Crane and MattenBusiness Ethics (3rd Edition)Chapter 1
Introducing Business EthicsWhat is business ethics?Business
ethics is the study of business situations, activities, and
decisions where issues of right and wrong are addressed.
Ethics and the law-grey areaDefining morality, ethics and
ethical theoryMorality is concerned with the norms, values and
beliefs embedded in social processes which define right and wrong
for an individual or a community. Ethics is concerned with the
study of morality and the application of reason to elucidate
specific rules and principles that determine right and wrong for
any given situation. These rules and principles are called ethical
theories.The relationship between morality, ethics and ethical
theory
Why is business ethics important?Power and influence of business
in societyPotential to provide major contribution to society
Potential to inflict harm Increasing demands from stakeholders Lack
of business ethics education or trainingContinued occurrence of
ethical infractionsEvaluating different ways of managing business
ethicsInteresting and rewardingTypes of misconduct across
sectorsObserved ethical misconduct across sectorsDifferences across
organizational types
Globalization: a key context for business ethics?What is
globalization?According to Scholte (2005) globalization is
not:internationalization liberalization universalization
westernization Globalization is: a process which diminishes the
necessity of a common and shared territorial basis for social,
economic, and political activities, processes, and
relations.deterritorializationRelevance of globalization for
business ethics
Cultural issuesLegal issuesAccountability issues
Globalization can affect all stakeholders of the corporation
Ethical impacts of globalizationInternational perspectives on
business ethicsDifferent approaches to business ethicsWho is
responsible for ethical conduct in business? Who is the key actor
in business ethics? What are the key ethical guidelines for ethical
behaviour? What are the key issues in business ethics? What is the
most dominant stakeholder management approach?Regional differences:
Europe, North America, Asia
Sustainability: a key goal for business ethics?Defining
sustainabilitySustainable development is development that meets the
needs of the present without compromising the ability of future
generations to meet their own needs. (World Commission on
Environment and Development 1987) Sustainability refers to the
long-term maintenance of systems according to environmental,
economic and social considerationsThe three components of
sustainability
Triple bottom lineCoined by John ElkingtonBottom line thinking
suggests sustainability as a goalThree dimensions:Environmental
perspectivesEconomic perspectivesSocial perspectives
Corporate commitments to sustainability
Framing Business Ethics:Corporate Responsibility, Stakeholders,
and CitizenshipLecture 2OverviewAnalyse the notion of
responsibility for corporations;Distinguish the various concepts of
CSR;Present the stakeholder theory of the firm;Outline the concept
of corporate accountability;Critically examine the notion of
corporate citizenship; Discuss implications of these mostly US-born
concepts for different regionsTowards a framework for business
ethicsWhat is a corporation?Key features of a corporationA
corporation is essentially defined in terms of legal status and the
ownership of assetsCorporations are typically regarded as
artificial persons in the eyes of the lawCorporations are
notionally owned by shareholders, but exist independently of
themManagers and directors have a fiduciary responsibility to
protect the investment of shareholdersCan a corporation have social
responsibilities?Milton Friedmans classic article is The social
responsibility of business is to increase its profits (1970)
Friedman vigorously argued against the notion of social
responsibilities for corporations based on three main
arguments:Only human beings have a moral responsibility for their
actionsIt is managers responsibility to act solely in the interests
of shareholdersSocial issues and problems are the proper province
of the state rather than corporate managersCan a corporation be
morally responsible for its actions?Evidence to suggest that legal
designation of a corporation makes it unable to be anything but
self-interested (Bakan 2004)Long, complex debate but generally
support from literature for some degree of responsibility
accredited to corporations. Argument based on:Every organisation
has a corporate internal decision structure which directs decisions
in line with predetermined goals (French 1979)All organisations
manifest a set of beliefs and values that lay out what is generally
regarded as right or wrong in the corporation organizational
culture (Moore 1999)Corporate Social ResponsibilityWhy do
corporations have social responsibilities?Business reasons
(enlightened self-interest) Extra and/or more satisfied
customersEmployees may be more attracted/committedForestall
legislationLong-term investment which benefits corporation Moral
reasons:Corporations cause social problemsCorporations should use
their power responsiblyAll corporate activities have some social
impactsCorporations rely on the contribution of a wide set of
stakeholders in society, not just shareholdersWhat is the nature of
corporate social responsibilities?Corporate social responsibility
includes the economic, legal, ethical, and philanthropic
expectations placed on organizations by society at a given point in
time (Carroll and Buchholtz 2009:44)Carrolls four-part model of
corporate social responsibilityCSR in an international contextCSR
strong in US. Influence elsewhere is more recent. This is partly
explained by explicit vs. implicit CSRRegional differences exist
with respect to all CSR levels:Economic responsibilityFocus in USA
on shareholders; France has extensive responsibility for employees;
India has tradition of investment in the local communityLegal
responsibilityState seen in Europe as key enforcer of rules;
elsewhere government seen with more scepticism (e.g. corrupt,
interfering with liberty)Ethical responsibilityWide range of local
ethical values & preferences: expectations varyPhilanthropic
responsibilityEurope tends to compel giving via legal framework;
elsewhere (e.g., USA, India, China), companies are expected to
share their wealth.CSR and strategy: corporate social
responsivenessCorporate social responsiveness refers to the
capacity of a corporation to respond to social pressures (Frederick
1994)4 philosophies or strategies of social responsiveness (Carroll
1979)ReactionDefenceAccommodationProactionOutcomes of CSR:
corporate social performance
Outcomes delineated in three concrete areas:Social
policiesSocial programmesSocial impactsStakeholder theory of the
firmStakeholder theory of the firmTheory developed by Edward
Freeman (1984)A stakeholder of an organization is:any group or
individual who can affect, or is affected by, the achievement of
the organizations objectives (Freeman 1984:46)More precise
definition of affects and affected by (Evan and Freeman
1993)Principle of corporate rights - the corporation has the
obligation not to violate the rights of othersPrinciple of
corporate effect companies are responsible for the effects of their
actions on othersStakeholder theory of the firm:Traditional
management modelStakeholder theory of the firmStakeholder theory of
the firm:A network modelWhy stakeholders matterMilton Friedman
businesses should only be run in the interests of their
ownersFreeman - others have a legitimate claim on the
corporationLegal perspectiveStake in corporation already protected
legally in some way (e.g. legally binding contracts)Economic
perspectiveExternalities outside contractual relationshipsAgency
problem short term interests of owners vs. long term interests of
managers, employees, customers etc.A new role for
managementAccording to Freeman, this broader view of responsibility
towards multiple stakeholders assigns a new role to
management.Rather than simply being agents of shareholders,
management has to take into account the rights and interests of all
legitimate stakeholders:Stakeholder democracyCorporate
governanceStakeholder thinking in an international contextOne could
argue that although the terminology of stakeholder theory is
relatively new in places like Europe or Asia, the general
principles have actually been practised for some time:German
supervisory board includes employee representativesKeiretsu system
in Japan (Chaebol in Korea), a network of banks, manufacturers,
suppliers and service providersDifferent forms of stakeholder
theoryDonaldson & Preston (1995):Normative stakeholder theory:
attempts to provide a reason why corporations should take into
account stakeholder interestsDescriptive stakeholder theory:
attempts to ascertain whether (and how) corporations actually do
take into account stakeholder interestsInstrumental stakeholder
theory: attempts to answer the question of whether it is beneficial
for the corporation to take into account stakeholder
interestsCorporate accountabilityThe firm as a political
actorCorporate accountabilityCorporate accountability refers to
whether a corporation is answerable in some way for the
consequences of its actionsFirms have begun to take on the role of
political actors taken up many of the functions previously
undertaken by government because:Governmental failureIncreasing
power and influence of corporationsReasons for the political role
of the firmGovernment failureRisk society thesisRise of
subpoliticsOrganized irresponsibilityCorporate power on the
riseLiberalization and deregulation results in more power and
choice for private actorsPrivatization of public
servicesResponsible for employment
decisionsGlobalizationGovernments increasingly encourage
self-regulationThe problem of democratic accountabilityWho controls
corporations?To whom are corporations accountable?Key to corporate
accountability is transparencyTransparency is the degree to which
corporate decisions, policies, activities and impacts are
acknowledged and made visible to relevant stakeholdersCorporate
citizenshipDefining corporate citizenship: three perspectivesA
limited view of CCthis essentially equates CC with corporate
philanthropyAn equivalent view of CCthis essentially equates CC
with CSRAn extended view of CCthis acknowledges the extended
political role of the corporation in societyCommitments to
corporate citizenshipThree views of corporate citizenshipAn
extended view of CCAssessing corporate citizenship as a framework
