EMBA690: Strategic Management Chapter 9

h University

Chapter 9: Ethical Business

Strategic Management
Strategies, Social Responsibility,
and Environmental Sustainability
Kazi Islam
North South
EMBA690

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.
Troy University

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Learning Objectives Chapter Roadmap

1. Understand why business conduct is judged according to „ What Do We Mean by Business Ethics?
the ethical standards of society at large rather than a
special set of ethical standards for businesses only. „ Where Do Ethical Standards Come From – Are
2. Understand the principal drivers of unethical strategies They Universal or Dependent on Local Norms and
and business behavior. Situational Circumstances?
3. Learn why unethical business conduct can be very costly „ The Three Categories of Management Morality
for a company’s shareholders
shareholders.
„ Drivers of Unethical Strategies and Business
4. Become familiar with the various approaches to
managing a company’s ethical conduct. Behavior
5. Gain an understanding of the concepts of corporate „ Why Ethical Strategies Matter
social responsibility, corporate citizenship, and
environmental sustainability.
„ Approaches to Managing a Company’s Ethical
Conduct
6. Become familiar with both the moral case and the
business case for ethical business conduct and socially „ Social Responsibility and Corporate Citizenship
responsible business behavior. Strategies
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Are Ethical Standards Universal or

What Is Business Ethics? Dependent on Local Norms?
„ Business ethics involves applying general Three schools of thought regarding extent
ethical principles and standards to behavior to which ethical standards can be applied . . .
in business situations

„ Ethical principles in business are not Ethical Universalism

different from ethical principles in general

„ Business actions are judged Ethical Relativism

™ By general ethical standards of society

Integrative Social Contracts Theory
™ Not by a set of rules businesspeople
apply to their own conduct
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EMBA690: Strategic Management Chapter 9

Examples of Universal
Concept of Ethical Universalism
Ethical Principles or Norms
„ According to the school of ethical „ Honesty
universalism . . .
„ Trustworthiness
™ Same standards of what is ethical and
what is unethical resonate with peoples „ Respecting rights of others
of most societies regardless of
„ Practicing the Golden Rule
Local traditions and
™Treating people with dignity and respect
Cultural norms
™ Thus, common ethical standards can be used to „ Exercising due diligence in product safety
judge conduct of personnel at companies
„ Acting in a manner that does not
operating in a variety of
Country markets and ™Harm others or

Cultural circumstances ™Pillages the environment

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Concept of Ethical Relativism Payment of Bribes and Kickbacks

„ According to the school of ethical „ In some countries the payment of

relativism . . . bribes and kickbacks is normal and
™Different societies/cultures/countries customary; in other countries such
payments are illegal
Put more/less emphasis on some values than
others „ Companies
p forbiddinggppayment
y of bribes in
Have different standards of right and wrong their codes of ethics face a formidable
Have different social mores challenge in countries where such payments
and behavioral norms are entrenched as a local custom
™What is ethical or unethical „ Foreign Corrupt Practices Act prohibits U.S.
Must be judged in light of local companies from paying bribes in all
customs and social mores and countries where they do business even if
Can vary from one country to another such payments are customary
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Concept of Integrative
Drawbacks of Ethical Relativism
Social Contracts Theory
„ The ethical relativism rule of “when in Rome, „ According to the integrative social
do as the Romans do” presents problems contracts theory, the ethical standards a
™ Cannot assume that local ethical standards are company should try to uphold are governed
an adequate guide to ethical behavior
 What if local standards condone by both
kickbacks and bribery? ™ A limited number of universal ethical principles
 What if local standards don’t
don t require th t are widely
that id l recognized
i d as putting
tti llegitimate
iti t
safe working conditions? ethical boundaries on actions and behavior in
 What if local custom is to permit all situations
companies to engage in egregious
pollution of the environment? and
™ From a global markets perspective, ethical ™ The circumstances of local cultures,
relativism results in a maze of conflicting ethical traditions, and shared values that further
standards for multinational companies wanting prescribe what constitutes
to address the issue of what ethical standards to Ethically permissible behavior and
enforce companywide
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What does not 9-12 | 31

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EMBA690: Strategic Management Chapter 9

Appeal of Integrative
Three Categories of Management Morality
Social Contracts Theory
„ Universal ethical principles establish “moral free
space” based on the collective view of multiple
societies and cultures The three Managers that
„ Commonly held views about morality and ethical
principles combine to form a “social contract” with types of are moral
society managers
„ It
I is
i appropriate
i ffor societies
i i or companies i to go
beyond universal ethical principles and specify local as Managers that
or second-order ethical norms concerns are immoral
™ Where firms have developed ethical codes, the
standards they call for provide appropriate ethical ethical and
guidance moral
Social contracts theory maintains adherence to
Managers that
universal or first-order ethical norms should always
principles are amoral
take precedence over local or second-order norms!
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Characteristics of a Moral Manager Characteristics of an Immoral Manager

