Post on 11-Jan-2017
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
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Innovative economics,
environmental, and ethical
responsibility can be a
platform for growth
and differentiation.
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Miami installs free public bathrooms for homeless people.
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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.)
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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
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Approach of this Course
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.
Approach of this Course
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Approach of this Course
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)
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What is Business?
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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.
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.
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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:
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.
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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 Strategy Palette
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.
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What is Business?
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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)
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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?
Ethics – The 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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Ethics – The Right Thing
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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Ethics – The Right Thing
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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Ethics – Right and Wrong
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
Ethics – The Right Thing
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.”
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Ethics – Right and Wrong
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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Ethics – Right and Wrong
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.
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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
To Deliver 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.
To Deliver a Promise
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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
To Deliver a Promise
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.
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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
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To Deliver a Promise
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The Five Fingers of Ethics
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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).
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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.
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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.
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Raise Awareness = examples:
Show examples of business ethics,
Read newspapers, Share stories of
business ethics in the facebook,
teaching in the class
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Allow the business
ecosystems to function
competitively, sustainably, and ethically.
Behavior:
The industry structure
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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
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Sophistication of local demand
Demanding regulatory standards
or/and beyond
Unusual local demand in specialized
segments that can be served nationally and globally.
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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).
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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.
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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:
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Different views: Moral philosophers customarily divided ethical
principles or theories into three
categories:
Teleological
Deontological
Aretaic or virtue theory
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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
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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
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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
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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
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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).
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(Rules limited in SCOPES)
(Rules limited in the DETAILS/SCALE)
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Scopes
Scales
Rule-based Ethics
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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
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Rule-based Ethics Characteristics of Rules:
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
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Rule-based Ethics Characteristics of Rules:
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
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Rule-based Ethics Characteristics of Rules:
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
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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
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Rule-based Ethics Characteristics of Rules:
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
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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
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Rule-based Ethics Characteristics of Rules:
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
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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
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Rule-based Ethics Characteristics of Rules:
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
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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
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Rule-based Ethics Ideal worlds
Real worlds
Imposed by ethical rules
Humanistic integrity Contingencies
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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.
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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.
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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.
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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.
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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?
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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.
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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.
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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).
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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)
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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
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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.
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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.
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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).
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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
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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
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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:
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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
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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 Definition
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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Business Ethics Definition
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)
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Business Ethics Definition
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
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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)
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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.”
Ethics involves you in the life of the world around you.
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Respect for persons
Respect for community integrity Respect for ecological balance
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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
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Exploration
Exploitation
Business Model –
Value Creation, Value
Capture
Business model is the
key to unlocking the new
opportunities created.
Corporate governance
– 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
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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
Ethical Reasoning Process Evolution
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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Ethical Reasoning Process Evolution
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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Ethical Reasoning Process Evolution
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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DIKD Framework in Ethical Reasoning
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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
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DIKD Framework in Ethical Reasoning
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)
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Philosophical Approaches – There are two
approaches.
1. Normative or Prescriptive, Ethics.
2. Analytic Ethics or
Metaethics.
Approaches to the Study of Morality, Ethics
Approaches to the Study of Morality, Ethics
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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.
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Approaches to the Study of Morality, Ethics
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.
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Approaches to the Study of Morality, Ethics
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.
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Synthesizing the
Different Approaches
Approaches to the Study of Morality, Ethics
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.
Business Ethics Approach
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Philosophical:
Use of Reasons and Logics
Business Ethics Approach
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 Approach
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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Point of View of Business Ethics
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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.
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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
Route to Benefits: an illustration
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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.)
Route to Benefits: an illustration
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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.
Route to Benefits: an illustration
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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
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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
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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
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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.
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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.
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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.
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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.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
Defective Product Recall
Stock market reactions to defective product recall
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Types and Cost of Without BE
Multinationals with dubious pasts
may find them very difficult to enter
or negotiate into new contracts with host governments.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
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.
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Types and Cost of Without BE
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?
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MNEs
Types and Cost of Without BE
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).
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MNEs
Types and Cost of Without BE
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.
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MNEs
Types and Cost of Without BE
Rules and regulation compliance or creativity boosted by:
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.
