Corporate Social Responsibility Doing Good while Doing Well

1. Corporate Social ResponsibilityDoing Good while Doing Well

2. What is Ethics? • Ethics (also called moral philosophy) is a system of beliefs about how to behave. • Ethics vs. morals • Ethics denotes the theory of right action and the greater good • Morals indicate their practice • Moral—one complies with society’s system of beliefs • Amoral—one does not, acting in a fashion that is neither good or bad • Immoral—one does not, acting in contravention of proper behavior

3. General Social Expectations of Ethics • Societies dictate general systems of ethics through their culture, and their stated convictions about bad, good, and exceptional action. • The ethics of societies is quite stable, but does evolve over time • General social expectations affect all members of society. • Honesty • Fairness • Legality • Higher level: acting with consistency, coherence, and reciprocity • Highest level: acting with courage and sacrifice

4. Specific Social Expectations of Ethics • Specific expectations do vary by social role (industry, profession, social function, etc.) • Example: judges versus CIA spies • Example: soldiers versus nurses So what are the social expectations of business ethics…? 

5. Business Ethics • At individual level • One is progressively more ethical to the degree that one • Works hard in a competitive environment to provide products and services, and make an income • Complies with the laws of the land and obeys appropriate organizational rules • Seeks to meet professional norms (i.e. providing quality goods and services) • Seeks to meet social norms (i.e. exercising honesty and fairness) and strives to achieve the highest standards of integrity (i.e. preventing harm and donating back to society part of the proceeds of one’s success)

6. Corporate Social Responsibility • At the organizational level • A corporation is progressively more socially responsible to the degree that it • Meets basic economic needs through diligence and innovation • Exceeds legal requirements by fulfilling the spirit of the law • Finds ways to enhance the community and planet with mutually beneficial actions • Provides outright acts of charity

7. Carroll’s Progressive Levels of CSR

8. Arguments for an Ethical Business Culture • Even minimalists assert the importance of economic and legal responsibilities • Economic viability is a pragmatic reality and a responsibility of owners, employees, creditors, etc. • Breaking laws puts a company at risk; exposes a company to loss of value and revenue • Widespread industry law breaking and flagrant market manipulation leads to government intervention and increased regulation (e.g., Sarbanes-Oxley) and Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

9. Social Responsibility Arguments Increasingly Important • Social responsibility is increasingly an interest and concern of public, investors and employees • Frequently social responsibility can provide win-win scenarios, e.g., the environment can be protected and costs can be cut • Poor social responsibility gets more attention from “cause” organizations providing bad press • The moral argument is that all companies must abide by society’s minimum standards, and that wealth and success bring social obligations to be more responsible

10. Encouraging Ethical Behavior • Ethical Reasoning Framework • Step one: Am I comfortable publicizing this decision broadly? • Step two: What if everyone make this type of decision? • Step three: identify stakeholders and their interests • Direct/indirect/remote stakeholders (or internal/external stakeholders) • Interest of each stakeholder involved • Step four: identify critical issues and the competing values involved • Major issues • Right-and-wrong vs. right-and-right • Step five: identify solutions and their potential impacts • Possible solutions • Moral level of each solution involved

11. Encouraging Ethical Behavior • Tools and Approaches • Stakeholder analysis • Mission and values statements • Guidelines and codes of conduct, codes of ethics • Ethical training • Ethics officers and ethics hotlines • Provide and highlight role models • Ethics awards • For individuals in the company • Seek award for the company • Social responsibility audit • Social initiatives • Strive to be a CSR leader

12. Example: Encouraging Ethical Behaviorat Dell Kotler & Lee 2005

13. The Case of Big Box

14. Analytic case: Big Box Store Big Box Corporation is a modern low-cost department store. To keep its costs down, it has a number of standard practices that ensure profitability. First, it aggressively keeps costs low and does not rely extensively on sales to build long-term rather than temporary customer loyalty. Therefore it is a global buyer with no “buy-American” policy. In fact, while it does ensure that its products are legally made, it does not concern itself with non-governmental protocols on recommendations about working conditions or child labor. Second, it keeps its market prices extremely low by ensuring that the jobs of line workers are as simple and repetitive as possible, so that workers can easily be trained and replaced. Big Box Corporation has been largely successful at keeping unions out of its stores in all but a few instances. This means that many of the workers are the second or third wage earners in homes and that many of its employees are parttime retired workers or young workers seeking their first jobs. As importantly, these wage earners, who are just above minimum wage, do not normally have significant benefits such as health care and retirement. Many of the workers do not need them because they are covered by a first wage earner or do not care about them because retirement has occurred or is a distant concern.

