Chapter 4:

Ethics and corporate social responsibility

Learning Outcomes
After studying this chapter, you should be able to:
• Explain the four principles of corporate citizenship
• State the importance of ethics for organisations and their employees
• Describe four forces that influence the ethical behaviour of individuals and corporate social
responsibility
• Describe three approaches that people use when making ethical judgements
• Describe the role of good corporate governance in the organisation
• Explain the role of stakeholders in managing corporate social responsibility
• Explain how an organisation, by being socially responsible, can increase their sustainability
• Explain how the concerns of stakeholders influence managers’ ethical decisions
• Describe how individuals can contribute to improving ethical conduct in the workplace
• Describe how organisations can contribute to improving ethical conduct in the workplace.
Corporate citizenship
• Corporate citizenship is about creating a contract between an
organisation and the society in which it operates because the factors
that influence societies also influence business operations.
• Corporate citizenship requires the organisation to take four main
principles into consideration:
• Minimise harm
• Maximise benefits
• Be accountable and responsive to key stakeholders
• Support strong financial results
 Corporate
citizenship

Business ethics Sustainable development CSR

Nurture, protect, enhance

Considers societal & and promote the welfare &
Moral principles & values
environmental concerns well-being of stakeholders
and society as a whole
Importance of ethics and corporate social
responsibility
• Today’s managers are responsible for creating and sustaining
conditions in which people are likely to conduct themselves with
integrity.
• Ethics and corporate responsibility build the framework for making
business decisions in a morally and ethically acceptable manner. For
this reason, ethics and social responsibility have become major
concerns in global markets.
• In a world of increasing local and global competition, being aligned
with society’s expectations can be beneficial to both employees and
customers in the long run.
• Employees evaluate the corporate social performance (CSP) of
organisations in terms of the following criteria:
• Employment selection and promotion based on merit in a non- discriminatory
manner
• Extent of workforce diversity
• Payment of market-related wages and salaries based on job level
• Workplace safety and privacy
• The availability of training and development.
• Customers tend to evaluate an organisation in terms of the following
criteria:
• Offering of quality products or services on a continuous basis
• Extent of offering innovative products and services fulfilling customer needs
• Not selling faulty or unsafe products or services
• Safe disposal of harmful or sub-standard products or services
• Reasonable pricing policies and practices
• Honest advertising by providing truthful, reliable product or service information.
• An organisation that acts in an ethical manner can gain many
advantages, including the following:
• Obtaining a competitive advantage (customers increasingly favour ethical
organisations)
• Attracting investors (they regard the organisation as having integrity and a
sense of responsibility)
• Attracting potential employees and retaining employees (people want to work
for an ethical organisation)
• Improving staff morale and culture (employees tend to be happier and less
stressed)
• Building up a good reputation of being socially responsible.
Forces that shape ethical conduct
Figure 4.1 Ethical perspectives for evaluating behaviour (p. 93)
Source: Compiled by the author
Societal norms and culture
• What is perceived as ethical in one society may be perceived as unethical in
another.
• An organisation that operates in many different countries must be aware
that local standards for ethical conduct may differ greatly from one location
to the next.
• Developing ethical guidelines that make sense in various settings can be a
complex task.

Laws and regulations

• Laws are simply society’s values and standards that are enforceable in the
courts.
• The legality of actions and decisions does not necessarily make them
ethical.
Organisational practices and culture
• Employees need clarity on what an organisation regards as ethical or unethical
behaviours.
• These directions can be provided in a formal or informal manner.
• Codes of conduct and ethics policies can guide employee behaviour.
• Organisations that are serious about ethics in the workplace, can screen potential
employees and only select those who share the ethical values of the organisation.

