Ethics, CSR and Sustainability in Strategy

CHAPTER 9 Ethics,
Corporate Social Responsibility, Environmental Sustainability,
and Strategy
1
LEARNING OBJECTIVES
THIS CHAPTER WILL HELP YOU UNDERSTAND:
How the standards of ethical behavior in business are no
different from the ethical standards and norms of the larger
society and culture in which a company operates
What drives unethical business strategies and behavior
The costs of business ethics failures
The concepts of corporate social responsibility and
environmental sustainability and how companies balance these
duties with economic responsibilities to shareholders
© McGraw-Hill Education.
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 have to be judged in the context of
society’s standards of right and wrong

CORE CONCEPT (1 of 8)
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.
WHERE DO ETHICAL STANDARDS COME FROM—ARE
THEY UNIVERSAL OR DEPENDENT ON LOCAL NORMS?
The school of ethical
universalism
The school of ethical
relativism
Integrated
social contracts theory
Sources for Ethical Standards
The sources for ethical standards are: the school of ethical
universalism, the school of ethical relativism, and the integrated
social contracts theory.
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
Core Concept (2 of 8)
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.
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
The school of ethical relativism holds that differing 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 differing standards mean that whether business-related

actions are right or wrong depends on the prevailing local
ethical standards.
9
Strategic Management Principle (1 of 9)
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.
EXAMPLES OF ETHICAL RELATIVISM ISSUES
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
Variations in
Ethical Standards
Variations in ethical standards include:
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

Codes of conduct based on ethical relativism can be ethically
problematic for multinational companies by
creating a maze of conflicting ethical standards.
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.
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 the contract, cultures or groups can specify locally
ethical (second-order) actions
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.
CORE CONCEPT (4 of 8)
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.
16
In instances involving universally applicable ethical norms (like
paying bribes), there can be no compromise on what is ethically
permissible and what is not.
The Foreign Corrupt Practices Act (FCPA) is a United States
law passed in 1977 that prohibits U.S. firms and individuals
from paying bribes to foreign officials in furtherance of a
business deal. The FCPA places no minimum amount for a
punishment of a bribery payment.

https://www.sec.gov/spotlight/foreign-corrupt-practices-
act.shtml
The Foreign Corrupt Practices Act (FCPA), enacted in 1977,
generally prohibits the payment of bribes to foreign officials to
assist in obtaining or retaining business. The FCPA can apply to
prohibited conduct anywhere in the world and extends to
publicly traded companies and their officers, directors,
employees, stockholders, and agents. Agents can include third
party agents, consultants, distributors, joint-venture partners,
and others.
17
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?
CONSEQUENCES OF ETHICALLY QUESTIONABLE
STRATEGIES
Sizable
civil fines and stockholder lawsuits

Devastating image and
public relations hits
Sharp stock
price drops as investors lose confidence
Criminal indictments
and
convictions
When Strategies Fail
the Ethical Litmus Test
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
DRIVERS OF UNETHICAL STRATEGIES AND BUSINESS
BEHAVIOR
Unethical Strategies and Business Behaviors
Faulty oversight and self dealing
Pressure for short-term performance
A weak or corrupt ethical environment
Faulty oversight and self dealing, pressure for short-term
performance, and a weak or corrupt ethical environment are all
examples of unethical strategies and business behaviors.
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 one to meet or beat short-term
performance targets.
A culture that puts profitability and business performance ahead
of ethical behavior.
Core Concepts (5 of 8)
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.
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.

STRATEGIC MANAGEMENT PRINCIPLE (5 of 9)
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.
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)
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

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
STRATEGY, CORPORATE SOCIAL RESPONSIBILITY, AND
ENVIRONMENTAL SUSTAINABILITY
Corporate social responsibility (CSR)
Is a firm’s duty is 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.

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 operates and in society at large.
FIGURE 9.2 The Five Components of a Corporate
Social Responsibility Strategy
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
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.

FIGURE 9.3 The Triple Bottom Line: Excelling on
Three Measures of Company Performance
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.
TABLE 9.1 A Selection of Companies Recognized for Their
Triple-Bottom-Line Performance in 2013
(1 of 2)NAMEMARKET SECTORCOUNTRYVolkswagen
AGAutomobiles & ComponentsGermanyAustralia & New
Zealand Banking Group Ltd.BanksAustraliaSiemens AGCapital
GoodsGermanyAdecco SACommercial & Professional
ServicesSwitzerlandPanasonic Corp.Consumer Durables &
ApparelJapanTabcorp. Holdings Ltd.Consumer
ServicesAustraliaCitigroup Inc.Diversified FinancialsUnited
StatesBG Group PLCEnergyUnited KingdomWoolworths
Ltd.Food & Staples RetailingAustraliaNestlé SAFood,
Beverage, & TobaccoSwitzerlandAbbott LaboratoriesHealth
Care Equipment & ServicesUnited StatesHenkel AG & Co.
KGaAHousehold & Personal ProductsGermany
TABLE 9.1 A Selection of Companies Recognized for Their
Triple-Bottom-Line Performance in 2013
(2 of 2)NAMEMARKET SECTORCOUNTRYAllianz
SEInsuranceGermanyAkzo Nobel
NVMaterialsNetherlandsTelenet Group Holding
NVMediaBelgiumRoche Holding AGPharmaceutical,

