MGT703: STRATEGIC MANAGEMENT · 2009-01-28 · Characteristics of an amoral manager • Believes...

MGT703: STRATEGIC MANAGEMENT

Module 4B: Strategy, ethics andsocial responsibility

Chapter 10DR AHMAD FAISAL

Doc: MGT703 – M4B January 2009 Dr Ahmad FaisalNon-Commercial Use Only

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The information is merely for informative purposes and any statements made or issues highlighted in this document shall not in any circumstances constitute or be deemed to constitute a guarantee or warranty by the author and the publisher as to the accuracy of such statements or issues. Copyrighted materials provided in this document belongs to the respective individuals and or entities. The material is issued in non-commercial confidence and must not be produced in whole or in part for any reason to any third party by any means, electronic or mechanical, including photocopying, recording, or any information storage and retrieval system, without the prior written consent. The information is merely for informative purposes and without any contractual obligations whatsoever. The author and the publisher shall not be liable for any loss, expenses, damage or claim arising out of statements and or issues and expressly disclaims all responsibility for the material in this document and all liability to any person in relation to any action that person may take or fail to take in reliance, whether in whole or in part, on this document.

Disclaimer and copyright notices


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Module Overview

• Business Ethics

•Ethical Issues, ethical Principles

•Three categories of management morality

•The drivers of unethical strategies and business behaviour

•Business ethics in the global community

•Linking strategy to ethical principles and core values

• Strategy and Social Responsibility

•Moral and business cases for corporate social responsibility

•Linking strategy and social responsibility

• Is there enough attention to Social Responsibility?

Chapter 10 Chapter 10Doc: MGT703 – M4B January 2009 Dr Ahmad FaisalNon-Commercial Use Only

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Ethical issues

1. Pollution2. Product safety3. Legal control4. Taxation issues5. Corruption – Bribery & Fraud6. Honesty in advertising7. Profit levels8. Employee health and safety9. Equal employment

opportunity10.Price fixing


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Ethical principles

Involves concepts of

•Right and wrong behaviours

•Fair and unfair actions

•Moral and immoral behaviours

•Examples of ethical behaviours

• Honesty

• Integrity

• Keeping one’s word

• Respecting rights of others

• Practicing the Golden Rule

Beliefs about what is ethical serve as a moral compass to guide behaviours of individuals and companies


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Concept of business ethics

Business ethics involves applying general ethical principles and standards to business behaviour

Ethical principles in business are not different from ethical principles in general

Business actions are judged by general ethical standards of society


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Three categories of management morality

Moral manager

Amoral manager

Immoral managerManagerial ethical and

moral principles


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Characteristics of a moral manager

•Dedicated to high standards of ethical behavior in

•Own actions

•How the company’s business is to be conducted

•Considers it important to

•Be a steward of ethical behavior

•Demonstrate ethical leadership

•Pursues business success

•Within confines of both the letter and spirit of laws

•With a habit of operating well abovewhat laws require

Moral manager

Amoral manager


moral principles


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Characteristics of an immoral manager

•Actively opposes ethical behavior in business

•Willfully ignores ethical principles in making decisions

•Views legal standards as barriers to overcome

•Pursues own self-interests

•Ignores interests of others

•Focuses on a financial bottom line at all cost

Moral manager

Amoral manager


moral principles


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Characteristics of an amoral manager

• Believes business and ethics should not be mixed since different rules apply to business activities and other realms of life

• Does not factor ethical considerations into own actions since business activity lies outside sphere of moral judgment

• Views ethics as inappropriate for the tough, competitive business world

• Concept of right and wrong is lawyer-driven

• Is blind to or casual about ethics of decision-making and business actions

• Displays lack of concern regarding whether ethics applies to company actions

• Sees self as well-intentioned or personally ethical

• Typical beliefs• Do what is necessary to comply with laws and

regulations• Government provides legal framework stating what

society will put up with – if it is not illegal, it is allowed

Moral manager

Amoral manager


moral principles


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Perspectives on ethics

Unethical Behaviour

DRIVER• The large numbers of immoral

and amoral business people• Over enthusiastic pursuit of

personal gain, wealth, and other interests

• Pressures on company managers to meet or beat earnings targets

• A company culture that places profits and good performance ahead of ethical behaviour

Business ethics in the global community:

• Notions of right and wrong, fair and unfair, moral and immoral, ethical and unethical exist in all societies

• Two schools of thought•Ethical universalism – Human

nature is the same everywhere and ethical rules are cross-cultural

•Ethical relativism – different societal cultures and customs give rise to divergent values and ethical principles of right and wrong


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Perspectives on ethics

TRANSPARENCY INTERNATIONAL ANNUAL REPORT 2006 I POLICY AND RESEARCHhttp://www.transparency.org/publications/publications/annual_reports/ar_2006


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Cross-culture variability in ethical standards

• Apart from certain universal basics such as honesty, trustworthiness, fairness, avoiding unnecessary harm and respecting the environment, variations exist in what societies generally agree to be right and wrong in the conduct of business activities

• Factors affecting cross-cultural variability•Religious beliefs•Historic traditions•Social customs•Prevailing political and economic doctrines

• Cross-country variations also exist in the degree to which certain behaviours are considered unethical


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Linking strategy with ethics

The boards of directors and top executives must work diligently to see they are thoroughly observed in

Crafting the company’s strategy and

Conducting every facet of the company’s business

Two sets of questions must be considered by senior executives when a new strategic initiative is under review

Is what we are proposing to do fully compliant with our code of ethical conduct? Is there anything here that could be considered ethically objectionable?