for business ethicsExtended view of CC adds something significant
that helps us frame business ethics in new ways:Helps us better see
the political role of the corporationClarifies the demand for
corporate accountabilityHelps to understand business in relation to
common citizenship rights within different cultures and some of the
challenges posed by globalizationThe rights of citizenship have
strong links to the goal of sustainabilityProvides a critical
perspective on corporations social role that is more in keeping
with non-US ways of thinking about business ethicsSummaryBusiness
ethics is related to the social role of the corporationConfining
corporations to commercial activities too limitedDifferent
perspectives and their relevance in European contextCSRStakeholder
theoryCorporate accountabilityEffects of globalization on role of
corporationCorporate citizenship is latest concept in the field
Chapter 3Evaluating Business Ethics:Normative Ethical
Theories
Lecture 3OverviewLocate the role of ethical theoryHighlight
international differences in perspectivesProvide critical overview
of traditional ethical theoriesExplore contemporary ethical
theoriesWhat are normative ethical theories?Ethical theories are
the rules and principles that determine right and wrong for any
given situation Crane and Matten (2010)
Normative ethical theories are those that propose to prescribe
the morally correct way of acting
As opposed to descriptive ethical theories which seek to
describe how ethics decisions are actually made in businessThe role
of ethical theoryThe role of ethical theoryTwo extreme positions
(De George 1999)Ethical absolutism claims there are eternal,
universally applicable moral principlesRight and wrong are
objective qualities, can be rationally determinedTypically
traditional ethical theoriesEthical relativism claims morality is
context-dependent and subjectiveNo universal right and wrongs that
can be rationally determined; depends on person making the decision
& culture in which they are locatedTypically contemporary
ethical theoriesNormative ethical theoriesNorth American and
European origins and differencesDifferences between Anglo-American
and European approaches based on philosophical argumentsIndividual
versus institutional moralityUS tend to individualistic
perspectiveEurope towards wider economic and governing
institutionsQuestioning versus accepting capitalismUS tend to
accept the capitalist frameworkEurope tend to question the ethical
justification of capitalismJustifying versus applying moral normsUS
tend to focus on application of moralityEurope focus on
justification and ethical legitimation of normsIn contrast, Asian
perspectives tend to be based on religion (e.g. Islam,
Buddhism)Western modernist ethical theoriesTraditional ethical
theoriesGenerally offer a certain rule or principle which one can
apply to any given situationThese theories generally can be
differentiated into two groupsMajor normative theoriesEgoismTheory
of egoism - an action is morally right if the decision-maker freely
decides an action to pursue either their (short-term) desires or
their (long-term) interests.Adam Smith (1793): pursuit of
individual interest morally acceptable as invisible hand of market
creates benefit for allRelies on free competition and good
informationEnlightened egoismHowever, markets do not function
perfectlyAnti-globalisation movementSustainability
debateUtilitarianismAccording to utilitarianism, an action is
morally right if it results in the greatest amount of good for the
greatest number of people affected by the action
Also called the greatest happiness principleBased on
cost-benefit analysisProblems with UtilitarianismSubjectivityThis
has led to refinement of theoryAct utilitarianismRule
utilitarianismIssues around quantification and distribution of
utilityAct- and Rule-UtilitarianismAct utilitarianism Looks to
single actions and bases the moral judgement on the amount of
pleasure and the amount of pain this single action causes.
Rule utilitarianism looks at classes of action and ask whether
the underlying principles of an action produce more pleasure than
pain for society in the long run.
Ethics of dutiesCategorical Imperative (Kant)Maxim 1:
ConsistencyAct only according to that maxim by which you can at the
same time will that it should become a universal law.
Maxim 2: Human Dignity Act so that you treat humanity, whether
in your own person or in that of another, always as an end and
never as a means only.
Maxim 3: Universality Act only so that the will through its
maxims could regard itself at the same time as universally
lawgiving (would others agree? Would you be happy to see your
decision reported in the press?)Problems with ethics of
dutiesUndervaluing outcomesComplexityMisplaced optimism?Ethics of
rights and justiceNatural rights Certain basic, important,
unalienable entitlements that should be respected and protected in
every single action.Based on consensus about nature of human
dignityStrongly based in western view of moralityJustice The
simultaneously fair treatment of individuals in a given situation
with the result that everybody gets what they deserveFair
procedures (procedural justice)Fair outcomes (distributive
justice)John Rawlss Theory of Justice Each person is to have an
equal right to the most extensive total system of basic liberties
compatible with a similar system of liberty for all. Social and
economic inequalities are to be arranged so that they are both: to
the greatest benefit of the least advantaged; attached to offices
and positions open to all under conditions of fair equality of
opportunity.Limits of traditional theoriesToo abstract Too
reductionistToo objective and elitistToo impersonalToo rational and
codifiedToo imperialistAlternative perspectives on ethical
theoryApproaches based on character and integrityVirtue ethics
Contends that morally correct actions are those undertaken by
actors with virtuous characters. Therefore, the formation of a
virtuous character is the first step towards morally correct
behaviourAcquired traitsIntellectual virtuesMoral virtuesApproaches
based on ethics and responsibilityFeminist ethicsAn approach that
prioritizes empathy, harmonious and healthy social relationships,
care for one another, and avoidance of harm above abstract
principlesKey elementsRelationshipsDecisions taken in context of
personal human interrelationsResponsibilityActive taking of
responsibility, rather than merely having itExperienceLearn and
develop from experienceApproaches based on procedures of norm
generationDiscourse ethics Aims to solve ethical conflicts by
providing a process of norm generation through rational reflection
on the real-life experiences of all relevant participantsKey
elementsUltimate goal of ethical issues in business should be the
peaceful settlement of conflictsDifferent parties in a conflict
should sit together and engage in a discourse about the settlement
of the conflict, and ultimately provide a situation that is
acceptable to allideal discourse criteriaApproaches based on
empathy and moral impulsePostmodern ethicsAn approach that locates
morality beyond the sphere of rationality in an emotional moral
impulse towards others. It encourages individual actors to question
everyday practices and rules, and to listen to and follow their
emotions, inner convictions and gut feelings about what they think
is right and wrong in a particular incident of
decision-making.Postmodern business ethicsPostmodern business
ethics emphasises (Gustafson, 2000:21)Holistic approachExamples
rather than principlesThink local, act localPreliminary
characterSummaryTowards a pragmatic use of ethical theoryTypical
PerspectivePluralistic PerspectivePluralism?Crane and Matten (2010)
argue that for the practical purpose of making effective decisions
in business:Not suggest one theory or one approach as the best or
true view of a moral dilemmaSuggest that all these theoretical
approaches throw light from different angles on one and same
problemComplementary rather than mutually exclusiveAdvocate
position of pluralismMiddle ground between absolutism and
relativism Considerations in making ethical decisions: summary of
key insights from ethical theories
Chapter 4Making Decisions in Business EthicsDescriptive Ethical
Theories
Lecture 4OverviewExamine the question of why ethical and
unethical decisions get made in the workplaceDetermine what an
ethical decision isReview prominent ethical decision-making
modelsDiscuss the importance of differences between individuals in
shaping ethical decision-makingCritically evaluate the importance
of situational influences on ethical decision-making (issues and
context based)Identify points of leverage for managing and
improving ethical decision-making in businessDescriptive Ethical
Theories
Descriptive business ethics theories seek to describe how ethics
decisions are actually made in business, and what influences the
process and outcomes of those decisions.What is an ethical
decision?Main factors in deciding the moral status of a
situationDecision likely to have significant effects on
othersDecision likely to be characterised by choice, in that
alternative courses of action are openDecision is perceived as
ethically relevant by one or more partiesModels of ethical
decision-makingStages in ethical decision-makingRelationship with
normative theoryThe role of normative theory in the stages of
ethical decision-making is primarily in relation to moral
judgementMoral judgements can be made according to considerations
of rights, duty, consequences, etc.Commercial managers tend to rely
on consequentialist thinkingHowever, the issue of whether and how
normative theory is used by an individual decision-maker depends on
a range of different factors that influence the decision-making
processInfluences on ethical decision-makingTwo broad categories:
individual and situational (Ford and Richardson 1994)Individual
factors - unique characteristics of the individual making the
relevant decisionGiven at birth Acquired by experience and
socialisation Situational factors - particular features of the
context that influence whether the individual will make an ethical
or unethical decisionWork contextThe issue itself
includingIntensityethical framing
Framework for understanding ethical decision-makingLimitations
of ethical decision-making modelsModels useful for structuring
discussion and seeing the different elements that come into
playLimitationsNot straightforward or sensible to break model down
into discrete unitsVarious stages related or interdependentNational
