theoretical essence of business ethics

Juhani Pekkola

Kimmo Pekkola

United Experts of Telework Oy Neulastie 2 C 38 00410 Helsinki Finland http://www.unext.fi [email protected] gsm + 358 40 750 7278 [email protected] gsm. + 358 40 750 8080 VIP WP2 D3

Theoretical essence of business ethics

Classification of approaches, cultural and business environmental impacts on

ethics

Helsinki, April 30, 2001

Theoretical essence of business ethics - Classification of approaches, cultural and business environmental impacts on ethics United Experts of Telework Oy - VIP WP2 D3

Contents 1 Abstract.............................................................................................................................................................. 4 2 Introduction ...................................................................................................................................................... 6

2.1 Background ............................................................................................................................................... 6 2.2 Research problem .................................................................................................................................... 6 2.3 Objectives.................................................................................................................................................. 6 2.4 Scope.......................................................................................................................................................... 7 2.5 Methodology............................................................................................................................................. 7 2.6 Sources and structure .............................................................................................................................. 7 2.7 Definitions ................................................................................................................................................ 7

3 Concepts and Descriptions............................................................................................................................. 9 3.1 Moral and non-moral values................................................................................................................. 11 3.2 Business example ................................................................................................................................... 13 3.3 Deontological and teleological ethics.................................................................................................. 14 3.4 Views to ethics........................................................................................................................................ 18 3.5 Ethics of environment........................................................................................................................... 18 3.6 Synthesis .................................................................................................................................................. 20

4 Describing the company’s environment ..................................................................................................... 22 4.1 The external environment of a company ........................................................................................... 22 4.2 Background for the stakeholder theory .............................................................................................. 23 4.3 Stakeholders defined.............................................................................................................................. 25

4.3.1 Customers ....................................................................................................................................... 29 4.3.2 Employees....................................................................................................................................... 30 4.3.3 Shareholders/Financiers ............................................................................................................... 32 4.3.4 Vendors/Partners .......................................................................................................................... 33 4.3.5 Competitors .................................................................................................................................... 34 4.3.6 Host communities / the society .................................................................................................. 34

4.4 Relationships........................................................................................................................................... 37 4.4.1 General considerations ................................................................................................................. 37 4.4.2 Market relation ............................................................................................................................... 38 4.4.3 Agreement....................................................................................................................................... 38 4.4.4 Legal................................................................................................................................................. 38

4.5 Questions ................................................................................................................................................ 38 4.6 Virtues...................................................................................................................................................... 39 4.7 Cultural Aspects ..................................................................................................................................... 39

4.7.1 Background..................................................................................................................................... 39 4.7.2 Some cultural dimensions of corporate ethics .......................................................................... 40 4.7.3 Other points ................................................................................................................................... 43

5 Values and ethics within the company in relation to the environment.................................................. 44 5.1 Recognition of one’s own values ......................................................................................................... 45 5.2 Recognition of the values of a customer, the business environment and other actors of the environment ........................................................................................................................................................ 46 5.3 Compare your own values and the ethics of the environment and be able to make an analysis46 5.4 Methods of formulating operative ethical aspects of the business policy ..................................... 46

6 Stakeholders in business ethics..................................................................................................................... 47 6.1 Relations and concepts.......................................................................................................................... 49 6.2 Analyzing the relations .......................................................................................................................... 51

6.2.1 Classification of ethical standpoints............................................................................................ 51 6.3 Approaches to virtue ............................................................................................................................. 63

6.3.1 Virtue in ethics ............................................................................................................................... 63

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6.3.2 Virtuous behavior .......................................................................................................................... 64 6.4 Quantity and quality of policy .............................................................................................................. 66 6.5 Analysis of ethical discussion ............................................................................................................... 66

7 Ethical tree / Draft for classification .......................................................................................................... 69 7.1 Evaluation of ethics ............................................................................................................................... 72 7.2 Normative structures in international economy................................................................................ 80

8. Conclusions and summary ............................................................................................................................ 84 9. References ....................................................................................................................................................... 85

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1 Abstract

Ethics is one foundational element in culture. The basic idea of ethics is the idea of good. It is not

possible to define good, because this essence is so primary. Anyhow people recognize good and produce

descriptions, rules and theories out of it. In ethical analyse it is possible to consider these impressions in

forms of ethical expressions.

There are general values and ethical values. Ethics is about human understanding human alike issues like

character, virtue, and intention. This means that the area of ethical values is smaller than the sphere of all

values. This does not mean that other values are of no importance in life or in business, but one should

not mix them with ethical evaluations.

Complexity of ethical theories and discussion can be reduced by meta ethical systemisation. Ethical

discussion can be classified in categories of deontological and teleological theories and in categories

related to acts and values. This classification can be one optional starting point for practical analyse in

business circles too.

Current discussion is underlying the importance of ethics both in social and in environmental

connections. The demands for ethical principles are increasing in average. Many companies have

identified corporate ethical values and regarded them as one of their key success factors. This

identification has helped them to focus on internal and external processes and gain for improved

information and knowledge. Ethics is one operational element in generating and harnessing intellectual

capital.

In order to practise ethical discussion it is useful to no define actors and processes in environment.

Stakeholders are relevant interest groups the company is dealing with and who can justify claims towards

the enterprise. Ethical discussion can be analysed in categories of ethics and 2-sided in relation between

stakeholders. The decision of stakeholders can be done on empirical basis in relation to relevant ethical

considerations. Stakeholders in this study are:

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1. Investors and specially shareholders

2. Employees (blue and white collars & managers)

3. Customers

4. Partners (including subcontractors and value chains)

5. Society (Community, government, international organisations, employee & employer

organisations)

6. Media and publicity (more as an channel for claims but as and essence of visibility).

7. Nature (As an concern among the people and as an essential basement for actions)

On the area of work and business ethics there are some general codes of conduct, however they are

fragmented and interpretations vary. There are social need to start discussions and development

processes to define and implement ethical principles within companies.

The aim of this preliminary study is to model theoretical field, players and main relations in ethical type

of discussion, bring some of these stated values among companies in to the context of theoretical

academic discussion and to analyse the argumentation behind the stated values. The outcome will be a

better understanding of how to approach the issue of companies' ethical behaviour. The first task in this

journey is to give short definition for the basic concepts. After that the focus is on finding the

frameworks to evaluate the company environment and actors. After that we get to the key questions and

arguments related to values and ethical behaviour.

This study first describes the nature of market actors and Ethics as general. After that follows a

discussion of the nature of business ethics and argumentation. At the end are some open questions,

conclusions and summary.

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2 Introduction

2.1 Background

This study is carried out as part of the VIP project1 (IST-2000-25463) in spring 2001. It is related to

Work Package 2 Deliverable 3. The objective of the whole WP2 is to provide a theoretical framework

for corporate ethics and corporate responsibilities, with the aim of enriching the more pragmatic actions

within the VIP project. Deliverable 3 is a descriptive part including the following topics:

- Classification of approaches

- Identification of value systems

- Cultural and business environmental impacts on ethics

- Documented ethical behavior within organizations.

2.2 Research problem

The research problem of this study is to analyze ethical discussion within business-related organizations.

The aim of this study is to define the main actors and ways of ethical thinking in order to understand the

ethical statements within the company and in the environment of enterprises. Another target is to place

ethics among other relevant factors in business practices. Ethics is not a separate element in an annual

report. It is the manner in which people think and act. The paper aims at an ethical analyzing tool which

could help point out and understand some of the basic elements of ethical argumentation.

2.3 Objectives

The main objective of this study is to be a basis for discussion about ethical behavior within

organizations. After reading this paper one should be able to understand the principles of ethical

discussion and to identify some analytical and normative clauses concerning ethics. The study focuses on

documented issues found in the literature and company-related material (web pages, articles, annual

reports, etc.). The main objective is divided into the following sub-objectives:

- Description of the key actors in the market place

- Short definition of ethics and values

- Identification of possible views, key questions and sanctions related to ethical behavior in the

market place

- Describing and classifying ethical argumentation

1 . Full title of the project: Voluntary Industrial Code of Practice for Cross-border Work Arrangements

Proposal/Contract no.: IST-2000-25463

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- Introducing the reader to a discussion about business ethics.

2.4 Scope

This study is a preliminary summary of topics described in the objectives section, and it provides some

background for further discussion and analysis about ethical behavior within business organizations.

This study should also give a person not familiar with the subject some basic tools and concepts to be

able to join the discussion.

2.5 Methodology

This study is carried out as a literature study. The material consists of literature, web pages, articles,

company and annual reports.

2.6 Sources and structure

Chapter 3 introduces the reader to ethical discussion, based on Frankena’s work. In general, European

and Nordic authors are included, especially, as concerns the practical issues presented.

The following chapters describe the models and frameworks that bring corporate decision-makers into

ethical questions. Most of the academic articles used in this part are from American journals. This is

because the available current academic discussion about corporate responsibility and ethical issues is

concentrated very much in North America. We recommend the reader to be critical, when evaluating the

presented findings with regard to their adaptability to European context.

The last part of this study summarizes the argumentation of the previous two chapters and presents the

key findings.

2.7 Definitions

Ethical code: Values and principles that define the ethical intent of the company. [3], P. 176

Code of Practices: Explains and describes the principles and values of a company for employees and decision-makers. [3], P. 176

Codes of Conduct: How do we behave. Provides a list of sanctions. How to act in conflicting situations? These kinds of rules tend to answer acute problems. [3], P. 176

CSP: Corporate Social Performance [11]

CSR sub 1: Corporate Social Responsibility [11]

CSR sub 2: Corporate Social Responsiveness [11]

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Stakeholder: an individual or group that can affect and that are affected by the strategic outcomes achieved and who have enforceable claims on a firm’s performance.

Norms are expressed with normative sentences, according to which acts are placed into categories: should, allowed, not allowed. Accordingly, acts are put into the categories: responsibility, allowed or prohibited. In ethical discussion, the expressions “good” and “bad” are used. These terms are called normative terms.

Values: are expressed by sentences of value, according to which phenomena are classified as positive and negative and sometimes indifferent. It is possible to express greater and minor value. There are several terms of value but the most important ones are "good" and "bad.”

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3 Concepts and Descriptions

Ethics is the most powerful factor in individual and organizational behavior. The essence of

ethics is the idea of good. According to Plato (the Republic), the idea of good is the supreme one

among all ideas. He used the metaphor of sun describing the light, which this idea allows for the

people. Following the goodness by instinct or by rational rules is the last reason for all societal

processes and structures. Plato thinks that the idea of good itself gives and should give the form

in societal life.

If we follow the thinking of George Edward Moore (1873-1968), we can assume that the idea of

good certainly exists, but the recognition of it must be done in the mind or even on the level of

heart and soul - by intuition. This means that it is impossible to define the principle of good by

referring to other phenomena or concepts. Usually, we think that one can only feel it or learn it by

using moral intuition. (Pietarinen & Poutanen; 2000, 28-35.) [22]

In ethical discussion, we can classify and analyze those theories and values which express human

understanding of good. Analytical discussion about the area of ethics is a description of human

thinking and manmade structures, when they deal with the idea of good or morality. Another

debate relates to forming normative ethical rules. This paper takes the side of analysis and

description of possible ethical structures. If we regard the idea of good as real but impossible to

define in its deepest meaning, we can regard ethical discussion as a construction consisting of

thoughts and theories.

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human behaviourhuman behaviour

rules (normative guideline)rules (normative guidelines)

theories and concepts of goodtheories and concepts of good

human understanding aboutgood


good itself / the idea of goodgood itself / the idea of good

Figure 1, Human understanding about good

human behaviourhuman behaviour

rules (normative guideline)rules (normative guidelines)

theories and concepts of goodtheories and concepts of good



good itself / the idea of goodgood itself / the idea of good

other ideas;Nonmoral valuesRightness,Wrongness

Figure 2, Complexity of values

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What is important for the VIP project is to make definitions in the area of ethics and value and

build some robust and practical basis for analysis and normative work. The approach of the paper

is meta-ethical, that is, providing tools for actual ethical considerations and discussions, which

once again might give floor to normative decision-making.

3.1 Moral and non-moral values

One of the key questions in the discussion about ethics and values is: “How to produce (the greatest

possible) good over evil?” The theoretical dilemma related to this human aspiration is how to recognize

and analyze the behavior targeted at good. (Frankena 1973, page 14.)

Ethics is a branch of science which studies morality. Moral structures are empirical, and social

things can be put under examination. Ethics and morality can be regarded as synonyms when we

look for the rules and practices that govern the behavior of individuals and societies. Ethics is

convergent with the term “moral philosophy” when we are dealing with a philosophical inquiry in

a moral-type of phenomenon. (compare; Pietarinen & Poutanen; 2000, 12-14.)

Another principle is relevant in the structure of the theory of value and moral value. The theory of

value is wide and the theory of moral value is a part of it. This is an important distinction, because

in ordinary life this difference is usually not noticed. The values can be characterized as described

in the following table (Table 1).

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Table 1, Good and its senses, Source: Frankena; 1973, 80-82

I Moral values = things that are good on moral grounds

II Non-moral values.

A. Utility values = things that are good because of their usefulness for some purpose.

B. Extrinsic values = things that are good because they are means to achieve what is good.

C. Inherent values = things that are good because the experience of contemplating them is good

or rewarding in itself.

D. Intrinsic values = things that are good in themselves or good because of their own intrinsic

properties.

E. Contributory values = things that are good because they contribute to the intrinsically good life

or are parts of it.

F. Final values = things that are good on the whole.

This distinction between moral and non-moral values brings, hopefully, some understanding of the

analysis of different kinds of moral meanings. This does not mean that non-moral values are of no

value or that they should be excluded from further analysis. The point is that one must make

decisions on what kinds of categories are included in further analysis and what is the relationship

between them. Another issue is the fact that phenomena are usually both positive / good and

negative / bad as such and in consequence. In real life, we must meet and deal with both sides.

