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C Section hapter
Lecture Notes for Chapter 9
9
Ethical Business Strategies,
Corporate Social Responsibility,
and Environmental Sustainability
Chapter Summary
Chapter nine focuses on examining what link, if any, there should be between a companys efforts to craft and
execute a winning strategy and its duties to (1) conduct its activities in an ethical manner; (2) demonstrate
socially responsible behavior by being committed corporate citizens; and (3) limit its strategic initiatives to
those that meet the needs of consumers without depleting resources needed by future generations.
Lecture Outline
I.
Business Ethics and the Tasks of Crafting and Executing Strategy
1. Business ethics is the application of general ethical principles and standards to business
behavior.
2. Ethical principles in business are not materially different from ethical principles in general.
3. Business ethics does not involve a special set of ethical standards applicable only to business
business situations
Core Concept
Business ethics concerns the application of general ethical principles and standards to the actions
and decisions of companies and the conduct of company personnel.
A. Drivers of Unethical Strategies and Business Behavior
1. Apart from the business of business is business, not ethics kind of thinking apparent in
recent high-prole business scandals, three other main drivers of unethical business behavior
also stand out:
Faulty oversight by top management and the board of directors that implicitly allows the
overzealous pursuit of personal gain, wealth, and other self-interests.
Heavy pressures on company managers to meet or beat performance targets.
A company culture that puts protability and good business performance ahead of ethical
behavior.
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2. Overzealous Pursuit of Personal Gain, Wealth and Self-Interest: A general disregard
for business ethics can prompt all kinds of unethical strategic maneuvers and behaviors at
companies. This, combined with people who are obsessed with wealth accumulation, greed,
power, status, and other self interests often push ethical principles aside to achieve their goals.
The CEO of Tyco, Intl, conspired with the companys CFO to steal more than $170 million
from the company.
3. Heavy pressures on Company Managers to Meet or Beat Earnings Targets: Performance
expectations of Wall Street Analysts and investors may create enormous pressure on management
to do whatever it takes to sustain the companys reputation for delivering good nancial reports.
Company executives often feel pressured to hit nancial performance targets because their
compensation depends on companys performance.
4. Company Cultures That Put the Bottom Line Ahead of Ethical Behavior: When a companys
culture spawns an ethically corrupt or amoral work climate, people have a company-approved
license to ignore whats right and engage in most any behavior or employ most any strategy
they think they can get away with.
Concepts & Connections 9.1, Investment Fraud at Bernard L Madoff
Investment Securities and Stanford Financial Group
Discussion Question: How was it possible for Bernie Madoff to deceive Wall Street and
his investors for decades? How was Madoff able to convincingly promise investors that
returns would beat the market by 400 to 500 percent?
Answer: Lack of oversight by the Securities and Exchange Commission, trust on the
part of clients and the nancial community both because of the length of the relationship
(decades) and the fact that clients rarely needed to withdraw funds and were simply
happy to see such high (and ctitious) paper returns led to a culture that bred dishonesty
in a man who lacked any ethics. All of the drivers of unethical behavior were present in
the Bernie Madoff case the biggest investment scam in history.
II. The Business Case for Ethical Strategies and Ethical Operating Practices
1. There are strong business reasons to adopt ethical strategies even if most company managers
are not of strong moral character and personally committed to high ethical standards. Pursuing
unethical strategies not only damages a companys reputation but it can also have costly
consequences that are wide ranging, some visible and others hidden and difcult to track
down.
A. The School of Ethical Universalism
1. According to the school of ethical universalism, some concepts of what is right and what is
wrong are universal; that is, they transcend all cultures, societies, and religions.
a. To the extent that there is common moral agreement about right and wrong actions
and behaviors across multiple cultures and countries, there exists a set of universal
ethical standards to which all societies, all companies, and all individuals can be held
accountable.
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Core Concept
According to the school of ethical universalism, the same standards of whats ethical and whats
unethical resonate with peoples of most societies regardless of local traditions and cultural norms;
hence, common ethical standards can be used to judge the conduct of personnel at companies
operating in a variety of country markets and cultural circumstances.
2. The strength of ethical universalism is that it draws on the collective views of multiple societies
and cultures to put some clear boundaries on what constitutes ethical business behavior and what
constitutes unethical business behavior no matter what country market or culture a company or
its personnel are operating in.
