Review Session

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Review Session

• Block 3 Social Responsibility and Corporate
  Ethics

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Block 3 Social Responsibility and Corporate
Ethics

• Why Does a Firm Exist?
• Shareholder and Stakeholder Views
• Ethical Decision-Making

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Friedmans Traditional View, 1970

• There is one and only one
• social responsibility of
• business to use its
• resources and engage in
• activities designed to
• increase its profits

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The Shareholder View

• In its original form this view assumes that a
  company should operate exclusively in the
  interests of the owners the shareholders
  (Rappaport, 1986)
• The value of the company (share price x number of
  shares) should be maximized, which in turn means
  maximizing profits
• Expanding and investing in profitable businesses
• Restructuring, divesting and closing down
  unprofitable businesses
• Societal concerns are seen as a distraction or
  irritation

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The Stakeholder View

• Companies are social institutions pursuing the
  interests of multiple groups
• The key role of management is to balance the
  different and often conflicting interests of
  stakeholders
• The stakeholder triangle

Shareholders
Employees
Customers
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Carrolls Four Social Responsibility

• Economic produce goods and serves which give
  benefits to consumer and earn profit to pay for
  inputs
• Legal defined by the government
• Ethical general beliefs about good behavior
• Discretionary voluntary obligations, e.g. day
  care center for small children

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Moral Relativism

• Morality is relative to some personal, social or
  cultural standard
• There is no method for deciding whether one
  decision is better than another

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Definitions

• Ethics (broad, related to society)
• The consensually accepted standards of behavior
  for an
• occupation, trade, or profession
• Morality (narrow, related to individual)
• The precepts of personal behavior based on
  religious or
• philosophical grounds
• Law
• Formal codes that permit or forbid certain
  behaviors

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Approaches to Ethical Behavior

• Utilitarian
• Actions and plans judged by consequences for
  society and stakeholders Does the action
  optimize the satisfaction of all shareholders?
• Individual Rights
• People have fundamental rights to be respected
  in all decisions Does the action respect the
  rights of the individuals involved?
• Justice
• Distribution of costs and benefits to be
  equitable, fair, and impartial Does the action
  follow the law?

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The Golden Rule

• Categorical imperatives (Kant)
• Golden Rules
• 1) Treat others as you would like them to treat
  you
• 2) Treat others with respect do not act to
  restrict
• other peoples actions, or act in a
  way that
• leaves them at a disadvantage

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Code of Ethics

• Code of Ethics
• Specifies how an organization
• expects its employees to
• behave while on the job.

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