Business ethics 2016

AN INTEGRATED, TRANSFORMATIVE, AND RESEARCH

ORIENTED APPROACH TO BUSINESS ETHICS –

CREATING AN ETHICALLY EFFECTIVE AND SOULFUL ORGANIZATION.

Dr. C.C. Tan, Senior Lecturer, Mae Fah Luang University 皇太后大學 20-Jun-16

Copyrighted Dr. C.C. Tan (2016). Revised 2. 1

20-Jun-16 Copyrighted Dr. C.C. Tan (2016). Revised 2. 2

Innovative economics,

environmental, and ethical

responsibility can be a

platform for growth

and differentiation.


Miami installs free public bathrooms for homeless people.


Objective

After completing this course, you will be able to: Unique syllabus to study business ethics – truly business oriented,

concerning the roles of the organization in society.

Acquire a comprehensive understanding of different ethical theories and

philosophies and how they can help innovate business, i.e. what exactly

constitute the nature of an ethical business behavior, and what should be the

ethically correct desired objectives?

Learn contemporary ethical theoretical models and familiarize with diversified

scopes of business ethics management approaches.

Synthesize, explain and apply the concepts of ethics, social responsibility and

ethics-based strategies and innovation to business, in holistic manner.

Assess ethical dilemmas in the different functional and stakeholder scopes of

the business and resolve these ethical dilemmas systematically.

Able to see ethics as inseparable to business strategies and innovation.

Gain the foundation of business ethics to pursue ethics research.

(Applicable for Bachelor and Master Levels, and as Conceptual Models for Ph.D.)

Copyrighted Dr. C.C. Tan (2016). Revised 2.

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20-Jun-16


First, views (concepts) can be transferred to you from others. Gradually becoming your

mindsets (concepts set in your mind), but after that, you have to adapt, change, improve your

views and concepts.

SKA = Your human resources assets. Skills – imply you must practice, take actions, learn from actions.

Approach of this Course

20-Jun-16 Copyrighted Dr. C.C. Tan (2016). Revised 2.

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This course provides a holistic way of looking at business ethics, an attempt to integrate: The what is in business ethics, why does business ethics exist,

who engages in business ethics, where is business ethics performed, how does business ethics work, how well business ethics is performing.

Micro-level, Macro-Level, Systems Level

Resource-based View, Market Positioning Theories of Strategies, Institutional Theories (i.e. policy, culture, as intangible resources, of structure)

Involve value co-creation, co-production such as at social innovation domain.



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This course provides a holistic way of looking at

business ethics, an attempt to integrate:

Provide theoretical constellations or configuration of key

business ethics design elements that define a business ethics

management framework or model to guide decision making

and responsibility, responsiveness, and rectitude actions for performances.

What is Business?


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Sternberg, E. (2000). Just Business: Business Ethics in Action, Oxford; New Work: Oxford University Press.

(1)-(3) are examples of different types of views, concepts, or mindsets, paradigms, which influence the “ways” you think (strategize), behave (i.e. design, produce, organize, manage, innovate, ethical actions), to produce the quality, valuable products and services beneficial to the markets, organization, society and the environment, to enable the people (i.e. employees, customers, society) to live a productive, happy life (a good state of mind).

(1) What differentiates business from everything else is its purpose: maximizing long-term owner value by selling goods or services. Only this definitive goal is essential to business. All other goals are at best incidental to business, and are justified for business only insofar as they contribute to achievement of the definitive goal.

Distinguishing activities and associations in terms of their distinctive purposes has several important implications. The most important is that an organization which pursues anything other than its defining goal, or the ancillary goals necessary for achieving it, is deviating from its proper purpose. Accordingly, all objectives other than maximizing long-term owner value are inappropriate for business as businesses; associations which pursue goals thereby define themselves as something other than businesses. Many of the commonest characteristics of business are therefore radically incorrect.

What is Business?


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Handy, C. (2002).

What’s a Business

For, Harvard

Business Review,

December 2002, p. 54.

(2) Charles Handy constructs a compelling argument

that businesses have a MORAL obligation to move

beyond the goals of maximizing profit and

satisfying shareholders above all other stakeholders:

The purpose of a business … is not to make a profit, full

stop. It is to make a profit so that the business can do

something MORE or BETTER. That “something”

becomes the REAL JUSTIFICATION for the

BUSINESS… It is a MORAL ISSUE. Don’t be mistaken MEANS for the END.

What is Business?


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Design Thinking,

“Peter Senge’s

Necessary

Revolution,”

BusinessWeek, June, 11, 2008

(3) A similar sentiment is expressed in a quote attributed to Peter Drucker:

Profit for a company

is like OXYGEN for a PERSON. If you don’t have enough of it, you’re out of the GAME. But if you think your life is about BREATHING, you’re really MISSING something.

SWOT:

(T)

(O)

(S,W)


What is Business?


13

Martin Reeves,

Knut Haanaes, and

Janmejaya Sinha

(2015), Navigating

the Dozens of

Different Strategy

Options, Harvard

Business Review.

Also in:

Your Strategy

Needs a Strategy, HBR Press.

http://www.google.co.th/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjx1u-956bKAhXMkI4KHdTTATgQjRwIBw&url=http://www.slideshare.net/cpcrdi/20130424-19925033&bvm=bv.111677986,d.dGo&psig=AFQjCNFpcEh3NguV5T3rddBTJeiPMDuCRA&ust=1452775050261549

What is Business?


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Business Environment

Business environments differ along three easily

discernible dimensions:

Predictability – can you forecast it?

Malleability – Can you, either alone or in

collaboration with others, shape it?

Harshness – Can you survive it?

Combining these dimensions into a matrix reveals

five distinct environments, each of which requires a distinct approach to strategy and execution.

What is Business?


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The Strategy Palette

Each environment corresponds to distinct archetypal

approach to strategy, or color in the strategy palette,

as follows:

Predictable classical environments lend themselves to

strategies of position, which are based on advantage achieved

through scale or differentiation or capabilities and are achieved

through comprehensive analysis and planning.

Adaptive environments require continuous experimentation

because planning does not work under conditions of rapid change and unpredictability.


What is Business?


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Each environment corresponds to distinct archetypal

approach to strategy, or color in the strategy palette, as

follows:

In a visionary setting, firms win by being the first to create a new

market or to disrupt in existing one.

In a shaping environment, firms can collaboratively shape an

industry to their advantage by orchestrating the activities of other

stakeholders.

Finally, under the harsh conditions of a renewal environment, a firm

needs to first conserve and free up resources to ensure its viability

and then go on to choose one of the other four approaches to rejuvenate growth and ensure long-term prosperity.


What is Business?


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Distinctive Strategy Adaptive – I can’t predict it, and I can’t change it.

Classical – I can predict it, But I can’t change it.

Visionary – I can predict it, and I can change it.

Shaping – I can’t predict it, but I can change it.

Renewal – My resources are severely constrained.

What is Business?


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The resulting overriding imperatives, at the simplest

level, vary starkly for each approach:

Classical – Be big.

Adaptive – Be fast.

Visionary – Be first.

Shaping – Be the orchestrator.

Renewal – Be viable.

Using the right approach pays off. Firms that successfully

match their strategy to their environment realized significantly better returns over firms that didn’t.


What is Business?


22 The Strategy Palette


Unpre

dic

tabil

ity

High

High

High

Low

Low Low Malleability (Changeability)

Adaptive

- Be Fast

Classical - Be Big

Shaping

- Be the Orchestrator

Visionary

- Be First

Renewal – Be Viable

Purpose: Business Ethical Journey

Purpose: Business Ethical Journey

Context Characteristics and Strategy Types:

People Profit

Planet Transforms your employees into

passionate disciplines (because love is truly infectious)







福祿壽 To have a good life, the Chinese

minds have been influenced by

their ancestors, to strive for the

three elements:

Hapiness

Prosperity - wealth

Longevity - Health

This concept is, in fact, a key

motivator and has a great

influence on an individual leading his or her daily life.


What is Business?


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Classical:

Believe the world is predictable, and that the basis of competition is stable, and that advantage, once obtained, is sustainable. Given that they cannot change the environment, such firms seek to position themselves optimally – within it. Such positioning can be based on superior size, differentiation, or capabilities. Positional advantage is sustainable in a classical environment – the environment is predictable and develops gradually without major disruptions.

To achieve winning positions, classical leaders employ the following thought flow: they analyze the basis of competitive advantage and the fit between their firm’s capabilities and the market and forecast how these will develop over time. Then, they construct a PLAN to build and sustain advantaged positions, and, finally, they execute it rigorously and efficiently.

What is Business?


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Visionary:

Leaders taking a visionary approach believe that they can reliably create or re-create an environment largely by themselves. Visionary firms win by being the first to introduce a REVOLUTIONARY NEW product or business model. Though the environment may look uncertain to others, visionary leaders see a clear opportunity for the creation of a new market segment or the disruption of an exiting one, and they act to realize this possibility. This approach works when the visionary firm can single-handedly build a new, attractive market reality. A firm can be the first to apply a new technology or to identify and address a major source of customer dissatisfaction or a latent need. The firm can innovate to address a tired industry business model or can recognize a megatrend before others see and act on it.

Firms deploying a visionary approach also follows a distinct thought flow. First, visionary leaders envisage possibility that can be realized. Then they work single-mindedly to be the first to build it. Finally, they persist in executing and scaling the vision until its full potential has been realized. In contrast to the analysis and planning of classical strategy and the iterative experimentation of adaptive strategy, the visionary approach is about imagination and realization and is essentially creative.


What is Business?


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Adaptive:

Firms employ an adaptive approach when the business environment is neither predictable nor malleable. When prediction is hard and advantage is short-lived, the only shield against continuous disruption is a readiness and an ability to repeatedly change oneself. In an adaptive environment, wining comes from adapting to change by continuously experimenting and identifying new options more quickly and becomes one of serial temporary advantage. To be successful at strategy through experimentation, adaptive firms master three essential thinking steps: they continuously vary their approach, generating a range of strategic options to test. They carefully select the most successful ones to scale up and exploit. And as the environment changes, the firms rapidly iterate on this evolutionary loop to ensure that they continuously renew their advantage.

What is Business?


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Shaping:

When the environment is unpredictable but malleable, a firm has the extraordinary opportunity to lead the shaping or reshaping of a whole industry at an early point of its development, before the RULES have been written or re-written. Such an opportunity requires you to collaborate with others because you cannot shape the industry alone – and you need others to share the risk, contribute complementary capabilities, and build the new market quickly before competitors mobilize.

Firms engage other stakeholders to create a shared vision of the future at the right point in time. They build a platform through which they can orchestrate collaboration, and then evolve the platform and its stakeholder ecosystem by scaling it and maintaining its flexibility. Shaping strategies are very different from classical, adaptive, or visionary strategies – they concern ecosystems rather than individual enterprises and rely as much on collaboration as on competition.

What is Business?


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Renewal:

The renewal approach to strategy aims to restore the vitality and competitiveness of a firm when it is operating in harsh environment. Such difficult circumstances can be caused by a protracted mismatch between the firm’s approach to strategy and its environment or by an acute external or internal shock.

External circumstances so challenging that your current way of doing business cannot be sustained. Thus needs to act decisively to restore it. Viability – economized by refocusing the business, cutting costs, preserving capital while also freeing up resources to fund the next page of the renewal journey. Finally, the firm must pivot to one of the 4 approaches to strategy to ensure that it can grow and thrive again.

What is Business?


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Any business model goes

through a life cycle, each stage

of which requires a different

approach.

Businesses are usually created in

the visionary or shaping

quadrants of the STRATEGY

PALETTE and tend to migrate

counterclockwise through

adaptive and classical quadrants

before being disrupted by further

innovations and entering a new

cycle, although the exact path can vary.

What is Business?


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Apple, for example, created its iPhone using a visionary approach, then used a shaping strategy to develop a collaborative ecosystem with app developers, telecom firms, and content providers. And as competitors jostle for position with increasingly convergent offerings, it is likely that their strategies will become increasingly adaptive or classical. Leaders themselves play a vital role in the application of the strategy palette by setting and adjusting the context for strategy. They read the environment to determine which approach to strategy to apply where and to put the right people in place to execute it.






Ethics defined

Ethics Ethics is the branch of philosophy (literally means love of

wisdom) which is the systematic study of selective choice, of the

standards of right and wrong and by which it may

ultimately be directed.

The difference between weakness and strength is of a heaven degree;

the difference between virtue and vice is that of a degree; all differences

in this world are of degrees and not a kind of characteristics.


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Ethical Beliefs

Ethics defined

Ethics are based on both individual beliefs and standards in society.

They vary from person to person, situation to situation, and culture to

culture. Society’s ethics are usually minimum standards for decency and

respect of others. Individual ethics are personal beliefs about what is

good and bad.

For example: Ethical beliefs as follows:

The upside benefits – Sustainability requires innovation and

entrepreneurship that can help a firm to move ahead of competitors

through new ideas, lower costs, and stronger intangibles such as trust

and credibility.

The downside risks – Companies that do not care for the environment

run the risk of incurring society’s wrath once they step over the line.

The right thing to do – Oil giant Shell uses an acronym to explain why

they do some things that on the surface appear to be costly – TINA

(There is No Alternative). Sustainability is not a luxury nor is there

really a choice. “There is no business to be done on a dead planet.”


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Ethics, Morality

Ethics defined

Ethics comes from the Greek ethos, meaning character.

Morality comes from the Latin moralis, meaning customs or manners.

Ethics, then, seems to pertain to the individual character of a person or persons,

whereas morality seems to point to the relationships between human beings.

Ethical and moral – i.e. deals with good, right, bad, and wrong.

Examples of argument:

Whatever human beings considered to be good involves happiness and

pleasure in some way, and whatever they consider to be bad involves

unhappiness and pain in some way. This view of what is good has traditionally

been called “hedonism.”

One element involved in the achievement of happiness is the necessity of taking

the long- rather than the short-range view. People may undergo some pain or

unhappiness in order to attain some pleasure or happiness in the long run.


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Right, Wrong

Ethics defined

William Frankena states that whatever is good will also probably involve

“some kind or degree of excellence.” “What is bad in itself is so because

of the presence of either pain or unhappiness or some kind of defect or

lack of excellence.” (Frankena, W.K. 1973, Ethics, 2nd Edition, Upper

Saddle River, NJ: Prentice-Hall.

Or:

If an action is creative or can aid human beings in

becoming creative and, at the same time, help to bring

about a harmonious integration of as many

human beings as possible, then we can say it is a “right”

action. If an action has the opposite effect, then we can say that it is a

“wrong” action. (Thirousx, J.P. and Krasemann, K.W. 2009, Ethics:

Theory and Practice, 10th Edition, USA: Pearson Educational

International).


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Right, Good, Moral

Ethics defined

For example:

If a person or a group of people can end a war between two nations and

create a lasting peace, then a “right” or “good” action has been

performed. It can allow members of both nations to be “creative”

rather than “destructive” and can create “harmony” between both sides

and within each nation. On the other hand, causing or starting a war

between two nations will have just the opposite effect.

Definition:

Whenever a decision or a choice is to be made concerning behavior, the

moral decision will be the one which works toward the creation of

trust, confidence, and integrity in relationships. It should increase

the capacity of individuals to cooperate, and enhance the sense of self-

respect in the individual.


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Immoral, Good

Definition:

Acts which create distrust, suspicion, and misunderstanding,

which build barriers and destroy integrity are immoral. They

decrease the individual’s sense of self-respect and rather than

producing a capacity to work together they separate people and

break down the capacity for communication (Kirkendakkm L.A. 1961,

Premarital Intercourse and interpersonal Relationships, New York: Julian

Press, p. 6).

What is “good” should be defined in the context of human

experience and human relationships rather than in an

abstract sense only – contribute to moral and meaningful human

relationships.

Ethics defined


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Good, Bad, Amoral

Good – bring about harmony and creativity.

Bad – bring about discord or disharmony.

Amoral – means having no moral sense, or being indifferent to right and

wrong.

Ethics defined


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Amoral Amoral: Certain people who have prefrontal lobotomies tend to act amorally after

the operation; that is, they have no sense of right and wrong. And there

are a few human beings who, despite moral education, have remained or

become amoral. Such people tend to be found among certain criminal

types who can’t seem to realize they’ve done anything

wrong. They tend not to have any

remorse, regret, or concern for what

they have done.

Ethics defined


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Non-Moral Nonmoral:

The word nonmoral means out of the realm of morality altogether.

For example, inanimate objects such as cars and guns are neither

moral nor immoral. A person using the car or gun may use it

immorally, but the things themselves are nonmoral.

Many areas of study (e.g., mathematics, astronomy, and physics)

are in themselves nonmoral, but because human beings

are involved in these areas, morality may also be involved. A

mathematics problem is neither moral nor immoral in itself; however, if it

provides the means by which a hydrogen bomb can be exploded, then

moral issues certainly will be forthcoming.

Ethics defined



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Moral,

Immoral, Amoral

In summary:

The immoral person knowingly violates human moral standards by

doing something wrong or by being bad. The amoral person may

also violate moral standards because he or she has no moral

sense.

Ethics defined

Immoral Moral

Amoral


Ethics – Right and Wrong

Value Conflict / Ethical Dilemma:

Although value impacts on lives, however, the greatest test of any personal value system comes when you are presented with a situation that places those values in direct conflict with an action.

Lying is wrong – but what if you were

lying to protect the life of a loved one?

Stealing is wrong – but what if you were

stealing food for a starving child?

Killing is wrong – but what if you had to

kill someone in self-defense to protect

your own life?

How do you resolve such conflict? Are there exceptions to these rules?

Can you justify these actions based on

special circumstances?

Should you then start clarifying the

exceptions to your value system? If so,

can you really plan for every possible exception?


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Ethics – The Right Thing


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Doing Right Thing?



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The Right Thing?

Ethics –The Right Thing

What is “Doing

the Right

Things”:

If you asked

your friends

or family what

ethics means

to them, you

could

probably

arrive at a list

of 4 basic categories.

Doing the Right Thing from a layman’s term (layman

deontology): Sources of influence for your personal moral standards:

No. 1 – Simple truth – right or wrong, good or bad.

No. 2 – A question of someone’s personal character – his or her

integrity.

No. 3 – Rules of appropriate individual behavior, i.e. parents.

No. 4 – Rules of appropriate behavior for a community, society

or religious institutions.

No. 5 – Golden Rules.

No. 6 – Deliver an ethical PROMISE.

No. 7 – The Five Fingers of Ethics


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Simple Truth

Simple Truth – Simply doing the right thing

You simply assume that everyone is committed to doing the right thing, but

reality is not everyone shares your interpretation of what “the right

thing” is. Even if they did, they may not share your commitment to doing it.

Know it Do it Do it consistently


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Personal Integrity Personal character – personal integrity, demonstrated by

someone’s behavior.

Someone with integrity who can be counted on to make a reasoned

and thoughtful choice.


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Right and Wrong: How do we tell right from wrong? – Influenced by Parents.

Most parents from every corner of the world will try to instill in their

children concepts of right or wrong. In fact one of the first words a child

learns after parents is “No!” This early learning is what largely creating

our set of unconscious ethical and moral standards.


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Opinions of Others


Influenced by Individual or others’ Opinions.

Many women desire an abortion because they feel they cannot

financially afford to go through a pregnancy or raise a child. The

pro-life proponents argue, however, that where innocent,

unborn human life is involved, economic considerations cannot

come first. If a woman becomes pregnant, she, along with the

conceptus’s father, must accept the financial responsibility for the

birth and raising of their child. There are agencies in societies – welfare and private charitable organizations – that can give

financial assistance to pregnant women whether they are married or

not. According to this argument, families that are financially

overburdened should be judicious about having more children,

but if the woman does become pregnant, she cannot use financial problems as a reason to “take the lives of unborn children.”



Right and Wrong How do we tell right from wrong? – Influenced by Religions.

Most moral codes of behavior are derived from the world’s

religions.

Examples:

Islam, “No one of you is believer until he loves for

his neighbor what he lows for himself.”

Buddhism, “Hurt not others with which pains

yourself.”

Christianity, “Whatever you want men to do to you,

also do to them.”

Hinduism, “This is the sum of duty; do naught unto

others what you would not have them do unto you.”

Confucianism, “What you do want done to yourself, do not do to others.”


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How do we tell right from wrong?

Religion – is one of the oldest human institutions.

Religion served as a most powerful sanction for getting people to behave morally.

Golden Rules

Golden Rules

The Golden Rules:

Do unto others as you would have them do unto you and treat

others as you would like to be treated.

This rule informs us to follow the principle of empathy – caring for others.

Me

We World


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Golden Rule

Golden Rule


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Action and Reaction

Golden Rules

The Golden Rules: Argument against abortion – two types of dangers: medical and

the psychological.

Medical dangers – the medical dangers argument is that abortion

involves an intrusion into the woman’s vagina and womb that poses

some danger to her body, especially these two parts of it.

Psychological dangers – The psychological dangers argument is

that it is psychologically very destructive to a woman to authorize

the “killing of her baby.” A woman who has committed such a terrible

act, pro-life supporters argue, has to live with a great deal of guilt.

In fact, the emotional scars will never be eradicated from her

psyche, whereas if she had gone through with her pregnancy, even

though it might have required a psychological adjustment, it would

never compare with having to adjust to the guilt resulting from an abortion.


To Deliver a Promise


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Breaking a Promise

If we break our word (promise), it weakens our

relationship with that person. Also domino

theory – Applicable to lying, cheating, and breaking

promise: Once a person breaks a promise and gets away with it,

it’s easier to break other promises, especially when

convenient. For example, if a spouse commits adultery, it’s easier to continue

doing it with the same person or with others. In other words, it

can become a way of life, as with lying and cheating. Of course, a

person may break a promise for a serious reason, but one must

be on one’s guard against breaking one’s promises, so that it doesn’t become a habit.


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Breaking a Promise


Effects on People’s Life Choices: Because people

depend upon the promises made to them and the

implied and direct agreements they have with others,

breaking them can seriously affect their lives (i.e. not

paying the supply of resources, or giving to our

customers defective products and services).

Breaking promise destruction of general social

trust.

Breaking promise loss of personal integrity and severely breaks down trust among people.



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Ethical

Role of

HR Dept.

To deliver a Promise

Example: HR role in order to deliver a promise – i.e. sustainable competitive advantage of the business.

HR has to transform radically to deliver VALUE with fewer staff, i.e. by building leaders who can take accountability for people leadership, develop talents, to help them create the inspiring environment of a business practice organization, which allows employees to maximize self-reliance.

HR becomes a center of excellence, in that HR must demonstrate professional discipline and become a model of innovation for the organization.

HR commits to the accountability of creating a strong employment brand, which packages all employment initiatives under an integrated set of symbols and key HR messages, so that new recruits will be drawn to the business. Also, HR takes accountability to ensure that the employment brand comes alive in the workplace once employees join the organization.

HR should be in a leadership position where it focuses on delivering greater value to business, by paying attention to how it capitalize its internal strengths to create and meet the needs of the business’s external customers.





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HR Role


Key Success Factors for HR: HR be strategic thinkers

HR builds partnership with business leaders

HR functions as idea merchants who can stimulate

conversations with their business leaders, and integrates

and assimilates information about the business and the

strategies of other businesses, and share them willingly

with business leaders.

HR develops a unique perspective of people and

organizational capabilities.

HR demonstrates strength of character.


Are the business

priorities clear so

that work demands

can be prioritized?

Does the work add

sufficient value to

the business?

Could the work

distract people from

focusing on

strategies priorities?

Could the work be

done in a simpler

manner with less

effort?

Does the work has

to be done now?

To be accountable – means to be critically reflective in addressing the

business management / development issues, i.e. resource supply and work demand.

Are we

underutilizing our

talents?

Are we sub-

optimizing our

ability to be an

excellent team?

Are the right

people work at the

right level?

Should the work

be done by your

department or

should it be done

elsewhere inside or

outside the company?

Business Strategy

Business Ethics Principles

Resource Supply

Work Demand




The Five Fingers of Ethics

https://www.google.co.th/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjNobK1qq7KAhVBHI4KHRNaB9UQjRwIBw&url=https://stijnbruers.wordpress.com/2012/06/24/the-five-fingers-of-ethics/&bvm=bv.112064104,d.c2E&psig=AFQjCNE7DtJ6xMzKprjau3OgMFexg-UkJw&ust=1453033660485487



Ethical Motivating How We …

Study how people try to live their lives according to a standard of “right” or “wrong” behavior – in both how we think and behave towards others and how we would like them to think and behave toward us.

Understanding right and

wrong: Moral standards are

principles based on

scientific findings,

religions, cultural, or

philosophical beliefs by

which judgments are

made about good or bad

behavior.

Personal set of morals –

Formed from

accumulative experiences

i.e. family upbringing or

religious education.

To deliver a Promise.

As moral compass

Think

Behave

Live

State of Mind

Me-We-World


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View-Thought-Behavior: Values and beliefs of managers are

instrumental in shaping an ethical

framework which can sum up to

form the corporate ethics level.

Managers often shape the moral

environment in which they work.

Managers develop or reformulate

corporate culture to inculcate

ethical core value. As these cores

are integrated throughout the

organization’s culture, they should

permeate the entire strategic

planning processes (thoughts) as

well as implementation of strategies

(behaviors).


Think

Behave

Live

State of Mind

Me-We-World

Strategy

Structure

Effective business first develops the

strategy to respond to customer and

relevant stakeholder needs, and help the

business capitalize the opportunities and

reduce the threats, fully exploiting the

strengths and rectifying the weaknesses.

Strategy should inform which structure

to choose for the organization, and the

structure should has clear accountabilities

and roles, and enables innovation, career

development and succession planning, and

also enables the strategy.

The purpose of structure is to put

together the best possible flow of work

and the structure of resources to

deliver the strategy.



Use of Balanced

Scorecard (BSC) and

Corporate Governance

Scorecard as useful tools

(i.e. diagnostic tools) to

raise awareness of

corporate governance and

performance management

issues and influence

incentive (motivation)

structures for companies.

Use of Descriptive,

Normative, and Analytical

Approaches to Business

Ethics Study to further the

understanding of business ethics.

Behavior:

A high level of transparency, accountability, board

oversight, and respect for the rights of shareholders

and role of key stakeholders as part of the foundation of a well-functioning corporate governance system.




Raise Awareness = examples:

Show examples of business ethics,

Read newspapers, Share stories of

business ethics in the facebook,

teaching in the class



Allow the business

ecosystems to function

competitively, sustainably, and ethically.

Behavior:

The industry structure


Access to capital

Vigorous local competition

Intellectual property

protection

Transparency

Rule of law

Meritocrative incentive

system

Business Model –

Sustaining social ventures

often requires a strong

entrepreneurial orientation

that is grounded in the use of

business model. To do it right,

we have to build business

models that matter, that are

scalable.

Context for Firm Strategy and Rivalry

Local Suppliers

Research and institutions

and universities

Access to firms in related

fields

Presence of clusters

instead of isolated industries –

Co-sharing

Transform value chain

activities to benefit society

while reinforcing strategy

(beyond mitigating harm from value chain activities)

Presence of high-

quality, specialized inputs

available to firms & the

innovative use of: Human resources

Physical infrastructures

Administrative

infrastructure

Information infrastructure

Technological

infrastructure

Natural resources

The Behavior Diamond


Sophistication of local demand

Demanding regulatory standards

or/and beyond

Unusual local demand in specialized

segments that can be served nationally and globally.


Good citizenship and strategic

philanthropy (i.e. the Whole Foods

Grocery Store directs its philanthropy to

animal compassion, and foundation set

up to promote more humane treatment of

farm animals) to leverage activities and

capabilities to improve salient areas of

context, and to transform value chain

activities to benefit society while

reinforcing strategy (beyond mitigating harm from value-chain activities).


Different views: Different views capture the

principles approach

to ethics The principles approach to ethics

or ethical decision making is based

on the idea that managers desire to

anchor their decisions on a more

solid foundation than that provided by

the conventional approach to ethics.

The conventional

approach to ethics depend on

what people thought and what the prevailing standards were at the time.

Conventionalist Ethics – Individuals should act to

further their self-interests so long as they do not violate

the law. It is thus allowed, under this principle, to bluff

(lie) and to take advantage of all legal opportunities and widespread practices and customs.


Different views: Several principles of ethics have

evolved over time as moral

philosophers and ethicists have

attempted to organize and codify their

thinking and guidelines.

What is an ethics

principle? From a practical

point of view, a principle of business

ethics is an ethical concept,

guidelines, or rule that, if applied

when you are faced with an ethical

decision or practice, will assist you in taking the ethical course.

Ethics Principle:


Different views: Moral philosophers customarily divided ethical

principles or theories into three

categories:

Teleological

Deontological

Aretaic or virtue theory


Different views:

Teleological theories focus on the consequences or results of the actions

they produce. Utilitarianism is the major principle in this category.

The principle of utilitarianism is a consequential principle, asserts: “We

should always act so as to produce the greatest good

for the greatest number.”

The attractiveness of utilitarianism is that it focuses the decision maker

to think about the general welfare, or the common good. It proposes

a standard outside of self-interest by which to judge the value of a

course of action.

Utilitarianism forces us to think in stakeholder terms: What would

produce the greatest good in our decision, considering stakeholders such

as owners, employees, customers, and others, as well as ourselves?

Utilitarianism provides for latitude in decision making in that it

does not recognize specific actions as inherently good or bad but rather allows us to fit our personal decisions to the complexities of the situation.


Different views: Teleological theories focus on the consequences or results of the

actions they produce. Utilitarianism is the major principle in this

category.

A weakness of utilitarianism is that it ignores actions that may

be inherently wrong.

By focusing on the ends (consequences) of a decision or an

action, one may ignore the means (the decision or action

itself). This leads to a problematic situation where one may argue

that the end justifies the means, using utilitarian reasoning.

Example: A strict interpretation of utilitarianism might lead a manager to

fire minorities and older workers because they “do not fit in” or to

take some other drastic action that contravenes other ethics

principle.


Different views:

Teleological theories focus on the consequences or results of the

actions they produce. Utilitarianism is the major principle in this category.

Therefore, the action or decision is considered objectionable only if it

leads to a lesser ratio of good to evil.

Another problem with the principle of utilitarianism is that it may come

into conflict with the idea of justice. Critics of utilitarianism say that the

mere increase in total good is not good in and of itself because it ignores

the distribution of good, which is also an important issue.

Another stated weaknesses is that when using this principle, it is very

difficult to formulate satisfactory rules for decision

making.

Therefore, utilitarianism, like most ethical principles, has its advantages and disadvantages.


Different views:

Deontological theories focus on duties, and that rightness or wrongness is a

judgment not dependent on consequences but rather on the intrinsic

goods of the action and in itself.

For example, it could be argued that managers have a duty to tell the

truth when they are doing business. The ethical theory known as the

categorical imperative, formulated by Immanuel Kant, best illustrates

duty theory.

According to Kant, human beings occupy a special place in creation, and morality

can be summed up in an imperative, or ultimate commandment of

reason, from which all duties and obligations derive. A categorical

imperative denotes an absolute, unconditional requirement that

must be obeyed in all circumstances and is justified as an

end in itself.


Different views:

Kant proposed three formulations in his theory or principle.

First: The categorical imperative is best known in the following form:

“Act only according to the maxim by which you can at the same time will that it

should becomes a universal law.” In other words, people to always act in such

a way that they can, at the same time, wish that everyone would act in that way. Thus, the act of telling a lie would be wrong, irrespective of the motive for or

consequence of the act. This is in contrast to a hypothetical imperative that

depends on some other conditions, say a desire – for example, one should go to

church or temple if you want to. Note: these two forms of imperatives are

distinguished by Kant. Hypothetical implication is a conditional instruction to act.

Kant’s second formulation, referred to as the principle of ends, is “so act to

treat humanity, whether in your own person or in that of any other, in every case

as an end and never as merely a means.” (Boatright, 2003, p. 53). This has also

been referred to as the respect for persons principle. This means that each person

has dignity and moral worth and should never be exploited or manipulated or merely

used as a means to another end. Boatright, J.R. (2003), Ethics and the Conduct of Business, 4th Edition, Upper Saddle River, NJ: Prentice Hall.


Different views: Kant proposed three formulations in his theory or principle.

The third formulation of the categorical imperative invokes

the principle of autonomy. It basically holds that “every

rational being is able to regard oneself as a maker of

universal law. That is, we do not need an external

authority – be it God, the state, our culture, or anyone

else – to determine the nature of the moral law. We

can discover this for ourselves.” (Pojman, 1995, p. 150).

Thus, Everyone has responsibility for their

action. Pojman, L.P. (1995), Ethics: Discovering Right and Wrong, Belmont, CA: Wadsworth.

Buddhist Way of Deontology and Utilitarianism

Buddhist Way of

Deontology and Utilitarianism


109

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Different views:

Deontology – Since the principles of rights and justice are consistent

with the duty-based perspective, and they can be considered as a part of

deontology, for simplicity, or be separated.

Principle of rights – Rights cannot simply be overridden by utility, but only by

another, more basic or important right.

Example: If we accept the basic right to human life, we are precluded from considering

whether killing someone might produce the greatest good for the greatest number.

To use a business example, if a person has the right to equal treatment (not to

be discriminated against), we could not argue for discriminating against that person

so as to produce more good for others.

Note: The principle of rights expresses morality from the point of view of the

individual or group of individuals, whereas the principle of

utilitarianism expresses morality in terms of the group or society as a

whole.


Both deontology and utiltiarianism (consequentialism)

can be considered as rule-based ethics:

Example of Rules:

Rule of deontology: We can’t simply focus on the

consequences and neglect the inputs (i.e. the rights of

individuals, to respect people)

Rule of utilitarianism – Don’t worry about the actions, focus on the majority !!!

Rule-based Ethics


112 Rule-based Ethics Both deontology and utiltiarianism/consequentialism

can be considered as rule-based ethics, which seek to evaluate moral considerations against a set of rules that constitute a moral theory, which determines what acceptable behavior is. These rules may be divided into two main categories, namely consequentialism (also known as teleology) – under which it is claimed that actions should be judged according to their consequences, and deontology – under which the rightness or wrongness is a judgment not dependent on consequences but rather on the intrinsic goodness of the action in and of itself.

Rule-based Ethics


113 Rule-based Ethics The Ethics Codes (The Rules of the Business Game):

Ethics codes are value statements that define an organization.

Major purposes of ethics codes include the following: To state corporate leaders’ dominant values and beliefs, which are the

foundation of the corporate culture.

To define the moral identity of the company inside and outside the firm

BRAND CHARACTER, BRAND IMAGE.

To set the moral tone of the work environment.

To provide a more stable, permanent set of guidelines for right and wrong

actions.

To control erratic and autocratic power or whims of employees.

To serve business interests (because unethical practices invite outside

government, law enforcement, and media intervention).

To provide an instructional and motivational basis for training employees

regarding ethical guidelines and for integrating ethics into operational policies,

procedures, and problems.

VALUES: FOUNDATION OF CULTURE CODE OF ETHICS

Rule-based Ethics


114

Rule-based Ethics Code of ethics is especially useful when problems arise.

For example, in the Chicago area in 1982, someone

contaminated several bottles of Tylenol with poison, and

seven people died as a result. This was the first case of

product tempering of its kind. Johnson & Johnson, the

manufacturer of Tylenol, followed its code of ethics and

immediately pulled every package of the product off the

shelves throughout North America, even though this was very

expensive for the company. Johnson & Johnson also changed

its packaging so it would be much more difficult for someone

to contaminate the product in the future. The recall and

repackaging effort cost the corporation about US$ 100 million,

but it also showed customers that the company cared about their safety.

Rule-based Ethics


115 Rule-based Ethics Another Example: Rules or Codes of Establishing Corporate Transparency:

One of the most best practices in the improvement of ethics programs is that of

transparency.

Corporate transparency refers to a quality, characteristics, or state

in which activities, processes, and decisions that take

place in companies become open or visible to the outside

world.

A common definition of transparency is the degree to which an organization:

Provides public access to information

Accepts responsibility for its actions

Makes decisions more openly

Establishes incentives for leaders to uphold these standards.

The opposite of transparency is opacity, or an opaque condition in which

activities and practices remain obscure or hidden from outside scrutiny and review.

Rule-based Ethics

Rule-based Ethics Rules have significant limitations.

Some involve scope – rules are reacting to yesterday’s disaster and

cannot be developed to address crises that we cannot anticipate. Thus,

rules may not be able to cover wide ranges of scopes and thus the scales (the details).


116

(Rules limited in SCOPES)

(Rules limited in the DETAILS/SCALE)

20-Jun-16

Scopes

Scales

Rule-based Ethics


117

Rule-based Ethics Characteristics of Rules:

Rules control our tendency to act only

in our self-interest. People have

different perceptions of themselves,

one another, and the situations they

confront, and different views of what is

ethical (or otherwise appropriate) in

such circumstances. Without rules of

the road, some well-meaning drivers

would drive slowly, others would drive

quickly, believing (correctly) that they

were doing so safely, and still others

would drive quickly but not as safely

as they thought they were – with a

collision the all-but-certain results.

Rule-based Ethics


118


Note that rules reinforce on specificity and not the totality of ethical

conduct. Thus rules i.e. specificity of the section 406 have limits.

Nevertheless, one of the virtues of rules is that they narrow the matters to

be addressed. Companies need not deal with all issues that could be

included in a code, only those that the rule specifies; drivers do not need

to consider all aspects of their driving, just their speed. Indeed, more

efficient decision-making is fostered precisely because rules encourage

us not to think of all the possibilities.

Rule-based Ethics


119


If we are not to be paralyzed by uncertainty, and stumble into numerous

errors just because we have too little time to consider too much, we must

often simplify out thought processes, using a form of decision-making

that limits us to the consideration of a manageable array of factors.

Rules, as we have seen, serve this life-simplifying purpose. Rules also

serve this agenda-simplifying our desk-clearing function, taking much off

the agenda so that what remains can be dealt with in the care and detail it

deserves. In this respect, rules have silent virtues, for often we are able to

do what we can precisely because rules free us from having to do

anything else.

Rule-based Ethics


120


In the real word – the one with rules, including speed limits – rule-makers

have decided for us what kind of conduct constitutes safe driving, and

our focus shifts (quite literally) from others on the highway to our own

speedometer.

Rule-based Ethics


121

Rule-based Ethics

Deontology Consequences

Virtue

As rules are imperfect, virtue is needed to

guide and complement the rules.

Aware of the potential effects of the rules, and looking into innovation

and potential outcomes proactively to RE-RULE.

Rule-based Ethics


122


Rule-makers do not want us to make ad hoc

decisions and, as noted, one of the advantages of rules is the

efficiency and energy conservation that results from decisions being

made for us. In increment conditions, we do not need to think about

whether driving at the speed limit will harm others (or ourselves), since

adhering to the limit is, by definition, safe.

In an ideal world, one where rules are unnecessary, we could be counted

on to decide safety issues correctly in light of our own skill, road

conditions, and various other factors – i.e. virtue

character, and the situation / the consequences or the states of

reality.

Rule-based Ethics


123

Rule-based Ethics Nevertheless, to ignore the effect of rules on decision-making

would be a mistake for both regulatory policy and business

strategy.

First, acknowledging that many of the other causes of

business misconduct are being addressed by new laws and

rules.

Second, to minimize unintended consequences, rule-makers

should be aware of the potential effect of their rules.

Third, with an understanding of the limitations of rules and

the other factors that influence ethical action, rule-makers

could require business to take steps – and business could

undertake those steps even without such rules – to

strengthen ethical decision-making by employees.

Rule-based Ethics


124


The corporate response to recent scandals also shows this limiting

tendency of rules. Despite the public’s need for reassurance about

business values and culture, business itself is focused much more on

rule compliance.