Usually, we cannot have the luxury to define things as purely good or not good. (Frankena; 1973,

82.)

Theory of value

Theory of ethics

Theory of value

Theory of ethics

Figure 3, Ethics as a part of values

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To draw attention to a few things, it should be mentioned that things can be good in a moral or non-

moral sense. Here non-morality does not mean that it would be bad or undesirable. Rather, the

difference between moral and non-moral values is that non-moral values often refer to tangibles and

moral values refer to a person’s traits or virtues, etc. “That is a good promise,” would be an example of a

non-moral statement. Moral values refer to ethics. “It is a good thing to keep one’s promise.” (Frankena

1973, page 62)

3.2 Business example

To give an example of a value structure in the business sphere, it is possible to refer to Aaltonen and

Junkkari [3]. According to them, values can be divided into two rough categories. In the first category

are ethical values, which represent an ideal of what we would like to be. The other category is more

practical, related to the acts of everyday life. This model refers to Maslow’s hierarchy of human needs.

The earliest needs are very practical, such as the need for shelter and security. Later in the development,

the needs change into respect and one’s need to express oneself. On the other hand, these values can

also be categorized as those that are created or obeyed because of common sense and those that

represent our own “personal” morality. The values related to common sense are based on formal rules

like law and order. At the other end are values based on feelings and emotion. The result of Aaltonen’s

and Junkkari’s discussion about values is presented in the figure below (Figure 4).

Value mapModified from:Aaltonen, Junkkari, YrityksenArvot & Etiikka,1999, WSOY, pages 81-97

Feelings

Commonsense

PracticalValues

Ethicalvalues

Field of efficency:The Market

Field of principle:The Tower

Field of individualism:The Individual

Field of idealism:The Temple


Feelings

Commonsense

PracticalValues

Ethicalvalues

Field of efficency:The Market





Feelings

Commonsense

PracticalValues

Ethicalvalues

Field of efficiency:The Market




Figure 4, the value map

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The field of efficiency in Figure 4 represents the typical market. The actors are very “hands-on” and

promoted values are based on rules and regulations provided by other actors (i.e. Stakeholders). On the

other hand, a successful company must also be able to innovate, which refers to the temple field in

Figure 4. This is quite opposite of the previous field. The balance between these two fields represents a

critical tension in a company, the need for innovation and the imperative for execution. The company is

at least at some level accountable for its workers and the society that is presented in the individual field

and for the government that is represented in the tower field. This framework provides a basic tool for

evaluating and comparing the different value patterns between the different players. The next task is to

clarify the fundamental rules, practices and questions to identify one’s position within the dimensions

presented in Figure 4.

3.3 Deontological and teleological ethics

Frankena [1] defines ethics as follows: ”Ethics is a branch of philosophy: It is moral philosophy or

philosophical thinking about morality, moral problems, and moral judgements. … Moral philosophy

arises when we pass beyond the stage in which we are directed by traditional rules and even beyond the

stage in which these rules are so internalized that we can be said to be inner-directed, to the stage in

which we think of ourselves in critical and general terms of autonomy and moral agents.” Frankena

divides moral thinking into three categories:

1. Descriptive empirical inquiry with the goal to explain the phenomena of morality.

2. Normative thinking asserting normative guides or debate about what is good or right in a

particular case or as a general principle.

3. Analytical, critical or meta-ethical thinking.

Deontological ethics is a branch that is generally based on duty. The forms of ethics related to

deontological theory of norms see that judgement of a norm is - at least to some extent - independent of

the results achieved when obeying the norm. Principal norms are independent of our non-moral values

that are principles as such2. Accordingly, the deontological theory of moral values is based on the

conception that the value of concepts and motives are independent of outcomes. The moral value of

acts might be evaluated on the basis of intention or virtues. The former can be called ethics based on

duties, the latter ethics of mood. (Ringbom; 1973.) [23]

2 Expression Deontological is related to Creek word "dein" which means "should" in the sense, that we ought to do

something.

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One is to obey these norms and values that tell us what is right and what is wrong. This is the type of

argumentation that Socrates uses when arguing that one has to obey the law, which is in the form of

both essential and visible social structure. The ethics of Kant is deontological ethics, too. He thinks that

we have to treat every sensible being and, especially, humans not as tools but as goals as such. The moral

value of actions is dependent on moral law and not on consequences. [24] 3

The other option to evaluate moral discussion is to look for the outcomes of norms and values, namely

the teleological4 theory. In teleological theory of norms, the judgement of a norm is dependent only on

the results of obeying the norm. This type of an ethical system is called ethics of consequence.

Accordingly, in teleological theories of moral value concepts and motives are estimated by looking at the

manner in which the principles promote the right kinds of acts. (Ringbom; 1973.)

Teleological ethics is utilitarism. Benefit, happiness and avoiding agony as outcomes are estimates of the

moral value of actions. In the ethics of J.S. Mill, utility is seen, for instance, in the form of public good

and education, which is one form of modern social thinking. (Mill, 2000, 16-17, 23-31).5 [25]

It is possible to describe deontological and teleological types of thinking by referring to Kant and J.S.

Mill:

Kant: moral law moral value or act Mill: outcomes

Both are looking for the good and the good life. And the concepts of the good life in practical terms

seem to be somewhat alike. Only the path or the method to achieve the goal of high life is different.

3 It is possible for companies to base their values on this type of argumentation. For example, “We show respect, care and

interest towards each other.” There is also often a hidden message related to how we should act. These norms are obeyed

because they have value as such, not because of the outcome they produce. 4 The term “teleological” is related to the Greek word "telos", which means outcome or goal. 5 Many people think that the ethics in companies is primary of teleological type. Actions among people are based on an

economical or some other benefit. However, the real situation is more complicated.

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In addition, in the meta-ethical theories of norms and values, it is possible to make a distinction between

semantic and logical theories of norms and semantic and logical theories of values. When looking at the

relations of these different kinds of theories one can see that normative theories are usually based on

meta-ethical ideas. When a choice is made between the teleological or deontological normative theory,

the decision is greatly dependent on whether or not we accept the meta-ethical viewpoint that norms on

the average are dependent on our values. Accordingly, the meta-ethical conception that value can be

defined on the basis of factual feature will limit us to use these features as a sign of ethical value. When

looking at the mutual relationships of normative theories, one can see that all teleological theories

presume elements of some normative theory related to value. In order to make the decision on right and

wrong behavior, one must be aware of what kinds of consequences are good and bad. Deontological

theories of norms have not necessarily any relation to different concepts of values. (Ringbom, 1973.)

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Mårten Rinbom categorizes ethical theory and the relations between different theories in general

as follows.

Normativetheory of

norms

Normativetheory of

values

Meta-ethicaltheory of

values

Meta-ethicaltheory of

norms

Deonto-log.

theory

Teleo-log.

theory

theory ofmoralvalue

theory ofvalues inaverage

logicaltheory of

norms

semantical theoryof norms

logicaltheory of

values

semantical theoryof values

pluralisticmonistic Deontolog.Teleolog.

Figure 5, roots of ethical theory, Source: Rinbom 1973.

Normative theory (conception)

B.1. values as such A. Norms B.2 moral values

1. Monistic 1.Teleological 1. Teleological

2. Pluralistic 2. Deontological 2. deontological

Meta-ethical theories(conception)

Figure 6, Relation between normative and meta-ethical theories, Source: Rinbom 1973.

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3.4 Views to ethics

As we can notice, the distinction between deontological and teleological ethics is not the only

dichotomy. In the western system, intent and virtue have an important role. This is especially important

when a judgement is made about one’s act, where the intent usually plays a significant role. Things that

lead to bad consequences but were made with good intent or for the public good can usually be forgiven

much easier than those made with undesirable or selfish intent. Among the teleological theories lies

Utilitarianism. Utilitarianism can be divided into many sub-categories but the most common ones are

listed in the following. Act-Utilitarianism stresses the individual’s act in a particular situation. General

Utilitarianism stresses that what is right for one person is right for anyone. An important question in

general utilitarianism is: “What would happen if everyone were to do so and so?” (This is what is often

asked from children.) Rule-Utilitarianism searches for the rule with the greatest utility for each

situation. (Frankena 1973, pages 34-59)

Logical positivism argued that the moral type of sentences does not describe facts; that is how things

are, but instead how things should be. This puts ethics beyond the border of scientific discussion.

However, explaining ethics irrelevant in linguistic or in respect of some special meaning turns out to be

inadequate for the explanatory theory itself. This approach is not sufficient when moral judgements are

analyzed. (Pietarinen & Poutanen; 2000, 49-52.)

Ethical points of view can be classified as ethical absolutism, where the real morality can be found by

using sense or thinking. In ethical realism, it is assumed that particular moral facts do exist

independently of beliefs, attitudes of agreements targeted at moral norms. Ethical objectivism is a

theory of moral reality, the good to know. Ethical relativism denies assumptions that sense or facts

could point out absolute moral standards. Conflicting moral concepts might be valid. (Pietarinen &

Poutanen; 2000, 99-100.)

3.5 Ethics of environment

Our relations toward the environment are sometimes regarded as a modern point of view. Thinking it

over, our social and economical systems are based on a biological and ecological foundation. The first

Greek philosophers were called natural philosophers because their interest was directed towards the

structure of the world and natural laws (Oksanen & Rauhala-Heyes, 1999, 7.). [26]

Mikael Stenmark [27] points out the need to analyze the relation to the environment from the point of

view of natural and social science and from the point of view of ethics in order to see biological, social

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and economical factors and resources. According to him, everyone has some moral attitudes about right

and wrong, but to call this ethics, there has to exist some systematic and reasoned relation between

values and acts.

Stenmark makes a distinction between environmental ethics (miljöetik) and human-related ethics. The

former he describes by the attitudes people have – not towards each other but – towards the nature:

animals, plants, and the ecosystem. Ethical theory of environment is about whether or not people have

responsibilities in relation to other living creatures, what these duties may be, and what the consequences

of these duties may bring to life. Basically, it is possible to divide ethical views into a human-centered

and not-human-centered theory.

Human-centered theory of sustainable development is based on the principles shown in Table 2.

Table 2, Principles of sustainable development according to human-centered theory, Source

Elements of human-centered

ethics of environment

Explanation

Privileged position of humans – human need is the preference

Inter-generational justice – not only the preferences of the humans living at the moment,

but the rights of humans to be born must be respected

Intra-generational justice - fair share of resources within every generation, that is, between

the poor and the rich

Nature seen as a resource - nature is a resource that can be used as long as we do not

jeopardize the limits of the ecosystem or violate the rights of

other persons

Anthropocentrism - only a human is considered valuable as such, and nature carries

only instrumental value

In relation to renewable resources, it is possible to generate a weak or strong principle of justice.

According to the former, we have to offer the future generations an opportunity to meet their basic

needs. According to the latter, we have to ensure the same standard of living that we enjoy today.

The critique presented among non-human-centered theories about the ethics of environment concerning

the theory of sustainable development is that the latter sees nature as a resource for humans and for the

satisfaction of human needs. Instead of this view, one can argue that nature carries value as such. It can

be valuable to save nature, not for the sake of humans but for its own sake. The non-human theory

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argues that humans must learn to respect nature and structurally change the relation to nature. In the

branches of this theory, the biocentristic view argues that all life has an independent value. The

ecocentristic theory underlines that not only every living creature but also soil, air and ecosystem have

an independent value.

The practical definition of good and wrong among ecocentrists lies in what is good for the wellbeing in

societies of living organisms. The position of a human and the priority of different forms of living

organisms varies among the biocentristic theory and leads to varying estimations about rules: "not to

harm others" and "not to interfere." In the ecocentristic theory, a human has no different value from

other living beings. The terms related to ecosystems and good and bad are connected to: "principle to

protect, not to use and restore.”

Table 3, Branches of environmental ethics

Type of theory Goal in relation to nature Human-centered To use natural resources effectively and in the long term so

that this is possible for the generations to come, too. Biocentristic To ensure that humans in the way they use nature do not

violate other living things and their right to exist and flourish. Ecocentristic To ensure that humans in the way they use nature do not

violate the integrity of societies of living creatures (or integrity of individuals in these societies) nor pose a threat to their stability.

When we put environmental ethics into deontological and teleological context, it is possible to say that,

in the relation between human and nature, human-centered theories are more on the teleological side,

because they emphasize nature as a tool for human wellbeing. The ecocentristic theory lies more on the

deontological side, stressing the utmost value of existing ecological systems. Biocentristic theories are

more modest, but mainly on the deongological side, when emphasizing the central value of species and

creatures.

3.6 Synthesis

An essential and explicit way to study ethics is to analyze the principal elements of the practices related

to ethical thinking and behavior. Frankena has made a classification of ethical theories based on acts and

values. In order to deal with a simple and relevant concept of ethics, we have chosen the model of

Frankena. The different value systems and the argumentation behind them can be characterized by using

the framework provided in

Figure 7.

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ActsActs

ValuesValues

DeontologicalTheories

Some things are goodas such

DeontologicalTheories

Some things are goodas such

IDeontological theories

based on acts

IDeontological theories

based on acts

TeleologicalTheories

Some things producegood outcomes

TeleologicalTheories

Some things producegood outcomes

Classification of ethical theory , based on Frankena’sdiscussionin Ethics, 2nd ed., 1973, Prentice Hall

IIDeontological theories

based on values

IIDeontological theories

based on values

IIITeleological theories

based on acts

IIITeleological theories

based on acts

IVTeleological theories

based on values

IVTeleological theories

based on values

Figure 7, Classification of ethical theory

I Deontological theories based on acts:

There are acts that are good as such

II Deontological theories based on values:

There are values that are good as such

III Teleological theories based on acts:

There are acts which produce good outcomes

IV Teleological theories based on values:

There are values which produce good outcomes

21


4 Describing the company’s environment

This chapter discusses the general environment of a company. It starts with a definition of the external

environment. After that, the stakeholder theory is introduced, which provides the tool for analyzing the

different interest groups of a company. At the end, there is a discussion about cultural aspects.

