ethics thompson

8/11/2019 Ethics Thompson

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Strategy, Ethics,and Social

Responsibility

McGraw-Hill/rwin


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Chapter Roadmap

What Do We Mean by Business Ethics?

Where Do Ethical Standards Come FromAre

They Universal or Dependent on Local Norms and

Situational Circumstances? The Three Categories of Management Morality

Do Company Strategies Need to be Ethical?

Why Should Company Strategies Be Ethical? Linking a Companys Strategy to its Ethical

Principles and Core Values

Strategy and Social Responsibility


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Linking Strategy to Ethicsand Social Responsibility

Should there be a l ink betweena companys

effortsto craf t and execu tea winning strategy

and its dut iesto

Conduct activities in an ethical manner?

Demonstrate socially responsible behavior by

Being a committed corporate citizen?

Attending to needs of non-owner stakeholders?

Key Issues


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What Is Business Ethics?

Business eth icsinvolves applying general ethicalprinciples and standards to business behavior

Ethical p r inc ip lesin business are not different

from ethical principles in general

Business act ionsarejudged

By general ethical standards of society

Not by a set of rules businesspeople

apply to their own conduct


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Are Ethical Standards Universal orDependent on Local Norms?

Three schoo ls of thoughtregarding extentto which ethical standards can be applied . . .

Ethical Universalism

Ethical Relativism

Integrative Social Contracts Theory


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Concept of Ethical Universalism

According to the schoo l of ethical un iversalism. . .

Same standards of what is ethical and what is unethical

resonate with peoples of most societies regardless of

Local traditions and

Cultural norms

Thus, common ethical standards can be used to judge

conduct of personnel at companies operatingin a variety of

Country markets and

Cultural circumstances


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Examples of UniversalEthical Principles or Norms

Honesty

Trustworthiness

Treating people with dignity and respect

Respecting rights of others

Practicing the Golden Rule

Avoiding unnecessary harm to

Workers

Users of a companys product or service

Respecting the environment


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What Is the Appealof Ethical Universalism?

Draws on co l lect ive viewsof multiple societiesand cultures to place clear boundarieson what

constitutes

Ethical business behavior and

Unethical business behavior

Regardless of what country a company is operating in

Whenever basic moral standards do no t vary

significantly according to local cultural beliefs,traditions, or religious convictions, a multinational

company can

Apply a code of ethics more or less evenly across its

worldwide operations


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Concept of Ethical Relativism

According to the school o f ethical relat iv ism . . .

Different societies/cultures/countries

Put more/less emphasis on some values than others

Have different standards of right and wrong

Have different social civilization and behavioral norms

What is ethical or unethical

Must be judged in light of local

customs and social mores and

Can vary from one country to another


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A thorny ethical problem is facedby multinational companies

Degree of cross-country variability in payingbribes as part of business transactions

Companies forbidding payment of bribes in theircodes of ethics face a formidable challenge incountries where payments are entrenched as a

local customForeign Corrupt Practices Act prohibits U.S.

companies from paying bribes in all countrieswhere they do business

Payment of Bribes and Kickbacks


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Test Your Knowledge

Paying bribes and kickbacks to grease business transactions

A. violates ethical principles of right and wrong in all countries.

B. is ethically acceptable according to the principle of ethical

universalism.

C. is acceptable to immoral managers but not to amoral

managers.

D. should be considered ethically appropriate by a company so

long as such payments are normal and customary in the

countries where such payments are made.

E. may be ethically acceptable according to the principle of

ethical relativism if paying bribes and kickbacks is normal and

customary practice in a country.


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Ethical Relativism =Multiple Sets of Ethical Standards

Proponents of the ethical relativism school maintainthere are

Few ethical absolu testo judge a companys

conduct in various countries

Plenty of situations where ethical

norm s are conto ured to f i t

Local customs and tradi t ions

Loc al bel iefs abou t wh at is fair

Local standards of right and wrong

Ethical problems in business cannot be fully

resolved without appealing to the shared

convictions of the parties in question


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Drawbacks of Ethical Relativism

The ethical relat iv ism ru leof when in Rome, doas the Romans dopresents prob lems

When the envelope is pushed, it is

tantamount to rudderless ethical standards

It is ethically dangerous for company personnelto assume that local ethical standards are an

adequate guide to ethical behavior

What if local standards condone kickbacks and bribery?

