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

Joyner Social Responsibility Dinah Payne 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 successfully dealt with these issues were analyzed to identify the links among values, ethics, and corporate social responsibility as they are incorporated into the culture and management of a firm. This study identified the presence and implementation of values, 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 interests include venture startups, entrepreneurial behaviors, and entrepreneurial ethics. Her business experience includes eight years with a startup venture in the construction industry, two years with a Fortune 500 manufacturing 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. business ethics, and CSR actions within the two organizations 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). 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 engineering 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. Journal of Business Ethics 41: 297 311, 2002. 2002 Kluwer Academic Publishers. Printed in the Netherlands.

Brenda E. Joyner and Dinah Payne 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 responsible, 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 profitability 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 semantics of business ethics and a foundational presentation 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 organizations 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 economic 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 organizations, while only 14% of the respondents who did not regard the firm s ethics highly, were similarly committed. 42% of all surveyed indicated 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 businesses espouse in their use of ethics has its roots

Evolution and Implementation 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 campaigns 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 JohnsManville, 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 behaviors. 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 definition 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 universally 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 individuals for themselves: others, including governmental 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 rightness or wrongness of an action. This is equatable to the concept of conscience. In a perfect world, the decision-maker would make decisions that were deemed both objectively and subjectively correct. In the world of business and entre

Brenda E. Joyner and Dinah Payne 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 corporate social responsibility, defined more specifically 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 framework for integrating all dimensions of social responsibility into the firm s corporate culture and decision making processes. The Organizational Social Performance Model is comprised of three dimensions and can be visualized as a three dimensional cube, with all sets of dimensions intersecting with the others: the level of responsibility can be measured against the social issue involved, as well as the firm s social responsiveness to these issues. Dimension I contains the Social Responsibility categories. These responsibilities, 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 responsibilities 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 undertaken 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 contributing 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 philosophies address social issues to escape being forced into it by the external forces. The third philosophy 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: consumerism, environmentalism, discrimination

Evolution and Implementation issues, issues involving product safety and occupational 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 stakeholders 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 foundations 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 discourse 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 recognition that formal organizations are a most important 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 proportion 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 responsibilities 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

Brenda E. Joyner and Dinah Payne TABLE I Corporate social responsibility, business ethics, and values: An historical pers pective Authors Corporate social responsibility Ethical/Moral considerations Values/Othe r Barnard Analyze economic, legal, Morals are active result of Responsibility: pow er of (1938) moral, social and physical accumulated influences on private code of mora ls 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 v alues 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 defe nse (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 behavi or is product (1971strategy 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 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 perceived 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 subordinated 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

Evolution and Implementation 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 strategically 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 membership (1987, p. 77). In his book, Strategic Management: A Stakeholder Approach, R. Edward Freeman built on a prominent 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 integrating force to address CSR, ethical/moral considerations, and values. In the decade since the last of these foundational 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 institutions in the world, the expanse of social responsibility 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, hardcore 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 surprised that the culture of the corporation rather than individual values is the primary determinant 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

Brenda E. Joyner and Dinah Payne 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 unethical 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 consider. However, at the same time these issues were being considered by the academic community, they were also being addressed by the business community. It is the way in which practitioners have addressed these issues that is the focus of this study. Methodology This study seeks to identify the link between values, business ethics, and corporate social responsibility. The first phase of the study was the empirical identification and description of these issues within business practice. Because CSR is a concept made up of various categories, it was necessary to find a framework for identifying those levels within the practice of CSR. A widely used set of categories of CSR appears to be that set identified by Carroll (1979) in his Organizational Social Performance Model. It should be noted that the concept of business ethics falls within the category of ethical responsiveness in the Carroll model. See Table II. Two organizations that have been publicly acknowledged as socially responsible firms by organizations and communities where they operate were selected as subjects for this study. The first firm (Firm A) is a large commercial construction company with annual sales of approximately $150 million. The company has been in business for more than three decades and is highly regarded, both in the local business community where its headquarters are located, and also within the national community of builders. The second subject (Firm B) is also a commercial construction firm with annual sales of approximately $40 million. This company has been in business for fifteen years and specializes in renovation of large commercial complexes. It is also well regarded by its peers within the local and national business communities. Both organizations are still run by their founding entrepreneurs. The founders were willing to discuss

their experiences during the start up and development of these ventures, and agreed to participate fully in whatever manner seemed appropriate for the research. Data collection Interviews are an appropriate technique for gathering data concerning cultural categories and TABLE II Organizational social performance model Dimension I Philosophy of Social Responsiveness Dimension II Social Responsibility Categories Dimension III Social Issues Involved Proaction Discretionary responsibilities Consumerism Accommodation Ethical responsibilities Environment Defense Legal responsibilities Discrimination Reaction Economic responsibilities Product safety Occupational safety Shareholders Adapted from A. B. Carroll (1979), A Three-Dimensional Conceptual Model of Corpor ate Performance , Academy of Management Review 4, 503.

