Professional Documents
Culture Documents
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LEARNING OBJECTIVES
THIS CHAPTER WILL HELP YOU UNDERSTAND:
1. How the standards of ethical behavior in business are
no different from the ethical standards and norms of the
larger society and culture in which a company operates
2. What drives unethical business strategies and behavior
3. The costs of business ethics failures
4. The concepts of corporate social responsibility and
environmental sustainability and how companies
balance these duties with economic responsibilities to
shareholders
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WHAT DO WE MEAN BY BUSINESS ETHICS?
♦ Business ethics
● Is the application of general ethical principles to the
actions and decisions of businesses and the conduct
of their personnel
● Are not materially different from ethical principles in
general because business actions have to be judged in
the context of society’s standards of right and wrong
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CORE CONCEPT (1 of 8)
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 ETHICAL STANDARDS COME
FROM—ARE THEY UNIVERSAL OR
DEPENDENT ON LOCAL NORMS?
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CORE CONCEPT (2 of 8)
The school of ethical universalism holds that the
most fundamental 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
♦ Ethical relativism
● Holds that differing beliefs, customs, and behavioral
norms across countries and cultures give rise to
multiple sets of standards of what is ethically right or
wrong
♦ Effect on business ethics
● Whether business-related actions are right or wrong
depends on local ethical standards
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CORE CONCEPT (3 of 8)
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.
These differing standards mean that whether
business-related actions are right or wrong
depends on the prevailing local ethical standards.
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STRATEGIC MANAGEMENT PRINCIPLE (1 of 9)
Under ethical relativism, there can be no one-size-
fits-all set of authentic ethical norms against which
to gauge the conduct of company personnel.
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EXAMPLES OF ETHICAL RELATIVISM ISSUES
Variations in
Ethical Standards
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STRATEGIC MANAGEMENT PRINCIPLE (3 of 9)
♦ According to integrated social contracts theory,
adherence to universal or “first-order” ethical
norms should always take precedence over local
or “second-order” norms.
♦ In instances involving universally applicable
ethical norms (like paying bribes), there can be
no compromise on what is ethically permissible
and what is not.
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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 TO
MULTINATIONAL BUSINESS
♦ 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.
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CORE CONCEPT (4 of 8)
According to integrated social contracts theory,
universal ethical principles based on the collective
views of multiple societies form a “social contract”
that all individuals and organizations have a duty
to observe in all situations.
Within the boundaries of this social contract, local
cultures or groups can specify what additional
actions may or may not be ethically permissible.
© McGraw-Hill Education.
STRATEGIC MANAGEMENT PRINCIPLE (4 of 9)
In instances involving universally applicable ethical
norms (like paying bribes), there can be no
compromise on what is ethically permissible and
what is not.
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HOW AND WHY ETHICAL STANDARDS
IMPACT THE TASKS OF CRAFTING AND
EXECUTING STRATEGY
♦ The ethics code litmus test
● Areas of ambiguity: Is what we are proposing to do
fully compliant with our code of ethics?
● Conflict or potential problem: Is this action in harmony
with our core values?
● Ethically objectionable action: Will our stakeholders,
our competitors, the SEC under the Sarbanes-Oxley
Act, or the news and social media view this action as
ethically objectionable?
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CONSEQUENCES OF ETHICALLY
QUESTIONABLE STRATEGIES
Faulty oversight
and self dealing
Unethical
Pressure for short- Strategies and
term performance Business
Behaviors
A weak or corrupt
ethical environment
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CORE CONCEPTS (5 of 8)
Self-dealing occurs when managers take
advantage of their position to further their own
private interests rather than those of the firm.
Short-termism is the tendency for managers to
focus excessively on short-term performance
objectives at the expense of longer-term strategic
objectives. It has negative implications for the
likelihood of ethical lapses as well as company
performance in the longer run.
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WHY SHOULD COMPANY
STRATEGIES BE ETHICAL?
♦ The moral case for an ethical strategy
● A strategy that is unethical is morally wrong and
reflects badly on the character of the firm’s personnel.
♦ The business case for ethical strategies
● An ethical strategy can be both good business and
serve the self-interest of shareholders.
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STRATEGIC MANAGEMENT PRINCIPLE (5 of 9)
Conducting business in an ethical fashion is 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.
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THE VISIBLE COSTS COMPANIES
INCUR WHEN ETHICAL WRONGDOING
IS DISCOVERED
♦ 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 (and possibly lower dividends)
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THE INTERNAL COSTS COMPANIES
INCUR WHEN ETHICAL WRONGDOING
IS DISCOVERED
♦ 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
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THE INTANGIBLE COSTS COMPANIES
INCUR WHEN ETHICAL WRONGDOING
IS DISCOVERED
♦ 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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STRATEGY, CORPORATE SOCIAL
RESPONSIBILITY, AND
ENVIRONMENTAL SUSTAINABILITY
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CORE CONCEPT (6 of 8)
Corporate social responsibility (CSR) refers to a
company’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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FIGURE 9.2 The Five Components of a
Corporate Social Responsibility Strategy
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FIGURE 9.3 The Triple Bottom Line: Excelling on
Three Measures of Company Performance
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TABLE 9.1 A Selection of Companies Recognized
for Their Triple-Bottom-Line Performance in 2013
(2 of 2)
NAME MARKET SECTOR COUNTRY
Allianz SE Insurance Germany
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WHAT DO WE MEAN BY 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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CORE CONCEPTS (8 of 8)
Sustainable business practices are those that
meet the needs of the present without
compromising the ability to meet the needs
of the future.
An environmental sustainability strategy
consists of a firm’s deliberate actions to protect the
environment, provide for the longevity of natural
resources, maintain ecological support systems for
future generations, and guard against
endangerments leading to the ultimate destruction
of the planet.
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SUSTAINABILITY AND SUSTAINABLE
BUSINESS PRACTICES
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CRAFTING CORPORATE SOCIAL
RESPONSIBILITY AND SUSTAINABILITY
STRATEGIES
Pursuing a Sustainable CSR Strategy
in the Firm’s Value Chain Activities
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THE MORAL CASE FOR CSR AND
ENVIRONMENTALLY SUSTAINABLE
BUSINESS PRACTICES
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THE BUSINESS CASE FOR CSR AND
ENVIRONMENTALLY SUSTAINABLE
BUSINESS 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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COMBATING THE EVASION OF CSR AND
SOCIALLY HARMFUL BUSINESS PRACTICES
Increased public
awareness of misdeeds
and bad behavior by firms
Harmful and
Increased legislation and Unethical
regulation to correct and Business
punish firms Actions and
Behaviors
Refusal to do business
with irresponsible firms
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STRATEGIC MANAGEMENT PRINCIPLE (9 of 9)
Socially responsible strategies that create value for
customers and lower costs can improve company
profits and shareholder value at the same time that
they address other stakeholder interests.
There’s little hard evidence indicating shareholders
are disadvantaged in any meaningful way by a
company’s actions to be socially responsible.
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