EthicaI Business Strategies,Corporate Social Responsibility,and EnvironmentaI Sustainabitity

Chapter Learning Obiectives

LO1. Understand why the standards of ethicat behavior in business are nodifferent from the ethical standards and norms of the larger societyand cutture in which a company operates.

LOz. Recognize conditions that give rise to unethical business strategiesand behavior.

LO3. Gain an understanding of the costs of business ethics failures.

LO4. Become familiar with how companies that operate in countries withdifferent cultures and ethical norms ensure a consistent commtmentto business ethics.

LO5. Gain an understanding of the concepts of corporate social responsibit-ity, corporate citizenship, and corporate sustainability and howcomoanies balance these duties with economic res oo nsibilities toshareholders.

Business ethics involves the application ofethical standards and orincioles to businessactivies. behavior. and decisions.

Part One: Section C: Crafting a Strategy

Clearly, a company has a responsibility to make a profit and grow the business,but just as clearly, a company and its personnel also have a duty to obey thelaw and play by the rules of fair competition. But does a company have a dutyto go beyond legal requirements and operate according to the ethical norms ofthe societies in which it operates? And does it have a duty or obligation to con-tribute to the bettement of society independent of the needs and preferencesof the customers it serves? Should a company display a social conscicncc anddevote a portion of its resources to bettering society? Should its strategic ini-tiatives be screened for possiblc ncgative effects on future generations of theworld's population?

The focus of this chapter is tr> examine what Link, if an.v, there should bebetween a company's efforts to craft and execute a wiruring strategy and itsduties to (1) conduct its activities in an ethical manner, (2) demonstrate sociallyresponsible behavior by being a committed corporate citizen, and (3) limit tsstrategic initiatives to those that meet the needs of consumers without deplet-ing resources needed br fufure generations.

Business Ethics and the Tasks of Craftingand Executing StrategyBusiness ethics is the application of ethical principles and standards to busi-ness behavior.t Ethical principles in business are not matcrially different from

ethical principles in general because business actionshave to be judged in the context of society's stanclardsof right and wrong. There is not a special set of rulesthat business people decide to apply to their ownconduct. If dishonesty is considered unethica'l and

lmmoral, then dishonest behavior in business-whcthcr it relates to custom-ers, suppliers, employees, or sharcholders qualifies as equally unethical andimmoral. If being ethical entails adhering to generally accepted norms aboutconduct that is right and wrong, then managers must consider such normswhen crafting and executing strategy.

lVhile most company managers are careful to ensure that a company'sstrategy is rvithin the bounds of what is legal, evidence indicates they arc notalways so careful to ensure that their strategies are within thc bounds of whatis considered ethical. In recent years, there has becn an ongoing series of revela-tions whcrc managcrs at such companies as Enron, Tyco lnternational, Health-South, Adelphia, Royal Dutch/Shell, Parmalat (an Italy-based food productscompany), Rite Aid, Mexican oil giant Pemex, AIC, Citigroup, several leadingbrokerage houses, mutr-ral fund companies and investment banking firms, anda host of mortgage lenders have deLiberatelv ignored society's ethical norms.Alstom SA, a giant France-based engineering firm and makct of power plantturbines and high-speed trains and subway cars, has been accused bv Frenchand Swiss prosecutors of using a Swiss slush fund to pay $500 million in bribesto foreign officiais to win contracts abroad during 2001-2008; executives at

'James E. Post, Anne I Lawrence, and James Weber, B./siness ond 'ocety:

Corporate Strategy,Public Policy, Ethics, lorh ed. (Bun Ridge, lL: McGraw Hill lrwin, zooz), p. ro3.

Chapter 9 Ethicat Business Strategies, Corporate Social Responsibility, and Environmental Sustainabitity

Siemens AG of Germany, one of Alstom's competitors, have been charged byGerman authorities with paying bibes of about $2 billion to win large con-iracts in 12 foreign countries during 2000-2006.

Much of the crisis in residential real estate that emerged in the United Statesin 2007-2008 stemmed from consciously r,rnethical strategies at cetair banksand mortgage companies to boost the fees they earned on home mortgages bydeliberately lowering lending standards to grant home loans to people whoseincomes were insufficient to make their monthly mortgage payments. Oncethese banks and mortgage companies earned the fees on the so-called sub-prime loans they made to unqualified borrowers, they secured the assistanceof investment banking firms to bundle these and other home mortgages intocollateralized debt obligations and mortgage-backed securities, found meansof having these high-risk securities assigned triple-A bond ratings, and auc-tioned them to unsuspecting investors, who later suffered huge losses whenthe borrowers began to default on their loan payments. The consequences ofcrafting strategies that carnot pass the test of moral scrutiny are manifested insharp drops in stock price that cost shareholders billions of dollars, devastat-ing public relations hits, sizeable fines, and criminal indictments and convic-tions of company executives.

Drivers of Unethical Strategies and Business BehaviorApart from "the business of business is business, not ethics" kind of thinkingapparent in recent high-profile business scandals, three other main drivers ofunethical business behavior also stand out:2. FaultI oversight by top management and the board of directors that

implicitly allows the overzealous pursuit of personal gairy wealth, andother self-interests.

. Heavy pressures on company managers to meet or beat performancetargets.

. A company culture that puts profitability and good business performanceahead of ethical behavror.

OVERZEALOUS PURSUIT OF PERSONAL GAIN, WEALTH, ANDSELF-INTERESTS People who are obsessed with wealth accumulafon,greed, power, status, and other self-interests often push ethical principlesaside in their quest for personal gain. Driven by their ambitions, they exhibitfew qualms in skirting the rules or doing whatever is necessary to achievetheir goals. A general disregard for business ethics can prompt all kinds ofunethical strategic maneuvers and behaviors at companies. According to acivil complaint filed by the Securities and Exchange Commission, the chiefexecutive officer (CEO) of Tyco International, a well-known $35.6 billionmanufacturing and services company, conspired with the company's CFO tosteal more than 9170 million, including a company-paid $2 million birthday

'For survey data on what managers say about why they sometimes behave unethically, see john F.Veiga, Timothy D. Golden, and Kathteen Dechant, "Why Managers Bend Company Rules," Acodemyof MonIgement Executve 18, no. 2 (May 2oo4), pp. 84-89.