„ Dedicated to high standards of ethical „ Actively opposes ethical behavior in business

behavior in „ Willfully ignores ethical principles in making
™ Own actions decisions
™ How the company’s business is to be conducted „ Views legal standards as barriers to overcome
„ Considers it important to „ Pursues own self
self-interests
interests
™ Be a steward of ethical behavior „ Is an example of self-serving greed
™ Demonstrate ethical leadership „ Ignores interests of others
„ Pursues business success „ Focuses only on bottom line –
™ Within confines of both letter and spirit of laws making one’s numbers
™ With a habit of operating well above what laws „ Will trample on others to avoid being trampled
require upon
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Characteristics of an Characteristics of an
Intentionally Amoral Manager Unintentionally Amoral Manager
„ Believes business and ethics should not be „ Is blind to or casual about ethics of
mixed since different rules apply to decision-making and business actions
™ Business activities
„ Displays lack of concern regarding
™ Other realms of life
whether ethics applies to company actions
„ Believes if a business-related action is legal
th it iis OK
then OK; ethical
thi l considerations
id ti iin b
business
i „ Sees self as well
well-intentioned
intentioned
activity don’t matter and lie outside sphere of or personally ethical
moral judgment „ Typical beliefs
„ Views ethical considerations as inappropriate
™ Do what is necessary to comply with laws and
for tough, competitive business world regulations
„ Concept of right and wrong is
™ Government provides legal framework stating
lawyer-driven (what can we get by what society will put up with—if it is not illegal, it
with without running afoul of the law) is allowed
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EMBA690: Strategic Management Chapter 9

What Are the Drivers of Unethical

Why Ethical Strategies Matter
Strategies and Business Behavior?
„ An unethical strategy
Large numbers of immoral
and amoral business people ™ Is morally wrong

Overzealous pursuit of personal gain, ™ Reflects badly on the character of company

wealth,
lth and
d other
th selfish
lfi h interests
i t t personnel

Heavy pressures on company managers „ An ethical strategy is

to meet or beat earnings targets
™ Good business
Company cultures that place profits and
good performance ahead of ethical behavior ™ In the best interest of shareholders
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Approaches to Managing a
Company’s Ethical Conduct Characteristics of Unconcerned Approach

„ Prevalent at companies whose executives

Unconcerned or Nonissue Approach are immoral and unintentionally amoral
„ Notions of right and wrong in business
matters are defined by government via
Damage
g Control Approach
pp prevailingg laws and regulations
g —
after that, anything goes
„ If the law permits “unethical behavior,”
Compliance Approach why stand on ethical principles
„ Companies are usually out to make
greatest possible profit at most any cost
Ethical Culture Approach „ Strategies used, while legal, may embrace
elements that are ethically shady
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Characteristics of Pursuing a Compliance Approach:

Compliance Approach Typical Actions
„ From light to forceful compliance is favored „ Make code of ethics a visible and regular part of
at companies whose managers communications with employees
™ Lean toward being somewhat amoral but are highly
concerned about having ethically upstanding reputations „ Implement ethics training programs
or
„ Appoint a chief ethics officer
™ Are moral and see strong compliance methods as best
ay to
way o impose
pose a
and
deenforce
o ce high
g eethical
ca sstandards
a da ds „ Have ethics committees to
„ Ethics code violators are disciplined, sending a give guidance on ethics matters
clear signal that complying with ethical standards
must be taken seriously „ Institute formal procedures for
investigating alleged ethics violations
„ Commitment to eradicate unethical
behavior stems from a desire to „ Conduct ethics audits to measure and document
™ Avoid cost and damage associated compliance
with unethical conduct or
™ Gain favor from stakeholders from having a „ Install ethics hotlines to help detect and deter
highly regarded reputation for ethical behavior violations
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Characteristics of What Is Corporate Social Responsibility?

Ethical Culture Approach
„ Top executives believe high ethical principles must „ The thesis underlying the concept of corporate
™ Be deeply ingrained in the corporate culture social responsibility is that a company has a
™ Function as guides for “how we do things around here” duty to
„ Company seeks to gain employee buy-in to ™ Be a good corporate citizen
™ Company’s ethical standards ™ Make a positive contribution to society, and
™ Business principles ™ Actively work to improve the well-being
well being of all
™ Corporate values stakeholders
„ Ethical principles in company’s code  Employees
of ethics are integral to company’s  Local communities
™ Identity and self-image  Environment
™ Day-to-day operations
 Customers and suppliers
 Society at large
„ Strategy must be ethical
„ Employees must display ethical behaviors in
executing the strategy
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What Is a Social Responsibility Strategy?

What Is an Environmental
Sustainability Strategy?

A company’s social responsibility A company’s environmental sustainability

strategy consists of its actions to strategy consists of its actions to
improve the well-being of all its ™ Protect the environment,
stakeholder
t k h ld and d to
t be
b a good d ™ Provide for the longevity
corporate citizen its contributions of of natural resources,
™ Time ™ Maintain ecological support
systems for future generations, and
™ Money
™ Guard against ultimate endangerment
™ Other resources of the planet.
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Moral Case: Corporate Social Responsibility and Considerations in Crafting Social

Environmentally Sustainable Business Practices
„ Businesses should promote the betterment of
society, acting in ways to benefit all their
stakeholders because
™ “It’s the right thing to do!”
„ Based on an implied social contract, society
™ Grants a business the right to
conduct its business affairs
™ Agrees not to unreasonably restrain
a firm’s pursuit of a fair profit
„ In return for a “license to operate,”
a business should
™ Act as a responsible citizen
™ Do its fair share to promote the general welfare
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Responsibility and Sustainability Strategies
„ Match social responsibility/sustainability
strategy to
™ Core values
™ Business mission
™ Overall strategy
„ Make social responsibility and/or
environmentally sustainability a part
of the company’s mission and culture
„ Have explicit social responsibility and/or
environmentally sustainability objectives
„ Strive to craft socially responsible and
sustainability strategies that will help the
company achieve a competitive advantage
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