What if local standards blink at environmental degradation? From a global markets perspective, ethical relativism

results in a maze of conflicting ethical standards for

multinational companies wanting to address the issue of

what ethical standards to enforce companywide


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Concept of IntegrativeSocial Contracts Theory

According to the in tegrat ive soc ial con tractstheory,the ethical standards a company should try

to uphold are governed by both

A limited number of universal ethical principles thatare widely recognized as putting legitimate ethical

boundaries on actions and behavior in all situations

and

The circumstances of local cultures, traditions, andshared values that further prescribe what constitutes

Ethically permissible behavior and

What does not


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Appeal of IntegrativeSocial Contracts Theory

Universal ethical principles establish moral free spacebased on the collective view of multiple societies and

cultures

Commonly held views about morality and ethical principles

combine to form a social contract with society It is appropriate for societies or companies to go beyond

universal ethical principles and specify local or second-order

ethical norms

Where firms have developed ethical codes, the standardsthey call for provide appropriate ethical guidance

Social contracts theory maintainsadherence toun iversal or f i rs t -order ethical norm sshould alwaystakeprecedenceoverlocal or second -order no rms!


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Moral manager

Amoral manager

Immoral

manager

Three Categories of Management Morality

Managerialethical and

moral

principles


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Dedicated to high standards of ethical behavior in

Own actions

How the companys business is to be conducted

Considers it important to

Be a steward of ethical behavior

Demonstrate ethical leadership

Pursues business success

Within confines of both letter and spirit of laws

With a habit of operating well above what laws require

Characteristics of a Moral Manager


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Characteristics of an Immoral Manager

Actively opposes ethical behavior in businessWillfully ignores ethical principles in making

decisions

Views legal standards as barriers to overcomePursues own self-interests

Is an example of capitalistic greed

Ignores interests of othersFocuses only on bottom line

making ones numbers

Will trample on others to avoid being trampled upon


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Believes business and ethics should notbe mixed since different rules apply to

Business activities

Other realms of life

Does not factor ethical considerations into

own actions since business activity lies

outside sphere of moral judgment

Views ethics as inappropriate for tough, competitivebusiness world

Concept of right and wrong is lawyer-driven (what

can we get by with without running afoul of the law)

Characteristics of anIntentionally Amoral Manager


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Is blind to or casual about ethics ofdecision-making and business actions

Displays lack of concern regarding

whether ethics applies to company actionsSees self as well-intentioned or personally ethical

Typical beliefs

Do what is necessary to comply with laws and

regulations

Government provides legal framework stating what

society will put up withif it is not illegal, it is allowed

Characteristics of anUnintentionally Amoral Manager


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Evidence of Managerial Immoralityin the Global Business Community

Evidence exists a sizable majority of managers are

either

Amoral or

Immoral

Results of the 2005 Global Corruption Reportindicate corruption is widespread across the world

Corruption extends beyond bribes and kickbacks


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Do Company StrategiesNeed to Be Ethical?

Approachesof most company managers Ensure a companys strategy is legal

May or may not ensure all elements of strategies are

ethical

Approachof senior execu t iveswith s t rongeth ical convic t ions

Insist all aspects of strategy fall within ethical boundaries

Approachof immora lor amoral senior

execut ives Use shady strategies if they think they can

get by with it

Use unethical or borderline business practices

Hide ethically questionable actions


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Large numbers of immoral

and amoral business people

Overzealous pursuit of personal gain,wealth, and other selfish interests

Heavy pressures on company managers

to meet or beat earnings targets

Company cultures that place profits and

good performance ahead of ethical behavior

What Are the Drivers of UnethicalStrategies and Business Behavior?


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People obsessed with wealth accumulation, greed,power, and status often

Push ethical principles aside in their quest for self gain

Exhibit few qualms in doing whatever

is necessary to achieve their goals

Look out for their own best interests

Have few scruples and ignore welfare of others

Engage in all kinds of unethical

strategic maneuvers and behaviors

Overzealous Pursuit of Personal Gain,Wealth, and Selfish Interests


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Managers often feel enormouspressure to do whateverit takes to deliver good financial performance

Actions often taken by managers

Cut costs wherever savings show up immediately

Squeeze extra sales out of early deliveries Engage in short-term maneuvers to make the numbers

Stretch rules to extreme, until limits of ethical conduct are

overlooked

Executives feel pressure to hit performance targets since

their compensation depends heavily on companyperformance

Fundamental problem with a make the numbers syndrome

Company does not serve its customers or shareholders well by

placing top priority on the bottom line

Heavy Pressures on Company Managersto Meet or Beat Earnings Targets


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Company Culture Places Profits and GoodPerformance Ahead of Ethical Behavior

In an ethically corrupt or amoral work climate,people have a company-approved license to

Ignore whats right and stretch rules

Engage in most any behavior or employ most

any strategy they think they can get away with

Play down relevance of ethical strategic

actions and business conduct

Pressures to conform to cultural norms

can prompt otherwise honorable people to

Make ethical mistakes

Succumb to the many opportunities to engage

in unethical practices and shady behavior


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Approaches to Managing aCompanys Ethical Conduct

Unconcerned or non-issue approach

Damage control approach

Compliance approach

Ethical culture approach


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Characteristics of Unconcerned Approach

