Strategy and Business Ethics

Business Policy

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Please note that these slides are not intended as a substitute

to reading the recommended text for this course.

Constituents of business ethics

Basis for ethical principles

Various theories of ethics

Compare / Contrast theories

Corporate Social Responsibility

Impact on corporate strategy selection

Chapter 4: Johnson, Scholes & Whittington

Objectives

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Abuse of resources

Falsifying records and documents

Environmental abuse

Deceptive advertising

Misuse of technology

Theft

Insider trading…………..

Organizational/Business Ethics

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Moral - principles or rules of moral conduct that people use to decide what is right or wrong

Ethics – the study and application of moral principles (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.

Core Concepts

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Factors influencing ethical behavior include:

– The person

• Family influences, religious values, personal standards, and personal needs.

– The organization

• Supervisory behavior, peer group norms and behavior, and policy statements and written rules.

– The environment

• Government laws and regulations, societal norms and values, and competitive climate in an industry.

Sources of Ethical Norms

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Sources of Ethical Norms

Fellow

Workers

Family

Friends

The Law

Regions of

Country

Profession

Employer

Society at

Large

Fellow

Workers

Religious

Beliefs

The Individual

Conscience

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Role of law:

– for translating morality into explicit social guidelines and practices and for stipulating punishments for offenses.

Ethics and the Law

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Unethical business practices can affect your

business indirectly.

– The amount you make in profits from one

unhappy customer can translate into a lot more

lost because of missed repeat business.

Treating employees unethically can also

backfire.

– Mistreating employees leads to a high turnover

rate. This increases the cost of hiring and

training new employees.

Ethics is good business

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Comply with a written code of business conduct.

Provide sufficient training to all personnel within their organization regarding personal responsibility under the code.

Encourage internal reporting of violations of the code with the promise of no retaliation for such reporting.

Self-govern their activities by implementing controls to monitor compliance with all applicable laws and regulations.

Be accountable to the public

What are the six principles of business ethics and conduct?

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Respect for human dignity

– Create culture that values employees, customers, and suppliers.

– Keep a safe workplace.

– Produce safe products and services.

Respect for basic rights

– Protect rights of employees, customers, and communities.

– Avoid anything that threatening safety, health, education, and living standards.

Be good citizens

– Support social institutions, including economic and educational systems.

– Work with local government and institutions to protect environment.

Ethics is good business

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It is increasingly important for companies to deal with ethics as a corporate strategy that, if uniquely implemented, could achieve competitive advantagefor the company rather than waiting to react to possible ethical issues of importance to the targeted stakeholders.

It is the necessity of being ethically proactive company rather than being ethically reactive company.

Behavior that is trusting, trustworthy, and cooperative, not opportunistic, will give the firm a competitive advantage

Competitive Advantage

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Factors influencing ethical managerial behavior—the person, organization, and environment.

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1. The society level, which defines ethical behavior and assesses the effect of business on society.

2. The industry level, which suggests that different industries have their own set of ethical standards (e.g., chemical industry vs. pharmaceutical industry)

3. The company level, under which different companies have their own set of ethical standards – strategies, structures, decision making processes, etc

4. The individual manager level, at which each manager and other corporate participants are responsible for their own ethical behavior

Four different levels of business ethics

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Integrity – honest

Objectivity – no bias or conflict of interest

Confidentiality – non-disclosure

Professional behavior – comply with relevant laws

Professional competence – maintain knowledge

Ethical Principles

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An ethical dilemma occurs when choices, although having potential for personal and/or organizational benefit, may be considered / are unethical.

Ethical dilemmas include:

– Discrimination

– Sexual harassment

– Conflicts of interest

– Customer confidence

– Organizational resources

Ethics issues & Dilemmas

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Utilitarian view of ethics — greatest good to the greatest number of people

Utilitarianism creates a black and white of what is morally correct

– Many people in the United States believe military drone usage is a form of utilitarianism because it removes the potential pain and sadness of losing a loved one to war.

Ethical Theories

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Utilitarian Theories

Capital funds being spent on something else?

Utilitarian decision-making relies on tools such as cost-benefit analysis and risk assessment to determine the greatest utility.

The Utilitarian doctrines in business

Deregulation of private industry

Protection of personal property rights

Allow for free exchange of goods and services

Encourage competition

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The Costs Companies Incur When Ethical Wrongdoing Is Discovered

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The ethical relativism rule of “when in Rome, do as the Romans do” presents problems

– It is ethically dangerous for company personnel to assume that local ethical standards are an adequate guide to ethical behavior

• What if local standards condone kickbacks and bribery?

• What if local standards blink at environmental degradation?

Drawbacks of Ethical Relativism

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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.

CSR – Corporate Social Reponsibility

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CSR

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CSR calls for companies to strike a balance between

– Its economic responsibility to shareholders

– The legal responsibility to comply with the laws of the countries where it operates

– The ethical responsibility to abide by society’s norms, and

– The discretionary philanthropic responsibility to meet the unmet needs of society

Corporate Social Responsibility

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Generates internal benefits

– Enhances recruitment of quality employees

– Increases retention of employees

Reduces risk of reputation-damagingincidents

– Avoids criticism from consumer groups and may lead to increased buyer patronage

Works in best interest of shareholders

– Preempts costly legal and regulatory actions

The Business Case for Socially Responsible Behavior

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Are the values that underline the strategy defensible??

If it contravene the rights of stakeholders, it is unethical:

– Right to life – strategy will not endanger life

– Right to privacy

– Right to due process

– Fair administration

– Compensation norms, etc

Ethics & Strategy

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