Strategic Management

Session 3

Chapter 3 : Social Responsibility & Ethics

 Discussion!

Should strategic decision

makers be responsible
only to shareholders, or
do they have broader
responsibilities?
 Traditional View
Friedman
• Laissez Faire
• Social responsibility is a fundamentally
subversive doctrine
“There is one and only one social responsibility of business—to use its
resources and engage in activities designed to increase its profits so
long as it stays within the rules of the game, which is to say, engages
in open and free competition without deception or fraud.”
 Modern View
Caroll’s Four responsibilities of a
Business
 Goodwill

Enhanced reputation
Positive impacts of Social Responsibility

Competitive advantages

Cost savings

Reduce waste / maximise productivity

Charge premium prices yet have customer loyalty

Trustworthiness ensures better relationships with

suppliers/customers
Attract loyal & outstanding employees

Public officials can rely on goodwill

Capital infusion
 Stakeholders & Strategic
Management
• Primary
– Customers, Vendors, Employees, Shareholders,
Lenders
• Secondary
– Local communities, Governments, trade
associations, competitors, NGOs
• Which group has priority?
Enterprise strategy—an overarching strategy that explicitly articulates
the firm’s ethical relationship with its stakeholders. This requires not
only that management clearly state the firm’s key ethical values, but
also that it understands the firm’s societal context, and undertakes
stakeholder analysis to identify the concerns and abilities of each
stakeholder
 Example
• We believe our first responsibility is to the doctors, nurses, and patients, to mothers and
fathers and all others who use our products and services. In meeting their needs everything
we do must be of high quality. We must constantly strive to reduce our costs in order to
maintain reasonable prices. Customers’ orders must be serviced promptly and accurately.
Our suppliers and distributors must have an opportunity to make a fair profit.

• We are responsible to our employees, the men and women who work with us throughout the
world. Everyone must be considered as an individual. We must respect their dignity and
recognize their merit. They must have a sense of security in their jobs. Compensation must
be fair and adequate, and working conditions clean, orderly, and safe. We must be mindful of
ways to help our employees fulfil their family responsibilities. Employees must feel free to
make suggestions and complaints. There must be equal opportunity for employment,
development, and advancement for those qualified. We must provide competent
management, and their actions must be just and ethical.

• We are responsible to the communities where we live and work and to the world community
as well. We must be good citizens—support good works and charities and bear our fair share
of taxes. We must encourage civic improvements and better health and education. We must
maintain in good order the property we are privileged to use, protecting the environment
and natural resources.

• Our final responsibility is to our stockholders. Business must make a sound profit. We must
experiment with new ideas. Research must be carried on, innovative programs developed,
and mistakes paid for. New equipment must be purchased, new facilities provided, and new
products launched. Reserves must be created for adverse times. When we operate according
to these principles, the stockholders should realize a fair return
3 Levels of Moral Development
Kohlberg’s three levels are as follows:

• The preconventional level: This level is characterized by a

concern for self. Small children and others who have not
progressed beyond this stage evaluate behaviors on the basis of
personal interest—avoiding punishment or quid pro quo.

• The conventional level: This level is characterized by

considerations of society’s laws and norms. Actions are justified
by an external code of conduct.

• The principled level: This level is characterized by a person’s

adherence to an internal moral code. An individual at this level
looks beyond norms or laws to find universal values or principles.
See the Innovation Issue to see how someone turned a pressing
world need into a viable business.
 Code of Ethics
• A code of ethics specifies how an
organization expects its
employees to behave while on
the job.
 Why?
• 90% of employees who observed corporate
misconduct rated their cultures as weak.

• 34% of employees felt that their supervisor

did not display ethical behavior.

• 34% said their management watches them

more closely.
 Ethics, Morality and Law
• Ethics is defined as the consensually
accepted standards of behaviour for an
occupation, a trade, or a profession
• Morality constitutes one’s rules of personal
behaviour based on religious or
philosophical grounds
• Law or Legality refers to formal codes that
permit or forbid certain behaviours and
may or may not enforce ethics or morality
 Three basic approaches to ethical
behavior
• Utilitarian approach
• Individual rights approach
• Justice approach
 Let’s sum up
• Does Social Responsibility and Ethics
make money?