Ethics, Corporate Social
Responsibility, Environmental
Sustainability, and Strategy
Chapter Summary
Chapter 9 focuses on whether a company, in the course of trying to craft and execute a strategy that delivers 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.
Lecture Outline
I. What Do We Mean By Business Ethics?
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. Business ethics is the application of general ethical principles and standards to business behavior.
2. Business ethics does not involve a special set of ethical standards applicable only to business situations.
3. Ethicalprinciplesinbusinessarenotmateriallydierentfromethicalprinciplesingeneral.
CORE CONCEPT
Business ethics concerns the application of general ethical principles to the actions
and decisions of businesses and the conduct of company personnel.
II. Where Do Ethical Standards Come from—Are They Universal or Dependent on Local Norms?
ACTIVITY
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an interactive question and answer review. The assignment can be graded and posted automatically.
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CHAPTER 9
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A. The School of Ethical Universalism
1. According to the school of ethical universalism, the most fundamental conceptions of right and wrong
are universal and transcend culture, society, and religion.
2. Adherents of the school of ethical universalism maintain that it is entirely appropriate to expect all
members of society (including all personnel of all companies worldwide) to conform to these universal
ethical standards.
CORE CONCEPT
The school of ethical universalism holds that that the most fundamental conceptions of
right and wrong are universal and apply to members of all societies, all companies, and
all businesspeople.
3. The strength of ethical universalism is that it draws on the collective views of multiple societies and
4. Universal norms allow a multinational company can develop a code of ethics that it applies more or less
evenly across its worldwide operations.
B. The School of Ethical Relativism
1. There are also observable variations from one society to another as to what constitutes ethical or unethical
behavior. Consequently, the school of ethical relativism holds that a “one-size-fits-all” template for
judging the ethical appropriateness of business actions and the behaviors of company personnel is
totally inappropriate.
CORE CONCEPT
The school of ethical relativism holds that diering religious beliefs, customs, and
behavioral norms across countries and cultures give rise to multiple sets of standards
concerning what is ethically right or wrong. These diering standards mean that
whether businesses related actions are right or wrong depends on the prevailing local
ethical standards.
2. Theneedtocontourlocalethicalstandardstofitlocalcustoms,localnotionsoffairandproperindividual
3. The Use of Underage Labor
a. In industrialized nations, the use of underage workers is considered taboo; social activists are
adamant that child labor is unethical and that companies should neither employ children under
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ILLUSTRATION CAPSULE 9.1
IKEA’s Global Supplier Standards: Maintaining Low Costs While Fighting the
Root Causes of Child Labor
Discussion Question: Do Ikea’s actions indicate that their position on business ethics is aligned
with the principle of ethical universalism or ethical relativism?
Answer: The student can examine this through the issue of the use of child labor, a principle that
Ikea feels should not be violated anywhere (Ethical Universalism). IKEA’s initial plan to combat the
use of child labor by its suppliers in countries that use underage labor involved (1) contracts that
threatened immediate cancellation and (2) random audits by a third-party partner. Despite these
ACTIVITY
Consider adding a File Attachment assignment requiring the student to fully explore and explain how
the IKEA has developed a global supplier standard that applies universal ethical principles as well as
the reasons that drove the company to codify this standard.
You can send the student to the following links to supplement the information in the Illustration
Capsule:
http://www.ikea.com
http://supplierportal.ikea.com/Pages/default.aspx
3. The Payment of Bribes and Kickbacks
a. In many countries in Eastern Europe, Africa, Latin America, and Asia, it is customary to pay bribes
to government ocials in order to win a government contract, obtain a license or permits, or
facilitate an administrative ruling.
b. Some people stretch to justify the payment of bribes and kickbacks on grounds that bribing
governmentocialstogetgoodsthroughcustomsorgivingkickbackstocustomertoretailtheir
4. Using the Principle of Ethical Relativism to Create Ethical Standards Is Problematic for Multinational
Companies
a. The existence of varying ethical norms such as those cited above explains why the adherents of
ethical relativism maintain that there are few absolutes when it comes to business ethics and thus
few ethical absolutes for consistently judging a company conduct in various countries and markets.
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c. 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.
d. A company that adopts the principle of ethical relativism and holds company personnel to local
ethical standards necessarily assumes that what prevails as local morality is an adequate guide to
companiesbycreatingamazeofconictingethicalstandards.
