CHAPTER SUMMARY – CHAPTER 5
What Is Social Responsibility?
ü Contrast classical and socioeconomic views of social responsibility.
ü Discuss the role that stakeholders play in the four stages of social responsibility.
ü Differentiate between social obligation, social responsiveness, and social responsibility.
The classical view says that management’s only social responsibility is to maximize profits. The socioeconomic view says that management’s social responsibility goes beyond making profits to protecting and improving society’s welfare. In the four-stage stakeholder model of social responsibility, (see Exhibit 5-1), a stage 1 manager feels responsible to only the stockholders. At stage 2, managers expand their responsibility to the employees. At stage 3, managers expand their responsibilities to other stakeholders in the specific environment, primarily customers and suppliers. Finally, at stage 4, managers feel they have a responsibility to society as a whole. Social obligation is when a firm engages in social actions because of its obligation to meet certain economic and legal responsibilities. Social responsiveness is when a firm engages in social actions in response to some popular social need. Social responsibility is a business’s intention, beyond its economic and legal obligations, to pursue long-term goals that are good for society. (See Exhibit 5-3.)
Social Responsibility and Economic Performance
ü Explain what research studies have shown about the relationship between an organization’s social involvement and its economic performance.
ü Explain what conclusion can be reached regarding social responsibility and economic performance.
Although the majority of the research studies have shown a positive relationship between social involvement and economic performance, it was thought that no generalizable conclusions could be made because of methodological and definitional concerns. And one study showed that social involvement had a neutral impact, while another study found that social activities not related to the organization’s primary stakeholders had a negative impact on shareholder value. However, a recent re-analysis of these studies concluded that managers can afford to be socially responsible. Considering these studies and the performance of socially responsible mutual stock funds, the most meaningful conclusion we can reach is that there is little evidence to say that a company’s social actions hurt its long-term economic performance.
The Greening of Management
ü Describe how organizations can go green.
ü Relate the approaches to being green to the concepts of social obligation, social responsiveness, and social responsibility.
Organizations can “go green” by using different approaches. (See Exhibit 5-5.) The light green approach is simply doing what is required legally, or the social obligation approach. Using the market approach, organizations respond to the environmental preferences of their customers. Using the stakeholder approach, organizations respond to the environmental demands of multiple stakeholders. Both the market and stakeholder approaches can be viewed as social responsiveness. The activist or dark green approach involves an organization looking for ways to respect and preserve the earth and its natural resources, which can be viewed as social responsibility.
Values-Based Management
ü Discuss what purposes shared values serve.
ü Describe the relationship of values-based management to ethics.
Shared values serve four purposes (see Exhibit 5-6): to guide managerial decisions and actions; to shape employee behavior and communicate what the organization expects of its members; to influence marketing efforts; and to build team spirit. An organization’s values have a big influence on whether employees act ethically.
Managerial Ethics
ü Discuss the factors that affect ethical and unethical behavior.
ü Discuss the six determinants of issue intensity.
ü Explain what codes of ethics are and how their effectiveness can be improved.
ü Describe the important roles managers play in encouraging ethical behavior.
The factors that affect ethical and unethical behavior (see Exhibit 5-8) include: an individual’s level of moral development (preconventional, conventional, or principled – see Exhibit 5-9); individual characteristics (values and two personality variables – ego strength and locus of control); structural variables (structural design, use of goals, performance appraisal systems, and reward allocation procedures); organizational culture (content and strength); and issue intensity which includes six elements including greatness of harm, consensus of wrong, probability of harm, immediacy of consequences, proximity to victims, and concentration of effect (see Exhibit 5-10). The more intense an issue is (the larger number of people harmed, the more agreement that the action is wrong, the greater the likelihood the action will cause harm, the more immediately the consequences will be felt, the closer the person feels to the victims, and the more concentrated the effect of the action on the victims), the more we should expect employees to behave ethically.
A code of ethics is a formal statement of an organization’s primary values and the ethical rules it expects employees to follow. Managers can improve their effectiveness by recognizing the role that the organization’s leaders play in setting the ethical tone, by continually reaffirming the importance of the ethics code, by publicly reprimanding rule breakers, by considering the important critical stakeholders when developing or changing the ethics code, by communicating and regularly reinforcing the code to employees, and by using decision rules in guiding managers as they handle ethical dilemmas (see Exhibit 5-13).
Managers play an important ethical leadership role in many ways: through whom and what are rewarded with pay increases and promotions; by punishing ethical offenders and publicizing the outcome; through establishing performance appraisal systems that focus on means as well as ends; by providing ethics training; by using independent social audits; through establishing formal protective mechanisms; and most importantly, by setting a good example.
Social Responsibility and Ethics Issues in Today’s World
ü Explain why ethical leadership is important.
ü Discuss how managers and organizations can protect employees who raise ethical issues or concerns.
ü Explain what role social entrepreneurs play.
ü Describe social impact management.
Ethical leadership is important because the example set by managers has a strong influence on whether employees behave ethically. Ethical leaders also are honest, share their values, stress important shared values, and use the reward system appropriately. Managers can protect whistleblowers (employees who raise ethical issues or concerns) by encouraging whistleblowers to come forward; by setting up toll-free ethics hotlines; and by establishing a culture where employees can complain and get heard without fear of reprisal, against which the Sarbanes-Oxley Act offers some legal protection.
Social entrepreneurs play an important role in solving social problems by seeking out opportunities to improve society by using practical, innovative, and sustainable approaches. Social entrepreneurs want to make the world a better place and have a driving passion to make that happen.
Social impact management attempts to get managers to understand the interdependency between business needs and wider social concerns. Thus, as managers plan, organize, lead, and control, they would ask how their decisions would work in the societal context within which they’re operating.