Chapter 3

CSR2 Response Strategies

Reactive -A company using a reactive strategy will do less than society expects. -It may deny responsibility for a problem or fight any suggestion that the company should solve a problem. Defensive -A company using a defensive strategy would admit responsibility for a problem but would do the least required to meet societal expectations. Accommodative -A company using an accommodative strategy will accept responsibility for a problem and take a progressive approach by doing all that could be expected to solve the problem. Proactive -A company using a proactive strategy will anticipate responsibility for a problem before it occurs, do more than expected to address the problem, and lead the industry in its approach.

Kohlberg's Stages of Moral Development

Pre-conventional Stage 1: Punishment and Obedience Stage 2: Instrumental Exchange and Individualism -Selfish Conventional Stage 3: Good Boy, Nice Girl (Interpersonal Relationships) Stage 4: Law and Order/ Maintaining Social Order -Societal Expectations Post-conventional Stage 5: Social Contract Stage 6: Universal Principle -Internalized Principles More: Most people move to conventional morality (following society standards) Few people move to post-conventional morality (thinking about all stakeholders); Ex: John Makey- founder of whole foods; stakeholder oriented

Distributive Justice vs Procedural Justice

•Distributive justice -A subset of justice that deals with the distribution of wealth and prosperity among members of a society -Ex: minimum wage; billionaires tax; universal health care, Obamacare, •Procedural justice -A subset of justice claiming that rules should be clearly stated, consistently obeyed, and impartially enforced -EX: Is it ethical and appropriate for NFL to suspend player on an allegation of domestic violence before there has been any adjudication of the allegation in court of law

Definition of an Ethical Dilemma

•Four typical dynamics present in a difficult ethical decision: 1) Conflict of Interest •Typically, the decision maker's self-interest versus the interests of other stakeholders. 2) Short-Term Gain at the Expense of Long-Term Well-Being •Unethical decisions almost always come at the expense of sustainability. 3) A Lack of Transparency - Actual or Perceived •Belief that no one will find out about unethical action; people are more apt to make unethical decisions when they think no one is looking (N.Y. Times test) 4) Arguably Legal Conduct •Or at least, not clearly illegal conduct.

CSR2 and Financial Performance

•The relationship between CSR activities and financial performance is uncertain, but generally regarded to be positive (increased CSR activities improve financial performance).

Illegal vs. Unethical

"While many claim that laws provide the moral backbone to businesses, in reality, they often simply reflect society's minimum standards." Venn diagram where there is overlap with illegal and unethical Laws are minimum standards for society Most stuff that is illegal is unethical Sometimes things that are illegal don't have unethical components (weed)

Four Step Process to Implementing Strategic CSR

1) Identify points of intersection between company and society 2) Select social issues to address 3) Create a corporate social agenda (incorporate with strategy) 4) Create a social dimension to the value proposition

Example of Utilitarianism

2014 apple and google encrypting data on phone; law enforcement mad; fed govt needs a back door; all the bad things- utilitarian argument of why govt needs the info Ethical leaders decision tree- utilitarianism

Strategic CSR EX: Apple v US Govt

4) Real world ex: apple 2015, san berdandito attacks- husband quit backing up iPhone and fbi was anxious to get data off iPhone; they handed everything over on iCloud but feds couldn't get iPhone data; encrypted data and didn't have the key to access that data; fed thought they had the perfect case bc upset about encryption of data on smartphones to bring pressure on apple; feds sought requiring reasonable assistance to feds and apple said no; social issue for tech companies- feds, govt wanting access to data, how do we handle that? Apple refused and appealed the order This is social dimension to value proposition- this worked out for apple; they didn't know this was going to be a reaction Now apple is taking the fight to Facebook; the promise is to update ask app not to track for Facebook tracking activity Apple bc of business model is able to do this- Facebook accuses apple of being predatory

Corporate Social Responsibility (CSR)

