Post on 27-Mar-2023
Table of Contents
INTRODUCTION..............................................................2
INTEGRATING ETHICS AND CORPORATE SOCIAL RESPONSIBILITY IN ORGANIZATIONS:..4
CADBURY AND THE BOER WAR: THE ETHICAL MANAGER:............................6
UNION CARBIDE AND POLLUTION: THE UNETHICAL CORPORATION?...................8
CONCLUSION...............................................................10
LIST OF REFERENCES.......................................................11
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INTRODUCTION The emphasis of business ethics is on moral rights and wrongs
as opposed to commercial, strategic or economically wrong and
right decisions. To buttress this view, the New York Stock
Exchange stressed that that their recently released Code of
Business Conducts for listed companies cannot be effective if
management and employees lack business ethics (Mortimer,
2008). Crane and Matten (2010) suggest that the failure or
success of a business organisation largely depends on the
ethics or lack of it in the given organisation and that the
ethical dilemmas that companies face externally or internally
will be instrumental in the long term sustainability of
companies.
Corporate Social Responsibility CSR has been defined by the
World Council on Sustainable Development (WBCSD) as the
integration of social, economic and environmental values
within a company’s core business operations while engaging
with stakeholders in improving societal well being (O’Riordan
and Fairbrass, 2008). CSR underpins principles that uphold the
stakeholder view of business as companies are enjoined to be
considerate of the well being of employees, clients,
competitors, the environment and the society in their business
operations. Friedman (2009) has long argued that the only
social responsibility of business is to use its resources to 2
engage in activities that will increase its profits and
increase shareholders wealth so long as these activities
comply with the law. Mortimer (2008) however argued that CSR
goes beyond mere compliance with the law as stakeholders
expect companies to have fair employment policies while
investing in local communities and ensuring that their
organizational activities are sustainable as having minimal
damage to the environment.
The objective of this essay is to highlight the benefits of
incorporating ethical and CSR policies in organizational
strategies. The first section will review the benefits of
integrating ethical and CSR principles in company’s corporate
strategy and the possible limitations that organizations may
face in achieving these. Case studies taken from journals,
texts and websites will be used in the second section to
examine the effects and the dilemmas of integrating ethics and
CSR in real life companies. For the purpose of this essay,
Cadbury and Union Carbide will be used as comparative case
studies. The essay will stress the importance of ethical and
CSR strategies through the review of these case studies with
emphasis on ethical principles, stakeholders and stakeholder’s
dialogue. Lastly, the final section will conclude the essay
with a summary of relevant argument to validate the importance
of CSR and ethics to company strategy.
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INTEGRATING ETHICS AND CORPORATE SOCIAL RESPONSIBILITY IN ORGANIZATIONS:
Business managers have had the opinion that ethics and
corporate social responsibility are not compatible with
business practice because they do not increase wealth for
shareholders (Matten et al., 2003). CSR and ethical business
principles however go beyond creation of wealth for
shareholders, as they require businesses to be socially
responsible and exhibit respect for all stakeholders and not
just the shareholders. This view is supported by the Caux
Round Table CRT (2009) which promotes ethical and responsible
business principles with consideration for key stakeholders
like employees, customers, shareholders, suppliers,
competitors and communities. Multi national companies were
reluctant to sign up to these principles as they considered
them to be western culture oriented and not practical in non-
western cultures (Werhane, 2010). It is believed that non
western countries lack advanced social and legal structures
that promote transparency and corporate governance that the
multi national companies are used to in their home countries.
This view is supported by Gjolberg (2009) who argued that
strict policies and enforcement guidelines for CSR related
issues like environmental protection, labour standards,
corruption and discrimination, while existing in western
countries maybe may be soft or non existent in non-western
countries. 5
The recent scandals involving respected organizations in the
world notably Enron, Arthur Andersen, Parmalat, Shell, Nestle
´, Union Carbide, and Nike have increased the negative image
of big corporations by the society (Handy, 2003). These
scandals led to public outcry and had a negative outcome for
some of these companies ranging from public protest, boycott
of their products to demise of some of them namely Enron and
Arthur Andersen. Anti-globalization and anti-corporate
sentiments have been identified as two of the factors that
compelled global companies to consider ethics and CSR as tools
for sustaining positive reputation which give them the
legitimacy to operate in the global market (Gjolberg, 2009).
The case of Enron and Arthur Andersen confirmed that it is
rewarding for big global firms to be ethical and socially
responsible to avoid reputational risk that could in extreme
cases lead to collapse of such companies. This view is
supported by (Porter and Kramer, 2002; Saiia, 2002) who argued
that CSR is increasingly becoming a strategic tool for
companies as it increases visibility of their brands , reduces
business risks and improves stakeholder relations.
