Business ethics Essay
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Business Ethics (BE) has been called an oxymoron. By an oxymoron, we mean the bringing together of two apparently contradictory concepts. The statement also suggests that there are not, or cannot be, ethics in business. However, there appears to be good reason to suggest that business ethics as a phenomenon, and as a subject, is not an oxymoron. Whilst there will be disagreements about what exactly constitutes “ethical” business activity, it is possible to introduce a fairly uncontroversial definition of the subject itself:
The subject of business ethics are: “Business Ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed”.
It is worth stressing that by “right” and “wrong” we mean morally right and wrong. E. g. commercially, strategically or financially right or wrong. Moreover, by “business ethics” we do not mean only commercial business, but also government organizations, pressure groups, non-for-profit businesses, charities and other organizations. Business ethics and the law.
There is considerable overlap between ethics and the law. The law might be said to be a definition of the minimum acceptable standards of behavior. BE is primarily concerned with those issues not covered by the law, or where there is no definite consensus on whether something is right or wrong. In one sense, BE can be said to begin where the law ends. BE is about the grey areas of business, or where values are in conflict. Studying BE should help you make better decisions, but this is not the same as making right decisions.
Defining morality, ethics, and ethical theory * Morality 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 a given situation. * These rules and principles are called ethical theories. Ethics rationalizes morality.. To produce ethical theory.. Applicable to any situation! Why is Business ethics important? 1.)
The power and influence of business in society is greater than ever before * BE helps us understand why this is happening, what its implications might be, and how we can address the situation 2. ) Business has the potential to provide a major contribution to our societies * BE helps us understand whether this contribution could be positive or negative 3. ) Business malpractices have the potential to inflict harm on individuals, communities and environment * BE helps us understand more of the consequences of and causes of these malpractices 4. ) Increasing demands from stakeholders.
* BE provides the means to understand these challenges more clearly, in order that firms can meet these expectations more effectively 5. ) Few business people have formal BE education or training * BE can help us to identify, analyze and provide solutions to ethical dilemmas in work life 6. ) Business ethics can stimulate responsible thinking and conduct Globalization: A key context for Business ethics? “Globalization is a process which diminishes the necessity of a common and shared territorial basis for social, economic, and political activities, processes and relations” (definition).
Globalization is a very controversial topic in the public debate, and the camps seem to be divided into supporters and critics, there is also some doubt whether globalization is really even happening at all. Globalization as defined in terms of the deterritorializaion of economic activities is particularly relevant for BE, in three main areas: culture, law and accountability. Cultural issues As a result of globalization, corporations are often finding themselves confronted with new, diverse and often contradictory ethical demands.
Moral values that are taken for granted in the home market may get questioned as soon as corporations enter foreign markets. E. g. Europens tend to regard child labour as strictly unethical, while some Asian countries might have a more moderate approach. On one hand globalization makes regional differences less important since it brings regions together and encourages a more uniform global culture. On the other hand, globalization reveals culture differences and confronts people with them. Legal issues As soon as a company leaves its home territory and moves part of its production chain to, e.g. a third world country, the legal framework becomes very different.
This aspect is closely linked to the relationship discussed previously, about the relationship between ethics and the law. Accountability issues One could argue that multinational corporations (MNCs) are economically as powerful as many governments. The gross domestic product (GDP) of Greece was about the same as revenue of Wal-Mart. The more economic activities get deterritorilized, the less government can control them, and the less they are open to democratic control by the affected people.
