blaw5_ch07

Copyright © 2004 by Prentice-Hall. All rights reserved.

PowerPoint Slides to AccompanyPowerPoint Slides to AccompanyBUSINESS LAWBUSINESS LAW

E-Commerce and Digital Law E-Commerce and Digital Law International Law and EthicsInternational Law and Ethics

55thth Edition Editionby Henry R. Cheesemanby Henry R. Cheeseman

Slides developed by

Les Wiletzky

Wiletzky and Associates, Puyallup, WA

Chapter 7Ethics and Social Responsibility of Business

Chapter 7Ethics and Social Responsibility of Business

Copyright © 2004 by Prentice-Hall. All rights reserved. 7 - 2

IntroductionIntroduction

Businesses organized in the United States Businesses organized in the United States are subject to its laws.are subject to its laws.

They are also subject to the laws of other They are also subject to the laws of other countries in which they operate.countries in which they operate.

Business persons owe a duty to act ethically Business persons owe a duty to act ethically in the conduct of their affairs.in the conduct of their affairs.

Businesses owe a social responsibility not to Businesses owe a social responsibility not to harm society.harm society.


Law and EthicsLaw and Ethics

Ethics –Ethics – A set of moral principles or values A set of moral principles or values that governs the conduct of an individual or a that governs the conduct of an individual or a group.group.

What is lawful conduct is not always ethical What is lawful conduct is not always ethical conduct.conduct. The law may permit something that would be The law may permit something that would be

ethically wrong.ethically wrong.


Moral Theories and Business EthicsMoral Theories and Business Ethics

Ethical RelativismEthical Relativism

Ethical Ethical FundamentalismFundamentalism

UtilitarianismUtilitarianism

Kantian EthicsKantian EthicsRawls’s Social Rawls’s Social Justice TheoryJustice Theory


Ethical FundamentalismEthical Fundamentalism

Ethical fundamentalism -Ethical fundamentalism - When a person When a person looks to an looks to an outside sourceoutside source for ethical rules or for ethical rules or commands.commands.

Critics argue that ethical fundamentalism Critics argue that ethical fundamentalism does not permit people to determine right does not permit people to determine right and wrong for themselves.and wrong for themselves.


UtilitarianismUtilitarianism

A moral theory that dictates that people must A moral theory that dictates that people must choose the action or follow the rule that choose the action or follow the rule that provides the provides the greatest good to societygreatest good to society..

This does not mean the greatest good for the This does not mean the greatest good for the greatest number of people.greatest number of people.

Has been criticized because it is difficult to Has been criticized because it is difficult to estimate the “good” that will result from estimate the “good” that will result from different actions.different actions.


Kantian Ethics (Duty Ethics)Kantian Ethics (Duty Ethics)

A moral theory that says people owe moral A moral theory that says people owe moral duties that are based on duties that are based on universal rulesuniversal rules..

Based on the premise that people can use Based on the premise that people can use reasoning to reach ethical decisions.reasoning to reach ethical decisions.

This theory would have people behave This theory would have people behave according to the according to the categorical imperativecategorical imperative::

““Do unto others as you would have them do Do unto others as you would have them do unto you.”unto you.”


Kantian Ethics (Duty Ethics) Kantian Ethics (Duty Ethics) (continued)(continued)

Deontology’sDeontology’s universal rules are based on universal rules are based on two important principles:two important principles:

1.1. Consistency –Consistency – all cases are treated alike all cases are treated alike with no exceptions.with no exceptions.

2.2. Reversibility –Reversibility – the actor must abide by the the actor must abide by the rule he or she uses to judge the morality of rule he or she uses to judge the morality of someone else’s conduct.someone else’s conduct.


Kantian Ethics (Duty Ethics) Kantian Ethics (Duty Ethics) (continued)(continued)

Thus, if you are going to make an exception Thus, if you are going to make an exception for yourself, that exception becomes a for yourself, that exception becomes a universal rule that applies to all others.universal rule that applies to all others.

