STRATEGIC MANAGEMENT & BUSINESS POLICY

13TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER

Evolution of Social Responsibility 1930s: Chester Barnards The Functions of the Executive J. M. Clarks Social Control of Business 1940s: Theodore Kreps Measurement of the Social Performance of Business Media started asking the businessmen about social responsibilities 1950s: The primary focus on businesses responsibilities A book by Howard R. Bowen Social Responsibilities of the Businessman 1960s: Marked a significant growth in Social Responsibility One of the first and most prominent writers in that period to define CSR was Keith Davis and

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Evolution of Social Responsibility 1970s: Business managers applied the traditional management functions when dealing with CSR issues 1980s: Business and social interest came closer and firms became more responsive to their stakeholders 1990s: The idea of CSR became almost universally approved, also CSR was coupled with strategy literature and 2000s: CSR became definitively an important strategic issue

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What is Social Responsibility?

Innovative approach to giving back to our communities
It means that corporate should oversee the operation of an economic system that fulfills the expectations of the public. Corporation operations should be employed in such a way that production and distribution should enhance total socio-economic welfare

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Who is responsible?
All stakeholders Decision makers has to plan for it (Include it in strategic plan)

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Responsibility to whom?
Stockholders Stakeholders Society

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Responsibilities of a Business Firm Social Responsibility: proposes that a private

corporation has responsibilities to society that extend beyond making a profit

Then, what are these responsibilities?

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Two views of Business Responsibility Friedmans Traditional View Carrolls Four Responsibilities of Business

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Friedmans argues against the concept of social responsibility:

There is only one social responsibility to use its resources and engage in activities Primary goal of business is profit maximization, NOT spending shareholder money for the general social interest Millions spent in social services could have been invested in new product or given back as dividends
Follow the rules of the game

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Carrolls View: Profit maximization is only one side of an ongoing debate regarding CSR Profits are merely means to an end Survive, not an end in itself, thus Maximization profit is like maximizing food William Byron.

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Carrolls four responsibilities of business (in order of priority): Economic Legal Ethical Discretionary

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Responsibilities of a Business Firm

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Responsibilities of a Business Firm Social capital refers to the goodwill of key stakeholders
and provides a company with:
The ability to enter local and international markets Enhanced reputation Competitive advantage Cost savings The ability to charge premium prices Improved relationships with suppliers and distributors The ability to attract better talent Goodwill in the eyes of public officials Access to capital

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Responsibilities of a Business Firm Characteristics of Sustainability Environmental ( Environment protection )

Economic ( Increasing profit)

Social ( Helping developing society)

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Responsibilities of a Business Firm Sustainability Definition: Sustainability is a business strategy that drive long-term corporate growth and profitability by mandating the inclusion of environmental and social issues in the business model.

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Responsibilities of a Business Firm Sustainability Purpose: To generate a maximum increase in company, consumer and employee value by embracing opportunities and managing risks derived from environmental and social development

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Corporate Stakeholders Stakeholders have an interest in the business and affect

or are affected by the achievement of the firms objectives

Enterprise strategy- articulates the firms ethical

relationship with its stakeholders

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Stakeholder Analysis- the identification of corporate

stakeholders in 3 steps:

1. Primary stakeholders have a direct connection with

the corporation and have sufficient bargaining power to directly affect corporate activities Usually include: consumer, employee,supplier, shareholders , and creditors. Relationship between firms and each primary stakeholder is regulated by written or verbal agreements.
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2. Secondary stakeholders have an indirect stake in

the corporation but are also affected by corporate activities

Usually include nongovernmental organization , local communities ,competitors , trade associations and governments. Relations not covered by any written or verbal agreement therefore there is a room of misunderstanding.

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3. Estimate the effect on each stakeholder from a

particular strategic decision ( ) , . , .

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Business Ethics ?

Some people joke that there is no such thing as business ethics.

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Common questionable behaviors:

Lying to or deceiving customers Covering up incidents Cutting corners on quality Abusing or lying about sick days

In a survey, 53% of employees in corporations of all sizes admitted that they would be willing to misrepresent corporate financial statements if asked to do so by a superior.

