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Strategic Management Chap010

Strategic Management Chap010


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Strategy, Chapter Title Ethics, and Social Responsibility
16/e PPT

Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright © 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
Milton Friedman, Nobel Prize-winning economist



Chapter Roadmap
 

What Do We Mean by Business Ethics? Where Do Ethical Standards Come From – Are They Universal or Dependent on Local Norms and Situational Circumstances? The Three Categories of Management Morality Do Company Strategies Need to be Ethical? Why Should Company Strategies Be Ethical? Linking a Company’s Strategy to its Ethical Principles and Core Values Strategy and Social Responsibility

    

Linking Strategy to Ethics and Social Responsibility Key Issues
 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?

What Is Business Ethics?
 Business

ethics involves applying general ethical principles and standards to business behavior principles in business are not different from ethical principles in general actions are judged

 Ethical

 Business
 

By general ethical standards of society Not by a set of rules businesspeople apply to their own conduct

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

Concept of Ethical Universalism
 According

to the school of ethical universalism . . .

Same standards of what is ethical and what is unethical resonate with peoples of most societies regardless of
 

Local traditions and Cultural norms

Thus, common ethical standards can be used to judge conduct of personnel at companies operating in a variety of
 

Country markets and Cultural circumstances

Examples of Universal Ethical Principles or Norms
 Honesty  Trustworthiness  Treating

people with dignity and respect rights of others the Golden Rule

 Respecting  Practicing  Avoiding
 

unnecessary harm to

Workers Users of a company’s product or service

 Respecting

the environment

What Is the Appeal of Ethical Universalism?
 Draws

on collective views of multiple societies and cultures to place clear boundaries on what constitutes
Ethical business behavior and  Unethical business behavior Regardless of what country a company is operating in

Whenever basic moral standards do not vary significantly according to local cultural beliefs, traditions, or religious convictions, a multinational company can

Apply a code of ethics more or less evenly across its worldwide operations

Concept of Ethical Relativism
 According

to the school of ethical relativism . . .

Different societies/cultures/countries
  

Put more/less emphasis on some values than others Have different standards of right and wrong Have different social mores and behavioral norms

What is ethical or unethical

Must be judged in light of local customs and social mores and Can vary from one country to another

Payment of Bribes and Kickbacks

thorny ethical problem is faced by multinational companies
 Degree

of cross-country variability in paying bribes as part of business transactions

 Companies

forbidding payment of bribes in their codes of ethics face a formidable challenge in countries where payments are entrenched as a local custom Corrupt Practices Act prohibits U.S. companies from paying bribes in all countries where they do business

 Foreign

Test Your Knowledge
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.

Ethical Relativism = Multiple Sets of Ethical Standards
 Proponents

of the ethical relativism school maintain

there are
 

Few ethical absolutes to judge a company’s conduct in various countries Plenty of situations where ethical norms are contoured to fit
  

Local customs and traditions Local beliefs about what is fair Local standards of “right” and “wrong”

 Ethical

problems in business cannot be fully resolved without appealing to the shared convictions of the parties in question

Drawbacks of Ethical Relativism
 The
 

ethical relativism rule of “when in Rome, do as the Romans do” presents problems
When the envelope is pushed, it is tantamount to rudderless ethical standards It is ethically dangerous for company personnel to assume that local ethical standards are an adequate guide to ethical behavior
 

What if local standards condone kickbacks and bribery? What if local standards blink at environmental degradation?

From a global markets perspective, ethical relativism results in a maze of conflicting ethical standards for multinational companies wanting to address the issue of what ethical standards to enforce companywide

Concept of Integrative Social Contracts Theory
 According

to the integrative social contracts theory, the ethical standards a company should try to uphold are governed by both

A limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations and The circumstances of local cultures, traditions, and shared values that further prescribe what constitutes
 

Ethically permissible behavior and What does not

Appeal of Integrative Social Contracts Theory

 

Universal ethical principles establish “moral free space” based on the collective view of multiple societies and cultures Commonly held views about morality and ethical principles combine to form a “social contract” with society It is appropriate for societies or companies to go beyond universal ethical principles and specify local or second-order ethical norms

Where firms have developed ethical codes, the standards they call for provide appropriate ethical guidance Social contracts theory maintains adherence to universal or first-order ethical norms should always take precedence over local or second-order norms!

