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Chapter 09 Ethics, Corporate Social Responsibility, Environmental Sustainability, and Strategy Answer Key

Multiple Choice Questions

1. Ethical principles in business

A. are generally less stringent than the ethical principles for society at large.B. are generally more stringent than the ethical principles for society at large.C. are not materially different from ethical principles in general.D. concern the rules each company's top management and board of directors make about "what is right"

and "what is wrong."E. deal chiefly with the actions and behaviors required to operate companies in a socially responsible

manner.Ethical principles in business are not materially different from ethical principles in general. Business ethics is the application of ethical principles and standards to the actions and decisions of business organizations and the conduct of their personnel.

AACSB: Ethics

Accessibility: Keyboard NavigationBlooms: Remember

Difficulty: 1 EasyLearning Objective: 09-01 How the standards of ethical behavior in business are no different from the ethical standards and norms of the

larger society and culture in which a company operates.Topic: Ethical behavior

2. How do ethical principles apply to businesses?

A. They chiefly deal with the actions and behaviors required to operate companies in a socially responsible manner.

B. They chiefly deal with the rules each company's top management and board of directors make about "what is right" and "what is wrong."

C. They are not materially different from ethical principles in general.D. They are generally less stringent than the ethical principles for society at large.E. They are generally more stringent than the ethical principles for society at large.Ethical principles in business are not materially different from ethical principles in general—business actions have to be judged in the context of society's standards of right and wrong, not with respect to a special set of ethical standards applicable only to business situations.

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3. Ethical principles as they apply to the conduct of personnel and business decisions

A. deal chiefly with standards a company has about what is right and wrong insofar as the conduct of its business is concerned and about what behaviors are expected of company personnel.

B. deal chiefly with the behaviors that a company's board of directors expects of all company personnel in both their conduct on the job and off the job.

C. involve the rules a company's top management and board of directors make about "what is right" and "what is wrong."

D. deal primarily with the company's duty to comply with legal requirements and conform to ethical norms of society, in general.

E. are generally less stringent than the ethical principles for society at large because it is well understood that businesses should not be expected to operate any differently than what the law requires of them.

Ethical principles in business are not materially different from ethical principles in general—business actions have to be judged in the context of society's standards of right and wrong, not with respect to a special set of ethical standards applicable only to business situations.

AACSB: Ethics


Difficulty: 2 MediumLearning Objective: 09-01 How the standards of ethical behavior in business are no different from the ethical standards and norms of the


4. Although exposing children to hazardous work and long work hours is unquestionably deplorable, which of the following, if true, leads to a moral dilemma?

A. Use of adult workers instead leads to higher labor costs.

B. Children are not as efficient as adults in doing physically demanding work.C. Many child laborers come from poverty-stricken families.D. Banning child labor increases school attendance.E. Working children learn independence.Although exposing children to hazardous work and long work hours is unquestionably deplorable, the fact remains that poverty-stricken families in many poor countries cannot subsist without the work efforts of young family members; sending their children to school instead of having them work is not a realistic option. If such children are not permitted to work (especially those in the 12-to-17 age group)—due to pressures imposed by activist groups in industrialized nations—they may be forced to go out on the streets begging or to seek work in parts of the "underground" economy such as drug trafficking and prostitution.

AACSB: Analytical Thinking

AACSB: EthicsAccessibility: Keyboard Navigation

Blooms: ApplyDifficulty: 2 Medium

Learning Objective: 09-02 What drives unethical business strategies and behavior.Topic: Ethical climate



5. The results of strategies that cannot pass the test of moral scrutiny often are NOT manifested in

A. sharp drops in stock prices and lower dividends.B. devastating public relations hits.C. sizable fines.D. criminal indictment and convictions of company executives.E. increased customer loyalty.Shareholders suffer major damage when a company's unethical behavior is discovered and punished. Making amends for unethical business conduct is costly, and it takes years to rehabilitate a tarnished company reputation.

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larger society and culture in which a company operates.Topic: Code of ethics

6. The contentions that (1) many of the same standards of what's ethical and what's unethical resonate with peoples of most societies regardless of local traditions and cultural norms and (2) to the extent there is common moral agreement about right and wrong actions, common ethical standards can be used to judge the conduct of personnel at companies operating in a variety of country markets and cultural circumstances, are defining beliefs of which of the following?

A. the school of ethical relativism but not the school of ethical universalismB. the school of ethical universalism but not the school of ethical relativismC. integrative social contracts theory but not the school of ethical universalismD. the school of ethical relativism and the school of ethical universalismE. the school of ethical relativism but not integrative social contracts theoryAccording to the school of ethical universalism, the most fundamental conceptions of right and wrong are universal and transcend culture, society, and religion. Common moral agreement about right and wrong actions and behaviors across multiple cultures and countries gives rise to universal ethical standards that apply to members of all societies, all companies, and all businesspeople.

AACSB: Ethics


Difficulty: 2 MediumLearning Objective: 09-02 What drives unethical business strategies and behavior.

Topic: Code of ethicsTopic: Ethical climate



7. The school of ethical universalism holds that

A. concepts of right and wrong are not absolute and leave room for deviation from country to country or circumstance to circumstance.

B. concepts of right and wrong are universal within countries but not across countries and cultures.C. concepts of right and wrong are governed by the Global Code of Ethical and Social Morality.D. the most fundamental conceptions of right and wrong are universal and apply to members of all

societies, all companies, and all businesspeople.E. there are multiple sets of standards concerning what is ethically right or wrong that are universally

applicable to citizens of a country.According to the school of ethical universalism, the most fundamental conceptions of right and wrong are universal and transcend culture, society, and religion. Common moral agreement about right and wrong actions and behaviors across multiple cultures and countries gives rise to universal ethical standards that apply to members of all societies, all companies, and all businesspeople.

AACSB: Ethics


Difficulty: 1 EasyLearning Objective: 09-02 What drives unethical business strategies and behavior.

Topic: Code of ethics

8. According to the school of ethical universalism

A. concepts of what constitute ethical behavior and unethical behavior are dictated by subjectively provable moral principles but not by objectively provable moral principles.

B. concepts of right and wrong are universal within countries/societies but not across countries or cultures.

C. concepts of what is ethical and what is unethical are socially determined, leaving room for variation from country to country or circumstance to circumstance.

D. to the extent there is common moral agreement about right and wrong actions and behaviors across multiple cultures and countries, there exists a set of universal ethical standards to which all societies and all individuals can be held accountable.

E. all societies and countries are obligated to apply universally defined ethical principles of right and wrong as set forth by a global body that formulates the Code of Ethical Behavior for the world.

According to the school of ethical universalism, the most fundamental conceptions of right and wrong are universal and transcend culture, society, and religion. Common moral agreement about right and wrong actions and behaviors across multiple cultures and countries gives rise to universal ethical standards that apply to members of all societies, all companies, and all businesspeople.

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9. Which of the following is true of the school of ethical universalism?

A. They are ethical principles that set forth the traits and behaviors considered virtuous and that a good person is supposed to believe in and display.

B. They are ethical principles embodied in international law that all societies and countries are obliged practice.

C. All societies and countries apply essentially the very same set of universally defined ethical principles of right and wrong in judging the ethical correctness of business behavior.

D. It is mandatory that the standards of what's ethical and what's unethical be applied universally to all businesses in all countries irrespective of local business traditions and local business norms.

E. The standards of what constitutes ethical and unethical behavior in business situations are partly universal, but in the main are governed by local business norms.

Common moral agreement about right and wrong actions and behaviors across multiple cultures and countries gives rise to universal ethical standards that apply to members of all societies, all companies, and all businesspeople. Thus, adherents of the school of ethical universalism maintain that it is entirely appropriate to expect all businesspeople to conform to these universal ethical standards.

AACSB: Ethics

Accessibility: Keyboard NavigationBlooms: UnderstandDifficulty: 2 Medium

Learning Objective: 09-02 What drives unethical business strategies and behavior.Topic: Code of ethics

10. If one concurs with the school of ethical universalism, then one believes that

A. many basic moral standards travel well across cultures and countries and really do not vary significantly according to local cultural beliefs, social mores, religious convictions, and/or the circumstances of the situation.

B. since ethical standards are subjectively determined, each company has a window within which it can define and implement its own ethical principles of right and wrong.

C. what is deemed right or wrong, fair or unfair, moral or immoral, ethical or unethical in business situations should be judged in light of local customs and social mores and can legitimately vary from one culture or nation to another.

D. each country should have some degree of latitude in setting its own ethical standards for judging the ethical correctness of business actions/behaviors within its borders.

E. concepts of right and wrong as they apply to business behavior are purely based on an individual's understanding of ethics and differ from person to person.

The strength of ethical universalism is that it draws upon the collective views of multiple societies and cultures to put some clear boundaries on what constitutes ethical and unethical business behavior, regardless of the country or culture in which a company's personnel are conducting activities.

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11. The strength of the beliefs underlying ethical universalism is that

A. ethical universalism recognizes significant variation in basic moral standards according to local cultural beliefs, local religious beliefs, and social mores.

B. ethical standards are objectively determined by religious and moral experts.C. what is deemed right or wrong, fair or unfair, moral or immoral, ethical or unethical is (or should

be) grounded in religious doctrine and applied strictly to all business situations.D. it draws upon the collective views of multiple societies and cultures to put some clear boundaries on

what constitutes ethical business behavior and what constitutes unethical business behavior no matter what country or culture a company is operating in.

E. it leaves room for thinking that concepts of right and wrong can be varying shades of gray.With respect to basic moral standards that do not vary significantly according to local cultural beliefs, traditions, or religious convictions, a multinational company can develop a code of ethics that it applies more or less evenly across its worldwide operations. It can avoid the slippery slope that comes from having different ethical standards for different company personnel depending on where in the world they are working.

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12. The contention that since there are cross-country or cross-cultural differences in ethical standards, it is appropriate to judge behavior as ethical/unethical in the light of local customs and social mores should take precedence over a single set of ethical standards or what may be applicable in a company's home market

A. defines what is meant by ethical relativism.B. defines what is meant by ethical universalism.C. is the foundation of a social contract.D. is the basis for the theory of ethical variation.E. is the guiding principle for religious and moral standards across countries and cultures.There are also observable variations from one society to another as to what constitutes ethical or unethical behavior. Differing religious beliefs, social customs, traditions, core values, and behavioral norms frequently give rise to different standards about what is fair or unfair, moral or immoral, and ethically right or wrong.

AACSB: Ethics



Topic: Ethical climate



13. The school of ethical relativism holds that

A. what constitutes ethical or unethical conduct should be determined by the religious convictions of each society or each culture within a country.

B. when there are cross-country or cross-cultural differences in what is deemed ethical or unethical in business situations, it is appropriate for local moral standards to take precedence over what the ethical standards may be elsewhere.

C. concepts of right and wrong are always governed by business norms in each country, culture, or society.

D. concepts of right and wrong are always a function of each individual's own set of values, beliefs, and ethical convictions.