Consequently, the call for direct (democratic) accountability of (MNCs) has become louder recent years. In other words, globalization leads to a growing demand for corporate accountability. International variety in approaches to Business Ethics Various authors have claimed that there are certain fundamental differences in the way in which business ethics is practiced in different parts of the world. In the table below are all of this is summarized according to six key words. Regional differences from a business ethics perspective: Europe North-America Asia Who is responsible for ethical conduct in business?
| Social control by the collective| The individual| Top management| Who is the key actor in BE? | Government, trade unions, corp. associations| The corporation| Government, corporations| What are key guidelines for ethical behavior? | Negotiated legal framework of business| Corporate codes of ethics| Managerial discretion| What are the key issues in BE? | Social issues in organizing the framework of business| Immorality in single decision situations| Corporate governance and accountability| What is the dominant stakeholder management approach?
| Multiple stakeholder approach| Focus on shareholder value| Implicit multiple stakeholder approach| Sustainability: a key goal for business ethics? The concept of sustainability is generally regarded as having emerged from the environmental perspective. More recently, though, the concept of sustainability has been broadened to include not only environmental considerations, but also economic and social considerations. “Sustainability refers to the long-term maintenance of systems according to environmental, economic and social considerations”.
Sustainability as a phenomenon also represents a specific goal to be achieved. The framing of sustainability as a goal for business is encapsulated most completely in the notion of a “triple bottom line”. Triple Bottom Line Triple bottom line (TBL), is coined by John Elkington, the director of the SustainAbility strategy consultancy. His view of TBL is that it represent the idea that business does not only have one single goal (namely adding economic value), but that it has an extended goal to add environmental and social value too.
TBL includes: Environmental perspectives, Economic perspectives and Social perspectives. Environmental perspectives The basic principles of sustainability in the environmental perspective concern the effective management of physical resources so that they are conserved for the future. All bio systems are regarding as having finite resources and finite capacity, and hence sustainable human activity must operate at a level that that does not threatened the health of those systems.
It also needs to address a number of critical business problems, such as the impacts of industrialization on biodiversity or the continued use of non-renewable resources. Economic perspectives A narrow concept of economic sustainability focuses on the economic performance of the corporation itself; the responsibility of management is to develop, produce and market those products that secure the long-term economic performance of the corporation. This includes a focus on those strategies which lead to long-term rise in share price, revenues and market share, rather than short-term explosions of profits.
A broader concept of economic sustainability would include the company’s attitude towards and impact upon the economic framework in which it is embedded. Paying bribes or building cartels, for instance, could be regarded as economically unsustainable because these activities undermine the long-term function of markets. Social perspectives The key issue in the social perspective on sustainability is that of social justice.
-A recent UN Report on the World Social Situation, highlighted the widening gap between skilled and unskilled workers, chasm between formal and informal economies, and the growing disparities in health, education and opportunities for social and political participation. -The report also state that 80% of the world’s gross domestic products belonging to 1 billion people living in the developed world, and 20% is shared by the 5 billion people living in developing countries.
Therefore, a more just and equitable world, whether between rich consumers in the West and poor workers in developing countries, between the urban rich or rural poor, or between men and women, remains the central concern in the social perspective.
How exactly business should respond to such a challenge remains open question, but the goals at least have received some clarification with the publishing of the UN’s Millennium Developing Goals: 1. ) Eradicate extreme poverty and hunger 2. ) Achieve universal primary education 3. ) Promote gender equality and empower women 4. ) Reduce child morality 5. ) Improve maternal health 6. ) Combat HIV/AIDS, malaria, and other diseases 7. ) Ensure environmental sustainability 8. ) Develop a global partnership for development.
Although the goals are essentially the responsibility of governments to achieve, but some of them have very direct implications for business. Implications of TBL for business ethics TBL is less about establishing accounting techniques and performance metrics for achievements in the 3 dimensions, and more about revolutionizing the way that companies think about and act in business. Chapter 2 Framing Business Ethics: Corporate Responsibility, Stakeholders, & Citizenship Business Ethics definition: “the study of business situation, activities, and decisions where issues of right and wrong are addressed” 1.
What is a corporation? Definition: “legal status and the ownership of assets” 1-1) Key feature of corporation: 1- corporations are independent from who work in them, manage them, and invest them. Corporations regarded as “perpetual succession” i. e. they can survive the death of any individual investors, employees, or customer 2- “the corporation itself” usually owns those assets. i. e shareholder cannot take computer home because it is corporate owns. Similarly, employees, customer deal with contract with corporate not stakeholder. 3- The implication of situation are significant for understanding their responsibilities: a.
