1. CHAPTER 9 Ethics, Corporate Social Responsibility, Environmental Sustainability, and Strategy

2. LEARNING OBJECTIVES THIS CHAPTER WILL HELP YOU 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
What drives unethical business strategies and behavior
The costs of business ethics failures
The concepts of corporate social responsibility and environmental sustainability and how companies balance these duties with economic responsibilities to shareholders

3. WHAT DO WE MEAN BY 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

4. CORE CONCEPT (1 of 8)
Ethics concerns principles of right or wrong conduct. Business ethics deals with the application of general ethical principles to the actions and decisions of businesses and the conduct of their personnel.

5. WHERE DO ETHICAL STANDARDS COME FROM—ARE THEY UNIVERSAL OR DEPENDENT ON LOCAL NORMS?
The school of ethical universalism
The school of ethical relativism
Integrated social contracts theory
Sources for Ethical Standards
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6. THE SCHOOL OF 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

7. Core Concept (2 of 8)
The school of ethical universalism holds that the most fundamental conceptions of right and wrong are universal and apply to members of all societies, all companies, and all businesspeople.

8. THE SCHOOL OF 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. Core Concept (3 of 8)
The school of ethical relativism holds that differing religious beliefs, customs, and behavioral norms across countries and cultures give rise to multiple sets of standards concerning what is ethically right or wrong. These differing standards mean that whether business-related actions are right or wrong depends on the prevailing local ethical standards.

10. Strategic Management Principle (1 of 9)
Under ethical relativism, there can be no one-size- fits-all set of authentic ethical norms against which to gauge the conduct of company personnel.

11. EXAMPLES OF ETHICAL RELATIVISM ISSUES
The use of underage labor
The payment of bribes and kickbacks
Relativism can result in multiple sets of standards
The use of local morality to guide ethical behavior
Variations in Ethical Standards
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12. IKEA’s Global Supplier Standards: Maintaining Low Costs While Fighting the Root Causes of Child Labor
How effective has IKEA’s IWAY proactive approach to setting global labor standards been in reducing abuses of child workers at its supplier facilities?
Is it fair for IKEA to prescribe that its suppliers comply with global standards that are at variance with local market labor practices and conditions?
What has IKEA done to help its suppliers overcome the problems that foster the use of child labor?

13. Strategic Management Principle (2 of 9)
Codes of conduct based on ethical relativism can be ethically problematic for multinational companies by creating a maze of conflicting ethical standards.

14. Strategic Management Principle (3 of 9)
According to integrated social contracts theory, adherence to universal or “first-order” ethical norms should always take precedence over local or “second-order” norms.
In instances involving universally applicable ethical norms (like paying bribes), there can be no compromise on what is ethically permissible and what is not.

15. 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

16. 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.

17. CORE CONCEPT (4 of 8)
According to integrated social contracts theory, universal ethical principles based on the collective views of multiple societies form a “social contract” that all individuals and organizations have a duty to observe in all situations. Within the boundaries of this social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible.

18. Strategic Management Principle (4 of 9)
In instances involving universally applicable ethical norms (like paying bribes), there can be no compromise on what is ethically permissible and what is not.

19. HOW AND WHY ETHICAL STANDARDS IMPACT THE TASKS OF CRAFTING AND EXECUTING STRATEGY
The ethics code litmus test
Areas of ambiguity: Is what we are proposing to do fully compliant with our code of ethics?
Conflict or potential problem: Is this action in harmony with our core values?
Ethically objectionable action: Will our stakeholders, our competitors, the SEC under the Sarbanes-Oxley Act, or the news and social media view this action as ethically objectionable?

20. CONSEQUENCES OF ETHICALLY QUESTIONABLE STRATEGIES
Sizable civil fines and stockholder lawsuits
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
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21. DRIVERS OF UNETHICAL STRATEGIES AND BUSINESS BEHAVIOR
Unethical Strategies and Business Behaviors
Faulty oversight and self dealing
Pressure for short-term performance
A weak or corrupt ethical environment
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22. 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 pressures one to meet or beat short- term performance targets.
A culture that puts profitability and business performance ahead of ethical behavior.

