Summary Book Business Ethics Chapter 1 9

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Summary - book "business ethics" - Chapter 1 - 9
Business Ethics (Rijksuniversiteit Groningen)
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Corporate Social Responsibility – summary book

Chapter 1: introducing business ethics
What is business ethics?

Business ethics is an oxymoron: it brings together two contradictory concepts, such as in ‘a cheerful pessimist’. It
is about what is morally right or wrong. There can not be ethics in business, business is in some way unethical.
Business ethics: the study of business situations, activities, and decisions where issues of morally right and
morally wrong are addressed.
So a firms business ethics is it’s practice of addressing issues of right and wrong in business situations, activities
and decisions.
Grey area
Ethics starts where law ends, this is the so called grey area as you can see in the figure above.
Many problems are equivocal, what means that there simply may not be a definitive ‘right’ answer to many
business ethics problems.
Business ethics problems also tend to be very controversial and open to widely different points of view.
Studying business ethics should help you to make better decisions, but this is not the same as making
unequivocally right decisions. Business ethics is principally about developing good judgement.
Defining morality, ethics and ethical theory

Morality: the norms, values, and beliefs embedded in social processes which define right and wrong for an
individual or a community.
Ethics: the study of morality and the application of reason to elucidate specific rules and principles that determine
right and wrong for a given situation. These rules and principles are called ethical theories.
Ethics is about some form of rationalization of morality.
So, ethics rationalizes morality to produce ethical theories that can be applied to any situation.
morality ehtics ethical theory potential solutions to

ethical problems
ethics rationalize morality… …to produce ethical theory… …that can be applied to any situation
Why is a good understanding of business ethics important?

1. The power and influence of business in society is greater than ever before.
2. Business has the potential to provide a major contribution to our societies (producing the products and
services that we want, providing employment, paying the taxes etc.). business ethics can also solve
complex social problems.
3. Business malpractices have the potential to inflict enormous harm on individuals, on communities and
on the environment. Business ethics can be used to improve the human condition.(bijv. Ingestort gebouw
in Bangladesh)
4. The demands being placed on business to be ethical by its various stakeholders are constantly
becoming more complex and more challenging. Business ethics help to understand these challenges
more clearly, in order that films can meet these ethical expectations more effectively.
5. employees face significant pressure to compromise ethical standards
6. business faces a trust deficit; mensen vertrouwen niet meer op business leaders, dit moet hersteld
worden.
Ook wordt ethics steeds meer opgepikt door de media, dit zorgt voor meer bekendheid.
Business ethics in different organizational contexts

Small businesses typically differ in their attention and approach to business ethics to big corporations. These
differences include:
- The lack of time and resources small business managers have available to focus on ethics
- Their autonomy and independence with respect to responsibilities to other stakeholders
- Their informal trust-based approach to managing ethics
- They asses their employees as their single most important stakeholder

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large companies Small businesses Civil society Public sector

organizations organizations
(vrijwillig / nonprofit)
Main priorities in Financial integrity, Employee issues Delivery of mission to Rule of law;
addressing ethical employee / customer clients; legitimacy and corruption; conflicts of
issues issues accountability; integrity interest; procedural
of tactics issues; accountability
Approach to Formal, public Informal, trust-based Informal, values-based Formal, bureaucratic
managing ethics relations and / or
systems-based
Responsible and / or Shareholders and Owners Donors and clients General public, higher
accountable to stakeholders level government
organizations
Main constraints Shareholder Lack of resources and Lack of resources and Inertia (traagheid),
orientation, size and attention formal training lack of transparency
complexity
Globalization: a key context for business ethics?

There is no doubt that globalization is the most current and demanding arena in which corporations have to define
and legitimate the rights and wrongs of their behavior.
Globalization as a new phenomenon has often been mixed up or confounded with a host of other related
phenomena:
- Internationalization: which is a part of globalization, but not a new process as such: at the end of the
nineteenth century, the percentage of cross-border transactions worldwide was not considerable lower
than at the end of the twentieth century.
- Westernization: since it seemingly results in the export of western culture to other, culturally different,
world regions.
Race to the bottom: companies look for foreign direct investment to those countries that can offer them the most
favourable conditions in terms of low tax rates, low levels of environmental regulation, and restricted workers’
rights. Multinationals spelen hiermee ontwikkelingslanden tegen elkaar uit.
The link between social connections and a specific territory has continuously been weakened, the next two
developments have been very important for this globalizationsproces:
- Technology: they open up the possibility of connecting and interacting with people despite the fact that
there are large geographical distances between them.
- Political: borders have become less important, you can travel easily between countries.
Globalization: a process which diminishes the necessity of a common and shared territorial basis for social,
economic, and political activities, processes and relations.
Globalization could also be defined as: ongoing integration of political, social, and economic interactions at
transnational level, regardless of physical proximity (nabijheid) or distance.
deterritorialization: connections don’t longer need a geographical territory to take place and they are not restricted
by territorial distances and borders any more.
Globalization is particularly relevant for business ethics. This is evident in three main areas:
1. Cultural issues: With business becoming less fixed territorially, corporations increasingly engage in
overseas markets, suddenly finding themselves confronted with new and diverse, sometimes even
contradictory ethical demands. Bijv. Kinderarbeid, dit wordt in India wel gedoogd, in de EU echter totaal
niet.
2. Legal issues: Business ethics largely begins where the law ends, then deterritorialization increases the
demand for business ethics because deterritorialized economic activities are beyond the control of
national (territorial) governments. (NL wet geldt alleen in NL, dus als een bedrijf zich vestigd ergens
anders in de wereld, kunnen ze ne NL wet ontlopen).
3. Accountability issues: Corporations are the dominant actors on the global stage. Multinationals own
the mass media that influence much of the information and entertainment we are exposed to, they supply
global products, they pay our salaries, etc.
- The more economic activities get deterritorialized, the less governments can control them,
and the less they are open to democratic control by the affected people, put it simply:
globalization leads to a growing demand for corporate accountability.
Globalization also has an opposite effect on business: the more business becomes global, the more it gets
exposed to regions and countries where ethical values and practices are still vastly different.
By looking at the variety in approaches to business ethics, you can ask 5 key questions:

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Europe North America Asia

Who is responsible for Social control by the The individual Top management
ethical conduct in collective
businesses?
Who is the key actor? Government, trade unions, The corporation Government, corporations
corporate associations
What are the key Negotiated legal framework Corporate codes of ethics Managerial discretion
guidelines for ethical of businesses
behavior?
What are the key issues in Social issues in organizing Misconduct and immorality in Corporate governance and
business ethics? the framework of business single decisions situations accountability
What is the dominant actor Formalized multiple Focus on shareholder value Implicit multiple stakeholder
stakeholder management stakeholder approach approach, benign
approach? managerialsm
Why are there differences in business ethics in other parts of the world? Reasons:
- Practice of religion
- Historic roots
- Widely publicized corporate scandals
The impact of globalization on different stakeholders:

 Shareholders → more profit
 Employees → less jobs because of outsourcing work to developing countries
 Consumers → cheaper products because of outsourcing
 Competitors → can’t produce that cheap and they go bankrupt
 Government → get’s less power because of the powerful multinationals and worse corporate
responsibility.
Sustainability: a key goal for business ethics?

Impacts of business in the society:
- Environmental pollution (climate change, door meer transport en ‘throw-away-culture’.
- Increasing problems of waste disposable and management
- Devastating consequence for individuals and communities as a result of plant closures and downsizing
- The erosion of local cultural and environments due to the influx of mass tourism.
Therefore, sustainability is playing a bigger and bigger role for business.

Sustainable development: development that meets the needs of the present without compromising the ability of
future generations to meet their own needs.
Sustainability: the long-term maintenance of systems according to environmental, economic and social
considerations. Sustainability also raises considerations of intergenerational equity, this means equality between
one generation and another.
A term that is central in this case is the ‘triple bottom line’. This is the idea of John Elkington that business does
not have just one single goal, namely adding economic value, but that it has an extended goal set which
necessitates adding environmental and social value too.
So, the triple bottom line has three components:
 Economic perspectives: a narrow concept of economic sustainability focuses on the economic
performance of the corporation itself: the responsibility of management is to develop, produce, and
market those products that secure the long-term economic performance of the corporation
 Social perspectives: the key issue here is social justice.
 environmental perspectives: the basic principles of sustainability in the environment perspective
concern the effective management of physical resources so that they are conserved for the future.

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Chapter 2: framing business ethics

What is a corporation?
Key features of a corporation:
- corporations are typically regarded as independent from those who work in them, manage them, invest
in them or receive products or services from them.
- Corporations are typically regarded as ‘artificial persons’ in the eyes of the law. They have certain rights
and responsibilities in society, just as an individual citizen has.
- 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). Dit wordt perpetual succession genoemd, de entity overleeft wel
als een bestuurder / aandeelhouder / klant overlijdt.
- Managers and directors have a ‘fiduciary’ responsibility to protect the investment of shareholders. They
have to act in the shareholders’ best interests.
Can a corporation have social responsibilities?

Milton Friedman said that corporations don’t have social responsibilities. Three premises:
1. Only human beings have a moral responsibility for their actions. Corporations are not human beings and
therefore cannot assume true moral responsibility for their actions. Since corporations are set up by
individual human beings, it is those human beings who are then individually responsible for the actions of
the corporation
2. It is managers’ responsibility to act solely in the interests of shareholders. The only responsibility of the
managers of the corporation is to make profit. Acting for any other purpose constitutes a betrayal of their
special responsibility to shareholders.
3. Social issues and problems are the proper province of the state rather than corporate managers.
Managers should not, and can not, decide what is in society’s best interests. This is the job of the
government.
Can a corporation be morally responsible for its actions?

The question here is: is a corporation just a loose collection of individuals or is it a distinct entity which can
actually assume moral responsibility of it’s actions?
In this case we suggest four considerations:
- Legal identity: corporations have a distinct legal identity, they enter contracts, pay the taxes, enuring
safety of their products. So an entity has ‘normal’ rights and obligations.
- Agency: corporations can be said to decide and act independent of their members.
- Organizational culture: the organizational culture is about what is right or wrong (beliefs and values),
these values and beliefs are widely believed to be a strong influence on the individual’s ethical decision-
making and behavior.
- Functional identity: corporations present themselves and interact with customers and other stakeholders
as if they were distinct persons.
We can therefore conclude that corporations do indeed have some level or moral responsibility that is more than
the responsibility of the individuals constituting the corporation.
Why do corporations have social responsibilities?

Enlightened self-interest: the corporation takes on social responsibilities insofar as doing so promotes its own self-
interest.
Business arguments for CSR:
- Enhance (long-term) revenues: corporations perceived as being socially responsible might be rewarded
with extra / satisfied customers, while irresponsibility may result in a boycott / unsatisfied customers.
- Reduce costs: CSR can reduce costs as it helps saving energy, reducing waste and cutting out
inefficiencies.
- Manage risk and uncertainty: voluntarily committing to social actions and programmes may forestall
legislation and ensure greater corporate independence from government.
- Maintaining the social license to operate: making a positive contribution to society might be regarded as
a long-term investment in a safer, better educated, and more equitable community, which benefits the
corporation.
This are reasons why it could be advantageous for a corporation to act in a socially responsible manner.
Friedman was het niet oneens met deze argumenten, maar hij zei: het is vaak gewoon extra winst maken voor
een bedrijf, onder het mom van CSR.

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There are also some moral arguments for CSR:

- Externalities argument: All corporate activities have social impacts of one sort or another, whether
through the provision of products and services, the employment of workers, or some other corporate
activity. Hence, corporations cannot escape responsibility for those impacts, whether they are positive,
negative or neutral
- power argument: As powerful social actors, with recourse to substantial resources, corporations should
use their power and resources responsibly in society. ‘with greater power, comes greater responsibility.
- dependency argument: Corporations rely on the contribution of a much wider set of stakeholders in
society, rather than just shareholders, and hence have a duty to take into account the interests and goals
of these stakeholders.
What is the nature of CSR?

Archie Carroll came up with the ‘four-part model of corporate social responsibility’. He presents the different
responsibilities as layers within a pyramid. ‘True’ social responsibility requires the meeting of all four levels.
Corporate social responsibility: the attempt by companies to meet the economic, legal, ethical and philanthropic
expectations placed on organizations by society at a given point in time’.
The four levels are (from low to high):

1. Economic responsibility: shareholders want return on their investments,
employees want salary, customers want good quality products at a fair
price, etc. (required, anders blijft het bedrijf niet bestaan)
2. Legal responsibility: business need to abide by the law and ‘play by
the rules of the game’. (required)
3. Ethical responsibility: business need to do what is right, just and
fair. For example the issue of climate change. (expected)
4. Philanthropic responsibility: philanthropic means ‘the love of
the fellow human’. Activities that are within the corporation’s
discretion to improve the quality of life of employees,
local communities, and society in general.(desired)
Deze zijn het minst belangrijk.
A limitation of the model is that it does not adequately address the problem of what should happen when two or
more responsibilities are in conflict. Another problem with the model is that it is strongly biased towards the US
context.
CSR in an international context

Explicit CSR = CSR as an explicit activity of private companies.
Implicit CSR = social responsibilities of business are tightly embedded in the legal and institutional framework of
society.
Differences in CSR between the US and Europe:
- The aspect of economic responsibility in the US is strongly focused on the profitability of companies
and thus chiefly looks at the responsibility to shareholders. In Europe, economic responsibility is far more
broadly and focuses on the economic responsibility of corporations to employees and local communities
as well.
- In Europe, the element of legal responsibility is often regarded as the basis of every other social
responsibility (the state is prominent). In the US however, governmental rules are more likely to be
regarded as an interference with private liberty
- Different regions of the world differ in ethical values and preferences. For example, nuclear power,
genetic engineering, and animal testing is far higher up the public agenda in Europe than in other parts
of the world.
- With regard to the philanthropic responsibility, the US has a long-standing tradition of successful
companies or rich capitalists donating large sums to the funding of art, higher education, or local
community services. In Europe the taxes are generally higher and funding of these activities is more an
expectation towards governments.
So the four layer model of Caroll works in almost every international context, but it takes different nuances, and
may be accorded different significance.
Strategies of CSR
The way companies prioritize different levels of CSR depends on their overall strategy. Here we focus on two
basic options of CSR:

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Traditional CSR Contemporary CSR

Focus Risk Reward
Driver Image, brand, public acceptance Performance, markets, products
Relation to the bottom line No direct contribution: CSR is value Integral goals: CSR is value
distribution creation
Responsiveness* Reaction, defence Accommodation, pro-active
Motto CSR is bolt-on (‘ligt op de strategie CSR is built-in (behoort bij de
als extra) strategie, is geïntegreerd)
*Corporate social responsiveness: the capacity of a corporation to respond to social pressures.