One recent international survey of senior executives in financial

institutions concluded “that governance is equated in many cases with

meeting the demands placed on institutions by regulators and legislators,

not with taking proactive steps to determine what it is that customers

want over and above the minimum standards set down by regulators and

thereby giving themselves a strategic advantage.” (see

PricewaterhouseCoopers & Economist Intelligence Unit, Governance:

From Compliance to Strategic Advantage, 3 (2004),

http://www.pwc.com/images/gx/eng/fs/0404eiugov.pdf.

Rule-based Ethics


125

Rule-based Ethics The problem is that rules set forth “minimum

conditions and are not designed to bring about

higher levels of aspiration. They fail to unleash

much moral imagination or commitment

or to inspire human excellence or

distinction. By their very nature, rules (and

rule-based ethics training) play to our comfort

zone, and fail to spur us to more

sophisticated approaches to ethical

decision-making.

Rule-based Ethics


126


These rules induced benefits come at a cost, however. By reducing the

range of issues that need to be considered, any rule is rendered

incapable of dealing fully with all of the contingencies with which, to

further its purpose, the rule might be concerned.

When a rule does not go far enough – when it fails to prohibit

conduct that is inconsistent with its purpose – it is under-

inclusive; loopholes are indicative of a rule’s under-inclusiveness.

When a rule goes too far – when it requires conduct that is

inconsistent with its underlying goals – it is over-inclusive; A rule

requiring detailed disclosures of risks, for example, is over-inclusive (and its

purpose is not served) to the extent that such disclosures are unintelligible.

Rule-based Ethics


127

Rule-based Ethics Characteristics of Rules: This over- and under-inclusiveness – “the imperfect match between the

rule and its purpose” – is unavoidable; no amount of careful rule-

making will eliminate it.

Rules have the greatest impact when they cause people to behave

differently than they would have behaved in the absence of the rule –

which is precisely where the rules are over- and under-inclusive.

Purpose Rules:

Under-inclusive Over-inclusive

Conducts

Rule-based Ethics


128

Rule-based Ethics Ideal worlds

Real worlds

Imposed by ethical rules

Humanistic integrity Contingencies


Different views:

The Principle of Right: Rights may be subdivided into two types – negative

rights and positive rights.

Negative right is the right to be left alone. It is the right to think and act

free from the coercion of others; for example, freedom from illegal search and

seizure, and freedom of speech are all forms of negative rights.

Positive right is the right to something, such as the right to food, to

health care, to clean air, to a certain standard of living, or to education. In

business, as in all walks of life, both negative and positive rights are played out

in both legal and morally claimed forms.

Note:

Negative impact – In recent years, some have argued that we are in the

midst of a rights revolution in which too many individuals and groups are

attempting to urge society to accept their wishes or demands as rights. The

proliferation of rights claims has the potential to dilute or diminish the power of

more legitimate rights. If everyone’s claim for special consideration is perceived

a legitimate right, the rights approach will lose its power to help management

concentrate on the morally justified rights.


Different views:

Principle of Justice:

One way to think about the principle of justice is to say that

it involves the fair treatment of each person. This is why it

is often called the “fairness principle.” Most would accept that

we have a duty to be fair to employees, consumers, and other

stakeholders.

But how do you decide what is fair to each person? The

criteria also change with time. For instance, at one time, the prevalent view was that

married heads of households ought to be paid more than single

males or women. Today, however, the social structure is

different. Women have entered the workforce in significant

numbers, some families are structured differently, and a

revised concept thus arises.


Different views:

Principle of Justice: To use the principle of justice, we must ask, “What is meant

by justice?” There are several kinds of justice.

Distributive justice refers to the distribution of benefits and burdens.

Compensatory justice involves compensating someone for a past

injustice, i.e. through affirmative actions.

Procedural justice or ethical due process, refers to fair decision-

making procedures, practices, or agreements, which is especially relevant

to business organization. Employees, customers, owners, and all

stakeholders want to be treated fairly. They want to believe that they have

been treated carefully and equally in decision situations. They want their

side of the issue to be heard, and they want to believe that the managers or

decision makers took all factors into consideration and weighed them

carefully before making a decision. Whether the decision was who should

be hired (or filed), who should get what promotion or raise, or who should

get a choice assignment, employees want to know that it was fairness that

prevailed and no favoritism or some other inappropriate factor.


Different views:

Principle of Justice: People want to know that their performance

has been evaluated according to a fair process.

Ethical due process, then, is simply being sure that fairness

characterizes the decision-making process. It should be noted that

ethical due process is as important as, if not more so than,

outcome fairness. In other words, people can live with an

outcome that was not their preferred result if they believe that the method,

system, or procedure used in making the decision was fair.

Basically, due process is the right to receive

an impartial review of one’s complaints

and to be dealt with fairly.


Different views:

Principle of Justice: The term process fairness has also been used

to describe ethical due process. Three factors have been identified that

help to decide whether process fairness has been achieved.

First, have employees’ input been included in the decision

process? The more this occurs, the more fair the process is

perceived to be.

Second, do employees believe the decisions were made and

implemented in an appropriate manner? Employees expect

consistency based on accurate information. They see whether

mistakes are being corrected and whether the decision-making

process was transparent.

Third, employees watch their managers’ behavior.

Do they provide explanations when asked? Do they treat others

respectfully? Do they actively listen to comments being made?


Different views:

Principle of Justice:

Ethical due process, or

process fairness, works

effectively with all stakeholders,

whether they are employees,

customers, owners, or others.

Everyone responds positively to

being treated fairly.


Different views:

Ethics of Caring:

The concept of ethics of caring or the principle of caring –

Proponents of them view the individual person as essentially

relational, not individualistic. These persons do not deny the existence

of the self but hold that the self has relationships that cannot be

separated from the self’s existence. This caring view emphasizes the

relationships’ moral worth and, by extension, the

responsibilities inherent in those relationships, rather

than in rights, as in traditional ethics.

Caring theory is also consistent with stakeholder theory, or

the stakeholder approach, in that the focus is on a more cooperative,

caring type of relationship. In this view, firms should seek to make

decisions that satisfy stakeholders, leading to situations in which all

parties in the relationship gain.


Different views:

Ethics of Caring: In the corporate environment, there is an

increasing demand for business to be attentive

to its many stakeholders, particularly

customers and employees, in caring ways.

As organizations attempt to build such

relationships, they must define the

responsibilities of initiating and

maintaining care. In this aspect, it is the duty

to care (deontology).


Different views:

Ethics of Caring:

Example: Manifested in Servant Leadership:

Example of servant leadership characteristics – i.e. listening, empathy,

foresight, commitment to the growth of people, stewardship, building

community, etc. Each of these characteristics is based on the ethical

principle of putting the other person first – whether that

the other person is an employee, a customer, or some other important

stakeholder. Some of these characteristics could be stated as virtues and

some as behaviors. Thus, servant leadership embraces several of the

ethical perspectives discussed.

Servant leadership builds a bridge between the idea of business

ethics and those of leadership – as a better way of being a manager and

part of organizational life, to enhance productivity, encourage creativity,

and benefit the bottom line. In this aspect it is also clear that the servant

leadership principle is quite compatible with sustainability within

organizations.


Different views:

Virtue Ethics: Virtue ethics merits consideration even though it is not a principle

per se. Virtue ethics, rooted in the thinking of Plato and Aristotle,

is a school of thought that focuses on the individual becoming

imbued with virtues (e.g. honesty, fairness, truthfulness,

trustworthiness, benevolence, respect, and non-malfeasance, promise

keeping, loyalty).

Virtue ethics is sometimes referred to as an aretaic

theory of ethics.

Thus, in this aspect, business ethics is largely a question

of corporate character.


Different views:

Aretaic theories are put forth by Aristotle. The term comes from

the Greek word arete, which means “goodness” (of function),

“excellence” (of function), or “virtue.” Aristotle saw that individual as

essentially a member of a social unit and moral virtue as a

behavioral habit, a character trait that is both socially and

morally valued. Virtue theory is the best example of an aretaic theory

(Beauchamp, 2001)

Beauchamp, T.L. (2001), Philosophical Ethics: An Introduction to Moral

Philosophy, 3rd edition, New York: McGraw-Hill.

Programs that have developed from the notion of virtue ethics have sometimes

been called character education, because this particular theory

emphasizes character development. Corporate well-being demands

character and business leaders are a vital and necessary force for putting

character back into business.


Different views:

The Golden Rule – “Do unto others as you would

have them do unto you” – is a fairly straightforward, easy-to-

understand principle – to guide the individual decision maker

on behavior, actions, or decision.

The Golden Rule argues that if you want to be

treated fairly, treat others fairly; if you want your

privacy protected, respect the privacy of others. The key

is impartiality.

The Golden Rule is a win-win philosophy, and acts as

a compass when you need direction.


Different views:

Ethical Test Approach: In addition to the ethical principles

approach to guiding personal and managerial decision making, a number of

practical ethical tests also might be set forth.

The Disclosure Rule – If the full glare of examination by

associates, friends, family, newspapers, televisions, etc. were to focus on your

decision, would you remain comfortable with it? If you think you would,

it probably is the right decision.

Test of common sense – The individual simply asks, “Does the

action I am getting make sense?”

Test of ventilation – The idea of ventilation is to “expose” your

proposed action to others and get their thoughts on it. This test

works best if you get opinions from people who you know might not see things

your way.


Different views: Ethical Test Approach:

Test of purified idea – An idea or action might be thought to be

“purified” – that is, made right – when a person with

authority says it is appropriate. Such a person might be a

supervisor, an accountant, or a lawyer. The central question here is, “Am I

thinking this action or decision is right just because someone with appropriate

authority or knowledge says it is right?” If you look hard

enough, you always can find a lawyer or an

accountant to endorse almost any idea if it is

phrased right. However, neither of them is the

final arbiter of what is right or wrong.


Different views:

Ethical Test Approach:

Test of the Big Four – Watch out for the “big four” to test your

ethical behavior. The Big Four are four characteristics of decision making

that may lead you astray or toward the wrong course of action. The four factors

are greed, speed, laziness, and haziness. Greed is the drive to

acquire more and more in your own self-interest. Speed refers to the tendency

to rush things and cut corners because you are under the pressure of time.

Laziness may lead you to take the easy course of action that requires the least

amount of time. Haziness may lead you to acting or reacting without a clear

idea of what is going on. All four of these factors represent temptations that,

if succumbed to, might lead to unethical behaviors.

Use several tests together – If several tests are used together,

especially the more powerful ones, they do provide a means of examining

proposed actions before engaging in them.


Different views:

Ethical Test Approach:

Ethics Check: Ethics check (Blanchard and Peale, 1988)

Blanchard, K. and Peale, N.V. (1988), The Power of Ethical Management, New York: Fawcett

Crest, p. 20. The “ethics check” question are as follows:

1. Is it legal? Will I be violating civil law or company policy?

2. Is it balanced? Is it fair to all concerned in the short

term as well as the long term? Does it promote win-win

relationships? Does it comply with company’s core

values?

3. How will it make me feel about myself? Will it make me

proud? Would I feel good if my decision was published in the

newspaper? Would I feel good if my family knew about it? (Disclosure

Rules)



Views and Mindsets:

Conventional approach

Principles approach

Ethical tests approach

Values and mindsets are learned. This means that

they are developed through some kind of

experience. Experiences are then described,

discussed, and appraised by the persons

involved. The communication of common appraisals

eventually builds value standards, which often

become widely accepted across many social and

cultural boundaries.

Ethics Screen. Ethics audits, social audit.

Results and Impacts:

Competitiveness

Competitive Advantage

Performances: 3Ps

Sustainable Development

Growth and well-being

Think

Behave

Live

State of Mind

Strategy

Structure and Systems

Markets and Quality

of Life Me-We-World Quality

Spiritual

Developing

Skill,

Knowledge

and Attitude

of Human Resources


Note: Ethics Screen – The idea is that unethical actions will be “screened out” and

ethical ones will be “screened in.”

Ethics Audits – Ethics audits are mechanisms or approaches by which a

company may assess or evaluate its ethical climate or programs. Ethics audits are

intended to carefully review such ethics initiatives as ethics programs, codes of

conduct, and ethics training programs. Ethics audits are similar to social

audits (social performance report, to describe a wide variety of activities

embracing various forms of social performance reporting; the social audit is a

systematic attempt to identify, measure, monitor, and evaluate an organization’s

performance with respect to its social efforts, goals, and programs). Ethics audits may

employ written instruments, committees, and employee interviews. A popular variation

on the ethics audit is the sustainability audit.


Scopes and Scales:

For example: to create needs and not just satisfy needs (i.e. need

to see and envision the future differently and compassionately),

through social-mission driven business model, to

grow to a scale (i.e. accelerated structural changes in the economy

and communities, and new pattern-breaking changes all across society)

where the business model can make a substantial contribution to

eradicate poverty and attend to large-scale social needs (i.e. improved

productivity, healthy economic competitiveness) in all forms), to

fundamentally change the communities, societies and the world,

in sustainable and self-sufficiency (i.e. financially

independent) manner.


Societal Marketing

Evolve with time –

Because the market environment has changed, marketing concepts needs to

adapt to these changes, otherwise the very future of the organization is at stake. Thus comes

the concept of societal marketing, which looks beyond the individual customer to the

entire society. The rational for the development of the societal marketing concept is not only

to safeguard marketing’s future freedom of action, but to ensure the survival of business itself

in an increasingly hostile social environment.

Societal marketing – to pay attention to the type of products sold in terms of their

effects on human welfare, society and the natural environment, and this can be done

by adding the “three considerations” – consumerism, clean-up, and

conservation – to the four P’s of the marketing mix (Shuptrine and Osmanski, 1975).


Evolve with time –

Shuptrine, F.K. and Osmanski, F.A. (1975), Marketing’s Changing Role:

Expanding or Contracting, Journal of Marketing, 39, pp. 58-66.

Consumerism – states that a it is a social movement seeking to augment the

rights and power of buyers in relation to sellers, i.e. the right to safety,

the right to be informed, the right to choose, and the

right to be heard (proclaimed by U.S.A. President, John F. Kennedy, in 1962 in

what became known as the “consumers’ Magna Carta” (Weiss, 1968).

Weiss, J.A. (1968), Marketers Fiddle While Consumers Burn, Harvard Business Review, 46, pp. 45-53.

Evolve with time


Consumerism challenges the “traditional rights of marketers,” to influence

products and marketing practices in directions that will increase the “quality

of life” – This right implies that profitability and immediate consumer gratification

are not sufficient fulfillment of marketing’s responsibility,

and that marketing activities and products must, in addition, be “life-

enhancing,” because the world’s resources are too limited to be used

indiscriminately to satisfy customer desires without considering the social

wisdom of doing so.

Evolve with time


Views and Mindsets, Purpose, Vision and Socially Responsible-Mission

Talent Management

Develop Skills, Knowledge and Attitude (SKA) of human Resources (Intellectual Capitalization)

Innovative Strategy

Resources and Partnership

Production and Operations

Values Produced

Values Delivering

Channels and

Relationship Management

Market

Society

Environment

Profit and Loss

Quality of Life

Quality State of Mind

Revenue (Value Captured)

Cost and Investment

Scopes and Scales:

Behaviors and

Livelihood:



Corporate governance

system :

rightly directs its efforts

on the firm’s resources

and capabilities because

inefficient accumulation

and deployment of these

resources and capabilities

are the key costs of agency

problems.

be agency integrity

strategy effectiveness –

firm must undertake

competitive actions to

achieve economic gains

sustainably

social value driven

disciplinary system and

attitude

risk and crisis handling

compliance and performance accountability


Business Ethics Definition

Business Ethics Defined:

Business ethics involves the application of standards of moral

behavior to business situations.

Business ethics are the application of general ethical rules to business

behavior.

Business ethics are the rules of business by which propriety (behavior

that is accepted as socially or morally correct and proper) of business

activity may be judged.

Business ethics concentrate on moral standard as they apply to

business policies, institutions, strategies and behavior. It is a

specialized study of moral right or wrong. It is a form of applied ethics.

Business ethics are nothing but the application of ethics and ethics

oriented strategies in business. It proves that business can be and

have been ethical, creative and still make profits. Today more and

more interest is being given to the application of ethical practices in

business dealings and the ethical implications of business. Business needs to function as responsible corporate citizen.


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Business Ethics Defined.

Business ethics are tied to both society’s ethics and the ethics of the

individuals who work for, and buy products from, the company.

For example, suppose you work for a company that makes cyanide

gas. You know this gas can be harmful to people. Is it unethical that

you make this gas? After all, you aren’t using it to poison people.

Should you do it because it will help the company make a profit?

Should you be concerned that workers might be exposed to toxic

effects from working with the gas? In this situation, you must decide

whether this work is unethical and whether you are willing to expose

yourself to trouble with your boss by opposing it.

How do you apply your personal beliefs in a business environment?

Shouldn’t you just do exactly what you are told to do (deontology)?

After all, the employer is paying you. Shouldn’t the employer get to

decide what you do? Would guidelines be helpful for making these decisions?


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Ethics defined: We

live in a social

world, judged by them.

Business ethics as the principles and standards that determine

acceptable conduct in business organizations. The acceptability of

behavior in business is determined by customers, competitors,

government regulators, interest groups, and the public, as well as each

individual’s moral personal principles and values.

For example:

Government fines an organization for fixing prices in the market for an

important animal feed additive and a chemical used in numerous

commercial and consumer products.

Social World:

Me

We World


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For Who: Stakeholders

Deontology Utilitarianism

Virtue Theory (Character, Brand Character)



Social Responsibility

Business should not only make a profit but also consider the social

implications of their activities.

Utilitarianism and Deontology – Social responsibility as a business’s

obligation to maximize its positive impact and minimize its negative

impact on society.


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Definition


161

Definition for this

Course – By CC Tan

(2016)

Integrating ethics

and sustainability

principles and

practices into

everything we do:

design, developing

sustainable materials,

rethinking processes,

advocating for

positive change in the industry.

The study of the cognition, conduct and potential uses of ethics-driven approaches and principles (i.e. policies, practices, strategies, programs, etc.), considered as taking the right courses, in business, by exploring and exploiting diversified multi-disciplinary theories and concepts of ethical relevancy (e.g. ethical culture as resource advantages) to establish sustainable or continually renewable competitive advantage, which leads to positive impact to immediate stakeholders (i.e. shareholders, employees, customers, suppliers, investors, the organization, its partners and environment), and with an effort to reach as large-scale of the societies and communities as possible (e.g., as manifested in the scopes of social innovation) – Definition: Tan, C.C. (2016)


Business’s commitment to business ethics must be unwavering and uncompromising, in good times and in bad. It is said that “the only safe ship in a storm is business ethics,” operated via the “4H heart, head, hands and health model.”

https://www.google.co.th/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwi2g8b66qbKAhXMWI4KHX_IAHEQjRwIBw&url=https://extension.purdue.edu/4h/Pages/impact.aspx&bvm=bv.111677986,d.dGo&psig=AFQjCNEumC2rJBSj9zpBvj9LI2p24U_JHQ&ust=1452776090576244

Ethics involves you in the life of the world around you.

Copyrighted Dr. C.C. Tan (2016). Revised 2. 163 20-Jun-16

Respect for persons

Respect for community integrity Respect for ecological balance


Business Ethics Approach

Business Ethics Approach consists of 3 Principle Components (i.e. expectations, perceptions, and evaluations) that are interconnected, aspired to be highly dynamic. The ultimate outcome is dependent upon the

evolution of time

and

contexts. It

is also dependent upon and provides reference to the behaviors and perceptions of people.

Normative Analytical Descriptive

Ethics of the Person

Ethics of the Organization

Ethics of the System


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Perception Expectation Evaluation

Induction

Deduction

Needs

Organizational

Management Systems


Exploration

Exploitation

Business Model –

Value Creation, Value

Capture

Business model is the

key to unlocking the new

opportunities created.


– as the design of

institutions that induce or

force management to

internalize the welfare of

stakeholders, by focusing

on values, performance,

control, compliance, and

sustainable development.

Based on stakeholder

approach, corporation is a

locus of responsibility in

relation to a wide array of stakeholders’ interests.

Diffusion

Exploitation

New product and service development Social innovative products and services

CSR products and services Ethical products

Internal Environment E.g. Organizational Culture

External Environment

Approaches to the Study of Morality, Ethics


167 Scientific or descriptive approach – This approach is most

often used in the social sciences and, like ethics, deals with

human behavior and conduct. The emphasis here, however, is

empirical; that is, social scientists observe and collect data about

human behavior and conduct and then draw certain conclusions.

For example:

Some psychologists, after having observed many human beings in many

situations, have reached the conclusion that human beings often act in their

own self-interest. This is a descriptive, or scientific, approach to human

behavior – the psychologists have observed how human beings act in many

situations, described what they have observed, and drawn conclusions.

However, they make no VALUE judgments as to what is morally right or wrong, nor do they prescribe how humans beings ought to behave.

Ethical Reasoning Process Evolution

Lawrence Kohlberg

– Essays in Moral

Development, Vol.

I, The Philosophy

of Moral

Development, New

York: Harper & Row.

Analytical Approach:

Lawrence Kohlberg developed a framework that

presents the argument that we develop a reasoning

process over time, moving through 6 distinct stages

(classified into 3 levels of moral development) as we

exposed to major influence in our lives.

Level 1 – Pre-conventional

Level 2 – Conventional Level 3 – Post-conventional


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Extrinsic

Intrinsic Values Driven

Punishment Avoidance Reward Approach

Family to Social Order

Social Contract to Intrinsic Moral Values


Pre-Conventional Level 1 – Pre-conventional: At this lowest level of moral development, a person’s response to a perception of

right and wrong is initially directly linked to the expectation of punishment or

reward.

Stage 1- obedience and punishment orientation – A person is focused on avoidance

of punishment and deference to power and authority – That is, something is right or

wrong because a recognized authority figure says it is.

Stage 2 – individualism, instrumentalism and exchange – As more organized and

advanced form of stage 1, a person is focused on satisfying his or her own needs –

that is, something is right or wrong because it helps me get what I want or need.

Me Utility Instrumentalism


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Conventional Level 2 – Conventional: At this level, a person continues to become aware of broader influences

outside of the family. Stage 3 – “Good Boy / Nice Girl” – A person is focused on meeting the expectations

of family members – that is, something is right or wrong because it pleases family

members.

Stage 4 – Law and Order Orientation – A person is increasingly aware of his or her

membership in a society and the existence of codes of behavior – that is, something

is right or wrong because codes of legal, religious, or social behavior dictate it.

Me

Family

Society, Religion Group Position:


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Post-Conventional Level 3 – Post-conventional: At this level, a person makes a clear effort to define principles and moral values that

reflect an individual value system rather than simply reflecting the group position.

Stage 5 – Social-Contract Legalistic Orientation

Stage 6 – Universal ethical principle orientation

Kohlberg’s framework offers us a clearer view into the process of ethical

reasoning – that is, that someone can arrive at a decision, in this case the

resolution of an ethical dilemma – on the basis of a moral rational that

is built on the cumulative experience of his or her life.


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DIKD Framework in Ethical Reasoning

What are the eight

questions you

should consider in

resolving an ethical

dilemma?

Data

Information

Knowledge

Decision

What are the facts? Know the facts as best you can. If your facts are

wrong, you’re liable to make bad choice.

What can you guess about the facts you don’t know? Since it is

impossible to know all the facts, make reasonable assumptions about

the missing pieces of information.

What do the facts mean? Facts by themselves have no meaning. You

need to interpret the information in light of the values that are

important to you.

What does the problems look like through the eyes of the people

involved? The ability to walk in another’s shoes is essential.

Understanding the problem through a variety of perspectives increases the possibility that you will choose widely.


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174

Ethical Reasoning Process

Data

(Facts): Known

Unknown Guessed

Information: Meaning of facts

How the problems look

like (Stakeholder

Management)

Variety of Perspectives:

Co-Involvement (Stretching People)

Value System

Ethical Decision

Knowledge

20-Jun-16


Ethical questions

you should consider

in resolving an

ethical dilemma?

Me

We

World

What will happen if you choose one thing rather than another?

All actions have consequences. Make a reasonable guess as to what will happen if you

follow a particular course of action. Decide whether you think more good or harm come of

your action.

What do your feelings tell you?

Feelings are facts too. Your feelings about ethical issues may give you a clue as to parts of

your decisions that your rational mind may overlook.

What will you think of yourself if you decide one thing or another?

Some call this your conscience. It is a form of self-appraisal. It helps you decide

whether you are the kind of person you would like to be. It helps you live with yourself.

Can you explain and justify your decisions to others?

Your behavior shouldn’t be based on a whim (sudden change or desire of mind). Neither

should it be self-centered. Ethics involves you in the life of the world around you. For

this reason you must be able to justify your moral decisions in ways that seem reasonable

to resonate people. Ethical reasons can’t be private reasons.


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Ethical Reasoning Process

Structure of the

Eight Questions in

Resolving an Ethical Dilemma:

Data

(Facts):

Known

Unknown Guessed

Information:

Meaning of facts

How the problems look

like (Stakeholder Management)

Value System

Ethical Decision

Appraisal:

Rational:

Good Bad

Feeling

Conscience

Justifying to others


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(KNOWLEDGE)


177

Philosophical Approaches – There are two

approaches.

1. Normative or Prescriptive, Ethics.

2. Analytic Ethics or

Metaethics.




178

Normative or prescriptive ethics: Deals with norms (or

standards) and prescriptions.

Human beings should always act in their own self-interest (egoism).

Or they might say, “Human beings should always act in the interest

of others” (altruism),

or “Human beings should always act in the interest of all concerned,

self included” (utilitarianism).

These three conclusions are no longer merely descriptions, bur

prescriptions; that is, the statements are

prescribing how human beings

should behave, not merely describing how they do, in

fact, behave.


179


Meta-ethics, or Analytic ethics: Rather than being descriptive or prescriptive, this approach is analytic in

two ways. First, meta-ethicists analyze ethical language (e.g., what we

mean when we use the word “good”). Second, they analyze the rational

foundations of ethical systems, or the logic and reasoning of various

ethicists.

Metaethicists do not prescribe anything, nor do they deal directly with

normative systems. Instead they “go beyond” (meta-), concerning

themselves only indirectly with normative ethical systems by

concentrating on reasoning, logical structures, and

languages rather than on content.


180


It should be noted here that metaethics, although always used by all

ethicists to some extent, has become the sole interest of many modern

ethical philosophers. This may be due in part to the increasing difficulty

of formulating a system of ethics applicable to all or even most human

beings. Our world, our cultures, and our lives have become more and

more complicated and pluralistic, and finding an ETHICAL

SYSTEM that will undergird all human beings’ actions is a difficult if

not impossible task. Therefore, these philosophers feel that they might

as well do what other specialists have done and concentrate on

LANGUAGE and LOGIC rather than attempt to arrive at

ETHICAL SYSTEMS that will help human beings live

together more MEANINGFULLY and ETHICALLY.


181

Synthesizing the

Different Approaches


Some levels of synthesis of approaches are needed:

By synthesis, it means a uniting of opposing positions (or different

positions) into a whole in which neither position loses itself

completely, but the best or most useful parts of both

are brought out through a basic principle that will to both.

A complete study of ethics demands use of the descriptive, the normative,

and the metaethical approaches. It is important for ethicists to draw on any

and all data and on valid results of experiments from the natural, physical,

and social sciences. They must also examine their language, logic, and

foundations. But it seems even more crucial for ethicists to contribute

something toward helping all human beings live with

each other more meaningfully and more ethically.



182 Provides guidance on what and how to explore our common efforts to understand the phenomenon known as business ethics. The model provides opportunities for further research in the field of business ethics, in order to stimulate debates and contribute further to the field of the discipline.

Philosophical:

Use of Reasons and Logics


Business Ethics

Approach:

Descriptive

Normative

Descriptive – A descriptive summation of the customs,

attitudes, and rules that are observed within a business. As

such, we are simply documenting what is happening.

A normative (or prescriptive) – Evaluation of the degree to

which the observed customs, attitudes, and rules can be said to be

ethical.

Here we are more interested in recommending what should be

happening. In treating ethical study as a normative science, it

becomes a search for an ideal litmus test of proper behavior.

Normative science involves arriving at moral standards that regulate right and wrong conduct.


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Business Ethics

Business ethics provides principles and

guidelines that assist people in making informed choices

to balance economic interests and social responsibilities.

For example:

Tata Steel has five core values which define the

ethics of the company: integrity, understanding, excellence,

unity and responsibility.

These values are evident in everything that it does and drive

the ethical behavior of the company. For Tata Steel, taking

responsibility for tackling the challenges of sustainability

follows naturally from this ethical stance.


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20-Jun-16



Point of View of Business Ethics


187

Philosophical and

Business Points of View

Points of Views of Business Ethics

Philosophical Point of View Business Point of View

Behavioral science,

implying fundamental rules

by which we live our lives

What is good action for

human, i.e. as morally right or wrong.

Important drivers for success in business, i.e.,

competitiveness, ambition, and innovation, but must be

governed by ethical fundamental principles, so the

organization is seen as “taking the right course.”

Acting ethically takes into account all the factors of

doing business, i.e. the value chains, product, process,

people, etc., involving workplace, marketplace.

“How people judge your character” is critical for

“sustainable” success, based on trust and credibility. – Thus, character, reputation, integrity are needed.


Points of Views of Business Ethics

As clear MORAL COMPASS :

to guide LEADERS through complex DILEMMAS

about which is RIGHT or WRONG, and change

BEHAVIORS of STAKEHOLDERS, i.e. consumers (example: Householders)

Develop NEW CREATIVE ETHICS-

DRIVEN APPROACHES, i.e., relations (fair

trade practices) to solve problems and in creating

opportunities for the relevant stakeholders (i.e. shareholders,

customers, communities, environment), novel policies,

programs and initiatives, social innovation.

Has

Competitive and

Sustainability Advantages

Sustainable and Comparably Better Business Performance

Impact and Value

(Worth) to People,

Society (i.e. to meet social

needs in novel, better ways), and

the Environment: Quality of Life, States of Mind, Livelihood

Route to Benefits: an illustration



189

New Creative

Approaches: Social

Innovation

Phills, J.A.,

Deiglmeier, K. and

Miller, D.T. (2008).

Rediscovering

Social Innovation,

Stanford Social

Innovation Review, 6, pp. 34-43.

Social innovation is not only a product, process, or

technology, it can also be a principle, and idea, a piece of legislation, a social movement, an intervention or some combination of them (Phills, Deiglmeier, and Miller, 2008).

Products (e.g. assistive technologies developed for people with disabilities)

Services (e.g. mobile banking)

Processes (e.g. crowd sourcing)

Markets (e.g. fair-trade)

Platform (e.g. new legal or regulatory framework or platforms for care)

Organizational forms (e.g. community interest companies)

Business model (e.g. social franchising, etc.)



190

Householder Behavior

Klockner, C.A. (2013). A Comprehensive Model of the Psychology of Environmental Behavior – A Meta-Analysis, Global Environmental Change, 23, pp. 1028-1038.

Household behavior is the strongest contributor to total energy use and CO2 emissions in most developed countries (Klockner, 2013).

In an analysis of the carbon footprint of 73 nations, Hertwich and Peters (2009) conclude that 72% of all carbon dioxide emissions worldwide are connected to household consumption with FOOD, SHELTER and MOBILITTY as the most important subcategories.

Thus, although individuals in households have varying degrees of FREEDOM, Jundbluth et al. (2000) argue that they can have an important IMPACT by CHANGING their BEHAVIOR, in particular their FOOD CHOICES.

Hertwich, E.G. and Peters, G.P. (2009). Carbon Footprint of Nations: A Global, Trade-Linked Analysis, Environmental Science and Technology, 43, pp. 6414-6420.

Jungbluth, N., Tietje, O., Scholz, R.W. (2000), Food Purchases: Impacts from the Consumers’ Point of View Investigated with a Modular LCA. International Journal of Life Cycle Assessment, 5, pp. 134-142.



191

Impact

Elkington, J.

(2004). Enter the

Triple Bottom Line.

In A. Henriques and

J.A. Richardson

(Eds.), The Triple

Bottom Line: Does

it all add up?

Assessing the

Sustainability of

Business and CSR

(pp. 1-17), London: Earthscan.

John Elkington developed the Triple Bottom Line approach in 1994 in order to unify sustainability conception with business activity (Elkington, 1999; 2004) – to create a sustainable organization: “creates profit for its shareholders while protecting the environment and improving the lives of those with whom it interacts” (Slaper and Hall, 2011). If company is sustainable then it can act more profitably.

Slaper, T.F. and Hall, T.J. (2011). The Triple Bottom Line: What is it and How does it Work? Indiana Business Review, 86(1), pp. 4-8.

Elkington, J. (1999). Triple Bottom Line Revolution: Reporting for the Third Millennium. Australian CPA, p. 69. and p. 75.

Benefits


192

Why study business

ethics?

Keywords: Higher-

Order Purpose and

Value of Business Ethics

Why we need to study business ethics?

Ethics involves you in the life of the world around you.

To make our lives/contributions meaningful, …. A better way to live.

To enable the OTHERS

Without business ethics, our actions should be random and pointless. If we consider a RATIONAL ethical standard, we are able to correctly ORGANIZE the OBJECTIVES and ACTIONS to achieve our most important VALUES. Business ethics for VRI “O”.

Trustworthy and credible CHARACTER, REPUTATION

BENEFITS :

Benefits


193

Mycoskie’s self-reflection: (2015)

Eventually I came to a surprising conclusion:

I felt lost because TOMS had become more

focused on PROCESS than on PURPOSE.

We were concentrating so hard on the

“WHAT” and “HOW” of SCALING UP that

we’d forgotten our OVERARCHING

MISSION, which is to use business to

IMPROVE LIVES. That is our greatest

COMPETITIVE ADVANTAGE: It allows us

to build an EMOTIONAL BOND with

customers and motivate employees, because

they know they are shopping and working for a MOVEMENT bigger than themselves.

Benefits


194

Business of Business Ethics BENEFITS:

Attract customers to the company’s products and services, thus boosting sales and profits.

Increase productivity

Attract more employees who want to work, reduce recruitment costs and allow the company to obtain the most talented employees

Attract investors and keep the company’s shared price high, thereby protecting the business from takeover.


195

Benefits

BENEFITS:

In sum:

Operating ethically contributes a great deal to enhance

the competitive position of the business, expansion of

operations and maximization of shareholder wealth.


196

Disadvantages without Business Ethics

In opposition with these benefits, an unethical behavior or

lack of social responsibility of enterprises can damage a

company’s reputation, and cause wide ranges of RISKS

and CONSEQUENCES to the organization (i.e. wasting

company resources, affecting the fame and reputation of

the organization, losing various clients and business

partners, the disappearance of the company, breaking

laws).

Note: The different facets of risks and consequences are interconnected, one leading to another.


197

Types and Cost of Without BE

Social Dumping- A company is said to be dumping its products on foreign markets if

its prices in those markets are lower than the costs of production. The aim of such predatory pricing is at least to capture greater market shares in competitive markets or at best to drive competitors out of the markets altogether.

Government subsidies may be used in the same way in the interests of domestic producers.

The main differences between the two kinds of predatory pricing practices are that in the subsidies case governments are acting as the agents of businesses and tax payers are covering the costs not covered by market prices, while in the ordinary dumping case businesses are covering their own costs from other business sources, perhaps including higher consumer costs in their home markets.


198


Social Dumping- Social dumping, then, occurs when companies are able to sell their

products in foreign markets with prices below the costs of

production at home because employees of the company (i.e. low

wages or benefits) or local residents (i.e. higher price paid) have

been forced to absorb the losses themselves. Even the low

infrastructure supportable by the government (due to lower amount

of tax paid, as without profit margins) or destruction of

environment, etc.


199


Social Dumping- Example: When a paper and pulp company is able to sell its

products abroad at a profit because it is allowed to treat the

destruction of a river, animal habitat and human health as someone

else’s problem (economists’ externalities), a common species of

social dumping has occurred.



201


Defective Product Recall

Stock market reactions to defective product recall


202


Multinationals with dubious pasts

may find them very difficult to enter

or negotiate into new contracts with host governments.


203


Social Dumping- Example:

Similar reasoning may be applied to companies that are able to sell

their products abroad because they operate with relatively lower than average occupational health and safety standards.


204


Social Dumping- Example:

Governments can also be the agents of social dumping by passing

“right to work” laws that undermine labor unions’ ability to organize

workers in order to collectively press for greater shares of company profits that may have been the result of labor-productivity increases.


205


Currency Exchange Speculation Money that might be used for long-term investment in research and

development (R&D) that might create new wealth in the form of

new goods and services to improve the quality of life of more

people today and in the future is being diverted into short-term speculation.


206


International Monetary Regulatory System

The global world has made the domestic governments

more inability to control the practically instantaneous

shifts of massive funds from one country to another at

the whim of fund managers/owners. We have seen fast

accelerated drops of the stocks valuation in the markets

in China.

Thus, the absence of an adequate international monetary

regulatory system threatens the quality of people’s lives,

ordinary industrial development, and even democracy itself.


207


Third World Debt

Accelerated third world debt – has compounding effect

of high real interest rates and the need to take on new

debt just to service old loans.

In addition, the economic policies imposed on debtors

… have cured nothing at all. They have, rather, caused

untold human suffering, and widespread environmental

destruction, emptying debtor countries of their

resources, rendering them each year less able to service their debts.


208


Tobacco Promotion

Although the tobacco industry products great benefits in

the form of pleasure for its consumers, jobs, wages and

salaries for its workers, dividends for its stockholders,

taxes for governments and social goods and services

paid for out of such taxes, and incomes for the variety of

others engaged in some sort of economic exchange with

members of the industry, it still seems fair to say that the

expected long-run costs to the human community for

continuing its addiction to and dependence on tobacco are greater than the expected long-run benefits.


209


Tobacco Promotion

Thus, need to transit to a tobacco-free society.

Ethical role –

Anything ordinary citizens can do to help them would

be worthwhile.

To increase investments in retraining the workers of

tobacco companies so they have a better chance of

finding alternative employment.

To convert the expertise of the workers of tobacco

companies and other resources to sustainable and even

growing industries.


210


Government Spending

Where to spend the taxes – on roads, sewers, public

buildings, etc., jobs, non-profit housing units, etc.

These choices have serious consequences for business and the quality of people’s lives.


211


Free Enterprise Economy

In theory at least, one of the virtues of free enterprise

economy is its ability to create and distribute wealth to

the masses. But practically, it allows dangerously large

concentrations of wealth to only a few people, none of whom has much interest in the well-being of others.


212


Lobbying

When businesses lobby governments for favorable tax

treatment, their expenses are tax-deductible. When

businesses’ lobbying efforts are successful, then other

taxpayers are beaten a second time because they must

cover any shortfalls resulting from the next tax regime.

Since favorable tax treatment effectively subsidizes the

total cost of bringing a product to market, social

dumping occurs, the market price gives a misleading

signal to potential purchases and consumers are undermined.


213


Corporate Philanthropy

When businesses make tax-deductible contributions to

their favorite charities (creating more government tax-

expenditures), they usually ask for and get special

recognition as generous benefactors, even though the

sums involved are typically lower than the sums they

would have had to pay in a system of taxation that was

not biased in their favor as a result of their lobbying.

In view of this, would it be preferable to increase

corporate taxes and prohibit all forms of corporate philanthropy, or alter changes in the financial system?


214

MNEs


Thus needs some Rules and Regulation. Example: MNEs. As seen

above, we need some ethical rules and regulations.

For instance, there are ethical guidelines for multinational

corporation, i.e. Restrict the MNEs from interfering with the political affairs of the host

countries and suggest that the MNEs have to company with general policy

objectives of the host country;

MNE’s moral obligations towards the socio-economic development of the host

country;

Take note of and apply adaptively to the core values (beliefs that are so

fundamental to MNEs that will not be compromised) and peripheral values (which may be adjusted according to local culture and custom).