B. The School of Ethical Relativism
1. There are meaningful variations in what societies generally agree to be right and wrong in
the conduct of business activities. Ethical relativism holds that when there are cross-country
or cross-cultural differences in what is deemed ethical or unethical, what constitutes proper
regard for human rights, and what is considered ethical or unethical in business situations, it is
appropriate for local moral standards to take precedence over what the ethical standards may
be elsewhere.
Core Concept
According to the school of ethical relativism different societal cultures and customs have divergent
values and standards of right and wrongthus what is ethical or unethical must be judged in the
light of local customs and social mores and can vary from culture or nation to another.
C. Integrative Social Contracts Theory
1. Social contract theory provides a middle position between the opposing views of universalism
and relativism.
2. The ethical standards a company should try to uphold are governed both by a limited number of
universal ethical principles that are widely recognized as putting legitimate ethical boundaries
on actions and behavior in all situations and the circumstances of local cultures, tradition, and
shared values that further prescribe what constitutes ethically permissible behavior and what
does not.
3. First-order universal ethical norms take precedence over second-order local ethical
norms.
4. These mostly uniform agreements about what is morally right and wrong form a Social
contract or contract with society that is binding on all individuals, groups, organizations, and
businesses in terms of establishing right and wrong and in drawing the line between ethical and
unethical behaviors.
5. It is indisputable that cultural differences impact how business is conducted in various parts of
the world and that these cultural differences sometimes give rise to different ethical norms.
6. There are many instances where cross-country differences 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 practice.
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Core Concept
According to integrative social contracts theory, universal ethical principles or norms based on
the collective views of multiple combine to form a social contract that all employees in all country
markets have a duty to observe. Within the boundaries of this social contract, there is room for host
country culture to exert some inuence in setting their own moral and ethical standards. However,
rst-order universal ethical norms always take precedence over second-order local ethical
norms in circumstances where local ethical norms are more permissive.
III. Social Responsibility and Corporate Citizenship
1. That businesses have an obligation to foster social betterment took root in the 19th century when
progressive companies, in the aftermath of the industrial revolution, began to provide workers
with housing and other amenities.
2. The essence of the theory corporate of social responsibility is that a company should strive
for balance between (1) its economic responsibility to reward shareholders with prots, (2)
its legal responsibility to comply with the laws of countries where it operates, (2) The ethical
responsibility to abide by societys norms, and (4) a philanthropic responsibility to contribute
to the noneconomic needs society.
Core Concept
Corporate citizenship requires a corporate commitment to go beyond meeting societys expectations
for ethical strategies and business behavior to demonstrating good citizenship by addressing unmet
noneconomic needs of society
3. Common corporate social responsibility programs involve:
Actions to protect or enhance the environment and in particular, to minimize or eliminate
any adverse impact on the environment stemming from the companys own business
activities
Actions to create a work environment that enhances the quality of life for employees.
Actions to build a workforce that is diverse with respect to gender, race, national origin,
and perhaps other aspects that different people bring to the workplace.
IV. Corporate Sustainability and the Environment
1. A rapidly growing number of multinational companies are expanding their understanding
of social responsibility to include the impact of their strategies and operations on future
generations.
2. Sustainability initiatives undertaken by companies are frequently directed at improving the
companys Triple-P performancepeople, planet, and prot.
3. Sometimes cost savings and improved protability are drivers of environmental sustainability
strategies.
4. Many environmentally conscious companies now make a point of citing the benets of their
sustainability strategies in press releases and issue special sustainability reports for consumers
and investors to review.
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Core Concept
A companys environmental sustainability strategy consists of its deliberate actions to meet the
current needs of customers, suppliers, shareholders, employees, and other stakeholders in a
manner that protects the environment, provides for the longevity of natural resources, maintains
ecological support systems for future generations, and guards against ultimate endangerment of the
planet.
5. The Dow Jones Sustainability World Index consists of the top 10 percent of the 2,500 companies
listed in the Dow Jones World Index in terms of economic performance, environmental
performance, and social performance (Table 9.2).
C. Crafting Social Responsibility and Sustainability Strategies
1. A company may choose to focus its social responsibility strategy on generic social issues, but
social responsibility strategies keyed to points of intersection between a company and society
may also contribute to a companys competitive advantage.
2. Unless a companys social responsibility initiatives become part of the way it operates its
business every day, the initiatives are unlikely to be fully effective.
