Chapter:2

Social Responsibility and Ethics in

Strategic Management

Strategic Management

Speakers
Mr. Gajendra Bahadur Thapa (Roll No.: 431)
Mr. Basanta Singh Dhami (Roll No.: 434)
Mr. Binod Adhikari (Roll No.: 443)
Section: ”D”
MBS 4th Semester

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 Social Responsibility

Social responsibility is the philosophy that an organization

should prepare business policies in such a way that it can
contribute for the social welfare.
It includes following elements:
 Ethical strategy and principle to employees.
 Making charitable contributions.
 Taking actions to build a workforce with respect to
diversification.
 Quality of life for employees.

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 Elements of Socially Responsible Organization

Accountable Responsive Collaborative

Charity, Rewards
Ethical Conscious
and Bonuses

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 Responsibilities of Strategic Decision Makers

FORECASTING OUTCOMES COMMUNICATING CULTIVATING CULTURE ALTERING

DIRECTION ORGANIZATIONAL
CULTURE AND BUSINESS
FOCUS

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 Ethical Decision Making

Ethical decision-making is a cognitive process where people consider ethical rules, principles or
guidelines when making decisions.
A decision and/or action can be considered ethically correct if the honesty and fairness of it
supports a beneficial outcome for all parties i.e., business, consumers, employees, government, and
the entire society.
Ethical decision-making is based on core character values like trustworthiness, respect,
responsibility, fairness, caring, and good citizenship

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Ethical Decision-Making Process

Step:1 Ethical Step:2 Ethical Step:3 Ethical

Awareness Judgement Behavior

Unintentional Intentional
Unethical Unethical
Behavior Behavior

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 Unethical Behavior
Unethical behavior is the situation of deliberate violations of organization policies, work
practices and work ethics.
It can be:
 Manipulation of financial reports.
 Producing fraud invoice.
 Providing false information about product.
 Sharing confidential organization information.
 Terminating employee without reasons and prior notice.

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Reasons for Unethical Behavior
Lack of code of ethics
Fear of punishment
Impact of peer influence.
Ignorance
Setting a bad example
Over competition
To take unwanted benefits

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 Corporate Performance, Governance & Business Ethics

A. Stakeholders and Corporate Performance

Stakeholders are individuals or groups with an interest, claim, or stake in the company, what it does,
and how well it performs.
Stakeholders are in an exchange relationship with the company
•Contributions: they supply the organization with important resources
•Inducements: in exchange they expect their interests to by satisfied

Companies should pursue strategies that maximize long-run shareholder

value and must also behave in an ethical and socially responsible manner.
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Stakeholders and the Enterprise

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i. Stakeholder Impact Analysis
Identify stakeholders most critical to survival:
•Identify which stakeholders
•The stakeholders’ interests and concerns
•Claims stakeholders are likely to make on the organization
•Stakeholders who are most important to the organization’s perspective
•Identify the resulting strategic challenges

Usually the most important:

•Customers • Employees • Stockholders

Companies must identify the most important stakeholders and give highest priority to
pursuing strategies that satisfy their needs.
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ii. Strategy for Unique Role of Stakeholders
Stockholders are a company’s legal owners and the provider of risk capital, a major source of capital to
operate a business.

Risk capital- No guarantee to the stockholders that:

• They will recoup their investment
• Or earn a decent return

ESOPs – Employee Stock Option Plans

Employees may also be shareholders

Maximizing long-run profitability & profit growth is the route to maximizing returns to
shareholders, as well as satisfying the claims of most other stakeholder groups.

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B. Agency Theory
Agency relationships arise whenever one-party delegates decision-making authority or
control over resources to another.
Agency relationships arise whenever one-party delegates decision-making authority or
control over resources to another.
The agency problem:
•Agents and principals may have different goals.
•Agents may pursue goals that are not in the best interests of their principals.
•Agents may take advantage of information asymmetries to maximize their interests at the expense
of principals.
•It is difficult for principals to measure performance.
Principals try to deal with these challenges through a series of governance mechanisms.
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Governance Mechanisms
Governance mechanisms serve to limit the agency problem by aligning incentives between
agents and principals and by monitoring and controlling agents.

The Board of Directors Stock-Based Compensation Financial Statements The Takeover Constraint

Elected by stockholders Pay-for-performance Auditors • SEBON • GAAP Limits strategies that ignore shareholder
Legally accountable Stock options: interests
Monitors corporate strategy decisions The right to buy company shares at a Corporate raiders
Authority to hire, fire, and compensate predetermined price at some point in the
future
Ensures accuracy of audited financial
statements
Inside directors
Outside directors

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C. Ethics and Strategy
Business ethics are the accepted principles of right or wrong governing the conduct of
businesspeople.
Ethical dilemmas occur when:
•There is no agreement over what the accepted principles are
•None of the available alternatives seem ethically acceptable
Many accepted principles are codified into laws:
•Tort laws – governing product liability
•Contract law – contracts and breaches of contracts
•Intellectual property law – protection of intellectual property
•Antitrust law – governing competitive behavior
•Securities law - issuing and selling securities

Behaving ethically goes beyond staying within the law.

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Behaving Ethically
Favor hiring and promoting people with a well-grounded sense of personal ethics.
To make
sure that Build an organizational culture that places a high value on ethical behavior.
ethical issues
are Make sure that leaders not only articulate but also act in an ethical manner.
considered
Put decision-making processes in place that require people to consider the ethical dimension of
in business business decisions.
decisions, Use ethics officers.
managers
should: Put strong corporate governance processes in place.

Act with moral courage and encourage others to do the same.

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Any Queries

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 Thank You !

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