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Introducing Business Ethics

Topic 1 Overview
Topics Learning Objectives:
Understand in depth the basic elements of business ethics

Distinguish between, law, ethics, morality, and ethical theory

Critically discuss the triple bottom line of sustainability

Analyse in depth the notion of Corporate Responsibility

Apply the Stakeholder Theory in an organisation of your choice

Introduction
On the sixth of June, 2012, an article by the environmental correspondent Fiona Harvey
hit the Guardian printed and online newspaper. Titled, Tesco supplier accused of
contributing to Amazon rainforest destruction, the article was discussing how the British
consumers are unwittingly contributing to the devastation of the Amazon rainforest by
buying meat products from the number one supermarket-chain Tesco. The allegations
were the outcome of an 18-month investigation carried out by the environmental group
Greenpeace. According to Greenpeace, canned beef from the supermarket chain has
been found to contain meat from ranches that have been carved out of the lands of
indigenous peoples, and farms the Brazilian government believes have been sited in
illegally deforested lands.

The campaigning group claims it unearthed evidence of serious violations of theJBSs


own ethical code (a big Brazilian supplier of meat and cattle byproducts), and those of
companies it supplies, including Tesco.

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Sarah Shoraka, forests campaigner at Greenpeace, said: "Beef farming is the biggest
cause of Amazon destruction. In response, Tesco said it had begun to terminate its
contracts with JBS more than a year ago, but certain products could still be within its
supply chain because of the time needed to end the agreements. The company added:
"We are committed to tackling rainforest deforestation, including working with other
consumer goods companies (through the Consumer Goods Forum) to help end
deforestation by 2020 (online at: http://www.guardian.co.uk/environment
/2012/jun/06/tesco- supplier-amazon-rainforest-destruction, 06/06/2012).

So is this just another corporate wrong doing? It is interesting really how Tescos
published codes of ethics and corporate social responsibility does not seem to have
stopped certain products from entering the supply chain and ending in consumers
homes. It seems that this case is just another undesirable activity among hundreds of
corporate scandals, misconducts and unethical practices, such as polluting rivers with

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industrial chemicals, the exploitation of workers, the payment of bribes to government
officials, and deception of unwary consumers. But how can business ethics reverse or
obviate unethical wrong-doing? And should businesses be subject to the same moral
standards as the rest of society? In this Topic overview we discuss what business
ethics is and how it influences businesses and people.

Main Analysis
Various scandals concerning undesirable activities have highlighted the unethical way in
which some firms have gone about their business. But just because such scandals took
place does not mean that ethics are not necessary. For instance, if there are not
business ethics, how do we know what is right and what is wrong. This question is
answered by the definition of business ethics:

Business Ethics is the study of business situations, activities, and


decisions where issues of right and wrong are addressed

Crane and Matten, 2010:5

In other words, business Ethics are the moral principles and values that guide a firms
behaviour. By right or wrong we mean morally right or wrong NOT commercially,
financially, or strategically right or wrong

Ethics are the moral principles and values that govern the actions and
decisions of an individual or group. They involve values about right and
wrong conduct

But is everything that is unethical illegal? Not all unethical practices are illegal. For
example, it is not illegal to include genetically modified (GM) ingredients in products sold
in supermarkets. Nor is it illegal for Google to launch a self-censored search engine that
prevents access to sensitive subjects in China, yet the action has been criticized on
ethical grounds. Also, although McDonalds food is criticised for being unhealthy and
getting cooked with unhealthy cooking processes, yet it is legal to sell and consume.

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Business Ethics and the Law
Is business ethics the same with law? Law isnt also about what is right or wrong? Laws
and regulationsstate, federal, and internationalare an obvious starting point for
companies, their executives, and employees wanting to do the right thing. But there are
issues that are ethical but not covered by law. Also, there issues that are covered by
law but are not really about ethics (e.g. should we drive on the right side of road?).

Business ethics can be said to begin where the law ends. Business ethics is primarily
concerned with those issues not covered by the law or where there is no definite
consensus on whether something is right or wrong. In this sense, Business ethics is
not like subjects such as accounting, finance, engineering, or business law where
you are supposed to learn specific procedures and facts in order to make
objectively correct decisions. Studying business ethics should help you to make
better decisions, but this is not the same as making unequivocally decisions.

Why is business ethics important?