or cultural bias Model is intended not as a definitive
representation of ethical decision-making, but as a relatively
simple way to present a complex processInternational perspectives
on ethical decision-makingResearch on individual factors
influencing ethical decision-making has a strong US and Asian
biasConsistent with choice within constraintsResearch on
situational factors originated by European authorsConsistent with
concern for constraints themselvesIndividual influences on ethical
decision-makingIndividual influences on ethical decision-makingAge
and genderAgeResults contradictoryHowever experiences may have
impactGenderIndividual characteristic most often researchedResults
contradictoryThese categories too simplisticNational and cultural
characteristicsPeople from different cultural backgrounds likely to
have different beliefs about right and wrong, different values,
etc. and this will inevitably lead to variations in ethical
decision-making across nations, religions and culturesHofstede
(1980; 1994) influential in shaping our understanding of these
differences our mental programming:Individualism/collectivismPower
distanceUncertainty
avoidanceMasculinity/femininityLong-term/short-term
orientationEducation and employmentType and quality of education
may be influentialE.g. business students rank lower in moral
development than others and more likely to cheatAmoral business
education reinforces myth of business as amoralPsychological
factorsCognitive moral development (CMD) refers to the different
levels of reasoning that an individual can apply to ethical issues
and problems3 levels (details over the next two slides)Criticisms
of CMDGender biasImplicit value judgementsInvariance of stagesAn
individuals locus of control determines the extent to which they
believe that they have control over the events in their lifeStages
of cognitive moral development (I)Stages of cognitive moral
development (II)Personal values, integrity & moral
imaginationPersonal valuesan enduring belief that a specific mode
of conduct or end-state of existence is personally or socially
preferable to an opposite or converse mode of conduct or end-state
(Rokeach 1973:5)Personal integrityDefined as an adherence to moral
principles or valuesMoral imaginationConcerned with whether one has
a sense of the variety of possibilities and moral consequences of
their decisions, the ability to imagine a wide range of possible
issues, consequences, and solutions (Werhane, 1998:76)Situational
influences on decision-makingSituational influences on ethical
decision-makingMoral IntensityJones (1991:374-8) proposes that the
intensity of an issue will vary according to six factors:Magnitude
of consequencesSocial consensusProbability of effectTemporal
immediacyProximityConcentration of effectMoral framingThe same
problem or dilemma can be perceived very differently according to
the way that the issue is framedLanguage important aspect of moral
framing (using moral language likely to trigger moral
thinking)Moral muteness (Bird & Walters 1989) because of
concerns regarding perceived threats to:HarmonyEfficiencyImage of
power and effectivenessHow ethical decisions are justified:
rationalization tacticsSystems of rewardAdherence to ethical
principles and standards stands less chance of being repeated and
spread throughout a company when it goes unnoticed and
unrewardedWhat is right in the corporation is not what is right in
a mans home or in his church. What is right in the corporation is
what the guy above you wants from you. Thats what morality is in
the corporation (Jackall, 1988:6)Authority People do what they are
told to do or what they think theyre being told to doRecent survey
of government employees (Ethics Resource Center, 2008: 9):20% think
top leadership is not held accountable25% believe top leadership
tolerates retaliation against those reporting ethical misconduct30%
dont believe their leaders keep promisesBureaucracyJackall (1988),
Bauman (1989, 1993) and ten Bos (1997) argue bureaucracy has a
number of negative effects on ethical decision-makingSuppression of
moral autonomyInstrumental moralityDistancingDenial of moral
status
Work roles and organizational norms and cultureWork rolesWork
roles can encapsulate a whole set of expectations about what to
value, how to relate to others, and how to behaveCan be either
functional or hierarchicalGroup norms delineate acceptable
standards of behaviour within the work communityE.g. ways of
talking, acting, dressing or thinkingNational and cultural
contextInstead of looking at the nationality of the individual
making the decision; now we are considering the nation in which the
decision is actually taking place, regardless of the
decision-makers nationalityDifferent cultures still to some extent
maintain different views of what is right and wrongSummaryIn this
lecture we have:Discussed the various stages of and influences on
ethical decision-making in businessPresented basic model of
decision-makingOutlined individual and situational influences on
ethical decision-makingSuggested that some individual factors such
as cognitive moral development, nationality and personal integrity
are clearly influentialSuggested that in terms of recognising
ethical problems and actually doing something in response to them,
it is situational factors that appear to be most influential
Chapter 5Managing Business EthicsLecture 5OverviewDiscuss the
nature and evolution of business ethics managementCodes of
ethicsCurrent theory and practice regarding the management of
stakeholder relationshipsThe development of social, ethical, and
environmental accounting, auditing and reporting toolsDifferent
ways of organising for the management of business ethics, and
critically assess the role of organization culture and
leadershipExtent to which developments discussed in this lecture
represent genuine commitment to business ethics or sophisticated
public relationsWhat is business ethics management?Business ethics
management is the direct attempt to formally or informally manage
ethical issues or problems through specific policies, practices and
programmesTypical components of business ethics managementMission
or values statementsCodes of ethicsReporting/advice channelsRisk
analysis and managementEthics managers, officers and
committeesEthics consultantsEthics education and
trainingStakeholder consultation, dialogue and partnership
programsAuditing, accounting and reportingEvolution of business
ethics managementFew, if any, businesses likely to use all tools
and some do not use anyEscalating adoption of most if not all
components (US and UK surveys)Change in emphasis concerning the
purpose of business ethics managementPreviously primarily focused
on managing employee behaviourIncreasing attention to management of
broader social responsibilitiesSetting standards of ethical
behaviourDesigning and implementing codes of ethicsCodes of
EthicsCodes of ethics are voluntary statements that commit
organizations, industries, or professions to specific beliefs,
values, and actions and/or set out appropriate ethical behaviour
for employees
4 main types of ethical codesOrganizational or corporate codes
of ethicsProfessional codes of ethicsIndustry codes of
ethicsProgramme or group codes of ethicsPrevalence of codes and
ethicsIncreasingly commonSubstantial rise in usage during 1990s and
2000s2/3 of large UK firms have some kind of formal ethical code
whilst almost all large US firms have a code of ethics (Weaver et
al. 1999)Less prevalent in Europe, and in SMEs (Spence and Lozano
2000)Content of codes and ethics:Prevalence of issues found in
codes of conductCritiques of ethical codesClear prescription for
employees means lack of flexibilityDifficulty with multiple/novel
situations, particularly cross-culturalVague, generalised
statements of obligation PR deviceQuestionable control mechanisms
that potentially influence employee beliefs, values and
behaviourssuppress individual moral instincts and emotions in order
to ensure bureaucratic conformity and consistency
Effectiveness of codes of ethicsEffectiveness of a code is in
the implementation and administrationSuggestions for successful
implementationMaximise participation of organisation members in
development stage to encourage commitment and buy in (Newton,
1992)Discipline employees found in breach (Webley
2001)Follow-through (Trevio et al. 1999)Global codes of ethicsCan
organizations devise one set of principles for all countries in
which they operate?Consider some examplesGift giving in Japan vs.
the UKEqual opportunity commitments in India vs. UKMNEs should be
guided by 3 principles Respect for core human valuesRespect for
local traditionsBelief that context matters when deciding right and
wrongGlobal codes should define minimum ethical standardsE.g. OECD
Guidelines for Multinational Enterprise, UN Global CompactManaging
stakeholder relationsAssessing stakeholder importance: an
instrumental perspectiveInstrumental perspective Stakeholder impact
analysis enable a company to identify the stakeholders most crucial
to its survival and to make sure that the satisfaction of their
needs is paramount (Hill and Jones 2001:45)3 key attributes likely
to determine perceived importance or salience of stakeholders
(Mitchell et al., 1997)PowerLegitimacyUrgencyTypes of stakeholder
relationshipChallengeSparring partnersOne-way supportMutual
supportEndorsementProject dialogueStrategy dialogueTask forceJoint
venture or allianceProblems with stakeholder collaborationResource
intensityCulture
clashSchizophreniaUncontrollabilityCo-optationAccountabilityResistanceAssessing
ethical performanceAreas of assessmentEthical Often a focus on
internal management systemsEnvironmental Impact on natural
environmentSocialBroader remit, often including impact on
stakeholdersSustainabilityFocus on triple bottom line
Social accounting as generic termDefining social
accountingSocial accounting is the voluntary process concerned with
assessing and communicating organisational activities and impacts
on social, ethical, and environmental issues relevant to
stakeholdersWhy do organizations engage in social accounting?Both
practical and moral reasons. Four main issues:Internal and external
pressureIdentifying risksImproved stakeholder managementEnhanced
accountability and transparencyDisincentives for social
accounting:Perceived high costsInsufficient informationInadequate
information systemsLack of standardsSecrecyUnwillingness to
disclose sensitive or confidential dataWhat makes for good social
accounting?
