Transcript Ethics, Governance & SustaInable development

Practical Notes
for a
Practical Class
and a
Practical Exam
Ethics (in philosophy) embraces the study and
the evaluation of human conduct in the light
of moral principles.
Moral principles may be viewed either as
 standards of conduct that individuals and
groups have constructed for themselves,
 some set of principles written into the fabric
of the universe, or
 the body of obligations and duties that a
particular society requires of its members.
In short, as our mothers and fathers taught us –
ethics is largely about knowing the difference
between right and wrong.
We identified four primary schools of ethical
thought:
(1) Utilitarianism
(2) Deontology;
(3) Aristotelian Ethics and Practical Wisdom;
(4) Ubuntu & Communitarianism
We discovered that ethical problems are often quite complex
and do not yield to simple solutions. If they did, then we
would always be in agreement about what the correct
course of action is with respect to a given problem. We
also saw (in Antigone) that various kinds of ethical claims
might apply in a particular situation – but pull us in
different directions.
Is there such a thing as ‘expert judgment’ about the
genuineness of expressions of feeling? Even here,
there are those whose judgment is ‘better’ and those
whose judgment is ‘worse’. Corrector prognoses will
generally issue from the judgments of those with
better knowledge of mankind. Can one learn this
knowledge? Yes; some can. Not, however, by taking a
course in it, but through experience. Can someone
else be a man’s teacher in this? Certainly. From time
to time, he gives him the right tip. – This is what
‘learning’ and ‘teaching’ are like here. – What one
learns here is not a technique; one learns correct
judgments. There are also rules, but they do not form
a system, and only experienced people can apply them
right. Unlike calculating rules. What is most difficult
here is to put this indefiniteness, correctly and
unfalsified, into words.
L Wittgenstein Philosophical Investigations, II, xi (1946)
 Individuals
are ends in themselves.
 Whereas utilitarianism emphasizes the greater good,
deontological ethics emphasizes the intrinsic worth
of the individual.
 Individuals must be treated as ends, and never
SOLELY as a means.
 Every individual act must be capable of being
universalizable. For example, Kant writes that one can
never lie since that would undermine our commitment
to truth-telling and the commitment to living in a
manner that accords with respect for other individuals
and our ability arrive – through reason to ‘the moral
law’.
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Is it always possible to treat a person as an end in
herself or himself ?
Is the criterion for universalizability too strict?
If you had Anne Frank hiding in the attic, and the
Nazis were pounding at the door searching for Jews,
would you tell the truth (for truth’s sake) or would
you lie? And would your lie destroy the commitment
to truth-telling as a general ethical norm?
Does Kant have a larger point when he makes
universalizability so important? What is he trying to
tell us about ethical behaviour?
The
moral worth of actions or
practices is determined by its
consequences.
Generally, individual acts are judged
by their ability to increase the
general happiness of (or overall
utility for) the entire commonweal –
and not the individual.
Two kinds of utilitarianism:
 Act Utilitarianism
 Rule Utilitarianism
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Critics suggest that if you made the great possible
utility or happiness the measure of all acts,
individual or collective, you could justify the sacrifice
of individuals to the overall good of the community.
Is that true?
Peter Singer points us in a different direction
Singer’s utilitarianism to demand that we submerge
our individual (and partially collective) happiness
when confronted with the morally compelling and
urgent needs of others.
Does Act Utilitarianism look more or less dangerous
than Rule Utilitarianism? Why?
Does Rule Utilitarianism really always collapse into
Act Utilitarianism?
 Aristotle
speaks of practical wisdom when he
considers what it means to lead a virtuous life. By
practical wisdom, he means several things:
 We can rely on the insights of virtuous individuals
who came before us.
 Ethics requires us to work through a problem with
some awareness of competing concerns. It is not,
like other ethical approaches, grounded in
unchanging first principles.
 ‘Practical wisdom’ might assist you in a business
environment because it takes concrete situations
seriously.
 Is Aristotle’s individual virtue consistent with how
most people think about ethics today? How is it
different from ‘leadership’?