They regarded as “artificial persons in the eye of the law” which means they have rights and responsibilities like individual citizen. b. They “owned” by shareholders, but exist independently of them. This means shareholders are not responsible for the debts or damage caused by the corporation. c. Managers and directors have a “fiduciary” responsibility to protect the investment of shareholders. 1-2) Can corporation be morally responsible for its actions? In addition to legal independency from member (as discussed above), they also have agency independent of their members. There are 2 main argument in supporting this point.
* The first argument looks at the fact that apart from individuals taking decisions within companies, every organization has a corporate internal decision structure that directs corporate decisions in line with pre-determined goals. * The second argument supporting the moral dimensions of corporate responsibilities is the fact that companies not only have an organized corporate internal decision structure, but furthermore manifest a set of beliefs and values that set out what is generally regarded as right or wrong in the corporation-namely, the organizational structure. 2. Corporate Social Responsibility (CSR).
2-1) Why do corporations have social responsibilities? Business arguments for CSR: The corporation take on social responsibilities insofar as doing so promotes its own self-interest which book called it enlightened self-interest. Examples: * By CSR, having a better brand reputation * More satisfied customers * Employees might attracted to work and even more committed * Shows corporate independence from government * Regarded as long term investment by improved and stable competitive context Friedman says that, they are not CSR at all, but merely profit maximization “under the cloak of social responsibility” Moral arguments for CSR:
* Corporations causes social problems (such as pollution), so the have responsibility to solve them and prevent future social problems * They should use their power and resources responsibly in society * They should consider the interests and goals of its stakeholders (consumers, suppliers, local communities) and shareholders 2-2) What is the nature of CSR? CSR definition: “CSR includes the economic, legal, ethical and philanthropic expectations placed on organizations by society at a given point in time” * economic responsibility: Shareholders demand a reasonable return on their investments Employees want safe and friendly paid jobs.
Customers demand good quality products and fair price So this item required of all corporations by society. * Legal responsibilities: Obey the law Required by society * Ethical responsibilities: Corporations do what is right, just, and fair even when they are not complelled to do so by the legal framework. Expected by the society * Philanthropic responsibilities: The love of the fellow human This including things such as charitable donations, the building of recreation facilities for employees and their families, support for local schools, or sponsoring for art and sports events.
According to carroll this is merely desired of corporations without being expected or required. So this is less important than the three other categories Problems with the model: -what should happen when 2 or more responcibilites are in conflict, like in crises the company fire the employee and with eythical responsibilities it should provide secure job – model is based on US context. We will discuss as follow: 2-3) CSR in an international context * economic responsibility: US focused on profitability of companies. As we see in chapter 6 Europe and Asia are somewhat different.
* legal responsibility: in Europe enforcing the accepted rules of the game, whereas America rule be regarded as an interference * ethical responsibility: different regions of the world differ significantly as to local ethical values and preferences. Europeans tend to exhibit far graeter mistrust I modern corporations than north America. * philanthropic responsibility: US has long-standing tradition of successful companies or rich capabilities such as Bill Gates donating large sums to funding arts, education.. in Europe due to high income and tax , an expectation directed towards government
2-4) CSR and strategy-corporate social responsiveness Definition: “the capacity of a corporation to respond to social pressures” Based on Carroll model” * Reaction: the corporation denies any responsibility for social issues * Defence: the corporation admits responsibility, but fight it, doing the very least that seems to be required * Accommodation: the corporation admits responsibility and does what is demended of it by relevant groups * Pro-action: the corporation seeks to go beyond industry norms and anticipates future expectations by doing more than is expected 2-5) Outcomes of CSR: corporate social performance (CSP) * Social policies:
Definition “company’s values, beliefs, and goals with regard to its social environment. ” * Social programmes: Definition “specific social programmes of activities, measures and instruments implemented to achieve social policies ” for example using ISO 14000 as an instrument for auditing of environmental performance. * Social impacts: “concrete changes the corporation has achieved through the programmes implemented in any period” Difficult to achieve because much data on social impact is soft Example: employee welfare policies can be evaluated by employee satisfaction questionnaire.