There are four ‘philosophies’ or strategies of social responsiveness:
1. Reaction: the corporation denies any responsibility for social issues, for example, by claiming that they
are the responsibility of government, or by arguing that the corporation is not to blame.
2. Defence: the corporation admits responsibility, but fights it, doing the very least that seems to be
required. Hence, the corporation may adopt an approach based mainly on superficial public relations
rather than positive action.
3. Accommodation: the corporation accepts responsibility and does what is demanded of it by relevant
groups.
4. Pro-action: the corporation seeks to go beyond industry norms and anticipates future expectations by
doing more than is expected.
Many corporations appear to have a shifting strategy of social responsiveness.
Outcomes of CSR: corporate social performance

Corporate social performance: the principles of CSR, the processes of social responsiveness and the outcomes
of corporate behavior.
Three concrete areas of those outcomes:
1. Social policies: company’s values, beliefs, and goals with regard to its social environment.
Example: firms include social objectives in their mission statements
2. Social programmes: specific social programmes of activities, measures, and instruments implemented
to achieve social policies.
Example: firms have implemented programmes to manage their environmental impacts, based around
environmental management systems
3. Social impacts: concrete changes the corporation has achieved through the programmes implemented
in any period. The actual measurement of social performance however remains a complex task. (this one
is the most difficult to measure).
Example: employee welfare policies can be assessed with employee satisfaction questionnaires.
Stakeholder theory
Stakeholder theory: this is a theory of Edward Freeman, which starts by looking at various groups to which the
corporation has the responsibility.
(The CSR approach in opposite, strongly focuses on the corporation and its responsibilities).
To determine who in a specific situation can be considered as a stakeholder, Evan and Freeman suggest we can
apply two simple principles:
- Principle of corporate rights: the corporation has the obligation not to violate the rights of others.
- Principle of corporate effect: companies are responsible for the effects of their actions on others.
A stakeholder of a corporation is an individual or 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.
Why stakeholders matter

Milton Friedman thinks that managers only have to act in the interests of the shareholders.
On the contrary, Edward Freeman gives two arguments for the stakeholder theory:
1. From a legal perspective, there are far more groups apart from shareholders that appear to hold a
legitimate ‘stake’ in the corporation since their interests are already protected in some way (regelingen
voor werknemers, dat ze betaald moeten worden etc.)
2. An economic perspective; Rather than being simply agents of shareholders, management has to take
into account the rights and interests of all legitimate stakeholders. Shareholders mostly buy the shares
for short-term profit, not for long-term profit or for ownership. ‘Shareholders can sell their stocks far more
easy than most employees can find another job’.
Different forms of stakeholder theory

There are not only different ways in which a stakeholder approach can be implemented, but there are actually
quite different forms of the theory itself. There are three forms:

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1. Normative stakeholder theory: theory that attempts to provide to provide a reason why corporations
should take into account stakeholder interests
2. Descriptive stakeholder theory: theory that attempts to ascertain whether (and how) corporations
actually do take into account stakeholder interests
3. Instrumental stakeholder theory: theory that attempts to answer the question of whether it is beneficial
for the corporation to take into account stakeholder interests
Corporate Citizenship – the firm as a political actor

According to Friedman, corporations should not undertake social policies and programmes because this is the
task of the government. The accountability of managers is primarily to shareholders and not to the public.
(corporations to pursue economic goals, governments to pursue social goals)
There are some areas in which corporations have taken on a role in society that overlaps the government:
- Governments retreating from catering to social needs: in the past, the government provided water,
electricity, education etc. to their citizens. Nowadays, these services are privatized and in hands of
private companies. It is clear that these companies face more and complex social responsibility.
- Governments unable or unwilling to address social needs: especially in developing countries,
governments lack the resources to cater effectively for basic social needs. In these cases, the
corporations operating in that country will take care of some of these needs and therefore, they get more
expectations and responsibility.
- Governments can only address social problems within their reach: the government can’t reach the
internet, climate change of the planet or global financial markets. On the contrary, these spaces are
often influenced by businesses, the consequence is: more expectations towards the businesses.
Corporate citizenship: the corporate function for governing citizenship rights for individuals. It is a prominent term
in key debates about business ethics globally. There are three different perspectives:
1. Limited view of CC: this equates CC with corporate philanthropy
2. Equivalent view of CC: this equates CC with CSR
3. Extended view of CC: this acknowledges the extended political role of the corporation in society
The extended view takes as its starting point the notion of ‘citizenship’. Citizenship is defined as a set of individual
right.
Liberal citizenship comprises three different rights:
 Social rights: these provide the individual with the freedom to participate in society, such as the right to
education, healthcare, or various aspect of welfare. They are sometimes called ‘positive’ rights, because
they are entitlements towards third parties (feeding homeless, providing schools, medical centres etc.)
 Civil rights: these provide freedom from abuses and interference by third parties (mostly the
government). Among the most important are the rights to own property, to engage in free markets, or
exercise freedom of speech. These are sometimes called ‘negative’ rights, because they protect the
individual against the interference of stronger powers. For example: facebook faced several court cases
because of alleged infringements of the rights to privacy of it’s users (inbreuk gemaakt op de privacy van
de fb gebruikers)
 Political rights: these include the right to vote or the right to hold office and, generally speaking, enable
the individual to participate in the process of governance beyond the sphere of his or her own privacy.
Corporations have significantly taken on a role in society which is similar to that of traditional political actors.
Hence, corporations enter the arena of citizenship at the point where traditional governmental actors start to fail to
be the only ‘counterpart’ of citizenship.
Implications of CC: corporate accountability and transparency

The central problem behind the role of companies as the government is: is this a risk to the democracy?
Since many important decisions appear to be no longer taken by the government (and thus the individual voters)
but by corporations (who are no subject to a democratic vote).

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Corporate accountability: a concept that refers to whether a corporation is answerable in some way for the
consequences of it’s actions.
Like Friedman said: the governments are accountable to the public, and the corporations to their shareholders.
However, when corporations now shape and influence so much of the public and private life, they have to become
more accountable to society you can say.
Hertz suggest that given the power of large corporations, there is more democratic power in an individual’s choice
as a customer than in their choice at the ballot box (bij het stemmen).
Corporate transparency: the degree to which corporate decisions, policies, activities, and impacts are
acknowledged and made visible to relevant stakeholders.
According to Schnackenberg and Tomlinson the quality of corporate transparency depends on three elements:
 Disclosure: whether relevant information is made available in a timely and accessible manner
 Clarity(duidelijkheid): The degree to which information is understandable to relevant stakeholders
 Accuracy (nauwkeurigheid): whether the disclosed information is correct and reliable.
Only if stakeholders know what companies are doing can they seek to influence them to change their behavior or
make decisions about whether to continue to support them.
Chapter 3: evaluating business ethics

(normative theories)
Normative ethical theories are the rules and principles that determine right and wrong for a given situation.
The role of ethical theory

In locating a place for ethical theory, Richard De George suggests that two extreme positions can be imagined:
- Ethical absolutism: there are eternal, universally applicable moral principles. Right and wrong are objective
qualities that can be rationally determined
- Ethical relativism: morality is context-dependent and subjective. Right and wrong depends on the person taking
the decision and the culture in which they are located. Morality is culturally determined.
But both of these positions are not particularly useful. Therefore we take the position of ethical pluralism: this is
something in the middle between absolutism and relativism. Pluralism accepts different moral convictions and
backgrounds, while at the same time suggesting that a consensus on basic principles and rules in a certain social
context can, and should, be reached.
John Kaler suggests we already know about morality before we even try to introduce ethical theory into it.
Explanations:
- Morality is foremost a social phenomenon. We apply morality because we constantly have to establish
the rules and arrangements of our living together as social beings.
- Morality is primarily about harm and benefit. Right and wrong are largely about avoiding harm and
providing benefits.
Therefore, narrowly and rigidly applying one theory and threating the theory as the only authority in questions of
right and wrong would give ethical theory a status that it will never actually have in practical business decisions.
Normative ethical theories: international origins and differences

There are some relevant differences in the mainstream debate in Europe and North America:
 Individual versus institutional morality. Ethical theories in the US tend to be more applicable to individual
behavior, whereas in Europe the design of institutions in the economic system seems to be the main
influence in developing and applying theory.
 Questioning versus accepting capitalism. In the US they don’t question the existing framework of
management, they see ethical problems occurring within the capitalist system. In Europe, parts of
business ethics focus on questioning the ethical justification of capitalism.
 Justifying versus applying moral norms. In Europe there is a strong degree in the justification and ethical
legitimation of norms for addressing ethical dilemmas in business situations. In the US they focus on the
application of morality to business situations.
So no single normative theory can be attributed to any individual country or region. In Europe and America most
theories are based upon philosophical arguments. In Asia the theories are either informed by religion, so the next
section is about the influence of religion on normative ethical theories.
Normative ethical theories and religion

There are two main differences between the religious and philosophic approach:
- Source of rules and principles: faith is the critical requisite for acting ethically in the religion approach.
For the philosophic approach rationality is the critical requisite for acting ethically.

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- Consequences of morality and immorality: for religious people, there is an important element of spiritual
consequence for the decision-maker, namely: salvation, reincarnation or damnation (verdoemd).
Of course, different religions often have very different things to say about how to go about achieving goals of
ethical business.
Western modernist ethical theories

In the eighteenth century the people began with philosophical thinking in Europe and the US, this age is therefore
reffered to as ‘modernity’. The theories made in this age are therefore called Western modernist theories. These
theories generally offer a certain rule or principle that one can apply to any given situation (because they were
absolutist).
The main advantage of these theories is the fact that they normally provide us with a fairly unequivocal
(eenduidige) solution to ethical problems. Theories generally can be divided into two groups:
1. Consequentialist theories: they base moral judgement on the outcomes of a certain action. If there
outcomes are desirable, then the action in question is morally right. So, the moral judgement is based on
the outcomes, the aims, or the goals of a certain action. Are also called teleological (=goal).
2. Non-consequentialist theories: the moral judgement is based on the underlying principles of the
decision-maker’s motivation. An action is right or wrong, because the underlying principles are morally
right. Are also called deontological (=duty).
Motivation / action outcomes

principles
Non-consequentialist ethics consequentialist ethics
Egoism Utilitarianism Ethics of duties Rights and justice

Contributors Adam smith Jeremy bentham Immanuel kant John Locke
Milton friedman John stuart mill John Rawls
Focus Individual desires or Collective welfare Duties Rights
interests
Rules Maximization of Act / rule Categorical Respect for human
desire / self-interest utilitarianism imperative beings
Concept of human Humans are actors Humans are Humans are rational Humans are beings
beings with limited motivated by moral actors that are
knowledge and avoidance of pain distinguished by
objectives and gain of pleasure dignity
(hedonis)
Type Consequentialist Consequentialist Non- Non-
Consequentialist Consequentialist
Consequentialist theories
1. Egoïsm: ‘an action is morally right if the decision-maker freely decides in order to pursue either their (short-
term) desires or their (long-term) interests’. The theory focuses on the outcomes for the decision-maker. As a man
has only limited insight into the consequences of his action, the only suitable strategy to achieve a good life is to
pursue his own desires or interests. The theory approaches the idea of objective value: one way of acting is
objectively better or ‘more ethical’ than another.
One limitation of egoism theory: this theory is based on a perfect market, but there never will be a perfect market.
For example: the sustainability debate; the victims of today’s global climate change are future generations, which
are not yet present to take part in any kind of market.
2. Utilitarianism: ‘an action is morally right if it results in the greatest amount of good for the greatest amount of
people affected by the action. The theory focuses on the wider social outcomes within a community. The ‘greatest
happiness principle’ (as it is also called) focuses on the consequences of an action, weighs the good results
against the bad results, and finally encourages the action that results in the greatest amount of good for all people
involved. The action with the highest aggregate utility (=the value of the action) can be determined to be morally
correct. Unlike egoism, it does not only look at each individual involved, and ask whether their individual desires
and interest are met, but it focuses on the collective welfare that is produced by a certain decision. It comes close
to a cost-benefit analysis. The main problems of utilitarianism are:

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 Subjectivity: the feelings of pleasure and pain for instance might depend on the subjective perspective of
the person who carries out the analysis.
 Problems of quantification: pleasure and pain for instance are not quantifiable. Is losing a contract really
comparable to forcing children into labour?
 Distribution of utility: by assessing the greatest good for the greatest number, the interests of minorities
are overlooked.
The problem of subjectivity led to a refinement of the theory:

- Act utilitarianism: looks to single actions and bases the moral judgement on the amount of pleasure and
the amount of pain this single action causes.
- Rule utilitarianism: looks at classes of actions and asks whether the underlying principles of an action
produce more pleasure then pain for society in the long run.
Non-consequentialist theories
1. Ethics of duties: ethical theory that consist of abstract, unchangeable obligations, defined by a set of rationally
deduced a priori of moral rules which should be applied to all relevant ethical problems. According to Kant,
morality is a question eternal, abstract and unchangeable principle; a set of a priori moral laws, that humans
should apply to all ethical problems. He saw humans as rational actors who could decide these principles for
themselves. Kant developed a theoretical framework for these principles: the categorical imperative. It consists of
three parts:
- Consistency: it checks if the action could be performed by everyone. An action can only be right if
everyone could follow the same underlying principle. ‘Golden rule’: treat other as you wanted to be
treated yourself. (for example: murder / lying is immoral, because it’s impossible to allow everybody to
murder everyone they want).
- Human dignity: Act so that you treat humanity, whether in your own person or in that of another, always
as an end and never as a means only. humans deserve respect as autonomous, rational actors, and this
human dignity should never be ignored.
- Universality: the rules guiding our actions should also be universally lawgiving. It checks if the principles
of our actions would be acceptable for every human being. This test is also called the ‘new York times
test’ because if you feel uncomfortable that your actions were reported in the press, it means that you
believe others disagree with the rules guiding your actions.
However, there are also problems with ethics of duty:

- Undervaluing outcomes: there is too little consideration of the outcomes of one’s actions in ethics of
duty.
- Complexity: it is quite complicated to apply.
- Optimism: the view of a man as a rational actor who acts consequently according to self-imposed duties
seems more of an ideal than a reality.
2. Ethics of rights and justice:

Rights part: John Locke conceptualized the notion of ‘human rights : ‘certain basic, important, unalienable
entitlements that should be respected and protected in every single action to all human beings, without exception’.
Examples of these rights are the rights to life, freedom and property. Corporations, especially multinationals, are
increasingly judged with regard to their attitude to human rights and how far they respect and protect them. Rights
are sometimes seen as related to duties, since the rights of one person can result in a corresponding duty on
other persons. This link to corresponding duties makes the theory of rights similar to kant’s approach. The main
difference is that it does not rely on a complex process of determining the duties by applying the categorical
imperative.
A limitation of the theory is that notions of rights are quite strongly located in a Western view of morality.
Justice part:
Justice: ‘the simultaneously fair treatment of individuals in a given situation with the result that everybody gets
what they deserve’. Theories of justice typically see fairness in two main ways:
- Fair procedures: fairness is determined according to whether everyone has been free to acquire rewards
for his or her efforts. Also called procedural justice
- Fair outcomes: fairness is determined according to whether the consequences (positive and negative)
are distributed in a just manner, according to some underlying principle such as need or merit. Also
called distributive justice
There are two extreme positions in the justice debate:

 Egalitarian approach: claims that justice is the same as equality.
 Non-egalitarian approach: claims that justice in economic systems is ultimately a product of the fair
process of free markets
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The ideal argument may well lie in between the two. John Rawls came up with the ‘theory of justice’. He suggests
two criteria to decide whether an action could be called just or not. Justice is achieved when:
1. Each person is to have an equal right to the most extensive total system of basic liberties compatible with a
similar system of liberty for all. We should ensure that the basic freedoms are realized to the same degree for
everyone affected by the decision.
2. Social and economic inequalities are to be arranged so that they are both:
- To the greatest benefit of the least advantaged (even the one who profits least from it is still better off
than they would be without it)
- Attached to offices and positions open to all under conditions of fair equality of opportunity (for
example: everyone has a fair chance of climbing the corporate ladder)
The first criterion is the most important, before allowing for any inequalities, we should ensure that the basic
freedoms are realized to the same degree for everyone affected by the decision. The second criterion is based on
the assumption that inequalities are unavoidable in a free and competitive society.
Limitations of western modernist theories

There are limits of Western modernist theories. The main criticisms of Western modernist ethical theories are:
- Too abstract: too theoretical and impractical for day-to-day life, they do not deal enough with the question how
businesses might actually operate in practice
- Too reductionist: each theory focuses on one aspect, while all are important (consequences, duties, rights)
- Too objective and elitist (elitair): just because Crane and Matten know the difference between utilitarianism and
justice, why should that mean that we can decide for you whether a product manager in Thailand is doing the right
thing?
- Too impersonal: the theories do not take into account personal bonds and relationships
- Too rational and codified
- Too imperialist : why assume that ethical theories from the west are suitable for business people all over the
world?
Alternative perspectives on ethical theory

Because of these limitations, there have been developed more theories and other perspectives.
There are four main contemporary ethical theories (alternative perspectives on ethical theory):
1. Ethical approaches based on character and integrity Look to the character or integrity of the decision-
maker. This theory is based on a one of the earliest ethical theories: Virtue ethics; morally correct actions
are those undertaken by actors with virtuous characters (good actions come from good persons). The
formation of a virtuous character is therefore the first step towards morally correct behavior. Virtues are a
set of acquired traits of character that enable a person to lead a good life. Central to the ethics of virtue
is the notion of a ‘good life’.
2. Ethical approaches based on relationships and responsibility; this theory doesn’t focus on the character,
but on the relationship. One notable example of this approach is feminist ethics: an approach that
prioritizes empathy, harmonious and healthy social relationships, care for one another, and avoidance of
harm above abstract moral principles. This approach sees the individual deeply embedded in a network
of interpersonal relations, consequently, people will feel responsibility for the members of this network.
The main goal is this theory is to avoid harm and maintain healthy relationships.
Following to Borgson the key elements of a feminist approach would include:
o Relationships
o Responsibility; feminist perspectives would suggest that ethical decision-making asks for an
active ‘taking’ of responsibility
o Experience; feminist perspectives highlight the fact that in decision-making human beings are
intricately determined by past experiences. So rather than applying principles and rules, one
should learn and develop from experiences in the past
3. Ethical approaches based on procedures and norm generation: the approaches above start from a
certain perspective on humans, on the values or goals governing their decisions etc. but we cannot take
it for granted that everybody shares the same values and goals. It is at this point that theoretical
approaches based on norm generation might come into the picture. These approaches seek ethical
behavior not in applying ethical principles, but in generating norms that are appropriate and acceptable
to those who need to resolve a particular problem. The best approach of norm generation is discourse
ethics: this aims to solve ethical conflicts by providing a process of norm generation through rational
reflection on a real-life experience of all relevant participants.
4. Ethical approaches based on empathy and moral impulse: this is also referred to as postmodern ethics
this locates morality beyond the sphere of rationality in an emotional ‘moral impulse’ towards others. It
encourages one to question everyday practices and rules, and to listen to one’s emotions, inner
convictions, and ‘gut feelings’ about what is right and wrong. (it questions the link between morality and
rationality). Following Gustafson postmodern business ethics emphasizes (accentueren) the next areas:
o Holistic approach
o Practices rather than principles; ethical reasoning is based on experience
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o Think local, act local

o Preliminary character
Consideration Typical question to ask yourself Theory
One’s own interest Is this really in my / my Egoism
organizations best long-term
interest?
Social consequences If I consider all of the possible Utilitarianism
consequences of my actions, is
everyone better off or worse?
Duties to others Who do I have obligations to in this Ethics of duties
situation? What would happen if
everyone acted in the same way as
me?
Entitlements (rechten / Whose rights do i need to consider Ethics of rights
bevoegdheden) of others here?
Fairness Am I treating everyone fairly here? Theories of justice
Have processes been set up to
allow everyone an equal chance?
Character and integrity Am I acting with integrity here? Virtue ethics
Relationships and responsibility How do the other affected parties Feminist ethics
feel in this situation? Can I avoid
doing them harm?
Procedures of norm generation What norms can we work out Discourse ethics
together to provide a mutually
acceptable solution to this?
Empathy and moral impulse Am I just simply going along with Postmodern ethics
the usual practice here, without
questioning whether it really feels
right to me?
Chapter 4; making decisions in business ethics

(descriptive theories)
Descriptive business ethics theories: describes how ethical decisions are actually made in business, and what
factors influences the process and outcomes of those decisions.
So, rather than telling us what businesspeople should do (normative theories), they seek to tell us what business
people actually do, and why they do it.
Descriptive theories provide a practical understanding of how the normative theories can be applied.
What is an ethical decision?

As said before, an ethical decision is about right or wrong. But Morris suggest, by using the language of right and
wrong, we have already identified that a situation is moral in nature. So there is an important process of
identification that goes before this, whereby we examine whether the situation is about a moral decision.
How do we objectively decide whether a situation should be assigned moral status? There are a number of
factors to consider:
- The decision is likely to have significant effects on others; For example, copying an album does have
material affects on others, namely the record label, musicians, etc.
- The decision is likely to be characterized by choice; in that alternative courses of actions are open
(moral decision requires that we have a choice). ethical dilemma: the decision-maker has to recognize
ethical choices. For example, if you copy an album accidently, it’s no ethical dilemma, but normally you
have the choice to copy or not, so it is an ethical dilemma.
- The decision is perceived as ethically relevant by one or more parties. For example: just because you
copy an album without ever considering it to be an ethical decision, this does not mean that you are
engaging in an ethically neutral act.
Models of ethical decision making

Descriptive models of decision-making primarily seek to represent two things:
1. The different stages in decision-making people go through in responding to an ethics problem in a business
context.
James Rest introduced a four-stage process of ethical decision-making. According to this model,
individuals move through a process whereby they:
1. Recognize a moral issue
2. make some kind of moral judgement about that issue
3. Establish an intention to act upon that judgement
4. Act according to their intentions
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Although one might reach one stage in the model, this does not mean that one will necessarily move onto the
next stage. The model distinguishes between knowing what the right thing to do is and actually doing something
about it; or between wanting to do the right thing, and actually knowing what the best course of action is.
A sales person knows that lying to a customer is wrong, but to get his sales target, he might lie to his customer.
2. The different influences on that process

Models of ethical decision-making generally divide the factors which influence decisions into two broad
categories:
 Individual factors: the unique characteristics of the individual actually making the relevant decision (age,
gender, education, personality, attitudes, etc.)
 Situational factors: the particular features of the context that influence whether the individual will make
an ethical or an unethical decision (reward systems, job roles, organizational culture, etc.)
Limitations of ethical decision making models

There are some limitations to the model:
- It is not always straightforward to break down these various elements into discrete units. Many of them are
related and perhaps even interdependent.
- Ethical decision-making models have largely originated in the US, and this can sometimes give a national or
cultural bias to the types of issues and considerations that might be included
Research on individual factors influencing ethical decision-making has a strong North American bias, whilst
situational factors have been subject to a lengthy debate principally originated by European authors.
Individual influences on ethical decision-making

These are the factors influencing us to think, feel, act, and perceive in certain ways that are relevant to ethical
decision-making.
1. Age and gender: there has found no difference between men and women. However, there is evidence
to suggest that the way in which men and women think and act in response to ethical dilemmas might
differ. This is the same with age, empirical tests have tended to report very mixed results.
2. National and cultural characteristics: people from different cultural backgrounds have different beliefs
about right and wrong, have different values, etc. This will inevitably lead to variations in ethical decision-
making across nations, religions and cultures. Nationality can have a significant effect on ethical beliefs,
as well as views of what is deemed an acceptable approach to certain business issues.
Hofstede suggests that differences in cultural knowledge and beliefs across countries can be explained
in terms of six dimensions:
o Individualism/collectivism: the degree to which one is autonomous and driven primarily to act for
the benefit of one’s self, contrasted with a more social orientation that emphasizes group
working and community goals
o Power distance: the extent to which the unequal distribution of hierarchical power and status is
accepted and respected
o Uncertainty avoidance: the extent of one’s preference for certainty, rules and absolute truths
o Masculinity/femininity: the extent to which an emphasis is placed on valuing money
(masculinity) versus valuing people and relationships (femininity)
o Long-term/short-term orientation: differences in attention to future rewards.
o Indulgence: measures the degree to which societies permit or suppress gratification of basic
and natural human drives related to enjoying life and having fun.
Hofstede’s dimensions can be seen to explain certain differences in ethical decision making.
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3. Education and employment: type and quality of education received by individuals, as well as their
training and experience, might also be considered to be important individual influences on ethical
decision making.
4. Psychological factors: cognitive processes, how people actually think. There are two prominent
psychological factors:
 Cognitive moral development (CMD): the different levels of reasoning that an individual can apply to
ethical issues and problems. According to Kohlberg, there are three broad levels of moral development:
 Level one (preconventional): the individual exhibits a concern with self-interest and
external rewards and punishments
 Level two (conventional): the individual does what is expected of them by others
 Level three (postconventional): the individual is developing more autonomous
decision-making based on principles of rights and justice rather than external
influences
CMD theory is not about WHAT is decided, but HOW the decision is reached. Two persons in a different
level can make the same decision.
As one is moving through the different stages, one is moving to a ‘higher’ level of moral reasoning. The
higher the stage of moral reasoning, the more ‘ethical’ the decision. Most people tend to thin with level 2
reasoning. This means that most of us decide what is right according to what we perceive by others to
believe, and according to what is expected of us by others. We see what our superiors and our peers are
doing and saying, and we use these cues as a guide to action.
Kohlberg identified two specific stages within each of the three levels as you can see in the figure below:
The most notable criticism of cognitive moral develop are:

o The theory was developed in a non-business context
o Gender bias (more on men)
o Implicit value judgement: it privileges rights and justice above numerous other bases of morality
(Kohlberg has interjected his own value judgements regarding the most ethical)
o Invariance of stages: people use different moral reasoning strategies at different times and in
different situations
 Locus of control: the extent to which he or she believes that they have control over the events in their
life. Someone with a high internal locus of control believes that the events in their life can be shaped by
their own efforts (they might be expected to be more likely to consider the consequences of their actions
for others, and may take more responsibility for their actions), whereas someone with a high external
locus of control believes that events tend to be the result of the actions of others, or luck or fate.
5. Personal values: individual beliefs about desirable behaviors and goals that are stable overtime and which
influence decision-making. Examples are self-respect, freedom, honesty, etc.. Definition of Milton Rokeach:
‘enduring belief that a specific mode of conduct or end-state of existence is personally or socially preferable
to an opposite or converse mode of conduct or end-state’. Het states that values are:
o Persist over times (enduring)
o Influence behavior (they are concerned with conduct and end-states)
o Are concerned with individual and/or collective well-being (personally or socially preferable)
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6. Personal integrity: the adherence (hechting/trouw) to moral principles or values. One maintains a
consistency or unity in one’s beliefs and actions, regardless of any inducement or temptation to deviate
from them. ‘Walking the talk’: being consistent in word and action.
Integrity frequently plays a central role in incidents of whistle blowing: which refers to acts by employees
to expose their employers for perceived ethical violations. If they know about a problem, are the
employees going to ´blow the whistle´ or are they going to do nothing. For example: all of your
colleagues steal small things from the storeroom, you need integrity to think that this is wrong and you
need courage to say this to your superior.
7. Moral imagination: whether one has a sense of the variety of possibilities and moral consequences of
their decisions, the ability to imagine a wide range of possible issues, consequences and solutions. It is
the creativity with which an individual is able to reflect about an ethical dilemma. Those with greater
moral imagination should be able to envisage a greater set of moral problems, perspectives and
outcomes.
Situational influences on decision-making

Situational influences are at least equally important as individual influences, and probably more important, in
shaping ethical decision making. There are two main types of situational influences:
1. Issue-related factors the differences in the importance we attach to ethical issues
- Moral intensity: how important the issue is to the decision-maker. The intensity of an issue will vary
according to six factors:
o Magnitude of the consequences: the expected sum of the harms (or benefits) for those
impacted by the problem or action.
o Social consensus: the degree to which people are in agreement over the ethics of the problem
or action. Moral intensity is likely to increase when it is certain that an act will be deemed
unethical by others.
o Probability of effect: the likelihood that the harms (or benefits) will happen
o Temporal immediacy: the speed with which the consequences are likely to occur, with long-
term consequences the moral intensity will be much lower
o Proximity: the feelings of nearness (nabijheid) of the decision-maker. For example: working
conditions in one’s own country might be experienced as moral more intense.
o Concentration of effect: the extent to which the consequences of the action are concentrated
heavily on a few, or lightly on many. For example: stealing from someone with € 100 is more
intense than stealing from someone who owns millions.
- Moral framing: our beliefs and actions are largely shaped by what we see around us. The way moral
issues are framed is a key influence on ethical decision-making. The most important aspect of moral
framing is the language in which moral issues are couched. Using moral language (like honest, fairness)
will more likely trigger moral thinking because these terms are attached to existing cognitive categories
that have moral content. Managers create moral talks out of concerns regarding perceived threats to:
o Harmony: they believe that moral talk would disturb organizational harmony by provoking
confrontation, recrimination, and finger-pointing
o Efficiency: they felt that moral talk could cloud issues, making decision-making more difficult,
time consuming and inflexible
o Image of power and effectiveness: they felt that their own image migh suffer since being
associated with ethics could be seen as idealistic and utopian, and lacking sufficient robustness
for effective management.
2. Context-related factors:
Context: the organizational context on which an employee will be working, especially the ezpectations
and demands placed on them within the work environment that are likely to influence their perceptions of
what is the morally right action to take.
o Systems of reward: for example: bonus for a sales person who gets his target. Ethical violations
that go unpunished are likely to be repeated. There is a less chance to being repeated and
spread throughout a company when it goes unnoticed and unrewarded, or worse when it is
punished. What is ‘right’ is often that which gets rewarded. What is right is what the guy above
you wants from you.
o Authority: defined as: exercise of hierarchical power by managers on subordinates. They do
what they are told to do. Managers can also have an influence over their subordinates’’ ethical
behavior by setting a bad example. You look up to your superior to determine what is ethical
behavior.
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o Bureaucracy: this is a type of formal organization, based on rational principles, and

characterized by detailed rules and procedures, impersonal hierarchical relations, and fixed
division of tasks. The bureaucratic dimension has a number of negative effects on ethical
decision-making:
 Suppression of moral autonomy: because employees only follow the prescribed rules
and procedures, they become ‘moral robots’, not thinking about why they are there or
questioning their purpose
 Instrumental morality: loyalty rather than integrity is the hallmark of bureaucratic
morality
 Distancing: bureaucracy serves to further suppress our own morality by distancing us
from the consequences of our actions
 Denial of moral status: bureaucracy sees moral objects, such as people and animals,
as things, variables, or a collection of traits
o Work roles: patterns of behavior expected by others from a person occupying in a certain
position in an organization. Many of us will adopt different roles in different contexts, reinforcing
this idea of people having multiple ethical selves. Roles highly influence our decision-making
and behavior.
o Organizational norms and culture: group norms tend to be included within a more or less
unofficial or informal set of characteristics, including shared values, beliefs, and behaviors that
are captured by the notion of organizational culture. It is the overall environment or climate
found within the organization. Organizational culture is a key issue in shaping ethical decision-
making. Cultural expectations and values can provide a strong influence on what we think of as
‘right’ and ‘wrong’. Our cultural understandings and knowledge can act as both facilitators and
barriers to ethical reflection and behavior. There is a need for an ‘ethical culture’ to enhance
and reinforce ethical decision-making.
o National and cultural context: here we are considering the nation in which the decision is
actually taking place, regardless of the decision-maker’s nationality.
Chapter 5: managing business ethics

