business ethics - part 2 - chapter 4 right

The German Jordanian University (GJU)

Summer Semester 2011MGT 316

Instructor: Montaser Tawalbeh

Business EthicsSchool of Managerial and Logistic Sciences

Part 2. The Practice of Business Ethics

Business Ethics A Real World Approach

Andrew W. Ghillyer2nd Edition

New York, NYISBN 9780071100656

http://www.mcgraw-hill.com.au/

Part 2. The Practice of Business Ethics

Chapter 4. Corporate Social Responsibility

- Corporate social responsibility- Management without Conscience- Management by Inclusion.- The driving forces behind Corporate Social

Responsibility- The Triple Bottom Line- Jumping on the CSR Bandwagon Carbon Offset Credits

Part 2. The practice of Business Ethics Chapter 4. Corporate Social Responsibility

Corporate Social ResponsibilityFrontline FocusStocking Error (p.78)Key points- Claire, a management trainee at MegaDrug Pharmacy.- Mr. John is the manager of MegaDrug pharmacy and

Claire’s boss.- Claire developing her management skills by restocking

some shelves in the allergy section.- Claire noted to her boss that branded name medicines

are much smaller than the company’s own-label brand.


Corporate Social Responsibility- Mr. Johns responded saying that the company makes

more money selling their own brand then actually selling any other named brands therefore its for their benefit to run out of named brand allergy medicines.

- He added to say that its better to have couple of customers complaining about unavailable named brand medicines then losing profitable sales.

- Q1, 2, and 3. (p.78)


Corporate Social ResponsibilityCorporate Social Responsibility (CSR) Is the actions of an organisation that are targeted

toward achieving a social benefit over and above maximizing profits for its shareholders and meeting all its legal obligations.

Corporate CitizenshipAn alternative to Corporate Social Responsibility, implying

that organisation is a responsible citizen in meeting all obligations.


Corporate Social ResponsibilityCorporate Conscience Is an alternative term for corporate social responsibility, implying that

the organisation is run with an awareness of its obligations to society.

Many companies awoke to (CSR) only after being surprised by public responses to issues had not previously thought were part of their business responsibility.

NIKE for example, faced an extensive consumer boycott after

The New York Times and other media outlets reported abusive labour practices at some of its Indonesian suppliers early 1990s.


Corporate Social ResponsibilityActivists of all kinds have grown much more aggressive and

effective in bringing public pressure to bear on corporations mainly on successful ones to draw attention to an issue even if those corporations had little impact on the problem at hand.

Nestlé The world’s largest purveyor of bottled water, has become a major target in the global debate about access to fresh water, despite the fact that Nestlé's bottled water sales consume 0.0008% of the world’s fresh water supply. However, the inefficiency of agricultural irrigation uses 70% of the world’s supply annually, is a far more pressing issue but offers no equally convenient multinational corporation to target.


Corporate Social ResponsibilityWhether the organisation’s discovery of the significance of

CSR was intentional or as a result of unexpected media attention, once CSR becomes part of its strategic plan, choices have to be made as to how the company will address this new element of corporate management.

Many take the Instrumental Approach to CSR: The perspective that the only obligation of a corporation is to maximise profits for its shareholders in providing goods and services that meet the needs of its customers.

One of the most famous advocate of this classical model is the Nobel Prise winning economist:

Milton Friedman.


Corporate Social ResponsibilityMr. Friedman argued from an ethical perspective that it

would be unethical for a corporation to do anything other than deliver the profits for which its investors have entrusted it with their funds in the purchase of shares in the corporation. He also stipulates that those profits should be earned “without deception or fraud.” he also argued that as an employee of the corporation, the manager has an ethical obligation to fulfil his role in delivering on the expectations of his employers.


Progress Check QuestionsQ1, Q2, Q3, and Q4. (p.80).


Management without conscienceFriedman’s view of the corporate world supports the

right of individuals to make money with their investments and it recognises the clear legality of the employment contract. To work for the company’s success doesn’t prevent the organisation from demonstrating some form of social conscience such as donating to a local charity or sponsoring some groups for a good cause. However, it restricts such charitable acts to the discretion of the owners of the company, rather than recognising any formal obligation on their part.


Management without conscienceMr. Friedman’s model focuses on the internal world of

the corporation assuming there are no external consequences to the actions of the corporation and its management. When we recognise the impact by the actions of the corporation then we can consider the Social Contract Approach to corporate management.

