IPPTChap009

Copyright © 2014 by The McGraw-Hill Education All rights reserved.

19e Global EditionTHOMPSON | PETERAF | GAMBLE | STRICKLAND

CHAPTER 9CHAPTER 9

ETHICS, CORPORATE SOCIAL ETHICS, CORPORATE SOCIAL RESPONSIBILITY, ENVIRONMENTAL RESPONSIBILITY, ENVIRONMENTAL SUSTAINABILITY, AND STRATEGYSUSTAINABILITY, AND STRATEGY

ETHICS, CORPORATE SOCIAL ETHICS, CORPORATE SOCIAL RESPONSIBILITY, ENVIRONMENTAL RESPONSIBILITY, ENVIRONMENTAL SUSTAINABILITY, AND STRATEGYSUSTAINABILITY, AND STRATEGY

9–2

1. Understand how the standards of ethical behavior in business are no different from the ethical standards and norms of the larger society and culture in which a company operates.

2. Recognize conditions that can give rise to unethical business strategies and behavior.

3. Gain an understanding of the costs of business ethics failures.

4. Learn the concepts of corporate social responsibility and environmental sustainability and how firms balance these duties with economic responsibilities to shareholders.

WHAT DO WE MEAN BY BUSINESS WHAT DO WE MEAN BY BUSINESS ETHICS?ETHICS?

Business EthicsBusiness Ethics● Is the application of general ethical principles to the Is the application of general ethical principles to the

actions and decisions of businesses and the conduct actions and decisions of businesses and the conduct of their personnel.of their personnel.

● Are not materially different from ethical principles in Are not materially different from ethical principles in general because business actions have to be judged general because business actions have to be judged in the context of society’s standards of right and in the context of society’s standards of right and wrong.wrong.

9–3

CORE CONCEPTSCORE CONCEPTSCORE CONCEPTSCORE CONCEPTS

♦ Ethics Ethics concerns principles of right or wrong concerns principles of right or wrong conduct.conduct.

♦ Business ethics Business ethics involves the application of involves the application of general ethical principles to the actions and general ethical principles to the actions and decisions of businesses and the conduct of decisions of businesses and the conduct of their personnel.their personnel.

9–4

THE SCHOOL OF THE SCHOOL OF ETHICAL RELATIVISMETHICAL RELATIVISM

Ethical RelativismEthical Relativism● Holds that differing beliefs, customs, and behavioral Holds that differing beliefs, customs, and behavioral

norms across countries and cultures give rise to norms across countries and cultures give rise to multiple sets of standards of what is ethically right or multiple sets of standards of what is ethically right or wrong. wrong.

Effect on Business EthicsEffect on Business Ethics● Whether business-related actions are right or wrong Whether business-related actions are right or wrong

depends on local ethical standards.depends on local ethical standards.

9–5

WHERE DO ETHICAL STANDARDS WHERE DO ETHICAL STANDARDS COME FROM—ARE THEY UNIVERSAL COME FROM—ARE THEY UNIVERSAL OR DEPENDENT ON LOCAL NORMS?OR DEPENDENT ON LOCAL NORMS?

The School of The School of Ethical Ethical

UniversalismUniversalism

The School of Ethical

Relativism

Integrated Social Contracts

Theory

Sources for Ethical Standards

9–6

CORE CONCEPTCORE CONCEPTCORE CONCEPTCORE CONCEPT

♦ The school of ethical relativism holds that The school of ethical relativism holds that differing religious beliefs, customs, and differing religious beliefs, customs, and behavioral norms across countries and cultures behavioral norms across countries and cultures give rise to multiple sets of standards give rise to multiple sets of standards concerning what is ethically right or wrong. concerning what is ethically right or wrong. These differing standards mean that whether These differing standards mean that whether business-related actions are right or wrong business-related actions are right or wrong depends on the prevailing local ethical depends on the prevailing local ethical standards.standards.

9–7

EXAMPLES OF ETHICAL EXAMPLES OF ETHICAL RELATIVISM ISSUESRELATIVISM ISSUES

The Use of The Use of Underage Underage

LaborLabor

The Payment of Bribes and

Kickbacks

Relativism Equates to

Multiple Sets of Standards

The Use of Local Morality

to Guide Ethical Behavior

Variations in Ethical Standards

9–8

ILLUSTRATION CAPSULE 9.1ILLUSTRATION CAPSULE 9.1

Apple’s Failures in EnforcingApple’s Failures in EnforcingIts Supplier Code of ConductIts Supplier Code of Conduct

♦ How effective has Apple’s Supplier Code of How effective has Apple’s Supplier Code of Conduct been is reducing abuses of workers Conduct been is reducing abuses of workers at its supplier facilities?at its supplier facilities?

