Ethics and Corporate Social Responsibility

29th September, edgar.bellow@yschools.eu

Ethics are universal, moral standards, touched certain social and religious beliefs
Ethics and Businesses: Ethics to regulate Companies not to affect humanity badly
Why the 2008 crisis occured? Reasons, Failures,… Layoff - different regulations, employment help
1-3 months maximum employment help in the US, Income issues, Subprime Crisis

Business Definition
Morality - rules of human behaviour and specifies that certain actions
Business - important part of contemporary society and it involves all of us

Business and Society

Collective of private/commercial oriented organizations ranging in size from one person
proprietorships
Society: group of people
Macroenvironment of YSchools: total environment outside the firm
Society: macroenvironment in which businesses operate

Social, Economic, Political, Technological - 4 Dimensions of Macroenvironment

Social: demographic, lifestyle
Economic: Nature and direction of the economy
Political: Passing of laws and election of officials
Technological: changes in technological advancements taking place in society

Pluralistic society - prevents power from being concentrated in the hands of a few, open society
Freedom of expression - democracy
Creates a widely diversified set of loyalties to many organizations

Stakeholders: Owner, Community, Government, Employee, Consumer

Special Interest Group - Lobby
Make life more complex for business and government, can number in the tens of thousands in some
societies
Pursue their own focused agendas, attract a significant following

Social Environment, Business Criticism and Corporate Response

Affluence, Education, Awareness, Rising Expectations, Rights Movement,
Revolution of Rising expectations: creates a social problem, gap between social expectations
Influenced a lot by television shows
Social Problem is the difference between Societys Expectations of Business Performance and
Business Actual Social Performance
Business Power & Iron Law of Responsibility

Elements in the social contract

Business: Laws or Regulations "Rules of the Game", Two-Way shared understandings of each other
Society or Societal Stakeholder Groups
Focus on business today - Ethics, Sustainability, Stakeholder Management
Business ethics: ethics in business, movement, part of the general field of ethics
Myth of amoral business: Expresses the ambivalence of many toward business and a popular,
widespread view of "American" Business.

Breakdown of the myth of amoral business

Reporting of scandals, concomitant public, popular groups such as environmentalists/consumerists
What is considered business varies from society to society
Defining business per se and its proper concern is a social question that must be answered in a social
context
Limits/demands imposed on business by society are frequently normal ones

Moral background of business, mortality consists of rules of human behaviour and specifies that
certain actions
Are wrong or immoral

Because most businesses value their reputations

Social mandate to business is not only given in law
Today the mandate to business is more complex
Consider the impact of their decisions and actions on the environment, the public and common good

Ethics studies Morality - term used to cover those practices and activities that are considered
importantly right and wrong
Ethics - systematic attempt to make sense of our individual and social moral experience, in such a
way as to determine the rules
Descriptive ethics - related to anthropology, sociology, psychology, all the aspects are used to
describe
Normative ethics - provides and attempts to supply and justify moral system
Metaethics - analytical aspect of ethics,

Special ethics - Casuistry - art of solving difficult moral problems, cases, or dilemmas through careful
application of moral principles
Ethics to specialized fields yields business ethics, medical ethics, engineering ethics, professional
ethics
Business includes any transaction. Business ethics as a field defined by the interaction of
ethics/business

5 activities of business ethics: general ethics principles, metaethical, presuppositions of businesses,

Other areas of philosophy and into other domains of knowledge, such as economics and organization
theory.
Describing morally praiseworthy and exemplary actions, of either individuals in business

Conventional Morality / Ethical relativism

Subjective/objective morality, moral judgements (universally applicable, right or wrong for one
person)

Respect and Law

Law in every culture is universal value - moral judgements and praise
Normative ethical relativism - claims that when any two people or cultures hold different moral views

Moral absolutism - eternal moral values/principles, always applicable in all situations

Alternative to ethical relativism

Moral pluralism
Radical Moral pluralism = people hold mutually irreconcilable views about morality, including what is
"right" / "Wrong"
Pluralism of moral
Principles = diversity of moral principles, but not irreconcilable
Moral practices = basic agreement on moral principles, but diversity of opinion regarding specific
actions
Pluralism = members of society must adhere to basic moral norms, but are free to pursue differing
values/lifestyles
Difficult to equate what is "legal" with what is "ethical", laws prohibit immoral or unethical
behaviours
Religion is an important guide for many individuals in their business lives, but religion cannot provide
a universal moral code for business

ETHICAL THEORY
Two basic approaches to moral reasoning have prevailed over time
Teleological approach argues on the basis of ends. A particular action is right/wrong based upon the
consequences of the action
Deontological approach argues that actions are morally right or wrong independent of consequences

UTILITY AND UTILITARISM

Ethical theory that an action is right if it produces, or if it tends to produce the best results for a great
number of people affected by the action. Otherwise the action is wrong.

