Ethical Perspectives
“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits…” (Friedman 1970)[^1].
There is no consideration of externalities in such a statement, those off-balance sheet items that can be huge costs imposed on communities and society in the name of profit. The statement makes no allowance for any form of social justice, not only for people at large but employees as well. Personally, I am a strong advocate for stakeholder theory, particularly in the manner in which Fortescue Metals Group (FMG) depicts their organisational chart back to stakeholders which include shareholders as equal in value.
Business Ethics
Business ethics do not differ from personal or general ethics. If something is inappropriate at a personal level, then it will also be at a business level. This applies in actions and decisions by the organisation and their personnel.
Ethical Perspectives
School of Ethical Universalism
Follows the line of thought that rights and wrongs are universal irrespective of cultural, social and religious variants. Therefore, organisations operating internationally should stand by such ethics irrespective of where they are trading.
School of Ethical Relativism
The difference with ethical relativism is that it allows for cultural differences, religion, social customs when considering the rights and wrongs of an action. This is based on the belief of subscribers that a “one size fits all” does not always work. The notes provide an example of child labour, where some countries employ people under 18 regularly. Consequently, practices are assessed under the local conditions. It is considered that this may be a slippery slope however, where personnel may have to compromise their own ethics to accommodate someone else’s beliefs.
Ethics and Integrative Social Contract Theory
Social contract theory takes more of a middle ground approach to universalism and relativism. It is a delicate balance of ethics universally and acknowledging cultural differences, therefore a compromise. This could be a difficult challenge and practitioners would do well to be well informed of local conditions where they are operating. Core values of the organisation, however, should never be compromised.
Ethical Standards and Strategy
Organisations should hold a developed document defining their code of conduct. This is a public facing document that espouses the organisation’s behaviour when dealing in its market and with the community.
Unethical Behaviour
Despite all the best intentions and documented codes of conduct, organisations can still fall foul of their stated ethical standards. A prime example is that of Volkswagen, who deployed an emissions standards cheating device in their vehicles to falsify lab tests. The result was millions in fines, loss of customer respect and confidence, and reputational damage. Apart from anything else, this breach was also a compromising of the organisation’s core values and purpose.
The Ethics Centre (2017)[^2] lists several reasons corporate values can fail:
- Values without purpose or principles;
- Leaders failing to lead on values;
- Designing for a marketing purpose;
- Confusing values with behaviours;
- Values not embedded within your systems and processes;
- People failing to discuss corporate values.
Figure 1: Costs when ethical wrongdoing is discovered
Ethics – Strategy Development & Implementation
Much discussion has been had on the importance of strategies in business, but it begs the question as to “why should company strategies be ethical?” Thompson et al. (2002, p. 277)^1 provides us with two reasons:
- “because a strategy that is unethical is morally wrong and reflects badly on the character of the company and its personnel, and
- because an ethical strategy can be good business and serve the self-interests of shareholders”.
Thompson et al. (2022)^6 cite the example of Uber who, despite having values of “Do the right thing. Period” that sets out their values and ethics in detail, there were many reported breaches including sexual harassment, fare gouging and toxic work culture (Uber 2022)[^3]
Corporate Social Responsibility & Strategy
All organisations need to operate responsibly within society, which is known as Corporate Social Responsibility (CSR). Thompson et al. (2022, pp. 279-280)^6 states that this involves “…that corporate executives should balance the interests of all stakeholders – shareholders, employees, customers, suppliers, the communities in which they operate, and society at large…”.
Gavin (2019)[^4] defines corporate social responsibility as:
“…a business model in which for-profit companies seek ways to create social and environmental benefits while pursuing organizational goals, like revenue growth and maximizing shareholder value.”
Gavin (2019)4 also provides five well known examples of CSR in the business world:
- Lego – who, as a maker of plastic toys, are committed to waste reduction and sustainability. They have invested $164 million into its Sustainable Materials Centre.
- Salesforce – has a 1-1-1 philanthropic model that provides 1% of product, 1% of equity and 1% of employees’ time for charitable activities. The result has been over 5 million hours of employee time and $406 million in grants.
- Ben & Jerry’s – $2.5 million in grants from its charitable arm
- Levi Strauss – invested in green supply chain, employee welfare and environmentally friendly production, earning them the most honoured socially responsible company in 2020.
- Starbucks – committed to ethically sourcing its coffee beans
Environmental Sustainability & Strategy
Sustainability for an organisation includes numerous aspectsframeworks.frameworks.. Sustainability could best be described as an umbrella term for both CSR and ESG (Environment, Society, Governance) reporting. Both are frameworks. CSR is inwardly focused and is a general sustainability framework, whereas ESG is more for the purpose of investors and provides measurable sustainability assessments (Polley 2022)[^5].
