Module 3- Business Ethics

Ethical issues in Strategic

Management

STRATEGIC MANAGEMENT,
TERMS & CONCEPTS,
BUSINESS ETHICS

Those actions (or by default,

inactions) which determine the
long term future of an
organization.
THREE KEY QUESTIONS

1. Where is the organization

today?
2. Where do we want it to be in
the future?

Strategy Implementation

WHAT IS THE PURPOSE OF A

BUSINESS?

Profit?
Revenue?
Jobs?
Meet societys needs?
Something else?

THE CONCEPT OF
Old view:STAKEHOLDER
maximize stockholder value

New view: one maximizes stockholder

value over the long run by balancing the
benefits to all stakeholders:
customers
employees
management
government

neighbors
stockholders
vendors
competitors
& more . . .

Some examples . . .

STRATEGIC DECISION
MAKERS

Boards of Directors
Senior management
Roles, skills, tasks Elected by shareholders

Mission:
Protect interests of owners
Hire -- and fire -- top manageme
Approve management initiative
Trends:

Codetermination-GER/SWED
Board responsibility-CONFLICT OF INTER
Board activism-Share Activisim-Carl Ich
Strong owners, e.g., mutual funds(FIDE

BUSINESS ETHICS

Is this just something taught in

schools?
Some real life cases:
Fords Pinto
Manvilles asbestos
International Fabricating
Corporation
Impacts? Financial? People?

The stories are always slightly different; but they have a lot in com
theyre full of the oldest questions in the world, questions of huma
human judgment applied in ordinary day-to-day situations.

we have to ask how usually honest, intelligent, compassionate h

beings could act in ways that are callous, dishonest, and wrongh

HPs CEO Mark Hurd Resigns

amid Ethics Scandal

Mark Hurd
CEO of HP after Carly Fiorina
Low profile, no-nonsense, strategy execution

forte
Highly successful
Increasing market shares for computers and

printers
Stock rose 110% (well above that of NASDAQ)

2010 sexual harassment scandal

Forced to resign
With $45 million severance package

128

Manville Corporation
A few years ago, Manville (then Johns
Manville) was solid enough to be included
among the giants of American business.
Manville turned over 80%of its equity to a
trust representing people who have sued or
plan to sue it for liability in connection with
one of its principal former products,
asbestos.
For all practical purposes, the entire
company was brought down by
questions of corporate ethics.

WHY BE ETHICAL?
four rationalizations that people have relied on through
the ages to justify questionable conduct:
believing that the activity is not really illegal or
immoral;
that it is in the individuals or the corporations best
interest;
it will never be found out; or
1. that
Moral
reasons
that because it helps the company the company will
condone it.

2. Self-interest
3. Financial well-being
4.Retain autonomy
An ethical strategy is a strategy,
or course of action, that does
not
violate
these
accepted
principles.

Personal Society Ethics and

law

In society many ethical principles are codified into

lawprohibitions against murder, stealing, and
incest,
Many others--no !such as the principle that an
author should not plagiarize anothers workt,.,
but it is unethical.
Researchers who claim their idea was stolen
by an unscrupulous colleague for his own personal
gain before the originator had the chance to file for a
patent or publish the idea himself. Such behavior is
not illegal, but it is obviously unethical.

Ethics and Business Society

Originally, ethical issues probably
did not enter into the companys
decision-making calculus.
how ethical issues can and should be
incorporated into decision making

Business Ethics in the Global Community

Some notions of right and wrong are universal while others
are not (universalism vs. relativism- Gifting considered right and
proper behavior in many Asian cultures, some Westerners view the practice as a form
of bribery

Cross-culture variability in ethical standards-

)-

In the United States,

it is considered acceptable to execute murderers, but in many cultures this is not acceptableexecution is viewed as
an affront to human dignity and the death penalty is outlawed

Determining what is ethical when local standards

executive and child labour

vary-American

Managers have to figure out how to navigate the gray zone

when cross-culture ethics differ-example..\Asbestos.docx
Should adhere to higher standard(s)
nature of ethical dilemmas they are situations in which none of the available alternatives
seems ethically acceptable

Schools of Thought
Ethical Universalism
Ethical Relativism

Ethical Issues in Strategy

Ethical issues are due to a potential conflict between the
goals of the enterprise, or the goals of the individual
managers, and the rights of important stakeholders:

Self-dealing

Managers feather their nest with corporate monies

Information manipulation

Distort or hide information to enhance competitive or personal

situation

Anticompetitive behavior

Actions aimed at harming actual or potential competitors

Opportunistic exploitation

Of other players in the value chain in which the firm is embedded

Substandard working conditions

Underinvest in working conditions or pay below market wages

Environmental degradation

Directly or indirectly take actions that result in environmental harm

Corruption

Companies pay bribes to gain access to lucrative business contracts.

