Transcript Ethics and Environment

The Pistoleros presents
Ethics and Environment
British Money in the Asia Pulp and Paper
Agenda
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Description of the case
Ethical issues at stake
Relevant facts
Decisions to be made
Relevant stakeholders
Effect of the decisions on stakeholders
Moral Reasoning
Organisational culture
Answers
Description of the Case
• Asian Pulp & Paper Company (APP) in
a depressed market with massive
debts.
• Government intervention save them
from bankruptcy in the past.
• Need to continue cutting trees to pay
debts
total deforestation of
Indonesian rainforest.
• British investors and banks have
exposures and interests in APP.
Ethical Issues at Stake
• How accountable should financial institutions
be for the range of actions of their
customers?
• Should banks lend money when it is evident
that such money may be used to support
palpably unethical activities?
• Would a more hard-line approach by the
banks at this stage be devoid of moral worth?
• Should there be more to corporate
environmental responsibility than the desire
to secure long-term profits?
• Should firms take environmental issues
seriously?
Relevant Facts
• APP is in financial distress
• If the current state of resource anarchy
continues, the richest forests on earth
will be destroyed in four years in
Sumatra.
• Indonesian government has kept APP
afloat and it’s now the major creditor.
• An important distinction should be
made between shareholders and debt
holders at APP.
Decisions to be made
1. What to do with the company:
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Keep it afloat as it is (i.e maintain
status quo)?
Keep it afloat and implementing
changes?
Sell the company
2. Measures to be taken to discourage
misconduct and encourage ethical
conduct?
Relevant Stakeholders
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APP’s employees
Shareholders
Debt holders
Local & global community (e.g.
friends of the earth forests)
• Government
How will they be affected?
Stakeholder
APP stays as it is
(chopping trees)
APP disappears
Adoption of
ethical measures
APP’s
employees
☺
X
☺
S/H
☺
☺
X
½
X
½
X
½
☺
☺
X
½
D/H
Local & Global
Community
Government
Moral Reasoning
• Utilitarian Approach
Look for the greatest good for the
greatest number
• Cost- Benefit analysis
– Externalities
– Redundancy costs
– Direct benefits from timber,
paper, etc.
Why is this sound?
Utilitarian conception is sound because:
• We’re making decisions that will affect
a large number of people.
• We’re focusing on the “big picture”, i.e.
the society as a whole.
• The rule is clear and relatively “easy”
to follow: do what benefits the most.
Organisational Culture
• Defined by leadership and
affects decision making.
• Ethical leadership will foster an
ethical culture that will drive
ethical decisions.
Should banks lend money when it is
evident that such money may be used to
support palpably unethical activities?
Lending
Investing
Investment
Approach
Discretionary
Per Mandate
Selection
Criteria
Risk β
Rate of return &
code of ethics
Unethical
Company
Approved
Approved
How accountable should financial
institutions be for the range of actions of
their customers?
1. Financial institutions should develop its
own code of ethics
2. Before signing a deal with a customer the
institution should complete an ethical
review of their customer’s operations to
ensure compliance with its internal code of
ethics.
3. Customers should be continuously
reviewed.
4. Having taken this precautions, the
financial institution should not be held
accountable for its customer’s actions.
Why should firms take
environmental issues seriously?
• Externalities and public good.
• Business landscape requires firms to operate
in a complex & evolving set of economic,
environmental and social challenges &
address stakeholder demands for greater
transparency, accountability and
responsibility.
• To compete successfully, a company needs to
develop responsible business policies &
practices & make them an integral part of its
mission, values, strategy and operations.
Taking environmental issues seriously will
have a positive impact in a firm’s bottom line
& will also benefit public in general.