Integrating Ethics and Sustainability in Modern Business Strategy

Posted on Oct 20, 2025 in Business Administration and Management (BAM)

Class 29: Patagonia’s Values-Driven Strategy

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1. Patagonia’s Ownership Structure and Strategic Influence

In 2022, Patagonia restructured its ownership to ensure the company’s mission-driven strategy would outlive its founder:

• 100% of voting stock was transferred to the Patagonia Purpose Trust:
  • Holds 2% of total stock, but all decision-making power.
  • Controlled by the Chouinard family and close advisors.
  • Ensures the company stays true to its environmental mission.
• 100% of nonvoting stock was donated to the Holdfast Collective:
  • A 501(c)(4) organization, which means it’s tax-exempt but can engage in political advocacy.
  • Receives annual profits as dividends from Patagonia to fund climate and environmental activism.

Strategic Impact of the Restructure

• This structure locks in Patagonia’s mission over profit, making its environmental and political activism not just allowable but essential.
• It reflects a long-term stakeholder orientation over short-term shareholder returns.
• It also strengthens Patagonia’s credibility and brand equity with customers who care about values-driven business.

2. Patagonia’s Targeting of Government Leaders and Risk

Patagonia openly targets government leaders who support anti-environmental policies. This includes:

• Campaigns like “Vote the Assholes Out” aimed at politicians who deny climate change or support resource exploitation.
• Legal action, such as suing the Trump administration over protected lands.

Risks of Political Activism

• Political backlash or loss of support from conservative consumers.
• Potential regulatory scrutiny or strained relationships with local/state officials.
• However, for Patagonia’s core customers, this strengthens loyalty and differentiates the brand.

Conclusion: The risk is real but strategically calculated and consistent with its mission.

3. “Don’t Buy This Jacket” Campaign

This iconic ad campaign ran on Black Friday and asked customers not to buy a new Patagonia jacket, but instead consider the environmental cost of their purchases.

Purpose of the Campaign

• Promote anti-consumerism and responsible consumption.
• Highlight the company’s repair, reuse, and recycle ethos.
• Reinforce Patagonia’s commitment to sustainability.

Effect: The ad paradoxically increased sales while deepening Patagonia’s reputation as a truly values-based brand.

4. Patagonia’s Diversification Strategy

Patagonia has diversified in multiple ways to align with its mission:

• Worn Wear program: Resale of used Patagonia products.
• Environmental activism and grantmaking: Via the Holdfast Collective.
• Food products: Through Patagonia Provisions, offering sustainable food items.
• Political advocacy: Especially through environmental and public lands issues.

This diversification reflects a systems-thinking approach — seeing the interconnectedness of economy, environment, and society — and reinforces Patagonia’s nonmarket strategy.

5. Activism, Business Success, and Firm Values

Patagonia exemplifies a company where activism is integral to success:

• Builds deep emotional loyalty with consumers who care about the planet.
• Attracts mission-driven talent who are aligned with the company’s values.
• Enables strong nonmarket strategies (e.g., political advocacy, movement building).
• Serves as a model in the shift toward stakeholder capitalism, where success is measured by both profit and purpose.

Class 28: Circular Economy and Obsolescence

Learning Objectives

• Identify examples of circular economies from new scenarios.
• Compare and contrast planned obsolescence and perceived obsolescence.
• Explain the differences between linear and circular economies.
• Discuss the main principles of circular economies.
• Describe the reasons why companies can benefit from adopting circular economy principles.
• Discuss the social benefits of adopting the principles of the circular economy.

Defining Obsolescence

• Obsolescence: The process of becoming obsolete or the condition of being nearly obsolete (antiquated, out-of-date, useless, old-fashioned, etc.).
• Planned Obsolescence: When obsolescence is intentionally built into the design of a product.
• Perceived Obsolescence: When a product becomes unattractive to consumers due to design or fashion changes. Often sparked by new product releases and marketing efforts of companies (e.g., Fast Fashion).

Fast Fashion and Obsolescence

Fast fashion uses obsolescence in its business model:

• Fast fashion heavily relies on perceived obsolescence by rapidly cycling through trends to encourage consumers to keep buying new styles.
• Some brands also use planned obsolescence by producing low-quality items that quickly wear out or become misshapen after a few uses.
• This business model boosts sales by encouraging constant consumption and waste.

Linear vs. Circular Economies

• Linear Economy: “Take → Make → Use → Dispose.” It extracts resources, makes products, and throws them away after use.
• Circular Economy: “Reduce → Reuse → Recycle.” It designs products and systems to minimize waste and make the most of resources by keeping materials in use for as long as possible.

Main Principles of Circular Economies

1. Design Out Waste and Pollution: This should be done at the beginning of the process – it is more efficient and less wasteful than doing it at the end of the process.
2. Keep Products in Use: Utilize products more efficiently and effectively so that they can stay functional.
3. Regenerate Natural Systems: Collect, sort, decompose – product components should be re-inserted into a value chain post-use.

Benefits of Adopting Circular Economy Principles

Companies benefit from adopting these principles due to:

• Cost savings from using fewer raw materials and reducing waste.
• Innovation opportunities through sustainable product design.
• Brand value and customer loyalty due to increasing consumer demand for sustainable practices.
• Regulatory preparedness as governments push for sustainability.
• Resilience to supply chain disruptions by using recycled or local materials.

