Ethics, Stakeholders,

Corporate Strategy, and

Value Creation
Chapter 3

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 4 Major Trends in Business

• Economic deregulation – less government

control
• Political liberalization – fall of communism,
market reforms
• Environmental stewardship – taking better
care of the world
• Advances in Information Technology – brings
vast improvements in productivity and
innovation

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 A New Way to Think about Business

Old Way New Way

Managerial View Stakeholder Approach
• Shareholders are the • Business is a set of
center of the business. relationships among
• Change only happens groups that have a stake
when the shareholders (vested interest) in the
are unhappy activities of the business.
• Shareholders are only
one of many
stakeholders.

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 The Managerial View
(Shareholder Capitalism)

Shareholders

Most
Create Value Interest of
Important
for Them Managers
Group

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 Separation Fallacy:
Managerial View Separates Decisions

Business Ethical

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 Integration Thesis I

• Most business decisions, or statements

about business, have some implicit
ethical view.
• Most ethical decisions, or statements
about ethics, have some implicit view
about business.

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 Integration Thesis II

1. It makes no sense to talk about business without

talking about ethics

2. It makes no sense to talk about ethics without

talking about business.

3. It makes no sense to talk about either business or

ethics without talking about human beings.

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 Stakeholder Framework says:

1. Ethics Is Not a Choice

2. Business Ethics Involves Taking Business
Seriously
3. Ethics Requires Commitment
4. Firms Have to Manage Across All Three
Levels of the Framework
5. There Is No “One Size Fits All”

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 The Responsibility Principle

• Most people, most of the time, want to and do accept

responsibility for the effects of their actions on
others.

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 Stakeholders

• Who are those groups that can affect you and your
business in a tangible way?
• Which groups either stand to benefit the most from
your actions or bear the brunt of them?

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 Definitional Stakeholders
• customers, suppliers, employees, investors

Instrumental Stakeholders
• Public, local community, government, media

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 Stakeholder Management is about:

• Making products and services that do what

you say they are going to do
• Doing business with suppliers who want to
make you better
• Having employees who are engaged in their
work
• Being good citizens in the community
• Maximizing profits in the long run

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 Stakeholder Framework
3 Levels

Respect
Societal
Standards

Stakeholder
Cooperation

Values/Goals
of Firm

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 Values/Goals of Firm

• The Purpose Driving the Firm

• Tells stakeholders why your company exists

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 Disney

“To bring happiness to millions, and to celebrate,

nurture, and promulgate wholesome American values.”

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 Johnson & Johnson

“The company exists to alleviate pain and disease”

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 Merck

“We are in the business of preserving and

improving human life”

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 Principles for Stakeholder
Cooperation
How do we do business and treat others?

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 Core Values

Respect

Fairness

Honesty

Goals of Firm
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 Respecting Societal Standards
of Conduct
Be aware of the legal and moral expectations of the
community where you do business.

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 Recognize Potential Conflicts

Firm’s Values Local Values

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 Case
Business Enterprise Trust: Merck

1. How should Roy Vagelos think about this problem?

What are some possible approaches to take to
framing what is going on here?
2. Does Merck have an obligation to do something
here? Does its knowledge create an obligation to
act? If so, does that extend to an obligation to
spend between $100-200 million of its resources to
help?

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 Case (continued)
Business Enterprise Trust: Merck

3. What should be on Vagelos’ radar screen as he thinks

about this decision? What specific considerations
should he at least note before he gets to a decision?
– a. Which stakeholders should he think about? What is their
interest?
– b. What is at stake for Vagelos? How will this decision shape
him and his character?
– c. Are there any specific principles that should factor into
his decision making?

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 Case (continued)
Business Enterprise Trust: Merck

4. What do you make of Merck’s mission? What

exactly, does it mean? How important is it to your
decision and why?

“We are in the business of preserving

and improving human life”

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 Case (continued)
Business Enterprise Trust: Merck

5. Make a decision: commit to developing the drug

now, or decide not to develop it?
– [Note that with this latter option you are not committed to
doing nothing: you can opt to wait until you get someone
to pay for it and then develop it later, or simply share your
discovery with others and let them pursue a drug. You are
simply saying you won’t commit Merck’s resources to
developing the drug.]
– Make the case for your decision: what are the compelling
reasons for your decision?

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