(I)InclusivityComparabilityCompletenessEvolutionManagement policies
and systemsDisclosureExternal verificationContinuous
improvementWhat makes for good social accounting? (II)Schemes in
place to tackle specific aspects of social accounting:Auditing and
certifyingSocial accountability standards SA 8000ReportingThe
Global Reporting Initiative (GRI)Reporting assuranceAA1000S
Assurance StandardOrganizing for business ethicsFormal ethics
programmesInformal ethics management: ethical culture and
climateOrganizations can and should proactively develop an ethical
organizational culture organizations with ethics problems should
take a culture change approach to solving them (Trevio and Nelson,
2007: 256) Culture change approach (very problematic)Improvements
in ethical decision-making have been widely argued to require a
managed transformation of the organizations values in order to
create a more ethical cultureCultural learning approach (promotes
moral imagination)Focus on smaller subcultural groups within the
firmFactionalism and dissent in order to promote learning (Starkey
1998)Business ethics and leadershipLeaders often said to set
ethical tone in organisationsAll leadership is value laden (Grint,
1997:325)Cultural change approachLeaders role to articulate and
personify the values the organisation aspires toInspire and
motivate employees to follow their leadCultural learning
perspectiveRole of leadership one of participation and empowerment
in order to foster moral imagination and autonomy
Ethical behaviour is not to be promoted simply through the
promulgation of specific beliefs and principles, but through
facilitating personal moral engagement, dialogue, and choice
(Crane, Knights, and Starkey 2008)SummaryBusiness ethics has
varying approaches: e.g., in Europe emphasizes an external,
socially based orientation rather than concentrating on ethical
codes to ensure complianceQuestion effectiveness of ethical
codesDanger of overstating the benefits of business ethics
management toolsCrucial role for the motivations of the use of
these tools, the process of their development, and the
implementation and follow-up
Chapter 6Shareholders and Business EthicsLecture 6OverviewThe
nature of shareholder relations to the corporationAnalysis of the
rights and the duties of shareholdersSpecific ethical problems and
dilemmas arising in the relation between companies and their
shareholdersThe ethical implications of globalization on
shareholder relationsThe notion of shareholder democracy and the
accountability of corporations to their shareholders and other
stakeholdersThe differences in shareholder roles and corporate
governance in various parts of the worldPerspectives on how
shareholders can influence corporations towards
sustainabilityShareholders as stakeholdersUnderstanding corporate
governanceCrucial problem: separation of ownership and control
Peculiarities of corporate ownershipLocus of controlFragmented
ownershipDivided functions and interestsRights and duties in
firm-shareholder relationsRights of shareholdersThe right to sell
their stockThe right to vote in the general meetingThe right to
certain information about the companyThe right to sue the managers
for (alleged) misconductCertain residual rights in case of the
corporations liquidation
Duties of managersDuty to act for the benefit of the company
Duty of care and skill Duty of diligence Corporate
governanceCorporate governance definitionDescribes the process by
which shareholders seek to ensure that their corporation is run
according to their intentions. It includes processes of goal
definition, supervision, control, and sanctioning. In the narrow
sense it includes shareholders and the management of a corporation
as the main actors; in a broader sense it includes all actors who
contribute to the achievement of stakeholder goals inside and
outside the corporationCorporate governance: a principal-agent
relationShareholder and stakeholder relations: Different frameworks
of corporate governance globallyEthical issues in corporate
governanceExecutive accountability and control (I)A separate body
of people that supervises and controls management on behalf of
shareholders Dual structure of leadershipexecutive directors: are
actually responsible for running the corporationnon-executive
directors are supposed to ensure that the corporation is being run
in the interests of the shareholdersAnglo-Saxon model: single-tier
boardEuropean model: two-tier boards, lower tier = executive
directors, and upper tier = supervisory boardExecutive
accountability and control (II)The central ethical issue here is
the independence of the supervisory, non-executive board membersNo
directly conflicting interests ensured by:Typically drawn from
outside the corporationNo personal financial interest in the
corporationAppointed for limited timeCompetent to judge the
business of the companySufficient resources to get
informationAppointed independentlyExecutive remunerationFat cat
salary accusationsE.g. average CEO salary in Britain 6.5m (highest
CEO salaries in 2008: Europe, 77m, USA, $84m)E.g. average annual
pay rise for CEOs 11%CEO increases outstrip shareholder
returnsEthical problems with executive pay:Performance-related pay
leads to large salaries that cause unrest within
corporationsInfluence of globalisation on executive pay leads to
significant increasesBoard often fails to reflect shareholder (or
other stakeholder) interestsEthical aspects of mergers and
acquisitionsAcceptable if results in transfer of assets to owner
who uses them more productivelyCentral concern is managers who
pursue interests not congruent with shareholder interestsExecutive
prestige vs. profit and share priceTwo ethically-questionable
options for managers (Carroll and Buchholtz, 2008)Seduced with
golden parachute for cooperationGreenmailing to secure post-merger
jobHostile takeovers concern when shareholders do not want to
sellIntentions and consequences of mergers and
acquisitionsRestructuring and downsizingThe role of financial
markets and insider tradingSpeculative faith stocksdot-com bubble
(companies not made any profit but worth billions on the
market)Ethical issue: bonds based entirely on speculation without
always fully revealing amount of uncertaintyInsider tradingInsider
trading occurs when securities are bought and sold on the basis of
material non-public information (Moore 1990)Ethical arguments
(Moore, 1990)FairnessMisappropriation of propertyHarm to investors
and the marketUndermining of fiduciary relationshipInsider trading
can erode trust in the market in the long term; hence its
illegalityThe role of financial professionals and market
intermediariesTwo crucial professions: Accountants & credit
ratings agenciesTask is to provide a true and fair view of the firm
i.e. bridge informational asymmetryFive main problematic aspects of
financial intermediarys job:Power and influence in marketsConflict
of interest (e.g. cross-selling)Long-term relationships with
clientsSize of the firmCompetition between firms (danger of
corner-cutting)Private equity and hedge-fundsRise of private equity
and hedge funds exacerbate issues around transparency and
shareholder controlMost general concern:There are no longer many
obligations for public information about a company once it has been
taken privateHedge funds do not have to report to regulators in the
same way as other investment firmsDont even have to report fully to
own investorsSuggestion is this lack of transparency hides systemic
riskShareholders and globalisationGlobal financial marketsGlobal
financial markets are the total of all physical and virtual
(electronic) places where financial titles in the broadest sense
(capital, shares, currency, options, etc.) are traded
worldwideEthical issues raised:Governance and controlNational
security and protectionismSpeculation (see slide on Tobin
tax)Unfair competition with developing countries Space for illegal
transactions (see slide on money laundering)Reforming corporate
governance around the globeSome important shortcomings in present
systems of governance in many countriesMain tool in Europe is codes
of governance, dealing with:Size and structure of boardIndependence
of supervisory or non-executive directorsFrequency of supervisory
body meetingsRights and influence of employees in corporate
governanceDisclosure of executive remunerationGeneral meeting
participation and proxy votingRole of other supervising and
auditing bodiesLegal basis and power of these codes varies
dramaticallyAnd the crisis in late 2000s has seen deeper state
involvementUS response Sarbanes-OxleyThe Tobin TaxEffort to impose
control on global markets Tobin Tax tax on foreign currency
transactionsNot make impossible but impede international currency
speculationRobin Hood TaxTwo main problems with tax:Global
enforcementDoes not differentiate between desirable and undesirable
transactionsCombating global terrorism and money
launderingDeregulated social spaces are invitation for illegal
financial activitiesMoney laundering estimated up to $1.5
trillion/yearIMF recommendations for banks to help reduction of
money launderingKnow your customerPrevent criminals getting control
of key positions in banksIdentifying and reporting
unusual/suspicious transactionsRaise general awareness for
regulators and staffShareholders as citizens of the
corporationShareholder democracyIdea that a shareholder of a
company is entitled to have a say in corporate decisionsSupported
by legal claim based on property rightsCan shareholders be a force
for wider social accountability and performance?Three issues to
consider:Scope of activitiesAdequate informationMechanism for
change
Two approaches to ethical shareholdingShareholder activismBuy
shares in company for right to speak at the AGMVoice concern and
challenge the company on allegedly unethical practicesPossibility
of broad media attention by disrupting the meetingIssues:Gets
involved with the enemyOnly an option for reasonably wealthy
individuals
Socially responsible investment (SRI)Ethical investment is the
use of ethical, social and environmental criteria in the selection
and management of investment portfolios, generally consisting of
company shares
Ethical investmentExamples of positive and negative criteria for
ethical investmentNegative criteriaAlcoholic beverages production
and retailAnimal rights violationChild labourCompanies producing or
trading with oppressive regimesEnvironmentally hazardous products
or processesGenetic engineeringNuclear powerPoor employment
practicesPornographyTobacco productsWeaponsPositive
criteriaConservation and environmental protectionEqual
opportunities and ethical employment practicesPublic transportInner
city renovation and community development programmesEnvironmental
performanceGreen technologiesEthical InvestmentMain concerns with
SRI movementQuality of informationMost information provided by
firms and is difficult to verifyDubious criteriaSee table in
previous slideToo inclusive90% of Fortune 500 firms are held by at
least 1 SRI fundStrong emphasis on returns:Usually, SRI fund
managers screen for performance first, then select using ethical
criteriaFirms taking longer-term perspectives and thus sacrificing
short-term profitability therefore unlikely to be included(See
Vogel, 2005)Shareholding for sustainabilityThe Dow Jones
