19e Global Edition

THOMPSON | PETERAF | GAMBLE | STRICKLAND

CHAPTER 9
ETHICS, CORPORATE SOCIAL
RESPONSIBILITY, ENVIRONMENTAL
SUSTAINABILITY, AND STRATEGY

Copyright 2014 by The McGraw-Hill Education All rights reserved.

1. Understand 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. Recognize conditions that can give rise to unethical
business strategies and behavior.
3. Gain an understanding of the costs of business
ethics failures.
4. Learn the concepts of corporate social responsibility
and environmental sustainability and how firms
balance these duties with economic responsibilities
to shareholders.
92

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 societys standards of right and
wrong.

93

CORE CONCEPTS
Ethics concerns principles of right or wrong
conduct.
Business ethics involves the application of
general ethical principles to the actions and
decisions of businesses and the conduct of
their personnel.

94

WHERE DO ETHICAL STANDARDS

COME FROMARE THEY UNIVERSAL
OR DEPENDENT ON LOCAL NORMS?

Sources for Ethical Standards

The School of
Ethical
Universalism

The School of
Ethical
Relativism

Integrated
Social Contracts
Theory

95

THE 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.

96

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.

97

CORE CONCEPT
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.

98

EXAMPLES OF ETHICAL
RELATIVISM ISSUES
Variations in
Ethical Standards

The Use of
Underage
Labor

The Payment
of Bribes and
Kickbacks

Relativism
Equates to
Multiple Sets
of Standards

The Use of
Local Morality
to Guide Ethical
Behavior

99

ILLUSTRATION CAPSULE 9.1

Apples Failures in Enforcing

Its Supplier Code of Conduct

How effective has Apples Supplier Code of

Conduct been is reducing abuses of workers
at its supplier facilities?
Is it fair for Apple to prescribe that its suppliers
comply with universal standards that are at
wide variance relative to local market labor
practices and conditions?

910

STRATEGIC MANAGEMENT PRINCIPLE

Codes of conduct based on ethical relativism
can be ethically dangerous for multinational
companies by creating a maze of conflicting
ethical standards.

911

CORE CONCEPT
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.

912

STRATEGIC MANAGEMENT PRINCIPLE

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.

913

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.

914

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.

915

HOW AND WHY ETHICAL STANDARDS

IMPACT THE TASKS OF CRAFTING AND
EXECUTING STRATEGY

The Ethics Code Litmus Test:

Is what we are proposing to do fully compliant with

our code of ethics? Are there areas of ambiguity?

Is this action in harmony with our core values? Are

any conflicts or potential problems evident?

Is this action ethically objectionable? Would our

stakeholders, our competitors, the SEC under the
Sarbanes-Oxley Act, or the news and social media
view this action as ethically objectionable?

916

CONSEQUENCES OF ETHICALLY
QUESTIONABLE STRATEGIES
When Strategies Fail
the Ethical Litmus Test

Sizable
civil fines and
stockholder
lawsuits

Devastating
image and
public relations
hits

Sharp stock
price drops as
investors lose
confidence

Criminal
indictments
and
convictions

917

WHAT ARE THE DRIVERS OF

UNETHICAL STRATEGIES AND
BUSINESS BEHAVIOR?
Faulty Oversight
and Self Dealing

Pressure for Shortterm Performance

Unethical
Strategies
and Business
Behaviors

A Weak or Corrupt
Ethical Environment

918

WHAT ARE THE DRIVERS OF

UNETHICAL STRATEGIES AND
BUSINESS BEHAVIOR?

Drivers of Unethical Business Behavior:

Faulty internal oversight allows self-dealing in the

pursuit of personal gain, wealth, and self-interest.

Short-termism pressure to meet or beat short-term

performance targets.

A culture that puts profitability and business

performance ahead of ethical behavior.

919

CORE CONCEPT
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.
920

ILLUSTRATION CAPSULE 9.2

Investment Fraud at Bernard L. Madoff
Investment Securities and Stanford Financial
Group

Which drivers of unethical behavior were active

in the Madoff investment fraud scheme?
How did the cultures of the Madoff and Stanford
investment firms assist in perpetuating the
frauds?
What ethical responsibilities were lacking in the
Madoff frauds investors that would have helped
prevent the frauds?

