1. Screen graphics created by:
Chapter 9: Ethical Business Strategies, Social Responsibility, and Environmental Sustainability
Screen graphics created by:
Jana F. Kuzmicki, Ph.D.
Troy University 1

2. “When morality comes up against profit, it is seldom profit that loses
Shirley Chisholm
Former Congresswoman 2

3. Nobel Prize-winning Economist
“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say engages in free and open competition, without deception or fraud.”
Milton Friedman
Nobel Prize-winning Economist 3

4. Chapter Learning Objectives
Understand why business conduct is judged according to the ethical standards of society at large rather than a special set of ethical standards for businesses only.
Understand the principal drivers of unethical strategies and business behavior.
Learn why unethical business conduct can be very costly for a company’s shareholders.
Become familiar with the various approaches to managing a company’s ethical conduct.
Gain an understanding of the concepts of corporate social responsibility, corporate citizenship, and environmental sustainability.
Become familiar with both the moral case and the business case for ethical business conduct and socially responsible business behavior. 4

5. Chapter Roadmap What Do We Mean by Business Ethics?
Where Do Ethical Standards Come From – Are They Universal or Dependent on Local Norms and Situational Circumstances?
The Three Categories of Management Morality
Drivers of Unethical Strategies and Business Behavior
Why Ethical Strategies Matter
Approaches to Managing a Company’s Ethical Conduct
Social Responsibility and Corporate Citizenship Strategies

6. 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?
Attending to needs of non-owner stakeholders?
Limit its strategic initiatives to those meeting needs of consumers without depleting resources needed by future generations
Key Issues

7. What Is Business Ethics?
Business ethics involves applying general ethical principles and standards to behavior in business situations
Ethical principles in business are not different from ethical principles in general
Business actions are judged
By general ethical standards of society
Not by a set of rules businesspeople apply to their own conduct

8. How Do Ethical Standards Impact the Tasks of Crafting and Executing Strategy?
Two sets of questions must be considered by senior executives when reviewing a new strategic initiative
Is what we are proposing to do fully compliant with our code of ethical conduct? Is there anything here that could be considered ethically objectionable?
Is it apparent that this proposed action is in harmony with our core values? Are any conflicts or concerns evident?
The litmus test of a company’s code of ethics is the extent to which it is embraced in crafting strategy and in operating the business day to day!

9. Are Ethical Standards Universal or Dependent on Local Norms?
Three schools of thought regarding extent to which ethical standards can be applied . . .
Ethical Universalism
Ethical Relativism
Integrative Social Contracts Theory

10. Concept of Ethical Universalism
According to the school of ethical universalism . . .
Same standards of what is ethical and what is unethical resonate with peoples of most societies regardless of
Local traditions and
Cultural norms
Thus, common ethical standards can be used to judge conduct of personnel at companies operating in a variety of
Country markets and
Cultural circumstances

11. Examples of Universal Ethical Principles or Norms
Honesty
Trustworthiness
Respecting rights of others
Practicing the Golden Rule
Treating people with dignity and respect
Exercising due diligence in product safety
Acting in a manner that does not
Harm others or
Pillages the environment

12. What Is the Appeal of Ethical Universalism?
Draws on collective views of multiple societies and cultures to place clear boundaries on what constitutes
Ethical business behavior and
Unethical business behavior
Regardless of what country a company is operating in
When basic moral standards do not vary significantly from country to country, a multinational company can
Apply a code of ethics more or less evenly across its worldwide operations

13. Concept of Ethical Relativism
According to the school of ethical relativism . . .
Different societies/cultures/countries
Put more/less emphasis on some values than others
Have different standards of right and wrong
Have different social mores and behavioral norms
What is ethical or unethical
Must be judged in light of local customs and social mores and
Can vary from one country to another

14. Payment of Bribes and Kickbacks
In some countries the payment of bribes and kickbacks is normal and customary; in other countries such payments are illegal
Companies forbidding payment of bribes in their codes of ethics face a formidable challenge in countries where such payments are entrenched as a local custom
Foreign Corrupt Practices Act prohibits U.S. companies from paying bribes in all countries where they do business even if such payments are customary

15. Test Your Knowledge
Paying bribes and kickbacks to grease business transactions
A. violates ethical principles of right and wrong in all countries.
B. is ethically acceptable according to the principle of ethical universalism.
C. is acceptable to immoral managers but not to amoral managers.
D. should be considered ethically appropriate by a company so long as such payments are normal and customary in the countries where such payments are made.
E. may be ethically acceptable according to the principle of ethical relativism if paying bribes and kickbacks is normal and customary practice in a country.
Answer: E