215

MNEs


Rules and regulation compliance or creativity boosted by:

Set up ethics committee

The ethics committee, in conjunction with the ethical advisor,

can act as a channel for the spread of ethical awareness within

the corporate and address problems associated with cross-

cultural and ethical issues among subsidiaries.

Full-time services of an Ombudsman

Add an ethical dimension to the various types of training

programs in order to increase concern over the lack of adequate ethics in the multinational business arenas.


216

MNEs



Positive change in the ethical outlook of the organization

(MNEs) can be arrived by reshaping the core assumptions,

norms, climate, and decision processes which take place in the

organization. The presence of cross-cultural thinking and ethics

is an inseparable part of an MNE.

Note that the beliefs and acceptable business norms are varied

from country to country, and this diversity has to be respected.

This makes the diffusion of monolithic corporate culture and

ethics a difficult process. Thus, MNEs need to skillfully integrate the virtues of various cultures.


217

MNEs



Need to widen the scopes of Business Ethics consideration and

understanding:

1) Teleological approaches – focus on the consequences of

actions.

2) Deontological framework – focus on duties or absolute

standards

3) Virtue ethics – on the morality of aspirations.

Note: While the advantages and disadvantages of various

approaches can be debated, their application with organization often appears to result in trade-offs.

BENEFITS (EXAMPLE ON HR)


218

Employee Retention

For instance:

Without business ethics, employee retention drops.

Retention: refers to the organization’s ability to retain qualified employees. Retention implies what is controllable and desirable. It is a proactive concept. Organizations need to retain top talent in good times and in bad and “in managing retention, especially for the pivotal roles and A-list players.” Value to the organization is enhanced when it engages in improving retention. Value for organization is gained by reduced recruiting costs, reduced training costs, less supervisory time required, and, in general, improved quality, innovation, productivity, and service. Employees leave an organization voluntarily because of poor behavior and lack of trust in their supervisors, the perceived lack of advancement opportunities, and the stress (quality of life) involved in work/life balance.



219

Retention Retention – Effective retention programs that are planned

collaboratively with the performance practitioners and the talent manager focus on supervisory training, career management, and stress reduction. There are several predictors of retention:

Overall job and work satisfaction

Organization commitment

Quality of the leader and member relationship

Clarity of role

Person-to-job fit – how well employees’ skills and interests are matched to job requirements

Level of conflict (this could also be conflict within or across groups)

The extent to which one is embedded in the community, such as social, religious, hobby, or political activity.

Job search intentions.



220

Retention

Many retention drivers:

Job security

A safe working environment

Comprehensive compensation and benefits

Culture and work unit that meets their affiliation needs

Work flexibility

Interesting at work

Decision-making opportunities

Growth and ability to get ahead



221

Retention

Responsiveness to solve the retention issues:

Describe to job applicants how the organization recognizes long service?

Track turnover by department?

Track turnover by location?

Track turnover by employee performance and potential so as to monitor the percentage of high-potentials leaving the organization?

Communicate turnover figures widely in the organization, focusing attention on ways to reduce it?

Track absenteeism by department, since absenteeism is a “leading indicator” (advance warning indicator) of future turnover?

Track absenteeism by location>

Track absenteeism by employee performance and potential so as to monitor the percentage of high-potentials who may be about to leave the organization?

Communicate absenteeism figures widely in the organization, focusing attention on ways to reduce it?



222

Retention

Responsiveness to solve the retention issues: Recognize employees with long service with the organization?

Recognize managers whose employees have long service with the organization?

Encourage employees with long service records in the organization to refer prospective job applicants who are also likely to become long-service employees?

Conduct regular attitude or climate surveys in the organization, focusing attention on identifying problems that can lead to turnover and addressing them?

Hold employee focus groups periodically to identify reasons for employee turnover and address them?

Hold manager focus groups periodically to identify management-supported ideas to encourage longevity/discourage turnover?



223

Retention

Responsiveness to solve the retention issues: Conduct regular exit interviews with departing employees to

discover why they are leaving?

Conduct performance appraisals of departing employees so that the quality of workers leaving the organization can be specifically monitored?

Conduct interviews with long-service employees to discover why they stay with the organization?

Examine the organization’s pay practices to ensure that outstanding performance is recognized as quickly as possible?

Examine the organization’s bonus plans and reward programs to ensure that managers are rewarded or recognized for encouraging employee retention?



224

Retention


Take action to dispel the misconception that investments in employee training lead to higher turnover when, in fact, research reveals that training is an employee retention strategy because it builds employee loyalty?

Experiment with innovative reward systems, including both pay and alternative rewards, to encourage employee retention and discourage employee turnover (for example, annual retention bonuses)?

Provide employee benefits that encourage retention but discourage turnover (such as tuition reimbursement that is forgiven as more length of service is accumulated)?

Provide a planned employee orientation program that mentions the importance of long-service employment to the organization?



225

Retention

Responsiveness to solve the retention issues: Provide planned employee socialization programs (such as peer

mentors) that make workers feel welcome in the organization?

Train managers on how to make new hires feel welcome?

Train managers on how to show appreciation on periodic basis to long-service workers for their longevity with the organization?

Train workers on how to show appreciation on a periodic basis to long-service workers for their longevity with the organization?

Provide employee training periodically, in a way that compares favorably to other organizations in the industry, to keep workers current in their jobs and fields/occupations?

Use spot bonuses to show appreciation for instances in which individual employee performance goes “above and beyond the call of duty”?



226

Retention


Make clear to whom employees should go for help and counseling when they experience personal problems such as legal, marital, drug-related, alcohol-related, or other personal problems (for example, a widely publicized employee assistance program)?

Make clear to whom employees should go for help and counseling before they decide to resign from the organization (that is, an early warning system to try to avoid turnover before it occurs)?

Reduce or eliminate waiting periods for benefits’ eligibility, since that may encourage turnover?

Make career planning programs available to workers, showing qualifications required to qualify for advancement?

Base employee benefits, in part, on longevity with the organization?

Base employee promotion decisions, in part, on longevity with the organization?

Provide financial support for child care?

Provide time off, or without pay, for child care?



227

Retention


Provide essential personal services, such as dry cleaning services, on site with or without company financial support?

Provide personal services, such as retirement or financial planning, on site with or without company financial support?

Provide alternative rewards, such as stock options or purchase plans (with or without company financial support)?

Provide opportunities for paid or unpaid sabbaticals?

Provide opportunities for employee tuition reimbursement?

Provide opportunities for rotation experiences?

Encourage employee task forces to identify programs to reduce employee turnover?

Provide opportunities for flex-time work?

Provide opportunities for flex-place work?



228

Retention


Relax formal dress codes in favor of relaxed dress for employees?

Allow redeployment (applications for alternative employment in the organization) in the event of downsizings or other reductions in force?

Allow employees the opportunity to increase their income if they wish through voluntary overtime?

Work to reduce or eliminate mandatory overtime?

Train supervisors, managers, and executives on how to demonstrate effective competencies in working with employees (such as how to coach, counsel, etc.)?

Provide regular performance appraisals that balance discussions of “what to fix” with “what employees are doing well and right”?

Encourage supervisors and managers to provide daily positive feedback to workers about their work?

Encourage workers to provide daily positive feedback to co-workers about their work?



229

Retention

Responsiveness to solve the retention issues: Encourage celebration of employees’ personal events (birthdays,

anniversaries, and others)?

Use formal, written contracts with employees to specify employment periods?

Hold meetings between management and non-management workers to discuss issues facing the organization so that workers understand key issues influencing their future employment prospects?

Encourage senior managers to “manage by walking around” and take action on employment practices that they notice that may influence employee retention?

Encourage senior managers to work side-by-side with workers at least one day per year so that they experience working conditions first-hand?



230

Retention


Open the books to show the organization’s financial condition to workers?

Focus suggestion systems around ways to improve retention, providing (for instance) higher rewards for new ideas that slash turnover?

Encourage “town hall” meetings between senior managers and workers to surface concerns and send the message that management listens – and acts on – worker concerns?

Identify and use a pool of contingent workers, such as retirees, so that regular workers can meet work/life balance priorities as they need to?

Find compelling ways to show how the work that each employee performs contributes to the organization’s mission, such as annual reports for each worker that facilitate that discussion and provide a structure for management to provide that feedback?

Give employees the opportunity to work on community projects during work time if they so desire?



231

Retention


Permit employees to purchase the organization’s products or services at special discounts?

Give employees financial or non-financial support for relocations, even when not organizationally related?

Give employees access to spiritual/religious help/counseling during work time?

Celebrate diversity of all kinds, including differences in outlook?

Encourage social relationships, such as organizational picnics, without forcing employees to participate if they do not wish to do so?

Encourage the use of appropriate humor to reduce stress and improve the quality of work life?

Allow workers freedom in how they do their work so long as they accomplish results in legal, moral, and ethical ways in line with the organization’s policies?



232

Retention

Responsiveness to solve the retention issues: Take steps to compare the organization’s pay, benefits and

other employment features to competitors’ and take steps to equal or surpass them?

Take special steps to encourage retention of employees within the first three years of employment, since most-recent hires are at greatest potential for loss? (The rule is usually “last in, first out” because new hires still have their resumes floating and they have the least emotional investment with their current employer).

Take steps to ensure that individuals are treated consistently and managers are not accused of undue favoritism for reasons other than productivity?



233

Retention

Responsiveness to solve the retention issues: Monitor individuals’ personal situations, taking steps to address

issues that may lead to turnover (such as spouse who is forced to move or care giving concerns)

Take special steps to identify high-potential workers early in their job tenure with the organization and improve their retention?

Take steps to encourage the turnover of workers whose productivity is not adequate?

Provide real rewards for worker success and not give truth to the old saying that “the reward for outstanding performance is not more pay or a promotion but more and harder work”?

Encourage managers to monitor the workload of all workers to ensure that some people are not overworked while others escape work?



234

Retention


Make a decided effort to monitor research and best practices on employee retention and apply the results of that research and best practice?

Consider the track record of managers in employee development explicitly when considering their own promotability?

Consider the track record of managers in employee retention explicitly when considering their own promotability?

Conduct an annual review of each department and location, reporting on their turnover rates and reporting those to all senior managers on a regular basis?

Include information about the cost of turnover and organizational efforts to reduce turnover in the organization’s communication efforts with employees?

Include information about the cost of turnover and organizational efforts to reduce turnover in the organization’s training efforts with employees?



235

Retention

Responsiveness to solve the retention issues: Display charts of turnover by department and location prominently

in those departments or locations?

Survey managers periodically on how the organization’s policies and practices could be changed to encourage retention more effectively?

Target areas of the organization with the highest turnover for special programs/management attention and action?

Monitor how the turnover of special groups (such as women, minorities, and other protected class workers) compares to general organizational turnover and take steps to address higher turnover with special groups?

Communicate with customers, investors, suppliers, and distributors about the organization’s efforts to reduce turnover and the results secured from those efforts?



236

Health and Wellness

Another Example:

Health and Wellness – Health and wellness

programs are organization-sponsored initiatives that

focus on health promotion (life style changes), health

protection (prolonging life), and prevention

(preventing disease). Wellness programs focus on the

employee’s total physical and mental condition.



237

Health and

Wellness

Key words:

Employee

Assistance Programs (EAPs)

Good health among employees translates into productive work environments and influence the culture of the organization.

Employee assistance programs (EAPs) are available “to deal with a wide range of stress-related problems, both work and non-work related, including behavioral and emotional difficulties, substance abuse, family, and marital discord, and other personal problems.”

Employee assistance programs include diagnosis, treatment, screening, and prevention. Wellness programs “identify and assist in preventing or correcting specific health problems, health hazards, or negative health habits … such programs are those emphasizing hypertension identification and control, smoking cessation, physical fitness and exercise, nutrition and diet control, and job and personal stress management.” Wellness programs at Johnson & Johnson “cumulatively saved the company $250 million on health costs over the past decade.



238

Health and Wellness

Workplace Implementation – Health and wellness programs are inextricably linked to corporate culture because they are extensions of benefit packages, robust recruitment efforts to capture the talent mindsets, and retention efforts. The performance improvement practitioner works with the talent management division to plan, design, develop, and implement health and wellness programs that educate and instruct employees on health-related issues (workplace health and safety classes, health screening, and so forth) that modify or alter behavior (smoking cessation programs, including second and third-hand smoke, physical fitness classes, and so forth); that create an organizational environment that helps employees maintain health lifestyles (specific programs that combine educational, personal, and organizational value).



239

Health and Wellness

The performance practitioner who is skilled in

evaluation offers strength in developing and

evaluating instruments from health status and risk

factors data. The practitioner can also monitor key

performance indicators or impact measurements like

absenteeism, turnover, retention, costs, productivity,

accident frequency and severity rates, medical

expenses, defects, rework, stress reduction, and so forth.



240

Retirement Planning

Retirement planning: Retirement is a life event, a time of transition and change. Retirement

is changing, so are the words we use to describe it. The new words for retirement are embedded in a lexicon of Rs: reorientation, recommitment, reinvention, re-involvement, regeneration, renewal, redirection, rethinking, revitalizing, reinvestigation, replenishment, re-exploration, re-deciding, and more. “Retirees and seniors are now rebounders, perimeters, or re-careerers. In short, the term retirement is being retired, or at least redefined.

Retirement challenges your identity, changes your relationships, and may leave you feeling rootless if you have no purpose. However, having an adequate income, role models to follow, a healthy self-concept with a proactive approach to life, and mattering to the community can help individuals adjust.


How to Influence Business Ethics Behaviors


242

So: Why Study

Business Ethics?

Virtue influenced

by Subjective

Norms

Deontological

ascription of

ethical

responsibility

Utilitarianism

Awareness of

Consequences

of Good and

Bad Business Ethics

Ascription of Responsibility

Subjective Norms

Perceived

Behavioral Control

Personal Norms

Strategies Behavior

Schwartz and Howard (1981)

Behavioral Intention

Attitude

Ajzen (1991)

Tan (2016)

Beliefs:



243

The Norm-

Activation-Theory

(NAT):

Schwartz and

Howard (1981)

Has initially been

developed

specifically for one

type of behavior,

namely altruism

and helping behavior.



244

Ajzen, I. (1991).

The Theory of

Planned Behavior.

Organizational

Behavior and

Human Decision

Processes, 50, pp. 179-211.



245

Extended Theory of

Planned Behavior - Tan et al. (2015)



246

Activated Personal Norm

Schwartz and Howard (1981) – introduces the

activated personal norm. This personal norm,

which is the reflection of the personal value system in a given situation, has to be activated before becoming relevant as a determinant of behavior. To activate a norm, four conditions have to be fulfilled:

(1) A person needs to be aware of the consequences

(2) A person needs to accept responsibility for his or her action

(3) A person has to perceive him- or herself as capable of performing the helping action

(4) Aware of the need.



247

What Business Ethics Does? What business ethics does?

Business ethics concerns the systematic, value-

based reflection by managers, traditionally

individually but increasingly in collective

settings, on the moral significance of personal

and organizational business action and its

consequence for societal stakeholders. Moral

reflection is central to the business ethics concept.



248

Learning is easier if the personal self-esteem is not threatened, and external pressures must be dramatically decreased.

Individual and collective effort to help improve reflective observation – Being a conscious organization.

Concrete Experience (Feeling)

Abstract

Conceptualization:

Generalization (Thinking)

Reflective Observation (Watching)

Active Experimentation (Doing)

Doing is believing:


Scopes of Business Ethics


250

Stephan R. Covey (2006). The 8th Habit: From Effectiveness to Greatness

In today’s challenging and complex world, being highly effective is the price of entry to the playing field. To thrive, innovate, excel, and lead in this new reality, we must reach beyond effectiveness toward fulfillment, contribution, and greatness. Tapping into the higher reaches of human motivation requires a new mindset, a new skill-set – the 8th Habit.


251

20-Jun-16

Scopes of Business Ethics Management



system :

rightly directs its efforts

on the firm’s resources

and capabilities because

inefficient accumulation

and deployment of these

resources and capabilities

are the key costs of agency

problems.

be agency integrity

strategy effectiveness –

firm must undertake

competitive actions to

achieve economic gains

sustainably

social value driven

disciplinary system and

attitude

risk and crisis handling

compliance and performance accountability



254

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Throughout its history Apple has

understood what other corporates have

not: The customer doesn’t care if

you are innovative, he or she

cares if you make his or her

life better.


Value-based

Moral

Reflection and

Choice

concerning

individual and

organizational behaviors

CSR1 : Corporate Social

Responsibility as

Motivating

Principles:

Obligation

Accountability

Normative

Principles

Issue-Oriented and

sustainability (3P)

concern with

specific products or

consequences of

corporate actions.

Strategic

Orientation:

Change the Game,

Social Innovation

CSR2: Corporate Social

Responsiveness.

(Process) Company

actually develops

and implements

approaches,

procedures, policies,

and practices by

which the firm scans

the environment and

receives pertinent

information about

the environment,

stakeholders, and

issues or public

affairs, which is

used for decision

making purposes, to

implement CSR1. Business Model

CSR3: Corporate social

rectitude: Character

Rectitude, Policy

and Program

Integrity:

Institutionalization

of ethical processes

and behaviors /

social policy

processes.

Cause branding

Ethical brand

resulted from

CSR2

CSP: Observable

Outcomes,

Impacts and

Evidences:

Performance

Results of CSR1,2,3

Ethical Theories

Ethical Theories

Value-based

Moral

Reflection and

Choice concerning

individual and

organizational behaviors

Universal Ethics - Deontology Ethics for the Greater Good - Utilitarianism

Virtue Ethics (Being: What sort of person should I be or become?)

Normative: What should I do?


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What is right is good

for the people. What is good is right for

the people.

For

Whose

Sak

e


Example of CSR1


Cause branding represents a longer-term commitment than

cause-marketing (the term cause-related marketing was coined by the

American Express Company to describe a program it began in 1983 in which

it agreed to contribute a penny to the restoration of the Status of Liberty every time a

customer used one of its credit cards to make a purchase. The project generated $1.7

million for the statue restoration and a substantial increase in usage of the American

Express card.) . It also relates more directly to the firm’s line of business and the target audience.

http://www.google.co.th/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjXo4ny17PKAhUQJI4KHa7kA88QjRwIBw&url=http://www.beauty2makeup.com/blog/avon-pink-ribbon/&psig=AFQjCNEI7HqWEvdrmjuJibdCfLGhdwtg7w&ust=1453217603183364


Avon Products, Inc., has

become a recognized leader in cause

branding. Its target audience is women,

and so it has developed an array of

programs to raise awareness of breast

cancer, a disease that mostly affects

women. The company raises money for

programs that provide low-income

women with education and free

screening. Avon sells products

featuring the pink ribbon that is worn

for breast cancer awareness and then

donates the proceeds from these

products to nonprofit and university programs.



262

References:

Epstein, E.M. (1987), The Corporate Social Policy Process: Beyond Business Ethics, Corporate Social Responsibility, and Corporate Social Responsiveness, California Management Review, XXIX (3), pp. 99-114.

Wood, D.J. (2010), Measuring Corporate Social Performance: A Review, International Journal of Management Reviews.

Responsiveness


Virtue (Character)

Performance

Rectitude: The integrity character , Overall CSR1, CSR2 images



263

Wartick, S.L. and

Cochran, P.L.

(1985), The

Evolution of the

Corporate Social

Performance

Model, Academy of

Management

Review, 10, 758-

769.

Keywords: A

General Model of CSP.

Additional Reference: Wartick and Cochran (1985) published their integrative

paper on CSP, building on Carroll’s work (1979) and attempting to construct a general model of CSP. They defined:

CSP model as “the underlying interaction among the principles of social responsibility, the process of social responsiveness, and the policies developed to address social issues” (1985: 758). The three facets of Wartick and Cochran’s (1985) CSP model are intended to address (1) motivating principles, (2) behavioral processes, and (3) observable outcomes of corporate and managerial actions relating to the firm’s relationships with its external environment.



264

Wood, D.J. (2010),

Measuring

Corporate Social

Performance: A

Review,

International

Journal of

Management Reviews.

CSR2: A set of or stages of responsive actions, and decision-

making processes, to address the current, emerging and potential issues and problems that (may) have both negative and positive consequences to the corporation, which aligns with and in support of organizational policies and practices.

Environmental scanning – gather information needed to understand and analyze the firm’s social, political, legal, and ethical environments.

Stakeholder management – active and constructive engagement in relationships with stakeholders.

Issues and public affairs management – a set of processes that allow a company to identify, analyze, and act on the social, political, or business related issues (i.e. products and services, and processes) that may affect it significantly.


265 CSR2


Issues management can be employed to

track public interest in, for instance, natural

environment issues, and to develop and implement

plans to attempt to ensure that the scope of

environmental problems is minimized and that the

firm develops effective responses at each stage of the

life cycles of environmental issues.

Environmental issues can be developed as part of

the environmental impact statement process or as

part of the strategic planning in macro-environmental; analysis process.


Issue Management Process

6-Step Issue

Management Process

Step1: Environmental scanning and issues identification

Step 2: Issues analysis

Step 3: Issues ranking and prioritizing

Step 4: Issues resolution strategizing

Step 5: Issues response and implementation

Step 6: Issues evaluation and monitoring


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Issues Conventional Approach (Narrowly

Focused):

Issues fall within the domain of

public policy or affairs

Issues typically have a public policy

or affair or favor

An issue is any trend, event,

controversy, or public policy

development that might affect the

corporation

Issues originate in social or

political or regulatory or judicial environments.

Strategic Management

Approach (Broad Approach):

Issues more important

than it is in the

conventional approach

Business strategy nature

Capable to turn around a

business

New business models New capabilities


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Issues Emerging and Awareness

Issues Emerging and

Awareness: 1. A felt need arises (from

emerging events,

advocacy groups, books,

movies)

2. Media coverage is

developed.

3. Interest group

development gains

momentum and grows.

4. Policies are adopted by

leading political jurisdiction

(cities, states, counties).

5. The federal government

gives attention to the issue

(hearings and studies).

6. Issues and policies evolve

into legislation and

regulation.

7. Issues and policies enter litigation.


269 Step1: Environmental scanning and

issues identification

Step 2: Issues analysis

Step 3: Issues ranking and

prioritizing

Step 4: Issues resolution strategizing

Step 5: Issues response and

implementation

Step 6: Issues evaluation and monitoring

20-Jun-16

Issue Life Cycle Development

4 Stage of Issue

Life Cycle Development:

1. Social expectations and awareness –

social discussion and debate, interest

group attention

2. Political awareness – media

attention, legislation initiated, hearings

held.

3. Legislative engagement – law

passed, legal involvement, regulations

enacted.

4. Social control and litigation –

compliance issues, legal conflict, court rulings


270 Issues Emerging and

Awareness: 1. A felt need arises (from

emerging events,

advocacy groups, books,

movies)

2. Media coverage is

developed.

3. Interest group

development gains

momentum and grows.

4. Policies are adopted by

leading political jurisdiction

(cities, states, counties).

5. The federal government

gives attention to the issue

(hearings and studies).

6. Issues and policies evolve

into legislation and

regulation.

7. Issues and policies enter litigation.

20-Jun-16

Issues and Crisis

Issue and Crisis Similarly, for Issues in the stakeholder environment:

Firms uses issues management to assist them in planning

for and preventing crisis that then requires crisis

management.

This is because many crises are embedded in issues or

erupt from issues that could have been anticipated in carefully designed issues management processes.

Issues Management Crisis Management


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Crisis

Crisis Crisis:

A crisis is an extreme event that may threaten your very existence. At the

very least, it causes substantial injuries, deaths, and financial costs, as well

as serious damage to your reputation.

Or, an organizational crisis is a low-probability, high-impact event that

threatens the viability of the organization and is characterized by ambiguity

of cause, effect, and means of resolution, as well as by a belief that

decisions must be made swiftly.

Example: Consider the classic “tunagate” case with StarKist Foods, then a

subsidiary of H.J. Heinz Co. but now a wholly owned subsidiary of the

Dongwon Group, faced a management crisis, by keeping silence to an

accuse of the Canadian Broadcasting Corporation:

The company is shipping one million cans of rancid and de-composting tuna.

Market share and revenues plunged by 90 percent. StarKist survived though they had to

pull out of Canada due to the loss in market share.


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Crisis

Crisis Crisis:

A variety of situations leave companies vulnerable to crises. These

include:

Industrial accidents, natural disasters, product tampering,

environmental problems, union problems, or strikes, product

recalls, investor relations, hostile takeovers, rumors or media

leaks, government regulatory problems, acts of terrorism, and

embezzlement.


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Crisis

Crisis Crisis:

Crises may be grouped into 7 families:

Economic crises – Recession, hostile takeovers, stock market

crashes

Physical crises – Industrial accidents, product failure, supply

breakdown

Personnel crises – Strikes, workplace violence, exodus of key

employees

Criminal crises – Product tampering, kidnappings, and acts of

terrorism

Information crises – Theft of proprietary information, cyber-attacks.

Reputational crises – Rumormongering or slander, Logo tampering.

Natural crises – Earthquakes, Floods, Fires.


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Crisis Management Phases

Four crisis

management stages:

According to

this model, a

crisis consists of

4 stages.

Judgment and

observation are

required to

manage these stages.

Stage 1:

Pre-crisis

Prodromal Stage

Warning: Symptoms

Stage 2:

Crisis occurs

Acute Stage

Point of no return

Stage 3:

Lingering

Chronic Stage

Clean-up Stage Self-doubt, self-analysis

Stage 4:

Health restored

Conflict resolution stage

Return to normalcy

The prodromal stage is the warning stage. If this stage is not recognized

or does not actually occur, the second stage (acute crisis) can rush in,

requiring damage control. Clues in the prodromal stage must be carefully observed.


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Four crisis

management stages:

Stage 1:

Pre-crisis

Prodromal Stage

Warning: Symptoms

Stage 2:

Crisis occurs

Acute Stage

Point of no return

Stage 3:

Lingering

Chronic Stage

Self-doubt, self-analysis

Stage 4:

Health restored


Return to normalcy

In the second stage, acute crisis, damage has been done. The point here is

to control as much of the damage as possible. This is most often the shortest of the stages.


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Four crisis

management stages:

Stage 1:

Pre-crisis

Prodromal Stage

Warning: Symptoms

Stage 2:

Crisis occurs

Acute Stage

Point of no return

Stage 3:

Lingering

Chronic Stage


Stage 4:

Health restored


Return to normalcy

The third stage, chronic stage, is the clean-up phase. This is a period of

recovery, self-analysis, self-doubt, and healing. Congressional

investigations, audits, and interviews occur during this stage, which can

linger indefinitely. Companies that did not have a crisis management

plan could stay in this stage 2-3 half times longer than those who had plans.


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Business Ethics

Four crisis

management stages:

Stage 1:

Pre-crisis

Prodromal Stage

Warning: Symptoms

Stage 2:

Crisis occurs

Acute Stage

Point of no return

Stage 3:

Lingering

Chronic Stage


Stage 4:

Health restored


Return to normalcy

The final stage, crisis resolution, is the crisis management goal. The key

question here is: What can I do to speed up this phase and resolve this crisis once and for all?


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Crisis Response

Five phases of

corporate social

response to crisis

related to unsafe

products, or product crisis management.

Reaction Defense Insight Range Accommodation Agency

Not all executives involved in unsafe product crises respond the same way to the

public, media, and other stakeholders. This approach can be used to examine and

evaluate the moral responsibility of corporate responses to crises.

The reaction stage is the first phase when a crisis has occurred. Management lacks

complete information and time to analyze the event thoroughly. A public reaction

that responds to allegations about the product and the crisis is required. This stage

is important to corporations, because the public, the media, and the stakeholders

involved see for the first time who the firm selects as its spokesperson, how the

firm responds, and what the message is.

Source: Carroll, A. (1977), A Three-Dimensional Conceptual Model of Corporate Performance, Academy of Management Review, 4(4), pp. 502.


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ACT REMOVE

EVIDENCES

PU

T T

HIN

GS

INT

O P

ER

SP

EC

TIV

E A

ND

IMP

RO

VE

D

Crisis Response

Corporate social response phases:


The second stage, defense, signals that the company is overwhelmed by public

attention. The firm’s image is at stake. This stage usually involves the company

recoiling under media pressure. But this does not always have to be a negative or

reactive situation.

The third stage, insight, is the most agonizing time for the firm in the controversy.

The stakes are substantial. The firm’s existence may be questioned. The company

must come to grips with the situation under circumstance that have been generated

externally. During this stage, the executives realize and confirm from evidence

whether and to what extent their company is at fault in the safety issues of the product in question.


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Crisis Response

Corporate social response phases:


In the fourth stage, accommodation, the company either acts to remove the product

from the market or refutes the charges against product safety. Addressing public

pressure and anxiety is the task in this stage.

During the last stage, agency, the company attempts to understand the causes of the

safety issue and develop an educational program for the public.

To use this approach for analysis, observe newspaper and media reports of

industrial crises. Apply this model and compare how company executives and

spokespersons handle crises. Take special note of how companies respond morally

to their different stakeholders. Observe the relative amounts of attention companies

give to consumers, the media, and government stakeholders.

Notice who the company chooses as its spokesperson. Determine how and why the company is assuming or avoiding responsibility.


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282


Stakeholder management applies to

environmental management in that environmental

stakeholders and their stakes can be identified,

including the environmental public, environmental

regulators, environmental groups, and various

entities (human and non-human) across the entire

natural environment. The follow-up stages of

stakeholder management (i.e. planning for and

interacting with stakeholders) can then be conducted

so that each important environmental stakeholder is given adequate attention after it is identified.


283

CSR2


Effective stakeholder management:

Stakeholder thinking – the process of always reasoning in

stakeholder terms throughout the management process, and

especially when organizations’ decisions and actions have

important implications for others.

Developing a stakeholder culture – is a major factor supporting

successful stakeholder management. Stakeholder culture

embraces the beliefs, values, and practices that organizations

have developed for addressing stakeholder issues and

relationships.

Improving stakeholder management – three levels


284

CSR2


Improving Stakeholder Management: Level 1 – Rational level – The first level entails the company

identifying who their stakeholders are and what their stakes happen to be. This is the level that would enable management to create a stakeholder map.

Level 2 – At the process level, organizations go a step further than Level 1 and actually develop and implement approaches, procedures, policies, and practices by which the firm may scan the environment and receive pertinent information about stakeholders, which is used for decision making purposes. An applicable stakeholder principle is constantly monitoring and redesigning processes to better serve stakeholders.


285

CSR2


Improving Stakeholder Management: Level 3 – The Transactional Level – is the highest and most

developed of the three levels. This is the highest goal for stakeholder management – the extent to which managers actually engage in transactions (relationships) with stakeholders. At this highest level of stakeholder management, management must take the initiative in meeting stakeholders face to face and attempting to be responsive to their needs. The transactional level may require actual negotiations with stakeholders. Level 3 is the communication level, which is characterized by communication proactiveness, interactiveness, genuineness, frequency, satisfaction, and resource adequacy. Resource adequacy refers to the management actually spending resources on stakeholder transactions. Regarding stakeholder communications, a relevant principle is that business must engage in intensive communication and dialogue with (all) stakeholders, not just those we are friendly.


286

CSR2


Strategic Steps toward successful stakeholder management: Governing philosophy – Integrating stakeholder management into the

firm’s governing philosophy. Boards of directors and top management groups should move the organization from the idea of “shareholder agent” to “stakeholder trustee.” Long-term shareholder value, along with sustainability, will be the objective of this transition in corporate governance.

Values statement – Create a stakeholder-inclusive “values statement,” i.e. emphasizes integrity, honesty, and accountability to customers, shareholders, partners, and employees.

Measurement system – Implement a stakeholder performance measurement system. Such a system should be auditable, integrated, and monitored. Measurement is evidence of serious intent to achieve results, and such a system will motivate a sustainable commitment to the stakeholder view.


287

CSR2


Implementation of stakeholder management:

The key to effective stakeholder management is in its

implementation. CSR is made operable when companies

translate their stakeholder dialogue into practice. The company

can make the implementation of CSR and using stakeholder

management as a core competence. If this happens, stakeholder management gains expanded recognition.



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CSR2

Responsiveness Example:

CSR2 Responsiveness:

Example: An activity as value-added or non-value-

added on the basis of whether an activity directly

supports corporate objective, embracing 3P principles,

and providing value to the internal and external

customers and 3P stakeholders. Non-value-added

activities in terms of failure to meet internal and external customers/3P stakeholder requirements.

Stakeholder Diagnostic

A diagnostic typology of organizational stakeholders show 2 dimensions: potential for threat and potential for cooperation. Note that stakeholders can move among the quadrants, changing positions as situations and stakes change. S

takeh

old

er’s

Pote

nti

al f

or

Cooper

atio

n

wit

h O

rgan

izat

ion

High

Low

High Low

Type 4: Type 1:

Mixed Blessing Supportive

Strategy: Strategy:

Collaborative Involve

Type 3: Type 2:

Non-Supportive Marginal

Strategy: Strategy: Defend Monitor

Stakeholder’s Potential for Threat to Organization


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Stakeholder Diagnostic:

The ideal strategic situation for the focal corporation is type 1, the

supportive stakeholder with a low potential for threat and high

potential for cooperation. Here the strategy of the focal company is to

involve the supportive stakeholder. Think of both internal and

external stakeholders who might be supportive and who would be

involved in the focal organization’s strategy, such as employees,

suppliers, board members, the parent company, and vendors.

In contrast, there is type 3, the non-supportive stakeholder who

shows a high potential for threat and a low potential for cooperation.

The suggested strategy in this situation calls for the focal

organization to defend its interests and reduce dependence on that stakeholders. Examples: Federal government, state government.


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Stakeholder Diagnostic:

A type 4 stakeholder is a “mixed blessing,” with a high potential for

both threat and cooperation. This stakeholder calls for a collaborative

strategy. In this situation, the stakeholder could become supportive

or non-supportive. Collaborative attempts to move the stakeholder to

the focal company’s interests is the goal. Example: Many customers

and employees.

Finally, type 2 is the marginal stakeholder. This stakeholder has a low

potential for both threat and cooperation. Such stakeholders may not

be interested in the issues of concern. The recommended strategy in

this situation is to monitor the stakeholder, to “wait and see” and

minimize expenditure of resources, unless and until the stakeholder moves to a mixed blessing, supportive or non-supportive position.


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Stakeholder Interests

Stakeholder

Interests:

Not every

stakeholder will

be relevant in

every business

situation – i.e.

not all

companies use

wholesalers to

deliver their

products or

services to their customers.

Me-We-World:

Stockholders or shareholders – growth in the value of company stock and

dividend income.

Employees – Stable employment at a fair rate of pay, a safe and comfortable

working environment.

Customers – Fair exchange: A product or service of acceptable value and quality

for the money spent, safe and reliable products.

Suppliers and vendor partners – Prompt payment for delivering goods, regular

orders with an acceptable profit margin.

Retailers and wholesalers – Accurate deliveries of quality products on time and at

a reasonable cost.

Federal government – Tax revenue, operation in compliance with all relevant

legislation.

Creditors – Principal and interest payments, repayment of debt according to the

agreed schedule.

Community – Employment of local residents, economic growth, and protection of the local environment.


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Stakeholder Interests

Stakeholder impact

from unethical behavior:

Me-We-World:

Stockholders or shareholders – False and misleading information on which to base

investment decisions, loss of stock value, cancellation of dividends.

Employees – Loss of employment, not enough money to pay severance packages

or meet pension obligations.

Customers – Poor service quality

Suppliers and vendor partners – Delayed payment for delivered goods and

services, unpaid invoices when the company declared bankruptcy.

Federal government – Loss of tax revenue, failure to comply with all relevant

legislation.

Creditors – Loss of principal and interest payments, failure to repay debt

according to the agreed schedule. Community – Unemployment of local residents, economic decline.


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295

Post, J.E. (1991),

Research in

Corporate Social

Performance and

Policy, Vol. 12,

Greenwich, CT: JAI Press.

CSP Evidences: CSP disclosures

CSP reputation ratings

Social audits, CSP processes, and observable outcomes

Assesses Managerial CSP Principles and Values (Post, 1991) inherent in a company’s CULTURE.


Example: Take CSR1 to Stakeholders Strategically

Factor Conditions: There are the available inputs for productions.

DreamWorks created a program that provides training to low-income and

disadvantaged youth in the skills needed to work in the entertainment industry. While

providing these social benefits, DreamWorks also enhances the labor pool from which

they can draw. This not only strengthens the company but the industry as a whole as well.



Factor Conditions: There are the available inputs for productions.

The Clorox example of improving the community surrounding their headquarters

through partnership with the community foundation also addresses factor conditions by improving the general quality of life and the local infrastructure.



Demand Conditions: These are concerned with the nature of the company’s customers

and the local market.

Apple’s long-held policy of donating computers to public schools. By introducing

young people and their teachers to computers, Apple expands their market. They also

increase the sophistication of their customer base, which benefits a differentiated product such as the ones Apple sells.





Burger King focuses its philanthropic efforts on highly focused programs to help

students, teachers, and schools. This program enhances name recognition in its target population of consumers.





Whole Foods has developed a strategic philanthropic program that affects both

factor and demand conditions, enabling the company to reap benefits along the length

of the value chain.

In the factor market, Whole Foods has designed a system for sourcing products

from developing countries while maintaining product standards. It developed a strict

set of criteria for its suppliers to adhere to and contracted with TransFair USA and the

Rainforest Alliance, two respected third-party certifiers, to ensure the suppliers met

these criteria. These certified products receive a Whole Trade logo so that customers

know which products come from the developing world and meet the criteria. Its

customers value these attributes and so Whole Foods’ demand conditions also improve as a result of their efforts.




Example: Take CSR1 to

Stakeholders Strategically

Context for Strategy and Rivalry.

Companies supporting

Transparency International as

examples of firms using

philanthropy to create a better

environment for competition.

Transparency International’s

mission is to deter and disclose

corporate corruption around the

world. The organization measures

and publicizes corruption while

pushing for stricter codes and

enforcement. By supporting

Transparency International,

corporations are helping to build

a better competitive environment

– one that rewards fair competition.



Related and Supporting Industries.

These can also be strengthened through strategic philanthropy, thereby enhancing

the productivity of companies.

American Express provides an excellent example of a firm that uses philanthropy to

strengthen its related and supporting industries. For almost 30 years, American

Express has funded travel and tourism academies in secondary schools. The program

trains teachers, supports curricula, and provides both summer internships and

industry mentors. A strong travel industry translates into important benefits for American Express.



3C of Business Ethics

3C of business ethics:

The 3C’s of business ethics: 1. Compliance – The need for compliance of rules including

laws, principles of morality, and policy of the company.

2. Contribution – Business can make to the society: The core

values, quality of products and services, employment,

usefulness of activities to surrounding activities, QWL (Quality

Work Life).

3. Consequences of business activity – Toward environment

inside and outside the organization; social responsibility

toward shareholders, bankers, customers and employees of organization; good public image, sound activity.


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3R of Business Ethics


308

3R of Business Ethics 3R:

Respect

Responsibility

Result



The first “R” of business ethics is RESPECT. It’s something that

must be applied to people, organizational resources, and your

environment. And it includes behaviors such as:

Treating everyone (customers, coworkers, vendors, etc.)

with dignity and courtesy;

Using company supplies, equipment, time, and money

appropriately, efficiently, and for the business’ business

only;

Protecting and improving your work environment, and

abiding by all rules and regulations that exist to protect

our world and our way of life.


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310


The second “R” of business ethics is

RESPONSIBILITY – to your customers, your

coworkers, your organization … and to yourself.

Included here are behaviors such as:

Providing timely, high-quality goods and

services;

Working collaboratively and carrying your

share of the load;

Meeting all performance expectations and

adding value to everything you’re involved

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311


The third “R” of business ethics is RESULTS. Obviously, you’re expected

to get results for your organization and for your customers. But you’re

also expected to get those results legally and ethically. Allow yourself NOT

to lose sight of this, or else you jeopardize your business and your career.