Three Categories of Management Morality

Moral manager Managerial ethical and moral principles Immoral manager Amoral manager

Characteristics of a Moral Manager
 Dedicated
 

to high standards of ethical behavior in

Own actions How the company’s business is to be conducted

 Considers
 

it important to

Be a steward of ethical behavior Demonstrate ethical leadership

 Pursues
 

business success

Within confines of both letter and spirit of laws With a habit of operating well above what laws require

Characteristics of an Immoral Manager
 Actively  Willfully  Views  Is

opposes ethical behavior in business

ignores ethical principles in making decisions legal standards as barriers to overcome own self-interests

 Pursues  Ignores

an example of capitalistic greed interests of others

 Focuses  Will

only on bottom line – making one’s numbers trample on others to avoid being trampled upon

Characteristics of an Intentionally Amoral Manager
 Believes
 

business and ethics should not be mixed since different rules apply to
Business activities Other realms of life

 Does

not factor ethical considerations into own actions since business activity lies outside sphere of moral judgment  Views ethics as inappropriate for tough, competitive business world  Concept of right and wrong is lawyer-driven (what can we get by with without running afoul of the law)

Characteristics of an Unintentionally Amoral Manager
 Is

blind to or casual about ethics of decision-making and business actions lack of concern regarding whether ethics applies to company actions self as well-intentioned or personally ethical beliefs

 Displays  Sees

 Typical

Do what is necessary to comply with laws and regulations Government provides legal framework stating what society will put up with—if it is not illegal, it is allowed

Evidence of Managerial Immorality in the Global Business Community
 Evidence

exists a sizable majority of managers are

 

Amoral or Immoral

 Results

of the 2005 Global Corruption Report indicate corruption is widespread across the world extends beyond bribes and kickbacks

 Corruption




Do Company Strategies Need to Be Ethical?
 Approaches
 

of most company managers

Ensure a company’s strategy is legal May or may not ensure all elements of strategies are ethical

 Approach

of senior executives with strong ethical convictions
Insist all aspects of strategy fall within ethical boundaries

 Approach
  

of immoral or amoral senior executives
Use shady strategies if they think they can get by with it Use unethical or borderline business practices Hide ethically questionable actions

What Are the Drivers of Unethical Strategies and Business Behavior?
Large numbers of immoral and amoral business people Overzealous pursuit of personal gain, wealth, and other selfish interests Heavy pressures on company managers to meet or beat earnings targets Company cultures that place profits and good performance ahead of ethical behavior

Overzealous Pursuit of Personal Gain, Wealth, and Selfish Interests
 People

obsessed with wealth accumulation, greed, power, and status often
 

Push ethical principles aside in their quest for self gain Exhibit few qualms in doing whatever is necessary to achieve their goals Look out for their own best interests Have few scruples and ignore welfare of others Engage in all kinds of unethical strategic maneuvers and behaviors

  

Heavy Pressures on Company Managers to Meet or Beat Earnings Targets
 

Managers often feel enormous pressure to do whatever it takes to deliver good financial performance Actions often taken by managers
   

Cut costs wherever savings show up immediately Squeeze extra sales out of early deliveries Engage in short-term maneuvers to make the numbers Stretch rules to extreme, until limits of ethical conduct are overlooked

Executives feel pressure to hit performance targets since their compensation depends heavily on company performance Fundamental problem with a “make the numbers” syndrome

Company does not serve its customers or shareholders well by placing top priority on the bottom line

Company Culture Places Profits and Good Performance Ahead of Ethical Behavior
 In

an ethically corrupt or amoral work climate, people have a company-approved license to
  

Ignore “what’s right” and stretch rules Engage in most any behavior or employ most any strategy they think they can get away with Play down relevance of ethical strategic actions and business conduct

 Pressures
 

to conform to cultural norms can prompt otherwise honorable people to
Make ethical mistakes Succumb to the many opportunities to engage in unethical practices and shady behavior