Ethical Issues in Operatinal

Strategy
Misleading advertising
Misleading labeling
Harm to the environment
Insider trading
Dumping flawed products on foreign
markets
Poor product or service safety
Padding expense accounts

The Roots of Unethical

Behavior

Why do some managers behave unethically?

No simple answers, but some generalizations:
1. Personal ethics code: will have a profound
influence on behavior as a businessperson
2. Do not realize they are behaving unethically:
by failing to ask the right questions
3. Organizations culture: de-emphasizes ethics
and considers primarily economic
consequences
4. Unrealistic performance goals: encouraging
and legitimizing unethical behavior
5. Unethical leadership: that encourages and
tolerates behavior that is ethically suspect

1.business ethics are not divorced from personal ethics

2.processes that do not incorporate ethical considerations
into business decision making
3.an organizational culture that deemphasizes business ethics, reducing all decisions to the purely
economic.
4.a pressure-cooker culture with a myopic focus on short-run performance

5.leaders do not behave in an ethical manner

Philosophical Approaches to BEthics

Philosophical underpinnings
of business ethics that can

provide managers with a moral compass to help navigate

through difficult ethical issues:
The Friedman Doctrine
Milton Friedmans basic position is that the only social responsibility of business is to
increase profits, as long as the company stays within the law and the rules of the game
without deception or fraud.

Utilitarian and Kantian Ethics

The moral worth of actions is determined by its consequences leading to the best possible
balance of good versus bad consequences. Committed to the maximization of good and the
minimization of harm.
People should be treated as ends and never purely as means to the ends of others. People
are not instruments, like a machine. People have dignity and need to be respected as such.

Rights Theories:
Recognizes that human beings have fundamental rights and privileges that transcend
national boundaries and cultures. These rights establish a minimum level of morally
acceptable behavior

Justice Theories
Focus on the attainment of a just distribution of economic goods and services that is
considered to be fair and equitable. It is a decision is just and ethical if people would allow
for it when designing a social system under a veil of ignorance

Behaving Ethically
To make sure that ethical issues are considered
in business decisions, managers should:
1.
2.
3.
4.
5.
6.
7.

Favor hiring and promoting people with a well-grounded

sense of personal ethics.
Build an organizational culture that places a high value on
ethical behavior.
Make sure that leaders not only articulate but also act in
an ethical manner.
Put decision-making processes in place that require
people to consider the ethical dimension of business
decisions.
Use ethics officers.
Put strong corporate governance processes in
place.
Act with moral courage and encourage others to do
the same.-BP IN INDIA FOR

Strategic Management and the

Role of Business in Society
The public stock company is the backbone
of our economy.
Four characteristics of public firms:

Limited liability for investors

Transferability of investor interest
Legal personality
Separation of ownership and control

1220

Stakeholders Approach
Lessons

Managerial actions affect economy

Ethical business produces wealth but
unethical practices destroy it

Stakeholder management is needed

1221

EXHIBIT 12.2

Honesty and Ethics Ranking of Different

Professions

1
ly
n
O

5%

of

e
tiv
u
ec
x
e
h
g
hi

How would you rate the honesty and ethical

standards
of people in different fields?

