The German Jordanian University

(GJU)
Summer Semester 2011
MGT 316
Instructor: Montaser Tawalbeh


Business Ethics
School of Managerial and Logistic Sciences
Part 2. The Practice of Business
Ethics
Business Ethics A Real World Approach
Andrew W. Ghillyer
2
nd
Edition


New York, NY
ISBN 9780071100656
Part 2. The Practice of Business
Ethics
Chapter 4. Corporate Social Responsibility

- Corporate social responsibility
- Management without Conscience
- Management by Inclusion.
- The driving forces behind Corporate Social
Responsibility
- The Triple Bottom Line
- Jumping on the CSR Bandwagon
Carbon Offset Credits
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Corporate Social Responsibility
Frontline Focus
Stocking Error (p.78)
Key points
- Claire, a management trainee at MegaDrug Pharmacy.
- Mr. John is the manager of MegaDrug pharmacy and
Claires boss.
- Claire developing her management skills by restocking
some shelves in the allergy section.
- Claire noted to her boss that branded name medicines
are much smaller than the companys own-label brand.

Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Corporate Social Responsibility
- Mr. Johns responded saying that the company makes
more money selling their own brand then actually selling
any other named brands therefore its for their benefit to run
out of named brand allergy medicines.
- He added to say that its better to have couple of
customers complaining about unavailable named brand
medicines then losing profitable sales.
- Q1, 2, and 3. (p.78)
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Corporate Social Responsibility
Corporate Social Responsibility (CSR)
Is the actions of an organisation that are targeted
toward achieving a social benefit over and above
maximizing profits for its shareholders and meeting all
its legal obligations.
Corporate Citizenship
An alternative to Corporate Social Responsibility, implying
that organisation is a responsible citizen in meeting all
obligations.

Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility
Corporate Social Responsibility
Corporate Conscience
Is an alternative term for corporate social responsibility, implying that
the organisation is run with an awareness of its obligations to society.

Many companies awoke to (CSR) only after being surprised by public
responses to issues had not previously thought were part of their
business responsibility.

NIKE for example, faced an extensive consumer boycott after
The New York Times and other media outlets reported abusive
labour practices at some of its Indonesian suppliers early 1990s.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Corporate Social Responsibility
Activists of all kinds have grown much more aggressive and
effective in bringing public pressure to bear on corporations
mainly on successful ones to draw attention to an issue
even if those corporations had little impact on the problem
at hand.
Nestl The worlds largest purveyor of bottled water, has
become a major target in the global debate about access to
fresh water, despite the fact that Nestl's bottled water
sales consume 0.0008% of the worlds fresh water supply.
However, the inefficiency of agricultural irrigation uses 70%
of the worlds supply annually, is a far more pressing issue
but offers no equally convenient multinational corporation
to target.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Corporate Social Responsibility
Whether the organisations discovery of the significance of
CSR was intentional or as a result of unexpected media
attention, once CSR becomes part of its strategic plan,
choices have to be made as to how the company will
address this new element of corporate management.
Many take the Instrumental Approach to CSR: The
perspective that the only obligation of a corporation is to
maximise profits for its shareholders in providing goods and
services that meet the needs of its customers.
One of the most famous advocate of this classical model is
the Nobel Prise winning economist:
Milton Friedman.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Corporate Social Responsibility
Mr. Friedman argued from an ethical perspective that it
would be unethical for a corporation to do anything
other than deliver the profits for which its investors
have entrusted it with their funds in the purchase of
shares in the corporation. He also stipulates that those
profits should be earned without deception or fraud.
he also argued that as an employee of the corporation,
the manager has an ethical obligation to fulfil his role in
delivering on the expectations of his employers.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Progress Check Questions
Q1, Q2, Q3, and Q4. (p.80).
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Management without conscience
Friedmans view of the corporate world supports the
right of individuals to make money with their
investments and it recognises the clear legality of the
employment contract. To work for the companys
success doesnt prevent the organisation from
demonstrating some form of social conscience such as
donating to a local charity or sponsoring some groups
for a good cause. However, it restricts such charitable
acts to the discretion of the owners of the company,
rather than recognising any formal obligation on their
part.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Management without conscience
Mr. Friedmans model focuses on the internal world of
the corporation assuming there are no external
consequences to the actions of the corporation and its
management. When we recognise the impact by the
actions of the corporation then we can consider the
Social Contract Approach to corporate management.

Social Contract Approach: Is the perspective that a
corporation has an obligation to society over and above
the expectations of its shareholders.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Management without conscience
In recent years, the notion of a social contract between
corporation and society has undergone a subtle shift.
Originally, the primary focus of the social contract was
an economic one, assuming that continued economic
growth would bring an equal advancement in quality of
life. However, continued corporate growth was not
matched by an improved quality life. Growth at the
expense of rising costs, wages growing at lower rate
than inflation, and the increasing presence of
substantial layoffs to control costs were seen as an
evidence that the old social contract was no longer
working.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Management without conscience
The modern social contract approach argues that since
the corporation depends on society for its existence
and continued growth, there is an obligation for the
corporation to meet the demands of that society rather
than just recognised as a social institutions as well as
economic enterprise.