Thompson et al. (2022, p. 286)^6 states that:
“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 operations, and guard against ultimate endangerment of the planet.”
The literature would suggest that ESG is gaining in popularity as a means for organisations to promote their CSR through measurable achievements. Thompson et al. (2022)^6 lists several reasons organisations should utilise CSR and environmentally sustainable practices:
- Can lead to greater buyer patronage;
- Strong commitment to socially responsible behaviour reduces the risk of incidents that can bring reputational damage;
- Responsible social actions and sustainable business practices can lower costs and improve recruitment and retention of employees;
- There may be opportunities to increase revenue because of CSR and sustainability strategies;
- Good quality CSR strategies and sustainable business practices are in the long-term interest of shareholders.
Instilling a Strategy Supportive Culture
The culture within an organisation can have much influence on whether strategy development and implementation are successful or otherwise. This section looks at three areas of culture:
- Key features
- Culture and its relationship to development of strategy and implementation
- Changing culture
Identifying Cultural Key Features
Thompson et al. (2022, p. 354)^6 defines culture as “the shared values, ingrained attitudes, core beliefs, and company traditions that determine norms of behaviour, accepted work practices, and styles of operating”. Although the definition sounds reasonably simple, it can be extremely complex when examining how it is put into practice. Price (2019) suggests that:
“culture is ‘the way we do things around here. …A company’s culture often shapes its approach to corporate governance, its response to its regulatory obligations, and drives conduct within the firm. And that can be either good or bad conduct”.
Importance of Culture to the Strategic Process
When there is a strong supportive culture in an organisation, it will assist the organisation achieve its goals. The collective sharing of the organisation’s mission, vision and values results in higher morale and commitment, which in turn leads to team performance and achievement of goals. The alternative is that a toxic culture can be a constant impediment to the organisation’s strategy.
Changing Corporate Culture
Culture is not something that is easily changed. It is pervasive through the entire organisation and can only be modified over time. Culture is built through articulation and application of the organisation’s core values, ethics, vision and mission statements to drive culture.
Figure 2: Two Culture Building Roles of Organisation’s Core Values and Ethics
Figure 3: Process for Changing Culture
Leading Strategy Development & Execution
Leadership is one of the largest influences on culture in an organisation and is behind the entire strategy process . Thompson et al. (2022)^6 considers there are three things done my effective managers when dealing with strategy implementation:
Monitoring Progress
Monitoring and measurement of strategies is imperative to ensure they are proceeding as planned and are on schedule. A technique that is popular with effective managers is the process of “Management by walking around” (MBWA). In doing so and talking to people at all levels they can be informed of how things are progressing.
Constructive Pressure
The monitoring process will alert the effective manager to areas where change may need to be made to a process. At times this may not be a physical change, but an attitudinal one around staff morale, commitment to the strategy or even staff replacement where necessary.
Stay the Course
Through monitoring and applying corrective and constructive adjustments, a strategy project should continue on schedule. Effective managers can assist in this process through empowerment of staff, and continuing to be on the watch for any corrective action that may need to be taken on a timely basis.
Summary
This module has had similar content to the Corporate Governance subject. However, there has been more of an internal focus here from an operational and leadership perspective. Organisational culture has also been discussed in detail, which is often a make or break issue in many organisations. Those with quality culture seem to thrive through the evident teamwork and collective drive. Those with a toxic culture demonstrate remarkable ability to self destruct and also find difficulty in recruiting and retaining staff.
References
[^1]: Friedman, M 1970, ‘A Friedman doctrine‐- The Social Responsibility Of Business Is to Increase Its Profits’, The New York Times, September 13, viewed 25 May 2023, https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html.
[^2]: The Ethics Centre 2017, ‘The 6 ways corporate values fail’, The Ethics Centre August 14, viewed 25 May 2023, https://ethics.org.au/the-6-ways-corporate-values-fail/.
[^3]: Uber n.d., Uber, viewed 25 May 2023, https://www.uber.com/au/en/about/integrity/.
[^4]: Gavin, M 2019, 5 Examples of Corporate Social Responsibility | HBS Online, Business Insights Blog, viewed 25 May 2023, https://online.hbs.edu/blog/post/corporate-social-responsibility-examples.
[^5]: Polley, C 2022, ‘ESG Vs CSR Vs Sustainability | What’s the difference?’, The Sustainable Agency February 10, viewed 26 May 2023, https://thesustainableagency.com/blog/esg-vs-csr/.
[^6]: Thompson, A, Peteraf, MA, Gamble, JE, & Strickland, AJ 2022, Crafting and executing strategy: the quest for competitive advantage: concepts and cases, 23rd edition, international student edition, McGraw-Hill Education, New York, NY.