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
Some members of the Constitutional Court
found the death penalty repugnant because
retribution and group catharsis as the bases for
punishment are inconsistent with an uBuntubased ethic of reconciliation, restorative justice
and democratic solidarity.
What limits, if any, can you identify with uBuntu
or communitarianism as a departure point for
ethics in a business environment?
 While
different ethical positions will suggest different
outcomes with respect to the same situation, those
differences do not mean some answers are not better
than others.
 Ethics requires us to offer reasons – and not selfserving reasons – for the decisions we take.
 Businesses are often confronted by ethical dilemmas.
 As the Tikkun Case Study suggested, a principled
ethical approach can yield a solution to a problem that
might otherwise threaten the existence of the firm.
Ethics thus has a role to play in mediating disputes
within a firm.
 When
we speak of ‘the moral salience of everyday life’
in South Africa, it means that we are regularly
confronted with choices about the correct course of
conduct: how ought we to engage people who are
substantially poorer than we are or who are from quite
different, and often historically disadvantaged,
backgrounds?
 This class asks you to consider whether a businesses
can survive when half the country is unemployed and
half the country experiences hunger.
 Sustainability – in various forms – is ultimately
concerned with your companies survival, and that
means taking account of and responsibility for the
environment in which you operate and which you
construct.
 ‘[I]f
it is in our power to prevent something bad
from happening, without thereby sacrificing
anything of comparable moral importance, we
ought, morally, to do it. By "without sacrificing
anything of comparable moral importance" I
mean without causing anything else comparably
bad to happen, or doing something that is wrong
in itself, or failing to promote some moral good,
comparable in significance to the bad thing that
we can prevent.
 What are the virtues and problems with this strong
account of utilitarianism? (Virtue: low relative
cost; Problem: proximity and connection)
 Adam
Smith’s ‘theory of the invisible hand’ – on
his own philosophical and political account –
required more than price mechanisms to make the
effective and efficient.
 It requires (today) such visible public goods as
viable roads or trains or planes or shipping lanes;
security of the person and property; firms and a
workforce sufficiently educated to use the price
mechanism to make sophisticated judgments
about how best to employ their capital and their
energy.
 In
The Theory of Moral Sentiments, we saw that
Adam Smith articulated a vision of social relations in
which no economy, let alone a capitalist economy,
could get off the ground unless it was underpinned by
a community in which most citizens placed a
significant degree of trust, faith, loyalty, and
confidence in their fellow citizens.
 We require bonding networks and foundational
institutions that inspire trust and mutual respect, so
that we can carry out the instrumental acts that we
engage in through the market.
 Kofi
Annan’s vision for the UN Global Compact is
predicated on similar principles of trust, loyalty,
mutual respect, and compassion.
 That is, a global economy could not survive unless
we saw our neighbours and citizens from other
lands as worthy of mutual respect and
recognizable as ends in themselves.
 The UNGC’s 10 principles emphasizes universal
human rights, non-complicity in abuses, labour
rights, environmental protection and anticorruption.
 The
UNGC’s Decalogue is rather abstract and
remains voluntary.
 However, the 10 principles themselves are drawn from
UN documents (that applied to state action) that
range between 60 and 40 years old.
 Only the application to companies and firms – and
horizontal relationships with other natural and juristic
persons – is dramatically new.
 We saw that while some principles might conflict –
especially in weak-governance zones – those
companies (Pharmakina & VCP) able to secure better
relations with both the communities within which
they operated and the state earned social licenses to
operate.
 Businesses
should
 1. Protect internationally proclaimed rights
 2. Ensure non-complicity in human rights abuses
 3. Uphold freedom of association & collective
bargaining
 4. Eliminate Forced Labour
 5. Abolish Child Labour
 6. Eliminate employment discrimination
 7. Support environmental protection
 8. Promote greater environemental responsibility
 9. Encourage development of environmentally
friendly technology.
 10. Work against corruption (ie, bribery)
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We have seen businesses like Pharmakina, VCP or
BP try to make good on the UN Global Compact:
and do so to a greater or a lesser degree: VCP far
more, BP far less.
