MGMT205 – BUSINESS POLICY AND STRATEGY

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CHAPTER 3- SOCIAL RESPONSIBILITY AND ETHICS IN STRATEGIC

MANAGEMENT

Objectives:
a.) Compare and contrast Friedman’s traditional view with Carroll’s
contemporary view of social responsibility;
b.) Understand the relationship between social responsibility and
corporate performance;
c.) Explain the concept of sustainability;
d.) Conduct a stakeholder analysis;
e.) Explain why people may act unethically; and
f.) Describe different views of ethics according to the utilitarian,
individual rights, and justice approaches.

PRE-TEST 3

Directions: Read the following statement and write TRUE if the stamen is correct and
FALSE if incorrect.
1. The concept of social responsibility proposes that a private corporation has
responsibilities to society that extend beyond making a profit. Strategic
decisions often affect more than just the corporation. TRUE
2. A business person who acts “responsibly” by cutting the price of the firm’s
product to prevent inflation, or by making expenditures to reduce pollution, or
by hiring the hard-core unemployed, according to Friedman, is spending the
shareholder’s money for a general social interest. TRUE
3. Legal responsibilities of a business organization’s management are to produce
goods and services of value to society so that the firm may repay its creditors
and shareholders. FALSE
4. Economic responsibilities are defined by governments in laws that
management is expected to obey. FALSE
5. Ethical responsibilities of an organization’s management are to follow the
generally held beliefs about behavior in a society. TRUE
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6. Discretionary responsibilities are the purely voluntary obligations a corporation
assumes. Examples are philanthropic contributions, training the hard-core
unemployed, and providing day-care centers. TRUE
7. The difference between ethical and discretionary responsibilities is that many
people expect an organization to fulfill discretionary responsibilities, whereas
many expect an organization to fulfill ethical ones. FALSE
8. A business firm must first make a profit to satisfy its economic responsibilities.
To continue in existence, the firm must follow the laws, thus fulfilling its
economic responsibilities. FALSE
9. Sustainability may include more than just ecological concerns and the natural
environment. TRUE
10. A corporation’s task environment includes a large number of groups with
interest in a business organization’s activities. TRUE
11. Stakeholder analysis is the identification and evaluation of corporate
stakeholders. This can be done in a five-step process. FALSE
12. The first step in stakeholder analysis is to identify primary stakeholders, those
who have a direct connection with the corporation and who have sufficient
bargaining power to directly affect corporate activities. TRUE
13. The second step in stakeholder analysis is to identify the secondary
stakeholders—those who have only an indirect stake in the corporation but
who are also affected by corporate activities. TRUE
14. The third step in stakeholder analysis is to estimate the effect on each
stakeholder group from any particular strategic decision. TRUE
15. Another possible reason for what is often perceived to be ethical behavior lies
in differences in values between business people and key stakeholders.
FALSE
16. Naive relativism claims that morality is relative to some personal, social, or
cultural standard and that there is no method for deciding whether one decision
is better than another. FALSE
17. Moral relativism is based on the belief that all moral decisions are deeply
personal and that individuals have the right to run their own lives, adherents of
moral relativism argue that each person should be allowed to interpret
situations and act on his or her own moral values. FALSE
18. Role relativism is based on the belief that social roles carry with them certain
obligations to that role, adherents of role relativism argue that a manager in

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charge of a work unit must put aside his or her personal beliefs and do instead
what the role requires, that is, act in the best interests of the unit. TRUE
19. Ethics is defined as the consensually accepted standards of behavior for an
occupation, a trade, or a profession. TRUE
20. Morality, in contrast, is the precepts of personal behavior based on religious or
philosophical grounds. TRUE

ACTIVITY 3

Directions: Read the article below and write any reflection about the things you have
learned. 1-2 sentences can do and corresponding points will be given.
1. The developed nations of the world operate under governance systems quite
different from those used by developing nations. The developed nations and
the
business firms within them follow well-recognized rules in their dealings and
financial reporting. To the extent that a country’s rules force business
corporations to publicly disclose in-depth information about the company to
potential shareholders and others, that country’s financial and legal system is
said to be transparent. Transparency is said to simplify transactions and
reduce the temptation to behave illegally or unethically. Finland, the United
Kingdom, Hong Kong, the United States, and Australia have very transparent
business climates. The Kurtzman Group, a consulting firm, developed an
opacity index that measures the risks associated with unclear legal systems,
regulations, economic policies, corporate governance standards, and
corruption in 48 countries. The countries with the most opaque/least
transparent ratings are Indonesia, Venezuela, China, Nigeria, India, Egypt, and
Russia. Developing nations tend to have relationship-based governance.
Transactions are based on personal and implicit agreements, not on formal
contracts enforceable by a court. Information about a business is largely local
and private—thus cannot be easily verified by a third party.
In contrast, rule-based governance relies on publicly verifiable

