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CHAPTER 9
ETHICS,
ETHICS, CORPORATE
CORPORATE SOCIAL
SOCIAL
RESPONSIBILITY,
RESPONSIBILITY, ENVIRONMENTAL
ENVIRONMENTAL
SUSTAINABILITY,
SUSTAINABILITY, AND
AND STRATEGY
STRATEGY
9–3
CORE CONCEPTS
♦ Ethics concerns principles of right or wrong
conduct.
♦ Business ethics involves the application of
general ethical principles to the actions and
decisions of businesses and the conduct of
their personnel.
9–4
WHERE DO ETHICAL STANDARDS
COME FROM—ARE THEY UNIVERSAL
OR DEPENDENT ON LOCAL NORMS?
9–5
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.
9–6
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.
9–7
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.
9–8
EXAMPLES OF ETHICAL
RELATIVISM ISSUES
Variations in
Ethical Standards
9–9
ILLUSTRATION CAPSULE 9.1
Apple’s Failures in Enforcing
Its Supplier Code of Conduct
9–10
STRATEGIC MANAGEMENT PRINCIPLE
9–11
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.
9–12
STRATEGIC MANAGEMENT PRINCIPLE
9–13
INTEGRATIVE SOCIAL
CONTRACTS THEORY
9–14
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.
9–15
HOW AND WHY ETHICAL STANDARDS
IMPACT THE TASKS OF CRAFTING AND
EXECUTING STRATEGY
The Ethics Code Litmus Test:
● Is what we are proposing to do fully compliant with
our code of ethics? Are there areas of ambiguity?
● Is this action in harmony with our core values? Are
any conflicts or potential problems evident?
● Is this action ethically objectionable? Would our
stakeholders, our competitors, the SEC under the
Sarbanes-Oxley Act, or the news and social media
view this action as ethically objectionable?
9–16
CONSEQUENCES OF ETHICALLY
QUESTIONABLE STRATEGIES
9–17
WHAT ARE THE 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
9–18
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.
9–19
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.
9–20
ILLUSTRATION CAPSULE 9.2
Investment Fraud at Bernard L. Madoff Investment
Securities and Stanford Financial Group
9–21
ILLUSTRATION CAPSULE 9.3
How Novo Nordisk Puts Its Ethical
Principles into Practice
9–22
WHY SHOULD COMPANY STRATEGIES
BE ETHICAL?
9–23
STRATEGIC MANAGEMENT PRINCIPLE
9–24
FIGURE 9.1 The Costs Companies Incur When Ethical Wrongdoing Is Discovered
9–25
STRATEGY, CORPORATE SOCIAL
RESPONSIBILITY, AND EVIRONMENTAL
SUSTAINABILITY
Corporate Social Responsibility (CSR)
● Is a firm’s 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.
9–26
CORE CONCEPT
♦ Corporate social responsibility (CSR) refers
to a company’s 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.
9–27
FIGURE 9.2
The Five Components
of a Corporate Social
Responsibility Strategy
9–28
ILLUSTRATION CAPSULE 9.4
CSR Through Fashion and Cars in
Singapore
9–29
The Triple Bottom Line: Excelling on Three Measures of Company
FIGURE 9.3 Performance
Profit People
Planet
9–30
TABLE 9.1 A Selection of Companies Recognized for Their Triple-Bottom-Line
Performance in 2011
9–31
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.
9–32
CORE CONCEPTS
♦ 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 firm’s 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
endangerment of the planet.
9–33
SUSTAINABILITY AND SUSTAINABLE
BUSINESS PRACTICES
9–34
CRAFTING CORPORATE
SOCIAL RESPONSIBILITY AND
SUSTAINABILITY STRATEGIES
9–35
STRATEGIC MANAGEMENT PRINCIPLE
9–36
THE MORAL CASE FOR CSR AND
ENVIRONMENTALLY SUSTAINABLE
BUSINESS PRACTICES
9–37
STRATEGIC MANAGEMENT PRINCIPLE
9–38
THE BUSINESS CASE FOR CSR AND
ENVIRONMENTALLY SUSTAINABLE
BUSINESS PRACTICES
Increased reputation and 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
9–39
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
9–40
STRATEGIC MANAGEMENT PRINCIPLE
9–41
STRATEGIC MANAGEMENT PRINCIPLE
9–42