GS MGT 439 CH 9 Ethics, CSR, Environmental Sustainability, and Strategy

What was the effect of the cultural norms at Enron?

They created ruthlessness among employees who undermined the company's stated values of integrity and respect.

Drivers of Unethical Business Strategies and Behavior Apart from the "business of business is business, not ethics" kind of thinking apparent in recent high-profile business scandals, three other main drivers of unethical business behavior also stand out

• Faulty oversight, enabling the unscrupulous pursuit of personal gain and self-interest • Heavy pressures on company managers to meet or beat short-term performance targets. • A company culture that puts profitability and business performance ahead of ethical behavior.

Which of the following examples illustrate how socially responsible policies can save a company money in other areas? (Choose every correct answer.)

A company investing in a program that helped employees quit smoking and saving millions in health care costs A company offering insurance benefits to full-time and part-time employees and having lower rates of employee turnover

What are ways in which a company that is committed to environmental sustainability strategies can enhance revenues? (Choose every correct answer.)

Adding energy-saving products to its line of core products Finding ways to sell rather than dispose of the byproducts of manufacturing

Which of the following are costs that companies incur when ethical wrongdoing is discovered? (Check all that apply.)

Civil penalties Government fines Lower stock prices

What are possible consequences of a company missing a financial target? (Choose every correct answer.)

Decreased stock prices A lower credit rating

A crisis in the residential real estate market was caused in part by which of the following strategies by some banks and mortgage companies? (Choose every correct answer.)

Disguising the nature of the loans and repackaging them for sale to investors Posting fees earned on home mortgages by lending to high-risk clients

Which the following practices increase the likelihood that a company will pursue unethical business strategies? (Choose every correct answer.)

Employing faulty oversight of daily business practices Putting pressure on company managers to meet short-term targets

True or false: Ethical principles in business differ substantially from general ethical principles in society.

False

Which of the following examples show how a commitment to environmental sustainability strategies can offer opportunities for a company to develop new products or increase sales of existing products? (Choose every correct answer.)

General Electric expanded sales of wind turbines. Nissan and Chevy created electric cars.

Adherents of the concept of ethical relativism believe which of the following? (Choose every correct answer.)

Holding a common template for judging the ethics of business actions everywhere is ethically problematic. Given actions are ethically right or wrong depending on the ethical norms of the country in which they take place.

Which of the following statements about official codes of ethical conduct is most accurate?

In the United States, publicly traded companies must have an official code of ethics or explain why they do not have one.

Which statement about ethical universalism is correct?

It allows for a single set of standards.

Which of the following statements accurately reflect how ethical standards vary among different cultures? (Choose every correct answer.)

Japanese managers, in contrast to managers in other countries, are likely to highly value showing respect for the collective good of society. European managers, in contrast to Chinese managers, tend to emphasize business standards that protect workers' freedom of political opinion.

Which of the following sanction U.S. companies that pay bribes and kickbacks? (Choose every correct answer.)

Justice Department Securities and Exchange Commission Organization of Economic Cooperation and Development

Which of the following are examples of environmental strategies that demonstrate good corporate citizenship?

Pressuring other companies in the supply chain to adopt environmentally sound practices

Which of the following statements about the consequences of pursuing unethical business strategies is true?

The more serious the ethical offense, the more costly the damage.

Companies that prohibit the payment of bribes and kickbacks in countries where these practices are customary risk ______.

losing business to competitors willing to engage in these practices

The higher the public profile of a company or its brand, the greater the

scrutiny of its activities and the higher the potential for it to become a target for pressure group action.

A cultural norm at a company can be understood as ______.

the generally accepted methods of doing business on a day-to-day basis

In a world of ethical relativism, ______.

there are few absolutes for judging the conduct of a company in various markets

According to the concept of ethical universalism, fundamental concepts of right and wrong ______.

transcend culture, society, and religion

Ethical business strategies ______.

typically arise from managers with strong moral characters

In short, ethical behavior in business situations requires

adhering to generally accepted norms about right or wrong conduct. As a consequence, company managers have an obligation—indeed, a duty—to observe ethical norms when crafting and executing strategy

Sustainable business practices can be defined as those practices that ______.

are capable of meeting the needs of the present without compromising the needs of the future

CSR and environmental sustainability strategies are most likely to be effective when they ______.

are linked to a company's value chain or to its most important resources

In some cultures, the practices of bribing customs officials and paying kickbacks to customers have been justified on the grounds that they ______.

are similar to tipping a server in a restaurant

Which of the following measures is most likely to reduce the practice of self-dealing in a company?

Establishing an independent board to hold managers accountable for their actions

Which of the following are strengths of the concept of ethical universalism? (Choose every correct answer.)

Ethical universalism draws from the ethical views and traditions of numerous societies and cultures. The concept of ethical universalism helps multinational companies set ethical standards that apply to all personnel.

True or false: Participating in community service activities and donating to charities are the two main requirements of maintaining good corporate citizenship.

False

Which of the following statements associating sustainable business practices with financial performance is true?

Studies have shown that there is a small but positive correlation between good corporate behavior and good financial performance.

Which set of standards takes precedence in integrative social contracts theory?

Universal ethical norms

Which of the following are actions a company should take according to integrative social contracts theory? (Choose every correct answer.)

Uphold a small number of universal ethical principles that are applicable in all situations Adhere to local values and customs that define the boundaries of ethical behavior

Short-termism at a company can do which of the following? (Choose every correct answer.)

