COLLEGE OF BUSINESS, ADMINISTRATION, AND ACCOUNTANCY

Strategic Management
Standards
Lecturer: Jerwin Andres Anas, MM
 COLLEGE OF BUSINESS, ADMINISTRATION, AND ACCOUNTANCY

Business Ethics/Social
Responsibility/Environmental
Sustainability
Module 10
PRESENTED BY: Jerwin Andres Anas, MM
Lessons

Lesson 1. Business Ethics

Lesson 2. Social Responsibility
Lesson 3. Environmental Sustainability
Introduction
Although the three sections of this chapter (Business Ethics, Social Responsibility, and
Sustainability) are distinct, the topics are quite related. Many people, for example,
consider it unethical for a firm to be socially irresponsible. Social responsibility refers to
actions an organization takes beyond what is legally required to protect or enhance the
well-being of living things. Sustainability refers to the extent that an organization’s
operations and actions protect, mend, and preserve rather than harm or destroy the
natural environment. Polluting the environment, for example, is unethical, irresponsible,
and in many cases illegal. Business ethics, social responsibility, and sustainability issues
therefore are interrelated and impact all areas of the comprehensive strategic
management model.
Learning Outcomes

After completing the module, the student should be able to:

1. Demonstrate why good ethics is good business in strategic management.
2. Describe how firms can best ensure that their code of business ethics guides
decision making instead of being ignored.
3. Explain why whistle-blowing is important to encourage in a firm.
4. Discuss the nature and role of corporate sustainability reports.
Lesson 1. Business Ethics
Good ethics is good business. Bad ethics can derail even the best strategic plans. This
chapter provides an overview of the importance of business ethics in strategic
management. Business ethics can be defined as principles of conduct within
organizations that guide decision making and behavior. Good business ethics is a
prerequisite for good strategic management; good ethics is just good business! A rising
tide of consciousness about the importance of business ethics is sweeping the United
States and the rest of the world. Strategists such as CEOs and business owners are the
individuals primarily responsible for ensuring that high ethical principles are espoused
and practiced in an organization. All strategy formulation, implementation, and
evaluation decisions have ethical ramifications.
Code of Business Ethics
A new wave of ethics issues related to product safety, employee health, sexual
harassment, AIDS in the workplace, smoking, acid rain, affirmative action, waste
disposal, foreign business practices, cover-ups, takeover tactics, conflicts of interest,
employee privacy, inappropriate gifts, and security of company records has accentuated
the need for strategists to develop a clear code of business ethics. Internet fraud,
hacking into company computers, spreading viruses, and identity theft are other
unethical activities that plague every sector of online commerce.
An Ethics Culture
An ethics “culture” needs to permeate organizations! To help create an ethics culture,
Citicorp developed a business ethics board game that is played by thousands of
employees worldwide. Called “The Word Ethic,” this game asks players business ethics
questions, such as how do you deal with a customer who offers you football tickets in
exchange for a new, backdated IRA? Diana Robertson at the Wharton School of Business
believes the game is effective because it is interactive. Many organizations have
developed a code of-conduct manual outlining ethical expectations and giving examples
of situations that commonly arise in their businesses.
Bribes
Bribery is defined by Black’s Law Dictionary as the offering, giving, receiving, or
soliciting of any item of value to influence the actions of an official or other person in
discharge of a public or legal duty. A bribe is a gift bestowed to influence a recipient’s
conduct. The gift may be any money, good, right in action, property, preferment,
privilege, emolument, object of value, advantage, or merely a promise or undertaking to
induce or influence the action, vote, or influence of a person in an official or public
capacity. Bribery is a crime in most countries of the world, including the United States.
Love Affairs at Work
A recent Wall Street Journal article recapped current American standards regarding
boss subordinate love affairs at work.6 Only 5 percent of all firms sampled had no
restrictions on such relationships; 80 percent of firms have policies that prohibit
relationships between a supervisor and a subordinate. Only 4 percent of firms strictly
prohibited such relationships, but 39 percent of firms had policies that required
individuals to inform their supervisors whenever a romantic relationship begins with a
coworker. Only 24 percent of firms required the two persons to be in different
departments. The United Nations (UN) in mid-2009 was struggling with its own sexual-
harassment complaints as many women employees say the organization’s current system
for handling complaints is arbitrary, unfair, and mired in bureaucracy. Sexual harassment
cases at the UN can take years to adjudicate, and accusers have no access to investigative
reports. The UN plans to “soon” make changes to its internal justice system for handling
harassment complaints; the UN aspires to protect human rights around the world.
