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What is BE?

The Big PROBLEM


Fast considered an oxymoron!
Business is Considered like a game of Poker! (where
lying and deception is possible)
Scandals
Pollution
Exploitation
Lying
Deception.
Business needs ethical standards like honesty, trustworthiness,
co-operation

What is BE?
Definition
Business ethics is the study of business situations,
activities, and decisions where issues of right and wrong are
addressed.
Systematic study
Helps us decide whether a decision is ethical/ unethical
Morally right/ wrong & not commercially
Not just for business but organisations/ corporations
(government, NGOs, Political Party, Educational organisation....)

What is BE?
Ethics & Law
Law is essentially an institutionalisation or codification of
ethics in to rules, regulations & proscriptions.
Law prescribes minimum acceptable standards of
behaviour
Law may involve ethics or not
Ethics begin where law ends; where values are in conflict
Eg: animal testing/ euthanasia/ executive compensation/
child labour/ persuasive marketing
Ethics is about making a better decision and not right
decision

What is BE?
.

Ethics

grey
area

Law

What is BE?
Morality, Ethics & Ethical theories
Morality: is concerned with the norms, values and
beliefs embedded in social processes which define
right and wrong for an individual or a community.
Ethics: is concerned with the study of morality and
the application of reason to elucidate specific rules
and principles that determine right and wrong for
any given situation.
These rules and principles are called ethical
theories. Eg: Rights Theory/ Justice Theory

What is BE?
Morality, Ethics & Ethical theories

to
produce
ethical
theory

Ethics
rationalize
s morality

Morality

Ethics

Ethical
theory

that can
be applied
to any
situation.

Potential
solutions to
ethical
problems

Why BE is important?
Social glare (media, consumers, public).
Being ethical makes good business sense.
Power & influence of business society is growing.
For contributing positively society & improving

human conditions
To understand ethical conflicts & make a fair
decision (Daraprim/ Valeant)
Can help tackle life situations

Problems in study of BE
Stakeholders are skeptical
Business ethics industry (both corporate and

consumer)

Globalisation & BE
Creation of TNCs, that promote race to the bottom
Created westernisation
Change in social connections (from local global)

Technological factors reducing physical distance


Political factors leading to deterritorialisation

Globalisation & BE
Issues
Cultural issues affecting business practices (gender,
treatment of workers, business practices)
Legal issues (as global companies are subjected to
different rule, there is an increased need for ethics)
Accountability issues with less government control
(Greek government vs Wal-Mart)

Ethical impacts of globalization


Stakeholders
Stakeholders

Employees

Consumers

Ethical impacts of globalization


Globalization provides potential for greater profitability, but also greater risks. Lack of regulation
of global capital markets, leading to additional financial risks and instability.
Corporations outsource production to developing countries in order to reduce costs in global
marketplace - this provides jobs but also raises the potential for exploitation of employees through
poor working conditions.
Global products provide social benefits to consumers across the globe, but may also meet protests
about cultural imperialism and westernization. Globalization can bring cheaper prices to
customers, but vulnerable consumers in developing countries may also face the possibility of
exploitation by MNCs.

Suppliers &
competitors

Suppliers in developing countries face regulation from MNCs through supply chain management.
Small scale indigenous competitors exposed to powerful global players.

Civil society
(NGOs, etc)

Global business activities brings the company in direct interaction to local communities with
possibility for erosion of traditional community life; globally active pressure groups emerge with
aim to police the corporation where governments are weak and tolerant.

Government &
regulation

Globalization weakens governments and increases the corporate responsibility for jobs, welfare,
maintenance of ethical standards, etc. Globalization also confronts governments with
corporations from different cultural expectations about issues such as bribery, corruption,
taxation, and philanthropy.

BE-Differences in international approach


Who is responsible for ethical conduct of business?
Who is the key actor in BE?
What are the key guidelines for ethical behaviour?

(ubuntu/ guanxi)
What are the key issues in BE?
What is the key stakeholder management approach?

Regional differences: Europe, North America, Asia


Europe

N. America

Asia

Social control by the


collective

The individual

Top management

Who is the key actor in business


ethics?

Government, trade
unions, corporate
associations

The corporation

Government,
corporations

What are the key guidelines for


ethical behaviour?

Negotiated legal
framework of business

Corporate codes of
ethics

Managerial
discretion

What are the key issues in business


ethics?

Social issues in
organizing the
framework of business

Misconduct and
immorality in single
decisions situations

Corporate
governance and
accountability

What is the dominant stakeholder


management approach?

Formalised multiple
stakeholder approach

Focus on shareholder
value

Implicit multiple
stakeholder
approach, benign
managerialism

Who is responsible for ethical


conduct in business?

BE-Differences across organizational types


Stakeholders

Large
corporations

Small
businesses

Civil society
organizations

Public sector
organizations

Main priorities
in addressing
ethical issues

Financial integrity,
employee/customer
issues

Financial integrity,
employee/customer
issues

Delivery of mission to
clients; integrity of
tactics; legitimacy and
accountability

Rule of law, corruption,


conflict of interest;
procedural &
accountability issues

Approach to
managing
ethics

Formal, public
relations and/or
systems-based

Informal, trustbased

Informal, values-based

Formal, bureaucratic

Responsible
and/or
accountable to

Shareholders and
other stakeholders

Owners

Donors and clients

General public, higher


level government
organizations

Main
constraints

Shareholder
orientation; size and
complexity

Lack of resources
and attention

Lack of resources and


formal training

Inertia, lack of
transparency

BE Sources of difference
Religion & culture
Historical roots
Political roots

BE & Sustainability
Sustainable development is development that

meets the needs of the present without


compromising the ability of future generations to
meet their own needs. (World Commission on
Environment and Development 1987)
Sustainability refers to the long-term maintenance
of systems according to environmental, economic
and social considerations