Prevalent at companies whose executives areimmoral and unintentionally amoral

Notions of right and wrong in business matters are

defined by government via prevailing laws and

regulations after that, anyth ing goes

If the law permits unethical behavior,

why stand on ethical principles

Companies are usually out to makegreatest possible profit at most any cost

Strategies used, while legal, may embrace

elements that are ethically shady


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Characteristics ofDamage Control Approach

Favored at companies whose managers areintentionally amoral but who fear scandal

May adopt a code of ethics as window-dressing

Adept at using spin to explain away the use of

unethical strategy elements or discount the impactof shady actions

Executives look the other way when shadybehavior occurs

Executives may condone questionableactions that help a company reachearnings targets or bolster its marketstanding


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Characteristics ofCompliance Approach

From light to forceful compliance is favoredat companies whose managers Lean toward being somewhat amoral but are highly

concerned about having ethically upstanding reputations or

Are moral and see strong compliance methods as best

way to impose and enforce high ethical standards

Emphasis is on securing broadcompliance and measuring degreeto which ethical standards are upheld

Commitment to eradicate unethicalbehavior stems from a desire toAvoid cost and damage associated with unethical conduct or

Gain favor from stakeholders from having a highly regarded

reputation for ethical behavior


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Pursuing a Compliance Approach:Typical Actions

Make code of ethics a visible and regularpart of communications with employees

Implement ethics training programs

Appoint a chief ethics officer

Have ethics committees to give guidance on ethics matters

Institute formal procedures for investigating alleged ethics

violations

Conduct ethics audits to measure and document compliance

Give ethics awards to employees for outstanding efforts to

create an ethical climate

Install ethics hotlines to help detect and deter violations


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Potential Weaknessof Compliance Approach

Moral control resides in a companys

code of ethics and in the ethics

compliance system rather than in

Strong peer pressures for ethical

behavior that come from ingraining

a highly ethical corporate culture and

An individuals own moral

responsibility for ethical behavior


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Characteristics ofEthical Culture Approach

Top executives believe high ethical principles must Be deeply ingrained in the corporate culture

Function as guides for how we do things around here

Company seeks to gain employee buy-in to

Companys ethical standards Business principles

Corporate values

Ethical principles in companys code of ethics are Integral to day-to-day operations

Promoted as business as usual

Strategy must be ethical

Employees must display ethicalbehaviors in executing the strategy


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Why Should Company Strategies Be Ethical?

An unethical strategy

Is morally wrong

Reflects badly on the character of company personnel

An ethical strategyis

Good business

In the best interest of shareholders


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Test Your Knowledge

Which one of the following is fa lsewhen it comes to making acase for why a companys strategy should be ethical?

A. An unethical strategy can put a companys reputation at risk

and do lasting damage, especially when the misdeeds get into

the public spotlight and make media headlines.B. An ethical strategy is in the best interest of shareholders.

C. An unethical strategy reflects badly on the character of the

company personnel involved.

D. Shareholders profits are not greatly reduced by using ethical

strategies.

E. A strategy that is unethical in whole or in part is morally

wrong.


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Characteristics of Managers Committedto Ethical Approaches to Strategy-Making

Possess s t rong moraland ethical character is t ics Strongly advocatea corporate code

of ethicsand str ic t eth ics com pl iance

Display genu ine comm itmentto certain corporate

values and business practicesWalk the talkin

Displaying a companys stated values

Living up to ethical business principles and standards

Adopt values statements/eth ics codesthat truly paint the white l inesfor acompanys business practices

Consciously opt for strategic

act ions passing moral scrut iny

Fi 10 1 Th B i C t f Ethi l F il


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Fig. 10.1: The Business Costs of Ethical Failures


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Linking Strategy to Ethics and Values

If ethical standards are to have more than a cosmeticrole, boards of directors and top executives must work

diligently to see they are scrupulously observed in

Crafting a companys strategy and

Conducting every facet of a companys business

Two sets of questions must be considered by senior

executives when reviewing a new strategic initiative

Is what we are proposing to do fully compliant with our

code of ethical conduct? Is there anything here that

could be considered ethically objectionable?

Is it apparent this proposed action is in harmony with our

core values? Are any conflicts or concerns evident?


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For Discussion: Your Opinion

Is it unethical for a high school or college coach to accepta talent fee or similar type of payment from a maker of

sports apparel or sports equipment when the coach has

authority to determine which brand of apparel or

equipment to use for his/her team and subsequently

chooses the brand of the company making the payment?

Is it unethical for the maker of the sports apparel or

equipment to make such payments in expectation that the

coach will reciprocate by selecting the companys brand?

(Would you answer be different if everybody is doing it?)