A criticism of this theory is that it is hard to A criticism of this theory is that it is hard to reach a consensus as to what the universal reach a consensus as to what the universal rules should be.rules should be.


Rawls’s Social Justice TheoryRawls’s Social Justice Theory

Rawls’s social contractRawls’s social contract

A moral theory that says each person is A moral theory that says each person is presumed to have entered into a social presumed to have entered into a social contract, with all others in society, to obey contract, with all others in society, to obey moral rules that are necessary for people to moral rules that are necessary for people to live in peace and harmony.live in peace and harmony.


Rawls’s Social Justice Theory Rawls’s Social Justice Theory (continued)(continued)

Rawls’s Distributive Justice TheoryRawls’s Distributive Justice Theory Fairness is considered the essence of justice.Fairness is considered the essence of justice. The principles of justice should be chosen by The principles of justice should be chosen by

persons who do not yet know their station in persons who do not yet know their station in society.society.

This This “veil of ignorance”“veil of ignorance” would permit the would permit the fairest possible principles to be selected.fairest possible principles to be selected.


Rawls’s Social Justice Theory Rawls’s Social Justice Theory (continued)(continued)

There are two major criticisms of this There are two major criticisms of this theory:theory:

1.1. Establishing the blind “original position” for Establishing the blind “original position” for choosing moral principles is impossible in choosing moral principles is impossible in the real world.the real world.

2.2. Many persons in society would choose not Many persons in society would choose not to maximize the benefit to the least to maximize the benefit to the least advantaged persons in society.advantaged persons in society.


Ethical RelativismEthical Relativism

A moral theory that holds that A moral theory that holds that individuals individuals must decide what is ethical based on their must decide what is ethical based on their own feelings as to what is right or wrongown feelings as to what is right or wrong..

There are no universal ethical rules to guide There are no universal ethical rules to guide a person’s conduct.a person’s conduct.

If a person meets his or her own moral If a person meets his or her own moral standard in making a decision, no one can standard in making a decision, no one can criticize him or her for it.criticize him or her for it.


Ethical Relativism Ethical Relativism (continued)(continued)

A criticism of this theory is that an action A criticism of this theory is that an action usually thought to be unethical would not be usually thought to be unethical would not be unethical if the perpetrator thought it was in unethical if the perpetrator thought it was in fact ethical.fact ethical.


Theories of Ethics – Summary Theories of Ethics – Summary (1 of 2)(1 of 2)

TheoryTheory DescriptionDescription

Ethical Ethical fundamentalismfundamentalism

Persons look to an outside source or central Persons look to an outside source or central figure for ethical guidelines.figure for ethical guidelines.

UtilitarianismUtilitarianism Persons choose the alternative that would Persons choose the alternative that would provide the greatest good to society.provide the greatest good to society.

Kantian ethicsKantian ethics A set of universal rules establishes ethical A set of universal rules establishes ethical duties. The rules are based on reasoning duties. The rules are based on reasoning and require (1) consistency in application and require (1) consistency in application and (2) reversibility.and (2) reversibility.


Theories of Ethics – Summary Theories of Ethics – Summary (2 of 2)(2 of 2)

TheoryTheory DescriptionDescription

Rawls’s social Rawls’s social justice theoryjustice theory

Moral duties are based on an implied social Moral duties are based on an implied social contract. Fairness is justice. Rules are contract. Fairness is justice. Rules are established from an original position.established from an original position.

Ethical relativismEthical relativism Individuals decide what is ethical based on Individuals decide what is ethical based on their own feelings as to what is right or their own feelings as to what is right or wrong.wrong.


The Social Responsibility of BusinessThe Social Responsibility of Business

Business does not operate in a vacuum.Business does not operate in a vacuum. Decisions made by business have far-Decisions made by business have far-

reaching effects on society.reaching effects on society. In the past, many business decisions were In the past, many business decisions were

made solely on a cost-benefit analysis.made solely on a cost-benefit analysis. ““Bottom line” impact.Bottom line” impact.


