Unit VII Ethical and Social Considerations in Global Strategic Management Mcom Sem 3 Delhi University
Unit VII Ethical and Social Considerations in Global Strategic Management Mcom Sem 3 Delhi University
Unit VII Ethical and Social Considerations in Global Strategic Management MCOM Sem 3 Delhi University : Strategic management deals with decision making and actions which determine an enterprise’s ability to excel survive or die by making the best use of firms’ resources in a dynamic environment. The main purpose of study of strategic management is to examine why some organizations succeed while others fail and yet others completely change. Before going to discussing about strategic management, it is necessary to point out on ‘Strategy’ in this chapter.
Strategy is the overall plan of a firm deploying its resources to establish a favourable position and compete successfully against its rivals. Strategy describes a framework for charting a course of action. It explicates an approach for the company that build on its strengths and is a good fit with the firm’s external environment. It is basically intended to help firms achieve competitive advantage. Competitive advantage allows a firm to gain an edge over rivals when competing. Competitive advantage comes from a firm’s unique ability to perform activities more distinctively and more effectively than rivals. A firm’s distinctive competence or unique ability here implies, those special capabilities, skills, technologies or resources that enable a firm to distinguish itself from its rivals and create competitive advantage (such as superior quality, design skills, low-cost manufacturing, superior distribution etc.
Unit VII Ethical and Social Considerations in Global Strategic Management Mcom Sem 3 Delhi University
• It means considering the morals or the principles of goodness, the right and wrong of an action, prior to acting. • Considering whether or not it is within the rules or standards of right conduct or practice, especially the standards of a profession.
• Informed consent
• Do no harm
• Only assess relevant components.
• Social considerations, by which is meant factors concerned with the interests of individuals, groups, communities and society as a whole, and which generally involve interventions into inherent economic mechanisms.
• Social issues are about trends, situations and conflicts in society. Often they do not have a single right or wrong answer.
• Incorporating ethical considerations means using society’s standards of what constitutes right or wrong behavior as the basis for your business’ plans and policies. • Ethics shape the decisions and actions of each individual in a small business, from the owner on down. • The owner’s behavior toward customers, employees, the company’s investors, vendors and the community affect the behavior of his employees, who look to him to set the standard. • Observing high ethical standards is sound business strategy — resulting in customer loyalty, higher employee retention and a positive image in the industry and within the community.
key ethical considerations in strategic planning include:
• Stakeholder participation
• Organizational values
• Individual values
• Managing change
When undertaking the process of strategy development This often results in the process in which Board being given the mandate of developing a plan and submitting it to the Board for review and approval.
• Having said, that you can improve your chances of getting the “appropriate strategy” by involving stakeholders.
• All of these help improve the chance that your organization’s strategy is developed with the information necessary to make decisions.
• Stakeholder participation is the first acid test. Stakeholder Participation
• Organizational values are those key statements that help guide the way an organization pursues its objectives and delivers upon its mission.
• If your organization doesn’t have a set of organizational values you should at least determine them as a part of your next strategy development session, if not before.
• If there are any issues or concerns regarding how your strategy fits within those values then you need to reassess your strategy.
• Your organizational strategy should be consistent and support your organization’s values.
• Organizational values are the second acid test.
• As senior managers within your organization and board members you each carry a set of personal values.
• To be able to say that you support the strategic direction of the organization it is important that you can also say that the strategy is consistent with your personal values.
• Individual values are the third acid test.
• Values: • individuality, responsibility, dedication, enjoyment/fun, loyalty,, accountability, empowerment, quality, efficiency, dignity, security, influence, learning, compassion, friendliness, discipline/order, optimism, dependability, flexibility.
Change Management Strategy elements:
• Each impacts people and how they do their job. Each can suffer from slower adoption and lower utilization.
• Each has risks associated with people not becoming engaged or resisting the change.
• Fourth and final acid test.
1. Situational awareness – understand the change and who is impacted
2. Supporting structures – team and sponsor structures
3. Strategy analysis – risks, resistance and special tactics
• While each of the initiatives needs change management to be successful, the right amount and approach for change management will be different.
• The change management strategy defines the approach needed to manage change given the unique situation of the project or initiative.
