Week 14

BUSINESS AND MANAGEMENT

REVISION FOR TEST 2

UNIT 2 – THE EXTERNAL

BUSINESS ENVIRONMENT

SECTION 2.3: BUSINESS

ETHICS AND CORPORATE
SOCIAL RESPONSIBILITY
 UNIT 2 – THE EXTERNAL
BUSINESS ENVIRONMENT
Week 14
REVISION FOR TEST 2

Section 2.3: Business ethics and corporate social responsibility

Introduction
• According to Cole and Kelly (2020), corporate governance is the
‘system [of rules, practices and processes] used to control and direct a
company’s organisation’.

• Good governance is based on the strategic company vision which

guides the way that the organisation reaches it goals.

• Managers can use stakeholder analysis to determine the extent of

their power and attention.
Introduction
• Two models are common:
• the shareholder model and
• the stakeholder model.

• Social responsibility and ethics will govern the company’s decision making and policies
as these values should hold its behaviour to high standards.

• Importantly, the company will be bound by the necessity of keeping to the laws
governing its behaviour in the country where it operates and the regulations that apply.

• Worldwide accounting standards are also powerful barriers to dishonest trading.

Introduction
• This compliance with rules and regulations is based on an
understanding of the penalties that will apply should the rules be
broken and on the understanding that the company is accountable to
its stakeholders, investors and the public and that it has a reputation
to protect.

• Frequent and serious transgression will affect its national and

international profile and may cause customers and suppliers to
desert.
Introduction
• Given these rules, practices and processes, senior managers may
decide that transparency in the company’s conduct and policies is the
best way to ensure that the required standard of corporate
governance is kept.
Business ethics
• In a stakeholder model, there are important benefits for a company
that integrates ethical behaviour into its strategy and planning.

• The first is the opportunity of building trust between it and the

customers and public opinion.

• In this way, the company may be more resistant to short-term

downturns in business which threaten sales as it will have invested in
a high degree of customer loyalty.
Business ethics
• This will protect business revenue on these occasions.

• Brand reputation is an important part of brand competitiveness and

protecting this reputation needs to be a concern for all components
of the business, not only marketing or sales.
Business ethics
• There are also advantages for human resource management in that a company with high
standards of behaviour is more likely to attract employees who will fit that form of
ethical behaviour.

• Widespread knowledge of ethical considerations will help to embed company culture

and may protect against behaviour that leads to legal challenges and costly lawsuits.

• The workforce understands the reasoning behind the policy and this engenders company
loyalty and pride, and minimises discontent and rivalry.

• Compliance with government regulations thus becomes easier for senior management to
maintain.
Business ethics
• In its relationship with the external environment, there are clear
advantages for a company that takes into account its impact on the
society or societies where its products are found or where it trades,
and ethical business strategy can produce constructive change.
Corporate responsibility
• Business is an economic activity.

• The key elements of corporate responsibility (CR) are economic, in

terms of making a profit, and legal, in terms of obeying the law.

• However, the key elements of corporate social responsibility (CSR)

recognise that businesses have responsibilities that go further than
the profit motive in trading and service providing.
Corporate responsibility
• In examining its stakeholders, it would be clear to senior management
that shareholders and profit are not the only factors to consider as
the business has wider accountabilities.

• Managers are not employed by shareholders.

Corporate responsibility
• Companies are formed of individuals and reflect ethical values.

• If the company has created a negative impact by its operations, then

the responsibility lies with that company to acknowledge and address
it.

• Companies also trade and operate inside societies as part of the society
not outside them and these responsibilities can mean helping to solve
important social problems, especially if their actions have contributed
to the problem.
CSR versus the profit motive
• The shareholder model of the corporation is a term referring to a
theory of corporate governance that argues the people who own
shares of a corporation's stocks, shareholders, should own and
manage the corporation with a view to maximizing the financial
returns on their investments.
CSR versus the profit motive
• In a shareholder model of business, arguments against CSR have focused on
three objections.

1. The goals of shareholders are the dominant factors in decision making among
all stakeholders.

2. Managers do not have any expertise in solving social or environmental problems

and these are the concerns of others.

3. Companies may publish CSR objectives and involve themselves in publicity but in
reality take very little or no action and continue to pollute and to engage in poor
labour practices.
Conclusion
• In this unit, you have analysed the connections and disconnections
between corporate ethics and obligations and understandings of
corporate social responsibility and how these may be in conflict with
economic drivers in a company’s economic strategy.

• Using the shareholder and stakeholder models of corporate

governance, you have balanced the demands of other stakeholders
against the goals of investors or financiers and specifically in a not-for-
profit organisation.
Conclusion
• You have developed an understanding that organisations differ in the
way they see their position in society and that individual managers
can have ethical dilemmas.