C. Ethics and Integrative Social Contracts Theory
1. Social contract theory provides a middle position between the opposing views of universalism and
relativism.
CORE CONCEPT
According to integrated social contracts theory, universal ethical principles or norms
based on the collective views of multiple cultures and societies combine to form
a “social contract” that all individuals in all situations 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.
2. The ethical standards a company should try to uphold are governed both by a limited number of universal
3. Universal ethical norms take precedence over local ethical norms.
4. These mostly uniform agreements about what is morally right and wrong form a “Social contract” or
5. The strength of integrated social contracts theory is that it accommodates the best parts of ethical
universalismandethicalrelativism.Moreover,integrativesocialcontractstheoryoersmanagersin
multinationalcompaniesclearguidanceinresolvingcross-countryethicaldierences
III. How and Why Ethical Standards impact the Tasks of Crafting and Executing Strategy
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. In the U.S. the Sarbanes-Oxley Act companies whose stock is publicly traded to have a code of ethics
or explain to the SEC in writing why they do not.
2. The Litmus test of a company’s code of ethics is the extent to which it is embraced in crafting strategy
and in operating the business day to day.
3. Executives committed to high standards make a point of considering three sets of questions whenever a
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b. Is there any aspect of the strategy (or policy or operating practice) that gives the appearance of
being ethically questionable?
c. Is there anything in the proposed action that customers, employees, suppliers, stockholders,
competitors, community activists, regulators, or the media might consider ethically objectionable?
IV. Drivers of Unethical Business Strategies and Behavior
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. Apart from “the business of business is business, not ethics” kind of thinking apparent in recent high-
profilebusinessscandals,threeothermaindriversofunethicalbusinessbehavioralsostandout:
a. Faulty oversight, enabling the unscrupulous pursuit of personal gain and self-interest.
2. Faulty Oversight and the Overzealous Pursuit of Personal Gain, Wealth and Self-Interest
a. People who are obsessed with wealth accumulation, power, status, and their own self-interest often
push ethical principles aside in their quest for personal gain.
b. Driven by greed and ambition, they exhibit few qualms in skirting the rules or doing whatever is
CORE CONCEPT
Self-dealing occurs when managers take advantage of their position to further their
own private interests rather than those of the firm.
3. Heavy Pressures on Company Managers to Meet Short-Term Performance Targets
a. Whenkeypersonnelfindthemselvesscramblingtomeetthequarterlyandannualsalesandprofit
expectationsofinvestorsandfinancialanalysts,theyoftenfeelenormouspressuretodo whatever
it takes to protect their reputation for delivering good results.
CORE CONCEPT
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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4. Company Culture That Put Profitability and Business Performance Ahead of Ethical Behavior:
a. When a company’s culture spawns an ethically corrupt or amoral work climate, people have a
company-approved license to ignore “what’s right” and engage in most any behavior or employ
most any strategy they think they can get away with.
b. In contrast, when high ethical principles are deeply ingrained in the corporate culture of a company,
ILLUSTRATION CAPSULE 9.2
How Novo Nordisk Puts Its Ethical Principles into Practice
Discussion Question: In what way did Novo Nordisk use ethics as a driver for competitive
advantage?
Answer: The company instituted a clear ethics policy that stated (1) that high ethical standards be
applied consistently across the company’s value chain, (2) that all ethical dilemmas encountered
be addressed transparently, and (3) that company ocers and employees be held accountable
V. Why Should Company Strategies be Ethical?
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. There are two reasons why a company’s strategy should be ethical: (1) because a strategy that is unethical
2. The Moral Case for an Ethical Strategy
a. Ethical strategy making is generally the product of managers who are of strong moral character.
3. The Business Case for an Ethical Strategy
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b. Costs from unethical behavior can be visible, internal administrative costs, and intangible or less
visible costs.
c. Taken together, a company’s unethical behavior can do considerable damage to shareholders in the
formoflostrevenues,highercosts,lowerprofits,lowerstockprices,andadiminishedbusiness
reputation.
VI. Strategy, Corporate Social Responsibility and Environmental Sustainability
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. The idea that businesses have an obligation to foster social betterment took root in the 19th century
2. Today, corporate social responsibility is a concept that resonates in Western Europe, the United States,
Canada, and such developing nations as Brazil and India.
