Dell's Environmental Sustainability

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chapter 9 Ethics, Corporate Social Responsibility, Environmental Sustainability, and Strategy

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Chapter 9 discusses the role and importance of ethical and socially responsible decision making as well as the AACSB International accreditation requirements. Values and ethics are highlighted in this chapter and their roles discussed as integral part of managerial tasks.

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Learning Objectives

After reading this chapter, you should be able to:

Understand why the standards of ethical behavior in business are no different from ethical standards in general.

Recognize the conditions that give rise to unethical business strategies and behavior.

Identify the costs of business ethics failures.

Understand the concepts of corporate social responsibility and environmental sustainability and how companies balance these duties with economic responsibilities to shareholders.

This chapter focuses on whether a company, in the course of trying to craft and execute a strategy that delivers value to both customers and shareholders, also has a duty to (1) act in an ethical manner; (2) be a committed corporate citizen, and allocate some of its resources to improving the well-being of employees, the communities in which it operates, and society as a whole; and (3) adopt business practices that conserve natural resources, protect the interests of future generations, and preserve the well-being of the planet.

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What Do We Mean By Business Ethics?

Business ethics:

Is the application of general ethical principles to the actions and decisions of businesses and the conduct of their personnel.

Are not materially different from ethical principles in general because business actions must be judged in the context of society’s standards of right and wrong.

Ethics concerns principles of right or wrong conduct.

Business ethics deals with the application of general ethical principles to the actions and decisions of businesses and the conduct of their personnel.

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Where Do Ethical Standards Come From—Are They Universal or Dependent on Local Norms?

Sources for Ethical Standards:

The school of ethical universalism.

The school of ethical relativism.

Integrative social contracts theory.

The School of Ethical Universalism

Ethical universalism:

Holds that common understandings across multiple cultures and countries about what constitutes right and wrong give rise to universal ethical standards that apply to all societies, all firms, and all businesspeople.

Effect on business ethics:

Whether a business-related action is right or wrong is judged by universal standards.

The school of ethical universalism holds that the most fundamental conceptions of right and wrong are universal and apply to members of all societies, all companies, and all businesspeople.

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The School of Ethical Relativism

Ethical relativism:

Holds that differing beliefs, customs, and behavioral norms across countries and cultures give rise to multiple sets of standards of what is ethically right or wrong.

Effect on business ethics:

Whether business-related actions are right or wrong depends on local ethical standards.

The school of ethical relativism holds that differing religious beliefs, customs, and behavioral norms across countries and cultures give rise to differing standards concerning what is ethically right or wrong.

These differing standards mean that whether business-related actions are right or wrong depends on the prevailing local ethical standards. Under ethical relativism, there can be no one-size-fits-all set of authentic ethical norms against which to gauge the conduct of company personnel.

Codes of conduct based on ethical relativism can be ethically problematic for multinational companies by creating a maze of conflicting ethical standards.

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Examples of Ethical Relativism Issues

Variations in Ethical Standards:

The use of underage labor.

The payment of bribes and kickbacks.

Relativism can result in multiple sets of standards.

The use of local morality to guide ethical behavior.

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ILLUSTRATION CAPSULE 9.1 Ethical Violations at Uber and their Consequences

Which of Uber’s several ethical lapses likely caused the greatest damage to Uber’s brand and repetition with ridesharing customers?

What must Uber do to regain its momentum in the ridesharing market?

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Ethics and Integrative Social Contracts Theory

Provides a middle-ground balance between universalism and relativism.

Posits that the collective views of multiple societies form universal (first order) ethical principles that all persons have a contractual duty to observe in all situations.

Within contract, cultures or groups can specify locally ethical (second-order) actions.

According to integrated social contracts theory, adherence to universal or “first-order” ethical norms should always take precedence over local or “second-order” norms.

In instances involving universally applicable ethical norms (like paying bribes), there can be no compromise on what is ethically permissible and what is not.