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For Discussion: Your Opinion

Is it unethical for a credit card company toaggressively try to sign up new accounts when, after

an introductory period of interest-free or low-interest

charges on unpaid monthly balances, the interest rateon unpaid balances jumps to 1.5 percent or more

monthly (even though such high rates of 18 percent

or more annually are disclosed in fine print)?


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What Is Corporate Social Responsibility?

The notion that corporate executives shouldbalance interestsof all stakeholdersbegan to

blossom in the 1960s

Social respons ibi l i tyas it applies to businesses

concerns a companys dutyto

Operate in an honorable manner

Provide good working conditions for employees

Be a good steward of the environment

Actively work to better quality of life in

Local communities where it operates and

Society at large

Wh t I S i ll R ibl


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What Is Socially ResponsibleBusiness Behavior?

A company should strive to balance strategicact ions To benefit shareholders against any possible adverse

impacts on other stakeholders

To be a good corporate citizen Social ly respons ible behaviorsinclude Corporate philanthropy

Actions to earn trust and respect of stakeholders fora firms efforts to improve the general well-being of

Customers Employees

Local communities

Society

Environment

Fig 10 2: Categories of Socially Responsible Business Behavior


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Fig. 10.2: Categories of Socially Responsible Business Behavior


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Linking Strategy and Social Responsibility

The combinationof socially responsible endeavorsacompany elects to pursue defines its socialresponsibility strategy

Management should matcha companys

social responsibility strategyto its Core values

Business mission

Overall strategy

Some companies are integrating socialresponsibility objectivesinto their Missions

Performance targets

Strategies

Th M l C f


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Businesses should promote the betterment ofsociety, acting in ways to benefit all their

stakeholders because

Its the right thing to do!

Based on an implied social contract ,society Grants a business the right to conduct its business affairs

Agrees not to unreasonably restrain a business pursuit of a

fair profit

In return for a license to operate,

a business should

Act as a responsible citizen

Do its fair share to promote the general welfare

The Moral Case forCorporate Social Responsibility

R t B h i


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Reasons to Behave in aSocially Responsible Manner

Generates internal benefi ts Enhances recruitment of quality employees

Increases retention of employees

Improves employee productivity

Lowers costs of recruitment and trainings

Reduces r isk of repu tat ion -damaging

inc idents ,leading to increased buyer patronage

Works in best interest of shareho lders

Minimizes costly legal and regulatory actions

Provides for increased investments by socially consciousmutual funds and pension benefit managers

Focusing on environment issues may enhance earnings


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Test Your Knowledge

Which one of the following is fa lseas concerns the merits ofwhy acting in a socially responsible manner is goodbusiness?

A. To the extent that a companys socially responsible behavior winsapplause from consumers and fortifies its reputation, a company

may win additional patronage.B. Acting in a socially responsible manner reduces the risk of

reputation-damaging incidents.

C. Acting in a socially responsible manner is in the overall best interestof shareholders.

D. Acting in a socially responsible manner is unlikely to have any effect(positive or negative) on a companys profitability.

E. Acting in a socially responsible manner can generate internal

benefits (as concerns employee recruiting, workforce retention,training, and improved worker productivity).

B t D W R ll W t D G d


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Four different views exist regarding use of companyresources by do-good executives in pursuit of a better

world

1. Any money authorized for social responsibility

initiatives is theft from a companys shareholders

2. Caution should be exercised in pursuingvarious societal obligations since this

Diverts valuable resources

Weakens a companys competitiveness

3. Social responsibilities are best satisfied through conventional

business activities (doing what businesses are supposed to do,which does not include social engineering)

4. Spending money for social causes

Muddies decision making by diluting focus on a firms business

mission

Thrusts executives into role of social engineers

But Do We Really Want Do-GoodExecutives Is There a Downside?

H M h Att ti t


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How Much Attention toSocial Responsibility Is Enough?

What is the appropr iate balancebetween Creat ing v aluefor shareholders?

Obl igat ion to cont r ibuteto the larger social good?

What f ract ionof a firms resourcesought to be aimed at

Addressing soc ia l concerns?

Bettering the well-beingofsocietyand the env i ronment?

Approachesto funda soc ial respons ib i l ity s trategy can

Allocate a specified percentage of profits

Avoid committing a specified percentage of profits

No widelyaccepted standardforjudg ingif a company

hasful f i l leditsci t izenship respons ib i l i tiesexists!

Li ki S i l P f T t


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Linking Social Performance Targetsto Executive Compensation

A surefire way to enl ist a genuine commi tmenttoco rpo rate social responsibi l i ty ini t iat ivesis to

Link achievement of social performance targets to

executive compensation

Key ro leof board of d i rectors Incorporate measures of a companys

social and environmental performance

into its evaluation of top executives

Key ro leof top execut ives

Use compensation incentives to enlist support of down-

the-line company personnel to craft and execute a social

responsibility strategy

ethics thompson

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