Weaken the company's brand Undermine activities that promote long-term success

Senior executives can take steps to ensure that a company abides by its code of ethics by asking if ______.

there is anything in a proposed action that the SEC might consider objectionable

Unilever's repackaging of products in order to use less plastic has ______.

helped the company reduce the amount of waste that accumulates in landfills

The idea that businesses have an obligation to foster social betterment, a much-debated topic over the past 50 years, took root in the 19th century when progressive companies in the aftermath of the industrial revolution began to

provide workers with housing and other amenities. The notion that corporate executives should balance the interests of all stakeholders—shareholders, employees, customers, suppliers, the communities in which they operate, and society at large—began to blossom in the 1960s. ○ Some years later, a group of chief executives of America's 200 largest corporations, calling themselves the Business Round table, came out in strong support of the concept of corporate social responsibility (CSR)

Business ethics deals with

the application of general ethical principles to the actions and decisions of businesses and the conduct of their personnel.

Which of the following would be an example of a company shifting the environmental cost of its business onto society?

A manufacturer disposes of waste in public waters that must be treated and cleaned with tax revenues.

The term "triple bottom line" refers to which of the following performance metrics? (Choose every correct answer.)

Environmental Social Economic

How can CSR and corporate sustainability strategies serve the long-term interest of shareholders? (Choose every correct answer.)

By increasing productivity By lowering costs

Which of the following have been cited as reasons why a company has a moral obligation to act in a manner that benefits all stakeholders?

Civic-mindedness Ordinary decency

Which of the following are indicators used to help rank companies in the Dow Jones Sustainability World Index for socially conscious investors? (Choose every correct answer.)

Corporate governance Climate change mitigation Labor practices

Which of the following actions can be effective ways to stop companies that practice socially irresponsible behaviors? (Choose every correct answer.)

Enacting legislation that makes the activity illegal Publicizing the bad behavior of companies Boycotting the companies' products and services

Corporate social responsibility programs include which of the following? (Choose every correct answer.)

Enhancing employee well-being Following ethical principles in running a company Promoting diversity in the workforce

Companies that place little importance on operating in a socially responsible manner may be vulnerable to criticism from pressure groups using which of the following tactics? (Choose every correct answer.)

Generating negative publicity in the media Promoting product boycotts

Environmental sustainability strategies consist of deliberate and focused actions to conduct businesses in a fashion that does which of the following? (Choose every correct answer.)

Protects natural resources and ecological support systems Guards against practices that will ultimately endanger the planet

Which are examples of environmental sustainability strategies? (Choose every correct answer.)

Reducing the use of pesticides and fertilizers Not threatening the stock of edible fish in the oceans

Which are examples of Unilever's sustainable business practices? (Choose every correct answer.)

Showing overseas suppliers farming methods that reduce the use of pesticides and maximize annual yields Tracking agricultural indicators in the food-processing division of the corporation

Which of the following statements best describes the Clorox Company Foundation's corporate social agenda?

The company has linked its corporate social agenda with actions that support philanthropy and improve the quality of life.

Which of the following are losses from pursuing unethical business strategies that are difficult to measure?

The dissatisfaction of employees with a damaged company reputation

In the business world, what does the term "sustainability" refer to? (Choose every correct answer.)

The relationship of a company to its environment and its use of natural resources The concept of corporate social responsibility

Which of following statements about Whole Foods Market's environmental sustainability strategy are true? (Choose every correct answer.)

The strategy addresses the need to limit the negative impact of waste on the environment. The strategy is part of how the company operates its business every day.

What is true of companies with a reputation for social responsibility and sustainable business practices? (Choose every correct answer.)

They enhance their ability to retain employees. They generally have lower costs for staff training and recruitment.

Which of the following is a reason for a business to establish an ethical business strategy?

To provide a competitive advantage, serving the self-interest of shareholders

Investing in measures that improve the environment beyond the company's boundaries is an example of a company practicing good corporate citizenship to protect the environment.

True

The environmental sustainability strategies of Ford and Green Mountain Coffee Roasters have shown that ______.

a significant number of consumers will buy a company's products in part to encourage environmentally sustainable business practices

The Global Reporting Initiative has created ______.

a standard framework for comparing company efforts toward achieving corporate social responsibility

When activist groups criticized Nike for the working conditions in the Asian factories that produced Nike footwear, company chairman Phil Knight ______.

began to monitor working conditions in the factories that made Nike products

In response to Nike's efforts to restore its reputation, human rights activist groups have ______.

continued to monitor and criticize Nike

Companies whose success depends on sustaining high morale are most likely to pursue CSR strategies that ______.

create a culture in the workplace that inspires dedication

Research has shown a link between product-boycott announcements and ______.

declining stock prices

Short-termism can be defined as the tendency for managers to ______.

focus excessive attention on near-term performance objectives

Under the concept of the triple bottom line, profit ______.

includes the value the company creates and the costs it imposes on society

An environmental sustainability strategy can enhance a company's competitive advantage by ______.

promoting the company's reputation among environmentally conscious consumers

Self-dealing refers to instances when managers ______.

use their position to promote their own private interests rather than the interests of the firm

The fundamental problem with short-termism—the tendency for managers to focus excessive attention on short-term performance objectives—is Short-termism is the tendency for managers to focus excessively on short-term performance objectives at the expense of longer-term strategic objectives. It has negative implications for the likelihood of ethical lapses as well as company performance in the longer run.

that it doesn't create value for customers or improve the firm's competitiveness in the marketplace; that is, it sacrifices the activities that are the most reliable drivers of higher profits and added shareholder value in the long run. Cutting ethical corners in the name of profits carries exceptionally high risk for shareholders— • the steep stock price decline and • tarnished brand image that accompany the discovery of scurrilous behavior leave shareholders with a company worth much less than before—and the rebuilding task can be arduous, taking both considerable time and resources.