4.1 The external environment of a company

The environment of a company can be divided into the general environment, the industry environment,

and the competitor environment [13]. The general environment consists of six segments called the

economic, the sosiocultural, the global, the technological, the political/legal and the demographic

segment. The general environment is composed of elements in the broader society that can influence an

industry and the firms within it. Typically, firms cannot directly control these elements. The industry

environment includes Porter’s classical four dimensions [14], which are the threat of new entrants,

bargain power of suppliers and buyers, product substitutes, and the intensity of the rivalry in the market

place. These factors influence a company directly.

The External Environment

Threat of new entrants

Power of suppliers

Power of buyers

Product substitutes

Intensity of rivalry

Threat of new entrants

Power of suppliers

Power of buyers

Product substitutes

Intensity of rivalry

IndustryEnvironment

CompetitorEnvironment

EconimicEconimic

DemographicDemographicSocioculturalSociocultural

GlobalGlobal

TechnologicalTechnological

Political/LegalPolitical/Legal

Figure 8, The External Environment

22


To take a closer look at a company’s decision-making, we must develop a model to characterize the

decision-making dimensions. One of the most accepted and most used models is the stakeholder model,

which will be introduced next.

4.2 Background for the stakeholder theory

Because one of the objectives of the VIP project is to provide normative guidelines for companies, the

strategic approach cannot be omitted. Strategic planning in a company can have a strong impact on the

whole market environment and, even further, on the surrounding society. A company cannot effectively

deal with the entire society, since it is a too big and fuzzy concept. Instead, the society can be regarded as

units which have interests concerning the company. These units are the stakeholders, which create a

basis for strategic planning in most companies. Even if the term stakeholder is not always used, the

companies tend to manage the relations between different groups that can be defined as stakeholder

groups [11].

Donaldson and Preston [15] argue that the stakeholder model can serve as a framework for testing any

empirical claims. They argue that the stakeholder theory has descriptive, instrumental and normative

aspects (see Figure 9). Briefly summarized, descriptive, instrumental and normative points of view

address the questions: what happens, what happens if, and what should happen?, respectively [18]. The

descriptive dimension means that the stakeholder model helps the company to identify the different

interest groups it has. The instrumental dimension means that the model can be used to evaluate and

identify, for example, different scenarios in decision-making. In the core of this model are the normative

assumptions that the company has towards its interest groups. The descriptive aspect is quite obvious,

but the two other aspects go beyond that. This means that the stakeholder theory has more to say than

that an organization has multiple interest groups. The instrumental dimension means that it establishes

the connections between the practice of stakeholder management and the achievement of various

corporate performance goals.

23


Source: Donaldson, Thomas; Preston, Lee EThe stakeholder theory of the corporation: Conceptsevidence, Academy of Management.The Academy of Management Review, Jan 1995

Normative

Instrumental

Descriptive

Three Aspects of Stakeholder Theory

Figure 9, The Three Aspects of Stakeholder Theory

The stakeholder theory was originally developed in projects which tried to build a model for estimating

corporate social performance. Clarkson [11] suggests that the corporate social performance can be

analyzed and evaluated more effectively by using a stakeholder approach than by using models and

methodologies based on concepts concerning corporate social responsibilities and responsiveness.

Clarkson also mentions that managers tend not to act in terms of social responsiveness, social

responsibility or social issues and performance. They rather concentrate on managing their environments

through groups of stakeholders. One of the earliest books published about the stakeholder theory is

Freeman’s Strategic Management: A Stakeholder Approach, 1984. Since then the theory has been

developed by a myriad of authors, and it has been widely accepted as a basic tool for identifying the

playing field of a company. It has also become a standard way of providing an introduction to strategic

management.

Distinguishing between social and stakeholder issues seems to be a necessity. Clarkson gives the

following framework for distinguishing between social and stakeholder issues [11].

(1) A particular society determines what is a social issue by introducing legislation or regulation.

(2) When there is no legislation or regulation, an issue may be a stakeholder issue, but it is not

necessarily a social issue. The test whether an issue is / has become a social issue is the presence

or absence of legislation or regulation.

24


One of Clarkson’s conclusions is that the analysis of stakeholders must be made on institutional,

organizational and individual level.

The stakeholder concept helps to identify the different interest groups which managers take into account

in their long and short-term management. The stakeholder theory is and can be related to the value

theory, which is especially in the interests of the VIP project, or it can be as well used as a basis for

normative judgements concerning the different interest groups that the companies must deal with.

The stakeholder theory has been mostly studied in the US as a response to the claim that a company

exists only because of the shareholders. The European situation is a bit different as there the other

stakeholders have been recognized far earlier. Likewise, the European legislation supports other

stakeholder involvement in a company’s decision-making. Such law is, for example, the Companies Act

of Britain, which mandates the directors to include the employee’s interests in decision-making

(Companies Act 1980) and the “harmonization” laws of the EU (Orts, 1992). In Germany and Northern

Europe, employees and some other interests groups often have a representative on the board. Japanese

companies have tightly connected and interrelated set of stakeholders.

Most of the authors of stakeholder literature agree that the role of a firm is to act as a nexus of contracts,

as can be seen in Figure 10.

4.3 Stakeholders defined

Rather than dealing with a moral or legal responsibility of the whole society, a company tends to deal

with different stakeholders6. Stakeholders are the individuals and groups who can affect and are affected

by the strategic outcomes achieved and who have enforceable claims on a firm’s performance.

Stakeholders with similar interests, claims, or rights can be classified as belonging to the same group:

employees, shareholders, customers, and so on [11]. Stakeholders continue to support an organization

when its performance meets or exceeds their expectations [12].

As we can see from the discussion below, there is no clear definition of the exact groups. This provides

flexibility to adapt the model to different situations. Two basic ways of dividing stakeholder groups at

6 "Stakeholders are persons or groups that have, on claim, ownership, rights, or interests in a corporation and its activities,

past, present, or future. Such claimed rights or interests are the result of transactions with, or actions taken by, the

corporation, and may be legal or moral, individual or collective..." (Clarkson 1995.)

25


high level are presented. Donaldson and Preston argue that the “stake” that these stakeholder groups

have can be seen as a moral interest in the affairs of a corporation [15]. In his article Clarkson [11]

divides the shareholders into two groups. These are the primary stakeholders and the secondary

stakeholders. Both groups are discussed below.

FIRMFIRM

InvestorsInvestorsGovernmentsGovernmentsPoliticalGroupsPoliticalGroups

SuppliersSuppliers CustomersCustomers

CommunitiesCommunitiesTradeAssociations

TradeAssociations EmployeesEmployees

Source: Donaldson, Thomas; Preston, Lee EThe stakeholder theory of the corporation: Conceptsevidence, Academy of Management.The Academy of Management Review, Jan 1995

The Stakeholder Model

Figure 10, The Stakeholder Model by Donaldson and Preston, 1995

Primary stakeholders are typically comprised of shareholders and investors, employees, customers and

suppliers, which as a group are defined as the public stakeholder group. The governments and

communities provide infrastructures and markets whose laws and regulations must be obeyed and to

whom taxes and other obligations may be due. There is a high interdependence between a company and

its primary stakeholders. If any primary stakeholder group becomes dissatisfied and withdraws from the

corporate system, in whole or part, the corporation will be seriously damaged or unable to continue as a

functioning corporation. From this perspective, the corporation can be seen as a system of complex

relationships between different stakeholders with different rights, objectives, expectations, and

responsibilities. [11]

Secondary stakeholders are defined as those who influence or are affected by the corporation, but are

not in direct transactional relation with the company and are not essential to the corporation’s survival.

26


The media and a wide range of special interest groups are considered secondary stakeholders according

to this definition. [11]

Donaldson and Lorsch divide the stakeholders into three categories. These include the capital market

stakeholders, the product market stakeholders, and the organizational stakeholders. Also Hitt, Ireland

and Hoskisson [12] use this approach in their book which is an introduction to business strategy and

strategic management. This view will be discussed next.

Capital market stakeholders include the shareholders and major suppliers of capital. Both of these

expect the corporation to maximize the value of the capital that they have invested in the corporation. If

lenders become dissatisfied, they can impose stricter covenants on subsequent capital borrowing.

Shareholders can express their worries in different ways, for example, by selling their stock. In most

American corporations, the shareholders are regarded as the most important group of stakeholders or, at

least, as the second most important group after the customers. Shareholders, according to the primary

stakeholder group thinking, have been strongly challenged in the 80’s and 90’s. This challenge has mainly

originated in organizational sciences, but also in business strategy and financing. For example, the

financing theory still aims to maximize the net present value of the company. However, this must be

carried out on a long-term basis. The maximization of net present value is not necessarily assumed to

benefit all stakeholders.

Product market stakeholders include customers, suppliers, host communities, and unions representing

the workers’ interests. In most corporations, the customers are seen as the primary stakeholder group.

The problem is that all customers are not equally profitable for the company. Another problem is the

service level that maximizes the customer value and the service level that maximizes the company value.

Organizational stakeholders include employees, non-managerial and managerial. They expect the

company to provide a good and secure place to work. These groups are usually satisfied if they work for

a company that is growing and developing their skills, especially the skills required for being an effective

team members and meeting or exceeding the global working standards. Should the company promote a

fast growth strategy or should it be more conservative? Fast growth might offer new opportunities for

employees, but conservative strategy might provide more secure jobs at least from the employees’ point

of view.

27


per form ance per form ance per form ance per form ance

Capital market stakeholders • Shareholders• Major suppliers of capital

Product market stakeholders• Primary customers• Suppliers • Host communities• Unions

Organizational stakeholders•Employee•Managers•Non-managers

Stakeholders: People who are affected by a firm`s peerformance and who have claims on its performance

Source: Hitt, Ireland and Hoskisson,Strategic Management: Competitiveness and Globalization : Concepts, 4th edition, page 28

Figure 11, One possible way to classify the stakeholders

Donaldson and Preston [15] argue that each stakeholder group merits consideration for its own sake and

not merely because of its ability to further the interests of some other group, such as the shareowners.

They continue with the argument that the stakeholder theory does not imply that all stakeholders

(however they may be identified) should be equally involved in all processes and decisions.

The first of the above arguments is supported in the later work of Evan and Freeman (1988). They have

justified the stakeholder theory on normative grounds, specifically its power to satisfy the moral rights of

individuals. They assert that the theory of the firm must be re-conceptualized “along essentially Kantian

lines.” This means that each stakeholder group has a right to be treated as an end to itself, and not as a

means to some other end “and therefore must participate in determining the future direction of the firm

in which it has a stake” [15].

Preston and Sapienza [17] claim that stakeholder management does not necessarily need to be a zero

sum game. This means that the interests of one stakeholder need not be at the expense of the other.

Kotter and Heskett [16], who have studied a small number of high-performing companies, also support

this argument. Their finding was that these companies tend to emphasize the interests of all stakeholders

in their decision-making. However, there seems to be no evidence that the stakeholder management is

the best way of maximizing a firm’s conventional financial and market performance [15].

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To sum up the above, we can say that the stakeholders of any company include at least its customers,

employees, financiers and owners, partners and vendors, competitors, and the host communities. All

these groups have their own expectations of the company. A fundamental and difficult question for the

company is “to whom are we going to be most loyal.” This is not an easy question to answer, since some

of the interests of the groups in question can obviously be quite different. Nevertheless, identification of

values can make answering much easier. The stakeholders of a company will be discussed in more detail

in the following chapters. The main types of relations between these players, i.e. market, legal and

agreement, are discussed in chapter 4.4. Some key questions for further and more ethical discussion are

given in chapter 4.5.

The number of stakeholders is not perfectly clear. In some cases it makes sense to add categories under

those mentioned above. In some cases there might be more of these basic categories and sometimes less

– as, for example, the society can be seen as containing them all. A customer may be not only a customer

but also a partner or an owner. The multiple roles of the shareholders make it sometimes quite difficult

to define the groups. The most important thing here is to identify the most important ones to give a

basis for further discussion.

The question about profit sharing is also difficult. Should the employees and the top management get

equal benefits from increased profitability? Should the value be delivered to customers or to

shareholders or somewhere else? Certainly, the market mechanism plays a significant role in these kinds

of issues, but the stakeholders still have the possibility to influence. They are the markets even if an

individual usually has only a marginal possibility to influence.

4.3.1 Customers

Customers are often considered the most important group of stakeholders. This is because they create

the demand for the products and should, therefore, be the focus of all the activities within the company.

The main function when dealing with the customer is marketing, which is sometimes considered as the

most important function of a company. Market intelligence tries to give a good picture of what is going

on in the markets, but the company often wants to influence the development of the market as well.

The changing customer needs are the driver for development; thus, the market development forces a

company to develop its internal capabilities and control structure. The control structure influences what

kinds of competencies are built. These competencies have an impact on the market. This means that

29


only by long-term development a company can have an impact on the markets. This, of course, depends

on the stage of the markets and the emergence of new technologies.

One of the key questions in marketing strategy is the segmentation of the customers. Then, there are

questions like price discrimination, which is usually discouraged by governments but sometimes seen as a

good thing (for example, price reductions for children, students, etc.). The related questions are the

different subsidies paid by the government.

Sometimes the sphere of customers is limited, sometimes almost the whole population can be regarded

as (potential) customers. Therefore, the definition of customers may be near the definition of "the great

audience." Customers and the general public formulate ethical demands for the company, but enterprises

and branches of industry will address ethical demands directed towards them, too. For instance, respect

for intellectual property right and illegal copying of software products are the most important issues, and

the form of ethics people adopt influences their behavior in this respect.