E. concepts of right and wrong as they apply to business behavior are always absolute and usually more stringent than universal ethical principles.

The school of ethical relativism holds that differing religious beliefs, customs, and behavioral norms across countries and cultures give rise to multiple sets of standards concerning what is ethically right or wrong. These differing standards mean that whether business-related actions are right or wrong depends on the prevailing local ethical standards.

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14. Which of the following is true of ethical relativism?

A. Concepts of ethically right and ethically wrong are relative across countries and cultures but are universal within countries or cultures.

B. Individuals and businesses have a basic right to "moral free space" and it is inappropriate to specify ethically permissible and ethically impermissible actions and behaviors.

C. There are important occasions when local cultural norms and morality and the circumstances of the situation determine whether certain behaviors are right or wrong, for there are no absolutes when it comes to business ethics.

D. Concepts of right and wrong as applied to business situations are always a function of each company's own set of values, beliefs, and ethical convictions (as stated in the company's code of ethical conduct).

E. Standards of what is ethically right and ethically wrong as applied to business behavior are determined solely by whatever business norms prevail in a particular company's home country and are applicable to its operations in all other countries.

Ethical relativism implies that when there are cross-country or cross-cultural differences in ethical standards, it is appropriate for local ethical standards to take precedence over what the ethical standards may be in a company's home market. In a world of ethical relativism, there are few absolutes when it comes to business ethics, and thus few ethical absolutes for consistently judging the ethical correctness of a company's conduct in various countries and markets.

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15. If one accepts the tenets of the school of ethical relativism, then which of the following is NOT true?

A. There are multiple sets of ethical standards rather than a single universal set.B. At least some ethical standards are governed by local norms, religious doctrines, and social customs

rather than by absolute standards of right and wrong.C. What constitutes ethical or unethical behavior on the part of businesses must in some cases be

judged in the light of local customs and social mores.D. It is inappropriate to hold businesses accountable for observing a universal set of ethical standards.E. Ethical standards for businesses are established on the basis of conceptions of right and wrong that

apply to all businesses.The school of ethical relativism holds that differing religious beliefs, customs, and behavioral norms across countries and cultures give rise to multiple sets of standards concerning what is ethically right or wrong. These differing standards mean that whether business-related actions are right or wrong depends on the prevailing local ethical standards, but not on a largely formed corporate code of ethics.

AACSB: Ethics

Accessibility: Keyboard NavigationBlooms: Understand



16. Which of the following statements about the ethical relativism school of thinking is FALSE?

A. In a multinational company, application of ethical relativism equates to multiple sets of ethical standards.

B. There are few absolutes when it comes to business ethics and thus few ethical absolutes for consistently judging a company's conduct in various countries and markets.

C. When there are cross-country or cross-cultural differences in ethical standards, it is appropriate for ethical standards in a company's home market to take precedence over what the local ethical standards may be.

D. A company that adopts the principle of ethical relativism and holds company personnel to local ethical standards necessarily assumes that what prevails as local morality is an adequate guide to ethical behavior.

E. According to the ethical relativism school of thinking, a "one-size-fits-all" template for judging the ethical appropriateness of business actions and the behaviors of company personnel does not exist.

The underlying thesis of ethical relativism is that whether certain actions or behaviors are ethically right or wrong depends on the ethical norms of the country or culture in which they take place. For businesses, this implies that when there are cross-country or cross-cultural differences in ethical standards, it is appropriate for local ethical standards to take precedence over what the ethical standards may be in a company's home market.

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17. According to the advocates of ethical relativism,

A. if the use of underage labor and/or the payment of bribes/kickbacks are acceptable in a particular culture/society/country, then a case can be made that it is morally correct and ethical for a company to use these practices in conducting its business activities in that culture/society/country.

B. each company should have the flexibility to set its own standards for deciding whether the use of underage labor and/or the payment of bribes/kickbacks are ethically acceptable or not.

C. if the use of underage labor and/or the payment of bribes/kickbacks are not legal but locally acceptable in a particular country, then it is morally correct and ethical for a company to use these practices in that country.

D. each industry should go by standards established by competitors for deciding whether the use of underage labor and/or the payment of bribes/kickbacks are ethically acceptable or not.

E. it is very clear that the use of underage labor or the payment of bribes and kickbacks are ethically impermissible—local customs, behavioral norms, and traditions absolutely cannot be taken into account.

The underlying thesis of ethical relativism is that whether certain actions or behaviors are ethically right or wrong depends on the ethical norms of the country or culture in which they take place. For businesses, this implies that when there are cross-country or cross-cultural differences in ethical standards, it is appropriate for local ethical standards to take precedence over what the ethical standards established by competitors.

AACSB: Ethics


Difficulty: 3 HardLearning Objective: 09-02 What drives unethical business strategies and behavior.


18. A belief in ethical relativism leads to the conclusion that

A. since ethical standards are subjective, it is perfectly appropriate for each company to define and implement its own ethical principles of right and wrong as concerns the use of underage labor and the payment of bribes and kickbacks.

B. ethical standards are determined objectively (rather than subjectively).

C. whether the use of underage labor and the payment of bribes/kickbacks should be deemed ethical or unethical depends on the moral standards, values, and business norms that prevail in particular cultures, societies, countries, or circumstances.

D. ethical standards are objective and universal—thus whether the use of underage labor and the payment of bribes and kickbacks should be deemed ethical or unethical is definitely not dependent on the moral standards, values, and business norms that prevail in particular cultures, societies, countries, or circumstances.

E. standards of right and wrong are governed by what is legal in a given country—thus whether the use of underage labor and the payment of bribes and kickbacks are ethical or unethical is governed by local law.

Ethical relativism gives rise to multiple sets of standards concerning what is ethically right or wrong; these differing standards mean that whether business-related actions are right or wrong depends on the prevailing local ethical standards.

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19. The degree of cross-country variability in paying bribes and kickbacks to grease business transactions

A. violates ethical principles of right and wrong in all countries.B. is ethically acceptable according to the principle of ethical universalism and ethically unacceptable

according to the principle of ethical relativism.C. is acceptable to immoral managers but not to amoral managers.D. is one of the thorniest ethical problems that multinational companies face because paying bribes is

normal and customary in some countries and ethically or legally forbidden in others.E. is more acceptable in dealing with a company's suppliers than in dealing with a company's

customers.In many countries it is normal to make payments to prospective customers in order to win or retain their business. Some people stretch to justify the payment of bribes and kickbacks on grounds that bribing government officials to get goods through customs or giving kickbacks to customers to retain their business or win new orders is simply a payment for services rendered, in the same way that people tip for service at restaurants.

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20. Multinational companies that forbid the payment of bribes and kickbacks in their codes of ethical conduct and that are serious about enforcing this prohibition

A. are generally advocates of the ethical relativism school of thought.B. are misguided in their efforts because bribes and kickbacks are really no different from tipping for

service at restaurants as you pay for a service rendered.C. face a particularly vexing problem of losing business to competitors that have no scruples—an

outcome that penalizes ethical companies and company personnel.D. are out-of-step with business reality given that the preponderance of company managers are

immoral.E. are in a distinct minority compared to companies that view the payment of bribes and kickbacks as a

legitimate or permissible practice.Complying with the company's code of ethical conduct in these countries is very often tantamount to losing business to competitors that have no such scruples—an outcome that penalizes ethical companies and ethical company personnel (who may suffer lost sales commissions or bonuses). On the other hand, the payment of bribes or kickbacks not only undercuts the company's code of ethics but also risks breaking the law.

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21. According to the ethical relativism school of thinking,

A. there can be no one-size-fits-all template (set of authentic ethical norms) against which to gauge the conduct of company personnel, due to cross-cultural differences in ethical standards.

B. a company should have a different set of ethical standards for each country in which it operates.C. only respected religious experts can provide companies with a higher order moral compass.D. the best source of ethical standards in each country where the company operates is that country's

adopted Code of Required Ethical Conduct.E. since there can be no one-size-fits-all set of authentic ethical norms, it is appropriate for each

company to hold company personnel to observing the company's code of ethical conduct.Companies that forbid the payment of bribes and kickbacks in their codes of ethical conduct and that are serious about enforcing this prohibition face a particularly vexing problem in countries where bribery and kickback payments are an entrenched local custom. Complying with the company's code of ethical conduct in these countries is very often tantamount to losing business to competitors that have no such scruples—an outcome that penalizes ethical companies and ethical company personnel (who may suffer lost sales commissions or bonuses).

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22. Which of the following is NOT true about why codes of conduct based on ethical relativism are ethically dangerous for multinational companies?

A. They create a maze of conflicting ethical standards.B. They justify conflicting ethical standards for operating in different countries.C. They establish little moral basis for establishing ethical standards for a company worldwide.D. They restrict enforcement of ethical standards worldwide.E. They create standards that mostly relate to ethical codes in a company's home market, which might

trigger compliance issues in the local market.Codes of conduct based on ethical relativism can be ethically problematic for multinational companies by creating a maze of conflicting ethical standards. When there are cross-country or cross-cultural differences in ethical standards, it is appropriate for local ethical standards to take precedence over what the ethical standards may be in a company's home market.

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23. Companies that adopt the principle of ethical relativism in providing ethical guidance to company personnel

A. base their standards of what is ethical and what is unethical in the company's home market.B. may quickly find themselves on a slippery slope with no higher order moral compass if they operate

in countries where ethical standards vary considerably from country to country.C. have no fair way to judge the ethical correctness of the conduct of company personnel.D. have a one-size-fits-all set of ethical standards.E. end up allowing each company employee to determine what set of ethical standards to observe.Business leaders who rely upon the principle of ethical relativism to justify conflicting ethical standards for operating in different countries have little moral basis for establishing or enforcing ethical standards companywide. Rather, when a company's ethical standards vary from country to country, the clear message being sent to employees is that the company has no ethical standards or convictions of its own and prefers to let its standards of ethical right and wrong be governed by the customs and practices of the countries in which it operates.

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24. The contention that ethical standards should be governed both by (1) a limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations and (2) the circumstances of local cultures, traditions, and shared values that further prescribe what constitutes ethically permissible behavior and what does not are the basic principles of

A. the school of ethical relativism.B. the school of ethical universalism.C. the global corruption standards published by Transparency International.D. integrative social contracts theory.E. the Global Code of Ethical and Social Morality developed by the United Nations.The integrative social contracts theory suggests that there is a "social contract" by which managers in all situations have a duty to serve provides that "first-order" universal ethical norms always take precedence over "second-order" local ethical norms in circumstances where local ethical norms are more permissive. That is, universal ethical principles based on collective views of multiple cultures combine to form a "social contract" that all employees in all country markets have a duty to observe. Within the boundaries of this social contract, there is room for host-country cultures to exert some influence in setting their own moral and ethical standards. Integrative social contracts theory thus offers a middle ground between ethical universalism and ethical relativism and can provide managers in multinational companies with guidance in resolving cross-country ethical differences.

