CHAPTER 9 ETHICS, CORPORATE SOCIAL RESPONSIBILITY, ENVIRONMENTAL SUSTAINABILITY, AND STRATEGY

WHAT DO WE MEAN BY 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. 9–2

WHERE DO ETHICAL STANDARDS COME FROM—ARE THEY UNIVERSAL OR DEPENDENT ON LOCAL NORMS? Sources for Ethical Standards The School of Ethical Universalism The School of Ethical Relativism Integrated Social Contracts Theory 9–3

THE SCHOOL OF 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. 9–4

THE SCHOOL OF 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. 9–5

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 9–6

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. 9–7

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. 9–8

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 9–9

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 9–10

WHY SHOULD COMPANY STRATEGIES BE ETHICAL? The Moral Case for an Ethical Strategy: Because 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: Because an ethical strategy can be both good business and serve the self-interest of shareholders. 9–11

The Costs Companies Incur When Ethical Wrongdoing Is Discovered FIGURE 9.1 The Costs Companies Incur When Ethical Wrongdoing Is Discovered 9–12

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. 9–13

The Five Components of a Corporate Social Responsibility Strategy FIGURE 9.2 The Five Components of a Corporate Social Responsibility Strategy 9–14

The Triple Bottom Line: Excelling on Three Measures of Company Performance FIGURE 9.3 Profit People Planet 9–15

WHAT DO WE MEAN BY SUSTAINABILITY AND SUSTAINABLE BUSINESS PRACTICES? 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. 9–16

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. 9–17

CRAFTING CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY STRATEGIES Pursuing a Sustainable CSR Strategy in the Firm’s Value Chain Activities Moral Case: Stakeholder Benefits Business Case: Competitive Advantage 9–18

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: “To Do the Right Thing” 9–19

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 9–20