BE & Sustainability
Triple Bottom-Line (John Elkington)

Econom Social
ic
Environment
al

BE & Sustainability
Environmental Sustainability
Economic Sustainability

Long run performance of the firm (dot.com bubble)


Practices used (cartel, bribe)
Socially responsible activity (education, health)

Social Sustainability

Impact on communities
Social justice
Equality (MDG)

Framing Business Ethics:


Corporate Responsibility, Stakeholders, and Citizenship

What is a corporation?
A corporation is essentially defined in terms of legal

status and the ownership of assets


Corporations are typically regarded as artificial
persons in the eyes of the law
Corporations are notionally owned by shareholders,
but exist independently of them
Managers and directors have a fiduciary
responsibility to protect the investment of
shareholders

Can a corporation have social responsibilities?


Milton Friedmans classic article is The social

responsibility of business is to increase its profits


(1970)
Friedman vigorously argued against the notion of
social responsibilities for corporations based on
three main arguments:

Only human beings have a moral responsibility for their


actions
It is managers responsibility to act solely in the interests of
shareholders
Social issues and problems are the proper province of the state
rather than corporate managers

Can a corporation be morally responsible for its


actions?
Evidence to suggest that legal designation of a

corporation makes it unable to be anything but selfinterested (Bakan 2004)


Agency independence is needed apart from legal
independence
Independent agency has moral influence
Every organisation has a corporate internal
decision structure which directs decisions in line
with predetermined goals (French 1979)
All organisations manifest a set of beliefs and
values that lay out what is generally regarded as
right or wrong in the corporation organizational
culture (Moore 1999)

Can corporations be morally responsible?


CSR
Stakeholder Theory

Why CSR?
Positive Reasons
Better brand reputation
Attract and commit employees
Prevent legal scrutiny and provide independence
Social investment improves business context
Negative/ ethical Reasons
Cause social problems such as pollution
Powerful social actor with substantial resources
All corporate actions have social impact
Co-exist with a much wider set of constituents

CSR
Corporate social responsibility includes the
economic, legal, ethical, and philanthropic
expectations placed on organizations by society at a
given point in time
(Carroll and Buchholtz 2009:44)

CSR 4 part model


.
Desired by society
Philanthropic
Responsibilities
Ethical
Responsibilities

Expected by society
Required by society

Legal
Responsibilities

Required by society
Economic
Responsibilities

CSR 4 part model


Economic responsibilities
Reasonable ROI
Safe & fairly paid jobs
Good products/ quality products
Fair prices..

CSR 4 part model


Legal responsibilities
Minimum expected behaviour
Conformance is required
Covers all aspects of business
Eg: MS- Antitrust

CSR 4 part model


Legal responsibilities
Minimum expected behaviour
Conformance is required
Covers all aspects of business
Eg: MS- Antitrust

CSR 4 part model


Ethical responsibilities
Do what is just, fair & right
Not compelled by legal framework
Eg: UL/ITC: water & carbon positives

CSR 4 part model


Philanthropic responsibilities
love for fellow humans
At the discretion of the corporation
Improves quality of life of stakeholders

CSR in international context


Explicit vs Implicit
Economic focus vs Broader focus
Legal responsibility is considered the basis for other social

responsibilities in Europe
In Anglo-American view law is considered to be an
invasion of private liberty.
Asia has a mixture legal & other institutional mechanism.
Corporate mistrust high in Europe & Asia (genetic
engineering)
Philanthropy in US is personal, in Europe legal & in Asia
social.

CSR 4 part model


Problems
Not confirming to all parts hierarchically
Conflict of responsibilities.
Vague concept
Need to strategise CSR
Emergence of corporate social responsiveness. Not
whether to do CSR, but how to do it? (Smith 2003).

Corporate social responsiveness


Corporate social responsiveness refers to the
capacity of a corporation to respond to social
pressures (Frederick 1994)

Corporate social responsiveness


4 philosophies or strategies of social responsiveness
(Carroll 1979)

Reaction: denies responsibility and considers government to


be responsible. Eg: gun makers in US
Defence: accepts responsibility but fights it. Eg: liquor
companies
Accommodation: accepts responsibilities & does what is
demanded by it. Eg: QSRs
Proaction: accepts responsibility and goes beyond norms. Eg:
tobacco companies

Outcomes of CSR: corporate social performance


Outcomes delineated in three concrete areas:

Social policies: explicit & pronounced corporate social policies


stating companies V,B &G with regard to social environment.
Eg: BP Emission standards.
Social programmes: activities, instruments & measures
implemented to achieve social policies. Eg: HUL/ITC
Social impacts: concrete changes corporation has achieved
through its programmes. Eg: ITC through e-choupal/ HUL in
promoting hygiene

Stakeholder theory of the firm


Theory developed by Edward Freeman (1984)
A stakeholder of an organization is:
a any group or individual who can affect, or is affected by, the
achievement of the organizations objectives (Freeman 1984:46)
A stakeholder of a corporation is an individual/group, which
either: is harmed by, or benefitted by the corporation; or whose
rights can be violated, or have to be respected, by the corporation.
More precise definition of affects and affected by

(Evan and Freeman 1993)

Principle of corporate rights - the corporation has the


obligation not to violate the rights of others
Principle of corporate effect companies are responsible for
the effects of their actions on others

Stakeholder theory of the firm:


Traditional management model

Shareholders

Customers

Firm

Suppliers

Employees

Stakeholder theory of the firm

Competitors

Government

Shareholder
s

Customers
Firm

Suppliers

Employees
Civil
society

Stakeholder theory of the firm:


