Three aspects of daily organizational life significantly impact an employee’s ethical performance: (1) the behaviors of organizational executives, managers, and direct supervisors, (2) work goals, and (3) employee performance appraisals.
This chapter explores how managers are ethical role models, the ethics of exercising power in an organization, and different leadership styles, including being an ethical leader. Ethical leaders develop great places to work. Ethical leaders can reinforce ethical behavior among employees through work goals and performance appraisals that encourage and reward ethical behaviors. Several surveys are provided to help managers evaluate themselves and others in terms of ethical leadership and behaviors.
After completing this chapter, students should be able to:
360-degree performance evaluations: a holistic employee performance measure based on information collected from people hierarchically above, below, and the same level as the employee being evaluated.
Authoritarian: a type of leadership style that refers to demanding blind submission to someone in authority.
Balanced Scorecard: measures organizational performance based on (1) financial performance, (2) customer performance, (3) internal business process performance, and (4) employee learning and growth.
Employee performance appraisal: technique for evaluating employee performance factors that are directly or indirectly related to achieving organizational and employee goals.
Ethical leadership: the demonstration of normatively appropriate conduct through personal actions and interpersonal relations, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making.
Forgiveness: refers to a gift freely given in the face of moral wrong to the wrongdoer from the victim without denying the wrong itself.
Management-By-Objectives: goal-setting technique in which managers and their subordinates jointly determine work unit and individual goals in alignment with organizational goals.
Power: refers to the ability to act, create an effect, or wield force.
Servant leadership: leadership style that achieves organizational results by humbly caring for and serving the needs of superiors, colleagues, and subordinates.
SMART goals: goals that are specific, measurable, aligned, reachable, and time-bound.
Stretch goal: goals that challenge employees to perform slightly beyond peak performance.
Theory X: management philosophy that assumes people are lazy, dislike work, avoid responsibilities, and do as little as possible unless induced by monetary incentives to provide their best effort.
Theory Y: a management philosophy that assume people usually enjoy mental and physical activities, are self-directed, desire challenging and interesting work, and welcome additional work-related responsibilities.
Triple Bottom Line: measures organizational performance based on (1) ecological performance, (2) social performance, and (3) financial performance.
WHAT ARE WILLIAM TORBERT’S 6 MANAGEMENT ROLE MODELS, WHICH ARE ASSOCIATED WITH THE DIFFERENT STAGES OF MORAL DEVELOPMENT?
Subordinates are constantly evaluating the ethics of a manager’s decisions and behaviors. A manager’s behavioral commitment, or lack thereof, to ethical principles filters down to subordinates and other employees. Managers have already been promoted, so their daily workplace actions are indicators to subordinates of what it takes to be promoted.
WILLIAM TORBERT’S SIX MANAGEMENT ROLE MODELS AND STAGES OF MORAL DEVELOPMENT
William Torbert has developed a management role model typology based on Lawrence Kohlberg’s six stages of moral development.
DISCUSS THE 5 DIFFERENT TYPES OF POWER SOURCES AVAILABLE TO MANAGERS, AND THE ETHICAL ISSUES RELATED TO AUTHORITARIAN AND PARTICIPATORY LEADERSHIP STYLES
EXERCISE OF POWER
- Managers possess power for the purpose of achieving organizational objectives.
- Power refers to the ability to act, create an effect, or wield force.
- Social psychologists John French and Bertram Raven differentiated among five types of power bases individuals can have in relationship to others:
1. Legitimate Power: Power that is formally assigned to an individual, such as a title or position; “I’m going to do what that person says because the person is my boss!”
2. Reward Power: Power obtained by being a person distributing rewards; “I’m going to do what that person says because I want to get a bonus and be promoted!”
3. Coercive Power: Power obtained by enforcing punishments; “I’m going to do what that person says because I don’t want to get fired!”
4. Referent Power: Power obtained because people want to be like you; “I’m going to do what that person says because I really admire the person!”
5. Expert Power: Power obtained by being a source of desired knowledge or skills; “I’m going to do what that person says because the person is an expert on the issue!”
AUTHORITARIAN LEADERSHIP STYLE
- Historically, the dominant view on how to manage an organization and its employees consisted of managers organizing work and directing people.
- Authoritarian refers to demanding blind submission to someone in authority. Authoritarian managerial power has a long history that includes the institution of slavery in ancient Greece and Rome, and pre-Civil War United States.
- Social Darwinists such as Andrew Carnegie maintained that executives earn authoritarian power by successfully climbing the organizational ladder.
Through a competitive promotion system, managers who mastered administrative skills at one level of operations are promoted to the next higher level of management, equipping them with the knowledge and skills needed to successfully command an organization and tell subordinates what to do.
- In the early 1900s, Frederick Winslow Taylor encapsulated the authoritarian leadership style by scientifically studying every worker motion necessary to perform a task at peak efficiency and effectiveness.
He used a stopwatch to calculate each worker’s maximum output capacity and then determined the one most efficient and effective method for performing the job. Taylor’s attitude toward leading subordinates was: “Here’s what needs to be done and here’s how to do it, now just do it and I’ll pay you.”
- An authoritarian management style raises several ethical issues.
Employees are tightly controlled and their opinions are not respected. These restrictions inhibit individual creativity and contribute to a culture of dependency.
Researchers report that rigid, one-way communication from supervisor to subordinate constrains an employee’s moral development.
Authoritarian leadership is also associated with abusive supervision, where subordinates are verbally abused, intimidated, degraded, and treated with hostility to achieve desired organizational outcomes.
PARTICIPATORY LEADERSHIP STYLE
- During the 1950s, Douglas McGregor differentiated between two different management approaches, referred to as “Theory X” and “Theory Y,” based on a different set of beliefs about employees.
- Theory X represented the traditional perspective – people were lazy, disliked work, avoided responsibilities, and did as little as possible unless induced by monetary incentives to provide their best effort.
- As a result, Theory X managers adopted an authoritarian management style where employees were coerced, controlled, directed, or threatened to perform the task necessary to achieve productivity goals.
- Theory Y managers assumed people usually enjoyed mental and physical activities, were self-directed, desired challenging and interesting work, and welcomed additional work-related responsibilities.
- As a result, Theory Y managers could get the most out of employees by demonstrating greater respect for them through a participative management style that involved subordinates in the decision-making process.
- Rensis Likert’s research led him to conclude that a participative management system resulted in higher amounts of employee productivity, loyalty, and motivation, all of which contributed to better profits.
- Paul Hersey and Ken Blanchard fine-tuned the differences between authoritarian and participative leadership styles by noting that there is no one best way to manage everybody.
- A manager’s leadership style needs to fit the type of employee being managed. Blanchard further developed a Situational Leadership II Model that categorizes four leadership styles – directing, coaching, supporting, and delegating – according to an employee’s level of competence and commitment or confidence.
Directing – If an employee has low competence and high commitment, such as an enthusiastic beginner, the manager needs to clearly direct the employee through one-way communication.
Coaching – If an employee has either low or some competence and lacks commitment, such as a disillusioned learner, the manager needs to provide direction, guide the employee using two-way communication that stresses accountability, and provide feedback.
Supporting – If an employee has moderate to high competence and variable commitment, such as a capable but cautious performer, the manager needs to listen to the employee’s concerns and suggestions and then provide support and encouragement.
Delegating – If an employee has high competence and high commitment, such as a self-reliant achiever, the manager needs to delegate responsibilities, provide resources, and monitor progress.
- From an ethics perspective, situational leadership sensitizes managers to focus on employee needs and providing the style of leadership the employee’s needs dictate.
- Hersey and Blanchard have an ultimate preference that uses the greatest human capacity, in this case, delegating.
- But delegation will only work if an employee has the appropriate competencies and confidence. Delegating work to an employee with low competence or low commitment will result in failure.
- Nonetheless, managers need to provide an employee with low competence the appropriate training and development, and an employee with low confidence the appropriate support, so that the employee can succeed if delegated tasks.
WHAT IS ETHICAL LEADERSHIP AND HOW CAN IT BE MEASURED?
- Whether a situation calls for an authoritarian or participatory leadership style, one aspect is constant in all situations, the need for an ethical leadership style.
- In a series of articles, Michael Brown, Linda Trevino, and their colleagues provide an expansive understanding of what it means to be an ethical leader. They maintain that a manager’s reputation for being an ethical leader is based on two factors, being a moral person and being a moral manger.
As a moral person, managers must exhibit ethical traits in their personal lives, such as honesty, integrity, trustworthiness, and treating people with respect.
As a moral manager, managers must be aware of ethical issues, encourage others at work to behave ethically, and hold employees accountable for ethical behavior.
- A manager’s private life affects the way employees and other key stakeholders perceive the manager’s ethics.
A manager who encourages and reinforces ethical behaviors at work, but engages in drunken behaviors, adulterous affairs, drug addictions, or excessive profanity loses the respect of others.
Likewise, a manager who is personally ethical, but does not encourage and reinforce ethical behaviors among subordinates also falls short as an ethical leader.
- Within this analytical framework, Brown, Trevino and David Harrison define ethical leadership as “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making.”
Normatively appropriate conduct stipulations are embodied in an organization’s Code of Ethics and Conduct.
ETHICAL LEADERSHIP SURVEY
- Brown, Trevino, and Harrison developed an Ethical Leadership Survey consisting of ten statements that describe attributes of being a moral person and a moral manager
- Review “Ethical Leadership Survey”
- Use the Ethical Leadership Scale to assess a specific manager. The survey can also be used to assess top management in general by substituting “top management” for “my manager.”
- Researchers have found strong associations between ethical leadership and satisfaction with leaders, perceived leader effectiveness, willingness to give extra effort, willingness to report problems to management, job satisfaction, and organizational commitment.
- Researchers also report that the highly desirable outcomes associated with ethical leadership result from a “trickle-down” effect where ethical managers at the top of the organization positively impact their direct reports, a process that cascades, through ethical role modeling, down the organizational hierarchy.
- Review TIPS AND TECHNIQUES “Common Decencies at Work”
VIRTUE ETHICS SURVEY
- Ethical leaders are transparent and authentic. They mean what they say and practice virtuous behaviors.
- The list of virtuous traits is extensive. The most common grouping of virtues includes justice (fairness), empathy, passion, reliability, honesty, integrity, and respect.
- Researchers have found the personality traits agreeableness (likeable, friendly, and easy to get along with) and conscientiousness (responsible, dependable, and hard-working) to be strongly associated with ethical leadership.
- Ronald Riggio, Weichun Zhu, Christopher Reina, and James Maroosis developed a survey that focuses on the four cardinal virtues emphasized by Aristotle: justice, fortitude, prudent, and temperance.
- Justice refers to fairness, fortitude to courage and perseverance, prudence to practical wisdom, and temperance to controlling one’s emotions.
- Review “Virtue Ethics Survey,” which provides a survey instrument for measuring these key virtues. Managers can use the survey instrument as a self-assessment and compare with subordinate survey responses.
- Many of the virtues noted above are encapsulated under the concept of servant leadership.
- Robert Greenleaf, an American Telephone & Telegraph executive responsible for management development, developed the concept of servant leadership based on biblical ideals and using Jesus as an ethical role model.
- Greenleaf referred to servant leadership as achieving organizational results by humbly caring for and serving the needs of superiors, colleagues, and subordinates.
- Theorists and researchers have determined the following five characteristics as representing those of a servant leader:
- From a servant leadership perspective, any occupation, profession, job title, or job task is a call to serve.
A servant leader is one who ensures that all employees have the requisite support systems to perform at their greatest capabilities to meet customer needs.
Rather than expecting employees to serve the needs of the manager, a servant leader serves the needs of his or her employees in alignment with the organization’s vision or mission.
- Review BEST PRACTICE IN USE about CEO Aaron Feuerstein’s response to a tragic fire that threatened the jobs of 3,000 employees.
- Being ethical, without being perceived by others as ethical, is problematic. The trust and employee commitment that accompany ethical managers will not be generated if employees do not perceive that their manager is indeed ethical.
Sometimes the fault lies with managers who may be unaware that some of their actions are being interpreted as unethical.
Sometimes the fault lies with employees who are uninformed about a manager’s ethical efforts or remain cynical about managerial intentions.
- Creating employee feedback systems that gather information about ethical perceptions symbolizes the importance of ethics to the organization and is an essential information source.
A GREAT PLACE TO WORK
- An organization composed of ethical leaders and managers would be a great place to work. The Great Place to Work® Institute has developed a model of best management practices for creating a work culture that achieves superior performance.
- A great place to work is defined by the Institute as a place where people “trust the people they work for, have pride in what they do, and enjoy the people they work with.”
- Such an organization has high levels of credibility, respect, fairness, pride, and camaraderie, all of which are associated with ethical leadership.
- Review “Great Place to Work® Dimensions,” which summarizes how the model’s five dimensions are exemplified.
HOW CAN WORK GOALS AND PERFORMANCE APPRAISALS INLFUENCE ETHICAL AND UNETHICAL
- Organization and work goals clarify expectations for both managers and employees.
- Conscientious employees desire goals that establish clear measurable targets which can quantify and validate their accomplishments.
- Well-designed goals hold managers, co-workers, and subordinates accountable to each other.
- Ill-conceived goals, on the other hand, can generate unethical behaviors.
- Unreasonable profit expectations, for instance, can lead some managers to falsify accounting records to increase revenue, approve extremely risky loans they normally would reject, or deny subordinates earned wages and benefits to meet labor cost goals.
HOLISTIC ORGANIZATIONAL GOALS
- Traditionally, managers focus on influencing employees to accomplish the twin goals of increasing productivity and profitability.
- The Balanced Scorecard is a technique that provides ethical leaders with more holistic goals and measurements for evaluating organizational performance.
- In addition to relevant financial performance numbers, the Balanced Scorecard contains quantifiable non-financial performance measures in terms of the customer, internal business processes, and employee learning and growth.
- Managers determine five or six meaningful measures from each of these four Balanced Scoreboard categories.
- Common indicators include measures for customer satisfaction, product quality, employee satisfaction, employee training and development.
- Another popular holistic goal approach available to ethical leaders is the “Triple Bottom Line.”
- Sustainability theorist John Elkington conceived of the triple bottom line in 1994 as a comprehensive measure that takes into account an organization’s ecological performance, social performance, and financial performance.
- The Triple Bottom Line approach extends managerial focus from shareholders to other stakeholders.
- The United Nations has adopted the Triple Bottom Line as an accounting standard for communities, where the success of organizations is based on how their decisions impact “people, planet, and profit.”
- Many organizations establish “stretch goals” that challenge employees to perform at peak efficiency and effectiveness.
