ETHICS, CORPORATE SOCIAL RESPONSIBILITY, … · 2017. 12. 14. · WHAT DO WE MEAN BY BUSINESS ETHICS? Business Ethics Is the application of general ethical principles to the actions

CHAPTER 9

ETHICS, CORPORATE SOCIAL

RESPONSIBILITY, ENVIRONMENTAL

SUSTAINABILITY, AND STRATEGY

(c) 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution

in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in wholeor part.

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.


in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 9–2

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

society’s standards of right and wrong.



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.



WHERE DO ETHICAL STANDARDS COME FROM—ARE THEY UNIVERSAL OR DEPENDENT ON LOCAL NORMS?

The School of

Ethical

Universalism

The School of

Ethical

Relativism

Integrated

Social Contracts

Theory

Sources for Ethical Standards



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.



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.



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.



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.



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.



EXAMPLES OF ETHICAL RELATIVISM ISSUES

The use of

underage

labor

The payment

of bribes and

kickbacks

Relativism

equates to

multiple sets

of standards

The use of

local morality

to guide ethical

behavior

Variations in

Ethical Standards



ILLUSTRATION

CAPSULE 9.1



♦ How effective has IKEA’s 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?

IKEA’s Global Supplier Standards: Maintaining Low Costs While Fighting the Root Causes of Child Labor


♦ Codes of conduct based on ethical relativism

can be ethically dangerous for multinational

companies by creating a maze of conflicting

ethical standards.



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.




♦ 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.



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.



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.




♦ In instances involving universally applicable

ethical norms (like paying bribes), there can be

no compromise on what is ethically permissible

and what is not.



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

manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 9–19

CONSEQUENCES OF ETHICALLY QUESTIONABLE STRATEGIES

Sizable

civil fines and

stockholder

lawsuits

Devastating

image and

public relations

hits

Sharp stock

price drops as

investors lose

confidence

Criminal

indictments

and

convictions

When Strategies Fail

the Ethical Litmus Test



DRIVERS OF UNETHICAL STRATEGIES AND BUSINESS BEHAVIOR

Unethical

Strategies

and Business

Behaviors

Faulty Oversight

and Self Dealing

Pressure for Short-

term Performance

A Weak or Corrupt

Ethical Environment



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.



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.



ILLUSTRATION

CAPSULE 9.2



♦ 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 Nordisk’s

dedication to ethical business practices on

its success in the marketplace?

How Novo Nordisk Puts Its Ethical Principles into Practice

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

firm’s personnel.

The Business Case for Ethical Strategies:

● An ethical strategy can be both good

business and serve the self-interest of

shareholders.




♦ Conducting business in an ethical fashion is

not only morally right—it is in a company’s

enlightened self-interest.

♦ Shareholders suffer major damage when a

company’s unethical behavior is discovered.

Making amends for unethical business conduct

is costly, and it takes years to rehabilitate a

tarnished company reputation.



The Costs Companies Incur When Ethical Wrongdoing Is DiscoveredFIGURE 9.1



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.



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.



The Five Components

of a Corporate Social

Responsibility Strategy

FIGURE 9.2



ILLUSTRATION

CAPSULE 9.3



♦ How has Burt’s 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 Burt’s Bees

really are practicing CSR?

♦ Why was there a customer backlash to The

Clorox Company’s Burt’s Bees acquisition?

Burt’s Bees: A Strategy Based on Corporate Social Responsibility

CORE CONCEPT

♦ A company’s 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.



The Triple Bottom Line: Excelling on Three Measures of Company Performance

Profit People

Planet

FIGURE 9.3



ILLUSTRATION

CAPSULE 9.4


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♦ 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 TOMS’s 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?

TOMS’s Well-BalancedTriple Bottom Line



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.



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 strategyconsists 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.



SUSTAINABILITY AND SUSTAINABLE BUSINESS PRACTICES

Environmental Sustainability Strategy

● Consists of the firm’s 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.



CRAFTING CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY STRATEGIES

Pursuing a Sustainable CSR Strategy

in the Firm’s Value Chain Activities

Business Case:

Competitive

Advantage

Moral Case:

Stakeholder

Benefits




♦ 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 company’s

reputation for corporate citizenship but are

unlikely to improve its competitive strength in

the marketplace.



THE MORAL CASE FOR CSR AND ENVIRONMENTALLY SUSTAINABLE BUSINESS PRACTICES

Operate

ethically and

legally

Provide good

work conditions

for employees

Be a good

environmental

steward

Display good

corporate

citizenship

The Implied Social Contract:

“It’s the right thing to do”




♦ Every action a company takes can be

interpreted as a statement of what it stands for.



THE BUSINESS CASE FOR CSR AND ENVIRONMENTALLY SUSTAINABLEBUSINESS 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



COMBATING THE EVASION OF CSR AND SOCIALLY HARMFUL BUSINESS PRACTICES

Harmful and

Unethical

Business

Actions and

Behaviors

Increased public

awareness of misdeeds

of bad behavior by firms

Increased legislation and

regulation to correct and

punish firms

Refusal to do business with

irresponsible firms




♦ 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.




♦ 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.

♦ There’s little hard evidence indicating

shareholders are disadvantaged in any

meaningful way by a company’s actions to be

socially responsible.



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ETHICS, CORPORATE SOCIAL RESPONSIBILITY, … · 2017. 12. 14. · WHAT DO WE MEAN BY BUSINESS ETHICS? Business Ethics Is the application of general ethical principles to the actions