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CHAPTER 5: SOCIAL RESPONSIBILITY
CHAPTER 5: SOCIAL RESPONSIBILITY AND MANAGERIAL

ETHICS
1.Explain the classical and socioeconomic views of social

responsibility.
2.List the arguments for and against businesses being socially
responsible.
3. Differentiate between social obligation, social responsiveness and
social responsibility.
4. Explain the relationship between corporate social responsibility
and economic performance.
5. Describe values-based management and how it is related to
organisational culture.
6. Explain what the ‘greening’ of management is and how
organisations are ‘going green’.
7. Define stakeholders and describe their role in social responsibility.
8. Differentiate between the four views of ethics.
9. Identify the factors that affect ethical behaviour.
10. Describe the stages of moral development.
11. Discuss various ways organisations can improve the ethical
behavior of their employees.
Do banks have a social responsibility, and what is that responsibility?

This is a hotly debated issue in Australia today. As banks rationalised
their branch networks during the 1990s while posting one record
profit after another – all four of Australia’s biggest banks made profits
ranging from $1.9 billion to $2.4 billion in 2000/2001 – it is no wonder
the question has arisen. As with many cases concerning social
responsibility, there are two views.
One view, held by consumer advocates and perhaps most of the
general public, is that banks should behave in a more socially
responsible way than they have done.1 A bank in a rural community,
for example, is seen as a well, and when that well dries up – closes
down – so does the local community; people stop shopping locally
because it is more convenient to shop in the same distant location to
which they drive to do their banking. When banks cut back
increasingly on the number of branch offices, to the detriment of
country towns and local shopping strips in the suburbs, and charge
more and more fees - $2 for a withdrawal over the counter, 60 cents
from an automatic teller machine, and other service charges – it is no
wonder that people become annoyed with them. In particular, it
seems as if it is the most vulnerable in society who are hit the
hardest – the poor and the elderly who usually have small bank
balances. Banks are also seen as enjoying privileged oligopolistic
profits because of the structure of the market. Banks – particularly
the big four that dominate the Australian market – have enough
financial strength to match any attempts by small new entrants to
the market, or simply to buy them up if they become too threatening.
The view from the banks has consistently been that they do regard
themselves as socially responsible and they maintain that they take
this role seriously.2 They have claimed that Australia needs a stable,
efficient and secure banking system and the only way to achieve this
is to ensure that banks are profitable and healthy. As commercial
ventures they must be able to satisfy all their stakeholders –
shareholders, customers, employees and members of the public. In
defending themselves against criticism for the closure of branches,
the banks point to their use of new technologies that have made it
possible to offer bank and financial services in a new, more effective
and efficient way. Phone banking, for example, and EFTPOS in stores
reduce the need for a local branch.
At the end of 2001 as the criticism continued to increase, the
banks finally started admitting that they perhaps had struggled with
the balance between shareholders and customers. Many of them are
now claiming that they are rebuilding their relationship with
customers and the community after a serious fall-out. Perhaps the
threat of deregulation also had an impact. The big four decided at the
end of 2001 to offer fee-free accounts for those on social security and
the industry promised to introduce a new, more consumer-focused
Code of Banking Conduct in 2002.3
Do banks have a social responsibility because of their special position
in our society, or are they just businesses that should be run on
purely economic lines? What do you think? Clearly, ethics and social
responsibility are issues that managers are increasingly being asked
to deal with as they carry out the activities of planning, organising,
leading and controlling work in their organization. Social factors will
invariably influence their actions.
This chapter introduces the often complicated issues involved with
social responsibility and managerial ethics. The discussion of these
topics is placed at this point in the text to link them to preceding and
following subjects. That is, we will discover that both social
responsibility and ethics are responses to a changing environment
and are influenced by organisational culture (Chapter 3). Also, both
social responsibility and ethics are important considerations when
making decisions (Chapter 6).
What is social responsibility?
Empowered by Internet technology from digital formats such as MP3
and music-swapping Internet services such as Napster, music lovers
all over the world obtain and share their favourite 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 are bringing in
jobs and helping strengthen the local economies. Car manufacturers
build large petrol-guzzling four-wheel off-road 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?
Management now regularly faces decisions that have a dimension of
social responsibility. Employee relations, philanthropy, pricing,
resource conservation, product quality and safety, and doing business
in countries that violate human rights are some of the more obvious
issues. How do managers make such decisions? Let us begin by
looking at two different perspectives on what it means to be socially
responsible.
Two opposing views of social responsibility

Few terms have been defined in as many different ways as social
responsibility. Some of the more popular meanings include ‘profit
making only’, ‘going beyond profit making’, ‘voluntary activities’, ‘
concern for the broader social system’ and ‘social responsiveness’.4
Most of the debate has focused on the extremes. On one side there is
the classical – or purely economic – view that management’s only
social responsibility is to maximise profits. On the other side stands
the socioeconomic position, which holds that management’
responsibility goes well beyond making profits to include protecting
and improving society’s welfare.
The classical view

The classical view holds that management’s only social responsibility
is to maximise profits. The most outspoken advocate of this approach
is economist and Nobel laureate Milton Friedman.5 He argues that
managers’ primary responsibility is to operate the business in the
best interests of the shareholders (the true owners of a corporation).
What are those interests? Friedman contends that shareholders have
a single concern: financial return. He also argues that when managers
decide on their own to spend their organisation’s resources for the
‘social good’, they are adding to the costs of doing business.
Someone must pay for this redistribution of assets. If socially
responsible actions reduce profits and dividends, shareholders lose. If
wages and benefits have to be reduced to pay for social actions,
employees lose. If prices are raised to pay for social actions,
consumers lose. If higher prices are rejected by consumers and sales
drop, the business might not survive, in which case all the
organisation’s constituencies lose. Moreover, Friedman argues that
when professional managers pursue anything other than profit, they
implicitly appoint themselves as non-elected policy makers. He
questions whether managers of business firms have the expertise to
decided how society should be. That, Friedman says, is what we elect
political representatives to decide!
Friedman’s argument is probably best understood by using

microeconomics. If socially responsible actions add to the cost of
doing business, those costs have to be either passed on to
consumers in the form of higher prices or absorbed by shareholders
through a smaller profit margin. If management raises prices in a
competitive market, it will lose sales. In a purely competitive market
where competitors have not assumed the costs of social
responsibility, prices
cannot be raised without losing the entire market. In such a situation,
the costs have to be absorbed by the business, and the result is lower
profits.
The classical view also contends that there are pressures in a
competitive market for investment funds to go where they will get
the highest return. If the socially responsible firm cannot pass on its
higher social cost to consumers and has to absorb them internally, it
will generate a lower rate of return. Over time, investment funds will
gravitate away from socially responsible firms towards those that are
not, because the latter will provide higher rates of return. In an
extreme scenario, if all the firms in a particular country - such as
Australia or Nealand - incurred additional social costs because
management perceived doing so to be one of business’s goals, the
survival of entire domestic industries could be threatened by foreign
competitors who chose not to incur such social costs.
The socioeconomic view
The socioeconomic position maintains that times have changed, and
with them society’s expectations of business. According to this view,
corporations are not independent entities, responsible only to
shareholders. They also have a responsibility to the larger society
that creates and sustains them. One author, in supporting the
socioeconomic view, reminds us that ‘maximising profits is a
company’s second priority, not its first. The first is ensuring its
survival’.
Take the case of the Manville Corporation in the United States.
Fifty years ago its senior management had evidence that one of its
products, asbestos, caused fatal lung disease. As a matter of policy,
management decided to conceal the information from affected
employees. The reason? Profits! In court testimony a lawyer recalled
how in the mid - 1940s, he had questioned Manville’s corporate
counsel about te company’s policy of concealing chest X-ray results
from employees. The lawyer had asked, ‘Do you mean to tell me you
would let them work until they dropped dead? The reply was, ‘Yes, we
save a lot of money that way’. That might have been true in the short
term, but it certainly was not in the long run. The company was
forced to file for bankruptcy in 1982 to protect itself against
thousands of potential asbestos-related lawsuits. It emerged from
bankruptcy in 1988 but with staggering asbestos-related liabilities.
The claims proved so overwhelming-the company had to set up a
personal injury settlement trusr fund with US$2.6 billion in cash and
bonds and the pledge of a certain percentage of future profits-that on
1 April 1996 Manville Corporation went out of business permanently.
Only the independent trust fund that is to continue paying out
settlements to asbestos claimants retains the Manville name.
What happened to Manville is an example of what can happen
when managers take a short-term perspective. Many workers died
needlessly, shareholders lost a great deal of money, and a major
corporation went out of business. And if you think that can only
happen in the United States, consider the following. In Wittenoom,
Western Australia, blue asbestos was mined for years and workers
were exposed to the dangerous mineral. So far, the owner of the
Wittenoom mine, CSR, has settled with more than 200 former
workers who have contracted asbestos-related cancer. It is estimated
that 25 percent of al the men who worked in the mines will die of
asbestos-related diseases.
Another example of why companies must act responsibly in
order to ensure their survival can be seen in the continuing
controversy and on going court cases over whether tobaco company
executies knew serveral years ago about the dangers of smoking and
passive smoking, and how their knowledge may have affected their
decision. It may become an issue that will cost the tobaco companies
billions of dollars.
A major flaw in classicist’s view, as seen by socioeconomic
proponents, is their time frame. Supporters of the socioeconomic
view contend that managers should be concerned with maximising
financial returns over the long run. To do that, they must accept
some social obligations and the costs that go with them. They must
protect society’s welfare by not polluting, not discriminating, not
engaging in deceptive advertising. They must also play an activist
role in improving society by involving themselves in their community
and contributing to charitable organisations.
A final point made by proponents of the socioeconmic position is
that the classical view flies in the face of reality. Modern business
organisations are no longer merely economic institutions. They lobby,
form political action committees and engage in other activities to
influence the political process for their benefit. Society accepts and
even encourages business to become involved in its social, political
and legal environment. That might not have been true 50 years ago,
but it is the reality of today. More and more organisations around the
world are taking their social responsibilities seriously. In fact, a survey
of business owners reported that 68 per cent would continue socially
responsible practices even if they found that the activities were
cutting into profits.
1. Describle the classical view of social responsibility.
2. Describle the socioeconomic view of social responsibility.
3. According to the socioeconomic view of social
responsibility, what are the flaws in the classical view?
Arguments for and against social responsibility
Another way to understand the role that social responsibility plays in
influencing how managers make decision as they plan, organise, lead
and control is by looking at the arguments for and against social
responsibility. Table 5.1 outlines the major points that have been
presented by the two sides.
From obligations to responsiveness
How much and what type of social responsibility businesses should
pursue continues to be a topic of heated debate. Now is probably a
good time to pinpoint exactly what we mean by the term social
responsibility. We define social responsibility as a business firm’s
obligation, beyond that required by the law and economics, to pursue
long-term goals that are good for society. Note that this definition
assumes that business obeys laws and pursues economic interests.
We take as a given that all business firms-those that are socially
responsible and those that are not-will obey all relevant laws that
society enacts. Also note that this definition views business as a mral
agent. In its effort to do good for society, it must differentiate
between right and wrong.
We can understand social responsibility better if we compare it
with two similar concepts: social obligation and social responsiveness.
As Figure 5.1 illustrates, social obligation is the obligation of a
business to meet its economic and legal responsibilities. The
organisation 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. This approach is
based on the classical view of social responsibility; that is, the
business feels its only social duty is to its shareholders. In contrast to
social obligation, however, both social responsibility and social
responsiveness go beyond merely meeting basic economic and legal
standards.
Social responsibility adds an ethical imperative to do those
things that make society better and not to do those that could make
it worse. A socially responsible organisation goes beyond what
TABLE 5.1 ARGUMENTS FOR AND AGAINST SOCIAL

