Social Responsibility and Good Governance

Albert A. Anonuevo
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Social Responsibility and Good Governance

 Business Ethics
 Social responsibility
 Fundamental approaches to ethical issues
 Corporate Governance

Three Domains of Human Action

Ethics
 The code of moral principles and values that govern the behaviors of a person or group with respect to what
is right or wrong.
 The domain of ethics does not have specific laws.
 The mistaken notion: “if it is not illegal, it must be ethical”

Ethical Dilemma
 A situation that arises when right or wrong are in conflict or cannot be clearly identified.
 The individual who must make the choice is the moral agent.

Examples of ethical dilemma

 A pharmaceutical sales manager promotes a new expensive drug costing P1,000 per dose. The drug is only
1% more effective than a dose costing P250. Should you aggressively promote the more expensive drug to a
hospital catering to indigent patients?
 A company will save millions from not installing an anti-pollution device. But doing so will damage a river
from which hundreds of poor people make a living from fishing.

The Importance of Business Ethics

 The ability to recognize and deal with complex business ethics issue has become a significant priority in
twenty-first-century companies.
 In recent years, a number of well-publicized scandals resulted in public outraged about deception and fraud
in business and demand for improved business ethics and greater corporate responsibility.
 In 2008, investigations on German corporate giant Siemens revealed systematic and well-coordinated use of
bribery of foreign government officials to get contracts and business. The practice was so widespread that
one observer remarked that bribery is their business model.” In the end, Siemens will pay more than $2.6
 billion: $1.6 billion in fines and fees in Germany and the United States and more than $1 billion for internal
investigations and reforms.
 In China, the “Melamine in Milk Scandal” claimed the lives of at least four infants and caused illness in over
50,000 more babies. It also caused a worldwide scare and did inestimable damage to the already maligned
“Made in China” label. The chairman of Sanlu (the maker of the tainted milk) is appealing a life sentence.

What do you think?

 The iPhone was launched in Poland where demand for the gadget was very low. As part of a marketing
campaign, the country's largest mobile operator Orange, paid dozens of actors to stand in queues and
pretend that they were ordinary people interested in getting the phone.
 Regardless of what an individual believes about a particular action, if society judges it to be unethical or
wrong, whether correctly or not, that judgment directly affects the organization’s ability to achieve its
business goals.

A Timeline of Ethical and Social Responsibility Concerns

1960s 1970’s 1980’s 1990’s 2000’s

Environmental Issues Employee militancy Bribes and illegal Sweatshops & unsafe Cybercrime
contracting working conditions
practices
Civil rights Issues Human right issues Influence peddling Rising corporate Financial
responsibility for misconduct
personal damages
Increased employee- Covering up rather Deceptive Financial Global issues,
employer tension than correcting issues advertising mismanagement & Chinese product
fraud safety
Changing work ethic Disadvantaged Financial fraud Organizational ethical Sustainability
consumer misconduct
Rising drug use Transparency issues Intellectual
property theft
The Development of Business Ethics
 The study of business ethics in North America has evolve through five distinct stages – (1) before 1960s
(2) the 1960’s (30 the 1970s (4) the 1980’s (5) the 1990’s – and continues to evolve in the twenty-first
century.
 Before 1960 : Ethics in Business Ethical issues related to business were often discussed within the
domain of theology or philosophy.
 Individual moral issues related to business were addressed in churches, synagogues and mosques.
 Religious leaders raised questions about fair wages, labor practices and the morality of capitalism.
 Each religion applied its moral concepts not only business but also to government and politics

The 1960’s: The rise of Social Issues in Business

 This period witnessed the rise of consumerism– activities undertaken by independent individuals, groups,
and organizations to protect their right as consumers.
 JFK outlined the four basic consumer rights (Consumers’ Bill of Rights)
 The right to safety
 The right to be informed
 The right to choose
 The right to be heard

The 1970s: Business Ethics as an Emerging Field

 Theologians and philosophers had laid the groundwork by suggesting that certain principles could be
applied to business activities.
  Business professors began to teach and write about corporate social responsibility, an organization’s
obligation to maximize its positive impact on stakeholders and to minimize its negative impact.

