## 1 Corporate Social Responsibility The concept of Corporate Social Responsibility (CSR) has evolved significantly from a time when "the chief business of the American people is business" was a prevalent belief. Now, companies are increasingly expected to go beyond minimal ethical standards and integrate social and environmental concerns into their operations. This shift is driven by consumer demand; a 2017 study showed that 90% of consumers expect responsible corporate behavior, and 84% actively seek out responsible products. **Corporate social responsibility (CSR)**, also known as **corporate citizenship**, integrates social and environmental concerns into a company's operations. John Mackey, CEO of Whole Foods Market, calls this **conscious capitalism**, where businesses serve the interests of all stakeholders (customers, employees, investors, communities, suppliers, and the environment). Whole Foods' response to a flood, where community support enabled a rapid store reopening, exemplifies the benefits of conscious capitalism. ### Corporate Social Responsibility vs. Sustainability While often used interchangeably, CSR and sustainability are distinct concepts. Sustainability, rooted in environmentalism, focuses on a company's ability to operate without compromising future environmental conditions. A sustainable corporation would maintain its activities without worsening global environmental problems. Many believe true sustainability is currently unattainable due to energy consumption and waste production inherent in most corporate operations. Despite this challenge, promoting sustainability strategies is a widespread corporate practice. ## 2 Corporate Social Responsibility Strategies Organizations employ several strategies to enhance CSR: * **Environmental Efforts:** Reducing a company's carbon footprint (greenhouse gas emissions) through actions like minimizing land use, building energy-efficient facilities, and using locally sourced products. The Bingham Hotel's focus on locally sourced food reduces transportation pollution and supports local employment. * **Philanthropy:** Donating to charities, initiating charitable programs, and offering scholarships. Nu Skin's "Nourish the Children" program has provided over 500 million meals since 2002. * **Ethical Labor Practices:** Ensuring fair labor practices throughout the supply chain, including addressing issues like child labor and unsafe working conditions. Apple's response to concerns about child labor in Indonesian tin mines demonstrates a commitment to improved labor practices, though challenges remain. * **Volunteerism:** Encouraging employee volunteer work and often providing incentives like donations to the chosen charities or gift cards. ### Corporate Social Responsibility and Economic Performance While CSR benefits companies, increased profits aren't guaranteed. The focus is on the triple bottom line: profit, people, and environment. Meeting these expectations builds a positive reputation, which in turn improves the triple bottom line. Research suggests a strong correlation between CSR activities and enhanced firm value, impacting efficiency, market gains, talent attraction, employee productivity, and risk management. **Strategic CSR**, aligning activities with company goals and reputation enhancement, is key. ## 3 Business Ethics The study of business ethics is crucial due to the significant societal impact of business decisions. Corporate fraud can have devastating consequences, highlighting the need for ethical behavior at all levels. Ethics prevents harm to external stakeholders (public, other organizations, environment) and benefits the organization internally. **Business ethics** refers to ethical conduct within a business organization. It involves adhering to laws, regulations, and standards related to fair employment, product safety, truthful advertising, and environmental responsibility. A positive reputation, resulting from ethical behavior, attracts consumers and improves profitability. Companies like Toms Shoes and Patagonia leverage their ethical practices in marketing, while companies like BP and Toyota have invested heavily in reputation repair after ethical lapses. A strong ethical reputation acts as a buffer against negative judgments from customers, suppliers, and regulators. ### Costs of Unethical Behavior Unethical behavior incurs various costs: * Poor reputation * Reduced customer loyalty and revenue loss * Heavy fines and legal penalties * Criminal or civil prosecution * Loss of employee talent Wells Fargo's unauthorized account scandal resulted in significant financial penalties, lawsuits, and reputational damage. The Sarbanes-Oxley Act (2002) was enacted to address corporate fraud and protect whistleblowers. ### U.S. Sentencing Guidelines Organizations can be held criminally liable for employee actions, even if against company policy. The Federal Sentencing Guidelines aim to achieve "just punishment" and "deterrence." They apply to various organizations and govern sentencing for felonies and serious misdemeanors. #### Purpose of Sentencing Guidelines Even with strong preventative measures, companies can be held responsible for employee misconduct. Common corporate offenses include fraud, environmental violations, tax evasion, and antitrust violations. The guidelines incentivize organizations to detect and prevent crime, offering reduced fines and other benefits for reporting offenses and having strong ethics programs. #### Guideline Compliance Steps The guidelines outline steps for compliance: 1. Establish standards and procedures to prevent and detect criminal conduct (code of ethics). 