1-1 CHAPTER 7 Ethical Business Strategies, Corporate Social Responsibility and Corporate Sustainability McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill.

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CHAPTER 7CHAPTER 7

Ethical Business Ethical Business Strategies, Corporate Strategies, Corporate Social Responsibility Social Responsibility

and Corporate and Corporate SustainabilitySustainability

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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What Is Business Ethics?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 judgedBy general ethical standards of society

Not by more permissive standards

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Drivers of Unethical Drivers of Unethical Strategies and Business BehaviorStrategies 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 managersto 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 The Business Case for an Ethical Strategy and Business BehaviorStrategy and Business Behavior

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Ensuring a Strong Commitment to Ensuring a Strong Commitment to Business Ethics in Multinational Business Ethics in Multinational CompaniesCompanies

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 Concept of Ethical UniversalismUniversalism

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 UniversalExamples of UniversalEthical Principles or NormsEthical Principles or Norms

Honesty Trustworthiness Respecting the rights of

others Practicing the Golden Rule Avoiding unnecessary

harm toWorkersUsers of a company’s

product or service

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Concept of Ethical RelativismConcept 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 Drawbacks of Ethical RelativismRelativism

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 TheoryIntegrative Social Contracts Theory

According to the integrative social contracts theory, the ethical standards a company should try to uphold are governed by bothA 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 StandardsPrioritizing 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 ResponsibilityCorporate Social Responsibility

Social responsibility calls for companies to strike a balance between1. 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 society’s norms, and

4. The discretionary philanthropic responsibility to meet the unmet needs of society

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Common Corporate Social Common Corporate Social Responsibility InitiativesResponsibility Initiatives

Actions to protect the environment

Actions to enhance employees’ quality of life

Actions to build a diverse workforce

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Corporate CitizenshipCorporate 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

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Corporate SustainabilityCorporate Sustainability

Corporate sustainability initiatives strive to meet the needs of current era customers, while protecting the resources needed by future generations

Directed at improving “Triple-P” performance—people, planet, and profit

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The Business Case for Socially The Business Case for Socially Responsible BehaviorResponsible Behavior

Generates internal benefits

Enhances recruitment of quality employees

Increases retention of employees

Reduces risk of reputation-damagingincidents

Avoids criticism from consumer groups and may lead to increased buyer patronage

Works in best interest of shareholders

Preempts costly legal and regulatory actions