(tools and techniques of business ethics management)
There have been numerous attempts, both theoretical and practical, to develop a more systematic and
comprehensive approach to managing business ethics. This has given rise to a multi-million Euro international
business ethics ‘industry’ of ethics managers, consultants, auditors, and other experts available to advise and
implement ethics management policies and programmes in corporations across the globe.
Business ethics management: the direct attempt to formally or informally manage ethical issues or problems
through specific policies, practices, and programmes.
The typical components of business ethics management are:
1. Mission or values statements: general statement of corporate aims, beliefs and values. They are
important in terms of setting out a broad vision for where the company is going. Even a well-crafted,
appropriate, and inspirational social mission is unlikely to be effective unless it is backed up by
substantive ethics management throughout the organization.
2. Codes of ethics: explicit outlines of what type of conduct is desired and expected of employees from
an ethical point of view within a certain organization, profession or industry.
3. Reporting/advice channels: gathering information on ethical matters is clearly an important input into
effective management.
4. Risk analysis and management: managing business ethics by identifying areas of risk, assessing the
likelihood and scale of risks, and putting in place measures to mitigate or prevent such risks from
harming the business has led to more sophisticated ways of managing business ethics. It is an area of
continental development.
5. Ethics managers, officers, and committees: in some organizations, specific individuals or groups are
appointed to co-ordinate and/or take responsibility for managing ethics in their organization. A growing
number of large corporations also now have an ethics committee.
6. Ethics consultants: the consultancy market has expanded to offer a broader portfolio of services.
Whilst there are numerous small ethics consultancy firms, the market is dominated by large professional
service firms (e.g. Ernst & Young)
7. Ethics education and training: provision might be offered either in-house, or externally through ethics
consultant, universities and colleges, or corporate training specialists. The goals for ethics training:
o Identifying situations where ethical decision-making is involved
o Understanding the culture and values of the organization
o Evaluating the impact of the ethical decision on the organization
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8. Stakeholder consultation, dialogue, and partnership programmes: it is evident that if ‘good’ business
ethics is about doing the ‘right’ thing, then it is essential that organizations consult with relevant
stakeholders in order to determine what other constituencies regard as ‘right’ in the first place.
9. Auditing, accounting, and reporting: these elements can play a crucial role in enhancing corporate
accountability in the era of corporate citizenship. There is a rapid development in the field of corporate
responsibility reports.
Few business are likely to have all of these tools and techniques in place, and many may not even have any of
them.
Evolution of business ethics management

In the last decade or so, there has been a change in emphasis concerning the purpose of business ethics
management. Whereas previously, business ethics management tended to focus primarily on managing
employee behavior (through codes, etc.), there has been increasing attention to developing and implementing
tools and techniques associated with the management of broader social responsibilities. These more externally
focuses components have typically involved the consideration of other stakeholder demands and considerations,
such as in the development of social accounting tools and techniques.
Effective business ethics management needs to take account of both aspects: the internal and the external
dimensions.
The three main areas where the management of business ethics might be particularly relevant:
1. Setting standards of ethical behavior: the role of ethical codes and their implementation
2. Managing stakeholder relations
3. 3. Assessing ethical performance: the role of social accounting in contributing to the management and
assessment of business ethics.
These will be explained below.
1. Setting standards of ethical behavior: the role of ethical codes and their implementation
Codes of ethics: voluntary statements that commit organizations, industries, or professions to specific beliefs,
values, and actions and/or that set out appropriate ethical behavior for employees. There are 4 types of ethical
codes:
- Organizational or corporate codes of ethics: specific to a single organization, and also called codes of
conduct of business principles. These codes seek to identify and encourage ethical behavior at the level
of the individual organization.
- Professional codes of ethics: these are codes for professional groups. For example: codes for
professions like medicine, law, accountants.
- Industry codes of ethics: codes for particular industries. For example: financial services
Industry, the electronics industry.
- Programme or group codes of ethics: codes for certain programmes, coalitions, or other sub-grouping
of organizations. For example: a collaboration of various business leaders from Europe, us and Japan.
There has been a lot of research on codes of ethics over the past two decades, primarily focusing on four main
issues:
- Prevalence of corporate codes of ethics: codes of ethics are increasingly common, with a substantial
rise in their usage.
- Content of codes of ethics: codes of ethics typically address a variety of issues. Most codes attempt to
achieve one of both of the following:
o Define principles or standards that the organization, profession, or industry believes in or
wants to uphold
o Set out practical guidelines for employee behavior, either generally or in specific situations
(such as accepting gifts, treating customers, etc.)
Codes should address both general principles and specific guidelines to be effective. Rules of conduct without a
general values statement lack a framework of meaning and purpose; credos without rules of conduct lack specific
content.
- Effectiveness of codes of ethics: maximizing the participation of organization members in the
development stage in order to encourage commitment and ‘buy-in’ to the principles and rules of the
code. In order for codes to have credibility, companies must be willing to discipline employees found in
breach of them. Codes need to be translated into a standardized and quantified audit instrument that
lends itself to clear and consistent assessment, and that code compliance must be linked to managers’
performance evaluation. The following factors are important for the effectiveness of the code:
o How the code is written? (readability, examples, tone used, relevance)
o How the code is supported? (does the topmanagement supports it, is it backed up with
training?)
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o How the code is enforced? (is there an anonymous reporting channel, are violations
communicated to employees, are there incentives / punishments attached to
(non)compliance)
- Possibilities for global codes of ethics: given the rise of multinational businesses, many organizations
have found that codes of ethics developed for use in their home country may need to be revisited for
their international operations. The key question for those working overseas is: when is different just
different and when is different wrong? A relativist would suggest that different codes should be
developed for different contexts, whilst an absolutist would contend that one code can and should fit all.
Organizations should be guided by three principles:
o Respect for core human values, which determine an absolute moral threshold
o Respect for local traditions
o The belief that context matters when deciding what is right and wrong
The search for core values or universal ethical principles as a basis for global business codes of ethics has given
rise to a number of important initiatives:
- Interfaith Declaration: A Code of Ethics on International Business for Christians, Muslims and Jews
- CAUX Roundtable
- UN Global Impact
The drive for codes of ethics, whether national or international, is never going to ‘solve’ the management of
business ethics. A code can rarely do more than set out the minimum expectations placed on organizations and
their members, and cannot by expected to be a substitute for organizational contexts supportive or ethical
reflection, debate, and decision-making, or decision-makers with strong personal integrity.
2. Managing stakeholder relations

Stakeholder management: the process by which organizations seek to understand the interests and expectations
of their stakeholders and attempt to satisfy them in a way that aligns with the core interests of the company.
Many managers appear to have embraced at least some degree of recognition for stakeholder claims. The
strategic objectives can best be realized by deciding which stakeholders are more likely to be able to influence the
organization in some way. There are three key relationship attributes likely to determine the perceived importance
of stakeholders:
- Power: the perceived ability of a stakeholder to influence organizational action
- Legitimacy: whether the organization perceives the stakeholder’s actions as desirable, proper, or
appropriate
- Urgency: the degree to which stakeholder claims are perceived to call for immediate attention.
Types of stakeholder relationship

- Latent stakeholder: only possesses one of these attributes → least important
- Expectant stakeholder: possesses two of the three attributes → moderately important
- Definitive stakeholder: possesses all the attributes → most important.
There is increasing co-operation between stakeholders. Examples are joint ventures, strategic alliances, co-
marketing initiatives, supplier partnership programmes, etc.
Collaboration between stakeholders is an increasingly important tool for managing business ethics.
Advantages:
- It brings to the surface stakeholder demands and interests, and thereby provide companies with a
greater opportunity to satisfy their stakeholders in some way
- It enhances corporate accountability.
Disadvantages:
- Resource intensity: stakeholder collaboration can be extremely time-consuming and expensive. This
way, organizations may fail to meet the short-term financial goals expected of them by shareholders.
- Culture clash: companies and their stakeholders often have very different values and goals, and this
can lead to significant clashes in beliefs and ways of working.
- Schizophrenia: at the same time as companies and their stakeholders are collaborating on one issue,
companies and their stakeholders may also be in conflict on an issue or project. This development of
‘multiple identities’ can result in schizophrenic behavior on either or both sides.
- co-ordination: there is no guarantee with stakeholder collaboration that a mutually acceptable outcome
can always be reached.
- Co-optation: some stakeholder groups are effectively just being co-opted by corporations to embrace a
more business-friendly agenda rather than maintaining true independence.
- Accountability: when stakeholders such as business and government collaborate ‘behind closed doors’,
accountability to the public may be compromised.
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- Resistance: organization members or external parties may try and resist the development of
collaborative relationships, thus preventing the partners from fully achieving their goals.
3. Assessing ethical performance: the role of social accounting in contributing to the management and
assessment of business ethics.
Low or disappointing performance in business ethics might call for increased attention to ethical issues and
problems. High performance might indicate an effective approach to the management of business ethics.
Social accounting: the voluntary process concerned with assessing and communicating organizational activities
and impacts on social, ethical, and environmental issues relevant to stakeholders. The key factors that distinguish
social accounting from conventional (financial) accounting are:
- It focuses on issues other than financial data
- The intended audience being stakeholders other than shareholders
- Unlike financial accounting, social accounting is not required by law in most jurisdictions.
Much of the data collected and reported in social accounting is therefore inevitably qualitative in nature.
Organizations not only develop and refine their techniques over time, but also build in adaption within the
development cycle of a given report or audit.
Much of the activity involved in social accounting has tended to increasingly revolve around communicating with
stakeholders and getting their views on what issues matter, and how they regard the organization’s impact on
areas of concern (e.g. with stakeholder satisfaction surveys, or social auditing’.)
In the absence of recognized standards for social accounting, organizations have had to develop their own
particular approaches.
Why do organizations engage in social accounting?

There are practical and moral reasons:
1. Internal and external pressure: pressure from competitors, industry associations, governments,
shareholders, consumers, etc.
2. Identifying risks: social auditing provides organizations with a clearer picture of what is happening in
terms of their social, ethical, and environmental impacts throughout their sphere of operations.
3. Improved stakeholder management: social accounting provides a new channel of communication to
stakeholders by which organizations might seek to o their reputation.
4. Enhanced accountability and transparency: by reporting on social performance, social accounting can
play a significant role in this drive for enhanced accountability and transparency.
There are a number of important disincentives (belemmeringen) for social accounting. These include:
- Perceived high costs
- Insufficient information
- Inadequate information systems
- Lack of standards
- Secrecy
- Unwillingness to disclose sensitive or confidential data
What makes ‘good’ accountability?

The key principles of quality are:
1. Inclusivity: good social accounting will reflect the views and accounts of all principal stakeholders, and
will involve two-way communication with them, rather than just one-way communication either to them or
from them.
2. Comparability: social accounting should allow for comparisons across different periods, with other
organizations, and relative to external standards.
3. Completeness: all areas of the organization’s activities should be included in the assessment, rather
than just focusing on areas where a more positive impression might be realized.
4. Evolution: social accounting should demonstrate a commitment to learning and change.
5. Management policies and systems: social accounting should be consolidated within systems and
procedures that allow it to be rigorously controlled and evaluated.
6. Disclosure: social accounting should involve clear disclosure of accounts and reports to all
stakeholders, in a form that is appropriate to their needs.
7. External verification: the faith and confidence of stakeholders in a social account will depend to some
extent on whether it has been verified as a true representation of reality by an external body trusted by
that audience.
8. Continuous improvement: social accounting should be able to actively encourage the organization to
continually improve its performance across the areas covered by the process.
Many of these principles are not currently integrated particularly well into most companies’ social accounting
procedures.
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Formal ethics programmes

A more formal approach to ethics management is becoming more widespread. According to Trevino, there are 4
main ways of approaching the formal organization of business ethics management:
1. Compliance orientation: the main emphasis is on preventing, detecting, and punishing violations of the
law. Employees are informed of the law and are motivated to do the right thing through fear of being
caught.
2. Values orientation: based on defining organizational values and encouraging employee commitment to
certain ethical aspirations.
3. External orientation: focuses less on company values, and more on satisfying external stakeholders
such as customers, the community, and shareholders.
4. Protection orientation: orientates towards protecting top management from blame for ethical problems
or legal violations.
Most companies are likely to combine two or more approaches.
Informal ethics management: ethical culture and climate

In organizing for business ethics management, it is important to also consider the ethical culture of the
organization. Organizations should proactively develop an ethical organizational culture, and organizations with
‘ethics problems’ should take a culture change approach in solving them.
There are two approaches:
1. Culture change: culture change is a difficult, lengthy process, which is rarely successful, except at very
superficial levels. Existing cultural beliefs and values about what is right and wrong tend to be very
resistant to change.
2. Cultural learning: focuses on smaller subcultural groups within the firm and enabling employees to
make their own ethical decisions.
Business ethics and leadership

The role of the organization’s leaders is significant. Leaders are often said to set the ethical tone in organizations.
Leaders can play a significant role in contextual factors such as authority, norms, and culture which we have
shown to be key influences on ethical and unethical decision-making. Whereas management is about imposing
order, leadership is more about coping with change.
Leaders clearly have a profound role in shaping the ethical decisions of their employees.
There are two very different models of ethical leadership:
1. Under the culture change approach, the leader’s role is to articulate and personify the values and
standards that the organization aspires to, and then to inspire and motivate employees to follow their
lead.
2. From the cultural learning perspective, the role of leadership is more one of participation and
empowerment in order to foster moral imagination and autonomy. Employees are encouraged to ‘think
independently, to be able to make reasoned, responsible evaluations and choices on their own’.
The nature of business ethics management increasingly emphasizes an external, social-based orientation, rather
than concentrating solely on ethical codes to ensure compliance.
Chapter 6: shareholders and business ethics

Business ethics is now a core consideration for many investors and shareholders. The role of shareholders is
fundamental to understanding business ethics.
In the modern capitalism, owners no longer have a personal relationship to ‘their’ corporation, but rather they buy
a ‘share’ in the corporation, and expect the managers and employees of the company to run it in their (and other
shareholders’) interests.
Shareholders as stakeholders: understanding corporate governance

If you want to paint your bike green, or destroy it, go ahead. It’s yours. With regard to the ownerships of
corporations, there are some crucial differences between the owners (shareholders) and directors:
1. Locus of control: the control of the owned property no longer lies in the hands of the owner. The
control lies in the hands of the directors, the board, or another committee. Shareholders have at best
indirect and impersonal control over their property.
2. Fragmented ownership: there are so many shareholders of a corporation that one individual could
hardly consider themselves to be the owner in the same way that the plumber next door owns her own
company.
3. Divided functions and interests: shareholders have interests that are not necessarily the same as the
interests of those who control the company. Shareholders might seek profits, while managers seek
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growth. Furthermore, a shareholder has no real task and responsibility regarding their property apart
from keeping a piece of paper that entitles them to a share in the company.
The primary consideration for shareholders is the protection of their right to property which, in the given context,
amounts to certain specific rights:
- The right to sell their stock
- The right to vote in the general meeting
- The right to certain information about the company
- The right to sue (op aanspreken) the managers for misconduct
- Certain residual rights in case of the corporation’s liquidation
Managers have the duty to run the company in the interests of shareholders. This general duty breaks down into
various more specific duties:
1. Duty to act for the benefit of the company: short-term financial performance and/or long-term survival
of the company. It is for the shareholders to decide at which level they want the company to perform.
2. Duty of care and skill: managers have to achieve the most professional and effective way of running
the company.
3. Duty of diligence: refers to the expected level of active engagement in company affairs. It is the
broadest way of establishing pressure on managers to invest every possible effort in running the
company in the most successful way.
So, shareholders have rights, managers have duties.