Evolution and Implementation shared meanings (McCracken, 1988). Semi-structured interview questions were prepared in advance to probe those areas of interest to the researcher. (See Exhibit 1.) These open-ended questions allowed elaboration by the subject, but focused the discussion to allow the most efficient use of time by the interviewer. Both interviews were recorded on tape and then transcribed for analysis. The two entrepreneurs then reviewed the transcripts and made any corrections necessary. The corrected transcripts were used for the data analysis. Data analysis Content analysis was used to search for the three concepts of values, business ethics and CSR within the transcripts. All data related to corporate social responsibility were then further analyzed to identify whether or not they could be assigned to any of the four categories of social responsibility as outlined by Carroll (1979). Data which fell within the business ethics concept were placed within the ethical responsiveness category of the Carroll model. Once the data were assigned to categories, the categories were analyzed for possible links to the financial perEXHIBIT 1 Interview guide 1. Give me a little background about yourself. How did you end up in this business? 2. How did you identify the business opportunity and evaluate the potential of the business before you started up? 3. Did you have a fully developed concept of the business when you began? If not, h ow did it develop? How has it changed over time? 4. What resources did you need to get started? How did you acquire them? 5. How did you market your company in the beginning? Has that changed over time? Ho w important is marketing in your business? 6. Do you compete mainly on price, quality, differentiated service or product or in some other way? Who do you see as your competition? 7. How do you produce your product or service? Has that changed over time? 8. Has technology played a significant role in the development of your business?

9. As new ventures grow, their cultures develop. How would you describe the culture of this company? How have you influenced the development of culture within your company? 10. With growth comes the formalization of structure. What kind of structure does th is company have and why did you choose that particular form? 11. With growth, systems and processes must be put in place. What systems and proces ses did your company develop? Which were most important? How did your employees react to them? 12. How have you managed the transition from startup entrepreneur to manager of such a large business? 13. Do you foresee selling the company, retiring, or turning it over to other manage ment in the near future? 14. What do you see as the future of the business? 15. What was the state of the industry when you entered it? How has that changed ove r time? 16. How have you developed the people in your company over time? 17. Were there any people who were especially important in helping you develop the i deas or experience necessary to begin the company? 18. How does the decision-making process in your business work? 19. Do you do research and development for either products or processes for the busi ness? If so, how do you do that? 20. Have you ever reached a point where you had to redefine your business concept? W hen did that occur and how did you do that? 21. Are there other tasks associated with startup and development of your business t hat you found essential to the success of the venture that we haven t discussed?

Brenda E. Joyner and Dinah Payne formance of the firms. It should be noted that the design of this study prohibits the ascertainment of causality with respect to financial performance and these issues; while some linkages have been identified, the authors cannot state that the values, ethics and CSR linkages cause changes in financial performance. The findings are detailed below. Findings of the study Economic responsibilities According to the Carroll model, the economic responsibilities of the firm are to produce goods and/or provide services and sell them at a profit. The need to make a profit is sometimes thought of as incompatible with the assumption of responsibility to the larger community. The marketplace puts one s convictions to the test. A business is not a philanthropy, social aid service or school. And if it tries to be all things to all people, it won t be able to fulfill its mission (Vaughn, 1997, p. 14). However, the two firms in this study had different thoughts on the subject: they did not perceive that the production of goods and/or provision of services at a profit was mutually exclusive with good business ethics. Firm A: In the Atlanta business community you are expected to be a part of the public service scene, process. It s a negative if you don t do it. And when you do it you find yourself doing it with all kinds of other business leaders. So it s an opportunity, it s a tailor made opportunity to network with other decision-makers and a lot of the business we get is relationship driven. The founder of this firm clearly perceived that his economic responsibility was to make a profit; he was also farsighted enough to realize that his firm s economic welfare, a duty asserted to exist by the Carroll model, was dependent on his involvement in the public service sector. Because of this, he used networking as a means to increase his exposure with the public service sector. His statement above unites the fulfillment of the firm s economic responsibilities with its ethical and discretionary responsibilities to meet or exceed societal standards of what is expected or considered morally right. This statement also reflects three of the response philosophies discussed earlier: the defense, accommodation and proaction philosophies. His statement implies that the defense philosophy is only marginally