A network model
Customer
stakeholder 1
Competitors

Government

Customers

Shareholders

Customer
stakeholder 3

Firm

Suppliers

Employees

Employee
stakeholder 1

Civil society
Supplier
stakeholder 1
Civil society
stakeholder 2

Civil society
stakeholder 1

Employee
stakeholder 2

Why stakeholders matter


Legal binding to many share holder
Economic perspectives-externalities due to

institutional economics
Agency problem- not share holders short term
interest but larger stakeholders long term interest
(Freeman)

A new role for management


According to Freeman, this broader view of

responsibility towards multiple stakeholders assigns


a new role to management.
Rather than simply being agents of shareholders,
management has to take into account the rights and
interests of all legitimate stakeholders:

Stakeholder democracy
Corporate governance

Stakeholder: in an international context


US has dominance of shareholders
One could argue that although the terminology of

stakeholder theory is relatively new in places like


Europe or Asia, the general principles have actually
been practised for some time:

German supervisory board includes employee representatives


Keiretsu system in Japan (Chaebol in Korea), a network of
banks, manufacturers, suppliers and service providers

Different forms of stakeholder theory


Donaldson & Preston (1995):

Normative stakeholder theory: attempts to provide a


reason why corporations should take into account stakeholder
interests
Descriptive stakeholder theory: attempts to ascertain
whether (and how) corporations actually do take into account
stakeholder interests
Instrumental stakeholder theory: attempts to answer the
question of whether it is beneficial for the corporation to take
into account stakeholder interests

Corporate accountability-The firm as a political actor

Why governments fail?


Government a part of the problem. Eg: poverty
Risk beyond control of government. Eg: global
warming
Self interest of government
Emergence of sub-politics. Eg: civil society
Weakened states, with parallel power

Corporate accountability-The firm as a political actor

Corporate power on rise


Privatisation of public service
Liberalisation & de-regulation increasing the liberty
of private sector
Private influence & control on factors like
employment
Global mobility & race to bottom
Corporate complexity, un-regulatable by law

Corporate accountability-The firm as a political actor


Corporations have started becoming involved in

numerous social activities


Growing tendency towards privatisation
Government failure
Increased power & influence of corporations
Political responsibilities
Corporate accountability refers to whether a
corporation is answerable in some way for the
consequences of its actions
i.e. A need for democratic accountability of corporations

Corporate accountability-problem of democratic


accountability

Inability of consumers to control corporations through


purchase votes
So there is a need to make corporations democratically
accountable through
Auditing & reporting (environmental/ social)
Communication, dialogue & partnership with
stakeholders
Transparency (commercial, social & other activities)

Corporate accountability-problem of democratic


accountability

Transparency is the degree to which corporate


decision, policies, activities & impacts are
acknowledged and made visible to relevant
stakeholders.
Emergence of Corporate Citizenship (CC)
(more of new terminology for existing ideas

Corporate Citizenship (CC)


Limited view of CC
Equivalent view of CC
Extended view of CC

Three views of corporate citizenship

Limited view

Equivalent view

Extended view

Focus

Philanthropy, focused on
projects, limited scope

All areas of CSR

Citizenship: social, political and civil


rights

Main
stakeholde
r group

Local communities,
employees

Broad range of stakeholders

Broad range of citizens; society in


general

Motivation

Primarily philanthropic;
also economic where
citizenship is strategic

Mixed economic, legal, ethical,


philanthropic

Political

Moral
grounding

Reciprocity, i.e. putting


something back

Duty to be responsible and avoid


harms to society

Grounding is not moral, but comes


from changes in the political arena

Commitments to corporate citizenship


Company

Industry &
origin

CC statement (emphasis added)

Source

BHP
Billiton

Mining,
Australia

The Companys community investment programs should create sustainable,


long-term value for our host communities and demonstrate the Companys
citizenship. The critical question in regard to our success is whether we have
managed to leave a lasting positive legacy in the communities where we operate.

Sustainability
Report, 2008

Citibank

Banking &
financial
services, USA

We define citizenship as the positive impact that Citi has on society and the
environment through its core business activities, philanthropy, diversity efforts,
volunteerism and public policy engagement, as well as the philanthropic
initiatives undertaken by the Citi Foundation.

2007
Citizenship
Report

Microsoft

Software, USA

Microsofts endorsement of the UN Global Compact signifies that we are


committed to aligning our business operations and strategies with 10 established
principles [] Principles which correspond with Microsofts global
corporate citizenship values help guide our efforts to achieve greater
accountability and drive continuous improvement of our business practices.

Citizenship
Report 2009

Total

Oil & gas,


France

Total is committed to contributing to the sustainable development of host


communities around the world. In addition to being a normal part of good
corporate citizenship, this policy fosters good relationships with neighbors
and greater acceptance of our operations.

Toyota

Automobiles,
Japan

The Corporate Citizenship Division was organized in January 2006 as a


specialized division to reinforce corporate social contribution activities and
integrate corporate social contribution functions that had been performed by
multiple divisions.

CSR Report,
2007

Sustainability
Report, 2008

Extended view of CC
CC describes the corporate function for governing citizenship
rights for individual
Social rights

Positive rights
Ensures freedom to participate in society like education, healthcare,
welfare

Civil rights

Freedom from abuse by third parties


Negative rights

Political rights
Right to participate in governance
Corporations do not have some of the rights but can impact citizens rights

Extended view of CC

Corporate citizenship
Social role of the corporation in governing citizenship
Social rights corporation as provider/ignorer
Civil rights corporation as dis-/enabler
Political rights corporation as channel/blockage

Extended view of CC
Social rights: Marks & Start, ICICI youth skilling

programme.
Civil rights: Shell & Ongoi issue, GM South African
government
political rights: McEurope, TATA tea
CC may be

Voluntary
Self-interest driven
Compulsory
Public pressure driven..

