4.3 Ethical and corporate social responsibility in strategy analysis Copy
Promoting Ethical Behaviour through the Planning Process
Building ethics into strategic planning is an important consideration for upper management when setting organizational processes and objectives.
Strategy and Ethics
Setting an organizational strategy, vision, and set of values is the starting point of any new venture. Building in a strong sense of ethics, and an alignment with the well-being of all existing stakeholders (and society at large) is an integral aspect of the strategic planning process. The concept of aligning with the needs, ethics, and well-being of all stakeholders is referred to as Stakeholder Theory.
All organizations have a wide variety of stakeholders. Basically any group, individual, or organization impacted by operations is considered a stakeholder. This includes governmental bodies, customers, suppliers, employees, shareholders, financiers, communities, economies, and the general ecosystem. A board of directors is often elected to oversee the strategy to ensure alignment with values and ethics.
Building ethical considerations into a business strategy via the planning process is an important element of ethics management. Strategy lays the foundation for how an organization carries out its operations. Building ethics into strategic planning is important to ensure that every facet of the organization is aligned with the ethos and values of the broader organization.
There are four elements strategic planners should develop when considering ethical alignment:
- Developing a Code of Ethics: This serves as a central point of reference for everyone in the organization. This code of ethics should take stakeholders concerns into consideration, and evolve organically over time as the organization grows.
- Ethical Training: Investing in training employees and managers in how integrate ethics into their process is a critical aspect of developing a strong ethical culture. Training equips employees and managers with the tools necessary to address ethically complex issues in the workplace.
- Situational Advice (Ethics Officers): Having ethics officers available for consultation is a great way to handle ethical issues as they arise internally. Employees and managers may encounter ethical dilemmas that the Code of Ethics and ethics training don’t address. In these situations, going to an ethics officer to determine best practices is a great strategic resource. The ethics officer can also use these situations to improve the organization’s ethical strategy.
- Confidential Reporting System: Not all ethical situations are easy to bring up in a professional setting. As a result, organizations should create an infrastructure for anonymous reporting to allow the organization to address problems as they arise without putting anyone on the spot.
Corporate Social Responsibility and Strategic Management
Strategic planning and corporate social responsibility is a form of management in which companies take the ethical aspects of their business operations into consideration. They incorporate these social concerns into their business strategies and are more conscious of their roles in society and their communities outside of business. More than just obeying the law, corporate social responsibility involves a business taking proactive steps to improve the quality of life for its employees and community. Different companies will select a different social responsibility strategy from each other, but they all focus on four ethical aspects of business: economic, ethical, legal and philanthropic.
Economic Social Responsibility
An economic social responsibility strategy begins with making sure a company is sustainable, which in turn means it is profitable. Not only does a company need to make a profit to satisfy its shareholders, it also must make enough money to pay its employees a respectable wage. It should also be the company’s responsibility to make sure it addresses issues such as gender wage discrimination. Outside of its employees, economic social responsibility involves paying appropriate business taxes and meeting other financial commitments. Likewise, corporate economic responsibility includes businesses finding inefficiencies in their operations that waste capital, and implementing processes that improve efficiencies and reduce this waste.
Ethical Social Responsibility
Values and ethics in strategic management are important. Being ethical means companies must be aware of society’s values and standards and operate in a manner that is conducive to those. Inside the workplace, this could include paying a living wage, ensuring safe working conditions, abiding by all labour laws and being willing only to do business with companies with similar ethical principles. For example not purchasing products from a factory that uses child labour. Being an ethical business also means taking into consideration a company’s environmental impact and doing its job to limit forms of waste. As environmental issues grow on a global scale, it is increasingly essential that companies are aware of how they contribute to these issues. Companies should analyse the processes they use and proactively do what they can to reduce their environmental impact. This is especially important for companies that dispose of waste, leaving a carbon footprint.
Legal Social Responsibility
The legal segment of corporate social responsibility revolves around making sure that companies are aware of and abide by all local, state and federal laws. Companies must comply with safety and labour laws put in place by regulators. It is the duty of the company to make sure they remain knowledgeable of any changes to the laws. Being mindful of legal obligations can protect a company’s reputation and limit the amount of time and money it has to spend in potential legal fees. Part of these legal responsibilities is always making sure the company meets its tax obligations.