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MNEs
Types and Cost of Without BE
Rules and regulation compliance or creativity boosted by:
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)
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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.
BENEFITS (EXAMPLE ON HR)
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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.
BENEFITS (EXAMPLE ON HR)
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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
BENEFITS (EXAMPLE ON HR)
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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?
BENEFITS (EXAMPLE ON HR)
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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?
BENEFITS (EXAMPLE ON HR)
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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?
BENEFITS (EXAMPLE ON HR)
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Retention
Responsiveness to solve the retention issues:
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?
BENEFITS (EXAMPLE ON HR)
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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”?
BENEFITS (EXAMPLE ON HR)
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Retention
Responsiveness to solve the retention issues:
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?
BENEFITS (EXAMPLE ON HR)
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Retention
Responsiveness to solve the retention issues:
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?
BENEFITS (EXAMPLE ON HR)
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Retention
Responsiveness to solve the retention issues:
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?
BENEFITS (EXAMPLE ON HR)
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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?
BENEFITS (EXAMPLE ON HR)
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Retention
Responsiveness to solve the retention issues:
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?
BENEFITS (EXAMPLE ON HR)
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Retention
Responsiveness to solve the retention issues:
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?
BENEFITS (EXAMPLE ON HR)
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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?
BENEFITS (EXAMPLE ON HR)
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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?
BENEFITS (EXAMPLE ON HR)
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Retention
Responsiveness to solve the retention issues:
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?
BENEFITS (EXAMPLE ON HR)
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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?
BENEFITS (EXAMPLE ON HR)
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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.
BENEFITS (EXAMPLE ON HR)
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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.
BENEFITS (EXAMPLE ON HR)
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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).
BENEFITS (EXAMPLE ON HR)
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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.
BENEFITS (EXAMPLE ON HR)
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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.
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How to Influence Business Ethics Behaviors
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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:
How to Influence Business Ethics Behaviors
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The Norm-
Activation-Theory
(NAT):
Schwartz and
Howard (1981)
Has initially been
developed
specifically for one
type of behavior,
namely altruism
and helping behavior.
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Ajzen, I. (1991).
The Theory of
Planned Behavior.
Organizational
Behavior and
Human Decision
Processes, 50, pp. 179-211.
How to Influence Business Ethics Behaviors
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Extended Theory of
Planned Behavior - Tan et al. (2015)
How to Influence Business Ethics Behaviors
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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.
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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.
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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:
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Scopes of Business Ethics
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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.
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Scopes of Business Ethics Management
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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
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Scopes of Business Ethics Management
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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.
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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
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Example of CSR1
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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.
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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.
Scopes of Business Ethics Management
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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
Deontology Utilitarianism
Virtue (Character)
Performance
Rectitude: The integrity character , Overall CSR1, CSR2 images
Scopes of Business Ethics Management
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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.
Scopes of Business Ethics Management
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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.
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Scopes of Business Ethics Management
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.
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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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Issue Management Process
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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Issue Management Process
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.
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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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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
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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.
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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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Crisis Management Phases
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
Conflict resolution stage
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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Crisis Management Phases
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
Conflict resolution stage
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
Self-doubt, self-analysis
Stage 4:
Health restored
Conflict resolution stage
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:
Reaction Defense Insight Range Accommodation Agency
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:
Reaction Defense Insight Range Accommodation Agency
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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Scopes of Business Ethics Management
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.
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CSR2
Scopes of Business Ethics Management
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
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CSR2
Scopes of Business Ethics Management
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.
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CSR2
Scopes of Business Ethics Management
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.
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CSR2
Scopes of Business Ethics Management
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.
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Scopes of Business Ethics Management
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
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
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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Scopes of Business Ethics Management
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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.
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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.
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Example: Take CSR1 to Stakeholders Strategically
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.
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Example: Take CSR1 to Stakeholders Strategically
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.
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Example: Take CSR1 to Stakeholders Strategically
Demand Conditions: These are concerned with the nature of the company’s customers
and the local market.
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.
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Example: Take CSR1 to Stakeholders Strategically
Demand Conditions: These are concerned with the nature of the company’s customers
and the local market.
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.
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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.
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Example: Take CSR1 to Stakeholders Strategically
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.