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CONDUCTS

Alternatives of Scopes of Business Ethics


313

Probity

– The quality of

having strong moral

principle, honesty, and decency.

4C (Context, Conscientiousness, Content, Consequence)

4V (Values, Vision, Voice, and Virtue)

6P (Purpose, Probity, Perspective (i.e. People,

Profit, Planet), Plan, Pattern <core competencies, repetitive behaviors and capabilities>, Position <fit between your organization and your environment: how your organization relates to competitive environment>, Ploy)


Motivating Business Ethics Behavior


315

Inner Drives Human Behaviors

Motivating Business Ethics Behaviors: Motivation is an inner drive, a state of feeling or

thinking that energizes, directs, and

sustains human behavior.

Many theories of motivation contribute to work and

job experiences. They are categorized as CONTENT and PROCESS theories.



316

Motivation CONTENT theories are WHAT energizes behavior. Familiar content theories include Maslow’s hierarchy of needs, Alderfer’s ERG (existence, relatedness, growth) theory of needs, McClelland’s learned need theory (achievement, power, affiliation), and Herzberg’s two-factor (motivation and hygiene) theory.

PROCESS theories are about HOW behavior is energized. Typical process theories are EQUITY THEORY (individuals value and seek FAIRNESS), EXPECTANCY THEORY (expending effort on work that leads to desired rewards, utility), and goal-setting theory (a goal provides the foundation for how much work effort to expend).






320

Motivation

Reward based on a

standard of performance

A discussion on MOTIVATION is incomplete unless the topic of rewards and incentives are noted. Reward systems are designed to CHANGE and REINFORCE BEHAVIOR through techniques, such as public recognition, gift certificates, or vacations and travel based on meeting sales quotas. Reward programs attract qualified talent, sustain the desire to work, and motivate employees for producing their best results. Incentive systems, both short-term and long-term, link pay with a standard of performance, such as salary, differential pay, allowances, time off with pay, deferred income, loss-of-job coverage, desirable working conditions, training, adequate equipment and materials, and so forth.

For business – it is Revenue – Cost = Profit.

For sustainable development – 3Ps Motivation.



321

Motivation

Shared

responsibility that

promotes

employees to

remain energized,

engaged,

enthusiastic and

committed to job excellence.

For Employee Level:

Workplace implementation – Motivation is a SHARED RESPONSIBILITY between employer and employee. Performance improvement practitioners work with management to recognize valuable employees, promote constructive relationships; develop job analyses, job specifications, and job descriptions for creative and challenging jobs; identify and secure appropriate RESOURCES to perform a job; monitor employees’ needs, abilities, goals, and preferences; and other activities that promote employees to remain ENERGIZED, ENGAGED, ENTHUSIASTIC, and COMMITTED to JOB EXCELLENCE and TALENT GROWTH.



322

Motivation Example of Responsive Strategies for Employee Motivation:

The organization has clearly defined vision, mission, goals, and objectives.

Performance criteria are clearly defined and communicated to all employees.

Resources are provided to help employees attain their goals and objectives.

Rewards and recognition are a part of the culture.

A support network is in place so employees know where to go for assistance when needed.

Whenever possible, the organization takes advantage of employees’ expertise by including them

in meetings, discussions, and other fact-finding initiatives.

Timely information sharing, including lessons learned, occurs at all levels of the organization.

Communication is open and encouraged.

The organization has a conflict resolution model available to all employees.

The organization celebrates the successes of its teams and employees.

The organization supports personal growth with training opportunities and tuition reimbursement.



324



Business Ethics and Brand Examples


327

Positive Brand

Building of The Body Shop

The Body Shop:

Anita Roddick long championed the power of an influential global bland to enact meaningful social change. In doing so, she helped distinguish her firm in the minds of consumers, gaining a strategic advantage. Whether you agree with the stance that The Body Shop adopts on a number of fair trade and other social issues, many consumers are drawn to purchase the company’s products because of the positions it takes. Its fair trade stance helps differentiate the firm’s offerings and stands out in the minds of consumers.



328

Positive Brand Building of BP

BP: With a $200 million re-branding exercise, BP (the

giant British Petroleum company) has repositioned

itself as the most environmentally and socially

responsible of the integrated petroleum companies.

The firm stands in shark contrast to ExxonMobil,

which faces ongoing NGO attacks, consumer

boycotts, and activist-led litigation because of its decision to oppose the environmental movement.



329

Shell Royal Dutch Shell Plc. – Europe’s largest oil

company. Shell has also done a good, if less high-

profile, job of re-branding itself in a similar way to

BP, although it was tainted by a scandal concerning

the reporting of proven oil reserves in 2004:

USD 352.6 million settlement to the US Securities and

Exchange Commission (SEC) and the Financial Services

Authority (FSA), for over booked proven reserves in its oil

fields by 4.5 billion barrels, around 23% of its total, wiping billions of pounds of its market value.



330

Positive Brand Building of BP:

BP pumped billions of pounds (approx. USD 450 million/year on research) in low-carbon technology and green energy over a number of decades but gradually retired the programme to focus almost exclusively on its fossil fuel businesses.

Positive brand building alone, however, is insufficient. A firm has to be genuine in its statements and committed to implementing CSR throughout operating in order for the full benefits to be realized. BP’s recent troubles in relation to CSR, such as lethal accidents at key U.S. refineries and criticism about the extent of its investment in alternative energy sources, have undermined the firm’s significant investment in building a positive brand image.

Texas City Refinery explosion (The second largest in the State, and third largest in the USA, input capacity 437,000 barrels per day in 1 Jan, 2000) – March 23, 2005. A hydrocarbon vapor cloud exploded at the ISOM isomerization process unit at BP’s Texas City refinery in Texas City, Texas, killing 15 workers and injuring more than 170 others.

Consequence: In 2011, BP announced that it was selling the refinery as part of its ongoing divestment plan to pay for ongoing compensation claims and remedial activities, following the deepwater horizon disaster, in 2010.

Thus, in long-term, causes losses to shareholders as well.



331

Brand Insurance from Nike

Today, Nike is one of the most progressive global corporations in terms of CSR.

Past mistakes of Nike had drawn attacks by NGOs that continue to this day. Those attacks focused largely on the working conditions in Nike factories in Southeast Asia, which, as Phil Knight, Nike’s founder and CEO, admitted, “produced considerable pain” for the firm in the late 1990s.

Although, initially, Nike was reluctant to reform, today, the firm has become more positive in arguing the positive impact of its operations and products worldwide. Nike has created a vice president for corporate responsibility and publishes CSR reports to institutionalize a commitment to CSR in its corporate structure and operations as well as help protect the company’s brand against future CSR lapses.

Nike has move beyond CSR into sustainable business and innovation.



332

Brand Insurance

from Merck & Co.

Private-Public Partnership

Merck & Co.: Reflecting a socially responsible stance, Gerge W. Merck, son of the pharmaceutical company’s founder, announced, “Medicine is for the patients, not for the profits.” This radical corporate vision translates into an often cited example of the company donating the medicine Mectizan to combat the devastating disease, river blindness.

Twenty-two years ago, Merck started giving away a drug to treat river blindness, a devastating infectious disease endemic to certain countries in Africa and Latin America. The company has donated 2.5 billion tablets at a total cost of $3.75 billion over that time. Merck manages the program with the World Health Organization and other groups, and the effort is widely cited as a model of successful public-private partnership. In 2009, WHO announced for the first time that it sees evidence the disease will be eliminated in Africa with Merck’s drug.




334

Merck & Co. Disclosure of: Clinical trials – regardless of outcomes.

Green-house gas (GHS) emissions reduction and sustainable water use.

Employee diversity, annual disclosure of Equal Employment Opportunity data.

Grants to medical, scientific, and patient organizations – to advance mutual objectives to improve health and advance patient care.

Disclosing all payments to U.S.-based healthcare professions who speak on behalf of the company’s products and other healthcare issues.



335

Brand Insurance from Merck & Co.

It could be argued that Merck’s actions bought a degree of insurance against attack by social activists because of the

company’s up-front commitment to such a worthwhile, unselfish and unprofitable cause. Perhaps this socially responsible

viewpoint has enabled Merck to enjoy a relatively free run from the activist criticism visited on other pharmaceutical companies.

The reputation it gained from this act has also been cited as a significant reason for the company’s success in entering new markets, most notably Japan, where its socially responsible reputation preceded it.

Yet even Merck’s positive CSR efforts may not save it from the economic and legal implications of Vioxx (anti-inflammatory drugs, NSAID), a Merck product voluntarily withdrawn from the market in 2004 after a growing number of heart-related health problems (risks of deadly heart attacks and strokes) among users.



336

Brand Insurance

from Johnson & Johnson

Johnson & Johnson’s transparent handling of the Tylenol crisis in 1982 is widely heralded as the model case in the area of crisis management. J&J went beyond what had previously been expected of corporations in such situations, situating a $100 million recall of 31 million bottles of the drug following a suspected poisoning incident. In acting the way it did, J&J saved the Tylenol brand, enabling it to remain a strong revenue earner for the company to this day.



337

Brand Insurance of Tylenol

The cost of the recall was a high one. In addition to the impact on the company’s share price when the crisis first hit, the lost production and destroyed goods as a result of the recall were considerable. However, the company won praise for its quick and appropriate action.

Within five months of the disaster, the company had recovered 70% of its market share for the drug. The fact this went on to improve time showed that the company had succeeded in preserving the long-term value of the brand.

Companies such as Perrier, who had been criticized for less adept handling of a crisis, found their reputation damaged for as long as five years after an incident. In fact, there is some evidence that it was rewarded by consumers who were so reassured by the steps taken that they switched from other painkillers to Tylenol.



338

Brand Insurance from Coca-Cola

Brand value is thus critical to firms, whether on the local or global stage. Today, the value of intangible brand may even exceed the value of the firm’s tangible assets.

The Coca-Cola brand, for example, is worth significantly more than half of the company’s total market capitalization (Business Week, 2008).

And CSR is important to brands within a globalizing world because of the way brands are built: on perceptions, ideals, and concepts that usually appeal to higher values. CSR is a means of matching corporate operations with shareholder values at a time when these values are constantly evolving. Thus, given the large amount of time, money, and effort companies invest in creating them, a good CSR policy has become a vital component of a successful corporate brand – an effective means of maximizing its market appeal while protecting the firm’s investment over the long term.


339

Brand

Value Chain



340

Brand Insurance

Companies today need to build a watertight brand

with respect to all stakeholders. The attractiveness

of a company – whether as an employer, producer,

supplier, or investment – is directly linked to the strength of its brand. CSR affects all aspects of operations within a corporation

because of the need to consider the needs of constituent groups. Each area builds on all the others to create a composite image of the corporation and its brands in the eyes of its stakeholder groups, which has a great value for the firm.



341

Business Ethics and Advantages



Context

Resources Sustainable 3P

Stakeholders

Example: The social value that the

efficient delivery of product and services

can provide: Potential for social progress

(This is a central component of the

concept of strategic CSR – areas of social

concern that extend beyond profit

maximization, but that are related to the

business’s core operations.

Social dimensions of competitive

context.

Shared Values

Value Chain social impacts.

Generic Social Issues.

To integrate CSR effectively throughout the organization, a

firm needs to draw on RESOURCES and CAPABILITIES that

are valuable, rare, difficult to imitate, and non-substitutable, as

differentiators to build a sustainable competitive advantage.

A shift from a short-term perspective when managing the

firm’s resources and relations with the key stakeholders over the

medium to long term.

Winning companies of this century

will be those who prove with their

actions that they can be profitable and

increase social value – companies that

both do well and do good. And,

increasingly, shareowners, customers,

partners, and employees are going to

vote with their feet – rewarding those

companies that fuel social change

through business. This is simply the new

REALITY of business – one that we

should and must embrace.


344

Resources Perspective

The Resources Perspective:

The resources perspective is detailed in a 1999 Harvard Business Review article by C.K. Prahalad and Gary Hamel, who then expanded on their ideas in a 1994 book. The core idea that Prahalad and Hamel convey is the distinction between a firm that is built around a portfolio of business units and a firm that is built around a portfolio of core competencies. While separate business units encourage replication and inefficiencies, core competencies develop efficient systems that can be applied in multiple settings across business units and throughout the firm.


345

Core Competency Walmart’s core competency of efficient distribution,

for example, can be applied at all stages of its retail

operations. Equally, Google’s core competency of

writing sophisticated algorithms that allow the firm to

pursue its mission to “organize the world’s

information” can be applied to searching for products,

images, academic papers, and many other topics.

Core competencies can be built, given the correct set of circumstances.


346

Prahalad, C.K. and

Hamel, G. (1990),

The Core

Competence of the

Corporation,

Harvard Business

Review, May-June, 1990, p. 81.

A firm’s set of core competencies will DIFFERENTIATE it from its competition and allow it to sustain a COMPETITIVE ADVANTAGE:

In the short run, a company’s competitiveness derives from the price/performance attributes of current products … In the long run, competitiveness derives from an ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products. The real sources of advantage are to be found in management’s ability to consolidate corporate wide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing opportunities.


347

Core Competency Prahalad and Hamel apply three tests that define a CORE

COMPETENCY: It should be applicable in multiple different markets, it should be VALUED by the consumer, and it should be difficult for the competitor firm to COPY. The resources perspective argues that while different firms have a VALUABLE resources and different firms have UNIQUE CAPABILITIES, it is the combination of the two that leads to a CORE COMPETENCY and a SUSTAINABLE COMPETITIVE ADVANTAGE. Southwest Airlines, for example, has a valuable resource in its employees and corporate culture and a unique capability in its ticketing and boarding technologies. But, it is the combination of culture and technology that delivers the firm’s sustained competitive advantage and profitability. As a result, year end results for 2008 marked Southwest’s 36th consecutive year of profitability (Southwest Airline, 2009).


348

RBV Limitations of the Resources Perspective:

There are two main limitations of the resource perspective.

First, by focusing primarily on the internal characteristics of the firm, the resources perspective ignores much of the CONTEXT in which the firm operates. It is highly likely, however, that this CONTEXT will influence directly the firm’s ability to build CORE COMPETENCIES. By not including CONTEXT in the model, therefore, this perspective provides an incomplete description of the processes that generate the phenomenon (core competencies) that it is seeking to explain.


349

RBV Second, the resources perspective provides a description

of the firm that is very deliberate and rational. The suggestion is that firms are quite capable of identifying potential core competencies and then proceed to gather the necessary resources and design the necessary processes to allow them to flourish. Decades of research on organizations, however, tell us that, even if managers are able to act rationally, a whole host of other factors (ranging from political infighting to events beyond their control) can intervene to prevent the intended goal from being realized.


350

Porter, M.E. (1979), How Competitive Forces shape Strategy, Harvard Business Review, March/April, pp. 137-145.

Porter, M.E. (1980), Competitive Strategy, The Free Press.

Porter, M.E. (2008), The Five Competitive Forces that Shape Strategy, Harvard Business Review, January, pp. 79-93.

The CONTEXT – The Industry Perspective:

The industry perspective is grounded theoretically in industrial economics. Its main proponent in the management literature is Michael Porter, whose five-forces model is a staple component of corporate strategy. Porter first outlined his ideas in a 1979 Harvard Business Review article. Porter later published two books that expanded on his initial ideas by introducing a distinction between business and corporate-level strategies (Porter, 1980) and value chain. In a 2008 Harvard Business Review article, Porter updated his five-forces model to account for changes since the initial publication (Porter, 2008).


351

The industry perspective focuses on the firm’s operating environment (in particular, its industry) as the most important determinant of competitive advantage. There are five competitive forces in Porter’s model: suppliers, buyers, new entrants, substitutes, and industry rivalry. These five forces compete for a fixed pool of RESOURCES, and this COMPETITION determines the ABILITY of any individual firm to PROFIT in the industry. As such, Porter envisions competition as a ZERO-SUM GAME between these five forces and the focal firm. The strength of each force is measured relative to the strength of the focal firm. In other words, to the extent that any of the five-forces grows in strength, this occurs to the detriment of the focal firm, which becomes relatively weaker.


352

For Coke and Pepsi Example: Carbonated soft-drinks concentrate.

Power of suppliers (Weak). In this industry, the power of suppliers is weak because the raw materials needed to make the concentrate that Coke and Pepsi sell to their bottlers are cheap. The recipes are tightly held secrets, but is hard to imagine the ingredients are much more than water, corn, syrup, and flavorings.

Power of buyers (Weak). The buyers in this industry are not the end consumers of the drink but the bottlers that Coke and Pepsi have signed up to long-term contracts. In recent years, the bottlers have begun to consolidate somewhat, increasing their power relative to their parents, but they remain relatively weak.


353

For Coke and Pepsi

Threat of new entrants (Low). The barriers to entry in

terms of distribution networks and brand recognition

suggest that Coke and Pepsi are not likely to see any

serious competitors in the industry.

Threat of substitutes (High). This is the main

weakness in the industry. With rising concerns about

obesity and the growth of noncarbonated drinks

industry, this is a threat to the products that still drive

a large percentage of Coke’s and Pepsi’s profits.


354

For Coke and Pepsi

Industry rivalry: Low. Although the end consumers see Coke and Pepsi competing on advertising and price in supermarkets and other retail outlets, the burden of these costs is borne largely by the bottlers (who sell to these outlets), not the concentrate makers. Coke and Pepsi retain significant control over the price they charge bottlers for the concentrate, and each bottler is committed to either Coke or Pepsi.

As a result of this structure, the carbonated soft drinks concentrate industry contains a very favorable competitive structure for Coke and Pepsi. They are well-established competitors in a stable industry.


355

Airline The Airlines Industry: is populated by a large number of firms that are

competing furiously.

Power of suppliers: High. There is a great deal of consolidation in the

aircraft manufacturing industry, which consists of only two major

firms, Boeing and Airbus. As a result, there are not many alternative

sources of the airline industry’s main input – large airplanes.

Power of buyers – Low. This is one factor that works in the airlines’

flavor. Buyers (i.e., airline passengers) are diffuse, and invariably

there are great discrepancies in the amounts of money paid by

different passengers for comparable seats on the same flight. The rise

in Internet and Web sites that allow passengers to compare prices, however, has reduced the advantage the airlines hold in this area.


356

Airline Threat of new entrants: High. In spite of low profits, it is relatively common to read about the new airlines entering this industry. In 2007, Virgin America, for example, received approval from the U.S. government to operate a low-cost airline. The danger, in fact, for the established airlines, is that new airlines are competitive because they do not have the legacy costs (e.g., pension, and health benefits) and inefficiencies that they are battling.

Threats of substitutes – Low. In Thailand, alternative forms of public travel for long distances (such as train) are not well established. As a result, people have little choice but to purchase the services that many airlines offer today.


357

Airline Industry Rivalry. High. Evidence of the high level of

competition among airlines lies in the fact that

Southwest Airlines’ consistent profitability in the

industry is the exception, rather than the norm.

As a result of this competitive structure, the airline

industry is unfavorable for the different airlines,

which operate in an industry with high demand and

few alternatives but which seem unable to make sustained profit.


358

Industry Perspective

Limitations of the Industry Perspective:

There are three main limitations inherent in the industry perspective. First is the presentation of business as a combative pursuit – a zero-sum game of survival. This model teaches firms that relationship with their different stakeholders is confrontational and that, in order for the firm to survive, it needs to beat its stakeholders in a battle for relative supremacy. In other words, if its customers or suppliers gain an advantage, it is to the disadvantage of the focal firm.


359


Second, the industry perspective presents a narrow

view of the firm’s operating environment. Only five

forces are included, which cover only three

stakeholders – the firm’s buyers, suppliers, and

competitors. This picture omits numerous

stakeholders that have the potential to alter

dramatically a company’s competitive environment –

such as the local community, the government, and other stakeholder.


360


Third, the industry perspective fails to give sufficient recognition to differences in characteristics among companies, which are likely to be predictive of their ability to thrive in a given environment. A holistic model of the firm in its environment that also recognizes the value of the firm’s resources and capabilities would provide a more comprehensive tool that firms can use to analyze their operating context (both internal and external conditions) and plan their strategy accordingly.


361

While the resources and industry perspectives, therefore, are valuable tools that provide insight into the actions of businesses, the situations in which they operate, and the potential to build a sustained competitive advantage, these two perspectives have their limits. Both are narrow in their application and exclude factors that intuitively contribute to a firm’s strategy and, therefore, its success. As such, they limit attention to the components of the larger context facing a company. More relevant to the argument presented in Strategic CSR is a broader perspective that incorporates a total mix of influences, expectations, and responsibilities that firms face in their day-to-day operations and that necessarily shape their strategies in response.


362

Stakeholder Perspective:

A stakeholder is a group or individual with an interest

in the activities of the firm.

Societal stakeholders – government, regulators,

communities, nonprofits, NGOs, environment.

Economic stakeholders – customers, competitors,

creditors, distributors, suppliers.

Organizational stakeholders – employees, managers, stockholders, unions.


363

At a deeper level, societies rest on a CULTURAL

HERITAGE that grows out of a CONFLUENCE of

religion, mores, and folkways. This heritage gives rise

to a BELIEF system that defines the boundaries of

SOCIALLY and MORALLY acceptable BEHAVIOR by PEOPLE and ORGANIZATIONS.


364

Zadek, S. (2004).

The Path to

Corporate

Responsibility,

Harvard Business

Review, December, 2004, pp. 125-132.

Simon Zadek, founder and CEO of AccountAbility (http://www.accountability21.net), has developed a powerful tool that firms can use to evaluate which stakeholders and issues pose the greatest potential opportunity and danger. First, Zadek identified five stages of learning that organizations go through “when it comes to developing a sense of corporate responsibility,” – defensive (to deny responsibility), compliance (to do the minimum required), managerial (to begin integrate CSR into management practices), strategic (to embed CSR within the strategy planning process), and civil (to promote CSR practices industry-wide).

http://www.accountability21.net/


365

Then, Zadek combined these five stages of learning with 4 stages of intensity “to measure the maturity of societal issues and the public’s expectations around the issues.” – latent (awareness among activist only), emerging (awareness seeps into the political and media communities), consolidating (much broader awareness is established), and institutionalized (tangible reaction from powerful stakeholderws).

The maximum danger, Zadek argues, is for companies that are in defensive mode when facing an institutionalized issue. In contrast, those businesses that are promoting industry-wide adoption of standard practices in relation to a newly emerging issue face the maximum opportunity. A firm that introduces a standardized process to measure and reports the information on PRODUCT LABELS in the CARBON FOOTPRINTS RETAIL INDUSTRY, for example, falls into this category. Such a company stands to gain the MAXIMUM ECONOMIC and SOCIAL VALUE for its effort.


366

Zadek (2004): The

Path to Corporate Responsibility


Merck, Sharpe and Dhome, an American based pharmaceutical TNC

(Transnational Companies), began production of chemicals at its Irish facility in

1976. At this time the local residents were assured that Merck would operate a clean plant

without detriment to the local environment. Two years later several local farmers lodged

complaints that they and their families were suffering from respiratory problems, and that the

morality and still-birth rate among their livestock had increased inexplicably since the Merck plant began operations.


These farmers accused Merck of emitting dangerously

high levels of various toxins. Although Merck’s lawyers

vehemently denied the allegations, the company was

eventually found guilty by the Irish Supreme Court in

July 1988. By this time over 200 of neighboring farmers’

cattle had died from toxic poisoning. The court heard

unimpeachable evidence that dangerously high levels of

hydrogen chloride and hydrochloric acid were present in

the atmosphere for a radius of several miles from the

plant.

It seems highly unlikely that the company itself was

unaware of the distance of toxins in the atmosphere. The

firm’s willful emission of these chemicals for almost ten

years after complaints were initially lodged was clearly unethical, both in action and motivation.


Significant oil reserves have been discovered in the Amazon basin.

Several American-based TNCs are currently exploiting these reserves.

Occidental Petroleum Corporation, for example, recently reached an

agreement with the Government of Peru to “increase its production

from rainforest areas by 20,000 barrels a day … Texaco have acquired rights in four areas of Columbia rainforest.”


These developments have, and presumably will continue to, unnecessarily damage rainforest

ecology in two primary ways.

First, the oil companies routinely spill oil from ships, drill holes, and pipelines. Thomson and

Dudless (1989) report that, “In the Oriente region of Equador, there have been at least 30 major

oil spills … with an estimated loss of 16 million gallons of petroleum” (p. 219).

Given greater care and attention on the part of the oil companies, these spills could clearly be

avoided or at least ameliorated. Given the minimal environmental regulation in these regions, however, the oil companies have little economic incentive to do so.

Thomson, K. and Dudley, N. (1989), “Transnationals and Oil in Amazonia,” The Ecologist, 19(6), pp. 219-224.


Secondly, oil field development in Amazonia has been accomplished by the oil companies

constructing access roads into the rainforest interior. These roads have facilitated the

colonization of many square-miles of heretofore natural rainforest. This colonization by settlers

leads to slash and burn clearance of vast tracts of rainforest that otherwise would be

inaccessible to these indigent farmers. When the oil companies leave, the settlers stay; thus

such damage is irreversible.

In many cases the construction of these roads is unessential. Labor and materials could be

airlifted or transported by water. Once again, however, the oil companies have little economic incentive to seek a more ecologically ethical alternative to road building.


Nike:

Nike faced an extensive consumer boycott after the New York

Times and other media outlets reported abusive labor practices at some of its Indonesian suppliers in the early 1990s.


NIKE, Inc. has worked to improve labor conditions in their footwear, apparel and

equipment supply chains for more than 15 years. Key issues in which they have

engaged include the health and safety of the workers who make their products,

excessive overtime, the ability of workers to freely associate, and child labor and

forced labor.

More recently, Nike identified the creation of a “sustainable supply chain” – i.e., one

that includes sustainability on equal footing with cost, on-time delivery and quality – as

one of the pillars of Nike’s sustainable business strategy and developed a vision of

what success looks like. Copyrighted Dr. C.C. Tan (2016). Revised 2. 374 20-Jun-16


Nonwoven fabric is a fabric-like material made from long

fibers, bonded together by chemical, mechanical, heat or solvent treatment.

20-Jun-16

August 24, 2013: Bangkok Post

Japanese cosmetics maker Kanebo said in August 23, 2013 the number of

complaints about skin discoloration from using its whitening products has topped

7,000 from customers at home and abroad, including Thailand. Last month, the

company announced a recall of 54 of its products that contained a substance

called 4HPB, a synthetic version of a natural compound developed by Kanebo.

A company spokesman said it would pay the medical costs for any customers who

have been left with uneven coloring of their skin.


Shell Oil’s decision to sink the Brent Spar, an obsolete oil rig, in

the North Sea led to Greenpeace protests in 1995 and to international headlines.


Fast-food and packaged food companies are now being held responsible for obesity and poor nutrition.

Bottom line: lower-calorie processed food that's actually healthful and

nutritious can be offered to consumers through the channels they love. For

the privileged few, that's Whole Foods. But most people can't or

won't shop at Whole Foods. For the vast majority, meal time means Burger

King and McDonalds. That industry will improve slowly, if it's encouraged to re-engineer it's menu, one dish at a time.


Pharmaceutical companies discovered that they were expected to respond to the AIDS

pandemic in Africa even though it was far removed from their primary product lines and markets.



Ethics Defined:

A holistic

definition and

framework

DLL – Double

Loop Learning

SLL – Single Loop Learning

Motivation:

Fear of a divine or karma punishment

A matter of personal choice

Value or Value System:

The similar standards shared in a community.

Values and morals are often used to mean the same

thing – a set of personal principles by which you aim to live your life.

Roots of

Views

(Value System)

Motivation

Your understanding of

moral complexity and

ethical dilemmas grows as

your life experience and education grow.

The Choice you

make against the value system:

Think

Behave

Live

State of Mind

Me-We-World

Ethical experience

out of your ethical choice.


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20-Jun-16

Ethical Experience and

Management


Management


382

Ethics Framework

Roots of

Views

(Value System)

Motivation

Your understanding of

moral complexity and

ethical dilemmas grows as


The Choice you

make against the value system:

Think

Behave

Live

State of Mind

Me-We-World

Ethical experience


DLL – Includes questioning the underlying “value system”, Involving cognitive change.

SLL – Corporate ethical/social adaptation only.

Experience

Experiential Learning

20-Jun-16

DLL SLL


Me – We – World

Profit – People – Planet

(Corporate Social

Responsibility,

Sustainability)

20-Jun-16

Ethical Behavior

Ethical Behavior Behavior:

Example of behavior – Servant leadership. It

is an approach to ethical leadership and decision making

based on the moral principle of serving others first. Servant leadership is

a model of ethical management – an approach to ethical decision making

– based on the idea that serving others as employees, customers,

community, and other stakeholders is the first priority.

The characteristics are as follows: Listening

Empathy

Healing

Awareness

Foresight

Conceptualization

Commitment to the growth of people

Building community Stewardship Copyrighted Dr. C.C. Tan (2016). Revised 2.

384

20-Jun-16


From not understanding about ethics

Learning – SLL, DLL (Change

Mindset, or Cognitive Change)

Ethical Maturity 20-Jun-16

Experience-driven Ethical Maturity

Experience driven

Improvement and

Leapfrogging:

Crisis as a learning

trigger: Companies

going through a

CRISIS are taken as

OBJECT of

STUDY to evaluate

the EVOLUTION

of their Ethical Strategies.

Your understanding of moral

complexity and ethical

dilemmas grows as your life

experience and education

grow.

Shell, which produced its

first environmental report

in 1997, after suffering

from the public relations

fiasco around its decision

to break up the Brent Spar oil storage buoy in 1995.


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20-Jun-16

Experience-driven Ethical Maturity

Experience Your understanding of moral complexity and ethical dilemmas grows as


Dow Chemicals, which even in the 1980s was reported as working its

way towards a goal of zero toxic emissions, but had been previously associated with the production of Agent Orange and napalm.


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20-Jun-16

Roots of Value

and Value, and Motivation Roots of

Views

(Value System)

Motivation

Provide a moral compass (a

sense of personal direction) to

guide you in the choices you make in your life.

When you try to formalize those

principles into a code of

behavior, then you are seen to

be adopting a value system.


388

Influences the me-we think, behave,

live and state of mind and the world

Gradually mature

and shift values:

See the

corporate

citizenship

stages model

next.

20-Jun-16


Management


Corporate Citizenship

Time

Level of Ethical Maturity

20-Jun-16

Experiencing to Ethical Maturity

Elementary Engaged Innovative Integrated Transforming Stages of Corporate Citizenship

Change the game Sustainability or triple bottom line

Philanthropy

Environmental protection

Jobs, Profits and Taxes

Stakeholder Management

Mirvis, P. and Googins, B.K.

(2006), Stages of Corporate

Citizenship, Boston: Carroll

School of Management’s Center

for Corporate Citizenship at Boston College.

Credibility Capacity Coherence Commitment

Global CSR Global Corporate Citizenship


390

From “Good” to “Best of the Good”

Legal Compliance Reputation Business Case Value Proposition New Market and Social Change

Defensive Reactive Responsive Proactive Defining Policies Program Systems

Unilateral Interactive Mutual influence Partnership Multi-Organization.

Flank

Protection

Public

Relation

Public Reporting Assurance Full Exposure 20-Jun-16

Strategic Intent:

Issues Management:

Development of Corporate Citizenship: - The Triggers:

Stakeholder Relationship:

Transparency:

Light Green Market Green Stakeholder Green Dark Green


Triple Bottom Line – Integrating

the 3Ps

- Innovation could be fragmented,

But Integration allows systematic

organization of innovation; using

innovation to integrate the 3P

20-Jun-16



393 Positive CSR (Corporate Social

Responsibility) is often linked to

improved financial

performance. There is a growing

sense that looking after the people

and the community as well as the

environment are all relevant to long-

term business survival.

Solid Business Case

Voluntary (discretionary)

responsibilities which demonstrate the

inclusion of social and environmental

concerns in business operations and

interactions with stakeholders – A

definition of sustainability.

The CSR Citizenship Stages are Extension of this CSR Pyramid Model:

20-Jun-16


Value and Worth Value – is used to denote the worth of an item.

A person’s value can be said to have a specific “worth” for them.

Worth: Two ways to express “worth”:

An intrinsic worth – where a value is good thing in itself and is

pursued for its own sake. For example: happiness, health, self-respect

can be said to have intrinsic value.

An instrumental (MEANS, TOOLS) value –

where the pursuit of that value is a good way to reach another value. For example, money is valued for what it can buy rather than for itself.


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20-Jun-16


Management

The impact of a

person’s or a

group’s value

system can be

seen in the

extent to which

their daily lives

are influenced by those values.

Roots of

Views

(Value

System)

Motivation

Think

Behave

Live

State of Mind

Me-We-World

Ethical experience


Value Life


396 Ethical Choices

Ethical Experiences

Create / establish organizational

ethos, as the moral

consciousness and principles which guide collective decision-

making and rationalization

within the organization.

As moral cognitive norm and

value. 20-Jun-16


Management

The greatest benefit

of having such a

guide to turn to

when faced with a

difficult decision is

that you can step

away from emotion

and pressure of a

situation, and at the

same time turn to a

system that truly

represents who you (intrinsic value).

VIEW

MOTIVATION

ACTION

STATE OF MIND

THINK

BEHAVE LIVE


397

20-Jun-16


Management

Ethical Diamond Model

Ethical Diamond


398

20-Jun-16

CSR – can be defined as all the ways in

which a company relates to society from

purchasing to product disposal, from

human resources to human rights. The

concept is generally used to refer to the

RESPONSIBILITIES and

RELATIONS between an organization

and the community within which it

operates. This focuses attention away from

INDIVIDUAL practices and procedures, to

the STRATEGIC DIRECTION and

MISSION of the corporation as a whole.

One approach that companies can take a

CSR is to include a “SOCIAL AUDIT” in their annual report.

Ethical Diamond Model

Ethical Diamond

Stakeholders

Factor Condition Market Condition

Competitiveness:

Generated by STRATEGIC CSR

Ethical Strategy


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20-Jun-16

Can involve employees in

voluntary community

work, also CSR can form a

part of an employee

development program, and

may benefit the

community, employees and the organization itself.

Competitiveness is not everything that matters, but without competitiveness everything that matters is much harder to achieve.


Competitiveness often is a resultant of the interaction between different

levels:

Micro Level – The individual competency level, the issues

of psychological and sociological perspectives

Meso Level – The organizational processes, i.e. the

strategic development processes, the supply chain and operations

processes, and the Business Model.

Macro Level – Organization is situated within the broader

industry and national structural, infrastructural, cultural and economic

forces that could shape the behaviors and strategies of the organization.

20-Jun-16

Think (The Mind)

Behave (The Body)

Live (Spiritual)

State of Mind (The Heart)

Deo

nto

log

y, C

SR

1

Utilita

rian

ism, C

SP

What is

right is

good for

the

people.

What is good

is right for the

people.

Virtue, Action-Oriented Ethics

CSR2 (Responsiveness) and CSR3 (Rectitude)

Motivate

Quality of Life

Alignment and Synergy

Source: Tan, C.C.

Business Strategies

Greening Strategies

Ethical, CSR Strategies

Needs – Strategic fit

Products and Services

Ethical Leadership

Transformational Leadership

Competencies: Build and Strengthen Resources

Ethical Management

Implementation Products and Services

Awareness

EQ,IQ,SQ


Business Performances

Me-We-World

Ethical experience out of your ethical choice.

Audits and Feedback

Continuous Improvement Renewal

Purpose

Meaningful Soulful

For Whose Sake


3 Greening Strategies

Three Greening Strategies

Just for completion, three greening strategies could be used by

companies – to accentuate, acquire, and architect.

1. An accentuate strategy involves playing up

existing or latent green attributes in your current portfolio.

2. Acquire – If your portfolio has no obvious candidates

for accentuation, a good alternative is to buy someone else’s

green brand.


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20-Jun-16

3 Greening Strategies

Looking into

innovation and its

potential outcome

to re-rule: to guide

deontological

development while

the rule of the game

in the society is still not effective.

For instance: With plastic wastes

becoming big issues to the

societies, Barita uses “Accentuate”

strategy to harvest its low-hanging

green fruits (the competencies and

the culture of the organization it

already has) and succeeded in

launching FilterForGood,

also creating a website to invite

visitors to pledge that they will

reduce plastic waste by switching to

reusable bottles. Also cartridges are

recyclable. – Rule of Reusability.


404

20-Jun-16



Acquire – Many high-profile green acquisitions have been

made since 2000, including The Body Shop by L’Oreal, Ben &

Jerry’s by Unilever, and Tom’s Maine by Colgate-Palmolive.


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3. Architect – For companies with a history of innovation and

substantial new-product-development assets, architecting green

offerings – building them from scratch – becomes a possibility.

Although architecting can be slower and more costly than

accentuating or acquiring, it may be the best strategy for some

companies, because it forces them to build valuable

competencies.

Toyota took this route when it developed the Prius. Although

the company is currently addressing a raft of quality problems,

the lessons of its architect strategy still stand. The Prius was

not the first hybrid introduced in the U.S. market (the Honda

Insight was), but it now dominates the fast-growing market for

more-fuel-efficient cars. Copyrighted Dr. C.C. Tan (2016). Revised 2.

408

20-Jun-16



Toyota’s bold move to create a green brand has paid handsome

dividends. The Prius towers over the Insight, its closest

competitor, in market share. Its dominance has so distracted

consumers from rival brands that some Honda dealers complain

of customers who walk into their showrooms and request a test-

drive in the “Honda Prius”.


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Toyota has also successfully transferred its hybrid

expertise and green know-how to other brands in its

portfolio. In 2005 the company became the first to establish

green credentials in the luxury-car space when it produced a

hybrid version of the Lexus.

Overtime, Toyota’s luxury competitors were forced to follow

suit. Mercedes-Benz and BMW recently introduced hybrid

models to meet growing consumer demand and to establish

their green credentials and capabilities.


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Clorox, too, in developing its Green

Works cleaning products, shows how

companies with limited green expertise

but substantial product development

capabilities can architect a green brand.

Green Works has received a lot of press.

Now with the supports of Wal-Mart and

Safeway, they have gained specialized

knowledge about their products and

eco-conscious consumers’ preferences

and expertise in the supply chain for

natural-product sourcing and

procurement.


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412

20-Jun-16



Greening of Products

Greening of Technology

Greening of Management

Greening of Process

Greening of Concepts

Greening of Living Environment Greening of Factories




CSR


418

CSR For CSR to be accepted by a conscientious business

person, it should be framed in such a way that the

entire range of business responsibilities are embraced

– Four kinds of social responsibilities constitute

total CSR: economic, legal, ethical, and

philanthropic (Carroll, 1991)

Carroll, A.B. (1991), The Pyramid of Corporate Social

Responsibility: Toward the Moral Management of Organizational Stakeholders, Business Horizons, July-August, 39-48.

CSR


419

Economic Responsibilities

Economic Responsibilities:

It is important to perform in a manner consistent with

maximizing earnings per share.

It is important to be committed to being as profitable as

possible.

It is important to maintain a strong competitive position.

It is important to maintain a high level of operating efficiency.

It is important that a successful firm be defined as one that is consistently profitable.

CSR


420

Legal Responsibilities

Legal Responsibilities:

It is important to perform in a manner consistent with

expectations of government and law.

It is important to comply with various federal, state, and local

regulations.

It is important to be a law-abiding corporate citizen.

It is important that a successful firm be defined as one that

fulfills its legal obligations.

It is important to provide goods and service that at least meet minimal legal requirements.

CSR


421

Ethical Responsibilities

Ethical Responsibilities: It is important to perform in a manner consistent with

expectations of societal mores and ethical norms.

It is important to recognize and respect new or evolving ethical/moral norms adopted by society.

It is important to prevent ethical norms from being compromised in order to achieve corporate goals.

It is important that good corporate citizenship be defined as doing what is expected morally or ethically.

