SBA: CORPORATE SOCIAL RESPONSIBILITY

“
BUSINESS
ETHICS/
CORPORA
TE
SOCIAL
RESPONSI
Prepared by:

Justin Philip O. Batao, CPA

Mae Kristine L. Montaron, CPA

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Good ethics is good business. Bad ethics can derail even the best strategic plans. This chapter
provides an overview of the importance of business ethics in strategic management. Business ethics
can be defined as principles of conduct within organizations that guide decision making and
behavior. Good business ethics is a prerequisite for good strategic management; good ethics is just
good business!

International Strategic Planning

Internal
Audit

Mission Strategy
and Strategy
Types of Generation Strategy Strategy
Vision Implemen
Strategies and Execution Monitoring
tation
Analysis Selection

External
Audit

Ethics/ Corporate Social Responsibility

Figure 3-1. Ethics/Corporate Social Responsibility (David & David 2015)

Business Ethics
Business Ethics is the study of appropriate business policies and practice regarding
potentially controversial subjects including corporate governance, insider trading, bribery,
discrimination, corporate social responsibility and fiduciary responsibilities. It ensures that a
certain basic level of trust exists between consumers and various forms of market participants with
businesses. Business ethics goes beyond just a moral code of right and wrong; it attempts to
reconcile what companies must do legally versus maintaining a competitive advantage over
businesses. (Twin, 2020)

A new wave of ethics issues related to product safety, employee health, sexual harassment,
AIDS in the workplace, smoking, acid rain, affirmative action, waste disposal, foreign business
practices, cover-ups, takeover tactics, conflicts of interest, employee privacy, inappropriate gifts,
and security of company records has accentuated the need for strategists to develop a clear code of
business ethics. Internet fraud, hacking into company computers, spreading viruses, and identity
theft are other unethical activities that plague every sector of online commerce.

Merely having a code of ethics, however, is not sufficient to ensure ethical business
behavior. A code of ethics can be viewed as a public relations gimmick, a set of platitudes, or

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window dressing. To ensure that the code is read, understood, believed, and remembered, periodic
ethics workshops are needed to sensitize people to workplace circumstances in which ethics issues
may arise.3 If employees see examples of punishment for violating the code as well as rewards for
upholding the code, this reinforces the importance of a firm’s code of ethics. The website
www.ethicsweb.ca/codes provides guidelines on how to write an effective code of ethics. (David &
David 2015)

Whistle Blowing

Whistle-blowing refers to policies that

require employees to report any unethical
violations they discover or see in the firm.
Whistle blowing has to do with ethics because it
represents a person’s understanding, at a deep
level, that the action his or her organization is
taking is harmful-that interferes with people’s
rights or is unfair or detracts from the common
good. It also calls upon the virtues, especially
courage, as standing up for principles can be
punishing experience.
7-Eleven Encourages whistle blowing
Types of whistle-blowing:

1. Internal Whistle-blowing- refers to the reporting of the misconduct, fraud or indiscipline

to senior officers of the organization such as Head Human Resource or CEO.
2. External Whistle-blowing- is a term for reporting the wrongdoings inside the organization
to the outside authorities or organizations such as media or government officials.

Whistle-blowers in the corporate world receive up to 25 percent of the proceeds of legal

proceedings against firms for wrongdoing. Whistle-blower payouts are becoming more and more
common. In late 2012, Brad Birkenfeld, the former Zurich-based UBS AG banker who told the
Internal Revenue Service (IRS) how the bank helped thousands of Americans evade taxes, received
an IRS award of $104 million, perhaps the largest payout ever for an individual U.S. whistle-blower.
The largest bank in Switzerland, UBS’s Birkenfeld told IRS agents how UBS bankers came to the USA
to woo rich Americans, managed $20 billion of their assets, and helped them cheat the IRS. He
pleaded guilty to conspiracy in 2008, a year after reporting the bank’s conduct to the Justice
Department, U.S. Senate, IRS, and Securities and Exchange Commission. Birkenfeld went briefly to
prison for his involvement in the bank scheme, but UBS avoided prosecution in the USA by agreeing
to pay $780 million, disclosing data on more than 250 Swiss accounts, and admitting it helped
foster tax evasion. It later agreed to hand over data on another 4,450 accounts. Since Birkenfeld
came forward, at least 33,000 Americans have voluntarily disclosed offshore accounts to the IRS,
generating more than $5 billion.