Sustainability Group IndexBest-in-class approachFamily of indexes
comprising different markets and regions (e.g. Asia-Pacific
sub-index added in 2009)Companies accepted into index chosen along
following criteria:Environmental (ecological)
sustainabilityEconomic sustainabilitySocial
sustainabilityCriticisms of index:Depends on data provided by the
corporation itselfQuestionable criteria used by indexFocuses on
management processes rather than on the actual sustainability of
the company or its productsRethinking sustainable corporate
ownership: alternative models?Government ownership: Part of the
landscape in many parts of the world. Resurgent in the wake of the
late-2000s financial crisis (esp. banks and cars).Family
ownershipFamilies may have longer-term goals, but may not treat
stakeholders any better than MNCsCo-operative ownershipHybrid
businesses, not owned by investors or managersOwned and
democratically controlled by workers or customersNot set up to make
profit but to meet the needs of membersSpanish Mondragon
co-operative has made a striking contribution to sustainability
while staying highly profitableSummaryPrincipal-agent relationship
between managers and shareholdersDivergent interests and unequal
distribution of information institutionalises some fundamental
ethical conflicts in governanceShareholders have considerable
opportunities to use their power over supply to influence
corporations to behave more ethicallyShareholders can play a role
in driving corporations towards enhanced sustainability by their
investment decisions at the stock market
Chapter 7Employees and Business EthicsLecture 7OverviewThe
specific role of employees among the various stakeholder groupsCore
ethical topics of employees rights and dutiesEthical issues and
problems faced in business-employee relationsThe duties of
employees and the companys involvement in enabling employees to
live up to their dutiesThe notion of corporate citizenship in
relation to employeesBasic issues and problems of managing
employees in the context of globalizationExplore the notion of
corporate citizenship in relation to employeesThe implication of
sustainability for workplaces and for specific working
conditionsEthical issues in the firm-employee relationManagement of
human resources: an ethical problem between rights and dutiesThe
term human resource management and its implications have been a
subject of intense debate in business ethicsHumans treated as
important and costly resourceConsequently, employees are subject to
a strict managerial rationale of minimising costs and maximising
the efficiency of the resourceRhetoric and reality in HRMRights of
employees as stakeholders of the firmDuties of employees as
stakeholders of the firmDiscriminationDiscrimination in the
business context occurs when employees receive preferential (or
less preferential) treatment on grounds that are not directly
related to their qualifications and performance in the jobManaging
diversity prominent feature of contemporary businessExtensive
legislationInstitutional discrimination: discrimination deeply
embedded in businessWomen in top management positionsFemale
Directors in FTSE 100 Companies 2000-2008Sexual and racial
harassmentIssues of diversity might be exploited to inflict
physical, verbal, or emotional harassmentRegulation reluctant
Blurred line between harassment on one hand and joking on the
otherInfluenced by contextual factors such as character,
personality, and national cultureCompanies increasingly introduced
codes of practice and diversity programmes (Crain and Heischmidt
1995)Equal opportunities and affirmative actionHow should
organizations respond to problems of discrimination?Equal
opportunity programmeGenerally targeted at ensuring procedural
justice is promotedAffirmative action (AA) programmes: deliberately
attempt to target those who might be currently under-represented in
the workforceRecruitment policiesFair job criteriaTraining
programmes for discriminated minoritiesPromotion to senior
positionsReverse discriminationIn some cases, people suffer reverse
discrimination because AA policies prefer certain
minoritiesJustification for reverse discriminationRetributive
justice: past injustices have to be paid forDistributive justice:
rewards such as job and pay should be allocated fairly among all
groups (Beauchamp 1997)Stronger forms of reverse discrimination
tend to be illegal in many European countriesEmployee privacyFour
different types of privacy we may want to protect (Simms
1994)Physical privacySocial privacyInformational
privacyPsychological privacyHealth and drug testingHighly contested
issueThree main issuesPotential to do harmCauses of employees
performanceLevel of performanceDespite these criticisms, such tests
have increasingly come common in the USElectronic privacy and data
protectionIncreasingly relevant as technology advances and
electronic life becomes more importantComputer as a work tool
enables new forms of surveillance Time and pace of workUsage of
employee time for private reasonsE-mail and internetIssue of
privacy in situations where data is saved and processed
electronicallyData protectionDue process and lay-offsEthical
considerations in the process of downsizingRight to know well ahead
of the actual point of the redundancy that their job is on the
lineCompensation packages employees receive when laid offEmployee
participation and associationRecognition that employees might be
more than just human resources but should also have a certain
degree of influence on their tasks, job environments, and company
goals right to participationFinancial participation allows employee
share in the ownership or income of the corporationOperational
participation can include a number of
dimensions:DelegationInformationConsultationCodeterminationEvolution
of trade union membershipWorking conditionsRight to healthy and
safe working conditions one of the very first ethical concerns for
employeesDense network of health, safety and environmental (HSE)
regulationMain issue is enforcement and implementationNewly
emergent HSE issues relate to changing patterns of workEthical
issues in the context of:Excessive working hours and
presenteeismFlexible working patternsExcessive working hours and
presenteeismExcessive work hours Thought to impact the employees
overall state of physical and mental health
Presenteeismphenomenon of being at work when you should be at
home due to illness or even just for rest and recreation (Cooper
1996)Flexible working patternsAnother way of saying that management
can do what it wants? (Legge, 1998)Non-standard work
relationshipsPart-time work, temporary work, self-employment and
teleworking (Stanworth 2000)Less secure legal status for periphery
workersPotential for:Poorer working conditionsIncreased
insecurityLower payExclusion from training and other employment
benefitsFair wagesThe basis for determining fair wages is commonly
the expectations placed on the employee and their performance
towards goalsNote discussion about excessive compensation for
executives after the stock market collapse of 2008Problems of
performance-related pay (PRP)Risksalaries and benefits become less
secureRepresentationindividualized bargainingFreedom of conscience
and freedom of speech in the workplaceNormally guaranteed by
governmentsSituations in business where freedom of speech might
face certain restrictionsSpeaking about confidential matters
related to the firms R&D, marketing or accounting plansUsually
unproblematic, since most rational employees would find it in their
own best interests to comply with company policySome cases where
those restrictions could be regarded as a restriction of employees
rightsWhistleblowing can involve considerable riskThe right to
workFundamental entitlement of human beings established in the
Declaration of Human RightsThe right to work in a business context
cannot mean that every individual has a right to be employedThe
right to work should result in every individual facing the same
equal conditions in exerting this rightEmploying people
worldwideThe ethical challenges of globalizationNational culture
and moral valuesDifferent cultures will view employee rights and
responsibilities differentlyThis means that managers dealing with
employees overseas need to first understand the cultural basis of
morality in that countryRaises the question of whether it is fair
to treat people differently on the basis of where they
liveRelativism vs. absolutismAbsolutism: ethical principle must be
applicable everywhere Relativism: view of ethics must always be
relative to the historical, social and cultural contextThe race to
the bottomMany critics argue that MNCs play a role in changing
standards in countriesGlobalisation allows corporations to have
broad range of choice of locationDeveloping countries compete to
attract foreign investmentLarge investors tend to choose country
with most preferable conditionsLowest level of regulation and
social provision for employeeLeads to race to the bottom in
environmental and social standardsArgument that MNEs have a duty to
promote minimally just social & political institutions where
they operate if these do not exist, because of duty to avoid harm
(Nien-h Hsieh, 2009) Migrant labour and illegal immigrationGrowing
mobility of workers is a recent phenomenon of
globalizationTypically north-south, can also be in other regions
(e.g. UAE)Workers can also be attracted to particular industries in
areas where there is no local labour (e.g. mining)Numerous ethical
issues here. Examples:Migrant labour often leads to questionable
social phenomena (e.g. drug use)Migrants are often from poor
countries; willing to accept pay & working conditions normally
unacceptable in host countryMigrant workers are often in a country
illegally (but a record of employment may later be the basis for
legal residency)The corporate citizen and employee relationsThe
corporate citizen and employee relations in a global
contextAnglo-American and European models: differencesContinental
Europe takes interest of employees into account to a greater degree
than the Anglo-American modelCo-determinationIn developing
countriesLevel of regulation (or at least enforcement) is often
poor, though employee protection often strengthens over time (e.g.
Chinas 2008 Labour Contract Law)Corporate actions therefore often
voluntary good citizenshipRuggies framework for responsibility in
human rightsProtect (states duty to prevent abuses)Respect (firms
duty to respect human rights)Remedy (general duty to create systems
to remedy abuses)Towards sustainable employmentRe-humanized
workplacesAlienation of the individual work in the era of
industrialised mass productionBrought tremendous efficiencies and
material wealth, but have also created the prospect of a
dehumanised and deskilled workplaceAttempts to re-humanize the
workplaceempowering the employeejob enlargementjob
enrichmentSuccess of such schemes contestedSuggested that humanized
approach might be more appropriate and effective in some cultures
(e.g. Scandinavia) than othersWider employmentLarge numbers of
unemployed people becomes the norm in many countries due to
mechanisationThis threatens:Right to workSocial fabric of
particular communitiesNew technologies herald the end of work?