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25. The contention that ethical standards should reflect the collective views of multiple societies in establishing a set of universal ethical principles (that are widely recognized as laying legitimacy to ethical boundaries on actions and behavior in all situations) and in allowing inclusion of a set of prevailing customary actions of local cultures or groups (with their traditions and shared values), that further prescribe to what represents ethically permissible behavior and what does not, constitutes the basic principles of

A. the school of ethical relativism.B. the school of ethical universalism.C. integrated social contracts theory.D. corporate social responsibility.E. the triple bottom line.According to integrated social contracts theory, the ethical standards a company should try to uphold are governed by both (1) a limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on behaviors in all situations and (2) the circumstances of local cultures, traditions, and values that further prescribe what constitutes ethically permissible behavior.

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26. According to integrated social contracts theory, the ethical standards a company should try to uphold

A. are governed by the school of ethical universalism.B. are governed both by a limited number of universal ethical principles and the circumstances of local

cultures, traditions, and shared values.C. are governed by each country's Code of Required Ethical Conduct, which sets forth that each

individual/group/business/organization has a "social contract" to observe the ethical and moral standards that the country has adopted.

D. should be determined by the company's moral managers.

E. should be absolute and avoid wiggle room according to the circumstances of the situation.According to integrated social contracts theory, universal ethical principles based on the collective views of multiple societies form a "social contract" that all individuals and organizations have a duty to observe in all situations. Within the boundaries of this social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible.

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27. Which of the following regarding integrated social contracts theory is NOT true?

A. Certain universal ethical principles apply in those situations where all societies—those endowed with rationality and moral knowledge—have a common moral agreement on what is right and wrong.

B. Within the boundaries of a social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible.

C. Universal ethical principles or norms leave some "moral free space" for the people in a particular country (or local culture or even a company) to make specific interpretations of what other actions may or may not be permissible within the bounds defined by universal ethical principles.

D. Universal ethical norms always take precedence over local ethical norms.E. Local ethical norms always take precedence over universal ethical norms.According to integrated social contracts theory, adherence to universal or "first-order" ethical norms should always take precedence over local or "second-order" norms.

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28. Which one of the following is NOT a key element of integrated social contracts theory?

A. Universal ethical principles apply in those situations where most all societies—endowed with rationality and moral knowledge—have common moral agreement on what is wrong and thereby put limits on what actions and behaviors fall inside the boundaries of what is right, and which ones fall outside.

B. Commonly held views about what is morally right and wrong form a "social contract" (contract with society) that is binding on all individuals, groups, organizations, and businesses in terms of establishing the line between ethical and unethical behaviors.

C. Universal ethical principles or norms leave some "moral free space" for the people in a particular country (or local culture or even a company) to make specific interpretations of what other actions may or may not be permissible within the bounds defined by universal ethical principles.

D. Universal ethical norms always take precedence over local ethical norms.E. Integrated social contracts theory rejects the slippery slope of ethical relativism and embraces

ethical universalism.According to integrated social contracts theory, universal ethical principles based on the collective views of multiple societies form a "social contract" that all individuals and organizations have a duty to observe in all situations. Within the boundaries of this social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible. The theory integrates concepts from both ethical universalism and ethical relativism.

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29. Integrated social contracts theory maintains that

A. there is no such thing as "moral free space"—all ethical standards are determined by societal norms, and individuals have an implied social contract to live up to these standards.

B. few nations or cultures have common moral agreement on what is ethically right and wrong.C. there should be no absolute limits put on what actions and behaviors fall inside the boundaries of

what is ethically or morally right and which actions/behaviors fall outside.D. adherence to universal ethical norms always takes precedence over local ethical

norms.E. ethical relativism should always be adhered to before ethical universalism when dealing within

boundaries of a country's culture and norms.According to integrated social contracts theory, adherence to universal or "first-order" ethical norms should always take precedence over local or "second-order" norms.

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30. The strength of integrated social contracts theory is that it

A. correctly recognizes that all soundly reasoned ethical standards are universal.B. accommodates the best parts of ethical universalism and ethical relativism.C. puts no absolute limits on what actions and behaviors fall inside the boundaries of what is ethically

or morally right and which actions/behaviors fall outside.D. recognizes the importance of allowing local ethical norms to always take precedence over universal

ethical norms.E. recognizes that individuals and businesses have a basic right to "moral free space" and that it is

inappropriate to specify ethically permissible and ethically impermissible actions and behaviors.The strength of integrated social contracts theory is that it accommodates the best parts of ethical universalism and ethical relativism: the ethical standards a company should try to uphold are governed by both (1) a limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on behaviors in all situations and (2) the circumstances of local cultures, traditions, and values that further prescribe what constitutes ethically permissible behavior.

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31. According to integrative social contracts theory, the ethical standards a company should try to uphold

A. are governed by the school of ethical universalism.B. should be determined by the company's board of directors.C. should never be absolute but rather always provide some wiggle room according to the

circumstances of the situation.D. are governed by each country's Code of Required Ethical Conduct, which sets forth that each

individual/group/business/organization has a "social contract" to observe the ethical and moral standards that the country has adopted.

E. are governed both by (1) a limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations and (2) the circumstances of local cultures, traditions, and shared values that further prescribe what constitutes ethically permissible behavior and what does not—but universal norms always take precedence over local ethical norms.

Integrative social contracts theory suggests that there is a "social contract" by which managers in all situations have a duty to serve provides that "first-order" universal ethical norms always take precedence over "second-order" local ethical norms in circumstances where local ethical norms are more permissive. That is, universal ethical principles based on collective views of multiple cultures combine to form a "social contract" that all employees in all country markets have a duty to observe. Within the boundaries of this social contract, there is room for host-country cultures to exert some influence in setting their own moral and ethical standards. Integrative social contracts theory thus offers a middle ground between ethical universalism and ethical relativism and can provide managers in multinational companies with guidance in resolving cross-country ethical differences.

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32. The litmus test of a company's code of ethics is

A. the degree to which it is connected to a company's statement of core values.B. the extent to which it is embraced in crafting strategy and in the day-to-day operations of the

business.C. the extent to which a company's approach to ethical behavior mirrors the ethical principles for

society at large.D. based on the rules a company's top management and board of directors make about "what is right"

and "what is wrong."E. determined by the ethical behaviors expected of company personnel in the course of doing their

jobs.There's a big difference between having a code of ethics because it is mandated and having ethical standards that truly provide guidance for a company's strategy and business conduct. For a company to truly absorb appropriate ethical standards they should reflect in their strategies and day-to-day operations.

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33. Which of the following is NOT a key question that senior executives must ask whenever a new strategic initiative is under review?

A. Would the potential outcome of the proposed action pose a risk of embarrassment?B. Is what we are proposing to do fully compliant with our code of ethical

conduct?C. Is there anything in the proposed action that could be considered ethically

objectionable?D. Is it apparent that this proposed action is in harmony with our core values?E. Are any conflicts or concerns evident between the proposed action and our core

values?In companies with a cosmetic approach to ethics, any strategy-ethics linkage stems mainly from a desire to avoid the risk of embarrassment and possible disciplinary action for approving a strategic initiative that is deemed by society to be unethical and perhaps illegal.

AACSB: Ethics




34. Senior executives can ensure compliance with the ethical code of conduct by considering whether

A. the proposed action is fully compliant and in harmony with the code of ethical conduct and whether stakeholders would consider anything ethically objectionable.

B. the code of conduct is rejected by the market and accepted by employees.

C. the code of conduct was accepted by rivals.D. the creation of the code of conduct should be handled by executives or

employees.E. to eliminate the need to execute a code of conduct at all.It is up to senior executives to lead the way on compliance with the company's ethical code of conduct. They can do so by making it a point to consider three sets of questions whenever a new strategic initiative is under review:

• Is what we are proposing to do fully compliant with our code of ethical conduct? Are there any areas of ambiguity that may be of concern?• Is it apparent that this proposed action is in harmony with our code? Are any conflicts or potential problems evident?• Is there anything in the proposed action that could be considered ethically objectionable? Would our customers, employees, suppliers, stockholders, competitors, communities, the SEC, or the media view this action as ethically objectionable?

AACSB: Ethics






35. Unethical managerial behavior tends to be driven by such factors as

A. a lack of training in what is ethical and what is not.B. overzealous or obsessive pursuit of personal gain, wealth, and other self interests; a company culture

that puts the profitability and good business performance ahead of ethical behavior; and heavy pressures on company managers to meet or beat performance targets.

C. widespread managerial belief in the ethical relativism school of thinking.D. widespread managerial belief in the ethical universalism school of thinking.E. confusing differences between what is ethical behavior in one's personal life and what is ethically

permissible in business.The three major drivers of unethical strategies and unethical business behavior are (1) faulty oversight, (2) heavy pressures on managers to meet performance targets, and (3) company cultures that place profits and performance ahead of ethical behavior.

AACSB: Ethics



36. Which of the following factors does NOT necessarily drive unethical managerial behavior?

A. the pervasiveness of immoral and amoral businesspeopleB. overzealous pursuit of personal gain, wealth, and other selfish interestsC. a company culture that puts the profitability and good business performance ahead of ethical

behaviorD. heavy pressures on company managers to meet or beat earnings targetsE. executive compensation independent of company

performanceCompany executives often feel pressured to hit financial performance targets because their compensation depends heavily on the company's performance. Over the last two decades, it has become fashionable for boards of directors to grant lavish bonuses, stock option awards, and other compensation benefits to executives for meeting specified performance targets.

AACSB: Ethics






37. Which of the following is NOT NECESSARILY a consequence of pursuing a strategy that has unethical or shady components?

A. sharp drops in the price of company stockB. devastating public relations and the need for damage controlC. sizable government fines and penaltiesD. attracting investors who think the company's industry will growE. criminal indictments and convictions of culpable company executivesThe consequences of crafting strategies that cannot pass the test of moral scrutiny are manifested in sharp drops in stock price that cost shareholders billions of dollars, devastating public relations hits, sizable government fines and penalties, and criminal indictments and convictions of company executives.

AACSB: Ethics

Accessibility: Keyboard NavigationBlooms: Apply

Difficulty: 3 HardLearning Objective: 09-03 The costs of business ethics failures.


38. Which of the following would increase the likelihood of ethical lapses as well as poor long-term company performance?

A. dramatic cuts in research and development expenditures in years when low earnings are reported by the company

B. increases in research and development expenditures in years when low earnings are reported by the company

C. executive commitment to implementing strategic suggestions from the board of directorsD. attracting investors who think the company's industry will growE. hiring and maintaining a skilled and diverse workforceShort-termism is the tendency for managers to focus excessively on short-term performance objectives at the expense of longer-term strategic objectives. It has negative implications for the likelihood of ethical lapses as well as company performance in the longer run. Companies that decrease spending on research and development use a short-term approach to profit maximization.