15. A small, but not tiny, percentage of the line workers qualify for government benefits such as child health care. Middle managers are recruited from “the floor” and get improved wages and modest benefits, but are still paid very modestly by management standards. Store managers are generally professionally trained and analysis driven to examine profitability trends, cost–benefit ratios, contingency analysis, etc., and thus rarely come from the floor. They are largely recruited from corporate manager-training programs populated by college business majors and MBA graduates. After serving as an assistant store manager with modest pay (each store has three to five assistant store managers) for a period of three to seven years, opportunities to become a store manager often open up. Store managers are well paid for retail. Third, Big Box Corporation prefers to locate its stores just outside of cities, when they are not land-locked by other cities, in order to avoid city taxes. This has the side advantage of cheaper land for large parking areas. Alternatively, when locating in an urbanized area with adjacent cities, as is common today, Big Box always considers two or three options in adjacent jurisdictions that will be desirous of having the store. By doing so, the store can make the jurisdictions compete aggressively, and can get excellent multi-year tax concessions (sometimes up to a decade) as well as infrastructure improvements such as road widening on the arterial to the store, traffic lights, and sewer and utility extensions.

16. Fourth, Big Box Corporation is large enough that it can force suppliers to maintain ownership of products until point of customer sale. In other words, unlike smaller retailers that must buy goods to stock shelves and then discount unsold goods, thereby competing with their own goods not on sale, Big Box does not pay suppliers until goods are registered as sold. In experimenting with new products, it risks the loss of shelf space but has no inventory cost liability. Unsold goods are simply returned, although the supplier must pick them up or abandon them. Fifth, because of its size, Big Box is able to stay abreast of current trends and appeal to all but the smallest niche markets. This means that it is able to push old fashioned stores with less efficient practices out of business, absorb their market share, and maintain a lock on the market environment for the cost-conscious buyer who is impervious to all stores except other corporations with a similar style, or stores that carry only discontinued products that they have purchased for pennies on the dollar but whose product lines vary enormously month by month. Sixth, while not immune to “green” initiatives, Big Box knows that most of its customers place a much larger premium on value than on environmental concerns and thus it caters to that preference. When enough customers are perceived to be interested and the cost differential is modest, Big Box occasionally offers a product that can be marketed as “environmentally friendly.” Seventh, Big Box is careful not to dilute its efficiency and profits thrust with local charity issues. Charity is done, but almost exclusively at the corporate level, so that it can easily be “counted” for accounting purposes, and easily be identified for corporate public relations.

17. Discussion 1. What are the possible ethical questions that are involved? (At least seven are implicitly identified in the case.) This question is often asked at the same time as the following question. 2. Who are the stakeholders who are/will be affected in this scenario and what are their interests? 3. What are the concrete ethical issues that you feel need to be considered? (This requires narrowing down the list of possible ethical issues, which should be done after identifying stakeholders and their interests.) What alternatives exist? How do these alternatives maximize various values, given the weight of those values? 4. What recommendations do you have in how the situations you chose to address could be/should have been resolved or improved? Or, state if no changes are necessary, and the reasons why the status quo is acceptable.

18. Question: your opinion • Which aspect of the Big Box store system would you address first and foremost, if you had the power to do so? (Don’t worry about pragmatism for this question.) • Not having a buy-American policy • Low wages and no benefits for floor-level employees (associates) • Use of aggressive tax avoidance strategies (including tax havens) • Indirectly forcing suppliers to use illegal labor practices in many product lines in order to compete • Ignoring “green” and environmental issues