Transcript Chapter 008 - Ethics & Social Responsibility of Business

Ethics and Social Responsibility
of Business
Slides developed by
Les Wiletzky
Wiletzky and Associates
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved.
Introduction
 Businesses organized in the United States
are subject to its laws
 They are also subject to the laws of other
countries in which they operate
 Business persons owe a duty to act
ethically in the conduct of their affairs
 Businesses owe a social responsibility not
to harm society
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Law and Ethics
 Ethics – A set of moral principles or
values that governs the conduct of an
individual or a group
 What is lawful conduct is not always
ethical conduct

The law may permit something that would be
ethically wrong
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7-3
The Caux Round Table Principles for
International Business (1 of 2)
 Principle 1 The Responsibilities of
Business Beyond Shareholders Toward
Shareholders
 Principle 2 The Economic and Social
Impact of Business: Toward Innovation,
Justice, and World Community
 Principle 3 Business Behavior: Beyond
the Letter of Law Toward a Spirit of Trust
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The Caux Round Table Principles for
International Business (2 of 2)
 Principle 4 Respect for Rules
 Principle 5 Support for Multilateral Trade
 Principle 6 Respect for the Environment
 Principle 7 Avoidance of Illicit Operations
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Ethical Fundamentalism
 Ethical fundamentalism - When a person
looks to an outside source for ethical rules
or commands
 Critics argue that ethical fundamentalism
does not permit people to determine right
and wrong for themselves
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Utilitarianism
 A moral theory that dictates that people
must choose the action or follow the rule
that provides the greatest good to society
 This does not mean the greatest good for
the greatest number of people
 Has been criticized because it is difficult to
estimate the “good” that will result from
different actions
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Kantian Ethics (Duty Ethics)
 A moral theory that says people owe
moral duties that are based on universal
rules
 Based on the premise that people can use
reasoning to reach ethical decisions
 This theory would have people behave
according to the categorical imperative:

“Do unto others as you would have them do
unto you.”
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7-8
Rawls’s Social Justice Theory (1 of 3)
 Rawls’s social contract
A moral theory that says each person is
presumed to have entered into a social
contract, with all others in society, to obey
moral rules that are necessary for people
to live in peace and harmony
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Rawls’s Social Justice Theory (2 of 3)
 Rawls’s Social Justice Theory
 Fairness is considered the essence of justice
 The principles of justice should be chosen by
persons who do not yet know their station in
society
 This “veil of ignorance” would permit the
fairest possible principles to be selected
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7 - 10
Rawls’s Social Justice Theory (3 of 3)
 There are two major criticisms of this
theory:
1. Establishing the blind “original position” for
choosing moral principles is impossible in
the real world
2. Many persons in society would choose not
to maximize the benefit to the least
advantaged persons in society
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Ethical Relativism (1 of 2)
 A moral theory that holds that individuals
must decide what is ethical based on their
own feelings as to what is right or wrong
 There are no universal ethical rules to
guide a person’s conduct
 If a person meets his or her own moral
standard in making a decision, no one can
criticize him or her for it
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Ethical Relativism (2 of 2)
 A criticism of this theory is that an action
usually thought to be unethical would not
be unethical if the perpetrator thought it
was in fact ethical
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7 - 13
Theories of Ethics – Summary (1 of
2)
Theory
Ethical
fundamentalism
Utilitarianism
Kantian ethics
Description
Persons look to an outside source or
central figure for ethical guidelines.
Persons choose the alternative that would
provide the greatest good to society.
A set of universal rules establishes ethical
duties. The rules are based on reasoning
and require (1) consistency in application
and (2) reversibility.
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7 - 14
Theories of Ethics – Summary (2 of
2)
Theory
Rawls’s social
justice theory
Ethical relativism
Description
Moral duties are based on an implied
social contract. Fairness is justice. Rules
are established from an original position.
Individuals decide what is ethical based
on their own feelings as to what is right
or wrong.
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7 - 15
Business Ethics:
Sarbanes-Oxley Act of 2002
 Makes certain conduct illegal
 Establishes criminal penalties for
violations
 Prompts companies to encourage senior
officers of public companies to act
ethically in their dealings with
shareholders, employees, and other
constituents
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7 - 16
United Nations Code of Conduct for
Transnational Corporations
 Respect for National Sovereignty
 Adherence to Socio-Cultural Objectives
and Values
 Respect for Human Rights and
Fundamental Freedoms
 Abstention from Corrupt Practices
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Social Responsibility of Business
 Business does not operate in a vacuum
 Decisions made by business have far-reaching
effects on society
 In the past, many business decisions were
made solely on a cost-benefit analysis
 Such decisions may cause negative
externalities for others
 Corporations are considered to owe some
degree of social responsibility for their actions
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Theories of the Social
Responsibility of Business
1. Maximizing Profits
2. Moral Minimum
3. Stakeholder
Interest
4. Corporate
Citizenship
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Maximizing Profits
 A theory of social responsibility that says a
corporation owes a duty to take actions
that maximize profits for shareholders
 The interests of other constituencies are
not important in and of themselves
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7 - 20
Moral Minimum (1 of 2)
 A theory of social responsibility that says a
corporation’s duty is to make a profit while
avoiding harm to others
 As long as business avoids or corrects the
social injury it causes, it has met its duty
of social responsibility
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7 - 21
Moral Minimum (2 of 2)
 The legislative and judicial branches of
government have established laws that
enforce the moral minimum of social
responsibility on corporations:
e.g., Occupational safety laws
 e.g., Consumer protection laws for product
safety

