Revision Questions

Chapter 5 ­ Social Responsibility and Managerial Ethics

1. Discuss what it means to be socially responsible and what factors influence that decision.

Social obligation, which reflects the classical view of social responsibility, is when a firm engages in social actions because of its obligation to meet certain economic and legal responsibilities. Social responsiveness is when a firm engages in social actions in response to some popular social need. Social responsibility is a business’s intention, beyond its economic and legal obligations, to pursue long­term goals that are good for society. Both of these reflect the socioeconomic view of social responsibility.

Determining whether organizations should be socially involved can be done by looking at arguments for and against it. Other ways are to assess the impact of social involvement on a company’s economic performance and evaluate the performance of SRI funds versus non­SRI funds. We can conclude that a company’s being socially responsible doesn’t appear to hurt its economic performance.

2. Discuss the factors that lead to ethical and unethical behavior.

Ethics refers to the principles, values, and beliefs that define right and wrong decisions and behavior. The factors that affect ethical and unethical behavior include an individual’s level of moral development (pre­conventional, conventional, or principled), individual characteristics (values and personality variables—ego strength and locus of control), structural variables (structural design, use of goals, perform­ ance appraisal systems, and reward allocation procedures), organizational culture (shared values and cultural strength), and issue intensity (greatness of harm, consensus of wrong, probability of harm, immediacy of consequences, proximity to victims, and concentration of effect).

Since ethical standards aren’t universal, managers should know what they can and cannot do legally as defined by the Foreign Corrupt Practices Act. It’s also important to recognize any cultural differences and to clarify ethical guidelines for employees working in different global locations. Finally, managers should know about the principles of the Global Compact and the Anti­Bribery Convention.

3. Describe management’s role in encouraging ethical behavior.

The behavior of managers is the single most important influence on an individual’s decision to act ethically or unethically. Some specific ways managers can encourage ethical behavior include paying attention to employee selection, having and using a code of ethics, recognizing the important ethical leadership role they play and how what they do is far more

important than what they say, making sure that goals and the performance appraisal process don’t reward goal achievement without taking into account how those goals were achieved, using ethics training and independent social audits, and establishing protective mechanisms.

4. Discuss current social responsibility and ethics issues.

Managers can manage ethical lapses and social irresponsibility by being strong ethical leaders and by protecting employees who raise ethical issues. The example set by managers has a strong influence on whether employees behave ethically. Ethical leaders also are honest, share their values, stress important shared values, and use the reward system appropriately. Managers can protect whistle­blowers (employees who raise ethical issues or concerns) by encouraging them to come forward, by setting up toll­ free ethics hotlines, and by establishing a culture in which employees can complain and be heard without fear of reprisal.

Social entrepreneurs play an important role in solving social problems by seeking out opportunities to improve society by using practical, innovative, and sustainable approaches. Social entrepreneurs want to make the world a better place and have a driving passion to make that happen. Businesses can promote positive social change through corporate philanthropy and employee volunteering efforts.

Chapter 6 ­ Decision Making

1. What is decision making? Describe the eight steps in the decision­making process.

A decision is a choice. The decision­making process consists of eight steps: (1) identify problem; (2) identify decision criteria; (3) weight the criteria; (4) develop alternatives; (5) analyze alternatives; (6) select alternative; (7) implement alternative; and (8) evaluate decision effectiveness.

2. Explain the four ways managers make decisions.

The assumptions of rationality are as follows: the problem is clear and unambiguous; a single, well­defined goal is to be achieved; all alternatives and consequences are known; and the final choice will maximize the payoff. Bounded rationality says that managers make rational decisions but are bounded (limited) by their ability to process information. Satisficing happens when decision makers accept solutions that are good enough. With escalation of commitment, managers increase commitment to a decision even when they have evidence it may have been a wrong decision. Intuitive decision making means making

decisions on the basis of experience, feelings, and accumulated judgment. Using evidence­ based management; a manager makes decisions based on the best available evidence.

3. Classify decisions and decision­making conditions.

Programmed decisions are repetitive decisions that can be handled by a routine approach and are used when the problem being resolved is straightforward, familiar, and easily defined (structured). Non­programmed decisions are unique decisions that require a custom­made solution and are used when the problems are new or unusual (unstructured) and for which information is ambiguous or incomplete. Certainty is a situation in which a manager can make accurate decisions because all outcomes are known. Risk is a situation in which a manager can estimate the likelihood of certain outcomes. Uncertainty is a situation in which a manager is not certain about the outcomes and can’t even make reason­ able probability estimates.

When decision makers face uncertainty, their psychological orientation will determine whether they follow a maximax choice (maximizing the maxi­ mum possible payoff); a maximin choice (maximizing the minimum possible payoff); or a minimax choice (minimizing the maximum regret—amount of money that could have been made if a different decision had been made).

4. Describe different decision­making styles and discuss how biases affect decision making.

A person’s thinking style reflects two things: the source of information you tend to use (external or internal) and how you process that information (linear or nonlinear). These four dimensions were collapsed into two styles. The linear thinking style is characterized by a person’s preference for using external data and processing this information through rational, logical thinking. The nonlinear thinking style is characterized by a preference for internal sources of information and processing this information with internal insights, feelings, and hunches.

The 12 common decision­making errors and biases include overconfidence, immediate gratification, anchoring, selective perception, confirmation, framing, availability, representation, randomness, sunk costs, self­serving bias, and hind­ sight. The managerial decision making model helps explain how the decision­making process is used to choose the best alternative(s) either through maximizing or satisficing and then implement and evaluate the alternative. It also helps explain what factors affect the decision­making process including the decision­making approach (rationality, bounded rationality, intuition), the types of problems and decisions (well structured and programmed or unstructured and non­programmed), the decision­making conditions (certainty, risk, uncertainty), and the decision maker’s style (linear or nonlinear).

5. Identify effective decision­making techniques.

Managers can make effective decisions by understanding cultural differences in decision making, knowing when it’s time to call it quits, using an effective decision­making process, and building an organization that can spot the unexpected and quickly adapt to the changed environment. An effective decision­making process (1) focuses on what’s important; (2) is logical and consistent; (3) acknowledges both subjective and objective thinking and blends both analytical and intuitive approaches; (4) requires only “enough” information as is neces­ sary to resolve a problem; (5) encourages and guides gathering relevant information and informed opinions; and (6) is straightforward, reliable, easy to use, and flexible.