Crafting and Executing a Winning Strategy The Significance of Ethics and Social Responsibility - Term Paper Example

CRAFTING AND EXECUTING A WINNING STRATEGY - THE SIGNIFICANCE OF ETHICS AND SOCIAL RESPONSIBILITY I. Introduction Business ethics and corporate socialresponsibility (CSR) are currently on the agenda in many U.S. and U.K. corporations as they strive to build and/or retain their competitive advantage in a business environment characterized by an increasing erosion of public trust and stakeholder confidence. Due to the perceived economic implications of ethics and social responsibility to businesses, until recently only few organizations seriously considered ethics and social responsibility to be rational topics for enterprise resource planning and strategic decisions. However, as big corporations are being washed out with the erosion of public/stakeholder trust due to unethical and socially irresponsible behavior, today, corporate strategists realize that a perceptible commitment to ethics and corporate social responsibility (CSR) has clear implications for the corporate bottom line, and integrating it as a part of corporate strategy would significantly improve business performance. [Hopkins, 2003; Houck and William, 1996] The paper examines the linkage between company's effort to craft and execute a winning strategy and its social responsibility - the company's duties to conduct its activities in an ethical manner and demonstrate socially responsible behavior as a committed corporate citizen, attending to the needs of all the stakeholders. In doing so, it shall attempt to analyze what ethics and social responsibility means in the corporate strategy context, the debates surrounding the relevance of social responsibility, and also examines the significance of ethical and socially responsible behavior by corporations for survival and success. It shall also look at ways to incorporate ethics and social responsibility into corporate strategies for ensuring long-term success of corporations. II. Understanding Business Ethics and Corporate Social Responsibility The environmental movement of the 1980s and 1990s, which exposed many unethical corporate practices by companies such as Nestle, Shell and the rising cases of corporate scandals in the recent years signifying unethical and irresponsible behavior by top officials, such as those at Enron, WorldCom etc., have brought about the significance of ethics and social responsibility as a legitimate topic in the formulation and implementation of business strategy. [Hopkins, 2003] While the two terms are sometimes used interchangeably, as management imperatives, business ethics and corporate social responsibility are distinct concepts, though with inevitable overlaps. It may be worthwhile to clearly understand the two precepts before attempting to analyze their significance in creating winning strategies. Ethics in business, an age-old concept, advocates ethically appropriate behavior by businesses to the stakeholders directly concerned with the business enterprise, viz. managers, consumers, investors/owners and employees. [Hopkins, 2003] Ethical behavior in business extends to all segments of business management at the enterprise level including finance and accounting, human resources management, sales and marketing, production and intellectual property. While a consensus on the definition has not been achieved, corporate social responsibility is stated to be "concerned with treating the stakeholders of the firm ethically or in a responsible manner." [Hopkins, 2003; p.1] Corporate social responsibility, a more inclusive concept business ethics, extends beyond the enterprise level to all stakeholders, what Hopkins describes as, "the seven azimuths", within which the enterprises trade and operate viz.: owners/investors (shareholders or stockholders); management; employees; customers; the natural environment; the wider community (including government); contractors/suppliers. [Hopkins, 2003, p. 3] CSR as a winning business strategy concerns with the responsibility of the company to each of these seven groups; it may include responsibility to competitors as well. Aspects of social responsibility include investment in community outreach, creation and maintenance of employment, employee relations, ethical competition, human rights, financial performance and environmental responsibility. Traditionally business ethics, conducting business activities in an ethical manner, have placed less emphasis on such stakeholders as natural environment, the wider community, competitors and suppliers; the "social responsibility" of business as Milton Friedman pronounced, was to increase profits - "to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom." [Cited Houck and William, 1996; p.ix] According to Friedman, 'ethical custom' only meant honesty; fidelity and integrity required for market mechanism to function and does not include bringing human and social values into economic decisions. [Houck and William, 1996] It was generally perceived that business ethics extending to society and environment would adversely affect the profits and value