Social Responsibility and Organizational Ethics

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The term social responsibility means different things to different people. Generally, corporate social responsibility is the obligation to take action that protects and improves the welfare of society as a whole, as well as supports organizational interests. According to the concept of corporate social responsibility, a manager must strive to achieve both organizational and societal goals.


Current perspectives regarding the fundamentals of social responsibility for businesses include the long-standing Davis model of corporate social responsibility, various categories of business social responsibility, and varying positions regarding the role and expectations for business in the social responsibility arena.

First, the Davis model for social responsibility, developed by Keith Davis, suggests that there are five key concepts or propositions that drive business socially responsible behavior. These are:

Proposition 1: Social responsibility arises from social power.

Proposition 2: Business shall operate as an open system, with open receipt of inputs from society and open disclosure of its operation to the public.

Proposition 3: The social costs and benefits of an activity, product, or service shall be thoroughly calculated and considered in deciding whether to proceed with it.

Proposition 4: Social costs related to each activity, product, or service shall be passed on to the consumer.

Proposition 5: Business institutions, as citizens, have the responsibility to become involved in social problems that are outside their normal areas of operation.

The areas in which business can become involved to protect and improve the welfare of society are numerous and diverse. Some of the most publicized of these areas are urban affairs, consumer affairs, environmental affairs, and employment practices. Although numerous businesses are involved in socially responsible activities, much controversy persists about whether such involvement is necessary or appropriate. There are several arguments for and against businesses performing socially responsible activities.

Arguments in Support

The best-known argument supporting such activities by business is that because business is a subset of and exerts a significant impact on society, it has the responsibility to help improve society. Since society asks no more and no less of any of its members, why should business be exempt from such responsibility? Additionally, profitability and growth go hand in hand with responsible treatment of employees, customers, and the community. Only a few studies, however, have indicated a relationship between corporate social responsibility and profitability.

Arguments Against

The distinguished economist Milton Friedman (1912 ) advanced one of the better-known arguments against specific social responsibility activities. Friedman argued that making business managers simultaneously responsible to business owners for reaching profit objectives and to society for enhancing societal welfare represents a conflict of interest that has the potential to cause the demise of business. According to Friedman, this demise almost certainly will occur if business consistently is expected to behave in a socially responsible manner when this is in direct conflict with private organizational objectives. He also argued that to require business managers to pursue socially responsible objectives may be unethical, since it requires managers to spend time, money, and other resources that really belong to other purposes and are supported by other individuals (e.g., investors, customers, owners, leaders).

Regardless of which argument or combination of arguments particular managers might support, they must make a concerted effort to perform all legally required socially responsible activities, should consider voluntarily performing socially responsible activities beyond those legally required, and inform all relevant individuals of the extent to which their organization will become involved in performing social responsibility activities.

Government Requirements

Federal law requires that businesses perform certain socially responsible activities. In fact, several government agencies have been established and are maintained to develop such business-related legislation and to make sure the laws are followed. The U.S. Environmental Protection Agency does indeed have the authority to require businesses to adhere to certain socially responsible environmental standards. Adherence to legislated social responsibilities represents the minimum performance standard that business leaders must achieve. Managers must ask themselves, however, how far beyond the minimum they should attempt to go. This difficult and complicated question entails assessing the positive and negative outcomes of performing socially responsible activities. An overarching principle is that business should pursue only those activities that contribute to the business's success while contributing positively to the welfare of society.


Social responsiveness is the degree of effectiveness and efficiency an organization displays in pursuing its social responsibilities. The greater the degree of effectives and efficiency, the more socially responsive the organization is said to be. The socially responsive organization that is both effective and efficient meets its social responsibilities without wasting organizational resources in the process. Determining exactly which social responsibilities an organization should pursue and then deciding how to pursue them are perhaps the two most critical decision making aspects of maintaining a high level of social responsiveness. That is, managers must decide whether their organization should undertake the activities on its own or acquire the help of outsiders with more expertise in a specific area.

In addition to decision making, various approaches to meeting social obligations are another determinant of an organization's level of social responsiveness. A desirable and socially responsive approach to meeting social obligations involves the following:

  • Incorporating social goals into the annual planning process
  • Seeking comparative industry norms for social programs
  • Presenting reports to organization members, the board of directors, and stockholders on progress in social responsibility
  • Experimenting with different approaches for measuring social performance
  • Attempting to measure the cost of social programs as well as the return on social program investments

There are several methods of addressing managerial approaches to meeting social obligations. Three of these are: (1) the social obligation approach, (2) the social responsibility approach, and (3) the social responsiveness approach. Each of these approaches contains behaviors that reflect a somewhat different attitude with regard to businesses performing social responsible activities. The social obligation approach considers business as having primarily economic purposes and confines social responsible activities mainly to conformance to existing laws. The socially responsible approach sees business as having both economic and societal goals. The social responsiveness approach considers business as having both societal and economic goals as well as the obligation to anticipate upcoming social problems and to work actively to prevent their appearance.