Utility curves to plot the results of various actions, choosing those that maximize whatever it is that
they wish to achieve
Act/Rule Utilitarianism - each individual action, in all its concreteness and in all its details

Applying utilitarianism
Accurately state the action to be evaluated, identify all those who are directly and indirectly affected
by the action, carry out a similar analysis, if necessary, for those indirectly affected, as well as for
society as a whole

Bribery - Definition is difficult in various cultures,

AirPlane Manufacturer Case Study
05/10/2023 LESSON
Introduction to CSR
Definition of Corporate Social Responsibility (CSR) -
critical (for-profit sector is largest and most innovative part of any free society's economy)
and controversial (CSR seen as distraction from the economic purpose of a business)
Business-Society - people create organizations to leverage their collective resources and they interact
with others inside large context

Controversial - is there obligation to do actions beyond economical profit

Two opposing views
Business view - milton friedmann explanation - "only social responsibility is to increase its profits"
Firm does not need to have any additional justification for existing, social value is maximized …
(paying more taxes)
Friedmann: CSR is against capitalism, waste of firms resources, which legally belong to the firm's
owners, social matters are not the concerns of business people, these problems should be resolved
by other social actors.
Social actors: Governments, NGO's

Societal view: No one group of stakeholder has a priority over other groups, and that corporations
must balance the interests of all stakeholders
Difference between Stock holders and share holders.

Firms stakeholders: include those who affect or are affected by the stakeholders
CSR includes all stakeholder and constituent groups that maintain an ongoing interest in the
organizations business

CSR = company's relationship with stakeholders, success of a firm is directly related to its ability
To incorporate stakeholder/constitute, conflicting/competing stakeholder interests

Moral argument for CSR = relationship/interdependence between a company & wider society within
which it operates
"For profit" entities do not exist in a vacuum: they need to be congruent with societal values

Rational arguments for CSR - anticipating and reflecting societal concerns to minimize operational
and financial limitations on business
Iron Law of Social Responsibility: Abuse power will lead to societal sanctions, such as laws, fines,
prohibitions, boycotts, social activism

ECONOMIC Argument for CSR

Self interest for business
CSR provides point of differentiation, competitive market advantage, relfection of the needs
Company is more likely to retain its societaly legitimacy and maximize its financial viability, over the
long term

Case study - ethical perspective to competing stakeholder interests

Howard Schultz responds to Anti-Gay-Marriage Starbucks Shareholder
CSR - reponsbility among firms to pursue goals in addition to profit maximization and a responsibility
among a firm's stakeholders t ohold the firm accountable for its actions.

Social responsibility of business: economic, legal, ethical and discretionary expectations that society
has of organizations at a given point in time.
CSR Pyramid

Discretionary resp.
Ethical: to do no harm to ist stakeholders/environment
Legal: act within legal framework
Economic: produce acceptable returns on investments

Relationships/Responsibilities
Affect future success of the business:
1. Good leadership
2. Developing key relationships
3. Pro-active engagement in emerging issues
4. The establishmend of understanding and trust

CSR is dynamic and fluid concept

Integral element of ethics
Both a means and an end - How a firm operates to gain societal legitimacy, How well a firm has been
able to navigate stakeholder concerns while implementing ist business model

PRINCIPLES OF CSR
Three main principles upon which CSR is based

Prominence of CSR - because of following issues:

-poor business behaviour towards customers
-treating employees unfairly
-ignoring the environment and the consequences of organizational action

Issue of climate change, it affected concern about CSR through a concern with the emission of
greenhouse gases and carbon dioxide
Common for people to know and discuss the size of their carbon footprint whereas even few years
ago people in general did not even know what a carbon footprint was.