It is important to recognize that corporate integrity and ethical behavior go beyond mere compliance with laws and regulations.

CSR


422

Philanthropic Responsibilities

Philanthropic Responsibilities:

It is important to perform in a manner consistent with the

philanthropic and charitable expectations of society.

It is important to assist the fine and performing arts.

It is important that managers and employees participate in

voluntary and charitable activities within their local

communities.

It is important to provide assistance to private and public

educational institutions.

It is important to assist voluntarily those projects that enhance a community’s “Quality of Life.”

Corporate Social Responsibility

CSR (Corporate

Social Responsibility):

CSR Principles:

1. Providing a safe and healthy working environment – A business could choose to

invest in an employee wellness program that offers on-site daycare or fitness

facilities.

2. Adopting fair labor policies – A business could choose to pay more than

minimum wage and offer flexible hours of employment for workers.

3. Protecting the environment – A business could help fund environmental

programs in their community and could themselves become more environmental

responsible.

4. Being truthful in advertising – A business could ensure that their advertising

does not contain inaccurate or deceptive claims, statements, or illustrations.

5. Avoiding price discrimination – A business could base its pricing structure on

one price, such as the manufacturer’s suggested list price, to avoid confusing

consumers.

6. Donating to charity – A business could make it easy for employees to contribute

to charities through payroll plans, and could host an event that donates proceeds to

charities causes in the community.


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CSR Example Example of CSR:

The City of Kitchener, Ontario, is a large employer with about 1200

employees. It has to practice its own corporate social responsibility. The City

offers several workplace health and safety programs for its employees,

including training and personal development opportunities, an employee

assistance program for staff to access free counselling and workshop services,

career counselling, and a wellness program. The City also has a diversity

committee that looks into fair hiring practices, retention and recruitment

strategies, and accessibility and accommodation issues for employees with

disabilities.

In addition, the City also promotes environmental responsibility through

recommendations from tis environmental advisory committee, its use of Smart

cars in its fleet, and its power consumption reduction strategies in summer

(turning off foundations, dimming lights, and raising the air-conditioning

temperatures in City offices).


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CSR


425

20-Jun-16


CSR


426

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CSR


427

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CSR


428

CSR Pyramid The CSR Pyramid – beginning with the basic building block notion that economic performance undergirds all else. At the same time, business is expected to obey the law because the law is society’s codification of acceptable and unacceptable behavior.

Next is business’s responsibility to be ethical. At its most

fundamental level, this is the obligation to do what is right, just, and fair, and to avoid or minimize hard to stakeholders (employees, consumers, the environment, and others).

CSR


429

CSR Pyramid Finally, business is expected to be a good

corporate citizen. This is captured in the

philanthropic responsibility, wherein business is expected

to contribute financial and human

resources to the community and to

improve the quality of life.



CSR


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VALUE

Law and Policy Compliance

CSR


432

CSR Pyramid Pyramid – is a metaphor.

No metaphor is perfect, and the CSR pyramid is no

exception. It is intended to portray that the total CSR

of business comprises distinct components

that, taken together, constitute the whole.

Though the components have been treated as separate

concepts for discussion purposes, they are not mutually exclusive.

CSR


433

CSR Pyramid At the same time, a consideration of the separate

components helps the manager see that the different types of obligations are in a constant but dynamic tension with one another, i.e. tension reflected by “concern for profit” versus “concern for society.”

A CSR or stakeholder perspective would recognize these tensions as organizational realities, but focus on the total pyramid as a unified whole and how the firm might engage in decisions, actions, and programs that simultaneously fulfill all its component parts.

CSR


434

CSR Pyramid:

Friedman, M.

(1970). The Social

Responsibility of

Business is to

Increase its Profits,

New York Times

Magazine,

September 13th, 32-33,122, 126.

In summary, the total corporate social responsibility of

business entails the simultaneous fulfillment of the firm’s economic, legal, ethical, and philanthropic responsibilities.

CSR versus the classical economic argument by economist, Milton Friedman, who posited that management is “to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical customer” (Friedman, 1970)

CSR and Stakehodlers


435

CSR and Stakeholders

CSR and Organizational Stakeholders:

There is a natural fit between the idea of CSR and an

organization’s stakeholders. The word “social” CSR

has always been vague and lacking in specific

direction as to whom the corporation is responsible.

The concept of stakeholder personalizes social or

societal responsibilities by delineating the

specific groups or persons business should consider in its CSR orientation.



436


Stakeholders Types of CSR

Economic Legal Ethical Philanthropic

Owners

Customers

Employees

Community

Competitors

Suppliers

Social activist groups

Public at large Others


Stakeholders: Example:

Reebok has worked diligently to improve the conditions of

its factories over the past several years. Reebok has removed

organic solvents that pose health risks, improved the air quality in

its plants, explored nontoxic alternatives in the manufacturing

process, and maintained stricter standards than required by the

US Occupational Safety and Health Administration (OSHA).

Reebok has also increased wages (20 percent over minimum

wage), reduced overtime, and eliminated fines for disciplinary

problems. All of this has been done to show that Reebok is socially responsible in its world manufacturing of athletic shoes.


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Win-Win Partnership

Why Business Ethics

Why Business Ethics?

There are good business

reasons for a strong

commitment to ethical values:

Ethical companies have

been shown to be more

profitable.

Making ethical choices

results in lower stress for

corporate managers and

other employees.

Our reputation endures.

Ethical behavior enhances

leadership.

Efficiency and effectiveness

– Cost saving, etc.


440

20-Jun-16



441

CSR and Stakeholder

To be sure, thinking in stakeholder-responsibility terms increases the complexity of decision making and may be extremely time consuming and taxing, especially at first. Despite its complexity, however, this approach is one methodology management can use to integrate values – what it stands for – with the traditional economic mission of the organization.

In the final analysis, such an integration could be of significant usefulness to management. This is because the stakeholder/responsibility perspective is most consistent with the pluralistic environment faced by business today.

CSR and Moral Management


442

Moral

Immoral

Amoral

If we accept that the terms ethics and morality are essentially synonymous in the organizational context, we may speak of immoral, amoral, and moral management as descriptive categories of three different kinds of managers.

Management Ethics


443

Immoral Management

Immoral management is characterized by those managers whose decisions, actions, and behavior suggest an active opposition to what is deemed right or ethical.

Decisions by immoral managers are discordant with accepted ethical principles and, indeed, imply an active negation of what is moral. These managers care only about their or their organization’s profitability and success. They see legal standards as barriers or impediments management must overcome to accomplish what it wants. Their strategy is to exploit opportunities for personal or corporate gain.

Management Ethics


444

Amoral Management

The second major type of management ethics is amoral management. Amoral managers are neither immoral nor

moral but are not sensitive to the fact that their everyday business decisions may have deleterious effects on others. These managers lack ethical perception or awareness. That is, they go through their organizational lives not thinking that their actions have an ethical dimension. Or they may just be careless or inattentive to the implications of their actions on stakeholders. These managers may be well intentioned, but do not see that their business decisions and actins may be hurting those with whom they transact business or interact. Typically their orientation is towards the letter of the law as their ethical guide.

Management Ethics


445

Moral Management Moral management is our third ethical approach, one that should provide a striking contrast. In moral management, ethical norms that adhere to a high standard of right behavior are employed. Moral managers not only conform to accepted and high levels of professional conduct, they also commonly exemplify leadership on ethical issues. Moral managers want to be profitable, but only within the confines of sound legal and ethical precepts, such as fairness, justice, and due process. Under this approach, the orientation is toward both the letter and the spirit of the law. Law is seen as minimal ethical behavior and the preference and goal is to operate well above what the law mandates. Moral managers seek out and use sound ethical principles such as justice, rights, utilitarianism, and the Golden Rule to guide their decisions. With ethical dilemmas arise, moral managers assume a leadership position for their companies and industries.

Some Instrumental Theories for CSR


446

(1) Maximizing the shareholder value – i.e.

measured by the share price. Frequently, this leads to

a short-term profits orientation.

(2) Strategies for achieving competitive advantages

– which would produce long-term profits.

In both (1) and (2) cases, CSR is only a question of

enlightened self-interest since CSRs are a mere

instrument for profits.

(3) Cause-related marketing

CSR and Theories of Strategy


447

Strategies for achieving competitive advantage:

In this group three approaches can be included: (1)

social investments in competitive context, (2) natural

resource-based view of the firm and its dynamic

capabilities, and (3) strategies for the bottom of the economic pyramid.



448

Burke, L. and

Logsdon, J.M.

(1996). How

Corporate Social

Responsibility Pays

Off, Lang Range

Planning, 29(4), 495-503.

Social investments in competitive context –

Investing in philanthropic activities may be the only way to improve the context of competitive advantage of a firm and usually creates greater social value than individual donors or government can. The reason presented – the opposite of Friedman’s position – is that the firm has the knowledge and resources for a better understanding of how to solve problems related to its mission. As Burke and Lodgson (1996) pointed out, when philanthropic activities are closer to the company’s mission, they create greater wealth than other kinds of donations. That is what happens, e.g., when a telecommunications company is teaching computer network administration to students of the local community.



449

Porter, M.E. and

Kramer, M.R.

(2002), The

Competitive

Advantage of

Corporate

Philanthropy,

Harvard Business

Review, 80(12), 56-69.

Porter and Kramer conclude, “philanthropic

investments by members of clusters, either

individually or collectively, can have a powerful

effect on the cluster competitiveness and the

performance of all its constituents companies.” (2002, pp. 60-61).



450

Barney, J. (1991), Firm Resource and Sustained Competitive Advantage, Journal of Management, 17, 99-120.

Wernelfelt, B. (1984), A Resource Based View of the Firm, Strategic Management Review, 5, 171-180.

Natural resource-based view of the firm and

dynamic capabilities – The resource-based view of

the firm (Barney, 1991; Wernerfelt, 1984) maintains that

the ability of a firm to perform better than its competitors

depends on the unique interplay of human, organizational,

and physical resources over time. Traditionally, resources

that are most likely to lead to competitive advantage are

those that meet four criteria: they should be valuable, rare,

and inimitable, and the organization must be organized to deploy these resources effectively.



451

Teece, D.J., Pisano,

G., and Shuen, A.

(1997). Dynamic

Capabilities and

Strategic

Management,

Strategic

Management

Journal, 18(7), 509-533.

The “dynamic capabilities” approach presents the dynamic aspect of the resources; it is focused on the drivers behind the creation, evolution and recombination of the resources into new sources of competitive advantage (Teece et al., 1997). So dynamic capabilities are organizational and strategic routines, by which managers acquire resources, modify them, integrate them, and recombine them to generate new value-creating strategies. Based on this perspective, some authors have identified social and ethical resources and capabilities which can be a source of competitive advantage, such as the process of moral decision-making (Petrick and Quinn, 2001), the process of perception, deliberation and responsiveness or capacity of adaptation (Litz, 1996) and the development of proper relationships with the primary stakeholders: employees, customers, suppliers, and communities (Harrison and St. John, 1996; Hillman and Keim, 2001).



452

Harrison, J.S. and St. John, C.H. (1996), Managing and Partnering with External Stakeholders, Academy of Management Executive, 10(2), 46-61.

Hillman, A.J. and Keim, G.D. (2001), Shareholder Value, Stakeholder Management, and Social Issues: What’s the Bottom Line, Strategic Management Journal, 22(2), 125-140.

Litz, R.A. (1996), A Resource-based View of the Socially Responsible Firm: Stakeholder Interdependence, Ethical Awareness, and Issue Responsiveness as Strategic Assets, Journal of Business Ethics, 15, 1355-1363.

Petrick, J. and Quinn, J. (2001). The Challenge of Leadership Accountability for Integrity Capacity as a Strategic Asset, Journal of Business Ethics, 34, 331-343.



453

Hart, S.L. (1995), A

Natural-Resource-

based View of the

Firm, Academy of

Management

Review, 20(4), 986-1012.

A more complete model of the “Resource-based View of the Firm” has been presented by Hart (1995). It includes aspects of dynamic capabilities and a link with the external environment. Hart argues that the most important drivers for new resource and capabilities development will be constraints and challenges posed by the natural biophysical environment. Hart has developed his conceptual framework with three main interconnected strategic capabilities: pollution prevention, product stewardship and sustainable development. He considers as critical resources continuous improvement, stakeholder integration and shared vision.


Pyramid of Social Responsibility

The Pyramid of


Economic Responsibilities: Being profitable

Legal Responsibilities:

Obeying the law (society’s codification of right and wrong); playing by the rules of the game.

Ethical Responsibilities:

Being ethical, doing what is right, just and fair, avoiding harm

Voluntary Responsibilities:

Being a good corporate citizen, contributing to the community and quality of life

Intrin

sic Resp

onsib

ilities: Natu

re of C

haracter

Integ

rity. Com

passio

n.


455

20-Jun-16

CSR and Theories


456

CSR and Theories Reference: Garriga, E. and Mele, D. (2004),

Corporate Social Responsibility Theories: Mapping

the Territory, Journal of Business Ethics, 53(1-2), 51-

71.

Instrumental Theories

Political Theories

Integrative Theories

Ethical Theories

CSR and Theories


457

CSR and

Instrumental

Theories:

Windsor, D. (2001),

The Future of

Corporate Social

Responsibility,

International

Journal of

Organizational

Analysis, 9(3), 225-256.

Instrumental Theories:

In this group of theories CSR is seen only as a

strategic tool to achieve economic objectives and,

ultimately, wealth creation. Instrumental theories have

a long tradition and have enjoyed a wide acceptance

in business so far. As Windsor (2001) has pointed out,

“a leitmotiv of wealth creation progressively

dominates the managerial conception of responsibility” (Windsor, 2001, p. 226).

CSR and Theories


458

Mitchell, R.K.,

Angle, B.R., and

Wood, D.J. (1997).

Toward a Theory of

Stakeholder

Identification and

Salience: Defining

the Principle of

Who and What

Really Counts,

Academy of

Management

Review, 22(4), 853-886.

Instrumental Theories:

Concern for profits does not exclude taking into account the interests of all who have a stake in the firm (stakeholders). It has been argued that in certain conditions the satisfaction of these interests can contribute to maximizing the shareholder value (Mitchell et al., 1997). An adequate level of investment in philanthropy and social activities is also acceptable for the sake of profits (McWilliams and Siegel, 2001).

McWilliams, A. and Siegel, D. (2001), Corporate Social Responsibility: A Theory of the Firms Perspective, Academy of Management Review, 26(1), 117-127.

CSR and Theories


459

CSR and

Instrumental Theories

Three main groups of instrumental

theories can be identified, depending on the

economic objective proposed.

1. Maximizing the Shareholder Value.

2. Strategies for Achieving Competitive Advantage.

3. Cause-Related Marketing.



460

Prahalad, C.K.

(2002), Strategies

for the Bottom of

the Economic

Pyramid: India as a

Source of

Innovation,

Reflections: The

SOL Journal, 3(4), 6-18.

Strategies for the bottom of the economic pyramid:

Traditionally most business strategies are focused on targeting products at upper and middle-class people, but most of the world’s population is poor or lower-middle class. At the bottom of the economic pyramid there may be some 4000 million people. On reflection, certain strategies can serve the poor and simultaneously make profits. Prahalad (2002), analyzing the India experience, has suggested some mind-set changes for converting the poor into active consumers. The first of these is seeing the poor as an opportunity to innovate rather than as a problem.



461

Christensen, C.M.

and Overdorf, M.

(2000). Meeting the

Challenge of

Disruptive Change

Harvard Business

Review, 78(2), 66-

75.

Christensen, C.M.,

Craig, T. and Hart, S.

(2001), The Great

Disruption, Foreign Affairs, 80(2), 80-96.

A specific means for attending to the bottom of the economic pyramid is disruptive innovation. Disruptive innovations (Christensen and Overdorf, 2000; Christensen et al., 2001) are products or services that do not have the same capabilities and conditions as those being used by customers in the mainstream markets; as a result they can be introduced only for new or less demanding applications among non-traditional customers, with a low-cost production and adapted to the necessities of the population. For example a telecommunications company inventing a small cellular telephone system with lower costs but also with less service adapted to the base of the economic pyramid.



462

Disruptive innovations can improve the

social and economic conditions at the “base of the

pyramid” and at the same time they create a

competitive advantage for the firms in

telecommunications, consumer electronics, and

energy production, and many other industries, especially in developing countries.



463

Varadarajan, P.R. and Menon, A. (1988). Cause-Related Marketing: A Coalignment of Marketing Strategy and Corporate Philanthropy, Journal of Marketing, 52(3), pp. 58-58.

Murray, K.B. and Montanari, (1986), Strategic Management at the Socially Responsible Firm: Integrating Management and Marketing Theory, Academy of Management Review, 11(4), 815-828.

Cause-related marketing has been defined as “the process of formulating and implementing marketing activities that are characterized by an offer from the firm to contribute a specified amount to a designated cause when customers engage in a revenue-providing exchanges that satisfy organizational and individual objectives” (Varadarajan and Menon, 1988, p. 60). Its goal is to enhance the company revenues and sales or customer relationship by building brand through the acquisition of, and association with the ethical dimension or social responsibility dimension (Murray and Montanari, 1986; Varadarajan and Menon, 1988).



464

Smith, W. and Higgins, M. (2000). Cause-Related Marketing: Ethics and the Ecstatic, Business and Soceity, 39(3), 304-322.

McWilliams, A. and Siegel, D. (2001), Corporate Social Responsibility: A Theory of the Firm Perspective, Academy of Management Review, 26(1), 117-127.

In a way, it seeks product differentiation by creating

socially responsible attributes that affect company

reputation (Smith and Higgins, 2000). As McWilliams

and Siegel (2001, p. 120) have pointed out: “support of

cause related marketing creates a reputation that a

firm is reliable and honest. Consumers typically assume

that the products of a reliable and honest firm will be of

high quality.” For example, a pesticide-free or non-

animal-tested ingredient can be perceived by some buyers as preferable to other attributes of competitors’ products.



465

Smith, W. and

Higgins, M. (2000).

Cause-Related

Marketing: Ethics

and the Ecstatic,

Business and

Society, 39(3), 304-322.

Other activities, which typically exploit cause-related

marketing, are classical musical concerts, art

exhibitions, golf tournaments or literacy campaigns. All

of these are a form of enlightened self-interest and a win-

win situation as both the company and the charitable

cause receive benefits: “the brand manager uses consumer

concern for business responsibility as a means for

securing competitive advantage. At the same time a

charitable cause receives substantial financial benefits.” (Smith and Higgins, 2000, p. 309).

CSR and Political Theories


466

CSR, Political Theories

A group of CSR theories focus on interactions and connections between business and society and on the

power and position of business and its inherent responsibility. They include both considerations and political analysis in the CSR debate. Although there are a variety of approaches, two major theories can be distinguished:

Corporate Constitutionalism and Corporate Citizenship.

CSR and Political Theories


467

Davis, K. (1967).

Understanding the

Social

Responsibility

Puzzle, Business

Horizons, 10(4), 45-51.

Corporate Constitutionalism: Davis (1960) was one of the first to explore the role of

power that business has in society and the social impact of this power. In doing so, he introduces business power as a new element in the debate of CSR. He held that business is a social institution and it must use power responsibly. Additionally, Davis noted that the causes that generate the social power of the firm are not solely internal of the firm but also external. Their locus is unstable and constantly shifting, from the economic to the social forum and from there to the political forum and vice versa.



468

CSR, Corporate Citizenship

Davis attacked the assumption of the classical

economic theory of perfect competition that precludes

the involvement of the firm in society besides the

creation of wealth. The firm has power to

influence the equilibrium of the market and therefore the price is not a Pareto optimum

reflecting the free will of participants with perfect knowledge of the market.



469

Davis, K. (1960).

Can Business

Afford to Ignore

Corporate Social

Responsibilities?

California

Management Review, 2, 70-76.

Davis formulated two principles that express how social power has to be managed: “the social power equation” and “the iron law of

responsibility”. The social power equation principle states that “social responsibilities of businessmen arise from the amount of social power that they have” (Davis, 1967, p. 48). The iron law of responsibility refers to the negative consequences of the absence of use of power. In his own words: “Whoever does not use his social power responsibly will lose it. In the long run who do not use power in a manner which society considers responsible will tend to lose it because other groups eventually will step in to assume those responsibilities (1960, p. 63). So, if a firm does not use its social power, it will lose its position in society because other groups will occupy it, especially when society demands responsibility from business (Davis, 1960).



470


According to Davis, the equation of social power-responsibility has to be understood through the functional role of business and managers. In this respect, Davis rejects the idea of total responsibility of business as he rejected the radical free-market ideology of no responsibility of business. The limits of functional power came from the pressures of different constituency groups. This “restricts organizational power in the same way that a governmental constitution does.” The constituency groups do not destroy power. Rather they define conditions for its responsible use. They channel organizational power in a supportive way and to protect other interests against unreasonable organizational power (Davis, 1967, p. 68). As a

consequence, his theory is called “Corporate Constitutionalism.”



471

Donaldson, T. (1982). Corporations and Morality, Englewood Cliffs, NJ: Prentice-Hall.

Donaldson, T. and Dunfee, T.W. (1994). Towards a Unified Conception of Business Ethics: Integrative Social Contracts Theory, Academy of Management Review, 19, 252-284.

Integrative Social Contract Theory: Donaldson (1982) considered the business and society

relationship from the social contract tradition, mainly from the philosophical thought of Locke. He assumed that a sort of implicit social contract between business and society exists. This social contract implies some indirect obligations of business towards society. This approach would overcome some limitations of deontological and teleological theories applied to business.



472

Donaldson, T. and

Dunfee, T.W.

(1999), Ties that

Bind: A Social

Contracts Approach

to Business Ethics,

Boston: Harvard

Business School

Press.

Afterwards, Donaldson and Dunfee (1994, 1999) extended this approach and proposed an “Integrative Social Contract Theory” (ISCT) in order to take into account the socio-cultural context and also to integrate empirical and normative aspects of management. Social responsibilities come from consent. These scholars assumed two levels of consent. Firstly a theoretical macro-social contract appealing to all rational contractors, and secondly, a real micro-social contract by members of numerous localized communities. According to these authors, this theory offers a process in which the contracts among industries, departments and economic systems can be legitimate. In this process the participants will agree upon the ground rules defining the foundation of economics that will be acceptable to them.



473

Donaldson, T. and Dunfee, T.W. (2000), Precis for Ties that Bind, Business and Society, 105 (Winter), 436-444.

Donaldson, T. and Preston, L.E. (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications, Academy of Management Review, 20(1), 65-91.

The macro-social contract provides rules for any social contracting. These rules are called the “hyper-norms”; they ought to take precedence over other contracts. These hyper-norms are so fundamental and basic that they “are discernible in a convergence of religious, political and philosophical thought” (Donaldson and Dunfee, 2000, p. 441). The micro-social contracts show explicit or implicit agreements that are binding within an identified community, whatever this may be: industry, companies, or economic systems. These micro-social contracts, which generate “authentic norms”, are based on the attitudes and behaviors of the members of the norm-generating community and, in order to be legitimate, have to accord with the hyper-norms.



474

Davis, K. (1973),

The Case for and

Against Business

Assumptions of

Social

Responsibilities.

Academy of

Management

Journal, 16, 311-322.

Corporate Citizenship: Although the idea of the firm as citizen is not new (Davis,

1973) a renewed interest in this concept among practitioners has appeared recently due to certain factors that have had an impact on the business and society relationship. Among these factors, especially worthy of note are the crisis of the Welfare State and the globalization phenomenon. These, together with the deregulation process and decreasing costs with technological improvements, have meant that some large multinational companies have greater economic and social power than some governments. The corporate citizenship framework looks to give an account of this new reality.



475

Matten, D., Crane,

A., and Chapple, W.

(2003), Behind de

Mask: Revealing

the True Face of

Corporate

Citizenship, Journal

of Business Ethics, 45(1-2), 109-120.

Corporate citizenship: The business citizen

(cf. Matten, Crane, and Chapple, 2003) – this notion

has always connoted a sense of belonging to a

community. Perhaps for this reason it has been so

popular among managers and business people,

because it is increasingly clear that business needs to take into account the community where it is operating.



476


The term “corporate citizenship” cannot

have the same meaning for everybody. Matten et al.

(2003) have distinguished three views of “corporate

citizenship”: (1) a limited view, (2) a view equivalent

to CSR, and (3) an extended view of corporate citizenship, which is held by them.



477


In the limited view “corporate

citizenship” is used in a sense quite close

to corporate philanthropy, social investment or certain responsibilities assumed towards the local community.



478

Carroll, A.B.

(1999), Corporate

Social

Responsibility.

Evolution of

Definitional

Construct. Business

and Society, 38(3), 268-295.

The equivalent to CSR view is quite common. Carroll

(1999) believes that “Corporate

citizenship” seems a new conceptualization of

the role of business in society and depending on

which way it is defined, this notion largely overlaps

with theories on the responsibilities of business in society.



479


Finally, in the extended view of corporate

citizenship (Matten et al. 2003), corporations enter

the arena of citizenship at the point of government

failure in the protection of citizenship. This view

arises from the fact that some corporations have

gradually come to replace the most powerful

institution in the traditional concept of citizenship, namely government.



480


In spite of some noteworthy differences in corporate

citizenship theories, most authors generally converge

on some points, such as a strong sense of

business responsibility towards the local

community, partnerships, which are the

specific ways of formalizing the willingness to

improve the local community, and for consideration for the environment.



481

CSR, Integrative

Theories, Corporate

Citizenship

Preston, L.E. and

Post, J.E. (1975).

Private

Management and

Public Policy. The

Principle of Public

Responsibility,

Englewood Cliffs, NJ: Prentice Hall.

Integrative Theories: This group of theories looks at how business integrates social demands,

arguing that business depends on society for its existence, continuity and growth. Social demands are generally considered to be the way in which society interacts with business and gives it a certain legitimacy and prestige. As a consequence, corporate management should take into account social demands, and integrate them in such a way that the business operates in accordance with social values.

So, the content of business responsibility is limited to the SPACE and TIME of each situation depending on the VALUES of society at that moment, and comes through the company’s functional roles (Preston and Post, 1975). In other words, there is no specific action that management is responsible for performing throughout time and in each industry. Basically, the theories of this group are focused on the detection and scanning of, and response to, the social demands that achieve social legitimacy, greater social acceptance and prestige.



482

Sethi, S.P. (1975),

Dimensions of

Corporate Social

Performance: An

Analytical

Framework,

California

Management

Review, 17(3), 58-65.

Issues Management Social responsiveness, or responsiveness in the face of social

issues, and processes to manage them within the organization (Sethi, 1975) was an approach which arose in the 70s. In this approach it is crucial to consider the gap between what the organization’s relevant publics expect its performance to be and the organization’s actual performance. These gaps are usually located in the zone that Ackerman (1973, p. 92) calls the “zone of discretion” (neither regulated nor illegal nor sanctioned) where the company receives some unclear signals from the environment. The firm should perceive the gap and choose a response in order to close it (Ackerman and Bauer, 1976).



483

Jones, T.M. (1980),

Corporate Social

Responsibility

Revisited,

Redefined,

California

Management

Review, 22(2), pp. 59-67.

Ackerman, R.W. (1973). How Companies Respond to Social Demands, Harvard University Review, 51(4), 88-98.

Ackerman, R. and Bauer, B. (1976). Corporate Social Responsiveness, Virginia: Reston.

Ackerman (1973), among other scholars, analyzed the relevant factors regarding the internal structures of organizations and integration mechanisms to manage social issues within the organization. The way a social objective is spread and integrated across the organization, he termed “process of institution-alization.” According to Jones (1980, p. 65), “corporate behavior should not in most cases be judged by the decision actually reached but by the process by which they are reached.” Consequently, he emphasized the idea of process rather than principles as the appropriate approach to CSR issues.

Note: Process – virtue theory, etc.



484

CSR, Integrative

Management, Issues Management

Jones draws an analogy with the political process assessing that the appropriate process of CSR should

be a fair process where all interests have had the opportunity to be heard. So Jones has shifted the criterion to the inputs in the decision-making process rather than outcomes, and has focused

more on the process of implementation of CSR activities than on the process of conceptualization.



485

Wartick, S.L. and

Rude, R.E. (1986),

Issues

Management:

Corporate Fad or

Corporate

Function?

California

Management

Review, 29(1), 124-132.

The concept of “social responsiveness” was soon widened with the concept “Issues Management”. The latter includes the former but emphasizes the process for making a corporate response to social issues. Issues management has been identified by Wartick and Rude (1986, p. 124) as “the processes by which the corporation can identify, evaluate, and respond to those social and political issues which may impact significantly upon it.” They add that issues management attempts to minimize “surprises” which accompany social and political change by serving as an early warning system for potential environmental threats and opportunities.



486

Issue Management The four stages of issue maturity: as Organizational Learning, as Societal Learning.

Pharmaceutical company Novo Nordisk created a scale to measure the maturity of societal issues and the public’s expectations around the issues. An adaptation of the scales below and can be used by any company facing any number of societal issues:

Stage and Characteristics: 1. Latent:

Activist communities and NGOs are aware of the societal issue.

There is a weak scientific or other hard evidence.

The issue is largely ignored or dismissed by the business community.

2. Emerging:

There is political and media awareness of the societal issue.

There is an emerging body of research, but data are still weak.

Leading businesses experiment with approaches to dealing the issue.



487

Zadek, S. (2004).

The Path to

Corporate

Responsibility,

Harvard Business

Review, 82, pp. 125-132.

3. Consolidating:

There is an emerging body of business practices around the societal issue.

Sector-wide and issue-based voluntary initiatives are established.

There is litigation and an increasing view of the need for legislation.

Voluntary standards are developed, and collective action occurs.

4. Institutionalized:

Legislation or business norms are established.

The embedded practices become a normal part of a business-excellence model.



488

We need to move

up the corporate

responsibility

LEARNING

CURVE.

Source: Zadek (2004)

Civil

Strategic

Managerial

Compliance

Defense

Latent Emerging Consolidating Institutionalizing

Issue Maturity

Organizational Learning

Higher-Opportunity Green Zone

Risky Red Zone



489

Greening, D.W. and Gray, B. (1994), Testing a Model of Organizational Response to Social and Political Issues, Academy of Management Journal, 37, 467-498.

Brewer, T.L. (1992). An Issue Area Approach to the Analysis of MNE-Government Relations, Journal of International Business Studies, 23, 295-309.

Further, it prompts more systematic and effective responses to particular issues by serving as a coordinating and integrating force within the corporation. Issues management research has been influenced by the strategy field, since it has been seen as a special group of strategic issues (Greening and Gray, 1994), or a part of international studies (Brewer, 1992). That led to the study of topics related with issues (identification, evaluation and categorization), formalization of stages of social issues and management issue response. Other factors, which have been considered, include the corporate responses to media exposure, interest group pressures and business crises, as well as organization size, top management commitment and other organizational factors.



490

CSR, Integrative

Theory

Preston, L.E. and

Post, J.E. (1981),

Private

Management and

Public Policy,

California

Management

Review, 23(3), 56-63.

The Principle of Public Responsibility:

In favor of business intervention in the public policy process especially with respect to areas in which specific public policy is not yet clearly established (Preston and Post, 1981, p. 61).

In practice, discovering the content of the principle of public responsibility is a complex and difficult task and requires substantial management attention. As Preston and Post recognized, “the content of public policy is not necessarily obvious or easy to discover, nor is it invariable over time” (1981, p. 57). According to this view, if business adhered to the standards of performance in law and the existing public policy process, then it would be judged acceptably responsive in terms of social expectations.



491

CSR, Integrative

Theory

Vogel, D. (1986),

The Study of Social

Issues in

Management: A

Critical Appraisal,

California

Management

Review, 28(2), 142-

152.

The development of this approach was parallel to the

study of the scope regarding business-government

relationship (Vogel, 1986). These studies focused on

government regulations – their formulation and

implementation – as well as corporate strategies to

influence these regulations, including campaign

contributions, lobbying, coalition building, grassroots

organization, corporate public affairs and the role of public interest and other advocacy groups.



492

Sturdivant, F.D.

(1979). Executives

and Activist: Test of

Stakeholder

Management,

California

Management

Review, 22(Fall), 53-59.

Stakeholder Management:

Instead of focusing on generic responsiveness, specific issues or on the public responsibility principle, the approach called “stakeholder management” is oriented towards “stakeholders” or people who affect or are affected by corporate policies and practices. Although the practice of stakeholder management is long-established, its academic development started only at the end of 70s (cf. Sturdinvant, 1979).



493

CSR, Stakeholder Management



494

Emshoff, J.R. and

Freeman, R.E.

(1978). Stakeholder

Management,

Working Paper

from the Wharton

Applied Research

Center (July),

Quoted by Sturdivant (1979).

In a seminal paper, Emshoff and Freeman (1978) presented two basic principles, which underpin stakeholder management. The first is that the central goal is to achieve maximum overall cooperation between the entire system of stakeholder groups and the objectives of the corporation. The second states that the most efficient strategies for managing stakeholder relations involve efforts, which simultaneously deal with issues affecting multiple stakeholders.



495

CSR, Integrative

Theories,


Stakeholder management tries to integrate groups with a stake in the firm into managerial decision-making. A great deal of empirical research has been done, guided by a sense of pragmatism. It includes topics such as how to determine the best practice in corporate stakeholder relations (Bendheim et al. 1998), stakeholder salience to managers (Agle and Mitchell, 1999), the impact of stakeholder management on financial performance (Berman et al., 1999), the influence of stakeholder network structural relations (Rowley, 1997), and how managers can successfully balance the competing demands of various stakeholder groups (Ogden and Watson, 1999).



496

CSR, Integrative

Theories,


Agle, B.R., and Mitchell, R.K. (1999). Who Matters to CEO? An Investigation of Stakeholder Attributes and Salience, Corporate Performance and CEO Values, Academy of Management Journal, 42(5), 507-526.

Bendheim, C.L., Waddlock, S.A., and Graves, S.B. (1998). Determining the Best Practice in Corporate Stakeholder Relations using Data Envelopment Analysis, Business and Society, 37(3), 306-339.

Berman, S.L., Wicks, A.C., Kotha, S., and Jones, T.M. (1999), Does Stakeholder Orientation Matter? The Relationship between Stakeholder Management Models and the Firm Financial Performance, Academy of Management Journal, 42(5), 488-509.

Ogden, S. and Watson, R. (1999), Corporate Performance and Stakeholder Management Balancing Shareholder and Customer Interests in the U.K. Privatized Water Industry, Academy of Management Journal, 42(5), 526-538.

Rowley, T.J. (1997), Moving Beyond Dyadic Ties: A Network Theory of Stakeholder Influences, Academy of Management Review, 22(4), 887-911.



497

CSR, Integrative

Theories,

Stakeholder

Management

Kaptein, M. and can

Tulder, R. (2003).

Toward Effective

Stakeholder

Dialogue, Business

and Society Review,

108(Summer), 203-225.

In recent times, corporations have been pressured by non-governmental organizations (NGOs), activists, communities, governments, media and other institutional forces. These groups demand what they consider to be responsible corporate practices. Now some corporations are seeking corporate responses to social demands by establishing dialogue with a wide spectrum of stakeholders.

Stakeholder dialogue helps to address the question of responsiveness to the generally unclear signals received from the environment. In addition, this dialogue “not only enhances a company’s sensitivity to its environment but also increases the environments understanding of the dilemmas facing the organization” (Kaptein and van Tulder, 2003, p. 208).



498

Stakeholder Theory Corporation – as a constellation of cooperative and competitive interests possessing intrinsic value. From the instrumental theory point of view, corporations practicing stakeholder management will, other things being equal, be relatively successful in conventional performance terms (profitability, stability, growth, etc.). Stakeholder theory can also be reasoned from normative perspective. Stakeholders are persons or groups with legitimate interests in procedural and/or substantive aspects of corporate activity. Also, the interests of all stakeholders are of intrinsic value. That is, each group of stakeholder merits consideration for its own sake and not merely because of its ability to further the interests of some other group, such as the shareholders. The stakeholder theory is managerial in the broadest sense of that term. It does not simply describe existing situations or predict cause-effect relationships; it also recommends attitudes, structures, and practices that, taken together, constitute stakeholder management.



499

CSR, Integrative Theories, CSP

Carroll, A.B. (1979), A Three-Dimensional Conceptual Model of Corporate Performance, Academy of Management Review, 4(4), 497-505.

Carroll, A.B. (1991), The Pyramid of Corporate Social Responsibility: Towards the Moral Management of Organizational Stakeholders, Business Horizons (July/August), 39-48.

Corporate Social Performance:

A set of theories attempts to integrate some of the previous theories. The corporate social performance (CSP) includes a search for social legitimacy, with processes for giving appropriate responses.

Carroll (1979), generally considered to have introduced this model, suggested a model of “corporate performance” with three elements: a basic definition of social responsibility, a listing of issues in which social responsibility exists and a specification of the philosophy of response to social issues. Carroll considered that a definition of social responsibility, which fully addresses the entire range of obligations business has to society, must embody the economic, legal, ethical and discretionary categories of business performance. He later incorporated his four-part categorization into a “Pyramid of Corporate Social Responsibilities” (Carroll, 1991). Recently, Schwartz and Carroll (2003) have proposed an alternative approach based on three core domains (economic, legal, and ethical responsibilities) and a Venn model framework. The Venn framework yields seven CSR categories resulting from the overlap of the three core domains.



500

Venn Model

framework of CSR

Schwartz, M.S. and

Carroll, A.B.

(2003). Corporate

Social

Responsibility: A

Three-Dimensional

Domain Approach,

Business Ethics

Quarterly, 13(4), 503-530.



501

Warticik,S. and Cochran, P.L. (1985). The Evolution of Corporate Social Performance Model, Academy of Management Review, 10(4), 758-769.

Wood (1991), Corporate Social Performance Revisited, Academy of Management Review, 16(4), 691-718.

Wartick and Cochran (1985) extended the Carroll

approach suggesting that corporate social involvement

rests on the principles of social responsibility, the

process of social responsiveness and the policy of

issues management. A new development came with

Wood (1991) who presented a model of corporate

social performance composed of principles of CSR,

processes of corporate social responsiveness and outcomes of corporate behavior.



502

CSP Model of Wood (1991)

CSR Principles CSR Process CSR Outcomes



503

CSR, Ethical Theories

Ethical Theories:

There is a fourth group of theories or approaches

focus on the ethical requirements that cement the

relationship between business and society. They are

based on principles that express the right thing to do or the necessity to achieve a good society.



504

Freeman, R.E

(1984), Strategic

Management: A

Stakeholder

Approach, Boston: Pitman.

Normative Stakeholder Theory:

Stakeholder management has been included within the integrative theories group because some authors consider that this form of management is a way to integrate social demands. However, stakeholder management has become an ethically based theory mainly since 1984 when Freeman wrote Strategic Management: A Stakeholder Approach. In this book, he took as starting point that “managers bear a fiduciary relationship to stakeholders” (Freeman, 1984, p. xx), instead of having exclusively fiduciary duties towards stockholders, as was held by the conventional view of the firm. He understood as stakeholders those groups who have a stake in or claim on the firm (suppliers, customers, employees, stockholders, and the local community).



505

Donalson, T. and

Preston, L.E.

(1995), The

Stakeholder Theory

of the Corporation:

Concepts,

Evidence, and

Implications,

Academy of

Management

Review, 20(1), 65-91.

In a more precise way, Donaldson and Preston (1995, p. 67) held that the stakeholder theory has a normative core based on two major ideas (1) stakeholders are persons or groups with legitimate interests in procedural and/or substantive aspects of corporate activity (stakeholders are identified by their interests in the corporation, whether or not the corporation has any corresponding functional interest in them) and (2) the interests of all stakeholders are of intrinsic value (that is, each group of stakeholders merits consideration for its own sake and not merely because of its ability to further the interests of some other group, such as the shareholders).



