Business Ethics
Business Ethics Ingrid Liu By the end of term each student should be able to: 1. Distinguish between different sorts of responsibilities 2. Recognize arguments; differentiate between explanations and arguments 3. Distinguish between different sorts of arguments 4. Explain the significance of corporate accountability, corporate citizenship, the stakeholder theory of the firm, the various traditional and contemporary ethical theories, ethical culture, business ethics management, the various stakeholders and the environment for understanding business and professional responsibilities 5. Demonstrate basic critical thinking skills in clear and precise written work.
University of Waterloo
CHAPTER 1: INTRODUCING BUSINESS ETHICS Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed. Equivocal: simply may not be a definitive „right‟ answer to many business ethics problems Morality is concerned with norms, values, and beliefs embedded in social processes which define right and wrong for an individual or a community. Ethics is concerned with study of morality and 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 rationalises morality
Ethics produces ethical theory
Ethical theory applied to any situation
Potential solutions to ethical problems
Figure 1.1 The Relationship Between Morality, Ethics, and Ethical Theory Why Business Ethics is Important 1. Power and influence of business in society greater than ever before 2. Business has potential to provide major contribution to societies 3. Business malpractices have potential to inflict harm on individuals, communities and environment 4. Demands being placed on business to be ethical by its stakeholders are becoming more complex/challenging 5. Few businesspeople have received formal business ethics education/training 6. Ethical violations continue to occur in business across countries & sectors 7. Business ethics can provide ability to assess benefits & problems associated with managing ethics in organizations 8. Provides knowledge that transcends traditional framework of business studies and confronts most important questions faced by society Globalization: process which diminishes the necessity of common and shared territorial basis for social, economic, and political activities, processes, and relations -
Cultural issues Legal issues Accountability issues
Sustainability is the long-term maintenance of systems according to environmental, economic, and social considerations.
CHAPTER 2: FRAMING BUSINESS ETHICS Corporate Responsibility, Stakeholders, and Citizenship Features of a Corporation Typically regarded as “artificial persons” in eyes of law „Owned‟ by shareholders, but exist independently of them Managers & directors have „fiduciary‟ responsibility to protect investment of shareholders
1s
Philantropic Responsibilities Desired by Society Ethical Responsibilities Expected by Society Legal Responsibilities - Required by Society
Economic Responsibilities - Required by Society
Figure 2.1
Carroll‟s four-part model of corporate social responsibility.
Corporate social responsibility (CSR) includes economic, legal, ethical, and philanthropic expectations placed on organizations by society at given point in time. Economic Responsibility - Required Shareholders demand return on investment Employees want safe and paid jobs Customers demand good quality products at fair price Legal Responsibility – Required Demands businesses abide by law Law is codification of society‟s moral views Ethical Responsibility – Expected Oblige corporations to do what is right, even when they are not compelled to by law Philanthropic Responsibility – Desired Love of the fellow human Corporation‟s discretion to improve quality of life of employees, communities, society Corporate social responsiveness refers to capacity of a corporation to respond to social pressure.
Four Strategies of Social Responsiveness: 1. Reaction – corporation denies any responsibility for social issues 2. Defense – corporation admits responsibility, but fights it 3. Accommodation – accepts responsibility and does what is demanded 4. Pro-Action – seeks to go beyond industry norms and anticipates future expectations Outcomes of CSR: Corporate Social Performance Social Policies – policies stating company‟s values, beliefs, and goals with regard to social environment Social Programs – programs of activities, measures, and instruments implemented to achieve social policies Social Impacts – traced by looking at concrete changes the corporation has achieved through programs implemented in any period 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. Three forms of stakeholder theory: Normative Stakeholder Theory – provide reason why corporations should take into account stakeholder interests Descriptive Stakeholder Theory – ascertain whether corporations actually do take into account stakeholder interests Instrumental Stakeholder Theory – answer the question whether it is beneficial for the corporation to take into account stakeholder interests Corporate Accountability – whether a corporation is answerable in some way for the consequences of its actions Two reasons for privatization: Governmental failure Increasing power and influence of corporations Transparency is the degree to which corporate decisions, policies, activities, and impacts are acknowledged and made visible to relevant stakeholders. Corporate Citizenship: Limited view of CC – equates CC with corporate philanthropy Equivalent view of CC – equates CC with CSR Extended view of CC – acknowledges extended political role of corporation in society Corporate citizenship describes corporate function for governing citizenship rights for individuals
CHAPTER 3: EVALUATING BUSINESS ETHICS Ethical theories are rules and principles that determine right and wrong for given situation. Two extreme positions: Ethical absolutism Ethical relativism Pluralism – occupies something of middle ground between absolutism and relativism Consequentialist Theories Egoism – an action is morally right if decision-maker freely decides in order to pursue either their (short-term) desires or their (long-term) interests Utilitarianism – an action is morally right if it results in greatest amount of good for greatest amount of people affected by the action Main problems: Subjectivity Problems of quantification Distribution of utility Act utilitarianism Looks to single actions and bases moral judgement on amount of pleasure/pain caused Rule utilitarianism If underlying principles of action produce more pleasure than pain for society in long run Non-Consequentialist Theories Ethics of Duties Ethics of Rights and Justice Natural rights are certain basic, important, unalienable entitlements that should be respected and protected in every single action Justice can be defined as simultaneously fair treatment of individuals in given situation with result that everybody gets what they deserve. Limits of Western Modernist Theories Too abstract Too reductionist Too objective and elitist Too impersonal Too rational and codified Too imperialist Virtue 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 behavior.