Addressing Commodity Risks

• Commodity prices are rising, and natural resources are becoming more scarce.
• Increasing uncertainty in interconnected global supply chains (e.g., pandemics).
• Increases in zero-waste regulations.
• More efficient reuse strategies can create financial opportunities.

Social Benefits of the Circular Economy

• Increased local job opportunities.
• Encouragement of technical innovation.
• Reducing the amount of harmful waste produced.
• Reversing our impacts on climate change.

Class 27: Biomimicry and Systems Thinking

Learning Objectives

• Define biomimicry in your own words.
• Describe the key aspects of systems.
• Identify the function, biological strategy, and context of a new biomimicry scenario.
• Explain the concept of trophic cascades and the ways that maintaining healthy whale populations can impact the climate.
• Compare and contrast the perspectives of viewing natural resources as economic commodities versus unique technologies.
• Discuss the role and impact of context and complexity on organisms.

1. Defining Biomimicry

Biomimicry is the practice of learning from and emulating nature’s time-tested strategies to solve human challenges in sustainable and innovative ways. Rather than exploiting nature, it seeks to understand how organisms and ecosystems solve problems and then apply those principles to design systems, materials, or technologies.

Key Concepts in Biomimicry

• Biological Strategy: The adaptation. A characteristic, mechanism, or process that performs a function for an organism. It’s an adaptation the organism has to survive.
• Function: The purpose of the adaptation.
  • In biomimicry: The role played by an organism’s characteristics or behaviors that enable it to survive.
  • In design: Something you need your solution to do.
• Context:
  • In biology: Encompasses the surrounding environment and all other factors affecting the survival of the organism.
  • In design: Encompasses factors affecting how and where the design is used, and by whom.

Example: Polar bears need to stay warm. Polar bear fur is a biological strategy for surviving the cold – the function of the fur is to insulate the animal.

Note: In both biology and design, a strategy that works well to meet a function in one context might not work in a different setting.

2. Key Aspects of Systems

Key aspects of systems include:

• Interdependence: Components in a system are interconnected and affect one another.
• Feedback Loops: Systems respond to changes through feedback, helping to maintain stability or drive change.
• Emergence: New properties or behaviors arise from the interactions of system components.
• Nestedness: Systems are often embedded within other systems.
• Flows: Matter, energy, and information move within systems.
• Adaptation and Self-Organization: Systems evolve in response to their environment and internal dynamics.

3. Identifying Function, Strategy, and Context

Scenario Example: Designing a water bottle that stays cool in hot environments.

• Function: Keep contents cool.
• Biological Strategy: The fennec fox uses large ears to dissipate heat and maintain a stable internal temperature.
• Context: Hot, arid desert environments with limited water.

By mimicking the fox’s heat-dissipating features, such as using radiative surface textures or internal airflow designs, a cooling water bottle could passively regulate temperature without refrigeration.

4. Trophic Cascades and Climate Impact

Trophic cascades refer to powerful indirect interactions that can control entire ecosystems. For example, predators at the top of the food chain can regulate the population of species at lower levels, influencing the entire system’s structure and function.

In the ocean, whales contribute to nutrient cycling by moving nutrients from deep waters to the surface, stimulating phytoplankton growth. These microscopic plants absorb vast amounts of carbon dioxide. Therefore, maintaining healthy whale populations helps regulate atmospheric CO₂ and combat climate change.

5. Resources as Commodities vs. Technologies

• Economic Commodities Perspective: Treats nature as a storehouse of raw materials to be extracted and consumed for human use, often leading to depletion or degradation.
• Unique Technologies Perspective: Views nature as a source of innovation, offering sophisticated, sustainable designs refined over billions of years (e.g., termite mounds inspiring passive cooling in buildings).

Biomimicry promotes the second perspective, valuing natural systems not for their extractable value, but for their ingenuity and sustainable design strategies.

6. Role of Context and Complexity on Organisms

Organisms are deeply shaped by their environments (context). Their forms, behaviors, and systems evolve to meet the specific challenges and opportunities of their ecosystems. Complexity arises because these adaptations are not linear; they involve feedback, interaction with other organisms, and constant adjustment to changing conditions. This complexity drives the innovation seen in nature and must be considered when applying biological strategies to human design.

Systems thinking allows us to see that everything is connected. For a biomimetic designer, being knowledgeable about and aware of system interconnections can help optimize design outcomes while considering how well the design fits within Earth’s context (e.g., Whales and climate change).

Class 26: Climate Change and Environmental Threats

Learning Objectives

• Explain the connection between climate change and global warming.
• Discuss the main causes of global warming.
• Describe the primary threats to healthy marine ecosystems.
• Define smog in your own words.
• Identify the main sources of methane gas.
• Explain what microplastics are and the impact they have.
• Describe how rising sea levels can compound the effects of extreme weather events.

Climate and Pollution Concepts

• Connection between Climate Change and Global Warming: Global warming (the increase in Earth’s average temperature) leads to climate change (long-term shifts in temperatures and weather patterns).
• Main Causes of Global Warming: Primarily increased concentrations of greenhouse gases, especially CO₂.
• Smog: Ground-level ozone, which occurs when emissions from burning fossil fuels react to sunlight.
• Methane Sources: Comes from landfills, the natural gas industry, and livestock emissions.