23. Core Concepts (5 of 8)
Self-dealing occurs when managers take advantage of their position to further their own private interests rather than those of the firm. Short-termism is the tendency for managers to focus excessively on short-term performance objectives at the expense of longer-term strategic objectives. It has negative implications for the likelihood of ethical lapses as well as company performance in the longer run.

24. How Novo Nordisk Puts Its Ethical Principles into Practice
What steps has Novo Nordisk taken to ensure that its ethical standards of employee conduct are put into practice?
Why has Novo Nordisk been so successful in instilling a culture of ethical conduct in its organization when other firms have not?
What has been the effect of Novo Nordisk’s dedication to ethical business practices on its success in the marketplace?

25. WHY SHOULD COMPANY STRATEGIES BE ETHICAL?
The moral case for an ethical strategy
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
An ethical strategy can be both good business and serve the self-interest of shareholders.

26. STRATEGIC MANAGEMENT PRINCIPLE (5 of 9)
Conducting business in an ethical fashion is not only morally right, it is in a company’s enlightened self-interest. Shareholders suffer major damage when a company’s unethical behavior is discovered. Making amends for unethical business conduct is costly, and it takes years to rehabilitate a tarnished company reputation.

27. THE VISIBLE COSTS COMPANIES INCUR WHEN ETHICAL WRONGDOING IS DISCOVERED
Government fines and penalties
Civil penalties arising from class-action lawsuits and other litigation aimed at punishing the company for its offense and the harm done to others
The costs to shareholders in the form of a lower stock price (and possibly lower dividends)

28. THE INTERNAL COSTS COMPANIES INCUR WHEN ETHICAL WRONGDOING IS DISCOVERED
Internal administrative costs
Legal and investigative costs incurred by the company
The costs of providing remedial education and ethics training to company personnel
The costs of taking corrective actions
Administrative costs associated with ensuring future compliance

29. THE INTANGIBLE COSTS COMPANIES INCUR WHEN ETHICAL WRONGDOING IS DISCOVERED
Intangible or less visible costs
Customer defections
Loss of reputation
Lower employee morale and higher degrees of employee cynicism
Higher employee turnover
Higher recruiting costs and difficulty in attracting talented employees
Adverse effects on employee productivity
The costs of complying with harsher government regulations

30. STRATEGY, CORPORATE SOCIAL RESPONSIBILITY, AND ENVIRONMENTAL 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.

31. Core Concept (6 of 8)
Corporate social responsibility (CSR) refers to a company’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.

32. Jump to Appendix 5 long image description
FIGURE The Five Components of a Corporate Social Responsibility Strategy
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33. Warby Parker: Combining Corporate Social Responsibility with Affordable Fashion
How has Warby Parker’s skillful use of CSR as a strategic tool contributed to its success in the marketplace?
How strongly is customer loyalty affected by Warby Parker’s CSR practices?
Is the firm’s dedication to outcomes outside of profit likely to be acceptable to outside investors?

34. Core Concept (7 of 8)
A company’s CSR strategy is defined by the specific combination of socially beneficial activities the company opts to support with its contributions of time, money, and other resources.

35. FIGURE 9.3 The Triple Bottom Line: Excelling on Three Measures of Company Performance
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36. TABLE 9.1 A Selection of Companies Recognized for Their Triple-Bottom-Line Performance in (1 of 2)
NAME
MARKET SECTOR
COUNTRY
Volkswagen AG
Automobiles & Components
Germany
Australia & New Zealand Banking Group Ltd.
Banks
Australia
Siemens AG
Capital Goods
Adecco SA
Commercial & Professional Services
Switzerland
Panasonic Corp.
Consumer Durables & Apparel
Japan
Tabcorp. Holdings Ltd.
Consumer Services
Citigroup Inc.
Diversified Financials
United States
BG Group PLC
Energy
United Kingdom
Woolworths Ltd.
Food & Staples Retailing
Nestlé SA
Food, Beverage, & Tobacco
Abbott Laboratories
Health Care Equipment & Services
Henkel AG & Co. KGaA
Household & Personal Products