Individual perspectives
• The personal moral philosophy of the individual and his or her stage of moral
development may impact on ethics in the organisation.
• Psychological studies of ethical behaviour indicate that individuals develop both
physically and morally from an early age. As they mature, their ethical and moral
criteria and reasoning change.
Approaches to making ethical judgements
• Three models have been identified to understand how organisations
make ethical judgements that guide their ethical business behaviour.
Each of the models discussed provides a different but somewhat
related set of principles or standards for judging whether managerial
and employee decisions and behaviour are right or wrong.
1. The utilitarian model
2. The moral rights model
3. The justice model
The utilitarian model
• The utilitarian model focuses on actions (behaviour) and not on the motives
for such actions.
• When a person is choosing between two courses of action, the chosen course
should be the one that benefits the greatest number of people, although this
benefit may come at the expense of a few people or those with little power.
• The utilitarian model drives organisations to assess constantly how activities –
even so-called charitable contributions – are related to business performance.
• All employees should strive to use the organisation’s resources to increase its
profits and engage in activities designed to do so, while performing within the
‘rules of the game’.
• Employing the utilitarian approach in a competitive market system
entails maximising profits or surpluses for the greatest good of the
greatest number of people
• No organisation should unilaterally go beyond what the law requires,
for example, in preserving the environment.
• Doing so would only reduce that organisation’s profits and would do
nothing to eliminate the pollution caused by its competitors. They
would obtain a greater share of the market and profits because of
lower costs and thus lower prices.
• It is the duty of both managers and employees to attain organisational
goals as efficiently as possible.
• Efficiency is accomplished by simultaneously minimising inputs and
maximising quantity of products produced and sold, or quality of
service rendered.
The moral rights model
• The moral rights model holds that decisions should be consistent with
fundamental rights and privileges
• The basis of the moral rights model is respect for other people. Morality is
supported by logical, factual, and consistent reasoning.
• Employees, customers, and the general public have the right not to have
their lives and safety jeopardised.
• Employees, customers, and the general public have the right to be informed
about important product or service matters that could influence their
safety.
• Products and services offered by organisations should indicate potential
harm or influence on the user or consumer thereof.
• The general public has a right to the protection of their personal
information and to not have it distributed to government agencies,
employers, and others.
• Speech is often a vehicle for expressing matters of conscience, so
freedom of speech is closely related to freedom of conscience.
• As a guide to ethical decision-making in organisations, the moral
rights approach serves as an effective counterweight that protects the
non-business sectors of society from overenthusiastic capitalists
strictly following the utilitarian approach.
• However, as a guide to ethical behaviour in organisations, the moral
rights approach says more about what organisations should not do –
to include infringing the moral rights of employees, customers, and
the general public – than about what it should do.
The justice model
• The justice model assesses decisions and behaviour concerning how
equitably they share benefits and costs among individuals and groups
• This model suggests that people should appreciate the viewpoints of
other people.
• The supporters of this model suggest that when designing
management systems and making organisational decisions that are
just and fair, they must be based on the following three principles:
• Distributive justice
• Fairness
• Natural duty
Distributive justice principle
• Individuals who are similar in relevant respects should be treated similarly
• Individuals who differ in relevant respects should be treated differently in proportion
to the differences between them.

Fairness principle
• The organisation is just (or fair)
• Employees have chosen to accept benefits provided by the organisation or have
utilised opportunities offered in order to further their own interests.

Natural duty principle

• To help those in need or in trouble provided that the assistance given is without undue
personal risk or loss
• Not to cause harm or hurt another person
• Not to cause undeserved distress
• To support ethical institutions.
Combining ethical approaches
• Using these three models in combination increases the probability
that decisions and behaviour will be judged as ethical by others.
• Many changes in organisational practices reflect solutions that were
developed by managers who accepted the utilitarian model, but also
believed that doing what was right was one way for the organisation
to do well.
Managing corporate social responsibility

Some organisations focus on

maximising profit and return on
Ethical organisations focus on
investment without worrying
maximising profit and return on
about how profit is made. They
investment while minimising or
are unconcerned about the
avoiding negative social effects.
social effects of their business
activities.
Stakeholders
Figure 4.2 Stakeholders of an organisation (p. 105)
Source: Compiled by the author
Stakeholder concerns
Customers
• Customer related concerns are often associated with cost savings or product or
service quality improvements.