2. Senior management oversight of the ethics program. 3. Exclude individuals with illegal activity from substantial authority. 4. Regular communication of the ethics program to employees. 5. Monitoring, auditing, and evaluation of program effectiveness; anonymous reporting systems (whistleblower hotlines). 6. Incentivize compliance and discipline violations. 7. Respond to criminal conduct and prevent future offenses. ## 4 Influences on Employee’s Ethical Choices Beyond legal compliance, ethical decision-making involves considering ethical intensity and relevant principles. ### Ethical Intensity **Ethical intensity** is the importance of an issue to an individual or group. Factors influencing ethical intensity include: * Magnitude of consequences * Concentration of effect * Proximity to victims/beneficiaries * Probability of consequences * Social consensus * Temporal immediacy The ethical intensity of overcharging a few customers versus thousands is vastly different, especially if those customers are close to the decision-maker. Drug companies often balance probabilities of harm and benefit in their ethical decisions. Social consensus and temporal immediacy also significantly impact ethical judgments. ## 5 Principles of Ethical Decision Making Several principles guide ethical decision-making: * **Legal and regulatory requirements:** Minimum standard of behavior. * **Long-term self-interest:** Actions benefiting the organization long-term. * **Personal virtue:** Honest and truthful individual choices. * **Utilitarianism:** Greatest benefit for the most people. * **Individual rights:** Freedom to act and think without punishment. * **Distributive justice:** Fairness of outcomes. * **Religious injunction:** Moral and ethical guidance based on religious beliefs. Disagreements among managers are common due to differing perceptions, moral codes, and interests. ## 6 Ways Managers Can Encourage Ethical Behavior Managers can't guarantee ethical behavior, but processes can significantly improve it. ### Codes of Ethics A **code of ethics** (code of conduct or statement of values) guides employees in ethical dilemmas. The Sarbanes-Oxley Act mandates codes of ethics for publicly traded companies. #### Sarbanes-Oxley Act (SOX) SOX was enacted in response to major accounting scandals. It requires publicly traded companies to establish and enforce codes of ethics and publicly disclose any changes. It's credited with improving ethical culture in the accounting profession and boosting investor confidence. #### Ethics Training Ethics training programs teach employees how to respond to ethical dilemmas. Activities like scenario-based exercises and group discussions reinforce company policies and ethical decision-making. #### Whistleblower Protection Whistleblower hotlines and strong legal protections encourage reporting of misconduct without fear of retaliation. Whistleblowers report misconduct within their organizations. The Sarbanes-Oxley Act and the Dodd-Frank Act offer significant protections and rewards for whistleblowers, incentivizing reporting and deterring unethical behavior. OSHA's record $5.4 million award to a Wells Fargo whistleblower highlights the importance of whistleblower protection. The SEC also offers substantial rewards for whistleblowers, as evidenced by a record $61 million award in 2017. ### Fostering Ethical Decisions Senior management plays a crucial role in fostering ethical behavior: * Modeling ethical behavior. * Active participation in the ethics program. * Encouraging employees to raise ethical concerns. * Addressing ethical issues promptly. * Enforcing the ethics program. ## 7 Culture and Diversity—Why It Matters Organizational culture and diversity are critical for success. Zappos.com's CEO, Tony Hsieh, emphasizes the importance of culture as a key driver of success, highlighting its role in attracting and motivating employees. Zappos's 10 core values demonstrate a clearly defined culture. ## 8 Organizational Culture **Organizational culture** represents shared values and goals within an organization. A strong, supportive culture attracts and retains talented employees. Corporate culture, often unintentionally developed, can be disjointed or antagonistic if not intentionally created. Successful companies often cultivate intentional cultures, sometimes stemming from a founder's vision or a collaborative effort. ### What Do Corporate Cultures Look Like? Examples of corporate cultures: * **IBM:** Historically emphasized morality, temperance, and consistency, reflected in dress code and company songs. * **Google:** Known for employee perks and a focus on creating a fun and productive work environment. Core values emphasize great people, innovation, fun, active involvement, and ethical conduct. * **Apple:** Focused on competition, excellence, and hard work, reflecting Steve Jobs' vision. Core values emphasize great products, simplicity, control of primary technologies, and deep collaboration. Understanding and shaping organizational culture is crucial for attracting and retaining talent, fostering collaboration, and achieving business success.