The Social Responsibility of Business The Social Responsibility of Business (continued)(continued)

Such decisions may cause negative Such decisions may cause negative externalities for others.externalities for others.

Corporations are considered to owe some Corporations are considered to owe some degree of degree of social responsibilitysocial responsibility for their for their actions.actions.


Ethics BriefEthics Brief

Corporations that conduct social Corporations that conduct social audits will be more apt to prevent audits will be more apt to prevent unethical and illegal conduct by unethical and illegal conduct by managers, employees, and managers, employees, and agents.agents.


The Social Responsibility of Business The Social Responsibility of Business (continued)(continued)

Ethics is a function of history, culture, Ethics is a function of history, culture, religion, and other factors.religion, and other factors.

Therefore, ethical standards vary from Therefore, ethical standards vary from country to country.country to country.

The The Caux Round TableCaux Round Table promulgated an promulgated an international ethics code called the international ethics code called the Principles Principles for International Businessfor International Business..


The Caux Round Table The Caux Round Table Principles:Principles:

Principle 1Principle 1 The Responsibilities of Business The Responsibilities of Business Beyond Shareholders Toward ShareholdersBeyond Shareholders Toward Shareholders

Principle 2Principle 2 The Economic and Social Impact The Economic and Social Impact of Business: Toward Innovation, Justice, and of Business: Toward Innovation, Justice, and World CommunityWorld Community


The Caux Round Table The Caux Round Table Principles:Principles: (continued)(continued)

Principle 3Principle 3 Business Behavior: Beyond the Business Behavior: Beyond the Letter of Law Toward a Spirit of TrustLetter of Law Toward a Spirit of Trust

Principle 4Principle 4 Respect for RulesRespect for Rules

Principle 5Principle 5 Support for Multilateral TradeSupport for Multilateral Trade

Principle 6Principle 6 Respect for the EnvironmentRespect for the Environment

Principle 7Principle 7 Avoidance of Illicit OperationsAvoidance of Illicit Operations


Theories of Social ResponsibilityTheories of Social Responsibility

Maximizing Maximizing ProfitsProfits

Moral Moral MinimumMinimum

Stakeholder Stakeholder InterestInterest

Corporate Corporate CitizenshipCitizenship


Maximizing ProfitsMaximizing Profits

A theory of social responsibility that says a A theory of social responsibility that says a corporation owes a duty to take actions that corporation owes a duty to take actions that maximize profits for shareholders.maximize profits for shareholders.

The interests of other constituencies are not The interests of other constituencies are not important in and of themselves.important in and of themselves.


Moral MinimumMoral Minimum

A theory of social responsibility that says a A theory of social responsibility that says a corporation’s duty is to make a profit while corporation’s duty is to make a profit while avoiding harm to othersavoiding harm to others..

As long as business avoids or corrects the As long as business avoids or corrects the social injury it causes, it has met its duty of social injury it causes, it has met its duty of social responsibility.social responsibility.


Moral Minimum Moral Minimum (continued)(continued)

The legislative and judicial branches of The legislative and judicial branches of government have established laws that government have established laws that enforce the moral minimum of social enforce the moral minimum of social responsibility on corporations.responsibility on corporations. e.g., Occupational safety lawse.g., Occupational safety laws e.g., Consumer protection laws for product e.g., Consumer protection laws for product

safetysafety


Stakeholder InterestStakeholder Interest

A theory of social responsibility that says a A theory of social responsibility that says a corporation must consider the effects its corporation must consider the effects its actions have on persons actions have on persons other than its other than its stockholdersstockholders..

This theory is criticized because it is difficult This theory is criticized because it is difficult to harmonize the conflicting interests of to harmonize the conflicting interests of stakeholders.stakeholders.


Other Stakeholders of a BusinessOther Stakeholders of a Business

CustomersCustomers

EmployeesEmployees SuppliersSuppliers

Local Local CommunityCommunity

CreditorsCreditors


Corporate CitizenshipCorporate Citizenship

A theory of responsibility that says a A theory of responsibility that says a business has a responsibility to do good.business has a responsibility to do good.