CORE CONCEPT
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 like in the local communities where it operates and in society at large.
A. The Concepts of Corporate Social Responsibility and Good Corporate Citizenship
1. The essence of socially responsible business behavior is that a company should strive to balance the
benefitsofstrategicactionstobenefitshareholdersagainstthedutytobeagoodcorporatecitizen.
2. Figure 9.2, The Five Components of Corporate Social Responsibility Strategy, depicts a company’s
menu for crafting its social responsibility strategy, and includes:
a. Striving to employ an ethical strategy and observe ethical principles in operating the business
b. Making charitable contributions, donating money and the time of company personnel to community
service endeavors, supporting various worthy organizational causes, and reaching out to make a
CORE CONCEPT
A company’s CSR strategy is defined by the specific combination of socially beneficial
activities it opts to support with its contribution of time, money and other resources.
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2. Illustration Capsule 9.3 describes Warby Parker’s approach to corporate social responsibility—an
approachthatensuresthatsocialresponsibilityisreectedinallofthecompany’sactionsandendeavors.
ILLUSTRATION CAPSULE 9.3
Warby Parker: Combining Corporate Social Responsibility with Affordable
Fashion
Discussion Question: In what way did Warby-Parker’s founders ingrain Corporate Social
Responsibility into the culture of their organization?
Answer: The student should identify that the founders generated a culture that focuses on
customers, employees, and social responsibility while maintaining profitability. Through partnerships
with critical suppliers and investments in lean manufacturing costs are minimized, allowing an
B. Corporate Social Responsibility and the Triple Bottom Line
1. A rapidly growing number of companies are expanding their exercise of corporate social responsibility
and organizations have emerged to help companies with best practices and implementation plans.
2. The triple bottom line is concerned with three types of metrics: economic, social, and environmental
3. The three dimensions of performance are often referred to as the three pillars of: people, planet, and
profit.As illustrated in Table 9.1, the Dow Jones Sustainability World Index consists of the top 10
1. The term sustainabilityisusedinavarietyofways.Inmanyfirms,itissynonymouswithcorporate
social responsibility; it is seen by some as a term that is gradually replacing CSR in the business lexicon.
CORE CONCEPT
Sustainable business practices are those that meet the needs of the present without
compromising the ability to meet the needs of the future.
CORE CONCEPT
A company’s environmental sustainability strategy consists of its deliberate actions
to protect the environment, provide for the longevity of natural resources, maintain
ecological support systems for future generations, and guard against ultimate
endangerment of the planet.
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2. More often though, the term takes on the meaning of the relationship between the company and its
environment and its use of natural resources.
3. Many environmentally conscious companies now make a point of citing the beneficial of their
4. IllustrationCapsule9.4reviewsUnilever’seortsintheareaofsustainability.
ILLUSTRATION CAPSULE 9.4
Unilever’s Focus on Sustainability
Discussion Question: In what way has Unilever developed a Sustainability culture that operates
in concert with traditional goals of revenue growth and improved profitability?
Answer: The student should identify that the company has engaged in a long-term purposeful
mission of growing their business and improving shareholder value while at the same time reducing
its impact on the environment. Starting in 2010, the company embarked on a path to double the
size of its business by 2020 while at the same cutting its environmental footprint by half. The plan
D. Crafting Corporate Social Responsibility and Sustainability Strategies
1. While CSR and environmental sustainability strategies take many forms, those that both provide valuable
2. Unless a company’s social responsibility initiatives become part of the way it operates its business every
day,theinitiativesareunlikelytobefullyeective.
3. CSR strategies and environmental sustainability strategies are more likely to contribute to a company’s
4. Not all companies choose to link their corporate environmental or social agendas to their value chain,
1. The moral case for why businesses should actively promote the betterment of society and act in a
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F. The Business Case for Social Responsibility and Environmentally Sustainable Business Behavior
1. There are several reasons why the exercise of social responsibility and sustainability is good business:
a. Such actions can lead to increased buyer patronage.
b. A strong commitment to socially responsible behavior reduces the risk of reputation-damaging
2. In sum, companies that take social responsibility and environmental sustainability seriously can
improvetheirbusinessreputationsandoperationaleciencywhilealsoreducingtheirriskexposure