10-07-2021

Strategic Management - II
SESSION 4

Ethics in Business
 How do you rate Apple’s Strategy to manufacture in China?
 Good or Bad?
 Saves costs?
 Improves the bottom line?

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Apple’s Chinese partners

Workers at the factory reportedly work for six days a week, more than
10 hours every day, and do so without having received proper training
or adequate equipment.

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Some facts about Catcher, Apple’s

supply Partner
 Some employees were not given earplugs "until well
into their first month"
 Workers get low-quality, active carbon face masks (one
per day) to protect against dust, fumes, and small-
particle chemicals
 Supervisors hand out more up-to-standard 3M-branded
masks "only when they expect an inspection”
 Wastewater bubbles up from underground fewer pipes
onto the sidewalk
 One new worker said - "My hands turned bloodless
white after a day of work“
 Some stories of suicide as well

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Business Ethics
 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.

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Where do Ethics come from?

Sources for Ethical Standards

Integrated
The school of ethical The school of ethical
social contracts
universalism relativism
theory

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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
• Conceptions of right and wrong are universal and apply
to members of all societies, all companies, and all
businesspeople.

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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.
• In China, human rights considerations play a small role in determining what
is right or wrong
• In Japan, showing respect for the collective good of society is more
important
• In Muslim countries, compliance to Sharia Law is deemed more important
• In many countries like Uzbekistan, Myanmar, Somalia, Zimbabwe,
Afghanistan, Sudan, North Korea, Yemen, and more than 50 other
countries, children are seen as potential, even necessary, workers
• If such children are not permitted to work—they may be forced to go out
on the streets begging or to seek work in parts of the “underground”
economy such as drug trafficking

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The School of Ethical Relativism

 These differing standards mean that whether business-related actions
are right or wrong depends on the prevailing local ethical standards.
 There can be no one-size-fits-all set of authentic ethical norms against
which to gauge the conduct of company personnel.
 “When in Rome, do as the Romans do”

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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

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Application of Integrated Social

Contracts Theory
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.
• For example Bribes and Kickbacks may be deemed unethical in any
setting but child labor depends on local standards

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Drivers of Unethical Behavior

Faulty oversight and
self dealing

Unethical
Pressure for short-term Strategies and
performance Business
Behaviors
A weak or corrupt
ethical environment

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Drivers of Unethical 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.

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Why should companies strategies be

ethical?
The Case of Uber
 Uber’s lack of attention to ethics has resulted in numerous scandals –
• A tarnished reputation
• A loss of market share to rival companies, and
• The ouster of its co-founder Travis Kalanick from his position as the
company’s CEO.

 Some unethical practices at Uber

• Sexual harassment and a toxic workplace culture
• Inflated prices during crises
• Data breaches and violations of user privacy
• Inadequate attention to consumer safety
• Unfair competitive practices

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Why should companies strategies be

ethical?
 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.
 Visible costs
• 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

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Why should companies strategies be

ethical?
 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

 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
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Social Responsibility and

Environmental
Sustainability

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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.

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Five components of CSR Strategy

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CSR in India
 The amended Companies Act, 2013 requires companies with a net
worth of INR 5 billion (US$70 million) or more, or an annual turnover of
INR 10 billion (US$140 million) or more, or net profit of INR 50 million
(US$699,125) or more, to spend 2 percent of their average net profits
of three years on CSR
 The CSR amendments introduced under the Act now require
companies to deposit the unspent CSR funds into a fund prescribed
under Schedule VII of the Act within the end of the fiscal year.
 The new law prescribes for a monetary penalty as well as
imprisonment in case of non-compliance. The penalty ranges from INR
50,000 (US$700) to INR 2.5 million (US$35,000) whereas the defaulting
officer of the company may be liable to imprisonment for up to three
years, or a fine up to INR 500,000 (US $7,023), or both

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CSR in India
 Many companies have gone for easiest solutions for their
required spend — investing in the government’s priorities
such as
• building toilets as part of “Clean India Mission” (Swatch Bharat
Abhiyan)
• “adopting” local villages or
• pumping money into the Prime Ministers National Relief Fund

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CSR reporting as a source of

legitimacy
 Symbolic impression management efforts
 Conveys firms’ attitudes on relevant societal issues and willingness
to align practices with global stakeholder norms and expectations
 CSR has positive consequences for firms –
• lesser government and community scrutiny
• greater levels of societal trust,
• and better network connections, social capital with non-market
stakeholders

 CSR reporting can compensate for the poor home-country image,

assuring foreign market stakeholders of the firm’s commitment to
product quality and safety, environmental and social stewardship, and
anti-corruption behaviors
 CSR ranking can also be a USP for the firm
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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

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Some examples
 P&G Launched a Breakthrough Recyclable Shampoo Bottle for H&S
 25% recyclable plastics used
 Tied up with major retailers to get empty bottles back to recycle

 Unilver modified the shape of its famous shampoo brand “Suave”

 New design led to increased manufacturing capacity
 Better customer satisfaction with the hour glass design (3% sales
growth)
 Savings in approx. 150 tonnes of plastic annually

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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

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The Business Case for CSR and

Sustainable Environmental 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

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The Triple Bottom Line

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Thank You………..

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