16. Ethical Relativism = Multiple Sets of Ethical Standards
Proponents of the ethical relativism school maintain there are
Few ethical absolutes to judge a company’s conduct in various countries
Plenty of situations where ethical norms are contoured to fit
Local customs and traditions
Local beliefs about what is fair
Local standards of “right” and “wrong”
Ethical problems in business cannot be fully resolved without appealing to the shared convictions of the parties in question

17. Drawbacks of Ethical Relativism
The ethical relativism rule of “when in Rome, do as the Romans do” presents problems
Cannot assume that local ethical standards are an adequate guide to ethical behavior
What if local standards condone kickbacks and bribery?
What if local standards don’t require safe working conditions?
What if local custom is to permit companies to engage in egregious pollution of the environment?
From a global markets perspective, ethical relativism results in a maze of conflicting ethical standards for multinational companies wanting to address the issue of what ethical standards to enforce companywide

18. Concept of 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 are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations
and
The circumstances of local cultures, traditions, and shared values that further prescribe what constitutes
Ethically permissible behavior and
What does not

19. Appeal of Integrative Social Contracts Theory
Universal ethical principles establish “moral free space” based on the collective view of multiple societies and cultures
Commonly held views about morality and ethical principles combine to form a “social contract” with society
It is appropriate for societies or companies to go beyond universal ethical principles and specify local or second-order ethical norms
Where firms have developed ethical codes, the standards they call for provide appropriate ethical guidance
Social contracts theory maintains adherence to universal or first-order ethical norms should always take precedence over local or second-order norms!

20. Three Categories of Management Morality
Managers that are moral
Managers that are amoral
Managers that are immoral
The three types of managers as concerns ethical and moral principles 20

21. Characteristics of a Moral Manager
Dedicated to high standards of ethical behavior in
Own actions
How the company’s business is to be conducted
Considers it important to
Be a steward of ethical behavior
Demonstrate ethical leadership
Pursues business success
Within confines of both letter and spirit of laws
With a habit of operating well above what laws require

22. Characteristics of an Immoral Manager
Actively opposes ethical behavior in business
Willfully ignores ethical principles in making decisions
Views legal standards as barriers to overcome
Pursues own self-interests
Is an example of self-serving greed
Ignores interests of others
Focuses only on bottom line – making one’s numbers
Will trample on others to avoid being trampled upon

23. Characteristics of an Intentionally Amoral Manager
Believes business and ethics should not be mixed since different rules apply to
Business activities
Other realms of life
Believes if a business-related action is legal then it is OK; ethical considerations in business activity don’t matter and lie outside sphere of moral judgment
Views ethical considerations as inappropriate for tough, competitive business world
Concept of right and wrong is lawyer-driven (what can we get by with without running afoul of the law)

24. Characteristics of an Unintentionally Amoral Manager
Is blind to or casual about ethics of decision-making and business actions
Displays lack of concern regarding whether ethics applies to company actions
Sees self as well-intentioned or personally ethical
Typical beliefs
Do what is necessary to comply with laws and regulations
Government provides legal framework stating what society will put up with—if it is not illegal, it is allowed

25. Many Managers in the Global Business Community Are Unethical
Evidence indicates a sizable majority of managers are either
Amoral or
Immoral
Results of recent issues of the Global Corruption Report indicate corruption is widespread across the world
Corruption extends beyond bribes and kickbacks

26. Table 9.1: Corruption Perceptions Index (CPI), Selected Countries, 2007

27. What Are the Drivers of Unethical Strategies and Business Behavior?
Large numbers of immoral and amoral business people
Overzealous pursuit of personal gain, wealth, and other selfish interests
Heavy pressures on company managers to meet or beat earnings targets
Company cultures that place profits and good performance ahead of ethical behavior 27

28. Overzealous Pursuit of Personal Gain, Wealth, and Selfish Interests
People obsessed with wealth accumulation, greed, power, status, and other self-interests often
Push ethical principles aside in their quest for self gain
Exhibit few qualms in
Skirting the rules or
Doing whatever is necessary to achieve their goals
Engage in all kinds of unethical strategic maneuvers and behaviors

29. Heavy Pressures on Company Managers to Meet or Beat Earnings Targets
Managers often feel enormous pressure to do whatever it takes to deliver good financial performance
Actions often taken by managers
Cut costs wherever savings show up immediately
Squeeze extra sales out of early deliveries
Engage in short-term maneuvers to make the numbers
Stretch rules to extreme, until limits of ethical conduct are overlooked
Executives feel pressure to hit performance targets since their compensation depends heavily on company performance
Fundamental problem with a “make the numbers” syndrome
Company does not create additional value for customers or improve its competitiveness

