Business Ethics and Corporate Social Responsibility as Competitive

Advantage for Companies

Charu Saxena Sharma Pardeep Kumar
Lecturer, Sr. Lecturer,
Aryabhatta College, Barnala Aryabhatta College of Mgmt. & Tech. Barnala .
E-mail: [email protected] [email protected]

Abstract
Business ethics of a firm has been defined as one of the invaluable intangible assets for competing
in today’s business world of globalisation. Business ethics should become part of corporate codes,
and if implemented in the line of business as a corporate philosophy it should help achieving a
competitive advantage for the firm. Thus, the importance of building a strong ethical culture is
integral to the reputation, growth and finances of any organization. It builds a brand that attracts
the best talent and creates trust among the stakeholders. Most corporations recognize these
responsibilities and make a serious effort to fulfil them while trying to utilize their business ethics
as a source of competitive advantage. This research will explore the growing issue of business
ethics and corporate social responsibility particularly as a competitive advantage.
Key-words: Intangible asset, Globalisation, Competitive Advantage, Corporate Social
Responsibility.

1. Introduction:
Companies are dedicated to being sustainable organizations through building long-term shareholder
value while being a responsible corporate citizen. It is globally believed that the only way to
achieve that is to incorporate economic, social and environmental codes of conduct into business
strategy. Furthermore, global expansion has brought about greater involvement with different
cultures and socioeconomic systems. Although companies are primarily business organizations run
for the benefit of shareholders, they have a wide-ranging set of responsibilities to their own
suppliers, customers and employees, to the communities in which they are located, and to society at
large.

Ethics is an attempt to work out the rights and obligations we have and share with others. While
short-term competitive advantage is obtained by appealing to customers in targeted external
markets (in the context of globalization), long-term sustainable competitive advantage is the result
of exploiting an enduring core of relevant capability differentials cultivated by responsible
management of tangible and intangible internal skills and assets.

In this context, Business Ethics becomes a prerequisite for conducting any type of business,
particularly in the global marketplace. Traditionally, there have been two views on the role of ethics
in business. The first perspective is that the corporate executives’ sole responsibility is to maximize
the shareholder’s value. The second view is that “ethics pays,” which implies that acting in a
socially responsible way towards shareholder will automatically enhance shareholder wealth.

2. Business Ethics as Corporate Strategy

It is increasingly important for companies to deal with ethics as a corporate strategy that, if
uniquely implemented, could achieve competitive advantage for the company rather than waiting to
react to possible ethical issues of importance to the targeted stakeholders. Competitive advantage
allows a firm to gain an edge over rivals when competing. Competitive advantage comes from a
firm’s unique ability to perform activities more distinctively and more effectively than rivals. A
firm’s distinctive competence or unique ability here implies, those special capabilities, skills,
technologies or resources that enable a firm to distinguish itself from its rivals and create
competitive advantage (such as superior quality, design skills, low-cost manufacturing, superior
distribution etc.). Managers and top management have a responsibility to institutionalize ethics by
framing a code of ethics for the organization.

Business ethics deliver a competitive advantage in multiple ways:

 It builds trust and loyalty (and referrals) from customers.

 It motivates sales staffers because they really believe in the products and services they're
selling.
 It creates a culture of honesty, especially important in a business where employees work in
customers' homes and can't be closely supervised all the time.
 And it attracts top employees who want to work for a company whose standards they
respect and share.

2.1 Business and Society

It is the perception about the nature of business and its relationship with society that defines the
‘Social Responsibility of Business’. It determines what the responsibility of business towards
society is and hence, the setting up standards of such responsibility is based on philosophy of
business since it is concerned with ‘the fundamental principles that underlie the formation and
operation of a business enterprise’. The three inter-related aspects of the philosophy of business are:
nature of business; its role in society; and its moral obligations towards society.

Nature of business
Traditionally, business has been seen as a property institution rather than a social institution. In its
conventional form, the primary motive of business was to earn profits. It was believed that business
should earn profits at any cost. This implies that the domain of business as an entity was distinct
and independent from that of the rest of society.
Role of business in relation to other entities
Society expected business to produce goods and services as per the need of its members. Business
as well as society expected the State or Government to take care of other social and environmental
concerns. Further, it was assumed that the managers would automatically meet the interest of
shareholders.
Moral obligation of business
The conventional understanding is that a business is obliged to recompense factors of production
which it does through the market mechanism. The factor incomes are commensurate to their
contribution to social product. The price paid for other resources, including natural resources, is
equal to the cost of those to in real terms. Hence, it is purported that a business automatically
discharges its moral obligation towards society and does so in full measure.

3. Corporate Responsibility
Corporate Responsibility, it has been seen arises from Business Ethics and has three dimensions,
that is: Good Governance, Corporate Social Responsibility and Environmental Accountability. This
is how business ethics becomes an all pervading influence in the governance of business. The top
management is not only responsible to envision such a change but to translate this vision into
practices and also to make sure that they adopt a balanced approach towards three dimensions. It
should be evidenced from the conduct of business as it is not easy for them to get away from this by
indulging into only in lip service.

