Business Ethics - Chapter 8 PDF

Corporate Social Responsibility So far, we’ve covered business ethics from an individual, group, and organizational perspective. In this chapter, we’ll focus on business ethics as an extra- organizational matter: your company’s relationship with not only other businesses, but society and the world a...

Corporate Social Responsibility So far, we’ve covered business ethics from an individual, group, and organizational perspective. In this chapter, we’ll focus on business ethics as an extra- organizational matter: your company’s relationship with not only other businesses, but society and the world at large. Corporate Social Responsibility (CSR) falls under the umbrella of ESG: Environmental, Social and Governance. It’s about a corporation being a good “citizen” to the rest of the world. Doing the “right” thing doesn’t always result in the most short-term profit, and tends to run into opposition from certain “traditionally- minded” stakeholders. However, companies are finding themselves pressured by more “progressively-minded” stakeholders to do more than simply make the most possible money: they need to do their part to make the world a better place.  CSR Stakeholders Government Competitors Owners Suppliers Organization Customers Financial/ Community/ Employees Institutions/ Interest Analysts Groups/Media  Why CSR? Pragmatic Ethical Strategic Corporations need to Businesses owe it to society Recognize the need for maintain their reputation as to do the “right thing;” business to have a healthy a responsible corporate society in order to remain citizen; Stakeholders’ well-being competitive; depends on corporations Provide all stakeholders, not acting in an ethical manner; Consider the entire value just shareholders, with chain in order to make the value; Protecting the natural best decisions; environment as a core Assuage concerns and principle; Recognize where the protect long-term company is “doing harm” reputation and viability; and mitigating it;  The CSR Pyramid( 1 / 5 ) CSR can be broken down into different types Philanthro of responsibilities of a particular company. pic Let’s dive into each of the following: Ethical Legal Economic  Types of CSR ( 2 / 5 ) Economic No matter how good your intentions may be, at the end of the day you still need to keep the lights on. Philanthropi The economist Milton Friedman once said c “A business’s sole responsibility is to maximize profits,” and the relatively recent schools of thought within CSR and Ethical sustainability are pushing corporations to move beyond that and think of greater societal impact, they still need to operate Legal and remain viable within the free market. Economic Types of CSR ( 3 / 5 ) Legal Another low bar to clear besides keeping the lights on is not breaking any laws in order to do business. Not all Philanthropi societal expectations are written into c law, and laws vary from region to region, country to country. As corporations become more globally Ethical focused to stay competitive, navigating the complexities of laws across different regions is paramount. Legal Economic  Types of CSR ( 4 / 5 ) Ethical Now we’re getting to the level where a company goes beyond the bare-minimum Philanthropi survival and legal obligations, focusing on c doing what’s right and avoiding harm where possible. Ethical For example, the prominent US-based drugstore chain CVS stopped selling tobacco products because it conflicted with their commitment to health, even though Legal selling them was legal and profitable for them. Companies can hold themselves to a higher standard, ensuring their actions Economic align with ethical values, and not just the law.  Types of CSR ( 5 / 5 ) Philanthropic We’ve now reached the peak of the CSR pyramid where a company contributes directly to societal well-being. Philanthropi c Corporate philanthropy involves more than just monetary donations to good causes; it Ethical encompasses efforts that actively create a positive impact on communities. E.g., Tom’s Shoes pioneered the “one-for-one” model, where every pair of shoes sold, they matched Legal with a pair of shoes being donated to someone in need. Economic Not all companies may reach this level of the pyramid, but those that do leave a lasting impression on their industry and the global business community.  The Triple Bottom Line We know our firm needs to meet the “bottom line,” or the financial performance of your firm, but what about meeting three bottom lines? The concept of the Triple Bottom Line incorporates two additional lines to meet: social and environmental. While we do need to keep the lights on, modern companies need to meet the challenges of doing good for society and the planet. Business leaders who choose to focus on these three dimensions set their sights higher than just growth and Economi profit: they aim to steer their company to benefit c stakeholders outside of the board room or shareholder conference call. Social Environment al  Environmental, Social, & Governance A newer, cooler acronym that has been supplanting CSR as of late in the collective conscious of the ethically-minded business world is ESG: Environment, Social & Governance. These are the three metrics through which companies strive to meet new ethical standards Environmen Governan Social t ce Fair treatment of workers in Oversight and