Summit Business - Reaching the Top
Chapter 8: Fundamentals of Business Ethics and Corporate Social Responsibility
8.1. Concept
Business ethics and Corporate Social Responsibility (CSR) are related concepts that appear similar, but they differ in their focus and area of application. Business ethics is about moral, principles and values and investigates what is seen as wrong or right in business, the Corporate Social Responsibility refers to voluntarily taken actions by companies, to take social, ecological or economical responsibility.
While business ethics is more the source for theoretical groundwork, CSR can be seen as a part of business ethics, since it aims on integrating ethical standards into the business world.
Ethical theories
Utilitarianism is an ethical theory, that rates regulations and actions based on their advantage for the entirety. A specific action is morally right, if it brings the biggest possible advantage for the greatest possible amount of people, as one ground principle states. The most important key points are:
- actions are rated based on their consequences
- happiness and joy are the highest goods
- it is not about individuals, only the entirety counts
- the more advantage an action brings, the more morally valuable it is
If a company now plans to build a parking lot, the utilitarian approach would be to build a parking lot, if more people have an advantage of it than of the park.
Virtue ethics is focused on building a moral character. It emphasises the importance of personal growth and inner virtues. In a business context it relates to the development and promotion of character traits to enable individuals and enterprises to act responsible. The most important key points are:
- focus on character traits, not rules or consequences
- virtues should be anchored in a person's character
- ethical questions should be included in decision-making
To act virtuous, manager can create a work environment that encourages transparency and fairness. Companies can start programs to support their community and implement practices that serve the entirety.
Ethical relativism means conception, in which moral values and norms are not universal, but dependent on cultural, social or individual contexts. In a business environment, this means that no actions can be labelled as right or wrong, because they depend on different circumstances. The most important key points are:
- decisions and actions are evaluated based on their specific factors
- acknowledgement of different moral standards, what is wrong in one culture can be accepted in a different one
- a justified business decision can be labelled differently in another context
- the existence of universal ethical principles that apply for all cultures and people is questioned
When a multi-national business produces in a third-world country, this can be rated as morally wrong, whereas in the specific country, the average wage is so low, that the employees can rise their standard of living and see no moral issue at all. This is an excellent example for the ethical relativism.
(Daft & Benson, 2014)
8.2. Corporate Social Responsibility (CSR)
As already mentioned in Chapter one, Corporate Social Responsibility describes how businesses take responsibility for a sustainable economic activity, which is especially important in the contemporary business environment. Companies are obliged to act responsible to ensure, that there is still a future for other businesses and, of course, the world itself. The triple bottom line is a concept that encourages companies to measure their performance not only based on financial indicators, but also to take social and environmental aspects into account. The four main strategies of CSR however refer to voluntary measures to improve its social, environmental and economic impact.
8.3. Triple-Bottom-Line
The triple-bottom-line has developed itself to an alternative to conventional methods of measuring economical success, which are usually based on financial aspects. It introduced ecological, social and economic factors for consideration and can be imagined as the three columns that hold a business. Investors and clients can get a more realistic overview of the company, since the TBL also captures social and environmental aspects. For credit- and business worthiness, the “bottom-line” can be seen as the result under the fraction bar of the win and loss calculation.
Basically, it is about the three P´s: planet, profit, and people. The “planet” section concentrates on the influences a business has on planet earth. Important topics are the save of resources, reduce pf waste and biodiversity. Enterprises are obliged to reduce their negative impact to the environment to a minimum. The “people” column is about the dominance of a business to the society and cares for aspects such as inclusion, diversity and working practices. It cares for all the persons who are involved in the company, whereas the “price” column cares for revenue, profitability and the shareholder-value.
The four main strategies of CSR
Economical strategies of CSR
When financial choices are made based on altruism, this is known as economic responsibility. It includes investing in solar-powered factories, choosing local businesses as suppliers and contributing to economic development initiatives.
Environmental strategies of CSR
This strategy refers to an organisation´s commitment of acting sustainable and environmentally friendly. This can be achieved by reducing the carbon footprint, avoiding greenhouse gas emissions, reducing waste and keeping the green aspect in mind with all decisions made.
Ethical strategies of CSR
For a company’s credibility, it is important to act ethically and responsibly. This entails running a business ethically, ensuring the protection of human rights, fair treatment of all stakeholders, and equal remuneration.
Philanthropic strategies of CSR
The philanthropic responsibility describes goals, aims and ambitions to actively influence the society in its entirety to be improved. This is happening trough donating money to worthy organisations within the community – often with a foundation or a trust.