Threats to Marine Ecosystems

• Microplastics: The most prevalent type of marine debris, measuring less than 5 millimeters in length.
  • Can come from larger plastics that are deteriorating.
  • Are found in some health and beauty products.
• Rising Sea Levels: Average global sea levels have risen 8–9 inches since 1880 – there was very little change for the 2,000 years before that.
• Extreme Weather Events: Linked to climate change and can have significant consequences, including the loss of sea ice, rising sea levels, and increasingly acidic oceans. Includes floods, droughts, hurricanes, tornadoes, hailstorms, heat waves, and polar vortexes.

Impact of Rising Sea Levels

Rising sea levels can compound the effects of extreme weather events by increasing the severity of coastal flooding and storm surges during hurricanes and other major storms.

Key Terms from the Textbook

• Natural Capital: The world’s natural assets, including its geology, soil, air, water, and all living things.
• Sustainable Development: Development that meets the needs of the present without compromising the ability of future generations to meet their own needs; ensuring a better quality of life for everyone, now and for generations to come.
• Sustainable Development Goals (SDGs): Created by the United Nations, a set of 17 goals designed to be a blueprint to achieve a better and more sustainable future for all.
• Anthropocene: The period in which human activity has been the dominant influence on climate and the environment.
• The Great Acceleration: Refers to the rapid intensification of human impacts on the environment from 1750 to 2010. In this model, the actions of humanity (socio-economic trends) drive environmental change.
• Planetary Boundaries: The idea that the planet Earth’s physical systems create a set of boundaries for what researchers called a “safe operating space for humanity.”
• Ecological Footprint: The amount of land and water a human population needs to produce the resources it consumes and to absorb its wastes, given prevailing technology.
• Biodiversity: Refers to the number and variety of species and the range of their genetic makeup.

Class 4: Business Ethics and Cognitive Biases

1. Practical and Normative Reasons for Ethical Behavior

• Practical Reasons (Self-Interest):
  • Enhancing the company’s reputation and brand value.
  • Avoiding legal issues and fines.
  • Attracting and retaining employees and customers.
  • Building investor trust.
• Normative Reasons (Moral/Ethical Obligation):
  • Companies have an obligation to do what is right regardless of the outcome.
  • Ethical behavior reflects respect for stakeholders’ rights and societal expectations.

2. Legal Requirements for Business Ethics in the U.S.

Firms are subject to:

• U.S. Corporate Sentencing Guidelines: Encourage firms to implement compliance programs to reduce penalties when employees commit crimes.
• Sarbanes-Oxley Act (2002): Enacted to protect investors from fraudulent accounting; includes provisions for internal controls and clawback of executive bonuses in case of misconduct.
• Dodd-Frank Act: Strengthens oversight of financial institutions and whistleblower protections.

These laws require accurate financial reporting, internal controls, and ethical business conduct.

3. Actions to Reduce Culpability (Sentencing Guidelines)

The U.S. Sentencing Guidelines recommend that firms take seven actions to reduce culpability when an employee commits a crime:

1. Establish standards and procedures to prevent and detect criminal conduct.
2. Assign high-level personnel to oversee the compliance program.
3. Avoid delegating authority to individuals with a propensity for illegal acts.
4. Communicate standards through training and publications.
5. Monitor and audit compliance systems; maintain reporting mechanisms.
6. Enforce standards through discipline.
7. Take reasonable steps to respond to offenses and prevent further similar offenses.

4. Corporate Culture and Ethical Climate

• Corporate Culture: The shared values, norms, and beliefs that influence how employees behave.
• Ethical Climate: A component of corporate culture that reflects the organization’s perceptions about what is ethically correct behavior.

The ethical climate shapes decision-making and can encourage or discourage ethical conduct depending on leadership, policies, and peer behavior.

5. Factors Making Ethical Decision Making Difficult

1. Conflicting Values: Stakeholders may have competing interests or moral views.
2. Unclear Guidelines: Ambiguity in rules or policies makes judgment harder.
3. Pressure to Meet Goals: Incentives and performance targets may drive unethical shortcuts.

6. Definitions of Seven Cognitive Biases

1. Escalation of Commitment: Continuing a failing course of action because of prior investment.
2. Incrementalism: Gradual progression into unethical behavior through small steps.
3. Rationalization: Justifying unethical acts as acceptable or necessary.
4. Diffusion of Responsibility: Believing others will take accountability, so personal responsibility is diminished.
5. Obedience to Authority: Following directives from authority figures even when they conflict with personal ethics.
6. Confirmation Bias: Favoring information that confirms pre-existing beliefs while ignoring contradicting data.
7. Overconfidence Bias: Overestimating one’s own ethical behavior or judgment.

7. Five Drivers of Escalation of Commitment

1. Psychological commitment to previous decisions.
2. Fear of failure or loss.
3. Desire to avoid waste.
4. Need to appear consistent.
5. Social or organizational pressure.