Social Contract Approach: Is the perspective that a corporation has an obligation to society over and above the expectations of its shareholders.


Management without conscienceIn recent years, the notion of a social contract between

corporation and society has undergone a subtle shift. Originally, the primary focus of the social contract was an economic one, assuming that continued economic growth would bring an equal advancement in quality of life. However, continued corporate growth was not matched by an improved quality life. Growth at the expense of rising costs, wages growing at lower rate than inflation, and the increasing presence of substantial layoffs to control costs were seen as an evidence that the old social contract was no longer working.


Management without conscienceThe modern social contract approach argues that since

the corporation depends on society for its existence and continued growth, there is an obligation for the corporation to meet the demands of that society rather than just recognised as a social institutions as well as economic enterprise.



Management by InclusionCorporations do not operate in an isolated environment. Their actions impact their customers, employees,

suppliers, and communities in which they produce and deliver their goods and services. Depending on the actions taken by the corporation, some of these groups will be positively impacted and others will be negatively impacted. For instance, if a corporation is operating unprofitably in a very competitive market, it is unlikely that it could raise prices to increase profits. Therefore, the logical choice would be to lower the cost- most commonly by laying off its employees.


Management by InclusionThe communities in which those employees reside

have now lost the spending power of those employees. If the corporation chooses to shut down an entire factory, the community also loses property tax revenue from that factory, which impacts the services it can provide to its residents. In addition, those local suppliers who made deliveries to that corporation remain competitive and continue to offer low prices to its customers. So there are, at least on paper, winners and losers in these situations.


Management by InclusionJim Roberts:(A professor of marketing at the Hankamer School of Business)

points out:That he thinks the Corporate Social Responsibility as

“Doing Well by Doing Good”.Doing what’s in the best long-term interest of the

customer is ultimately doing what’s best for the company. Doing good for the customer is just good business.


Management by InclusionFor instance, the tobacco industry serving only the

short-term desired of their customers has led to government intervention and a multi-billion dollar lawsuits against the industry because their denial of the consequences of smoking unlike the alcohol manufacturers who realised that they have to show interests in their customers’ well-being such as advertising “Don’t Drink and Drive” or Drink Responsibly”.


Management by Inclusion“Doing Well by Doing Good” seems to be easy policy to

adopt and many organisations have started down the road by making charitable donations or introducing earth-friendly packaging materials and using more recyclable materials. However, mistrust and cynicism (feeling of distrust) remain among their customers and citizens of their local community. Many still see these initiatives as public exercises with no real evidence of dramatic changes in the core operating philosophies of these companies.


Ethical Dilemma (p.83)

Case 4.1 Malden MillsQ1, Q2, Q3, & Q4.


The Driving Forces BehindCorporate Social Responsibility

Joseph F.Keefe:Of NewCircle Communications asserts that there are

five major trends (Change or development) behind the CSR Phenomenon:

1- Transparency: Whatever corporations do will be known, almost immediately, around the world. That’s because we live in an information-driven economy where business practices have become increasingly transparent.



2- Knowledge: The transition to an information-driven economy also means that consumers and investors have more information at their disposal that at any time in history. Customers can choose one brand over another based upon those companies’ respective environmental records for an instance.

3- Sustainability: Corporations are under increasing pressure from diverse stakeholder constituencies to demonstrate that business plans and strategies are environmentally sound and contribute to sustainable development.



4- Globalisation: Globalisation represents a new stage of capitalist development, this time without public institutions to protect society by balancing private corporate interests against broader public interests.

5- The Failure of the Public Sector: Many if not most developing countries are governed by dysfunctional regimes ranging from the unfortunate and disorganised to the brutal and corrupt. Developed nations, citizens arguably expect less of government that they used to, having lost confidence in the public sector.



In fact, many organisations have found it difficult to make the transition from CSR as a theoretical concept to CSR as an operational policy. The problem is how to promote those acts to your stakeholders as proof of your new corporate conscience without appearing to be manipulative or scheming to generate press coverage for policies that could easily be dismissed as feel-good initiatives that are simply chasing customer favour.



Corporations that choose to experiment with CSR initiatives run the risk of creating adverse results and ending up worse off than when they started, therefore:

1- Employees feel they work for an insincere, uncaring organisation.

2- The public sees little more than a token action concerned with publicity rather than community.

3- The organisation does not perceive much benefit from CSR and so sees no need to develop the concept.

