There is growing recognition that good ethics can have a positive economic impact on the performance of firms. Many statistics support the premise that ethics, values, integrity and re

ABSTRACT. There is growing recognition that good ethics can have a positive economic impact on the performance of firms. Many statistics support the premise that ethics, values, integrity and responsibility are required in the modern workplace. For consumer groups and society at large, research has shown that good ethics is good business. This study defines and traces the emergence and evolution within the business literature of the concepts of values, business ethics and corporate social responsibility to illustrate the increased emphasis that has been placed on these issues over time. Two organizations that have suc- cessfully dealt with these issues were analyzed to identify the links among values, ethics, and corpo- rate social responsibility as they are incorporated into the culture and management of a firm. This study identified the presence and implementation of values,

business ethics, and CSR actions within the two orga- nizations studied.

Introduction

It has been clearly established that ethics is not just a fad.

“. . . (W)inning companies first emphasize values – the beliefs and attitudes that . . . the business owner, ha(s) about . . . employees, customers, quality, ethics, integrity, social responsibility, growth, stability, innovation and flexibility. Managing by values – not by profits – is a powerful process that will set . . . (a) business on the path to becoming . . . a “Fortunate 500” company (Blanchard, 1998).”

Evolution and Implementation: A Study of Values, Business Ethics and Corporate

Brenda E. Joyner Social Responsibility Dinah Payne

Journal of Business Ethics 41: 297–311, 2002. © 2002 Kluwer Academic Publishers. Printed in the Netherlands.

Brenda E. Joyner is Associate Professor of Management at Loyola University New Orleans. She received her Ph.D. from the University of Georgia in 1995. Dr. Joyner teaches classes in strategic management, entrepreneurship, and strategic quality management. Her research inter- ests include venture startups, entrepreneurial behaviors, and entrepreneurial ethics. Her business experience includes eight years with a startup venture in the con- struction industry, two years with a Fortune 500 man- ufacturing firm, and many years in the financial services industry in investment and commercial banking. She has published articles in Journal of Developmental Entrepreneurship, Journal of Business and Economic Perspectives, Frontiers of Entrepreneurship Research, Global Focus and Quality Progress. She is a 1997 recipient of the Certificate of Distinction for Excellence in Research in Entrepreneurship and Independent Business, given by the Academy of Management and the National Federation for Independent Businesses.

Dinah Payne is Professor of Management at the University of New Orleans. A graduate of Loyola University New Orleans, Dr. Payne earned a Juris Doctor Degree and a Master of Business Administration Degree. Her teaching and research interests include multiple facets of international business: law, strategy, organizational behavior, corporate social responsibility and ethics. Additionally, she has done extensive research in U.S. domestic business law, ethics, management and engi- neering management. She has had articles published in the Journal of Business Ethics, the Labor Law Journal, the Journal of Managerial Issues, Management Accounting, and the Journal of Corporate Accounting and Finance. She is a member of the American Bar Association, the Louisiana Bar Association, the New Orleans World Trade Center, the Academy of Legal Studies in Business and the International Academy of Business Disciplines.

Many statistics support the premise that “talk about ethics, values, integrity and responsibility is not only becoming acceptable in the business community, it’s practically required (Stodder, 1998).” For consumer groups and society at large, research has shown that good ethics is good business. Stodder (1998) reports that a Walker Information survey (1994) of consumers produced results indicating that good business is good ethics: forty-seven per cent of those polled responded that they would be much more likely to buy from a “good” company given parity in quality, service and price. Additionally, 70% of the consumers answered that they would not do business with a firm that was not socially respon- sible, regardless of price.

In light of the change in the way values and ethics are viewed by organizational stakeholders, there has been growing recognition that prof- itability measures, in isolation, fail to capture the essence of an organization’s overall performance, both as a profit-seeking entity and as a member of society. This paper suggests, as a starting point, general suppositions as to why businesses are ethical and proceeds with a review of the seman- tics of business ethics and a foundational presen- tation of the definitions of values, business ethics/morality and corporate social responsibility (CSR). Further, it traces the emergence and evolution within the business literature of the concepts of values, business ethics and CSR to illustrate the increased emphasis which has been placed on these issues over time. Two organiza- tions that have successfully dealt with these issues are profiled in order to try to discover the link between values, ethics, and CSR as they are incorporated into the culture and management of a firm. These organizations are also models to show the positive economic impact that good ethics can create. Thus, we perceive the eco- nomic and moral value of good business ethics.