Philanthropic Social Responsibility
Corporate philanthropic responsibility involves using a company’s time and resources to make investments in the communities where they operate. These investments could be in the form of scholarships and other educational assistance, or other notable local causes. Many businesses choose to solely donate money to particular causes that are aiming to bring about social change, while others will attach their name and brand to causes they strongly believe in as a company. It is common for large corporations to have in-house departments that manage and coordinate the company’s philanthropic efforts.
Four Types of Corporate Social Responsibility
Although the main objective for a company is to make money, focusing solely on profitability is not enough today. Consumers want to embrace and support companies and brands that take stances on social issues going on in the world. By exercising corporate responsibility, companies can be mindful of the impact they are having on their communities beyond sales transactions. Company leaders should embrace the four types of corporate responsibility to not only benefit their business but also for the sake of doing well for their communities. Corporate social responsibility typically falls into four categories: environmental, human rights, philanthropic and economic.
- Corporate Environmental Responsibility
Pollution and excessive consumption were once considered the costs of doing business for companies. As environmental issues grew on a global scale, it became more important than ever for companies to be aware of their contributions to these problems. Environmentally responsible companies need to analyse their processes and voluntarily do everything in their power to reduce the environmental impact especially when it comes to waste disposal and carbon footprints. Global warming poses a real threat, and corporations bear a large part of the blame. Consumers today see it as their responsibility to take actionable steps to address the problem.
- Corporate Human Rights Responsibility
Human rights responsibility for companies usually involves enacting fair labour practices, condemning child labour and establishing fair trade practices. The National Labour Relations Act (NLRA) was enacted to prevent unfair labour practices by employers and unions, yet issues such as unequal pay have gone unanswered on a large scale. Employees are the core of a company, many consumers maintain that it is on company leadership to make sure they are treating their employees fairly. In addition to their own employees, companies must ensure the companies they are doing business with are taking human rights responsibility serious, especially when it comes to child labour.
Many companies are beginning to end business relationships with companies that use child labour. Disney, Mattel and Walmart are a few companies that came under intense scrutiny after it was revealed that the factory that produces their toys uses child labour.
- Corporate Philanthropic Responsibility
Corporate philanthropic responsibility typically involves making investments in the local community, whether it is for educational programs, scholarship programs, health initiatives or supporting notable causes in general. Companies that don’t view the people in their communities as sources of revenue understand the role the community plays in their success outside of the business. Consumers today want to know that companies care about them outside of the money they spend. Most corporations choose to donate money to causes that are meant to bring about social change. Some may choose to attach their brand to the cause, while others may choose to remain entirely in the background and not take any credit for the money or resources offered. A good amount of large corporations have in-house departments devoted to coordinating and managing the company’s philanthropic programs and efforts. These corporations will usually have a few causes that they attach their brand to and commit their resources toward.
- Corporate Economic Responsibility
The straightforward truth is that companies that do not make money do not remain in business. However, consumers today believe that profits should not come at the expense of ethics. Unethical practices may benefit a company in the short term, but their long-term effects can be disastrous. Economic responsibility for corporations also includes finding and implementing the most efficient practices for minimizing wasted capital. This may come in the form of new manufacturing processes that improve efficiency or investing in new equipment.
Ethics and Social Responsibility in Strategic Planning
Ethics and social responsibility occupy an important place in our personal value system. Customer confidence in how business operates has been severely shaken by recent corporate scandals and collapses, such as Enron and bank failures. Hence it is important for companies to consider incorporating ethics and social responsibility into their strategic planning. This applies whether a company is involved with customers one-on-one, such as a Taco Bell or Dell, Inc., or their involvement is indirect, through their relationship with their clients, such as newspaper distributor Pogo Distribution Company, or wholesale food seller, Del Monte.