37. TABLE 9.1 A Selection of Companies Recognized for Their Triple-Bottom-Line Performance in (2 of 2)
NAME
MARKET SECTOR
COUNTRY
Allianz SE
Insurance
Germany
Akzo Nobel NV
Materials
Netherlands
Telenet Group Holding NV
Media
Belgium
Roche Holding AG
Pharmaceutical, Biotechnology, & Life Sciences
Switzerland
Stockland
Real Estate
Australia
Lotte Shopping Co. Ltd.
Retailing
Republic of Korea
Taiwan Semiconductor Manufacturing Co. Ltd.
Semiconductors & Semiconductor Equipment
Taiwan
SAP AG
Software & Services
Alcatel-Lucent
Technology Hardware & Equipment
France
KT Corp.
Telecommunication
Air France-KLM
Transportation
EDP-Energias de Portugal SA
Utilities
Portugal

38. WHAT DO WE MEAN BY SUSTAINABILITY AND SUSTAINABLE BUSINESS PRACTICES?
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

39. Unilever’s Focus on Sustainability
How has the Unilever Sustainable Living Plan (USLP) for implementing its comprehensive triple-bottom-line approach toward sustainable farm management affected the company’s long-term profitability?
What place in business thinking should sustainability occupy in strategic planning that seeks to maximize profits?
What internal forces could mitigate against pursuing sustainability goals if benchmark indices are controlled by external parties?

40. Core Concepts (8 of 8)
Sustainable business practices are those that meet the needs of the present without compromising the ability to meet the needs of the future. An environmental sustainability strategy consists of a firm’s deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against endangerments leading to the ultimate destruction of the planet.

41. 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

42. CRAFTING CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY STRATEGIES
Pursuing a Sustainable CSR Strategy in the Firm’s Value Chain Activities
Business case: competitive advantage
Moral case: stakeholder benefits
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43. Strategic Management Principle (6 of 9)
Both CSR strategies and environmental sustainability strategies provide valuable social benefits and fulfill customer needs in a superior fashion can lead to competitive advantage. Corporate social agendas that address only social issues may help boost a company’s reputation for corporate citizenship but are unlikely to improve its competitive strength in the marketplace.

44. THE MORAL CASE FOR CSR AND ENVIRONMENTALLY SUSTAINABLE BUSINESS PRACTICES
Operate ethically and legally
Provide good work conditions for employees
Be a good environmental steward
Display good corporate citizenship
The Implied Social Contract: “It’s the right thing to do”
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45. Strategic Management Principle (7 of 9)
Every action a company takes can be interpreted as a statement of what it stands for.

46. THE BUSINESS CASE FOR CSR AND ENVIRONMENTALLY SUSTAINABLE BUSINESS PRACTICES
Increased buyer patronage
Reduced risk of reputation-damaging incidents
Lower employee turnover costs and enhanced recruiting and workforce retention
Increased revenue enhancement opportunities due to the use of CSR and sustainability
CSR and sustainability best serve long-term interests of shareholders

47. COMBATING THE EVASION OF CSR AND SOCIALLY HARMFUL BUSINESS PRACTICES
Harmful and Unethical Business Actions and Behaviors
Increased public awareness of misdeeds and bad behavior by firms
Increased legislation and regulation to correct and punish firms
Refusal to do business with irresponsible firms
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48. STRATEGIC MANAGEMENT PRINCIPLE (8 of 9)
The higher the public profile of a company or its brand, the greater the scrutiny of its activities and the higher the potential for it to become a target for pressure group action.

49. Strategic Management Principle (9 of 9)
Socially responsible strategies that create value for customers and lower costs can improve company profits and shareholder value at the same time that they address other stakeholder interests. There’s little hard evidence indicating shareholders are disadvantaged in any meaningful way by a company’s actions to be socially responsible.