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In the Philippines, Philippine Seven Corporation created a whistle-blowing page for the
purpose of creating a venue for all stakeholders of the corporation to anonymously report severe
incidences of misconduct which could lead to future damages of the PSC as a whole.

Ethics training programs should include messages from the CEO or owner of the business
emphasizing ethical business practices, the development and discussion of codes of ethics, and
procedures for discussing and reporting unethical behavior. Firms can align ethical and strategic
decision making by incorporating ethical considerations into long-term planning, by integrating
ethical decision making into the performance appraisal process, by encouraging whistle-blowing or
the reporting of unethical practices, and by monitoring departmental and corporate performance
regarding ethical issues.

Bribery

Bribery is defined by Black’s Law Dictionary as the offering, giving, receiving, or soliciting of
any item of value to influence the actions of an official or other person in discharge of a public or
legal duty. A bribe is a gift bestowed to influence a recipient’s conduct. The gift may be any money,
good, right in action, property, preferment, privilege,
emolument, object of value, advantage, or merely a promise
or undertaking to induce or influence the action, vote, or
influence of a person in an official or public capacity.

In 2012, Pfizer paid $60.2 million to settle a federal

investigation into bribery overseas whereby the firm was
accused of bribing doctors, hospitals administrators, and
regulators in several countries in Europe and Asia to
prescribe their medicines. Pfizer allegedly gave doctors in
China cellphones and tea sets, while plying Croatian doctors
with cash and international trips, and then sought to hide
the bribery by recording the payments in accounting
Source: Philstar 1
records as legitimate expenses.

Avon Products had also been investigated for bribery charges related to their winning the
first direct-sales license awarded by China to a foreign company. Even former Avon CEO Andrea
Jung is being interrogated through her attorney Theodore Wells Jr. Avon is also being examined for
spending millions of dollars in Brazil and France to consultants hired to assist the company with tax
bills in those countries.

Paying bribes is considered both illegal and unethical, but in some foreign countries, paying
bribes and kickbacks is acceptable. Tipping is even considered bribery in some countries.
Important anti-bribery and extortion initiatives are advocated by many organizations, including the
World Bank, the International Monetary Fund, the European Union (EU), the Council of Europe, the
Organization of American States, the Pacific Basin Economic Council, the Global Coalition for Africa,
and the United Nations

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Workplace Romance

Workplace romance is an intimate relationship between two truly consenting employees, as

opposed to sexual harassment, which defines broadly as unwelcome sexual advances, requests for
sexual favors, and other verbal or physical conduct of a sexual nature. Sexual harassment (and
discrimination) is illegal, unethical, and detrimental to any organization and can result in expensive
lawsuits, lower morale, and reduced productivity.

Workplace romance between two consenting

employees simply happens, so the question is generally
not whether to allow the practice, and or even how to
prevent it, but rather how best to manage the
phenomena. An organization probably should not
strictly forbid workplace romance because such a policy
could be construed as an invasion of privacy,
overbearing, or unnecessary. Some romances actually
improve work performance, adding a dynamism and
energy that translates into enhanced morale,
Source: iResearchNet 1
communication, creativity, and productivity.

However, it is important to note that workplace romance can be detrimental to workplace

morale and productivity, for a number of reasons that include:

1. Favoritism complaints can arise.

2. Confidentiality of records can be breached.
3. Reduced quality and quantity of work can become a problem.
4. Personal arguments can lead to work arguments.
5. Whispering secrets can lead to tensions and hostilities among coworkers.
6. Sexual harassment (or discrimination) charges may ensue, either by the involved female or a
third party.
7. Conflicts of interest can arise, especially when well-being of the partner trumps well-being
of the company.

Seven Principles of Admirable Business Ethics

1. Be trustworthy, because no individual or business wants to do business with an entity they do

not trust.
2. Be open minded, continually asking for “ethics-related feedback” from all internal and external
stakeholders.
3. Honor all commitments and obligations.
4. Do not misrepresent, exaggerate, or mislead with any print materials.
5. Be visibly a responsible community citizen.
6. Utilize your accounting practices to identify and eliminate questionable activities.
7. Follow the motto: Do unto others as you would have them do unto you.