Ethics is defined as the discipline dealing with good and bad and with moral duty and obligations. Business ethics is concerned with truth, justice and a variety of aspects such as the expectations of society, fair compensation, advertising, public relations, social responsibilities, consumer autonomy and corporate behaviour at home country and abroad. Managers and top management have a responsibility to institutionalize ethics by framing a code of ethics for the organization.
Fred R. David defined the term business ethics as, “Conduct or actions within organizations that constitute and support human welfare”. Good business ethics is a prerequisite for good strategic management through it is also said that there is no room for ethics in business. However, there is a rising tide of consciousness about the significance of business ethics. Strategies are primarily responsible for assuring that high ethical principles are accepted and practiced in an organization. All strategy formulation, implementation and evaluation decisions have ethical ramifications.
A business code of ethics can provide a basis on which politics can be guide daily behaviour and decision at the work site. Organizations need to conduct periodic ethics workshops to ensure that all the employees understand them in true spirit and ensure the implementation properly. Code of ethics spell out the standards of behaviour expected of all managers and employees.
Gelleman offers a piece of advice for martagers: “All managers risk giving too much because of what their companies demand from them. But the same superiors who keep pressing you to do more, or to do it better, or faster, or less expensively, will turn on you should you cross that fuzzy line between right and wrong. They will blame you for exceeding instructions or for ignoring their warnings. The smartest managers already know that the best answer to the question, ‘How far is too far?’ is don’t try to find out”.
Drucker, offers a piece of advice for managers: “A man (or woman) might know too little, perform poorly, lack judgment and ability, and yet not do too much damage as manager. But, it that person lacks in character, and integrity – no matter how knowledgeable, how brilliant, how successful – he destroys. He destroys people, the most valuable resource of the enterprise. He destroys spirit. And he destroys performance. This is particularly true of the people at the head of an enterprise. For the sprit of an organization is created from the top. If an organization is great in spirit, it is because the spirit of its top people is great. If it decays, it does so because, the top rots; as the proverb has it, “Trees die from the top”. No one should even become a strategist unless he or she is willing to have their character serve as the model for subordinates”.
Gene Laczniak’s fourteen ethical propositions are presented as follows:
- Ethical conflicts and cloths are inherent in business decision-making.
- Proper ethical behaviour exists on a plane above the law. The law merely specifies the lowest common denominator of acceptable behaviour.
- There is no single satisfactory standard of ethical action agreeable to everyone that a manager can use to make specific operational decisions.
- Managers should be familiar with a wide variety of ethical standards.
- The discussion of business cases or of situations having ethical implication can make managers more ethically sensitive.
- There are diverse and sometimes conflicting determinants of ethical action. These stem primarily from the individual, from the organization, from professional norms, and from the values of society.
- Individual values are the final standard, although not necessarily the determining reason for ethical behaviour.
- Conensus regarding what constitutes proper ethical behaviour in a decion-making situation diminishes as the level of analysis proceeds from abstract to specific.
- The moral tone of an organization is set by top management.
10. The lower the organizational level of a manager, the greater the perceived pressure to act unethically.
11. Individual managers perceive themselves as more ethical than their colleagues.
12. Effective codes of ethics should contain meaningful and clearly stated provisions, along with enforced sanctions for noncompliance.
13. Employees must have a nonpunitive, fall-safe mechanism for reporting ethical abuses in the organization.
14. Every organization should appoint a top-level manager or director to be responsible for acting as an ethical advocate in the organization.
These propositions enable strategists to deal with the subject of business ethics with confidence. Personal financial gain is an underlying motive for many cases of unethical conduct in organizations.
History has proved that greater the trust and confidence of the people in ethics of an institution or society, the greater its economic strength. Business relationships are mostly built on mutual trust, confidence and reputation. Therefore managers should formulate code of ethic and make themselves sure that these ethics are followed in strategy formulation, implementation and evaluation.
Some people call business ethics an oxymoron- a ceoncept that combines opposite or contradictory ideas. Other people believe the corporate world divided into so-called ethical corporations with “good intentions” and most of the rest of the world. These ‘evil’ corporations are led by businessmen who are ascribed the most selfish motivations to grow their wealth at all costs.
The modern business ethics movement was born the late 1970s, part of the post-Watergate reform movement. Ethics is defined as the consensually accepted standards of behaviour for an occupation, trade, or profession. Business ethics is based on broad principles of integrity and fairness and focuses on internal stakeholder issues such as product quality, customer satisfaction, employee wages and benefits, and local community and environmental responsibilities. These are issues that a company can actually influence.