8. Application of Cognitive Biases

When assessing a situation, consider:

• Is someone justifying unethical behavior to protect a goal? (Rationalization)
• Are decisions made based on selective facts? (Confirmation Bias)
• Is someone following questionable orders without question? (Obedience to Authority)
• Is the team spreading responsibility too thin? (Diffusion of Responsibility)

9. Key Terms Summary

• Ethics: Standards of conduct based on shared moral principles.
• Ethical Principles: Universal rules guiding moral conduct (e.g., honesty, fairness).
• Ethical Relativism: The belief that ethical standards vary by culture or individual.
• Laws: Rules established by government to maintain order; not all laws are ethical, and not all ethical actions are legally required.
• Business Ethics: Applying ethical principles to business situations.
• U.S. Corporate Sentencing Guidelines: Framework encouraging self-regulation to avoid penalties.
• Sarbanes-Oxley Act & Clawback: Law enhancing corporate accountability; clawback allows recovery of executive bonuses gained through misconduct.
• Conflict of Interest: When personal interests conflict with professional duties.
• Corporate Culture: The shared beliefs and values within an organization.
• Ethical Climate: The moral atmosphere of a company, shaped by leadership and policies.

Class 5: Stakeholder Theory and Corporate Influence

1. Shareholder Theory vs. Stakeholder Theory

• Shareholder Theory (Milton Friedman): The primary purpose of a firm is to maximize shareholder value. Executives are fiduciaries to shareholders and must prioritize financial returns above all else.
• Stakeholder Theory (Edward Freeman): Firms should create value for all stakeholders—not just shareholders—including employees, customers, suppliers, communities, and governments. The firm’s success depends on satisfying the needs of these diverse groups.

2. Why Stakeholders Are Important for Success

Stakeholders contribute to and are affected by a firm’s actions. Their support is crucial for:

• Operational efficiency (employees, suppliers).
• Customer loyalty (customers).
• Regulatory compliance (governments).
• Social license to operate (communities).
• Sustainable profitability through trust and legitimacy.

Ignoring key stakeholders can lead to reputational damage, protests, or legal challenges.

3. Scenario Analysis: Orientation Contrast

Example: A chemical company invests heavily in emission control technology, even though it cuts short-term profits.

• Stakeholder Orientation: The firm is addressing environmental and community concerns, possibly at the expense of immediate shareholder returns.
• Shareholder Orientation: A shareholder-oriented firm might avoid the investment unless legally required or shown to deliver clear Return on Investment (ROI).

4. How Stakeholder Groups Use Power to Influence Firms

Different types of stakeholder power include:

• Voting Power: Shareholders vote on board members or policies.
• Economic Power: Customers choose where to buy; employees may strike.
• Political Power: Stakeholders lobby governments or regulators.
• Legal Power: Lawsuits, regulatory complaints.
• Informational Power: Exposing unethical practices or influencing public opinion (e.g., social media campaigns).

Stakeholder salience depends on the stakeholder’s power, legitimacy, and urgency.

5. Five Forces Shaping Business and Society

1. Changing Societal Expectations: Demands for ethical behavior and transparency.
2. Globalization: Cross-border impacts and responsibilities.
3. Ethical Consciousness: Public scrutiny of corporate conduct.
4. Government Regulations: Increasing oversight and compliance.
5. Natural Environment: Pressures for sustainability and climate action.

6. Market Strategy vs. Nonmarket Strategy

• Market Strategy: Focused on customers, products, pricing, innovation, and competition within the market.
• Nonmarket Strategy: Engages with stakeholders, government, media, and activists to influence public policy, shape reputation, and build social capital.

Both are essential for a firm’s long-term success.

7. Keys to Good Stakeholder Relationships

• Trust and Transparency: Open communication builds credibility.
• Engagement and Dialogue: Two-way communication to understand concerns.
• Proactive Problem-Solving: Address issues before they escalate.
• Strategic Alignment: Integrate stakeholder concerns into business strategy.

Successful nonmarket strategies anticipate societal expectations and build coalitions with stakeholders.

8. Key Terms Summary

• Business, Society, Interactive Social System: Business and society are intertwined in a dynamic system where each influences and shapes the other.
• Fiduciary: A person entrusted with managing another’s assets; executives are fiduciaries for shareholders (in shareholder theory).
• Stakeholder Interests: Goals and concerns each stakeholder brings.
• Stakeholder Power: The ability to influence the firm (see types above).
• Stakeholder Salience: The priority given to a stakeholder based on power, legitimacy, and urgency.
• Stakeholder Coalitions: Groups of stakeholders that ally to increase their influence.

Class 6: Market Failure and Externalities

1. Why Truly Free Markets Do Not Exist

In theory, a “free market” is one where prices are determined solely by open competition without government interference. However, truly free markets do not exist because all markets operate within necessary legal, social, and institutional frameworks. These frameworks include:

• Property rights defined and enforced by the state.
• Contract law ensuring agreements can be enforced.
• Currency regulation (governments control money supply).
• Market access restrictions (licensing, zoning).
• Protection against fraud and monopolies (Anti-trust laws).

Even the basic ability to buy and sell depends on laws and institutions, contradicting the notion of an absolute “free market.”

2. Rules and Regulations That Constrain Markets

Markets function within an array of rules essential for public welfare:

• Minimum wage laws regulate the lowest permissible pay.
• Health and safety standards govern product manufacturing.
• Environmental regulations limit pollution and resource use.
• Import/export tariffs influence prices.
• Licensing requirements for professionals restrict access.
• Zoning laws constrain business locations.

3. Relationship Between Civil Society, Markets, and the State

Civil society, markets, and the state are interdependent:

• Markets provide goods and services.
• The State creates and enforces the rules under which markets operate.
• Civil Society (nonprofits, community groups, citizens) mediates the impact of markets and state decisions, often advocating for reforms, equity, and accountability.