For example, the latest Finnish enquiry related to ethical views and expectations among the population shows that

57% regards as very important and 38% as somewhat important that companies in Finland construct ethical

rules to be obeyed and controlled. 69% of the population think that ethical drawbacks exist in entrepreneurship

and commerce and only 10% are of the opposite view. The Finnish people seem to think that (at least the first two

?) the main defects lie outside the country and in connection with other cultures and political areas, because the

main problems are regarded as the use of child labor, violating human rights, polluting and spoiling the

environment, and women rights in the developing countries. The customers as consumers notify that they are very

sensitive of the conditions where the product is produced and think that the importance of ethical elements will rise

among them in the future. They prefer the companies to emphasize ethical principles in marketing, avoid child

labor, and they are prepared to pay more for products produced in an ethical manner. They will also reject

unethical products and see that the main problem is lack of ethical information. On the other hand, they express

low personal activity in searching information and announce concern about ethics but let us know that they seldom

act themselves. [28]

The questions that companies must answer with regard to their customers include: what customers to

serve; every customer is not profitable, but is it profitable to leave some customers outside the service?

4.3.2 Employees

Employees offer their knowledge to and work for the company. This capacity is an increasingly scarce

asset, especially, within the IT industry. Traditionally, from the employee’s point of view, the company’s

30


ultimate goal is to provide a fair salary and often the possibility to develop one’s own skills. In practical

terms, relations are amazingly complicated, including law, agreement, labor relations, social, medical,

management, sub cultural, etc. In addition, the forms and rationale of organizing work and business is

developing and dispersing. Historical roles based on formal rules are losing their importance and

working in value-added chains and value-added networks, the knowledge-based nature of work, data,

communication and social technology are reforming both the concept of the company and the identity

and functions of an employee. The forms of values, responsibility, commitment, share of value

produced, and final goals are in the process of development. To understand and deal with ethics-related

elements of this complexity is a challenge. Because the answer needed may be company-based and based

on the resources allocated, the approach methods are important. One example of personnel policy lies in

the "Steissi Work & and Wellbeing program."

Steissi Work & Wellbeing Program

The aim of the program is:

1. Motivation at work, which supports creativity and innovation among the personnel

- Meaningfulness of work, which supports creativity and innovation

- Employees with good motivation develop themselves and their work

- Positive atmosphere

- Wellbeing

2. Quality

- Happiness and health among the employees

- Innovative atmosphere and environment where communication is easy

- Flexible cooperation between units and groups

3. Efficiency (outcomes / costs)

- Prioritizing the tasks

- Full-capacity work

- Resources and work are compatible with one another

Means:

31


Development of work organization

Examining physical and mental health

Meeting places

Medical health and occupational safety & health

Information services related to health and working environment

Clinic for mental resources

Values & ethics

If the Steissi model is examined from the point of view of values, the policy enhances economical benefit and social

relations by improving the preconditions for work and individual & social wellbeing. The policy underlines a

human type of approach in the area of business strategy. From the ethical point of view, one can say that in the

Steissi model there is an ambition of treating people in the same manner, which enhances the general ethical type of

goals: happiness & meaningfulness. This may lead to economical gains, but a humanistic type of approach is a

goal in itself, too.

From the practical point of view, one can notice that an ethical kind of personnel policy and the theory of general

value within the company are not contradictory but elements to be put together. One must notice that between them

there might arise conflicts which lead to a more complicated contextual analysis in relation to ethical and

economical rationality. (For instance, periods of time, sharing of benefits, the essence of economical / ethical gain

and relations & expectations between employer / employees.) Human will and work are the most central elements

in any final output. The environment and the principles according to which activity takes place are important, too,

and dependent on ourselves.

What is the Human Resources Management's attitude towards the employees or different employee

groups? Are the employees seen as type X or Y?

4.3.3 Shareholders/Financiers

From a financier’s point of view, the ultimate goal of the company is to maximize the net present value

of its owner’s property in the long run. This does not mean that the managers should just stare at the

bottom line. Instead, it is the imperative that drives efficiency. This imperative is discussed a lot in

management of profitability literature. A good example is presented in references [10]. Recent

development in the IT sector has created a lot of tension between the employees and the owners. The

32


trend in the market seems to be that even in capital-intensive sectors, employees can be sacrificed to get

the financiers trust the company. When the stock value dives, downsizing seems to be an efficient way to

calm down the investors. Rapidly changing stock value is a problem for all stakeholders. This is, to a

great extent, caused by the market noise. Speculators sometimes amplify the noise, which creates even

more unexpected situations.

The questions that a company must answer concerning its shareholders include: is the bottom line

always the most important, should owning be active or passive. [3]

The investors have three choices as regards a company’s ethical positioning. They can either ignore

ethical behavior, not invest in ethically susceptible business, or actively promote ethical business.

According to Koskinen [2], the seven signs of an ethical investment are human rights, environmental

policy, honesty, responsibility, HR policy, social accountability, and the business idea.

4.3.4 Vendors/Partners

Vendors and partners together with the company provide the product for the customer. The relation

between the company and its vendors and partners can vary from fierce competition to long-term

cooperation, depending on the market approach.

A key question is how to select the vendors and what kind of relation to develop. The recent trend has

been the creation of value networks that work for mutual benefit towards a common goal with selected

partners. In these kinds of relations, ethical rules create the basis for building the networks, legal

arrangements usually are too expensive and inefficient. Long-term relations guarantee that the parties

concerned learn to know each other. They also prevent the possibility of opportunistic behavior.

The key questions are:

- How to share the benefits?

- How to build long-lasting relationships?

- What happens in less prosperous times?

Vendors can be seen as a source of innovation and a means to make production more efficient. It seems

that even if there are no perfect markets in economical sense, the advantages of specialization can be

utilized within company networks that lower the transaction cost by promoting trust and lasting

relationships.

33


Other questions a company must answer regarding its vendors and partners include: how to

reward/punish vendors and partners, what kinds of relations to promote?

4.3.5 Competitors

Competitors are often seen as the others who share the cake. They can also be seen as co-players that

create the market. This depends very much on the industry and the marginal differences between the

competitors. In the modern IT sector, competition is building up more between networks of companies

than between individual companies. Even if the early economists suggest that less competing units cause

less competition and do not benefit the customer, the opposite seems to be true. Competition and

product development in the IT sector is fierce. Benefits of collaboration are quickly transferred to

customers, because sustainable competitive advantages are extremely hard to attain. The emergence of

competition can also be seen as a good thing from the company’s point of view. It ensures customer

interest and the availability of complementary products. It also drives the development of new

technologies, which often open new opportunities and new markets. Competitors can be seen as a driver

for innovation and development. [4], [5]

A key question for a company is its attitude towards its competitors. They can be seen as rivals fighting

in the same markets and reducing the company’s market share or profitability. Alternatively, they can be

seen as market creators which help to build market awareness and speed up the development.

Our view to competition and the structure of markets is based mainly on Adam Smith’s theory of

perfect markets. Generally, the existence of competition is seen as a good thing, leading to the optimal

situation for the seller and the buyer. The existence of competition can also be seen as a good thing from

the marketing point of view, because it creates customer awareness. Governments and some other

institutions are to promote good marketing conditions. No company is allowed to gain dominance or

use its competitive position in a way that would create barriers for competition. How to deal with

competitors is an important question for a company. Should one compete with its excellence or

concentrate on the competitor’s weak points? Technical advantages are rarely sustainable. One way to

differentiate oneself from competitors is to recognize one’s own values.

4.3.6 Host communities / the society

Society is a large concept. Therefore, American literature uses the word host community instead, since it

is a narrower concept. The society can be regarded to represent all the stakeholders presented above. It

also includes the government, which has strong claims for the players in the markets. Society can be seen

as a stabilizing force. It provides the basic structure for doing business. Almost all shareholders have

34


some duties with regard to the society. The basic duty is taxes. Often the goal of the most proactive

companies is to make the surrounding environment the winning one. This is usually achieved by

distributing the benefits to all the members in the production chain. It is in the company’s interests that

the partners, vendors and customers do good and profitable business. Then, also the investors and

employees must benefit.

An interesting question is what a company’s responsibility is towards the society. Many authors (for

example [2],[3]) who discuss corporate ethics divide companies into three categories based on their

attitude towards the society. The first category includes companies that do not fulfil or try to avoid their

basic responsibilities set by the local government, such as paying the taxes, employee health care, etc.

These “basic responsibilities” vary a lot depending on the region – even within a market or an industry.

The second category includes companies that do just what is necessary to avoid any trials or other

negative impacts, such as boycotts by consumer organizations, etc. The third category incluces

companies that fulfil their responsibilities and contribute to the society. This can be seen as building the

society. A difficult question to answer is whether a company should have a uniform policy covering all

the regions where it operates. A European company operating in China has obviously less governmental

or societal obligations in Asian markets than in European markets. This can be seen as a competitive

advantage or disadvantage, depending on the point of view.

Regarding the level of goal and application, one can take a relative attitude and notice that the

highest possible theoretical standard may be the aim, but applications are usually somewhat less

demanding.

35


Standards of behavior and core values

Levels of behavior Core values present in every society

Theoretical - highest potential for good

Practical - extreme diligence toward moral

behavior

Currently attainable - basically moral; not

only the letter of law, good faith, common

sense

Basic standard - adherence only to the

letter of law, minimally acceptable behavior

Integrity - sound moral principle,

characteristics of honesty, sincerity and

candor

Justice - impartiality, sound reason,

correctness, conscientiousness, good faith

Competence - capable, reliable, duly

qualified

Utility - being useful, providing the greatest

good for the greatest number.

(See; Payne & Raiborn, 1997.)

Watrick and Cocharn (1985), following Carroll (1979), used the terms reactive, defensive,

accommodative and proactive to describe corporate strategy or posture towards social responsiveness.

This strategy can also be seen as characterizing a company’s stakeholder strategy. These four different

approaches are described briefly below:

(1) Fight all the way – Reactive

(2) Do only what is required (By whom?) – Defensive

(3) Be progressive – Accommodative

(4) Lead the industry - Proactive

An example of the existing certificates about social responsibility is SA8000 [6] (Social Accountability). It

includes the following areas:

1. Child labor

2. Forced labor

3. Health and safety

4. Compensation

5. Working hours

6. Discrimination

7. Discipline

36


8. Free association and collective bargaining

9. Management systems

Companies that have achieved this certificate include, for instance, Mark’s & Spencer and The Body

Shop.

4.4 Relationships

4.4.1 General considerations

Interactions between ownership mode and approach to the relationshipSource: J Carlos Jarillo, Strategic Networks, 1993,

© Butterworth-Heinemann, page 131

Vertically integrated company Bureaucracy

Strategic network Market

Common ownership

No common ownership

Cooperative approach Non-cooperative approach

Figure 12, Relationship types in ownership and market approach dimensions

Figure 12 above describes four possible environments for any company. These can be seen as the basic

alternatives when deciding how to organize the business. Market relation is the easiest and the most

common, but it has its limitations. Bureaucracy often takes place in a state where proceedings may

become more important that the outcomes. Efficiency is not in the interests of bureaucracy. A bit more

efficient than bureaucracy is vertical integration. It makes control easier, but often lacks efficiency. As it

requires more capital, the risk for one company grows. Building strategic networks in flexible long-term

intent reduces the inefficiencies of market relation and the risk of vertical integration. However, these

kinds of relations are hard to build and maintain, as they require a lot of trust. One’s personal contact

network might be seen as an example of this kind of a network.

37


The next chapters list some possible relationship types, not necessarily according to the discussion

above.

4.4.2 Market relation

Market relation is often the easiest and the most flexible one, but not necessarily the most efficient. As

the perfect market - described by the early economists - rarely exists, there is a lot of inefficiency in the

allocation mechanisms. This is because of transaction costs due to lack of trust. Market relation does not

require much cooperation and trust. In general, the parties try to benefit from each other. Only a

marginal additional value is added. Market relations are typically a zero sum game. This is about getting

the biggest piece of the cake.

4.4.3 Agreement

An agreement is the most beneficial. It requires mutual understanding and trust. The benefits are

achieved through collaboration and mutual trust. These kinds of relations usually lead to network

behavior, which has been studied in more detail by Jarillo and Gomes-Casseres (see references [4] and

[5]). This is about getting a fair share of the biggest cake. Agreements are typically not a zero sum game.

4.4.4 Legal

Legal relations are often the most inflexible ones. They are often the last chance if market relation or an

agreement fails. Legal relation often exists between a government and a company. In this kind of

relation, the parties do just what is necessary, but no more.

As mentioned earlier, the stakeholders of a company are the ones who have a great impact on the rules

the company must take into account. Governments still set and control legislation and many of the other

main rules. However, companies are strongly trying to shape their environment to change the rules into

what fits their strategy. Playing by someone else’s rules is a clear disadvantage.

4.5 Questions

There are still some relevant questions to answer, which cannot be classified as a certain stakeholder

group. These are typically related to companies' processes and include the following:

• Should high quality be promoted or is low price more important?

• Is price discrimination favorable?

• How should the value be allocated in the value chain?

• What is the role of innovation? There is often a choice to be made between high innovation

(long-lasting patents) and fast market development (short patents).

38


• Does a company have a consistent set of values throughout the organization, and can an

individual employee accept them?

• What are good marketing practices? There are a lot of professional codes about ethical

marketing, but have they been adopted?

• Responsibility cannot be delegated. From an ethical point of view, letting things happen can be

regarded as having an influence on how things happen. What is a company’s responsibility for

what is happening in the markets or in the society?

4.6 Virtues

Plato and other Greeks thought that there were four cardinal virtues: wisdom, courage, temperance, and

justice. Christianity has seven cardinal virtues. The three “theological” virtues are faith, hope, and love.

The four “human” virtues are prudence, fortitude, temperance, and justice. Frankena [1] argues that all

the usual virtues, at least insofar as they are moral virtues, can be derived from benevolence and justice.

They can be seen as having to be fair and goodwilling towards other people.

The virtue that is stressed by the researchers of modern competition [4], [5] is temperance. Competition

no more divides the cake. Now the new players have to make the cake bigger in order to have a share of

it. As Gomes-Casseres says, ”It is not anymore about getting the biggest share of the cake, but getting a

fair share of the biggest cake.”