RESPONSIBILITY
For Against
Public expectations: public Violation of profit
opinion now supports maximisation: Business is being
businesses pursuring economic socially responsible only when it
and social goals pursues its economic interests
Long-run profits: socially Dilution of purpose: pursuing
responsible companies tend to social goals dilutes business’s
have more secure long-run primary purpose-economic
profits productivity
Ethical obligation: Costs: many socially
responsible actions are the right responsible actions do not cover
thing to do their costs and someone must
Public image: businesses can pay those costs
create a favourable public Too much power: businesses
image by pursuring social goals have a lot of power already and
Better enviroment: business if they pursue social goals they
involvement can help solve will have even more
difficult social problems Lack of skills: business
Discouragement of further leaders lack the necessary skills
governmental regulation: by to address social issues
becoming socially responsible, Lack of accountability: there
businesses can expect less are no direct lines of
government regulation accountability for social acitons
Balance of responsibility and
power: businesses have a lot of
power and an equally large
amount of responsibility is
needed to balance it
Shareholder interests: social
responsibility will improve a
business’s share price in the
long run
Possession of resource:
businesses have the resources
to support public and charitable
projects that need assistance
Superiority of prevention
over cure: businesses should
address social problems before
they become serious and costly
to correct
It must do by law, or what it chooses to do, only because it makes

economic sense to do what it can to help improve society because
that is the right, or ethical, thing to do. As Table 5.2 describes, social
responsibility requires business to determine what is right or wrong
and to make ethical decisions and engage in ethical business
activities. A socially responsible organisation does what is right
because it has an ‘obligaiton’ 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. A socially responsive
organisation acts the way it does because of its desire to satisfy some
expressed 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. The following example
might help make the distinction between responsibility and
responsiveness clearer:
TABLE 5.2 SOCIAL RESPONSIBILITY VERSUS SOCIAL

RESPONSIVENESS
Social Social
responsibility responsiveness
Major Ethical Pragmatic
consideration Ends Means
Focus Social Social
Obligation Responses
Emphasis Responsibility
Long term Medium and short
Decision responsiveness term
framework Social opligaiton
Source: Adapted from S.L.Wartick and P.L.Cochran. ‘The evolution

of the corporate social performance modek’, Academy of
Management Review. October 1985 p.766
Suppose, for example, that a multiproduct firm’s social
responsibility is to produce reasonably safe products. Similarly, the
same firm is responsive every time it produces an unsafe product: it
withdraws the product from the market as soon as the product is
found to be unsafe. After, say, ten recalls, will the firm be recognised
as socially responsible? Will the firm be recognised as socially
responsive? The probable answers to these questions are ‘No’ to the
first, but ‘Yes’ to the second.
How does this example illustrate the distinction between social
responsibility and social responsiveness? The organisation’s decision
to continue producing unsafe products, even though it espoused a
responsibility to produce reasonably safe products, would make it
appear socially irresponsible in the eyes of the public; that is, it was
not doing the right, or ethical, thing. However, the organisation’s
quick action in withdrawing unsafe products from the market would
make it appear socially responsive because it was responding to what
the public wanted it to do.
A company that meets pollution control standards established by
the federal government or does not discriminate against women
when it comes promotion decisions is meeting its social obligation
and nothing more. When it provides on-site childcare facilities for
employees, packages products in 100 per cent recycled paper, or
announces that it will not purchase, process or sell any tuna caught in
association with dolphins, it is being socially responsive. Why?
Pressure from working parents and environmentalists makes such
practises pragmatic. Of course, an organisation that provide
childcare, offered recylce packaging or sought to protect dolphins
back in the 1970s would probably have been accurately characterised
as a socially responsible company.
Advocates of social responsiveness believe that the concept
replaces philosophical talk with practical action. They see it as a more
tangible and achievable objective than social responsibility. Rather
than assessing what is good for society in the long term, managers in
a socially responsive organisation identify the prevailing social norms
and then change their social involvement to respond to changing
societal conditions. For instance, environmental stewardship seems to
be an important social norm at present and many companies are
looking at ways to be environmentally responsible. Alcoa of Australia
developed a novel way to recycle the used linings of aluminium
smelting pots, and Denso generates its own electricity and steam at
many of its Japanese manufacturing facilities. Other organisations are
addressing other popular social issues. For example, Shepparton
Preserving Company (SPC) contributes to charity with its ‘Share a
Can’ day, where volunteers from among employees, growers and
suppliers donate a day’s work and materials to produce $750000
worth of food for the Victorian Relief Agency and Victorian Foodbank.
Kellogg’s (Australia and New Zealand) has donated $1.9 million since
1998 to Kids Helpline, a free confidential telephone counselling
service for young people aged five to eighteen.
and Kellogg’s is also a major supporter of Surf Life Saving Australia.19

These are examples of socially responsive actions for today.
4. What are the argument for businesses being socially
responsible?
5. What are some of the arguments against business
involvement in social responsiveness and social
responsibility.
6. Differentiate between social obligation, social
responsiveness and social responsibility.
Social responsibility and economic performance
In this section we want to answer the question: do socially
responsible activities lower a company’s economic performance?
A number of studies have locked at this question. 20 All recognised
the methodological limitations related to measures of “social
responsibility” and “ economic performance”. 21 Most determined a
firm’s social performance by analysing the content of annual reports,
citations of social actions in articles on the company or public
perception “ reputation” indexes. Such criteria certainly have
drawbacks as reliable measures of social responsibility. Although
measures of economic performance ( such as net income, return on
equity or share price) are more objective, they are generally used to
indicate only short-term financial performance. It may well be that
the impact of social responsibility on a firm’s profits – either positive
or negative – takes a number of years to manifest itself. If there is a
time lag, studies that use short-term finacial data are not likely to
show valid results. There is also the issue of causation. If, for
example, the evidence showed that social involvement and economic
performance were positively related, this relation would not
necessarily mean that social involvement caused higher economic
performance. It could well be the oppsite. That is, it might mean that
high profits permit firms the luxury of being socially involved. 22
Given these cautions, what do the research studies find? The
majority show a positive relationship between corporate social
involvement and economic performance. Only one review of 13
studies found a negative association – in this case, the price of
socially responsible companies’ shares did not do as well as national
share indexes.23 The logic underlying this positive relationship is that
social involvement provides benefits to a company that more than
offset their costs. These benefits include positive consumer image, a
more dedicate and motivated workforce, and less interference from
regulators.24
There is another way to look at this issue. In many industrialised
countrise a number of socially conscious mutual share funds (unit
trusts) were set up in the 1980s and 1990s.25 Typically, these funds
use some type of social screening, that apply social criteria to
investment decisions. The drive behind these funds is to focus the
investment on either “ ethical” or “ green” corporations. These
conscience-driven funds have therefore not invested in companies
that are connected with the manufacturing of defence weapons, that
use nuclear power, or that are involved in liquor, gambling, tobacco,
price fixing or criminal fraud. If we look at the performance of these
funds in, for example, the United States, we find that the socially
conscious funds performed very close to the same level as the
average equity funds as a group. The interest in Australia and New
Zealand in socially conscious funds has been limited, which might be
explained by the investment community’s focus on high short-term
performance by the funds.
However, some Australian fund managers seem to support the
principle that good management and ethical concerns coincide.26
What conclusion can we draw from all this? The most meaningful
conclusion we can make is that there is little evidence to say that a
company’s socially responsible actions significantly hurt its long-term
economic performance. Given political and societal pressures on
business to be socially responsible, this means that managers should
take social goals into consideration as they plan, organise, lead and
control.
Values-based management
Values-based management is an approach to managing in
which managers establish, promote and practise an organisation’s
shared values. An organisation’s values reflect what it stands for and
what it believes in. As discussed in Chapter 3, the shared
organisational values form the organisation’s culture and influence
the way the organisation operates and the way employees behave.27
For instance, at The Body Shop, the company’s shared values have
become part of the overall business strategy. Every managerial
decision at The Body Shop is evaluated in light of the values found in
its Mission and Value Statement www.the-body-shop.com. The Body
Shop is committed to social and environmental causes, such as
human and civil rights, a cleaner environment, an end to animal
testing community involvement, and fair trade with indigenous
people.28 However, at the same time it is committed to being
profitable and producing a competitive return for its share-holders.
For any company that believes in and practises values-based
management, the shared corporate values serve many purpose.
Purposes of shares values
The values that organisational members share serve at least four
main purposes (see Figure 5.2). The first purpose of shared values is
that they act as guideposts for managerial decisions and actions.29
For example, at US clothing manufacturer Blue Bell, a strong tradition
of corporate values guides managers as they plan, organise, lead and
control organisational activities. Their shared values were developed
through a series of participative discussions and are expressed in the
acronym PRIDE: Profitability through excellence, Respect for the
individual, Involved citizenship, Dedication to fairness and integrity,
and Existing for the customer. In fact, any new manager participating
in Blue Bell’s management training progams quickly learns that an
important part of being a manager for this firm is sharing and
following the beliefs expressed by PRIDE.
Another purpose of shared values is the impact they have on
sharing employee behaviour and communicating what the
organisation expects of its members. For instance, employees at
Herman Miller, which manufactures office, residential and health-care
furniture, practise company values as they design, manufacture and
ship furniture around the world. What are
Managing in the Asia Pacific regiony

Shepparton Preserving Company (SPC)
One organisation that has made a noticeable commitment to its
role in society is Shepparton Preserving Company (SPC). As one of the
major employers in the Victorian town of Shepparton – 1400 staff
during the peak season – it takes its social responsibilities very
seriously. Part of its story rests on the fact that the company came
close to collapse in the early 1990s, and its struggle for survival
etched SPC into local legend.
SPC suffered huge losses in 1989-90 because of increased
competition from cheap imports and finacial overexposure, and was
close to ceasing operations. The company embarked on a very risky
solution. It sacked five board members and ruduced its workforce by
one-quarter. A new board was formed, consisting mainly of locals,
and the company negotiated a controversial workplace agreement
with its staff, involving reduced wages as a trade-off for trying to
continue operating. The whole agreement-vigorously resisted by the
Australian Council of Trade Unions-was based on immense trust
between management and employees and a promise to repay the
sacrificed wages when – and if – the company recovered. The
outcome was a tunraround that has today become part of local
folklore. SPC survived and it also fulfilled its promise by paying out
$1.2 million to its employees as compensation for the sacrificed
wages.
Today, SPC is concerned about putting money back into the
community, either directly or indrectly. Its purchasing policy is to buy
Australian-sourced materials and services, and this extends into the
local community. It also contributes to charity with its ‘Share a Can’
day. In April each year, 600 volunteers from among employees,
growers and suppliers donate a day’s work and materials to produce
$750 000 worth of food for the Victorian Relief Agency and Victorian
Foodbank. SPC valued the support it received from the community
when it came close to going out of business, and is today committed
to repaying this loyalty by being generous and supportive towards
the local community. SPC management knows that the company
would not have been in existence today had it not been for the
support of the local.
Source: Based on S.Paxinos, ‘ Locals value a great survivor’. The
Age (An Age Special Report – Victoria: The State We’re In, II
November 1998, p.7: and information at SPC website
www.spc.com.au/commprog_sharecan.htm accessed 26 April 2002.
Those company values? A commitment to innovation and

uncompromising quality, participative management, and
environmental sterwardship.
Shared corporate values also influence marketing efforts. For
example, Avon Products Inc. has made a significant commitment to
educating women about breast cancer. Its support for this program
came about after the company asked women what their number one
health concern was and breast cancer was the answer. In response,
the company created the Avon Worldwide Fund.
SHARED
ORGANISATIONAL
VALUES
Guide managers’ Shape employee Influence Build

decisions and actions behavior marketing efforts
team’s
For Women’s Health, an umbrella organisation that has spread to