- A stretch goal, contrasted to an incremental goal, is one that appears to be just a little out of the employee’s reach, thus the need to stretch to accomplish the goal. Employees are more likely to accomplish something that seems impossible if a goal is established that focuses the employee’s attention on the task.
- Researchers report that stretch goals, however, sometimes tempt employees to stretch the truth and behave unethically if that is the only way they can achieve the goal by the specified deadline.
- Sales performance stretch goals are a particularly troublesome area and they contribute to salespeople being ranked among the most unethical professions in annual public opinion polls.
- A similar phenomenon occurred at both Enron and Arthur Andersen.
Wall Street analysts and investors continually expected Enron to increase revenue by 20 percent annually
Arthur Andersen partners expected field partners to increase client revenue by 20 percent annually.
The pressure to accomplish these very difficult goals generated unethical behaviors that led to the collapse of both companies.
- Depending on the nature of the job task, establish daily, weekly, monthly, and yearly goals. In addition, establish and review interim goals, and reward employees for achieving them.
- SMART goals have five attributes. The SMART acronym stands for goals that are:
1. Specific—The outcome is clearly identifiable.
2. Measurable—The outcome can be measured.
3. Aligned—The outcome contributes to organizational strategy.
4. Reachable—The outcome is challenging, but realistically attainable.
5. Time-Bound—The outcome is to be achieved by a specific point in time.
- A clearly defined goal statement that meets the five SMART criteria minimizes ambiguity about employee performance expectations.
- Obtain employee input to ensure that work goals are attainable.
- Employee participation in the goal-setting process increases their commitment and accountability to the goal. Establishing feedback sessions to review goal progress also increases the likelihood of success.
- Align employee goals with organizational goals.
- Management-By-Objectives (MBO) is a goal-setting technique in which managers and their subordinates jointly determine work unit and individual goals in alignment with organizational goals.
- Goals require deadlines, and deadlines can create stress through psychological and physical tension.
- High levels of stress, inappropriately managed, can lead to health problems, low productivity, accidents, absenteeism, turnover, and unethical employee behaviors.
- Work goals are just one source of workplace stress. Other causes of stress include conflicts at work, rapid change, unfavorable working conditions, authoritarian or incompetent supervisors, and personal problems at home.
- Organizations can help employees manage stress through:
- health-related wellness programs and employee assistance programs (EAPs)
- delegation training that helps employees with unreasonable burdens to assign tasks to others
- a “quiet time” that eliminates interruptions during a specified time period.
- meditation relaxations
EMPLOYEE PERFORMANCE APPRAISALS
- Ethical leaders can hold followers accountable through performance appraisals.
- An employee performance appraisal evaluates factors that are directly or indirectly related to achieving organizational and employee goals.
- An appraisal can be conducted solely for the sake of employee development, or linked to merit raises and used to determine promotions and dismissals.
- Gather information about the employee’s strengths and weaknesses relative to key performance criteria, and then work with the employee to develop new work goals in the spirit of continuous improvement.
- Include an ethics component in employee performance appraisals.
- Link employee performance appraisal results to merit raises and promotions to ensure that employees who behave ethically, and achieve goals in alignment with organizational objectives, are appropriately rewarded.
- Design performance appraisals, and gather relevant data, that address four prominent ethical performance issues:
1. Does the employee behave unethically?
2. Does the employee live up to the code of ethics?
3. Does the employee embody the attitudes and behaviors of an ideal employee?
4. Does the employee achieve and support ethics-based initiatives?
- The seven-item survey “Practicing Unethical Behaviors Survey” highlights unethical behaviors that might publicly embarrass an employee. Modify the items to fit the context of the organization or work unit.
- Completing the survey – honestly and confidentially – reinforces that these unethical behaviors are wrong and provides the employee with ethical performance goals for the next performance appraisal period.
LIVING UP TO THE CODE OF ETHICS PERFORMANCE APPRAISALS
- Annually appraise how well employees perform according to the organization’s Code of Ethics.
- Review the survey “Employee Code of Ethics Performance Appraisal”
- Appraise employee performance for all ethics-based initiatives. These items can be added to regular performance appraisals.
- Measures for ethics-based initiatives may include accomplishing affirmative action hiring and promotion goals, work unit ethics scores, percentage of employees participating in ethics and diversity training workshops, theft reductions, and number of employee grievances.
IDEAL EMPLOYEE ATTITUDES AND BEHAVIORS PERFORMANCE APPRAISALS
- Employee performance appraisals can be used to benchmark the distance an employee still needs to travel in the direction of becoming an ideal employee.
- Annually appraise employee performance based on the qualities of an ideal employee.
- Review “Leadership Skills Performance Appraisal,” which provides a survey based on a profile for an ideal leader.
COLLECTION AND EVALUATION ISSUES
- How employee performance appraisal information is collected and evaluated raises ethical issues.
- Poorly managed performance appraisals are detrimental to employee development, morale, and productivity.
- Conduct employee performance evaluations in a timely manner, at least once a year. More frequent appraisals minimize damages because managers become aware of problems needing correction soon after they happen.
- Fairness dictates that employees receive evaluation scores that are related to their actual job performance.
- Collect performance information from a wide range of people who interact with the employee being evaluated.
- An authentic and holistic picture of an employee’s performance can be determined based on 360-degree performance evaluations.
- Employees can be rated in comparison to an absolute standard of performance or ranked in comparison to each other.
star performers were well rewarded through recognition and high bonuses
middle performers received extensive feedback and provided opportunities to further enhance their skills through additional training
low performers were either dismissed or provided a second chance to improve performance within agreed upon timelines.
PERFORMANCE APPRAISAL FEEDBACK
- The purpose of a performance appraisal feedback session is to praise an employee’s good behaviors and accomplishments and develop strategies for improving weaknesses.
- Carefully manage the feedback session because employees may feel anxious about giving or receiving critical information.
First, begin the meeting by discussing areas that both the employee and the raters highlighted as strengths. Praise these behaviors and accomplishments.
Second, discuss any areas raters highlighted as strengths but the employee did not.
Third, discuss any areas the employee highlighted as strengths but the raters did not.
Fourth, discuss those areas that both the employee and raters highlighted as weaknesses.
WHAT ARE BEST PRACTICES FOR DISCIPLINING WORK RULE VIOLATIONS?
- Ethical leadership does not mean never disciplining or firing anyone. Poor performers who fail to improve need to be dismissed for the benefit of the work unit and organization, and sometimes downsizing is unavoidable.
- Ethics, however, suggests that a poor performer be given an opportunity to improve within a certain timeline prior to dismissal, or that care and concern be extended when downsizing occurs by providing outplacement services.
- How managers respond to allegations that a subordinate has behaved unethically significantly influences how employees evaluate a manager’s fairness.
- Everyone is innocent until proven guilty.
- Investigate the situation prior to imposing disciplinary action.
1. Talk to, and coach, the employee about the problem
2. Oral warning
3. Written warning
4. Provide special in-house services to help employee
5. Send employee to formal training for help
6. Explore transferring employee to a different department
7. Put the employee on probation
8. Fine the employee or withhold a portion of merit pay
9. Suspend without pay
WHY IS IT IMPORTANT TO FORGIVE MANAGERS AND COWORKERS?
DESCRIBE ROBERT ENRIGHT’S 4 PHASES OF FORGIVENESS
IMPORTANCE OF FORGIVENESS
- Violated trust between and among managers and employees needs to be repaired.
- Similar to the rehabilitation process for work rule violations, apply the “AAA” method – admit, apologize, and make amends.
- The other half of the harm equation involves the person being harmed forgiving the initiator of the harm.
- Managers must exemplify the value of forgiveness and coach employees on how to forgive.
- This is particularly important if the work group is recovering from a dishonest or abusive manager because employee resentment will be projected on the manager’s replacement.
- The new manager needs to acknowledge, and heal, the harm caused by the previous manager, rather than ignore the harm, and workgroup members need to forgive their previously morally imperfect manager.
- Robert Enright of the International Forgiveness Institute defines forgiveness as a gift freely given in the face of moral wrong, without denying the wrong itself. Forgiveness recognizes the inherent worth of the wrongdoer and replaces the resentment a violated person may feel with goodwill, a process that increases the forgiver’s self-esteem.
- Enright offers a four-phase model that ethical managers can apply to guide employees through the forgiveness process. The process begins with personal awareness of the negative impacts stemming from the harm-generating behavior.
Phase 1: Uncovering Phase. The violated person recognizes that the unjust situation has created unhealthy anger and emotional pain.
Phase 2: Decision Phase. The violated person explores the personal pain or damage that would continue by not forgiving the wrongdoer, compared to the positive changes that could occur by forgiving.
Phase 3: Work Phase. The violated person grieves over the unfairness of the wrongdoing, reframes the wrongdoer as a person of inherent human worth deserving of forgiveness, and practices the virtues of goodness, service, mercy, and generosity by forgiving the wrongdoer.
Phase 4: Outcome Phase. The forgiving person experiences the emotionally healing benefits of forgiveness and finds meaning in the previous suffering.
Best Place to Work Video
Business Ethics Issue Video
- Inspirational Leadership: Simon Sinek discusses a powerful model for inspirational leadership starting with a golden circle and the question "Why?" using Apple, Martin Luther King, and the Wright brothers as examples; September 2009, 18 minutes
- Leadership: Richard Branson describes the ups and the downs of his career, from his multibillionaire success to his multiple near-death experiences; March 2007, 30 minutes
Conversations with Charlie Rose
- A conversation with Michael Lewis, author of 'The Big Short', about the 2008-2010 financial crisis; March 16, 2010, 60 minutes
- A conversation with Lloyd Blankfein, Chief Executive Officer and Chairman of Goldman Sachs; April 30, 2010, 60 minutes
A high performing ethical organization is a community of people in which each employee has a sense of belongingness and ownership, and feels respected and accountable. Some systems of management treat non-management employees with greater respect than others by actively involving them in the decision-making process. Organizations with engaged and empowered employees emphasize two-way communication with participative management processes.
This chapter examines how to engage employees by meeting essential human needs, ensuring organizational justice, and providing meaningful work. The chapter also explores how to empower employees by giving them decision-making authority, providing relevant information about organizational operations, and sharing the financial benefits generated by their efforts.
After completing this chapter, students should be able to:
Abraham Maslow: developmental psychologist who differentiated five categories of hierarchical needs every individual has: physiological, safety, social, self-esteem, and self-actualization.
Appreciative Inquiry: team-based management technique that focuses on the strengths of both the employee and the organization to achieve superior performance.
Bullying: a repeated verbal abuse or abusive conduct that is threatening, humiliating, and intimidating, and interferes with work.
Cooperatives: an alternative communal way where producers, consumers, or employees jointly own a business.
David McClelland: differentiated three types of human needs – affiliation, achievement, and power – that can be rated on a high, moderate, low scale.
Employee engagement: an emotional bond or attachment an employee has to the work task, organization, and its members.
Empowerment: giving employees decision-making authority, which can be further solidified with an ownership stake in the organization.
ESOPs: refers to an Employee Stock Option Plan where all full-time employees are given the opportunity to have a significant equity stake in the company.
Frederick Herzberg: differentiated job satisfaction factors or “motivation factors” which include achievement, recognition, work itself (doing a complete job), responsibility, advancement, and growth from job dissatisfaction factors or “hygiene factors” which include company policies and administration, quality of supervision, relationship with boss, working conditions, base wage or salary, and relationship with peers.
Meaningful work: spending time at work to achieve something that is personally desirable and engages an employee’s entire intellectual, physical, and emotional energies in the work that needs to be done because it is what he or she feels destined to do.
Open Book Management: technique whereby managers share relevant financial and operational information with non-management employees so that they can better understand the organization’s financial situation and operational issues, and make better decisions.
Organizational justice: fair treatment of employees in terms of decision-making procedures, information conveyance, treating each other, and distribution of work outcomes.
Pinch theory: conflict resolution technique where a person being treated unfairly engages the person contributing to the conflict in developing a solution.
Scanlon-type gainsharing plans: technique to empower employees by delegating institutional responsibility and accounting in improving operations to employee teams that elicit, evaluate, and implement continuous improvement suggestions and receive financial rewards for surpassing historical standards.
Stock options: an option given to employees that provides them the right to purchase a specific number of company shares at a fixed price by a particular future date, typically 10 years.
Team problem-solving process: an eight-step process that accesses each team member’s unique knowledge to generate solutions with the highest likelihood of achieving superior performance.
- Frederick Herzberg, based on interviews with accountants and engineers, concluded that job satisfaction is not a linear concept where the presence of some factors results in job satisfaction and their lack contributes to job dissatisfaction. Instead, factors contributing to job satisfaction are separate and distinct from factors contributing to job dissatisfaction.
Job satisfaction factors, which he called “motivation factors,” are related to what people do at work. A lack of motivation factors does not necessarily result in job dissatisfaction.
Job dissatisfaction factors, which he called “hygiene factors,” are related to a bad working environment. A good working environment, however, rarely contributes to sustained job satisfaction.
- Review “Herzberg’s Job Satisfaction-Dissatisfaction Theory” for the six factors that contribute the most to employee satisfaction and dissatisfaction.
The motivation factors that impact job satisfaction are: achievement, recognition, work itself (doing a complete job), responsibility, advancement, and growth.
The hygiene factors that impact job dissatisfaction are: company policies and administration, quality of supervision, relationship with boss, working conditions, base wage or salary, and relationship with peers
- Yet many managers continue to falsely assume that the best way to motivate employees is through financial rewards and the threat of disciplinary action.
- Daniel Pink reviewed behavior research over the past fifty years and concludes that the insights of Maslow, McClelland, and Herzberg are still valid.
- Employee engagement is more likely when employees perceive justice, or fairness, in decisions associated with organizational policies, procedures, and outcomes.
- Justice is the most essential moral value.
- Ethical managers must ensure that justice is a highly valued attribute of organizational operations.
- Organizational justice is multidimensional. Scholars distinguish among four forms of organizational justice – procedural, informational, interactional, and distributive justice:
Procedural Justice: Decision-making procedures are fair. Employees can provide input, procedures are unbiased and applied consistently, and decisions can be appealed.
Informational Justice: Information is conveyed fairly. Employees receive relevant and accurate information in a timely manner.
Interactional Justice: Employees treat each other fairly. Employees are treated with dignity by supervisors, peers, and subordinates.
Distributive Justice: The distribution of outcomes is fair. Pay, benefits, promotions, and workloads reflect individual capabilities and efforts.
- Researchers report that organizational justice is highly associated with organizational citizenship behaviors and commitment to supervisors and the organization.