Is it apparent this proposed action is in harmony with our core values? Are any conflicts or concerns evident?


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Corporate social responsibility, social obligation and social responsiveness

Corporate social responsibility -obligation beyond that of law and economics for a firm to pursue long term goals that are good for society

Social obligation - obligation of business to meet economic and legal responsibilities

Social responsiveness -capacity of firm to adapt to changing societal conditions

2 VIEWS on social responsibility

Classical view: The view that management’s only social responsibility is to maximise profits.

Socio-economic view: The view that management’s social responsibility goes well beyond the making of profits to include protecting and improving society’s welfare.


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To whom is management socially responsible?

• Shareholders (Owners/Management) - profits and dividends (ROI), increased stock value, firm’s survival, development and expansion, etc.

• Employees - pensions and benefits, health and safety, EEO, compensation, working hours etc.

• Constituents in the specific environment - fair prices, high quality products and services, health and safety issues, false and/or misleading advertising, good supplier relations and similar practices

• Broader society - responsibility for advancing the public good such as promotion of social justice, preservation of the environment etc.

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Socially responsible business behaviour

A company should strive to balance benefits of strategic actions to

• Benefit shareholders against any possible adverse impacts on other stakeholders

• Proactively diminish any harmful effects on the environment that its actions and business may have

Socially responsible behaviours include

• Corporate philanthropy / benevolence (generosity)

• Actions to earn the trust and respect of stakeholders for a firm’s efforts to improve the general well-being of customers, employees, local communities, society, and environment


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Does social responsibility pay?

Research has found mixed results.

Research indicates that no clear relationship exists between a corporation’s degree of social responsibility and its financial success, at least in the short run.

There is also a view that a firm’s financial performance may predictsocial responsibility, rather than the reverse.

Another view suggests that firms engage in social responsibility to develop more stable relationships with major stakeholders and reduce the risk of lawsuits and fines.


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Linking strategy and social responsibility

Management should match a company’s social responsibility strategy to its

• Core values

• Business mission

• Overall strategy

Some companies are integrating social responsibility objectives into their

• Missions

• Performance targets

• Strategies


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The moral case for corporate social responsibility

Businesses should promote the betterment of society, acting in ways to benefit all their stakeholders because - It’s the right thing to do!Based on an implied social contract, society

• Grants a business the right to conduct its business affairs

• Agrees not to unreasonably restrain a business’ pursuit of a fair profit

In return for a “license to operate,” a business should

• Act as a responsible citizen

• Do its fair share to promote the general welfare


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Reasons to behave in a socially responsible mannerGenerates internal benefits

• Enhances recruitment of quality employees

• Increases retention of employees

• Improves employee productivity

• Lowers costs of recruitment and trainings

Reduces risk of reputation-damaging incidents, leading to increased buyer patronage

Works in best interest of shareholders

• Minimises costly legal and regulatory actions

• Provides for increased investments by socially conscious mutual funds and pension benefit managers

• Focus on environment issues may enhance earningsDoc: MGT703 – M4B January 2009 Dr Ahmad FaisalNon-Commercial Use Only

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Is there enough attention about social responsibility?

What is the appropriate balance between

• Creating value for shareholders?

• Obligation to contribute to the larger social good?

What fraction of a firm’s resources ought to be aimed at

• Addressing social concerns?

• Bettering the well-being of society and the environment?

Approaches to fund a social responsibility strategy can

• Allocate a specified percentage of profits

• Avoid committing a specified percentage of profits


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Is there too much attention about social responsibility?

Controversies regarding use of company resources in pursuit of a better world and the efforts of “do-good” executives are:

• Any money authorised for social responsibility initiatives is theft from a company’s shareholders

• Caution should be exercised in pursuing various societal obligations since this diverts valuable resources and weakens a company’s competitiveness

• Social responsibilities are best satisfied through conventional business activities – producing needed goods and services at prices that people can afford or doing what businesses are supposed to do

• Spending shareholders’ money for social causes not only muddies decision making by diluting the focus on a company’s business mission but also thrusts executives into the role of social engineers which should be performed by charitable or elected people.


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Triple bottom-line reporting

Requires companies to evaluate their performance across

• the economic bottom line or cash capital (tangible assets and intellectual property)

• the environmental bottom line or natural capital (air, climate, plants, animals and raw materials used by a company as inputs)

• the social justice bottom line or social capital (transport and communication systems, legal and political institutions)

Assumption is that business has a responsibility to society and the environment as well as financial performance


MGT703: STRATEGIC MANAGEMENT · 2009-01-28 · Characteristics of an amoral manager • Believes...

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Transcript of MGT703: STRATEGIC MANAGEMENT · 2009-01-28 · Characteristics of an amoral manager • Believes...