CHAPTER ONE
Business Ethics, The Changing
Environment, And Stakeholder
Management
Recent Examples of Ethical Events in Corporate
America
Subprime lending crisis
Scandals
Enron
Tyco
WorldCom,
etc.
Excessive CEO pay and relative firm performance
Sarbanes-Oxley Act of 2002
Outsourcing trends
Figure 1.1: Environmental Dimensions
Economic Factors
Increasingly global context for trade, markets,
resources
Business expansion, product expansion
Stock & bond market volatility and
interdependency
The effects of the European Union (currency
exchange, negotiating power, etc.)
The rise of China and India
Technological Environment
Internet and telecommunication innovations
Change in jobs, financial transactions, market
operations
Change in business best-practices
Integration of supply chains
Access to information
What privacy and surveillance issues arise for
employers?
Political Environment
Rise of global terrorism
Change in international coalitions (NATO, EU)
Increased awareness of issues via electronic
technology
Fall of communism/Soviet Union
Governmental and Regulatory
Environment
Constantly changing/updating laws and procedures
Sarbanes-Oxley,
2002
2004 Federal Sentencing Guidelines
Changing standards for products, processes (e.g.,
FDA approval)
Judicial actions (e.g., Microsoft) against
anticompetitive practices
Legal Environment
Competing rights (Patriot Act)
Consumer protection (tobacco, gun control, Firestone
tires)
Corporate copyright protection (Napster vs.
recording industry)
Demographic Environment
Globalization
Workforce diversity and accompanying issues
Sexual
harassment
Discrimination
Downsizing and outsourcing work force
Aging workforce
Figure 1.2: Stakeholders
Secondary Stakeholders
Local community groups
Special Interest groups
Consumer groups
Environmental groups
Media
Society-at-large
American Civil Liberties groups
ETC
Should managers pay attention to the needs of these groups? What
priority should they have?
Stakeholder Managem ent Approach
Six Steps to developing w in/w in strategies:
1.
2.
3.
4.
5.
6.
Identifying and prioritizing issues, threats, or opportunities
Mapping w ho the stakeholders are
Identifying their stakes, interests, and pow er sources
Show ing w ho the m em bers of coalitions are or m ay becom e
Show ing w hat each stakeholder’s ethics are and should be
Developing collaborative strategies and dialogue from a higher
ground perspective to m ove plans and interactions to the
desired closure for all parties
What is Business Ethics?
Laura Nash has defined business ethics as “the study of
how personal moral norms apply to the activities and
goals of commercial enterprise,” as dealing w ith three
basic areas of m anagerial decision m aking:
1.
2.
3.
Choices about w hat the law s should be and w hether to
follow them
Choices about econom ic and social issues outside the
dom ain of law
Choices about the priority of self-interest over the
com pany’s interests
Unethical Business Practices of
Em ployees
Show ing respect to those w ho act unethically
Abusive or intim idating behavior
Misrepresentation of hours w orked
Lying
Withholding inform ation
Context issues:
Com panies in transition (m ergers, dow nsizing)
Younger em ployees and em ployees w ith low er tenure in
the organization
Ethics and compliance Programs
Employees believe that nothing will be done if they report
unethical behavior, or they are unsatisfied with the actions taken
Only 25% of employees:
are willing to seek advice about ethics questions that arise;
feel they are prepared to handle situations that could lead to
misconduct;
indicate that they are rewarded for ethical behavior;
report that their company does not reward success obtained through
questionable means;
say they feel positively about their company
Employees feel that reports will not be held confidentially
Why does business ethics m atter?
Financially and Econom ically
Relationships and Reputation
Morale and Productivity
Culture and Com m unication
Integrity and the Com m on Good
Figure 1.3:
Five Levels of Business Ethics
Key Questions if Faced with an Ethical Dilemma
What are my core values and beliefs?
What are the core values and beliefs of my organization?
Whose values, beliefs, and interests may be at risk in this
decision? Why?
Who will be harmed or helped by my decision or by the
decision of my organization?
How will my own and my organization’s core values and
beliefs be affected or changed by this decision?
How will I or my organization be affected or by the
decision?
Figure 1.5:
5 Business Ethics Myths
Why Use Ethical Reasoning In
Business?