8.4. Measuring the CSR
To know if the efforts for a positive CSR have an effect, it is essential to measure the CSR impact. This is necessary for more than only one reason. It helps businesses to understand the effectiveness of their effort and can show when it is required to implement improvements. Furthermore, reliable data can demonstrate the value of CSR-initiatives to shareholders and customers. A better reputation is also a possible outcome, as the company communicates the results of their endeavour to the public.
Specific key numbers to determine the CSR can be defined in KPI´s, such as an amount of tons of carbon dioxide saved, amount of water saved, electricity generated by solar powered roofs of production facilities, and amount of transports reduced by for example more efficient packing.
The results of analysing these numbers can then be visualised in a sustainability report. Companies use them to communicate their efforts and effects to a wide spectrum of sustainability technologies. Those can be ecological and social, as well as ethical factors. With the help of these reports, enterprises can report their risks and chances and give a better understanding of the company’s performance for share- and stakeholders.
A global leading index to rate companies for their sustainability is called the “Dow Jones Sustainability Index” (DJSI). It lists and compares businesses that are leaders in fields such as social responsibility, environment, and sustainability. It was implemented in 1999 and is one of the first indexes, that rates especially the performance in ESG (environment, social, governance)
Another way of calculating the benefit of engagement in CSR is the Social Return on Investment (SROI). It measures the added value for the society based on the spent investment. It is a try to measure social engagement by companies. The investment in free fitness programs for workers could be one example fur such an investment, as costs the business extra money, but this investment could return in fitter and more motivated employees, that are able to work more efficiently and without damaging their bodies. In the long run, this could lead to the company earning more money through increased productivity than it had to spend on the fitness programme.
8.5. Perspectives on CSR
It is clearly evident, that different actors within or around a company have different opinions or goals for themselves. To show that, we will look on some of those perspectives.
8.6. Shareholder and Stakeholder perspectives
To break down the difference first, shareholders are persons who possess a part of a company trough owning shares of stock, whilst a stakeholder is interested in a company´s performance for any other reason than stocks. A shareholder can be an investor who is interested in a stock´s price increase, while a stakeholder can be an employee or supplier, who is interested in a company’s performance because he is personally affected by that.
From the perspective of the shareholder, a company should align with his wished and interests. His primary goal is growing stock prices as well as an increase of revenue and profit, because this will cause his shares also to grow on value. A shareholder is mostly not interested in customer satisfaction or employee’s well-being, as this does typically not directly grow his shares. Most of the large companies are geared towards the shareholders, as the goal of the management is to orient oneself with the economic goals of the shareholders which offers continuous growth.
In contrast to that, the stakeholder´s perspective aims to meet the expectations and requirements of all interest groups as good as possible. The affected persons are now not only the shareholders, but all persons, groups and institutions that are affected by the company´s actions. For this purpose, the business must know all the expectations to be able to meet them. In this perspective it is also assumed, that the only possible way for a company to grow is to be in harmony with the wishes and intentions of the interest groups.
To combine the interests both from shareholders and stakeholders, interests should be balanced. The company must maximize the stock´s value for the shareholders as well as take the needs of the stakeholders. That means bringing economic, social and ecologic goals in harmony with each other, which is not an easy task. Trust from stakeholders can be built by also taking them into account when it comes to decision-making. On the other hand, the manager must sensitize the shareholders for a more decent and sustainable growth, which supports short-term profits as well as long-term stability. Another helpful aspect can be the presence of as well shareholders and stakeholders, so all the diverse interests can be displayed.
(European Institute of Management & Finance, 2024)
8.7.Global perspective
CSR has developed itself to a central field in the global business world, because company´s are more and more held responsible for their social and ecological effects. On the other hand, the implementation of the CSR varies tremendously due to massive cultural differences, legal framework and global initiatives. A deep understanding of these perspectives is required to develop effective strategies, to fulfil local as well as international requirements.
In western countries there is more a focus on environmental protection and human rights, whereas in Asian cultures social responsibility is often connected with a community orientation and economical development. In some cultures, the inclusion of stakeholders into decision-making is seen as essential, though others prefer hierarchical structures where decision-making is centralized.
The legal framework can also make a different approach to CSR necessary. Some countries have implemented specific laws for corporate responsibility, others have an open space. Giving reports about a business’s CSR-activities is mandatory in many European countries, which can cause different approaches and transparency on CSR, and with that the consciousness of the people.
But there are some organisations and framework that aims to nudge globally operating enterprises into more responsible business actions. The UN Global Compact requests companies to orientate themselves on 10 principles, that concern human rights, working norms, environmental protection and fight for corruption. The ISO26000 is a guideline that offers several instructions for social responsibility. This shall help businesses to improve their CSR-practices and to adapt internationally.
