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