CHAPTER 9 Ethical Business Strategies, Corporate Social Responsibility, and Environmental Sustainability

Linking Strategy to Ethics and Social Responsibility Should there be a link between a company’s efforts to craft and execute a winning strategy and its duties to Conduct activities in an ethical manner? Demonstrate socially responsible behavior by being a committed corporate citizen? Limit its strategic initiatives to those meeting needs of consumers without depleting resources needed by future generations 2

What Is Business Ethics? Business ethics involves applying general ethical principles and standards to business activities, behavior and decisions Ethical principles in business are not different from ethical principles in general Business actions are judged By general ethical standards of society Not by more permissive standards

Drivers of Unethical Strategies and Business Behavior The view that “the business of business is business, not ethics” Overzealous pursuit of personal gain, wealth, and other self-interests Heavy pressures on company managers to meet or beat earnings targets A company culture that places profits and good performance ahead of ethical behavior

The Business Case for an Ethical Strategy and Business Behavior

Ensuring a Strong Commitment to Business Ethics in Multinational Companies Three schools of thought about the extent to which ethical standards apply across countries and cultures exist: Ethical Universalism Ethical Relativism Integrative Social Contracts Theory

Concept of Ethical Universalism According to the school of ethical universalism . . . Same standards of what is right and what is wrong are universal and transcend most cultures, societies, and religions Universal agreement on basic moral standards allows a multinational company to develop a code of ethics that is applied evenly across its worldwide operations

Examples of Universal Ethical Principles or Norms Honesty Trustworthiness Respecting the rights of others Practicing the Golden Rule Avoiding unnecessary harm to Workers Users of a company’s product or service

Concept of Ethical Relativism According to the school of ethical relativism . . . What is ethical or unethical must be judged in light of local moral standards and can vary from one country to another Companies a code of conduct based upon the principle of ethical relativism assume that local morality is an adequate guide for ethical behavior

Drawbacks of Ethical Relativism The ethical relativism rule of “when in Rome, do as the Romans do” presents problems It is ethically dangerous for company personnel to assume that local ethical standards are an adequate guide to ethical behavior What if local standards condone kickbacks and bribery? What if local standards blink at environmental degradation?

Integrative Social Contracts Theory According to the integrative social contracts theory, the ethical standards a company should try to uphold are governed by both A limited number of universal ethical principles that put ethical boundaries on actions and behavior in all situations and The circumstances of local cultures, traditions, and values that further prescribe what constitutes ethically permissible behavior and what does not

Prioritizing Ethical Standards Integrative social contracts theory provides that “first order” universal ethical norms always take precedence over “second order” local ethical norms when local norms are more permissive

Corporate Social Responsibility Social responsibility calls for companies to strike a balance between Its economic responsibility to shareholders The legal responsibility to comply with the laws of the countries where it operates The ethical responsibility to abide by society’s norms, and The discretionary philanthropic responsibility to meet the unmet needs of society

Common Corporate Social Responsibility Initiatives Actions to protect the environment Actions to create a work environment that enhances employees’ quality of life Actions to build a diverse workforce

Corporate Citizenship Corporate citizenship involves a company’s discretionary philanthropic activities to address the unmet non-economic needs of society Good corporate citizens contribute to society in areas where government has fallen short or chosen not to focus its efforts

Corporate Sustainability Corporate sustainability involves meeting the needs of today’s stakeholders in a manner that protects the environment and resources needed for future generations Directed at improving a company’s triple bottle line (TBL)—its performance on economic, environment, and social metrics

The Business Case for Socially Responsible Behavior Generates internal benefits Enhances recruitment of quality employees Increases retention of employees Reduces risk of reputation-damaging incidents Avoids criticism from consumer groups and may lead to increased buyer patronage Works in best interest of shareholders Preempts costly legal and regulatory actions