506


Following this theory, a socially responsible firm requires simultaneous attention to the legitimate interests of all appropriate stakeholders and has to balance such a multiplicity of interests and not only the interests of the firm’s stockholders. Supporters of normative stakeholder theory have attempted to justify it through arguments from Kantian capitalism (Bowie, 1991), modern theories of property and distributive theories (Donaldson and Preston, 1995) and also Libertarian theories with its notions of freedom, rights and consent (Freeman and Philips, 2002).

Bowie, J. (1991), New Directions in Corporate Social Responsibility, Business Horizons, 34(4), 56-66.

Freeman, R.E. and Philips, R.A. (2002), Stakeholder Theory: A Libertarian Defense, Business Ethics Quarterly, 12(3), 331-349.



507

Cassel, D. (2001),

Human Rights

Business

Responsibilities in

the Global

Marketplace,

Business Ethics

Quarterly, 11(2), 261-274.

Universal Rights:

Human rights have been taken as a basis for CSR, especially in the global marketplace (Cassel, 2001). In recent years, some human-rights-based approaches for corporate responsibility have been proposed. One of them is the UN Global Compact, which includes nine principles in the areas of human rights, labor and the environment. It was first presented by the United Nations Secretary-General Kofi Annan in an address to The World Economic Forum in 1999.

In 2000 the Global Compact’s operational phase was launched at UN Headquarters in New York. Many companies have since adopted it.



508


Universal Rights:

Another, previously presented and updated in 1999, is The Global Sullivan Principles, which has the objective of supporting economic, social and political justice by companies where they do business. The certification SA8000 (www.cepaa.org) for accreditation of social responsibility is also based on human and labor rights. Despite using different approaches, all are based on the Universal Declaration of Human Rights adopted by the United Nations general assembly in 1984 and on the other international declarations of human rights, labor rights and environmental protection.

http://www.cepaa.org/



509


Although for many people universal rights are a question of consensus, they have a theoretical grounding, and some moral philosophy theories give them support (Donnelly, 1985). It is worth mentioning the Natural Law tradition (Simon, 1992), which defends the existence of natural human rights (Maritain, 1971).

Donnelly, J. (1985), The Concept of Human Rights, London: Croom Helm.

Maritain, J. (1971)[c1943], The Rights of Man and Natural Law, New York: Gordian Press.

Simon, Y.R. (1992)(1965), in V. Kuic (ed.), The Tradition of Natural Law, A Philosopher’s Reflections. (Ford-ham University Press, New York).



510

Eriksen, E. and

Weigard, J. (2000),

The End of

Citizenship? In C.

McKinnon and I.

Hamsher-Monk

(Eds.), The

Demands of

Citizenship, 13-24,

London: Continuum.

Social rights – consist of those rights that provide the individual with the freedom to participate in society, such as the right to education, health care, or various aspects of welfare.

Civil rights – consist of those rights that provide freedom from abuses and interference of third parties (most notably governments), among the most important of which are the rights to own property, exercise freedom of speech, and engage in “free” markets.

Both types of rights clearly focus on the position of the individual in society and help protect his or her status (Eriksen and Weigard, 2000).



511

Matten, D. and

Crane, A. (2005),

Corporate

Citizenship: Toward

an Extended

Theoretical

Conceptualization,

Academy of

Management

Review, 30(1), 166-179.

In contrast to these more passive rights (with

government as respecter or active facilitator of the

rights), political rights move beyond the mere

protection of the individual’s private sphere and

toward his or her active participation in society. This

includes the right to vote or the right to hold office

and, generally speaking, entitles the individual to take

part in the process of collective will formation in the public sphere (Matten and Crane, 2005).



512

Corporate citizenship rights. Thus, corporate citizenship:

The role of the corporation in administering

citizenship rights for individuals:

Social rights – provides social services, etc.

Civil rights – enables.

Political rights – channels, conduits for the exercise of individual’s political rights.



513

CSR and Ethical Theories

World Commission on Environment and Development (1987), Our Common Future, Oxford University Press, Oxford.

World Business Council for Sustainable Development (2000), Corporate Social Responsibility: Making Good Business Sense, Geneve: World Business Council for Sustainable Development.

Sustainable Development: Another values-based concept, which has become popular, is “sustainable

development.” Although this approach was developed at macro level rather than corporate level, it demands a relevant corporate contribution. The term came into widespread use in 1987, when the World Commission on Environment and Development (United Nations) published a report known as “Brutland Report”. This report stated that “sustainable development” seeks to meet the needs of the present without compromising the ability to meet the future generation to meet their own needs” (World Commission on Environment and Development, 1987, p. 8). Although this report originally only included the environmental factor, the concept of “sustainable development” has since expanded to include the consideration of the social dimension as being inseparable from development. In the words of the World Business Council for Sustainable Development (2000, p. 2), sustainable development “requires the integration of social, environmental, and economic considerations to make balanced judgments for the long term.”



514

Gladwin, T.N. and

Kennelly, J.J.

(1995), Shifting

Paradigms for

Sustainable

Development:

Implications for

Management

Theory and

Research, Academy

of Management

Review, 20(4), 874-904.

Numerous Definitions have been proposed for sustainable development (cf. Gladwin and Kennelly, 1995, p. 877). In spite of which, a content analysis of the main definitions suggests that sustainable development is a “process of achieving human development in an inclusive, connected, equiparable, prudent and secure manner.” (Gladwin and Kennelly, 1995, p. 876). The problem comes when the corporation has to develop the processes and implement strategies to meet the corporate challenge of corporate sustainable development. As Wheeler et al. (2003, p. 17) have stated, sustainability is “an ideal toward which society and business can continually strive, the way we strive is by creating VALUE, creating OUTCOMES that are consistent with the IDEAL of sustainability along social environmental and economic dimensions.”

Wheeler, D., Colbert, B., and Freeman, R.E. (2003), Focusing on Value: Reconciling Corporate Social Responsibility, Sustainability and a Stakeholder Approach in a Network World, Journal of General Management, 28(3), pp. 1-39.



515

Van Marrewijk, M.

and Weree, M.

(2003), Multiple

Levels of Corporate

Sustainability,

Journal of Business

Ethics, 44(2/3), pp. 107-120.

A pragmatic proposal is to extend the traditional “bottom line” accounting, which shows overall net profitability, to a “triple bottom line” that would include economic, social and environmental aspects of corporation.

Van Marrewijk and Were (2003) maintain that corporate sustainability is a custom-made process and each organization should choose its own specific ambition and approach regarding corporate sustainability. This should meet the organization’s aims and intentions, and be aligned with the organization strategy, as an appropriate response to the circumstances in which the organization operates.



516

How firm creates value: Three levels : Level 1 – a compliance culture. Level 2 – a relationship management culture, where the organization recognizes the instrumental value of good relations with immediate stakeholders, e.g. customers, workers, communities and business partners, and seeks to provide what value is appropriate in each case.

Source: Wheeler, Colbert and Freeman (2003)

Compliance Culture:

Value preserved

Consistent with laws and norms. Do Minimum Harm

Sustainable Organization Culture:

Value maximized and integrated –

economically, socially, and

ecologically.

Organization takes a societal level

focus and seeks synergistic outcomes

between value dimensions.

DO MAXIMUM GOOD – i.e. Creating Maximum Value.

Relationship

Management Culture: Value-Tradeoff.

Sustainable Org. Culture



517

Wheeler, D.,

Colbert, B. and

Freeman, R.E.

(2003). Focusing on

Value: Reconciling

Corporate Social

Responsibility,

Sustainability and a

Stakeholder

Approach in a

Network World,

Journal of General

Management, 28(3), 1-28.

Note:

Culture is defined as the values, beliefs, and assumptions of the organization.

In proposing the cultural framework for CSR we are not suggesting that firms have static cultures or that they can, should or do operate only in one mode with respect to all stakeholders at all times. Values, beliefs and assumptions change and it is important to understand that any such prescription would be antithetical to our basic premise.



518

Mahon, J.F. and McGowan, R.A. (1991), Searching for the Common Good: A Process-Oriented Approach, Business Horizons, 34(4), 79-87.

Smith, T.W. (1999), Aristotle on the Conditions for and Limits of the Common Good, American Political Science Review, 93(3), 625-637.

The Common Good Approach:

This third group of approaches, less consolidated than the stakeholder approach but with potential, holds the common good of society as the referential value for CSR (Mahon and McGowen, 1991). The common good is a classical concept rooted in Aristotelian tradition (Smith, 1999), in Medieval Scholastics (Kempshall, 1999), developed philosophically (Maritain, 1966), and assumed into Catholic social thought (Carey, 2001) as a key reference for business ethics (Alford and Naughton, 2002).



519


Alford, H. and Naughton, M. (2002). Beyond the Shareholder Model of the Firm: Working toward the Common Good of a Business. In S.A. Cortright and M. Naughton (Eds.), Rethinking the Purpose of Business, Interdisciplinary Essays from the Catholic Social Tradition, Notre Dame University Press, Notre Dame, pp. 27-47.

Carey, J.B. (2001), The Common Good in Catholic Social Thought, St. John’s Law Review, 75(2), 311-313.

Kempshall, M.S. (1999), The Common Good in Late Medieval Political Thought, Oxford University Press, Oxford.

Maritian, J. (1966), The Person and the Common Good, Notre Dame University Press, Notre Dame.



520

Fort, T.L. (1999),

The First Man and

the Company Man:

The Common

Good,

Transcendence and

Mediating

institutions,

American Business

Law Journal, 36(3), 391-435.

This approach maintains that business, as with any

other social group or individual in society, has to

contribute to the common good, because it is a part of

society. In this respect, it has been argued that

business is a mediating institution (Fort, 1999).

Business should be neither harmful to nor a parasite

on society, but purely a positive contributor to the well-being of the society.



521


Business contributes to the common good in different ways, such as creating wealth, providing goods and services in an efficient and fair way, at the same time respecting the dignity and the inalienable and fundamental rights of the individual. Furthermore, it contributes to social well-being and a harmonic way of living together in just, peaceful and friendly conditions, both in the present and in the future.

To some extent, this approach has a lot in common with both the stakeholder approach and sustainable development, but the philosophical base is different. It permits the circumnavigation of cultural relativism, which is frequently embedded in some definitions of sustainable development.


Successful corporations need a healthy society.

Education, health care, and equal opportunity are essential to a productive workforce.

Safe products and working conditions not only attract customer but also lower the internal

costs or accidents.

Efficient utilization of land, water, energy, and other natural resources makes business

more productive.

Good government, the rule of law, and property rights are essential for efficiency and

innovation.

Strong regulatory standards protect both consumers and competitive companies from exploitation.

Healthy Society

Create Sustainable

expanding

demand for business

Creating jobs,

wealth,

innovation, and

create corporate

and regional competitiveness

Improve

standards of

living and social

conditions Tax contribution



Ultimately, a healthy society creates expanding demand for business, as more

human needs are met and aspirations grow.

Any business that pursues its ends at the expense of the society in which it operates will find its success to be illusory and ultimately temporary.


Healthy Society

Create Sustainable

expanding

demand for business

Creating jobs,

wealth,

innovation, and

create corporate


Improve

standards of

living and social


Companies:

20-Jun-16


At the same time, a healthy society needs successful companies.

No social program can rival the business sector when it comes to creating jobs, wealth and

innovation that improve standards of living and social conditions over time.

If governments, NGOs, and other participants in civil society weaken the ability of business

to operate productively, they will win battles but will lose the war, as corporate and regional

competitiveness fade, wages stagnate, jobs disappear, and the wealth that pays taxes and supports nonprofit contributions evaporates.


Healthy Society

Create Sustainable

expanding

demand for business

Creating jobs,

wealth,

innovation, and

create corporate


Improve

standards of

living and social


Companies:

20-Jun-16

Successful corporations need a healthy society. Leaders in both business and civil society have focused too much on friction between them and not

enough on the points of intersection.

The mutual dependence of corporations and society implies that both business decisions and social

policies must follow the principle of shared value.

That is, choices must benefit both sides. If either a business or a society pursues policies that benefit its

interests at the expense of the other, it will find itself on a dangerous path. A temporary gain to one will

undermine the long-term prosperity of both.

To put these broad principles into practice, a company must integrate a social perspective into the core frameworks it already uses to understand competition and guide its business strategy.

Behavior

Inside-Out Outside-In

Society Company

Opportunities and Threats The Context Diamonds

Intersection:

Create Shared

value, choices Benefit / Long-Term prosperity Benefit / Long-term prosperity


Choosing which social issues to address:

No business can solve all of society’s problems or bear the cost of doing so. Instead, each

company must select issues that intersect with its particular business. Other social

agendas are best left to those companies in other industries, NGOs, or government

institutions that are better positioned to address them.

CSR Actions (Strategies)

Behavior


Society Company


Intersection:

Create Shared value, choices

Selective competent issues to address

Benefit / Long-Term prosperity Meaningful benefits to societies

Benefit / Long-term prosperity Meaningful benefits to companies


Responsive CSR: Strategic CSR:

CSR Actions (Strategies)

Behavior


Society Company


Intersection:

Create Shared value, choices

Selective competent issues to address

Benefit / Long-Term prosperity Benefit / Long-term prosperity


Responsive CSR comprises 2 elements: 1st) Acting as a good corporate citizen, attuned to the evolving social concerns of stakeholders

The best corporate citizenship initiatives involve far more than writing a check (for

donation): They specify clear, measurable goals, and track results over time. A good

example is GE’s program to donate to underperforming public high schools near several

of its major U.S. facilities. The company contributes between $250,000 and $1 million over

a five-year period to each school and makes in-kind donations as well.

2nd) Mitigating existing or anticipated adverse effects from business activities – is essentially an

operational challenge.

Because they are a myriad of possible value-chain impacts for each business unit, many

companies have adopted a “checklist approach to CSR”, using standardized sets of

social and environmental risks. Global Reporting Initiative, which is rapidly becoming a

standard for CSR reporting, has enumerated a list of 141 CSR issues, supplemented by

auxiliary lists for different industries.

These lists make for an excellent starting point, but companies need a more proactive and

tailored internal process to identify systematically the social impact of the unit’s activities in each location.


More understanding on the GE:

GE managers and employees take an active role by working with school administrators to

assess, needs and mentor or tutor students.

In an independent study of ten schools in the program between 1989 and 1999, nearly all

showed significant improvement, while the graduation rate in four of the five worst-performing

schools doubled from an average of 30% to 60%.

Effective corporate citizenship initiatives such as this one create goodwill and improve relations

with local governments and other important constituencies. What’s more, GE’s employees feel pride in their participation.

CSR Citizenship

Inside: Employees feel pride in their participation

Outside:

Create goodwill / improved relations with local government and other important constituents


Strategic CSR:

For any company, strategy must go beyond best practices. It is about choosing a

unique position – doing things differently from competitors in a way that lowers

costs or better serves a particular set of customer needs. These principles

apply to a company’s relationship to society as readily as to its relationship to its customers

and rivals.

Strategic CSR moves beyond good corporate citizenship and mitigating harmful value chain

impacts to mount a small number of initiatives whose social and business benefits are large

and distinctive.

Strategic CSR involves both inside-out and outside-in dimensions working in tandem. It is

here the opportunities for shared value truly lie.

Many opportunities to pioneer innovations to benefit both society and a company’s own

competitiveness can arise in the product offering and the value chain.

Toyota’s response to concerns over automobile emissions is an example.

Toyota’s Prius, the hybrid electric/gasoline vehicle, is the first in a series of

innovative car models that have produced competitive advantage and environmental

benefits. Hybrid engines emit as little as 10% of the harmful pollutants conventional vehicles produce while consuming only half as much gas.


Voted 2004 Car of the Year by Motor Trend magazine, Prius has given Toyota a lead so

substantial that Ford and other car companies are licensing the technology.

Toyota has created a unique position with customers and is well on its way to establishing its technology as the world standard.


Urbi, a Mexican construction company, has prospered by building housing for

disadvantaged buyers using novel financing vehicles such as flexible mortgage payments made through payroll deductions.


Credit Agricole, France’s largest bank, has differentiated itself by offering

specialized financial products related to environment, such as financing

packages for energy-saving home improvements and for audits to certify farms as organic.


Strategic CSR also unlocks shared value by investing in social aspects

of context that strengthen company competitiveness.

A symbiotic relationship develops: The success of the company and the

success of the community become mutually reinforcing. Typically, the more

closely tied a social issue is to the company’s business, the greater the

opportunity to leverage the firm’s resources and capabilities, and

benefit society.

Resources Capabilities

Strategic CSR:

Invest in

social aspect

of context

Being

uniquely

positioned

Shared

common interests

Competitiveness

Better leverage:


Microsoft’s Working Connections partnership with the American Association of Community

Colleges (AACC) is a good example of a shared-value opportunity arising from investments in

context.

The shortage of information technology workers is a significant constraint on Microsoft’s

growth; currently, there are more than 450,000 unfilled IT positions in the United States.

Community colleges, with an enrollment of 11.6 million students, represent 45% of all U.S.

undergraduates, could be a major solution.

Microsoft recognizes, however, that community colleges face special challenges:

IT curricula are not standardized, technology used in classrooms is often outdated, and

there are no systematic professional development programs to keep faculty up to date.


Microsoft’s $50 million five-year initiative was aimed at all three problems. In addition to

contributing money and products, Microsoft sent employee volunteers to colleges to assess

needs, contribute to curriculum development, and create faculty development institutes.

Note that in this case, volunteers and assigned staff were able to use their core professional

skills to address a social need, a far cry from typical volunteer programs.

Microsoft has achieved results that have benefited many communities while having a direct – and potentially significant – impact on the company.

Financial Need Social Need

Product Need


Synchronized

20-Jun-16

Value-Chain

Innovation

+ Addressing social

constraints to competitiveness

Product Need / Value

Money Need / Value Social Need / Value

Work together

Better

overall value

Contribute to :

Pioneering value chain innovations and addressing social constraints to competitiveness are

each power tools for creating economic and social value. However, the impact is even greater if

they work together.

Activities in the value chain can be performed in ways that reinforce improvements in the social

dimensions of context. At the same time, investments in competitive context have the potential to reduce constraints on a company’s value chain activities.


Synchronized:

20-Jun-16

Marriott’s, for example, provides 180 hours of paid classroom and on-the-job training to

chronically unemployed job candidates.

The company has combined this with support for local community service organizations,

which identify, screen, and refer the candidates to Marriott.

The net result is both a major benefit to communities and a reduction in Marriott’s cost of

recruiting entry-level employees.

Ninety percent of those in the training program take jobs with Marriott. One year later, more than 65% are still in their jobs, a substantially higher retention rate than the norm.


When value chain practices and investment in competitive context are fully integrated, CSR

becomes hard to distinguish from the day-to-day business of the company.

Nestle, for example, works directly with small farmers in developing countries to source the basic

commodities, such as milk, coffee, and cocoa, on which much of its global business depends.

The company’s investment in local infrastructure and its transfer of world-class knowledge and

technology over decades has produced enormous social benefits through improved health care,

better education, and economic development, while giving Nestle direct and reliable access to the commodities it needs to maintain a profitable global business.

Value-Chain

Practices Investment

Investment in

Competitive Context

Fully

Integrated with

Social benefits

Benefits to the business


Strategic CSR

20-Jun-16

Creating a social dimension to the value proposition:

At the heart of any strategy is a unique value proposition: a set of needs a company can

meet for its chosen customers that others cannot.

The most strategic CSR occurs when a company adds a social dimension to its value

proposition, making social impact integral to the overall strategy.

Consider Whole Foods Market, whose value proposition is:

to sell organic, natural, and healthy food products to customers who are passionate about food and the environment.



Social issues are fundamental to what makes Whole Foods unique in food retailing and to its

ability to command premium prices.

The company’s sourcing emphasizes purchases from local farmers through each store’s

procurement process. Buyers screen out foods containing any or nearly 100 common

ingredients that the company considers unhealthy or environmentally damaging.

The same standards apply to products made internally. Whole Foods’ baked goods, for example, use only unbleached and un-bromated flour.

Healthiness Environmental RM Source Screening

The Firm

The Rivalry



Whole Foods’ commitment to natural and environmental

friendly operating practices extends well beyond

sourcing. Stores are constructed using a minimum of

virgin raw materials.

Recently, the company purchased renewable wind

energy credits equal to 100% of its electricity use in all of

its stores and facilities, the only Fortune 500 company to offset its electricity consumption entirely.

Environmental RM Source Screening:

Food Cleaning products

The Firm

The Rivalry

Price Env. Friendly infrastructure

Env. Friendly process / transports

Env. Friendly waste treatment

Philanthropy

Unique

market

positioning

Self-

sustaining capability




Spoiled produce and bio-degradable wastes are trucked to regional centers for composting.

Whole Foods’ vehicles are being converted to run on biofuels. Even the cleaning products used in its stores are environmentally friendly.



And through its philanthropy, the company has created the Animal Compassion Foundation

to develop more natural and humane ways of raising farm animals.

In short, nearly every aspect of the company’s value chain reinforces the social dimensions of its value proposition, distinguishing Whole Foods from its competitors.



Sysco, for example, the largest distributor of food products to restaurants and institutions in

North America, has begun an initiative to preserve small, family-owned farms and offer locally grown produce to its customers as a source of competitive differentiation.



Not every company can build its entire value proposition around social issues as Whole

Foods does, but adding a social dimension to the value proposition offers a new frontier in

competitive positioning.

Government regulation, exposure to criticism and liability, and consumers’ attention to

social issues are all persistently increasing. As a result, the number of industries and

companies whose competitive advantage can involve social value propositions is constantly growing.


Summary:

To really develop and implement strategic CSR, companies must shift from

a fragmented, defensive posture to an integrated, affirmative approach.

Perceiving CSR as building shared value rather than as damage control or

as a PR campaign will require dramatically different thinking in business.

The focus must move away from an emphasis of image to an emphasis on

substance.

Corporations are not responsible for all the world’s problems, nor do they

have the resources to solve them all. Each company can identify the

particular set of societal problems that it is best equipped to help resolve

and from which it can gain the greatest competitive benefit.

Addressing social issues by creating shared value will lead to self-

sustaining solutions that do not depend on private or government subsidies.


Dimensions:

Integrity: Fragmented, defensive CSR Integrated, affirmative

approach to CSR

Activeness: CSR as damage control CSR as building shared

value / PR campaign

Through

Content: Emphasis on image Emphasis on substance


Behavior:

Short-term reactive

and defense

Long-term

proactive moral

obligation etc.

Value-chain and

competitive context investment in CSR

Long-term

competitiveness 3P Results

Society and consumer attitude, Gov. Regulation

Measuring and publicizing: Social or environmental impact

Affirmative

Strategic CSR Commitment

Operating managers must

understand the importance

of the outside-in influence of

competitive context, while

people with responsibility for

CSR initiatives must have a

granular understanding of

every activity in the value

chain.

Value chain and competitive-

context investments in CSR

need to be incorporated into

the performance measures of

managers with P&L

responsibility.

Creating shared value should

be viewed like research and

development, as a long-term

investment in a company’s

future competitiveness.

Outside-in influence of competitive context:




Looking Inside-Out: Mapping the Social Impact of the Value Chain

The value chain depicts all the activities a company engages in while doing

business. It can be used as a framework to identify the positive and negative social

impact of those activities.

These inside-out linkages may range from hiring and layoff policies to greenhouse gas emissions.


Exam Questions Explain the term business ethics.

Explain the difference between a descriptive and prescriptive approach to business

ethics.

Identify six stakeholders of an organization.

Give 4 examples of how stakeholders could be negatively impacted by unethical

corporate behavior.

Explain the stakeholder typology strategies

Explain different crisis issues management.

Explain inside-out and outside-in corporate social responsibility strategy-development framework.


555

20-Jun-16


High Ethics Companies

High-Ethics Companies:


What would a highly effective value-based organizational culture look

like?

Mark Pastin studied 25 high-ethics, high-profit firms, which at the time

included Motorola, 3M, Cadbury Sschweppes, Arco, Northern Chemical,

and Apple.

Pastin, M. (1986), Lessons from High Profit, High-Ethics Companies: An

Agenda for Managerial Action (Chapter 11), pp. 218-228. In The Hard

Problems of Management: Gaining the Ethics Edge, San Francisco:

Jossey-Bass.


557

20-Jun-16


High Ethics Companies:


While the list of high-ethics firms – like “built-to-last” firms – may

change, the 4 principles that Pastin discovered to describe such firms

serve as benchmark for understanding ethically effective organizations:

1. Principle 1: High-ethics firms are at ease interacting with diverse

internal and external stakeholder groups. The ground rules of these

firms make the good of these stakeholder groups part of the firm’s own

good. (Who)

2. Principle 2: High-ethics firms are obsessed with fairness. Their

ground rules emphasize that the other person’s interests count as

much as their own. (Action)


558

20-Jun-16



559



3. Principle 3: In high-ethics firms, responsibility is individual rather

than collective; individuals assume responsibility for the firm’s actions.

The ground rules mandate that individuals are responsible for

themselves. (Who)

4. Principle 4: The high-ethics firm sees its activities as having a

purpose, a way of operating that members of the firm value. And

purpose ties the firm to its environment. (What)

20-Jun-16


High Ethics Companies:

High-Ethics Companies

At ease

interacting

with diverse

stakeholders (Who)

Obsessed with fairness (Means)

Individual

responsibility (Who)

Activities having a purpose (End)


560

20-Jun-16

Business Ethical Examples

Business Ethical

Examples:

Wal-Mart Green Roofs


561

20-Jun-16


Business Ethical

Examples: Bio-degradable Shoes


562

20-Jun-16


Learning from

the Nature - the

Next Wave of

Business

Frontiers. Let

the Nature be our Professors.


563

20-Jun-16




564

20-Jun-16


Business Ethics Example:

Using Business Ethics Principle to Innovate Business for

High Profit and High Performance for both the Firms and

the Societies in the Most Highly Naturally Sustainably

Manner:

Research from Stanford University:

Although we seem to use concrete in just about every type of building, most

of us don’t seem to realize how harmful it is to the environment. Concrete

production is responsible for releasing an astonishing amount of carbon

dioxide into the environment – about one ton for every ton of cement

produced. Stanford University bio-mineralization expert Brent Costantz saw

a problem with that number and decided to do something about it. He

looked to the coral reefs for inspiration. Corals pluck CO2 from the water to

help them calcify and build their exoskeletons, a process that leads to

massive coral reef structures.


565

20-Jun-16

Dark Innovation


566

Research from

Stanford

University:

20-Jun-16



Costantz discovered a way to mimic this action for making cement. By

taking the CO2 waste from a power company and dissolving it in sea

water, carbonate was formed. The carbonate mixes with calcium in the

sea water and solidifies to make an eco-friendly version of cement. The

incredible process goes by the name of Calera, and the technology could

be applied to new or existing power plants to capture and convert their

CO2. The solids created in the process may not be able to replace the

portland cement component of concrete entirely, but the technology truly is an amazing breakthrough in the field of greener construction materials.


567

20-Jun-16



“As CEO, I approach environmental

performance issues in three broad

ways: improving our own culture and

operations, influencing – indeed,

pressuring the companies that do

business with us, and championing

renewable energy development.” Jose

sergio Gabrielli de Azevedo, the

President and CEO of Petrobras,

headquartered in Rio de Janeiro

“Now, we’re not going to stop producing

oil. Our long-term plan is to become one

of the five largest integrated energy companies in the world.”


568

20-Jun-16



“Becoming a world leader in biofuels is an

explicit part of our strategy. Between now

and 2012, we’ve earmarked $1.5 billion for

biofuel development. It’s a principal focus

of our CENPES research development

center, which, though it is already the

largest technology R&D facility in South

America, is undergoing a major expansion.

The projects we’re leading include the

development of second-generation biofuels,

such as ethanol from agribusiness waste, in

Brazil. In 2007 we launched the first pilot

plant for producing ethanol from

lignocellulose using enzyme technology.

We’re also working on a variety of ways to make existing fuels burn cleaner.


569

20-Jun-16


Consumer board challenges Peptein ad

Published: 30 Jul 2013 at 17.03 Bangkokpost.com

Online news:

The Consumer Protection Board (CPB) has asked Osotspa Co to

suspend its TV commercial for Peptein beverage, warning it may be

misleading people into believing its use can improve brain functions

ahead of medical student examinations.

The CPB was responding to a complaint filed by the Society of

Medical Students of Thailand.

The students want Osotspa, the importer and distributor of Peptein,

to stop hiring medical students as product presenters, saying it is

not appropriate and it may even violate some code of conduct of

medical students.


570

20-Jun-16

http://bangkokpost.com/search/news-and-article?xDate=30-07-2013&xAdvanceSearch=true


Popular island beach closed by oil slick

Published: 29 Jul 2013 at 14.46

Bangkokpost.com

Online news: Local News

Ao Phrao was closed and tourists

moved away from the popular island

beach on Khao Laem Ya-Mu Koh Samet

National Park after an oil slick washed

ashore on Sunday night, coating the

area with gooey muck.

PTTEP


571

20-Jun-16


http://bangkokpost.com/news/local


The Nation September 8, 2013:

Levi's, the iconic jeans brand, has decided to go one step further in terms

of being eco-friendly by producing jeans using recycled content under its

new collection "501 Wasteless".

Recently, the company launched a campaign called "Recycle Plastic

Bottles - Cradle Children's Hearts", under which customers can bring

along five plastic bottles to any Levi's branch and receive a Bt1,000

discount on purchases for Bt2,900 and more. The campaign runs from

September 20 to October 31.

Every plastic bottle received will be recycled into blankets and donated to

the Foundation of Children and Youth Development in order to keep

children in rural areas warm this winter.


572

20-Jun-16


Whitening fad a

health risk for women:

Published: 16 Sep 2013 at 11.04: From Thanomwong Kritpet, a lecturer at Chulalongkorn

University’s faculty of sport science :The obsession of many

Thai women in avoiding the sun to ensure a white complexion

could lead to a vitamin D deficiency and an increased risk of

bone disease when they get older.

She said exposure of the skin to sunlight stimulates the

production of vitamin D in the body, which helps the

absorption of calcium in the intestines into the blood. Vitamin D

also helps slow the release of the parathyroid hormone which

leaches calcium from the bone. Else women will face a higher

risk to bone-related diseases such as brittle bone and

osteoporosis when they get older.


573

20-Jun-16



Kanebo recalls

skin whitening product

The Japanese cosmetics company Kanebo is recalling 54 skin-whitening

products in a move that has led one of Hong Kong's leading

dermatologists to warn against the use of pharmaceuticals in cosmetics.

Kanebo, a big name in the global cosmetics industry, announced

yesterday that it was recalling all products that contained a substance

called Rododendrol (4HPB) after users complained it had left them with

patchy, dis-coloured skin.


574

20-Jun-16


Kanebo recalls

skin whitening product

Dermatologist Dr Louis Shih Tai-cho said the substance, which was

developed by Kanebo, should never have been added to beauty

products.

Shih added: "Nobody knows whether this has any side effects.

It may not necessarily be safe even if the substance is

extracted from plants."

Rododendrol is said to lighten the skin by interfering with the

development of melanin - a cell pigment that is the primary

determinant of skin colour.

"When a substance interferes with the body balance, it should

not be added into cosmetic products. It should be monitored

by the Health Department as a medicine," Shih said.

"It has become a trend for the cosmetic field to use medical

substances in their products to intensify effects, which can be

quite a dangerous thing to do," Shih added.


575

20-Jun-16


Tesco Tesco to scan shoppers' faces

Published: 4 Nov 2013 at 20.55

Online news:

LONDON - Britain's biggest retailer Tesco is to install screens at its petrol stations that

scan customers' faces so that advertising can be tailored to their age and gender. The

world's third biggest supermarket chain will install the hi-tech screens at the tills of its

450 British petrol stations, according to Amscreen, the digital advertising firm that

developed the technology.

The Tesco network also represents the first to market national roll-out of Amscreen's

audience measurement technology, OptimEyes; a system which is able to determine

basic demographics such as gender, age, date, time and volume, all of which can help to

deliver more measurable campaigns for advertisers, as well as more relevant on screen

content for the Tesco customer. Dunn humby will further enhance the opportunity with

market leading customer insight, to help build right time, right place, and right message

customer engagement.


576

20-Jun-16

http://bangkokpost.com/search/news-and-article?xDate= 4-11-2013&xAdvanceSearch=true

http://www.amscreen.eu/en/optimeyes-real-time-insight-for-digital-media-advertising





Tesco: Tesco to scan shoppers' faces

Published: 4 Nov. 2013, at 20.55

Online news:

LONDON - Britain's biggest retailer Tesco is to install screens at its petrol stations that

scan customers' faces so that advertising can be tailored to their age and gender. The world's

third biggest supermarket chain to install the hi-tech screens at the tills of its 450 British

petrol stations, according to Amscreen the digital advertising firm that developed the

technology.

Amscreen chief executive Simon Sugar admitted that the devices were “like

something out of 'Minority Report’, the 2002 sci-fi movie directed by Steven Spielberg.

But he told The Grocer magazine: This could change the face of British retail and our

plans are to expand the screens into as many supermarkets as possible.”

The screens detect the faces of shoppers approaching the tills and identify their gender

and approximate age. They then display adverts targeted at that demographic group.


577

20-Jun-16


Tesco: Privacy campaigners blasted Tesco's decision to use the “OptimEyes'' technology

and called on the retailer to inform customers when they are being scanned in this way.

“Scanning customers as they walk through the store without customers ever

giving permission for them to be scanned in that way... There's a huge

consent issue there,'' said Nick Pickles of the campaign group Big Brother

Watch. But Amscreen insisted its technology is “non-intrusive” and

“meets with privacy and data protection requirements''. “The

screens do not use eyeball scanners, facial recognition or identify individual

customers in any way,'' a spokeswoman told AFP. They simply

estimate whether a person is male or female and which one of three age

groups they belong to.''

Amscreen, which was set up by British technology tycoon Alan Sugar in

2008, launched its face detection technology in July.


578

20-Jun-16


EU: National / Corporate Social Responsibility:

EU to limit use of plastic bags

Published: 4 November, 2013, at 19.36

Brussels - The European Commission unveiled measures aimed at reducing the

use of lightweight plastic bags, arguing that they clutter up seas and can persist

in the environment for hundreds of years.

“Every year, more than 8 billion plastic bags end up as litter in Europe,

causing enormous environmental damage,'' said EU Environment

Commissioner Janez Potocnik. The proposal would require EU members to

take steps to reduce the use of carrier bags with a thickness below 50 microns -

or 0.05 mm - arguing that these are ``less frequently re-used than thicker plastic

carrier bags and more prone to littering.''


579

20-Jun-16


EU: Such measures could include a compulsory charge for disposable shopping bags or, in

certain circumstances, a ban.

Plastic bags are thought to be especially damaging to marine environments,

where animals mistakenly swallow them or get caught up in them. In the North

Sea, the stomachs of 94 per cent of sea birds contain plastic, the commission said.

In 2010, each citizen in the European Union used an estimated 198 plastic carrier

bags on average or almost 100 billion bags in total - according to the bloc's

executive. The vast majority of these were lightweight bags. But this figure fluctuates

hugely between member states, with people in Denmark and Finland using

just four single-use plastic bags annually, while citizens in several eastern European

countries were estimated to use more than 450 bags annually.


580

20-Jun-16



MHC International Ltd (MHCi) have developed an index of NSR (National Social

Responsibility) and show below the position of some countries, including the top seven, in the table.


Purpose Impact Benefits

Your company’s

actions: CSR

Build company association

Consumers’

evaluation of

your products and services

Organization’s image

Organization’s

image could

influence the

extent of

member

identificati

on with the

organization.

Organization’s

image can also

serve as a

reputation

barrier in a

market

Image

CSR

Imag

e Imag

e

Image


Company’s Rivalry

New entry

Reputation serves several functions, as

an effective entry barrier in the market,

a mechanism to enable the firm to

receive premium prices for its output, a basis for repeat business.

New substitute

Bargaining power of consumers

Bargaining power of suppliers

Consumers became increasingly

dissatisfied with product

performance, deceptive and/or

unsafe business practices and

marketer handling of complaints.

The rights of consumers were

proclaimed by the U.S.A. President,

John F. Kennedy, in 1962, in what

became known as the “consumers’ Magna Carta”.


Consumers’ Magna Carta:

The right to safety

The right to be informed

The right to choose

The right to be heard.

A combination of all four of these rights gives rise to a “right” which Kotler regards as the

“most radical and the most basic challenge to the traditional rights of marketers, and that

is the right to influence products and marketing practices in directions that will increase

the quality of life.” (Kotler, 1972).

This right implies that profitability and immediate consumer gratification are not sufficient

fulfillment of marketing’s responsibility, and that marketing activities and products must,

in addition, be “life-enhancing” because the world’s resources are too limited to be used

indiscriminately to satisfy customer desires without considering the social wisdom of

doing so.

Kotler, P. (1972), “What Consumerism Means for Marketers,” Harvard Business Review, 50, pp. 48-57.

Heard Informed

Choose

Safety


Company’s Rivalry

New entry

New substitute

Bargaining power of

consumers

Or

Bargaining power of

other stakeholders in addition to consumers

Bargaining power of suppliers

?


From the marketing to the societal marketing concept:

In the 1960s marketing writers such as Lazer (1969) still advocated growth through

consumption. He saw marketing as an instrument of social control, designed to convert

society from a producer to a consumer culture. By changing norms and values in favor

of greater consumption, society would be more able to adapt to the requirements

of an abundant economy. Lazer, W. (1969), Marketing’s Changing Social Relationships, Journal of Marketing, 33(January), p. 3-9.

Products and

Services:

Values

Integrated

Marketing Customer

Satisfaction

Profit

Consumer Culture? Sustainability Culture?

Producer Culture? Sustainability Culture?

Supply Activities

Resources i.e.

Cost.


By the 1970s, however, as it became clear that society’s resources were finite and its

environment damageable, writers like Feldman (1971), Kotler and Levy (1971) became

critical of the emphasis on material consumption without consideration of societal

benefit. Dawson (1969) also regarded the original marketing concept as having certain inherent

weaknesses. Dawson argued that the customers of a particular business are only a

minority group in society as a whole, and he cited the tobacco industry as a classic

case of an industry which has always been particularly attentive to customer satisfaction

(for example, different shapes, styles and tastes of its products) yet it is one facing

increasing unpopularity, particularly amongst those sections of society which are not its

customers. Thus the marketing concept emphasized – and sought to satisfy – selfish

interests of the individual in his role only as consumer and was seen as unidimensional

and narrow in outlook. Kotler, P. and Levy, S. (1971), Demarketing, Yes, Demarketing, Harvard Business Review,

November-December, pp. 74-80.

Feldman, P. (1971), Efficiency, Distribution and the Role of Government in a Market Economy,

Journal of Political Economy, pp. 508-526.


According to Dawson (1969) “market considerations alone, even long run, can no

longer determine what is good or bad, right or wrong, prudent or imprudent, urgent or

non-urgent in the business community.”

Dawson, L.M. (1969). The Human Concept: New Philosophy for Business. Business Horizons, 12(December), pp. 29-38.

View:

Environment damageable and thus resources are finite.

Need multi-dimensional

and wider perspectives in outlook


Kotler (1972) saw the main problem as arising from the ambiguity of the term “customer

satisfaction.” It could mean either short-run customer desires or long-run customer

interests.

Kotler cited cigarettes and alcohol as classic products which provide immediate

satisfaction but may be detrimental in the long-run.

The inadequacies of the marketing concept thus center around its short-run operational

focus on profit, with the satisfaction of the consumer not a goal in itself, but merely a

means to this end; its emphasis on material consumption without consideration of the

long-run societal or environmental impact of this policy; its narrow stress on the

individual and the gratification of immediate and selfish wants without concern for long-run consumer interests.