921

ILLUSTRATION CAPSULE 9.3

How Novo Nordisk Puts Its
Ethical Principles into Practice

What steps has Novo Nordisk taken to ensure

that its ethical standards of employee conduct
are put into practice?
Why has Novo Nordisk been so successful
instilling a culture of ethical conduct in its
organization when other firms have not?
What has been the effect of Novo Nordisks
dedication to ethical business practices on its
success in the marketplace?
922

WHY SHOULD COMPANY STRATEGIES

BE ETHICAL?

The Moral Case for an Ethical Strategy:

Because a strategy that is unethical is morally wrong

and reflects badly on the character of the firms
personnel.

The Business Case for Ethical Strategies:

Because an ethical strategy can be both good

business and serve the self-interest of shareholders.

923

STRATEGIC MANAGEMENT PRINCIPLE

Conducting business in an ethical fashion is
not only morally rightit is in a companys
enlightened self-interest.
Shareholders suffer major damage when a
companys unethical behavior is discovered.
Making amends for unethical business conduct
is costly, and it takes years to rehabilitate a
tarnished company reputation.

924

FIGURE 9.1

The Costs Companies Incur When Ethical Wrongdoing Is Discovered

925

STRATEGY, CORPORATE SOCIAL

RESPONSIBILITY, AND EVIRONMENTAL
SUSTAINABILITY

Corporate Social Responsibility (CSR)

Is a firms 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.

926

CORE CONCEPT
Corporate social responsibility (CSR) refers
to a companys 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.

927

FIGURE 9.2
The Five Components
of a Corporate Social
Responsibility Strategy

928

ILLUSTRATION CAPSULE 9.4

CSR Through Fashion and Cars in
Singapore

What is your evaluation of the effectiveness of

CSR as a strategic tool in this instance?
How do you think this unique tripartite
relationship between government, business
and society can be built upon?

929

The Triple Bottom Line: Excelling on Three Measures of Company

FIGURE 9.3 Performance

People

Profit

Planet
930

TABLE 9.1 A Selection of Companies Recognized for Their Triple-Bottom-Line

Performance in 2011

931

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.

932

CORE CONCEPTS
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 firms deliberate actions to protect
the environment, provide for the longevity
of natural resources, maintain ecological
support systems for future generations,
and guard against the ultimate
endangerment of the planet.
933

SUSTAINABILITY AND SUSTAINABLE

BUSINESS PRACTICES

Environmental Sustainability Strategy

Consists of the firms 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.

934

CRAFTING CORPORATE
SOCIAL RESPONSIBILITY AND
SUSTAINABILITY STRATEGIES
Pursuing a Sustainable CSR Strategy
in the Firms Value Chain Activities

Moral Case:
Stakeholder
Benefits

Business Case:
Competitive
Advantage

935

STRATEGIC MANAGEMENT PRINCIPLE

CSR strategies and environmental
sustainability strategies that both provide
valuable social benefits and fulfill customer
needs in a superior fashion can lead to
competitive advantage. Corporate social
agendas that address only social issues may
help boost a companys reputation for
corporate citizenship but are unlikely to
improve its competitive strength in the
marketplace.

936

THE MORAL CASE FOR CSR AND

ENVIRONMENTALLY SUSTAINABLE
BUSINESS PRACTICES
The Implied Social Contract:
To Do the Right Thing

Operate
ethically and
legally

Provide good
work conditions
for employees

Be a good
environmental
steward

Display good
corporate
citizenship

937

STRATEGIC MANAGEMENT PRINCIPLE

Every action a company takes can be
interpreted as a statement of what it stands for.

938

THE BUSINESS CASE FOR CSR AND

ENVIRONMENTALLY SUSTAINABLE
BUSINESS PRACTICES

Increased reputation and buyer patronage

Reduced risk of reputation-damaging incidents

Lower turnover costs and enhanced employee

recruiting and workforce retention

Increased revenue enhancement opportunities

due to support of CSR and sustainability

CSR and sustainability best serve long-term

interests of shareholders
939

COMBATING THE EVASION OF

CSR AND SOCIALLY HARMFUL
BUSINESS PRACTICES
Increased public
awareness of misdeeds of
bad behavior by firms
Increased legislation and
regulation to correct and
punish firms

Harmful and
Unethical
Business
Actions and
Behaviors

Refusal to do business with

irresponsible firms

940

STRATEGIC MANAGEMENT PRINCIPLE

The higher the public profile of a company or
its brand, the greater the scrutiny of its
activities and the higher the potential for it to
become a target for pressure group action.

941

STRATEGIC MANAGEMENT PRINCIPLE

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.
Theres little hard evidence indicating
shareholders are disadvantaged in any
meaningful way by a companys actions to be
socially responsible.

942