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chapter
Student Version
STRATEGY,
ETHICS, ANDCORPORATE SOCIAL
RESPONSIBILITY
Copyri ght 2013 by The McGraw-H il l Companies, In c. All ri ghts reserved.McGraw-Hill/Irwin
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Linking Strategy to Ethics
and Social Responsibility
Should there be a link between a firms
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 ofconsumers without depleting resources needed by
future generations?
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What Do We Mean By Bus iness Ethics?
Business ethics Is the application of ethical principles and standards to
the actions and decisions of business organizations
and the conduct of their personnel.
How do ethics and business ethics differ? Ethical principles in business are not materially
different from ethical principles in general.
Business actions
Are judged by general ethical standards of society.
Are not subject to 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-interestsHeavy pressures on company managers
to meet or beat earnings targets
A company culture that places profits andgood performance ahead of ethical behavior
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The Business Case for Ethical Strategies
Once noticed, unethical business behaviorwill likely result in lost revenues, higher
costs, lower profits, lower stock prices, and
a diminished business reputation.
Therefore, adopting ethical strategies andengaging only in ethical conduct are simply
good business.
The Sarbanes-Oxley Act (2002) Requires that publicly traded firms have a code of
ethics or else explain in writing to the Securities and
Exchange Commission why they do not.
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Ensuring a Strong Commitment to
Business Ethics in Companies with
International OperationsThree schools of thought exist about the
extent to which ethical standards apply
across countries and cultures: Ethical Universalism
Ethical Relativism
Integrative Social Contracts Theory
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The School of Ethical Universalism
According to the school of ethicaluniversalism
Some concepts of what is right and what is wrong are
universaland transcend most all cultures, societies,
and religions.All societies, companies, and individuals are
accountable to a set of universal ethical standards.
Incorporating a universal set of moral standards into
its code of ethics allows a multinational firm to setclear boundaries on what constitutes ethical business
behavior no matter what country market its personnel
are operating in.
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Concept of Ethical Relativism
The school of ethical relativism posits thatWhat is ethical or unethical must be judged in light of
local moral standards and can vary from one country
to another.
When there are local differences in what is deemedan ethical or unethical, it is appropriate for local moral
standards to take precedence.
The risks of ethical relativism
The assumption that local morality is an adequateguide for ethical behavior.
Conflicts in applying differing ethical standards across
different locales and varying situations.
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Example: The 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 adequateguide to ethical behavior.
What if local standards condone kickbacks and
bribery?
What if local standards blink at environmentaldegradation?
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Integrative Social Contracts Theory
According to the integrat ive social contractstheory, ethical standards a firm should
uphold are governed by both:
A limited number of universal ethical principles that
are widely recognized as putting legitimate ethicalboundaries on actions and behavior in all situations
and
The circumstances of local cultures, traditions, and
values that further prescribe what constitutes ethicallypermissible behavior and what does not
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Ethics: It Is Not As Easy As It Seems
Integrat ive 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
There are many instances where countrydifferences in ethical norms create gray
areas where it is tough to draw a line in the
sand between right and wrong decisions,
actions, and business practices.
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Corporate Social Responsibility and
Environmental Sustainability
A firm practicing soc ial respons ib i l ity seeks
to balance the interests of all stakeholders:
Its economic responsibility to shareholders
Its legal responsibility to comply with the laws of the
countries where it operates
Its ethical responsibility to abide by societys norms
Its discretionaryphilanthropic responsibility to meetthe unmet needs of society
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Environmental Sustainability Strategies:
A New Priority
Environmental sustainability strategies:
Entail actions to operate businesses to protect and
enhance natural resources and ecological support
systems, to guard against outcomes that endangerthe planet, and to be sustainable for centuries.
Are directed at improving a firms triple bottom line
(TBL)its performance on economic, environmental,
and social metrics.
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Crafting Social Responsibility and
Sustainability Strategies
To be socially responsible involves
deciding:
What charitable contributions to make
What kinds of community service projects toemphasize
What environmental actions to support
How to make the firm a good place to work
Where and how workforce diversity will fit into thepicture
Which other worthy causes and projects that benefit
society will the firm support
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The Business Case for
Socially Responsible Behavior
Reasons why the exercise of corporate
social responsibility is good business:
Such actions can lead to increased buyer patronage.
A strong commitment to socially responsible behavior
reduces the risk of reputation-damaging incidents.
Socially responsible actions yield internal benefits
(e.g., employee recruiting, retention, and training
costs) and can improve operational efficiency.
Well-conceived social responsibility strategies work to
the advantage of shareholders.