1222

STRAW MEN Aproaches

Straw men approaches to
business ethics are raised by
business
ethics
scholars
primarily to demonstrate
that they offer inappropriate
guidelines
for
ethical
decision making

Ethical Universalism
Ethical Universalism
The most important concepts of what is
right and wrong are universal and
transcend culture, society, and religion
Results in a set of universal ethical
standards that apply to members of all
societies, all companies, and all
businesspeople
Sets limits and puts boundaries on ethical
behavior

Ethical Relativism
Ethical Relativism
Differing religious beliefs, customs and
behavioral norms across countries and
cultures give rise to multiple sets of standards
concerning what is ethically right or wrong
What is ethical or unethical depends on the
prevailing local ethical standards and can vary
from one nation to another
There can be multiple sets of ethical standards
There is no one-size-fits-all set of ethical
norms

Integrative Social Contracts

Theory
Integrative Social Contracts Theory
Provides a middle position
The ethical standards a company should try
to uphold are governed by both:
A common or universal set of ethical standards
that apply everywhere
Ethical standards that vary according to local
custom (i.e., cultures, traditions, and shared
values)

The more stringent standards should

always take precedence

Three Categories of Management

Morality
Moral Managers
Are dedicated to high standards of
ethical behavior both personally and
on the part of their organizations

Immoral Managers
Are actively opposed to or have no
regard for ethical standards in
business behavior

Amoral Managers
Do not pay attention or are blind to
business ethics or believe that
business and ethics dont mix

Drivers of Unethical Strategies and

Business Behavior
Apparent pervasiveness of immoral and
amoral business people
Confusion over conflicting ethical
standards
Faulty oversight that allows for the
overzealous pursuit of personal gain,
wealth, and self interest
Heavy pressures to beat earnings targets
Unethical company cultures

Approaches to Managing a Companys Ethical

Conduct

Unconcerned or nonissue approach

Do what is legal; do what we can get away with

Damage control approach

Prevent adverse publicity; use window dressing

Compliance approach
Put a compliance system in place to control ethical
behavior

Ethical culture approach

Use culture and peer pressure to control ethical
behavior

CASE STUDY: BP-gulf of Mexico oil

Facts of the case:
1.BP-formely British Petroleum,
leased/licensed the
DEEPWATER HORIZON, oil rig operated by
Transocean and contracted by
Haliburton.
2. This rig exploded in flames in Gulf of
Mexico on the night of April 20,2010.
3.RESULT-11 deaths, 17 injured, and
hundreds of miles of
Beaches soiled, polluted.
4.The specialized valve-blowout
preventor designed to prevent crude oil

CASE STUDY: BP-gulf of Mexico oil

Prelude of the event:
OSHA had reported during March 2008, that
BP
had the worst environmental disaster
recorded in US history PLACED IN PUBLIC
RECORD.
Aftermath of the event:
For 87 days, crude oil gushed from the rig
till it was capped on 15th July 2010.
The total oil estimated to have gushed out
was 210 million gallons(US).
With efforts from BP, and host of other
organizations it was sealed.
Legal and ethical issue and stakeholders

CASE STUDY: BP-gulf of Mexico oil

Aftermath of the event.contd.
2.7 million of oiled material and tar balls
were removed from the Louisiana coast and
the Alabama ,Florida beaches.
BP ADMITED guilty to 14 criminal chargesincluding manslaughter and negligence
They PAID 4.5 BILLION in FINES AND
PENALITIES and spent 42 BILLION ON
CLEANING the environment and paying
victims.
4 employees faced criminal charges.

CASE STUDY: BP-gulf of Mexico oil

Aftermath of the event.contd.
The case suites:
The justice department is overseeing the
trial between
The plaintiffs- TRANSOCEAN,HALLIBRUTON,
STATES OF LOUISIANA AND ALABAMA AND
PRIVATE PLAINTIFFS
defendant- BP AND ITS PARTNER,
ANADARKO PETROLEUM,.
THE CASEplaintiffs to prove that the total 210 million US
gallons(4.2 million barrels) of oil was discharged
as a RESULT OF THE OIL RIG EXPLOSION for 87
days.-allege that BP failure of preparation

Who are the stakeholder in this case?

1.FED GOVT-dept of energy, interior, justice
member
Of congress and President OBAMA.
2.OBAMA appointed Minerals Management
Services
To oversee the offshore drilling.
3.other- BP employees & fly, BPs partners,
and the
PLAINTIFFS.
4.STATE GOVT, AGENCIES affected by spill,
lawyers(both sides) Insurance companies,
auditors, competitors, all of
Whom are also stakeholders.

