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Defining morals: how corporate ethics works? · The Galaxy of Marketing

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  Can businesses be good and responsible? Or more
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  specifically, can a for -profit company be good
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  and responsible to society and environment? Now,
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  before you say that is a stupid question, hear
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  me out. Hello, marketing explorers! Welcome to
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  the seventh episode of the Galaxy of Marketing.
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  I'm Olga K., a marketing major, and today we
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  are going to delve into the business ethics.
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  It's been a long month that I've been studying
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  and researching business ethics of Western world,
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  so be prepared to hear a lot of information.
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  And we'll start with a surprise. Corporate responsibility
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  makes companies more profitable. Yes, you heard
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  that right. Investing in charity, sustainable
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  practices and better employment conditions brings
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  more profit. partially because nowadays people
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  are very conscious of brand reputation, and thanks
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  to the Internet and economic development, any
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  scandal can spread lightning fast and customers
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  will have a variety of options to switch to.
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  We can even say that corporate social responsibility,
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  or CSR, becomes a sort of competitive advantage
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  and economic sustainability, which makes it even
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  more important to understand. The debates about
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  corporate social sustainability and responsibility
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  are usually focused on three core questions.
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  Are for -profits eligible and competent enough
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  to invest in social and environmental initiatives?
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  And aren't they supposed to maximize profits
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  for shareholders instead? But how can they not
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  invest into society and ecology if they directly
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  impact businesses' own operations? If you hate
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  history, I feel sorry for you, because to understand
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  the very roots of Western corporate behavior
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  and ethics and answer those questions, we should
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  start from not such a brief history lesson. A
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  long, long time ago, in the 19th century, companies
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  treated their employees as slaves and would fall
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  them into barely survivable situations with low
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  payments and terrible working conditions, not
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  to mention the ecology. The reason was simple.
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  earning more money, because investing in responsibility
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  was expensive. Some, of course, were generally
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  concerned and tried to donate money to science,
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  education and religion, but many did so only
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  to preserve their image. Later they realized
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  that better payment and working conditions meant
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  more loyalty and efficiency, and some corporations
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  willingly took the more responsible approach.
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  Yet, after the Great Depression in the United
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  States, the government created mandatory rules
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  and defined minimum salaries, forcing everyone
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  to be responsible to everyone, not just a few
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  selected companies treating well a few selected
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  employees, which was the case before. It established
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  a bare minimum level in the US and later in Europe.
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  In 1952, US economist Howard Bowen introduced
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  term corporate social responsibility. But that
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  wasn't enough, since mentality isn't easy to
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  change, and the term wasn't widely used until
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  20 years later. In 1960s, the series of scandals
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  like General Motors' Corvair defect, when the
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  company prioritized styling cost -cutting over
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  essential safety features, or the Chiahuga river
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  fire, when industrial waste caused river to literally
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  catch fire. And only then corporate accountability
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  became a mainstream talk again. Book Silent Spring
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  by Rachel Carson sparked modern environmentalism
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  in 1962. The fight for rights and justice by
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  Martin Luther King, massive upheaval of feminism
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  and LGBTQ rights, forced new legislations, such
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  as limits on pollution and environmental harm,
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  and set the right path. The corporate world,
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  however, wasn't willing to give up easily. And
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  Milton Friedman introduced the shareholder theory.
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  It became a bible for business for decades. And
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  it stated that businesses are property of shareholders
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  and must maximize their profits even if that
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  causes harm. According to it, shareholders can
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  use their own capital in solving societal issues
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  after as individuals without using business entities
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  to do so. Despite its popularity, the question
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  remained. If shareholders want to prevent harm,
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  shouldn't they be taking action so that their
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  businesses do not create harm in the first place,
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  so that they don't have to invest money to resolve
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  it afterwards? Finally, in 1971, the concept
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  of the social contract between businesses and
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  society was introduced by the Committee of Economic
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  Development and refers to a business corporate
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  citizenship. It's not as hard as it sounds. Basically,
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  the concept introduces the idea that companies
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  function and exist because of public consent,
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  and therefore there is an obligation to contribute
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  to the needs of society. Yet at the time, companies
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  didn't have clear guidelines and legislations
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  about CSR, though the actions were mostly about
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  preventing critical harm. And honestly, they
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  could have done more. In 1984, Mr. Freeman published
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  Stakeholder's Theory, Do not confuse him with
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  Friedman. They directly challenge traditional
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  shareholder orientation. According to it, any
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  group or individual who can affect the setting
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  of objectives or is affected by the achievement
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  of the organization objectives is a stakeholder.
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  So the businesses should take all of them into
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  account before making decisions. This gave a
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  completely new perception of businesses and business
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  operations and was largely accepted by NGOs,
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  some proactive businesses like certified big
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  corporations, the non - or back -agency, for
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  example, or governments. Sounds great, right?
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  Well, from a sociable perspective, that is. But
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  the thing is, it wasn't that easy to implement
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  in practice. Typically, ethical questions come
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  to one. Who is responsible for what? And answering
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  it is arduous. Let's take a look at the modern
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  example to understand the problem. Tragical case
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  of Uber, when a driver accidentally bumped into
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  a mother with two children on the crosswalk.
