The role of corporate strategic planning has evolved from its sole motivation of generating profits for the company’s shareholders to incorporating the desires of the many stakeholders and society, in general, into the company’s operating game plan. This change of corporate culture is directly related to the rise of ethical codes of conduct in business and the growing importance of corporate social responsibility.
Corporate social responsibility (CSR)
Along with supporting the internal interests of a company, such as maximizing profits and stock price for shareholders and creating equitable workplaces for employees, corporate strategy is influenced by the desires of external stakeholders. Customers, creditors, the government, and the public all expect the company to act in a fair, ethical manner, especially with regard to their individual interests. Outside interests include low environmental impact, product safety, community service, taxes, and fair competition. Catering to external stakeholders and keeping in mind the welfare of society is a company’s role of social responsibility. “Corporate social responsibility is the idea that a business has a duty to serve society in general as well as the financial interests of its stockholders” (Pearce & Robinson, 2011, p. 47). Businesses represent sources of resources that may be used to make selective, positive impacts on society if they so choose.
The level of philanthropy undertaken by companies in promoting social responsibility ranges from simple donations for local causes to creating a whole new charity. Similarly, there are differential costs and benefits to supporting outside causes that a responsible company must take into account. Contributed money and resources subtract from a company’s bottom line and cut into profits but the benefits of acting in the interest of others can be substantial and therefore, increasingly important in corporate strategy. Managers must combine costs and benefits of CSR with company performance to determine total profits. The presumed benefit gained by CSR weighed against its cost determines the allocation of resources for corporate strategy. Therefore, it is of economic advantage to achieve maximum social benefit per amount invested in philanthropy. How much a company directs toward outside special interests is determined by the priority of the venture as defined by the company’s mission statement, code of conduct, and long-term objectives (Pearce & Robinson, 2011).
Also, larger companies can spend more because of greater revenues on items, such as research and development of greener products and hiring CSR consultants, which leads to positive public opinion and perception. Excessive spending on others, though ethically condoned will at some point negatively affect corporate health and must be tempered and balanced through corporate strategy. “Companies need to view their commitments to corporate responsibility as one important part of their overall strategy but not let the commitment obscure their broad strategic business goals” (Pearce & Robinson, 2011, p. 65). It becomes a continuing effort to align the expectations of the shareholders with the desired reputation of the company to the community. “The challenge for management, then, is to know how to meet the company’s obligations to all stakeholders without compromising the basic need to earn a fair return for its owners” (Pearce & Robinson, 2011, p. 64).
The distinction between CSR and ethics is that ethics encompasses CSR and is a mindset and moral guideline for living life and conducting business. Being socially responsible is just one example of ethical behavior. Whereas CSR ultimately has the benefit of the company in mind, ethics has the benefit of society as its focus regardless of the impact on the company. In order for a company to be ethical in its practices, its decision-makers that create and uphold corporate policy and devise corporate strategy must act with integrity and high moral fiber. It is the goal of a self-proclaimed ethical company to cultivate a corporate-wide ethical culture where ethical behavior is promoted with all employees performing company functions. Many ethical companies today spend more in operating costs to keep it ‘green’.
They believe there is a moral responsibility to reduce pollution and decrease their environmental impact even though it generates greater costs. These companies may discover, though that their ethical reputation can create real returns for them, offsetting these added costs. Favorable public opinion may sway consumers to buy their products over cheaper substitutes to support the company culture. For example, many people ‘buy American’ from companies that manufacture in America because of the principle the company espouses. Similarly, a rise in popularity may stimulate investment in the company. The company may find that by altering processes to support ethical operations they in fact save money, as seen when streamlining operations to reduce wastes leads to less disposal costs. Another benefit to acting philanthropically is that it is tax-deductible.
Personal change in ethics
To determine if my ethical perspective has changed throughout the course of business graduate classes, I need to know quantifiably where I am now on a scale of ethics. After taking the survey in the Williams Institute: Ethics Awareness Inventory, I have a good description of my current ethical stance. Based on answers to the questionnaire, my ethical beliefs are compared to four categories of ethical philosophy: character (personal virtue), obligation (sense of duty to what is right), results (consequences of action taken), and equity (practical analysis). Results show that I relate strongly to the character mode of ethics and least to equity (The Williams Institute for Ethics and Management, 2012). This means that I value the character of people and tend to base my ethical perspective not so much on the actions of people but on them posessing moral fortitude.
I believe that being a person of good character and virtue is the foundation for ethical behavior; it is not what you do but who you are that defines your ethics. Learning about the scandals of the 1990s and the ruin of corporations related to moral hazard in the early part of the first decade of 2000 has shaped my moral perspective to focusing on the character of individuals, especially of those who wield power over others. Realizing the ruin that a few, unscrupulous people of corporate power can bring to so many underscored in my mind the importance of character and integrity of the individual, especially in the corporate world. Having rules and regulations in place does not make people ethical and you cannot force someone to be ethical. Ethics must be freely accepted and ingrained in one’s daily regimen.
Companies that incorporate ethics into their leadership decisions and corporate strategy and act with the interests of external stakeholders and the community in mind have much to gain in the modern business world. Maintaining a positive reputation for being ethical can lead to financial gains but how much to allocate to philanthropy and supporting CSR is a balance between the good of society and the desires of shareholders. History has proven that ethical behavior is not freely equated with corporate strategy but the movement toward ethical corporate missions and codes of conduct is a positive influence in shaping individual ethical perspective.
Pearce, J. A., II, Robinson, R. B. (2011). Strategic management: Formulation, implementation,
and control (12th ed.). Boston, MA: McGraw-Hill/Irwin.
The Williams Institute for Ethics and Management (2012), Ethics Awareness Inventory, (6th ed.).
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