Assessing CC as a framework for business ethics


Extended view of CC adds something significant that
helps us frame business ethics in new ways:
Helps us better see the political role of the corporation
Clarifies the demand for corporate accountability
Helps to understand business in relation to common

citizenship rights within different cultures and some of


the challenges posed by globalization
The rights of citizenship have strong links to the goal of
sustainability
Provides a critical perspective on corporations social role
that is more in keeping with non-US ways of thinking
about business ethics

Evaluating Business Ethics:


Normative Ethical Theories

Ethical Theories
Like personal situations, business situations also

pose ethical dilemmas


There is a need for these business decisions to be
based on

Systematic, rational & widely understood arguments


So that they can be adequately defended, justified & explained
to relevant stakeholders

Ethical Theories
Normative ethical theories are those that

propose to prescribe the morally correct way of


acting

Ethical theories are the rules and principles that


determine right and wrong for any given situation

Descriptive ethical theories which seek to

describe how ethics decisions are actually made in


business

Normative Ethical Theories


Two extreme positions (De George 1999)
Ethical absolutism claims there are eternal,

universally applicable moral principles

Right and wrong are objective qualities, can be rationally


determined
Typically traditional ethical theories

Ethical relativism claims morality is context-

dependent and subjective

No universal right and wrongs that can be rationally


determined; depends on person making the decision & culture
in which they are located
Typically contemporary ethical theories

Normative Ethical Theories


Ethical pluralism: an in-between view of ethics

Based on two assumptions/ facts about morality


(Kaler, 99)

morality is a social phenomenon


Morality about harm & benefit (it should avoid harm &
provide benefit).

Normative Ethical Theories


International Differences/ Perspective
Domination of Anglo-American theories due to
English language publications
Individual vs Institutional morality
Acceptance vs Questioning of capitalism
Secularisation of Ethical theories in Europe.
Philosophical in Anglo-American context
Religious in Asian context.

Western Modernist Ethical Theories


Developed during enlightenment of the eighteenth

century.
They are generally absolutist in nature
Provides unequivocal solutions
Normative in nature

Western Modernist Ethical Theories


.

Motivation
/
Principles

Action

Outcomes

Non-consequentialist Ethics
Consequentialist Ethics

(Deontological)
Ethics of Duties
Rights & Justice

(Teleolological)
Egoism
Utilitarianism

Western Modernist Ethical Theories

Egoism

Utilitarianism

Ethics of duties

Rights & justice

Contributors

Adam Smith

Jeremy Bentham
John Stuart Mill

Immanuel Kant

John Locke
John Rawls

Focus

Individual desires or
interests

Collective welfare

Duties

Rights

Rules

Maximization of
desires/self interest

Act/rule utilitarianism

Categorical imperative

Respect for human


beings

Concept of
human
beings

Man as an actor with


limited knowledge and
objectives

Man is controlled by
avoidance of pain and
gain of pleasure
(hedonist)

Man is a rational
moral actor

Man is a being that is


distinguished by dignity

Type

Consequentialist

Consequentialist

Non-consequentialist

Non-consequentialist

Egoism
Theory of egoism - an action is morally right if the
decision-maker freely decides an action to pursue either
their (short-term) desires or their (long-term) interests.
Justified by the underlying concept of man
Man has limited insights in to consequences of his action
Suitable strategy for good life is pursuit of self interest
This produce morally desirable action by the invisible
hand Eg: furniture maker.
Egoism has to be differentiated from self interest/
selfishness (indicated by insensitivity to others).

Egoism
Criticism
Based on desire, that makes it indifferent to the
different approach used. Eg: student life
Markets are imperfect
The notion of enlightened egoism
Application to ethical dilemma 3

Utilitarianism
Most accepted ethical theory (Bentham & Mill).

According to utilitarianism, an action is morally right


if it results in the greatest amount of good for the
greatest number of people affected by the action
Also called the greatest happiness principle
Based on the notion of utility
Based on cost-benefit analysis. Eg: animal testing of products..
Looks at each individual involved but focuses on collective welfare
Man is a hedonist trying maximise pleasure & minimise pain
(utility also may be measure in terms of love, trust, friendship,
happiness...)

Utilitarianism

Utilitarianism
Disadvantages
Subjectivity
Problems of quantification
Distribution of utility
Lead to refinement
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 action and ask whether the underlying principles of


an action produce more pleasure than pain for society in the long run.

Ethics of Duty
German philosopher Kant
Not dependent on consequence or situation
Based on a priori moral laws (unchangeable)
God was not a necessity for ethical behaviour
Man was rational enough to decide W/R
Developed the categorical imperative

Ethics of Duty
3 maxims of Kant
1. Check if the action could be performed by everyone &
reflect the aspect of consistency (golden rule)
2. Humans need respect as autonomous, rational actors
and this human dignity should be never ignored
(human beings should be an end & not means)
3. Element of universality. i.e. will the principles of our
action be acceptable to all human beings? (New York
times test)
Stakeholder concept has been substantially derived from
Kantian thinking.

Ethics of Duty
Moral dilemma-3
Would you want everybody act like you. i.e. exploit
the low cost of child labour?
The question of whether children have freely &
autonomously decided to work? (they are for
meeting your ends rather than ends in themselves)
Would you like the kith & kin to know about your
decision?