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  One child, Sophia Liu, passed away. Her mother
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  and brother were severely injured. The family
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  brought suit against Uber, but the company refused
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  to take responsibility, because at the time the
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  driver didn't have a passenger in the car and
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  formally wasn't performing services for a company.
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  The prosecution side, however, was insisting
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  that the company created an app that distracted
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  drivers on the road, violating state's law. Besides,
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  the driver was locked in at the moment. The defendant
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  kept insisting that it was driver's personal
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  fault and company had nothing to do with it.
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  So, who is responsible for the tragedy? When
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  taking these kind of decisions, courts, companies
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  or governments use stakeholders mapping. just
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  theory that exists in the world, but it is the
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  one that is actually implemented in practice.
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  It is a graph of X and Y axes, where interest
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  is X and Y is the influence. Stakeholders are
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  then arranged accordingly. In that case, government
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  and court officials were highly interested and
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  highly influential, while company and its competitors,
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  who were, by the way, against the new legislation.
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  We're on a moderately influential and strongly
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  interested side. We can add society, those who
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  use or work for such types of applications, and
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  traditional taxi drivers, who took advantage
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  of their competitors' turmoil. If I could visualize
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  the map for you, you would see that some stakeholders
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  are very close to each other, like government
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  and court officials, and often they form temporary
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  alliances to increase their overall strength
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  and influence for that particular case. Whoever
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  does this analysis mostly orients on stakeholders
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  with the strongest power and interest. Done with
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  what, time to talk about how it looks on practice.
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  There are two main frameworks that guide us to
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  the better future – triple bottom line and coral
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  CSR pyramid. The first determine three key factors
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  to pay attention to when making decisions – profit,
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  people, planet – and they go in that specific
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  order. Profit comes first because it simply ensures
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  that business can exist. Then come people and
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  their needs. That includes employees, responsible
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  pricing, etc. And last but not least are green
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  practices. For example, Starbucks donated thousands
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  of healthy and disease -resistant coffee trees
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  to farmers who couldn't afford them. A win -win.
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  Company gets high -quality supply, enhanced reputation,
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  and farmers have stable and higher income. Nestle
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  invested into teaching farmers more sustainable
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  and efficient farming practices. Buck invests
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  in education of young designers and BlackRock
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  helps people access investments. The second framework
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  tells us how companies check their actions on
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  ethics. Imagine a Maslow type of pyramid where
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  priorities come from bottom to the top. Economical,
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  legal, ethical and philanthropical. Economical
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  and legal do not require my explanation, I suppose.
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  Great, then let's move on. Ethical is the level
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  where decision is analyzed on humanism and whether
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  it's the right thing to do. Philanthropical includes
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  proactive decisions when company creates social
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  value aside from its corporations, like charity
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  or social campaigns. The core difference here
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  is that ethical is simply we need to do something
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  and we check whether that is right. And philanthropical
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  is we see the possibility to make something much
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  better or fight for something that is important
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  and we are going for that. Tired? Bury a little
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  bit longer. I promise we have one less part to
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  cover. Proactive actions take us to another term
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  that was coined by Michael Porter. Yes, that
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  one that developed frameworks from the second
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  episode, and Mark Cramer in the article Creating
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  Social Value. They stated that in some cases,
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  businesses can not only reduce harm or prevent
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  it, but resolve certain issues if they include
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  solution into their business model. That was
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  kind of a burst of a for -profit business, at
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  least in theoretical part. Let's take a look
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  at an example. In country X, let's say, there
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  is a high unemployment rate among young people
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  and severe shortage of employees. Companies are
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  trying to find young specialists, but their recruitment
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  systems are slow and overloaded, and young CVs
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  don't get seen by HRs. And now imagine that a
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  very ambitious entrepreneur come up with an online
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  recruiting platform only students and recent
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  graduates can use. Companies find employees,
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  young people get the job, and unemployment rates
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  drop. This is exactly what CSV is all about.
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  Of course, not every single business can follow
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  that framework, but there are plenty of those
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  who can. Besides, if businesses start seeing
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  social issues not as a side factor to consider,
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  but as an opportunity to earn money by resolving
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  them and create a more sustainable economy, we
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  could create a much better future. Let's go over
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  a small recap. What is business ethics? Business
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  ethics is ethical frameworks and ways of decision
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  -making that are applicable to companies and
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  business entities, specifically to their decisions.
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  Why it is important? Aside from basic morals
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  and humanity, because modern economy is oversaturated
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  and brand reputation is largely dependent on
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  CSR and responsibility becomes a key competitive
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  advantage. and source of sustainable long -term
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  value. Recall an example with Starbucks and trees.
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  What are the key frameworks used to create and
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  analyze ethical decisions? First, stakeholder
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  mapping, then triple bottom line, and Coral's
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  pyramid. Thank you for joining me on this episode.
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  I was incredibly happy that you listened it up
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  to the end. Your support really motivates me
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  to create new content. Have a great day, evening,
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  night or whatever you have now and hear you soon
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  on the next episode. The next one, by the way,
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  is going to be about the oriental approach on
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  corporate sustainability. So don't forget to
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  subscribe not to miss it out. Hear you soon!