CHAPTER 9 Ethics, Corporate Social Responsibility, Environmental Sustainability, and Strategy 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 © McGraw-Hill Education. 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. © McGraw-Hill Education. 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 Jump to Appendix 1 long image description © McGraw-Hill Education. 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 Education. 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. © McGraw-Hill Education. 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 Education. Core Concept (3 of 8) 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. © McGraw-Hill Education. Strategic Management Principle (1 of 9) Und.

1. CHAPTER 9 Ethics,
Corporate Social Responsibility, Environmental Sustainability,
and Strategy
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
© McGraw-Hill Education.

2. 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.
© McGraw-Hill Education.
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
Jump to Appendix 1 long image description
© McGraw-Hill Education.
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 Education.

3. 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.
© McGraw-Hill Education.
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 Education.
Core Concept (3 of 8)
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.
© McGraw-Hill Education.

4. 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.
© McGraw-Hill Education.
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
Jump to Appendix 2 long image description
© McGraw-Hill Education.
IKEA’s Global Supplier Standards: Maintaining Low Costs
While Fighting the Root Causes of Child Labor
How effective has IKEA’s IWAY proactive approach to setting
global labor standards been in reducing abuses of child workers
at its supplier facilities?
Is it fair for IKEA to prescribe that its suppliers comply with
global standards that are at variance with local market labor
practices and conditions?
What has IKEA done to help its suppliers overcome the
problems that foster the use of child labor?

5. © McGraw-Hill Education.
Strategic Management Principle (2 of 9)
Codes of conduct based on ethical relativism can be ethically
problematic for multinational companies by creating a maze of
conflicting ethical standards.
© McGraw-Hill Education.
Strategic Management Principle (3 of 9)
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.
© McGraw-Hill Education.
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
© McGraw-Hill Education.
APPLICATION OF INTEGRATED SOCIAL CONTRACTS
THEORY TO MULTINATIONAL BUSINESS

6. 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 Education.
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.
© McGraw-Hill Education.
Strategic Management Principle (4 of 9)
In instances involving universally applicable ethical norms (like
paying bribes), there can be no compromise on what is ethically
permissible and what is not.
© McGraw-Hill Education.
HOW AND WHY ETHICAL STANDARDS IMPACT THE
TASKS OF CRAFTING AND EXECUTING STRATEGY

7. 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 Education.
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
Jump to Appendix 3 long image description
© McGraw-Hill Education.
DRIVERS OF UNETHICAL STRATEGIES AND BUSINESS
BEHAVIOR
Unethical Strategies and Business Behaviors

8. Faulty oversight and self dealing
Pressure for short-term performance
A weak or corrupt ethical environment
Jump to Appendix 4 long image description
© McGraw-Hill Education.
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.
© McGraw-Hill Education.
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.
© McGraw-Hill Education.
How Novo Nordisk Puts Its Ethical Principles into Practice

9. What steps has Novo Nordisk taken to ensure that its ethical
standards of employee conduct are put into practice?
Why has Novo Nordisk been so successful in instilling a
culture of ethical conduct in its organization when other firms
have not?
What has been the effect of Novo Nordisk’s dedication to
ethical business practices on its success in the marketplace?
© McGraw-Hill Education.
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 Education.
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.
© McGraw-Hill Education.
THE VISIBLE COSTS COMPANIES INCUR WHEN ETHICAL
WRONGDOING IS DISCOVERED

10. 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 Education.
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 Education.
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

11. The costs of complying with harsher government regulations
© McGraw-Hill Education.
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 Education.
Core Concept (6 of 8)
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.
© McGraw-Hill Education.
FIGURE 9.2 The Five Components of a Corporate
Social Responsibility Strategy
Jump to Appendix 5 long image description
© McGraw-Hill Education.

12. 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 Education.
Core Concept (7 of 8)
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.
© McGraw-Hill Education.
FIGURE 9.3 The Triple Bottom Line: Excelling on
Three Measures of Company Performance
Jump to Appendix 6 long image description
© McGraw-Hill Education.
TABLE 9.1 A Selection of Companies Recognized for Their
Triple-Bottom-Line Performance in 2013
(1 of 2)NAMEMARKET SECTORCOUNTRYVolkswagen
AGAutomobiles & ComponentsGermanyAustralia & New

13. 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
© McGraw-Hill Education.
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
© McGraw-Hill Education.
WHAT DO WE MEAN BY SUSTAINABILITY AND
SUSTAINABLE BUSINESS PRACTICES?
Sustainability

14. 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 Education.
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 Education.
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.
© McGraw-Hill Education.
SUSTAINABILITY AND SUSTAINABLE BUSINESS

15. 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 Education.
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
Jump to Appendix 7 long image description
© McGraw-Hill Education.
Strategic Management Principle (6 of 9)
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.
© McGraw-Hill Education.

16. 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”
Jump to Appendix 8 long image description
© McGraw-Hill Education.
Strategic Management Principle (7 of 9)
Every action a company takes can be interpreted as a statement
of what it stands for.
© McGraw-Hill Education.
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
© McGraw-Hill Education.

17. 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
Jump to Appendix 9 long image description
© McGraw-Hill Education.
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.
© McGraw-Hill Education.
Strategic Management Principle (9 of 9)
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.
© McGraw-Hill Education.
Appendix 1 Where Do Ethical Standards Come from—Are They
Universal or Dependent On Local Norms?

18. The sources for ethical standards are: the school of ethical
universalism, the school of ethical relativism, and the integrated
social contracts theory.
Return to slide
© McGraw-Hill Education.
Appendix 2 Examples of Ethical Relativism Issues
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
Return to slide
© McGraw-Hill Education.
Appendix 3 Consequences of Ethically Questionable Strategies
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
Return to slide
© McGraw-Hill Education.
Appendix 4 Drivers of Unethical Strategies and Business
Behavior
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.
Return to slide
© McGraw-Hill Education.

19. Appendix 5 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
Return to slide
© McGraw-Hill Education.
Appendix 6 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.
Returnto slide
© McGraw-Hill Education.
Appendix 7 Crafting Corporate Social Responsibility and
Sustainability Strategies
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
Return to slide
© McGraw-Hill Education.

20. Appendix 8 The Moral Case for CSR and Environmentally
Sustainable
Business Practices
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
Return to slide
© McGraw-Hill Education.
Appendix 9 Combating the Evasion of CSR and Socially
Harmful Business Practices
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.
Return to slide
© McGraw-Hill Education.