AACSB: Ethics






39. Which of the following activities does NOT reflect short termism?

A. decreasing spending on research and developmentB. avoiding stock repurchases made to increase earnings-per-share of a

companyC. maintaining and hiring critical employees with compensations tied to annual company earningsD. taking into consideration all tangible future cash flows over intangible brand value appreciationE. carrying business operations with existing technologies in all markets to cut costs and increase

profitsShort-termism is the tendency for managers to focus excessively on short-term performance objectives at the expense of longer-term strategic objectives. It has negative implications for the likelihood of ethical lapses as well as company performance in the longer run. Firms that engage in stock repurchases to increase their earnings-per-share usually look for boosting profits in the short term to gain more investors.

AACSB: Ethics




40. Short-termism is defined as

A. making assessments of the moral character of a company's managers.B. the tendency for managers to focus on immediate performance objectives at the expense of longer-

term strategic objectives.C. assessing the costs and damages to the company's reputation as a result of ethical violations.D. weighing the short-term costs of regulatory compliance with the long-term costs of noncompliance.E. assessing the short-term costs of complying with government regulations.Short-termism is the tendency for managers to focus excessively on short-term performance objectives at the expense of longer-term strategic objectives.

AACSB: Ethics





41. Cultural demands to employ unethical means if circumstances become challenging can prompt

A. otherwise dishonorable people to behave ethically.B. increased observance of ethical strategic actions.C. a moral work climate.D. clever ways to operate outside established policies to boost profits.E. company authorization to observe what's right.When a company's culture spawns an ethically corrupt or amoral work climate, people have a company-approved license to ignore "what's right" and engage in any behavior or strategy they think they can get away with. Such cultural norms as "Everyone else does it" and "It is okay to bend the rules to get the job done" permeate the work environment.

AACSB: Ethics



42. When high ethical principles are deeply ingrained in the corporate culture of a company, culture can function as a powerful mechanism for all of the following EXCEPT

A. communicating ethical behavioral norms.B. gaining employee buy-in to the company's moral standards.C. gaining employee buy-in to the company's business principles.D. gaining employee buy-in to the company's corporate values.E. boosting short-termism.When high ethical principles are deeply ingrained in the corporate culture of a company, culture can function as a powerful mechanism for communicating ethical behavioral norms and gaining employee buy-in to the company's moral standards, business principles, and corporate values.

AACSB: Ethics





43. A company's strategy needs to be ethical because

A. of the dangers that top management will get embarrassed if the company's unethical behavior is publicly exposed.

B. it is good business and in the best interest of shareholders.C. everyone is an ethics watchdog and somebody is sure to blow the whistle on the company's

unethical behavior.D. of the inevitable risks of getting caught and prosecuted by governmental authorities if an unethical

strategy is used.E. unethical strategies boost long-termism in corporate culture.There are two reasons why a company's strategy should be ethical: (1) because a strategy that is unethical is morally wrong and reflects badly on the character of the company and its personnel, and (2) because an ethical strategy can be good business and serve the self-interest of shareholders.

AACSB: Ethics


Learning Objective: 09-03 The costs of business ethics failures.Topic: Code of ethics

44. Which of the following is NOT true regarding the effect of ethical standards on a company's strategy?

A. An unethical strategy reflects badly on the character of the company personnel involved.B. A strategy that is unethical in whole or in part is morally wrong.C. Pursuing an unethical strategy damages a company's reputation and can have costly

consequences.D. An ethical strategy is good business and is in the best interest of shareholders.E. An ethical strategy results in higher employee turnover.An ethical strategy leads to higher employee morale and lower degrees of employee cynicism leading to lower employee turnover.

AACSB: Ethics


Difficulty: 1 EasyLearning Objective: 09-03 The costs of business ethics failures.

Topic: Ethical behavior



45. Which of the following is NOT a particularly sound or valid reason why a company's strategy should be ethical?

A. An unethical strategy reflects badly on the character of the company personnel involved.B. Senior executives fear public embarrassment if caught doing something perceived as unethical.C. An ethical strategy is in the self-interest of shareholders, partly because an unethical strategy can

damage a company's reputation and partly because unethical behavior can be very costly in terms of fines and penalties.

D. Customers shun companies known for their shady behavior and ethically upstanding company personnel are repulsed by a work environment where unethical behavior is condoned.

E. A strategy that is unethical in whole or in part is morally wrong.In companies with a cosmetic approach to ethics, any strategy-ethics linkage stems mainly from a desire to avoid the risk of embarrassment and possible disciplinary action for approving a strategic initiative that is deemed by society to be unethical and perhaps illegal.

AACSB: Ethics



46. The strength of the beliefs underlying the moral case for an ethical strategy relates to all EXCEPT which of the following?

A. It begins with managers who themselves have strong character (for example, who are honest, have integrity, and truly care about how they conduct a company's business).

B. It starts with managers who walk the talk in displaying the company's stated values.C. It involves managers with high ethical principles and standards who are advocates of a corporate

code of ethics and strong ethics compliance and are genuinely committed.D. It starts with managers who understand there is a big difference between adopting values statements

superficially and truly accepting a company's actual strategy and business conduct.E. It starts with managers that involve themselves in creating strategies based on risks and loss of

reputation that implementing an unethical strategy can cost.Ethical strategy making is generally the product of managers who are of strong moral character. Managers with high ethical principles are usually advocates of a corporate code of ethics and strong ethics compliance, and they are genuinely committed to upholding corporate values and ethical business principles.

AACSB: Ethics






47. Notions of right and wrong, fair and unfair, moral and immoral, ethical and unethical

A. are governed mainly by religious views held in different geographic regions of the world.

B. are present in all societies, organizations, and individuals.C. vary enormously from country to country across the

world.D. ultimately depend on the circumstances—nothing is really black or white when it comes to ethical

standards.E. ultimately depend on a person's own values and beliefs.Norms to be common to all cultures and societies, and that those norms comprise honesty, trustworthiness, respecting the rights of others, practicing the Golden Rule, and avoiding unnecessary harm to workers or to the users of a company's product or service, is the concept of ethical universalism.

AACSB: Ethics


Learning Objective: 09-03 The costs of business ethics failures.Topic: Ethical climate

48. Visible costs that are incurred by companies and imposed for ethical wrongdoing include all of the following EXCEPT

A. government fines and penalties.B. civil penalties arising from class-action lawsuits or other litigation.C. lower dividends for shareholders.D. lower stock prices.E. legal and investigative costs.Legal and investigative costs are internal administrative costs incurred by a company involved in implementing unethical strategies.

AACSB: Ethics





49. Internal administrative costs which are incurred by companies for ethical wrongdoing include all of the following EXCEPT

A. costs attached to adverse effects on employee productivity.B. costs of remedial education and ethics training to company personnel.C. costs incurred in taking corrective actions.D. administrative costs associated with future compliance.E. legal and investigative costs.An adverse effect on employee productivity is an intangible cost to companies involved in ethical wrongdoing.

AACSB: Ethics




50. How does a company's unethical behaviors risk doing direct damage to a company's creditors?

A. It could result in diminished business reputation.B. It could lead to default on loans due to potential business fallout.C. It could result in lower stock prices and lower returns.D. It could lead to shunning by customers.E. It could make recruiting and retaining talented employees difficult.Creditors are unnerved by the unethical actions of a borrower because of the potential business fallout and subsequent risk of default on loans.

AACSB: Ethics




51. The theory of corporate social responsibility concerns

A. a company's duty to establish socially acceptable core values and to have a strictly enforced code of ethical conduct.

B. a company's duty to maximize shareholder value.C. the blending of shareholder interests and employee

interests.D. the company's responsibility to balance between strategic actions to benefit shareholders against the

duty to be a good corporate citizen.E. top management's responsibility to ensure that the company's actions and decisions are in the best

interest of society at large.The essence of socially responsible business behavior by businesses is that a company should balance strategic actions to benefit shareholders against the duty to be a good corporate citizen.

AACSB: Ethics




Difficulty: 1 EasyLearning Objective: 09-04 The concepts of corporate social responsibility and environmental sustainability and how companies balance

these duties with economic responsibilities to shareholders.Topic: Corporate Social Responsibility

52. Which one of the following is NOT a part of the business case for why companies should act in a socially responsible manner?

A. increased buyer patronage

B. internal benefits such as improved workforce retention and operational efficiencyC. aggressive pursuit of market share, revenues, and profitsD. reduced risk of reputation-damaging incidentsE. shareholder benefits such as increased stock price and financial

performanceThe exercise of corporate social responsibility is also good business because it can lead to: (1) increased buyer patronage; (2) reduced risk of reputation-damaging incidents; (3) internal benefits such as improved efficiency and workforce retention; (4) shareholder benefits, based on apparent correlations between CSR and stock price and other measures of financial performance. Shareholders are likely to view the business case for social responsibility as a strong one, even though they certainly have a right to be concerned about whether the time and money their company spends to carry out its social responsibility strategy outweigh the benefits and reduce the bottom line by an unjustified amount. CSR encompasses the pursuit of market share, revenues, profits, etc. to the extent the other principles are not compromised.

AACSB: Ethics


Difficulty: 3 HardLearning Objective: 09-04 The concepts of corporate social responsibility and environmental sustainability and how companies balance


53. The essence of socially responsible business behavior is

A. balancing strategic actions to benefit shareholders against the duty to be a good corporate citizen.B. pursuing actions to keep prices low enough that the company's profits will not be viewed by the

general public as obscenely high or exorbitant.C. making sizable contributions to political action committees representing the interests of the industry.D. undertaking actions to balance the interests of all company stakeholders rather than just exclusively

working to protect the interests of shareholders.E. providing jobs for the local community rather than outsourcing them to low wage labor countries.The essence of socially responsible business behavior by businesses is that a company should balance strategic actions to benefit shareholders against the duty to be a good corporate citizen.

AACSB: Ethics






54. The notion of social responsibility as it applies to businesses is concerned with

A. a company's duty to put the public interest ahead of shareholder interests.B. societal expectations that all company stakeholders will be treated equally and fairly.C. a company's duty to establish a loyal workforce.D. the responsibility that top management has for ensuring that the company's actions and decisions are

in the best interest of stakeholders at large.E. a company's duty to operate in an honorable manner and provide good working conditions for

employees.Corporate social responsibility (CSR) refers to a company's duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in the local communities where it operates and in society at large.

AACSB: Ethics


Difficulty: 2 MediumLearning Objective: 09-04 The concepts of corporate social responsibility and environmental sustainability and how companies balance


55. Which of the following is NOT generally an action for a company to consider in crafting a strategy of social responsibility?

A. devoting efforts to employ an ethical strategy and observe ethical principles in operating the business

B. making charitable contributions, donating money and the time of company personnel to community service endeavors, supporting various worthy organizational causes

C. taking steps to provide suppliers, distributors, and other value chain partners with handsome profit margins

D. initiating actions to build a workforce that is diverse with respect to gender, race, national origin, and other aspects that different people bring to the workplace

E. pursuing actions to protect the environment and, in particular, to minimize or eliminate any adverse impact on the environment stemming from the company's own business activities

Demonstrating social responsibility entails undertaking actions that earn trust and respect from all stakeholders. These include: operating in an honorable and ethical manner, striving to make the company a great place to work, demonstrating genuine respect for the environment, and trying to make a difference in bettering society.