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Application of Integrated Social Contracts Theory to Multinational Business

Effects on ethical standards:

Adherence to universal ethical norms takes precedence over local norms.

A local custom is not ethical if it violates universal ethical norms.

Application of codes of ethics should first follow universal standards with allowance for local ethical diversity and influence.

According to integrated social contracts theory, universal ethical principles based on the collective views of multiple societies form a “social contract” that all individuals and organizations have a duty to observe in all situations.

Within the boundaries of this social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible. In instances involving universally applicable ethical norms (like paying bribes), there can be no compromise on what is ethically permissible and what is not.

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How and Why Ethical Standards Impact the Tasks of Crafting and Executing Strategy

The ethics code litmus test:

Areas of ambiguity: Is what we are proposing to do fully compliant with our code of ethics?

Conflict or potential problem: Is this action in harmony with our core values?

Ethically objectionable action: Will our stakeholders, our competitors, the SEC under the Sarbanes-Oxley Act, or the news and social media view this action as ethically objectionable?

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Consequences of Ethically Questionable Strategies

When Strategies Fail the Ethical Litmus Test:

Sizable civil fines and stockholder lawsuits.

Devastating image and public relations hits.

Sharp stock price drops as investors lose confidence.

Criminal indictments and convictions.

Four examples of strategies failing the ethical litmus test are:

Sizable civil fines and stockholder lawsuits

Devastating image and public relations hits

Sharp stock price drops as investors lose confidence

Criminal indictments and convictions

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Drivers of Unethical Business Strategies and Business Behavior

Unethical Strategies and Business Behaviors:

Faulty Oversight, Enabling the Unscrupulous Pursuit of Personal Gain and Self-Interest.

Heavy Pressures on Company Managers to Meet Short-Term Performance Targets.

A Company Culture That Puts Profitability and Business Performance Ahead of Ethical Behavior.

What Are the Drivers of Unethical Strategies and Business Behavior?

Drivers of unethical business behavior:

Faulty internal oversight allows self-dealing in the pursuit of personal gain, wealth, and self-interest.

Short-termism pressures managers to meet or beat short-term performance targets.

A culture that puts profitability and business performance ahead of ethical behavior drives unethical behavior and strategies.

Self-dealing occurs when managers take advantage of their position to further their own private interests rather than those of the firm.

Short-termism is the tendency for managers to focus excessively on short-term performance objectives at the expense of longer-term strategic objectives. It has negative implications for the likelihood of ethical lapses as well as company performance in the longer run.

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Why Should Company Strategies Be Ethical?

The moral case for an ethical strategy:

A strategy that is unethical is morally wrong and reflects badly on the character of the firm’s personnel.

The business case for ethical strategies:

An ethical strategy can be both good business and serve the self-interest of shareholders.

Conducting business in an ethical fashion is not only morally right, it is in a company’s enlightened self-interest.

Shareholders suffer major damage when a company’s unethical behavior is discovered. Making amends for unethical business conduct is costly, and it takes years to rehabilitate a tarnished company reputation.

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ILLUSTRATION CAPSULE 9.2 How PepsiCo Put Its Ethical Principles into Practice

What steps has PepsiCo taken to ensure that its ethical standards of employee conduct are put into practice?

Why has PepsiCo been so successful in instilling a culture of ethical conduct in its organization when other firms have not?

What has been the effect of PepsiCo’s dedication to ethical business practices on its success in the marketplace?

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The Visible Costs Companies Incur When Ethical Wrongdoing Is Discovered

Visible costs:

Government fines and penalties.

Civil penalties arising from class-action lawsuits and other litigation aimed at punishing the company for its offense and the harm done to others.

The costs to shareholders in the form of a lower stock price (and possibly lower dividends).

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The Internal Costs Companies Incur When Ethical Wrongdoing Is Discovered

Internal administrative costs:

Legal and investigative costs incurred by the company.

The costs of providing remedial education and ethics training to company personnel.

The costs of taking corrective actions.

Administrative costs associated with ensuring future compliance.

