case study

Chapter 3:

AND BUSINESS ETHICS

LEARNING OBJECTIVES 1. Understand the stakeholder approach

2. Explain the continuum of social responsibility

3. Describe a social audit

4. Discuss the Sarbanes-Oxley Act

5. Explain the 5 principles of collaborate social initiatives and compare the advantages

6. Compare different approaches to business ethics and the relevance to strategic management practice.

2

STAKEHOLDER APPROACH TO SOCIAL RESPONSIBILITY

• In (re)defining the company mission, strategic managers must recognize / assess legitimate rights of the firm’s claimants.

• The mission statement embodies company beliefs

• Managers must identify stakeholders and weigh their relative rights and abilities to affect success

3

So who are they?

Examples (internal and external stakeholders)

4

BOD Unions (internal?)

Competitors (debated)

MISSION

Steps to Incorporate Stakeholders

1. Identify stakeholders

2. Understand their specific claims vis-à-vis the firm

3. Reconcile these claims and assign priorities

4. Coordinate claims with other elements of the company mission

5

Why?

e.g.s: political party manifestos, company policies, company income streams, etc

CORPORATE SOCIAL RESPONSIBILITY (CSR)

• The idea that business has a duty to serve society in general, not just the financial interests of stockholders.

• Elkington’s ‘triple bottom line’: PEOPLE - PLANET – PROFIT (see Balanced Scorecard later)

6

TYPES OF SOCIAL RESPONSIBILITY • Ethical – the firm’s notion of proper business behavior

• Discretionary – voluntary – donations, policies etc

• Economic – the duty to maximize stockholder wealth

• Legal – regulatory / legal obligations o e.g. (child) labor laws, EPA rules, 1977 Foreign Corrupt Practices Act ,

1879 Alien Tort Claims Act, FL Deceptive and Unfair Trade Practices Act, tobacco / Oxycodone lawsuits etc.

7

Do you agree with all of these being

classified as ‘CSR’?

‘The social responsibility of business is to increase its profits’ – NYT 1970 article

8

CSR and Profitability • Complex dynamic between CSR and success (profit). They are

not mutually exclusive. o Socially responsible practices may create savings, and so increase profits o Brand risk if CSR issues not addressed – growing role of social media (Rana Plaza, cage

free eggs, sexual harrassment cover ups, Nike child labor, etc…)

• Better to view CSR as a component in the decision-making process that must determine, among other objectives, how to maximize profits.

• Proponents argues that CSR costs are offset in the long run by an improved company image.

• Conflicting pressures on executives: need to move beyond easy option of donations, but avoid overreaching commitments.

• Growing public demand for more than ‘greenwashing’.

9

SOCIAL AUDIT

• Measures a company’s actual social performance against its objectives (think financial audit – checking you are doing what you said you would).

• Can support internal / external CSR reporting.

10

Ex. 3.14 Continuum of CSR commitments

COLLABORATIVE SOCIAL INITIATIVES (CSIs)

• Collaboration can provide best social AND strategic payoffs

• Often partnerships (United Way etc)

11Ex. 3.15 Five principles of successful CSI collaboration

The Nature of Ethics in Business Ethics: – the moral principles that reflect society’s beliefs about actions that are right and wrong

• Belief that managers will behave in an ethical manner is central to CSR

• Trends: o Increased interest in codifying / formalizing, beyond the

employee handbook. o Adding enforcement measures. o Increased attention by companies in improving

employees’ training in understanding their obligations.

12

Approaches to Questions of Ethics • Utilitarian Approach

o Judging the appropriateness of the action based on a goal to provide the greatest good for the greatest number of people

• Moral Rights Approach o …goal to maintain the fundamental rights and privileges of

individuals and groups

• Social Justice Approach o based on equity, fairness, and impartiality in the distribution of

rewards and costs among individuals and groups  Liberty Principle  Difference Principle  Distributive-Justice Principle  Fairness Principle  Natural-Duty Principle

13

Codification of Business Ethics • To help ensure consistence in application of ethical

standards, certain professional associations and businesses are establishing codes of conduct:

o Chemists o Funeral directors o Law Enforcement Agents o Hockey Players o Librarians o Physicians

14

Sarbanes-Oxley Act of 2002 (‘SOX’) Strengthened auditing and accounting standards to

protect investors from corporate fraud

15

• CEO and CFO must certify reports containing financial statements

• Restricted corporate control of execs, auditing committees, attorneys…

• Specifies duties of registered public acting firms that conduct audits

• Composition and responsibilities of the audit committee

• Disclosure periods and stricter penalties

Ex. 3.12 Post-SOX: New Corporate Governance Structure

16

Heightened role of internal auditors

KEY TERMS

• Corporate social responsibility (CSR)

• Discretionary responsibilities

• Economic responsibilities

• Ethical responsibilities

• Legal responsibilities

• Moral rights approach

• Sarbanes-Oxley Act 2002

• Social audit

• Social justice approach

• Utilitarian approach

17