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information—the type of information that is typically not available in a
developing country. The rule-based system has an infrastructure, based on
accounting, auditing, ratings systems, legal cases, and codes, to provide and
monitor this information. If present in a developing nation, the infrastructure is
not very sophisticated. This is why investing in a developing country is very
risky. The relationship- based system in a developing nation is inherently
nontransparent due to the local and non-verifiable nature of its information. A
business person needs to develop and nurture a wide network of personal
relationships. What you know is less important than who you know.
The investment in time and money needed to build the necessary
relationships to conduct business in a developing nation creates a high entry
barrier for any newcomers to an industry. Thus, key industries in developing
nations tend to be controlled by a small number of companies, usually privately
owned, family-controlled conglomerates. Because public information is
unreliable and insufficient for decisions, strategic decisions may depend more
on a CEO playing golf with the prime minister than with questionable market
share data. In a relationship-based system, the culture of the country (and the
founder’s family) strongly affects corporate culture and business ethics. What is
“fair” depends on whether one is a family member, a close friend, a neighbor,
or a stranger. Because behavior tends to be less controlled by laws and
agreed-upon standards than by tradition, businesspeople from a rule-based
developed
nation perceive the relationship-based system in a developing nation to be less
ethical and more corrupt. According to Larry Smeltzer, ethics professor at
Arizona State University: “The lack of openness and predictable business
standards drives companies away. Why would you want to do business in, say
Libya, where you don’t know the rules?”
SOURCES: S. Li, S. H. Park, and S. Li, “The Great Leap Forward: The
Transition from Relation-Based Governance to Rule-Based Governance,”
Organizational Dynamics, Vol. 33, No. 1 (2003), pp. 63–78; M. Davids, “Global
Standards, Local Problems,” Journal of Business Strategy (January/February
1999), pp. 38–43;
“The Opacity Index,” Economist (September 18, 2004), p. 106.

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QUIZ 3

Directions: Identify the following statement below and write the word or phrases that
best fits the statement.
1. This approach concerns about proposes that decision makers be equitable,
fair, and important in the distribution of costs and benefits to individuals and
groups. JUSTICE APPROACH
2. This approach proposes that human beings have certain fundamental rights
that should be respected in all decisions. INDIVIDUAL RIGHTS APPROACH
3. This approach proposes that actions and plans should be judged by their
consequences. People should therefore behave in a way that will produce the
greatest benefit to society and produce the least harm or the lowest cost.
UTILITARIAN APPROACH
4. It is defined as the consensually accepted standards of behavior for an
occupation, a trade or profession. ETHICS
5. It is the precepts of personal behavior based on religious or philosophical
grounds. MORALITY
6. It refers to formal codes that permit or forbid certain behaviors and may or may
not enforce ethics or morality. LAW
7. This level is characterized by a concern for self. Small children and others who
have not progressed beyond this stage evaluate behaviors on the basis of
personal interest—avoiding punishment or quid pro quo. PRECONVENTIONAL
LEVEL
8. This level is characterized by considerations of society’s laws and norms.
Actions are justified by an external code of conduct. CONVENTIONAL LEVEL
9. This level is characterized by a person’s adherence to an internal moral code.
An individual at this level looks beyond norms or laws to find universal values
or principles. PRINCIPLED LEVEL
10. This specifies how an organization expects its employees to behave while on
the job. CODE OF ETHICS
11. He proposes that a person progresses through three levels of moral
development. KOHLBERG
12. This includes environmental reporting, eco-design and efficiency,
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environmental
management systems, and executive commitment to environmental issues.
ENVIRONMENTAL SUSTAINABILITY
13. This includes codes of conduct and compliance, anti-corruption policies,
corporate governance, risk and crisis management, strategic planning, quality
and knowledge management, and supply chain management. ECONOMIC
SUSTAINABILITY
14. This includes corporate citizenship, philanthropy, labor practices, human
capital development, social reporting, talent attraction and retention, and
stakeholder dialogue. SOCIAL SUSTAINABILITY
15. It is responsibilities of a business organization’s management are to produce
goods and services of value to society so that the firm may repay its creditors
and shareholders .ECONOMIC
16. It is responsibilities are defined by governments in laws that management is
expected to obey. LEGAL
17. It is responsibilities of an organization’s management are to follow the
generally held beliefs about behavior in a society. ETHICAL
18. It is responsibilities are the purely voluntary obligations a corporation assumes.
DISCRETIONARY
19. It proposes that a private corporation has responsibilities to society that extend
beyond a profit. SOCIAL RESPONSIBILITY
20. He said that There is one and only one social responsibility of business—to
use its resources and engage in activities designed to increase its 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” FRIEDMAN