19 countries around the world. The company’s biggest women’s
health program under this fund is its Breast Cancer Awareness
Crusade. The company’s saleforce of more than 440 000 educates
women about the disease by bringing brochures on their sales visits.
The director of the crusade says, ‘All of the interaction that happens
with an Avon rep on something as important as breast cancer should
improve customer relations and make for easier sales.’ Avon has
found a way to link its business to an important social concern and to
improve its marketing efforts at the same time.
Finally, shared values are a way of building team spirit in
organisations. When employees embrace the stated corporate values,
they develop a deeper personal commitment to their work and feel
obligated to take responsibility for their actions. Because the shared
values influence the work is done, employees become more
enthusiastic about doing things they support and believe in. At
companies such as
The Body Shop, Blue Bell, Avon Products, Herman Miller and
numerous others, employees know what is expected of them on the
job. They use the shared corporate values to shape the way the work.
But how do organisations develop a set of share values?
Developing shared values
As any company that uses values-based management will tell

you, it is not easy to establish the shared corporate values. At The
Body Shop, the corporate values have been heavily influenced by
Anita Roddick’s own beliefs and values, but they have also gradually
been developed as the company grew and new people joined
Roddick. Many of the company’s induction and training programs
focus on such issues as ‘who we are’ and ‘what we are about’. In this
way, The Body Shop has developed a culture that attracts people who
share and believe in these values. They are values that really matter
to most of the inviduals working for the company.
A survey of Fortune 1000 companies in 1993 found that 95 per
cent of the respondents were convinced they would have to adopt
more socially responsible business practices in coming years in order
to preserve their cimpetitive edge. Getting employees to buy into a
set of core values that emphasise a commitment to doing good
requires strong corporate leadership. Corporate managers are
responsible for shaping the organisation so that its values, norms and
ideals appeal strongly to employess. Some specific suggestions for
developing a good corporate values statement are listed in Figure
5.3.
Companies that live and practice values-based management have
accepted a broad persepective regarding their commitment to being
socially responsible and socially responsive. On value in
1. Involve everyone in the company.

2. Allow customising of the values by individual
departments or units.
3. Expect and accept employee resistance.
4. Keep the statement short.
5. Avoid trivial statements.
6. Leave out religious references.
7. Challenge it.
8. Live it.
particular that many organisational managers are beginning to

recognise as important has to do with the environmental
responsibility of the organisation and of individuals. This ‘greening’ of
management is what we are going to look at next.
7. What have research studies found about the relationship
between an organisation’s social involvement and its
economic performance?
8. How is values-based management related to the
concepts of social responsibility and social responsiveness?
9. What purposes do shared values serve, and how should
shared values be developed?
The ‘greening’ of management
Until the late 1960s, few people (and organisations) paid attention to
the environmental consequences of their decision and actions.34
Although there were some groups concerned with conserving the
land and its natural resources, about the only popular reference to
saving the environment you would have seen at the time was the
ubiquitous printed request ‘Please Do Not Litter’. Then a number of
highly visible ecological problems and environmental disasters (the
Exxon Valdez oil spill, mercury poisoning in Japan, and the Chernobyl
nuclear power plant accident) brought about a new awareness and
spirit of environmentalism among individuals, groups and
organisations. Increasingly, managers began to confront questions
about the natural environment and its impact on organisations. This
recognition of the close link between an organisation’s decisions and
activities and its impact on the natural environment is referred to as
the greening of management. Let us look at some of the issues
managers may have to address as they ‘go green’.
Global environmental problems
One ‘green’ issue managers must deal with as they become more
involved in preserving the natural environment is recognizing the
main global environmental problems and how these problems are
changing. The list of global environmental problems is long. Some of
the more serious ones include natural resource depletion, global
warming, pollution (air, water and soil), industrial accidents and toxic
wastes. How did these problems occur?
Much of the blame can be placed on industrial activities in
developed (economically affluent) countries over the last half
century.35 In fact, reports have shown that affluent societies account
for more than 75 per cent of the world’s energy and resource
consumption and also create most of the industrial, toxic and
consumer waste.36 An equally disturbing aspect of these statistics is
that, market-oriented and affluent, global environmental problems
can be expected to worsen.37 However, many organisations around
the world, large and small, have embraced their responsibility to
respect and protect the natural environment. What role can
organisations play in addressing global environmental problems? In
other words, how can they ‘go green’?
How organisations go green?
There are many things that managers and organisations can do to
protect and preserve the natural environment.38 Some organisations
do no more than what is required by law (i.e. they fulfil their social
obligation); others have made radical changes in the way they do
business. Products and production processes have become cleaner.
The ‘Managing from a global perspective’ box ‘Being Green’ tells
about the efforts of one individual who is developing radical
ecofactories that have completely eliminated pollution in the
production process. Many other companies have made
environmentally friendly changes. For example, Whirlpool won a CFC-
free high-efficiency refrigerator. (CFCs, short for chlorofluorocarbons,
have been linked to the degradation of the ozone layer surrounding
the earth.) The 3M Corporation has been a leader in waste-reduction
efforts with its 3 Ps Program (Pollution Prevention Pays), and both
Volkswagen and BMW are working to create recyclable cars. Finally,
DuPont, Xerox and IBM have focused their environmental programs
on preventing pollution, not just on cleaning it up. There are
numerous other examples of environmentally friendly actions taken
by global organisations. Although these examples may be interesting,
they do not tell us much about how organisations go green. One
approach to organisational roles in environmental responsibility uses
the term shades of green to describe different approaches that
organisations may embrace.39 What are these shades of green?
Managing from a global perspective
Being green
Gunter Pauli, a native of Belgium now living in Tokyo, represents a
whole new breed of business person a social entrepreneur. His
philosophy is that twenty-first-century companies will have to be not
only financially sustainable but socially sustainable as well. Is Pauli a
radical environmental activist with unrealistic and idealistic notions or
an insightful visionary?
Pauli’s business background and credentials are impressive. He
graduated from INSEAD (a prestigious European business school) and
spent several years travelling across Europe lecturing and consulting
for IBM, the global computer company. He has written eight
management books and is fluent in six languages. But he considers
himself more of a social crusader than a business leader. Since 1992,
he has championed an ambitious program challenging how
conventional companies work. He wants to create manufacturing
facilities that function as closed-loop systems – that is, factories that
completely eliminate waste by reusing or recycling all the raw
materials they take in. Pauli calls this approach zero-emissions
manufacturing and believes it is the next big breakthrough in
business productivity. Total quality management meant zero defects.
Just-in-time manufacturing meant zero inventories. In zero emissions,
you are striving for zero waste; you use everything. You completely
eliminate waste. He says, ‘This is part of the drive for higher
productivity. We are always pushing to do more with labour and
capital. It is time to focus on the productivity of raw materials. Zero
emissions sounds radical today. In 20 years it will be standard
operating procedure.’
This radical operating concept is already in effect in a few places
around the globe. Pauli is the former CEO of Ecover, a small Belgian
company that produces cleaning products (laundry power,
dishwashing liquid, shampoos, car wax and other products) from
natural soaps and renewable raw materials. Ecover opened a near-
zero-emissions factory in October1992 in Malle, Belgium. What is
unique about this factory is that it is a ‘green’ marvel. A huge grass
roof keeps the factory cool in summer and warm in winter. The water
treatment system runs on wind and solar energy. The bricks in the
factory walls are made of recycled clay from coal-mines. But Pauli
does not even like the term ‘green’ to describe Ecover’s products or
its factory. He says that most people assume that means lousy
performance at a high price. Instead, what Ecover does is develop
high-technology products based on a mastery of the chemistry of
renewable resources. It is in the business of pioneering sustainable
economic and social development.
Pauli believed that the media sensation created by Ecover’s
green factory was a prime opportunity to create a global product
brand by opening more factories around the world, but his lead
investor and partner preferred a more cautious approach. So Pauli left
Ecover and moved to Tokyo to work for the United Nations University
and the Zero Emissions Research Initiative (ZERI). From there he
coordinates a global net work of scientists, corporate executives and
political leaders who are piecing together zero-emissions technology
and documenting its performance benefits. ZERI’s budget for 1995
was US$50 million investment fund (to be financed by world
governments) that would underwrite zero-emissions factories in
different industries around the world.
In fact, construction was completed in mid-1997 on the world’s
most unconventional brewery, in Namibia in southern Africa. The
brewery was designed as a model of what zero-emissions factories
would be like. Pauli describes it as a fully integrated biosystem. Water
(the brewing process wastes massive amounts of water) flows from
the brewery into ponds designed for fish farming. Mushrooms grow on
piles of used grain (brewing also requires huge supplies of grain) from
the fermentation process. Chickens feed on earthworms turned loose
in the grain. The waste from the chickens is put into a machine called
a digester, which generates methane gas that produces steam for the
fermentation process. Pauli says, Does it make sense – morally,
environmentally, economically – just to waste those resources? Is
there no food shortage in the world?
(source: Butler, Green machine, Fast Company webpage,
www.fastcompany.com 16 April 1997)
Organisations can take at least four approaches to

environmental issues. As Figure 5.4 shows, the first approach is
simply doing what is required legally: the legal approach. Under this
approach, organizations exhibit little environmental sensitivity. They
will obey laws, rules and regulations willingly and without legal
challenge, and they may even try to use the law to their own
advantage, but that is the extent of their being green. For example,
many durable product manufacturers and oil refiners have taken the
legal approach and comply with relevant environmental laws and
regulations, but they go no further. This approach is a good
illustration of social obligation: these organizations are simply
following their legal obligations of pollution prevention and
environmental protection.
As an organization becomes more aware of and sensitive to
environmental issues, it may adopt the market approach and respond
to the environment preferences of its customers. Whatever
customers demand in terms of environmentally friendly products will
be what the organization provides. The DuPont company is a good
example of the market approach: it developed a new type of
herbicide that has helped farmers around the world to reduce their
annual use of chemicals by more than 20000 tons. By developing this
product, DuPont was responding to the demands of its customers
(farmers) who wanted to minimize the use of chemicals on their
crops.
At the next stage, the stakeholder approach, the organizations
chooses to respond to multiple demand made by stakeholders (any
group in the organisation’s external environment that is affected by
an organization will work to meet the environmental demands of such
groups as employees, suppliers, investors and the community.
Compaq Computer Corporation has developed corporate programs to
minimize harmful emissions, to recycle, and to reduce both waste and
energy consumption in response to demands by its various
stakeholders. Both the market approach and the stakeholder
approach are good illustrations of social responsiveness.
Finally, if an organization pursues an activist approach (also
called a ‘dark green’ approach), it looks for ways to respect and
preserve the earth and its natural resources. For example, Ecover, s
Belgian company that produces cleaning products from natural soaps
and renewable raw materials, operates a near-zero-emission factory.
This green factory is an environmentally sound engineering marvel.
The activist approach exhibits the highest degree of environmental
sensitivity and is a good illustration of social responsibility.
Summing up social responsibility
The key issues in social responsibility are easier to understand if