Law s are insufficient
Free-m arket and regulated-m arket
m echanism s are insufficient
Com plex m oral problem s require an
intuitive or learned understanding and
concern for fairness, justice, and due
process to people, groups, and
com m unities
Kohlberg’s Levels and Stages Of Moral
Developm ent
Level 1: Preconventional level (selforientation)
◼
◼
Stage 1: Punishm ent
Stage 2: Rew ard seeking
Level 2: Conventional level (others
orientation)
◼
◼
Stage 3: Good person
Stage 4: Law and order
Level 3: Postconventional level (universal,
hum ankind orientation)
◼
◼
Stage 5: Social contract
Stage 6: Universal ethical principles
CHAPTER TWO
Stakeholder And Issues
Management Approaches
Stakeholder vs. Stockholder Approach to Ethics
The stakeholder approach is based on the view
that all stakeholders should be treated fairly,
resulting in better perform ance in the
m arketplace.
act in the best interests of and for the benefit of
customers, employees, suppliers, and stockholders
respect and fulfill these stakeholders’ rights
The stockholder approach focuses solely on
financial and econom ic relationships, w ith
stockholders/ow ners as prim ary beneficiaries of
m anagerial decisions.
Criticisms of Stakeholder Theory
1.
2.
3.
4.
negates and weakens fiduciary duties managers owe
to stockholders
weakens the influence and power of stakeholder
groups
weakens the firm
changes the long-term character of the capitalist
system
How do you counter these arguments? What arguments
exist in support of stakeholder theory?
Three Assum ptions of Stakeholder Theory
1. Profit maximization is constrained by justice
2. Regard for individual rights should be
extended to ALL constituencies that have a
stake in the affairs of a business
3. Organizations are not simply or only economic
in nature but can and do act in socially
responsible ways, not only because it is the
right thing to do, but also to ensure their
legitimacy
Stakeholder Managem ent Approach
Identifying and understanding multiple and
often competing claims of many constituencies
Uses analytical methods for identifying,
mapping, and evaluating corporate strategy
with stakeholders
Based on the theory that certain ethical
principles can result in competitive advantage
GOAL: Win/Win vs. Zero Sum
Primary Stakeholders
Owners
Suppliers
Organization
Employees
Customers
Secondary Stakeholders
Local community groups
Special Interest groups
Consumer groups
Environmental groups
Media
Society-at-large
American Civil Liberties groups
ETC
Should managers pay attention to the needs of these groups? What
priority should they have?
How To Conduct a
Stakeholder Analysis
The stakeholder analysis is a series of steps,
conducted from an objective, third-party point
of view :
1. Mapping stakeholder relationships
2. Mapping stakeholder coalitions
3. Assessing the nature of each stakeholder’s interest
4. Assessing the nature of each stakeholder’s pow er
5. Constructing a m atrix of stakeholder m oral
responsibilities
6. Developing specific strategies and tactics
7. Monitoring shifting coalitions
Questions for Stakeholder Review
(Do these in Step 1 of S.A.)
1.
Who are our current stakeholders?
2.
Who are our potential stakeholders?
3.
How does each stakeholder affect us?
4.
How do we affect each stakeholder?
5.
For each division and business, who are the
stakeholders?
Questions for Stakeholder Review
(con’t)
(Do these in subsequent steps in S.A.)
6.
What assumptions does our current strategy make
about each important stakeholder (at each level)?
7.
What are the current “environmental variables”
that affect us and our stakeholders?
8.
How do we measure each of these variables and
their impact on us and our stakeholders?
9.
How do we keep score with our stakeholders?
Figure 2.2: Sample Stakeholder Map for a Large
Corporation
Steps 2, 3 and 4: Assessing Coalitions, Interests
and Power
Map any stakeholder coalitions that may help or
hinder your strategy or decision
Assess the nature of each stakeholder’s interest
Assess the nature of each stakeholder’s power
Voting power
Political power
Economic power
Technological
Legal
Environmental
Cultural
Power over target individuals and/or groups
Figure 2.3: Step 5 - Stakeholder Moral
Responsibility Matrix
Step 6: Develop Specific Strategies and Tactics
1.
2.
3.
4.
Consider whether to approach each
stakeholder directly or indirectly
Decide to do nothing, monitor, taken an
offensive or a defensive position with the
stakeholder
Decide to accommodate, negotiate,
manipulate, resist, avoid, or take a ‘wait and
see’ approach
Decide which combination of strategies will
work best with each stakeholder
Figure 2.4: Stakeholder Strategies
Step 7: Monitor Shifting Coalitions
Use the matrix from Step 6 to routinely monitor
progress and the evolution of issues and actions by
stakeholders (e.g., do they move from a ‘Marginal’
to a ‘Non-supporter’, or from a ‘Supporter’ to a
‘Marginal’?)