View: From producer or

consumption views to

more proactive,

environmental and

society friendliness

views

Means

(Strategy)

Customer

Satisfaction

Green

Approach

End:

Short-term

desire

Long-term

interests and

benefits



Kotler, P. (1972), A Generic Concept of Marketing, Journal of Marketing, 36(2), pp. 46-54.

Three stages of marketing consciousness: Traditional consciousness, that marketing is essentially a business subject, whereby the sellers offer goods

and services and the buyers have purchasing power and other resources, and the objective is an exchange of

goods for money or other resources – called consciousness one. The core concept defining marketing

consciousness one is that of market transactions. A market transaction involves the transfer of ownership or use

of an economic good or service from one party to another in return for a payment of some kind.

Consciousness two – Some marketers holding that marketing is appropriate for all organizations that have

customers. This is the trust of the original broadening proposal and seems to be gaining adherents. Each of these

organizations (NGOs, business) must study the size and composition of their market and customer wants,

attitudes, and habits. They must design their products to appeal to their target markets. They must develop

distribution and communication programs that facilitate “purchase” and satisfaction. They must develop

customer feedback systems to ascertain market satisfaction and needs. Thus consciousness two replaces the core

concept of market transactions with the broader concept of organization-client transactions.

Consciousness three – holds that marketing is a relevant subject for all organizations in their relations with

their publics, not only customers. Companies seeking a preferred position with suppliers or dealers see this as a

problem of marketing themselves. In addition, companies try to market their viewpoint to congressmen. These

and many other examples suggest that marketers see marketing problem as extending far beyond customer

groups.


593

Consciousness Three

Consciousness Three –

Marketing is not an END in itself. It is not the exclusive province of business management. Marketing must serve not only business but also the GOALS of SOCIETY. It must act in concert with BROAD PUBLIC INTEREST. For marketing does not END with the buy-sell transaction – its RESPONSIBILITIES extend well beyond making PROFITS. Marketing shares in the PROBLEMS and GOALS of SOCIETY, and its contributions extends well beyond the formal boundaries of the firm. (Lusch, 2007, p. 264).

Lusch, R.F. (2007), Marketing’s Evolving Identity: Defining Our Future, American Marketing Association, 26(2), pp. 261-268.

Short-Run

Operational Focus on Profit

Long-Run Society and

Environment Sustainability

Well-being of people Smartness of people

Profit-driven marketing concept but added on with

some ethical consideration.

Information – to make intelligent purchase decision

Moral duty

Fair and justice

Long-run consumer welfare Avoid deleterious consequences of society


Dawson’s (1969) conception of societal marketing goes considerably further than that

of Kotler (1972).

Dawson’s “human concept” entails a widening of business concerns on three levels:

The internal environment (human resources within the organization)

The proximate environment (consumers, competitors, suppliers and distributors)

The ultimate environment (society in general).

This third level is the most far-reaching and refers to the achievement of a genuine

external social purpose by contributing to the identification and fulfillment of real

human needs such as security, dignity and spiritual solace.

Dawson requires from business a commitment to the solution of the social problems

of the world and argues that if profits are viewed in sufficiently long-run and indirect

terms, then the human concept can be said to contribute towards business survival

and profitability. For, like Kotler, he has implicit faith in the theory that what is

good in the long-run for society, is good

for business.


Internal

environment: HR

Proximate environment: Consumers, competitors, suppliers, distributors

Ultimate environment: The society in general

3 Levels of the business stakeholders in societal marketing:

Communication:

Feedback

Consultation Negotiations

Business Environments:

Business:

Commitment

Strategies

Policies

Organization Management


To fulfill human needs for security, dignity, and spiritual solace

Self-actualization is different from

all the previous needs. We don’t

feel spurred into action by a sense

of deficiency:

“Must find food…” “Must make

friends…”.

Rather, we feel inspired

to grow, to explore our

potential and become

more of what we feel we

can be. Maslow called self-

actualization a growth

need while all the rest are

deficiency needs.

Safety Needs:

Security Protection

Social Needs:

Sense of belonging Love

Esteem Needs:

Self-Esteem Recognition

Self-Actualization

Self Transcendence

Deficiency Needs

Growth Needs

Deliverance Needs

Physiological Needs:

Hunger Thirst


At the self

transcendence level:

People view the world and their

purpose in it in a more global

scale

To identify with a cause greater

than themselves, to experience a

communion beyond the

boundaries of the self.

As a person’s ability to obtain a

unitive consciousness with other

humans

Realizing that people is not

independent from culture and

environment.

Helping others to achieve self actualization.



What is good in the long-run for society, is good for

business – This principle is in fact the basis upon which most proponents of

societal marketing expound their views.

Other aspects of the societal marketing viewpoint are its emphasis on

communication between the business and its environment in the

form of feedback mechanisms, consultations and negotiations between

competitors, consumers and government agencies.

Good for Society

Good for Business


Spectrum of business ethics:

Firms avoid illegal zones. A firm, for example, that pays all its employees in Thailand at

least the minimum wage signals nothing about the firm’s moral stance on labor

exploitation; the firm is merely obeying the law.

B A

Illegal

Unethical Ethical

Highly ethical Highly unethical

Environmental Regulation, Gov. Policy, e.g. Penalty level

Obeying law


Published: 19 Nov 2013 at 08.49 Online news: US retail giant Walmart violated employees' rights by unlawfully

threatening and firing workers who participated in strikes and

other group protests, the National Labor Relations Board said.

The NLRB said it has found some merit in charges alleging that

Walmart violated employee rights in 14 states and that it was

prepared to issue complaints, unless the parties reach

settlements in the cases.

Among the charges, Walmart "unlawfully threatened, disciplined,

and/or terminated employees for having engaged in legally

protected strikes and protests," the federal agency

said in a statement.

The stores where the violations took place were in California,

Colorado, Florida, Illinois, Kentucky, Louisiana, Maryland,

Massachusetts, Minnesota, North Carolina, Ohio, Texas and

Washington state.




in Palmdale, California, Wal-Mart.

in Maryland, Wal-Mart.


Creates and sustains competitive advantage by ensuring your company is in compliance

with the law.

We call this “Light Green” Strategies.

Freeman et al. (2008):

Relies on the public policy to drive its strategy.

Countries with strict environmental standards seem to gain an edge in the global

marketplace – they become more efficient and have better technology.

Within an industry, companies can actively pursue public policies that fit with their

special competitive advantage. By innovating with technology and expertise, a

company gains an advantage over a competitor that cannot comply as efficiently.


Through its 3P (Profit-Planet-People) program, 3M is able

to easily comply with new chemical legislation while

competitors must exert resources.

At the 3M Website: Business Conduct

At 3M, they believe that what the company stands for is

just as important as what they sell. They are proud to

have built a century-old tradition of operating with

uncompromising honesty and integrity.

What They Stand For:

A good corporate reputation does not develop by accident.

3M's reputation is rooted in their corporate culture and

embodied in our Business Conduct Policies, the

code of conduct they first introduced in 1988. Today's

policies embody the same spirit of integrity that has

always been at the core of their company; they define what

legal and ethical conduct means in everything they do,

wherever in the world they are doing business on 3M's

behalf.




Creates and Sustains competitive advantage by paying attention to the environmental

preferences of customers – the needs of the Market. We call this “Market Green”.

Market green strategies following the greening of customers.

Today’s customer-focused, market-driven company cannot afford to miss the fact that

many customers prefer environmentally friendly products given a similar cost. The Internet has made customers more informed about every aspect of a product,

including its potential environmental harms. Companies that can meet these

environmental needs will be the winners.

B A

Illegal

Unethical Ethical


Obeying law


Whole Food Markets successfully appeals to a demographic that values

organic and local products.

Coastwide Laboratories, an industrial cleaning products company, has

appealed to its customers through offering its “Sustainable Earth” formula.


Create and sustain competitive advantage by responding to the environmental

preferences of stakeholders.

We call this “Stakeholder Green”.

Companies can seek to maximize the benefits of one group, or they can seek to

harmonize the interests of all groups.

Stakeholder green strategies are based on a more thorough adoption of environmental

principles among all aspects of a company’s operations. Many companies have

adopted a version of stakeholder green by requiring suppliers to meet environmental

requirements and by setting strict standards for the manufacturing process.

B A

Illegal

Unethical Ethical


Obeying law


Create and sustain competitive advantage by responding to the environmental

preferences of stakeholders.

Example:

Wal-Mart recently announced a variety of environmental goals, including cutting

greenhouse gas emissions by 20% and constructing stores that are 30% more energy

efficient.

While these measures consider the impact on the communities in which Wal-Mart

locates, other measures are impacting suppliers, for example, rewarding those who

can reduce packaging.

Paying attention to recyclable material in consumer packaging, educating

employees on environmental issues, participating in community efforts to clean

up environment, and appealing to investors who want to invest in green companies

are all a part of stakeholder green.



2013 Global Responsibility Report : Walmart has a responsibility to lead, and is proud of what she accomplished so far on the

journey to become a more sustainable and more responsible business. By working

collaboratively with many fantastic partners around the globe to achieve:

Renewable energy now provides 21% of Walmart's electricity globally, and Wal-Mart

became the largest onsite green power generator in the United States;

Walmart and the Walmart Foundation are increasing training, market access, and career

opportunities for nearly 1 million women worldwide;

Walmart and the Walmart Foundation gave more than $1 billion to support

organizations that impact local communities around the world;

The Walmart Foundation became the first partner of Feeding America to donate 1 billion

meals (since 2005);

Saved customers $2.3 billion on fresh fruits and vegetables since 2011; and

Wal-Mart committed to hire any honorably discharged U.S. veteran in his or her first year

off active duty.




Create and sustain value in a way that sustains and cares for the Earth.

We can call it the “Dark Green”. Being a dark green commits a company to

being a leader in making environmental principles a fundamental basis of doing

business – deep commitment to environmental and business values. Dark green logic

simply says that the belief that we must respect and care for the Earth is

one of the deep values we share.

Nike, Ford Motor Company, and textile maker DesignTex, have adopted to some

extent the design idea of “cradle to cradle” rather than “cradle to grave.”

These companies are seeking to design products that can be reduced to reusable

materials, with whatever is not reused harmlessly decomposing into nutrients for the

earth.

B A

Illegal

Unethical Ethical


Obeying law







GR Green’s roofing and siding product is the

world’s first truly

ecological synthetic

roofing and siding

products. Made from

waste limestone and

recycled plastic (milk

bottles and grocery bags).



With an agenda of having all performance

footwear meet their own internal sustainability

standards by 2011, the Nike ‘Considered’ line is

obviously searching for ways to remain

competitive in low-cost Asian manufacturing

markets as well as in urban neighborhoods

where personal street style is constantly reinventing itself.


Nike has vowed to remove hazardous

substances from across their entire supply

chain, and the entire life-cycle of its

products, by 2020. The sportswear giant have

also promised to use their influence, knowledge and

experience to bring about “widespread elimination”

of hazardous chemicals from the clothing industry, Greenpeace says.


Designtex seeks to instill the potential

for a closed loop system in its

products. Early in the lifecycle of every

material, there are opportunities to

infuse environmental qualities, that by

design, challenge each subsequent stage

to preserve and amplify those

qualities. This is Environmental Design at Designtex.


PET (polyester) resin bottles used for water, soda and other beverage packaging

can be converted into recycled polyester yarns and fabrics.

For every 2 million tons of PET bottles that are not recycled

and instead sent to landfills, the equivalent of 18 million

barrels of crude oil are dumped down the drain. Designtex’s new Regeneration collection of upholsteries is made of 100% post-

consumer recycled polyester.


Designtex is first to market with Eco-Intelligent™ polyester made with

an antimony-free catalyst for panel and upholstery.

What does titanium have to do with fabrics? Traditionally polyester

has been made using the heavy metal antimony as a catalyst

during the production process. Things began to change in 1999,

when Designtex started collaborating with Victor Innovatex and

McDonough Braungart Design Chemistry on a new kind of polyester

that no longer relies on this heavy metal.

Classified as Eco Intelligent™, this new polyester is antimony-free.

Here’s where the titanium comes in: the catalyst for the

production process has been successfully switched from antimony to this environmentally safer material.


Hazard Summary-Created in April 1992;

Revised in January 2000 Everyone is exposed to low levels of antimony in

the environment.

Acute (short-term) exposure to antimony by

inhalation in humans results in effects on the

skin and eyes. Respiratory effects, such as

inflammation of the lungs, chronic bronchitis,

and chronic emphysema, are the primary effects

noted from chronic (long-term) exposure to

antimony in humans via inhalation. Human

studies are inconclusive regarding antimony

exposure and cancer, while animal studies have

reported lung tumors in rats exposed to

antimony trioxide via inhalation. EPA has not

classified antimony for carcinogenicity

(substance that produce cancer).


IKEA to educate and use societal marketing to promote Green Brand and

Green Buying: “Turn your recycling into awards at IKEA Edinburgh”. Any

can, plastic bottle or glass bottle bought in the store can now be recycled

using a brand new Recycle & Reward Machine in The IKEA Edinburgh

Customer Restaurant. Customers can either donate the reward to one of the

chosen charities (10p per recycled drink container) or collect vouchers to

redeem.

Making a can from recycled materials instead of new saves enough energy

to power a television for three hours. Recycled plastic bottles can also be turned into all sorts of new things, from park benches to fleece jackets!


New Belgium Brewing Company has a fulltime sustainability “goddess”

and is the world’s first 100% wind-powered brewery; conversion to

wind power funded by voluntary reduction in employee

bonuses.



Light Green

Market Green

Stakeholder Green

Dark Green

B A

Illegal

Unethical Ethical

Highly ethical

Highly unethical

Obeying law

Some

competitive

advantage

can be

gained

through

efficiency gains.

Competitive

advantage

obtained

through

differentiation

and innovation.

Competitive

advantage

gained through

value-chain

operations re-

transformation,

reputation and

relationship benefits.

Aligns with fundamental

principles of founders,

employees, and

customers leading to

high commitment – along

regenerative sustainability.


B A

Illegal

Unethical Ethical


Obeying law

Light Green

Market Green

Stakeholder Green

Dark Green


Professor Michael

Porter provides three

levels of ethical

principles or values or

paradigms to guide

business decisions, i.e.

from the fundamental

stage of reconceiving

customer needs,

products and markets,

to redefining

productivity in the

value chain, to

enabling local

cluster

development to

embrace shared values.


In short, the role of business in society, in its communities:

Business increasingly is seen as a major cause of social, environmental, and economic

problems – the 3P (People, Planet, and Profit).

Shared value thinking represents the next evolution of “Capitalism.”

Philanthropy Corporate


Creating Shared Value

Donations to

worthy social issues

Integrating societal improvement

into economic value creation itself.

Shared Value – Corporate policies

and practices that enhance

competitiveness of the company

while simultaneously advancing

social and economic conditions in

the communities in which it sells

and operates.

Profit involving shared values

enables society to advance and companies to grow faster.


Good

corporate

citizenship and compliance

with community

standards. “Sustainability”

Corporate


Creating Shared Value

Value – Economic and societal

benefits relative to cost.

Integral to competing

Essential to profit maximization

Agenda is business specific

Mobilize the entire company

budget

Example: Transforming

procurement to increase quality and yield

Value – Doing good, good

citizenship, philanthropy, and

sustainability.

Discretionary.

Separate from profit maximization.

Agenda externally determined.

Impact is limited by the corporate

footprint and CSR budget.

Example: Fair trade purchasing

In both cases, compliance with laws and ethical standards and reducing harms for corporate activities are assumed.


Company Productivity

Environmental Impact

Supplier Access and Viability

Employee Skills

Gender and Racial Equity

Worker Safety

Employee Health

Water Use

Energy Use

Social deficits create economic cost.

External conditions shape internal company productivity.

Social needs represent the largest market opportunities i.e. Cluster Development.

There is a growing congruence between economic value creation and societal objectives

(based on the examples we illustrated earlier – i.e. light green to market green to stakeholder green to dark green.


Reconceiving

customer

needs,

products, and markets

Redefining

productivity in

the value chain

– How the

organization

conducts its business

Enabling local

cluster development


Reconceiving

customer

needs,


Design products and services to address societal needs: e.g.

environmental impact, safety, health, education, nutrition, living

with disability, housing, financial security.

Open new markets by serving the unmet needs in

underserved communities (bottoms of the pyramids) : Often requires redesigned products or different distribution

methods.

Businesses have the potential to be more effective than

governments and NGOs in creating and marketing solution to

community problems.

Thus, new needs and new markets open up opportunities to

differentiate, innovate, and grow.

A new generation of social entrepreneurs is capturing

these opportunities, often faster than mainstream businesses.

Redefining

productivity in

the value chain –

How the

organization



Novo Nordisk in China provides diabetes

training programs together with governments,

NGOs, and opinion leaders to promote the latest

thinking among physicians on diabetes

prevention, screening, treatment, and patient

communication.

Targeting smaller cities. 220,000 sessions to date.


Novo Nordisk’s “Diabetes bus” program to raise

patient awareness and provide on-site advice.

NovoCare telephone hotline allows patients to reach

specialists with questions.

NovoCare Club provides ongoing updates to members.

Patient education focuses on prevention, lifestyle

changes, and effective use of insulin products. 280,000 patients educated to date.


Result:

Since 1997, this program is estimated to have reduce

healthcare costs in China by $ 700 million through

reducing diabetes related complications

Novo Nordisk revenues have increased by an estimated $ 114 million.


Cost Leadership

Companies save Lives:

Frugal innovators in China and India

are making medical devices that are

cheaper—sometimes by an order of

magnitude—than their Western

equivalents.

Companies such as China's Mindray

and India's TRS serve home markets

and create products that are stripped

to their essentials: scanners that

cost $10,000 rather than $100,000;

portable electrocardiographs that cost $500 instead of $5,000.


Competitive Advantage C

om

peti

tive S

co

pes

Broad Target

Narrow Target

Lower Cost Differentiation

Cost Leadership Differentiation

Differentiation Focus

Cost Focus

Generic Strategy Typology


These devices are not merely cheap knock-offs of Western designs. Often

they are just as effective as the gold-plated kit used in the West, yet they are

rarely found in rich-world hospitals. Their absence helps explain the massive

disparity in costs between Western and emerging-world treatments. A night

in an American hospital typically costs 25 times as much as a night in an

Indian, Brazilian or Chinese one; a night in a European hospital typically costs four times as much.


What Novo Nordisk in China is

doing is:

Redefine the business around

unsolved customer problems or

concerns, not traditional product

definitions, or the customer’s

customer.

Think in terms of improving

lives, not just meeting consumer

needs.

Identify customer groups that

have been poorly served or

overlooked by the industry’s

products.

Start with no preconceived

constraints about product

attributes, channel

configuration, or the economic

model of the business e.g. small loans are unprofitable.

Targeted

Customers:

Underserved

and Overlooked

Customer Value Proposition:

Improving Lives

Opens up new

opportunities to customer

segmentation and marketing


April 30 2013 /3BL Media/ - Novo

Nordisk was named as one of

the top 100 sustainable companies

at the Annual Summit of Green

Companies held in Kunming, China.

The annual event assesses

sustainable competitiveness of

enterprises doing business in

China. On the Annual Summit’s

‘China Top 100 Green Companies

2013’ list, Novo Nordisk ranked

number five in the multi-national

company category. It is the first

time the company has been selected.



Redefining Productivity in the Value Chain


Redefining Productivity in the Value Chain


Cluster Development in the Company’s Major Locations

A strong local cluster improves

company growth and

productivity

Local suppliers

Supporting institutions

and infrastructure

Related businesses

Companies, working

collaboratively, can catalyze

major improvements in the

cluster and the local business

environment (the environment

for innovation)

Thus, local cluster

development strengthens the

link between a company’s

success and community success.

Reconceiving

customer

needs,


Redefining

productivity in

the value chain

– How the

organization


Enabling local

cluster development



It’s no secret that in many

industries today,

upstream activities—such

as sourcing, production,

and logistics—are being

commoditized or

outsourced, while

downstream activities

aimed at reducing

customers’ costs

and risks are

emerging as the drivers

of value creation and

sources of competitive

advantage.


Being commoditized or outsourced

Reducing customers’ costs and risks

20-Jun-16


Consider a consumer’s

purchase of a can of

Coca-Cola. In a

supermarket or

warehouse club the

consumer buys the

drink as part of a 24-

pack. The price is about

25 cents a can. The

same consumer, finding

herself in a park on a

hot summer day, gladly

pays two dollars for a

chilled can of Coke sold

at the point-of-thirst

through a vending

machine.

20-Jun-16

That 700% price premium is

attributable not to a better or

different product but to a more

convenient means of obtaining it.

Downstream activities—such as

delivering a product for specific

consumption circumstances —are

increasingly the reason customers

choose one brand over another

and provide the basis for customer

loyalty. They also now account for

a large share of companies’ costs.

To put it simply, the center of

gravity for most companies has

tilted downstream.


First, the sources and locus of competitive

advantage now lie outside the firm, and

advantage is accumulative —rather than

eroding over time as competitors catch up, it

grows with experience and knowledge.

Second, the way you compete changes over

time. Downstream, it’s no longer about having

the better product: Your focus is on the needs

of customers and your position relative to their

purchase criteria. You have a say in how the

market perceives your offering and whom you

compete with.

Third, the pace and evolution of

markets are now driven by customers’

shifting purchase criteria rather than by

improvements in products or technology.


The reality is that companies are increasingly finding success not

by being responsive to customers’ stated preferences but by

defining what customers are looking for and shaping their “criteria of purchase.”


When asked about the

market research that

went into the

development of the

iPad, Steve Jobs

famously replied,

“None. It’s not the

consumers’ job to

know what they want.”

And even when

consumers do know

what they want,

asking them may not

be the best way to find

out.


Market leadership strategies:

Redefine business model

Shaping customer perception

Define what performance means in

their respective categories

Redefine customers’ purchase criteria

20-Jun-16


Zara, the fast-fashion retailer,

places only a small number of

products on the shelf for

relatively short periods of time

— hundreds of units per month

compared with a typical retailer’s

thousands per season. The

company is set up to respond to

actual customer purchase

behavior, rapidly making

thousands more of the products

that fly off the shelf and culling

those that don’t.

20-Jun-16

Indeed, market leaders today are those

that define what performance means in

their respective categories:

Volvo sets the bar on safety,

shaping customers’

expectations for features from

seat belts to airbags to side-

impact protection systems and

active pedestrian detection;

Febreze redefined the way

customers perceive a clean

house;

Nike made customers

believe in themselves.

Buyers increasingly use

company-defined criteria not

just to choose a brand but to

make sense of and connect

with the marketplace. Copyrighted Dr. C.C. Tan (2016). Revised 2. 663 20-Jun-16

36-hour windowCopyrighted Dr. C.C. Tan (2016). Revised 2. 664 20-Jun-16

How Cialis Beat Viagra:

Redefining customers’

purchase criteria is one of the

most powerful ways companies can wrest

market leadership from competitors.

The strategy serves incumbents and

challengers alike. Consider, for example, the $5

billion market for erectile dysfunction drugs.

Pfizer launched the first such drug, Viagra, in

April 1998, with a record 600,000 prescriptions

filled that month alone. At a price of $10 per

dose and a gross margin of 90%, Pfizer could

afford to splurge on marketing and sales. It

rolled out a $100 million advertising campaign,

and sales reps made a whopping 700,000

physician visits that year. In the process, Pfizer

created an entirely new market on the basis

of one key criterion of purchase: efficacy.

The drug got the job done. Copyrighted Dr. C.C. Tan (2016). Revised 2. 665 20-Jun-16

By 2001 annual sales had

reached $1.5 billion, and

other pharmaceutical

companies had taken note of

the size, growth, and

profitability of the market. In

2003, Bayer introduced

Levitra, the first

competitor to Viagra. The

drug had a profile very

similar to Viagra’s and a

slightly lower price —

classic “me too”

positioning.



Soon after, Lilly Icos, a joint venture

between Eli Lilly and the biotech firm

ICOS, entered the market with a new

product—Cialis—that was

different from its competitors in two

ways. First, whereas Viagra and Levitra

were effective for four to five hours, Cialis

lasted up to 36 hours, making it

potentially much more convenient for

customers to use. Second, product trials

showed fewer of the vision-related side

effects associated with Viagra and

Levitra.

20-Jun-16


At the time, the key criteria that physicians considered in prescribing a drug for erectile

dysfunction were efficacy and safety. Those two

criteria accounted for a relative importance of 70%.

Duration had a relative importance of less than 10%.

The strategic question for Lilly Icos was whether it

could influence how physicians perceived the

importance of the criteria. The positioning was

hotly debated prior to launch: Should the company

center its marketing strategy on Cialis’s lack of side

effects, given that safety was already one of the two

key criteria? Or should it attempt to establish duration

as a new criterion?


The marketing team decided to

emphasize the benefits of

duration — being able to

choose a time for intimacy in a

36-hour window —in its

launch campaign, and it set the

price for Cialis higher than

that for Viagra to underscore

the product’s superiority.

The new criterion of purchase—

marketed as romance and

intimacy rather than sex—

caught on. Copyrighted Dr. C.C. Tan (2016). Revised 2. 670 20-Jun-16

In 2012 Cialis passed Viagra’s $1.9 billion in annual sales,

with duration supplanting efficacy as the key criterion

of purchase in the erectile dysfunction market.

Those criteria are also becoming the basis on

which companies segment markets, target

and position their brands, and develop strategic market

positions as sources of competitive advantage. The

strategic objective for the downstream business,

therefore, is to influence how consumers perceive

the relative importance of various purchase

criteria and to introduce new, favorable

criteria. Copyrighted Dr. C.C. Tan (2016). Revised 2. 671 20-Jun-16

Must Competitive

Advantage Erode over

Time?

The traditional

upstream view is that as

rival companies catch

up, competitive

advantage erodes.

But for companies

competing

downstream,

advantage grows over time or with the

number of customers

served —in other

words, it is

accumulative.



Sources of competitive advantage:

Shaping customer perception by:

Defining competitive set

Change purchase criteria

Build trust

Innovation Points:

By reducing customer costs and risks

Tailoring offering to consumption

circumstances

And building accumulative advantages by:

Harnessing network effects

Accruing and deploying customer data 20-Jun-16

For example, you won’t find Facebook’s

competitive advantage locked up somewhere in its

sparkling offices in Menlo Park, or even roaming

free on the premises. The employees are smart

and very productive, but they’re not the key to the

company’s success. Rather, it’s the one

billion people who have accounts

on the website that represent the most

valuable downstream asset.



For Facebook, it’s all about network effects:

People who want to connect want to be where

everybody else is hanging out.

Facebook does everything possible to keep its

position as the preeminent village square on the

internet: The data that users post on Facebook is

not portable to any other site; the timelines,

events, games, and apps all create

stickiness. The more users stay on

Facebook, the more likely their friends

are to stay. Copyrighted Dr. C.C. Tan (2016). Revised 2. 676 20-Jun-16

Network effects constitute a classic downstream

competitive advantage: They reside in the

marketplace, they are distributed (you can’t point

to them, paint them, or lock them up), and they are

hard to replicate. Brands, too, carry network effects.

BMW and Mercedes advertise on television and other

mass media, even though fewer than 10% of viewers

may be in their target market, because the more

people are awed by these brands, the

more those in the target market are willing to pay for them.


Brita changes its competitive set when it is placed in the bottled

water aisle at the supermarket instead of with kitchen appliances at

a big-box store.

If you would prefer not to be compared with any other brands, then you’re

better off marketing, distributing, and packaging your products in ways that

avoid familiar cues to customers. A trip to the grocery

store or a glance at online catalogs shows how similar many

products’ packaging is: Most yogurts are sold in exactly the same

pack size and format, and their communications are often so

indistinguishable that consumers cannot recall the brand after having

seen an advertisement. The lack of differentiation encourages

competition, when many of these brands would be better off avoiding it.





Simply fill the bottle with tap

water and the BRITA

filtration technology in

the Fill&Go Filter Disc will

reduce any impurities that

impair the smell and taste of

tap water such as chlorine.

The activated carbon

filter is integrated into the

lid, out of sight. All you have

to do is replace it once a

week in a very simple

procedure.

20-Jun-16


Bobble Aims to Become the Brita of Portable Water Bottles:

Bobble hopes it can change our habits with a carbon filter that removes

chlorine and contaminants from municipal drinking water, giving tap water a

better flavor. The filtration system is good for 300 refills, significantly

mitigating the impact of drinking bottled water

(RISK), while also saving consumers a fair amount of

money. The bottle itself is made of recycled plastic and contains no PVC,

phthalates, or any of that bad stuff, making it an all-around

environmental winner.

20-Jun-16

Where else does Innovation reside? The persistent

belief that innovation is primarily about building better

products and technologies leads managers to an

overreliance on upstream activities and tools. But

downstream reasoning suggests that managers should

focus on marketplace activities and tools.

Competitive battles are won by offering

innovations that reduce customers’ costs

and risks over the entire purchase,

consumption, and disposal cycle.


Consider the case of Hyundai in the depths of

the Great Recession of 2008–2009. As the

economy faltered, American job prospects

looked painfully uncertain, and consumers

delayed purchases of durable goods.

Automobile sales crashed through the floor.

GM’s and Chrysler’s long-term

financial problems resurfaced with a

vengeance, and both companies sought

government bailouts. Hyundai, which

primarily targeted lower-income

customers, was particularly hard hit. The

company’s U.S. sales dropped 37%.


As overall demand plunged, the immediate response of most car

companies was to slash prices and roll out discounts in the form of

cash-back offers and other dealer incentives.

Hyundai considered these options, but it eventually took a

different approach: It asked potential customers, “Why are you

not buying?” The resounding answer was “The risk of buying

during the financial crisis —when I could lose my job at

any time — is simply too high.” Copyrighted Dr. C.C. Tan (2016). Revised 2. 685 20-Jun-16

So instead of offering a price reduction, Hyundai devised a

risk-reduction guarantee to target that concern directly:

“If you lose your job or income within a year of buying the

car, you can return it with no penalty to your credit rating.”

Called the Hyundai Assurance, addressing the

buyer’s primary reason for holding back on the

purchase of a new vehicle.

The program was launched in January 2009. Hyundai sales

that month nearly doubled, while the industry’s sales

declined 37%, the biggest January drop since 1963.

The Hyundai Assurance was a downstream

innovation. Hyundai didn’t innovate to sell better cars —

it innovated by selling cars better.



One of the obstacles

corporates have towards

innovating like startups is

overcoming their myopic

view of competition: me-

too-ism.

Throughout its history

Apple has understood

what other corporates have

not: The customer

doesn’t care if you

are innovative, he or

she cares if you

make his or her life

better.

20-Jun-16


Competition is in how you look at it –

The Perspective:

But business is about competition, right? It’s a

matter of perspective.

As it’s narrated by the media, the problem with

business is it places too much focus on

superficial competition. In the world of

business, those who aim to be the best do so

with a myopic perspective;

since being the best means beating someone

else at the same game. So, if you are an

“analyst” who is looking at an industry from

a functional point of view, you are

missing the whole perspective.

20-Jun-16

Reducing costs and risks for customers is central to any

downstream tilt — indeed, it is the primary means of

creating downstream value. Facebook reduces its customers’

costs of interacting with friends; Orica reduces quarries’ blast

risks; Coca-Cola reduces the customer’s costs of finding a cool,

refreshing drink the moment she’s thirsty.


Is the Pace of Innovation Set in the

R&D Lab? The product innovation

treadmill is an upstream imperative. In fact,

technology innovations are sometimes

thought to be the greatest threat to

competitive advantage. But such changes

in the market are relevant only if they

upend downstream competitive advantage.

You don’t need to sweat every product

launch and every new feature introduction

by a competitor — just those that attempt

to wrest control of the customers’ criteria of

purchase. After all, it was not the advent of

digital photography that ultimately doomed

Kodak — it was the company’s failure to

steer consumers’ shifting purchase

criteria.


By contrast, after more than a century of shaving technology

innovation, Gillette still controls when the market moves on to

the next generation of razor and blade. Even though for the

past three decades competitors have known that the next-

generation product from Gillette will carry one additional

cutting edge on the blade and some added swivel or vibration

to the razor, they’ve never preempted that third, fourth, or fifth

blade. Why? Because they have little to gain from preemption.

Gillette owns the customers’ criterion — and trust

— so the additional blade becomes credible and

viable only when Gillette decides to introduce it with a

billion-dollar launch campaign. Four blades are better

than three, but only if Gillette says so. In other words,

technological improvements don’t drive the pace of change in

the industry — marketing clout does.


Market change can be evolutionary,

generational, or revolutionary, and

each type can be understood in terms of

consumer psychology.

Evolutionary changes push the

boundaries of existing criteria of

purchase: higher horsepower or better fuel

efficiency for cars, faster processing speeds for

semiconductor chips, more-potent pills.

Generational changes introduce

new criteria that complement old

ones, often opening up new market

segments: sugar-free soft drinks, hybrid

vehicles, pull-up diapers, once-a-day medications

where multiple pills were previously required.


Revolutionary changes

don’t just introduce new

criteria, they render the

old ones obsolete: The

new video-game controllers from

Nintendo Wii changed how

people interact with their games

Touch screens and multi-touch

interfaces changed what

customers expect from a smart

phone.

A vaccine for tuberculosis, AIDS,

or malaria would make current

treatments almost redundant within a couple of decades.


The power required to push a revolutionary change through the market is greater than that required to move a

market through a generational change, and that power in

turn is greater than the market muscle required to introduce an

evolutionary change. In each case, the quality of the product

innovation — the increased benefits relative to current products

— helps move the market, but it does not guarantee a shift. High

failure rates for new products in many industries suggest that

companies are continuing to invest heavily in product

innovation but are unable to move customer purchase

criteria. Technology is a necessary but insufficient

condition in the evolution of markets. It’s the downstream

activities that move customers through evolutionary, generational, and revolutionary changes.


It’s the downstream activities

that move customers through

evolutionary, generational, and revolutionary changes.


Competitiveness

Dark Green Market Green

Stakeholder Green

Red: Illustrated (CC Tan, 2014)


Clusters:

Light Green

20-Jun-16


Factor (Input) Conditions: Availability of Human Resources (Marriott’s job training)

Access to research institutions and universities Efficient physical infrastructure

Efficient administrative infrastructure

Availability of scientific and technological infrastructure (Nestle’s knowledge

to milk farmers)

Sustainable natural resources (such as in paper industries) Efficient access to capital


Nestlé joins project to boost Haitian coffee farmers’ incomes:

Nestlé, the world’s leading nutrition, health and wellness company, join a

project to improve the incomes and economic opportunities for 10,000

small-scale coffee producers in Haiti.

Nestlé’s assistance will focus on efforts to rehabilitate coffee

orchards, improve farmer productivity, and facilitate

knowledge transfer.


The value chain project aims to help Haiti

regain its position as a world-class coffee

producer. One of its principal goals is to raise yields

of coffee and other staples grown by farmers in

“Creole gardens,” strengthening their families’

food security. With appropriate investments and

cultivation techniques, their coffee output could double.

To help raise farm productivity, Nestlé will supply high-

yielding coffee seedlings to replace ageing

coffee trees on Haitian smallholder farms. The company

will also provide seedlings for staple crops such as banana and yams that promote food security.

Through its office in the Dominican Republic, Nestlé will

provide direct technical assistance to small coffee

producers in Haiti. The company will foster knowledge

transfer and best practices by sponsoring study tours between Haiti and other coffee producing countries.


Related and supporting industries:

Availability of local suppliers e.g., locally grown produce

Access to firms

Presence of clusters instead of isolated industries

Context for firm strategy and rivalry:

Fair and open local competition, e.g., the absence of trade

barriers, fair regulations

Intellectual property protection

Transparency, e.g., financial reporting, corruption: Extractive

Industries Transparency Initiative EITI : A global standard

ensuring transparency and better governance of natural

resources. The EITI is a global standard that promotes revenue

transparency and accountability in the extractive sector.

Rule of law, e.g., security, protection of property, legal

system Meritocratic incentive systems, e.g., antidiscrimination.



Local demand conditions:

Sophistication of local demand (e.g., appeal of social value propositions: Whole

Foods’ customers.

Demanding regulatory standards (California auto emissions and mileage

standards)

The bottom-of-the-pyramid strategies:

House financing Unilever’s Nirma on detergents for the bottom of the pyramid (profitable too)



Political instability. Drug-related violence. Poverty. Global warming.

Although Mexico faces seemingly insurmountable challenges, the current

government is taking innovative action to address these issues. One

particularly significant step forward can be seen in initiatives to promote

sustainable housing development for those most in need.



Sustainable housing can help reduce these problems. In the context of

Mexico, sustainable housing refers to the homes and communities developed with the

objective of (a) reducing environmental impact through the use of ecological materials,

equipment and practices; (b) improving the quality of life for society by creating a social

fabric that fosters prosperous societies, as opposed to simply building commuter cities

with little to no interaction among inhabitants, and (c) increasing access to financing for

those in need while promoting savings through the efficient use of water and energy.

Through public-private-sector partnerships and attractive incentives, the sustainable

housing initiative innovatively addresses several of Mexico's problems, namely, the

massive housing deficit, the marginalization of low-income

families, a lack of social integration, and growing environmental

concerns.

To this end, the Mexican government, along with private-sector firms, have instituted

sustainable housing-development initiatives as a means to ensure the country's

economic, social and environmental (3P) viability.



According Social Innovator

Exchange, Social

Innovation is just the

development and

implementation of new ideas to

meet social needs.

Many of the social challenges

that the world is facing

nowadays require radical

innovation applying current

technologies in the correct way,

using networking to build

human and social capital and creative fields.

20-Jun-16





Nespresso Capsules Varieties









Conclusion: The Purpose of Ethical Business There is an opportunity to transform thinking and practice about the role of

the corporation in society.

Shared value gives rise to far broader approaches to economic value

creation.

Shared value thinking will drive the next wave of innovation,

productivity growth, and economic growth.

Business acting as businesses, not as charitable givers, are arguably the

most powerful force for addressing many of the pressing issues facing our society.


Greening Your Business Profitability


720

20-Jun-16

Why sustainability is now the key driver of innovation?

By treating sustainability i.e. becoming environmental friendly as a goal, early movers will develop competencies that rivals will be hard-pressed to match. Thus sustainability will

always be an integral part of development.

Stage 1: Viewing compliance as opportunity

The first steps companies must take on the long march to sustainability usually arise from the

law.

Compliance is complicated: Environmental regulations vary by country, by state or region,

and even by city.

In addition to legal standards, enterprises feel pressured to abide by voluntary codes –

general ones, such as the Greenhouse Gas Protocol, and sector-specific ones, such as the

Forest Stewardship Council Code and the Electronic Product Environmental Assessment Tool

– that non-governmental agencies and industry groups have drawn up over the past two

decades. These standards are more stringent than most countries’ laws, particularly when

they apply to cross-border trade.




It is smarter to comply with the most stringent rules, and to do

so before they are enforced. This yields substantial first-mover

advantages in terms of fostering innovation. For example, automobile

manufacturers in the United States take 2-3 years to develop a new car model. If GM,

Ford, or Chrysler had embraced the California Air Resources Board’s fuel

consumption and emissions standards when they were first proposed, in 2002, it

would be 2-3 design cycles ahead of its rivals today – and poised to pull further ahead

by 2016, when those guidelines will become the basis of U.S. law.




Enterprises that focus on meeting emerging norms gain more time to

experiment with materials, technologies, and processes. For instance, in

the early 1990s Hewlett-Packard realized that because lead is toxic, governments would one

day ban lead solders. Over the following decade it experimented with alternatives, and by

2006 the company had created solders that are an amalgam of tin, silver, and copper, and

even developed chemical agents to tackle the problems of oxidation and tarnishing during the

soldering process. Thus HP was able to comply with the European Union’s Restriction of

Hazardous Substances Directive which regulates the use of lead in electronics products, as

soon as it took effect, in July 2006.