Lesson 2. Social Responsibility
Some strategists agree with Ralph Nader, who proclaims that organizations have
tremendous social obligations. Nader points out, for example, that Exxon/Mobil has
more assets than most countries, and because of this such firms have an obligation to
help society cure its many ills. Other people, however, agree with the economist Milton
Friedman, who asserts that organizations have no obligation to do any more for society
than is legally required. Friedman may contend that it is irresponsible for a firm to give
monies to charity.
Do you agree more with Nader or Friedman? Surely we can all agree that the first
social responsibility of any business must be to make enough profit to cover the costs of
the future because if this is not achieved, no other social responsibility can be met.
Indeed, no social need can be met by the firm if the firm fails.
Social Policy
The term social policy embraces managerial philosophy and thinking at the highest
level of the firm, which is why the topic is covered in this textbook. Social policy concerns
what responsibilities the firm has to employees, consumers, environmentalists,
minorities, communities, shareholders, and other groups. After decades of debate, many
firms still struggle to determine appropriate social policies.
The impact of society on business and vice versa is becoming more pronounced each
year. Corporate social policy should be designed and articulated during strategy
formulation, set and administered during strategy implementation, and reaffirmed or
changed during strategy evaluation.
Social Policy
In 2009, the most admired companies for social responsibility according to Fortune
magazine were as follows:
1. Anheuser-Busch
2. Marriott International
3. 3.Integrys Energy Group
4. Walt Disney
5. Herman Miller
6. Edison
7. Starbucks
8. Steelcase
9. Union Pacific
10. Fortune Brands
Social Policy
From a social responsibility perspective, these were the least admired companies in
2009:
1. Circuit City Stores
2. Family Dollar Stores
3. Dillard’s
4. Sears Holdings
5. Tribune
6. Hon Hai Precision Industry
7. Fiat
8. PEMEX
9. Surgutneftegas
10. Huawei Technologies
Social Policy
Firms should strive to engage in social activities that have economic benefits. Merck &
Co. once developed the drug ivermectin for treating river blindness, a disease caused by
a fly-borne parasitic worm endemic in poor tropical areas of Africa, the Middle East, and
Latin America. In an unprecedented gesture that reflected its corporate commitment to
social responsibility, Merck then made ivermectin available at no cost to medical
personnel throughout the world. Merck’s action highlights the dilemma of orphan drugs,
which offer pharmaceutical companies no economic incentive for profitable
development and distribution. Merck did however garner substantial goodwill among its
stakeholders for its actions.
Social Policies on Retirement
Some countries around the world are facing severe workforce shortages associated
with their aging populations. The percentage of persons age 65 or older exceeds 20
percent in Japan, Italy, and Germany—and will reach 20 percent in 2018 in France. In
2036, the percentage of persons age 65 or older will reach 20 percent in the United
States and China. Unlike the United States, Japan is reluctant to rely on large-scale
immigration to bolster its workforce. Instead, Japan provides incentives for its elderly to
work until ages 65 to 75. Western European countries are doing the opposite, providing
incentives for its elderly to retire at ages 55 to 60. The International Labor Organization
says 71 percent of Japanese men ages 60 to 64 work, compared to 57 percent of
American men and just 17 percent of French men in the same age group.
Social Policies on Retirement
Sachiko Ichioka, a typical 67-year-old man in Japan, says, “I want to work as long as I’m
healthy. The extra money means I can go on trips, and I’m not a burden on my children.”
Better diet and health care have raised Japan’s life expectancy now to 82, the highest in
the world. Japanese women are having on average only 1.28 children compared to 2.04
in the United States. Keeping the elderly at work, coupled with reversing the old-
fashioned trend of keeping women at home, are Japan’s two key remedies for sustaining
its workforce in factories and businesses. This prescription for dealing with problems
associated with an aging society should be considered by many countries around the
world. The Japanese government is phasing in a shift from age 60 to age 65 as the date
when a person may begin receiving a pension, and premiums paid by Japanese
employees are rising while payouts are falling. Unlike the United States, Japan has no law
against discrimination based on age.
Lesson 3. Environmental Sustainability
The strategies of both companies and countries are increasingly scrutinized and
evaluated from a natural environment perspective. Companies such as Wal-Mart now
monitor not only the price its vendors offer for products, but also how those products
are made in terms of environmental practices. A growing number of business schools
offer separate courses and even a concentration in environmental management.
Businesses must not exploit and decimate the natural environment. Mark Starik at
George Washington University says, “Halting and reversing worldwide ecological
destruction and deterioration is a strategic issue that needs immediate and substantive
attention by all businesses and managers. According to the International Standards
Organization (ISO), the word environment is defined as “surroundings in which an
organization operates, including air, water, land, natural resources, flora, fauna, humans,
and their interrelation.” This chapter illustrates how many firms are gaining competitive
advantage by being good stewards of the natural environment.
