Page 300 - Encyclopedia of Business and Finance

eobf_E 7/5/06 3:01 PM Page 277

Ethics in Management

Finally, managers can take responsibility for creating employment practices. Although numerous businesses are
and sustaining conditions in which people are likely to involved in socially responsible activities, much contro-
behave ethically and for minimizing conditions in which versy persists about whether such involvement is necessary
people might be tempted to behave unethically. Two prac- or appropriate. There are several arguments for and against
tices that commonly inspire unethical behavior in organi- businesses performing socially responsible activities.
zations are giving unusually high rewards for good The best known argument supporting such activities
performance and unusually severe punishments for poor is that because business is a subset of and exerts a signifi-
performance. By eliminating such factors, managers can cant impact on society, it has the responsibility to help
reduce much of the pressure that people feel to perform improve society. Since society asks no more and no less of
unethically. They can also promote the social responsibil- any of its members, why should business be exempt from
ity of the organization.
such responsibility? Additionally, profitability and growth
go hand in hand with responsible treatment of employees,
SOCIAL RESPONSIBILITY customers, and the community. However, studies have not
The term social responsibility means different things to indicated any clear relationship between corporate social
different people. Generally, corporate social responsibility responsibility and profitability (Aupperle, Caroll, and Hat-
is the obligation to take action that protects and improves field, 1985; McGuire, Sundgren, and Schneeweis, 1988).
the welfare of society as a whole as well as organizational One of the better known arguments against such
interests. According to the concept of corporate social activities is advanced by the distinguished economist Mil-
responsibility, a manager must strive to achieve both orga- ton Friedman. Friedman (1989) argues that making busi-
nizational and societal goals. Current perspectives regard- ness managers simultaneously responsible to business
ing the fundamentals of social responsibility of businesses owners for reaching profit objectives and to society for
are listed and discussed through (1) the Davis model of enhancing societal welfare represents a conflict of interest
corporate social responsibility, (2) areas of corporate social that has the potential to cause the demise of business.
responsibility, and (3) varying opinions on social respon- According to Friedman, this demise almost certainly will
sibility. occur if business continually is forced to perform socially
A model of corporate social responsibility developed responsible behavior that is in direct conflict with private
by Keith Davis (1975) provides five propositions that organizational objectives. He also argues that to require
describe why and how businesses should adhere to the business managers to pursue socially responsible objec-
obligation to take action that protects and improves the tives may be unethical, since it requires managers to spend
welfare of society and the organization: money that really belongs to other individuals.
Regardless of which argument or combination of
Proposition 1: Social responsibility arises from social
arguments particular managers might support, they gen-
power.
erally should make a concerted effort to perform all legally
Proposition 2: Business shall operate as an open sys- required socially responsible activities, consider voluntar-
tem, with open receipt of inputs from society and ily performing socially responsible activities beyond those
open disclosure of its operation to the public. legally required, and inform all relevant individuals of the
Proposition 3: The social costs and benefits of an extent to which their organization will become involved in
activity, product, or service shall be thoroughly performing socially responsible activities.
calculated and considered in deciding whether to Federal law requires that businesses perform certain
proceed with it. socially responsible activities. In fact, several government
Proposition 4: Social costs related to each activity, agencies have been established to develop such business-
product, or service shall be passed on to the con- related legislation and to make sure the laws are followed.
sumer. The Environmental Protection Agency has the authority
to require businesses to adhere to certain socially respon-
Proposition 5: Business institutions, as citizens, have
the responsibility to become involved in certain sible environmental standards. Adherence to legislated
social responsibilities represents the minimum standard of
social problems that are outside their normal
socially responsible performance that business leaders
areas of operation (pp. 20-23).
must achieve. Managers must ask themselves, however,
The areas in which business can become involved to how far beyond the minimum they should attempt to
protect and improve the welfare of society are numerous go—a difficult and complicated question that entails
and diverse. Some of the most publicized of these areas are assessing the positive and negative outcomes of perform-
urban affairs, consumer affairs, environmental affairs, and ing socially responsible activities. Only those activities

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 277