AACSB: Ethics






56. Which of the following is NOT something a company should usually consider in crafting a strategy of social responsibility?

A. actions to benefit shareholders such as raising the dividend or boosting the stock priceB. making charitable contributions and supporting community service endeavors and reaching out to

make a difference in the lives of the disadvantagedC. actions to ensure the company has an ethical strategy and operates honorably and ethicallyD. actions that promote good stewardship (by protecting and enhancing) the environmentE. actions to enhance workforce diversityThe underlying thesis is that company managers should display a social conscience in operating the business and specifically take into account how management decisions and company actions affect the well-being of employees, local communities, the environment, and society at large.

AACSB: Ethics




57. Good corporate citizens

A. create a democratic workplace whereby the voices of lower-level employees are heard through representation on the board of directors.

B. go beyond meeting society's expectations for ethical strategies and business behavior by fostering social benefit and balancing the interests of all.

C. provide work-from-home options to working mothers residing in distant locations.D. develop and market only products that are "environmentally friendly."E. identify up-and-coming managers who have a future in local- or state-level politics.It is every company's duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in the local communities where it operates and in society at large. The text cites several examples of corporations that go beyond meeting society's expectations for ethical conduct and responsible business behavior on the part of corporations that foster social benefit and balance the needs of multiple stakeholders.

AACSB: Ethics






58. A company's social responsibility strategy typically comprises all of the following EXCEPT

A. actions to enhance workforce diversity and make the company a great place to work.

B. making charitable contributions and donating money and the time of company personnel to community service endeavors.

C. actions to protect or enhance the environment.D. conscious efforts to ensure that all elements of the company's strategy are ethical and that its actions

protect or enhance the environment (beyond what is legally required).E. actions to keep the company's profits at a reasonable and acceptable level to ensure the company's

products/pricing will not be viewed by the general public as obscenely high or exorbitant.Corporate social responsibility (CSR) refers to a company's duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in the local communities where it operates and in society at large.

AACSB: Ethics




59. Striving to be socially responsible entails touching such bases as

A. what actions to take to moderate workforce diversity and make the company a great place to work.

B. whether to shrink charitable contributions and trim down the time commitment of company personnel to community service endeavors to increase earnings.

C. what, if any, actions to take to protect or enhance the environment (beyond what is legally required).D. exerting conscious efforts to ensure that all elements of the company's strategy are executed

diligently.E. prioritizing stock repurchases over dividends.Although striving to improve local communities is an important social responsibility initiative, it is important to prioritize enhancement of internal environments for a healthier workforce would generate profits that would be used in betterment of society.

AACSB: Ethics






60. How do good corporate citizens function?

A. They pursue discretionary activities that contribute to the betterment of society, especially in areas where government has chosen not to focus its efforts or has fallen short.

B. They are active participants in the political processes.C. They identify up-and-coming managers who have a future in local- or state-level politics.D. They create a democratic workplace where the voices of lower-level employees are heard through

representation on the board of directors.E. They seek to replace government functions with more efficient, market-driven solutions.Good corporate citizens are socially responsible for meeting legal, ethical and economic responsibilities imposed by shareholders. They aim at improving standards of communities in which they operate, while still sustaining profitability for stakeholders.

AACSB: Ethics




61. The "triple bottom line" refers to what three performance metrics a company should simultaneously succeed in?

A. economic, social, and environmentalB. pay, power, and performanceC. planning, execution, and resultsD. legal, social, and economicalE. legal, social, and environmentalCSR initiatives undertaken by companies are frequently directed at improving the company's triple bottom line (TBL)—a reference to three types of performance metrics: economic, social, and environmental.

AACSB: Ethics






62. The three dimensions of performance are often referred to in terms of the "three pillars" and include all of the following EXCEPT

A. a company's efforts to improve the lives of its internal and external stakeholders.

B. the various social initiatives that make up the CSR strategies.C. a firm's ecological impact and environmental practices.D. the economic impact (value and costs) that the company has on society.E. a company's efforts to reduce research and development funding to boost profits.Reducing research and development funding is often an example of short-termism.

AACSB: Ethics




63. Triple-bottom-line (TBL) reporting is emerging as an important way for companies to

A. conceal their initiatives and accomplishments in the areas of diversity, environment, community, and ethics to increase profitability.

B. make the results of their CSR strategies apparent to stakeholders and for stakeholders to hold companies accountable for their impact on society.

C. minimize transparency and facilitate benchmarking CSR efforts across firms and industries.D. minimize the use of standard reporting frameworks and metrics.E. attract profit-oriented investors.Triple-bottom-line reporting is emerging as an increasingly important way for companies to make the results of their CSR strategies apparent to stakeholders and for stakeholders to hold companies accountable for their impact on society. The use of standard reporting frameworks and metrics, such as those developed by the Global Reporting Initiative, promotes greater transparency and facilitates benchmarking CSR efforts across firms and industries.

AACSB: Ethics






64. A company's environmental sustainability strategy consists of its deliberate actions to

A. shelter the environmental impacts from the company's resources and competitive capabilities.B. provide for the defense of natural resources usage within cross-border commitments.C. moderate assurance for ecological support systems for future

generations.D. guard against ultimate endangerment of the business.E. operate the business in a manner that promotes the longevity of sustainability effects.A company's environmental sustainability strategy consists of its deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against ultimate endangerment of the planet.

AACSB: Ethics




65. An environmental sustainability strategy consists of a company's deliberate actions to

A. operate in an honorable manner, provide good working conditions for employees, and actively work to enhance the quality of life in the local communities where it operates and in society at large.

B. meet the current needs of customers, suppliers, shareholders, employees, and other stakeholders in a manner that protects the environment, provides for the longevity of natural resources, maintains ecological support systems for future generations, and guards against ultimate endangerment of the planet.

C. protect and enhance natural resources and ecological support systems, taking into account the current consumption for the current generation.

D. apply universal norms regarding the protection of the environment to its everyday operations and to function below the levels required by prevailing environmental regulations.

E. balance commonly held views about what constitutes environmentally appropriate actions against its ability to make a profit.

A company's environmental sustainability strategy consists of its deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against ultimate endangerment of the planet.

AACSB: Ethics


Learning Objective: 09-04 The concepts of corporate social responsibility and environmental sustainability and how companies balance these duties with economic responsibilities to shareholders.

Topic: Corporate Social Responsibility



66. Which of the following is NOT something a company should consider in crafting an environmental sustainability strategy?

A. actions to protect the environment that will guard against the ultimate endangerment of the planetB. actions to maintain ecological support systems for future generationsC. actions to provide for the longevity of natural resourcesD. actions to couple environmental degradation and economic growthE. actions to contain the adverse effects of greenhouse gasesA company's environmental sustainability strategy consists of its deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against ultimate endangerment of the planet.

AACSB: Ethics




67. What is the function of the Global Reporting Initiative?

A. It promotes greater transparency and facilitates benchmarking CSR efforts across firms and industries.

B. It promotes and establishes mutual funds investment opportunities comprised of companies that excel on the basis of the triple bottom line.

C. It promotes greater awareness of the Dow Jones World Index, which comprises companies that are engaged in environment sustainability.

D. It promotes corporate governance, climate change, and labor practices.E. It is a nonprofit reporting organization that ranks companies on habitat protection.The use of standard reporting frameworks and metrics, such as those developed by the Global Reporting Initiative, promotes greater transparency and facilitates benchmarking CSR efforts across firms and industries.

AACSB: Ethics






68. Which of the following statements regarding a company's CSR and sustainability strategies is FALSE?

A. A company is not demonstrating an adequate degree of social responsibility or endeavoring to be a model corporate citizen unless it spends 5 percent (or more) of pretax profits on social responsibility initiatives.

B. Corporate social agendas that address generic social issues may help boost a company's reputation but are unlikely to improve its competitive strength in the marketplace.

C. Cost savings and improved profitability can be drivers of corporate sustainability strategies.D. Social responsibility strategies linked to a company's customer value proposition or key value chain

activities may help build competitive advantage.E. While the strategies and actions of all socially responsible companies have sameness in the sense of

drawing on the same categories of socially responsible behavior, each company's version of being socially responsible is unique.

A company's environmental sustainability strategy consists of its deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against ultimate endangerment of the planet. There is no definite percentage of spending involved.

AACSB: Ethics




69. Sourcing a supply from a small, women-owned business is an example of a corporate social responsibility action to

A. enhance employee well-being.

B. support philanthropy.C. protect and sustain the environment.D. ensure honorable and ethical action.E. promote workforce diversity.At some companies, the diversity initiative extends to suppliers—sourcing items from small businesses owned by women or members of ethnic minorities, for example.

AACSB: Ethics






70. When a company's social responsibility initiatives become part of the way it operates its business every day, these initiatives are

A. likely to be fully effective in creating a competitive advantage.B. normally based on a corporate social agenda.C. ambiguous and rarely make a difference in the way the company does business.D. implausible to advance a positive, high-energy workplace environment.E. heavily dependent on encouraging employee morality.Unless a company's social responsibility initiatives become part of the way it operates its business every day, the initiatives are unlikely to catch fire and be fully effective.

AACSB: Ethics




71. The moral case for why a company should actively promote the betterment of society and act in a manner benefitting all its stakeholders

A. is based on the principle of treating people fairly and with respect.B. is based on the conviction that improving the well-being of society ranks higher in priority and is

certainly nobler than making a profit and serving the interests of shareholders.C. boils down to "it's the right thing to do."D. rests on the principle that a business is duty bound to fulfill its social contract to serve the interests

of all stakeholders in a business enterprise.E. is based on the principle that business activities lack real legitimacy and have few socially

redeeming qualities unless and until a company exerts a significant and sincere effort to give something back to the community.

The moral case for why businesses should act in a manner that benefits all of the company's stakeholders—not just shareholders—boils down to "It's the right thing to do." Ordinary decency, civic-mindedness, and contributions to society's wellbeing should be expected of any business.

AACSB: Ethics






72. Which of the following is NOT part of the moral case for why a company should actively promote the betterment of society?

A. Every action a company takes can be interpreted as a statement of what it stands for.B. Most business leaders can be expected to acknowledge that socially responsible actions and

environmental sustainability are important and that businesses have a duty to be good corporate citizens.

C. In return for society granting a business a "license to operate" and not be unreasonably restrained in its pursuit of a fair profit, a business is obligated to act as a responsible citizen and do its fair share to promote the general welfare.

D. Acting in a socially responsible manner is in the best financial interest of shareholders.E. Every business has a duty to do what's best for shareholders while operating honorably, provide

good working conditions to employees, and be a good environmental steward.In today's social and political climate, most business leaders can be expected to acknowledge that socially responsible actions are important and that businesses have a duty to be good corporate citizens. But there is a complementary school of thought that business operates on the basis of an implied social contract with the members of society. Acting in a socially responsible manner might not be always in the best interests of a shareholder but is morally right way of operating businesses.