Example: Environmental groups (civil society) may push for tighter regulations (state) on industrial pollution (market externality). All three sectors influence and shape one another.

4. Shifts in U.S. Economic Ideology

U.S. economic policy has swung between:

• Keynesian Economics (1930s–1970s): Emphasized government spending to stabilize the economy, rooted in the New Deal and post-WWII welfare state.
• Neoliberalism (1980s–2008): Promoted deregulation, privatization, and tax cuts (e.g., Reaganomics).
• Post-2008: A shift back toward state intervention emerged after the global financial crisis, with stimulus spending and renewed interest in regulation and redistribution.

5. Market Failure and Externalities

Market failure occurs when the allocation of goods and services by a free market is not efficient. Common causes include:

• Public goods (e.g., clean air).
• Monopoly power.
• Information asymmetry.
• Externalities.

Externalities are third-party effects of market transactions:

• Negative Externalities: Harms not reflected in market prices (e.g., pollution).
• Positive Externalities: Benefits not compensated by the market (e.g., vaccinations or education).

Markets fail to produce the socially optimal quantity of goods/services when externalities exist.

6. Scenario Analysis: Externalities Example

Scenario: A ride-share company expands into a city.

• Negative Externalities:
  • Increased traffic congestion.
  • Air pollution from additional vehicles.
  • Decline in public transportation use.
• Positive Externalities:
  • Improved mobility for underserved neighborhoods.
  • Reduced drunk driving rates due to easier access to rides.
  • Employment opportunities for drivers.

Policymakers must weigh these factors when regulating such services (e.g., requiring emission standards or congestion taxes).

Class 7: Ethical Assessment and Moral Intensity

1. Reasons for Uncertainty in Ethical Decisions

Five reasons we cannot be absolutely certain a decision is unethical:

1. Ambiguity in Ethical Principles: Different ethical theories (e.g., utilitarianism vs. deontology) may yield different conclusions.
2. Incomplete Facts: We rarely have all the information needed to evaluate every consequence or motivation.
3. Cultural Relativism: Norms vary by culture, making judgments context-dependent.
4. Temporal Effects: What seems ethical or unethical may change over time as long-term consequences emerge.
5. Cognitive Bias: Personal bias and heuristics can distort judgment, leading to misplaced certainty.

2. Applying Moral Intensity to a New Issue

Moral Intensity refers to the extent to which an issue demands ethical attention. It includes five factors:

• Magnitude of Consequences: How much harm or benefit results.
• Social Consensus: Degree of societal agreement on right vs. wrong.
• Probability of Effect: Likelihood of outcomes occurring.
• Temporal Immediacy: How soon consequences will be felt.
• Proximity: How close the decision-maker is to those affected.

Example: Introducing facial recognition in retail stores. This issue scores high on moral intensity (high magnitude, growing consensus, high probability, instant immediacy, direct proximity), demanding ethical scrutiny.

3. Stakeholder Analysis Over Time

Use stakeholder analysis to:

1. Identify Stakeholders: E.g., employees, customers, regulators.
2. Map Impact Over Time: Short-, medium-, and long-term.
   • Short-term: Employees benefit from job security.
   • Medium-term: Customers may react to changes in product ethics.
   • Long-term: Regulators may intervene if public harm is uncovered.
3. Adapt Strategy: As stakeholder positions evolve, so must the firm’s responses.

4. Stakeholder Power Types and Decision Impact

The types of stakeholder power (from Class 5) can pressure the firm to act ethically:

• Economic Power: Customers may boycott products.
• Legal Power: Regulators may enforce sanctions.
• Informational Power: NGOs or media can expose practices.
• Political Power: Lobbying and activism may affect regulation.
• Voting Power: Shareholders can influence board decisions.

5. Relevant Standards for Ethical Assessment

Use these standards to evaluate decisions beyond mere legal compliance:

• Company code of conduct.
• Industry-specific ethical standards.
• Legal frameworks (e.g., FCPA).
• Professional codes (e.g., CPA, legal ethics).
• Universal principles (e.g., fairness, transparency).

6. Comparing Actions to the Global Business Standards Codex

The Codex includes principles like:

• Fiduciary: Act in the interest of the company and stakeholders.
• Transparency: Disclose relevant facts honestly.
• Dignity: Respect individual rights.
• Fairness: Treat others justly.
• Citizenship: Obey laws and support communities.
• Responsiveness: Address stakeholder concerns.

Compare firm behavior against these to identify ethical lapses.

7. Cognitive Biases That Influence Decisions

Seven key biases (revisited):

1. Framing: Misleading presentation affects decisions.
2. Self-Serving Bias: Favors decisions benefiting oneself.
3. Overconfidence: Overestimates correctness of judgment.
4. Obedience to Authority: Defers responsibility.
5. Conformity Bias: Follows group behavior uncritically.
6. Incrementalism: Accepts small unethical steps.
7. Moral Disengagement: Justifies unethical acts.

Analyze decisions for signs of these biases to assess ethical weaknesses.

8. Tests of Ethical Judgment

Use these tests to vet actions:

• Harm Test: Does it harm anyone?
• Publicity Test: Would you be okay if it were public?
• Defensibility Test: Can you justify it?
• Virtue Test: Does it align with virtuous traits?
• Professional Standards Test: Is it consistent with industry ethics?
• Colleague Test: What would peers say?