4.7 Cultural Aspects

4.7.1 Background

Schein defines culture as the shared basic assumptions and beliefs that operate unconsciously. Culture

can be identified on different levels, as can be seen, for example, in the work of Hofstede. His definition

of the culture at macro level is: “the collective mental programming of the mind which distinguishes the

members of one human group from another.”

Hofstede [8], [9] has conducted a research about values in 50 countries. He defines the differences

between the countries by four dimensions. These are power distance, uncertainty avoidance,

individualism/collectivism and masculinity/femininity.

Power distance is the extent to which the less powerful individuals in a society accept inequality in

power and consider it normal. In some cultures it is possible to tolerate a larger distance, for example,

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between the management and the workers than in others. For example, the action of a subordinate who

followed the unethical instructions of a superior would be more likely to be considered ethical in a high-

power-distance society than in a low-power-distance culture.

Uncertainty avoidance is defined as the extent to which individuals within a culture are made nervous

by situations that are unstructured, unclear, or unpredictable, and the extent to which these individuals

attempt to avoid such situations by adopting strict codes of behavior and a belief in absolute truth.

Cultures with strong uncertainty avoidance are active, aggressive, emotional, security seeking, and

intolerant. On the other hand, cultures with weak uncertainty avoidance are contemplative, less

aggressive, unemotional, accepting personal risk, and relatively tolerant. Uncertainty avoidance has three

indicators. These are rule orientation, employment stability, and stress. As an example, members of a

strong-uncertainty-avoidance culture might be less likely to question or take action against unethical

work practices, because of strong rule-orientation.

Individualism describes the relation between an individual and the group. Hofstede defines

individualist cultures as being those societies where individuals are primarily concerned with their own

interests and the interests of their immediate family. Collectivist cultures, in contrast, assume that

individuals belong to one or more "in-groups" (e.g., extended family, clan, or other organization) from

which they cannot detach themselves. The "in-group" protects the interest of its members, and. in turn.

expects their permanent loyalty. [19] This raises the question of the common good.

Masculinity describes a culture’s valuation of traditional masculine values. Such are efficiency, hard

competition, material success, and respect for whatever is big, strong and fast. Feminine cultures tend

to have overlapping social roles for both sexes with neither men nor women needing to be overly

ambitious or competitive. Masculine cultures tend to value material, while feminine cultures tend to

value qualities as such and interpersonal relations and concern for the weak.

4.7.2 Some cultural dimensions of corporate ethics

If societies vary with regard to the cultural dimensions presented in the previous chapter, so does the

ethical decision-making.[19] Vitell, Nwachukwu, Barnes and James propose the following framework for

the conceptualization of the impact of culture on the deontological and teleological evaluation of

business practitioners.

Individualism/collectivism

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Business practitioners in countries that are high on individualism are less likely to take into consideration

informal or formal industry and organizational norms when following their own deontological norms

than business practitioners in countries that have high collectivism. The evidence suggests that business

codes are often developed but hardly implemented in the US.

Business practitioners in countries that are high on individualism are likely to consider themselves more

important stakeholders than the owners/stockholders. Business practitioners in countries that are high

on collectivism are likely to consider themselves less important stakeholders than the

owners/stockholders. This argument is supported by the fact that personal desire for wealth has been

found to be positively related to unethical behavior.

Power-distance dimension

Research findings [20] that suggest that in countries with small power distance individuals are more

influenced in decision-making by their peers than by their superiors. However, in countries with large

power distance, managers are expected to act autocratically without consulting subordinates. This

suggests that greater importance is given to the cues of superiors and more formal practices in countries

with large power distance.

Business practitioners in countries with small power distance are likely to take ethical cues from their

fellow employees, but business practitioners in countries with large power distance tend to take their

ethical cues from the superiors.

On the other hand, business practitioners in countries with small power distance are likely to regard

informal, professional industry and organizational norms as more important than formal codes of ethics

when forming their deontological norms, contrary to the business practitioners in countries with large

power distance.

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Uncertainty-avoidance dimension

The uncertainty-avoidance dimension is related to the capability to tolerate deviations in organizational

norms. The two extremes could be seen as the Japanese type Z organization, in which an individual

naturally seeks for the common good and the American hierarchical organization.

Business practitioners in countries with high uncertainty avoidance will be more likely to consider

formal, professional industry and organizational codes of ethics when forming their own deontological

norms than business practitioners in countries that are low in uncertainty avoidance.

Uncertainty avoidance also raises the question of who is considered the most important stakeholder –

the individual or someone else. In countries with high uncertainty avoidance, business practitioners are

likely to consider the stockholders and employees more important stakeholders than themselves, which

is opposite to the countries with low uncertainty avoidance.

Uncertainty avoidance would also have an effect on such ethical problems as “questionable actions.”

Masculinity/Femininity

Masculinity or femininity has an impact on whether some ethical issues are perceived as problems. This

suggests that business practitioners in countries that are high in masculinity are less likely to perceive

ethical problems than business practitioners in countries with high femininity. Likewise, business

practitioners in countries that are high in masculinity are less likely to be influenced by professional,

industry and organizational codes than business practitioners in countries which are high in femininity.

To conclude the proposition presented in this chapter, it seems that the teleological argumentation leads

more to the evaluation of the stakeholders. Deontological argumentation seems to lead more to the

evaluation of the current norms and previous experiences.[19]

Taken together, this suggests that decision-makers in cultures with high uncertainty avoidance and low

individualism with high collectivism consider other stakeholders (employees and shareholders) more

important than themselves.

42


Decision-makers in cultures with low uncertainty avoidance and high individualism with low collectivism

are likely to consider themselves more important than other stakeholders.

Formal codes of conduct are likely to be emphasized when deontological norms are formed in cultures

with high power distance and high uncertainty-avoidance index. In cultures with low power distance, the

decision-makers are likely to emphasize informal industry and organizational codes, when forming

deontological norms. Also, the ethical cues of decision-makers rely more on the peers and fellow

employees than on their superiors, if power distance is low.

4.7.3 Other points

Culture plays a significant role in ethical standards. European companies tend to stress the right of

codetermination and the sense of belonging and responsibility. American companies tend to stress

fairness and equity.[21]

Religion tends to have a significant impact on market rivalry and people’s thinking about efficiency. For

Europeans, time is money, whereas in Arabic cultures things happen in their own time. Similarly, the

attitude towards chance is a significant characteristic of a culture. In western cultures, man is the shaper

of the environment, whereas in Far Eastern cultures one should search for the balance between man and

nature. [3]

Dividing cultures into high and low context ones can make a rough cultural division. A high context

culture has deep roots and is quite uniform. It has not been open to external influences, and things are

not discussed in a very straightforward manner. Such are, for example, Japanese and Arabic cultures. In a

low context culture, there are multiple traditions. Things are often expressed in words in a very

straightforward manner.

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5 Values and ethics within the company in relation to the environment

One relevant question is the absolute or relative nature of morality. Moral attitudes are not holistic

even within a certain organization, and it is often necessary to recognize one’s own attitudes as

well as the attitudes in the environment. This chapter provides the possibility of analyzing

divergent ethical statements.

There are different views about whether different cultures can understand the moral-related

attitudes of each other. If not, then all moral principles are relative. On the other hand, ethical

principles are often meant to be universal, and some authors think that it is possible to generate

absolute and universal moral theories. In between these opinions lies ethical realism, which argues

that moral sentences carry a certain entity of truth. (see Pietarinen & Poutanen; 2000, 16-19.) This

is not only a theoretical dilemma, but also a practical question for companies.

Vitel, Scott, Nwachukwu, Saviour, Barnes & James (1993) [29] argue that values and ethics are

strongly influenced by cultural elements and values. This leads to a different type of ethics when

US and Japanese morality are compared. Smeltzer (1998) [30] argues that the ethics of a certain

company can be solid, even though the ethics of the environment is different and varying. The

company can evaluate whether its own values and moral concepts fit the environment.

Vitel etc. (1993) Smletzer (1998) Culture Culture Company / Company / Values Values Ethics Ethics absolute impact optional impact

Figure 13, Culture, company values and ethics, Sources: Vitel (1993) and Smletzer (1998)

44


To deal with the variety of ethical structures, one has to identify them and understand one’s own

standpoint as well as the standpoint of the counterpart. To achieve this, we must use the basic

elements of all ethical theories and build the analysis and understanding on those premises.

The critical question lies in the nature of a company’s own values (clarity, existence) and the

adaptability of these values in relation to the environment. This relation can be examined and

considered, and it can form a basis for making decisions on, for instance, starting to lay down

activities in some social / political environment.

5.1 Recognition of one’s own values

The recognition of values used within the company is the first task, when one orients oneself

towards ethical business policy. This means, in principle, analyzing and being aware of the ways in

which the actors - managers, white and blue-collar workers - think and act:

- What are the objects of basic or absolute values that one cannot doubt or have a suspicious

attitude towards?

- What are the values which will bring highly appreciated outcomes and what is expected of those

values?

- What kinds of acts are appreciated highly as such?

- What kinds of acts will bring the expected outcomes?

It is important that an internal view is - if not holistic and monolith – an organic one. How does a

company look for a customer in a business environment? What is the basic idea for value chain

like?

45


5.2 Recognition of the values of a customer, the business environment and other

actors of the environment

The recognition of values used in the business environment is the second task when one orients

oneself towards ethical business policy. This means, in principle, analyzing and being aware of the

ways external actors - customers, government, media - think and act:

- What are the objects of basic or absolute values that one cannot doubt or have a suspicious

attitude towards?

- What are the values that will bring highly appreciated outcomes, and what is expected of those

values?

- What kinds of acts are appreciated highly as such?

- What kinds of acts will bring the expected outcomes?

What kinds of things do the customer or business environment expect, when dealing with the

company? How do the various actors deal with each other, etc.?

5.3 Compare your own values and the ethics of the environment and be able to

make an analysis

The third phase is to compare the values of one’s own organization and the values of the

operative environment. Usually, one will find out that the principal things appreciated are various

and complicated, but so are the mechanisms for producing or recognizing the valuable essence.

When one understands this, one can act in this area. It is possible to make an analysis including a

description of similarities and differences between the ethical framework of one’s own

organization and that of the environment.

5.4 Methods of formulating operative ethical aspects of the business policy

The next principal phase is an internal and external dialogue concerning the ethical aspects of behavior

and business, by case and by special environment.

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6 Stakeholders in business ethics

"The task for a philosopher is not to introduce concepts, which are unclear by nature. The

methodology of philosophy is logical analysis and the aim is to clarify the meaning. The work

for a philosopher is to interpret conceptual intuitions and make them explicit." (Pietarinen &

Poutanen; 2000, von Wright; 1953.).

What are the areas of ethics that we can use in companies? Who is / are the substances:

worker, manager, owner, customer, partner or organization? (See: Frankena; 1973, 83-85.) The

basic possible ethical discussion lies on two areas; on the environment of the company and

inside the company. Ethical values among these areas are always complicated. The possible

conflict might be minor or latent, but discrepancy can be essential and manifest, even

problematic. Therefore the company must be aware of its own ethical structure, ethics in

environment, and the company must be able to generate a policy to deal with these factors in

a reasonable manner.

In order to notice and analyze ethical guidelines within the company we have to first define

the areas where ethical statements and considerations are relevant. Secondly, we have to

analyze the nature of ethics. The same request exists when dealing with the ethics of the social

environment.

First of all, we have to define the relevant actors in ethical respect. Usually, ethics is connected

to people and human-related issues. Lately, the biological and ecological environment has

risen to the center of ethical and societal discussion, not because nature itself would be able to

present ethical standards or other claims, but because people have come to realize the

importance of the ecological structure as a precondition for life and social essence and, in

some occasions, the value of nature as such - without getting any benefit out of it. In this

paper, nature is regarded as an independent area of discussion, not because nature itself were

able to raise arguments, but because people have strong - and an ever increasing amount of -

attitudes towards good and bad policy in relation to the natural environment.

As for stakeholders, there are many ways to classify and describe them. Aaltonen & Junkkari

(2000, 252.) mention the following interest groups:

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Customers

Personnel

Shareholders, financiers

Subcontractors, partners

Competitors

Great audience, Society [3]

One other model is the model of Donaldson & Lorsch ( 1995.)

- Capital market stakeholders

- Product market stakeholders

- Organizational stakeholders (see page 26)

Another possible dichotomy lies in primary and secondary stakeholders (Clarkson; 1995.)

The model of Donaldson & Lorsch is more constricted than the model of Clarkson. The

former is centered strictly on business focus, while the latter takes into consideration several

societal aspects in addition. Both lack nature or the ecological environment as a relevant

stakeholder affecting the company.

The final decision on stakeholders can be made on an empirical basis, taking into account the

relevant ethical considerations. The stakeholders are:

1. Investors and especially the shareholders

2. Employees (blue and white-collar workers & managers)

3. Customers

4. Partners (including subcontractors and value chains)

5. Society (community, government, international organizations, employee & employer

organizations)

6. Media and publicity (more as a channel for claims but as an essence of visibility).

7. Nature (As a concern among people and as an essential foundation for actions)

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6.1 Relations and concepts

One thing to take into consideration is the relations in which ethical intentions and sentences

appear. These relations to stakeholders can be:

Type of relation example

agreement (employer)

law (government)

market (customer)

common interest (partner)

relevant opinion (publicity)

justified claim (investor)

Payne & Raiborn (1997) give five major issues that the code of ethics should address:

Organizational relations

Economic relations

Employee relations

Customer relations

Industrial relations

Political relations

And what kind of ethical behavior do these stakeholders expect? Aaltonen & Junkkari

mention ethical code areas which should be specially treated;

-Environment

-Societal thinking and responsibility

-The quality of products and services, ethics in production

-Pricing

-Good mercantile habit, honesty

-Personnel policy and human relations

-Diversity among the personnel, justice

-Respecting the values of the employees

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-Marketing

-Selling

-Buying (Aaltonen & Junkkari; 2000, 177-179.)

