Transcript Chapter 007 - Ethics & Social Responsibility of Business

Chapter 42
Ethics and Social
Responsibility of
Business
Law and Ethics
 Ethics: A set of moral principles or values that
governs the conduct of an individual or group
 Rule of law and rule of ethics may demand the same
response
 Law may permit an act that is ethically wrong
 Law may demand certain conduct, but person’s
ethical standards are contrary
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Law and Ethics
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Moral Theories of Business Ethics
Ethical
Fundamentalism
Utilitarianism
Ethical Relativism
Rawls’s Social
Justice Theory
Kantian Ethics
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Ethical Fundamentalism
 A person looks to an outside source or a central figure
for ethical rules or commands
 This maybe a book or a person
 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 works of Bentham and Stuart
 It has been criticized because:
 It is difficult to estimate the “good” that will result
from different actions
 It is hard to apply
 It treats morality as an impersonal calculation
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Kantian Ethics
 A person owes moral duties based on universal rules
 The rules are based on two principles:
 Consistency—All cases are treated alike
 Reversibility—Actor must abide by the rule he or
she uses to judge the morality of someone else’s
conduct
 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
 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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Rawls’s Social Justice Theory
 Two major criticisms of this theory:
 Establishing the blind “original position” for
choosing moral principles is impossible in the real
world
 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
 Critics argue that actions widely regarded as
unethical, would be seen as ethical under this theory,
depending on perpetrator’s viewpoint
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Summary of Moral Theories
Theory
Ethical
fundamentalism
Description
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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Summary of Moral Theories
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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Social Responsibility of Business
 A theory that requires corporations and businesses to
act with awareness of the consequences and impact
that their decisions will have on others
 Corporations and businesses are considered to owe
some degree of responsibility for their actions
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Theories of Social Responsibility
Maximizing
Profits
Moral
Minimum
Corporate
Citizenship
Stakeholder
Interest
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Maximizing Profits
 Corporation owes a duty to take actions that
maximize profits for shareholders
 Interests of other constituencies are not important in
and of them
 Milton Friedman, who won the Nobel Prize in
economics, advocated the theory of maximizing
profits for shareholders
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Case 42.1: U.S. Supreme Court Business Ethics
 Case
 Walmart Stores, Inc. v. Samara Brothers, Inc.
 529 U.S. 205, 120 S.Ct. 1339, 146 L.Ed.2d 182,
Web 2000 U.S. Lexis 2197
 Supreme Court of the United States
 Issue
 Must a product’s design have acquired a secondary
meaning before it is protected as trade dress?
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Moral Minimum
 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
 Legislative and judicial branches of government have
established laws to enforce moral minimum
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Sarbanes-Oxley Act
 Companies must disclose whether they have a code of
ethics for senior financial officers
 Compelling public companies to act ethically in
dealings with shareholders, employees, and other
constituents
 Makes certain conducts illegal and establishes
criminal penalties for violations
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Stakeholder Interest
 Corporation must consider the effects its actions have
on persons other than its shareholders
 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
Local
Community
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Case 42.2: U.S. Supreme Court Corporate
Political Speech and Ethics
 Case
 Citizens United v. Federal Election Commission
 130 S.Ct. 876, 175 L.Ed.2d 753, Web 2010 U.S.
Lexis 766 (2010)
 Supreme Court of the United States
 Issue
 Do the challenged federal restrictions on campaign
financing and electioneering violate the free
speech rights of Citizens United?
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Corporate Citizenship
 Business has a responsibility to do good
 A major criticism of this theory is that the duty of a
corporation to “do good” cannot be expanded beyond
certain limits
 Corporate social audit: Examines how well
employees have adhered to the company’s code of
ethics and how well the company has met its duty of
social responsibility
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Summary of Theories of Social Responsibility
Theory
Maximizing profits
Social Responsibility
To maximize profits for
stockholders.
To avoid causing harm and to
Moral minimum
compensate for harm caused.
To consider the interests of all
Stakeholder interest
stakeholders, including
stockholders, employees,
customers, suppliers, creditors, and
local community.
To do good and solve social
Corporate
problems.
citizenship
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