Contrary to popular perceptions, conforming to the gold standard globally actually saves

companies money. When they comply with the least stringent standards, enterprises must

manage component sourcing, production, and logistics separately for each market, because

rules differ by country. However, HP, Cisco, and other companies that enforce a single

norm at all their manufacturing facilities worldwide benefit from

economies of scale, and can optimize supply chain operations. The

common norm must logically be the toughest.




Companies can turn antagonistic regulators into allies by leading the

way. For instance, HP has helped shape many environmental

regulations in Europe. In 2001 the EU told hardware manufacturers that after January

2006 they could not use hexavalent chromium – which increases the risk of cancer in anyone

who comes in contact with it – as an anti-corrosion coating. Like its rivals, HP felt that the

industry needed more time to develop an alternative. The company was able to persuade

regulators to postpone the ban by one year so that it could complete trials on organic and

trivalent chromium coatings. This saved it money, and HP used the time to transfer the

technology to more than one vendor. The vendors competed to supply the new coatings,

which helped reduce HP’s costs.




Companies in the vanguard of compliance naturally spot business

opportunities first. In 2002 HP learnt that Europe’s Waste Electrical and Electronic

Equipment regulations would require hardware manufacturers to pay for the cost of recycling

products in proportion to their sales. Calculating that the government-sponsored recycling

arrangements were going to be expensive, HP teamed up with 3 electronics makers – Sony,

Braun, and Electrolux – to create European Recycling Platform. In 2007 the platform,

which works with more than 1,000 companies in 30 countries, recycled about 20% of the

equipment covered by the WEEE Directive. Partly because of the scale of its operations, the

platform’s charges are about 55% lower than those of its rivals. Not only did HP save more

than $100 million from 2003 to 2007, but it enhanced its reputation with consumers, policy

makers, and the electronics industry by coming up with the idea.



Stage 2: Making Value Chains Sustainable. Once companies have learned to keep pace with regulation, they become more proactive

about environmental issues.

Many then focus on reducing the consumption of non-renewable resources such as coal,

petroleum, and natural gas along with renewable resources such as water and timber.

The drive to be more efficient extends from manufacturing facilities and offices to the value

chain. At this stage, corporations work with suppliers and retailers to develop eco-friendly raw

materials and components and reduce waste.

The initial aim is usually to create a better image, but most corporations end up reducing

costs or creating new businesses as well. That’s particularly helpful in difficult economic

times, when corporations are desperate to boost profits.



Stage 2: Making Value Chains Sustainable. Companies develop sustainable operations by analyzing each link in the value chain. First

they make changes in obvious area, such as supply chains, and then they move to less

obvious aspects, such as returned products.

Most large corporations induce suppliers to become environment-conscious by offering them

incentives. For instance, responding to people’s concerns about the destruction of rain

forests and wetlands, multinational corporations such as Cargill and Unilever have invested in

technology development and worked with farmers to develop sustainable practices in the

cultivation of palm oil, soybeans, cacao, and other agricultural commodities. This has resulted

in techniques to improve crop yields and seed production.



Stage 2: Making Value Chains Sustainable. Some companies in the West have also started laying down the

law. For example, in October 2008 Lee Scott, then Wal-Mart’s

CEO gave more than 1,000 suppliers in China a directive:

Reduce waste and emissions; cut packaging costs by 5% by

2013; and increase the energy efficiency of products supplied

to Wal-Mart stores by 25% in three years’ time.

In like vein, Unilever has declared that by 2015 it will be

purchasing palm oil and tea only from sustainable

sources, and Staples intends that most of its paper-based

products will come from sustainable-yield forests by 2010.


Why sustainability is now the key driver of

innovation?

Stage 2: Making Value Chains

Sustainable. Tools such as enterprise carbon management,

carbon and energy footprint analysis, and life-

cycle assessment help companies identify the

sources of waste in supply chains. Life-

cycle assessment is particularly useful:

It captures the environment-related inputs and

outputs of entire value chains, from raw-

materials supply through product use to

returns. This has helped companies

discover, for instance, that vendors

consume as much as 80% of the energy,

water, and other resources used by a supply

chain, and that they must be a priority in the

drive to create sustainable operations.



Stage 2: Making Value Chains Sustainable. Operations Innovation:

Central to building a sustainable supply chain are operational innovations that lead to

greater energy efficiency and reduce companies’ dependence on fossil fuels.

Take the case of FedEx, which deploys a fleet of 700 aircraft and 44,000 motorized vehicles

that consume 4 million gallons of fuel a day. Despite the global slowdown, the company is

replacing old aircraft with Boeing 757s as part of its Fuel Sense Program. This will reduce

the company’s fuel consumption by 36% while increasing capacity by 20%. It is also

introducing Boeing 777s, which will reduce fuel consumption by a further 18%.




FedEx has developed a set of 30 software programs that help optimize aircraft schedules,

flight routes, and the amount of extra fuel on board, and so on. The company has set up

1.6-megawatt solar-energy systems at its distribution hubs in California and Cologne,

Germany. It uses hybrid vans that are 42% more fuel efficient than conventional trucks and

has replaced more than 25% of its fleet with smaller, more fuel-efficient vehicles.




Following some other pioneers, FedEx recently turned its energy-saving expertise into a

stand-alone consulting business that, it hopes, will become a profit

center.



Stage 2: Making Value Chains Sustainable. Workplaces:

Partly because of environmental concerns, some corporations encourage employees to

work from home, through i.e. telecommuting regularly. This leads to reducing

travel time, travel costs and energy use, and annual savings in real

estate costs.

AT&T estimates that it saves $550 million annually as a result of telecommuting.

Productivity rises by 10% to 20%, and job satisfaction also increases when people

telecommute up to three days a week.



Stage 2: Making Value Chains Sustainable. Returns of Products:

Instead of scrapping returned products, companies at this stage try to

recapture some of the lost value by reusing them. Not only can this turn a cost

center into a profitable business, but the change in attitude signals that the company is

more concerned about preventing environmental damage and reducing waste than it is

about cannibalizing sales.

Cisco, for example, had traditionally regarded the used equipment it received as scrap

and recycled it at a cost of about $8 million a year. Then it tried to find uses for the

equipment, mainly because 80% of the returns were in working condition.



Stage 2: Making Value Chains Sustainable. Returns of Products:

A value-recovery team at Cisco identified internal customers

that included its customer service organization, which supports

warranty claims and service contracts, and the labs that provide

technical support, training, and product demonstrations.

In 2005 Cisco designated the recycling group as a business unit,

set clear objectives for it, and drew up a notional P&L account. As a

result, the reuse of equipment rose

from 5% in 2004 to 45% in 2008, and Cisco’s recycling costs fell by

40%. The unit has become a profit center that contributed $100

million to Cisco’s bottom line in 2008.



innovation?

Stage 2: Making Value Chains

Sustainable. Thus, when we create environment-friendly value

chains, companies uncover the monetary benefits

that energy efficiency and waste reduction can

deliver. They also learn to build mechanisms that

link sustainability initiatives to business result.



Stage 3: Designing Sustainable

Products and Services At this stage executives start waking up to the fact that a

sizable number of consumers prefer eco-friendly offerings,

and that their businesses can score over rivals by being the

first to redesign existing products or develop new ones.

In order to identify product innovation priorities,

enterprises have to use competencies and tools they acquired at earlier stages of their evolution.

Companies are often startled to discover

which products are unfriendly to the

environment. When Procter & Gamble, for example,

conducted life-cycle assessments to calculate the amount

of energy needed to use its products, it found that

detergents can make U.S. households energy guzzlers.



Stage 3: Designing Sustainable Products and Services The U.S. households spend 3% of their annual electricity budgets to heat water for washing

clothes. If they switched to cold-water washing, P&G reckoned, they would consume 80

billion fewer kilowatt-hours of electricity and emit 34 million fewer tons of carbon dioxide.

That’s why the company made the development of cold-water detergents a priority.

In 2005 P&G launched Tide Coldwater in the United Stat4es and Ariel Cool Clean in Europe.

The trend has caught on more in Europe than in the United States.

By 2008, 21% of British households were washing in cold water, up from 2% in 2002; in

Holland the number shot up from 5% to 52% of households.



Stage 3: Designing Sustainable Products and Services

Likewise, Clorox was surprised to learn that household

cleaning products are the second biggest environmental

concern – after automobiles – in the United States. Its market

research also showed that 15% of consumers treat health and sustainability as

major criteria when making purchase decisions, and 25% to 35% take environmental

benefits into consideration.


Environmental impacts of cleaning agents are the

consequences of chemicals contained in the products that are

essential for their effectiveness. Bioactive molecules that are

detrimental to the environment have multiple sources.

Environmentally conscious consumers are

concerned with the negative effects on ecosystems as some

chemicals have been found to alter gene function.

Altered gene function often leads to changes in an organism's

proper development, which may devastate local animal

populations causing grander upset in ecosystems. For

example, many cleaning agents contain eostradiol mimicking

compounds that hinder proper development in male offspring

and accelerate puberty in young females. Consumer concerns

have also been instigated by the immediate effects of cleaning

products, such as skin and eye irritation, that occur upon

contact. The solution to these negative consequences have

been advocated as green cleaning, alternative methods of

cleaning that makes use of environmentally friendly chemistry

that can be as effective as the chemicals contained in cleaning products.



Stage 3: Designing Sustainable Products

and Services In 2008 Clorox became the first mainstream consumer

products company to launch a line of non-synthetic

cleaning products. It spent three years and more than

$20 million to develop the Green Works line.

Clorox had to tackle several marketing issues before launching

Green Works. It decided to charge 15% to 25% premium over

conventional cleaners to reflect the higher costs of raw

materials. Green Works products are still cheaper than

competing products, which carry a 25% to 50% markup over

synthetic ones.

After much discussion, the marketing team choose to put the

Clorox log on the Green Works line to signal that it performs

as well as conventional Clorox products.



Stage 3: Designing Sustainable Products and Services The company persuaded the Sierra Club – a leading environmental group in the United

States – to endorse Green Works. Although it sparked controversy among activists, this

partnership strengthened Clorox’s credentials, and in 2008 the company paid nearly

$500,000 to the Sierra Club as its share of revenues from the line.

Finally, Clorox struck special arrangements with retail chains such as Wal-Mart and

Safeway to ensure that consumers could easily find Green Works products on shelves.




Stage 3: Designing Sustainable Products and Services By the end of 2008 Green Works had grown the U.S. natural cleaners market by 100%, and

Clorox enjoyed a 40% share of the $200 million markets.

Thus, to design sustainable products, companies have to understand consumer concerns

and carefully examine product life cycles. They must learn to combine marketing skills with

their expertise in scaling up raw-materials supplies and distribution. As they move

into markets that lie beyond their traditional expertise, they have to team up with non-

governmental organizations. Smart companies like P&G and Clorox, which have continued to invest in eco-friendly

products despite the recession, look beyond the public-relations benefits to hone

competencies that will enable them to dominate markets tomorrow.



Stage 4: Developing New Business Models Most executives assume that creating a sustainable business model entails simply thinking

the customer value proposition and figuring out how to deliver a new one.

However, successful models include novel ways of capturing revenues and delivering

services in tandem with other companies.

In 2008 FedEx came up with a novel business model by integrating the

Kinko’s chain of print shops that it had acquired in 2004 with its document-

delivery business. Instead of shipping copies of a document from, say, Seattle to New York,

FedEx now asks customers if they would like to electronically transfer the master copy to

one of its offices in New Work. It prints and binds the document at an outlet there and can

deliver copies anywhere in the city the next morning.



Stage 4: Developing New Business Models

The customer gets more time to prepare the material, gains access to better-quality

printing, and can choose from a wide range of document formats that Fed-Ex provides.

The document travels most of the way electronically and only the last few miles in a truck.

FedEx’s costs shrink and its services become extremely

eco-friendly.



Stage 4: Developing New Business Models New technologies provide start-ups with the ability to challenge the conventional wisdom.

Calera, a California start-up, has developed technology to extract carbon dioxide from

industrial emissions and bubble it through seawater to manufacture cement.




innovation?

Stage 4: Developing New Business

Models The process mimics that used by coral,

which builds shells and reefs from the

calcium and magnesium in seawater.

If successful, Calera’s technology will solve

2 problems:

Removing emissions from power plants and

other pollutant enterprises, and minimizing

emissions during cement production.

The company’s first cement plant is located

in the Monterey Bay area, near the Moss

Landing power plant, which emits 3.5 million

tons of CO2 annually.



Stage 4: Developing New Business Models The key question is whether Calera’s cement will be strong enough when produced in large

quantities to rival conventional Portland cement. The company is toying with a radical

business model:

It will give away cement to customers while charging polluters a fee for

removing their emissions. Calera’s future is hard to predict, but its

technology may well upend an established industry and create a cleaner world.



Stage 4: Developing New Business Models

Developing a new business model requires exploring alternatives to current

ways of doing business as well as understanding how companies

can meet customers’ needs differently.

Executives must learn to question existing models and to act entrepreneurially to develop

new delivery mechanisms.

As companies become more adept at this, the experience will lead them to the final stage of

sustainable innovation, where the impact of a new product or process extends beyond a

single market.



Stage 5: Creating Next-Practice Platforms New practices change existing paradigms.

To develop innovations that lead to next practices, executives must question the implicit

assumptions behind current practices. This is exactly what led to today’s industrial and

services economy.

Somebody once asked:

Can we create a carriage that moves without horse pulling it? Can we fly like birds? Can we

dive like whales?



Stage 5: Creating Next-Practice Platforms Questioning the status quo i.e. ask questions about scarce resources: Can we develop

waterless detergents? Can we breed rice that grows without water? Can biodegradable

packaging help seed the earth with plants and trees?

Sustainability can lead to interesting next-practice platforms. One is emerging at the

intersection of the internet and energy management. Called the smart grid, it uses digital

technology to manage power generation, transmission, and distribution from all

types of sources along with consumer demand.



Stage 5: Creating Next-Practice Platforms

The smart grid will lead to lower costs as well as

the more efficient use of energy.

The concept has been around for years, but huge

investments going into it today will soon make it a

reality. The grid will allow companies to optimize

the energy use of computers, network

devices, machinery, telephones, and

building equipment, through meters,

sensors, and applications.

It will also enable the development of cross-

industry platforms to manage the energy needs of

cities, companies, buildings, and households.

Technology vendors such as Cisco, HP, Dell, and

IBM are already investing to develop these platforms,

as are utilities like Duke Energy, SoCal Edison, and

Florida Power & Light. Copyrighted Dr. C.C. Tan (2016). Revised 2. 755 20-Jun-16


Conclusion: Leadership and talent are critical for developing low-carbon economy. The current

economic system has placed enormous pressure on the planet while catering to the needs

of only about a quarter of the people on it, but over the next decade twice that number will

become consumers and producers. Traditional approaches to business will collapse, and

companies will have to develop innovative solutions. That will happen only when

executives recognize a simple truth:

Sustainability = Innovation.



Conclusion: Going green strategy wouldn’t have been obvious 10 years ago. But thanks to aggressive

leadership by some of the world’s biggest companies – Wal-Mart, GE, and DuPont among

them – green growth has risen to the top of the agenda for many businesses. From

2007 to 2009 eco-friendly product launches increased by more than 500%.

A recent IBM survey found that 2/3 of executives see sustainability as a revenue

driver, and half of them expect green initiatives to confer

competitive advantage. This dramatic shift in corporate mindset and practices

over the past decade reflects a growing awareness that environmental

responsibility can be a platform for growth and

differentiation.

Three broad strategies are effective on this – accentuate, acquire, and architect – that

companies can use to align their green goals with their capabilities.



Conclusion:

Accentuate strategy – An accentuate strategy involves playing up existing or

latent green attributes in your current portfolio. Of the three strategies, it is the most

straightforward to craft and implement and thus is a good place to start.

Soon after its launch, in 1987, Clorox’s Brita water filter seized a leadership position among

pitcher filtration systems, and by 2002 it controlled 70% of the market.



innovation?

Conclusion:

Accentuate strategy: Water bottlers attracted loud critics such as the

World Wide Fund for Nature and Corporate

Accountability International, which condemned

them for clogging landfills with plastic and

deceptively advertising their product as better

tasting and healthier than tap water.

Brita’s managers were quick to see an

opportunity. Company research showed that

replacing bottled water with Brita systems could

potentially keep millions of bottles a year out of

landfills.

As part of this strategy, the company launched

FilterForGood:



innovation?

Conclusion:

Acquire strategy: If your portfolio has no obvious candidates

for accentuation, a good alternative is to

buy someone else’s green brand. Many

high-profile green acquisitions have been

made since 2000, including The Body Shop

by L’Oreal, Ben & Jerry’s by Uniliver, and

Tom’s of Maine by Colgate-Palmolive.

In such deals the buyer’s channel and

distribution capabilities are often expected

to substantially broaden the green brand’s

customer base. Within a year after Unilever

acquired Ben & Jerry’s, for example, sales

had increased by 70% and Ben & Jerry’s

had displaced Haagen Dazs as the leading

premium ice cream brand.



Despite the fact that Ben & Jerry’s was

bought by Unilever a while back, it

has still engaged in some pioneering work

— from encouraging customers to oppose

GMOs to donating thousands each year to

local charities, to buying brownies from a

bakery that helps ex-cons get back on

their feet by providing their first job

outside jail. Most recently they’ve

committed to sourcing all of their

ingredients through Fair Trade

programs (considering the

quantities of chocolate, vanilla, coffee

nuts, and more, this is a pretty big deal to

farmers in developing countries where

this stuff is grown).

20-Jun-16


Conclusion:

Architect strategy: For companies with a history of innovation and substantial new-product-development

assets, architecting green offerings – building them from scratch –

becomes a possibility.

Although architecting can be slower and more costly than accentuating or acquiring, it may

be the best strategy for some companies, because it forces them to build valuable

competencies.

Toyota took this route it developed the Prius. Although the company is currently

addressing a raft of quality problems, the lessons of its architect strategy still stand.



innovation?

Conclusion:

Architect strategy: Clorox, too, in developing the Green Works

cleaning products, shows how companies with

limited green expertise but substantial product

development capabilities can architect

a green brand.


TOE Model of Innovation Adoption.

Tornatzky, L. and Fleischer, M. (1990), The Process of Technology Innovation, Lexington, MA: Lexington Books.

In sum:




Making decisions based on ethical consequences

Utilitarianism begins with the conviction that we should

decide what to do by considering the

consequences of our actions:

Better overall consequences – those that promote

human well-being: happiness, health, dignity, integrity,

freedom, and respect of all the people affected.

The emphasis on producing the greatest good for the

greatest number makes utilitarianism a social

philosophy that provides strong support for

democratic institutions and policies.

Long-term competitiveness and sustainability

3P (Profit - People: Social-Planet: Environmental)

Results: Shared Values.

Avoid bad or harmful consequences

Theme – The end justifies the means.

But the ends do not

always justify the (ethical) means




Making decisions based on ethical consequences Example: Healthy Society

Healthy Society

Sustainable

expanding demand

for business

Successful

companies need a healthy society

Creating jobs,

wealth, innovation,

and establishes

competitiveness for

the companies, the

regions and the nation

creates

Improve standards of living and social conditions

Tax contribution so government can better develop infrastructures to maintain and create healthy society



Making decisions based on ethical principles

Utilitarianism must be supplemented with the recognition that some decisions should be

matters of principles, not consequences. In other words, the ends do not

always justify the means:

Principle-based, de-ontological.

Ethical principles can simply be taught of as types of rules, and this approach

tells us that there are some rules we ought to follow, even if doing so prevents

good consequences from happening or even if it results in some bad

consequences.

Examples: Law, duty to pay our taxes, to respect the dignity of individual

human being (“Kantian categorical imperative”), object to child labor.

Deontological Behaviors: Short-term reactive and defense

Long-term proactive moral obligations. Long-term commitment to social responsibility


Fundamental Ethical Principles of CSR:

Consumer’s Magna Carta: The right to be heard The right to be informed

The right to choose

Safety

The right to be heard The right to be informed The right to choose Safety



Sources of Rules:

Law (Legal Rules)

Other rules are derived from various institutions in which we

participate or from various social roles that we fill i.e. professional

rules.

Organizational rules and roles-based rules: As an employee, one

takes on a certain role that creates duties. Every business will have

a set of rules that employees are expected to follow e.g. stated in a code of conduct, employee handbooks.

Safety: The concept of safety, in a

definitional sense, means “free

from harm or risk” or

“secure from threat of

danger, harm, or loss.” i.e. Financial services do not

cause damage or financial harm.


The right to be heard The right to be informed The right to choose Safety

Truthfully

advertised

A product that will

meet reasonable

expectations Fair values

A product (or service) with full

disclosure of its specification No deception, Accurate Information

Strategies

and Action Plans:





The right to choose

Safety

Consumerism movement as catalyst: is a social movement seeking to augment the

rights and powers of buyers in relation to sellers. Ralph Nader is still the

acknowledged father of the consumer movement.

Produce

quality products

Advertising

Social media

Design Produce Instruct Use

Safety: Design rightly, produce rightly, instruct correctly to prevent misuse.


Quality Dimensions: Produce rightly. At least eight critical dimensions of product or service quality must be understood if business is to respond

strategically to this factor. These include:

(1) Performance – refers to a product’s primary operating characteristics. For an automobile, this would include such

items as handling, steering, and comfort.

(2) Features – The bells and whistles (Fig. extra, fancy add-ons or gadgets) of products that supplement the basic

functioning.

(3) Reliability – Refers the probability of a product malfunctioning or failing.

(4) Conformance – is the extent to which the product or service meets established standards.

(5) Durability – a measure of product life.

(6) Serviceability – refers to the speed, courtesy, competence, and ease of repair.

(7) Aesthetics – a subjective factor that refers to how the product looks, feels, tastes, and so on.

(8) Perceived quality – a subjective inference that the consumer makes on the basis of a variety of tangible and

intangible product characteristics.




The right to choose

Safety


Consumer Stakeholders: Product and Service Issues

Quality-Ethics:

An important question is whether quality is a social or an ethical issue or just a

competitive factor that business needs to emphasize to be successful in the marketplace.

For many consumers, quality is seen to be something more than just a business issue.

Three ethical theories based on the concept of duty that informs our understanding of the ethical

dimensions of quality include:

(1) Contractual Theory

(2) Due Care Theory

(3) Social Costs View

Contract Theory Due Care Theory Social Costs View


Consumer Stakeholders: Product and Service Issues

Quality-Ethics:

The contractual theory focuses on the contractual agreement between the firm and the customer. Firms

have a responsibility to comply with the terms of the sale, inform the customer about the nature of the product, avoid

misrepresentation of any kind, and not coerce the customer in any way.

The due care theory focuses on the relative vulnerability of the customer, who has less information

and expertise than the firm, and the ethical responsibility that places on the firm. Customers must depend

on the firm providing the product or service to live up to the claims about it and to exercise due care to avoid customer

injury.

The third view, social costs, extends beyond contract theory and due care theory to suggest that, if a product

causes harm, the firm should pay the costs of any injury, even if the firm had met the terms of the

contract, exercised all due care, and taken all reasonable precautions. This perspective serves as the underpinning

for strict liability and its extension into absolute liability.


The US Federal Trade Commission (FTC): One of the US federal government’s major instruments for ensuring that business

lives up to its responsibilities in the relevant areas:

(1) to maintain free and fair competition in the economy and (2) to protect consumers

from unfair or misleading practices.

The FTC may issue cease-and-desist orders against companies it believes engage in

unlawful practices.

If the FTC decides an ad is false or misleading, it may order the advertiser to withdraw

the ad or run “corrective” advertising to inform the public that the former ads were

deceptive. Advertisers also may be fined for violating an FTC order.



Law enforcement role (Virtue from External Enforcement)

Making decisions based on ethical consequences

FDA resides within the Health and Human Services Department and engages in three broad categories of activity:

Analysis

Surveillance

Correction

Law enforcement role


TQM Model – in explaining the 3 roles of FDA

Analyze the possible

causes of the safety and quality issues

Employ all you learn about

the causes, the variables that

affect quality and safety

issues, to develop and

establish ISO 9001

Total Quality

Management (TQM) system.

Once you have a Total

Quality Management system

in place, you can use that to

monitor, audit

according to the system

policy and guidelines i.e. ISO 9001.

When found problems during

surveillance, audits or

monitoring, perform

Corrective Actions

and/or Preventive Actions.


Safety and Ethics:

Food and Drug Administration - Today, the FDA supervises many different laws and

amendments that have been passed, and regulates $1 trillion worth of products a year. It ensures the safety of

all food except meat, poultry, and some egg products; ensures the safety and effectiveness of all drugs, biological

products (including blood, vaccines, and tissues for transplantation), medical devices, and animal drugs and feed,

and makes sure that cosmetics and medical and consumer products that emit radiation do no harm.

The FDA was reasserting itself as an agency planning to take swift action against violators.


Law enforcement role



Companies selling the products and services to consumers

Law Enforcement and Consumer Protection agencies Consumerism

Doctrine of Strict Liability – In its most general form, the doctrine of strict

liability holds that anyone in the value chain of a product is liable for

harm caused to the user if the product as sold was unreasonably dangerous because of its

defective condition. This applies to anyone involved in the design, manufacture, or sale of a

defective product.

Another extension of strict liability is known as market share liability. This

concept evolved from delayed manifestation cases – situations in which

delayed reactions to products appear years later after consumption of, or exposure to, the

product.



Principles, Rules: Compliance-based culture: rule-

following responsibility

Personal integrity of its

workforce

Goals, Values: Value-based is one that reinforces a particular set of

values rather than a particular set of rules.

Certainly these firms may have codesof conduct, but

those codes are predicated on a statement of values.

Audit focus Holistic business focus

Transaction based Process based and business model driven

Financial account focus Customer focus

Compliance objective Risk identification, Opportunities explored and exploited, Improvement

Policies and Procedures focus Innovation, attending to anxieties and desires and solutions of

consumers

Suggested cost center Accountability for total performance and Sustainability

Methodology: focus on policies, transaction Methodology: focus on goals, strategies, values of i.e. greenness and and compliance sustainability, and risk management processes



Principles, Rules: Compliance-based culture: rule-



workforce

Doing things right, being

authentic

Goals, Values: Value-based culture is one that reinforces

a particular set of values rather than a

particular set of rules.

Certainly these firms may have code of

conduct, but those codes are predicated

on a statement of values.

Doing right things

Mission, Vision and Values

Social responsibility (deontology and

utilitarianism) is a set of behaviors: behaviors are exhibited by individuals in the organization.

Thus both deontology and utilitarianism ethical

behaviors essentially form the ethical culture.



Principles, Rules:

Compliance-based culture: rule-



workforce


authentic

Goals, Values:

Value-based culture is one that reinforces a particular

set of values rather than a particular set of rules.

Certainly these firms may have conduct of conduct, but

those codes are predicated on a statement of values.

Doing right things


Social responsibility (deontology and utilitarianism)

is a set of behaviors: behaviors are exhibited by individuals in the organization.

Thus both deontology and utilitarianism ethical behaviors essentially form the ethical culture.

An improvement of socially responsibility behavior

requires ACTION i.e. in the form of behavior change, by everyone in the organization.

CSR1


CSR2

Corporate Social Responsiveness


CSR1 (Responsibility)

CSR2 (Responsiveness)

CSR3

(Rectitude, Culture

and Brand Character)

CSP (Performance)

Role

Action

Habit



Principles, Rules:

Compliance-based culture: rule-



workforce


authentic

Goals, Values:

Value-based culture is one that reinforces

a particular set of values rather than a

particular set of rules.

Certainly these firms may have conduct

of conduct, but those codes are

predicated on a statement of values.

Doing right things


Aim: Strict compliance and audit programs (e.g. ISO 9001, 14000, 22000) are often

springboards for implementing more comprehensive programs addressing ethical values and to world-class companies.

Actions (Transformation): The goals of more evolved and inclusive ethics program may entail a broader and more expansive

application to the firm, including maintain brand and reputation, recruiting and retaining desirable

employees, helping to unify a firm’s global operations, creating a better working environment for employees, and doing the right thing in addition to doing things right.


Inputs Transformation

(Transformative Actions,

CSR2)

Outputs

Principles

ISO 26000 Guidelines

CSR1 Awareness

Culture of socially responsible behavior

Improved social

responsibility

performance

(CSP)

Feedback – Continuous improvement

Social responsibility performance improvement is a process, an ideal, not an ideal state. The

minute one improvement is made, another is possible. We need tools to deploy in that journey, tools

that work at all levels of progress, on all aspects, on all processes.

Thus, social responsibility as a continuous improvement target.

CSR3 (Corporate Social Rectitude, Integrity, Brand Image, Brand Character)


Inputs Transformation (Transformative Actions, CSR2)

Outputs

Principles

ISO 26000

Guidelines

CSR1

Awareness

Culture of

socially

responsible behavior

Improved social

responsibility

performance

(CSP)

Impact to society



Examples of Transformation: Creating a Customer-Oriented Company:

1. Top-down culture and commitment are

essential

2. Identify internal champions and uphold

them.

3. Commit resources to the task.

4. Hire the right people.

5. Empower employees.

6. Make customer service training a priority.

Product

Quality and Safety

Service

Quality and Safety

Customer Satisfaction

Continued

Purchases by Consumers

Firm Profitability

Firm Reputation


ISO 26000:

New edition to ISO

ISO 26000, Guidance on Social Responsibility, is an effort begun through

actions initiated as early as 2001 by the International Organizational for Standardization (ISO)

This guideline is intended to be a globally consistent, practical guide for any organization wanting to

enhance its social responsibility performance (CSP). It is important to note that it is being published as a guideline, not a standard of certification

requirements. There is no expectation that third-party certification to ISO 26000 will take place. As a

guideline it is intended to do just that – provide guidance.

There are 7 key principles of ISO 26000: Accountability (ACCOUNTABLE RESULTS – UTILITARIANISM)

Transparency (VIRTUE THEORY)

Ethical behavior (VIRTUE THEORY)

Respect for stakeholder interests (DEONTOLOGY)

Respect for Rules of Law (DEONTOLOGY)

Respect for human rights (i.e. Consumer’s Magna Carta) (DEONTOLOGY)


Accountability: accountable not only for its decisions and actions related to social and

environmental issues, but also for the impact of those issues in society as a whole.

Transparency: Make information available to the organization’s communities about its practices

and the practices of its key partners and stakeholders.

Ethical Behavior: Ethical behavior includes acting with integrity, honesty, fairness, and concern

for all stakeholders and the environment. Thus ethical behavior is a commitment of acting in the best

interest of all stakeholders.

Respect for stakeholder interests – Consideration for the various stakeholders of a firm

opens the firm up to thinking about how its organizational actions impact not only internal

stakeholders (suppliers, employees, stakeholders, etc.), but also external stakeholders (consumers,

government, NGOs, community, etc.).

Respect for the Rule of Law – It is a principle of respect for those procedures that have been

designated as appropriate by the ruling organization.

Respect for human rights – The definition of human right is recognized through the United

Nations International Bill of Human Rights. It includes the admonition of discrimination, torture,

kidnapping, slavery, the abuse of children, and the abuse of migrant workers and those of disabilities.

Ensuring that persons involved in the execution of business activities are treated with respect to their full human rights is considered to be universal.


Inputs Transformation (Transformative

Actions, CSR2)

Principles

ISO 26000

Guidelines

CSR1 Awareness

Culture of

socially

responsible behavior

Improved social

responsibility

performance

(CSP)

Impact to society

Outputs



7 Core Subjects of ISO 26000: Organizational governance Human rights

Labor practices

The environment

Fair operating practices

Consumer issues

Community involvement and

development

4 Greenness Strategies


Inputs Transformation (Transformative

Actions, CSR2) Outputs

CSR1: A reflection of

shared moral and ethical

principles (in the

mindshare of customers

and stakeholders – brand

identity)

Co-creating shared value,

ethical innovation

products

Principles

ISO 26000 Guidelines

Awareness

Culture of socially responsible behavior

Improved social responsibility

performance (CSP): CSP is a

form of enlightened self-

interest that balances all

stakeholders’ claims and

enhances a company’s long-

term values

Impact to society

Brand character


CSR2: A vehicle for

integrating

individuals into the

communities in

which they work

(communitization)

Brand integrity through proven actions

of engagement (i.e. Marketing Mix)



Kotler et al. (2010)’s book explores the changes that are cultivating a more enlightened sort of

marketing whose powers are being enlisted to help solve urgent problems. The trend has shifted to

values-driven, networked world in which collaboration is easy and ubiquitous.

If “Marketing 1.0” was a product-focused enterprise born of the Industrial Revolution, and

“Marketing 2.0” was a customer-focused effort leveraging insights gained from

information technology, then Kotler says marketing’s latest incarnation must do even more. It must

engage people in ways that provide “solutions to their anxieties to make the globalized world

a better place.” Kotler, P., Kartajaya, H. and Setiawan, I. (2010). Marketing 3.0: From Products to Customers to the Human

Spirits , USA: Wiley.

Reconceiving

customer needs,

products and markets

Redefining

productivity in

the value chain

Enabling local

cluster development

Increasing

level of shared value – scale


We are seeing that:

CSR1,2,3 and CSP essentially form the background and strong roots of the Marketing 3.0 concept

that embraces the 3C principles (co-creation, communitization, and character of spiritual essence) and

3E actions (explore co-created solutions, engage the communities and customers, and execute with

CSR1-3,CSP actions to develop strong spiritually rooted brand character, that also enables the

consumers to live a better healthier enabled life. – not discussed in Kotler et al. (2010) or

elsewhere.

Thus, marketing is about defining your unique identity and strengthening it with authentic

integrity to build strong image and character, through co-creating with the

consumers and the communities that has transformative values to improve

well-beings, intellectuality and happiness, healthiness.

Now we will see how these CSR-CSP and Marketing 3.0 business ethical principles can be applied on

social entrepreneurship i.e. Doi Tung project.


Production CSR Resource

Products

and Services

Paradigm Shift

Ethics driven

Strategies,

Innovation and

Transformation (CSR2,CSR3)

Resources and CSR 1 Principle CSP (Corporate Social Performance)

Combines commercial success and social progress


Inputs Resources

Transformation (Transformative Actions, CSR2) Outputs


Build innovative commercial activities and social arrangements: mutually

reinforcing changes.

Create external advisory boards

Governance systems

Innovation for social impacts

Learning attitude

Nature of innovation

Leadership development of the communities

Improve production techniques, knowledge transfer, improve crop

production

Me-We-World responsiveness actions

Rolling up relevant technologies

Build management capacity

Access communities of all level to funding, health-care, credit, and saving

Work with relevant stakeholder groups e.g., trade union, cooperative.

Mobilize ideal capacities, resources and social arrangements required for

long-term sustainable, social transformation

Education, grassroots mobilization

Enacting social

entrepreneurshi

p spirits: Principles of

ethics

The communities

and societies

Need to mobilize

resources


Inputs Resources



Me World

We

Leadership development

Grassroots mobilization and

build local capability/capacity to solve problems

Then, extend the social

entrepreneurship outcomes to other

groups or other parts of the world

(replicate to other countries)

Promote social entrepreneurship model

(knowledge

dissemination)


Inputs Resources



Me We

Social Bricoleurs –

usually focus on

discovering and

addressing small-

scale local social needs.

Social

constructionists –

typically exploit

opportunities and

market failures by

filling gaps to

underserved clients

in order to introduce

reforms and

innovations to the

broader social system

World:

Social engineers –

recognize systemic problems

within existing social structures

and address them by introducing revolutionary change.

Source:

Zahra, S., Gedajlovic, E., Neubaum, D.O. and Shulman, J.M. (2009). A

typology of social entrepreneurs: motives, search processes and ethical challenges, journal of business venturing, 24, pp. 519-532.


Inputs Resources



Me

We

Community Participation

Transparency (also ISO 26000 Principle)

Due Care

Leadership / Stewardship (to where: sustainable well-being etc.)


Inputs and Resources:

Local

communities as key resources

Transformation (Transformative Actions, CSR2), Governance and control mechanism in place

Outputs:

Public good and society


Vision and Mission, Motives and Ambitions

Continuous Improvement

Allocating social wealth To establish efficiency of the allocation process


Inputs Resources



Now Future

Social Entrepreneurship

Scaling up approaches

Innovation

CSR1,2,3, CSP Marketing III


Inputs Resources



Outputs/Utility: Create social wealth, total wealth, public good,

common good

Reduce and solve social problems

Transform lives, to promote social change and reform

Catalyze sustainable social transformation

To address inequity

Promote genuine democratic participation for all

people

Improve the general welfare of rural farm families

Promote community development

Develop self-sustaining income-generating capability

and visibility

Enriching community

Reduce social costs


Economy

Technology

Market

Socio

-Cultu

re

Politic

al-L

eg

al

Market Analysis:

Emerging

trends enable:

The age of participation

The age of

global-localized culture

More creative

and in need of

spiritual cultivation

Co-Creation

Explore, to co-create a brand

meaning of transformative value in

the mind-share of consumers, a

brand identity itself.

Communitization

Engage consumers to connect to

one another in communities,

through market-share tactic, to

establish brand integrity (trust of the communities)

Character building

Take actions (execute) through

CRM and services, brand’s

spiritual meaning promotion, to

establish brand image.

Marketing Trends:



Brand integrity

Brand

Differentiation Positioning

3i

The 3i Model

Mind-Share Market-Share

Heart-Share Copyrighted Dr. C.C. Tan (2016). Revised 2.

802

20-Jun-16

Summary:

We are making an effort to develop towards a theory of deontology, transformative and utilitarianism business

ethical approach for social entrepreneurship to develop business and communities simultaneously and

seamlessly.

A good theory, according to Weick (1995), explains, predicts, and delights. This work represents an effort to

stimulate research on social entrepreneurship by using existing bodies of knowledge in marketing and business

ethics.

Weick, K. (1995), Definition of Theory, pp. 565-567. in Nigel Nicholson (Ed.), Blackwell Dictionary of

Organizational Behavior, Oxford: Blackwell.

Social entrepreneurship = a process involving the innovative use and combination of

resources to pursue opportunities to catalyze social changes and

address social needs.


803

20-Jun-16

Marketing should be redefined to its root as a triangle of Positioning,

Differentiation, and Brand.

A brand should be clearly positioned in the consumer’s mind to give it a clear

Brand Identity.

To give Brand Integrity to your Positioning, it must be supported by strong

Differentiation. Brand Integrity is about fulfilling what is claimed through

the positioning and brand value through solid Differentiation. It is about

being credible to your promise and establishing the trust of the consumers

to your brand. The target of Brand Integrity is the Spirit of the consumers.

Positioning supported by strong Differentiation will in turn lead to strong

Brand Image.


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20-Jun-16

Brand: Brand Meaning (Identity) and Image, and its Integrity

IKEA Make stylish furniture affordable

Virgin Bring excitement to boring industries

The Walt Disney Create magical world for families

Southwest Airlines Make flying possible for many people

The Body Shop Embed social activism in business

Microsoft Realize ubiquitous computing

Apple Transform how people enjoy technology

Amazon.com Provide the biggest selection of knowledge delivered conveniently

eBay Create user-governed market space

Google Make the world’s information organized and accessible

Original Brand Mission


A good mission is always about change, transformation, and

making a difference. Thus, marketing 3 is about changing the way

consumers do things in their lives. When a brand brings transformation,

consumers will unconsciously accept the brand as part of their daily lives.

As the experience economy matures, it is time for the transformation

economy to emerge. We believe that the transformation economy – where a company’s

offering is a consumer’s life-transforming experience – is already on its way.

Experience Economy Transformation Economy


A brand possesses great characters when it becomes the symbol of a movement that addresses the

problems in the society and transforms people’s lives – (business as usual)

Example:

The Body Shop is the symbol of social activism

Disney a symbol of family ideal

Wikipedia the symbol of collaboration

eBay the symbol of user governance.


Leadership & Management

Business ethics 2016