Feminist ethics is an approach that prioritizes empathy, harmonious and healthy social relationships, care for one another, and avoidance of harm above abstract principles. Stages in ethical decision-making: 1. Recognize moral issue 2. Make some kind of moral judgement on issue 3. Establish intention to act on judgement 4. Act according to intentions Influences on ethical decision-making: Individual factors (age, gender, culture, education, employ, psychological, values, integrity, moral imagination) Situational factors Cognitive moral development: different levels of reasoning that individual apply to issues Level One. Concerned with self-interest Level Two. Does what is expected by others. Level Three. Decision-making based on principles of rights and justice. Locus of Control – determines extent to which he/she believes that they have control over events in their life. Integrity – adherence to moral principles or values. CHAPTER 5: MANAGING BUSINESS ETHICS Business ethics management is the direct attempt to manage ethical issues through policies, practices, and programs. Components of business ethics management: mission statements, codes of ethics, reporting channels, risk analysis/management, ethics consultants/managers/officers, ethics education Code of ethics are voluntary statements that commit organizations, industries, or professions to specific beliefs, values, and actions and/or that set out appropriate ethical behavior for employees. Four main types of ethical codes: Organizational/corporate codes of ethics Professional codes of ethics Industry codes of ethics Program or group code of ethics Four main issues: prevalence, content, effectiveness, possibilities Key relationship attributes to determine importance of stakeholders: power, legitimacy, urgency Types of Stakeholder Relationships Challenge, sparring partners One-way support, mutual support Endorsement Project/strategy dialogue Task Force, alliance
Problems With Stakeholder Collaboration Resource intensity, culture clash Schizophrenia, uncontrollability Co-optation, accountability, resistance Four Ways of Organizing for Business Ethics Management Compliance Orientation Values Orientation External Orientation Protection Orientation CHAPTER 6: SHAREHOLDERS AND BUSINESS ETHICS Corporate Governance: shareholders seek to ensure „their‟ corporation is run according to their intentions Issues: governance & control, national security/protectionism, international speculation, unfair competition with developing countries, space for illegal transactions Dow Jones Sustainability Group Index – environmental, economic and social CHAPTER 7: EMPLOYEES AND BUSINESS ETHICS Four different types of privacy to protect: physical, social, informational, psychological Financial participation: allows employees share in ownership of corp. Operational participation: delegation, information, consultation, co-determination Work-life balance: excessive working hours/presenteeism, flexible working patterns Three main ways to address employment issues: re-humanized workplaces, wider employment, and green jobs CHAPTER 8: CONSUMERS AND BUSINESS ETHICS Consumer rights: inalienable entitlements to fair treatment when entering into exchanges with sellers. (Caveat emptor: consumer’s sole right to veto purchase and not purchase smth) Marketing communication functions: inform and persuade Deception occurs when marketing comm creates false belief that interferes w/ ability of people to make rational consumer choices. Four main types of pricing practices: Excessive pricing Price fixing Predatory pricing Deceptive pricing Violations of consumer‟s right to be treated fairly: vulnerability and exclusion (access, condition, price, marketing, and self)
Consumer Sovereignty comprised of 3 factors: Consumer capability Information Choice Ethical consumption is conscious/deliberate choice to make certain consumption choices due to personal moral beliefs and values. Sustainable consumption: use of G&S that respond to basic needs and bring better quality of life, while minimizing use of natural resources, toxic materials and emissions of wastes/pollutants over life cycle. CHAPTER 9: SUPPLIERS, COMPETITORS, AND BUSINESS ETHICS Resource Dependence Theory: power derives from degree of independence that each actor has on other‟s resources. Buyer hold power when: (a) supplier resource plentiful and not important to buyer and/or (b) buyer‟s resources scarce and important to supplier Ten popular negotiating tactics challenged on ethical grounds: Lies, puffery, deception Weakening opponent Strengthen one‟s position Non-disclosure, info exploitation Change of mind, distraction Maximization Incur costs on negotiator: Rigid negotiating Damaged relationships Sullied reputation Lost opportunities Key forces driving globalization in business: Convergence of markets Global competition Cost advantages Government influences Four main considerations dealing with suppliers & competitors: Diff. ways of doing business Impacts on indigenous businesses Differing labour and envir standards Extended chain of responsibility Ethical sourcing is inclusion of explicit social, ethical, and/or environmental criteria into supply chain management policies, procedures, and programs. Strategies of business-business regulation: disengagement and engagement
