CHAPTER 9
ETHICS, CORPORATE SOCIAL RESPONSIBILITY,
ENVIRONMENTAL SUSTAINABILITY, AND
STRATEGY
Copyright ®2012 The McGraw-Hill Companies, Inc.
McGraw-Hill/Irwin
1. Understand how the standards of ethical behavior in
business relate to the ethical standards and norms of
the larger society and culture in which a firm 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. Gain an understanding of the concepts of corporate
social responsibility and environmental
sustainability and of how firms balance these duties
with economic responsibilities to shareholders.
9–2
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.
9–3
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
9–4
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.
9–5
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.
9–6
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
9–7
♦ How effective has Apple’s Supplier Code of
Conduct been is reducing abuses of workers
at its supplier facilities?
♦ Is it fair for Apple to prescribe that its suppliers
comply with universal standards that are at
wide variance relative to local market labor
practices and conditions?
9–8
Integrated 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.
9–9
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.
9–10
HOW AND WHY ETHICAL STANDARDS
IMPACT THE TASKS OF CRAFTING
AND EXECUTING STRATEGY
♦ The Ethics Code Litmus Test:
●
Is what we are proposing to do fully compliant with
our code of ethics? Are there areas of ambiguity?
●
Is this action in harmony with our core values?
Are any conflicts or potential problems evident?
●
Is there anything in the action that is ethically
objectionable? Would our stakeholders, our
competitors, the SEC, or the media view this
action as ethically objectionable?
9–11
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
9–12
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
9–13
WHAT ARE THE DRIVERS OF
UNETHICAL STRATEGIES AND
BUSINESS BEHAVIOR?
♦ Drivers of Unethical Business Behavior:
●
Faulty internal oversight allows self-dealing
in the pursuit of personal gain, wealth, and
self-interest.
●
Short-termism pressure to meet or beat
short-term performance targets.
●
A culture that puts profitability and business
performance ahead of ethical behavior.
9–14
♦ Which drivers of unethical behavior were
active in the Madoff investment fraud
scheme?
♦ How did the cultures of the Madoff and
Stanford investment firms assist in
perpetuating the frauds?
♦ What ethical responsibilities were lacking in
the fraud’s investors that would have helped
prevent the frauds?
9–15
♦ How could the ethical culture at General
Electric be adversely influenced by the firm’s
heavy reliance on financial performance?
♦ Is GE’s “one strike and you’re out” ethical
standard too harsh?
♦ Will GE’s adoption of global ethical standards
and adherence to those standards be
practical over the long term?
9–16
WHY SHOULD A FIRM’S STRATEGIES
BE ETHICAL?
♦ Moral Case:
●
Because a strategy that is unethical is
morally wrong and reflects badly on the
character of the firm’s personnel.
♦ Business Case:
●
Because an ethical strategy can be both
good business and serve the self-interest
of shareholders.
9–17
9.1 The Costs A Company Incurs When Ethical Wrongdoing Is Found Out
9–18
CORPORATE SOCIAL RESPONSIBILITY,
EVIRONMENTAL SUSTAINABILITY,
AND STRATEGY
♦ 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.
9–19
9.2
The Five Components
of a Corporate Social
Responsibility Strategy
9–20
♦ How could components of John Deere’s
overall corporate social responsibility strategy
conflict with those of its separate business
units?
♦ Which components of John Deere’s corporate
social responsibility strategy correspond to the
separate dimensions of the triple bottom line
concept?
9–21
9.3
The Triple Bottom Line (TBL): Excelling on Three
Measures of Company Performance
People
Profit
Planet
9–22
9.1
A Selection of Companies Recognized for Their Triple
Bottom Line Performance in 2009 and 2010
9–23
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.
9–24
Sustainability and Sustainable Business Practices
♦ Environmental Sustainability Strategy
●
Consists of the firm’s deliberate actions to:
 Protect
 Provide
the environment.
for the longevity of natural resources.
 Maintain
ecological support systems for future
generations.
 Guard
against ultimate endangerment of the
planet.
9–25
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
9–26
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
9–27
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 opportunities for revenue
enhancement due innovation in support of
sustainability and CSR
♦ Support for the long-term interests of
shareholders
9–28
Combating the Evasion of CSR and Socially
Harmful Business Practices
Increased public
awareness of misdeeds of
bad behavior by firms
Increased legislation and
regulation correct and
punish firms
Harmful and
Unethical
Business
Actions and
Behaviors
Refusal to do business with
irresponsible firms
9–29