According to Koskinen (2000), investors look for seven areas of ethics in business:

- Human rights

- Environment

- Honesty

- Taking responsibility

- Personal policy

- Societal responsibility

- Business principle or idea

If one looks at the list of Koskinen, one can notice that some items are principles of behavior

or virtues (honesty). Some are (even unclear) expectations for some kind of pro-activity or at

least intervention (taking responsibility, societal responsibility). Some can bee seen - in

addition to the preceding ones - as structures of policy (personal policy, business principle or

idea). Some are some kinds of preconditions or "check lists" for functions as such (human

rights, environment). It might be possible to build a hierarchy of these different kinds of

claims. This is not in the center of our interest, but helps us to understand what kinds of real

expectations are addressed to the company. In figure 9, it is mentioned that one may find

some logical structure in claims of ethical type. All items may be relevant issues as such, some

form preconditions for higher actions, some can be regarded as virtues, and some are

complicated policy structures of ethical type.

Policy structureVirtue

PreconditionRelevance

Figure 14

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Table 4

Relevance Policy

structure

Precondition Example:

Human rights

Example:

Pro-activity

Virtue Example:

Honesty

Example:

Personnel

policy

6.2 Analyzing the relations

In analyzing the ethical nature in discussions and actions, we have to take into consideration

Values and Acts. We have to concentrate on the visible, i.e. explicit facts such as written and

spoken language. The aim is not to evaluate or argue nor to make any normative evaluation,

but to make the ethical standpoint visible, i.e. to arouse awareness and discussion.

6.2.1 Classification of ethical standpoints

According to Frankena’s basic classification, ethical discussion can be divided into four

categories. On the basis of the experiences we have gathered among shareholders, we can

define six categories. We must add nature / ecological environment to the list, not because it

would arouse any ethical thoughts, but because human beings have ethical values in relation to

nature. In addition, the company can have an ethical policy towards stakeholders, and

stakeholders represent the relevant social environment which the company must take into

account. The classification produces 56 logical categories of ethical statements. Those

principal viewpoints will be presented on the next pages. The texts within the boxes serve as

examples. Statements could be positive / negative or conflicting.

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7 stakeholders

Policy-of the company-of the stakeholders

Deontological theories /values Some values are

good as such

Deontological theoriesSome acts are good as such

Teleological theories /values Some values are

good because they lead togood things

Teleological theories / actsSome acts are goodbecause they lead to goodthings


good as such






good as such






good as such






good as such






good as such






good as such






good as such






good as such






good as such






good as such






good as such






good as such






good as such

Deontological theories / actsSome acts are good as such




Figure 15, Classification of discussion

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1.A. Ethical behavior within the company towards: Investors and shareholders

Deontological Teleological Acts

The company follows a policy that regards the shareholders’ and investors’ interests as a basic element in the operations of the company. In conflicting situations (environment, labor market) the company will maximize the benefit of the shareholders and secure the profit of the investors.

Treating shareholders and investors as a financial resource. Possible by maximizing the investments over a short or longer period. Investors are part of financial activities. The company is free to treat shareholders like any other market item; only to secure the investments needed. In conflicting situations (environment, labor market) the company will maximize the benefit of the company by maintaining the shareholders’ and investors’ interests towards the company. The respect for the shareholders’ and investors’ interests is dependent on the importance of the investment.

Values Respect for shareholders, because they are the kernels of the company.

Respect for shareholders, because they are indispensable for the financing of the company.

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1.B. Ethical behavior towards the company: Investors and shareholders


It is good when the company in its operations fulfils the essential functions. Investments are resources that make this possible and make it happen. (Ethical investment funds, public investments in order to generate employment, regional development, etc. The company can be seen as an essential element in the socio-economic structure.) (Continuity and societal respect )

The company should generate maximum revenues. The company is a tool for the investor’s or shareholder’s revenue. The company can or must be reorganized, sold or laid down if the financial rationality expressed by the investors requires this kind of policy. (Typical for floating, international capital looking for rapid growth)

Values The company is an entity as such, because there are many valuable things in the company and the company fulfils many valuable functions (employment, life of the community). (Typical for a leader who owns the company and invests in it in order to develop the company in the long run.)

The company can be either a good or a bad basis for financial profit. The company as such has no value. (Typical for an investor who is looking for quick or even speculative revenue.)

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2.A. Ethical behavior within the company towards: Employees


Treating people as personalities. Opening opportunities for perfection and happiness. (Kant) The company as an environment for personal and business activities. Creativity, minimum control, discussion as guidelines (The ethical rationality lies in the employees as human beings)

Treating, educating, developing and protecting employees in order to guarantee maximum output of the employees and minimize the costs related to employees. Looking for the maximum profit from the investments in the staff. (positive, functional flexibility - rationality lies in the employees) Any kind of personnel policy and use of the labor force is possible in order to serve the interests of the company (sharp, numerical flexibility - rationality lies outside the employees) (The ethical rationality lies either in the employees or elsewhere.)

Values People, even as employees, are valuable as such. People are the essence which is available to the company. (Employees as a goal; target and partner) (Kant)

Employees are a valuable resource of the company. (Employees as a tool or asset)

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2.B. Ethical behavior towards the company: Employees


Good work as the principle. Company as a place or system to do good work. (Strong work orientation. Good work as a source of satisfaction and as a model of life.)

Work or other actions efficient in order to get a fair share of the outcome or profit. Work as a tool for income and living. Regulation of work and income. Regulating rules between social partners. (Traditional / formal labor market system, based on agreements and negotiations)

Values Putting high or even essential value on work. Work as the essence or work as a part of human nature. Organization gives / offers an opportunity to work. (Protestant ethics, some work cultures)

Company as a tool for benefit. Awareness of any conflicting interests and values within the company and taking them account. (Employee orientation)

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3.A. Ethical behavior within the company towards: Customers


Policy and processes which can increase the customer’s benefit. The company is able to offer benefit to the customer. (Private or public orientation)

Dealing with the customers in a manner that ensures maximum (time, magnitude) revenue from the customers.

Values The company is needed, because it can provide solutions for customers’ problems. That is: the company is willing to offer benefit to the customer.

Customers are needed in order to sell products.

3.B. Ethical behavior towards the company: Customers


Respecting the output of the company as cultural artifacts. (Ford; / car / Increasing the standard of living and quality of life, enhancing liberation)

Carrying out operations or stopping them according to the benefit received. (Volkswagen: car / Cost-effective method of moving for everyone)

Values The company carries a special value and function in the customers’ (community / society) life. The functions of the company are both important and essential for the life style or culture. (Car factory; offering work and wealth when manufacturing its products)

The company as a tool for serving the customers’ justified interest. (Car factory: producing vehicles to facilitate moving)

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4.A. Ethical behavior within the company towards: Partners


The company is needed, because it can provide solutions for the customers’ / partners’ problems. That is: the company is able to offer benefit to the customer.

Treating partners in a manner that is beneficial to them is a precondition for the benefits of the company.

Values The company is needed, because it can provide solutions for the customers’ / partners’ problems. That is: the company is willing to offer benefit to the customer.

Partners are needed for business. Respecting the interests of partners is a precondition for the benefits of the company.

4.B. Ethical behavior towards the company: Partners


Partners are running activities and policies as a part of the value chain, which has general and shared values.

Partners are running activities and policies, which will enhance their interest and benefits as an outcome of the process. (Traditional acceptance of joint operations and joint value-added)

Values Partners may respect the values and policies of the company on principal level. (The company may have some special pioneering role for instance during the periods of dramatical change)

Partners are respecting the company and its values looking for their own good / benefit when dealing with the company. (Principal acceptance for change)

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5. A. Ethical behavior within the company towards: Society (Community, government, international organizations, employee & employer organizations)


Trying to follow a policy which supports the value / ethical structure of the societal environment.

Accepting the behavior and the principles of the environment in operations in order to avoid conflicts and to continue and expand operations

Values Accepting and respecting the values of the societal environment as such. (democracy, Islamic law, etc.) Accepting the societal values as elements with their own value structure.

Respecting the values of the societal institutions and adopting them in operations in order to avoid conflicts and to continue and expand operations

5.B. Ethical behavior towards the company: Society (Community, government, international organizations, employee & employer organizations)


The societal environment accepts the values / ethics of the company because they are considered good as such or to be perfectly in line with the societal values.

The societal environment accepts the company when its operations support the value / ethical structures of the environment

Values The societal environment accepts the values / ethics of the company because they are considered good as such or to be perfectly in line with the societal values.

The societal environment accepts the company when it supports the value / ethical structures of the environment

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6.A. Ethical behavior within the company towards: Media & publicity


Actions and a policy that take into account and support public discussion are good.

Publicity can be used for the benefit of the company.

Values It is good to enhance publicity and openness.

Publicity is an opportunity to understand and mirror the environment.

6.B. Ethical behavior towards the company: Media & publicity


The policy of the company is exceptional or leads processes of ethical type. (Fighting disease)

Instrumental orientation towards the policy and operations of the company when they promote the goals regarded as good in publicity. (Good image)

Values The values of the company are exceptional or lead ethical discussion. (The bank of the poor / women)

Instrumental orientation towards the company in relation to the values and principles that can be used (Good reputation)

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7.A. Ethical behavior within the company towards: Nature & Ecological environment / In human respect


Acts / a policy that are considered good as such for the environment. For instance: Maintaining biodiversity regardless of the costs

Acts / a policy that in relation to maintain biodiversity brings wealth, employment or regional development For instance: Harvesting environmental values and interests (as a tool) in commercial or societal policy

Values Ecological principles are good as such. For instance, respect for nature, identification with nature, silence.

Following ecological principles that produce good things. For instance, values respecting nature without orientation towards immediate revenue, which leads to sustainable social and economical development.

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7.B. Ethical behavior expected of the company: Nature & ecological environment / Human aspect


Acts / a policy which are considered good as such for environment. For instance: maintaining biodiversity regardless of the costs

Acts / a policy which in relation to maintain biodiversity is brings wealth, employment or regional development For instance: Harvesting environmental values and interests ( as a tool) in commercial or societal policy

Values Ecological principles are good as such. For instance, respect for nature, identification with the nature, silence.

Following ecological principles that produce good things. For instance, values respecting nature without orientation towards immediate revenue, which leads to sustainable social and economical development.

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6.3 Approaches to virtue

In analyzing ethics, we have made a distinction between the issue (target) and form (structure

of argumentation), the values and forms of ethics within the organization and outside of it,

clarifying one’s own position and understanding the attitudes of the environment, and

possibly reconciling these.

A. Areas of ethics

B. Forms and type of argumentation (structure of values = what is important)

C. Own ethics

D. Ethics of the environment

E. (Reconciliation between one’s own ethics and the ethics of the environment)

It is possible to start practical discussion from a theoretical point of view. Possible angles that

can be adopted are, for example, the ethics of Kant or or the ethics of virtue.

6.3.1 Virtue in ethics

What are the areas of ethics in substantial respect? What kind of behavior can be regarded as

virtuous? So-called cardinal virtues are principles on which ethics can be based. Virtue is an

element according to which one should act. This means that virtue is not only related to “what

to be” but to “what to do”. Virtue means the ability to select the right acts. (Frankena; 1973,

63- 64).

“Virtue, as Socrates says in the Meno, is not the power to achieve the good or obtain good things; it is acting

justly, honestly, temperately, and, we must add, benevolently.” (Frankena; 1973, 93.)

For Plato and the Greeks, the main virtues were:

Wisdom

Courage

Temperance

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Justice

In the Christian tradition, the main virtues are:

Theological Human-related

Faith Prudence

Hope Fortitude

Love Temperance

Justice

6.3.2 Virtuous behavior

What do we mean by virtuous? According to Kant, virtuous is convergent with "being worthy

of happiness". Virtuous behavior or acts of moral value are based on responsibility, sense and

universal moral rules. One can act according to rules regarded as responsibilities on the basis

of one’s nature or willingness to gain, but these acts have no moral value. Goals regarded as

responsibilities can be defined as "own process towards perfection and the happiness of the

others". (Walker; 1998, 16-21.)

For Kant the expression "business ethics" might be a problematic one. But the principles of

moral behavior are universal and therefore adaptable in any human activity. From this

perspective, a critical question might be: how can people in business strive for personal and

social perfection, and how can this behavior and these principles help the others involved, e.g.

customers, audience, etc. The critical thing is whether aspiration towards moral attitude

(ethics) is an integral part of the company. This means that the company can feel (feel,

recognize, operationalize) its responsibility and try to fulfil this responsibility in business. Only

this can be regarded as virtuous or ethical. The company can promote these kinds of ideas and

policies by nature or as a tool to reach other goals. According to Kant, these kinds of acts are

"accordant with responsibility" but not done by obeying the "demand of responsibility".

Trying to follow Kant, we could define the moral rule for an organization as follows: act in

business life in a manner that can be regarded as universal business behavior. Or act in

business in a manner which develops the competence and virtue of the actors. The

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central element in this process is respecting and supporting the human values of the

environment.

This means that every act that is right when I perform is right when any other person

performs it. And if it is not right when I perform it, it is wrong. (Walker; 2000, 42-43.)

This means - following the Kantian deontological type of thinking - that the interests of

shareholders or employees to gain from the company are not valuable in moral terms. This

does not mean that they are immoral. This means that they fall within the area of value theory

of behavior, which has no specific moral status. If an act is "right", it is right whoever

performs it. (Is it right that everyone can gain from the company? This can be the goal of

business strategy.) In addition, acts must be regarded as universal laws.

One aspect in ethical discussion is transparency. The ethics of a company can be taken up for

discussion for practical evaluation but also for further development.