Employees
• Many of the concerns that employees currently have reflect changes in the structure
of organisations, and the fact that work is a major activity in their lives.
• Remuneration is another area of concern to employees.

Society
• As part of their corporate social investment programmes, many South African
organisations have invested in areas that could rightfully be said to be the
responsibility of government.
Stakeholder concerns
Owners and shareholders
• In the case of organisations, such as public schools, NGOs, and government
organisations, the concerns of owners are often, in essence, those of society at
large.
• On the other hand, the concerns of shareholders (owners of privately and
publicly owned companies who trade with shares on the JSE) may be very
different from those of society in general.
• Most shareholders invest their money in organisations to preserve it for later
use or for financial reasons, such as to receive dividends as financial benefits.
• As professional investors, these shareholders have considerable power to
influence management’s decisions.
• When making decisions and implementing organisational changes to
improve sales or profits, managers must consider the effects of the
changes on employees, customers, the community, shareholders, and
other relevant stakeholders.
• The interests of shareholders and employees often seem to be in
conflict, especially over restructuring and downsizing.
• The reason why employees are made redundant is often because of
the need for the organisation to survive.
• Employees need to recognise that their own long-term employment
depends on the ability of their organisation – and even an entire
industry – to satisfy the concerns of the communities, especially
customers, affected by their business.
Managing sustainability
• According to Alan Chapman, the four cornerstones of sustainable
development in any modern business venture are:
• Purpose
• People
• Planet
• Probity (having strong moral principles).
• An organisation should try to reconcile its organisational purpose (profit for
shareholders or cost-effective service delivery) with the needs and feelings
of people (employees, customers, suppliers, and local communities) with
consideration for our planet (wildlife, natural resources or heritage) by
acting with probity (integrity, compassion, honesty, and truth) at all times.
• The King IV Report requires all listed companies, public-sector
enterprises, and financial institutions to conform to the concept of
the triple bottom line, which involves disclosing their social and
environmental performance alongside their financial results.
• In addition to the corporate governance guidelines outlined in the
King III Report, the King IV Report introduces the following concepts
or topics:
• Outcomes‑based governance by placing accountability on the governing body
• Apply and explain the approach to disclosure of publicly available information
• 16 principles applicable to all organisations outlining 208 recommended
practices and a 17th principle applicable to institutional investors as well as
provision of a sectors supplement to guide different types of organisations.
Table 4.2 Stakeholders’ concerns when evaluating corporate performance (p. 112)
Source: Compiled by the author
Management tools for encouraging ethical
conduct
Code of ethics/code of conduct

Ethics committee
• Oversee social and economic development
• Ensure practices of good corporate citizenship
• Advise management on environment, health, and public safety issues
• Manage consumer relationships
• Ensure adherence to labour and employment conditions.

Ethics training

Whistle-blowing
Questions to ask yourself if you are thinking about blowing the whistle*
Table 4.3: Questions to think about asking yourself if you are thinking about blowing the whistle
Sources: Adapted from Near& Miceli(1996), Near & Miceli (1995), Miceli & Near (1992)
Chapter Summary
• Concerns about ethics in business are increasing
• The four forces that influence a person’s ethical conduct are societal norms and culture,
laws and regulations, organisational practices and culture, and the individual’s own
perspectives.
• Managers and employees commonly rely on one of three ethical approaches and models
(or a combination of them).
• The diverse values and ethical approaches prevalent in advanced economies introduce a
great deal of complexity for organisations that attempt to act in socially responsible ways.
• Although unethical conduct will never be eliminated, at an organisational level, managers
can implement a variety of organisational practices to support ethical conduct, including
adopting a code of ethics, setting up an ethics committee, and ethical training.
• Whistle-blowing is another organisational practice to support ethical conduct in the
workplace. The goal of whistle-blowing is to stop illegal or unethical wrongdoing.