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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
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3R of Business Ethics 3R:
Respect
Responsibility
Result
3R of Business Ethics
3R of Business Ethics
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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3R of Business Ethics
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3R of Business Ethics
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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3R of Business Ethics
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
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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)
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Motivating Business Ethics Behavior
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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.
Motivating Business Ethics Behavior
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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).
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Motivating Business Ethics Behavior
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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.
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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.
Motivating Business Ethics Behavior
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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.
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Business Ethics and Brand Examples
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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.
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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.
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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.
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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.
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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.
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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.
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Business Ethics and Brand Examples
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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.
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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.
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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.
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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.
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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.
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Brand
Value Chain
Business Ethics and Brand Examples
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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.
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Business Ethics and Advantages
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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.
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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.
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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.
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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.
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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).
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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.
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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.
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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).
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Industry Perspective
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.
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Industry Perspective
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.
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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.
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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.
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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.
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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).
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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.
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Zadek (2004): The
Path to Corporate Responsibility
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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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 368 20-Jun-16
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.
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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.”
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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.
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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.
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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.
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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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 375
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.
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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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 377 20-Jun-16
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.
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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.
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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
Ethical Experience and
Management
Copyrighted Dr. C.C. Tan (2016). Revised 2.
382
Ethics Framework
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.
DLL – Includes questioning the underlying “value system”, Involving cognitive change.
SLL – Corporate ethical/social adaptation only.
Experience
Experiential Learning
20-Jun-16
DLL SLL
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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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 385
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
your life experience and education grow.
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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387
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.
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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
Ethical Experience and
Management
Copyrighted Dr. C.C. Tan (2016). Revised 2. 389
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
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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
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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
20-Jun-16 Copyrighted Dr. C.C. Tan (2016). Revised 2. 392
Copyrighted Dr. C.C. Tan (2016). Revised 2.
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
20-Jun-16 Copyrighted Dr. C.C. Tan (2016). Revised 2. 394
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
Ethical Experience and
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
out of your ethical choice.
Value Life
Copyrighted Dr. C.C. Tan (2016). Revised 2.
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
Ethical Experience and
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
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20-Jun-16
Ethical Experience and
Management
Ethical Diamond Model
Ethical Diamond
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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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399
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 400
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
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Business Performances
Me-We-World
Ethical experience out of your ethical choice.
Audits and Feedback
Continuous Improvement Renewal
Purpose
Meaningful Soulful
For Whose Sake
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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.
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Three Greening Strategies
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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Three Greening Strategies
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
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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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Three Greening Strategies
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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Three Greening Strategies
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Greening of Products
Greening of Technology
Greening of Management
Greening of Process
Greening of Concepts
Greening of Living Environment Greening of Factories
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CSR
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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
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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
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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
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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
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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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Corporate Social Responsibility
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
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CSR
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CSR
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CSR
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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
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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.
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Corporate Social Responsibility
CSR
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VALUE
Law and Policy Compliance
CSR
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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
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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
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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
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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.
CSR and Stakeholders
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CSR and Stakeholders
Stakeholders Types of CSR
Economic Legal Ethical Philanthropic
Owners
Customers
Employees
Community
Competitors
Suppliers
Social activist groups
Public at large Others
Social Responsibility
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.
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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
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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
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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
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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
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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
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(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
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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.
CSR and Theories of Strategy
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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.
CSR and Theories of Strategy
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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).
CSR and Theories of Strategy
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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.
CSR and Theories of Strategy
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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).
CSR and Theories of Strategy
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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.
CSR and Theories of Strategy
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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.
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Pyramid of Social Responsibility
The Pyramid of
Social Responsibility
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.
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CSR and Theories
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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
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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
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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.
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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.
CSR and Theories of Strategy
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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.
CSR and Theories of Strategy
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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.
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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.
CSR and Theories of Strategy
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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).
CSR and Theories of Strategy
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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.
CSR and Theories of Strategy
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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
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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
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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.
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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.
Corporate Citizenship
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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).
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CSR, Corporate Citizenship
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.”
Corporate Citizenship
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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.
Corporate Citizenship
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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.
Corporate Citizenship
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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.
Corporate Citizenship
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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.
Corporate Citizenship
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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.
Corporate Citizenship
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CSR, Corporate Citizenship
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.