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party for the CEO's wife held on Sardinia, an island off the coast of Italy; a$7 million Park Avenue apartment for his wife; and secret low-interest andinterest-free loans to fund private businesses and investments and purchaselavish artwork, yachts, estate iewelry, and vacation homes in New Hampshire,Connecticut, Nantucket, and Park City, Utah. Tyco's CEO and CFO were fur-ther charged with conspiring to reap more than $430 million from sales ofstock, using questionable accounting to hide their actions, and engaging indeceptive accounting practices to distort the company's financial conditionfrom 1995 to 2002. Both Tyco executivcs werc convictcd on multiple counts oflooting the company in 2005. Concepts & Connections 9.1 discusses hovr. theoverzealous pursuit of personal gain, wealth, and self-interests played a rolein the fraudulent inr-estment schemes at Bernard L. Madoff Investment Secu-rities ancl alleged at Stanford Financial Group.

HEAVY PRESSURES ON CON{PANY MANAGERS TO MEET ORBEAT EARNINCS TARCETS Performance expectations of Wall Strcctanalysts and investors may create enormous pressure on management to dowhatever it takes to sustain the company's reputation for delivering goodfinancial performance. Executives at high-performing companies know thatinvestors will see the slightest sign of a slowdown in earnings growth as a redflag, which could begin a mass sell-off of the company's stock. In addition,slowing growth or declining profits could lead to a downgrade of the compa-ny's credit rating if it has used lots of debt to finance its growth. The pressureto watch the scoreboard and "never miss a quarter"-so as not to upset theexpectations of Wall Street analysts, stock market investors, and creditors-prompts near-sighted managers to cut discretionary costs that create greatercustomer value, squeeze extra sales out of early deliveries, and engage in othershort-term maneuvers to make the numbers. As the pressure builds to "meetot bcat the numbers," company personnel start stretching the rules furtherand further, until the limits of ethical conduct are overlooked.l

Several top executives at WorldCom n ere convicted of concocting a fraudu-lent $11 billion accounting scheme to hide costs and inflate revenues and profitover several years; the scheme was said to have helped the company keep itsstock price propped up high enough to make additional acquisitions, supportits nearly $30 billion debt load, and allow executives to cash in on their lucra-tive stock options. HealthSouth's chief financial managers were convicted ofoverstating the company's earnings by $1.4 billion between 7996 and 2002in an attempt to hide the company's slowing growth from investors. A 2007internal investigation at DeLl Computer found that executives had engagedin a scheme to manipulate the company's accounting data to meet investors'quarterly earnings expectations. The fraudulent accounting practices inflatedthe company's earnings by $150 million between 2002 and 2006. The execu-tives n'ere terminated by Dell Computer in 2007.

The fundamental problem with a "make the numbers and move on" syn-drome is that a company doesn't really create additional value for customersor improve its competitiveness in the marketplace, which are the most reliable3 For more details see Ronald R. Sims and Johannes Brinkmann, "Enron Ethcs (Or: Culture MattersMore than Codes)," lournol of Busness Ethics 45, no. 3 [uly zoo3), pp. 244-246.

Ethtcal Business Strateg es, Corporate Social Responsibilit and Environmental Sustainability

INVESTMENT FRAUD AT BERNARD L MADOFF INVESTMENTSECURITIES AND STANFORD FINANCIAL GROUP

Bernard Madoff engineered the largest rnvestment scamin hstory to accumulate a net worth of more than $8oomillion and build a reputation as one of WaLl Street'smost savvy investors-he was appointed to variousSecurities and Exchange Commission panets, nvited totesti[y before Congress on investment matters, madechairman of Nasdaq, and befriended by some of theworLd's rnost influential people. Madoff deceived WallStreet and investors with a simple Ponzi scheme thtpromised investors returns that would beat the marketby 4oo to 5oo percent. The hedge funds, banks, andwealthy individuals that sent Bernard L. lVladotf nvestment Serurities billions to invest on their behalf werequite pleased when their statements arrived showngannuaI returns as high as 45 percent. But, in fact, theportfolio gains shown on these stalements were frcti-tious. Funds placed with Bernard Madoff were apparentlyseldom, if ever, actually invesled n any typ of security-the money went to cover losses in his legtimate stocktrading business, fund periodic withdrawals of investors'funds, and support l\4adofPs lifestyte (including vacatonhomes n Montauk, New York, Patm Beach, Florida, Capd'Antibes, France; a $z million Manhattan condominium;,,i.hf

Part One: Section C: Crafting a Strategy

and New lersey Senator Frank Lautenberg. Stanford'smaior donations went to presidential candidates BarackObama and lohn McCain, Florida Senator Bill Nelson,and Texas Reoresentative Pete Sessons. Stanford wasalso a major potitical contributor in Antigua where heheld duat citizenship and was bestowed with knight-hood. In May zoo9, Stanford Investment Bank disclosedthat it owed $Z.z bittion to about 28,ooo account hold-ers. lts total assets at the time stood at $r billion.including $46 million in cash.

Sources: James Bandler, Nicholas Varchaver, and Doris Burke,"How Bernie Did lt" Fortune Online April 30, zoog (accessedluly 7, 2oo9); Duncan Greenberg, "Billionaire Responds tosEC Probe," Forbes Online, February 13, 2oog (accessed July9, zoog); Katie Benner, 'Stanford Scandal Sets Antigua onEdge," Foftune Onlne, Fe5tuary 25, 2oo9 (accessed July 9,2oo9); Alyssa Abkowtz, "The Investment Scam-Artistb Play-book" Foftune Online, FebnJary 25, 2oo9 (accessed ,uly 9,zoog); Kathryn Glass, "Stanford Bank Assets Insui.ient toRepay Depositors," Fox gusness.com, May 15, 2oo9 (accessedluty 9, 2oo9); and Bllt McQuillen, Justin Blum, and LaurelBrubaker Glkins, 'Atlen Stanford Indicted bV U.5. in $7 BillionScam," Bloomberg.com, lune 19, zoog (accessed July 9, zoog).

drivers of higher profits and added shareholder value. Cutting ethical cor-ners or stooping to downright illegal actions in the name of profits first carriesexceptionally high risk for shareholders-a steep stock price decline and a tar-nished brand image that leaves a company worth much less than before.

COMPANY CULTURES THAT PUT THE BOTTOM LINE AHEAD OFETIIICAL BEHAVIOR When a company's culture spawrrs an ethicallycorrupt or amoral work climate, people have a company approved license toignore "what's right" and engage in most any behavior they think they canget away with.4 At such companies, ethically immoral or amoral people aregiven free reign and otherwise honorable people may succumb to the manyopportunities around them to engage in unethical practices. A perfect exampleof a compary culture gone awry on ethics is Enron.s Enron's arurual "ankand yank" performance evaluation process where the 15 to 20 percent lowest-ranking employees were let go or encouraged to seek other employment madeit abundantly clear that bottom-line results were what mattered most. Survivalat Enron relied, to some extent on devising clever ways to boost revenues adearnings-even if it sometimes meant operating outside established policiesand without the knowledge of superiors.