Biotechnology, & Life SciencesSwitzerlandStocklandReal
EstateAustraliaLotte Shopping Co. Ltd.RetailingRepublic of
KoreaTaiwan Semiconductor Manufacturing Co.
Ltd.Semiconductors & Semiconductor EquipmentTaiwanSAP
AGSoftware & ServicesGermanyAlcatel-LucentTechnology
Hardware & EquipmentFranceKT Corp.Telecommunication
Republic of KoreaAir France-KLMTransportationFranceEDP-
Energias de Portugal SAUtilitiesPortugal
34
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
Core Concepts (8 of 8)
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.
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
CRAFTING CORPORATE SOCIAL RESPONSIBILITY AND
SUSTAINABILITY STRATEGIES
Pursuing a Sustainable CSR Strategy
in the Firm’s Value Chain Activities
Business case:
competitive advantage
Moral case:
stakeholder benefits
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

Both CSR strategies and environmental sustainability strategies
provide valuable social benefits and fulfill customer needs in a
superior fashion can lead to competitive advantage.
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.
THE MORAL CASE FOR CSR AND ENVIRONMENTALLY
SUSTAINABLE
BUSINESS PRACTICES
Operate
ethically and legally
Provide good work conditions for employees
Be a good environmental steward
Display good corporate citizenship
The Implied Social Contract:
“It’s the right thing to do”
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
Every action a company takes can be interpreted as a statement
of what it stands for.

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 serve long-term interests of
shareholders
COMBATING THE EVASION OF CSR AND SOCIALLY
HARMFUL BUSINESS PRACTICES
Harmful and Unethical Business Actions and Behaviors
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 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.

STRATEGIC MANAGEMENT PRINCIPLE (8 of 9)
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 while 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.
LEARNING OBJECTIVES
THIS CHAPTER WILL HELP YOU UNDERSTAND:
How the standards of ethical behavior in business are no
different from the ethical standards and norms of the larger
society and culture in which a company operates
What drives unethical business strategies and behavior
The costs of business ethics failures
The concepts of corporate social responsibility and
environmental sustainability and how companies balance these
duties with economic responsibilities to shareholders

Requirement
The topic is McDonald's
Ch 9 Ethics, Corporate Social Responsibility and Environmental
Sustainability
· Read Chapters 9 Ethics, Corporate Social Responsibility and
Environmental Sustainability
·Use 2 L.O.s from Ch 9 to analyze the company’s
management (each L.O. should have 3 examples at 100 words
per example).
Ch9 requirements and examples are attached
Rating sheet
Thompson et al. Crafting & Executing Strategy
Chapter Rating Form
Content and Organization of the Presentation.
Organization of material (10 points)
1. Cover Page with Date, your name, and Topic
2. Introduce the topic with 1 paragraph
3. Body
a. Answer should include a minimum of 3 answers in addressing
the question
b. clearly states which principles apply to your company
(includes spelling, grammar, and full sentences)
4. Select 2 Learning Objectives (L.O.) for a Chapter
a. How are the L.O.’s relevant to your final paper
b. Minimum 100 words each L.O.
Chapter NAME
L.O. 1
L.O. 2

example [email protected] 100 words
example 1 @ 100 words
Example 2 @ 100 words
5. Conclusion … 3 key concepts you talked above
6. Works cited
7. Spell check, grammar check, etc.
TOTAL POINTS ____________________
Example

Media Research Paper
CH. 5 Five Generic Competitive Strategies
JOSH
Professor JOSE
MGMT 4505
3/8/21
The Chapter 5 ‘The five Generic Competitive Strategies’
teaches about five generic competitive strategies and in which
kind of environment these strategies work better. Also it lay
stresses on how low cost plays a vital role in achieving
competitive advantage. Competiti ve advantage is achieved by
product differentiation from rivalries. Product differentiation
enhances chances of profitability increasing unit sales. Hence
an organization has successful competitive strategies if there is
no duplication and close substitute of the product.
CH. 5 Five Generic Competitive Strategies
LO.1 What distinguishes each of time generic strategies and
why some of these strategies work better in certain kind of
competitive condition in comparison with others.
Strategies are long term objectives of an organization and how
do you plan to achieve those goals in longer run. A firm
competitive strategy aims at ensuring a highlighted position in
market with an objective of satisfying customers, decrease the
possibility of underlying threats and attain competitive
advantage over others.
Example # 1 McDonald’s