8.8. Consumers and employees’ perspectives
Consumers perspectives
Environmental awareness, social justice and ethical economy gained importance over the last decades. In a large study with more than 24.000 participants from the 15 largest national economies were asked about their opinion of the CSR from businesses. 76% of the people agreed, that companies should support charitable organizations. Only 6% disagreed with that statement. The German society wishes that by 80%, while the Russian population even agrees by 94%. Only the voting behaviour of the Belgians is striking with just 37% of the people agreeing this statement. When the participants were asked, if companies should put their aim for profit above the CSR, a total of 49% of all countries agreed. It is noticeable, that in Russia, Spain, France and Germany the participants all agreed in a range from 70% to 80%, while in the United States of America, the symbol of capitalism, the lowest approval of all with only 17% was reached. Despite an overall agreement, that companies should invest in their CSR, many participants were still sceptical about the honest will of the businesses to improve things. 56% had the opinion, that companies would not have an intrinsic motivation, but only the mission to boost their sales with social engagement.
Of course, this study cannot represent the overall opinion of consumers around the globe, but it gives a good overview about how the people think. It is important to gather more information about this topic, as this study can also contain measurement errors or wrong interpretation.
Despite this, more and more consumers pay attention if the product is produced ethically justifiable, even if that makes the product more expensive.
Dr. Pascal Stiefenhofer, business economist and mathematician at Newcastle University, said: “We observe the rise of the ethical consumer, which has led to the emergence of a market segment where consumers are increasingly making ethical choices when it comes to purchasing goods. They are also willing to boycott unethically manufactured goods and, if necessary, organise protests against the companies that make and sell them.”
This is a very powerful movement. It also shows, that in the worst case, manager who do not consider these factors as relevant for their products, end up losing business. Combined with a global network and fast spreading information via internet and social media, a company can quickly be “tainted beyond repair”, as Stiefenhofer said. Therefore, considering an ethical behaviour is a crucial thing to do as a manager.
(vlg. https://www.iwkoeln.de/fileadmin/publikationen/2011/53193/wirtschaft_und_ethik_0311.pdf)
(vgl. https://www.ncl.ac.uk/business/research/showcase/publications/2021/ethical-consumer/)
Employees perspectives
Just as consumers have demands, so do employees. Many companies have implemented their own “Code of Conduct”, in which all points are listed the company values, to ensure a healthy relationship among the employees. To enhance their satisfaction, there are a few points which should be considered.
a. Equal treatment
Every employee should be treated equally, irrespective of sex, religion or origin. Discrimination has no place in an ethical work environment.
b. Transparent communication
Praise and criticism must be fair and constructive, whether it comes from and employee or a manager. Open and honest communication creates a positive work climate.
c. Equal chances
Every worker should have the same opportunities for promotions, training or further education.
d. Work-life-balance
Working times that are compatible with a social life and leave room for free time and family should have a high place value.
e. Responsible leading
Managers and superiors should act as role models and example ethical behaviour by themselves.
f. Legal framework
Meeting legal requirements such as working time limitations is very important and can have, if ignored, not only legal consequences.
g. Contact with third parties
Ethical regulations should not only be applied when it comes to a company´s employees but should also be met within the delivery chain. A business should renounce child labour and pay faire wages in other countries.
(Schneider & Schmidpeter, 2012)
8.9. The view from outside
In this section, we want to look at different companies with different CSR strategies. A well-known positive example is the brand “Patagonia”. It is an outdoor clothing producer, who focused early on reducing emmissions and shifting the mentality of its business towars more sustainability. To achieve that goal, Patagonia made a drastic step forward. In 2012, they became the first “benefit company”, meaning that they value environmental and social benefits over turnover. They cover a full paid two-month leave for employees that want to engage in environmental organisations . Additionally, they created the “Worn Wear” programm, in which they tour trough different countries and repair broken clothes for free. This also changed the mindset of many consumers, plus it saves energy and resources that manufacturing a new product would generate. Their newest project “going purpose”, which launched in 2022, trough which all assets were transferred to only two legal entities. This ensures, that every earning that is not reinvested back into the company, is paid as a dividend into environmental projects.
With this strategy, they expect around $100 million in dividends, what completey goes into susainable projects. Over one thausand employees have already been on an environmental internship and the employee turnover is at a extremely small percentage of only 4%. Furthermore, trough the “Worn Wear” programm, they achieved a lifespan-extension of nine months. The suspected savings in carbon, water and waste footprint is expected to be about 20-30% each.
(World Economic Forum, 2023)
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