Figure 2.6: Stakeholder Dispute Resolution
Methods
Resolving Stakeholder Disputes
Integrative/Relational
Distributive/Power-based
Problems: Win-win
Problems: Zero-sum
Resources: Expandable
Resources: Fixed (divide up
the ‘pie’)
“Value creating”
Accommodate as many interests “Value claiming”
as possible
Splitting the difference
Relationship-building
Dialogical
Respect dignity and build
understanding
Competition-focused
Authoritative
“Winning”
Fry and Ury’s Four Principles of
Negotiation
1.
2.
3.
4.
Separate the people from the problem
Focus on interests rather than positions
Generate a variety of options before
settling on an agreement
Insist that the agreement be based on
objective criteria
Functional Managers’
Moral Responsibilities
Marketing and Sales professionals/managers
R & D and Engineering professionals/managers
Accounting and Finance professionals/managers
Public Relations professionals/managers
Human Resource professionals/managers
Issues Management
A formal process used to anticipate and take
appropriate action to respond to emerging
trends, concerns, or issues that can affect an
organization or its stakeholders
Detects and addresses issues that may cause
problems or harm
Helps to contain or resolve issues that could become
potentially damaging crises
May be used as a complementary approach to
stakeholder analysis (who is involved in the issue?)
Three frameworks
Issues Management and Stakeholder
Analysis
Insert your issues management approach as the first
step of your Stakeholder Analysis
Enhance the Stakeholder Analysis by asking:
Which stakeholders are affected by this issue?
Who has an interest in this issue?
Who is in a position to exert influence on the issue?
Who has expressed an opinion on the issue?
Tw o Issues Managem ent Approaches
6-Step Issue Management Process
Most straightforward
More appropriate for companies or
groups trying to understand, manage,
and control their internal environments
Organization-specific
Figure 2.8: 6-Step Issues Management Approach
Tw o Issues Managem ent Approaches
7-Phase Issue Development Process
Issues are believed to follow a developmental life cycle
(Steven Fink)
Life-cycle stages suggested for tracking an issue:
◼
◼
◼
◼
◼
◼
◼
A felt need arises
Media coverage is developed
Interest group development gains momentum
Policies are adopted by leading political jurisdictions
The federal government gives attention to the issue
Issues and policies evolve into legislation and regulation
Issues and policies enter litigation
Figure 2.9: 7-Phase Issue Development Process
A Related Model
4-Stage Issue Life Cycle (Thomas Marx):
Issues evolve from social expectations to
social control through the following
steps:
◼
◼
◼
◼
Social expectations
Political issues
Legislation
Social control
Figure 2.10: 4-Stage Issue Life Cycle
Two Crisis Management Approaches:
Figure 2.11
Two Crisis Management Approaches:
Figure 2.12
Suggested Corporate Actions
during Crises
Face the problem
Take your lumps
Recognize that there is no such thing as a
secret or private crisis
Stage war games
Use the firm’s philosophy, motto, or mission
statement
Use the firm’s closeness to customers and end
users for early feedback
Prerequisites for Issues/Crises
Management Success
Top management is supportive and
participates
Involvement is cross-departmental
The issues management unit fits with
the firm’s culture
Output, instead of process, is the focus
CHAPTER THREE
Ethical Principles, Quick
Tests, And DecisionMaking Guidelines
Levels and Types of Ethical Issues
1.
2.
3.
4.
the individual or professional level
the company or organizational level
the industry level
the societal, international, and global level
Ethical Risks in Corporations
❑
Severe Risks
▪
▪
▪
❑
High Risks
▪
▪
▪
❑
Putting own interests ahead of organization
Lying to employees
Abusive behavior
Stealing/Internet abuse/misreporting hours worked
Discrimination and Harassment
Improper hiring practices
Guarded Risks
▪
▪
▪
Environmental violations
Misuse of confidential organizational information, including competitors’
inside information
Alteration of documents or financial records
Defining Moments:
Three Key Questions
Who am I? (individual)
1.
2.
3.
Identify feelings and intuitions that are emphasized in the
situation
Identify deepest values in conflict brought up by the
situation
Identify the best course of action to understand the right
thing to do
Who are we? (group manager)
1.
2.
3.
What strong views and understanding of the situation do
others have?
Which position or view would most likely win over others?
Can I coordinate a process that will reveal the values I
care about in this organization?
Defining Moments:
Three Key Questions (con’t)
Who is the company? (top executive)
1.
2.
3.
Have I strengthened my position and the organization to the
best of my ability?
Have I considered my organization’s role vis-à-vis society
and shareholders boldly and creatively?
How can I transform my vision into action, combining
creativity, courage, and shrewdness?