3. Stakeholder theory of the firm The most popular and influential theory to emerge from business ethics Definition “a stakeholder of a corporation is an individual or a group which either: is harmed by, or benefits from, the corporation; or whose rights can be violated, or have to be respected, by the corporation” You can see page 63 for different types of stakeholder: -traditional management model -stakeholder model -network model 3-1).
Why stakeholders matter – legal perspective: there not only legally binding contracts to suppliers, employees or customer, but also an increasing network of laws and regulations enforced by society, which make it simply a matter of fact that different stakeholders have certain rights and claims on the corporation. -economic perspective: in the light of new institutional economics, there are further objections to the traditional stakeholder view. 3-2) A new role for management -respect the rights of stakeholders -stakeholder democracy: give stakeholder an opportunity to influence and control corporate decisions.
– Corporate governance: codifies and regulates the various rights of the stakeholder groups 3-3) different forms of stakeholder theory * Normative stakeholder theory: This theory attempts to provide reason why corporations should take into account stakeholders interest. * Descriptive stakeholder theory: This theory attempts to ascertain whether (and how) corporations accually do take into account stakeholders interest. * Instrumental stakeholder theory: This theory attempts to answer the question of whether it is beneficial for the corporation to take into account stakeholders interest 4.
Corporate accountability-the firm as a political actor “Corporate accountability refers to whether a corporation is answerable in some way for the consequences of its actions. ” Due to following two reasons, since the late 1980s, we have witnessed a growing tendency toward the “privatization” of many political functions and processes formerly assigned to governments * Governmental failure Reasons: sometimes tackling issues would result in severe changes in the lifestyle of modern society and in a decrease of public welfare sometimes these risk are beyond the control of a single government.
* Increasing power and influence of corporations The liberalization and deregulation of markets and industries during the rule of centre right governments in many countries since the 1980s has given more influence, liberty and choice to private actors The same period resulted in a huge privatization of major public services and formerly public-owned companies Most industrialized countries are to varying degrees struggling with unemployment.
Globalization facilities relocation and potentially makes companies able to engage governments in a “race to the bottom” , i.e. it has been argued that corporations have continually relocated to “low-cost” regions where they are faced with lower levels of regulation of pay and working conditions, environmental protection, and corporate taxation. Since many of the new risks emergent in industrial society are complex and far-reaching, they would require very intricate laws, which in turn would be very difficult to implement and monitor. Hence, corporations have increasingly been set the task of regulating themselves.
4-1) the problem of democratic accountability The questions is “who controls corporations and to whom are corporations accountable” The corporations are accountable to * Their shareholders * Obey and comply with the laws of the countries in which they do business * To society because they shape and influence so much of public and private life in modern societies * To stakeholders and corporate accountability, performance and social activities should be made more visible to its stake which we called it transparency.
Definition “transparency is the degree to which corporate decisions, policies, activities, and impacts are acknowledged and made visible to relevant stakeholders” Corporate accountability and transparency are being presented as necessities not only from a normative point of view, but also with regard to the practical aspects of effectively doing business and maintaining public legitimacy. 5. Corporate citizenship Toward the middle of the 1990s the term “corporate citizenship” (CC) emerged as new way of addressing the social role of the corporation 5-1) defining corporate citizenship: three perspectives
* A limited view of CC: This equates CC with corporate philanthropy. This used to identify the philanthropic role and responsibilities the firm voluntarily undertakes in the local community. * An equivalent view of CC: This equates CC with CSR. CC consists in a somewhat updated label for CSR without attempting to define any new role or responsibilities for the corporation. * An extended view of CC This acknowledges the extended political role of the corporation in society Consists of 3 different aspects of entitlements:
* Social rights: these provide the individual with the freedom to participate in society, such as the right to education, healthcare,… these are sometimes called “positive” rights since they are entitlements towards third parties. * Civil rights: these provide freedom from abuses and interference by third parties; among the most important are the rights to own property, to engage in free markets,.. these are sometimes called “negative” rights since they protect the individual against the interference of stronger power.