These, on the face of it seem to be reasonable requirements, yet why are many business people perceived to be acting unethically? Perhaps Mark Twain has provided the answer, he once said, “The secret of success is honesty and fair dealing. If you can fake these, you’ve got it made.”
Social responsibility determines whom the organization should serve, and how the direction and purposes of the organization should be determined. Advocates of corporate social responsibility view the stakeholders in a larger perspective of the organisation’s and argue that business organizations must not only maximize profit but also contribute to the communities in which they operate.
“We will not either buy from or sell to companies” that do not measure up to Tata Steel’s social responsibility stands, Mr. B. Muthuraman, Managing Director, Tata Steel Ltd, said at the 15th anniversary of The Institute of Directors, recently. In the context of this increasing awareness of corporate responsibility and Tisco’s value systems, it is not surprising that Mr. Muthuraman gave this assurance. But what are these standards of social responsibility?
At this broadest, the term is used to capture the whole set of values, issues and processes that companies must address in order to minimize any harm resulting from their activities, and to create economic, social and environmental value. This requires that before a corporation decides on an action, it must try to predict which stakeholders will be affected by given actions. The form of the interaction between a corporation and its stakeholders should be such that is a clear understanding of the anticipated effects of the corporation’s actions on those stakeholders.
For example, Nestle aggressively marketed its infant formula in Eat Africa. Nestle’s failure to anticipate that the lack of availability of clean water lead mothers to dilute it in contaminated water, resulted in the death of thousands of infants. The development of a corporation’s moral imagination, or its ability to “envision the potential help and harm that are likely to result from a given action”, should be informed by scientific and social modes of rationality. In Nestle’s cse, a failure to do so led to tragic results.
Companies develop strategies where they voluntarily integrate social and environmental concern in their business operation. Organizations that are exemplary within one domain, e.g., environment or employee relations, can exhibit egregious behaviour in another, e.g., community relations or product quality. Corporate practices affect stakeholders and their environment, but no one practice can be said to fully define a company’s responsibly. Making that assessment, even if we all agreed on a definition, always is a judgment call in the face of complexity and dynamism. The question that arises is, ‘Responsible to whom’?
For example, a business organization may decide to use only recycled materials in its manufacturing processes. This may have a positive effect on environmental groups, but may have a negative effect on the bottom line. Shareholders who depend on dividends from the organization for their survival may be negatively affected.
It should clear to advocates of Corporate Social Responsibility (CSR) that given the wide range of interests and concerns present in a business organisation’s work environment, one or more groups at any one time will probably be unhappy with the organisation’s activities; even when the organization is trying to be socially responsible. CSR is about putting out a quality product at reasonable prices; treating employees, vendors, franchisees, and investors fairly; acting responsibility towards the local environment and community; and most of all, embracing transparency in operations and accountability to critics, internal and external.
The critics of CSR should understand the CSR is not about corporations simply “giving away” money which rightly belongs to other people. CSR is about building relationships with customers, about attracting and retaining talented staff, about managing risk, and about assuring reputation. Therefore, before making a strategic decision, management should consider how each option will affect various stakeholder groups. What may initially seem the best option may actually result in the set of consequences.
CORPORATE SOCIAL RESPONSIBILITY:
Corporate social responsibility is more commonly addressed as Corporate Social Responsibility (CSR). It determines whom should the organization be there to serve, and how the direction and purposes of the organization should be determined. The difference between Corporate Governance and CSR is that CSR is inherently multidimenstional and has a more external focus, or considering a wide range of stakeholders. On addition to its shareholders, an organization also interacts with employees, customers, public authorities, non-governmental organizations, all of which entertain differing, but have a stake in well-being of the organization. Academic thinking about corporate citizenship has made significant progress over the past 35 years or so. So has corporate responsibility – from a company perspective. However, there are different views. Milton Friedman argues against the concept of corporate responsibility. Cutting product prices to prevent inflation, or making expenditures to reduce pollution, or hiring hardcore unemployed, all for social good, according to him, makes the business organization inefficient. Either prices go up to pay for these social costs or new investments and R&D are affected. According to Friedman, “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.