9. Key Terms Defined

• Moral Intensity: Degree to which an issue is perceived as ethically significant.
• Ethical Leadership: Leaders who demonstrate normatively appropriate conduct.
• Ethics and Compliance Officer (ECO): Oversees ethical and legal compliance programs.
• Ethics Policies/Codes: Formal statements outlining ethical expectations.
• Ethics Reporting Mechanisms: Tools like hotlines for whistleblowing.
• Bribery: Offering value to influence decisions.
• FCPA (Foreign Corrupt Practices Act): U.S. law prohibiting bribery of foreign officials for business advantage.

Class 8: Ethics in the Food Industry (1999 Case)

1. Main Issue in the Food Industry in 1999

The primary issue in 1999 was the growing public health crisis related to the widespread use of salt, sugar, and fat in processed foods. These ingredients were being used heavily by food companies to enhance flavor, stimulate cravings, and increase sales, despite rising concerns about their role in obesity, diabetes, and other chronic health problems. Internal meetings among food executives revealed awareness of the health impact, but resistance to change was rooted in the industry’s dependency on these ingredients for profitability.

2. Arguments for Maintaining the Status Quo

Arguments for maintaining the status quo included:

• Consumer Demand: Companies argued they were giving consumers what they wanted—flavorful, convenient, and affordable food, which was made possible through salt, sugar, and fat.
• Market Competition: Reducing these ingredients risked losing market share to competitors who didn’t make similar changes.
• Economic Pressure: Reformulating products could involve high costs and potential loss of revenue, especially if consumers rejected the healthier versions.
• Uncertainty of Impact: Some executives were skeptical that changes would significantly improve public health, especially if consumer behavior didn’t change.

3. Stakeholders and Impact of Current Practices

Key stakeholders and their potential impacts from continued high usage of fat, sugar, and salt:

• Consumers: Continued exposure to unhealthy levels of fat, sugar, and salt contributes to rising obesity, diabetes, and heart disease rates.
• Employees & Executives: Jobs and compensation are tied to the financial performance of the company, currently supported by these ingredients.
• Shareholders: Profits may remain high in the short term, but long-term risks include reputational damage, lawsuits, and regulation.
• Health Professionals & Public Health Agencies: Their efforts to curb the obesity epidemic are undermined by industry practices.
• Policymakers and Regulators: They may face increasing pressure to intervene with legislation or oversight as health crises escalate.

4. Ethical Issues, Incentives, and Biases

Ethical Issues

• Knowingly promoting unhealthy products: Executives were aware of the harm but prioritized profits.
• Manipulating consumer behavior: Using “bliss points” and food engineering to make products more addictive raised ethical concerns about consumer autonomy and informed choice.

Incentives

• Financial: Bonuses and promotions were tied to product sales and growth.
• Competitive: Fear of being outpaced by rivals prevented early ethical shifts.

Biases

• Status Quo Bias: Reluctance to deviate from proven business models.
• Profit over People: Cognitive dissonance allowed leaders to rationalize harming consumers in the name of business success.
• Optimism Bias: Belief that negative outcomes wouldn’t catch up with them or that someone else would take responsibility.

5. Long-Term Consequences of 1999 Decisions

The food industry’s reluctance to reform in 1999 contributed to:

• Escalating obesity and chronic disease rates, which are now public health crises.
• Increased scrutiny from governments, consumers, and media.
• Regulatory pressure: Calls for sugar taxes, clearer labeling, and restrictions on marketing to children.
• Loss of trust: Consumers are more health-conscious and skeptical, leading to shifts in brand loyalty and rising demand for clean-label products.
• Internal disruption: Some companies have been forced to pivot, acquiring health-focused startups or reformulating products under duress rather than proactive leadership.

Class 19: Corporate Reputation and Social Movements

Corporate Reputation, Identity, and Image

• Corporate Reputation: Long-term perception held by stakeholders based on company behavior and performance. It’s earned over time and difficult to change.
• Corporate Identity: The visual and strategic elements a firm uses to present itself, including logos, branding, and mission statements (internally managed).
• Corporate Image: The immediate impression the public has of a company, which can shift quickly and is often shaped by media coverage and public events (externally perceived).

Contrast: Identity is internally managed, image is externally perceived, and reputation is built over time from consistent image and behavior.

Techniques for Staying on Point with Reporters

1. Hooking: Steering the conversation by ending your answer with a compelling phrase to prompt a follow-up.
2. Bridging: Shifting from a reporter’s question to your key message.
3. Flagging: Highlighting what’s most important (“The most important point is…”).

These techniques help control messaging and keep interviews focused.

Tips for Entering Markets Originating from Social Movements

1. Understand the Movement’s Values: Align your brand purpose authentically with the social goals that created the market.
2. Engage Stakeholders Transparently: Collaborate with activists and communities to build trust.
3. Avoid “Greenwashing” or “Woke-washing”: Be authentic and back claims with actions to avoid backlash.

What is a Social Movement?

A social movement is a collective effort by a group of people or organizations seeking to promote or resist change in society or markets. It requires:

• A clear collective identity.
• Shared values and goals.
• Sustained collective action.
• Strategies for influencing institutions or the public.

Case Study: RAN and The Home Depot

The Rainforest Action Network (RAN) targeted The Home Depot to eliminate old-growth wood from its supply chain. Their process involved:

• Raising awareness about environmental destruction.
• Organizing public protests and campaigns.
• Pressuring through media and consumer action.
• Leveraging reputational risk to force change.