♦ Is it fair for Apple to prescribe that its suppliers Is it fair for Apple to prescribe that its suppliers comply with universal standards that are at comply with universal standards that are at wide variance relative to local market labor wide variance relative to local market labor practices and conditions?practices and conditions?

9–9

STRATEGIC MANAGEMENT PRINCIPLESTRATEGIC MANAGEMENT PRINCIPLESTRATEGIC MANAGEMENT PRINCIPLESTRATEGIC MANAGEMENT PRINCIPLE

♦ Codes of conduct based on ethical relativism Codes of conduct based on ethical relativism can be ethically dangerous for multinational can be ethically dangerous for multinational companies by creating a maze of conflicting companies by creating a maze of conflicting ethical standards.ethical standards.

9–10


♦ According to According to integrated social contracts integrated social contracts theorytheory, universal ethical principles based on , universal ethical principles based on the collective views of multiple societies form a the collective views of multiple societies form a “social contract” that all individuals and “social contract” that all individuals and organizations have a duty to observe in all organizations have a duty to observe in all situations. situations.

♦ Within the boundaries of this social contract, Within the boundaries of this social contract, local cultures or groups can specify what local cultures or groups can specify what additional actions may or may not be additional actions may or may not be ethically permissible.ethically permissible.

9–11


♦ According to integrated social contracts theory, According to integrated social contracts theory, adherence to universal or “first-order” ethical adherence to universal or “first-order” ethical norms should always take precedence over norms should always take precedence over local or “second-order” norms.local or “second-order” norms.

♦ In instances involving universally applicable In instances involving universally applicable ethical norms (like paying bribes), there can be ethical norms (like paying bribes), there can be no compromise on what is ethically permissible no compromise on what is ethically permissible and what is not.and what is not.

9–12

INTEGRATIVE SOCIAL INTEGRATIVE SOCIAL CONTRACTS THEORYCONTRACTS THEORY

Provides a middle-ground balance between Provides a middle-ground balance between universalism and relativism.universalism and relativism.

Posits that the collective views of multiple Posits that the collective views of multiple societies form universal (first order) ethical societies form universal (first order) ethical principles that all persons have a contractual principles that all persons have a contractual duty to observe in all situations.duty to observe in all situations.

Within the contract, cultures or groups can Within the contract, cultures or groups can specify locally ethical (second-order) actions.specify locally ethical (second-order) actions.

9–13

APPLICATION OF INTEGRATED APPLICATION OF INTEGRATED SOCIAL CONTRACTS THEORY SOCIAL CONTRACTS THEORY TO MULTINATIONAL BUSINESSTO MULTINATIONAL BUSINESS

Effects on Ethical Standards:Effects on Ethical Standards:● Adherence to universal ethical norms takes Adherence to universal ethical norms takes

precedence over local norms.precedence over local norms.

● A local custom is not ethical if it violates universal A local custom is not ethical if it violates universal ethical norms.ethical norms.

● Application of codes of ethics should first follow Application of codes of ethics should first follow universal standards with allowance for local ethical universal standards with allowance for local ethical diversity and influence.diversity and influence.

9–14

HOW AND WHY ETHICAL STANDARDS HOW AND WHY ETHICAL STANDARDS IMPACT THE TASKS OF CRAFTING AND IMPACT THE TASKS OF CRAFTING AND

EXECUTING STRATEGYEXECUTING STRATEGY

The Ethics Code Litmus Test:The Ethics Code Litmus Test:● Is what we are proposing to do fully compliant with Is what we are proposing to do fully compliant with

our code of ethics? Are there areas of ambiguity?our code of ethics? Are there areas of ambiguity?

● Is this action in harmony with our core values? Are Is this action in harmony with our core values? Are any conflicts or potential problems evident?any conflicts or potential problems evident?

● Is this action ethically objectionable? Would our Is this action ethically objectionable? Would our stakeholders, our competitors, the SEC under the stakeholders, our competitors, the SEC under the Sarbanes-Oxley Act, or the news and social media Sarbanes-Oxley Act, or the news and social media view this action as ethically objectionable?view this action as ethically objectionable?

