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Social Responsibility and Ethics

in Strategic Management
SOCIAL RESPONSIBILITY
“Social responsibility is the idea that businesses should balance profit-
making activities with activities that benefit society. It involves
developing businesses with a positive relationship to the society in
which they operate.”
SOCIAL RESPONSIBILITY VS.
CORPORATE PERFORMANCE
• This just means management must always consider external
environment in decision making and not just their responsibilities to
the stockholders.
RESPONSIBILITIES OF A BUSINESS FIRM
• Friedman vs. Carroll views
• Milton Friedman: “There is one and only one social responsibility of
business—to use its resources and engage in activities designed to
increase its profits so long as it stays within the rules of the game
which is to say, engages in open and free competition without
deception or fraud.”
Archie Carroll: Four Responsibilities of Business

Philanthropic

Ethical

Legal

Economic
Carroll’s Four Responsibilities
1. Economic – to produce goods and services of value to society so that
the firm may repay its creditors
2. Legal – defined by governments in laws that management is
expected to obey
3. Ethical – to follow the generally held beliefs about behavior in a
society
4. Philanthropic – purely voluntary obligations a corporation assumes
RATIONALITY BEHIND CARROLL’S THEORY

• A business firm must first make a profit to satisfy economic


responsibilities. In continuation, firm must follow the laws to fulfill its
legal responsibilities. After the fulfillment of the two responsibilities,
it must look to fulfill its social ones—the ethical and philanthropic.
Ethical responsibilities can be fulfilled by taking actions that society
tend to value but has not yet put into law. Philanthropic, then, follows.
Discretionary responsibilities of today may become the ethical
responsibilities of tomorrow.
SUSTAINABILITY
• Crane and Matten
concept of sustainability should be broadened to include economic and social
as well as environmental concerns
impossible to address the sustainability of the natural environment without
considering social and economic aspects of relevant communities and their
activities
• Dow Jones & Company developed a sustainability index which
considers environmental, economic and social factors.
CORPORATE STAKEHOLDERS
• Stakeholders can affect or be affected by the organization’s actions,
objectives and policies. Some examples of key stakeholders are
creditors, directors, employees, government (and its agencies), owners
(shareholders), suppliers, unions, and the community from which the
business draws its resources.
FORD MOTORS CO.
2015 2016 2017
Adjusted pre-tax profit, $ billion 10.8 10.4 8.4

Customers and Products 2015 2016 2017


Ford U.S. corporate average fuel economy, combined car 30.0 29.8 29.6
and truck fleet, miles per gallon (higher mpg reflects
improvement)
Ford U.S. CO2 tailpipe emissions per vehicle, combined 296 308 306
car and truck fleet, grams per mile (lower grams per mile
reflects improvement)
Ford Europe CO2 tailpipe emissions per passenger 118.133 119.964 120.86
vehicle, grams per kilometer (100% of vehicles)
STAKEHOLDER ANALYSIS
• The identification and evaluation of corporate stakeholders includes a
three-step analysis:

Differentiating Investigating
Identifying between relationships
stakeholders categorizing between
stakeholders stakeholders
ETHICAL DECISION MAKING
This information is gathered from the Ethics Resource Center 2018 report.
THE REASONS FOR
UNETHICAL BEHAVIORS
1. Cultural differences
2. No Code of Ethics
3. Fear of Reprisal
4. Impact of Peer Influence
5. Going Down a Slippery Slope
6. Setting a Bad Example
GLOBAL ISSUE: RULE BASED VS.
RELATIONSHIP BASED GOVERNANCE
RULE-BASED RELATIONSHIP-BASED
Normally used by developed nations Used by developing countries
Follows well-organized rules in business dealings and Transactions based on personal and implicit
reporting agreements
Publicly discloses in-depth information about the Inherently nontransparent due to the local and non-
company—transparent verifiable nature of its information
Has an infrastructure, based on accounting, auditing, Strategic decisions may be affected by culture than
ratings, systems, legal cases and codes market share data
OBJECTIVES OVER RULES

74%

70%

47%
ORGANIZATIONAL
PERFORMANCE REQUIRED IT
RULE ARE AMBIGUOUS OR
OUT OF DATE
PRESSURE FROM OTHERS AND
EVERYONE DOES IT
• Moral Relativism – morality is relative to some personal, social, or
cultural standard and that there is no method for deciding whether one
decision is better than another.
• Native Relativism – each person should be allowed to interpret
situations and act according to his or her own moral values
• Role Relativism – a manager in charge of a work unit must put aside
his or her personal beliefs and do what the role requires
• Social group Relativism – decision is considered legitimate if it is
common practice, regardless other considerations
• Cultural Relativism – people should understand the practices of other
societies but not judge them. One should not criticize another culture’s
norms and customs, but accept and follow.
KOLHBERG’S LEVELS OF MORAL
DEVELOPMENT
• Proposes that a person progresses through three levels of moral
development.
1. Preconventional level – characterized by a concern for self
2. Conventional level – characterized by considerations of society’s laws and
norms
3. Principled level – characterized by a person’s adherence to an internal
moral code
CODE OF ETHICS
Specifies how an organization expects its employees to behave while on the job
CODE OF ETHICS
• Clarifies company expectations of employee conduct in various
situations
• Makes clear that the company expects its people to recognize the
ethical dimensions in decisions and actions
ETHIC CULTURES

90%

34% 34%

EMPLOYEES WHO OBSERVED EMPLOYEES FELT THAT THEIR EMPLOYEES ARE BEING
CORPORATE MISCONDUCT RATED SUPERVISOR DID NOT DISPLAY WATCHED CLOSELY
THEIR CULTURES AS WEAK ETHICAL BEHAVIOR
VIEWS ON ETHICAL BEHAVIOR
Ethics, Morality and Law
• Ethics is defined as the consensually accepted standards of behavior
for an occupation, a trade, or profession.
• Morality constitutes one’s rules of personal behavior based on
religious or philosophical grounds.
• Law refers to formal codes that permit or forbid certain behaviors and
may or may not enforce ethics or morality
BASIC APPROACHES TO
ETHICAL BEHAVIOR
1. Utilitarian approach — proposes that actions and plans
should be judged by their consequences
2. Individual rights approach — proposes that human beings
have certain fundamental rights that should be respected in
all decisions
3. Justice approach — proposes that decisionmakers be
equitable, fair and impartial in the distribution of costs and
benefits to individuals and groups.
• Distributive Justice – people who are similar on relevant dimensions such
as job seniority should be treated in the same way
• Retributive Justice – punishment should be proportional to the offense
• Compensatory Justice – wrongs should be compensated in proportion to
the offense
UTILITY
Does it optimize the satisfactions of all
stakeholders?
RIGHTS
Does it optimize the satisfactions of all
stakeholders?
JUSTICE
Is it consistent with the canons of justice?
IMMANUEL KANT’S
SOLUTION FOR ETHICAL
DILLEMAS
THE CATEGORICAL IMPERATIVES

•Two principles to guide our actions:


1. A person’s action is ethical only if that person is
willing for that same action to be taken by
everyone who is in a similar situation.
2. A person should never treat another human being
simply as means but always as an end.