Transcript Chapter 007 - Ethics & Social Responsibility of Business

PowerPoint Slides to Accompany
BUSINESS LAW
E-Commerce and Digital Law
International Law and Ethics
5th Edition
by Henry R. Cheeseman
Chapter 7
Ethics and Social
Responsibility of Business
Slides developed by
Les Wiletzky
Wiletzky and Associates, Puyallup, WA
Copyright © 2004 by 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.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7-2
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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7-3
Moral Theories and Business Ethics
Ethical
Fundamentalism
Utilitarianism
Ethical Relativism
Rawls’s Social
Justice Theory
Kantian Ethics
Copyright © 2004 by Prentice-Hall. All rights reserved.
7-4
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.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7-5
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.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7-6
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.”
Copyright © 2004 by Prentice-Hall. All rights reserved.
7-7
Kantian Ethics (Duty Ethics) (continued)

Deontology’s 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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7-8
Kantian Ethics (Duty Ethics) (continued)
Thus, if you are going to make an exception
for yourself, that exception becomes a
universal rule that applies to all others.
 A criticism of this theory is that it is hard to
reach a consensus as to what the universal
rules should be.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7-9
Rawls’s Social Justice Theory

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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 10
Rawls’s Social Justice Theory
(continued)

Rawls’s Distributive 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.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 11
Rawls’s Social Justice Theory
(continued)

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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 12
Ethical Relativism
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.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 13
Ethical Relativism (continued)

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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 14
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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 15
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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 16
The Social Responsibility of Business
Business does not operate in a vacuum.
 Decisions made by business have farreaching effects on society.
 In the past, many business decisions were
made solely on a cost-benefit analysis.


“Bottom line” impact.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 17
The Social Responsibility of Business
(continued)
Such decisions may cause negative
externalities for others.
 Corporations are considered to owe some
degree of social responsibility for their
actions.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 18
Ethics Brief
Corporations that conduct social
audits will be more apt to prevent
unethical and illegal conduct by
managers, employees, and agents.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 19
The Social Responsibility of Business
(continued)
Ethics is a function of history, culture,
religion, and other factors.
 Therefore, ethical standards vary from
country to country.
 The Caux Round Table promulgated an
international ethics code called the Principles
for International Business.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 20
The Caux Round Table Principles:

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
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 21
The Caux Round Table Principles: (continued)

Principle 3 Business Behavior: Beyond the
Letter of Law Toward a Spirit of Trust

Principle 4 Respect for Rules

Principle 5 Support for Multilateral Trade

Principle 6 Respect for the Environment

Principle 7 Avoidance of Illicit Operations
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 22
Theories of Social Responsibility
Maximizing
Profits
Corporate
Citizenship
Copyright © 2004 by Prentice-Hall. All rights reserved.
Moral
Minimum
Stakeholder
Interest
7 - 23
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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 24
Moral Minimum

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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 25
Moral Minimum (continued)

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

Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 26
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.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 27
Other Stakeholders of a Business
Employees
Suppliers
Customers
Creditors
Local
Community
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 28
Corporate Citizenship
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.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 29
Corporate Citizenship (continued)

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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 30
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
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 31
The Corporate Social Audit

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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 32
The Corporate Social Audit (continued)

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.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 33
The Corporate Social Audit (continued)

Such audits would focus on the corporation’s
efforts to:
Promote employment opportunities for
members of protected classes
 Worker safety
 Environmental protection
 Consumer protection

Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 34
The Corporate Social Audit (continued)
Companies should institute the following
procedures when conducting a social audit:
 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.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 35
The Corporate Social Audit (continued)
Procedures for conducting the audit (continued):
 The auditing firm should report its findings
directly to the company’s board of directors.

The results of the audit should be reviewed
by the company’s board of directors.
Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 36
The Corporate Social Audit (continued)
Procedures for conducting the audit (continued):
 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.

Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 37
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

Copyright © 2004 by Prentice-Hall. All rights reserved.
7 - 38