To provide an answer as to why business ethics is important, we need first to explain
morality and ethics. Morality is concerned with the norms, values, and beliefs
embedded in social processes which define right or wrong for an individual or a
community. Ethics is concerned with the study of morality and the application of reason

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to elucidate specific rules and principles that determine right and wrong for a given
situation. These rules and principles are called ethical theories. These rules and
principles are called ethical theories. So let us see (and question at the same time)
why business ethics is important for the people, consumers, and the society in general:

1. The power and influence of business in society is greater than ever before

2. What is the contribution of business to society?

3. Because they improve human condition rather than harming

4. Because they meet ethical expectations of stakeholders

5. Business ethics can help to improve decision making

6. Ethical violations and scandals continue to occur in business across counties and
sectors

7. Business ethics can provide us with the ability to assess the benefits and
problems associated with different ways of managing ethics in organisations

8. Business ethics help us to understand societies in a more systematic way

The importance of business ethics, however, becomes even more important if we


consider the contemporary global nature of businesses today. Globalization in other
words, is a key context for business ethics. But what is globalization? Globalization has
become one of the most prominent buzzwords of recent times.Is it internationalization,
universalization, westernization, or just another form of colonization? What is the
difference between globalization and colonization? It is still an export of western culture
to other countries. How does it differ? Well, the following definition seems to be
satisfactory:

Globalization is a process which diminishes the necessity of a common and


shared territorial basis for social, economic, and political activities, processes
and relations

This definition is satisfactory because it is contemporary. In other words, it takes into


consideration two developments that enabled globalization to become what it is today.
The first development is technology. People today can step on a plane and after a
passable meal and a short sleep arrive some time later on the other side of the globe.
Also, think about the immediacy of radio, internet, internet sales, E-market, TV and the
jet engine.

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The second development is political. Territorial borders have been the main obstacles
to worldwide connections between people. After the fall of the iron curtain in Eastern
Europe territorial borders are more liberalized. Also, there are no borders in the EU.
Following this line of thought, Schotte (2005) characterizes globalization as
deterritorialization. Globalization as defined in terms of the deterritorialization of
economic activities is particularly relevant for business ethics, and this is evident in
three main areas: culture, law, and accountability, as described below.

1) Globalization and Business Ethics - Cultural Issues

As business becomes less fixed territorially, so corporations increasingly engage in


overseas markets, suddenly finding themselves confronted with new and diverse,
sometimes even contradictory ethical demands. Moral values that were taken for
granted in the home market may be questioned as soon as corporations enter foreign
markets. For example, attitudes to racial and gender diversity in Europe may differ
significantly to those in Middle Easter countries. Similarly, Chinese people may regards
it more unethical to sack employees in times of economic downturns that would be
typical in Europe.

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Also, consider the case of Playboy, the US
adult magazine, which had to suspend its
Indonesia edition and vacate the company
premises in 2006 in the wake of violent
protests by Islamic demonstrators even
though the Indonesian edition was toned-
down version that did not show nudity.

Another example is the capital punishment, or if you want, death penalty. Europeans
largely disapprove of capital punishment, whilst many Americans appear to regard it
morally acceptable.

2) Globalization and Business Ethics - Legal issues

The more economic transactions loose the connection to a certain regional territory, the
most they escape the control of national governments (where their power is confined to
their territories). For example, as a company leaves its territory and moves its
production chain to a developing country, the legal framework becomes different. So
managers can no longer simply rely on the legal framework when deciding right or
wrong. So ethics here are important because ethics start where the law ends

3) Globalization and Business Ethics - Accountability issues

Corporations own the mass media that influence much of the information and
entertainment; the supply global products; they pay our salaries; and pay the taxes that
keep governments running. For instance, in 2008 the gross domestic product (GDP) of
Greece was about the same as the revenue of Wal-Mart (US $440bn). However,
whereas the Greek government has to be accountable to the Greek people, Wal-Mart is

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only accountable to the small group of its shareholders. As a result, control is less open
to democratic control.

Think Theory 2
Capital punishment and topless sunbathing are interesting
issues to think about globalization theory and cultural
dimensions of ethics, but have little to do with business
responsibility as such. Can you think of some similar examples
that a business might have to deal with?
(Take a pen and write down your answer. As soon as you finish thinking
and writing, check at the end of the topic overview for feedback)

Key issues in business ethics


There are a number of key issues in business ethics, such as Privacy, Workers rights,
Salary issues, Whistleblowing, Ethical organizing of business, Ethics of capitalism,
Economic rationality, Mismanagement and Corruption. All these issues will be explored
throughout the next six weeks. Faced with such problems (and many more besides), it
has been widely suggested that the goals and consequences of business require radical
re-thinking. Following the Rio Earth Summit of 1992, one concept in particular appears
to have been widely promoted as the essential new conceptual frame for assessing not
only business activities specifically, but industrial and social development more
generally. The concept is sustainability.