But even those companies that seem to satisfy most
of the UNGC tend to struggle in low governance
zones or when the product that forms the core of
their business damages the environment or is based
upon practices that have historically impaired
human rights.
Low governance zones or ‘dirty businesses’ invite
contradictions within the UNGC’s Decalogue.
Why?
What does the collapse of Lehman Brothers, Fannie Mae
and Freddie Mac, the Irish, Icelandic, Spanish & Greek
economies, and behaviour of Goldman Sachs, say about
‘ethics’ in business?
 Should greater emphasis be placed on ethical behaviour
in the marketplace? Is voluntarism likely to motivate
firms to alter their practices?
 Should we instead look to put in place more stringent
legal requirements for lending, borrowing and speculative
trading in the marketplace?
 The Glass-Steagall Rule (US 1930s) barred commercial
banks from taking on excessive risk. FICA -- RSA’s
attempt to limit loans banks could offer by determining
who qualified as a creditworthy client – has largely
protected South Africa from the global meltdown.

 “AIG,
Bear Sterns, Fannie Mae and Freddie Mac
needed government bailouts to survive. Lehman
Brothers is in bankruptcy. Merrill Lynch has been
sold. The shocking meltdowns signals a massive
governance failure… that ignored or failed to see
the level of risk their companies were taking on in
a crusade to enhance results and their own
compensation.” Wharton School, 2008
 The
global meltdown must lead one to be
skeptical, at the very least, of the proposition that
voluntary compliance with good governance codes
are better than, or more effective, than
enforcement of good governance standards
subject to strict statutory or legal compliance.
“South African corporate governance has
been too aggressive in trying to lay down
rules for every situation. Entrepreneurs
are people who do things their own way.
You cannot mould them. They have their
own rules, their own motivation and
culture. Their logic is different. It is
really a matter of thinking differently to
other people.”
26
Who believes that last
statement?
Is that claim any different than
the claim that ‘the party must
be the vanguard of the
proletariat’?
Have entrepreneurs been more
or less successful in preventing
meltdowns due to poor
corporate governance?
‘There is one and only one social responsibility of
business – to use its resources and engage in
activities designed to increase its profits so long as it
stays within the rules of the game, which is to say it
engages in open and free competition without
deception or fraud.’
•
•
Is this statement true? If so, on what grounds?
Or do you think that not only does it fail as an
ethical/legal thesis (when tested against most
accepted ethical frameworks) but that it is
internally or logically inconsistent?
 System
by which Companies are Directed and
Controlled
 Process by which Companies are made responsive
to the Rights and Wishes of Stakeholders
 System of Principles and Practices by which the
Enterprise Directs and Controls Accountability
and Responsibility in terms of Power and
Authority for the Sustainable Performance of the
Enterprise and for the Benefit of its Stakeholders
and the broader Community
 Board
chairman independent non-executive
director (or Lead independent non-executive
director (LID))
 Majority of non-executive directors
 Majority of non-executive directors independent
 Minimum two executive directors (CEO & CFO)
 Non-executive directors no share options
 Risk Management Committee
 Accounting and Auditing Committees
 Integrated Sustainability Reporting Systems
King Code on constructing ethical arguments,
voluntary compliance:
 ‘It is the legal duty of directors to act in the best
interest of the company. In following ‘the apply or
explain’ approach, the board of directors, in its
collective decision-making, could conclude that to
follow a recommendation would not, in the particular
circumstances, be in the interests of the company. The
board could . . . apply another practice and still achieve
the overarching corporate governance principles of (1)
fairness, (2) accountability, (3) responsibility and (4)
transparency.’

 ‘In
addition to compliance with regulation, the
criteria of good governance . . . will be relevant to
determine what is regarded as an appropriate
standard of conduct for the directors. The more
established certain governance practices become, the
more likely a court would regard conduct that
conforms with these practices as meeting the
required standard of care. . . . . Consequently, any
failure to meet a recognized standard of governance,
albeit not legislated, may render a board or a director
liable at law.’ Do you understand how King reaches
this conclusion? Standard practices and duties –
accepted by the community – often become law – as
determined by the courts.
