Social Responsibility and Good Governance

Albert A. Anonuevo
_____________________________________________________________________________________

Social Responsibility and Good Governance

Business Ethics
Social responsibility
Fundamental approaches to ethical issues
Corporate Governance

Three Domains of Human Action

Domain of Free Choice

(Personal Standard)

Ethics

The code of moral principles and values that govern the behaviors of a person or group
with respect to what is right or wrong.
The domain of ethics does not have specific laws.
The mistaken notion: if it is not illegal, it must be ethical

Ethical Dilemma

A situation that arises when right or wrong are in conflict or cannot be clearly identified.
The individual who must make the choice is the moral agent.

Examples of ethical dilemma

A pharmaceutical sales manager promotes a new expensive drug costing P1,000 per
dose. The drug is only 1% more effective than a dose costing P250. Should you
aggressively promote the more expensive drug to a hospital catering to indigent
patients?
A company will save millions from not installing an anti-pollution device. But doing so
will damage a river from which hundreds of poor people make a living from fishing.

The Importance of Business Ethics

The ability to recognize and deal with complex business ethics issue has become a
significant priority in twenty-first-century companies.
In recent years, a number of well-publicized scandals resulted in public outraged about
deception and fraud in business and demand for improved business ethics and greater
corporate responsibility.
In 2008, investigations on German corporate giant Siemens revealed systematic and
well-coordinated use of bribery of foreign government officials to get contracts and

business. The practice was so widespread that one observer remarked that bribery is
their business model. In the end, Siemens will pay more than $2.6 billion: $1.6 billion in
fines and fees in Germany and the United States and more than $1 billion for internal
investigations and reforms.
In China, the Melamine in Milk Scandal claimed the lives of at least four infants and
caused illness in over 50,000 more babies. It also caused a worldwide scare and did
inestimable damage to the already maligned Made in China label. The chairman of
Sanlu (the maker of the tainted milk) is appealing a life sentence.

What do you think?

The iPhone was launched in Poland where demand for the gadget was very low. As part
of a marketing campaign, the country's largest mobile operator Orange, paid dozens of
actors to stand in queues and pretend that they were ordinary people interested in
getting the phone.
Regardless of what an individual believes about a particular action, if society judges it to
be unethical or wrong, whether correctly or not, that judgment directly affects the
organizations ability to achieve its business goals.

A Timeline of Ethical and Social Responsibility Concerns

The

1960s
Environmental
Issues

1970s
Employee
militancy

1980s
Bribes and
illegal
contracting
practices
Influence
peddling

Civil rights
Issues

Human right
issues

Increased
employeeemployer
tension
Changing work
ethic
Rising drug use

Covering up
rather than
correcting issues

Deceptive
advertising

Disadvantaged
consumer

Financial fraud

1990s
Sweatshops &
unsafe working
conditions

2000s
Cybercrime

Rising corporate
responsibility for
personal damages
Financial
mismanagement &
fraud

Financial
misconduct

Organizational
ethical misconduct

Sustainability

Transparency
issues

Global issues,
Chinese product
safety

Intellectual
property theft

Development of Business Ethics

The study of business ethics in North America has evolve through five distinct stages
(1) before 1960s (2) the 1960s (30 the 1970s (4) the 1980s (5) the 1990s and
continues to evolve in the twenty-first century.
Before 1960 : Ethics in Business Ethical issues related to business were often
discussed within the domain of theology or philosophy.
Individual moral issues related to business were addressed in churches, synagogues
and mosques.
Religious leaders raised questions about fair wages, labor practices and the morality
of capitalism.
Each religion applied its moral concepts not only business but also to government
and politics

The 1960s: The rise of Social Issues in Business

This period witnessed the rise of consumerism activities undertaken by

independent individuals, groups, and organizations to protect their right as
consumers.
JFK outlined the four basic consumer rights (Consumers Bill of Rights)
The right to safety

The right to be informed

The right to choose
The right to be heard

The 1970s: Business Ethics as an Emerging Field

Theologians and philosophers had laid the groundwork by suggesting that certain
principles could be applied to business activities.
Business professors began to teach and write about corporate social responsibility,
an organizations obligation to maximize its positive impact on stakeholders and to
minimize its negative impact.