we think in terms of the people to whom managers are responsible.
Classicists would say that shareholders or owners are an
organization’s only legitimate concern. Progressives would respond
that managers are responsible to any individual or group that is
affected by the organisation’s decisions and policies. These
stakeholders are any constituency in an organisation’s environment:
government agencies, unions, employees, customers, suppliers, host
communities and public interest groups.
Figure 5.5 illustrates a four-stage model of the expansion of an
organisation’s social responsibility. What you do as a manager in
terms of pursuing social goals depends on the people to whom you
believe you are responsible – that is, the stakeholders. A AStage 1
manager will promote the shareholders’ interests by seeking to
minimize costs and maximize profits. Although all laws and
regulations will be followed, Stage 1 managers do not feel obligated
to satisfy other societal needs. This is consistent with Friedman’s
classic view of social responsibility. At Stage 2, managers will accept
their responsibility to their employees and focus on human resource
concerns. Because they want to recruit, keep and motivate good
employees, they will improve working conditions, expand employee
rights and increase job security.
At Stage 3, managers will expand their responsibilities to other
stakeholders in the specific environment - that is, customers and
suppliers. Social responsibility goals of Stage 3 managers include fair
prices, high-quality products and services, safe products, good
supplier relations and similar practices. Their philosophy is that they
can meet their responsibilities to shareholders only by meeting the
needs of their other constituents.
Finally, Stage 4 aligins with the extreme socioeconomic definition of
social responsibility. At this stage, managers feel a responsibility to
socialty as a whole. Their business is seen as a public entity, and they
feel a responsibility for advancing the public good. The acceptance of
such responsibility means that managers actively promote social
justice, preserve the environment,and support social ans cultural
activities. They take these stances even if such actions negatively
affect profits. For instance, Anita Roddick, the founder of the Body
Shop, described earlier, could be considered a Stage 4 manager.
Each stage implies an increasing level of managerial discretion. As
manager move to the right along the continuum shown in Figure 5.5,
they have to make more judgmet calls. At stage 4, thay are required
to impose their values of right and wrong on social. For example,
when is a product dangerous to society? Is the Philip Morris
corporation doing ‘right’ by sociaty when it markets Kraft cheeses but
‘wrong’ when it sells cigarettes? Or is producing a product with a high
fat and sodium content also wrong? Is a public utility company that
operates coal – fuelled power plants behaving irresponsibly towards
society? Is it wrong for a company to makert bioengineered produce
even though the produce is more disease resistant? Is a group of
companies opposing the introduction of a greeenhouse tax because
of alleged hardship and a potential loss of jobs behaving irresponsibly
towards society? Is it wrong for a large company to take advantage of
tax loopholes or to register itseft in a ‘tax haven’. When this means
paying little or no tax on millions of dollars of profits? These are the
types of social responsibility judgment calls that manager must make.
There is no simple right – wrong dichotomy that can help managers to
make socially responsible decisions. Clearly, managers of business
firms have a basic responsibility to obey the laws in the communities
and countries in which they operate, and to make a profit. Failure to
achieve either of these goals threatens the
organisations’survival.Beyond that, however, managers need to
identify people to whom they believe they are responsilble.
We sugget that by focusing on their stakeholder and their
expectations of the organisation, managers can reduce the likelihood
that they will ignore their responsibilities to sritical constituencies or
alienate them, ans make more responsible choices as they deal with
difficult issues. You may want to refect on Australia’s ‘big four’
banks,as discussed in the beginning of the chapter. How have they
handled their social responsibility ? have they considered all their
stakeholders, or only their shareholders? What is the banks’ standing
in our society? What are the banks’ CEOs being rewarded for
achieving? Will the current situation have long – term implications
that could have adverse effects?
10. What is the greening of management, abd why is it important?
11. Describe how organisations can become green.
12. What are the four stages of social responsibility, and what role do
stakeholders play in each stage?
Managerial ethics
Is it ethical for a salesperson to offer a bribe to a purchasing agent as
an inducement to buy? Would it make any difference if the bribe
came out of the salesperson’s commission? Is it ethical for someone
to understate their educations in order to get a job during an
economic
Managers who made a difference
Greg Bourne, Regional President, BP
Greg Bourne, the Australian – based Regional President for the oil and
energy company BP Amano, is seen as a manager who is taking a
very strong stance with respect to corporate citizenship. For example,
he has played a critical role in repostioning BP Amaco in the field of
renewable and sustainable energies and with a genine concern for
the environment, he has also been keen on developing the concept of
triple bottomline reporting, where the organisation’s performance is
measured not only in term osf economic performance but also with
regard to social and enviromental performance. For Greg
Bourne,sustainable development cannot be separated from being a
good corporate citizen. In BP’s case this means looking at how the
company can operate in an environmentally friendly way that goes
beyond what is required by law. Greg Bourne beleives that
businesses can not longer shy away from the adverse environmental
impact of some of their practices or from their social obigations to
their employees and the community at large.
Under Greg Bourne’s leaderdship, BP Australia published its first
Triple Bottom Line (TBL) report in November 2001,because it felt that
the company had a responsibility to its stakeholders for more
transparency in the way it reported on its activities. The BP group has
been producing financial reports since 1948 and environmental and
social reports since the 1990s, but BP Australia’s TBL report is part of
BP’s experimentation in finding new way to report on the company’s
activities and impacts. The TBL report aims to present positive and
negative opinions on aspect of BP’s operations and to embrace input
from external parties. For example, an international consultancy
company, Environmental Resources Menagement (ERM), was
commissioned to interview a range of stakeholders to gather their
views about the extent to which BP is living up to its policies on ethics
, employees relationships and HSE (Health, Safety and Environment)
in Australia. These views were then published in full. While BP may
not agree with all the views expressed by the interviewees and
stakeholder, the company has demonstrated its sincere willingness to
listen to what people think about the company.
Source: AFR Boss true leader list 2001, Australia Financial Review –
Boss August 2001,pp, 37 – 50; and various information at BP’s
websites,(www.bp.com) and (www.bp. Com au), where a copy of the
TBL report can be found, accessed 26 April 2002.
Slump if they would ordinarily be considered overqualified for the job?
Is it ethical for someone to use a company car for private use? How
about using company e – mail for personal correspondence?
The term ethics commonly refers to the rules ans principles that
define right and wrong conduct. In this section, we look at 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. To better understand the complicated
issues involved in managerial ethics, and suggest ways that
organsation can improve the ethical behaviour of employees.
Four views of ethics
There are four perspectives on business ethics. The first is the
utilitarian view of ethics, in which decisions are made solely on the
basis of their outcome or condequences. Utilitarian theory uses a
quantitative method for making ethical decisions by looking at how to
provide the greatest good for the greatest number. Following the
utilitarian view, a manager might conclude that laying off 20
percent od the workforce in her plant is
justified because it will increase the plant’s profitability, improve job
security for the remaining 80 per cent and be in the best interest of
shareholders. Utilitarianism encourages efficiency and productivity
and is consistent with the goal of profit maximisation. However, it can
result in a biased allocation of resources, especially when some of
those affected by the decision lack representation or a voice in the
decision. Utilitarism can also result in the rights of some stakeholders
being ignored.
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 right of employees to free speech when they
report violations of laws by their employers. The positive side of the
rights perspective is that protects individuals’ basic rights, but it has
a negative side for organisations. 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.
The next view is the theory of justice view of ethics. Under
this approach, managers are to impose and enforce rules fairly and
impartially and to do so by following all legal rules and regulations. A
manager would be using a theory of justice perspecive in decing 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 difference such as gender, personality, race or
personal favourites. Using standards of justice also comes with pluses
and minuses. It protects the interests of those stakeholders who may
be under- represented or lack power, but it can encourage a sense of
entitlement that might make employees reduce risk taking,
innovation and productivity.
The final perspective is a newer approach called the
intergrative social contracts theory which proposes that ethical
decisions should be based on empirical (what is) and normative (what
should be) facors. 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. For instance, in deciding what wage to pay workers
in a new mining operation in South Africa, the mining company
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
corporations to determine what constitutes right and wrong decisions
and actions.
Which approach to ethics do most business people follow? Not
surprisingly, most business people follow the utilitarian approach.45
Why? It is consistent with such business goals as efficiency,
productivity and high profits. By maximising profits, for instance,
executives can argue that they are gaining the greatest good for the
greater number. However, the perspective needs to change because
of the changing world that faces managers. Utilitarianism tends to
downplay the satisfaction of individual and minority interests for the
benefit of the majority, and new trends towards 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 using such criteria
as individual rights, social justice and community standards involves
far more ambiguities than using utilitarian criteria such as effects on
efficiency and profits. The result, of course, is that managers
increasingly find themselves struggling with ethical dilemmas.
13. What is ethics, and why is it important for managers to be
aware of ethics?
14. Describe the four views of business ethics.
15. Which of the four views of business ethics is most popular
among business people? Why?
Factors that affects managerial ethics
Whether a manager acts ethically or unethically is the result of a

complex interaction between the manager’s stage of moral
development and several moderating variables including individual
characteristics, the organisation’s structural design, the
organisation’s culture and the intensity of the ethical issue (see
Figure 5.6).
People who lack a strong moral sense are much less likely to do
the wrong thing if they are constrained by rules, policies, job
descriptions, or strong cultural norms that disapprove of such
behaviours. Conversely, very moral individuals can be corrupted by
an organisational structure and culture that permits or encourages
unethical pratices. Moreover, managers are more likely to make
ethical decisions on issues where high moral intensity is involved. Let
us look more closely at the factors that influence whether managers
behave eethically or unethically.
Individual Issue
characteristics intensity
Ethical Stage of moral Ethical/unethical

dilemma development behaviour
Moderators
Structural Organisational
variables culture
Figure 5.6 factors that affect ethical and unethical behaviour
Stage of moral development

Research confirms the existence of three levels of moral
development, each composed of two stages.46 At each successive
stage, an individual’s moral judgment becomes less and less
dependent on outside influences. The three levels and six stages are
described in Figure 5.7.
The first level is labelled preconventional. At this levels, a
person’s choice between right and wrong are based on the personal
consequences involved, such as phusical punishment, reward or
exchange of favours. Ethical reasoning at the conventional level
indicates that moral values reside in maintaining the conventional
order and living up to the expectations of others. At the principled
level, individuals make a clear effort to define moral principles
regardless of the authority of the groups to which they belong or
society in general.
We can draw some conclusions from research on the levels and
stages of moral development. 47 First, people proceed through the six
stages sequentially. They gradually move up the moral ladder, stage
by stage. They do not jump steps. Second, there is no guarantee of
continued moral development. An individual’s moral development can
stop at any stage. Third, the majority of adults are at Stage 4. They
are limited to obeying the rules and will be inclined to behave
ethically. Finally, the higher the stage a manager reaches, the more
he or she will be predisposed to behave ethically. For instance, a
Stage 3 manager is likely to make decisions that will receive peer
approval; a Stage 4 manager will seek to be a ‘good corporate citizen’
by making decisions that respect the organisation’s rules and
procedures; and a Stage 5 manager is likely to challenge
organisational pratices that he or she believes to be wrong. Many of
the recent efforts by universities to raise students’
Level Description of stage