The underpinnings of Enron's culture that encouraged unethical behav-ior were also linked to its reward system. Employees who produced thebest bottomline results received impressively large incentives and bonuses(amounting to as much as $1 million for traders and even more for senior exec-utives). On Car Day at Enron, an array of luxury sports cars arrived for presen-tation to the most successful employees. Understandably, employees wantedto be seen as part of Enron's star team and partake in the benefits granted toEnron's best and smartest employees. The high monetary rewards, the ambi-tious and hard-driving people that the company hired and promoted, andthe competitive, results-oriented culture combined to give Enron a reputationa Veiga, GoLden, and Dechant, "Why Managers Bend Company Rules," p. 85.I The following account is based largely on the discussion and analysis n Sms and Brnkmann,"Enron Ethics," pp.245-252. Perhaps the defintve book-length account of the corrupt Enronculture is Kurt Eichenwald, Consprocy of Fools: A True Story (New York: Broadway Books, zoo5).

Chapter 9 Ethcal Business Strategies, Corporate Social Responsibility, and Environmental Sustainability

not only for trampling competitors at every oPPortunity but also for internalruthlessness. The company's super-aggressiveness and win-at-all-costs mind-set nurtured a culture that gradually and then more rapidly fostered the ero-sion of ethical standards, eventually making a mockery of the company'sstated values of integrity and respect. When it became evident in the fall of2001 that Enron was a house of cards propped up by deceitful accounting anda myriad of unsavory practices, the company imploded in a matter of weeks.

The Business Case for Ethical Strategiesand Ethical Operating PracticesThere are solid business reasons to adopt ethical strategies even if most com-pany managers are not of strong moral character and personally committedto high ethical standards. Pursuing unethical strategies not only damages acompany's reputation but it can also have costly consequences that are wide-ranging. Some of the costs are readily visible; others are hidden and diffi-cult to track down-as shown in Figure 9.1. The costs of fines and penaltiesand any declines in the stock price are easy enough to calculate. The admin-istrative "cleanup" (or Level 2) costs are usually buried in the general costsof doing business and can be difficult to ascribe to any one ethical misdeed.Level 3 costs can be quite difficult to quantify but can sometimes be the mostdevastating-the aftermath of the Enron debacle left Arthur Andersen's reputa-tion in shreds and led to the once-revered accountine firm's almost immediate

FIGURE 9.1 Ih ccts of B|lslness Ethcs Faiturcstevet 3 Costs

. Cstomer deftGons

. Loss of eputgtlon

. Lost employee morahand hlgfter degrecs ofenployee cynlclsnr

. Hlgher employeebrnovf

. Hlgher recrulti0E cosBand dffncufty oftt'.cng tetenbdenployees

. Adrerse effi onemployee prodt(fvlty

. Thc co3E of compMntwlth often halshertovcmment rrtulrong

Soufce Adapted frorTerry Thomas, John R.Schermerhorn, and JohnW Dienhart, "StrategicLeadership of EthcalBehaviot," Academy ofMqnagement Executve18, no. 2 (May 2oo4),p 58.

Part One: Section C: Crafting a Strategy

demise. It remains to be seen rt'hethcr Merck, once one of the world's mostrespected pharmaceutical firms, can survive the revelation that senior man-agement deliberately concealed that its Vioxx painkiller, which the companypulled off the market in September 2004, n,as tied to a high risk of heart attackand strokes.6

Ensuring a Strong Commitment to Business Ethicsin Companies wth International OperationsNotions of rigl-rt and wrong, fair and unfair, moral and immoral, ethical andunethical are present in a1l societies, organizations, and individuals. But thereare thrcc schools of thought about the extent to which the ethical standardstravel across cultures and lvhether muliinational companies can apply thesame set of ethical standards in all of the locations where thev oDerare.

THE SCHOOL Ol L I HTCAL U\IVERSALISI\I According to thcschool of ethical universalism, some concepts of what is right and what iswrong are mttersal and transcend most all cultures, societies, and religions.T

For instance, being truthful strikes a chord of what'sAccording to the school of ethical universal- fiSht in the peoples of all natrons. Ethical norms con-ism, the same standards of what,s ethical and sidered univcrsal by many ethcists include honesty,whats unethical resonate with peoples of most trustworthiress, resPecting the rights of others, practic-societies regardless of local traditions and ing the Golden Rule, and avoiding unnecessary harmcultural norms; hence, common ethical staft to wokers o to the users of the company's product ordards can be used to judge employee conduct service.s To he extent Lhere is comrton ntoral agreementin a variety of country markets and cultural about right and iurong actions nnd behnuiors ncross mul-circumstances. tipla aiturcs and cotmties, tlttre ,.ists n sel of uniuersal

ethical stnndards to zuhich all societies, companies, and indi--ctidunls can be held accountnble. The strength of ethical universalism is that itdraws upon the collective vier,r.s of multiple societies and cultures to put someclear boundaries on what constitutes ethical business behavior no matterwhat country market its personnel are operating in. This means that in thoselnstances where basc moral standards realiy do not vary significantly accord-ing to local cultural beliefs, traditions, or religious convictions, a multinationalcompany can devclop a code of ethics that it applies more or less evenly acrossits n'orldn,icle operations.e

THF SCHOOL OF ETIIICAL IthLAIIVISI\{ Beyond widely acceptedethicai norms, many ethical standards likely vary from one country to anotherbccause of divergent religious beliefs, social customs, and prevailing political6Anna Witde Mathews and Barbara Maftinez, "E-lv1als Suggest Merck Knew Vioxx's Dangers atEarly Stage," lhe Wall Street Journal, November 1, 2oo4, pp. Ar and Aro.7 For reserch on whal are the universal moral values (six are identifled-trustworthness, respect,responsibility, fairness, caring, and citizenship), see Mark S. Schwarlz, "Unversal MoraL Values forCorporate Codes of Ethics," Journal of Business Ethics 59, no. r (June zoo5), pp. z7 44.3 See, for instance, Mark. S. Schwartz, 'A Code of Ethcs for Corporate Codes of Ethics," lournal ofBusness Ethcs 4r, nos. 1-2 (November-Decem ber zooz), pp. zt-4).'