Employees are more willing to help co-workers who have heavy workloads or are struggling with work-related problems when they themselves have been treated fairly and with integrity.
- Unethical bullies create a range of injustices at work. Employees usually cannot perform at peak productivity when they are being bullied by peers, subordinates, or supervisors.
- According to the Workplace Bulling Institute’s 2007 survey, 37 percent of the respondents had been bullied at work and 13 percent were being bullied at the time of the survey.
- Immediate supervisors were the most predominant group of bullies.
- Bullying is defined as repeated verbal abuse or abusive conduct that is threatening, humiliating, intimidating, and interferes with work.
- Bullying can take many forms, including hostile and insulting remarks about appearance or lifestyle, hurtful jokes and pranks, taunting, excessive teasing and ridicule, continual false accusations, public criticisms, and angry tantrums.
- Bullying has many negative impacts on overall organizational performance.
Low levels of job satisfaction, organizational commitment, and morale
High levels of absenteeism, psychological distress, and turnover.
Illegal forms of harassment and discrimination, and threaten employee safety.
Create unhealthy stress among recipients and witnesses.
Victims feel frustrated and anxious, which can lead to clinical depression.
Bullying behaviors, unreported, lead to employee disengagement because their passion for work is diluted due to anxieties and dissatisfaction.
- Meaningful work is typically defined as spending time at work to achieve something that is personally desirable.
- When work is personally meaningful, an employee passionately engages his or her entire intellectual, physical, and emotional energies in the work that needs to be done because it is what he or she feels destined to do. Employees feel usefully alive in a way that benefits the organization and their own personal development.
- Review “Sources of Meaningful Work” which provides a broad conceptualization of what makes work meaningful using a 2x2 matrix.
- According to Lips-Wiersma and Morris, four sources of meaningful work are:
- As diagrammed, the four sources can be understood along two continuums: (1) being and doing, and (2) self and others. A tension exists along each continuum that requires carefully balancing the two extreme positions.
MEASURING EMPLOYEE ENGAGEMENT
- Marcus Buckingham and Curt Coffman explored the Gallup Poll’s database to determine what talented employees wanted most from the workplace.
More than any other factor, what talented employees desired most at the workplace was to work for an excellent manager. The relationship talented employees had with their immediate supervisor mattered more than anything else.
- The Gallup researchers then analyzed the survey responses of more than 80,000 managers from 400 companies to determine the attributes that differentiated “excellent managers” from “average managers.”
- According to the most talented employees, an excellent manager:
- The researchers interviewed excellent managers about their techniques for managing people. They heard a common refrain about employees:
People don’t change that much.
Don’t waste time trying to put in a person what was left out.
Try to draw out of a person what was left in.
That is hard enough.
The Gallup Organization researchers found that pay is not among the most important motivational factors contributing to employee engagement and productivity.
- Review “12 Core Elements of Employee Engagement,” which provides 12 core elements that must be experienced at work to attract, engage, and retain talented employees.
DESCRIBE DIFFERENT TECHNIQUES FOR MANAGING GO-GETTERS, FENCE-SITERS AND ADVERSARIALS
- Employee engagement contributes to, but does not necessarily require, employee empowerment.
Engagement is an emotional connection to the job task, work unit, or organization.
Empowerment refers to giving employees decision making authority, which can be further solidified with an ownership stake in the organization.
- Review the “BEST PRACTICE IN USE” exhibit, which provides a list of empowerment mechanisms implemented by Whole Foods Market.
WHO TO EMPOWER
- Not all employees want to be empowered, nor should all employees be empowered.
- Being ethical and fair does not mean that every employee must be empowered. Each employee has different capabilities and attitudes toward work.
- Being fair means providing all employees with the opportunity to be empowered based on meeting certain workplace criteria.
- Some managers mistakenly design systems to control for under-performing employees and, in the name of fairness, impose the same control system on all employees.
When this happens, some of the best performers quit for employment with an organization that will treat them with the respect they deserve.
Managers need to treat their best performers differently, such as providing them with more autonomy and decision-making authority, than other employees— they have earned it.
Provide greater decision-making authority to under-performing employees only after they meet or surpass expectations.
- Many organizations have three types of employees in terms of workplace attitudes and behaviors:
1. Go-getters, who are fully engaged with the work experience
2. Fence-sitters, who put in a good day’s work for a good day’s pay
3. Adversarials, who have an unfavorable attitude to both the nature of work and authority
- Review “Workplace Attitudes and Behaviors” which summarizes these three types of employees.
Go-getters are task-oriented employees with a “can-do” attitude. They enjoy working, are proactive, and appreciate new challenges.
Empower go-getters by giving them freedom and autonomy, new challenges, and leadership positions; praise them and give them extra rewards.
Empower go-getters to work with fence-sitters and adversarial employees. Go-getters can teach fence-sitters easier ways to perform their work tasks and offer adversarial employees a more constructive way to frame organizational events and apply their energy.
Fence-sitters meet managerial expectations and go no further. They consider a job as a necessary burden to pay expenses. Fence-sitters put in a solid work effort and meet performance expectations because they do not want to be fired.
Empower fence-sitters only under restricted conditions. Challenge fence-sitters by continually increasing performance expectations. The more that is expected of fence-sitters, the more they will accomplish.
Separate fence-sitters from adversarial employees, who typically try to distract fence-sitters from putting in a good day’s work.
Adversarial employees do not like work and possess negative attitudes toward others, particularly managers and go-getters, often slack off when not under managerial observation and encourage fence-sitters to do likewise, view manager as the enemy and criticize managers whenever possible.
Do not empower adversarial employees.
Instead, confront and discipline adversarial employees. Otherwise, they will not change their attitudes or behaviors.
Sometimes an employee is adversarial because the job fit is inappropriate. In this case, assign the adversarial employee to a different task, workgroup, or manager.
Closely supervise adversarial employees, because they cannot be trusted to act with the organization’s best interests at heart.
Document the behavioral impacts of their negative attitudes, such as failure to cooperate with managers or go-getters.
Require that adversarial employees receive counseling through the organization’s EAP program to get at the root of their negative work attitude, which may be grounded in childhood experiences.
Give adversarial employees an opportunity to change by a jointly determined deadline and dismiss them if the agreed upon change does not occur. Some reformed adversarial employees are very grateful for being given another chance.
Adversarial employees have leadership skills, though they are currently directed toward the wrong ends.
MEASURING A MANAGER’S EMPOWERMENT BEHAVIORS
Review the wide range of management behaviors that can foster employee empowerment, which appear in “Empowering Behaviors Survey” as a survey instrument for evaluating a direct supervisor’s use of empowerment techniques.
WHAT IS THE TEAM PROBLEM-SOLVING PROCESS?
WHAT ARE ITS ADVANTAGES?
EMPOWERING EFFECTIVE TEAMS
- Every work unit is a team or small community.
- According to Patrick Lencioni, ineffective teams suffer from five dysfunctions: absence of trust, fear of conflict, lack of commitment, avoidance of accountability, and inattention to collective results.
- Conversely, the most effective teams consist of members who:
(1) trust one another
(2) engage in constructive conflict
(3) personally commit to goal accomplishment
(4) are accountable for their behaviors, and
(5) focus on collectively achieving their assigned tasks.
- Conflict is normal in both simple and complex organizations. Highly engaged and committed employees will disagree about the best way to manage a situation.
- The “pinch theory” technique is a useful tool for preventing team conflicts from escalating. Both parties enter the following ten-step planned reconciliation process. The first six steps help to clarify the conflict and the final four steps help to resolve the conflict.
Step 1: Party calling the “pinch” (conflict) goes first
Step 2: Second party repeats the information
Step 3: First party confirms or clarifies the repeated information
Step 4: Second party gives his or her side of the story
Step 5: First party repeats the information
Step 6: Second party confirms or clarifies the repeated information
Step 7: First party proposes a solution
Step 8: Second party accepts or offers a different solution
Step 9: First party and second party continue to offer solutions until a resolution is reached
Step 10: Upon agreement, the parties write out the solution, sign the document, and keep it on file
- The team problem-solving process below helps access each member’s unique knowledge—introverts as well as extroverts—and generate solutions with the highest likelihood of achieving superior performance.
END OF DAY TOTAL QUALITY MANAGEMENT PROCESS
- Set aside 10 to 15 minutes at the end of every day for teams to process the events that occurred during the day and make preparations for managing any ongoing problems the following day.
- Organize daily reflections where each employee shares the information below about the work day. Have one employee address all five issues and then the next employee does likewise.
WHAT IS OPEN BOOK MANAGEMENT?
- Empowering employees requires giving them the information they need to make individual or team decisions. Transparency is an essential element of trust-building.
- Open Book Management is a technique where managers share relevant financial and operational information with nonmanagement employees so they can better understand the organization’s financial situation and operational issues, and make better informed decisions.
- “Open Book” means what the term implies – opening the financial books to all employees. The information shared could include balance sheets, revenue, profit, cost of goods, customer returns, on-time shipments, and so on.
- Trusting nonmanagement employees with previously confidential financial and operational information enables them to behave more like managers.
- Review the TIPS AND TECHNIQUES “Open Book Management” exhibit
HOW WOULD YOU DESIGN AN APPRECIATIVE INQUIRY WORKSHOP TO ACHIEVE SUPERIOR CUSTOMER SERVICE?
- A key task for managers is to empower employees by aligning employee strengths with the organization’s mission so that employee weaknesses become irrelevant.
- Appreciative Inquiry is a team-based management technique that focuses on the strengths of both the employee and organization.
- Appreciative Inquiry is a particularly powerful method for aligning fence-sitters and adversarial employees, as well as go-getters, with continuous improvement efforts and superior performance.
- Appreciative Inquiry is a four phase process, employees:
APPRECIATIVE INQURY WORKSHOP
- An Appreciative Inquiry workshop can be designed to empower employees to achieve superior customer service based on organizational strengths.
Step 1: Individually reflect on superior customer service [Discover]. Each employee independently responds to the following prompts:
Describe a situation when you received superior customer service.
Describe a situation when you provided superior customer service.
Describe a situation when a co-worker provided superior customer service.
Describe other ways the organization has provided superior customer service.
Describe other ways the organization can provide superior customer service.
What changes would have to be made in the organization to achieve this?
Step 2: On a small team, determine the essential elements of superior customer service.
Each team member presents situations when he or she received superior customer service, provided superior customer service, and observed others in the organization providing superior customer service.
As a team, list the most important elements mentioned in these stories that enabled employees to achieve superior customer service (e.g., “The common themes in these stories are x and y.”). Share these elements with the larger group
Step 3: Develop a collective vision of what is needed to achieve superior customer service [Dream].
Each team member describes other ways the organization can provide superior customer service and changes that would have to be made to accomplish this. For instance, “We could provide superior customer service if we did x and y.”
As a team, develop a compelling image of how the organization can achieve superior customer service in the future. Share this image with the larger group.
Step 4: Create a draft of a new organizational mission statement that emphasizes superior customer service at every level of operations.
Each team member independently composes a one-sentence mission statement and presents it to the team.
As a team, achieve consensus on a one-sentence mission statement that meets the following four criteria, and share the mission statement with the larger group:
Is it desired? Would you want it?
Is it stated in affirmative and bold terms?
Is it clear and achievable?
Does it stretch and challenge the organization in a desired direction?
Step 5: Determine the organization’s current “positive core.”
Each team member independently determines two or three core aspects of the organization that already support the mission statement and superior customer service. For each aspect, provide an example. For instance, “We are already good at doing x and y.”
As a team, reach consensus on the core aspects. Share the core aspects, and examples, with the larger group.
Step 6: Make personal commitments [Design].
Each team member independently lists what he or she will do more of, or differently, to deliver superior customer service. For instance, “I promise to do x, and y.”
Share this information with team members and hold each other accountable.
Share these commitments with the larger group.
Step 7: Make organizational action recommendations.
Each team member recommends initiatives for how the organization can achieve superior customer service. How can the vision and image (Step 3), mission statement (Step 4), current strengths (Step 5), and personal commitments (Step 6) become a highly-integrated reality?
As a team, further develop these recommendations and share with the larger group.
Step 8: Have management follow up [Destiny].
As an example of superior customer service and accountability, managers commit to providing feedback on this information within a reasonable timeframe.
DESCRIBE HOW TO IMPLEMENT A SCANLON-TYPE GAINSHARING PLAN
- Employees can also be empowered to behave as managers and owners by providing financial incentives that reward them as if they were managers and owners.
- Scanlon-type gainsharing plans empower employees by delegating institutional responsibility and accountability for improving operations to employee teams.
Work unit teams elicit, evaluate, and implement continuous improvement suggestions, and receive financial rewards for surpassing historical performance standards.
Cost savings are then shared between the organization and its employees based on an agreed upon formula.
- The five elements of a Scanlon-type gainsharing plan are gainsharing coordinator, suggestion system, gainsharing team, review board, and group based financial bonus.
Gainsharing coordinator. The gainsharing coordinator is responsible for managing the gainsharing system. The coordinator is typically a go-getter nonmanagement employee or human resources manager. Nonmanagement employees tend to trust the gainsharing system more if a member from their group is managing the system. Gainsharing coordinator duties include managing the suggestion system process, training team members, attending team meetings, and maintaining records. This can be a full-time position or amended to an employee’s current job duties.
Suggestion system. Employees submit written suggestions to the gainsharing coordinator on how to improve efficiency, reduce costs, and increase revenue. The suggestions are listed in a log book or computer file and sent to the appropriate work team.
Gainsharing team. A gainsharing team consists of either all nonmanagement employees in the work unit or work unit representatives voted to the team. Organizations with small work units tend to put everyone on a gainsharing team, whereas larger work units vote for representatives. The teams can be defined in terms of job tasks (nurses on one team, facilities employees on another team) or location (everyone on the third floor of a hospital). Teams meet weekly or monthly to review suggestions and brainstorm solutions. The teams have a monthly budget to implement suggestions that fall within their domain. Suggestions that exceed the team’s monthly budget, or that impact other work units, are forwarded to a review board.
Review board. The review board consists of one representative from each gainsharing team, the gainsharing coordinator, and relevant managers. The nonmanagement representatives report on the changes their teams implemented and respond to questions. They also present suggestions that exceed their monthly budget allocations or impact other work units. Review board members reach a consensus on whether to implement these more costly or inter–work unit suggestions.
Group based financial bonus. A group-based financial bonus calculation is devised that compares projected costs and actual costs for a given period of time, usually a month. The projected costs are based on historical performance, usually an average of the previous three years. The cost calculation can be very broad (e.g., the total value of goods and services divided by labor costs) or narrow (e.g., electricity costs divided by labor costs). When actual costs are lower than the projected historical cost, the financial difference is shared between the employees and organization, typically on a 50/50 ratio.