The 1980s: Consolidation

Business academics and practitioners acknowledge business ethics as a field of

study.
Many of the leading companies established ethics and social policy committees to
address ethical issues. (GE, GM, S.C. Johnson & Son Inc. , Caterpillar)
In the 1980s, the Defense Industry Initiative on Business Ethics and Conduct was
developed to guide corporate support for ethical conduct.

The 1990s: Institutionalization of Business Ethics

The Federal sentencing guidelines for organizations (FSGO), approved by Congress

set the tone for organizational ethical compliance programs in 1990s.
The guidelines broke new grounds by codifying into law incentives to reward
organizations for taking action to prevent misconduct such as developing effective
internal legal.
On the other hand, under FSGO, if a company lacks an effective ethical compliance
program and its employee violate the law, it can incur severe penalties.

The Twenty-First Century: A New Focus on Business Ethics

Congress in 2002 passed the Sarbanes-Oxley Act, the most far-reaching change in
organizational control and accounting regulations.
The new law made securities fraud a criminal offense and stiffened penalties for
corporate fraud.

Developing an Organizational Ethical Culture

The ethical component of a corporate culture relates to the values, beliefs,

established and enforced patterns of conduct that employees use to identify and
respond to ethical issues.
The goal of an ethical culture is to minimize the need for enforced compliance of
rules and maximize the use of principles that contribute to ethical reasoning in
difficult or new situations.
An ethical culture creates shared values and support for ethical decisions and is
driven by top management.

Being good is good for business -Annita Roddick Founder of

The Body Shop

The role of Organizational Ethics in Performance

The Benefits of Business Ethics

The field of business ethics continues to changed rapidly as more firms recognize the
benefits of improving ethical conduct and the link between business ethics and
financial performance.

Ethics Contribute to Employee Commitment

Issues that may foster the development of an ethical culture for employees include
the absence of abusive behavior, a safe work environment, competitive salaries, and
fulfillment of all contractual obligations toward employees.
The more a company is dedicated to taking care of its employees, the more likely it
is that the employees will take care of the organization.

Ethics Contribute to Investor Loyalty

Ethical conduct results in shareholder loyalty and can contribute to success that
supports even broader causes and concerns.
Investors today are increasingly concerned about ethics, social responsibility, and
reputation of companies.

Ethics Contribute to Customer Satisfaction

It is generally accepted that customer satisfaction is one of the most important

factors in successful business strategy.
Successful businesses provide an opportunity for customer feedback, which can
engage the customer in cooperative problem solving.
When an organization has a strong ethical environment, it usually focuses on the
core value of placing customers interest first.

Ethics Contribute to Profits

Ethical conduct toward customers builds a strong competitive position that has been
shown to affect business performance and product innovation positively.
The Corporations concern for ethical conduct is becoming a part of strategic
planning toward obtaining the outcome of higher profitability

Stakeholder Relationships, Social Responsibility, and Corporate

Governance

Business ethics issues, conflicts, and successes revolve around relationships.

Building effective relationship is considered one of the more important areas of
business today.

A business exist because of relationships between employees, customers,

shareholders or investors, suppliers, and managers who develop strategies to attain
success.
An organization usually has a governing authority often called board of directors that
provides oversight and direction to make sure that the organization stays on its
objectives in an ethical, legal, and socially acceptable manner.
Most ethical issues exist because of conflicts in values and belief patterns about
right and wrong between and within stakeholder groups.
The formal system of accountability and control of ethical and socially responsible
behavior is corporate governance.
In theory, the board of directors provides oversight for all decisions and use of
resources.
Ethical leadership is associated with appropriate corporate governance.