(Rifkin 1995)From sustainability perspective: ensure that what work
exists is shared out more equitablyGreen jobsGreen jobs are:In
industries making environmentally-friendly productsWorkplace &
organization of labour is also more environmentally
sustainableGained attention in late 2000s; part of broader debate
on restructuring economies to be more sustainableExamples of
specific measures:Car-poolingPaperless officeVideo-conferencing
rather than business travelHome-based teleworkingPotential benefits
are social, economic and ecologicalSummaryDiscussed the specific
stake that employees hold in their organizationsDiscovered how deep
the involvement of corporations with employees rights can
beCorporate responsibility for protection and facilitation of these
rights is particularly complex and contestable when their
operations become more globalizedConsidered corporate citizenship
and employee relations in different contexts
Chapter 8Consumers and Business EthicsLecture 8OverviewDiscuss
the specific stake that consumers have in corporate activityOutline
the ethical issues and problems faced in business-consumer
relationsExamine issues in context of globalizationArguments for
more responsible marketing practicesDevelop notion of corporate
citizenship in relation to consumersExamine the challenges posed by
sustainable consumptionConsumers as stakeholders (I)Commonplace
argument that businesses are best served by treating their
customers wellSo why continued ethical abuses of consumers and poor
reputation of marketing and sales professions?Examples of
organizations accused of treating customers in a questionable
manner:Multinational drug companiesFast food and soft drink
companiesBanks and credit card companiesMobile phone
companiesTechnology companiesSchools
Consumers as stakeholders (II)Consumer rights can be seen
as:inalienable entitlements to fair treatment when entering into
exchanges with sellers. They rest upon the assumption that consumer
dignity should be respected, and that sellers have a duty to treat
consumers as ends in themselves, and not only as means to the end
of the seller.Debate over what constitutes fair treatmentIn the
past, consumer rights based on caveat emptorBut Caveat emptor
eroded by changing expectations & consumer laws
Ethical issues and the consumerEthical issues, marketing and the
consumerEthical issues in marketing management product policyAt the
most basic level, consumers have a right to products and services
which are safe, efficacious, and fit for the purpose for which they
are intendedManufacturers ought to exercise due care in
establishing that all reasonable steps are taken to ensure that
their products are free from defects and safe to use (Boatright,
2009: 295)Consumers right to a safe product is not an unlimited
rightSafety also a function of the consumer and their actions and
precautionsEthical issues in marketing management marketing
communications (I)Criticisms of advertising broken down into two
levelsIndividualConcerned with misleading or deceptive practices
that seek to create false beliefs about specific products or
companies in the individuals consumers mindSocialConcerned with the
aggregate social and cultural impacts, such as promoting
materialism
Ethical issues in marketing management marketing communications
(II)Misleading and deceptive practicesMarketing communications
aimed to:Inform consumers about goods and servicesPersuade
consumers to purchaseDeception occurs when a marketing
communication either creates, or takes advantage of, a false belief
that substantially interferes with the ability of people to make
rational consumer choices (Boatright, 2009: 285)The UKs Advertising
Standards Authority says ads should be legal, decent, honest and
truthfulEthical issues in marketing management marketing
communications (III)Social and cultural impact on societyObjections
that marketing communications:Are intrusive and unavoidableCreate
artificial wantsReinforce consumerism and materialismCreate
insecurity and perpetual dissatisfactionPerpetuate social
stereotypesSuch criticisms have been common for at least the last
30 yearsEthical issues in marketing management pricingPricing
issues are central to the notion of a fair exchange between the two
parties, and the right to a fair price - key rights of consumers as
stakeholders4 types of pricing practices where ethical problems may
arise:Excessive pricingPrice fixingPredatory pricingDeceptive
pricingEthical issues in marketing management distributionConcerned
with relations between manufacturers and firms, and firms and
marketPrimary concern is product supply chain Example: retailers
demanding slotting fees from manufacturers in order to stock their
productsDealt with in detail next chapter
Ethical issues in marketing strategy vulnerable
customersCriticisms when there is a perceived violation of the
consumers right to be treated fairly (duty of care):Targeting
vulnerable consumersConsumers may be vulnerable because;Lack
sufficient education or information Easily confused or manipulated
due to old age and senilityAre in exceptional physical or emotional
need Lack the necessary income Too youngPerceived harmfulness of
the productExamples: cigarettes and alcoholHere, the focus shifts
from rights/duties to consequencesEthical issues in marketing
strategy customer exclusionTakes variety of formsAccess
exclusionCondition exclusionPrice exclusionMarketing
exclusionSelf-exclusionEthical issues in market researchMain issue
is possible threats posed to the consumers right to privacyRecent
areas of concern: Personal information available onlineExample:
Phorms advertising targeting service, which British Telecom
trialled without consentUse of genetic testing results by insurance
companiesPredict likelihood of an individuals genetic
predisposition to certain conditions and illnessesgenetic
discrimination?Globalisation and consumersThe ethical challenges of
the global marketplaceIssues around marketing in a global
marketplaceGlobalization has brought a new set of problems and
issues relevant to consumer stakeholdersDifferent standards of
consumer protectionConsumer protection varies widely in terms of
government regulation and company standardsExample of
tobaccoExporting consumerism and cultural homogenizationGlobal
brands huge success has led to increasing concerns over
standardization and uniformityConsiderable debate around role of
advertising in promoting consumerism in emerging and transitional
economiesThe role of markets in addressing poverty and
developmentGlobalization also raises prospect of firms targeting
products to low income consumersBottom of the pyramid
conceptExamples of successful initiatives:Microcredit institutions
(e.g. Brazil)High nutrition yoghurt company (Bangladesh)One Laptop
Per ChildCriticismBottom of the pyramid is a mirage: profit
opportunities limitedSocial purpose and CSR probably more important
than profit motive in developing inclusive marketsConsumers and
corporate citizenshipConsumer sovereignty and the politics of
purchasingConsumer sovereigntyConcept suggests that under perfect
competition, consumers drive marketTwo ethical limitations based on
fairnessConsumer sovereignty customer is kingConsumer sovereignty
has three elements (Smith, 1995)Consumer
capabilityInformationChoiceHow is consumer sovereignty to be
assessed? Consumer sovereignty testConsumer sovereignty testEthical
consumptionEthical consumption is the conscious and deliberate
decision to make certain consumption choices due to personal moral
beliefs and valuesRecent 51-market survey on consumer attitudes:70%
of global consumers said their purchase decision could be
influenced by a product supporting a worthy causeBut
socially-desirable answers may not correspond to behaviourConsumer
activism on increase positiveDownside of ethical consumptionMotives
of corporations will be primarily economic rather than
moralConsumers may decide they no longer want to or can afford to
pay extra for these ethical accessoriesIf purchases are votes then
rich get more power than poorSustainable consumptionWhat is
sustainable consumption?Sustainable consumption is: the use of
goods and services that respond to basic needs and bring a better
quality of life, while minimising the use of natural resources,
toxic materials and emissions of waste and pollutants over the
life-cycle, so as not to jeopardise the needs of future generations
(European Environment Agency definition)The challenge of
sustainable consumptionSteps towards sustainable
consumptionProducing environmentally responsible productse.g.
Eco-labels are importantProduct recaptureSee Figure, next
slideService replacements for productsSelling (e.g.) mobility
rather than cars, or leasing photocopiersProduct sharingExamples:
car-sharing, washing-machine-poolingReducing demandExample of
Chinas ban on free plastic bagsImplementing the polluter pays
principle to create financial incentive for lower
consumptionProduct recaptureFrom a linear to a circular flow of
resourcesSummary
Chapter 9Suppliers, Competitors and Business EthicsLecture
9OverviewShow how other businesses suppliers and competitors exist
in mutual interdependence with a given organization Describe the
ethical issues and problems that arise in an organisations dealings
with its suppliers and competitorsOutline how globalization
reframes these problemsDiscuss whether corporations should assume
some degree of extended responsibility for the ethics of their
suppliers Assess the arguments suggesting that attention to
business interrelationships and the network economy may contribute
to more sustainable business modelsSuppliers and competitors as
stakeholdersSuppliers as stakeholdersA stakeholder of a corporation
is an individual or a group that either is harmed by or benefits
from the corporation or whose rights can be violated, or have to be
respected, by the corporation (Evan and Freeman 1993)Organisations
and their suppliers can be seen as mutually dependentCompetitors as
stakeholdersForgotten stakeholders? (Spence et al. 2001)Legal
rights (e.g. not influencing others pricing)Moral claims (e.g.