CSR and ethical practices have flourished ever since the
industrial revolution because the social structure in place
allows companies freedom to operate and grow in return for the
pivotal role the society expects them to play in its
betterment (Joyner and Payne, 2002). The enormous financial 6
resources at the disposal of multi national companies have
made society to expect more from these companies because of
this inexplicit contract between the society and the
companies. It has been argued that mere compliance with labour
laws, human rights laws, health and safety practice at work
place do not constitute CSR practice in the western world
because these are the basic expectations from such companies
(Gjolberg, 2009). Globalization and the need to be regarded as
social responsible citizens, imply that ethical and CSR
practices like self-presentation, philanthropic donations,
corporate governance, sustainability reporting and responsible
labour practices must be maintained by multi nationals in
countries other than their home countries (Maignan and
Ralston, 2002; Brammer and Pavelon, 2005; Kolk, 2004; Aguilera
and Jackson, 2003). Ethical and CSR practices are strategic to
companies who want to operate as global brand leaders in
foreign direct investment, global commodity chains, bidding
for contracts and business- government interactions (Sklair,
2001; Gonzalez and Martinez,2004; Albareda et al,2007)
The essay will now seek to build on existing argument that
business strategies built on best practice, respects for human
rights, labour standards and concern for environment is
necessary for brand reputation and long term sustainability.
Going further on this essay, case studies involving Cadbury
and Union carbide will be critically analysed to examine the
integration of best CSR and ethical practices or the lack of
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CADBURY AND THE BOER WAR: THE ETHICAL MANAGER:
Cadbury (1987) stated that an ethical manager will always
choose to follow the right course of action while making
business decisions. According to Cadbury (1987), George
Cadbury the founder of Cadbury being a Quaker and pacifist
would rather not profit from a war as it was against his
religious beliefs and values. Having been commissioned by Her
Majesty to supply chocolates to troops during the Boer War
(1899–1902), and despite the fact that his company was going
through harsh economic conditions during this period, he chose
to supply the chocolates at a cost price rather than profiting
from the war. This decision saved him from potential backlash
from the public who would have been in support of the war and
at the same time kept his workforce from retrenchment (Cadbury
1987).
The Cadbury case illustrates a classical example of an
ethical decision integrating principles of virtue, egoism,
utilitarianism and duty (Mortimer, 2008). The decision to
supply the chocolates at a cost price was egoistic as the
consequence yielded personal satisfaction for the decision
maker. It also demonstrated virtue ethics as George Cadbury
upheld his religious belief in making the decision despite the
opportunity that was abound for him to make profit from the
supplies. It can also be argued that Cadbury achieved utility
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for his employees and the wider society, by keeping the jobs
of his workers and satisfying the expectation of the British
society who were in support of the war. Lastly, as supported
by (Fisher and Lovell 2003), Cadbury’s decision in supplying
the chocolates albeit at cost price illustrate ethics of duty
as he fulfilled his duty and obligation to Queen Victoria and
the society. The argument would be the extent of utility
achieved especially for the employees of Cadbury as
utilitarianism cannot be measured (Mortimer, 2008). In as much
the employees kept their jobs during the economic hardship,
maybe the employees themselves would have been happier if the
chocolates were supplied at a profit as this could have
reflected in their wages as well.
It can also be argued that Cadbury’s decision however ethical
it might be, did not satisfy the classical economic theory of
CSR as his decision was not profitable to the company nor
did he aim to maximize sales revenue (Carroll, 1979). It can
also be argued that he fulfilled the stakeholder theory of CSR
as his decision showed consideration for his employees, the
society as well as the Monarchy (Carroll, 1979). It can
therefore be argued that a company might be ethical and not be
socially responsible and vice versa. It also validates the
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argument that the culture and overall strategy of an
organization is actually down to the decision maker. Cadbury’s
strategic decisions were rooted in moral virtues and egoism,
made possible because his family was the sole owner of Cadbury
at that point in time (Cadbury, 1987). It can therefore be
argued that George Cadbury could not have achieved the
consequences he desired from his decision if the company was a
public liability company as the question of agency theory
could have come in play.
Cadbury (1987) admits that conflict of interest between
businesses and ethical principles are common in business
practice. He suggested weighting of the various conflicting
interests and balancing personal ethics against that of
employees’ interest as well as external stakeholders as a
solution to this dilemma. This highlights the need for
companies to employ stakeholder engagement through dialogue in
resolving crisis whenever they arise. This improves
stakeholder relations and sustains the brand and reputation of
companies. Mortimer (2008) argued that while making egoistic
decision that the decision maker might need to consider not
just what is ‘right’ but what is ‘better’, as the ‘better’
decision leads to enlightened egoism. The enlightened egoistic
decision can be argued as being instrumental to long-term
benefits for the Cadbury brand and consequential in sustaining
the company through the harsh economic period of the early
nineteenth century.
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UNION CARBIDE AND POLLUTION: THE UNETHICAL CORPORATION?
Union Carbide, an American chemical company was accused of
massive air pollution with their string of
electrometallurgical plants within Ohio valley, Alloy and
Marieeta in West Virginia in the 1950s (Hartley 1993). Despite
the combined efforts of government environmental agencies and
activists, who labelled the West Virginia firm "The World
Smokiest Factory", Union Carbide still denied any
responsibility for environmental pollution of the area and at
one point denied government regulators access to their plants
for inspection (Hartley 1993).