Half of the nonmanagement employees’ share is then distributed as a bonus for that month. The other half of the nonmanagement employee share is set aside in a year-end reserve pool that accounts for months where actual costs exceed projected historical costs. Any amount remaining in the reserve pool at the end of the year is then distributed among the nonmanagement employees.
WHAT ARE THE BENEFITS OF OFFERING PROFIT SHARING AND STOCK OPTIONS, AND CREATING AN EMPLOYEE STOCK OWNERSHIP PLAN AND COOPERATIVES?
DESCRIBE EACH OF THESE TECHNIQUES FOR EMPOWERING EMPLOYEES.
- Providing employees with a share of company profits is also very ethical, motivating, and empowering.
- Researchers report that profit sharing has positive impacts on employee cooperation, turnover, productivity, costs, and profits.
- Profit sharing also positively impacts organizational commitment, a research finding in all sizes of firms, although strongest in small firms.
- Profit sharing supplements, but does not replace, base pay.
- Employees earn wages based on skills and labor market conditions, and then participate in the distribution of profits generated by their work efforts.
- Profit-sharing companies set aside a percentage of profits beyond a targeted amount into a bonus pool.
Some companies distribute profits as a percentage of compensation, under the assumption that higher-paid employees contribute more to the financial outcome.
Other companies create a multifactor calculation that allows for bonus fluctuations based on team and individual accomplishments.
- Profits are distributed in cash or stock at the end of the fiscal year, or as deferred compensation. The deferred compensation is not taxed until accessed by the employee, usually upon retirement, death, disability, or employment termination.
- Employees can borrow money against their profit sharing account.
- According to the Employee Retirement Security Act (ERISA), employer contributions cannot exceed an average of 15 percent of an employee’s salary during any two-year period.
- Employers can deduct profit sharing as a business expense.
- Profit-sharing plans enhance organizational loyalty by spreading out the length of time required for an employee to have full access to the funds.
Typically, an employee is fully vested after three to six years.
If an employee leaves the organization prior to being fully vested, the amount remaining in the employee’s profit sharing account is redistributed to the other plan participants.
STOCK OPTION PLAN
- According to the 2006 General Social Survey, 20 million American workers own stock in their company through a 401(k) plan, ESOP, direct stock grant, or similar plan, and 10.6 million hold stock options.
- Stock options, historically reserved for executives, are now offered by many public and private companies to all employees. More than 10,000 Microsoft employees have become millionaires through the company’s stock option plan.
- Stock options give an employee the right to purchase a specific number of company shares at a fixed price by a particular future date, typically 10 years.
- The number of stock options an employee receives is based on a formula, usually determined as percentage of compensation to total payroll and performance accomplishments.
- Employees earning higher pay, who are more accountable for profitability, have access to, and can afford to purchase, more stock options.
- Employees often have full vesting rights after three to five years, and are taxed on the profits earned when they option to buy and sell their stock.
- Some privately-held companies, whose stocks are not sold on the open market, offer employees phantom stock.
- The phantom stock value of privately owned companies is annually determined by an independent appraiser.
- Phantom stock can also be issued by publicly held companies that do not want to dilute the ownership rights of existing shareholders.
- Similar to stock options, phantom stock has a specified expiration date and can be structured in different ways.
- Many companies use the phantom stock as an employee bonus linked to firm profitability.
- Employees earn a cash bonus equal to the increase in the phantom stock’s value between the day issued and the day exercised.
EMPLOYEE STOCK PURCHASE PLAN
- An employee stock purchase plan is slightly different from a stock option plan.
- Under an employee stock purchase plan, employees request to have deductions taken out of their pay and put into an account to purchase stock at a discount, usually 15 percent, by a specified date.
- Some companies will match a certain percentage of the employee deduction. If an employee decides to not purchase the company’s stock by the expiration date, the employee gets his or her pay deductions back.
EMPLOYEE STOCK OPTION PLANS (ESOPs)
- Employee Stock Option Plans (ESOPs) take stock options one step further in empowering employees. The company gives all full-time employees over the age of 21 a significant equity stake in the company.
- Unlike stock option plans, all full-time employees must be included as ESOP members.
- In 2008, approximately 11,500 ESOPs, most of them corporations, covered 10 million employees.
- Most ESOPs have less than 1,000 employees. The one hundred largest ESOPs range from 1,070 to 144,000 employees, and include supermarkets, manufacturers, engineering, tree service, construction, motels, nursing homes, and drug stores.
- Although all full-time employees must be included to create an ESOP, an ESOP does not necessarily control the entire company.
The average ESOP owns only 6 percent of a company’s equity.
The United Airlines ESOP was granted equity shares accounting for 55 percent of the firm’s cash flow rights.
- ESOPs are complex financial vehicles requiring legal assistance. ESOPs cost about $50,000 to $100,000 to set up and operate the first year, with annual maintenance fees ranging from $15,000 to $30,000 for firms with less than a few hundred employees.
The initial legal costs may seem high, but it is typically equivalent to, or less than, what an owner would pay a broker to sell the business.
- Owners usually consider creating an ESOP when a change of ownership is being explored. Rather than selling the company to an outsider, the owner can sell the company to employees.
- To create an ESOP, the company borrows money from a bank to purchase company stock, which is then placed into a trust fund.
- The loan interest is tax deductable and paid off through dividends. Loan principal payments are deductable up to 25 percent of payroll.
- Employees do not purchase the company, the trust fund does. The stocks are then allocated into employee accounts according to a specific formula, typically based on compensation and seniority.
- The company makes annual tax-deductible contributions into the fund to purchase stock employees sell back to the company.
- Most of the money in the trust fund must be invested in company operations.
- The value of employee stock is independently appraised on an annual basis.
The value of the stock increase is tax deferred until sold.
- ESOPs provide employees with a right to purchase the stock, but employees are not obligated to do so.
- Employees can purchase their vested shares when they leave the organization—quit, are fired, retire, or die—and must sell the stock back to the company or other employees within one year at the appraised value.
- Employees can vote their ESOP shares on major issues.
- ESOPs are governed by a board of directors that employs professional managers. In publicly held companies, ESOP participants have the same rights as other stockholders.
- Producer, consumer, and employee cooperatives are an alternative communal way to govern a business and raise capital.
In a producer cooperative, such as an agricultural cooperative, producers pool their capital and resources for their mutual benefit.
Consumer cooperatives are businesses owned by customers for their mutual benefit, such as credit unions and healthcare cooperatives.
In both circumstances, profits are either reinvested in the cooperative or distributed among the owners (producers or consumers).
Employee cooperatives are organizations owned by the employees and democratically governed—one vote per employee-owner. Employee cooperatives can be found in a wide range of industries and organizations, including agriculture, banks, food stores, coffee, home health care, technology, and poultry.
Each employee-owned cooperative creates its own unique rules.
In some cooperatives, the employee-owners vote on board members, managers, capital investments, wages, and company policies.
Large cooperatives tend to elect a board of directors that determines major strategic issues and hires managers. Profits are reinvested in the organization, set aside in reserves, or distributed to the employee-owners based on an agreed-upon formula.
Best Place to Work Video
Business Ethics Issue Video
- Motivation and Your Internal Drives: Tony Robbins discusses the "invisible forces" that motivate everyone's actions; February 2006, 22 minutes
- Pursuing Your Dreams: At his Stanford University commencement speech, Steve Jobs, CEO and co-founder of Apple and Pixar, urges us to pursue our dreams and see the opportunities in life's setbacks; June 2005, 15 minutes
Conversations with Charlie Rose
- A conversation about President Obama's speech on Wall Street marking one year since the fall of Lehman Brothers and the global economic recovery plan; September 14, 2009, 60 minutes
- A conversation with author Jonathan Zittrain about his book The Future of the Internet and How to Stop It; May 13, 2008, 31 minutes
HOW CAN MANAGERS ORGANIZE WORK SO EMPLOYEES ARE MORE ENGAGED WITH JOB TASKS AND ORGANIZATIONAL GOALS?
EXTENT OF EMPLOYEE ENGAGEMENT
- Organizations need talented employees committed to task performance, organizational goals, and the organization itself.
- Employee engagement is an emotional bond or attachment an employee has to the work task, organization, and its members. For engaged employees, work is a meaningful experience they feel passionate about. Engaged employees perform at high levels and are less likely to quit due to high levels of job satisfaction.
- A strong linkage exists between ethical organizations and employee engagement. Researchers at the Ethics Resource Center and Hay Group report that employees in organizations whose managers and supervisors have high ethical integrity, open and honest communications, and high levels of accountability are more engaged in performing work tasks. Engaged employees are more likely to report ethical misconduct, which reduces the company’s ethical risks.
- In 2009, the Gallup Organization reported that only 30 percent of American workers—less than one-third—are engaged in their jobs.
- Similarly, many individuals are dissatisfied with their jobs and the trend is worsening.
- The relationship between job satisfaction and employee productivity is complex.
WHAT PEOPLE WANT IN A JOB
- What do people want in a job? Of course people want a good salary and job security – everyone has bills to pay.
In a 2009 survey conducted by the Society for Human Resource Management, job security (63 percent), benefits (60 percent) and compensation/pay (57 percent) were the three most important features employees wanted in a job.
- But is that all they want? No. Many other factors matter to employees.
Also chosen as “very important” by survey respondents were:
opportunities to use skills and abilities (55 percent)
relationship with immediate supervisor (52 percent)
management recognition of employee job performance (52 percent)
communication between employees and senior management (51 percent)
the work itself (50 percent)
autonomy and independence (47 percent)
meaningfulness of job (45 percent)
relationship with co-workers (42 percent)
ENGAGING EMPLOYEES THROUGH HUMAN NEEDS
- Some developmental psychologists and organization theorists maintain that individual behaviors are driven by the desire to fulfill fundamental human needs.
- Respecting others requires that managers recognize and address fundamental human needs at the workplace.
- Developmental psychologist Abraham Maslow differentiated five categories of needs every individual has: physiological, safety, social, self-esteem, and self-actualization.
- Maslow maintained that these five needs exist in the form of a hierarchy where individuals first seek to fulfill lower level needs, beginning with physiological needs, and then incrementally progress up the hierarchy, culminating in fulfilling self-actualization needs.
Review “Maslow’s Hierarchy of Needs,” which show how these needs can be addressed at the workplace.
Level 1: Physiological Needs: Oxygen, food, water, sleep
Work Implication: lunch breaks, rest breaks, living wage
Level 2: Safety Needs: Personal security, financial security, order, stability, health, well-being
Work Implication: Safe working conditions, job security, retirement benefits
Level 3: Social Needs: Love, belonging, friendships, intimacy, acceptance
Work Implication: Camaraderie, workplace relationships, teams
Level 4: Esteem Needs: Self-esteem, status, recognition, reputation, respected by others
Work Implication: Recognition for personal achievements
Level 5: Self Actualization Needs: Personal development and fulfillment, authentic, creative, autonomous, truth, justice, wisdom, meaningful life
Work Implication: Challenging and meaningful work
- The work of David McClelland complements Maslow’s hierarchy of needs.
- McClelland emphasizes three human needs: a need for affiliation, a need for achievement, and a need for power or authority.
Unlike Maslow, McClelland does not organize the need for affiliation, achievement, and power in the form of a hierarchy.
Instead, McClelland argues, individuals can be rated high, moderate, or low for each of the three needs.
Managers can best engage an employee by matching the individual’s most dominant need with its associated motivating factor. Generally:
Employees with a high need for achievement are motivated by challenging work
Employees with a high need for power are motivated by managing other people
Employees with a high need for affiliation are motivated by collegial work environments
Treating the Earth with respect is one of the greatest ethical and management challenges. This chapter summarizes environmental problems and the efforts of environmental organizations, government, and businesses to address them. Environmental management is a competitive advantage that can save the organization money, enhance its reputation, and attract and motivate employees. The chapter examines how superior environmental performance can be achieved by screening suppliers, adopting an Environmental Management System and The Natural Step framework, conducting environmental risk assessments, designing eco-friendly products, operating in green buildings, and monitoring environmental performance indicators.
After completing this chapter, students should be able to:
Americum: any group of 350 million people living an American lifestyle.
Cap and Trade: an emissions trading system which combines federal controls that limit the amount of pollution permitted with the establishment of a market where businesses can trade licenses to pollute.
Carbon offsets: paying another organization to reduce greenhouse gas emissions on the company’s behalf.
Climate change: The rise of the Earth’s temperature by 1.4 degrees Fahrenheit since the Industrial Revolution.
Dow Jones Sustainability Index: created in 1999 as a way to track the financial performance of leading sustainability-driven companies, companies are assessed according to triple bottom line criteria: economic, environmental, and social performance.
Earth Day: held every year on April 22, the day was established by Senator Gaylord Nelson in 1970 to further educate students about the need to preserve natural resources and unite environmental organizations around a common cause.
Environmental Management System (EMS): a document that describes how the organization conducts environmental policy development, environmental planning, environmental implementation, environmental monitoring and corrective actions, and management review.
European Union’s Packaging and Packaging Waste Directive: A European Union law passed in 1994 regulating the recovering and recycling of all product packaging.
Global Reporting Initiative (GRI): general guidelines for sustainability reporting that allows for some environmental performance comparisons between organizations.
Green Tier: A program initiated in 2006 in Wisconsin that provides regulatory flexibility, permit streamlining, and other incentives for businesses that implement an Environmental Management System (EMS)
Kyoto Protocol: an international agreement signed by many countries, but not the United States, that established a goal to reduce worldwide greenhouse gas emissions five percent below the 1990 level by 2012.
Leadership in Energy and Environmental Design (LEED): a rating system established by the United States Green Building Council for certifying building construction and remodeling as being environmentally friendly.
Montreal Protocol: an international agreement signed by President Ronald Reagan in 1987 that phased out the use of chlorofluorocarbons (CFCs) because they eroded the Earth’s ozone layer.
Sustainable products checklist: a comparative evaluation process for determining which supplier products are the most environmentally friendly.
The Natural Step (TNS) framework: a conceptual tool for environmental analysis that attributes the root causes of environmental problems to four issues: removing too many substances from the Earth’s crust, producing too many synthetic compounds that are difficult for nature to break down, manipulating the ecosystem, and inefficiently and unfairly meeting human needs worldwide.
Transcendentalists: a movement in the 1800s influenced by Ralph Waldo Emerson and Henry David Thoreau that emphasized the importance of individualism and that an ideal spiritual state transcended physical existence.
Triple Bottom Line: an organizational performance approach that assesses three performance factors: economic performance, social performance, and environmental performance.