Ethics of Duty
Disadvantages
Undervalues outcomes
Complexity
Optimism (about human rationality)

Ethics of rights and justice - Rights


Natural Rights: Certain basic, important,
unalienable entitlements that should be respected
and protected in every single action.
Locke conceptualized natural rights or moral claims
humans were entitled to
Natural rights include social, economic & political
rights
Today represented by citizenship (life, freedom,
education, property, speech, consent, privacy, legal
process)

Ethics of rights and justice - Rights


Rights results in duties
Similar to Kants ethics of duty (without the
complexity)
Ethical dilemma-3
Infringes childrens R to E
Infringes childrens R to F
Cast a doubt on fair wage.
Problem: Western view and faces cultural conflict

Ethics of rights and justice - Justice


The simultaneously fair treatment of individuals in a
given situation with the result that everybody gets
what they deserve
Procedural Justice
Distributive Justice
Interactional Justice
Often there is a conflict between each other (Eg:
handling of a criminal/ reservation)

Ethics of rights and justice - Justice


Distribution of justice has to be fair between the
various stakeholders
This is done through contracts
Generally two schools of thought
Egalitarian (Marxian thinking)
Non-Egalitarian (Capitalistic thinking)
Set-up is without fraud
Subsequent transactions are also fraud-less (Nozik)
(Asian transition from Socialism to Capitalism and growing
disparity)

Ethics of rights and justice - Justice


Theory of Justice (John Rawls, 1971)
Assumes that inequalities will exist, but before allowing
for inequalities, the following needs to be ensured
Basic freedom are realised to the same degree for
everyone affected by the decision
Social & economic inequalities should be arranged so
that

Greatest benefit of the least advantaged (one who benefits least


from it is still better off than they would be without it. Eg:
executive compensation)
Everybody has an equal chance to attain position

Limits of traditional theories


Too abstract
Too reductionist
Too objective and elitist
Too impersonal
Too rational and codified
Too imperialist

Alternative perspectives on ethical theory


Ethical theories based on character & integrity

(virtue ethics)
Ethical theories based on relationship &
responsibility (feminist ethics)
Ethical theories based on procedures of norm
generation (discourse ethics)
Ethical theory based on empathy & moral impulse
(post-modern business ethics)

Approaches based on character and integrity


Virtue ethics
Contends that morally correct actions are those undertaken

by actors with virtuous characters. Therefore, the


formation of a virtuous character is the first step towards
morally correct behaviour

Acquired traits
Intellectual virtues
Moral virtues

Approaches based on ethics and responsibility


Feminist ethics
An approach that prioritizes empathy, harmonious

and healthy social relationships, care for one another,


and avoidance of harm above abstract principles

Key elements
Relationships

Decisions taken in context of personal human interrelations

Responsibility

Active taking of responsibility, rather than merely having it

Experience

Learn and develop from experience

Approaches based on procedures of norm generation

Discourse ethics
Aims to solve ethical conflicts by providing a process of

norm generation through rational reflection on the real-life


experiences of all relevant participants

Key elements
Ultimate goal of ethical issues in business should be the

peaceful settlement of conflicts


Different parties in a conflict should sit together and engage
in a discourse about the settlement of the conflict, and
ultimately provide a situation that is acceptable to all
ideal discourse criteria

Approaches based on empathy and moral impulse


Postmodern ethics
An approach that locates morality beyond the sphere of rationality in
an emotional moral impulse towards others. It encourages
individual actors to question everyday practices and rules, and to
listen to and follow their emotions, inner convictions and gut
feelings about what they think is right and wrong in a particular
incident of decision-making.
Postmodern business ethics emphasises (Gustafson, 2000:21)
Holistic approach
Examples rather than principles
Think local, act local
Preliminary character (non-rational thus less controllable &
predictable. A pessimistic approach to ethics)

Pluralism?
Crane and Matten (2010) argue that for the
practical purpose of making effective decisions in
business:
Not suggest one theory or one approach as the best or

true view of a moral dilemma


Suggest that all these theoretical approaches throw light
from different angles on one and same problem
Complementary rather than mutually exclusive

Advocate position of pluralism


Middle ground between absolutism and relativism

Typical Perspective (absolutism & relativism)

Ethical
Dilemma

Single normative consideration


for solving the ethical dilemma
Lens of ethical theory

Pluralistic Perspective

Ethical
dilemma
Prism of
ethical theories
Variety of normative considerations in
solving the ethical dilemma

Considerations in making ethical decisions: summary of key


insights from ethical theories
Consideration

Typical question you might ask yourself

Theory

Ones own interests

Is this really in my, or my organizations, best long - term interests? Would it be


acceptable and expected for me to think only of the consequences to myself in this
situation?
If I consider all of the possible consequences of my actions, for everyone that is
affected, will we be better or worse off overall? How likely are these
consequences and how significant are they?
Who do I have obligations to in this situation? What would happen if everybody
acted in the same way as me? Am I treating people only to get what I want for
myself (or my organization) or am I thinking also of what they might want too?
Whose rights do I need to consider here? Am I respecting fundamental human
rights and peoples need for dignity?
Am I treating everyone fairly here? Have processes been set up to allow everyone
an equal ch ance? Are there major disparities between the winners and losers
that could be avoided?
Am I acting with integrity here? What would a decent, honest person do in the
same situation?
How do (or would) the other affected parties feel in this situation? Can I avoid
doing harm to others? Which solution is most likely to preserve healthy and
harmonious relationships among those involved?
What norms can we work out together to provide a mutually acceptable solution
to this problem? How can we achieve a peaceful settlement of this conflict that
avoids railroading by the most powerful player?
Am I just simply going along with the usual practice here, or slavishly following
the organizations code, without questioning whether it really feels right to me?
How can I get closer to those likely to be affected by my decision?
What do my
emotions or gut feelings tell me once Im out of the office?

