Ethical Business Strategies, Corporate Social Responsibility, and Environmental Sutainability

CHAPTER 9
ETHICS, CORPORATE SOCIAL

RESPONSIBILITY, ENVIRONMENTAL
SUSTAINABILITY, AND STRATEGY
THIS CHAPTER WILL HELP YOU UNDERSTAND:
LO 1 How the standards of ethical behavior in business are

no different from the ethical standards and norms of the
larger society and culture in which a company operates.
LO 2 What drives unethical business strategies and behavior.
LO 3 The costs of business ethics failures.
LO 4 The concepts of corporate social responsibility and

environmental sustainability and how companies
balance these duties with economic responsibilities to
shareholders.
WHAT DO WE MEAN BY BUSINESS ETHICS?
Business Ethics
Is the application of general ethical principles
to the actions and decisions of businesses
and the conduct of their personnel.
Are not materially different from ethical
principles in general because business
actions have to be judged in the context of
societys standards of right and wrong.
(c) 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
93
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
CORE CONCEPTS
Ethics concerns principles of right or

wrong conduct.
Business ethics deals with the
application of general ethical principles to
the actions and decisions of businesses
and the conduct of their personnel.
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WHERE DO ETHICAL STANDARDS COME FROM
ARE THEY UNIVERSAL OR DEPENDENT ON
LOCAL NORMS?
Sources for Ethical Standards
The School of The School of Integrated

Ethical Ethical Social Contracts
Universalism Relativism Theory
95
THE SCHOOL OF
ETHICAL UNIVERSALISM
Ethical Universalism
Holds that common understandings across
multiple cultures and countries about what
constitutes right and wrong give rise to
universal ethical standards that apply to all
societies, all firms, and all businesspeople.
Effect on Business Ethics
Whether a business-related action is right or
wrong is judged by universal standards.
96
CORE CONCEPT
The school of ethical universalism

holds that the most fundamental
conceptions of right and wrong are
universal and apply to members of all
societies, all companies, and all
businesspeople.
97
THE SCHOOL OF
ETHICAL RELATIVISM
Ethical Relativism
Holds that differing beliefs, customs, and
behavioral norms across countries and
cultures give rise to multiple sets of standards
of what is ethically right or wrong.
Effect on Business Ethics
Whether business-related actions are right or
wrong depends on local ethical standards.
98
CORE CONCEPT
The school of ethical relativism holds

that differing religious beliefs, customs,
and behavioral norms across countries
and cultures give rise to multiple sets of
standards concerning what is ethically
right or wrong. These differing standards
mean that whether business-related
actions are right or wrong depends on the
prevailing local ethical standards.
99
STRATEGIC MANAGEMENT PRINCIPLE
Under ethical relativism, there can be no one-

size-fits-all set of authentic ethical norms
against which to gauge the conduct of
company personnel.
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EXAMPLES OF ETHICAL RELATIVISM ISSUES
Variations in
Ethical Standards
Relativism The use of

The use of The payment
equates to local morality
underage of bribes and
multiple sets to guide ethical
labor kickbacks
of standards behavior
911
ILLUSTRATION IKEAs Global Supplier Standards:
CAPSULE 9.1 Maintaining Low Costs While Fighting
the Root Causes of Child Labor
How effective has IKEAs IWAY proactive approach
to setting global labor standards been in reducing
abuses of child workers at its supplier facilities?
Is it fair for IKEA to prescribe that its suppliers
comply with global standards that are at variance
with local market labor practices and conditions?
What has IKEA done to help its suppliers
overcome the problems that foster the use of child
labor?
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 912
Codes of conduct based on ethical relativism

can be ethically dangerous for multinational
companies by creating a maze of conflicting
ethical standards.
913
CORE CONCEPT
According to integrated social

contracts theory, universal ethical
principles based on the collective views
of multiple societies form a social
contract that all individuals and
organizations have a duty to observe in
all situations.
Within the boundaries of this social
contract, local cultures or groups can
specify what additional actions may or
may not be
ethically permissible.
914
According to integrated social contracts theory,

adherence to universal or first-order ethical
norms should always take precedence over
local or second-order norms.
In instances involving universally applicable
ethical norms (like paying bribes), there can be
no compromise on what is ethically permissible
and what is not.
915
INTEGRATIVE SOCIAL CONTRACTS THEORY
Provides a middle-ground balance between

universalism and relativism.
Posits that the collective views of multiple
societies form universal (first order) ethical
principles that all persons have a contractual
duty to observe in all situations.
Within the contract, cultures or groups can
specify locally ethical (second-order) actions.
916
APPLICATION OF INTEGRATED SOCIAL
CONTRACTS THEORY TO MULTINATIONAL
BUSINESS
Effects on Ethical Standards:
Adherence to universal ethical norms takes
precedence over local norms.
A local custom is not ethical if it violates
universal ethical norms.
Application of codes of ethics should first
follow universal standards with allowance for
local ethical diversity and influence.
917
In instances involving universally applicable