A corporate social responsibility strategy can be defined as ______.

the combination of socially responsible endeavors a company elects to pursue

Which of the following would be examples of sustainable business practices? (Choose every correct answer.)

A corporation enters into business relationships only with suppliers that have taken steps to minimize their carbon footprint. A corporation conducts a study in order to choose a production site where manufacturing will have the least impact on the environment.

This chapter focuses on whether a company, in the course of trying to craft and execute a strategy that delivers value to both customers and shareholders, also has a duty to

1. act in an ethical manner; 2. be a committed corporate citizen and allocate some of its resources to improving the well-being of employees, the communities in which it operates, and society as a whole; and 3. adopt business practices that conserve natural resources, protect the interests of future generations, and preserve the well- being of the planet.

Even if a company's managers are not personally committed to high ethical standards, they have good reason to operate within ethical bounds, if only to

1. avoid the risk of embarrassment, scandal, disciplinary action, fines, and possible jail time for unethical conduct on their part; and 2. escape being held accountable for lax enforcement of ethical standards and unethical behavior by personnel under their supervision.

Which of the following statements are true concerning the thinking that the "business of business is business, not ethics"? (Choose every correct answer.)

That type of thinking is dangerous because it increases the likelihood that a company will adopt unethical strategies. That type of thinking has been apparent in a number business scandals covered in the media.

Differences in which of the following cause variations in ethical standards across cultures? (Choose every correct answer.)

Core values Religious beliefs Social customs

In general, business ethics consists of ______.

the application of ethical principles and standards to the actions and decisions of business organizations

Which of the following statements about corporate culture is true?

Company culture can be a powerful mechanism for communicating the degree to which a company is committed to its values.

True or false: Integrative social contracts theory permits people working for companies to pay bribes or kickbacks under certain circumstances.

False

Although many people would agree that child labor is lamentable, others have noted that which of the following are true? (Choose every correct answer.)

Labor opportunities for children are preferable to a life of begging, drug trafficking, or prostitution. Many poor families throughout the world require financial contributions from their children in order to survive.

Which of the following should take the lead in ensuring that a company's strategic initiatives are in line with the company's code of ethics?

Senior executives

Why should company strategies be ethical?

There are two reasons why a company's strategy should be ethical: 1. because a strategy that is unethical is morally wrong and reflects badly on the character of the company and its personnel, and 2. because an ethical strategy can be good business and serve the self interest of shareholders.

Why might business managers act ethically even when they are not deeply committed to ethical principles?

They hope to prevent their staff from thinking negatively of them. They recognize the risks associated with unethical strategies. They wish to avoid scandal and disciplinary action.

What are characteristics of ethical business managers? (Choose every correct answer.)

They understand that there is a difference between simply having a code of ethics and seeing that the company follows it. They provide an example to other employees by consciously living by the company's business principles.

Companies that cross ethical boundaries to meet short-term goals are likely to _____.

continue to take unethical steps to meet requirements

When ethical principles are deeply ingrained in a company's culture, ______.

employees tend to abide by the company's business principles and values

Multinational companies whose ethical standards vary from country to country ______.

may be sending the message to employees that the company does not have ethical standards of its own

Ethics concerns principles of

right or wrong conduct. Business ethics is the application of ethical principles and standards to the actions and decisions of business organizations and the conduct of their personnel.

Social activists in industrialized countries who focus on the issue of child labor claim that corporations ______.

should not obtain products from foreign suppliers that use underage workers

One aspect of environmental sustainability is keeping use of the Earth's natural resources within

within levels that can be replenished via the use of sustainable business practices. ○ Another aspect of sustainability concerns containing the adverse effects of greenhouse gases and other forms of air pollution to reduce their impact on undesirable climate and atmospheric changes In the case of some resources (like crude oil, freshwater, and edible fish from the oceans), scientists say that use levels either are already unsustainable or will be soon, given the world's growing population and propensity to consume additional resources as incomes and living standards rise.

This need to contour local ethical standards to fit local customs, local notions of fair and proper individual treatment, and local business practices gives rise to multiple sets of ethical standards. It also poses some challenging ethical dilemmas. Consider the following two examples.

• The Use of Underage Labor • The Payment of Bribes and Kickbacks

The consequences of crafting strategies that cannot pass the test of moral scrutiny are manifested in

• sizable fines, • devastating public relations hits, • sharp drops in stock prices that cost shareholders billions of dollars, • criminal indictments, and • convictions of company executives.

Which of the following statements about corporate social responsibility (CSR) are true? (Choose every correct answer.)

"Corporate citizenship" is a term commonly used to describe CSR initiatives. CSR strategies are often linked to a company's core values. Many firms organize their CSR strategies around themes that are consistent with their production or marketing strategies.