The 1980’s: Consolidation

 Business academics and practitioners acknowledge business ethics as a field of study.
 Many of the leading companies established ethics and social policy committees to address ethical issues.
(GE, GM, S.C. Johnson & Son Inc. , Caterpillar)
 In the 1980’s, the Defense Industry Initiative on Business Ethics and Conduct was developed to guide
corporate support for ethical conduct.

The 1990’s: Institutionalization of Business Ethics

 The Federal sentencing guidelines for organizations (FSGO), approved by Congress set the tone for
organizational ethical compliance programs in 1990’s.
 The guidelines broke new grounds by codifying into law incentives to reward organizations for taking
action to prevent misconduct such as developing effective internal legal.
 On the other hand, under FSGO, if a company lacks an effective ethical compliance program and its
employee violate the law, it can incur severe penalties.

The Twenty-First Century: A New Focus on Business Ethics

 Congress in 2002 passed the Sarbanes-Oxley Act, the most far-reaching change in organizational control
and accounting regulations.
 The new law made securities fraud a criminal offense and stiffened penalties for corporate fraud.

Developing an Organizational Ethical Culture

 The ethical component of a corporate culture relates to the values, beliefs, established and enforced
patterns of conduct that employees use to identify and respond to ethical issues.
 The goal of an ethical culture is to minimize the need for enforced compliance of rules and maximize the
use of principles that contribute to ethical reasoning in difficult or new situations.
 An ethical culture creates shared values and support for ethical decisions and is driven by top
management.

“ Being good is good for business” -Annita Roddick Founder of

The Body Shop

The role of Organizational Ethics in Performance

The Benefits of Business Ethics
 The field of business ethics continues to changed rapidly as more firms recognize the benefits of
improving ethical conduct and the link between business ethics and financial performance.

Ethics Contribute to Employee Commitment

 Issues that may foster the development of an ethical culture for employees include the absence of
abusive behavior, a safe work environment, competitive salaries, and fulfillment of all contractual
obligations toward employees.
 The more a company is dedicated to taking care of its employees, the more likely it is that the employees
will take care of the organization.

Ethics Contribute to Investor Loyalty

 Ethical conduct results in shareholder loyalty and can contribute to success that supports even broader
causes and concerns.
 Investors today are increasingly concerned about ethics, social responsibility, and reputation of
companies.

Ethics Contribute to Customer Satisfaction

 It is generally accepted that customer satisfaction is one of the most important factors in successful
business strategy.
 Successful businesses provide an opportunity for customer feedback, which can engage the customer in
cooperative problem solving.
 When an organization has a strong ethical environment, it usually focuses on the core value of placing
customer’s interest first.

Ethics Contribute to Profits

 Ethical conduct toward customers builds a strong competitive position that has been shown to affect
business performance and product innovation positively.
 The Corporation’s concern for ethical conduct is becoming a part of strategic planning toward obtaining
the outcome of higher profitability

Stakeholder Relationships, Social Responsibility, and Corporate Governance

 Business ethics issues, conflicts, and successes revolve around relationships.