For more discussion of this point, see Schwartz, 'A Code of Ethics for Corporate Codes of Ethics,"pp.29-30.

Chapter s Ethicat Business Strategies, Corporate Social Responsibility, and EnvironmentaI Sustainability

and economic doctrines (whethcr a countrv leans moretou,ard a capitalistic market cconomy or one hdominated bv socialistic or communistic princThe school of ethical relativism holds that wheare cross-country or cross-cultural differences iis dccmed an ethical or unethical business sitit is appropriate for local moral standards to take pre- to another.cedence over what the ethical standards may be tn acompany's home market. The thesis is that whatever a culture thinks is rightor wrong really is right or wrong for that culture.r0

A company that adopts the princple of cthical relativism and holds com-pany personnel to local ethical standards necessarily assumes that rvhat pre-vails as local moraliiy is an adequate guide to ethical behavior. This can beethically dangerous-it Leads to the conclusion that if a courrtry's culturegenerally accepts bribery or environmental degradation or exposing workersto dangerous conditions, then managers working in that country are free toengage in such activities. Adopting such a position places a company ir-r a prsr-ilous position if it is rcquired to defend these activities to its stakeholders incountries with higher ethical expectations. Moreover, from a global marketsperspective, ethical relatir.ism results in a maze of confliciing ethical standardsfor multinational companies. Imagrne, for example, that a multinational com-pany in the name of ethical relati'r'ism takcs the Position that it is okay for com-pany personnel to pay bribes and kickbacks in countries where such paymentsare customary but fobids company personnel from making such payments inthose countries where bribcs and kickbacks are considered unethical or illegal.Having thus adoptcd conflicting ethical standards for operating in differentcountries, company managers have little moral basisfor enforcing ethical standards companl.rvide-rather, Codes of conduct based upon ethical relativismthe clear message to employees would be that the com- can be ethicatty dangerous by creatng a mazepany has no ethical standards or prurciples of its own, of conflcting ethical standards for multinationalpreferring to let its practices be governed by thc coun- companies.tries in which it operates. 'Table 9.1 prcsents results ofthe 2008 Global Corruttion Report, which illustrates the impracticality of tailor-ing a multinational company's ethical standards to local expectations.

I\ I't.C,R,A,TlVE SOCIAL CON'l RACTS THEORY Integrativc socialcontracts theory provides yet a middle position betwecn the opposing viewsof universalism and relativism.rr According to integrative social contractstheory, the ethical standards a company should try to uphold are governed'"T. L. Beauchamp and N. E. Bowie, Ehcal Theory and Bus,ness (Upper Saddle River, Ni: PrenticeHall, zoor), p. 8." Two of the definitive treatments of ntegrative social contracts theory as applied to ethics areThomas Donatdson and Thomas W. Dunfee, "Towards a Unfied Conception of Busness Ethi(sllntegrative Social Contracts Iheory," Acodemy of Monogement Review 19, no. 2 (April 1994),pp. 252.-284; and Thomas Donaldson and Thomas W. Dunfee, Tes Thot Bind: A Social ControctsApproach to Eusiness Ethlcs (Boston: Harvard Busrness School Press, 1999) especially Chapters 3,4, and 6. See, also, Andrew Spicer, Thomas W Dunfee, and Wendy J. Bailey, "Does National con-text Matter in Ethicat Decision Making? An Empirical Test of Integrative SocaI Contracts Theory"Academy of M1nagement Journal 47, no.4 (August zoo4), p. 6ro.

Table 9.1

COUNTRY2008 cPlscoRr* COUNTRY

2008 cPlscoRE*

DenmarkNcw ZcalandSwedenSingaporeFinlandSwitzerlandlce la ndN ether la n dsAustraliaC a nadal-uxembourgAustriaHong Kong(lermanylapanU nited StatesFranceCh ileSpainls rae I

Unted Arab Emirates

Ta irva n

Ma laysiaSouth AfricItalyTurkeyCubRomaniaCh inaMexicots razilSaudi ArabiaThailandlndiaArgentnaVietnamPakistanRu ss iaVenezuelaHaitiMyanmarSorna lia

9.3939 ..1

9.29.09.08.98.98.78.78.38.1B.t7.97.37.36.96.96.56.05.9

5.75.14.94.8

4.33.83.63.6

3.51q

3.42.92.72.52.11.91.41.31.0

*]{ote: The CPI scores range betwee ro (highly clean) and o (highly corrupt); the data draw on informationfrom 13 different polls and surveys from 11 independent institutions The CP score represents the perceptionsof the degree of aorfuption as seen by busness people, academics, and risk analysts, CPI scores were reportedfor 18o countries.Source: Reprinted from zooS International Annual Report Copyright O 2oo8 Transparency Interna(onal:the global condtion against coffuption. Llsed with permission, For further information, vis t http://www.transparency.org.

According to integrative social contractstheory universal ethical prjnciples based oncollective views of multiole cultures combine toform a 'social conhacf' that all employees in allcountry markets have a duty to observe. Withinthe boundaries of this social contract, there isroom for host country cultures to exert someinfluence in setting their own moral and ethcalstandards. However, "fir storder" uniu ersa I ethtca Inorms always take precedence over "second-ordet" local ethical norms in circumstanceswhere local ethical norms are more permissive.

both by (1) a limited number of universal ethical prin-ciples that are w.idely recognized as putting legitimateethical bour-rdaries on actions and behavio in all situ-ations and (2) the circumstances of local cultures, tra-ditions, and shared values that further prescribe whatconstitutes ethically pcrmissible behavior and whatdoes not. This "social contract" by which managers inall s.ituations have a duty to serve provides thal "first-order" uniuersnl ethical nornrs nlunys tnke precedence ouer"second-order" locnl ethicnl norms ifl circuntstnnces zuherelocal ethical noltns flre more pernissiae. Integrative socialcontracts theory offers managers 1n multinational com-panics clcar guidance in resolving cross-countrv ethical

differences: Those parts of the company's code of cthics that involve universalethical norms mLrst be enforced worldwide, but within thcse boundaries thereis room for ethical diversity and opportunity for host country cultures to exertsrn influcnce in settins their own moral and ethical standards.

