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

2. Understand 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.
Recognize conditions that can give rise to unethical business strategies and behavior.
Gain an understanding of the costs of business ethics failures.
Learn the concepts of corporate social responsibility and environmental sustainability and how firms balance these duties with economic responsibilities to shareholders.

3. 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.
9–3

4. Ethics concerns principles of right or wrong conduct.
Business ethics involves the application of general ethical principles to the actions and decisions of businesses and the conduct of their personnel.
9–4

5. 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
9–5

6. 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.
9–6

7. 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.
9–7

8. 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.
9–8

9. 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
9–9

10. ILLUSTRATION CAPSULE 9.1
Apple’s Failures in Enforcing
Its Supplier Code of Conduct
How effective has Apple’s Supplier Code of Conduct been is reducing abuses of workers at its supplier facilities?
Is it fair for Apple to prescribe that its suppliers comply with universal standards that are at wide variance relative to local market labor practices and conditions?
9–10

11. Codes of conduct based on ethical relativism can be ethically dangerous for multinational companies by creating a maze of conflicting ethical standards.
9–11

12. 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.
9–12

13. 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.
9–13

14. 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.
9–14

15. 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.
9–15

16. 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 this action ethically objectionable? Would our stakeholders, our competitors, the SEC under the Sarbanes-Oxley Act, or the news and social media view this action as ethically objectionable?
9–16

17. 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
9–17

18. 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
9–18

19. 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.
9–19

20. 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.
9–20

21. ILLUSTRATION CAPSULE 9. 2 Investment Fraud at Bernard L
ILLUSTRATION CAPSULE 9.2 Investment Fraud at Bernard L. Madoff Investment Securities and Stanford Financial Group
Which drivers of unethical behavior were active in the Madoff investment fraud scheme?
How did the cultures of the Madoff and Stanford investment firms assist in perpetuating the frauds?
What ethical responsibilities were lacking in the Madoff fraud’s investors that would have helped prevent the frauds?
9–21

22. ILLUSTRATION CAPSULE 9.3 How Novo Nordisk Puts Its Ethical Principles into Practice
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?
9–22

23. 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.
9–23

24. 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.
9–24

25. The Costs Companies Incur When Ethical Wrongdoing Is Discovered
FIGURE 9.1
The Costs Companies Incur When Ethical Wrongdoing Is Discovered
9–25

26. 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.
9–26

27. 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.
9–27

28. The Five Components of a Corporate Social Responsibility Strategy
FIGURE 9.2
The Five Components of a Corporate Social Responsibility Strategy
9–28

29. ILLUSTRATION CAPSULE 9.4 Burt’s Bees: A Strategy Based on Corporate Social Responsibility
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 acquisition of Burt’s Bees?
9–29

30. The Triple Bottom Line: Excelling on Three Measures of Company Performance
FIGURE 9.3
Profit
People
Planet
9–30

31. TABLE 9.1
A Selection of Companies Recognized for Their Triple-Bottom-Line Performance in 2011
9–31

32. 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.
9–32

33. 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 strategy consists 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.
9–33

34. 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.
9–34

35. 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
9–35

36. 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.
9–36

37. 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”
9–37

38. Every action a company takes can be interpreted as a statement of what it stands for.
9–38

39. 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
9–39

40. 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 to correct and punish firms
Refusal to do business with irresponsible firms
9–40

41. 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.
9–41

42. 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.
9–42