AACSB: Ethics




73. The business case for why companies should act in a socially responsible manner includes such reasons as it

A. generates internal operating benefits (as concerns employee recruiting, workforce retention, employee morale, and training costs).

B. increases the risk of reputation-damaging incidents.C. is not in the best interest of shareholders.D. can lead to decreased buyer patronage.E. can increase costs and reduce employee retention.Companies with deservedly good reputations for social responsibility and sustainable business practices are better able to attract and retain employees, compared to companies with tarnished reputations. Some employees just feel better about working for a company committed to improving society. This can contribute to lower turnover and better worker productivity. Other direct and indirect economic benefits include lower costs for staff recruitment and training.

AACSB: Ethics






74. The business case for CSR and environmentally sustainable business practices suggests such actions could lead to all of the following EXCEPT

A. increased buyer patronage.

B. shorter supply chain.C. lower costs and enhanced employee recruiting and workforce retention.D. opportunities for revenue enhancement and best long-term profits for shareholders.E. reduced risk of reputation-damaging incidents.A strong visible social responsibility or environmental sustainability strategy gives a company an edge in appealing to consumers who prefer to do business with companies that are good corporate citizens thereby increasing buyer patronage.

AACSB: Ethics




75. Which of the following is NOT a part of the business case for why companies should act in a socially responsible manner?

A. Every business has a moral duty to be a good corporate citizen.B. Acting in a socially responsible manner reduces the risk of reputation-damaging incidents.C. Acting in a socially responsible manner is in the overall best interest of shareholders.D. To the extent that a company's socially responsible behavior wins applause from consumers and

fortifies its reputation, a company may win additional patronage.E. Acting in a socially responsible manner can generate internal benefits (as concerns employee

recruiting, workforce retention, employee morale, and training costs).A moral duty to be a good corporate citizen and act in a socially responsible manner is a part of the moral case.

AACSB: Ethics






76. Which of the following is FALSE as it concerns the merits of why acting in a socially responsible manner is good business?

A. The higher the public profile of a company or brand, the greater the scrutiny of its activities and the higher the potential for it to become a target for pressure group action.

B. Acting in a socially responsible manner nearly always results in higher profits and a higher stock price for shareholders.

C. To the extent that a company's socially responsible behavior wins applause from consumers and fortifies its reputation, a company may win additional patronage.

D. Some employees feel better about working for a company committed to improving society—a condition that can contribute to lower turnover and better worker productivity.

E. Companies with deservedly good reputations for contributing time and money to the betterment of society are better able to attract and retain employees compared to companies with tarnished reputations.

When CSR and sustainability strategies increase buyer patronage, offer revenue-enhancing opportunities, lower costs, increase productivity, and reduce the risk of reputation-damaging incidents, they contribute to the economic value created by a company and improve its profitability. This does not necessarily mean acting in a socially responsible manner would always bear profits.

AACSB: Ethics




77. Studies done on the correlation of between good corporate behavior and good financial performance have generally found

A. no correlation.B. a small positive correlation.C. a small negative correlation.D. a large positive

correlation.E. a large negative correlation.A review of 135 studies indicated there is a positive, but small, correlation between good corporate behavior and good financial performance; only 2 percent of the studies showed that dedicating corporate resources to social responsibility harmed the interests of shareholders.

AACSB: Ethics






78. A multinational automobile manufacturer issues a public statement that the company's vehicle emissions tests had been falsified to meet environmental compliance standards over recent years using software specifically designed for that purpose. Following the news, the CEO is replaced, vehicle sales plummet, and the company's stock price sharply declines. Which of the following has the company incurred?

A. only visible and internal administrative costsB. visible but not intangible costsC. visible and intangible costsD. internal administrative costs but not visible costsE. internal administrative costs but not intangible costsThe multinational auto manufacturer has incurred intangible costs due to loss of reputation and credibility, and incurred resulting visible costs due to the sharp declines in customer patronage and share prices.

AACSB: Ethics


Difficulty: 2 MediumLearning Objective: 09-03 The costs of business ethics failures.


79. A manufacturer and marketer of prescription pharmaceuticals decided to raise the price of its anti-malaria drug from $15.00 per dose to $750.00 per dose, a price increase of 5,000%. Following a public outcry, the CEO was forced to resign, the company was forced to retract the price hike, and the company's stock price sharply declined. Which of the following has the company incurred?

A. only visible and internal administrative costsB. visible but not intangible costsC. internal administrative costs but not intangible costsD. internal administrative costs but not visible costsE. visible and intangible costsThe pharmaceutical company has incurred intangible costs due to loss of reputation and credibility due to allegations of price gouging, and incurred resulting visible costs due to the sharp share price decline and forced departure of its CEO.

AACSB: Ethics






80. Which of the following companies incurs mainly internal administrative costs due to unethical practices?

A. Company A loses its customer loyalty by selling low-quality products for a high cost.B. Company B's tax evasion practices are revealed, leading to a drastic fall in stock prices.C. Company C incurs penalties of $1.5 billion for discharging toxic wastes into a river.D. Company D must retrain its employees who are using their Twitter accounts to post workplace

frustrations.E. Company E pays men higher wages than women while at the same time propagating messages of

equality and fair play.Company D incurs the internal administrative costs of providing remedial education and ethics training to company personnel and the costs of taking corrective actions.

AACSB: Ethics




81. A company that sets aside 2 percent of its pre-tax profits to build and then fund a cancer-recovery facility for teens is an example of a corporate social responsibility action to

A. enhance employee well-being.

B. support philanthropy.C. protect and sustain the environment.D. ensure honorable and ethical action.E. promote workforce diversity.Companies fulfill their philanthropic obligations by making charitable contributions, supporting community service endeavors, engaging in broader philanthropic initiatives, and reaching out to make a difference in the lives of the disadvantaged.

AACSB: Ethics






82. A company that promotes carpooling among its employees, has cut its printer-paper usage in half, and has installed solar panels on its roof is an example of a corporate social responsibility action to

A. promote workforce diversity.B. ensure the company operates honorably and ethically.C. support philanthropy and participate in community service.D. protect and sustain the environment.E. enhance workplace amenities and employee well-

being.By implementing carpooling and reducing resource use, the company is striving to reduce energy and material consumption thereby reducing its overall carbon footprint to protect and sustain environment.

AACSB: Ethics




83. Which of the following is an activity a company engages in to enhance the quality of life for its employees in an attempt to fulfill its corporate social responsibility?

A. It fires suppliers that use child labor.B. It provides work-at-home opportunities.C. It donates a percentage of its profits to a national charity.D. It pays to have litter removed from a state highway.E. It sells its products at a discounted price in underdeveloped countries.Numerous companies exert extra effort to enhance the quality of life for their employees at work and at home. This can include onsite day care, flexible work schedules, workplace exercise facilities, special leaves for employees to care for sick family members, work-at-home opportunities, career development programs and education opportunities, special safety programs, and the like.

AACSB: Ethics






84. Which of the following is most likely to be morally valid from the perspective of ethical relativism?

A. bribing a government official to allow you to transfer gambling winnings to a tax havenB. performing genital mutilations on nonconsenting female teensC. employing as laborers children under the age of

nineD. agreeing to a country's policy of prohibiting the education of femalesE. bribing a government official in an underdeveloped country to obtain a permit to build a hospitalCodes of conduct based on ethical relativism can be ethically problematic for multinational companies by creating a maze of conflicting ethical standards. A particularly thorny area facing multinational companies is the degree of cross-country variability in paying bribes. In many countries in eastern Europe, Africa, Latin America, and Asia, it is customary to pay bribes to government officials in order to win a government contract, obtain a license or permit, or facilitate an administrative ruling. Bribing being "customary" in a locality is thus often cited as a justification for indulging in it.

AACSB: Ethics




85. Which of the following builds a moral case for corporate social responsibility and environmentally sustainable business practices?

A. Socially responsible actions and sustainable business practices can lower costs and enhance employee recruiting and workforce retention.

B. Opportunities for revenue enhancement may also come from CSR and environmental sustainability strategies.

C. Well-conceived CSR strategies and sustainable business practices are in the best long-term interest of shareholders.

D. A business engages in ordinary decency and civic-mindedness, and contributes to society's well-being.

E. A strong commitment to socially responsible behavior reduces the risk of reputation-damaging incidents.

The moral case for why businesses should act in a manner that benefits all of the company's stakeholders—not just shareholders—boils down to "It's the right thing to do." Ordinary decency, civic-mindedness, and contributions to society's wellbeing should be expected of any business.

AACSB: Ethics






86. Following a public outcry, the CEO of a nationwide consumer bank was forced to apologize to and recompense customers for whom the bank had set up false credit card and auto loan accounts, over 100,000 account managers were terminated, and the company's stock price also sharply declined. Which of the following did the company incur?

A. only visible and internal administrative costsB. visible but not intangible costsC. internal administrative costs, tangible costs, and intangible costsD. internal administrative costs but not visible costsE. visible and intangible costsThe bank has incurred intangible costs stemming from its loss of reputation and credibility due to allegations of falsified accounts, incurred resulting visible costs due to the sharp share price decline, incurred internal administrative costs due to the forced departure of account managers, and tangible costs due to the and need to recompense customers whose accounts were falsified.

AACSB: Ethics



larger society and culture in which a company operates.Topic: Corporate Social Responsibility

87. The business case for why companies should act in a socially responsible manner DOES NOT include such reasons as

A. generating internal benefits (such as improved employee recruiting, workforce retention, training, and worker productivity).

B. reducing the risk of reputation-damaging incidents.C. acting in the best interest of shareholders in terms of increased stock price and financial

performance.D. increasing buyer patronage and customer loyalty.E. reducing the triple bottom line.There are several good business reasons why the exercise of corporate social responsibility is also good business: (1) Increased buyer patronage; (2) Reducing the risk of reputation-damaging incidents; (3) Internal benefits such as improved efficiency and workforce retention; (4) Shareholder benefits, based on apparent correlations between CSR and stock price and other measures of financial performance. Shareholders are likely to view the business case for social responsibility as a strong one, even though they certainly have a right to be concerned about whether the time and money their company spends to carry out its social responsibility strategy outweigh the benefits and reduce the bottom line by an unjustified amount.

AACSB: Ethics






88. Which one of the following is NOT a part of the business case for why companies should act in a socially responsible manner?