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
7. Purposes: The purposes of Act are to promote compliance
with the Bill of Rights as provided for in the Constitution . . . .
77. Liabilities of Directors and Prescribed Officers: Liability for
breach of (2) fiduciary duty that result in loss, damages or cost;
(3) acting name of company that as a direct or indirect
consequence of director having acted in name incurred loss,
damage or cost; . . . (b) acquiesced in companies’ business
knowing it was prohibited.
78 Indemnification (2)... any provision of an agreement, the
memorandum of incorporation or rules of a company, or a
resolution of a company ... is void to the extent that it directly or
indirectly purports to relieve a director of a duty contemplated
in s 75 or 76; or negate, limit or restrict any legal consequences
arising from an act or omission that constitutes wilful
misconduct or wilful breach of trust on the part of the director.
(3) A company may not ... pay any fine that may be imposed on
the director of a company ...who has been convicted in terms of
any national legislation.
 Section
7 places companies on notice that they are
subject to the Bill of Rights
 Section 77 expands fiduciary duties of directors
 Section 78 attempts to pierce the corporate veil
and ensure the directors place proper systems in
place to monitor behaviour of company by
holding them jointly and severally and directly
liable – without immunization or indemnification
by the company – for breaches of fiduciary duties
and statutory obligations.
Firms should try to meet the triple
bottom line:
 Environmental Protection
 Economic Development
 Community Building
in a manner that will enable the next
generation to enjoy the fruits of
this generation’s labour.
The first thesis holds that the norms meant to cover the
notion of corporate social responsibility (CSR I) fail to
disaggregate the different companies to which the norms
apply and impose on many companies duties that they
cannot possibly discharge.
 Put differently: (a) most companies find themselves under
immense pressure to satisfy domestic and international
codes (as well as voluntary rules set forth by industry
organization) (b) all firms, operating under the
Constitution and the new Companies Act are asked to
protect the environment, to ensure economic growth and
to promote well-being of the communities in which
companies operate, (c), the vast majority cannot – by
design and even with the best intent – make good on the
promise and the premise of CSR I.

 Few
companies actually meet the high threshold
set by the United Nations Global Compact, the
Cadbury Report, the King III Report and the King
Code on Governance Principles: all companies feel
obliged to talk the talk.
 Again, few companies that talk the talk, walk the
walk. For analytical purposes, I have divided the
companies into three different categories: two
categories in which firms primarily talk the talk,
and one category in which firms actually walk the
walk.
 In
the first and largest category, we find the
Greenwashers.
 Such companies commit themselves to following
various codes and consign company funds to ventures
that may or may not diminish carbon footprints, create
new jobs or make the lives of some community
members discernibly better.
 The efforts of such entities do not form a part of core
corporate strategy. Motivations for greenwashing
range from advertising, to reduced government
regulation, to enhanced community relations to esprit
de corp within the firm.
 Most importantly, Greenwashers view CSR I as an
operating cost and not a source of sustainable profit.
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Greenbranders view CSR somewhat differently. CSR is more
than a cost of doing business. From the purveyors of recycled
paper to organic free chickens to ice cream, to couture fashion
to banks that give users an option not to print a paper receipt,
greenbranders believe that their businesses address
environmental, economic and communal concerns.
They consciously attempt to diminish carbon footprints, create
new jobs and making the lives of some community members
discernibly better.
While these efforts form a part of the core corporate strategy,
the scale of triple line profits remains rather small. The primary
benefit of greenbranding often lies with the consumer or end
user of the product or service. They view its purchase as a
means toward contributing to a better world.
The firm’s primary motivation for greenbranding is advertising
(with a modicum of community service). For Greenbranders,
CSR compliance constitutes an operating cost – but an
operating cost that serves the bottom line. To the extent that
CSR efforts form a successful part of a greenbrander’s
marketing campaign, they are a source of sustainable profit.
 Greengrowers,
on the other hand, see CSR as part of
their core business.
 For Greengrowers, profit is to be had by making good
on the often conflicting demands of sustainable
development (environmental protection, economic
development and positive community relations).