Supply chain of a business, people are concerned with the exploitation of people in developing
countries, question of child labour but also such things as sweat shops

Company can't say anymore that the conditions under which their suppliers operate is outside of
their control
Exploitation of developing countries

CHANGING EMPHASIS IN COMPANIES

Artful reporting - pretence of socially responsible behaviour through artful reporting
CSR much more seriously not just because they understand that it is a key to business success
Give them strategic advantage, people in those organizations care about social responsibility
Growing importance of CSR, individual are not just customers, employees, managers, owners…
Accountability - central principles of CSR, much more recognized and is being responded to by
increasing transparency, another of the principles of CSR

Sustainability
Ubiquitous for business and society
Sustainability has taken over from CSR itself as a target for greenwashing
Relationship between organizations and society, best companies make a positive impact upon their
environment.

SUSTAINABILITY
CSR is good for business as well as its stakeholder

RECOGNIZING CSR
Knowing what CSR is and how to behave responsibly, everyone claims to be able to recognize socially
reponsible
General agreement CSR - company's concern for such things as community involvement, socially
responsible product and processes,
Concern for the environment and socially reposnsible employee relations
Ownership - property rights: to own and possess something

European Commission CSR - undertaking voluntary activity which demonstrates a concern for
stakeholders
Environment can be affected either positively, through for example a landscaping project, or
negatively, through for example the creation of heaps of waste from mining operation
Actions of an organization impose costs and benefits upon the external environment
Costs and benefits are imposed by the organization without consultation, and in reality from part of
the operational activities of the organization
Actions are however excluded from traditional accounting of the firm, and by implication from its
area of responsibility
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Costs and benefits have been externalized

Concept of externality is concerned with the way in which these costs and benefits are externalized
from the organization and imposed upon others,
Externalized costs and benefits have traditionally been considered to be not the concern of the
organization, and it's managers, and hence have been excluded from ist accounting,
Quantification of the effect
Typical organization has gained from such externalization and the reported value creation of such an
organization has been overstated by this failure to account for all costs and benefits
Externalizing the cost can be externalized both spatially and temporally

Spatial Externalization
Describes the way in which costs can be transferred to other entities in the current time period,
Examples of such spatial externalization include; Rivers or through increased traffic imposes costs
upon the local community through reduced quality of life

Temporal Externalization
The way in which costs are transferred from the current time period into another
Enables reported value creation, through accounting, to be recorded in the present
Deferring investment to a future time period and so increasing reported value in the present
Failing to provide for asset disposal costs in capital investment appraisal and leaving such costs for
future owners to incur
Failure of waste disposal
Equally such costs may at the present time be in course of being transferred into future through
actions taken in the present which will have unanticipated consequences in the future.
Temporal externalization - externalities taken into account, decisions made and actions taken by
firms may be very different
Recognition of the effect upon these externailities of actions taken by an organization can have
significant impact upon

Social contract - relationship between individual and society and its government
Individuals voluntary gave up certain rights in order for the government
Idea of social contract has been generally accepted

*Internal stakeholders: employees, manager, owners

*External stakeholders: suppliers, society, government, creditors, shareholders, customers
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What has led to the current interest in CSR?

What is greenwashing?
Marketing practice in order to mislead customers about it's eco-friendly branding

What is cost externalization? Why does it happen?

What is the Social contract? Why has it become prominent in CSR?

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LESSON 06/10/2023
Stakeholder Relationships/Implementing CSR and Business Ethics
How to identify Stakeholders? Building relationships is one of most important areas in business today
Stakeholder framework: identify internal and external stakeholders, help monitor and respond to
needs, values

Stakeholders: those who have a stake or claim in some aspect or claim in some aspect company's
products, operations
Primary stakeholders: employees, customers, investors, government and communities - those who
continued association
Secondary: Media, trade associations, special interest groups -
Stakeholder interaction model:
Customers, Employees, Shareholders, Community, Government regulatory agencies, Trade
association, Corporations

Stakeholders orientation: degree to which a firm understands and addresses stakeholder demands
Generation of data about stakeholder groups, Distribution of information's, Organizations response

Social responsibility - Is an organizations obligation to maximize positive impact on stakeholders

Levels of social responsibility: economic, legal, ethical, philantrophic

Social responsibility not just for community but for all the stakeholders, the suppliers also have
influence of you

Best and worst companies for social responsibility

Amheuser Busch
MULTI STAKEHOLDER COLLABORATION
Environment where decisions are taken in concentration with: Governments, Businesses, Civil
Society, Individual users
5Ps of Multi Stakeholder collaborations
Purpose MSC, People, Place, Product, Practice