right to fair play)So, businesses should not be seen as isolated
islands of economic activity, but as actors operating within a web
of other businesses, bound by mutual interests and interlinked
flows of resources and rewardsFirms thus best understood as part of
industrial network
Supplier relationship as part of an industrial networkEthical
issues and suppliersEthical issues (I)Misuse of powerResource
dependence theory can help understand relative power of buyer and
sellerThe question of loyaltyDoesnt fit easily with economic view
of firm, but can create mutually-beneficial outcomesPreferential
treatmentBig challenge: procedural justice approach can
helpConflicts of interestA conflict of interest occurs when a
person or organizations obligation to act in the interests of
another is interfered with by a competing interest that may
obstruct the fulfilment of that obligationEthical issues (II)Gifts,
bribes and hospitalityConsider the intention of the gift giverLook
at the impact on the receiverFocus on the perception of other
partiesMany large organizations have a formal purchasing code of
ethicsGuidelines provided by professional bodies such as the
International Chartered Institute of Purchasing and Supply
Ethics of negotiation (I)Ethics and negotiation oil and
water?Here are ten popular negotiating actions, all of which can be
challenged on ethical grounds (Reitz et
al.,1998):LiesPufferyDeceptionWeakening the opponentStrengthening
ones own positionNon-disclosureInformation exploitationChange of
mindDistractionMaximisationEthics of negotiation (II)A more ethical
approach to negotiating should steer clear of these tactics. This
is because:It is the right thing to doSuch practices incur costs
for the negotiator. These are:Rigid negotiating encourages narrow
tacticsDamaged relationships risk of enmitySullied reputation
making future bargaining troublesomeLost opportunities tends to
prevent progressive discussions that open up new issuesBasic idea:
negotiation is not so much zero-sum as a chance to build
mutually-beneficial relationshipsEthical issues and
competitorsProblems of overly aggressive competitionIntelligence
gathering and industrial espionage create ethical questions
whenQuestionable tacticsPrivate or confidential informationPurpose
for which information gathered is against public interestDirty
tricksNegative advertisingStealing customersPredatory
pricingSabotageAnti-competitive behaviourProblems of insufficient
competitionCollusion and cartelsSelect groups of competitors band
together in a cartel or trading group to fix prices and other
trading arrangements for their own mutual benefitAbuse of dominant
positionE.g. MicrosoftGlobalization, suppliers, and competitorsThe
ethical challenges of global business networksThe ethical
challenges of global business networksReshaping of ethical
consideration with suppliers and competitors brings up:Different
ways of doing businessImpacts on indigenous businessesDiffering
labour and environmental standardsExtended chain of
responsibilityDifferent ways of doing business (I)Different ways of
doing business (II)Impacts on indigenous businessesSize, power and
political influence of MNCs often means that they enjoy
considerable cost and other advantages compared to local
competitorsOffer employment alternatives to people who would
otherwise start their own business (Spencer, 2008: 341)Exposure to
the competition of a major multinational can severely threaten the
business of indigenous competitors (Klein, 2000)Differing labour
and environmental standardsWestern firms increasingly sourced
through global supply chainsRace to the bottom occasioned by demand
by MNCs for lower-cost production in developing countriesEthical
problem = lower costs often accompanied by sweatshop
conditionspoorer labour conditionsless environmental
protectionlower attention to health and safetyExtended chain of
responsibilityShifts towards global supply and competition mean
that individual firms appear to be faced with prospect of an
extended chain of responsibilityNo longer acceptable to argue that
the ethics of a firms suppliers or a firms impact on its
competitors was simply not any of its business (see Emmelhainz and
Adams 1999)The corporate citizen in the business communityEthical
sourcing and fair tradeEthical sourcingEthical sourcing is the
inclusion of explicit social, ethical, and/or environmental
criteria into supply chain management policies, procedures and
programmesSuppliers willingness to comply or resist pressure to
certify (e.g. ISO 14001) is strongly determined by the type of
relationship they have to the companies that purchase from them
(Delmas and Montiel 2009)Suppliers with a high dependence on their
customers are more likely to complyas are relatively new entrants
to the industryFor suppliers, the public act of gaining ethical
certification can act as a way of reducing information asymmetries
between themselves and potential buyers Business-business
regulationEthical sourcing as business-business regulationPressure
exerted by powerful corporate customers to comply with ethical
sourcing guidelines and criteria constitutes strong and often very
effective regulation of supply chain members (Locke and Romis,
2007)Strategies of business-business regulationDisengagementSetting
of clear standards for suppliers and a means for assessing
compliance with those standardsFailure to meet standards in short-
medium term will result in disengagement by the company
EngagementRely on longer-term aims together with incremental
targets in order to foster a step-by-step approach to improving
standards.Firm likely to work with their suppliers to achieve
improvementsFair tradeFair trade is a system aimed at offering the
most disadvantaged producers in developing countries the
opportunity to move out of poverty through creating market access
under beneficial rather than exploitative terms. The objective is
to empower producers to develop their own business and wider
communities through international trade (Nicholls & Opal 2005:
6) Aims of fair trade movementFoster the protection and empowerment
of growersEncourage community development by guaranteeing minimum
prices and conditions In 2008, Fair Trade sales grew 22% (est.
2.9Bn)But success could put pressure on ethical standardsChallenges
also from recruiting employees with mainstream business skills
(Davies & Crane, 2010)Comparison: Fairtrade & New York
Prices for Cocoa, 1994-2009Sustainability and business
relationshipsTowards industrial ecosystems?From supply chains to
supply loopsSupply loops are product end-of-life management
strategies that fulfil two criteria (Geyer and Jackson, 2004):They
divert end-of-life products from landfill or incineration by
collecting them for economic value recovery The reprocessing of
these end-of-life products produces secondary resources that
replace primary resources in forward supply chainsTo proponents,
such closed loop supply chain models have are not only waste
reducing, but eliminate the very concept of waste (Lovins, Lovins,
and Hawken 1999). Also, important potential sources of value
recoveryIndustrial ecosystemsKalundborg industrial
ecosystemSummaryDiscussed the stake held by other companies in a
corporationArgument that there were issues of an ethical nature
that went well beyond the legal protection of fair
competitionGlobalisation substantially increased scope of these
problems suggesting expanded responsibilities for corporations over
their operationsBusiness relationship also increasingly seen as one
of main levers for effecting greater attention to social and
environmental problems
Chapter 10Civil Society and Business EthicsLecture
10OverviewShow how the role played by various types of civil
society organizations in society constitutes them as important
stakeholders of corporationExamine the tactics that such groups
might employ towards corporations to achieve their purposesDiscuss
the impacts of globalization on the nature and extent of the role
played by civil society towards corporationsDiscuss the appropriate
relationships between business and civil societyAssess the role of
civil society in providing for enhanced corporate
sustainabilityCivil Society as third sectorCivil society
organizationsCivil society organizations include a whole plethora
of pressure groups, non-governmental organizations, charities,
religious groups, and other actors that are neither business nor
government organizations, but which are involved in the promotion
of certain interests, causes, and/or goalsDiversity in CSO
characteristicsCivil society organizations as stakeholdersCivil
society organizations as stakeholdersThe growth in the number,
power and influence of CSOs represents one of the most important
societal developments in the past twenty years, in terms of how the
dynamics of public debates and government policies concerning
corporate behaviour are changing (Yaziji and Doh, 2009: 16)The
stake held by CSOs is largely one of:Representing the interests of
individual stakeholdersRepresenting the interests of non-human
stakeholdersDifferent types of CSOsDegrees of trust in different
types of organization in selected global regionsEthical issues and
CSOsRecognizing CSO stakesMany CSO groups tend to self-declare
themselves as stakeholders in a particular issue (Wheeler et al.
2002)Issuing statementsLaunching campaignsInitiating some kind of
action towards the corporationSelf-declaring does not necessarily
lead to recognitionIgnoring CSOs may have detrimental long-term
consequences
CSO tacticsIndirect actionSometimes criticised for providing
misleading information Violent direct actionOften illegalTends to
generate the most publicityIs this action civil at all?Non-violent
direct actionDemonstrations and
marchesProtestsBoycottsOccupationsNon-violent sabotage and
disruptionStunts PicketingBoycottsA boycott is an attempt by one or
more parties to achieve certain objectives by urging individual
consumers to refrain from making selected purchases in the
marketplaceFour different purposes for boycotts:Instrumental
boycottsCatalytic boycottsExpressive boycottsPunitive boycottsSome
well-known boycottsCSO accountabilityCSO stakeholders might be said
to include:BeneficiariesDonorsMembersEmployeesGovernmental
organizationsOther CSOsGeneral public (especially those who support
their ideals)Recently, growing number of organizations similar to
CSOs being initiated within businessAccountability of CSOs to
supposed beneficiaries tends to raise most debateForce agendas on
beneficiaries without understanding needsLimited involvement of
beneficiaries in decision makingCSO donor interests receive higher
priorityLack of effective mechanisms for beneficiaries to feedback
on CSO performanceGlobalization and civil society
organizationsGlobalization and civil society
organizationsGlobalization reshaping relations between corporations
and CSOs:Engagement with overseas CSOsPotentially new set of
unfamiliar groupsMany developing and transitional economies lack
strong and institutionalized civil society (e.g. China)Global
issues and causesProblems that transcend national boundaries (e.g.
