Strategic Management

Strategy, Ethics,
and Social
Responsibility
Amin Wibowo
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10-2

There is one and only one social

responsibility of business to use its

resources and engage in activities

designed to increase its profits so long as

it stays within the rules of the game,

which is to say engages in free and open

competition, without deception or fraud.
Milton Friedman, Nobel Prize-winning economist
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Chapter Roadmap

What Do We Mean by Business Ethics?

Where Do Ethical Standards Come From Are

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 Ethics

and Social Responsibility
Key Issues
there be a link between a companys
efforts to craft and execute a winning strategy
and its duties to

Should

Conduct activities in an ethical manner?

Demonstrate socially responsible behavior by

Being a committed corporate citizen?

Attending to needs of non-owner stakeholders?

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What Is Business Ethics?

Business

ethics involves applying general ethical

principles and standards to business behavior

Ethical

principles in business are not different

from ethical principles in general

Business

actions are judged

By general ethical standards of society

Not by a set of rules businesspeople

apply to their own conduct
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ETHICS: MURKIER THAN YOU THINK

2009 South-Western, a division of Cengage

Learning

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UNIVERSAL ETHICAL STANDARDS

Developed by Character
Counts, a nonpartisan
organization of educators,
community leaders, and
ethicists.

2009 South-Western, a division of Cengage

Learning

10
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Are Ethical Standards Universal or

Dependent on Local Norms?
Three schools of thought regarding extent
to 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 school of ethical universalism . . .

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 operating
in a variety of

Country markets and

Cultural circumstances
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Examples of Universal
Ethical Principles or Norms
Honesty
Trustworthiness
Treating

people with dignity and respect

Respecting
Practicing

Avoiding

rights of others

the Golden Rule

unnecessary harm to

Workers

Users of a companys product or service

Respecting

the environment
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What Is the Appeal

of Ethical Universalism?
Draws

on collective views of multiple societies

and cultures to place clear boundaries on what
constitutes

Ethical business behavior and

Unethical business behavior
Regardless of what country a company is operating in

Whenever basic moral standards do not 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 of ethical relativism . . .

Different societies/cultures/countries

Put more/less emphasis on some values than others

Have different standards of right and wrong

Have different social mores 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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Payment of Bribes and Kickbacks

A

thorny ethical problem is faced

by multinational companies
Degree

of cross-country variability in paying

bribes as part of business transactions

Companies

forbidding payment of bribes in their

codes of ethics face a formidable challenge in
countries where payments are entrenched as a
local custom

Foreign

Corrupt Practices Act prohibits U.S.

companies from paying bribes in all countries
where they do business
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Country Rank

143

Country /Territory

CPI
Score
2007

New Zealand

9.4

Denmark

9.4

Finland

9.4

Singapore

9.3

Sweden

9.3

Gambia

2.3

Indonesia

2.3

Togo

2.3

Russia

2.3

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Data 2012 & 2014

2012

2014

Denmark

90

92

Finland

90

91

New Zealand

90

89

Sweden

88

87

Singapore

87

84

Switzerland

86

86

Australia

85

80

Norway

85

86

Canada

84

81

Netherlands

84

83

Indonesia

32

34

118/107

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Bribery Perception Index 2012

1

Netherlands

8.8

Switzerland

8.8

Belgium

8.7

Japan

8.6

Australia

8.5

Singapore

8.3

25

Indonesia

7.1

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Ethical Relativism =
Multiple Sets of Ethical Standards
Proponents

of the ethical relativism school maintain

there are
Few ethical absolutes to judge a companys
conduct in various countries
Plenty of situations where ethical
norms are contoured to fit

Local customs and traditions

Local beliefs about what 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 relativism rule of when in Rome, do

as the Romans do presents problems

When the envelope is pushed, it is

tantamount to rudderless ethical standards
It is ethically dangerous for company personnel
to 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 Integrative
Social Contracts Theory
According

to the integrative social contracts

theory, the ethical standards a company should try
to uphold are governed by both

A limited number of universal ethical principles that

are widely recognized as putting legitimate ethical
boundaries on actions and behavior in all situations

and

The circumstances of local cultures, traditions, and

shared values that further prescribe what constitutes

Ethically permissible behavior and

What does not

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Appeal of Integrative
Social Contracts Theory
Universal ethical principles establish moral free space
based 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 standards

they call for provide appropriate ethical guidance

Social contracts theory maintains adherence to

universal or first-order ethical norms should always
take precedence over local or second-order norms!
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Three Categories of Management Morality