Progress Check Questions
Q5, Q6, Q7, and Q8. (p.81).

Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Management by Inclusion
Corporations do not operate in an isolated
environment.
Their actions impact their customers, employees,
suppliers, and communities in which they produce and
deliver their goods and services. Depending on the
actions taken by the corporation, some of these groups
will be positively impacted and others will be negatively
impacted. For instance, if a corporation is operating
unprofitably in a very competitive market, it is unlikely
that it could raise prices to increase profits. Therefore,
the logical choice would be to lower the cost- most
commonly by laying off its employees.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Management by Inclusion
The communities in which those employees reside have
now lost the spending power of those employees. If the
corporation chooses to shut down an entire factory, the
community also loses property tax revenue from that
factory, which impacts the services it can provide to its
residents. In addition, those local suppliers who made
deliveries to that corporation remain competitive and
continue to offer low prices to its customers. So there
are, at least on paper, winners and losers in these
situations.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Management by Inclusion
Jim Roberts:
(A professor of marketing at the Hankamer School of Business)
points out:
That he thinks the Corporate Social Responsibility as
Doing Well by Doing Good.
Doing whats in the best long-term interest of the
customer is ultimately doing whats best for the
company. Doing good for the customer is just good
business.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Management by Inclusion
For instance, the tobacco industry serving only the
short-term desired of their customers has led to
government intervention and a multi-billion dollar
lawsuits against the industry because their denial of the
consequences of smoking unlike the alcohol
manufacturers who realised that they have to show
interests in their customers well-being such as
advertising Dont Drink and Drive or Drink
Responsibly.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Management by Inclusion
Doing Well by Doing Good seems to be easy policy to
adopt and many organisations have started down the
road by making charitable donations or introducing
earth-friendly packaging materials and using more
recyclable materials. However, mistrust and cynicism
(feeling of distrust) remain among their customers and
citizens of their local community. Many still see these
initiatives as public exercises with no real evidence of
dramatic changes in the core operating philosophies of
these companies.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Ethical Dilemma (p.83)
Case 4.1 Malden Mills
Q1, Q2, Q3, & Q4.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

The Driving Forces Behind
Corporate Social Responsibility
Joseph F.Keefe:
Of NewCircle Communications asserts that there are
five major trends (Change or development) behind the CSR
Phenomenon:
1- Transparency: Whatever corporations do will be
known, almost immediately, around the world. Thats
because we live in an information-driven economy
where business practices have become increasingly
transparent.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility
The Driving Forces Behind
Corporate Social Responsibility
2- Knowledge: The transition to an information-driven
economy also means that consumers and investors have
more information at their disposal that at any time in
history. Customers can choose one brand over another
based upon those companies respective environmental
records for an instance.
3- Sustainability: Corporations are under increasing
pressure from diverse stakeholder constituencies to
demonstrate that business plans and strategies are
environmentally sound and contribute to sustainable
development.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

The Driving Forces Behind
Corporate Social Responsibility
4- Globalisation: Globalisation represents a new stage
of capitalist development, this time without public
institutions to protect society by balancing private
corporate interests against broader public interests.
5- The Failure of the Public Sector: Many if not most
developing countries are governed by dysfunctional
regimes ranging from the unfortunate and disorganised
to the brutal and corrupt. Developed nations, citizens
arguably expect less of government that they used to,
having lost confidence in the public sector.

Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

The Driving Forces Behind
Corporate Social Responsibility
In fact, many organisations have found it difficult to
make the transition from CSR as a theoretical concept
to CSR as an operational policy. The problem is how to
promote those acts to your stakeholders as proof of
your new corporate conscience without appearing to
be manipulative or scheming to generate press
coverage for policies that could easily be dismissed as
feel-good initiatives that are simply chasing customer
favour.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

The Driving Forces Behind
Corporate Social Responsibility
Corporations that choose to experiment with CSR
initiatives run the risk of creating adverse results and
ending up worse off than when they started, therefore:
1- Employees feel they work for an insincere, uncaring
organisation.
2- The public sees little more than a token action
concerned with publicity rather than community.
3- The organisation does not perceive much benefit
from CSR and so sees no need to develop the concept.
Part 2. The practice of Business Ethics
Chapter 2. Organisational Ethics

Progress Check Questions
Q9, Q10, Q11, and Q12. (p.85).