POST TEST 3

Directions: Read the following statement and write TRUE if the stamen is correct and
FALSE if incorrect.
1. The third step in stakeholder analysis is to estimate the effect on each
stakeholder group from any particular strategic decision. TRUE

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2. Naive relativism claims that morality is relative to some personal, social, or
cultural standard and that there is no method for deciding whether one decision
is better than another. FALSE
3. Morality, in contrast, is the precepts of personal behavior based on religious or
philosophical grounds. TRUE
4. A business person who acts “responsibly” by cutting the price of the firm’s
product to prevent inflation, or by making expenditures to reduce pollution, or
by hiring the hard-core unemployed, according to Friedman, is spending the
shareholder’s money for a general social interest. TRUE
5. Stakeholder analysis is the identification and evaluation of corporate
stakeholders. This can be done in a five-step process. FALSE
6. Sustainability may include more than just ecological concerns and the natural
environment. TRUE
7. Another possible reason for what is often perceived to be ethical behavior lies
in differences in values between business people and key stakeholders.
FALSE
8. The concept of social responsibility proposes that a private corporation has
responsibilities to society that extend beyond making a profit. Strategic
decisions often affect more than just the corporation. TRUE
9. Moral relativism is based on the belief that all moral decisions are deeply
personal and that individuals have the right to run their own lives, adherents of
moral relativism argue that each person should be allowed to interpret
situations and act on his or her own moral values. FALSE
10. Discretionary responsibilities are the purely voluntary obligations a corporation
assumes. Examples are philanthropic contributions, training the hard-core
unemployed, and providing day-care centers. TRUE
11. Role relativism is based on the belief that social roles carry with them certain
obligations to that role, adherents of role relativism argue that a manager in
charge of a work unit must put aside his or her personal beliefs and do instead
what the role requires, that is, act in the best interests of the unit. TRUE
12. A business firm must first make a profit to satisfy its economic responsibilities.
To continue in existence, the firm must follow the laws, thus fulfilling its
economic responsibilities. FALSE
13. Ethics is defined as the consensually accepted standards of behavior for an

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occupation, a trade, or a profession. TRUE
14. Legal responsibilities of a business organization’s management are to produce
goods and services of value to society so that the firm may repay its creditors
and shareholders. FALSE
15. The second step in stakeholder analysis is to identify the secondary
stakeholders—those who have only an indirect stake in the corporation but
who are also affected by corporate activities. TRUE
16. A corporation’s task environment includes a large number of groups with
interest in a business organization’s activities. TRUE
17. Economic responsibilities are defined by governments in laws that
management is expected to obey. FALSE
18. The first step in stakeholder analysis is to identify primary stakeholders, those
who have a direct connection with the corporation and who have sufficient
bargaining power to directly affect corporate activities. TRUE
19. The difference between ethical and discretionary responsibilities is that many
people expect an organization to fulfill discretionary responsibilities, whereas
many expect an organization to fulfill ethical ones. FALSE
20. Ethical responsibilities of an organization’s management are to follow the
generally held beliefs about behavior in a society. TRUE

ASSIGNMENT 3

REFERENCES:

1. 2008 Corporate Social Responsibility Report, General Mills Inc.,

Minneapolis, MN; M. Conlin, J. Hempel, J. Tanzer, and D. Poole, “The
Corporate Donors,” Business Week (December 1, 2003), pp. 92–96; I.
Sager, “The List: Angels in the Boardroom,” Business Week (July 7,
2003), p. 12.

2. M. Friedman, “The Social Responsibility of Business Is to Increase Its

Profits,” New York Times Magazine (September 13, 1970), pp. 30, 126–Page 8
127; M. Friedman Capitalism and Freedom (Chicago: University of
Chicago Press, 1963), p. 133.
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LINKS
TOPICS LINKS FOR VIDEO
Social Responsibilities of Strategic
Decision Makers
Responsibilities of a Business Firm
Ethical Decision Making
Some Reasons for Unethical Behavior
Encouraging Ethical Behavior

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