According to Archie Carroll, business organizations have four responsibilities, legal, ethical and discretionary, in order of priority. Carroll defines CSR to include both the ethical and discretionary responsibilities. His position is that to the extent business organizations fail to acknowledge discretionary or ethical responsibilities, society, through Government will act making them legal responsibilities. The risk involved is that it may do so, without regard to the organisation’s economic responsibilities. Therefore, it is important that business organizations self regulate their responsibilities to avoid such a situation and ensure survival.
Ethical behaviour, he argues, is based on what society values and is yet to be put into law. Discretionary behaviour of today may become ethical requirements of tomorrow. This depends on the changing values of society. For example, traditionally companies have followed a stringent reporting system of its financial position, whereas environmental and social obligations have pushed onto the backburner. But today the triple bottom line way has become a norm with corporate houses worldwide. The term ‘triple bottom line’ is used as a framework for measuring and reporting corporate performance against economic, social and environmental parameters.
Both Friedman and Carroll argue their positions based on the impact of CSR on the organisation’s profits. While Friedman argue that social responsibilities hurt the business organisation’s efficiency. Carroll proposes that lack of social responsibility reduces the business organisation’s efficiency, by inviting increased government regulations. Friedman’s theory is based on a limited view of who the stakeholder is. He seems to accept that stakeholders are those who have put their capital into the organization, while Carroll ambiguous on this point. It is, therefore, not surprising that research has failed to consistently support either position. There seems to be no clear relationship established between financial performance and social responsibility in the many studies that have been made on this subject.
However, what is important to understand is that as CSR is not a legal requirement, therefore, it is the strategy of the organization. Organizations adopt CSR because they perceive that it enhances the long term value of its assets and adds to stakeholder confidence.
There is a realization that increasing industrialization of modern society has led to the emergence of a risk society. In contrast to early industrial society where the hazards were generally limited to their places of origin, the risks generated by advanced industrial society are rarely delimited by space or time. The risks include both global environmental threats such as nuclear radiation, chemical waste, the toxic contamination of air, water, and food, and more generally, the destructive side-effects of industrial processes and products. In addition, other risks to the stakeholders include quality and reasonable prices of products; and more of all the transparency in operations and accountability.
Economic progress without social development is not sustainable, while social development without economic progress is not feasible. Economic progress brings in a society in a risk society in its wake. The question is whether organizations responsible for these risks should bear the burden or should the Government and civil society bear this burden? It is recognized now that the world’s key challenges cannot be met by Governments, business or civil society alone. There is a need for organizations to recognize that there has to be concerted attempt by all; together, they can find solutions. This implies that business has some corporate responsibility for social development.
Critics Scoff at the notion that a corporation, driven by profit, might also be interested in helping develop society in which it does business. In the words of one Mongolian analyst, “Robert Friedland is a businessman, not a philanthropist”. But in order to be a businessman today, you must be a philanthropist as well. It is considered a part of corporate responsibility as it can result in greater economic efficiency. There is a growing value people place on corporate social and environmental action. The manifestation of this trend is increasingly found in the choices consumers make. Some benefits that accrue can provide business organizations a competitive advantage:
- Environmental concerns amy enable business organizations to charge premium prices and gain brand loyalty. Manufacturers of recycled paper products were able to sell their produce at higher prices.
- Trustworthiness can improve the quality and reliability of external linkages in the value chain. Suppliers and distributor’s loyalties to an organization are likely to be based on this criterion.
- They can attract outstanding employees at less than market rat. It is generally seen that the company’s reputation is an important factor in job selection.
- They are more likely to be welcomed as multinationals in foreign countries.
- In difficult times, they can expect support from the Government and public officials. This goodwill is always of great competitive advantage to the organization.
- Investors and the public view reputable business organizations as their first option to put their money into.
SOCIAL RESPONSIBILITY THEORIES:
The corporate responsibility theories and related approaches are classified into four groups.
- The Instrumentation Theories, in which the corporation is seen as only an instrument for wealth creation and its social activities are a means to achieve economic results.
- Political theories, which concern themselves with the power of corporations in society and a responsible use of this power in the political arena.
- Integrative Theories, in which the corporation is focused on the satisfaction of social demands and
- Ethical Theories, based on ethical responsibilities of corporations to society.
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