externalities
Achieving social goals
Used to business behavior through controlling and influencing economic or market variables, such as price, market entry/exit, and types of services offered.
Focuses on how a business's actions impact people.
Costs of Regulation - Direct
The aggregate expenditures and budgets of new government agencies responsible for regulation.
Costs of Regulation - Indirect
Costs associated with the burdens of regulation on businesses, such as forms, reports, and questionnaires, which are passed on to consumers in the form of higher prices.
Costs of Regulation - Induced
Difficult to quantify but are of the greatest impact. Includes dampened innovation, reduced capital investments, and greater burdens on small businesses.
Costs felt by those not directly involved with a transaction.
Benefits gained without covering their true costs.
The process of influencing public officials to promote or secure the passage or defeat of legislation.
Political Action Committees
Organizations for channeling resources form members for the purpose of influencing government.
Arguments for PACs
Allows businesses to participate in the political process.
Arguments against PACs
The burden of special privileges for businesses is placed on taxpayers.
Consumer's Magna Carta
Proclaimed by JFK. Includes:
Right to Safety
Right to be Informed (product information, use, etc.)
Right to Choose (competition)
Right to be Heard
Public oversight is needed when...
Corporations don't self-regulate
Health/safety/etc. are an issue
Social movement seeking to augment the rights and powers of byers in relation to sellers. Major contribution by Nader's book about GM "Unsafe at Any Speed"
3 ethical dimensions of quality
Due Care Theory
Social Costs Theory
A firm's responsibility is based on the legal contract between the firm and the customer
Due Care Theory
A firm's responsibility is based on the relative vulnerability of the consumer due to less information and expertise on their part. Creates an ethical obligation for the organization.
Social Costs Theory
A firm's responsibility includes covering the costs of harm, even if the firm has met its contractual obligations, exercised due care, and taken all reasonable precautions. Serves as the basis for strict liability and absolute liability.
"Let the buyer beware" - The buyer should conduct thorough research before purchasing a product. Has fallen out of favor because it is difficult for buyers to have perfect information about the product they are buying.
"Let the seller beware" - Businesses are held responsible for all products placed on the market.
Anyone involved in the value chain is responsible for any harm done
Extension of strict liability. Firms are liable for damager, even if it was scientifically unknowable that the product caused harm
Market Share Liability
Situations in which delayed manifestation of harm is impossible to assign responsibility for, and is therefore split up by market share at the time the product was sold.
Benefits of Sustainability
Helps firms move ahead of competitors through new ideas, lower costs, and stronger intangibles such as trust and credibility. Less risk, and therefore lower lending rates, are also possible benefits.
Risk of Ignoring Sustainability
Firms which ignore their environmental responsibilities indefinitely risk incurring society's wrath.
Justifiable claims that the pursuit of utility cannot override. Includes moral rights and legal rights.
Positive Employee Rights
Focus on achieving positive outcomes
Negative Employee Rights
Focus on avoiding negative outcomes
Rights provided by law. For example, the Civil Rights Act.
Rights negotiated through unions. For example, seniority preferences and grievance procedures.
Rights provided and justified by the company's management, possibly based in corporate culture or used as a recruiting tool. For example, the right to petition one's supervisor.
Good Cause/Just Cause Norm
Belief that employees should only be discharged for good reasons. Opposes the employment-at-will doctrine, which many employers hold as one of their rights. This contrast in views leads to charges of unjust dismissals and wrongful discharges.
Based in the private property rights of the employer, the principle that the relationship between the employer and the employee is a voluntary one that can be terminated at any time.
3 legal challenges to employment-at-will
Public policy exceptions
Implied Contract exception
Breach of good faith actions
Public policy exception
Long-standing exception to employment-at-will which protects employees who refuse to commit a crime.
Implied Contract Exception
Protects workers who believe they have contracts or implied contracts w/ employers.
Good Faith Exception
Protects workers who did not have reasonable opportunity to improve their performance before termination.
Type I Error
Type II Error
False Negative. Caused by over-zealous Type I preventions.
A type of discrimination that treats different groups unequally and adversely. Usually intentional
A type of discrimination that impacts different groups unequally and adversely. May not be intentional. Established in Griggs v Duke Power Company.
A rule of thumb for checking for disparate impact. If an action does not yield a success rate for a minority group is at least 80% of the success rate for a majority group, it may be considered to have an adverse disparate impact.
4 components of determining the existence of sexual harassment
Threatening or Humiliating Aspects
Interference in Work Performance
4 postures of affirmative action
Passive nondiscrimination - equal treatment
Pure Affirmative Action - concerted effort to broaden applicant pool
Preferential Hiring - favor minorities who are qualified
Hard Quotas - setting target ratios for hiring under-represented minorities