Traditional economy is not circular

EU economy will become circular, green
Multistakeholder Partnerships
Global level: Global reported initiative
Industry level: Industry, Royalty Management, Latin America
The Internets Governance Landscape
Internet Ecosystem
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EXERCISE - STAKEHOLDER CONCEPT
Management team of medium-sized manufacturing company that produces environmentally friendly
packaging
Materials. Your company has recently faced allegations of pollution in a nearby river.
Write each stakeholder on a sticky note or index card, one stakeholder per note (Brainstorming 10
min)
Mapping Stakeholders, Whiteboard with a blank stakeholder map. Map should include two axes -
Interest/Influence
Support/Opposition, Identify all the stakeholders

18/10/2023
Main theories of ethics that are important to international business
Ethic dilemmas, ethical business decisions; Tony's Chocolonely
Stand against child labour in the chocolate industry, Ivory Coast and Ghana employ child labour,
cheaper than adult labour
Socially reponsible to continue the practice?
-not social responsible, comment discurs

Multinational companies must comply with laws and regulations both at home and every jurisdiction
which they operate
Competitive advantage - do well by doing good, Attribute that is difficult to imitate and enables a
firm
Why be ethical and socially responsible? - benefits of competitive advantage that embraces ethical
behaviour/social reponsibility
Greater brand loyalty, equity, and differentiation, higher employee retention, loyalty and
morale
Social responsibility a governmental or business matter?

Ethical theories - behaviour and dilemma, good conduct (= behaviour which will not hurt or damage
in any country)
Ethics = moral principles of society that govern human behaviour and decision making
"Utilitarianism"
"Rights theory" = human rights, born free an dequal in dignity and rights
Rights are not culture specific, and each of us possesses them by virtue of being human , right to
equal opporunitiy, property ownership, freedom of speech, ability to enter into contractual
obligations
Employers everywhere respect worker's human rights - ways in which we can ensure that.
Theory of justice, egalitarian economic system, finding solutions to ethical dilemmas that are most
equitable
Cultural relativism - morality of an act depends on how the act is perceived within that specific
culture at the time of the act
Pinnacle of open mindedness, and that accepting other groups ethics

Why is it important for firms to do business with integrity and earn the public's trust in international
business today?
Which theory says that ethical action is one that brings the greatest good to the greatest number of
people? - Utilitarianism
What is the rights theory of ethics and what kinds of rights does it cover?
What type of justice is the focus of the ethics

Two concepts to resolve ethical dilemmas: Culture of relative development and cultural tradition
Ethical theories: cultural relativism, utilitarianism, justice as fairness
Quality of product also differs from country
Code of Ethics formal statement that conveys ethical values/describes baseline professional conduct
expected
Globals ethics code includes built-in flexibility to allow for some discretion of local subsidiary
managers

Academy of Management - Code of Ethics, worldwide professional association for management

professors, students, practitioners
What concepts can managers use to resolve ethical dilemmas between the home and host countries?
What is a code of ethics and why is it important for an international business to have one?
Adam Smith/Milton Friedman - both share several key similarities

Greenwashing - providing false or misleading information that presents a business or ist products as
being environmentally friendly
Misleading labels disguising a product's harmful environmental effects

ESG - Environmental, Social and Governance Funds - not always environmentally friendly
World's 20 biggest ESG funds found
Invested in an average of 17 fossil-fuel producers
Six had invested in Exxonmobil

Climate change - sustainability and the term Race to ZERO

Carbon footprint and ist two components
Main differences between a linear economy and a circular economy
Why might companies and investment funds engage in greenwashing?
Working conditions and Human rights, Terms of Engagement
Companies are monitoring the actions of their own employees and the employees of companies with
which they conduct business
Diversity, Equity and Inclusion

Individuals and types of businesses can be charged under the Foreign Corrupt Practices Act (FCPA)
What consequences might a firm face if it provides poor working conditions or violates human
rights?
Why is it important for business to promote a diverse equitable inclusive workforce in their
operations?
19/10/2023
Domains of human action

30/10/2023 Case study for final class

Midterm exam
Role of ethics in marketing
Ethical standards to solve problems
Apply knowledge to marketing case studies
Multiple responsibilities and identify the major social
Describe the principles of socially resp marketing

Three possible reasons for the present state of ethical conduct in the Europe
and United States?
1. Pressure on business people to make decisions in a society with diverse
value systems
2. Business decisions being judged publicly by groups with different values
and interests
3. ethical

What main rights are included in the customer bill of rights?