Egoism

Social consequences

Duties to oth ers

Entitlements of
others
Fairness

Moral character
Care for others a nd
relationships
Process of resol ving
conflicts
Moral impulse a nd
emotions

Utilitarianism

Ethics of duty

Ethics of rights
Theories of justice

Virtue ethics
Feminist ethics

Discourse ethics

Postmodern ethics

How do Managers decide?

Making Decisions in Business Ethics


Descriptive Ethical Theories

Descriptive Ethical Theories

Descriptive business ethics theories seek to


describe how ethics decisions are actually made in
business, and what influences the process and
outcomes of those decisions.

What is an ethical decision?


Main factors in deciding the moral status of a situation
Decision likely to have significant effects on others
Decision likely to be characterised by choice, in that
alternative courses of action are open
Decision is perceived as ethically relevant by one or
more parties

Models of ethical decision-making

Ethical decision-making process


Recognise
moral
issue

Make
moral
judgement

Establish
moral
intent

Engage in
moral
behaviour

Source: Derived from Rest (1986), as cited in Jones (1991).

Relationship with normative theory


The role of normative theory in the stages of ethical
decision-making is primarily in relation to moral
judgement
Moral judgements can be made according to

considerations of rights, duty, consequences, etc.


Commercial managers tend to rely on consequentialist
thinking
However, the issue of whether and how normative theory
is used by an individual decision-maker depends on a
range of different factors that influence the decisionmaking process

Influences on ethical decision-making


Two broad categories: individual and situational
(Ford and Richardson 1994)

Individual factors - unique characteristics of the

individual making the relevant decision

Given at birth
Acquired by experience and socialisation

Situational factors - particular features of the

context that influence whether the individual will


make an ethical or unethical decision

Work context
The issue itself including

Intensity
ethical framing

Framework for understanding ethical decision-making


Individual factors

Recognise
moral issue

Make moral
judgement

Establish
moral intent

Situational factors

Engage in
moral
behaviour

Limitations of ethical decision-making


models
Models useful for structuring discussion and seeing

the different elements that come into play


Limitations

Not straightforward or sensible to break model down into


discrete units
Various stages related or interdependent
National or cultural bias

Model is intended not as a definitive representation of

ethical decision-making, but as a relatively simple way


to present a complex process

International perspectives on ethical decision-making


Research on individual factors influencing ethical

decision-making has a strong US and Asian bias


Consistent with choice within constraints
Research on situational factors originated by
European authors
Consistent with concern for constraints themselves

Individual influences on ethical decisionmaking

Individual influences on ethical decision-making


Age and gender
Age

Results contradictory
However experiences may have impact

Gender

Individual characteristic most often researched


Results contradictory

These categories too simplistic

Individual influences on ethical decisionmaking


National and cultural characteristics
People from different cultural backgrounds likely to

have different beliefs about right and wrong, different


values, etc. and this will inevitably lead to variations
in ethical decision-making across nations, religions
and cultures
Hofstede (1980; 1994) influential in shaping our
understanding of these differences our mental
programming:

Individualism/collectivism
Power distance
Uncertainty avoidance
Masculinity/femininity
Long-term/short-term orientation

Individual influences on ethical decision-making


Education and employment
Type and quality of education may be influential

E.g. business students rank lower in moral development than


others and more likely to cheat

Amoral business education reinforces myth of

business as amoral

Individual influences on ethical decision-making


Psychological factors
Cognitive moral development (CMD) refers to
the different levels of reasoning that an individual
can apply to ethical issues and problems
3 levels (details over the next two slides)
Criticisms of CMD
Gender bias
Implicit value judgements
Invariance of stages

An individuals locus of control determines the


extent to which they believe that they have control
over the events in their life

Stages of cognitive moral development (I)


Level

Stage
1

Preconventional
2

3
II Conventional
4

Obedience
and
punishment
Instrumental
purpose and
exchange

Interpersonal
accord,
conformity
and mutual
expectations
Social accord
and system
maintenance

Explanation
Individuals define right and
wrong according to expected
rewards and punishments from
authority figures

Illustration
Whilst this type of moral reasoning is usually
associated with small children, we can also
see that businesspeople frequently make
unethical decisions because they think their
company would either reward it or let it go
unpunished (see Gellerman 1986).
Individuals are concerned with
An employee might cover for the absence of
their own immediate interests and a co-worker so that their own absences might
define right according to whether subsequently be covered for in return a
there is fairness in the exchanges you scratch my back, Ill scratch yours
or deals they make to achieve
reciprocity (Trevio and Nelson 1999).
those interests.
Individuals live up to what is
An employee might decide that using
expected of them by their
company resources such as the telephone, the
immediate peers and those close
internet and email for personal use whilst at
to them
work is acceptable because everyone else in
their office does it.
Individuals consideration of the A factory manager may decide to provide
expectations of others broadens to employee benefits and salaries above the
social accord more generally,
industry minimum in order to ensure that
rather than just the specific
employees receive wages and conditions
people around them.
deemed acceptable by consumers, pressure
groups and other social groups.

Source: Adapted from Ferrell et al. (2002); Kohlberg (1969); Trevino and Nelson (1999)

Stages of cognitive moral development (II)


Level

III

Stage

Explanation

Illustration

Social
contract
and
individual
rights

Individuals go beyond identifying


with others expectations, and
assesses right and wrong
according to the upholding of
basic rights, values and contracts
of society.

The public affairs manager of a food


manufacturer may decide to reveal which of
the firms products contain genetically
modified ingredients out of respect for
consumers rights to know, even though they
are not obliged to by law, and have not been
pressurised into by consumers or anyone else.

Universal
ethical
principles

Individuals will make decisions


autonomously based on selfchosen universal ethical
principles, such as justice,
equality, and rights, which they
believe everyone should follow.