Business ethics: the why

A predicate question to the role of ethics in business is the question of why businesses engage in ethical practices. Some authors, notably Milton Friedman (1962), would strongly deny

that a business has a fiduciary responsibility to any group but the firm’s stockholders. To initiate corporate giving, for example, would be a fiduciary breach of management in Friedman’s opinion: an agent for a principal is neither legally nor morally permitted to give away or “waste” the principal’s capital. The manager’s fiduciary duty, one wherein stockholders should be able to repose trust and confidence in management’s obligation to act in the shareholders’ own best self-interest, is to husband organizational strength and generate a growth environment, for the continued maximization of shareholder wealth. Employees are also an integral part of the firm’s environmental ethics. A Walker Information survey (1997) revealed that 86% of the employees surveyed who felt their firm’s ethics were positive, were strongly committed to their orga- nizations, while only 14% of the respondents who did not regard the firm’s ethics highly, were similarly committed. 42% of all surveyed indi- cated that a firm’s ethical integrity would directly influence their choice of employer (Stodder, 1998).

The view of pursuing shareholder wealth alone, of course, is not the approach most ethicists or, now, most business people take. The realization has occurred that businesses must participate in society in an ethically symbiotic way. A fundamental truth is that business cannot exist without society and that society cannot go forward without business. Thus, business must acknowledge society’s existence and society’s growing demand for more ethically responsible business practice.

Businesses will in fact engage in ethical business practices for one of two reasons, one ethical in nature and one more machiavellian. The ethical motivation guiding business is related to a desire to do the right thing, without external pressure or governmental constraint. As this empirical evidence presented here shows, business does choose this approach without being forced into doing so. These business people recognize their own personal existence in society and thus acknowledge that their firms must also operate in this sphere in an ethical manner.

The more machiavellian approach that busi- nesses espouse in their use of ethics has its roots

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in a desire to convince the stakeholder that the firm is doing the right thing. The firm’s end here is either to avoid legal consequences of its actions or to convince the stakeholders that the firm does have their best interests at heart and seeks to serve their interests rather than their own. An example of this is the beer industry: the advertising cam- paigns touting responsible consumption of beer may in fact be to serve the consumer interest in safety. However, in a more cynical world, such an advertising campaign could have been designed to make the consumer feel that the firms cared more for their consumers than for selling their products.

In fact, minimal compliance with legal standards alone can be deadly to the firm. The myriad of laws affecting corporate existence and behavior is numerous enough to entangle any business to its demise (see the example of Johns- Manville, the now defunct manufacturer of asbestos). Public outrage over perceived illegal or immoral acts is as harsh, if not worse: trust is lost and public image tarnished, good will that is extremely expensive to generate initially and almost impossible to regain once lost. Thus, “(A)lthough legality generally stems from what society believes is morally right or wrong, an issue’s legality does not always reflect the totality of its perceived morality. This differentiation reflects the classic distinction between the spirit of the law (morality) and the letter of the law (legality) (Raiborn and Payne, 1990).”

Right or wrong: the definitions of ethics

There has been considerable debate regarding what the terms values, business ethics and CSR represent. In order to be consistent with prior literature in social issues and management research and to assist the reader, the following definitions were used throughout this research. Values are defined as the core set of beliefs and principles deemed to be desirable (by groups) of individuals (Andrews, 1987; Mason, 1992). Values are derived from one’s membership in a culture. With attitudes, beliefs, and behaviors, values combine to form a continuous spiral of community culture (Adler, 1999). Each suc-

ceeding generation has impact on the next generation’s values, beliefs, attitudes and behav- iors. Thus, our grandparents’ values are likely to be reflected in ours, as ours are to be reflected in our children’s and grandchildren’s. As the movement towards consciously incorporating ethics into businesses in our society grows, the stronger will be the cultural pull to be ethical.

Ethics are defined as the conception of what is right and fair conduct or behavior (Carroll, 1991; Freeman and Gilbert, 1988). “Ethics is a system of value principles or practices and a definition of right and wrong (Raiborn and Payne, 1990).” Velasquez (1999) defined ethics as being concerned with judgements involved in moral decisions: normative judgements which state or imply that something is good or bad, or right or wrong. Thus, these statements of ethics or value judgements attempt to ascribe value to actions, so the actor can determine whether or not he should engage in the action.