The Role of Ethics in Strategic Planning
Reflecting critically and actively on ethical issues is an obligation of every professional. Reflecting such ethical content or implications in one’s decisions and actions must be salient in every aspect of how companies operate. Ethics ensure that a company achieves its mission, vision, goals, and objectives in such a manner that they give a company a sense of direction and framework. Ethics ensure guidelines are created that bind the entire organization into one common thread, govern the action of the organizational employees, and avoid deviation from the desired strategic path. Ethics ensure that strategic plan is prepared as per the best interest of all a company’s stakeholders, whether employees, vendors, customers or even the society in which the organization operates. Adhering to the highest possible ethical standards, and integrating these ethics into their strategic planning, can build a good corporate image in front of all the stakeholders of the organization. Integrating and planning must go beyond compliance issues and reactive disciplinary policies to actually manage integrity.
Five ways a company can ensure ethics is included in their strategic planning are:
- Establish explicit ethical goals and criteria
- Demonstrate commitment to ethical goals and criteria
- Communicate ethical expectations and train workforce to enact ethical goals and criteria
- Assess and monitor employee behaviour and decisions
- Maintain on-going proactive integrity continuity management (Valentino, 2007)
Such a strong focus on ethics will ensure that each set of stakeholders will be happy and assured that strategic plan will address their needs and wants and the organization will act in the best interest of each stakeholder.
The Role of Social Responsibility in Strategic Planning
Another major element of today’s strategic planning is corporate social responsibility (CSR) where managers face a varied and increasing demand from stakeholders (McWilliams and Siegel, 2001). This demand has been marked by numerous claims linking corporate social responsibility to a firm’s profits.
Nevertheless, for those companies who include social responsibility as one of their criteria, companies are leaving no stone unturned to ensure that they contribute to the improvement and well-being of the society, while minimizing any negative impact of their operations on the society. Thus CSR focuses on two areas: Internal behaviours, which refers to the way a corporation conducts the day-to-day operations of its core business functions, and External behaviours, which refers to a corporation’s engagement outside of its direct business interest (Jones, 2004). It goes beyond good public relations tactics or being nice to have. (Valentino, 2007).
Internal behaviour planning generally starts in the Human Resource Department. It can be an aid to recruitment and retention. (Lingham, 2009). Examples are ‘going green,’ matching employee charitable contributions; creating ‘help the community’ programs, and sponsoring community events. While external behaviours can include the latter three internal behaviours, they differ from internal CSR because management and public relations will consider the financial impact of their decisions because of their stakeholders, such as owners and shareholders. Business exists for many reasons but survival ultimately depends on profits.
Five Important Issues of Ethics & Social Responsibility in the Strategic Planning Process
Ethics refer to the fundamental principles of an individual or a group. Social responsibility is how a business performs its activities to meet its wider obligations toward the society and environment, such as by avoiding activities which may be harmful. Strategic planning is an essential preliminary step in the corporate world in which senior management defines the organization’s strategy, direction and decision-making. Ethical values and social responsibility serve an important role in the strategic planning process.
Social Responsibility to the Stakeholders
Management must ensure that strategic decisions are reached after taking into account the possible impact on the stakeholders. Stakeholders are suppliers, customers, societies and anybody who is affected by the activities of the business. A socially responsible company treats stakeholders equally. Wider perspectives also have to be considered in terms of environmental and social impact of planned activities.
Members of management should provide information transparently and honestly to help all involved discuss, debate and reach better decision-making. This enables the team to identify and monitor any potential risks which may arise and find an alternative solution. In terms of social responsibility, transparency also enhances the company’s credibility toward its external stakeholders.
A management meeting provides an opportunity for management team members to raise concerns and come up with new ideas. It should be conducted in a professional and coherent manner and everyone should be independent in providing ideas without fear or hesitance as this helps improve the quality of the discussion and the decisions reached.
Members should respect others’ opinions by giving them the opportunity to speak and by listening to their ideas with interest. Constructive comments develop more intellectual discussion but should be dealt with in a way which does not hurt the other members’ feelings. Discussion in a friendly environment improves the relationship among the members, strengthens the strategic planning process and results in better decision-making.
Fairness and Truthfulness
During the planning process, the team should take a fair and truthful look at the possible risks and impact of decisions reached. These need to be thoroughly considered to maintain the welfare of the stakeholders such as employees and the society at large. Members should be truthful and frank in providing ideas and comments.
- Identify the five important issues of ethics & social responsibility in the strategic planning process.
- Explain the four elements strategic planners should develop when considering ethical alignment.
- State the four types of corporate social responsibility.