Ethics and CSR

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Business Ethics and Corporate Social Responsibility

as Competitive Strategies

By Dr Theodore Panayotou Cyprus International Institute of Management and

John F. Kennedy School of Government, Harvard University

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“profitability is what the business does for itself, obeying the law, being ethical, and a good corporate citizen is what the firm does for others (society or other stakeholders)”.

Archie Caroll

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Social responsibility implies

• an obligation • a degree of altruism.

This misses the power of ethical conduct as a management tool and of corporate social responsibility (CSR) as part of competitive strategy.

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New strategic thinking

• Source of competitive advantage

• Shared value for both business and society

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Corporate responsibility

• economic responsibility

• legal responsibility • ethical responsibility

• philanthropic responsibility

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Law and regulation

Society’s minimum norms and standards of business conduct.

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Ethical responsibility

• Avoid harm.

• Do what is right.

• Not what the firm has a right to do but what it is right to do.

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Philanthropic responsibility

• Be a good corporate citizen.

• Voluntarily participate in activities that promote human welfare.

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“He who dies rich, dies thus disgraced”. Successful businessmen “were morally obligated” to give most of their riches back to the community during their lifetime.

Andrew Carnegie

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The new thinking

• Business ethics is a powerful strategic management tool for boosting employee motivation, customer loyalty and profitability.

• Corporate social responsibility is an integrated part of business strategy that creates value for both the business and society.

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Untapped potential for

boosting performance through shared values and a culture of ethical behaviour that builds trust.

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A reputation for ethical behaviour and trust

Strengthens the company’s brand, boosts its market share and customer loyalty.

Negotiations become easier, transactions faster and financing more favourable.

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Strategic Corporate Social Responsibility

• Do well by doing good.

• A healthy society needs successful

companies.

• A successful business needs a stable

and healthy society.

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Michael Porter: CSR test-guide

Not whether a cause is worthy but whether it presents an opportunity to create shared value for both society and business.

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Strategic CSR

• Moves beyond good citizenship and

mitigates harmful value chain impacts.

• Integrates social and ethical considerations into core operations and strategy effectively.

• Lowers costs, creates value, or better serves customer needs.

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Examples

• Toyota Prius

• Microsoft

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CSR must be perceived as

• building shared value, not as damage

control, or as a PR campaign.

• the impact on the social good is greater and

CSR more sustainable when the business

has a stake in the outcome.

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Does it pay to be ethical?

• The top 50 socially responsible firms have outperformed the Standard and Poor Index of financial performance.• Several companies which thrived on unethical behaviour.• Even ethical and socially responsible companies have had moral lapses.

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How do we fair?

• An undue focus on short-term profitability, “get rich quick” approach to business at the expense of sustained competitiveness and long-term profitability.

• Content to comply with the letter of the law and ignore the spirit of the law.

• Ethical responsibility: the most pervasive and difficult problem is not immoral but amoral management.

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The amoral society

Amoral managers believe that ethical considerations apply to their private lives but not to business; they believe that ethics and business do not mix.

Until they become morally aware, we will continue to read daily headlines about unethical management behaviour.

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Philanthropic responsibility

Beyond health-related initiatives, philanthropy is virtually

non-existent outside North America.

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Armenia at present

• Obligations to employees and customers; the narrowest possible concept of CSR.

• Donations for tax deduction, a short-run gain.

• “Corporate governance and Code of Conduct are ‘virgin’ ground.”

• Commitment to environmental protection: minimal

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Armenia in the future • With increased participation in international trade, Armenian firms must compete in the wider European and global markets where social responsibility counts. In Europe:• 70% of consumers base their purchasing decisions, in part, on the social responsibility of firms. • 25 % of them are willing to pay more for products that are produced and distributed by socially responsible companies.

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In the European market • Non-discrimination, minority employment,

diversity, etc. become issues that no longer can be ignored.

• Socially responsible investing will grow in importance.

• Environmental compliance is a minimal requirement for doing business.

• Trust and reputation are the currencies of business.

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Conclusion • The conflict between economic survival and

ethical/social responsibility exists only in the short-run and when one takes a static view of business.

• With the right strategy, ethical behaviour and social responsibility can be turned into sources of competitive advantage in the medium-to-long-run.