A. Every business has a moral duty to be a good corporate citizen.B. Acting in a socially responsible manner reduces the risk of reputation-damaging incidents.C. Acting in a socially responsible manner is in the overall best interest of shareholders.D. To the extent that a company's socially responsible behavior wins applause from consumers and

fortifies its reputation, a company may win additional patronage.E. Acting in a socially responsible manner can generate internal benefits (as concerns employee

recruiting, workforce retention, training, and improved worker productivity).While moral duty is important, it is not one of several business reasons why the exercise of corporate social responsibility is also good business, which are: (1) increased buyer patronage; (2) reducing the risk of reputation-damaging incidents; (3) internal benefits such as improved efficiency and workforce retention; (4) shareholder benefits, based on apparent correlations between CSR and stock price and other measures of financial performance. Shareholders are likely to view the business case for social responsibility as a strong one, even though they certainly have a right to be concerned about whether the time and money their company spends to carry out its social responsibility strategy outweigh the benefits and reduce the bottom line by an unjustified amount.

AACSB: Ethics


Learning Objective: 09-01 How the standards of ethical behavior in business are no different from the ethical standards and norms of the larger society and culture in which a company operates.




89. Which one of the following is false as concerns the merits of why acting in a socially responsible manner is "good business"?

A. Companies with good reputations for contributing time and money to bettering society are better able to attract and retain employees compared to companies with tarnished reputations.

B. There is a high correlation between socially responsible behavior that addresses social issues and a firm's competitive advantage and financial performance.

C. To the extent that a company's socially responsible behavior wins applause from consumers and fortifies its reputation, a company may win additional patronage.

D. Operating in a socially responsible manner protects the company from consumer, environmental, and human rights activist groups that are quick to criticize businesses whose behavior they consider to be out of line.

E. Well-conceived social responsibility strategies help avoid or preempt legal and regulatory actions that could prove costly to the company.

The jury is still out on the correlation between CSR and stock price performance and competitive advantage. Corporate social agendas that address generic social issues may help boost a company's reputation, but it is still not yet conclusive whether or not they contribute to improving its competitive strength in the marketplace. For example, a two-year study of leading companies found that improving environmental compliance and developing environmentally friendly products enhance earnings per share, profitability, and the likelihood of winning contracts. Also, the stock prices of companies that rate high on social and environmental performance criteria have been found to perform 35 to 45 percent better than the average of the 2,500 companies comprising the Dow Jones Global Index. Finally, a review of some 135 studies indicated there is a positive, but small, correlation between good corporate behavior and good financial performance; only 2 percent of the studies showed that dedicating corporate resources to social responsibility harmed the interests of shareholders.

AACSB: Ethics

Accessibility: Keyboard NavigationBlooms: Analyze

Difficulty: 3 HardLearning Objective: 09-01 How the standards of ethical behavior in business are no different from the ethical standards and norms of the


Essay Questions

90. What is the difference between ethics and business ethics?

Ethics concerns principles of right or wrong conduct. Business ethics is the application of ethical principles and standards to the actions and decisions of business organizations and the conduct of their personnel. However, ethical principles in business are not materially different from ethical principles in general.

AACSB: Ethics

Blooms: RememberDifficulty: 1 Easy





91. Identify and explain the three schools of thought about ethical standards for companies with international operations.

The three schools of thought about ethical standards for companies with international operations are:

1. Ethical universalism, which holds that the most fundamental conceptions of right and wrong are universal and apply to members of all societies, all companies, and all businesspeople.2. Ethical relativism, which holds that differing religious beliefs, customs, and behavioral norms across countries and cultures give rise to multiple sets of standards concerning what is ethically right or wrong. These differing standards mean that whether business-related actions are right or wrong depends on the prevailing local ethical standards.3. Integrative social contracts theory, which provides a middle position between the opposing views of ethical universalism and ethical relativism. According to integrated social contracts theory, universal ethical principles based on the collective views of multiple societies form a "social contract" that all individuals and organizations have a duty to observe in all situations. Within the boundaries of this social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible.

AACSB: Ethics

Blooms: UnderstandDifficulty: 2 Medium



92. What are the strengths and weaknesses of the thesis that ethical standards are (or should be) universal?

The strength of ethical universalism is that it draws upon the collective views of multiple societies and cultures to put some clear boundaries on what constitutes ethical and unethical business behavior, regardless of the country or culture in which a company's personnel are conducting activities. Thus a multinational company can develop a code of ethics that it applies more or less evenly across its worldwide operations. It can avoid the slippery slope that comes from having different ethical standards for different company personnel depending on where in the world they are working.Among its weaknesses we can say that, although undoubtedly there are some universal moral prescriptions, there are also observable variations from one society to another as to what constitutes ethical or unethical behavior. Indeed, differing religious beliefs, social customs, traditions, core values, and behavioral norms frequently give rise to different ethical standards. In a world of ethical relativism, there are few absolutes when it comes to business ethics, and thus few ethical absolutes for consistently judging the ethical correctness of a company's conduct in various countries and markets.

AACSB: Ethics

Blooms: UnderstandDifficulty: 3 Hard





93. What are the differences between the school of ethical universalism and the school of ethical relativism?

The two schools of thought differ in how they view differences between nations, and between societies. Ethical universalism holds that the most fundamental conceptions of right and wrong are universal and transcend culture, society, and religion. It is focused on avoiding the slippery slope that comes from having different ethical standards for different company personnel depending on where in the world they are working.Although ethical relativism acknowledges that there are some universal moral prescriptions (like being truthful and trustworthy), it sees significant observable variations from one society to another as to what constitutes ethical or unethical behavior. This school believes that a "one-size-fits-all" template for judging the ethical appropriateness of business actions and the behaviors of company personnel is totally inappropriate.

AACSB: Ethics




94. What are the strengths and weaknesses of the beliefs and tenets underlying the school of ethical relativism?

The strength of ethical relativism is in its understanding of cross-country or cross-cultural differences in ethical standards. It allows for local ethical standards to take precedence over what the ethical standards may be in a company's home market. In a world of ethical relativism, there are few absolutes when it comes to business ethics, and thus few ethical absolutes for consistently judging the ethical correctness of a company's conduct in various countries and markets.The weakness of ethical relativism is in the slippery slope that comes from having different ethical standards for different company personnel depending on where in the world they are working. Issues such as the payment of bribes and kickbacks and even the use of underage labor are often arguably justified in terms of local social and political conditions. That something happens locally as a norm is not necessarily a justification.

AACSB: Ethics






95. Ethical relativism equates to multiple sets of ethical standards. True or false? Explain your answer.

True, ethical relativism does equate to multiple sets of ethical standards. In fact it holds that a "one-size-fits-all" template for judging the ethical appropriateness of business actions and the behaviors of company personnel is totally inappropriate. It advocates multiple sets of ethical standards because it believes that whether certain actions or behaviors are ethically right or wrong depends on the ethical norms of the country or culture in which they take place. Multiple sets of ethical standards are inevitable when it is considered appropriate for local ethical standards to take precedence over what the ethical standards may be in a company's home market.

AACSB: Ethics




96. What is meant by integrated social contracts theory? What is its contribution to the debate about ethical standards?

According to integrated social contracts theory, universal ethical principles based on the collective views of multiple societies form a "social contract" that all individuals and organizations have a duty to observe in all situations. Within the boundaries of this social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible.In the debate about ethical standards integrative social contracts theory provides a middle position between the opposing views of ethical universalism and ethical relativism. It believes that the ethical standards a company should try to uphold are governed by both (1) a limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on behaviors in all situations and (2) the circumstances of local cultures, traditions, and values that further prescribe what constitutes ethically permissible behavior.

AACSB: Ethics






97. Explain the difference between ethical universalism and integrated social contracts theory. Which school of thought is most inclusive? Explain the reasons for your answer.

As per the school of ethical universalism, the most fundamental conceptions of right and wrong are universal and transcend culture, society, and religion. It gives little space for variations based on local ethical principles. The integrative social contracts theory provides a middle position between the opposing views of ethical universalism and ethical relativism. The integrative social contracts theory is most inclusive as it accommodates the best parts of ethical universalism and ethical relativism. It also offers managers in multinational companies clear guidance in resolving cross-country ethical differences: Those parts of the company's code of ethics that involve universal ethical norms must be enforced worldwide, but within these boundaries there is room for ethical diversity and the opportunity for host-country cultures to exert some influence over the moral and ethical standards of business units operating in that country.

AACSB: Ethics

Blooms: EvaluateDifficulty: 2 Medium



98. Discuss briefly what is meant by the terms ethical universalism and ethical relativism. Where does integrated social contracts theory fit into the debate about ethical standards? Which of the three schools of thought stands on the strongest ground?

Ethical universalism holds that the most fundamental conceptions of right and wrong are universal and apply to members of all societies, all companies, and all businesspeople. Ethical relativism holds that differing religious beliefs, customs, and behavioral norms across countries and cultures give rise to multiple sets of standards concerning what is ethically right or wrong. These differing standards mean that whether business-related actions are right or wrong depends on the prevailing local ethical standards. The integrative social contracts theory provides a middle position between the opposing views of ethical universalism and ethical relativism.The integrative social contracts theory stands on the strongest ground as it accommodates the best of the other two theories. It offers managers in multinational companies clear guidance in resolving cross-country ethical differences: Those parts of the company's code of ethics that involve universal ethical norms must be enforced worldwide, but within these boundaries there is room for ethical diversity and the opportunity for host-country cultures to exert some influence over the moral and ethical standards of business units operating in that country.

AACSB: Ethics

Blooms: EvaluateDifficulty: 3 Hard





99. Does a company have a duty to go beyond legal requirements and conform to the ethical norms of the societies in which it operates?

A company does have a duty to go beyond legal requirements and conform to the ethical norms of the societies in which it operates. A broader understanding of the ethical norms is important to understand rights and wrongs in letter and spirit. Legal regulations dictate only requirements that make actions lawful, while ethical norms dwell deeper into the complexities of morality that are not always black and white like the laws. While most company managers are careful to ensure that a company's strategy is within the bounds of what is legal, evidence indicates they are not always so careful to ensure that all elements of their strategies and operating activities are within the bounds of what is considered ethical. The consequences of crafting strategies that cannot pass the test of moral scrutiny are manifested in sizable fines, devastating public relations hits, sharp drops in stock prices that cost shareholders billions of dollars, criminal indictments, and convictions of company executives.

AACSB: EthicsBlooms: Apply



100. What is the case for why business strategies should be ethical?

There are two reasons why a company's strategy should be ethical: (1) because a strategy that is unethical is morally wrong and reflects badly on the character of the company and its personnel, and (2) because an ethical strategy can be good business and serve the self-interest of shareholders.

AACSB: Ethics


Learning Objective: 09-03 The costs of business ethics failures.Topic: Ethical behavior



101. Apart from "the business of business is business, not ethics" kind of thinking, there are three other primary factors that contribute to a drive toward unethical business behavior. Identify and explain the three factors.