In which sense is it reasonable to look for cardinal virtues in business policy is an interesting

question. Nobody can deny the relevance and attractiveness of such terms as wisdom,

courage, temperance or justice. Any organization will probably look prudent and show

fortitude, temperance and justice. These terms are culture-related and seem to be related to

the highest levels of contextual knowledge. This means that they are not only abstract entities

but also constructive elements of cultural and societal behavior and experience. Virtue in

practice is an actual and human principle to act. What can be regarded as virtuous in the area

of human rights or personal policy is a dilemma that should be discussed between different

audiences. It is not a dilemma as such, because universal definitions for virtue do not exist.

What can be regarded as virtuous is an estimation of the company itself and the audience, and

usually the company expects respect. On the basis of this estimation, the company can make

decisions, form social and economical models and include virtue as ethical principles in these

structures. Defining and developing virtue is a normative thing, not an issue for research or

analysis. The purpose of analysis can be to show the structure within and outside the

organization.

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6.4 Quantity and quality of policy

Efforts in the areas of ethics and policy can be regarded as positive / negative and active /

passive. The outcome in internal or external respect depends (disregarding the negative side)

not only on following the (minimum) norms but also on how actively the organization

implements and develops measures in these seven areas. One can add an operative element to

this theoretical distinction. Does the ethical view really work in the organization in such a

manner that it really and deeply affects daily operations? On that level there is no sense any

more to measure the amount of ethical elements but analyze the quality of ethical business /

behavior. This might be a paradigmatic change in an organization or in business. At least one

step forward is not to look at goodness itself but at the outcome of goodness. This should not

be taken to mean that a company adopts the role of a missionary, but in practice, this could be

understood in such a way that the company can look for a) its own processes and behavior

and b) the products and services from the ethical point of view and evaluate whether they

promote some special or common ethical value or principle. It is possible to include ethical

principles as an elementary element in business culture in order to enhance the resources of

both the company’s own organization and its customers and co-operation partners.

Some values may be more valuable than others. Aaltonen and Junkkari (2000, 225.) mention

the values of the rescue service according which actions are prioritized: 1. Human values, 2

Environmental values, 3. Cultural values, 4 Economical values.

6.5 Analysis of ethical discussion

A. The argumentation in ethics can be divided into teleological and deontological theories on

values and acts. By making this distinction it is possible to perform basic categorization of

discussion.

Teleological Deontological

Values

Acts

B. On the other hand, there is a need to define actual topics in ethical discussion.

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C. It is clear that being ethical is usually respected by the public. Anyway, it is easy to picture

environments and situations where high ethical orientation, for instance in the area of human

rights, might be a major obstacle for business in some countries or in some competitive

environment. How should one proceed? This is impossible for a researcher to say, but by

doing an analysis beforehand, a company can avoid painful and embarrassing or costly

processes.

The ethical code is culture specific, labor market specific, and even company and situation

specific in the sense that they are different. What is critical for the company is to consider its

own ethics and make a decision on whether the values are suitable or not, whether the

company is willing to cooperate, and which are the forms of interaction.

D. Who are the ones setting the norms?

Management

Shareholders

Personnel

Specialists

Customers

Others

and

E. What are the methods for setting ethical norms and evaluations?

Dictation

Discussion

Evaluation

Consulting

Sharing

Adapting

and finally,

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F. What is the actual normative content of ethical rules?

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7 Ethical tree / Draft for classification

In an ethical tree, it is possible to analyze the values of the organization and of the

environment. Basically, a division into 2+2 categories can be made. This distinction can be

made in every selected area of argumentation (for instance the seven ones proposed by

Koskinen’s). The first choice is between acts and values, and the second one is between the

deontological and teleological angle. Later on this can be used in every single selected and

specific area.

Own ethics:

ACTS / VALUES

Do you think that in real business life and practice it is better to follow good actions or good

principles?

Action

Value

Action:

Do you think that actions can be evaluated as good or bad on the basis of themselves or on

the basis of the outcomes of these actions?

Deontological view

Teleological view

Values:

Do you think that principles can be evaluated as good or bad on the basis of themselves or on

the basis of the outcomes of these principles?

Deontological view

Teleological view

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Ethics of environment / partner, society, etc.

ACTS / VALUES

Do you think that your partner/customer/personnel, etc., in real business life and practice

considers it better to follow good actions or good principles?

Action

Value

Action:

Does your partner/customer/personnel, etc., think that actions can be evaluated as good or

bad on the basis of themselves or on the basis of the outcomes of these actions.

Deontological view

Teleological view

Values:

Does your partner/customer/personnel, etc., think that principles can be evaluated as good or

bad on the basis of themselves or on the basis of the outcomes of these principles.

Deontological view

Teleological view

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The ethical behavior within the company towards:

Nature & ecological environment / Human aspect


Acts / policy which are regarded as good as such for environment. For instance: Maintaining biodiversity regardless of the costs Biocentrism I Company’s position / II What organizations, religious, political or other groups represent this point of view and how do they formulate it in detail

Acts / policy which in relation to maintainin biodiversity bring wealth, employment or regional development For instance: Harvesting environmental values and interests (as a tool) in commercial or societal policy Anthropocentrism I Company’s position / II What organizations, religious, political or other groups represent this point of view and how do they formulate it in detail

Values Ecological principles are good as such. For instance respect for nature, identify oneself with nature, silence. Ecocentrism I Company’s position / II What organizations, religious, political or other groups represent this point of view and how do they formulate it in detail

Following ecological principles that produce good things. For instance values respecting nature without orientation towards immediate revenue, which leads to sustainable social and economical development. I Company’s position / II What organizations, religious, political or other groups represent this point of view and how do they formulate it in detail

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7.1 Evaluation of ethics

In the evaluation of ethics, one must define the following:

- Is discussion accepted as such (willingness to or not to discuss, to accept other

arguments and the right to formulate different arguments / one kind of arguments = the

opportunity to discuss and act in real terms) – opportunity for real discussion or not.

- Area of discussion (for instance human rights = what is the real essence.) – does the

argumentation fit the real issue?

- Topics (for instance: expression of political attitudes and the right to implement them

= real problem) – seeing the target of others

- Normative elements of this discussion (what is regarded as valuable in human terms) –

must be defined

- Type of ethical arguments (4 categories = the nature of arguments and how they fit

one’s own ideas / basic understanding of the agreement)

- Tension of discussion (high, low, no tension = the importance of the matter / need to

bargain)

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8. Ethics - the basic element of business

8.1. The nature of work in ICT-related environments

Work has been regarded as physical and mental activity at the work place. People

have used tools to improve their mental and physical performance. As regards

physical production, computer-aided manufacturing is integrated into computer-

aided design. This is a source for variety and customization of products. As for

mental work, data technology has integrated elements of office work: feeding and

processing text and data, creating images, documentation, archiving and

communication via data, voice, text and images. Communication technology has,

however, made it possible to discuss in real time or in an asynchronous manner, to

connect processes and network, and ICT creates virtual space for human thinking.

In addition, it is possible to use many technical systems to support human co-

operation and thinking in order to produce the knowledge needed.

The most relevant phenomenon in modern economy is to produce special

knowledge for the customer. This production process is both individual and social.

Knowledge is created in human minds by sharing ideas and building social and

technical environments which support the production of knowledge. Formal work

organizations are becoming more flexible and versatile; joining value-added chains

and promoting ideas take more and more often place in value-added networks.

ICT makes this development possible, but on the other hand, technical

applications are expressions of our social organization.

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Walter Paavonen describes IST-enabled work as follows:

Definitions crucial for ‘IST-enabled cross-border work arrangements’.

What is IST-enabled work?

IST-enabled work is carried out by means of Information Society Technologies, (IST). Typical technologies that facilitate IST-enabled work – and on which the work and its location are strongly dependent – are e.g. telephone systems (public or company networks), Internet-based communication facilities, satellite transmission, computer networks, video conferencing facilities, virtual reality applications, etc. IST is synonymous with Information Technologies (IT) and Information and Communication Technologies (ICT).7

What is cross-border work? The work is carried out (remotely from another country) across national borders by a company unit, work group or geographically dispersed work team (virtual team), e.g. various services, customer support functions, sales support functions (call centers), remote systems maintenance, data processing, research work, software development, technical development work, planning work, clerical or administrative work, etc.8

7 Examples: -Databases, which are globally accessible via company communication networks, enable wide dispersal of the enterprise’s functions. -Internet-based working tools enable access to information independently of location of the work sites. -Distributed computer systems in which the units communicate with each other facilitate organizational flexibility in time and space. -The cellular phone – and the facilities to connect them to lap-tops - has essentially increased the mobility and the location options of work. -Video conferencing reduces travelling costs and the costs for remote work site locations. -Virtual reality applications simulating office environments, although not very common yet, mediate a sense of proximity and facilitate co-operation across distances. Etc. 8 Examples: -Virtual teams: Work teams or company units which collaborate across distances and national borders in order to complete common tasks or achieve common goals, e.g. to prepare a tender, to draft a marketing campaign, to draw up a budget or to prepare a production plan. -Various services: Printed matter and translation work (handbooks/manuals, product specifications etc.) where parts of the production chain are located in different countries.

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8.2. Benefits of ethics and the theory of intellectual capital

Earlier we have discussed how and in what kind of respect an organization or

company can be ethical. Ethics is related to human kinds of things: human values,

human attitudes, human nature. Organizations relate to performance, revenues

and efficiency. According to John McDowell, moral reality exists among such kind

of beings who can have an experience of them, that is, among those who have the

structure and constitution to make moral experiences possible. (Pietarinen &

Poutanen; 2000, 134.) In what possible and reasonable manner does an

organization or business process tend to be ethical?

The simple answer to this dilemma lies in the fact that economical and

organizational processes are very much human by nature. Structure and

constitution can make ethical experiences real. The outcomes of processes are

inseparable from human elements. In addition, the outcomes of processes - the

real value - must be marketed and consumed in the human and natural

environment. The value of these outcomes is real only in natural and human

environment.

Who should be responsible for ethics? Only the people within the company. It is

up to their free will to think, evaluate and build not only individual but social

-Customer support: Technical support functions, help desks, complaint services etc. established in locations, with good knowledge of languages, technical skills and/or low costs. -Sales support: Order processing, booking, telemarketing functions, which are established in locations, with good knowledge of languages, technical skills and/or low costs. -Remote systems maintenance, e.g. maintenance of computer software systems from remote locations. -Data processing , data entry, etc., which is located in low cost areas or in locations with good competence/work force supply -Research work, e.g. research units within large companies which co-operate in networks in joint research projects. -Software development, technical development work, etc., often take advantage of teams in different time zones in order to reduce production time, to level out work load, to improve access to technical skills or to reduce production costs. -Planning work and administrative work within management, financing, marketing, production, R&D, etc., in large multinational enterprises which take place across national borders

75


agreements and systems to make ethical aspects visible and relevant in everyday

work.

How can we describe ICT-related economy and especially the ethical aspects of it?

Once again we have to define and model the main elements of economical

activities and take a look at what is the role of values and ethical values in this

respect.

In recent years, knowledge balance sheets have been used to describe the whole

value chain of a company from the point of view of intellectual capital9. Usually

they include the following factors pertaining to the company: a) objectives and

basic values, b) capital input, and c) information on the results.

ValuesProcesses

People

Infrastructure

Personnel

Customers

Innovations

Environment& Society

EconomicIncome

Objectives

ValuesProcesses

People

Infrastructure

Personnel

Customers

Innovations

Environment& Society

EconomicIncome

Objectives

Figure 16, The Structure of Knowledge Balance Sheets, Source: Information Society to Knowledge-based Society, Employment by

Innovation; Ministry of Labor, Helsinki 2000.

When we take a closer look at the dynamics of this structure, it is possible to see

that the processes and structures of a company are based on objectives and values.

This does not mean that they are some external entities. On the contrary, they are

inherent elements among people and forms of co-operation in processes and

structures. These elements influence customer relations, modes of personnel

9 "Intellectual Capital is the possession of the knowledge, applied experience, organizational

technology, customer relationships and professional skills that provide Skandia with a competitive

edge in the market". (Edvinsson & Malone; 1997, 44.)

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policy, i.e. relations with the environment and society in general, and they have a

great impact on the forms of the innovations or knowledge produced. Once again

this is the basis for economic income. (Compare: Edvinsson & Malone; 1997, 10-

13, 47-50.)[31]

When Dr. Sveiby describes the essence of knowledge and competence, he divides

the latter into five elements: explicit knowledge, skill, experience, value judgements

and social network. To Sveiby, knowledge is contextual and regarded as a capacity

to act. According to Sveiby, "...code of ethics gives focus and purpose to

knowledge creation." (Sveiby; 1997, 34-38, 123.)[32] As we noticed earlier, ethics is

a part of the values. Ethics is the way in which the company meets and treats

people, in this case the shareholders. Ethical consideration is one element when

stakeholders assume their position towards the company.

Cash on handFixed capital assetsCirculating assets

Additional market value

Contingent liabilities

Human resourcesInternal structuresExternal structures

LiabilitiesNet worth

Assets Liabilities

TangibleAssets

IntangibleAssets

VisibleCapital

InvisibleCapital

Cash on handFixed capital assetsCirculating assets

Additional market value

Contingent liabilities

Human resourcesInternal structuresExternal structures

LiabilitiesNet worth

Assets Liabilities

TangibleAssets

IntangibleAssets

VisibleCapital

InvisibleCapital

Figure 17, The "Perfect" Balance Sheet, Source: Ahonen Guy; Henkilöstötilinpäätös - myös

yliopistojen kestävän tuloskehityksen työväline, Universitas 1999, Helsinki 1999.

The elements of intellectual capital are of utmost importance especially in the new

economy and in the ICT branch. It is not possible to "see" the well-being of the

personnel or good customer co-operation, but they are realities of intangible assets

and can be realized as invisible capital. For instance, the brand of a company is

based on the structure and history of the company, but it is basically the

shareholders’ expression, attitude and impression of the company. A good brand

is usually extremely valuable.