More specifically with regard to business, De George (1999) defined business ethics as the interaction of ethics and business. Such a defin- ition encompasses a moral evaluation of the economic system of the free enterprise system in the United States, the businesses which operate in this system, a moral evaluation of individuals and their actions in conducting business and a review of business behavior in the international arena. De George provides further illumination: moral judgements should be uni- versally applicable, they involve serious matters with potential to cause serious results, and moral judgements invoke praise or blame. Additionally, moral judgements can only be made by individ- uals for themselves: others, including govern- mental agencies, cannot force moral judgements on anyone. De George also distinguished between objective and subjective morality. Objective morality is the broader, societally held moral law. This is most easily equated with promulgated law. Subjective morality, on the other hand, is one’s own belief as to the right- ness or wrongness of an action. This is equat- able to the concept of conscience. In a perfect world, the decision-maker would make decisions that were deemed both objectively and subjec- tively correct. In the world of business and entre-

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preneurship, the decision-maker must sometimes choose between those moralities: strong minded entrepreneurs choose the subjective right.

A common sense, dictionary-type definition of the word moral or even morality indicates that morality is the ability to choose between right and wrong. Reasonably, the definitions of ethics and morality are cross-referenced to each other. The terms moral and ethical have been used interchangeably in this paper, as they are in much of the social issues literature (Freeman and Gilbert, 1988). Additionally, the concept of cor- porate social responsibility, defined more specif- ically below, is often included in the definition of ethics in general (Singer, 1993).

Corporate social responsibility (CSR) is defined as categories or levels of economic, legal, ethical and discretionary activities of a business entity as adapted to the values and expectations of society (Andrews, 1987; Carroll, 1979; Sethi, 1975). The term corporate social responsibility is used more in the management literature than in the business ethics literature. However, while some authors may not agree (Friedman, 1962), the researchers feel that these concepts, as with the terms moral and ethical, are similar enough to be interchangeable for the purposes of this paper.

Archie Carroll (1979) has developed a frame- work for integrating all dimensions of social responsibility into the firm’s corporate culture and decision making processes. The “Organiza- tional Social Performance Model” is comprised of three dimensions and can be visualized as a three dimensional cube, with all sets of dimen- sions intersecting with the others: the level of responsibility can be measured against the social issue involved, as well as the firm’s social respon- siveness to these issues. Dimension I contains the “Social Responsibility” categories. These respon- sibilities, in order of importance to the firm, are economic, legal, ethical and discretionary. The economic responsibilities of the firm are to produce goods and services to be sold at a profit. Obedience to societal laws and regulations, while executing economic responsibilities is the firm’s legal responsibilities. The firm’s ethical responsi- bilities are to meet society’s expectations for conscientious and proper behavior. Carroll rec-

ognized in developing this responsibility that these expectations may not be only a matter of legal compliance, according to the letter of the law, but may go further in pursuit of the spirit of the law. Finally, the firm’s discretionary responsibilities encompass the duty to carry out acts of a voluntary nature designed to provide for the betterment of society, such as philanthropic contributions or provisions of certain employee benefits. Such acts are not required to be under- taken by the firm, as legal responsibilities are, and the firm would not be considered unethical for not engaging in these activities, but it is within the firm’s discretion to do the acts as a con- tributing member of society.

The second dimension of Carroll’s model is represented by the firm’s the “Philosophy of Social Responsiveness.” These philosophies direct how an organization will respond to social issues. There are four types of social responsiveness philosophies. First, the reaction philosophies require the firm to address social issues as a result of the application of external forces, such as legal, regulatory or social pressures. Defense philoso- phies address social issues to escape being forced into it by the external forces. The third philos- ophy of responsiveness is the accommodation philosophy: these firms address social issues because they exist. This represents a stride in the direction of doing the right thing because it is the right thing, rather than from some ulterior motive to further the economic interests of the firm. In this instance, the demands to recognize and deal with social issues are not likely to be made by external forces, but the firm takes a voluntary stance in dealing with social issues before being forced into it by outside forces. The final philosophy goes even further than the accommodation philosophy. The proaction philosophy is one that attempts to be proactive with society: it attempts to anticipate important social issues before they are generally recognized as being important and to develop strategies for addressing these issues.

The third dimension of this model is the dimensions of the social issues themselves. A review of stakeholders and issues in our society yields a list of issues identified by Carroll: con- sumerism, environmentalism, discrimination

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issues, issues involving product safety and occu- pational safety, and shareholder issues. It can be anticipated that these issues and stakeholders are not static; social issues are as dynamic as is society and the list should be considered illustrative only, not complete. In light of the Carroll model, it is clear that one must consider the existence and importance of the firm’s stakeholders in the ethical decision making process. These stake- holders include, but are not necessarily limited to: employees, stockholders, customers, suppliers, lenders, communities and society at large (Vaughn, 1997). This paper attempts to track the use of these dimensions by entrepreneurs and to determine the extent to which the entrepreneurs and their business have incorporated these ideas into their corporate cultures.

