I. Text

ETHICAL AND SOCIAL RESPONSIBILITIES OF BUSINESS

“Business has certain obligations to society beyond

the pursuit of profits”

Michael H. Mescon, Dean Emeritus & Regents

Professor of Management, Georgia State University

“Those are my principles; if you don’t like them, I

have others.”

Groucho Marx (1895-1977), American

comedian and film actor

A. Foundations of Social Responsibility and Ethical Behavior

Each company functions as part of an interactive system of relationships with individuals and group in society. However, the ideal relationship between business and society is a matter of debate. Those who support the concept of social responsibility argue that a company has a greater obligation to society beyond the pursuit of profit or other goals. Many other managers believe that their primary obligation is to the company’s shareholders and that social responsibility is a secondary concern. Finding the right balance proves to be challenging.

When you think about a business’s approach to social responsibility, you probably think about programs and plans executed by the business as a whole. However, the business does not take action or make decisions; only individuals within the business can do that. So the sense of right and wrong that each decision maker brings to the workplace influences the company’s policies regarding social responsibility. Are there standards of right and wrong that businesses and individuals should follow? This question is the focus of ethics, the study of individual decisions made in the context of a system of moral standards or rules of conduct.

Ethical questions can be divided into two general categories. The first is an ethical dilemma,a situation in which both sides of an issue can be supported with valid arguments. An ethical lapse occurs when an individual makes an unethical decision. Be careful not to confuse ethical dilemmas with ethical lapses. A company faces an ethical dilemma when it must decide whether to continue selling a product that is suspected, but not proven, to be unsafe. An example of an ethical lapse would be falsely inflating prices for certain customers or selling trade secrets to competitors.

Many companies are now creating official positions to guide their ethics policies. For example, NYNEX, a telecommunications company that serves the northeastern United States, established the NYNEX Office of Ethics and Business Conduct (OE&BC) and named a vice president of business conduct. This can be an important step, but it is effective only if senior management reinforces the company’s commitment to ethics with both words and actions. Furthermore, encouraging ethical behavior often means doing more than simply complying with laws. In the words of Shirley Peterson, head of the ethics program at Northrop, a major defense contractor: ”Compliance is what you have to do; ethics is what you should do.”

A business has many stakeholders – groups that are affected by (or that effect) a business’s operations. Stakeholders include employees, customers, investors, and society at large. If a company’s management consistently ignores social responsibilities and shortchanges its stakeholders, the business will suffer and eventually fold. Investors who are unhappy with the company’s performance will invest elsewhere. Workers whose needs are not met will be unproductive, or they will quit and find other jobs. Customers whose tastes and values are ignored will spend their money on other things. And if the concerns of society are disregarded, the voters will clamor for laws to limit offensive business activities. Many business executives sincerely try to respond to the needs of these four groups, and their efforts are often successful. Social responsibility entails such acute problems as environmental protection, national defense, consumerism, and civil rights. These areas of concern have drastically altered the way business is conducted in the United States.

Exhibit 5.1. Business and Its Stakeholders

Balancing the individual needs and interests of a company’s stakeholders is one of management’s most difficult tasks.