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Source: Based on http://sbinformation.about.com/od/bestpractices/a/businessethics.htm

Corporate Social Responsibility (CSR) Defined

Corporate social responsibility (CSR) is a self-regulating business model that helps a

company be socially accountable—to itself, its stakeholders, and the public. By practicing corporate
social responsibility, also called corporate citizenship, companies can be conscious of the kind of
impact they are having on all aspects of society, including economic, social, and environmental.

To engage in CSR means that, in the ordinary course of business, a company is operating in
ways that enhance society and the environment, instead of contributing negatively to them.

Four types of corporate social responsibility

Recognizing how important socially responsible efforts are to their customers, employees
and stakeholders, many companies focus on a few broad CSR categories,
including: (Schooley,2020)

1. Environmental efforts: One primary focus of CSR is the environment. Businesses,

regardless of size, have large carbon footprints. Any steps a company can take to reduce its
footprint is considered good for both the company and society.

2. Philanthropy: Businesses can practice social responsibility by donating money, products or

services to social causes and nonprofits. Larger companies tend to have plentiful resources
that can benefit charities and local community programs; however, as a small business, your
efforts can make a big difference. If there is a specific charity or program you have in mind,
reach out to the organization and ask them about their specific needs and whether a donation
of money, time or perhaps your company's products would best help them.

3. Ethical labor practices: By treating employees fairly and ethically, companies can
demonstrate CSR. This is especially true of businesses that operate in international locations
with labor laws that differ from those in the United States.

4. Volunteering: Participating in local causes or volunteering your time in community events

says a lot about a company's sincerity. By doing good deeds without expecting anything in
return, companies can express their concern (and support) for specific issues and social
causes.

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Companies Performing CSR

Here are six companies practicing corporate social responsibility on a large

scale. (Schooley,2020)

1. Lego: The toy company has invested millions of dollars into addressing climate change
and reducing waste. Lego's environmentally conscious efforts include reduced
packaging, using sustainable materials and investing in alternative energy.

2. TOMS: TOMS donates one-third of its net profits to various charities that support
physical and mental health as well as educational opportunities. As of April 1, 2020, the
brand is directing all charitable donations to the TOMS COVID-19 Global Giving Fund.

3. Johnson & Johnson: The brand focuses on reducing its environmental impact by

investing in various alternative energy sources. Globally, Johnson & Johnson also works
to provide clean, safe water to communities.

4. Starbucks: The global coffee chain has implemented a socially responsible hiring

process to diversify their workforce. Their efforts are focused on hiring more veterans,
young people looking to start their careers, and refugees.

5. Google: Google has demonstrated its commitment to the environment by investing

in renewable energy sources and sustainable offices. The company’s CEO, Sundar
Pichai, is also known to stand up against social issues such as discrimination.

6. Pfizer: The pharmaceutical company's focus on "corporate citizenship" is reflected in

its healthcare initiatives. Some of the company's initiatives include spreading
awareness about noninfectious diseases, and providing accessible health services to
women and children in need.

Why Build a Socially Responsible Business?

While startups and small companies don't have the deep financial pockets that enterprises
have, their efforts can have a significant impact, especially in their local communities. 

"Even 5%, though it might not sound like a lot, can add up to make a difference," said
Schmidt. "When thinking of ways to donate and give back, start local, and then move from
there." 

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When identifying and launching a CSR initiative, involve your employees in the
decision-making process. Create an internal team to spearhead the efforts and identify
organizations or causes that may be somewhat related to the business or that employees feel
strongly about. Contributing to something your employees are passionate about can increase
engagement and success. Involving your employees in the decision-making process can also
bring clarity and assurance to your team. 

"If decisions [about CSR] are made behind closed doors, people will wonder if there are
strings attached and if the donations are really going where they say," Cooney said. "Engage
your employees [and consumers] in giving back. Let them feel like they have a voice." 

Regardless of which strategies you use for sustainable development, Boynton said it is
important to be vocal. Let your consumers know what you are doing to be socially conscious. 