Chapter I Ethical Business Strategies, Corporate Social Responsibilty, and EnvironmentaL Sustanability

A good example of the application of integrative social contracts theoryinvolves the payment of bribes and kickbacks. Yes, bribes and kickbacksseem to be common in some countries, but does this justify paying ihem? Justbecause bribery flourishes in a country does not mean that it is an authenticor legitimate ethical norm. Virtually all of the n'orld's major religions (Bud-dhism, Christianity, Confucianism, Hinduism, Islam, fudaism, Sikhism, andTaoism) and all moral schools of thought condemn bribery and corruption.l2Therefore, a multinational company might reasonably conclude that the rightethical standard is one of refusing to condone bribery and kickbacks on thepart of company personnel no matter what the second-order local norm is andno matter r,.hat the sales consequences are. An example of the application ofintegrative social contracts theory that allows second-order local customs toset ethical boundaries inr,olves employee recruiting and selection practices. Acompany that has adopted a first-order universal norm of equal opportunity inthe workplace might allo\4' applicants to include photographs with resumes incountries where such is the norm. Local country managers in the United Statesare prohibited bv law from accepting employ'rnent applications including aphotograph, but local country managers in Europe would find it very unusualfor an application to not be accompanied b, a photograph of the applicant.A policy that prohibited managers from accepting applications containing aphoto of the applicant would result in almost all applications being rejected.But even with the guidance provided by integrative social contracts theory,there are many instances where cross-country differences in ethical norms cre-ate "gray areas" where it is tough to draw a line in the sand between right andwrong decisions, actions, and business practices.

Social Responsibtty and Corporate CitizenshipThe idea that businesses have an obligatron to foster social betterment,, a much-clebated topic in the past 40 years, took root in the 19thgressive companies in the aftermath of the industrialrevolution began to provide workers with housingand other amenities. The notion that corporate execu-tives should balance the interests of all stakeholdes-shareholders, employees, customers, suppliers, thecommunities in which they operated, and society atlarge-began to blossom in the 1960s. The essence ofthe theory of corporate social responsibility is that acompany should strive for balance between (1) its eco-nomic responsibility fo rewad shareholders with prof-its, (2) its legal responsibilify to comply with the lavsof countries u'here it operates, (3) the ethicnl responsibility to abide by society'snorms of what is moral and just, and (4) a philnnLfuopic responsibility to contrib-ute to the noneconomic needs of societv.l'

" P M. Nichols, "Outlawing Transnational Bribery through the WorLd Trade Organization," Law ondPolcy in lnternotionol Busness 28, no. z (t997), pp. 321-322.'rArchie B. Carroll, 'A Three-Dimensional Conceptual Model of Corporate Performance," Academyof Management Review 4, no. q 0929), pp. 497 5o5.

centurv when pro-

Gorporate social responsibility calls forcomoanies to strive for balance between (1) theeconomic responsbl,ty to reward sha reho lder swith profits, (2) the legal responsibility to complywith the laws of countres where it operates, (3)the eical responsib,rty to abide by society'snorms of what is moral and just, and f4) thediscretionary phlanthropc responsibi,ty tocontribute to the noneconomic needs of sociew.

There is unanimous agreement among ch.ief managers of the world's mostnotable companies that economic, Iegal, and ethical responsibilities are a dutyof management and are not subject to debate. In acldition, even though suchactivities are discretionary, most chief managers agree that corporations havea duty to engage in philanthropic activitics. Acting in a socially responsiblemanner thus involves undertaking actions that earn trust and respect fromall stakeholders-operating in an honorable and ethical manner, striving tomake the company a great place to n-ork, demonstrating genuine respect forthe environment, and trying to make a difference in bettering society. Com-mon corporate social responsibility programs invoh'e:o Actions to protect the en-cironment and, itt partiulnr, to minimize or elininate

nny nduerse impnct on the enuironment stemning from the conpany's ototrbttsiness actiuities-Social responsibility as it applies to environmentalprotection means doing more than r,r'hat is legally rcquircd. From a socialrcsponsibility pcrspcctivc, companics havc an obligation to be stewardsof the environment.

. Actiotts to crete a ioork entronnent thnt enhnnces the rynlity of hfe foremtloyees-Numcrous companics cxcrt cxtra cfforts to enhance the qual-ity of life for their employees, both at work and at home. This can includeon-site day care, flexible work schedules for single parents, workplaceexercise facilities, special leaves to care for sick family members, work-at-horne opportunities, gender pay equity, and the like.

. Actions to buiLd a zoorkforce that is diuerse zoith respect to gender, rce, nationalorigin, ond perhnps other nspects thnt tlifferent people bring to tlrc workplnce-Most large companies in the United States have established workfocediversity programs, and some go the extra mile to ensure that their work-places are attractive to ethnic minorities and inclusive of all groups andpcrspectives. The pursuit of workforce diversity can be good busincss. AtCoca-Cola, where strategic success depends on getting people all over theworld to become loyal consumers of the company's beverages, efforts tobuild a public persona of inclusiveness for people of all races, reli;ions,natronalities, interests, and talents har-e consideable strategic value.

Some companies use the terms corporate social responsibility and corpo-rate citizenship interchangeabiy, but there is a body of thought that only com-

pames pursuing discretionarv activities in the pursuitCorporate ctizenshp requres a corporate of bettering society can be described as good corPoratecommitment to go beyond meeting socety's citizens. Adherents of corporate citizenship theoriesexpectations for ethical strategies and business suggest that corporations, as citizens of the communi-behavior to demonstrating good citizenshp by ties in which they operate, have an obligation to con-addressing unmet noneconomic needs of tribute to society where government has chosen notsociety. to focus its efforts or has fallen short.1l For instance,

McDonald's sponsors the Ronald McDonald HouseCharities program, which provides a home awav from home for the familiesof critically ill childrcn recciving treatmcnt at nearby hospitals. British Telecom

'4 Drk Matten and Andrew Crane, "Corporate Citzenship: Toward an Extended Theoretcal Concep-tualization," Academy of Monagement Review 1o, no. 1 (2oo5), pp. 166-179.

Chapter I EthicaI Business Strategies, Corporate Social Responsblity, and EnvronmentaL Sustanabilty

gives 1 percent of its profits directly to communities, largely for education-teacher training, in-school n'orkshops, and digital technology. Leading pre-scription drugmakcr ClaxoSmithKline and other pharmaceutical companicspractice corporate citizenship by either donaiing or heavily discounting medi-cines for distibution in the least-developed nations. Companies frequentlyreirforce their philanthropic efforts by encouraging employees to supportcharitable causes and participate in community affairs, often through pro-grams that match employee contributions.