Waste equals food: central theme of eco-friendliness where one organization’s waste becomes organization’s resource input.
DESCRIBE THE NATURE OF CLIMATE CHANGE AND ITS IMPACTS
- The number of people consuming the Earth’s scarce resources continues to rise.
- The higher the population, the greater the number of organizations needed to meet ever increasing consumer needs.
- Organizations not only meet the needs of consumers, but are one of the largest consumers of the Earth’s resources by lighting and heating buildings, operating machinery, and transporting products from suppliers and to consumers.
- Organizations can also cause tremendous environmental damage through negligent behaviors, such as the April 20, 2010 BP oil spill.
Prior to the Industrial Revolution greenhouse gases were minimal. Since the onset of the Industrial Revolution billions of pounds of toxins have been released into the air, water, and soil every year.
The United States, with just 5 percent of the world’s population, accounts for 20 percent of worldwide carbon dioxide (CO2) emissions, by far the most significant greenhouse gas, which remains in the atmosphere for decades.
Review “Energy Sources per Nation,” which summarizes the different energy sources for six industrialized nations to demonstrate the variety of choices.
- There is strong scientific consensus that global warming is occurring.
- The National Aeronautics and Space Administration (NASA), which monitors weather patterns, reports that the 10 hottest years in recorded history have all occurred since 1998.
- The Earth’s temperature has increased by 1.4 degrees Fahrenheit since the Industrial Revolution.
- The Intergovernmental Panel on Climate Change, composed of 2,500 scientists and risk experts, estimates an increase in the Earth’s temperature of between 2.5 to 10.4 degrees Fahrenheit by 2100 if no major efforts are undertaken to reduce greenhouse gas emissions.
- What causes climate change? According to the Union of Concerned Scientists, “the primary cause of global warming is from human activity, most significantly burning of fossil fuels to drive cars, generate electricity, and operate our homes and businesses.”
- For ten thousand years, until the Industrial Revolution, the earth’s atmosphere contained 280 CO2 molecules per million of atmospheric gases. By 2007, every million molecules of atmosphere gases contained 384 CO2 molecules.
Scientists predict that within 50 years there will be 550 CO2 molecules per million if laws and energy policies remain unchanged.
- Not everyone agrees with these climate change projections, causes, or consequences.
Scientific knowledge about climate change is always incomplete and uncertain.
Scientific projections into the future are based on a series of assumptions that may not be valid.
The data may be manipulated for political or religious reasons.
A small number of scientists maintain that continual record highs do not prove that global warming is occurring.
Weather changes can be cyclical rather than accumulative as extreme droughts and floods have been experienced at other times in history
In addition, they argue, there is no proof that the higher temperatures are the direct cause of the weather extremes currently being experienced.
CLIMATE CHANGE IMPACTS
- Altered weather patterns have increased the frequency and severity of droughts and flooding in summer, and snowstorms in winter, which damage the economy.
- Review “2009 U.S. Weather Disasters” highlights the extreme weather costs for 2009.
- The situation is likely to worsen internationally as population continues to increase and underdeveloped nations industrialize. Journalist Thomas Friedman puts population growth impacts in perspective using an “Americum” unit of analysis.
An Americum is any group of 350 million people living an American lifestyle.
The world has recently evolved from two Americums (North America and Europe) to five (add China, India, and a combination of Southwest Asian nations, Australia, and New Zealand).
Soon there will four more Americums (another one in China, another one in India, one in a combined Russia/Central Europe, and one in a combination of South America and the Middle East).
Two Americums have contributed to climate change. What nine Americums will cause, Friedman ponders, remains to be determined.
HOW HAVE FEDERAL, STATE, AND MUNICIPAL GOVERNMENTS RESPONDED TO ENVIRONMENTAL PROBLEMS?
- The initial impetus to demand, or inspire, organizations to be more environmentally friendly came from citizens who possessed a strong environmental ethic.
- Social change often originates at the grassroots level where concerned citizens mobilize other citizens to take action.
- At the time of the Industrial Revolution, Ralph Waldo Emerson and Transcendentalists emphasized the importance of individualism and that an ideal spiritual state transcended physical existence, and warned against the damage caused to nature by the Industrial Revolution.
- Henry David Thoreau, one of the best known transcendentalists, conducted a two year experiment in simple living on Emerson’s property, and published his reflections in Walden.
- In 1886, the Audubon Society was created to protect wildlife.
- In 1892, conservationist John Muir founded the Sierra Club to protect natural wildlife and forests in California and Nevada from timber industry loggers and farmers who overgrazed land with sheep.
- In the early 1900s, Republican President Theodore Roosevelt’s administration created five national parks, 51 bird reserves, and 150 national forests.
- Aldo Leopold’s A Sand County Almanac, published in 1949, gave further voice and direction to the environmental movement and wildlife preservation.
- In Silent Spring, published in 1962, Rachel Carson documented how insecticides and pesticides, particularly chemical DDT, though helpful in reducing malaria and saving crop productions, could cause long-term harm to fish, wildlife, and humans.
- Using his own funds, Senator Gaylord Nelson organized the first Earth Day for April 22, 1970 to further educate students about the need to preserve natural resources and unite environmental organizations around a common cause.
- In 1969, the Cuyahoga River in Ohio caught fire for at least the thirteenth time in a century due to the chemical toxins from industrial facilities contained in the water.
- Review “Key Environmental Regulations During Richard Nixon’s Administration,” which summarizes key environmental regulations signed into law by Republican President Richard Nixon: Clean Air Act (1970), Environmental Protection Agency (1970), National Environmental Policy Act (1970), Clean Water Act (1972), and Endangered Species Act (1973)
- Just because an environmental law is passed does not mean organizations will comply.
- Reasons for noncompliance include not being aware of the law’s requirements, disagreement with the law, likelihood of authorities detecting noncompliance is very low, and the benefits of noncompliance outweigh the costs.
- EPA regions have inconsistent enforcement policies
- Sometimes there are tradeoffs between environmental performance and economic performance at both the firm and national level.
- In the 1980s, President Ronald Reagan thought the pendulum had swung too far in favor of environmental protection at the behest of economic competitiveness.
- The Reagan administration sought a better balance between environmental interests and business interests through “cooperative regulation” rather than adversarial regulation.
- Burdensome and inefficient regulations that stymied businesses from competing in a global economy were eliminated or modified.
- Reagan reduced the EPA’s budget and employees, and explored free market solutions that motivated businesses to voluntarily reduce their environmental impacts.
- Pollution knows no international boundaries.
- In 1987, President Reagan signed the Montreal Protocol, an international agreement to phase out chlorofluorocarbons (CFCs) that erode the ozone.
- The following year, the EPA launched a Toxic Release Inventory Program to compile data on toxic chemicals released into the environment by certain industries and the federal government. TRI data informed communities about local toxins and contributed to better decision-making.
- In June 1992, the United Nations sponsored an “Earth Summit” in Rio de Janeiro, Brazil to discuss greenhouse gases, alternative sources of energy, and water scarcity.
- One summit outcome was the Climate Change Convention, a non-binding treaty to stabilize atmospheric greenhouse gas concentrations by first establishing a national inventory of greenhouse gas emissions that could serve as a comparative benchmark. The U.S. Congress and President George H. W. Bush approved the treaty.
- A follow-up climate change conference was held in Kyoto, Japan in 1997. The Kyoto Protocol established a goal to reduce worldwide greenhouse gas emissions five percent below the 1990 level by 2012.
- The national goals would be binding for industrialized nations who signed the agreement, but not developing nations. Nations that surpassed their goals could sell the excess capacity to nations who did not meet their goals.
- Ratified by more than 180 nations, the Kyoto Protocol went into effect in 2005 without the consent of the United States.
- President George W. Bush withdrew from the Kyoto ratification process because achieving the emissions goal assigned to the United States—7 percent below the 1990 level—would seriously harm the national economy.
American businesses would have to implement costly new technologies to reduce carbon emissions. The skyrocketing costs would result in higher priced products. Fewer people could afford products, which would cause a reduction in sales and revenue, and a significant increase in unemployment.
The Bush administration also argued that the treaty created unfair competition because developing nations, such as China and India, were exempt from treaty mandates.
CAP AND TRADE
- For the most part, the climate change has shifted from whether it is occurring to what appropriate actions should be taken.
- Government policy mechanisms for greening the economy typically include implementing a Cap and Trade program, a pollution (carbon) tax, and incentives to develop green technologies.
- “Cap and Trade,” an emissions trading system, is one of the most prominent ideas under consideration.
- Cap and Trade combines federal controls that limit the amount of pollution permitted with the establishment of a market where businesses can trade licenses to pollute.
A company that exceeds its allocated pollution permits must purchase an equivalent amount of unused permits from companies that polluted less than their allocated limits, or pay a substantial fine.
- In 2003, the Chicago Climate Exchange was created as a national market to manage a voluntary, yet legally binding, Cap and Trade program for CO2 and five other greenhouse gas emissions.
- The exchange closed in 2010 when participants withdrew their membership because Congress failed to pass anticipated Cap and Trade legislation.
- As of 2011, carbon trading on exchanges no longer takes place in the United States.
- In 2005, a similar Climate Exchange Cap and Trade program was created in Europe.
- The European Climate Exchange, which has more than 100 members, continues to operate because of mandatory carbon emissions caps imposed by the Kyoto Protocol on European nation signatories.
- There is strong opposition to expanding Cap and Trade programs in the United States. Cap and Trade critics argue that the following chain-of-events will happen:
new technologies for capturing carbon emissions are very expensive
energy companies will pass this increased cost on to energy consumers through higher energy rates
businesses will increase product prices and municipal, state, and federal governments will increase taxes to offset higher energy costs
low-income people will be disproportionately affected because they have the least amount of discretionary income
employment in the coal industry will be decimated
POLITICAL AND PROFSSIONAL GROUPS’ EFFORTS
- Some U.S. state and city governments have signed their own version of the Kyoto Protocol.
- More than 850 mayors representing 80 million citizens have signed the U.S. Conference of Mayors Climate Protection Agreement committing them to strive to meet or beat the Kyoto Protocol targets in their own communities.
- More than 500 higher education presidents have signed the American College and University Presidents Climate Commitment. Their goal is to reduce carbon emissions on campuses to zero.
The schools agreed to complete an emissions inventory, set milestones and target dates, integrate sustainability into the curriculum, and share their action plans and inventory and progress reports with the public.
INDIVIDUAL STATE AND REGIONAL EFFORTS
- In 2006, California passed the “Global Warming Solutions Act,” which commits the state to achieve a 25 percent reduction in emissions by 2020 to be in compliance with Kyoto Protocol provisions.
- Ten northeastern states participate in the Regional Greenhouse Gas Initiative (RGGI), a Cap and Trade program designed to reduce power plant greenhouse gas emissions 10 percent by 2019.
- Six midwestern governors and the premier of the Canadian Province of Manitoba have signed the Midwestern Greenhouse Gas Accord. An advisory group has recommended that the participants target 20 percent below 2005 levels by 2020, and 80 percent below 2005 levels by 2050.
- Wisconsin’s innovative Green Tier program, initiated in 2006, provides regulatory flexibility, permit streamlining, and other incentives for businesses that implement an Environmental Management System (EMS).
WALL STREET INVESTORS
- The Dow Jones Sustainability Index (DJSI) was created in 1999 as a way to track the financial performance of leading sustainability-driven companies.
Companies are assessed according to triple bottom line criteria: economic, environmental, and social performance.
In 2010, the DJSI World index consisted of the leading 318 sustainable development companies, among a population of 2,500 companies, in 57 industries.
- Another market response is the increased availability of funding through venture capitalists, grants, and prizes.
Some venture capital funds specifically target environmental markets, such as solar energy. In the first half of 2008, venture capitalists invested more than $2 billion in 139 green technology start-ups.
The federal government offers grants, loans, and tax incentives for companies to redevelop environmentally contaminated brownfield sites, improve water quality, upgrade energy efficiency, and develop green technology.
Richard Branson, the CEO of Virgin Airlines, has offered a $25 million prize for new technology that can remove CO2 from the earth’s atmosphere.
WHAT ARE THE COMPETITIVE ADVANTAGES OF BEING ECO-FRIENDLY?
- Emphasize the business case when communicating the need for an organization to achieve superior environmental performance. Improving environmental performance is a long-term investment.
- Review “Competitive Advantages of Being Eco-Friendly,” which lists some of the competitive advantages in terms of
Reduction in escalating energy costs
Lower insurance premiums for sustainable development initiatives
Lower bank loan rates for acquisitions due to less environmental risk
Reduction in costs associated with environmental clean-ups and property damage
Avoids regulatory delays in bringing new products to market
Greater regulatory flexibility for organizations with an Environmental Management System
Product differentiation through eco-labeling
New markets for green products and producing green technologies
Customers with higher environmental expectations develop greater loyalty to products
Qualifying for green and socially responsible mutual funds provides easier access to capital
Many young professionals consider environmental reputation when searching for jobs
Employees are more proud to be associated with the organization
Enhances employee commitment and performance
Media outlets highlight the organization as a good citizen
Community members are more accepting of organizational expansion
Community activists are more willing to engage in discussions
WHAT SPECIFIC ACTIONS CAN BUSINESSES TAKE TO IMPROVE THEIR ENVIRONMENTAL PERFORMANCE?
MEDIA GREEN COMPANY INVENTORY
- Walmart is the nation’s largest private user of electricity and owns the second-largest fleet of trucks.
- In 2005, Walmart developed short-term sustainability goals such as 25 percent efficiency increases in fleet vehicles, 30 percent reduction in store energy use, and 25 percent reduction in solid waste within three years.
- In 2009, Walmart reduced plastic bag waste by 66.5 million pounds. These goals have been expanded to: (1) 100 percent renewable energy, (2) zero waste, and (3) increased sales of sustainable products.
- Walmart is now the nation’s largest seller of organic products. By guaranteeing the lowest prices, Wal-Mart makes organic products more affordable for people with less discretionary income, which increases demand.
- Other companies are developing organic versions of their well-known products to fill Walmart shelf space allocated to green products.
- In 2010, 93 percent of Wal-Mart’s direct sourcing merchandise originated in factories highly rated for their environmental and social practices.
- Import suppliers must also source 95 percent of their production from factories that receive one of Walmart’s top two highest audited ratings for environmental and social practices.
- In 2010, Walmart announced a goal to eliminate 20 million metric tons of greenhouse gases from its supply chain by 2016, equivalent to removing 3.8 million automobiles from the road for a year.
- Walmart is also developing a system for educating consumers through “eco-labels.”
