Chapter 9: Ethical Business Strategies, Social Responsibility, And Environmental Sustainability

1. Chapter 9: Ethical Business Strategies, Social Responsibility, And Environmental Sustainability Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University

2. Figure 9.1: The Business Costs of Ethical Failures 8-2

3. Approaches to Managing a Company’s Ethical Conduct Unconcerned or Nonissue Approach Damage Control Approach Compliance Approach Ethical Culture Approach 8-3

4. Table 9.2: Four Approaches to Managing Business Ethics 8-4

5. Characteristics of Unconcerned Approach • Prevalent at companies whose executives are immoral and unintentionally amoral • Notions of right and wrong in business matters are defined by government via prevailing laws and regulations —after that, anything 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 embraceelements that are ethically shady

6. Characteristics ofDamage Control Approach • Favored at companies whose managers are intentionally 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 impact of shady actions • Executives look the other waywhen shady behavior occurs • Executives may condone questionable actions that help a company reach earnings targets or bolster its market standing

7. Characteristics ofCompliance Approach • From light to forceful compliance is favoredat companies whose managers • Lean toward being somewhat amoral but are highlyconcerned about having ethically upstanding reputations or • Are moral and see strong compliance methods as best way to impose and enforce high ethical standards • Ethics code violators are disciplined, sending a clear signal that complying with ethical standards must be taken seriously • Commitment to eradicate unethicalbehavior stems from a desire to • Avoid cost and damage associatedwith unethical conduct or • Gain favor from stakeholders from having ahighly regarded reputation for ethical behavior

8. Pursuing a Compliance Approach:Typical Actions • Make code of ethics a visible and regular part of communications with employees • Implement ethics training programs • Appoint a chief ethics officer • Have ethics committees togive guidance on ethics matters • Institute formal procedures forinvestigating alleged ethics violations • Conduct ethics audits to measure and document compliance • Install ethics hotlines to help detect and deter violations

9. Potential Weaknessof Compliance Approach • Moral control resides in a company’scode of ethics and in the ethicscompliance system rather than in • Strong peer pressures for ethicalbehavior that come from ingraininga highly ethical corporate culture and • An individual’s own moralresponsibility for ethical behavior

10. 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 • Company’s ethical standards • Business principles • Corporate values • Ethical principles in company’s codeof ethics are integral to company’s • Identity and self-image • Day-to-day operations • Strategy must be ethical • Employees must display ethical behaviors in executing the strategy

11. What Is Corporate Social Responsibility? • The notion that corporate executives should balance interests of all stakeholders began to blossom in the 1960s • Social responsibility as it applies to businesses concerns a company’s 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

12. Concepts of Social Responsibilityand Corporate Citizenship • A company should strive to balance strategic actionsto benefit shareholders against the duty to be a good corporate citizen • Socially responsible behaviors go beyond • Complying with legal requirements and • Corporate philanthropy activities • Socially responsible behaviors also entail actions to earn trust and respect of stakeholders for efforts to improve the well-being of • Employees • Local communities • Environment • Customers • Society

13. Figure 9.2: Demonstrating a Social Conscience: The FiveComponents of Socially Responsible Business Behavior 8-13

14. What Is a Social Responsibility Strategy? • A company’s specific combinationof socially beneficial and community citizenship activities it opts to support via contributions of • Time, • Money, • Other resources. 8-14

15. What Is an Environmental Sustainability Strategy? • A company’s concerted actions to meet current needs of all stakeholders to • Protect the environment, • Provide for the longevityof natural resources, • Maintain ecological supportsystems for future generations, and • Guard against ultimate endangermentof the planet. 8-15

16. Characteristics of Environmental Sustainability Initiatives • Frequently focus on improving a company’s “Triple-P” performance • People • Planet • Profit • Convey beneficial outcomes via • Press releases • Special sustainability reports for stakeholders

17. Example: Unilever’s Environmental Sustainability Strategy Tracked 11 sustainability agricultural indicators in its processed foods business Launched various programs to improve environmental performance of suppliers Reengineered internal processes to improve overall performance on sustainability measures Redesigned packaging for many products to conserve natural resources and reduce volume of consumer waste Addressed societal needs of consumers in developing countries 8-17

18. Table 9.3: Companies With Exceptional Commitments to Sustainability 8-18

19. Crafting Social Responsibility and Sustainability Strategies • The socially responsible/sustainability strategies a company pursues impacts its ability to achieve a competitive advantage • Management should match a company’ssocial responsibility/sustainabilty strategy to its • Core values • Business mission • Overall strategy • Some companies are integrating social responsibility and/or environmentally sustainability objectives into their • Missions • Performance targets • Strategies

20. Moral Case: Corporate Social Responsibility and Environmentally Sustainable Business Practices • Businesses should promote the betterment of society, acting in ways to benefit all their stakeholders because • “It’s the right thing to do!” • Based on an implied social contract, society • Grants a business the right toconduct its business affairs • Agrees not to unreasonably restraina firm’s 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

21. Business Case: Socially Responsible Behavior and Environmentally Sustainable Business Practices • Generates internal benefits • Enhances recruitment of quality employees • Increases retention of employees • Improves employee productivity • Lowers costs of recruitment and training • Reduces risk of reputation-damagingincidents, leading to increased buyer patronage • Works in best interest of shareholders • Minimizes costly legal and regulatory actions • Provides for increased investmentsby socially conscious mutual fundsand pension benefit managers • Focusing on environment issuesmay enhance earnings