A purchasing manager may decide that it


would be wrong to continue to buy products
or ingredients that were tested on animals
because he believes this doesnt respect
animal rights to be free from suffering.

Postconventional

Personal values, integrity & moral


imagination
Personal values
an enduring belief that a specific mode of conduct or

end-state of existence is personally or socially preferable


to an opposite or converse mode of conduct or end-state
(Rokeach 1973:5)

Personal integrity
Defined as an adherence to moral principles or values

Moral imagination
Concerned with whether one has a sense of the variety of

possibilities and moral consequences of their decisions,


the ability to imagine a wide range of possible issues,
consequences, and solutions (Werhane, 1998:76)

Situational influences on ethical


decision-making

Situational influences on ethical decision-making


Moral Intensity
Jones (1991:374-8) proposes that the intensity of

an issue will vary according to six factors:

Magnitude of consequences
Social consensus
Probability of effect
Temporal immediacy
Proximity
Concentration of effect

Situational influences on ethical decision-making


Moral framing
The same problem or dilemma can be perceived very

differently according to the way that the issue is


framed

Language important aspect of moral framing (using moral


language likely to trigger moral thinking)

Moral muteness (Bird & Walters 1989) because of

concerns regarding perceived threats to:

Harmony
Efficiency
Image of power and effectiveness

How ethical decisions are justified:


rationalization tactics
Strategy
Denial of responsibility
Denial of injury
Denial of victim
Social weighting
Appeal to higher
loyalties
Metaphor of the ledger

Description
The actors engaged in corrupt behaviours
perceive that they have no other choice than to
participate in such activities.
The actors are convinced that no one is harmed
by their actions; hence the actions are not really
corrupt.
The actors counter any blame for their actions
by arguing that the violated party deserved
whatever happened.
The actors assume two practices that moderate
the salience of corrupt behaviour: 1. Condemn
the condemner, 2. Selective social comparison.
The actors argue that their violation of norms is
due to their attempt to realize a higher-order
value.
The actors argue that they are entitled to
indulge in deviant behaviours because of their
accrued credits (time and effort) in their jobs.

Examples
What can I do? My arm is being twisted.
It is none of my business what the corporation
does in overseas bribery.
No one was really harmed
It could have been worse.
They deserved it.
They chose to participate.
You have no right to criticise us.
Others are worse than we are.
We answered to a more important cause.
I would not report it because of my loyalty to my
boss.
Its all right for me to use the internet for personal
reasons at work. After all, I do work overtime.

Situational influences on ethical decision-making

Systems of reward
Adherence to ethical principles and standards stands
less chance of being repeated and spread throughout
a company when it goes unnoticed and unrewarded
What is right in the corporation is not what is right in a

mans home or in his church. What is right in the


corporation is what the guy above you wants from you.
Thats what morality is in the corporation (Jackall, 1988:6)

Situational influences on ethical decision-making


Authority and Bureaucracy
Authority
People do what they are told to

do or what they think theyre


being told to do
Recent survey of government
employees (Ethics Resource Center,
2008: 9):

20% think top leadership is not


held accountable
25% believe top leadership
tolerates retaliation against those
reporting ethical misconduct
30% dont believe their leaders
keep promises

Bureaucracy
Jackall (1988), Bauman

(1989, 1993) and ten Bos


(1997) argue bureaucracy has
a number of negative effects
on ethical decision-making
Suppression of moral
autonomy
Instrumental morality
Distancing
Denial of moral status

Situational influences on ethical decisionmaking


Work roles and organizational norms and
culture

Work roles
Work roles can

encapsulate a whole set


of expectations about
what to value, how to
relate to others, and how
to behave
Can be either functional
or hierarchical

Organizational norms
and culture
Group norms delineate

acceptable standards of
behaviour within the
work community

E.g. ways of talking, acting,


dressing or thinking

Situational influences on ethical decision-making


National and cultural context
Instead of looking at the nationality of the individual
making the decision; now we are considering the
nation in which the decision is actually taking place,
regardless of the decision-makers nationality
Different cultures still to some extent maintain
different views of what is right and wrong

Managing Business Ethics

What is business ethics management?

Business ethics management is the direct


attempt to formally or informally manage
ethical issues or problems through specific
policies, practices and programmes

Typical components of business ethics


management
Mission or values statements

(to be backed with ethics management)

Codes of ethics
Reporting/advice channels (reporting/ resolving & advise)
Risk analysis and management (Identifying, assessing & mitigating Eg:
FCPA, S-O Act... What is the bite)

Ethics managers, officers and committees (ECOA)


Ethics consultants
Ethics education and training (identifying, aligning with organisational
values & evaluating impact)

Stakeholder consultation, dialogue and partnership programs


Auditing, accounting and reporting (measuring, evaluating &
communicating. Eg: SA8000 of GRI)

Evolution of business ethics management


Few, if any, businesses likely to use all tools and

some do not use any


Escalating adoption of most if not all components
(US and UK surveys)
Change in emphasis concerning the purpose of
business ethics management

Previously primarily focused on managing employee behaviour


Increasing attention to management of broader social
responsibilities

Core areas in Business ethics management


Setting standards of ethical behaviour
Managing stakeholder relations
Assessing ethical performance

Setting standards of ethical behaviour


Codes of Ethics

Codes of ethics are voluntary statements that


commit organizations, industries, or professions to
specific beliefs, values, and actions and/or set out
appropriate ethical behaviour for employees
4 main types of ethical codes

Organizational or corporate codes of ethics


Professional codes of ethics
Industry codes of ethics
Programme or group codes of ethics (Eg: CAUX roundtable
principles for business, Fair trade Labelling Organisation-Fair
Standards)