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


Characteristics of Unconcerned Approach
 Prevalent

at companies whose executives are immoral and unintentionally amoral  Notions of right and wrong in business matters are defined by government via prevailing laws and regulations — after that, anything goes  If the law permits “unethical behavior,” why stand on ethical principles  Companies are usually out to make greatest possible profit at most any cost  Strategies used, while legal, may embrace elements that are ethically shady

Characteristics of Damage Control Approach
 Favored

at companies whose managers are intentionally amoral but who fear scandal  May adopt a code of ethics as window-dressing  Adept at using “spin” to “explain away” the use of unethical strategy elements or discount the impact of shady actions  Executives look the other way when shady behavior occurs  Executives may condone questionable actions that help a company reach earnings targets or bolster its market standing

Characteristics of Compliance Approach
 From

light to forceful compliance is favored at companies whose managers
Lean toward being somewhat amoral but are highly concerned about having ethically upstanding reputations or  Are moral and see strong compliance methods as best way to impose and enforce high ethical standards

 Emphasis

is on securing broad compliance and measuring degree to which ethical standards are upheld  Commitment to eradicate unethical behavior stems from a desire to
Avoid cost and damage associated with unethical conduct or  Gain favor from stakeholders from having a highly regarded reputation for ethical behavior


Pursuing a Compliance Approach: Typical Actions
 Make

code of ethics a visible and regular part of communications with employees ethics training programs a chief ethics officer

 Implement  Appoint  Have

ethics committees to give guidance on ethics matters

 Institute

formal procedures for investigating alleged ethics violations ethics audits to measure and document compliance ethics awards to employees for outstanding efforts to create an ethical climate ethics hotlines to help detect and deter violations

 Conduct  Give

 Install

Potential Weakness of Compliance Approach
 Moral

control resides in a company’s code of ethics and in the ethics compliance system rather than in

Strong peer pressures for ethical behavior that come from ingraining a highly ethical corporate culture and An individual’s own moral responsibility for ethical behavior

Characteristics of Ethical Culture Approach
 Top

executives believe high ethical principles must seeks to gain employee buy-in to

Be deeply ingrained in the corporate culture  Function as guides for “how we do things around here”
 Company

Company’s ethical standards  Business principles  Corporate values
 Ethical

principles in company’s code of ethics are

Integral to day-to-day operations  Promoted as “business as usual”
 Strategy

must be ethical  Employees must display ethical behaviors in executing the strategy

Why Should Company Strategies Be Ethical?
 An

unethical strategy
Is morally wrong Reflects badly on the character of company personnel

 An

ethical strategy is
Good business In the best interest of shareholders

Test Your Knowledge
Which one of the following is false when it comes to making a case for why a company’s strategy should be ethical?
A. An unethical strategy can put a company’s reputation at risk and do lasting damage, especially when the misdeeds get into the public spotlight and make media headlines. B. An ethical strategy is in the best interest of shareholders. C. An unethical strategy reflects badly on the character of the company personnel involved. D. Shareholders profits are not greatly reduced by using ethical strategies. E. A strategy that is unethical in whole or in part is morally wrong.

Characteristics of Managers Committed to Ethical Approaches to Strategy-Making
 Possess

strong moral and ethical characteristics  Strongly advocate a corporate code of ethics and strict ethics compliance  Display genuine commitment to certain corporate values and business practices  Walk the talk in
 

Displaying a company’s stated values Living up to ethical business principles and standards

 Adopt

values statements/ethics codes that truly paint the white lines for a company’s business practices  Consciously opt for strategic actions passing moral scrutiny

Fig. 10.1: The Business Costs of Ethical Failures


Linking Strategy to Ethics and Values
 If

ethical standards are to have more than a cosmetic role, boards of directors and top executives must work diligently to see they are scrupulously observed in
 

Crafting a company’s strategy and Conducting every facet of a company’s business

 Two

sets of questions must be considered by senior executives when reviewing a new strategic initiative
Is what we are proposing to do fully compliant with our code of ethical conduct? Is there anything here that could be considered ethically objectionable? Is it apparent this proposed action is in harmony with our core values? Are any conflicts or concerns evident?

