ARINZE EGENTI

CORPORATE STRATEGY: HOW IMPORTANTARE ETHICS AND CSR?

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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4

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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it, and the possible dilemma faced by the respective

organizations.

8

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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12

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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