The Moral Case for an Ethical Strategy Ethical strategy making is generally the product of managers who are of strong moral character (i.e., who are trustworthy, have integrity, and truly care about conducting the company's business honorably). Managers with high ethical principles are usually advocates of a corporate code of ethics and strong ethics compliance, and they are genuinely committed to upholding corporate values and ethical business principles. ○ They understand the difference between merely adopting value statements and codes of ethics and ensuring that they are followed strictly in a company's actual strategy and business conduct

As a consequence, ethically strong managers consciously opt for strategic actions that can pass the strictest moral scrutiny—they display no tolerance for strategies with ethically controversial components.

Many companies have acknowledged their ethical obligations in official codes of ethical conduct. In the United States, for example, the Sarbanes-Oxley Act, passed in 2002, requires that companies whose stock is publicly traded have a code of ethics or else explain in writing to the SEC why they do not. If a company's executives believe strongly in living up to the company's ethical standards, they will unhesitatingly reject strategic initiatives and operating approaches that don't measure up. However, in companies with a cosmetic approach to ethics, any linkage of the professed standards to its strategy and operating practices stems mainly from a desire to avoid the risk of embarrassment and possible disciplinary action for approving actions that are later deemed unethical and perhaps illegal.

But the senior executives of ethically principled companies understand that there's a big difference between having a code of ethics because it is mandated and having ethical standards that truly provide guidance for a company's strategy and business conduct. Executives committed to high standards make a point of considering three sets of questions whenever a new strategic initiative or policy or operating practice is under review: • Is what we are proposing to do fully compliant with our code of ethical conduct? Are there any areas of ambiguity that may be of concern? • Is there any aspect of the strategy (or policy or operating practice) that gives the appearance of being ethically questionable? • Is there anything in the proposed action that customers, employees, suppliers, stockholders, competitors, community activists, regulators, or the media might consider ethically objectionable?

Crafting Corporate Social Responsibility and Sustainability Strategies While CSR and environmental sustainability strategies take many forms, those that both provide valuable social benefits and fulfill customer needs in a superior fashion may also contribute to a company's competitive advantage. ○ Not all companies choose to link their corporate environmental or social agendas to their value chain , their business model, or their industry For example, the Clorox Company Foundation supports programs that serve youth, focusing its giving on nonprofit civic organizations, schools, and colleges. ○ However, unless a company's social responsibility initiatives become part of the way it operates its business every day, the initiatives are unlikely to catch fire and be fully effective.

CSR strategies and environmental sustainability strategies are more likely to contribute to a company's competitive advantage if • they are linked to a company's competitively important resources and capabilities or value chain activities. Ex. • Companies engaged in natural resource extraction, electric power production, forestry and paper products manufacture, motor vehicles production, and chemical production to place more emphasis on addressing environmental concerns • Companies whose business success is heavily dependent on maintaining high employee morale or attracting and retaining the best and brightest employees are somewhat more prone to stress the well-being of their employees and foster a positive, high-energy workplace environment that elicits the dedication and enthusiastic commitment of employees

The particular combination of socially responsible endeavors a company elects to pursue defines its corporate social responsibility (CSR) strategy.

The specific components emphasized in a CSR strategy vary from company to company and are typically linked to a company's core values. ○ communities of companies concerned with corporate social responsibility (such as CSR Europe) have emerged to help companies share best CSR practices ○ a number of reporting standards have been developed, including ISO 26000—a new internationally recognized standard for social responsibility set by the International Standards Organization (ISO) Companies that exhibit a strong commitment to corporate social responsibility are often recognized by being included on lists such as • Corporate Responsibility magazine's " 100 Best Corporate Citizens" or • Corporate Knights magazine's "Global 100 Most Sustainable Corporations."

After reading this chapter, you should be able to: • Understand why the standards of ethical behavior in business are no different from ethical standards in general. • Recognize conditions that give rise to unethical business strategies and behavior.

• Identity the costs of business ethics failures. • Understand the concepts of corporate social responsibility and environmental sustainability and how companies balance these duties with economic responsibilities to shareholders.

1. Faulty Oversight, Enabling the Unscrupulous Pursuit of Personal Gain and Self-Interest People who are obsessed with wealth accumulation, power, status, and their own self-interest often push aside ethical principles in their quest for personal gain.

○ Driven by greed and ambition, they exhibit few qualms in skirting the rules or doing whatever is necessary to achieve their goals. ○ A general disregard for business ethics can prompt all kinds of unethical strategic maneuvers and behaviors at companies. Responsible corporate governance and oversight by the company's corporate board is necessary to guard against self-dealing and the manipulation of information to disguise such actions by a company's managers.

A particularly egregious example of the lack of proper oversight is the scandal over mortgage lending and banking practices that resulted in a crisis for the US. residential real estate market and heartrending consequences for many home buyers.

A lawsuit by the attorneys general of 49 states charging widespread and systematic fraud ultimately resulted in a $26 billion settlement by the five largest US. banks (Bank of America, Citigroup, JP Morgan Chase, Wells Fargo, and Ally Financial). Included in the settlement were new rules designed to increase oversight and reform policies and practices among the mortgage companies. The settlement includes what are believed to be a set of robust monitoring and enforcement mechanisms that should help prevent such abuses in the future

Which of the following resulted in tighter oversight of banks and mortgage companies? (Choose every correct answer.)

A lawsuit initiated by the attorneys general of almost every state A court settlement that included mechanisms for monitoring lending institutions

Which of the following practices at the company Enron likely promoted unethical behavior among employees? (Choose every correct answer.)