Corporate governance: the process by which shareholders seek to ensure that ‘their’ corporation is run according
to their intentions. It includes processes of goal definition, supervision, control, and sanctioning.
- In the narrow sense, it includes shareholders and the management of a corporation as the main actors.
- In the broader sense, it includes all actors who contribute to the achievement of stakeholder goals
inside and outside the corporation.
Corporate governance: a principal-agent relationship

Agency relation: the relation between a firm and its shareholders. the shareholder is a principal who contracts
management as an agent to act in their interest within the boundaries of the firm. Shareholders want the
managers in the firm to perform a certain task for them. Agency relations are special relations due to two features
that are by no means common for all other manager-stakeholder relations:
1. There is a conflict of interest between shareholders and managers. Shareholders want profit and
increases in share price, managers want to have high salaries.
2. The principal has only limited knowledge and insight into the qualifications, actions, and goals of the
agent: informational asymmetry.
Shareholders’ relationship with other stakeholders: different frameworks of CG globally

The corporate governance framework describes whom the organization is there to serve and how the purposes
and priorities of the organization should be decided. There are two broad systems of corporate governance:
1. Anglo-American model of capitalism: market-based form of corporate governance. It focuses on the
stock market as the central element of the system of governance. Corporations have to provide a high
degree of transparency and accountability to shareholders and investors. This model assigns a dominant
role to shareholders.
2. Continental European model: network-based form of corporate governance. Corporations are
embedded in a network of a small number of large investors, among which banks play a major role. The
central focus in this model is the long-term preservation of influence and power. Stakeholders other than
shareholders also play an important role, sometimes even equivalent to or above that of shareholders.
Executive accountability and control (ethical issues in corporate governance)

Looking at corporate governance, there are certain core elements that need to be present in order for the
principal-agent relationship to be managed effectively. The most important element is a separate body of people
that supervises and controls management on behalf of principals, namely a board of directors. This results in a
dual structure of the leadership of publicly owned corporation:
1. Executive directors: are responsible for running the corporation
2. Non-executive directors: ensure that the corporation is being run in the interests of principals (usually
shareholders).
In the Anglo-American model, there is usually a single-tier board that compromises both executive and non-
executive directors. In the Continental European model there is usually a two-tier board, where the upper tier
(supervisory board) is composed of non-executive directors and the lower tier of executive directors.
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Regardless of the structure, the central ethical issue here is the independence of the supervisory, non-executive
board members. They will only be able to reasonably act in the principal’s interest if they have no directly
conflicting interests. In order to achieve this, a number of points are important:
- Non-executive directors should be largely drawn from outside the corporation
- They should not have a personal financial interest in the corporation other than the interests of
shareholders.
- They should be appointed for a limited period in order to prevent them from getting too close to the
company.
- They should be competent to judge the business of the company.
- They should have sufficient resources to get information or commission research into the corporation.
- They should be appointed independently
Executive pay: the financial compensation and other non-financial awards received by an executive from their firm
for their service to the organization.
The problems of executive pay in firm-shareholder relations are:
- The issue of designing appropriate performance-related pay. Their job is to increase shareholders
value, so when they get paid a lot, the shareholders value will decrease. Some salary levels have
exploded, often leading to considerable unrest within companies.
- The influence of globalization on executive pay: levels of pay seem to be applicable across the board.
- The influence of the board is limited, and often fails to reflect shareholder interests.
Ethical aspects of mergers and acquisitions

The central ethical concern with mergers and acquisitions is that managers may pursue interests that are not
congruent with the shareholder’s interests.
Next to normal mergers, there are hostile takeovers: a group of investors intents to purchase a majority stake in
corporation against the wishes of the board. There are two lines of arguments here:
- On the one hand, it could be argues that hostile takeovers are ultimately possible only because
shareholders want to sell their stocks
- On the other hand, an ethical concern may arise by someone who has different ideas about the
corporation, for instance an ‘asset stripper’ that wants to split the company and sell off certain parts.
The executive of the corporation have two main options in this situation:
- They agree to the takeover, for example by being offered a ‘golden parachute’ (a large sum of money to
be paid if they agree to the merger)
- They secretly send ‘greenmail’ (blackmail) to the potential hostile party and offer to buy back the shares
for the company at a price higher than the present market price.
The role of financial markets and insider trading

The ethical issue with stock prices is the fact that they always contain an element of speculation. Stock markets
do not always fully reveal the amount of uncertainty.
Almost the opposite problem exists with the phenomenon of insider trading: a financial market transaction based
on information that is not publicly available to all other market participants. So some investors might have superior
knowledge in the market. In the long run, insider trading can undermine investors’ trust in the market.
The ethical assessment of insider trading is still quite controversial, but there appear to be a number of possible
routes.
Jennifer Moore discusses 4 main ethical arguments that have been used against insider trading:
1. Fairness: there are inequalities in the access to relevant information about companies, leading to a
situation where one party has an unfair advantage over the other. This is the weakest but most common
argument that tends to be used against insider trading.
2. Misappropriation of property: insider traders use valuable information that is essentially the property of
the firm involved, and to which they have no right of access
3. Harm to investors and the market: insider traders might benefit to the cost of ‘ordinary’ investors,
making the market riskier, and threatening confidence in the market.
4. Undermining of fiduciary (vertrouwens) relationship: insider trading is fuelled by self-interest on the
part of insiders rather than obligation to their ‘principal’. This is the strongest argument against insider
trading
The role of financial professionals and market intermediaries

One of the main institutions to bridge the asymmetric distribution of information between shareholders and
corporate actors is that of financial professionals and market intermediaries. The two most important professions
here are accounting firms and credit-range agencies (CRA’s). the task of these organizations is to provide a ‘true
and fair view’ of a company’s financial situation or a judgement of the trustworthiness of an investment
opportunity.
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- The role of accountants varies from country to country. ‘creative accounting’: focus a great deal not only
on statements of past periods but on the future potential of the corporation.
- The primary role of CRA’s is to provide a credible assessment of financial products, so that investors
have a better idea about what a fair price for the product would be and what the risks associated with
that product are.
Ballweiser and Clemm identify 5 main problems of the financial intermediary’s job:
- Power and influence in markets
- Conflict of interest: the involvement with a corporation puts an end to the necessary neutrality of the
auditor.
- Long-term relationships with clients: long-term relationships with clients can threaten independence.
- oversight and controls / Size of the firms: the more the firm grows, the harder it may become to
maintain a constant standard of diligence.
- Competition between firms: with intensifying competition between financial intermediaries, there is an
inherent danger that corners will be cut to reduce costs.
Shareholders and globalization

Shareholders are becoming players in the global arena in 4 different ways:
1. Shareholders might become directly involved abroad by buying shares of companies in other
countries.
2. Shareholders might become indirectly involved by buying shares in a domestic (or international)
company that operates globally by selling goods and services worldwide
3. Shareholders can play a role in multinational corporations. Investing in such companies makes
shareholders indirect players in global capital markets.
4. Shareholders may become direct players in international capital markets by investing in funds that
explicitly direct their money to global capital markets. → ‘sovereign wealth funds’.
Global financial markets: the total of all physical and virtual (electronic) places where financial titles in the
broadest sense (capital, shares, currency, options, etc.) are traded worldwide.
Technological advances mean that financial markets are confined neither to certain locations nor to certain time
slots. The key political development is the high degree of deregulation of financial markets. From an ethical point
of view, the developments raise some serious issues:
- Governance and control: the problem is that no national government is entitled to govern these global
markets.
- National security and protectionism
- International speculation: global financial markets encourage speculation.
- Unfair competition with developing countries: while global financial markets are strongly deregulated
and thus capital can flow easily in and out of the countries, this is not the case for the markets for goods
and services.
- Space for illegal transactions; because these financial markets are not fully controlled by national
Governments.
- international speculation: global financial markets encourage speculations, this is not an ethical
problem as such, and in fact, speculation is one of the key principles why financial markets exist in the
first place. But these speculations can cause some damage.
Reforming CG around the globe

In Europe, the main way that reform has been addressed is through the definition and implementation of new
corporate governance codes. The idea of codes is to prescribe ‘best practice’ standards for corporations so as to
help ensure that certain minimal standards of corporate behavior are met. Typical issues dealt with in codes of
corporate governance are:
- Size and structure of the board
- Independence of supervisory or non-executive directors
- Frequency of supervisory body meetings
- Rights and influence of employees in corporate governance
- Disclosure of executive remuneration (beloning /salaris)
- General meeting participation and proxy voting
- Role of other supervising and auditing bodies
On one hand, the general implementation and enforcement of codes is desirable, on the other hand, extra
regulation makes business more inflexible and extends bureaucracy and ‘red tape’. Most of the codes have been
voluntary, while some have implemented mandatory frameworks for disclosure that follow the rule ‘comply or
explain’.
Islamic finance
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There are some differences between the Islamic financial market and the conventional finance:
 Prohibition of charging and paying interest (riba) in financial transactions

 Prohibition on uncertain and speculative transactions
 Requirement for profit, equity and risk sharing in investments
 Prohibition on investment in sinful (haram) activities, including pornography, gambling, alcohol etc.
 Requirement for all financial products to be backed by a tangible asset (because money has no value in
itself)
The shareholder as citizen of the corporation

Globalization weakens national governments, while at the same time MNCs are becoming increasingly powerful.
The firm as a political actor is replacing some of government’s role in governing citizenship. Shareholders have a
powerful position from which to hold the company accountable on a variety of issues that involve the governance
of citizenship.
Shareholders can be a force for wider social accountability and performance. For this, we need to consider three
further issues:
o Scope of activities: first we have to consider the scope of activities for which a corporation has to
assume accountability to shareholders.
o Adequate information: if shareholders are to decide on the ethical performance of the corporation, they
have to be provided with adequate information on such issues.
o Mechanism for change: finally, we have to think about the mechanism for change that shareholders can
use in order to communicate their ethical choices and influence the corporations they own stock in.
The role of shareholders with respect to the ethical performance of corporations broadly falls into two categories:
1. Shareholder activism: the attempt to use shareholder rights to actively change the practices and
policies of a corporation. The most important right here is the right to speak at the AGM and on other
occasions where shareholders are allowed to voice their opinions on the company’s policies.
2. Socially responsible investment: the use of ethical, social and environmental criteria in the selection
and management of investment portfolios, generally consisting of company shares. The most recent
development in this world is the growing interest among investors in emerging markets. In contrast to
shareholder activism, socially responsible investors do not directly use their investment to make
companies listen to their concerns and subsequently change their behavior. This is furtherremoved from
the corporation and certainly less active than confronting the managers head-on at AGM.
Shareholder activism Socially responsible investment

Single-issue focus Multiple-issue focus
Active role in CG Passive role in CG
Seeks engagement with management Avoids engagement with management
Seeks publicity Avoids publicity
Among SRI funds, there are two broad types:

1. Market-led funds: funds that choose the companies to invest in following the indication of the market. They use
criteria in four clusters: social, environmental, governance and ‘areas of specific ethical concern’.
2. Deliberative funds: they base their portfolio decisions on their own ethical criteria.
Deliberative funds provide investors with detailed ethical criteria, whereas market-based funds just provide a list
of companies regarded as ethical by the market.
The impact of SRI is limited since in practice fund managers are still predominantly occupied with financial
performance and only when, for instance, human rights issues threaten the latter are companies actually willing to
change their practices. The main concerns regarding the contemporary SRI movement are:
- Quality of information: most of the information is provided by the companies themselves.
- Dubious criteria
- Too inclusive
- Strong emphasis on returns
Shareholding for sustainability

Shareholders contribute to one of the major goals of business ethics: the triple bottom line of environmental,
economic and social sustainability.
The Dow Jones Sustainability Index: a leading share index that rates corporations according to their performance
towards the broader goal of sustainability.
The DJSI follows a ‘best-in-class approach’: they look for the leaders in each industry. Companies are assessed
in line with general and industry-specific criteria, which means that they are compared against their peers and
ranked accordingly.
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The companies accepted into the index are chosen along the following criteria:
 Environmental sustainability: for example environmental reporting, eco-design, environmental
management systems, etc.
 Economic sustainability: for example strategic planning, quality and knowledge management, etc.
 Social sustainability: for example employment policies, management development, human rights
policies, etc.
The data that form the basis for the judgements are based on questionnaires, submitted documentation,
corporate policies, and reports, etc.
By focusing on sustainability, the index identifies those companies with future-oriented and innovative
management
.
There are a number of criticisms of the index:
- The data on which the company is accepted into the index depends largely on data provided by the
company itself.
- The criteria used by the index are questionable.
- The sustainability assessment focuses mainly on management processes rather than on the actual
sustainability of the company or its products.
Alternative models of ownership:

- Governments owning corporations
- Family ownership
- Co-operatives; businesses that are owned neither by investors nor by their managers, but which are owned and
democratically controlled by their workers or their customers.
Social purpose corporations: a type of corporation that is legally required to pursue a social purpose in addition to
its commercial goals.
Chapter 7: employees and business ethics
Employees as stakeholders
Employee-related ethical problems are unavoidable for most contemporary managers. Employees take on a
peculiar role among stakeholders as they are closely integrated into the firm. Employees are important
stakeholders, both the legal and economic aspect are worth mentioning:
 legal: legal relationship ; a contract that stipulates the rights and duties of the two parties. (also think
about minimum wages, working conditions etc.)
 economic: the relationship betweem firms and employees is characterized by certain externalities on
both sides. This means there are costs for both parties that are not included in the contracts. This can
lead to asset specificity: employees invest time and effort in developing assets that are specific to a
particluar employeer (OR visa versa). For example: the employee is moving to another city for his job.
The cost of specificity can lead to moral hazard for both parties, but is normally greater for the employee
because they are more dependent on the employer and they are the weaker party.Many of the moral
hazards in the employer-employee relation have been subject to legislation. Most of this legislation
focuses around workers’ rights.
Ethical issues in the firm-employee relation