ethical norms (like paying bribes), there can be
no compromise on what is ethically permissible
and what is not.
918
HOW AND WHY ETHICAL STANDARDS IMPACT
THE TASKS OF CRAFTING AND EXECUTING
STRATEGY
The Ethics Code Litmus Test:
Areas of ambiguity: Is what we are proposing to
do fully compliant with our code of ethics?
Conflict or potential problem: Is this action in
harmony with our core values?
Ethically objectionable action: Will our
stakeholders, our competitors, the SEC under the
Sarbanes-Oxley Act, or the news and social media
view this action as ethically objectionable?
(c) 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
919
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
CONSEQUENCES OF ETHICALLY QUESTIONABLE
STRATEGIES
When Strategies Fail

the Ethical Litmus Test
Sizable Devastating Sharp stock Criminal

civil fines and image and price drops as indictments
stockholder public relations investors lose and
lawsuits hits confidence convictions
920
DRIVERS OF UNETHICAL STRATEGIES AND
BUSINESS BEHAVIOR
Faulty Oversight
and Self Dealing
Unethical
Pressure for Short- Strategies
term Performance and Business
Behaviors
A Weak or Corrupt
Ethical Environment
921
WHAT ARE THE DRIVERS OF UNETHICAL
STRATEGIES AND BUSINESS BEHAVIOR?
Drivers of Unethical Business Behavior:

Faulty internal oversight allows self-dealing in
the pursuit of personal gain, wealth, and self-
interest.
Short-termism pressure to meet or beat short-
term performance targets.
A culture that puts profitability and business
performance ahead of ethical behavior.
922
CORE CONCEPT
Self-dealing occurs when managers

take advantage of their position to
further their own private interests rather
than those of the firm.
Short-termism is the tendency for
managers to focus excessively on short-
term performance objectives at the
expense of longer-term strategic
objectives. It has negative implications
for the likelihood of ethical lapses as well
as company performance in the longer
run.
923
ILLUSTRATION How Novo Nordisk Puts Its Ethical
CAPSULE 9.2
Principles into Practice
What steps has Novo Nordisk taken to

ensure that its ethical standards of
employee conduct are put into practice?
Why has Novo Nordisk been so successful
instilling a culture of ethical conduct in its
organization when other firms have not?
What has been the effect of Novo Nordisks
dedication to ethical business practices on
its success in the marketplace?
WHY SHOULD COMPANY STRATEGIES BE
ETHICAL?
The Moral Case for an Ethical Strategy:

A strategy that is unethical is morally wrong
and reflects badly on the character of the
firms personnel.
The Business Case for Ethical Strategies:
An ethical strategy can be both good
business and serve the self-interest of
shareholders.
925
Conducting business in an ethical fashion is

not only morally rightit is in a companys
enlightened self-interest.
Shareholders suffer major damage when a
companys unethical behavior is discovered.
Making amends for unethical business conduct
is costly, and it takes years to rehabilitate a
tarnished company reputation.
926
FIGURE 9.1 The Costs Companies Incur When Ethical Wrongdoing Is Discovered
927
STRATEGY, CORPORATE SOCIAL
RESPONSIBILITY, AND EVIRONMENTAL
SUSTAINABILITY
Corporate Social Responsibility (CSR)
Is a firms duty to operate in an honorable
manner, provide good working conditions for
employees, encourage workforce diversity, be
a good steward of the environment, and
actively work to better the quality of life in the
local communities where it operates and in
society at large.
928
CORE CONCEPT
Corporate social responsibility (CSR)

refers to a companys duty to operate in
an honorable manner, provide good
working conditions for employees,
encourage workforce diversity, be a good
steward of the environment, and actively
work to better the quality of life in the
local communities where it operates and
in society at large.
929
FIGURE 9.2
The Five Components
of a Corporate Social
Responsibility Strategy
930
ILLUSTRATION Burts Bees: A Strategy Based on
CAPSULE 9.3
Corporate Social Responsibility
How has Burts Bees skillful use of

corporate social responsibility (CSR) as a
strategic tool contributed to its success in
the marketplace?
Given that many customers now purchase
personal care products online, how do they
determine that firms such as Burts Bees
really are practicing CSR?
Why was there a customer backlash to The
Clorox Companys Burts Bees acquisition?
CORE CONCEPT
A companys CSR strategy is defined by

the specific combination of socially
beneficial activities the company opts to
support with its contributions of time,
money, and other resources.
932
FIGURE 9.3 The Triple Bottom Line: Excelling on Three Measures of Company Performance
Profit People
Planet
933
ILLUSTRATION TOMSs Well-Balanced
CAPSULE 9.4
Triple Bottom Line
What unique marketing factors are driving the

