9 chapter

Student Version
STRATEGY,
ETHICS, AND
CORPORATE SOCIAL
RESPONSIBILITY
Copyright 2013 by The McGraw-Hill Companies, I nc. All rights reserved.
McGraw-Hill/I rwin
9-2
Linking Strategy to Ethics
and Social Responsibility
Should there be a link between a firms
efforts to craft and execute a winning
strategy and its duties to:
Conduct activities in an ethical manner?
Demonstrate socially responsible behavior by being a
committed corporate citizen?
Limit its strategic initiatives to those meeting needs of
consumers without depleting resources needed by
future generations?
9-3
What Do We Mean By Business Ethics?
Business ethics
Is the application of ethical principles and standards to
the actions and decisions of business organizations
and the conduct of their personnel.
How do ethics and business ethics differ?
Ethical principles in business are not materially
different from ethical principles in general.
Business actions
Are judged by general ethical standards of society.
Are not subject to more permissive standards.
9-4
Drivers of Unethical Strategies
and Business Behavior
The view that the business of business is
business, not ethics
Overzealous pursuit of personal gain,
wealth, and other self-interests
Heavy pressures on company managers
to meet or beat earnings targets
A company culture that places profits and
good performance ahead of ethical behavior
9-5
The Business Case for Ethical Strategies
Once noticed, unethical business behavior
will likely result in lost revenues, higher
costs, lower profits, lower stock prices, and
a diminished business reputation.
Therefore, adopting ethical strategies and
engaging only in ethical conduct are simply
good business.
The Sarbanes-Oxley Act (2002)
Requires that publicly traded firms have a code of
ethics or else explain in writing to the Securities and
Exchange Commission why they do not.
9-6
Ensuring a Strong Commitment to
Business Ethics in Companies with
International Operations
Three schools of thought exist about the
extent to which ethical standards apply
across countries and cultures:
Ethical Universalism
Ethical Relativism
Integrative Social Contracts Theory
9-7
The School of Ethical Universalism
According to the school of ethical
universalism
Some concepts of what is right and what is wrong are
universal and transcend most all cultures, societies,
and religions.
All societies, companies, and individuals are
accountable to a set of universal ethical standards.
Incorporating a universal set of moral standards into
its code of ethics allows a multinational firm to set
clear boundaries on what constitutes ethical business
behavior no matter what country market its personnel
are operating in.
9-8
Concept of Ethical Relativism
The school of ethical relativism posits that
What is ethical or unethical must be judged in light of
local moral standards and can vary from one country
to another.
When there are local differences in what is deemed
an ethical or unethical, it is appropriate for local moral
standards to take precedence.
The risks of ethical relativism
The assumption that local morality is an adequate
guide for ethical behavior.
Conflicts in applying differing ethical standards across
different locales and varying situations.
9-9
Example: The Drawbacks
of Ethical Relativism
The ethical relativism rule of when in Rome,
do as the Romans do presents problems:
It is ethically dangerous for company personnel to
assume that local ethical standards are an adequate
guide to ethical behavior.
What if local standards condone kickbacks and
bribery?
What if local standards blink at environmental
degradation?
9-10
Integrative Social Contracts Theory
According to the integrative social contracts
theory, ethical standards a firm should
uphold are governed by both:
A limited number of universal ethical principles that
are widely recognized as putting legitimate ethical
boundaries on actions and behavior in all situations
and
The circumstances of local cultures, traditions, and
values that further prescribe what constitutes ethically
permissible behavior and what does not
9-11
Ethics: It Is Not As Easy As It Seems
Integrative social contracts theory provides:
That first-order universal ethical norms always take
precedence over second-order local ethical norms
when local norms are more permissive
There are many instances where country
differences in ethical norms create gray
areas where it is tough to draw a line in the
sand between right and wrong decisions,
actions, and business practices.
9-12
Corporate Social Responsibility and
Environmental Sustainability
A firm practicing social responsibility seeks
to balance the interests of all stakeholders:
Its economic responsibility to shareholders
Its legal responsibility to comply with the laws of the
countries where it operates
Its ethical responsibility to abide by societys norms
Its discretionary philanthropic responsibility to meet
the unmet needs of society
9-13
Common Corporate Social
Responsibility (CSR) Initiatives
Efforts to employ an ethical strategy and observe ethical
principles in operating the business.
Making charitable contributions, supporting community
service endeavors, engaging in broader philanthropic
initiatives, and reaching out to make a difference in the lives of
the disadvantaged.
Actions to protect the environment and, in particular, to
minimize or eliminate any adverse impact on the environment
stemming from the firms own business activities.
Actions to create a work environment that enhances the
quality of life for employees.
Actions to build a workforce that is diverse with respect to
gender, race, national origin, and other aspects that different
people bring to the workplace.
9-14
Environmental Sustainability Strategies:
A New Priority
Environmental sustainability strategies:
Entail actions to operate businesses to protect and
enhance natural resources and ecological support
systems, to guard against outcomes that endanger
the planet, and to be sustainable for centuries.
Are directed at improving a firms triple bottom line
(TBL)its performance on economic, environmental,
and social metrics.
9-15
Crafting Social Responsibility and
Sustainability Strategies
To be socially responsible involves
deciding:
What charitable contributions to make
What kinds of community service projects to
emphasize
What environmental actions to support
How to make the firm a good place to work
Where and how workforce diversity will fit into the
picture
Which other worthy causes and projects that benefit
society will the firm support
9-16
The Business Case for
Socially Responsible Behavior
Reasons why the exercise of corporate
social responsibility is good business:
Such actions can lead to increased buyer patronage.
A strong commitment to socially responsible behavior
reduces the risk of reputation-damaging incidents.
Socially responsible actions yield internal benefits
(e.g., employee recruiting, retention, and training
costs) and can improve operational efficiency.
Well-conceived social responsibility strategies work to
the advantage of shareholders.