in place; the entrepreneur would apparently exceed his ethical and discretionary responsibilities even if he did not want to avoid being forced into it by outside forces. The statement also implies the accommodation philosophy of addressing social issues because they exist because the public service scene exists. Also, that such participation is a tailor made opportunity to network with other decision-makers implies a proactive approach to social issues: the proaction philosophy. As a whole, the entrepreneur s statement seems to recognize the importance of Carroll s model s Dimension III, social issues/publics. Acknowledgement of the idea of a relationship driven business is a tacit acceptance of a number of stakeholders affected by the founder s firm s actions: stockholders, creditors, other business leaders in the community, the community itself . . . The founder of Firm B found that doing the socially responsible thing can also result in positive economic gain. Firm B: In 1980 we were two years old. The only job I could get in (the city) was renovating lowincome housing. I couldn t get another job. . . . (W)e were getting robbed every night, we were getting torched every night. I got this idea. We could hire four security guards who would cost $150,000 for the duration of the project. Their lives would be in jeopardy. Instead I went to the neighborhood association leader, a marvelous . . . lady who was President of the neighborhood association. I said, Look, I need your help. I would like to put $10,000 in escrow with an attorney of your choosing. If the neighborhood would simply call the police if you see strangers around our project at night. I don t want anyone to jeopardize his or her life, I want you to simply help us to secure the job. I actually found a dead body on the job one day. There was shooting around the site. It was a major drug dealing area. The police got wind of it and they decided that they had been trying to get a neighborhood watch

Evolution and Implementation program for years and they said this is our chance. They re getting $10,000 bucks from this contractor in return for doing what we ve been trying to get them to do. So the police made a commitment to respond to any call from this neighborhood during the project time within three minutes. The Fire Department heard about it. Some of the guys from the Fire Department lived in the neighborhood. They promised that on their way back from fires they would go through the neighborhood. The school principals sent home flyers outlining the chance to earn $10,000 for the neighborhood if residents would just help this contractor. The ministers from the churches urged their members every Sunday to remember to watch the (City) apartments. The crime virtually stopped. The heavy stuff stopped although we still had some minor problems. The neighborhood was presented a check at the end of the project. They gave me a full accounting of every nickel of the $10,000 that they spent. They got uniforms for the neighborhood kids track team and baseball teams and some equipment for the community center. We re still members of the Neighborhood Association. The press picked up on it . . . And we just got tremendous mileage out of the $10,000 instead of $150,000 for watchmen. Remember that s what we saved: $140,000. This is an interesting combination of the two motivations to do the right thing. In this instance, the business owner had the choice of involving the community or not, of acting in recognition of the symbiotic relationship between business and the community or not. This entrepreneur decided to invest in the community, with the result that his return on his investment was both tangibly ( the press picked it up equating to free publicity, a marketing method that is not paid for and frequently results in very positive gains for the business) and intangibly: the goodwill of the community and the Neighborhood Association. This action is again commensurate with the Carroll model dictating economic responsibility as the first duty of the firm. By engaging in ethically laudable behavior, this firm saved a good bit of money the first obligation of the firm. The firm accepted the possibility of trouble associated with building in that area and, successfully, dealt with them, to the mutual benefit of both the community and the firm. The stakeholders who benefited here are numerous: shareholders (who saved thousands of dollars), the

neighborhood association, the groups funded at the discretion of the neighborhood association, the community itself . . . Legal responsibilities Obedience to society s promulgated laws coupled with pursuit of the firm s economic responsibilities is the second most important element of Carroll s dimensions of social responsibility. It requires at least minimal adherence to the law. The entrepreneurs in this study exhibited an understanding of the importance of laws and abiding by them, as part of their strategy to be successful, ethical businesses. Firm B: This company was the first to test for drugs. When you go on a scaffold you will know that the person standing next to you, the person who erected the scaffold is not on drugs and we will have random testing every month, because I want to assure you that your place of work will be safe. This statement indicates that the entrepreneur has accepted the societal prohibition against the use of controlled substances that could endanger safe conditions at the workplace. In so accepting these laws and regulations (laws against illegal substance abuse and OSHA regulations), the entrepreneur has not only complied with his basic legal responsibilities, he has also complied with Carroll s model in obeying such laws and regulations to the betterment of the firm s economic responsibilities: a safe workplace means fewer costly accidents. The organizational response to the example of the legal issue of drug testing presented here is once again that of the proaction philosophy. Rather than wait for one of the many stakeholders that could be affected to be injured, the founder of the firm anticipated the need to address the social issue of drug abuse in the workplace.