GREEN BUSINESS PARKS
- A central theme of eco-friendliness is “waste equals food.” One organization’s waste can be another organization’s input.
- This theme has been operationalized within a business park in Umea, Sweden, where 100 percent of waste by-products are reused or recycled.
- In 2000, the Umea business park’s occupants included a Ford Motor Company dealership, a gas station, a car wash, a convenience store, and a McDonald’s.
The heat generated by the McDonald’s cooking grills and the convenience store’s refrigerator system was circulated through underground pipes to other businesses, as was runoff water from the car wash.
Other eco-friendly practices within the business park include green roofs, solar panels, building parts that can be disassembled and reused, electricity generated from a coastal windmill, and sewage converted to fertilizer.
GOING GREEN ACTIONS
- The environmental literature overflows with lists of things organizations can do to be more environmentally friendly.
- One of the most thorough lists is the “Green Masters Program Checklist” developed by the University of Wisconsin-Madison. Review EXHIBIT 11.5 “Green Actions,” which highlights two recommended actions for each of the ten categories.
- Review TIPS AND TECHNIQUES “Office Depot’s Advice on How to Save Money by Going Green”
- Review “15 Simple Steps for Greening Your Lifestyle,” which lists 15 rather simple steps offered by the Natural Resources Defense Council.
DESCRIBE HOW TO MANAGE THE ENVIRONMENTAL CHANGE PROCESS WITHIN AN ORGANIZATION?
- Becoming an eco-friendly organization requires leadership from the CEO or President and a values-based organizational culture that not only honors compliance with environmental regulations, but also emphasizes the benefits associated with exceeding them.
- Assign one manager primary responsibility for implementing environmental change initiatives.
Depending on company size, the environmental champion could be the Environmental Health & Safety Director, an environmental manager, or a manager whose multiple duties include environmental performance.
- Greening the organization is a concept that is well-regarded by employees and relatively easy for them to rally behind. Make sure employees are well-informed about the organization’s environmental efforts.
- Create a cross-functional Green Committee composed of go-getters to address common concerns, share knowledge, and ensure successful implementation of action plans.
- Committee duties can include acknowledging previous environmental accomplishments, gathering relevant data, engaging employees in small incremental changes, addressing interdepartmental issues, inspiring employees by taking on a large project that has a high likelihood of success, enhancing customer and supplier awareness of environmental efforts, and communicating environmental successes to other employees.
- Review “Managing Environmental Change,” which summarizes ten aspects of the environmental change process, beginning with the importance of one environmental manager held accountable for initiatives.
HOW CAN ORGANIZATIONS COMMUNICATE ECO-FRIENDLINESS TO EMPLOYEES AND SUPPLIERS?
GREEN MISSION STATEMENT
- Some organizations create an “environmental mission statement” that clearly articulates the organization’s relationship with the natural environment.
- Similar to a Code of Ethics, use the environmental mission statement as a foundation for determining and assessing organizational actions.
- Review Starbucks environmental mission statement in “Starbucks Environmental Mission Statement.”
- Going green entails making sure that the inputs being received are themselves environmentally friendly. Hold suppliers accountable for providing green products and operating in an eco-friendly manner.
- Darcy Hitchcock and Marsha Willard have developed a sustainable products checklist that organizations can use for comparative evaluation purposes when deciding which product to purchase.
- Review “Sustainable Products Checklist” which provides a sustainable products checklist.
- Walmart goes deeper into the supply chain by making sure that their supplier operations meet high environmental standards.
- In Walmart’s initial attempt to create a Supplier Sustainability Index – a universal rating system for assessing a supplier’s environmental and social sustainability record – the company developed measures for four performance categories: (1) energy and climate, (2) material efficiency, (3) natural resources, and (4) people and community.
- Review the assessment questions for each category appear in the “BEST PRACTICES IN USE” exhibit.
WHAT ARE THE KEY FEATURES OF AN ENVIRONMENTAL MANAGEMENT SYSTEM?
- The International Organization for Standardization (ISO), a nongovernmental organization, has worked closely with industry, technical experts, and other stakeholders to develop an Environmental Management System (EMS) plan for achieving superior environmental performance.
- An EMS is the basic component of ISO 14001 certification, a competitive advantage in a marketplace where more organizations are using a green screen to choose suppliers. This is a voluntary self-regulatory system not mandated by government regulation. An EMS typically improves stakeholder relationships by reducing the environmental risk imposed on a community.
- The EMS plan is a document that describes how the organization conducts environmental policy development, environmental planning, environmental implementation, environmental monitoring and corrective actions, and management review. The document must contain sufficient detail for an employee to understand how these environmental processes operate.
- Review “Environmental Management System (EMS) Plan,” which highlights procedures to document for each of the five sections of an EMS plan. An employee, after reviewing the EMS, should know exactly what to do if she or he wants to propose a new environmental policy or make an environmental performance recommendation. Audit the EMS annually to ensure that the procedures are operating effectively.
HOW CAN AN ORGANIZATION ASSESS ENVIRONMENTAL RISK AND APPLY THE NATURAL STEP FRAMEWORK?
- A key aspect of an EMS is managing environmental risk. Each organization has a unique set of environmental input, throughput, and output risks.
- Review the list of questions to consider when performing an environmental risk assessment. Answering these questions can help organizations identify environmental risks within the supplier–operations–customer value chain.
THE NATURAL STEP (TNS) FRAMEWORK
- An increasing number of communities and businesses are using The Natural Step (TNS) framework as a conceptual tool for environmental analysis and action plan development.
- The TNS framework attributes the root causes of environmental problems to four issues:
removing too many substances from the Earth’s crust
producing too many synthetic compounds that are difficult for nature to break down
manipulating the ecosystem, and
inefficiently and unfairly meeting human needs worldwide.
- TNS is a very good beginning point for determining what changes in organizational operations could improve environmental performance.
- Have work units, total quality management teams, or gainsharing teams explore the following three TNS objectives to reduce the use of resources that damage environmental well-being.
Objective #1—Reduce Wasteful Dependence on Fossil Fuels and Underground Metals and Minerals
What scarce minerals and materials does the organization use?
How can the scarce minerals and materials be substituted with minerals and materials that are more abundant in nature?
How can the organization use its mined materials more efficiently?
Objective #2—Reduce Wasteful Dependence on Chemicals and Synthetic Compounds
What chemicals and synthetic compounds does the organization use?
How can the chemicals and synthetic compounds be substituted with natural compounds or those that break down more easily in nature?
How can the organization use its synthetic compounds more efficiently?
Objective #3—Reduce Encroachment on Nature
What land, water, and wildlife resources does the organization use?
Are any of the organization’s uses of land, water, and wildlife resources unnecessary?
How can the organization use its land, water, and wildlife resources more efficiently?
DESCRIBE GREEN PACKAGING AND BUILDING INITIATIVES
PRODUCT PACKAGING AND DESIGN
- The European Union’s Packaging and Packaging Waste Directive, passed in 1994, provides a glimpse into a major environmental management trend that is likely to impact business operations in the United States.
- All businesses operating within the European Union (EU) are now responsible for directly recovering and recycling product packaging, or pay a Green Dot licensing fee to a third party that collects and recycles the packaging.
- Packaging refers to both the package immediately surrounding the product and the transportation container—everything except the product itself.
- Environmentalists anticipate legislating “cradle to cradle” laws that would regulate the product itself. These products are designed to achieve zero waste, which means no end to the product life cycle.
- Every aspect of production waste is reused again in either operations or by another organization. After use, the product is broken down into its component parts and then reused or recycled, rather than disposed of in a landfill.
- Organizations can obtain Cradle to Cradle certification for products from an independent third party.
- In 2006, Wal-Mart developed a sustainable packaging scorecard in association with its goal to be packaging neutral by 2025. Wal-Mart defines packaging neutral as “all packaging recovered or recycled at our stores and Clubs will be equal to the amount of packaging used by the products on our shelves.” The actual scorecard consists of nine factors, each with an assigned weight.
- One of the most visible signs of caring for the environment and employees is operating in a green building.
- Green buildings improve employee health, reduce energy costs, and limit detrimental environmental impacts.
- In the United States, buildings account for 38 percent of all CO2 emissions, 72 percent of electricity use, 40 percent of raw materials use, 39 percent of energy use, 30 percent of waste output, and 14 percent of potable water consumption.
- The United States Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system provides eco-friendly measurement standards for certifying building construction and remodeling.
- Some organizations use LEED’s building guidelines but do not apply for certification because of documentation cost issues or a lack of interest in being officially certified.
- Three common complaints have been that LEED requirements add to building costs, the point system can be manipulated, and the system seems very bureaucratic.
- In 2009, version 3.0 became the new LEED guidelines. The four levels of LEED certification are: Basic (40 points), Silver (50 points), Gold (60 points), and Platinum (80 points).
- Review “The LEED Version 3.0 Rating System,” which provides examples of eco-friendly practices, and the number of points available, for each of the seven LEED 2009 new construction and major renovations categories.
DESCRIBE ENVIRONMENTAL PERFORMANCE INDICATORS AND HOW TO OFFSET AN ORGANIZATION’S CARBON FOOTPRINT
ENVIRONMENTAL PERFORMANCE INDICATORS
- Continuous environmental improvement entails creating historical benchmark measurements documenting previous environmental performance, measuring current environmental performance, and developing goals and targets for future environmental performance.
- Climate Care, owned by J.P. Morgan, provides a simple Internet-based carbon calculator for business use. The calculator requires data for office CO2 consumption, company travel mileage, freight mileage and weight, and additional carbon emissions.
- Link the analysis of environmental performance measures to organizational strategy. Share the performance indicator results with all employees so they know whether improvement is occurring, and use the results as benchmarks for new goals and targets.
- Global Reporting Initiative (GRI), an international multi-stakeholder coalition, provides general guidelines for sustainability reporting that allow for some environmental performance comparisons between organizations.
- The GRI reporting framework was developed with input from businesses, investors, accountants, and activists, and takes into account economic, environmental, and social performance measures.
- The environmental performance section discusses EMS variables and provides performance measures for environmental inputs (e.g., material, energy, water) and outputs (e.g., emissions, effluents, waste). In 2006, after extensive public review and feedback, GRI released the third generation of reporting guidelines.
- Some organizations reduce the carbon waste on Earth by purchasing carbon offsets equivalent to their carbon footprint and participating in green philanthropy.
- Carbon offsets entail paying another organization to reduce greenhouse gas emissions on the company’s behalf.
- The most common carbon offsets are investing in tree plantings and forestry projects, clean and renewable energy projects, and energy efficiency projects in other parts of the world.
- Organizations can also purchase carbon credits from climate exchanges, which reduce the amount of carbon credits available to high-polluting organizations.
Best Place to Work Video
Business Ethics Issue Video
- Cradle-to-Cradle Eco-Friendly Design: Green-minded architect and designer William McDonough asks what our buildings and products would look like if designers took into account "all children, all species, for all time"; February 2005, 20 minutes
- Climate Change: Al Gore presents evidence that the pace of climate change may be even worse than scientists recently predicted; March 2008, 28 minutes
Conversations with Charlie Rose
- A conversation with Shai Agassi, CEO of Better Place about his plans for an electric car infrastructure; December 1, 2010, 25 minutes
- A conversation with author Thomas L. Friedman about his book Hot, Flat, and Crowded: Why We Need a Green Revolution--and How It Can Renew America; September 9, 2008, 53 minutes
Organizations are embedded in the communities where they operate. Ethical organizations aspire to be model community citizens. This chapter begins with a discussion on the extent to which businesses have social responsibilities and describes the business case for community involvement. An organization’s reputation is critical to its success. Public criticisms against an organization generate a negative stigma that can be very difficult to undue. Managers can engage multiple community stakeholders on a wide variety of issues. Philanthropy and employee volunteerism are the most common forms of community involvement. Managers must determine how much and what to give to whom. The chapter also explores how to manage the community involvement process, and what community impacts to assess and report.
After completing this chapter, students should be able to:
Cause-related marketing: a win-win strategic partnership whereby nonprofits benefit by revenue generated through the sales of the donor’s product or service.
Corporate citizenship: the extent to which a business meets its economic, legal, ethical, and philanthropic responsibility in the community, or communities, in which it operates by creating a higher standard of living and quality of life.
Interpenetrating Systems Model: segments human activities into four major subsystems: government, business, nonprofits, and personal-communal, each with its own purpose.
Noblesse oblige: the belief that the wealthy are obligated to exercise the virtue of generosity.
Philanthropy: the donation of money or property to assist a nonprofit organization or people in need.
Primary stakeholders: those who have an economic relationship with the organization, such as owners, employees, customers and suppliers.
Sabbatical: a corporate leave program where employees take time off to assist nonprofit organizations or for personal development.
Secondary stakeholders: those who indirectly affect or are affected by the company’s activities, such as community members, nonprofits, the media, and the government.
Social entrepreneurship: using business principles to directly meet basic human needs.
Socially Responsible Investment (SRI): a financial market that screens companies for financial performance and social performance.
Strategic philanthropy: partnering of a company and nonprofit organization to achieve a communal good that also benefits the company.
Sweatshops: a business facility that employs workers at low wages, for long hours, and in unhealthy working conditions.
Tax avoidance: legally not paying taxes
The Gospel of Wealth: essay by industrialist Andrew Carnegie arguing that wealthy individuals, particularly the self-made rich, had a moral responsibility to invest their fortunes for the well-being of society.
United Nations Global Compact Principles: ten guiding principles developed by the United nations in the areas of human rights, labor, environment, and corruption for conducting business anywhere.
United Way: a nonprofit organization that raises money from local businesses and distributes the donations to local nonprofit organizations.
Volunteerism: the donation of time to assist a nonprofit organization or people in need.
Work-life balance: achieving the appropriate balance between time spent working and one’s personal life.
WHAT 4 TYPES OF SOCIAL RESPONSIBILITIES DO BUSINESSES HAVE?
EXTENT OF SOCIAL RESONSIBILITIES
- The Nobel Prize-winning economist Milton Friedman famously articulated the viewpoint that the only social responsibility for business is to maximize profits within the guidelines of the law.
- Managers have a fiduciary duty to always act in the best interests of shareholders. Stay focused on your organization’s mission, Friedman instructs managers, and don’t be distracted by activities not associated with core operations.
- Friedman’s narrow conceptualization of social responsibility has been criticized by many scholars.
- Corporations can legally avoid paying taxes to maximize profits by employing accountants well versed in tax loopholes, but doesn’t that violate a civic duty to pay taxes in the nation where they really operate, particularly if recipients of federal bailout money?