A business's obligation to pursue policies, decisions, and actions that align with the objectives and values of society ESG (Environment, Social Criteria and Governance)- CSR reformed

Examples of Kohlberg's Moral Stages of Development

An employer in state of co has the right and acts in ethical manner if it conducts mandatory drug tests for all employees (no matter job) and refuses to hire any applicant and terminate employment of any emoloyeee who tests positive for marijuana? True -Change marijuana to tobacco-> flipped results -Change it to spouses of employees for tobacco-> no -Fining them for insurance of overweight employees-> 40 60 no -CO bc its illegal federally they can test Weyco, inc. -Employee benefits company- eliminated tobacco use among work force -Extent of reach of employees in early 2000s Depends on state Employee wellness programs- tire and Honeywell's ; this is going to increase bc of technology Employee monitoring- tracking every action and times, big data analysis; snapshot every 30 min; record phone calls; determine exercises Mosquitos: an ethical dilemma -Mosquitoes are deadly, so why not kill them all? -Gene editing technology to program elimination of mosquitoes; genetically modify so they all become males; virtual extinction; we have the tech to do this -Playing god? Unforeseen consequences -Majority say yes 60 40 T -hose who argue for genetically modifying certain mosquito species into - utilitarianism -Those against genetic modification. Do we want to play god?- kantianism

Justice

An ethical philosophy that provides the framework for society to judge what is morally right or wrong, fair or unfair, and establishes ways to evaluate or punish those who behave in morally wrong ways

Mylan EpiPen Strategy

Does a company have the right to charge whatever price the market will bear for the product it sells? Yes; is it appropriate for a company to seek to create a competitive advantage that enable the company to charge a premium for its product? Yes; is it appropriate for a company to exercise the pricing power that it derives from a competitive advantage to extract the highest possible price that the marker will bear for its products? -Epipen EX: competitive advantage is patent for on the go; Mylan had a $1 billion market to itself -When Dylan took over- price increased 548% $608 from $93; why us paying so much more than the rest of the world; 1 year expiration date on the epipen; incredible backlash in 2016 -Exercising porters 5 forces to create the perfect market conditions; they estimate the cost of epipen less than $10 -Not a free market; can't just jump into

CSR Example

EX: Merck and River Pharma company -Cure for river blindness -Dilemma said it would cost a lot to develop the drug; no way to monetize the drug; the people afflicted can't pay and no way to distribute it; so Merck faced dilemma... what to do? -Q: what should Merck do ? Obligation to develop or obligation to preserve assets and invest in drugs that can be monetized? -Most say yes to develop it ethical duty ; they would be spending shareholder money -What did Merck actually do? -Merck invested and then did not make a profit and lost; 7 years of testing; pill taken annually to eradicate and prevent infection -Unable to monetize the drug- WHO and govt didn't step up -Merck gave drug away for free and fund distribution network to get it there -To date, 2 billion treatments have been donated; as much as needed for as long as needed -Eradicated river blindness in many countries -Benefits: positive PR Good CSR can be hammered for fiduciary duty; Tyco former ceo convicted of taking shareholder funds to fix his house- he ended up in jail CSR if we like money being spent on things that don't benefit shareholders EX: CSR Nike

Example of Kantianism

EX: doctor with a patient for a long time; they have chronic disease; doctor learns about new study that might help patient but the patient doesn't qualify for the study; doctor might falsify data to get patient into the study; if none of the doctors followed the rules could you run a decent study?