Brenda E. Joyner and Dinah Payne Ethical responsibilities The founder of Firm A spoke of his role in a community project and the impact it has had on the organization. In acknowledging his obligations to his society, the founder exhibits commitment to fulfilling Carroll s ethical responsibilities to meet society s expectations for conscientious and proper behavior, even when these expectations are not reflected in the letter of laws and regulations (Dunham and Pierce, 1989). Firm A: I am the chairman of (a large, highly visible social event). I m able to do that. Not only am I spending a lot of my time doing that, a lot of my money doing that. I don t accept any kind of money, I m a volunteer so I don t get paid. And I don t take any reimbursement. And we disqualified our company from doing any of the construction because of the conflict of interest. Which means we sit here and watch the team who got picked to do the stadium build the stadium. That s a $150 million job . . . So we sit and watch our competitors . . . do that. The firm s ethical responsibilities are to meet society s expectations for conscientious and proper behavior. Additionally, the firm should have good faith commitment to the spirit of the law, not just the letter of the law, as the legal responsibilities category requires. It is important to note that doing the right thing can be difficult, both personally and in business. The question this founder asked and answered is whether one should do the ethically right thing in the face of substantial costs to the firm. This entrepreneur clearly found that his commitment, his ethical responsibility, to the community was much greater than the fear of the potential for lost profits. Vaughn (1997, p. 14) warns of the dangers of being ethical at any cost. They need to remember that their shareholders are not empowering them to manage charities but are asking them to manage their corporations. While this is most definitely true, it should be noted that doing the right thing has its own reward, satisfaction in knowing that one did the right thing (according to De George, mentioned previously, moral praise is associated with doing the right thing). Additionally, doing the right thing may have other rewards, as well, like in the previous example wherein the dividends of doing the right thing were not anticipated but were a direct result of doing the right thing. Further, the entrepreneur could experience self-

actualization (Maslow, 1957). The importance of being ethical in day-to-day dealings with the many stakeholders of the organization was addressed by the owner of Firm B. Firm B: To people who do business with us, we should be known as an honorable and fair company composed of people who keep their word and always fulfill their obligations in a timely fashion. We are going to pay our bills on time. If we say it s going to be there on Tuesday. If we say the building will be completed in 16 months, it will be done in at least 16 months. No matter what it costs and we will keep our word. This statement smacks of integrity a hallmark concept of the ethical responsibilities Carroll s model asserts are the duties of the firm. This founder is clearly more concerned about the spirit of the law and doing the right thing even though the expectations are not reflected in society s laws and regulations than about the consequences of failing to complete the job in a timely fashion, a lawsuit for breach of contract. Both of the statements related here imply a proaction philosophy. In acting to serve the community through chairing a social benefit and in cultivating the reputation to be an honest and fair company, these entrepreneurs anticipate the positive role they play in society and rise to play that role completely. They have clearly made great efforts, and even sacrifices, to understand their business and community environment and to plan strategies that can help their communities. Discretionary responsibilities The founder of Firm B exercised discretionary responsibility in a very different area of the community.

Evolution and Implementation Firm B: When I first came here I thought that all companies would buy tickets to arts events. I just thought that s what you do in a major metropolitan area . . . (W)e got a bunch of tickets and all our employees went and we were all proud. We took some clients and some of the management guys thought it was extreme to spend that much money. I said, Look let s think about this. We re going to get exposure. We re getting in the right circles . A lawyer s wife turned out was on the board of (the local ballet) where one of our guys was selling a tenant fit-up to that law firm. The firm gave us that job basically because . . . (we) sponsored (a show) for his wife s favorite ballet company. An architect said to us, You know I wouldn t do this work over a weekend for any other construction company. But you guys have helped the arts. I m going to do this for you. I m going to work this weekend to get you that documentation you need. We now give we tithe to the arts. In 1983 we made that commitment. Ten percent of the after tax profits are given to the arts in communities in which we build. This statement is an indication that the firm is meeting its discretionary responsibilities. These duties are to act voluntarily to aid society in some way, even if not acting this way would not be considered unethical. There is no legal mandate that firm s tithe to the arts; many firms do not do so and are not necessarily viewed negatively for not doing so. Thus, the firm is engaging in philanthropic activities they have no legal or even moral obligation to do; however, in fulfilling the firm s discretionary responsibilities, the firm may certainly act to the benefit of society. This entrepreneur also takes a proaction philosophy with regard to the arts in his community, an important social issue often undervalued by society as a whole. Knowing this and anticipating the need in that area, the entrepreneur committed himself and his firm to being of service to those stakeholders. This action also highlights the conundrum of an ethical business person engaging in ethical behavior for both the ethical and more Machiavellian approach discussed in the introduction section of this paper. The founder of Firm B has already indicated in many instances his commitment to his community and to doing