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Stakeholder Interest
 A theory of social
responsibility that says a
corporation must consider
the effects its actions have
on persons other than its
stockholders
 This theory is criticized
because it is difficult to
harmonize the conflicting
interests of stakeholders
Other stakeholders of
business:
 Employees
 Suppliers
 Customers
 Creditors
 Local community
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Corporate Citizenship (1 of 2)
 A theory of responsibility that says a
business has a responsibility to do good
 Business is responsible for helping to
solve social problems
 Corporations owe a duty to promote the
same social goals as do individual
members of society
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Corporate Citizenship (2 of 2)
 This theory argues that corporations owe
a debt to society to make it a better place

This duty arises because of the social power
bestowed on corporations
 A major criticism of this theory is that the
duty of a corporation to “do good” cannot
be expanded beyond certain limits
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Theories of Social Responsibility –
Summary
Theory
Social Responsibility
Maximizing profits
To maximize profits for stockholders.
Moral minimum
To avoid causing harm and to compensate for
harm caused.
To consider the interests of all stakeholders,
including stockholders, employees, customers,
suppliers, creditors, and local community.
Corporate citizenship To do good and solve social problems
Stakeholder interest
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The Corporate Social Audit (1 of 2)
 Corporate audits should be extended to
include the moral health of the corporation
 Corporations that conduct social audits
will be more apt to prevent unethical and
illegal conduct by managers, employees,
and agents
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The Corporate Social Audit (2 of 2)
 The audit would examine
how well:
 Employees have
adhered to the
company’s code of
ethics; and
 The corporation has met
its duty of social
responsibility
 Such audits would focus
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on the corporation’s efforts
to:
 Promote employment
opportunities for
members of protected
classes
 Worker safety
 Environmental
protection
 Consumer protection
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Company Procedures for Conducting
a Social Audit (1 of 2)
 An independent outside firm should be hired to
conduct the audit

This will ensure autonomy and objectivity
 The company’s personnel should cooperate fully
with the auditing firm while the audit is being
conducted
 The auditing firm should report its findings directly
to the company’s board of directors
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7 - 29
Company Procedures for Conducting
a Social Audit (2 of 2)
 The results of the audit should be reviewed by the
company’s board of directors
 The board of directors should determine how the
company can:
Better meet its duty of social responsibility; and
 Use the audit to implement a program to correct any
deficiencies it finds

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