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CHAPTER 9

CHAPTER 9. ETHICS, CORPORATE SOCIAL RESPONSIBILITY, ENVIRONMENTAL SUSTAINABILITY, AND STRATEGY. Student Version. WHAT DO WE MEAN BY BUSINESS ETHICS ?. Business Ethics

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CHAPTER 9

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  1. CHAPTER 9 ETHICS, CORPORATE SOCIAL RESPONSIBILITY, ENVIRONMENTAL SUSTAINABILITY, AND STRATEGY Student Version

  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.

  3. WHERE DO ETHICAL STANDARDS COME FROM—ARE THEY UNIVERSAL OR DEPENDENT ON LOCAL NORMS? Sources for Ethical Standards Integrated Social Contracts Theory The School of Ethical Universalism The School of Ethical Relativism

  4. 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.

  5. 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.

  6. Integrated 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.

  7. 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.

  8. 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 there anything in the action that is ethically objectionable? Would our stakeholders, our competitors, the SEC, or the media view this action as ethically objectionable?

  9. Consequences of Ethically Questionable Strategies When Strategies Fail the Ethical Litmus Test Sizable civil fines and stockholder lawsuits Devastating image and public relations hits Sharp stock price drops as investors lose confidence Criminal indictments and convictions

  10. WHAT ARE THE DRIVERS OF UNETHICAL STRATEGIES AND BUSINESS BEHAVIOR? Faulty Oversight and Self Dealing Unethical Strategies and Business Behaviors Pressure for Short-term Performance A Weak or Corrupt Ethical Environment

  11. WHY SHOULD A FIRM’S STRATEGIES BE ETHICAL? • Moral Case: • Because a strategy that is unethical is morally wrong and reflects badly on the character of the firm’s personnel. • Business Case: • Because an ethical strategy can be both good business and serve the self-interest of shareholders.

  12. CORPORATE SOCIAL RESPONSIBILITY, EVIRONMENTAL SUSTAINABILITY, AND STRATEGY 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.

  13. Crafting Corporate Social Responsibilityand Sustainability Strategies Pursuing a Sustainable CSR Strategy in the Firm’s Value Chain Activities Moral Case:Stakeholder Benefits Business Case:Competitive Advantage

  14. The Moral Case for CSR and Environmentally Sustainable Business Practices The Implied Social Contract:“To Do the Right Thing” Operate ethically and legally Provide good work conditions for employees Be a good environmental steward Display good corporate citizenship

  15. 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 opportunities for revenue enhancement due innovation in support of sustainability and CSR • Support for the long-term interests of shareholders

  16. Combating the Evasion of CSR and Socially Harmful Business Practices Increased public awareness of misdeeds of bad behavior by firms Harmful and Unethical Business Actions and Behaviors Increased legislation and regulation correct and punish firms Refusal to do business with irresponsible firms

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