Ch3

Ethics , Social Responsibility , and

sustainability
After studying this chapter, you should be able
to do the following…
1- Explain why good ethics is good business in strategic management.

2- Explain why whistle-blowing, bribery, and workplace romance are strategic issues.

3- Discuss why social responsibility and policy are key issues in strategic planning.

4- Discuss the nature of environmental sustainability and why it is a key issue in strategic
planning.

5- Explain why animal welfare is a strategic issue for firms.

 There are three sections of this chapter

(1) business ethics.

(2) social responsibility.
(3) environmental sustainability.
THE FIRST PART
business ethics.
social responsibility.
environmental sustainability.
 -Business ethics-
• can be defined as principles of conduct within
organizations that guide decision making and behavior.
• Good business ethics is a prerequisite for good strategic
management.
• good ethics is just good business!
 -Social responsibility-
• Refers to actions an organization takes
beyond what is legally required to
protect or enhance the well-being of
living things.
 Social Responsibility and Policy
• We can all agree that the first social responsibility of any business must be
to make enough profit to cover the costs of the future, because if this is
not achieved, no other social responsibility can be met.
• No social need can be met if the firm fails.
• Strategists should examine social problems in terms of potential costs and
benefits to the firm and focus on social issues that could benefit the firm
most.
 Design and Articulate a Social Policy
• The term social policy embraces managerial philosophy and thinking at
the highest level of the firm, which is why the topic is covered in this text.
Social policy concerns what responsibilities the firm has to employees,
consumers, environmentalists, minorities, communities, shareholders, and
other groups.
• Firms should strive to engage in social activities that have economic
benefits.
 -Sustainability-
• Refers to the extent that an organization’s
operations and actions protect, mend, and
preserve rather than harm or destroy the
natural environment .
 Why "Good Ethics is Good Business"

• Not only is ethical behavior in business life the right thing to do in

principle, it pays off in financial returns.
• Alan Simpson remarked “If you have integrity, nothing else matters. If
you don’t have integrity, nothing else matters.”
• Good ethics is good business. Bad ethics can derail even the best strategic
plans.
 Does It Pay to Be Ethical?
• Strategists such as CEOs and business owners are the
individuals primarily responsible for ensuring that high ethical
principles are espoused and practiced in an organization.
• All strategy formulation, implementation, and evaluation
decisions have ethical ramifications.
 ( 7 Principles of Admirable Business Ethics )

1. Be trustworthy.

2. Be open-minded.

3. Honor all commitments.

4. Do not misrepresent, exaggerate, or mislead.

5. Be visibly a responsible.

6. Utilize your accounting practices.

7. Follow the motto .

 How to Establish an Ethics Culture ?
• A key ingredient for establishing an ethics culture is to develop a clear code of business ethics .
• A code of ethics can be viewed as a public relations gimmick, a set of platitudes, or window
dressing. To ensure that the code is read, understood, believed, and remembered,periodic ethics
workshops are needed to sensitize people to workplace circumstances in which ethics issues
may arise.
• Reverend Billy Graham once said, “When wealth is lost, nothing is lost; when health is
lost, something is lost; when character is lost, all is lost.”
• An ethics “culture” needs to permeate organizations! To help create an ethics culture.
THE SECOND PART
Whistle-Blowing
Bribery
and Workplace Romance
 3 business ethics topics
have become important strategic issues facing companies

• Whistle-Blowing.
• Bribery.
• Workplace Romance.
 -Whistle-Blowing-
• Refers to employees reporting any unethical violations they discover or see in the firm. Employees
should practice whistle-blowing, and organizations should have policies that encourage whistle-
blowing.
• Ethics training programs should include messages from the CEO or owner of the business,
emphasizing ethical business practices, the development and discussion of codes of ethics, and
procedures for discussing and reporting unethical behavior. Firms can align ethical and strategic
decision making by incorporating ethical considerations into strategic planning, by integrating
ethical decision making into the performance appraisal process, by encouraging whistle-blowing,
and by monitoring departmental and corporate performance regarding ethical issues.
 -Avoid Bribery-
• Is defined as the offering, giving, receiving, or soliciting of any item of value to
influence the actions of an official or other person in discharge of a public or legal duty.
• A bribe is a gift bestowed to influence a recipient’s conduct. The gift may be any money,
goods, actions, property, preferment, privilege, emolument, object of value, advantage,
or merely a promise or undertaking to induce or influence the action, vote, or influence
of a person in an official or public capacity.
• Bribery is a crime in most countries of the world, including the United States.
 -Workplace Romance-
• Workplace romance is an intimate relationship between two consenting
employees, as opposed to sexual harassment, which the Equal Employment
Opportunity Commission (EEOC) defines broadly as unwelcome sexual
advances, requests for sexual favors, and other verbal or physical conduct of a
sexual nature.
• In Europe, romantic relationships at work are largely viewed as private matters
and most firms have no policies on the practice.
 -Workplace Romance-
• Workplace romance guidelines should apply to all employees at
all levels of the firm and should specify certain situations in
which affairs are especially discouraged, such as supervisor and
subordinate. Company guidelines or policies in general should
discourage workplace romance because “the downside risks
generally exceed the upside benefits” for the firm.
 workplace romance can be detrimental to workplace
morale and productivity, for a number of reasons that
include:

2. Confidentiality of 3. Reduced quality and 4. Personal arguments

1. Favoritism
records can be quantity of work can can lead to work
complaints can arise.
breached. become a problem. arguments.