3.1 Corporate Social Responsibility (“CSR”)

The ethical dimension of CSR includes the social practices where the company is discharging its
responsibility towards community at large i.e. stakeholders. Stakeholders are the ones who can
influence or can be influenced by the actions, decisions, policies, practices and goals of the
company. Apart from shareholder, it includes employees’ consumers, supplies, government
competitors, and community at large. Traditionally, so far business was treated purely from the
point of view of private personal pecuniary motive.
Now, a company has acknowledged its responsibilities to society that goes beyond the production
of goods and services at a profit. It involves the idea that the corporate has a broader constituency to
serve than that of shareholder alone, in more recent years, the term stakeholder has been widely
used to express this broader set of responsibilities. By now, it is accepted that corporations are more
than economic institutions and they have a responsibility to help society to solve pressing social
problems. CSR is about how companies manage the business processes to produce an overall
positive impact on society.
CSR is about business giving back to society. The concept of social responsibility is fundamentally
an ethical concept as it involves changing notions of human welfare, and emphasizes a concern
with the social dimension of business activity that have to do with improving quality of life. The
concept provided a way for business to concern itself with these social dimensions and pay some
attention to its social impacts. As a result, many of them put a step forward for discharging their
responsibility by indulging into philanthropy or by bringing CSR into business strategy.

4. The Role of Top Management

For incorporating ethical considerations, that comes no doubt from top leadership who are aware of
the fact that three dimensions of ethics percolates all through the organization. But such awareness
about Corporate Responsibility must be backed by commitment and consciousness to enforce the
top management to find out the ways to integrate ethics and values into their day-to-day decision-
making. Of course, the role of top management is crucial in the sense that he has the responsibility
to translate this vision into business strategy. He has to further harness the CR practices by bringing
out the organizational transformation with which this vision would be carried down from top to
bottom level in the organization. It is possible by developing systems, processes, policies, plans,
practices, having programs so that it is deeply embedded into the organization. Ultimately, it
pervades the whole organization which means not only from top to bottom but also in all functional
areas, whether it be HR, marketing, account, finance etc. This whole process is known as
institutionalization of CR practices into business system.

5. Business Ethics as Competitive Advantage

sssBusiness ethics should become part of corporate codes, and if implemented in the line of
business as a corporate philosophy it should help achieving a competitive advantage for the firm.
While short-term competitive advantage is obtained by appealing to customers in targeted external
markets (in the context of globalization), long-term sustainable competitive advantage is the result
of exploiting an enduring core of relevant capability differentials cultivated by responsible
management of tangible and intangible internal skills and assets.

Sustainable global competitive advantage occurs when a company implements a value-creating

strategy which other companies are unable to imitate. For example, a company with superior
business leadership skills in enhancing integrity capacity increases its reputation capital with
multiple stakeholders and positions itself for competitive advantage relative to companies without
comparable leadership performance. Companies could perceives stakeholder interdependence,
demonstrate ethical awareness, and respond effectively to moral issue management put themselves
in a position of a competitive advantage in comparison to other companies without those internal
resources, by providing a more comprehensive list of ethics capacities.
International organizational leaders can and should be held accountable for enhancing the
intangible strategic asset of integrity capacity in order to advance global organizational excellence.
The marketplace with globalization is becoming increasingly aware of, and increasingly
discriminating against, corporations that fail to meet the criteria of ethical business operations and
ethical management principles

Furthermore, sustaining advantage requires change. It demands that a corporation exploit, rather
than ignore industry trends (one of the major trends is the demand of business ethics). It also
demands that a company invest to close off the avenues along which competitors could attack
Business ethics as competitive advantage involves effective building of relationships with a
company’s stakeholders based on its integrity that maintains such relationships. Business
relationships, like personal ones, are built on trust and mutual respect. Successful business must
treat the parties affected by the corporation’s actions as constituents to be consulted rather than
spectators to be ignored. Doing so was just smart business. This was a novel step in that it was
among the first attempts to characterize the impact of ethical behaviour on a company’s financial
performance.

6. Conclusion
If the organization desires to have successful implementation of Business ethics and Corporate
Responsibility practices, then these efforts are not only to be institutionalized but also to be
perpetuated in organization. Besides this, top management should try its level best to build a system
by which Business ethics and Corporate Responsibility would become sustainable, only then vision
would become reality. The most important criterion is about what steps have been taken to have the
sustainability and the perpetuation of Business ethics and Corporate Responsibility efforts within
organization towards gaining competitive advantage. Today it is most urgently felt that different
dimensions, namely, social responsibility, environmental accountability and governance must be
brought under one umbrella of business ethics. The top management must bring about
organizational transformation so as to make such a trifocal approach sustainable.

7. References

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