- Professor Archie Carroll differentiates four different components of social responsibility:
ethical responsibilities (activities and practices that society expects even though they are not codified by law), and
philanthropic responsibilities (voluntary and discretionary activities that give back to the community, such as corporate giving, product and service donations, and employee volunteerism).
- According to Carroll’s conceptualization, a socially responsible business is profitable, law abiding, ethical, and a good corporate citizen.
- In Book I of Nicomachean Ethics, Aristotle surmises that "happiness is the meaning and the purpose of life, the whole aim and end of human existence". Happiness is the only thing human beings desire for its own sake. All others items of desire – such as wealth, prestige, and love – are pursued in hopes of achieving happiness.
- The developmental psychologist Erik Erikson complemented Aristotle’s conception of happiness by noting that happiness is achieved through the appropriate balancing of work, love, and play.
- Employees need adequate time off from work to care for their families and participate in civic organizations. Work-life balance refers to achieving the appropriate balance between time spent working and one’s personal life.
- No matter how enjoyable or essential work may be, employees need time away from work to develop their personalities, replenish their energy, and avoid burnout.
- On average, Americans work 350 more hours a year, 9 full weeks more than their European counterparts. Many women bear the extra burden because they are also primarily responsible for family and childcare duties.
- Long working hours contribute not only to poor health conditions and emotional exhaustion, but also less time for family activities and civic engagement.
- Take Back Your Time, a national coalition to reduce work hours, has been lobbying governments for a variety of work-life balance benefits, including guaranteed paid leave for parents after the birth or adoption of a child, one week of paid sick leave, and three weeks of paid annual vacation leave.
- Specific examples of family-friendly and community-friendly policies include flexible time, onsite childcare, paid vacations, and paid leave.
DISCUSS THE ETHICAL PROS AND CONS OF DOING BUSINESS WITH A SWEATSHOP IN A DEVELOPING NATION.
DOUBLE STANDARD PROBLEM
- Corporate citizenship expectations have spread throughout the world. Every nation has different standards and expectations based on its political, economic, regulatory, and social historical evolution.
From an international perspective, should multinational corporations establish one standard of citizenship in the United States and a different standard in developing nations? Or, should one standard apply everywhere? This issue is addressed in the following two sections.
- Social activists have long accused American businesses of unethical behavior in underdeveloped and developing nations by employing cheap labor, engaging in government corruption, and taking advantage of lax environmental regulations.
- Managers of these companies have adopted a “double standard” – one set of behaviors that meet high expectations in the United States and a different set of behaviors that meet low expectations in underdeveloped and developing nations.
- Sweatshops in developing nations epitomize the difficulty of imposing a universal standard on all organizations in all nations. Chinese and Indonesian sweatshops manufacture products purchased by U.S. companies for sale in the U.S. and elsewhere. In these factories, peasant girls, paid by the piece, work from six o’clock in the morning until nine o’clock at night, seven days a week, for three months before getting a day off.
- These conditions are in clear violation of U.S. labor laws but not host country laws.
- Managers and political, economic, and moral theorists defend the double standard based on cultural relativism and utilitarianism.
According to cultural relativism, it is ethical to adopt standards based on the norms of the host community – when in Rome do as the Romans do.
Sweatshops are also defended based on utilitarianism, the greatest good for the greatest number – sweatshops in developing nations allow thousands of peasants to earn a local living wage. Sweatshop jobs in China and Indonesia are lucrative compared to the alternative – prostitution or starvation.
Sweatshops are an evolutionary phase in the industrialization of underdeveloped nations.
If the sweatshop goes bankrupt, the unemployed women revert back to searching through garbage at hazardous dumps with their children to find items to sell that would earn the $1 necessary to live another day.
- But from a deontological (human rights) and virtue ethics (practicing virtues) perspective, these working conditions are unacceptable.
An unfair double standard is being invoked – if it is wrong to employ Americans under these unhealthy and abusive working conditions, then it is also wrong to employ those living in developing nations this way.
The rights of all employees in the world must be respected, and virtuous behaviors should be applied to all employees in the world, not just those working in the United States.
- Companies can pursue three different strategies for managing stakeholders: reactive, proactive, or interactive. Managers can:
wait for problems to arise (reactive)
anticipate problems and implement plans before the problems arise (proactive), or
engage with key stakeholders and jointly determine the appropriate course of action (interactive)
- The most difficult, yet possibly the most meaningful, approach is interactive dialogue with stakeholder groups.
- To begin this process, managers must reach an understanding that unilateral decision making, which excludes stakeholder input and dialogue, can generate more intense conflict and create both short-term and long-term organizational problems.
- Julia Roloff highlights six phases of issues-driven multi-stakeholder dialogues.
Initiation Phase: Begin the dialogue process by having an independent third party with expert facilitation skills moderate the meeting. Invite leaders from all stakeholder groups involved with the issue. Make sure representatives from the most prominent stakeholder groups participate. Excluding particular stakeholders from the initial discussion will raise questions about the business’s sincerity and intentions.
Acquaintance Phase: Representatives of each stakeholder group, including the business itself, presents their unique perspectives. Stakeholder groups can invite “experts” who may have a better understanding of factual details and implications. In an uninterrupted round-robin format, each stakeholder group presents facts, and its interpretation of the facts, to the other stakeholders. The business and other stakeholders will likely learn new knowledge about capacity limitations and impacts. Listening and being able to paraphrase the various stakeholder perspectives begins to establish a foundation for trust. Business managers must take the lead in demonstrating empathy toward the other stakeholders to ensure continued dialogue.
First Agreement Phase: Based on the articulated perspectives, participants, guided by the facilitator, reach agreement on the problem definition. Do not progress to other issues until after consent is first achieved on the problem definition.
Second Agreement Phase: After understanding the competing viewpoints, stakeholder group representatives propose potential solutions to the defined problem. For this phase to succeed, representatives must be willing to entertain potential win-win scenarios. Dialogue process credibility is damaged if participants are not open to exploring alternative solutions. At this point, some stakeholders may disengage from further deliberations because important demands are not being addressed.
Implementation Phase: Begin this phase by recognizing that every stakeholder, including the business, may have sacrificed something in reaching the agreement. The channels of communication must remain open to ensure commitments are upheld. Any broken promises by the business, whether intentional or unintentional, can ignite protests, negative publicity, or lawsuits if not rectified immediately. Be transparent about new and unexpected developments and disclose the information to the stakeholder group as soon as possible.
Consolidation Phase: Next, institutionalize successful dialogue formats and procedures until the issue is resolved. Establish weekly meetings or list-serve communications where contentious issues that arise can be addressed. Stakeholder leaders benefitting from this process may inform others about the sincerity of the process, which could attract other stakeholders to become dialogue participants.
Institutionalization or Extinction Phase: As the initial issue reaches the end of its life cycle, participants in the stakeholder dialogue can either end their participation or institutionalize the dialogue process to address other issues on their potentially conflicting agendas. The end goal is not “winning,” it is understanding different expectations and perspectives and improving processes and policies for addressing social issues.
Business representatives must be transparent, engage in two-way communication, be fair, and be held accountable for ensuring that the dialogue succeeds.
DISCUSS THE 4 WAYS THAT BUSINESSES GIVE TO THE COMMUNITY AND THE 3 STRATEGIC APPROACHES THEY CAN TAKE
PHILANTHROPY AND VOLUNTEERISM
- Companies exhibit good citizenship through philanthropy and volunteerism.
- Philanthropy is the donation of money or property to assist a nonprofit organization or people in need.
- Volunteerism is the donation of time for similar purposes.
- When well-managed, corporate philanthropy and volunteerism provide employees an opportunity to fulfill their altruistic needs, which deepens employee identification with both the company and community.
- Frame philanthropic efforts as part of the organization’s public relations strategy and link the reputational benefits to improving organizational performance.
- Philanthropy and volunteerism have been around since the arrival of European settlers.
- A belief that the wealthy had a social obligation to care for the poor was a prominent belief among the Puritans.
- Noblesse oblige, the belief that the wealthy are obligated to exercise the virtue of generosity, was common among wealthy Americans by the mid-1800s.
- Industrialist Andrew Carnegie, in an 1889 essay titled “The Gospel of Wealth,” argued that wealthy individuals, particularly the self-made rich, had a moral responsibility to invest their fortunes for the well-being of society.
Carnegie proposed community-based philanthropy as an ethical way to assist laborers and their families.
Business fortunes, Carnegie maintained, should be administered during a person’s lifetime to harmonize relationships between the rich and poor. Poverty was a scar on capitalist society that could be offset through strategic philanthropic contributions.
God, he insisted, would reward those who pursued this path in the afterlife.
In 1901, Carnegie sold his U.S. Steel stock for $300 million ($12 billion in 2009 dollars adjusted for inflation) and disbursed it over the last twenty years of his life, including $5 million for an employee pension and benefit fund and the building of 2,507 free public libraries.
FOUR WAYS TO GIVE
- What do nonprofit organizations and the community need from businesses? Four things:
2. Products or services
4. Job opportunities
- A systematic giving program would cover all four areas.
- Giving money and products or services are very meaningful ways to contribute that require minimal time and effort.
- Giving skills and job opportunities require significantly more time and effort.
- Initial efforts to coordinate business giving in a community began in 1887 when a priest, two ministers, and a rabbi joined forces to address social welfare problems in Denver.
- Other cities formed Community Chests and these merged into the United Way, which raises money from local businesses and distributes the donations to nonprofit organizations.
- The amount of giving can be quite staggering.
- In 2009, total philanthropy amounted to $303.7 billion.
Individual giving accounted for seventy-five percent, $227.4 billion, of this total.
Corporate giving totaled $14.1 billion.
- In 2007, the United Way raised $4 billion.
- In 2010, the Bill & Melinda Gates Foundation had $33 billion in assets and, in 2009, distributed funds totaling $3 billion.
- The financier Warren Buffett pledged 10 million shares of Berkshire Hathaway Inc. stock worth $31 billion to the Bill & Melinda Gates Foundation, beginning with $1.6 billion in 2006.
GIVING PRODUCTS AND SERVICES
- Many community organizations can benefit from receiving company products or supplies.
- Low-income community centers, for instance, welcome school supplies from retail stores, food from grocery stores, books from publishers, and so on.
- Timberland, which makes boots, shoes, clothes, and gear for the outdoors, has an extensive product donation program.
- Review TIPS AND TECHNIQUES “A Highly Integrated Win-Win Donation”
- In 2009, 63.4 million Americans over the age of 16 volunteered a total of 8.1 billion hours of service with an estimated dollar value of nearly $169 billion.
- Companies can tap into an employee’s desire to help others by supporting volunteer activities and offering sabbaticals.
- Some companies set aside one day a year for all employees to serve the community.
- The United Way sponsors a “Day of Caring” in many communities where it coordinates a host of projects with nonprofit organizations that make it easy for company employees to participate.
- In addition, the United Way provides individualized opportunities; its computerized system collects data about an employee’s skill set and then matches the potential volunteer to the needs of nonprofits.
- Invoke the three “Cs” – compatibility, commitment, and communication – when forming long-term volunteer partnerships, such as delivering food weekly for “Meals-on-Wheels” or serving food monthly at a homeless shelter.
- Employee volunteers must be compatible with the nonprofit’s culture, committed to the project, and maintain ongoing communication with the organization to minimize misunderstandings.
- A growing number of companies offer employees short- or long-term sabbaticals, or leave programs, for community involvement activities.
Key issues to consider when creating a sabbatical program include:
Who qualifies: Will the employee be chosen based on years of employment, performance achievements, or some other criterion?
For how long: Will the sabbatical be for one week, three weeks, two months, or a year?
Where: Will the activity be performed locally, nationally, or internationally?
Type of Activity: Will the activity be community service, small-business assistance, travel immersion, writing a book, or anything?
Compensation: Will the employee receive full pay, reduced pay, or no pay?
Post-Sabbatical Obligation: Does the employee have to remain with the company for a certain period of time after the sabbatical?
GIVING JOB OPPORTUNITIES
- Businesses can give back to the community by providing jobs to people in need.
- Soon after Hurricane Katrina hit the Gulf Coast in 2005, Wal-Mart promised a job for every one of its displaced workers.
- Some companies also create special job positions for people with disabilities, the elderly, and returning war veterans.
- A group of people most in need of job opportunities are ex-convicts. Many prisons offer vocational training and prisoners can earn technical and advanced degrees while serving time.
One reason for high recidivism rates is that ex-cons have difficulty obtaining employment.
The government encourages the employment of former prisoners. Companies can receive a federal tax credit of up to $2,400 the first year employing a formerly incarcerated person.
Companies can also apply for government-provided insurance to protect against theft by a recently hired ex-convict.
- Social entrepreneurship – entrepreneurs with a social mission – is another way that business people can contribute their skills.
- Social entrepreneurship refers to using business principles to directly meet basic human needs.
- Many social entrepreneurs participate in nonprofit organizations, although some develop for-profit ventures.
- Examples include:
Save the Children, a nonprofit that helps disadvantage children, developed a line of clothing as a source of revenue.
One Laptop Per Child Association, which has a goal to supply a laptop to two billion children.
Trek Bicycles “Earn-A-Bike” program, which provides job training for at-risk youth who recycle bikes and bike parts.
THREE STRATEGIC APPROACHES
- Who should an organization give to and how should an organization give? Managers can:
(1) reactively give on a first-come first-serve basis,
(2) outsource giving to the United Way and other intermediary organizations that select recipients, or
(3) proactively develop a few key strategic partnerships with nonprofit organizations.
- An integrative approach that involves all three approaches situates a company as a community leader and enhances employee satisfaction.
- Set aside some community giving resources to support local nonprofit organizations and causes that are meaningful to employees and community members.
- These organizations may have unforeseen emergencies that companies can help address.
- Supporting community organizations that directly impact employees generates company pride.
- Other times, a national emergency, such as Hurricane Katrina, may create a need for immediate assistance. Involving employees in developing a company response to these emergencies unites them on a high profile cause. The goodwill can spill over into everyday work relationships.
- Companies must ensure that their charitable donations do the most good and actually benefit the intended recipients.
- The American Institute of Philanthropy (AIP) Charity Rating Guide & Watchdog Report grades more than 500 national charities based on how nonprofits spend donations.
- A list of the top-rated charities organized based on their cause – e.g., cancer, human services, youth development – is available on AIP’s website. Attributes of the top-rated charities are:
Spends more than 75 percent or more of its budget on programs
Spends no more than $25 to raise $100 in public support
Does not hold excessive assets in reserve
Discloses financial information and documents to AIP
- Charity Navigator, an independent nonprofit organization, rates the financial health of more than 5,500 of the largest charities for daily operations and program sustainability.