The right to be informed
Ingredients

What is Moral idealism?

Moral idealism is a personal moral philosophy that considers certain
Individual rights or duties as universal

What is meant by social respobsibility?

Organizations are part of a larger society and are accountable to that society for their actions

Marketing efforts to produce, promote and reclaim environmentally sensitive products are
called green marketing
Code of ethics - formal statement of ethical principles and rules of conduct
Whistleblower - employees who report ethical or illegal actions of their employees

Some morally difficult situations in marketing

Assu 2000, Lecture just one hour tomorrow, and closing sessions
Midterms exam

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How did IKEA's corporate culture and values influence its approach to doing business in
Russia?
IKEA's corporate culture and values played a significant role in shaping its approach to doing
business in Russia. As a company that prides itself on its commitment to social responsibility and
ethical business practices, IKEA was determined to maintain its high standards even in a
challenging market like Russia.
For example, when IKEA discovered signs of corruption within its organization, it took swift
action to terminate contracts with the diesel generator company and the purchasing manager,
even though both parties insisted on their innocence. This decision was consistent with IKEA's
zero-tolerance policy towards corruption, which is based on the company's belief that ethical
behaviour is not only the right thing to do, but also good for business in the long run.

Furthermore, IKEA's emphasis on transparency and accountability also influenced its approach to
doing business in Russia. The company was open about the challenges it faced with corruption
and spoke publicly about its efforts to combat this issue. By doing so, IKEA hoped to raise
awareness about the problem and encourage the government and authorities to take decisive
action. Overall, IKEA's corporate culture and values helped to guide its approach to doing
business in Russia and ensured that the company remained committed to its principles even in a
challenging environment.

How did corruption impact IKEA's operations in Russia, and what steps did the company take
to mitigate this risk?
Corruption had a significant impact on IKEA's operations in Russia. The company faced a number
of challenges related to bribery, kickbacks, and other forms of corrupt practices, which
threatened to undermine its reputation and profitability in the market.

To mitigate this risk, IKEA took several steps to address the issue of corruption in its operations.
For example, the company implemented a zero-tolerance policy towards corruption, which
meant that any employee found to be involved in corrupt practices would be terminated
immediately. IKEA also established an internal compliance program to monitor and prevent
corrupt activities, which included regular training sessions for employees and third-party
partners.

In addition, IKEA worked closely with local authorities and law enforcement agencies to
investigate and prosecute cases of corruption. The company also engaged with civil society
organizations and other stakeholders to raise awareness about the issue of corruption and
advocate for stronger anti-corruption measures in Russia.

Despite these efforts, IKEA continued to face challenges related to corruption in Russia, which
highlighted the need for ongoing vigilance and commitment to ethical business practices.
Overall, IKEA's response to corruption in Russia demonstrated its commitment to maintaining
high standards of integrity and transparency, even in a challenging market environment.

There are several lessons that other multinational companies can learn from IKEA's experience
in Russia:
1. Conduct thorough due diligence: Before entering a new market, companies should conduct
thorough due diligence to understand the local business environment, including the risks and
challenges they may face. This can help companies to identify potential issues and develop
strategies to mitigate them.

2. Maintain a strong corporate culture: A strong corporate culture that emphasizes ethical
behavior and social responsibility can help companies to navigate challenging markets like
Russia. Companies should ensure that their values and principles are reflected in their
operations and decision-making processes.
3. Implement robust compliance programs: Companies should implement robust compliance
programs that include regular training sessions for employees and third-party partners. These
programs should be designed to prevent and detect corrupt activities and ensure that
employees are aware of the company's policies and procedures.

4. Engage with stakeholders: Companies should engage with local authorities, civil society
organizations, and other stakeholders to raise awareness about the issue of corruption and
advocate for stronger anti-corruption measures. This can help to build trust and credibility with
local communities and demonstrate the company's commitment to ethical business practices.

5. Be transparent: Companies should be transparent about the challenges they face and the
steps they are taking to address them. This can help to build trust with stakeholders and
demonstrate the company's commitment to integrity and accountability.

Overall, IKEA's experience in Russia highlights the importance of maintaining high standards of
integrity and transparency, even in challenging market environments. By following these lessons,
other multinational companies can mitigate the risks of corruption and build sustainable
businesses that benefit both their shareholders and the communities they operate in.