Lecture 4: CSR Flashcards
Ethics and Business ethics
Ethics- what is right and wrong behaviour.
Business ethics- applies actions to decisions companies take.
“What ethical principles companies or managers follow or expected to follow?”
“What ethical problems can face and why?”
“ethical” NOT THE SAME AS “legal”
Perspectives of ethical standards
- Ethical universalism
- Ethical relativism
- Integrated social contracts theory
Ethical universalism
- assumption of “good” and “bad”
- not based on country or region–> universal everywhere
*mixed ideas of different cultures - can be formulated so that all companies must or even should follow
ex. Bribery is unethical even if culturally accepted. Should strive for highest standards- never engage in bribery even if economically justifiable.
Ethical relativism
- assumptions of customs, religions, tradition
- some topics where global standards cannot be applied
*In case of different ethical standards: company must accept local ethics not home market’s.
ex. Bribery is norm, even necessary, acceptable in certain contexts. Need to adapt practices for local context.
Integrated social contracts theory
Consists of 2 levels:
1. Macro level
universal ethical standards usually valid, based on macro contracts.
2. Micro level
consider local community, organisation, department and acts in the boundaries of general ethical standards. Additional standards may emerge because of micro level contracts.
Perspective–> starting point- universal standards, if local standards used they can be “tighter”.
Unethical behaviour causes
- Poor governance
Behaviour and decisions of management should be monitored by supervisory board to ensure diverse view (independent group of people). –> Lack of monitoring leads to poor governance. –>Can lead to unethical behaviour. - Toxic corporate culture
Extreme focus on profit and money–> Difficult to focus on anything else–> toxic corporate culture
Challenging to oversee how employees actually are being evaluated. - Short-term thinking
excessive pressure to meet short-term goals–> engage in unethical practices
Especially for publicly traded companies, they need to publish quarterly figures.
Less frequent financial reporting can solve this issue.
Unethical behaviour costs
*Visible costs
fines, penalties, stock price drop
*Internal costs
train/retain employees, administrative costs, supervision costs
*Intangible costs
losing customers, law charges, reputation loss, morale loss, problem attracting talent
Arguments why company should behave in an ethical way
- Moral argument-
unethical behaviours are not consistent with humanity, profits are not everything - Economic argument-
not only moral but financial reasons, it causes real costs.
Stakeholder groups
Stakeholder: someone who is directly/indirectly affected by company’s decisions
*Primary stakeholders
suppliers
customers
employees
financial institutions
local communities
*Secondary stakeholders
competitors
NGOs
media
government institutions, regulators
other special interest groups
Stakeholder Theory
Primary goal of the firm is to meet the stakeholders demands. Shareholder is just one type of stakeholder whose goal is value maximisation, not profit maximisation.
Maximise value–>profits will follow
Power/interest grid
Common tool to identify company’s stakeholders.
2 by 2 matrix
- Low priority
Influence/power of stakeholder: L
Interest of stakeholder: L
“monitor, communicate, keep updated” - Meet needs
Influence/power of stakeholder: H
Interest of stakeholder: L
“engage, ask input, monitor. Could be a risk.” - Key player
Influence/power of stakeholder: H
Interest of stakeholder: H
“manage closely, involve in projects/decisions, engage regularly” - Keep informed
Influence/power of stakeholder: L
Interest of stakeholder: H
“use their interests by involving, consulting. Use as ambassador”
ISO 2600
International standard for CSR that uses stakeholders theory.
Principles
Key topics
CSR
Focused on balancing strategic decisions/actions which serve stakeholders to be a “good” company.
Companies have too perform TRIPLE BOTTOM LINE:
satisfy 3 P’s - Planet, People, Profits
Sustainability and CSR
Sustainability is only a sub-component of CSR not its core meaning.
Sustainability is “meeting demands of present without losing sight of the future.”
CSR with a lack of strategy
Too much emphasis on CSR without considering strategy.
Responsive CSR is not strategic.
When CSR is strategic it should go beyond “best practices”. Connecting CSR with strategy usually helps companies to gain unique position, achieve sustainable competitive advantage.