9–15

CONSEQUENCES OF ETHICALLY CONSEQUENCES OF ETHICALLY QUESTIONABLE STRATEGIESQUESTIONABLE STRATEGIES

Sizable Sizable civil fines and civil fines and stockholder stockholder

lawsuitslawsuits

Devastating image and

public relations hits

Sharp stock price drops as investors lose

confidence

Criminal indictments

and convictions

When Strategies Fail the Ethical Litmus Test

9–16

WHAT ARE THE DRIVERS OF WHAT ARE THE DRIVERS OF UNETHICAL STRATEGIES AND UNETHICAL STRATEGIES AND

BUSINESS BEHAVIOR?BUSINESS BEHAVIOR?

Unethical Unethical Strategies Strategies

and Business and Business BehaviorsBehaviors

Faulty Oversight Faulty Oversight and Self Dealing and Self Dealing

Pressure for Short-term Performance

A Weak or Corrupt A Weak or Corrupt Ethical EnvironmentEthical Environment

9–17

WHAT ARE THE DRIVERS OF WHAT ARE THE DRIVERS OF UNETHICAL STRATEGIES AND UNETHICAL STRATEGIES AND

BUSINESS BEHAVIOR?BUSINESS BEHAVIOR?

Drivers of Unethical Business Behavior:Drivers of Unethical Business Behavior:● Faulty internal oversight allows self-dealing in the Faulty internal oversight allows self-dealing in the

pursuit of personal gain, wealth, and self-interest.pursuit of personal gain, wealth, and self-interest.

● Short-termism pressure to meet or beat short-term Short-termism pressure to meet or beat short-term performance targets.performance targets.

● A culture that puts profitability and business A culture that puts profitability and business performance ahead of ethical behavior.performance ahead of ethical behavior.

9–18


♦ Self-dealingSelf-dealing occurs when managers take occurs when managers take advantage of their position to further their own advantage of their position to further their own private interests rather than those of the firm.private interests rather than those of the firm.

♦ Short-termismShort-termism is the tendency for managers to is the tendency for managers to focus excessively on short-term performance focus excessively on short-term performance objectives at the expense of longer-term objectives at the expense of longer-term strategic objectives. It has negative implications strategic objectives. It has negative implications for the likelihood of ethical lapses as well for the likelihood of ethical lapses as well as company performance as company performance in the longer run.in the longer run.

9–19

ILLUSTRATION CAPSULE 9.2ILLUSTRATION CAPSULE 9.2Investment Fraud at Bernard L. Madoff Investment Fraud at Bernard L. Madoff Investment Securities and Stanford Financial Investment Securities and Stanford Financial GroupGroup

♦ Which drivers of unethical behavior were active Which drivers of unethical behavior were active in the Madoff investment fraud scheme?in the Madoff investment fraud scheme?

♦ How did the cultures of the Madoff and Stanford How did the cultures of the Madoff and Stanford investment firms assist in perpetuating the investment firms assist in perpetuating the frauds?frauds?

♦ What ethical responsibilities were lacking in the What ethical responsibilities were lacking in the Madoff fraud’s investors that would have helped Madoff fraud’s investors that would have helped prevent the frauds?prevent the frauds?

9–20

♦ What steps has Novo Nordisk taken to ensure What steps has Novo Nordisk taken to ensure that its ethical standards of employee conduct that its ethical standards of employee conduct are put into practice?are put into practice?

♦ Why has Novo Nordisk been so successful Why has Novo Nordisk been so successful instilling a culture of ethical conduct in its instilling a culture of ethical conduct in its organization when other firms have not?organization when other firms have not?

♦ What has been the effect of Novo Nordisk’s What has been the effect of Novo Nordisk’s dedication to ethical business practices on its dedication to ethical business practices on its success in the marketplace?success in the marketplace?

ILLUSTRATION CAPSULE 9.3 ILLUSTRATION CAPSULE 9.3 How Novo Nordisk Puts Its How Novo Nordisk Puts Its Ethical Principles into PracticeEthical Principles into Practice

9–21

WHY SHOULD COMPANY STRATEGIES WHY SHOULD COMPANY STRATEGIES BE ETHICAL?BE ETHICAL?

The Moral Case for an Ethical Strategy:The Moral Case for an Ethical Strategy:● Because a strategy that is unethical is morally wrong Because a strategy that is unethical is morally wrong

and reflects badly on the character of the firm’s and reflects badly on the character of the firm’s personnel.personnel.