6. Sexual harassment 7. Conflicts of interest

5. Whispering secrets
charges may ensue, can arise, especially
can lead to tensions and
either by the involved when well-being of the
hostilities among
female or partner trumps well-
coworkers.
a third party. being of the company.
 Organizations should establish guidelines or policies that address
workplace romance, for at least 6 reasons:

Guidelines can Guidelines can Guidelines can Guidelines can Guidelines can Lack of any

6
1

enable the specify specify promote a help assure guidelines

firm to better reasons (such resultant professional compliance sends a
defend against as the seven penalties for and fair work with federal, lackadaisical
and avoid listed romancing atmosphere. state, and message
sexual previously) partners if local laws and throughout
harassment or why problems recent court the firm.
discrimination workplace arise. cases.
charges. romance may
not be a good
idea.
THE THIRD PART
.
Environmental Sustainability
Sustainability Reports
The Office of Environmental Affairs
 -Environmental Sustainability-
• The ecological challenge facing all organizations requires managers to
formulate strategies that preserve and conserve natural resources and
control pollution.
• Businesses must not exploit and decimate the natural environment.
• The word environment is defined as “surroundings in which an
organization operates, including air, water, land, natural resources,
flora, fauna, humans, and their interrelation.”
 - Sustainability Reports -
• A sustainability report reveals how a firm’s operations impact the natural environment. This
document discloses to shareholders information about the firm’s labor practices, product
sourcing, energy efficiency, environmental impact, and business ethics practices.
• No business wants a reputation as being a polluter. A bad sustainability record will hurt the
firm in the market, jeopardize its standing in the community, and invite scrutiny by
regulators, investors, and environmentalists.
• It is simply good business for any business to provide a sustainability report
annually to the public.
 - Sustainability Reports -

• The Global Reporting Initiative recently issued a set of detailed reporting

guidelines specifying what information should go into sustainability reports.
• Harming the natural environment can be unethical, illegal, and costly.
• Managers and employees today must be careful not to ignore, conceal, or disregard
a pollution problem, or they may find themselves personally liable.
• Firms could get away with placing “green” terminology on their products and
labels, using such terms as organic, green, safe, earth-friendly, nontoxic, or
natural .
 - Sustainability Reports -
• Were no legal or generally accepted definitions .
• It has become more and more difficult for firms to make “green” claims
when their actions are not substantive, comprehensive, or even true.
• Around the world, political and corporate leaders now realize that the
“business green” topic is not going away and in fact is gaining ground
rapidly.
- The Office of Environmental Affairs -
• Many companies are moving environmental affairs from the staff side of
the organization to the line side, thus making the corporate environmental
group report directly to the chief operating officer.
• More firms are becoming environmentally proactive—doing more than
the bare minimum to develop and implement strategies that preserve the
environment
• Preserving the environment should be a permanent part of doing
business, for the following reasons:-
1.Consumer demand for environmentally safe products and packages is high.

2. Public opinion demanding that firms conduct business in ways that preserve
the natural environment is strong.

3. Environmental advocacy groups now have more than 20 million Americans as

members.

4. Federal and state environmental regulations are changing rapidly and

becoming more complex.

5. More lenders are examining the environmental liabilities of businesses seeking

loans.
THE FOURTH PART
ISO 14000/14001 Certification
Chapter Summary
 - ISO 14000/14001 Certification -
• The International Organization for Standardization (ISO) .
• ISO 14000 refers to a series of voluntary standards in the environmental field. The ISO 14000
family of standards concerns the extent to which a firm minimizes harmful effects on the
environment caused by its activities and continually monitors and improves its own environmental
performance .
• ISO 14001 is a set of standards adopted by thousands of firms worldwide to certify to their
constituencies that they are conducting business in an environmentally friendly manner.
• According to the ISO 14001 standard, a community or organization is required to put in
place and implement a series of practices and procedures that, when taken together, result in an
Environmental Management System (EMS).
 There are 6 major requirements of an EMS under ISO 14001:-
1. Show commitments to prevention of pollution, continual improvement in overall environmental
performance, and compliance with all applicable statutory and regulatory requirements.

2. Identify all aspects of the organization’s activities, products, and services that could have a significant
impact on the environment, including those that are not regulated.

3. Set performance objectives and targets for the management system that link back to three policies:
(a) prevention of pollution, (b) continual improvement, and (c) compliance.

4. Meet environmental objectives that include training employees, establishing work instructions and
practices, and establishing the actual metrics by which the objectives and targets will be measured.

5. Conduct an audit operation of the EMS.

6. Take corrective actions when deviations from the EMS occur .

 -Chapter Summary-
• Consumers across the country and around the world appreciate firms that do more than is
legally required to be socially responsible. But staying in business, while adhering to all
laws and regulations, must be a primary objective of any business. One of the best ways
to be socially responsible is for the firm to proactively conserve and preserve the natural
environment. For example, to develop a corporate sustainability report annually is not
legally required, but such a report, based on concrete actions, goes a long way toward
assuring stakeholders that the firm is worthy of their support. Business ethics, social
responsibility, and environmental sustainability are interrelated and key strategic issues
facing all organizations.