Principled 6. following self –
chosen ethical
principles even if they
violate the law
5. valuing rights of
others and upholding
absolute values and
rights regardless of the
maionty opinion
4. maintaining conventional
order by fulfilling obligations to
which you have agreed
convention
3. Living up to what is expected
by people close to you
2.Following rules only when doing so is in

your immediate interest
Preconventional
1. Sticking to rules to avoid physical
punishment
FIGURE 5.7 STAGES OF MORAL DEVELOPMENT
Source: Based on L.kohlberg. ‘Moral stages and moralization: The
cognitive- development approach’, in T.Lickona(ed.).moral
development and Behavior: Theory, and Social issues (Mew York:
Holt, Rinehart Winston, 1976).pp.34- 35
Ethical awareness and standards are focused on helping then move

to the principled level – the highest level of moral development.
Individual characteristics
Every person joins an organization with a relatively entrenched set of
values. Our values – development in our early years from parents,
teachers, friends, and others – represent basic conviction about what
is right and wrong. Thus, managers in the same organization often
possess very different personal values. Note that although values and
stage of moral development may seem similar, they are not the
same. Values are broad and cover a wide range of issues, while stage
of moral development specifically is a measure of independence from
outside influences.
Two personality variables have also been found to influence an
individual’s actions according to his or her beliefs about what is
right or wrong. They are ego strength and locus of control. Ego
strength is a personality measure of the strength of a person’s
convictions. People who score high on ego strength are likely to resist
impulses and follow their convictions. More than those who are low on
ego strength. That is, individuals high in ego strength are more likely
to do what they think is right. We would expect managers with high
ego strength to demonstrate more consistency between moral
judgment and moral action than those with low ego strength.
Locus of control is a personality attribute that measures the
degree to which people believe they are masters of their own fate.
People with an internal locus of control believe that they control their
own destinies, while those with an internal locus believe that what
happens to them is do to luck or chance. How does this influence a
person’s decision to act ethically or unethically? Externals are less
likely to take personal responsibility for the consequences of their
behaviour and are more likely to rely on external forces. Internal, on
the other hand are more likely to take responsibility for consequences
and rely on their own internal standards of right and wrong to guide
their moral judgments and moral actions than will those with an
external locus of control
Structural variables
An organization’s structural design helps to shape the ethical

behaviour of managers. Some structures provide strong guidance,
whereas others only create ambiguity and uncertainty for managers.
Structural designs that minimize ambiguity and continuously remind
managers of what is ethical are more likely to encourage ethical
behaviour.
Formal rules and regulations reduce ambiguity. Job descriptions
and written codes of ethics are examples of formal guides that
promote consistent behaviour. Research continues to show, though,
that the behaviour of superiors is the strongest single influence on an
individual‘s own ethical or unethical behaviour. People check to see
what those in authority are doing and use that as a benchmark for
acceptable practices and what is expected of them. Some
performance appraisal systems focus exclusively on outcomes.
Others evaluate means as well as ends. When managers are
evaluated only on outcomes, they are increased pressure to do
‘whatever is necessary ‘ to look good on the outcome variables.
Closely associated with the appraisal system is the way rewards
are allocated. The more rewards or punishment depend on specific
goal outcomes, the more pressure there is on managers to do
whatever they must to reach those goals and perhaps compromise
their ethical standards. Structures also differ in the amount of time,
competition, cost and similar pressures paced on job- holder. The
greater the pressure, the more likely it is that managers will
compromise their ethical standards.
16. Describe the stages of moral development and how they

might affect a manager’s ethics.
17. What individual characteristics might affect a manger’s
ethics?
18. How might structural variables affect a manager’s ethics?
Organizational culture
The content and strength of an organization’s culture also influence
ethical behaviour. An organizational culture most likely to shape high
ethical standard is one that is high in risk tolerance, control and
conflict tolerance. Manager in such a culture are encouraged to be
aggressive and innovative, they are aware that unethical practices
will be discovered, and they feel free to challenge openly demands of
expectation they consider to be unrealistic or personally distasteful.
A strong culture will exert more influence on manager than a
weak one. If the culture is strong and support high ethical standards,
it should have a very powerful and positive influence on managers’
decisions to act ethical or unethically. The Boeing Company, for
example, has a strong culture that has long stressed ethical
corporate dealings with customers, employees, the community and
shareholders. To reinforce the importance of ethics, the company
developed a series of serious and thought-provoking posters
designed to get employees to viewed. In a weak organizational
culture, however, manager are more likely to rely on subculture
norms as a behavioural guide. Work groups and departmental
standards will strongly influence ethical behviour in organizations
with weak overall culture.
Issue intensity
A student who would never consider breaking into a lecturer’s office
to steal an introductory accounting exam might not think twice about
asking a friend who took the same accounting course from the same
lecturer last year that questions were on last year’s paper. Similarly,
an executive might think nothing about taking home a few office
supplies, yet highly concerned about the possible embezzlemment of
company funds.
These examples illustrate the final factor that affects a manager’s
erthical behaviour- the characteristics of the ethical issue itself. As
figure 5.8 shows six characteristics have been identified as relevant
in determinding issue intensity.
1. How great a harm (or benefit) it done to victims (or
benefitciaries) of the ethical act in question? Examples an act
that puts 1 000 people out of work is more harmful than one
affecting only ten people.
2. How much consensus is there that the act is evil (or good)
example: more Australians and New Zealanders agree that it is
wrong to bribe a customs official in their own country than agree
that it is wrong to bribe a customs official somewhere in Afica.
3. What is the probability that the act will actually take place and
will actually cause the harm (or benefit) predicted? Example:
selling a gun to a known armed robber had greater probability of
harm than selling a gun to a law-abiding citizen.
4. What is the length of time between the act in question and its
expected consequences? Example: Reducing the retirement
benefit of curent retirees had greater inmediate consequences
than reducing the retirement the benefits of current employees
who are between age of forty and fifty.
5. How close do you feel (socially, psychologically or physically) to
the victims (or benefitciaries) of the evil (benefitcial) act in
quention? Example: lay-offs in one’s own work unit hit closer to
home than do lay-offs in a remote city.
6. How large is concentrated effect of the ethical act or the people
involved? Example: A change in the warranty policy denying
coverage to ten people with claims of $10 000 had of more
concentrated effect than a change denying coverage to 10 000
people with claims of $10.
How much
agreement is there
that this action is
wrong How likely it
that this action
How many will cause
people will be Consensus harm
harmed of wrong
Greatness
of harm probability
Issure intensity of harm
Immediacy of
Concentration consequencac
Proximity to
of effect
victim(s)
Will harm be
How concentrated felt immediaely
is the effect of the
action on the
victim(s)
How close are

the potential
victims
According to these guidelines, the large the number of people

harmed, the greater the agreement the action in wrong, the greater
the likelihood the action will cause harm, the more immediately that
the consiquences pf the action will be felt, the closer the person feels
to the victim(s) of the act, and the more concentrated the effect of
the action on the victim(s), the greats the issue intensity. The more
important an ethical issue is –that is, the more intense it is the more
we should expect managers to behave ethicaly.
19. How does an organisation’s culture influence ethical
behaviour?
20. Describe the type of organisational culture that is most
likely to shape high ethical standards.
21. What determines the degree of intensity of an ethical issue?
Ethics in a global context
Are ethical standards universal? Hardly! Social and cultural
defferences between coutris are important environmental factors that
determine ethical and unethical behaviour. For example, the manager
of a Mexican firm bribes several high-ranking government officials in
Mexico City to secure a profitable government contract for his firm.
Such a practice would be seen as unethical, if not illegal, in Australia
or New Zealand. But it is standard bussiness pratice in Mexico and
many other coutries.
Shoud Australian and New Zealand bussiness excutives
operating in South –East Asia adhere to the ethical standards of their
coutry, or should the phrase ‘when in Rome, do as the Romans do be
the guide? If the Hong Kong construction company will pay $10 000 ‘
broker’s fee ‘ to a middleman to get a major contrac with a South-
East Asian local government, should the Australian construction
company be restricted from doing the same because such practices
are considered impropert in Australia?
These are issues that will be encountered by many managers
and companies operating in the global maketplace. It is illuminating
to look at nations that have had more experience in dealing with
these issues. In the case of the payments to imfluence foreign
officials or policians, there is a law to guide US managers. The Foreign
Corrupt practices act, passed in 1977, makes it illegal for US firm
knowingly to corrupt a foreign official. Even this law does not always
reduce ethical dilemmas to black and white. In some Latin American
countries, for example, government bureaucrats are paid ridiculously
low salaries because costom dictates that they receive small
payments from those they serve. Pay-offs to these bureaucrats
‘grease the mechinery’ of government and ensure that things get
done. The Foreign Corrupt Practices Act does not expressly prohibit
small pay-offs to foreign government employees who duties are
primarily ministerial or clerical when such pay-offs are an accepted
part of a country’s buseniss pratices.
Levi Strauss has decided to export its United State ethical standards.
After investigating its 400 foreign contractors, the company found
that approximately 25% were overtly exploiting their worker. One
contractor on the island of Saipan, for instance, worked its people 11
hours a day, 7 days a week! Others rountinly used child labour. To
eliminate these abuses, Levi Strauss’s management has adopted
strict guidelines for its foreign contractors-including providing safe
and healthy working conditions and requiring pay levels that are no
lower than prevailing local wages. To ensure that the guidelines are
followed, inspecters from US headquarters now make surpprise visits.
Although it is important for individual managers working in foreign
cultures to recognise the social, cultural, political and legal influences
on what is appropriate and acceptable behaviour, global
organisations must also clarify their ethical guidelines so that
employees know what is expected of them while working in a foreign
location.This adds another dimension to making ethical judgments.
At the World Economic Forum in January 1999, the United Nation
Secretary-General challenged world business leaders to ‘embrace end
enact’ the Global Compact, a document outlining nice principle for
doing business globally in the areas of human rights, labour and
environment.55 These nine principles listed in Figure 5.9.Global
businesses have been asked to incorporate these guidelines into their
business activities. Companies making this commitment are doing so
because they believe that the world business community plays a
significant role in improving economic and social conditions.
Human rights
Principle 1: Support and respect the protection of
international human rights within their
sphere of influence
Principle 2: Make sure business corporations are not
complicit in human rights abuses
Labour standard
Principle 3: Freedom of association and the effective
recognition of the right to collective
bargaining
Principle 4: The elimination of all forms of forced and
compulsory labour
Principle 5: The effective abolition of child labour
Principle 6: The elimination of discrimination in respect of
employment and occupation
Environment
Principle 7: Support a precautionary approach to
environment challenges
Principle 8: Undertake initiatives to promote greater
environment responsibility
Principle 9: Encourage the development and diffusion of
environmentally friendly technologies
FUGURE 5.9 THE CLOBAL COMPACT
Source: The Global Compact website www.unglobalcompact.org 14
August 2000
Toward improving ethical behaviour
Members of top management can do a number of things if they are