Business is responsible for helping to solve Business is responsible for helping to solve social problems.social problems.

Corporations owe a duty to promote the Corporations owe a duty to promote the same social goals as do individual members same social goals as do individual members of society.of society.


Corporate Citizenship Corporate Citizenship (continued)(continued)

This theory argues that corporations owe a This theory argues that corporations owe a debt to society to make it a better place.debt to society to make it a better place. This duty arises because of the social power This duty arises because of the social power

bestowed on corporations.bestowed on corporations. A major criticism of this theory is that the A major criticism of this theory is that the

duty of a corporation to “do good” cannot be duty of a corporation to “do good” cannot be expanded beyond certain limits.expanded beyond certain limits.


Theories of Social Responsibility – Summary Theories of Social Responsibility – Summary

TheoryTheory Social ResponsibilitySocial Responsibility

Maximizing profitsMaximizing profits To maximize profits for stockholders.To maximize profits for stockholders.

Moral minimumMoral minimum To avoid causing harm and to compensate for To avoid causing harm and to compensate for harm caused.harm caused.

Stakeholder interestStakeholder interest To consider the interests of all stakeholders, To consider the interests of all stakeholders, including stockholders, employees, customers, including stockholders, employees, customers, suppliers, creditors, and local community.suppliers, creditors, and local community.

Corporate citizenshipCorporate citizenship To do good and solve social problemsTo do good and solve social problems


The Corporate Social AuditThe Corporate Social Audit

Corporate audits should be extended to Corporate audits should be extended to include the include the moral healthmoral health of the corporation. of the corporation.

Corporations that conduct social audits will Corporations that conduct social audits will be more apt to prevent unethical and illegal be more apt to prevent unethical and illegal conduct by managers, employees, and conduct by managers, employees, and agents.agents.


The Corporate Social Audit The Corporate Social Audit (continued)(continued)

The audit would examine how well:The audit would examine how well: Employees have adhered to the company’s Employees have adhered to the company’s

code of ethics; andcode of ethics; and The corporation has met its duty of social The corporation has met its duty of social

responsibility.responsibility.



Such audits would focus on the corporation’s Such audits would focus on the corporation’s efforts to:efforts to: Promote employment opportunities for Promote employment opportunities for

members of protected classesmembers of protected classes Worker safetyWorker safety Environmental protectionEnvironmental protection Consumer protectionConsumer protection



Companies should institute the following Companies should institute the following procedures when conducting a social audit:procedures when conducting a social audit:

An independent outside firm should be hired An independent outside firm should be hired to conduct the audit.to conduct the audit. This will ensure autonomy and objectivity.This will ensure autonomy and objectivity.

The company’s personnel should cooperate The company’s personnel should cooperate fully with the auditing firm while the audit is fully with the auditing firm while the audit is being conducted.being conducted.



Procedures for conducting the audit Procedures for conducting the audit (continued):(continued):

The auditing firm should report its findings The auditing firm should report its findings directly to the company’s board of directors.directly to the company’s board of directors.

The results of the audit should be reviewed The results of the audit should be reviewed by the company’s board of directors.by the company’s board of directors.



Procedures for conducting the audit Procedures for conducting the audit (continued):(continued):

The board of directors should determine how The board of directors should determine how the company can:the company can: Better meet its duty of social responsibility; Better meet its duty of social responsibility;

andand Use the audit to implement a program to Use the audit to implement a program to

correct any deficiencies it finds. correct any deficiencies it finds.


United Nations Code of Conduct for United Nations Code of Conduct for Transnational CorporationsTransnational Corporations

Respect for National SovereigntyRespect for National Sovereignty Adherence to Socio-Cultural Objectives and Adherence to Socio-Cultural Objectives and

ValuesValues Respect for Human Rights and Fundamental Respect for Human Rights and Fundamental

FreedomsFreedoms Abstention from Corrupt PracticesAbstention from Corrupt Practices

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