Management of human ‘resources’- an ethical problem between rights and duties
The core ethical dillema in HRM is that people are considered as a resource.
Human beings in the firm are, of course, a means to an end as they are employed to perform certain functions.
However, from an ethical perspective, they should never be treated as a means only. The central ethical issues in
HRM can be framed around the issues of employee rights; workers entitlements with respect to their employer
and employee duties; workers’ obligation to their employer. (in figuur 7.2 op blz 290 staat een tabel met de
belangrijkste rights and duties)
Employees have rights and duties.
The 8 employee rights are:
1. Right to freedom from discrimination
2. Right to privacy
3. Right to due process
4. Right to participation and association
5. Right to healthy and safe working conditions
6. Right to fair wages
7. Right to freedom of conscience and speech
8. Right to work
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1. Discrimination
o Equal opportunities o Affirmative action o Reverse discrimination o Sexual and racial harassment
Workplace discrimination occurs when employees receive preferential treatment on grounds that are not
directly related to their qualifications and performance in the job. (Most common: race, gender, age, religion,
disability and nationality). Employees increasingly come from a range of different religions, racial, national, and
cultural groups, making the whole issue of managing diversity a prominent feature of contemporary business
discourse. The point is that no matter how good the legislation, race, gender, age, religion, disability and
nationality discrimination are deeply embedded in business. For example, it is illigal to specify a preferred gender
or ethnicity for applicants for a vacant position. Another example is that some companies fire people between 45
and 49, because pension rights makes it more costly to fire them beyond the age of 50. Institutional
discrimination: the very culture of the organization is prejudiced agiantst certain groups.
Sexual and racial harassment

Companies increasingly have introduced codes of practice and diversity programmes in order to tackle issues and
to define the borders of harassment in the company. Harrasment is difficult to detect and prevent, because the
line between harrassment and ‘joking’ or other forms of personal interaction is blurred. Factors such as context,
culture, timing and frequency might shape whether a particular set of behaviours is viewed as harrassment.
Equal opportunities and affirmative action

Most legal approaches do not specify exactly how discrimination should be avoided, leaving many decisions open
to the discretion of the management. They use:
 Equal opportunity programmes: policies and procedures to avoid discrimination. This is the most
basis and conservative approach. Equal opportunity programmes try to ensure procedural justice:
ensuring that the procedures are fair to all
 Some equal opportunity programmes go further than introducing non-discriminatory procedures,these
are called affirmative action programmes: these approaches attempt to target those who might be
currently under-represented in the workforce. Four main areas:
 Recruitment policies: In order to enhance the proportion of under-represented groups, AA programmes
might look at actively recruiting these groups.
 Fair job criterion: Discrimination can occur through the definition of job criteria in such a way that a
number of applicants do not meet this criteria. Often many of these criteria are not necessary so they
disadvantage certain parts op the population more than others.
 Training programmes for discriminated minorities: Some part of the population might not have all the
special skills of qualifications needed. This might be because of discrimination earlier in life. Training
programmes for under-represented groups can boos their eligibility for vacant positions.
 Promotion to senior positions: Senior management positions are dominated by white males. This might
be tackled by specific leadership training for women and minorities once they are within the organization.
Reverse discrimination
Affirmative opportunity programmes itself can be deemed discriminatory because it disadvantages those thought
to be already be in an advantaged position. In this cases non-minorities suffer reverse discrimination, because
AA policies prefer certain minorities. There are two kinds of arguments:
 Arguments based on retributive justice: the jusitification of reverse discrimination: the past injustices
have to be paid for. This ia somewhat ambiguous, because for example women were discriminated for a
long time and it is time to reverse that, but on the other hand an individual applicant ( a white male) is not
responsible for the misconduct.
 Arguments based on distributive justice: rewards such as job and pay should be allocated fairly amongs
all groups.
Whilst it may be acceptable for companies to have ‘targets’ or ‘aims’ on how many women or minorities they
would like in certain roles or levels, they may be prevented from having an explicit quota that has to be fulfilled.
2. Employee privacy
The prospect of companies invading employees’ privacy has become an increasingly pressing issue in the
contemporary workplace.pressing issue in the contemporary workplace. Employee privacy: a workers’ ability to
control information about them and how it is used and shared. Employee privacy has never been so much under
attack. According to Michele Simms, there are 4 different types of privacy we might want to protect:
 Physical privacy: own space, for example no surveillance cameras in toilets.
 Social privacy: freedom to behave in our private life in whichever way we choose
 Informational privacy: determining how, when, and to what extent private data about us are released to
others
 Psychological privacy: controlling emotional and cognitive inputs and outputs, and not being compelled
to share private thoughts and feelings. For example, psychological privacy is threatened when you have
to smile and appear happy in front of customers.
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Employers have the right to know about our qualifications and work experience. The key issue is whether certain
aspects of our life are relevant to the relationship we have with our employer. The main areas where employee
privacy appears to be challenged:
Health and drug testing
The central objection is that these tests make available more information on the employee than the employer
actually needs. 3 main aspects here:
 Potential to do harm: it is important to know whether the job involves a clear and present danger to do
harm
 Causes of employee’s performance: the employer is entitled to information about the employee’s
performance, but not about the causes of that performance
 Level of performance: an employer is only entitled to an acceptable level of performance from their
employees, not their optimal performance.
Electronic privacy and data protection

The biggest threat to employee privacy at present comes from the increasing use of electronic surveillance. The
invasion of privacy here is based on the threat of potential harm to the company, rather than actual harm.
However, the harm to both employees and the firm itself can be very real when implementing such extensive
surveillance. In the long run, employers may also suffer by eroding trust within the organization and failing to
capitalize on employee discretion.
Managers often do not even recognize privacy as an ethical issue.
3. Due process and lay-offs

Promotion, disciplinary proceedings and firing are the most common processes where right to due process is
particulary important. This form of of justice requires the application of rules and procedures in a consistent and
even-handed way, avoiding arbitrary decision-making and without discrimination on bases other than merit. (just
like discrimination).
Firms often downsize to remain competitive and increase shaeholders value. There are certain ethical
considerations in the process of downsizing:
 Involvement: employees have the right to know well ahead that their job is on the line.
 Remuneration: the compensation package of redundancy payments and other benefits employees
receive when laid off. These should include enough money to bridge the time necessary to find a new
job.
Employees have increasingly been exposed to the need for occupational transitions: having to find work in
completely new industries rather than just switching employers. This meant that employees experience more
insecurity and faces greater challenges to find work. Corporations are developing outplacement strategies to help
employees find work following lay-offs.
The right to due is mainly concerned with establishing appropriate procedures for treating workers, particularly in
the case of lay-offs and dismissals.
4. Employee participation and association

o Organization of workers in works councils and trade unions
o Participation in the company’s decisions
Employee participation: practices that give employees some influence in how the workplace is organized,
managed, and governed. Participation implies that people are not treated only as a means to another’s end
(Kant’s thinking). Another justification is based on egoism: an employee can only freely prsue their own interests
or desires with some degree of participation at the workplace.
The key issue is not whether employees should have a right to particpate in decisions, but to what degree this
should take place. There are two main areas to which a right to participation expands:
 Financial participation: allows employees a share in the ownership or income of the corporation. For
example, renumarating executives with stocks or stock options in order to align incentives with
shareholders.
 Operational participation: occurs at a more practical level an can include the following different
dimensions.
 Delegation: employees take control of a wider range of individual decisions relevant to their own jobs
 Information: employees receive information about crucial decisions that have an effect on their work
 Consultation: employees are allowed to express their views on decision planned by the employer
 Co-determination: employees have a full and codified right to determine major decisions in the company.
This is the strongest form of participation.
In many countries employees do not practise many participatory rights directly but through their representives in
work councils or trade unions. We have to consider whether employees have the right to association. Right to
association: the right of employees to join together in organizations. Union membership has declined in most
countries. Despite this decline, the underlying rights to participate and associate remain crucial issues for
corporations. In modern organizations, participation has been identified as a means to enhance worker’s
efficiency, especially when jobs ask for flexibility and creativity of the employee.
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5a. Working conditions

o Working conditions
o Occupational health and safety
The right to healthy and safe working conditions has been one of the very first ethical concerns for employees.
Most industrialized countries have implemented a dense network of health, safety and environmental regulation
(HSE) that companies have to abide by. The main issue becomes the enforcement and implementation of existing
regulation. As a general rule, one could adopt the principle of informed consent: no worker should be exposed to
high risk to health and life without precise information about these risks. HSE issues become increasingly relevant
in the context of new risks, most commonly in the form of new diseases and new technologies.
5b. Work-life balance

There has been a growing pressure for longer hours in (and travelling to) the workplace. Work-life balance:
balance between work and non-work activities. There are two issues pressing on work-life balance:
 Excessive working hours and presenteeism. Presenteeism: when you are at work when you should be at
home due to illness or even just at rest and recreation.
 Flexible working patterns: greater flexibility can enhance opportunities for women and other
disadvantaged groups, but is can also have a major downside for those marginalized from ‘standard’
work and working conditions. The problem arises when flexibility erodes basic protections for employee
rights, and/or where one group of workers on part-time, temporary, or otherwise flexible contracts is
treated unfairly compared with the core workforce.
6. Fair wages
The basis for determining fair wages is commonly the expectations placed on the employee and their
performance towards goals, measured by hours worked, prior training, risks involved, responsibility for assets,
meeting of targets, etc. However, jobs are valued very differently in some employment markets compared to
others. Because there is such a difference between the thop and bottom earners in society, widening attention
has been paid to the problem of income inequality. Income inequality: the distribution of income across society
from the highest to the lowest earners. This has greatly increased in most countries.
7. Freedom of conscience and freedom of speech in the workplace

Within the boundaries of the firm, there might be certain situations where freedom of speech and freedom of
conscience might face certain restrictions. In almost all cases, this is unproblematic, because most rational
employees would find it in their own best interests to comply with company policy, and there is little reason to
suggest that most corporate decisions need to be made public. But in some cases it is problematic, for example, a
manager ask you to take part in creative accounting. If you inform third parties about this, it is called
whistleblowing and this has a considerable risk for you.
8. The right to work

The right to work is a fundamental entitlement of human beings. It is linked to the right to life, because work
normally provides the basis for subsistence. It also reflects the right to human respect, because the ability to
create goods and services represents a major source for self-respect for human beings.
The right to work in a business context cannot mean that every individual has a right to be employed. But is
should result in the claim that every individual should face the same equal conditions in exerting this right. So, the
right to work results in equal and fair conditions in hiring and firing.
Relevant duties of employees

In the context of business etics, the main focus has to be on the rights of employees, as these are more
endangered than the rights of employers.
The 3 employee duties are:

1. Duty to comply with labour contract
 Acceptable level of performance
 Work quality
 Loyalty to the firm
2. Duty to comply with the law
 Bribery
3. Duty to respect the employer’s property.
 Working time
 Unauthorized use of company resources for private purposes
 Fraud, theft, embezzlement
What is the employer’s responsitibility with regard to ensuring that employees live up to their duties? Most of the
time they should not do anything to ‘check’ their employee because it wil touch on the employee’s right to privacy.
However, in the case with the duty to comply with the law is the employer responsible for ensuring that their
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employees live up their dutie. The most common tools to take up this responsibility are codes of conduct and
employee training.
Employing people worldwide: the ethical challenges of globalization

Globalization of business practices has had a significant impact on the question of the ethical treatment of
employees. Companies operating subsidairies or sourcing products from ‘low-wage’ countries, because of the
lower costs associated with production. This leads to questionalbe working conditions for workers: low wages,
high risk for health and safety, inhumane working conditions.
Issues such as discrimination, fair treatment, acceptable working conditions, fair wages and the necessity for
freedom are interpreted and made meaningful in different ways in different cultures.
There are 3 underlying issues involved here:
1. National culture and moral values:
The 5 dimensions of Hofstede focus on some of the key aspects underpinning the moral values than govern
employer-employee relations. Different cultures will view employee rights and responsibilities differently. This
means that managers dealing with employees overseas first need to understand the cultural basis of morality in
that country.
This raises the problem of relativism vs. absolutism. Relativism: no one view of ethics can be said to be right
since it must always be relative to the historical, social and cultural context. Absolutism: if an ethical principle were
to be considered valid, it has to be applicable anywhere. Both extremes do not give a sufficient answer to the
different conditions evident in countries across the globe:
 Relativists would deny any ethical problem around exploitation and poor working conditions as long as
such conditions comply with the standards of the respective country or culture
 Absolutists would say that if our moral standards are right, they are right everywhere around the globe.
So, companies should respect employee rights equally, wherever it is that they are actually contracted to
work.
2. The race to the bottom:

Large investors may choose the country that offers the most ‘preferable’ conditions, which often means the lowest
level of regulation and social provision for employees. This competition can therefore lead to a ‘downward spiral’
of protection, this is called a race to the bottom in envrionmental and social standards.
3. Migrant labour and illegal immigration