 Greengrowers generate new technologies or new
business models that enable them to produce products
and services that consumers want in a manner
consistent with CSR best practices. A global
manufacturer of lead batteries may, as we shall see,
create a market for lead recycled from discarded
batteries.
If
most firms do not have the vision or
the skills to change existing successful
business models, the ability to create
new technologies, or sufficient net free
cash flow to absorb the incremental
costs of complying with the mandates
of CSR, then what are we to make of
the ‘noise’ or the ‘hallabulloo’ about
CSR?
 The
second thesis is that Corporate Social
Responsibility (CSR I) should give way to a
somewhat chastened, but more useful, form of
Company Stakeholder Responsibility (or what
I ultimately call NCSR II).
 NCSR II does not mean that we cannot expect
some companies to fulfil the mandate of CSR
I. Rather companies should do what they are
able to do in the service of all their
stakeholders: from stockholders, to employees,
to communities and to the broader
environment (political, social and natural.)
 Companies
should be ‘nudged’ toward serving the
best interest of all concerned within their capacity
to make such meaningful contributions. So.
 One virtue of CSR II is that it removes the
sometimes rank hypocrisy associated with CSR I.
 A second virtue is that it frees companies to think
creatively about how they might better serve their
stakeholders and removes the need to slavishly
follow codes – or be seen to follow codes – to
which the company is simply not committed.
 The
final virtue is that it restores a belief in the common
good and collective action.
 State intervention need not be a bureaucratic poke in the
eye to business. Regulations – from tax incentives to
greenfields – can actually stimulate the creation of new
technologies and business strategies that serve communities
here and abroad.
 Moreover,
we should not leave ‘nudges’ to the state
alone. If my analysis of the current malaise in
capitalist democracies is correct, then we should
not be caught hoping against hope that the state
will be the only engine for the kind of change that
is necessary for NSCR II to work and the triple
bottom line to be met.

‘Nudges’ can come from various sources: (1) the state; (2)
firms with a self-interest in their own survival over time; (3)
industries and industry partners that recognize a
competitive advantage in sharing technology in order to
survive; (4) non-governmental organizations that tap a
variety of sources for support and conduct independent
research that serves the common good; and (5) the
consumer, who also self-enlightened, but with an interest
in the well-being of the next generation (their children)
seeks solutions in the form of products that both enhance
the planet’s sustainability and secure the standard of living
to which they and their children have become accustomed.
 Most
business enterprises assume that a
market exists for their goods.
 However, built in to that surface assumption
are several additional assumptions: that the
poorest of the poor are not part of the
target market; that the poor cannot be
reached; that the poor have insufficient
resources to make any return on investment
too insignificant to warrant the risk.
 As it turns out these assumptions are largely
incorrect.
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The bottom of the pyramid was worth over 6
trillion dollars (in 2002) – and is worth
substantially more after a decade of massive
growth in India and China.
With a third of the world’s wealth, the bottom
appears to be market sector worth pursuing.
In purchasing power parity (PPP) terms, the nine
major developing countries, including China,
Brazil, South Africa, India and Mexico, constitute
90% of the developing world’s population, with a
GDP in PPP terms larger than the combined GDP
of Japan, Germany, France, Italy and the United
Kingdom in PPP terms. Poorer households will
spend their money on items that seem like luxury
goods.
 In
Prahalad’s view, his new paradigm shift begins
with a simple proposition: if we start thinking of
the poor as ‘resilient and creative entrepreneurs
and value-conscious consumers, a whole new
world of opportunity will open up’.
 His view has led many of the top 200
multinationals to rethink the orthodox view of
doing business with the poor, or in emerging
markets.
 The
UNDP has distanced itself from Prahalad’s
language and taken up the language of ‘Growing
Inclusive Markets’. How much the current
initiative and report owe intellectually to Prahalad
is a matter of debate. What is clear is that UNDP
is using the vast UN family of 23 international
agencies and UN staff in 185 countries, 38 to
create bridges between the international financial
institutions, the private sector and entrepreneurs
in developing countries. The UN seems to
advocate public-private partnerships that are not
solely reliant on market forces. Moreover, these
initiatives are designed to provide ‘public goods’
that large firms are not interested in producing.