30. Company Cultures that Put Bottom Line Ahead of Ethical Behavior
In an ethically corrupt or amoral work climate, people have a company-approved license to
Ignore “what’s right”
Engage in most any behavior or employ most any strategy they think they can get away with
Pressures to conform to cultural norms can prompt otherwise honorable people to
Make ethical mistakes
Succumb to the many opportunities to engage in unethical practices

31. Why Ethical Strategies Matter
An unethical strategy
Is morally wrong
Reflects badly on the character of company personnel
An ethical strategy is
Good business
In the best interest of shareholders

32. Characteristics of Managers Committed to Ethical Approaches to Strategy-Making
Possess strong moral character and deeply-ingrained ethical convictions
Are genuinely committed to certain core values and business practices
Push for and support adoption of values statements/ethics codes that truly paint the white lines for a company’s business practices
Insist on strict ethics compliance
Expect company personnel to practice/display corporate values
Are a role model and walk the talk in
Displaying a company’s stated core values
Living up to high ethical standards
Consciously opt for strategic actions passing moral scrutiny

33. Figure 9.1: The Business Costs of Ethical Failures

34. Test Your Knowledge
Which one of the following is false when it comes to making a case for why a company’s strategy should be ethical?
A. An unethical strategy can put a company’s reputation at risk and do lasting damage, especially when the misdeeds get into the public spotlight and make media headlines.
B. An ethical strategy is in the best interest of shareholders.
C. An unethical strategy reflects badly on the character of the company personnel involved.
D. Shareholders profits are not greatly reduced by using ethical strategies.
E. A strategy that is unethical in whole or in part is morally wrong.
Answer: D

35. Approaches to Managing a Company’s Ethical Conduct
Unconcerned or Nonissue Approach
Damage Control Approach
Compliance Approach
Ethical Culture Approach 35

36. Table 9.2: Four Approaches to Managing Business Ethics

37. Characteristics of Unconcerned Approach
Prevalent at companies whose executives are immoral and unintentionally amoral
Notions of right and wrong in business matters are defined by government via prevailing laws and regulations — after that, anything goes
If the law permits “unethical behavior,” why stand on ethical principles
Companies are usually out to make greatest possible profit at most any cost
Strategies used, while legal, may embrace elements that are ethically shady

38. Characteristics of Damage Control Approach
Favored at companies whose managers are intentionally amoral but who fear scandal
May adopt a code of ethics as window-dressing
Adept at using “spin” to “explain away” the use of unethical strategy elements or discount the impact of shady actions
Executives look the other way when shady behavior occurs
Executives may condone questionable actions that help a company reach earnings targets or bolster its market standing

39. Characteristics of Compliance Approach
From light to forceful compliance is favored at companies whose managers
Lean toward being somewhat amoral but are highly concerned about having ethically upstanding reputations or
Are moral and see strong compliance methods as best way to impose and enforce high ethical standards
Ethics code violators are disciplined, sending a clear signal that complying with ethical standards must be taken seriously
Commitment to eradicate unethical behavior stems from a desire to
Avoid cost and damage associated with unethical conduct or
Gain favor from stakeholders from having a highly regarded reputation for ethical behavior

40. Pursuing a Compliance Approach: Typical Actions
Make code of ethics a visible and regular part of communications with employees
Implement ethics training programs
Appoint a chief ethics officer
Have ethics committees to give guidance on ethics matters
Institute formal procedures for investigating alleged ethics violations
Conduct ethics audits to measure and document compliance
Install ethics hotlines to help detect and deter violations

41. Potential Weakness of Compliance Approach
Moral control resides in a company’s code of ethics and in the ethics compliance system rather than in
Strong peer pressures for ethical behavior that come from ingraining a highly ethical corporate culture and
An individual’s own moral responsibility for ethical behavior

42. Characteristics of Ethical Culture Approach
Top executives believe high ethical principles must
Be deeply ingrained in the corporate culture
Function as guides for “how we do things around here”
Company seeks to gain employee buy-in to
Company’s ethical standards
Business principles
Corporate values
Ethical principles in company’s code of ethics are integral to company’s
Identity and self-image
Day-to-day operations
Strategy must be ethical
Employees must display ethical behaviors in executing the strategy

43. For Discussion: Your Opinion
Is it unethical for a high school or college coach to accept a “talent fee” or similar type of payment from a maker of sports apparel or sports equipment when the coach has authority to determine which brand of apparel or equipment to use for his/her team and subsequently chooses the brand of the company making the payment? Is it unethical for the maker of the sports apparel or equipment to make such payments in expectation that the coach will reciprocate by selecting the company’s brand? (Would you answer be different if “everybody” is doing it?)
Student responses will vary. You should press students to justify their answers and the explain the “moral ground” on which their answer rests.