sales growth of TOMS?
How does TOMS use its environmental
sustainability approach to set it apart from its
competitors?
How much of TOMSs success is due to its focus
on catering to a market niche of loyal lifestyle
consumers?
Does TOMS environmental sustainability strategy
limit its expansion into other footwear market
segments?
934
TABLE 9.1 A Selection of Companies Recognized for Their Triple-Bottom-Line
Performance in 2013
935
WHAT DO WE MEAN BY SUSTAINABILITY AND
SUSTAINABLE BUSINESS PRACTICES?
Sustainability
Is the relationship of a firm to its environment
and its use of natural resources.
Sustainable Business Practices
Are those practices of a firm that meet the
needs of the present without compromising
the ability to meet the needs of the future.
936
CORE CONCEPT
Sustainable business practices are

those that meet the needs of the present
without compromising the ability to meet
the needs
of the future.
An environmental sustainability
strategy consists of a firms deliberate
actions to protect the environment,
provide for the longevity
of natural resources, maintain ecological
support systems for future generations,
and guard against the ultimate
937
endangerment of the planet.

SUSTAINABILITY AND SUSTAINABLE
BUSINESS PRACTICES
Environmental Sustainability Strategy

Consists of the firms deliberate actions to:
Protect the environment.
Provide for the longevity of natural resources.
Maintain ecological support systems for future
generations.
Guard against ultimate endangerment of the
planet.
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CRAFTING CORPORATE SOCIAL RESPONSIBILITY
AND SUSTAINABILITY STRATEGIES
Pursuing a Sustainable CSR Strategy

in the Firms Value Chain Activities
Moral Case: Business Case:

Stakeholder Competitive
Benefits Advantage
939
CSR strategies and environmental

sustainability strategies that both provide
valuable social benefits and fulfill customer
needs in a superior fashion can lead to
competitive advantage.
Corporate social agendas that address only
social issues may help boost a companys
reputation for corporate citizenship but are
unlikely to improve its competitive strength in
the marketplace.
940
THE MORAL CASE FOR CSR AND
ENVIRONMENTALLY SUSTAINABLE
BUSINESS PRACTICES
The Implied Social Contract:

Its the right thing to do
Operate Provide good Be a good Display good

ethically and work conditions environmental corporate
legally for employees steward citizenship
941
Every action a company takes can be

interpreted as a statement of what it stands for.
942
THE BUSINESS CASE FOR CSR AND
ENVIRONMENTALLY SUSTAINABLE
BUSINESS PRACTICES
Increased buyer patronage
Reduced risk of reputation-damaging incidents
Lower turnover costs and enhanced employee
recruiting and workforce retention
Increased revenue enhancement opportunities
due to support of CSR and sustainability
CSR and sustainability best serve long-term
interests of shareholders
943
COMBATING THE EVASION OF CSR AND
SOCIALLY HARMFUL BUSINESS PRACTICES
Increased public
awareness of misdeeds
of bad behavior by firms
Harmful and
Increased legislation and Unethical
regulation to correct and Business
punish firms Actions and
Behaviors
Refusal to do business with
irresponsible firms
944
The higher the public profile of a company or

its brand, the greater the scrutiny of its
activities and the higher the potential for it to
become a target for pressure group action.
945
Socially responsible strategies that create

value for customers and lower costs can
improve company profits and shareholder
value at the same time that they address other
stakeholder interests.
Theres little hard evidence indicating
shareholders are disadvantaged in any
meaningful way by a companys actions to be
socially responsible.
946

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CHAPTER 9

ETHICS, CORPORATE SOCIAL

LO 1 How the standards of ethical behavior in business are

LO 2 What drives unethical business strategies and behavior.

LO 3 The costs of business ethics failures.

LO 4 The concepts of corporate social responsibility and

Ethics concerns principles of right or

Sources for Ethical Standards

The School of The School of Integrated

The school of ethical universalism

The school of ethical relativism holds

Under ethical relativism, there can be no one-

Relativism The use of

Codes of conduct based on ethical relativism

According to integrated social

According to integrated social contracts theory,

Provides a middle-ground balance between

In instances involving universally applicable

When Strategies Fail

Sizable Devastating Sharp stock Criminal

Drivers of Unethical Business Behavior:

Self-dealing occurs when managers

What steps has Novo Nordisk taken to

The Moral Case for an Ethical Strategy:

Conducting business in an ethical fashion is

Corporate social responsibility (CSR)

How has Burts Bees skillful use of

A companys CSR strategy is defined by

What unique marketing factors are driving the

Sustainable business practices are

endangerment of the planet.

Environmental Sustainability Strategy

Pursuing a Sustainable CSR Strategy

Moral Case: Business Case:

CSR strategies and environmental

The Implied Social Contract:

Operate Provide good Be a good Display good

Every action a company takes can be

The higher the public profile of a company or

Socially responsible strategies that create

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