* Political rights: * these include the right to vote or the right to hold office and generally speaking, enable the individuals to participate in the process of governance beyond the sphere of his or her own privacy. * The key actor for governing these rights for citizens is the government. In the administration of civil, social, and political rights the extended view of CC suggests the following definition: “Corporate citizenship describe the corporate function for governing citizenship rights for individuals” See figure page 79.
5-2) assessing corporate citizenship as a framework for business ethics * The extended view of CC helps us to see better the political role of the corporation and clarifies the demand for corporate accountability that is such a prominent feature of contemporary business ethics thinking * CC helps us to better understand some of the challenges presented by the new contex of globalization * These rights of citizenship, which include rights to equality, participation and a safe and clean environment, also have strong links to the new goal for business ethics of sustainability.
* Finally, although the notion of CSR has been widely adopted all over the world, the extended view of CC provide us with a more critical perspective on the social role of business that is more in keeping with non-US ways of thinking about business ethics CC as used by practitioners and academics alike is presently still a rather messy concept. Summary chapter 3 – Evaluating Business Ethics Introduction * In a business context there is often need for decisions to be based on a systematic, rational, and widely understandable argument so that they can be adequately defended, justified and explained to relevant stakeholders.
This is the point where normative ethical theories come into play * Ethical theories are the rules and principles that determine right and wrong for a given situation The role of ethical theory * Richard De George (1999) suggest two extreme positions * Ethical absolutism: there are eternal, universally applicable moral principles. Right and wrong are objective qualities that can be rationally determined. * Ethical relativism: morality is context dependent and subjective. Different cultures have different ethics, and both sets of beliefs can be equally right.
* The authors position * Pluralism: accept different moral convictions and backgrounds, while at the same time suggesting that consensus on basic principles and rules in a certain social context can, and should, be reached * Rest on two basic things that John Kaler (1999) suggest we already know about morality before we even try to introduce ethical theory into it * Morality is a social phenomenon. We have to establish the rules and arrangements of our living together as social beings.
* Morality is primarily about harm and benefit. Right and wrong are largely about avoiding harm and providing benefits. Normative ethical theories: North-American and European origins and differences * U. Svs. Europe * Individual moralityvs. Institutional morality * More applicable to individual behavior vs. the main influence in developing and applying theory is design of institutions in the economic system * Accepting capitalismvs. Questioning capitalism * Ethical problems occur within the capitalist system vs.
questioning the ethical justification of capitalism * Applying moral normsvs. Justifying moral norms * Focus on the application of morality to business situations vs. justification and ethical legitimation of norms for addressing ethical dilemmas in business situations. Western modernist ethical theories * Figure 3. 1. p 97 and figure 3. 2 p. 98 * Consequentialist ethics: * based on the intended outcomes, the aims, or the goals of a certain action. * Teleological (greek word for “goal”).
* Theories: Egoism and utilitatianism * Non-consequentialist ethics: * An action is right/wrong because the underlying principles are morally right/wrong. * Deontological (greek word for “duty”) * Theories: ethics of duties and ethics of rights and justice * Rights-based theories tend to start by assigning a right to one party and then advocating a corresponding duty on another party to protect that right, while ethics of duties begin with assigning the duty to act in a certain way. Egoism (Plato, Adam Smith (1723-1790))
* An action is morally right if the decision-maker freely decides in order to pursue either their (short-term) desires or their (long-term) interests * Underlying concept of man: as man has only limited insights to the consequences of his actions, the only suitable strategy to achieve a good life is to pursue his own desires or interests * In the economic system: if people sell faulty products, the customers may suffer in the short term, but in the longer run, the producer’s trade will suffer as customers turn to other products.
