CHAPTER 9

Ethical Business Strategies, Corporate Social Responsibility, and Environmental Sustainability

McGraw-Hill/Irwin Copyright 2011 The McGraw-Hill Companies, All Rights Reserved.

Linking Strategy to Ethics and Social Responsibility

Should there be a link between a companys 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

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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

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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

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The Business Case for an Ethical Strategy and Business Behavior

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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

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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
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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 companys product or service
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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
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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?
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Integrative Social Contracts Theory

According to the integrative social contracts theory, the ethical standards a company should try to uphold are governed by both
1. A limited number of universal ethical principles that put ethical boundaries on actions and behavior in all situations and 2. The circumstances of local cultures, traditions, and values that further prescribe what constitutes ethically permissible behavior and what does not
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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

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Corporate Social Responsibility

Social responsibility calls for companies to strike a balance between
1. Its economic responsibility to shareholders 2. The legal responsibility to comply with the laws of the countries where it operates 3. The ethical responsibility to abide by societys norms, and 4. The discretionary philanthropic responsibility to meet the unmet needs of society
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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
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Corporate Citizenship
Corporate citizenship involves a companys discretionary philanthropic activities to address the unmet noneconomic needs of society

Good corporate citizens contribute to society in areas where government has fallen short or chosen not to focus its efforts
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Corporate Sustainability
Corporate sustainability involves meeting the needs of todays stakeholders in a manner that protects the environment and resources needed for future generations Directed at improving a companys triple bottle line (TBL)its performance on economic, environment, and social metrics
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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
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