Organizations characterized by attitudes and behaviors consistent with the social responsiveness approach generally are more socially responsive than organizations characterized by attitudes and behaviors consistent with either the social responsibility approach or the social obligation approach. In addition, organizations characterized by the social responsibility approach generally achieve higher levels of social responsiveness than organizations characterized by the social obligation approach. As one moves from the social obligation approach to the social responsiveness approach, management becomes more proactive. Leading managers will do what is prudent from a business viewpoint to reduce liabilities whether a law requires an action or not.

In addition to the above-described approaches to social responsibility, managers respond to issues regarding social responsibility in four major ways. First is the reaction strategy, when managers wait until an issue presents itself to the company or to the public and then develop a response strategy to reduce the negative impact of the issue. Second, the avoidance or defense strategy is when managers lead by reducing or avoiding situations that might develop into social responsibility issues. Sometimes this includes legal maneuvers, or lobby government to change laws or regulations.

The third type of managerial approach is the accommodation strategy. In this strategy, managers pursue actions that will address the needs of consumers, employees, government, environmentalists, and so on. Many times this managerial approach is targeted to reduce or eliminate problems with issues that are particularly controversial with specific stakeholders. The fourth type of managerial style is the proactive strategy. This method of social responsibility leadership attempts to address social responsibility topics or issues by using socially responsible behavior without outside pressure or threats. The managers lead by setting a priority on supporting social responsible behavior before issue or problems develop.


To be consistent, measurements to gauge organizational progress in reaching socially responsible objectives can be and are performed. The specific areas in which individual companies actually take such measurements vary, of course, depending on the specific objectives of the companies. All companies, however, probably should take such measurements in at least the following four major areas:

1. Economic function: Gives some indication of the economic contribution the organization is making to society

2. Quality of life: Whether the organization is improving or degrading the general quality of life in society

3. Social investment: The degree to which the organization is investing both money and human resources to solve community social problems

4. Problem solving: The degree to which the organization deals with social problems


The social audit is the process of taking measurements of the socially responsible activities of an organization. The basic steps in conducting a social audit are monitoring, measuring, and appraising all aspects of an organization's socially responsible performance. Probably no two organizations conduct and present the results of a social audit in exactly the same way.

Another factor that affects many business organizations is the role of social responsibility in an international market environment. Business leaders need to have background and experience working with social issues in different political, geographical, language, and social contexts. International companies have often overlooked this, causing them embarrassment, and lost opportunities and reduced financial resources. Managers in today's business world increasingly need to be aware of two separate but interrelated concernsbusiness ethics and social responsibility. The next section focuses on business ethics.


Perhaps the most practical approach is to view ethics as a catalyst that causes managers to take socially responsible actions. The movement toward including ethics as a critical part of management education began in the 1970s, grew significantly in the 1980s, and since the late 1990s has seen a significant rise in interest because of scandals at Enron, WorldCom, Archer Daniels Midland, Arthur Andersen, and Tyco. Hence, business ethics is a critical component of business leadership.

Ethics can be defined as concern for good behavior. People feel an obligation to consider not only their own personal well-being but also that of other human beings. This is similar to the precept of the Golden Rule: Do to others, as you would have them do to you. In business, ethics can be defined as the ability and willingness to reflect on values in the course of the organization's decision-making process, to determine how values and decisions affect the various stakeholder groups, and to establish how managers can use these precepts in day-today company operations. Ethical business leaders strive for fairness and justice within the confines of sound management practices.

Many people ask why ethics is such a vital component of management practice. It has been said that it makes good business sense for mangers to be ethical. Without being ethical, companies cannot be competitive at either the national or the international levels. While ethical management practices may not necessarily be linked to specific indicators of financial profitability, there is an inevitable conflict between ethical practices and a firm's emphasis on making a profit; the system of competition in the United States presumes underlying values of truthfulness and fair dealing.


