Transcript Chapter 007 - Ethics & Social Responsibility of Business

CHAPTER 42
ETHICS AND SOCIAL
RESPONSIBILITY
OF BUSINESS
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Ethics
A set of moral
principles or values
that governs the
conduct of an
individual or group.
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Law and Ethics
• Businesses organized in the United States are
subject to its laws and the laws of other
countries in which they operate.
• Businesspersons owe a duty to act ethically in
the conduct of their affairs and not to harm
society.
• Not all ethical standards have been enacted as
law.
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Law and Ethics (continued)
• Law and ethics often coincide.
– E.g., bribery is illegal and unethical.
• Law may permit certain behavior that
seems unethical.
– E.g., law may permit pollution emissions that pose
health risks.
• Law may demand certain conduct that
seems unethical.
– E.g., law prohibits hiring illegal aliens; jobs could
assist destitute workers.
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Law and Ethics (continued)
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Major Ethical Theories
Ethical
Fundamentalism
Utilitarianism
Ethical Relativism
Rawls’s Social
Justice Theory
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Kantian Ethics
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Ethical Fundamentalism
• A person looks to an outside source or a
central figure for ethical rules or commands.
– E.g., the Bible, the Koran, Karl Marx.
• Critics argue that ethical fundamentalism does
not permit people to determine right and wrong
for themselves.
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Utilitarianism
• A person must choose the action or follow the
rule that provides the greatest good to society.
– Origins in work of Bentham and Mill.
– Standard sometimes misstated as “the greatest
good for the greatest number of people.”
• Critics argue that it is difficult to estimate the
“good” that will result from different actions, that
it is hard to apply, and it treats morality as an
impersonal calculation.
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Kantian Ethics
• A person owes moral duties based on
universal rules.
• Premise that people can use reasoning to
reach ethical decisions.
• People should employ categorical
imperative: “Do unto others as you would
have them do unto you.”
– E.g., keeping a promise to abide by a contract
is a moral duty, even if the contract turns out
to be detrimental to the obligated party.
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Kantian Ethics (continued)
•
Universal rules are based on two important
principles:
1. Consistency – all cases are treated alike
with no exceptions.
2. Reversibility – the actor must abide by the
rule he or she uses to judge the morality of
someone else’s conduct.
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Kantian Ethics (continued)
• If one is to make an exception for himself, that
exception becomes a universal rule that applies
to all others.
• Critics argue that it is hard to reach a consensus
as to what the universal rules should be.
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Rawls’s Social Justice Theory
• A person has a social contract with all others in
society to obey moral rules that are necessary
for people to live in peace and harmony.
– Origins in work of Locke and Rousseau.
– Rawls was modern proponent.
• Fairness is the essence of justice.
• The least advantaged must receive special
assistance to allow them to reach their potential.
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Rawls’s Social Justice Theory (continued)
– 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.
• E.g., the principle of equal opportunity in
employment would be promulgated by people
who would not yet know if they were in a
favored class.
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Rawls’s Social Justice Theory (continued)
•
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
• A person must decide what is ethical based on
his or her own feelings as to what is right or
wrong.
• 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 (continued)
• Critics argue that actions widely regarded as
unethical (e.g., fraud), seen as ethical under this
theory, depending on perpetrator’s viewpoint.
• Few philosophers advocate ethical relativism as
an acceptable moral theory.
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Summary of Theories
Theory
Description
Persons look to an outside source or
Ethical
fundamentalism central figure for ethical guidelines.
Persons choose the alternative that
Utilitarianism
would provide the greatest good to
society.
A set of universal rules establishes
Kantian ethics
ethical duties. The rules are based on
reasoning and require (1) consistency
in application and (2) reversibility.
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Summary of Theories (continued)
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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Social Responsibility of Business
• Decisions made by business have far-reaching
effects on society.
• In the past, many business decisions were
made solely on a cost-benefit analysis.
– “Bottom line” impact.
• Such decisions may cause negative
externalities for others.
• Corporations owe some degree of social
responsibility.
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Theories of Social Responsibility
Maximizing
Profits
Moral
Minimum
Corporate
Citizenship
Stakeholder
Interest
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Maximizing Profits
• Theory that a corporation’s duty is to take
actions that maximize profits for shareholders.
• The interests of other constituencies are not
important in and of themselves.
• Friedman: “…one and only social responsibility
of business—to use its resources and engage in
activities to increase its profits as long as it stays
within the rules of the game…”
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Moral Minimum
• Theory that 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.
• Laws enforce some moral minimum of social
responsibility on corporations.
– E.g., occupational safety laws.
– E.g., consumer protection laws for product safety.
– E.g., Sarbanes-Oxley Act.
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Sarbanes-Oxley Act
• Passed in response to financial fraud scandals
of late 1990s, early 2000s.
• Civil and criminal liability.
• Goal of compelling public companies to act
ethically in dealings with shareholders,
employees, other constituents.
• Public companies must disclose whether they
have a code of ethics. In response, many
companies have adopted such codes.
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Stakeholder Interest
• Theory that a corporation must consider the
effects its actions have on persons other than
its stockholders.
– E.g., employees, suppliers, customers, creditors,
local community.
• Critics argue that it is difficult to harmonize the
conflicting interests of stakeholders.
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Other Stakeholders of a Business
Employees
Suppliers
Customers
Creditors
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Local
Community
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Corporate Citizenship
• Theory that a business has a responsibility to do
good.
• Business is responsible for helping to solve
social problems, even those it did not cause.
• Corporations owe a duty to promote the same
social goals as do individual members of society.
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Corporate Citizenship (continued)
• Theory argues that corporations owe a debt to
society to make it a better place.
– 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.
– E.g., corporate funds are limited.
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Summary of Theories
Theory
Maximizing profits
Social Responsibility
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.
Stakeholder interest
Corporate citizenship To do good and solve social problems.
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Corporate Social Audit
• Idea that audits should be conducted not
only of financial health of corporation, but
also of its moral health.
• Examine whether corporation has adhered
to code of ethics and met duty of social
responsibility.
• May be difficult to define, measure results
in practice.
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Procedures for Social Audit
• Employ independent, outside auditor.
• Demand cooperation of company
personnel with auditing firm during audit.
• Auditor reports findings directly to board of
directors.
• Board reviews results and implements
program to correct any deficiencies found.
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