Macro corporate example of illegal/unethical

EX: macro corporate; Wells Fargo- competitive advantage to ethical failure; wells fargo used to be most profitable and effective; bank wide unethical behavior; high pressure sales culture that spiraled out of control; cross sell- make more money; opened 3.5 million deposit and credit card accounts without customers knowledge -Dark side of aggressive organizational goals; check numbers 7 times a day; opened accounts for family when fell short -Incentive is put in place is an incentive to cheat -Billions of penalties and fines -Surrogation- the behavioral tendency to confuse whats being measured with the metric being used (mentally replace strategy with metrics) -Substitute the metric for what were trying to achieve -Employees raised this question- not legitimate accounts? Why are we using this? Does it advance strategy of organization? Who care? •Senior management knew about the unethical sales behavior, but failed to stop it or change the company culture. Why? Netflix ceo Reed Hastings says: don't look at what companies say their values is; look at who gets promoted, rewarded and let go to see what their values are AMEX had same problems Boeing trading safety for profit?

4 Core Responsibilities/Components of CSR

Economic responsibilities -A business's duty to make a profit and increase shareholder value Legal responsibilities -A business's duty to pursue its economic responsibilities within the boundaries of the law -Ethical responsibilities -A business's duty to meet the expectations of society beyond its economic and legal responsibilities -EX: Mylan and Epipen Discretionary (Philanthropic responsibilities) -Social roles that businesses play in society beyond their economic, legal, and ethical responsibilities—charitable work, community outreach, etc.

Types of ethical dilemmas and examples

Employment Relationship/ Trade Secret -Information used in conducting business that is not commonly known by others. It provides a strategic advantage over competitors -This issue has legal and ethical component. Relationship with Customers -Wells Fargo's relationship with its customers -Mylan and the Epipen -Google and Amazon allegedly manipulating search results -Facebook, Twitter, etc. and censorship -Robinhood Financial LLC -Boeing and the 737MAX Privacy -Customers' and employees' right to determine the type and extent of information that is tracked, maintained and disclosed about them Natural Environment -Increasing pollution and depletion of natural resources -Managers face the question of how much they should conserve Whistleblowing -Pharma

Individual example of unethical/illegal

Summer internship dilemma- individual example Tech business firm; his boss asks him to represent himself as a student looking for research when talking to customers instead of company representative

Corporate Social Responsiveness

The practice of businesses responding to pressure from society to engage in socially responsible ways Behaviors of Responsive -Monitor and assess environmental conditions on a constant basis -Seek to identify the needs of stakeholders -Design plans and policies to respond to changing conditions The spectrum of response strategies Do nothing -> Do much Reactive -fight all the way -withdraw Defensive -do only what is required -public relations approach -legal approach Accommodative -be progress -bargaining Proactive -lead the industry -problem solving

CSR- Shareholder and Stakeholder Model

To Whom---and for What—Are Organizations Socially Responsible? Two Major Perspectives 1.Shareholder model: the only social responsibility that businesses have is to maximize profits and increase shareholder value 2.Stakeholder model: management's most important responsibility is not just maximizing profits; a firm's long term-survival depends on satisfying the interests of multiple corporate stakeholders (not just shareholders).

Strategic CSR

Using CSR for a competitive advantage Corporate social responsibility activities that are directly related to their business activities so that they can combine social welfare with financial welfare -Must be planned specifically to support core business activities -Supervised carefully to create value for the community and the firm -Evaluated regularly to ensure that CSR activities benefit society while also benefitting the business

3 Ethical Framworks

Utilitarianism -The ethical philosophy claiming that behaviors are considered moral if they produce the greatest good, or utility, for the greatest number of people -Cost-Benefit Calculation Kantianism -An ethical philosophy claiming that motives and universal rules are important aspects in judging what is right or wrong -Rule of Universality •Act only on rules that you would be willing to see everyone follow. •Requires that you consider whether the rationale for your action is suitable to become a universal law or principle for everyone to follow. •What kind of world would we have if everyone took this action (or inaction)? -Intent, means, outcome Fiduciary -A person who is entrusted with property, information, or power to act on behalf of a beneficiary -Special relationship between and agent and her principal in which the agent who is entrusted with property, information, or power to act on behalf of a beneficiary. •Highest level of duty owed. •Most employees owe a fiduciary duties to their employer.