 The
impediments that BOP consumers have
to securing access to various goods
sometimes appear insuperable, and certainly
may be large enough to scare off
multinationals who do not wish to invest
significant sums in infrastructure in order to
break through BOP bottlenecks.
 As one critic rightly notes: ‘Companies
cannot simply apply top-of-the-pyramid
marketing and distribution strategies, but
rather must [invent] completely new tactics
to reach the BOP’.
Environmental
Economic
Protection
Development
Community
Participation
The Constitution, s 24, guarantees everyone—
(a) to an environment that is not harmful to their health
or well-being; and
(b) to have the environment protected, for the benefit of
present and future generations, through reasonable
legislative and other measures that—
(i) prevent pollution and ecological degradation;
(ii) promote conservation; and
(iii) secure ecologically sustainable development and use
of natural resources while promoting justifiable
economic and social development.
 In
a judgment concurred in by all of the justices of the
Constitutional Court, save Sachs J, Ngcobo J held that
the Constitution recognises the interrelationship
between the protection of the environment and socioeconomic development. It contemplates the
integration of environmental protection and socioeconomic development and envisages that the two will
be balanced through the ideal of sustainable
development. He held that sustainable development
provides a framework for reconciling socio-economic
development and environmental protection and thus
acts as a mediating principle in reconciling
environmental and developmental considerations.
 According
to Loretta Feris : ‘Sustainable
development has three pillars: ‘(1) sustainable
utilisation of natural resources, (2) the pursuit of
equity in the use and allocation of natural
resources, and (3) the integration of
environmental protection and economic
development. These elements attempt to give
concrete existence to a concept that may be
viewed as elusive and impractical, largely because
the concept involves competing considerations or
normative tensions.’

According to Dire Tladi, ‘The problem with the
Court’s analysis, in my view, begins when the
Court, in connection with section 24 of the
Constitution, makes reference to the ‘explicit
recognition of the obligation to promote justifiable
“economic and social development”’ and links this
notion with the ‘well-being of human beings’ and
‘socio-economic rights’. Precisely what that link
is, the Court never explains or explores.’
‘But the result of this linkage is that, throughout the
judgement, the terms‘ socio-economic rights’,
‘development’ and ‘economic development’ are used
interchangeably as the values that most often oppose
the right to a clean and a healthy environment. At
one point the Court, for example, refers to the
integration of environmental protection
and
economic development. Elsewhere, the Court states
that as a result of sustainable development
‘environmental considerations will now increasingly
be a feature of economic and development policy’.
Further on, the Court states that ‘economic
development, social development and the protection
of the environment’ are considered to be the three
pillars of sustainable development. Finally, the Court
asserts that sustainable development ‘provides a
framework
for
reconciling
socio-economic
development and environmental protection’.
 The
result of treating these concepts as
interchangeable is that the Court never stops to
ask whether the factors that the Fuel Retailers
Association requested that the environmental
authorities consider are socio-economic or
purely economic. To use language from the
common definition of sustainable
development, the Court does not ask whether
these factors are social or economic. The
Court’s judgment implies — incorrectly — that
economic considerations are the same as social
considerations.’
 By
blurring the distinction between social and
economic concerns, our jurisprudence flirts with
the undesirable outcome of preserving the status
quo: namely, paying lip service to sustainable
development and integration. The failure to
distinguish more carefully between these values
facilitates the instrumentalisation of sustainable
development for economic ends.
Corporations have a responsibility to behave ethically,
fairly, accountably, responsibly and transparently for
stakeholders and the broader community. (King)
 Corporations have an obligation to stay within the law.
(Friedman)
 Corporations have a responsibility to abide by
internationally accepted norms. (UNGC)
 Corporations have an obligation to discharge their
negative and positive duties under the Bill of Rights
(Constitution).
 Corporations and their directors must take personal
responsibility – and potentially accept liability – for
their conduct. (Companies Act)
 Companies should strive to meet the triple bottom line.
(King, UNGC, Constitution, Companies Act)