Moral manager
Managerial
ethical and
moral
principles

Immoral
manager

Amoral manager
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Characteristics of a Moral Manager

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

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Characteristics of an Immoral Manager

Actively

opposes ethical behavior in business

Willfully ignores ethical principles in making
decisions
Views legal standards as barriers to overcome
Pursues own self-interests
Is an example of capitalistic greed
Ignores interests of others
Focuses only on bottom line
making ones numbers
Will trample on others to avoid being trampled upon
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Characteristics of an
Intentionally Amoral Manager
Believes

business and ethics should not

be 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, competitive
business world
Concept of right and wrong is lawyer-driven (what
can we get by with without running afoul of the law)
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Characteristics of an
Unintentionally Amoral Manager
Is

blind to or casual about ethics of

decision-making and business actions

Displays

lack of concern regarding

whether ethics applies to company actions

Sees

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
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Evidence of Managerial Immorality

in the Global Business Community
Evidence

exists a sizable majority of managers are

either

Amoral or

Immoral

Results

of the 2005 Global Corruption Report

indicate corruption is widespread across the world

Corruption

extends beyond bribes and kickbacks

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Do Company Strategies
Need to Be Ethical?
Approaches

of most company managers

Ensure a companys strategy is legal

May or may not ensure all elements of strategies are
ethical
Approach

of senior executives with strong

ethical convictions

Insist all aspects of strategy fall within ethical boundaries

Approach

of immoral or amoral senior

executives

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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What Are the Drivers of Unethical

Strategies and Business Behavior?
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
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Overzealous Pursuit of Personal Gain,

Wealth, and Selfish Interests
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
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Heavy Pressures on Company Managers

to Meet or Beat Earnings Targets

Managers often feel enormous pressure to do whatever

it 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 company
performance
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
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Company Culture Places Profits and Good

Performance 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 a
Companys 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 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 make
greatest possible profit at most any cost
Strategies used, while legal, may embrace
elements that are ethically shady
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Characteristics of
Damage 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 way when shady
behavior occurs
Executives may condone questionable
actions that help a company reach
earnings targets or bolster its market
standing
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Characteristics of
Compliance Approach

From light to forceful compliance is favored

at 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 broad

compliance and measuring degree
to which ethical standards are upheld
Commitment to eradicate unethical
behavior stems from a desire to

Avoid 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 regular

part of communications with employees

Implement
Appoint

Have

ethics training programs

a chief ethics officer

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 Weakness
of 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 of
Ethical 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 ethical
behaviors 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 strategy is

Good business

In the best interest of shareholders

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Characteristics of Managers Committed

to Ethical Approaches to Strategy-Making

Possess strong moral and ethical characteristics

Strongly advocate a corporate code
of ethics and strict ethics compliance
Display genuine commitment to certain corporate
values and business practices
Walk the talk in
Displaying a companys stated values
Living up to ethical business principles and standards

Adopt values statements/ethics codes

that truly paint the white lines for a
companys business practices
Consciously opt for strategic
actions passing moral scrutiny
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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 cosmetic

role, 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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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 companys duty to

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
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What Is Socially Responsible

Business Behavior?
A

company should strive to balance strategic

actions

To benefit shareholders against any possible adverse

impacts on other stakeholders
To be a good corporate citizen

Socially responsible behaviors include

Corporate philanthropy
Actions to earn trust and respect of stakeholders for
a firms efforts to improve the general well-being of

Customers
Employees
Local communities
Society
Environment
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RESPONSIBILITY TO
EMPLOYEES

Creating Jobs that Work

CUSTOMERS

Value, Honesty and Communication

INVESTORS

Fair Stewardship and Full Disclosure

COMMUNITY

Business and the Greater Good

ENVIRONMENT

Sustainable Development

2009 South-Western, a division of Cengage

Learning

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RESPONSIBILITY TO
EMPLOYEES: CREATING JOBS
THAT WORK

A. Meet

Legal Standards
B. Workplace Safety
C. Minimum Wage/Overtime
Requirements
D. Value Employees
E. Provide Work/Life Balance

2009 South-Western, a division of Cengage

Learning

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DOES IT PAY TO PAY MORE?