CHAPTER 10: CIVIL SOCIETY AND BUSINESS ETHICS Civil society organizations: pressure groups, non-govt organizations, charities, religious groups and other private, non-profit distributing, organizational actors that are neither business nor govt institutions – involved in promotion of societal interests, causes and/or goals. Two types of CSOs: Sectional Groups include trade unions, associations, student bodies, neighborhood groups, etc. Member-based, represent interests of members. Promotional Groups focus on promoting specific causes/issues. Environmental groups, anti-smoking, pro-life, etc. Represent common ideology. More focused on achieving wider social aims. Four different purposes for boycotts: Instrumental – force target to change specific policy Catalytic – raise awareness about company actions/policies Expressive – communicate general displeasure about target company Punitive – punish target company for actions 3 main areas globalization is reshaping relations between corps and CSOs Engagement with overseas CSOs Global issues and causes Globalization of CSOs CHAPTER 11: GOVERNMENT, REGULATION, AND BUSINESS ETHICS Government consists of institutions/actors at different levels that share common power to issue laws. Laws serve as codification into explicit rules of social consensus about what a society regards as right and wrong. Regulations: rule definitions, laws, mechanisms, processes, sanctions, and incentives. Ways business can influence government: Avenue of approach to decision-maker (direct vs indirect) Breadth of transmission (private vs public) Content of communication (info-oriented or pressure-oriented) Different types of lobbying Atmosphere setting Monitoring Provision of info to policy-makers Advocacy and influencing Application of pressure Actors in regulatory game: Government Business Business and government Business and civil society Business, govt and civil society
University of Waterloo
CHAPTER 1: INTRODUCING BUSINESS ETHICS Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed. Equivocal: simply may not be a definitive „right‟ answer to many business ethics problems Morality is concerned with norms, values, and beliefs embedded in social processes which define right and wrong for an individual or a community. Ethics is concerned with study of morality and 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 rationalises morality
Ethics produces ethical theory
Ethical theory applied to any situation
Potential solutions to ethical problems
Figure 1.1 The Relationship Between Morality, Ethics, and Ethical Theory Why Business Ethics is Important 1. Power and influence of business in society greater than ever before 2. Business has potential to provide major contribution to societies 3. Business malpractices have potential to inflict harm on individuals, communities and environment 4. Demands being placed on business to be ethical by its stakeholders are becoming more complex/challenging 5. Few businesspeople have received formal business ethics education/training 6. Ethical violations continue to occur in business across countries & sectors 7. Business ethics can provide ability to assess benefits & problems associated with managing ethics in organizations 8. Provides knowledge that transcends traditional framework of business studies and confronts most important questions faced by society Globalization: process which diminishes the necessity of common and shared territorial basis for social, economic, and political activities, processes, and relations -
Cultural issues Legal issues Accountability issues
Sustainability is the long-term maintenance of systems according to environmental, economic, and social considerations.
CHAPTER 2: FRAMING BUSINESS ETHICS Corporate Responsibility, Stakeholders, and Citizenship Features of a Corporation Typically regarded as “artificial persons” in eyes of law „Owned‟ by shareholders, but exist independently of them Managers & directors have „fiduciary‟ responsibility to protect investment of shareholders
1s
Philantropic Responsibilities Desired by Society Ethical Responsibilities Expected by Society Legal Responsibilities - Required by Society
Economic Responsibilities - Required by Society
Figure 2.1
Carroll‟s four-part model of corporate social responsibility.
