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CHAPTER THREE
SOCIAL RESPONSIBILITY AND ETHICS IN STRATEGIC MANAGEMENT
The chapter examines the relationship between business firms and society and presents issues in social responsibility
and ethics. It describes the relationship between social responsibility and corporate performance. The chapter
considers stakeholder concerns and presents various responsibilities of business firms as well. Ethics and ethical
behavior are considered in light of the challenge from moral relativism. It describes guidelines for ethical behavior
according to utilitarianism, individual rights, and justice approaches.
LEARNING OBJECTIVES
1. Discuss the relationship between social responsibility and corporate performance.
2. Explain the concept of sustainability.
TOPICS OUTLINE COVERED
1. Social Responsibilities of Strategic Decision Makers
2. Stakeholder Analysis
3. Ethical Decision Making
4. View on Ethical Behavior
SUGGESTED ANSWERS TO MYMANAGEMENTLAB QUESTIONS
3-1. How has moral relativism led to criminal activities by some employees in companies?
Moral relativism suggests that morality is relative to some personal, social, or cultural standard. There is no method
3-2. How does a company ensure that its code of ethics is integrated into the daily decision-making process
of the company and is not just a symbolic trophy or plaque hanging on the wall?
When management of a company wants to improve the ethical behavior of employees in the organization, a code of
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS:
3-3. What is the relationship between corporate governance and social responsibility?
This question is partially answered by the last trend in corporate governance presented in Chapter 2. Quite simply, it
states that society, in the form of special interest groups, increasingly expects boards of directors to balance the
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3-4. What is your opinion of Apple having a code of conduct for its suppliers? What would Milton
Friedman say? Contrast his view with that of Archie Carroll’s.
Do a company’s responsibilities end at its boundary, or do its responsibilities extend to include its suppliers and
distributors? This very thorny question has become a point of contention in the area of social responsibility. The
question includes a basic question in organization theory: what is the boundary of an organization? Certainly, one
could argue that a company is composed of its employees and all of its assets, such as land, buildings, and
3-5. Why should a for-profit organization be socially responsible to its various stakeholders?
A stakeholder is any group or individual who can affect, or is affected by, the achievement of a corporation’s
purpose. Stakeholders include employees, customers, suppliers, stockholders, banks, environmentalists, government
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3-6. Why do some employees of an organization behave unethically? Why is it necessary for an
organization to develop employees’ ethics?
Unethical behavior in employees is due to three factors. First, employees may manipulate others for their personal
gains. Second, they may fail to see the connection between their actions and the outcomes of those actions. Third,
they may believe that ethical choices are driven only by circumstance and that there are certain occasions or
3-7. Given that people rarely use a company’s code of ethics to guide their decision making, what good
are the codes?
The chapter states that managers tend to ignore codes of ethics and try to solve ethical dilemmas on their own. To
combat this tendency, corporations should not only develop a comprehensive code of ethics, but also communicate
ADDITIONAL DISCUSSION QUESTIONS FOR INSTRUCTORS
These are not found in the text and may be used by the instructor for classroom discussion or exams.
A3-1. How appropriate is the theory of laissez-faire in today’s world?
As indicated in the chapter, Milton Friedman contends that it is very appropriate. The quote from his classic article,
“The Social Responsibility of Business Is to Increase its Profits” does suggest a certain modification, however, to
pure laissez-faire. He states that business should work to increase its profits “so long as it stays within the rules of
A3-2. Using Carroll’s list of four responsibilities, should a company be concerned about discretionary
responsibilities? Why or why not?
Except for a few die-hard followers of Milton Friedman’s philosophy, few people would agree that a business firm
should fulfill only its economic and legal responsibilities and completely ignore ethical ones. The same is not true of
discretionary responsibilities, however. Because discretionary responsibilities are defined by Carroll as purely
voluntary, there is no pressure by anyone for a business firm to fulfill them. One can argue, nevertheless, that there
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SUGGESTIONS FOR STRATEGIC PRACTICE EXERCISE
The end of chapter exercise asks the student to evaluate the position of an organization facing a particular dilemma
and to suggest a course of action to the manager. Students should read the exercise and make the decision in an
ethical manner for the manager. Ideally, students may analyze the problem in three ways: fiduciary duty, stakeholder