Transcript Chapter 006 - Ethics & Social Responsibility of Business

PowerPoint Slides to Accompany
ESSENTIALS OF BUSINESS AND
ONLINE COMMERCE LAW
1st Edition
by Henry R. Cheeseman
Chapter 6
Ethics and Social Responsibility
of Business
Slides developed by
Les Wiletzky
Copyright © 2006 by Pearson Prentice-Hall. All rights reserved
Introduction
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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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Ethics
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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
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The law may permit something that would be
ethically wrong
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Law and Ethics
Law
Ethics
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The Caux Round Table Principles for
International Business (1 of 2)
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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)
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Principle 4 Respect for Rules
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Principle 5 Support for Multilateral Trade
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Principle 6 Respect for the Environment
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Principle 7 Avoidance of Illicit Operations
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Moral Theories and Business Ethics:
Ethical Fundamentalism
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Ethical fundamentalism - When a person
looks to an outside source for ethical rules or
commands
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Critics argue that ethical fundamentalism
does not permit people to determine right and
wrong for themselves
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Moral Theories and Business Ethics:
Utilitarianism
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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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Moral Theories and Business Ethics:
Kantian Ethics (Duty Ethics)
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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:
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“Do unto others as you would have them do
unto you.”
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Moral Theories and Business Ethics:
Rawls’s Social Justice Theory (1 of 3)
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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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06 - 10
Moral Theories and Business Ethics:
Rawls’s Social Justice Theory (2 of 3)
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Rawls’s Distributive Justice Theory
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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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06 - 11
Moral Theories and Business Ethics:
Rawls’s Social Justice Theory (3 of 3)
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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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06 - 12
Moral Theories and Business Ethics:
Ethical Relativism (1 of 2)
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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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Moral Theories and Business Ethics:
Ethical Relativism (2 of 2)
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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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Theories of Ethics – Summary (1 of 2)
Theory
Description
Ethical
fundamentalism
Persons look to an outside source or central
figure for ethical guidelines.
Utilitarianism
Persons choose the alternative that would
provide the greatest good to society.
Kantian ethics
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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Theories of Ethics – Summary (2 of 2)
Theory
Description
Rawls’s social
justice theory
Moral duties are based on an implied social
contract. Fairness is justice. Rules are
established from an original position.
Ethical relativism
Individuals decide what is ethical based on
their own feelings as to what is right or
wrong.
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Business Ethics:
Sarbanes-Oxley Act of 2002
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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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United Nations Code of Conduct for
Transnational Corporations
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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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The Social Responsibility of Business
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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
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A theory of social responsibility that says a
corporation owes a duty to take actions that
maximize profits for shareholders
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The interests of other constituencies are not
important in and of themselves
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Moral Minimum (1 of 2)
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A theory of social responsibility that says a
corporation’s duty is to make a profit while
avoiding harm to others
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As long as business avoids or corrects the
social injury it causes, it has met its duty of
social responsibility
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Moral Minimum (2 of 2)
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The legislative and judicial branches of
government have established laws that
enforce the moral minimum of social
responsibility on corporations:
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e.g., Occupational safety laws
e.g., Consumer protection laws for product
safety
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Stakeholder Interest
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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
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Other stakeholders of
business:
Employees
Suppliers
Customers
Creditors
Local community
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Corporate Citizenship (1 of 2)
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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)
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This theory argues that corporations owe a
debt to society to make it a better place
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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.
Stakeholder interest
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
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06 - 27
The Corporate Social Audit (1 of 2)
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Corporate audits should be extended to
include the moral health of the corporation
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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)
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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
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Such audits would focus 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)
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An independent outside firm should be hired to conduct
the audit
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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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06 - 30
Company Procedures for Conducting a
Social Audit (2 of 2)
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The results of the audit should be reviewed by the
company’s board of directors
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The board of directors should determine how the
company can:
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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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