Average hourly wage

Annual health costs per worker
Covered by health plan
Employee turnover
Labor and overhead costs
Profits per employee
2009 South-Western, a division of Cengage Learning

Costco

Wal-Marts
Sams Club

$15.97
$5,735
82%
6%/yr
9.8% of sales
$13,647

$11.52
$3,500
47%
21%/yr
17% of sales
$11,039
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RESPONSIBILITY TO CUSTOMERS
CONSUMERISM:
The Right to Be Safe

The Right to Be Informed

The Right to Choose
The Right to be Heard

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Learning

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ROTTEN APPLE?

Planned Obsolescence
Deliberately designing products
to fail in order to shorten
the time between consumer
repurchases

APPLE COMPUTERS:
iPods had irreplaceable battery.
Batteries died after 18 months.
Customers were encouraged to
purchase new iPods

Two customers posted high profile

protest movies online.
APPLE announced replacement
program.

2009 South-Western, a division of Cengage

Learning

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RESPONSIBILITY TO
INVESTORS
FAIR STEWARDSHIP AND FULL DISCLOSURE
A. Legal
A.

Requirements

Sarbanes-Oxley

B. Responsible

use of Corporate

Dollars
A.

Honesty

C. Is

Optimism or Pessimism
Socially Responsible?

2009 South-Western, a division of Cengage

Learning

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RESPONSIBILITY TO
COMMUNITY
Cause-related Marketing
partnerships between businesses
and nonprofit organizations,
designed to spike sales for the
Corporate Responsibility company and raise money
The actions of the business
for the nonprofit.
rather than donations of
Corporate Philanthropy money and time.
business donations to
nonprofit groups, including
both money and time.

2009 South-Western, a division of Cengage

Learning

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RESPONSIBILITY TO ENVIRONMENT

Green Marketing
marketing environmental
products and practices
to gain a competitive edge.

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Learning

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RESPONSIBILITY TO ENVIRONMENT
A. Responsibility

to environment is a part of
responsibility to community

A. Reducing

the amount of trash is more

important than recycling

A. Although

consumers support green

marketing, they may not be willing to sacrifice
quality
2009 South-Western, a division of Cengage
Learning

60
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FIGURE 2.4: Spectrum of Approaches

to Corporate Social Responsibility

2009 Pearson Education, Inc.

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Categories of Socially Responsible Business Behavior

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Linking Strategy and Social Responsibility

The combination of socially responsible endeavors a

company elects to pursue defines its social
responsibility strategy
Management should match a companys
social responsibility strategy to its

Core values
Business mission
Overall strategy

Some companies are integrating social

responsibility objectives into their

Missions
Performance targets
Strategies
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The Moral Case for

Corporate Social Responsibility
Businesses

should promote the betterment of

society, 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

return for a license to operate,

a business should

In

Act as a responsible citizen

Do its fair share to promote the general welfare
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Reasons to Behave in a
Socially Responsible Manner
Generates

internal benefits

Enhances recruitment of quality employees

Increases retention of employees
Improves employee productivity
Lowers costs of recruitment and trainings
Reduces

risk of reputation-damaging
incidents, leading to increased buyer patronage
Works in best interest of shareholders

Minimizes costly legal and regulatory actions

Provides for increased investments by socially conscious
mutual funds and pension benefit managers
Focusing on environment issues may enhance earnings
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But Do We Really Want Do-Good

Executives Is There a Downside?

Four different views exist regarding use of company

resources by do-good executives in pursuit of a better
world
1.
2.

Any money authorized for social responsibility

initiatives is theft from a companys shareholders
Caution should be exercised in pursuing
various societal obligations since this

Diverts valuable resources

Weakens a companys competitiveness

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
3.

Muddies decision making by diluting focus on a firms business

mission
Thrusts executives into role of social engineers
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How Much Attention to

Social Responsibility Is Enough?

What is the appropriate balance between

Creating value for shareholders?

Obligation to contribute to the larger social good?

What fraction of a firms resources ought to be aimed at

Addressing social concerns?

Bettering the well-being of society and the environment?

Approaches to fund a social responsibility strategy can

Allocate a specified percentage of profits

Avoid committing a specified percentage of profits

No widely accepted standard for judging if a company

has fulfilled its citizenship responsibilities exists!
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Linking Social Performance Targets

to Executive Compensation
A

surefire way to enlist a genuine commitment to

corporate social responsibility initiatives is to

Link achievement of social performance targets to

executive compensation

Key

Incorporate measures of a companys

social and environmental performance
into its evaluation of top executives

Key

role of board of directors

role of top executives

Use compensation incentives to enlist support of downthe-line company personnel to craft and execute a social
responsibility strategy
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