"Consumers deserve to share in the good feelings associated with doing the right thing,
and many surveys have found that consumers are inclined to purchase a sustainable product over
a conventional alternative," she said. "Announcing these benefits is a win-win from both a
commercial and sustainability perspective." (Schooley,2020)

Environmental Sustainability

Businesses must not exploit and decimate the natural environment. Mark Starik at George
Washington University says, “Halting and reversing worldwide ecological destruction and
deterioration is a strategic issue that needs immediate and substantive attention by all businesses
and managers. According to the International
Standards Organization (ISO), the word environment
is defined as “surroundings in which an organization
operates, including air, water, land, natural
resources, flora, fauna, humans, and their
interrelation.” Firms are gaining competitive
advantage by being good stewards of the natural
environment.

Employees, consumers, governments, and

society are especially resentful of firms that harm
rather than protect the natural environment.
Conversely people today are especially appreciative Source: Sarayut/Getty Images

of firms that conduct operations in a way that mends, conserves, and preserves the natural
environment. Consumer interest in businesses preserving nature’s ecological balance and fostering
a clean, healthy environment is high. (David&David,2015)

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EXCELLENT
STRATEGIC
MANAGEMENT
SHOWCASED

Nestle

Nestlé S.A., headquartered in Vevey, Switzerland, is the largest food company in the world
measured by revenues. Nestlé has hundreds of products that include cereals, coffee, dairy products,
pet foods, snacks, baby food, and bottled water. Thirty of Nestlé’s brands have annual sales of over
1 billion Swiss francs (about $1.1 billion), including Nespresso, Nescafe, Kit Kat, Smarties, Nesquick,
Stouffers, Vittel, and Maggi. Nestlé has around 450 factories, operates in 86 countries, and employs
around 328,000 people. It is one of the main shareholders of L’Oreal, the world’s largest cosmetics
company. In April 2012, Nestlé acquired Pfizer’s infant-nutrition business for $11.9 billion. In May
2013, Nestlé began a $500 million expansion of its R&D center in Singapore, with a primary focus
on health and nutrition.

In order to ensure that various standards within the supply chain maintain a certain level,
Nestlé developed the Nestlé Supplier Code. The Code sets out non-negotiable minimum standards
which all employees, subcontractors, and suppliers must meet and adhere to whilst doing business
with Nestlé. Available in 22 languages on the corporate website, the Nestlé Supplier Code forms an
important part of all contracts, orders, and commercial agreements that Nestlé enters into with all
165,000 suppliers and 680,000 farmers that form the Nestlé supply chain. The aim of the Nestlé
Supplier Code is to ensure that all the company’s suppliers and farmers conduct business in a
manner that upholds Nestlé’s high values and emphasis on fairness and integrity.

Nestlé’s performance for the first half of 2013 was exemplary. The company’s profit margins
by-region, in the Americas, Europe, and Asia/Oceania/Africa were 17.8, 14.9, and 19.1  percent
respectively. The profit margins for Nestle Waters and Nestlé Nutrition were 10 percent and 20
percent respectively. Overall for Nestlé for the first half of 2013, the company generated a positive
4.1 percent organic growth and a 15.1 operating profit margin – both exemplary results.

Regarding Nestlé’s by-product financial results for the first of 2013, the company’s
operating profit margins were all positive, as follows: 1) Powdered and liquid beverages (24%), 2)

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Water (10.7%), 3) Milk products and ice cream (15.9%), 4) Nutrition & HealthCare (18.6%), 5)
Prepared dishes and cooking aids (13.5%), 6) Confectionery (12.7%), and PetCare (19.0%). All of
the reported results are also exemplary.

Source: Based on company documents.

Case Analysis #3 : Does it pay to be really

good?

Guide questions:
1. Nestle SA has done really well in 2011–2013. Visit their corporate website and determine if
business ethics and sustainability issues may be key reasons for their success.

2. What are the aspects that you like most and aspects that you like least about Nestlé’s
sustainability efforts? List at least 3 each and explain why.

3. If you owned a small business, would you develop a code of business conduct? If yes, what
variables would you include? If no, how would you ensure that ethical business standards
were being followed by your employees?

4. What is the relationship between personal ethics and business ethics? Are they, or should
they be the same?

Please pass this case analysis on or before October 10, 2020. Thank you! 

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