Nash’s Twelve Questions
These twelve questions can help individuals:
Openly discuss the responsibilities necessary to
solve ethical problems
Facilitate group discussions
Build cohesiveness and consensus
Serve as an information source
Uncover ethical inconsistencies
Help a CEO see how managers think
Increase the nature and range of choices
Nash’s Twelve Questions (con’t)
1.
2.
3.
4.
5.
6.
7.
Have you defined the problem accurately?
How would you define the problem if you stood on the other
side of the fence?
How did this situation occur in the first place?
To whom and to what do you give your loyalty as a person
and as a member of the corporation?
What is your intention in making this decision?
How does this intention compare with the probable results?
Who could your decision or action injure?
Nash’s Twelve Questions (con’t)
8.
9.
10.
11.
12.
Can you discuss the problem with the affected parties
before you make your decision?
Are you confident that your decision will be as valid over a
long period as it seems now?
Could you disclose, without qualm, your decision or action to
your boss, your CEO, the board of directors, your family,
and society as a whole?
What is the symbolic potential of your action if understood?
If misunderstood?
Under what conditions would you allow exceptions to your
stand?
Decision Criteria for Ethical Reasoning
Moral reasoning must be logical
Factual evidence cited to support a
person’s judgment should be accurate,
relevant, and complete
Ethical standards used should be
consistent
A simple test:
What is my motivation for choosing a course
of action?
Moral Responsibility: When ARE you
responsible
1.
2.
When you knowingly and freely acted or caused
the act to happen and knew that the act was
morally wrong or hurtful to others
When you knowingly and freely failed to act or
prevent a harmful act and you knew it would be
morally wrong for a person to refrain from acting
Moral Responsibility: When are you NOT
responsible
Two conditions that eliminate a person’s moral
responsibility are:
Ignorance
Inability
Mitigating circumstances that excuse or lessen a
person’s moral responsibility include:
A low level of or lack of seriousness to cause harm
Uncertainty about knowledge of wrongdoing
The degree to which a harmful injury was caused or
averted
Ethics
Utilitarianism: ends justifies the means (consequentialist)
Universalism: moral rules/duties
Rights: inalienable rights
Justice: fairness and equity
Virtue: moral characteristics
Relativism: societal consensus
Utilitarianism: A Consequentialist Approach
An action is judged as right, good, or wrong on the
basis of its consequences
Greatest good for the greatest number of people
Net benefits over costs are greater than other
choices
Rule-based vs. Act-based
Use when:
Resources are fixed, lacking or scarce
Priorities are in conflict
No clear choice fulfills everyone’s needs/goals
Large or diverse groups are in a zero-sum decision
Utilitarianism: A Consequentialist Approach
Problems with utilitarianism include:
No agreement exists about the definition of the
“good” to be maximized
No agreement exists about who decides
How are the costs and benefits of nonmonetary
stakes measured?
Actions are not judged, only consequences
Does not consider the individual
Principles of rights and justice may be ignored
Utilitarianism: A Consequentialist Approach
Utilitarianism and stakeholder analysis
1.
2.
3.
4.
5.
Define how costs and benefits will be measured
Define what information you will need
Identify the procedures and policies you will use
State your assumptions
What moral obligations are being ignored
Universalism: A Deontological
(Duty-Based) Approach
The means justify the ends of an action
(duty to act responsibly)
Kant’s Categorical imperative
Choose to act if and only if every person on
earth, in that same situation, should act exactly
the same way
Act in a way that respects and treats all others
involved as ends as well as means to an end
Universalism: A Deontological
(Duty-Based) Approach
Major weaknesses include:
Principles are imprecise and lack
practical utility
Hard to resolve conflicts of interest
Does not allow for prioritizing one’s
duties
Universalism: A Deontological
(Duty-Based) Approach
Universalism and stakeholder analysis
1. Take into account the welfare and risks of all parties
2. Identify the needs of individuals involved in a decision, the
choices they have, and the information they need to
protect their welfare
3. Identify any manipulation, force, coercion, or deceit that
might harm the individuals involved
4. Recognize the duties of respecting and responding to
individuals PRIOR to adopting policies and actions
5. Ask under what conditions the desired action would be
acceptable to the individuals involved
Rights: An Entitlement-Based Approach
Three categories of rights
Legal
Moral
Contractual
1. the contract should not commit the parties to unethical or
immoral conduct;
2. both parties should freely and without force enter the
contractual agreement;
3. neither individual should misrepresent or misinterpret facts in
the contract;
4. both individuals should have complete knowledge of the nature
of the contract and its terms before they are bound by it
Negative vs. Positive Rights
Rights: An Entitlement-Based Approach
The weaknesses of using a rights approach include:
Can be used to disguise and manipulate selfish, unjust
political interests and claims
Protection of rights can be at the expense of others
Limits of rights come into question
Rights: An Entitlement-Based Approach
Rights and stakeholder analysis
1. Identify individuals whose rights may be violated
2. Determine the legal and moral bases of these rights
3. Any moral justification from utilitarian viewpoint or other
approaches?