Apart from the "business of business is business, not ethics" kind of thinking, the three other main drivers of unethical business behavior that stand out are:

• Faulty oversight, enabling the unscrupulous pursuit of personal gain and self-interest: People who are obsessed with wealth accumulation, power, status, and their own self-interest often push ethical principles aside in their quest for personal gain. Driven by greed and ambition, they exhibit few qualms in skirting the rules or doing whatever is necessary to achieve their goals.• Heavy pressures on company managers to meet or beat short-term performance targets. The pressure to "never miss a quarter"—so as not to upset the expectations of analysts, investors, and creditors—prompts nearsighted managers to engage in short-term maneuvers to make the numbers, regardless of whether these moves are really in the best long-term interests of the company.• A company culture that puts profitability and business performance ahead of ethical behavior. When a company's culture spawns an ethically corrupt or amoral work climate, people have a company-approved license to ignore "what's right" and engage in any behavior or strategy they think they can get away with.

AACSB: Ethics


Learning Objective: 09-02 What drives unethical business strategies and behavior.Topic: Ethical behavior



102. Identify the three types of business costs of ethical failures. Provide examples for each type of cost.

The three types of business costs of ethical failures are:

Visible Costs:

• Government fines and penalties• Civil penalties arising from class-action lawsuits and other litigation aimed at punishing the company for its offense and the harm done to others• The costs to shareholders in the form of a lower stock price (and possibly lower dividends)

Internal Administrative Costs:

• Legal and investigative costs incurred by the company• The costs of providing remedial education and ethics training to company personnel• The costs of taking corrective actions• Administrative costs associated with ensuring future compliance

Intangible or Less Visible Costs:

• Customer defections• Loss of reputation• Lost employee morale and higher degrees of employee cynicism• Higher employee turnover• Higher recruiting costs and difficulty in attracting talented employees• Adverse effects on employee productivity• The costs of complying with often harsher government regulations

AACSB: Ethics


Learning Objective: 09-03 The costs of business ethics failures.Topic: Ethical behavior

103. Sustainability is a term used in various ways, but most often it concerns a firm's relationship to the environment and its use of natural resources. Define the term from a company's business practices and strategy perspective.

From a company's business practices perspective, sustainability means those practices that are capable of meeting the needs of the present without compromising the ability to meet the needs of the future. Many companies have also begun to incorporate a consideration of environmental sustainability into their strategy. So from a company's business strategy perspective, sustainability entails deliberate and concerted actions to operate businesses in a manner that protects natural resources and ecological support systems, guards against outcomes that will ultimately endanger the planet, and is therefore sustainable for centuries.

AACSB: Ethics






104. Identify the five good reasons (actions) companies can choose in crafting social responsibility initiatives, environmental sustainability, and a good corporate citizenship strategy.

The five good actions companies can choose in crafting social responsibility initiatives, environmental sustainability, and a good corporate citizenship strategy are:

• Striving to employ an ethical strategy and observe ethical principles in operating the business.• Making charitable contributions, supporting community service endeavors, engaging in broader philanthropic initiatives, and reaching out to make a difference in the lives of the disadvantaged.• Taking actions to protect the environment and, in particular, to minimize or eliminate any adverse impact on the environment stemming from the company's own business activities.• Creating a work environment that enhances the quality of life for employees.• Building a diverse workforce with respect to gender, race, national origin, and other aspects that different people bring to the workplace.

AACSB: Ethics




105. Define and discuss the programs commonly included under a company's corporate social responsibility strategy.

Corporate responsibility programs commonly include the following elements:

• Striving to employ an ethical strategy and observe ethical principles in operating the business.• Making charitable contributions, supporting community service endeavors, engaging in broader philanthropic initiatives, and reaching out to make a difference in the lives of the disadvantaged.• Taking actions to protect the environment and, in particular, to minimize or eliminate any adverse impact on the environment stemming from the company's own business activities.• Creating a work environment that enhances the quality of life for employees.• Building a diverse workforce with respect to gender, race, national origin, and other aspects that different people bring to the workplace.

AACSB: Ethics






106. Explain how environmental sustainability strategies go about improving a company's "Triple-P" performance—people, planet, and profit. Why is it important for strategy-makers to find points of intersection between society and the company's ability to execute value chain activities or better serve customer needs?

At the center of the triple bottom line is a company's responsibility to stakeholders rather than shareholders. Stakeholders include anyone who might be affected by a company's practices, from workers to people in neighboring communities. Actions that need to be taken to get the three P's right are:

• People: Be responsible for how you affect your employees and people in the wider communities with which you deal directly or via your products. Keep their interests at the very forefront.• Planet: Be responsible for creating a healthy environment by fostering sustainable environmental practices. Reduce waste, conserve energy, and maintain environmentally safe manufacturing processes.• Profit: Work harmoniously in your social and environmental settings. Include costs of pollution, worker displacement, and other factors in profit calculations.It important for strategy-makers to find points of intersection between society and the company's ability to execute value chain activities or better serve customer needs because:• Such actions can lead to increased buyer patronage.• A strong commitment to socially responsible behavior reduces the risk of reputation-damaging incidents.• Socially responsible actions and sustainable business practices can lower costs and enhance employee recruiting and workforce retention.• Opportunities for revenue enhancement may also come from CSR and environmental sustainability strategies.• Well-conceived CSR strategies and sustainable business practices are in the best long-term interest of shareholders.

AACSB: Ethics






107. What is the essence of the moral case for why a company should engage in socially responsible actions and environmentally sustainable business practices?

The essence of the business case for why a company should engage in socially responsible actions and environmentally sustainable business practices boils down to "It's the right thing to do." Ordinary decency, civic-mindedness, and contributions to society's wellbeing should be expected of any business. In today's social and political climate, most business leaders can be expected to acknowledge that socially responsible actions are important and that businesses have a duty to be good corporate citizens. But there is a complementary school of thought that business operates on the basis of an implied social contract with the members of society. According to this contract, society grants a business the right to conduct its business affairs and agrees not to unreasonably restrain its pursuit of a fair profit for the goods or services it sells. In return for this "license to operate," a business is obligated to act as a responsible citizen, do its fair share to promote the general welfare, and avoid doing any harm. Such a view clearly puts a moral burden on a company to operate honorably, provide good working conditions to employees, be a good environmental steward, and display good corporate citizenship.

AACSB: Ethics




108. What is the essence of the business case for why a company should engage in socially responsible actions and environmentally sustainable business practices?

The essence of the business case for why a company should engage in socially responsible actions and environmentally sustainable business practices lies in the fact that such engagement can improve business reputations and operational efficiency while also reducing their risk exposure and encouraging loyalty and innovation. Broadly speaking the following are the benefits:

• increased buyer patronage• reduction in the risk of reputation-damaging incidents• lowered costs and enhanced employee recruitment and workforce retention• opportunities for revenue enhancement• long-term benefits for shareholders

AACSB: Ethics






109. How do socially responsible actions and sustainable business practices lower costs related to human resources in a company?

Socially responsible actions and sustainable business practices can lower costs and enhance employee recruiting and workforce retention. Companies with deservedly good reputations for social responsibility and sustainable business practices are better able to attract and retain employees, compared to companies with tarnished reputations. Some employees just feel better about working for a company committed to improving society. This can contribute to lower turnover and better worker productivity. Other direct and indirect economic benefits include lower costs for staff recruitment and training.

AACSB: Ethics




110. Why are well-conceived CSR strategies and sustainable business practices considered in the best long-term interest of shareholders?

When CSR and sustainability strategies increase buyer patronage, offer revenue-enhancing opportunities, lower costs, increase productivity, and reduce the risk of reputation-damaging incidents, they contribute to the economic value created by a company and improve its profitability. Furthermore, socially responsible business behavior helps avoid or preempt legal and regulatory actions that could prove costly and otherwise burdensome. In some cases, it is possible to craft corporate social responsibility strategies that contribute to competitive advantage and, at the same time, deliver greater value to society.

AACSB: Ethics






111. Explain the key tenets of the concept of environmental sustainability. How does striving for environmental sustainability impact strategic initiatives involving a company's shareholders, its employees, and the environment?

Environmental sustainability involves deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against the ultimate endangerment of the planet. Sustainability initiatives undertaken by companies are directed at improving the company's triple bottom line—its performance on economic, environment, and social metrics. Strategic initiatives include: (1) reengineering internal processes to improve a company's overall performance on sustainability measures; (2) packaging redesign for products to conserve natural resources and reduce the volume of consumer waste; (3) sourcing from suppliers that practice sustainable farm management; and (4) addressing societal needs of consumers in developing countries.

AACSB: Ethics




112. Explain and provide examples of how companies committed to environmental sustainability are able to address society's concerns about protecting the environment, while lowering costs and/or creating value for customers.

Sometimes, cost savings and improved profitability are drivers of corporate sustainability strategies. That is, social responsibility strategies linked to a customer value proposition or to key value chain activities may also help build competitive advantage. Examples include emphasizing local procurement, establishing a foundation for humane animal husbandry, running vehicles on biofuels, using only biodegradable cleaning products, and pursuing responsible waste management policies at Whole Foods Markets.






113. Explain what is meant by "sustainable business practices" and using that explanation, provide three examples of companies that pursue sustainability strategies.

Sustainable business practices are those that meet the needs of the present without compromising the ability to meet the needs of the future. Examples include: (1) Unilever's special low-rate financing for tomato suppliers choosing to switch to water-conserving irrigation systems and training programs in India that have allowed contract cucumber growers to reduce pesticide use by 90 percent, while improving yields by 78 percent; (2) Nike's sustainability initiatives that have reduced energy consumption by 24 percent, emissions by 21 percent, water consumption by 13 percent, waste by 35 percent and chemical usage by 20 percent between 2010 and 2015; and Procter & Gamble's Swiffer cleaning system, a product that was designed with reduction of energy and water use in mind.




114. Under what circumstances should a company endeavor to be socially responsible in its actions and conduct?

There are several good business reasons why the exercise of corporate social responsibility is also good business: (1) increased buyer patronage; (2) reducing the risk of reputation-damaging incidents; (3) internal benefits such as improved efficiency and workforce retention; (4) shareholder benefits, based on apparent correlations between CSR and stock price and other measures of financial performance. Shareholders are likely to view the business case for social responsibility as a strong one, even though they certainly have a right to be concerned about whether the time and money their company spends to carry out its social responsibility strategy outweigh the benefits and reduce the bottom line by an unjustified amount.






115. Does a high correlation exist between a company's social responsibility and its competitive advantage and financial performance?

The jury is still out on the correlation between CSR and stock price performance and competitive advantage. Corporate social agendas that address generic social issues may help boost a company's reputation, but it is still not yet conclusive whether or not they contribute to improving its competitive strength in the marketplace. For example, a two-year study of leading companies found that improving environmental compliance and developing environmentally friendly products enhance earnings per share, profitability, and the likelihood of winning contracts. Also, the stock prices of companies that rate highest on social and environmental performance criteria have been found to perform 35 to 45 percent better than the average of the 2,500 companies comprising the Dow Jones Global Index, Finally, a review of some 135 studies indicated there is a positive, but small, correlation between good corporate behavior and good financial performance; only 2 percent of the studies showed that dedicating corporate resources to social responsibility harmed the interests of shareholders.

AACSB: Ethics






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