of the company. In contrast, corporate social responsibility refers to the voluntary integration of social and environmental concerns into business operations. According to Hopkins "the wider aim of social responsibility is to create higher and higher standards of living, while preserving the profitability of the corporation, for peoples both within and outside the corporation." [Hopkins, 2003; p. 1] Extending to all stakeholders, both within the enterprise and without, it is "part and parcel of the management strategy of a company" and encompasses good business ethics. [Hopkins, 2003; p. 24] The present paper shall focus more on corporate social responsibility, business ethics being included within that precept. III. Corporate Social Responsibility and Business Strategy - The Debate While the ethical obligations of a business enterprise to its immediate stakeholders within the enterprise is a generally accepted standpoint, social responsibility as a business strategy, despite its social and moralistic appeal, has its dissidents and continues to be analyzed critically. In 1970, when the idea of corporate social responsibility was gaining grounds in the U.S, Milton Friedman, the Nobel prize winning economist countered that the "social responsibility of business is to increase profits." He labeled CSR as a "fundamentally subversive doctrine" and contended that bringing human and social values into economic decisions would result in a shift of power from market to government mechanism, bringing with it the evils of socialism. [Cited Houck and William, 1996; p.ix] However, as corporations began to face the challenge of globalization and the threat of eroding public trust, a consensus has emerged among business observers that the social and environmental aspects of business and the duties of corporations to conduct their activities in a socially responsible manner need to be emphasized and integrated into business strategy for long-term survival and success. Countering Friedman's classical view, advocates of CSR like Ronald Green states that it is "nave to urge companies to concentrate on maximizing profits" and that business firms and managers "have an affirmative moral obligation beyond their duties to shareholders and their legally mandated duties to other corporate stakeholders to improve the social environment." Green reiterates that no advocate of CSR would argue that a corporation "must bankrupt itself or seriously erode its economic performance in the pursuit of this objective." [Cited Houck and William, 1996; p. ix-x] While ethicists continue to contend that corporations which use and benefit from the infrastructure of a community have a moral obligation to society and environment, and that CSR provides corporations to do well while doing good, business and management professionals acknowledge that it can enhance profitability by reducing the risk of negative publicity, customer boycotts, and shareholder and NGO activism. Even as critics condone the 'social' responsibility of business, it is generally accepted that CSR, as a voluntary initiative, may function as an effective business strategy to increase market share and boost corporate profits. [Hopkins, 2003; Houck and William, 1996; Business for Social Responsibility, 2003] IV. The Significance of CSR in Business Strategy The way in which companies conduct their business activities are increasingly coming under critical scrutiny by stakeholders, business observers, governments as well as the general. It is generally perceived that in the new and complex business scenario, formulating a winning corporate strategy can no longer be limited to planning the use of resources and deploying corporate capabilities towards achieving objectives and prevailing in competition. Effective strategy making is today increasingly concerned with "the external and internal forces that have the potential to materially affect the company's destiny." [Burgelman, 2002; p. 4] Given that external factors - social, environmental and others -- can potentially affect a company's future, businesses have a responsibility to meet the expectations of these external stakeholders, as it has towards its internal stakeholders, and pursue purposes that are essential to the continued survival of the company. When considering the significance of social responsibility it is important to note that contrary to classical view, social responsibility and business profits are seldom mutually exclusive. There is substantial evidence, both quantitative and qualitative, which demonstrates the bottom-line benefits of socially responsible corporate performance. The strategic business importance of social responsible behavior is based on the reality that it improves financial performance; enhances brand image and reputation; reduces operating cost; increases productivity and quality, improves the ability to attract and retain employees, reduces regulatory oversight, and provides trouble-free access to capital. [Business for Social Responsibility, 2003] Studies have shown that making significant contributions to communities, the environment, and society at large will