serious about reducing unethical practices in their organisation.They
can seek to hire individuals with high ethical standards, establish
codes of ethics and decision rules, lead by example, delineate job
goals and provide ethics training.Taken individually,these action will
probably not have much impact.But when all or most of them are
implemented as part of a comprehensive ethics program,they have to
the potential to significantly improve an organisation’s ethical
climate.The key term here,however, is potential.There are no
guarantees that a well-designed ethics program will lead to the
outcome desired.Dow Corning,for instance,was long recognised as a
pioneer in corporate ethics,and its ethics program had been cited as
among the most elaborate in corporate America.56 But the company’s
ethics program did not stop its managers from covering up and
misrepresenting the results of studies on their silicone-gel breast
implants.
Employee selection
Given that individuals are at different stages of maral development

and possess different personal value systems and personalities,an
organisation’s employee selection process – interviews, tests, value
systems and personalities, an organisation’s employee selection
process – interview, test, background,check and the like – should be
used to eliminate ethically underdirable applicants. The selection
process should be viewed as an opportunity to learn about an
individual’s level of moral development, personal values, ego
strength and locus of control.57 But this is not an easy task! Even
under the best of circumstances, individual with questionable
standards of right and wrong will be hired. However,this should not
pose a problem if other controls are in place.
Codes of ethics and decision rules
We have already seen how ambiguity about what is and is not ethical
can be a problem for employees. A code of ethics, a formal
statement of an organisation’s primary values and the ethical rules it
expect its employees to follow,is a popular choice for reducing that
ambiguity. For instance, nearly 95 percent of Fortune 500
companiesnow have codes of conduct.And codes of ethics are
becoming more popular globally. A survey of business organisations
in 22 countries found that 78 percent have formally stated ethics
standards and codes of ethics.58
What should a code of ethics look like? It has been suggested that
codes should be specific enough to show employees the spirit in
which they are supposed to do things,yet loose enough to allow for
freedom of judgment.59 A survey of business ethics in the United
States – including those of such varied firms as Exxon, Sara Lee,
DuPont, Bank of Baston and Wisconsin Electric Power – found that
their content tended to fall into three catgories: (1) be a dependable
organisational citizen; (2) do not do anything unlawful or improper
that will harm the organisation; and (3) be good to customers.60
Figure 5.10 lists the variable included in each od these clusters in
order of their frequency of mention.
An Australian study,which replicated the American study referred to
above,found that from Cluster 1 only two issues were present to any
significant degree in Austranlian codes.61 Comply with safety and
health regulation appearedin 33 per cent of the codes; and
Demonstrate courtesy, respect, honesty and fairness’ in dealing with
customers,suppliers, competitor and other employees was present in
30 per cent of the codes. The items most frequently present came
from Cluster 2, such as: avoid conflict of interest – 71 per cent;in
business and personal affairs, comply with laws, regulations and
policies – 70 per cent; and safeguard confidentiality of reccords and
information of customers, employees and the firm – 68 per cent. This
study concluded that ‘while code may perform other worthwhile
functions for an enterprise, their contribution to ethical matters and
to development and sustaining of ethical cultures has not been fully
utilised in codes of ethics in Australian enterprise’.However, in the
last few years there has been an increase in interest in the
development of some form of ethics codes,in line with what is talking
place in the United States and Europe. One Australian study found
that government – owned organisations were more likely to have a
code of ethics than other organisations. Also, most codes were quite
short, with most being one to five pages long.62 A good example of a
code of conduct can be seen on Lend Lease’s website <
www.lendlease.com.au >
But how well do codes of ethics work? The reality is that
they are not always effective in encouraging ethical behaviour in
organisation. A survey of employees in US businesses with ethics
codes found that 75 per cent of those surveyed had observed ethical
or legal violations in the previous 12 months, including such things as
deceptive sales practices, unsafe working conditions, sexual
harassment, conflicts of interest and environmental violation.63 Does
this mean that codes of ethics should not be developed? No.But there
are some suggestions that managers can follow. First, ethical codes
should not be developed and applied in isolation. Information
Cluster 1. Be dependable organisational citizen

1. Comply with safety, health and security regulations.
2. Demonstrate courtesy, respect. Honesty and fairness.
3. Illegal drugs and alcohol at work are prohibited.
4. Manage personal finances well.
5. Exhibit good attendance and punctuality.
6. Follow directives of supervisors.
7. Do not use abusive language.
8. Dress in business attire.
9. Firearms at work are prohibited.
Cluster 2. Do not do anything unlawful or improper that will harm the

organization
1. Conduct business in compliance with all laws.
2. Payments for unlawful proposes are prohibited.
3. Bribes are prohibited.
4. Avoid outside activities that impair duties.
5. Maintain confidentiality of records.
6. Comply with all antitrust and trade regulations.
7. Comply with all accounting rules and controls.
8. Do not use company property for personal benefit.
9. Employees are personally accountable for company funds.
10. Do not propagate false or misleading information.
11. Make decisions without regard for personal gain.
Cluster 3. Be good to customers

1. Convey true claims in product advertisements.
2. Perform assigned duties to the best of your ability.
3. Provide products and services of the highest quality.
FIGURE 5.10 CLUSTERS OF VARIABLES FOUND IN 83

CORPORATE CODES OF BUSINESS ETHICS
Source F.R.David. An empirical study of codes of business ethics: A

strategic perspective. Copyright 1988 by Academy of Management.
Reproduced with permission of Academy of Management in the
format textbook via Copyright Clearance Center.
About ethical expectations and reminders about the organisation’s
commitment to ethics should be continually replayed to employees.
Second, all levels of management should support and continually
reaffirm the importance of the code of ethics discipline those who
break the code. When managers consider the code of ethics to be
important, regularly, affirm its content and publicly reprimand rule-
breakers, ethics codes can supply a strong foundation for an effective
corporate ethics program. Finally, an organisation’s code of ethics
might be designed around the 12 questions listed in Figure 5.11 that
can be used as decision rules in guiding managers as they handle
ethical dilemmas in decision making.
1. Have you defined the problem accurately?
2. How would you define the problem if you stood on the other side
of the fence?
3. How did this situation occur in the first place?
4. To whom and to what do you give your loyalty as a person and

as a member of the corporation?
5. What is your intention in making this decision?
6. How does this intention compare with the probable results?
7. Whom could your decision or action injure?
8. Can you discuss the problem with the affected parties before
you make the decision?
9. Are you confident that your position will be as valid over a long
period of time it seems now?
10. Could you disclose without qualms your decision or action

to your boss, your chief executive officer, the board of directors,
your family, society as a whole?
11. What is the symbolic potential of your action if understood?

If misunderstood?
12. Under what conditions would you allow exceptions to your

stand?
FIGURE 5.11 TWELVE QUESTIONS FOR EXAMINING THE ETHICS

OF A BUSINESS DECISION
Source: adapted and reprinted by permission of Harvard Business
Review. An exhibit from ‘Ethics without the sermon’ by L.L.Nash,
November-December 1981, p.81. Copyright 1981 by the President
and Fellows of Harvard College; all rights reserved.
Lend Lease’s code of conduct is available on its website for anyone to

read.
Top management’s leadership

Doing business ethically requires a commitment from top
managers. Why? Because it is the top managers who set the cultural
tone. They are role models in both words and actions- though what
they do is probably far more important than what they say. If top
managers , for example, use company resources for their expense
accounts or give favoured trearment to friends, they imply that such
behaviour is acceptable for all employees.
Top managers also set the cultural tone by their reward and
punishment practices. The choice of whom and what are rewarded with
pay increases and promotions sends a strong messeges to employees.
The promotion of a manager for achivving impressive results in an
ethically questionable manner indicates to everyone that those
questionable ways are acceptable. When wrongdoing is uncovered,
managers who want to emphasise their commitment to doing business
ethically must punish the offender and publicise the fact by making the
outcome visible to everyone in the organization. This practice sends a
message that doing wrong has a price and it is not in employees’best
interests to act unethicaly!
22. Describle how the employee selection process might
be used to encourage ethical behaviour.
23. What are codes of ethics, and how can their
effectiveness be improved?
24. What role does ttop management’s leadership play
in encouraging ethical behaviour?
Job goals and performance appraisal
Employees should have realistic and tangible goals. Explicit goals
can create ethical proplems if they make unrealistic demands on
employees. Under the stress of unrealistic goals, otherwise ethical
employees will ofren take the attitude that ‘anything goes’.when goals
are clear and realistic,they reduce ambiguity for employeesand
motivate rather than punish.
Whether an individual achieves his or her job goals is usually a
key issue in performance appraisal. Keep in mind, though, that when
performance appraisals focus only on economic goals, ends will begin
to justify means. If an organization wants its employees to uphold high
ethical standard, it must include this dimension in its performance
appraisal process. For example, a manager’s annual review mighr
include a point- by- point evaluation of how his or her decisions
measured up against the company’s code of ethics and on how well
goals were met.
Ethics training
More and more organizations are setting up seminars, workshops
and similar ethics training programs to encourage ethical behaviour.
Ethics researchers estimate that over 40 percet of US compaies provide
some form of ethics traning, whereas the figure in Australia is only
about 20 percent.64 but these traning programs are not without
controversy.the primary debate is whether you can actually teach
ethics. Critics tress that the effort is pointless because people establish
their individual value systems when they are very young. Proponents,
however, ote, that several studies have found that values ca be learned
after early childhood. In addition, they cite evidence that shows that
teaching ethical problem solvig can make an actual difference in
ethical behaviour;65 that training increased individuals’ level of moral
66
developmet; and that, if it dose nothing else, ethics traning increases
awareness of ethcal isues in business.67
How do you teach ethics? Let ú examine how it es done at
Citicorp. There, as part of the company’s comprehensive corporate-
ethcs traning program, maagers participate in a game that allows them
68
to practice their understanding of the company’s ethical standards.
Players move makers around a game board when they correctly answer
multiple-choice questions presented on cards. Each card poses an
ethical dilemma a bank employee might encounter.as the game
progresses, players are’promote’ from entry level employee to
supervisor and eventually to senior manager.
Ethical dilemmas in management
Grand corruption is worldwide
Grand corruption became a worldwide phenomenon in the 1990s.
the World Bank has estimated that US $80 billion per year is paid in
international bribes and that some of the worst affected areas are
Africal, Asia and South Americal. What has also occurred is that,
although corruptionhas existed for thousands of years, the bribes have
escalated when it comes to the proportion of the contract price. Thirty
years ago 5 percent would have been regarded as fairly high, but today
20 percent is not uncommon. The concern is that corruption is
occurring even at the top of governments. Tow former presidents of
South Korea have been imprisoned,the secretary-general of NATO was
forced to resign, three former prime ministers of Italy were proseculted,
and a former prime minister of India and several of his Cabinet
ministers were prosecuted and forced to resign in the face of serious
accusations. Presidents Marcos of the Philoppines and Mobutu of
Zaire(now Congo) are other notable examples.
Although some business people argue that paying bribes is
standard business practice in the developing world or that all their
competitors are doing it, there is a huge downside to corruption. Henry
Bosch, chairman of the Australian chapter of Transparency
International – a high- profile anti- corruption group- suggests why
corruption should not be tolerated, apart from the immorality of the
practice. For example:
Huge amounts paid in bribes are diverted away from where
it is needed and into the personal wealth of individuals who often place
the moneu I foreign bank accounts. A Swiss report recently estimated
that US $ 20 billion is currently being held in banks in Switzerland o
behalf of the leaders of certain African countries, most of whose
citizens suffer extreme poverty.
Crand corruption distorts decision making when contractors
or developers are selected o the basis of what they offer the decision
maker rather than their ability to do the best job for the lowest price.
Grand corruption often leads to projects being done badly –
the quality of work is usually compromised or the environment is
exploited without regard to sustainable development ot the interests of
those who live in the developed areas.
Projects are commoly selected not because they are the