These concepts of values, ethics/morality and CSR are not mutually exclusive; rather, they are interrelated and somewhat interdependent. Values influence the extent of a corporation’s perceived social responsibility and are influenced by societal activities and norms or standards. One component of corporate social responsibility is an organization’s ethical responsibility, which is also influenced by the values of society (Carroll, 1979). Conversely, ethical or unethical activities of an organization can influence the values held by members of society. Once again, the spiral of culture, wherein culture influences values, which influence beliefs, which influence attitudes, which influence behaviors, which shapes culture, continues to form.

Literature review

Some of the classic texts that form the founda- tions of management research and practice were researched to identify these themes as they emerged and evolved in the literature to identify changes in perception of these concepts over time. In addition, other texts published more recently were reviewed to identify the most recent changes in the understanding of these concepts.

The evolving concepts

While the management literature has many good books and articles which address values, business ethics, and CSR, the following works have been chosen because they have endured through the years and generated much of the original dis- course in the concepts of interest (Schendel and Hofer, 1979; Summer et al., 1990). They are summarized in Table I.

The role of the organization within the larger society was addressed by Chester Barnard as early as 1938 in his seminal book, The Functions of the Executive. Barnard decried the lack of recogni- tion that formal organizations are a most impor- tant characteristic of social life, as they are the principal structural frameworks of society itself (1938, p. xxix). He concentrated on aspects of individual action, which are directed by their connection with formal organizations. Barnard recognized that many unwritten rules guiding an organization’s course of business grew from actual practice (1938, p. 172). He addressed the need to analyze the economic, legal, moral, social, and physical elements of the environment when making business decisions (1938, p. 198), stating that the organization endures depending upon the quality of its leadership, which is in propor- tion to the breadth of morality on which it stands (1938, p. 282).

Herbert Simon’s book, Administrative Behavior (1945), built on the work of Barnard. Like Barnard, Simon noted the strong influence of the organization on the individual and addressed aspects of individual action within the context of the organization. While Simon recognized that organizations must be responsive to community values, far beyond explicit legal considerations, he saw the primary criteria of “good” business as economic behavior accurately calculated to recognized a gain (1945, p. 62). He noted, however, that an increasing number of businesses had become affected with a public interest, as executives had become concerned with respon- sibilities of trusteeship toward the community beyond the legal limits imposed on them (1945, p. 70).

Peter Drucker, in his book The Practice of Management, was among the first authors to

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explicitly address the “social responsibilities of business” (1954, p. ix). Whereas Barnard (1938) and Simon (1945) gave far more attention to the moral/ethical dimensions of individual behavior in organizations, Drucker concentrated more on CSR. He included public responsibility as one of the eight key areas in which business objectives should be set. Further, Drucker stated that objectives in this area must be set according to prevailing political and social conditions as per- ceived by management (1954, p. 82). Morality had to be a principle of action, exhibited through tangible behavior, that stressed building on strengths, integrity, and high standards of justice and conduct (1954, p. 146). Drucker recognized the growing requirement that a manager assume responsibility for the public good, as he subor- dinated his actions to an ethical standard of conduct. While he emphatically declared that the organization’s first responsibility to society involved making a profit, he felt it was also most important that management consider the impact of every business policy and action upon society.

“It has to consider whether the action is likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength, and harmony” (1954, p. 388). The ultimate responsibility of management was “to itself, to the enterprise, to our heritage, to our society, and to our way of life” (1954, p. 392).

Philip Selznick primarily addressed values, although he did provide some insight into moral/ethical considerations and corporate social responsibility, in his book Leadership in Administration: A Sociological Perspective. He noted that sound organizational leadership required the “proper ordering of human affairs, including the establishment of social order, the determination of public interest, and the defense of critical values” (1957, p. ix). Like Drucker (1954), Selznick realized that organizations had become increasingly public in nature and needed to deal with problems that affected the welfare of the entire community. He stated that goal statements based on making a profit offered little guidance in the formulation of organizational purpose. A

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TABLE I Corporate social responsibility, business ethics, and values: An historical perspective

Authors Corporate social responsibility Ethical/Moral considerations Values/Other