Corporate social responsibility (CSR) includes economic, legal, ethical, and philanthropic expectations placed on organizations by society at given point in time. Economic Responsibility - Required Shareholders demand return on investment Employees want safe and paid jobs Customers demand good quality products at fair price Legal Responsibility – Required Demands businesses abide by law Law is codification of society‟s moral views Ethical Responsibility – Expected Oblige corporations to do what is right, even when they are not compelled to by law Philanthropic Responsibility – Desired Love of the fellow human Corporation‟s discretion to improve quality of life of employees, communities, society Corporate social responsiveness refers to capacity of a corporation to respond to social pressure.
Four Strategies of Social Responsiveness: 1. Reaction – corporation denies any responsibility for social issues 2. Defense – corporation admits responsibility, but fights it 3. Accommodation – accepts responsibility and does what is demanded 4. Pro-Action – seeks to go beyond industry norms and anticipates future expectations Outcomes of CSR: Corporate Social Performance Social Policies – policies stating company‟s values, beliefs, and goals with regard to social environment Social Programs – programs of activities, measures, and instruments implemented to achieve social policies Social Impacts – traced by looking at concrete changes the corporation has achieved through programs implemented in any period 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. Three forms of stakeholder theory: Normative Stakeholder Theory – provide reason why corporations should take into account stakeholder interests Descriptive Stakeholder Theory – ascertain whether corporations actually do take into account stakeholder interests Instrumental Stakeholder Theory – answer the question whether it is beneficial for the corporation to take into account stakeholder interests Corporate Accountability – whether a corporation is answerable in some way for the consequences of its actions Two reasons for privatization: Governmental failure Increasing power and influence of corporations Transparency is the degree to which corporate decisions, policies, activities, and impacts are acknowledged and made visible to relevant stakeholders. Corporate Citizenship: Limited view of CC – equates CC with corporate philanthropy Equivalent view of CC – equates CC with CSR Extended view of CC – acknowledges extended political role of corporation in society Corporate citizenship describes corporate function for governing citizenship rights for individuals
CHAPTER 3: EVALUATING BUSINESS ETHICS Ethical theories are rules and principles that determine right and wrong for given situation. Two extreme positions: Ethical absolutism Ethical relativism Pluralism – occupies something of middle ground between absolutism and relativism Consequentialist Theories Egoism – an action is morally right if decision-maker freely decides in order to pursue either their (short-term) desires or their (long-term) interests Utilitarianism – an action is morally right if it results in greatest amount of good for greatest amount of people affected by the action Main problems: Subjectivity Problems of quantification Distribution of utility Act utilitarianism Looks to single actions and bases moral judgement on amount of pleasure/pain caused Rule utilitarianism If underlying principles of action produce more pleasure than pain for society in long run Non-Consequentialist Theories Ethics of Duties Ethics of Rights and Justice Natural rights are certain basic, important, unalienable entitlements that should be respected and protected in every single action Justice can be defined as simultaneously fair treatment of individuals in given situation with result that everybody gets what they deserve. Limits of Western Modernist Theories Too abstract Too reductionist Too objective and elitist Too impersonal Too rational and codified Too imperialist Virtue 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 behavior.
Feminist ethics is an approach that prioritizes empathy, harmonious and healthy social relationships, care for one another, and avoidance of harm above abstract principles. Stages in ethical decision-making: 1. Recognize moral issue 2. Make some kind of moral judgement on issue 3. Establish intention to act on judgement 4. Act according to intentions Influences on ethical decision-making: Individual factors (age, gender, culture, education, employ, psychological, values, integrity, moral imagination) Situational factors Cognitive moral development: different levels of reasoning that individual apply to issues Level One. Concerned with self-interest Level Two. Does what is expected by others. Level Three. Decision-making based on principles of rights and justice. Locus of Control – determines extent to which he/she believes that they have control over events in their life. Integrity – adherence to moral principles or values. CHAPTER 5: MANAGING BUSINESS ETHICS Business ethics management is the direct attempt to manage ethical issues through policies, practices, and programs. Components of business ethics management: mission statements, codes of ethics, reporting channels, risk analysis/management, ethics consultants/managers/officers, ethics education Code of ethics are voluntary statements that commit organizations, industries, or professions to specific beliefs, values, and actions and/or that set out appropriate ethical behavior for employees. Four main types of ethical codes: Organizational/corporate codes of ethics Professional codes of ethics Industry codes of ethics Program or group code of ethics Four main issues: prevalence, content, effectiveness, possibilities Key relationship attributes to determine importance of stakeholders: power, legitimacy, urgency Types of Stakeholder Relationships Challenge, sparring partners One-way support, mutual support Endorsement Project/strategy dialogue Task Force, alliance