Sustainable development is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs. (World
Commission on Environment and Development 1987).

Sustainability refers to the long-term maintenance of systems according to


environmental, economic and social considerations.

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There are three
components of
sustainability, namely,
a) economic b) social
and c) environmental.
Differently, this is
called the triple bottom
line. Please examine
this model over the net
and then consider
Think Theory 2.

Think Theory 2
Consider each of the Millennium Development Goals and set out
how business could reasonably contribute to progress towards
them.

(Take a pen and write down your answer. As soon as you finish thinking
and writing, check at the end of the topic overview for feedback)

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Summarizing and moving on:
So far we said that,

Business Ethics is the study of business situations, activities, and decisions


where issues of right and wrong are addresses

We also said that,

Corporations produce the great products we want to buy; they pay our salaries;
and pay the taxes that keep governments running

So is this contribution not enough? Why should corporation comply to societys rules?
Before we answer this question, we define and understand what the corporation is. To
do so, please watch the What is a corporation video which is posted on VLE, below
topics 1 overview.

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What is a Corporation?
1) Corporations are typically regarded as artificial persons in the eyes of the
law:

that is, they have certain rights and responsibilities in society, just as an individual
citizen might

2) Corporations are notionally owned by shareholders, but exist


independently of them

The corporation holds its own assets and shareholders are not responsible for the
debts or damages caused by the corporation (they have limited liability).

3) Managers and directors have a fiduciary/ holding responsibility to protect


the investment of shareholders

This means that senior management is expected to hold shareholders investment in


trust and to act in their best interests. Ho this is legally structured varies across different
parts of the world.

Within this framework, corporations appear to be legal persons, exactly as you, myself,
and everybody else. Before you move on, watch the video The Corporation as legal
person which is posted on VLE, below your topic 1 overview.

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But can a corporation be ethically responsible for its actions? There is evidence to
suggest that the legal designation of a corporation makes it unable to be anything but
self-interested (Bakan 2004). In other words, it cannot feel, sympathise or care about
society. In effect, the corporation is an unfeeling psychopath, which is by any
reasonable measure hopelessly and unavoidably demented. At this point, please watch
the video titled The Corporation as a Psychopath which is posted on the VLE, under
the topic 1 overview.

So if a corporation is a psychopath, why does it have or need to have Social


Responsibilities? Well, a corporation need to perform responsibly for two reasons. The
first reason, is business related self interests. Self interest reasons include:

1. Corporations perceived as responsible might be rewarded with more satisfied


customers.

2. Not responsible may result in boycott actions

3. Better brand reputation

4. Employees may be attracted to work and be more committed to responsible


companies

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5. Voluntarily committing to social actions and programmes may prevent legislation
action

6. Positive contribution to society might be regarded as a long-term investment in a


safer community

Secondly, a corporation needs to perform responsibly for moral reasons. Moral reasons
include the following:

1. Corporation cause social problems (e.g. Pollution), and hence have a


responsibility to solve those caused and prevent further social problems

2. As powerful social actors, corporations should use their power and resources
responsibly in society

3. All corporation activities have social impacts of one sort or another (e.g to its
employees & customers). Hence corporations cannot escape responsibility for
those impacts (negative or positive).

4. Corporations rely on the contribution of a much wider set of constituencies, or


stakeholders in society, rather than just shareholders

Before you move on, read the think theory 3 and try to answer the question set.

Think Theory 3
Theories of CSR suggest there are both business and moral reasons for
engaging in social initiatives. Go to the website of one or two companies
of your choice and find the section dealing with social issues (the page may
be headed CSR or sustainability, or perhaps corporate citizenship) and see
what kinds of reasons the corporations give for their involvement in CSR. Is
there a balance of business and moral reasons, or does one type of reason
predominate? How do you explain this?

(Take a pen and write down your answer. As soon as you finish thinking
and writing, check at the end of the topic overview for feedback)

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So, at this point we can answer the question What is Corporate Social Responsibility.

Corporate social responsibility includes the economic, legal, ethical, and


philanthropic expectations placed on organizations by society at a given point in time
(Carroll and Buchholtz 2009:44). According to Carrolls four part model of CSR, we have
the following types:

Economic Responsibilities: the duty of managers, as agents of the company


owners, to maximize stockholder wealth

Legal Responsibilities: the firms obligations to comply with the laws that regulate
business activities

Ethical Responsibilities: The strategic managers notion of right and proper


business behaviour

Philanthropic/ Discretionary responsibilities: responsibilities voluntarily assumed


by a business, such as public relations, good citizenship, and full corporate
responsibility.