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The Intangible Costs Companies Incur When Ethical Wrongdoing Is Discovered

Intangible or less visible costs:

Customer defections.

Loss of reputation.

Lower employee morale and higher degrees of employee cynicism.

Higher employee turnover.

Higher recruiting costs and difficulty in attracting talented employees.

Adverse effects on employee productivity.

The costs of complying with harsher government regulations.

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Strategy, Corporate Social Responsibility, and Environmental Sustainability

Corporate social responsibility (CSR):

Is a firm’s duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in the local communities where it operates and in society at large.

Corporate social responsibility (CSR) refers to a company’s duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in the local communities where it operates and in society at large. A company’s CSR strategy is defined by the specific combination of socially beneficial activities the company opts to support with its contributions of time, money, and other resources.

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FIGURE 9.2 The Five Components of a Corporate Social Responsibility Strategy

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Actions to ensure the company operates honorably and ethically

Actions to support philanthropy, participate in community service, and better the quality of life worldwide

Actions to protect and sustain the environment

Actions to enhance employee well-being and make the company a great place to work

Actions to promote workforce diversity

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ILLUSTRATION CAPSULE 9.3 Warby Parker: Combining Corporate Social Responsibility with Affordable Fashion

How has Warby Parker’s skillful use of CSR as a strategic tool contributed to its success in the marketplace?

How strongly is customer loyalty affected by Warby Parker’s CSR practices?

Is the firm’s dedication to outcomes outside of profit likely to be acceptable to outside investors?

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FIGURE 9.3 The Triple Bottom Line: Excelling on Three Measures of Company Performance

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A company is measured by three dimensions of performance: economic (profit), social (people), and environmental (planet). The goal is to achieve excellence in all three of these performance dimensions, represented by the circle in the middle of the diagram.

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TABLE 9.1 A Selection of Companies Recognized for Their Triple-Bottom-Line Performance in 2017 Part 1

Name	Market Sector	Country
Peugeot SA	Automobiles & Components	France
Westpack Banking Group	Banks	Australia
CNH Industrial NV	Capital Goods	Great Britain
SGS SA	Commercial & Professional Services	Switzerland
LG Electronics Inc.	Consumer Durables & Apparel	South Korea
Intercontinental Hotels Group	Consumer Services	Great Britain
UBS Group AB	Diversified Financials	Switzerland
Thai Oil PCL	Energy	Thailand
METRO AG	Food & Staples Retailing	Germany
Coca-Cola HBC AG	Food, Beverage, & Tobacco	Switzerland
Abbott Laboratories	Health Care Equipment & Services	United States
Henkel AG & Co. KGaA	Household & Personal Products	Germany
Allianz SE	Insurance	Germany
Grupo Argos SA	Materials	Colombia

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TABLE 9.1 A Selection of Companies Recognized for their Triple-Bottom-Line Performance in 2017 Part 2

Name	Market Sector	Country
Pearson PLC	Media	Great Britain
Roche Holding AG	Pharmaceuticals, Biotechnology, & Life Sciences	Switzerland
Mirvac Group	Real Estate	Australia
Industria de Diseno Textil SA	Retailing	Spain
Advanced Semiconductor Engineering Inc.	Semiconductors & Semiconductor Equipment	Taiwan
Amadeus IT Group SA	Software & Services	Spain
Konica Minolta Inc.	Technology Hardware & Equipment	Japan
Koninklijke KPN NV	Telecommunication Services	Netherlands
Royal Mail PLC	Transportation	Great Britain
Red Electric Corp SA	Utilities	Spain

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What Do We Mean by Sustainability and Sustainable Business Practices?

Sustainability:

Is the relationship of a firm to its environment and its use of natural resources.

Sustainable business practices:

Are those practices of a firm that meet the needs of the present without compromising the ability to meet the needs of the future.

Sustainable business practices are those that meet the needs of the present without compromising the ability to meet the needs of the future.