Celebrating the wealth of high-performing employees to motivate other employees to match the star team's work results Encouraging employees to operate outside of company policy to raise revenues Pursuing an aggressive performance evaluation process that led to dismissal of employees who did not bring in enough revenue

The Use of Underage Labor In industrialized nations, the use of underage workers is considered taboo. Social activists are adamant that child labor is unethical and that companies should neither employ children under the age of 18 as full-time employees nor source any products from foreign suppliers that employ underage workers.

However, in Eritrea, Uzbekistan, Myanmar, Somalia, Zimbabwe, Afghanistan, Sudan, North Korea, Yemen, and more than 50 other countries, it is customary to view children as potential, even necessary, workers. ○ In other countries, like China, India, Russia, and Brazil, child labor laws are often poorly enforced ○ While exposing children to hazardous work and long work hours is unquestionably deplorable, the fact remains that stricken families in many poor countries cannot subsist without the work efforts of young family members; sending their children to school instead of having them work is not a realistic option.

To meet its demanding profit target, Wells Fargo put such pressure on its employees to hit sales quotas that many employees responded by fraudulently opening customer accounts.

In 2017, after the practices came to light, the bank was • forced to return $2.6 million to customers and • pay $186 million in fines to the government • Wells Fargo's reputation took a big hit, • its stock price plummeted, and • its CEO lost his job.

Which statements are true about damage to a company's reputation that results from unethical behavior? (Choose every correct answer.)

It can encourage employees to leave the company. It can make creditors hesitant to loan funds to the company. It can create challenges for recruiting talented staff in the future.

What are the effects of cultural pressure at a company to hit goals at all costs? (Choose every correct answer.)

It creates an environment in which workers have license to pursue any profitable strategy they can get away with. It can cause even honorable employees to behave unethically. It virtually ensures that unethical employees will minimize the importance of observing ethical standards.

How PepsiCo Put Its Ethical Principles into Practice PepsiCo is one of the world's leading food and beverage companies with over $65 billion in net revenue, coming from iconic brands such as Lays and Ruffles potato chips, Quaker Oatmeal, Tropicana juice, Mountain Dew, and Diet Pepsi. PepsiCo's Global Code of Conduct plays a pivotal role in ensuring that PepsiCo's employees, managers, and directors around the world are complying with the company's high ethical standards. PepsiCo's Global Code of Conduct plays a pivotal role in ensuring that PepsiCo's employees, managers, and directors around the world are complying with the company's high ethical standards.

It provides specific guidance concerning how to make decisions, how to treat others, and how to conduct business globally, organized around four key operating principles: 1. respect in the workplace, 2. integrity in the marketplace, 3. ethics in business activities, and 4. responsibility to shareholders. Essentially, the Code of Conduct lays out a set of behavioral norms that has come to define the company's culture.

What is a downside to an unethical business strategy?

It reflects badly on the character of the company and its employees.

The Moral Case for Corporate Social Responsibility and Environmentally Sustainable Business Practices The moral case for why businesses should act in a manner that benefits all of the company's stakeholders—not just shareholders—boils down to Every action a company takes can be interpreted as a statement of what it stands for.

It's the right thing to do. Ordinary decency, civic-mindedness, and contributions to society's well-being should be expected of any business. ○ In today's social and political climate, most business leaders can be expected to acknowledge that socially responsible actions are important and that businesses have a duty to be good corporate citizens ○ There is a complementary school of thought that business operates on the basis of an implied social contract with the members of society According to this contract, society grants a business the right to conduct its business affairs and agrees not to unreasonably restrain its pursuit of a fair profit for the goods or services it sells. ○ In return for this "license to operate," a business is obligated to act as a responsible citizen, do its fair share to promote the general welfare, and avoid doing any harm. Such a view clearly puts a moral burden on a company to operate honorably, provide good working conditions to employees, be a good environmental steward, and display good corporate citizenship.

A perfect example of a company culture gone awry on ethics is Enron, a now-defunct but infamous company found guilty of one of the most sprawling business frauds in US. history. Enron's leaders pressured company personnel to be innovative and aggressive in figuring out how to grow current earnings—regardless of the methods Enron's annual "rank and yank" performance evaluation process, in which the lowest-ranking 15 to 20 percent of employees were let go, made it abundantly clear that bottom-line results were what mattered most. ○ The name of the game at Enron became devising clever ways to boost revenues and earnings, even if this sometimes meant operating outside established policies (and legal limits). In fact, outside-the-lines behavior was celebrated if it generated profitable new business.

The company's win-at-all-costs mindset nurtured a culture that gradually and then more rapidly fostered the erosion of ethical standards, eventually making a mockery of the company's stated values of integrity and respect When it became evident that Enron was a house of cards propped up by deceitful accounting and myriad unsavory practices, the company imploded in a matter of weeks—one of the biggest bankruptcies of all time, costing investors $64 billion in losses.

Examining which of the following are ways to determine whether a company is actually guided by its official code of ethics? (Choose every correct answer.)

Whether the company adheres to the code of ethics when crafting strategy The extent to which daily operations follow the code of ethics

In some countries it is common to pay bribes to government officials in order to accomplish which of the following? (Choose every correct answer.)

Win a government contract Obtain a license or permit Facilitate an administrative ruling

Ethical Violations at Uber and their Consequences The peer-to- peer ride sharing company Uber has been credited with transforming the transportation industry, upending the taxi market, and changing the way consumers travel from place to place. But its lack of attention to ethics has resulted in numerous scandals, a tarnished reputation, a loss of market share to rival companies, and the ouster of its co- founder Travis Kalanick from his position as the company's CEO.

