Ethics and Values

Strategy and Performance Management

Andy Weeger

Neu-Ulm University of Applied Sciences

August 6, 2025

Learning Objectives

After this section, you should have a solid understanding of

  • what ethics, business ethics and corporate social responsibility is, including their key components;
  • the origins of ethical dilemmas in business and the significance of approaching these;
  • the impact of CSR on various stakeholders;
  • the strategic advantages and potential challenges associated with implementing business ethics/CSR initiatives in a company;
  • the concept of structural ambidexterity in relation to ethical strategy implementation;
  • and when and why good ethics in strategic management pay back.

Introduction

Prologue

A single individual can usually only commit small sins; a large firm can commit grandiose ones. Claes Gustafsson in Mintzberg (2014)

If you have integrity, nothing else matters. If you don’t have integrity, nothing else matters. Alan Simpson, Institute for Business Ethics

Ethics

Ethics is the branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong conduct (Wikipedia contributors, 2023).

Values and moral systems

The right conduct includes those lines of actions that are desirable in terms of the objectives and moral values of our society (Bowen & Johnson, 1953).

Morality is an aspect of culture—different cultures have different moral systems.
Moral values also change over time.

Reflection

Is there a moral (or social) responsibility for firms?

If so, what is the extend and type of the responsibiliy?

Corporate moral responsibility

Firms function in the context of a wider social environment, which imposes on them certain moral demands and responsibilities (Mintzberg, 2014).

Business ethics is about doing the right thing in business.

Business ethics

Business ethics refers to the principles of right and wrong conduct within organizations that guide decision making and behavior (David & David, 2016).

Understanding the foundations of ethics and values, why do these concepts become strategically relevant for organizations?

Ethics x strategy

Strategic imperatives

Following concerns make the idea of an ethical strategy relevant:

  • The concept of ethics and morals applies to corporations just as it applies to individuals
  • The question of doing right is not easy in complex organizational contexts
  • Ethical business practices can create “shared value” and competetive advantage (Porter & Kramer, 2011)
  • Wrong actions by companies can not only prove expensive (i.e., value destruction), but also cause long-term damage
  • Organizations are difficult to turn once strategic direction is set

Core principle:
Good ethics is good business.
Bad ethics can derail even the best strategic plans.

Amplification effect

Strategic decisions affect multiple stakeholders across extended time horizons with amplified consequences.

This amplification effect makes organizational ethics both more complex and more critical than individual ethical decisions.

Cultural and value changes

Two current social and cultural changes create ethical conflicts and dilemmas of strategic concern (Mintzberg, 2014):

Rapid technological development, e.g.

  • AI and algorithmic decision-making in business processes
  • Data privacy and digital rights management

Environmental changes, e.g.

  • Climate change and sustainability reporting requirements
  • Supply chain transparency and human rights compliance

Ethical strategy

Corporate Social Responsibility

Corporate Social Responsibility (CSR) has evolved from consideration of issues beyond narrow requirements (Davis, 1973) to societal expectations of organizations (Carroll, 1979) to policies reflecting wider societal good (Matten & Moon, 2008).

CSR is context-specific organizational actions and policies that take into account stakeholders’ expectations and the triple bottom line of economic, social, and environmental performance. Aguinis & Glavas (2012)

Core features

CSR captures three core features (Moon, 2014):

Responsibilities of organizations to society (i.e., being accountable) and for society (i.e., compensation and value add) as well as good business practices.

Carroll’s CSR pyramid

The CSR pyramid (Carroll, 1991)

 

 

 

 

CSR-performance relationship

Studies suggest a U-shaped relationship between social and financial performance: moderate CSR can positively impact performance, but excessive CSR may have diminishing returns (Barnett & Salomon, 2012).

