Strategy, Ethics, and Social Responsibility McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say engages in free and open competition, without deception or fraud.” Milton Friedman, Nobel Prize-winning economist

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A Test of Your Business Ethics

Comparison of Business Ethics and Social Responsibility Business EthicsRefers to the principles and standards that define acceptable conduct in the world of business. SocialRefers to a business’s obligation Responsibility to maximize its positive impact and minimize its negative impact on society.

Linking Strategy to Ethics and Social Responsibility Should there be a link between a company’s efforts to craft and execute a winning strategy and its duties to – Conduct activities in an ethical manner? – Demonstrate socially responsible behavior by Being a committed corporate citizen? Attending to needs of non-owner stakeholders? Key Issues

Are Ethical Standards Universal or Dependent on Local Norms? Three schools of thought regarding extent to which ethical standards can be applied... Ethical Universalism Ethical Relativism Integrative Social Contracts Theory

Ethics The study of moral obligation: determining right versus wrong; the basic rules of behavior. Ethics are defined by: the individual societal traditions periods of time in history special circumstances

Examples of Universal Ethical Principles or Norms Honesty Trustworthiness Treating people with dignity and respect Respecting rights of others Practicing the Golden Rule Avoiding unnecessary harm to – Workers – Users of a company’s product or service Respecting the environment

Your Opinion Paying bribes and kickbacks to grease business transactions A. violates ethical principles of right and wrong in all countries. B. is ethically acceptable according to the principle of ethical universalism. C. is acceptable to immoral managers but not to amoral managers. D. should be considered ethically appropriate by a company so long as such payments are normal and customary in the countries where such payments are made. E. may be ethically acceptable according to the principle of ethical relativism if paying bribes and kickbacks is normal and customary practice in a country.

Corruption Perception Index

Approaches to Managing a Company’s Ethical Conduct Unconcerned or non-issue approach Damage control approach Compliance approach Ethical culture approach

Reactions to Unethical Employers What happened when surveyed employees found out their employers were doing something that was against the employee’s ethical standards… tried to resolve the situation without losing job40% talked to boss38% did nothing 9% quit 5% other 1% not sure 7% Source: Yankelovich Partners Survey, PRNewswire, October 6, 1998.

Reasons for Not Reporting Observed Misconduct 1.Fear of not being considered a team player 2.Didn’t believe corrective action would be taken 3.Feared retribution or retaliation form supervisor or management 4.No one else cares about business ethics so why should I 5.Didn’t trust organization to keep report confidential Source: 1997 Society for Human Resource Management/Ethics Resource Center Business Ethics Survey Report, p. 21.

Ethical Issue Categories Conflict of interest Fairness and honesty Communications Business associations

Three Factors that Influence Business Ethics Individual Standards and Values Managers’ and Coworkers’ Influence Opportunity: Codes and Compliance Requirements Ethical/Unethical Choices in Business

Organizational Response to Ethics Institute a structure Institute a confidential disclosure system State the code of ethics Institute training programs

What Is Socially Responsible Business Behavior? A company should strive to balance strategic actions – To benefit shareholders against any possible adverse impacts on other stakeholders – To be a good corporate citizen Socially responsible behaviors include – Corporate philanthropy – Actions to earn trust and respect of stakeholders for a firm’s efforts to improve the general well-being of Customers Employees Local communities Society Environment

Arguments for Social Responsibility Ethical Responsibilities being ethical; doing what is right, just, and fair; avoiding harm Voluntary Responsibilities being a “good corporate citizen”; contributing to the community and quality of life Source: Adapted from Archie B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders.” Business Horizons 34 (July/August 1991): 42. Legal Responsibilities obeying the law (society’s codification of right and wrong); playing by the rules of the game Economic Responsibilities being profitable