quality jobs, the adherence to ethically sound business practices. In this instance, however, he found an unexpected payoff for doing the right thing because it is right. Here, he found that he gained something other than simple satisfaction that he did the right thing: he was awarded a contract as a tangential outcome of his ethical behavior and he received the help of a required professional to complete a job in a timely fashion. The initial motivation of the entrepreneur was to do the right thing because it was right. His reward was actually greater than that; in doing the right thing, his unexpected dividend was the securing of a contract and the help he needed. Conclusions and implications This research identified the presence and implementation of values, business ethics, and CSR actions within the two organizations studied. The study found that the link to financial performance of the firm can be either direct or indirect. However, it is impossible to state that these linkages caused the changes in financial performance noted. In one instance, it appeared to be possible to assign an exact dollar value to the socially responsible action. In other instances, it was apparent that the contacts made through socially responsible behavior resulted in contracts awarded at a later date. While it is impossible to generalize the results of this study because of the small sample, a larger study of the link of CSR to firm financial performance, using the framework tested in this research, could be undertaken in order to further explain the direct and indirect links to performance. It also appears that the indirect links identified in the research have associated time lags between socially responsible behavior by the firm and financial gain. These lags could be traced in order to find out how the impact of the time lag affects the ability of the firm to connect specific behaviors to future financial reward. A longitudinal study of a larger sample of firms using a time frame of from five to ten years could shed much light on the effect of time lag on the issue.

Brenda E. Joyner and Dinah Payne For many researchers in the areas of ethics and corporate social responsibility, the issue of finding a financial performance link to ethical behavior is unnecessary and a waste of time. Surely there are enough compelling reasons besides financial gain to push firms to support and champion ethical behaviors from their employees and to engage in socially responsible behavior with respect to the environment and the communities within which they conduct their businesses. The authors agree with such reasoning. However, the ability to link socially responsible behavior with positive firm financial performance adds a strong, quantitative foundation to the push for such actions. By showing ways to link changes in culture that can generate positive financial performance that shows up as increases in the bottom line, stock price, or other financial performance measures, a stronger case can be made for such changes. In a perfect world such studies would not be necessary. However, in this lessthanperfect world that we inhabit, where success for business is measured almost exclusively by financial performance, the ability to show that ethical and socially responsible behavior can boost financial results might provide the impetus for real change in many organizations. References Adler, Nancy: 1999, International dimensions of Organizational Behavior (Southwestern, Cincinnati, OH). Andrews, K. R.: 1987, The Concept of Corporate Strategy (Richard D. Irwin, Inc., New York, NY). Ansoff, H. I.: 1965, Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion (McGraw Hill, New York, NY). Barnard, C. I.: 1938, The Functions of the Executive (Harvard University Press, Cambridge, MA). Blanchard, K.: 1998, The New Bottom Line , Entrepreneur (February), 127 131. 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

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Solomon, R. C.: 1997, It s Good Business (Rowman & Littlefield Publishers, Inc., Lanham, MD). Stodder, Gayle Sato: 1998, Goodwill Hunting , Entrepreneur (July), 118 121. Summer, C. E., R. A. Bettis, I. H. Duhaime, G. H. Grant, D. E. Hambrick, C. C. Snow and C. P. Zeithaml: 1990, Doctoral Education in the Field of Business Policy and Strategy , Journal of Management 16(2), 361 398. Vaughn, Susan: 1997, Firms Find Long-Term

Evolution and Implementation Rewards in Doing Good , Los Angeles Times (November 3), 13 14. Velasquez, Manuel G.: 1999, Business Ethics: Cases and Concepts (Prentice Hall, Englewood Cliffs, NJ). Brenda E. Joyner, Ph.D. Loyola University New Orleans, 6363 St. Charles Avenue, Box 15, New Orleans, LA 70118, U.S.A. E-mail: bjoyner@loyno.edu Dinah Payne, J.D./MBA University of New Orleans, New Orleans, LA 70148, U.S.A. E-mail: dinahpayne@aol.com