 Building effective relationship is considered one of the more important areas of business today.
 A business exist because of relationships between employees, customers, shareholders or investors,
suppliers, and managers who develop strategies to attain success.
 An organization usually has a governing authority often called board of directors that provides oversight
and direction to make sure that the organization stays on its objectives in an ethical, legal, and socially
acceptable manner.
 Most ethical issues exist because of conflicts in values and belief patterns about right and wrong
between and within stakeholder groups.
 The formal system of accountability and control of ethical and socially responsible behavior is corporate
governance.
 In theory, the board of directors provides oversight for all decisions and use of resources.
 Ethical leadership is associated with appropriate corporate governance.
Stakeholders Define Ethical Issues in Business
 In a business context, customers, investors and shareholders, employees, suppliers, government
agencies, communities, and many others who have a stake or claim in some aspect of a company’s
products, operations, markets, industry, and outcomes are known as stakeholders.
 Some activities and negative press generated by special interest groups can force a company to change
its practices.
 Ex: People for the Ethical Treatment of Animals (PETA) launched a campaign against Mcdonald’s to try to
force the company to halt inhumane treatment of chickens among its egg and meat supplier.
 Mcdonald’s did change their policies , although they deny that PETA”s actions had any direct effect.
 Ethical misconduct and decisions that damage stakeholders will generally impact the company’s
reputation both from the investor confidence and consumer confidence perspective.
 Reputation is a factor in the consumers’ perception of product attributes and corporate image features
tat lead to consumer willingness to purchase goods and services at profitable prices.

Identifying the Stakeholders

 We can identify two different types of stakeholders.

1. Primary stakeholders are those whose continued association is absolutely necessary for a firm’s
survival; these include employees, customers, investors and shareholders, as well as the
governments and communities that provide necessary infrastructure.
2. Secondary stakeholders do not typically engage in transactions with a company and thus are not
essential for its survival; these include the media, trade associations, and special interest groups.

A Stakeholder Orientation
 The degree to which a firm understand and addresses stakeholder demands can be referred to
as stakeholder orientation.
 This orientation comprises three sets of activities:
1. The organization-wide generation of data about stakeholder groups and assessment of the firm’s
effects on these groups.
2. The distribution of this information throughout the firm
3. The organization’s responsiveness as a whole to this intelligence
 The responsiveness of the organization as a whole to stakeholder intelligence consists of the initiatives
that the firm adopts to ensure that it abides by or exceeds stakeholder expectations and has a positive
impact on stakeholder issues.
 Such activities are likely to be specific to a particular stakeholder group.
 Ex: Family-friendly work schedules
Pollution reduction programs

Social Responsibility and Ethics

 The concepts of ethics and social responsibility are often used interchangeably, although each has a
distinct meaning.
 Ethics is only one dimension of social responsibility.
 We defined the term social responsibility as an organization’s obligation to maximize its positive impact
on stakeholders and to minimize its negative impact.
Steps of Social Responsibility

Philanthropic:
Ethical: “giving back” to
Following society
standards of
Economic :
acceptable
Maximizing
behavior as
stakeholder
judged by
wealth
Legal : Abiding stakeholders
and/or value
by all laws and
government
regulations

Four Levels Social Responsibility

 Legal – Businesses are expected to obey all laws and regulations.
 Economic – Companies have an economic responsibility to be profitable so that they can provide a return
on investment to their owners and investors, create jobs for the community, and contribute goods and
services to the economy.
 Ethical- Business Ethics, as previously defined, comprises principles and standards that guide behavior in
the world of business.
 Philanthropic- Philanthropic responsibility refers to activities that are not required of businesses but
promote human welfare or goodwill.

Corporate Citizenship
 The term corporate citizenship is often used to express the extent to which businesses strategically meet
the economic, legal, ethical and philanthropic responsibilities.

Corporate Reputation
 Reputation is one an organization’s intangible assets with tangible value.
 The value of a positive reputation is difficult to quantify, but it is very important.
 Corporate reputation, image, and brands are more important than ever and are among the most critical
aspects of sustaining relationship with constituents including investors, customers, financial analysts,
media and government watchdogs.

Fortune’s Best and Worst Companies for Social Responsibility

Best Companies Worst Companies
1. Microsoft 1. Circuit City Stores
2.Google 2. Family Dollar Stores
3. Walt Disney 3. Dillard’s
4.BMW 4. Sears Holding
5. Apple 5. Tribune
6.Mercedes-Benz 6. Hon Hai Precision Industry
7. Volkswagen 7. Fiat
8. Sony 8. PEMEX
9. 9. Surgutneftegas
10. 10. Huawei Technologies