March 24, 2016

Ethics,Corporate Social Responsibility, Stakeholder Responsibility and Strategic Management

Milton Friedman on Ethics

"There is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within rules of the game, which is to say engages in free and open competition, without deception or fraud."

Was Friedman against Ethics?

No. Friedman recommends ethical behavior from businessmen. They have to allow free and open competition. They should not do fraud. They should not deceive customer, competitors or social organizations.  He clearly say businessmen have to be within rules of the games. Ethics are part of the rules of the game.

Strategy and Ethics

Ethics involves concepts of right and wrong, fair and unfair, moral and immoral. Beliefs about what is ethical serve as a moral compass in guiding the actions and behaviors of individuals and organizations. Ethical principles in business are not materially different from ethical principles in general. In this chapter, we study how notions of moral and immoral translate into judging management decisions regarding the strategies and actions of companies in business.

The authors talked of three types persons in managerial jobs:  The moral managers - follows ethical or moral guidelines, The immoral managers - he is against the moral and ethical ideas, The amoral managers - They ignore either by thinking business is equal to war and they have to survive somehow and ethics are only handicaps or by not even bother to know ideas of morals and ethics.

Business Ethics in the Global Business

There are three schools of thought about ensuring a commitment to ethical standards for companies with international operations:

According to the school of ethical universalism, the same standards of what's ethical and what's unethical resonate with peoples of most societies regardless of local traditions and cultural norms; hence, common ethical standards can be used to judge the conduct of personnel at companies operating in a variety of country markets and cultural circumstances.

According to the school of ethical relativism different societal cultures and customs have divergent values and standards of right and wrong—thus, what is ethical or unethical must be judged in the light of local customs and social mores and can vary from culture or nation to another.

According to integrated social contracts theory, universal ethical principles or norms based on the collective views of multiple cultures and societies combine to form a "social contract" that all individuals in all situations have a duty to observe. Within the boundaries of this social contract, local cultures can specify other impermissible actions; however, universal ethical norms always take precedence over local ethical norms.

Three categories of managers stand out with regard to their prevailing beliefs in and commitments to ethical and moral principles in business affairs: the moral manager; the immoral manager, and the amoral manager. By some accounts, the population of managers is said to be distributed among all three types in a bell-shaped curve, with immoral managers and moral managers occupying the two tails of the curve, and the amoral managers, especially the intentionally amoral managers, occupying the broad middle ground.

The moral case for social responsibility boils down to a simple concept: It's the right thing to do. The business case for social responsibility holds that it is in the enlightened self-interest of companies to be good citizens and devote some of their energies and resources to the betterment of such stakeholders as employees, the communities in which it operates, and society in general.

The apparently large numbers of immoral and amoral businesspeople are one obvious reason why some companies resort to unethical strategic behavior. Three other main drivers of unethical business behavior also stand out:

Overzealous or obsessive pursuit of personal gain, wealth, and other selfish interests.
Heavy pressures on company managers to meet or beat earnings targets.
A company culture that puts the profitability and good business performance ahead of ethical behavior.

The stance a company takes in dealing with or managing ethical conduct at any given time can take any of four basic forms:

The unconcerned or nonissue approach.

For these companies ethics is a nonissue. Companies adopting this approach are usually out to make the greatest possible profit at  most any cost and the strategies they employ, while legal, amy well embrace elements that are ethically shady.

The damage control approach.

The companies following this approach may adopt a code of ethics even though in practice they do not use it.

The compliance approach.

Companies following this approach take actions to implement ethics codes.

The ethical culture approach.

In the companies following this approach, the top executive act as role models for ethical behavior. High ethical principles are deeply ingrained in corporate culture.

The term corporate social responsibility calls for companies to find balance between (1) their economic responsibilities to reward shareholders with profits, (2) legal responsibilities to comply with the laws of countries where they operate, (3) ethical responsibilities to abide by society's norms of what is moral and just, and (4) philanthropic responsibilities to contribute to the noneconomic needs of society. The menu of actions and behavior for demonstrating social responsibility includes:

Employing an ethical strategy and observing ethical principles in operating the business.

Why Should Company Strategies be Ethical?
(1) A strategy that is unethical in whole or in part reflects badly on the character of the company personnel involved. and
(2) An ethical strategy is good business and in the self-interest of shareholders.

Strategy and Social Responsibility

Making charitable contributions, donating money and the time of company personnel to community service endeavors, supporting various worthy organizational causes, and making a difference in the lives of the disadvantaged. Corporate commitments are further reinforced by encouraging employees to support charitable and community activities.

Protecting or enhancing the environment and, in particular, striving to minimize or eliminate any adverse impact on the environment stemming from the company's own business activities.

Creating a work environment that makes the company a great place to work.

Employing a workforce that is diverse with respect to gender, race, national origin, and perhaps other aspects that different people bring to the workplace.

There's ample room for every company to tailor its social responsibility strategy to fit its core values and business mission, thereby making its own statement about "how we do business and how we intend to fulfill our duties to all stakeholders and society at large."

Some companies use the terms corporate social responsibility and corporate citizenship interchangeably, but typically, corporate citizenship places expectations on companies to go beyond consistently demonstrating ethical strategies and business behavior by addressing unmet noneconomic needs of society. Corporate sustainability involves strategic efforts to meet the needs of current customers, suppliers, shareholders, employees, and other stakeholders, while protecting, and perhaps enhancing, the resources needed by future generations.
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Updated 24 Mar 2016, 25 May 2013

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