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In the networking economy, based on value-added chains and value-added

networks, intangible assets are the essence of transactions and a precondition for

tangible ones. The stakeholders are less and less "external" elements in business

and more and more internal parts of the business and functions of a company.

This means that the concepts human capital, customer capital and organizational

capital will increase their value in the understanding and conducting of networked

type of transactions.

8.3. Opportunities, problems and restrictions of ethics

Dealing with ethical structures can be as complicated as processes usually are.

Objects for practical work can be questions like:

* What is the status of moral judgements when they seem to be in conflict with

other values? - This is perhaps the most common case.

* Can one demand another person to accept moral conventions which he has not

internalized? - People have different kinds of values and orientations.

* How is it possible to deal with ethical relativism, for instance in the form of

cultural diversity or essential contradictions? - This is relevant especially due the

globalization processes. It is easy to imagine possible modes of conflicts and

discrepancy between ethical considerations.

Some possible relations between different ethical concepts

separated partial within each other congruent fragmentary

78


imbalance incompatible various hidden, unclear

* What kinds of moral judgements are relevant, when one is a member of several

organizations and networks? - This is a more and more relevant question in the

modern economy, which is based on value-added networks, ICT, and in the

modern identity, which is not dependent on people’s location.

8.4. Methods of dealing with ethical principles

The above questions must be dealt with in studies related to moral structures.

When we are trying to solve conflicting interests, we could use the classical theory

of Ralf Dahrendorf and assume that parties have to recognize the existence of

conflict, recognize each other and find agreement on rules in solving the actual

conflict.

Other methods are based on language and discussion. For instance, in Sweden the

concept of "democratic dialogue" was used especially during the late 80s and early

90s. Habermas emphasizes the deep structure between the social reality and

symbolic expressions. By studying the structure and intention of speech, it is

possible to estimate the preconditions for mutual understanding. In discussion, the

evidence of truth is a joint attitude about the validity of an argument. (See:

Pietarinen & Poutanen; 2000, 154-163.)

On the other hand, one can argue that it is not necessary or even desirable to get

rid of all conflicts. The idea of Dahrendorf was to manage conflicts. Conflicting

situations can be fruitful and sources for further development and paradigmatic

chances.

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Pauli Juuti raises an interesting constructivist view of understanding, formulating

and reforming reality. By discussion it is possible to create and express reality but

also to change concepts and adapt to the continuous change and continuous

appearance of different kinds of realities. (Juuti; 2001.) [33] The relation to ethics

lies in maintaining human values in approach. This means to keep the

environment reasonable, valuable and beautiful - worth living.

An interesting theory of Donaldson (see Payne & Raiborn, 1997.) is related to

different kinds of ethical languages: virtue and vice, self-protection through self-

control, maximization of human welfare, avoidance of human harm, rights/duties and

social contract. Payne & Raiborn suggest that especially the three last ones can be

suitable for the use of international business.

7.2 Normative structures in international economy10

The need for an accurate ethical estimation is based on the fact that the international

economy is growing rapidly and dealing with various legal, political and moral

atmospheres.

"...the growing interdependence of socially, politically, economically, and legally diverse

countries has caused multinational corporate entities to reexamine a variety of their

existing policies. These reviews have often created the need for revisions in strategies

about marketing, strategic alliances, competitive focus, customer service, and product and

service offerings and quality. These revisions result from the need to view the

organizational environment from both domestic and global perspective, with ever-

increasing awareness of alternative cultures, governments, and traditions... an overriding

concern for many MNC:s is the complexity of trying to transfer domestic ethical system

to nondomestid operations or adapting to the various ethical perspectives of host

countries." (Payne & Raiborn, 1997.) [34]

Betz & Schwarz-Wölzl [35] report that international ethical codes of conduct include:

• Respect for fundamental human rights and their adherence

10 Role of Codes of Conduct for Transborder Work is dealt with here only briefly, because the VIP project will deal with

these topics separately in greater detail.

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• Work relations, such as the right of freedom of association and collective bargaining; non-

discrimination at the workplace

• Political participation*

• Guarantees of employee benefits

• Sensitivity for socio-cultural conditions

• Transparency of payments, financing and taxation

• Protection of the natural environment

• Consumer protection

• Control of implementation of the codes of conduct

The major areas of codes identified by the OECD (1999) are the following:

Fair Business Practices

Observance of Rule and Law

Fair Employment and Labor Rights

Environmental Stewardship

Corporate Citizenship. (See Betz & Schwarz-Wölzl, 1999, 13-14.)

A US survey among 300 companies, related to the international code of conduct,

identified seven items that at least 80% of companies have internalized:

- Employee conflicts of interest

- Inappropriate gifts to corporate personnel

- Sexual harassment

- Unauthorized payments

- Affirmative action

- Employee privacy

- Environmental issues. (Payne & Raiborn, 1997.)

Another research gave five main factors among ethical issues:

- Gifts and entertainment

- Use of information

- Personnel issues

- Central and foreign government relationships

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- Politics and local relationships. (Robertson & Fadil; 1998.) [36]

There are several international codes of ethics recommended for instance by OECD, ILO and

CTC (Centre for Transnational Corporations). Many MNCs (Multinational Corporation) do not

feel that they are obliged to follow them, because they are written by governmental

representatives, and because of the lack of governmental ratification or acceptance of these

conventions. When these codes are analyzed, it can be seen that they are guidelines in the area of

government, general/public and individual. (Payne & Raiborn, 1997.)

Table 5, Guidelines given by international organizations, Source: (Payne & Raiborn, 1997.)

OECD non-binding

guidelines for MNCs

Competition, financing, taxation, employment / industrial

relations, science / technology

ICC "employers´

federation on

international level"

Investment policies, ownership and management, finance, fiscal

policies, legal framework, labor policies, technology, commercial

policies

ILO conventions Direct investments in developing countries, equality of

opportunity and treatment, security of employment, wages,

benefits/conditions of work, safety/health, freedom of

association, collective bargaining

CTC Centre for

Transnational

Corporations

45 instructions to MNCs in categories:

General/political, economic, financial/social, disclosure of

information, nationalization/compensation, jurisdiction

It is possible to make other classifications, too. When looking at the different codes, it can be seen

that some of them are related to minimum norms - like non-discriminatory treatment or torture.

Some have the nature of a right to something, such as freedom of speech and association. Some

may carry elements of development, such as the right to education.

One aspect that should be taken into account is the level or standard of the ethical code. Ethical

concepts have been subject to relativistic approach, in which it is admitted that human or

company performance can come nearer the theoretical idea of high good, but in practice the level

is dependent on will, ability and virtue. It is possible to see values in comparative perspective, too,

but on the other hand one can assume that there are some principal or even universal values

which companies face in every society.

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Table 6, 7-step scenario to develop a culture based framework for a corporate code of ethics, Source: Robertson & Fadil, 1998.

1. Analysis of cultural differences along Hofstede’s dimensions prior to the

establishment of codes of ethics will decrease the number of ethical dilemmas that

arise as a result of cultural misunderstandings.

2. An analysis of the dominant ethical philosophy in society, deontology versus

teleology, will aid in the development of a more effective code of ethics.

3. Performing an analysis of each nation’s environmental factors will help identify

potential ethical dilemmas and improve codes

4. The development of Culture-Contingent Code of Ethics will lead to a decrease

in fines related to unethical behavior and will minimize harm caused to citizens of

foreign nations.

5. Analyzing the specific characteristics of a moral issue, known cumulatively as the

moral intensity, prior to engaging in moral behavior will result in better decisions

by managers operating in foreign nations.

6. The moral decisions made by managers who follow a culture-contingent code of

ethics will result in more ethical behavior than if a code of ethics is not followed.

7. The continual evaluation of ethical performance, and adjustment of culture-

contingent codes of ethics will lead to higher ethical performance.

It is possible to present ethical theory linked to practical functions in business to ensure proper

performance and avoid ethical and economical disasters and minor problems. Robertson & Fadil

present a 7-step scenario to develop culture-based framework for a corporate code of ethics.

(Robertson & Fadil, 1998.)

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8. Conclusions and summary

To sum up, there do not seem to be any clear rules of business ethics. Rather, there is a set of practices

and frameworks that brings decision-makers into ethical considerations when dealing with different

interest groups. To further identify these models and the related normative valuations seems to be an

important task in the VIP D8. Ethics in business practices can be regarded as a responsibility in decision

making, when there are no explicit rules.

During this research, we have come to the conclusion that values in an organization are (or should be)

the results of an internal process and intention rather than explicitly stated norms. There are many paths

to find values and the ethics practised, and there are, in addition, several alternatives for selecting values

and the forms of ethics. The methods for reaching corporate ethics are important. One can notice them

as an integral part of business ethics.

RECOMMENDATIONS

When one looks for possible ethical structures, one can identify ethical types of opinions among

different stakeholders, an ethical policy towards them, and ethical expectations and demands from their

side. The dynamics of this discussion can be understood partly through ethical analysis and codes. At

any rate, what is most important is to start discussion and a process in order to define and implement

tailored ethical rules and recommendations for the company and for the special environment. In other

words, ethical theory, analysis and codes are guidelines and tools for a company to understand ethical

structures and use ethics as a real resource.

84


9. References

[1] William K. Frankena, Ethics, second edition, Prentice Hall, 1973, page 4

[2] Lennart Koskinen, Kannattaako Etiikka?, Like, 1999

[3] Aaltonen, Junkkari, Yrityksen Arvot & Etiikka, 1999, WSOY

[4] Benjamin Gomes-Casseres, The Alliance Revolution – The New Shape of Business Rivalry,

Harvard University Press, 1996

[5] J. Carlos Jarillo, Strategic Networks, Creating the borderless organization, Butterworth

Heinemann, 1993

[6] SA 8000, source http://www.cepaa.org/

[7] Schneider, Susan C, Managing Across Cultures, Prentice-Hall, 1997

[8] Hofstede, Culture’s Consequences: International differences in work related values, 1980

[9] Hofstede, “Dimensions of National culture in fifty countries and three regions”, 1983

[10] McTaggert, James M, etc., The Value Imperative - Managing for Superior Shareholder Returns,

Cloth. Free P, US, UK, 1994, ISBN: 0029206707.

[11] Clarkson, Max B E, A stakeholder framework for analyzing and evaluating corpora, Academy of

Management. The Academy of Management Review, Jan 1995

[12] Hitt, Ireland and Hoskisson, Strategic Management: Competitiveness and Globalization:

Concepts, 4th edition

[13] Donaldson and Lorsch, Decision making at the top, 37.

[14] Porter, “input-output model”

[15] Donaldson, Thomas; Preston, Lee E, The stakeholder theory of the corporation: Concepts,

evidence, Academy of Management. The Academy of Management Review, Jan 1995

[16] Kotter, J. & Heskett, J. 1992. Corporate culture and performance. New York: Free Press

[17] Preston, L.E., Sapienza, H.J. 1990 Stakeholder Management and Corporate Performance.

Journal of Behavioural Economics, 19:361-375

[18] Jones, Tomas, Instrumental Stakeholder Theory: A synthesis of ethics and…, The Academy of

Management Review, Apr 1995

[19] Vitell, Scott J; Nwachukwu, Saviour L; Barnes, James H, The effects of culture on ethical

decision-making: An application of Hofstede's typology, Journal of Business Ethics, Oct 1993

[20] Zey-Ferrel et al,1979; Zey-ferrel and Ferral 1982

[21] Cohen, Jeffrey R.; Pant, Laurie W.; Sharp, David J., Cultural and Socioeconomic Constraints on

International Codes of Ethics: Lessons from Accounting Journal of Business Ethics, Sep 1992

[22] Pietarinen Juhani, Poutanen Seppo; Etiikan teorioita, Tampere 2000.

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[23] Ringbom Mårten; Etiikan haarat ja teoriatyypit, luentomoniste, University of Helsinki, 1973.

[24] Walker Ralph; Kant ja moraalilaki, Keuruu 2000.

[25] Mill John Stuart; Utilitarismi, Tampere 2000.

[26] Oksanen Markku, Rauhala-Hayes Marjo (eds.); Ympäristöfilosofia, Kirjoituksia

ympäristönsuojelun eettisistä perusteista. Tampere 1999.

[27] This chapter is based on text: Stenmark Mikael; Sammanfattning av projektet: Miljöetik och

miljövård, Våra värderingars betydelse för skapandet av ett miljöanpassat samhälle, Rapport från

ett projekt finansierad av Svenska Naturvårdsverket och MISTRA, Uppsala universitet,

Teologiska institutionen, 1999

http://www.hotel.uu.se/teol/homepage/mikael_stenmark/miljöetik.htm. The rwport seems to

be on line with prevailing ethical theory related to environment. See Oksanen & Rauhala-Hayes

(eds.) 1999.

[28] Reilun kaupan edistämisyhdistys ry.; Tutkimus suhtautumisesta eettiseen kaupankäyntiin /

yritystoimintaan.

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86


Exhibit 1.

Source: Cohen, Jeffrey R.; Pant, Laurie W.; Sharp, David J.,Cultural and Socioeconomic Constraints on InternationalCodes of Ethics: Lessons from Accounting Journal ofBusiness Ethics, Sep 1992

FundamentalPrinciples

DetailedGuidelines

Cultural values, e.g.,•Indidualism•Power Distance•Uncertainty Avoidance•Masculinity/Feminity

Socioeconomic Conditions, e.g.,•Level of ProfessionalDevelopment and Expertise•Availability of EconomicRescources

ETHICAL CONDUCT OFPROFESSIONALS

e.g., ACCOUNTING

•Aggressiviness in generating•retaining or billing clients•Acceptability of bribes•Independence ofmanagement

Factors affecting implementation of professional codes of t

Professional Codeof Conduct

Moderating Constraints Behaviors

International Environment

Factors affecting implementation of professional codes of conduct presented by Cohen, Pant and Sharp

[21].

87

theoretical essence of business ethics

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