Part 2. The practice of Business Ethics Chapter 2. Organisational Ethics




Case 4.2 Banning the Real ThingQ1, Q2, Q3, & Q4.


The Triple Bottom LineAs a testament to how seriously companies are now

taking CSR, many have now adapted their annual reports to reflect a triple bottom-line (3BL) approach, where they provide social and environmental updates alongside their primary bottom-line financial performance.

While it may be easy to support the idea of organisations pursuing social and environmental goals in addition to their financial goals, there has been no real evidence of how to measure such achievements.


The Triple Bottom LineIf you subscribe to the old management saying that “if

you can’t measure it, you can’t manage it,” the challenges of delivering on any 3BL goals become apparent.

It would appear that many organisations are taking a fairly opportunistic approach in adopting the terminology without following through on the delivery of a consistent methodology. Could the “feel good” terminology associated with 3BL help you make a convincing case if you are seeking to make amends for prior transgressions?


Jumping on the CSR BandwagonOn the basis of this behaviour, we can identify three

distinct types of CSR. Ethical, Altruistic, and Strategic.

Ethical CSR: Represents the purest or most legitimate type of CSR. Organisations pursue a clearly defined sense of social conscience in managing their financial responsibilities to shareholders, their legal responsibility and society as a whole, and their ethical responsibilities to “do the right thing” for all their stakeholders.


Jumping on the CSR BandwagonOrganisations in this category have typically

incorporated their beliefs into their core operating philosophies.

Altruistic CSR: Organisations take a philanthropic approach by understanding specific initiatives to give back to the company’s local community or to designated national or international programs.

In ethical terms, this giving back is done with funds that rightly belong to shareholders. This choice of charitable giving is at the discretion of the corporation, which places the individual shareholders in the awkward


Jumping on the CSR BandwagonPosition of unwillingly supporting causes they may not

support on their own.Critics have argued that, from an ethical perspective, this

type of CSR is immoral since it represents a violation of shareholder rights if they are not given the opportunity to vote on the initiatives launched in the name of corporate social responsibility.

The relative legitimacy of altruistic CSR is based on the argument that the philanthropic initiative are authorised without concern for the corporation’s overall profitability. Arguing in utilitarian terms, corporations are merely doing the greatest good for the greatest number.


Jumping on the CSR BandwagonStrategic CSR: Philanthropic activities are targeted toward

programs that will generate the most positive publicity or goodwill for the organisation.

By supporting these programs, companies achieve the best of both worlds: doing the right thing and good publicity which brings more sales, they also can meet their fiduciary (legal or ethical relationship of trust) obligations to their shareholders.

Critics can argue that strategic CSR is ethically commendable (deserving praise) because these initiatives benefit stakeholders while meeting fiduciary obligations to the company’s shareholders.


Jumping on the CSR BandwagonHowever, the question remains: without a win-win

payoff, would such CSR initiatives be authorised?

-Ford spent millions on an ad campaign to raise awareness of the need for booster seats for children over 40 pounds and under 49 (most 4-8 years old) and gave away almost a million seats as part of the campaign.


Life Skills (p.65)

Being socially responsible

PRGRESS CHECK QUESTIONS (p.92)

Q13, Q14, Q15, and Q16.



Case 4.3 Blue SourceQ1, Q2, Q3, & Q4.


If there is nothing ethically wrong in “doing well by doing good”, why isn’t everyone doing it? The3 key concern here must be customer perception.

Ben & Jerry’s Homemade Ice Cream or The Body Shop, for example, both organisations made the concept of a corporate social conscience before a part of their core philosophies before CSR was ever apointed as a management buzzword. As such, their good intent garnered vast amounts of goodwill: Investors admired their financial performance and customers felt good about the shopping there. However, if the quality of their products had not lived up to customer


expectations, would they have prospered over the long term? Would customers have continued to shop there if they didn’t like the product? “Doing well by doing good” will only get you so far.

With such financial clout (hit hard with the hand or a hard object) now being put behind CSR issues, the question of adoption of some form of social responsibility plan for a corporation should no longer be if but when.


Frontline FocusA Stocking Error– Claire Makes a Decision (p. 96)- Answer Q1, Q2, and Q3.

business ethics - part 2 - chapter 4 right

Documents

social benefit

business responsibility

brand allergy medicines

worlds fresh water

label brand

nestls bottled water

legal obligations

named brands