chapter 9Ethics, Corporate Social Responsibility, Environmenta

chapter 9
Ethics, Corporate Social Responsibility, Environmental
Sustainability, and Strategy
© 2022 McGraw Hill. All rights reserved. Authorized only for
instructor use in the classroom.
No reproduction or further distribution permitted without the
prior written consent of McGraw Hill.
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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.
© McGraw-Hill Education
3–1
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.
© McGraw Hill
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.
9-2
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.
© McGraw Hill
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.
9-3
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.

© McGraw Hill
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.
© McGraw Hill
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.
9-5
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.
© McGraw Hill
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.
9-6
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.
© McGraw Hill
9-7
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?

© McGraw Hill
9-8
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.
© McGraw Hill
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.
9-9
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.
© McGraw Hill
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.
9-10
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?
© McGraw Hill

9-11
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.
© McGraw Hill
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
9-12
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.
© McGraw Hill
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.
© McGraw Hill
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.
9-14
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.
© McGraw Hill
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.
9-15
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?
© McGraw Hill
9-16
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).
© McGraw Hill

9-17
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.
© McGraw Hill
9-18
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.
© McGraw Hill
9-19

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.
© McGraw Hill
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 oper ates
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.
9-20
FIGURE 9.2 The Five Components of a Corporate Social
Responsibility Strategy
Access the text alternative for slide images.
© McGraw Hill
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
9-21
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?
© McGraw Hill
9-22
FIGURE 9.3 The Triple Bottom Line: Excelling on Three
Measures of Company Performance
Source: Developed with help from Amy E. Florentino.
Copyright ©McGraw-Hill Education. Permission required for
reproduction or display.
Access the text alternative for slide images.
© McGraw Hill
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.
9-23
TABLE 9.1 A Selection of Companies Recognized for Their
Triple-Bottom-Line Performance in 2017 Part 1NameMarket
SectorCountryPeugeot SAAutomobiles &
ComponentsFranceWestpack Banking Group
BanksAustraliaCNH Industrial NVCapital GoodsGreat
BritainSGS SACommercial & Professional
ServicesSwitzerlandLG Electronics Inc.Consumer Durables &
ApparelSouth KoreaIntercontinental Hotels GroupConsumer
ServicesGreat BritainUBS Group ABDiversified
FinancialsSwitzerlandThai Oil PCL EnergyThailandMETRO
AGFood & Staples RetailingGermanyCoca-Cola HBC AGFood,
Beverage, & TobaccoSwitzerlandAbbott LaboratoriesHealth
Care Equipment & ServicesUnited StatesHenkel AG & Co.
KGaAHousehold & Personal ProductsGermanyAllianz
SEInsurance GermanyGrupo Argos SAMaterialsColombia
© McGraw Hill
9-24
TABLE 9.1 A Selection of Companies Recognized for their
Triple-Bottom-Line Performance in 2017 Part 2NameMarket
SectorCountryPearson PLCMediaGreat BritainRoche Holding
AGPharmaceuticals, Biotechnology, & Life
SciencesSwitzerlandMirvac GroupReal EstateAustraliaIndustria
de Diseno Textil SARetailingSpainAdvanced Semiconductor
Engineering Inc.Semiconductors & Semiconductor
EquipmentTaiwanAmadeus IT Group SASoftware &
ServicesSpainKonica Minolta Inc.Technology Hardware &
EquipmentJapanKoninklijke KPN NVTelecommunication

ServicesNetherlandsRoyal Mail PLCTransportationGreat
BritainRed Electric Corp SAUtilitiesSpain
© McGraw Hill
9-25
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.
© McGraw Hill
Sustainable business practices are those that meet the needs of
the present without compromising the ability to meet the needs
of the future.
9-26
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?
© McGraw Hill
9-27
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.
© McGraw Hill
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.
9-28
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
© McGraw Hill
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
9-29
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.
© McGraw Hill
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
9-30
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.
© McGraw Hill
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.
9-31
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:

© McGraw Hill
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.
9-32
End of Main Content
© 2022 McGraw Hill. All rights reserved. Authorized only for
instructor use in the classroom.
No reproduction or further distribution permitted without the
prior written consent of McGraw Hill.
Because learning changes everything.®
www.mheducation.com
Text Alternates for Slide Images
© McGraw Hill

9-34
Figure 9.2 The Five Components of a Corporate Social
Responsibility Strategy, Text Alternative
Return to slide containing the original image.
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.
© McGraw Hill
9-35
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.

© McGraw Hill
9-36
PART 1: 500 Words
Provide your thoughts and understanding of requirements:
1. Who consumes requirements?
2. Getting security requirements implemented.
3. Why do good requirements go bad?
Answer the questions with an APA-formatted paper (Title page,
body and references only). Your response should have a
minimum of 500 words. Count the words only in the body of
your response, not the references. A table of contents and
abstract are not required.
PART 2: 600 Words
Your midterm project was to provide a security assessment for
[X], an online software company that specialize in selling ad
spaces in their parent company’s magazine. [X] manages an
online database that allows their customers to upload and pay
for their business ads for magazine placement. Because [X] ‘s
database needs to connect to the parent company’s database, the
parent company has requested that [X] system be assessed and
verified as secure.
Now that you have provided your security assessment, the next
step is to provide [X] with your Security Portfolio. Using this
week's Reading on the NIST framework that includes the 5-step
process for creating a balanced portfolio of security products,
your assignment will be to create a Security Portfolio with the
following sections:

(Note: [X] can be any company and any line of business)
1. Cover Page (i.e. APA title page)
2. Background (provide a synopsis your midterm security
assessment on Vestige)
3. For each security need identified (or needs to be identified)
from your Midterm Assignment, Find the products that will
deliver the needed capabilities for the right price, and tell why
you chose that product.
This assignment should be about the security needs only. Do
NOT discuss how the client can achieve more business (That is
not your job).
Answer the questions with an APA-formatted paper (Title page,
body and references only). Your response should have a
minimum of 600 words.

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