pay dividends in terms of customer loyalty, employee satisfaction, and the reputation of the company and its products. [Business for Social Responsibility, 2003; Hopkins, 2003] Reportedly, a 2002 Cone Corporate Citizenship Study found that of U.S. consumers who learn about a firm's negative corporate citizenship practices, 91% would consider switching to another company, 83% would refuse to invest in that company, 80% would refuse to work at that company, 85% would pass the information to family and friends and 76% would boycott that company's products. [Cited Business for Social Responsibility, 2003] Since the exposure of environmental and human rights violations by companies such as Shell, Nestle and the collapse of Enron, WorldCom etc following dubious financial accounting practices, there has been a significant increase in the expectations of a wide range of stakeholders-consumers, employees, investors, communities, environmental activists and governments-in regard to their companies' commitment to ethical and socially responsible business practices. Carly Fiorina, Chairman and Chief Executive Officer of Hewlett Packard reiterates the significance of embracing ethical, socially responsible behavior in formulating winning strategies: "[T] he winning companies of this century will be those who prove with their actions that they can be profitable and increase social value-companies that both do well and do good. This is simply the new reality of business-one that we should and must embrace." [A Guide to Corporate Social Responsibility, n.d; p. 10] V. Integrating Ethics and Social Responsibility in Creating Winning Strategies Establishing a code of conduct or an ethics policy that communicates a commitment to ethical behavior, explaining how these values are to be applied in representative situations, as well as instituting a system for monitoring and enforcing ethical conduct can be an effective means of ensuring ethical behavior within organization. However, demonstrating socially responsible behavior, adopting policies and practices that fairly balance the competing demands of key stakeholders -- investors, customers, employees, business partners, competitors, communities, and the environment -- is more complex and challenging. The following strategic actions may be beneficial towards adopting CSR as a winning corporate strategy for building stakeholder trust and confidence, ensuring long-term business success: Incorporating CSR in the company's core mission, vision and value statements so that it permeates to all levels of management decision-making. Promoting cultural and ethical values that enhance responsibility Establishing ethics and/or social responsibility committees to review strategic plans, assess progress and offer guidance about emerging CSR issues of importance. Incorporating CSR into the strategic/long-term planning processes, requiring CSR impact statements for any major company proposals, identifying specific goals and monitoring progress Communicating the importance of social responsibility internally; educating and training all employees in adopting socially responsible behavior. Designing recruiting, compensation and reward system that reinforces social responsibility, rather than mere profit maximization. Developing relationships with all stakeholder groups and interests Regularly auditing and reporting company's social and environmental performance. [Business for Social Responsibility, 2003; A Guide to Corporate Social Responsibility, n.d] Conclusion The context in which business operates today is distinctly different from the conventional one-dimensional view of corporate interest in terms of the absolute interest of shareholder/stakeholder, in which a gain for one is often a loss for the other. As corporations and public are becoming increasingly aware of the negative consequences of the socio-environmental irresponsibility of businesses, the need for equitable and sustainable development of communities and environment is increasingly emphasized in public and corporate forums. Today, there is consensus among business observers and strategists that winning strategies for the highly complex and evolving global business scenario, are those that ensure ethical behavior by corporate actors and integrate social responsibility, meeting the needs of all stakeholders as a committed corporate citizen. References 1. A Guide to Corporate Social Responsibility (CSR) (n.d) Available at: http://www6.miami.edu/ethics/pdf_files/csr_guide.pdf Accessed 9/3/06 2. Burgelman, R.A. (2002) Strategy is Destiny: How Strategy- Making Shapes a Company's Future New York: The Free Press 3. Business for Social Responsibility (2003) Issue Brief: Overview of Corporate Social Responsibility Available at: http://www.bsr.org/CSRResources/IssueBriefDetail.cfmDocumentID=48809 Accessed 9/3/06 4. Hopkins, M (2003) The Planetary Bargain: Corporate Social Responsibility Matters Sterling VA: Earthscan Publications Ltd. 5. Houck, J.W. & Williams, O.F. (Ed). (1996) Is the Good Corporation Dead: Social Responsibility in a Global Economy Maryland: Rowman &Littlefield Publishers Inc. Read More