It can be argued that Union carbide violated no law as they
were fulfilling their social responsibility of maximizing
shareholder wealth (Friedman, 2009). It can also be argued
that Union Carbide case depicted the classical economic theory
of CSR (Carroll 1979), as they made strategic decision that
would be profitable to the company and boost shareholders’
dividend. The management might also have been ethical in
making egoistic decision that would bring satisfaction to the
company. This however highlights one of the flaws of egoistic
theory of ethics as it ignores the happiness of the majority
being the employees and residents of the affected communities
at the receiving end of the pollution particles being emitted
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by Union Carbide (Hartley 1993). This also depicts Union
Carbide non-conformity of the stakeholder theory of CSR as
they were mainly concerned with shareholders wealth
maximization at the detriment of their employees, the
environment, the communities and disrespect for Government
agencies (Hartley,1993).The company was also flawed in terms
of the Altruistic theory of CSR as well as the Ethical Theory
of CSR as their action was not beneficial to the society and
was motivated by profit making therefore falling short of
being perceived as an ethical social responsible company
(Schwartz and Carroll 2003).
The United States government finally had to step in with the
Clean Air Act of 1970 through the enactment of the
Environmental protection Agency before Union Carbide decided
to curb the pollution from their factories (Hartley 1993). As
has been highlighted in this essay, stakeholders can affect a
company and vice versa. Union Carbide might have been within
legal framework with their production but they neglected their
stakeholders by failing to dialogue with them. This resulted
in negative public image of Union Carbide as a corporation
that was only concerned with profit making and unfriendly with
the environment (Hartley 1993). This public perception of
Union Carbide would hunt the company for years affecting
profitability and the brand name in the years following the
pollution case (Hartley, 1993).
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In December 1984, a leak from Union Carbide’s pesticide
factory in Bhopal, India killed at least 3000 people and it is
reported that about 15000 have died since then; making it
world’s worst industrial disaster (BBC 2010). Mac Sheoin
(2010) argued that the Union Carbide's was unethical in the
employment of “harvest strategy" which essentially involved
radical cost cutting through reduced capital investment and
staff reduction all in a bid to make as much profit as
possible before a planned exit from the Indian market. Mac
Sheoin (2010) also suggested that the Indian Government being
the dominant external stakeholder failed to carry out adequate
inspection of the pesticide factory despite repeated concerns
raised by employees and their union on health and safety
issues at the factory. The Bhopal disaster can be argued as a
case of egoistic decision ignoring the majority of the
stakeholder going wrong. Trotter et al (1989) attributed
ineffective crisis management and poor media (CSR) relations
during and immediately after the crisis as being destructive
to the public image of the Union Carbide which today holds the
unenviable record of the world’s worst industrial accident and
largest civil lawsuit in history. As was suggested by Mach
Sheoin (2010), the strategy employed by the Union carbide
executives was morally unethical as they knowingly under
staffed their work force for profit making without any concern
to the rights of the employees and the danger their strategy
could pose to the residents of Bhopal. While their strategy
could be argued to be within the limits of classical economic
CSR theory, it failed to compensate for the altruistic and 15
strategic CSR theories which involve respect for the rights
and expectations of the society and their employees (Lantos
2002).
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CONCLUSION
Based on the current study and continued development of
ethical and CSR framework, it can be said that Friedman's
notion of business being instrument for profit maximization
for shareholders may no longer be valid in today's business
climate as there now exist an increased level of stakeholder
awareness which can impact on the operation and profitability
of business. The failure and demise of Enron and Arthur
Anderson were as a result of the stakeholders namely
government and the society bearing down on both firms. The
societal expectation of businesses kick starts the government
into enacting legislations to address the issues of
organization's business activities so it is important that
organizations aim to be socially responsible and ethical while
making profits for their shareholders. The Environmental
Protection Agency in the United States was essentially
established as a result of Union Carbide's pollution cases in
the 1960's while the Sabarley Oxley Act was as a direct
consequence of the fraudulent actions of Enron, WorldCom and
Arthur Andersson. In view of the increased expectations placed
on businesses, it can be suggested that organizations should
think of sustainability in the long term than profitability in
the short term while making their decisions. As suggested by
Aston Cadbury, companies should take social, environmental and
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ethical considerations into account when making investment
decisions around the world if they want to protect their
reputation or brands. Technological developments in the areas
of internet and electronic communications has made it easier
for dissemination of information so the activities of a
business in one obscure part of the world can be known through
faster means of communication hence business should consider
that with globalisation and expansion of business into new
territories come with added responsibility as well. In ending
this essay, it will be important to repeat the words of Mike
Emmot of Chartered Institute of Personnel Development who in a
paper delivered in 2002 issued the following statement “CSR is
a strategic issue because it requires companies to examine why
they are in business and what they need to do to stay in
business” (Emmot 2002 cited Cadbury 2006)
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