E EFFECT
as a SUPERMAJOR in its industry has
oved from the highest earnings p
arrel to the lowest falling
hind Shell,exxon And Chevron Corp.

Stakeholder Impact Analysis

Stakeholder Management Approach to

Business ethics
Stakeholder theorylooks at the relationships
between an organization and others in its
internal and external environment.
It also looks at how these connections
influence how the business conducts its
activities.
One of the most important contributors to
stakeholder theory isR. Edward Freemanand
his bookStrategic Management: A Stakeholder
Approach(1984).

 Milton Friedman focus on the

shareholders as they only stakeholders
who matter. THEORY ONE
The business of business is making
a profit and building shareholder
value the prime purpose

* The quickest way to destroy

shareholder value is to ignore
stakeholders-THEORY TWO

Freemans Stakeholders
theory
The core idea of stakeholder theory is that
organizations that manage their stakeholder
relationships effectively will survive longer and
perform better than organizations that don't.
Freeman suggests that organizations should develop
certain stakeholder competencies. These include:
Making commitment to manage stakeholders
interest
Developing strategies to effectively deal with
stakeholders and their interest.
Dividing and categorising interest into manageble
segments.
Ensuring that the organisations function address
the needs of the stakeholders

Weiss-1994.Why pay attention

to stakeholders?
Organisation has no conscience nor identity and so NO
ETHICAL BUSINESS BUT ETHICAL INDIVIDUALS.SO
MANAGERS TO LOOK AT STAKEHOLDERS.
POWER,RELATIONSHIP OF INTEREST, THEN MORAL
RESPONSIBLITY TO EACH FROM BUSINESS SIDE.
Moral or philosophical reasons corporate social
responsibility to each of the stakeholders are to be
chalked out
Practical reasons licence to operate is the power
that is bestowed upon the managers from the
stakeholders/shareholders and the relationship of interest.
Strategic planning reasons identifying opportunities and
threats

 BLIND LOYALTY TO SHAREHOLDERS

robs other's rights or kind of property
claim inside the company.
If we do so .unjustifiable harm is
done to others.

Approaches to Stakeholders
Win-Win
Approachcollaborative
outcomes making moral decisions that
benefit the common good of all
constituencies with the constraints of
justice, fairness and economic interest.
Possible???
Zero-Sum Approach: Winners and
losers in complex situations where the
perceived zero-sum game due to
limited resources

Clutter buck's
institutional
and
control
Set a clear example
Publish a codeapproach
of ethics
oriented

Use reward and punishment mechanism

Include ethics in recruitment criteria
Reinforce policies through training and development
Provide mechanism for negotiating concerns
Establish openness and transparency into decision
making processes
Provide feedback

Clutterbuck and Snow -1990s says to

motivate managers mutual benefit.

Drummond and Carmichaels

personalized development approach
1989.
Good business pays and ethical failures cost
During skill shortage time
EMPLOYEESS WILL PREFER TO WORK FOR A COMPANY
WITH A GOOD ETHICAL REPUTATION
WILL STAY LONGER
CUSTOMER WILL STAY LONGER
SUPPLIER WILL MEET HIGH STDS.-good business is
good to do business with
GOVT INTERVETIONS LESS
BUSINESS ENVIRONMENT WILL BE IMPACTED STRONGLY

Carmichael and Drummonds

approach
Acknowledge the personal dimension to ethical
behavior
Monitor symptoms of personal,
ethic related stress
Analyze feelings about venture and its activities
link analysis to diagnosis of problems
Draw up personal and corporate ethics checklist
Explain your ground - rules to others
Set up systems of justice and reinforce these
through contract and ethics statements
Communicate ethics position

Prudential case!!
High ethics /success /survival- no
guaranteed.
PROFIT STILL COME FIRST
sometimesdo well economically too
with low ethics.
Carmichael and Drummond says.
High-ethics, low-profit organization
do no survie.High profit and low ethics
organization should not survive

Who decides who the

stakeholders are?
38% of firms gather external views on business
ethics,
29% have non-executive directors for this purpose
25% employ consultants.
To conclude- SH theory begins to study links
between organization and society and find that
The public demands is raising the ethical states.
The public too highlights interesting issues
about power, interest and rights.

Ethical issues in Marketing

Management