Corporate Sustainability and the EnvironmentThere is a rapidly grou'ing set of multinational companies that are exrandingtheir understanding of societal responsibilties to include the impact of theirstrategies and operations on future generations. Corporate sustainabilitystrategies arc aimcd at meeting the needs of current era customers, suppliers,sharcholders, employees, and other stakeholders in amanner that protects the resources needed by futuregenerations and is therefore sustainable for centuries.Sustainability initiatives undertaken by companies aredirected at improving the company's triple bottom line(TBL)-its performance on economic, environment,and social metrics.ls Unilever, a diversified producerof processed foods, personal care, and home cleaningproducts, is among the most committed corporations pursung sustainablebusiness practices. The company tracks 1l sustainablc agricultural indica-tors in its processed foods business and has launched a variety of pnrgramsto impruve the environmental performance of its suppliers. Examples of suchprograms include speciai iow-rate financing for tomato suppliers choosing toswitch to water-conserving irrigation systems and trairing programs in Indiathat have allowed contract cucumber gro!\ers to reduce pesticide r.rse by 90percent, while improving yields by 78 percent.

Unilever has also reengineered many intemal processes to improve the com-pany's overall performance on sustainability measurcs. For cxamplc, thc compa-ny's factories have reduced water usage by 50 perccnt and manufacturing u'asteby 14 percent through thc implcmcntation of sustainability initiatives. Unile-ver has also redesi;ned packaging for many of its products to conserve natu-ral resources and reduce the voiume of consumer waste. The company's Suaveshampoo bottles in the United States were reshaped to save almost 150 tons ofplastic resin per year, which is the equivalent of 15 million few.er emptv bottlcsmaking it to landfills annually. Also, the r,r'idth of Unilever's Lipton soup cartonswas reduced to save 154 tons of cardboard per year. Because 40 percent of Unile-ver's sales are made to consumers in developing countries, the company also iscommitted to addressing societal needs of consumers in those countries. Exam-ples of the company's social performance include free laundries in poor neigh-borhoods in developing cou-ntries, start-up assistance for women-or+'ned microbusinesses rn India, and free drinking waier provided to villages in Chana.'jGerald l. j., M. Zetsloot, and Marcel N.A. van Marrewijk, "From Quality to SustainabLity," /ournalof Busness Ethics 55 (2004), pp. 79-82i and Elkngton, lohn B. Canniba[s with Forks: The TripleBottom Lne of 21st Century Busness, (Oxford: Capstone Pubtshing, 1992).

Corporate sustainability involves strategicefforts to meet the needs of today's customers,supplers, shareholders, employees, andoer stakeholders in a manner that protects theenvironment and provides for the longevity ofresources needed for future generations.

Part One: Section C: Crafting a Strategy

Sometimes cost savings and improved profitability are drivers of corporatesustainability strategies. DuPont's sustainability initiatives regarding energyusage have resulted in energy conservation savings of more than $2 billionbetween 1990 and 2005. Procter & Gamble's Swiffer cleaning svstem, one of thecompany/s best-selling new products, was developed as a sustainable prod-uct; not only does the Swiffer system have an earth-friendly design, but it alsooutperforms less ecologically friendly alternatives. Although most consum-ers probably aren't aware that the Swiffer mop reduces demands on munici-pal water sources, saves electricity that would be needed to heat mop water,and doesn't add to the amount of detergent making its way into waterwaysand waste treatment facilities, they are attracted to purchasing Swiffer mopsbecause they prefer Swiffer's disposable cleaning sheets to filling and refillinga mop bucket and wringing out a wet mop until the floor is clean.

Most well-knou'n companies discuss their sustainabilitv strategies andresults in press releases and special sustainability reports for consumers andinvestors to revieu'. fust as investment firms have created mutual funds madeup of companies passing some threshold of social responsibiliry a numberof sustainability funds have been created in recent years for environmentallyand socially aware investors to purchase. The Dow Jones Sustainability Worldlndex is made up of the top 10 percent of the 2,500 companies listed in the Dowfones World Index in terms of economic performance, environmental perfor-mance, and social performance. Table 9.2 shows companies with exceptionalcommitments to sustainability (judged according to their being designatedas worldwidc supersector leaders within the Dow fones Sustainability WorldIndex for 2008 /2009). However, achieving a prominent ranking in sustainabil-ity indexes is no guarantee that a company will outperform industry rivalswhen it comes to social responsibility. For example, BP's $8 billion investmentinto alternative energy sources and its strong lnvolvement in community andenvironmental groups had allowed it to consistently rank near the top amongsustainability indexes, but between 2005 and 2007 the company was fined forsafety violations at an Ohio refinery, was investigated by the U.S. Departmentof Justice for suspected manipulation of oil prices, had a major oil pipelineleak in Alaska, and was hit with a refinerv explosion in Txas that claimed thelives of 15 emolovees.16

Crafting Social Responsibitity and Sustainability StrategiesWhile striving to be socially responsible and to engage in environmentally sus-tainablc business practices, there's plenty of room for everv company to makeits own statcmcnt about what charitable contributions to make, what kinds ofcommunity service projects to emphasize, what environmental actions to sup-port, how to make the company a good place to work, where and how work-force diversity fits into the picture, and what else it will do to support worthycauses and projects that benefit society. A company may choose to focus itssocial responsibility strategy, on generic social issues, but social responsibilitystratcgics keyed to points of intersection between a company and society may'6 BP's environmental record is discussed in "Beyond the Green Corporation," Businessweek, )anu-ary 29,2oo7, p. 50.

Chapter I Ethical Busness Strategies, Corporate Social Responsibility, and Environmental Sustainability

Table 9.2

MARKET STCTOR COUNIRY

BMWAustralia & Ncr'v Zcaland

Ba n king CrourXstr.rIaBASIHolcimItausa-lnvestimentos ltauUnilcvcrNovartsTNT N.VSw iss RePcarsonENIad id as

Land Secu rities CroupKingiisherlntclBT CroupAir France-KLM( i rupo lbcrdrola

Automobilcs and partsBanks

Basic resourcesChemicalsConstruction and materialsFinancia I servicesFood and beveragesHealth careInd ustria I goods and serviccsInsu ra nceMediaOil and gasAth letic footwear apparel, and

equipmentReal estateRetailTechnologyTelecomm u n ictit.nsTravel and leisu reUtilitics

CermanrAustra lia

UKCermanySwitzerlandBraz rlNetherlanclsSwitzerlanclNetherlandsSwitzerlandUKIta lvGcrmanv

UKUKUSAUKFranceSpain

Sources: Dow jones Indexes, STOXX Limited, and SAM Group. Accessed at http://www.sustainability-indexes.com/o7 htmle/indexes/dlsiwold supersectorleaders.html, on luly 8, 2oo9.

also contribute to a company's compctitivc advantage.LT Almost all activitiesperformed by a companv (such as hiring oractices, emissions, and waste dis-posal) have cithcr a positive or negative affect on society. ln addition, societyaffects the competitive environment in which companies operate-society pro-vides a companv with labor and transportation infrastructure, sets the rulesthat govern competition, determines the demand for a company's product orservice, and shapes the availability of supporting industries.