There is a growing mobility of workers globally. There are a lot of ethical issues around this phenomenon. As
migrant workers often come from poor countries, they are frequently willing to accept working conditions and
salary levels that would normally be considered uncacceptable. A key issue is that these workers often enter
countries illegal. These factors make migrant workers particularly vunerable to exploitation.
The corporate citizen and employee relations
Ethical issues in employee relations have a close relationship to the notion of corporate citizenship:corporations
govern a good deal of the social and civil rights of citizens in the workplace. The extent to which corporations do
this, as well as the degree to which corporations are held accountable for the governance of these rights, varies
quite a lot.
 how far different legal and governance systems in various countries push companies to respect the
rights of their employees
 Capitalism in continental Europe has tended to take into account the interests of employees to a greater
degree than the Anglo-Saxon model (which includes the UK, US, Canada).
 Co-determination: the relationship between labour (employees) and capital (shareholders). In Europa
both parties have an equal say in governing the company, this resulted in a very strong legal position for
workers, work councils and trade unions. In the Anglo-Saxon model, where shareholders are regarded
as the most important group, the employees and their right are not as good protected as in Europe.
 In general, the level of regulation protecting employees is rather low in countries. However, in many
emerging economies, governments have, over time, tended to strengthen the protection and
implementation of employees’ legal rights.
Managing international human rights
Regional differences and shifts in legal protection over time make it difficult for corporations to determine the
scope of their responsibilities for protecting employee rights. John Ruggie has developed a framework for
understanding business responsibilities in the area of human rights. This framework of ‘protect, respect and
remedy’ offers an important starting point for delineating corporate and governmental responsibilities in this
controversial area:
1. Protect: states have the duty to protect against human rights abuses by non-state actors, such as
corporation.
2. Respect: corporations have to respect human rights in that they are expected to obey laws on human
rights even if these are not enforced
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3. Remedy: firms and governments need to put in place formal grievance procedures and systems for
investigation and punishment of abuses.
Towards sustainable employement
Respecting and guaranteeing employee rights in the workplace suggests certain tensions when we think in terms
of sustainability. There usually have to be some sacrifices or trade-offs between protecting employees and
promoting various aspects of sustainability.
On the other hand it is also possible to discern certain links with the intention to protect employee rights and the
notion of sustainability.
 With protecting employee rights we actively contribute to long-term sustainability in the economic sense
 A workplace that puts us under stress or where we are treated unfairly will have long-term effects on our
lifestyle, health, and wellbeing. This is linked to the social dimension of sustainability: employees should
be treated in a way that stabilizes social relationships and support them to maintain meaningful social
relationships.
 ecological sense; modern corporation created workplaces that are ecologically unsustainable: employing
fewer people in highly mechanized and energy-intensive technological environment, while at the same
thime making no use at all of 10-15% of the potential workforce. This is a major waste of material and
energy.
There are three main ways in which these problems and tensions have been addressed:
1. Re-humanized workplaces: employees nowadays simply repeat the same monotonous and stupefying
actions over and over again, resulting in there being little real meaning, satisfaction, or involvement in
their work. This leads to dehumanized and de-skilled workplaces. Meaningful work is clearly not
available to all, representing another form of injustice.
There have been numerous attempts to re-humanize the workplace by, for example, ‘empowering’ the employee.
Two ways to do this:
 Job enrichment: giving employees a larger scope for deciding how to organize their worko
 Job enlargement: giving employees a wider range of tasks to do
2. Wider employment: from a sustainability perspective, the problem is essentially one of ensuring that
meaningful work is available to all.. There is a cleavage between those who have the highly skilled jobs
which require long hours of work for high returns, and those who are reduced to unemployment or have
low-skilled, poorly paid or temporary jobs. There have been a number of interesting efforts to tackle this
problem of creating a society of ‘haves’ and ‘have-nots’. For example, an attempt from the French
government to introduce a 35-hour work week. The idea was that organizations had to employ more
people. This had an ambiguous effect: in some industries there was tendency to replace labout with
technology.
2. Green jobs: One aspect of green jobs is that they are in industries producing environmentally friendly
products ( such as hybrid cars) and services (such as recycling). Another aspect is that the job itself, the
workplace, the way labour is organized, become more environmentally sustainable.
Chapter 8: Consumer and Business Ethics
Consumers are one of the most important stakeholders for any organization, without the support of customers
most organizations would be unlikely to survive for very long. Being ethical in dealing with consumers is generally
regarded as one of the most crucial areas of business ethics. Since consumers are primarily outside the
organization, ethical problems in this area are often some of the most visible and most difficult to hide of ethical
violations.
The main corporate functions responsible for dealing with consumers are sales and marketing.
Consumers as stakeholders
First of all, we must question whether the satisfaction of consumer stakeholders is necessarily always consistent
with the best interest of the firm. This is aligned interest, but there may also be situations where the interest of
buyers and sellers diverge. The co-alignment of interest of these groups depends on the availability of alternative
choices that he consumer might be able to switch to.
Consumer rights: inalienable entitlements to fair treatment when entering into exchanges with sellers. They rest
upon the assumption that consumer dignity should be respected, and that sellers have a duty to treat consumer
as ends in themselves, and not only as means to the end of the seller.
In the past the legal framework for market exchange was largely predicted on the notion of caveat emptor/ buyer
beware: the consumer’s sole right was to veto purchase and decide not to purchase something. The burden for
protecting the consumer’s interest therefore lay with the consumer.
The limits of caveat emptor
During the latter part of the twentieth century, this notion was gradually eroded by changing societal expectations
and the introduction of consumer protection laws in most developed countries.
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Business ethics begins where law ends, so the questionable rights of consumers and those that are not legally
protected, raise the most ethical questions.
The stake that consumers hold in corporations does not only provide them with certain rights, but also entrusts
them with certain responsibilities too. On one level, this is in terms of the expectation we might have for
consumers themselves to act ethically in dealing with the producers of products (for instance, downloading music
illegally). At a different level, there are certain responsibilities placed on us as consumers for controlling
corporations in some way, or for avoiding environmental problems, through our purchase decisions (for instance,
not buying a product because it is made in poor working conditions).
Ethical issues, marketing and the consumer

The question of dealing ethically with consumers fall within one of the three main areas of marketing activity.
Marketing management, marketing strategy and market research.
Ethical issues in marketing management

The main tools of marketing management are also called the ‘marketing mix’: product policies, marketing
communications, pricing approaches and distribution practices.
 Ethical issues in product policies: consumers have the right to products and services which are safe,
efficacious, and fit for the purpose for which they are intended. Almost no area of consumption is free
from at least the potential to inflict some form of physical, emotional, financial, or psychological harm
upon customers. Manufacturers have to exercise due care: ensuring that all steps are taken to ensure
that their products are free from defects and safe to use.
But safety is also a function of the consumer and their actions and precautions. The consumer’s right to a safe
product is therefore not an unlimited right. They have to use products the right way for instance for it to be safe.
 Ethical issues in marketing communications: this can be broken down in two levels:
1. individual consumer : concerned with the use of misleading or decptive practices that seek to create
false beliefs about products or companies in the consumer’s mind, in order to increase the propensity to
purchase .
Misleading and deceptive practices: marketing communications have to fulfill two main functions:
- to inform consumers about goods and services;
- to persuade consumers to actually go ahead and purchase products
The persuasive nature of most marketing communications means that we expect them to exaggerate,
overclaim, boast, and make playful allusions. The problem comes when persuasion involved deception
of some sort. Deception occurs, when a marketing communication either creates, or takes advantages
of, a false belief that substantially interferes with the ability of people to make rational consumer choices.
2. social level: main concern is with the aggregate social and cultural impacts of marketing communications
on everyday life.
the Advertising Standards Authority suggests that advertisements should be legal, decent, honest and
truthful.
The argument about social and cultural impacts also concerns the aggregate impact of marketing
communications in society rather than just being specifically focused on particular campaigns or techniques.The
main objectives for marketing communications are that they:
 Are intrusive and unavoidable: advertisements are everywhere
 Create artificial wants: advertisements make us want things that we do not particularly need.
Organizations generate artificial wants in order to create demand for their products.
 Reinforce consumerism and materialism: marketing communications generate and perpetuate an
ideology of materialism in society and instute an indentification of consumption with happiness in our
culture.
consumerism: an attitude that makes consumption the centre of meaning and identity construction.
 Create insecurity and perceptual dissatisfaction: by presenting glorified images of ‘the good life’ for us to
aspsire to, marketing communications create constant dissatisfaction with our lives and istitue a
pervading sense of insecurity and inadequacy.
 Perpetuate social stereotypes: marketing communcations spread socially undesirable stereotypes of
certain categories of person and lifestyle, such as women are also housemaids or sex objects, and
health, beauty and happiness are only possible with ‘perfect’ body shapes.
Many social commentators contend that, as a society, we have never been so informed and educated about the
role of advertising, promotion, and branding as we are today. Consumers now are much more media literate and
less likely to be the victims of marketing communications.
 Ethical issues in pricing: The right to a fair price might typically be reagrded as one of the key rights of
consumers as stakeholders. Fair price is the result of a mutual agreement by the buyer and seller under
competitive conditions. Problems of fairness arise when prevailing market conditions allow companies to
exploit an advangageous market position. In most countries, there are regulatory agencies in place to
police market distortions. There are 4 main types of pricing practices where ethical problems are likely to
arise:
- Excessive pricing: (price gouging), the fair price for foods and services has been exceeded by one company
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- Price fixing: competing companies fix prices above the market rate
- Predatory pricing: the company sets prices below the market rate in order to force out competition. This practice
allows firms with a size or other advantage to use their power to eliminate competitors form the market so that
more favourable market conditions can be exploited.
- Deceptive pricing: when firms price in such way that the true cost to consumers is deliberately obscured. For
example, an low-cost airline company was fined for advertising cut-price flights that were not actually available on
iths website at the advertised price.
 Ethical issues in channels of distribution: ethical issues and problems that occur in the relations between
manufacturers and the firms which deliver their products to market, such as wholesalers, logistics firms,
and retailers. (product supply chain)
Ethical issues in marketing strategy

Marketing strategy is primarily concerned with the decisions of market selection and targeting. As marketers have
become more adapt at targeting specific groups of consumers, important criticisms have emerged. Critics are
concerned with potential violations of the consumer’s right to be treated fairly. This violation of right to fair
treatment can happen in two ways:
 Vulnerability: some target markets are composed of consumers who are vulnerable in some way
(children, the poor, etc.), and marketers unfairly take advantage of this vulnerability to satisfy their own
ends.
Arguments criticizing unfair targeting practices are based on the degree of vunerability of the target and
on the perceived harmfulness of the product to those consumers. Some consumers are less capable
than others of making an informed reasoned decision about wheter to purchase a product. Reasons for
this are for example, lack of sufficient education, easily confused or manipulated because of an old age,
exeptional physical or emotional need due to illness, lack of the necessary income to maintain a
reasonable quality of life, too young to make competent independent decisions. The vulnerability of
consumer gave the rise to a duty of care to sellers: they have to act in such a way as to respect the
interests of the consumer, as well as the interests of themselves and their company. The issue of
perceived harmfulness of the product is also a critical one in assessing the ethics of particular targeting
approaches. It focus on that it is primarily wrong only if the consumer might be expected to suffer in
some way.
 Consumer exclusion: certain groups of consumers may be discriminated against and excluded from
being able to gain access to products that are necessary for them to achieve a reasonable quality of life.
For example, financial exclusion of poor families. Exclusion can take a variety of forms:
- Access exclusion: lack of appropriate distribution outlets and channels prevent people from
accessing essential goods and services
- Condition exclusion: restrictive conditions on product offerings such as financial service products may prevent
certain groups from purchasing them
- Price exclusion: prices are too high
- marketing exclusion: firms exclude certain groups from their target marketing and sales activities.
- Self-exclusion: people decide that htere is little point applying for or trying to access a product because they
believe they would be refused.
Ethical issues in market research

The main issue here is one of the possible threats posed to rights to consumer privacy. = The right of a
consumer to control what information companies can collect about them and how it is stored, used and shared.
Market research involves the systematic collection and analysis of enormous amounts of data pertaining to
individual consumers.
Many of the most pressing issues of consumer privacy are related to dangers posed by developments in
information and communication technology, especially with regard to online privacy.
Globalization and consumers: the ethical challenges of the global marketplace
Convergence in consumer needs across different countries has been widely identified as one of the key drivers of
globalization in business.Globalization has brought a new set of problems and issues relevant to consumer
stakeholders. Issues can be explained in relation to three main considerations:
1. Different standards of consumer protection: the level of protection offered to consumers varies
considerably across the globe, in terms of both government regulation, and the standards offered by
companies. Globalization therefore offers firms the opportunity to exploit these differences.
2. Exporting consumerism and cultural homogenization: a second problem associated with the drive by
companies to expand into new international markets with brands already successful at home is that they
frequently run up against the accusation that they are not only exporting products, but are also ultimately
exporting a whole set of cultural values too.
3. The role of markets in addressing poverty and development: globalization also raises the prospect of
firms potentially targeting their products at a much wider, but far poorer, market of low-income
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consumers in developing countries. Bottom of the pyramid concept: by stimulating commerce and
development at the bottom of the economic pyramid, you could radically improve the lives of billions of
people and help bring into being a more stable, less dangerous world.
Consumers and corporate citizenship: consumer sovereignty and the politics of purchasing
In history, the main concept was caveat emptor. Now, there is more expected from firms in terms of how they
treat their consumers. But what is ethical marketing in this sense? The main concept is consumer sovereignty.
This suggest that under perfect competition, consumers drive the market; they express their needs and demands,
which firms subsequently respond to by supplying them with the goods and services that they require.
In real life there is no such thing as perfect competition, so there are limitations to the power and sovereignty of
consumers. In many situation hey cannot exercise informed choice. These limitations in making informed choices
are an ethical problem: individual transactions will be unfair to certain consumers and without consumer
sovereignty the economic systen does not work efficiently and allocate resources fairly.
Consumer sovereignty is comprised of three factors: (CST, Smith 1995)-> zie figuur 8.4 op blz 366
1. consumer capability: the degree of freedom from limitations in rational decisionmaking enjoyed by the
consumer, for example, from vulnerability or coercion
2. information: the availability and quality of relevant data pertaining to a purchase decision
3. choice: the extent of the opportunity available to freely switch to another supplier.
The CST provide us witha relatively simple and practical framework with which to identify possible ethics
violations.
Ethical consumption
Ethical consumption: the conscious and deliberate choice to make certain consumption choices due to personal
moral beliefs and values. Ethical consumption is about decisions beyond self-interest, for example, buying non-
animal tested products or fairtrade products. If we draw a connection with consumer sovereignty, what this means
is that consumers to some extent can act as a social control on business. If consumers demand improved
business ethics through the market, then business might be expected to listen and respond : consumer
citizenship: consumer is using their purchases as votes to support or critizice certain business practices.
Ethical consumption is a positive phenomenon, but also has some downsides:
 The motives of corporations will always be financial rather than moral. So, minority causes can be
pushed away
 If consumers will no longer pay extra for the ethical products, of when they can no longer afford them,
will they just be dropped?
 If purchases are votes, then the rich people have way more votes, which makes the market not
democratic.
Sustainable consumption
Consumption is ultimately the reason why anaything gets produced. Current levels of consumptions are
unsustainable, the by-products and wastes created by consumption can be dispoded off indefenitely. High levels
of consumption pose enormous barriers to the development of sustainable business.
Sustainable consumption: consumer behavioiur that enhaces quality of life and minimizes or eliminates social
and environmental harms throughout a product’s life cycle. The use of goods and services that respond to basic
needs and bring a better quality of life, while minimizing the use of natural resources, toxic materials and
emissions of waste and pollutants over the life-cycle, so as not to jeopardise the needs of future generations.
steps toward sustainable consumption:
There is much that business, government and consumers can doe to seek more sustainable modes of
consumption.
1. producing environmentally responsible products: to develop markets that impact less harmfully on the
environment. Developing new products is a key element of movement towards sustainable consumption,
but consumers also have to want to use them. Companies should use sustainable marketing (such as
ecolabels) to promote green products. Progress towards sustainability will also require a willingness to
change markets as well as changing products.
2. Product recapture: moving towards a circular use of resources - where waste is recaptured and brought
back into productive use - not only to minimize waste, but also to use less ‘virgin’ material. Current
business uses the linear flow of resources, where materials are used to make products, whirch are then
consumed and disposed of. (Zie figuur 8.6 op pagina 376)
3. Service replacements for products: By replacing the sale of the produch with an agreement to provide an
ongoing service, firms can substantially reduce the amount of material goods being produced, as well as
managing emissions and energy inputs more efficiently. As a consumer you lease the product instead of
buying it.
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4. Product sharing: Products will be shared by groups of econsumers, thereby getting more use out of the
same resources. Sharing economy: an economic system built around the sharing of human and
physical resources.
5. Reducing demand: The challenge of sustainability can only really be met if society accpets that people
simply have to buy less stuff. For example, you have buy plastic bags instead of getting them for free.
Chapter 9: suppliers, competitors and business ethics
In this chapter, we shall examine the inter-organizational relationship in the context of two types of business:
suppliers and competitors.
The relationship between businesses can raise ethical problems both of being too adversarial as well as by being
too cozy.
Suppliers and competitors as stakeholders