Part 2. The practice of Business Ethics
Chapter 2. Organisational Ethics

Ethical Dilemma (p.86)
Case 4.2 Banning the Real Thing
Q1, Q2, Q3, & Q4.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

The Triple Bottom Line
As a testament to how seriously companies are now
taking CSR, many have now adapted their annual
reports to reflect a triple bottom-line (3BL) approach,
where they provide social and environmental updates
alongside their primary bottom-line financial
performance.
While it may be easy to support the idea of
organisations pursuing social and environmental goals
in addition to their financial goals, there has been no
real evidence of how to measure such achievements.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

The Triple Bottom Line
If you subscribe to the old management saying that if
you cant measure it, you cant manage it, the
challenges of delivering on any 3BL goals become
apparent.
It would appear that many organisations are taking a
fairly opportunistic approach in adopting the
terminology without following through on the delivery
of a consistent methodology. Could the feel good
terminology associated with 3BL help you make a
convincing case if you are seeking to make amends for
prior transgressions?
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Jumping on the CSR Bandwagon
On the basis of this behaviour, we can identify three
distinct types of CSR. Ethical, Altruistic, and Strategic.

Ethical CSR: Represents the purest or most legitimate
type of CSR. Organisations pursue a clearly defined
sense of social conscience in managing their financial
responsibilities to shareholders, their legal
responsibility and society as a whole, and their ethical
responsibilities to do the right thing for all their
stakeholders.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Jumping on the CSR Bandwagon
Organisations in this category have typically
incorporated their beliefs into their core operating
philosophies.
Altruistic CSR: Organisations take a philanthropic
approach by understanding specific initiatives to give
back to the companys local community or to
designated national or international programs.
In ethical terms, this giving back is done with funds that
rightly belong to shareholders. This choice of charitable
giving is at the discretion of the corporation, which
places the individual shareholders in the awkward
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility
Jumping on the CSR Bandwagon
Position of unwillingly supporting causes they may not
support on their own.
Critics have argued that, from an ethical perspective, this
type of CSR is immoral since it represents a violation of
shareholder rights if they are not given the opportunity to
vote on the initiatives launched in the name of corporate
social responsibility.
The relative legitimacy of altruistic CSR is based on the
argument that the philanthropic initiative are authorised
without concern for the corporations overall profitability.
Arguing in utilitarian terms, corporations are merely doing
the greatest good for the greatest number.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility
Jumping on the CSR Bandwagon
Strategic CSR: Philanthropic activities are targeted toward
programs that will generate the most positive publicity or
goodwill for the organisation.
By supporting these programs, companies achieve the best
of both worlds: doing the right thing and good publicity
which brings more sales, they also can meet their fiduciary
(legal or ethical relationship of trust) obligations to their
shareholders.
Critics can argue that strategic CSR is ethically
commendable (deserving praise) because these initiatives
benefit stakeholders while meeting fiduciary obligations to
the companys shareholders.
Part 2. The practice of Business Ethics
Chapter 4. Corporate Social Responsibility

Jumping on the CSR Bandwagon
However, the question remains: without a win-win
payoff, would such CSR initiatives be authorised?

-Ford spent millions on an ad campaign to raise
awareness of the need for booster seats for children
over 40 pounds and under 49 (most 4-8 years old) and
gave away almost a million seats as part of the
campaign.
Part 2. The practice of Business Ethics
Chapter 2. Organisational Ethics

Life Skills (p.65)
Being socially responsible

PRGRESS CHECK QUESTIONS (p.92)
Q13, Q14, Q15, and Q16.

Part 2. The practice of Business Ethics
Chapter 2. Organisational Ethics

Ethical Dilemma (p.93)
Case 4.3 Blue Source
Q1, Q2, Q3, & Q4.
Part 2. The practice of Business Ethics
Chapter 2. Organisational Ethics

If there is nothing ethically wrong in doing well by
doing good, why isnt everyone doing it? The3 key
concern here must be customer perception.
Ben & Jerrys Homemade Ice Cream or The Body Shop,
for example, both organisations made the concept of a
corporate social conscience before a part of their core
philosophies before CSR was ever apointed as a
management buzzword. As such, their good intent
garnered vast amounts of goodwill: Investors admired
their financial performance and customers felt good
about the shopping there. However, if the quality of
their products had not lived up to customer
Part 2. The practice of Business Ethics
Chapter 2. Organisational Ethics

expectations, would they have prospered over the long
term? Would customers have continued to shop there
if they didnt like the product? Doing well by doing
good will only get you so far.

With such financial clout (hit hard with the hand or a hard
object) now being put behind CSR issues, the question
of adoption of some form of social responsibility plan
for a corporation should no longer be if but when.
Part 2. The practice of Business Ethics
Chapter 2. Organisational Ethics

Frontline Focus
A Stocking Error Claire Makes a Decision (p. 96)
- Answer Q1, Q2, and Q3.