Social responsibility strategies that focus on these points of intersectionbetween society and the company's ability to cxecute various value chairactivitics or better serve customer needs provide social benefits as well asbuild competitive advantage. For example, while carbon emissions may bea generic social issue for a financial institution such as Wells Fargo, Toyota'ssocial responsibility strategy aimed at reducing carbon emissions has Pro-duced both competitive advantage and environmental benefits. Its Prius hybrideiectric/ gasoline powered automobile not only is among the lcast pollutingautomobiles, but also is the best-selling hybrid vehicle in the United States and'7 For an exceltent dscussion of crafting corporate social responsibitity strategies capable ofcontributing to a company's competitive advantage, see Michael E. Porter and Mark R. Kramel"Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibl-ity," Harvard Eusiness Review 84, no. 72 (December 2006), pp. 78-92.

Part One: Section C: Crafting a Strategy

Social responsibility strategies that have theeffect of both providing valuable socal beneftsand fulfilling customer needs in a superiorfashion can lead to competitve advantage.Corporate social agendas that address genericsocial issues may help boost a company'sreputation, but are unlikely to improve itscompetitive strenglh in the marketplace.

has earned the company the loyalty of fuel-consciousbuvers and given Toyota a green image.

Green Mountain Coffee Roasters' commitment to'rrotect the welfare of coffee gro\ ers and their fami-lies (in particular, making sure they receive a fair pnce)also intersccts with the company's competitivelyimportant value chain activities. In its dealings withsuppliers at small farmer cooperatives in Peru, Mex-ico, and Sumata, Green Mountain pays "fair trade"

prices for coffee beans (in 2008, the fair trade prices were a minimum of $1.39per pound for conventional coffee versus market prices of $1.10 per pound).Green Mountain also purchases about 25 percent of its coffee direct from farm-crs so as to cut out interrnediaries and see that farmers realize a higher pricefor their efforts roffee is the r,t orld's second most heavily traded commodityafter oil, requiring the labor of somc 20 million pcoplc, most of whom live atthe poverty level.18 At Marriott, the company's social agenda includcs pro-viding 180 hours of paid classnrom and on-the-job training to the chronicallyunemployed. Ninety percent of the graduates from the lob training programtake jobs with Marriott and about trt o-thirds of those remain with Marriott formore than a year. Patagonia encourages customers to return worn-out cotton,fleece, and nylon clothing items so that the fibers can be recycled into fabricsfor new clothing items.

Whole Foods Market's social responsibility strategy is cvidcnt in almostevery segment of its company value chain and is a big part t)f its differentiationstrategy. The company's procurement policies encourage stoes to purchasefresh fruits and vegetables from local farmers and screen processed food itemsfor more than 100 common ingredients that the company considers unhealthyor cnvironmentally unsound. Spoilecl food items are sent to regional compost-ing centers rather than landfills and all cleaning products used in its stores arebiodegradable. The company also has created the Animal Compassion Foun-dation to develop natual and humane ways of raising farm animals and hasconverted all of its vehicles to run on biofuels.

However, not all companies choose to link their corporate social agendas totheir or+'n business or industry Chick-Fil-A, an Atlanta-based fast-food chainr,vith over 1,200 outlets in 38 states, has a charitable foundation that supports 14foster homes and a summer camp for some 1,800 campers fuorn 22 states andseveral foreign countries.re Levi Strauss & Company has madc HIV/AIDS pre-vention and arvateness a major component of its social agenda for a number ofyears. Some of the programs funded by the company and the Levi Strauss Foun-datiorl having little to do with its business activities include its firancial sup-port of Syringe Access Fund that makes sterile syringes available to ir-rtrau".ou,'*World Business Council for Sustainable Development, "Corporate Social Responsibtity; MakingGood Business Sense," January zooo, p.7t accessed October 10, 2oo3 at www.wbscd.ch. For adscussion of how companies are connectng social initiatives to their core values, see David Hess,Nikolai Rogovsky, and Thomas W Dunfee, "The Next Wave of Corporate Community Involvement:Corporate Social Initiatives," Calfornia Monogement Review 44, no. z (Winter zooz), pp. rro-rz5;Susan Ariel Aaronson, "Corporate ResponsrbiLty in the Global Village: The British Role Model andthe American Laggard," Business and Society Review 1o8, no. 3 (September zoo3), p. 323.'r wwwch ick-fit-a.com, accessed November 4, 2oo5,

Chapter I Ethical Business Strategies, Corporate Social Responsibilty, and EnvironmentaL Sustainability

drug users irr ihe United States and the funding of cartoons directed at childrenbetr+'een the ages 8 and 10 that discuss hou,to best prevent the transmission ofthe AIDS virus. The Preventoons cartoons were distributed to more than 20,000teachers in Argentina and Uruguay to use in their classrooms.

It is common for cornpanies engaged in natural resource extraction, electricpower production, forestry and paper products, motor l'ehic1es, and chemicalsproduction to place more emphasis on addressing environmental concernsthan, say, software and electronics firms or apparel manufacfurers. Compa-nies n'hose business success is heavily dependent on high employee moraleor attractin and retaining the best and brightest employees are somewhatmore prone to stress the n'ell-being of their employees and foster a positive,high-energy workplace environment that eliciis the dedication and enthusi-astic commitment of employees, thus putting real meaning behind the claim"Our people are our greatest asset." Ernst & Young, one of the four largestglobal accounting firms, stresses its "People First" workforce diversity strat-egy that is all about respecting differences, fostering individuality, and pro-moting inclusiveness so that its 105,000 cmployees in 140 countrics can feelvalued, engaged, and empowered in developing creative ways to serve thefirm's clients. Thus, while the strategies and actions of all socially responsiblecompanies have a sameness in the sense of making discretionary contribu-tions to noneconomic societal needs, each company's version of being sociallyresponsible is unique.