most needed in the country, but because they provide the easiest way
for the biggest bribes to be received.
Once a country becomes recognized internationally as one
with a comparatively high level of corruption, its reputation is seriously
damaged and it becomes more difficult to attract foreign investment.
Finally, there is a serious risk that corrupt practices
developed to win business in foreign countries will flow back to the
coutries from which the bribes originated as salespeople and marketing
managers are tempted to try similar tactics when they are transferred
back to the country.
What ethical gudelines might you suggest for organizations and
individuals to help avoid corrupt practices being established when
operating in a global environment?
Source: Based on H.Bosch, ‘Grand corruption:A damaging
cacer ’ New Zealand Charactered Accountants journal, September
1998.pp9-17
As an example, one question asks;’After successfully completing a

complex deal for a Japanese client, he presents you with a vase to
express his appreciation. It is an expensive item, and accepting agift of
such value is clearly against Citicorp policy.yet returing it would insult
your client. Would you: (a) return the vase to the client and explain
diplomatically that is against Citicorp policy to accept gifts from clients;
(b) accept the gifts because you can’t risk insulting an important client;
(c) accept the gift on behalf of Citicorp, log it with premises
management as a furnishing, and display it in a public area of the
office; (d)accept the gift and use it as an award for an employee who
displays service excellence?’ (Citicorp prefers answer (c).) Another
question asks: ‘What do you do if the manager of a competing bank
calls to suggest colluding on interest rates?’ If the player picks ‘Ask to
meet him and discuss it further’, that player is ‘fired for breach of
ethics’ and is out of the game!
Ethics training sessions can provide a number of benefits. They
reinforce the organization’s standards of conduct. They are a reminder
that top managers want employees to consider ethical issues in
marking decisions. They clarify which practices are permissible and
which are not. Finally, when employees discuss common concerns
among themselves, they are reassured that they are not alone in facing
ethical dilemmas. This reassurance can strengthen confidence their
confidence when they have to take unpopular but ethical correct
stances.
Independent social audits
An important element of unethical behavior is fear of being caught.

Independent social audits, which evaluate decisions and management
practices in terms of the organization’s code of ethics, increase the
likelihood of detection. These audits can be routine evaluations,
performed on a regular basis just as financial audits are, or they can
occur randomly with no prior announcement. An effective program
should probably include both. To maintain integrity, the auditors should
be responsible to the company’s board of directors and present their
findings directly to the board. This practices not only gives the auditors
clout but also lessens the opportunity for retaliation from those being
audited.
Formal protective mechanisms
Our last recommendation is for organizations to provide formal

mechanisms to protect employees who face ethical dilemmas so that
they can do what is right without fear of reprimand. An organization
might, for instance, designate ethical counselors. When employees face
an ethics dilemma, they could go to these advisers for guidance. The
ethical counsellor’s role would be that of a sounding board – a channek
to let employees openly verbalise their ethical problem, the problem’s
cause and their own options. After the options are clear, the adviser
might take the role of an advocate who champions the ethically ‘right’
alternatives. Other organizations have appointed ethics officers who
design, direct and modify the organization’s ethics program as needed.
The organization could also create a special appeals process that
employees could use without risk to themselves to raise ethical issues
or ‘blow the whistle’ on violators.
Final thought
If you picked up a 25-year-old management text, it is almost certain

that you would not find a chapter on social responsibility and ethics. If
the terms appeared in the text all, they would not have received more
than a paragraph of attention. What has happened to bring about this
evolution?
One line of thinking is that the recent focus on these topics is a
response to a decline in business’s willingness to accept its societal
responsibilities and a decline in the ethical standards of managers. For
instance, a Gallup poll reported that 65 percent of Americans thought
that the overall level of ethics in society declined between the mid-
1970s. the widely publicized ethics scandals that rocked Wall Street in
the late 1980s certainly helped to create that perception. Australia and
New Zealand had similar experiences, with examples like the high-
flying entrepreneurs Alan Bond, Christopher Skase, Allan Hawkins and
Laurie Connell from the roaring 1980s, who were able to use technical
or legal loopholes to avoid or severely delay legal proceedings. All of
this created a perception that ethical and moral standards were
slipping.
Perhaps the situation today is a product of our time.
Organizations are now being asked to balance the needs of
environmentalists, racial minorities, women, consumers and many
others who are demanding a fairer deal. Who should come first, and
what is most important? These are questions that do not always have
clear-cut answers and require considerable deliberation. Multicultural
societies such as Australia and New Zealand have particular concerns.
How can an ethical common denominator be found when reactions to
issues vary greatly across cultures? What is acceptable for one ethnic
group might be totally unacceptable to another.
It should be clear that society’s expectations of business have
changed. Cornelius Vanderbilt’s famous phrase ‘the public be damned’
was accepted by many in the 1890s. It is not acceptable in the twenty-
first century. It may have been accepted to pump untreated industrial
waste or sewage into the waterways in the 1950s, but it can not be
allowed today!
What is the real situation at the present time? Some advances
have been made in improving ethical behaviour, but it is debatable
whether the overall situation has improved. A survey of employees
shows that workplace pressures are leading more and more of the to
consider acting unethically or illegally on the job: 56 percent felt such
pressure, and 48 percent said that they had actually committed such
activities. What types of unethical business activities were reported?
Here is a sampling that respondents admitted to: cutting corners on
quality control (16 percent); covering up incidents (14 percent);
abusing or lying about sick days (22 percent); lying to or deceiving
customers (9 percent); putting inappropriate pressure on others (7
percent); falsifying numbers or reports (6 percent); lying to or
deceiving superiors on serious matters (5 percent); withholding
important information (5 percent); misusing or stealing company
property (4 percent); taking credit for someone’s work or idea (4
percent); taking credit for someone’s work or idea (4 percent); and
engaging in copyright or software infringement (3 percent).
As we all know, unethical behaviours are prevalent across our
society. Cheating, for instance, is a common occurrence in education. A
range of studies shows that anywhere from 75 percent to 98 percent of
students admit to having cheated in high school. One survey in the
United States shows some ethically alarming results: 90 percent
believe that cheaters never pay the price; 90 percent say that when
they see someone cheating they do not turn the person in; 84 percent
believe that they need to cheat in order to get ahead in the world
today; and 63 percent say that it is fair for parents to help with their
kids’ homework. It is not surprising that organizations have difficulty
upholding high ethical standards when their future employees – these
student – so readily accept unethical behaviour.
What are the implications for managers, current and future?
Doing the right thing – that is, managing ethically – is not always easy.
However, because society’s expectations of its institutions are regularly
changing, managers must continually monitor those expectations.
What is ethically acceptable today may be a poor guide for the future.
Maybe the final words should be given to Kenneth Blanchard and
Norman Peale; in their book The Power of Ethical Management, they
suggest we ask ourselves three question when deciding how to handle
an ethical dilemma:
1. Is the decision / action legal?
2. Is the decision / action balanced or fair to everybody
concerned?
3. How would it make me feel about myself if my decision / action
was published in the newspaper or if my family found out about it?
In the final analysis it is usually up to each of us decide how we will
act when caught in an ethical dilemma.
25. Describe how ethics training programs are used to encourage
ethical behavior.
26. Describe how independent social audits and formal protective
mechanisms can encourage ethical behavior.
27. What are the implications for managers of the surveys
showing the status of ethical behaviour in the workplace?
Summary
This summary is organised by the chapter-opening learning objectives.

1. According to the classical view,business’s only social respondsibility
is to maximise financial returns for shareholders. The opposing
socioeconomic view holds that business has a respon-sibility to the
large society.
2. The arguments for business being socially respondsibile include
public expectations, long-run profits ethical obligation, public image, a
better environment, fewer government regulations, balancing of
respondsibility and power, shareholder interests,procession of
resources and the superiority of prevention over cure. The argument
against hold that social respondsibility violatess the profit-
maximisation objective, dilutes the organisation’s purpose costs too
much, gives business too much power, requires skills that business
does not have, and lacks account-
ability and wide public support.
3. Social obligation is when an organisation has met its economic and
legal respondsibility and no more. Social responsiveness refers to the
capacity of a firm to respond to social pressures and is guided by
social norms. Social respondsibility refers to business’s pursuit of long-
term goals that are good for society and requires business to
determine what is right or wrong by seeking out fundamental ethical
truths.
4. Although many studies have shown a positive relationship between
social involvement and economic preformance , we need to be
cautious about drawing conclusion , because of methodological
concerns. The most meaningful conclusion we can make is that there
is little evidence that a company’ s socially responsible actions
signficantly hurt its long-term economic performace.
5. Values based management refers to an appoach to managing in
which mangers establish, promote and practise the organisation’s
shared values. The shared values make up the organi- saction’s culture
and influence the way the organisation operates and employees
behave.
6. The greening of the management is the recognition of the close link
between an organisation’s
Decisions and activities and its impact on the natural environment.
Organisations might go green using any of four approaches: the legal
appoarch, the market appoarch,, the stakeholder appoarch and the
activist appoarch.
7. A stakeholder is any constituency in an organisation’s environment
that is affected by the organisation’s decisions and policies. By
focusing on the organisation’s stakeholders and their expectiations of
the organisation, management is not likely to ignore its responsibilities
to critical constituencies.
8. The utilitarian view makes decisions on the basis of their outcome
or consequences.The rights
view seeks to respect and protect the basic rights of the individuals.
The theory of justice view
seeks to impose and enforce rules fairly and impartially. The
integrative social contracts view
recognises the implicit contracts between organisations and ethical
standards of the community within which they operate.
9. Whether a manager acts ethically or unethically is the result
of a complex interaction between the manager’s stage of moral
development, his or her individual characteristics, the organisation’s
structural design,the organisation’s culture and the intensity of the
ethical issue
10. There are three levels of moral development, each comprising two
stages. The first two stages
are influenced exclusively by an individual’s personal interests.
Stages 3 and 4 are influenced
by the expectations of others. Stages 5 and 6 are influenced by
personal ethical principles about what is right.
11. A comprehensive ethical program would include hiring
individuals with high ethical standards, estabishing codes of ethics
and decision rules, leading by example, delineating job
goals and performance appraisal mechanisms, providing ethics
training, conducting social audits and providing support to individuals
facing ethical dilemmas.
Thinking about management issues
1. What does social responsibility mean to you personally? Do you think