Corporate Citizenship
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CSR, Corporate Citizenship
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.
Corporate Citizenship
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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.
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CSR, Corporate Citizenship
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.
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Corporate Citizenship
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.
Corporate Citizenship
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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.
Corporate Citizenship
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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).
Corporate Citizenship
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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.
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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.
Corporate Citizenship
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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.
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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.
Corporate Citizenship
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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.
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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
Corporate Citizenship
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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.
Corporate Citizenship
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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.
Corporate Citizenship
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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.
Corporate Citizenship
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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).
Corporate Citizenship
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CSR, Stakeholder Management
Corporate Citizenship
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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.
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CSR, Integrative
Theories,
Stakeholder Management
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).
Corporate Citizenship
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CSR, Integrative
Theories,
Stakeholder Management
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.
Corporate Citizenship
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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).
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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.
Corporate Citizenship
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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.
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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.
Corporate Citizenship
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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.
Corporate Citizenship
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CSP Model of Wood (1991)
CSR Principles CSR Process CSR Outcomes
Corporate Citizenship
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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.
Corporate Citizenship
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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).
Corporate Citizenship
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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).
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CSR, Ethical Theories
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.
Corporate Citizenship
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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.
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CSR, Ethical Theories
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.
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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).
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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).
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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).
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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.
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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.”
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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.
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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.
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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
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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.
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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).
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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.
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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.
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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.
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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
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Successful corporations need a healthy society.
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.
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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
Companies:
20-Jun-16
Successful corporations need a healthy society.
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.
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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
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
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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
Inside-Out Outside-In
Society Company
Opportunities and Threats The Context Diamonds
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
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Responsive CSR: Strategic CSR:
CSR Actions (Strategies)
Behavior
Inside-Out Outside-In
Society Company
Opportunities and Threats The Context Diamonds
Intersection:
Create Shared value, choices
Selective competent issues to address
Benefit / Long-Term prosperity Benefit / Long-term prosperity
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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.
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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
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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.
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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.
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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.
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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.
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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:
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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.
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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
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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.
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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.
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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
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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.
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Creating a social dimension to the value proposition:
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
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Creating a social dimension to the value proposition:
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
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Creating a social dimension to the value proposition:
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.
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Creating a social dimension to the value proposition:
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.
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Creating a social dimension to the value proposition:
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.
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Creating a social dimension to the value proposition:
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.
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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.
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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
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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:
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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.
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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.
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High Ethics Companies
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.
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557
20-Jun-16
High Ethics Companies
High Ethics Companies:
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)
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High Ethics Companies
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High Ethics Companies
High-Ethics Companies:
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)
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High Ethics Companies
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)
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Business Ethical Examples
Business Ethical
Examples:
Wal-Mart Green Roofs
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Business Ethical Examples
Business Ethical
Examples: Bio-degradable Shoes
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Business Ethical Examples
Learning from
the Nature - the
Next Wave of
Business
Frontiers. Let
the Nature be our Professors.
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Business Ethical Examples
Business Ethical Examples
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Business Ethical Examples
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.
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Dark Innovation
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Research from
Stanford
University:
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Business Ethical Examples
Business Ethics Example:
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.
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Business Ethical Examples
Business Ethics Example:
“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.”
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Business Ethical Examples
Business Ethics Example:
“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.
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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.
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Business Ethical Examples
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
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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.
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Business Ethical Examples
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.
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Business Ethical Examples
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.
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Business Ethical Examples
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.
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Business Ethical Examples
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.
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Business Ethical Examples
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.
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Business Ethical Examples
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.
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Business Ethical Examples
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.''
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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.
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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.
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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
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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”.
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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
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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
?
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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.
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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.
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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
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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
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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.
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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
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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.
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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
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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
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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.
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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
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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
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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.
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in Palmdale, California, Wal-Mart.
in Maryland, Wal-Mart.
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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.
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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.