Carrolls four-part model of


corporate social responsibility
Desired by society
Philanthropic
Responsibilities
Expected by society
Ethical
Responsibilities

Required by society
Legal
Responsibilities
Required by society
Economic
Responsibilities
Source: Carroll (1991)

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Stakeholder theory of the firm

The stakeholder theory of the firm is probably the most popular and influential to
emerge from business ethics (Stark 1994). The main starting point is the claim that
corporations are not simply managed in the interests of their shareholders alone. There
is a whole range of groups to have legitimate interests in the corporation as well. Let us
see a number of definitions:

1. those groups without whose support the organization would cease to exist
(Stanford, 1963)

2. The group of people that can affect or it is affected by the achievement of the
organizations objectives (Freeman, 1984)

3. Those who benefit from or harmed by, and whose rights are violated or
respected by corporate actions (Evan and Freeman, 1993)

4. The stakeholder of a corporation is an individual or a group which either: is


harmed by, or benefits from, the corporation; or whose rights can be violated, or
have to be respected, by the corporation (Crane and Matten, 2010)

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Stakeholder theory of the firm

Government Competitors

Customers
Shareholde
rs Firm

Suppliers Employees
Civil
society

In other words, stakeholders are claimants. There are legitimate rights for the firms
claimants. Stakeholders include:

Employees

Stockholders

Customers

Suppliers

Governments

Unions

Competitors

Local communities

The general public

Each interest group expects (demands) satisfy their claims in responsible manner. For
instance:

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Stockholders expect return for their investments

Employees seek job satisfaction

Customer want what they pay for

Suppliers seek dependable buyers

Governments want adherence to legislation

Unions seek benefits for their members

Competition want a fair competition

Local communities want the firm to be responsible citizen

Public expects firms existence to improve life quality

Summary

In this topic we have defined business ethics, and set it within a number of significant
currents of thinking. We have distinguish between, law, ethics, morality, and ethical
theory and argued that business ethics are contextualized by the forces of globalization.
Then, we identified sustainability and defined what a corporation is and the tool of
corporate social responsibility. Finally, we presented the stakeholder theory. In the next
topic, we will be examining the role of ethical theory in an international context. Analysis
would depart from traditional ethical context towards examining contemporary ethical
theories.

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Further Reading
Most of the following books and articles are available online

Beck, U. 1999. 'What is Globalization?'. Cambridge: Polity Press.


This book provides an overview of the issues related to globalization.
Donaldson, T. 1996. Values in Tension: Ethics Away from Home. Harvard Business
Review (Sep-Oct): 48-62.
This piece reviews issues related to cross-cultural ethics.
Dunphy, D., Griffiths, A., & Benn, S. 2003. 'Organizational change for corporate
sustainability: A guide for leaders and change agents of the future'. Abingdon: Routledge.
The book brings together global issues of economical sustainability, human
resources management, corporate citizenship and community renewal to create a
unified approach to global sustainability.
Jones, C. 2003. As if Business Ethics Were Possible, Within Such Limits . . .
Organization 10(2): 223-248.
This article looks at the more recent work of Derrida and tries to apply his theory
on ethics to business.
Lee, M.-D. P. 2008. A review of the theories of corporate social responsibility: Its
evolutionary path and the road ahead. International Journal of Management Reviews,
10(1): 53-73.
This paper provides a useful overview of the conceptual evolution of CSR theories,
identifying two broad shifts in how CSR is conceptualized. It also discusses the
limitations of this development.
Bakan, J. 2004. 'The Corporation: The Pathological Pursuit of Profit and Power'. Free
Press: New York.
The book provides an analysis of the modern corporation and its implications for
social and environmental responsibility. Some of the videos posted on your VLE are
part of this book.
Bansal, P. (2005) Evolving Sustainably: A Longitudinal Study of Corporate Sustainable
Development, Strategic Management Journal, 26: 197-218.
This article illustrates some of the macro factors that influence corporate
sustainable development.
Carroll, A. 1979. A Three-Dimensional Conceptual Model of Corporate Performance.
Academy of Management Review 4(4): 497-505.
An early seminal piece on defining and better understanding corporate social
performance.
Clarkson, M. B. E. 1995. A stakeholder framework for analyzing and evaluating
corporate social performance. Academy of Management Review, 20(1): 92-117.
The author presents conclusions of a ten-year research programme. It stresses the
importance of distinguishing between stakeholder issues and social issues.
Donaldson, T. and Preston, L. 1995. The Stakeholder Theory of the Corporation:
Concepts, Evidence and Implications. Academy of Management Review 20(1):65-91.

