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.
There are three schools of thought about ethical standards:
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 one 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.
A company has to be very cautious about exporting its home-country values and ethics to foreign countries where it operates—"photocopying" ethics is disrespectful of other countries' values and traditions. However, there are occasions when the rule of "when in Rome, do as the Romans do" is ethically and morally wrong irrespective of local customs, traditions and norms—one such case is the payment of bribes and kickbacks. Managers in multinational enterprises have to figure out how to navigate the gray zone that arises when operating in two cultures with two sets of ethics. Three categories of managers stand out in terms of 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 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 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 non-issue approach.
The damage control approach.
The compliance approach.
The ethical culture approach.
The challenges that arise in each of the four approaches provide an explanation of why a company's executives may sense that they have exhausted a particular mode's potential for managing ethics and need to move to a stronger, more forceful approach to ethics management.
There are two reasons why a company's strategy should be ethical: (1) because a strategy that is unethical in whole or in part is morally wrong and reflects badly on the character of the company personnel involved and (2) because an ethical strategy is good business and in the self-interest of shareholders.
The term corporate social responsibility concerns a company's duty to operate in an honorable manner, provide good working conditions for employees, 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. The menu of actions and behavior for demonstrating social responsibility includes:
Employing an ethical strategy and observing ethical principles in operating the business.
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." 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 they operate, and society in general. There are three reasons why the exercise of social responsibility is good business:
It generates internal benefits (particularly as concerns employee recruiting, workforce retention, and training costs).
It reduces the risk of reputation-damaging incidents and can lead to increased buyer patronage. The higher the public profile of a company or brand, the greater the scrutiny of its activities and the higher the potential for it to become a target for pressure-group action.
It is in the best interest of shareholders.
Companies that take social responsibility seriously can improve their business reputations and operational efficiency while also reducing their risk exposure and encouraging loyalty and innovation. Overall, they are more likely to be seen as good investments and as good companies to work for or do business with.
However, there is a school of thought that says companies should be very cautious in their endeavors to better the overall well-being of society because doing so diverts valuable resources and weakens a company's competitiveness. According to this view, businesses best satisfy their social responsibilities through conventional business activities— producing needed goods and services at prices consistent with the lowest feasible costs. They further argue that spending shareholders' or customers' money for social causes not only muddies decision making by diluting the focus on the company's business mission but also thrusts business executives into the role of social engineers—a role more appropriately performed by charitable and nonprofit organizations and duly-elected government officials. Yet it is tough to argue that businesses have no obligations to non-owner stakeholders or to society at large. If one looks at the category of activities that fall under the umbrella of socially responsible behavior (refer to Figure 7.2), there's really very little to object to in principle. The main problems come in judging the specifics of how well a company goes about the particular social betterment and corporate citizenship activities that it opts to pursue. Are the actions self-serving? Do the actions go far enough? Were the actions done in an appropriate fashion?
In sum, the case for ethical and socially responsible behavior is about attracting and retaining talented staff, about managing risk, and about ensuring a company's reputation with customers, suppliers, local communities, and society.