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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
Highly ethical Highly unethical
Obeying law
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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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 611 20-Jun-16
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
Highly ethical Highly unethical
Obeying law
Copyrighted Dr. C.C. Tan (2016). Revised 2. 612 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 613 20-Jun-16
20-Jun-16 Copyrighted Dr. C.C. Tan (2016). Revised 2. 614
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 615 20-Jun-16
20-Jun-16 Copyrighted Dr. C.C. Tan (2016). Revised 2. 616
Copyrighted Dr. C.C. Tan (2016). Revised 2. 617 20-Jun-16
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
Highly ethical Highly unethical
Obeying law
Copyrighted Dr. C.C. Tan (2016). Revised 2. 618 20-Jun-16
20-Jun-16 Copyrighted Dr. C.C. Tan (2016). Revised 2. 619
Copyrighted Dr. C.C. Tan (2016). Revised 2. 620 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 621 20-Jun-16
20-Jun-16 Copyrighted Dr. C.C. Tan (2016). Revised 2. 622
20-Jun-16 Copyrighted Dr. C.C. Tan (2016). Revised 2. 623
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).
Copyrighted Dr. C.C. Tan (2016). Revised 2. 624 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 625 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 626 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 627 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 628 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 629 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 630 20-Jun-16
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).
Copyrighted Dr. C.C. Tan (2016). Revised 2. 631 20-Jun-16
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!
Copyrighted Dr. C.C. Tan (2016). Revised 2. 632 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 633 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 634 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 635 20-Jun-16
B A
Illegal
Unethical Ethical
Highly ethical Highly unethical
Obeying law
Light Green
Market Green
Stakeholder Green
Dark Green
Copyrighted Dr. C.C. Tan (2016). Revised 2. 636 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 637 20-Jun-16
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
Social Responsibility
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 638 20-Jun-16
Good
corporate
citizenship and compliance
with community
standards. “Sustainability”
Corporate
Social Responsibility
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 639 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 640 20-Jun-16
Reconceiving
customer
needs,
products, and markets
Redefining
productivity in
the value chain
– How the
organization
conducts its business
Enabling local
cluster development
Copyrighted Dr. C.C. Tan (2016). Revised 2. 641 20-Jun-16
Reconceiving
customer
needs,
products, and markets
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
conducts its business
Copyrighted Dr. C.C. Tan (2016). Revised 2. 642 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 643 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 644 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 645 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 646 20-Jun-16
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 647 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 648 20-Jun-16
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 649 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 650 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 651 20-Jun-16
Redefining Productivity in the Value Chain
Copyrighted Dr. C.C. Tan (2016). Revised 2. 652 20-Jun-16
Redefining Productivity in the Value Chain
Copyrighted Dr. C.C. Tan (2016). Revised 2. 653 20-Jun-16
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,
products, and markets
Redefining
productivity in
the value chain
– How the
organization
conducts its business
Enabling local
cluster development
Copyrighted Dr. C.C. Tan (2016). Revised 2. 654 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 655 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 656
Being commoditized or outsourced
Reducing customers’ costs and risks
20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 657
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 658 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 659 20-Jun-16
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.”
Copyrighted Dr. C.C. Tan (2016). Revised 2. 660 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 661
Market leadership strategies:
Redefine business model
Shaping customer perception
Define what performance means in
their respective categories
Redefine customers’ purchase criteria
20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 662
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 666 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 667
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
20-Jun-16 Copyrighted Dr. C.C. Tan (2016). Revised 2. 668
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?
Copyrighted Dr. C.C. Tan (2016). Revised 2. 669 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 672 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 673
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 674 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 675 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 677 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 678 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 679 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 680 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 681
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 682
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 683 20-Jun-16
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%.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 684 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 686 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 687
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 688
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 689 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 690 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 691 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 692 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 693 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 694 20-Jun-16
It’s the downstream activities
that move customers through
evolutionary, generational, and revolutionary changes.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 695 20-Jun-16
Competitiveness
Dark Green Market Green
Stakeholder Green
Red: Illustrated (CC Tan, 2014)
Copyrighted Dr. C.C. Tan (2016). Revised 2. 696
Clusters:
Light Green
20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 697 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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 698 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 699 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 700 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 701 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 702 20-Jun-16
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)
Copyrighted Dr. C.C. Tan (2016). Revised 2. 703 20-Jun-16
The bottom-of-the-pyramid strategies:
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 704 20-Jun-16
The bottom-of-the-pyramid strategies:
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 705 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 706
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 707 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 708 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 709 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 710 20-Jun-16
Nespresso Capsules Varieties
Copyrighted Dr. C.C. Tan (2016). Revised 2. 711 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 712 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 713 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 714 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 715 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 716 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 717 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 718 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 719 20-Jun-16
Greening Your Business Profitability
Copyrighted Dr. C.C. Tan (2016). Revised 2.