Justice: Procedures, Compensation,
Retribution
Two recognized principles of fairness
include:
Equal treatment
Equal opportunity, access to advantages
Four types of justice include:
Compensatory
Retributive
Distributive
Procedural
Justice: Procedures, Compensation,
Retribution
Problems using the principle of justice
include:
Who decides what is fair, equitable?
Who has moral authority to punish those who act
unfairly?
Can opportunities and burdens be fairly distributed?
Transforming Justice
Be aware of your rights and power
Establish legitimate power as a means for obtaining
and establishing rights
Justice: Procedures, Compensation,
Retribution
Justice and stakeholder analysis
1. How equitable will the distribution of benefits,
costs, rewards, punishment be among
stakeholders?
2. How clearly have the procedures for distributing
the costs and benefits of the policy been defined
and communicated?
3. What are we doing for those who are unfairly
affected by these decisions?
Virtue: A Moral Character Approach
Focuses on the type of person we ought to be, not
on specific actions that should be taken
Good
character, motives, and core values
Practical wisdom
Problems with virtue ethics include:
Practicality/lack
of specific guidelines
Mistakes of virtuous people (moral backsliding)
No list of particularly vulgar acts
Character traits change throughout lifetime
Virtue Ethics and Stakeholder Analysis
Examining motives and character of various
stakeholders helps to uncover greed, egotistical
traits, irrational thinking
Could be used for basis of character list required
by top executives to avoid immoral acts such as
those that occurred at Enron, Tyco, etc.
The Common Good
The common good is a good to which all members of
society have access, and from whose enjoyment no one
can be easily excluded (Valasquez et al, 1992).
Four constraining factors:
The common good is defined differently by different people
The concept of ‘common good’ is counter to a culture in
which individuals are rewarded for hard work
Free riders can take advantage
Unequal sharing of burdens and sacrifices by some groups
Ethical Relativism:
A Consensus Approach
No universal standards or rules
People set their own moral
standards for judging actions
Benefits include:
Ability to recognize and value the
distinction between individual and
social values, customs, and moral
standards
Ethical Relativism:
A Consensus Approach
Problems using an ethical relativism approach
include:
Implies an underlying laziness
Contradicts everyday experience
Creation of absolutists
No mechanism to solve conflicts among different
viewpoints
Ethical Relativism:
A Consensus Approach
Ethical Relativism and Stakeholder
Analysis
1. What are the major moral beliefs and principles at
issue for each stakeholder affected by this decision?
2. What are my moral beliefs and principles in this
decision?
3. To what extent will my ethical principles clash if a
particular course of action is taken? Why?
4. How can conflicting moral beliefs and principles be
avoided or resolved in seeking a desirable outcome?
Immoral, Amoral, Or Moral
Management
Immoral management means intentionally going
against ethical principles of justice and of fair and
equitable treatment of other stakeholders.
Amoral management happens when others are
treated negligently without concern for the
consequences of actions or policies.
Moral management places value on equitable, fair,
and just concern of others involved.
4 Social Responsibility Modes and
Roles (Figure 3.4)
Orientations
Stockholder
Stakeholder
1
2
Productivism
Progressivism
3
4
Philanthropy
Ethical Idealism
Self-interest
Motives
Moral duty
Individual Ethical
Decision-Making Styles
Individualism
Altruism
Pragmatism
Idealism
During conflicts:
Point out to individualists the benefits to their own interests
Focus on the benefits of various constituencies for altruists
Emphasize facts and potential consequences to the pragmatist
For the idealist concentrate on principles or duties
Quick Ethical Tests
Six guidelines or questions (Center of
Business Ethics, Bentley College):
1.
2.
3.
4.
Is it right?
Is it fair?
Who gets hurt?
Would you be comfortable if the details of your
decision were reported on the front page of your
local newspaper? CNN?
5. What would you tell your child to do?
6. How does it smell/feel?
Other Classical Ethical Tests
The Golden Rule
The Intuition Ethic
The Means-Ends Ethic
Test of Common Sense
Test of One’s Best Self
Test of Ventilation
Test of the Purified Idea
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