The ethical lapses for which Uber has been criticized include the following: • Sexual harassment and a toxic workplace culture. • Price gouging during crises. • Data breaches and violations of user privacy. • Inadequate attention to consumer safety. • Unfair competitive practices. The ethical violations at Uber have not been without economic consequence. They contributed to a significant market share loss to Lyft, Uber's closest competitor in the United States.

The Business Case for Ethical Strategies In addition to the moral reasons for adopting ethical strategies, there may be solid business reasons. Pursuing unethical strategies and tolerating unethical conduct not only damages a company's reputation but also may result in a wide-ranging set of other costly consequences. • Customers shun companies caught up in highly publicized ethical scandals. • Rehabilitating a company's shattered reputation is time-consuming and costly. • Companies with tarnished reputations have difficulty in recruiting and retaining talented employees. • Creditors are unnerved by the unethical actions of a borrower because of the potential business fallout and subsequent higher risk of default on loans.

The more egregious are a company's ethical violations, the higher the costs and the bigger the damage to its reputation (and to the reputations of the company personnel involved) • Visible Costs • Internal Administrative Costs • Intangible or Less Visible Costs All told, a company's unethical behavior can do considerable damage to shareholders in the form of lost revenues, higher costs, lower profits, lower stock prices, and a diminished business reputation.

Adherents of ethical universalism are likely to believe that ______.

common agreement about right and wrong is the basis for ethical standards that apply to all businesspeople

Balancing the shareholder's of maximum return against other priorities is one of the

fundamental problems confronting corporate management. The shareholder must receive A good return but the legitimate concerns of other constituencies (customers, employees, communities, suppliers and society at large) also must have the appropriate attention. [Leading managers] believe that by giving enlightened consideration to balancing the legitimate claims of all its constituents, A corporation will best serve the interest of its shareholders.

Integrative social contracts theory ______.

gives managers clear guidance when considering differences in ethical standards among countries

2 of 3 : The school of ethical relativism holds that ○ there are also observable variations from one society to another as to what constitutes ethical or unethical behavior. ○ Differing religious beliefs, social customs, traditions, core values, and behavioral norms frequently give rise to different standards about what is fair or unfair, moral or immoral, and ethically right or wrong. ○ For businesses, this implies that when there are cross country or cross-cultural differences in ethical standards, it is appropriate for local ethical standards to take precedence over what the ethical standards may be tn a company's home market. Under ethical relativism, there can be no one-size- fits-all set of authentic ethical norms against which to gauge the conduct of company personnel.

differing religious beliefs, customs, and behavioral norms across countries and cultures give rise to differing of standards concerning what is ethically right or wrong. These differing standards mean that whether business-related actions are right or wrong depends on the prevailing local ethical standards. • Consequently, the school of ethical relativism holds that a "one-size-fits-all" template for judging the ethical appropriateness of business actions and the behaviors of company personnel is totally inappropriate. • In a world of ethical relativism, there are few absolutes when it comes to business ethics, and thus few ethical absolutes for consistently judging the ethical correctness of a company's conduct in various countries and markets.

Corporate Social Responsibility and the Triple Bottom Line CSR initiatives undertaken by companies are frequently directed at improving the company's triple bottom line (TBL)—a reference to three types of performance metrics: Triple-bottom-line reporting is emerging as an increasingly important way for companies to make the results of their CSR strategies apparent to stakeholders and for stakeholders to hold companies accountable for their impact on society. The use of standard reporting frameworks and metrics, such as those developed by the Global Reporting Initiative, promotes greater transparency and facilitates benchmarking CSR efforts across firms and industries.

economic, social. and environmental. The three dimensions of performance are often referred to in terms of the "three pillars" of "people, planet, and profit." People refers to the various social initiatives that make up CSR strategies, such as corporate giving, community involvement, and company efforts to improve the lives of its internal and external stakeholders. Planet refers to a firm's ecological impact and environmental practices. Profit The term profit has a broader meaning with respect to the triple bottom line than it does otherwise. It encompasses not only the profit a firm earns for its shareholders but also the economic impact that the company has on society more generally, in terms of the overall value that it creates and the overall costs that it imposes on society.

A company's environmental sustainability strategy consists of

its deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against ultimate endangerment of the planet.

Self-dealing occurs when

managers take advantage of their position to further their own private interests rather than those of the firm. The duty of the corporate board (and its compensation and audit committees in particular) is to guard against such actions. A strong, independent board is necessary to have proper oversight of the company's financial practices and to hold top managers accountable for their actions.

Ethical principles in business are not

materially different from ethical principles in general Why? Because business actions have to be judged in the context of society's standards of right and wrong, not with respect to a special set of ethical standards applicable only to business situations. If dishonesty is considered unethical and immoral, then dishonest behavior in business—whether it relates to customers, suppliers, employees, shareholders, competitors, or government—qualifies as equally unethical and immoral.