Lesson 3. Environmental Sustainability
Employees, consumers, governments, and society are especially resentful of firms that
harm rather than protect the natural environment. Conversely people today are
especially appreciative of firms that conduct operations in a way that mends, conserves,
and preserves the natural environment. Consumer interest in businesses preserving
nature’s ecological balance and fostering a clean, healthy environment is high.
What Is a Sustainability Report?
Wal-Mart Stores is one among many companies today that annually provides a
sustainability report that reveals how the firm’s operations impact the natural
environment. This document discloses to shareholders information about Wal-Mart’s
firm’s labor practices, product sourcing, energy efficiency, environmental impact, and
business ethics practices. It is good business for a business to provide a sustainability
report annually to the public. With 60,000 suppliers and over $350 billion in annual
sales, Wal-Mart works with its suppliers to make sure they provide such reports. Wal-
Mart monitors not only prices its vendors’ offer for products, but also the vendors’
social-responsibility and environmental practices. Many firms use the Wal-Mart
sustainability report as a benchmark, guideline, and model to follow in preparing their
own report.
What Is a Sustainability Report?
The Global Reporting Initiative recently issued a set of detailed reporting guidelines
specifying what information should go into sustainability reports. The proxy advisory firm
Institutional Shareholder Services reports that an increasing number of shareholder
groups are pushing firms to provide sustainability information annually.
Lack of Standards Changing
A few years ago, firms could get away with placing “green” terminology on their
products and labels using such terms as organic, green, safe, earth-friendly, nontoxic,
and/or natural because there were no legal or generally accepted definitions. Today,
however, such terms as these carry much more specific connotations and expectations.
Uniform standards defining environmentally responsible company actions are rapidly
being incorporated into our legal landscape. It has become more and more difficult for
firms to make “green” claims when their actions are not substantive, comprehensive, or
even true. Lack of standards once made consumers cynical about corporate
environmental claims, but those claims today are increasingly being challenged in courts.
Joel Makower says, “One of the main reasons to truly become a green firm is for your
employees. They’re the first group that needs assurance than any claims you make hold
water.”
Obama Regulations
The Obama administration is imposing strict regulations requiring firms to conserve
energy. Federal government buildings are being refitted with energy-efficient
improvements. Alternative-energy firms are busy with new customers every day as the
federal stimulus package includes adding alternative-energy infrastructure. Venture
capitalists and lenders are funding new “clean technology” business start-ups, including
solar power, wind power, biofuels, and insulation firms. Such firms are boosting
marketing efforts, expanding geographically, and hiring more staff. Venture capital
investments in clean technology companies totaled $8.4 billion in 2008, up nearly 40
percent from 2007.
Managing Environmental Affairs in the Firm
The ecological challenge facing all organizations requires managers to formulate
strategies that preserve and conserve natural resources and control pollution. Special
natural environment issues include ozone depletion, global warming, depletion of rain
forests, destruction of animal habitats, protecting endangered species, developing
biodegradable products and packages, waste management, clean air, clean water,
erosion, destruction of natural resources, and pollution control. Firms increasingly are
developing green product lines that are biodegradable and/or are made from recycled
products. Green products sell well.
Managing Environmental Affairs in the Firm
Managing as if “health of the planet” matters requires an understanding of how
international trade, competitiveness, and global resources are connected. Managing
environmental affairs can no longer be simply a technical function performed by
specialists in a firm; more emphasis must be placed on developing an environmental
perspective among all employees and managers of the firm. Many companies are
moving environmental affairs from the staff side of the organization to the line side, thus
making the corporate environmental group report directly to the chief operating officer.
Firms that manage environmental affairs will enhance relations with consumers,
regulators, vendors, and other industry players, substantially improving their prospects
of success.
Managing Environmental Affairs in the Firm
Investing or altering environment-damaging businesses, striving to become a low-cost
producer through waste minimization and energy conservation, and pursuing a
differentiation strategy through green-product features. In addition, firms could include
an environmental representative on their board of directors, conduct regular
environmental audits, implement bonuses for favorable environmental results, become
involved in environmental issues and programs, incorporate environmental values in
mission statements, establish environmentally oriented objectives, acquire
environmental skills, and provide environmental training programs for company
employees and managers.
Should Students Receive Environmental Training?