Stakeholders Define Ethical Issues in Business

In a business context, customers, investors and shareholders, employees, suppliers,

government agencies, communities, and many others who have a stake or claim in
some aspect of a companys products, operations, markets, industry, and outcomes
are known as stakeholders.
Some activities and negative press generated by special interest groups can force a
company to change its practices.
Ex: People for the Ethical Treatment of Animals (PETA) launched a campaign against
Mcdonalds to try to force the company to halt inhumane treatment of chickens
among its egg and meat supplier.
Mcdonalds did change their policies , although they deny that PETAs actions had
any direct effect.
Ethical misconduct and decisions that damage stakeholders will generally impact the
companys reputation both from the investor confidence and consumer confidence
perspective.
Reputation is a factor in the consumers perception of product attributes and
corporate image features tat lead to consumer willingness to purchase goods and
services at profitable prices.

Identifying the Stakeholders

We can identify two different types of stakeholders.

1. Primary stakeholders are those whose continued association is absolutely
necessary for a firms survival; these include employees, customers, investors
and shareholders, as well as the governments and communities that provide
necessary infrastructure.
2. Secondary stakeholders do not typically engage in transactions with a company
and thus are not essential for its survival; these include the media, trade
associations, and special interest groups.

A Stakeholder Orientation
The degree to which a firm understand and addresses stakeholder demands
can be referred to as stakeholder orientation.
This orientation comprises three sets of activities:

1. The organization-wide generation of data about stakeholder groups and

assessment of the firms effects on these groups.
2. The distribution of this information throughout the firm
3. The organizations responsiveness as a whole to this intelligence
The responsiveness of the organization as a whole to stakeholder intelligence
consists of the initiatives that the firm adopts to ensure that it abides by or exceeds
stakeholder expectations and has a positive impact on stakeholder issues.
Such activities are likely to be specific to a particular stakeholder group.
Ex: Family-friendly work schedules
Pollution reduction programs

Social Responsibility and Ethics

The concepts of ethics and social responsibility are often used interchangeably,
although each has a distinct meaning.
Ethics is only one dimension of social responsibility.
We defined the term social responsibility as an organizations obligation to maximize
its positive impact on stakeholders and to minimize its negative impact.

Steps of Social Responsibility

Economi
c :
Maximizin
g
Legal : Abidingstakehold
by all laws ander wealth
and/or
government
value
regulations

Ethical:
Following
standards of
acceptable
behavior as
judged by
stakeholders

Philanthrop
ic: giving
back to
society

Four Levels Social Responsibility

Legal Businesses are expected to obey all laws and regulations.

Economic Companies have an economic responsibility to be profitable so that they
can provide a return on investment to their owners and investors, create jobs for the
community, and contribute goods and services to the economy.
Ethical- Business Ethics, as previously defined, comprises principles and standards
that guide behavior in the world of business.
Philanthropic- Philanthropic responsibility refers to activities that are not required of
businesses but promote human welfare or goodwill.

Corporate Citizenship

The term corporate citizenship is often used to express the extent to which
businesses strategically meet the economic, legal, ethical and philanthropic
responsibilities.

Corporate Reputation

Reputation is one an organizations intangible assets with tangible value.

The value of a positive reputation is difficult to quantify, but it is very important.
Corporate reputation, image, and brands are more important than ever and are
among the most critical aspects of sustaining relationship with constituents including
investors, customers, financial analysts, media and government watchdogs.

Fortunes Best and Worst Companies for Social Responsibility

Best Companies
1. Microsoft
2.Google
3. Walt Disney
4.BMW
5. Apple
6.Mercedes-Benz
7. Volkswagen
8. Sony
9.
10.

Worst Companies
1. Circuit City Stores
2. Family Dollar Stores
3. Dillards
4. Sears Holding
5. Tribune
6. Hon Hai Precision Industry
7. Fiat
8. PEMEX
9. Surgutneftegas
10. Huawei Technologies