business organisations should be socially responsible? Expain.
2. Do you think values-based management is just a ‘do-gooder’ ploy?
Explain your answer.
3. Dicuss this statement: ‘In the long run, those who do not use power in a
way that society considers responsible will tend to lose it.’
4. A whistleblower is someone who reports his or her employer’s unethical
practices to outsiders. What are some problems that could be
associated with employee whistleblowing for (a) the whistleblower and
(b) the organisation?
5. Describe the characteristics and behavior of what you would consider
an ethical manager. How could the types of the decisions and actions
in which this person engages be encouraged in a workplace?
LOG ON : INTERNET – BASED EXERCISE
An increasing number of organisations are making a commitment to

understanding the impact of their decisions and actions on the natural
environment. Using the Wed, find two examples of companies that fit
the profile of each of the four appoarches to going green. For each
example, desribe what specific activities the company is doing. Be sure
to give the wesite addresses for the example you find.
TAKE IT TO THE NET
We invite you to visit the Robbins, Bergman, Stagg and Coulter

companion website at <www.prenhall.com/robbins_au> for this
chapter’s Internet resources. The following activities would be of
interest in relation to the material covered in this chapter. This material
is pin code protected. You will find your pin access code at the end of
the book.
SELF-ASSESSMENT EXERCISES
9- what do I value?
19- how do my ethics rate?
Two self-assessment exercises that you can use to valuate your own
values and ethics are Exercise 9: what do I value? And 19- how do my
ethics rate ? The first exercise, found in the self-assessment library in
the section hat about me ? –personality insights , can help you to
assess what is important to you .the second exercise ,in the self-
assessment library in the section what about me ?-decision –making
insights ,help you compare your own ethical values with the mean
responses from a group of 243 management student.
WORKING TOGETHER : TEAM-BASED EXERCISE
You have obviously faced many ethical dilemmas already in your life –
at school , in social settings and even at work . Form groups of three to
five individuals . appoint a spokesperson to present your group’s
findings to the class. Each members of the group is to think of some
unethical behaviours he or she has observed in organizations . the
incidents could be something experienced as an employee, customer
or client , or an action observed informally.
Once everyone has identified some examples of ethically questionable
behaviours ,the group should identify three important criteria that
could be used to determine whether a particular action is ethical . think
carefully about these criteria .they should differentiae between ethical
and unethical behaviour .write your choice down .use these criteria to
assess the examples of unethical behavior described by group
members.
CASE APPLICATION
After the gold rush
Early in 2000 it become publicly know that after nearly two decades
the Australian resource company BHP was looking at ways to get out of
the troubled ok tedi gold and copper mine in Papua New Guinea(PNG) .
BHP’s new CEO , Paul Anderson ,expressed that his assessment of the
operation had made him uncomfortable about the company’s
continued involvement in the operations, particularly in relation to the
environmental damage of the mine ,which according to him ,had come
to light quite recently. Although Anderson could not be blamed for the
situation –the mine had been in operation for many years before he
arrived at BHP –many critics questioned whether this really was
something that BHP has found out.
In 1983, when the explorations identified huge gold and copper
deposits high in the Star Mountains of PNG there were high hopes and
promises that the impact of the mining operation on the pristine
wilderness could be contained. As the actual mining operation got
under way, this proved to be a much too optimistic view. The original
plans were that the mine was going to have a tailings dam, which was
going to extract most of the sediments that the produced as the rock
was crushed to extract the gold and copper. But the operating
company OTLM (ok tedi mining limited), which managed the mine for
BHP , ended up giving priority the construction of the processing plant
over the tailings dam ,which resulted in the dam falling into disrepair
and finally collapsing before the mine started its processing operation.
After the dam had collapsed, OTLM started to look for other solutions,
but they were not prepare to pay $300 million to construct a new dam
because they were regarded the costs as higher than world
benchmarks for similar dams. It finally came to a point where the PNG
government withdrew its demand for a tailings dam because they were
worried that BHP would withdraw from the project if the continued to
insist on the dam being built.
So when the ok tedi mine started it processing of the mined rock
containing the gold and copper, there was no tailings dam in place to
filter out the sediments. Some of the environmental specialists who had
been working on the project for BHP were shocked when the mine
started its processing. They had not thought that anybody would put
such a huge mine and processing plant in operation without a tailings
dam and that no government would allow it to happen, some of them
left in disgust when they saw the once pristine wilderness river turned
into a gutter for mining waste.
After extracting the copper from 80 million tons of rock per
year(235ton/day)the waste(approximately 55 million ton/year)was
pumped out into the river and started its slow progress downstream.
From having been a clear river, the river took on the appearance of
grey-brown slurry. The heaviest sediment was deposited on the bed of
the river,which caused the river to rise and flood the surrounding areas.
The devastation soon reached Bige village on the bank of the ok tedi
river where people ere subsisting by catching fish and growing food in
their gardens by the side of the river. As the river became increasingly
polluted the fish disappeared, and as the river rose the gardens were
flooded. Even subsistence living became impossible. However ,OTML
continued to downplay the effects and instead pointed to the benefits it
had brought to the surrounding area and to PNG in general. Thirty
million dollars was pumped into the PNG economy through taxes and
royalties. Tabubil, the mining town that had grown up to house
employees and their families, was home to 10 000 people. Schools ,
hospitals, shops, new houses and services only dreamt about by most
Papua New Guineans had given rise to an emerging middle-class in the
most underdeveloped region of PNG. Here BHP was providing
employment and training opportunities that were so badly needed.
In mid-1990 the landowners filed legal proceedings against BHP with
the help of Slater and Gordon in Melbourne. BHP settled out of court
and agreed to pay $150 million in compensation to the landowners
.they also promised to find a way to deal with the problem.
However, the problem continued to escalate. Despite BHP’s attempts
to dredge out the sediments, 14 years after it had started to pump the
waste into the river. So at the end of the 1990s new legal proceedings
were set in motion as a report from the World Bank was made public.
The report identified tow environmental dangers that could escalate.
First ,there was concern about the copper. Although most of the copper
had been extracted, there was some left, and it was allowed to enter
the river’s ecosystem. Periodically the high levels of copper could kill
algae and fish. Second, an even bigger concern was acid-rock drainage.
When ‘fresh’ rock is exposed, bacteria can start to attack the rock,
producing acid which is then washed out with rain. The worst-case
scenario was that the cost from such acid leakage could be in the order
of US$3.7 billion per year for the next 50 years.
It comes as no surprise that BHP and Paul Anderson had identified
the ok tedi mine as a dysfunctional project in BHP’s portfolio, with
potentially high costs to shareholders. In 2000 BHP faced attacks on
four fronts: (1)renewed legal action by the landowners (the settlement
in 1996 had given most of the small landowners an average of only
$100 each), (2)threats to take BHP to the international court of justice
for the environmental damages from landowners at the mouth of the
river(400kilometres downstream) where the pollution had reached, and
(4) possible crippling costs of copper damages and acid-rock drainage.
After 16 years of operation, during which time gold and copper to
the value of $8 billion was extracted, BHP started its manoeuvres to
get out of the project, even through the mine was expected to operate
until at least 2010 and the project was entering into its most profitable
period.
This situation gives rise to a number of questions. After having
profited from the mine, does BHP have any long-term responsibilities?
BHP can walk away from the mess, but PNG has to live with the
consequences when they trade off industria pollution against
development and jobs. What business deals with large global
companies?
On 12 december 2001, BHP Billiton announced that it would pull
out of ok tedi during early 2002, after enabling legislation had been
introduced in the Papua New Guinea parliament the previous day.
Under a deal worked with the new operator-a new company called PNG
Sustainable Development Program will be set up in Singapore- BHP will
give the program a repayable grant of up to $US250 million over three
years.. BHP started that grant was not compensation. However . legal
action has been initiated from Slater and Gordon, representing the
landowners, to challenge the new legislation.
1. Has BHP been (a) meeting 3. Using Figure 5.8, analyse

its social obligation, (b) the intensity of the ethical
socially responsive, or (c) dilemma facing managers at
socially responsible? Explain BHP and in the PNG
your choice, relating it to the government. How might the
time when it was operating other factors that affect
the mine as well as now. To ethical and unethical
whom has BHP’s management behaviour be involved? See
seen themselves as being Figure 5.6.
responsible? (See Figure 5.5.) 4. Do some research about
2. Identify the main the latest development in the
stakeholders involved in this BHP Ok Tedi case. What has
situation. What concerns happened since this
might each stakeholder have? description was written in
Are any of the stakeholders’ early 2002?
concerns in conflict with each Source: This case is based
other? Explain. What are the primarily on ‘After the gold
implications for the two main rush’, Four Comers, ABC
parties – BHP and the PNG Television, 11 April 2000; and N.
government? Wilson, ‘BHP pulls plug on Ok
Tedi’, Australian, 12 December
2001, p. 37.

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CHAPTER 5: SOCIAL RESPONSIBILITY

CHAPTER 5: SOCIAL RESPONSIBILITY AND MANAGERIAL

1.Explain the classical and socioeconomic views of social

Do banks have a social responsibility, and what is that responsibility?

Two opposing views of social responsibility

The classical view

Friedman’s argument is probably best understood by using

TABLE 5.1 ARGUMENTS FOR AND AGAINST SOCIAL

It must do by law, or what it chooses to do, only because it makes

TABLE 5.2 SOCIAL RESPONSIBILITY VERSUS SOCIAL

Source: Adapted from S.L.Wartick and P.L.Cochran. ‘The evolution

and Kellogg’s is also a major supporter of Surf Life Saving Australia.19

Managing in the Asia Pacific regiony

Those company values? A commitment to innovation and

Guide managers’ Shape employee Influence Build

For Women’s Health, an umbrella organisation that has spread to

Developing shared values

As any company that uses values-based management will tell

1. Involve everyone in the company.

particular that many organisational managers are beginning to

Organisations can take at least four approaches to

Summing up social responsibility

The key issues in social responsibility are easier to understand if

Whether a manager acts ethically or unethically is the result of a

Ethical Stage of moral Ethical/unethical

Figure 5.6 factors that affect ethical and unethical behaviour

Stage of moral development

Level Description of stage

2.Following rules only when doing so is in

Ethical awareness and standards are focused on helping then move

An organization’s structural design helps to shape the ethical

16. Describe the stages of moral development and how they

How close are

According to these guidelines, the large the number of people

Toward improving ethical behaviour

Members of top management can do a number of things if they are

Given that individuals are at different stages of maral development

Codes of ethics and decision rules

Cluster 1. Be dependable organisational citizen

2. Demonstrate courtesy, respect. Honesty and fairness.

3. Illegal drugs and alcohol at work are prohibited.

4. Manage personal finances well.

5. Exhibit good attendance and punctuality.

6. Follow directives of supervisors.

7. Do not use abusive language.

8. Dress in business attire.

9. Firearms at work are prohibited.

Cluster 2. Do not do anything unlawful or improper that will harm the

3. Bribes are prohibited.

4. Avoid outside activities that impair duties.

5. Maintain confidentiality of records.

6. Comply with all antitrust and trade regulations.

7. Comply with all accounting rules and controls.

8. Do not use company property for personal benefit.

9. Employees are personally accountable for company funds.

10. Do not propagate false or misleading information.

11. Make decisions without regard for personal gain.

Cluster 3. Be good to customers

2. Perform assigned duties to the best of your ability.

3. Provide products and services of the highest quality.

FIGURE 5.10 CLUSTERS OF VARIABLES FOUND IN 83

Source F.R.David. An empirical study of codes of business ethics: A