The Business Case for Ethical Strategies:The Business Case for Ethical Strategies:● Because an ethical strategy can be both good Because an ethical strategy can be both good

business and serve the self-interest of shareholders.business and serve the self-interest of shareholders.

9–22


♦ Conducting business in an ethical fashion is Conducting business in an ethical fashion is not only morally right—it is in a company’s not only morally right—it is in a company’s enlightened self-interest.enlightened self-interest.

♦ Shareholders suffer major damage when a Shareholders suffer major damage when a company’s unethical behavior is discovered. company’s unethical behavior is discovered. Making amends for unethical business conduct Making amends for unethical business conduct is costly, and it takes years to rehabilitate a is costly, and it takes years to rehabilitate a tarnished company reputation.tarnished company reputation.

9–23

The Costs Companies Incur When Ethical Wrongdoing Is DiscoveredFIGURE 9.1

9–24

STRATEGY, CORPORATE SOCIAL STRATEGY, CORPORATE SOCIAL RESPONSIBILITY, AND EVIRONMENTAL RESPONSIBILITY, AND EVIRONMENTAL

SUSTAINABILITYSUSTAINABILITY

Corporate Social Responsibility (CSR)Corporate Social Responsibility (CSR)● Is a firm’s duty to operate in an honorable manner, Is a firm’s duty to operate in an honorable manner,

provide good working conditions for employees, provide good working conditions for employees, encourage workforce diversity, be a good steward of encourage workforce diversity, be a good steward of the environment, and actively work to better the the environment, and actively work to better the quality of life in the local communities where it quality of life in the local communities where it operates and in society at large.operates and in society at large.

9–25


♦ Corporate social responsibility (CSR) Corporate social responsibility (CSR) refers refers to a company’s duty to operate in an honorable to a company’s duty to operate in an honorable manner, provide good working conditions for manner, provide good working conditions for employees, encourage workforce diversity, be employees, encourage workforce diversity, be a good steward of the environment, and a good steward of the environment, and actively work to better the quality of life in the actively work to better the quality of life in the local communities where it operates and in local communities where it operates and in society at large.society at large.

9–26

The Five Components of a Corporate Social Responsibility Strategy

FIGURE 9.2

9–27

♦ What is your evaluation of the effectiveness of What is your evaluation of the effectiveness of CSR as a strategic tool in this instance?CSR as a strategic tool in this instance?

♦ How do you think this unique tripartite How do you think this unique tripartite relationship between government, business relationship between government, business and society can be built upon?and society can be built upon?

ILLUSTRATION CAPSULE 9.4 ILLUSTRATION CAPSULE 9.4 CSR Through Fashion and Cars in CSR Through Fashion and Cars in SingaporeSingapore

9–28

The Triple Bottom Line: Excelling on Three Measures of Company Performance

ProfitProfit PeoplePeople

PlanetPlanet

FIGURE 9.3

9–29

A Selection of Companies Recognized for Their Triple-Bottom-Line Performance in 2011

TABLE 9.1

9–30

WHAT DO WE MEAN BYWHAT DO WE MEAN BY SUSTAINABILITY SUSTAINABILITY AND AND SUSTAINABLE SUSTAINABLE

BUSINESS PRACTICESBUSINESS PRACTICES??

SustainabilitySustainability● Is the relationship of a firm to its environment and its Is the relationship of a firm to its environment and its

use of natural resources.use of natural resources.

Sustainable Business PracticesSustainable Business Practices● Are those practices of a firm that meet the needs of Are those practices of a firm that meet the needs of

the present without compromising the ability to meet the present without compromising the ability to meet the needs of the future.the needs of the future.

9–31

CORE CONCEPTSCORE CONCEPTSCORE CONCEPTSCORE CONCEPTS

♦ Sustainable business practices Sustainable business practices are those are those that meet the needs of the present without that meet the needs of the present without compromising the ability to meet the needs compromising the ability to meet the needs of the future.of the future.

♦ An An environmental sustainability strategyenvironmental sustainability strategy consists of a firm’s deliberate actions to protect consists of a firm’s deliberate actions to protect the environment, provide for the longevity the environment, provide for the longevity of natural resources, maintain ecological of natural resources, maintain ecological support systems for future generations, support systems for future generations, and guard against the ultimate and guard against the ultimate endangerment of the planet.endangerment of the planet.

