Download Strategic Choices, Ethics and Social Responsibility

Ashesi University
COURSE TITLE : COMPETITIVE STRATEGY
SEMESTER : 1ST 2011/2012
MODULE 8: Strategic Choices and Formulation:
Strategy, Ethics and Social Responsibility
Lecturer : Ebow Spio
Learning Objectives
• Understand why business conduct is judged according to the
ethical standards of society at large rather than a special set of
ethical standards for businesses only
• Understand the principal drivers of unethical strategies and
business behaviour
• Learn why unethical business conduct can be very costly for a
company’s shareholders
• Become familiar with the various approaches to managing a
company’s ethical conduct
• Gain an understanding of the concepts of corporate social
responsibility, corporate citizenship, and environmental
sustainability
• Become familiar with both the moral case and the business case
for ethical business conduct and socially responsible business
behaviour
Linking Strategy to Ethics and Social
Responsibility
Key Issues
• Should there be a link between a company’s efforts
to craft and execute a winning strategy and its duties
to
– Conduct activities in an ethical manner?
– Demonstrate socially responsible behavior by
• Being a committed corporate citizen?
• Attending to needs of non-owner stakeholders?
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
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
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
Examples of Universal
Ethical 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 company’s product or service
• Respecting the environment
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
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
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
Ethical Relativism =
Multiple Sets of Ethical Standards
• Proponents of the ethical relativism school maintain there are
– Few ethical absolutes to judge a company’s
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
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
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
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!
Three Categories of Management Morality
Moral manager
Managerial
ethical and
moral
principles
Immoral
manager
Amoral manager
Characteristics of a Moral
Manager
• Dedicated to high standards of ethical behavior in
– Own actions
– How the company’s 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 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 one’s numbers
• Will trample on others to avoid being trampled upon
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)
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 with—if it is not illegal, it is allowed
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
Do Company Strategies Need to Be
Ethical?
• Approaches of most company managers
– Ensure a company’s 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
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
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
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
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 “what’s 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
Approaches to Managing a
Company’s Ethical Conduct
Unconcerned or non-issue approach
Damage control approach
Compliance approach
Ethical culture approach
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
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
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
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 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
Potential Weakness of Compliance
Approach
• Moral control resides in a company’s
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 individual’s own moral
responsibility for ethical behavior
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
– Company’s ethical standards
– Business principles
– Corporate values
• Ethical principles in company’s 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
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
Test Your Knowledge
Which one of the following is false when it comes to making a
case for why a company’s strategy should be ethical?
A. An unethical strategy can put a company’s 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.
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 company’s stated values
– Living up to ethical business principles and standards
• Adopt values statements/ethics codes
that truly paint the white lines for a
company’s business practices
• Consciously opt for strategic
actions passing moral scrutiny
Fig. 10.1: The Business Costs of Ethical Failures
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 company’s strategy and
– Conducting every facet of a company’s 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?
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 firm’s efforts to improve the general well-being of
•
•
•
•
•
Customers
Employees
Local communities
Society
Environment
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 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
Fig. 10.2: Categories of Socially Responsible Business Behavior
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 company’s
social responsibility strategy to its
– Core values
– Business mission
– Overall strategy
• Some companies are integrating social
responsibility objectives into their
– Missions
– Performance targets
– Strategies
The Moral Case for Corporate Social
Responsibility
• 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 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
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
Test Your Knowledge
Which one of the following is false as concerns the merits of why
acting in a socially responsible manner is “good business”?
A. To the extent that a company’s socially responsible behavior wins
applause from consumers and fortifies its reputation, a company may
win additional patronage.
B. Acting in a socially responsible manner reduces the risk of reputationdamaging incidents.
C. Acting in a socially responsible manner is in the overall best interest of
shareholders.
D. Acting in a socially responsible manner is unlikely to have any effect
(positive or negative) on a company’s profitability.
E. Acting in a socially responsible manner can generate internal benefits
(as concerns employee recruiting, workforce retention, training, and
improved worker productivity).
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. Any money authorized for social responsibility
initiatives is theft from a company’s shareholders
2. Caution should be exercised in pursuing
various societal obligations since this
• Diverts valuable resources
• Weakens a company’s 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 firm’s business mission
• Thrusts executives into role of social engineers
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 firm’s 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!
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 role of board of directors
– Incorporate measures of a company’s
social and environmental performance
into its evaluation of top executives
• Key role of top executives
– Use compensation incentives to enlist support of downthe-line company personnel to craft and execute a social
responsibility strategy