Sustainable business practices are those that The term sustainability is used in a variety of ways. In many firms, it is synonymous with corporate social responsibility; it is seen by some as a term that is gradually replacing CSR in the business lexicon. More often, however, the term takes on a more focused meaning, concerned with the relationship of a company to its environment and its use of natural resources, including land, water, air, plants, animals, minerals, fossil fuels, and biodiversity. • It is widely recognized that the world's natural resources are finite and are being consumed and degraded at rates that threaten their capacity for renewal.

meet the needs of the present without compromising the ability to meet the needs of the future. Ex. • Pacific Gas and Electric has begun measuring the full carbon footprint of its supply chain to become not only a "greener" company but a more efficient energy producer • Coca-Cola and PepsiCo are having to rethink their business models because of the prospect of future worldwide water shortages. Environmental sustainability strategies entail deliberate and concerted actions to operate businesses in a manner that protects natural resources and ecological support systems, guards against outcomes that will ultimately endanger the planet, and is therefore sustainable for centuries

Corporate social responsibility (CSR) refers to a company's duty to

operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in the local communities where it operates and in society at large.

There are three distinct schools of thought about the extent to which ethical standards travel across cultures and whether multinational companies can apply the same set of ethical standards in any and all locations where they operate.

1. The School of Ethical Universalism 2. The School of Ethical Relativism 3. Ethics and Integrative Social Contracts Theory

Companies are, of course, sometimes rewarded for bad behavior—a company that is able to shift environmental and other social costs associated with its activities onto society as a whole can reap large short-term profits. There's little hard evidence indicating shareholders are disadvantaged in any meaningful way by a company's actions to be socially responsible.

Calling a halt to such actions usually hinges on 1. the effectiveness of activist social groups in publicizing the adverse consequences of a company's social irresponsibility and marshaling public opinion for something to be done, 2. the enactment of legislation or regulations to correct the inequity, and 3. decisions on the part of socially conscious buyers to take their business elsewhere

The Payment of Bribes and Kickbacks A particularly thorny area facing multinational companies is the degree of cross—country variability in paying bribes 8 In many countries in eastern Europe, Africa, Latin America, and Asia, it is customary to pay bribes to government officials in order to win a government contract, obtain a license or permit, or facilitate an administrative ruling. ○ In some developing nations, it is difficult for any company, foreign or domestic, to move goods through customs without paying off low-level officials. ○ Senior managers in China and Russia often use their power to obtain kickbacks when they purchase materials or other products for their companies. ○ Likewise, in many countries it is normal to make payments to prospective customers in order to win or retain their business. ○ Some people stretch to justify the payment of bribes and kickbacks on grounds that bribing government officials to get goods through customs or giving kickbacks to customers to retain their business or win new orders is simply a payment for services rendered, in the same way that people tip for service at restaurants

Companies that forbid the payment of bribes and kickbacks in their codes of ethical conduct and that are serious about enforcing this prohibition face a particularly vexing problem in countries where bribery and kickback payments are an entrenched local custom. On the other hand, the payment of bribes or kickbacks not only undercuts the company's code of ethics but also risks breaking the law ○ The Foreign Corrupt Practices Act (FCPA) prohibits US. companies from paying bribes to officials, political parties, political candidates, or others in all countries where they do business. ○ The Organization for Economic Cooperation and Development (OECD) has anti-bribery standards that criminalize the bribery of foreign public officials in international business transactions—all 35 OECD member countries and seven nonmember countries have adopted these standards.

Why Ethical Relativism Is Problematic for Multinational Companies Relying on the principle of ethical relativism to determine what is right or wrong poses major problems for multinational companies trying to decide which ethical standards to enforce companywide.

It is a slippery slope indeed to resolve conflicting ethical standards for operating in different countries without any kind of higher-order moral compass. Codes of conduct based on ethical relativism can be ethically problematic for multinational companies by creating a maze of conflicting ethical standards. ○ Business leaders who rely on the principle of ethical relativism to justify conflicting ethical standards for operating in different countries have little moral basis for establishing or enforcing ethical standards companywide. ○ Rather, when a company's ethical standards vary from country to country, the clear message being sent to employees is that the company has no ethical standards or convictions of its own and prefers to let its standards of ethical right and wrong be governed by the customs and practices of the countries in which it operates.

Which of the following statements concerning the relationship between business and the environment is true?

Maintaining the finite supply of the world's natural resources is crucial to the long-term economic interests of corporations.

Some people have argued that there is an implied social contract between a business and the members of society, according to which of the following? (Choose every correct answer.)

The members of society agree not to unreasonably restrain a business's pursuit of fair profit. A business has a moral responsibility to promote the general welfare and avoid doing harm.

2. Heavy Pressures on Company Managers to Meet Short-Term Performance Targets When key personnel find themselves scrambling to meet the quarterly and annual sales and profit expectations of investors and financial analysts, they often feel enormous pressure to do whatever it takes to protect their reputation for delivering good results. • investors will see the slightest sign of a slowdown in earnings growth as a red flag and drive down the company's stock price • slowing growth or declining profits could lead to a downgrade of the company's credit rating if it has used lots of debt to finance its growth Company executives often feel pressured to hit financial performance targets because their compensation depends heavily on the company's performance. Over the last two decades, it has become fashionable for boards of directors to grant lavish bonuses, stock option awards, and other compensation benefits to executives for meeting specified performance targets.

The pressure to "never miss a quarter"—to not upset the expectations of analysts, investors, and creditors—prompts nearsighted managers to engage in short-term maneuvers to make the numbers, regardless of whether these moves are really in the best long-term interests of the company. Sometimes the pressure induces company personnel to continue to stretch the rules until the limits of ethical conduct are overlooked ○ Once ethical boundaries are crossed in efforts to "meet or beat their numbers," the threshold for making more extreme ethical compromises becomes lower.