McDonald’s is one the biggest food chains in the world aiming
at achievement of competitive advantage among rivals in the
market. McDonald's comes with different competitive strategies
that focus on growth and maintaining a better position in the
market place. McDonald's primary focus in ‘Cost leadership’
that means they aim towards minimizing cost for the products
offered to the public. They continuously strive for product
differentiation by offering unique product e.g. McCafe.
McDonald’s has expanded its branches all over the world as
their prices are low but quality is high that is why they are able
to grab markets easily. Through these competitive strategies
organizations like McDonald’s can be able to penetrate market
and develop a massive range of buyers by increasing sales and
decrease cost per output.
Example # 2 Starbucks
Starbucks is an American Multinational organization that has
large number of chain of coffeehouse all over the world. It
produces variety of products in addition to the primary product
such as Smoothies, Sandwiches, Snakes, baked products etc.
Starbucks has expanded its business by following generic
strategy mainly highlighting on product differentiation.
Starbucks has set a coffee house, distinct from its rivals.
Starbucks is able to attain competitive advantage by providing
unique product and services with no duplication. It is able to
penetrate more market share by uniqueness of the product
offered. The competitive like McDonald’s have used the
strategy of low cost while Starbucks have used the strategy of
warmth and ambience.
Example # 3 Al-Tahur limited company
Al-Tahur is a company dealing in the production and processing
of fresh milk and other dairy products. It works under the brand
name ‘Perma’. Prema main tagline is providing 100% fresh
pasteurized cow milk that grabs attention of large number of
buyers who believe in quality and zero hormones and
preservatives in milk. Prema is a growing company that has
increased its sales up to 70% and attained market share by

providing quality products without any preservative at low
prices without compromising on quality. They have
differentiated these product form rest of rivals by ensuring
100% organic cow milk without any additions. They believe on
serving from right from the farms to the glass of milk. Thus
Prema is a growing market that is providing its consumers with
high quality in low price. In addition to milk, it also offers
smoothies, yogurts and chocolate milk.
LO.2 The attributes of best cost provider strategy a hybrid of
low cost provider and differentiation strategies.
Best cost hybrid approach is a merger of providing best quality,
features and services with aim of charging low prices in
comparison to rivals. Thus this approach believes in increasing
efficiency of products by lower down their prices. The
consumer’s needs are satisfied and at the same time low cost is
achieved by buyers.
Example #1 McDonald’s
McDonald’s the largest chain of fast food restaurants which has
expanded its operations all over the world has followed the best
cost provider strategy. McDonald’s charges low cost for the
product offered to their customers in comparison with its rivals
like Arby’s that charges almost double prices than McDonald’s.
Thus McDonald’s increases their profitability by expansion of
their business worldwide through reducing prices and
differentiating their product quality from rivals. They provide
best quality product in lower prices than their competitors.
Example #2 Starbucks
A giant house of coffee shop and snaked called Starbucks has
outsourced its call center operation to provide 100% customer
satisfaction. It has outsourced its operation in order to ensure
flexibility and obtaining constant feedback from customers. As
customer loyalty is its once of the prime objective Starbucks
has spent huge investment on outsourcing its operation. They
have added value to the products by constantly aware of their
shortcomings mainly through customer’s feedback and tackling

their queries. Thus outsourcing has bought huge profitability
and customer satisfaction as addressing customer’s needs day
and night has improved efficiency and enhanced customer
loyalty.
Example #3 Unilever
Unilever is a multinational organization that produces wide
ranges of food products, energy drinks, baby food, ice-cream
etc. The organization is based on London. Unilever has
outsourced its HR services to gain value addition. In order to
focus more on providing good quality services it outsourced its
human resource department. Through outsourcing its HR
services to a company called ‘Accenture” it will be able to
provide efficiency and increased quality in its HR services. HR
services mainly includes department of recruitment,
administration, management services and payroll services.
Accenture made sure the provision of these services through a
network that operate globally and comprises of various centers
across the world.
Conclusion
Thus an organization outsource its tasks if its benefits exceeds
its cost and aids in value addition in the products. Moreover in
order to be successful and remain alive in the market an
organization male use of offensive and defensive techniques to
grad customers from the competitors and enhance its
profitability.
Work Cited
GREGORY, L. (2017, February 5). McDonald’s Generic
Strategy & Intensive Growth Strategies - Panmore Institute.
Panmore Institute. http://panmore.com/mcdonalds-generic-
strategy-intensive-growth-strategies
Levy, J. (n.d.). Starbucks Plans to Beat the Competition with
Product Pricing Strategy. Business 2 Community.
https://www.business2community.com/strategy/starbucks-plans-
to-beat-the-competition-with-product-pricing-strategy-0503952

Matyszczyk, C. (2019, April 1). Burger King Just Launched a
Shocking Offensive Against McDonald’s. Here’s the Huge
Catch. Inc.com. https://www.inc.com/chris-matyszczyk/burger-
king-just-launched-a-shocking-offensive-against-mcdonalds-
heres-huge-catch.html
12 | Page

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