accountability for Co2 & Emissions Reduction; developing countries; leadership and board members; Preservation of natural Encouraging diversity in Transparent decision-making company leadership; processes; environment; Stewardship of local Compliance with Regulations Plastic & Waste reduction communities  Is CSR Good for Business? There’s no definitive answer if ethical business practices will equal financial success for a company, in fact there are examples of companies benefitting from unethical practices, at least in the short-term. However, we need only look at the 2008 financial crisis as one of many examples of unethical businesses who paid dividends, financially or reputationally. As a rule, it’s safe to say acting in an ethical manner is indeed good for business. In this section, we’ll explore a few facets of the fruits of an ethical business’ labors.  Reputation is Everything! Do these words sound familiar? They were how we opened this course, and now more than ever, throughout the lightning-fast discourse of social media, reputation is everything. A solid reputation takes a long time to build, and can be tarnished with one bad decision, disappointing product release, or even a poorly worded post. Some general benefits of a good reputation include: Lower costs across the board; Higher sales figures; Ability to charge higher prices than competitors with poor reputations; Increased attractiveness for new talent; Current employees feel proud to work for an ethical company, and are likely to stay longer; Heightened customer satisfaction, trust, and loyalty; Cash for Conscience: Socially Responsible Investors As managers and board executives are well- aware, we are beholden to our shareholders. Usually in this case it is about meeting financial targets, but investors are becoming more ethically-minded and scrutinizing both financial and non-financial metrics when making their investment decisions. Socially Responsibly Investors are avoiding investing in “sin-stocks” such as tobacco companies, or companies known to place profit over fair treatment of laborers in developing countries. New stock indexes, such as the Dow Jones Sustainability Index and FTSE4Good are flourishing, and companies who are listed on them enjoy a boosted reputation. Cost of Illegal Conduct or Unethical Conduct Slashed Stock Losing relationships Jail Time Prices with business partners The rumors of “Club Fed” Stock prices, both in the When business partners for white collar crime are a long and short-term drop learn of unethical conduct, myth: there’s nothing significantly following a they often cut ties, luxurious about razor wire, corporate scandal. weakening the firm’s no privacy, and full-cavity business network. strip searches.  Increased Government Regulation All it takes is one bad actor to spoil it for the rest of us. Take for example a factory that dumps its chemical waste into a river, because disposing of it safely would cost a little more. The effects of such illegal dumping are known as externalities: the hidden costs outside of the ledger sheets that companies impose on society. In this case, the increased healthcare needs of the polluted river’s surrounding populace. When companies fail to address these externalities, and public demand for regulation grows, businesses are forced to account for their actions, whether they were the ones originally responsible or not. It’s a Virtuous Circle Just as things can go from bad to worse, they may also go from good to better! If your firm commits to CSR initiatives, which in turn improves its reputation, reduces risk, and drives innovation, and maybe leads to a good fiscal quarter, then you might find yourself in a Virtuous Circle: where your company is compelled to keep chasing this source of success by continuing to invest in socially and ethically responsible efforts, maintaining a mutually reinforcing engine of growth and sustainability. Being Socially Responsible Because It’s Right Imagine acting ethically responsible because it’s the right thing to do. What a concept! CEO Aaron Feuerstein had a tough decision to make when fire devasted four of his factories in 1995. Rather reopen his factories in a cheaper location to recoup costs, Aaron instead continued to pay all 3,000 of his factory workers while during the entire time they were rebuilt. Despite pressure from shareholders to cut his losses, Feuerstein chose to continue to compensate them. To paraphrase from a speech Feuerstein, “the responsibility of a rich man is not to praise himself, but to do kindness, justice, and charity for his community.”  Key Takeaways There are pragmatic, ethical, and strategic reasons why CSR is important to your firm Your firm needs to be economically viable before it can aspire to the higher levels of the CSR pyramid. The Triple Bottom Line delineates the economic, social, and environmental standards through which companies must hold themselves to in order to be good corporate citizens. ESG stands for Environment, Social, and Governance. This is related to CSR but entails a wider scope of goals for organizations to aspire to. Reputation is everything! Successful ethical measures usually leads to more of the same, otherwise known as a virtuous circle.  References Trevino; Nelson, “Managing Business Ethics: Straight Talk about How to Do It Right, 8th Edition”, Wiley, 2021