3. Whole Food Markets social responsibility strategy is evident in almost every segment of its
company value chain and is a big part of its differentiation strategy.
D. The Business Case for Socially Responsible Behavior
1. There are several reasons why the exercise of social responsibility and corporate citizenship is
good business:
a. It generates internal benets particularly as concerns employee recruiting, workforce
retention, and training costs
b. It reduces the risk of reputation-damaging incidents and can lead to increased buyer
patronage
c. It is in the best interest of shareholders
Assurance of Learning Exercises
1.
Assume that you are the sales manager at a European company that makes sleepwear products for
children. Company personnel discover that the chemicals used to ameproof the companys line
of childrens pajamas might cause cancer if absorbed through the skin. Following this discovery,
the pajamas are then banned from sale in the European Union and the United States, but senior
executives of your company learn that the childrens pajamas in inventory and the remaining
ameproof material can be sold to sleepwear distributors in certain East European countries where
there are no restrictions against the materials use. Your superiors instruct you to make the necessary
arrangements to sell the inventories of banned pajamas and ameproof materials to East European
distributors. Would you comply if you felt that your job would be in jeopardy if you didnt?
In their responses, students should carefully evaluate the concepts of deferring responsibility for
ethics in the workplace to the employer under the guise of following orders. Students should
demonstrate that they considered the implications of standing up to an employer based on personal
ethics. Student responses could also include a discussion of universalism versus relativism in ethics,
including the appropriateness or inappropriateness of imposing one cultures ethics on another.
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2. Review Microsofts statements about its corporate citizenship programs at www.microsoft.com/
about/corporatecitizenship. How does the companys commitment to global citizenship provide
positive benets for its stakeholders? How does Microsoft plan to improve social and economic
empowerment in developing countries through its Unlimited Potential program? Why is this
important to Microsoft shareholders?
Information contained in this Web site link is comprehensive. Microsoft summarizes its mission
as, Our mission is to help people and businesses throughout the world realize their full potential.
This drives our business and guides our corporate citizenship work. As the worlds largest software
company, we help create social and economic opportunities wherever we work, live, and do business.
Our technology innovations, our people, our partnerships, and our day-to-day business make a
meaningful contribution to the prosperity of communities and the sustainability of the planet.
Microsoft denes its contributions in the following areas: Commitments, Focus, and Actions. The
companys actions have clearly beneted its stakeholders, and specic activities are described in
the Actions area: In the Community, Technology Innovation, Operating Responsibly, and Privacy
and Security. Microsofts Unlimited Potential program combines advanced technologies and
strong partnerships with governments, international organizations, nongovernmental organizations
(NGOs), educational institutions, and technology and service partners. Ultimately our mission is to
enable sustained social and economic opportunity for those at the middle and bottom of the worlds
economic pyramidthe next 5 billion people. In the short term, Unlimited Potential, Aims to
reach the next 1 billion people by 2015 by exploring solutions in three key interrelated areas.
Each is crucial to developing sustained economic opportunity: transforming education; fostering
local innovation; enabling jobs and opportunities. The contributions and scope of the Unlimited
Potential program will provide positive benets to Microsoft shareholders.
3. Go to www.nestle.com and read the companys latest sustainability report. What are Nestls key
sustainable environmental policies? How is the company addressing sustainable social development?
How do these initiatives relate to the companys principles, values, and culture and its approach to
competing in the food industry?
In reviewing the Web site, Nestls overall view of sustainability can be summarized as follows,
We are committed to create shared value over the long term by increasing the worlds access to
higher quality food and beverages, while contributing to environmentally sustainable social and
economic development, in particular in rural areas. Three principles guide the companys approach
to environmental stewardship: our responsibility towards society, present and future; our desire to
delight consumers; our dependence on a sustainable environment that can provide the high quality
resources we need to make good food and beverages. Nestl identies four priorities related to its
food and beverage business: water, agricultural raw materials, manufacturing and distribution of
products, and packaging of products (see http://www.nestle.com/Resource.axd?Id=CA5BDB646E13-4CDD-B310-CBF5AB826DA3 for specic details). Students should offer support regarding
the relationship of these priorities to Nestls approach to competing in the food industry based on
the companys claim, As the largest food and beverage company in the world, we are determined
to continue to provide leadership within our sphere of inuence.