Setting standards of ethical behaviour


Codes of Ethics
Prevalence of codes and ethics
Increasingly common
Substantial rise in usage during 1990s and 2000s
2/3 of large UK firms have some kind of formal
ethical code whilst almost all large US firms have a
code of ethics (Weaver et al. 1999)
Less prevalent in Europe, and in SMEs (Spence and Lozano
2000)

Setting standards of ethical behaviour


Codes of Ethics
Prevalence of issues found in codes of conduct

Source: OECD (2001:8


)

Effectiveness of codes of ethics


Effectiveness of a code is in the implementation and
administration
Suggestions for successful implementation
Maximise participation of organisation members in

development stage to encourage commitment and buy in


(Newton, 1992)

Discipline employees found in breach (Webley 2001)


Follow-through (Trevio et al. 1999)

Global codes of ethics


Can organizations devise one set of principles for all
countries in which they operate?
Consider some examples
Gift giving in Japan vs. the UK
Equal opportunity commitments in India vs. UK
MNEs should be guided by 3 principles
Respect for core human values
Respect for local traditions

Belief that context matters when deciding right and wrong

Global codes should define minimum ethical standards


E.g. OECD Guidelines for Multinational Enterprise, UN Global
Compact

Setting standards of ethical behaviour


Codes of Ethics

Critiques of ethical codes


Clear prescription for employees means lack of
flexibility
Difficulty with multiple/novel situations, particularly
cross-cultural
Vague, generalised statements of obligation
PR device
Questionable control mechanisms that potentially
influence employee beliefs, values and behaviours
suppress individual moral instincts and emotions in
order to ensure bureaucratic conformity and
consistency

Managing stakeholder relations

Managing stakeholder relations


Assessing stakeholder importance: an instrumental
perspective (Instrumental perspective)
Stakeholder impact analysis enable a company to identify

the stakeholders most crucial to its survival and to make


sure that the satisfaction of their needs is paramount (Hill and
Jones 2001:45)

3 key attributes likely to determine perceived importance or

salience of stakeholders (Mitchell et al., 1997)


Power
Legitimacy
Urgency
(latent/ expectant & definitive stakeholders)

Managing stakeholder relations


Types of stakeholder relationship
Challenge
Sparring partners
One-way support
Mutual support
Endorsement
Project dialogue
Strategy dialogue
Task force
Joint venture or alliance

Types of stakeholder relationship


Problems with stakeholder collaboration
Resource intensity
Culture clash
Schizophrenia
Uncontrollability
Co-optation
Accountability
Resistance

Assessing ethical performance

Assessing ethical performance


Why?
Poor performance calls for attention
High performance indicates effective approach
Questions?
What exactly is ethical performance?
How can it be measured?
What evaluation criteria to be used?
What level of ethical performance is expected by SH?
Toyota-sustainability report
MS-citizen report
Total-CSR report
Body Shop-value report....

Assessing ethical performance


Areas of assessment
Ethical

Often a focus on internal management systems

Environmental

Impact on natural environment

Social

Broader remit, often including impact on stakeholders

Sustainability

Focus on triple bottom line

Social accounting as generic term

Assessing ethical performance


social accounting
Social accounting is the voluntary process
concerned with assessing and communicating
organisational activities and impacts on social,
ethical, and environmental issues relevant to
stakeholders

Assessing ethical performance

social accounting
No standardised process
How to assess performance
How to calculate impact
How to communicate
Which impacts to report first
Quantitative or qualitative?

Most report use a SH satisfaction survey!!

Social accounting established by


The Body Shop
Policy review

Stakeholder
dialogue

Determination
of audit scope

Publication
of report

Verification

Agreement of standards
and performance
indicators

Agreement of
objectives

Preparation of
accounts and
internal reports

Stakeholder
consultation

Stakeholder
surveys
Internal
audit

Derived from Sillanp and Wheeler (1997) and Sillanp


(1998)

Assessing ethical performance


Why organisations take up social accounting?

Internal & external pressures


Identifying risks
Improve SH management
Enhanced accountability & transparency

What makes for a good social accounting?

Inclusivity
Comparability
Completeness
Evolution & continuous improvement
Disclosure
External verification

Assessing ethical performance


Schemes in place to tackle specific aspects of social
accounting:
Auditing and certifying
Social accountability standards SA 8000
Reporting

The Global Reporting Initiative (GRI)

Reporting assurance
AA1000S Assurance Standard

Organizing for business ethics

Formal ethics programmes

Compliance orientation

Four ways of
organizing for
business ethics
management

Values orientation
External orientation
Protection orientation

Source: Trevino et al. (1999)

Informal ethics management: ethical culture and


climate

Organizations can and should proactively develop an


ethical organizational culture organizations with
ethics problems should take a culture change
approach to solving them (Trevio and Nelson, 2007: 256)
Culture change approach (very problematic)

Improvements in ethical decision-making have been widely argued to


require a managed transformation of the organizations values in order
to create a more ethical culture
Cultural learning approach (promotes moral imagination)
Focus on smaller subcultural groups within the firm
Factionalism and dissent in order to promote learning (Starkey 1998)

Business ethics and leadership


Leaders often said to set ethical tone in organisations
All leadership is value laden (Grint, 1997:325)
Cultural change approach
Leaders role to articulate and personify the values the
organisation aspires to
Inspire and motivate employees to follow their lead
Cultural learning perspective
Role of leadership one of participation and empowerment in order
to foster moral imagination and autonomy

Ethical behaviour is not to be promoted simply through the


promulgation of specific beliefs and principles, but
through facilitating personal moral engagement,
dialogue, and choice (Crane, Knights, and Starkey 2008)