CHAPTER 3

Ethics & Social

Responsibility

STRATEGIC MANAGEMENT & BUSINESS POLICY

10TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER

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 Ethics & Social Responsibility

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 Social Responsibility

Dr. Milton Friedman (1931-)

“Business should not assume direct

responsibility on both practical and
theoretical grounds”

“THE BUSINESS OF BUSINESS IS BUSINESS”

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 Social Responsibility
Acting from motives other than economic may,
in the long run, harm the very society the firm
is trying to help.

By taking on the burden of these social costs,

the business becomes less efficient – either
prices go up to pay for the increased costs or
investment in new activities and research is
postponed. The results negatively affect –
perhaps fatally – the long-term efficiency of a
business.
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 Social Responsibility

Milton Friedman
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 open and free competition
without deception or fraud.

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 Corporate Governance

Dr. Keith Davis

“Social responsibility goes hand in

hand with social power, and since
business is the most powerful force in
contemporary life, it has the
obligation to assume corresponding
social responsibility.”

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 Corporate Governance

Broader responsibility --

Private corporations have responsibility to

society that extend beyond making a profit

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 Corporate Governance

DEGREES OF CORPORATE SOCIAL

RESPONSABILITY INVOLVEMENT

Social Obligation Approach : Meet only legal

obligations,
Social Responsibility Approach : Meet legal
obligations and current social obligations that
directly effect business
Social Responsiveness Approach : Meet legal
obligations and anticipated social obligations
related to emerging trends/problems even if only
indirectly affect business

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 Carroll’s 4 Responsibilities

… in order of priority …

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 Carroll’s 4 Responsibilities

Both Friedman and Carroll consider socially

responsible actions on firm’s profits:

-For Friedman socially responsible

actions hurts firms profitability

-For Carroll lack of it will cause increased

government intervention, which in turn
reduce firm’s efficacy

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 Corporate Governance

Porter & Kramer

“Social and economic goals are not

inherently conflicting, but integrally
connected.”

Being known as a socially responsible firm

may provide a company with social capital,
the goodwill of key stockholders, that can
used for competitive advantage.

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 Corporate Governance

Porter & Kramer

-Environmental concerns may make consumers pay
high prices and confirm brand loyalty.
-Trustworthiness may help the firm generate enduring
relationships with suppliers and distributors.
-Firm may attract good employees.
-They can utilize the goodwill of public officials for
support in difficult times.
-They are more likely to attract capital infusions from
investors.

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 Corporate Governance

Carroll’s 4 Responsibilities
–Economic
Economic responsibilities of a business are to
produce goods services of value to society
–Legal
Legal responsibilities are defined by governments
in laws that management is expected to obey
–Ethical
Ethical responsibilities of a business are to follow
the generally held beliefs about behavior in society
–Discretionary
Purely voluntary obligations. (Philanthropic, etc)

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 Corporate Stakeholders

Corporate Stakeholders
Affect or are affected by the achievement
of the corporation’s objectives

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 Organizational Stakeholders

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 Corporate Stakeholders

Stakeholder Analysis –
–Primary stakeholder
•Sufficient bargaining power to affect outcomes
(Customers , Employees , Suppliers , Shareholders , Creditors)

–Secondary stakeholder
•Indirect stake but are affected by corporation’s actions
(Governments , NGO’s , Activists , Local communities , trade
associations , Competitors)

–Stakeholder Input
•Determine whether input is necessary

WHAT SEEMS AT FIRST TO BE THE BEST DECISION BECAUSE IT

APPEARS TO BE THE MOST PROFITABLE MAY ACTUALLY RESULT
IN THE WORST SET OF CONSEQUENCES TO THE CORPORATION

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 Ethical Behavior

“business ethics”

Business Ethics – principles and

standards that determine acceptable
conduct in business

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 What is Ethical Behavior?

Competing Fairly
and Honestly

Communicating
Truthfully

Not Harming Others

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 Ethical Behavior

“business ethics”

–Argument that there is no such thing … it is an

oxymoron

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 Reasons for Unethical Behavior

70% of executives representing 111 diverse

nations and multinational corporations reported
that they bend the rules to attain their objectives.

The three most common reasons given were:

–Organizational performance required it – 74%

–Rules were ambiguous or out of date – 70%
–Pressure from others and everyone does it – 47%

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 Ethical Decision Making

Corporate practices --

–Massive write-downs and restatements of profit

–Misclassification of expenses as capital
expenditures
–Pirating corporate assets for personal gain

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 Ethical Decision Making

Recent Survey Results --

–70% distrust business executives

–Enron
–WorldCom
(creative to aggressive to fraudulent)

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 Reasons for Unethical Behavior

Provocative Question --

–Why are businesspeople perceived to be

acting unethically?

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 Reasons for Unethical Behavior

Perceptions caused by --

–Not aware of impropriety

–Cultural norms and values vary
–Governance systems based on rule or
relationships
–Differences in values between
businesspeople and key stakeholders

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 Reasons for Unethical Behavior

Allport-Vernon-Lindzey
Study of Values --

–Aesthetic
–Economic
–Political
–Religious
–Social
–Theoretical

US and UK executives consistently score

highest on economic values and lowest on
social values 
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 Moral Relativism

Morality is relative to some personal, social,

or cultural standard and there is no method
for deciding whether one decision is better
than another.

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 Kohlberg’s Levels of Moral Development

Kohlberg’s Levels of Moral Development

1. Preconvention level
–Characterized by a concern for self
•Personal interest
•Avoidance of punishment
2. Conventional level
–Characterized consideration of society’s values
•External code of conduct
3. Principled level
–Characterized by adherence to internal moral
code
•Universal values or principles

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 Encouraging Ethical Behavior

Codes of Ethics

–Specifies how an organization expects its

employees to behave on the job.

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 Encouraging Ethical Behavior

Guidelines for Ethical Behavior

–Ethics
Consensually accepted standards of behavior for
an occupation, a trade, or a profession

–Morality
Precepts of personal behavior based on religious
or philosophical grounds

–Law
Formal codes that permit or forbid certain
behaviors
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 Encouraging Ethical Behavior

Approaches to Ethical Behavior

–Utilitarian
•Judged by consequences
(Does it optimize the satisfaction of all stakeholders?)

–Individual Rights
•Fundamental rights in all decisions
(Does it respect the rights of the individuals involved?)

–Justice
•Distribution in equitable fashion
(Does it consistent with the canons of justice?)

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 Encouraging Ethical Behavior

Approaches to Ethical Behavior

–Categorical imperative (Immanuel Kant)

•“golden rule”
Treat others as you would like them to treat you

•Means - Ends
A person should never treat other human beings
as means for advancing his or her own interests

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 Strategy Bits

Improving Ethical Behavior in Business

Ethical decisions in an organizations are influenced by three key factors

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 Responsibility
Toward Consumers
Product Safety

Accurate Information

Freedom of Choice

Right to Be Heard
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 Strategy Bits

192 U.S. companies surveyed --

–92% monitored employees use of e-mail/Internet

–26% monitored employees electronic activities all

the time

–Almost none had checks in place to protect

employees privacy

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