Barnard Analyze economic, legal, Morals are active result of Responsibility: power of (1938) moral, social and physical accumulated influences on private code of morals to

aspects of environment persons evident in actions control individual conduct

Simon Organizations must be Ethical propositions assert Firm survival involves (1945) responsible to community “oughts”, rather than facts adapting objectives to values

values of customers

Drucker Management must consider Morality must be principle First responsibility to society (1954) impact of every business of action exhibited through is to make a profit

policy upon society tangible behavior

Selznick Enduring enterprise will Definition of mission Leadership requires defense (1957) contribute to maintenance includes wider moral of critical values

of community stability objectives

Andrews Firm should have explicit Defining firm only in financial Ethical behavior is product (1971- strategy for support of terms leads to subordination of values Revision) community institutions of ethical concerns

Freeman Business must satisfy Concern for ethics necessary Enterprise strategy: what do (1984) multiple stakeholders but not sufficient to decide we stand for?

“what we stand for”

large corporation which shifted from “a narrow emphasis on profit making to a larger social responsibility” was required to build special values into the organization (1957, pp. 26–27). For Selznick, the formation of an institution was marked by the making of value commitments that accounted for its role in the community.

Kenneth R. Andrews, in his 1987 revision of The Concepts of Corporate Strategy, originally published in 1971, viewed ethical behavior as a product of values and, like the previous authors, recognized the ever growing importance of values, ethical/moral considerations and CSR. He stated that defining the corporation as a means to serving only the financial interests of its shareholders led to a subordination of ethical concern to financial outcome. Andrews suggested that a company should venture into good works that were strategically related to its present and prospective economic functions. He also proposed that a firm should have both economic and non-economic objectives, which coincided with similar views held by Drucker (1954) and Ansoff (1965). Andrews stated that the strategi- cally directed company “will have a strategy for support of its community institutions as explicit as its economic strategy and as its decisions about the kind of organization it intends to be and the kind of people it intends to attract to its mem- bership” (1987, p. 77).

In his book, Strategic Management: A Stakeholder Approach, R. Edward Freeman built on a promi- nent theme found in the previous books examined here: business organizations operate in increasingly complex environments and must satisfy multiple constituencies, or “stakeholders” (1984, p. 26). Freeman noted that the traditional corporate strategy attention to stockholder concerns could involve actions which are immoral or unethical, as well as illegal. He recognized the growing importance of ethics, as evidenced by the development of codes of ethics in businesses and the increasing number of ethics courses in business schools. He proposed the concept of stakeholder management as an inte- grating force to address CSR, ethical/moral considerations, and values.

In the decade since the last of these founda- tional books was published, books and articles

about values, ethics, morality, and corporate social responsibility have flourished. Today the demands for social responsibility and ethical behavior by corporations and their leaders are stronger than ever before. Solomon (1997) postulates several reasons for this. First, the enormous success of American businesses has bred extravagant expectations by the public. Second, the new nobility, the privileged class, that has emerged because of this enormous success is corporate business – and society has always made demands of its nobility (noblesse oblige). Finally, Solomon states that “now that businesses are often the most powerful institu- tions in the world, the expanse of social respon- sibility has enlarged to include areas formerly considered the domain of governments: quality of education and support of the arts, funding and facilities for basic research, urban planning and development, world hunger and poverty, hard- core unemployment. The more powerful business becomes in the world, the more responsibility for the well-being of the world it will be expected to bear” (pp. 204–206). Clearly the concept of corporate social responsibility has grown to include a stunning plethora of social concerns.

But what about our understanding of values and ethics today? How do our leaders encourage and promote ethical behavior by individuals in an organization? Solomon (1997, p. 140) states that “. . . corporate cultures set up the network of people and positions with whom we feel comfortable and, given the enormous power of peer pressure in ethics, one should not be sur- prised that the culture of the corporation – rather than ‘individual values’ – is the primary deter- minant of business ethics. Different businesses provide different cultures, and different cultures define different values, different ethics, different lives”. In small firms the cultures, and therefore the values and ethics of the organization, are strongly shaped by the founders ( Joyner and Hofer, 1992). As firms grow, there is the danger that impersonality may set in and ethics may generate into a set of abstract rules that can too easily be compromised (or reinterpreted) under the pressure of corporate hierarchy (Solomon, 1997, p. 144). However, size is not always the determining factor. Some individuals may

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identify strongly with smaller groups within a larger organization and ethical responses are reinforced. Even in small organizations, some individuals may feel isolated and resort to uneth- ical behavior.

The emergence of the concepts discussed here and their evolution over time in the literature of management shows an increasing emphasis by the academic community on the social issues that a firm must conside

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