The Wall Street Journal reports that companies actively consider environmental
training in employees they hire. A recent study reported that 77 percent of corporate
recruiters said “it is important to hire students with an awareness of social and
environmental responsibility.” According to Ford Motor Company’s director of corporate
governance, “We want students who will help us find solutions to societal challenges and
we have trouble hiring students with such skills.” The Aspen Institute contends that most
business schools currently do not, but should, incorporate environmental training in all
facets of their core curriculum, not just in special elective courses. The institute reports
that the University of Texas, the University of North Carolina, and the University of
Michigan, among others, are at the cutting edge in providing environmental coverage at
their respective MBA levels. Companies favor hiring graduates from such universities.
Should Students Receive Environmental Training?
Findings from research suggest that business schools at the undergraduate level are
doing a poor job of educating students on environmental issues. Business students with
limited knowledge on environmental issues may make poor decisions, so business
schools should address environmental issues more in their curricula. Failure to do so
could result in graduates making inappropriate business decisions in regard to the
natural environment. Failing to provide adequate coverage of natural environment issues
and decisions in their training could make those students less attractive to employers.
Reasons Why Firms Should “Be Green”
Preserving the environment should be a permanent part of doing business for the
following reasons:
1. Consumer demand for environmentally safe products and packages is high.
2. Public opinion demanding that firms conduct business in ways that preserve the
natural environment is strong.
3. Environmental advocacy groups now have over 20 million Americans as members.
4. Federal and state environmental regulations are changing rapidly and becoming
more complex.
5. More lenders are examining the environmental liabilities of businesses seeking
loans.
6. Many consumers, suppliers, distributors, and investors shun doing business with
environmentally weak firms.
7. Liability suits and fines against firms having environmental problems are on the rise.
Be Proactive, Not Reactive
More firms are becoming environmentally proactive—doing more than the bare
minimum to develop and implement strategies that preserve the environment. The old
undesirable alternative of being environmentally reactive—changing practices only when
forced to do so by law or consumer pressure more often today leads to high cleanup
costs, liability suits, reduced market share, reduced customer loyalty, and higher medical
costs. In contrast, a proactive policy views environmental pressures as opportunities and
includes such actions as developing green products and packages, conserving energy,
reducing waste, recycling, and creating a corporate culture that is environmentally
sensitive.
New required diesel technology has reduced emissions by up to 98 percent in all new
big trucks, at an average cost increase of $12,000 per truck. “Clean air is not free,” says
Rich Moskowitz, who handles regulatory affairs for the American Trucking Association,
which supports the transition.
Electric Car Networks Are Coming
In August 2009, President Obama announced $2.4 billion in funding for electric car
manufacturing. Grants will go to 11 companies in Michigan and 7 in Indiana that are
matching the funds.
The company Better Place is building a network of 250,000 electric car recharging
stations in the San Francisco/Oakland Bay Area. Each station is about the size of a
parking meter. The company has already built such networks in Denmark, Israel, and
Australia. City officials in the Bay Area expect that region to lead the United States in
electric cars in the near future. The stations are essential because most electric cars need
recharging after about 40 miles. Better Place is also building about 200 stations in the
Bay Area where electric car batteries can be switched out within 15 minutes, so no
waiting is needed for recharging. Even with petroleum prices at low levels, expectations
are for the United States and other countries to switch to electric cars quite aggressively
over the next 10 years—for pollution minimization reasons and to take advantage of
government incentives and eventual mandates.
Electric Car Networks Are Coming
General Motors and Chrysler are pouring money into developing electric plug-in
vehicles. GM is expected to launch its Chevy Volt in late 2010 in the United States. Nissan
Motor Co. and Toyota Motor Co. are also quickly developing electric cars. The Chinese
auto maker BYD Co. recently unveiled the country’s first all-electric vehicle for mass
market. The company’s F3DM vehicle runs off batteries that can be charged from a
regular electrical outlet. BYD plans to sell this car in the United States in 2010. BYD sold
about 10,000 F3DMs in 2009 at a price of 150,000 yuan, or $22,000 each. BYD is
headquartered in Shenzhen.
The March 2009 Copenhagen Meeting
More than 2,000 scientists convened together in Copenhagen in March 2009 and
warned the world that global warming is worse than expected. They strongly encouraged
companies and governments to “vigorously” implement all economic and technological
tools available to cut emissions of heat-trapping greenhouse gases. By the end of this
century, scientists warn, sea levels will rise at least 20 inches and possibly as much as 39
inches unless companies and governments implement policies to radically reduce
greenhouse gas emissions.
The Kyoto Protocal expires in 2012, and the results of this March 2009 Copenhagen
Meeting are expected to replace that agreement. Near-coastal areas worldwide will be
under water by the end of this century if drastic actions are not implemented soon
worldwide to curb greenhouse gas emissions from companies, cars, trucks, power-
generating plants, and planes.