44. For Discussion: Your Opinion
Is it unethical for a credit card company to aggressively try to sign up new accounts when, after an introductory period of interest-free or low-interest charges on unpaid monthly balances, the interest rate on unpaid balances jumps to 1.5 percent or more monthly (even though such high rates of 18 percent or more annually are disclosed in fine print)?
Student responses will vary, which gives you an opportunity to explore the different core values and the “moral underpinning” upon which the varying answers are based

45. What Is Corporate Social Responsibility?
The thesis underlying the concept of corporate social responsibility is that a company has a duty to
Be a good corporate citizen
Make a positive contribution to society, and
Actively work to improve the well-being of all stakeholders
Employees
Local communities
Environment
Customers and suppliers
Society at large

46. What Does Acting in a Socially Responsible Manner Entail?
The consensus view is that acting in a socially responsible manner means that a company should
Operate in an ethical and honorable manner
Provide good working conditions for employees
Be a good steward of the environment
Actively work to better quality of life in
Local communities where it operates and
Society at large

47. Figure 9.2: Demonstrating a Social Conscience: The Five Components of Socially Responsible Business Behavior

48. What Is a Social Responsibility Strategy?
A company’s social responsibility strategy consists of its actions to improve the well-being of all its stakeholder and to be a good corporate citizen its contributions of
Time
Money
Other resources 48

49. What Is an Environmental Sustainability Strategy?
A company’s environmental sustainability strategy consists of its actions to
Protect the environment,
Provide for the longevity of natural resources,
Maintain ecological support systems for future generations, and
Guard against ultimate endangerment of the planet. 49

50. Example: Unilever’s Environmental Sustainability Strategy
Launched various programs to improve environmental performance of suppliers
Reengineered internal processes to improve overall performance on sustainability measures
Redesigned packaging for many products to conserve natural resources and reduce volume of consumer waste
Addressed societal needs of consumers in developing countries
Tracked 11 sustainability agricultural indicators in its processed foods business 50

51. Table 9.3: Companies With Exceptional Commitments to Sustainability

52. Moral Case: Corporate Social Responsibility and Environmentally Sustainable Business Practices
Businesses should promote the betterment of society, acting in ways to benefit all their stakeholders because
“It’s the right thing to do!”
Based on an implied social contract, society
Grants a business the right to conduct its business affairs
Agrees not to unreasonably restrain a firm’s pursuit of a fair profit
In return for a “license to operate,” a business should
Act as a responsible citizen
Do its fair share to promote the general welfare

53. Business Case: Socially Responsible Behavior and Environmentally Sustainable Business Practices
Generates internal benefits
Enhances recruitment of quality employees
Increases retention of employees
Improves employee productivity
Lowers costs of recruitment and training
Reduces risk of reputation-damaging incidents, leading to increased buyer patronage
Works in best interest of shareholders
Minimizes costly legal and regulatory actions
Provides for increased investments by socially conscious mutual funds and pension benefit managers
Focusing on environment issues may enhance earnings

54. Considerations in Crafting Social Responsibility and Sustainability Strategies
Match social responsibility/sustainability strategy to
Core values
Business mission
Overall strategy
Make social responsibility and/or environmentally sustainability a part of the company’s mission and culture
Have explicit social responsibility and/or environmentally sustainability objectives
Strive to craft socially responsible and sustainability strategies that will help the company achieve a competitive advantage

55. Test Your Knowledge
Which one of the following is false as concerns the merits of why acting in a socially responsible manner is “good business”?
A. To the extent that a company’s socially responsible behavior wins applause from consumers and fortifies its reputation, a company may win additional patronage.
B. Acting in a socially responsible manner reduces the risk of reputation-damaging incidents.
C. Acting in a socially responsible manner is in the overall best interest of shareholders.
D. Acting in a socially responsible manner is unlikely to have any effect (positive or negative) on a company’s profitability.
E. Acting in a socially responsible manner can generate internal benefits (as concerns employee recruiting, workforce retention, training, and improved worker productivity).
Answer: D