The Business Case for Socially ResponsibteBehaviorWhatever the moral arguments for socially responsible business behavior, ithas long been recognized that it is in the enlightened seif-interest of compa-nies to be ;ood citizens and devote some of their energies and resources to thebetterment of employees, the communities in which thev operate, and societyin general. In short, there are several reasons why the exercise of corporatesocial responsibility and corporate citizenship is good business:. It generates internal benefits (particularly concerning enryIoyee recruitirtg,

workforce retention, and training cosfs)-Companies with good reputationsfor contributing time and money to the bettement of society are betterable to attract and retain employees compared to companies with tar-nished reputations. Some employees just feel better about working for acompany committed to improving society.20 This can contribute to lowerturnover and better worker productivity. Other direct and indirect eco-nomic benefits include lower costs for staff recruitment and training. Forexample, Starbucks is said to enjoy much lower rates of employee turn-over because of its full benefits package fo both ful1-time and part-timeemployees, management efforts to make Starbucks a great place to work,and the company's socially responsible practices.

'" N. Craig Smth, "Corporate Social Responsibility: Whether and How," Colifornio Monogement

Review 45, no. 4 (Summer zoo3), p. 63; see atso, Wold Economic Forum, "Findings of a Survey onGlobal corporate Leadership," accessed at www.weforum.org/corporatecitizenship, October rr, zoo3.

Part One Section C: Crafting a Strategy

It reduces the risk of reputation-damaging incidents and can lead to increasedbuyer patronage-Firms may well be penalized by employees, consumers,and shareholders for actions that are not considered socially responsible.Consumer, environmental, and human rights activist groups are quick tocriticize businesses whose behavior they consider to be out of line, andthey are adept at getting their message into the media and onto the Inter-net. Pressure groups can generate widespread adverse publicity, promoteboycotts, and influence like-minded or sympathetic buyers to avoid anoffender's products. Research has shown that product boycott announce-ments are associated with a decline in a company's stock price.21 In con-trast, to the extent that a company's socially responsible behavior winsapplause from consumers and fortifies its reputation, the company mayrvin additional patronage. Some observers and executives are convincedthat a strong, visible, social responsibility strategy gives a company anedge in differentiating itself from rivals and in appealing to those con-sumers who prefer to do business with companies that are solid corporatecitizens. Whole Foods Market, Patagonia, Chick-Fil-A, Starbucks, andGreen Mountain Coffee Roasters have definitely expanded their customerbases because of their visible and well-publicized activities as sociallyconscious companies. Yet there is only limited evidence that consumersgo out of their way to patronize socially responsible companies if it meanspaying a higher price or purchasing an inferior product.22It is in the best interest of shareholders-Well-conceived social responsibilitystrategies help avoid or preempt legal and regulatory actions that couldprove costly and otherwise burdensome. Stock prices of companies takingthe straight and narrow path and rating high on social and environmentalperformance criteria have performed 35 to 45 percent better than the aver-age of the 2,500 companies on the Dow fones Global Index.'z3 Nearly 100studies have examined the relationship between corporate citizenship andcorporate financial performance over the past 30 years; the majority pointto a positive relationship. Of the 80 studies that examined whether a com-pany's social performance is a good predictor of its financial performance,42 concluded yes, 4 concluded no. and the remainder reported mixed orinconclusive findings.2a

'Waltace N. Davidson, Abuzar El-Jelly, and Dan L. Worrell, "lnfluencing Managers to ChangeUnpopular Corporate Behavior through Boycotts and Divestitures: A Stock Market Test," Susinessand Society 34, no. z (t99 , pp. t7t-t96." Smth, "Corporate Social Responsblity," p. 62.'3 See James C. ColLins and Jerry l. Pofias, Bult to L?st: Successful Hobits of Vsionary Companies,3rd ed. (London: HarperBusness, zooz); Sarah Roberts, Justn Keeble, and David Brown, "TheBusiness Case for Corporate Ctzenshp," a study for the Wortd Economic Forum, www.weforum.org/corporalecitzenshp, October 14, 2oo3, p. 4; and Smith, "Corporate SociaL Responsibility,"p.63.'4Smith, "Corporate SocaL Responsibility," p. 65; Lee E. Preston and Dougtas P O'Bannon, "TheCorporate Social-Financial Performance Relationship," Busness ond Society 36, no. 4 (Decem-ber ry97), pp. 419-4zgi Ronald M. Roman, Sefa Haybor, and Bradley R. Agle, "The Relationshipbetween Social and Financial Performance: Repainting a Portrait," Business and Socety,38,no. r (March 1999), pp. to9-tz5; and Joshua D. Margols and lames P Walsh, People and Profits(Mahwah, NJ: Lawrence ErLbaum, 2oo1).

Chapter 9 Ethical Business Strategies, Corporate Social Responsibility, and EnvironmentaI Sustainability

ln sum, companies that take social resPonsibility seriously can improve theirbusiness reputations and operational efficiency while also reducing their riskexposure and encouraging loyalty and innovation. Overall, companies thattake special pains to protect the environment @eyond what is required bylaw), are active in community affairs, and are Senerous suPPorters of chari-table causes and projects that benefit society are more likely to be seen as goodinvestments and as good companies to work for or do business with. Share-holders are likely to view the business case for social responsibility as a strongone, even though they certainly have a right to be concemed about whetherthe time and money their company spends to carry out its social responsibilitystrategy outweighs the benefits and reduces the bottom line by an unjustifiedamount.

Kev PointsEthics involves concepts of right and wrong, fair and unfair, moral and immoral. Beliefsabout what is ethical serve as a moral compass in guiding the actions and behaviors ofindividuals and organizations. Ethical principles in business ate not materially differ-ent from ethical principles in general.

1. The thee main drivers of unethical business behavior also stand out:. Overzealous or obsessive pursuit of personal gairl wealth, and other selfish

interests.. Heavy pressures on comPany managers to meet or beat earnings tal8ets.. A company culture that puts profitability and good business performance

ahead of ethical behavtor.

2. Business ethics failues can result in Level 1 costs (fines, penalties, civil penal-ties arising from lawsuits, stock price declines), the administrative "cleanup" (orLevel 2) costs, and Level 3 costs (customer defections, loss of reputation, higherturnover, harsher government regulations).

3. There are three schools of thought about ethical standads for companies withintemational operations:

. According to the school of ethical uniuercalisrn, the same standards of what'sethical and unethical resonate with peoples of most societies regardless oflocal traditions and cultural norrns; hence, common ethical standards can beused to judge the conduct of personnel at companies operating in a varietyof international markets and cultural circumstances.

o According to t}:re school of ethical relatiaism, different societal cultues and cus-torns have divergent values and standards of right and wrong-thus whatis ethical or unethical must be judged in the light of Iocal customs and socialmores and can vary from one culture or nation to another.

EJ