Hence, the producer will avoid producing shoddy goods for their own self-interest * “egoist practices for utilitarian results” * Egoist vs. selfish: whereas the egoist can be moved by pity for others in seeking to remove his own distress caused by their plight, the selfish person is insensitive to the other. * Criticism of egoism based on desire: it renders patently different approaches to life as being equvivalent * Ex: the life of the student who just gets drunk in a bar is as admirable as the student who works hard for a first class degree, if both followed their desire.
* Therefore, egoism based on the pursuit of interests is the ultimate rendering of this concept (the pursuit of one’s longer term well-being). * Enlightened egoism: corporations might invest in the social environment, because an improved level of social services is in the interest of workforce retention and satisfaction * This theory works fine if there is a mechanism in society that makes sure that no individual egoist pursues his/her own interests at other egoists’ expense.
Utilitarianism (Jeremy Bentham (1748-1832), John Stuart Mill (1806-1873)) * An action is morally right if it results in the greatest amount of good for the greatest amount of people affected by the action * “The greatest happiness principle”: focuses solely on the consequences of an action, weighs the good results against the bad results, and finally encourages the action that results in the greatest amount of good for all the people involved.
* Comes close to what we know as cost-benefit analysis (e.g. figure 3. 3 p. 103) * Main problems * Subjectivity: consequences might depend heavily on the perspective of the person performing the analysis * Problems with quantification: e. g. health and safety issues is difficult to quantify and calculate * Distribution of utility: minorities are overlooked.
* The problem of subjectivity lead to a refinement of the theory, differentiating between * Act utilitarianism: Looks to single actions and bases the moral judgment on the amount of pleasure and the amount of pain this single action causes * Rule utilitarianism: looks at classes of actions and asks whether the underlying principles of an act produce more pleasure than pain for society in the long run. * Relieves us from examining right or wrong in every situation, and offers the possibility of establishing certain principles that we then can apply to all such situations.
Ethics of duties (Immanuel Kant (1724-1804)) * Morality is a question of certain eternal, abstract, and unchangeable principles – a set of a priori moral laws – that humans should apply to all ethical problems. * “Categorical imperative”: theoretical framework to apply to every moral issue regardless of who is involved, who profits, and who is harmed by the principles once they have been applied in specific situations. Consists of three parts * Maxim 1: Act only according to that maxim by which you can at the same time will that it should become a universal law.
* Aspect of consistency. An act can only be right if everyone could follow the same underlying principle * Maxim 2: 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 * Humans deserve respect as autonomous, rational actors, and this human dignity should never be ignored * Maxim 3: Act only so that the will through its maxims could regard itself at the same time as universally lawgiving * The principles for our actions should be acceptable for every human being.
Tries to overcome specifically the risk of subjectivity. * Close to “the golden rule”: Treat others as you want to be treated yourself. ” * Core difference between religious and Kantian approach is that while religion “recognizes God as the ultimate source of value,” Kant saw humans as rational actors who could decide these principles for themselves. * Evan and Freeman (1993) argue that the ethical basis for the stakeholder concept has been substantially derived from Kantian thinking, and suggest that firms have a fundamental duty to allow stakeholders some degree of influence on
the corporation. * Problems with ethics of duties: * Undervaluing outcomes: too little consideration of the outcomes * Complexity: specific formulations such as Kant’s categorical imperative can be quite difficult to apply * Optimism: the view of man as rational actor who acts consequently according to self-imposed duties seems more of an ideal than a reality with regard to business actors.
Ethics of rights and justice (John Locke (1632-1714)) * Natural rights are certain basic, important, unalienable entitlements that should be respected and protected in every single action * Rights are related to duties * The rights of one person can result in a corresponding duty on other persons to respect, protect, or facilitate these rights.
* This link makes it similar to Kant’s approach, but the main difference is that it does not rely on a rather complex process of determining the duties by applying the categorical imperative * Natural rights, or human rights as they are referred to mostly today, are based on a certain consensus of all human beings about the nature of human dignity * Powerful approach which has substantially shaped the constitutions of many modern states. * Limitation: notions of rights are quite strongly located in a Western view of morality.