9–32

SUSTAINABILITY AND SUSTAINABLE SUSTAINABILITY AND SUSTAINABLE BUSINESS PRACTICESBUSINESS PRACTICES

Environmental Sustainability StrategyEnvironmental Sustainability Strategy● Consists of the firm’s deliberate actions to:Consists of the firm’s deliberate actions to:

Protect the environment.Protect the environment.

Provide for the longevity of natural resources.Provide for the longevity of natural resources.

Maintain ecological support systems for future Maintain ecological support systems for future generations.generations.

Guard against ultimate endangerment of the Guard against ultimate endangerment of the planet.planet.

9–33

CRAFTING CORPORATE CRAFTING CORPORATE SOCIAL RESPONSIBILITY AND SOCIAL RESPONSIBILITY AND SUSTAINABILITY STRATEGIESSUSTAINABILITY STRATEGIES

Pursuing a Sustainable CSR Strategy Pursuing a Sustainable CSR Strategy in the Firm’s Value Chain Activitiesin the Firm’s Value Chain Activities

Business Case:Business Case:Competitive Competitive AdvantageAdvantage

Moral Case:Moral Case:Stakeholder Stakeholder

BenefitsBenefits

9–34


♦ CSR strategies and environmental CSR strategies and environmental sustainability strategies that both provide sustainability strategies that both provide valuable social benefits and fulfill customer valuable social benefits and fulfill customer needs in a superior fashion can lead to needs in a superior fashion can lead to competitive advantage. Corporate social competitive advantage. Corporate social agendas that address only social issues may agendas that address only social issues may help boost a company’s reputation for help boost a company’s reputation for corporate citizenship but are unlikely to corporate citizenship but are unlikely to improve its competitive strength in the improve its competitive strength in the marketplace.marketplace.

9–35

THE MORAL CASE FOR CSR AND THE MORAL CASE FOR CSR AND ENVIRONMENTALLY SUSTAINABLE ENVIRONMENTALLY SUSTAINABLE

BUSINESS PRACTICESBUSINESS PRACTICES

Operate Operate ethically and ethically and

legallylegally

Provide good work conditions for employees

Be a good environmental

steward

Display good corporate citizenship

The Implied Social Contract:“To Do the Right Thing”

9–36


♦ Every action a company takes can be Every action a company takes can be interpreted as a statement of what it stands for.interpreted as a statement of what it stands for.

9–37

THE BUSINESS CASE FOR CSR AND THE BUSINESS CASE FOR CSR AND ENVIRONMENTALLY SUSTAINABLE ENVIRONMENTALLY SUSTAINABLE


Increased reputation and buyer patronageIncreased reputation and buyer patronage Reduced risk of reputation-damaging incidentsReduced risk of reputation-damaging incidents Lower turnover costs and enhanced employee Lower turnover costs and enhanced employee

recruiting and workforce retentionrecruiting and workforce retention Increased revenue enhancement opportunities Increased revenue enhancement opportunities

due to support of CSR and sustainabilitydue to support of CSR and sustainability CSR and sustainability best serve long-term CSR and sustainability best serve long-term

interests of shareholdersinterests of shareholders

9–38

COMBATING THE EVASION OF COMBATING THE EVASION OF CSR AND SOCIALLY HARMFUL CSR AND SOCIALLY HARMFUL


Harmful and Unethical Business

Actions and Behaviors

Increased public Increased public awareness of misdeeds of awareness of misdeeds of

bad behavior by firms bad behavior by firms

Increased legislation and regulation to correct and

punish firms

Refusal to do business with irresponsible firms

9–39


♦ The higher the public profile of a company or The higher the public profile of a company or its brand, the greater the scrutiny of its its brand, the greater the scrutiny of its activities and the higher the potential for it to activities and the higher the potential for it to become a target for pressure group action.become a target for pressure group action.

9–40


♦ Socially responsible strategies that create value Socially responsible strategies that create value for customers and lower costs can improve for customers and lower costs can improve company profits and shareholder value at the company profits and shareholder value at the same time that they address other stakeholder same time that they address other stakeholder interests.interests.

♦ There’s little hard evidence indicating There’s little hard evidence indicating shareholders are disadvantaged in any shareholders are disadvantaged in any meaningful way by a company’s actions to be meaningful way by a company’s actions to be socially responsible.socially responsible.

9–41

IPPTChap009

Documents

ethical standards9

universal ethical principles

order ethical principles

order ethical norms

applicable ethical norms

universal standards

local norms

business actions