Their strategy was systematic, using media and activism to alter Home Depot’s sourcing practices.

Actions Social Movements May Take

• Public Protests and Boycotts.
• Social Media Campaigns.
• Petitions and Legal Action.
• Direct Engagement with Corporations.
• Media Exposure and Whistleblowing.

These actions aim to influence corporate behavior or reshape market norms.

Media Influence on Public Opinion and Lawmakers

The media can shape public opinion and influence lawmakers through:

• Agenda-Setting: Media highlights what issues the public and policymakers should focus on.
• Framing: Media influences how people think about issues through language and presentation.
• Credibility and Reach: News coverage lends legitimacy to causes and pressures officials to respond.

Steps to Manage a Corporate Crisis (Data Breach Example)

Imagine a data breach at a fintech company:

1. Activate Crisis Plan: Implement pre-established response protocols.
2. Use a Dark Site: Launch a prebuilt web page with accurate, updated information.
3. Communicate Transparently: Issue a clear, honest statement through media and direct channels.
4. Apologize and Offer Solutions: Accept responsibility and detail how you’ll prevent future breaches.
5. Engage Stakeholders: Update customers, regulators, and partners regularly.

Key Terms to Know

• General Public and the Media: Crucial external stakeholders influencing reputation and success.
• Corporate Reputation, Identity, Image: See comparison above.
• Crisis Management and Corporate Crisis: Structured response to significant disruptions threatening the firm’s reputation or operations.
• Crisis Plans and Dark Sites: Pre-developed plans and websites used during emergencies.
• Hooking, Bridging, Flagging: Communication strategies to stay on message during media interactions.

Class 20: Crisis Management Failure (BP Deepwater Horizon)

1. Incentives Before the Blowout

Incentives that influenced key decision makers before the blowout:

• Cost-Cutting and Production Pressure: BP prioritized speed and cost efficiency in drilling operations, which led to safety shortcuts.
• Executive Compensation and Bonuses: Linked to financial and production targets, incentivizing risk-taking.
• Competition: Pressure to outperform competitors in deepwater drilling efficiency and profitability.

These incentives led to decisions that downplayed risk and emphasized short-term gains.

2. Cognitive Biases Likely at Play

• Overconfidence Bias: Executives may have overestimated their ability to manage risk and respond to accidents.
• Confirmation Bias: They may have ignored or minimized safety warnings that didn’t align with their expectations or desired outcomes.
• Normalization of Deviance: Repeated risky behavior without incident led to underestimation of danger.

These biases contributed to systemic under-preparedness and denial of real threats.

3. Critical Assessment of Tony Hayward’s Crisis Management

Tony Hayward made several public missteps:

• Stated “I’d like my life back,” showing a lack of empathy for victims.
• Was seen sailing during the crisis, reinforcing perceptions of detachment.
• BP misrepresented the scale of the spill, which damaged credibility.

Hayward failed to apply basic crisis communication principles like transparency, empathy, and responsiveness. BP’s messaging was reactive rather than proactive, worsening reputational damage.

4. Stakeholder Analysis of Hayward’s Decisions

5. Crisis Management Best Practices Missed

What should have been done differently:

• Immediate transparency: Disclose the true spill size early on.
• Unified messaging: Consistent statements across executives and agencies.
• Visible empathy and accountability: CEO presence focused on affected communities, not media spin.
• Activate crisis plan and dark site: Provide real-time updates and resources.
• Stakeholder engagement: Direct communication with local leaders, NGOs, and regulators.

These steps could have mitigated reputational harm and enhanced public trust.

6. Role of the Media in the BP Crisis

The media played a central role in shaping public perception and catalyzing consequences:

• Agenda-Setting: Media like CNN and BBC focused public attention on BP’s failings.
• Visual Evidence: “Spillcam” footage showing gushing oil contradicted BP’s official estimates, revealing dishonesty.
• Narrative Framing: Hayward’s gaffes (“life back” comment) were used to illustrate executive insensitivity, further intensifying backlash.
• Pressure Amplifier: Media coverage led to political scrutiny, regulatory reform, and increased litigation.

Class 22: CSR, Community, and Corporate Forms

Key Arguments For and Against Corporate Social Responsibility (CSR)

Arguments for CSR

• Moral Obligation: Corporations should act ethically and contribute to societal good.
• Sustainability: Long-term business success depends on a stable society and environment.
• License to Operate: Public and governmental approval can hinge on responsible practices.
• Reputation and Brand Value: Socially responsible behavior can improve image and customer loyalty.
• Employee Engagement: CSR initiatives often improve morale and attract talent.

Arguments against CSR

• Profit Motive: Critics argue that a corporation’s sole purpose is to maximize shareholder value.
• Accountability: CSR may distract from corporate governance and financial oversight.
• Greenwashing Risk: Companies might use CSR to appear responsible without meaningful actions.
• Costs: Some argue CSR increases operational expenses without guaranteed returns.

Value of External Stakeholder Relationships

External stakeholders (e.g., communities, regulators, NGOs) influence a company’s ability to operate. Maintaining trust and strong relationships enhances:

• Reputation: Stakeholder approval often protects against activism and boycotts.
• Risk Management: Informed and supportive communities reduce operational risks.
• Operational Continuity: Without social approval (or a “license to operate”), even companies with significant physical assets (factories, land) can face shutdowns or legal issues.
• Adaptability: Stakeholder feedback helps firms anticipate and adapt to societal changes.