The employment of ethical business practices can enhance overall corporate health in three important areas. The first area is productivity. The employees of a corporation are stakeholders who are affected by management practices. When management considers ethics in its actions toward stakeholders, employees can be positively affected. For example, a corporation may decide that business ethics requires a special effort to ensure the health and welfare of employees. Many corporations have established employee assistance programs to help employees with family, work, financial, and legal problems, and with mental illness or chemical dependency. These programs can be a source of enhanced productivity for a corporation.

A second area in which ethical management practices can enhance corporate health is in minimizing regulation from government agencies. Where companies are believed to be acting unethically, the public is more likely to put pressure on legislators and other government officials to regulate those businesses or to enforce existing regulations. For example, in 1990s and the early years of the twenty-first century, hearings and criminal court cases were conducted regarding collusion, fraud, and inaccurate reporting of financial data in a variety of organizations, some of which were already mentioned. The outcomes of these proceedings were of interest to the public because many people thought that these unethical leaders would be able to buy their way out of jail time or major fines and restitution. In the end, most of the indicted were convicted, which showed that big, powerful business leaders could not get away with stealing without consequences.

The third area in which ethical management practices can enhance corporate health is by positively affecting "outside" stakeholders, such as suppliers and customers. A positive public image can attract customers. For example, a manufacturer of baby products carefully guards its public image as a company that puts customer health and well-being ahead of corporate profits, as exemplified in its code of ethics.


A code of ethics is a formal statement that acts as a guide for how people within a particular organization should act and make decisions in an ethical fashion. Of the Fortune 500 companies, 90 percentand almost half of all other firmshave ethical codes. Codes of ethics commonly address issues such as conflict of interest, behavior toward competitors, privacy of information, gift giving, and making and receiving political contributions. According to one survey, the development and distribution of a code of ethics within an organization is perceived as an effective and efficient means of encouraging ethical practices within organizations.

Business leaders cannot assume, however, that merely because they have developed and distributed a code of ethics an organization's members have all the guidelines needed to determine what is ethical and will act accordingly. Not all situations that involve decision making in an organization can be addressed in a code. Codes of ethics must be monitored continually to determine whether they are comprehensive and usable guidelines for making ethical business decisions. Managers should view codes of ethics as tools that must be evaluated and refined in order to more effectively encourage ethical practices.


Business managers in most organizations commonly strive to encourage ethical practices not only to ensure moral conduct, but also to gain whatever business advantage there may be in having potential consumers and employees regard the company as ethical. Creating, distributing, and continually improving a company's code of ethics is one usual step managers can take to establish an ethical workplace.

Another step managers can take is to create a special office or department with the responsibility of ensuring ethical practices within the organization. For example, management at a major supplier of missile systems and aircraft components has established a corporate ethics office. This ethics office is a tangible sign to all employees that management is serious about encouraging ethical practices within the company.

Another way to promote ethics in the workplace is to provide the workforce with appropriate training. Many companies conduct training programs aimed at encouraging ethical practices within their organizations. Such programs do not attempt to teach what is moral or ethical but, rather, to give business managers criteria they can use to help determine how ethical a certain action might be. According to Saul Gellerman, managers can then feel confident that the general public will consider a potential action ethical if it is consistent with one or more of the following standards:

1. The Golden Rule: Act in a way you would want others to act toward you.

2. The utilitarian principle: Act in ways that result in the greatest good for the greatest number.

3. Immanuel Kant's categorical imperative: Act in such a way that the action taken under the circumstances could be a universal law, or rule, of behavior.

4. The professional ethic: Take actions that would be viewed as proper by a disinterested panel of professional peers.

5. The TV test: Always ask, "Would I feel comfortable explaining to a national TV audience why I took this action?"

6. The legal test: Ask whether the proposed action or decision is legal. Established laws are generally considered minimum standards for ethics.

7. The four-way test: Ask whether you can answer "yes" to the following questions as they relate to the decision: Is the decision truthful? Is it fair to all concerned? Will it build goodwill and improve friendships? Will it be beneficial to all concerned?

Finally, managers should take responsibility for creating and sustaining conditions in which people are likely to behave ethically and for minimizing conditions in which people might be tempted to behave unethically. Practices that lead to high-stakes decisions and actions tend to put employees and leaders in positions where they have to weigh the short-term personal benefits against the longer-term organizational and societal outcomes. The higher the stakes, the more likely unethical behavior will be observed. By eliminating high-stakes factors, managers can reduce much of the pressure that people feel to perform unethically.

see also Ethics: An Overview ; Ethics in Law for Business ; Ethics in Management


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Thomas Haynes

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Social Responsibility and Organizational Ethics

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