climate change, water conservation, human rights)Critique of
globalizationGlobalization of CSOsthe resistance will be as
transnational as capitalGlobal civil societyCorporate citizenship
and civil societyCharity, collaboration, or regulation?Charity and
community involvementStarting point for a consideration of business
involvement in civil societyOne-way support benefits communities
and civil action but does not usually allow them much voice in
shaping corporate action. Types of involvement:Corporate
foundations to channel philanthropyEmployee volunteering. This
allows achievement of the following aims (Muthuri, Matten, and Moon
2009):Making a meaningful social contributionContributing to the
development of their human resourcesEnhancing the firms
reputationIncreasing employee moraleBuilding social capital within
the communityBusiness-CSO collaborationCloser and more interactive
relations between civil society and corporationsSometimes called
social partnershipsLimitations of business-CSO
collaborationDifficulties managing relations between such
culturally diverse organisationsDifficulties ensuring consistency
and commitmentPartnership appear to mask continuing hostility
and/or power imbalances between the partnersThe question of power
imbalanceThe distribution of the benefits of partnershipsCSO
independenceSome examples of business-CSO collaborationsDrivers
towards business-CSO collaborationSocial enterpriseThe escalating
number of CSO alliances with businesses suggests an increased
attention in the sector to using market-based solutions to address
social problemsVenture Philanthropy, also called
philanthrocapitalismapplication of venture capital techniques to
grant making (Moody 2008)Social enterpriseHas developed since the
1990sNovel way of embedding dual social and economic goals into the
nature of organizations: social enterprises are designed to address
social problems from the outsetKey differences between social
enterprise, CSOs & corporationsProblems with social
enterpriseCompromise of social missionDemands of the marketplace
can lead to mission driftMoral legitimacyThe more business-like
social enterprises become, the less moral legitimacy they may have
for key stakeholdersEscalation of riskSocial enterprise tends to
emphasise risk taking and innovation which can pose threats to
essential services and clientsPrioritisation of profitable
marketsThe need for sustainable revenue encourages a focus on
potentially profitable social goods and services, rather than
unprofitable areas where clients might be more needyCivil
RegulationCivil regulation is the ability and power of CSOs to
shape, influence or curb business practiceFocus on relations and
outcomesKey drawback is that regulation is voluntary
Key pointsCivil society can act as a conduit through which
individuals citizens can exert some kind of leverage on, or gain a
form of participation in, corporate decision-making and actionCSOs
are now part of systems or regimes of global governance (e.g. Vogel
2008)Civil society, business, and sustainabilityBalancing competing
interestsCivil society: wide variety of disparate actors promoting
different issuesBusiness must take account of these different
issues simultaneouslye.g. energy industry wind powerGroups
supporting wind power as clean source of renewable energy that
supports local areas financiallyGroups against wind power because
they despoil the countrysideThis is a battle of green vs. green
(Lynas, 2008)Fostering participation and democracyOrganizationsthat
affect you and your community, especially when they affect the
material foundations of your self-determination, must be able to be
influenced by you and your communityWhat are required are new forms
of democratic governance so that people can determine their own
futures in a sustainable environment(Bendell,
2000:249)SummaryDiscussed the role that civil society has played in
business ethicsTaken a fairly broad definition of what constitutes
civil societyThe representational nature of CSO stakes makes their
claim rather more indirect than for other constituenciesGradual
shift in the nature of business-CSO relations from primarily
confrontational to a more complex, multifaceted relationship that
still involves confrontation, but also charitable giving,
collaboration and aspects of civil regulations
Chapter 11Government, Regulation, and Business EthicsLecture
11OverviewThe specific stake that governments have in corporate
activityThe ethical issues and problems faced in
business-government relationsThe shifts in these issues and
problems in context of globalizationFurther develop the notion of
corporate citizenship by analysing the changing role of business
and CSOsChallenges posed by sustainability to business-government
relations and show the importance of strong governmental regulation
for achieving potentially sustainable solutionsGovernment as a
stakeholderDefining government, laws, and
regulationsGovernmentvariety of institutions and actors at
different levels that share a common power to issue lawsLaws serve
as a codification into explicit rules of the social consensus about
what a society regards as right and wrongRegulation rules that are
issued by governmental actors and other delegated authorities to
constrain, enable, or encourage particular business behaviours.
Regulation includes rule definitions, laws, mechanisms, processes,
sanctions, and incentivesGovernment as a stakeholder of
businessGovernment as a representative of citizens interestsUnlike
many other stakeholders, government in principle represents an
entire community since it is elected by the citizens of a certain
town, region, country or even continentIn this role as the elected
representative of citizens interestsDefines the conditions for the
licence to operate of businessRestricting businessEnabling
businessDebate about the degree of governmental responsibility for
a functioning economyLaissez-faire vs. forceful role in industrial
policyGovernment as an actor (or group of actors) with interests of
its ownGovernments have a self-interest to be re-electedGovernments
very dependent on businessGovernments also compete with
businessEthical issues in the relation between business and
governmentIdentifying the basic problems and issues: legitimacy,
accountability and modes of influenceMain source of ethical
problems stems from fiduciary relation to society in
generalGovernment therefore in bipolar situationLegitimacy of
business influenceBusiness can have a significant influence on the
implementation and direction of governmental policies. It is
therefore to no surprise that the issue of public sector ethics has
gained enormous momentum (Dobel 2007). The main ethical
consideration arising from this situation is twofoldlegitimacy of
business influence; accountability.Is power and political influence
of business leaders a threat to democracy?To what degree is it
legitimate for business to have an influence in
politics?Accountability to the publicOne may contend that since the
government acts as a representative of societys interests, the
public has a right to be informed about governmental decisions with
other constituencies (such as business), and be able to determine
whether it is acting in its interests or notAlthough both parties
are able to influence each other, the main concerns for business
ethics are where business has influence on governmentModes of
business influence on governmentNumerous ways that business can
influence governmentOberman (cited in Getz 1997:59) distinguishes
among different ways, using following criteria:Avenue of approach
to decision-makerDirect indirectBreadth of
transmissionPublicprivateContent of communicationInformation
orientatedPressure orientatedBusiness influence on
governmentLobbyingLobbying represents a direct, usually private
attempt by business actors to influence governmental
decision-making through information provision and persuasion. It is
considered a weak form of influence (McGrath 2005)Different types
of lobbying:Atmosphere settingMonitoringProvision of information to
policy-makersAdvocacy and influencingApplication of pressureParty
financing and individual conflicts of interestDonations to parties
by business can raise conflict of interest problemsProspect of
preferential treatmentThe situation is a dilemma: having good
relations with political parties seems necessary, but party
financing has dangersIt gains influencebut it could severely harm
the companys image and perhaps encourage questionable behaviour on
the part of employeesOverlap of posts between business and
governmentRevolving doors common globally (e.g., US, Europe,
Japan)This raises substantial conflicts of interestCorruption of
governmental actors by businessCorruption is the abuse of entrusted
power for private gain (Transparency International)Main issue of
government corruption in relation to business is activities where
private firms shape the formulation, implementation, or enforcement
of public policies or rules by payments to public officials and
politicians State capture is a situation where private firms shape
the formulation of regulation by payments to public officials and
politiciansWhere state capture becomes a universal law (Kant), a
normally functioning economy becomes nearly impossible
2008 Corruption Perception Index for selected countriesNote:
Score relates to perceptions of the degree of corruption among
government officials as seen by business people and risk analysts,
and ranges between 10 (highly clean) and 0 (highly corrupt)
Source: Taken from Transparency International Corruption
Perception Index, 2004 (www.transparency.org)
2008 Corruption Perception Index for selected countriesEthical
issues in the context of privatization and
deregulationPrivatization profitsKey issue is a fair priceCitizens
turned consumersEconomic basis for decisions, rather than
politicalNatural monopoliesCan lead to over-charging or delivering
poor qualityPPPs, Public-private-partnershipsPrivate sector
profit-maximization tends to dominate at the expense of quality and
effectiveness for citizensGlobalization and business-government
relationsGlobalization and business-government
relationsGlobalization defined as the progressive eroding of the
relevance of territorial bases for social, economic, and political
activities, processes, and relationsBritish political scientist
Anthony McGrew has described this in terms of a transition from a
traditional to a global context, which he calls the
post-Westphalian setting (Held and McGrew 2000)From the national to
the global contextWhen globalisation deterritorializes social,
economic and political action, the significance of these nation
states is weakened.This transition is summarized as:SocietyHolder
of political powerManifestation of political activityAddressee of
regulationIntensity of regulationDemocratic control of political
powerGlobalization, government, and business: changing
contextGlobalization, government, and business: changing
rolesBusiness as an actor within the national context (Westphalian
setting)Businesses are still located within nation states and they
are therefore still subject to national law, which we have called
imperative regulationProblematic: Situations where business becomes
an actor in authoritarian and oppressive regimesBusiness as an
actor in the global context (post-Westphalian setting)On a global
level, corporation assume a more dominant role while governments
bound by their confinement to territorial boundaries have only
limited influence beyond national boundariesResult is so-called
race to the bottomBusiness-government relations in international
trade regimesSeveral transnational government institutions have
significant impact on businessRegional bodies: EU, NAFTA, ASEANEU
is particularly significant, due to its strong legislative
powersGlobal players: WTO or World BankRole of these bodies is to
enable trade and exchange of goods and servicesDouble-edged
sword:They can enable access to cheap labour and larger marketsBut
the same institutions increase competition and in some ways limit
businessCorporate citizenship and regulationBusiness as key player
in the regulatory gameCorporate citizenship and regulation:
business as key player in the regulatory gameDebate over how to
improve rulemakingBusiness involvement through self-regulation or
reflexive regulation and corporatismReasons for new forms of
regulation:Encouragement of a proactive approach from industryAnd
the hope/assumption ofCost-effectivenessFaster achievement of
objectivesExamples of regulatory outcomes on different levels in a
multi-actor settingGovernments, business and sustainabilityGlobal
climate change legislation and business responses: Support vs.
obstructionThe debate on climate change regulation has been a key
political arena of sustainabilityCO2 reductions represent a big
threat for some industriesResult: Global Climate Coalition, to
lobby against regulationVariable success (and the coalition has
been disbanded)In Europe, public appetite for action, so firms
lobbied to shape the regulation that emerged. ETS introduced in
2005Strictest approach, but uses market mechanisms, flexiblyIn
Australia, Canada, USA, lobbying was against actionGlobal supply of
food and water is another key issueBolivian example of ethical
issues in water privatizationVolatility of global markets for wheat
and rice, exacerbated by rise of biofuelsSummaryWe have:Looked at
the stake held by government in business and set out how the role
of government and its central task of issuing regulation for
business, affects this stakeholder relationshipDiscussed the
complex role of governments and the interdependencies and mutual
in