The “license to operate” is intangible but essential—without it, physical assets may be underutilized or even stranded.

Benefits of Employee Participation in Volunteer Programs

Employees who volunteer through corporate programs gain:

• Improved Wellbeing: Volunteering boosts happiness and reduces stress.
• Skill Development: Projects enhance leadership, communication, and teamwork.
• Sense of Purpose: Alignment with values increases job satisfaction and loyalty.
• Networking Opportunities: Volunteering fosters connections beyond typical job roles.

Instances of Gentrification

Gentrification occurs when wealthier residents move into lower-income neighborhoods, displacing long-time residents. Recent examples include:

• Brooklyn, NY: Once working-class areas now have luxury developments, leading to cultural shifts.
• Austin, TX (East Austin): Rapid tech industry growth has increased housing costs, impacting Latino communities.
• Los Angeles (Highland Park): Rising rents and boutique businesses have displaced long-standing residents.

Four Keys to Building Strong Community Ties

1. Transparency: Open communication fosters trust.
2. Engagement: Listening and responding to community concerns shows respect.
3. Partnerships: Collaborating with local organizations strengthens bonds.
4. Long-term Commitment: Ongoing involvement shows authentic dedication beyond short-term gains.

Corporations vs. Benefit Corporations vs. B Corps

• Corporations: Traditional for-profit entities focused on maximizing shareholder value.
• Benefit Corporations: Legally obligated to consider social and environmental impact alongside profit. Recognized by law in many states.
• B Corps: Certification (by B Lab) for companies that meet high social/environmental standards. Any legal structure can apply, but must pass rigorous impact assessments.

Corporate Activism vs. Philanthropy vs. CSR vs. Volunteerism

• Corporate Activism: Public stance or action on political or social issues (e.g., DEI, climate justice).
• Corporate Philanthropy: Donations of money, products, or services to charitable causes.
• Corporate Social Responsibility (CSR): Broad strategy integrating ethical, environmental, and social concerns into business operations.
• Corporate Volunteerism: Employee time and effort donated to community service, often company-supported.

Key Terms from Textbook

Chapter 3

• Corporate Power: The influence corporations exert over society, economy, and politics.
• Iron Law of Responsibility: The idea that those who hold power must exercise it responsibly or risk losing it.
• Corporate Social Responsibility (CSR): The duty of businesses to contribute positively to society.
• Corporate Citizenship: The extent to which businesses meet legal, ethical, and societal expectations.

Chapter 18

• Community: Groups of people affected by or interacting with a company’s operations.
• Civic Engagement: Active participation in community life and problem-solving.
• Social Capital: Networks of relationships that enable communities to function effectively.
• License to Operate: Informal societal approval to conduct business, earned through responsible practices.
• Corporate Philanthropy/Corporate Giving: Donations to causes.
• Strategic Philanthropy: Aligning giving with business objectives for mutual benefit.

Class 23: Social Entrepreneurship

1. Entrepreneurship vs. Social Entrepreneurship

• Entrepreneurship primarily focuses on identifying and exploiting business opportunities to generate profit and economic value.
• Social Entrepreneurship aims to address social issues through sustainable business models. While both involve innovation and risk-taking, social entrepreneurs prioritize social impact over financial returns.

2. Examples of Social Action Types

• Social Activism: Greta Thunberg’s climate change protests, or Black Lives Matter. These aim to change systems or raise awareness without providing direct services or creating enterprises.
• Social Entrepreneurship: Fairphone, which produces ethically sourced smartphones to reduce e-waste and promote fair labor practices.
• Social Service Provision: Local food banks or homeless shelters—organizations offering relief or services but not necessarily using entrepreneurial or self-sustaining models.

3. Characteristics of Social Entrepreneurship

Social entrepreneurship typically includes:

• A mission-driven focus on social or environmental issues.
• Use of innovative approaches to solving problems.
• Sustainability, often through revenue-generating activities.
• Scalability and replicability, meaning the solutions can grow and be implemented in other contexts.
• Measurement of impact, to ensure they are achieving their social goals.

4. White Savior Syndrome and Avoidance

White Savior Syndrome refers to a situation where individuals from privileged backgrounds attempt to “rescue” marginalized communities, often centering their own role and ignoring local knowledge or leadership.

Avoidance Strategies

• Engaging with local communities as equal partners.
• Listening to and amplifying local voices.
• Avoiding assumptions that external solutions are inherently superior.
• Prioritizing empowerment and capacity-building over charity.

5. Why Measurement Is Important

Measurement is crucial because it:

• Helps determine whether a social venture is achieving its intended impact.
• Allows for data-driven decision-making and continuous improvement.
• Provides accountability to stakeholders (investors, community, employees).
• Distinguishes between genuine social impact and mere good intentions or “impact washing.”

6. Why TOMS Shoes Is Not Social Entrepreneurship

TOMS Shoes, known for its “buy-one-give-one” model, has been criticized for:

• Failing to address the root causes of poverty.
• Disrupting local markets by donating free goods.
• Using charity as a marketing strategy without creating sustainable change.

Because its model doesn’t empower communities or involve systemic change, it is viewed more as a corporate social responsibility (CSR) initiative than true social entrepreneurship.