Problems With Stakeholder Collaboration Resource intensity, culture clash Schizophrenia, uncontrollability Co-optation, accountability, resistance Four Ways of Organizing for Business Ethics Management Compliance Orientation Values Orientation External Orientation Protection Orientation CHAPTER 6: SHAREHOLDERS AND BUSINESS ETHICS Corporate Governance: shareholders seek to ensure „their‟ corporation is run according to their intentions Issues: governance & control, national security/protectionism, international speculation, unfair competition with developing countries, space for illegal transactions Dow Jones Sustainability Group Index – environmental, economic and social CHAPTER 7: EMPLOYEES AND BUSINESS ETHICS Four different types of privacy to protect: physical, social, informational, psychological Financial participation: allows employees share in ownership of corp. Operational participation: delegation, information, consultation, co-determination Work-life balance: excessive working hours/presenteeism, flexible working patterns Three main ways to address employment issues: re-humanized workplaces, wider employment, and green jobs CHAPTER 8: CONSUMERS AND BUSINESS ETHICS Consumer rights: inalienable entitlements to fair treatment when entering into exchanges with sellers. (Caveat emptor: consumer’s sole right to veto purchase and not purchase smth) Marketing communication functions: inform and persuade Deception occurs when marketing comm creates false belief that interferes w/ ability of people to make rational consumer choices. Four main types of pricing practices: Excessive pricing Price fixing Predatory pricing Deceptive pricing Violations of consumer‟s right to be treated fairly: vulnerability and exclusion (access, condition, price, marketing, and self)
Consumer Sovereignty comprised of 3 factors: Consumer capability Information Choice Ethical consumption is conscious/deliberate choice to make certain consumption choices due to personal moral beliefs and values. Sustainable consumption: use of G&S that respond to basic needs and bring better quality of life, while minimizing use of natural resources, toxic materials and emissions of wastes/pollutants over life cycle. CHAPTER 9: SUPPLIERS, COMPETITORS, AND BUSINESS ETHICS Resource Dependence Theory: power derives from degree of independence that each actor has on other‟s resources. Buyer hold power when: (a) supplier resource plentiful and not important to buyer and/or (b) buyer‟s resources scarce and important to supplier Ten popular negotiating tactics challenged on ethical grounds: Lies, puffery, deception Weakening opponent Strengthen one‟s position Non-disclosure, info exploitation Change of mind, distraction Maximization Incur costs on negotiator: Rigid negotiating Damaged relationships Sullied reputation Lost opportunities Key forces driving globalization in business: Convergence of markets Global competition Cost advantages Government influences Four main considerations dealing with suppliers & competitors: Diff. ways of doing business Impacts on indigenous businesses Differing labour and envir standards Extended chain of responsibility Ethical sourcing is inclusion of explicit social, ethical, and/or environmental criteria into supply chain management policies, procedures, and programs. Strategies of business-business regulation: disengagement and engagement
CHAPTER 10: CIVIL SOCIETY AND BUSINESS ETHICS Civil society organizations: pressure groups, non-govt organizations, charities, religious groups and other private, non-profit distributing, organizational actors that are neither business nor govt institutions – involved in promotion of societal interests, causes and/or goals. Two types of CSOs: Sectional Groups include trade unions, associations, student bodies, neighborhood groups, etc. Member-based, represent interests of members. Promotional Groups focus on promoting specific causes/issues. Environmental groups, anti-smoking, pro-life, etc. Represent common ideology. More focused on achieving wider social aims. Four different purposes for boycotts: Instrumental – force target to change specific policy Catalytic – raise awareness about company actions/policies Expressive – communicate general displeasure about target company Punitive – punish target company for actions 3 main areas globalization is reshaping relations between corps and CSOs Engagement with overseas CSOs Global issues and causes Globalization of CSOs CHAPTER 11: GOVERNMENT, REGULATION, AND BUSINESS ETHICS Government consists of institutions/actors at different levels that share common power to issue laws. Laws serve as codification into explicit rules of social consensus about what a society regards as right and wrong. Regulations: rule definitions, laws, mechanisms, processes, sanctions, and incentives. Ways business can influence government: Avenue of approach to decision-maker (direct vs indirect) Breadth of transmission (private vs public) Content of communication (info-oriented or pressure-oriented) Different types of lobbying Atmosphere setting Monitoring Provision of info to policy-makers Advocacy and influencing Application of pressure Actors in regulatory game: Government Business Business and government Business and civil society Business, govt and civil society