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Enron Case
Revenue from long-term contracts being recorded in the first year instead of being spread over multiple years, and financial reports being falsified to inflate executive bonuses In explaining why executives and accountants at Enron engaged in unethical and illegal actions, Former Enron vice president Sherron Watkins used the frogs in boiling water analogy. According to Watkins :Enrons accounting moved from creative to aggressive, to fraudulent, like the pot of water moving from cool to lukewarm to boiling;

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Reasons for Unethical Behavior in business

Unaware that behavior is questionable Lack of standards of conduct Different cultural norms and values Different values between business people and stakeholders Relationship-based governance systems

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Governance System
Relationship-based governance. Transactions are based on personal and implicit agreements, not on formal contracts enforceable by a court. What you know is less important than who you know Relationship-based countries tend to be less transparent and have a higher degree of corruption ( See Transparency International ) Rule-based governance

The developed nations and the business firms within them follow well-recognized rules in their dealings and financial reporting. Finland, the United Kingdom, Hong Kong, the United States, and Australia have very transparent business climates.

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Moral Relativism claims that morality is relative to some

personal, social, or cultural standard and that there is not a method for deciding whether one decision is better than another

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Types of Moral Relativism include:

Nave relativism :Moral decisions are deeply personal and that individuals have the right to run their own lives Role relativism :Based on the belief that social roles carry with them certain obligations to that role Social group relativism :decision is considered legitimate if it is common practice, regardless of other considerations Cultural relativism : morality is relative to a particular culture, society, or community

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Moral Relativism
Are you agree with Moral Relativism ?
What are the roots of Moral Relativism ?
Karl Marx and Fiedrich Nietzsche concept of Morals

Is Moral relativism accepted in our Islamic Culture?

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Kohlbergs Levels of Moral Development Preconventional level: concern for ones self Conventional level: considerations for societys
laws and norms ethics

Principled level: guided by an internal code of

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Encouraging Ethical Behavior Code of Ethics- specifies how an organization

expects its employees to behave while on the job

Whistleblowers- employees who report illegal or

unethical behavior on the part of others

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Whistleblowers
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Key Terms in Ethical Behavior Ethics- the consensually accepted standards of behavior
for an occupation, trade, or profession

Morality- the precepts ( ( of personal behavior based

on religious or philosophical grounds

Law is the formal codes that permit or forbid certain

behaviors and may or may not enforce ethics or morality

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Approaches to Ethical Behavior Utilitarian- actions are judged by consequences Individual rights- fundamental rights should be
respected

Justice- decisions must be equitable, fair and impartial in

the distribution of costs and benefits to individuals or groups

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Approaches to Ethical Behavior Cavanaghs questions to solve ethical problems:

1. Utility- does it optimize the satisfactions of the stakeholders? 2. Rights- Does it respect the rights of the individuals involved 3. Justice- Is it consistent with the canons of justice?

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Approaches to Ethical Behavior Kants categorical imperatives:

1. Actions are ethical only if the person is willing for the same action to be taken by everyone who is in a similar situation 2. Never treat another person simply as a means but always as an end

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The Principles Of Islamic Ethics - Trust (Amanah)

- Justice )Adl(

- Sincerity (Ikhlas) ) (
- Benevolence (Ihsan)
)(
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1. What is the relationship between corporate governance and social responsibility? "Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals Corporate social responsibility is concerned with treating the stakeholders of the firm ethically or in a socially responsible manner. 2. What is your opinion of GAP Internationals having a code of conduct for its suppliers? What would Milton Friedman say? Contrast his view with Archie Carrolls view.
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3. Does a company have to act selflessly to be considered socially responsible? For example, when building a new plant, a corporation voluntarily invested in additional equipment that enabled it to reduce its pollution emissions beyond any current laws. Knowing that it would be very expensive for its competitors to do the same, the firm lobbied the government to make pollution regulations more restrictive on the entire industry. Is this company socially responsible? Were its managers acting ethically?

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4. Are the people living in a relationship-based governance system likely to be unethical in business dealings?
5. Given that people rarely use a companys code of ethics to guide their decision making, what good are the codes?
- A comprehensive code of ethics can provide extra protection if a single employee commits a criminal act in the name of your company - can garner a positive image among consumers and job-seekers - Important for all employees to fully understand the expectations of the company and the ethical guidelines in which to make decisions - can provide a foundation on which to base all decisions that affect internal and external stakeholders
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PowerPoint created by:

Ronald Heimler
Dowling College- MBA Georgetown University- BS Business Administration Adjunct Professor- LIM College, NY Adjunct Professor- Long Island University, NY Lecturer- California State Polytechnic University, Pomona, CA President- Walter Heimler, Inc.

For the purpose of lecture - Edited By: AbdulJawad Chaudhry Ahmed Alghamdi Mohamed Alobsefi Mohamed Gorashi University of Business and Technology, College of Business Administration, MBA Program
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