Strategic investment decisions

The U-shaped relationship suggests organizations must make strategic choices about CSR investment levels:

underinvestment risk (missing stakeholder value creation opportunities)
optimal investment zone — CSR aligned with capabilities and stakeholder priorities
overinvestment risk (resources diverted without proportional benefit)

Implementation

Strategic response framework

Given that there are grounds for ethical strategic concerns, it is desirable to develop ethics sensitivity in the company:

  • Identify core values
  • Teach employees about ethics
  • Make moral views clear
  • Plan for the future

Implementation framework

Practical framework for implementing ethical strategy:

  • Ethical audit integration:
    Include ethical factors in SWOT analysis and strategic reviews (Carroll, 2004)
  • Stakeholder impact assessment:
    Evaluate strategic options through comprehensive stakeholder lens (Harrison et al., 2010)
  • Ethical risk management:
    Identify and mitigate ethical risks in strategy implementation (Kaplan & Norton, 2012)
  • Performance metrics:
    Develop KPIs balancing financial and ethical outcomes (Kaplan & Norton, 2001)
  • Cultural alignment:
    Ensure organizational culture supports ethical strategy execution (Schein, 2010)

Ethics x strategic analysis

CSR affects customer willingness to pay, cost structures, employee satisfaction, and supplier relationships.

Ethics and CSR considerations should, thus, be integrated into both external and internal audits as sources of opportunities and threats, strengths and weaknesses.

Reflection

Does it pay to be socially responsible?

Take 20 minutes to discuss the insights you gained from reading Barnett & Salomon (2012).

Prepare to …

  • give reasons why CSR might positively impact financial performance, and to
  • provide real-life examples and identify activities or characteristics of socially responsible companies.

Ethics in practice

Case example: Patagonia’s $10 million tax cut donation to environmental causes:

  • Reinforced brand values and customer loyalty
  • Attracted environmentally conscious employees
  • Generated positive media coverage worth millions
  • Aligned with long-term business sustainability strategy

Key takeaways

  • Ethics foundations provide the basis for all business ethical decisions through understanding right and wrong conduct
  • Cultural and temporal variation in moral systems creates complexity for global organizations
  • Strategic amplification effects make organizational ethics critically important due to scale, time, complexity, and visibility
  • CSR pyramid shows four responsibility levels with different societal expectations and business implications
  • U-shaped CSR relationship requires strategic balance between underinvestment and overinvestment in social responsibility
  • Implementation framework demands integration across audit processes, risk management, and cultural alignment
  • Value creation mechanisms demonstrate how ethics enhance rather than constrain strategic performance across stakeholder relationships

Review and consolidation

The following questions are designed to review and consolidate what you have learned and are a good starting point for preparing for the exam.

  • Define ethics and explain how moral systems vary across cultures and time periods.
  • Explain the concept of corporate moral responsibility and how it differs from individual ethical responsibility.
  • Provide examples of ethical dilemmas in business. How should organizations approach and resolve these ethical challenges?
  • Describe Carroll’s CSR pyramid and analyze the strategic implications of each level.
  • Analyze the U-shaped relationship between CSR investment and financial performance. What factors determine optimal CSR investment levels?
  • Compare and contrast different approaches to implementing ethical strategies in organizations.
  • Discuss how ethical considerations should be integrated into strategic analysis frameworks (external and internal audits).
  • Analyze how contemporary challenges (AI, data privacy, climate change) create new ethical strategic imperatives for organizations.
  • Evaluate the mechanisms through which ethical strategies create value for different stakeholder groups.

Homework assignment {.unlisted unnumbered .html-hidden}

To be prepared for the case study next week:

Listen to: Meta: The Complete History & Strategy (full episode)

Come prepared with:

  1. One pivotal strategic decision** from Meta’s history
  2. Which lecture theme** it exemplifies
  3. One discussion question** to share with the class

Q&A

Literature

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Barnett, M. L., & Salomon, R. M. (2012). Does it pay to be really good? Addressing the shape of the relationship between social and financial performance. Strategic Management Journal, 33(11), 1304–1320.
Bowen, H. R., & Johnson, F. E. (1953). Social responsibilities of the businessman.
Carroll, A. B. (1979). A three-dimensional conceptual model of corporate performance. Academy of Management Review, 4(4), 497–505.
Carroll, A. B. (1991). The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 34(4), 39–48.
Carroll, A. B. (2004). Managing ethically with global stakeholders: A present and future challenge. Academy of Management Perspectives, 18(2), 114–120.
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Wikipedia contributors. (2023). Ethics — Wikipedia, the free encyclopedia. https://en.wikipedia.org/w/index.php?title=Ethics&oldid=1181606843