- Charity Navigator recommends that company executives address the following six questions before donating money to a particular charity:
1. Can the charity clearly communicate who it is and what it does?
2. Can the charity define its short-term and long-term goals?
3. Does the charity report progress made toward its goals?
4. Are the charity’s programs rational and productive?
5. Can the charity be trusted?
6. Is the company willing to make a long-term commitment to the charity?
- Set aside some community giving resources to support the local United Way or other highly credible intermediary organizations that select and monitor donation recipients.
- The United Way performs community needs assessments and ensures that nonprofit recipients appropriately manage donations.
Be careful, though, not to force employees to give to the United Way. Doing so damages employee morale.
- Companies can donate money to international social projects (GlobalGiving), individual microloan recipients (Kiva), and scholarship recipients (Vittana).
GlobalGiving, created in 2002 by former World Bank executives, links donors to specific projects.
Kiva, founded in 2005, is a person-to-person microloan lending website that links donors/lenders to entrepreneurs in underdeveloped or developing nations who are unable to obtain loans from regular banking institutions.
Technically, this is not a donation because the money is being loaned to the recipient with the intent of repayment.
Vittana also works with local microfinance organizations, but the beneficiaries are college scholarship recipients.
- Another option is to allocate money to an investment fund that lends it to businesses operating in disadvantaged communities, such as the Calvert Social Investment Foundation.
- Also set aside some community giving resources for strategic partnerships with nonprofits aligned with the company’s mission.
- Strategic philanthropy is the partnering of a company and nonprofit organization to achieve a communal good that also benefits the company.
- Michael Porter and Mark Kramer differentiate three social issue categories that may impact business operations:
Generic social issues that do not significantly affect a company’s operations or long-term competiveness,
Value chain social impacts that significantly affect a company’s activities in the ordinary course of business, and
Competitive context social dimensions that significantly affect the underlying drivers of a company’s competitiveness in the locations where it operates.
- Also value chain social impacts and competitive context social dimensions are usually ranked higher than generic social issues.
- But don’t underestimate the strategic importance of generic social issues.
- Facebook CEO Mark Zuckerberg, at the age of 26, donated $100 million to improve the Newark, New Jersey public school system.
- Examine how the company can leverage its assets and expertise to:
select the most effective recipient
signal to other funders that they should also assist the recipient
improve the recipient’s performance
advance knowledge and practice related to the recipient’s activities
then rigorously monitor and evaluate results.
UNITED NATIONS GLOBAL COMPACT PRINCIPLES
- The United Nations (UN) has developed guiding principles for conducting business anywhere in the world.
- In 1999, UN Secretary-General Kofi Annan presented the UN Global Compact Principles to business leaders attending the World Economic Forum in Davos, Switzerland.
- As of 2010, more than 7,700 businesses from over 130 countries have officially committed to the principles.
- The ten principles are in the areas of human rights, labor, environment, and corruption (see “United Nations Global Compact Principles).
- Hewlett-Packard requires its suppliers to submit a self-assessment questionnaire developed in partnership with the Global e-Sustainability Initiative Supply Chain Working and the Electronic Industry Code of Conduct Implementation Group, and copyrighted by the United Nations Environment Programme.
- Review the questions to ask suppliers about their labor and health & safety practices appear in “Supplier Labor and Occupational Health & Safety Practices”
WHAT ARE THE COMPETITIVE ADVANTAGES OF COMMUNITY ENGAGEMENT?
- A very strong business case supports being a model corporate citizen.
- Corporate citizenship is the extent to which a business meets its economic, legal, ethical, and philanthropic responsibilities in the community, or communities, in which it operates by creating a higher standard of living and quality of life.
- A company’s reputation as a good citizen favorably impacts employee, customer, community, and investor relations in the following ways:
- Benefits to Employee Relations
Attracts and retains employees
A more engaged, productive, and healthier workforce
Employees develop a deeper sense of purpose and mission
- Benefits to Customer Relations
Increased brand awareness and recognition
Enhances customer loyalty
New business opportunities from collaborating with other involved companies
- Benefits to Community Relations
Recognition as a responsible neighbor of choice
Community goodwill and support
- Benefits to Investor Relations
Attracts socially responsible investment funds
Preferences with local banks
- The Socially Responsible Investment (SRI) financial market is huge.
- SRI funds screen companies for (1) financial performance – meets financial goals, solid return on investment, and (2) social performance – generates social benefits through good employer-employee relations, strong environmental practices, safe products, and respect for human rights.
- In 2007, the SRI market in the United States accounted for approximately $2.7 trillion, 11 percent of all investment assets under professional management, up from $639 billion in 1995.
- The FTSE KLD 400 Social Index firms are selected by a committee for having met financial screens (such as earnings, liquidity, stock price, and debt to equity ratio) and social screens (excellent records for community relations, diversity, employee relations, human rights, product quality and safety, and environment and corporate governance). Companies with significant holdings in alcohol, tobacco, firearms, gambling, nuclear power, and military weapons are not eligible for inclusion.
DESCRIBE THE 6 PHASES OF ISSUES-DRIVEN MULTISTAKEHOLDER DIALOGUE
INTERPENTRATING SYSTEMS MODEL
- Review “Interpenetrating Systems Model,”, which segments human activities into four major subsystems: Government, Business, Nonprofits, and Personal-Communal, each with its own purpose.
Governments exercise control over populations by developing and enforcing rules and regulations, businesses provide goods and services by generating wealth for owners, and nonprofits provide goods and services not met by governments and businesses.
The personal-communal subsystem refers to individuals behaving within the context of a family or neighborhood.
- The four subsystems impact each other. What happens in the business subsystem often impacts the other three subsystems.
During a business recession, individuals have less discretionary income, nonprofits lose funding, and incumbent politicians lose elections. Government is the most powerful subsystem because it finalizes the rules for behaviors within its own subsystem and the other three subsystems.
No subsystem is monolithic. Multiple views and perspectives are evident within each subsystem.
The Interpenetrating Systems Model area where all four subsystems overlap is typically one of regulatory interest. The request for regulation can come from any person or group in any subsystem.
MULTIPLE STAKEHOLDER DEMANDS
- It is very challenging for managers to respond appropriately to multiple stakeholders making simultaneous demands. All stakeholders matter. But from a practical perspective, managers cannot address all, and sometimes conflicting, stakeholder demands.
- Primary stakeholders are those who have an economic relationship with the organization, such as owners, employees, customers, and suppliers. Without them, the organization would fail to exist.
- Secondary stakeholders are those who indirectly affect or are affected by the company’s activities, such as community members, nonprofits, the media, and the government.
- Review “Key Stakeholder Attributes,” which categorizes stakeholders and issues based on three attributes: power, legitimacy, and urgency
Power refers to the ability of a stakeholder to impose its will on the business.
Legitimacy, which at times is similar to power, refers to the stakeholder’s standing in society or to the claim being made.
Urgency refers to the immediateness of the issues being raised.
- Managers need to scan their environment to determine when these three stakeholder characteristics – power, legitimacy, and urgency – exist.
- But do not neglect stakeholders who lack power. If their claims are legitimate and urgent, others are likely to join them, as happened for the “Passenger Bill of Right” discussed in this section.
HOW CAN MANAGERS DETERMINE AN OPTIMAL WIN-WIN COMMUNITY PARTNER?
- The ideal strategic partnership is a “win-win” situation where the recipient nonprofit organization and company can most benefit from associating with each other.
- To achieve optimal benefits for both the company and the recipient there needs to be alignment between the missions of both organizations.
- Review “Community Organizations that Benefit the Most for a Strategic Partnership,” which provides questions to help managers determine which community organizations would benefit the most by being aligned with the company.
- An optimal partner is a community organization with a similar mission that can benefit from the company’s product, service and employee skills
- Also determine what community organizations can supply inputs to the company or purchase the company’s products or services.
- Companies need high-quality laborers. Donating money, products, or skills to educational institutions that develop future employees enhances a company’s competitive advantage.
- Similarly, a company that wants to expand its customer base can donate to organizations whose managers or employees are associated with key target markets.
- Review “Community Organizations that Benefit the Company the Most,” which provides questions that can help managers determine which community organizations would contribute the most to the company achieving its strategic goals.
- An optimal partner is a community organization that can supply you with future employees and whose employees and customers can supply you with future sales.
- A community organization that rises to the top after applying the questions (community organizations that benefit the most from partnering with the company) and (community organizations that benefit the company the most) is an optimal choice for a win-win strategic partnership.
- The ideal partnership is also an equal partnership.
Company managers must be empathetic to the problems of managing community organizations.
Acknowledge and respect the community organization’s limitations, and work within those limits to develop quality win-win projects.
- Strategic partnership objectives must be transparent, fair, and realistic, with two-way communication between community organization and business.
- Cause-related marketing is a win-win strategic partnership where nonprofits benefit by revenue generated through the sales of the donor’s product or service.
In 2006, Bono, the U2 rock group singer, and Bobby Shriver launched (RED). A portion of profits for all licensed (RED) products are donated to the Global Fund, which finances AIDS programs focused on women and children in Africa.
None of the (RED) money can be used to pay overhead expenses.
DESCRIBE THE STEPS A MANAGER SHOULD TAKE TO DEVELOP A HIGHLY EFFECTIVE COMMUNITY INVOLVEMENT PROGRAM
COMMUNITY INVOLVEMENT MANAGEMENT PROCESS
- Similar to ethics, integrate corporate citizenship endeavors as part of the company’s vision and mission rather than as an after-thought done to please local politicians and activist groups.
- Philip Mirvis and Bradley Googins describe a five-stage corporate citizenship developmental process: elementary, engaged, innovative, integrative, and transforming.
- Most companies begin at the elementary level, occasionally helping out the community when requested by local governments and powerful community constituents.
- To gain greater credibility, companies become more engaged by monitoring community needs and developing policies clearly articulating its intentions to be a good citizen. Engagement in the community raises the issue of organizational capacity to follow-through on its commitments.
- Companies become innovative by brainstorming solutions, planning programs, and developing metrics that measure impacts.
- Next, organizations create coherence among their initiatives by integrating them under a common theme which enables the company to brand its efforts.
- By fully committing to being a good citizen, some organizations undergo a transformative experience where core business products and services are modified, or new products and services created, to meet community needs.
Corporate citizenship becomes a central aspect of the organization’s identity, such as what has happened at Ben & Jerry’s, the Body Shop, and Patagonia.
- Determining what to give which organization could be determined by the human resources office, a philanthropic foundation, or a team of employees.
- Even if a company is large enough to support its own foundation, involve employees in the outreach decision-making process.
- Review “Community Involvement Management Process,” which describes how to manage the community involvement process.
COMMUNITY INVOLVEMENT AS EMPLOYEE TRAINING
- Community involvement provides an opportunity for team building, leadership training, and teaching project management, all of which directly impact a company’s daily operations.
- Go-getters, in particular, need diverse opportunities to use their creativity, develop talents, and hone managerial skills, and can meet these needs through community involvement options.
- Volunteering on a common cause benefitting the community enhances employee morale.
- Timberland uses community service projects to teach employees project management skills. Review “BEST PRACTICE IN USE” exhibit “Timberland’s Service Toolkit,” which provides the team leader with tools and worksheets to enable successful completion of the project.
- Community involvement provides many opportunities for networking with other businesses and community leaders.
- Managers can join the Rotary, Chamber of Commerce, Better Business Bureau, and other business associations including Businesses for Social Responsibility, the Lions Club, Kiwanis Club, and the Optimist Club.
- Some business networking organizations fund public policy lobbying efforts. Carefully choose which lobbying activities to support. Lobbying groups tend to be dominated by social group relativism, which sometimes results in proposing rules and regulations that benefit businesses to the detriment of community well-being.
HOW CAN YOU ASSESS COMMUNITY IMPACTS?
COMMUNITY REPUTATION ASSESSMENT
- Assess key constituents to ensure that a key intended benefit of community involvement – a better reputation – is being accomplished.
- The Council on Foundations has created a Corporate Philanthropy Index (CPI) for companies to assess their reputation within the community.
- Send the three-item survey, measured on a one-to-five Likert scale, to multiple stakeholders or administer the survey at a focus group meeting. The survey items are:
- Compared to other companies, (Company Name) does its fair share to help the community and society.
- Overall, (Company Name) is the kind of company that helps the community and society by contributing things like time, volunteers, money, and sponsorships of nonprofit events and causes.
- (Company Name) really seems to care about giving and making contributions to help the community and society.
SOCIAL PERFORMANCE REPORTING
- A company can also demonstrate respect for the community by being transparent about its operations and impacts.
- More than 3,500 corporate responsibility reports are published annually.
- The Global Reporting Initiative (GRI), discussed in Chapter 11, offers a standardized framework for community impact reporting, in addition to environmental performance.
- GRI examined 72 sustainability reports and found that most companies reported community impacts in the areas of education and training, philanthropy and charitable giving, community services and employee volunteering, total community expenditure, and community engagement and dialogue.
- Review “Top Three Indicators for Five Community Impact Topics,” which provides the top three indicators used to measure performance in each of the five areas.
- Ben & Jerry’s, Timberland, and Starbucks, three leading companies in the area of social reporting, publicize their community involvement reports on the Internet and offer them as models for other companies to adapt.
- CorporateRegister.com, founded in 1998, profiles more than 23,000 social responsibility reports from 116 nations.
Best Place to Work Video
Business Ethics Issue Video
- Work Sabbatical: Designer Stefan Sagmeister, who every seven years closes his New York studio for a yearlong sabbatical to rejuvenate and refresh their creative outlook, explains the often overlooked value of time off and shows the innovative projects inspired by his time in Bali; July 2009,18 minutes
- Kiva: Jessica Jackley, the co-founder of Kiva.org, talks about how her attitude about people in poverty changed and how her work with microloans has brought new power to people who live on a few dollars a day; July 2010, 19 minutes
Conversations with Charlie Rose
- A conversation with Bill Gates, Melinda Gates and Warren Buffett about 'The Giving Pledge' to donate half of a person’s net worth to charity; June 16, 2010, 60 minutes
- A discussion about Philanthropy and Foundations in the United States; August 22, 2007, 24 minutes
Sarah Nilsson, J.D., Ph.D., MAS
602 561 8665
You can also fill out my
The information on this website is for EDUCATIONAL purposes only and DOES NOT constitute legal advice.
While the author of this website is an attorney, she is not YOUR attorney, nor are you her client, until you enter into a written agreement with Nilsson Law, PLLC to provide legal services.
In no event shall Sarah Nilsson be liable for any special, indirect, or consequential damages relating to this material, for any use of this website, or for any other hyperlinked website.
I endorse the following products