For Discussion: Your Opinion
Is it unethical for a high school or college coach to accept a “talent fee” or similar type of payment from a maker of sports apparel or sports equipment when the coach has authority to determine which brand of apparel or equipment to use for his/her team and subsequently chooses the brand of the company making the payment? Is it unethical for the maker of the sports apparel or equipment to make such payments in expectation that the coach will reciprocate by selecting the company’s brand? (Would you answer be different if “everybody” is doing it?)

For Discussion: Your Opinion
Is it unethical for a credit card company to aggressively try to sign up new accounts when, after an introductory period of interest-free or low-interest charges on unpaid monthly balances, the interest rate on unpaid balances jumps to 1.5 percent or more monthly (even though such high rates of 18 percent or more annually are disclosed in fine print)?


What Is Corporate Social Responsibility?
 The

notion that corporate executives should balance interests of all stakeholders began to blossom in the 1960s responsibility as it applies to businesses concerns a company’s duty to
   

 Social

Operate in an honorable manner Provide good working conditions for employees Be a good steward of the environment Actively work to better quality of life in
 

Local communities where it operates and Society at large

What Is Socially Responsible Business Behavior?

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

Fig. 10.2: Categories of Socially Responsible Business Behavior


Linking Strategy and Social Responsibility
 The

combination of socially responsible endeavors a company elects to pursue defines its social responsibility strategy  Management should match a company’s social responsibility strategy to its
Core values  Business mission  Overall strategy

 Some

companies are integrating social responsibility objectives into their
Missions  Performance targets  Strategies

The Moral Case for Corporate Social Responsibility
 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 business’ 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


Reasons to Behave in a Socially Responsible Manner
 Generates
   

internal benefits

Enhances recruitment of quality employees Increases retention of employees Improves employee productivity Lowers costs of recruitment and trainings

 Reduces

risk of reputation-damaging incidents, leading to increased buyer patronage  Works in best interest of shareholders
  

Minimizes costly legal and regulatory actions Provides for increased investments by socially conscious mutual funds and pension benefit managers Focusing on environment issues may enhance earnings

Test Your Knowledge
Which one of the following is false as concerns the merits of why acting in a socially responsible manner is “good business”?
A. To the extent that a company’s socially responsible behavior wins applause from consumers and fortifies its reputation, a company may win additional patronage. B. Acting in a socially responsible manner reduces the risk of reputation-damaging incidents. C. Acting in a socially responsible manner is in the overall best interest of shareholders. D. Acting in a socially responsible manner is unlikely to have any effect (positive or negative) on a company’s profitability. E. Acting in a socially responsible manner can generate internal benefits (as concerns employee recruiting, workforce retention, training, and improved worker productivity).

But Do We Really Want “Do-Good” Executives — Is There a Downside?
 Four

different views exist regarding use of company resources by “do-good” executives in pursuit of a better world
1. 2.

Any money authorized for social responsibility initiatives is theft from a company’s shareholders Caution should be exercised in pursuing various societal obligations since this
Diverts valuable resources  Weakens a company’s competitiveness



Social responsibilities are best satisfied through conventional business activities (doing what businesses are supposed to do, which does not include social engineering) Spending money for social causes
Muddies decision making by diluting focus on a firm’s business mission  Thrusts executives into role of social engineers


How Much Attention to Social Responsibility Is Enough?

What is the appropriate balance between
 

Creating value for shareholders? Obligation to contribute to the larger social good? Addressing social concerns? Bettering the well-being of society and the environment? Allocate a specified percentage of profits Avoid committing a specified percentage of profits

What fraction of a firm’s resources ought to be aimed at
 

Approaches to fund a social responsibility strategy can
 

No widely accepted standard for judging if a company has fulfilled its citizenship responsibilities exists!

Linking Social Performance Targets to Executive Compensation

surefire way to enlist a genuine commitment to corporate social responsibility initiatives is to

Link achievement of social performance targets to executive compensation

 Key

role of board of directors

Incorporate measures of a company’s social and environmental performance into its evaluation of top executives

 Key

role of top executives

Use compensation incentives to enlist support of downthe-line company personnel to craft and execute a social responsibility strategy

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