There are various definitions of what constitutes a stakeholder and which constituencies should be included or
excluded. All formulations tend to include suppliers, but most of them exclude competitors. Such a distinction is
not entirely useful or appropiate.
 A stakeholder is an individual or a group that either is harmed by or benefits from the corporation or
whose rights can be violeted, or have to be respected by the corporation.
 Suppliers can benifit form the succes of the corporation by receiving order for products and they can be
harmed by losing those orders. Organizations and their suppliers can be seen mutually dependent on
each other for their own succes.
 Competitiors are the forgotten stakeholders. They can be harmed by or benefit from the organization.
For example, competitors can experience a loss or gain of market share as a result of the actions of their
rivals. Businesses should be seen as a part of an industrial network, where businesses operating within
a web of other businesses bound by mutual interests and interlinked flows of resources and rewards (zie
figuur 9.1 op bladzijde 392) According to the industrial network model, decisions abouthow the firm deals
with any other firm can have a significant effect on numerous other members of the business network.
Ethical issues and suppliers

Firms have continued to increasingly move away from traditional adversarial relationships with suppliers, towards
more partnership-based approaches that emphasize long-term relationships with core supply firms based upon
mutual trust and collaboration. But, the partnership approach is certainly not representative of all, or probably
even the majority, of business-supplier relationships. This partnership sourcing involves problematic power
relations and troublesome intro-firm tensions.
1. Misuse of power: The issue of power in buyer-supplier relationships has received much attention.
Imbalances of power can lead to the emergence of ethical problems.
Resource dependence theory: useful way of looking at the relative power of buyers and sellers.
According to the theory, power derives from the degree of dependence that each actor has on the
other’s resources. This dependence is a function of how scarce an organization’s resources are
(resource of scarcity) and how useful they are to the other party (resource utility).
Deontological perspective: those with power might be said to have a duty not to abuse it.
Consequentialist position: the problems caused by abuse of supply-chain power are not just of
consequence to the weaker partner. Excessive abuse of power may eventually even harm the powerful
partner. But why would abuse of of power ever happen?
- In the short term there may be profit advantages to be gained
- Many firms will view the situation from a narrow perspective and fail to see the broader cumulative
industry effects that may harm them
2. The question of loyalty: Loyalty is one of the virtues often prized in business, but loyalty to suppliers does
not easily fit with an economic view of the firm that stresses the importance of free competition in order
to achieve the most beneficial outcomes. However, loyalty does not necessarily imply slavish
acceptance of any conditions offered by the supplier and a long-term commitment can pvide the
opportunity to take advantage of reduced transaction costs.
3. Conflicts of interest: Where a person’s or organization’s obligation to act in the interests of another is
interfered with by a competing interest that nay obstruct the fulfilment of that obligation. In a business-to-
business context, a conflict of interest can arise in two main ways:
- Conflict of professional and organizational interests
- conflict of personal and organizational interests
The types of personal, professional and organizational interests that might be at stake can very
considerably, but the following needs the most attention: money, gifts, hospitality, favours, and other
kinds of financial inducements. However, it is not always clear if it is a friendly gift or an outright bribe.
So, we need to investigate how personal inducement can be distinguished.
practice. When a purchaser receives a personal benefit from the seller, the problem is that the purchaser
may be swayed to make a decision that does not fulfill this obligation to their employer. But how can you
ben influences by something that hadn’t even happened when the decision was made? There are a
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number of ways of looking at this:

- Intention of the gift-giver: if their intention is to gain an additional advantage, then we might question
the action.
- Impact on the receiver: if their evaluation of the gist giver is enhances after receiving the gift, we
might raise some doubts about its ethically.
- Perception of other parties: if a competing supplier might interpret the giving of the gift as a
deliberate bribe, then we should question the action.
Many organizations have purchasing codes of ethics: guidelines for appropriate behavior on issues such
as gifts and hospitality.
4. Ethics in negotiation: This is the issue of business-supplier negotiation. The whole process of negotiation
between buyer and supplier inevitably raises some ethical tensions. Ethics and negotiation are like oil
and water: they just don’t mix. Many negotiating tactics are not ethical, for example:
- Lies
- Deception
- Puffery : exaggerating the value of something
- Distraction
Such practices can incur costs on the negotiator. These costs are:
- Rigid negotiating: unethical tactics can draw negotiators into a narrow view of the tactics available to
them, especially if they are perceived as having been successful in the past.
- Damaged relationships: unethical negotiation may mount, as negotiators turn into embittered enemies
rather than mutually supportive partners.
- Sullied reputation: unethical negotiation can have a negative influence on the individual’s or their
company’s image, making future bargaining more troublesome.
- Lost opportunities: unethical negotiation tends to prevent any progressive discussions which could
bring new, profitable issues to the table.
Ethical issues and competitors
Ethical issues in dealing with competitors can relate to two distinct problems:
1. Problems of overly aggrissive competition: where a competition goes beyond acceptable behavior in
its direct relationship with a competitor, thereby harming the competitor in a way that is seen as
unethical. For instance, when competitors engage in spying, dirty tricks and anticompetitive practices.
Intelligence gathering and industrial espionage
Ethical questions arise when one or more of the following are deemed to have occured:
- The tactics used to secure inromation about competitors are questionable since they appear to go
beyond what might be deemed acceptable, ethical, or legal business practice
- The nature of the information sought can itself be regarded as in some way private or confidential
- The purposes for which the information is to be used are against the public interest
Questionable tactics may take many forms. They are questionable because they violate a duty to be
honest and truthful in business dealings.First of all, there is private or confidential information. The
enforcement of privacy is tricky:
- Corporations are to some extent ‘boundary-less’; they have fewer clearer boundaries to define the
private ‘corporate space’ compared with individuals
- Corporations consist of, and deal with, multiple individuals making control of information difficult.
- Much corporate activity takes place in public and quasi-public spaces such as shops, colleges,
hospitals, etc. These are easily and usually quite legitimately observed, infiltrated, or tracked.
There is also intellectual property that belongs to the organization. Example of this is patents. Finally,
there are public interest issues. They usually rest on consequentialist reasoning, namely that the action
can be said to cause an overall aggregate reduction in happiness for affected members of society.
Dirty tricks
Dirty tricks: the range of morally dubious practices that competitors occasionally turn to in order to outdo
their rivals. Dirty tricks can include various tactics:
- Negative advertising: where a firm sets out to publicly critizie competitors
- Stealing customers: where rivals customers are specifically approached
- Predatory pricing
- Sabotage: direct interference in a competitor’s business to obstruct their plans
Anticompetitive behaviour
This action can signal an attempt to restrict competition in an industry in order to reap longer-term
profitability. Such anti-competitive practices usually contravene competition law.
2. Insufficient competition: where the actions of one or more companies acts to restrict competition in a
market, thereby harming consumers in a way that is seen as unethical.
Anti-competitive behavior can also hurt consumers, particularly when it results in companies being able
to abuse their dominance in a market to exploit customers through higher prices.
Collusion and cartels
Where select groups of competitors band together in a cartel or trading group to fix prices and other
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trading arrangements for their own mutual benefit. This mainly results in a potential threat to consumer
interests
Globalization, suppliers, and competitors: the ethical challenges of global business networks
Deterritorialization of the corporate value chain can be identified as an important influence contributing to the
process of globalization. The key forces driving globalization in business are:
 Convergence of markets: firms have increasingly sold their products across the world, thereby bringing
them into direct competition with firms in and from different countries.
 Global competition: competitors may now hail from cultures with different understandings and
expectations of business and the nature of competition. Moreover, the impact of foreign competition in
many countries ight well have significant effects on the local economy
 Cost advantages: multinational corporations shift the sourcing and production of their products,
components, and labour to less developed countries.
 Government influence: corporations are operating under a different set of cultural practices and
assumptions, with other standards of working practices, health, etc.
There has been a dramatic reshaping of ethical considerations and problems when dealing with suppliers and
competitors in a global, as opposed to a purely local based, business network. This reshaping brings to the fore 4
main considerations:
1. Different ways of doing business
By coming into contact with overseas suppliers and competitors, corporate managers are often
confrotned with very different ways of thinking about and evaluating business ethics. Different ways of
doing business are primarily important for corporations’ dealings with their suppliers, particularly in
relation to gift giving, bribery, and corruption. If the act is without an intent to gain undeserved favor, if it
does not have the effect of doing so, and if it is not perceives as doing so, then probably it should be
regarded as acceptable when consistent with a broader social norm. This is especially the case when
the norm also dictates that the giving is an exchange. But, the problem is not simply with those accepting
bribes, but also with those willing to pay them.
In fact, for the individual manager, the question is not always one of whether bribery is right or wrong, but
whether doing business in certain countries is even possible without such practices.
2. Impacts on indigenous businesses
The size, power, and political influence of multinationals often means that they enjoy considerable costs
and other advantages compared with local competitors. Multinationals can harm other firms by posing
strong competition in product, labour, and financial markets and by offering employment alternatives to
individuals who should otherwise found their own business crowd out. Multinationals may often be able
to negotiate far more attractive trading arrangements than their weaker indigenous competitors.
However, multinationals can build value-enchancing partnerships with local firms, expose local
entrepreneurs to new practices and contribute to the human capital of local workers.
The problem of unfair competition from multinationals is a particular cause for concern when it threatens
the viability of an entire local industry as this can lead to more fundamental social and enconomic decay.
3. Differing labour and environmental standards
A very important concept here is the race to the bottom. Also, there might be different environmental and
health and safety standards in different countries.
4. Extended chain of responsibility
The implication of these shifts towards global supply and competition is that individual firms are faced
with an extended chain of responsibility.Different social and economic conditions in other countries have
meant that the relatively level playing field constituted by national business has been replaced with the
sloping and bumpy playing surface of globalization. Corporations now have to consider their ethical
responsibilities much more broadly. Pressure groups are important here.
The corporate citizen in business-to-business relationships: ethical sourcing and fair trade
Ethical sourcing is the inclusion of explicit social, ethical, and/or environmental criteria into supply-chain
management policies, procedures, and programmes. It occurs when a supply-chain member intorduces social
and environmental criteria into its purchase decisions in order to support certain practices and/or supplies. Ethical
sourcing represents the idea that firms use their buying power to influence the practices of those they purchase
from.
It has been increasingly common for firms engaged in ethical sourcing to introduce some kind of social auditing
approach in order to ensure compliance with their sourcing guidelines in supplier factories, farms, and other
production units.
Supply-chain pressure has been a key factor in prompting firms to seek various social and environmental
certifications of one sort or another, even if they are not necessarily perceived as intrinsically valuable.
There are four types of codes, any of which might be used in ethical sourcing, namely corporate codes, a
professional code, industry codes or a programme code. However, when the process of managing ethical codes
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is extended to the supply chain it becomes even more difficult to implement effectively because the firm does not
have direct oversight or control over what is happening in its suppliers’s workplace.
For suppliers, the public act of gaining ethical certification can act as a way of reducing information asymmetries
between themselves and potential buyers.
Ethical sourcing as business-to-business regulation
In the absence of specific or suffiecient legislation in suppliers’s countries, or ore usually where there is simply
weak enforment of existing legislation, this kind of supply-chain pressure can be the most effective form of
regulation for these companies.
The threat of losing business or being delisted by a major customer can act as a powerful force for change.
The succes of ethical sourcing initiatives, depends on a number of factors
 power of buyers and suppliers;
 the reputational vulnerability of network members;
 the diffuseness of the supply base;
 the length of the supply chain between the corporate buyer and the companies where the ethical issues
are most pronounced.
Another factor to consider is whether ethcial sourcing is attempted by individual firms alone, or whether whole
groups of competing firms join together.
Strategies of business-to-business regulation
There are three main ways to affect ethical sourcing through the supply chain:
1. compliance: The setting of clear standards for suppliers, coupled with a means for assessing compliance
with those standards. Failure to meet standards results in disengagement.
2. Collaboration: involves setting standards and compliance procedures, but tends to rely on longer-term
aims, together with incremental targets in order to foster a step-by-step apprach to improving standards.
3. Development: may still includes elements of a compliance or collaboration approach, but there is much
more focus on ensuring that workers understand their rights and are provided with training to improve
their capabilities and future prospects.
Fair trade
Approaches to ethical sourcing that focus on equitable trade arrangements, small-scale producers, and supplier
empowerment are usually referred to as fair trade. Fair trade: A systmen of exchange based on guaranteeing
producers in development countries a living wage, decent working conditions and opportunities for community
development.
Fair trade retains ethical-value-added to conventional trading arrangements, that is, fair traide is a system aimed
at offering the most disadvantaged producers in developing countries the opportunity to move out of poverty
through creating market access under benefical rather than exploitative terms. The objective is to empower
procedures to develop their own business and wider communities through international trade.
Sustainability and business relationships: toward industrial ecosystems?
A sustainable business community consist of three levels

1. sustaining the supply chain: this requires firms to engage in a variety of initiatives, from training and
financing of suppliers to enable them to switch over to more sustainable production methods, to investing
in local community development. Investments in supply-chain continuity are critical.
2. turning suplly chain into supply loops: If wastes are to be recaptured and brought back into productive
use, we need to think not of supply chains, but of supply loops that create a circular flow of resources.
3. building industrial ecosystems: a more system-orientated view, where groups of firms are seen as
interdependent entities that share resources and produce a shared environmental burden and even
further, wider communties of organizations bound by interdependence of all kinds of resources and
wastes.
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Summary Book Business Ethics Chapter 1 9

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Summary - book "business ethics" - Chapter 1 - 9

Business Ethics (Rijksuniversiteit Groningen)

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Corporate Social Responsibility – summary book

What is business ethics?

Defining morality, ethics and ethical theory

morality ehtics ethical theory potential solutions to

Why is a good understanding of business ethics important?

Business ethics in different organizational contexts

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large companies Small businesses Civil society Public sector

Globalization: a key context for business ethics?

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Europe North America Asia

The impact of globalization on different stakeholders:

Sustainability: a key goal for business ethics?

Therefore, sustainability is playing a bigger and bigger role for business.

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Chapter 2: framing business ethics

Can a corporation have social responsibilities?

Can a corporation be morally responsible for its actions?

Why do corporations have social responsibilities?

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There are also some moral arguments for CSR:

What is the nature of CSR?

The four levels are (from low to high):

CSR in an international context

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Traditional CSR Contemporary CSR

*Corporate social responsiveness: the capacity of a corporation to respond to social pressures.

Many corporations appear to have a shifting strategy of social responsiveness.

Outcomes of CSR: corporate social performance

Why stakeholders matter

Different forms of stakeholder theory

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Corporate Citizenship – the firm as a political actor

Implications of CC: corporate accountability and transparency

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Chapter 3: evaluating business ethics

The role of ethical theory

Normative ethical theories: international origins and differences

Normative ethical theories and religion

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Western modernist ethical theories

Motivation / action outcomes

Non-consequentialist ethics consequentialist ethics

Egoism Utilitarianism Ethics of duties Rights and justice

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The problem of subjectivity led to a refinement of the theory:

However, there are also problems with ethics of duty:

2. Ethics of rights and justice:

There are two extreme positions in the justice debate:

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Limitations of western modernist theories

Alternative perspectives on ethical theory

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o Think local, act local

Chapter 4; making decisions in business ethics

What is an ethical decision?

Models of ethical decision making

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2. The different influences on that process

Limitations of ethical decision making models