True or False: Practicing ethical relativism can lead to prosecution of both companies and individuals.

True

What are likely consequences of ethical strategies for a business? (Choose every correct answer.)

Winning the approval of suppliers, employees, and investors Sustaining the reputation of the company

3. A Company Culture That Puts Profitability and Business Performance Ahead of Ethical Behavior When a company's culture spawns an ethically corrupt or amoral work climate, people have a company-approved license to

ignore "what's right" and engage in any behavior or strategy they think they can get away with. ○ Such cultural norms as "Everyone else does it" and "It is okay to bend the rules to get the job done" permeate the work environment. ○ At such companies, ethically immoral people are certain to play down observance of ethical strategic actions and business conduct ○ Moreover, cultural pressures to utilize unethical means if circumstances become challenging can prompt otherwise honorable people to behave unethically.

1 of 3 : The school of ethical universalism holds that Adherents of the school of ethical universalism maintain that it is entirely appropriate to expect all members of society (including all personnel of all companies worldwide) to conform to these universal ethical standards. ○ The strength of ethical universalism is that it draws on the collective views of multiple societies and cultures to put some clear boundaries on what constitutes ethical and unethical business behavior, regardless of the country or culture in which a company's personnel are conducting activities. ○ This means that with respect to basic moral standards that do not vary significantly according to local cultural beliefs, traditions, or religious convictions, a multinational company can develop a code of ethics that it applies more or less evenly across its worldwide operations. ○ It can avoid the slippery slope that comes from having different ethical standards for different company personnel depending on where in the world they are working.

the most fundamental conceptions of right and wrong are universal and apply to members of all societies, all companies, and all businesspeople. • Being truthful (not lying and not being deliberately deceitful) strikes a chord of what's right in the peoples of all nations • Demonstrating integrity of character, not cheating or harming people, and treating others with decency are concepts that resonate with people of virtually all cultures and religions.

The Concepts of Corporate Social Responsibility and Good Corporate Citizenship Acting in a socially responsible manner thus encompasses more than just participating in community service projects and donating money to charities and other worthy causes. Demonstrating social responsibility also entails

undertaking actions that earn trust and respect from all stakeholders—operating in an honorable and ethical manner, striving to make the company a great place to work, demonstrating genuine respect for the environment, and trying to make a difference in bettering society. • Striving to employ an ethical strategy and observe ethical principles in operating the business. • Making charitable contributions, supporting community service endeavors, engaging in broader philanthropic initiatives, and reaching out to make a difference in the lives of the disadvantaged • Taking actions to protect the environment and, in particular, to minimize or eliminate any adverse impact on the environment stemming from the company's own business activities. • Creating a work environment that enhances the quality of life for employees. • Building a diverse workforce with respect to gender, race, national origin, and other aspects that different people bring to the workplace.

3 of 3 : Ethics and Integrative Social Contracts Theory According to integrated social contracts theory, Integrative social contracts theory provides a middle position between the opposing views of ethical universalism and ethical relativism. According to this theory, the ethical standards a company should try to uphold are governed by both 1. a limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on behaviors in all situations and 2. the circumstances of local cultures, traditions, and values that further prescribe what constitutes ethically permissible behavior. According to integrated social contracts theory, adherence to universal or "first-order" ethical norms should always take precedence over local or "second-order" norms.

universal ethical principles based on the collective views of multiple societies form a "social contract" that all Individuals and organizations have a duty to observe in all situations. Within the boundaries of this social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible. • Local ethical standards can be more stringent than the universal ethical standards but never less so. For example, both the legal and medical professions have standards regarding what kinds of advertising are ethically permissible that extend beyond the universal norm that advertising not be false or misleading. ○ The strength of integrated social contracts theory is that it accommodates the best parts of ethical universalism and ethical relativism. ○ Moreover, integrative social contracts theory offers managers in multinational companies clear guidance in resolving cross-country ethical differences: Those parts of the company's code of ethics that involve universal ethical norms must be enforced worldwide, but within these boundaries there is room for ethical diversity and the opportunity for host-country cultures to exert some influence over the moral and ethical standards of business units operating in that country.

The Business Case for Corporate Social Responsibility and Environmentally Sustainable Business Practices Whatever the moral arguments for socially responsible business behavior and environmentally sustainable business practices, there are definitely good business reasons why companies should be public-spirited and devote time and resources to social responsibility initiatives, environmental sustainability, and good corporate citizenship: In sum, companies that take social responsibility and environmental sustainability seriously can improve their business reputations and operational efficiency while also reducing their risk exposure and encouraging loyalty and innovation.

• Such actions can lead to increased buyer patronage • A strong commitment to socially responsible behavior reduces the risk of reputation-damaging incidents. ○ Research has shown that product boycott announcements are associated with a decline in a company's stock price • Socially responsible actions and sustainable business practices can lower costs and enhance employee recruiting and workforce retention. • Opportunities for revenue enhancement may also come from CSR and environmental sustainability strategies. The drive for sustainability and social responsibility can spur innovative efforts that in turn lead to new products and opportunities for revenue enhancement. • Well-conceived CSR strategies and sustainable business practices are in the best long-term interest of shareholders. ○ The stock prices of companies that rate high on social and environmental performance criteria have been found to perform 35 to 45 percent better than the average of the 2,500 companies that constitute the Dow Jones Global Index