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 721 20-Jun-16
Why sustainability is now the key driver of innovation?
Stage 1: Viewing compliance as opportunity
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 722 20-Jun-16
Why sustainability is now the key driver of innovation?
Stage 1: Viewing compliance as opportunity
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 723 20-Jun-16
Why sustainability is now the key driver of innovation?
Stage 1: Viewing compliance as opportunity
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 724 20-Jun-16
Why sustainability is now the key driver of innovation?
Stage 1: Viewing compliance as opportunity
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 725 20-Jun-16
Why sustainability is now the key driver of innovation?
Stage 1: Viewing compliance as opportunity
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 726 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 727 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 728 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 729 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 730 20-Jun-16
Why sustainability is now the key driver of innovation?
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%.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 731 20-Jun-16
Why sustainability is now the key driver of innovation?
Stage 2: Making Value Chains Sustainable. Operations Innovation:
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 732 20-Jun-16
Why sustainability is now the key driver of innovation?
Stage 2: Making Value Chains Sustainable. Operations Innovation:
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 733 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 734 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 735 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 736 20-Jun-16
Why sustainability is now the key driver of
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 737 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 738 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 739 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 740 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 741 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 742 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 743 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 744 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 745 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 746 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 747 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 748 20-Jun-16
20-Jun-16 Copyrighted Dr. C.C. Tan (2016). Revised 2. 749
Why sustainability is now the key driver of
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 750 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 751 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 752 20-Jun-16
Why sustainability is now the key driver of innovation?
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?
Copyrighted Dr. C.C. Tan (2016). Revised 2. 753 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 754 20-Jun-16
Why sustainability is now the key driver of innovation?
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
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 756 20-Jun-16
Why sustainability is now the key driver of 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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 757 20-Jun-16
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 758 20-Jun-16
Why sustainability is now the key driver of
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:
Copyrighted Dr. C.C. Tan (2016). Revised 2. 759 20-Jun-16
Why sustainability is now the key driver of
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 760 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 761
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
Why sustainability is now the key driver of innovation?
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 762 20-Jun-16
Why sustainability is now the key driver of
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 763 20-Jun-16
TOE Model of Innovation Adoption.
Tornatzky, L. and Fleischer, M. (1990), The Process of Technology Innovation, Lexington, MA: Lexington Books.
In sum:
Copyrighted Dr. C.C. Tan (2016). Revised 2. 764 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 765 20-Jun-16
Deontology Utilitarianism
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 766 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 767 20-Jun-16
Deontology Utilitarianism
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 768 20-Jun-16
Deontology Utilitarianism
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 769 20-Jun-16
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
Deontology Utilitarianism
Making decisions based on ethical principles
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 770 20-Jun-16
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:
Deontology Utilitarianism
Making decisions based on ethical principles
Fundamental Ethical Principles of CSR:
Consumer’s Magna Carta: The right to be heard The right to be informed
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 771 20-Jun-16
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.
Deontology Utilitarianism
Fundamental Ethical Principles of CSR:
Consumer’s Magna Carta: The right to be heard The right to be informed
The right to choose
Safety
Copyrighted Dr. C.C. Tan (2016). Revised 2. 772 20-Jun-16
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 773 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 774 20-Jun-16
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.
Deontology Utilitarianism
Making decisions based on ethical principles
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 775 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 776 20-Jun-16
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.
Deontology Utilitarianism
Law enforcement role
Copyrighted Dr. C.C. Tan (2016). Revised 2. 777 20-Jun-16
Deontology Utilitarianism
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 778 20-Jun-16
Deontology Utilitarianism
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 779 20-Jun-16
Deontology Utilitarianism
Principles, Rules: Compliance-based culture: rule-
following responsibility
Personal integrity of its
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 780 20-Jun-16
Deontology Utilitarianism
Principles, Rules:
Compliance-based culture: rule-
following responsibility
Personal integrity of its
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 conduct 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.