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This paper explores and expands our understanding of stakeholder theory, and
illustrates three different types.
Freeman, R. E. 1994. The politics of stakeholder theory: Some future directions. Business
Ethics Quarterly, 4(4): 409-421.
Freeman builds on earlier work to clarify foundational issues of the stakeholder
approach.
Friedman, M. 1970. The Social Responsibility of Business is to Increase Its Profits. New
York Times Magazine, Sept. 13, 32/33.
An early seminal piece refuting the idea of corporate social responsibility.
Garriga, E. and Mele, D. 2004. Corporate Social Responsibility Theories: Mapping the
Territory. Journal of Business Ethics, 53: 51-71.
A categorization and grouping of the multitude of CSR theories in the literature.
Kolk, A., & Pinkse, J. 2007. Towards strategic stakeholder management? Integrating
perspectives on sustainability challenges such as corporate responses to climate change.
Corporate Governance, 7(4): 370-378.
The authors show that corporate strategy on an issue depends on the types of
stakeholders a company proactively engages with, and on stakeholders control of
critical resources. They use climate change as an example.
Mitchell, R., Agle, B. and Wood, D. 1997. Toward a Theory of Stakeholder Identification
and Salience: Defining the Principle of Who and What Really Counts. Academy of
Management Review, 22(4): 853-886.
This article provides a method for identifying stakeholders based on urgency,
legitimacy and power.
Secchi, D. 2007. Utilitarian, managerial and relational theories of corporate social
responsibility. International Journal of Management Reviews, 9(4): 347-373.
New review of concepts and theories of CSR, taking recent developments into
account. Secchi identifies three groups of CSR theories.
Shamir, R. (2004) Between Self-Regulation and the Alien Tort Claims Act: On the
Contested Concept of Corporate Social Responsibility, Law & Society Review, 38(4):
635-664.
This article describes cases of MNCs sued in the US for human rights abuses in
other countries and is used to illustrate the way society discusses these issues has
implications for what happens in practice.
Windsor, D. 2006. Corporate Social Responsibility: Three Key Approaches. Journal of
Management Studies, 43(1): 93-114.
A comparison of the more common approaches to corporate social responsibility.

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Feedback to think theory boxes:
Think theory 1
There are cultural differences almost everywhere that businesses may have to deal
with. Food provides one set of potential stumbling blocks that can greatly affect the
business: global restaurant chains may face culturally-specific issues in different
markets due to religious custom (such as selling pork in Muslim or Jewish areas, using
beef fat for French fries in Hindu areas). Another example with potentially-significant
consequences is in simple non-verbal communication. A nod of the head usually means
yes, and a shake, no; but in Bulgaria this is apparently reversed, with a shake of the
head indicating yes and a nod, no.

Think theory 2
There are numerous possible answers. Here are just some examples:
Eradicate extreme poverty and hunger.
o Provide local employment, engage in local poverty-eradication programmes.
Achieve universal primary education.
o Focus philanthropic activities on primary education.
Promote gender equality and empower women.
o Rigorous approach to non-discriminatory employment practice, including
gender training; employ suitably qualified women in leadership positions.
Reduce child mortality.
o Provide good health-care benefits for employees where these are not stateprovided.
If there is no clinic in the area, work with partners (e.g.
government) to provide one, providing funding and/or in-kind support.
o Support advertising campaigns with money, on products, as appropriate.
Combat HIV/AIDS, malaria, and other diseases.
o As above.
Ensure environmental sustainability.
o Adopt industry best-practice as standard.
o Get offices and/or plants environmentally certified across global operations
(e.g. ISO 14000).
Develop a global partnership for development.
o Play a role with partners like government and civil society.
Moreover, where appropriate, consider seconding staff to government ministries if their
skills would be of use in capacity-building.

Think theory 3
The specific kinds of reason given will depend on the exact nature of companies whose
websites students visit. For this question, two car company websites were considered.

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Both give mostly business reasons for their social initiatives, and both companies
clearly hope to profit from their CSR initiatives. Consider the words of one chief
executives note to readers: lasting business success is possible only if environmental
and social concerns arent neglected. * Other companies may choose to give mostly
moral reasons for their actions, but as the textbook argues, corporate motives are
difficult, sometimes impossible, to determine.

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