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ILLUSTRATION CAPSULE 9.4 Unilever’s Focus on Sustainability

How has the Unilever Sustainable Living Plan (USLP) for implementing its comprehensive triple-bottom-line approach toward sustainable farm management affected the company’s long-term profitability?

What place in business thinking should sustainability occupy in strategic planning that seeks to maximize profits?

What internal forces could mitigate against pursuing sustainability goals if benchmark indices are controlled by external parties?

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Sustainability and Sustainable Business Practices

Environmental sustainability strategy consists of the firm’s deliberate actions to:

Protect the environment.

Provide for the longevity of natural resources.

Maintain ecological support systems for future generations.

Guard against ultimate endangerment of the planet.

Sustainable business practices are those that meet the needs of the present without compromising the ability to meet the needs of the future.

An environmental sustainability strategy consists of a firm’s deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against endangerments leading to the ultimate destruction of the planet.

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Crafting Corporate Social Responsibility and Sustainability Strategies

Moral case: stakeholder benefits

Business case: competitive advantage

Pursuing a Sustainable CSR Strategy in the Firm’s Value Chain Activities

Both CSR strategies and environmental sustainability strategies provide valuable social benefits and fulfill customer needs in a superior fashion; these strategies can lead to competitive advantage.

Two primary reasons for pursuing a sustainable CSR strategy in the firm's value chain activities are:

The moral case, which focuses on stakeholder, not just shareholder, benefits

The business case, which focuses on valuable competitive advantages gained from the CSR

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The Moral Case for CSR and Environmentally Sustainable Business Practices

The Implied Social Contract: “It’s the right thing to do”

Operate ethically and legally.

Provide good work conditions for employees.

Be a good environmental steward.

Display good corporate citizenship.

Every action a company takes can be interpreted as a statement of what it stands for. The implied social contract means a company will:

Operate ethically and legally

Provide good work conditions for employees

Be a good environmental steward

Display good corporate citizenship

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The Business Case for CSR and Environmentally Sustainable Business Practices

Increased buyer patronage.

Reduced risk of reputation-damaging incidents.

Lower employee turnover costs and enhanced recruiting and workforce retention.

Increased revenue enhancement opportunities due to the use of CSR and sustainability.

CSR and sustainability best serves the long-term interests of shareholders.

Corporate social agendas that address only social issues may help boost a company’s reputation for corporate citizenship but are unlikely to improve its competitive strength in the marketplace.

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Combating the Evasion of CSR and Socially Harmful Business Practices

Increased public awareness of misdeeds and bad behavior by firms.

Increased legislation and regulation to correct and punish firms.

Refusal to do business with irresponsible firms.

Harmful and Unethical Business Actions and Behaviors:

The higher the public profile of a company or its brand, the greater the scrutiny of its activities and the higher the potential for it to become a target for pressure group action. Socially responsible strategies that create value for customers and lower costs can improve company profits and shareholder value at the same time that they address other stakeholder interests. There’s little hard evidence indicating shareholders are disadvantaged in any meaningful way by a company’s actions to be socially responsible.

Harmful and unethical business actions and behaviors can lead to increased public awareness of misdeeds of bad behavior by firms; increased legislation and regulation to correct and punish firms; and a refusal by others to do business with irresponsible firms.

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Text Alternates for Slide Images

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Figure 9.2 The Five Components of a Corporate Social Responsibility Strategy, Text Alternative

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Actions to ensure the company operates honorably and ethically.

Actions to support philanthropy, participate in community service, and better the quality of life worldwide.

Actions to protect and sustain the environment.

Actions to enhance employee well-being and make the company a great place to work.

Actions to promote workforce diversity.

Return to slide containing the original image.

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Figure 9.3 The Triple Bottom Line: Excelling on Three Measures of Company Performance, Text Alternative

Return to the slide containing the original image.

A company is measured by three dimensions of performance: economic (profit), social (people), and environmental (planet).

The goal is to achieve excellence in all three of these performance dimensions, represented by a circle in the middle of the diagram.

Return to the slide containing the original image.

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