CHAPTER 9
ETHICS, CORPORATE SOCIAL
RESPONSIBILITY, ENVIRONMENTAL
SUSTAINABILITY, AND STRATEGY
WHAT DO WE MEAN BY BUSINESS
ETHICS?

Business Ethics
●
Is the application of general ethical principles to the
actions and decisions of businesses and the conduct
of their personnel.
●
Are not materially different from ethical principles in
general because business actions have to be judged
in the context of society’s standards of right and
wrong.
9–2
WHERE DO ETHICAL STANDARDS
COME FROM—ARE THEY UNIVERSAL
OR DEPENDENT ON LOCAL NORMS?
Sources for Ethical Standards
The School of
Ethical
Universalism
The School of
Ethical
Relativism
Integrated
Social Contracts
Theory
9–3
THE SCHOOL OF
ETHICAL UNIVERSALISM

Ethical Universalism
●

Holds that common understandings across multiple
cultures and countries about what constitutes right
and wrong give rise to universal ethical standards
that apply to all societies, all firms, and all
businesspeople.
Effect on Business Ethics
●
Whether a business-related action is right or wrong is
judged by universal standards.
9–4
THE SCHOOL OF
ETHICAL RELATIVISM

Ethical Relativism
●

Holds that differing beliefs, customs, and behavioral
norms across countries and cultures give rise to
multiple sets of standards of what is ethically right or
wrong.
Effect on Business Ethics
●
Whether business-related actions are right or wrong
depends on local ethical standards.
9–5
EXAMPLES OF ETHICAL
RELATIVISM ISSUES
Variations in
Ethical Standards
The Use of
Underage
Labor
The Payment
of Bribes and
Kickbacks
Relativism
Equates to
Multiple Sets
of Standards
The Use of
Local Morality
to Guide Ethical
Behavior
9–6
INTEGRATIVE SOCIAL
CONTRACTS THEORY

Provides a middle-ground balance between
universalism and relativism.

Posits that the collective views of multiple
societies form universal (first order) ethical
principles that all persons have a contractual
duty to observe in all situations.

Within the contract, cultures or groups can
specify locally ethical (second-order) actions.
9–7
APPLICATION OF INTEGRATED
SOCIAL CONTRACTS THEORY
TO MULTINATIONAL BUSINESS

Effects on Ethical Standards:
●
Adherence to universal ethical norms takes
precedence over local norms.
●
A local custom is not ethical if it violates universal
ethical norms.
●
Application of codes of ethics should first follow
universal standards with allowance for local ethical
diversity and influence.
9–8
CONSEQUENCES OF ETHICALLY
QUESTIONABLE STRATEGIES
When Strategies Fail
the Ethical Litmus Test
Sizable
civil fines and
stockholder
lawsuits
Devastating
image and
public relations
hits
Sharp stock
price drops as
investors lose
confidence
Criminal
indictments
and
convictions
9–9
WHAT ARE THE DRIVERS OF
UNETHICAL STRATEGIES AND
BUSINESS BEHAVIOR?
Faulty Oversight
and Self Dealing
Pressure for Shortterm Performance
Unethical
Strategies
and Business
Behaviors
A Weak or Corrupt
Ethical Environment
9–10
WHY SHOULD COMPANY STRATEGIES
BE ETHICAL?

The Moral Case for an Ethical Strategy:
●

Because a strategy that is unethical is morally wrong
and reflects badly on the character of the firm’s
personnel.
The Business Case for Ethical Strategies:
●
Because an ethical strategy can be both good
business and serve the self-interest of shareholders.
9–11
FIGURE 9.1
The Costs Companies Incur When Ethical Wrongdoing Is Discovered
9–12
STRATEGY, CORPORATE SOCIAL
RESPONSIBILITY, AND EVIRONMENTAL
SUSTAINABILITY

Corporate Social Responsibility (CSR)
●
Is a firm’s duty to operate in an honorable manner,
provide good working conditions for employees,
encourage workforce diversity, be a good steward of
the environment, and actively work to better the
quality of life in the local communities where it
operates and in society at large.
9–13
FIGURE 9.2
The Five Components
of a Corporate Social
Responsibility Strategy
9–14
FIGURE 9.3
The Triple Bottom Line: Excelling on Three Measures of Company Performance
People
Profit
Planet
9–15
WHAT DO WE MEAN BY
SUSTAINABILITY AND SUSTAINABLE
BUSINESS PRACTICES?

Sustainability
●

Is the relationship of a firm to its environment and its
use of natural resources.
Sustainable Business Practices
●
Are those practices of a firm that meet the needs of
the present without compromising the ability to meet
the needs of the future.
9–16
SUSTAINABILITY AND SUSTAINABLE
BUSINESS PRACTICES

Environmental Sustainability Strategy
●
Consists of the firm’s deliberate actions to:

Protect the environment.

Provide for the longevity of natural resources.

Maintain ecological support systems for future
generations.

Guard against ultimate endangerment of the
planet.
9–17
CRAFTING CORPORATE
SOCIAL RESPONSIBILITY AND
SUSTAINABILITY STRATEGIES
Pursuing a Sustainable CSR Strategy
in the Firm’s Value Chain Activities
Moral Case:
Stakeholder
Benefits
Business Case:
Competitive
Advantage
9–18
THE MORAL CASE FOR CSR AND
ENVIRONMENTALLY SUSTAINABLE
BUSINESS PRACTICES
The Implied Social Contract:
“To Do the Right Thing”
Operate
ethically and
legally
Provide good
work conditions
for employees
Be a good
environmental
steward
Display good
corporate
citizenship
9–19
THE BUSINESS CASE FOR CSR AND
ENVIRONMENTALLY SUSTAINABLE
BUSINESS PRACTICES

Increased reputation and buyer patronage

Reduced risk of reputation-damaging incidents

Lower turnover costs and enhanced employee
recruiting and workforce retention

Increased revenue enhancement opportunities
due to support of CSR and sustainability

CSR and sustainability best serve long-term
interests of shareholders
9–20