An improvement of socially responsibility behavior
requires ACTION i.e. in the form of behavior change, by everyone in the organization.
CSR1
Corporate Social Responsibility
CSR2
Corporate Social Responsiveness
Copyrighted Dr. C.C. Tan (2016). Revised 2. 781 20-Jun-16
CSR1 (Responsibility)
CSR2 (Responsiveness)
CSR3
(Rectitude, Culture
and Brand Character)
CSP (Performance)
Role
Action
Habit
Copyrighted Dr. C.C. Tan (2016). Revised 2. 782 20-Jun-16
Deontology Utilitarianism
Principles, Rules:
Compliance-based culture: rule-
following responsibility
Personal integrity of its
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 conduct
of conduct, but those codes are
predicated on a statement of values.
Doing right things
Mission, Vision and Values
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 783 20-Jun-16
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)
Copyrighted Dr. C.C. Tan (2016). Revised 2. 784 20-Jun-16
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
Feedback – Continuous improvement
CSR3 (Corporate Social Rectitude, Integrity, Brand Image, Brand Character)
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 785 20-Jun-16
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)
Copyrighted Dr. C.C. Tan (2016). Revised 2. 786 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 787 20-Jun-16
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
Feedback – Continuous improvement
CSR3 (Corporate Social Rectitude, Integrity, Brand Image, Brand Character)
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 788 20-Jun-16
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
CSR3 (Corporate Social Rectitude, Integrity, Brand Image, 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)
Feedback – Continuous improvement
Copyrighted Dr. C.C. Tan (2016). Revised 2. 789 20-Jun-16
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 790 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 791 20-Jun-16
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 792 20-Jun-16
Inputs Resources
Transformation (Transformative Actions, CSR2) Outputs
CSR3 (Corporate Social Rectitude, Integrity, Brand Image, Brand Character)
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 793 20-Jun-16
Inputs Resources
Transformation (Transformative Actions, CSR2) Outputs
CSR3 (Corporate Social Rectitude, Integrity, Brand Image, Brand Character)
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)
Copyrighted Dr. C.C. Tan (2016). Revised 2. 794 20-Jun-16
Inputs Resources
Transformation (Transformative Actions, CSR2) Outputs
CSR3 (Corporate Social Rectitude, Integrity, Brand Image, Brand Character)
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 795 20-Jun-16
Inputs Resources
Transformation (Transformative Actions, CSR2) Outputs
CSR3 (Corporate Social Rectitude, Integrity, Brand Image, Brand Character)
Me
We
Community Participation
Transparency (also ISO 26000 Principle)
Due Care
Leadership / Stewardship (to where: sustainable well-being etc.)
Copyrighted Dr. C.C. Tan (2016). Revised 2. 796 20-Jun-16
Inputs and Resources:
Local
communities as key resources
Transformation (Transformative Actions, CSR2), Governance and control mechanism in place
Outputs:
Public good and society
CSR3 (Corporate Social Rectitude, Integrity, Brand Image, Brand Character)
Vision and Mission, Motives and Ambitions
Continuous Improvement
Allocating social wealth To establish efficiency of the allocation process
Copyrighted Dr. C.C. Tan (2016). Revised 2. 797 20-Jun-16
Inputs Resources
Transformation (Transformative Actions, CSR2) Outputs
CSR3 (Corporate Social Rectitude, Integrity, Brand Image, Brand Character)
Now Future
Social Entrepreneurship
Scaling up approaches
Innovation
CSR1,2,3, CSP Marketing III
Copyrighted Dr. C.C. Tan (2016). Revised 2. 798 20-Jun-16
Inputs Resources
Transformation (Transformative Actions, CSR2) Outputs
CSR3 (Corporate Social Rectitude, Integrity, Brand Image, Brand Character)
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 799 20-Jun-16
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:
Copyrighted Dr. C.C. Tan (2016). Revised 2. 800 20-Jun-16
Copyrighted Dr. C.C. Tan (2016). Revised 2. 801 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2.
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2.
804
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 805 20-Jun-16
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
Copyrighted Dr. C.C. Tan (2016). Revised 2. 806 20-Jun-16
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.
Copyrighted Dr. C.C. Tan (2016). Revised 2. 807 20-Jun-16